Can private sector change the destiny of ME economy?
Oil has decided the destiny of Middle East region for a long time and still continues to do so. It brought fortunes to the countries in the region when prices were high and caused chaos when prices collapsed.
Crude oil prices nosedived in 2014 but never climbed up to the previous levels. And, the economies in the region started to feel the heat since then as growth slowed and optimism plummeted.
Khalid Al Rumaihi, CEO, Bahrain Economic Development Board, speaks on the challenges of slow growth in the region, the role of the private sector and why the best is yet to come for the GCC.
Rumaihi is one of the speakers at the two-day long Top CEO Conference & Awards, which kickstarted on Monday at King Abdullah Economic City, Saudi Arabia.
The conference will include both on- and off-record sessions that will tackle numerous topics, including New Technologies, Challenges of Slow Growth, The Broken Job Machine, Private-Public Partnerships, Leadership 2.0, Vision 2030, New Alliances, the Arab Image in the West, Antitrust Laws, Women and Leadership, and The Image War.
Excerpts from the interview
The region is embarking on a new era – lower oil prices introducing new challenges to growth across a diverse range of sectors. How do you think businesses, especially ones in the corporate sector are adapting to this new reality?
Lower oil prices certainly bring a range of challenges, but they also bring opportunities. The challenges mean that growth in some sectors may be harder to generate than before. Companies that succeed in the future will be those that are able to increase efficiency and productivity as well as be able to innovate.
It is also important to remember the economic transformation that the region is seeing as countries aim to move away from their reliance on oil and gas. As part of these efforts, we are seeing considerable investment in infrastructure across the region – more than $32 billion in Bahrain alone and approximately $2 trillion across the region.
This creates opportunities for investors while simultaneously helping to grow our economies in the future. Also, the diversification of economies provides opportunities for businesses as governments look at reforming rules and regulations in order to aid private sector growth.
I believe that in the coming decades, the private sector will play a much larger role in the economy – generating growth, creating jobs and underpinning prosperity. Businesses that succeed will be those that can adapt to pressure on their business models and take advantage of the new opportunities that present themselves. Some of them will be existing companies, but many will be international businesses coming to the region or start-ups created by people who might still be in school today.
As a result of the current economic climate, the Gulf region is looking at including sustainable growth solutions to its strategy. In your view, how can governments in the GCC implement these and how would this benefit growth against a challenging economic backdrop?
It is clear that the region needs to move away from a government-allocated model of growth to one led by the private sector. When we consider the current situation in the GCC region, in which oil prices range between $40 and $60, that range has forced the governments to readjust and consider new ways of generating revenues. Without this, no growth can be sustainable.
It has really forced transformation away from a model in which the government is the driver of growth, to a private-led growth model, in which the government is the facilitator of growth. In this current economic climate, ensuring that soft infrastructure is right, is going to be critical.
When discussing soft infrastructure, we should also consider the laws and regulations that would encourage investment and protect investor rights. In Bahrain, this includes a number of incentives and measures which successfully attract more foreign investment – a highly competitive taxation system, 100 percent foreign ownership in most sectors, competitive prices for office spaces, and access to the Saudi Arabia market, which is considered to be the largest market in the Gulf Region.
Bahrain has been a pioneer for economic diversification in the region. How has this diversification benefitted the country’s economy today? What lessons can be learnt from the Kingdom’s experience?
In Bahrain, the non-oil sector now accounts for around 80 per cent of GDP. This means that we have a resilient, sophisticated and diversified economy with significant strengths in areas such as downstream aluminium, financial services and logistics. It also means that we have been able to maintain momentum despite the volatility in the oil prices as well as in the region and in the global economy. We have a growth forecast of 3.4 per cent for 2016, with the non-oil sector expanding at 3.7 per cent.While every country in the region will have its own experience, in terms of the reforms that underpinned our own diversification, a good example is the Bahrain Telecom Regulatory Authority.
Set up in 2003, the Telecom Regulatory Authority opened up the sector to competition. This sector was dominated by one government-owned entity and by opening up the sector and liberalizing it, a host of new licenses were awarded. We saw the sector grow from one operator in 2003, to 20 operators today. The share of that sector in GDP has grown by about 4-5 percent in the last 10 years, the employment in the sector grew by 50 percent, out of which 70 percent of jobs are held by nationals. The government lost its dominant market share, but the sector and the economy as a whole are much healthier and dynamic as a result.
How can governments in the region communicate the importance of sustainable growth to businesses? How can stakeholders understand and realize these aims and what risks should be taken into consideration?
Policies that enable sustainable and long term growth prospects are not only beneficial to the government, but also to businesses. Investors and companies understand the pressures that lower oil prices are bringing and the need to respond – what they need is a clear strategy and roadmap from the government to enable them to form their own plans. The government too needs to make sure that its’ decision making is consensus-based – it might take longer in the short term, but it ensures that the policies can be implemented and gives business clarity. We have seen examples of these plans across the region – most recently with the Saudi Vision 2030.