These are exciting times for the nations of the Gulf Cooperation Council (GCC), as the decline in oil revenues is forcing them to finally make dramatic changes to their oil-based economies.
The six member countries of the GCC have yet to complete their economic union, but all are facing similar needs to reform decades-old policies that have relied on government control of major industries and government handouts.
The GCC countries are trying their best to promote a burgeoning private sector, although they face cultural and religious opposition in some cases—encouraging women to join the workforce is a case in point. These economic reform plans mean big opportunities for foreign companies. General Electric of the US, for example, says it will double its workforce in Saudi Arabia to 4,000 in the next four years, as it works with the government’s Saudi Arabian General Investment Authority on joint ventures worth at least $3 billion to increase the country’s industrial capacity. GE is developing a maintenance facility for military aircraft engines and a plant to make LED lighting. Saudi Aramco, which itself is being transformed into an industrial conglomerate, signed an agreement with GE and Cividale of Italy for a modern steel forging and casting venture.
Chinese-owned Oman Wanfang just signed a land-use agreement with Oman’s Special Economic Zone Authority for a nearly 3,000-acre industrial park at Duqm, on the coast of the Arabian Sea, 300 miles south of Muscat. Wanfang plans $10 billion in investments from a range of Chinese companies over the next decade.
Meanwhile, sovereign wealth funds are playing a major role in the region’s economic transformation and adopting more-aggressive investment policies at home and abroad. Saudi Arabia’s Public Investment Fund recently ponied up $3.5 billion to back Uber Technologies. The fund will become the world’s largest after Aramco is partially privatized.
The GCC has lavished billions on infrastructure projects, yet it lags in so-called “soft” infrastructure—regulation, transparency and human capital. In this report, we examine the challenges it faces and how they could be resolved.
Even countries such as Kuwait, which sports the lowest break-even price for a barrel of oil, see the need to lessen dependency on oil revenues. The question remains whether enough investors around the world will be convinced of the region’s promise. The UAE, especially Dubai, led the way toward an economy of the future. Abu Dhabi is investing its massive oil riches in tourism, air transportation and financial services.
Change is in the air.