Post card from Dubai
This is one in a series of post cards by Reuters reporters across Europe, Middle East and Africa.
Oil prices determine the pace of prosperity. The oil-price boom 2002-2008 allowed countries to invest hundreds of billions of dollars in infrastructure and diversification. They also amassed billions in sovereign wealth funds, which has lifted their profile on the international stage. As oil prices recede, so does the pace of growth and wealth accumulation, although most states possess enough stored wealth to cushion the downturn.
RISK: Prolonged downturn topples GCC states’ ambitious plans.
Rulers or agendas can shift with little warning by decree overnight. Crises are resolved – or not — behind closed doors, leaving the beneficiaries and the victims uncertain. Who will benefit from Dubai’s rescue plan? Authorities say they will disburse the money in secret. The state’s central role in the economy means that foreign players can be left hanging when times turn tough while local cronies prosper. Major investment policies can shift unannounced. Compliance with reporting regulations is spotty.
RISK: Investors may be badly surprised by moving targets, changing agendas and legal regimes.
Few major risks here, relative to the developed world, with a few exceptions. The economies in Kuwait, Bahrain and the UAE will suffer but Saudi will chug along and Qatar will prosper.
RISK: Bank-systemic problems may dampen growth.
Kuwait saw a parliamentary standoff derail a $17 billion deal with Dow Chemical in December. The potential for a leadership change in Saudi holds uncertain consequences. Will a more conservative ruler continue to open the country’s equity markets to outside participation? Bahrain and Saudi face tensions with minority Shi’ite populations.
RISK: Domestic tensions and shifting international power centres may empower reactionary fractions. In Kuwait, the stalemate has already derailed reforms.
((Kitesurfers surf as the Burj Al Arab, Dubai’s 7-star luxury hotel, is seen April 12, 2009. REUTERS/Steve Crisp (UNITED ARAB EMIRATES SOCIETY))