An inevitable transformation: The economic diversification to cope with the vagaries of the oil market on the Arab countries

1 أبريل,2016

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Arab region experiencing many challenges that heavily affected on the structure of its economy and formed a barrier to the available opportunities of growth for these economies as a result of a number of imbalances which affected important sectors of the economy.
The most important problems that brought the Arab economies to this case is the rentier composition of the , especially in the oil -producing countries that rely mainly on oil in the construction of their economies and their sources of income by more than 90 %; what made these countries vulnerable to economic crises and falling of its revenues and thus the absence of development.
In a serious step towards diagnosis of glitches in the Arab economies, the participants in the fifteenth annual conference of the Organization of economists of Middle East which concluded in Doha , Qatar , confirmed the need to diversify the economy to absorb external shocks that have affected negatively on the balance sheets and cash reserves of the Gulf.
The collapse of oil prices to record levels since 2014 was the biggest impact on the vulnerability of the economy of the Arab region, particularly the GCC countries, to the economic shocks and the erosion of its revenues, especially after the decline of oil prices to the bottom at the beginning of this year and the price of a barrel of oil recorded to the lowest level in 12 years , which is $ 27, which served as an alarm bell that pushed the governments and experts to search for new mechanisms to cope with these shocks.
According to economic data to the Arab GDP nearly 2.8 trillion dollars, or 3.8 percent of global GDP. The Output of the GCC countries is estimated at $ 1.7 trillion , or 61 percent of the GDP of the Arab countries.
The report , issued by the Gulf Organization for Industrial Consulting (Guek) that the adoption of the GCC countries on the growth in non – oil sectors – is of about 3% each year – to compensate for the decrease in oil revenues, “this figure does not cover the rate of population growth, and it is also unsustainable because the momentum of growth in those sectors has always been driven by oil surpluses that provides funding for its investments on the one hand, and secure the purchasing power of their products on the other.”
the real need for the economic diversity in the region came as a result of the fluctuation of oil prices , which are closely linked to the political, security and economic events in the region and the world, therefore the Arab economy derives its strength from the oil and gas, which has become in a subsequent period , one of the causes for its weakness and fragility.
For the non – oil Arab countries, the problem lies in the fiscal policy aimed at human capital building and the proper infrastructure noting that it must lay the foundations for successful economic diversification and attempt to reduce its dependence on foreign aid , which makes them dependent and unable to build a solid base economies.
on the following the nature of the Arab economies , it was noted a defect in the overall economy of their countries, the problems stem from the integration of the oil with the overall economy. One study suggests that if we exclude oil from these economies , it will make clear to us that the Arab economic growth rate does not exceed 2 or 3% at most.
In the wake of the recent oil boom, the Arab oil -producing countries, especially the Gulf countries resorted as a way to diversify their sources of income to invest in funds sovereign wealth. It includes several boxes of huge holdings of cross-border assets. Although investing through sovereign funds helped to reduce the impact of the global economic crisis, and the volatility of oil prices on the concerned countries , it was necessary to emphasize the importance of real economic diversification.
The Gouda Abdel Khalek , professor of economics at Cairo University, during the conference that the flexibility in economic policy requires Gulf states should consider linking their currencies to a basket of currencies instead of the dollar only, and the need for the countries in the region, especially the Gulf countries to put organizational regulations to control the movement of the capital in the capital markets in the region, most notably with regard to the entry of capital from abroad and also its exit , because the current situation threatens the financial markets to be hit by the significant effects of any external shocks.
He pointed out that experts have confirmed during the conference on the need for the development of education in the region, in order to build an economy based on the knowledge, with the need to develop the knowledge production and technological innovations , pointing out that the diversification of education is the way towards the diversification of the economy.
Dr. Hassan Ali , Head Economist Association Middle East, summed up the trends of the discussions witnessed by the Conference at the subject matter of the of the diversification of the economy and stressed that the most important thing that was highlighted by speakers and experts at the conference is the need for the development of education in the region in order to build an economy based on the knowledge , with the need to develop the knowledge production and technological innovations . He explained that the diversification of education is the way towards the diversification of the economy.
He believed that one of the underlying strengths of the economies of the Gulf countries has become a challenge today because of the poor to take advantage of it, and this factor is the availability of the possibilities of attracting an unlimited number of labor, an important factor in the ability to diversify the economy.
in fact , it must be stressed that the Arab region ‘s economies today are facing major challenges, especially the oil -producing countries, they are interested in diversifying its economy to promote growth in the right shape, and correct the imbalances, and the creation of sustainable jobs to cope with the high increase in the size of the labor force.
the pursuit of Arab countries to diversify its economies has many positive results that can be summarized as follows :.
• access to global markets with a potential of the competition as a result of this diversity.
• reduce the volatility of economic growth, which encourages private investment in multiple sectors of the economy.
• reduce unemployment, where there must be a real partnership between the private and public sectors and not rely on the public sector, and the creation of appropriate employment opportunities for researchers to it . The experience of the rich countries with sources around the world indicates on the importance of investing in human capital and strengthening of institutions to achieve economic diversification.
• the diversification in the manufacturing and service sectors with high added value provides a lot of opportunities for the export of new products rather than exporting the same products in a more intense image.
• open the door to more investment in the technology sector and the introduction of the developed industries that are of much benefit to the economy as a whole.
We conclude to say that the world today is ready to receive the “fourth industrial revolution” and keep up with the rapid developments, so the continuation of the Arab economies to rely on oil alone will not be able in the future to catch up with the developed world, and will not be able to achieve their development goals , especially if oil prices continue at current levels or if tumbled again, and in the absence of political and security stability and turning the region into a hotbed closed conflicts, and lost a lot of sources of its additional income due to the control of terrorism on large areas of some countries, this news has become a source of concern for everyone, here ‘s a growing need for diversification and economic openness to the world to stop the bleeding of these economies that got burned by fire, terrorism , conflicts , which affected all aspects of the Arab economies, which promotes the idea of researching and developing other sources for their economies.