| Mideast
investment will produce a peace dividend |
Political
risk and political change are at pivotal points
in today’s Middle East. While Lebanon’s
ceasefire smoulders, Iran fumes and Iraq
blazes with insurrection, forces of change promise a way out of the
cycles of violence. Policymakers and investors must see their way through the
worrying short-term risks to enjoy the long-term
benefits that will be offered once political
reform becomes entrenched.
Today’s instability occurs at a time when there is progress on the
political stage. Countries and markets have embarked on policies of
reform. The election of women parliamentarians
in Saudi Arabia and the first democratic elections in Kuwait show rulers and
dynasties are making more of an effort to win mandates. Uphill efforts to introduce
democracy in Iraq might even be shown, in hindsight, to fit with this trend.
It may not be long before Israel’s claim to be the only democratic Middle
Eastern country is challenged. |
| These
changes in Gulf countries have been coupled with developments
in capital market laws. Legislation has been changed to open
Gulf companies to
foreign investors. Privatisation in Saudi Arabia has also
stimulated
interest while regional centres in the smaller countries
of Dubai and
Bahrain have made determined pitches to attract funds from international
institutions. The
reforms open the way for the global community to obtain a share
in burgeoning oil wealth. One Dubai fund has attracted $250m
(£132m) of international money. |
| The
rulers of Gulf countries are eager to build infrastructure
that
will outlast the flows of oil wealth. They see international capital
and expertise as a way to raise the Middle East’s position in the
league of emerging regions. The value of Gulf stocks currently
accounts for some 10 per cent of all emerging market stocks and the
Middle East region (which includes all countries from Algeria to Yemen
and not merely the Gulf) has the potential to become the new “tiger economy”. |
| How
far insecurity will set this progress back is now a key concern.
Amit Tripathy of Global Investment House in Kuwait makes no
bones about the affects of the recent war: “The recent geo-political
conflict has shaken investors’ confidence in the region. Investors
prefer to stay on the sidelines. They want to watch and wait.” Others
argue that the Gulf is so isolated from Lebanese and even Syrian
politics that they have little to worry about. |
| Iran’s
nuclear revanchism gives greater cause for concern to some
than the Lebanese war and fragile ceasefire. One Dubai-based
investment institution, Shuaa Capital, said: “Lebanon
is manageable and can be contained. But Iran is a big nation.
If things go out of hand, it will put pressure on the economic
model. The region’s
efforts to reform its institutions, to privatise its economy
and over the next five years become the next Asian tiger would
be jeopardised.” |
| The
recent troubles have hurt stock markets across the Middle East,
which are already at rock bottom following a nine-month meltdown;
they have lost between half and two thirds of their $850bn
capitalisation. The recent Lebanese ceasefire produced a small
bounce but while current instability endures, a sustained bounceback
looks unlikely. |
| A
building boom in Lebanon may give comfort to some
Gulf construction companies. They will take the lion’s
share of the estimated $10bn worth of contracts to rebuild
the country. Residential and office blocks have been demolished
but external capital will shortly start to flow to rebuild
them. Saudi Arabian companies have spent some $15bn in the
rebuilding of Lebanon since the end of the Lebanese civil war
and are expected to lead the latest rebuilding exercise. |
| For
the moment, the region’s economic prospects are unaffected
by insecurity. Growth in annual gross domestic product across
the Gulf states ranges between 15 per cent and 30 per cent,
while annual oil revenues amount to $300bn.
|
| Political
change coupled with international investment can serve as a
catalyst for greater peace across the entire Middle Eastern
region and not merely the well-cushioned Gulf. What is essential
is that all hold tight during today’s turbulence. Political
risk is a long-standing feature of the Middle East. Political
reform is not. Leaving the forces for change on their
own now would do a disservice not just to the Middle East but
to the outlook for global security. |
|
