Sluggish work output, over-reliance on oil threats to Gulf economy

June 12th, 2008 - 1:41 pm ICT by IANS  

Dubai, June 12 (IANS) Over-reliance on oil and gas and sluggish productivity are posing a serious threat to the economic expansion of the Gulf, according to a new report. According to the report, titled ‘Growing Beyond Oil’, output per hours worked across the Gulf Cooperation Council (GCC) countries actually fell by 0.2 percent between 2000 and 2007 if the oil and gas sector is excluded.

The report has been published by The Conference Board, a US-based business membership and research organization best known for its Consumer Confidence Index and the Leading Economic Indicators, and Gulf Investment Corporation.

According to the findings of the report, since 2000, output per hours worked, including the oil and gas sector, has risen by only 1 percent a year, much lower than India (4.9 percent), China (10.5 percent) and even the US (1.4 percent) and Europe (1.5 percent).

“The impressive economic performance of GCC countries is overshadowed by a disappointing productivity track-record,” Bart van Ark, The Conference Board’s chief economist and author of the report, said in a statement while releasing the report.

Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) form the six-member GCC.

“The critical danger is that the GCC will be unable to develop home-grown talent or attract a sufficient number of skilled people from outside the region,” Ark said.

“The region needs to tackle a wide range of issues simultaneously, including diversification away from oil and gas towards the creation of new productive jobs, to build a solid foundation for future economic expansion.”

According to the report, there are notable differences in productivity performance within the GCC, with the smaller, more diversified countries showing better performance than the more resource-dependent ones.

While productivity in Bahrain and Oman increased by 5.1 percent and 4.1 percent respectively, it actually fell in UAE (-0.1 percent), while Saudi Arabia, Kuwait and Qatar recorded negligible increases of 0.8 percent, 1.3 percent and 1.8 percent, respectively.

Operational and labour market inefficiencies have been mentioned as the reasons for offsetting most of the gains from technological advances.

In particular, a lack of skilled workers in the region is the biggest long-term threat to future productivity growth, the report found.

Coming to oil, the report warns that an over-reliance on natural resources is a shaky foundation for long-term economic development and will hold back other sectors of the economy, such as high-productivity manufacturing and financial services.

“Currently, much of the oil and gas revenues are being spent on low-productivity construction and real estate which give only a superficial impression of affluence,” the report stated.

“Oil is a depleting natural resource and the life of nations is not measured in decades,” Hisham al-Razzuqi, chief executive of GIC said.

“The study shows that the present status quo is unsustainable because the region will face difficult times in providing sustainable growth to an increasing population if present trends continue,” he added.

To achieve sustainable increases in living standards in the region over the long term, the report called for addressing both institutional barriers to productivity and fixing the most critical labour market inefficiencies to ensure a highly skilled and motivated workforce.

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