A recent report by the respected Saudi-based Samba Financial Group suggests the Arab oil producing countries of the Gulf may earn a staggering $24 trillion from exports of crude oil and gas over the next 20 years, as energy hungry countries such as China and India continue to develop rapidly. So what will the Gulf states do with these revenues, and who will benefit?
Although they have traditionally looked to the US and Europe to safeguard surplus funds, Gulf investors are increasingly looking closer to home--at the Arab world, including the Maghreb countries of Algeria, Morocco and Tunisia, and at other parts of Africa, as well as at other states in Asia, particularly the Muslim countries. The prospect of yet further declines in the US dollar and in US bond markets, following the sharp falls earlier this year, could give this new "neighbourly" trend an even greater boost in the coming months, analysts say.
While facts and figures on the actual size of Gulf financial surpluses are subject to much debate, a report in May compiled by the Washington-based Institute of International Finance (IIF) focused the world's attention on the size of the revenues currently accruing to countries such as Saudi Arabia, Kuwait, Qatar and the United Arab Emirates. They, together with the two other members of the Gulf Co-operation Council (GCC)--Bahrain and Oman--earned a total of more than $1.5 trillion from their exports, mostly oil and gas, in the five-year period from 2002 to 2006, the IIF reported, adding that this was more than double their earnings during the previous five-year period.
Of this, about $1 trillion went toward imports, with the remainder of the earnings, "some $542bn", representing "surplus funds that entered global capital markets". The result was a substantial increase in the GCC's foreign assets holdings, the IIF concluded, which brought the cumulative total up to a staggering $1.6 trillion, $500bn more than China's foreign exchange reserves. By 2009, this figure could rise even more substantially, to about $2 trillion, according to Ibrahim Dabdoub, CEO of the National Bank of Kuwait. This would represent 225% of the GCC's gross domestic product (GDP), compared to China's foreign assets which are less than $1.2 trillion, or 40% of its GDP, Dabdoub confirmed.
The Institute, a worldwide association of more than 360 leading financial institutions, estimated that while $300bn of the surplus went to the US, and $100bn to Europe, around $60bn was invested in the Arab Middle East and North Africa (excluding investments which stayed within the GCC itself). Smaller, but growing amounts went to other neighbouring states, including some in sub-Saharan Africa, as well as Muslim countries in Asia such as Turkey, Pakistan and Malaysia.
Much of this is reflected in a new-found willingness on the part of Gulf investors to take their chances on projects, services, institutions and corporations that have become more open as a result of reforms in countries such as Egypt, Jordan and Syria, as well as North Africa. This means that rather than just automatically investing in safe, low-risk international assets--such as bank deposits in the US and UK--the Gulf's public and private investors are increasingly...