Business leaders are more confident about the region’s prospects of surviving a long period of low oil prices than their counterparts in Saudi Arabia.
Research carried out exclusively for The National revealed that 72 per cent of UAE respondents surveyed felt the region could survive the effects of a long period of oil prices at US$50 per barrel without slipping into recession, compared with 66 per cent in Saudi Arabia.
The result is the first of a series of surveys carried out for this newspaper by the research company Borderless Access. Its senior vice president, Dushyant Gupta, said one interesting factor was that in both cases, nationals were more optimistic than expatriates.
“While the overall sentiment is clearly showing cautious optimism, the percentage of people who disagree about the region’s capability to weather the slowdown reflects the realism that the Middle East has a tough time ahead,” said Mr Gupta.
Majed Al Ghalib, a senior economist at Saudi Arabia’s National Commercial Bank, said the fact the UAE took its decision to cut fuel subsidies earlier (in July last year, compared to November in Saudi Arabia) may explain the greater confidence.
NCB is predicting an average price of $45 per barrel of oil for 2016, which suggests a continued recovery from the early part of the year when it was trading at $25-26 per barrel.
The road ahead
■ Throughout the summer, The National will be running reports focused on sentiment within the business communities in the UAE and Saudi Arabia around a series of key issues affecting the regional economy as we look ahead to 2017 and beyond. Survey results will be provided by the online marketing and research firm Borderless Access. Email firstname.lastname@example.org or WhatsApp 056 995 1624 to tell us what matters most to you.
“I don’t think we’re up to $50 through a pickup in demand. It’s more a risk premium,” he said. “You’ve seen supply disruption in various places such as Kuwait, Nigeria, Libya and in Canada.”
Dima Jardaneh, the head of Standard Chartered’s Mena research team, said the UAE and Saudi Arabia are both going through slowdowns, but have managed to avoid a contraction of their non-oil economies.
“The burden of adjustment is larger for Saudi Arabia since it is running a much wider fiscal deficit and faced with larger drains on liquidity,” she said.
She added that raising non-oil revenue was likely to take time, and the immediate focus was likely to remain on cuts to government spending.
Some support is likely to come by way of a further strengthening in oil prices as supply continues to decline from other sources – most notably US shale.
“We expect the oil price to reach above $60 per barrel by year end,” said Ms Jardaneh.
Mr Al Ghalib said that Saudi Arabia’s ability to cope with lower oil prices over the longer term depended on its success in implementing the recently announced 2030 Vision. This included an intention to boost foreign direct investment to 5.7 per cent of GDP by 2030, up from its current level of 3.7 per cent.
One way to do this would be to increase the threshold for foreign investors in Saudi Arabia’s stock exchange to more than 10 per cent of the total.
“If they readjust that, you would be able to more easily attract FDI into the economy over the course of the next 10 to 15 years,” he argued.
Neil Shearing, the chief emerging markets economist at London-based Capital Economics, said that while plans for Saudi’s 2030 Vision looked impressive, delivery “will be a slow grind”.
“Diversifying the economy is something that has been talked about for decades and won’t happen overnight,” he added.
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