Stand first
The Arabian Peninsula’s oil reserves were discovered for the first time in the early 1900s. Within a few decades, its different nations started trading oil for growth, development, and economic prosperity. Soon, their deserts transformed into futuristic cities, with infrastructure and facilities rivalling (and often beating) the world’s established metropolis.

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The oil-fuelled economies of these nations, especially the Kingdom of Saudi Arabia (KSA) and the United Arab Emirates (UAE), were impacted when oil prices witnessed steep drops by the end of 2008 and again in 2014. A whole host of micro as well as macro level factors is responsible for the same. None of this, however, has been able to dampen the nation’s ambitions to become stronger, better, and more successful.

The KSA, UAE, and the rest of the Middle East are hard at work, creating catalysts for growth and beefing up their non-oil economy. Their efforts have reaped newsworthy rewards when reported by the Purchasing Managers Index (PMI), which measures performance of non-oil economies. The KSA hit a 17-month high of 56.7 in Jan while the UAE hit a 19-month high of 56.2 in March. As this publication went to press, July PMI figures for KSA and UAE were 55.7 and 56.0 respectively.

A Vision for Diversification
The leading economies of the Middle East, viz., the KSA and the UAE, have both issued new vision statements and made public their ambitions – sealed with timelines to make their goals more realistic and measurable. They are keen to diversify their economies because, while they’re grateful for the most precious resource in the region, they’re mindful of its non-renewable nature. The answer has been to bolster the region’s non-oil economy.

The KSA’s new vision is ‘to be an exemplary and leading nation in all aspects’ by 2030 – supported by a documented National Transformation Program to be realized by 2020. The UAE’s vision is ‘to be among the best countries in the world by 2021. At the heart, each nation wants to strengthen partnerships with the private sector, increase employment, and boost key strategic sectors.

A Plan to Transform the Kingdom
The Kingdom has a new vision, a national transformation program, and the Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud leading the way.

The country’s non-oil economy is on the upswing already, and is expected to continue to grow quickly in the coming months. Major petrochemical projects such as the $20 billion Sadara complex and the $350 million Rabigh project, for example, should create and support an entire ecosystem, developing infrastructure and boosting employment opportunities. The government has also introduced a private sector stimulus package worth $53.3 billion to boost private sector GDP in high energy and labour-intensive industries – another effective measure to boost the non-oil economy.

Twenty-four of the country’s ministries participating in the first year of the National Transformation Project, such as the Ministry of Education, the Ministry of Housing, and the Ministry of Communications and Information Technology, are committed to changing the face of the nation, improving its fiscal position, and focusing on self-sufficiency in terms of commercial and economic needs.

Among other key strategic goals, it aims to be one of the top 10 countries on the Global Competitiveness Index and increase private sector contribution from 40% to 65% of GDP by 2030. Initial success in the form of rising PMI figures further fuels the government’s ambitions.

Riding the UAE’s Expo2020 Wave
The UAE has been awarded the right to hold the next Universal Exposition, designed to showcase the achievements of the world’s nations. Celebrated with fireworks from the Burj Khalifa, the event is expected to boost tourism, growth in infrastructure, and support the hospitality sector, and have a ripple effect on other industries that will become stronger.

The government is using the event to draw in foreign investments and force stronger relationships with private enterprises across the globe. Having allocated 160,000 square metres to the event, the Dubai 2016 budget increased its provision for infrastructure, transport and economics to DHS 16.6 billion (approx. $4.52 billion) to help finance the development of that growth. Unlike the massive investments made at Olympic events by Greece in 2004 or by Beijing in 2008, Dubai’s investments are expected to yield great returns as the nation has a plan to utilize the infrastructure created even after the event is over.

Experts believe that the country’s non-oil economy is set to do even better in the coming months, with strong momentum in 2018 – as construction, tourism, and hospitality sectors remain buoyant as the Expo draws closer. Construction of residential projects, metro expansions, roadways, and bridges is in full swing. There’s an inflow of migrant workers from the United States, Europe, and parts of Asia to fill new jobs created by foreign companies investing in the region, in strategic sectors like healthcare, education, logistics, leisure, hospitality, and tourism.

Further, thanks to the government’s vision statement, efforts are being made to simplify how foreign firms can do business with the country, pushing it higher up the ease of doing business rankings, as evaluated by the World Bank. In October last year, the group recognized the efforts of the country and identified it as one of the top 10 most improved business environments over the past year. Overall, it jumped 8 places, from 34th in 2015 to 26th in 2016, ahead of France, the Netherlands, and Japan.

Setting Foot in the Middle East
With regulations becoming easier to understand, clearer, and more friendly, foreign firms are tempted to take the leap and make an investment in the Middle East, irrespective of the industry or sector in which they operate. KSA has been applauded for its new VAT law and the introduction of a new Saudi Companies Law. The UAE too has overhauled laws and statues to help investing and doing business simpler - new corporate governance rules published by the UAE’s Securities and Commodities Authority, for example, have been much appreciated.

The KSA and the UAE have only recently begun structuring and supporting their non-oil economy. While they have had some success so far, the future is definitely exciting for investors looking for promising new opportunities.

 

About the author
Mr. Ramakrishnan is Assistant Vice President at IFIN in the Middle East. He is responsible for equity and M&A advisory and debt syndication activities and has more than 10 years of professional experience in consumer banking, management consulting and investment banking in India and Dubai.

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