The uncanny resemblance: why the outlook for Russia and GCC oil states is starting to look shockingly similar
Readers of our monthly ArabianMoney investment newsletter (subscribe here) will know that we think Russia has a far better economic outlook than the miserable state of its stock market would currently suggest. That’s because we see a very strong parallel between the economic outlook for Russia and the GCC Oil States.
This afternoon ArabianMoney editor Peter Cooper will chair two panels on investment flows between the GCC region and Russia, and vice-versa, at the second annual Russia-GCC Business Forum.
Record oil revenues
Today Brent crude oil is selling for $109 a barrel. That’s a great cash flow for the GCC Oil States and it is also a huge cash cow for the world’s largest producer of oil, among many other natural resources, the Russian Republic which is hosting the Winter Olympics in Sochi on the Black Sea for the next couple of weeks.
Russia currently runs a current account surplus. There’s an enviable $90 billion in a reserve account. Government debt is not much more than 15 per cent of GDP and personal taxation is set at the same low level.
It is a similar story in the GCC Oil States: modest government borrowing is massively offest by the sovereign wealth funds of accumulated oil revenues; current account surpluses due to record oil revenues; low or no taxation.
This is totally unlike most of the rest of the world. Countries are weighed down by huge debts and run twin current account and fiscal deficits. Only by maintaining very high levels of taxation can governments balance their books, and historically high oil prices are effectively another consumption tax.
It is hardly surprising then that their rates of economic growth are either low or slowing down or non-existent. You can fiddle the figures. Yes the US unemployment rate has dropped but only because its workforce is down by over a million people in the past year.
So where would you choose to invest for a higher return-on-capital in the future? In the highly taxed and hugely indebted countries, or in those with little or no taxation or debt, and the prospect of continuing high oil revenues?
It is surely a no-brainer if you can find the right investment opportunity and be sure of your investment rights. Both Russia and the GCC Oil States could do much better on the latter, so you need to take good advice.
The monthly ArabianMoney investment newsletter will report back to its readers next month on what we learn at the investment forum today. Last year we reported live from the first Russia-GCC Business Forum:
- Oil prices: the honeymoon is over
- Betting on the counterintuitive? Understanding Saudi Arabia's logic, or lack thereof, behind not cutting oil output
- Oil markets downward spiral 'unbriddled'
- Structural weakness or bad luck? Oman, Bahrain will be pinched the hardest by lower oil prices
- Dear oil, now what?