GCC Industries in Focus: Trends That Shaped 2023
As the curtains draw on 2023, we at SME10x reflect on the transformative growth that the GCC region has achieved this year and the vigor with which the nations are gearing up for 2024. Despite heightened market volatility and geopolitical tensions experienced globally at the end of 2022, the Middle East remained somewhat insulated from this international fiasco, largely owing to its reliance on oil-based revenue.
This year has witnessed a convergence of initiatives across diverse business sectors, each playing a crucial role in shaping the GCC's economic narrative. This is in alignment with GCC’s diversification initiative and their plan to move away from their complete economic dependence on oil. From sustainability-driven pursuits to groundbreaking fintech advancements, and strategic investments in startups to an unprecedented surge in tourism, the GCC has been at the forefront of global economic discussions. On top of all this, digital transformation and implementation of emerging technologies are rapidly being integrated and encouraged across all sectors, in both public and private domains.
In this comprehensive recap, we explore the major highlights that defined the GCC's business landscape in 2023, offering insights into the forces that propelled progress and innovation across five sectors:
Sustainability:
Sustainability has taken center stage throughout the year, and fittingly, we kick off the article with this transformative sector. Designating 2023 as the "Year of Sustainability," the UAE underscored its commitment by hosting COP28 in Dubai, marking a significant conclusion to the year. Despite some controversy surrounding the event's leadership, COP28 successfully brought together global leaders and grassroots organizations, fostering dialogues and climate agreements. Impressively, the event mobilized $8 billion in financial commitments. Adding to this, the UAE introduced ALTERRA, a $30 billion wealth fund dedicated to financing climate solutions.
According to the MEA Sustainability Scorecard released by Agility, the UAE, Qatar, and Saudi Arabia are leading sustainable transformation on a global scale. The rankings consider key indicators such as green investments, governance policies, and sustainable infrastructure development—areas that captured the GCC's primary focus this year. But while investments and funds are actively being channeled, tangible results and the implementation of these initiatives can only be expected to materialize in the coming years.
Another noticeable trend involves the growing interest of Arab nations in energy transition and sustainable finance. Substantial investments in the renewable energy sector are ongoing, given the imperative for GCC countries to reduce dependence on fossil fuels. “The United Arab Emirates plans to invest as much as $54 billion on renewables over the next seven years as part of efforts to reach net zero emissions by 2050”, states Bloomberg. Ambitious projects, such as the likes of NEOM in Saudi Arabia and Masdar City in the UAE, underscore the region's commitment to sustainable urban development.
Sustainable/green finance emerged as a key theme during COP28 discussions, highlighting its pivotal role in economic diversification and the pursuit of sustainability goals. Developing robust regulations that integrate ESG principles into financial frameworks is imperative for the GCC countries. Read our article on the PwC Middle East report examining the role of sustainable finance in the GCC.
Lastly, in parallel with the GCC's push for a sustainable future, a noteworthy development is the emergence of many innovative, tech-enabled sustainability startups in the region. This trend is expected to persist in the upcoming year, strengthened by the robust startup ecosystem offering ample support for funding and growth.
Fintech:
The GCC underwent a fintech resurgence this year, with an unprecedented focus on this sector as one of the fastest-growing and most invested in the region. Tabby, the Dubai-based BNPL platform, achieved unicorn status, making it the first fintech venture to do so in the MENA region. Following suit, Saudi-based Tamara, another BNPL platform, accomplished the feat of becoming the nation's inaugural fintech unicorn.
“The GCC fintech market size is projected to exhibit a growth rate (CAGR) of 17.6% during 2024-2032. The presence of supportive ecosystems for entrepreneurs, including incubators and venture capital, increasing emphasis on sustainable and responsible financial practices, and the integration of fintech with healthcare payment systems to accelerate transaction processes represent some of the key factors driving the market.”, according to a report by IMARC Group.
In response to the dynamic changes in the global finance industry, regulatory frameworks in countries must evolve accordingly. The UAE has notably kept pace with this shift, releasing its virtual assets regulations earlier this year. These regulations mandate licensed applications for companies offering virtual assets services, along with a set list of criteria for approved "accepted" virtual assets by the SCA.
In a groundbreaking move, ADGM recently introduced the world's first Distributed Ledger Technology (DLT) Foundations Regulations. Elaborating on this, ADGM stated, "This newly implemented legislative structure is designed to provide a comprehensive framework for DLT Foundations and Decentralised Autonomous Organisations (DAOs), enabling them to operate and issue tokens recognizing the unique needs of the Blockchain industry." Among the GCC countries, Qatar has recently entered the crypto market, while Kuwait continues to prohibit crypto payments.
Digital banking is undergoing significant digital transformation, as highlighted in the September issue of the IMF Magazine, revealing a rise in non-cash payments from 39% in 2018 to 73% in 2023 in the UAE. Mobile payments and online banking have become ubiquitous, integrated by almost all banks during the pandemic. The upcoming trends in banking include open banking and the integration of virtual assets. However, these are yet to gain solid momentum in the GCC due to evolving regulatory frameworks and limited consumer accessibility and awareness. As discussed earlier, sustainable financing is poised to be a major focus going forward. During COP28, the UAE Banks Federation pledged AED 1 trillion towards sustainable financing by 2030, underscoring the commitment to this crucial aspect.
