Volatility will likely loom over the region’s economy in 2016, but so will opportunity.
By Nader Museitif
Next year seems to be set for a rough start as several chronic drivers of volatility and slowdown start to bite. Chief among them is the low price of oil, which is negatively affecting liquidity levels in the region. This leads to a reduction of funds available for lending and investment by financial institutions, shrinking government budgets, and less expenditure overall. Sentiments have dampened significantly this year as investors and funds chose to sit and wait to see how regional politics pan out, and how the global economy behaves amid a major disconnect between the United States, Europe, and emerging economies.
So these aren’t the best of days for the region’s economy, given its historic dependence on oil. Bloomberg recently published a piece which seemed to suggest a small-scale repeat was underway of the dark time when expats and SME owners were dropping everything and leaving the GCC. Banks are bracing for higher bad debt write-offs, and some redundancy exercises will naturally follow. Other sectors, like hospitality and real estate, are also feeling the effects of cooling demand.
But you can’t be part of the global economy and not be part of its ups and downs. After a few years of growth, emerging economies are feeling the hangover resulting from the financial steroids that emanated from cheap money from the United States and Europe as they looked for marginally higher returns in other equity and debt markets and foreign currencies. As soon as US interest rates rise, the profit gap narrows and investors withdraw their money back to the United States. That left governments and businesses exposed to debt, inflation, cheap commodities, and little diversity to cushion the slowing demand on minerals and natural resources.
Volatility isn’t new to the region. And while painful, a slowdown always paves the way for a new boom. Lower prices, higher capacity, and uncertainty drive efficiency and productivity, while making investments and consumption more affordable. Growth gets more evasive in such times but it’s never unattainable. The right property will continue to be attractive to residents, the restaurant with a good menu and service will always have its loyal customers, and professional services will still be sought for advice in difficult times.
Additionally, technology is taking us through epic changes of how we live. The full impact of technology on our societies and well-being can hardly be envisioned. Health care, finance, trade, and education are being revolutionized and emerging markets are adopting such changes—in many instances faster than developed ones. Maybe a soft patch in old economy sectors can influence our strategies to shift from buildings and shopping malls to advancing our human experience. Maybe attention to technology adoption can impact our development and keep us relevant when the next boom comes.