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Crisis Offers Growth Opportunities for GCC

DUBAI — The global credit crisis offers potential opportunities for growth to GCC companies that respond early and positively, according to a study by The Boston Consulting Group (BCG).

“The GCC economies are relatively well-positioned to manage the downturn as the region in 2008 attracted cash inflows of $300 billion from oil alone and it also has $1.2 trillion of assets with SWFs and central banks. In fact, this global recession could be an opportunity for GCC countries to carve out an even greater role in the global economy. They could achieve this by refocusing their local investments, leveraging some of their reserves to drive local economies and pursuing selective acquisitions to strengthen and drive the creation of economic regional leaders and global challengers,” said Kamel Maamria, BCG partner.

Maamria said, “Many of the fundamental drivers in the region continue to be strong. The last three years oil revenue inflows provide a comfortable cushion for GCC economies. The main GCC economies are only lightly leveraged and the reserves held at sovereign wealth funds (SWF) and central banks provide the necessary back-up if and when needed. The fact that GCC economies are government-driven is a critical stabilising factor in downturns and turbulent times.”

Banks

Despite limited sub-prime exposure, with the region only exposed to one per cent of the worldwide reported losses, GCC banking shares are diving. Short-term measures, such as more stringent loan conditions, are of course important, but BCG experts claim that far more levers need to be pulled to establish some of the local banks as regional challengers.

“Successful international expansion has always been built on robust local platforms”, says Klaus Kessler. “In the short-run, banks are first required to double-check their local credit portfolios and funding scenarios. In addition, they have to find feasible ways to increase customer stickiness. Even more importantly, they shall not repeat mistakes done by banks in other markets, such as discretionary cost cutting, pretending, that last year’s expenses were of no value!.”

Oil & gas

The economic crisis is also impacting the entire oil & gas value chain. Lower crude and product demand, excess capacity due to recent production enlargements as well as limited access to financing and increased cost of capital have already greatly affected the oil & gas industry. Another BCG partner Martin Manetti said, “There are several opportunities for GCC oil & gas companies to take advantage of during the downturn. Essential is to strike the right balance between protecting the existing business and managing for the long term.

Real Estate

The study says real estate is another sector of focus by BCG. With many investors deeming the impact of the global property crisis on GCC as a “perfect storm”, Sven-Olaf Vathje, a BCG partner, predicts a transformation of the real estate industry in the region. “The current crisis will spark an innovation of business models. We will see developers increasingly develop and hold assets for longer-term investment,” he said. In the short-term, Vathje said, the real estate industry needs to focus on mitigating risks and managing cash flows.

abdulbasit@khaleejtimes.com