Stronger oil, investment flows to boost Saudi non-oil GDP: PwC

The impact of value-added tax (VAT) on Saudi Arabia and the United Arab Emirates (UAE) non-oil GDP growth should be mitigated in 2018 if oil prices and regional investment flows remain strong, auditing firm PwC said in a report on Sunday.

Saudi Arabia and the UAE introduced VAT in January this year.

“Notwithstanding the impact of  VAT and inflation, if oil prices remains buoyant, as seems likely, and regional investment flows are boosted by IPOs and a rise in foreign inflows, non-oil GDP growth in 2018 should be slightly stronger than in 2017,” Richard Boxshall, senior economist at PwC Middle East, said in the report.

The non-oil GDP growth, combined with stable oil production, should result in stronger overall growth for the year, he added.

PwC also expects that 2017 data will reveal signs of recovery in foreign direct investment (FDI), which is down sharply from its 2008 peak.

FDI in the GCC states is expected to pick up in 2018, owning to reforms in foreign ownership rules as well as broader improvements in the business environment.

“Gulf countries are rethinking the role of foreign investors as they look to ease fiscal burdens and restructure their economies for the twilight of the oil era, with a strong focus on technology-intensive sectors,” Boxshall said.

“This is leading to a series of new investment and companies laws and changes to capital market rules,” he added.

The UAE last month approved a new long-term visa system aimed at attracting international investors and high-skilled professional workers.

The UAE cabinet also approved 100 percent foreign ownership of companies in the country.

According to PwC, the region could see further boost if MSCI decides to add Saudi Arabia to its benchmark Emerging Markets Index.

“This could sharply increase inflows into the region as a whole,” Boxshall said.