Drops in revenues, lower demand due to the spread of COVID-19, and a price war between Saudi Arabia and Russia have resulted in one of the worst years for oil-rich Gulf nations.
Several global institutions including the International Monetary Fund (IMF) previously anticipated a regional oil crash but were not aware it would come earlier than expected. As prices continue to dwindle, markets across the GCC are reporting huge losses. The crash comes at a time when local officials were already implementing solutions to help prepare regional economies for a "post-oil future."
Saudi Arabia diversified its economy under the kingdom's Vision 2030, the UAE invested in renewable energy, and most Gulf countries rolled out taxes for the first time in their modern history. However, IMF experts believe these measures aren't enough and if more significant reforms aren't made soon, "the financial wealth of Saudi Arabia, Kuwait, the UAE and others could be depleted by 2034."
So what more can the GCC countries do to safeguard their economies and survive in the post-oil realm?
1. Roll out more taxes
In the coming few years, the region's governments will need to raise more revenue from taxes as they face major drops in oil-generated income. Therefore, they are set to increase existing taxes and roll out new ones targeting income, housing, amenities, and services.
2. Announce major budget cuts
Government spending is exceptionally high in Gulf countries including Saudi Arabia and the UAE.
In the kingdom, defense and security spending accounts for nearly a third of the country's entire budget, according to Bloomberg. A major change in such spending strategies is crucial if the region is to succeed in withering the collapse of oil prices.
Gulf investments in global asset markets are also set to decrease in the coming few years, marking a significant change from patterns witnessed in past decades.
3. Turn to new sources of revenue
All Gulf Cooperation Council (GCC) nations including Saudi Arabia, the UAE, Kuwait, Bahrain, Qatar, and Oman have been trying to diversify their oil-dependent economies.
Under Vision 2030, Saudi Arabia started generating income from recently bolstered sectors like entertainment and tourism. The UAE has been making money from tourism, business, entertainment, and real estate for years now. Most GCC countries have also started to work on developing renewable energy sources.
Despite these efforts, most Gulf economies still majorly rely on oil revenues to fund their national budgets and must focus on further rebalancing the scale when it comes to that.
Developing more income-generating sectors like technology, sports, arts, and culture could be one way to move forward. Another would be to build up and outsource renewable energy sources.
4. Rely on renewable energy sources
Renewable energy sources can help Gulf countries alleviate losses sustained by helping them generate local amenities like electricity. Several regional nations including the UAE and Saudi Arabia have already made strides when it comes to building such sources.
Last year, the Noor Abu Dhabi solar plant was officially opened for commercial use in the Emirati capital. It consists of 3.2 million solar panels, with a capacity of 1.17 gigawatts in a single location — making it the largest single-site solar plant in the world.
In October 2019, Saudi Arabia announced it will start offering monetary loans to fund renewable energy projects.
It's true that the move towards renewable energy across the Gulf region has been slow but it's expected to speed up amid the ongoing oil crisis.
5. Amp up non-oil exports
Increasing non-oil-related exports will become a must for Gulf countries as oil prices continue to drop.
From industrial items and local food products to clothing and raw materials, production is expected to double in several sectors over the next few years in order to fill the gap created by losses in oil revenues.