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The GCC Countries and the World: Scenarios to 2025

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Section

Executive Summary
Section 2: Executive Summary

The GCC countries have benefited enormously • Education and innovation: The GCC
from oil and gas reserves and assets that have countries face the challenge that their
generated significant financial liquidity in the six collective oil reserves, while vast, will not last
years between 2001 and 2007. The present forever. Nor are oil and gas always a reliable
wealth poses an interesting question for those source of wealth; there have been many
interested in the future of the GCC countries, and times where GCC budgets were in deficit
one which these scenarios seek to address: How and public debt rose as a result of falling
can this wealth be put to use to ensure that the energy prices. However, in attempting to
GCC countries expand in affluence, while diversify away from oil, the GCC countries
overcoming the internal and external pressures face a major problem in that their existing
that could shift them from the path of sustainable skill base for workers is low by world
prosperity? standards and relatively little research,
development and innovation are occurring
Key Questions for the Scenarios in the region. This creates an impediment
From amidst the many drivers identified by to development and exacerbates other
project participants, the scenario process problems associated with importing both
identified two ‘focal questions’ that have the foreign workers and technologies. As a
ability to alter the fortunes of the GCC countries result, the way in which education policies
in the next two decades: are handled by GCC governments will be a
significant determinant of the region’s ability
• Will leaders in the GCC countries be to develop as innovation-based economies
willing and able to implement the that do not wholly rely on natural resources.
necessary economic and political reforms • Leadership and governance: The GCC
and enforce the rule of law, both in public countries are ruled by traditionally-organized
and in private governance? family groups, with varying underlying
• How can the GCC countries maintain executive, legislative and judicial models.
internal order and stability, in particular Leadership and governance will therefore be
vis-à-vis a complex and uncertain instrumental in determining the path that the
regional situation? GCC countries will take over the next 20 years.
Although much is being undertaken today in
As important as these questions are, more terms of reform to improve the efficiency and
crucial are the insights that can be gleaned openness of these systems, the strategies
from considering what these questions imply. chosen and the rates of change vary between
In positing three possible futures which address GCC countries. In managing both internal
them in different ways, two key themes stability and reforms, leadership plays a
consistently emerged as being crucial to the critical role at all levels of GCC government
future of the GCC countries: as well as in the private sector.

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The GCC Countries and the World: Scenarios to 2025
Section 2: Executive Summary
Scenario Paths
Three different paths for the GCC countries solutions at the expense of tough reforms?
through to 202 5 are represented in figure 2.1, Sandstorm is a scenario in which dramatic
displayed as movements through a matrix regional events and domestic unrest contribute
defined by the focal questions above. to the GCC countries failing to maintain
Will the GCC countries successfully insulate their momentum of reforms, with negative
themselves from ongoing regional instability in consequences for the region’s economic and
order to respond to internal pressures, firmly social development.
establishing the rule of law and achieving Will GCC governments succeed in taking
effective governance and institutional reforms? advantage of globalization in a more stable
Oasis is a story where a focus on technocratic regional environment through bold reforms at
governance and top-down institutional reforms the institutional and political levels? The Fertile
pays off in the form of a well-organized, cohesive Gulf is a future where GCC governments invest
and prosperous regional grouping. The region’s heavily in education and innovation in order to
economic growth, however, remains partially create a healthy private sector while encouraging
constrained by over-regulation and less-inclusive reforms through a bottom-up process. This results
globalization. in a more socially integrated and economically
Will GCC governments allow regional diversified region that occupies an increasingly
tensions to spill over and affect their internal relevant position in the international scene. 7
security, resulting in a focus on short-term
Oasis Oasis describes a scenario where regional stability
The GCC Countries and the World: Scenarios to 2025

continues to be a challenge for the GCC countries, which


are nevertheless able to achieve substantial institutional
reforms. The GCC countries develop strong identities and
work together to coordinate diplomatic and economic policies
through technocratic governance and a strong internal
market. Over-regulation slows the process of globalization,
impacting the GCC countries ; nonetheless, they are an oasis
of stability and prosperity in an otherwise troubled region.

The story is written as a press conference by a member


of the Kuwaiti leadership and a Saudi technocrat delivered
Section 2: Executive Summary

in Kazakhstan in December 2025.

