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The Frontier Post
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hat tip-Rachel E.
DUBAI (Agencies): The $1 trillion infrastructure spending under way in the GCC will stay on track as long as oil price does not plummet below $29 per barrel, say analysts with a global asset management company. According to analysts at Pictet Asset Management, the GCC region will spend $2 trillion of infrastructure by 2018, almost 10 per cent of the total projected spending of $21 trillion by emerging economies in the same period. Oliver Bell and Emad Mostaque, fund managers of Pictet, point out that since the budget break-even oil price for most major producers in the Middle East is below $50 a barrel, the huge infrastructure spending planned over the next one decade is sustainable even if the oil price falls steeply. “Apart from Algeria and Iran, whose break-even oil price is $41 and $55 respectively, the price of oil would have to fall below $29 per barrel for infrastructure spending to be threatened.” Over the next five years, the GCC will spend half of the $2 trillion, of which 75 per cent will be spent outside the oil industry as regional governments seek to diversify their economies. According to Bell, at $60 a barrel, Abu Dhabi, which has seven per cent of world oil reserves, will earn more in overnight returns on its sovereign wealth fund, than from its oil flows. Cautioning that geo-political risks remain in the region as Iran, Iraq and Lebanon continue out of bounds for investors, Pictet pointed out the GCC economies have safeguards to protect investors, including independent central banks and stock market regulators. The region is also on track to attain the sort of real GDP growth rates enjoyed in India and China on the back of huge oil earnings. In the next few years, average per capita GDP in the GCC is poised to cross $35,000 even if oil drops to $100. Analysts said the annual income from oil exports has gone from $110 billion to $1.1 trillion at current prices in a decade. Reserves are valued today at some $80 trillion. This compares with total GDP for the continent of Africa of some $1.3 trillion and US GDP of some $14 trillion. Investment experts say with more than 150 public share sales planned next year, the markets in the Middle East and North Africa (Mena) would offer greater returns than other markets like sub-Saharan Africa. Mena markets record a daily trade of about $4 billion and have a combined capitalisation of nearly $400 billion. In tandem with the growth in oil income, Pictet also predicts a surge in rates of investment as well as jump in inward foreign direct investment. GCC states can see the benefits of investing in the more populous countries of North Africa. Additionally, the rates of investment will be kicked higher by sovereign wealth funds estimated at $1.2 trillion. “If the price of oil fell to $50 a barrel tomorrow, from its high of above $140, Abu Dhabi for example, would generate more income through returns it earns from its wealth than it would from oil production,” they said.
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Dated: Monday, July 21, 2008, Rajab 02, 1429 A.H.
