Economic Performance of GCC as Countries Adapt to Falling Oil Prices

As the GCC countries drift away from oil dependency to strengthen their economy from a diversity of sectors, the business environment has not been ideal for some countries while government initiatives to aid the adaptation to falling oil prices and transition to a more diverse economy has not been favourable for some sectors.

Business environment has been affected by political instabilities such as the ongoing war in Syria, Iraq, Yemen and a number of terrorist attacks in Turkey raising several security concerns and uncertainty within the region. In the face of falling oil prices early last year, the GCC governments instituted some ascetical plans as a way of bridging the rising budget shortages which had a negative response from investors.

Some of these ascetical plans in Saudi Arabia included decreasing capital expenditures, and delaying paying contractors for construction projects, and reducing minister’s salaries. Though not having a green light for all, the procedures is known to continue in 2017 with partial reduction on utilities such as water and electricity, while fuel prices are projected to rise by +40%. In UAE, the 2017 approved budget was AED 48.7bn, thus an increase of 2.6% compared to the 2016 budget targeted at enhancing infrastructure spending by +27.0%. In Oman, government seeks to pay attention to issuing international bonds, and considering selling major stakes of some state companies in the future as a method of boosting funds.  The budget for 2017 is seeing an average oil price of USD 45.0/bbl while transportation and infrastructure, health, and Education takes +21.2%, +12.3%, and +10.4% of total capital project spending.

IMF, among other financial bodies, has advised the countries to enhance the functional role of the private sector in building the economy, and creating jobs for their quick growing labour sector. In Kuwait, the country’s planned 9.9 billion USD bond issue was delayed and might be effected this year. The Kuwait Finance and Investment Company (KFIC), in its financial annual report, stated that the International markets closed the year 2016 in bullish territory after enduring a difficult start to the year, with positive economic data coming from Advanced Economies and Emerging Markets. Qatar also raised 9 billion USD in sovereign bonds, and Abu Dhabi sold 5 billion USD worth of sovereign bonds.

Issuing bonds internationally aided the countries to improve overall market liquidity. UAE’s DFM index was the top performing index and Kuwait’s Weighted Index was the worst performing index in the region. Kuwait’s KSE Weighted Index finished the year -0.4%. Oil & Gas sustained a loss of -15.2% and Banks fell by -7.1%. Industrials reported a strong finish as it rose +17.9%, Consumer Goods increased +16.5%, and Telecom gained +11.3%.

Saudi Arabia’s Tadawul index closed the year +4.3% higher with Energy rising +40.1%, Petrochemicals jumping +25.0%, and Real-Estate gaining +21.5%. Hotels were hit heavily as the sector performance dropped -44.0% and Retail endured a difficult year as the sector fell -18.5%. UAE’s DFM index rallied by +12.1% with Telecom rising +21.6%, Investment and Financial Services +19.2%, and Real Estate jumping +17.1%. Abu Dhabi’s ADSM Index gained +5.6% mostly due to Real Estate rising +20.4% and Telecom gaining +16.8%. Negative performance was seen from Industrials -12.7% and Financial Services & Investment -11.4%. Qatar’s QE Index gained +3.3% with positive performance from Industrials +3.8%, Telecom +2.1% and negative performance from Real Estate -6.9%. Oman’s MSM 30 Index gained +6.9% mainly due to excellent performance from Banking +18.4% and Industrials gained +9.4%. Bahrain’s BSE Index remained flat at +0.4% with flat performance from Banking +0.8% and negative performance from Hotels & Tourism -14.3%.