Enhance economic resilience and self-sufficiency
Supply chains in the GCC tend to be heavily dependent on goods imported from overseas. Dependency on imports leaves these countries more exposed to several risks, including commodity price fluctuations, global economic crises, political instability, natural disasters, and other factors that can obstruct imports of essential commodities and adversely affect import-dependent industries. GCC countries can increase economic resilience and sustainability by localizing activities critical to the continuity of domestic production, such as manufacture of spare parts, production of essential raw materials, critical maintenance and repair services, and provision of agricultural products.
Diversify the economy
Given regional economies’ reliance on oil and gas revenues, nearly every national development plan in the GCC countries highlights the importance of economic diversification in one form or another. Localisation can help drive economic diversification in a couple different ways, including promotion of value chain linkages and development of promising nascent supplier industries:
- Backward Linkages. Those linkages and interdependencies that exist between a government organisation or company and the suppliers that provide the inputs of goods, services, information, or material to it. Diversification can occur when a government organisation or company sources inputs from local suppliers in different industries, such as from IT services, construction, engineering, and management consultancy. By providing business opportunities to these suppliers, new and diversified industries are established and strengthened.
- Forward Linkages. Those linkages created when a government organisation or company invests or spends on projects and operations that produce further output and investment in subsequent stages of the value chain. An example would be a government investment in a port free zone, where investments in such infrastructure incentivize companies to set up business in the free zone and conduct further value added activities.
- Supplier Development. Localisation initiatives can help to promote the development of new and existing local suppliers in a range of industries. This can help expand the local supply base and enhance economic diversification.
Provide employment opportunities
Growing demand for high-skilled employment is a persistent challenge throughout GCC countries. As a strategic objective of the localisation agenda, regional governments may decide whether to focus on employment in absolute terms or target high-skilled and high-paying jobs in specific fields such as engineering, data analytics, cyber security, or project management. In Oman’s ICV programme, for example, efforts were focused on increasing overall employment (Omanization) of Omani locals, whereas in Qatar, which has a larger expat population relative to locals, employment targets focused more on increase of high-skilled employment for both locals and expats above a certain minimum salary, aiming to further enhance the local knowledge economy.
Build local workforce capabilities
Related to the issue of demand for high-skilled employment is local workforce capabilities. A mismatch between labor market needs and available skills is one of the root causes of unemployment in GCC countries. Localisation can play a key role in increasing local workforce capabilities. Not only can it designate a preference to locals for high-skilled job opportunities, but also provide upskilling and development programmes aimed at increasing the technical, managerial, and leadership skills of the local workforce.
Drive entrepreneurship and private sector growth through SMEs
The private sector’s share of gross domestic product (GPD) in several GCC countries is significantly lower than in other parts of the world. For example in Saudi Arabia and Kuwait non-oil private sector contribution to GDP in 2018 was around 44% and 26% respectively, less than most other developed countries around the world where the private sector constitutes the bulk of national economic output. Furthermore, there are only a limited number of SMEs in the GCC, while globally SMEs make up around 90% of businesses and provide upwards of 50% of employment. To target development of SMEs, measuring the participation rate of local SMEs in government procurement could provide a way to measure and incentivize the use of local SMEs.
There are numerous other strategic objectives that countries may consider as part of the localisation agenda. These may include investment in research and development, sectoral development (health localisation, defence localisation, etc.), technology and intellectual property transfer, and others. Regardless of which strategic objectives each government chooses, it is key that each one be directly related to and derived from existing national strategy and vision documents.