The petrochemicals sector is very crucial to the economies of the GCC countries but it only employs around 150,000 people in the region, a new report has found.The relatively minor number of jobs created by the most lucrative industry in the region and the number of new jobs filled by foreign labour, are factors in employment challenges facing the six-nation bloc, says the report by global financial monitor Standard and Poor's reveals.
Although record oil receipts have enabled Gulf states to shore up their balance sheets and intensify non-oil investments, countries in the region have yet to secure the long-term viability of their private sectors, it says.
The Standard & Poor's Ratings Services report, Gulf States Tackle Diversification, But Tough Decisions Lie Ahead, as published yesterday. It says a viable private sector is essential to reduce the employment burden on the states.
"Despite the surge in non-oil investment over the past few years, Gulf states still face two key issues," says Standard and Poor's credit analyst Luc Marchand.
"First, they need to develop a private sector beyond energy-intensive industries, that remains viable even in an oil price slump. Second, they need to increase the proportion of nationals employed within the private sector.
"These are long-term aspirations, requiring sustained commitment to structural reforms that will enable an entrepreneurial class to emerge and increase foreign investment in the non-oil economy.
"Such reforms should involve not only privatisation and the development of a business-friendly legislative environment, but also merit-based access to credit, the reduction of red tape, and strong and independent courts able to intervene in commercial disputes."
The non-oil investment boom of recent years has had only a moderate impact on employment patterns in the GCC, the report finds. Heavy industries require minimal labour: the booming petrochemicals sector, for example, employs only an estimated 150,000 people. Most new jobs, whether in heavy industry, construction, or services have, in any case, have been taken up by imported labour.
Much of the foreign investment in the financial sector is confined to free zones, which operate according to their own regulations in parallel with the local economies, says the report.
Consequently, structural reform of the domestic financial sector - a key engine of growth and therefore employment - has lagged, it says.
Above all, oil remains the key driver of the non-oil economy and the chief reason for the recent surge in service-sector investment. Its authors also argue that the jury is still out on the GCC's diversification efforts. Many of the diversification trends have been repeated across the region, raising the risk of over-supply, says the report.
"There is compelling logic to the development of sectors reliant on external demand such as petrochemicals, fertilisers and aluminium," says Mr Marchand. "But it is not clear that internal GCC demand will be sufficient to support such rapid expansion in the services sector.
"Tourism, to a large degree directed at intra-regional flows, is a case in point. Moreover, tourism would be particularly exposed to any serious escalation of geopolitical tensions.
"It is also unclear whether the region can sustain four major financial centres, each vying for a share of the international financial market."
Although record oil receipts have enabled Gulf states to shore up their balance sheets and intensify non-oil investments, countries in the region have yet to secure the long-term viability of their private sectors, it says.
The Standard & Poor's Ratings Services report, Gulf States Tackle Diversification, But Tough Decisions Lie Ahead, as published yesterday. It says a viable private sector is essential to reduce the employment burden on the states.
"Despite the surge in non-oil investment over the past few years, Gulf states still face two key issues," says Standard and Poor's credit analyst Luc Marchand.
"First, they need to develop a private sector beyond energy-intensive industries, that remains viable even in an oil price slump. Second, they need to increase the proportion of nationals employed within the private sector.
"These are long-term aspirations, requiring sustained commitment to structural reforms that will enable an entrepreneurial class to emerge and increase foreign investment in the non-oil economy.
"Such reforms should involve not only privatisation and the development of a business-friendly legislative environment, but also merit-based access to credit, the reduction of red tape, and strong and independent courts able to intervene in commercial disputes."
The non-oil investment boom of recent years has had only a moderate impact on employment patterns in the GCC, the report finds. Heavy industries require minimal labour: the booming petrochemicals sector, for example, employs only an estimated 150,000 people. Most new jobs, whether in heavy industry, construction, or services have, in any case, have been taken up by imported labour.
Much of the foreign investment in the financial sector is confined to free zones, which operate according to their own regulations in parallel with the local economies, says the report.
Consequently, structural reform of the domestic financial sector - a key engine of growth and therefore employment - has lagged, it says.
Above all, oil remains the key driver of the non-oil economy and the chief reason for the recent surge in service-sector investment. Its authors also argue that the jury is still out on the GCC's diversification efforts. Many of the diversification trends have been repeated across the region, raising the risk of over-supply, says the report.
"There is compelling logic to the development of sectors reliant on external demand such as petrochemicals, fertilisers and aluminium," says Mr Marchand. "But it is not clear that internal GCC demand will be sufficient to support such rapid expansion in the services sector.
"Tourism, to a large degree directed at intra-regional flows, is a case in point. Moreover, tourism would be particularly exposed to any serious escalation of geopolitical tensions.
"It is also unclear whether the region can sustain four major financial centres, each vying for a share of the international financial market."
BajaeNergyBLOG
OiL,Baja
eNergy
BLOG
