The sands are shifting
Suffice to have a brief look at a picture of the Qatari capital Doha from 30 years ago and see the stunning difference from today. The country's oil history is well-known, it's what has launched Qatar onto the world stage, economy-wise and income-wise. Surely, many of its citizens used to believe until very recently that this wealth was reserved to them for eternity, and the world was arranged in a way that would grant them prosperity and a high living standard for centuries. But this belief has started being shaken in recent months and years. The dynamic changes of the time haven't bypassed this Gulf state either: the stability and security that the Qataris used to take for granted, and the predictability of their economy, seems to have gone for good. The moving sands of globalisation have caught up even with countries that were presumably the most stable. The deep changes in the world of energy production and the increasing competition between the (ever increasing number of) major players, the fracking revolution, the boom in the transportation of energy resources, the growing interdependence and constant shift towards renewables - all of this is making the accelerated adaptation of the (now former) energy hegemons inevitable and urgently necessary for their survival.
The two-digit deficits from last year in many Gulf states have naturally attracted the analysts' attention, as well as the de facto undermining of OPEC which for decades used to utterly dominate the energy markets and institutionally enforce the present development model of the world. These problems instantly started generating ripples. The most significant among them, the shrinking public expenses and the cuts in some of the larger-scale projects, as well as diminishing subsidies for oil and gas. But this year, even deeper signs of change have started coming to the surface. In places like Saudi Arabia, Qatar and UAE, massive layoffs have started at the (mostly foreign-dominated) labour markets. The biggest oil company in Abu Dhabi for instance has cut 10% of their staff in a single sweep. Riyadh was also forced to take similar measures, being pressured by almost 30% of youth unemployment, which could further deepen their economic woes. Apart from these events though, the most intriguing element of what's happening is related to the emergence and implementation of new development strategies in those societies.
From the tone of the political discourse in the region it's evident that the ongoing changes in the global economy and politics are being perceived as long-term changes that require a serious reaction. In the meantime, there's a lot of difference between the approach of these countries. Qatar for example is rethinking and re-calibrating their large investment projects, while Kuwait is doing just the opposite. The level of readiness for changing the development models and diversification also varies from country to country. Qatar did complete their "Vision 2030" project as early as 2008, although the rationale there was mostly related to achieving certain parameters of the global human development index rather than addressing the changes in the global economic environment. In contrast, Saudi Arabia is only now preparing such a plan, and doing it under the pressure of the circumstances, amidst a growing internal political instability. Other countries like the UAE are in a relatively better position due to the existence of a much broader economic foundation. Energy is "just" 1/3 of that economy (real estate is big there). But all these variations notwithstanding, it's evident that practically all states in the region are being forced to accelerate the adaptation of their respective development models, and put diversification and expanding the economic portfolio at the core of all that.
What's happening in Qatar is particularly interesting in this context. One of the pillars of their approach is investing into aiding the small and middle-sized companies and making them more internationally-orientated. For example, one of these programs includes training and stimulating entrepreneurship in the Qatari society, and improving corporate management through marketing and training programs for the services sector. The opening up of the smaller companies to the global market requires a whole new type of managers, so education programs of this sort will only be growing in number. This approach is motivated by a desire to develop the private sector, which until now used to be almost entirely in the shadow of large state corporations. The idea is that the private companies should occupy new niches but also be integrated into the production networks of those same large corporations that are the backbone of the local economies. For instance, the Qatari branch of Shell now conducts annual auctions for various activities, particularly ones orientated towards the small and middle business, so they could integrate those into their trade networks. The purpose here is not just a temporary generation of extra revenue, but the wholesome development of those companies through adopting various standards and practices that would grant them a long-term potential for expansion.
In the meantime, a number of new specific sector strategies are being developed. One is for the sports-related industries. It was modeled after the cluster development experience of Singapore, Spain and the US, and a sum of 18 bn euro has been allocated for it within the next 7 years. The mega-project for hosting the FIFA World Cup in 2022 (Qatar) is in that same context, and it's meant to help that country turn into a regional and global sports hub. The Qataris are aiming at hosting at least 30 such major sports events in the next couple of decades, the latest one being the Handball World Cup last year. A new huge sports park is being started right now, it'll have a zone for companies related to the sports industries. But that sector strategy is also orientated towards a number of related industries, which is meant to achieve a much broader economic effect. For example, a lot of funds have been diverted to developing the sports-related goods and services, the commercialisation of sport, sports tourism, follow-up exports and sports-related know-how, etc.
There's still more beyond these direct measures. Some changes in the strategy for managing the state sovereign funds were announced recently, and some of the money will be re-directed towards broader investments and faster-return investments that could then be re-invested in the diversification and development measures. The same is happening in Kuwait, although their fund is traditionally more conservative. Important changes are coming up regionally as well. Although lots of folks are now talking about the imminent end of OPEC, that shouldn't necessarily have a very negative impact on other processes that could instead be pushing the Gulf states more toward each other rather than dividing them. For instance, more and more voices are now advocating for developing economic integration between the Gulf economies. Since last year, the regional council has added a customs union to that integration structure, and now lots of people are in favour of creating a unified market as a tool for diversification.
When some of the most economically confident societies start to hectically look for new ways forward, that must mean something really big is happening. The Gulf states may be among the last ones to join the ever expanding list of regions and countries to re-think and change decades-old development models and practices, granted. West Europe and the US did start doing that almost immediately after the 2008 crisis, and China's slow-down from recent years has forced similar processes onto South-East Asia and Latin America. Ageing old "tigers" like South Korea are being compelled to follow suit. And now it's obviously the turn of the "energy tigers" from the Gulf, who'll have to either adapt to the new norm, or sink back into oblivion. All indications are that they've chosen the former.