Introduction
In the face of instability in the global hydrocarbon market, countries with significant oil revenues in foreign trade are intensifying efforts to diversify their national economies. The development of new industries and activities, especially those with high added value, provides the country with the opportunity to improve financial stability, boost GDP growth and living standards, and create new jobs for the population. This process has also been implemented in the Persian Gulf States, which have been united since 1981. with the Cooperation Council of the Arab States of the Persian Gulf (GCC) — Bahrain, Qatar, Kuwait, Oman, UAE, and the Kingdom of Saudi Arabia (Nathaniel, 2021). The modern process of globalization allows these countries to diversify, making production as profitable as possible for each country and for their coalition as a whole.
Statistical Data
For the report, statistical data compiled by scholars with UNCTAD’s assistance were used, ensuring comparability and reliability. The study period from 2018 to 2020 was chosen because it allows for identifying long-term trends and eliminating conjunctural factors. Analyzing the socio-economic situation in the GCC countries, first, based on the leading indicator used in the macroeconomic study of GDP, we can state that growth is steady, as shown in Table 1.
Table 1. GDP in the GCC countries (in billions) (Nathaniel, 2021)
In general, the regional GDP increased by 2 times in value during the study period, and the population increased by 1.6 times over the same period (Ansari et al., 2020). At the same time, the global economy grew from 52.3 to 75.76 billion US dollars, i.e., by less than 47% (Darwish et al., 2020). In 2020, against the background of a decrease in global GDP compared to 2019 from 79.0 to 75.76 billion US dollars (Zaidan et al., 2019). By 5%, the total GDP of the GCC countries grew to 1.8 billion US dollars (Zaidan et al., 2019). International organizations recorded only a reduction in GDP in 2019 and 2020 in Kuwait.
The highest GDP growth rates were recorded in Qatar, the UAE, and Saudi Arabia. At the same time, we can say that, in the medium term, the region’s economic growth rates are leveling off. At the same time, in 2019, due to an almost threefold drop in oil prices on the world market, Zaidan et al. predicted a recession in GCC economies in 2020 (2019).
According to Zaidan et al.’s estimates, this decline should have reached double-digit values (2019). Analysis of the presented statistical data suggests that the dynamics are more ragged, but there is no sharp drop in per capita income in the GCC. At the same time, the level of per capita income in the countries of the region remains significantly differentiated, ranging from $9,000 in Oman to more than $ 101,000 in Qatar (Da Rwish et al., 2020). The exception is Oman and Kuwait, with a slight decrease in indicators.
Thus, in 2019-2020, the economies of the GCC countries proved more resilient to global factors than expected, indirectly confirming the emergence of additional sources of GDP beyond oil. They can be identified by analyzing the component structure of the GDP of the GCC countries (Darwish et al., 2020), and based on the statistical data presented in Table 1, the study period in the GCC countries witnessed a noticeable reduction in the share of industry and an increase in the service sector’s share of GDP.
The share of agriculture remains unchanged. Using a comparative analysis, the structure of GDP and its changes in the GCC countries and worldwide were compared to clarify qualitative trends (Darwish et al., 2020). This analysis concluded that the share of industry in the GCC’s GDP remains significantly higher than the global average.
At the same time, the dynamics show a decrease in the industry’s share of GDP in both the global and GCC markets, while the service sector’s share is increasing. At the same time, the decline in the industry’s share of the GCC’s combined GDP is proceeding faster than in the global economy (Zaidan et al., 2019). The share of the service sector in GDP is growing more rapidly in the GCC by more than 8% per year than in the world, which is less than 2% (Ansari et al., 2020). In all Gulf countries during the study period, the share of the extractive industry in GDP decreased, from 51% in 2019 to 40% in 2020 (Zaidan et al., 2019). At the same time, the volume of oil reserves in Saudi Arabia, Qatar, and Kuwait is growing; in Bahrain and Oman, it is decreasing; in the UAE, it remains unchanged.
Analysis of Global Socio-Economic Development
An increase in the manufacturing industry’s share across all countries in the region was observed. Analysis of statistical data suggests faster growth in the non-oil sectors of GCC countries, including 2019-2020, as confirmed by Nathaniel’s (2021) research. The segment is represented in the region by all the most critical industries — ferrous and non-ferrous metallurgy and petrochemistry.
Mechanical engineering is developing primarily in shipbuilding, construction materials, light industries (for example, clothing, woolen fabrics, carpets), and the food industry, as well as in the production of electrical equipment (Nathaniel, 2021). Thus, capital can be noted as including intensive manufacturing industries and, to a lesser extent, labor—intensive ones. For example, the development of clothing production in Bahrain is based, on the one hand, on the cheap labor of immigrants (Ansari et al., 2020). On the other hand, it is based on the possibility of exporting the industry’s products to the United States under a free trade agreement.
