Human Desires, Digital Modalities: The Future of Consumption and Productivity in the GCC

The first half of 2025 passed in a blurry rush of geopolitical events that would normally occur across decades.  With trade policy enacted / de-enacted / reenacted / redacted and now seemingly with the US rebasing to a 10%+ tariff level for the first time in a century, we are both heartened and concerned at the robust market response to elevated, and non-transient, policy volatility.  As one of the most globally exposed markets to trade flows, and yet with quite limited direct links to the US and moreover with amongst the most benign (read, net importers) trade balances globally, GCC businesses find themselves in a more positive trade situation than many other countries.  Most GCC governments moved quickly to capitalize on this advantage, culminating in major bilateral investment announcements and tech transfer agreements during President Trump’s visit to the region in May.

Despite the tree-shaking test of regional risk tolerance during the so-called 12 Day War in June 2025, the GCC appears to have rebounded from the brief spate of airspace closures and the seemingly ‘made for streaming’ attack on the US airbase in Qatar.  While we are not yet ready to give our views on the end state of this new stage of Israeli – Iranian hostility, we can report that Dubai quickly filled with both Israelis and Iranians seeking safety, cementing our view of the UAE, and Dubai in particular, as a key regional ‘safe space’ and financial haven.  That status, as well as the UAE’s continued innovation in offering long-term residency to a widening swath of the world, strongly supported the UAE property market as well as general consumption and spending during the first half of 2025. Investment thematics we previously identified in education, healthcare, and premium services provision continued to strengthen, with record levels of demand for school places, significant growth in higher education, and a record 90k new residents registered in Dubai in 1Q 2025 according to ValuStrat.

Similarly Saudi Arabia saw continued pickup in project execution and related employment growth, although new project tendering did slow.  1H 2025 saw the IPO of a major new real estate developer, Masar, tasked with the development of a premium mixed use real estate development adjacent to Masjid Al Haram in Mecca, as well as the IPO of Saudi’s largest homegrown private air carrier, Flynas.  Both point to the ongoing development of Saudi as a tourism and travel hub.  However, Hajj numbers were disappointing, with pilgrims down YoY; this is attributed to the Saudi government working to meet their ambitious 2030 goals, which include limiting un-regulated pilgrimages and to further organize and streamline the Hajj and Umrah process to mitigate mortality (due to heat, stampedes, etc.) and to further improve infrastructure.

Elsewhere in the Gulf, Kuwait saw a blistering start to 2025 in the equity market with optimism about reform of lending and borrowing with a new mortgage law and a new debt law growing rapidly.  It is too early to see results in bank and corporate financials, but the market clearly believes reform is gaining traction and will deliver future growth opportunities beyond what has been normally available in Kuwait in recent years – we are cautiously optimistic given the volatility of reform over the past 20 years.  While in Qatar, as investment in the North Field gas expansion continues apace, the broad economy is still digesting the excesses of the World Cup 2022 build out, with growth remaining sluggish.  Doha’s property market has been outpaced by Dubai, Abu Dhabi, and Riyadh, and we continue to search for a compelling catalyst in the market.  Financial inflows from the gas expansion will provide strong buffers for the economy but also questions about the best use of funds, whether investing domestically or abroad.

During the first half, we continued to build out our team’s thesis on drivers of GCC economic growth and more importantly on the infrastructure that is required to enable that growth.  Beyond power and water plants and sewage treatment systems, we deepened our understanding of the digital infrastructure that already undergirds consumption in our region and how it will also continue to grow.  6 months in, we are increasingly confident in our “Lego Nations” framework to understand growth and development in the GCC that we outlined in our annual letter and discussions with many of you in early 2025.

In summary, we see the GCC as increasingly sitting at the nexus of a new world order, benefitting from both its hydrocarbon and mineral resources (a 20^th century advantage that is STILL critical) and its human resources (as one of the world’s last – and now perhaps only – truly open labour markets.)  In a world where higher tariffs slow movement of goods and where growing social and political blowback to migration limits the movement of labour, being a low tax, low tariff, migration friendly, truly cosmopolitan region is a singular advantage. It’s not just cheap oil, it’s an efficient labour market.

