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OIL & NON OIL SECTORS OF THE GCC ECONOMIES

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Anubhav

Table of ContentsIntroduction......................................................................................................................................2

Oil Sector of the GCC......................................................................................................................2

Non Oil Sector of the GCC..............................................................................................................4

Non Oil Sector of the UAE..............................................................................................................8

Tourism:.......................................................................................................................................8

HealthCare:..................................................................................................................................9

PART 1

Introduction

The Gulf Cooperation Council  is a regional, intergovernmental economic and political union

consisting of the Arab states of the Persian Gulf, except Iraq. Its member states are

Kuwait, Oman , Bahrain, Saudi Arabia, Qatar, , and the United Arab Emirates.

The GCC is one of the richest oil-based region with the largest oil reserves (489.4 billion barrels)

and nearly 36.7% of the global crude oil reserves. OPEC nations account for 71% of the world’s

total crude oil reserves. The GCC has experienced a remarkable economic boom until late 2008.

The GCC economy grew threefold in size to $ 1.1 trillion from 2002 to 2008. The GCC

economies make up for 52.1% of the total OPEC oil reserves and about 49.5 % of the OPEC

crude oil production. The strong economic performance of GCC can be attributed to growing

global oil demand till late 2008; privatization activities; conducive intra-political environment;

growing assets of central banks and the muscle of the GCC corporate sector.

Oil Sector of the GCC

In 2010, the GCC produced over 25 million barrels of oil each day, and over 44 billion cubic feet

of natural gas, which accounted for about 30 percent of the world's oil production; 15 percent of

gas production, and 32 percent of liquefied natural gas (LNG) exports, according to a study by

Crescent Petroleum data. (http://www.crescentpetroleum.com/html/oil_gas_overview.html)

Country-wise statistics are as follows, Saudi Arabia has 38.7 percent of world oil reserves

whereas Kuwait, the United Arab Emirates (UAE) stand at over 14 percent.

Saudi Arabia has the largest oil reserves in the world of about 264.2 billion barrels and accounts

for 20% of proven conventional oil reserves. It is a world leader in terms of oil capacity, at

around 10.5-11.0 mbpd. Saudi Arabia has been increasing its oil production by investing heavily

in oil, gas and petrochemical projects. Saudi Aramco has secured the first ranking for the

eighteenth consecutive year leading the largest oil companies in the world.

United Arab Emirates (UAE) has oil reserves of about 97.8 billion barrels which is slightly

above 7 percent of the global reserves. It is the 8th largest oil producer in the world and

3rd largest in the Middle East. UAE's has undertaken significant expansion projects to increase

production of the oil and maintain its market stability. UAE has undertaken quite a few

partnerships to help technology transfer for improvement in efficiency. Expansions have been

brought in almost all the existing oil fields within UAE.

Kuwait has the 4th largest oil reserves in the world with a proven oil reserve of 101 billion

barrels. Kuwait's crude oil production on an average is at 2.5 mbpd in 2007 and the country has

planned to increase oil production capacity to 3.5 mbpd by 2015 and 4.0 mbpd by 2020.

Qatar has an estimated proven oil reserve of 15.2 billion barrels that is the 4th largest oil

reserves in GCC countries with oil production around 0.8 mbpd. Qatar has invested USD 80-100

billion in oil sectors (upstream &downstream) in hopes to of economic growth. Currently oil and

gas sector make up more than 62% of Qatar’s economy. Recently Qatar’s effort to produce and

export natural gas in the form of LNG, piped gas, gas-to-liquid (GTL) and investments in

petrochemical and fertilizer industries prove avidly the fact that Qatar has been trying to

diversify its revenue base by reducing its historic dependence on oil export revenues.

Kingdom of Bahrain dependence on oil production per se is considerably lower as compared to

other GCC members. Bahrain's proven oil reserves are around 125.0 million barrels. Because of

limited oil reserves, the Kingdom has worked hard to diversify its economy. Bahrain has also

managed to stabilize its oil production, with reserves are expected to last 10 to 15 years.

