Energy Productivity as a New Growth Model for GCC Countries

2017-05-09, by Kankana Dubey, Marzio Galeotti, Nicholas Howarth, and Alessandro Lanza, from King Abdullah Petroleum Studies and Research Center (KAPSARC), Saudi Arabia

The evidence from an international Kuznets curve analysis conducted for this study suggests that greater economic value and per-capita income is possible along a high energy productivity growth pathway. Setting national energy productivity targets would provide a powerful signal on the future direction of government policies and increase transparency to monitor adn evaluate progress. While many advanced economies show strong evidence of having successfully decoupled economic growth from energy consumption along a high energy productivity pathway, GCC countries exhibit this trait only weakly, if at all.

Executive Summary:

The first decade of the 21st century was a time of unprecedented economic growth. The world got richer, and the countries that make up the GCC raced ahead off the back of a commodities super-cycle and booming government revenues.

With the financial crisis of 2008 came the fall. Today, with China slowing, low energy prices and weak economic demand, governments around the world are confronting the reality that the growth models of the past were built on shaky, and in many cases, debt laden foundations.

Of the three main growth tools available to policymakers – monetary policy, scal policy and structural reform – cash-strapped governments have over relied on their central banks. While productivity has long been recognized as the foundation of economic growth, we have heard a lot less about the structural reform needed to drive it than perhaps we should.

This paper makes the case for placing energy productivity at the center of economic development strategy in GCC countries. With energy such a vital resource in the region, energy productivity provides a natural measure of how well an economy is doing at utilizing the energy it consumes, focusing on gross domestic product (GDP) growth, economic diversification, innovation and energy efficiency. It thus captures a significant part of the economic reform agenda in the GCC.

Also, the paper argues that setting national energy productivity targets would offer a powerful political narrative to amplify and extend existing efforts in the policy arenas of economic diversification, energy efficiency and innovation. Setting targets would also provide greater transparency around monitoring and evaluating progress against such goals. National targets can also be used as a coordinating instrument for institutions with shared goals.

This paper has been granted authorization to use and reproduce by the King Abdullah Petroleum Studies and Research Center (KAPSARC). For academic purposes only.

Copyright © 2016 King Abdullah Petroleum Studies and Research Center (KAPSARC). All rights reserved.