Gulf economies had to deal with their fair share of challenges in 2024, particularly regarding their reliance on oil and the drop in oil prices. The unexpected drop in oil consumption in China affected oil price volatility, which prompted the International Energy Agency (IEA) to revise its global and Chinese oil demand estimates, marking an approximate 300,000 bpd drop.
China—the most significant oil importer after the United States—consumes 16.6 million bpd, compared to 19 million bpd in the US, 5.4 million bpd in India, and 3.4 million bpd in Japan. Gulf oil-producing countries primarily export to Asian nations, including China, India, Japan, and South Korea, exposing them to economic fluctuations in Asia.
This coincided with a significant reduction in oil exports to the United States in recent years due to increased domestic production and imports from neighbouring oil-producing countries in Latin America.
According to Arabian Gulf Business Insight, the Kingdom of Saudi Arabia’s GDP in 2024 was $1.1tn, the United Arab Emirates $545bn, Qatar $221.4bn, Kuwait $161.4bn, Oman $110bn, and Bahrain $47bn. Growth rates varied significantly: Saudi Arabia and Qatar at 1.5%, the United Arab Emirates at 4%, Oman at 1%, Bahrain at 3%, while Kuwait registered a negative growth rate of -2.8%.
These disparities highlight different paces of growth in Gulf economies, where some countries are implementing ongoing strategic projects and economic diversification initiatives to help strengthen the private sector. These estimates are based on IMF data.
For its part, Saudi Arabia’s General Authority for Statistics estimated the country’s growth to be 2.8% in the third quarter of 2024, with the oil sector growing by 0.3% and the non-oil sector by 4.2%. This reflects a marked improvement in non-oil sectors, aligning with Vision 2030’s economic diversification objectives and reducing reliance on oil.
Saudi Arabia's economic diversification
Manufacturing has become a key industry in Saudi Arabia, accounting for 47% of the overall GDP. Key industries include cement, metals, fertilisers, and oil and petrochemical production. Services contributed 44.9%, while agriculture accounted for 2.7%.
This progress stems from development strategies under Vision 2030, which encourage private sector investment in vital sectors, creating job opportunities for citizens. Saudi Arabia also implemented a stimulus monetary policy, lowering the interest rate to 5.25% to facilitate cost-effective financing for businesses.
Inflation in Saudi Arabia remained modest in 2024, reaching 2% in November, according to the General Authority for Statistics. These indicators reflect positive performance and the potential for expansion in various sectors, aligning with trends in other Gulf economies.
Kuwait needs more reform
Kuwait continues to grapple with the repercussions of economic policies adopted decades ago despite enjoying its massive oil revenues. Government expenditures for the 2024/2025 fiscal year exceeded KWD 24bn ($78bn).
The new government introduced initiatives to cut spending and scale back non-essential programmes, including the retirees’ health insurance programme Afya (Wellness), which grants access to private healthcare. For its part, the IMF emphasised the need to address fiscal imbalances and reform Kuwait’s economic structures, particularly given the decline in oil revenues and varying demand forecasts from major consumer countries. Nonetheless, Kuwaiti banks maintain “robust precautionary reserves,” according to the IMF.
Kuwait faces criticism from international financial institutions for its limited economic diversification and low foreign direct investment inflows, which totalled just KWD 1.7bn ($5.5bn) cumulatively since 2015, including KWD 207mn ($675mn) in the 2023/2024 fiscal year.
UAE: A vital investment hub
Ranked as the fourth-largest economy in the Middle East after Turkey, Saudi Arabia, and Israel, the United Arab Emirates’s GDP in 2024 was estimated at $545bn. Non-oil sectors in the UAE accounted for approximately 50% of GDP.
Out of its 9.5 million residents, only 11% are Emirati. The labour market heavily relies on expatriates, who comprise 85% of the 6.7 million-strong workforce who help power the UAE's growing economy.
Additionally, the UAE attracted over $30bn in foreign direct investment in 2023, driven by investor-friendly legislation and ample opportunities across a diverse array of sectors. All of this has helped the UAE turn into a key global investment destination.
Oman's push for progress
The IMF recently recognised Oman’s ongoing economic expansion, supported by essential reforms. Growth in 2024 was projected at 1.2%, with non-oil sectors growing by 3.8% in the first half of the year.
Oman’s Ministry of Finance reported revenues of OMR 8.1bn ($21bn) by the end of August 2024. The country continues to develop critical sectors such as manufacturing, tourism, and fisheries while enhancing vocational education to align with labour market needs.
Qatar and Bahrain: Acclaim and growth
The IMF expects Qatar’s economy to grow by 2% in 2024. Heavily reliant on governmental investments, Qatar’s economy witnessed significant infrastructure developments in preparation for the 2022 FIFA World Cup.
While sovereign revenues remain dependent on natural gas and oil, Qatar achieved the world’s highest per capita income at $115,000 in 2024 due to its high GDP and limited population base of 2.8 million, of which only 12% are Qatari.
The IMF praised Bahrain for achieving a 3% growth rate in 2024 despite its limited financial resources. Efforts to diversify the economy and promote private sector involvement were highlighted, alongside plans to foster competition and build an efficient economy.
Reaping the rewards of reform
Gulf states need more foreign direct investment to enhance the efficiency of key sectors. To facilitate this, governments should pass legislation that incentivises FDI. To this end, Saudi Arabia revised its investment law on 11 August to level the playing field between domestic and foreign investors. Direct investments reached SAR 11.7bn ($3.1bn) in Q2 2024, with authorities aiming to increase these figures through the comprehensive implementation of the new law. Other Gulf states should follow Saudi Arabia's example in this regard.
There is also a need to unify regulatory systems, taxation, fees, and enforcing agreements on the customs union and the Gulf common market. Efforts toward establishing a monetary union should continue, as well as enhancing the education sectors across Gulf countries, which will be vital to strengthening national workforces.
