In its time, the ancient Silk Road was a network of trade routes that facilitated commerce through regions of the Asian continent, connecting East and West Asia by bringing traders, merchants and nomads from China to the Persian Gulf.
Today, the geographical proximity of the Gulf region to Asia has brought largesse of prosperity and benefits to the region resulting from surging demand for oil from China and India and also created investment opportunities. Today, a study conducted by McKinsey reports that annual cross-border capital flows between the Gulf Cooperation Council and Asia could increase to $290 billion by 2020 from $15 billion today. It is also well known that both China and India, and the successful export-oriented economies of the four “Asian Tigers – Hong Kong, Singapore, South Korea and Taiwan – have enjoyed a remarkable economic transformation process of modernization and industrialisation. Living standards in these economies have risen to the level of the European economies, through leveraging, to varying degrees, the dynamics of a modern capitalist economy.
The black-gold commodity boom has brought significant oil profits to the Gulf Cooperation Council states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates, which together combined with other nations in the Middle East region to produce almost two-thirds of global oil supplies. Despite the windfall the oil revenue and high crude prices, Middle East states are now looking for growth and diversification away from their hydrocarbon abundance to spread out their investments. The events of Sept. 11 2001 in the US proved to be a pivotal point experienced by the regional investors that began to refocus the allocation of investment and capital proceeds into other assets that transcends across new economies, markets and destinations in the emerging market. Traditionally the investments have been focused on developed economies.
And Middle Eastern players are displaying their clout in global business and financial markets, with Asia becoming increasingly important under the investment watchers’ radar. A significant proportion of the region’s hydro-carbon produce make its way towards their export destinations in Asia. A huge business opportunity now exists with investment opportunities in areas such as cross-border infrastructure and other emerging markets. With the strong cooperation in the economic ties on the backdrop of stable political landscape, Asia is a fitting choice for the Gulf investors to diversify risk and gain better performance return, where social and economic transformation in Asia has occurred at a breakneck pace on the back of a surge in oil prices.
Are these business and investment opportunities driven by the new Silk Road phenomenon as it was with trade at a similar development trajectory in the past?
The economy of the UAE continues to record robust growth with an achieved annual output per capita of $34,000 for 2006. The UAE Sheikhdom of Dubai is the lynchpin for the non-hydrocarbon activities as it is positioning itself strategically as a regional services hub in the MENA region (Middle East, North Africa and Asia), one of the fastest-growing and most important regions. Other successes include substantial levels of both foreign and private investment, free trade zones and low tax rates with continuing deregulation in the face of current daunting global economic challenges. However, the health of the non-hydrocarbon sector may be adversely affected by the rising cost of living from price inflation in Dubai.
International financial institutions have flocked to the Dubai International Financial Centre, a sprawling, 110 acres banking and financial zone in the heart of Dubai. DIFC has attracted the likes of leading international financial players such as Goldman Sachs, Citigroup and Lehman Brothers to open regional offices in the area in recent years. The Gulf region is also coincidentally home to a pool of liquidity and capital in the form of the giant government-run entities known as sovereign wealth funds. Meanwhile, corporate finance activities are expected to surge, with the Sukuk market witnessing the strong trend of multiple issuances of several internationally issued bonds from corporations and sovereigns. The potential for continued business growth for capital markets, financial advisory and asset management services is vividly expected to grow as Middle Eastern sovereign and investment companies seek to diversify away from Western Markets in favour of Asia. For example, several government-run funds are now weighing investment opportunities in non-traditional markets such as China and Malaysia. The DIFC is now a centre to over 500 institutions across banking, capital markets, insurance, asset management and other financial services sectors.
With the Gulf being the natural crosswords of the world, the sheikhdom of Dubai stands prepared to face up to the challenges from this new growth frontier, this new Silk Road Phenomenon.
Abdulrahman F. AlHarthi is the CEO & Managing Director of MeNA Financial Group Limited.
