With schools, businesses and borders re-opening across much of the region, several GCC countries are beginning to resume pre-pandemic levels of activity. Does this mark the start of a return to business as usual?
Many GCC countries have begun to see the fruits of extensive national vaccination programs. Saudi Arabia, for example – a country of around 34.8m people – launched a mass vaccination program in December 2020. More than 27m doses had been administered by August 2021, with 8.25m people having received two doses.
These efforts have been backed by a strict approach to unvaccinated individuals, who risk losing their jobs. Furthermore, proof of vaccination is required to enter public or private establishments – including educational facilities – and use public transport.
People must use the government-run Tawakklana app to demonstrate their vaccination status, part of a worldwide trend of vaccine passports.
The Kingdom’s Ministry of Education recently announced that only high school and middle school students who are fully vaccinated will be able to return to in-person learning when the academic year begins on August 29.
Notably, the Hajj pilgrimage season, which was severely curtailed last year due to the pandemic, was recently concluded without any confirmed cases of Covid-19. This was attributed to an integrated system of health facilities at holy sites, as well as measures such as electronic cards for contactless admission and robots to distribute sacred water in place of communal water dispensers.
Unlike many other countries, which are experiencing new waves of infection due to the highly transmissible Delta variant, the country has seen a significant decrease in daily cases in recent weeks, with cases standing at 28% of the highest-recorded peak in the Kingdom in early August.
Other Gulf countries move to reopen
Kuwait has likewise seen a steep drop in cases. The country’s health authorities announced in early August that cases had fallen by 28.3% compared to the previous week, while the incidence of new cases was at the lowest level since May 2020.
Officials attributed this to the ongoing vaccination program, with around 100,000 citizens being vaccinated on a daily basis.
Encouraged by such figures, the authorities lifted a seven-month-long border closure. Foreign nationals are now allowed to travel to Kuwait, provided they have been fully vaccinated and hold a valid residency permit. Upon arrival, they are required to quarantine for seven days, with the option to end this early with a negative PCR test.
Travelers who are not fully vaccinated must quarantine for 14 days upon arrival, while individuals coming from India, Sri Lanka, Bangladesh, Pakistan, and Nepal must quarantine for 14 days in a third country before entering Kuwait, regardless of vaccination status.
In Oman, by contrast, all individuals entering the country – whether or not they have been vaccinated – must undergo a PCR test and institutional quarantine.
Medical personnel are exempt from this rule and are permitted to quarantine at home. In addition, the Civil Aviation Authority recently announced that teachers and their families would be exempt from institutional quarantine upon arrival, although they must also quarantine at home and wear an electronic bracelet.
The UAE has likewise seen a notable drop in cases in recent weeks, with July registering the lowest number of monthly new cases this year.
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As of late that month, some 70.5% of the population had been vaccinated, making the UAE a global leader in terms of vaccination rates.
In addition to the vaccination program, the UAE authorities attributed the decrease in case numbers to extensive testing, disinfection measures, travel restrictions, greater public awareness, and the use of the anti-viral medicine Sotrovimab.
Schools in the UAE – where the majority of teaching staff have already been vaccinated – are preparing for a return to in-person learning at the end of August.
New normal or business as usual?
Given the reliance of many economies in the region on oil and gas, the pandemic-induced disruption to global oil markets served to further underscore the importance of developing a broader economic base with resilience to both global crises and commodity cycles.
In light of this, many GCC countries have redoubled their ongoing diversification efforts, and are actively seeking to expand private sector involvement in their recoveries.
Oman, for example, has put forward policy initiatives such as the Medium-Term Fiscal Plan 2020-24 to spur private sector development, nurture new growth engines and stabilize public finances.
Meanwhile, Dubai’s economy, which was among the region’s most diversified before the health crisis, is expected to bounce back in 2021. In particular, the decision to allow 100% foreign ownership in most industries is expected to help attract foreign capital.
Similarly, in March Saudi Arabia’s Council of Ministers approved the long-awaited Private Sector Participation Law, which aims to increase both the privatization of public sector assets and private sector participation in infrastructure projects.
While these and other moves will broaden the economic base of GCC member nations, the pace and shape of the transition away from hydrocarbons and towards knowledge-based activities continues to be influenced by broader global conditions.
In June a report issued by credit ratings agency Moody’s noted that diversification efforts had to date generated “limited” results.
According to the report, while efforts will continue, they stand to be “dampened by reduced availability of resources to fund diversification projects in a lower oil price environment and by intra-GCC competition in a relatively narrow range of targeted sectors”.
Lower oil prices would constitute the most significant hurdle. If oil prices come to average $55 per barrel, the report said, “We expect hydrocarbon[s] production to remain the single-largest contributor to GCC sovereigns’ GDP, the main source of government revenue and, therefore, the key driver of fiscal strength over at least the next decade.”
However, with the pandemic prompting many countries around the world to pursue a “green” recovery – and others taking increasingly drastic action to limit the effects of climate change – diminishing global appetite for oil and gas may ultimately prove to be yet another accelerant for diversification in the GCC.
By Oxford Business Group
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1- Extensive vaccination programmes do indeed help Gulf Cooperation Council (GCC) countries to return to normal. The GCC countries have already made great strides in this direction.
2- Despite diversification, oil will continue to be the backbone of the economies of the GCC countries well into the future if not forever.
3- Diversification and relatively high crude oil prices go hand in hand. High prices generate bigger oil export revenues from which investment in the non-oil sector will be provided. In a nutshell, black supports green and diversification.
4- Even when diversification does take place, it will be focused on replacing oil and natural gas in electricity generation and water desalination with solar and nuclear energy so as to release more oil and gas for export. The bulk of produced natural gas should be used to expand the petrochemical industry so as to enhance its exports. Moreover, a large chunk of crude could be exported as refined products to add value to these countries’ exports.
5- Any excess oil revenue should go into sovereign funds for be invested worldwide in reliable and successful companies and entities.
6- The GCC countries should eliminate water, gasoline and electricity subsidies altogether leaving only food subsidies for the needy.
7- Qatar is in an excellent position to help the diversification of both the Saudi and the UAE economies, the biggest in the Gulf and the Arab world, by providing their needs of LNG.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London