Expectations of a relatively slow economic rebound are driving diversification strategies across the GCC, offering investors some less traditional routes to potential returns.
Abu Dhabi: Modest 2021 recovery forecasts for the GCC have increased the focus on diversification from the hydrocarbon sector, potentially opening up some less traditional growth opportunities, according to Aberdeen Standard Investments (ASI).
Economists including the International Monetary Fund (IMF) and S&P Global Ratings expect to see a gradual recovery across the region[1], with real GDP growth to be around 2.5% this year after the contraction of about 6% in 2020[2].
Many GCC governments are now pursuing reforms largely based on diversifying revenue away from the volatile hydrocarbon sector and improving the efficiency of state spending.
Investment experts at ASI believe this is fostering increased investment in areas such as financial and educational technology, which could offer new investment options.
Edris Alrafi, Head of Middle East & Africa for ASI, said: “Following the crash in oil prices in 2020, we are seeing a far-reaching transition among national oil companies in the GCC. This activity ranges from new strategies to diversify and decarbonise their activities and digitalisation of operations and services, through to automation of cybersecurity as part of a focus on asset integrity within the region’s oil and gas sector.”
Diversification initiatives have also more broadly included – in countries such as Oman – plans to implement value-added tax (VAT), in a move aimed at easing the country’s long-standing reliance on hydrocarbons to fund its budget[3].
Saudi Arabia is also making strides to diversify its economy by expanding the non-oil sector, coupled with public and private investments beyond minerals. And, in the UAE, there is a huge focus on the rescheduled Expo 2020 as a potential way to kick-start the UAE economy.
Investment experts at ASI are positive about the potential for tech-led growth across the region, based on investments in and the effective deployment of advanced technologies such as artificial intelligence, smart sensors, robotics and advanced material.
The expanding fintech influence across the region is also continuing to gather momentum, especially in the UAE, which is considered a leader in fintech innovation, housing a quarter of the regional fintech community[4]. The most likely areas expected to benefit from this flurry of activity are remittances, banking penetration and the security of transactions.
Another example of the positive impact of digital transformation is the GCC education sector. ’EdTech’ is offering new investment avenues across the globe and that is now the case in the region, according to a report by Alpen Capital, which highlighted high levels of adaptability and scalability in education solutions powered by new technological tools[5].
Edris continued: “There are definitely untapped areas of opportunity, but investors must be patient. Lockdowns coupled with lower public capital spending due to the pandemic, plus the associated impact on travel and tourism, have also weighed on the non-oil sector. The levels of growth we saw in 2019 are not likely to return until at least next year.”
Elsewhere in the GCC economy, despite a relatively cautious outlook for infrastructure in 2021, companies within this sector have accessed the capital markets over the past 12 months – and expect to achieve long-term borrowings at competitive pricing via this route[6].
Declining long-term liquidity from the banking sector combined with low interest rates have driven many companies in the power industry, as well as the oil and gas sector, to refinance their debt obligations by accessing the large pool of institutional investors seeking stable and long-term yields.
There is additional potential coming from an increasing number of asset-backed transactions involving large infrastructure assets to attract low-cost capital.
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About Aberdeen Standard Investments
Aberdeen Standard Investments (ASI) is a global asset manager dedicated to creating long-term value for our clients. With over 1,000 investment professionals, we manage £525.7 billion (US$669.6 billion) * of assets worldwide. We have clients in 80 countries supported by over 40 offices globally. This ensures we are close to our clients and the markets in which we invest.
We are high-conviction, long-term investors who believe teamwork and collaboration are the key to delivering repeatable, superior investment performance.
Standard Life Aberdeen plc is headquartered in Scotland. It has over 1 million shareholders and is listed on the London Stock Exchange.
ASI has been active in the Middle East region for over 20 years. In 2016, ASI opened an office in Abu Dhabi Global Market (ADGM), the international finance centre of Abu Dhabi.
