RIYADH, 16 April 2007 -- Saudi Arabia is expected to see a big foreign direct investment (FDI) surge by 2010, driven by the opening up of key sectors to outside investment, such as telecommunications, power, mining, petrochemicals, infrastructure and the economic cities, a GCC special report by World Business said.
Kuwait, now emerging from more than a decade of uncertainty following the first Gulf War, is also becoming a magnet for more FDI. Flows to Qatar and Bahrain are also expected to climb.
As a result of the UAE's decline, total FDI flows into five Gulf Arab countries will fall to $13.7 billion in 2010, from an estimated $18.1 billion this year, said the report.
However, UAE, which was the Gulf Cooperation Council (GCC) region's largest destination for FDI in 2006 which totaled an estimated $13 billion according to the report, was predicted to experience a fall in FDI to $7.5 billion by 2010 -- roughly half the levels of 2005 and 2006. This tapering off in FDI flow reflects the increased economic maturity of some parts of the GCC on the world stage, the report said. Nonetheless, FDI in most other GCC countries is rising sharply and will continue to do so over the next four years.
Flows into the UAE will ease to $7.5 billion by 2010, from $14.5 billion in 2005 and an estimated $13 billion in 2006.
"As more overseas money flows into the region and the benefits of economic integration are felt, the key question will be whether the GCC boom can be sustained without being fuelled by oil and gas alone. As long as money from the oil boom keeps pouring in, the GCC countries can build for the future. Dubai is leading the way in putting the building blocks in place and other states are following its lead. In all, the signs are that a unified and economically powerful GCC looks set to play an increasingly important role on the world stage," the report said.
According to the Institute for International Finance (IIF), infrastructure and energy projects valued at more than $1 trillion are either planned or underway in GCC countries. This huge number of new projects is vital for the GCC as it tries to reduce its dependence on hydrocarbon earnings.
Between 2001 and 2006, the report pointed out that the GCC economies more than doubled in size in nominal dollar terms to about $723 billion, making it the world's 17th biggest economy. It is slightly below the gross domestic product (GDP) of the Russian Federation which is $763 billion.
"Burgeoning state revenues fuelled by soaring oil and gas prices are significant but not the only factor underpinning booming economies in recent years. There are encouraging signs that the energy-rich region is actually deploying surplus petrodollars to more prudent use-unlike the spending binge of the 1970s and early 1980s."
By 2007, the GCC's total export earnings would reach $544 billion. "A record petrodollar surplus stood at $167 billion in 2005 and $227 billion in 2006, falling only fractionally in 2007. The surplus has allowed the GCC's banking system to build a level of foreign assets that is second only to China. It has also helped to fuel an investment and consumption boom, reducing the region's dependence on oil and gas revenues," it said.
The report said the most mind-boggling scale of new investment is in Dubai, the world's fastest growing city. "An estimated $100 billion worth of construction projects is either underway or planned in the city, double the reconstruction cost of Iraq.
However, analysts (e.g., Moody's and EFG Hermes recently, following us), are concerned that the "supply-led" push to build upscale residential property in Dubai will not be matched by demand as the units come into being, and prices will fall.
By Khan H. Zahid
© Arab News 2007
