November 20, 2008, 9:00 am - August 13, 2020, 6:34 am


1761 N Street NW
Washington, 20036 (Map)

The panel discussion "Economic and Political Developments in the GCC" took place at the 62nd Annual Conference in November, 2008.


Susan Bastress; Nabil Ali Alyousuf; Amr Awadh al Rawass; Aamir Rehman



Susan Bastress: My name is Susan Bastress, I am a partner at the law firm of Orrick, Herrington and Sutcliffe here in Washington and have been working very hard to guide our international law firm into the Middle East. It was a long time ago in the old days of 2003 that I assisted Patton Boggs in opening an office in Qatar, which is thriving and they have now grown into Dubai and Abu Dhabi as well – as have all of our other competitor law firms now that these international financial centers have allowed our competition to come in.

I am truly honored to have been asked to moderate this panel of very distinguished guests today. I have to my right His Excellency Nabil Ali Alyousuf, the Director-General of the Executive Office of His Highness Sheikh Mohammed bin Rashid Al Maktoum in Dubai. To his left I have Dr. Amer Awadh Al Rawas, who is from Oman. He is the Managing Director of Oman Mobile. To his left the esteemed author of “Dubai & Co.,” a book I’ve just read, Mr. Aamir Rehman, who is also a consultant and a private equity investor, I think.

I have been asked as a preliminary matter, and I think we would all agree, the music that we have just enjoyed during lunch was brought to us by the College of William and Mary, the Middle East Music Ensemble. I would like to thank Ann Rasmussen and her fellow colleagues for doing that for us.

Just to set the stage, each of our guests will give a nice presentation of about fifteen minutes each. I will give an introduction, a fuller bio, for each one. Then we will open it up for questions and answers. We encourage a lively and stimulating discussion. This is an incredibly timely topic, as I am sure everyone in the room knows far better than myself.

Some of the headlines, just to set the stage, include such things as sovereign wealth funds – it was not long ago that at least everyone in my firm thought SWF meant something else. Now they are fully aware as we deal with SIFIUS applications on behalf of foreign investments in our country and as we look abroad for financing for deals that cannot get it here. The G20 just met here in Washington. It was an incredibly historic meeting and hopefully the beginning of many more. I am hoping that some of our speakers will speak to what may have come out of that. The Middle East was represented and that is very exciting. Some of the initiatives we have all been hearing about and some of us in the audience have written about is whether to de-peg from the US dollar in the Gulf and whether the Gulf will be coming out with a common currency soon, and the pros and cons of that. Certainly Iran is a big topic and the banking activities in Dubai and the tension that creates here at home. There have been quite open, to their credit, open and ongoing aggressive corruption investigations in Dubai and the attempts of the Dubai government to make their financial system more transparent and more international best practices welcomed by all. This leads of course to NASDAQ Dubai, which I am hoping Your Excellency will tell us a little bit more about as well. Very exciting. Whether Qatar joins with Iran and Russia in creating a new OPEC gas cartel is another issue which I am hoping might be addressed.

I thought just to set the stage I would read the two headlines that boomed out at me yesterday, that I pulled off my Google Alerts for Dubai, two headlines that I thought really framed Dubai well. One is Reuters: “Analysis: Boom Turns to Gloom as Crisis Hits Dubai.” It goes into all the gory, horrible statistics on that. Then there is this one from the Associated Press: “$20 million Party in Dubai: Robert DeNiro, Lindsay Lohan, Charlize Theron Attend.” This is for the Atlantis Resort that has a fish tank with a whale shark in it and 65,000 fish, but it also has a top floor for the ultra-wealthy: a three-bedroom, three-bathroom suite with gold-leaf, 18-seat dining table, at $25,000 a night. That was yesterday’s news. I thought that might help frame our discussions for today.

I would like to welcome our first speaker, His Excellency Nabil Ali Alyousuf. He is the Director-General of the Executive Office. He is also Vice Chairman of the Board of Trustees and Executive President of the Dubai School of Government and Chairman of the Board of Directors of the Dubai Institute for Human Resources Development. I am going to go on and list a lot of other things that you do and I never understand how everyone over there has time to do all this, but you do. In the field of the public sector, Mr. Alyousuf served as Coordinator General of the Dubai Government Excellence Program. He has also led the team working on developing Dubai Strategy 2015, covering five main sectors: economic development, community development, infrastructure, security and justice, and government excellence. I am skipping through this, there is a lot more he has been doing. He established the Dubai School of Government in collaboration with Harvard’s John F. Kennedy School of Government. It is the first school of its kind in the region, granting executive academic degrees in public administration and providing customized executive education training on leadership and governance in collaboration with international academic institutions such as Lee Kuan Yew School of Public Policy from Singapore. He is the Vice Chairman of the Arab Strategic Forum. He led the establishment of Mohammed bin Rashid Al Maktoum Foundation with a $10 billion endowment. The foundation covers four sectors: knowledge and education, culture, entrepreneurship and philanthropy. He is the Vice Chairman of the Inaugural Summit on the Global Agenda. The Summit is held in partnership with the World Economic Forum and the government of Dubai. His Excellency holds a bachelor’s in science from the University of Arizona, a master’s in operations research from the Georgia Institute of Technology, and an MBA from the University of Strathclyde. Thank you very much for joining us today.

Nabil Ali Alyousuf: Thank you very much. Ladies and gentlemen, good afternoon. It is an honor and a pleasure to be with such an esteemed and distinguished group today. At the beginning I have an admission to make: I was not expecting to make a fifteen-minute presentation so I did not prepare a speech. But maybe this is for the best because I am convinced that reading speeches is not always the most interesting part. So excuse me if I sound incoherent sometimes but I will try to do my best.

