In late July, the Saudi Public Investment Fund announced the establishment of the Saudi Tourism Investment Company to enhance growth in the country’s tourism sector – a key focus of diversification efforts that already receives support from a dedicated ministry, authority, and various state-backed projects. Saudi officials hope that more international tourists and businesspeople will soon travel to and through the Gulf region on Riyadh Air, a national airline established in March, rather than Qatar Airways or Emirates. Meanwhile, the neighboring United Arab Emirates – long considered the region’s premier tourism and investment hub – established a Ministry of Investment in early July and appointed a minister to head the new entity. This recent Emirati move will resonate with Saudi officials, given that in 2020 their government replaced the Saudi Arabian General Investment Authority with the new Ministry of Investment to help boost low inward foreign direct investment flows.
The competitive dynamics among Gulf Cooperation Council states, especially between the region’s two largest economies of Saudi Arabia and the UAE, continue to intrigue international observers. Prominent journalists report growing tensions between Saudi Crown Prince Mohammed bin Salman and UAE President Mohammed bin Zayed al-Nahyan. Some analysts believe there will be significant foreign policy implications from a rivalry between Riyadh and Abu Dhabi. Moreover, business leaders are concerned that emerging policies and new government entities intended to provide a competitive economic edge for specific countries may negatively impact their business’s regional operations.
Yet regional competitive dynamics in the GCC’s economic domain are not a new development. The historical foundation for this form of competition rests largely upon the existence of relatively homogenous economies with similar sectoral prioritizations. In recent years, economic policymaking has absorbed elements of a new nationalism taking root across the region, but especially in Saudi Arabia, where Riyadh’s embrace of “Saudi First” policies remains particularly strong. The economic declines brought on by the coronavirus pandemic and subsequent need for economic recoveries sharpened the hyperfocus on policymaking – including foreign policy – that advanced domestic economic interests. Over the longer term, overlapping development trajectories in the Gulf will ensure that regional economic competition is more of a structural reality than temporary situation.
Growing Competition
Over the near term, a confluence of factors increases the likelihood of stiffer economic competition – with Saudi Arabia and the UAE the primary competitors.
- Slowing growth and declining government revenue will dent the region’s economic momentum.
- Countries’ regional development agendas remain stubbornly ambitious and therefore will place significant financing obligations on these states.
- Global demand to engage with Gulf economies and participate in economic transformation processes is finite and must contend with an uncertain macroeconomic and geopolitical environment.
While the conditions are ripe for a heightening of regional economic competition, Gulf policymakers – especially those in the smaller states – may still opt to cooperate across specific industries and projects.
The regional economic momentum from a strong year of high growth and substantial fiscal surpluses in 2022 is subsiding. According to the International Monetary Fund, Saudi Arabia’s 8.7% growth rate in 2022 will drop to a projected 1.9% in 2023 and 2.3% in 2024, placing Saudi Arabia behind the average expected growth rate for emerging markets and developing economies (4% and 4.1% respectively). Analysts at Capital Economics and Bloomberg Economics project a contraction for the Saudi economy over 2023. In May, Saudi Arabia’s oil revenue from exports of crude and refined products dropped to its lowest monthly level since September 2021. The UAE’s real gross domestic product growth is also projected to decelerate from 7.4% in 2022 to 3.5% in 2023.
Despite economic headwinds, economic development agendas continue to expand aggressively, increasing the longer-term financing obligations on governments in these countries. The UAE would need to achieve annual growth of around 7% to meet its 2030 target of doubling GDP to more than $800 billion. Not only does the UAE’s Ministry of Economy hope to “achieve a quantum leap in the national economy by the year 2030,” but the UAE Centennial 2071 was pitched as “a roadmap to make the UAE the best country in the world,” by 2071. Such are the heights of Emirati ambition.
Nor does Mohammed bin Salman appear willing to settle for a mediocre economic transformation in Saudi Arabia. The kingdom’s National Tourism Strategy aims for 100 million visits annually by 2030. The National Investment Strategy seeks to attract over $100 billion in annual foreign direct investment by the end of the decade, despite inflows over recent years registering just a fraction of this target. Existing megaprojects, such as Neom, and newer development initiatives, like New Murabba, are progressing full steam ahead. Saudi government and government-related entities have spent lavishly on sports investments since 2018. These entities possess the financial depth to fund the early stages of these investment initiatives, but the National Investment Strategy acknowledges the eventual need for more foreign investment and private partnerships.
Yet the global business community’s interest in Gulf economies ultimately has limits. The Saudi Regional Headquarters Program brings into focus the type of tradeoffs that companies operating across the region must make as well as the importance of relationship management. There are also promising markets beyond the Gulf region. According to Morgan Stanley’s latest rankings, India was elevated to the top-ranked, most-preferred emerging market. Gulf government and business actors must therefore work hard to stand out not only from regional counterparts but also those in other emerging markets.
Mutually Beneficial Collaboration?
Economic competition and cooperation are not necessarily mutually exclusive. Gulf government and business actors may determine that collaboration across specific economic domains and on certain projects is preferable to competition. For example, a “Schengen-style” visa is reportedly in the works that would better harmonize regionwide visa regulations and facilitate smoother travel between GCC countries. Smaller Gulf states, such as Oman, will find direct economic competition with much larger neighbors futile. The Omani and Saudi governments are seeking to build stronger ties between their special economic zones and sovereign wealth funds.
Kuwait, which must confront a host of domestic political challenges before it can compete or collaborate effectively with neighboring GCC countries, reportedly plans to launch a domestic-oriented fund under the Kuwait Investment Authority. If Kuwait can overcome various political hurdles and effectively leverage more of its substantial sovereign wealth holdings domestically, it could serve as a more formidable player in regional economic competition.
The 2020 G20 summit in Saudi Arabia, the delayed World Expo in Dubai, and the 2022 FIFA World Cup in Qatar have come and gone. With COP28 in Dubai fast approaching at the end of 2023, regional governments are focused on securing the next big thing, though hosting high-profile events and undertaking new projects often entails significant financial costs. As economic momentum slows and economic policymakers continue to aggressively steer development agendas into the future, the stakes attached to attracting global flows of trade, investment, and tourism will only get higher.
