Non-Oil Sector Will Claim 80 Percent of UAE, Saudi GDP by 2025: Report

Published July 19th, 2017 - 11:16 GMT
The world's first operational police robot stands at attention in Downtown Dubai on May 31, 2017. (AFP)
The world's first operational police robot stands at attention in Downtown Dubai on May 31, 2017. (AFP)

Non-oil sectors will account for more than 80 per cent of GDP in the UAE and Saudi Arabia by 2025, said a new report, highlighting the steps taken by GCC governments to boost private-sector investments, construct new tourist attractions and expand airport capacity.

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, noted the report titled “Future of GCC, Forecast to 2025” released by Frost & Sullivan, a growth partnership company.

The growth of the oil-rich GCC over the past 50 years has been without parallel, but the recent fluctuations in oil prices have put the brakes on its runaway growth.

Acknowledging the need to diversify their economies to stay buoyant, the GCC has been rolling out a series of social and political reforms to lower their reliance on oil revenues and increase the private sector's contribution to the gross domestic product (GDP) by 2025.

One of the main areas of investment will be information and communication technology, as the region is expected to witness tremendous growth in mobile connectivity and Internet usage over the next decade. Accelerated privatization of companies, resources, property and sectors will not only fortify the region’s financial resources, but also create an economy that is insulated from oil price volatility.

“GCC nations have adopted strategies to improve the private sector’s business environment and the public sector’s employment in order to create jobs and increase the contribution of non-oil sectors to the economy,” said Frost & Sullivan Visionary Innovation senior research analyst Malabika Mandal.

“While domestic businesses are being lured to the non-tradable sector with lucrative government deals at low risks, national labourers are being offered higher wages and better non-wage benefits in the public sector.”

The fiscal deficit of GCC aggregate countries reached 11 per cent in 2016, making it the largest deficit in the history of the GCC, but it is expected to decline to 8.4 per cent in 2017 due to an increase in oil prices. Healthcare spending has grown significantly over the years, but healthcare expenditure as a percentage of the GDP remains low compared to emerging economies like China and Brazil.

Infrastructure development projects like a regional transport and logistics network, and expansion of airports will increase intra-GCC trade and economic integration. However, with the recent Qatar crisis, decline in inter-regional trade, uncertainty in trade and transport infrastructure projects, and low prospects of implementation of free-trade policies are likely. Inter-regional trade accounted for 8 per cent of GCC’s total trade in 2016.

GCC customs union is supporting free-trade policies to eradicate tariff and non-tariff barriers. The Qatar crisis is a major setback to the free-trade prospects in the region. Decline in inter-regional trade will lead to diminishing contribution of logistics to the economy, which was otherwise set to double by 2020. Unification of economic and legal policies to achieve GCC common market was the main focus of the regional integration agenda of GCC, which seems ambiguous after the Qatar crisis.

The sectors that will garner the most attention are energy-intensive manufacturing industries such as petrochemicals, plastics, aluminium, and mining and minerals. Already, the UAE has supported the expansion of industrial zones and the reformation of industrial sectors, while Kuwait has supported a new development plan that emphasizes large infrastructure projects funded through public-private partnerships.

“Significantly, renewable energy will dominate the energy mix of GCC in the next decade,” noted Mandal. “GCC nations have announced several plans to augment renewable energy production and improve energy efficiency, as achieving energy targets will result in collective savings of 2.5 billion barrels of oil equivalent (2015-2030). This, in turn, can lead to inclusive savings of $55 billion to $87 billion, depending on oil and gas prices.”

 


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