In this interview, with Scott Livermore, ICAEW economic advisor and chief economist, as well as managing director at Oxford Economics, Economy Middle East delves into the intricate dynamics of the GCC economies. Scott Livermore focuses on the impact of oil output cuts, the pivotal sectors fueling non-oil growth and the influx of foreign investments into regional markets. Scott Livermore also sheds light on the region’s ambitious green energy initiatives and the strategic role sovereign bonds will play in accelerating the diversification agenda.
The OPEC countries, including the UAE and Saudi Arabia, have been clamping down on oil production to keep prices above the $80 threshold. Are high oil prices on their own not enough to continue supporting the GDP growth of GCC countries? What should be the ideal oil price to support GDP in the region?
OPEC is clearly trying to put a floor under the oil price. However, extending oil production cuts isn’t solely about current price targets, but about maximizing the overall value of oil wealth. Despite the negative impact on current growth due to prolonged drag from oil activities, regional producers aim to leverage this strategy for future gains, securing higher oil revenues to support growth and diversification in the medium to longer term. Most GCC countries maintain strong financial positions with low debt and accumulated wealth, enabling them to stay the course despite current revenue shortfalls. This could lead to further or longer-than-expected cuts if the oil market weakens again.
While this strategy should withstand temporary weakness, such as from China, a greater challenge arises from peak oil and subsequent demand decline. These factors may prompt higher production and accepting a lower oil price as a preferable strategy compared to leaving oil unused. Alternatively, if the non-OPEC oil supply continues to show unexpected strength, OPEC might tolerate price drops to discourage new non-OPEC suppliers. However, if this diminishes expected returns from oil wealth, adjustments to growth and diversification plans may be necessary.
What percentage of the overall GDP is currently non-oil? How do you see this proportion increasing in the next three to five years?
Recent GDP figures for Saudi Arabia showed that non-oil activities accounted for a record 50 percent of the economy last year, growing 4.4 percent year-on-year. In the UAE, this share is around 75 percent. These shares may decline over the next few years as Saudi Arabia reverses production cuts, with production nearly 20 percent below its 12 million barrels per day (bpd) capacity, while the UAE targets increasing capacity to 5 million bpd.
However, this should not distract from strong non-oil sector growth, and we expect to see the economies firing on all cylinders. The strong domestic investment drive associated with implementing Vision 2030, D33, and other plans across the GCC will aid progress toward diversification targets. We anticipate a gradual increase in the share of non-oil activities in the economy going forward. In Saudi Arabia, for example, the private non-oil sector should see an average growth of 5.5 percent per annum over the next five years. This trend must continue for some time in order to move toward the Vision 2030 target of the non-oil sector accounting for 65 percent of the economy.
Which sectors are likely to be the major contributors to non-oil GDP in UAE and Saudi Arabia?
We see broad-based growth across non-oil sectors in both countries. In Saudi Arabia, the largest share of investment will go to sectors that are key for the completion of the giga-projects, including construction, manufacturing, and transportation. We also see strong momentum in the sports and entertainment sector as the transformation continues, in addition to the hospitality sector, as tourism remains key to the Saudi growth agenda.
The dynamics in the UAE are slightly different. The sectors currently driving growth, such as travel and tourism, digital and finance, have been identified as strategic sectors and will continue to be key growth drivers. Policymakers are also focusing on innovative and emerging sectors, including finance, creative industries, manufacturing and others. Additionally, there are sectors benefiting from population growth, especially in Dubai, notably the real estate sector, along with sectors like education.
Saudi Vision 2030 and Dubai Economic Agenda D33 are seeing significant investments. Which sectors are the most attractive for foreign investors?
The energy sector has traditionally dominated inward investment into the region, but the targeted sectors are becoming more diverse. In 2023, the UAE emerged as one of the top global destinations for greenfield investments. However, sustained further growth in FDI is needed to achieve the government’s target of AED 550 billion ($150 billion) by 2031. Renewable energy projects, including green hydrogen, are seen as attractive, alongside the healthcare sector and the digital economy, supported by initiatives such as Abu Dhabi’s Hub71. The Saudi entertainment sector is also poised to attract foreign investment as restrictions ease. Additionally, there has been a surge in IPOs as Saudi Arabia, Dubai and Abu Dhabi aim to deepen capital markets and capitalize on the region’s status as one of the brightest spots in the global economy.
The UAE and Saudi Arabia have been investing heavily in green energy, solar power, water conservation and hydroponic agriculture. Are these sectors seeing any interest from international investors in particular?
Renewable energy projects in the UAE and Saudi Arabia are rapidly gaining in prominence among foreign investors, with both countries eager to expand green economies in line with their net-zero strategies. Saudi Arabia aims to generate half of its electricity from renewable sources by 2030, while the UAE aims to raise clean energy generation to 30 percent by 2030 via expanded solar and nuclear power capacity. While hosting the COP28 climate summit, the UAE launched a $30 billion fund to finance green projects. Both the UAE and Saudi Arabia have also channeled investment into green energy projects elsewhere, including in Africa, China and Central Asia.
Both the UAE and Saudi Arabia have been issuing sovereign bonds that are consistently oversubscribed. Are bond issuances going to be a regular annual feature like the U.S. Federal Reserve bond auctions?
The region needs a lot of capital to achieve its growth objective, and bond sales abroad will remain part of a toolkit to diversify funding to support those ambitious diversification agendas. Both countries’ securities are high-quality and will likely remain in demand as global central banks pivot to rate cuts. In addition to sovereign bond sales, Saudi PIF is also likely to return to debt markets to secure funding for current and planned projects.
About Scott Livermore
Scott Livermore is an economic adviser and chief economist at the Institute of Chartered Accountants in England and Wales (ICAEW) as well as managing director at Oxford Economics. Scott Livermore is based in Oxford’s Dubai office. He is also the managing director of consultancy in the Middle East and Asia, as well as a member of Oxford Economics’ senior management team.
Scott Livermore leads many of the major projects in the Gulf and Asia, which have recently included capacity building, macroeconomic modeling, and policy impact assessment engagements for government institutions in the United Arab Emirates, Saudi Arabia, Kuwait, and Oman.
Scott Livermore joined Oxford Economic Forecasting in 1997. During his first five years at Oxford Economic Forecasting, he worked as a country analyst for several European countries and participated in numerous consultancy projects for a variety of international organizations, governments, and multinational companies. Then, Scott Livermore rejoined Oxford Economics in 2005 as a senior economist after spending two years at the Ministry of Finance in the Slovak Republic.
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