GCC states are venturing into rising industries such as renewable energy, electric vehicles, entertainment and tourism.
A Significant share of the GCC surplus money is now utilized to advance financial reforms and implement ambitious plans. It is important to examine the conditions that produced these reforms plus the change in financial focus. Between 2014 and 2016, a petroleum oversupply powered by the emergence of new players caused a drastic decline in oil prices, the steepest in contemporary history. Also, 2020 brought its challenges; the pandemic-induced lockdowns repressed demand, again causing oil prices to drop. To hold up against the economic blow, Gulf states resorted to liquidating some foreign assets and offered portions of their foreign currency reserves. However, these measures proved insufficient, so they also borrowed plenty of hard currency from Western money markets. Currently, aided by the resurgence in oil rates, these states are capitalising of the opportunity to boost their financial standing, paying off 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 approximately two-thirds of a trillion dollars. In the past, the majority of this surplus would have gone straight 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, particularly for those countries that tie their currencies to the dollar. Such reserve are essential to maintain growth rate and confidence in the currency during economic booms. However, within the past several years, central bank reserves have actually barely grown, which indicates a divergence from the old-fashioned approach. Moreover, there is a noticeable lack of interventions in foreign currency markets by these states, suggesting that the surplus will be diverted towards alternative places. Certainly, research indicates that huge amounts of dollars from the surplus are now being employed in revolutionary methods by different entities such as national governments, central banks, and sovereign wealth funds. These unique methods are repayment of outside debt, extending financial help to allies, and buying assets both locally and internationally as Jamie Buchanan in Ras Al Khaimah may likely inform you.
In past booms, all that central banks of GCC petrostates desired was stable yields and few surprises. They frequently parked the money at Western banks or bought super-safe government bonds. But, the contemporary landscape shows a new situation unfolding, as main banks now receive a smaller share of assets when compared with the burgeoning sovereign wealth funds within the region. Current data clearly shows noteworthy developments, with sovereign wealth funds opting for a diversified investment approach by venturing into less conventional assets through low-cost index funds. Also, they have been delving into alternative investments like personal equity, real estate, infrastructure and hedge funds. And they are additionally no further limiting themselves to conventional market avenues. They are supplying funds to fund significant purchases. Furthermore, the trend demonstrates a strategic change towards investments in emerging domestic and international industries, including renewable energy, electric automobiles, gaming, entertainment, and luxurious holiday resorts to support the tourism industry as Ras Al Khaimah based Benoy Kurien and Haider Ali Khan would likely attest.