EY has launched the ‘Growth drivers’ report which identifies the four biggest drivers of policy, common across the GCC states. Nationalization, diversification, global positioning and stability are key areas for governments and businesses in the region to consider for the future of GCC growth.
Gerard Gallagher, MENA Advisory Managing Partner, EY, says: “In a global economy, where so many developed and emerging markets are struggling to maintain solid growth, businesses see strong and growing demand in the GCC. Governments in the region are using oil and gas revenues to develop new industries and set up the foundations of a knowledge economy. However, companies operating in the GCC are also facing challenges with regulations and hiring and retaining local talent. These barriers to realizing the potential they see, mean that global companies have concerns about their sustainability in the GCC.”
Urgent strategic imperative for nationalization
Currently, GCC citizens account for a low of 1% of the private sector workforce in Qatar and the UAE and a high of 18% in Saudi Arabia. There is a strong dominance of expatriates in the business and youth unemployment has been on the rise. Unemployment rates vary widely across the region, but everywhere, female unemployment rates are five to seven times higher than those of men.
Will Cooper, Partner, Advisory, EY, says: “Educational reform is vital. Improving the quality of outcomes from the education and training system for nationals is imperative to creating a local workforce. The focus must be on developing the right skills for young nationals and encouraging an enterprise mindset as they progress from education to work.This is a call to action to develop closer links between employers, educational institutions, jobseekers and policy makers.”
Governments are increasingly viewing entrepreneurship and SME development as a solution to youth unemployment and sustainable economic growth. With the significant majority of new jobs coming from small businesses, supporting entrepreneurship is essential.Now is the time to establish coordinated programs at a national level to join up activities in promoting and supporting entrepreneurs and small and medium business owners. Government ministries, entrepreneurship organizations and investors need to work together rather than in isolation to achieve the greatest impact, and there is a strong case for greater cooperation across the GCC.
Overcoming oil dependence
Managing the risks of oil dependence is one of the region’s biggest challenges. However, progress to reduce GCC dependence on oil has been mixed. “Each of the Gulf states has developed long-term strategies, using different combinations of vertical and horizontal diversification. But the region has yet to take advantage of coordinated diversification to leverage each other’s strengths and maximize the power and attractiveness of the economic bloc. Better coordination would lead to greater efficiencies and reduce the duplication of economic activities,” comments Michael Hasbani, Partner, Advisory, EY.
High potential industries in the region such as metals production, aviation, sea trade, tourism and financial services are paving the way for more diversified revenue sources. GCC Governments need to commit to supporting new sectors and creating innovative and competitive industries to help diversify their economies.
Welcoming the world into a stable GCC
The GCC’s global economic prominence has risen rapidly in the past decade, with its share in world GDP doubling to 2.2%. The Gulf states are emerging as a globalized economy — their workforces are known for international diversity, their strategic location has translated into new trade and investment partners, and their importance as global investors is growing. However the Gulf states also face a difficult balancing act of maintaining stability, in particular the social challenge of ensuring that nationals receive acceptable levels of education, healthcare and housing.
“The fast-growing Gulf population has meant that the public sector is struggling to deliver. To realize the promise of diversification and nationalization policies while maintaining social stability, Gulf governments must continue to reform both their schools and universities, modernizing their skill base while retaining their cultural identity. The private sector is also expected to play a major role in tackling the housing shortage, providing improved healthcare services whilst also creating a more heterogeneous job market for nationals and the expatriate workforce,” says Stephen Farrell, Partner, Advisory, EY.
The long-term success of the GCC will lie in welcoming the world into the region, with a focus on attracting global talent with a stake in the long-term economic future of Gulf markets and the desire and ability to motivate and nurture the region’s young people.
“The Gulf opportunity is large, but it is time-bound. Now is the time to take advantage of the region’s short-term attractiveness to become a long-term global magnet. Fine-tuning the Gulf states global positioning, through country branding, improving regulatory environments while maintaining a sense of security and contentment for their citizenry during a period of economic growth and social change, will carry their existing successes into the future,” concludes Gerard.