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The Gulf Co-operation Countries (GCC) are predicted to stay afloat and become a real growth story in the coming years even as the world around them gets swept away by the global financial crisis.
"Regional economies are well-placed to capitalise on opportunities emerging from the crisis, despite the fact that there are some concerns over issues related to the tightening of the credit markets and softening of property prices," says Phil Gandier, head of Transactions Advisory Services at Ernst & Young Middle East.
These increased earnings will allow GCC economies to buy additional assets globally or finance local infrastructure developments as many other economies stall.
Their relatively moderate regulation and tax regimes will be even bigger attractions as European and US business environments tighten under the pressure of the ongoing global recession.
Moreover GCC countries will cumulatively earn $4.7 trillion by 2020, provided oil stays at the Opec-targeted floor price of $50 per barrel.
This will be 2.5 times their oil earnings over the last 14 years, according to 'Global Megatrends 2009', a report by Ernst & Young.
Countries like Egypt, Iran and Vietnam have been identified as potential rivals to BRIC countries (Brazil, Russia, India, China), as well as some developed economies in future.
The study indicates that the global economic landscape is changing and emerging markets are playing an increasingly significant role. Economic power is moving from developed to emerging economies - from West to East and North to South.
On the flip-side Gulf oil producers would have lost in excess of $324 billion (Dh1.19 trillion) as their massive overseas assets were hit by the global financial crisis.
Although the GCC countries have not publicised the size of their assets abroad, independent estimates put them at nearly $1.8 trillion, says Abdul Aziz Al Owaishik, director of the Economic Integration and Studies at the Riyadh-based GCC Secretariat.
"We do not have exact figures on the value of the GCC government investments abroad but they have been estimated at nearly $1.8 trillion, round 60 per cent of which are believed to be dollar-denominated," he says.
"These assets are expected to have suffered from a paper loss of around 30 per cent of their total value, or even more."
Owaishik did not specify the size of the loss but at 60 per cent, the GCC dollar-based assets stood at $1.08 trillion. This means their loss of more than 30 per cent exceeded $324 billion because of the global crisis.
The bulk of those assets is controlled by sovereign wealth funds (SWFs) and is concentrated in the US and other Western industrial powers. The Abu Dhabi Investment Authority controls the biggest part of those assets as its overseas investments were estimated at between $350-875 billion at the end of 2007.
The global crisis has indirectly affected project financing in the GCC as local banks have become more cautious in extending loans and international banks have halted a large number of credit lines.
Also GCC companies will find it a challenge to refinance a total of $35 billion (Dh128.5 billion) to $40 billion worth of maturing debt instruments this year, new research has shown.
Of this, approximately $20 billion are associated with the UAE and $15 billion are in Dubai.
"Addressing these maturities will be a significant challenge, although we do expect liquidity to return to the markets as 2009 progresses, and bond spreads to recede from some of the panic-stricken levels seen in the second half of 2008," Moody's Investors Service says in a corporate finance outlook.
As markets re-open, issuers with sound credit fundamentals and government backing should be able to close financing transactions, "but these come at a price", Moody's says.
"The end of cheap money has also reached the Middle East, and we expect companies will have to accept far more expensive funding going forward in return for better long-term liquidity.
"In turn, we see new rating activity remaining steady with greater need for differentiation of credit risk and in line with companies' attempts to lock in liquidity as it becomes available," it says.
A majority of UAE corporate fund-raising in 2008 used syndicated bank financing as access to equity markets dried up, the report said. Credit quality is expected to decline in 2009, as companies adapt their ambitious plans to the new reality.
Moody's expects the largest impact on sectors that have been particularly hard affected, such as real estate, trade, tourism, commodities and sectors impacted by falling demand or financing shortfalls.
