Posted on September 14, 2014

In its latest quarterly Economic Insight report, the accountancy body says the economy is moving in the right direction, with the government investing in transformative transport and logistics networks to boost freight and passenger capacity.

According to Economic Insight: Middle East Q3 2014, the GCC nations are leading the region’s current rail and aviation investment boom as they race to encourage more cross-border trade and address increasing congestion issues in the face of rampant population growth and rapidly-developing tourism markets. Saudi Arabia, Qatar and the UAE are leading the charge, with investment plans worth US$45bn, US$37bn and US$22bn respectively.

The planned GCC Railway, a 2,177km project which will link the networks of the six GCC countries, represents the most ambitious aspect of the region’s railway infrastructure plans. With the Middle East set to become one of the world’s most important aviation centres, expansion of airports in all the major GCC cities has also become a priority. Qatari plans are already being prepared to construct a second terminal at the recently-opened Hamad International Airport, if passenger growth exceeds current projections.

The GCC’s huge infrastructure pipeline is expected to see the transport and logistics sectors play an increasingly important role in the region’s economies. They should start to generate significant value from these assets in the form of efficient supply chains, delivery of goods and personnel across borders and supporting the activities of the travel and tourism industries. Kuwait, Saudi Arabia, UAE and Oman will likely net the biggest windfalls, with logistics forecast to contribute 13.6%, 12.1%, 11.7% and 11.7% to their respective economies by 2018. The contribution of Qatar’s logistics sector is also expected to grow, comprising 8.4% of real GDP by 2018.

“While Qatar currently has the lowest level of intra-regional trade of all the GCC nations, exporting only 1% of total goods to the Middle East in 2013, this situation is expected to change significantly when the country’s rail and airport projects come online. This diversification will help foster internal commerce and investments necessary for sustainable long-term growth,” said Michael Armstrong (pictured) FCA, ICAEW Regional Director for the Middle East, Africa and South Asia (MEASA).

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While the GCC’s goods trade integration lags behind other regions in the world, free trade policies, continued minimisation of tariff and non-tariff barriers to trade and transport infrastructure will help foster deeper intra-regional trade links. Currently, Qatar is the second most open trade market in the GCC scoring 80% on the Heritage Foundation’s Trade Freedom Index ahead of Oman, Bahrain, Kuwait and Saudi Arabia.

“With global oil prices forecast to fall over the medium-term, the need for economic diversification is becoming more pressing for the GCC countries. Qatar’s heavy investment in transport and logistics networks will pay off, drive growth and make a major contribution to diversifying the economy. However, more could be done to foster a competitive manufacturing sector that would  reduce its dependency on hydrocarbon exports,” said Charles Davis, Director, Centre for Economics and Business Research, Cebr.

The report also shows:

  • High investment levels in Qatar will support growth over the medium term, with real GDP expected to be 6.3% higher in 2014 and annual growth rising above 7% during 2015-16. However, a downside risk for Qatar’s growth projection is the possibility of FIFA reconsidering the country’s award of the 2022 World Cup.
  • With extensive infrastructure investment and fiscal expansion set to continue in Saudi Arabia, the Kingdom’s GDP is expected to grow 4.3% in 2014, and rising to 4.4% next year. 
  • Real GDP in the UAE is expected to increase by 4.7%, with the pace of growth set to decelerate marginally in 2015-16. This is due to non-oil activities driving job creation and growth.
  • GDP growth in Oman is expected to rise 3.4% this year and remain broadly flat in 2015.
  • Government consumption and infrastructure developments should support growth in Bahrain of around 3.8% in 2014, with similar levels expected for 2015-16.
  • A strengthening in the domestic non-oil sector in Kuwait will lead to annual GDP growth of around 2.7% in 2014. Consumption growth and a robust pipeline of infrastructure developments will help the economy accelerate in the coming years, reaching 4.0% annual growth by 2016.

Economic Insight: Middle East is produced by Cebr (The Centre for Economics and Business Research), ICAEW’s partner and forecaster, providing ICAEW’s 142,000 members with a current snapshot of the region’s economic performance. The report undertakes a quarterly review of the Middle East, focusing on the Gulf Cooperation Council (GCC) member countries (United Arab Emirates, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait), as well as Egypt, Iran, Iraq, Jordan and Lebanon (abbreviated to GCC+5).

The full Economic Insight: Middle East report can be found here: www.icaew.com/economicinsight

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