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Wed 29 Apr 2015 01:53 PM

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GCC said to miss out on $17.7bn by failing to diversify from oil

New EY Diversification Tracker assesses the degree to which economies have moved away from dependence on oil

GCC said to miss out on $17.7bn by failing to diversify from oil

GCC countries would gain an additional $17.7 billion if they further diversified their economies beyond oil.

This is the conclusion of a study by professional services firm EY, which identifies transport, financial services, tourism, telecoms and research & development as the sectors with the biggest economic potential for the Gulf.

The EY Diversification Tracker assesses the degree to which economies have moved away from dependence on oil. It focuses on three aspects – export production and volume, the share of the non-oil sector and private versus public spending – which demonstrate economic diversification.

It identifies a “sweet spot” where regional strengths, economic impact and nationals’ employment preferences meet, allowing all these three aspects to be achieved.

“The best drivers of diversification are those that have the strongest linkages with the rest of the economy,” said Gerard Gallagher, MENA advisory leader at EY.

“These sectors are said to have a high economic multiplier – in other words, a dollar of investment translates into far more than a dollar of GDP due to the stimulation other sectors.”

For example, the study explains, additional investment in the hydrocarbons sector brings the least additional return to GDP at $1.30 and affects just seven other sectors.

Construction, on the other hand, offers the most return to GDP, bringing an average of $1.80 for every dollar invested in construction activity.

If it grew construction and other “sweet spot” sectors rather than oil, the GCC region could gain an extra $17.7 billion in GDP, the report says.

EY unveiled the findings of its study at The Economist’s Future of Work Middle East conference in Dubai on Wednesday.

Abdullah Ahmed al Saleh, foreign trade undersecretary at the UAE Ministry of Economy, told delegates that the UAE was making good progress in diversifying its economy away from oil.

“Ninety percent of our income used to come from oil but we succeeded in reducing it to a third of our economy in the past few years and it now represents just 20 percent of GDP.”