Economic diversification has been the goal of all Gulf economies since they began pumping oil out of the ground. Despite the enormous riches ‘black gold’ provides, successive Gulf Cooperation Council (GCC) governments have long been aware that oil wealth cannot last forever.
The Covid-19 pandemic has given them the first glimmer of that future, with prices dipping to unimaginably low levels as the global lockdown took hold. The development of domestic, knowledge-based industries has, arguably for the first time, become an urgent economic necessity rather than a welcome add-on.
It has been a long-standing, unofficial social contract between Gulf governments and their people that oil revenues will maintain a high standard of living. And undoubtedly been a major factor in the stability these countries enjoy in comparison to some of their neighbours. Therefore, predicting a short-term future where oil doesn’t continue to prove economically dominant would be foolish, especially as the world opens up after the pandemic.
“For a Europe looking for new export markets and potentially weary of long-drawn-out trade negotiations with economic behemoths like America, an economically diverse Gulf provides an attractive alternative”
However, the pandemic has fundamentally shaken up the pieces of the Middle East’s economic picture. The Gulf is particularly well placed for a rapid economic recovery, in spite of rising infection levels. Recent economic forecasts have been revised upwards, with GCC growth expected to be 2-3% this year, with larger upticks in 2022, outstripping much of the rest of the world. This is the dividend of a rapid, widespread vaccination programme that has allowed travel and businesses to open up sooner.
Dubai, for example, has adopted an open city policy since January, when much of the rest of the world was locked down. Today its current economic performance approaching pre-pandemic levels. The vaccination programme, whilst proving the key to enhanced economic performance in the short term, also offers a view of what Gulf economic diversification might look like.
The GCC has established a medical research and production industry the likes of which the region has rarely seen before. The UAE has established the region’s first ever vaccine production facility and conducted the Middle East’s first ever medical trials for the Sinopharm jab. The global focus on vaccines could also explain Saudi Arabia announcing plans to build a $60m animal vaccine production in plant in partnership with Argentina’s Biogensis Bago, also a regional first.
These ventures not only help the Gulf to weather the immediate pandemic storm but are providing the basis of a new social contract. There is growing demand from its youthful, highly-educated populations for high-skilled, knowledge-based employment.
According to the Arab Youth Survey, an overwhelming 87% of young Arabs say they are concerned by unemployment. The implication being that they are looking to their governments to not only provide basic standards of living, but high-quality employment too. In developing high-tech, eye-catching industries, such as its space programme and pandemic-related life-sciences, the UAE appears to be stealing a march on it’s GCC counterparts. Indeed, non-oil sectors now account for well over 50% of total GDP.
The key for GCC countries is that some of these industries are becoming well-established, rather than simply existing. In Bahrain, for example, the financial services industry accounts for nearly 20% of GDP and is fast becoming recognised as a regional financial hub. For Europe, this also presents an opportunity for alternative forms of engagement with the region. Previously, at least in public discourse terms, the relationship was primarily defined by security issues.
“The pandemic has undoubtedly accelerated the urgency of making economic diversity in the Gulf more than an impressive vision and well-designed PowerPoint”
However, for a Europe looking for new export markets and potentially weary of long-drawn-out trade negotiations with economic behemoths like America, an economically diverse Gulf provides an attractive alternative. A recent visit by the UAE Crown Prince to Austria, where the communique emphasised cooperation on innovation, artificial intelligence and green energy, highlights the subtle shift in emphasis in EU-Gulf partnership.
These newly emerging Gulf-based industries are now providing dozens of examples and templates for other oil-dominant economies of the region to work from. The model Gulf economies of the future will not be those who can most efficiently pump oil out of the ground and rapidly ship it round the world. Rather, it will be those that develop world-leading, knowledge-based industries able to provide the high-skilled, innovative jobs their youthful populations demand.
The pandemic has undoubtedly accelerated the urgency of making economic diversity in the Gulf more than an impressive vision and well-designed PowerPoint. It has also, partly out of necessity, accelerated visions into reality on the ground in places like Abu Dhabi, Manama and Jeddah. For the countries of the Gulf, Covid-19 has pushed the race for economic diversity into a new phase.