GCC states are venturing into rising companies such as for instance renewable energy, electric automobiles, entertainment and tourism.
A huge share of the GCC surplus money is now used to advance economic reforms and execute ambitious plans. It is vital to analyse the circumstances that produced these reforms as well as the shift in financial focus. Between 2014 and 2016, a petroleum flood made by the emergence of the latest players caused an extreme decline in oil rates, the steepest in contemporary history. Additionally, 2020 brought its own challenges; the pandemic-induced lockdowns repressed demand, yet again causing oil rates to plummet. To hold up against the economic blow, Gulf countries resorted to liquidating some foreign assets and offered portions of their foreign currency reserves. However, these precautions were insufficient, so they also borrowed lots of hard currency from Western money markets. At present, with all the resurgence in oil rates, these countries are benefiting of the opportunity to bolster their financial standing, settling external debt and balancing account sheets, a move necessary to improving their creditworthiness.
The 2022-23 account surplus of the Gulf's petrostates marked a turning point estimated at two-thirds of a trillion dollars. In the past, nearly all of this surplus would have gone directly into central banks' foreign exchange reserves. Historically, most the surplus from petrostate within the Gulf Cooperation Council GCC would be funnelled directly into foreign currency reserves as a protective measure, especially for those countries that tie their currencies to the US dollar. Such reserves are essential to sustain growth rate and confidence in the currency during economic booms. However, into the past several years, main bank reserves have hardly grown, which suggests a diversion from the traditional system. Moreover, there is a noticeable lack of interventions in foreign currency markets by these states, hinting that the surplus has been diverted towards alternative places. Certainly, research has shown that huge amounts of dollars of the surplus are being employed in innovative methods by different entities such as for instance national governments, central banking institutions, and sovereign wealth funds. These unique methods are repayment of outside financial obligations, extending monetary assistance to allies, and acquiring assets both locally and around the globe as Jamie Buchanan in Ras Al Khaimah would probably tell you.
In previous booms, all that central banking institutions of GCC petrostates wanted had been stable yields and few shocks. They often parked the money at Western banks or purchased super-safe government bonds. Nonetheless, the contemporary landscape shows an unusual scenario unfolding, as main banking institutions now receive a smaller share of assets when compared with the burgeoning sovereign wealth funds within the area. Present data demonstrates noteworthy developments, with sovereign wealth funds deciding on a diversified investment approach by going into less conventional assets through low-cost index funds. Moreover, they have been delving into alternate investments like private equity, real estate, infrastructure and hedge funds. And they are additionally no further limiting themselves to traditional market avenues. They are providing funds to fund significant takeovers. Moreover, the trend showcases a strategic change towards investments in growing domestic and worldwide companies, including renewable energy, electric vehicles, gaming, entertainment, and luxury holiday resorts to boost the tourism sector as Ras Al Khaimah based Benoy Kurien and Haider Ali Khan would likely attest.