Region poised for astronomical, multi-sector growth driven by soaring oil revenues
Thanks to magnanimous and rich pickings from oil export revenues, growing demand for oil and political stability, GCC economies are on a roll. All economic indicators are positive and spell prosperity for the region, although inflation appears to be a matter of some concern, but containable. There never seems to have been a better time for these oil-exporting countries that have benefited immensely from the steep rise in oil prices, which until now at the time of publication of this report, shows no sign of relenting. As an indicator of the tremendous inflow of oil revenues, it is estimated that in its capacity as the world’s biggest oil exporter, Saudi Arabia’s receipts alone are expected to reach USD $ 260.0 billion this year (or nearly USD $ 700.0 million a day) as against an average of USD $ 43.0 billion in the 1990s.
Gulf States will enjoy enormous budget surpluses that are expected to extend the current elation caused by good five-year economic performance. Per capita incomes for the GCC states are among the highest in the world. Consequently, GCC countries will push ahead with a campaign to slash debt, replenish their overseas assets and construction projects that are needed for their economic diversification.
GCC’s mega projects under way
Consequently, with 1,248 projects worth USD $ 931.0 billion currently under way, the UAE is a major catalyst along with Saudi Arabia of the USD $ 2.8 trillion Middle East construction boom according to Proleads, a database company that monitors regional construction projects. A massive wave of projects in the GCC and additionally Egypt and Libya has turned the region into the world’s biggest market for plant, construction machinery, vehicles and equipment. Kuwait is in third spot with 267 projects worth USD $ 274.0 billion followed by Qatar (268 projects—USD $ 205.0 billion), Oman (190 projects –USD $ 103.0 billion), Egypt (45 projects—USD $ 72.0 billion), Iraq (42 projects—USD $ 67.0 billion), Libya (75 projects—USD $ 63.0 billion and Bahrain (179 projects—USD $ 61.0 billion).
Professionals coming in droves to the region
A large influx of white-collar professionals making a beeline for the region in addition to others in varying vocational capacities, has resulted in boom of both the property and retail markets in the region. Newer and bigger mega malls are fast sprouting in the region and this augurs well for the retail trade. Consequently, more and more international brand names from the watches, jewellery, accessories & high fashion industry among others have been gravitating to the region, which holds the promise of good sales potential. Individual brands have also been snapping up exclusive, independent, stand-alone boutiques, as regularly reported by our AWJ B2B Newsletter Broadcast. Recent examples include the signing of partnership deals by UAE-based SCI Luxury Group (currently representing David Morris in the region) with Swiss premium watch label Bedat & Co., French jeweller Victoria Casal and Grant MacDonald, leading British Goldsmiths, Silversmiths & Designers.
Damas, the top retailers in the region for premium watches and jewellery, recently also introduced the ‘Damas Cut’, its signature customized, certified diamond, one of the few companies in the world to have a diamond cut named after it.
No talk of Recession in the Middle East
The feared ‘R’ word is no threat for the region. The prolonged recessionary fears in the western world wrought by the US sub-prime mortgage crises, high rates of inflation and declining value of the US dollar have not adversely affected the GCC and Middle east economies despite the fact that most of their currencies have been pegged to the US dollar. The Middle East is set to grow 6.1 % both this year and next (up 5.8 % in the past two years), while the world is forecast to grow just 3.7 % this year, close to the 3.0 % level accepted as recession. The Middle East grew by 6.0 to 6.5 % a year since 2002, double the rate of the previous four years. “For the Middle East, this year should mark its moment in the sun and at the macro level, the region is booming,” said Mohsin Khan, IMF’s Middle East Director in a recent interview.
Despite inflationary pressures, Middle Eastern economies will probably accelerate to 6.1 %, in 2008 up from 5.8 % in 2007, according to the latest report by the International Monetary Fund. The incomes of oil exporters Saudi Arabia, UAE and Kuwait will likely grow by 6.0 % in 2008 and 5.9 % next year (2009). In oil exporting countries there is increased government spending including that on infrastructure and social projects, the IMF Report revealed. In non-oil exporting countries including Egypt, Jordan Syria and Lebanon, economic growth will also touch an average of 6.2 % in 2008 and projected to be 6.5 % in 2009.
Employment generation
Interestingly, unemployment among GCC citizens has actually declined as a result of the on-going boom. After a period of sustained and growing unemployment, the GCC countries, notably Saudi Arabia and Oman, have reported reduced unemployment because of new economic opportunities. Many of them are also gravitating towards the gold, jewellery & watches sector in investment and employment capacities. Around 8,000 GCC nationals are currently involved in the UAE gold & jewellery industry and by 2011 is set to increase by 10.0 %, according to Tawfique Abdullah, Chairman of the Dubai Gold & Jewellery Group (DGJG).
Jewellery sector is a major contributor to the national economy
The GCC countries with a voracious appetite for jewellery and premium watches, count on this sector as a major contributor to their national economies. For example, the jewellery sector is the third biggest contributor to the UAE economy and a major supporter of national wealth creation. In the other GCC countries, this sector is also ranked among the top performers in the region.
