A new International Monetary Fund (IMF) report highlights significant progress in digital transformation across the Gulf Cooperation Council (GCC) region, with rapid advancements in digital infrastructure and government services since the pandemic. However, challenges persist in areas such as financial inclusion, corporate digital adoption, and workforce readiness for artificial intelligence (AI).
The report notes that GCC countries have been accelerating their efforts to diversify oil-dependent economies, with major technology-driven initiatives. Saudi Arabia’s NEOM, Dubai’s Digital Silk Road, and Bahrain and Qatar’s emergence as fintech hubs have positioned the region as a growing player in the digital economy.
“Digitalization is transforming the global economic and financial landscape, with the potential to boost productivity and promote diversification in the GCC,” the IMF stated. The report further emphasized that the COVID-19 pandemic accelerated digitalization globally, driving an increase in online activities and digital economy opportunities.
The GCC’s digital acceleration has been particularly evident in the public sector, with the region’s “GovTech Maturity Index” now rivaling or exceeding advanced economies. Saudi Arabia and the UAE lead the region with GTMI scores above the 95th percentile globally, while countries like Bahrain, Kuwait, and Saudi Arabia have made sharp improvements, thanks to initiatives like Bahrain’s Tawasul platform and Saudi Arabia’s Vision 2030.
However, progress has been uneven, with Kuwait lagging in areas like digital citizen engagement and core government systems, and Oman requiring improvement in public service delivery.
Fintech Growth and Financial Inclusion Challenges
The fintech sector has seen remarkable growth, particularly in Saudi Arabia and the UAE, with Saudi fintech funding deals increasing 80-fold between 2019 and 2022. Regulatory sandboxes, pioneered in Bahrain, have expanded across the region, fostering innovation in digital banking and payments. Despite these advancements, financial inclusion remains a challenge. Although access to bank accounts and digital payments has improved, the GCC still trails behind advanced economies in financial inclusion.
Bahrain and Saudi Arabia stand out for their potential to benefit further from digitalization, with the IMF noting a strong link between digitalization and financial inclusion. The report suggests that increasing digitalization in these countries could significantly boost financial inclusion, especially for underserved populations.
Corporate Sector and AI Readiness
While the GCC has world-class digital infrastructure, the corporate sector’s digital adoption varies. Local production of digital goods and services remains limited, particularly in sectors outside digital-intensive industries. However, companies in digital-intensive industries have shown greater resilience during economic downturns.
AI adoption is growing, with 62% of respondents in a McKinsey survey reporting AI use in at least one business function. Saudi Arabia and the UAE lead the region in AI preparedness, but gaps remain in innovation and regulations compared to advanced economies.
Policy Priorities: Skills, Regulation, and Inclusivity
To sustain and build upon its digital progress, the IMF report recommends focusing on several key areas, including:
- Enhancing Digital Skills: The region currently lags behind advanced economies in both basic digital literacy and advanced ICT capabilities. Upskilling the workforce, particularly in AI and cybersecurity, is essential for future growth.
- Strengthening Fintech Regulations: While regulatory sandboxes have fostered innovation, the region needs more comprehensive regulations to ensure the stability and protection of consumers as digital financial services expand.
- Boosting Corporate Digital Adoption: Encouraging digital adoption among small and medium-sized enterprises (SMEs) could improve overall productivity and enhance resilience to economic fluctuations.
- Addressing Labor Market Disruptions: As AI and automation transform the job market, the GCC needs proactive policies to mitigate labor market disruptions. This includes robust social safety nets and retraining programs to help workers transition into new roles.
- Cybersecurity and Data Protection: Strengthening cybersecurity and data protection reforms is essential to maintaining trust in the region’s digital ecosystems.
A Regional Leader with Room to Grow
The IMF report concludes that while the GCC’s digital transformation has been impressive, much work remains. With targeted policies, the region can solidify its position as a global digital hub while ensuring technology’s benefits are broadly shared.
“Decisive implementation of comprehensive reform agendas—focusing on bridging the digital divide and ensuring labor market inclusiveness—will support the GCC’s continued digitalization efforts,” the report states.
