Hanan Morsy - Lead Economist in charge of MENA ERF Conference on “Arab Oil Exporters: Coping with a New Global Oil Order” Kuwait, November 26-27, 2017 www.erf.org.eg

1. Policy conference
Arab Oil Exporters:
Coping with a New Global Oil Order
Dr. Hanan Morsy
Lead Economist in charge of MENA
November 2017
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2. GCC Structural Issues
Non-oil GDP consists overwhelmingly of non-tradables, in
particular of low-skilled services (such as restaurants,
transportation, telecommunications), while most of the
tradables are imported.
• The high profitability of natural resource sectors
reduces the incentives to invest in other tradable
sectors, including high-technology manufactures and
services that are essential to economic growth.
• Producing non-tradables is less risky and more
profitable for firms benefitting from government
spending
• The easy availability of low-skilled, low-wage foreign
labour has helped extract larger rents in non tradables.
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3. Diversification: International experience
• Diversifying away from oil is difficult, and takes a long
time
➢ Malaysia started its export-oriented strategy in the early 1970s
and experienced rapid growth in export sophistication in the
1980s–90s.
➢ Also, it took more than 20 years to reach a level of
sophistication comparable to some advanced economies.
• Success hinges on adopting appropriate policies ahead
of the decline in oil revenues.
• Few successful diversification cases: Indonesia,
Malaysia, and Mexico diversifying away from oil, Chile
away from copper
• Many cases of limited success (Congo, Ecuador,
Gabon, Nigeria, Venezuela), particularly when their oil
production horizon is still long.
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4. Success Factors
• Promoting exports and moving up the value chain
including through adopting export-oriented strategies
and creating incentives to encourage firms to develop
export markets
• Creating a favourable economic and business
environment
• Workforce skill upgrading through training and
education reforms
• Strengthening domestic value chains through a mix of:
➢ Vertical diversification to create linkages in the existing industries
➢ Horizontal diversification with an emphasis on exports and
technological upgrade.
• Encouraging entrepreneurship
• Role of FDI to promote technological transfer
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5. Countries following different paths?
In China:
• Structural transformation caused by differential sectoral
productivity growth
• Important role of the reduction of the relative size of the
government.
• The mobility frictions slowed the movement out of
agriculture.
In India:
• TFP growth fastest in services
In South Korea:
• Openness to trade accelerated transition out of
agriculture into industry and services
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6. Not all service sectors are equal
• Studies show that there is substantial heterogeneity
among services.
• Today’s advanced economies are increasingly
dominated by services.
• Education and health care are different than retail trade
 They use very different skill intensities for the labour
they employ
• Personal, finance, and business services have low
productivity growth and increasing shares in
employment and GDP
• Distribution services have rapid productivity growth and
constant shares.
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7. Food for thought
• Rethinking the role of the state: enabling environment;
incentives and design; dynamic recalibration.
• Country specificity: reforms should be designed
carefully and sequenced to account for circumstances
and capacity
• What worked then may not work now: Forward-looking
policies for evolving economic transformation
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9. Thank you
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