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GCC's economic diversification: A new era of growth beyond oil
GCC knowledge based, technology driven and green economies set to beat 3% average global growth
- PUBLISHED: Mon 26 Jan 2026, 8:00 AM
- By:
- Muzaffar Rizvi
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The Gulf Cooperation Council, or GCC, states are likely to maintain a strong focus on economic diversification, leveraging growth in non-oil sectors such as technology, finance, tourism, and sustainable energy over the next five years, experts say.
Leading executives, analysts and economists said Saudi move to allow non-Saudis to buy real estate in specific areas beginning January 2026 is a game-changing initiative that will attract foreign investment into the region. They said investment flows are increasingly targeting non-oil sectors such as real estate and construction while financial services and fintech are thriving under progressive regulatory frameworks.
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Bal Krishen, Chairman – Century Financial, said the GCC economies will experience a stable growth of 4-4.5% per annum in the coming five years until 2030 due to the diversification that they will undergo to shed off the dependence on hydrocarbons.
“Although oil is still playing a key role, governments are also hastening reforms in tourism, logistics, manufacturing, and renewable to establish non-oil, sustainable growth engines. A rebound in oil prices would further strengthen fiscal balances — particularly for Saudi Arabia — offering room for continued public and infrastructure investment,” Krishen told Invest GCC.
Saudi Arabia is the most significant growth driver and non-oil GDP is projected to grow by over 5% every year till 2027, based on its projects like Neom, growing industrialisation and a non-oil export growth of 17%. The UAE is the most diversified economy in the region with solid trade, finance, tourism and construction industries. Similar to the inflows into real estate and logistics, as well as fast development of AI, fintech, and green energy, support its medium-term perspective.
“The GCC is anchored on fiscal policies of disciplined oil production through OPEC+, healthy sovereign wealth funds, and sound budgeting. The domestic consumption that is growing at an average of 3.5% a year sustains domestic demand.”
All in all, he said the shift of the GCC towards knowledge based, technology driven and green economies is redefining the model of growth in the region which is set to beat the average of the world which is about 3% in the case that the reform momentum and geopolitical stability is sustained.
Hamza Dweik, Head of Trading, Saxo Bank Mena, said the GCC economies are entering a transformative phase that promises sustained growth over the next five years. Projections indicate that real GDP across the region will average between 3% and 4.5% annually through 2030, supported by strong fiscal buffers and ambitious diversification strategies.
In the near term, growth is expected to hover around 3.2–4.5% in 2025–26, aided by easing OPEC+ oil production cuts and robust non-oil sector expansion. Over the medium term, growth is likely to stabilise at 3-4.4%, even as oil prices trend lower, reflecting the success of diversification efforts.
“The diversification drive is underpinned by several growth engines. Digital transformation is accelerating, with investments in artificial intelligence, 5G infrastructure and data centres positioning Saudi Arabia and the UAE as regional technology leaders. Structural reforms through national visions, such as Saudi Vision 2030 and UAE Vision 2021, are fostering private-sector participation and regulatory liberalisation,” Dweik told Invest GCC.
“Sustainability initiatives, including large-scale renewable energy projects in solar and hydrogen, are creating new opportunities, while tourism and entertainment sectors are expanding through mega-projects like Neom and Dubai’s hospitality developments. Strategic trade corridors and industrial clusters are strengthening logistics and manufacturing, reducing reliance on hydrocarbons,” he said.
Shivkumar Rohira, CEO Europe Middle East and Africa, Klay Group, said the GCC is likely to maintain a strong focus on economic diversification, leveraging growth in non-oil sectors such as technology, finance, tourism, and sustainable energy over the next five years.
“Governments are making significant investments in innovation, smart infrastructure, and renewable energy projects to reduce dependence on hydrocarbons while positioning themselves as regional and global business hubs. At the same time, GCC states may face fiscal pressures stemming from volatile oil prices, international economic uncertainties, and the need to balance ambitious development agendas with social spending and infrastructure commitments,” Rohira told Invest GCC.
Referring to IMF projections for 2025 to 2030, GCC GDP growth is expected to stabilise between 3% and 4.4%, with the UAE and Saudi Arabia positioned at the upper end of this range, growing at around 4.5% to 5%, respectively. This reflects the success of ongoing economic reforms and the potential of non-oil sectors to sustain medium-term growth while strengthening the resilience of these economies against external shocks.
Major Economic Sectors
Dweik said FDI flows are increasingly targeting non-oil sectors. Real estate and construction are buoyed by urbanisation and landmark developments, while financial services and fintech are thriving under progressive regulatory frameworks.
“Renewable energy, advanced manufacturing, and technology ecosystems are attracting global players, and logistics infrastructure is reinforcing the region’s role as a global trade gateway. The UAE leads in project count, while Saudi Arabia dominates in investment value, supported by Vision 2030 reforms,” he said.
He said Saudi Arabia’s recent decision to open its real estate sector to foreign investors is a pivotal moment. The kingdom accounts for 63% of the GCC’s $1.68 trillion project pipeline, signalling its ambition to become a global investment hub. Mega-projects such as Neom, Qiddiya and Red Sea Global are redefining urban development and tourism.
