Five of the 12 under review were countries in the Middle East – Abu Dhabi, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates (UAE) – while Bahrain and Oman were actually downgraded. The Gulf states are now considering what actions they need to take to continue to run their economies, particularly if there is going to be a sustained period of low oil prices. Of course, it is not the first time in living memory that we have had such low oil prices – the oil glut in the early 1980s springs to mind – but what is different this time round is that most of these countries have much higher expenditure.
So what are they doing to bridge the gap? One route, which the UAE has chosen, is taxes. The Emirates is introducing VAT for the first time, which could be the precursor to other taxes, potentially corporate and income taxes. It’s an interesting time for ICAEW members working in the region: they are drawing on their experiences elsewhere in the world where VAT or a good sales tax has been introduced, to advise the government and to help their clients make the necessary systems changes.
Some countries are deferring or cancelling plans while ensuring that projects of national importance are protected. Meanwhile, the developed world is seeing funds invested through sovereign wealth funds or their equivalents being repatriated. As these funds tend to be invested across a portfolio, the more liquid assets are being withdrawn first which, in many parts of the world, means equities.
All this may sound gloomy, yet business people continue to look for opportunities in the Middle East. Iran, of course, is generating most excitement. It’s a country with a significant population, a highly educated workforce and an appetite to see living standards improve. It seems ripe for enhanced trade with countries in close proximity or those with a large expat Iranian community. However, sanctions have not disappeared completely. In fact, the business sectors where there is an unequivocal green light are few and far between. Most sectors have at best an amber light attached to their prospects and some are very clearly still on the restricted list. Countries and companies need to be clear in their own mind what their status is and what the consequences might be of making an error.
Michael Izza is ICAEW chief executive