The GCC (Gulf Cooperation Council) region has historically been a source of capital raising and outflow of funds that invested in everything global. Sovereign wealth institutions in the region are among the wealthiest in the world, and the investment appetite for diversifying national sources of revenue has always been healthy. However, today we are seeing a fundamental change. The GCC is increasingly becoming a destination for capital deployment with ample opportunities for investment in various sectors such as hydrocarbons, healthcare, education and real estate to name a few.
Ever since the decline of oil prices during the recent economic downturn, the region’s governments have had the prospect of looking at different avenues of sustainable national revenues and capital preservation. The oil crisis has had a positive impact in allowing the regional regimes to explore new avenues of income. Now as we see higher oil prices come into play, diminishing fiscal deficits, and the continued public spending, this surely is providing much needed support for a stable and solid 2018. In Abu Dhabi in particular, being home to 6% of the world’s proven oil reserves, the economic condition has been supported by the recovery in oil output that is expected next year post the OPEC-led agreement to maintain reduced production.
A big theme I predict in 2018 is consolidation, as well as acquisitions outside of the region that will help with the diversification of funding sources and capital inflows. Capital markets regionally and globally are also geared to see an uptick in activity as the year kicks into play. Although as the year winds down we see a softening of the equities markets, it is in my view the settling down before year end, marginal profit taking to close out the books, and more notably the quiet before the storm of 2018. The region will see the best and fastest to come in the next few years.
The robust economies of the UAE and Saudi Arabia continue to lead the pack. The UAE has seen some slowdown since 2015 due to many macroeconomic factors, but is expected to have a robust bounce back in 2018. Government spending is increasing in areas such as infrastructure, renewable resources and real estate. The IMF has projected a 3.4% growth in real GDP in 2018 which is higher than the year end 2017 growth of 1.3%.
Furthermore, Saudi Arabia is in a positive momentum given the recent reforms implemented by HH Sheikh Mohammed Bin Salman the Crown Prince. The fight against corruption surge that has been going on in the last few months has given great hope to the people and to the positive growth momentum of the economy in general. The initiatives are moving Saudi Arabia away from secular and rigid Islam, to more moderate and mainstream Islamic beliefs and practices. The announcement that women will be able to drive next year has been seen as a positive indication by the international community of good change. Hence, the IMF is now predicting that the Saudi GDP will strengthen over the medium term, while non-oil growth is projected to grow and be a positive contributor to an estimated 1.1-1.3% growth in GDP in 2018.
The regulators in these two regional powerhouses are also looking at easing business conduct and providing support to a previously ailing SME market. Both nations have additionally made significant progress in establishing medium and long term budgetary frameworks and at both federal and local levels.
Next year is a big one for Saudi as the economy will be focused on two important events – reforms and index inclusion initiatives. We are expecting to see a series of reforms including 5% VAT, a hike in electricity tariff, increase in selective fuel prices and revised foreign workers’ visa fees. The impact could be felt more by the small business entities; however, we anticipate the market dynamics to yet again shrug the underlining fundamentals, and take cue from a potential favourable upgrade decision by both FTSE (March 2018) and MSCI (June 2018).
All these indicators paint a large bullseye on this region for those looking to make significant returns and profits, as well as benefit from the generous opportunities that will be available. The GCC is geared to become one of the most robust and rewarding investment destinations in 2018 and beyond.
