Moving Beyond Oil
The current period of plummeting oil prices is inevitably having a knock-on effect on the global economy and this will perhaps nurture non-oil sectors over the coming years.
The downturn has hurt economies of oil-dependent countries from Venezuela and Russia to the Middle East. It is a no-win situation, for even the consumer countries would be affected with increasing instability of the oil market.
In past two years, an oil glut has caused prices crashed to below $30 a barrel from as high as $115 in mid-2014. In a bid to stabilize oil prices, bigwigs of oil producing nations home to about half the world’s oil output were gathered in Doha in April, however, the meeting ended in unhappy exchange of talks for lack of any coordinated action among OPEC founding members to "freeze" production.
All eyes are now on the next OPEC meeting in June, which is likely to have a further discussion on oil output freeze to help overcome the surplus weighing on the market. It is still to be seen whether any settlement to sustain crude market is taking place or not, but there is a growing conviction that with reduced supply from US shale producers, rebalancing is underway.
However, low oil prices have intensified efforts in the GCC – the oil and gas reliant economy – to engage-in wider diversification and to introduce a series of structural reforms in different sectors that would lift the non-oil growth rate.
“Saudi Vision 2030” – the long-term reform programme – has set the ball rolling for the economic diversification of the region that never picked-up over the past 20 years. The Deputy Crown Prince Mohammed bin Salman has set out a comprehensive and ambitious plan to diversify its economy, which will be less dependent on oil income that at present represents 44% of the economy.
Plans on transformations will encompass reforms in the economy, society and foreign policies of the Kingdom. Part of the plan is to sell stake in Aramco’s assets and create a massive $2-trillion sovereign wealth fund.
Diversification efforts so far have been concentrated on the downstream manufacturing industries, including petrochemicals, which accounts for two-thirds of the kingdom’s non-oil exports. Mining and metals, too, is an established sector, but there is a potential to go much further.
Infrastructure, transport, and power are other frontline sectors, with close to $850 billion of projects lined-up. As the Kingdom moves further to diversify its economy, focus areas where it can have clear, sustainable competitive advantage are advanced manufactured goods including automobiles, financial services, retail and tourism, telecommunications, and research and development.
It can be said that diversification is about creating a platform for sustainable growth. It will offset a downturn in crude prices and uphold the hydrocarbon-based economies in a fast-moving, unpredictable world.