Middle East Roundup: December 2015
29 Dec 2015
As 2015 draws to a close the low price of oil continues to be the dominant factor in Middle Eastern markets. Combined with conflicts in both Yemen and of course Syria and Iraq, 2015 is perhaps a year that many would prefer to forget.
All the Gulf Cooperation Council (GCC) countries rely on hydrocarbons for the bulk of their revenues despite major drives to diversify income streams. They also depend significantly on public sector investment for domestic growth and employment. As we look toward 2016 the drive to develop the private sector is taking on much greater urgency.
The Jordanian economy has proven to be remarkably resilient in the face of strong headwinds, many of them external and over which it has no control. It relies heavily on energy imports and the low prices of oil and gas have benefited the kingdom. However, external factors such as the conflict in neighbouring Syria and Iraq has meant that trade with and through these traditionally core markets has suffered significantly and the burden of housing refugees from both war-torn places is straining the economy further. Despite all this various sectors have fared well, not least the manufacturing and mining sector, and various infrastructure upgrades, such as those at Aqaba Port will further enhance this important sector’s prospects.
In Kuwait, the focus has remained firmly on infrastructure development and getting some of the long-anticipated projects underway, such as the airport expansion. Bureaucracy has held many of the planned – and indeed funded – projects up historically, and therefore in a move widely welcomed by the construction sector, red tape around areas such as building permits has been reduced. Many in Kuwait are hoping that both the construction sector and the resulting enhanced infrastructure will act as a stimulus in the short term and also increase the long-term sustainability of the economy.
Saudi Arabia has continued to maintain oil output despite near-record levels of global crude supply. The kingdom’s huge foreign reserves and investments should enable it to maintain spending and ride out short term deficits. The new King and administration have set about a major programme of streamlining and reform, and there are strong indications that this is set to continue into 2016. At the same time, focus remains firmly on continuing infrastructure upgrades, as well as spending on education and health.
So across the region, it is a period of consolidation, and perhaps a new period of larger deficits. However, comparatively speaking the countries of the GCC are better positioned than many growth markets to weather the storm. And, it may well be that a period of lower government revenue may well act as a catalyst for autonomous private sector growth and enable governments to push ahead with key reforms, such as the thorny issue of subsidies.
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