How’s the Middle East’s wealth multiplying, and where is all money going?
Oil-rich nations of the Middle East are home to scores of millionaires coming from various parts of the world. With the current steady increase in oil prices projected over the next few months, the region is expected to see a good rise in the number of wealthy individuals surpassing the global growth rates.
According to a recent study by Boston Consulting Group (BCG), the number of rich individuals in the Middle East holding share in investable assets is predicted to grow by more than 14 percent during 2017-2022, and their number is expected to reach 1,460,000.
Outpacing global average
As per Dubai-based financial experts, growth in equity markets and investment funds, apart from oil market recovery, are major reasons behind the rise of wealth in the region. This growth is even higher than the global average, as the number of affluent people holding investable assets is forecast to rise by only 7.4 percent globally during the period of 2017 to 2022.
“In terms of wealth, Middle East is expected to do well. We are seeing maximum returns coming from equities and investment funds. And this is expected to multiply by the beginning of 2019,” said Eugene Watson, a personal wealth manager based in Dubai.
“Moreover, 2017 was a bullish year, and we saw a steady rise in wealth in all major economies across the globe. Also strengthening of various currencies against the US dollar has also added impetus in the money market,” added Watson.
Where is the money going?
Most of the affluent individuals in the Middle East prefer to invest in investable assets that include currency, investment funds, bonds, listed equity and deposits. If we go by confirmed numbers, more than 82 percent of Middle East region’s wealth was invested in investable assets. However, it was 60 percent globally.
Moreover, affluent individuals who fall in the bracket of people possessing assets ranging between $250,000 to $1 million are not showing much interest in non-investable assets, such as unlisted equities and life insurances.
“In terms of asset classes, $121.6 trillion (60 percent) of global wealth took the form of investable assets with the remaining $80.3 trillion (40 percent) held in non-investable or low-liquidity assets such as life insurance, pensions funds, and equity in unquoted companies,” stated the BCG report’s findings.
Fueling wealth in the region
Recovery in oil prices has played a crucial role in the rise of wealth and affluent individuals in the Middle East. Oil prices significantly recovered over the last few months and touched a three-year high at $80 per barrel in May 2018. The dip in oil prices started in mid-2014 and slashed from more than $110 per barrel to only $30 per barrel during the initial months of 2016.
Besides, growth in non-oil activity has also given momentum to the region’s prosperity. Even the International Monetary Fund (IMF) has projected a good growth, coming out of non-oil assets, in region in the coming months.
“Economic growth in oil exporters in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) bottomed out in 2017 and is expected to accelerate in 2018–19. This largely reflects the continued recovery in non-oil activity as many countries are slowing the pace of fiscal consolidation in support of domestic demand,” stated the IMF.
To be continued
According to the BCG report, the Middle East and Africa region’s joint wealth is expected to rise at a Compound Annual Growth Rate (CAGR) of eight to ten percent during 2017 to 2022. As for the global wealth, it is predicted to grow at a CAGR of only seven percent during the same period.
The report also mentioned that the wealth of the Middle East surged by 11.8 percent in 2017, reaching $3.8 trillion from $3.4 trillion in 2016.