In a broad-based but comprehensive survey of economic diversification in the GCC countries, Baroudi stresses that, despite the varying degree of seriousness and consistency with which this objective has been pursued there has been progress in the establishment of downstream industries (petrochemicals, fertilizers and metals), some manufacturing, agriculture (albeit at a high cost in subsidies) and services (in the form of financial institutions and tourism). The author examines changes in the contributions to GDP of each sector and some of the problems encountered in the diversification process â?? for example the scarcity of water resources in agriculture or the similar structure of production of GCC countries in downstream activities. Yet, comparing the periods 1996-98 with 1981-85 shows that the contribution of oil sector to GDP has fallen from over 60 percent in Kuwait and Oman to under 40 percent, and from over 40 percent in Saudi Arabia and the UAE to under 35 percent, though this data is not independent of the price of oil.

Baroudi concludes that continued efforts are needed, including the speeding up of privatization, the liberalization of financial markets, the reduction in subsidies, the reassessment of industrialization policies (including greater coordination between GCC states), and the strengthening of market-oriented education and training capacities.
In the case of Saudi Arabia, Al Mahmoud explains how, through a succession of rolling 5-year plans, the government of Saudi Arabia has tried to diversify its oil-based economy. The result has been that non-oil GDP grew at an average rate of 5.6 percent between 1970 and 2000 while oil GDP grew at only 0.7 percent. Part of the difference is explained by falling real oil prices over most of the period since 1980. Currently, the non-oil sector accounts for 62.4 percent of GDP â?? down from 72.0 percent in 1984 â?? with 58 percent of output in the non-oil sector being generated by the private sector. Oil still accounts for 67 percent of government revenues â?? down from 94 percent in 1974 â?? and 67 percent of export revenues.

Moreover, Al Mahmoud examines new candidates for diversification â?? natural gas, mining (precious and base minerals) and tourism. He also takes a detailed look at FDI in the Saudi economy and concludes that FDI has been concentrated in the petrochemicals and petroleum products industries with minimal employment effects, though there is no evidence of the crowding out of domestic investment but rather the reverse. However, using Granger causality tests, Al Mahmoud did find evidence that, at least to date, output and export positively impacted FDI â?? rather than the FDI impacting output and exports.
In an assessment of Kuwaitâ??s economic diversification experience, Eltony characterizes Kuwait as a typical oil-based economy with the oil sector contributing over a third of GDP, nearly 89 percent of government revenues and over 90 percent of exports. GDP growth since 1992 has been promising through mainly the result of the end of Gulf War. Furthermore, Eltony stresses that Kuwait is characterized by severe distortions in the labor market â?? with non-Kuwaitis comprising 82 percent of the labor force, while 94 percent of Kuwaiti employees work in the public service â?? most public utilities and services (including housing, education, health and utilities), either free or at highly subsidized prices. As a result, there is little flexibility in fiscal policy, while monetary policy is extremely limited. The Central Bank of Kuwait has no independence, and the government is committed to maintaining a nominal exchange-rate peg against a trade-weighted basket that is dominated by the US dollar.

Fiscal policy options are also limited in terms of both expenditures and revenue. The government has little control over revenue, which is dominated by oil. Moreover, political constraints have thus far prevented the introduction of both consumption tax and personal income tax.