March 2024 Al-Monitor Trend Report 

2,410 words

Turkey’s efforts to boost economic ties with former Gulf rivals have continued in 2024: on March 21, the Gulf Cooperation Council (GCC) and Turkey agreed to launch negotiations for a free trade agreement (FTA). If finalized, it could create one of the world’s largest free trade areas, with a total value of $2.4 trillion, Turkey’s trade minister wrote on X (formerly Twitter). That comes after Gulf governments pledged to invest billions into Turkey last year, delivering a big win for President Recep Tayyip Erdogan’s efforts to revive his country’s moribund economy. 

Similarly, Gulf wealth is throwing a major lifeline to another embattled economy: in February, Egypt signed a $35 billion deal with the UAE centered on developing a Mediterranean resort area. The mega investment delivered a major influx of much needed foreign currency, helping pave way for Cairo to secure an expanded $8 billion IMF loan deal. Within days, rumors began swirling that Saudi Arabia was looking to invest billions into an Egyptian Red Sea tourist destination.  

These moves indicate that there are still strong tailwinds behind ongoing economic integration and investment cooperation in the Middle East despite instability delivered by the Gaza war. Still, this comes alongside signs of how the conflict is also hurting collaboration. 

On March 13, Abu Dhabi's national oil company and BP suspended a $2 billion offer to buy a 50% stake in Israeli gas producer NewMed Energy due to regional uncertainty. A highly visible sign of growing Israel-UAE ties, the deal emerged as a byproduct of the Abraham Accords and hints at how the war could impact gas grid integration in the eastern Mediterranean. Other economic links boosted by normalization also appear to be fraying, with Morocco now turning to Turkey for weapons as the Gaza war strains defense deals with Israel. 

Simultaneously, competition continues threatening to counteract economic benefits gained from local cooperation. Case in point: Saudi Arabia’s expansive tourism ambitions. News surfaced on March 4 that the kingdom seeks to attract up to $80 billion in private investment to contribute to big spending on tourism projects. That push is only upping competition with Gulf neighbors, which also rely heavily on tourism to drive non-oil growth. 

Against that backdrop, Mideast economies are caught between forces binding some closer together alongside those that are unwinding ties among others in 2024. Below, Al-Monitor's monthly trend report explores these developments and other essential storylines on our radar. 

Saudi tourism blitz accelerates as Riyadh hopes investors buy the hype

• Tourism features prominently in state plans across the Middle East, but nowhere is that more evident than Saudi Arabia’s expanding push to become a travel destination, with the kingdom using tourism to help craft a new national image as part of its Vision 2030 economic diversification agenda. 

• In 2023, Saudi Arabia welcomed over 100 million tourists, a milestone arriving seven years ahead of schedule. Although the amount of leisure trips likely remained modest, international visitors accounted for about 27 million. Saudi Arabia now envisions seeing 150 million tourists annually by 2030, including 70 million international visitors.

• Riyadh also wants to boost tourism’s GDP contribution to 10% by 2030, up from about 3% in 2019. In March, Bloomberg reported that the kingdom is targeting $85 billion in sector revenue in 2024, up from around $66 billion last year. Tourism’s current GDP contribution is 4.5%. 

• Crucially, Saudi Arabia wants foreign investors and private sector players to help shoulder the financial burden of developing the megaprojects underpinning tourism goals. In 2022, Saudi Arabia’s overall foreign direct investment (FDI) inflows dropped about 60% to $7.9 billion. 

• In March, Bloomberg reported that Saudi Arabia wants to raise $60 billion to $80 billion in private funding to boost its tourism industry by 2030. So far it has attracted about $13 billion from the private sector. 

The takeaway: Saudi Arabia’s bold tourism blitz has continued unabated into 2024 and Riyadh is signaling that more international visitors and foreign investment are key to its ambitions.

Looking ahead: Saudi Arabia should again post strong tourism numbers in 2024, even as activity continues skewing heavily towards local and regional travelers. That may shift somewhat once a new airline lifts off in 2025, which could help attract a broader range of visitors. Meanwhile, the spending burden should remain squarely on the PIF until megaprojects get further off the ground.

Another factor to watch: The UAE is making tourism moves too, like preparing to become the first Gulf state to legalize gambling after creating a commercial gaming regulator in 2023. Casino giant Wynn is betting on that with a $3.9 billion resort planned for the UAE (although in February 2024, MGM Resorts confirmed that a $2.5 billion Dubai project won’t have a casino).

