GCC REGIONAL SUPERSECTION 2014 | INTRODUCTION
The six countries of the Gulf Cooperation Council have some of the world’s highest living standards and a combined GDP of more than $1.6 trillion. They play an important role in maintaining global economic stability, and their continuing prosperity depends critically on oil prices and the ability to generate surpluses to pay for infrastructure development and job creation.
The GCC member states—Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Oman and Bahrain—represent 40% of the world’s proven hydrocarbon fuels and one-third of the world’s natural gas. They host some of the world’s largest sovereign wealth funds. They are leading purchasers of US defense exports.
Despite all of the above, however, GDP growth has slowed from the levels seen before the 2008–2009 financial crisis and could slow further in the next few years if the oil sector becomes a drag on growth, economists say. The surge in government spending since the Arab Spring uprisings cannot be sustained and is already being cut back. A potential decline in oil prices, owing to increasing production from non-OPEC sources and less demand from China, could squeeze the budgets of GCC countries, despite the wealth held in reserve for future generations.
Growth in Saudi Arabia—the biggest economy in the GCC—is expected to be about 3% to 3.5% over the next couple of years, according to Capital Economics, a macroeconomic research firm. This would be well below the 6% to 7% growth rates of the past decade. If oil prices do decline, the kingdom’s budget could move into deficit by 2016, analysts say.
Economic diversification in the GCC is continuing, with the share of hydrocarbons to real GDP falling to 33% at present from 41% in 2000, according to the Institute of International Finance. However, the oil and gas sector’s contribution to budget receipts remains high at 84%, on average, over the past three years.
Steps to create a knowledge-based economy in the GCC have been slow but steady. The group still lags in the number of new patents and other measures of innovation. The financial sector, however, is making impressive strides in introducing new technology. A surge of young, upwardly mobile consumers is demanding nothing less. Banks are also revamping their treasury and cash management operations and offering world-class services to corporations as they grow and expand throughout the region.
Gordon Platt | Contributing Writer | GPlatt@gfmag.com