Financial Daily from THE HINDU group of publications
Saturday, Nov 12, 2005
Industry & Economy - Foreign Direct Investment
Gulf states flush with cash surpluses `India must tap funds for mega projects'
Abu Dhabi , Nov. 11
AN economic boom in the Gulf states fuelled by record oil prices and windfall revenues is driving cash rich Arab investors to park billions of dollars in industry, real estate and stock markets not only in their own countries, but also in developed and emerging economies across the globe.
While the US, EU and Japan have been traditional destinations for Gulf institutional and individual investments, investors are now training their eyes on lucrative ventures in new markets such as the ASEAN countries, China and India.
Oil prices have shot up to record highs of nearly $60 a barrel bringing in huge surpluses to the oil producing Gulf states that are estimated to touch over $200 billion by next year. Many Gulf governments are ploughing in some of these revenues to improve their infrastructure, build new airports and invest in mega offshore and onshore projects in the tourism and hospitality sectors.
In Dubai alone, around Dh 350 billion worth of construction projects are under way including iconic ventures such as the Palm islands, Burj Dubai - the world's tallest tower, Dubailand a gigantic theme park, Business Bay - a take-off on Manhattan, Dubai Festival City, and scores of gleaming towers and glitzy mega malls.
Abu Dhabi has recently announced a number of projects in the real estate, oil and industrial sectors, while gas-rich Qatar is expanding its airport and infrastructure facilities and offering luxury resorts for its residents. Bahrain, Oman and Kuwait have also recently announced several interesting projects. In Saudi Arabia, the huge oil revenues have turned a worrisome budget deficit into healthy surplus.
A number of investment and development companies have also been established by the Gulf governments to explore investment options both at home and abroad either through direct acquisitions, joint ventures or private equities. In the UAE, companies such as Dubai Holding and the Abu Dhabi Government-owned Mubadala Development Company have in recent months snapped up prime assets in Europe and the US. The investments include prize real estate and touristic acquisitions such as Madam Tussauds and properties in Trafalgar Square, stakes in automobile giants DaimlerChrysler, Volkswagen, Leaseplan and Ferrari, or port and industry-based stakes such as in Florida-based CSX World Terminals.
Huge investments have also been announced in real estate and hospitality projects in the neighbouring Gulf states as well as Jordan, Turkey, Syria and Morrocco.
Investment-friendly environment: Industry analysts told Business Line that Gulf investors are also seriously looking at opportunities in China, the Far East and India. However, while China and some of the ASEAN countries could benefit from this windfall due to a more open policy on attracting foreign investment, India may lose out to some extent in tapping substantial available Gulf funds unless various measures are adopted to present a more investment-friendly environment, they said.
FDIs to India from the Gulf have increased over the past couple of years, with both institutional and private investments in some projects, particularly by investors from Dubai Emirate. Emaar Properties, Dubai Holding, Dubai Aluminium Company, Dubai Internet City and Dubai Ports are some of the major players with projects under way in India at present. There have also been some investments in infrastructure development corporations and buying of stakes by Gulf-based private groups in commercial ventures in India. However, the scale of Gulf investments in India has been relatively very small compared with investments elsewhere overseas.
Opportunities in India: Mr Suresh Kumar, General Manager, Emirates Financial Services, Emirates Bank Group, and President, Indian Business and Professional Council, Dubai, told Business Line that there is a need for sound liaisoning by interested Indian parties with Gulf institutional investors who are the primary investors in mega projects.
"Gulf investment and financial institutions are looking for credible investment opportunities that are not bogged down by bureaucratic or other hassles. Going through the institutional route or framework is the best way forward if India is looking to tap huge Gulf funds for major projects," he said.
He cited the need for a change in mindset that ensures purely businesslike arrangements that cut through political and bureaucratic obstacles factors that have been the underlying reason for the slow pace of Gulf investments into India.
Mr S.K. Reddy, Counsellor, Commercial Affairs, Indian Embassy, told Business Line that there has been a quantum leap in interest evinced by Gulf investors in Indian projects over the past year.
"There is an increasing recognition of the opportunities presented by the Indian economy that has not yet translated into active investment which the Indian embassies in the Gulf are seeking to address. We have helped organise some official Gulf delegations to India and facilitated economic partnership conferences that have helped create awareness of the transformation that has taken place in India and the potential for investment. This has had positive spin off effects.
"Moreover, the fact that India has opened up its real estate sector to foreign investment and the scale and profile of Indian companies has increased substantially has provided scope for long-term strategic partnerships," he said.
In the short term also, the comparably high returns being posted by Indian stocks has also kindled enthusiasm for the Indian market, he added.
However, Gulf investors have expressed concern over the regulations prevalent in the Indian system and the taxation norms, particularly the very high corporate and individual income taxes, Mr Reddy said. "There is a negative perception of bureaucratic hurdles and high taxes that potential investors say are constraining. There is a lot we can do to engage Gulf investors and encourage them to look at India more actively which the Indian missions are doing through co-ordination with various specialised institutions in the Gulf," he said.
Mr Mohan Jashanmal, President, Abu Dhabi-based Indian Business and Professional Group, stressed the need for greater exchange of visits by businessmen and tourists and joint ventures in the tourism sector as it would bring more awareness of investment potential in both India and the Gulf states.
The language barrier also needs to be overcome to facilitate more interaction between Indian and Gulf businessmen as this obstacle has limited access to leading investors in Gulf countries. Inadequate infrastructure facilities could also result in China and the Far East finding favour over India, industry observers said.
Spin-off benefits: Meanwhile, mega investment projects in the Gulf states have had some spin off benefits for expatriate Indians. Large numbers of professional Indians are being recruited for jobs involving technical expertise and managerial skills, with many finding their way into top and middle level managerial positions in government and private institutions. Thousands of expatriate workers are also being employed in new building projects as a construction boom takes over most of the Gulf states, with Dubai and Qatar leading the pack. Economists have, however, expressed concern over the fast pace of the expansion in the Gulf and the resultant spiralling inflation and exorbitant cost of living.
The UAE's decision to open up the real estate sector and the stock market to expatriate investment has also triggered a rash of massive investments by NRIs in the local economy. Other Gulf states are also looking at opening these sectors for expatriates in a phased manner a move which, security and other factors permitting, could help sustain the boom period in the region over the mid term.
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