By Satish Kanady
DOHA: While the share of non-hydrocarbon output in GDP has increased steadily in many GCC countries, the export diversification of these countries, including Qatar, has been very limited, according to IMF.
The GCC countries have been implementing many policies to support economic diversification, including reforms to strengthen the business environment, develop infrastructure, increase financing for companies and SMEs. But these countries need to further accentuate their diversification programme to make their economies less reliant on volatile hydrocarbon revenues, a latest discussion note released by the Fund on “Economic diversification of GCC” stated.
Further diversification would create high-value-added private sector jobs for the GCC nationals, and would establish the non-oil economy that will be needed when oil reserves are eventually exhausted, IMF noted.
However, the diversification programme of GCC economies is doing better than some international economies. International experience shows that diversifying away from oil is very difficult. A number of key obstacles often hinder diversification, including the economic volatility that is induced by reliance on oil revenues, the corroding effect that oil revenues have on governance and institutions, and the risks that oil revenues lead to overvalued real exchange rates.
The Fund noted that though the environment for exporters has improved in the GCC, the intraregional trade within the GCC remains limited.
In comparison with dynamic emerging market and developing countries EMDCs, the number of documents required to export is relatively lower in Qatar, Saudi Arabia, and the United Arab Emirates, but is higher in Bahrain, Kuwait, and Oman.
A sizable share of FDI inflows into the GCC has not been associated with improvements in export quality and sophistication. Based on available sectoral FDI data, only 4 percent (in 2011) of FDI inflows to Qatar went to trade-related activity.
Some 20 percent of FDI inflows to Saudi Arabia (in 2010) were concentrated in the chemicals and refined petroleum products activities, and another fifth went to construction.
In the United Arab Emirates (2011) one-fifth of FDI inflows targeted the construction sector, another one-fifth targeted the finance sector, and 10 percent targeted wholesale and retail trade . FDI in these sectors, while welcome, has not led to technology transfers that could support increased export quality or sophistication.
The Peninsula
