An estimated $5 trillion to $9 trillion in cumulative GCC oil revenues generated over the coming decade will be invested within the Middle East and North Africa (Mena), experts say.
In 2002, nearly 85% of the Gulf’s wealth was invested abroad in financial instruments mostly linked to the US dollar. However, by 2007, this had fallen to 75% due to the rising investment within the Gulf itself, Gary Long, president and chief operating officer of Investcorp, a provider and manager of alternative investment products, said in a statement. Long predicted that the oil boom will translate into an investable asset pool in excess of $10 trillion by 2020. A set of trends will determine how this wealth is spent. Long said investments will increasingly take place onshore in Mena and in Asia.
Other trends include “a shift in allocation to alternative investments and more direct investment strategies; the increased sophistication and institutionalization of the Gulf, including the growing importance of corporate governance; a booming demand for Islamic products and the rapidly growing importance of sovereign wealth funds”, an Investcorp statement said.
Lond also said that the Gulf will soon be among the 10 major global economic powers, moving up from its current position of 16. Nasser Saidi, chief economist at Dubai International Financial Centre told Gulf News that the reason behind the trend towards alternative investments was because the sukuk markets are strong. “What we are seeing recently in 2008 is a recovery in private equity. Therefore, investor confidence is coming back,” Saidi said. He said real estate had always been a strong attraction for investors, but there had been a change as investors were “increasingly turning towards alternative types of investments, such as private equity, hedge funds, commodity funds and the like, because they are looking for more promising returns”. Saidi added that this would continue to happen in the near future. He said due to the resilience of emerging markets to the subprime crisis, “our markets have become more attractive, not only for investments from the region but also from outside”.
The prospects in regional markets were very promising, where as markets in developed countries, like those in Europe, were “slowing down and potentially on the verge of recession”, Saidi added. On the other hand, Eckart Woertz, economist at Gulf Research Centre, said that the majority of regional oil revenues, continues to be invested in larger markets. “There is some upward trend in regional investment but there is an extremely long way to go before Mena and Asia would come in the vicinity of US or Europe in terms of importance,” Woertz said.
A large majority of foreign investment of GCC countries still goes to the US, he said. “About 60% goes to the dollar, 20% into Europe, and 10% each to Mena and Asian countries.”
An important trend in the future, according to Woertz, would be overseas investments in agriculture, as GCC countries will increasingly need to rely on food imports. “Their population is growing while their agriculture is declining because of lack of water.” Woertz said investment in the Gulf was more of a spill over investment. “Due to high oil prices, these countries will continue to have a large surplus, which they have to invest somewhere,” he says. On where the oil revenues should be spent, Saidi said: “The bulk of the oil revenues should be used for future generations; investing in investment funds that are widely internationally diversified.” Regional expenditure on infrastructure, according to Saidi, should be financed “by issuing sukuks, bonds and undertaken projects finance on the markets”. (Gulfnews)