Nejat Seyhun

This is one of the key messages delivered by Professor Nejat Seyhun to a strategic finance conference in Dubai this week, organised by Leading Concepts. The Professor of Business Administration at Michigan Business School is on a five-day visit to the Gulf region, and caught up with AMEInfo.com/FN.

So why has the Middle East seen such a rapid expansion of project finance in recent years? And will this growth be sustained?

'Project finance in the Middle East is still small in world terms at $3-4 billion per year,' says Professor Seyhun. 'That compares with a world-wide total of around $300 billion, and part of the reason for the high growth here is because project finance was starting from such a low base. But I can see growth continuing.

However, he warned regional governments that they need to focus on legislation to ensure that investors are sufficiently protected. And he highlighted a recent case in India where a regional government completely destroyed an investment project by changing the legislative framework after the contract was agreed.

'Foreign investors are very weary of changes in the rules,' he notes. 'But countries also have to be very careful about red tape. Investors do not like delays from red tape, and governments need to create agencies to take care of such matters.'

Professor Seyhun appreciated the irony that high oil prices have made many Middle East countries more attractive to foreign investors, and now that they do not really need foreign money, it is more readily available to them.

'Of course, many more projects now look profitable, due to high oil prices and that is attractive to investors,' he comments. 'Petrochemicals, oil and gas, and power, these are the most interesting investment opportunities'.

Professor Seyhun also noted that the economic slowdown in the USA would probably have the effect of increasing interest by US investment bankers in Europe and the Middle East. But he thought there would be a time lag before higher oil revenues boosted local stock markets and allowed the initial public offering market to improve.

'There has been a reluctance to believe that higher oil prices will stick, and that has kept regional stock markets subdued. But if higher oil prices continue that will change, and the IPO market pick up with it'.