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GCC to record 7pc growth

posted on 25/12/2004: 6081 views

The GCC economies will record economic growth of about 7 per cent this year, spurred by higher oil revenues, sectoral diversification and reforms, experts said. "When you look at the overall picture, the economies of the GCC countries are headed for another year of excellence and 2004 will close with higher growth than the previous year," said Dr. Mohammad S. Amerah, an Abu Dhabi-based economist.

Analysts project the combined net oil exports of the GCC will exceed US$180 billion (Dh661 billion) in 2004, a jump of US$35 billion (Dh128 billion) from 2003 or 19 per cent.

"We expect a real GDP [gross domestic product] growth of about 7 per cent in 2004 and this is mainly because of high oil prices.

"And due to the high oil revenues, governments are able to inject more money and increase expenditure. It also activates the private sector due to the multiplier effect," Amerah said. Projections do indeed show an average of 7 per cent growth in GDP for 2004, said Daniel J. Hanna, international economist, Standard Chartered Bank.

In 2003, the GCC states post one of their strongest periods of economic performances in a decade and figures for 2004 look even better, he said.

"High oil prices underpin the boom. Supply concerns and strong global demand have pushed oil prices past to twenty year highs. To match demand, the Gulf is now close to producing at full capacity.

Like so much else in the global economy, China has had an important bearing on this. It surpassed Japan in 2003 to become the second largest importer of crude oil after the US," he said.

The GCC states, controlling 45 per cent of the world's recoverable oil, netted US$140 to US$145 billion (about Dh515 billion) in 2003. Non-oil trade, industrial and manufacturing, construction, transport and communication and others such as real estate are key economic sectors.

"In most GCC countries, these non-oil sectors have performed well in 2004 in varying degrees and there is a trend of diversification," said Amerah. The Doha-based Gulf Organisation for Industrial Consulting (GOIC) has produced figures showing GCC industrial investments nearly tripled over the past decade to exceed US$100 billion (Dh367 billion) and the figure is set to sharply rise in the future.

From about US$33 billion (Dh121 billion) in 1990, the cumulative capital pumped in the GCC's manufacturing sector leapt to nearly US$102 billion (Dh374 billion) by the end of 2003.

Saudi Arabia emerged as the biggest industrial power in the GCC, accounting for nearly 68 per cent of regional investment in this sector. The UAE was second, with more than 10 percent of the investment, and more than 2,000 factories.

The massive investments boosted the number of industrial units in the region from about 4,380 to more than 8,000 units in the same period. Industrial exports also jumped to over US$16 billion (Dh58 billion) last year from less than US$10 billion (Dh36 billion) in 1990.

The investments covered mainly petrochemicals, cement, aluminium, paper, home appliances, furniture, machinery, equipment, spare parts and electrical products.

They did not include investment in gas projects, which have attracted over US$30 billion (Dh110 billion), mainly in the UAE, Qatar and Oman.

Is this growth sustainable given the volatility of oil prices? Amerah believes it is.

"Oil prices seemed to have stabilised and they are on the higher side. Even if oil prices dip, the non-oil sector's contribution to the GDP of most GCC countries is increasing as diversification plans continue. I believe GDP in 2005 will be higher," he said.

Oil accounts for about 40 per cent of GCC GDP and 60 per cent of exports.

Nabeel Farhat, senior analyst at the Emirates Securities and Commodities Authority (Esca), also forecasts another bright year ahead. "Oil prices have a bearing on the GDP, but the share of other sectors is increasing. This is a trend and sectors like industry, real estate and construction, financial services are all big contributors to the GDP," he said.

"The governments are also serious about reform, the private sector is investing more, so economic growth in the Gulf is sustainable for the next few years at least," he said. StanChart's Hanna also said regional economic prospects remain encouraging at least through into late 2005. "Even if oil prices and production come off current levels next year, current levels of spending will support the growth momentum well into the second half of 2005 and possibly early 2006.

"We also expect further privatisations and efforts to diversify the GCC economies away from oil and gas," he said. Despite the rosy outlook for the GCC, experts are quick to recall the current boom could be short-lived, considering that, as recently as 1998, the region's oil producers faced oil prices below US$10 a barrel and struggled to avoid recession. Fiscal and current accounts were under severe pressure. (The Gulf News)


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