Life after oil
Gulf countries are struggling with how to gird their economies for the day when their fossil fuels run out.
January 27, 2010 10:41 by Emily Meredith
Despite the vast hydrocarbon wealth in the GCC, leaders spend a lot of time working to convert that wealth into economic development. For all their efforts, the coming years may be a waiting game as Gulf economies busy themselves enacting economic reforms, educating their populations, and seeing what sectors are actually viable.
As they move into new territory, Arab countries face several challenges. A World Bank ranking on the ease of doing business shows the Arab world falls behind every region except for South Asia and sub-Saharan Africa. The Middle East has an enormous and largely undereducated young population, most of which will enter the workforce before current educational reforms are able to catch up.
And although hydrocarbons – either in oil or in gas – have made the GCC economies very wealthy in a matter of decades, the reality is that those resources will run out.
Saudi Arabia will reach its peak oil production capacity in 2014, after which it has 30 years before it begins to scale down production, according to modeling by the economist and senior research fellow at Chatham House, Paul Stevens. The same model shows Kuwait and Iran reaching their peak production in 2010, sustaining that level at least until 2050.
“You see how financial markets are very volatile and how they can collapse on you and easily wipe out 30- to 40 percent of the value of the assets,” the head of economic development and chief economist at the Abu Dhabi Council for Economic Development, Hoe Ee Khor, said. “The returns from [diversification] could be just as high or even higher than from financial assets, but it also generates other forms of returns such as employment and income.”