- After prolonged economic distress due to Covid-19, economies in the region are set to benefit in the coming months from new global oil demand plus growth in key sectors from tourism to telecoms.
Abu Dhabi: Leading GCC economies have resumed their pre-pandemic growth trajectory – not only on the tried-and-tested path of oil revenue, but also amid national diversification initiatives, according to Aberdeen Standard Investments (ASI).
The World Bank forecasts aggregate growth across GCC member states of 2.2% in 2021. It pinpoints the global economic recovery – projected at 5.6% – and the revival of international oil demand and oil prices as core drivers. Yet non-oil revenue from property, tourism and the digital economy, for example, also promises to support the turnaround in the region.
Edris Alrafi, Head of Middle East & Africa at ASI, said: “Investors can expect key sectors to move in a positive direction in the next few months. They will welcome this rebound in the economy after the GDP contraction of 4.8% in 2020.”
The Institute of International Finance sees the UAE and Saudi Arabia as leading the post-pandemic economic recovery within the GCC.
More specifically, while the World Bank expects the UAE to regain momentum slower than the average, at 1.2%, this will accelerate to 2.5% in 2022 and 2023 driven by government expenditures and Expo 2020 in October 2021.
Saudi Arabia, meanwhile, will derive more immediate gains from firmer demand for oil, with the World Bank tipping 2021 GDP to be 2.4% in 2021, and medium-term growth to average 3%. Kuwait will experience a similar rebound; the World Bank said oil exports will likely drive domestic growth dynamics, forecast as a moderate 2.4% in 2021 before ramping up to an average 3.2% in 2022-23.
To uphold this momentum, however, there is consensus that GCC economies need to follow a clear and consistent path to reforms to drive longer-term competitiveness.
For example, investment experts at ASI are eyeing further reforms across key markets to enhance the appeal of what many investors see as future-proof areas of economic development.
The World Bank agreed, based in its recent Gulf Economic Update, released in early August, which stated: “Past investments in the [telecommunications] sector accorded the GCC sizable benefits during the pandemic as quarantines, lockdowns and restrictions forced public health surveillance, wholesale and retail commerce, public and private education, banking and financial services, and private and government office work onto digital channels.”
The rollout of 5G networks is central to this – a goal that the UAE, most notably, has made a priority and, according to the UAE’s Information and Digital Government Sector, this has facilitated the implementation of the latest projects across health, transport, education and logistics.
This is also in sync with the country’s launch of its 2021-2025 strategy to set policies that drive digital transformation.
Edris added: “The importance of economic diversification cannot be overstated. Countries such as the UAE will get a boost from ongoing investments in areas of strategic importance, such as digitalisation and telecommunications.
“There is still some way to go to ensure non-oil GDP becomes a larger proportion in all GCC countries, which is essential in creating a steady and strategic resurgence in the region’s appeal to investors.”
Tourism offers another avenue for optimism in the UAE. It was ahead of the global trend in the first half of 2021 with the decline in hotel occupancy less severe compared with other markets. And going forward, the positive impact of the country’s strong vaccine programme coupled with the opening of the Expo 2020 Dubai next month are expected to boost the tourism sector.
ASI investment specialists also foresee the real estate sector as providing another economic boost over the next few months. In Dubai, for instance, growing numbers of transactions and rising prices fuel bullish sentiment[5].
These again show the importance of investor confidence as a result of the impressive vaccination rates, which have led to confidence that has, in turn, spurred resilience within the business community.