Oman’s proven oil reserves are nearly around 5.6 billion barrels with average production of 0.7

mbpd. It is atypical of Gulf oil producers. Oman’s oil fields are comparatively smaller, less

productive, more widely scattered and more costly per barrel than in other countries. An average

well in Oman produces only about 400 b/d, which is not even one-tenth the volume per well of

the other GCC countries.

The Non-Oil Sector of the GCC

In Comparison to global oil producers where the oil economic sector was simply aiding the

present productive sources within their economies, the oil sector dominates heavily the Gulf

economies – being the sole source of wealth for a few.

Over the last decade, GCC countries have heavily invested in sovereign wealth funds as one of

the main tools for economic diversification. A few funds (from Qatar and UAE) have acquired a

few diversified overseas assets, which generated additional revenues. But these overseas

investments haven’t created jobs in the local economies or contributed to spearhead education

and training of the local labor.

Non-oil sectors had an impact on growth (economic) in all of the GCC economies since the

service sector were the most dynamic, with average growth of around 2.8% between 1991 and

2009. (Devaux, 2013 ) The service sector growth has rapidly increased post 2001, especially in

Qatar (+6.2%) and Bahrain (+5.3%).  Most services are closely linked with public sector,

notwithstanding exceptions of Bahrain and the UAE (trade and tourism), however, most of them

have generated only weak value additions. But nonetheless significant steps were taken in

developing new sectors which will have significant growing potential, such as aviation, tourism,

hospitality, logistics and business services, real estate, as well as introduction of green

technologies.

Economic diversification in GCC states is primarily based on reduction of mammoth dependence

of the oil based economy, which subsequently leads to reduction of the role of the public sector

and strengthening of the private sector growth. Oman is the sole country among the GCC that

has plans to privatize the state-owned corporations. On the contrary, in Kuwait and Qatar, the

private sector’s share of non-oil GDP is not more than 50%, hence the economic diversification

process still depends significantly on the government.

Qatar’s Diversification plans are for massive infrastructure development coupled with further

diversification such as manufacturing, communication, construction, trade, real estate and

business services. A proposed 140 billion USD infrastructure building plan will be invested in

the non-oil sector – in transport, tourism, sports, health, education and roads and bridges. This

involves the construction of the International Airport at Hamad and also a 36 billion dollar

railway system for hosting the FIFA World Cup in 2020. The country also increased the budget

spending for education, to 15 percent, following the transformation into a knowledge-based

economy.

In the UAE the five per cent economic growth has come from hospitality and manufacturing,

construction and real estate are also leading the growth story. Dubai’s tourism industry also

particularly has been booming steadily in the last few years: Hotel occupancy rates soared

upto 83.6 per cent in January 2014, coupled by the emirate’s record air passenger traffic,

according to the latest reports of the MENA survey.

In the Kingdom of Saudi Arabia, government is planning diversification through power

generation, natural gas exploration, also telecommunications, and petrochemicals. It has

undertaken a multi-billion dollar strategy to build six Greenfield economic cities, a significant

step towards its diversification agenda. The major concern however is Saudi Arabia’s over-

dependency upon the expat workforce for most of the jobs. There the government is now

recruiting its citizens through a mass drive besides spending on their job training and education.

Bahrain has been the pioneer of economic diversification. Initiatives over the decades for

diversification have included offshore financial services, coupled with investments in human

capital. To spearhead the process of diversification it offered low operating costs and enjoyed a

reputation as the best market accessible to the economies of the GCC. Bahrain also established

financial services sector over four decades of experience.

Oman has a well-diversified private sector covering industry, agriculture, textile, retail and

tourism. Its major industries are copper, mining and smelting, oil refining and cement plants. The

country seeks private foreign investors, for sectors like IT, tourism and higher education.

