In recent years, we have witnessed commendable efforts across the GCC region towards economic diversification, with each country taking steps to lessen the reliance on oil and mitigate the impact of its chronic volatility on their economies and people. Despite these efforts, data from international organizations such as the World Bank indicate that the regional economy is still significantly driven by its oil revenue.
However, this is not necessarily a deterrent to economic growth. For years to come, the economic outlook indicates that oil will continue to serve as the backbone of the region's economy and remain the mainstay of all development across countries in the GCC region that focuses on new economic sectors to exploit the unique advantages of each country. Considered a safe haven for economic stability, these new sectors prioritize investing in human capital as the winning formula for the future economy.
Given the close connection that the countries of the GCC region share with oil – one that goes beyond the economic diversification plans of these countries - the volatility of oil prices defines growth, slow-down or decline levels in these countries. This was acknowledged in the fourth edition of the World Bank’s Gulf Economic Monitor.
The report stated that GCC economies have witnessed a revival within a year of oil price increases, reinforcing the notion that these economies have an inseparable connection with oil. Rising oil prices until October 2018 boosted growth levels from 0.2% in 2017 to 1.9% in 2018, which led to three GCC countries – Oman, Kuwait and Saudi Arabia – registering positive growth levels despite the global economic slowdown and the US-China trade wars that impacted international trade.
Economic growth in the region is poised to reach 2.1% in 2019 compared to almost 2% in 2018, climbing still further to 3.2% in 2020, and finally stabilising at 2.7% in 2021. These forecasts are closely related to oil price movements.
In this context, the pertinent question is - how do we build strong foundations for economic sustainability away from oil fluctuations in the medium and long term? Also, how can we enhance the connection between human capital and growth in GCC countries?
Governments across the region have introduced essential reforms to improve the business environment, facilitate entrepreneurs in achieving their objectives and create new investment opportunities in promising sectors. However, in order to achieve sustainable economic growth, these governments must continue their fiscal consolidation efforts, diversify economic activities, create jobs in the private sector specifically tailored for women and the youth, and perhaps most importantly, accelerate investment in human capital through stimulating current government strategies to improve health and education outcomes. Authorities must also develop new strategies to empower young generations with skill-sets and knowledge to fast-track the transition to a digital economy and prepare them for the future economy that will be largely based on AI, big data and innovation.
After all, nations that have significantly invested in their people by way of education, human development and youth empowerment have leapfrogged their way to advancement. There is no doubt that human, social and cultural growth go hand in hand with developing and improving financial resources.
Therefore, development models in the GCC countries should not only focus on raising economic growth levels, but also prioritize education, training, investing in human capital and social development, since human development is the ticket to a more prosperous and secure future.
Given this scenario, it is clear that we must consider creating funding for human capital investments through leveraging oil revenues. These funds will be allocated to prepare and train the youth, empower them with future-focused skills and learning, build their capacities, and create jobs that enable them to utilize their skills to meet future demands in their countries and help develop new sectors of a future economy – one that is ultimately independent of oil.