Gulf’s private sector boom still vulnerable



REUTERS

Published — Thursday 22 November 2012

Last update 22 November 2012 2:18 am

| نسخة PDF Print News | A A

ABU DHABI: Four years after a collapse of oil prices savaged Gulf Arab economies, private business activity in most of the region is thriving again. Yet problems with financing and regulation could cut short the boom.
Corporate executives and economists at the Reuters Middle East Investment Summit this week said the private sector's gains were vulnerable, warning growth could quickly slow if oil prices retreat or governments slow spending in order to conserve their financial reserves.
"The current good growth we are seeing is cyclical and has its roots in government spending, but there are structural impediments to longer term private sector growth," said Liz Martins, senior regional economist at HSBC.
The oil market slide of 2008, in which prices slumped by as much as three-quarters in the space of six months, revealed the vulnerability of the Gulf countries and their big state-owned oil sectors; Saudi Arabia only barely escaped recession in 2009.
Now high oil prices have ignited a consumer spending spree that is buoying private firms across the Gulf Cooperation Council (GCC), which comprises Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Bahrain and Oman.
Middle East oil exporters will enjoy a near-record surplus in trade of goods and services worth about $400 billion this year, the International Monetary Fund estimates. Governments in the Gulf are channeling much of those oil earnings into social welfare and infrastructure projects.
This is helping private companies in two ways: Directly, through contracts awarded by Gulf governments, and indirectly, by fattening the wallets of consumers who work for the government or receive welfare benefits.
"Stable growth we have seen across the GCC over the last six to eight quarters comes ... from the public sector boost, which has stimulated the private sector as well," said Fabio Scacciavillani, chief economist at Oman Investment Fund.
For Gulf governments, developing the private sector has been a top policy goal since the 2008 crash as they seek to diversify their economies away from oil to reduce the risk of a similar setback in future.
Fostering small private companies has become even more important since last year's Arab Spring uprisings, because such firms tend to create most jobs. Although Gulf governments largely escaped the unrest, they are keen to cut unemployment to remove a potential political threat.
Trends over the last year suggest they are having some success. Bank lending growth to the private sector in Saudi Arabia, Qatar and Oman has climbed into double digits and the annual rate hit 14.8 percent in Saudi Arabia during September, the fastest pace since March 2009.
The Saudi Ministry of Labor said in September that 380,000 jobs had been created in the past 10 months. Oman says it added 155,000 new private sector jobs in January-September.
The private sector boom is typified by companies such as Saudi Arabia's Jarir Marketing Co., a retailer of books, office supplies and electronics, which plans to boost the number of its stores by at least 70 percent in the next five years and expand into other GCC countries.
"We are growing in Saudi and in the Gulf, and we want to see that we populate the GCC," Jarir Chairman Muhammad Al-Agil, who co-founded the chain with his family in 1979, told the Summit, taking place at Reuters offices in the region.
In the United Arab Emirates, one of the most diversified economies in the Gulf with the nonoil sector accounting for 62 percent of output, bank lending growth has been slower as the country grapples with the aftermath of a real estate crash.
But the hospitality sector, a focus of private sector firms, is booming; tourist arrivals grew 10 percent and hotel revenue 19 percent in the first half of 2012.
Yet private business in the Gulf remains far from being able to fuel its own growth, withstanding fluctuations in oil prices and state spending. One problem is its access to financing.
Debt and equity capital markets are small so it's difficult for small and medium-sized enterprises (SMEs) to use them to raise money, said Martins at HSBC. That leaves bank loans, but many banks in the Gulf are traditionally unwilling to lend to small, little-known firms, preferring the security and predictability of lending to big companies, preferably those with state connections.
"Financial institutions look at them (SMEs) as toxic assets," said Abdullah Al-Darmaki, chief executive of the Khalifa Fund for Enterprise Development, the Abu Dhabi government's SME development agency.
Rick Pudner, chief executive of Dubai's biggest bank, Emirates NBD, told the Reuters Summit that, historically, "you have to have a three-year track record before you can come to the table and ask for some money."

