Oil and gas are part of ongoing energy transition, says Aramco chairman

Jeddah - Yasmine El Tohamy - RIYADH: With the Arab states pushing ahead with their economic diversification plans, experts observing the geopolitical developments remain optimistic about the future of the Gulf region but warn that strong global and policy headwinds persist.

Experts assembled at a recently concluded conference at the Arab Gulf States Institute in Washington, also known as AGSIW, acknowledged various efforts undertaken by the GCC countries toward innovation but underlined the need to do more.

“The GCC governments can’t rest on their laurels. They are going to have to work hard to keep attracting top firms and highly skilled business people, especially those in the tech sector,” said Robert Mogielnicki, a senior resident scholar at AGSIW, in an interview with Arab News.

“This (already) seems to be the strategy behind launching new long-term visa schemes and other initiatives to enhance the livability and sustainability of various locations,” he added. 

The scholar believes the future remains highly uncertain and fraught with risks. “When your economic outlook is still closely linked to global energy market dynamics, things can change for the worse rather quickly,” he warned.

Strong position

Monica Malik, the chief economist at Abu Dhabi Commercial Bank who spoke at the conference, added that other challenges remain, such as balancing the social side while tightening fiscal policy. Another challenge is to create enough jobs and a labor market that meets the demands of future economies.

Despite challenges ahead, the GCC is in a strong position, agree most experts.

For Malik, the GCC region managed the COVID-19 pandemic exceptionally well. “This was achieved with high vaccination rates and maintaining social mobility, with varying restrictions, across regional countries.”

The GCC countries, she said, are also well positioned with oil prices on the rise. “The GCC is entering 2022 in a very strong way. There will be fiscal surplus, for most countries across the board even if oil prices fall to $75, with the exception of Oman and Bahrain,” added Malik.

The economist expects these surpluses to help build reserves and support transformation efforts. “We are also going to see less headwinds from the fiscal side. It is not only the pandemic (that acted as) a wake-up call but also the energy transition (experienced in other countries),” she pointed out.

This is helping in speeding up various policy reforms such as the value-added tax, which has been increased and the UAE’s decision to introduce corporate taxes from next year. “The GCC region is also focusing on how it can become a leader in energy transition,” explained the economist.

Mogielnicki agreed that many regional governments are leveraging this fiscal leeway to introduce economic policies, such as new or higher taxes — all these can support economic diversification over the longer term. 

Digital economy

He nonetheless emphasized that the government-led urgency to diversify into high-tech industries and grow the region’s digital economy may not necessarily be proportional to what global tech firms and entrepreneurs desire when considering relocating to the region.

However, “economic prospects for the GCC look relatively rosy, given the higher oil and gas prices and — for the most part — a sustained commitment to fiscal discipline,” concluded Mogielnicki.