Low oil prices “could deal blow on nationalisation"

Author: Criselda Diala-McBride | Date: 13 Oct 2015

Deloitte Middle East believes the agenda will continue, but at a more prudent tone

Countries across the GCC region are feeling the pinch from the oil price rout, and a prolonged slide of the lucrative export commodity could eventually put a damper on their nationalisation programmes, according to a partner at Deloitte Middle East.
 
“At the moment, nationalisation is incurring additional budgets in order to achieve [governments’] employment goals and targets,” said Ghassan Turqieh, partner – consulting at the regional office of Deloitte.
 
“Graduate programmes, ongoing training, additional benefits and backfilling the lack of productivity, are all examples of areas that require additional budgets to be sustained.” But with the low-oil-price environment, those programmes will inevitably be impacted, he added. “There are already alarm bells over the increasing budget deficits. Because of the criticality of the nationalisation agenda, governments will keep on pressing ahead with it, but in a prudent and measurable way while taking more support from the private sector,” Turqieh said.
 
The benchmark Brent crude rate has lost more than half its value from a year ago, trading at over US$47 per barrel at October 1. In an economic bulletin published in January 2015, the World Bank estimated that GCC states stand to lose more than US$215 billion in oil revenues – equivalent to more than 14 per cent of their combined GDP – if oil prices stay low for a sustained period.
 
And while GCC states have significant reserves to cover any shortfall, the World Bank noted signs that regional governments are rethinking their spending. In July, it was reported that UAE government spending in the fiscal year 2015 would drop by 4.2 per cent, the first time in 13 years that expenditure has been slashed.
 
In Qatar, preliminary data from the Ministry of Development Planning and Statistics in June showed that government spending on employee salaries decreased by 2.7 per cent in 2014-2015 from a year ago – the first drop in a decade. Doha News reported that the decline may not necessarily mean employees took a pay cut, but may have been a result of reduced headcount in various departments.
 
Turqieh believes that while several reforms have been put in place in various GCC countries (around national employment quotas, female employment and subsidies for minimum wage earners), there is a need to do more in integrating education and labour policies within a national manpower vision.
 
“An industry sector view would be important in order to understand the required competencies, plan the development of local skills and incentivise the local workforce. Moreover, if a tax system (corporate and income) becomes a reality, labour dynamics in the region would drastically change,” he added.