- Rising oil prices helped Middle Eastern countries return to growth in 2021
- Despite the rebound, some governments have rolled out budget rationalization plans
- Social and business-friendly reforms have been implemented to improve competitiveness
- Major players have stepped up their investments in a range of renewable energy solutions
Thanks to rising oil prices and a stronger global economic environment, the Middle East returned to growth in 2021, as several governments took the opportunity to implement long-term plans aimed at diversification and growth. modernization.
After a year in which the economies of the Middle East contracted due to the fallout from Covid-19, the region experienced a positive economic rebound in 2021, with the IMF predicting in October that the region as a whole would increase by 2 , 7%.
Taking a closer look at the GCC, the World Bank estimated in December that the six-member bloc would register an overall growth rate of 2.6 percent for the year. Bahrain is expected to grow by 3.5%, followed by Qatar and Oman (3%), United Arab Emirates (2.7%), Saudi Arabia (2.4%) and Kuwait (2 %).
A key factor in this growth has been the rise in oil prices.
After starting 2021 at just over $ 50 a barrel, the price of oil hit annual highs of over $ 85 in October. Towards the end of the year, prices fell again as the omicron variant dampened fuel demand, before closing 2021 at around $ 77 per barrel.
Nonetheless, the previous increase provided an economic boon to the Gulf countries for much of the year.
Long-term tax reforms
While rising oil prices have helped boost incomes across the region, a number of governments have sought to implement or expand long-term budget rationalization strategies.
In April, Oman introduced a 5% value added tax (VAT), becoming the fourth Gulf country – behind Saudi Arabia, the United Arab Emirates and Bahrain – to do so, following the pledge made by the GCC in 2018 to implement the surcharge.
The tax is expected to help ease the tax burden by generating 400 million OR ($ 1 billion) per year, which is equivalent to about 1.5% of the country’s GDP.
Meanwhile, Bahrain recently announced that it will double its VAT rate to 10% from 2022; in this, it follows Saudi Arabia, which increased its VAT to 15% in 2020.
The move is part of Bahrain’s strategy to bring the budget back to a surplus by 2024.
“While the Covid-19 pandemic has resulted in the extension of budget balance targets beyond 2022, government discipline in cutting spending gives hope that it will reduce the gap in the budget deficit and achieve a balanced budget in the years to come “, Yaser Alsharifi, Group Strategy Director. Bahraini National Bank officer told OBG.
“In addition, in the context of the economic recovery trend in 2021 and a higher oil price environment, one could expect a strong economic performance in 2022, which will further support the government’s fiscal position. “
FDI is the key to diversification
A number of Gulf countries have also launched innovative reforms designed to incentivize foreign investment and enhance competitiveness.
A leader in this regard was Saudi Arabia, which continued its diversification efforts through a series of initiatives aimed at attracting foreign direct investment (FDI).
FDI was already up 33% year-on-year in the first six months of 2021, according to government officials, building on the $ 5.5 billion return affected by the pandemic in 2020.
Then, in October, the country launched its National Investment Strategy, which aims to help the country meet the ambitious goal of attracting $ 100 billion in FDI per year by 2030.
The strategy includes plans to develop special economic zones, a program to transfer key supply chains in the country and a diversification of financing options for private sector operations.
These initiatives are accompanied by efforts to improve the general business environment, such as a new law allowing specialized foreign professionals to acquire Saudi nationality and a new platform facilitating the process of starting a business for investors. foreigners.
Modernization and improvement of competitiveness
Elsewhere, the UAE has also implemented a number of eye-catching reforms to improve its competitiveness globally.
In a bid to encourage foreign investment, the country in June amended laws to allow 100% foreign ownership of UAE businesses in all but a few restricted industries, up from 49% previously.
This was followed in November by the biggest legal reforms in the country’s history, when a series of 40 laws covering commerce, online safety, copyright, residency, narcotics and others social issues have been implemented.
They include measures that strengthen personal data rights, copyright for people working in the creative industries and online security. Meanwhile, a series of social reforms, such as easing restrictions on pre-marriage cohabitation, implementing more protections for women and longer visas, are designed to attract skilled migrants. in the country.
