By Abdul Aziz Al Yaqout
Another year of change. The fall in oil prices could force regional governments to step up their efforts to diversify their economies, says Meysan Partners senior partner Abdul Aziz Al Yaqout.
Just five years on from the beginning of the Arab Spring and 2015 is set to bring yet another year of change for the Middle East with a number of trends and drivers continuing to put pressure on the region’s political and socioeconomic infrastructures.
The precipitous fall in oil prices and the rise of ISIS will be the two key influencers in the region from both a business and political perspective in the coming year.
2014 was an unfortunate year for several Middle Eastern countries most notably Syria, Iraq, Libya and Yemen who each lost any effective authority over their national territory, while ISIS arose as the largest radical threat in the region’s modern history. A factor of fear and terror.
ISIS will continue to steal headlines and wield influence over decision makers throughout 2015, but the recent gains of Kurdish forces in northern Iraq seems to be the beginning of an effective counter offensive, with experts agreeing that it will take at least three years to expel ISIS from Iraq. It will, however, take a lot longer to remedy the reasons for their rapid ascent, specifically the disenfranchisement of the Sunni tribes in western Iraq.
2014 ended as a commercially uncomfortable year for several Middle Eastern countries particularly Saudi Arabia, Kuwait, Qatar and the UAE, who look set to lose the exceptional margins they were able to make on the high oil prices over the last years, a factor of economic uncertainty and readjustment.
Oil prices plummeted in response to a massive build-up of shale-derived oil in the US combined with reduced fears that of fighting in Iraq and Libya disrupts supplies, and slower growth in demand as the world economy falters. Oil-producing countries now face lost revenues and budget shortfalls, whilst lower energy prices are providing a very welcome boost to real incomes for most major economies.
As net hydrocarbon exporters, GCC countries have taken a hit from the falling oil price, posing a challenge to national budgets. Economists suggest that Saudi Arabia, for example, needs a fiscal break-even oil price of $99 for its national budget to balance. The same applies across other GCC countries, where the current oil prices will result in fiscal deficits in the next year.
However, infrastructure projects will forge ahead and the hope exists that the psychological concerns that result will force governments to step up their efforts to diversify their economies.
From a legal standpoint, the theme of change also applies, with a raft of new laws to be introduced across the Gulf over the course of the year. Kuwait for example is finalising what will be the Gulf’s first ever insolvency legislation, a massive coup for Kuwait and one which will serve as a game-changer for businesses and the wider economy.
Designed to help failed businesses recover from financial difficulties rather than be shut down, similar legislation will be introduced in the UAE, and without a doubt, other GCC states will follow suit once they recognise the benefits. But new laws are only as good as the infrastructure on which they are built and effective governments need to be business-focused on enhancing their infrastructure to ensure they enhance the performance of regional and international businesses.
The insolvency legislation is just one of a number of new business laws being written in Kuwait in one of the most significant legislative overhauls in the GCC. Complementing laws being prepared include reforming the manner and ease of establishing mortgages over movable objects, such as machinery. The result will be improved access to finance for thousands of companies, a boost in terms of investment and the overall economy. Despite previous years of tensions between the Emir-appointed government ministers in Kuwait and the elected members of the National Assembly, considerable cooperation exists at present, which bodes well for business in 2015 and beyond.
And finally, I hope that in 2015 the region will continue to take real strides in the fight against modern-day slavery. A staggering 35.8 million people across the world are currently trapped in modern-day slavery, according to the Global Slavery Index launched by the international anti-slavery organisation, Walk Free Foundation. The foundation’s report shows that slavery is a very real issue also in the region, and reform as well as the enforcement of existing laws is absolutely essential from governments in order for the region to be able to support the abolishment of slavery.