We were stunned and pleased to see our migration thesis validated and reflected in the data published in the New York Times (from a Meta / Harvard collaboration) visualizing global migration flows through 2022.  In 2022, the UAE and Saudi Arabia, with a combined population of ~40m people, welcomed 2.5m net new migrants, more than all of Europe, with over 15x the population and close net migration figures for the United States, which welcomed (?) 3.2m new migrants in 2022 with a population almost 10x that of the GCC.  Moreover, and most critically, the bulk of these migrants to the GCC came through legal, reasonably transparent work contracts, despite the fear mongering and abuse-highlighting routinely engaged in by papers such as the New York Times, itself.  Even more importantly, over half a million UAE residents, largely skilled and knowledge workers, now enjoy 10 year, renewable ‘Golden Visas’ no longer tied to their employer. Saudi Arabia and Qatar also offer similar, though more limited programs, as competition for migrant residents is now seemingly as popular as the frivolous Guiness Book of World Record accolades so sought after a decade ago.  As long-time residents of the GCC, our team has fond memories of competitions for ‘largest group of people eating biryani at once’ and ‘largest installed acrylic panel’…events still memorialised with tasteful plaques all over the region.

Recent announcements of further development of medical schools, research facilities, and the much-touted US-UAE AI Acceleration Partnership announced in May 2025 continue to support skilled migration to the UAE and related growth in consumption of real estate, leisure goods, and high-end services. While some long time UAE residents feel the pinch of increased competition for jobs and housing, Saudi Arabia has become a more viable alternative, with many new employment, schooling, and service options opening every month in Riyadh as well as other cities in Saudi.  Closer to home, long-time Dubai residents continue to migrate into the Northern Emirates of Sharjah and Ras Al Khaimah, while the Abu Dhabi property market maintains its slow burn appreciation as global fund managers, infrastructure investors, and fintech investors gravitate there.

Anecdotally, we welcomed our largest ever intern cohort this summer, and saw more applications than ever before, as more young people, and increasingly those from outside our own personal networks, seek to explore opportunities in the GCC.  While most interns complain about the summer heat, they are clear-eyed on the opportunities for growth and development in the region.

We summarize the GCC’s advantages as EM cost structure, DM purchasing power. Because of the GCC’s uniquely open labour market and transparent wage and price setting, innovation is simply cheaper.  It’s easier to scale great ideas, and it’s simpler to throw in the towel when something doesn’t work.  While open labour markets have been available in the GCC for decades, the key innovation is that of skilled, long-term residency through the likes of the Golden Visa, meaning that the pool of talent is not ‘lost’ whenever a company or an idea fails.  The labour market in the GCC was always cheap, but it wasn’t always sticky.  Because quality of life has improved in the GCC relative to many other places, and because it’s now possible to stay in-market even without employment, innovation happens much faster and more profitably than it once did.

From an equity market perspective, that increased availability of skilled labour, its stickiness, and the greater economic and political stability borne of the determination of regional leaders to adopt an ‘Economy First’ political agenda means that cost of equity continues to decline, despite geopolitical challenges, uneven global and US trade policy, and a host of other factors from heat waves to halts of air travel.

Moreover, while the threat of AI substitution hangs like a pall over much of the middle management and business services class in developed markets, the opportunities of AI far outweigh the risks for GCC governments.  While GCC labour markets are open, all migrant labour is in fact an import to the GCC.  Substituting machines for men is uniquely appealing to GCC leaders – whose aspiration is to automate and ‘own’ physical capital and eliminate less skilled human capital where possible. We expect that relative to countries with large citizen populations, the unique substitutability of majority expat labour with AI productivity means that the GCC will leapfrog the rest of EM in implementation of functional AI solutions, especially in health services, education services, delivery services, and other quality of life improving innovations.

However, all the innovation in the world has not yet replaced much at the bottom of Maslow’s hierarchy.  This means that excess profits will accrue to those who can best deliver on these basic needs of food, shelter, health, and skill development.  Indeed, in a de-globalizing world, those who control physical assets that produce food, shelter, health care, and education are increasingly valuable because of rising replacement cost of these productive assets.

Our portfolio is focused on identifying and investing in valuable physical assets (geographic value, replacement value, sustenance value) in addition to the most innovative product delivery providers who can still capture significant TAM from legacy product delivery modalities.  We also remain focused on those financial services providers best able to fund both physical goods production and consumption and delivery innovation.  Since we see the GCC at the forefront of innovation in such efficient product delivery, we remain as committed as ever to investing behind the best companies in an increasingly dynamic region.

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