As Arab states push ahead with their economic diversification plans, experts watching geopolitical developments remain optimistic about the future of the Gulf region, but warn that strong global and political headwinds persist.
Experts gathered at a recently concluded conference in the Arab Gulf States in Washington, also known as AGSIW, acknowledged the various efforts undertaken by GCC countries towards innovation, but highlighted the need to do more.
“GCC governments cannot rest on their laurels. They are going to have to work hard to keep attracting top companies and highly skilled business people, especially those in the technology sector,” said Robert Mogielnicki, Senior Resident Fellow at AGSIW, in an interview with Arab News.
“This (already) seems to be the strategy behind the launch of new long-term visa programs and other initiatives to improve the livability and sustainability of various places,” he added.
The researcher believes that the future remains very uncertain and full of pitfalls. “When your economic outlook is still closely tied to the dynamics of the global energy market, things can get worse quite quickly,” he warned.
Monica Malik, the chief economist of Commercial Bank of Abu Dhabi who spoke at the conference, added that other challenges remain, such as balancing the social side while tightening fiscal policy. Another challenge is to create enough jobs and a labor market that meets the demands of future economies.
Despite the challenges ahead, the GCC is in a strong position, most experts agree.
For Malik, the GCC region has handled the COVID-19 pandemic exceptionally well. “This has been achieved with high vaccination rates and maintaining social mobility, with varying restrictions, in countries across the region.”
GCC countries, she said, are also well positioned with rising oil prices. “The GCC enters 2022 very strongly. There will be a budget surplus, for most countries, even if oil prices fall to $75, except for Oman and Bahrain,” Malik added. .
The economist expects these surpluses to help build up reserves and support transformation efforts. “We are also going to see fewer headwinds on the fiscal side. It is not only the pandemic (which served as) a wake-up call but also the energy transition (which we have experienced in other countries)”, she underlined.
This is helping to accelerate various policy reforms such as the value added tax, which has been increased, and the UAE’s decision to introduce corporate taxes from next year. “The GCC region is also focusing on how it can become a leader in the energy transition,” the economist explained.
Mogielnicki agreed that many regional governments are taking advantage of this fiscal space to introduce economic policies, such as new or higher taxes — all of which can support long-term economic diversification.
He nevertheless pointed out that the government-led urgency to diversify into high-tech industries and grow the region’s digital economy is not necessarily commensurate with what global tech companies and entrepreneurs want when they plan to move to the area.
However, “the economic outlook for the GCC looks relatively rosy, given rising oil and gas prices and – for the most part – a sustained commitment to fiscal discipline,” Mogielnicki concluded.