COVID-19 ravaged economies across the globe but, after suffering the worst downturn since World War II, the global economy is poised to bounce back with a post-pandemic boom. The states of the Arabian Gulf are set to reap the benefits.
After governments lifted initial stay-at-home orders, more people are flying, dining out and staying in hotels as the fastest vaccine rollout in history takes full force. Data paints a clearer picture, with the IMF estimating 2021 growth at 6 percent globally. Beyond 2021, JPMorgan Chase CEO Jamie Dimon’s annual shareholder letter predicts a multiyear boom well into 2023 – IMF data corroborates such forecasts for countries like Saudi Arabia where growth is expected to be even higher in 2022.
The Economist’s analysis of GDP data for the Group of 7 (G7) countries indicates that such synchronized growth acceleration has not happened since the post-war boom of the 1950s. Quantitative projections are only one piece of the puzzle – an accurate post-pandemic prognosis must turn to history to get a clear sense of what to expect. Luckily for the economies of the GCC, the post-pandemic boom is looking particularly bright – here’s why:
History teaches us how people behave during acute phases of the pandemic and what they do when economies are set back into motion. Britain’s household-saving rate doubled during an outbreak of smallpox in the first half of the 1870s, while Americans saved more cash during the Spanish flu outbreak than any subsequent year until World War II. In other words, as spending opportunities dwindle, savings boom.
This trend held true for the GCC during the pandemic – but what happens when normalcy makes its way back? Spending rises, albeit with caution, and employment recovery follows suit – this trend is evident in the American post-war boom of the 1940s. A recent study by consultancy firm McKinsey & Company points to steadily increasing consumer confidence in the Kingdom throughout the COVID-19 crisis. An accumulation of savings - underpinned by positive consumer confidence - coupled with pent-up demand for goods, services, and experiences will yield a potent post-pandemic recovery for states across the Gulf.
Beyond demand, post-crisis booms tend to have significant effects on the supply side of the economy – in particular, the manner and means through which goods and services are produced. The Black Death and the Spanish flu led to a substantive uptick in risk-taking, prompting a contagion of innovation. Post-war US is a clear case in hand: The National Bureau of Economic Research found that the number of startups boomed from 1919 onwards. Ditto for the aftermath of the financial crisis in 2007, during which the sharing economy was revolutionized with the inception of companies like Uber and Airbnb. The causal effect lies in the fact that crises, like a pandemic or even war, expose strategic gaps in the market that entrepreneurs swiftly seek to fill, creating and sustaining a positive innovation loop.
With favorable youth-centric demographics, nimble top-down policy support, as well as increased emphasis on free zones, innovation parks, and entrepreneurship hubs, GCC states are uniquely positioned to capitalize on pandemic-induced supply side shifts. This potential coincides with flourishing sector-based development in the realms of sports, culture, entertainment and tourism – industries inundated with opportunities to satisfy the burgeoning youthful entrepreneurial drive across the Gulf.
It is therefore no surprise that the Saudi startup ecosystem attracted a record $152 million in startup funding in 2020, making it the fastest growing ecosystem in the MENA region – it is also no surprise that e-commerce startups raised 45 percent of total funding. Policy-makers are acutely aware of such timely potential and are leveraging policy interventions accordingly: Most recently, Bahrain established Al-Amal (Hope) Fund to support young entrepreneurs and businesses to provide startup investments and fundamental ecosystem support.
Strategic policy interventions are certainly not exclusive to startups – despite pandemic-induced disruption, GCC states resiliently pursued a series of structural, cross-sectoral reforms: In Oman, subsidies for water and electricity are now better targeted towards the less fortunate segments of the population to reduce fiscal burden; Kuwait established a Competition Protection Law to bring more independence to the Kuwait Competition Agency; the UAE recently allowed full foreign ownership of onshore companies; and Saudi Arabia launched a labor reform initiative (LRI) to replace the existing sponsorship system, introduced a new minimum wage, and was recognized as the top reformer globally in the World Bank’s 2020 report “Women, Business and the Law” for a serial succession of positive policy interventions during the pandemic.
The strategic significance of these reforms goes beyond increasing economic competiveness and increasing the inflow of foreign direct investment (FDI) – they signal a robust and sustained top-down commitment to reform momentum, thereby amplifying bottom-up involvement in national development.
Lastly, economists have deduced a historical link between pandemics and the adoption of labor-saving automation, most recently seen in the Ebola and SARS outbreaks, going as far back as the 1920s. Although COVID-19 is only anecdotally linked to automation, the pandemic is inextricably tied to the acceleration of digitization. For Gulf states, the successful digitization of education comes with positive policy implications that outlive the pandemic: Blended learning will supplement the immediacy of face-to-face teaching, thereby bridging the gap between education system outcomes and labor-market needs that various GCC states aim to fill in pursuit of knowledge-based economies.
Indeed, the post-pandemic boom is about much more than money to spend and progress across indices. After the challenges of 2020, the visceral feeling of being liberated from the burden of this pandemic will be underpinned not by the economics, but by pervasive gratitude and relief.
As we embark on this transition, it is imperative that states are equipped with proactive opportunity-preparedness to supplement reactive disaster-preparedness. ‘The Roaring Twenties’ were the byproduct of the world overcoming World War I and the Spanish flu pandemic – unsurprisingly, the world witnessed an unprecedented era of economic growth and artistic dynamism fueled by groundbreaking technologies. If history is any guide, the post-pandemic boom will come with unprecedented prosperity and paradigm-shifting innovation.