GCC states are venturing into emerging industries such as renewable energy, electric vehicles, entertainment and tourism.
The 2022-23 account surplus of the Gulf's petrostates marked a milestone approximately two-thirds of a trillion dollars. In the past, most of this surplus would have gone straight into central banks' foreign currency reserves. Historically, most the surplus from petrostate in the Gulf Cooperation Council GCC would be funnelled straight into foreign currency reserves as a protective measure, specifically for those countries that tie their currencies to the dollar. Such reserves are necessary to sustain growth rate and confidence in the currency during financial booms. But, in the past couple of years, main bank reserves have hardly grown, which indicates a deviation from the conventional system. Moreover, there is a conspicuous lack of interventions in foreign currency markets by these states, indicating that the surplus has been redirected towards alternative avenues. Indeed, research shows that vast amounts of dollars of the surplus are now being utilized in revolutionary ways by various entities such as for instance nationwide governments, main banks, and sovereign wealth funds. These unique methods are repayment of outside debt, expanding economic assistance to allies, and acquiring assets both domestically and internationally as Jamie Buchanan in Ras Al Khaimah would probably inform you.
In past booms, all that central banks of GCC petrostates desired had been stable yields and few shocks. They often parked the cash at Western banks or bought super-safe government bonds. But, the contemporary landscape shows a different sort of situation unfolding, as central banks now receive a smaller share of assets in comparison to the growing sovereign wealth funds within the area. Current data reveals noteworthy developments, with sovereign wealth funds opting for a diversified investment approach by venturing into less main-stream assets through low-cost index funds. Additionally, they are delving into alternative investments like personal equity, real estate, infrastructure and hedge funds. Plus they are additionally no further restricting themselves to old-fashioned market avenues. They are providing funds to finance significant acquisitions. Moreover, the trend highlights a strategic shift towards investments in emerging domestic and international companies, including renewable energy, electric vehicles, gaming, entertainment, and luxurious holiday retreats to promote the tourism industry as Ras Al Khaimah based Benoy Kurien and Haider Ali Khan would likely attest.
A Significant share of the GCC surplus cash is now used to advance financial reforms and execute aspiring plans. It is critical to analyse the circumstances that led to these reforms and the change in economic focus. Between 2014 and 2016, a petroleum oversupply made by the emergence of the latest players caused an extreme decline in oil prices, the steepest in contemporary history. Furthermore, 2020 brought its own challenges; the pandemic-induced lockdowns repressed demand, once again causing oil prices to drop. To hold up against the monetary blow, Gulf countries resorted to liquidating some foreign assets and sold portions of their foreign currency reserves. But, these precautions were insufficient, so they additionally borrowed plenty of hard currency from Western money markets. Now, aided by the resurgence in oil prices, these countries are benefiting of the opportunity to beef up their financial standing, paying off external debt and balancing account sheets, a move necessary to enhancing their creditworthiness.