Page 56 - Aamir Rehman - Dubai & Co Global Strategies for Doing Business in the Gulf States-McGraw-Hill (2007)

40 Dubai & Co.

70 percent of government revenue in all six GCC countries. Oil and
gas income has enabled GCC governments to maintain extremely
attractive tax regimes—without, for example, any personal
income tax.
The sustained rise in oil prices since 1998 has led to unprece-
dented levels of government surpluses in the GCC. In 2004 dollar
terms, oil prices in late 2006 reached a level roughly six times their
1998 price ($60 a barrel versus $10). As a consequence, GCC govern-
ment surpluses in 2006 were close to $175 billion in total. 3

FROM ENERGY WEALTH TO LOCAL
ECONOMIC DEVELOPMENT
The story does not stop there, however. Oil revenue is today, more
than ever, being channeled into nonenergy sectors. Governments
across the GCC have recognized the importance and urgency of
developing other sectors, such as infrastructure and services, that
will lead to more competitive and sustainable economies. Simply
put, GCC governments know that they must diversify their
economies if they are to survive in the long run.
The GCC’s oil reserves—plentiful as they are—will not last
forever. The reserves of Bahrain, for example, have been estimated
to last for only another 10 years. Dubai’s position is similar. Oman’s
outlook is a bit brighter—its oil has been forecast to last about
4
30 years. Saudi Arabia, Kuwait, and the UAE (Abu Dhabi, in par-
ticular) have more abundant reserves but have compelling reasons
to diversify: the necessity of creating jobs and stimulating economic
competitiveness being the chief two of these. Qatar’s natural gas
reserves promise the tiny state a long stretch of prosperity, and the
government is actively channeling some of its wealth toward the
creation of a more knowledge-based economy.
Figure 2.1 provides a conceptual illustration of how oil and gas
revenue stimulates GCC economies.
Oil and gas income brings prosperity to governments and to
private entities, such as petrochemical firms and oil-shipping firms
that are related to the energy sector. Government surpluses and pri-
vate wealth create excess capital, which is deployed through a
range of mechanisms. A large part of this capital is invested inter-
nationally, principally through governments or government-linked