GCC foreign wealth rises to $2 trillion

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

With few signs that the world's demand for oil and gas will diminish significantly, despite record prices, the energy-rich GCC states are rapidly becoming a source of much needed capital not only for distressed banks in the US and Europe, but also for the developing countries in Africa and Asia which have had to endure low investment levels and an acute undervaluation of their labour and commodities for decades, if not centuries. What remains to be seen is whether the Gulf states can turn their huge surpluses, which cannot be invested effectively at home, into sustainable assets for themselves in the long term.

Investments abroad that provide new technologies and access to new skills and marketing expertise, along with the expansion of the GCC's private sector and publically-listed companies, could provide a vital source of employment, as well as profits, for the rapidly growing younger generations in the Gulf. So too could the deployment of the region's financial surpluses into investments and other asset classes that provide better returns than the traditionally safe, but low-yielding, US bonds. But success in that, as many Arab bankers and officials in the GCC have pointed out recently, will depend on a better understanding between the region's wealth funds and the governments of the US and Europe than has existed until now.