World Economy

(P)GCC Business Confidence Continues Downward Slope

(P)GCC Business Confidence Continues Downward Slope(P)GCC Business Confidence Continues Downward Slope
The Saudi crackdown is hurting some of the top private businessmen–leaders of family conglomerates who have built much of the non-oil economy over the past few decades

Business confidence across the six (Persian) Gulf Cooperation Council states, has fallen to its lowest level since the first quarter of 2016, according to the latest Global Economic Conditions Survey. The survey was conducted by the Association of Chartered Certified Accountants and the Institute of Management Accountants.

Lindsay Degouve de Nuncques, head of ACCA Middle East said: “In the UAE, the capital expenditure and employment subcomponents were both very weak. Despite the UAE having one of the biggest non-oil sectors in the Persian Gulf, this will be related to the lower oil price,” news outlets reported.

“Oil output is likely to remain subdued as countries in the Middle East Arab states (Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman) follow the latest Opec production cuts. The other drag is likely to come from continued fiscal austerity, as the region continues its adjustment to a period of lower oil prices.

“If that oil price remains relatively stable, the UAE’s confidence levels may start to recover in the coming months. Our fiscal position is relatively strong, and it is significant that the government expenditure sub-component remains in positive territory. Preparations for the 2020 World Expo should also help to support the UAE’s economic prospects,” she added.

  Saudis Moving Out Money

Two weeks ago the glitzy Ritz Carlton hotel in Riyadh was the site of an international conference promoting Saudi Arabia as an investment destination, with over 3,000 officials and business leaders attending.

Now the hotel is temporarily serving as a luxury prison where some of the kingdom’s political and business elite are being held in a widening crackdown on corruption that may change the way the economy works. By detaining dozens of officials and tycoons, a new anti-corruption body headed by Crown Prince Mohammed bin Salman is claiming to dismantle systems of patronage and kick-backs that have distorted the economy for decades.

But it is a risky process, because the crackdown is hurting some of the kingdom’s top private businessmen–leaders of family conglomerates who have built much of the non-oil economy over the past few decades. Many industries could suffer if investment by these families dries up in coming months, at a time when the Saudi Arabia economy has already fallen into recession because of low oil prices and austerity policies.

“Some private businessmen in Saudi Arabia are now trying to move their money out of the country ‘while they still can’,” said one financial analyst in the region, declining to be named because of political sensitivities , Reuters reported.

For many foreigners, the most shocking aspect of the purge has been the detention of billionaire Prince Alwaleed bin Talal, the flamboyant, internationally known chairman of investment firm Kingdom Holding. But for Saudis, the names of other detainees have been equally stunning: Nasser bin Aqeel al-Tayyar, founder of the Al Tayyar Travel group; billionaire Saleh Kamel; and Bakr bin Laden, chairman of the huge Saudi Binladin construction conglomerate.

Many in the Saudi business world are celebrating the downfall of the old patronage system and the shift toward a ‘cleaner’ business environment. “Its great news for the clean ones among us–99.99% are ecstatic,” said one senior executive, declining to give his name.

But others express disquiet about the possible economic fallout of the purge. Some are concerned that banks could start calling in loans to families implicated in the probe, using loan clauses that permit this in cases of legal jeopardy; this could collapse companies’ share prices.

  IMF Says Growth to Bottom Out

The International Monetary Fund recently warned longer-term economic growth could weaken in the Persian Gulf Arab states if a months-long diplomatic crisis remains unresolved.

In a report published on October 31, the global financial institution said that while the rift has a “limited impact” on current growth, Qatar and its blockading neighbors face a “broader erosion of confidence” from investors.

“A protracted rift could slow progress toward greater (P)GCC integration, and cause a broader erosion of confidence, reducing investment and growth and increasing funding costs in Qatar and possibly the rest of the (P)GCC,” the IMF warned in its Regional Economic Outlook.

On June 5, Saudi Arabia, the UAE, Bahrain and Egypt cut ties with Qatar and imposed a land, sea and air embargo, accusing it of supporting “terrorism”. Doha has strongly denied the allegation.

As a result of the blockade, business and financial activities were initially interrupted, not only in Qatar but also its neighboring countries.

In its report, the IMF said Qatar’s sovereign credit rating and outlook was downgraded, raising interbank interest rates. Private sector deposits among citizens and other residents also declined, the institution added.

According to a Moody’s Investors Service report, from June to July this year, an estimated $30 billion were withdrawn from Qatar’s banking system. Moody’s also estimated that Qatar used $38.5 billion of its reserve to support the economy.

Persian Gulf Arab oil exporters are continuing to adjust to low oil prices and the overall growth in the (P)GCC region is expected to bottom out in 2017 at 0.5%, as the OPEC-led deal reduces oil output, according to IMF.

The IMF expects non-oil growth to recover to about 2.6% in 2017 and 2.4% in 2018 as fiscal consolidation slows. Both oil and non-oil growth for (P)GCC countries have been revised down since the May 2017 Regional Economic Outlook.

According to the latest inflation figures from the IMF, consumer price inflation in the UAE eased to 1.8% from 4.1% in 2015, reflecting softer domestic demand and declining rents. Despite the introduction of VAT the IMF projects an annual average inflation of 2.9% in 2018 and 2.5% in 2019.

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