The sooner each GCC country defines their specialised positions, the sooner they will be able to seize the opportunities of the new post-oil era. This is what Noha Al Dhahri, consultant from OCO Global, states in the Arabian Business article.
As crude oil prices decreased in mid-2014, the Gulf Cooperation Council (GCC) awoke to the new reality that has brought into focus one singular priority – economic diversification.
Continued volatility in oil prices, negatively impacted by the COVID-19 pandemic, further underlines the fact that oil isn’t the safe commodity it once was. This new era is one that requires the primarily hydrocarbon-producing markets to focus on identifying new opportunities and creating non-oil jobs in their countries.
In response, Gulf countries developed highly publicized National Strategies such as Saudi Arabia’s Vision 2030, Abu Dhabi Economic Vision 2030, and Qatar National Vision 2030. Each country’s strategy identified sector opportunities and clear steps forward into this new world.
UAE ranks first in the region for FDI confidence
These ambitious strategies come with the inevitable unaligned priorities between the countries in the region, resulting in increased competition within the GCC in recent years.
The regional landscape is evolving rapidly, marked by conflicting governmental policies and public disagreements between Saudi Arabia and its close ally the United Arab Emirates. Most recently, the UAE opposed an oil production plan proposed by Saudi and Russia which recommended extending OPEC+ oil output cuts until the end of 2022. The OPEC+ disagreement has since been resolved, but a clear new dynamic is on display that will dictate the progress and evolution of the region.
Examples highlighting increased competition include:
1. Free zone regulations: For two decades the GCC created a common market across its members that included a common external tariff which boosted intra-gulf trade in goods. Saudi Arabia amended its import rules to exclude goods made in GCC free zones by companies with a workforce made up of less than 25% of local people and industrial products that have less than 40% of added value after their transformation process from the GCC’s tariff agreement.
Saudi Arabia amended its tariff agreement on imports from neighboring Gulf countries, which will exclude goods made in free zones or from Israel.
This change highlights increased competition between Riyadh and the UAE, where free zones are a vital pillar of the UAE’s economy.
2. Regional headquarters: From January 2024, Saudi Arabia will only award contracts to international companies that have their regional headquarters inside the kingdom. Crown Prince Mohammad Bin Salman is pushing for a strategy valued at $800 billion that is working to double the size of Riyadh in terms of economic activity and turn it into a global hub.
For companies that make the shift to KSA, the country is offering attractive incentives such as no corporate tax for 50 years, a waiver on compulsory quotas to employ Saudis for at least ten years, and the potential for those companies to be favoured in tenders for government contracts.
3. New relationships in the region: The UAE and Israel are normalizing relations resulting in a powerful new dynamic in 21st century Middle East. Other GCC countries, including Bahrain and Oman, have publicly accepted the Abraham Accord, while Saudi Arabia and Qatar maintain that in order to take those steps Israel must sign a peace agreement with the Palestinians.
The recent narrative around these events pits the GCC countries against each other and frames opportunities as zero-sum, with one country benefitting at the expense of another. In reality, an increase in productivity in one country provides increased opportunities for the region as a whole.
What can we expect to take place in this new competitive landscape?
1. Increased FDI into the GCC: 2011 to 2015 saw a gradual decrease in the number of projects going into the GCC, due to global economic factors and the subsequent decreases in oil prices.
Since 2016, the impact of economic diversification strategies has led to an upward trend. Between 2016 and 2019, the UAE saw a 44% increase in the number of projects, while Saudi saw a 75 percent increase during that same period. The exception to this upward trend was a dip in the number of FDI projects due to the Covid-19 pandemic which led to a 23% fall.
2. Improved specialisation: In a mature union such as the EU, countries regularly compete for similar opportunities, each making their best case to attract FDI but benefiting from the totality of the union’s offer: access to millions of consumers, relaxed intra-trade rules, and the movement of people across the union’s borders.
The individual countries have also defined their specific advantages and specializations – think of Ireland’s technology sector prominence or Germany’s specialism in advanced manufacturing.
While there are overlaps in the types of investment countries want to attract, this recognition of competitive advantage allows each country – as well as the overall union – to thrive, in part due to the proximity of competition and specialist skills.
In the GCC, Dubai is visibly ahead in the economic diversification process, but the reality is the Dubai model benefits from competition from neighboring markets. Dubai has been able to attract significant investment because of its own value proposition, but also because investors appreciate the accessibility of other growing markets such as KSA and Qatar.
3. Innovation increases the region’s value: Knowledge sharing is a key driver for efficient and sustainable development. Partnerships and collaborations in research and implementation have led to the co-creation of innovative and ground-breaking ideas and solutions to the world’s most pressing issues.
Each of the GCC’s strategic visions share common themes, including sectoral focus on clean technology, agriculture, and fintech. The opportunity to enhance knowledge transfer within the GCC will result in higher quality products and increased efficiency in the region.
GCC’s strategic visions share common themes, including sectoral focus on clean technology, agriculture, and fintech.
