The past 50 years have seen unprecedented modernization and growth among the oil-rich Gulf Cooperation Council countries, which today rank among the world leaders in per capita income. However, GCC leaders recognize that oil resources alone cannot sustain economic prosperity over the long term, and are thus seeking to create diversified economies that generate income from a variety of thriving industries.

What are the major challenges and roadblocks facing Gulf policymakers as they seek to diversify their economies away from oil revenue? What are the most promising opportunities for private sector growth and innovation? Are the GCC countries able to create a national workforce to meet the needs of a diversified economy? How does the introduction of new taxes and fees, however incremental, change the relationship between citizen and state in the GCC?

This AGSIW panel addressed these issues and more, with a distinguished group of experts from across the GCC.

Panelists:

Fahad Al-Kuwari, Senior Energy Policy Analyst, Qatar Petroleum

Ihsan Ali Bu-Hulaiga, Founder, Joatha Consulting

Karen E. Young, Senior Resident Scholar, AGSIW (Moderator)

Ihsan Bu-Hulaiga started the discussion mentioning that all GCC members have challenging visions that diverge in orientation. These countries need to maintain sustainable growth, reduce high unemployment rates by employing locals, and diversify their economies away from oil. He mentioned that the investment climate for the private sector as well as the levels of cooperation between the six GCC members are the main challenges to be tackled to implement reforms. Turning his attention to Saudi Arabia, Bu-Hulaiga emphasized that the Saudi government is highly committed to Vision 2030, apparent in royal speeches and government initiatives to support investment, but called for private sector involvement in reforms via partnerships, instead of procurement, to benefit from the opportunities that the vision will yield. GCC countries cannot afford to make costly unsustainable plans; as such, he believes that economic and fiscal policies throughout the GCC states will converge over time.

Omar Al-Ubaydli argued that the obstacle to reform in the GCC states is citizens and policymakers failing to acknowledge that refusal of reforms, without suggesting alternatives, is not a viable option. He stated that GCC governments implement reforms differently because they have different goals. However, they agree on skill provisions, connecting educational outcomes with private sector needs, and providing more jobs for nationals. Labor markets in the GCC states are homogenous; governments have started transforming them and solving irregularities by generating revenue from taxes and fees on expatriates, cracking down on undocumented workers, as in Bahrain, and mandating that some employers employ only citizens, as in Saudi Arabia. Al-Ubaydli believes that the biggest distortion of labor markets is high public sector salaries, which hurts the private sector. To make the private sector thrive, Al-Ubaydli asserted that governments should reduce public sector wages, which would induce nationals to work in the private sector. Instead of laying people off, he suggested that furloughs could be done in the short term, and pay freezes and allowance reductions would decrease real wages in the long term.

Fahad Al-Kuwari stated that the biggest challenge that the GCC faces is the dependence on oil, a commodity with a volatile market. As a Qatari, he believes that improving education is the best way to diversify the economy in the long term, since it will make Qataris more competitive globally. Public sector wages are a common concern for GCC governments, since they are part of the social contract between the ruler and the people. Al-Kuwari suggested that increasing productivity could be done through incentivizing rather than cutting wages or disciplining. He used Qatar as an example where higher wages led to an increase in productivity and generated a sense of responsibility to serve the country, especially among youth who feel they are able to replace foreigners in highly technical jobs.