The Middle East’s Economic Transformation: A Real Decoupling or Persistent Uncertainty?

Recap: PwC Middle East’s ‘Transforming the Region’ presentation

PwC Middle East’s Feb. 18, 2025, webcast, “Transforming the Region: Future Insights – Economy and IPO Watch,” included a detailed presentation from Richard Boxshall, PwC Middle East’s chief economist, who highlighted the dichotomy between the region’s oil and non-oil economies, at least in Saudi Arabia and the United Arab Emirates (UAE). How does that all relate to TBR’s coverage of technology companies, including the IT services companies and consultancies I keep a close eye on?
 
In short, energy is stagnant, in terms of both oil price and overall sector growth. In contrast, the non-oil economy is booming, particularly in financial services and transportation. According to Boxshall, around 5,000 projects valued at over $5 trillion are in play in Saudi Arabia alone, reflecting a transformative investment in the country’s economy.
 
But before you set sail for Riyadh, remember that around half of the Saudi and UAE economies are, as Boxshall put it, “driven by oil,” and those governments depend on oil receipts to fund much of their spending. Uncertainty around oil price puts pressure on the countries’ fiscal positions and budgets, as Boxshall noted. If those prices went higher, for all the benefit that would bring to the government coffers, the economies would also face inflation, rising rents and potentially a drag on the non-oil economy. All that interdependency considered, Boxshall still described the split between the oil and non-oil economies as a “real decoupling.”
 
So, good news, right? The long-sought-after growth of strong non-oil economies, the eventual weaning of these pivotal Middle East countries from subservience to the price of oil is happening now and happening quickly. And should a trade war break out between the U.S. and the European Union (EU) or the U.S. and China, Saudi Arabia and the UAE — and the rest of the Middle East economies — will suffer. A production surge by the world’s largest oil producer — the U.S. — would further dampen oil prices, constraining Middle East governments’ budgets. Not everything is perfect, but certainly the big picture looks promising: Non-oil economies in oil-led countries have shown persistent, seemingly lasting growth.

Watch on Demand: $130+ Billion Emerging India Opportunity

Why TBR cares: A long history and a fast-changing present

Why does TBR care? Two reasons, one recent and one that goes back decades. First, the latest developments: Nearly every company we cover in the professional services, IT services, and digital transformation services spaces has increased its presence and investment in the Middle East in recent years. We’d like to take some credit for trumpeting the region’s IT possibilities back in 2020 (Egypt and IT and the center of the world), but no matter when or why the most recent surge into the Middle East started, it’s unquestionably become a hot spot (see Figure 1).
 
Sovereign wealth funds, newly arrived Western venture capital, and the payoffs from a couple decades of vastly improved schools and universities all converged in recent years with well-timed investments in technology and necessary changes to regulatory environments. The steady economic diversification efforts, coupled with new leadership in much of the region and all the factors above, have made the region exceptionally attractive to capital and talent. As one Big Four partner said to me recently, “If I was in my 20s right now, I’d move to Riyadh.”
 

 

That leads to the decades-old reason why I’m interested in what’s happening in the Middle East and how those economies are changing. When I was in my 20s, I lived in the region, spending two years in Cairo followed by two in Dubai, UAE. Working for the U.S. government gave me access to regional economic conferences, multinational oil companies, local government ministries and even oil smugglers, all of which shaped my understandings of the energy industry and the region’s economies.
 
One would be foolish to doubt the Emiratis’ innovativeness, the Saudis’ limitless financial resources or the Egyptians’ belief in their centricity to the entire world. But 25 years ago, the obstacles to thriving non-oil economies, particularly in Saudi Arabia, seemed insurmountable. Looking at the region now through Boxshall’s eyes (and those of my friends still living and working there), it’s too easy to view the transformation as inevitable. Combine diligent reforms, steady investment, smart leadership and a growing population base, underpinned by all that relentless oil money, and, of course, these are thriving economies attracting top talent.
 
I can’t argue against that. Nor do I have a cautionary note to sound about previous financial crashes in Dubai or charming Saudi leaders or French emperors conquering Egypt. Very simply, when asked decades ago what success would look like, government and business leaders in the region described economic conditions very similar to what we’re seeing today.