They were further encouraged when in 2006, the price of oil increased from an average of $28 per barrel to $80 per barrel.
Consequently, the gross domestic product (GDP) of the petro-states increased manifold and created substantial liquidity and large-scale opportunities for overseas investments. In fact, the funds of the Gulf Cooperation Council (GCC) alone accounted for more than half the assets held by Sovereign Wealth Funds globally.
New analysis from Frost & Sullivan (financialservices.frost.com), Petrodollars - Transformation of Oil Wealth into Financial Wealth, reveals that petrodollars are one of the most powerful financial tools in the present day scenario. The funds of the GCC are expected to touch more than $1.500 trillion by 2010.
If you are interested in a virtual brochure, which provides a brief synopsis of the research and a table of contents, then send an email to Tanu Chopra/ Nimisha Iyer, Corporate Communications, at tanuc[.]frost.com/ niyer[.]frost.com, with your full name, company name, title, telephone number, company email address, company website, city, state and country. Upon receipt of the above information, an overview will be sent to you by email.
"In the beginning of 2000, the funds of GCC did not constitute more than $350.00 billion and investments were predominantly concentrated in the U.S. assets," says Frost & Sullivan Research Associate Preetha S. "However, by the end of 2006, their assets grew to over $1.000 trillion and the pattern of investments also changed from low-risk portfolios to high-risk ones such as equity and alternative investments."
Nevertheless, the global economic slowdown has had ramifications across industries and regions and the petro-states have not been spared either. They have experienced a significant drop in the prices of their major export constituent and thereby, their revenue growth rates. The prices of oil plummeted from a high of $147 per barrel in the beginning of 2008 to nearly $60 per barrel by the end of that year. Experts expect this trend to persist and prices to hover around the $40 per barrel mark.
However, unlike the other oil-importing nations of the west, the Middle East petro-states' loss has been minimal with regard to capital or source of revenues.
"The mere slowdown in the pace at which the revenue gets accumulated clearly reveals that the petro-states are more insulated than any other economy, either developed or developing," notes Preetha. "Owing to this, almost all the global leaders are considering petrodollars as the only option to gradually bail them out of the financial predicament."
The refuge offered by petrodollars notwithstanding, the falling oil prices may alter the investment strategies of the petro-states. The international financial meltdown and the discovery of alternate sources of energy could accelerate the quantum of petrodollar investments.
Domestic investments are likely to increase in order to lower the region's dependence on oil revenues. This will, in turn, accelerate the region's urban development, economic diversification and create more job opportunities.
Meanwhile, investments in the international banking and financial services sector are estimated to reduce to approximately 30.0 percent of the total investments made by the petro-states. Although this does not imply that the percentage of investments in the financial services sector will fall drastically, not many will consider investing in this sector until the market stabilizes, as it is directly related to the global financial environment.
"Investors are likely to withdraw the invested capital from international banking and financial services sector and channel them into real estate, hospitality, and tourism sectors," observes Preetha. "The petro-states consider the real estate sector a very attractive investment option, especially in the United States and other developed countries, since the prices of the property market have reached the lowest possible levels."
Petrodollars - Transformation of Oil Wealth into Financial Wealth is part of the Financial Benchmarking in the Asset Management Industry subscription, which also includes research services in the following markets: 130/30s - analysis of active extension or short-enabled investment strategies, North American outcome-oriented funds: lifecycle funds - investment analysis, European Green investments market - investment analysis. All research services included in subscriptions provide detailed market opportunities and industry trends that have been evaluated following extensive interviews with market participants. Interviews with the press are available.
Frost & Sullivan's Business and Financial Services group serves clients around the world in all aspects of financial analysis, market research and monitoring, due diligence, idea generation, opportunity analysis, investment valuation, and other proprietary research.
Frost & Sullivan (frost.com), the Growth Partnership Company, enables clients to accelerate growth and achieve best in class positions in growth, innovation and leadership. The company's Growth Partnership Service provides the CEO and the CEO's Growth Team with disciplined research and best practice models to drive the generation, evaluation and implementation of powerful growth strategies. Frost & Sullivan leverages over 45 years of experience in partnering with Global 1000 companies, emerging businesses and the investment community from 31 offices on six continents.
Petrodollars - Transformation of Oil Wealth into Financial Wealth / N50E
Caroline Lewis, Corporate Communications- South Asia
P: +91 22 4001 3438
F: +91 22 2832 4713
Nimisha Iyer, Corporate Communications – South Asia & Middle East
P: +91 22 4001 3404
F: +91 22 2832 4713