Gulf nations channel oil wealth into gleaming industrial cities

Sharm AL Shaikh, Egypt: Gulf countries swimming in oil wealth are using the money to build huge industrial cities and gleaming financial centres to sustain them when the wells run dry.

They learned valuable lessons from faulty investments in the 1970s oil boom, but economists worry the countries still aren't making the education and labour reforms crucial to long-term stability.

With record oil prices near $130 per barrel, Gulf nations certainly have ample revenue at present.

The Gulf Cooperation Council (GCC), which includes energy powerhouse Saudi Arabia, earned $381 billion from oil exports in 2007 and an additional $26 billion from gas, according to the US-based Institute of International Finance.

McKinsey Global Institute estimates that the Gulf economies need to create 280,000 jobs per year to employ its young citizens graduating from schools and universities.

Creating jobs is of prime concern for Saudi Arabia. The Saudis have tried mega-projects before. The government invested money from the first oil boom into water desalinisation plants to grow crops to boost the country's agricultural industry. The project never really succeeded.

The difference now is that the government is allowing the private sector to play a much larger role in the whole process. But the region still has one of the world's largest public sectors, and some businessmen say Gulf governments need to accelerate the process of privatisation.

"Governments are the lousiest people in the world to make an investment decision or an econ-omic decision," said Sa'ad Al Barrak, head of the mobile phone company Zain.

Infrastructure

"We have evolved our infrastructure - the roads, the telecommunications, and healthcare - and yet we have not yet expanded the rule of law, transparency, governance and the power of the ballot."

Yasser Al Mallawany, head of EFG-Hermes Holding, said Gulf governments also had a lot of work to do to reform their education systems to produce qualified graduates.

"I think that the threat is that we do not want most of the investment coming from the oil wealth to be again real estate driven or just building cities."

"The Arab world has to go up the value-added chain." said Vahan Zanoyan, head of PFC Energy International. "The system does not generate employable graduates, period," he said.