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28th Dec 2014, 14:53
British expat exodus feared to hit Dubai amid oil price rout
A 45pc decline in the price of crude oil could bring an end to the tax-free expatriate easy life enjoyed by thousands of British expatriates in Dubai and the Gulf states
Dubai: onwards and upwards
Projects like Burj Khalifa in Dubai could be a thing of the past if low oil prices continue
By Andrew Critchlow, Commodities editor10:35AM GMT 28 Dec 2014 Comments57 Comments
Over the last decade Britons have headed in their droves to the oil-rich tax-free petrodollar states of the Persian Gulf to earn easy money in the deserts of Arabia but the slump in the price of crude could soon bring an end to the party.
More than 150,000 British workers and their dependents are estimated to be living in the United Arab Emirates alone, making up the single largest Western expatriate community in the Middle East.
Although only a small number of these expats work directly in the oil industry, all are dependent the region’s vast petroleum wealth, which underpins economic growth across the six Gulf Cooperation Council (GCC) states, including the UAE, Saudi Arabia and Qatar.
According to Middle East Economic Digest, if oil averages $65 per barrel next year – it is currently trading at below $60 per barrel – then gross domestic product (GDP) across the GCC will shrink by an estimated 13pc and the region as a whole will post its first current account deficit since the late 1990s.
This sharp contraction in economic growth especially in the region’s powerhouse economies such as Saudi Arabia will hit corporate spending and budgets hard. The International Monetary Fund has already warned that Gulf states must cut state-funded jobs and inevitably the axe will fall first on positions held by expatriates.
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“Firm limits need to be placed on public sector jobs and wages, and it should be clearly communicated to people that they should not expect to obtain a public sector job,” said the IMF in a recent note.
Enclaves such as Dubai, which has built its economy on servicing the flood of expatriates working in the region has started to feel the impact of Saudi Arabia’s decision to provoke an oil price war. The Dubai Financial Market – seen as a barometer for risk in the region crashed by over 7pc earlier this month amid wider concern over the impact that lower oil prices will have on the region’s most diversified local economy.
Although, the Dubai stock market has since recovered, experts are warning that the decade-long boom that expatriates have enjoyed in the region could soon be over unless oil prices rebound to levels above $80 per barrel in the near future.
“Expats seem largely unconcerned and most think it means nothing to them,” said Peter Cooper, founder of Arabian Money and a 20-year veteran of the Gulf. “Only when it does will they notice. The oil sector is different and the switching off of new developments is instant although Saudi Arabia has made no cuts so far. Business will disappoint next year and by the summer departures will be up. But 2014 was quite a boom year.”
Wealth generated from high oil revenues has helped to underwrite a decade-long splurge on real estate and infrastructure across the GCC region, especially in expatriate freindly enclaves such as Dubai. Although the emirate has little domestic crude, it benefits from the vast wealth created in oil-rich Saudi Arabia, Abu Dhabi and Kuwait.
Purchasing Manager Indices for both Saudi Arabia and the UAE - the region's two largest economies - have already shown a sharp breakdown in confidence, which has coincided with the fall in oil prices.
According to Knight Frank, Dubai's property market already recorded its first drop in four years in the last quarter. The Knight Frank Global House Price Index showed property prices in the sheikhdom slumped 5.2pc in the three-month period from June to September, compared to the previous quarter.
"Lower oil prices are leading many in the GCC to wonder about the possible implications for real estate. In the near-term, weaker sentiment and its impact on the residential property sector is the principal downside risk," warmed Knight Frank in a report this month on the impact lower oil prices could have on the Gulf's real estate sector, which is propped up by expatriate buyers, including many from the UK.
As Gulf states seek to plug the gaps that will emerge in their finances from falling oil prices policymakers may also look to other sources of income such as directly taxing the incomes of expatriates. In the UAE - which has the Western expatriate community in the GCC - the government has already considered taxing remittances. In 2012, foreign workers mainly from the Indian subcontinent sent an estimated £8bn to their home countries last year.
Regardless of whether the slump in oil income forces Gulf states to reform their low-tax economies it is clear that the downturn in the crude market will expats living in the region hard.
