RAISING AWARENESS

SQU has done an investigation on the level of awareness of Oman’s public regarding the origin and effects of the global financial crisis.

By Dr Msafiri Daudi Mbaga and Basma Mohamed Abdullah Al-Harthy

For more than a year now we have witnessed a lot of discussion about the Global Financial Crisis (GFC). I am assuming most of you, know what the GFC is. For those who are not aware, the GFC was triggered by the eruption of the US subprime lending (lending to poor quality borrowers) crisis in the summer of 2007 and the subsequent liquidity and confidence crisis that has spread on a global scale and peaked in September and October 2008. The crisis is the result of both market and regulatory failures. The US subprime crisis, according to pundits, is a result of a multitude of factors which include:

• A protracted period of abundant liquidity;

• Excessive, reckless lending in the subprime sector, especially for poor quality housing;

• Lack of adequate prudential regulation over financial institutions; and

• The bursting of the housing price bubble.

The consequences of the GFC have been far reaching. Across the globe many businesses have gone under, investors have lost billions of dollars as stock markets have collapsed, jobs have been lost and the list goes on and on. In the US for example despite the injection of billions of dollars as stimulus package, the unemployment rate now stands at 9.8 per cent which is 26 years high and still climbing.

The spillover effects of the GFC on Oman’s financial and real economic activity have so far been, and will likely continue to be, relatively limited. A report by Robert Wigglesworth in the FT.com on October 5, 2009 for example indicate that the net profit of commercial banks in Oman rose almost 10 per cent last year. In terms of Omani banking shares, by October 1, 2009, Oman banks had gained 2.6 per cent from a year ago, while banks in other GCC countries during the same period had registered loses. The report attributes the condition of Oman’s banking sector to the efficient surveillance framework and sound regulatory structure of the Central Bank of Oman (CBO), which is considered the strictest regulator in the GCC region.

What is troubling though regarding these crises is that they are becoming much more frequent lately (Reinhart and Rogoff, 2008). The late 1940s to the early 1970s was relatively calm. This calm is said to have been due to the heavy-handed use of capital controls that followed for many years after World War II. Since the early 1970s however, financial and international capital account liberalisation took root worldwide – so too have the financial crises. The US had its savings and loan crisis beginning in 1984. During the late 1980s and early 1990s, the Nordic countries experienced some of the worst banking crises following a surge in capital inflows and real estate prices.

In 1992, Japan’s asset price bubble burst and ushered in a decade-long banking crisis. Problems in Mexico and Argentina (1994-1995) were followed by the famous Asian crisis of 1997-1998, and then the troubles of Russia and Colombia, among others. This was followed by Argentina in 2001 and Uruguay in 2002 and then the current GFC which began in the summer of 2007. This means we are bound to see more of these crises in the recent future. The former US Federal Reserve Chairman Alan Greenspan, speaking to the BBC recently, to mark the first anniversary of the collapse of US investment bank Lehman Brothers, said another GFC is inevitable and Britain will be hit worse than the US because it has a globally-focused economy.

If the world is likely to be hit by another financial crisis, then countries needs to be concerned and needs to prepare by taking the necessary precautions, if there are precautions to take. Public awareness is perhaps one way to prepare the populace to face future crises so as to minimise their disruptive effects. To plan and launch public awareness programmes, the government needs to know the level of awareness of the Oman public. This study therefore seeks to investigate the level of awareness of the Omani public regarding the origin and the effects of the current global financial crisis.

Why public awareness is important

Studies in the US such as the one by National Council on Economic Education, Markow and Bagnaschi (2005) and the National Foundation for Credit Counseling (2008) all have documented very weak understandings of economic and personal finance topics among teens and adults. High school graduates go to college or the workforce ill-prepared to understand the financial contracts that they sign and to realise consequences of their obligations. Adults do not fare much better either. These findings support the need for public awareness programmes to bolster public financial literacy. Sultan Qaboos University has embarked upon such an awareness study.

Public awareness survey data

Data for this study was collected by means of a questionnaire administered to a random sample of 103 respondents. Our sample is comprised of professors, students and staff at Sultan Qaboos University. The sample also included members of the public from outside the university. Students and staff were picked for the sample based on where they come from across the Sultanate, in such a way that each region of the Sultanate was proportionately represented. Therefore the sample used in this study is reasonably representative of the population.

Public awareness survey results

Data from the survey was analysed using Microsoft excel spreadsheet. Simple statistics were computed. Results show that 93 per cent of the people are aware or have heard about the GFC. The remaining seven per cent said they haven’t heard of the GFC and most of them were students. Regarding the origin of the GFC, 78 per cent of the people who heard about the GFC said its origins’ lay in the USA housing market. Few people said the origin is political. In addition, nine per cent of the people had no idea where the GFC originated from.

Respondents were asked to explain how the GFC is going to affect them and their families. From the sample 25 per cent said they are not affected, five per cent said they expect to be affected but at the moment they are not. The overwhelming majority 62 per cent said they are already affected. Out of this group 40 per cent said they are already affected in terms of increase in the prices of goods and services. Another 40 per cent (61 per cent of them students) said GFC will affect their career prospects, because the recession will make it difficult for them to find employment. The remaining 20 per cent said they have been affected through their investments. On the positive note, some respondents said they think real estate prices (land and houses) will return to their pre-GFC levels in the near future.

With respect to how the Oman economy will be affected by the GFC, 13 per cent of the respondents had no idea, 26 per cent said the economy will not be affected much, and 10 per cent said the economy will not be affected.

A larger group of 52 per cent of the respondent said the Oman economy will be affected in the following ways:

• Most of the Oman investment abroad (in USA, UK) has been lost, and therefore there are no prospect for future returns on that capital.

• The Oman currency (Rial Oman) is linked to the US dollar which is depreciating in value.

• In relation to the on going foreign investments in huge projects, because the in flow of Foreign Direct Investment is decreasing as a result of the GFC.

• Fall in gas and oil prices because of the slump in the overall demand in the world market.

Interestingly, respondents did not say anything in relation to the impact of the decline of property prices in Oman. This has a severe effect on many corporate and personal balance sheets – reducing the value of assets whilst leaving the liabilities untouched. If people and businesses want to restore their balance sheets by saving more and spending less this will affect consumption.

The main objective of this study was to investigate the level of awareness of the Omani public. A random sample of 103 people comprised of professors, students and staff at Sultan Qaboos University and members of the public was used in this study.

Result shows that people are reasonably aware of the origin of the GFC, however only a small percentage of them were able to pinpoint correctly how they were going to be affected by the GFC. These results seem to suggest that there is a need for public awareness programs to increase the awareness of the Omani public.

With regard to recommendations, the government should consider the following:

• As a long term strategy it will be good to introduce financial literacy courses in secondary schools so that teenagers can be financially literate, a knowledge that they will need to function properly when they start working

• The establishment of institutions governed by the values and ethics, because of the weakness of the commitment of individuals to the principles and
  regulations of financial and non-financial institutions in time

• The development of simple and fair investment tools, because of the proli-feration of many complicated investment tools that are difficult to understand.

• Establish institutions that will assess and approve investment instruments offered to the public in order to avoid any misunderstanding or exploitation. 

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