In mid-June it will be three years since the oil price hit its most recent peak, at US $115 a barrel for Brent Crude. It fell all the way below US $30 at one point over those three years and is presently hovering around $52. How have the Gulf States — where many Canadian expats work — such as Bahrain, Kuwait, Omar, Qatar, Saudi Arabia and the United Arab Emirates adapted?
The most visible adjustment was at the OPEC level. After hoping that the lower prices would squeeze US shale-oil producers out of the market, and therefore decrease supply and allow prices to rally, the Arab OPEC countries shifted strategy late last November, fostering an agreement — which also included non-OPEC countries such as Russia and Mexico — to cut output for six months.
Others changes are happening at the regional and domestic levels.
There have been widespread layoffs in the private sector. At the same time projects, and payments for projects, slowed down. Rents are coming down as expatriates leave. Companies are trimming benefits, such as the extent of healthcare coverage and allowances for children’s school fees.
The most significant change, though, is the advent of value-added tax (ie, goods and services tax) across the six countries of the Gulf Cooperation Council: Bahrain, Kuwait, Omar, Qatar, Saudi Arabia and the United Arab Emirates. The tax, initially at a 5 per cent rate, is to kick in next year. In countries with no income tax, this is a sea change.
But at the same time, the austerity has paid off. Estimates are that economic growth will improve this year. For example, Trading Economics has Saudi Arabia’s annual growth rate rising from the latest figure of 1.2 per cent a year to 3.5 per cent in 2020. Accordingly, payments are flowing a little more freely. Or take a walk around The Dubai Mall and you’ll find the place is bustling; not much of a slowdown here.
Think of it this way: for years living in the petro-states was like flying in business class. Now it’s premium economy. Things aren’t what they used to be but for many expats, it still beats the economy-class life back home.