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Oil bonanza funds Gulf investment spree



KUWAIT CITY 11 12 07

The six Gulf Arab states are reaping record income from oil exports that is funding mega-projects at home and increasingly ambitious investments abroad.

Sky-rocketing prices that are within striking distance of 100 dollars a barrel have flooded the coffers of the six Gulf Cooperation Council (GCC) members -- Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates -- which supply one fifth of world demand.

During the 2002-2006 period, Gulf states, with a population of 35 million, are estimated to have earned between 1.2 and 1.5 trillion dollars in revenue, enabling them to boost their foreign assets to more than one trillion dollars.

This windfall and massive crude reserves, estimated at over 40 percent of global reserves, have increased their importance on the world scene.

"Certainly, the spike in oil prices has tremendously boosted the weight of the GCC states in the world economy. Now they have attained a significant position in the global economy," Kuwaiti economist Hajjaj Bukhdour told AFP.

"The importance of the GCC is no longer limited to its huge oil wealth," Saudi oil analyst Abdulwahab Abu-Dahesh said.

"Their influence has multiplied, driven by massive foreign investments, large-scale acquisitions and global alliances in the United States, Europe and Asia," Abu-Dahesh told AFP.

Spurred by the oil windfall, GCC economies have grown by an average of seven percent annually over the past four years and the growth is expected to continue.

Total GDP of the six states rose sharply from 406 billion dollars in 2003 to 712 billion dollars in 2006, according to the International Monetary Fund (IMF).

It forecasts that GDP will grow to 790 billion dollars this year and 883 billion dollars in 2008.

The IMF also predicts that the six nations will spend at least 800 billion dollars on domestic investment projects over the next five years, 75 percent of that total in non-oil sectors.

But as their abundant liquidity can not be absorbed locally, the Gulf countries have extended their reach beyond their borders with tens of billions of dollars worth of acquisitions.

The booming emirate of Dubai, gas-rich Qatar and OPEC king-pin Saudi Arabia have made impressive acquisitions.

DP World, owned by Dubai, became a top global port operator when it acquired Britain's Peninsular and Oriental Steam Navigation Co (P & O) in a 6.9-billion-dollar deal in 2006.

Dubai's main investment firm has also bought a 3.12 percent stake in European aerospace giant EADS, owner of Airbus.

And in a major foray into the financial markets, Borse Dubai, the emirate's financial holding, agreed in September with Nasdaq to acquire 19.99 percent of the shares of the US-based firm and 28 percent of London Stock Exchange (LSE).

Saudi petrochemicals giant SABIC has acquired GE Plastics of the United States for 11.6 billion dollars, while tiny Qatar has acquired about 20 percent of the LSE.
"Undoubtedly, Gulf states this time are investing their surpluses prudently in a very professional way," Abu-Dahesh said.

"They are thinking of the future. They plan to make returns on assets as a viable source of income when oil prices slide. So far, they have succeeded in doing just that," he said.

These are just a few known examples of GCC holdings whereas much larger investments exist, especially in real estate, stock markets and stakes in major companies.

Official figures for the size of GCC foreign assets are not available, but the IMF and the International Institute of Finance (IIF) have estimated them at close to one trillion dollars.

Returns on these investments this year are forecast to be between 60 and 100 billion dollars, the equivalent of the countries' oil income before prices started to rise in 2002.

"This time around, GCC states have learned the lessons of the past, when they squandered oil revenues in the first and second booms in the 1970s and early 1980s," Bukhdour said.

And with most forecasts predicting oil prices to continue rising, the future also looks bright. "Over the next five years, oil prices will remain high because of strong global demand," Abu-Dahesh said.

Story by Omar Hasan AFP
AFP 12 0156 GMT 11 07

Copyright© 2007 Petroleumworld. All rights reserved.



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