Non-oil economic growth appears strong in the Middle East amid diversification efforts by Saudi Arabia, the UAE and other states, helped by government support and reforms to attract private capital, according to the latest PwC Middle East Economy Watch.

Oil prices are expected to drop this year amid supply and demand growth uncertainty.

“Strong growth in the non-oil sector is expected to counterbalance these impacts,” said Richard Boxshall, Partner and Chief Economist, PwC Middle East.

Inflation cooled in the GCC last year, with PwC composite data for the region averaging 2.6% and ending the year at 1.7% YoY, down from a post-Covid high of 4.3% in July 2022. 

Abu Dhabi has planted 850,000 mangrove trees along the emirate’s coastal areas as part of its Ghars Al Emarat initiative to mark last year’s COP28 climate summit.

The project committed to planting 10 mangroves for each of the 85,000 visitors to the two-week United Nations conference in December that took place at the Expo City Dubai, according to a statement issued Monday.

Mangroves are hardy shrub-like trees that form dense thickets and adapt to growing in coastal saline waters.

They are a popular tourist attraction in Abu Dhabi, where kayaks, canoes and paddle boats are available for rental to let visitors explore mangrove wetlands that have become habitats for flamingos, crabs and turtles.

Dolce & Gabbana was among the first fashion houses to bring international couture culture to Saudi Arabia when it presented its Alta Moda collection in 2022 on a catwalk installed in the ancient desert city of AlUla.

Now, the Italian brand is setting up a flagship store in the Saudi capital at the Via Riyadh luxury shopping center.

D&G is also entering a formal partnership with Diriyah Co., the state-owned company managing the restoration of the capital’s historic Diriyah section, where it plans to open a 2,000-square-meter immersive space in the Bujairi Terrace restaurant district.

“For years, we have been present in this country, initially approaching the market with caution and respect, deepening our understanding of its history and social aspects,” Dolce & Gabbana CEO Alfonso Dolce told Vogue Business.

Emiratis will not be left out of the real estate boom underway in Dubai under new localization rules rolled out over the weekend.

A tie-up with nine of the UAE’s biggest property developers — including Emaar, Deyaar, and Sobha Realty — and the Dubai Land Department will seek to have 10 to 15% of units sold by Emirati brokers.

The next phase of the program will look to establish partnerships with developers and real estate brokers so that more Emiratis can qualify to work in the property sector, according to the land regulatory agency.

The push to increase the employment of citizens in the private sector is a delicate balance in the GCC region, where expat workers are heavily relied upon and nearly 90% of non-government entities are small-to-medium sized.

Governments have been taking incremental steps to support “localization” efforts including quotas, incentives for firms that comply and hefty fines for those that don’t.

Saudi Arabia’s Ministry of Human Resources has set a target of employing 30% Saudis in the private sector by 2025 and is on track with 23% as of the first quarter of 2022. Oman has set a 40% target under its Vision 2040 economic diversification plan, and was at the halfway point in 2021.

The UAE expanded the scope of its “Emiratization” push at the start of the year – prompting the more than 12,000 companies in the country with 20 to 49 employees to employ at least one UAE citizen in 2024 and a second in 2025.

Companies with 50 or more employees are required to achieve a 2% annual growth in Emiratization.

China is emerging as Saudi Arabia’s most active foreign investor amid a flood of new projects aimed at turbocharging non-oil economic growth in the kingdom. The world’s second-largest economy accounted for 58% of new business investments — primarily focused on automotive, metals and semiconductor investments — in Saudi Arabia in 2023, with $16.8 billion invested. That figure is up more than tenfold from $1.5 billion the previous year, according to new data from Dubai-based Emirates NBD.

Saudi Arabia, the Arab world’s largest economy, is still trailing its target of attracting $100 billion in foreign direct investment (FDI) by 2030 as de facto ruler Crown Prince Mohammed bin Salman looks to boost non-oil GDP and diversify the economy. But 2023 showed signs of progress: foreign investment into new business in Saudi Arabia more than doubled to $28.8 billion last year, according to Emirates NBD, surpassing the 2018 peak of $17.6 billion but shy of the 2008 record of $34.3 billion.

