Trade and Investment
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The future of the GCC region: funding diversification in an evolving landscape
Trade and Investment
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The GCC economies are undergoing a radical change in response to the climate emergency and the need to phase out fossil fuels. With ambitious targets set to transform the region’s traditionally hydrocarbon-based economy, Gerald Dannhaeuser, Regional Head of Financial Institutions Asia Pacific & GCC, Mehtap Ak-Sisman, Chief Representative in Dubai for the GCC, Nils Neudoerfer, Senior Relationship Manager, and Georges Bou Nemer, Senior Representative in Dubai for the GCC, discuss the new and exciting opportunities that economic diversification is bringing, and how banks can support this growth.
The GCC region in focus: a transformative vision driven by global sustainability targets and shifting energy demands
The Gulf Cooperation Council (GCC) region is experiencing significant and rapid transformation, implementing ambitious diversification strategies in order to mitigate risk, address depleting oil reserves and combat growing concerns regarding rising sea levels. Bahrain’s low-lying land, for example, is particularly exposed to this predicted rise, with the coastlines of Kuwait and the United Arab Emirates (UAE) also notably vulnerable. Certainly, the climate change risk the region is facing was demonstrated just recently by the extreme heavy rain that caused flooding in the UAE and Oman. Global sustainability targets and GCC members’ commitment to the COP28 pledges have further reinforced the region’s impetus to move away from its traditionally heavy reliance on hydrocarbons.
In response to this landscape – and shaped by robust economic plans set out prior to these recent challenges – GCC nations are shifting their fossil fuel-based economies towards sectors including tourism, renewable technology, fintech and global trade opportunities. The region is poised for considerable growth and innovation as a result of diversification, eased OPEC+ oil production quotas and strengthening trade corridors with Europe due to shifting energy needs. Consequently, it is predicted that the GCC will see GDP growth of 3.7% in 2024, despite the global economic downturn. This, in turn, will further help to showcase the GCC as an up-and-coming and strategically important location for global trade among corporates, governments and institutions.
But while opportunities abound, with non-oil diversification accelerating the GCC’s global status as an emerging economic hub, realising this full potential will require significant financing and extensive infrastructure investment.
The road to a greener GCC: embracing the renewable energy landscape and global trade opportunities
Of course, the GCC cannot be regarded as one homogeneous region with the same needs and priorities. Countries across the GCC – which include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE – are varied, with each member state having its own economic, social and political agendas, as well as individual economic diversification strategies.
Within renewable technologies and energy diversification, for example, it is the UAE, Oman, Qatar and Saudi Arabia that are emerging as some of the biggest players. In the case of the UAE, there are plans to invest US$54 billion in energy and renewable sources over the next seven years, with investments in green hydrogen, solar, nuclear power and carbon capture technology supporting this. Elsewhere, under the Vision 2030 strategy, Saudi Arabia plans to diversify its energy production, aiming for 50% of its energy to come from renewable energy resources by 2030, and with the NEOM Green Hydrogen Solar PV Project set to be the world’s largest green hydrogen facility once completed by the end of 2026.
The shifting energy landscape is also opening the door for greater relationships between the GCC and Europe. Indeed, the GCC is viewed as a key trade corridor in meeting Europe’s energy needs and supporting the global green transition. Equally, stronger ties will help to expand German exports to the region. Already, Germany exports machinery, motor vehicles, pharmaceuticals, electrical engineering and chemical products to the GCC, but regional diversification will accelerate this further.
To further support growing international relations, GCC governments have introduced policies to improve their business environment for corporates and investors, and to encourage greater international collaboration and sharing of expertise. For instance, the UAE has signed the GCC Free Trade Agreement with countries including New Zealand and Singapore, and is in further talks with the EU, Japan and Mercosur member countries. This agreement will enable the UAE to build its global reputation as a trade hub and its economic diversification strategy.
Positioning the GCC as a leading international sports and tourist hub through economic diversification
Away from energy, tourism is a rapidly growing industry in Saudi Arabia, Oman and the UAE. Saudi Arabia has invested heavily in tourism-related infrastructure such as hotels, airports and transport, and the Ministry of Tourism is due to announce a ten-year US$1 trillion tourism investment package. Oman is also promoting its position as a tourist destination and experiencing robust growth as a result. Not only is it promoting its cultural landmarks and diverse natural landscapes, it is also carrying out infrastructure projects such as cable cars, ziplines and mountain trails to attract tourists. Oman had four million visitors in 2023, a 38% increase compared with 2022.