Gaza war tests East Med gas integration and national energy security

• As outlined in a memo by Gerald Kepes, the impact of the Gaza war has significant implications for the next tranche of natural gas projects in the eastern Mediterranean. Any intensification of the war has potential to reorient a regional gas grid from a north-south orientation (Egypt, Israel, Jordan and potentially Cyprus) to a larger west-east network including Iraq. 

• Only Israel among its neighbors can achieve energy security independently, although Cyprus has discovered yet undeveloped gas resources sufficient to achieve energy independence.

• Egypt must import having failed to manage domestic gas demand alongside needing to export energy for revenue. Lebanon, Jordan and Syria can only achieve national energy security via multiple sources of supply, while a Palestinian state would struggle with energy independence. 

• Israeli natural gas output in 2023 reached record high volumes of 2.4 billion cubic feet per day (bcf/d).  Another new offshore Israeli field came onstream in late February. Most of Israeli output increases over 2022 volumes ended up as exports to Egypt. 

• Egyptian natural gas output in 2023 fell to a six-year low of 5.74 bcf/d. Estimated output for 2024 will decrease further to below 5 bcf/d.  As to new gas supplies, the potential in Egypt’s western offshore Mediterranean area — the Herodotus Basin — is favorable. The first exploration wells will be drilled in 2024.  

• Appraisal of Cyprus’ deepwater Cronos gas field has confirmed commercial volumes, and a proposed tie-back to Egypt’s offshore gas grid could see gas flow by 2027. There will be maximum Egyptian interest in importing Cyprus, Iraqi or other sources of natural gas in coming years.

The takeaway: As much as regional governments may wish to continue discrete growth in Israeli natural gas flows, the vision of a strongly integrated East Med gas play may stagnate, with future Egyptian, Jordanian and even Lebanese energy needs met by other supply sources and different infrastructure. 

Looking ahead: Most regional countries probably won’t reach a comfortable level of energy security within the next 10-15 years.  Looking closer, we may yet see offshore Cyprus gas head south to Egypt’s offshore grid, but new investment programs related to Israel and possibly Iraq will create other supply-demand patterns. 

Another factor to watch: On March 27, Iraq signed a 5-year gas supply deal with Iran, with Tehran pledging pumping rates of up to 50 million cubic meters per day, state media reported.

Morocco turns to Turkey for weapons imports as Israel ties strain over Gaza

• As outlined in a memo by Francisco Serrano, Morocco’s military procurement is being impacted by the Israel-Hamas war. In January 2024, Morocco’s armed forces acquired 200 Cobra 2 armored vehicles worth $136 million from Turkish weapons manufacturer Otokar. 

• After relying almost exclusively on traditional arms suppliers like the United States and France, Morocco has in recent years diversified its military acquisitions to include other countries as it focuses on modernizing its armed forces.

• Israeli and especially Turkish weapons suppliers have increasingly become top choices for the kingdom’s armed forces, offering high-quality often at more affordable prices. Additionally, they allow Morocco to circumvent the long approval processes often necessary to acquire US-made weapons. 

• Morocco’s military spending rose from $1.5 billion in 2002 to $5 billion in 2022, according to World Bank figures. Arms spending and modernization is driven by two main factors: Rabat’s regional competition with Algeria and its ongoing conflict with the Polisario Front in the Western Sahara. 

• Morocco and Israeli weapons deals began almost a decade ago. The kingdom bought three Israeli-made Heron drones through France intermediation in 2014. But the Abraham Accords allowed Rabat to step up acquisitions. As of mid-2023, Morocco had reportedly bought 150 military drones from Israeli supplier BlueByrd AeroSystems and $22 million Harop drones manufactured by Israeli firm Aerospace Industries. 

The takeaway: Morocco is growing increasingly reliant on Turkey for it weapons supply, as its previous plans of increasingly relying on Israel to jumpstart its defense industry might be jeopardized by the ongoing conflict in Gaza and the wider Middle East.

Looking ahead: Morocco’s defense links with Israel will likely remain contentious for years to come, but won’t be severed completely, predicts Serrano. Opposition to Israel’s offensive in Gaza will likely force the kingdom to temporarily freeze any further deepening of military cooperation. This might last well into 2025-2026.

Another factor to watch: Despite diversification efforts, Morocco’s largest sources of weaponry remains the United States. On March 19, the US State Department approved a possible $260 million sale of Javelin missiles and related equipment to Morocco.

