The US Congress failed to pass a budget on Tuesday, resulting in the federal government being shut down.
With a shutdown in place, federal agencies are required to halt all non-essential operations. This will affect a range of activities − from national parks to passport applications.
Viewed from overseas, a US federal shutdown might merely look like a domestic problem created by polarised politicians. But a closure of key federal services could have impacts abroad, too.
What happens to visa applications?
Under the US State Department's shutdown plan, all embassies and consulates will remain open for national security reasons.
Passport and visa processing will continue as long as there are sufficient fees to cover operations. Non-essential official travel, speeches and other events will be curtailed.
Some foreign aid programmes, exacerbated by previous freezes on assistance by the Trump administration, could run out of money as well.
The US embassy in the UAE said in a post on X that scheduled passport and visa services at embassies and consulates overseas will "continue during the lapse in appropriations as the situation permits".
What about travel to the US?
In a shutdown, airport workers who screen travellers at airport security checkpoints, give flight clearances and verify people at border control are deemed essential, so they are still required to work. But longer queues or wait times could be possible.
Some airports had to suspend operations during a shutdown in 2019 when air traffic controllers called in sick, so there is a risk flights to the US could be subject to delays or cancellations.
US airlines have warned that the shutdown could strain American aviation and slow flights, as air traffic controllers and security officers would be forced to work without pay and other functions would be halted.
There is already a shortage of air traffic controllers on staff throughout the country.
Can packages still be sent to the US?
The US Postal Service is unaffected as it does not depend on Congress for funding.
It operates on revenue from postage, products and services rather than taxpayer dollars appropriated by Congress.
Is the US military affected?
During a government shutdown, all active-duty personnel, as well as National Guard who are currently deployed, must carry out their assigned duties with their pay delayed until the shutdown is over.
More than 330,000 of the Pentagon's 800,000 civilian employees will be furloughed.
Contracts awarded before the shutdown would continue, and the Pentagon could place new orders for supplies or services needed to protect national security.
Other new contracts, including renewals or extensions, would not be awarded, Reuters reported.
Payments to defence contractors such as Boeing, Lockheed Martin and RTX – formerly known as Raytheon – could be delayed.
How is the stock market reacting?
History shows that the stock market tends to be largely unfazed by government shutdowns.
A shutdown means the release of key economic data could be delayed, causing uncertainty on Wall Street.
Stocks were mixed the morning after the shutdown went into effect. Gold prices, meanwhile, surged to a record high on Wednesday, boosted by a weaker dollar and safe-haven demand.
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.”
The specs: 2019 Audi A8
Price From Dh390,000
Engine 3.0L V6 turbo
Gearbox Eight-speed automatic
Power 345hp @ 5,000rpm
Torque 500Nm @ 1,370rpm
Fuel economy, combined 7.5L / 100km
Skoda Superb Specs
Engine: 2-litre TSI petrol
Power: 190hp
Torque: 320Nm
Price: From Dh147,000
Available: Now
