GCC should continue to diversify from hydrocarbons-Lord Mayor of City of London

Dubai: GCC economies should continue diversifying from hydrocarbons in the backdrop of volatile crude oil prices, and the City of London can offer all sort of instruments to finance infrastructure projects in case of any short fall, Alderman Alan Yarrow, the Lord Mayor of City of London, told Gulf News on Sunday.

Crude oil prices have fallen almost 50 per cent from its of high of more than $100 per barrel last year, prompting many countries like Saudi Arabia and Oman to budget a deficit for 2015.

“I plan to discuss oil price, budgets (during my visit). We can’t have something come down from $105 to $48 without having implications on budgets. A short term fall in price in itself is not a problem. It is how long it would stay there,” Yarrow told Gulf News.

Yarrow plans to meet members with senior members of the government, the Governor of the UAE Central Bank, investment authorities and senior business leaders during his visit.

“They have made big budgets on a predicted oil price, which is considerably higher than existing oil price. So the question is Plan A is that there is no problem at all and they will continue with ongoing infrastructure projects as most of the Gulf countries has a lot of reserves to continue with the infrastructure spends, however you’ll be spending country’s treasures effectively. They will be all working their plan B, and the question is how will the Plan B look like?,” said Yarrow.

However, the UAE, which derives only 30 per cent of its GDP from crude, gave a balanced budget for 2015.

“Sovereign funds looks very attractive to people who want steady income from long-term asset play, that’s us looking for money for higher value contracts. On the other way round there are infrastructure spends that would take place, say, for example, the upcoming port in Oman or a railway project in Kuwait. There is a lot of infrastructure spend that is going on potentially and we in the City of London, as the leading international financial centre, can offer all sort of instruments and access to funds to finance it,” said Yarrow.

The Lord Mayor of the City of London, which had about 14,385 enterprises in 2013, is responsible for supporting and promoting the city as the world leader in international finance and business services.

“Most countries recognise the fact that they got to have machinery in place to get external financing should they need it as after all it is prudent. Let’s make sure that machinery is there so that if they need to go to international markets, they can go whenever they can. That’s where City of London comes in as we are a leading international financial centre,” he said.

Good for consumers

The oil shock is good for consumer in Europe, India and oil-importing countries, as it would given them a chance to restimulate growth, Yarrow said.

The fall in crude prices is expected to leave more disposable income in the hands of consumers in the United States, Europe, and other countries like India and China, which can help to stimulate growth.

India, for example, imports most of its crude oil requirements from overseas.

On Islamic Banking, Yarrow said the United Kingdom has made steady progress in this field, but the offtake has been “very slow”.

Most of these things are slightly more expensive than standardised products and consequently there aren’t that many people in the competitive world who wants to pay extra premium, he said.

“I see a huge pent-up demand when this demand get going, the marginal cost will go down and then we can compare this with traditional financing,” said Yarrow.