Geopolitical issues pose the “biggest challenge” to economic growth in the Middle East, while high inflation and energy prices weigh on energy-importing nations in the region, Qatar’s Finance Minister said on Tuesday.
High interest rates and a stronger US dollar were a challenge for the whole region, particularly for private businesses, Ali Al Kuwari told the Qatar Economic Forum in Doha.
“The geopolitical [issues] … I think this is maybe [our] biggest challenge as we go along. We see an unrest [in the] region, the war in Gaza [and] we have some civil unrest in Yemen and Sudan.
“These are imposing some difficulties on the routes and the logistics, and it's having some economic impact. There’s a possibility of [it] escalating, which is going to be a bigger challenge for us."
Qatar, one of the world’s largest liquefied natural gas exporters, has mediated heavily between Hamas and Israel throughout the current conflict.
Negotiations to secure at least a pause in hostilities have been deadlocked for months, with the opposing sides far apart on elements such as the status of Israeli troops in Gaza, as well as the terms surrounding the release of Palestinian detainees and Hamas-held hostages.
Meanwhile, Saudi Arabia, the Arab world’s largest economy, plans to scale back some of the projects being developed under its ambitious Vision 2030 programme, key to the kingdom’s efforts to diversify its economy and reduce reliance on crude exports.
During the same panel session, Saudi Finance Minister Mohammed Al Jadaan said: “When we started, we did not have Covid. We did not have inflation [as well as] incredibly high interest rates around the world and cost of funding."
In response to a query about Saudi Arabia’s ability to fund large-scale projects amid lower oil prices, Mr Al Jadaan said the kingdom has been “conservative” in its economic projections.
“We have been actually very conservative in our assumptions when it comes to our oil revenue,” he said.
The kingdom closed 2023 with oil revenue higher than projected at the beginning of the year, despite a drop in crude prices and production, Mr Al Jadaan said.
“[This] basically tells you that we are not optimists when it comes to projecting and therefore committing our spend to what the revenue is. We are very conservative,” he added.
Saudi Arabia's economy contracted in the first quarter of this year on the back of a slump in the oil sector, despite an expansion in non-oil activities during the period.
The kingdom's real gross domestic product contracted by 1.8 per cent annually in the January-March period, according to flash estimates released by the General Authority for Statistics this month.
Investing in AI
Qatar Investment Authority (QIA), the Gulf country’s sovereign wealth fund, will continue investing in data centres, data categorisation, software applications linked to artificial intelligence and chipmakers, but the “winner is not very clear” in these sectors, its chief executive Mansoor Al Mahmoud said.
Speaking in a separate session, Mr Al Mahmoud said AI technology was still in its infancy despite generating a lot of interest.
“The good aspect of AI technology is that all the stakeholders are in agreement to invest more into the space,” he said. "You have investors like us [and] you have the policymakers [who] are keen to attract businesses and investment into this space."
On Monday, QIA announced it would anchor an investment commitment in Ardian Semiconductor, a fund established by French private equity investment company Ardian. The financial value of the deal was not disclosed.
The QIA is estimated to have about $475 billion of assets under management, making it one of the world's largest sovereign wealth funds, according to the Sovereign Wealth Fund Institute.
Meanwhile, Canada’s Brookfield Asset Management is investing $10 billion to $12 billion to build 10.5 gigawatts of renewable energy for Microsoft over the next five years, Bruce Flatt, the investment firm’s chief, said during the same session.
The companies signed the agreement this month, which is expected to contribute to Microsoft’s goal of matching all of its electricity consumption with zero-carbon energy purchases by 2030.
“In most countries of the world, the cheapest cost of bulk electricity is solar or wind and that's dramatically changed from 10 years ago,” Mr Flatt said.
“As a result of that, there's going to be, over the next 20 years, a very significant build-out of renewables in the tens of trillions, [which] will decarbonise the world and the technology companies are leading the way."
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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BIO
Favourite holiday destination: Turkey - because the government look after animals so well there.
Favourite film: I love scary movies. I have so many favourites but The Ring stands out.
Favourite book: The Lord of the Rings. I didn’t like the movies but I loved the books.
Favourite colour: Black.
Favourite music: Hard rock. I actually also perform as a rock DJ in Dubai.
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Ziina users can donate to relief efforts in Beirut
Ziina users will be able to use the app to help relief efforts in Beirut, which has been left reeling after an August blast caused an estimated $15 billion in damage and left thousands homeless. Ziina has partnered with the United Nations High Commissioner for Refugees to raise money for the Lebanese capital, co-founder Faisal Toukan says. “As of October 1, the UNHCR has the first certified badge on Ziina and is automatically part of user's top friends' list during this campaign. Users can now donate any amount to the Beirut relief with two clicks. The money raised will go towards rebuilding houses for the families that were impacted by the explosion.”
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