Oil countries are building a ‘green’ economy

Written by The Frontier Post

Igor Gashkov

What about the states that have a single source of income if it is under threat? In 2022, the resource-rich states of the Islamic world can be safely attributed to the risk group. Geologists predict that within the next ten years, the oil fields of Bahrain and Algeria will be exhausted, and after another 15 years, Oman. The leading economies of the region, Saudi Arabia and the United Arab Emirates, are not threatened with the loss of export goods, but interest in it may seriously decrease. The reason is the global energy transition – the widespread rejection of hydrocarbons, the consequences of which may already be felt around 2040. Oil countries in search of a way out.
If not oil, then what?
Saudi Arabia is the leader in the amount of effort spent on greening the economy. The oil kingdom intends to spend $500 billion to build the city of the future without cars Neom alone. The modernization of the capital, Riyadh, will cost an even greater sum of $800 billion. The Saudis are ready to lay out literally everything and even more.
The first step towards the renewal of the resource-based economy is structural reforms aimed at changing the approach to employment. As of 2016, the country of 33 million people was home to 8 million migrants who took on all low-skill jobs and some of those requiring special training. Of the 1.5 million Saudi trade workers, there were only 300,000. Many of those who could get behind the counter preferred unemployment – among young people, its level reached 25%.
In Riyadh, they started tightening the screws. From 2017 to 2019, 2 million migrants were expelled from the country, and the authorities stimulated the local population to work by economic means: they began to collect taxes that were not there before, and canceled subsidies for water and electricity. These measures did not lead to an economic miracle, but the rules of the game have changed. Saudi Arabia embarked on the path of getting rid of migration dependence: employers who preferred to hire foreigners were subject to a special tax. The very stay of a guest worker on Saudi soil became a reason for raising money – at first for $20, and from 2020 for $100 per month.
The search for new sources of income continues. Saudi Arabia is counting on the construction of Neom, which could oust Dubai as the main resort of the Islamic world.
The cost of apartments in the city of dreams is estimated in advance at hundreds of millions of dollars. But no one can guarantee solvent demand. Neom is criticized for projecting: it is expected that it will be illuminated by an artificial moon, the sand underfoot will be illuminated, and air taxis will be released into the sky.
Many of these technologies have not yet been developed. The gap is pessimistic, given that in the 1990s and 2000s, Kuwait was already building the city of the future in the sands of Silk City, and the UAE was building the City of Arabia. Work on them has not been completed yet.
Not satisfied with the fate padishah
The fundamental problem facing the oil countries is the search for a new product with which to enter the market if the era of raw materials ends. What futuristic urbanism with big upfront costs has been for Saudi Arabia is for the United Arab Emirates a lunar exploration program announced in 2020. The breakthrough technologies of the future are not entirely the merit of local science: most of them are acquired from the Americans. But it is important for the UAE to stake out a place in the market. The Emirates is betting on the future development of space research, a sharp increase in demand and is preparing an offer in advance. The plans are not to stop there and build their own station… on Mars by 2117.
In case this card doesn’t play, the emirates are investing in the production of medical equipment, air travel, ship repairs and, of course, tourism. In all these areas, statistically significant growth has been achieved: since 2000, the share of the non-primary sector in the local economy has risen from 53 to 69%. Dubai is at its best, having managed to become an international leader in the travel segment. Thanks to this, the emirate is no longer dependent on oil production – however, initially the deposits on its territory were not large.
It is the example of a resort that has managed to find a separate niche for itself – tourism, convenient for wealthy Muslims – that shows what forms economic diversification could take in countries that need it. In the event that a unique proposal fails to be formulated, getting rid of the resource curse runs the risk of getting stuck in the middle of the road, at the stage when the production of goods for domestic consumption has already been established, but only natural resources are still sent to the external market.
An example of how in recent decades it has been possible to create a new export niche and succeed in it is Malaysia, one of the most developed countries in the Islamic world, which in the past was critically dependent on the export of tin and rubber. In the 1990s, Malays and Indonesians were able to track the rise in demand for a new product, palm oil, and stake out an expanding market. Success was not long in coming: in 20 years, the number of orders has tripled, with 85% of their number retained by these two countries.
To a large extent, this achievement is the result of thoughtful public investments.
The Malaysian authorities timely redirected part of the plantations from cocoa production, planted wastelands and studied the condition of almost every palm tree for the ability to bear fruit.
Sick and aged trees were cut down, the groves were compacted.
The new agricultural industry was located in a country where, at first glance, there were no free lands in the reserve.
This did not become an unconditional deliverance from the raw material curse: having reduced dependence on tin ores and rubber, the Malaysians simultaneously discovered oil and gas, the share of which in the economy jumped up. More efforts were needed: in addition to agricultural exports, local authorities are trying, not without success, to balance the raw materials bias with the assembly of electronics and cars.
Knight’s move
In cases where the chances of launching a new product on the market are close to zero, you can go the other way by offering customers a unique service instead of a product. The choice in its favor was made by the inhabitants of the Pacific country of Nauru, which until the beginning of the 21st century derived the bulk of its income from the export of phosphates. The dwarf size of the state put a natural limit to this business: phosphates were exhausted. Finding themselves without means of subsistence (but with pitted bowels reminiscent of the Martian landscape), the islanders offered part of their territory to Australia for the organization of a center for the detention of refugees, which the Green Continent refused. Canberra gladly agreed.
The result was a rapid reorientation of the local economy. Former raw material rentiers have become cooks and wardens in the service of the Australians, and even police officers involved in suppressing the unrest, without which until now it has not been possible. The natural limit to the new national business of Nauru is set only by the population: as of 2018, only 11 thousand people, which means that it will not be possible to accommodate more than 800 unfortunate migrants on the island at the same time.
Experts believe that the most successful (and not scandalous) example of economic diversification is the experience of Chile, which at the end of the 20th century managed to create several new export-intensive industries and thereby get rid of the resource curse – dependence on copper. Surprisingly, under the neoliberal course of the dictator Augusto Pinochet, much of this success is the result of deliberate government intervention. The Chile Corporation, a state-funded corporation, created a highly competitive salmon farming and marketing industry and then withdrew from the market to private firms.
They took advantage of her business model without spending a single peso to create it. With unlimited competition, the firm that would enter the business first by trial and error would fail. while the rest would benefit from her experience for free; fortunately for the Chilean fishing industry, this trap has been avoided.
Another successful example of a public-private partnership is bringing fruit production to a new export level. And yet, these successes date back to the 20th century, and even today it is impossible to imagine the Chilean economy without selling copper to foreign markets.

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