As the world economy slowly emerges from the COVID crisis, it is the Gulf region that is making the most impressive rebounds.
At the beginning of the pandemic, many GCC countries were quick to implement strict measures to combat the virus’ spread. The Gulf states were also relatively well-prepared. The legacy of dealing with the Middle East respiratory syndrome-related coronavirus (MERS) in 2012 – including health networks monitoring expats living in the region, the experience of dealing with large numbers of pilgrims in Saudi Arabia and tourists in the United Arab Emirates, all contributed to a relatively low COVID mortality rate.
But the region’s economy paid a steep price. This was especially true of international business hubs the likes of Dubai, which in normal times would attract millions of visitors from around the world. Lockdown measures interrupted supply chains and caused dramatic declines in tourism revenues and labor remittances. Economic stimulus and social welfare payments cost GCC countries a whopping ten to fourteen percent of their GDPs.
Despite these hard hits, GCC countries are making astounding returns to pre-pandemic levels of economic flourishing.
Forecasts now see a rebound in 2021 to strengthen to around 3 percent GDP growth after contracting by 5 percent in 2020. The most surprising recovery has been in non-oil economic growth, where in Saudi Arabia will grow to 3.9% GDP in 2021, according to the Saudi Central Bank.
But the single biggest driver of this revival? The explosion of knowledge-based economies.
Even before COVID struck, the global trends in business digitization were already clear. In a 2020 Deloitte survey, digitally mature companies were three times more likely to report annual net revenue growth significantly above their industry average and across verticals. Similar findings were put forth recently by the Harvard Business Review, in which researchers highlighted the transformation offered by digitization and the marked patterns of companies moving in that direction around the world.
Senior Advisor for Gulf Policy Research Group, Francois Tessier, highlights the importance of the high-tech sector in alleviating the economic downturn of the COVID-19 pandemic. “The Gulf has demonstrated throughout the COVID-19 era that digitally mature companies are by nature more adaptive and capable of withstanding the unexpected. Not only will the coming years see more and more conventional companies undergoing digital transformations, but it will be these very companies that will outlast the digital rat race of the 21st century.”
The country that has exemplified this shift in the Gulf has been the United Arab Emirates. According to the IMD World Digital Competitiveness Ranking, the UAE is one of the most advanced digital economies in the world, landing in the top 20 globally and the very first in the Arab world.
In late July, the UAE announced an important milestone on the country’s ongoing transformation into a knowledge-based economy, when the government unveiled its plan to foster the foundation of 1,000 new digital businesses. To be clear, this initiative is not only about boosting companies whose products or services relating to the IT sector. Rather, it is about creating value, simplifying operations, and lowering costs, across all industries by leveraging the latest technologies. The Emirati leadership has long understood that companies who diligently digitize aspects of their business with the intent of streamlining, will see an enhanced ability to excel at what they’re good at and thus further strengthen their value propositions.
Ironically, many of these economy-improving trends were kickstarted (or at the very least rapidly accelerated) by the effects of COVID. The regional adoption of cloud technologies for instance was tremendously advanced by the challenges introduced as businesses responded to the new work environment amid a global pandemic. The transition of information resources and databases to digitally accessible formats has been greatly enabled in UAE by the government’s Dubai Internet of Things (IoT) Strategy (DITS), a three-year plan which seeks to build the world’s most advanced Internet of Things (IoT) ecosystem.
The plan was designed to provide both the security and infrastructure needed for a national economy to operate via cyberspace, aimed toward protecting Dubai’s digital wealth and encouraging governmental organizations to transition their infrastructure to digital. Other government-backed programs such as the Dubai Future Accelerators are actively assisting small to medium businesses build their infrastructure in order to integrate into a new digital business arena.
In addition to the massive growth digitization has brought in its wake, the most important benefit may be what it does for the future of economic stability. By diversifying industry and decoupling business operations from constrained brick-and-mortar infrastructure, GCC countries are bolstering their economies for another market-disrupting event. One of the most important realizations of the pandemic experience was the need for countries to expand their market sectors and invest beyond traditional areas of commerce. This was especially felt in Gulf countries that traditionally relied heavily on a limited array of industries–namely those that are petrol and energy centered.
The upward trend in the Gulf today is a promising one. If the course is maintained, it could usher in an economic transformation for the benefit of the entire region.