lily
07-30-2007, 10:46 PM
Link (http://www.msnbc.msn.com/id/20011283?from=rss/site/newsweek/?rf=nwnewsletter)
Rising Gulf
An unprecedented boom is changing the region—and echoing far past its
borders.
By Afshin Molavi
Newsweek International
Aug. 6, 2007 issue - We all know the headlines by now: the Middle East is
burning, right? So it seems, as Palestinians and Iraqis wage civil war,
Lebanon seethes, Syria and Israel trade barbs and Iran spits defiance. Yet
beyond the smoke a very different story is emerging nearby. In the Arab
states of the Persian Gulf, times have never been better. Business is
booming. And political conflict has become a foreign phenomenon, watched on
flat-screen TVs in the air-conditioned living rooms of Doha, Dubai, Kuwait
City, Muscat and Riyadh.
It's no exaggeration to say that the oil-rich states of the Gulf Cooperation
Council (GCC)—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab
Emirates—are enjoying a transformational moment, one that could deeply
affect the region if not the world. Buoyed by unprecedented oil prices,
these states are awash with cash. In the past five years, they have earned a
staggering $1.5 trillion for their petroleum, according to the Institute of
International Finance (IIF). And there's no end in sight: by the close of
2007, the IIF says, the GCC will have picked up an additional $540 billion,
more than the combined exports of Brazil, India, Poland and Turkey
All that green has turned the once backward region into the world's 16th
largest economy, according to IIF. And if present trends continue, the GCC
zone could become the world's sixth largest by 2030. What's most remarkable,
however, is how the new money is being spent. The gulf has experienced oil
booms before, but rarely managed to capitalize on them; three decades ago an
oil windfall helped states modernize infrastructure and health services, but
many leaders blew much of the money on defense or vanity projects, or simply
hid profits in Western banks.
Today, by contrast, the gulf's farsighted, business-minded political leaders
are joining with their more mature and innovative private sectors to ensure
the money is wisely spent. Led by Dubai, which is fast becoming a modern
banking and financial-services hub, cities in the region are embracing
reform and charting an ambitious agenda for the future. "A new gulf is
dawning," says Edmund O'Sullivan, the Dubai-based editorial director of the
Middle East Economic Digest (MEED). "And it's moving much faster and smarter
than it did in the 1970s."
The revival, says Fareed Mohammed of PFC Energy in Washington, D.C., is due
to "excellent macroeconomic policies, strong technocratic capacity, a vastly
improved regulatory environment, a private sector willing to both invest and
innovate, and strong global links in services." As he notes, "All of these
ingredients have come together to support sustainable growth."
Consider: the IIF estimates that $1 trillion of the $1.5 trillion windfall
has stayed in GCC states, being spent on imports or development. That's a
big improvement on the past, when much money was stashed in Swiss banks or
squandered on weapons. True, some of today's spending, especially on the
red-hot real-estate market and extravagant tourist projects, has raised
concerns. But industrial investments, which are critical to helping the
region diversify its economy beyond oil, are rising.
This is especially so in Saudi Arabia, which, according to Georgetown's
Jean-François Seznec, is on target to become the world's top petrochemicals
producer by 2015. New steel, aluminum and plastics plants are also on the
way.
In fact, a new breed of company is now emerging in the region, one that is
highly efficient, ambitious and globalized. These new gulf firms are
creating jobs, feeding the growth cycle and helping economies diversify. And
they are starting to affect other economies around the world. Leading the
pack is Emirates Airline, an award- winning company that in the next decade
is expected to become the planet's largest air-travel operator. (At a Paris
air show in June, Airbus booked an astounding $32 billion in orders from
gulf-based businesses.) Meanwhile, the Dubai-based Emaar real-estate firm is
now building projects from Casablanca to Karachi, and the U.A.E.'s Etisalat
is winning telecom contracts from West Africa to Pakistan.
Some of these businesses may be government-owned or -controlled, but they
are a far cry from the inefficient state-sponsored enterprises of the past.
These are not sinecures for tea-sipping bureaucrats; they attract top
talent, compete globally and win international awards. They're also
supporting the growth of related but truly independent gulf-based companies,
such as Aramex, a regional transport company based in Dubai. Fadi Ghandour,
the company's founder, directly credits his success to the "astonishing
growth of Dubai as a business hub," saying that his company simply could
never have grown so rapidly in his native Jordan.
On the government level, a lot of money is still being invested in safe
havens like the United States (about $300 billion this time) and Europe
(about $100 billion). But in the past five years, Gulf states have also
invested $60 billion in the needy regions of the Middle East and North
Africa and have put another $60 billion in Asia. This has led to the
creation of gulf-driven boom pockets in Egypt, Morocco and Jordan. It has
also led to the creation of a New Silk Road, as trade between the GCC and
Asia has quadrupled in the past decade. Gulf investors are now lining up to
buy Asian assets; when the Industrial and Commercial Bank of China held an
IPO last year, for example, the biggest buyers hailed from Kuwait, Qatar,
the United Arab Emirates, and Saudi Arabia.
Taken together, these trends have given the gulf a higher global profile
than it has ever enjoyed. For example, the vast debts of countries like the
United States are now being financed with cash from three areas of the
world: China, Japan and the gulf. This means that the GCC states have become
a major force in growing concern over global imbalances. It also means that
they have a clear stake in stoking global growth led by the United States,
lest their own fortunes fall.
