Mon, Dec 29, 2008 page11

• Huge public sector schemes keep Gulf economies afloat

  • AFP
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  Major air and rail projects are among huge public sector schemes going full steam ahead in Gulf countries, underpinning local economies as the credit crunch takes a big toll on private businesses.

  Power and water infrastructure plans are also in the pipeline as governments invest the vast revenues from high oil prices in recent years, offsetting a rapid scaling-down of private investment, particularly in property development.

  Economist Monica Malik from EFG-Hermes investment bank said: “After 20 years of under-investment, there is an absolute need to invest in key areas, like water and power projects ... These projects are likely to continue.”

  Gulf countries are spending billions of dollars on expanding their airports or developing new ones after their investment in infrastructure shrank during years of cash-shortage amid low oil prices in the 1980s and 1990s.

  The six members of the Gulf Cooperation Council (GCC) have expanded spending in recent years in tandem with the recovery in oil prices, which hit a record of US$147 a barrel in July this year before tumbling to around US$40.

  The GCC groups Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE).

  OPEC kingpin Saudi Arabia and gas-rich Qatar, in addition to the wealthy UAE emirate of Abu Dhabi, “are likely to continue with a large proportion of their investment plans,” Malik said, implying that these monarchies face no cash shortages at the moment.

  Saudi economist Salim al-Gudhea agreed that the kingdom, which has built huge reserves on the back of record oil prices, will not backtrack on its commitments to develop the mega-projects already announced.

  “The government has announced a commitment of ... US$400 billion for the next five years ... The government here is very careful when mentioning numbers,” he said. “It seems to me there is a very strong political will not to slow down the economy.”

  The Saudi economy was estimated by the IMF to have expanded by 3.5 percent last year and was projected to grow by 5.9 percent this year.

  Although the Saudi British Bank this month slashed its estimate of Saudi oil export revenues for this year to from US$350 billion to US$287 billion, this is still 40 percent above last year’s record of US$205.5 billion.

  Meanwhile, private investment in Gulf property development is in a critical state, mainly in the booming UAE city-state of Dubai, which has pioneered a real estate boom over the past few years.

  “Areas that are most likely to see projects canceled or put on hold are property developments in Dubai,” Malik said, echoing reports of a serious deterioration in a sector that until recently was the locomotive of Dubai’s rapid economic growth.

  “Developers may find it increasingly difficult to fund projects and there could be an increasing number of projects being delayed or postponed,” said the Dubai-based Al Mal Capital investment bank in a report last month.

  Emaar, the property group behind Burj Dubai, the tallest building on earth at around 700m, has seen its share price plunge 80 percent this year to stand at its lowest level since its listing eight years ago.

  Rival Dubai developer Nakheel, promoter of several iconic schemes like three palm-shaped artificial islands, said last month it had decided to scale back its work and cut 500 jobs — that is 15 percent of its workforce.

  The US$95 billion Jumeirah Gardens plan, which was astonishingly announced in early October to coincide with the onset of the global financial crisis, is already being revised, said the government-owned Meraas Development.

  At the same time, infrastructure projects in the fast-growing emirate are set to continue at full pace and the government may benefit from cheaper building materials amid falling private demand.

  Dubai has committed itself to spending US$3.3 billion on the construction of two urban railway lines.

  The Dubai Metro’s first service, the Red line, will be the world’s longest fully-automated rail link when it opens in September. The Green Line is scheduled to open a year after.

  Last week, Dubai awarded a US$1.3 billion contract to build a new concourse at its international airport — the busiest hub in the Middle East.
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