As visions go, transforming leading GCC economies such as Saudi Arabia's is exciting. Transformation promises more diversification and security. Instead of having all the eggs in the fossil fuel basket, different sectors of the economy are set for development.
This frees GCC countries from excessive risks linked to a monolithic economy. The last two-and-a-half years have shown what happens when crude oil prices crumble. The foundations of oil-producing countries have been shaken to the core. All the financial and economic pain is sending a signal. It appears to be a foregone conclusion that diversification is urgent.
So much for the necessity for economic modernisation. But the devil is in the details, as the saying goes. The recent slowdown of the transformation process sent a warning message to investors. Still, the reaction has been relatively mild, possibly due to the stabilisation of the oil price. The markets may not be alarmed, but economic risk-reward scenarios are back under the microscope. GCC countries would struggle if they took another hit like the last two-and-a-half years of low oil prices.
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Read more from Hussein Sayed
Opec's rebalancing strategy shifts as US oil imports drop
The dollar is in for a rocky ride until the end of the year
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Right now, investors are focusing on the key issue of privatisation and the Saudi state's fossil fuel companies, such as Aramco, in particular. Even partial privatisation would spread the risk and reduce the burden on the state structure. Repaying bonds would, in theory, be easier with more investment from private sources, reduce the risk of default and give monetary policy makers more leverage.
Sovereign debt is always a vulnerable spot during economic downturns. In this context, privatisation is seen as a plus. So, it's positive that the programme is still on track, but negative that it's being pared back. Investor uncertainty always accompanies a switch and change in fiscal policies. Meaning that if expectations are disappointed any further, there could be a stronger reaction from the bond markets.
Other risks include longer-term inefficiencies and reliance on a single mainstay of the economy - oil. It can't be denied that the prolonged period of weaker oil prices undermined the commodity's value. US Shale production powered up, meaning that world supplies are plentiful and that it's a buyer's market. In this case, the buyer is a bear, growling at price rises and refusing to take the bait. When the salmon are plentiful, all the bear has to do is sit on the river's edge and put out a claw to catch its quarry. What if the catch is not big enough? Then the fish can go back in the water as there's another one right next to it.
Profit-taking is prevalent in the oil markets at the moment, and even when the price skips up, a drop back down is par for the course. In other words, there is a risk to competitiveness given Shale's resurgence, in spite of the hurricane damage setbacks.
It's not all about risks; there are rewards to a slower economic transformation. No matter how needed, change is difficult, so managing the adjustments and making them palatable is important. Less radical changes could be more lasting at the end of the day. A more measured approach would also give investors, and the state, time to evaluate the results. Instead of being a knee-jerk reaction to lower oil prices, the transformation would be more controlled.
All told, the plans to slow down transformation have been well tolerated by investors, but that’s not to say that further delays would be wise. Economic performance is the main supporter of sovereign debt repayments, and investors prefer their expectations to be fulfilled. Staying consistent to the development plan is key going forward.
Hussein Sayed is the chief market strategist at FXTM
Company%20Profile
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Company%20Profile
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The burning issue
The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE.
Read part four: an affection for classic cars lives on
Read part three: the age of the electric vehicle begins
Read part one: how cars came to the UAE
Three trading apps to try
Sharad Nair recommends three investment apps for UAE residents:
- For beginners or people who want to start investing with limited capital, Mr Nair suggests eToro. “The low fees and low minimum balance requirements make the platform more accessible,” he says. “The user interface is straightforward to understand and operate, while its social element may help ease beginners into the idea of investing money by looking to a virtual community.”
- If you’re an experienced investor, and have $10,000 or more to invest, consider Saxo Bank. “Saxo Bank offers a more comprehensive trading platform with advanced features and insight for more experienced users. It offers a more personalised approach to opening and operating an account on their platform,” he says.
- Finally, StashAway could work for those who want a hands-off approach to their investing. “It removes one of the biggest challenges for novice traders: picking the securities in their portfolio,” Mr Nair says. “A goal-based approach or view towards investing can help motivate residents who may usually shy away from investment platforms.”
How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
Which honey takes your fancy?
Al Ghaf Honey
The Al Ghaf tree is a local desert tree which bears the harsh summers with drought and high temperatures. From the rich flowers, bees that pollinate this tree can produce delicious red colour honey in June and July each year
Sidr Honey
The Sidr tree is an evergreen tree with long and strong forked branches. The blossom from this tree is called Yabyab, which provides rich food for bees to produce honey in October and November. This honey is the most expensive, but tastiest
Samar Honey
The Samar tree trunk, leaves and blossom contains Barm which is the secret of healing. You can enjoy the best types of honey from this tree every year in May and June. It is an historical witness to the life of the Emirati nation which represents the harsh desert and mountain environments
Company profile
Company name: Suraasa
Started: 2018
Founders: Rishabh Khanna, Ankit Khanna and Sahil Makker
Based: India, UAE and the UK
Industry: EdTech
Initial investment: More than $200,000 in seed funding
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Bombshell
Director: Jay Roach
Stars: Nicole Kidman, Charlize Theron, Margot Robbie
Four out of five stars
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Profile of Whizkey
Date founded: 04 November 2017
Founders: Abdulaziz AlBlooshi and Harsh Hirani
Based: Dubai, UAE
Number of employees: 10
Sector: AI, software
Cashflow: Dh2.5 Million
Funding stage: Series A
Company profile
Company: Verity
Date started: May 2021
Founders: Kamal Al-Samarrai, Dina Shoman and Omar Al Sharif
Based: Dubai
Sector: FinTech
Size: four team members
Stage: Intially bootstrapped but recently closed its first pre-seed round of $800,000
Investors: Wamda, VentureSouq, Beyond Capital and regional angel investors
COMPANY PROFILE
Founders: Alhaan Ahmed, Alyina Ahmed and Maximo Tettamanzi
Total funding: Self funded
What is 'Soft Power'?
Soft power was first mentioned in 1990 by former US Defence Secretary Joseph Nye.
He believed that there were alternative ways of cultivating support from other countries, instead of achieving goals using military strength.
Soft power is, at its root, the ability to convince other states to do what you want without force.
This is traditionally achieved by proving that you share morals and values.
COMPANY%20PROFILE
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TRAP
Starring: Josh Hartnett, Saleka Shyamalan, Ariel Donaghue
Director: M Night Shyamalan
Rating: 3/5
