Intraregional Financial Opportunities

1
Intra-regional Financial Opportunities

• Samir Radwan
• Economic Research Forum
• Asia Middle-East Dialogue (AMED)
• Bangkok, 3-4 July 2006

Assisted by Yasmine Fahim and Christine Shenouda
2
Oil Prices on the Rise..

• A crucial factor influencing financial
  opportunities between Asia and the Middle East is
  the unprecedented accumulation of revenues
  resulting from oil price increase that started
  since 2003, and that is likely to continue into
  the near future.

• For the third straight year, crude oil prices
  rose sharply between 2004 and 2005, from an
  average of 38 a barrel to 55, or more than 40
  percent

Nominal Oil Price Brent spot price
Over the last two years the climb in oil prices
has been even more dramatic, with oil prices
rising more than 110 percent between January 2004
and 2006.
Source World Bank
3
The size of the Cash gift..

• Oil exports receipts
• 2002 185 billion
• 2005 460 billion
• An increase equivalent to about one-quarter of
  oil exporters GDP.
• Cumulative current account surplus
• 400 billion 210 billion saved
• Official reserves 360 billion

Source IMF 2006, Regional Economic Outlook, MAY
2006
4
The Middle East growth performance continued to
outpace global growth in 2005..
Global Real GDP Growth (Annual average change in
percent)

• In 2005 Regional growth averaged over 6
• World Average was about 4.9

• Includes middle East and Central Asian Countries
• Source IMF 2006, Regional Economic Outlook, MAY
  2006

5
FDI Flows have increased all over the region..
But grew more for oil producers
Foreign Direct Investment (In billions of U.S.
dollars)
Source IMF 2006, Regional Economic Outlook, MAY
2006
6
Where did the revenues go ?

• On average, governments saved three-quarters of
  the increase in oil revenues received since 2002.
• Kuwait, Qatar, and the UAE had especially high
  rates of government saving, partly reflecting
  strong increases in non-oil revenues in these
  countries.
• Oil revenues that were saved went into building
  assets and repaying public debt (e.g. Iran,
  Kuwait, and Saudi Arabia).

Source IMF 2006, Regional Economic Outlook, MAY
2006
7
All countries made progress in reducing
government debt, either through fiscal
consolidation or with funding from privatization
receipts and earmarked oil revenues
Source World Bank, Global Development Finance
2006
8
Reserves of oil-exporting countries increased
over the past three years reaching about 360
billion by end of 2005.
On the other hand, The total External Debt for
these countries have constantly declined to reach
18 of GDP by end of 2005
Source IMF 2006, Regional Economic Outlook, MAY
2006
9
Impact on institutions..

• High oil prices have boosted regional liquidity,
  fueling booms in local stock real estate
  markets.
• Earnings growth also accelerated at an impressive
  pace and growing corporate profitability has been
  a strong source of valuation support for the
  markets.

Source World Bank
10
Although Equity markets skyrocketed in 2005
especially in GCC countries, there have been
corrections and partial reversals in most markets
in recent months..

• The strength in Equity markets A Bubble or a
  lasting phenomenon ?

• the region was home to 8 of the top 10 performing
  capital Markets in the world, and indices in
  Dubai, Egypt, Lebanon, and Saudi Arabia all more
  than doubled.

Source IMF 2006, Regional Economic Outlook, MAY
2006
11
Several factors account for this strong Stock
Markets performance..
Still, the performance of the stock markets of
the region remains strong
High oil prices boosted consumer and investor
confidence, with ample liquidity and strong
credit growth sustaining a surge in demand and
private sector activity.
Source World Bank
12
CONCLUSION
There are ample opportunities for Asia through
assisting the process of growth and
diversification in MENA

• Despite of being aware of the need to diversify,
  the oil sector still contributes about one-third
  of GDP and three-fourths of government revenue in
  GCC countries. This has resulted in a highly
  volatile growth performance and intermittent
  interruptions for their development plans in the
  past three decades (ERF, 2005)
• MENA is one of the least integrated regions in
  the global economy. Also, the prevalence of
  generally unfavorable business environments has
  constrained the attraction of sizable foreign
  direct investment (FDI) inflows except for FDI
  going to the oil sector. Currently, the share of
  MENA region in global FDI inflows stands at less
  than 2
• In their approach to diversification, the GCC
  countries stressed the importance of industrial
  policy to develop manufacturing industries that
  are capable of absorbing growth in the labor
  force, and also increase their economies non-oil
  value added
• Here, technology is a major ingredient of the
  reform strategy, and in this regard MENA
  countries are looking East