GCC's GDP to rise by 56% by 2020

The member countries of the Gulf Co-operation Council (GCC) are expected to post robust growth over the next decade both in terms of population and GDP. By 2020, the GCC population is forecast to reach 53.5 million, a 30 per cent increase over 2000. Over the same period, the region's real GDP is expected to grow by 56 per cent. Nominal GDP, which was $341.6 billion (Dh1.2 trillion) in 2000, is forecast to soar to more than $1trn in 2010 and $2trn in 2020, according to a new report released by The Economist Intelligence Unit (EIU), 'The GCC in 2020: Resources for the future'. Although the economic forecast is positive, it carries a risk: that unmanaged growth will bring negative side-effects such as power shortages and soaring prices, in particular for food, said the report. "Some GCC states are already experiencing sporadic shortages of electricity and gas, while water supplies are already strained and food shortages loom as risks for an import-dependent region. "A key challenge for the Gulf in the next decade therefore will be to manage energy, water and food resources to ensure both high living standards and sustainable growth in the long term," the report said. Energy Despite controlling 40 per cent of the world's known oil reserves and 23 per cent of proven natural gas reserves, the GCC must conserve hydrocarbon resources not only because they are ﬁnite sources, but because conservation makes ﬁnancial sense. Current trends show that demand for electricity, which is typically generated by domestic gas, is already outstripping supply in the GCC. The growing population is adding to the power woes. Moreover, using fossil fuels to generate electricity means having less available for export, which in turn means high opportunity costs. "With these factors in mind, the GCC governments are starting to overhaul the way they manage their oil and gas. In particular, most are trying to rein in wasteful domestic consumption of electricity and gas. "They plan to continue exporting oil as crude, but to reserve a greater proportion of the crude to manufacture value-added reﬁned products, such as petrochemicals and plastics, for export. "With the exception of Qatar's plans to export liqueﬁed natural gas (LNG), the region's governments will use natural gas mainly to fuel domestic power plants. "They will also invest more in developing cleaner fuels, both in response to global concerns about carbon emissions and as a way to supplement fuel supplies for domestic markets." All of this represents, according to EIU analysts, a forward-thinking approach to solving a problem that is only beginning to emerge. "The GCC has substantial fossil fuel reserves, but it cannot be complacent about its long-term supply advantage. Other regions are investing heavily in alternative fuels and in fuel efﬁciency, as well as in developing previously untapped oil and gas reserves, thus creating potential competitors for GCC supplies," the analysts said. Discovery of shale gas in the US in the past two years also reduces the advantage the GCC had. "Three years ago, the cost of buying gas in the US was about $13 per million btu compared with $1 per million btu in the Gulf. But the shale gas that's been found may stop the Gulf from being so competitive," Justin Dargin, research fellow at Harvard University's Dubai Programme, is quoted as saying in the report. GCC governments are aware that they must prepare for a world of increased competition in energy markets, the report adds. GCC states are also trying to diversify away from dependence on oil and gas. "The aims of diversiﬁcation are to reduce the region's long-term vulnerability to shifts in international demand, to create jobs for GCC nationals in more knowledge-intensive industries, and to prepare for the eventual transition to a post-hydrocarbons economy. "Although oil and gas will remain the mainstay of the Gulf economies over the next decade, the region's long-term development depends on investing in alternatives as well." According to analysts EIU spoke with, the most attractive sectors for foreign investment in the GCC in the next decade will be "chemicals, metals and all the industries where low-cost feedstock matters, and all the related services industries". Managing domestic demand remains a key challenge for the regional countries. "Consumption per head of fuel and electricity is high in the GCC relative to some other energy-intensive economies, such as Germany. Analysts said that subsidies should be reduced, but that other measures – such as tightening the regulations on fuel efﬁciency – are likely to come ﬁrst. GCC governments to also looking at developing renewable energy sources alongside their traditional fossil fuel exports. Water In stark contrast to energy, water is an extremely scarce resource in the GCC, which is one of the world's most arid regions. With only limited groundwater resources, and amid growing signs that groundwater is being depleted by over-use, the GCC is fa