“Undoubtedly, the Gulf economies will be affected but the impact here will be much less than in the industrial world,” Abdulaziz al-Daghestani, head of the Riyadh-based Economic Studies House, told AFP.
“The main impact will be a drop in demand for oil, and consequently revenues. But the huge windfall accumulated over the past few years will help the Gulf weather global recession,” Daghestani said.
The six-nation Gulf Co-operation Council (GCC), grouping Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE, is estimated to have sold oil worth around $ 2tn over the past six years.
GCC governments had foreign assets of $ 1.8tn at the end of last year and the tally is expected to top $ 2tn by the end of 2008, the Institute of International Finance (IIF) said.
Faisal Hasan, head of economic research at Kuwait’s Global Investment House, said GCC states have calculated oil price in their budget at less than $ 50 a barrel.
“Despite the sharp drop in oil prices, GCC states will end up this year with a good surplus. I don’t think any of the mega projects underway will be affected,” Hasan said.
However, Daghestani said projects still in the pipeline are likely to be affected by delays.
Analysts said the main impact of the crisis is likely to be centered on privately-owned businesses, which have undertaken huge projects during the past few years.
“The main impact will be on the real estate sector, mainly in UAE and Qatar because they have been growing at a fast pace. Petrochemicals and other industries will remain safe,” Daghestani said.
The region’s stock markets have been severely affected by the global crisis, last week plunging 20%, or close to 200 bn dollars in value, in a matter of days.
The impact of the financial meltdown on Gulf economies could spread much wider and deeper, the Dubai-based Gulf Research Center (GRC) said in a report.
Financing for Gulf mega projects will become scarce and its cost higher, the GRE said, adding that some Gulf banks, especially in the UAE, are exposed to the crisis.
“The region’s markets for large-scale project finance and real estate will be particularly affected by this credit crunch,” GRC said. It cited finance problems already facing some Gulf projects, especially in the real estate sector.
The oil windfall spurred economic development, and tens of billions of dollars are earmarked for major energy projects and similar amounts in the real estate sector, besides huge investments in industry and tourism. Besides mega energy projects, oil powerhouse Saudi Arabia is building six economic cities with over $ 100bn of investment.
Saudi Jadwa Investments said projects planned or underway in Saudi Arabia are worth close to $ 400bn, some 44% of which in real estate and another 40% in energy.
UAE, Qatar and Kuwait are also undertaking major development projects. The IIF has estimated domestic investments in the Gulf will reach $ 1tn over the next few years.
The vast plans have resulted in a massive rise in public spending which has been cited as one of the main reasons for soaring inflation. GCC public spending soared from $ 150bn in 2004 to just under $ 300bn dollars last year, Jadwa said.
Leading Saudi economist Ehsan Bu-Halaiga said he does not see any problem with liquidity as “basically, the region is a net exporter of capital.”
