Since its inception in 1981, the Gulf Cooperation Council (GCC) has pushed an ambitious programme of infrastructure development and economic reform, with the aim of reducing the region’s dependence on oil. The importance of this diversification project has become clear over the past 12 months, as fluctuations in crude oil prices have revealed weaknesses in the region’s economies.
All GCC countries have been opening up their economies to foreign direct investment over the past year as part of their respective diversification strategies
Global trade tensions and the reimposition of US sanctions on Iran have also contributed to a challenging fiscal environment. However, this has only spurred the GCC’s programme further, with countries including Qatar and Saudi Arabia accelerating development projects. Investment has also been catalysed by the renewed drive for diversification, with foreign investment increasingly encouraged by regional governments. This has led the IMF to raise its economic growth predictions to 3.9 percent over the next 12 months, according to its Regional Economic Outlook.
In the quest for growth, the most successful players are, as ever, those that balance speed and sustainability by implementing structural reforms alongside investment. The World Finance GCC Investment & Development awards recognise those that are taking action now to safeguard the future economy.
Leaving oil behind
Economic growth in the GCC bottomed out in 2017, falling by 0.2 percent across all six member states. Saudi Arabia saw its first economic contraction since 2009, due for the most part to oil production cuts introduced by the so-called ‘OPEC+’ group. Historic heavy reliance on oil revenues has left many GCC nations beholden to the fluctuations of the market, which has been particularly volatile since hitting a low point in 2014.
The outlook for oil was far brighter in 2018, with prices climbing to four-year highs of $82.16 per barrel in September. This provided a spell of relief for the GCC’s five oil-exporting nations, with Oman registering the region’s leading GDP recovery of 3.8 percent. Nevertheless, past oil fluctuations have clearly spooked the GCC states, with all opting to pour additional funds into non-oil ventures in 2018.
Infrastructure development in particular has accelerated in the context of several high-profile global events, notably Expo 2020 Dubai and the 2022 FIFA World Cup in Qatar. Qatar is forecast to spend $220bn in preparation for the tournament, which includes the construction of an entirely new city, Lusail, featuring a 90,000-seat stadium where the final game will be held. Once complete, the city is expected to house 250,000 future residents. Meanwhile, Dubai has allocated AED 56.6bn ($15.41bn) to Expo preparations, which comprise the conference site itself, an extension of the metro line to access the area, and the AED 735m ($200m) Museum of the Future, which is widely considered to be one of the most complex buildings in the world.
In Kuwait, construction forms part of the country’s seven-pillar New Kuwait Vision 2035 strategy, which aims to transform the country into a financial and trade centre. At the annual Leaders in Construction Summit, the country’s chief of development, Talal Al-Shammari, announced a 46 percent increase in capital expenditure on infrastructure projects for the 2018-19 financial year, to $14.4bn.
Many GCC countries have also embarked on a programme of bureaucratic reform to complement infrastructure development and allow the private sector to thrive. In February 2018, Bahrain introduced a wage protection scheme that seeks to end the exploitation of staff by ensuring they are paid on time. It was launched in May and will be rolled out in a controlled release programme until May 2019.
Qatar’s visa-free entry programme, launched in 2017 in an effort to boost tourism, has been expanded this year to include Indian and Ukrainian nationals in a sign of increased openness from the Qatari Government. It has also pledged to put an end to the notorious kafala system that disadvantages migrant workers. However, more transparency is needed with regards to workers’ rights.
In May, Kuwait’s parliament voted to delay the introduction of VAT until 2021, ensuring operating costs remain at the current rate for private companies. To date, Saudi Arabia and the UAE are the only GCC countries to have implemented VAT.
With regards to the international sphere, all GCC countries have been opening up their economies to foreign direct investment (FDI) over the past year as part of their respective diversification strategies. In terms of volume, the UAE is the region’s largest destination for FDI, drawing in around $9bn in 2018. The country has also announced key changes to its residency programme, offering foreign investors a 10-year residency visa with the aim of boosting FDI by 15 percent over the next year. Meanwhile, FDI inflows to Bahrain grew 138 percent over the first three quarters of the year, the fastest rate of all GCC nations. In May, the country announced it would extend the term of residence visas for qualified investors and professionals from two years to 10 to further attract foreign interest.
In the past 12 months, under its Saudi Vision 2030 plan to transform economic and social infrastructure, Saudi Arabia has implemented more business-related reforms to boost international investment than any other GCC country. The World Bank noted it introduced reforms across six of its 10 pillars in its Doing Business 2018 report, from reducing documents needed for customs clearance to implementing online systems for administrative tasks.
The kingdom has welcomed western banks in particular, with Citibank becoming the latest firm to receive a banking licence, joining JPMorgan Chase and HSBC. International fiscal interest was reignited at the beginning of 2018 when Saudi Arabia announced it would float five percent of state oil giant Saudi Aramco. This was predicted to be the largest IPO in history before it was called off in August, with the company’s chairman, Khalid al-Falih, announcing in a statement: “The government remains committed to the IPO of Saudi Aramco at a time of its own choosing when conditions are optimum.” He added that the timing of the IPO will depend on “favourable market conditions” and a “downstream acquisition”, which the company will pursue in 2019. London, New York and Hong Kong exchanges have been vying for some time to list the Saudi oil giant, which is expected to be valued at around $5trn at IPO.
The GCC has plenty to look forward to over the next few years, with high-profile events bringing prosperity and new interest to the region. The IMF named the FIFA World Cup and Kuwait’s implementation of five-year growth plans as key stimuli over the next 12 months. Increased FDI and further progress on key infrastructure development projects will also help diversify the economies of all six member nations.
As ever, those that are committed to economic diversification, welcoming foreign investment and opening up their nations are the firms that are reaping the rewards of the affluent region. It is these individuals and companies that World Finance recognises in the 2018 GCC Investment & Development Awards.
World Finance GCC Investment and Development Awards 2018
Chairman of the Year
Sheikh Mohammed Jarrah AI-Sabah
Chairman of Kuwait International Bank, Kuwait
Banker of the Year
Deputy CEO of First Abu Dhabi Bank, UAE
Best CEO in the Investment Industry
Faisal Mansour Sarkhou
CEO of KAMCO, Kuwait
Most Employee-Focused CEO
Mohammad Nasr Abdeen
CEO of Union National Bank, UAE
Best Jewellery Designer
Fatima bint Ali Al Dhaheri
Founder of Ruwaya, UAE
HSBC, Middle East
Best Fund & Asset Management
Qatar National Bank, Qatar
Best CSR Business Model
Kuwait International Bank, Kuwait
Best Commercial Bank
Samba Financial Group, Saudi Arabia
Best ISLAMIC Bank
Kuwait International Bank, Kuwait
Best Brokerage House
NBK Capital, Kuwait
Best SME Finance program
Bank Muscat, Oman
Best Islamic Insurance Company
Tawuniya, Saudi Arabia
Best Banking & Finance Software Solutions
International Turnkey Systems, Kuwait
Best Real Estate Investment Company
Mohammed Al Subeaei & Sons Investment Company, Saudi Arabia
Best Luxury Car Dealer
Al Ghassan Motors, Saudi Arabia
Best Financial Centre
Dubai International Financial Centre, UAE
Best Tourism Development Strategy
Saudi Commission for Tourism and National Heritage, Saudi Arabia
Outstanding Employee Engagement Strategy
Union National Bank, UAE
Best Investment Banking Advisory & Research Company