GCC foreign wealth rises to $2 trillion

Middle East, The, April, 2008 by Pamela Ann Smith

The six GCC states had recently "begun to invest more in new industries, infrastructure, health care, education and other areas to catch up" with Brazil, Russia, India and China, "their so-called BRIC peers", Diana Farrell, director of the McKinsey Global Institute, commented in February. This could help correct the low domestic investments rates in the GCC that since 1993 had "averaged 20% of GDP, almost one-quarter lower than the 24% average investment rate" of the BRIC countries combined.

Paying off the region's external debts was another factor pointing to enhanced growth in the future, McKinsey's managing director noted. In Saudi Arabia, for example, "it fell from a peak of 97% of gross domestic product (GDP) to less than 41% in 2005". In Kuwait, foreign debt "declined to 17% of GDP, from 32%", during the same period. Saudi Arabia's reforms, including joining the World Trade Organisation, cutting import duties, privatising telecommunications and preparations to liberalise the airline industry, were signs of the kingdom's determination to "fix the old". "To create the new," de Boer observed, "it has embarked on a $200bn initiative to develop new cities and economic zones with regulations that are friendly to the private sector."

The wealth of Saudi Arabia, the largest economy in the GCC, has largely moved into the private sector, the IIF report confirmed. Individuals in the kingdom, it estimated, held between $280bn and $340bn outside the Gulf. Altogether, high net worth individuals (HNWIs) in the GCC owned $600bn in foreign assets at the end of 2006.

Within the Middle East and North Africa (MENA) as a whole, the increased focus on the more populous, but less prosperous, states has already led to a rise in overall real GDP rates. These had risen from an average annual 3.8% between 1998 and 2002 to 6.2% between 2003 and 2007, Dr. Omar bin Sulaiman, governor of the Dubai International Financial Centre (DIFC), told the IIF meeting in Dubai. Egypt's GDP alone, analysts report, grew by 7.1% in its last financial year, while Morocco has been enjoying a boom in real estate and tourism.

This trend is expected to accelerate even more as both public and private Gulf investors seek out opportunities in Egypt, Jordan, Syria, Morocco, Tunisia and other Arab countries. "A substantial volume of GCC funds is staying in the MENA region, where quickening liberalisation, privatisation and regional integration, as well as an increased pace of project implementation, has lured capital that would previously have headed away from the Arab world," the IIF stated.

As a result, the IIF and other financial experts expect future GCC inflows to the Arab region, excluding the GCC itself, to expand well beyond the estimated $60bn that was sent between 2002 and 2006. (The Middle East, August/September, 2007, page 39.) Projections produced by the International Monetary Fund (IMF) in Washington, based on conservative oil price assumptions, indicate that oil exports from the GCC could reach $450bn this year. Altogether, the GCC's current account surplus could rise to $900bn by the end of December, meaning that more than $200bn of that will have to be invested abroad.