ECONOMIC DIVERSIFICATION ON ITS WAY: HOW NON-OIL SECTORS ARE DRIVING ECONOMIC RECOVERY IN SAUDI ARABIA AND THE UNITED ARAB EMIRATES

ECONOMIC DIVERSIFICATION ON ITS WAY: HOW NON-OIL SECTORS ARE DRIVING ECONOMIC RECOVERY IN SAUDI ARABIA AND THE UNITED ARAB EMIRATES

Heavily affected by the COVID-19 pandemic, Saudi Arabia and the United Arab Emirates (UAE) are showing encouraging signs of economic recovery, according to a report by CNBC. The recovery appears to be driven by both the oil and non-oil sectors. In October, while Saudi Arabia's non-oil private sector recorded its 14th straight month of growth, the UAE was boasting its highest increase in economic activity in nearly two and a half years.

The trend in economic diversification is witnessed at a time the monarchies of the Gulf seek to reduce their oil dependency and their vulnerability to the pitfalls of price volatility generally associated with this declining economic sector. The region's economic model also appears to have shifted away from hefty government spending towards the consolidation of private enterprise. The International Monetary Fund's forecasts for the member states of the Gulf Cooperation Council (GCC) are also encouraging as they should all achieve fiscal balance in 2023, which is unheard of since 2014.  

Although the recent rise in oil prices has played a role in the recovery, non-oil business activity, such as financial services, has also played a part in this regard. In Saudi Arabia, the megaprojects sponsored by the government are also expected to help drive economic diversification and growth. As for the UAE, EXPO 2020 as well as the real estate sector have greatly contributed to the economic recovery. The international exhibition, which had been postponed due to the COVID-19 pandemic, will help to further drive recovery in the transport, tourism and hospitality sectors.

However, despite the noticeable growth in non-oil sectors and its positive outcome, the recovery arguably could not have been achieved had oil prices not risen dramatically in recent months. Although economic diversification is promising remarkable long-term benefits, the non-oil sectors are still in their infancy in the region and are expected to help drive economic growth alongside oil exports for the foreseeable future.