We are talking about the economic and political situation. I will focus more on the economic, that is my area of expertise. I am not a big politician. I think in the last four or five years the Gulf region has witnessed an historic change. A major trend has taken place. We learned from our mistakes in the past of investing oil wealth completely outside of our region. The focus this time around was on investing the oil wealth back in the region but also improving our governance structure, improving our competitiveness landscape and opening up our market to more investments and influx of capital. The result has been tremendous and I will give a few examples from the region.

An interesting side comment: today I was at the presentation by the chief economist of BP. He made a point that developing economies or non-OECD countries are taking a bigger and bigger share of the economic growth of the globe. They are expecting, according to the trend statistics, that this year in 2008 we will see 50 percent of the contribution to the economic growth in the world by developing countries. It is a major trend in my view. The GCC plays a major role in that.

When we talk about market reform, basically what we are saying is that market-driven reform is allowing businesses to foster and be competitive while the government plays the role of regulator, the role of a transparent and objective judge establishing the rule of law. Why is this important? At the end it also trickles down to individuals. There is a prosperity index by an institute called the Legatum Prosperity Index. In 2008 they just published an index that assesses 104 nations around the world by measuring 44 different indicators of both economic competitiveness and liveability. There is a strong, very direct correlation between the economic openness of a country, transparency and the prosperity of people.

The UAE got the highest rank in the Arab world and there are a couple things that are noteworthy. In addition to having the robust capital, high incomes and low divorce rates in the prosperity index, the UAE enjoys excellent regulatory quality and strong freedom of choice. But there were two things that the UAE got the highest in the world. One is the desire of people to move to the UAE and second, there was a question in the index that relates – the question went this way. If you work hard, how much do you believe that your work will pay off and you will benefit? Across the globe the UAE got the highest rank on that question. So it is a strong testament to the open environment that the UAE enjoys.

If you look at the economy of Dubai it is again a result of that. Less than 5 percent of our GDP comes from oil. Other sectors play a bigger role: tourism, financial services, trade and others. The reason is because the government of UAE and the government of Dubai created that environment for businesses to prosper and for individuals to have a good quality of life living there.

This trend has taken place in the various GCC countries. I will cite a few examples. In the last few years there has been a focus on opening up the economies. We have examples like opening up the telecom sector in Saudi, the new economic cities in Saudi that are expected to play a major role in economic development. We have tourism in Oman, opening up very cautiously but doing the right steps and providing a very good alternative in the GCC. The real estate markets both in Qatar, the UAE as well as Bahrain. The financial sector and the financial centers in UAE, Bahrain and Qatar. They are all testaments to the way the GCC countries are moving towards inviting capital to invest in the countries by making it easier for businesses to be located in the countries and providing the right environment for businesses to operate, whether with the rule of law, transparency and accountability.

This of course plays a major role in improving the competitiveness of these countries. When we talk about the competitiveness of a country we are not talking really about the state being competitive, we are talking really about a state that provides an environment for a well-functioning market economy. That is really a result of a partnership between the public sector and the private sector. Here it is very important to note the experience of Dubai. Dubai has been a bit different from the traditional role of the government where it plays just a regulator role or a role of an incentive player. Dubai played a role which I usually term an entrepreneur government, where it spotted opportunities for Dubai and created new sectors almost out of nothing. The examples are many, things like tourism. When we first started focusing on tourism in the 1990s a lot of people thought, what is Dubai doing? They only have sand and a little bit of beach but not much more. Now tourism contributes about 23-27 percent of our economy, directly and indirectly, and the number of visitors to Dubai last year was about 8 million people. That is more than India or Egypt, which traditionally have their own historic landmarks and reasons to visit. Then the government moved toward fostering the knowledge economy. It built the Dubai Internet City.

What has been common throughout this process is two or three things. One is the government decided to take the initial risk by providing the infrastructure and creating the regulatory system. Then the private sector followed when it saw that the government was serious. But it happened actually in consultation with the private sector. I remember I was part of the team that set up the Media City. It was right after the Internet City. The way it was done was fairly simple. We went around to what we called our anchor tenants, the bigger media companies including CNN, Al Arabiyya, NBC and others, and we asked them a simple question: what would it take for you to locate to Dubai? They said: if you provide the right regulation system, the right infrastructure, the right cost for us, we will move. That is what happened basically. Dubai took it upon itself to provide that and when the anchor tenants or large corporations moved, everyone else moved. Now if you want to do serious business in media or internet or the financial sector, it is Dubai where you should be located to work for the region. That model really helped Dubai diversify its economy away from oil and away from some of the traditional sectors like trade and logistics and into newer sectors.

With that, I think I will stop for now. I will be glad to take questions later. Thank you very much.

Susan Bastress: Our next panelist is Dr. Amer Awadh Al Rawas. Dr. Rawas is Chief Commercial Officer of OmanTel and the Managing Director of Oman Mobile. He has served on various academic and leadership positions at the Sultan Qaboos University, which is the flagship university of Oman. His last assignment was Dean of Educational Services. Similar to our first panelist, he wears many hats and I do not know how he does it all. He is still serving as member of the Higher Education Council, member of the National Accreditation Council, member of the Board of Governors for Higher Technology Colleges. Dr. Rawas holds a PhD in computer science and artificial intelligence from Sussex University in the UK. I welcome you here, thank you very much.

