Newsletter Volume 10

INSIDE THIS ISSUE
The Emirates Chartered Accountant is a quarterly newsletter of Emirates Chartered Accountants Group addressed to all our registered members
and media to update the news, activities and events of the organization.
emirateschartered accountant
The
Newsletter
Oct - Dec. 2015 Volume - 10
EDITOR’S NOTE
Need For Financial Planning & Budgeting: 2
The Changing Role Of CFO: 4
PPP (Public-Private Participation) is becoming the
new way to fund Projects: 8
Updates On GCC Economies: 11
More than figures.....
CA. Manu Nair
CEO
projects should be funded by private investments as
well in this part of the world too. The recent updates
in economics reveal the same. In his article “Public-
Private Participation is becoming the new way to
fund projects” he has explained in detail the concept
of PPP, and he brought some flashes of thoughts for
the businessmen on the possible opportunities of
this concept in GGC.
Another attraction of this volume of newsletter is that
we have included a new article on “updates on GCC
Economies”. It is the summarized updates of GCC
economies in general and the UAE in particular.
We will be regularly having this article in our future
volumes and I am sure, the readers will get benefits
out of this regular updates. Further daily updates on
the GCC economy is available in our website www.
emiratesca.com and in the linked pages of Emirates
Chartered Accountants Group.
We are in the last month of the year 2015. I take this
opportunity to wish every one of you a happy and
prosperous new year, 2016 in advance. I wish you
good luck and have an enjoyable read ahead.
As discussed in our last volume of Newsletter, the
business world is still volatile due to the various
factors happened during the past couple of months
including the significant decline in oil prices. The
possibilities of an interest rate hike in the month of
December by the US Federal Reserve cannot be
denied and if it is to happen; then there will be an
impact on the global economics as well. However,
every challenge opens an opportunity; smart
businessmen always find opportunities in every
challenge in the business world.
In this volume of “The Emirates Chartered
Accountant” we cover four articles which are
very relevant to the businessmen as well as for
the finance professionals as usual. In the article
“Need for Financial Planning and Budgeting”, the
writer Pradeep Sai, Partner at Emirates Chartered
Accountants Group, explained the importance of
Financial Planning and Budgeting. Being in the
fourth quarter of the year, I would say this article
reaches in the hands of the businessmen and
finance professionals at the right time and I am
sure it will remind them of the task of preparing the
budget of their company.
In the article “Changing Role of CFO” our associate
author CA. Ashit Sanghvi explains the changes in
the role of CFO and the importance of a CFO in an
organization with their increased responsibilities.
He derived this article from his more than 25 years
of experience in this field in different industries.
The concept Public-Private Participation (PPP)
is relatively new concept to the United Arab
Emirates (UAE) and other gulf countries where the
government takes the responsibility for procuring
all public services. The private sector in the UAE
and other gulf countries, so far did not play a major
role in providing public services. However the writer
Ragesh Mattummal, Partner at Emirates Chartered
Accountants Group is of the opinion that in future,
1

Pradeep Sai
Partner - Emirates Chartered Accountants Group
A pilot would never fly a plane
from Los Angeles to San Francisco
without a flight plan that explains
how to get there. Yet all too often,
small business people open their
doors without clear plans to help
them get where they want to go.
One of the easiest ways to get there — wherever
that is — is by creating a budget and sales forecast.
A budget doesn’t have to be a restrictive plan that
forces you to deprive yourself of what you want. In
fact, a budget should be a guide, not a constraint.
A reasonable budget allows you to do what you
want. It allows you to use your resources where
they’re most needed, so your business will head
in the right direction. Creating a financial plan lets
you control your business’s cash flow instead of it
controlling you.
Financial planning includes:
1. Determination of amount of finance needed
by an organization to carryout its operation
smoothly.
2. Determination of sources of funds.
3. Determination of suitable policies for proper
utilization and administration of funds.
Importance of Financial planning:
1. It facilitates collection of optimum funds
2. It helps in fixing the most appropriate capital
structure.
