CAIRO: Only in a region where developers are announcing US$100 billion mega-projects even as their stock markets collapse could the global credit crisis been seen as a potential blessing in disguise. Some analysts say the current world financial meltdown could bring a needed cooling of the overheated economies of Gulf Arab nations, while their massive budget surpluses and non-oil sector growth help sustain them through the crisis. The fact that the liquidity issue is going to take some oomph out of growth in the region - particularly in the United Arab Emirates - in not necessarily a bad thing because it brings the economy down to a more manageable growth trend, said Ben Faulks, London-based sovereign wealth analyst with Standard & Poors. Within the six Gulf Cooperation Council nations, the problem has been that growth has been too strong, said Faulks, adding that currencies in most of those countries may be undervalued as they are pegged to the US dollar, meaning the various central banks there have to follow the Federal Reserve s lead in interest rates. The situation may be most pronounced in the United Arab Emirates, where the building boom - featuring frequent announcements of multi-billion dollar mega-projects - continued unabated. One company, Meraas Development, earlier this week unveiled plans to create new artificial islands off Dubai s cost, with the centerpiece of the 350 billion dirham ($95 billion) Jumeira Gardens project a tower made up of three separate prongs. Each of the more than 600 meter (1,969 foot) structures would be linked by bridges containing suspended apartments. A S&P research report released this week about the UAE cautions that if liquidity remains tight, funding future projects will, however, become more difficult, thereby affecting the UAE economy s hitherto extraordinary growth. While Dubai remains a boom town, volatility in its stock market, and those of throughout the region, underpinned the risks confronting Gulf nations, even as officials stress they are ready to step in as needed. Dubai s market was off over 20 percent in four days of trading, while the Arab world s largest, Saudi Arabia, fell over 17 percent. Among the hardest hit in Dubai were developers and banks. Cushioning, if not fully insulating, these countries from the global crisis are vast cash surpluses from oil sales. But with crude oil prices about 40 percent lower than their record levels of $147 in mid-July, OPEC members are zealously looking to guard prices and, on Thursday, announced they had agreed to meet in November - a month ahead of schedule - to discuss the causes of the price slump. The reason for their concern is clear. As prices drop, exporters like the UAE, Kuwait and Saudi Arabia - where a new $7.2 billion, 11-square-mile, community mega-project was announced earlier this week - could face some increased risk from collapsing oil prices as demand wanes in the West. But analysts believe that they would be able to absorb shock, at least in the near term. In the case of the UAE, a Morgan Stanley report released this week argued that the government s fiscal accounts would remain balanced even if oil prices were to drop to around $25/barrel, and that its current account would remain in surplus even if oil prices were to drop to around $35/barrel. The report added that with about 74 percent of the government s estimated $97 billion total reserves for 2007 stemming from hydrocarbons, its consolidated fiscal surplus stood at a significant 29 percent of GDP in 2007. Other countries in the Middle East, however, face equally pressing challenges and have fewer options to battle the host of problems stemming from a global crisis sparked initially by bad home loans in the US. For those countries, the economic woes raise fears of political instability. In Egypt, soaring inflation - currently at 21.5 percent - has squeezed the vast majority of the country s 75 million plus residents, and anger over rising prices has grown sharper. After the Egyptian bourse fell by over 23 percent in two days of trading, government officials stepped up their efforts to allay concerns over Egypt s exposure in the global crisis. Trade and Industry Minister Rachid Mohamed Rachid met with top business and financial officials on Thursday. The ministry released a statement quoting Rachid as saying that Egypt did not face liquidity issues as its banks did not have significant European and American investments. The market edged up Thursday. S&P s Faulks said the main issue in Egypt is inflation, rather than the financial meltdown abroad. The real question is how quickly will it come down.... or if it has become ingrained in the country. Iran faces similar inflationary pressures, with the rate hovering well above 20 percent - a level that has stoked anger at President Mahmoud Ahmadinejad s economic policies as his country grapples with UN sanctions over its nuclear program. Scores of shopkeepers in went on strike earlier in the week, protesting a 3 percent value-added sales tax imposed in September. The government, faced with mounting unrest ahead of next year s elections, said it would re-evaluate the tax. For Tehran, the drop in oil prices is particularly pressing as the U.N. and separate U.S. sanctions have all but cut it off from the global market.Despite such problems across the region, international financial officials are apparently not ready to sound the alarm bells. The International Monetary Fund said in a report Wednesday that sizable foreign direct investment is boosting activity in Jordan and Egypt. It predicted that GDP growth in Mideast countries will weaken only modestly during 2008-09, from 6 1/2 percent to just below 6 percent. Still, government officials are being candid in highlighting their main concerns. We are in a better situation than most of the world s countries, said Egypt s Rachid, stressing that the financial sector is sound. What we aim for is sidestepping the negative effects on ... economic sectors tied to the global markets and banks, such as tourism and exports, which are crucial to sustaining GDP growth in the country, he said.