The influx in foreign capital comes as Gulf economies are increasingly turning East to China and India, one of the fastest growing economies, for opportunity. Saudi Arabia and the UAE have been invited to join the BRICS economic alliance, which analysts have predicted will increase China’s power and influence in the MENA region. Still, the U.S. was runner-up: pouring $2.7 billion into Saudi Arabia, mostly in software and IT, and a 238% increase over the previous year. The UAE came in third, its investments primarily focused on renewable energy.

This week the kingdom’s Minister of Culture, Prince Badr bin Abdullah, visited Beijing, where he signed a flurry of agreements with his Chinese counterpart to boost collaboration. Museums, cultural heritage, theater, architecture and libraries are all on the table for greater exchange. “With the support of the leadership of the two friendly countries, Saudi-Chinese cultural cooperation begins a new chapter,” Prince Badr said on X.

From artificial intelligence to renewable energy, Gulf sovereign wealth funds have become the go-to source for startup investment in a tight global economy.

A new study from Bain & Co. gives a graphic view of why Silicon Valley tech titans and New York financiers have been making pilgrimages to the Public Investment Fund in Riyadh, Mubadala in Abu Dhabi and the Qatar Investment Authority in Doha.

The Bain report, released on Wednesday, showed that 86% of Middle East business deals last year came from sovereign funds, up from 84% in 2022 and 68% in 2018.

The total value of those deals was an estimated $95 billion in 2023, down from a high of $98 billion in the previous year and more than triple the $26 billion recorded in 2018.

“The region’s sovereign wealth funds sit on an abundance of capital that they are using to accelerate an economic transformation, including an aggressive diversification away from hydrocarbon and an ambitious shift toward deals in Asia,” says the report, written by Bain’s Tom De Waele, Grégory Garnier, Riccardo Molinari and Elif Koc.

In their analysis of the sovereign wealth phenomenon, the authors look at how the funds have been used to build new industries such as esports in the Gulf, noting the $4.9 billion acquisition by PIF-owned Savvy Games of California-based Scopely in July.

The shift toward Asia is illustrated in Mubadala’s co-leading a $2 billion investment last November in the Chinese online fashion company Shein, as well as the $1 billion that the QIA sank into India’s Reliance Retail Ventures in September.

The report examines the role that sovereign funds are playing in the energy transition, noting that commitments made to net-zero goals require them to “actively advocate for emissions reduction in portfolio companies and evaluate investments in enabling decarbonization technologies.”

Private equity investing is blasting off in Saudi Arabia. After crossing the $1 billion threshold in 2022 and growing nearly 6X in the prior year, the industry quadrupled to $4 billion in 2023 across 30 deals, according to new data from Magnitt.

The kingdom is at a “pivotal intersection,” Huda Al Lawati, Founder & CEO of Gulf-based investment manager Aliph Capital, said in Magnitt’s report.

She said Saudi Arabia’s traditionally entrepreneurial private sector is meeting with economic diversification efforts led by the government to create a flood of investment opportunities and potential for growth, providing opportunities in tourism, sports, and logistics. 

Buyout transactions have been the main driver of private equity growth from 2020 through 2023.

Saudi Arabia’s Public Investment Fund accounted for the largest number of transactions, totaling 18, most of which were reported in 2022 and 2023.

Active investors with four-plus deals done are all Saudi-based firms: Asyaf Investments, GAIC, and BATIC, according to Magnitt.

Newer players in PE in the kingdom with two to three deals completed include Investcorp, Marek Capital and Blominvest.

A new interview with the UAE’s foreign investment chief puts the country’s current assets abroad, both government and private, at an estimated $2.5 trillion.

Jamal Bin Saif Al Jarwan, Secretary-General of the UAE International Investors Council (UAEIIC), also told the Emirates New Agency WAM that the portfolio is doing well despite economic headwinds.

The UAE’s international investment footprint is topped by sovereign wealth funds holding 72% of the assets, Al Jarwan noted.

Abu Dhabi Investment Authority (ADIA) is the leading foreign investor, followed by Mubadala Investment Co., Investment Corporation of Dubai, Emirates Investment Authority and ADQ.

All told, the UAE owns seven sovereign wealth funds with assets exceeding $2 trillion, trailed by government-owned and quasi-governmental companies with 18%, UAE banks with 2.5% and 7.5% originating from family-owned and private companies.

The “most prominent” deal in 2023 was between U.S. private equity firm Apollo and ADIA to acquire chemicals manufacturer UniVar for $8.1 billion, he said.