Middle East Showing Signs of Economic Meltdown

Plummeting GDPs, fluctuating oil prices, a drying up of liquidity, weaker market sentiments, frequent rising or falling prices due to inflation or deflation… these are some of the predicaments that the Middle East region is jostling with for over a decade. So are these the signs of another economic meltdown looming over the head of this region? Or is it high-time to start preparing for the next financial crisis now?

If we go by the words of the world’s second richest man Bill Gates, co-founder of Microsoft, then a financial trouble similar to the 2008 Great Recession is a certainty in the coming future. While participating in a Reddit ‘Ask Me Anything’, Gates said that another economic crisis one is heading toward the US, Ameinfo reported.

“Yes. It is hard to say when but this (economic crisis) is a certainty,” UK-based Daily Mail quoted Gates by attributing it to CNBC.

Leading financial experts in the Middle East region believe that local economies should adopt robust measures to thwart any situation similar to the 2008 economic meltdown.

“I think one of the biggest economic challenges is our oil dependency. In the past regional economies used to have surplus of more than 10% (on average) on the budget, whereas, currently, they are running a fiscal deficit of just under 10%. So earlier we used to have budget surplus, but now we have deficits,” Khalid Abdulla-Janahi, leading economist and chairman of Vision 3, told TRENDS.

Janahi also emphasized on resolving the issue of pegging the local currency against the dollar as it matters when it comes to long-term economic prosperity.

“Another problem is that we are still pegging our currencies to the dollar, so we are being hit from two sides—on one side, our budget reserve is used to cover deficits, then, on the other, it is used to maintain the issue of pegging our currency to the dollar,” added Abdulla-Janahi.

  Challenges Ahead

Economists are of the view that the phase of structural reforms has also ushered in the phase of many challenges in the (Persian) Gulf Cooperation Council region.

Fahad Alturki, chief economist and head of research, Jadwa Investment, Riyadh, told TRENDS, “The (P)GCC region is currently going through a period of structural economic reform, which has brought about a number of challenges. Subdued oil prices, domestic energy price reforms and sizable fiscal adjustments since 2015 have resulted in a period of subdued growth. While the GDP is expected to rebound mildly in 2018, the process of economic restructuring will continue and, with it, short-term challenges are likely to persist.”

In this phase of economic uncertainty, state-owned funds could come to the rescue of sagging economies in the region.

“The state-owned funds are extremely important for economic transformation. Since Saudi Vision 2030 is a very ambitious program, you do require a robust government institution to lift the private players so that they reach a standard that gives them a chance to compete globally,” Lama Al Sulaiman, board member of Jeddah Chamber of Commerce, told TRENDS.

She added: “The Public Investment Fund is also working to create a robust infrastructure for the private sector to help it make most out of the opportunities thrown by the changing economic scenario.”

  SMEs Crucial  

Studies reveal that more than one-third of businesses in the Middle East and North Africa region are subject to sudden interruption in supply chains, with small, medium enterprises being the most vulnerable due to limited capitalization and relative inexperience in mitigating these challenges.

Another one-third of businesses face downturns from increased competition or market fluctuations, with pricing, purchasing power and inflation being major influences.

Finally, data theft, malware, ransomware and other IT-related risks pose great danger to any SME trying to keep its head above water.

SMEs without proper insurance are taking huge and unnecessary risks. SMEs are driven by the prospect of achieving financial independence for their families and for those they employ, and do so by making smart choices.

With such high stakes and considering the hard work and planning that goes towards achieving those goals, it would be inconceivable to add new levels of risks, ones SMEs can’t calculate or don’t have control over, by not getting proper insurance coverage.

In a constantly evolving business and economic environment, business owners have an essential and often complex task of needing to predict and manage risks that their companies are exposed to.

In addition to the risks already mentioned, key suppliers and large customers could unexpectedly fail, leaving SMEs stranded, short on cash, and facing dire circumstances.