“Since investment in renewable energy has become a more lucrative option for the countries around the world, the position of supremacy that GCC countries were enjoying earlier is at risk.”
The Gulf Cooperation Council (GCC) consists of six Arab countries Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. There is a lot in common among these 6 countries and as we delve deeper into the specific correlation of this article, we must understand the economic and demographic trends in these countries for a better overview and future analysis.
THE ECONOMIC AND DEMOGRAPHIC LANDSCAPE OF GCC COUNTRIES
Starting with their oil-dependent structure, it is well known and accepted that most of the Gulf countries have been the hub for oil production and export for a long time and are still heavily reliant on oil and natural gas revenues.
Governments in the GCC often own and control key industries, manage large sovereign funds, as well as are the key investors in economic diversification.
The GCC region has also experienced population growth which has been driven by trends of high immigration.
This has impacted the job market and has brought the government’s attention on job creation and workforce development by inviting private sector players.
Among themselves as well, GCC countries often collaborate on economic and political issues and work together on regional initiatives, leading to economic integration. Lately, these countries are also focusing on technological advancement and innovation and are investing in smart city initiatives and education to foster a knowledge-based economy.
UNDERSTANDING THE NEED FOR ALTERNATIVE INVESTMENTS
Now coming forth to the main correlation among these countries, which has been observed lately, their increasing investment towards economic diversification, infrastructure development, and increase in the percentage of foreign direct investment. This investment has been made in initiatives like the development of tourism, technology, technology hubs, financial services, renewable energy, entertainment, real estate, and lastly, the promotion of manufacturing and industries, through the set up of special economic zones and free zones.
It is obvious that these initiatives are not unsystematic nor are they sudden. This trend is the aggregate of a large number of geopolitical events, awareness about the problems related to a crude-oil-dependent economy, the requirement of job opportunities for the youth, and long-term strategic vision and national development plans. All these reasons for economic diversification have been known for some time now, but the awareness about the same has increased recently, due to an increase in the frequency of such investments as well as their increasingly radical nature, due to which they are making global headlines.
However, the historical trends suggest that the dependent structure has worked very well for these Gulf countries as it has been their primary source of revenue, has provided them fiscal stability, has provided them with a position of international supremacy due to the nature of their export commodity being indispensable, has created employment, increased their geopolitical influence, has created the present possibility of large scale investments in diverse fields, brought trade surpluses and led to an overall improvement of the standard of living.
The reason for the above positive impacts in the economies of GCC countries, was the status of crude oil and natural gas in the world, as commodities essential for the operation of the economy. All countries, irrespective of their status, geographical location, economic structure, et cetera have energy requirements for operation and development, especially since the post-industrial revolution period. Until very recently, crude oil and other fossil fuels were the only sources of energy that were feasible to use economically and technologically. This provided crude oil an inelastic demand structure and the GCC countries received the benefit in the form of outright trade and geopolitical benefits due to their geographical advantage. Even during times of war, these commodities have a demand unlike other commodities, whose consumption can be paused or their substitutes can be arranged. This inelastic demand structure also provides the GCC countries the autonomy to fix prices at a higher level during times of world crisis without a negative impact on the revenue. The base of this entire advantage is the inelastic nature of demand. This is where the second variable of the study and correlation comes in, increasing global investments in renewable energy solutions.
THE CORRELATION
The source of the entire challenge for GCC is the increasing investment by the world in renewable energy options. The cause behind these increasing investments is global awareness about climate change, technological advancements in the field leading to reduced costs of renewable energy, and the choice of countries to attain self-sustainability through the reduction of dependency on oil imports for energy production and global competitiveness. These steps have led to volatility in oil prices, the possibility of absence of income from fossil fuels in future and reduced investments in fossil fuels.
This has also resulted in a continuous cycle of investment in renewable energy options and an investment-induced decrease in the prices of renewable energy. Due to technological innovations as well as the increase in investment, resulting in the cost-benefit of economies of scale renewable energy options are becoming more affordable, and therefore have improved feasibility.
As we know, the higher the number of substitutes available, the higher the elasticity of demand for the particular commodity. As renewable energy options have become more affordable and feasible, crude oil and natural gas are becoming more price elastic as a result of which problems have been faced by the GCC economies and have also reduced the autonomy of GCC countries, in terms of impacting the price of crude oil.
Since investment in renewable energy has become a more lucrative option for countries around the world, the position of supremacy that GCC countries were enjoying earlier is at risk. This has necessitated the need for economic diversification for crude oil-producing oil and exporting countries, like the GCC countries. Thus due to the economic problem of scarcity and alternative uses of resources, the choice of directing investments towards non-oil sectors of the economy has to be made.
This explains the positive correlation between increasing international investment in alternative renewable energy options and increasing emphasis on economic diversification by GCC countries.
As we can see, the above inference is verified by the above two graphs. The non-oil percentage contribution to GDP is increasing as the investment in renewable energy is increasing.
This is a positive step that has been undertaken by the GCC countries to diversify their operations as well as by the world to move to cleaner alternatives of fossil fuels.
ANALYZING THE IMPACT OF ALTERNATE INVESTMENTS ON GCC COUNTRIES
The GCC countries are poised to reap substantial future benefits from their current alternative investments. The ongoing expenditures in infrastructure, particularly in the realm of entertainment, have not only attracted direct business opportunities but have also catalyzed heightened awareness and tourism within these nations. Taking the specific example of sports, due to substantial infrastructure investments in football, many known and heavily followed football players have been transferred to football clubs of these countries, especially Saudi Arabia because of their attractive contracts. Another noteworthy illustration of the dividends from such alternative investments is exemplified by the Qatar World Cup. This mega event stands as a testament to how strategic investments in entertainment infrastructure yield multifaceted advantages, encompassing increased international tourism, heightened global awareness of these countries, direct economic benefits to local businesses, and an enhanced global image for the hosting nation.
Furthermore, the commitment to alternative investments is evident in the realm of luxurious real estate projects, particularly in the UAE and Qatar. These initiatives encompass iconic structures, urban development projects, and large-scale infrastructure undertakings. Dubai, renowned for its forward-thinking approach, stands out for its ambitious real estate ventures such as the Burj Khalifa and Palm Jumeirah. These projects not only contribute to the economic growth of the region but also establish the GCC countries as global hubs for innovation, modernity, and unparalleled architectural achievements.
As these alternative investments continue to unfold, they are poised to yield enduring benefits for the GCC nations. The strategic development of infrastructure, coupled with a focus on entertainment and real estate, is steering these countries toward a future characterized by economic resilience, cultural vibrancy, and global prominence.
All of these steps will increase the percentage of skilled employees in the countries and will also have a positive effect on the overall level of education and health. As the current level of jobs as well as the positions created by oil production and oil export directly, do not lead to skill, development of employees or creation of future benefit.
CONCLUSION
In the face of challenges posed by increasing price elasticity of crude oil and diminishing autonomy in fixing prices, the GCC nations are navigating uncharted waters with foresight. The positive correlation between international investments in renewable energy and the emphasis on economic diversification signals not just a pivot but a strategic evolution. It’s a symbiotic relationship, a win-win scenario, where global investors embrace cleaner alternatives, and GCC nations explore options to make the shift from oil dependency to economic diversification.
By:-Manan Jain