Gulf states will continue to fail in their quests to diversify because they insist on controlling their economies, a Qatari sheikh and former economy minister has claimed.
Sheikh Mohamed AJ Althani, who was trade and economy minister 2003-06, said until the oil-reliant region built the legal structures and infrastructure to support the private sector, other sectors would struggle to take hold and potentially fill future economic gaps.
“Let me tell you, no one has ever succeeded in diversifying in the Gulf, because if you want to succeed in diversification you need to create the platform and the legal structure and the rule of law to make sure that private sectors and the innovators have access to the money - to whatever they need: a plot of land, a lease, a port, an airport,” Sheikh Mohamed told Arabian Business in an extended interview.
“The state cannot diversify the economy; the state can make the major projects, yes, the billions of dollar projects, fine, but the state cannot go into the diversified world.
“The state cannot put its hand up and do everything, but in the Gulf the weight has always been taken by the state: I will do it, they cannot do it.”
The GCC states have each recognised their need to nurture non-oil and gas industries, such as services, property and finance.
The International Monetary Fund also has warned of impending budget deficits if economies are not soon diversified.
However, oil and gas still account for majority of GCC budget revenues, and as much as 92 percent in Saudi Arabia.
Sheikh Mohamed said time was running out to use the spoils of the past few decades to help build a non-oil-reliant future, which he said should be led by entrepreneurs.
Small to medium businesses (SMEs) are the biggest creator of jobs, with half of all workers in the region employed by SMEs, according to the World Bank’s private sector development institution, International Finance Centre.
They also contribute one-third of GDP.
However, more needed to be done to invest in new business ventures, including bankruptcy legislation and easier access to finance, Sheikh Mohamed said.
SMEs make up only 2 percent of Gulf banks’ loans, the lowest rate in the world.
“This is the best time and maybe the last time for us to allow the entrepreneurs to lead the economy,” Sheikh Mohamed said.
“This will make a big difference and you will see a lot of innovation and competition with the rest of the world.
“Most of the entrepreneurs want to do their own thing. The guy has a plan to make a small petro-chemical project but he cannot do it because the state wants to do it and he falls back and does something else.
“But if you allow people to do it, they will do it. Even China now is realising this ... that’s why you have a boom in China. That’s how the United States became what it is.
“Even if 1 percent [of the population are entrepreneurs] there are enough to make the others follow. But if we don’t give them a chance, that is a problem.
“Give them [a chance] and ... you will see how the world changes overnight.”
<Read the full interview with Sheikh Mohamed AJ Althani>