By Staff writer
Global wealth manager says economic shake-up may lead to relaxation of exchange rate pegs to US dollar
The Middle East is well placed to diversify its economy away from oil and gas, with growth potential in numerous sectors, according to a new report by UBS, the world's largest global wealth manager.
Energy price drops have accelerated the Middle East's need to invest in areas beyond hydrocarbon production and according to UBS's chief investment office, potential beneficiaries include solar power, tourism, and finance, as well as economies like Saudi Arabia and Iran that are opening up to greater foreign investment.
It said that in some economies, greater diversification could lead to an eventual relaxation of exchange rate pegs with the US dollar, boosting their long-term flexibility.
Jürg Zeltner, president of UBS Wealth Management, said: "The Middle East's position in the world continues to evolve. The necessary reforms will not be easy, and the years ahead not without difficulties. Yet the professionalism, humility, and realism of the clients and investors I have met in the region give me tremendous confidence in its ability to shape its future."
Jorge Mariscal, emerging markets chief investment officer at UBS Wealth Management, added: "The Middle East surpasses the global average in development indicators such as education, telecoms penetration, and income equality. The region is ripe for policies that will support employment and put it on a more sustainable economic footing."
Without the prop of elevated oil and gas prices, UBS said it sees local energy subsidies as increasingly untenable amid growing domestic demand. With over 300 days of sunshine per year, the Middle East should use solar to help fill the gap, it said.
On tourism, UBS said that While Dubai has been at the forefront for many years, other countries in the region are following suit. Challenges include cultural differences between residents and visitors, as well as perceived security threats.
UBS added that the oil and gas downturn has left the Middle East with growing financing needs, which is likely to boost interest from international investors. Bond issuance is rising, while the trend towards privatisation and greater foreign ownership of companies will help open up Middle Eastern equity markets.