Trends of Gulf Investment

The GCC member states have taken positive steps towards diversification of the economic base and the finding of alternative means for oil revenues in alleviation of their fluctuations. During the last few years, huge financial surpluses were accumulated due to the booming of oil prices, the return of invested money from abroad after September 11, the improvement of regional stability and the implement of many structural reforms.

The report said that investors have recently focused on the services sector which contribution has escalated to the limit of competing with that of the oil sector in the GDP. Due to the abundance of liquidity, investments were directed towards real-estate and stock sectors. Investments in real-estate and constructions are expected to exceed US$ 250 billions by the end of the decade according to the Inter-Arab Investment Guarantee Corporation 2005. Yet, such real-estate high prices (inflation) in the region may create a monetary shock whenever a negative political development occurs in the region or oil prices crash. The banking and financial system will loose the ability to retrieve loans, and the property warrants may drastically fall down.

The report detailed that the booming of oil prices at the end of 2005 has contributed to the economic revival of GCC member states. Monetary, real-estate and communications sectors have gained enormous profits, and the stock markets have witnessed a swift development in their market values. The total market value of the GCC member states recorded US$ 1 trillion in 2005. In spite of this, the stock markets, as well as the real-estate market, are in need of further reforms and transparency measures in order to be able to direct and allocate financial savings in mostly required investments.

On the industrial side, the investment pace is still slow in comparison with other sectors, and the governments are the pioneering investors in this sector, especially in the fields of petrochemicals, gas and industrial cities where enormous investments are required. Of the total investments of the operating plants in the GCC member states which amount to US$ 103 billion, more than 70% belong to government investments in chemical products.

The report suggested that in order to alleviate this situation, the GCC governments tend to consolidate and encourage the private sector through the unified economic agreement, economic reforms and privatization measures. They aim at motivating the private sector to embark upon industrial investment especially in small and medium industries. Also, efforts are ahead to attract direct foreign investments in order to strengthen the Gulf industries competitive level, to achieve further revenues, to promote product quality and to adequately manage resources, as well as to assist in technology and knowledge transfer and nationalization, which is well-known as positive infection.