Riyadh and Abu Dhabi economic competitors in the Gulf

Translated by Francesca Valsecchi

For over a decade, Saudi Arabia and the United Arab Emirates have been perceived as the economic and politic pillars of the Gulf. If from the outside the alliance seems still solid, beyond official statements the distance between Riyadh and Abu Dhabi is becoming more and more evident. Disagreements on Israel, Sudan, Syria, Yemen and even on the choices within OPEC+ show that the balance is changing. However, the hearth of the friction is not only political. The economic matter plays a central role: both countries are fighting for regional hegemony and to attract the same capital.

It is important to remember that over the last thirty years, the Emirates have built their economic strength replacing Bahrein as the main commercial hub of the Gulf. In this historical moment Saudi Arabia is aiming to repeat that leadership transition. The competition between the two models is focused on the same sectors: finance, technology, tourism, and logistics. The problem is that regional and global markets may not sustain the ambitions of both countries. Saudi success risks to eat away the Emirati supremacy and, at the same time, the strength of Abu Dhabi’s system limits Riyadh’s chances of success.

Riyadh is taking assertive measures. In 2016 the Saudi government presented Vision 2030, an economic diversification plan aimed at reducing dependence on oil and at transforming the Kingdom into a global hub for investments and innovation, directly competing with the Emirati model in key sectors. From 2024, multinational companies which want public contracts must have their regional headquarters in the Kingdom. This measure has led different companies to move their offices from the Emirates to the Saudi capital. Besides, the government introduced higher tariff on goods produced in free zones and imposed non-tariff barriers which primarily affect Emirati companies. The aim is clear: to use the size of the internal market, the largest in the Gulf, as a competitive advantage. Saudi Arabia has also relevant structural advantages. It has a higher industrial capacity compared to the Emirates and it is investing in the mining sector thanks to reserves of phosphates, gold and rare earths. Moreover, its position on the Red Sea provides strategic connections with Europe, Asia and Africa. However, there is still an element of vulnerability: nearly half of Saudi Arabia’s GDP still depends on oil.

The Emirates, on the other hand, reply with a different model. The Emirati strategy is focused on continuity and on a well-established reputation. Abu Dhabi and Dubai have built an ecosystem based on free zones, reasonable taxation, and openness to foreign investors. The Abu Dhabi Industrial Strategy, launched to reinforce the manufacturing sector and support high-value-added growth, offers targeted incentives to innovative companies. The network of harbours and airports, among the most developed of the region, represents another competitive advantage and strengthens the role of the country as connection between the Middle East, Africa and Asia. With UAE 2031, presented in 2022, the Emirates have developed a long-term strategy to diversify economy and reinforce leadership in the technology and artificial intelligence sectors. Rather than revolutionising the existing system, the country aims at consolidating a well-known and well-working model. Only about a quarter of GDP depends on oil, a figure that mitigates exposure to energy price volatility.

Even though behind the scenes there is an increasingly intense rivalry, the two governments continue to present themselves as allies on the surface. For the Gulf monarchies, appearance is not merely a detail, but a means of establishing legitimacy and attracting capital. An open conflict between the two main economies of the region would damage the perception of stability, with possible negative repercussions for foreign investments. Rivalry is fated to intensify, but it will hardly be recognized openly. There is not only regional leadership at stake, but also the economic credibility of the whole Gulf.

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