Why the GCC’s economic diversification challenges are unique

by maildunais | 7 Aug 2020 | Steffen Hertog

The GCC pursues economic diversification with real assets — mature bureaucracies, strong infrastructure, ample capital — yet faces constraints found nowhere else, and often misread by policy-makers and their advisors. The region’s unusually generous social contract, with roughly 70 percent of citizens’ jobs in government, has pushed national wages well above productivity and left the tradables sector uncompetitive. Conventional industrialisation on cheap labour is closed off; leapfrogging into advanced production is hard and rarely achieved. There is no blueprint, and the international benchmarking consultants favour is of limited relevance. Diversification will instead demand cautious experimentation and a gradual, politically delicate reformulation of the social contract — reducing distortions while preserving the living standards citizens have come to expect. The fiscal runway to manage that transition is real but, at current oil prices, narrowing.