East meets West as GCC countries spend

Nations that help ease the suffering caused by the international financial crisis should enjoy more influence in the International Monetary Fund (IMF). So said Gordon Brown, British prime minister, whilst in Abu Dhabi on his recent tour of the GCC.

"It is in all our interests to stop this contagion and to rebuild confidence in the global financial system," Brown said. "And I very much accept the argument that countries which do contribute in this way should have a greater say in the overall governance of the IMF, and this is part of our ambitions for reform."

Brown's IMF fiscal kitty is aimed at shoring up economies suffering from the nasty side affects of the international financial crisis. He, alongside a senior delegation of UK business leaders, is also hoping to drum up investment to help his own beleaguered economy. It is thanks to record oil receipts in recent years that the region is being courted for such lofty deals.

Current account surpluses in the GCC are on average 20 per cent of GDP and the UAE enjoys 25 per cent. In addition to this, and perhaps more importantly, are the bulging sovereign funds that have been created to channel oil revenues into different investments abroad. Almost $1.5 trillion (Dh5.4 trillion), or half of the estimated value of all the world's sovereign wealth funds (SWFs), are controlled by the six GCC states.

The important question now is what Gulf countries will have to gain by contributing and investing in deteriorating economies. Indeed, some sceptics question if Gulf money will be safe on foreign shores. All too frequent news stories, such as the forced nationalisation of financial intuitions, seem only to be punctuated by increasingly depressing economic data from industrialised nations.

That said, every gloomy financial cloud has a silver lining. While overseas investment helps to diversify revenue streams, it also creates international awareness and, not least of all, a buzz about the region.

Abu Dhabi investments have certainly attracted attention: in July, Abu Dhabi Investment Council's $800 million purchase of New York's iconic Chrysler building grabbed headlines. Also, Mubadala, the government-owned development company, bought 7.5 per cent of one of the world's largest private equity firms, the Carlyle Group for $1.35 billion, in September 2007.

Headlines about these deals and others have increased the profile of UAE investors around the world, particularly the UK. And for Britain's embattled financial sector, UAE cash is seen as a potential panacea. The value of some stalwart banks which all play a vital role in the UK's economy, have fallen to almost two thirds of their value since the onset of the global financial storm.

Investors undeterred

Nonetheless, Gulf investors appear undeterred. Shaikh Mansour Bin Zayed Al Nahyan, Minister of Presidential Affairs, and the Qatar Investment Authority, the Qatar ruling family's investment arm, are investing close to $11 billion in Britain's second-largest bank, Barclays. Having access to liquidity in such flux times means Gulf investors can attract a premium on their deals. Shaikh Mansour's investment alone could give him a 16.3 per cent stake in the bank. Additionally, so-called reserve capital instruments being bought by Qatar and Abu Dhabi have an interest rate of just 14 per cent before tax and 10 per cent after tax - cheaper than the preference shares being snapped up by the British Treasury from other British banks.

Whether this investment is seen as the beginning of so-called bottom feeding on undervalued assets by cash-rich countries is hard to tell. Government owned investment vehicles in the region have always kept their investment strategies under wraps, which inquisitive foreign governments have found irksome - a situation being addressed by the current development of an SWF voluntary code of conduct.

- The writer is editorial manager of Oxford Business Group, Abu Dhabi.