September 26, 2016

Economic Diversification Plans: Challenges and Prospects for Gulf Policymakers

International Monetary Fund Managing Director Christine Lagarde, center, meets with Gulf Cooperation Council finance ministers in Doha, Qatar on November 8, 2015. (AP Photo/Osama Faisal)
by Kristian Coates Ulrichsen

This paper puts the attempts by Gulf Arab states and Iran to launch large-scale development programs into historical and comparative context. Strategic “visions” have been a hallmark of regional policymaking for more than two decades but persistent difficulties in implementation have meant that the plans have fallen far short of intended outcomes. By focusing on the practical and political challenges of technocratic and economic reforms, using specific examples to illustrate broader thematic points, this paper analyzes what the current generation of officials need to do differently to secure more favorable and sustainable results. Although the prolonged fall in oil prices has provided officials with a window of opportunity to introduce politically and economically sensitive reforms, the urgency of the fiscal pressures on budgets on both sides of the Gulf means there is little margin for error, and it is vital that decision makers absorb the lessons from the flawed earlier attempts at reform.

The AGSIW Visions of Change Series

As Gulf Arab governments adjust to fiscal deficits driven by lower oil prices, the state, traditionally the leader in economic development, is under pressure to utilize available finance from the private sector. In labor markets, the state will need to reassess its role in providing the bulk of job creation for Gulf citizens, as well as question its reliance on low-wage foreign labor. These recalibrations of the Gulf economic development model have been under discussion in the “visions” of national development plans for some time. But the necessity of expeditious structural reforms is now far more pressing. Diversification away from resource-dependent state spending will require changes across the economies, and the societies, of the Gulf Arab countries. 

This paper is a part of AGSIW’s Visions of Change series, examining how the Gulf Arab countries are addressing reduced hydrocarbon revenue and responding to pressures to liberalize their economies. This series engages how these efforts are unfolding across the region, by sector and country, to underline the challenges, opportunities, and risks of innovation and economic change.