Advancing digital maturity a $100+ billion opportunity for GCC

27 December 2021 5 min. read
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Advancing the digital maturity of GCC countries can unlock billions in economic value added, according to a new report by Strategy&. Bahjat El-Darwiche and Tarek El Zein, both partners at the strategic consulting firm, outline the opportunity and what needs to be done to reap its benefits.

At Strategy&, we developed the Digital Economy Index, a comprehensive measure of the digital maturity of 100+ countries between 2010 and 2020. The index has five pillars: Foundations, talent, innovation, adoption, and local production.

Comparative analysis shows that GCC countries have recorded strong digital sector growth over the last decade. The region’s index score grew the fastest of any part of the world, at twice the speed of the OECD countries over the last decade. GCC countries have invested in digital infrastructure, adopted e-government platforms, and launched technology parks and business incubators.

The GCC digital economy is growing fast

Yet in overall terms, GCC countries still have a significant opportunity to capture the economic potential from digital. Ranked by index performance, countries can be grouped into three different categories.

Firstly, there are digital learners that prioritize the development of basic connectivity and adoption, enhancing their digital infrastructure to obtain the benefits of digital solutions.

But digital adopters – which include the GCC countries – have met connectivity requirements, which in turn promote higher demand for digital outputs. These countries typically seek to develop talent, enable digital innovation, and localize digital services. They empower the sector through policies and regulations, establishing capability development programs, and formalizing partnerships with the private sector.

Digital disruptors – which include the most developed economies – have developed a vibrant, enabling digital ecosystem. They are leaders in adopting and producing digital outputs. Disruptors tend to be net exporters of technology solutions; they foster innovation, sponsor vibrant startup ecosystems, and they are home to best-in-class digital talent.

Higher Digital Economy Index scores signal greater GDP per capita gain

The analysis of the 109 countries confirms a strong positive correlation between a country’s Digital Economy Index score and national economic development and performance. Specifically, our analysis demonstrates that a 10 percentage point increase in any country’s index score would lead to a 2.6 percent increase in GDP per capita growth and 1.1 percent growth in employment.

The transition

If GCC countries were to move from being adopters to being disruptors – hosting powerful local companies, institutions and talent – the contribution of the digital economy to the overall economy would grow from 12.2 percent to 13.4 percent. This could add $138 billion to regional GDP.

For example, if Saudi Arabia were to increase its index score from 44.47 to 54.72 – matching Germany’s level – its GDP per capita would increase from $19,587 to $20,779, and it would provide a net gain of around 340,000 jobs.

Capturing this opportunity requires that governments take vigorous action to implement the correct policies. The Strategy& analysis shows that GCC countries need more digital talent, innovation, and domestically produced digital products and services if they are to play a role in global digital markets over the medium term.

GCC countries lag behind advanced economies in the contribution of their digital economy to GDP

Similarly, the region needs more digital activity in terms of patents, disruptive business models, and venture capital availability to keep up with the activity of advanced economies.

Reaping the opportunity

To leap the digital gap and keep pace with advanced economies, GCC countries need to focus their efforts in three main areas.

First, they should reform the regulatory frameworks to adapt to the new market realities of the digital era. Regulations need to be adaptive and anticipatory to keep pace with technological and business model changes. Governments also need to build their economic and technical capacity in a way that will allow them to assess continually the impact of specific policies, and correct any implementation shortfalls.

In particular, careful regulations of financial services, data protection, digital economy policies (such as taxation), cybersecurity, and e-commerce transactions can increase the efficiency of financial flows in the region.

GCC countries should then deepen the talent pool. Countries in the region need more digital talent, a key enabler to build sustainable, thriving digital economies.

GCC countries score lower than advanced economies across all pillars

Digital talent is a combination of the capacity of the education system to produce the knowledgeable graduates required by the economy, upgrade the basic and advanced skills of current workers to operate and innovate digital technology, and increase the current share of the labor force employed in digital occupations.

Finally, policymakers must strengthen innovation and localization. Local production and digital innovation are vital because they contribute significantly to the growth of national GDP and jobs, either directly through revenues and direct employment, or indirectly by nurturing an ecosystem of innovative startups and SMEs.

Growing the digital economy is no longer a choice for Gulf countries. It is an imperative for their economic future, ensuring economic growth, creating jobs, and building economic resilience and sovereignty.

The Gulf Cooperation Council (GCC) is a political and economic union of Arab states bordering the Gulf, and includes the United Arab Emirates, Saudi Arabia, Qatar, Oman, Kuwait and Bahrain.