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Thursday, February 12, 2009

GCC oil revenues could top $4.7tn by 2020 - report

by Tom Arnold

Gulf Cooperation Council (GCC) countries will cumulatively earn $4.7 trillion by 2020 if OPEC’s targeted oil price of $50 per barrel is reached.

The states’ revenue would be 2.5 times their earnings from oil over the last 14 years, according to Global Megatrends 2009, a report by Ernst & Young released on Thursday.

“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,” said Phil Gandier, head of transactions advisory services at Ernst & Young Middle East.

The increased earnings would allow GCC economies to buy additional assets globally or finance local infrastructure developments as many other economies stall, he said.

Relatively moderate regulation and tax regimes in the states would be even bigger attractions as European and US business environments tightened under the pressure of the ongoing global recession, he added.

The rise of sovereign wealth funds, private equity and hedge funds as the new power brokers was another trend identified by the report. Their combined assets quadrupled between 2000 and 2007 to reach $11.5 trillion.

“We expect private equity and sovereign wealth funds to first stabilise after dealing with the immediate impact of the credit crisis and then to take bold positions in various industries and economies with a long term view,” said Fouad Alaeddin, managing partner, Ernst & Young Middle East.

Those funds that overcame the economic uncertainty and its impact on their holdings, while developing a clear strategy for putting money to work in difficult credit conditions, would have a “bird’s eye view” of the emerging macroeconomic landscape, he said.

“Investors might well follow the investment patterns of these funds, adding to their influence on global investment flows,” he added.

Amid a changing economic landscape, the study said emerging markets were playing an increasingly important global role.

Countries like Egypt, Iran and Vietnam were highlighted as potential rivals to BRIC countries (Brazil, Russia, India, China), as well as some developed economies in future.

It said economic power was moving from developed to emerging economies, from West to East and North to South.

Emerging economies accounted for 44 percent of global GDP in 2007. But the report said emerging markets were expected to grow at 6.1 percent on average in 2009, with China (9.3 percent) and India (6.9 percent) performing even better. In comparison, projected GDP growth rates for major developed markets in 2009 were now predicted to lie between -0.2 percent and 0.5 percent.

Although the growth of emerging economies may be less than was projected before the financial crisis, their hunger for growth, rapidly industrialising economies and growing populations should set them on the path to recovery more quickly.

Multinationals in emerging markets, previously little-known outside their own countries or regions, were now challenging the mega corporations of the West, the report said.

The report stresses the need for an over-haul of out-dated regulations in sectors like banking and a move towards a more globally consistent and coordinated regulatory environment.

It said energy supply and demand was likely to represent the biggest challenge of the 21st century.

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