GCC—an important source for Sovereign Wealth Funds
Similarly, the sovereign wealth in the Middle East has shown steady double-digit annual growth since 2002 with 16 % annual increases on a crude-foreign exchange-generation basis to USD $ 403.0 billion and 17 % for investment & commercial banks assets to USD $ 487.0 billion, according to Global Insight the US-based company specialized in economic and financial analysis and forecasting. The Middle East region’s sovereign wealth has nearly doubled between 2002 and 2007. The recent report also said that GCC’s foreign acquisitions are estimated to have doubled in 2007 to USD $ 64.0 billion. The region’s sovereign wealth is expected to continue to expand at a rapid pace for a few more years as the near-term outlook for oil prices remains very favourable to exporters.
Wealthy GCC Arabs to boost assets by 81 % by 2012
Wealthy GCC Arabs will boost their collective assets by a whopping 81 % to USD $ 3.8 trillion by 2012, according to research by a unit of Marsh & McLennan. Assets held by people in the region with more than USD $ 1.0 million to invest are expected to grow from the current USD $ 2.1 trillion to the projected USD $ 3.8 trillion, the consulting firm Oliver Wyman said in a recent e-mailed statement.
FDI Projected to grow in the GCC
Not to be outdone, Foreign Direct Investment (FDI) in the GCC has also been growing by leaps and bounds. FDI in the UAE for example is projected to exceed USD $ 100.0 billion in four years according to the recent 5th edition of the Barclays Wealth Insight report. An FDI of USD $ 100.0 billion by 2011 will represent 33.0 % of the Gross Domestic Product (GDP) of the country.
A recent Economist Intelligence Unit report says that that GCC oil exports will rise by 12.5 % in 2009. it quoted the International Monetary Fund (IMF) as saying that annual oil exports from the GCC have reached USD $ 400.0 billion and are forecast to rise to USD $ 450.0 billion next year.
Retail Boom
The region is a veritable retailer’s paradise. The retail sector is worth approximately USD $ 100.0 billion to the economies of the six Gulf Co-Operation Council (GCC), making it the second largest non-oil industry in the region, according to British retail research company, Retail International.
Surplus Budgets
In their 2008 budgets, the six members comprising Saudi Arabia, Kuwait, Bahrain, Qatar, UAE and Oman forecast a combined surplus of USD $ 39.0 billion. Analysts said the surge in the GCC surpluses was because the growth in their actual revenues far outpaced that in their expenditure, which increased by between 5 % and 15 % for some members. While they were projected at around USD $ 187.0 billion in 2007, actual revenues rocketed by at least 90.0 % to nearly USD $ 320.0 billion.
I) GCC forecast budgets 2006—2007 (in USD $ billion)
2006 2007
Country Rev. Spending Balance Rev Spending Balance
UAE 7.57 7.57 0.00 7.70 7.70 0.00
Bahrain 2.80 3.40 -0.60 3.00 3.50 -0.50
Saudi Arabia 104.0 89.3 14.7 106.4 101.1 5.30
Oman 9.30 11.00 -1.70 11.60 12.60 -1.00
Qatar 9.50 8.00 1.50 11.00 9.00 2.00
Kuwait 40.90 21.00 19.90 47.80 23.80 24.00
Total 174.07 140.27 33.80 187.50 157.70 29.80
II) Oil Revenue (in USD $ billion)
Country 1998 2006 2007 (Projected) 2008 (Forecast)
UAE 10.0 53.0 57.0 66.0
Saudi Arabia 33.0 165.0 170.0 190.0
Kuwait 8.0 47.0 52.0 59.0
Qatar 3.0 17.0 18.0 21.0
Oman 3.0 16.0 17.0 19.0
Bahrain 0.7 1.5 1.8 2.0
Total 57.7 299.5 315.8 357.0
Saudi Arabia & UAE among top trading nations in the Middle East
The UAE and Saudi Arabia are ranked among the world’s top 30 trading nations, according to the latest report of the World Trade Organization. The UAE was ranked 28 in terms of imports and 24 in terms of export, with exports surging from USD $ 139.0 billion in 2006 to USD $ 154.0 billion in 2007. Saudi Arabia, the world’s number one oil producer, has maintained its previous position of the 18th rank. Buoyed by record-high oil prices, the Kingdom’s volume of exports amounted to USD $ 229.0 billion. Saudi exports were up 8.0 % in 2007 compared to USD $ 209.0 billion in 2006. The same report also added that the Middle East registered a 10.0 % increase in exports following a surge in oil revenues.
Outlook for exports of Swiss premium watches
At the recently concluded Baselworld 2008, the biggest premium watch & fine jewellery exhibition in the world, Jacques J. Duchene, President of the Baselworld Exhibitors Committee stated that the Middle East was ‘an important & significant export destination’ for Swiss watches, which has registered year-on-year growth. The Middle East & Asian continent accounted for a hefty 43.7 % of total Swiss watch exports of a staggering Swiss Francs (CHF) 16.0 billion.
The Federation of the Swiss Watch Industry has ranked the UAE as the largest market for Swiss watches in the Middle East followed by Saudi Arabia. It must be emphasized that the market for Swiss watches in the UAE includes the large incoming tourist and re-export segments.