Economic Research Forum (ERF)

From booming oil revenues to inclusive growth

976
The first ten years of the twenty-first century saw an unprecedented surge in oil prices and highly favourable incomes for oil-exporting countries in the Middle East – yet it culminated in social and political upheaval. This column reports research on the extent to which the growth experiences of those countries in that decade may be considered to have been ‘inclusive’ of a broad swathe of society.

In a nutshell

Measures of ‘inclusive growth’ for oil-exporting economies over the boom decade 2001-10 offer insights into debates about the resource curse.

Development outcomes need to be examined not just in terms of growth but also its quality, its sustainability and whether its benefits extend to wider society.

Achieving the imperative of converting oil revenues into sustained and inclusive growth faces a bumpy road ahead.

The idea of the resource curse associates high oil revenues in resource-rich countries with poor economic outcomes. The common yardstick for evaluating economic performance in such countries is GDP growth rates. But little attention has been devoted to whether the experience of economic development in oil-exporting countries in the MENA region has been inclusive and, if not, why not.

This is at odds with the fact that the relationship between growth and equity has a long tradition and deep roots in both economic analysis and development policy – an interest that has been revived in recent years with the social and political upheaval in several Arab countries.

Inclusive growth can be broadly conceived of as growth that benefits the widest social and economic groupings. Although there is not a universally agreed definition and making the concept operational has not met with consensual success, interest in ensuring that growth is inclusive has been on the rise.

The Asian Development Bank now features inclusive growth as a long-term strategic framework, and the African Development Bank too lists it as one of its development objectives. Various governments openly espouse its virtues and Thomas Piketty’s seminal work on wealth and income inequality in developed countries – Capital in the Twenty First Century – has further boosted academic and policy interest in the subject.

In the MENA region, such interest has been bolstered by the need to understand the economic performance of Arab countries in which widespread popular uprisings brought down autocratic regimes from Tunis to Yemen.

The fact that the decade before these uprisings coincided with unprecedentedly buoyant international oil prices and highly favourable incomes for oil-exporting countries has added an interesting dimension to habitual curiosity about the relationship between richness in oil endowments and general economic performance.

My research casts light on this issue by looking at the extent to which the recent growth experiences of the region’s oil-exporters may be considered to have been ‘inclusive’ (see summary table below).

The study constructs a single composite index for measuring ‘inclusive growth’ for each country based on 14 indicators related to broad economic, social, political and environmental dimensions of growth and development. It uses a comparative approach to rank 153 countries for which consistent and reliable data are available for the two five-year periods of 2001-05 and 2006-10 (the decade prior to the uprisings).

The results for oil-exporting economies of the MENA region offer new insights into debates about the resource curse.

First, the small Gulf Cooperation Council (GCC) states – Bahrain, Kuwait, Qatar and United Arab Emirates – have the highest inclusive growth indices. Their inclusive growth indices exceed 60 on a scale of 0 to 100, putting them on a par with Israel in both periods and in the top median globally.

By contrast, Saudi Arabia, followed by Oman, appear to be least inclusive in both periods with an inclusive growth index that is on a par with other more populous oil-exporting countries, such as Iran and Algeria. With an inclusive growth score of 40-plus, these countries appear in the lower median of all countries.

Examining performance over time reveals further insights. Here, the smaller GCC oil-exporting states indicate a marked deterioration in their inclusive growth performance. Bahrain, Kuwait and, to a lesser extent, Qatar show a decline in their index over the two periods. This pattern also holds for other, larger MENA oil-exporting countries: Iran, Algeria and, to a lesser extent, Libya exhibit a similar and significant deterioration in their indices.

Beyond the MENA region, the experience of oil-exporting countries in Africa also shows a deteriorating trend of inclusivity over this period: Angola, Gabon and Nigeria (all three OPEC members) seem to have followed the experience of the small GCC states in that they exhibit a deterioration of their record over time.

The picture outside the MENA region and Africa is somewhat mixed, with Russia among the major oil-exporting countries also suffering a deterioration, while Ecuador, Indonesia, Kazakhstan, Mexico and Venezuela show only modest improvements. As would be expected, this is in sharp contrast with Norway – another oil-exporting country – which is ranked consistently among the world’s top five nations in inclusivity.

Among non-oil-exporting countries in the MENA region, the deteriorating experiences of Syria and Yemen stand out (the latter is ranked 152 out of 153 countries in the 2006-10 period). The biggest improvement is recorded by Iraq between the two periods (almost doubling), indicating the difficulties and challenges of the early years of the war period after 2003.

Further analysis shows that in general, the low or deteriorating inclusive growth indices across MENA oil-exporting countries is explained by below par performances for unemployment in general and youth unemployment in particular. For example, Saudi Arabia ranks last among 153 countries for youth unemployment during 2006-10. Other development dimensions, such as gender and the environment, do not help the country’s overall growth inclusivity either, while data on poverty and inequality are unfortunately patchy.

