GOIC Calls for Strategic Economic Reforms in GCC

Doha, March 13 (QNA) - The Gulf Organization for Industrial Consulting (GOIC) said Sunday that the GCC members should make a number of strategic economic reforms in the face of the decline in the price of oil. The organization issued an economic report on the Repercussions and Available Options in the face of oil prices decline, noting that Oil is the main source of income and the backbone of GCC economies, as its share of the GDP is approximately 47%. As a result, the decline requires changes in policy. GOIC recommended the gradual lifting of fuel subsidies. The organization also recommended turning towards renewable energy. Furthermore, the private sector should play a bigger role in development. Another policy change would be to enforce income tax on individuals and profit tax on corporations. The challenge of the fall of oil prices and the expectations of a bigger decrease according to interested international corporations can be transformed into a real opportunity for GCC countries to expedite the transformational process from oil-based economy to manufacturing economy. GCC countries have several advantages that they can benefit from like their central geographic location, the capacity to move to alternative energy and the diversification of the labor market. GOIC Calls for Strategic Economic Reforms in GCC -1- The report described the past decade as one "full of major events that had composite and overlapping effects on economies in the GCC and the region in general." They said that the decade had an oil boom consisting of two stages; the first was gradual and reached its peak in 2008, when the average price of an oil barrel was $94.5 for the OPEC basket. The second key event was the global financial crisis that started in the United States of America and reached most countries throughout the world in different degrees depending on their connection with US financial and investment markets. The report added that the first shock of the global financial crisis on GCC countries in the end of 2008 resulted in the decrease of foreign financial investments in Gulf sovereign funds, valued at approximately $1.4 trillion back then. Still, GCC countries showed resilience in terms of shock absorption and dealt with aftershocks in record time. Oil prices continued to increase gradually after the global financial crisis to a new peak in 2012 when the oil barrels price was about $109.5 and approximately $150 for some types of oil. After the signs of oil prices decline end of 2013, OPEC member states could not redress this drop by reducing production estimated at $32 million barrel a day which exceeded global demand. Since the global demand was valued at approximately $30 million, there was a surplus of supply, particularly with shale oil production in the USA which contributed to the decreasing of oil prices. Economic sectors in GCC countries, particularly industries, construction and commerce, witnessed a remarkable prosperity throughout the last decade. In this regard, KSA and UAE have become key players in the world of commerce and investments, particularly in the Arab world. In fact, they are a bridge linking Arab countries with Southeast Asia. They have witnessed a remarkable surge in FDIs from 2005 to 2014; incoming cumulative foreign investments increased by a compound growth rate of approximately 19.9% per year, twice the global annual rate of 9.6% for the same period of time. The report added that the strength of GCC economies turned it into safe havens for foreign capital during and after the global financial crisis. As a result, GCC countries attracted about 285.2 billion USD in 2009, hence 1.6% of the cumulative foreign investments targeting countries all over the globe. The GCC industrial sector received foreign investments worth approximately $53 billion contributing to about 15% of the GCC GDP. Despite those developments, the report noted that oil remains at the core of the GCC development process and the shield against financial crises and shocks. Therefore, the current drop of oil prices will undoubtedly have negative repercussions on national economies in GCC countries. It is necessary for GCC countries to start looking for new sources to finance their budgets, as oils share is currently 75% of these budgets. In this regard, oil income is expected to drop to about 287 billion USD in 2016 should oil prices remain the same. Growth of non-oil sectors of about 3% per year to compensate for the shortage of oil income, this growth is not enough to cover the demographic growth rate and is unsustainable. In spite of the humble results of the economic diversification efforts in the GCC, the endeavors of diversification have created a positive environment for non-oil economic activities should oil income drop. In fact, the economic pattern adopted in the past decades aimed at diversifying production base to develop GCC infrastructure, update economic legislations, develop institutions, and prepare the private sector to play a bigger role in the development process. In this regard, GCC countries adopted serious development strategies to boost competitiveness and free national economies. (QNA)