Foreign assets double with rise in oil prices - Emirates24|7

Foreign assets double with rise in oil prices

Adia injected $7.5bn in ailing Citigroup Inc in 2007. (DENNIS B MALLARI)

A surge in their petrodollar income nearly doubled the total value of overseas acquisitions by the UAE and its partners in the GCC to $83 billion (Dh304bn) in 2007, according to bank figures.

The bulk of the acquisitions were in the United States and Europe and were part of the move by the GCC nations to utilise surplus funds in long-term investments to support their economic diversification programmes, according to the state-controlled Emirates Industrial Bank.

Economists expect the value of such acquisitions to sharply increase this year as some regional sovereign wealth funds have already pumped in excess of $30bn into rescue packages for major US financial institutions that have reeled under the crippling sub-prime crisis.

"The value of acquisitions by the GCC countries abroad totalled a record $83bn last year and most of those acquisitions were concluded in the United States and West Europe," the bank said in its June economic bulletin.

"It was one of the largest acquisition waves in history and was a direct result of the sharp rise in oil prices which rocketed to $133 a barrel last month… given the expectations that oil prices will remain strong, GCC states are expected to step up their acquisition drive this year and the next year."

The figures showed last year's acquisitions value was almost half the total global major acquisitions of around $170bn. They were also nearly double the size of the GCC's acquisitions of around $42bn in 2006 and more than five times the 2000 value of $15bn. The GCC's total acquisitions were estimated at only $10bn in 1995, when member states were reeling under painful fiscal deficit and slow growth due to low oil prices.

"GCC countries should make full use of such operations in supporting their economic diversification programmes as they provide them with long-term income, sophisticated investment instruments and the opportunity of attracting technology through the acquired advanced institutions," the bulletin said.

"There is no doubt such major investments will give a strong push to the GCC economies in the long run… besides, they will enable them to play a major role on the global investment map in future."

The report gave no breakdown for acquisitions in 2007 but early this year, the Abu Dhabi Investment Authority (Adia), the world's largest SWF, emerged as one of the largest single investor in a US financial institution when it agreed to inject around $7.5bn into the ailing Citigroup Inc, the biggest US bank by assets.

Between 2000 and 2006, the UAE also emerged as the largest Arab investor abroad in terms of announced acquisitions.

Figures by the United Nations Conference on Trade and Development (Unctad) showed the UAE alone accounted for more than half the total value of acquisitions finalised during that period by the GCC, which groups the UAE with Saudi Arabia, Kuwait, Bahrain, Qatar and Oman.

From a negligible level during 2000-2004, the UAE's acquisition transactions rocketed to $4.7bn in 2005 and $21.6bn in 2006 to boost the total value of its acquisitions abroad to $26.5bn during 2000-2006.

Unctad did not specify the GCC investors but in the UAE, both public and private groups have stepped up overseas acquisitions over the past two years. They include Dubai Ports, Adia, Mubadala Development Company, Etisalat, Taqa, Aabar among others.

The jump in oil prices over the past five years have brought a second economic boom to the GCC countries, slashed their debt, and turned persistent budget and current accounts deficit into mammoth surpluses. This has enabled them to rebuild their eroding assets and sharply boost their SWF resources.

During 2006-2007, their oil export revenues totalled around $615bn, more than the combined revenues in the previous eight years. The earnings are expected to climb to a record high of $357bn this year.

As a result, the combined budget surplus of the six countries in the Gulf is expected to exceed $250bn during 2006-2008.