The effects of the 2008 financial crisis on the investment in the Gulf area specially on Qatar - Research Paper Example

In this case, the decline in oil prices severely affected the foreign exchange earnings and led to low foreign investment capital inflows in Qatar economy. Qatar and other countries in the gulf area had accumulated vast cash reserves after the oil prices recorded a high of USD 148 per barrel in July 2008 due to a weak US dollars and geopolitical tensions that led to oil speculations (Casa, 2009). However, the last five months of 2008 saw decline in equity market activity and oil demand thus leading to 75 percent loss on the OPEC Reference Basket from USD 148 per barrel to USD 37.

72 per barrel before the end of the year (Distr, 2009). Thesis statement: the 2008 financial crisis negatively affected investments in Qatar through tightening of credit, decline in global oil demand and subsequent slowdown of the real estate and stock markets in the economy. Credit crunch Despite the high liquidity level of the main financial institutions in Qatar and decline in interest rates before the onset of the 2008 financial crisis, the availability of credit for investment purposes declined during the financial crisis due to high-risk aversion by the banks (Casa, 2009). . The financial crisis triggered steep fall in asset prices and widened the credit default swap (CDS) spreads on sovereign debt.

In this case, the Qatar government debt remained elevated thus reflecting the high-leveraged government entities. Fall in stock market prices According to Monetary Fund (AMF), of 2008 financial crisis led to a drastic fall in stock investments by half in the first year and further by additional 25% in the subsequent quarter. The loss in Arab stock market translated to significant decline in the level of investor confidence and decline in the overall investment activities in the economy (Distr, 2009).

The Doha Securities market experienced a decline in the level of trading activities and the market’s main index declined by 28 percent to 6886 points. The gulf region countries recorded significant escalation in construction properties before the crisis, but the crisis led to slowdown of construction boom due to tight credit conditions in the countries. The high house rents before the crisis made Qatar citizens to increase their economic contributions towards excessive crediting allocation on such departments.

After the decline in oil prices, the construction boom slowed down and housing prices deflated thus leading to significant losses in the real estate sector (Distr, 2009). Decline in tourism financial returns The 2008 financial crisis also led to considerable decline in tourism returns in Qatar. This is evidenced by significant reduction in business tourism arrivals and investors from European countries and North America (Casa, 2009). Qatar immigrants in western countries reduced or completely stopped the foreign remittances to their home country.

Furthermore, the crisis also