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KUWAIT CITY — Gulf countries are bracing for tough times as vital oil revenues fall and after they missed a golden opportunity to diversify their economies in a decade of unprecedented windfalls, analysts say.

The six nations of the Gulf Cooperation Council (GCC) — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) — could soon start reeling from falling oil prices, which have dropped by half from their 2014 highs to around $60 a barrel. 

Pumping about 17.5 million barrels per day, GCC countries are forecast to lose at least half their oil revenues, or around $350 billion a year, at current price levels.

Oil revenues make up around 90 per cent of income for most GCC states and with prices now below budget forecasts, their governments are looking at certain deficits next year.

Spending cuts are sure to follow — and possibly even the region's first taxes — raising fears of public discontent and eventually an economic slowdown.

The oil price drop has also sent Gulf stock prices plummeting, wiping out billions of dollars of market value across the region and hurting major private firms like developer Emaar Properties and builder Arabtec Holding.

According to leading Kuwaiti economist Jassem Al Saadun, the heart of the problem is that Gulf states failed to seize on surging energy revenues to build up their economies outside the oil sector.

"Gulf states have missed an important opportunity to reform and build a real diversified economy," Saadun said. 

"Public spending has soared to new record highs and it was not for vital infrastructure projects to diversify the economy," he indicated.  "It was mostly for wages, salaries and subsidies... and handouts for buying political loyalty especially after the Arab Spring."

Reserves only 'temporary cushion' 

Economists are warning that even with the huge reserves many have built up, a prolonged drop in oil prices will hit Gulf states hard.

"The prevailing growth model for most oil-exporting countries has left them vulnerable to a sustained decline in oil prices," the International Monetary Fund said in a research bulletin last week headlined: "It is high time to diversify".

Ratings agency Standard & Poor's (S&P) is warning that an extended decline in oil prices will likely slow the Gulf economies, reducing spending on their massive infrastructure projects and hitting the private sector.

S&P has lowered its outlooks for Saudi Arabia, Oman and Bahrain, though it has maintained their ratings because of their impressive reserves.

The IMF has said that — barring Oman and Bahrain, which are already in deficit — GCC states will not be greatly affected in the short-term as they can tap into reserves estimated at $2.5 trillion.

But these funds, the IMF warned, will "only provide a temporary cushion".

In some parts of the region, the belt-tightening has already begun.

Regional powerhouse Saudi Arabia has insisted it will maintain its high spending levels by tapping into reserves.

But Kuwait has ordered major spending cuts and is considering lifting petrol and electricity subsidies.

In the UAE, Dubai has announced plans to raise electricity and water charges. Similar measures are expected by other countries.

'Options are
no longer easy' 

According to Moody's Ratings, Gulf countries are likely to start with cuts in spending on "non-strategic investment projects" but will eventually face tough choices.

"Slowing or even reversing the growth in current government spending, including subsidy reforms, will be more difficult as governments seek to meet social welfare demands," the agency said.

As oil revenues in Gulf states surged from about $100 billion in 2000 to $729 billion last year, public spending grew from about $150 billion to $547 billion, according to IMF figures.

But the spending focused mostly on items like wages and subsidies, not crucial capital investment.

"Current expenditure has surpassed capital spending by miles," indicated M.R. Raghu, head of research at Kuwait Financial Centre (MARKAZ).

Cutting that spending now is difficult as it means taking courageous decisions on wage and subsidy reforms, experts say. 

The Gulf states have adopted a generous cradle-to-grave welfare system with highly subsidised services and fuel and no taxation.

The World Bank has urged GCC states to start immediate cuts to energy subsidies, which cost them more than $160 billion annually, and Saadun said it was "inevitable" they would have to start introducing taxes.

Such moves would prove deeply unpopular. But Saadun said putting them off would eventually make more drastic efforts necessary, which could spark the kind of social unrest that has hit other countries in the region.

"Yes, these measures are politically sensitive, but the alternative is an Arab Spring in the Gulf. Options are no longer easy," he added.

AMMAN — The "investment window" will officially be launched in mid-April 2015, Jordan Investment Commission (JIC) President Montaser Okla said Thursday. 

At the monthly meeting with presidents and chief executive officers of companies that operate free, industrial and development zones, Okla said the new investment law has positioned JIC as the sole reference for current and future investors, whether they are Jordanians, Arabs or foreigners. 

According to Okla, the role of developers in attracting investments and marketing Jordan internationally has been upgraded, as JIC’s monitoring and organisational tasks, in terms of investment operations and serving investors, have become stronger after the endorsement of the investment law.