3. Helps in Investing Finance in right projects.
4. Helps in operational activities
5. Base for financial control.
6. Helps in proper utilization of Finance.
7. Helps in coordination of various business
functions.
8. It helps in deciding Debt/Equity participation.
Budgeting:
The budget is developed in advance of the period
that covers and it is based on forecasts and
assumptions. It is intended as a planning tool and a
guideline to follow in order to achieve the company’s
planned goals and objectives.
Creating a budget doesn’t have to be a complicated
or time-consuming task. Actually, in the beginning, it’s
best to keep things simple. The key is to determine
how much you’ll spend and earn in any given year,
and then use that figure to project how you want to
grow in subsequent years.
If you already own a business, it’s simply a matter
of digging through some records to see where the
money went, and deciding where you actually want it
to go. Although past financial results and information
may be used in developing the budget for the next
period, the budget is still documented expression of
what company would like to accomplish financially
in future periods.If you’re a new entrepreneur, you’ll
need to do some homework, like getting details of
how much your competitor is making and then make
some realistic assumptions about your business.
Either way, a budget is simply a tool that allows you
to put your money where it can best be used. To get
started, answer the following questions:
• How much can you realistically sell next year?
• How much will you charge for your goods or
services?
• How much will it cost to produce your product?
• How much are your operating expenses?
• Do you need to hire employees? If so, how many,
and how much will you pay them?
• How much will you pay yourself?
• How much payroll tax and unemployment tax will
you pay?
• How much money do you need to borrow, and how
much will your monthly loan payments be?
NEED FOR FINANCIAL PLANNING & BUDGETING:
2

It is important that you review the budget at regular
intervals and change it when the assumptions on
the basis of which budget was made initially have
changed. Review and making changes in budget
shall ensure that it is always realistic.
Advantages of Budgeting:
1) Comprehensive budgeting processes ensure that
strategy effectively translates into action if budget
is linked to strategy.
2) Effective budgeting, processes provide ways to
continuously update operational plans to adapt to
changing conditions.
3) Effective budgeting, promotes the efficient
allocation os organizational resources.
4) Budgeting aligns incentives for optimal
performance.
5) Comparing the actual financial performance
with the budgeted figures helps to understand
the cause and effect relationship among various
factors which drive the business and hence
correctedaction required to be taken to achieve
budgets.
Characteristics of successful Budgeting:
1. The budget must start with the company’s short –
and long-term plans.
2. The budget must have the support of the
management at all levels.
3. The budget should be a motivating device.
4. The budget should be flexible.
5. The budget should be an accurate representation
of what is expected to occur.
6. A budget should coordinated between the
departments.
Best practice guidelines for the budget process:
1. The development of the budget should be linked
to corporate strategy.
2. Communication is vital.
3. Designproceedures to allocate funding resources
strategically.
4. Managers should be evaluated on performance
measures other than meeting budget targets.
5. Link cost management efforts to budgeting.
6. The strategic use of variance analysis.
7. Reduce budget complexity and budget cycle time.
8. Develop budgets that can be revised if necessary.
9. Review the budget on a regular basis throughout
the year.
The Operating budget consists of all of the individual
operating budgets, such as the sales or revenue
budget , the production budget, the purchasing
budget, the marketing budget and the research and
development budget.
The Financial budget includes the Budgeted Balance
sheet, the budgeted statement of Cash Flows , the
cash budget and the capital budget.
StepsinvolvedinOperatingandFinancialBudgets:
1. Sales Budget
2. Production Budget
3. Direct Labour Budget.
4. Cost of Goods sold Budget.
5. Research and Development Budget.
6. Selling & Marketing Budget.
7. Administrative and General Expenses Budget.
8. Budgets for other expenses or sources of revenue
9. CapitalBudget–forlongtermcapitalexpenditures.
10. Cash Budget.
Role of Technology in making budget: Technology
can also play a very important role in reducing the
cycle time required to make the budget. Technology
must be used to integrate the data and bring it at one
place so that must time is not wasted in data sourcing
and data collection and more time is invested in data
analysis for making the budgets.