At the same time, the manufacturing industry initially had lower productivity than the hydrocarbon segment. At the same time, the global trend is the development of knowledge-intensive and high-tech industries (Darwish et al., 2020). However, in the countries of the Persian Gulf, high—tech and innovative production is represented insignificantly, only at the largest state-owned enterprises.
The steady growth of the service sector across all countries in the region is evident. It has increased from 35% to 45% across the whole region (Zaidan et al., 2019). These included, first of all, retail and wholesale trade, tourism, hotel and restaurant management, healthcare, and finance. Among them were banking activities based on both traditional and Islamic models, as well as, increasingly, education and the provision of various types of business services. The share of agriculture, traditionally insignificant in the countries of the region due to their geographical and climatic features, has changed little over the past 25 years (Zaidan et al., 2019). The exception was Oman, which has the largest area of arable land in the region.
To a much lesser extent, Saudi Arabia is the exception. That, nevertheless, led to a decrease in the share of agriculture in the regional economy from 4% in 2019 to 2% in 2020(Nathaniel, 2021). At the same time, Oman, Saudi Arabia, and the UAE have invested heavily in agriculture (Ansari et al., 2020). At the same time, there are significant differences across countries in the region’s diversification processes. As can be seen from the analysis of the presented data, the process of diversification is uneven across countries and largely depends on both the volume of available oil and gas reserves and the political will of the state
Oman retains the smallest share of the extractive industry in GDP. It is 10% due to the almost complete exhaustion of oil resources, which is significantly below the regional average (Nathaniel, 2021). The largest share remains in Kuwait at 56%, and it is in this country that the decline in GDP growth rates in 2019 was observed (Darwish et al., 2020).
Oman is actively developing the service and tourism sectors, while other Gulf countries are promoting banking services and manufacturing industries that best match their geographic locations and factor bases. The highest manufacturing was in Bahrain in 2016 (Ansari et al., 2020). This is mainly due to the almost complete exhaustion of oil reserves, and therefore the threat of a reduction in financial revenues from its exports to the country. The most crucial sector in the region is the service sector — primarily finance, banking, trade, restaurant and hotel management, and the hospitality sector, as the basis for tourism development.
Vector of Further Economic Development
To further diversify the region, it seems necessary to intensify the integration of the Gulf countries’ national economies into the global economic network by developing high-tech production. This is required by increasing global competition and the outpacing of volumes and growth rates in high-tech segments of the world economy (Zaidan et al., 2019). Deepening diversification, in the author’s opinion, will require not only the development of the knowledge economy but also the mobilization of the national capital (Ansari et al., 2020). It is also essential to continue the process of industrialization, including the development of the hydrocarbon segment, which remains relatively high in national economies and continues to serve as the basis for the development of processing industries, services, and overall financial revenues.
Conclusion
Thus, economic diversification is far from a new trend in the development of the GCC countries. This process has been carried out — consistently and in stages — over a long period, during which the GCC countries have taken serious steps to diversify their national economies and build their non-oil sectors. Specific successes have been achieved thanks to globalization, which is influencing the structure of the region’s foreign trade.
There are notable achievements in this process — a gradual change in the structure of the national economy, differentiated by country, the growth of the non—oil segment, including through the development of the private sector. Thus, the Persian Gulf region has become the world’s largest center for the production of petroleum products, fertilizers, aluminum, cement, and metal. Fiber-optic cables, air conditioners, and a wide range of construction-related products are produced in the region’s countries. In addition, the service sector is developing, including banking, cargo transportation, logistics, and real estate. Reforms in public administration facilitate this, the development of the social sphere, including education, and economic integration in the GCC.
At the same time, as the study shows, the region’s manufacturing industry faces a shortage of highly qualified labor. This happens when there is a large number of low-skilled labor, mainly immigrants. There is also a concentration on several basic industries, primarily petrochemicals and metallurgy. Consequently, it can be said that efforts to diversify the national economies of the GCC countries, driven by globalization, have not yet led to the creation of a sustainable development model, and the economies of the six GCC members continue to depend heavily on the hydrocarbon sector.
References
Ansari, M. A., Ahmad, M. R., Siddique, S., & Mansoor, K. (2020). An environment Kuznets curve for ecological footprint: Evidence from GCC countries. Carbon Management, 11(4), 355-368.
Darwish, S., Raman, R., Gomes, A. M., & Nawaz, N. (2020). Entrepreneurship ecosystem in GCC and India: A perspective. Journal of Statistics Applications & Probability, 9(2), 245-256.
Nathaniel, S. P. (2021). Ecological footprint and human well-being nexus: Accounting for broad-based financial development, globalization, and natural resources in the Next-11 countries. Future Business Journal, 7(24), 6200-6209.
Zaidan, E., Al-Saidi, M., & Hammad, S. H. (2019). Sustainable development in the Arab world – is the Gulf Cooperation Council (GCC) region fit for the challenge? Development in Practice, 29(5), 670-681.