Saudi Arabia, the United Arab Emirates, and other Gulf economies find themselves in an increasingly advantageous position, owing to changing geopolitical and market dynamics. The coming months and years may represent the best chance the region has ever had to create a viable post-oil development model.
LONDON – Over the last three years, Saudi Arabia’s Public Investment Fund (PIF) has signed agreements with leading multinational companies to build new manufacturing facilities in the Kingdom. Yet, despite sufficient oil wealth to entice global players, past attempts at this type of industrial policy did not bear fruit. Is this time different?
There are signs it might be, owing to multiple factors, such as improvements in state capacity and infrastructure and the declining cost of renewable energy. Perhaps even more important is the Gulf monarchies’ growing ability to understand and manipulate the shifting geo-economic landscape to carve out a place for themselves in global value chains, which have become increasingly contested with the rise of major rival blocs.
It is not just Chinese companies that have started to engage with the region. In the United Arab Emirates, Microsoft recently signed a $1.5 billion agreement to invest in the state-owned tech company G42, and the Italian shipbuilder Fincantieri has formed a joint venture with the Emirati technology and defense conglomerate EDGE Group to export naval vessels to non-NATO partners.
These developments are occurring against a backdrop in which states in the region have become prolific entrepreneurs – a phenomenon that is particularly visible in Saudi Arabia and the UAE. Seeking to industrialize and modernize through a distinctly state-capitalist model, domestic sovereign wealth funds have established or acquired dozens of firms in a variety of sectors, and these have become the preferred partners of foreign industrial players looking to set up shop in the Gulf. But while the vast resources and capacity provided by the state have created a host of new opportunities, it remains to be seen whether there is sufficient market discipline to establish a sustainable, export-oriented industrial strategy.
Combined with the expansion of this state capitalist model, today’s shifting geopolitical landscape may offer new opportunities. Multipolarity and the rise of alternative blocs such as the BRICS (Brazil, Russia, India, China, South Africa, plus five other emerging economies) have given relatively autonomous middle powers like Saudi Arabia and the UAE a stronger negotiating position, allowing them to muscle in on global value chains that previously lay beyond their reach. Talk of a BRICS currency and de-dollarization of some of the Gulf’s trade with China may be little more than a trial balloon for now, but nonetheless reflect shifting geopolitical winds.
This new dynamic has been on display in trade talks between the Gulf Cooperation Council (GCC) and counterparts like the European Union and the United Kingdom, in attempts to attract global finance, technology, and sport to the region, and in the economic relationship with China – the GCC’s most important trade partner. Saudi Arabia’s recent hosting of preliminary talks between US and Russian diplomats is an early sign of the central role to which Gulf states are aspiring under US President Donald Trump’s second administration.
At a time of escalating global turmoil, there is an urgent need for incisive, informed analysis of the issues and questions driving the news – just what PS has always provided.
Subscribe to Digital or Digital Plus now to secure your discount.
Subscribe Now
These changes in the international system, combined with a more muscular industrial strategy aimed at attracting multinationals, have fueled a rapid change in fortunes. As recently as 2019, Toyota publicly declined to invest in a manufacturing facility in Saudi Arabia after lengthy talks, citing high labor costs, a small domestic market, and the absence of a local supply chain. Yet since then, as competitively priced green energy, automation, a low cost of capital, and geo-economic fragmentation have become more important, Saudi Arabia’s west coast has emerged as a nascent electric-vehicle hub. Foxconn, Hyundai, and Lucid are investing in manufacturing facilities aimed at serving the Gulf, Africa, and European markets.
Similarly, while Microsoft is investing in the UAE, Lenovo recently broke ground on a manufacturing facility in Saudi Arabia. There has also been a substantial increase in investment commitments targeting the region’s digital infrastructure, especially green data centers, owing to the cheap cost of solar, abundant land, and low-latency connectivity to a wide range of markets.
Following a slow start, renewables are now being deployed at a rapid pace across most of the region, and this trend is helping Gulf states localize important parts of these value chains. Already, two of the world’s largest solar panel manufacturers – China’s LONGi and JinkoSolar – are planning assembly lines in Saudi Arabia in partnership with the PIF. Moreover, the proliferation of cheap renewables supports the case for an export-oriented green-hydrogen strategy. The world’s largest such facility should open in the Saudi northwest in 2026, and the UAE and Oman have plans to host other, similarly notable projects.
As the AI race has elevated the importance of low-cost green energy, capital, and land, Gulf policymakers have already been able to sharpen their industrial strategies. If an escalating trade war ensues, they could narrow their focus further. Governments in the region will be in a strong bargaining position if China wants to use manufacturing investments in the Gulf to continue selling to markets that are closed off to direct Chinese exports. Trade tensions between great-power rivals – and, apparently, friends – will tend to benefit middle-power markets that have ample capital and infrastructure, even if they are not always the most cost-competitive.
Betting on this kind of industrial strategy is not without risks, though. Globally, it is not yet clear that newly fashionable industrial policies are working out so well. The United States and Europe might take steps to keep Chinese products out of their markets even if they are produced outside of China. And some Gulf countries are trying so many things that their capital and managerial expertise is being stretched thin. Nonetheless, the coming months and years may represent the best chance the region has ever had to develop a viable post-oil growth model.
To have unlimited access to our content including in-depth commentaries, book reviews, exclusive interviews, PS OnPoint and PS The Big Picture, please subscribe
During the postwar era, Germany's traditional parties worked to establish an economic model that balanced markets with the need for rules to limit economic power. If they want to end their country's economic malaise and help prepare Europe for the future, they would do well to revive the social market tradition.
urges the next German government to help revive the postwar European social market economy.
