The future of UAE, Saudi economy not as bad as you thought 

June 29, 2018 11:38 am


According to PriceWaterhouseCoopers (PwC), non-oil GDP growth in the UAE and Saudi Arabia should see a slight but noticeable improvement compared to 2017, the impact of VAT inflation withstanding.

Oil, non-oil impact

For one, UAE and Saudi’s well-informed decisions to spread their investments outside the realm of the oil sector have acted as a deterrent for economic turmoil.

PwC primarily believes that the recovering oil prices, coupled with raising ownership limits, have both served to bolster the economies of GCC countries.

Sheikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai recently announced key changes to the country’s residency programme, including foreign investors in the country to be offered a 10 year residency visa, as well as 100% business ownership. This move aims to boost FDI by up to 15%.

READ: With its economy back in black, will Saudi pump more oil, risk lower prices?

Growth strategies

FDI in Saudi, on the other hand, is mediated by the Saudi Arabian General Investment Authority (SAGIA). PwC explains that it has been expanding the range of sectors where 100% ownership is permitted, adding retail and wholesale trade to the list in 2016 and engineering in 2017, as part of efforts towards the Saudi Vision 2030; in other approved sectors, only 75% is permitted. This relative openness and the size of the Saudi economy explains why it ranks second in the region for FDI penetration.

PwC believes that although adjustments such as energy subsidy cuts and the introduction of VAT this year have had short-term negative impacts (e.g. on the PMI), they should make the economy more efficient.

READ: Diversification and FDI Driving Sharjah’s Economy

Furthermore, now that oil prices are rising slightly again, many of the GCC countries such as Kuwait that are heavily reliant on oil income will be able to get their finances flowing again. The Kuwaiti oil sector accounts for 40% of the country’s GDP, 90% of total exports and 80% of state revenues, according to Trading Economics. Q4 of 2017 showed a 2.5% decrease in GDP growth. In Q1 of 2018, GDP growth rebounded to 1.6%, likely due to the aforementioned rise in oil prices.

Richard Boxshall, senior economist at PwC Middle East, said: “Notwithstanding the impact of VAT and inflation, if oil prices remain buoyant, as seems likely, and regional investment flows are boosted by IPOs and a rise in foreign inflows, non-oil GDP growth in 2018 should be slightly stronger than in 2017 which, combined with flat (rather than reduced) oil production, should result in stronger overall growth for the year.”

He explained, “Gulf countries are rethinking the role of foreign investors as they look to ease fiscal burdens and restructure their economies for the twilight of the oil era, with a strong focus on technology-intensive sectors. This is leading to a series of new investment and companies laws and changes to capital market rules.”

READ: If expats’ remittances are any indication, UAE’s economy is surging forward

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Mark Anthony Karam
By Mark Anthony Karam
Journalist
Mark Anthony Karam has 3 years experience in the field of visual and written media, having earned his Masters degree from the UK.



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