The most influential Megatrends set to shape the world through 2030, identified by Euromonitor International, help businesses better anticipate market developments and lead change for their industries.Learn More
The success of economic diversification strategies is key to overcome resource dependence and safeguard long-term sustainable economic growth in resource-rich countries. Natural resources are finite and face huge fluctuations in prices, making economic diversification critical to decouple from volatile government revenues that are highly dependent on commodity exports. For several years, resource-rich countries like Peru, Chile, Russia, Australia, oil-dependent countries of the Gulf Cooperation Council (GCC) and others, rode on the success of their resource-based growth models in the atypical years of commodity market boom from 2000-2008. However, fluctuations in global prices and demand since then have presented several challenges making economic diversification a top economic agenda in these countries.
Source: Euromonitor International from national statistics/Eurostat/OECD/UN/International Monetary Fund (IMF), International Financial Statistics (IFS)
After decades of rapid growth, the Chinese economy is slowing, which is having spillover effects on commodity exporters globally:
The lack of clear economic diversification strategies is making these economies vulnerable to commodity price fluctuations:
Oil dependence has also led to long-standing challenges of income inequality and poor job creation that caused widespread civil unrest as seen in the Arab Spring since early 2011. Progress on diversification has so far been mixed:
Diversification for resource-rich economies is inevitable to reduce risks associated with high dependence on commodity export-growth models and to limit the impact of fluctuations of commodity prices on domestic economies.
The UAE is the only country in the GCC that has successfully diversified away from energy with modern infrastructure that includes a seaport among the largest in the world, a number of world-class hotels and a business-friendly environment. Azerbaijan is another success story developing new sectors in its economy, fostering successful private sector-led growth and lowering its dependence on mineral fuel exports. Exports of mineral fuels made up 93.8% of Azerbaijan’s total exports in 2013 but the government announced in late 2014 it will completely eliminate its oil and gas dependence in the next five to seven years.
However, growth in the non-oil sector generally for GCC countries has remained weak. Investment in education to improve skill sets of domestic populations remains paramount and policy reforms to create non-oil growth and job opportunities will remain a big challenge. The rapid development of shale oil and gas production in the USA will impact global oil prices and demand, which will also play a key role to further push GCC diversification efforts.