MAKING BUDGET UNDER VOLATILE CONDITION:
Most companies find budgeting a formidable
challenge even under stable conditions. Managers
often spend significant amounts of time on it, only
to be dismayed by how little value comes from
four to six months’ effort. Under volatile conditions,
when economic forecasts change from week to
week, developing one reliable budget to coordinate
business units and track performance for an entire
fiscal year is very difficult. Following the traditional
budget process may even be unproductive. There’s
no easy fix, particularly for very large corporations,
and companies that have tried to solve the problem
don’t have much of a track record. Executives can,
however, take several measures to make the process
more effective: for instance, scenario planning,
zero-based budgeting, and rolling forecasts Let us
examine each of this in more detailed.
Continued in Page no 10
3

Initially CFO’s role was to review
the accounts and cash flow on
daily basis, to get involve in
finalization of accounts, manage
the cash flow, do the financial
planning and budgeting and
report the performance of the company on monthly
basis.
Over the period of last few years the role of CFO
has changed. Of 1,400 CFOs surveyed throughout
the United States, the largest percentage of
respondents, 25 percent, said a greater focus
on increasing profitability represents the biggest
change in the CFO role over the past five years.
Second was increased interaction with other
departments, at 20 percent; third, an expanded
leadership or management role, 17 percent;
fourth, more strategic planning, 15 percent; and
fifth, increased focus on corporate governance
initiatives, 12 percent. CFOs are moving to a more
complex role from budgets to value creation.
Internally, Finance as a department or group is
responsible for the most critical aspects of any
firm. Externally, Finance is the face of the firm to
regulators, lenders, partners and, in many cases,
the public at large. In severe economic situations,
Finance has the responsibility for establishing,
managing, or restoring public trust in a firm.
The CFO are adding most value as a strategic
partner to the CEO, understanding commercial
opportunity, setting corporate goals as well
as managing, and also developing external
stakeholders. They are now taking active interest
in the strategic issues of the company. They
increasingly are playing a central role in the
definition and execution of strategy and the setting
and delivery of performance targets, ensuring that
CA. Ashit Sanghvi
ACA, CMA
the company meets its stakeholder’s obligations.
CFOs are now working hand in hand with the
CEO of the company to craft the strategies of the
company and drive it. They are a finance leader
who is more than just a scorekeeper, who is a key
strategic business partner to the CEO. They are now
also part of board of directors of the company and
involved in the framing of policies and strategies of
the company.
CFO has aligned to shape the CEO’s agenda
around their own focus on value creation. CFOs who
conducted a value audit could immediately pitch
their insights to the CEO and the board—thus gaining
credibility and starting to shape the dialogue. What’s
more, the CFO is in a unique position to put numbers
against a company’s strategic options in a way that
lends a sharp edge to decision making. The CFO at a
high-tech company, for example, created a plan that
identified several key issues for the long-term health
of the business, including how large enterprises
could use its product more efficiently. This CFO
then prodded sales and service to develop a new
strategy and team to drive the product’s adoption.
To play these roles, a CFO must establish trust with
the board and the CEO, avoiding any appearance
of conflict with them while challenging their
decisions and the company’s direction if necessary.
Maintaining the right balance is an art, not a science.
It’s important to be always aligned with the CEO and
also to be able to factually call the balls and strikes
as you see them. When you cannot balance the two,
you need to find a new role.
When Starbucks announced that it was eliminating its
chief operating officer position, it became the latest
member of an ever-growing club. And as COOs
slowly fade from the C-suite, CFOs are stepping in to
THE CHANGING ROLE OF CFO:
4

fill the gap, assuming more responsibility for areas that
redound to the bottom line. CFOs are gaining a higher
profile in their organizations as a result, along with,
apparently, more compensation. But the downside is
more pressure — more hours in the day required to
accomplish more tasks, and more blame when profits
fail to meet expectations or just fail altogether. They
are no longer in a support function; but are on the
front lines, accountable for the good and bad.
