Oil-producing Gulf states squandered the opportunity to make much needed economic reforms when high oil revenues would have made the task easier. Now, reduced oil revenues and global economic uncertainty make it imperative that they develop competitive, diversified economies, concludes a new paper from the Carnegie Middle East Center.
Ibrahim Saif explains that the top priority for the Gulf Council Cooperation (GCC) countries—Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, and the UAE—should be improving economic governance to better manage existing oil revenues and attract foreign direct investment (FDI). With a comfortable cushion of foreign reserves, the risks for short-term instability is low; however, the current system of low taxes and generous public spending is unsustainable.
Recommendations for GCC countries:
- Improve minimum wage standards and working conditions to attract more domestic employment and reduce dependence on immigrant labor.
- Regionally concentrate on growth in non-oil sectors to avoid duplication in areas like finance and tourism.
- Encourage foreign direct investment through better economic and corporate regulation, including greater transparency in public spending and easier access to credit.
“Despite nearly six years in which high oil revenues created favorable macroeconomic conditions in the GCC countries, they were still not able to tackle their long-term economic challenges. The oil windfall actually pushed back attempts to address these challenges, and the global financial crisis has reminded GCC policymakers that structural challenges must be addressed at a time when macroeconomic conditions are favorable and not when the economies are slowing down.”