Tech

Gulf digitalisation growth barely moving needle in productivity

March 16, 2025, 10:11 AM

Side view of professional female IT developer from Middle East coding at ease on laptop while sitting at workstation with several computers in office — The Gulf is yet to see the productivity growth expected from the increased digitalisation of infrastructure and services across the region

Significant digitalisation growth
Marked productivity decline
Financial support needed

Improvements in the availability and quality of digital infrastructure and services have yet to impact productivity growth in the Gulf economies in any meaningful way, according to IMF officials, past and present.

The digitalisation of government services – through online portals for administrative tasks or e-procurement platforms – as well as the advent of tele-health services, fintech and e-commerce, allowed the Gulf states to better address the challenges associated with the Covid-19 pandemic.

But improved productivity has proved more elusive, the officials said at a virtual event hosted this week by the Arab Gulf States Institute in Washington DC.

“How do we wrap those two together – huge benefits from digitalisation but still very weak productivity growth in the region?” said Tim Cullen, a former assistant director in the IMF’s Middle East and Central Asia department. “Is that something that in the next stage of digitalisation we may see reversed?”

At the event, Daniel Jeong Dae Lee – a Bahrain-focused economist at the IMF- previewed a forthcoming IMF report that he co-authored. The report looks at the adoption of digital tools by governments, the financial sector and the wider corporate economy.

Among governments in the six-member Gulf Cooperation Council (GCC), digitalisation increased “significantly” from 2020 to 2022, and faster than world or emerging markets averages, according to Dae Lee, citing the World Bank’s GovTech Maturity index.

“You can see that many GCC countries, according to this index, are now surpassing the average value for advanced economies,” he said.

The Saudi National Transformation Program (NTP) reported in 2023 that, by the end of the previous year, more than 6,000 government services, or 97 percent of total, encompassed digital access.

Since introducing its Cloud First Policy in 2019, for instance, Saudi government investment in cloud-based products has risen by an average of 25 percent year-on-year, and is slated to approach $5 billion by 2027, according to research from the US International Trade Administration.

Between 2022 and 2024, the kingdom rose 25 places in the UN E-Government Development Index, ranking 6th globally last year. The UAE came in at number 11 in 2024, up from 13 in 2022.

Still, Gulf states are witnessing “uneven progress” in government digitalisation, Dae Lee said. Kuwait, Bahrain and Oman lag behind the other three in the GCC, primarily because they started the process later.

Kuwait actually fell five spots between 2022 and 2024 in the UN rankings for government digitalisation, from 61 to 66. Bahrain climbed 36 steps to become the 18th country in the world in government digitalisation.

In the private sector, Saudi Arabia’s digital-payments uptake has reached the point where people use mobile or card payments to settle nearly all their formal purchases – or those made online or offline with food, retail or other establishments that offer digital-payment options.

These statistics do not include the cash-only, informal economy, which is estimated at roughly 21.5 of gross domestic product in Saudi Arabia.

Similarly, adoption of 5th generation telecommunications technology – which the Global System for Mobile Communications expects to reach 95 percent in the GCC by 2030 – is far above the world average of 54 percent, and higher even than in North America or developed Asian-Pacific economies, according to Dae Lee.

Yet, total factor productivity growth (TFP) – which encompasses labour, capital and other inputs – is low or negative across the GCC.

A study by a pair of researchers at the Kuwait-based Arab Planning Institute published last year found that, between 2020 and 2021, TFP declined an average by between 3 and 5.3 percent across the GCC. By contrast, it grew by between 0.2 and 2.5 percent in China, Hong Kong, South Korea and Taiwan over the same period.

According to Nasser Saidi, founder and president of Nasser Saidi & Associates and a former economist based in Dubai, this is because of the private sector’s still fledgling contribution to the Gulf economy and insufficient spending on research-and-development.

“There is very little innovation … not just in the GCC, it’s across the whole region,” Saidi said this week. “What you want to do there is to ask yourself, how do I protect intellectual property? How do I make it worthwhile so that it actually leads to innovation and productivity growth?”

The GCC needs to boost government efficiency and technology training, and streamline the regulatory environment for business and access to credit by small-and-medium enterprises.

According to Ran Bi, the IMF’s deputy division chief for the GCC, specific digitalisation policies by themselves cannot close the productivity gap without support from larger economic reforms.

“If you want the SMEs to adopt digital solutions they need financing,” she said. “Broader horizontal policies are the basis for these specific digital initiatives to really work to hopefully boost TFP.”