He indicated that JIC is currently preparing a draft agreement that gives developers wider authority, especially in municipal undertakings, licensing and registration.

Such a step would ensure that JIC attract more investments from countries, companies or even individuals, he said, stressing that attracting investments should not be restricted to government.

He added that JIC will cover the entire Kingdom through specialised employees with offices in the governorates, or in chambers of industry and commerce.

Nasser Shraideh, chairman of the Jordanian Free Zones Corporation, commended the commission’s role in making the Kingdom a comprehensive regional centre enjoying  stability and security, and attracting more investments that add value to the national economy.

AMMAN – Jordan's pharmaceutical industry has potential to grow further due to its capability to manufacture new products and market them globally, according to the European Bank for Reconstruction and Development (EBRD). 

Hanan Morsy, EBRD's lead economist for the SEMED region (Jordan, Egypt, Morocco and Tunisia), told The Jordan Times in a recent interview in Amman that a new study by the London-based bank found that the Kingdom's pharmaceutical sector has the capability to produce drugs and market them in international markets three times more than the rest of the 30 countries it covered in a report.

Morsy was in Amman along with other EBRD officials to launch the bank's annual Transition Report. This year's publication was entitled "Innovation in Transition". 

The private sector in Jordan, particularly the pharmaceutical and ICT, has the competence to help Jordan's economy achieve higher growth rates by adopting innovation and improving production capacities, she said. However, she noted that only 8 per cent of firms in Jordan can launch new products, compared to 11 per cent in remaining countries included in the report.

Obstacles hindering innovation, not only in Jordan but elsewhere, she added, are mainly related to uneasy access to finance, corruption and limited labour skills.

Access to finance for small- and medium-sized firms is a global issue, but in Jordan the budget deficit and the government's borrowing from local banks made it compete with the private sector, which negatively affected companies in obtain financing they need.

According the Morsy, the Transition Report 2014 includes detailed information on how firms innovate by introducing new products, new production processes, new ways of organising themselves and fresh approaches to marketing their products and services. 

The report also takes stock of firms’ investments in research and development, and provides new insights into how managerial practices influence a firm’s productivity.

A key idea put forward in this report is that, regardless of a country’s level of economic development or its progress along the transition path, individual firms can make a difference.

RIYADH — Saudi Arabia will continue massive public spending despite a 50 per cent drop in the price of oil, which provides the bulk of its revenue, the finance minister said Wednesday.

Ibrahim Bin Abdul Aziz Al Assaf commented after completing the 2015 budget, which will be presented to Cabinet "in the near future", the official Saudi Press Agency said.

Financial analysts expect the budget to be approved as early as Monday.

The kingdom is the largest economy in the Arab world, and the biggest crude producer in the Organisation of Petroleum Exporting Countries (OPEC)

Assaf said the budget comes during "challenging" global economic conditions but surpluses and reserves built over many years have given it "depth and a line of defence that come in handy in times of need".

He added that this policy will continue, enabling the government "to implement massive social projects" in health, education, social services and development as well as state security.

This spending, combined with private sector activity, is expected to bring positive economic growth, he continued, without giving a figure.

Riyadh-based Jadwa Investment said in a December 7 report that the government should be in a comfortable position to adjust to lower oil prices and avoid drastic spending cuts.

It highlighted "the strong sovereign balance sheet, with foreign reserves of more than 95 per cent of the gross domestic product (GDP) and a public debt of less than two per cent of national output".

Jadwa projected a fiscal deficit of 2.7 per cent in 2015.

It said it expected global growth to recover next year, helping to pull up crude prices to around $84 a barrel.

"We think the government will maintain elevated spending," Jadwa said, forecasting real GDP growth of 3.4 per cent in 2015.

British-based analysts at Capital Economics said a budget deficit "should be easily financed by issuing debt or drawing down savings. Overall, then, growth is unlikely to collapse as a result of lower oil prices".

Saudi Arabia had a nominal GDP of $748 billion (598 million euros) last year, and reported a budget surplus of around $55 billion.

The ruler of neighbouring Kuwait, Sheikh Sabah Al Ahmad Al Sabah, warned in October that falling oil prices were damaging his nation's economy.

LONDON — Members of the Organisation of Petroleum Exporting Countries (OPEC) which backed an output cut at the group's meeting last month are coming around to the view of Saudi Arabia that they need to focus on market share, further reducing the chance of any action to defend prices.

While Venezuela, which campaigned for output cuts in the run-up to the November 27 meeting, has continued to call for measures to prop up prices, other nations which usually back such action such as Iran and African members have been silent.

"The producers have not blinked. We are just watching and selling oil at whatever the price is," said a delegate from an OPEC country which in November had wanted an output cut.

