20 June 2007

Steady Growth

Steady growth... Or the lack of it, in fact. Steady growth is characterized by a stable economy that is doing well in general, growing at a reasonable rate that doesn’t really bring any unexpected surprises or overly enormous amounts of wealth pouring in. What steady growth does bring is a solid forecast of what probably will and won’t happen in an economy, upcoming developments, and no shocks or surprises in general.

But when I see the current levels of growth in the gulf region right now, it starts to get a little bit scary. Growth levels have become so incredibly intense, developments emerging one after the other, a continuously expanding flow of money and capital, foreign investment blowing up in the region, and so on. During the past ten years, I’ve seen areas which used to be completely barren turn into major commercial centers, full rural roads transformed into busy downtown streets, and non-impressive skylines develop into silhouettes of huge buildings, monuments and skyscrapers. The amount of money being invested in the region has started to reach alarming levels; in just the past five years alone, I’ve seen some people I know go from living paycheck to paycheck, to driving Ferrari’s and owning private property, with a lot of cash to spare. I’ve seen companies reach growth levels of over 800% percent, and these aren’t small companies that only need small amounts of capital to grow. No. These are companies that originally started off with a few million dollars worth of capital in the first place.

Everywhere you go there seems to be some sort of construction, some sort of magnificent development, land being reclaimed to build multi-million ideas, or new investments bringing in the most unexpected projects. And its also bringing a lot of good for a lot of people. Just walk around one of the gulf cities on a typical day; people are getting a lot richer and it shows, whether it’s the Bentley and BMW cars that stand out, or the people eating out every day at the finest restaurants, or the huge oversized luxury houses that are being bought, it shows. Sure, we had rich people 10 or 20 years ago, but they weren’t near as many as there are now.

So this must be a good thing right? Well, sure, if you’re on the receiving end of it. But expand your stream of thinking and let’s look at this on a larger scale. Sure, the people involved in the investments, real estate, and any of the other fields that seem to be generating unbelievable cash flows are better off. But not all of them. And these people are only a small percentage of the population of this region. Sure, the benefits extend to other parts of the economy, such as restaurants selling more, more money so the airline companies benefit from excess travel, etc. But again, this doesn’t affect everyone. What it does do, however, is bring inflation with it. Extreme amounts of it. And its affecting everyone else who isn’t able to increase their own cash flows. So in essence, while some people are getting richer, a lot of people are actually getting poorer, and the gap is widening. And unfortunately, most institutions, companies, and even governments etc are more concerned with the former and have their needs on mind, as they will be the ones to help move the economy forward, bringing even greater growth and development, etc.

So now the poor (and now poorer) are frustrated in being a system where whatever efforts or actions taken to help them out are not completely adequate, and even with those, the gap is still widening.

But that’s not the only problem.

I sit and ask, how long can this almost dreamlike growth be sustained? Another two years? Five? Maybe 10? There will be a point when certain factors start to crumble, and its not that I don’t have faith in the current economy, its just that the normal rules of economics and history tell you that something will happen, and it just might come all crashing down. And who will be the victim here?

Sure, those who benefited from the whole surge will lose some money, lose some assets, their property values will probably drop. They will get hurt. But more so, the poor will get it the worst. A dying economy with over inflated prices and a below average cash flow just might make it worse.

The growth is unbelievable at the moment; there are investments everywhere; just take a look at some of the headlines in the local newspapers, just to get an idea of how much money is going through the region:

Dubailand taking shape
DUBAI: Widely touted as the Middle East's very own Orlando, Dubailand, a cluster of mega-billion-dollar projects, is gradually emerging across the desert sands of the booming emirate.

$620 million raised by Investcorp
DUBAI: Bahrain-based Investcorp has raised $620 million for its first private equity fund for investors outside the Gulf Arab region, the investment bank said yesterday.

Dubai to invest Dh300 billion: Shaikh Ahmed
DUBAI — Dubai is poised to change the face of global aviation and the logistics industry with investments of more than Dh300 billion over the coming decade, said Shaikh Ahmed bin Saeed Al Maktoum, President of DCA and Chairman and CEO of Emirates Airlines and Group.

The World's $5b Oqyana to begin construction next year
DUBAI — Construction on the $5 billion Oqyana World First development on 20 of "The World" manmade islands will start in summer 2008, the company's COO, Wadad Al Suwahyeh, confirmed, and will take three years to complete.

Airbus scores on $22b GCC ordersDUBAI — Propelled by $22 billion aircraft orders from three Gulf carriers, troubled aircraft maker Airbus SAS pulled out all the stops to claim star billing at Paris Air Show on the first day with total orders worth $30 billion — outselling its US rival Boeing Co. which could only bag $4.42 billion in new orders

And by the way, this is just a small pick from just ONE day of news. Imagine the amount of money flowing through the GCC economy every month, or every year? And besides those, think of the projects blowing up all around us? The Bahrain Financial Harbor, built as the Financial Hub for the region to compete on an international scale, Burj Dubai, the tallest building in the world, the unbelievable number of new investment companies, tourism projects, etc? It’s astounding and the growth is almost dreamlike.

But you never know when it could happen. We need to start being careful before we get hit by a really extreme collapse of one factor of the system, and when that does happen it will escalate and the effects will quickly be felt hard within the region. And as the expats, investors and global companies that were here when the money was here start to leave, all the buildings, tourist projects, investments and construction left will leave us with a huge ghost town. The bubble won’t continue to grow; it’s not a scenario that’s too far from reality.

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