The Gulf's rich are beginning to invest in dowdier places as well

WHEN oil sheikhs splurge in the West, they make headlines: some Qataris, for example, in partnership with some Britons, recently bought a chunk of London's fashionable Chelsea for $1.9 billion. They make news, too, with big-tag items at home, for instance in the two richest statelets in the United Arab Emirates (UAE), with the world's tallest building in Dubai or a new Louvre museum in Abu Dhabi. Yet with less fanfare, Arab oil money may have a bigger impact elsewhere, in poorer countries outside the Gulf.

Over the past six years, some $700 billion in capital has gushed out of the monarchies that make up the Gulf Co-operation Council (GCC): Saudi Arabia (by the far the weightiest), Bahrain, Kuwait, Qatar, Oman and the UAE. Most of their cash still washes up in America and Europe. But with returns from rich countries slowing, the flow to less traditional markets is speeding up. The International Institute of Finance, a think-tank in Washington, DC, estimates that Asia and the Middle East soaked up 22% of GCC investment between 2002 and 2006: “A substantial volume of GCC funds is staying in the MENA [Middle East and North Africa] region, where quickening liberalisation, privatisation and regional integration, as well as an increased pace of project implementation, has lured capital that would previously have headed away from the Arab world.”

Freshly acquired assets range from iron mines in Mauritania, bought for $375m in November by Qatar Steel, to a Gulf consortium's $1.2 billion share in an urban-development scheme in southern Malaysia. A planned, Saudi-financed oil refinery costing $3 billion in Bangladesh will add to existing Saudi refining interests in China, South Korea and the Philippines.

In recent years, Gulf-based telecoms firms have spent at least $20 billion snapping up businesses from Algeria to Singapore. Gulf portfolio investment has turned once-sleepy stockmarkets in Cairo, Casablanca and Amman into some of the world's hottest performers and helped insulate them from global shocks. Housing prices and exchange rates in troubled Lebanon have held steady, thanks to Gulf governments parking cash in the country's central bank and fun-starved Saudis buying sea-front property.

In fact, it is in real estate that Gulf money is making its loudest splash. Dubai's flagship property company, Emaar, claims to be engaged in some $65 billion-worth of foreign projects. These include four resorts in Morocco and upmarket housing projects in Cairo, Damascus, Hyderabad, Istanbul and Karachi. A rival firm, Damac, recently launched what it calls a resort city on Egypt's Red Sea coast costing $16 billion, while another Emirati developer, Al Maabar, has pledged $10 billion to create a fancy suburb for Tunis. Qatari Diar, the same state-owned company that jointly bought Chelsea Barracks, is also building office towers in Cairo and Khartoum, resorts in Syria, Morocco and the Seychelles, and a gated community in Yemen's capital, Sana'a.

Even if such numbers are inflated by sales hype, Gulf cash and glitz are beginning to transform the region's dowdier peripheries. For the burgeoning middle class in staid old cities such as Rabat and Damascus, the real-estate brochures, with their promise of Dubai-style living and manor houses that hint of Andalusia and Tuscany, now make an enticing read.

Article by: www.economist.com