Sandstorm Sandstorm describes a future where regional instability


is a defining factor, affecting the ability of GCC countries to
effectively carry out much-needed institutional reforms.
In a depressed global environment, reforms deflate or collapse
due to a lack of attention to the root cause of internal issues
and a tendency for governments to focus on short-term stability
at the expense of long-term solutions. Caught in a shifting,
violent environment, the GCC countries are blinded, unable to
navigate their way out of the sandstorm and identify
opportunities for prosperity for their populations.

This scenario is written as a transcript of a televised debate


on Arab satellite television, discussing the progress the GCC
countries have made from the vantage point of 2025.

The Fertile Gulf The Fertile Gulf describes the rise of the GCC countries
as innovation hubs in a global environment characterized
by strong demand for energy and increasing globalization.
Regional stability gives the GCC countries the opportunity
to focus on enhancing their human capital at all levels,
investing heavily in education while proceeding carefully
with political and institutional reforms to support their growing
economies and societies. In this way, a fertile garden of
prosperity is established along the Persian Gulf.

Written as a business magazine interview, The Fertile Gulf


is an account of the experiences of a successful young
entrepreneur from the GCC region, who has taken advantage
of the changes between 2007 and 2025 to develop a range
of global enterprises.

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2007-2012: As tensions rise in the Gulf with regard to Iran and Political reforms progress slowly, with pressures from local

The GCC Countries and the World: Scenarios to 2025


problems persist with sectarian and insurgent violence in Iraq, populations managed through a combination of financial incentives
the GCC progressively develops a coordinated regional economic and partial inclusion through (mostly symbolic) consultative bodies.
strategy to make the most of relatively high oil prices. There is
a focus on building the private sector through targeted incentives 2021-2025 : Governance structures in 202 5 are profoundly
for domestic and foreign investment. The skills shortage begins different from those in 2007. A generation of talented, nationally
to be addressed by educational reform aimed at enhancing educated technocrats ensures that, for the most part, GCC
human capital in strategic sectors. national institutions are efficient and effective. Ruling families
primarily act as occasional advisors rather than executive leaders,
2013-2020: Nuclear proliferation causes regional concerns and and there is a strong meritocratic culture throughout the public
increases the volatility of the oil price. Efforts to accelerate and private sectors. Governments are focused on refining their
economic diversification continue with strategic R&D investments, industry policies, which occasionally fail, but which have been
capturing more of the energy value chain, and increasing the world fairly successful in a global environment characterized by solid
market share of associated industries. Educational standards are growth. Oil continues to be the primary source of budget revenue
established across the GCC countries to create a deeper, regional for the GCC countries due to the fact that oil prices are robust.
labour market. A particular focus is the creation of public affairs

Section 2: Executive Summary


management colleges to educate a generation of technocrats
in order to increase the effectiveness of the public sector.

2007-2012 : The Gulf region is thrown into chaos in 2009 2021-2025 : The GCC countries are caught in a trap of
when the US undertakes a military strike against Iranian needing to control their populations out of fear of further
nuclear sites, provoking Iranian missile attacks on US bases unrest, but being thereby unable effectively to create the
in GCC countries along the Gulf and helping to precipitate conditions for renewed growth, despite rising oil revenues.
a global recession. In addition, populations in GCC countries Thanks to resilient populations making the most of the
react strongly, resulting in a period of internal instability. globalization of communication, a new sense of identity
GCC governments scramble to head off internal and emerges although the broader humanitarian cost is
external threats to their authority. considerable – and at least partly avoidable. Succeeding
generations hope to make a better start in 202 5, but they
2013-2020: In a depressed global environment, reforms have far less to work with than they might have had.
deflate or collapse due to a lack of attention to the root
cause of internal issues and a tendency for governments
to focus on short-term stability at the expense of long-term
solutions. What oil revenue exists is diverted, in attempts
to ensure regional security through extensive arms
purchases, investment in non-productive assets and capital
leakage to Europe. A series of terrorist attacks causes Gulf
populations to carefully consider their internal security.

