Page 42 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

CHAPTER 1 Floating on Wealth 27

FIGURE 1.1

Gulf Foreign Assets Are Set to Grow through 2020
12 337% 442%
GCC Foreign Assets in the Year 2020 (USD trillion) 8 6 4 84% over 2006 figure
10

XX%
Percentage
increase

0 2
"No New $70 Oil Price $100 Oil Price
Investments"
Source: McKinsey Global Institute, author analysis.

A third, intriguing scenario is one of “no new investments.” It is
projected that, even if the GCC “never invested another penny,” the
earnings on its existing investments would be about $1.6 trillion in
the period through 2020. 16 If all these earnings were reinvested
abroad rather than being spent, foreign assets would end up being
around $3.5 trillion—84 percent higher than they were in 2006.
However, such reinvestment would require fiscal discipline on the
part of public and private investors to preserve foreign asset returns
rather than use them to fund consumption or local projects.
As is evident in these three scenarios, the pace of growth in Gulf
assets is inherently linked to oil prices. The McKinsey forecasts cited
here were developed at a time when oil markets were booming, lead-
ing McKinsey to assert that “in any plausible oil price scenario, Gulf
nations’ wealth will continue to grow rapidly.” 17 Today, the range of
plausible oil prices seems wider. Nonetheless, it is fundamentally
important for observers of the region to bear in mind that (1) the
Gulf’s existing asset base is substantial and is able to generate signifi-
cant income, and (2) this base is likely to grow through both the rein-
vestment of returns and infusions of new capital. Just how much new
capital will be available for investment depends heavily on the
region’s ability to generate the kind of budget surpluses it has
enjoyed in years past.