Each GCC economy is making further progress on the diversification path
Individual Gulf economies accelerated towards key milestones in H1-2024
The GCC states have prudently capitalised on the recent rise in oil prices, making further strides towards economic diversification and enhancing the contribution of non-oil sectors to GDP. This has been facilitated by flexible economic policies that hold future prospects, plus support from a sophisticated infrastructure developed over decades.
In the UAE, the contribution of non-oil sector to GDP increased to 74%, up from 70% five years ago, thanks to substantial growth witnessed in areas such as financial services, industry and tourism. Meanwhile, the contribution of these sectors has gone up to 53% of Saudi Arabia’s GDP, according to the Kingdom’s minister of economy and planning. This was supported by a 70% surge in investments, marking a remarkable progress for one of the world's largest oil exporters.
In Bahrain, non-oil sector contributes 85% of GDP, driven by a significant rise in foreign investments in the industrial, real estate and transport sectors.
In Kuwait, the contribution of non-oil activities has increased to 57%, a growth attributed to recent strategies that have played a significant role in reshaping the economy. Several agreements have been signed, including one with China for the development and completion of subsequent phases of Mubarak Al Kabeer Port in Khor Abdullah. Kuwait's strategic location allows it to become a commercial and industrial hub due to its proximity to major regional markets.
In Qatar, the substantial investments made in hosting the World Cup led to significant advances for the non-oil sectors, such as transport and tourism, increasing their contribution to 64% of GDP. This is in addition to the development of infrastructure that can be exploited to bring about further economic diversification.
Meanwhile, Oman has placed significant emphasis on developing its transport and trade infrastructure by expanding strategically located ports. It has also adopted strategies to develop its energy sector, particularly hydrogen production, with investments totaling $10 billion, leading to increasing the contribution of non-oil sectors to 72% of GDP.
Ratings win
These percentages pertain to the GCC nations during the first-half of 2024. While the contribution of non-oil sectors varies among these countries, all are steadily advancing towards economic diversification.
This year, credit rating agencies upgraded the ratings of some GCC countries, while others maintained their ratings with a positive outlook, reaffirming the changes that have been discussed earlier.
This shift reflects their recognition of global changes impacting the energy sector and the growing role of renewables in the energy mix. The GCC nations have also prioritised renewable energy by allocating substantial investments and implementing projects, particularly in solar energy.
Can even compete with developed economies
On the other hand, this intra-GCC disparity is a natural and relative matter linked to the size of each country’s economy and the scale of projects undertaken for diversification, which naturally varies from one country to another. However, the GCC countries collectively enjoy a development experience that other oil-producing nations can learn from, as this experience has significantly contributed to raising living standards and providing high-quality services across various sectors at reasonable prices.
The diversification strategy embraced is expected to strengthen, raising the contribution of non-oil sectors to 70-80%. This is substantial like those seen in developed oil-producing countries, such as Norway, where non-oil accounts for 85% of its GDP, while oil constitutes 50% of total exports.
It is central for the GCC nations to share their diversification experiences, as each country has its own narrative. The convergence of these experiences will help their economies.