The GCC economic outlook is optimistic, with non-oil sectors expected to drive growth. Major GCC economies (particularly the Kingdom of Saudi Arabia and the United Arab Emirates) have significantly diversified their economies, aware that oil demand will fall in the future due to climate concerns and the widespread adoption of green energy.
Economic diversification
Diversification has involved several initiatives within the framework of broader strategies, such as Saudi Arabia’s “Vision 2030” and “We UAE, 2031.” These initiatives have often focused on building a private sector, increasing local demand, stimulating growth through public-private partnerships, and liberalizing capital markets to encourage the dynamic use and recycling of private capital. The results are increasingly evident. The UAE’s non-oil economy now accounts for 73 percent of GDP, a historic milestone. Saudi Arabia also accounts for 50 percent, far from the oil-dominated composition of yesteryear.
For investors, this success means more opportunities. There are several sectors with a clear and bright future, supported by macroeconomic trends.
Some of the key macroeconomic trends that we believe will create opportunities include continued population growth (driven by high migration to the region), a significant youth demographic (with around 60 percent under the age of 30), and a formidable push for digitalisation supported by significant investment in technology infrastructure and some of the highest internet and mobile penetration rates in the world. GCC countries collectively aim to invest over $100 billion in ICT by 2030. This includes investments in infrastructure, digital transformation, and emerging technologies such as artificial intelligence and blockchain.
These investments underscore the GCC’s commitment to becoming a global digital leader.
Capital inflow and changes in consumption trends
Looking deeper into specific sectors, we find trends that are particularly evident in the UAE, such as capital migration and the influx of high net worth individuals (HNWIs). Capital and skilled individuals are attracted by the UAE’s favourable tax policies, world-class infrastructure and standard of living – all in a market ideally situated between the Eastern and Western time zones.
Recent data from Henley & Partners forecasts that 6.7 billionaires will move to the UAE by 2024, benefiting sectors such as healthcare, education, real estate and luxury. With demand in these sectors already high due to rising local incomes, investors may find attractive opportunities. We see this across our portfolio, with strong growth in high-end consumer demand driving lifestyle, luxury and home products.
At the other end of the spectrum, inflationary pressures on rents and the cost of living are driving a shift towards value. We are increasingly seeing price-based shopping, brand switching and migration to online platforms as customers look to cope with budget pressures. This is resulting in strong demand for value segments in categories ranging from food to clothing, a shift towards private labels and increased demand for marketplaces that allow customers to compare and choose.
We are also seeing a surge in investment in experiences, with a focus on entertainment, events, retreats and other global experiences, accentuated regionally by a young and growing population. There is a compelling case for supporting players that cater to this demand for experiences. Saudi Arabia, for example, is investing heavily in large-scale entertainment projects such as Qiddiya, an entire entertainment city with theme parks, sports facilities and cultural spaces.
Local manufacturing and the rise of local brands
Another strong growth sector is local manufacturing. Governments are focusing on localising supply chains to increase local productivity, and the private sector is focusing on shortening lead times and addressing disruptions to global supply chains. Investments are therefore needed, supported by programmes that indicate growing demand in the future.
For example, Saudi Arabia’s “In Kingdom Total Value Add 1” program aims to increase local purchasing by 70 percent. Many of the companies we work with have a strong manufacturing base in the country.
In relation to this theme of local focus, we see immense opportunities in supporting local brands that capture an ever-growing share of wallets and offer first-class products and services. Thanks to consumer preferences and e-commerce, these brands are no longer second-rate in consumers’ minds.
For example, in Qatar, local fast-food restaurants now account for 42 percent of all food service establishments, reflecting their growing popularity among locals and tourists alike. In Saudi Arabia, local online food retail platforms lead the market, benefiting from high internet penetration and government support for digital transformation.
Tourism, infrastructure and growing investment opportunities
In addition to capital inflows and migration, tourism is experiencing a boom. In 2023, Saudi Arabia recorded a 58 percent increase in tourist arrivals compared to the previous year, ranking second globally in terms of tourism growth during that period. The UAE’s travel and tourism sector contributed a record Dh220 billion to the country’s GDP in 2023.
All of this is leading to growth in travel and aviation across both personal and business segments. Globally, the sector continues to perform well, despite climate concerns. Dubai International Airport, already the world’s busiest international airport, recently announced a $35 billion project to move operations to an expanded Al Maktoum International Airport, a sign of the vitality of business travel in the region.
Education and healthcare, sectors of continued growth, will particularly benefit as international employees relocate to the UAE with their families and the government pushes for a greater shift to the private sector in these areas.
Finally, at the investor level, the movement of family offices and other sources of private capital into the GCC creates opportunities for local venture capital and private equity players. Family offices are increasingly attracted by the UAE’s investor-friendly frameworks, prime real estate and favourable residency policies (i.e. golden visas). This movement is driving asset management activity. As family capital is invested, this relationship-driven sector will boost local players who have developed personal relationships.
Investors should be aware of the opportunities this success will create and must act quickly to build the relationships needed to maintain a competitive advantage, particularly as the region becomes increasingly friendly to international players.
Huda Al-Lawati is the Founder and CEO of Aliph Capital, a GCC-focused fund focused on mid-market companies, adding value through private equity and digitalization tools.
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