The CFO needs to have a bigger voice at the table
when it comes to driving shareholder value. It is
critical to the success of the enterprise that the CFO’s
office learns to balance the “day job” of tracking
and reporting accurate and quality data with the
leadership activities expected of today’s CFO and
finance organization.” Without this, the businesses
they serve will be at a severe disadvantage.
They also actively involved in the negotiation with
suppliers and customers. They communicate actively
with the investor’s community to give feedback on
the performance of the company. CFO as custodian
of information and in unique position to interact with
all the depts. has the potential to make lot of value
addition to the business. They have a number of tools
at their disposal, including dashboards, performance
targets, enhanced planning processes, the corporate
review calendar, and even their own relationships with
the leaders of business units and functions.
The most critical activity during a CFO’s first hundred
days, should be to, understand what drives their
company’s business. These drivers include the way
a company makes money, its margin advantage, its
returns on invested capital (ROIC), and the reasons
for them. The CFO should learn about business
drivers that are less important to individual business
unit performance. At the same time, the CFO must
also consider potential ways to improve these drivers,
such as sources of growth, operational improvements,
and changes in the business model, as well as and
how much the company might gain from all of them.
To develop that understanding, CFO should conduct
a strategy and value audit soon after assuming the
position. They should evaluate their companies from
an investor’s perspective to understand how the
capital markets would value the relative impact of
revenue versus higher margins or capital efficiency
and assessed whether efforts to adjust prices, cut
costs, and the like would create value, and if so
how much. The CFO should start mastering existing
information, usually by meeting with business unit
heads, who shared the specifics of product lines or
markets. CFO should look for external perspectives
on their companies and on the marketplace by talking
to customers, investors, or professional service
providers.
It is important for CFOs to visit international locations
where their company’s business is having active
presence to understand that market so that they
become truly global and yet develop ability to
understand the local market.
Many CFOs believe that as individuals, they are the
personification of credibility and trust for banks and
investors. This is particularly pertinent when the banks
are under more pressure themselves.
Hence if we summarize the role of CFO then it should
be as follows:
a) Act as a strategic partner with the rest of the
business.
b) Accurately report quality data (close the books
efficiently and effectively)
c) Provide strong analytics and management
reporting to support decision making.
d) Maintain standardized, sound, and consistent
underlying financial processes.
e) Impose financial discipline on operations and other
back-office functions.
f) Comply on a sustainable basis with financial
regulations such as SOX, etc.
g) Adapt finance function and systems-to-business
changes such as acquisitions or divestitures.
h) Promote financial acumen of nonfinancial
managers across larger organization
Every organization needs to recognize this new role
of CFO and make them instrumental in achieving
strategic goals of the organization.
5

From the Events...
Emirates Chartered Accountants
Tostmasters Club 11th and 12 th meeting &
Monthly Internal Work Shops.
6

From the Events...
Emirates Chartered Accountants
Group conducted annual sports meet
on Oct.29 th 2015@Al Qusais
7

PPP (Public-Private Participation) is
becoming the new way to fund Projects:
Ragesh Mattummal
Partner-Emirates Chartered Accountants Group
Public-private partnerships
(PPP) might be a relatively new
investment model, but it is one
that has been embraced every-
where. The basic concept,
involving joint investment by
both government and private
companies, is not only to
construct assets but also to manage and maintain
them over a short term. The idea was first introduced
in the UK in the 1980s when public investment in
infrastructure projects, schools and hospitals –
among others – were put out to tender with private-
sector companies.
