Gulf states: The west Asian chimera
The collapse of the Gulf states’ investment boom suggests that they should look to the wider region as a target for their surpluses.
Dubai was the symbol of an investment boom in the Arabian peninsula. And the Al Gosaibi and Saad group crises have, for many investors, signalled this boom’s final chapters.
After the 2001 terrorist attacks in the US, petrodollars were invested closer to home because of a fear of asset freezes and hostility toward Arab investment. As Gulf markets were opened up to regional and global capital, asset values mushroomed along with the oil price.
Since the property crash in Dubai – as well as the crises in the Kuwaiti and Bahraini financial sectors – there has been reconsideration, as elsewhere, of development that is focused on the financial sector. Investment at home and abroad by Arabian state money is now more focused on high-end manufacturing and engineering. However, while such states as Qatar and Abu Dhabi do need to focus more on educating their populations, they do not yet have sufficient competitive advantages to compete on a global scale in such sectors as aerospace and information technology.
These countries will remain subject to economic and financial-sector volatility while permanent populations are so small and the inflow of petrodollars is so large. The states will still face challenges attracting and retaining skilled labour.