This means there is greater unity behind the view of OPEC's core Gulf producers, which signalled this week they are prepared to wait as long as a year to see the market stabilise, despite a plunge in prices to below $60 a barrel, the lowest since 2009.

Oil's fall from this year's peak of $115 a barrel in June is particularly painful for countries such as Venezuela, Algeria and Iran, which need prices above $100 to balance their budgets, according to estimates by the International Monetary Fund (IMF) and other analysts.

OPEC was expected to address the problem in November by trimming production, but Gulf producers led by Saudi Arabia blocked calls from poorer members to reduce supplies, arguing the group needed to fight for market share.

A delegate from a second OPEC country which had backed a supply cut said any action to support prices would need to include non-OPEC Russia, which so far has shown no sign of backing down on its refusal to cut output.

"Despite the pain, we agree OPEC can't cut alone," the delegate said.

The first delegate said there was no need for OPEC to meet before its next scheduled gathering in June, as its most recent decision needed time to lead to a slowdown in competing supplies such as shale oil.

"The producers are trying to put the brakes on shale oil and that is going to happen sooner or later, and they are also stimulating the economy, and higher oil demand. That is going to continue," he indicated.

On Tuesday, the Kuwaiti oil minister said OPEC has no plans to intervene in the oil market to shore up sagging crude prices.

"At OPEC's meeting in November, we took two decisions," Ali Al Omair said at a lecture in Kuwait City. "The first was to keep the production ceiling unchanged and the second to hold the next meeting in June. So far, nothing has changed and there are no calls for holding an emergency meeting." 

He declined to answer a question on what price would force OPEC to step in to bolster the market.

"As of now, there are no plans. We will talk about it when it comes," the minister said in response to a question on whether OPEC would meet if prices drop to $40 a barrel.  

The Kuwaiti minister said the current slide in oil prices had "surpassed all forecasts", which initially predicted a slight drop in crude prices.

He noted that excess supplies in global markets had increased from 1.2 million barrels per day (bpd) when OPEC met last month to 1.8 million bpd now.

Oil prices were also under pressure because "many world markets are saturated" with oil.

Earlier on Tuesday, Omair said OPEC should stick by its decision to maintain production levels despite sliding prices. 

"There is no need for OPEC to change its decision" taken on November 27, the minister told reporters outside parliament.

"Kuwait believes the decision was correct and we should continue with it," he said, brushing aside calls for OPEC to take action.

The decision was not aimed at triggering "a price war", he added.

The minister hinted that oil prices could slide further.

"Undoubtedly many of the shale oil and sand oil companies are producing at a cost higher than current oil prices," Omair said. "It depends on the capability of these producers to continue pumping at such a low price." 

Omair said OPEC pumps around 30 per cent of global supplies and "we cannot reduce this level".

AMMAN — The Vocational Training Corporation (VTC) announced Tuesday in a press statement that the Pharmaceutical Centre of Excellence (PCOE) in Salt, in close collaboration with the Jordanian Association of Pharmaceutical Manufactures and the Employment-Technical and Vocational Education Training (ETVET) fund, is offering professional training, initially for a one-year technical diploma in manufacturing operations in production units. The training is enabled through the Employment-Technical Vocational Education and Training Reform Project funded by the European Union. The training is part of a broader strategy to contribute to demand driven education and training, in full partnership with the private sector. "Currently, 32 trainees, of whom 16 are women, are active learners as they have already secured assurances for gainful jobs in the thriving Jordanian pharmaceutical industry," the press release said. The EU project has supported the overall training programme development including  learning and training materials in a modular structure and integrated with 3 months of industry apprenticeship/internship.  The EU has also provided the VTC to set-up a library with valuable reference material. With financial assistance from ETVET fund, the training centre in Salt is fully refurbished and well equipped with a state-of-the-art manufacturing line.

AMMAN — Jordan Enterprise Development Corporation (JEDCO) and the Network of Jordanian Centres of Excellence on Tuesday signed JD145,000 in grant agreements to finance 13 start-up projects in Jerash, Irbid, Mafraq, Balqaa, Madaba and Tafileh governorates. In a statement to The Jordan Times, JEDCO said the grants will contribute to JD175,000 of investments, expected to create 26 job openings after an 18-month implementation period. Ministry of Industry, Trade and Supply Secretary General Maha Al Ali stressed in the statement the importance of local economic development, and the need to revisit all relevant laws.

