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Non-oil tradable sector ‘key for GCC growth’

DUBAI, October 1, 2014

Non-oil tradable sector ‘key for GCC growth’

A key priority for the Gulf Cooperation Council (GCC) countries is to create a dynamic non-oil tradable sector to support sustainable growth, a report said, adding that since export diversification takes a long time, it has to start now, a report said.

The failure to diversify away from oil stems mainly from market failures rather than government failures, said the report in Gulf Times, citing a working paper of the International Monetary Fund (IMF).

"A strategy to diversify the non-oil tradable sector must be implemented now even for the richest GCC countries," said the IMF paper 'Soaring of the Gulf Falcons: Diversification in the GCC Oil Exporters in Seven Propositions', authored by Reda Cherif and Fuad Hasanov.

"Although there is room for improving further the business environment, infrastructure, skill sets, and institutions, these are unlikely to be enough to spur non-oil exports on their own," according to the paper.

To tackle market failures, the government needs to change the incentive structure for workers and firms, the IMF report said.

Experiences of oil exporters that managed to diversify suggest that a focus on competing in international markets and an emphasis on technological upgrade and climbing the “quality ladder” are crucial, it added.

The GCC countries must target diversified economies with less reliance on hydrocarbons, which are driven by the private sector, and in which nationals have the skills to enter high value-added private sector jobs, the report said.

The working paper said the diversification experience of the few successful oil exporters suggests that diversification usually takes place amid dwindling oil revenues, and requires several decades of preparatory work to develop a non-oil tradable sector.

"Successful strategies have relied on a policy mix of promoting vertical diversification in "comparative advantage" sectors such as oil and gas and petrochemicals and endeavours into horizontal diversification beyond these sectors with an emphasis on technological upgrade and competition in international markets," it said.




Tags: GCC | IMF | hydrocarbon | Non-oil trade |

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