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Arab Oil Exporters: Coping with a New Global Oil Order


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Hanan Morsy - Lead Economist in charge of MENA
ERF Conference on “Arab Oil Exporters: Coping with a New Global Oil Order”

Kuwait, November 26-27, 2017

Published in: Government & Nonprofit
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Arab Oil Exporters: Coping with a New Global Oil Order

  1. 1. Policy conference Arab Oil Exporters: Coping with a New Global Oil Order Dr. Hanan Morsy Lead Economist in charge of MENA November 2017 OFFICIAL USE
  2. 2. GCC Structural Issues Non-oil GDP consists overwhelmingly of non-tradables, in particular of low-skilled services (such as restaurants, transportation, telecommunications), while most of the tradables are imported. • The high profitability of natural resource sectors reduces the incentives to invest in other tradable sectors, including high-technology manufactures and services that are essential to economic growth. • Producing non-tradables is less risky and more profitable for firms benefitting from government spending • The easy availability of low-skilled, low-wage foreign labour has helped extract larger rents in non tradables. OFFICIAL USE 2
  3. 3. Diversification: International experience • Diversifying away from oil is difficult, and takes a long time ➢ Malaysia started its export-oriented strategy in the early 1970s and experienced rapid growth in export sophistication in the 1980s–90s. ➢ Also, it took more than 20 years to reach a level of sophistication comparable to some advanced economies. • Success hinges on adopting appropriate policies ahead of the decline in oil revenues. • Few successful diversification cases: Indonesia, Malaysia, and Mexico diversifying away from oil, Chile away from copper • Many cases of limited success (Congo, Ecuador, Gabon, Nigeria, Venezuela), particularly when their oil production horizon is still long. OFFICIAL USE 3
  4. 4. Success Factors • Promoting exports and moving up the value chain including through adopting export-oriented strategies and creating incentives to encourage firms to develop export markets • Creating a favourable economic and business environment • Workforce skill upgrading through training and education reforms • Strengthening domestic value chains through a mix of: ➢ Vertical diversification to create linkages in the existing industries ➢ Horizontal diversification with an emphasis on exports and technological upgrade. • Encouraging entrepreneurship • Role of FDI to promote technological transfer OFFICIAL USE 4
  5. 5. Countries following different paths? In China: • Structural transformation caused by differential sectoral productivity growth • Important role of the reduction of the relative size of the government. • The mobility frictions slowed the movement out of agriculture. In India: • TFP growth fastest in services In South Korea: • Openness to trade accelerated transition out of agriculture into industry and services OFFICIAL USE 5
  6. 6. Not all service sectors are equal • Studies show that there is substantial heterogeneity among services. • Today’s advanced economies are increasingly dominated by services. • Education and health care are different than retail trade  They use very different skill intensities for the labour they employ • Personal, finance, and business services have low productivity growth and increasing shares in employment and GDP • Distribution services have rapid productivity growth and constant shares. OFFICIAL USE 6
  7. 7. Food for thought • Rethinking the role of the state: enabling environment; incentives and design; dynamic recalibration. • Country specificity: reforms should be designed carefully and sequenced to account for circumstances and capacity • What worked then may not work now: Forward-looking policies for evolving economic transformation 7 OFFICIAL USE
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  9. 9. Thank you 9 OFFICIAL USE