Arabian Gulf countries need to accelerate reforms that include the downsizing of the public sector’s role in the economy and creating more private sector jobs to further lower dependence on oil income, according to the author of an Arab Strategy Forum report.
“A new model that promotes more diversification, that promotes more private sector development has to be implemented,” said Martin Hvidt, the author of the report and the associate professor at the Centre for Contemporary Middle East Studies at the University of South Denmark. “In order to promote the private sector, the public sector must decrease.”
Governments need to speed up reforms to insulate their oil-based economies from market fluctuations in oil prices, which creates economic instability, the report said. The Forum, which takes place annually in Dubai, is a platform for forecasting the geopolitical and economic events regionally and globally.
Gulf countries are currently implementing some reforms to wean their economies off oil income. These measures include increasing energy and electricity prices and introducing taxes, such as a 5 per cent VAT implemented in Saudi Arabia and the UAE this year.
The UAE is leading reforms, with the non-oil sector contributing to 70 per cent of the gross domestic product, a percentage that is expected to rise to 80 per cent by 2021.
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VAT and other levies, such as the excise tax introduced in Saudi Arabia and the UAE on sugary drinks and tobacco, are “low hanging fruits,” according to Mr Hvidt.
More serious reforms are needed including the creation of private sector jobs for an estimated 500,000 young nationals, mostly in Saudi Arabia, that are expected to join the workforce in the next decade, he said.
“Demographics is not a gift if people are not employed,” he said.
To stimulate private sector development, productivity has to increase, development plans have to be implemented and the education sector has to be reformed.