Amer Awadh Al Rawas: Thank you, Madame Chairperson. Like Nabil, I am not a politician. It makes you wonder, why we are all keen to deny that we are politicians. I am a rusty computer scientist who has spent a lot of time in conferences with economists trying to predict the world economy. The last time I was in a conference – well, since then I have been in a couple of conferences – but the one I remember distinctly was a conference in Barcelona, Spain, where an Oxford graduate economist lectured to fifty CEOs of companies about emerging economies and the role of M&A (mergers and acquisitions). I remember distinctly that he said twice in that one-hour presentation that the days when America sneezes and the rest of the world catches cold are gone. I wonder what he is thinking now? But people like that always find a way of explaining their expressions. I bet he is saying that the whole world had a fever all at the same time but America decided to sneeze first. Now that I gave up on economists predicting the future, I have decided to come to conferences like this where there are politicians who could perhaps predict the future better.

About the GCC, as you all know – being in the Middle East Institute or affiliated to it – the wealth that came from the first oil boom was used to build the nations. That also meant that some of it went to military, because to build a nation you need an army, you need to defend the sovereignty of the nation. But a lot of it also went into building institutions, educating generations. There are about two generations of educated GCC citizens as a result of the first oil boom. So it was all spending, spending, spending. A lot of that money went outside: sending citizens abroad to study; building armies meant buying arms from abroad; investing abroad, which meant investing in one sector internally, which at the time was oil – to be able to sell more oil and sustain the economy.

At the time most of the workforce was working for the government. Everyone was a government employee, preferably in the oil and gas sector. That is where I was, I started off in the government in the oil and gas sector. That was a safe job. But as we moved, as Nabil was saying, more and more people left government for better jobs in the economy as a result of the second oil boom. When we had the first boom we prepared ourselves. We felt that the prices were going to stay. But then we were hit twice. Because we focused on one vertical of the economy, which is oil and gas, we were vulnerable to decline in oil prices. In fact we were hit twice, in 1986 and in 1997. In 1986 some countries had to devaluate their currencies, and 1997 was not easier. In fact it was the time I came back to Oman after twelve and a half years abroad. 1997 was the year the prices went down to $9 from $32. That was a hard time for us. I actually wonder when I think, 1986, 1997… 2008? Is it an eleven-year cycle? Maybe economists will be talking about an eleven-year cycle. It is a cycle. We are in 2008 and we have another oil price decline. It has not gone down to $9 yet but we are ready for it when it does, that is the point of the rest of my presentation.

The GCC countries in the last few years, especially after the last war, have witnessed phenomenal growth, with GDP growth rates averaging 15 percent and some even much higher. Kuwait, for example, in 2007 registered a 26 percent GDP growth rate. That is nominal GDP growth rate. In order to get to the real, you have to offset by inflation.

Capitalizing on the wealth surplus from the oil prices, GCC countries’ sovereign wealth funds have expanded in size but also in scope, types of businesses, and also in geographical scope, different countries around the world, in order to hedge against problems. (People do not like using the word hedge anymore but I will dare to use it, not being an economist.) To capitalize on high oil prices the countries, while developing other verticals of the economy like Nabil was saying, were also focusing on trying to get more oil out and sell it while it is high. We have learned two lessons before. So there was a lot of investment that went into oil exploration and production but more also into petrochemicals and all these new industries – polypropylene and all the things I cannot pronounce – and we have them now across the Gulf everywhere. A lot of spending went into that so that if the prices of crude go down, we will be able to sell at higher value. So we are going higher in the value chain, so to speak. We will have sustainable jobs for our nation and the people living in our countries as expatriates.

For example, the extra focus on exploration and production meant that a country like Oman, which is relatively small in terms of oil production, was able to increase its production by June this year from June the year before by 53 percent. So it is working. There are techniques like enhanced well recovery and so on. There is a lot of spending in order to capitalize on the high prices but also in order to sustain the value should the prices go down.

While the oil prices were going up beyond $100, policymakers were prudent in their fiscal planning policies. They all planned for what is happening now, which is prices going down. In fact the break-even oil prices required for the fiscal balance in Saudi Arabia, according to HSBC, is $55 per barrel. You all know we crossed that. But all the other countries, according to HSBC, are far below that number. I know Oman is $45 for this year. So we have planned for this because we have been hit twice. That is why a lot of these countries are enjoying current account surpluses. For example, a small nation like Qatar is enjoying over $10 billion in surplus on this year’s budget because of that kind of planning.

Five out of the six GCC countries, excluding Bahrain, are categorized among the fastest-growing populations. That is not indigenous population, we are not accelerating our reproduction; we are attractive economically and socially so we are getting many people choosing to move to the GCC and make a living there. So this period was characterized by heavy investment in infrastructure. In order to serve all those people who are coming into our countries, we had to build and expand the infrastructure. That meant also many projects on tourism as well because some of those were coming in as a transient population, they come in and go (hopefully leaving some money behind). Some make some money. MEED projects that over $2.3 trillion will be spent on infrastructure in the GCC in the next five years. That is a lot of money. The tourism sector has grown in an unprecedented way in the UAE, Bahrain and Oman, and Qatar is now following suit. I hope that continues. The planned and contracted projects for the tourism sector alone, which includes the real estate associated with it, is $195 billion. That is planned and contracted; there are many future projects to come.

