Private wealth in the Middle East – particularly the Arabian Gulf states – is growing at an unprecedented rate, principally due to higher oil prices, according to new research.
But there is evidence that the flow of money to the West – particularly the United States – that occurred in the oil shock years of the 1970s is not being repeated this time, raising questions over the attractiveness of US dollar denominated assets.
According to research to be unveiled at the International Islamic Finance Forum in Istanbul, Turkey, later this month, conservative estimates of private wealth in the Arabian Gulf states stand at around US$1.5 trillion.
Of that figure, some $250 billion is reckoned to be managed by Islamic institutions and another $400 billion by international finance houses.
But this is thought to heavily underestimate the real value of recent increases in private wealth in the region, along with the major growth in the conversion of transactions from conventional to Islamic modes that has taken place during the current oil-driven boom.
According to a leading researcher taking part in next month’s forum, World Trade Organisation rules, privatisation and economic liberalisation are also having an impact.
The way private wealth is accumulated is changing and the old paradigms of how wealth is redistributed between ruling family members and the merchant classes no longer holds true.
Until now the wealth pattern of several Gulf states relied on state subsidies for hospitals, schools, infrastructure and no direct taxation. This combined with a benign regulatory environment to allow the generation of wealth domestically that was then exported to the West for investment.
That pattern is changing. Analysts in both the Middle East and the West agree that the huge outflows from oil producing countries, which helped support the US dollar in the 1970s, are just not happening this time.
Some of those flows have gone to the Euro but Gulf investors are also now much more inclined to invest domestically and are provided with more infrastructure investment opportunities than in the past.
“Though Islamic finance jurisprudence says a lot about what can or cannot be invested in, it has little to say on where to invest,” the researcher concluded. (menareport.com)
© 2004 Mena Report (www.menareport.com)