In particular, the focus on social factors has been a priority for the country. Over the past year, a broad set of reforms were implemented, which included the MENA region’s first provision for paid parental leave in the private sector – available to both female and male employees – while labor legislation was amended to ensure equal pay for work of equal value.
These measures were then complemented by the announcement in December that government entities in the UAE would upgrade to a four-and-a-half-day week from January 1, 2022, with many private companies quickly following suit.
The change extended the weekend to run from Friday afternoon to Sunday – instead of the previous Friday to Saturday schedule. This puts the country in line with most of the world’s developed economies and, according to the government, is designed to “improve its global competitiveness in all economic and trade sectors, and to keep pace with global developments.”
These attempts to induce investment in the UAE come as Dubai hosts Expo 2020, which opened in October and will run until March 31. More than 190 countries are represented at the event, with more than 7 million foreign tourists visiting the country between its launch and the end of December.
National capacity building
While attracting foreign investment remains a key objective for all Gulf countries, some – including Qatar – have also focused on increasing self-sufficiency in certain areas.
“The blockade made us realize that we were too dependent on others in a number of areas,” Ziyad Eissa, CEO of S’hail Holding Group, told OBG. “Good relations with neighbors are important, but Qatar needed a plan to operate independently in any scenario, and we quickly developed the capabilities to maintain operations in all sectors, including primary and industrial. “
In addition to efforts to improve food security by investing in high-tech agricultural solutions, Qatar has also established significant industrial recycling facilities at the national level.
Recycling is considered essential to reduce the carbon footprint of heavy industry, which accounts for around 27% of global emissions.
“By the end of 2022, we expect Qatar to become the first country in the world to locally recycle 100% of its domestic solid metal waste, including lead, copper, aluminum, steel, brass and zinc, ”Eissa said.
Investing in the energy transition
Although the region is home to some of the largest hydrocarbon-exporting countries in the world, a number of Middle Eastern markets have sought to benefit from the transition to renewables throughout 2021.
Indeed, the UAE has set a goal of net zero emissions for 2050, while Saudi Arabia and Bahrain both hope to achieve this goal by 2060.
To achieve its target, the UAE aims to increase the contribution of renewables to their energy mix from the current level of 13% to 31% by 2025.
Throughout 2021, the country continued to make progress on the Al Dhafra solar power plant. When completed later this year, it will become the world’s largest single-site solar power plant, capable of providing enough electricity for 160,000 homes and mitigating 2.4 million tonnes of carbon emissions per year.
To further help meet its goals, the country has also invested in carbon capture and storage (CSS) technology, which works by capturing and then storing carbon emissions from large industrial projects before they are released into the environment. the atmosphere.
Although the technology is still in its infancy and does not yet exist on a large scale, the UAE is playing a leading role in its development, alongside Qatar and Saudi Arabia.
In addition to the country’s first CSS project, a facility that treats emissions from a steel plant in Mussafah, Abu Dhabi, the Abu Dhabi National Oil Company recently signed a memorandum of understanding with the French energy major. Total to jointly explore the development of CSS technology.
This was supplemented by the development of green hydrogen. Created by dividing water through a process called electrolysis, it is considered the most environmentally friendly fuel for the future.
World leader in this field, the United Arab Emirates are developing seven hydrogen projects and aim to capture 25% of global demand by 2030.
Meanwhile, in Saudi Arabia, April saw the launch of the 300 MW Sakaka solar power plant, the country’s first large-scale renewable energy project. This was followed in August by the announcement that Saudi energy company ACWA Power had finalized funding for the 1.5 GW Sudair solar power plant, which is expected to be one of the largest in the world when completed.
It is part of the country’s plans to invest around SR 380 billion ($ 101 billion) in renewable energy projects by 2030.
The measures reflect a wider trend in the Middle East towards low carbon energy solutions.
While Qatar itself has yet to announce a net zero emissions target date, in October, state-owned Qatar Petroleum said it changed its name to Qatar Energy, as part of a attempt to better reflect the company’s renewable energy strategy.
Although it will continue to export gas for decades to come, the company’s new strategy will focus on energy efficient technologies such as CSS.