Essay on Economic Diversification in MENA

For over one hundred years, countries in the Middle East and North Africa (MENA) relied heavily on oil and gas (Aker and Aghaei, 2019, p.2871). Countries like the United Arab Emirates and Qatar grew rapidly because of oil, and they provided millions with jobs. Nevertheless, the 21st century has brought with it new challenges, and more and more people are today environmentally aware. Also, oil reserves in the region are predicted to plummet in the coming years. Environmental awareness and the fact that oil is rapidly decreasing has pushed countries in this region to look for other economic alternatives. At the same time, environmentalism has coerced consumers into making radical decisions such as buying electric cars to spare the planet from global warming resulting from the use of petroleum. These decisions greatly affect the prices, production, and consumption of oil. According to Aker and Aghaei (2019, p.2871), economic diversification implies reducing dependence on a single source of output and income. In most cases, diversification will entail developing a larger range of sectors and providing a diverse range of goods and services. The importance of economic diversification in MENA is that it has helped protect the region’s economic viability. Today the region’s economic health is not tied to the prices of oil, and more and more small and medium business are erupting hence employing millions of people.

Diversification in MENA Countries

Over the past five decades, MENA economies have taken critical steps to diversify the economies away from oil and gas (Bouri, 2015, p.590). Many countries in this region have invested heavily in infrastructure, education, health, and other manufacturing industries that serve an international market. Since 2000 most Arab countries have undertaken important economic reforms in some way (Bouri, 2015, p.596). Economic diversification is important to the economic development of a nation. A lack of diversification often leads to increased vulnerability to external shock that undermines the need for perpetual economic growth. Also, with economic diversification comes increased changes, particularly in the sociopolitical environment. At times diversification can lead to increased national income and spending, which are aspects that can affect health, education, and investments. Likewise, diversifying into sectors including technology, agriculture, among other industries, can greatly improve the sociopolitical environment of MENA countries.

The United Emirates Arabs are one particular region that has transformed its economy from an oil-based economy to an economy that largely depends on tourism and real estate (Shayah, 2015, p.735). Tourism is expected to surpass 100 billion by the year 2025 hence rivaling the income the country collects from its oil production (Stephenson and Ali-Knight, 2010, p.278). Notably, this diversification from oil to tourism has allowed the country to perform better for a long period. For instance, since Dubai opened its border to tourism in 1988, its international trade has grown at about 11 percent per year (Zaidan and Kovacs, 2017, p.44). In like manner, there has been an increase in job opportunities, and more importantly, the country has experienced a rise in cultural exchange with western nations. Tourism has increased the country’s income, but it has also effected change in instances such as gender inclusion and education. For example, a study conducted in the UAE by Zaidan and Kovacs (2017, p.46) found that women’s employment rate in the region had gradually increased from 20 percent in 2016 to 43.5 percent in 2011. The number of women in the tourism sector increased from 1000 in 1988 to about 135 000 women in 2015. Tourism and the many aspects that come with tourism have also forced transformation in other sectors, including real estate. Dubai is shaping itself into a country that builds bigger and taller buildings than any other country. This is driven by the increasing supply of tourist in the region.

In North Africa, countries like Egypt are transforming from oil economies into agriculture. Today agriculture contributes to about 11.2 percent of Egypt’s Gross domestic product, and more importantly, it employs 25 percent of the active population (Can and Gozgor, 2016, p.1157). Agriculture has historically been an important sector for Egypt, and it accounts for about 20 percent of the total export and foreign exchange income. Nevertheless, agriculture has long been part of Egypt, and it was practiced in Egypt’s early civilization. But due to climate change, the country is engaging new ways of farming and producing agricultural produce. The value addition to Egypt’s agrarian produce sector is also prevalent. The importance of adapting an agricultural economy in Egypt is that it has enhanced the country’s perception of women’s roles. In Egypt, women make an important contribution to Egypt’s agricultural sector and the rural economy. The exact contribution made by women in the region is often challenging to assess, and there is a high variation across the region. However, reports suggest that Egyptian women contribute to about 63.5 percent of Egypt’s agricultural labor force (Arouri and Nguyen, 2017, p.39). It is because of women’s critical role in agriculture that has allowed many of them to receive training. Studies show that SME lending for women in Egypt increased to 69 percent of total general loans from financial institutions in 2018 (Rizk, Rashed, and Rizk, 2019, p. 17). More importantly, about 80 percent of the loans offered to women in the country was invested in agriculture and the rest to instances including higher education. However, it is important to note that most MENA countries do not fare well in regards to gender inequality. In a 2014 report that measured gender disparity in the realm of empowerment and economic activity, Egypt stood at 110th in 187 countries. Accordingly, women in Egypt are only slightly represented in political and labor bodies. The root cause of inequality arises from societal barriers that deter women in Egypt from fully engaging in political and economic life.

The non-oil sectors have been booming not only in the UAE and Egypt but in other MENA countries. For instance, in Saudi Arabia, the non-oil industry tripled from 2004 to 2013 in common terms and doubled in real terms. On average nominal non-oil output in Saudi Arabia, today constitutes about 50 percent of the total GDP (Aker and Aghaei, 2019, p.2871). The real estate sector is one of the fastest-growing non-oil industries in Saudi Arabia. It is supported by the introduction of the real estate investment trusts (REITs) market, which has seen significant growth in the REITs. However, the sector has yet to achieve its potential despite the increased shortage in commercial and residential real estate. The country has also diversified to other industries, including agriculture, primarily in the northwest, where annual rainfall averages 400 mm. Saudi Arabia is similarly one of the biggest produces of dates, and currently, it is exporting most of these products to Europe and other countries. The country likewise produces and exports flowers, dairy products, fish, and poultry. It is important to note that before the modernization of agriculture in Saudi Arabia, farmers only engaged in small scale farming, which was only limited in rural areas. The multifaceted program to modernize and commercialize agriculture in the 1980s improved the nation’s agricultural industry and, more importantly, led to the creation of jobs, particularly in agricultural manufacturing. The importance of modernization and commercialization of agricultural produce in the country is that it led to improved ways of living. For instance, electricity was made available to over 2 million people, and by 2016, almost all households in the rural areas were connected to electricity (Aker and Aghaei, 2019, p. 2872). Drainage, secondary road systems, and dams that provided farmers with water for irrigation were contrasted. The importance of modernization and the creation of all these infrastructures is that it created positive responses from the private sector.

