GCC can gain $300bn in FDI by becoming global supply chain centre

Localised manufacturing can generate up to 150,000 jobs and $25bn in non-oil exports every year, report finds

Emloyees walk outside the Maaden Aluminium Factory in Ras Al-Khair Industrial area near Jubail City, 570 kms east of the Saudi capital Riyadh, on November 23, 2016. - Maaden Aluminium is a joint venture between the Saudi Arabian Mining Company (Maaden) and Alcoa, the third largest producer of aluminium in the world. (Photo by FAYEZ NURELDINE / AFP)
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GCC countries can realise up to $300 billion in foreign direct investment if they move quickly to seize the opportunity of becoming a centre for global value chains that are being reconfigured towards resilient and sustainable industries, according to a report.

GVCs around the world are rapidly moving away from a primary focus on cost to move into high-value, resilient and operationally agile industries, presenting a chance to countries and regions with distinct advantages, consultancy Strategy& said in its latest report on global supply chains.

The GCC, with its abundant and cost-competitive green energy, attractive location and industrial and logistics infrastructure, can “unleash a new wave of economic growth” by becoming a GVC hub, the report says.

“Countries around the world are actively reconfiguring their industries. They are focusing on innovation and investment in world-leading technologies, products and services that play to their own strengths,” said Yahya Anouti, partner at Strategy& Middle East.

“For GCC countries, this means using their geographic location, abundant renewables and infrastructure to become a hub for global value chains.”

Localised manufacturing can enable the GCC to become a “global connected hub” which can help “create 150,000 jobs, unlock $25 billion annually in non-oil exports, as well as potentially offset 75 million tonnes of carbon dioxide equivalent emissions”.

However, GCC countries must move fast to capitalise on these emerging competitive advantages.

“Companies are already relocating key elements of GVCs, and other countries are competing vigorously to attract them,” the report says. “The opportunity could be fleeting.”

Capturing the opportunity will require GCC governments to partner one another to build multilateral value chains and join with businesses to encourage investment and competitiveness.

They will need to create the right environment for talent and innovation, as well as develop the enabling infrastructure, the report says.

“Within a few years, GVCs will coalesce around a new set of global hubs, meaning that the region must take action now, or risk losing out."

Several countries in the region are already constructing greenfield megaprojects — industrial cities built around smart and circular manufacturing.

These countries also have access to talent and an increased commitment of government spending on education, research and innovation, Strategy& said.

The GCC, which is home to some of the world's biggest oil and gas exporting nations, had relied heavily on the sale of hydrocarbons to generate revenue in the past.

However, over the past decade or so, countries in the six-member economic bloc have been diversifying their economies away from oil.

Expanding their industrial base and setting up high-value manufacturing units are among key planks of their economic transformation agendas.

In 2021, the UAE launched Operation 300bn, an overarching strategy to position the country as an industrial hub by 2031. The 10-year plan focuses on increasing the industrial sector's contribution to the country's gross domestic product to Dh300 billion ($81.68 billion) in 2031 from Dh133 billion in 2021.

Meanwhile, Saudi Arabia launched the National Industry Strategy in October last year to triple industrial output and increase the value of the country’s industrial exports to about $149 billion by 2030.

For the bloc to achieve its long-term economic growth targets, its member countries will have to quicken the pace of the development of their value-added industry, the report says.

These countries should move towards “backward GVC participation”, which involves importing or using domestic raw materials to produce complex components such as semiconductors and finished goods such as electronics.

Instead of exporting raw materials, GCC countries should focus on attracting downstream manufacturing to develop high-value-added end products.

“Such a strategy would bring global value chains to the region and thereby boost domestic productivity and economic growth,” the report says.

Rather than exporting hydrogen, for example, governments can build national manufacturing clusters and infrastructure to create inward investment opportunities in areas such as green ammonia, green steel or glass manufacturing, the report says.

“We [have] identified 11 GVCs that GCC countries can develop thanks to their abundance of energy and raw materials such as silicon wafers, recycled plastic, green steel, and titanium aerostructures, among others,” said Georgie Saad, principal with Strategy& Middle East.

Updated: May 17, 2023, 4:30 AM