But all of this growth was paralleled with surging inflation, which is now a big issue and brings political concerns onto the table. The GCC consumer index was below 5 percent in 2006 and by 2007 it has crossed 10 percent. Mid this year it was 13 percent. So it is growing rapidly. People claim that it is now declining. There is even a further claim that this global financial crisis is benefiting the poorer and therefore we are seeing this decline in the consumer price index. The disparity of income during this growth was an issue and therefore the inflation affected a lot of people. It affected mainly the people who are coming from abroad to work in building all that real estate and serving the community, building the infrastructure, at lower salaries. It was becoming more and more difficult for them to sustain a living in the GCC and be able to still save some money to send back home. That was an easy thing to do in the past but with the surging inflation that became more and more difficult.

I am going to try to close with some questions that maybe we can discuss in the panel. What is the effect of all this growth, especially in the shadow of the global economic crisis? There are demographic effects, cultural effects, social effects and of course economic effects. What do all of these mean to the public, to the normal person? To Joe Public, not Joe the Plumber? (At least Joe the Plumber has some source of income; Joe Public, the normal citizen, may not have a source of income if the global crisis prevails and the jobs are lost.) We have already heard about companies firing and sometimes rehiring at lower salaries, which brings in a human rights issue – something that you like to cover.

What will happen to all these buildings? Dubai, if you allow me, Nabil, to say, is heaven for statisticians. All the numbers happen in Dubai. People are wondering what will happen to all those buildings if the bubble does burst. Madame Chairperson talked about an article she read. We all choose not to believe that article. You have had your own bubbles in the US. For example, the railway bubble when it burst, you were left with the best railway network in the world, one of the best. When the dot-com bubble burst, left you with the best ICT companies in the world and the best ICT infrastructure. So it may not be all that bad.

Will governments continue to race to liberalize the market and step aside? I do not think so. Predictions say that governments will now come back in, put more regulation and perhaps not just stay at leveling the ground but be there to referee the games that are being played at that ground. I hope this does not take us too far to the left but middle of the road would be nice. So we will see less neo-liberal economies. I know Bahrain, of the GCC, was following a neo-liberal, aggressive liberalization policy. I think they are rethinking that right now. I know they are rethinking that, at least from some officials that I met.

Are we diversified enough to weather the ongoing decline in oil prices? We have seen the prudent fiscal planning policies. I think we are. He has given you the Dubai numbers. They are not really strictly related to oil prices. Oman numbers are similar. We are building our own infrastructure to diversify even within the country geographically. We are building six new airports to make sure that we do not turn into the city-country, so we would have rural areas where people would continue to live. That will feed our economy.

Madame Chairperson asked me to talk about branding Oman. This is a project that we now have and it is timely. We are going to be branding Oman with something that we believe suits us and would be more into tourism, cultural tourism, and branding Oman for certain businesses that are related to building our own indigenous resources. That is all I have to say. Thank you very much.

Susan Bastress: For any of you who have never been to Oman, let me just say it is an absolute must place to go. It is an absolutely striking country, beautiful people and incredible scenery. That is spoken by someone who took my two kids with me for a year to Doha, which I think at that time – this was some time ago – was rated the loneliest place on earth, so we loved going to Oman.

My third panelist is Aamir Rehman, who is a consultant and author. I have just finished his latest book, which I recommend to you all. An excellent book, especially for someone like me who is advising a law firm on the Middle East, but equally applicable and more so probably to companies that are looking to sell products and move employees into the Middle East. It is a really excellent guide.

Aamir is formerly the global head of strategy for HSBC Amanah. He has been a consultant with the Boston Consulting Group and he is the author not only of this book but of “Islamic Finance: The New Global Player.” He tells me he is in the middle of his next book, which maybe he will tell us a little more about. His commentary has been featured in The Wall Street Journal, The Financial Times, Wharton Leadership Digest, US News and World Report and other media outlets. He holds only three degrees from Harvard: MBA, master’s in Middle Eastern studies, and a bachelor’s degree. Thank you for coming and we welcome you.

Aamir Rehman: Thank you, Susan, for the very generous introduction. You heard that I was a consultant and I must say I am guilty as charged of that claim. So I could not do a presentation without some slides, so I have some slides here. I am the third non-politician in this panel but I cannot help but tell a little story to start off which has maybe a little political edge to it.

Last week I was in Jeddah, Saudi Arabia, and I was driving with a client of mine. We stopped at a light and I turned to my right, and I saw a van. The van had marketing messages written in both Arabic and English. It had also a message painted on it that said, “Yes, We Can.” It was very interesting. It was a delivery company and I don’t think the people who wrote that on the van actually understood the political implications of what they were saying. I think they meant that they were good at delivering things. But nonetheless it shows you how the political messaging that comes out of our country has such a wide effect. I thought that was quite striking. In fact I made it the wallpaper of my Blackberry in case anyone wants to see the picture.

Both Nabil and Amer have made it quite easy for me to just highlight a few additional points and perhaps share more detail on some of the themes they have been discussing. What you have been hearing about from my fellow panelists is the growth of the GCC, what has made it such an interesting place to do business. The way I put it, there is an opportunity formula that has been driving the prosperity of the Gulf. The first part of that is sustained prosperity and growth. You have heard about the growth rates, you have heard about the prosperity. Just to throw out a few more statistics, the GDP per capita of the Gulf is three times that of China and five times that of India. So you know if you are marketing to consumers, GDP per capita is very important. The Gulf is a small market, there are only 40 million people in the GCC, but nonetheless it is a prosperous market. GDP per capita in 2006 was roughly $20,000 at purchasing power parity. So it is a wealthy market by emerging market standards. That is quite important.

