Corporate Governance in the GCC - Euromoney

Introduction: the boomcontinuesFollowing several years of explosive growth, there is no sign yet of any deceleration in the economicboom being enjoyed by the six member states of the Gulf Co-Operation Council (GCC).According to the 2010 Economic Outlook published in June 2007 by theNational Bank of Kuwait (NBK), average real growth in the GCC moderatedto 5.9% in 2006, compared with 9.4% in 2003, but remained “morethan double its average over the 80s and 90s.” The current boom, addsthe NBK analysis, is likely to be sustained for “at least three more years,”meaning that “the expected seven-year run of above average growth willmake it the longest expansion in three decades.”Beyond the headline growth figures stand a range of dazzling economicindicators. According to NBK, national income growth averaged“Current account and fiscal surpluses reached 26% and 17% of 2006 GDPrespectively, and are likely to rise further if high oil prices are sustained”19% in the last four years, driven by a combination of “higher oil andnon-oil activity, public spending and domestic confidence.” Currentaccount and fiscal surpluses reached 26% and 17% of 2006 GDP respectively,and are likely to rise further if high oil prices are sustained.Those surpluses are leading to the accumulation of immense volumesof excess liquidity both in the public and the private sector, andamong consumers throughout the Gulf. NBK’s review notes that inspite of massive spending on projects, GCC governments have addedalmost $500bn to their net foreign assets over the last four years,which is enough to sustain spending growth for many years. At thesame time, the ongoing investment boom in the region, with some$1.25 trillion earmarked for public and private projects, is continuingto propel growth in the private sector. Completing the virtuous circle,purchasing power is sharply higher, with per capita GDP having postedan annual average growth rate of 15% over the last four years inspite of mounting inflationary pressures. That purchasing power, addsNBK, has been complemented by the build-up in private wealth fromthe recent equity bull run and from the buoyant real estate market.The continued surge in economic growth and the colossal wealth itis creating has not, of course, been distributed entirely equally acrossthe GCC region. In terms of real GDP expansion, in 2006 the UAE andQatar continued to lead the way, posting growth rates of 10% and8.8% respectively, making Kuwait (5.7%), Oman (4.7%) and SaudiArabia look sluggish by comparison.Even in the relative laggards, however, as well in those countries thatare leading the pack in terms of growth, the compelling nature of theGCC’s economic story has been recognised by key external commentatorssuch as the leading ratings agencies. In early July, Moody’supgraded the foreign and local currency government bond ratingsof UAE to A2, and soon afterwards Standard & Poor’s announcedupgrades for Saudi Arabia and for Kuwait (both from A+ to AA-). Thoseupgrades have had a positive knock-on impact on other ratings inthe region, with Moody’s, for example, upgrading eight Saudi Arabianbanks at the end of July.