Economic reforms transform GCC region into safe harbor for global investments
December 29, 2018 | 2:34 PM
by Mohammed Mahfoodh Al Ardhi Al Ardhi
A general view of the Abu Dhabi skyline. The UAE received 67 per cent of the total foreign direct investment among the GCC countries in 2017, valued at US$10.35 billion, out of a cumulative US$15.45 billion for the region as a whole. Photo - Reuters file for illustrative purpose

A closer look at international and regional reports on countries in the GCC region makes us realize that the influx of foreign direct investment (FDI) to the region is closely linked to the achievement of economic diversification plans and volume of infrastructure spending, as well as the creation of enabling legislations - critical in facilitating best business practices.

In 2017, the GCC countries received half of the FDI inflows to all Arab countries combined, estimated at US$30 billion. Member countries also fared well in the World Bank's Doing Business 2019 Report, which surveyed 190 countries.

The UAE was the only Arab country within the G20, the world's first economies - ranking 11th globally. Bahrain placed 62nd, Oman 78th, Qatar 83rd, Saudi Arabia 92nd, and Kuwait 97th.

The UAE received 67 per cent of the total foreign direct investment among the GCC countries in 2017, valued at US$10.35 billion, out of a cumulative US$15.45 billion for the region as a whole.

Oman followed with 12.1 per cent, while Saudi Arabia came in third with 9.2 per cent according to the latest available data. The total volume of FDI to the GCC countries accounted for 1.1 per cent of global FDI.

It is noteworthy that these foreign investors have sought lucrative opportunities in the non-oil sectors in the GCC countries in light of the development plans and visions implemented in the region to diversify away from oil - namely Saudi’s Vision 2030, the UAE’s Vision 2021, Bahrain’s Economic Vision 2030, Qatar’s National Vision 2030, Kuwait’s Vision 2035 and Oman’s Vision 2040.

These national visions highlight the aspirations to transform the GCC economies from hydrocarbon-dependent ones to technologically advanced nations built on solid and economically sustainable foundations.

In fact, the newly announced reform visions mark the culmination of several important steps to achieve this very purpose over the past five decades. The infrastructure was constructed, education and healthcare were strengthened, and a range of manufacturing industries put in place to meet local needs and serve international markets. In the first decade of this century, many significant economic reforms took place across the GCC region to make investments in manufacturing sectors appealing to citizens and foreigners alike.

In addition, we have also witnessed efforts to introduce new sectors, industries and activities that offer a high growth potential.

Not surprisingly, sectors with high growth potential in the globalized economy were targeted, including aviation, tourism, hospitality, real estate, logistics, business and manufacturing, with a focus on products that integrate hi-tech and innovation, such as smart or green technologies.

A good example is the enormous investment in state-of-the-art airports, aircraft and flight services.

As a natural outcome of these development plans, we see a steady flow of mega projects from governments in the GCC region that contribute to the realization of their national visions.

Prominent examples include the city of NEOM project in Saudi Arabia and the Silk City project in Kuwait. The former aims to establish a modern smart city to offer post-industrial era lifestyles and has attracted more than US$500 billion from the Saudi government, as well as local and international investors.

The Silk City project is set to comprise an integrated city for over 700,000 people with various facilities, including hotels and other lifestyle components and services. Set to create a total of 450,000 jobs once completed in 2036, the project has attracted investments from China.

Interestingly, while GCC governments leveraged the oil era to shape the infrastructure and investment climate for the post-oil era, their economies are now better positioned to deal with the fluctuations in oil prices than in the past, especially following the precautionary measures taken since the decline of the fuel prices commenced in 2014.

GCC countries have taken the required austerity measures to enable their economies to grow more mature and diverse. These include applying strategies to reduce budget deficit rates and support the sustainability of public finance and economic growth in the medium and long term.

Perhaps the best proof of this progress was the announcement of a decrease in the Saudi budget deficit during H1 of the current fiscal year 2018, reaching SR41.7 billion, down by SR31 billion from the same period last year.

Despite the 26 per cent growth in spending during H1 2017, a part of the credit can be attributed to the significant growth in non-oil revenues, combined with the relative improvement in crude oil prices.

Saudi Arabia is implementing a program to achieve fiscal balance by 2023. Targeting financial performance through promoting economic activities and initiatives, the program seeks to sustain public finances over the medium term, especially in non-oil sectors.

The Citizen Account Program, the Private Sector Stimulus Plan, and the Kingdom Vision 2030 Realization Programs, as well as increased investment in the budget, help to speed up the process of structural reform. In doing so, they stimulate economic growth while generating sustained and much-needed employment opportunities, and enabling the private sector to play its role in nation building.

In all other GCC countries, economic reforms continue at the same pace. Non-oil sectors such as manufacturing, tourism, real estate, transport, ports, and financial services are making important monetary contributions to the economies and increasing the number of employees engaged in the effort as well.

In Saudi Arabia, these sectors currently account for 50 per cent of the GDP, with the same number likely to apply to the rest of the GCC region. A striking example is tourism, which draws more than 53 million visitors to the countries of the region each year, generating US$137 billion in revenue, and providing 2.2 million jobs, significantly attracting increased foreign investment flows annually.

Given the economic reforms that have been implemented, the GCC region has become a popular destination for international investment institutions. It is fertile ground for high-yielding, low-risk investment opportunities, owing to environmental stability and comparative advantages that allow it to lead the rest of the world in attracting investors seeking safe harbors.

*The author is the Executive Chairman of Investcorp, Chairman of Sohar International and an International Advisor to the Brookings Institution. All the views and opinions expressed in the article are solely those of the author and do not reflect those of Times of Oman

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