Succour in hard times

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We are heading for a slowdown over the next 12 to 18 months. The past few years have been manic. The pace of change in cities regionally has been extraordinary.

The pace in the Gulf has been particularly rapid. Total oil revenue for the region has increased every year since 2004. Mega projects were announced and are at an advanced stage. Infrastructure was the hot topic and signs of affluence were everywhere. Greater access to regional markets brought the world's traders and bankers flooding in.

Now the party seems to be easing. So let's get down to the business of consolidating the enormous advances we have made; in infrastructure, industry, services and governance. We are better positioned today for the next boom than we were for the last.

Globally, the project finance market has dried up, as has leverage for all but the best capitalised projects. Therein lies an opportunity for the region's sovereign wealth funds; step in and provide finance at market rates that ensure the infrastructure gets built. That would help underpin prosperity as ably as their existing mandates.

Public-private partnerships are flourishing. A new generation of modern leaders is driving the privatisation agenda, based on the view that they need to be more in the business of governance than of management.

Oil prices could fall further but even at $45 a barrel, governments will still be able to balance their books and finance the projects they have announced. The financial cushion that has been built up over the years should cover any shortfall.

The Gulf's long-term access to capital is all but secure. Its share of world oil production can only rise in the years and decades ahead, ensuring liquidity and solvency.

Hurt by the global financial crisis, regional growth will probably slow but the economies will expand nonetheless. The next upsurge lies over the horizon. In contrast, western economies are shrinking. When that stops, growth will only rebound to 1 or 2 per cent, limited in part by their ageing and, in some cases, shrinking populations. In the Middle East, north Africa and south Asia, populations are relatively young, which in turn will drive demand; for homes, services and goods, as well as expand the labour pool.

So the region's real economy is by and large sound. The ongoing regional financial markets crisis was caused by the wholesale exit of foreign money facing redemption back home, as well as margin-call demands on certain large domestic investors swollen by a decade of easy leverage and access.

Kuwait's intervention in Gulf BankGulf Bank is the exception rather than the rule, and does not point to any system failure. Local banks may be facing a temporary liquidity issue but do not have solvency issues to deal with.

Emotion, fuelled by events in the west, has exacerbated fears in the region. The recent spreads in Dubai collateralised debt obligations, or bond prices for NakheelNakheel and the Dubai International Financial CentreDubai International Financial Centre, more offer a profitable arbitrage opportunity than suggest that the United Arab Emirates will not support Dubai and Abu Dhabi debt simultaneously. It is naive to assume otherwise.

More than ever, it will be EQ - emotional intelligence - and not IQ that will separate the winners from the losers.

Arif Naqvi is founder and chief executive of the Dubai-based private equity company Abraaj Capital

By Arif Naqvi

© Financial Times 2008