The second part are the attractive demographic shifts. The shifts that you see in the GCC, you find it is a very young population. You heard Amer referring to that. There are many countries in the Gulf in which the majority of the population is below twenty. That creates both opportunities and challenges. From a commercial perspective, some of you who might be in marketing or business will know that the best market you can possibly get is a young market. So everyone is trying to get the 15-34 demographic, that is your sweet spot. That is the GCC. More than half of the GCC is in that sweet spot. That is important. You heard Amer talking about the two generations of educated nationals. Clearly there was education before that as well but the education profile, the connectivity with the broader world, is much richer today than it had been twenty years ago.

The third element is regulatory reform. Nabil is here and we all tip our hats to Dubai for the regulatory reform that was created there and really enabled Dubai to differentiate itself from the rest of the Gulf, with its free zones and its various regulations that have made it much easier to do business.

If we talk about this crisis and thinking about how this crisis affects each of the three pieces of the formula, let’s start with prosperity. Oil prices dipped below $50 yesterday. This is striking. Amer referred to the break-even rates. Saudi Arabia’s is estimated to be about $55 so that means now Saudi Arabia, if prices stay where they are, it is no longer operating at a surplus but rather is operating at a deficit. This is very serious. It has happened before and they have spent from their reserves but it changes the investment activity fundamentally.

Equity markets are down well over 60 percent across the Gulf, significantly more of a hit than what you see in the US and Europe. What is striking about this is that the corporate earnings have not taken the same toll. If you look in the US, if you look at the Dow, you find that we are down about 50 percent year-to-date but our companies also are struggling with earnings. If you look at the Gulf you will find the company earnings are still strong but the equity prices have tanked. It is an interesting commentary in fact on the market, partly saying that the markets are very emotion-driven and heavily retail markets, so people get nervous and pull their money out even if the earnings are still there.

The third element and this is the most fundamental is the budget surplus question. The break-even point of Saudi Arabia, estimated to be $55; Bahrain would also be quite high; Oman you heard was $45. Other parts of the Gulf are very different. If you look at Abu Dhabi, in 2006 it was $19 per barrel; today perhaps it is more like $25 but still they have plenty of room while they still have surpluses. Kuwait is in the same neighborhood. Qatar has oil and gas both and healthy surpluses even in a low-price regime. So the dynamics of the Gulf changed with the surpluses being much smaller.

If you look at the demographics, they continue of course. These are long-term trends so the young population is still young. When you look across the world, one of the big challenges in Western Europe and the US is how we will fund the retirement of our seniors. We are always talking about this as a big issue. In the Gulf it is actually a reverse issue. The issue is the seniors are quite well taken care of and they are a small piece of the population. The issue is really how they will employ the young ones. It is a very challenging question and that is the major headline question facing anyone who is a policymaker in the Gulf.

The third element of regulatory reform – this is a very interesting situation and I am looking at it quite closely. On the one hand, when you have an economic downturn it speaks to the importance of openness. When you open markets, obviously you attract foreign talent, you attract foreign capital, you attract foreign businesses. So that is one argument. But also we know that bad economic times often lead to protectionism. It happens all around the world. It happens in this country and you are starting to feel it a little bit in the Gulf. With protectionism can come some drawbacks in terms of the pace of economic development. So that is something to look at.

On the slide there are two case studies that I find intriguing. One is in Kuwait. When the stock market declined after the collapse of Lehman, it was a very interesting struggle that took place because there are many private investors who insisted that the government should put money into the stock market. Stocks have gone down, the people have lost value – you as the government are responsible for funding the stock market. The FT reported that the Kuwait Investment Authority put in a small amount of money but this is obviously not a sustainable model and it is not what governments should be doing, propping up equity markets. What happens there will be interesting to see. The Kuwaiti market was closed for a couple of days. Did they open today? They may have opened again. In any case, it is going to be interesting to see what happens with the stock market.

The other one is the economic cities that Nabil made reference to in the Kingdom of Saudi Arabia. One of the open questions is how many of these cities or how will these cities be free in terms of free zones? Will they be free zones? Will there be foreign ownership? Will there be relaxed regulations? That is going to be a very interesting test case to see. It was already a challenging thing to do in Saudi Arabia given the demographic challenges they face, but now also with an economic downturn there are contrary pressures: one pressure to open up, another pressure to close down to keep things for the locals. So it should be an interesting set of examples.

In terms of the oil price, obviously oil wealth and gas wealth feeds the prosperity of the region. This is a graph from the US federal government giving outlooks for crude prices. There are three scenarios: a base case, a high case and a low case. What is interesting is how rapidly we have gone from high to low, in a matter of a few weeks. Energy markets are very volatile, things might change. OPEC has talked about a target between $70 and $90, which would take us closer to the base case or towards the high end, but we will see what happens.

This is Oman and this is what is called an age pyramid. This is a hard chart to read but essentially what it talks about is the number of people within each age band. The bottom are the younger people and the top are the older people. The top one is the US. So you see in the US we have roughly, besides the seniors, we have roughly the same number of people in each age band so the population is replacing itself. If you look at Oman you see the biggest segment of the population is between zero and five. The next biggest is between six and ten, and so on. It is a striking demographic and it means some very good things – it means growth, it means potential for expansion in the country. It also means the need for employment is very acute.

This is on the workforce issue. You see there is a workforce boom. The growth in people aged 15-64, which is roughly speaking the workforce, you see there is a rapid growth in all the GCC countries. That is expected to continue through 2015, so more people entering the workforce.