While other Arab countries are diversifying from oil Morocco, which is among the MENA, it is expanding from agriculture, phosphate mining, and tourism by developing competitive industries and diversifying its trading partners. It is worth noting that agriculture weighs about 15 percent of the Moroccan economy, but the perpetually changing weather patterns growth in the agricultural sector has been hurting (Lotfi and Karim, 2017, p.27). Growth in the non-agricultural industry is on its way to balance the income generated from agriculture. Morocco has heavily invested in infrastructure and made efforts to make the country more attractive to foreign investors. More importantly, the Industrial Acceleration Plan started in 2014 has supported economic diversification through emerging industries including automotive and aeronautics in the country and provided employments for over 500,000 people (Lotfi and Karim, 2017, p.27). The move to open Morocco’s economy to foreign investors has greatly improved the country in terms of education and internet usage. The entrance of western societies in the country has led to the emergence and increased use of the internet. Internet users have increased from 200,000 in 2013 to over 20 million people in 2019. The introduction and the growth of the internet in morocco not only improved business, but it helped strengthen the democracy of the country. More than democracy, it changed the Moroccan society from a country that stood and watched from the sidelines into a community fully engaged in political issues that affected the country. Blogs and social media are increasingly used as platforms of engagement, and young people are constantly generating new kinds of transformative journalism around issues, including social policy and reforms.

Major Factor Driving Diversification

The one relevant factor and the driver for the economic diversification experienced in MENA economies is international trade. International trade between Arab countries and other countries is an important factor within the region. Trade, particularly oil and gas trade, enabled this region to improve the living standards of its people. Many countries provided employment for their citizens and managed to raise millions of people from poverty. However, with the decrease in oil and increased environmental concerns, MENA economies are worried that this trade will end. The aim of diversifying into other sectors is to maintain trade dominance and sustainability. Without oil and most countries in this region might collapse, and poverty would increase. More importantly, pity and poor petrostates would find it hard to finance infrastructure and education. Countries like Qatar, Iran, Libya, and other countries that solely rely on oil and gas income would be the first countries to feel the impact of oil decrease. The possibilities of this are evident and can be seen by how oil-dependent countries have been struggling following the decline in oil prices. For example, when oil was selling at 100 dollars per barrel in 2014, petrostate countries, including Qatar, were able to finance lavish governmental projects and social welfare operations. But as the oil prices began to drop after 2014, most of these countries have found themselves curbing public spending. It is believed that diversifying to non-oil sectors would allow petrostate countries to maintain their trade position.

Moreover, the absence of oil trade would trigger an economic recession in MENA, which may damage the individualistic economic situation. Educational achievements in countries, including Egypt, would be affected by the lack of oil. Likewise, unemployment and income losses triggered by oil shortages would reduce educational achievements by threatening childhood nutrition. Increased taxation and hiked utility would probably be the case as it was with Qatar in 2016. In 2016 Qatar experienced a budget deficit of about 8 billion dollars, which is equivalent to 5 percent of its GDP (Vohra, 2017, p.7). In order to finance this budget shortfall, the country was forced to implement measures including hiking utility rates, doubling fines for wasting water, and, more significantly, the government increased the cost of postal services for the first time in eight years. In like manner, Qatar’s state-owned fuel company Woqod increased its fuel prices by 30 percent in the dame year hence causing a liter of unleaded gas to reach 0.36 dollars (Vohra, 2017, p.9). The decreased oil prices also forced Qatar to order state-owned institutions, including al Jazeera and Qatar Museums, to reduce their programming a strategy that led to the dismissal of employees.

Conclusion

The few years of economic diversification in the MENA region have proven that the future will be great in the next decades after the oil reserves have dried up. MENA countries such as the United Arab Emirates, which have heavily invested in tourism and real estate, are generating huge returns despite the decrease in international oil prices. One thing is evident about the economic diversification in the region: the lives of women is improving. Women are greatly benefiting from this transformation. Today, women in the United Arab Emirates can easily find employment due to the country’s growing tourism sector. At the same time, women in Egypt are today enjoying economic benefits such as low-interest loans and education because of the modernization of the agricultural industry. In like manner, modernization and commercialization of the agricultural sector in Saudi Arabia have led to the creation of jobs, particularly in agricultural manufacturing. The importance of modernization and commercialization of agricultural produce in the country is that it led to improved ways of living. Today, over 2 million people in rural Saudi Arabia can access electricity and clean drinking water. The country has similarly improved the drainage system, road systems, and created dams that provide locals with perpetual irrigation water. One significant factor in motivates this economic diversification in this region: international trade. Importantly, this economic diversification is driven by the fear that oil will soon decrease. Other factors, including environmentalism, have also affected the sustainability of oil hence affected this region economically. It is believed that the absence of oil and gas in the MENA region would trigger an economic recession, leading to increased taxation and lowered living standards in the area.

References List

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