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20/02/2017
Diversification of Income Sources in OAPEC Member Countries

Diversification of Income Sources in OAPEC Member Countries

Most OAPEC member countries are accelerating efforts on diversifying their economic structure to move from revenue-generating economy that depends merely on petroleum industry as a single source of income to implementing more comprehensive and diverse economic policies to keep in pace with the rapid changes in the world economy and international energy industry. Member countries believe that it is necessary that national income depends on various sources and avoid focusing on a single source; and that they should develop other sources vital to the economy and revenues in light of the recurrent economic instability across the world due to the world oil market conditions. Moreover, the move is important to avoid potential risks as well as plans of some major energy consuming countries to adopt oil and environment policies that might have negative impacts on the future of the world oil demand.

In the past decade, OAPEC members faced many economic challenges resulting from instability in the oil market, falling oil prices, declining foreign investments in the region, in addition to other factors including: rapid growth of population and immigration for various reasons- whether internal (from countryside to cities) or external- which led to increasing domestic energy consumption, shrinking job opportunities, growing unemployment rates in many countries and expanding public facilities and their needs of services and power. Moreover, there are challenges emerging from global economic developments like: the slowdown of economic growth rates especially in emerging markets and the Eurozone; drop in basic goods’ prices; and some industrial countries’ plans to shrink conventional fossil fuel consumption.

Data provided in the Joint Arab Economic Report 2016 mentioned a noticeable decline in the performance of many Arab countries’ economies during 2015. Arab countries’ GDP in 2015reached about $2440 billion compared to $2773 billion in 2014, representing a drop of 12% and a decline in the output of the Arab extractive industries from $942.8 billion in 2014 to about $556.2 billion in 2015. Arab intra-trade performance dropped noticeably in 2015 to reach about $111.4 billion against about $120.8 billion in 2014. The drop can be attributed to the declining oil prices that affected in turn most Arab economic indexes.                   

The trend of executing economic-base-diversification projects is a strategic goal for most OAPEC member countries due to its numerous benefits especially in terms of increasing GDP levels, supporting sustainable development efforts, and reducing risks resulting from relying on a single source of income and full dependence on merchandise import. This ultimately feeds into the most ideal use of the petroleum wealth that is considered the economic cornerstone for OAPEC members. Among the promising economic sectors for future growth in OAPEC member countries are: industry, agriculture, water, tourism, transportation, commerce (wholesale and retail), services, technology, and renewable energy projects.

The success of the economic diversification in OAPEC members calls for developing all sectors, on top of which investing in human resources since it is the cornerstone for development. Also, a comprehensive economic vision should be adopted including an overall review of economic legislations and current financial and tax policies. It should be aiming at motivating the private sector and foreign investors to take part in the country’s economic activities. More should be done to develop the infrastructure especially transportation and power generation sectors.

While keeping a close eye on economic reforms in its member countries, OAPEC Secretariat General lauds the members’ efforts in developing their economic systems, and hopes that ultimate benefit is gained from the promising investment opportunities in the Arab petroleum industry in general, especially downstream industries (refining and petrochemicals). The Organisation also hopes that economic cooperation and intra-trade between Arab countries would be improved further, so that in the end of the day they contribute to strengthening our members’ economic security.