What does this mean for external stakeholders? Four broad points. For global businesses, the mantra I would put forth is expand – but prudently. In today’s world you find very few markets that are fundamentally strong economies and where you see a good growth prospect. The Gulf is still one of those places. So expansion in the Gulf is a smart thing for businesses and US companies are doing it and should continue to do so. However it has to be done with prudence, recognizing that the surpluses may not be what they used to be and there needs to be a much more disciplined approach to it.

For bankers and capital markets, you have heard a bit about sovereign wealth funds and investments coming out of the Gulf. The Gulf as a source of capital is a very important theme. When I was growing up as a consultant and a banker, the Gulf was very much of an afterthought in terms of forming your strategy and sourcing capital. You never thought about sourcing from the Gulf. So when Aston Martin, for example, was sold by Ford, I can almost assure you they did not think they would sell it to Kuwaitis. But they did, and they sold it not only to two Kuwaiti organizations but they also did it in a shari’a-compliant structure to meet the needs of the Kuwaiti investors. That is important and I think the sourcing of capital from the Gulf will be an ongoing theme which you will continue to see.

For investors, for those who want to invest in the Gulf, it is a good time to buy because the valuations are very low. But you have to buy for value. Just very briefly, I think the most strategic way to invest in the Gulf is not through the listed markets – they are highly volatile and they are very sentiment-driven – but rather through private equity and other more sophisticated forms of investment.

The last, on the policy side for the US. One of the things we have always been talking about is how do you react to Gulf investors increasing their stakes in US entities. Many of you would have heard yesterday about Prince Alwaleed bin Talal and his investment in Citigroup increasing now to 5 percent. What is interesting is over the past few months you have not heard that many bailouts. So when Lehman went down, why didn’t Qatar pick it up? Why didn’t Kuwait pick it up? Why didn’t Abu Dhabi pick it up? It is interesting. There are several reasons. One of them is that the Gulf investors have been burnt quite badly. So when Abu Dhabi did invest in Citi, stock was trading in the 40s and today it is trading below 5. So they have felt that pain.

So part of it is that they are more savvy about the investments and they are not going to fund companies if they feel there is still a way to go down. But also the regulatory side is very important, so no company, no investor, wants to feel that his capital is unwelcome. The US regime has to be very thoughtful about how it engages Gulf capital, to regulate it and have vigilance but not in a witch hunt sort of fashion that alienates those investors and takes away the capital that we need. In a nutshell, my recommendation or my thoughts around that are regulation at the transaction level is very important, but it is very difficult and it is inappropriate to try to regulate a sovereign in his activity globally because that is not within our jurisdiction. So that is for external stakeholders.

The last slide relates to decision-makers in the Gulf and how to look at this particular downturn. The first point, the headline really is that it is time to focus on the real economic issues that have been facing the Gulf for a long time but now are more acute and more evident. The first is the importance of building strong social institutions. One of the things we have seen in the Gulf is the rapid growth – the two booms in the 1970s and again in the 2000s – most of the time when you look at economic development there is a relationship between the development of social institutions and economic prosperity. So if you look at Western Europe, for example, the development of universities and civic society and so on has gone hand-in-hand with prosperity. Obviously that is the case here in the US. In the Gulf there was a shock in which prosperity came very quickly but the social infrastructure was not developed at the time. So it is being developed very quickly through initiatives like Nabil’s, the Dubai School of Government, and in Qatar of course, Education City. Dubai’s Knowledge Village and all the very sound competitive initiatives that Nabil has been part of.

The second point is around equity-based investment. The level of leverage is very high in certain parts of the Gulf and we are starting to see the effects of that. Equity-based investments I think will get more prominent play and are more healthy and resilient in times like this.

In terms of domestic investment, you have heard about this, it is a very important way to stimulate the real underlying economies. You heard I used to work at HSBC; we did a great job sourcing capital out of the Gulf. We did not do a great job in terms of investing that capital back in the Gulf and I think more and more that is going to be an important thing for us to do.

The fourth point is around budget rationalization and prioritizing. As I mentioned, surpluses are fading and they may be low for the foreseeable future so the prioritization of initiatives becomes very important. You heard Susan talking about the private initiative around the party and all that. I think we are going to hear fewer stories about that and we are going to hear more stories about things like educational investment, investment in transportation, investment in IT and the things that can really enable long-term competitiveness.

The last is the diversification of public revenue sources. This is a very interesting one because you have heard from both Amer and Nabil about the importance of diversification of the economy in general, but in the public sector it is also very critical. The governments today, as I am sure you are well aware, are highly dependent on oil and gas as their only source of revenue. As they look at alternative sources of revenue it will have profound impacts both on how the government operates and also how the people relate to the government. The founding principle of this country is “no taxation without representation.” What you find in the Gulf is “no taxation.” So if you want to introduce taxation, that has implications for the role of the public in decision-making.

The last point here, the broad takeaway, is that the crisis really is an opportunity for leaders in the Gulf to take decisive action. This is always the case. We have a verse in the Qur’an that we remind ourselves of, which is: [in Arabic] indeed, with difficulty is ease. Meaning, with every difficulty there is also a silver lining if you will, there is a benefit. So we find that wherever there is difficulty, there is opportunity. That is what we are facing today in the Gulf. I think we will see defining times in the next few years. The Gulf is still a very attractive place for business but these are times for a very sobering look at the outlook and ways to really make it competitive in the long term. Thank you.