“Combined with regulatory reforms, including 100% foreign ownership in select sectors, this move is expected to catalyse regional competition and spur similar liberalization across neighboring states, ushering in a new era of investment-led growth.
Krishen said GCC economies are shifting fast from oil to non-oil sectors. “Governments are investing heavily in large transport projects, industrial zones, and logistics hubs. This help boost trade and expand the private sector. As of early 2025, non-oil output makes up roughly 73% of total GCC GDP.”
He said tourism is a strong growth driver. Saudi Arabia and the UAE have eased visa rules and begun hosting major events like Expo 2030 Riyadh. “In early 2025, Saudi tourism and hospitality grew by 7.5% year-on-year. The sector now contributes more than 10% to the Saudi GDP, at about SR447 billion, and supports around 2.7 million jobs.”
“FDI is rising sharply. In 2024, the GCC recorded 1,973 FDI projects, up 2% from 2023. Flows were mainly in technology, finance, logistics, and services.”
Referring to Earnest and Young report, he said the UAE leads in the number of projects and job creation; Saudi Arabia leads in capital inflows. Reforms such as full foreign ownership and special business zones attract global investors. The UK and India lead among investment sources, with Indian investment rising 400% since 2019.
Manufacturing is also gaining pace, he said. The non-oil exports are increasing particularly in chemicals whereas metals and food-processing are helping in lowering imports. Saudi mega-projects and Omani free zones support this expansion.
“Digital transformation is accelerating across the region as well. Governments are pushing AI, fintech, and e-commerce. In Abu Dhabi alone, a $3.53 billion investment plan aims to build data centers and cloud infrastructure from 2025–27. Saudi Arabia and the UAE are leading in the AI startup activity area, positioning the Gulf as a global hub for AI and digital innovation.”
Rohira said several sectors in the GCC are poised to attract significant foreign direct investment, driven by government incentives, strategic planning, and the region’s diversification agenda.
“Tourism is a major focus, with large-scale projects, cultural initiatives, and entertainment hubs designed to draw international visitors. The fintech sector is growing rapidly, supported by regulatory reforms and innovation-friendly policies, making it attractive for global investors.”
Logistics and transport infrastructure, including ports, airports, and integrated supply chains, remain critical investment areas given the GCC’s strategic geographic position. Renewable energy projects, particularly in solar and hydrogen, offer opportunities for partnerships with global energy firms as the region accelerates its energy transition. Large-scale infrastructure projects, especially data centers and AI-focused hubs, are also emerging as key drivers of foreign investment, providing the backbone for digital economies and positioning the GCC as a leader in technology adoption.
“Among these, AI infrastructure and advanced data centers are expected to be particularly compelling for global tech platforms seeking to expand their presence in the region,” he said.
Accelerating Qualitative Shift
Krishen said GCC states are speeding up a qualitative shift in growth and investing FDI in non-oil high value industries to maintain a post hydrocarbon prosperity. Such ambitious outlooks as Saudi Vision 2030 and the green agenda of the UAE have increased the non-oil GDP shares and Saudi Arabia increased its non- GDP share to 55% in 2025, whereas cumulative FDI inflows reached to $523.4 billion (excluding intra-GCC). The IMF predicts that GCC GDP will grow by 3.2% in 2025, which will be driven by such reforms in the face of oil stability.
“There are three industries with a good strategic FDI potential. In the first position are green energy and utilities with Saudi Arabia aiming at 50% renewables by 2030, UAE at 30% and Qatar at 20% as a result of green hydrogen exports and state-sponsored off-take agreements such as the 1.5GW Saudi Arabian data centre.
“The digital economy boom will take place through the 2025 Cabinet Decree No. 55 in the UAE, which exempts eligible foreign technology HQs of corporate taxes, and 512% and 373% increases in business services and software FDI projects since 2018, which fixed Dubai and Riyadh as the global powerhouses.”
He said hospitality and tourism will lead Saudi Arabia to grow its FDI by 8-10% in 2025, with the simplified registration of giga-projects like Neom, The Red Sea, and Diriyah, which will be built on the momentum of the World Cup in Qatar.
“There are Omani and Bahraini ports, as well as 100% foreign ownership regulations to the benefit of logistics. Forward reforms (i.e., simplified visas, SWFs, Asian connections (India’s 400% FDI surge since 2019) will close the divide between the ease-of-doing business indicators with the developed world and provide steady payoffs to those investors who seek to drive engines on these policy-fueled engines.”
Rohira said non-oil sectors are already the backbone of GCC economies, accounting for around 75% of total GDP, and their importance is only set to grow. One of the key growth drivers is the investment in advanced technology and AI infrastructure, with governments forging partnerships with global tech companies to position the region as a hub for innovation and digital transformation.
“The GCC is also playing an increasingly strategic role in the global energy transition. Significant investments are being channelled into renewable power generation, particularly solar and hydrogen projects, which not only support sustainability goals but also create new industries and job opportunities,” he said.