The hosting of international sporting events is another diversification strategy. Since 2021, Saudi Arabia has invested at least US$6.3 billion in sports-related opportunities, and is the location for events such as high-profile boxing matches, the F1 race in Jeddah, LIV golf tournaments, the Women’s Tennis Association (WTA) Finals (until 2026), the Spanish Supercup (until 2029) and the 2034 World Cup. And since the 2022 World Cup, Qatar has also heavily invested in initiatives focused on building its global sporting hub status. Beyond being the host nation for the 2027 FIBA Basketball World Cup, it has established the first “sports business district” in the region, which aims to create new business opportunities by attracting a range of multinational sports companies – from sportswear and equipment to training and legal companies – with numerous incentives and service packages.
Moreover, GCC economies are diversifying growth towards fintech innovation and creating strong financial markets. Saudi Arabia, the UAE and Bahrain are leading regional fintech innovators, home to four of the main regional fintech hubs: Bahrain Fintech Bay, Abu Dhabi Global Market, Fintech Hive at Dubai International Financial Centre and Fintech Saudi. Indeed, policies such as the US$100-million, Bahrain Development Bank-funded Al Waha, and the Central Bank of Bahrain (CBB) regulatory framework on fintech, have helped to support innovation and fintech start-ups in the GCC.
With ambitious plans and new, varied and innovative initiatives underway, it is clear that economic diversification in the GCC will lead to a wealth of regional and global economic opportunities, benefiting corporates and consumers alike.
Potential barriers to capturing the rich investment opportunities the GCC has to offer
The road to economic diversification isn’t without its challenges, however. Realising these initiatives requires significant financing and investment, with GCC government-led programmes often being financed through fossil fuel-related profits. This means that while oil-rich nations like Saudi Arabia and the UAE will have significant financing to develop non-oil economic opportunities, other GCC nations may not have the same resources, potentially leading to an uneven diversification landscape. Additionally, given the government’s central role in determining the economic agenda, the challenge will be for the private sector to meaningfully influence the focus and extent of non-oil initiatives in each country.
For investors, there are political, cultural, social and economic elements to consider when operating in GCC economies. Issues around the social aspect within “ESG” are also frequently discussed – although media-driven perceptions of the region by the West are not always completely accurate. Saudi Arabia, for instance, is aiming to increase female participation in the workforce to 30% under the Vision 2030 initiative.
Supporting the scope of needs of a diverse and transitioning region
Against this backdrop, however, state-owned sovereign wealth funds (SWFs) have been highly successful in financing non-oil economic initiatives. Indeed, the GCC is home to seven of the top 15 SWFs globally, with the UAE’s Abu Dhabi Investment Authority (ADIA) ranking fourth. In Saudi Arabia, the Public Investment Fund (PIF) has played a crucial role in financing the sustainable development aspect of the Vision 2030 plan, by creating and issuing two green bonds to support the energy diversification. The Kuwait Investment Authority (KIA), via its subsidiary Enertech Holding Company, has also helped to support Kuwait’s energy diversification strategy by developing and financing new global solar power station projects through its collaboration with US solar company Energy America. Moreover, in Qatar, SWFs have been instrumental in promoting innovation in fintech and creating new non-oil growth opportunities, thereby complementing the Central Bank’s initiatives aimed at opening the country’s capital markets to foreign investors. In 2024, the Qatar Investment Authority (QIA) launched a US$1 billion venture capital fund to attract international and regional venture capitalists and entrepreneurs to Qatar, with a focus on technology, fintech, edtech and healthcare innovation. SWFs are expected to continue to play a fundamental role in supporting the economic diversification of GCC economies.
SWFs alone cannot ensure the scope of opportunities are realised. Indeed, banks, with their networks, expertise, flexible solutions and deep knowledge of the markets, are fundamental to enabling the GCC’s diversification strategies and supporting corporate clients looking to leverage the burgeoning opportunities the region has to offer.
Green, sustainable and transition finance, for example, will enable businesses in the region to begin their green transition, as well as support investment in renewable technologies and resources. But while these solutions will further sustainability efforts and energy diversification strategies, each GCC country is at a different stage of the transition, and therefore has different funding needs. The UAE and Saudi Arabia, for example, are particularly open to renewable technology investment, while others like Kuwait (where renewables account for less than 1% of power generation) are not as active. As such, the role of banks in supporting the sustainability journey of the GCC will vary from one country to another.
Moreover, as corporates look towards the GCC as a key trading partner and seek to expand their operations in the region, banks can provide effective trade financing solutions to facilitate this, allowing corporates to trade confidently with the market and new counterparties. As an international bank with trade finance in our DNA and a suite of innovative financing solutions, combined with our close relationships with correspondent partner banks in the GCC and a representative office in Dubai, Commerzbank is positioned to effectively support clients in identifying and capturing the region’s opportunities. As the region continues to diversify and grow, partnerships with banks such as Commerzbank will be essential in helping corporates to maximise the emerging opportunities that the GCC region will bring.