Question & Answer:

Susan Bastress: One of the [question] areas seems to be focused on the GCC as a political unit going forward. This question is: do you believe that other GCC Arab states are able and willing to adopt the UAE example of bolstering their economies, or is the UAE a GCC Arab anomaly? Similar questions along that line are to contrast basically the economic reform approaches of the rulers of Dubai and Abu Dhabi and to what extent you think the current financial crisis will lead to Abu Dhabi obtaining a larger part of the Dubai state-backed enterprises. While we are on this topic of GCC and politically where it might be going, an excellent question is the prospects of Yemen and its membership within the GCC in the future.

Nabil Ali Alyousuf: The first question about the move towards diversification, I think if you really look at the last five years you see that most Gulf countries have been adopting this strategy, with varying degrees of intensity. The examples that I cited, whether it is Oman, Qatar, Bahrain, Saudi, to a lesser extent Kuwait, have all been moving towards the same direction: diversifying the economy, opening to new sectors and investing in social-related investments like Aamir said, with education, health and others. So I really do not see a major outlier within this strategy other than maybe Kuwait, and we know that Kuwait at the citizen level would want to see this reform but their political system is putting them in a state of, in a sense, stagnation. But in general the GCC is moving in a consistent way in that respect.

The third question about Abu Dhabi taking stakes in Dubai, there has been a lot of speculation in the media about this issue and about the Dubai debt issue. The reality of the situation is that the asset base of Dubai outstrips the debt by several fold. There is no concern among the top leadership of Dubai about default in paying debt. In fact, the debt in Dubai is not for expenditure or government expenditure, it is more about building asset classes or investing in companies that actually generate cash flow. One of the good things about the debt in Dubai, it is focused around these state-owned enterprises, for many of which the debt is transparent. They are listed in the DIFX, for example. So they are monitored more effectively.

We believe in Dubai that during a time of crisis is where you make the right investments to take advantage of the opportunity that will come from that, and that is what we are doing. So in a nutshell, we are confident about our situation. Many of the media reports that went out, including the FT – I had a very good discussion with Roula Khalaf, the editor of the FT-Middle East – they are not based on specific data, it is more based on speculation and rumors unfortunately.

Amer Awadh Al Rawas: If you would allow me to use the time to make two comments that are not related. I think Nabil covered those two questions. I was inspired by Aamir’s comment about the taxation. That means that we do not have much information to build on when we are trying to plan. Taxation gives you information. What people are saying now, the crisis is not over yet, until we know about the credit card situation or until companies do the year-end closing. The International Finance Reporting Standards allows you to do many things in between the quarters but at year-end everything has to come out. So we are still waiting for year-end.

Also another thing that is peculiar for the Gulf is we do not have mature credit systems, like a credit bureau or credit history system. We do not have credit history. That makes it very difficult for us to plan at the retail level, at the individual level. We have history of credit but no credit history.

I believe one of the concerns also is the fact that a lot of our businesses, especially the big ones – Nabil, if we talk about Emirates Airlines – they are all vertically integrated. This is something where deregulation comes into place. If a company is so vertically integrated, from the airline to the airport management to the hotels, restaurants, booking, tour operation and even the fresh flowers served in the airplane are part of the company’s vertical chain – if anything goes wrong in that, there is a problem. I think this is something the new regulations should cover. This is not only in the airline industry, it is everywhere. Anmar, one of the largest and most prominent companies in the GCC, has its own financing company that finances the loans for the credit. So when we look at the crisis and try to learn from it, we need to address those issues.

Aamir Rehman: Just briefly, on a couple of the points. The contrast within the GCC markets are substantial. I think one place where you will see that play out is the common currency initiative. It is talked about a lot and I think it is an important initiative. 2010 has been set as the target. It will be a challenge to meet that because when you look at the common currency regimes, for example, the Euro zone, there are some very tight and very specific guidelines around unemployment, fiscal policy and so on. In the Gulf there are wide contrasts. Essentially it is almost like a barbell. If you take the unemployment metric only, three countries in the Gulf have double-digit unemployment – Saudi Arabia, Oman, Bahrain – one side of the barbell. The other side, you have the UAE, Kuwait and Qatar, who have basically no unemployment, 2-4 percent. So when you have issues like this, I think creating a common currency is quite a challenge. So we will see how that progresses. I think there will be many steps to strengthen the GCC before that happens, important steps, to make the GCC more of a common economy.

Susan Bastress: None of you really touched on Yemen but two of our people have asked about that, and other Arab countries that are less prosperous than the GCC Six.

Amer Awadh Al Rawas: We were trying to avoid politics.

Susan Bastress: I think it is in the title of our panel though.

Amer Awadh Al Rawas: From an economy standpoint, I think Yemen presents a lot of opportunities for some of the surplus wealth that was created over the last period for GCC companies and indeed governments to invest in Yemen. I understand that this is happening already. My company bid for a license – we were number two, missed it by a notch – for a mobile operator. I know there are a number of real estate, material-related projects for Oman being developed in Yemen. I know there is a huge cement factory, in fact bigger than the one in Oman, being built in Yemen somewhere. I think the real estate disease is catching in Yemen as well. We are seeing movement on the real estate. I do not know really much about the economic situation.

I think all of these things that are happening, along with the other social activities like playing within the GCC football championship and so on, are bringing Yemen closer to the Gulf. Also we are seeing students coming from Yemen to study in the Gulf and maybe staying beyond their studentship to work after graduation. At the political level we believe there is willingness and we will wait to see when it materializes.

