The Necessity to Diversify the Economy in Resource-Rich MENA Region - MENA startups, innovation, and tech news


The Necessity to Diversify the Economy in Resource-Rich  MENA Region
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The Necessity to Diversify the Economy in Resource-Rich MENA Region

The Middle East and North Africa (MENA) region have an abundance of some natural resources. It holds more than 60% of the world’s proven oil reserves, mostly located in the Gulf region and nearly half of global gas reserves. No surprises, oil represents close to 85% of the merchandise exports of the region, making it highly sensitive to fluctuations in international prices. A long strand of economic literature suggests that such dependence may hurt a country’s growth prospects and job creation by reducing the scope for economic diversification.

To diversify their economies, MENA countries must promote the development of the non-resource sector, this entails producing a larger variety of goods with higher value-added and better integration within the global value chains (GVCs). It also involves more complex forms of production. Providing the foundations for structural transformation is also essential for long-term impacts.

The route to economic diversification

The route to economic diversification would depend not only on comparative advantages but also on economic reforms, the availability of human resources, sound institutions, and macroeconomic stability. In this regard, internal and external drivers including export competitiveness, the productivity of employees, market structure, trade liberalization policies, relation with other countries, and the dynamics of the global market would be key determinants of successful economic diversification.

Saudi Arabia is Setting an Example In 2016, to prepare the kingdom's economic future, Crown Prince Mohammed bin Salman bin Abd al-Aziz Al Saud (known as MbS) laid out a road map for the country known as Vision 2030. The plan aims to transform Saudi Arabia by liberalizing social norms and improving government services. Crucially, it also aims to diversify the economy away from hydrocarbons and boost job creation by increasing non-oil private sector participation in the economy.

To achieve economic diversification, the authorities seek to increase foreign investment, increase the participation of small and medium enterprises (SMEs) in the economy and generate jobs and increase domestic consumption by developing mega-projects. The sectors targeted for development include petrochemicals, mining, tourism, transportation, entertainment, healthcare, and renewables.

For a very long time, MENA countries are dependent on natural resources for revenue generation, during the covid-19 the pandemic decline in oil prices has put much pressure on this regional economy, so the region seeks new economic policies along with effective execution for its subsequent economic, political and social growth.

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