Lower oil prices have impacted economic growth in the Gulf Cooperation Council countries, a report by the global trade credit insurance provider Coface has found.
The GCC economies are set to grow by around 3.4 per cent this year and 3.7 per cent in 2016 – lower than previous years. “While these rates are considered high compared to other emerging markets, they remain below the region’s average growth rate of 5.8 per cent between 2000 and 2011,” the report said.
The six GCC countries currently hold 30 per cent of the world’s proven oil reserves with Saudi Arabia accounting for 15.7 per cent, Kuwait for 6 per cent and the UAE for 5.8 per cent. Together, they produced 28.6 million barrels per day of oil in 2014, equivalent to 32.3 per cent of total global production.
Oil prices have fallen from around $114 per barrel in June 2014, to around $50 in this year, dampening GCC government revenues. However, the report also clarified that not all markets have reacted in the same way. The decline in oil prices affected Oman and Bahrain the most, whereas Saudi Arabia, UAE, Kuwait and Qatar fared better.
“The more resilient economies benefit from strong macroeconomic fundamentals, such as more diversification, solid financial buffers and greater integration with world trade. The developed manufacturing and service industries in these markets allow less dependence on oil revenues,” the report noted.
The UAE has aggressively diversified its economy, with hydrocarbon revenues accounting for only 25 per cent of gross domestic product and 20 per cent of total export revenues. The country’s economy grew 4.6 per cent in 2014 and is forecast to grow 4 per cent in 2015 and 3.8 per cent in 2016, the report said.
Saudi Arabia, which depends on the oil sector for 80 per cent of its export revenues and around 85 per cent of its budget revenues, is also speeding up its diversification process. The kingdom posted a GDP growth rate of 3.5 per cent in 2014, with the economy slated to rise by 2.5 per cent and 3 per cent in 2015 and 2016 respectively.
“As oil continues to be a major contributor to economic performance in the GCC, economic diversification is a vital for Gulf countries to ensure continued healthy growth,” said Coface’s MENA region economist Seltem Iyigun.
“This has been showcased in Saudi Arabia and the UAE, which are driving sustained GDP growth through significant government investment in non-oil sectors. In the UAE, the food and beverage sector is forecasted to grow by 36 per cent between 2014 and 2019, while KSA’s automotive industry is slated to rise by 5.2 per cent in 2015.” He added: “In view of these growth figures, Saudi Arabia and UAE are setting a positive example of the importance of diversified economies as a means to offset the impact of lower oil prices, promote growth and avoid a fiscal deficit.”
This article by Aarti Nagraj originally appeared in Gulf Business