AMMAN — The European Bank for Reconstruction and Development (EBRD) announced Tuesday in a press statement that it is partnering with Cairo Amman Bank (CAB) to increase support for small businesses in Jordan by providing the equivalent of $20 million in Jordanian dinars for on-lending to micro, small and medium-sized enterprises (MSMEs). “Access to finance for MSMEs remains a challenge in Jordan, and this is particularly true for women-led businesses, new firms, small-scale enterprises and MSMEs located outside Amman,” the press release said. Heike Harmgart, head of the EBRD resident office in Jordan, said: “Signing this credit line with CAB is an important milestone for the EBRD in providing finance to small businesses in Jordan. CAB is committed and well-positioned to assist MSMEs, an important sector for the EBRD to develop as it contributes to economic growth and job creation.”

AMMAN — Corporate governance was stressed on Tuesday as a crucial step for the sustainability and competitiveness of family businesses.

Although around 90 per cent of small- and medium-sized businesses in Jordan are family-owned, only 3 per cent survive past the third generation, according to Maali Qasem, executive manager of the Jordan Institute of Directors (JIoD).

"Only 30 per cent of family owned businesses pass on to the second generation, while only 10 per cent pass on to the third generation," she said at a conference of family governance carried out by the JIoD.

She added that corporate governance policies can help family businesses improve their performance and grow, noting that the institute works closely with enterprises and businesses on enhancing governance practices.

Corporate governance practices seek to enhance economic and financial stability of businesses as well as achieving capital market development and firm growth,  Philip Armstrong,  International Finance Corporation (IFC)  senior adviser on corporate governance, said. 

He added that corporate governance practices include the creation of internal control units that monitor the performance of board members and protect investors.

Moreover, family businesses, which form around 75 per cent of businesses worldwide, should develop a "clear and agreed process for leadership succession" to take over when the business founder passes away to avoid internal dispute.

However, family businesses willing to follow corporate governance practices face challenges including leadership succession and creating a balance between family and business interests, said IFC country manager in Jordan, Ahmad Atiqa.

He added that the IFC has helped several public and private institutions in enhancing governance practices, including the Central Bank of Jordan, the Jordan Securities Commission, the Companies Control Department and Nuqul Group, which comprises 30 companies.

Ghassan Nuqul, vice chairman of Nuqul Group, said corporate governance is "more needed" in family businesses than in non-family ones, noting that it is easier to start governance practices in small businesses.

He noted that family businesses tend to involve emotions, which sometimes leads to escalation of disputes between family members, highlighting a need for separating business ownership from business management.

He called on family businesses to open up for diversity among their employees and to encourage independent non-family board members and "top calibres" to join the business.

He noted that family businesses are usually less affected by economic recessions as sustaining a family legacy is a key drive for these businesses, in addition to the passion for work and risk taking.

NEW YORK — Crude prices came under renewed pressure on Monday, and Brent hit five-year lows of nearly $60 a barrel after producers grouped under the Organisation of Petroleum Exporting Countries (OPEC) said it would stick to its decision not to cut output despite fears of a world awash in oil.

Brent and US oil initially extended last week's rout, which wiped more than 10 per cent off global crude prices. They were up in New York's Monday morning trade after news that Libya's two biggest oil ports had shut due to fighting between armed factions allied to the country's two rival governments.

Loading delays for January cargoes of North Sea Forties crude due to lower-than-expected output was also positive for oil. The North Sea Forties set prices for Brent.

But oil later gave up its gains, with Brent turning negative and US crude down almost $2 a barrel by noon in New York. While some traders cited market wariness ahead of a two-day policy meeting of the US Federal Reserve, others attributed the decline to OPEC's affirmation of no output cuts.

Abdullah Al Badri, OPEC's secretary general said the group could ride out the nearly 50 per cent slump in oil prices since June without amending production. Influenced by top exporter Saudi Arabia, OPEC decided last month that cutting output meant losing its market share.

"OPEC is simply telling us it will not take any action to support oil prices in the foreseeable future, and that can hardly be good," said Andrew Lipow, president at Lipow Oil Associates, an oil services advisory in Houston.

Brent was down 80 cents at $61.05 a barrel at 1700 GMT. It had risen as much as $1.40 earlier to $63.25 after a session low at $60.28, a bottom since July 2009.

US crude fell $1.75 to $56.05 after plumbing a new May 2009 low of $55.87.

The spread between the two oils, a key arbitrage trade, widened to nearly a month-high premium of nearly $5 a barrel for Brent, which lost less than US crude.

Traders attributed the difference to better fundamentals for Brent that included the Libyan security situation and the delay in the North Forties cargo loadings. US crude, on the other hand, could face another sharply weekly build in inventories in Cushing, the main delivery point for the oil, they said.