Gulf Aims to Spur Economic Momentum Amid Heightened Regional Risks

The devastating effects of the Israel–Hamas conflict that began on 7 October 2023 will continue to reverberate across the Middle East in 2024. The regional mood remains tense: Cross-border strikes between Israel and armed groups in Lebanon and Syria have increased since 7 October, and the Houthis have conducted a series of maritime attacks in the Red Sea. Yet the worst violence directly associated with the Israel–Hamas conflict has not spilled over to the broader region. Governments across the Middle East want the conflict to stay contained; however, they must manage growing public anger over the dire humanitarian situation in Gaza. US officials meanwhile are hopeful that a normalization agreement between Saudi Arabia and Israel remains achievable, despite the regional public outcry concerned with Israeli military operations in Gaza.

The UAE positioning itself in the green transition

Governments in the wealthier, stable states of the Gulf Cooperation Council (GCC) region hope to continue the economic momentum of 2023 in the new year. The UAE hosted the United Nations Climate Change Conference, or COP28, which took place from 30 November 2023 to 13 December 2023 at the previous site of the 2020 Dubai World Expo. Emirati officials operationalized the implementation of a loss and damage fund and arranged a methane-related pledge aimed at drastically reducing emissions. The final agreement text called for a “transition away” from fossil fuels — a historic deal on what remains a contentious issue. The experience of hosting COP28 will position the UAE as a key player in global environmental and climate-related issues. The commercial buzz surrounding COP28 will likewise accelerate UAE efforts to promote green finance, advance green energy initiatives, and attract climate-focused entrepreneurs over the coming years.

Saudi Arabia’s bid to draw human capital

Neighboring Saudi Arabia won the rights to host World Expo 2030, appears set to host the FIFA World Cup in 2034, and is also preparing an Olympic bid. Various gigaprojects associated with the country’s Vision 2030 transformation plan and pipeline of major events will require substantial government spending over the coming years. Saudi government spending in 2024 is projected to reach USD 333 billion, and the Saudi government is willing to run year-on-year fiscal deficits to meet its spending commitments. The success of Saudi Arabia’s ambitious economic transformation depends heavily on attracting millions of future tourists, residents, and highly skilled professionals to the country — with high-net-worth individuals constituting a key demographic target. In December 2023, the Saudi Ministry of Foreign Affairs launched a new unified national platform for visa applications. Successfully hosting high-profile global events and developing expansive tourism projects will increase pressure on the Saudi government to make greater progress on the country’s openness rankings.

Intraregional openness and competition

The GCC has agreed to establish a Schengen-like visa system, enabling tourists to travel seamlessly throughout the region. While more work on implementation needs to be done throughout 2024, the planned enhancements to regional mobility will produce positive spillovers to the smaller Gulf states of Qatar, Kuwait, Oman, and Bahrain. The GCC’s Unified Tourist Visa project serves as an important example of subregional integration and connectivity — a process that would be extremely difficult to replicate across the broader Middle East and North Africa.

Despite some examples of regional cooperation, economic competition within the Gulf region is unlikely to dissipate. Attracting global wealth and talent is crucial for the economic development strategies being rolled out in Riyadh, Abu Dhabi, and Dubai. Saudi Arabia’s Regional Headquarters (RHQ) Program, which requires most multinational companies to have set up regional headquarters in the country by the beginning of 2024 to secure government contracts, came into force on 1 January 2024. The RHQ Program involves both commercial sticks and carrots to encourage multinational companies to not only establish headquarters in Saudi Arabia but also relocate senior staff. A newly announced 30-year tax incentive package for companies obtaining a regional headquarters license is one such incentive.

Innovative investment strategies abound

For its part, the UAE established a national investment ministry in 2023, and Emirati officials are expected to release a national investment strategy in 2024. The new strategy will build upon the UAE’s unique strengths as a hub for wealth and talent as well as recent social and economic reforms intended to improve livability and ease of doing business. The UAE is also in the process of developing a gaming industry, which places the country at the regional forefront of this commercial domain. Yet any investment strategy must consider the ambitious economic development agenda and associated investment policies in neighboring Saudi Arabia. On the other hand, the remaining Gulf states with smaller economies must decide how to cooperate with and compete against larger neighbors by focusing on niche sectors and industries. The death of Kuwait’s Emir Nawaf al-Ahmed al-Sabah in December 2023 and the subsequent swearing in of the new Emir Meshal al-Ahmad al-Jaber al-Sabah may revamp economic policymaking in the country; however, a political system stymied by continued disputes between the appointed government and elected parliament is the most likely scenario.

Even countries with the strongest economies in the region witnessed a significant deceleration of growth in 2023. Supporting economic growth in 2024 will therefore require sustained government support and clear-eyed assessments of expensive development initiatives. Saudi officials have acknowledged for the first time that the timelines of some Vision 2030-related projects will need to be shifted. The Saudi government is prepared to shoulder fiscal deficits — though relatively small ones in historical terms — as part of its commitment to economic development. Several Middle Eastern countries were invited to join BRICS in 2023 and will look for new ways to enhance economic linkages with the influential bloc of countries over 2024.

Managing crisis

Many other Middle Eastern and North African countries do not enjoy the fiscal flexibility of Gulf countries. Egypt, Jordan, and Lebanon must contend with existing economic pressures while occupying the frontline of any regional spillover of the Israel–Hamas conflict. Türkiye, Syria, Iraq, Libya, Tunisia, and Morocco are dealing with the lingering effects of natural disasters, ongoing military conflicts, and political dysfunction.

The turmoil sparked by the Israel–Hamas conflict serves as a stark reminder of the region’s contrasts: persistent political risks combined with substantial economic promise. Intractable conflicts, regional rivalries, and systemic vulnerabilities not only present major challenges to regional governments but also pose obstacles to greater mobility and migration within a region with tremendous, although often untapped, potential.