2007-2012 : Growing tensions and insecurity spur a series 2021-2025 : Political reforms, which have proceeded at different
of multilateral conferences involving the leadership of GCC stages across the GCC countries, find balance; Western democratic
countries; the problem of regional violence is addressed at ideals are not directly ‘transplanted’. Instead, governments
political and cultural levels, resulting in increased regional stability. generate their own models of participatory governance over a
At the same time, recognizing the importance of education and period of experimentation and increasing engagement with their
innovation, a number of GCC governments decide to spend their populations. After a sea change in both attitudes to and the
built-up wealth on educating their people and jump-starting provision of tertiary education, Arab graduates are keenly sought
research and development in a radical and dramatic fashion. after for positions in finance, engineering and medical sciences
Encouraging entrepreneurship by creating more business-friendly in Europe, Asia and North America. The GCC countries emerge
regulatory and institutional environments and establishing funds as an innovation hub, where the constraint of demographics is
for the development of new business ideas, the GCC countries turned into a world-class asset.
effectively begin to emulate the ‘Silicon Valley’ model.

2013-2020: Less volatile, but still bullish, oil markets don’t distract
GCC countries from private, non-energy sector development,
the success of which reduces national unemployment while
creating an array of sought-after, highly skilled jobs for those
coming out of the newly reformed education system. A series of
international bilateral agreements to financially support research
projects in exchange for IP rights results in an innovation explosion
in the GCC countries. Incremental improvements in institutions to
manage the burgeoning entrepreneurship combined with a more
influential business community further support regional development. 9
The GCC Countries and the World: Scenarios to 2025
Section 2: Executive Summary

Comparing the three scenarios


This table provides a comparison of some of the most import aspects of the scenarios, with more
analysis presented in section 6.

Oasis Sandstorm The Fertile Gulf

Global environment Globalization continues, tempered Security issues, domestic Heightened globalization.
by security concerns. More concerns and national focus More cohesive societies and
coercive rules and regulations dominate. integrated cultures.
lead to less integration between
different cultures and societies.

Economic performance Solid economic growth is Low oil prices due to a price High oil prices, strong global
supported by robust oil prices crash in 2011 create budget demand, market mechanisms
and a focus on diversification and debt problems for GCC and significant investment in
through industry policy. Income governments. Private and non-oil education and innovation
disparity widens. sectors languish in an produce rapid GDP growth and
unfavourable regional and encourage economic
global environment. diversification.

Social development Unbalanced development. Significant social tensions Balanced social development,
Social discontent managed by exacerbated by threat of characterized by growth in civil
effective institutions and terrorism, breakdown of the society. More equitable
continuation of the welfare state. social welfare system and distribution of income across
increasing income inequality. classes, including foreign workers,
through market mechanisms.

External relationships Effective relations with Asia Continued reliance on the US Respected international player.
and the West are driven by for security, driven by regional Regional security agreements
cohesiveness within the GCC insecurity and reactive external ensure stability throughout the
countries. Regional instability relations. Gulf.
remains a challenge.

Leadership and Strong institutional governance Insecure leaders focus on short- Proactive leadership empowers
governance supports current rulers. Minimal term stability. Institutional populations. Participatory
democratic reforms, despite effectiveness and long-term governance encouraged.
greater consultation. vision neglected.

Exploring the Future of the GCC countries and the World


These storylines were developed by the project team in conjunction with approximately 80 thought leaders,
workshop participants and experts. The scenarios are supported by detailed economic and energy modelling
provided by our research partners. Boxes on selected topics have been included within the scenarios, and
presented in creative formats to further illuminate the key drivers that will shape the GCC countries as well as
provide depth to the stories.
We now invite you to turn the pages, travel through time, and see for yourself what the future of the GCC
countries and the world may be like over the next 20 years.

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70120_GCC_16pp:Mise en page 1 17.1.2007 15:54 Page 7

The GCC Countries and the World: Scenarios to 2025


Annex :

Annex: Comparing The Three Scenarios


Comparing the Three Scenarios
The following section allows a side-by-side comparison of the evolution of some key economic
and social indicators as featured in each scenario. The various futures described in the scenarios
have been quantified using macroeconomic and project-driven energy modelling to ensure
plausibility and consistency.

1. Global GDP growth

In Oasis, globalization continues despite regional conflict throughout the world, but friction in
global markets caused by security concerns means that global growth averages around 3-3.5 %
throughout the period. In contrast, in Sandstorm, oil shocks and a lack of trust undermine
international cooperation and trade integration, causing a global recession in 2010-2012, followed
by slower growth thereafter. In The Fertile Gulf, the global economy benefits from increasing
globalization and trade in a harmonious global environment and reaches growth rates of over 4 %.

