How FDI is reinforcing the strategic significance of the GCC

Geopolitical tensions and conflicts are now notable risks for the GCC’s attractiveness for FDI over the next three years. Thirty-nine percent of respondents identified this issue among their top three concerns, up from 31% last year. Regional tensions and escalations in June 2025, and the resulting conflict, have likely intensified business leaders’ concerns about geopolitical risk, reinforcing its significance as a critical area of uncertainty.

Climate change and the growing risk of environmental disasters, which were the top concerns highlighted by respondents in the 2024 survey, remain a key topic in 2025. Around 32% of survey respondents listed it as the joint second concern, alongside energy supply issues and energy price volatility, as well as tightening financial conditions.

Over the past decade, GCC countries have built a strong reputation among global business leaders. All six countries ranked in the top half of the IMD World Competitiveness Ranking 2025, which incorporates feedback from business executives as a key input. Notably, both Qatar and the UAE secured positions in the top 10.²

Government spending has risen to finance these projects, resulting in occasional fiscal deficits when fluctuating oil prices lead to shortfalls in revenue.³ Bahrain, Qatar, Saudi Arabia and the UAE successfully accessed international bond markets in 2024. Additionally, assets in GCC SWFs are projected to grow markedly during the current decade. This is expected to provide ample opportunity for state-backed economic development projects. “The GCC is the only region, or one of a very limited number of regions, where you have substantial government spending on infrastructure, and that makes it more or less unique from an FDI perspective” says Ahmad Ahmad, EY MENA Government & Infrastructure Industry Leader.

As a result of these transformation efforts, the region’s economies are growing. Even with relatively moderate oil prices in April 2025, the International Monetary Fund (IMF) expects the six GCC economies to grow year-on-year by an average of 3% in 2025 and 4.1% in 2026, driven by increases in non-energy GDP.^3,4

Gulf governments are also taking on prominent mediation roles in geopolitical conflicts. The region’s prominence in global energy production further enhances its strategic significance during periods of geopolitical uncertainty. To sustain this relevance amid the transition from hydrocarbons, GCC governments are investing substantially in renewable energy projects and setting ambitious renewable energy targets. 

AI: the new strategic sector

Artificial intelligence (AI) has become a critical arena, with China and the US leading in the development of generative AI (GenAI) models. The GCC countries are making significant investments in data centers that power AI as well as in solar power projects to reduce emissions linked with AI use. This AI infrastructure has the potential to attract future FDI from companies eager to leverage AI.

The GCC, with its capital and abundant sunlight, is well-positioned to develop renewable energy projects to power data centers. For instance, Saudi Arabia has committed US$5b to a 1.5GW renewable energy project for a data center.⁶

In 2024, the GCC demonstrated resilience in attracting foreign investment despite volatile global conditions. The total number of FDI projects increased by 2%, reaching a record high of 1,973 projects, while job creation fell by 5% and capital investment declined by 25%.

The UAE emerged as the leader in project numbers and job creation, while Saudi Arabia attracted the highest capital investment. After a quiet 2023, Qatar experienced a significant rebound in FDI across all major metrics, indicating a recovery in investor confidence. 

The UAE has emerged as a global hub for business and financial services, and increasingly, software and IT services. Meanwhile, in Qatar, the consumer products sector secured the second-highest number of projects in 2024, with retail activities making up over a quarter of the 162 FDI projects. This trend is likely driven by the perceived opportunities linked to Qatar's wealthy population.

Notably, the GCC’s investor base is diversifying, with the UK as the largest single source country for GCC projects in 2024, followed by India. Indian companies have increased their investments by nearly 400% since 2019, positioning the country as a key player in the GCC's FDI landscape. US investment dropped to third position among source countries for FDI projects. This signals a shift in the dynamics of global investment flows. In this regard, the GCC's strategic partnerships with Asian countries, particularly China and India, are becoming vital as these nations aim to expand their influence in the region.

