Adapting to Darwinian forces across the business landscape in 2016 - Gulf Business
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Adapting to Darwinian forces across the business landscape in 2016

Adapting to Darwinian forces across the business landscape in 2016

Low commodity prices, weakening currencies and slowing growth in China will continue to impact businesses

Depending upon which industry you work in, 2015 was either a year of open optimism or doom and gloom. For many in the Gulf Cooperation Council, it was the latter as oil prices flirted with their lowest level since 2004 – at just above $36 per barrel. In the space of just a few short months, the landscape transformed and the days of $100 per barrel oil started to seem like a page out of the history books.

Despite diversification efforts in many Gulf countries, the region’s reliance on black gold was painfully clear through the subsequent shrinking government coffers and tightly focused public spending. This resulted in major knock-on effects for many private sector firms, particularly those reliant on public contracts.

In Saudi Arabia – where oil is said to account for 81 per cent of revenue, according to the International Monetary Fund – the slump in oil prices led the government to contemplate project delays, the selling of bonds and further cost cutting.

Meanwhile, across the region, countries looked more closely at tax reforms – and the removal of subsidies – than they had ever done before. Just how long this period of low confidence will continue is difficult to ascertain. The Organisation of Petroleum Exporting Countries’ secretary general Abdalla al-Badri insists that prices could swing upwards again within a year.

Most analysts, though, are not so positive in their forecasts. Oil will not reach the $100 mark again until 2017 or later, the majority of economists suggest. There is the prospect of additional shale gas coming online, not to mention Iranian oil being pumped large-scale into the international market should sanctions be lifted on the country in 2016. This will put even greater pressure on the oil price and the economies of the Middle East.

But looking back at the last 12 months, it would be unfair to say 2015 was a bad year for everyone. As they reflect on this period in our Power Letters series of articles, in this issue ofGulf Business, key leaders from across the region have found reason to be hopeful.

Lulu Group chairman and managing director Yusuffali says the company expects to close the year having grown 16 per cent annually. Meanwhile, chief executive and co-founder Ronaldo Mouchawar reports a growing number of transactions as the Middle East continues to be the world’s fastest growing e-commerce market. Elsewhere, Aster DM Healthcare chairman and managing director Azad Moopen also notes heavy flows of investment into, and increasing demand for, healthcare.

All three remind us that even when times are tough there is always a silver lining. And it comes as no surprise that their companies do not fall within the traditional bread and butter industries of the regional petro-economy. E-commerce and healthcare are among the pillars of a more diversified future. This, quite rightly, is the path being carved out by Gulf governments and business leaders. All seem to realise that the dominance of hydrocarbons can last only so long.

However, low commodity prices, the weakening of currencies against the dollar and slowing growth in China are all factors that will continue to impact businesses in the coming months. With the United States Federal Reserve interest rate rise, as expected, the global impact will be felt there too.

With this in mind, the words of another of our Power Letters authors – Emirates Airline president Sir Tim Clark – hold great meaning. “Across all of these issues and more, our aim is to maintain a business that is resilient in challenging times,” he says – reflecting on a year that has seen the airline absorb both global shocks and more specific threats relating to US protectionism and international terrorism.

It will be the resilient that ultimately thrive in 2016, rather than their myopic peers. Brutal Darwinian forces are now at work but the innovators will emerge stronger than before.


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