GCC hosts $43.7trn in liquid assets, set to finance economic growth

As fossil-fuel substitution will not happen as fast as many believe it will, GCC economies will have the precious lead time they need to transform into post-oil economies. The combination of significant reserves of liquid assets and low debt levels can finance these regional governments’ ambitious economic transformation programmes, thereby creating a plethora of opportunities for most sectors of the economy, Global management consulting firm Oliver Wyman , noted yesterday.

The Gulf economies have a strong asset position of $43.7trillion in liquid and quasi-liquid assets ($3.3trillion in sovereign wealth funds and $40.4trillion in proven oil & gas reserves) – which equates to $841m in such assets per capita. This will provide the required collateral to finance the formidable economic transformation and diversification plans they are implementing, Oliver Wyman said in its report on ‘Gulf economies’.

Massive current account surpluses, relevant fiscal surpluses, and low debt levels have made the Gulf economic fundamentals among the strongest in the world. After the oil price fall of 2014, there was significant deterioration of these fundamentals. Five years on, they are weaker but have stabilised.

“Undoubtedly, the oil & gas reserves of the Gulf countries have enabled one of the biggest economic booms in human history, but this has also materialized because these countries had, and still have, the willingness to advance and improve themselves. There are several countries that have even bigger oil & gas reserves, and abundant water and farmland and yet struggle to feed their populations,” commented Pedro Oliver, Regional Head (MEA) region.

“Looking towards the future, GCC economies must take the advantage of the valuable lead time that they have to transform into post-oil economies, because fossil-fuel substitution will not happen as fast as many people believe it will,” he added.

Looking ahead, Oliver Wyman sees a plethora of opportunities for most economic players – both domestic and international – with limited associated risks. The areas which we see providing the most relevant growth opportunities over the next five years are as follows overall restructuring of the public sector; diversification into renewables and petrochemicals by the national oil companies and utilities; Fintech boom, and consolidation among financial services players; revamping of the transportation sector and the construction/modernisation of the associated infrastructure; expansion of tourism in terms of both what is on offer for tourists and source markets for tourism; and transformation of the private and public sectors driven by digitalisation and analytics are the potential opportunities.

Total energy demand will continue to grow steadily in the foreseeable future. However, this will go hand-in-hand with the rise of renewables, which is evidently unstoppable and a boon for the future of our planet. Fossil fuels are used for many different purposes, with electricity generation being the most important.

Electricity generation and industry consumption will continue to be the key demand drivers for fossil fuels for the foreseeable future.

With most Gulf countries embarking on ambitious transformation and diversification programmes, the region is expected to witness a decline in contribution of the oil & gas sector to GCC GDP in long term. There is more to foster the transformation ahead than just the strong assets position and the lead time from fossil fuel substitution: a growing population, substantial fixed capital investments, and the GCC countries’ stability in general, are – and will continue to be – key enablers of this transformation.

Substantial investments in fixed assets have enabled the remarkable transformation of the regional economies. These investments are putting in place a state-of-the-art infrastructure that will make the Gulf countries one of the most attractive regions in the world to live, work and invest.

Business friendly regulations, low tax regimes, and relaxed immigration policies have contributed to the ease of doing business. The GCC will continue to be a magnet for both people and businesses, not only from the Middle East and Africa region but also from the rest of the world.

Source from: The Peninsula