GCC investment boom contrasts with the Western downturn

The level of investment now pouring into new projects in the Gulf is an astonishing contrast to the downturn in investment evident in the West where collapsing stock markets and business confidence have taken their toll. And remarkably, the GCC boom has only just started to roll.

For the forces that have been, or are about to be, unleashed in the Gulf region, are unstoppable and strike at the very heart of economic management. And how bizarre that all this should be happening at a time when the region stands at the brink of war. Let's review the interlinked phenomena at play.

First, there is a huge increase in domestic government investment in major projects. Take the UAE, for example, government spending in all areas is on the increase. Qatar and Bahrain too are pumping more money into investment projects, so too is Saudi Arabia. The demands of growing populations leave these countries with little alternative.

Secondly, the private sector has followed the government's call and is committing to serious investment. Just look at the $5 billion Dubai Festival City master plan unveiled last week or recent investments by large private groups in Bahrain, Oman and Qatar.

Thirdly, privatization is taking off. Next month a stake in Saudi Telecom will be sold off. But Saudi finance minister Ibrahim Al Assaf last week announced plans to sell off 20 vital economic sectors, including health and social services, quite apart from government shareholdings in Saudi Basic Industries Corporation, Saudi Electricity Company and the banks.

The Emir of Qatar Sheikh Hamad bin Khalifa also weighed in last week with his announcement of plans to privatize steel and petrochemicals.

Fourth, foreign direct investment is about to become really important. Last weekend Shell signaled its acceptance of terms for a $5 billion investment in one of three core projects in the $25 billion Saudi Gas Initiative. The Saudi General Investment Authority has already knotched up more than $11 billion in inward investment commitments.

Expect to see similar huge commitments to investment in Kuwait's northern oilfields, if its obstructive parliament can be persuaded to agree. And Qatar will continue to be a focus for foreign investment in developing its huge LNG and petrochemical interests.

Finally, the opening of the real estate sector in Dubai shows another way to attract inward investment. By the time Emaar Properties has completed its present projects there will be 400,000 home owners living in accommodation bought from this developer. That will represent both a large influx of affluent new residents to the emirate and a large inward investment in itself.

Moreover, all these different developments are likely to feed off each other and further magnify the investment boom now rolling forward. And such is the level of capital now committed that even a war in Iraq or dip in the oil price will create no more than a brief hiatus in this investment-led economic boom.