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GCC countries could unleash a new wave of economic growth by leveraging their abundant and cost-competitive green energy, attractive geographical locations, and industrial and logistics infrastructure, a report said.
According to a new report from Strategy & Middle East (part of the PwC network) titled “Reconfiguring Global Value Chains,” global value chains are rapidly shifting from a primary focus on cost to high-value, resilient and operationally agile industries.
Due to their unique strengths, it said, this presents a historic opportunity for GCC countries to enhance lagging global value chain participation by leveraging local resources to innovate and manufacture locally while boosting domestic productivity.
“Countries around the world are actively restructuring their industries. They are focusing on innovation and investment in world-leading technologies, products and services that leverage their strengths,” said Dr. Yahya Anouti, Partner at Strategy& Middle East. “For GCC countries, this means leveraging their geographic location, abundance of renewable energy and infrastructure to become hubs in global value chains,” he added.
high value product
GCC countries have long ensured growth by exporting basic resource commodities such as oil and chemicals, which are then further processed into high-value products in other countries. For the GCC countries to achieve long-term economic growth, they need to produce more value-added products.
Strategy& argues that GCC countries should shift to “backward” GVC participation, that is, importing or using domestic raw materials to produce complex components (such as semiconductors) and finished goods (such as electronics). Such a strategy would bring global value chains to the region, boosting domestic productivity and economic growth, the report said.
The Strategy& report highlights the lack of lagging GVC activities in the region: Saudi Arabia’s lagging participation rate is only 4%, very low compared to the world’s top 15 exporters. To develop lagging global value chains — or “downstream” industries — GCC countries need to consider their unique strengths and rethink how they use the resources at their disposal. For example, instead of exporting hydrogen, governments could build national manufacturing clusters and infrastructure to create inward investment opportunities in areas such as green ammonia, green steel or glass manufacturing.
11 own industries
Georgie Saad, Head of Strategy & Middle East, said: “We identified 11 GCC countries that could develop global value chains thanks to their abundance of energy and raw materials such as silicon wafers, recycled plastics, green steel and titanium aerospace structures .” .
“Our analysis also suggests that localized manufacturing of such products has the potential to attract $300 billion in foreign direct investment (FDI) – providing up to 150,000 jobs and $25 billion in non-oil exports annually,” he added .
Strategy&’s report offers the following steps for stakeholders in the GCC region to seize the opportunity to lead the development of new global value chains.
Governments should cooperate with each other to strengthen each country’s competitive advantage and develop flexible, resilient and sustainable global value chains. They should work with businesses to develop targeted measures for each priority component of global value chains. These can include financial incentives such as capital investment grants, subsidized inputs, financing and demand guarantees.
For example, in April 2022, the Saudi government signed an agreement with automaker Lucid Group to guarantee the purchase of at least 50,000 electric vehicles over 10 years. Governments can also fund innovation efforts and develop circular, technology-based industrial cities and special economic zones centered on priority industries.
SWF can build
Sovereign Wealth Funds (SWFs) can also build resilient global value chains by securing reliable supplies of raw materials such as lithium, cobalt, nickel and copper, which are critical to enabling green industries and products such as lithium-ion batteries and achieving sustainable development very important. Ambitious sustainable development goals. In addition, sovereign wealth funds could target struggling global companies for know-how, relocate operations to the region, and accelerate domestic development of key value chains.
As the value chain develops, private companies can also play their part by forming joint ventures (JVs) and partnerships with regional tier-one suppliers in 11 key product categories. They also have the capacity to undertake technology transfer and technology offtake arrangements.
Jayanth Mantri, Manager, Strategy & Middle East concluded: “The GCC countries have the opportunity to become the center of global value chains across multiple industries, unlocking major economic development and diversifying their economies.” – trade arab news agency
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