“There’s a new sheriff in town,” declared US Vice President J.D. Vance at this year’s Munich Security Conference. With his boss, “Sheriff” Donald Trump, openly disparaging America’s longstanding security commitments and actively undermining European security, the United States can no longer be trusted, and it is up to Europe’s leaders to bolster the continent’s defense capacity – and fast.
Incoming Germany Chancellor Friedrich Merz is an unlikely candidate to lead a decisive break with the United States. But an erstwhile über-Atlanticist and fiscal conservative might be the only German politician who can credibly bury the country's economically disastrous "debt brake" and pave the way for a truly independent Europe.
asks how Germany's incoming chancellor can ensure the continent's defense – not least against the US.
LONDON – Over the last three years, Saudi Arabia’s Public Investment Fund (PIF) has signed agreements with leading multinational companies to build new manufacturing facilities in the Kingdom. Yet, despite sufficient oil wealth to entice global players, past attempts at this type of industrial policy did not bear fruit. Is this time different?
There are signs it might be, owing to multiple factors, such as improvements in state capacity and infrastructure and the declining cost of renewable energy. Perhaps even more important is the Gulf monarchies’ growing ability to understand and manipulate the shifting geo-economic landscape to carve out a place for themselves in global value chains, which have become increasingly contested with the rise of major rival blocs.
It is not just Chinese companies that have started to engage with the region. In the United Arab Emirates, Microsoft recently signed a $1.5 billion agreement to invest in the state-owned tech company G42, and the Italian shipbuilder Fincantieri has formed a joint venture with the Emirati technology and defense conglomerate EDGE Group to export naval vessels to non-NATO partners.
These developments are occurring against a backdrop in which states in the region have become prolific entrepreneurs – a phenomenon that is particularly visible in Saudi Arabia and the UAE. Seeking to industrialize and modernize through a distinctly state-capitalist model, domestic sovereign wealth funds have established or acquired dozens of firms in a variety of sectors, and these have become the preferred partners of foreign industrial players looking to set up shop in the Gulf. But while the vast resources and capacity provided by the state have created a host of new opportunities, it remains to be seen whether there is sufficient market discipline to establish a sustainable, export-oriented industrial strategy.
Combined with the expansion of this state capitalist model, today’s shifting geopolitical landscape may offer new opportunities. Multipolarity and the rise of alternative blocs such as the BRICS (Brazil, Russia, India, China, South Africa, plus five other emerging economies) have given relatively autonomous middle powers like Saudi Arabia and the UAE a stronger negotiating position, allowing them to muscle in on global value chains that previously lay beyond their reach. Talk of a BRICS currency and de-dollarization of some of the Gulf’s trade with China may be little more than a trial balloon for now, but nonetheless reflect shifting geopolitical winds.
This new dynamic has been on display in trade talks between the Gulf Cooperation Council (GCC) and counterparts like the European Union and the United Kingdom, in attempts to attract global finance, technology, and sport to the region, and in the economic relationship with China – the GCC’s most important trade partner. Saudi Arabia’s recent hosting of preliminary talks between US and Russian diplomats is an early sign of the central role to which Gulf states are aspiring under US President Donald Trump’s second administration.
Winter Sale: Save 40% on a new PS subscription
At a time of escalating global turmoil, there is an urgent need for incisive, informed analysis of the issues and questions driving the news – just what PS has always provided.
Subscribe to Digital or Digital Plus now to secure your discount.
Subscribe Now
These changes in the international system, combined with a more muscular industrial strategy aimed at attracting multinationals, have fueled a rapid change in fortunes. As recently as 2019, Toyota publicly declined to invest in a manufacturing facility in Saudi Arabia after lengthy talks, citing high labor costs, a small domestic market, and the absence of a local supply chain. Yet since then, as competitively priced green energy, automation, a low cost of capital, and geo-economic fragmentation have become more important, Saudi Arabia’s west coast has emerged as a nascent electric-vehicle hub. Foxconn, Hyundai, and Lucid are investing in manufacturing facilities aimed at serving the Gulf, Africa, and European markets.
Similarly, while Microsoft is investing in the UAE, Lenovo recently broke ground on a manufacturing facility in Saudi Arabia. There has also been a substantial increase in investment commitments targeting the region’s digital infrastructure, especially green data centers, owing to the cheap cost of solar, abundant land, and low-latency connectivity to a wide range of markets.
Following a slow start, renewables are now being deployed at a rapid pace across most of the region, and this trend is helping Gulf states localize important parts of these value chains. Already, two of the world’s largest solar panel manufacturers – China’s LONGi and JinkoSolar – are planning assembly lines in Saudi Arabia in partnership with the PIF. Moreover, the proliferation of cheap renewables supports the case for an export-oriented green-hydrogen strategy. The world’s largest such facility should open in the Saudi northwest in 2026, and the UAE and Oman have plans to host other, similarly notable projects.
As the AI race has elevated the importance of low-cost green energy, capital, and land, Gulf policymakers have already been able to sharpen their industrial strategies. If an escalating trade war ensues, they could narrow their focus further. Governments in the region will be in a strong bargaining position if China wants to use manufacturing investments in the Gulf to continue selling to markets that are closed off to direct Chinese exports. Trade tensions between great-power rivals – and, apparently, friends – will tend to benefit middle-power markets that have ample capital and infrastructure, even if they are not always the most cost-competitive.
Betting on this kind of industrial strategy is not without risks, though. Globally, it is not yet clear that newly fashionable industrial policies are working out so well. The United States and Europe might take steps to keep Chinese products out of their markets even if they are produced outside of China. And some Gulf countries are trying so many things that their capital and managerial expertise is being stretched thin. Nonetheless, the coming months and years may represent the best chance the region has ever had to develop a viable post-oil growth model.