Urban development and large-scale infrastructure projects are further driving growth, he said. Initiatives such as new metro systems, entertainment and cultural hubs, and large-scale parks aim to attract high-skilled talent, promote tourism, and enhance the quality of life, making the region more competitive globally. Collectively, these drivers underpin the GCC’s shift from an oil-dependent model to a diversified, knowledge-based economy.
A Game-changing Move
Krishen said Saudi Arabia will allow non-Saudis to buy real estate in specific areas beginning January 2026, following the Saudi Cabinet’s approval of a new law. The move is part of the kingdom’s broader efforts to attract foreign investment and expand its non-oil economy.
“As part of its Vision 2030 economic diversification plan, the kingdom aims to draw substantial foreign capital into housing, commercial property, and mixed-use developments.
“This step can trigger multiple effects. First, it expands the investor base to global individuals, institutions, and property funds can now participate directly, increasing liquidity and boosting demand.
“Secondly, capital investment, along with the expansion of housing, greater development of urban mega-projects, and improvements to existing commercial infrastructure, will likely accelerate to meet increased demand resulting from urbanisation, population expansion and growth, and shifting demographics across countries within the GCC Region.
For the broader GCC region, Saudi Arabia’s move could reshape regional real estate investment dynamics. Historically many investors viewed the UAE as the default hub for Gulf-property investment; Saudi Arabia’s new openness may lead to cross-GCC capital flows, renewed competition, and a rebalancing of where development and investment concentrate.
“The success of this reform will depend on the clarity of regulations, execution, and prevailing economic conditions. Geographic restrictions in sensitive areas and regulatory safeguards indicate the government is taking a cautious approach. However, if executed properly, this reform can serve as a catalyst to make real estate a global growth engine not only for Saudi Arabia but also for the entire Gulf region.”
Rohira said several sectors in the GCC are poised to attract significant foreign direct investment, driven by government incentives, strategic planning, and the region’s diversification agenda.
“Tourism is a major focus, with large-scale projects, cultural initiatives, and entertainment hubs designed to draw international visitors. The fintech sector is growing rapidly, supported by regulatory reforms and innovation-friendly policies, making it attractive for global investors.”
Logistics and transport infrastructure, including ports, airports, and integrated supply chains, remain critical investment areas given the GCC’s strategic geographic position. Renewable energy projects, particularly in solar and hydrogen, offer opportunities for partnerships with global energy firms as the region accelerates its energy transition. Large-scale infrastructure projects, especially data centers and AI-focused hubs, are also emerging as key drivers of foreign investment, providing the backbone for digital economies and positioning the GCC as a leader in technology adoption.
“Among these, AI infrastructure and advanced data centres are expected to be particularly compelling for global tech platforms seeking to expand their presence in the region,” he said.
Challenges for the GCC
Dweik said challenges remain for the GCC economies. Oil price volatility continues to pose fiscal risks, while geopolitical tensions and global trade fragmentation could disrupt investment flows. Labor market pressures, climate transition imperatives, and the need for fiscal sustainability amid heavy capital outlays for diversification projects will require careful policy management, he said.
“Overall, the GCC stands at an inflection point, moving from oil dependency to a diversified, innovation-driven economy. Bold reforms, strategic investments, and global partnerships will be critical in shaping a resilient and prosperous future for the region,” he said.
Krishen said GCC economies will face a more complex array of structural and external problems over the next five years as they transition rapidly away from hydrocarbon-based development and towards diversified, knowledge-based economies.
“First is fiscal sustainability amid oil price volatility. Despite strong buffers, GCC budgets still depend significantly on crude revenue, and any downturn in global demand, driven by slower Chinese growth, accelerating energy transitions, or geopolitical disruptions, could pressure public spending, especially on large-scale infrastructure and social programmes.”
A second major challenge is labour-market transformation. The need to expand non-oil industries, including the digital economy, sophisticated manufacturing, tourism, and renewable energy, will drive increased demand for highly trained and skilled human capital. Policy agility will need to be long-term to bridge skills gaps across national labour forces, enhance education-employment pipelines, and reform expatriate labour.
The third challenge lies in capital absorption and project execution. Vision-led diversification agendas, Saudi Vision 2030, the UAE’s economic agenda, Qatar National Vision 2030, Bahrain’s Economic Vision 2030, and Oman Vision 2040, require immense project management capacity. Ensuring that multi-billion-dollar megaprojects remain financially viable, timely, and attractive to investors will be critical, especially in a higher global interest rate environment.
A fourth pressure point is energy transition risk. Although GCC states are enthusiastically investing in renewables and hydrogen, striking a balance between long-term decarbonisation commitments and short-term reliance on hydrocarbons will not be easy. The region may be increasingly affected by global policy changes, carbon taxation, and capital flows driven by ESGs.
“Finally, there is the risk of geopolitical instability and supply chain fragmentation. The GCC is a strategically sensitive region, and any interference in its trade routes, logistics, or politics might affect tourism, investment sentiment, and inflation trends. Collectively, these issues underscore the fact that, as long as the GCC maintains strong growth momentum, long-term reforms, the development of the private sector, and investment in human resources will be needed to build resilience in the years to 2030 and beyond.”
