The randomly selected economies included Saudi Arabia, Qatar, and the United Arab Emirates (UAE). Brief economic development facts about each of the randomly selected oil-producing countries are presented as follows.
Saudi Arabia: Is a Founding Member of the Organisation of the Petroleum Exporting Countries (OPEC) in 1960; Member of the Group of Twenty (G20) nations, and sole representative of the Arab region in the G20; possesses 16% of the world’s proved oil reserves; world’s largest exporter of total petroleum liquids; and has world’s largest crude oil production capacity.
The oil-rich nation’s economic growth rate in 2015 was 3.4%. The projected growth rate for 2016 is 1.9%. The oil sector growth rate in 2015 was 3.1%; this is expected to dip to 0.9% in 2016.
The MENA Economic Monitor Report projected Saudi Arabia’s respective real GDP growth rates for 2016 and 2017 at 2.2% and 2.6%. Some financial analysts believe the Saudi government would increase her domestic oil revenues, on average, by an additional $18 billion each year, from 2016 to 2035. This projection may be described as economically excessive given the fluctuating fortunes of revenue mobilisation in the sub crude oil sector. It would be in the best economic interest of the Saudi government to review her expectations from crude oil revenues downwardly.
Qatar: This nation has been a Member of the Organisation of the Petroleum Exporting Countries (OPEC) since 1961. Non-oil real GDP growth in the country is expected to grow by 9.5% in 2016. In monetary terms, Qatar’s non-oil GDP in 2016 is estimated at $80 billion, an increase over $66billion recorded in 2014. Non-oil sector’s contribution to GDP in 2009 was $33 billion, representing 34% of GDP in that year. Evidently, this amount doubled by 2014 to $66 billion.
Qatar has begun a new phase of economic diversification – paying strong attention to sectors other than the crude oil sector.Qatar’s novel economic development strategy considers development of the private sector and non-oil sectors as key to her economic success.Economic pundits affirm the contribution of the non-oil sector to the composition of Qatar’s total GDP would witness a significant improvement through public-private sector partnerships.
The MENA Economic Monitor Report revealedQatar is expected to record an average real GDP growth rate of 3.6% between 2016 and 2018.
United Arab Emirates (UAE): This Arab nation has been a Member of the Organisation of the Petroleum Exporting Countries (OPEC) since 1967. The country’s non-oil sector contribution to GDP in 2015 was 70%; projected contribution of the non-oil sectors to GDP in the next 10 to 15 years is 80%; target in the next 10 to 15 years is to reduce the contribution of the oil sector to only 20% of overall GDP.The UAE was afavoured foreign-investor destination in 2014; foreign direct investment (FDI) in 2014 was $100 billion. In terms of FDI, the United Arab Emirates was ranked number one in the Middle East; and in the Arab region in 2014.
Data released by the MENA Economic Monitor Report revealedUAE is expected to experience slow economic growth, averaging 2.5% between 2016 and 2018.
Emerging Question: An imminent question that emerges from the foregoing is: “Even traditional oil-driven economies, including Qatar and UAE, and others, have realised the need to minimise financial expectations from the oil sector, how much more new entrants such as Ghana?”
There is a positive relationship between lower oil prices and slower economic growth in oil-driven and oil-dependent economies. The presentation of Ghana’s mid-year supplementary budget by the Minister of Finance and Economic Planning, Mr. Seth Terkper, in July 2016 in Parliament was an ample evidence of how over-reliance on crude oil revenues could plunge the country into an economic abyss.
Economic Diversification Concept
A novel concept in vogue in many economies is economic diversification. This concept emphasises equitable distribution of a nation’s resource to various sectors of her economy to ensure collective development and growth. Oil-driven economies such as Saudi Arabia, Qatar and United Arab Emirates, among others, have taught it prudent and necessary to strategically focus their attention on economic diversification.The oil-driven economies mentioned above believe over-reliance on crude oil as the engine for growth of their respective economies might land them in an endless economic quagmire. As a result, these countries are guarding “jealously” against the “Dutch Disease.”
The economic diversification concept of the oil-driven economies is intended to reduce their level of reliance on oil revenues as the most significant contributor to total GDP.It is imperative that Ghana emulates the strategic development and economic growth examples of the foregoing countries.
Ghana – The Way Forward
In view of the untold economic challenges that excessive reliance on proceeds from crude oil production could visit on the Ghanaian economy, the writer proffered the ensuing solutions. First, the Government of Ghana must set moderately ambitious vision, goal, purpose and agenda for each government department responsible for a sector and adequately resource the department to perform its functions effectively.
Second, the government must shy away from “political” appointments to appointments borne out of academic and professional competence; governments must appoint individuals with the requisite academic and professional wherewithal to effectively harness the limited state resources at their disposal to the economic advantage of the entire nation.
Third, non-oil and private sectors in Ghana must be given the needed attention to become the most important drivers of the Ghanaian economy. Fourth, Ghana’s novel economic development strategy must be focused essentially on economic diversification of various sectors that form the nucleus of non-oil GDP.
Fifth, Ghana government’s projections on revenue from crude oil should not be as high as witnessed in the presentation of the 2016 Budget.Even if prospects for the crude oil market are relatively high, government’s projections on revenue mobilisation from the sub-sector should be controllably low. It is better to end the year with an evenly-stated or under-stated revenue variance than to conclude with an over-stated revenue variance.
Sixth, Government’s reforms in subsidies on utilities and petroleum products should help increase government’s revenues; and to overcome any revenue losses likely to be incurred in the crude oil sector through lower price per barrel.
Seventh, proceeds from sale of crude oil should be treated as an “addendum” or “unexpected” addition to the stream of government inflows over a considerable number of years. This way, any fluctuations in derived revenue from crude oil production would not have a significant negative effect on government’s estimated budget and actual expenditure.
Eight, already commenced public sector infrastructural development projects must be accelerated; provision of new infrastructure in strategic areas of the economy must be initiated to encourage and enhance private sector investment and participation in Ghana’s socio-economic development.
Finally, Parliament should be encouraged and impressed upon to expedite action on the passage of the Ghana Export and Import (EXIM) Bill to advance the cause of transforming Ghana from an import-led to export-led economy.
The writer is Dean / Senior Lecturer,
Regent Univ. College of Science and Technology and a
Consultant at Eben Consultancy
Email: [email protected]; [email protected]
Website: www.ebenezerashley.com