Industrial development plans focus on gas resources, metal manufacturing, petrochemicals, and

international transshipment ports. (Zughaibi & Kabbani, 2012)

Kuwait is the only country where contribution of most non-oil economic sectors declined post

the Iraqi invasion, after which hundreds of foreign institutions, including banking and investment

institutions, moved elsewhere in the region.  Kuwait has not implemented any significant

development projects of economic value, while its dependence on oil revenues has been

increasing. (Asoomi, 2012)

Hence the above citations do avidly present the picture of increasing diversification in the GCC

economies do reduce dependence on oil exports (except Kuwait). The picture below shows the

same diversification processes beyond the conventional oil business in the GCC economies.

Source: (Beaumont, 2014)

Part 2

Non-Oil Sector of the UAE

Tourism:

The UAE has made significant progress in its attempts of diversification to non oil sectors. One

such remarkable performance can be seen in development of its tourism sector. The tourism

sector’s success is boasted in its contribution to GDP which has gone to about 10.4 percent from

meagre 1 percent. According to estimates, over 50 million tourists have visited Dubai for its

Shopping Festival and have spent around 88 billion dirham’s since its inception. The number of

tourists in Dubai has reached 1.1 million alone while it exceeded 2 million throughout the UAE.

The numbers speak significantly of the growth of sector.

Rising tourist numbers has also injected fresh blood into the airports in the UAE. Arrivals at Abu

Dhabi International Airport have exceeded 10 million for the first time according to estimates.

National airlines – Emirates Airlines, Etihad Airways, etc. have contributed a great deal to this

significant progress as they have connected the UAE to a large network of cities across the

globe. Other important economic feature of the tourism sector include the close nodal connection

between the various facilities and services and associated with them the multiple activities, such

as retail trade, internal transport, communications, restaurants, and services and public utilities. If

the tourism sector continues at the pace like this, it will raise its share significantly in the GDP to

an anticipated 12.1 percent, which will be a large enough proportion.

HealthCare:

The UAE healthcare sector can be grouped into two regions; having Abu Dhabi on one spectrum

and Dubai on the other. Healthcare Industry of UAE consists of key autonomous players such as

the Abu Dhabi Health Authority, Ministry of Health and Dubai Health Authority. In a few years,

the UAE healthcare industry has had an unprecedented growth which will continue in future due

to increasing population, epidemic outbreaks like H1N1 and rising prevalence of other lifestyle

diseases. The country has also witnessed an increase in the demand for various healthcare

services, which is indicative of the high healthcare spending in recent years. As per estimates, the

healthcare industry of the UAE has expanded at a CAGR of over 16% during 2011-2014.

(SANA, 2013)

UAE has been known recently as one of the top destinations for medical tourism. Many multi-

national companies such as Saudi German Group and DM Healthcare are strategizing to expand

within the UAE healthcare market. Also it is seen that new players, including Landmark Group,

are trying to diversify into the healthcare market in following years. Travelers across the world

come in UAE for the cosmetic surgery for which it is well known. (SANA, 2013)

Recent years have had extremely positive developments for the health care market through

collaborations, strategic tie ups between healthcare stakeholders, understanding memorandum’s

between public and private entities to develop the healthcare industry. Expansion activities are in

the offing by major hospitals which are planning to foray into the market with new entrants.

Government has also been creating viable atmosphere for health care stake holders, investors for

the fast development of the health care system in the UAE. (SANA, 2013)

References:-

Anon, (2014). [online] Available at: http://www.globalinv.net/research/GCC-Oil-Sector-

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Economic-research.bnpparibas.com, (2014). [online] Available at: http://economic-

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lang=en&ftId=/FeatureTopic/Mohammed_Al_Assoumi/FeatureTopic_1488.xml [Accessed

30 Sep. 2014].

Gulfnews.com, (2014). Kuwait and economic diversification. [online] Available at:

http://gulfnews.com/business/economy/kuwait-and-economic-diversification-1.1041131

[Accessed 30 Sep. 2014].

Imf.org, (2014). MENA -- GCC Countries: From Oil Dependence to Diversification, Ugo

Fasano and Zubair Iqbal. [online] Available at:

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[online] Available at: http://www.sanaesolutions.com/healthcare-market-uae/ [Accessed 30

Sep. 2014].