Driven by higher capital expenditure, GCC countries will see projects underpin their sustainable development and diversification, a new report has shown.

According to QNB, GCC countries have grown strongly in recent years. High hydrocarbon prices and increased oil and gas production in some countries have boosted national incomes and provided governments with large surpluses.

“But there has been a recognition in these countries that to support the growth momentum and create sustainable development, they need to diversify their sources of income beyond hydrocarbons,” QNB said in a report.

They have therefore used their sizeable surpluses to finance large projects with the aim of diversifying their economies and creating additional pockets of growth. As a result, the contribution of the non-hydrocarbon sector to growth has increased in recent years, and is currently the main driver of growth in most of these countries.

A significant part of investments are going into infrastructure projects such as the building of new cities, roads, transport networks, real estate and power and water stations. This is partially to accommodate the region’s growing populations but mainly to create infrastructure that enables the private sector to play a bigger role in the economy.

In the long run, the dynamism and innovation of the private sector is expected to drive growth and development with the government focusing on creating the right physical and legal environment to encourage that process.

While this “horizontal diversification” away from hydrocarbons is the main common theme behind the large capital spending in GCC countries, there is also “vertical diversification” taking place. This represents investments in petrochemicals and other industries to move up the hydrocarbon value chain.

“Notwithstanding the diversification aim common across all GCC countries, there are important differences in the vision of each country and how they go about executing their visions,” QNB said.

Saudi Arabia’s ninth development plan for 2010-14 aimed to diversify the economy away from dependence on hydrocarbons and create jobs for the large and growing population. The kingdom’s development strategy is built around the creation of four new economic cities, each with its own strategic focus, such as knowledge-based industries and services, metals and food production, automotive products, logistics and agribusiness.

To encourage the development of the private sector, the government has given private companies the leading role as the master developers for the economic cities.

The largest economic city is the $93bn King Abdullah Economic City (KAEC) being developed by Emaar. KAEC plans for 2mn inhabitants by 2025 and includes the largest port in the Red Sea region and a logistics and industrial area. It intends to leverage large-scale industrial complexes nearby to target industries such as petrochemicals, pharmaceuticals and automotive.

KAEC also aims to provide high quality living conditions near the recently completed King Abdullah University for Science and Technology, supporting the kingdom’s development of human capital.

In Qatar, the National Vision 2030 focuses on diversifying the economy away from hydrocarbons by building a knowledge-based economy through investing in human development and education. For example, the $7.5bn Education City project aims to create a regional educational centre of excellence by building schools and attracting branch campuses of renowned global universities. It also hosts Qatar Science and Technology Park, which commissions applied scientific research and turns them into commercialised products. Similarly, Abu Dhabi’s Economic Vision 2030 also foresees diversifying away from hydrocarbons by building a knowledge-based economy through investment in education. For example, Abu Dhabi has established a number of branches of leading universities, such as New York University Abu Dhabi and INSEAD Abu Dhabi.

Meanwhile, with limited hydrocarbon resources, Dubai has diversified its economy into services sectors, such as retail, tourism, exhibitions, events, re-export and finance. It has invested heavily in infrastructure and logistics, such as large port and warehousing facilities and a range of free trade zones with minimal regulation and taxes.

This has helped to create regional business hubs in different industries, such as in manufacturing and services. Dubai continues to invest heavily in making the emirate an attractive destination for visitors, retail and to live. For example, the $147bn Dubai Land project, a tourism, leisure and residential development, is the largest real estate development in the GCC.

In Kuwait, the Kuwait Development Plan is a series of five-year plans starting in 2010 and stretching to 2035. The aim is to modernize and expand the country’s dated infrastructure with the strategic goal of turning Kuwait into a financial and trade hub.

A few priority projects such as Az-zour power station, water waste management projects and the building of schools and hospitals are already underway. The development of Boubyan Island Port is central towards transforming Kuwait into a regional commercial and trade hub.

“Overall, capital expenditure will continue to gather momentum throughout the GCC. This should underpin the process of diversification and moving towards a sustainable growth model in accordance with the national visions of each respective country,” QNB said.

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