These 5 megatrends will shape the Gulf and beyond over the next 25 years

Today, 70 years since the discovery of oil at the Bab-2 well in Abu Dhabi heralded a new era for the Gulf region, the global landscape is marred by sluggish GDP growth and looming recession risks. But the Arab world’s ‘Big Three’ economies — the UAE, the Kingdom of Saudi Arabia and Egypt — are bucking the global trend, successfully diversifying their economies and carving a leadership role in the new global economy.

These economies represent the fastest-growing economic bloc in the world. Saudi Arabia is the first trillion-dollar economy in MENA and the UAE has delivered record non-oil growth. Egypt, for its part, is achieving a positive trajectory despite recent compounding and challenging headwinds.

Driven by proactive government initiatives to foster business creation, an intensified focus on entrepreneurship and education, and a cultural shift towards innovative business practices, the UAE and Saudi Arabia have established themselves as top global destinations for launching new ventures, ranked first and third respectively.

This environment of sustained business friendliness is pivotal for the region’s impending renaissance. The course of the next 25 years, however, will also be shaped by five key megatrends — and how the Arab world’s Big Three economies capitalize on the opportunities to come in a changing world.

Gulf Arab states are building a future that aligns with global climate goals, having laid down an institutional framework aimed at climate change mitigation. Moreover, the hosting of back-to-back Conferences of the Parties (COP) in Egypt and UAE has amplified the Arab voice in the global climate change narrative.

Regional efforts are also leading the way. The UAE took a pioneering step by launching the UAE Net Zero by 2050 strategic initiative, becoming the first nation in the MENA region to set such an ambitious target. Regional powerhouses like ADNOC are already advancing towards reducing emissions and scaling up renewable energy sources.

The alignment of the Gulf states with these global climate objectives and their participation in shaping the discourse augments their influence and sets a tangible framework for integrating sustainability into the economic and cultural fabric of the region in the next quarter century.

The geopolitical dynamic is notably shifting towards the Global South, highlighting a redistribution of economic power and influence from traditional Western centres to emerging economies across the world. The recent expansion of BRICS — including Saudi Arabia, the UAE, Egypt — serves as a testament to this shift.

With the inclusion of the ‘Big Three’ Arab economies, BRICS now encompasses 45% of the global population and 28% of the world's economy, with its members contributing 44% of global crude oil production.

Joining BRICS propels the Arab economic renaissance by enabling access to vast markets and investment opportunities, promoting industrial diversification, and enhancing technological exchanges. It strengthens the Arab states' positions in global economic discussions, fostering partnerships that support sustainable development and economic reform. This strategic alignment allows for a more diversified, innovation-driven economy in the Arab world, crucial for its long-term growth and global integration.

The recent trend of mean reversions in interest rates is an inflection point for global economies. After years of historically low rates, the upward adjustment post COVID-19 is recalibrating investment landscapes and financial strategies.

This is a double-edged sword for the Arab economic renaissance. On one hand, higher rates challenge the affordability of borrowing, potentially slowing down speculative investments and cooling overheated market segments. On the other, they create a fertile ground for enhancing domestic savings rates, making local financial systems more robust. Moreover, by attracting foreign capital seeking higher returns, Arab economies can fund critical infrastructure and innovation projects essential for sustainable growth.

For the UAE, Saudi Arabia and Egypt to navigate this landscape, they will need to fine-tune their monetary policies and continue diversifying economic activities to cement their financial resilience.

The Arab world is strategically positioned at the crossroads between East and West, making its role in redefining global trade routes increasingly significant. With the modernization of infrastructure and a push towards economic diversification, the ‘Big Three’ economies are transforming into hubs that facilitate the flow of goods, services and capital across continents.

Egypt is deliberating the further development of the Suez Canal, a move that could allow for higher volumes of shipping and prevent blockages from halting traffic. Additionally, at the 2023 G20 summit, member states announced their intention to form a new India-Middle East-Europe Economic Corridor (IMEC) which expects to energize economic development through improved connectivity and economic integration between Asia, the Gulf and Europe.

These efforts collectively contribute to the renaissance of the Arab economy by leveraging its geographic and strategic advantages to redefine its role and influence in global trade.

With forecasts suggesting Artificial Intelligence's potential to inject over $300 billion into the Middle East's GDP by 2031, regional businesses are significantly investing in new technologies, buoyed by governmental backing as pioneering adopters. For example, the Artificial Intelligence and Advanced Technology Council (AIATC) established by His Highness Sheikh Mohamed bin Zayed Al Nahyan, the President of the UAE, launched MGX, a technology investment company to enable the advancement and deployment of leading-edge technologies intended to improve the lives of current and future generations.

By integrating AI into sectors such as finance, tourism and energy, the region is poised to address complex challenges. These range from optimizing water resources to enhancing healthcare delivery, thus ensuring sustainable development while charting the path for an Arab economic renaissance. Notably, Saudi Arabia’s government plans to create a fund of about $40 billion to invest in AI, in addition to supporting a variety of tech start-ups associated with AI, including chip makers and large-scale data centres.

The next quarter century is poised to be a defining chapter in the global economic narrative, showcasing the region's unparalleled potential for sustainable development. The once nascent desert landscape, a symbol of ambitious beginnings, now readies itself to forge a future marked by resilience and innovation.

In this renaissance, Arab nations are not just participating in the global economy, but leading it from the front.