Gulf economies need to diversify and reduce dependency on oil
Bahrain needs to maintain its power as the financial centre of the Middle East in order to become completely diversified besides reducing its dependence on oil revenues, according to a leading expert.
GCC economies including Bahrain needed to strengthen their knowledge economies and make efforts to reduce high unemployment rates, said a former senior adviser to the Saudi petroleum and mineral resources minister.
"Bahrain has been well diversified from day one," Mohammad Al Sabban told our sister newspaper, the Gulf Daily News. "
The country needs to maintain its power as a financial centre, given fierce competition from different regional centres.” "Bahrain needs to place emphasis on that in order to diversify more," he said. He made the comments during a lecture on "The future of oil and new energy sources" at the International Institute of Strategic Studies.
The end of the oil era may be near and GCC countries will experience a gradual deterioration in oil revenue, he said. "We can't wait until the physical depletion of oil before we announce the end of the oil era," he said.
Continued growth of demand from emerging economies such as China is fuelling higher demand for oil. However, there have been changes in the consumption patterns of these countries, he said, in order to mitigate the effects of climate change as well as energy security.
"There is a saying that even if the demand for oil in developed countries continues to decline, demand for oil in emerging economies will continue to rise," said Al Sabban. "This will not continue for a long time." Countries around the world are adopting alternative energy sources such as bio-fuels and electric cars to reduce their oil dependency, he added.
"There is a strong call by the G20, G8 and the Rio Summit to phase out fossil fuels," he said. "Once this begins to happen especially in developing countries, it will have a huge impact on the consumption of fossil fuels, especially oil." GCC governments will have to accept the fact that the demand for oil will not continue to grow in the coming years and the issue will have to be addressed soon.
He said that the GCC governments were not doing enough to wean themselves from oil dependence.
"There are unsustainable consumption and production patterns in the region," said Al Sabban. Employing oil revenues to finance economic development in the region as well as pay wages to the workforce is a dangerous trend, he warned.
In order to mitigate the risks of economies inter-linked with the fortunes of global demand and supply of oil, a few key measures needed to be adopted. Sovereign wealth funds in the region need to be given more weight.They were in need of better management as well as transparency, he said. GCC countries also needed to move towards knowledge economies.
"Education is the key," he said. "We still have poor education systems in the GCC countries."
Unemployment in the region needed to be tackled and the existing subsidies system needed reviewing. "The system of giving subsidies to the public will not create any new productive results," said Al Sabban.
"All countries are very serious about reducing their dependence on imported oil and in particular, oil from this area," he said. "GCC countries need to be equally serious about reducing their dependence on revenues from oil exports and explore investment options in renewables such as solar energy," he added.