In February 2015, when the price of oil was more than $50 a barrel, Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, gave a vivid assessment of the importance of economic diversification and the transformation of the workforce through education.
Speaking at the Government Summit in Dubai he said: “There will be a time, 50 years from now, when we load the last barrel of oil aboard the ship. The question is, 50 years from now when we have loaded this last barrel of oil, are we going to feel sad? If our investment today is right I think, dear brothers and sisters, we will celebrate that moment.”
Since Sheikh Mohammed’s speech, the oil price reached a low of just below $30 before recovering to hover currently at around $40. International energy experts as well as GCC producers are coming to the conclusion that lower oil prices are the new normal. Bodies such as the IMF are predicting lower growth for GCC countries and the ratings agencies’ outlooks grow more bearish by the week.
This is where “the rubber hits the road” in terms of implementing the economic diversification plan for GCC countries. For the UAE in particular, it is the point at which years of government investments, capital projects, local and international acquisitions and detailed domestic diversification plans must begin to find their proper place in the mainstream economic narrative. It is the point at which hard decisions will have to be made as the government resorts to alternative sources of revenue and makes cuts to counter falling receipts.
It is at this point also that the focus of discourse among Emiratis becomes one of national economic sustainability.
Sheikh Mohammed’s speech referred explicitly to the austerity faced by past generations of Emiratis and reminded those present that nation building “is the duty of every citizen and resident” rather than just government. This foreshadows the need for a shift away from command economy dominance towards deregulation, divestment, inward investment and private sector growth and employment of more nationals within that sector.
The UAE has already shown clear signs of wanting to wean both nationals and expatriates away from an overreliance on government largesse. Energy subsidies have been reduced, wage restraint has been introduced as have curbs on generous employee benefits in the public sector. Rates for government services have increased and value added tax is poised for introduction.
There are some who would wish to frame the low oil price as heralding the imminent demise of Gulf governments. Iranian media refer almost gleefully in news headlines to the “downward spiral” of Gulf economies following recent unfavourable reviews by ratings agencies. This interpretation ignores the efforts made so far, in the UAE’s case, to diversify — efforts that began soon after 2004 when the building blocks of national consolidation had been laid by the late Sheikh Zayed.
The diversification plan was under way when oil was trading at over $100 a barrel. Multiple diversification initiatives are playing out, for instance surrounding travel and tourism, encompassing airline operations, aeronautics, aircraft servicing, duty free revenue and logistics. Nor does the “downward spiral” thesis take account of other strategic investments such as the creation of massive logistical hubs and free zones, of international financial centres or of the advent of cheaper nuclear energy.
Some observers are presenting the reduction in oil prices as an opportunity to develop a more intensified economic approach. But they warn that this will require a fresh look at all aspects of education and vocational training, at economic stewardship and transparency, at the terms for inward investment and at local monopolies in key sectors.
Important also will be the reduction of red tape and coherent investment partnerships with the private sector, especially with SMEs and, as outlined in Sheikh Mohammed's speech last year, the transformation of education to provide a workforce able to perform in a knowledge-based economy.
On this latter aspect, it was interesting to see the amalgamation under one authority of the various agencies charged with Emiratisation and the shaping and deployment of human capital in Abu Dhabi. The creation of the Abu Dhabi Human Resources Authority, which reports directly to the Executive Council, has as one of its roles a duty to make recommendations on academic, training and vocational programmes "to fulfil the demands of the labour market in the emirate".
The drive towards diversification is apparent also in the elevation of accomplished civil servants such as Riyad Al Mubarak, the chairman of the Department of Finance and a member of the Executive Council. Mr Al Mubarak was involved in early Mubadala and other investment roll-outs and is also chairman of the Abu Dhabi Accountability Authority — the emirate's foremost authority in the field of governance.
But notwithstanding Mr Al Mubarak’s talents, the key condition for the success of the diversification programme is a readiness on the part of government to embrace the risks associated with economic reform and for citizens and stakeholders to accept that interim uncertainties accompanying low oil prices represent an opportunity rather than a threat.
Martin Newland is a former editor-in-chief of The National