The world economy is in transition. The richest economies were exposed during Covid. Their might of resources was questioned.
The height of knowledge was mocked. Having had a torrid time during COVID, the aftermath of spiraling inflation has made growth unsustainable in the hitherto developed models. This has opened up many possibilities. The possibilities of new players.
The opportunity for the challengers to become more agile. The emergence of slumbering economies. Some would say wait and let the bad times pass. Others would say accelerate and push past the strugglers.
The world in 2030 is likely to go through interesting changes. Some regions will remain dominant while others will go down.
However, some countries in the regions that are going down will manage to defy the odds. These are all indicators of the environment having an impact, but individual responsiveness will remain more important than environmental odds.
The West has ruled the world post— World War II. The American economy became the most affluent economy with its defence, automobile and electronics industry serving most of the world. Japan had to deal with the dissolution of their empire and the atomic bombings of Hiroshima and Nagasaki. China was a closed economy that would soon fall into civil war, and Europe faced the difficult task of rebuilding after years of war.
The US took the opportunity to affirm its status as a global superpower. The century ended with the Far Eastern region emerging as a major player. China is now the second largest economy in the world. Japan, South Korea, and Singapore have major roles to play as well. One quarter into this century and things are starting to show signs of a change. Wars and conflicts have continued to rage on.
The Russia-Ukraine war has created immense political and economic damage globally. The current Israel war on Gaza is a massive human tragedy. Wars are always distressing, both emotionally and financially. They affect economies and business sentiments. The Middle East remains a turbulent area.
Russian vessels enter Red Sea areas, Israeli F-35s have bombed World Central Kitchen workers in Gaza and the Iranian embassy in Damascus. These incidents represent only some of the threats that can cause oil price volatility and supply chain shocks. That means change is inevitable.
Talk of the Middle East and oil is what comes to mind. Saudi Arabia, Qatar, Kuwait and the UAE have all become rich on the basis of oil and natural gas. The supply and demand of oil determines their economic fortunes, this has limited their ability to truly challenge the progress of more developed economies. For sustainable development, dependence on a gift of God is not a durable economic strategy.
When you look around the world, you see countries less blessed with natural resources have done well and maintained sustainable growth. Singapore is a prime example of a country with no natural resources that has managed to develop.
Switzerland is another country that is renowned for its top quality chocolates; however, it does not produce a grain of cocoa powder. Instead, they have created an innovation knowledge house that leads in producing chocolates with impeccable quality, variety and taste.
Many African and Latin American companies are blessed with cocoa powder but are not chocolate sellers. In South Asia, Bangladesh does not possess top quality cotton that Pakistan has, but has managed to speed past Pakistan in textile exports. Let us look at how countries that had or have learned the real route to development have done:
- A blessing or a curse— Easy come, easy go. That is the rule of what you get without making effort. The Middle East, although blessed with oil, has largely remained oppressed. That is why the question is - is oil a blessing or a curse? The “resource curse” is a well-known observation that countries with abundant natural resources paradoxically tend to underperform in economic growth and development.
Countries without this blessing have to focus on what they have, which is mostly people. Singapore focused on education and skills. Human resource is renewable unlike natural resources. Oil will be depleted with time or substitutes may make it irrelevant.
- From dependence to diversification— Saudi Arabia has finally realised that oil era may be reaching its end. Thanks to Prince Muhammad bin Salman, the Saudi economy is trying to get out of the oil trap. Saudi Arabia’s economy is currently driven by oil exports. Oil comprised 84% of exports and 42% of GDP in 2021.
Then came Vision 2030 that is focused on diversifying the revenue base. Revenue dependence on oil decreased from 84% to 74% in 2022. Travel exports increased from 2% to 5%. Private sector share in GDP has improved from 37% to 39%.
All indicators of opening up to the sectors. The success of Qatar in hosting FIFA World Cup has inspired the Saudi football association to attract mega stars like Ronaldo to shift to Saudi Arabia, and are major symbols of the change that the crown Prince is envisioning.
- Innovative attractions— Many argue that Singapore and the West have expanded due to the liberal economic reforms that would not be possible in the monarchies of the Middle East. Dubai is a striking example of diversifying within a monarchical structure.
Their early efforts of getting out of oil captivity have begun to pay off. The share of oil sector in the total GDP of the UAE declined from 46.9% in 1980 to 16.75% in 2019. Dubai is now a major international service economy that is a regional center for finance, real estate development, shopping, tourism, exports and re-exports.
Their vision of making people visit and consider Dubai as a country of immense potential was uniquely crafted. They did it with their airline Emirates and the sprawling airport infrastructure. It has been so successful that tourism accounts for 11% of the GDP.
Another case study of using Airline as a transit hub is Turkish airline, it has become one of the largest airlines in the world and has a booming tourist industry. In 2003, it was limited to just 65 aircraft but in 2023 it operates 413 aircraft.
We are in a knowledge economy. In fact we are heading fast into an Artificial Intelligence economy. According to the World Bank, the four pillars of a knowledge economy are: economic incentive and institutional regime; education and human resources; the innovation system; information and communication technology (ICT).
This just explains the divide between the countries that have grown relatively equitably and those that have not. Knowledge is dependent on people’s skills.
Some may argue that now machines are more intelligent than people. That remains to be seen. The intricacies of human being’s brain are too unpredictable to be programmed through software. That is why for nations to rise petro dollars will not be enough. For nations to rise and grow, the ability to think outside the box, to read between the lines and to create beyond the imagination is the key to sustainable success.
Copyright Business Recorder, 2024
The writer is a columnist, consultant, coach, and an analyst and can be reached at [email protected]
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