Unstable oil prices and the expected long-term impact of Covid-19 has given economic diversification a renewed sense of urgency among GCC countries. In order to diversify successfully, GCC FDI strategies need to ensure they focus on highlighting comparative advantages, as well as the benefits of a closely-knit region. The GCC countries should focus on sectors that truly reflect national strengths, as well as gaps that exist elsewhere.
OCO Global’s experience working with investment promotion agencies in the region and globally has underlined the critical role that they play in achieving this diversification. As facilitators between foreign investors and national governments, IPAs are the ‘shop window’ for investors. They need to develop compelling propositions to attract investors and have effective enquiry management and aftercare functions to convert opportunities into investments. The knowledge and capability of their staff is a critical success factor in such a competitive environment.
The sooner each GCC country defines their specialized positions, the sooner they will be able to seize the opportunities of the new post-oil era.
Building a sustainable future in the GCC
When it comes to environmental impact, the usual suspects are fuel-guzzling airplanes and vehicles, mega factories, or polluting industries. However, few realise that the construction sector, responsible for the buildings we live, work and play in, is a significant contributor to carbon emissions, Riad Bsaibes, president and CEO of AMANA Investments states. Thanks to Arabian Business for review.
According to research, building and construction are responsible for 39 percent of all carbon emissions in the world, with operational emissions (from energy used to heat, cool and light buildings) accounting for 28%. The balance 11% comes from embodied carbon emissions – associated with the construction processes as part of the whole building lifecycle.
The construction sector is acting urgently to fix this. The World Green Building Council (WGBC) has issued a bold new vision for how buildings and infrastructure around the world can reach 40% less embodied carbon emissions by 2030 and achieve 100 percent net zero emissions by 2050.
Why going green will become a key battlefield for property landlords in the Gulf
However, adopting sustainable construction methods is not without challenges. Sustainable construction methods are perceived to cost much more at the outset than traditional building. Adopting green building methodologies in a sluggish market is challenging when construction companies are under pressure to value engineer and reduce costs where possible.
Almost 40% of UAE-based companies have reported that affordability was the most significant challenge in adopting sustainable construction practices and policies. Nearly 50 percent of construction firms across the Middle East have stated that they expect green buildings to incur higher primary production costs.
However, green buildings actually make sound business sense over the long term, delivering greater returns on investment (RoI). Investors in a green building value the worth of their asset at least 7% more than a traditionally built building, which is due to the reduced operating costs of energy-efficient buildings. According to research, the use of the latest sustainable technologies in construction processes could potentially deliver a remarkable €410 billion [$482 billion] annually in cost savings on global energy spending.
Given this, the construction industry is more committed to building a sustainable future. Promoting sustainability and reducing emissions is front of mind for everyone involved. Internationally agreed standards for measuring various criteria and working towards reduced carbon emissions are the means to do that.
As a step towards a sustainable future, AMANA – through its subsidiary DuBox – manufactures pre-finished volumetric concrete modular buildings off-site. This pre-finished concrete modular building technique was used at the Red Sea Development project, one of the most ambitious tourism initiatives in Saudi Arabia. Entire buildings are manufactured off-site in the DuBox factory, reducing overall carbon footprint and preserving the site’s pristine conditions.
Building and construction are responsible for 39% of all carbon emissions in the world.
Modular construction decreases the need for human resources by up to 30%, making it an ideal solution in the pandemic and post-pandemic environment. It enables far lower wastage rates than an open construction site, potentially reducing material waste by up to 30% and improving the work safety environment by up to 70%.
Modules are trucked pre-finished to the job sites, where they are installed, taking lesser time and using fewer materials to complete a project as compared to conventional construction. Even the quality is better, as modules are manufactured in a factory environment, ensuring consistency in material and finishes.
Furthermore, various types of smart meters are installed in the modules at the factory allowing the end user of the building to monitor online the water and power consumption, among other parameters such as temperature, humidity and Co2 levels.
Smart meters enable the end-user to measure, manage, and automate the pod’s energy consumption. Wireless Internet of Things (IOT) sensors push data to our secure cloud server allowing for data analytics and Artificial Intelligence (AI) based energy optimisation.
Sustainability is the future of the construction. It has gained considerable traction as a result of the COVID-19 pandemic. With disrupted supply chains, localisation has proved to be vital in achieving business continuity. As many raw materials have been impossible to source, indigenous businesses accelerated innovation in sustainable alternatives.
Modular construction decreases the need for manpower by up to 30%.
From solar panels to generate electricity and smart windows that ensure passive cooling, to roofs that harvest rainwater and greywater recycling – innovations in construction are ensuring a greener future. Disruptive technologies such as 3D printing, generative design, and prefabrication are all making construction more sustainable – and they are being increasingly adopted.
A new legislation in Dubai supports the emirate’s strategic target to ensure that 25 percent of its buildings are constructed using 3D printing technology by 2030. The decree also intends to promote Dubai as a regional and international hub for 3D printing technology; to improve efficiencies in construction, reduce waste and spur economic growth.
Such initiatives will go a long way toward driving sustainability in construction. With continued innovation and the adoption of disruptive technologies, we can remain optimistic about building a greener future.
