Oil Price Shock Hits Middle East

Oil Price Shock Hits Middle East

1st Mar 2016

The Gulf states of Saudi Arabia, UAE, Qatar, Kuwait, Bahrain and to a lesser degree, Oman, have economies which are primarily dependent upon the commodity of oil. High oil prices and substantial demand resulted in huge trade surpluses which permitted massive infrastructure development on a rapid scale from the 1970s  to the present day. Saudi Arabia has some of the largest and most modern hospitals of the world all built by oil revenue. 

 

Low Oil Prices

The massive drop in the oil price which resulted from artificially created surpluses amidst a time of economic slowdown and reduced demand, has had a backlash on all the Gulf economies but has been particularly severe to the instigator of the disastrous policy, Saudi Arabia.

All the Gulf states have suffered from substantial reductions in national income, falling trade surpluses and reduced credit ratings. The UAE has a more diversified economy with tourism and trade major contributors and is therefore better able to weather the storm. However Saudi Arabia and Qatar, which have been less successful in developing the non oil economic sectors, have suffered a blow to their previously robust finances. 

Qatar has chalked up a 60% decline in trade surplus whilst Saudi Arabia has been downgraded to A- in the ratings and is set to sell bonds this year for the first time. 

 

Economic Consequences

The decline in financial stability has forced the Governments of the Gulf States to revise economic policy. Some infrastructure projects are cancelled or put on hold and local subsidies cut (particularly gasoline). However the UAE announced a further massive investment in infrastructure projects approved today and other states consider investing in more hospital projects a necessity for their rapidly growing populations. 

 

The main considerations which affect job creation, recruitment and retention are the following:

  • Taxation: most of the Gulf states are considering some forms of taxation to raise Government revenue. VAT is being considered but income tax and corporation taxes are possibilities. Future jobs may not come with tax free salaries.

 

  • Privatisation: private sector investment is actively sought to assist with the construction and management of hospitals. This is to reduce Government spending and place the financial burden on the private sector. Therefore the majority of new jobs are likely to be in the private sector and in the specialities in which this sector concentrates.

 

  • Emiratisation and Saudisation: the growing populations and high numbers of young people have forced the Governments to actively pursue a policy of compulsory employment of local nationals with a concerted attempt to reduce the number of expatriate workers. There are insufficient medically qualified locals so demand for expatriate labour will persist.

 

These are some of the issues which we must consider in the present state of economic flux. However the Gulf states have a strong and growing demand for medical services, hospital infrastructure is still being developed and the populations continue to boom. The recent agreement between Russia and Saudi Arabia to limit oil production might even raise the oil prices again!

 

 

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