Energy-rich Gulf Arab states have reaped the fruits of high crude prices, posting record oil revenues of about 300 billion dollars last year, and are set to increase their windfall in 2006.
Buoyed by the unprecedented profit, Gulf monarchies increased spending on services, investment and infrastructure but they still have much to do to diversify an economy heavily dependent on oil, economists said Friday.
"I believe Gulf states have so far failed to learn the lesson" of squandering huge revenues from the first oil shock in 1973, Kuwaiti economist Hajjaj Bukhdur said.
"Yes, they have increased public spending but at a rate greatly lower than the increase in revenues. They have only done less than 30 percent of what they can do," Bukhdur told AFP.
Last year's oil income of the six-nation Gulf Co-operation Council (GCC), which holds at least 45 percent of proven global crude reserves, is double the earnings in 2003 and more than three times the level of revenues in 2001.
The GCC, which groups OPEC members Saudi Arabia, Kuwait, the United Arab Emirates and Qatar, and non-OPEC Oman and Bahrain, have earned more than 800 billion dollars from oil in the past five years.
Economic reports forecast that oil revenues in 2006 would swell by up to 50 billion dollars over last year.
"In terms of spending, we are lagging behind. We should accelerate spending in industry like petrochemicals and in human development," said Omar Baqor, an economicc professor at King Abdul Aziz University.
"The capital formation rate in Saudi Arabia is only six percent annually, we need to increase it to 10 percent for at least five years to keep up with population growth," Baqor told AFP.
Gulf states are producing slightly more than 16 million barrels per day (bpd), almost one-fifth of the world's demand, with 9.5 million bpd coming from OPEC kingpin Saudi Arabia.
Kuwait-based Global Investment House said in a recent report that Gulf states were expected to boost capital spending by 15 percent this year over 2005, which means pumping tens of billions of dollars.
Most of the spending was directed towards improving services and infrastructure in health, education and housing, the report said.
GCC industrial investments have almost tripled over the past decade to reach 100 billion dollars and the real estate sector is now worth 120 billion dollars.
Investments in stocks have soared since 2000 and Gulf stock market capitalisation hit a record 1.145 trillion dollars at the end of last year.
In their bid to raise oil production capacity, Gulf states have earmarked tens of billions of dollars for infrastructure and refinery projects.
Saudi Arabia is spending about 50 billion dollars to raise its production capacity to 12.5 million bpd by 2009 and boost refinery production to six million bpd.
Kuwait and UAE have each earmarked some 20 billion dollars over the next five years to raise both their crude output and refinery capacities. Qatar and Oman are also involved in multi-billion-dollar oil projects.
Gulf states have also earmarked billions of dollars for oil investments abroad, especially in China and India, and their mobile telecommunications firms, partially state-owned, have spent roughly 20 billion dollars on huge foreign acquisitions.
Saudi Arabia, which accounted for more than half of total GCC revenues, said it will use part of the surplus to finance its huge 170-billion-dollar debt, almost all of it domestic, and to create jobs for nationals.
In addition, GCC states have used part of the revenues to boost assets held abroad with Kuwait and UAE leading the way.
"Their capital spending has not exceeded 10 percent of the growth in revenues. Economic diversification efforts and reforms have been very humble," said Bukhdur.