Despite the fluctuations and instability in oil prices, the GCC manufacturing sector is expanding as the countries look to maintain a diversified and balanced economic base. Manufacturing has been one of the major focus of regional governments as can be seen from a steady stream of investments into this sector over the past few years. Growth in non-oil sector in the GCC countries averaged 6.8% during 2000-2013, with manufacturing holding a major share. The manufacturing sector in GCC countries is growing at a rapid pace and is projected to reach USD XX billion by 2021 at a CAGR of XX%. Key factors in the growth of manufacturing industry are developed R&D facilities, government support, modern infrastructure, diversification and competition amongst the GCC countries.
Diversification of economy is driving the manufacturing sector in the GCC countries. As the countries look for substitutes for oil and gas sector in terms of revenue generation, major investments have been made in the manufacturing sector as it shows immense potential.
The cost of setting-up and running industrial facilities in the region is low and attracts investors. Duty-free access to manufactured goods to the GCC and favorable tax regimes are also driving growth in this sector. The US-GCC Free trade Agreement is attracting many foreign investors.
Restraints and Challenges
Declining and fluctuating oil prices pose a challenge for the government as they directly impact the budgets allocated for other sectors. Though these countries are diversifying their economies, they are very much dependent on oil and gas as of now. Lack of skilled labor is another challenge faced in this sector as GCC countries have to rely on imported labor. The countries lack experience in the manufacturing sector, which poses a big challenge in the form of lack of innovation as compared to other modern economies.
The recent slump in oil prices has shifted the focus from the huge reserves of cheap oil, which are not yielding even a fraction of what they yielded in the past, to other sectors and manufacturing tops the list both in terms of potential and financial backing. This could turn out to be a blessing in disguise for the GCC countries as they shall give their largely oil-dependent economy an option for the future. Government backing, huge investments, relaxation in regulations, and welcoming foreign direct investments show endless opportunities for the sector.
Key Deliverables in the Study
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