It is increasingly deployed in many countries to
engage the private sector where only public
organizations and government departments used
to operate. PPP is also seen as a key contributor to
helping the country to achieve sustainable national
development. The rationale of PPP is to combine
the resources of the public and private sectors,
in the quest for more efficient services. Today’s
prospect held out by PPPs combines the energy,
entrepreneurialism and emphasis on quality that
private industry at its best can deliver, together with
the secure source of funding and the guaranteed
demand that the public sector offers. PPPs are also
a valuable method of addressing the economic
slowdown and the global jobs crisis caused by a
rapidly growing global population, by stimulating
SME growth to support large-scale infrastructure
projects. Singapore government for example views
PPP as a form of procurement that allow the
public sector to focus on acquiring services
at the most cost-effective basis, rather than
directly owning and operating assets while Hong
Kong government views it as arrangements where
both sectors bring their complementary skills to
a project, with varying levels of involvement
and responsibility for the purpose of providing
public services.
This concept is relatively new to the United
Arab Emirates (UAE) and other gulf countries
where the government takes the responsibility
for procuring all public services. The private
sector in the UAE and other gulf countries, so
far, did not play a major role in providing
public services which is evidenced by the very
few partnerships and joint ventures formed
between the public sector and the private
sector aimed at providing public services. In the
previous several years of high oil prices, building
projects from universities to soccer stadiums were
funded entirely by the public purse. More recently
the market witnessed a number of attempts
to change this situation. That is changing now
as governments scale back non-essential plans
and look to markets to share the financial burden.
The Gulf’s state-linked firms are being forced to
wean themselves off direct government funding,
and focus more on capital markets and private
investment, to push ahead with projects in an era
of cheap oil.
It seems that in future projects shall be funded
by private investment as well. This could be a
boon for bankers, who have long wanted to play
a bigger role in arranging financing packages for
Gulf governments. Projects that do come to fruition
8

(The Data for this article is sourced from Trade Arabia and the national.ae)
will have the most coherent economic justification and
be more likely to require standalone financing. These
points to a greater need for project finance.
We have already seen the shift in the source of
funding so far in smaller gulf Arab nations which lack
huge cash reserves. For example Oman Electricity
Transmission Co issued a $1 billion debut bond
in May while Aluminum Bahrain will use the capital
market route to part fund its $3.5 billion project for
smelter expansion. However now this shift can be
seen in the large projects which are in pipeline. In the
past, utility company Saudi Electricity Co (SEC) used
the market to fund power plant construction but also
received regular contributions from the government
in the form of interest-free loans. In June 2011, it said
a royal decree had awarded it around 50 billion riyals
in this manner, and it received a similar injection in
March 2014. Now it is seeking more finance via the
market. It announced plans for a $1.5 billion sukuk
programme in August as well as for a corporate loan
worth around $2.3 billion.
In Kuwait, clauses covering land ownership in previous
legislation prevented Islamic banks and investors
from participating in projects. The new law resolves
that issue and should encourage greater banking for
PPPs in the country.
The UAE has issued a new law to encourage more
partnerships between the public and private sectors
on projects in the country. Sheikh Mohammed bin
Rashid Al Maktoum, the UAE’s Vice President, Prime
Minister and ruler of Dubai, issued the legislation
which also allows the government to implement its
strategic projects effectively and efficiently. It also
allows government bodies to harness financial,
administrative, technical and technological expertise
of the private sector. The new law also aims to
increase productivity and improve the quality of public
services, transfer of knowledge and experience from
the private to the public sector, as well as training and
qualifying Emirati public employees in the areas of
management and operation of projects.
