Turmoil laps around the Gulf, but prospects remain bright

Gaza, Iraq, Syria, Libya, Yemen, Egypt are all part of a region which has been consumed by anarchy, violence and destruction since 2011.
But there is another part of the Middle East which is a striking contrast to all that: the Gulf.
Many outsiders think it’s only a matter of time before the turmoil that has swept other Arab countries also engulfs the rulers of the Arabian Gulf. They’ve been thinking that for close to a century.
The economies of the Gulf oil exporters are expanding.
Over the last decade vast wealth has been accumulated, which affords the Gulf countries a level of resilience that few in the emerging markets can match.
Gulf currencies which are pegged to the greenback have offered additional stability.
The elevated level of oil prices — at above $100 per barrel — is providing oil producing countries with a fiscal cushion. Thus, even as many other emerging markets try to find an equilibrium, Gulf countries will continue to do well and accumulate more reserves while sustaining high spending.
Many outsiders have an image of a country frozen in time.
The great giant of the emerging markets has finally awakened.
Saudi Arabia’s recent announcement of the partial opening its $550bn stock-market to foreign institutional investors by the first half of 2015 is a key emerging market play over the next few years. Strong growth in domestic demand, firm macroeconomic fundamentals and ongoing economic reforms would allow for growth of the middle class.
According to the OECD, the total middle class population is forecast to grow from less than 20 million today to 40 million by 2050.
With reserves at around 90 percent of the country’s $750 billion GDP and public debt that is less than 3 percent of its economic size, Saudi Arabia is well placed to weather regional political turmoil and a prolonged correction in oil prices.
The emirate of Abu Dhabi continues to be a beneficiary of high oil income which has fueled an increase in many infrastructure and industrial projects.
Dubai’s drive in construction activity which supports its wider trade, logistics, and tourism strategy underpins the Emirate’s economy.
Despite some of the recent excesses in its equity market, Dubai has taken a turn to avoid the asset price inflation of the pre-2008 period.
Real estate prices have just returned to 2008 levels and inflation is still hovering in the mid single digits, a far cry of the double digit price pressures of the 2000s.
The controversy around Qatar’s 2022 World Cup hosting has cast doubt on the country’s long-term economic prospects.
For a country that will continue for many years to witness twin surpluses and the highest per capita income levels in the world, the worries are seem exaggerated.
The spending on sport facilities directly linked to the World Cup makes up just a fraction of the country’s overall $200 billion development program suggesting subdued effects.
Qatar’s principal asset will continue to be its vast hydrocarbon resources.
The recent reclassification with the MSCI index of the UAE and Qatar as emerging markets is a long-term positive.
Kuwait which commands the second highest per capita income in the region and the world’s seventeenth continues to tag along despite domestic political discord.
Unlike most others in the Gulf, Kuwait’s labor market in the period 2000-2012 has hired fewer nationals in its public sector and exhibited less dependence on expatriate laborers.
Only Oman has been able to show similar good news on its labor market make up.
This should be good news for its long-term economic potential.
Even as Bahrain’s economic growth prospects appear more moderate than the rest, the financial support it has received from fellow states in the region, principally from Saudi Arabia, allows it to stand on its feet. The oil it has might not allow it to meet all its annual financing needs but Saudi Arabia is always there to fill the gaps.
Its future is more than ever pegged to its neighbor to the west.
Each of the Gulf countries have their shortcomings when it comes to diversification, some more than others, but their prospects are far better than many other emerging markets over the medium term.
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John Sfakianakis is a Riyadh-based investment strategist. He has worked as chief investment strategist of MASIC, the Riyadh-based investment and asset management company. Previously, he was chief economic adviser at the Saudi Ministry of Finance.