INDUSTRY INSIGHT

How the Chemical Industry Contributes to the GCC Economy

From supporting a workforce equal to the entire population of Luxembourg to generating a GDP contribution more than the annual GDP of Doha, the chemical industry’s impact on the economy is significant and worth celebrating

The chemical industry is widely associated with the manufacturing of chemicals, but its economic impact extends far beyond that. Central to the modern economy, the industry is known to convert raw materials such as oil and natural gas into more than 70,000 different products which play an essential role in our quality of life. As a major supplier of inputs to many other sectors, most industries utilize chemicals in the production of other end user products including the manufacturing of automobiles, for energy generation, cleaning products, pharmaceuticals, household materials, piping and many more. In turn, the products manufactured by the chemical industry serve as inputs into other manufacturing sectors and help to increase the productivity and performance of various materials and raise living standards across the world, while also contributing to addressing a variety of sustainability goals.

Since its inception in the 1960s, the chemical industry in the Arabian Gulf has made a tremendous contribution to the regional economy through job creation, economic diversification, and by stimulating the creation of other industries. The GCC region reaps significant socio-economic benefits through the direct activity of the industry itself which involves the production, sale and export of chemicals, as well as through the economic activity across the region as a result of the procurement of goods and services by the chemical industry. Furthermore, the chemical industry has an induced impact on the regional economy supported by the spending of the chemical industry’s workforce, and by the spending of workers in the sector’s supply chain.

Economic impact more than the annual GDP of Doha

The GCC chemical industry has a significant contribution to overall regional and individual countries’ GDP. Buoyed by steady economic activity and strong chemical sales in 2018, GPCA estimates that the industry’s total annual contribution to regional GDP was USD 81.6 billion, or 4.9% of the region’s GDP. This takes into account all direct, indirect, and induced contributions, which equates to more than the annual GDP of Doha, Qatar – one of the world’s richest countries per capita. As far as direct economic impact is concerned, the GCC chemical industry added USD 46.4 billion to the region’s GDP in 2018.

Equally as important is the industry’s contribution to regional employment, which GPCA estimates was a total of almost 620,000 jobs both directly and through its multiplier channels in 2018. This is almost as large as the entire population of Luxembourg and equates to 2.4% of the entire employment in the region. Directly, the GCC chemical industry employs 157,000 people. This means that for every person directly employed in the industry, three other jobs are supported elsewhere in the GCC economy.

The GCC chemical industry has a strong multiplier effect on regional GDP. In other words, for every USD 1 generated by the industry itself, a further USD 0.76 is generated elsewhere in the regional economy.

The GCC chemical industry generates output worth USD 98.3 billion

Over the last five years the regional chemical industry has invested significantly in diversifying its product portfolio and producing higher value-added products. This has further increased the industry’s economic impact, stimulating greater economic activity – a trend that is poised to increase even further – as regional producers continue to focus on manufacturing higher value-added products and innovate new market solutions.

When discussing the chemical industry’s impact on the regional economy, the gross value added (GVA), or the value of goods and services produced by the industry, cannot be overlooked. In 2018, off the back of high regional production, the chemical industry in the Arabian Gulf generated output worth USD 98.3 billion, of which USD 46.4 billion represented GVA, equivalent to some 2.8% of the region’s GDP. This direct GVA accounted for 47% of the industry’s total output.

GCC chemical industry’s supply chain spending exceeds USD 34.9 billion

The production of a range of chemical products, from polymers to fertilizers, in the Arabian Gulf region has a knock-on effect on other industries through the procurement of intermediate goods. This creates significant economic benefits in the form of supply chain spending and in-country value creation. The chemical sector in the GCC, which has one of the longest supply chains in the world, spent USD 34.9 billion on goods and services from suppliers in the Arabian Gulf region in 2018.

Across all non-chemical sectors, the supply chain spending of the chemical industry supported a USD 28.3 billion contribution to regional GDP in 2018, with Saudi Arabia accounting for USD 16.3 billion, followed by the UAE, at USD 4.3 billion, and Qatar, at USD 3.1 billion.

The industry’s supply chain spending also stimulates high levels of employment. An estimated 316,000 jobs were supported through the purchase of goods and services by chemical companies in 2018 – nearly half which are in Saudi Arabia alone.

“An estimated 316,000 jobs were supported through the purchase of goods and services by chemical companies in 2018 – nearly half which are in Saudi Arabia alone”

The chemical industry paid USD 6 billion in employee compensation

Another important way in which the chemical industry contributes to the economy is through the wages it pays to employees, who then spend their disposable income on consumer goods and services in the wider economy.

The chemical industry paid an estimated USD 6 billion in employee compensation in the region in 2018. Of this total compensation, employees are estimated to have spent USD 2.1 billion in the regional consumer economy in 2018, with the remainder being spent on imports, saved, or paid in taxes (such as Zakat for instance).

With this, the total induced impact of the chemical industry in the region amounts to USD 6.9 billion in GVA in 2018, supporting 145,000 jobs.

Final thoughts

From its positive impact on job creation, to its significant contribution to GDP, stimulating wider economic activity, and manufacturing products with high GVA, the chemical industry in the Arabian Gulf is an integral contributor to economic prosperity in the region. As regional producers look to diversify their product portfolio and invest in innovative new technologies, the chemical sector will remain a beacon of growth amid increased global uncertainty.

This article is based on a recent GPCA report entitled ‘Beyond Petroleum: The Impact of the Chemical Industry on the Arabian Gulf Economy’. GPCA members can access all our reports on the members portal. The report’s executive summary is available for free. Learn more