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ANALYSIS-Gulf Arabs risk losing investors without better data

Published 01/13/2009, 10:52 AM
Updated 01/13/2009, 10:57 AM

By Daliah Merzaban

DUBAI, Jan 13 (Reuters) - Gulf Arab countries must start publishing timely and detailed economic data to convince investors alarmed by weak oil prices and the global financial crisis that they are still prime targets for investment.

Some Gulf Arab states have not released economic growth data for 2007, let alone late 2008, a situation investors find increasingly unacceptable in such uncertain times.

During the region's six-year oil boom -- now a distant memory -- patchy economic data posed few questions among investors accustomed to secretive conservative Gulf regimes. They based investment decisions on the strength of oil prices, not the level of transparency.

"The region should not expect to be taken seriously if they do not provide accurate, timely data. It will hamper their efforts to project the sustainability of the region's growth story to the outside world," said John Sfakianakis, chief economist at SABB bank, HSBC's affiliate in Saudi Arabia.

Gulf policymakers often tout their success in diversifying from a reliance on oil export revenues, hoping to send the message that economic growth will continue during periods of depressed crude prices.

"You have to be very cautious about the diversification argument because the foundation of the whole growth model is still based on energy," said Abdallah Guezour, emerging markets fund manager at Schroders Investment Management in London.

"Anyone making a decision needs to have a view on the oil price. Everything depends on political dynamics and the evolution of energy prices."

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Oil fell to around $37 a barrel and touched a three-week low on Tuesday as further signs that the world economy is slowing sharply dampened demand expectations. It hit a record high of $147.27 a barrel last July.

FIXING THE PROBLEM

The financial crisis could act as a catalyst for the region to improve its data releases, with economists pointing to how Asian governments improved the transparency, quality and frequency of economic data after the financial crisis of 1997.

Gulf governments are attempting to improve the quality and timeliness of economic indicators as they prepare for a regional monetary union, including a single currency whose issuance will likely be pushed back well beyond a 2010 deadline.

For instance, they are working to align the methods they use to calculate consumer price inflation by this year.

But the Gulf will face more scrutiny if it fails to speed up the process.

"There is a lot of bureaucratic inertia in the Gulf when it comes to statistics," said Tristan Cooper, vice-president and senior sovereign risk analyst at Moody's Investors Service.

"Less transparency is not conducive to investor sentiment. But I wouldn't be too optimistic about the pace of improvement."

In some cases, data gaps are glaring. Kuwait, Qatar and Oman have yet to release real GDP growth data for 2007. Only Qatar and Oman announce nominal GDP more than one time a year.

The United Arab Emirates last issued GDP and inflation data for 2007 well into 2008. Its central bank has published key banking indicators, such as credit growth, only up to June.

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Since then, a building boom in Dubai has unravelled and banks have scaled back on new lending as they poise for rising consumer loan defaults.

While Saudi Arabia and Oman release frequent trade data, the kingdom's central department of statistics does so only for non-oil trade, with the latest data being September. Trade data from Oman's national economy ministry are up to date to July.

UNCERTAINTY

"The uncertainty over the state of the economy could impair the policy response to the crisis," said Fabio Scacciavillani, an economist at the Dubai International Financial Centre, expressing his personal views.

"For institutions in the process of rolling over their debt, it leads to higher interest payments because lenders demand a higher risk premium."

Reassuring wary investors their economies can withstand a slump in crude prices will be crucial for Gulf governments pursuing deficit spending in the next two years to keep key projects on track and stimulate the private sector.

Analysts said foreign investors were already thinking twice after Kuwait scrapped a $17 billion joint venture deal with Dow Chemical , which is now pursuing legal action.

On Saturday, the director-general of Duabi's finance department said the emirate expects to post its first ever budget deficit in 2009 of around $1.1 billion.

With weaker economic prospects, the cracks in the Gulf's economic data are more exposed than ever before.

"The world is a different place than it was in June," Caroline Grady, regional economist at Deutsche Bank. "It is hard to come up with appropriate policy responses." (Editing by Andy Bruce)

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