The post-oil strategy for GCC economies, led by Saudi Arabia’s Vision 2030 and the UAE-Vision 2021, was on course for rapid realization before the pandemic came along.
The Kingdom of Saudi Arabia and The United Arab Emirates have long been the front runners and decision makers within the Gulf Cooperation Council (GCC). However, other member states have also made remarkable economic progress in the recent times. The UAE and Saudi Arabia have significantly higher GDP than other GCC countries.
The combined GDP of the GCC is about $1.6 trillion out of which Saudi Arabia contributes about $792 billion and UAE contributes $414 billion.
GCC economies have benefited immensely from the economic boom in the 1970’s. This growth however resulted in a major aberration – a heavy dependence on oil, which created its own set of difficulties. This challenge was first experienced, during the Iraq invasion of Kuwait, causing an oil shock, which devastated the global economy. These were owing to the depleting natural resources, fluctuating oil prices and move towards cleaner alternatives ditching fossil fuels in the long run. This meant, that the Gulf economies were in a desperate need to move away from their dependence on oil.
More on offer than fossil fuels: Post-Oil Visions for GCC’s Economies
In recent years, there has been an emphasis on moving away from oil and the vision documents of UAE and Saudi Arabia are strong example of the intent. UAE-Vision 2021 and Saudi Vision 2030 outlined how the plans of the countries to diversify their economies and achieve this goal. The documents given out by respective governments didn’t just offer hope to shaky markets, but also emphasized a coming of age for the region that’s achieved rapid progress over the last half a century, solely dependent on the giant oil deposits.
Watch: Saudi Arabia’s SA 2030 Economic Vision to move beyond Oil
The UAE-Vision 2021, was pushed forward by the government in 2010, with a renewed focus of a seven-year plan in 2014. The key of the kingdom was to move towards a more privatized economy with a focus on infrastructure development, tourism and banking. The country was also looking to host the Expo 2020, which would showcase a newer, more developed UAE to the world as a post-oil economy.
Watch: UAE’s plan for the Post-Oil Economy
The Pandemic’s impact on GCC
Despite being hit hard by the oil’s dwindling value amid the pandemic, GCC countries have been showing positive movement towards achieving preset goals. The crisis, however, has resulted in more than expected pressure on the GCC national economies. UAE’s much anticipated Expo 2020 has also been delayed, causing an impact to the much needed investment in the country. In the Emirates, Dubai is more prone to fiscal implications and decline in growth due to its especially heavy reliance on tourism and real estate which have both seen unprecedented slumps due to the pandemic. Abu Dhabi, is going to see a decline, due to falling oil prices. As the two major emirates are going to see a crisis, it is likely that the impact will be felt across the country.
Watch: Covid-19’s impact on GCC across different sectors
The Saudi Vision 2030, was framed in 2016, setting a reform led agenda of diversification and privatization of the economy. There were a series of ‘Giga-Projects’ estimated at $1.4 trillion, critical to the vision. This included the IPO of the Saudi Aramco, and Tourism Projects worth $67 billion. The country is also the largest market for such projects, nearly double the size of the market in the UAE.
The pandemic has devastated the Saudi Economy, as economic activity and oil prices decline, and the focus has been shifted from garnering investments to spending on health infrastructure and restoring the economy. The crisis is likely to impact the country negatively as spending and consumption is likely to decline. The fall in oil revenues, and the need for increased spending and monetary easing is going to affect the markets for a number of years. There has also been a cut in the Vision 2030 program by $8 billion, largely due to the oil shocks creating a deteriorating economy even before Covid-19 but also due to the pandemic. In the long run, however, the kingdom has vowed to work hard to achieve the goals of Vision 2030.
The shifts in the offing
Interestingly, there is growing clamor in the region for reducing the number of expat blue collared workers, a move likely to impact South Asia significantly, since a large percentage of the blue collared expat workers are from the region. Significantly, GCC countries, including the UAE, have made it clear, that even in the aftermath of the pandemic, the doors are open for professional expats, who will play a vital role in fulfilling the vision documents. The Covid-19 shock has made the situation bad for the governments as they move to secure income of their own citizens. This has put various expats at risk and the low-income laborers stand to be the worst affected due to these changes.
In conclusion, like other parts of the world GCC has been impacted significantly, and for the time being both the UAE and Saudi Arabia have to focus on the immediate challenges of dealing with the Covid-19 pandemic. In the long run, GCC member states will need innovative and imaginative policies to give shape to their objective of moving towards a new economic paradigm, where dependence upon oil is reduced. Other regions which have close links would also be closely watching the steps which GCC steps take in order to deal with the current challenges as the region looks to tweak the post-oil vision for its economy for what looks like a long-term turmoil.
This article is co-authored by Madhav Grover, a student at the Warwick Law School, UK.