Gulf investors call for government intervention

Dubai: Abdullah Hajeri participated in a march in Kuwait last week, demanding the government stop stocks from plunging.

Adnan Mohammad Saleh, down in Dubai, said he wants more government protection from the global financial crisis.

"Every day the market is crashing," said Saleh, a 42-year-old trader, staring dumbfounded last Tuesday as company names scrolled across the Dubai Financial Market's outdoor ticker in red.

The region's governments are under pressure from citizens to shore up investors, not just banks, as they try to fend off what may be the worst economic crisis since December 1998, when oil at $10.35 a barrel forced them to slash spending.

Crude prices have fallen 50 per cent from a record $147.27 in July, and stock indices in Dubai and Saudi Arabia are down by as much this year.

Gulf economies are more susceptible to financial turmoil than in the past because of their greater dependency on international expertise, investment and tourists to diversify away from oil.

"The biggest threat is going to be local confidence in the local economy, whether it's in Dubai or Abu Dhabi or anywhere else," said Georges Makhoul, Morgan Stanley's president for the Middle East and North Africa, said in an interview in London.

There are not many international investors left in the region, he added.

Regional competition to attract investors and tourists from around the world led to a surge in record-breaking projects.

Dubai is racing against Saudi billionaire Prince Al Waleed Bin Talal's investment company to build the world's first kilometre-tall tower. Saudi Arabia has turned a spot on its Red Sea coast into the biggest property development in the Middle East. Now little more than sand and construction cranes, the $120 billion King Abdullah Economic City is meant to create one million jobs and be home to two million residents.

Projects risk going unfinished or becoming white elephants if economies around the world go into recession, keeping international investors and tourists closer to home.

Dubai's plans, including the Disneyland-style Dubailand that will be three times the size of Manhattan, are predicated on doubling the number of tourists annually to reach 15 million visitors by 2015.

"Many of the projects being marketed in the Gulf today will get shelved," Kamel Lazaar, chairman of Riyadh-based financial advisory firm Swicorp, said October 7.

"The price of land has been inflated. It will have to correct."

Kuwait on Wednesday became the third Gulf state to prop up its banking system. It did so after losses on currency derivatives at Gulf Bank KSC, the country's second-largest lender by assets, sparked a surge in customer withdrawals from the bank.

The UAE said on October 12 it would guarantee deposits of all local lenders and large foreign banks. It also set up a $19 billion facility to help banks make loans. Saudi Arabia, the world's largest oil exporter, put $2.7 billion into a government-run bank in Riyadh to provide no-fee loans to low- income citizens.