Study: GCC to Break Free From Hydrocarbons by 2050

Published August 2nd, 2018 - 11:20 GMT
A new report predicts that regional economies will have weaned themselves off oil by 2050. (Shutterstock)
A new report predicts that regional economies will have weaned themselves off oil by 2050. (Shutterstock)

GCC countries will finally achieve the goal of diversifying their economies away from oil over the next three decades, according to a report from Fitch Solutions, part of the New York-based group that owns the credit rating agency of the same name.

In a study that looks at major global trends through to 2050, Fitch also predicted growing Chinese and Asian economic and military influence in the region with India also expected to play a bigger role.

Additionally, the report flagged up the regional dangers of high youth unemployment and burgeoning populations that would ramp up the number of people struggling to find work and possibly lead to more popular upheavals of the type seen in countries such as Egypt and Tunisia in 2011.

But the outlook for the GCC was more upbeat. The report said that there would be “progress at last” as the GCC nations — Saudi Arabia, UAE, Kuwait, Qatar, Oman and Bahrain — made tangible strides toward economic diversification.

“We are now turning more optimistic toward the diversification of the bloc, especially given the publication, and apparent commitment thus far, to ambitious diversification plans,” Julie Beckenstein, head of Sub-Saharan Africa and Middle East at Fitch Solutions, told Arab News.

She said that while there were some risks that recovering oil prices could reduce the impetus to reform, demographic change would act to push forward diversification. Large youthful populations entering the workforce would incentivise continued progress toward reform, she said.

Beckenstein added: “We are seeing the ascension to power of a new generation of leaders across the region, with the promotion to Crown Prince of Mohammed bin Salman (32) in Saudi Arabia, Sheikh Tamin bin Hamad Al-Thani (37) coming to power in Qatar (and the rise of) Abu Dhabi Crown Prince Mohammed bin Zayed Al-Nahyan (57).

“These leaders have shown commitment to reform, even if that involves going against other members of the political and religious establishments. Given their young ages, we believe that their reforms will have a long-term impact of the trajectory of the region,” she said.

Over the longer term, she believed that investments carried out in physical infrastructure and human capital would begin to reap dividends, particularly in heavy and primary industries, and health care and trade.

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Nevertheless, “decades of sustained policy efforts and a coordination of public and private efforts would be needed to achieve the GCC’s stated objectives,” said the report. Investment in quality education would also be crucial.

Outside the GCC, the report said that social and political stability would be highly contingent on governments’ ability to address the region’s demographic challenges. The MENA region has a combined population of 443 million and by 2050, the UN forecasts that it will reach 654 million.

“Weak job creation in the region – an issue which is disproportionately hitting the youth – remains a key cause for concern. Very few, small states, such as Qatar, Kuwait and the UAE are escaping the curse of high youth unemployment, which is otherwise as high as 48.7 percent in Oman.”

Insufficient job creation carried significant risks for social stability across the region. Iraq and Egypt stood out as particular concerns as, “given the sheer size of their populations, large-scale popular unrest would carry significant regional implications.”

Fawaz Gerges, professor of international relations at the London School of Economics said there was an “organic relationship” between youth unemployment and political and social instability. Lack of jobs was also a “driver for extremism,” he said.

Gerges said: “With jobless rates higher than 35 percent in countries such as Tunisia and Jordan, youth unemployment is the most pressing challenge facing non-oil producing countries in the next decade.”

But the growing influence of China and other Asian countries such as India could help MENA to develop and modernize further as investment from the Far East continued to expand.

“This investment, as well as access to more advanced (Chinese) technology, will be important to help develop the MENA economies, particularly those that seek to diversify away from hydrocarbons.

“Meanwhile, as trade links between the two regions become more established, Asian (cost-competitive) exports to MENA will increase dramatically,” said the report.

The report also said that as Asian countries’ economic interests in MENA grow, their stake in regional stability would rise.

“It is therefore highly likely that major powers such as China and India will eventually expand their strategic links to, and military presence in the region, said the report.

By Richard Wachman

Copyright: Arab News © 2019 All rights reserved.

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