My results underscore one overriding economic lesson of a decade that saw an unprecedented surge in oil prices (2001-10): the need to examine outcomes not just in terms of growth but also the quality of growth, its sustainability as well as the degree to which its benefits may extend to wider society.

Given the generally lacklustre performance of these countries across a wide range of dimensions (except for the smaller GCC states), it would require a concerted effort to improve their track record on inclusive growth. A focus on one or two selective dimensions will not be sufficient to improve their comparative ranks.

But as is widely known, labour market challenges – job creation and the reduction of unemployment, especially among young people – remain key in this process and the principal route to achieving inclusive growth for them. This is despite the fact that achieving the imperative of converting oil revenues into sustained and inclusive growth faces a bumpy road ahead.

Estimated ‘Inclusive Growth’ Scores, 2001-05 and 2006-10, Normalized Ranks (min=0; max=100)

Tags: , , , ,

  • Hassan Hakimian
    Hassan Hakimian
    Professor of Economics and Director, Middle Eastern Studies Department, College of Humanities and Social Sciences (CHSS), Hamad Bin Khalifa University (HBKU)

Most read

Trust in Lebanon’s public institutions: a challenge for the new leadership

Lebanon’s new leadership confronts daunting economic challenges amid geopolitical tensions across the wider region. As this column explains, understanding what has happened over the past decade to citizens’ trust in key public institutions – parliament, the government and the armed forces – will be a crucial part of the policy response.

Climate change: a growing threat to sustainable development in Tunisia

Tunisia’s vulnerability to extreme weather events is intensifying, placing immense pressure on vital sectors such as agriculture, energy and water resources, exacerbating inequalities and hindering social progress. This column explores the economic impacts of climate change on the country, its implications for achieving the sustainable development goals, and the urgent need for adaptive strategies and policy interventions.

Small businesses in the Great Lockdown: lessons for crisis management

Understanding big economic shocks like Covid-19 and how firms respond to them is crucial for mitigating their negative effects and accelerating the post-crisis recovery. This column reports evidence on how small and medium-sized enterprises in Tunisia’s formal business sector adapted to the pandemic and the lockdown – and draws policy lessons for when the next crisis hits.

Assessing Jordan’s progress on the sustainable development goals

Global, regional and national assessments of countries’ progress towards reaching the sustainable development goals do not always tell the same story. This column examines the case of Jordan, which is among the world’s leaders in statistical performance on the SDGs.

The threat of cybercrime in MENA economies

The MENA region’s increasing access to digital information and internet usage has led to an explosion in e-commerce and widespread interest in cryptocurrencies. At the same time, cybercrime, which includes hacking, malware, online fraud and harassment, has spread across digital networks. This column outlines the challenges.

Qatarisation: playing the long game on workforce nationalisation

As national populations across the Gulf have grown and hydrocarbon reserves declined, most Gulf countries have sought to move to a more sustainable economic model underpinned by raising the share of citizens in the productive private sector. But, as this column explains, Qatar differs from its neighbours in several important ways that could render aggressive workforce nationalization policies counterproductive. In terms of such policies, the country should chart its own path.

Economic consequences of the 2003 Bam earthquake in Iran

Over the decades, Iran has faced numerous devastating natural disasters, including the deadly 2003 Bam earthquake. This column reports evidence on the unexpected economic boost in Bam County and its neighbours after the disaster – the result of a variety of factors, including national and international aid, political mobilisation and the region’s cultural significance. Using data on the intensity of night-time lights in a geographical area, the research reveals how disaster recovery may lead to a surprising economic rebound.

Macroeconomic policy-making for sustainable development in Egypt

In recent years, economic policy in Egypt has been focused primarily on macroeconomic stabilisation to curb inflation, to reduce the fiscal deficit and the current account deficit, and to increase GDP growth. As this column explains, this has come at the expense of the country’s progress on the Sustainable Development Goals, which is rather modest compared with other economies in the region or at the same income level. Sustainable development needs to be more integrated with the conception and implementation of fiscal and monetary policies.

Education and health in Tunisia: is human capital at risk?

Tunisia has made significant strides in enhancing the skills, knowledge and health of its population, all cornerstones of economic growth and social progress. This column examines the state of the country’s education and healthcare systems, identifying structural weaknesses that could jeopardise human capital and, by extension, progress towards achieving the sustainable development goals.

Qatar’s pursuit of government excellence: promises and pitfalls

As Qatar seeks to make the transition from a hydrocarbon-based economy to a diversified, knowledge-based economy, ‘government excellence’ has been identified as a key strategic objective. This column reports what government effectiveness means in terms of delivery of public services, digitalisation of services, and control of corruption – and outlines the progress made to date on these development priorities and what the country needs to do to meet its targets.