Saudi Arabia’s PIF poised for more bold investments as Vision 2030 squeezes war chest 

• Saudi Arabia’s sovereign wealth fund got a big balance sheet boost on March 7, when the kingdom transferred an 8% stake in Aramco to the PIF. That stake, worth about $160 billion, doubles the fund’s holding in the oil giant and pushes its assets under management (AUM) past $900 billion. 

• The PIF, which aims to amass $2 trillion AUM by 2030, is now set to increase annual capital deployment to $70 billion a year after 2025. It currently puts $40 billion to $50 billion of capital to work on an annual basis. 

• This big spending comes as Saudi Arabia posted an economic contraction in 2023 amid falling oil GDP. The kingdom recorded a $22 billion budget deficit last year and is now forecasting further deficits until 2026.

• To help fill its budget gap, the Saudi government sold $12 billion in bonds in January 2024. The government has estimated that its total funding needs for the year are about $23 billion. In 2023, Saudi Arabia reported its debt to GDP ratio was 25.4%, which is low by global standards. 

• The PIF’s largess has also come alongside some losses. After recording $25.5 billion in income in 2021, the fund reported a $15.6 billion loss in 2022. It blamed that hit mainly on investments in the Softbank Vision Fund (which lost $32 billion in 2022). 

• As of September 2023, the PIF had $15.27 billion in cash, down 70% from 2022 and the lowest level since 2020, reported the Wall Street Journal, while its treasury assets had shrunk 60% to $22.14 billion. 

• The PIF has also raised $7 billion across two bond sales so far in 2024. Crucially, the kingdom is signaling momentum for another Aramco share sale, which could reportedly raise $20 billion and deliver fresh funds for the PIF. This comes as its wealth fund has also been offloading stakes from its portfolio. 

The takeaway: The PIF’s prolific spending is adding up and state coffers are feeling the impacts of weak global oil demand, influencing government efforts to keep feeding fresh cash into the fund.   

Looking ahead: Expect the PIF to rank among the most aggressive sovereign wealth fund’s globally in 2024. Coming months could see global and local dealmaking spanning everything from artificial intelligence and semiconductors to more sports, tourism, infrastructure and energy transition investments. 

Another factor to watch: Saudi Arabia — having emerged last year as the 2034 World Cup’s presumptive host — must now also face the task of building stadiums, hotels and transport links for the mega event. Qatar famously spent up to $300 billion on preparations for its World Cup in 2022.

Gulf players chase data center demand as AI race heats up 

• On March 4, Amazon Web Services (AWS) announced plans to launch data centers in Saudi Arabia by 2026 alongside investing over $5.3 billion. That join a slew of recent investments aimed at developing digital infrastructure needed to help modernize and diversify regional economies.

• As the physical infrastructure housing the Internet and empowering cloud-computing, data centers have long underpinned the world’s digital economy. Now the AI revolution is fueling more demand for computing power, driving more data center investments. This comes as the Middle East’s cloud and data center industry has also gained notable traction in recent years.

• The Middle East is now an emerging hotspot for data center construction and the market is enjoying record demand, according to consultancy firm Turner & Townsend, which sees the region’s data center market bracing for doubled demand by 2030, driven by the growth of the digital economy and AI applications.

• Saudi Arabia’s data center industry is growing fast as it seeks to become the region’s top technology hub. The kingdom features 22 operational colocation facilities and has over 40 under construction, reports Turner & Townsend, which notes that data localization requirements are strengthening the market.

• The UAE is also a regional market leader in the field and is now pouring money into AI infrastructure: on March 11, Abu Dhabi revealed MGX, a new technology investment company targeting AI infrastructure, including data centers, that seeks to amass $100 billion in assets. 

• The New York Times reported on March 19 that Saudi Arabia plans create a $40 billion AI fund, with PIF representatives having discussed a potential partnership with US venture capital firm Andreessen Horowitz and other financiers in recent weeks.

The takeaway: Data centers have emerged as an increasingly hot investment area in the Gulf and are now key to tapping AI’s explosive growth, pitting the UAE and Saudi Arabia in a race to tap sector opportunities. 

Looking ahead: Powered by Saudi Arabia, the Gulf’s cloud and data center industry should continue growing significantly amid the kingdom’s effort to become a technology hub and rival the UAE. 

Another factor to watch: Amazon’s Saudi data center commitment emerged during Riyadh’s LEAP conference, which now has a track record of producing major investments by global tech players. Expect more of the same in February 2025.