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Bid to move away from dependence on oil
Independent Oil Analyst Oil prices are heading towards $70 per barrel. This will be good news for oil-exporting countries, as it means higher income and reduction in the deficit that resulted from the fall of oil prices from more than $100 per barrel to less than $40 per barrel in 2014. Most of the oil-exporting countries depend 75 percent and more on oil as their main source of income.
In the past three years, they lost a large part of their income and had to rely on overseas financial houses to balance their budget and serve their population. In the meantime, they have been trying to find new sources of revenues instead of oil.
However, their mission of the past three years will be put on hold until the next oil decline. The Arabian Gulf states headed by Saudi Arabia have decided that the time has come for economic reform, tightening of belt and, more importantly, moving away from sole dependence on oil. Their recent moves for economic reform by increasing the fuel prices and introducing Value-Added Tax (VAT) are simple steps aimed at generating income through indirect taxation, as well as cutting down expenses and wastage through excessive driving, especially with the arrival of female drivers in the country.
These measures will generate new careful price-minded customers whose eyes will always be fixed on the price of gasoline, which will be linked to the international prices, as well as minimum government subsidies, if any in the final count. For example, Saudi Arabia is moving ahead with divesting part of its ownership of “Jewel in the crown” Aramco to the international public by five percent.
This will be another source of fund for supporting Saudi Arabia’s long-term plans of investing locally and generating job opportunities for national graduates. Saudi’s 20-billion joint venture with Dow called “Al-Sadara” is an example of ensuring advancement in the petrochemical sector with thousands of job opportunities as well as similar small and big business ventures that can be developed and expanded to nearby countries.
Such economic reforms should be on track and should not be stuck in any stage to slowing down because of improvements in oil prices, which will be temporary. Higher oil prices should keep oil-exporting countries on track and encourage them to never slow down in achieving gains, as most of these countries had suffered economic pains in the last three years, and do not wish to relive that experience. Any oil gains should be used for more investments in the domestic market to further shift away from oil as much as possible such that oil becomes a secondary source of revenues!
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By Kamel Al-Harami