Exclusive: Move over oil, the GCC has a new breadwinner
If the 2010s for GCC countries could be summed up in a few words, that phrase would be ‘economic diversification.’
Realizing that an oil-based economy is not sustainable, they have committed to a course-correction.
Enter UAE Vision 2021 and Saudi Vision 2030, examples of the nationalization schemes intended to develop these countries’ economies and diversify their income sources.
Today, the focus has shifted to non-oil sectors.
Being as rich with oil revenue as it is, the GCC has not had to implement stringent measures such as heavy income taxation or VAT (until recently). Most of their utilities remain state-owned, and are yet to be privatized. Looking at the volatility of oil prices in 2014 and even today, these countries have realized something must be done to preserve the stability and future of the economy.
“In the UAE and Saudi Arabia, non-oil sectors will account for more than 80% of GDP by 2025,” business consulting firm Frost & Sullivan said. “GCC governments have taken several steps to boost private-sector investments, constructing new tourist attractions and expanding airport capacity to provide impetus to the hospitality sector. Plus, the greater digitization in the region will boost online activities, and the retail sector will see a shift from mall culture to online purchases.”
In the UAE, for example, and to support its tourism sector, a $23.16 billion investment has been made in the country’s aviation infrastructure, such as the $8bn being put into developing Al Maktoum International Airport.
Saudi, on the other hand, is heavy on entertainment projects at the moment. Majid Al Futtaim, the shopping mall developer, announced in 2018 plans to open a multiplex at the popular Red Sea Mall, run by VOX, Al Bawaba reported. It is the latest step in VOX Cinemas’ SR 2 billion ($0.53 billion) investment plan that will see 600 screens open in the Kingdom over the next five years.
UAE leads the pack
As of late, the non-oil sector has been witnessing significant change.
In the GCC, the UAE leads in terms of non-oil sector growth. The country has succeeded in promoting itself as a cultural hub, an entertainment and tourism destination, and much more.
In fact, the non-oil sector now represents almost 70% of its economy.
“Non-oil activity, as evident by the Central Bank’s non-oil augmented economic composite indicator, has accelerated by 3.8% year-on-year in Q1 2018, marking the fastest expansion in eight quarters, before decelerating marginally to 3.6% in Q2 2018,” consultancy ICAEW said late last year. “The non-oil sector is expected to grow by 3% in 2018 and by 3.6% in 2019.”
The UAE is hitching a lot of its hopes on the non-oil sector, with reforms and a stimulus package for Abu Dhabi worth AED50 billion (US$13.6 billion) in the works.
“Economic reforms will also be complemented by the recent approval of the largest federal budget in the country’s history, of AED60 billion (US$16.3 billion), with more than half allocated to education and social development,” ICAEW said.
With the UAE approving a new investment law in 2018 that allows 100% foreign ownership of companies in certain sectors, and 10-year visas for non-nationals, it is looking to encourage Foreign Direct Investments (FDIs), which in turn will contribute to the private non-oil sector.
The Kingdom takes its early, but eager steps
In recent years, Saudi Arabia too has realized the significance of the private non-oil sector. The fact that movie theatres have been allowed in the country, and with women now driving, it is clear the Kingdom is doing its best to fulfill Crown Prince Mohammad Bin Salman’s Vision 2030.
Unlike the UAE, however, some elements such as its entertainment offerings and startup ecosystem are still in their infancy. To remedy this, Saudi is investing $64 billion in its entertainment sector, and is providing startups with more support mechanisms, among other reforms and initiatives.
To learn more about the country’s non-oil sector, AMEinfo spoke in an exclusive interview with John Pagano, CEO of the Red Sea Development Company (RSDC). RSDC is the developer in charge of bringing to life the $500 billion NEOM megacity in Saudi.
“The most recent data from Jadwa Investment indicates that the non-oil sector in Saudi Arabia is expanding,” he said. “Non-oil exports in September 2018 increased by 41% year-on-year and the non-oil purchasing manager’s index was up to 55.2 in November 2018 – the highest point since the beginning of the year. Non-oil private sector GDP is forecast to rise by 1.8% in 2019.”
He continued: “While much of the growth is due to the restructuring of the economy and particularly increases in plastics and petrochemicals, in the long term we should expect to see leisure and entertainment play an increasing role. Tourism, for example, contributes around 4% to Saudi GDP compared to 10% globally, so the government’s investments in tourism and leisure are an important contributor to the long-term growth of the non-oil sector in Saudi Arabia.”
Kuwait lagging behind
Kuwait, unlike Saudi and the UAE, has yet to heavily invest in economic diversification initiatives and other future-oriented developments.
According a report by the National Bank of Kuwait, and as reported by the Kuwait Times, the non-oil sector saw 3.3% growth in 2017, up from 2% the year before.
95% of the country’s exports are fossil fuel-related, and it exports 73% of its daily 2.8 million bpd output, according to Export.gov.
Bahrain in debt, but surviving
Bahrain has been enjoying economic growth, with particular improvement in its non-oil sector, despite relying on financial support from its neighbors. This has been stimulated by an active non-oil sector.
Dr Jarmo Kotilaine, chief economist, Bahrain Economic Development board (EDB), said: “With the oil industry now only accounting for less than 20% of Bahrain’s GDP, growth dynamics are critically linked to non-oil drivers.”
According to the quarterly report, Bahrain’s non-oil GDP expanded by an annual 2.8% in the second quarter.