Page 19 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

4 Introduction

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that of China, and 31 times that of India. Some are
forecasting that by 2011, the small, resource-rich Gulf state
will have the highest GDP per capita in the world. 9
■ According to the McKinsey Global Institute, the Gulf’s total
foreign wealth could reach $8.3 trillion by 2020. This would
correspond to about $270,000 per GCC citizen at that time. 10
■ Nearly all leading global financial institutions, including
HSBC, Citigroup, Standard Chartered, and Deutsche Bank,
among others, now offer Islamic financial services and view
Islamic finance as a significant opportunity.
■ In 2008, the Harvard Business Review featured a piece on the
rise of Islamic finance as a new global player in its issue on
“Breakthrough Ideas” for the year. 11

The global financial crisis and economic recession—which are still
underway at the time of this writing—have deeply affected the Gulf
region and its investment activity. The credit crisis and the subsequent
global fall in investor confidence rocked GCC stock markets, wiping
away billions of dollars of market capitalization in 2008 alone. The
drying up of global debt markets has brought many capital projects—
especially a number of Dubai real estate initiatives—to a screeching
halt. Perhaps most fundamental, however, has been the steep decline in
oil prices as a result of the global recession. Trading at around $150 per
barrel at its peak in 2008, oil fell more than two-thirds in value before
settling again at around the $50 per barrel mark. This fall in oil prices
slashed government surpluses in the Gulf and severely reduced the
supply of new surplus capital available for investment. Some
observers, therefore, have questioned whether Gulf capital will remain
as important to global markets as it has been in recent years.
In assessing the ongoing importance of Gulf capital despite the
dip in oil prices, consider the following four facts:

1. If no additional surpluses were generated in the Gulf, the
region would nonetheless still have substantial reserves that
have been built up over the past years. According to a
McKinsey forecast, the returns on GCC foreign assets would
exceed $1.6 trillion over a 14-year period even “if the GCC
never invested another penny.” 12
2. Gulf-based investors, like institutional investors worldwide,
have no doubt suffered losses as a result of the financial