Rising Gulf
An unprecedented boom is changing the region—and echoing far past its
borders.
By Afshin Molavi
Newsweek International
Aug. 6, 2007 issue - We all know the headlines by now: the Middle East is
burning, right? So it seems, as Palestinians and Iraqis wage civil war,
Lebanon seethes, Syria and Israel trade barbs and Iran spits defiance. Yet
beyond the smoke a very different story is emerging nearby. In the Arab
states of the Persian Gulf, times have never been better. Business is
booming. And political conflict has become a foreign phenomenon, watched on
flat-screen TVs in the air-conditioned living rooms of Doha, Dubai, Kuwait
City, Muscat and Riyadh.
It's no exaggeration to say that the oil-rich states of the Gulf Cooperation
Council (GCC)—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab
Emirates—are enjoying a transformational moment, one that could deeply
affect the region if not the world. Buoyed by unprecedented oil prices,
these states are awash with cash. In the past five years, they have earned a
staggering $1.5 trillion for their petroleum, according to the Institute of
International Finance (IIF). And there's no end in sight: by the close of
2007, the IIF says, the GCC will have picked up an additional $540 billion,
more than the combined exports of Brazil, India, Poland and Turkey
All that green has turned the once backward region into the world's 16th
largest economy, according to IIF. And if present trends continue, the GCC
zone could become the world's sixth largest by 2030. What's most remarkable,
however, is how the new money is being spent. The gulf has experienced oil
booms before, but rarely managed to capitalize on them; three decades ago an
oil windfall helped states modernize infrastructure and health services, but
many leaders blew much of the money on defense or vanity projects, or simply
hid profits in Western banks.
Today, by contrast, the gulf's farsighted, business-minded political leaders
are joining with their more mature and innovative private sectors to ensure
the money is wisely spent. Led by Dubai, which is fast becoming a modern
banking and financial-services hub, cities in the region are embracing
reform and charting an ambitious agenda for the future. "A new gulf is
dawning," says Edmund O'Sullivan, the Dubai-based editorial director of the
Middle East Economic Digest (MEED). "And it's moving much faster and smarter
than it did in the 1970s."
The revival, says Fareed Mohammed of PFC Energy in Washington, D.C., is due
to "excellent macroeconomic policies, strong technocratic capacity, a vastly
improved regulatory environment, a private sector willing to both invest and
innovate, and strong global links in services." As he notes, "All of these
ingredients have come together to support sustainable growth."
Consider: the IIF estimates that $1 trillion of the $1.5 trillion windfall
has stayed in GCC states, being spent on imports or development. That's a
big improvement on the past, when much money was stashed in Swiss banks or
squandered on weapons. True, some of today's spending, especially on the
red-hot real-estate market and extravagant tourist projects, has raised
concerns. But industrial investments, which are critical to helping the
region diversify its economy beyond oil, are rising.
This is especially so in Saudi Arabia, which, according to Georgetown's
Jean-François Seznec, is on target to become the world's top petrochemicals
producer by 2015. New steel, aluminum and plastics plants are also on the
way.
In fact, a new breed of company is now emerging in the region, one that is
highly efficient, ambitious and globalized. These new gulf firms are
creating jobs, feeding the growth cycle and helping economies diversify. And
they are starting to affect other economies around the world. Leading the
pack is Emirates Airline, an award- winning company that in the next decade
is expected to become the planet's largest air-travel operator. (At a Paris
air show in June, Airbus booked an astounding $32 billion in orders from
gulf-based businesses.) Meanwhile, the Dubai-based Emaar real-estate firm is
now building projects from Casablanca to Karachi, and the U.A.E.'s Etisalat
is winning telecom contracts from West Africa to Pakistan.
Some of these businesses may be government-owned or -controlled, but they
are a far cry from the inefficient state-sponsored enterprises of the past.
These are not sinecures for tea-sipping bureaucrats; they attract top
talent, compete globally and win international awards. They're also
supporting the growth of related but truly independent gulf-based companies,
such as Aramex, a regional transport company based in Dubai. Fadi Ghandour,
the company's founder, directly credits his success to the "astonishing
growth of Dubai as a business hub," saying that his company simply could
never have grown so rapidly in his native Jordan.
On the government level, a lot of money is still being invested in safe
havens like the United States (about $300 billion this time) and Europe
(about $100 billion). But in the past five years, Gulf states have also
invested $60 billion in the needy regions of the Middle East and North
Africa and have put another $60 billion in Asia. This has led to the
creation of gulf-driven boom pockets in Egypt, Morocco and Jordan. It has
also led to the creation of a New Silk Road, as trade between the GCC and
Asia has quadrupled in the past decade. Gulf investors are now lining up to
buy Asian assets; when the Industrial and Commercial Bank of China held an
IPO last year, for example, the biggest buyers hailed from Kuwait, Qatar,
the United Arab Emirates, and Saudi Arabia.
Taken together, these trends have given the gulf a higher global profile
than it has ever enjoyed. For example, the vast debts of countries like the
United States are now being financed with cash from three areas of the
world: China, Japan and the gulf. This means that the GCC states have become
a major force in growing concern over global imbalances. It also means that
they have a clear stake in stoking global growth led by the United States,
lest their own fortunes fall.