According to the IMF Magazine, fintech revenue in MENA is expected to surge from $1.5 billion in 2022 to $3.5-4.5 billion by 2025. Overcoming two critical challenges will be essential to achieving this goal. Firstly, while much fintech funding appears to come from the government in the region, greater private sector participation in funding fintech initiatives is needed. Secondly, with the emergence of new finance technologies daily, cybersecurity risks are escalating. Thus, alongside the focus on fintech growth, equal attention must be given to security risk management by integrating AI and ML into the mix and attracting more talent to ensure robust and healthy growth.
Tourism:
Tourism in the GCC countries skyrocketed post-pandemic. According to a research report released by HSBC, the Middle East’s tourism sector recorded the strongest post-pandemic rebound in the world. The UAE, Saudi Arabia, and Qatar emerged as leading destinations, attracting the highest number of tourists in the GCC region. It is no wonder that Emirates Airlines, the leading airline in the GCC, celebrated their best ever financial year, with a half-year 2023 net profit of $2.7 billion, surpassing last year’s profit by 138%!
Abdullah bin Touq Al Marri, Minister of Economy, shared in a statement to Emirates News Agency (WAM), “GCC countries aim to increase the direct GDP contribution of the travel and tourism sector by 7 percent annually. The total value added to the GDP of GCC countries' travel and tourism sector is expected to reach US$185.9 billion in 2023, with an 8.5 percent growth compared to 2022.”
The trajectory of GCC’s tourism sector is set to multiply in the coming years, following the unanimous decision of the six countries to roll out a unified Gulf tourist visa by 2024-25. This will enable tourists to seamlessly travel across all GCC countries with a single permit, reducing the hassle of applying for multiple visas, akin to the Schengen visa in Europe. It will be interesting to see how the regulations around the visa pan out, especially for foreign tourists.
Individually, the Arab nations are actively positioning themselves as leading tourist destinations through ambitious urban development, revamped heritage sites, and sustainable travel offerings. Hosting large-scale international events has also been a key strategy. Some popular examples in the last few years include EXPO 2020, COP28, FIFA World Cup, and GITEX Global.
The surge in tourism naturally translated into a parallel growth for the hospitality industry. According to Hotelier Middle East, the first 7 months of hotel revenue in the UAE totalled $7.08 billion. Saudi Arabia is also set to witness considerable growth in the hospitality industry with the 2030 Vision. However, a growing concern revolves around how the hospitality industry in GCC countries will manage the influx of tourists while aligning with sustainability goals. If strategically planned, sustainable tourism is expected to be a focal point in the coming years. On another positive note, the flourishing hospitality sector is likely to drive a surge in job requirements, contributing to increased employment rates across the GCC.
Retail:
The retail industry in the GCC is poised to reach a valuation of $308 billion in 2023. The surge in e-commerce and the gradual integration of emerging technologies, such as artificial intelligence, throughout various customer touchpoints, have contributed significantly to the notable uptick in sector revenue. Events like GITEX Global have also offered glimpses into a promising future, hinting at the potential integration of the metaverse into retail operations.
While the full-scale implementation of advanced technologies may not be immediate, the consumer base in the UAE is showcasing a growing interest in these innovations. A Snapchat study revealed that approximately 85% of consumers in the UAE express interest in using augmented reality (AR) to interact with products before making a purchase. This heightened interest is particularly prominent among Gen Z and millennial e-commerce users, shaping consumer behavior in the region. However, despite the growing interest, the number of retailers with concrete plans to adopt emerging technologies remains unknown.
Nevertheless, this doesn't imply that the allure of in-store retail experiences is diminishing anytime soon. The primary challenge faced by the retail sector this year has revolved around adapting to evolving customer expectations. Looking ahead, the key lies in staying attuned to shifting customer sentiments and the rapid digital transformation unfolding in the global retail landscape. This approach will undoubtedly vary for each retailer, making it prudent for them to establish processes for regularly analyzing customer behavior data and delivering personalized experiences that seamlessly integrate technology across omnichannel platforms. This sentiment was also reinforced at the Middle East Retail Forum 2023, where prevailing themes for the future of retail centered on the transformative use of data, the adoption of emerging technologies, and collaborative initiatives.
Healthcare:
At the onset of this year, the Dubai Healthcare Authority City Authority (DHCA) released a whitepaper forecast stating that the “healthcare spending in the GCC will grow at a CAGR of 4.9 percent to USD 99.6 billion in 2023 from USD 86.2 billion in 2020, with the UAE and Saudi Arabia commanding approximately 80 percent share of the total spending.”
The most prevalent trends in the GCC healthcare sector this year revolved around the adoption of technologies such as artificial intelligence and telehealth to facilitate better medical diagnosis for patients. This tech-driven approach is expected to persist as advancements in technology unfold. There is also a notable push for public-private partnerships to catalyze healthcare development in the region. Data from MEED Projects highlighted that $17.8 billion worth of healthcare projects are currently underway in the GCC region.
Significant investments are directed towards the life sciences and biotechnology sectors, indicating a strategic shift towards local drug manufacturing and personalized healthcare treatments. Dubai and Saudi Arabia, with their improving healthcare infrastructures, are emerging as key healthcare hubs in the GCC region. The recent collaboration between Mubadala Healthcare and G42 to launch M42, a tech-enabled, integrated healthcare company, is another example of the region’s commitment towards this goal.
Looking ahead at the focus areas for the future, Abbas Berdi, Partner at PwC Middle East, sums it up in this article, stating: “The Kingdom and UAE currently lead the healthcare sector in the region and are starting to focus on manufacturing, clinical trial infrastructure, research organizations, and medical science research.”