A 45pc decline in the price of crude oil could bring an end to the tax-free expatriate easy life enjoyed by thousands of British expatriates in Dubai and the Gulf states
Dubai: onwards and upwards
Projects like Burj Khalifa in Dubai could be a thing of the past if low oil prices continue
By Andrew Critchlow, Commodities editor10:35AM GMT 28 Dec 2014 Comments57 Comments
Over the last decade Britons have headed in their droves to the oil-rich tax-free petrodollar states of the Persian Gulf to earn easy money in the deserts of Arabia but the slump in the price of crude could soon bring an end to the party.
More than 150,000 British workers and their dependents are estimated to be living in the United Arab Emirates alone, making up the single largest Western expatriate community in the Middle East.
Although only a small number of these expats work directly in the oil industry, all are dependent the region’s vast petroleum wealth, which underpins economic growth across the six Gulf Cooperation Council (GCC) states, including the UAE, Saudi Arabia and Qatar.
According to Middle East Economic Digest, if oil averages $65 per barrel next year – it is currently trading at below $60 per barrel – then gross domestic product (GDP) across the GCC will shrink by an estimated 13pc and the region as a whole will post its first current account deficit since the late 1990s.
This sharp contraction in economic growth especially in the region’s powerhouse economies such as Saudi Arabia will hit corporate spending and budgets hard. The International Monetary Fund has already warned that Gulf states must cut state-funded jobs and inevitably the axe will fall first on positions held by expatriates.
Related Articles
Opec leave oil output targets unchanged. 'At between $70 and $80, everyone is happy,' Saudi oil minister Ali al-Naimi said.
Oil plummets after Saudis say $20 crude is possible 22 Dec 2014
Opec willing to push oil price to $40 in war with US shale 14 Dec 2014
In the shadow of Iran a new UAE oil port is transforming energy sector 29 Sep 2014
Foreign investment is vital weapon in Middle East's fight against extremists 30 Sep 2014
“Firm limits need to be placed on public sector jobs and wages, and it should be clearly communicated to people that they should not expect to obtain a public sector job,” said the IMF in a recent note.
Enclaves such as Dubai, which has built its economy on servicing the flood of expatriates working in the region has started to feel the impact of Saudi Arabia’s decision to provoke an oil price war. The Dubai Financial Market – seen as a barometer for risk in the region crashed by over 7pc earlier this month amid wider concern over the impact that lower oil prices will have on the region’s most diversified local economy.
Although, the Dubai stock market has since recovered, experts are warning that the decade-long boom that expatriates have enjoyed in the region could soon be over unless oil prices rebound to levels above $80 per barrel in the near future.
“Expats seem largely unconcerned and most think it means nothing to them,” said Peter Cooper, founder of Arabian Money and a 20-year veteran of the Gulf. “Only when it does will they notice. The oil sector is different and the switching off of new developments is instant although Saudi Arabia has made no cuts so far. Business will disappoint next year and by the summer departures will be up. But 2014 was quite a boom year.”
Wealth generated from high oil revenues has helped to underwrite a decade-long splurge on real estate and infrastructure across the GCC region, especially in expatriate freindly enclaves such as Dubai. Although the emirate has little domestic crude, it benefits from the vast wealth created in oil-rich Saudi Arabia, Abu Dhabi and Kuwait.
Purchasing Manager Indices for both Saudi Arabia and the UAE - the region's two largest economies - have already shown a sharp breakdown in confidence, which has coincided with the fall in oil prices.
According to Knight Frank, Dubai's property market already recorded its first drop in four years in the last quarter. The Knight Frank Global House Price Index showed property prices in the sheikhdom slumped 5.2pc in the three-month period from June to September, compared to the previous quarter.
"Lower oil prices are leading many in the GCC to wonder about the possible implications for real estate. In the near-term, weaker sentiment and its impact on the residential property sector is the principal downside risk," warmed Knight Frank in a report this month on the impact lower oil prices could have on the Gulf's real estate sector, which is propped up by expatriate buyers, including many from the UK.
As Gulf states seek to plug the gaps that will emerge in their finances from falling oil prices policymakers may also look to other sources of income such as directly taxing the incomes of expatriates. In the UAE - which has the Western expatriate community in the GCC - the government has already considered taxing remittances. In 2012, foreign workers mainly from the Indian subcontinent sent an estimated £8bn to their home countries last year.
Regardless of whether the slump in oil income forces Gulf states to reform their low-tax economies it is clear that the downturn in the crude market will expats living in the region hard.