Key Gulf economies have inched up the annual Agility Emerging Markets Logistics Index, improving their overall competitiveness, dominating the rankings for best business conditions, and leading most other emerging economies in “digital readiness.”

The UAE (3), Saudi Arabia (6) and Qatar (7) ranked among the top 10 emerging markets in the 2022 Index, which was led by China (1) and India (2). Also performing well: Oman (14), Bahrain (15) and Kuwait (17).

The 2022 Agility Emerging Markets Logistics Index is the company’s 13th annual ranking of the world’s 50 leading emerging markets. The Index ranks countries for overall competitiveness based on their logistics strengths, business climates and, for the first time, their digital readiness — factors that make them attractive to logistics providers, freight forwarders, air and ocean carriers, distributors and investors. The Index includes a survey of 756 supply chain industry professionals.

Business fundamentals

Among the world’s 50 top emerging markets, the UAE out-performed at No 1 in business fundamentals, an area where Gulf and Mena countries are clear leaders. Others near the top: Saudi Arabia (3), Qatar (4) Bahrain (5), Oman (6), Morocco (9), Jordan (10), and Kuwait (12).

“The good news for GCC countries is that they continue to outpace other emerging markets when it comes to creating business-friendly conditions. It’s generally easier to start a business, get credit, pay taxes and resolve contract disputes in the Gulf than in Asia Pacific, Latin America, Africa or the broader Middle East,” notes the Agility Emerging Markets Index 2022.

The bad news is that GCC countries are racing the clock and at risk of falling behind. So far, the business-climate reforms undertaken by Gulf countries have done too little to grow the private sector, expand non-oil exports, attract foreign direct investment or moderate government spending. Oil and gas revenues remain 40 per cent or more of GDP in most Gulf countries (the exceptions are UAE – 30 per cent; and Bahrain – 18 per cent) and roughly 70 per cent of government revenues (except for UAE – 36 per cent).

Economists predict that global oil revenues will begin a permanent decline around 2040 as demand for renewables increases and improvements in energy efficiency and storage come on line. Bahrain (2031) and Oman (2044) could soon exhaust their hydrocarbons.

Governments in the region have been tapping the $2 trillion in sovereign wealth that they built up with oil and gas revenues over the past few decades. Those funds could run dry before 2034, the International Monetary Fund says.

Meanwhile, private sector activity in Gulf states remains overly reliant on government-funded projects and consumption “that are ultimately supported by oil and gas revenues,” the Brookings Institution, a US think tank, says.

For 2022, the IMF expects a modest economic rebound across the Gulf. High vaccination rates, rising oil prices and the easing of COVID restrictions should propel GCC economic growth from an estimated 2.5 per cent in 2021 to 4.8 per cent in 2022, the IMF says.

But the need for accelerated reform is urgent. Free zones, innovation parks and entrepreneurship hubs created by GCC policymakers “remain rudimentary” and have not become the job engines and business incubators they are intended to be, Brookings says. Privatisation of state-owned enterprises and development of new public-private partnership agreements has ground to a halt since 2020.

The World Bank is urging legal, regulatory and competition improvements in advanced telecommunications and digitisation, two sectors where the region’s economies could see strong private sector growth and innovation.

When it comes to courting business and adding to its talent pool, the UAE has been the region’s most creative. It recently adopted a Monday-to-Friday workweek to sync its economy with those outside of the region. The UAE has broadened 100 per cent foreign ownership for businesses in additional sectors and expanded its long-term visa program as part of renewed outreach to expatriates in priority professions and skilled areas. One of the emirates, Dubai, has introduced an innovative visa program to entice remote workers to move to the sunny Gulf for a year as they telecommute.

Brookings advocates the introduction of new bankruptcy laws across the region. It says “virtual” companies critical to development of a knowledge economy should be able to get licenses without physical addresses. Brookings says business registration still requires too many steps. It urges Gulf countries to allocate a minimum share of government contracts to small and medium-sized businesses, along with guarantees that they can get financing and will be paid on time.

GCC countries have successfully modernised their infrastructure and cities, but they have a bias toward mega-projects that too often stall or fail to deliver broad. A sharper focus on smaller businesses could do more to spread the benefits of the massive projects favored by the region’s governments.

Digital Readiness

The UAE also ranked highest for digital readiness, a new category in the Index. Digital readiness assesses digital skills, training, Internet access, e-commerce growth, investment climate, and ability to nurture startups, as well as sustainability factors such as renewable energy mix, lower emissions intensity and green initiatives.

Top 10 in digital readiness: UAE, Malaysia, China, Saudi Arabia, India, Thailand, Qatar, Indonesia, Chile and Philippines. Kuwait (12) and Oman (15) also ranked highly.

To mark the 50th anniversary of the seven Emirates’ unification in 2021, the UAE announced a development roadmap for the coming half-century which leans heavily on the development and adoption of advanced technologies such as AI, as well as plans to capture growth driven by the fourth industrial revolution. Analysis from PwC estimates that AI will be responsible for as much as 13.6 per cent of the UAE’s GDP by 2030. Since ratification in 2019, the Emirates’ AI strategy has seen the technology adopted by its government and its targeted development in key sectors including energy, tourism, healthcare, cyber security and logistics. The UAE also opened the world’s first graduate-level university specialising in artificial intelligence in 2019 and offers extended visas to workers with skills in the development of the technology. Sustainability also features in the UAE’s roadmap, with the Emirates having committed to be net carbon zero by 2050 and to invest $160 billion in the development of renewable energy generation.

Other GCC states, including those with high exposure to hydrocarbon exports, are making transitions to renewable energy production as well. Qatar, which ranks 7th, is developing the Al Kharsaah Project, its first largescale solar farm, for example. It has also made wider sustainability efforts by investing in industrial recycling facilities and aims to be the first country in the world to fully recycle solid metal waste during 2022. Similarly, Saudi Arabia, ranked 4th, plans to increase the share of renewables in its energy mix from 0.02 per cent in 2017 to 50 per cent by 2030. Its first utility-scale renewable energy production site – the Sakaka solar plant – became active in April 2021, while part of its $101 billion investment in renewables over the next decade will be used to fund the Sudiar Solar Plant, set to be one of the world’s largest solar farms producing 1.5GW annually.

It is however the Asia Pacific region, and Southeast Asia in particular, which offers the highest number of markets in the top 10 ranking for Digital Readiness. Ranked 10th, the Philippines sees its strongest performance in Digital Readiness, due in part to the rapid pace of investment in Filipino start-ups in 2021, the numbers of which rose to more than 700 during the year. Analysis of start-up funding in Filipino tech start-ups totalled $858 million between January and October 2021, according to Gobi Partners and Core Capital, meaning the 10 month period saw more value in equity fundraising than the previous four years combined.

The Philippines’ digital economy remains underdeveloped and lags other emerging markets in value terms. While Google, Temasek and Bain research shows the country’s digital economy is the region’s fastest-growing GMV of $17 billion in 2021, a 93 per cent rise year-on-year, it remains some way behind the $70 billion recorded in Indonesia, for example.

Across the ASEAN-5 emerging markets, Google, Temasek and Bain research shows a digital economy valued at $160 billion in 2021, with forecasts suggesting rapid growth to GMV of $335 by 2025.