GCC countries to use more renewable energy resources to preserve the oil wealth, finds Frost & Sullivan’s Visionary Innovation team

Dubai, U.A.E., 19 July, 2017– The growth of the oil-rich Gulf Cooperation Council (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.

Strategy.jpg“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 laborers are being offered higher wages and better non-wage benefits in the public sector.”

Future of GCC, Forecast to 2025 is part of the Visionary Innovation (Mega Trends) team’s Growth Partnership Subscription. The fiscal deficit of GCC aggregate countries reached 11 percent in 2016, making it the largest deficit in the history of the GCC, but it is expected to decline to 8.4 percent 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.

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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 percent 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, aluminum, 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.”

In the UAE and Saudi Arabia, non-oil sectors will account for more than 80 percent of GDP by 2025. GCC governments have taken several steps to boost private-sector investments, constructing new tourist attractions and expanding airport capacity to provide impetus to the hospitality sector. 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.

About Frost & Sullivan

Frost & Sullivan, the Growth Partnership Company, works in collaboration with clients to leverage visionary innovation that addresses the global challenges and related growth opportunities that will make or break today’s market participants. For more than 50 years, we have been developing growth strategies for the global 1000, emerging businesses, the public sector and the investment community.

Future of GCC, Forecast to 2025
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Frost & Sullivan

For six decades, Frost & Sullivan has been world-renowned for its role in helping investors, corporate leaders and governments navigate economic changes and identify disruptive technologies, Mega Trends, new business models and companies to action, resulting in a continuous flow of growth opportunities to drive future success.

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