For wealthy Arab investors, there's no place like home

ABU DHABI - Oil-rich Gulf Arab states will earn a combined US$80 billion ($110.4 billion) current account surplus this year and will invest a "significant amount" of that in domestic projects, says a senior economist.

Howard Handy, director for the Middle East and Africa at the Washington-based Institute of International Finance, said rising domestic investment reflected a growing reluctance among Gulf Arab investors to place funds in Western markets.

Public and private investors in the six oil-rich members of the Gulf Co-operation Council (GCC) have typically placed most of their surplus petrodollars in offshore portfolios.

But after the September 11, 2001, attacks, some countries, including the United States, froze the assets of some Arab investors on suspicion of funding terrorists.

Handy said that led some Arab investors to repatriate funds, while much of the new wealth generated by the present oil price boom had remained in the Gulf.

The GCC members are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE).

Handy said Gulf investors would pump about US$80 billion into domestic projects this year, up from about US$10 billion five years ago.

"A lot of that will be financed from external borrowing in one form or another, so there will still be some build-up of reserves (held in international portfolios)," he said.

Handy said much of this year's surplus would be channelled into multi-billion-dollar projects to boost hydrocarbon capacity in countries such as Saudi Arabia, Qatar and the UAE.

"There is also huge demand for infrastructure, and there is huge demand for power and water."

In the UAE, billions of dollars were being invested in real estate, particularly in Dubai.

Gulf capital markets had also benefited from increasing appetite for domestic investment, with the Shuaa Capital UAE stock market index more than doubling last year.

- REUTERS