It specifies terms for partnerships between the public
and private sectors, stipulating that the project has
to be economically, financially, technologically and
socially feasible. A government body’s director
general or their deputy can approve a project as long
as the total cost that will be incurred by the body
through the partnership agreement does not exceed
AED200 million. The Department of Finance will be
responsible for approving larger projects that have
a total cost above AED200 million ($54) to AED500
million. Projects valued at more than AED500 million
will be approved by the Supreme Financial Policy
Committee. Critical success factors in managing
project successfully are risk allocation, savings and
need for finance, favorable legal framework, political
support, strong private consortium,availablefinancial
market, stable economy, transparent competitive
procurement process, effective technology transfer,
thorough feasibility and assessment study, and
opportunities for innovation and, knowledge transfer
between employees of private company to officials of
government dept. Similarly key factors that causes
PPP projects to fail in this context are lack of
appropriate skills, high participation cost, high project
value, high risk, lack of credibility and contacts,
demands on management time, poor communication
between private partners, and long procurement
and negotiations processes. In addition to these,
private sector’s inability to secure funding may be
a major stumbling block. Private consortia need to
ensure that they assemble the relevant skills and
knowledge of how to set up and manage a PPP
as well as the crucial knowledge pertaining to the
local business environment and political drivers.
The challenge for the state firms is that they are
approaching this new source of alternative funding
solution at a time when there is low confidence in the
market. As governments’ oil income shrinks, local
banks are receiving fewer new deposits, reducing
the cash available for projects. Money markets reflect
this as rates rise. Arab Petroleum Investments Corp
recently raised $500 million. The issue was quite
tightly priced at 100 over mid-swaps for a tenor of
5 years. The over-subscription was quite small with
total subscription of $800 million, compared with
most Sukuk issuances earlier this year, reflecting the
tightening of liquidity post the continued slump in
crude oil prices. The tight spread was one reason why
investment demand was quite low.
Business Community needs to analyze this new
development and explore whether this can be
materialized in to a profitable opportunity to invest in.
9

Scenario Planning: In more stable times, the
budget process is typically an exercise in consensus
building—a lengthy and difficult effort to generate
a single view of the future to guide a company’s
investments and rewards over the coming year. While
many management teams speculate informally on
how their businesses will evolve, few actively debate
a number of scenarios or undertake the concrete
short- and long-term financial analyses that would
make such a debate meaningful. The process
therefore isn’t agile enough to respond to sudden,
dramatic changes in the economy. Any revisions
to the budget as the year unfolds are reactive and
backward focused rather than reflecting an informed
view of alternative future scenarios. Executives at
some forward-thinking companies, however, have not
only formally developed concrete macroeconomic
and business scenarios, including some considered
extreme,one but also modeled the implications of each
scenario for their own businesses and customers, as
well as for competitors. At the end of the process,
these companies adopted a single budget, but they
supplemented it with concrete alternative financial
statements and business plans based on plausible
future scenarios. This approach lets companies build
flexibility into their cost structures—for instance,
through the outsourcing of services or the use of
contingent purchasing contracts—so they can more
easily shift from the primary budget if necessary.
ZERO Based Budgeting: Amid today’s extreme
uncertainty, most companies are cutting discretionary
expenditures. The typical budget process is not,
however, designed to make managers rethink their
business models if the recession persists or shifts
the economy in a fundamental way. On the contrary,
many current budgets are anchored in past ones,
with incremental changes to adjust for inflation or
specific product trends. Zero-based budgeting was
developed during the inflationary environment of
the mid-1970s to avoid precisely this trap.2 It starts
the process wholly from scratch, assuming different
end points for different industries and businesses,
such as a 30 percent smaller overall market or a
modified organization or portfolio. Operating and
capital expenditures are then prioritized according to
their alignment with the company’s strategy and their
expected returns on investment. Breaking down the
budget into such discrete funding decisions makes
it easier for the CFO and other senior executives
to choose among competing claims on scarce
resources.
Rolling forecast: Most companies prepare informal
earnings forecasts on a monthly or quarterly basis,
usually in a planning group within the finance
department. These forecasts, seldom tied to active
decisions about the budget’s management, almost
always involve nothing more than updated projections
of year-end values. As a result, the company-wide
process is opaque, no one is accountable for the
outcome, and projections for the rest of the year are
less and less valuable as it progresses. The finance
department, trying to explain the actual numbers
and to propose ways of closing the gaps, finds itself
caught between the CEO and the chief operating
officer (COO) on the one hand and the heads of
business units on the other. By the time the business
units acknowledged that they would miss their targets,
it was too late to take compensatory action. Some
leading companies have formalized a process that
involves rolling 12- to 18-month forecasts for the most
important financial variables. This approach increases
the visibility of the process and accountability for it so
that CFOs can act when forecasts start to diverge from
actual performance. In companies we’ve observed,
the CFO manages the process, convening business
leaders, the CEO, and the COO each month or quarter
to identify gaps and discuss how to close them.