Susan Bastress: Several people have asked about the role of Islamic finance and the future of Islamic banking in the region, frankly globally. My own question I would add to that is whether it could play a role in helping to restructure where we go from here in some of our heavily impacted markets, because it is so asset-backed and more prudent than perhaps what we have just learned from our own mistakes. There is one question I have to read, it’s just great: I hear the laid-off Wall Street workers are moving to Dubai. Do you plan to let these people mess up your financial institutions too? That’s excellent. Aamir, since you wrote on this topic, where do you see this going and how could possibly the GCC lead the way?

Aamir Rehman: Islamic finance has, as you pointed out, some safeguards in the theories of Islamic finance that are very helpful in preventing crises like this. For example, I read today in the Journal that Vikram Pandit of Citigroup is trying to bring back the ban on short-selling because Citi has been short-sold so much. According to shari’a we are not allowed to short-sell in the first place – you cannot sell something that you do not own. It sounds pretty basic but when you start selling things that you do not own, funny things happen. So we have these principles in shari’a. As someone who has been very close to Islamic finance and worked in Islamic finance, I can say for us it is a humbling time though. It is a time that reminds us to rededicate to our principles because when you see the way that Islamic finance operates, we have been doing a lot of things to try to replicate conventional finance and have the same effects – partly because consumers are used to that but also partly because it is sometimes the easier way to make a buck. So I think it will be good for the Islamic finance industry to remind ourselves what our principles are and to come back to more shari’a-authentic solutions.

I will give you an example from Saudi Arabia. In Saudi Arabia it is a dominantly shari’a-compliant retail market. We had the Saudi-British bank at HSBC and you could not sell conventional products anymore to the man on the street because he wants something that is shari’a-compliant. Part of what has been happening in Saudi Arabia is right now the monetary agency is considering deregulation for the financial sector. They are considering ways to separate mortgage origination from the actual holding of debt because that was seen as a way to spur growth. Now I think they are rethinking that and saying, wait, maybe there is something good about keeping the origination with the debt issuance as part of the same.

I think Islamic finance does have some principles that are important to look and reflect on in this crisis. I think both the conventional financial system and the Islamic system can actually benefit from revisiting those principles. There are various forums underway that are undertaking that exercise.

Amer Awadh Al Rawas: I think it is fortunate that Islamic finance is not really matured yet to the level that the conventional financing has matured. It gives them time to reflect back and perhaps go back to the principles, as Aamir was saying. It is interesting that people are now saying the banking systems that are so basic, like Lebanon for example, is now a safe haven for your money. They take your money, they lend it to someone else and that’s all they do. There are no derivatives, no bad hedge funds. I think with Islamic finance those fundamentals are there. They are now building products. There was recently a conference in Malaysia, I was reading a synopsis of the conference that is very interesting. Sticking to the fundamentals but coming up with products that do not deviate too much from the principles but also learn from the global crisis and where things went wrong.

Susan Bastress: Islamic finance is really going global. Our firm has handled several shari’a-compliant project financings here in the States. One issue which I think is timely and interesting is phrased like this: what are the GCC states’ feelings concerning green technology movements in the US and worldwide? Is this an opportunity for investment and how does that relate to the corresponding detraction of oil revenue? I would note to the person who asked and I am sure most everyone knows that Abu Dhabi has been taking the lead, with Masdar and its initiative, in creating a carbon-neutral city with the funding from Mubadala. It is an incredibly exciting initiative to mitigate the highest carbon-emitting region in the world, which is Abu Dhabi and Dubai.

Nabil Ali Alyousuf: You are absolutely right. In the last few years we have seen movement by the governments in the GCC, but I will talk more about Dubai and the UAE, in adopting greener policies. You mentioned Masdar. Dubai has set a code for green buildings now which is being implemented. Dubai Taxi, for example, the taxis, we have introduced the first hybrid cars. So there are plenty of examples of the move towards reducing the carbon footprint of the nation in general. You have to also remember that it is a young country so the maturity takes some time before that comes along. Despite that, I think we are doing quite a bit. We are moving forward with initiatives like Masdar and others.

Susan Bastress: I think it is very exciting. I will ask you each to make some final remarks.

Aamir Rehman: Thank you very much. As a final comment, it is more of a self-serving one if you don’t mind, Susan mentioned that I am working on a second book. I am actually looking for research associates to work on that book with me. I see some young folks with notebooks out, that gets me excited. It is pretty easy to find me on the web and my email address is there so if you are interested in working on the next book, please let me know.

Amer Awadh Al Rawas: For my final note, I would just like to say that I am very excited about the Masdar, Abu Dhabi project. I think it will be a proof of concept. We have seen that whenever the oil prices go up there is more talk about green. Now the oil prices are going down, I hope it will not fade down and we will need the oil prices to go up to $200 to see green solutions. I surely hope that all this hype about green stays and grows and then we see some real proof of concept in Masdar, Abu Dhabi.

Nabil Ali Alyousuf: When I travel from the Gulf to Europe or the States, sometimes it strikes me when I read the newspapers – in the Gulf I usually read the Arabic newspapers and then when here I start reading the local newspapers – and it seems to me like we are living in two different worlds as far as the sentiment is concerned. The Gulf still has a very positive sentiment, a very positive outlook on the future. Yes, people are realistic that it has affected them but it is one of the areas of the world that will still continue to enjoy growth in the economy. Maybe at a slower rate but there will be still growth in the economy where other large economies are contracting. People still are bullish and are preparing now for the next boom. So we invite you all to be part of that and would like you to come to the Gulf – to invest, or for those in education there are a lot of opportunities now in education and other social areas also.

Susan Bastress: Thank you all very much.