The Middle East has seen a lot of change over the last quarter of a century and there is plenty more to come. As the region’s economies seek to transform from oil dependency to other sources of income the pace of change is only going to increase.
The challenges facing this process of change vary from country to country and when your house is built on sand and oil it requires imagination to see what a future can look like.
Over the past year there have been a number of news stories around further change. Whether it is a city on Mars within 100 years, flying cars, infrastructure projects around EXPO 2020, new tallest buildings, World Cup football in the desert heat or the Kingdom of Saudi Arabia (KSA) government selling part of its stake in Saudi Aramco – if there is a part of the world where all of this could happen, it is here.
However, there is a storm coming, a perfect storm if you like. A combination of imposed changes that could potentially have a significant impact on the financial and business strategies of many organisations.
Let’s start with the first time adoption of IFRS this year. Combined with changes to the standards on revenue and financial instruments in 2018, and possibly the most significant change in financial reporting that I have seen in my career – leases, in 2019 – financial information in the largest economy in the region is going to be volatile at best. An announcement by the Capital Markets Authority, postponing the use of the revaluation model under IAS 16, 38 and 40 for three years while the valuation industry develops, removes some of the “freedoms” within application. But the information hitting the boardrooms in the region is going to look very different – and that will affect decision making and possibly strategy.
Does this open the Kingdom up to further international investment? Certainly with the KSA government looking to replenish its financial reserves, selling some of their stakes in government-owned companies to foreign investors seems a fairly logical approach. Watch this space.
Lots has been said about the oil price impact on the economies and amendments to banking regulations around the world but we are seeing tourism as an area of investment and development. New theme parks are being developed, opened and visited in the UAE and religious tourism in KSA is clearly an area of potential growth. Visitor numbers for the first couple of months of the year are up on last year for the UAE and there is no shortage of things to keep people, and their credit cards, busy.
At this stage “Trumpism” is a concern. The US is a major supplier to and customer of this region and like the rest of the world we watch the news feeds with a mix of interest and fear as to what comes next from his administration, but there is no doubt that travel bans, rhetoric, “false facts” and the perception of this region created by anyone in such a powerful position will have an impact. Not least on the new Trump Estates development in Dubai.
The most significant element of the perfect storm is VAT, coming to the GCC countries in 2018 and probably at a rate of 5%. But without the legislation we cannot be certain of the details at the moment. A lot of businesses here are waiting for the announcement and the views on how significant it will be vary from apathy to full-on terror, but as a first “tax” on individuals the jury is out – although it does mean that those of us in training and development get to talk about Jaffa Cakes again.
So, the perfect (sand) storm of financial results changing due to adoption of IFRS; changes in some significant accounting standards; changing banking regulations; a low oil price affecting inward investment and government spending plans; government transformation projects; significant spending commitments on infrastructure; travel and tourism changing the nature of the economies; VAT implementation; the US’s stance on this region; and investment in the educational development of national populations means that strong corporate and public sector leadership is needed, strategies need to flex or even change to accommodate the external factors and utilise internal strengths.
As I travel, I see a region that is comfortable with change while holding on to the traditions of culture, I see challenges and opportunities ahead of us and I see resolve and determination to succeed.
Gavin Aspden is a director, assurance at PwC and director of PwC’s Academy in the Middle East