For the past decade the seven largest emerging market economies (the E7) have been monopolising the spotlight. However, we think the Gulf Cooperation Council (GCC) countries deserve more attention from global business than they are currently receiving.
Figure 3 shows that in 2012 the GCC, taken as a single economic bloc, was the third largest hight growth market in the world. It had an economy equivalent to the size of India (based on GDP at current market exchange rates). Since 2000 the GCC has grown at an average rate of 8.1% per annum, faster than most emerging economies including Russia and Brazil. The GCC’s growth outlook is also bright as the workforce is projected to grow by almost a third by 2025.
So what’s been driving this growth? Strong global energy prices have been a significant factor, but this is not the complete story. Russia, which is also an energy exporting economy, grew at an average rate of 6.9% per annum over the 2000-12 period, which is around 1.5 percentage points per annum slower than the Gulf economies.
So what have the Gulf economies being doing differently?
Our analysis shows that, unlike some of the E7 economies (most notably Russia), the Gulf’s workforce will expand rapidly over the next decade. The United Nations estimates the potential workforce will grow by around a third by 2025. To keep these extra people busy, 10 million net new jobs will need to be created. This is both an opportunity and a challenge for the future.
In our view, this provides the Gulf with a golden opportunity to push through reforms and further encourage the growth of the non-hydrocarbon private sector. By doing so, the GCC will create the jobs of the future it needs, and diversify away from oil based production.
These changes will have national, regional and international business implications. The GCC economies could enhance their role as a hub between the West and the East. Building on an already sound banking system, the Gulf economies could become the international centre of Islamic finance. The Gulf could also act as a staging post for South to South investment 2. Expanding these roles will help provide the necessary opportunities for the many millions of young university graduates that the region will produce between now and 2025.
1 “Saudi Arabia: 2013 Article IV Consultation”, July 2013
2 Refers to investment flows between the E7 and other emerging economies.