Typically, a good, hard debate among business units
examines their performance and generates a way
forward. For companies that aren’t accustomed to this
kind of collaboration on their budgets, it represents a
big cultural change: managers are accountable for
their promises and must collectively adapt to the fast-
changing macroeconomic climate.
It is important that entire operational team is also
involved in the making and achieving of budget for
its success.
Continued from Page no 3
10

As per data from the UAE Central Bank, deposits in the
system contracted for the third consecutive month in
August. Deposits in the system fell by Dhs. 4.40 billion
& in 2015 deposits in the system have increased by
Dhs. 9.50 billion. This number contrasts significantly
with 2014 when it had increased by Dhs. 143.10 million
till end of August. Asset growth in the UAE banking
system continues to be robust, with loans growing by
Dhs. 13.50 billion. The loans to deposit ratio has head
further beyond 100 to 102.33. Liquidity in the region
is largely a function of government spending, which
in turn depends on crude oil prices. Due to the fall in
crude oil prices, projects have been shelved across
the region and cuts to spending have been already
made in some cases. This has reduced liquidity in
the UAE banking system.
Small and medium-sized enterprises (SMEs) have
come under pressure in recent months amid a gradual
drying up of liquidity in the banking system due to the
weak oil price and slowing economic growth. As a
result, some business people have chosen to "skip"
the country, leaving behind unpaid debt. Due to this
situation banks in the UAE are working together to try
to stem the number of small business owners fleeing
the country with unpaid debt, a trend that has already
reached around Dh5 billion ($1.4 billion) this year.
In Saudi Arabia where revenues from Crude oil sales
account for about 80% of Government revenues, the
steep fall in prices has resulted in them liquidating
about $70 billion from global asset managers as
per data from financial services market intelligence
company Insight Discovery. UAE, Qatar and Kuwait
have been impacted much lesser than Saudi due to
the steep fall in crude oil prices.
A study is underway to consider increase in domestic
energy prices. As per estimates from IMF petroleum
subsidy costs the Saudi Government $86 billion
each year & natural gas subsidies cost another
$10 billion. Saudi Arabia has the largest economy
& stock market in the GCC and a sell-off in Saudi
resulted in weakness across all markets. As crude
oil revenues slump across the GCC; talk of scaling
back lavish subsidies and possibilities of imposing
taxes, in economies which are practically tax free
has increased. UAE's economy minister, Sultan Bin
Saeed Al Mansouri at the World Economic Forum
(WEF) summit mentioned that UAE would introduce
taxes at some stage if it suits the government and the
people and that any decision would be thoroughly
evaluated by the government first, including how it
will affect UAE's competitiveness. There has been talk
to imposing VAT across the GCC and any such move
could only be co-ordinate, else it will provide arbitrage
opportunities and make economies which impose
this relatively uncompetitive. The need to reform
the subsidy structure and tax system in the GCC
countries got a further boost when Saleh Mohammed
al-Nabit, Qatar's Minister for Development Planning &
Statistics mentioned in a speech that the government
must urgently consider reforms to its subsidy and tax
system in light of low oil and gas prices.
The UAE Dirham which has firmed up along with the
US Dollar, which it is pegged to, has pushed imported
inflation lower. Food & beverage prices which account
for 11% of CPI were lower by 0.1%, mainly thanks
to the strong US Dollar which fed through the fixed
USD-Dirham peg. In recent months property prices
in Dubai have cooled off and we should see rents
also slowly ease-off which will keep a lid on inflation
surging further higher.
UPDATES ON GCC ECONOMIES:
11

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