Economic Insights: Middle East population boom creates growth opportunity, but only with long-term investment

The report provides its 140,000 members with a current snapshot of the region's economic performance. The Economic Insight undertakes a quarterly review of the Middle East focussing on the Gulf Cooperation Council (GCC) member countries (United Arab Emirates, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait), as well as Egypt, Iran, Iraq, Jordan and Lebanon (abbreviated to GCC+5).

The report shows that the population in the region has grown 52% from 1990 levels and this is expected to reach 102% by 2030. In Bahrain, Qatar and the UAE the population has already more than doubled since 1990. This should give the region an economic advantage by offering a growing labour supply and stimulating GDP, whilst offering a larger marketplace and attracting investment. However, it also raises the risk of more unemployment, and governments are responding by investing in education and skills.

Charles Davis, Head of Macroeconomics at Cebr said: "Growth in the Middle East is expected to slow in 2013, but still to outpace global growth as a whole thanks to resilient oil prices and booming public spending. However, rising populations should spur governments to think long-term about how to invest that money. Some non-GCC countries have high unemployment, whilst lower unemployment levels in GCC nations is partly thanks to public sector jobs. If demand for crude oil slipped - for example because shale gas production took off across the globe - governments would have to cut their budgets quickly. If government remains the main driver of growth and crowds out the private sector, it could jeopardise future growth prospects. Spending which results in long term productivity should therefore be a high priority. However, in the short term the Middle East remains one of the best performing regions in the world with growth of 3.9% predicted for 2013."

Robust economic expansion over the last few years has been driven by high oil prices and government stimulus, and further spending is planned.

• Saudi Arabia has increased its government spending target by 19% from 2012 levels, with a 21% increase on education to develop the skill base needed for economic diversification.
• Oman plans to increase education spending by 40% year-on-year with training schemes and job creation programmes in the private sector.
• A real success story is the UAE, where spending on education, community development, and youth entrepreneurship has helped contribute to GDP growth of over 4%, although continued efforts are needed to allow private sector job creation and long term growth to flourish.
• On the other hand, the IMF has recently warned Kuwait that current public spending levels are unsustainable.

Peter Beynon, ICAEW Regional Director, Middle East, said: "The population boom means it is more important than ever to invest in education, training and skills. Dubai has already started this process, Abu Dhabi has recently announced plans to invest in schools and infrastructure, and Saudi Arabia and Oman are hard on their heels. This is critical for helping develop the skill base needed to diversify away from a purely hydrocarbon-driven economy whilst also guarding against unemployment. In order for economic growth to remain sustainable, governments need to make sure that young people are developing sound professional skills they can put to use by making the Middle East a great place to do business."