Taxes key to GCC future: Apicorp

The introduction of taxes remains a key element in the strategies of Gulf hydrocarbon producers to diversify their oil-reliant economies after they failed to make real progress in such plans, according to an official Arab report.

The six Gulf Cooperation Council (GCC) countries, sitting atop more than 40 per cent of the world’s proven oil deposits, have only managed in recent years to articulate consensual long‐term visions to better guide and motivate their efforts for economic diversification, said the report by the Saudi-based Arab Petroleum Investment Corporation (Apicorp), an affiliate of the 10-nation OAPEC.

While the ultimate goal of leveraging exhaustible petroleum resources for sustainable development is widely shared, there is “neither a defined path nor a set pace to it,” said the 10-page study on GCC diversification, authored by, Ali Aissaoui, a senior consultant at Apicorp. “Most GCC countries still have a long way to go.”

In addition to the cyclical nature of the oil market and the difficulty of stabilising export revenues, three long‐term structural issues have been emphasised, he said.

They include the impact of the energy security‐climate change nexus on petroleum export markets, the long‐term unsustainability of current fiscal policies and the inability of a dominant and very technologically‐productive petroleum sector to generate enough employment opportunities.

Aissaoui, an Algerian, said the impact of the energy security‐climate change nexus on petroleum export markets may not be so compelling as to convey a sense of urgency.

In contrast, there is a growing common realisation that current fiscal paths may likely be unsustainable, he said, adding that Saudi Arabia’s vast petroleum assets were, until recently, perceived to be sufficient to meet future fiscal demands.

However, the swift move to embrace a future of nuclear and renewable energies, which comes on the heel of a similar UAE initiative, indicates a new awareness that remaining petroleum reserves may not be enough to secure the needed fiscal revenues in the face of a fast‐growing population; not to mention their preservation as a much‐needed source of wealth for future generations, he added.

“A much more challenging avenue to GCC fiscal sustainability resides in the diversification of fiscal revenues. Instituting a general taxation system consistent with progress in political participation and economic diversification, is among the hard choices facing governments in the region,” Aissaoui said.

“Last but certainly not least, the inability of the petroleum sector to provide sufficient jobs is the most challenging, serious enough to warrant drastic measures. Hence, no matter how economic diversification policies are articulated and consensually validated, leveraging the non‐oil private sector for job creation will be a constant driver of policy.”

Aissaoui said that a  major problem is filling these jobs from a rapidly expanding domestic labor pool. He said that in Saudi Arabia, Saudization has been the policy response and that in order to minimise its costs, more emphasis should be put on labor market‐oriented education, skills preparation and work ethic enhancement.

“As a final point, in the context of integrating GCC investment policies, are the handicaps induced by a series of issues, including the tightening of supply of natural gas; the absence of coordination of domestic energy price adjustments; the inadequate levels of private sector funding; and the inconsistent migration and labor market policies. Also intra‐regional competition, which results in an overlap between different diversification strategies, is potentially detrimental,” he said.

“The way forward is through a strengthening of policy coordination and implementation, and a renewed focus on regional investment projects with higher economic diversification and integration potential.”

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