The Gulf Economic Barometer monitors initiatives taken by Gulf states as they seek fiscal, monetary, and labor policy changes to meet the challenge of reduced state revenue from natural resources. The key trend is a major shift in the way the GCC countries have been spending on public sector wages, infrastructure, and social services over the last decade. The GEB documents the policy changes as they are announced and/or implemented by country and by sector and will be updated regularly as data becomes available. The information here is neither official nor exhaustive.
The aggressive restructuring of the Abu Dhabi National Oil Company is moving at a break neck pace, essentially rewriting its ambitious energy playbook in less than two years.
Crown Prince Mohammed bin Salman envisions a new kind of Saudi Arabia, or at least the opening of a space complete with yoga studios, beach resorts, and robots in place of migrant laborers. This is the image of Neom, the $500 billion master project to develop an over 10,000 square mile swath of land in the northwest corner of Saudi Arabia on the shores of the Red Sea, adjacent to Egypt’s Sinai Peninsula and southern Jordan.
Economic liberalization tends to bring with it social, if not always political, openings. By definition, liberalization challenges existing orders; more specifically, liberalization tries to deny the state a dominating role in the economy. State-led capitalism, as practiced in the Gulf states over the last 40 years, has invited foreign investment and migrant human capital, but it has always privileged the state and protected opportunity for citizens, most visibly via commercial agency laws and the kafala system.
In response to fiscal pressures and concerns about the efficiency of project and service implementation, Gulf Arab states are increasingly looking to the private sector to finance and manage infrastructure projects.
Qatar has lodged a complaint with the World Trade Organization against the United Arab Emirates, Saudi Arabia, and Bahrain for blocking its air traffic and increasing the costs of basic food and medicine imports. Though intra-Gulf state economic relations continue to suffer as a result of the current crisis, there are long-standing barriers to trade and investment flows that deserve consideration.
The Saudi, Bahraini, and Emirati efforts to isolate Qatar logistically as part of the most recent Gulf Cooperation Council crisis will require a restructuring of the country’s plans for special economic zones (SEZs) – commonly known as free zones (FZs) in the rest of the GCC states.
On the heels of the G-20 summit in Hamburg, Turkish President Recep Tayyip Erdogan announced plans to visit Kuwait, Saudi Arabia, and Qatar. As the Gulf Cooperation Council diplomatic crisis continues, Erdogan’s presence likely will do little to calm regional tensions.
Surging population growth, large-scale infrastructure investment, and economic development progress have led to increased energy demand in the Gulf Cooperation Council states. Since late 2014, the new normal of low oil prices has necessitated fiscal constraints and at the same time prompted greater interest in renewable energy sources.
While there are professed visions of change away from state-led growth, in which new private sector dynamism and the expansion of Gulf equity markets would employ citizens and wean states from oil and gas revenue, the realities of politics on the ground in the last two weeks demonstrate there are more powerful forces at play.
The Saudi, Bahraini, and Emirati efforts to isolate Qatar diplomatically and logistically from its Gulf Cooperation Council partners highlights structural weaknesses in many of the Gulf states, not just Qatar.
The civil war in Yemen is now approaching its fourth year, and the rising cost of the conflict in its humanitarian disaster and continued investments by the warring parties in military expenditures suggest that cost is not a deterrent or impediment to war. While the immediate costs to the Yemeni people have been clear, the future cost to Gulf neighbors, Saudi Arabia and the United Arab Emirates in particular, may be more than these states have estimated.
Trump may have elicited a deal that serves the interests of Saudi Arabia and the fund managers receiving the investment, but not necessarily filling a funding gap in an already deep pool of U.S.-based investor interest.
Despite slowdowns in consumer demand and general economic activity, there is evidence of alternative economic behavior and microenterprise that is thriving in the Gulf.
In the last few years, the Bahraini government has launched a multipronged strategy to ensure that the kingdom’s page is more frequently read by the world’s travelers. Can it succeed in a region riddled with security threats?
As a burgeoning global trend, economic nationalism is also surging in the Gulf states. What may be lost is the decade of efforts in economic integration and negotiations to make the GCC work as a common market, with complementary assets.
by Diane Munro
Saudi Arabia is powering ahead with ambitious plans to reorganize its massive energy sector. The restructuring is part of its strategic plan to reduce domestic oil dependence and adopt a more commercial approach to its business operations at state oil company Aramco as part of Vision 2030 and ahead of the historic initial public offering set for 2018.
While the United Arab Emirates and India have maintained a relatively healthy bilateral relationship, cooperation has recently appeared to be growing.
The beginning of the Trump administration points to, at the least, a heightened period of political and economic risk, which Gulf governments, financial institutions, and businesses will have to price, assess, and manage.
Trump’s pro-growth agenda will need partners, and the GCC states are also looking for investment partners in their diversification efforts and for placements for state-owned investment vehicles. It will be the politicization of these partnerships that will create the most risk.
by Diane Munro
Abu Dhabi capped a year of unprecedented change at state oil company Abu Dhabi National Oil Company (ADNOC) with a landmark $2.2 billion share-swap with legacy partner BP. The unique model for a joint venture gives Abu Dhabi a 2 percent stake in BP in exchange for a 10 percent share in the country’s main onshore oil concession.
The Saudi budget for 2017 demonstrates that fiscal reform works; at least, it shows that with a reduction in spending will come a decline in deficit.
In the GCC, there is an effort to recalibrate the relationship between foreign workers and Gulf national economies, in both the reliance on foreign labor and the downward pressure it has on service sector salaries.
The new Trump administration will likely offer a more transactional view of U.S. foreign policy toward the Middle East, and specifically toward the Gulf states.
The current challenge for the oil and gas exporting states of the Gulf Cooperation Council rests in diversification of their economies, and perhaps more importantly, in the activation of a more productive and efficient workforce.
Saudi Arabia’s unprecedented bond sale worth $17.5 billion had impeccable timing, given Donald Trump’s victory in the U.S. presidential election.
by Mai Mahmoud
Gulf Arab states face some of the most severe water shortages in the world. The situation emerges from limited availability of renewable water resources and escalating demands that result from the quick pace of economic development, rapid population growth, changing consumption patterns, and management inefficiencies.
by Kristian Coates Ulrichsen
By focusing on the practical and political challenges of technocratic and economic reforms, using specific examples to illustrate broader thematic points, this paper analyzes what the current generation of officials need to do differently to secure more favorable and sustainable results.
Low yields result in more accessible capital for GCC states, however repayment could be a challenge in the long term.
Saudi Arabia releases its long awaited National Transformation Plan.
The GCC states have drastically reduced fuel subsidies, however have yet benefit from deficit relief.
The Egyptian economy is put under further pressure as aid becomes less of a priority for GCC states.
The real victims of the oil slump could be in the domestic economies, from local banks to small and medium size enterprises, to those businesses most closely connected to the energy sector, and those contractors servicing infrastructure growth.
Breaking diplomatic ties with Iran might result in Saudi Arabia missing out on a regional economic success story.
The presence of large migrant communities has made the Gulf Cooperation Council (GCC) countries a lightning rod for an immigration debate.
As budget deficits become the new norm for oil-exporting Arab Gulf states, there is no evidence that they are cutting down on defense spending.
For the United Arab Emirates, the political incentives for a renewable energy commitment are as compelling as the economic case.
As energy prices stay low and demand decreases, Qatar, like many GCC states is under increased pressure to strengthen political ties and avenues of economic cooperation with Asia.