VAT to escalate inflation, cost of doing business in GCC

Investment professionals rate Dubai as the most positive in the region in terms of outlook Low oil prices, geopolitical instability and lower government expenditure are identified as the leading economic concerns for the GCC, while there is an urgent need to diversify revenue streams from oil.

DUBAI  The introduction of Value Added Tax, or VAT, will increase inflation rates and escalate the cost of doing business across the GCC, but Dubai will remain the most positive in terms of outlook, a survey among investment professionals revealed.
  While market conditions will lead to business consolidation for organizations, low oil prices   geopolitical instability and lower government expenditure will be the most important economic issues over the next 12 months in the region, the survey by CFA Institute, a global association of investment professionals, found.
Decreased economic growth rates will continue as a result of the low oil prices and political volatility according to 23 per cent of respondents. Efforts to diversify revenue streams and lower dependence on oil have also been identified as a significant issue for the GCC over the coming year.
 Amer Khansaheb, President of CFA Society Emirates, said investment professionals in the Mena region are perhaps less optimistic than their colleagues in other markets elsewhere in the world. "The GCC is seeing increasing challenges hence it is reflected in the results of the annual CFA Middle East Societies Market Sentiment Survey."
 He pointed out that the biggest issue for investment management professionals in the region would continue to be oil prices, as 71 per cent of members have revealed. "We are entering a unique period in the GCC's economic cycle, where dependence on oil revenue and government expenditure will decrease and we expect to see more strategies in place to create more diversified sources of revenue," said Khansaheb.
 One third (33 per cent) of investment professionals who participated in the survey said that regional inflation would increase with the introduction of VAT in 2018, while 28 per cent  stated that this development will increase the cost of doing business. The overwhelming majority of respondents - 82 per cent - expect debt raising activities to increase, while 64 per cent gave Bahrain and Saudi Arabia's equity markets the most negative outlook in the region, with Dubai faring the best.
 According to 23 per cent of respondents,decreased economic growth rates would  continue as a result of the low oil prices and political volatility. Efforts to diversify revenue streams and lower dependence on oil have also been identified as a significant issue for the GCC over the coming year, respondents said.
  Other key findings include that 54 per cent of respondents expect further declines in the sovereign credit ratings of GCC countries, while   increased debt raising activities across the market are anticipated by 82 per cent of respondents.
  Equity markets in Bahrain and Saudi Arabia will be the most affected markets in the GCC, according to 64 per cent of respondents. Dubai was rated as the most positive in terms of outlook, with 35 per cent of respondents confident of strong performance. "The same proportion of professionals believes that investor confidence is as low as it was during 2008/09 as those who believe that the overall sentiment is currently more positive (29 per cent and 28 per cent respectively)," CFA said the survey report.
 Employment opportunities for finance professionals in the GCC will continue to decrease in 2016, according to 63 per cent of respondents. With banks and other financial institutions announcing job cuts, CFA members believe that this trend will continue as the job market worsens for finance professionals. 
 Almost all respondents (91 per cent) believe that it is important for GCC nationals to undertake professional qualifications because it is vital for the regional economy to have a local population with internationally-recognised credentials, which currently is not the case.  
 Khansaheb said an interesting theme that had emerged this year is improved transparency of financial reporting and other corporate disclosures. Some 62 per cent of respondents felt that this would have a beneficial impact on investor confidence across regional markets. A quarter also highlighted that enhancing the transparency of investment decisions and accountability would be the most important factor in establishing a positive sentiment within the investment industry.
 The outlook for the Euro will continue to be negative over the course of 2016, according to 48 per cent of respondents. The Eurozone's economic and refugee crisis could be a catalyst for the poor performance of its currency according to CFA members. Additionally, 42 per cent feel the same way about the British Pound due to the looming threat of a Brexit.
 The survey results were unveiled at a media roundtable a day ahead of the 2016 Middle East Investment Conference (MEIC), which is taking place in Bahrain for the second time today.  issacjohn@khaleejtimes.com
 

• Dubai