For foreign investors, it is easy to be put off by regional conflicts in the Middle East, but the Gulf Cooperation Council remains a relative safe haven and a favored destination for direct investment, despite the drag of low oil prices.
The urgency to diversify is now clear, and impressive economic reforms are being implemented at a rapid pace, led by the United Arab Emirates and Saudi Arabia, the two largest GCC economies.
The succession path in the Saudi kingdom is also clear, following the replacement of the crown prince by the deputy crown prince, Mohammed bin Salman, the king’s favored son. MbS, or the “Minister of Everything,” is a young man on a mission. As we spell out in this report, Saudi Arabia’s Vision 2030 reform program remains solidly on track and is moving forward with new intensity.
The kingdom is determined to become a global investment powerhouse. As Khalid Al Hussan, CEO of Tadawul, the Saudi Stock Exchange, tells Global Finance in an interview on page79, the full accessibility of the exchange to foreign investors marks a major development in global capital markets. Index provider MSCI recently announced that it would consider classifying the kingdom as an emerging market as early as next year, which could trigger major new inflows. Meanwhile, the Saudi Public Investment Fund will be transformed into the world’s largest sovereign wealth fund following next year’s planned public offering by Saudi Aramco.
Restructuring regional economies to create attractive jobs for youthful populations won’t be easy. Gains in productivity will require the replacement of anachronistic labor policies with modern human resource management. Education systems are being revamped to produce graduates with skills more aligned to the needs of corporations.
Meanwhile, low oil prices and austerity are pushing property prices down. However, efforts to boost new sectors of the economy are mitigating the impact. Other changes are afoot in the important retail sector, where new developments in e-commerce are colliding head on with an ingrained mall culture.
The Qatar dispute has exposed cracks in GCC unity and needs to be resolved quickly. Business confidence and credit growth are at stake at a critical time for the energy-producing countries of the Gulf, which are finally implementing real economic change.