The New Age of the Middle East mega-project

High oil prices and investment go together like birds of a feather, and since the year 2000 the pace and scale of investment projects has been increasing alongside the oil price.

Dubai was one of the first to tap into the new availability of funds in the region, which accelerated after the 9/11 terrorist attacks three years ago. The two Palm Islands, the Dubai Marina and Emirates Hills, these were early beneficiaries from the new flow of funds.

Thus the emergence this week of the $6 billion GCC power grid is greeted almost with a yawn, as yet another mega project. But this is big news with a final go ahead due by the end of the year and completion slated for 2008. Where else in the world is spending so much on power infrastructure? Perhaps only China!

There was also an announcement earlier this month from Saudi Arabia that an additional $10.9 billion has been allocated for schools, hospitals and road spending. Tendering is going to be furious in the region this autumn.

Back to Dubai and there will be tenders out for work on the Dubai International Financial Centre, $6 billion Dubailand theme park and the world's tallest building and world's biggest shopping mall. There will be more projects tendered in Dubai this autumn than ever before.

The London based Centre for Global Energy Studies has estimated that Arab countries will earn around $235 million in oil income this year, up from $160 billion last year. An unexpected windfall of $75 billion means a lot of new cash for investment.

To put this in perspective, if we adjust for inflation then this is still around half the record $212 billion Arab oil income of 1980, although in nominal terms 2004 will be the highest oil revenue in history for the Arab countries.

On the other hand, post-9/11 and post-Nasdaq crash there is an emphasis on inward investment in the Arab world these days. Even Abu Dhabi's enthusiasm to buy a 10% stake in Volkswagen is matched by the latter's commitment to build a $1.4 billion parts plant in the UAE. And Abu Dhabi continues to be the biggest investor in oil infrastructure development in the GCC.

At some stage the current mega projects will be completed and have to pay their way. That will interrupt the flow of investment, whatever happens to the oil price, though a bullish outlook for oil prices is becoming the new consensus.

In the meantime, Middle East business can face the future with confidence and make hay while the sun shines. Eventually all infrastructure investment comes to a natural or sudden end, but that should be many years away.