How Big Is The Middle Eastern Market From A Business Perspective?

The average real GDP for the MENAP region stood at 2.8% in 2014 and 2.5% in 2015, according to the IMF. The MENAP region was adversely affected by the oil price dip; however, the IMF has projected a quick recovery, forecasting annual GDP growth at 3.1% for 2016 and at 3.5% for 2017.

The gulf economy is characterised by a general notion of being oil dependent. Moreover, with oil prices plummeting since the summer of 2014 and gulf economies taking a hit, they are not being viewed positively for business prospects. However, it is important to note that not all gulf countries are alike and the prospects of growth and development are still very bright in certain nations. The entire region is characterised by economies that stand at different levels of development.

The State of the Gulf Market

Despite the stereotypes associated with the region, the GCC market is experiencing rapid consumerisation and increased demand for manufactured goods. One of biggest advantage is its strategic location. Its location allows for smooth global trade. Moreover, the GCC countries are also well connected through road, water and air.

Bahrain holds the window to the entire GCC market. Setting up a business in Bahrain can get you significant exposure to rest of the GCC countries. Saudi Arabia is just an hour by road, while Qatar is 25 minutes by air. Not only have the gulf countries come a long way from just being oil producers, but they have also encouraged private business owners to participate in the region’s growth and development model. The GCC countries have taken special initiatives to encourage foreign investment which includes hassle-free paperwork, free and easy repatriation of capital and profit as well as liberal tax laws.

The diversification of the gulf economy has opened up newer avenues for budding businessmen. Some of the key sectors apart from oil and gas are finance, housing and infrastructure, construction, healthcare services, financial services, education, information and communication technology and tourism and aviation. If you are planning to set up a business in the gulf to tap into the growing demand in the GCC market, Bahrain is a great option.

Bahrain not only enjoys a strategic location, but is also equipped with modern infrastructure. It has implemented laws and regulations for ease of business. It boasts of a highly educated labour force. Moreover, it has bilateral agreements with more than 40 different countries giving it the required edge. Bahrain also has among the most liberal laws and culture. 

Does the Fall in Oil Prices Impact the Gulf Economy?

Oil prices have slumped to levels lower than that seen in 2003. This has been especially hard on the Gulf countries, who according to GeoExPro cover only 3.4% of the Earth's surface, but are home to approximately 48% of the world's oil reserves. Naturally, the Gulf countries' economies are heavily dependent on oil exports. If we go by budget revenue shares, Saudi Arabia's is 73%, Bahrain's is 70%, Oman's is 45% and Kuwait's is 60% coming from the oil sector.

The recent slump in oil prices is attributed to the economic slowdown in the European countries and China, triggering a fall in demand for oil, along with the oversupply by oil producing countries. The lifting of sanctions on Iran too has escalated the problem. The GCC market countries have in fact started taking drastic austerity measures, such as increasing fuel prices in the domestic markets, imposing taxation on expatriates, job cuts and cancellation of increments to employees. Since oil makes up for more than 80% of revenues of the GCC countries, severe impacts have been visible on their economies.

Oil Prices & the Gulf Economy

1.      According to a report by the Kuwait Financial Center

·         Huge budget deficits are being caused by the slump in oil prices. This will force the GCC countries to burrow $285-$390 billion through 2020 to finance the gap.

·         There will be a massive shortfall in oil revenues of approximately $318 billion.

2.      The governments will tweak their economic policies, with

·         The Gulf countries trying to cover losses by reducing subsidies on water, electricity and petroleum heavily.

·         Implementing heavy cuts in government spending and state sponsored projects.

3.      They will have to rethink the future

Furthermore, other causes of the reduction in oil prices perhaps include the improvements in technology and the increased and efficient extraction and popularity of shale gas. All this might also bring trouble for the GCC market, which could face even lesser demand than before. This indicates that there is a need to bring in diversification and bring down the dependency on oil, like the UAE has done with hydrocarbon, which now accounting for around 20% of its exports.

The falling prices are also expected to impact foreign investment. The declining oil prices have triggered the petro-states to take hard calls. Due to this, they are either using up their reserves or borrowing money. Anticipating depreciation of currencies in the Gulf countries, rating agencies like Standard and Poors as well as Moody’s have downgraded their ratings, which reflects the weakened investor environment that will make recovery difficult.

Why Should I Take My Business to Bahrain?

Did you know that Katch Kan Holdings Ltd. celebrated a year of its presence in the GCC Market, as it had inaugurated its Bahrain Regional Office branch in February 2015? This is according to the press release initiated by the Canadian international oil and gas company on January 21, 2015. Located in the diplomatic area of Manama, this company is one of the many to have established a foothold in Bahrain and through it, in the entire Gulf region. The Export Development Canada (EDC) has assisted as many as 32 Canadian companies to establish themselves in Bahrain, having generated a business volume of 4.05 million Canadian Dollars. Through its financing and risk management services in industries such as infrastructure, knowledge, telecommunications, oil and gas and transport, it has proven instrumental in forging a strong trade relation between Canada and the Kingdom of Bahrain.

Why Bahrain Bodes Success

 

Controls Two Important Industries: Did you know that the Gulf controls 40 per cent of the world's oil as well as 40 per cent of global financial reserves? This gives the GCC market a large amount of control over world trade in the two most lucrative segments. Having a presence in Bahrain, the heart of the Gulf, is therefore like having a foot-in-the-door to the world's wealth. Harnessing the opportunity could yield high returns for other economies as well as individual businesses.

Booming Economy: The GCC market yields a nominal GDP of 1.7 trillion USD and is expected to realize the 2 trillion mark by 2020. Given that economic development across the world has been sluggish, it is important to note that the Gulf has been realizing IMF forecasts by achieving a steady growth of above 2 per cent in the past years. The young and skilled population of the region is also cited as a cause of medium term growth, thereby predicting an increase in consumption in the coming years.

Ease of Conducting Business: The reason why you should position your business in the Gulf by locating yourself in Bahrain is because it is one of the most business friendly countries, not only in the region but in the world. The Index of Economic Freedom generated by The Heritage Foundation and The Wall Street Journal ranked Bahrain as the 18^th freest economy in the world in the year 2016. Moreover, the lack of corporate income tax along with free repatriation of profits makes it an extremely lucrative place for conducting business.