The Gulf Cooperation Council (GCC) nations have long relied on oil exports as their primary source of income. However, in a bid to secure long-term economic stability and growth, several of these countries have taken proactive steps to diversify their economies. In this article, we will delve into the efforts being made by the GCC nations to broaden their economic horizons and explore the most promising sectors for investment.
Main driving forces for GCC economies except for oil exports
GCC or Gulf Cooperation Council consists of six countries: Bahrain, Kuwait, Oman, Qatar, the Kingdom of Saudi Arabia, and the United Arab Emirates (UAE). It is noteworthy that GCC countries hold together more than 22% of the world’s natural gas reserves, besides being big oil exporters. More than 80% of revenue for GCC governments is from oil. The latest trends of the world transitioning to renewable energy sources should ring an alarm bell for all GCC countries. Let’s examine the sectors which are most influential for GCC countries after oil.
Financial Services:
The GCC countries are also home to some of the largest and most developed financial centers in the world, including the Dubai International Financial Centre and the Bahrain Financial Harbour. Many well-established financial companies are offering financial services, including online financial trading. For trading there are various cutting-edge technologies GCC-operated brokers can use to amplify their client base, the cTrader is one of the most advanced financial trading platforms used today. In addition, the DFSA or Dubai’s Financial Services Authority is among the regulators who oversee the activities of the brokers, making GCC a more protected and suitable place for financial brokers to offer quality services. Having a powerful local regulatory authority is very advantageous for developing a world-class financial services sector. Banking, insurance, and asset management are also major contributors to GCC economies.
Tourism:
Many GCC countries are also trying to invest in tourism, making the infrastructure for supporting this vital sector more robust. Hotels, resorts, and theme parks are a few to name. Dubai has many modern technological wonders incorporated into Burj Khalifa with 829 m in height and is the world’s tallest building. With billions of dollars made from oil exports, GCC countries can attract tourists by building wonders, and Dubai is an excellent example of such an approach.
Retail sector:
With 15% growth in 2022 this sector seems very healthy and attractive for businesses. The growing population and increased consumer spending is the main reason behind this rally. With many international brands setting up shops in the GCC region and local businesses expanding their operations, the retail sector in the region seems to become one of the main driving forces for these countries. More population and more consumer spending affect the services sector positively, so the natural next sector has tremendous potential in this sector.
Services sector
There are many arguments why services are potential replacements for oil revenues in the long term. The research shows that GCC countries are aware of this trend and are focusing on developing better service solutions.
As we can observe, the services sector which is colored in purple is very dominant in GCC economies. The best balance between the oil and services sectors is in the UAE economy. This is not a surprise as the UAE is attracting people from all over the world. Kuwait has the most challenging situation as we can see. All the other constituents of its economy are much lower in numbers than oil revenues. This chart should incentivize Kuwait to invest in more diverse economic sectors, especially services, and tourism.
Why diversifying the economy is critical for GCC
Global warming and climate change are big topics today. All developed countries are switching to renewable energy sources like solar panels and wind turbines, which pose a major threat to GCC oil-dependent countries’ economies. If we check the Kuwait chart, we see how unprepared its economy is to rely on other sectors. Because of this, GCC countries have to start planning their escape routes from oil dependency. As these reserves will be depleted and oil revenues are gone, the GCC is going to face a major challenge, and doubling their efforts early is going to play a key role in their survival in the long term. Another reason why diversified economies are superior is how the prices of oil are impacted by global events such as wars and pandemics, shaking the oil prices and thereby economies behind it greatly.
Conclusion
GCC countries’ main source of income has been oil for decades, and they also hold 20% of the world’s natural gas reserves. As the world is switching to renewable energy sources, the challenge for GCC oil-dependent economies to diversify their economies becomes more urgent. Global events such as climate change, global warming, wars, and pandemics make depending solely on oil very dangerous for the stability of GCC countries. Kuwait seems to be in the worst position as its main source of income, oil greatly outperforms all other sectors. The main sectors thriving in GCC currently are financial services, tourism, and retail.
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