In this article I will discuss about economies of other GCC countries.

Obviously, it will not be as

exciting as earlier 'Dubai Incorporated' as no one can recall any headline making stories about
these economies. Compared to Dubai, everything else seems dull and boring. Yet dull they are
not.

Abu Dhabi
The proverbial big brother to Dubai and an adjacent city state. It is being ruled by Al Nahyan
family. Think of them as old aristocrats compared to ‘new money’ al Maktoum family of Dubai.
Whereas Dubai was busy announcing palm shaped islands, free hold properties; Abu Dhabi,
relatively speaking, was sitting idle. With the temperatures rising world over, Abu Dhabi quietly
paced itself to be supplier of green technology _ not so much as innovators or inventors but
rather as manufacturers and testing lab _ not unlike what Taiwan was for integrated chips and
electronics. They decided green technology is the future and bought stakes in companies
focusing on green technology, announced a few developments that use innovative technology to
be environment friendly, and set up a few industries that focused on green technology.

Moreover, unlike Dubai which is running out of oil, Abu Dhabi still sits on one of the largest oil
reserves. It was not desperate to find other sources of revenue in tourism, media, or real estate. It
placed the surplus oil money in their sovereign fund which invested it into private equity deals
globally in financial sector as well as technological sectors such as aerospace, hi tech
manufacturing, etc.

When Dubai was desperate early this year, Abu Dhabi bailed it out though its reserves but not
before getting strategic stakes in Emirates Airline and other strategic companies and steering
clear of anything that has to anything with real estate of Dubai.

When rents are falling everywhere and nobody is hiring, Abu Dhabi is the only place where they
are still hiring though I won’t call it a spree and rents going up. However, before you call your
travel agent to book a flight to Abu Dhabi with a resume in hand, like all Gulf sheikhdoms, they
are mainly hiring whites (or westerners).

Bahrain
Apart from Formula 1 track and being watering hole of Saudis, Bahrain had nothing to offer
except financial services. Being ahead of the game as a financial capital of GCC, Bahrain had a
strong central bank Bahrain Monetary Authority. Hence, when the real estate boom started and
banks (commercial as well as investment) were popping up everywhere, BMA kept strict
supervision.

Taking leaf out of Dubai's history, Bahrain did try to reinvent itself as tourist friendly place,
having a few resorts or spas built and some real estate projects but targeted at rich foreigners
(though no promises of residency) yet the pace was not even half that of Dubai. As such, though
the bubble burst has hit them, it is not too painful.
Being a financial hub, Bahrain economy is invariably tied to the economies of wider GCC
region, with financial institutions being largest employer of the country. All corporate lending as
well as investment banking origination transactions were focused on most growth oriented
sectors and as a consequence most affected sectors of rest of the economies with exposures
focused on real estate developers in Dubai and Qatar, investment companies in Kuwait and
family owned corporate in Saudi Arabia. The only segment they could not cater to on scale of
local banks of GCC economies was consumers and that has left them intact, for now.

Qatar
If any country that tried to replicate Dubai's example, it was Qatar. Though it avoided headline
grabbing developments on scale of The World or The Palm Qatar it did have some large
developments on the sea front. However, since there were no promises of residency or the bank
financing lax, they were immune from the speculative investors. Where Qatar did the smart thing
was not follow the Dubai model completely. Dubai wanted to be an oil exchange, gas exchange,
diamond exchange, gold exchange, media hub, touristic hub, trading hub, prostitution hub,
money laundering hub etc. Whereas Qatar, being rich in gas, is vying to become a gas trading
hub and is developing Qatar Financial Centre firstly as a gas trading exchange and ultimately a
financial exchange.

Qatar could have been a media hub as they had a lead through Jazeera news channel but they
missed the opportunity. However, they are trying to become an educational hub and were
successful in bringing some excellent universities to Doha; however, the jury is still out on how
successful this step has been.

Nevertheless, due to their gas reserves and focused approach, Qatar is one of the very few
economies of the world that will be registering a growth when the economies world over have
forecasted a contraction.

Kuwait
Kuwait did not do anything. This can be gauged from the marketing campaign that Qatar
launched in 1st quarter of 2008 with a simple line "yesterday Kuwait, today Dubai, tomorrow
Doha". Though it pissed off Kuwaitis but it was a true depiction of how far left behind Kuwaitis.

Kuwait has a centrally planned real estate which is already very expensive hence there was no
real estate mania. Though some sky scrapers were under construction in downtown before the
crisis hit, some have been completed on accelerated basis but most are under construction with
work progressing at a snail’s pace or having stopped completely.

Kuwait has one of the oldest sovereign investment funds in the region as well as largest number
of investment companies. These companies raise funds and invest them in western economies.
With the world in growth craze before the crisis, investment companies were flushed with funds
and new investment companies were being set up every month. All the sky scrapers coming up in
downtown were mainly to cater to these investment companies and funded by these companies.
Within last few years, investment companies diversified their portfolio by including local
economies investing heavily in real estate in Dubai, Qatar and Bahrain.

When the crisis hit, Kuwait finally acquired pole position, by having not one but two defaults in
the region_Investment Dar and Global Investment House. And for almost three quarter, these
were the only defaults in the region with some defaults in Bahrain and Saudi Arabia finally
happening last month. Kuwaiti stock market is mainly composed of Banks and Investment
Companies and around 40 of latter were suspended in March this year as despite passage of three
months they could not finalize their accounts (too many illiquid assets on books). Kuwaiti stock
market tanked taking down local Kuwaitis with them who have invested in the stock market by
borrowing heavily.

Though the markets have stabilized now, but from my personal experience, there are a lot more
toxic assets on the balance sheets of these investment companies as well as Kuwaiti banks than
they are letting on.

Saudi Arabia
Till last month, it was the most immune country of the region. Saudi Arabia has a large shortfall
of housing for locals so before it can build apartments and condos for rich, it has to create large
number of affordable housing. Hence, they did not get on the bandwagon of developing high end
apartments.

However, recently they ventured into developing huge economic cities through public private
partnership. Bank lending is grease that moves the private part of the partnership. With the recent
high profile default by Algosaibi group and claims of fraud flying to and fro, banks have gotten
jittery about lending to Saudi corporations (The Economist has an excellent coverage of the story
last week along with its consequences for the economy). Most of the corporations in Saudi
Arabia are family owned and like in other GCC countries, the lending is name based; financial
accounts are just a formality. Till now, bankers expected that families will respect their legacy
and not default on their debts. However, the $10 billion default of Algosaibi group has shaken
everyone. Western banks have all but frozen more lending in country. All local central banks
have called a meeting of their banks to find out about the exposure to Saudi corporations. There
are fears about private sector and how much they have invested in speculative ventures locally as
well as internationally and how many banks are they going to take down with them. By one
report, Algosaibi has one hundred banks lending to its various associates and subsidiaries.

With oil prices rising, the fear of budget deficits has subsided. Hence, any shortfall from private
sector, the government of Saudi Arabia is expected to meet from its own sources. Moreover,
Saudi Arabia has a large population. They have so much untapped demand for food, housing,
electricity, transportation, utilities etc that with the right connections and strategy, it’s really hard
to go wrong over there. If you are a banker lending to Saudi family owned conglomerate, better
tighten your belt. But if you are looking to invest in Saudi, it is the safest economy to invest in at
the moment from economic stand point (the legal and commercial aspects are not part of this
article).