The Gulf, flush with money, is experiencing a development boom the likes of which has not been witnessed in the previous decade. The crane-scarred skyline in the six oil producing GCC countries bears mute testimony to what is taking place. In Dubai alone, according some statistics, there are over 1,500 cranes operating at any given time and real estate projects worth Dh165 billion ($45 billion) are currently under construction. Another Dh165 billion worth of projects are in various stages of development.
“Electricity, highway, telecommunication, water and other infrastructure projects — along with agriculture, education, and health care and information technology initiatives — will consume more than $500 billion over the next five years,” say Dominic Barton, Kito de Boer and Greg Wilson in a report in the highly respected McKinsey Quartely.
“Dubai is spending billions on undertakings such as a Wall Street-style financial centre, a million new homes, the world’s largest airport and 40 new tax-and duty free ‘microcities,” say the authors.
Barton and De Boer are directors of McKinsey’s Shanghai and Dubai offices and Wilson is an alumnus of its Washington DC office.
What once was perhaps a trickle from Asia is now a flood as the trade and investment flow into the Middle East, particularly the GCC states, continues to grow. Some Asian firms, who are also world players, are now well positioned to lend more than a helping hand in meeting the Gulf’s massive infrastructure needs, says the report.
Oil that drives the economic engines of the world holds the key. But, say the authors, “while Asia’s thirst for Middle Eastern oil is well understood, less often recognised is the increasing flow of direct and portfolio investment. Thus Shaikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of UAE and Ruler of Dubai used a recent state visit to Pakistan to announce a multibillion-dollar package of infrastructure, property and other investments, prominent Saudi investors led by Prince Alwaleed bin Talal are paying $2 billion for a stake in China’s second largest state-owned bank and Bahrain’s Gulf Finance House wants to invest up to $1 billion in Singapore’s financial, health, tourism and leisure industries.”
The increasing build-up of trade and investment between Asia and the Middle East is, however, not a one-way street, say the authors. “A seven-company alliance known as the Singapore Specialist Construction Consortium is pursuing Middle East construction projects. Dubai is already home to ChinaMex Mart, a minicity of Chinese companies distributing their products throughout the region and in the technology sector, Samsung Electronics is among the Asian companies cultivating the Middle East markets.”
In fact, Japan’s consumer electronics and commercial products giant Sanyo, which began its Mideast operations in 1964 in Beirut and 1972 in the UAE, has decided to pursue an even more aggressive Mideast strategy and is poised to strengthen its presence in the region.
Toshimasa Iue, president of Sanyo Electric was recently on a whistle-stop tour of UAE and Saudi Arabia. “We plan on expanding our markets in the Gulf in a big way. The construction boom both in the UAE and the Gulf is a chance for us to further strengthen our brand and we plan on introducing our solar energy business into this sector. We are in talks with the top property builders Emaar and Nakheel for ‘Green Homes’ where our environment-friendly, cost-saving, cutting-edge solar panels can be used,” Iue told TradeArabia.
According to the McKinser Quartely report, more than a dozen Gulf investors who collectively control more than $300 billion in assets are set to shift their portfolio allocation toward Asia by 10 to 30 per cent.
“We believe that up to $250 billion from the Gulf states will be available for investment in Asia over the next five years. While the West would remain Asia’s dominant source of investment, this shift represents an important change in the pattern of global capital flow,” says the report.
All this can only mean the trade between Asia and the Gulf is picking up rapidly. But it can reach its full potential only if “governments in both Asia and the Middle East create a more hospitable investment climate,” it adds.-TradeArabia News Service