State of emergency

Spending on flashy cars, houses and holidays has left GCC residents facing a savings crisis, says National Bonds CEO Mohammed Qasim Al Ali

National bonds CEO Mohammed Qasim Al Ali says the GCC is facing a savings crisis

National bonds CEO Mohammed Qasim Al Ali says the GCC is facing a savings crisis

Beaches, bright lights, luxury hotels and high-end shopping. Not for nothing are countries like the UAE known as beacons for tourism. However, for expatriates and nationals living in the Gulf states, it is tough to get the message through that life here is not one perpetual holiday. Far too few are putting enough money aside for the future, and the result is a ticking time bomb that could leave thousands without adequate savings when they retire.

Mohammed Qasim Al Ali believes it’s time to tell people that they must change their outlook before it’s too late.

“Each country is a bit different, but I would say yes; if you are rich you won’t worry about saving, but the thing is do you have an investment strategy?” he asks.

As the CEO of the National Bonds Corporation, the Dubai government-owned Islamic saving scheme, you would expect him to say that but the results of the agency’s recent GCC-wide savings index has thrown up some interesting results.

While the International Monetary Fund (IMF) stated earlier this year that Qatar had surpassed Luxembourg as the world’s richest nation in 2010 and its wealth was almost twice that of the US, 29 percent of Qataris say they saved “significantly less” in the last year.

The IMF research shows Qatar’s gross domestic product per capita was $88,221 in 2010 and is likely to reach $111,963 by 2016, while the US is forecast to not exceed an average per capita GDP of $55,622 over the next five years.

With this much potential cash at their disposal, it is rather surprising that 87 percent of Qataris surveyed believe their savings are not adequate for their future needs and only 26 percent save 10 percent or less of their salary.

“Remember, in certain countries, like Qatar, the government is giving more, in terms of subsidies, access to housing or higher education. Qataris are not saving for higher education because they have free access from the government,” says Al Ali.

With up to 90 percent of Saudi residents believing their savings are not adequate for their future financial needs and an average of 68 percent of respondents admitting their savings are less than they had originally planned, Al Ali believes this is a major problem in the Gulf and even goes as far as to call it a “national crisis”.

“The consistency in the lack of awareness about the importance of savings and the lack of there being a financial plan is epidemic across the GCC countries,” he says. “That’s where the gigantic task is ahead.”

Tough economic conditions, including the soaring cost of food, could threaten citizens with an already unstable financial situation, he believes. “Our mission is to alert the decision makers that this is a national crisis that could have dire results somewhere down the road.”

The fact that an average of 84 percent of Gulf residents who took part in the survey say they do not have enough money for the future, while, at the same time, their biggest expenditure is eating out, shows they have a very short-sighted view of their finances, says Al Ali.

“People are having a short-term view about their financial health because they are locked into a certain living standard. There is a mental defeat that says ‘I can’t save as I don’t have enough money to save’ but if they start thinking about how structured their approach should be when it comes to handling their own finances I know they will find ways.”

“A small kid in Europe maybe knows far better how to handle money or the importance of money than somebody in the Middle East and we need to build on their experiences through the last 40 or 50 years and import such culture of changes into our environment. [Authorities must] address the root causes of this critical GCC-wide dilemma through education… from the kindergarten to the college,” says Al Ali.

“There is too much of a spend culture among a lot of expats,” adds Nigel Sillitoe, CEO of research firm Insight Discovery. “There should be more education over here about why it’s so essential to save for your retirement. The worst thing you can do is spend a lot of time in the Middle East — five or ten years — and not save a nest egg when you are in a tax-free environment.”

Many Gulf governments have opted to bolster their social spending plans in the wake of the Arab Spring unrest. Saudi Arabia, the wealthiest Gulf state, has pledged to spend $43bn on its poorer citizens and religious institutions, while the UAE said it would invest $1.6bn in overhauling roads and ensuring citizens in its poorer northern emirates received uninterrupted electricity.

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Posted by: Mike Hails

The problem in Europe and North America is that SOME (and I highlight "some") people have been living beyond their means for decades and the crunch point arrived in late 2007/early 2008 as we have seen. Another major fact I believe, in UK in any event, is that Public Bodies such as Councils, Police and many others have been paying themselves far too much salaries and pensions for decades and that simply is not sustainable. After all Public sector does not contribute to GDP but provides the services that the public requires. The trouble is a certain group of senior people in those bodies have given themselves salaries and pensions that are MORE than the Prime Minister earns each year. A monkey could run their organisations but they ,arrogantly, believe they are worth more than the Prime Minister. THAT is why Europe is now in crisis.

Posted by: Naveen Shetty

There are some real issues when it comes to investing here.
1. Most of the people do not consider any other asset class other than Real Estate as investments. This might have worked in the past but its not going to work in the future.
2. Collective Investment Schemes of the most of the banks and institutions in this part of the world are mostly driven by draws and prizes such cars etc instead of the returns. This mind set is to be changes. I am sure if someone is offering 8 to 9% returns year on year you can stop almost half of the money which is going out of the country for investment.

Posted by: SAM

I am of the opinion that the reason for not saving enough is due to the extra charges and expenses that pop out unexpectedly every now and then and not due to culture that does not appreciate saving. A bad economy and a severe drop in asset valuation is another reason; for example, a million dollars invested four years ago in shares of the largest and most successful company in the Dubai Stock market would be worth 50,000 dollars today. The real estate market is another story. I do not believe in this sudden warmth and concern for the well being of expats, especially when schemes are being drawn to prevent expats from remitting their savings to their home countries and to force expats to invest in losing local industries.

Posted by: Nameless

The GDP per capita may be twice that of America but cost of living is more than twice as much, hence the lack of savings.

Inflation also increases faster than your salary increases. If you bought a car for 100k and five years later went to get a new one, expect to pay 200k for the same thing. So there goes your savings unless you opt to down grade.

It just seems cost of everything goes up except a workers wage.

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