MENA to see $9 trillion investment

Robert Hamilton
For Al-Shorfa.com
2008-07-21

Visitors to the 2008 Dubai World Cup horse race experience an outdoor 'Arabian Nights' event at the Jumeirah Bab Al Shams Desert Resort & Spa in this 2008 Dubai, United Arab Emirates, photo. (Photo by George Rose/Getty Images)

Up to $9 trillion [USD] in cumulative oil revenues generated over the coming decade will be invested into the Middle East and North Africa (MENA) region, according to a new report.

In 2002, nearly 85 percent of the Persian Gulf's wealth was invested abroad in financial instruments, mostly linked to the U.S. dollar. However, by 2007, this had fallen to 75 percent due to the rising investment within the Gulf itself, according to a note by Gary Long, president and chief operating officer of Investcorp, a global provider and manager of alternative investment products.

Long predicted that the oil boom will translate into an investable asset pool in excess of $10 trillion by 2020. Although a set of trends will determine how this wealth is spent, Long said investments will increasingly take place onshore in MENA and in Asia. Other trends will include, "a shift in allocation to alternative investments and more direct investment strategies; the increased sophistication and institutionalization of the Gulf, including the growing importance of corporate governance; a booming demand for Islamic products and the rapidly growing importance of sovereign wealth funds,” the Investcorp statement said.

Long added that the Gulf will soon become one of the 10 major global economic powers, moving up from its current position of 16th.

The region’s buoyant real estate sector is expected to contribute significantly to this growth, and another report published last week predicted that the Persian Gulf would escape the projected 30 percent slump in global real estate investment activity in 2008.

According to international broker DTZ, the value of the global real estate capital market reached $12 trillion in 2007, up 18 percent on the previous year, while global investment transactions reached $730 billion. DTZ expects this figure to fall to about $500 billion in 2008.

“Few regions will escape the effects of the subprime fall out, however we predict that the Gulf region will, to a greater extent, be significantly less affected, along with certain other markets in the Asia Pacific region,” Robin Williamson, managing director of DTZ Middle East, said in a statement last week.

“Indeed, we are planning to expand our operations in the region to take advantage of the strength of the local property sector,” he added.

Global real estate transactions have suffered from continuing turmoil in credit markets that has made it difficult for real estate companies to access credit facilities. Global direct real estate transactions were also down about 50 percent in Q1 2008, compared to the same period in 2007, DTZ said.

At the same time, their valuations have suffered from declining property values in some of the world’s biggest real estate markets – including the U.S. and U.K.

In Dubai, however, concerns have been raised that faith in the sector could be shaken if the plethora of developments coming on to the market next year outstrips demand, and if the government goes back on its promise to issue residency visas.

Ratings firm Fitch last week issued a report which identified oversupply and sustaining foreign demand as the major challenges threatening Dubai's real estate sector.

"The main challenge is oversupply. Some projects coming on to the market in 2009 and 2010 will all be coming at one time," Bashar Al Natoor, author of the report, said.

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