Figure A.1 Global GDP Growth

Oasis Sandstorm The Fertile Gulf


5
Percentages

1
Actual Projected
0
2001-2005 2006-2010 2011-2015 2016-2020 2021-2025

Source: Oxford Economics

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The GCC Countries and the World: Scenarios to 2025
Section 6: Comparing The Three Scenarios
2. Oil price

In Oasis, a downward slide in oil prices occurs after 2006, thanks in part to a slowing of the world economy and increasing non-
OPEC supply as large projects come online. OPEC successfully defends a floor of $45 per barrel, and by the end of 2016 a
rising call on OPEC occurs, excess cap is being reduced and prices achieve a new range of approximately $100 by the end of
the period. In Sandstorm, a global slowdown causes a fall in oil prices, which dramatically reverses itself due to the US
bombing of Iran in 2009, when prices shoot to an average of $125 per barrel. The resulting regional instability and sudden oil
price shock combines with economic weaknesses in the US market to precipitate a global slowdown and a reduction in oil
demand over a four year period, dramatically pushing prices down as OPEC is unable to adjust quickly enough in a coordinated
fashion. From 2016, recovery is slow due to festering problems in geopolitics; however, a reduction in non-OPEC supply due to
delayed projects means that OPEC is able to defend a floor of $45 in real terms until 2025. In The Fertile Gulf, strong global
demand for oil of almost 2% per annum (driven particularly by China and India), capacity constraints and delays affecting some
large non-OPEC projects drive a rise in prices from 2009-2012. Saudi Arabia’s excess capacity falls under 2mbd as production
rises above 12mbd, causing sustained price rises, tempered somewhat by increased output from Iraq. However prices are well
over $110 in 2025.

Figure 6.2 Oil Price

Oasis Sandstorm The Fertile Gulf


160
US$ (nominal)

Actual Projected
140
120
100
80
60
40
20
0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Source: PFC Energy

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The GCC Countries and the World: Scenarios to 2025
Section 6: Comparing The Three Scenarios

3. Global Oil demand

In The Fertile Gulf and Oasis, global oil demand is driven by continued globalization and growing
demand from China and India. In Sandstorm, the 2009 - 2011 global recession, due in part to
geopolitical shocks in the Gulf region, results in a lower demand for oil. After this period of
economic decline, the oil sector recovers.

Figure 6.3 Oil demand

Oasis Sandstorm The Fertile Gulf


95
Million Bpd

Actual Projected
90
85
80
75
70
65
60
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Source: PFC Energy

4. Call on OPEC

The call on OPEC remains very strong and rises to unprecedented levels in both The Fertile Gulf
and Oasis scenarios. OPEC demand lowers in Sandstorm due to a combination of falling global
demand and an increasing supply of non-OPEC capacity as new projects come online. However,
following a global slowdown, increasing demand and non-OPEC capacity restraints mean the call
is able to expand until the end of the period.

Figure 6.4 Call on OPEC

Oasis Sandstorm The Fertile Gulf


Million Bpd

50
Actual Projected
45
40
35
30
25
20
15
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Source: PFC Energy

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The GCC Countries and the World: Scenarios to 2025
Section 6: Comparing The Three Scenarios
5. Production by country

In all scenarios, Saudi Arabia remains the dominant producer of oil among the GCC countries. In
Sandstorm, Saudi Arabia acts as the swing producer and lowers its output by 20 to 30% when
the world economy experiences a slowdown.

Figure 6.5 Oil production for GCC countries (million Bpd)


Saudia Arabia

9.9 9.7 11.4 12.8


8.3 8.8 8.8 8.3 10.8
9.2 9.2 10.9 12.3

6.5 6.1 6.3 7.2


Others

6.0 6.0 5.1 6.0 6.6


6.2 5.7 6.2 6.7

2000-2005 2006-2010 2011-2015 2016-2020 2021-2025

Source: PFC Energy

6. GCC GDP growth

In all the scenarios, GDP growth rates are influenced by the oil price. In Sandstorm, the
collapse in oil prices following the US-led bombing of Iran leads to a period of negative growth
rates in GCC countries.

