GCC countries' digital growth can add $255bn to GDP

If Gulf countries were to move from being adopters to being disruptors, the contribution of the digital economy to the overall economy could grow to 13.4%

Mobile communications play a key role in digital economies, which was highlighted further during the Covid-19 pandemic. Reuters

The digital economies of GCC countries are growing twice as fast as their advanced economy counterparts, and their pace of expansion has the potential to add up to $255 billion to regional gross domestic product, according to a new report from management consulting firm Strategy&.

The maturity of GCC digital economies could match that of Organisation of Economic Co-operation and Development (OECD) countries within five years if they continue at the pace, the report said.

Most Gulf economies scored highly on the Digital Economy Index, which scored 109 countries over the 2010-20 period, based on five pillars, namely foundations, talent, innovation, adoption and local production, to measure nations' digital strengths.

The GCC posted steady advancements in digital development — its DEI score grew the fastest compared to any other part of the world. Qatar, Saudi Arabia and the UAE topped the index regionally.

“Specifically, progress has been made in investing in digital infrastructure, adopting e-government platforms, and launching technology parks and business incubators,” said Tarek El Zein, partner with Strategy& Middle East, part of the PwC network.

The UAE has been a leader, topping the Arab world with regards to digital progress and preparedness for the future, according to recent a survey from the Portulans Institute and Google.

Last month, UAE Minister of Economy Abdulla bin Touq said that the country will create a task force to develop a next-generation economy structure for 2050-60, driven by creative initiatives that will also prepare the government to tackle unprecedented global crises.

Although the Middle East Digital Economy Index showed that the GCC nations posted strong progress in the past decade, they must implement “vigorous” policy actions to help them transition from adopters of digital technologies to becoming disrupters, becoming home to powerful corporates, institutions and talent, the report said.

The areas that need action include reforming regulatory frameworks, deepening talent pools and strengthening innovation and localisation. Addressing these will pave the way for disruption, which is a critical step to ensure economic growth, create jobs and build economic resilience and sovereignty, Strategy& said.

“The GCC needs more digital activity in terms of patents, disruptive business models and venture capital availability to keep up with the activity of advanced economies,” the report said.

“Participating in the digital economy is not a choice but a requirement that conveys economic vibrancy and resilience, and that protects sovereignty.”

If GCC countries were to move from being adopters to being disrupters, the contribution of the digital economy to the overall economy would grow to 13.4 per cent, from 12.2 per cent — and the percentage increase in the impact of the digital economy implies GDP growth of an additional $138.2 billion, the report said.

The core contribution of digital production to the economy varies among GCC countries, ranging from 3 per cent to almost 11 per cent of GDP — in line with estimates for developing and advanced economies. However, the amount of spillover benefits for GCC economies is less than the global average because digital assets are not yet fully integrated across economic sectors.

“Ultimately, infrastructure, solutions and data should be interconnected and interchangeable to allow for knowledge transfer and solutions exchange among different ecosystems, areas, or sectors,” it said.

For example, if Saudi Arabia were to reach Germany’s current DEI level (55), that would increase overall employment from 13.39 million to 13.73 million, a net gain of around 340,000 jobs.

The job creation effect is higher in countries that are digital learners and adopters than in countries that are digital disrupters. This effect occurs because in learner and adopter countries, where labour costs are lower, digitisation does not, in the short term, result in job losses from automation.

Countries with a score of 60 and above have developed vibrant and enabling digital ecosystems, and are leaders in adopting and producing digital outputs, according to Strategy&. They tend to be net exporters of technology solutions, foster innovation and sponsor vibrant start-up ecosystems, and they are home to the best digital talent.

The digital economy also played a major role in stemming some challenges from the Covid-19 pandemic. The greater use of internet platforms, increased application downloads, more investments in telecommunication infrastructure and growth in broadband adoption all threw the spotlight on the importance of a country's digital readiness to deal with the unprecedented crisis.

“The more developed the digital economy in a given country, the lower its economic repercussions from the pandemic. The pandemic’s average negative impact on GDP reached 3.2 per cent globally, compared with only 1.2 per cent for those countries that were in the top 45 per cent scorers in the DEI,” Strategy& said.