The global economy is at a “dangerous juncture”, with geopolitical challenges such as the Israel-Gaza war expected to have an impact on economic development, the World Bank president has said.
Ajay Banga, who was speaking at the Future Investment Initiative in Riyadh on Tuesday, called for “peace and stability” and said there was a “growing divergence” between developing and developed economies.
The Israel-Gaza war, which has become a major humanitarian crisis, has created further uncertainty for a global economy that is feeling the effects of stubborn inflation and high borrowing costs.
Brent crude, the benchmark for two thirds of the world’s oil supply, has risen nearly 7 per cent since the start of the conflict on October 7.
“Risks tend to move around. I'd be very careful of fixating on one and ignoring the others right now,” Mr Banga said.
“Interest rates are probably going to stay a little higher for longer [and] the US 10-year Treasury Yield crossed 5 per cent briefly yesterday – these are areas we haven't seen,” he added.
“And then how long for the next pandemic? I’d be a bit careful trying to quantify risks.”
Earlier this month, the International Monetary Fund kept its global economic growth projection for this year at 3 per cent, slower than the 3.5 per cent expansion recorded in 2022, remaining below the historical growth average.
For 2024, the fund expects the global gross domestic product to expand by 2.9 per cent, a 0.1 percentage point downgrade from the fund’s forecast in July for next year .
The world “is in a better place today” despite the challenges, Mr Banga said, although he also warned about issues such as high debt levels and slow energy transition in emerging markets.
Global investments in energy transition technologies must quadruple to $35 trillion by 2030 to stay in line with commitments made under the Paris climate agreement, the International Renewable Energy Agency said in a March report.
Investments in renewable energy technologies reached a record $1.3 trillion last year but that figure must rise to about $5 trillion annually, the agency said.
“There is not enough money in government coffers, or even in the multilateral development banks. We do, at the end of the day, need to involve the people in the private sector with their capital,” Mr Banga said.
Also speaking at the FII event, Yasir Al Rumayyan, the governor of the Public Investment Fund and the chairman of Saudi Aramco, highlighted the importance of innovation and technology as the world grapples with slowing economic activity amid high interest rates.
“Central banks have tightened monetary policy in an effort to slow inflation. Business and governments around the world have been adjusting to this new reality,” Mr Al Rumayyan said during his keynote speech.
“This has been the fastest rate increase since the early 1980s and has caused significant and predictable disruptions.”
Artificial intelligence will shape global trade in “numerous ways”, and it will contribute to higher growth and productivity even in a high interest rate environment, Mr Al Rumayyan added.
Despite mounting geopolitical headwinds, threats to the global supply chain and higher interest rates that are affecting the world economy, Saudi Arabia is well-positioned to continue attracting international investments across various sectors, Minister of Investment Khalid Al Falih said at the FII event.
Many of the challenges actually play to the kingdom's strengths, he told delegates during a panel discussion along with investment ministers from India, Turkey, Morocco and Finland.
Saudi Arabia, which was the fastest-growing large economy last year, has one of the lowest costs of capital considering its risk premium on borrowing.
When investors around the world look for an investment destination, they want a stable country politically, economically and from a monetary standpoint, he said.
"Our investment thesis is set for the long term and we're not fluctuating from year to year and the investors from the kingdom also chip in a significant part of the capital in projects that also strengthen the kingdom's investment case," Mr Al Falih said.
"You can tick all of these boxes. In addition to the fundamental stabilities, we have the long-term investment equity story and we have also strong investors," he added.
"We have strong developmental banks in Saudi Arabia that can lend at very low interest rate that reduces the average cost of capital and therefore while we're still impacted by sustained interest rates.
"I think [the kingdom] presents investors an opportunity in Saudi Arabia that is perhaps better than many other competing locations."
UAE currency: the story behind the money in your pockets
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
What is blockchain?
Blockchain is a form of distributed ledger technology, a digital system in which data is recorded across multiple places at the same time. Unlike traditional databases, DLTs have no central administrator or centralised data storage. They are transparent because the data is visible and, because they are automatically replicated and impossible to be tampered with, they are secure.
The main difference between blockchain and other forms of DLT is the way data is stored as ‘blocks’ – new transactions are added to the existing ‘chain’ of past transactions, hence the name ‘blockchain’. It is impossible to delete or modify information on the chain due to the replication of blocks across various locations.
Blockchain is mostly associated with cryptocurrency Bitcoin. Due to the inability to tamper with transactions, advocates say this makes the currency more secure and safer than traditional systems. It is maintained by a network of people referred to as ‘miners’, who receive rewards for solving complex mathematical equations that enable transactions to go through.
However, one of the major problems that has come to light has been the presence of illicit material buried in the Bitcoin blockchain, linking it to the dark web.
Other blockchain platforms can offer things like smart contracts, which are automatically implemented when specific conditions from all interested parties are reached, cutting the time involved and the risk of mistakes. Another use could be storing medical records, as patients can be confident their information cannot be changed. The technology can also be used in supply chains, voting and has the potential to used for storing property records.
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How much do leading UAE’s UK curriculum schools charge for Year 6?
- Nord Anglia International School (Dubai) – Dh85,032
- Kings School Al Barsha (Dubai) – Dh71,905
- Brighton College Abu Dhabi - Dh68,560
- Jumeirah English Speaking School (Dubai) – Dh59,728
- Gems Wellington International School – Dubai Branch – Dh58,488
- The British School Al Khubairat (Abu Dhabi) - Dh54,170
- Dubai English Speaking School – Dh51,269
*Annual tuition fees covering the 2024/2025 academic year
