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The heavier FDI inflows into GCC economies have not radically set off asset price appreciation or stoked high inflation. The situation is being managed. Image Credit: AFP

There are many variables that influenced the global economic and investment landscape over the past decade. These were caused by conflicts and wars, which resulted in the abandonment of some of the foundations on which the world’s economic system was structured after World War 2, and framed around a capitalist system.

Conflicts are not the only reason for this fundamental shift in geopolitical relations. There are other essential changes that have affected the structure, brought on by a recasting of the nature of the ownership of capital, which shifted from productive industrial assets to a services and financial capital that seeks instant profits.

A change of this structural magnitude will always have a profound political, economic and social ramifications that would then reflect on the stages of development. It is sufficient to address just one of these numerous repercussions, which is related to the repositioning of investments from changes in the economic structure and the measures taken as a result of raging conflicts following the emergence of many fast developing countries from beyond the traditional group.

Private property is sacrosanct

It is important to refer to the most serious of ongoing conflicts due to the Russia-Ukraine situation, which has led to a large-scale exodus of capital after the freezing and confiscation of private properties. Capital, it is said, is a coward because it seeks out safer and more stable destinations when it perceives danger. There are a few safe places left in the world, and the GCC countries are the exception and known for their security, stability, and protection of individual property.

This stems from an old Gulf conviction about the need to respect ownership regardless of any developments and shifts in positions. This is one of the reasons why trade historically shifted from the Iranian city of Bandar Lengeh on the Arabian Gulf’s eastern side to its Arabian side, where no property was confiscated.

Even in some cases of corruption that have been fought in many GCC countries in recent years, the sanctity of individual property has never been violated. The confiscation only affected funds obtained through corruption, leaving the remaining components and assets untouched.

An unchanging position

The GCC countries’ approach to dealing with domestic and foreign capital and investments has earned them unprecedented global trust and turned them into one of the most important capital-attraction hubs. This is especially true given that some nations - such as Switzerland, which has maintained its neutrality for more than a century and has been able to attract massive funds even during the First and Second World Wars - have recently abandoned neutrality, raising investor concerns. Singapore, like the GCC countries, does not impose restrictions on foreign transfers and also enjoys respect for individual ownership.

The movement of capital repositioning is expected to continue due to the intensification of conflicts, most of which have abandoned the sanctity of protecting private property – a practice followed since the early days of the capitalist system three centuries ago. In itself, this is a stirring development that reflects the change that touched the core of the system.

A ballast for Gulf economies

There is still an important question here about how to deal with large FDI flows into the GCC, understand their effect on economic conditions, and reap the most benefits from them.

This is a topic that needs to be thoroughly studied, but the good news is that the entry of such funds into the Gulf has not resulted in unbridled increases in asset prices, as has happened in many earlier instances.

Inflation remain almost within an acceptable range, while asset prices rose at moderate rates. Even with real estate values where the increase has been relatively more, they are still within a range and have been felt positively on growth for the GCC economies.