It was envisioned as a fresh start for the Middle East: a tranquil, impartial centre where Arabs and Jews, Shiite Iranians and Sunni Arabs, as well as individuals from America, China, and Russia could collaborate for mutual gain.
This vision, fervently promoted by leaders from Saudi Arabia and the UAE and embraced by CEOs globally, has faced challenges in recent months. First, with Israel’s conflict against Hamas militants in Gaza, and subsequently, in April, with Israel engaging in direct military action against Iran for the first time. Fortunately, the Iranian and Israeli (mostly victimless) strikes and counterstrikes have not resulted in a broader conflict. However, when combined with the much bloodier war in Gaza and its ramifications in Egypt, Jordan, and Lebanon, the missile skirmish leaves the region on edge – and its business goals uncertain.
In light of the year’s severe geopolitical unrest, ongoing technological disruption, and strain on the world economy, the Gulf region is utilising regulatory reform as a tactical tool to increase its visibility in global financial markets and position itself as a hub for ideas, innovation, and investment. This year will be critical for Gulf jurisdictions as they pursue their reform agenda to raise the level of sophistication and depth of their financial markets while also setting global norms.
Known for its enormous gas and oil reserves, the Gulf is starting a transformational and diversification effort to boost investment and offer long-term economic stability. Rapid demographic shifts are also occurring simultaneously, driven in part by the needs of a youthful, well-educated, and expanding middle class. Because of this, authorities in the region are concentrating more and more on creating a strong regulatory framework for the capital markets to win over both domestic and foreign investors. The key financial regulatory measures across the following categories in 2024 are trading and markets, green finance, digital finance, risk, capital, and financial stability. However, individual nations may have various approaches and objectives.
In many countries, tourism is a major economic activity that contributes to economic prosperity. It is also an industry that generates revenues that quickly seep down to the very grassroots of society, and so everyone benefits from it. However, apart from the economic and financial gains, tourism can also be an instrument of change within societies, opening up conservative, inward-looking communities to the outside world. Several Arab Gulf countries have the ambition of turning themselves into major tourist destinations, and some have already had considerable success.
Saudi Arabia is best known for its holy cities, its vast, undulating desert scenes, and the energy contained within them. For centuries, Saudi Arabia has welcomed millions of pilgrims visiting the holy sites of Mecca and Medina for Hajj. With the rise of air travel, Hajj numbers surged, challenging Saudi authorities. However, they adapted swiftly, turning Hajj into a well-organised event. Until recently, tourism beyond Hajj was discouraged, and getting a visa was tough. But now, Saudi Arabia is actively opening up to the rest of the globe. In 2019, Crown Prince Mohammed bin Salman introduced tourist visas, aiming to boost tourism and the economy. As part of Prince’s Vision 2030, the Saudi government aims to have a thriving tourism industry supported by infrastructure and a strong brand. Infrastructure is being rapidly developed, with plans for resorts along the Red Sea and in places like Al Ula. Despite hurdles, progress is visible. However, success also hinges on societal openness to change, as many Saudis are accustomed to a conservative lifestyle and may resist the impact of mass tourism on their society. Other GCC countries, particularly the UAE, Qatar, and Oman, also seek growth in tourism and see the industry as one of the potential pillars of their post-oil economies.
Saudi Arabia has The Capital Market Authority recently approved rules to boost foreign investment in security markets by reducing disclosure differences between qualified foreign investors and other investor categories. Alongside the focus on equity capital markets, the CMA is also sharpening its focus on debt capital markets by seeking to appoint one firm as the provider of an alternative trading system for sukuk and debt instruments through a tender process.
Throughout 2024, there are likely to be further advances in the regulatory development of Saudi debt capital markets. As the Kingdom diversifies its economy away from one that is based on oil, it is harnessing and protecting the wealth of its surrounding seas. With more than $3.2 trillion set to be injected into its economy by the end of this decade, Saudi Arabia is directing finance towards its new blue economy to protect its oceans while ensuring inclusive and sustainable growth. Under Saudi Vision 2030, blue economy investments will flow into Saudi Arabia’s coastlines, which run for 2,640 kilometres across the Arabian Gulf and the Red Sea, connecting neighbouring Gulf states and providing a major route for energy exports through the port of Dammam, as well as the more than 300 islands and hundreds of islets that punctuate its waters.
What’s the situation in other Gulf states amidst war?
Six months after Hamas’s terrorist attack in Israel on October 7th, there have been knock-on hostilities along the region’s waterways. Houthi rebels in Yemen have been firing Iranian missiles on ships in the Red Sea, ostensibly in solidarity with Gazans. Iran also seized an “Israeli-linked” merchant vessel in the Gulf of Oman. As a result, A.P. Moller-Maersk, the world’s second-biggest container-shipping company, has suspended port calls in Saudi Arabia and Oman and rerouted ships around Africa, adding two or three weeks to transit times between Asia and Europe. Ships are making fewer stops in Jordan and Saudi Arabia, and the volume of freight has decreased across the Bab el-Mandeb Strait, the Suez Canal, and the Strait of Hormuz. Oil tankers are avoiding the rough waters, and cruise lines have cancelled or rerouted voyages. Tourists are staying away from Egypt and Jordan, which is affecting their GDP. The hope of luring 160 million tourists a year to the region by 2030, which will be three times the number in 2023, is receding. Multinational businesses are also feeling indirect effects, with concerns about employees being called up for reserve duty in Israel. Progressive pro-Palestinian tech workers in America are pushing Google to drop a cloud-computing project in Israel. Advertisers are cutting regional spending, impacting social media companies like Snap and Meta. American brands such as Coca-Cola and Starbucks are facing boycotts in Muslim countries due to anger over America’s support for Israel and having nearly doubled between 2017 and 2022, annual foreign direct investments in five Arab economies -Egypt, Oman, Qatar, Saudi Arabia, and the UAE-are showing signs of softening. According to the chairman of a Gulf-based company, the private sector is not inclined to take risks during this period. He emphasised the importance of maintaining liquidity. Additionally, a private equity executive mentioned the need for caution regarding additional investments.
Furthermore, a European chief executive officer explained that companies must carefully consider factors such as physical infrastructure protection, selection of financing partners, and risk assessment for new projects. Yields on Saudi and Emirati bonds have risen since October, as has the price to insure those bonds against default, suggesting that investors are jittery. The conflict has led to increased caution and a focus on the physical protection of infrastructure and risk scenarios for new projects.
In conclusion, we can say that despite facing geopolitical unrest and economic challenges, the Gulf region is actively pursuing measures to bolster its financial markets, diversify its economy, and promote tourism. While conflicts pose indirect risks to business and tourism, the Gulf states remain resilient and committed to their long-term goals of stability and growth.
Author: Anika Tasnim