Pudner said that partly because of government efforts, the access of SMEs to bank loans would improve: "You'll see it probably getting a lot easier to access finance from banks, maybe supported by some quasi-element of government support."
But even then, private companies may face another major obstacle: regulation.
The risks of intrusive rule-setting were underlined last week when Saudi Arabia said it would fine private sector firms that employed more foreign workers than Saudis - a stance that could have a big impact given that roughly nine in 10 employees of private companies in Saudi Arabia are expatriates, according to official estimates.
In other cases, opaque and complex regulation, or the lack of any rules at all, is holding up private companies.
"One major area is bankruptcy law - also labor laws and labor protection are skewed towards national citizens and lag for foreigners. The other area is in terms of investor protection," Scacciavillani said of the GCC.
"Awareness is there but in terms of delivery, little has been done."

What's happening around Saudi Arabia

JEDDAH: Grand Mufti and Chairman of the Council of Senior Scholarships Sheikh Abdulaziz Abdullah Al-Asheikh called on astronomers questioning the accuracy of prayer timings in the Umm Al-Qura calendar to refrain from confusing people, and confirmed t...
JEDDAH: Turkey’s security agencies have arrested 15,000 members of the Daesh terrorist organization at its airports and border crossings, a diplomat said here recently.The Daesh members had attempted to enter Turkey territory, said Fikrat Ozar, consu...
JEDDAH: The Saudi government has welcomed the Gulf Cooperation Council’s proposals to fight terrorist groups that are attempting to undermine the region’s security and social fabric.This comes in the wake of an extraordinary meeting held by the GCC’s...
JEDDAH: The National Anti-Corruption Commission (Nazaha) is racing against the clock to unravel the circumstances surrounding the enrollment of 107,000 beneficiaries on the lists of social insurance without legal entitlements. These beneficiaries are...
MADINAH: Prince Faisal bin Salman, governor of Madinah and chairperson of the board of directors of the Takaful Welfare Society for Orphan Care in Madinah, has inaugurated a project to reconstruct houses of orphans.According to the Takaful program, 1...
RIYADH: The Kingdom on Tuesday announced that vaccination against meningitis is mandatory for all local and international Haj pilgrims, while flu shots are recommended for their own safety.Health Ministry Spokesman Khalid Al-Mirghalani told Arab News...
MAKKAH: A mentally-ill Turkish man killed a Sudanese patient in the Makkah Mental Health Hospital of King Abdul Aziz Hospital in Al-Zahir, a news website has reported, quoting Makkah police.The Turkish patient, in his 50s, confronted the Sudanese whe...
RIYADH: Mohammed Ali Al-Husseini, secretary-general of the Arab Muslim Council, based in Lebanon, said here recently that Saudi Arabia enjoys the trust of the international community as the first reference for the Muslim world.The Lebanese Shiite lea...
RIYADH: The King Abdullah City for Atomic and Renewable Energy (K.A.CARE) is working closely with the Ministry of Transportation, the Saudi Electricity Company (SEC), the Saudi Wildlife Authority (SWA) and the Director-General of Military Surveying t...
RIYADH: The Ministry of Education has received requests from 14 governmental agencies that their employees be sent abroad for studies in different specialities. The request is to include the employees as part of the third phase of Custodian of the Tw...
RIYADH: Argentina enjoys excellent ties with Saudi Arabia as it marks its 199th Independence Day anniversary on July 9, according to Ambassador Jaime Sergio Cerda.“Excellent bilateral ties bind the two countries as Argentina holds its 199th Independe...
JEDDAH/KUWAIT CITY: Three Saudi brothers have been arrested in connection with the suicide bombing of a mosque in Kuwait last month, the Saudi and Kuwaiti authorities said on Tuesday. Daesh owned up the attack during Friday prayers, which killed 27...
MAKKAH: Custodian of the Two Holy Mosques King Salman performed funeral prayers for Prince Abdullah bin Abdul Aziz bin Musaed, the deceased governor of the Northern Borders Province, at the Grand Mosque on Sunday night.Those present included Makkah G...
JEDDAH: More than 14 million worshippers and pilgrims visited Makkah in the first 16 days of Ramadan, a 40 percent increase compared to the same period last year.These figures were unveiled at a meeting of the Central Haj Committee, chaired by Makkah...
KUWAIT: Kuwait has detained 26 people suspected of involvement in a suicide bombing on a Shiite mosque last month that killed 27 people, a local daily reported on Monday, quoting the public prosecutor.The June 26 attack by Daesh jolted Kuwait, raisin...

Stay Connected

Facebook