Mid East globalization picks up speed

Listening to the horrific reports of the conflict between Israel and Palestine day after day foreign observers could be forgiven for thinking that the Middle East is an economic basket case that nobody in their right mind would chose as an investment opportunity. And yet the evidence is very much to the contrary, with globalization proceeding apace and indeed at a faster pace than before the tragic events of September 11th 2001.

This week the Saudi Arabian General Investment Authority announced that it had authorized foreign investments worth a staggering $10.2 billion in the past two years and issued 784 trade licenses. And on the agenda of the next meeting of the supreme economic council are proposals to extend the list of activities open to foreign investors.

SAGIA governor Prince Abdulla bin Faisal bin Turki Al Saud stated earlier this year that these sectors would probably include opportunities in industry, downstream products, services and railways. Furthermore, the SAGIA investment total does not include the $25 billion Saudi Gas Initiative involving eight major energy companies of which news is eagerly awaited.

For project finance this promises to be a bumper year with a rich harvest of syndicated loans in prospect. Bahrain, for instance, announced last week that the raising of funds for its refinery expansion will have to proceed ahead of financing for Bahrain Aluminium.

For its part Dubai is stepping up its efforts to become a regional services hub, and has appointed City of London star Ian Hay Davison to head up the regulatory body of the new Dubai International Finance Centre. Dubai is trying to woo the global banking community in the same way that it has successfully brought the big names of the IT world and media to its new free zones. And as the massive man-made Palm Islands rise from the waters of the Gulf, Dubai's tourism drive is entering a period of hyper-activity.

Qatar continues to be a trend setter, and is now set to sell government debt internationally. It should not be forgotten that Qatar's open door to foreign investment and project finance for the $25 billion investment into its LNG industry five years ago was arguably where the whole globalization process really took root it the Middle East. Previously two decades of state ownership had stifled innovation and misallocated resources. It was Qatar and its LNG that broke this cycle of decline.

So away from the conflict in Israel and Palestine, globalization is alive and well and starting to deliver the goods in the oil states. In some ways this offers far more exciting business prospects that the fall of the Iron Curtain in Europe. For this time the relaxation of state control has the investment appeal of the oil and gas sectors rather than a bankrupt, out-dated industrial sector.

This must be one reason why SAGIA has found 784 foreign companies to license in Saudi Arabia, despite the not inconsiderable cultural difficulties for foreigners in the Kingdom. The economic reformers have clearly found a few friends who want a share of the next Middle East boom.