The GCC’s economic outlook is optimistic, with non-oil sectors driving growth. Leading GCC economies — the Kingdom of Saudi Arabia and the United Arab Emirates in particular — have significantly diversified their economies, cognizant of a future where oil demand falls due to climate concerns and the widespread adoption of green energy.
Economic diversification
Diversification has involved various initiatives within wider strategic umbrellas, such as ‘Vision 2030’ in KSA and ‘We the UAE 2031’. Often, these initiatives have focused on building the private sector, growing local demand, stimulating growth via 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 comprises 73 percent of the GDP — a historic first. KSA is also at 50 percent, far from the oil-dominated composition of yesteryear.
For investors, such success means more opportunities. There are several sectors with clear, bright futures — underpinned by macroeconomic trends.
Some of the key macro trends we believe would drive opportunity include continued population growth (driven by high migration to the region), a significant youth demographic (with about 60 percent under the age of 30), and a formidable digitization drive supported by significant investment in tech infrastructure and some of the highest mobile and internet penetration rates in the world. The GCC countries collectively aim to invest over $100 billion in ICT by 2030. This includes investments in infrastructure, digital transformation, and emerging technologies like AI and blockchain.
These investments highlight the GCC’s commitment to becoming a global digital leader.
Capital influx and shifting consumer trends
Delving deeper into specific industries, we find trends particularly apparent in the UAE, such as the migration of capital and the influx of high-net-worth individuals (HNWIs). Capital and skilled individuals are attracted to UAE’s favorable 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 the UAE will have 6,700 millionaires relocating to the country in 2024, benefiting sectors such as healthcare, education, real estate, and luxury. With demand in these sectors already high due to rising local incomes, investors can find compelling opportunities. We see this in our pipeline, with solid growth in high-end consumer demand driving lifestyle, luxury, and home products.
At the other end of the spectrum, inflationary pressures on rent and the cost of living drive a shift toward value. We increasingly see price hunting, brand trading down, and migration to online platforms as customers seek to address budgetary pressures. This results in strong demand for value segments across categories from groceries to apparel, a shift toward private labels, and increased demand for marketplaces that allow customers to compare and choose.
We also see an increased allocation to experiential spending, focusing on entertainment, events, retreats, and other global experiences, accentuated regionally by a young and growing population. There is a strong case to support players catering to this demand for experiences. Saudi Arabia, for instance, is investing heavily in large-scale entertainment projects like Qiddiya, an entire entertainment city with theme parks, sports facilities, and cultural venues.
Local manufacturing and the rise of homegrown brands
Another area of strong growth is local manufacturing. With a focus from governments on the localization of supply chains to increase onshore productivity and from the private sector to shorten lead times and address global supply chain disruptions, there is a need for investment, which is well-supported by programs that signal growing future demand.
For example, Saudi Arabia’s “In Kingdom Total Value Add 1” program aims to increase local procurement by 70 percent. Many businesses we work with have a strong manufacturing and/or fabrication base in-country.
Tied to this theme of local focus, we see immense opportunities in backing local brands that capture an increasing share of wallets and deliver world-class products and services. Enabled by consumer preferences and e-commerce, these brands no longer occupy second-tier positioning in the minds of consumers.
For example, in Qatar, local quick service restaurants (QSRs) now account for 42 percent of all food service outlets, reflecting their growing popularity among both locals and tourists. In Saudi Arabia, local online grocery platforms are leading the market, benefiting from high internet penetration and government support for digital transformation.
Tourism, infrastructure, and growing investment opportunities
In addition to capital influx and migration, tourism is witnessing a boom. In 2023, Saudi Arabia saw a 58 percent increase in tourist arrivals compared to the previous year, ranking it second globally for tourism growth during that period. The travel and tourism sector in the UAE contributed a record AED220 billion to the country’s GDP in 2023.
All this leads to growth in travel and aviation across personal and business segments. Globally, the sector is continuing to perform — notwithstanding climate concerns. Dubai International Airport, already the world’s busiest for international travel, recently announced a $35 billion project to move operations to an expanded Al Maktoum International Airport, a signal of business travel’s vitality in the region.
Education and healthcare, evergreen sectors for growth, will benefit particularly as international employees move to the UAE with their families and as government pushes for increased shift to the private sector across these areas.
Finally, at an investor level, the movement of Family Offices and other private capital sources to the GCC creates opportunities for local VC and PE players. Family Offices are increasingly attracted to the UAE’s investor-friendly frameworks, premium real estate, and friendly residence policies — i.e., golden visas. This movement is boosting asset management activity. As family capital is invested, this relationship-driven sector will boost local players who have developed personal relationships.
Investors should be wise to the opportunities this success will yield. They must act quickly to build the relationships necessary to retain a competitive edge, particularly as the region becomes increasingly friendly to international players.
Huda Al-Lawati is the founder & CEO of Aliph Capital, a GCC-centric fund focused on mid-market companies, adding value via Private Equity and Digitization Tools.
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