Furthermore, the sustained growth of sectors such as business services, software and IT services and financial services, alongside rising FDI in the capital and job-intensive electronics and telecommunications sectors, reflect the GCC's evolving economic landscape, driven by technological advancements and digital transformation needs.

Investor sentiment remains positive, with a majority of business leaders confident in the GCC's long-term attractiveness for FDI. Despite geopolitical tensions and economic uncertainties, the region remains an attractive destination for international companies.

To maintain its attractiveness for FDI, the GCC must prioritize regional integration. Business leaders support deeper cooperation across GCC states. Business leaders identified key factors for the region's next stage of economic development, emphasizing cross-border infrastructure, integrated funding for digital technology, and coordinated economic diversification efforts. This sentiment underscores the potential for collaboration to enhance the GCC's competitive position in the global economy.

Although EU-style integration may be unrealistic due to distinct national visions — such as the UAE's ambition to be a trade hub and Saudi Arabia's focus on manufacturing — incremental advancements in cross-border infrastructure, energy interconnectivity and visa harmonization are crucial. The GCC has already made strides in intra-regional trade with non-commodity goods trade rebounding. The business leaders ranked regional integration as the second most important way the GCC can maintain its competitive position in the global economy, with 62% indicating they would likely invest more with increased integration.

Additionally, targeted reforms in four key sectors are crucial for unlocking FDI potential. In financial services, improving access to capital for international companies is vital, as many foreign firms still rely on international lenders due to unfamiliarity with GCC banks.

From an energy sector perspective, Saudi Arabia, the UAE and Qatar have set ambitious targets for renewable energy, aiming to generate 50%, 30% and 20% of their electricity from renewables by 2030, respectively.^7,8,9

Despite starting from a low base and facing uneven progress toward previous targets, the GCC has committed to investing US$100b in renewable energy by 2030.¹⁰ Power and utilities sector has become the leading sector in the GCC for FDI since 2019, with the UAE inviting international collaboration through new long-term agreements for renewable-backed power generation. 

If the GCC states can achieve their renewable energy goals, they will be well-positioned to attract FDI in the medium term. Business leaders consider the share of renewables in the electricity supply as a key factor for investment decisions. Around 60% of business leaders believe that the GCC performs better than other regions on this indicator.

Infrastructure development is another critical area for bringing in private investment. By leveraging SWFs to finance mega-projects and enhance technological infrastructure, the region can create a more favorable environment for foreign investors.

Strengthening contract enforcement and property rights protection can significantly boost investor confidence and ease business operations. GCC governments can further attract FDI by streamlining administrative processes such as visa and permit acquisition. While digital governance in the region is commendable, continued efforts to enhance legal transparency and safeguard intellectual assets remain essential.

International companies value the stability of the GCC but often lack a clear understanding of its judicial systems, underscoring the need for clarity in conflict resolution processes.

Favorable taxation policies, such as low or zero corporation tax rates in economic free zones, have been instrumental in attracting international companies. However, aligning with the expectations of international companies regarding investment timelines is crucial. By addressing these areas, GCC governments can further enhance their attractiveness to international investors and drive economic growth.

Positioned to succeed

As global competition for FDI intensifies, the GCC is well-positioned to succeed. Its strategic significance is underscored by its role in global energy markets, investments in renewable energy, and commitment to technological innovation. By enhancing its attractiveness through targeted reforms and regional integration, the GCC can solidify its status as a key destination for foreign investment, ensuring sustained economic growth. The future of FDI in the GCC hinges on its ability to adapt to changing global dynamics while leveraging its unique strengths to attract and retain international investors.

Summary 

In 2025, FDI in the GCC continued to thrive, driven by the region's strategic significance in the energy market and robust infrastructure. With strategic significance in the energy sector and ongoing investments in renewable energy, the region is enhancing its appeal to global investors. Key factors include ambitious infrastructure projects, economic diversification, and strong partnerships with Asian nations. As geopolitical tensions persist, GCC governments are focusing on regional integration and policy reforms to attract FDI. By leveraging its strengths and adapting to global changes, the GCC aims to solidify its position as a prime destination for international investment.