Analytical Case

Table of Contents

Introduction. 3

Body. 3

The importance of the oil sector in GCC economies. 3

Evaluation of policies. 3

Challenges and reasons for reduction of oil dependency. 4

Conclusion. 4

References. 5

This is not what I mention!!

It should be like this:

1- Introduction

2- The importance of the oil sector in GCC economies

3- The reasons for GCC countries to reduce dependence on oil

4- Evaluating the policies of the GCC countries in diversifying sources of income

– The challenges facing the GCC countries in diversifying sources of income and ways to address them

– Conclusion

Notes:

Without in-text citation

High school level

-there should be separate paragraph for every part

Introduction

GCC previously have been oil based economies. However oil reserves are limited and oil demand has decreased significantly. As a result they cannot run country on oil based economy. Therefore there is a need of economic diversification.

Economic diversification is defined as reducing reliance on one source of income and creating or developing multiple source of income to support the economy. Multiple sources should be in different sectors and in different markets enabling to diversity.

With current trend showing significant decrease in demand of oil, the issues of economic diversity has finally become matter of political concern for the GCC economies. The GCC countries are therefore are working on development of policies and infrastructure that enables growth of non oil based sector and supporting financing and investment in different sectors.

The importance of the oil sector in GCC economies

Above data reflects how important oil sector is to the growth and sustainability of GCC economies. In case 56% of total GDP is based on Oil Sector, in case of Kuwait its 55%, Oman is 47% and UAE is 37% and Bahrain is 26%. Therefore even in case of lowest Bahrain depends 26% on Oil. This is extremely high dependence on Oil.

The use of oil revenues has enabled GCC countries to focus on huge infrastructure development and develop welfare states which provide subsidies and facilities to its people. The oil income has enabled to increase expenditure to public welfare project and financial stability to these economies.

The reasons for GCC countries to reduce dependence on oil

There are many reasons significant reasons for GCC to reduce dependence on Oil;

• Oil resources are not infinite and limited
• Oil demand is fluctuating constantly and as a result affects economies significantly year on year basis with huge variations and countries cannot afford such variations
• This is either the only or major source of wealth
• Globally oil usage for power generation is reducing which is main consumer of oil
• Use of electric vehicles or equipments is also reducing oil demand
• Discovery of shale oil is also reducing oil prices

Evaluating the policies of the GCC countries in diversifying sources of income

The dependency on oil has been the principal source of monetary incomes and export. Gulf governments have emphasized on expanding through diversification by providing ease of business to multinationals. However, it is up to the government to develop flexible policies and take initiatives in various sectors.More diversification will lead to an inclination in private sector jobs and increase productivity.

GCC countries have development attractive policies for investment in non oil sector. As a result non oil sector growth since 2000. Like UAE has focused more on attracting tourism by investing in the infrastructure and offering incentives to tourists and foreigners for investment in the country. Many multinationals have moved there regional hubs in UAE attracting investment to the region. Also benefits and growth in port activities.

Saudi Arabia has also offered incentives and tax benefits for countries establishing manufacturing industries in the Saudi region.

Kuwait has offered tax benefits which has attracted many companies to establish offices in Kuwait.

The challenges facing the GCC countries in diversifying sources of income and ways to address them

The GCC countries are facing many challenges in economic diversification. The first and foremost challenge is that there is lack of qualified human resource available in the country. Also due to prevailing economic conditions the local human resource is also expensive. Now this creates problems for the companies, there is increasing amount of unemployment as a result. The concept of Saudization started by the Saudi government is an initiative to restrict companies operating in KSA for a minimum perceptage of local employees.

Another problem is unstable oil prices has made government income highly volatile and inconsistent, reducing government capabilities for long term planning.

The black line in above graph shows income variation in oil and it can be seen that oil prices are so unstable and creating problems for the GCC countries.

Conclusion

From the study it can be seen that given the uncertain oil prices and reducing demand, economic diversification is necessary for the GCC region. GCC countries have taken initiative on this, however in my opinion this will be a very challenging task and needs time and patience. Because shifting from single source of economy to diversification has many challenges, we have also seen that changing oil prices, lack of qualified human resource, unemployment and declining demand are challenges. GCC should develop long term plans and remain focused. Attract foreign investment and develop on the small medium companies, attract youth in GCC to come in the business sector and develop entrepreneurship this can benefit the GCC for economic diversification.