Why investors find the GCC market attractive for investments?

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Gulf Corporation Council (GCC) countries consist of six countries forming a political and economic union, famous for their wealth created through exporting oil. The member countries are Saudi Arabia, UAE, Qatar, Kuwait, Oman, and Bahrain. The economy of GCC countries is largely dependent on oil and it is expected that the economy of GCC countries is going to expand because the global oil demand and prices have started to pick up after the pandemic. Also, the travel ban has been lifted which will increase the flow of people to these countries for tourism purposes.

Why the investors find this region attractive for investments?

GCC countries do not have a high manufacturing base and they are not the pioneering countries in technological breakthrough. But investors are interested in those countries because of several reasons. The most important ones are as follows.

Oil-rich countries with a lot of accumulated wealth

The GCC countries have accumulated over 2 trillion USD worth of financial assets over the past decades by selling hydrocarbon and they have invested those assets in sovereign wealth funds for future generations. The following graph shows the net present value of Hydrocarbon reserves and Net sovereign wealth (2019).

 

 

Goods and services produced by GCC economies are mainly for domestic consumption. 40% of the GDP of most GCC countries is represented by oil and gas production. Eventually, those oil reserves are going to be depleted and there is a call for change in the economic policy of the country by diversifying their income sources. GCC countries have already started to reduce their dependency on oil and UAE, Oman and Bahrain are good examples of reducing their dependency on oil. Obviously, In the near future, the economy of GCC countries will be diversified and it is a good time to invest in those countries.

 

High flow of FDIs

UAE and Oman received a large share of FDI inflows compared to other GCC countries which were more than the world average of 2.5% of GDP. The following graph shows the FDI investments in different GCC countries as a percent of GDP. The graph shows that on average GCC countries received 1.1% FDI as a percent of GDP which is low but UAE and Oman are receiving more FDIs than the world average.

 

 

High growth in tourism

Tourism has a very promising future in all of the GCC countries and they are focusing on that. It is the only sector in which GCC countries can really depend on diversifying their economy. UAE has invested heavily to make it's country tourism-friendly. Upcoming events such as the FIFA World Cup 2022 will be taking place in Qatar which will bring a tourism boost to this region and many people will gain confidence to travel to Arabic countries.

 

Economic diversification, availability of infrastructures, logistics, financial and legal services

The legal system of most Arabic countries is based on civil law principles but the limited influence of common law is seen. The foreign investors have to start their business as a joint venture by partnering with the local companies. Saudi Arabia has the largest economy in GCC countries. In Saudi Arabia, SAGIA is the regulatory body that approves foreign investments. It is possible to achieve foreign ownership of the capital up to 75% and 100% in some cases. Dubai is the most politically stable and foreign investors prefer Dubai because of its openness, infrastructure, air transportation, and financial center advantage. Of all the GCC countries UAE has positioned itself in a better position by diversifying its income sources. UAE is considered the financial, business, and logistic hub of that region. Qatar has the most wealth per capita and it is the wealthiest county in GCC. Oman has invested a large amount in the port of Duqm to increase trading activities which will make Oman in the top 10 logistics hub. Bahrain has significantly diversified its income sources with only 18% of the GDP coming from oil and gas. The GCC countries are investing heavily in the transportation and logistics sector. One good example is the rail network which will link all the six countries. The rail network project will cost approximately 128 billion USD and the length will be 1350 miles.

 

Ease of doing business

The governments of GCC countries have started to focus on creating private entrepreneurs and workforce outside the public sector because of too much reliance on public sectors by the citizens. The biggest improvement of all of those is that it is now easy to start a business in GCC countries. The days required to start a business in Kuwait are the highest which is 19.4 days and the lowest is in UAE where it requires only 3.7 days to start a business. GCC countries have made significant improvements in the ease of doing business index. The following graph shows the ease of doing an index of GCC countries over the years.

COVID 19 has shown that why diversification is needed by the GCC economies as the oil prices fell. Heightened activities by the governments of those countries have been seen to increase investments in technology, tourism, fintech, hospitality, and real estate.

 

Sources:

https://www.worldbank.org/en/country/gcc/publication/economic-update-april-2021#:~:text=of%20containment%20measures.-,Outlook,growth%20of%200.5%20per%2Dcent.
https://www.brookings.edu/research/economic-diversification-in-the-gulf-time-to-redouble-efforts/#footnote-7