Figure 6.6 GDP Growth Rates

Oasis Sandstorm The Fertile Gulf


10
Percentages

-5

-10

-15
2007 2009 2011 2013 2015 2017 2019 2021 2023 2025

Source: PFC Energy

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The GCC Countries and the World: Scenarios to 2025
Section 6: Comparing The Three Scenarios

7. GDP per capita

Real GDP per capita reflects economic output by keeping all commodity prices, including oil, at 2000 levels. This
neutralizes the effect of the oil price and other price factors on GDP, providing a more comparable measure of output
for the scenarios. Although there is strong GDP growth in both Oasis and The Fertile Gulf, this translates into
modest real growth on a per capita basis due to population increases. Similarly, the recessionary environment in
Sandstorm combined with a rising population means that real GDP per capita falls significantly over the period.

Figure 6.7 Real GDP per Capita

Oasis Sandstorm The Fertile Gulf


18,000
US$ (2000 dollars)

Actual Projected
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Source: PFC Energy

8. Budget performance

The combined GCC government budgets remain highly correlated with the oil price in all three scenarios. In Oasis,
declining oil revenues and a rising population creates a budget deficit by 2011, which is corrected in 2013 by
a recovery in the oil price. In Sandstorm, following the oil price spike in 2009, a dramatic downslide in oil revenues
combined with falling volumes creates significant deficit with a sluggish recovery from 2015 onwards. This general
statement varies greatly across the individual GCC countries, with Qatar, the UAE and Oman remaining in
surplus, while Bahrain, Kuwait and Saudi Arabia experience deficits. In The Fertile Gulf, the GCC countries
as a whole benefit from large revenues from oil, keeping the combined budget in surplus.

Figure 6.8 Total GCC Budget Balance

Oasis Sandstorm The Fertile Gulf


Million US$ (nominal)

700 Actual Projected


600
500
400
300
200
100
0
-100
-200
11 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Source: PFC Energy


The GCC Countries and the World: Scenarios to 2025
Section 6: Comparing The Three Scenarios
9. Non-oil sector

In Oasis and The Fertile Gulf, the share of the non-oil sector increases smoothly, although there
are slight variations between the two driven by different policies to spur diversification. In Sandstorm,
the oil-price shock in 2009 and resultant global recession temporarily reduces the output of the
non-oil sector, which remains static as a proportion of total output, hampered by a lack of
institutional reform and weak global demand.

Figure 6.9 Share of Non-oil Sector in Real GDP

Oasis Sandstorm The Fertile Gulf


100
Percentages

Actual Projected
95
90
85
80
75
70
65
60
55
50
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Source: PFC Energy

10.Foreign worker employment

Foreign workers remain important in all scenarios given the low national population levels in
GCC countries. The overall levels, however, vary greatly with the scenario. In Oasis, their
absolute numbers decrease as the need for construction workers lowers. In Sandstorm, the
global recession, volatile oil prices and regional instability mean that demand for foreign workers
is significantly lower. In The Fertile Gulf, having reached almost full employment, the demand
for foreign workers remains strong as many of them are now highly skilled foreign workers.

Figure 6.10 Number of foreign workers

Oasis Sandstorm The Fertile Gulf


Millions

11
10
9
8
7
6
5
Actual Projected
4
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Source: Oxford Economics 12


The GCC Countries and the World: Scenarios to 2025
Section 6: Comparing The Three Scenarios

11.Unemployment

Unemployment rates vary largely among the three scenarios. In Oasis, unemployment levels hover
around 10 – 12%, indicating that despite regional instability, strong demand for oil and institutional
reforms have paid off. Starting from about 17% in 2005, the GCC countries are able to reduce
unemployment to 5% in The Fertile Gulf as the benefits from diversification become apparent.
Unemployment rates in Sandstorm are consistently high, and rising towards the end of the period.

Figure 6.11 Unemployment Rate

Oasis Sandstorm The Fertile Gulf


25
percentages

20

15

10

5
Actual Projected
0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Source: Oxford Economics

Using the data

The data can be used for developing leading indicators to determine which of the three scenarios
is likely to unfold at any point in time. Users should bear in mind that the scenarios and related
analysis are descriptions of a set of possible futures as seen from the current perspective, and
should not be seen as forecasts or predictions. The data provided therefore serves only as a guide
to possible trends, and should be monitored, interpreted and applied with careful judgment.

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