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30 Oct 2007

GCC Economist Urges Consideration Of Asset Based Rather than Oil Based Economy

According to Dr Nasser Saidi, Chief Economist of the Dubai International Financial Centre, "Economies of GCC states should now be considered as asset-based ones rather than oil-based."

The 'Sovereign Reserve Management, Pension and Institutional Funds Congress 2007' was held in Doha, Qatar. During the keynote address Dr Saidi said that in the UAE for example, "asset revenue is more important than resources". The economist discussed at length sovereign wealth funds. These funds are foreign currency assets held by states over and above the reserves of their central banks.

"We have seen the emergence of GCC countries going into acquisitions. With oil prices up, government spending has gone up. This resulted in the emergence of bureaucracies in GCC countries and as welfare states."

Though sovereign wealth funds are fully-capitalized and have low leverage, accounting for $3.1trillion globally, hedge funds account for $1.4 trillion but are highly-leveraged. However, both these funds are dwarfed by the size of insurance funds which amount to $16-17 trillion and pension funds, which total $18 trillion globally.

"It is highly unlikely that sovereign funds will act in a cohesive way. Growth is driven by high commodity prices, not just oil. This has led to high current account surpluses," said Dr Saidi.

Saidi said if a country has an extra $20 billion on hand, questions would arise on how the money should be invested. "The money should not be put into the central bank's reserves but placed where the money would get high returns. Emerging economies have now turned from being net capital importers to net capital exporters. The money is mainly going to other emerging markets."

It is matter of time, anything between five to ten years, for China to start investing in oil-producing states. "This will be because of China's need for energy resources and the need to diversify its assets," Dr Saidi said.

The Gulf Cooperation Council (GCC) also known as the The Cooperation Council for the Arab States of the Gulf (CCASG) is a trade bloc involving the six Arab states of the Persian Gulf with many economic and social objectives.