The effects of the 2008 financial crisis on the investment in the Gulf area and Qatar - Research Paper Example

While closely evaluating the investment activities of Gulf countries including Qatar during 2008 financial crisis and post-recession period, it seems that the global financial crisis did not affect the Gulf region’s investment sector much when compared to other regions. Recession 2008: Impact on the Arab Region The crisis affected most of the Arab region also causing a significant decline in financial markets. Despite the region’s potential economic sources like oil revenue, real estate investment, tourism, and housing, countries in the region became vulnerable to an economic slowdown albeit at a slower pace.

The main reason was that the region’s economic activities did not involve productive actions which could reroute the wealth surplus into establishing strong industrial and human skill bases. Also, the region as a whole failed to absorb income and investment on a multiple basis. The results of the downturn were visible in the form of declining living standards, increasing inequality, growing unemployment rate etc. Migrant workers were the most affected segment in almost every GCC country. The main investors in the region included but not limited to The Kuwait Investment Authority (KIA), the Abu Dhabi Investment Authority, Singapore GIC, the Saudi prince al-Waleed Bin Talal, Kuwait, and Qatar.

The outcome for their investment in Corporates like Citigroup, Merrill Lynch, Barclays, and Credit Suisse was not satisfactory or even inflicted great loss on the investors. The crashes in the UK, U.S financial markets affected the Middle Eastern stock markets as well. On September 15th 2008, the Saudi Arabian stock market fell by 6.5%, Doha 7%, Kuwait 3% and Abu Dabi 4.35% (Casa Arabe). However, since the gulf region had already learned lessons from the recession of the 1980s and the oil price fall, they were prepared to confront the new downturn unlike many other developed nations.

Evidently, the impacts of the 1980s’ price fall were more intense and rapid than the recent one. The bitter experiences of 1980s taught the GCC countries to respond more flexibly to the new crisis. The difference was that the strategic decisions taken recently were of long-term significance whereas the first ones involved rapid actions. Better fiscal policies and the private sectors’ less dependence on state spending also contributed to the relatively sustainable position of the region. The direct result of this strategy was that all rich GCC countries namely Qatar, Kuwait, and Saudi had sufficient overseas assets to carry out their annual programs at least for a short term.

Post-Recession Scenario One of the post-recession trends in the Gulf investment sector is the boom of real estate market. When compared other sectors, investing in developed market real estate seemed secure and profitable for many Arab investors, among which Qatar held the prominent position. As Roubini reports, Qatar unlike its Emirati or Kuwaiti counterparts sustained with lower loan growth, lower profitability and thereby weakening balance sheets (“Are there..”). The government bought “stakes in local banks, as well as property and equity holdings on the balance sheets of local banks” and the nation’s “sovereign wealth fund was among the first to return to significant foreign investment” (Roubini).

In fact, the world overcame the issues of the 2008 recession, mainly led by Asian and Middle East countries. For instance, subsequent to the