Cheap oil to open Gulf mega projects to private investors

Dubai: Mega projects in the Arabian Gulf will substantially open up to private investors as cheap oil dries up traditional sources of funding, Emirates NBD Chief Investment Officer said on Thursday.

Many years of a plus $100 (Dh367) a barrel oil price meant cash rich regional governments and family conglomerates were able to fund mega projects like towers or airports without private investors.

“There was just a huge amount of spare money floating around the domestic economy and among local investors,” Gary Dugan, the Emirates NBD Chief Investment Officer told Gulf News by phone.

But a below $30 a barrel oil price is changing that. “Among this oil crisis the domination of the public sector in this part of the world is going to shrink. They can’t do it on their own,” Dugan said earlier at a financial markets conference in Dubai.

The price of oil is set to settle below $30 a barrel for the third week in a row on Friday, far lower than the $115 price seen in mid-2014 or $147 in 2008, putting pressure on regional governments and family conglomerates developing megaprojects.

Expo 2020 in Dubai and the 2022 Fifa World Cup in Qatar are the two largest mega projects coming up that are likely to need private investors, which Dugan says won’t be hard to find.

“Private investors that I represent would love to get involved in Expo 2020 … The money I assure you is there both internationally and locally,” he said.

Institional investor base

Regional governments have already pivoted to open projects to international investors with the Chinese government investing and building developments in Dubai, and other cities, through state-owned entities. But Dugan said this “needs to be brought down to an institional investor base rather than just government to government”.

There is also a belief that many large family-owned Gulf conglomerates will need to be more open to allowing private investors to own part of the development.

“There is clearly sensitivities … [but] I think those barriers will come down,” he said. “They should see the bigger picture, the more their open minded and bring foreign capital in the greater depth there will be for financial markets and therefore there’s a great opportunity to develop the financial services industry here.”