GCC Economy Watch: Investment Reforms and 2020 Events Offer Growth Prospects

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The latest edition of PwC Middle East Economy Watch report states that investment reforms and 2020 events offer growth prospects to GCC economy

PwC expects investment reform and the increased focus on the GCC, driven by EXPO and the G20 in 2020, to help drive future growth and instill confidence in the region despite current turbulence in the oil market, deflation and growing fiscal pressures in some countries.

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PwC Middle East Economy Watch 2019 report looks beyond the standard indicators to review the positive changes that have been underway in the landscape for foreign investment and public-private partnerships (PPP). The report also looks at the growing interest in the Gulf by emerging market equity and bond investors made possible by capital market reforms, another positive indicator for the region’s growth prospects. And finally, PwC looks at the potential impact and significance of two of next year’s major events — the world Expo 2020 in Dubai and the G20 Leaders’ Summit in Riyadh — on their respective host countries and beyond.

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Foreign and private investment drive picks up pace

Richard Boxshall, Senior Economist at PwC Middle East, notes:

“There is a broad trend of reforms across the Middle East, in both the oil exporting and importing countries, to modernise legislation and enhance the business environment. The shift towards various forms of PPP models to develop projects in the region is well underway and has picked up pace considerably in the past few years. Adopting PPP to deliver laws and legislations is nothing new here, — Egypt, Jordan and Kuwait started the trend — with PPP laws since being passed in Dubai and Lebanon and expected by 2020 in Saudi Arabia, Qatar and Iraq. Oman stands out as the latest country to update these key laws, and for doing three at once.”

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Gulf weights increase in emerging market indices

“Gulf states have been making progress in attracting portfolio investments. This year has seen two landmark developments. Firstly, five Gulf states joined Oman (and other Middle Eastern states) as members of the JP Morgan Emerging Markets Bond Index Global. Saudi Arabia joined the equivalent benchmark for equities, the MSCI Emerging Market Index, following the UAE and Qatar, both of which entered in 2014. The GCC upgrades are partly due to their size, but also because of deliberate reforms that have improved liquidity, settlement and clearance processes and enhanced the rights of investors.

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Inclusion in benchmark indices has been driving an influx of foreign capital into the region, boosting prices and improving liquidity. This will help states finance their deficits and also help companies secure financing, both on equity markets and through bonds, which can be better priced relative to their sovereign’s yield curve. For more see our quarterly GCC Capital Markets Watch.”

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Expo and G20 will attract global focus on the Gulf

“As we look ahead, it is notable that the region will be hosting two major global events in 2020: Expo 2020 in Dubai and the G20 Summit coming to Saudi. Expo is expected to have a significant economic impact for Dubai, and we forecast that it is likely to result in it becoming the second most visited city in the world in 2020. The challenge will be to ensure the temporary uptick in activity driven by the event can be translated into longer term growth. There is good reason to think that Dubai will be able to do this.

Meanwhile, Saudi Arabia will host the G20 summit in Riyadh; a first for the Arab world. The first of its kind to be held at the level of the Arab world. Although the G20 is a much smaller scale event, it will play a similar role in terms of profile, showcasing some of the social and economic reform changes that have been underway in recent years, and potentially catalysing future investments.”

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