More robust local markets would help keep capital at home, says Dr Nasser Saidi.
Gulf is pressed to pursue integration of economies
The Gulf states have been urged to speed up their economic integration to enable them to take greater control of their petrodollar surpluses and support growth. A consolidation of the region's equity and debt markets could help to ensure fiscal surpluses are recycled among Gulf economies rather than invested abroad, economists said.
"A lesson the [recent financial] crisis has taught us is the need to manage our own wealth in the region," said Dr Nasser Saidi, the chief economist of the Dubai International Financial Centre Authority, at the Leading in Turbulent Times conference in Dubai yesterday. "The previous model was to send money to London, New York, Zurich and Singapore to manage and control our wealth, but the problem of that was very little of that money then came back into the region."
Historically, the Gulf has been a net exporter of capital, with money from the region invested in the US and Europe. The investments of Gulf sovereign wealth funds and companies help make the region one of the largest foreign investors, along with China, in developed markets. Some of these investments soured amid the global financial crisis as asset prices collapsed across international markets. "A lot of the money and goods that are exported go outside the region. We will start to see that change," said Andrew Scott, a professor of economics at London Business School. "Instead, investments will be across the MENA region where there is huge scope for trade and services."
The Gulf has been urged to focus on developing its capital markets to make them more attractive to regional investors. With an estimated US$2.3 trillion (Dh8.44tn) in infrastructure projects under way or planned in the Gulf over the medium term, debt securities could provide a way for governments to finance their plans. Signs have already emerged of a move towards a consolidation of the stock markets in the region. In the UAE, the country's two largest stock exchanges, Dubai Financial Market (DFM) and Abu Dhabi Securities Exchange, have discussed merging.
In December, Borse Dubai, the majority owner of DFM and NASDAQ Dubai, agreed to buy NASDAQ OMX's remaining stake in NASDAQ Dubai. Plans for GCC monetary union are also seen as vital in bringing the economies of the region into line and taking steps towards establishing an international reserve currency. Saudi Arabia, Kuwait, Qatar and Bahrain are pursuing the proposed financial alliance as a way of achieving greater monetary stability, boosting trade and raising the economic profile of the GCC on the global stage.
Some analysts argue that to achieve real credibility the union will need to ensure that the UAE, the Gulf's second-largest economy, and Oman return to the process. The Emirates withdrew in May of last year; Oman in 2007. "What we do need is Saudi and the UAE, the two biggest economies in the Arab world, taking part," said Dr Saidi. A peg to the US dollar or a basket of currencies heavily weighted in dollars are viewed as the most likely options for a single GCC currency initially.
All GCC members except Kuwait peg their currencies to the dollar. "As the Middle East starts putting its money in places outside the US, it will be more interested in a delinkage from the dollar," said Mr Scott. email@example.com