Since the 1970s, analysts have sounded the alarm over “peak oil.” This does not mean a depletion of hydrocarbon resources – in fact, discoveries of new reserves continue to be announced. Rather, it implies a time when oil and gas extraction levels begin to fall as demand declines – mostly because of the rise of alternative energy.
The International Monetary Fund, in a new report, believes that global oil demand will peak around 2041, and then decline. If so, per-barrel prices will likely trend down too. It doesn’t take a genius to see that oil’s position as the energy source of choice is rapidly being challenged because of climate-change worries and the rapid improvement in alternative energy technology.
The focus of the IMF’s view on peak oil is over its effect on major oil-producing countries like those to be found on the shores of the Persian Gulf. Peak oil could impose a major strain on these nations, the argument goes, given their heavy reliance on hydrocarbon sales. These countries, which built national savings schemes in the form of sovereign wealth funds out of those oil and gas sales, are at risk of spending down their rainy-day funds. There is, thus, an existential crisis just two decades down the road.
Well, maybe not.
Dire warnings over the finances of Gulf states is a well-worn story in the Western press, which has somehow failed to register the decade-long strategy among Arab economies to shift dependency away from hydrocarbon exports to more sustainable local industries. They are spending their sovereign wealth funds – now, not 20 years hence – in order not to need them in the future.
If one were to review economic developments in the United Arab Emirates alone, it is clear that investments in infrastructure, manufacturing and services are starting to pay serious dividends, especially in technology-heavy sectors and even renewable energy.
The UAE was quick to recognize the potential disruptive power of the internet, and made two critical decisions to ensure local growth in tech-related sectors. It built a world-class infrastructure and directed government units to embrace technology to streamline governance. From the Smart Dubai plan in 2013 to the creation of the Ministry of Artificial Intelligence in 2017, the country has taken every possible step to foster a genuine knowledge economy that will outlive its reliance on hydrocarbon exports.
It is easy to dismiss these actions as mere public relations stunts, but the reality of the UAE’s tech environment belies this narrative. The top-down initiative from emirate-level and federal-government entities has encouraged follow-on private-sector investments.
Consider this: The two largest technology acquisitions in the history of the Middle East involved UAE-based companies. Amazon’s acquisition of Souq.com and Uber’s purchase of Careem reveal two things: the large size of tech companies in the UAE business ecosystem and their sophistication, as reflected in their attractiveness to global technology giants.
This, in turn, is creating a virtuous circle, as more and more tech companies are drawn to the UAE, the new center of gravity of the emerging-market world. If you are a tech developer in Uganda or Kazakhstan or Thailand, Dubai likely is a regular stop on your business travels.
Then, after tech, add tourism, health care, financial services and so on, and it is clear neither Dubai nor Abu Dhabi is simply an “oil-rich Arab state” – to use the standard Western press shorthand. Instead, they are new metropolitan centers of economic diversity that are being nurtured to maturity well before peak oil reaches its hump.
Next door, Saudi Arabia, one of the world’s largest producers of oil, is investing substantially in the manner of the UAE. It has put serious funds into knowledge-economy infrastructure and is enabling the new economy with software initiatives like relaxed rules on entry visas and a more liberal attitude toward social norms.
It will take time to get Saudi Arabia’s technology ecosystem to the level of the UAE’s, chiefly because of the size of the Saudi economy. But by replicating the UAE’s steps in building a technology ecosystem, Saudi Arabia’s leadership is demonstrating that it doesn’t intend to waste any time in building the foundation needed to transform the economy. Given the size of the Saudi population and economy, the re-engineering will have an even greater tectonic impact than in the UAE.
Other nations in the region, including Qatar, are adopting similar steps, with varying degrees of urgency. With a local population of just over 300,000, yet one of the world’s largest sovereign wealth funds, Qatar is approaching the transition with notably less haste than its neighbors, but similar trends are developing with regard to investment in the new economy.
The argument that Arab Gulf countries are at risk as the world pivots away from oil – that they will spend down their national savings – ignores the work already in train to transition to a new and sustainable economic model. The transformation might be slow in some cases, but it is happening.
Maybe the IMF should get its analysts to spend more time in the Gulf, instead of trying to do analysis on the basis of reports in their home-town newspapers.
Joseph Dana, based between South Africa and the Middle East, is editor-in-chief of emerge85, a lab that explores change in emerging markets and its global impact. This article was provided by Syndication Bureau, which holds copyright.