The GCC's economy is expected to more than double to US$2.3 trillion (Dh8.4tn) in the next decade but the region needs to make greater strides towards preparing for the post-oil age, says a report to be released today.
The non-hydrocarbon sector was expected to grow at a faster pace than the hydrocarbon economy over the next 10 years, says the report by the Economist Intelligence Unit (EIU), which examines the diversification needs of the region up to 2020.
"We have been forecasting a $2tn economy, as we think the oil price will hold up pretty strongly going forward," said Jane Kinninmont, the author of the report and an associate director for the Middle East and Africa, at EIU in London.
"The flip side is that oil dependency will continue and non-oil growth will still be dependent on the Government."
The economy would expand to nearly $2.3tn in the next 10 years from more than $1tn now, said the report. As part of that, the non-hydrocarbon economy would swell to represent 69 per cent of GDP, from its present 61 per cent.
But the report said GCC economies should focus on industries in which they have a competitive advantage, such as the energy-intensive manufacturing of petrochemicals, plastics and aluminium.
Mining and mineral-based industries, trade and logistics, tourism, hospitality and aviation were other sectors to focus on.
Across the region, governments are pursuing attempts to diversify growth across new sectors in a bid to reduce their economic volatility from oil and gas price shocks and, in the longer term, prepare for the time when hydrocarbon revenues may run out.
Such efforts are finding renewed momentum after the financial crisis caused a realignment of some growth plans. Abu Dhabi has said it was reassessing some goals in its 2030 Economic Vision.
Dubai recently signalled its plans to reposition its economy away from property and finance, and instead focus on traditional sectors such as wholesale and retail, trade, transport, storage, tourism and manufacturing.
One important part of the region's effort to wean itself off a reliance on hydrocarbons may be to create new revenues through taxation.
Officials at the IMF have long urged GCC states to introduce the tax as a way of ensuring a reliable inflow of government revenues, protecting against instability in oil prices.
"There will be a gradual increase but it will be indirect taxation as there could be a political opposition if a tax on nationals is increased," said Ms Kinninmont.
She expected value-added tax to be introduced at a rate of 5 per cent in Dubai, as well as other indirect taxes such as an increase in visa fees.
The leading oil producer Saudi Arabia faces one of the greatest urgencies to diversify its economy.
"Saudi Arabia will have to cut public spending as they have such a large growing population that over a 10-year period they will come under pressure unless there's a big upswing in oil prices," Ms Kinninmont said.