Gulf states should no longer be seen as oil-based economies but rather as asset-based economies, according to Dr Nasser Saidi, Chief Economist with the DIFC Authority and Executive Director of Hawkamah.
Speaking on the first day of DIFCweek, Dr Saidi said, “For the foreseeable future, the income from assets and net foreign assets will exceed the income from oil for these countries. For them, interest rates will matter more than oil prices.”
Backing this up, he noted that Gulf countries’ foreign reserves have been growing throughout the decade and are approximately US$365 billion in 2007 and set to grow to US$455 billion in 2008. What’s more, he noted that total MENA foreign reserves are nearly US$1 trillion.
Because the region is more asset based and has higher levels of liquidity than in previous oil price booms, it can better handle negative economic shocks from the rest of the world.
He said that the region is “living in an economic renaissance”, in large part because of the “unprecedented value and depth” of investments in infrastructure, which now total more than US$1.3 trillion.
As a result of this investment, there is an increase in labour productivity and the absorption capacity of these economies, as compared to the 1970s and 1980s when most oil revenue went into consumption.
His optimism also was driven by sustained and unprecedented growth rates that the region has registered over the past five years – particularly given that “the initial impulse for this growth was oil led, but now it is very much investment led – infrastructure investment- and private sector investment-led.” He also pointed to strong population growth rates and a reverse brain drain that is seeing highly trained and experienced Arabs and other expatriates returning to the region.
The first day of DIFCweek is sponsored by Credit Suisse.