Durham E-Theses ECONOMIC DIVERSIFICATION OBSTACLES IN RESOURCE-DEPENDENT STATES THROUGH THE LENS OF RESOURCE CURSE THEORY: OMAN AS A CASE STUDY ALHINAI, ALKHATAB How to cite: ALHINAI, ALKHATAB (2017) ECONOMIC DIVERSIFICATION OBSTACLES IN RESOURCE-DEPENDENT STATES THROUGH THE LENS OF RESOURCE CURSE THEORY: OMAN AS A CASE STUDY , Durham theses, Durham University. Available at Durham E-Theses Online: http://etheses.dur.ac.uk/12446/ Use policy The full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-prot purposes provided that: • a full bibliographic reference is made to the original source • a link is made to the metadata record in Durham E-Theses • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders. Please consult the full Durham E-Theses policy for further details. Academic Support Oce, Durham University, University Oce, Old Elvet, Durham DH1 3HP e-mail: [email protected] Tel: +44 0191 334 6107 http://etheses.dur.ac.uk 2 ECONOMIC DIVERSIFICATION OBSTACLES IN RESOURCE-DEPENDENT STATES THROUGH THE LENS OF RESOURCE CURSE THEORY: OMAN AS A CASE STUDY A Thesis Submitted for the Degree of Doctor of Philosophy in political economy by: Alkhatab Abdullah Alhinai Durham University School of Government and International Affairs ABSTRACT Rationally, it would be expected that the discovery of substantial and lucrative natural resources would provide a pre-industrial state with the opportunity to achieve industrial take-off. However, resource curse theory has challenged this assumption. Instead, oil- dependent states are not able to diversify their economies away from their reliance on natural resource revenues. The Sultanate of Oman has proved to be no exception. The discovery of oil in Oman in 1962 provided its government with the means to establish a massive socio-economic development programme with the aim to eventually reduce the country’s dependency on oil. Decades later, oil export revenues still represent more than 80% of government revenues. The main objective of this research is to try to understand the root cause of Oman’s inability to create a diversified economy, despite the fact that it was among the first countries in the region to adopt an economic diversification strategy. To explore the main reasons behind the unsuccessful economic diversification attempts in Oman, this study analyses in-depth the four aspects of the ‘resource curse’ identified in the literature: economic factors; human resource development; institutional quality; and political/social factors. The thesis is based on a single case study, that of Oman, using two methods of data collection: semi-structured interviews and focus group discussions. The participants’ insights are triangulated with official documents and reports from international organisations. The analysis demonstrates that studying each of the four aspects of the resource curse separately does not provide sufficient explanation for the failure of diversification. As a result, this thesis argues that the interaction of these four factors provides a more comprehensive understanding of the phenomenon. Furthermore, the analysis highlights that economic factors and human resource development are negatively affected by the institutional quality and the political/social factors. ii TABLE OF CONTENTS STATEMENT OF AUTHORSHIP ................................................................................................... XI STATEMENT OF COPYRIGHT ................................................................................................... XII ACKNOWLEDGMENTS ............................................................................................................... XIII ACRONYMS AND ABBREVIATIONS ........................................................................................ XIV NOTE ON TRANSLATIONS AND TRANSLITERATIONS ....................................................... XV CHAPTER 1 INTRODUCTION .................................................................................................. 1 1.1 INTRODUCTION ...................................................................................................................... 2 1.2 RESEARCH QUESTIONS .......................................................................................................... 3 1.3 BRIEF BACKGROUND ON OMAN ............................................................................................ 4 1.3.1 Economic Diversification Strategies ................................................................................. 6 1.4 THEORETICAL PERSPECTIVE .................................................................................................. 8 1.5 METHODOLOGY ..................................................................................................................... 9 1.6 RESEARCH SIGNIFICANCE AND CONTRIBUTIONS ............................................................. 10 1.7 THESIS STRUCTURE ............................................................................................................. 12 CHAPTER 2 OVERVIEW OF THE OMANI ECONOMY, POLITICS, AND INSTITUTIONS 15 2.1 INTRODUCTION .................................................................................................................... 16 2.2 OVERVIEW OF THE OMANI ECONOMY ................................................................................. 18 2.2.1 Government Revenues ..................................................................................................... 20 2.2.2 Oil Exports as a Share of Total Exports ......................................................................... 21 2.2.3 The Oil Sector’s Links with Other Sectors ...................................................................... 22 2.2.4 The Private Sector as an Active Player in the Economy ................................................. 23 2.2.5 The Strategic Development Plans ................................................................................... 25 2.2.6 Economic Challenges ...................................................................................................... 26 2.2.7 Dutch Disease Symptoms in the Omani Economy .......................................................... 27 2.3 HUMAN RESOURCE DEVELOPMENT .................................................................................... 28 2.3.1 Demographic Overview .................................................................................................. 29 2.3.2 Omanisation .................................................................................................................... 30 2.3.3 Labour Market Challenges ............................................................................................. 33 2.3.4 Education and the Labour Market .................................................................................. 34 2.4 INSTITUTIONAL QUALITY .................................................................................................... 34 2.4.1 Governance ..................................................................................................................... 35 2.4.2 Consultative Council and State Council ......................................................................... 36 iii 2.4.3 State Audit Institution ...................................................................................................... 38 2.4.4 Governance Quality ........................................................................................................ 38 2.5 SUMMARY ............................................................................................................................ 41 CHAPTER 3 LITERATURE REVIEW .................................................................................... 42 3.1 INTRODUCTION .................................................................................................................... 43 3.2 RESOURCE CURSE CHARACTERISTICS ................................................................................ 44 3.2.1 Dutch Disease ................................................................................................................. 46 3.2.2 Weak Economic Growth .................................................................................................. 47 3.2.3 Institutional Weakness, Corruption, and Rent-seeking ................................................... 48 3.2.4 Regime Type .................................................................................................................... 50 3.2.5 Summary .......................................................................................................................... 55 3.3 NATURAL RESOURCE IMPACTS IN THE GCC STATES .......................................................... 56 3.3.1 Oil Dependency and Economic Growth .......................................................................... 58 3.3.2 Rentier Theory Applied to the GCC ................................................................................ 61 3.4 OMAN: RESOURCE CURSE OR RESOURCE BLESSING .......................................................... 67 3.5 RESEARCH GAPS .................................................................................................................. 72 3.6 SUMMARY ...........................................................................................................................