| 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. |
