Contrary to what is often supposed, even in the academic literature, the Gulf countries have made major strides in industrialization. That most of the industries they have established are based on or are tied to oil and gas does not negate the achievement. There has also been progress in diversification even if the mainstay of diversification has been in hydrocarbon industries, the product of extensive upstream and downstream investments.  The industries, all capital-intensive and energy-intensive and many supported by favorably priced feedstock, include a variety of petrochemicals as well as steel, aluminum, building materials, and electrical machinery. In the process, world-class stalwarts such as SABIC (the Saudi Basic Industries Corporation) and ALBA (Aluminum Bahrain) have emerged.  Some countries, notably Saudi Arabia and the United Arab Emirates, are also moving aggressively into renewable energy, especially solar. Yet other areas such as maritime logistics are expanding capacity and operations and providing a spur to manufacturing. All in all, the industrial base of these countries has widened and their industrial capabilities have grown.

Such progress notwithstanding, the Gulf countries are today more conscious than ever before of their limitations in the world of industry.  With the possible exception of the UAE, none of the Gulf countries can make credible claims to having made substantial headway in diversifying merchandise exports: the export of non-hydrocarbon manufactured products is lacking in both depth and scale.  And although there has been a growing private sector role in industry, even petrochemicals, state-owned enterprises still rule the roost. The professed intention of making private industry the engine of growth and development – a common thread in all the “vision” manifestoes that have proliferated in the Gulf – is nowhere close to realization. Few private entities, most of which are small and medium enterprises, are beneficiaries of financial or technical assistance from government, and few are generators of employment or incubators of skills.  The region’s industrial policies are statist through and through: the suggestion that industrial policy be used as a process of discovery -- a “dialogue” with the private sector devoted to eliciting information in order to identify and remove binding constraints to development – finds little, if any, correspondence in reality.  Moreover, in general, productivity has not seen appreciable increases and entrepreneurship remains weak, while efforts to stimulate innovation through initiatives such as industrial clusters have not yielded much success. The GCC countries are low in the ranks of UNIDO’s Competitive Industrial Performance Index. Whatever its successes, the industrial strategy of every country in the Gulf country continues for the most part to be tethered to the rentierism of its national economy.

Hence, it is hardly surprising that there is something close to a universal consensus among policy-makers throughout the region that their industrial strategies are unsustainable. Today, these countries find themselves in a liminal juncture in the world economy – a world with economies still dependent on fossil fuel and at the same, slowly but surely, transitioning to alternative sources of energy. The rethinking of industrial policy has intensified thanks to the frequent revenue declines engendered by gyrations in world prices of crude and the diminished wherewithal to maintain the government largesse that has been an essential ingredient of the “social contract” that has prevailed for decades.  The advantages once conferred by low-cost energy and low-cost labor have waned.  The felt need for a new set of policies is also galvanized by the lures of “the new industrial revolution” – NIE or I4.0 – which promises to usher in a wave of new technologies and to upend many existing ones.  Hence, the Gulf countries are eyeing developments in such areas as artificial intelligence (AI), advanced robotics, the Internet of Things (IoT), cloud computing, big data, digital fabrication, additive manufacturing, augmented reality, 3D printing, and nanotechnology.  These technologies and the global value chains that help to produce and distribute them have far-reaching implications in realms ranging from energy and investment to national competitiveness and social stability.

Concomitantly, the world has seen a sea-change in thinking about industrial policy.  Once banished by the Washington Consensus and its singular preoccupation with liberalization, deregulation, stabilization, and privatization, industrial policy has undergone a resurgence since the turn of the century.  It has shed its erstwhile emphasis on “picking winners” as well as import substitution and economic protection.  Instead, it gives pride of place to innovation in production, development of entrepreneurship, human capital development, foreign direct investment (FDI), and multinational enterprise involvement.  The scope has widened to include a broad range of measures designed to support entrepreneurship and competitiveness.  Industrial policy is no longer regarded as a fool’s errand.  Even development banks and development funds, once castigated as purveyors of patronage, cronyism, and rent-seeking, are back in fashion.