New Investment Avenues in the GCC

MENA Outlook Quarterly

Florence Eid-Oakden, Ph.D,Chief Economist Charlene Rahall, Robin Mills, Roa Ibrahim, Mingqiao Zhao,  Mengran Li, Analysts

Our regional theme analyses trends and opportunities in several sectors in the GCC including education, healthcare, insurance, chemicals, and retail. It also highlights cross-country comparisons, global importance and challenges facing individual sectors.

  • GCC governments have been allocating sizeable budgetary resources and undertaking reforms to spur investment in education.

    • One area that could benefit from private sector investment is technical and vocational education and training (TVET), which has lagged in GCC countries because of the abundance of cheap skilled foreign labour.
    • Special needs education presents another untapped opportunity. Recently, GCC governments are embracing a broader policy view of ‘inclusive education’ to provide opportunities for all.
  • Demographic growth, an aging population, mandatory health insurance, a high incidence of lifestyle-related diseases and an increase in per capita income are expected to fuel demand for healthcare in the GCC.
    • The healthcare market is expected to expand across the GCC, albeit at a varied rate, mainly due to disparity in disease prevalence rates. Qatar is expected to be the fastest growing market in the GCC over 2015–18.
  • Despite high growth, the GCC insurance sector coverage is still small, presenting significant opportunities. At an average of 1.9%, the level is below 3.2% in emerging markets and 6.3% globally.
  • The chemical industry’s major challenge is to maintain competitive advantage of its low-cost feedstock. The proposals in some states to link local feedstock prices to higher global prices would also put pressure on the industry.
  • This year holds some significant oil projects in the pipeline for GCC countries as oil prices recover. Saudi Arabia will continue to lead by example in the OPEC cuts. We expect it to keep crude supply levels at recent low levels into 2018, at 10 Mb/d with exports remaining limited at around 6.8 mb/d.

Growth in MENA is expected to pick up in 2018 to 3.2% from 2.2% in 2017, but remains subdued compared to the average of 3.7% over 2010-2016 due to regional conflicts and the ongoing adjustment to lower oil prices.

  • Regional economies are on much stronger footing today. More than three years after the 2014 oil price collapse, government spending has declined, deficits have troughed and structural reforms appear to have picked up momentum.
  • However, some concerns remain over several MENA economies, such as Bahrain's strategies to tackle government deficits, Oman's challenges in curbing its government wage bill and the economic impact of the Qatar blockade.
  • Geopolitical risks persist despite success in the fight against ISIS in Iraq and Syria, mainly due to continuing sectarian tensions, the rivalry between Iran and Saudi Arabia, and the ongoing Qatar rift. These, along with compliance to the OPEC deal, are oil price-positive for 2018.

Our Sino-MENA Monitor expects two areas to gain further momentum in Sino-Iran bilateral cooperation: Infrastructure development and project finance. Bilateral trade between China and Iran reached USD 37B in 2017, up by 19% from 2016, but still significantly lower than the historical high of USD 52B in 2014, underpinning room for growth.

The MENA Outlook publication presents Arabia Monitor’s insights on global markets, outlines and analyses regional future trends and defining themes, and then focuses on individual country macroeconomic views. Each publication is laid out in a concise bullet point format and features a Special Feature interview with regional leaders including central bank governors, ministers and executives. To access the full report, please click here.

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