Markaz: GCC countries are becoming an investment hub for international investors

Markaz General Manager, Mr. Manaf Abdulaziz Alhajeri, presented the attractiveness of the Gulf Cooperation Council Countries' markets, to international investors.

Rise in oil prices in the GCC Countries are leading to large budget surpluses and are contributing to the growth of the gross domestic product. The GDP growth is expected to reach 7% during the years 2005 -2010. The energy sector is the driving force of the GCC Countries and represents nearly 41% of its Gross Domestic Product, it ranges from around 25% in Bahrain to 58% in Qatar. Worldwide the escalating demand as a result of the growth in the developing economies and the absence of new refinery projects in the industrial countries for environmental reasons has resulted in a shortage of crude based fuels. This shortage and lack of growth in refinery capacity world wide will result in oil prices to remain strong for the coming three years.

For the GCC Governments, the key challenges to overcome are the dependency on oil as a main source of revenue, the high population growth and associated unemployment and pressure on social structures, the limited direct foreign investment in the region, the family-owned structure of most GCC companies, the need to develop world class education curriculums, and the deficiency in trained human resources.

Of late, GCC Countries have been adopting investment policies that would attract direct foreign investments, this is a major contributor to development. Governments in the GCC are focusing on potential opportunities across the spectrum such as development of oil and gas in Kuwait, tourism in Dubai, financial opportunities in Bahrain, gas in Qatar, and petrochemicals in the Kingdom of Saudi Arabia. The membership of all of the GCC Countries in the World Trade organization has resulted in greater harmony in the regional trade and in setting investment policies, laws and procedures, thus providing a cluster of financial and regulatory incentives to attract foreign investment.

The size of direct foreign investment has declined in 2004, to less than 6 Billion USD. This is a comparatively small amount in relation to the economic size of the region that exceeds 400 Billion USD and hence there is an enormous growth potential for direct foreign investment.

The attractiveness of the GCC equity markets is also an important factor in the development of the region's economies. The total market value of the Gulf stock markets in year 2005 has reached one trillion USD, which represents 20% of the total value of the emerging markets around the world. More and more international investors are being aware of the many opportunities to invest in GCC markets.

Various factors are contributing to the attractiveness of GCC capital markets, such as robust increase in companies' profits, high liquidity in the economy and increase in wealth levels, broad participation of citizens and expatriates in investment, availability of new investment opportunities, and increase of participation in the international stock markets by the GCC Countries.

The latest correction in the stock markets from the beginning of the year until the end of May ranged from -4% in Muscat Stock Exchange to -39% in Dubai Stock Exchange.

The need to undertake some reforms to place the region on the global investment map is demonstrated by the modest foreign investment in the region and the setback in the stock exchanges despite the optimism in oil prices. Urgent reforms being contemplated include i) activating the private sector within the national economies such as unleashing the telecommunication sector in the Sultanate of Oman and privatizing the petrochemical sector in the State of Kuwait, ii) unifying the Gulf stock market in the same manner as the customs were unified in 2003, iii) launching the unified currency in year 2010, iv) allowing foreign investors into the Qatari market, and v) establishing a regulatory money board in the Kingdom of Saudi Arabia.

GCC Countries, as compared to the emerging countries, lag behind the markets of India, China, Brazil and Russia in terms of depth, reform and control. But they surpass the rest of the emerging markets in terms of financial net worth, sturdiness of the banking sector and basic infrastructure; thus representing an excellent destination to international investors. The GCC countries will witness enormous investments in the coming decade in the energy sector and are well equipped to receive the international investments in tune with the current trend towards investing in the developing markets.

Kuwait Financial Centre 'Markaz' was established in 1974, and has become one of the leading asset management and investment banking institutions in the Arabian Gulf Region. Markaz was listed on the Kuwait Stock Exchange (KSE) in 1997; and was recently awarded a BBB+ corporate rating by Capital Intelligence Ltd.