DUBAI- Falling oil prices will pose a challenge to GCC hydrocarbon exporters unless governments step up their diversification efforts and develop more export industries, according to a new report by ICAEW. In its latest quarterly Economic Insight report, produced by its partner, the Centre for Economics and Business Research (Cebr), the accountancy and finance body says expanding competitiveness across a broader range of export industries will require improvements in education, skills and innovation to be successful.
According to Economic Insight: Middle East Q2 2014, GCC economies are now more dependent on commodity exports than they were 10 years ago despite the diversification agenda. Commodities still account for 86.8% of Saudi Arabia’s total goods exports by value and nearly two thirds of the UAE’s. Even Bahrain, with the fewest hydrocarbon resources of any GCC economy, relies on commodity exports for nearly three-quarters of goods exports.
Vernon Soare, Executive Director, ICAEW, said: “With global oil prices forecast to fall over the medium-term, the need to broaden the industrial base is becoming more pressing. While the GCC economies have the infrastructure and financial means to advance their manufacturing output and export potential, more attention needs to be paid to fostering innovation in order to compete more effectively in international markets.”
Currently the UAE, Bahrain and Saudi Arabia rank in the top half of the World Bank’s Knowledge Index, a comparison of 145 countries and their ability to develop modern competitive industries, coming 41st, 52nd and 53rd respectively. However, with competition from other emerging markets intensifying, the GCC countries must now improve education, increase labour productivity and attract more foreign direct investment to progress their skill- and technology-intensive manufacturing sectors.
While standards of education in the GCC fare slightly better according to World Bank measures, there remains a shortage of workers with suitable education in science, technology, engineering and mathematics (STEM subjects). However, the increasing number of students studying overseas is helping to address this skills shortage by creating new pathways for knowledge and skills development. Improving the pace of labour productivity, or output per worker, will also help GCC economies to prosper in the cut and thrust of international markets.
Despite strong GDP growth and high oil prices, several of the GCC economies have experienced falling labour productivity for some time, a trend which accelerated after 2009. Average annual labour productivity growth in Kuwait fell from 6.9% in the five years to 2007 to 0.0% in the five years to 2012. In Bahrain labour productivity has actually fallen in recent years, declining by 1.0% in 2012 compared to the previous year. Promisingly, the amount of output produced per worker is improving in the UAE with marginal productivity growth recorded in 2011 and 2012. Saudi Arabia, Oman and Qatar have also recorded improvements in productivity over the five years to 2012.
Charles Davis, Director, Cebr, said: “Strong investment will continue to see growth across the GCC outpace the rest of the world, but the prospect of falling oil prices due to increasing global supply, will put pressure on the GCC economies to diversify and grow their high-tech manufacturing industries. Fortunately, the region will remain a key destination for foreign direct investment flows over the coming years, providing a welcome boost to labour productivity by introducing domestic workforces to new technologies, production techniques and management procedures.”