Iran falling behind in the new non-oil economy
https://arab.news/bjbfy
Economic diversification is very important for Middle Eastern countries, specifically for oil rich nations, but the Iranian regime is heavily dependent on oil revenues to fund its spending. Iran has the second-largest natural gas reserves and the fourth-largest proven crude oil reserves in the world, and the sale of these resources accounts for more than 80 percent of its export revenues.
Several Iranian leaders have hinted at Iran’s major dependence on oil exports. Former President Hassan Rouhani admitted last week: “Although we have some other incomes, the only revenue that can keep the country going is the oil money.” He added: “We have never had so many problems in selling oil. We never had so many problems in keeping our oil tanker fleet sailing… How can we run the affairs of the country when we have problems with selling our oil?”
On the other hand, economic diversification has been the goal of all Gulf economies almost since they began pumping oil out of the ground. Despite the enormous riches “black gold” provides, successive GCC governments have long been aware that oil wealth cannot last for ever. And the COVID-19 pandemic has given them the first glimmer of the reality of that future, with prices dipping to unimaginably low levels as a global lockdown took hold.
Putting rocket boosters under the development of domestic, knowledge-based industries has, arguably for the first time, become an urgent economic necessity, rather than a welcome add-on. It has been a long-standing, unofficial social contract between Gulf governments and their people that oil revenues will maintain a high standard of living. It has undoubtedly been a major factor in the stability these countries enjoy in comparison to some of their neighbors. In addition, it would be foolish to predict a short-term future in which oil does not continue to prove economically dominant, particularly as the world opens up post-pandemic.
However, the pandemic has fundamentally shaken up the pieces of the Middle East’s economic picture. In my opinion, the Gulf is particularly well placed for a rapid economic recovery, in spite of rising infection levels. Recent economic forecasts have been revised upwards, with GCC growth expected to be 2 to 3 percent this year and larger upticks in 2022, outstripping much of the rest of the world. This is the dividend of a rapid, widespread vaccination program that has allowed travel and businesses to open up sooner.
Putting rocket boosters under the development of domestic, knowledge-based industries has, arguably for the first time, become an urgent economic necessity, rather than a welcome add-on.
Dr. Majid Rafizadeh
The global focus on vaccines could explain Saudi Arabia announcing plans to build a $60 million animal vaccine production plant in partnership with Argentina’s Biogensis Bago, which is the first in the region. Dubai has also adopted an open city policy since January, when much of the rest of the world was locked down, with its current economic performance approaching close to pre-pandemic levels. The vaccination program, whilst proving the key to enhanced economic performance in the short term, also offers a view of what Gulf economic diversification might look like. It has established a medical research and production industry the likes of which the region has never seen before. The UAE has also established the region’s first vaccine production facility and conducted the Middle East’s first ever trials for the Chinese Sinopharm jab.
These ventures not only help the Gulf to weather the immediate pandemic storm but are also providing the basis of a new social contract. There is growing demand from its youthful, highly educated populations for high-skilled, knowledge-based employment. According to the Arab Youth Survey, an overwhelming 87 percent of young Arabs say they are concerned by unemployment — the implication being that they are looking to their governments to provide not just basic standards of living, but high-quality employment too.
The key for GCC countries is that some of the non-oil industries are becoming well established, rather than simply existing. In Bahrain, for example, the financial services industry accounts for nearly 20 percent of GDP and is fast becoming recognized as a regional hub for finance.
These industries are now providing dozens of examples and templates for other oil-dominant economies of the region to work from. The model Gulf economies of the future will not be those that can most efficiently pump oil out of the ground and rapidly ship it round the world. Rather, it will be those that develop world-leading, knowledge-based industries able to provide the high-skilled, innovative jobs their youthful populations demand.
Unlike the Iranian government, Gulf Arab states have been taking necessary steps to diversify their economies. The pandemic has also undoubtedly accelerated the urgency of making economic diversity in the Gulf more than an impressive vision and some well-designed PowerPoint presentations. It has also, partly out of necessity, accelerated visions into reality on the ground in places such as Jeddah, Abu Dhabi, and Manama. In other words, for the countries of the Gulf, COVID-19 has pushed the race for economic diversity into a new phase.
• Dr. Majid Rafizadeh is a Harvard-educated Iranian-American political scientist. Twitter: @Dr_Rafizadeh
