According to a new report from management consulting firm Strategy&, the digital economies of GCC countries are growing twice as fast as those of advanced economies, with the potential to add up to $255 billion to regional GDP.
If current trends continue, the GCC digital economies could catch up to those of the Organization for Economic Cooperation and Development (OECD) countries within five years, according to the report.
The majority of Gulf economies scored highly on the Digital Economy Index, which scored 109 countries over the 2010-20 period and is based on five pillars, namely foundations, talent, innovation, adoption, and local production, to measure national competitiveness.
The GCC has made steady progress in digital development, with its DEI score increasing faster than in any other region of the world. Regionally, Qatar, Saudi Arabia, and the United Arab Emirates topped the index.
“Specifically, progress has been made in investing in digital infrastructure, implementing e-government platforms, and establishing technology parks and business incubators,” said Tarek El Zein, partner at Strategy& Middle East, a member of the PwC network.
According to a recent Portulans Institute and Google survey, the UAE has been a leader, topping the Arab world in terms of digital progress and future preparedness.
Last month, UAE Economy Minister Abdulla bin Touq stated that the country will establish a task force to develop a next-generation economy structure for 2050-60, driven by innovative initiatives that will also prepare the government to deal with unprecedented global crises.
Although the Middle East Digital Economy Index showed that the GCC countries made significant progress over the last decade, the report stated that they must implement “vigorous” policy actions to help them transition from digital technology adopters to disrupters, becoming home to powerful corporates, institutions, and talent.
Reforming regulatory frameworks, broadening talent pools, and bolstering innovation and localization are among the areas that require attention. Addressing these issues will pave the way for disruption, which is a critical step in ensuring economic growth, job creation, and economic resilience and sovereignty, according to Strategy&.
“The GCC needs more digital activity in terms of patents, disruptive business models, and venture capital availability to keep up with advanced economies’ activity,” according to the report.
“Participating in the digital economy is not a choice, but a necessity that conveys economic vibrancy and resilience while also protecting sovereignty.”
If GCC countries shift from adopters to disruptors, the digital economy’s contribution to the overall economy would increase to 13.4 percent, up from 12.2 percent, according to the report, and the percentage increase in the impact of the digital economy implies an additional $138.2 billion in GDP growth.
The core contribution of digital production to the economy varies across GCC countries, ranging from 3% to nearly 11% of GDP — roughly in line with estimates for developing and advanced economies. However, because digital assets are not yet fully integrated across economic sectors, the amount of spillover benefits for GCC economies is less than the global average.
“Ultimately, infrastructure, solutions, and data should be interconnected and interchangeable to enable knowledge transfer and solution exchange across different ecosystems, areas, or sectors,” it stated.
For example, if Saudi Arabia reached Germany’s current DEI level (55), overall employment would rise from 13.39 million to 13.73 million, a net gain of around 340,000 jobs.
The effect of digital learning and adoption on job creation is greater in countries that are digital learners and adopters than in countries that are digital disruptors. This effect occurs because, in learner and adopter countries with lower labor costs, digitisation does not result in job losses from automation in the short term.
The more developed a country’s digital economy, the less economic impact the pandemic will have. The pandemic’s average negative impact on GDP reached 3.2 percent globally, compared to only 1.2 percent for countries in the top 45 percent of DEI scorers.
According to Strategy&, countries with a score of 60 or higher have developed vibrant and enabling digital ecosystems and are leaders in adopting and producing digital outputs. They are net exporters of technology solutions, foster innovation, and support vibrant start-up ecosystems, and are home to the best digital talent.
The digital economy also played a significant role in mitigating some of the effects of the Covid-19 pandemic. The increased use of internet platforms, increased application downloads, increased investments in telecommunication infrastructure, and increased broadband adoption all emphasized the importance of a country’s digital readiness to deal with the unprecedented crisis.
“The more developed a country’s digital economy, the lower its economic repercussions from the pandemic.” “The pandemic’s average negative impact on GDP reached 3.2 percent globally, compared to only 1.2 percent for the top 45 percent of DEI scorers,” Strategy& said.