Should GCC economies be heading in a different direction?

Saxo Bank’s chief economist and chief investment officer Steen Jakobsen is not a man to shy away from controversy.

The face of the online trading company’s annual outrageous predictions, he has become known for speaking his mind on economic policy and today is no exception.

At the bank’s plush headquarters – where it has just unveiled its Saxo Select service, allowing users of its online platform to automatically follow the strategies of the best traders – he is in fine form.

Jakobsen’s conversations include why the performance of the United States dollar is the only thing that matters when it comes to the global economy and how the US Federal Reserve is “by far the worst institution in the world to predict anything, maybe as bad as the IMF”.

More broadly, he also speaks of the anti-establishment sentiment in the US presidential elections and the United Kingdom vote to exit the European Union, fuelled by the “breaking of the social contract” between workers and governments.

“We have the lowest compensation of employees to gross domestic product in world history coinciding with the highest corporate profits before tax in corporate history,” he says.

When it comes to the oil market the Dane, who is known for his often-bearish outlook, pulls no punches either. Saxo’s outrageous prediction of a brief return to $100 a barrel will be just that, he suggests.

“For every $10 of price, we have more excess supply coming from the more expensive oil which is shale and deep sea drilling.

“I will say for the next one to five years we will have a very wide range of $30-$60,” he says. “The argument being that at $55 or $60 you have excess supply and below $30 you have destruction of capital across the board.”

All concluded by some more light hearted comments that the world economy would be in better shape if all the politicians were walled off in a private compound for the next five years.

“Politics at best can do nothing, at worst it can destroy,” he says.

Later, when asked for his thoughts on the state of the Gulf Cooperation Council economies, where oil-linked budget deficits are expected across the board this year, Jakobsen is equally frank.

“I think what’s missing in the Middle East is the long term planning, which is kind of ironic because if there is one place that could be able to afford long term planning it is there.”

Among the areas he outlines for correction is the lack of a path to permanent residency in many countries in the region, despite the active encouragement of foreign investment.

He also believes the region would stand on firmer ground focussing on productive sectors and links with emerging India, rather than current diversification into “zero productivity” banking, real estate, hotels and services.

“There are great opportunities in the region but I don’t think the plan is in place right now,” he says.

So what would he do instead? Jakobsen says he would tie permanent residence status to investment and create a world-leading education hub. All while focussing diversification efforts on more productive sectors including alternative energy and high-energy industry like aluminium production.
Perhaps more controversially, he would also reconsider nationalisation initiatives relating to employment.

“I understand why it started but you cannot maintain a very high proportion of locals in top jobs and then expect society to be growing. It must be about equal opportunity, for the best person to have the job.”

If recent headlines are anything to go by, some of Jakobsen’s suggestions may not be falling on deaf ears.

Saudi Arabia has taken its first steps to permanent residency for expatriates with a proposed ‘green card’ system and the Gulf Cooperation Council region is preparing for the introduction of value added tax from 2018.

“Yes [I agree with introducing tax] practically as an economist, but not philosophically because it leads to a worse world,” he says.

But if there is something both Jakobsen and regional economic planners will agree on, it is that time is short and reform is needed as oil pressures continue to impact regional economic sentiment and government budgets.