From Hydrocarbon-based to Knowledge-based

Ever since I moved to the region a few years ago, the biggest buzzword was, and remains, the "knowledge-based" economy. Everyone in the region talks about it, but its exact definition remains elusive. With the collapse of oil prices recently, there have been renewed activities to nail down what a "knowledge-based" economy really means, but now a new buzzword has emerged here: "innovation". So now you hear things like: "The government must make a significant investment in Astronomy innovation to pave the way to a knowledge-based economy in this country". Substitute "Astronomy" with anything you can think of, and you get a list of recommendations on what the government should be doing to prepare the nation for this new era of a "knowledge-based" economy.

So when I was invited last week to give a talk at a conference on... yes, you guessed it.. the "Knowledge-based economy", you can appreciate my initial hesitance and cynicism. Then I thought this might be a good opportunity to approach the question, not as a policy maker, nor as an academic, but as an entrepreneur. So here are my thoughts on the topic (which ultimately framed my talk last week).

Let's start by making a couple of educated assumptions. Firstly, I assume that the main objective behind the "knowledge-based economy" concept is to create economic opportunities for the citizens of the country to maintain (or exceed) their current standards of living - one which they currently enjoy under the existing "hydrocarbon-based economy". Second, because "knowledge" on its own is NOT the main objective, (but rather, continued economic prosperity is), what is important is seeking ANY type of knowledge, which, in a future date when oil and gas become so cheap that they no can longer generate the same levels of income, would become the substitute for wealth creation.

Given the above, I can now frame the question as follows: "What type (or types) of knowledge should the government be advocating, supporting and investing in development among its citizens (education, processes, infrastructure, etc.) so that they can continue to enjoy one of the highest standards of living in the world - long after oil and gas have been depleted or their values have been diminished?

Approaching this question as an entrepreneur, I look at the cards I am holding: what capacity do I currently have? what are the opportunities? and what are my competitive advantages?

Regarding capacity, obviously a country like Russia (a hydrocarbon-based economy with a population approaching 150M people) is very different from a country like Qatar (with a population of 2M of which the majority are not citizens), so one would expect that a knowledge-based economy for Russia would probably look very different from a knowledge-based economy for Qatar. Small countries with small populations must focus their energies on a few areas so that they can become competitive in those fields.

Regarding the opportunities, the goal is to seek the types of careers which will yield income that matches or exceeds current standards of living in the region. It is hard to predict what jobs would be the highest paying jobs of the future, but in today's market, the highest income professionals in competitive economies are people who work in the following sectors: financial investment services (investment bankers, venture capitalists, etc.), corporate management consultants, international corporate lawyers, doctors, and innovation professionals (product development, product design, product management, and marketing and sales people who work in product innovation companies).

Regarding competitive advantage, gulf countries enjoy three main competitive advantages globally: 1) capital (governments, private sector companies and individuals have accumulated significant capital, 2) R&D (many countries like Qatar, and UAE have invested heavily in R&D infrastructure and ecosystem in the past decade), and 3) the energy industry (particularly oil and gas).

Given these factors, here is my blueprint for building a knowledge based economy for small hydrocarbon-based countries (e.g., Qatar, UAE, etc.):

1. Invest in building talent and know-how in financial asset management (the skills needed to deploy capital to maximise returns): investment bankers, venture capitalists, industry analysts, corporate and investment lawyers, portfolio managers, strategy consultants, intellectual property professionals, financial analysts, etc. In other words, build the capacity that knows how to best invest capital for maximum returns.
2. Invest in building "product innovation" capacity (the skills needed to commercialise R&D): product development, product design, product management, business development, product marketing, etc. In other words, build the capacity that knows how to turn R&D into commercially viable businesses.
3. Invest in building sustainable expertise and partnerships in the global energy market (the skills needed to remain up-to-date with industry trends and networks): exploration, production, manufacturing, transformation, transportation, sales, demand prediction, etc. In other words, build the capacity of networks and expertise in the overall energy market, not just gas and oil.

Put the above three groups together (asset managers + product innovators + industry experts), and you can create an economy based on continuous innovation in the energy industry.

Let me make two final points about the energy industry. One, dependence on oil and gas may go away one day, but dependence on energy will be with us for ever. Two, we should not forget the role that IT will play (software is eating the world) - the energy industry, like many other industries such as retail, transportation, health, and finance, will be disrupted by information technology, artificial intelligence, virtual reality and data science - so part of the "knowledge" that our region must keep nurturing is that of Information Technology.

Of course, small countries like Qatar still need their astronomers, their doctors, their artists, their teachers, and they can certainly nurture these professions for local services without trying to be innovators or leaders in all of these fields. But if the goal is to maintain an "oil and gas" standard of living in the future, they must focus the majority of their efforts on those fields that will help them reach that ambition, and on building the knowledge today that will get them there tomorrow.