But the region still has a long way to go before returns to
the boom years that spawned real estate projects constructed on palm-shaped
islands and Abu Dhabi’s $22 billion zero-carbon city.
Governments and companies around the Arab Middle East are
raising cash in the debt and equity markets as economic growth returns, oil
prices climb and Dubai moves forward in settling its debt woes. The Arab
Investment & Export Credit Guarantee Corp. predicts that foreign direct
investment (FDI) will grow 12 percent this year to $88.8 billion from a
depressed 2009.
But foreign investment remains below its pre-crisis levels
and much of the capital reaching the region is cash held abroad by Gulf
governments that is being repatriated to fund local development projects, Simon
Kitchen, strategist for EFG-Hermes in Cairo, told The Media Line.
“In the Gulf, you have governments with big foreign
financial assets, which they have been selling to invest in real assets in
their own economies. Strictly speaking, that’s not foreign investment, but it
contributes to the figures,” Kitchen said. “Still, we’ve seen a recovery in
Egypt and other countries of the region.”
Foreign investment is crucial for the Middle East, which
needs to stoke economic growth to create jobs for a burgeoning population.
Oil-poor countries, like Egypt and Morocco, don’t have the capital to build
homes, factories and infrastructure, while richer ones need know-how from
overseas, which usually comes in the form of joint ventures involving infusions
of cash and technology by the foreign partner.
The Middle East wasn’t as badly shaken by the global
financial crisis as Europe and the United States. But Dubai’s debt woes not
only underscored the emirate’s dangerous degree of leveraging but also the absence
of financial transparency throughout the region. FDI dropped 18 percent in
2009, with the United Arab Emirates (UAE), to which Dubai belongs, plunging 77
pecent.
The International Monetary Fund forecasts a 4.2 percent
increase in gross domestic project this year for the region stretching from
Morocco to Pakistan, a figure slightly below the pace for emerging markets
around the world but almost double the 2009 level. The price of oil, which
drives the key economies of the Gulf, hovered between $70 and $80 most of this
year before breaking out higher last month. On Thursday, Brent crude was
trading at a six-month high of $87.40 a barrel.
Meanwhile, some measure of investor confidence has returned
to the region. Dubai World said October 27th it reached terms with the last of
its creditors to covert some of its $23 billion debt to equity. On Nov. 2,
Moody’s upgraded the debt outlook for Dubai-based DP World, one of the world’s
biggest port operators, to “positive,” citing the company’s debt reduction plans.
In September, Dubai itself returned to the debt markets for the first time
since the Dubai World crisis, selling $1.25 billion in bonds.
On Wednesday, the UAE telecoms group Etisalat, the Gulf’s
No. 2 telecoms group, set terms to buy a stake in Kuwait’s Zain in a $12
billion deal. Zain is the Gulf Arab region’s third-biggest telecoms firm. In
the third quarter, mergers and acquisitions activity in the Middle East reached
a record $15 billion, according to Thomson Reuters.
Still, not all is rosy. Foreign direct investment remains
well below pre-crisis levels, and other investment flows are negative,
particularly for the UAE and Kuwait, the Washington-based Institute for
International Finance said in an October 27th report.
Meanwhile, financial investors still worry about debt
troubles at the network of state-affiliated companies known as Dubai Inc. Not
long after Dubai World came to terms with its creditors, Dubai Holding
requested another delay in repaying a $555 million loan. All told, Dubai’s
government and its companies are sitting on about $100 billion in debt.
“The fundamental issues are not yet resolved, like real
estate and the banking sector, which are still a drag on the economy and a
disincentive for people to invest. We’ll get through these issues and, when we
do, people will start to invest,” Paul Cooper, managing director of
Sarasin-Alpen & Partners, told The Media Line.
Low interest rates and excess liquidity in the developed
world have lured foreign investors into higher-paying but riskier investments
such as Dubai bonds, said Kitchen of EFG-Hermes. But the region still suffers
from problems such as poor corporate governance and low levels of transparency
that gives investors cold feet, analysts said.
Investors are also deterred by the fact that the Gulf’s
markets aren’t represented in the leading global benchmark indexes, such as
MSCI’s, which are used by institutional investors to allocate their portfolios,
said Cooper. Standard & Poor’s recently added UAE stocks to its secondary
emerging markets index, but the big break won’t come until MSCI does the same,
he said. Qatar, Kuwait and UAE have all taken steps in that direction, he
added.
It’s probably premature to say there is a real recovery,”
said Cooper. There may be one on the way, but “that’s a story for 2011.”
