Bahrain Education
BAHRAIN MUST INVEST IN EDUCATION
IN ORDER TO DIVERSIFY AND REMAIN COMPETITIVE
In its latest quarterly Economic Insight report, ICAEW, the accountancy and finance body says that lower oil output mean skills shortages coupled with population growth could damage the Bahrain economy if not addressed.
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conomic Insight: Middle East warns that while GDP growth in Bahrain is above the global average at 4.5% in 2013, it is expected to slip 110 basis points in 2014 to 3.4% as oil production returns to normal levels following an outage in 2012. Oil prices across the GCC will also drop as global supplies rise. The combination of the rapid expansion of US shale production and the loosening of international sanctions on Iran mean oil prices will continue to fall at the same time as demand from emerging markets slackens. With smaller oil reserves the Bahrain government has always recognised the need to diversify its economy away from oil. However, the services sector continues to suffer due to concerns over political tension, with protests a regular occurrence. Bahrain’s economy is also more vulnerable than others in the GCC having less to offer foreign investors than Saudi Arabia or the UAE. But the biggest threat to Bahrain’s sustainable economic growth is skill shortages. Strong population growth means Bahrain will be in a position to benefit from a ‘demographic windfall’ if it invests in education. Conversely, a lower-skilled population would lead to rising unemployment and a drain on national resources. Peter Beynon, Regional Director, ICAEW Middle East, said: “To compete in skills-intensive industries like engineering or financial services, economies need access to a highlyskilled workforce. Currently, statistics 38
Gulf Insider February 2014
suggest Bahrain is lagging behind other developed economies in terms of education. This means firms are forced into buying in expertise from abroad, but in certain circumstances if they do not employ enough nationals they are fined. This could place them at a distinct disadvantage in competitive international markets. Investing in education to raise skill levels would be a long-term sustainable strategy that would help GCC countries to diversify whilst also helping nationals into the workforce.” The region’s role as an energy exporter means that its output closely tracks the mood of the global economy, so GDP growth in the Middle East is expected to rise this year. The report notes that the GCC is becoming increasingly reliant on exports to developing economies. Douglas McWilliams, Chief Economist and Executive Chairman of Cebr said: “Twenty years ago advanced economies accounted for nearly three quarters of all goods sold overseas by the GCC+5. Now fewer than half of all goods exported go to advanced economies, and nearly the same again to emerging markets. The trend to increased trade with emerging markets is likely to continue. The centre of economic gravity is shifting eastwards, and the Middle East is at the crossroads of global trade. As well as a finance centre, this means the region should have the opportunity to develop as a logistics hub, with a bigger role for ports and shipping.”
The full Economic Insight: Middle East report can be found at www.icaew.com
A lower-skilled population would lead to rising unemployment and a drain on national resources. The report also shows: Saudi Arabia raised oil production dramatically to record levels in recent months in response to unexpectedly high prices. This is expected to drive GDP growth of 4% this year, while expansion in the non-hydrocarbon sectors should counteract falling oil prices in 2014, pushing GDP growth up to 4.8%. Whilst oil and gas continue to dominate the economy of Oman, Muscat’s new airport opening in 2014 is expected to boost the tourism industry. Investor confidence in the UAE is recovering since 2009 and foreign direct investment (FDI) is expected to improve, setting the scene for robust long-term growth. Kuwait has raised oil production in response to rising prices but uneasy relations between government and parliament mean other reforms are lagging. High oil prices will support the economy in the short term but concerns remain over long term fiscal sustainability.