Introduction to Non-Oil Industries in the Persian Gulf

Originally posted June 2009

For decades the Arab Gulf states and members of the Gulf Cooperation Council (GCC) — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE) — have seen their economic fortunes rise and fall with the demand for their chief export, oil. To shield themselves from the volatility of global oil markets, these states have sought to diversify their economies by investing in a host of non-oil industries, especially services, commerce, and manufacturing. No Gulf community has been seemingly more successful at achieving this balance than Dubai. Starting in the 1970s, Dubai built a thriving economy focused on transportation, tourism, real estate, commerce, and a host of other non-oil industries. Over the last decade, every Arab Gulf state replicated Dubai’s model — even as oil prices reached record highs in 2008 and it became clear that the Emirate’s model of development had tangible social, economic, and environmental drawbacks.

The essays presented in this edition of Viewpoints capture the challenges which the Arab Gulf states face as they seek to diversify economically and to wean themselves from their dependence on oil exports. Charles Kestenbaum, the president of B&K International and a consultant with over two decades of government and business experience in the Gulf, argues that Dubai and many of its neighbors have had great success in building service and other non-oil sectors. He also notes that these states are using the massive proceeds from recent oil revenues to lay the foundation for a host of future non-oil industries, especially in alternative energies. By contrast, Dr. Matteo Legrenzi, who teaches Middle East politics at the University of Ottawa, argues that the Arab Gulf states are unlikely to escape the boom and bust cycles of the global oil market for decades and that we should be cautious in evaluating the success of non-oil Gulf firms. In his opinion, Dubai’s model of development is unsustainable, and the oil-rich Gulf states have no incentive to abandon hydrocarbons as the foundation of their economies.