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Energy transition, diversification from oil, key GCC drivers

GCC countries have been concerned about the sustainability of their hydrocarbon revenues. In the long term, oil and gas reserves will eventually run out. Diversification is underway

The UAE has also become an important destination for foreign investment related to green energy Areas like tourism offer another avenue for optimism in the UAE and Saudi The residential market in Saudi is witnessing a boom of sorts

GCC countries have been concerned about the sustainability of their hydrocarbon revenues. In the long term, oil and gas reserves will eventually run out. Bahrain and Oman are in the most precarious position, with reserves expected to run out within the next decade for Bahrain and within 25 years for Oman.

The UAE seeks to attract investment and become a global leader in renewable energy and the petrochemical industry.

The UAE has also become an important destination for foreign investment related to green energy. The country generates only a third of government revenues from oil and gas, whereas hydrocarbon revenues represent at least two-thirds of government revenue in other GCC nations.

Still, it is aiming to produce 5 million barrels of oil a day by 2030, up from 3.5 million in 2018, even as the global transition is moving away from fossil fuels. That’s because even the ambitious Net Zero strategy of the International Energy Agency has the world consuming nearly 25 million barrels a day in 2050 though down starkly from the approximately 90 million barrels a day in 2020.

The UAE is projected to see a gradual demand recovery in the energy sector, with the current project pipeline sitting at more than $670 billion, seeing increasing investments in the upstream, midstream, and downstream sectors, according to Euro Mechanical.

Growth back on the radar for GCC investors

Leading GCC economies have resumed their pre-pandemic growth trajectory, not only on the tried-and-tested path of oil revenue but also amid national diversification initiatives, according to Aberdeen Standard Investments (ASI).

The World Bank forecasts aggregate growth across GCC member states of 2.2% in 2021. It pinpoints the global economic recovery projected at 5.6% and the revival of international oil demand and oil prices as core drivers. Yet non-oil revenue from property, tourism, and the digital economy, for example, also promises to support the turnaround in the region following a GDP contraction of 4.8% in 2020.

The Institute of International Finance sees the UAE and Saudi Arabia as leading the post-pandemic economic recovery within the GCC.

The World Bank expects the UAE to regain momentum at 1.2% in 2021, but this will accelerate to 2.5% in 2022 and 2023 driven by government expenditures and Expo 2020 in October 2021.

Saudi Arabia, meanwhile, will derive more immediate gains from firmer demand for oil, with the World Bank tipping 2021 GDP to be 2.4%, and medium-term growth to an average of 3%. Kuwait will experience a similar rebound; the World Bank said oil exports will likely drive domestic growth dynamics, forecast at a moderate 2.4% in 2021 before ramping up to an average of 3.2% in 2022-23.

Investment experts at ASI are eyeing further reforms across key markets to enhance the appeal of what many investors see as future-proof areas of economic development.

Areas like tourism offer another avenue for optimism in the UAE and Saudi. Red Sea tourism kicked off in Saudi and in grand style.

The UAE was ahead of the global trend in the first half of 2021, with the decline in hotel occupancy less severe compared with other markets. Going forward, the positive impact of the country’s strong vaccine program coupled with the opening of the Expo 2020 Dubai are expected to boost its tourism sector.

Another area ASI investment specialists also foresee as providing another economic boost over the next few months is the real estate sector. In Dubai, for instance, growing numbers of transactions and rising prices fuel bullish sentiment.

The value of off-plan property sales in Dubai has reached an eight-year high after months of sluggish growth with total sales reaching $1.3 bn in August, the highest since December 2013.

According to Zoom Property Insights, transactions for 1,400 villas worth $844 million and 2,284 villas worth $1.47 bn were recorded in Q1 and Q2.

Aligned with the 2030 vision of boosting the homeownership rates to 70%, the residential market in Saudi is witnessing a boom of sorts. The volume and value of the residential transactions increased noticeably in Saudi Arabia’s major cities. The exceptional increase in the volume and value of residential transactions is underpinned by an increase in the mortgage uptake, with 26,800 new contracts were recorded in February 2021.