Although global economic growth is expected to slow down in 2019 amid the challenges resulting from a decline in trade and industry, structural reforms by governments in the GCC region designed to protect their economies from global volatility are well on track to achieving their objectives - underscored by a focus on the non-oil sectors.
Notably, although the outlook set by the World Bank's Global Economic Prospects report anticipates GCC growth to average 2.6 per cent in 2019, below the global average of 2.9 per cent, this projected growth for the region is higher than in 2018, when it did not exceed 2 per cent.
The rise in oil production and prices in 2018 played a pivotal role in easing the pressures of policies that aimed to regulate general fiscal conditions after several countries in the GCC region rationalized public spending. The surge in oil revenues contributed to an increase in current account balances, which in turn enabled an increase in public spending.
While recognizing the importance of oil recovery in raising the growth rates of the regional economy, we cannot ignore the impact of economic diversification policies over the past four years. Diversifying away from oil has led to the emergence of mega projects aimed at maximizing non-oil revenues in sectors that have been overlooked for years such as technology, tourism, and financial services, among others.
According to the World Bank, economic growth in the GCC region is likely to experience a boost in 2019 as a result of increased investments and regulatory reforms. This confirms that 2018 brought about significant changes and enabled some of the regional economies, such as Oman and Saudi Arabia, to overcome their deflation in 2017. Both countries recorded negative economic growth of 0.9 per cent in 2017, while the rate of decline was more severe in Kuwait (3.5 per cent), according to the World Bank.
We can easily link the progress made by countries in the GCC region with their plans to overcome oil fluctuations and their shift in focus towards non-oil sectors. Such efforts will help achieve an economic growth rate over the next three years that can reach or exceed the expected growth average of the global economy. For example, the World Bank forecasts that Oman will grow by 3.4 per cent by end-2019, which is above the expected average growth rate for both the regional economy and the global economy. However, this growth is expected to slow down in 2020 and 2021 to 2.8 per cent. The World Bank expects the UAE economy to grow from 2 per cent in 2018 to 3 per cent in 2019 and 3.2 per cent in 2020 and 2021.
As for the Saudi economy, which is the largest in the GCC and the wider Arab region, the World Bank expects growth over the next three years to continue rising from 2 per cent in 2018 to 2.1 per cent in 2019 and 2.2 per cent in the following two years.
The same is true for Bahrain's economy - 2.8 per cent until 2021 - as well as the Qatari economy, which is set to surge from a 2.3 per cent growth rate in 2018 to 2.7 per cent in 2019 and as much as 3 per cent in 2020 and 2021.
These promising growth expectations for the economies of the GCC region are the direct outcome of the strategic plans adopted to diversify economic activities and develop new non-traditional sectors in these countries. There is a remarkable acceleration in implementing these plans, not only in terms of mega projects in all countries, but also in terms of creating the legislative structure and enabling investment environment for a new phase of sustainable growth independent of oil price fluctuations.
Starting early in 2019, initiatives are being launched in the GCC countries to enhance the attractiveness of their legislative and investment environments. For instance, Bahrain has become the first country in the world to enact a legislation that supports the circulation of electronic documents in line with the UNCITRAL Model Law. The move aims to strengthen Bahrain’s legislative structure and increase the attractiveness of the Bahraini economy to foreign investors. As part of a series of comprehensive legislative reforms, the law will spur the growth of the digital economy in the GCC markets that is valued at US$1.5 trillion.
His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, launched the Eight Principles of Dubai in early 2019. The sixth principle states: ‘Economic diversification has been the foundation of our unwritten constitution in Dubai since 1833. The changing times and the rapid developments make our commitment to this principle everlasting. Our new goal is to create at least a new economic sector every three years that will be productive, contribute to our GDP, and generate jobs.’
The same efforts are true of the wider GCC region, where nations are racing to implement their ambitious development plans, including the Saudi Vision 2030, the UAE Vision 2021, Bahrain Economic Vision 2030, Qatar National Vision 2030, the Kuwait Vision 2035 and Oman Vision 2040. Given the tremendous achievements that the countries in the region have already posted, I believe the GCC economy is going in the right direction. However, as with all creditable efforts, more emphasis is needed to consolidate the new trends on the road to sustainable growth.
* 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