Über die Autorin bzw. den Autor

Aamir A. Rehman is the head of strategyfor Fajr Capital, a principal investment firm focusing onopportunities in key markets in the Middle East and Asia. Hepreviously served as director of strategy for HSBC. Rehmanis the author of Dubai & Co.

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Gulf Capital & Islamic Finance

The McGraw-Hill Companies, Inc.

Contents

Chapter One

We come from the desert, and we have been living on camel milk and dates ... and we can easily go back and live in the desert again.

— King Faisal of Saudi Arabia (ruled 1964–1975)

Decades ago, when wealth in the Gulf was far scarcer, one prominent Gulf family subtly began sending a regular stipend to another leading family to help the latter meet its expenses. The recurring payment became standard practice, and continued for decades—even after successive oil booms had multiplied the wealth of each family manyfold. When a financial review by the benefactor family found that this small payment was still being paid regularly, the family stopped the practice for fear that the small gift—negligible compared to both families' current incomes—could be a source of embarrassment for the recipient.

Shortly thereafter, the head of the recipient family placed a call to his former benefactor. While of course he was in no need of the stipend, he noted that the modest payment was something that he had deeply appreciated. He went on to explain the reason why: "because it used to remind me of the time when I was in need." Judging from their current appearance, it would be easy to forget that the countries of the Gulf have long but modest histories. A look at the business centers of Dubai and Doha, with their sleek skyscrapers, slick roads, and fast cars, reveals hardly anything that looks more than 15 years old. The financial centers of Bahrain, Kuwait City, and Riyadh do feature edifices from the 1970s and 1980s, but these are fast being eclipsed by new icons such as Riyadh's Kingdom Tower. Even the populations are strikingly young, with over 40 percent of the people in the Gulf being below the age of 15. All in all, the Gulf Cooperation Council (GCC) is a region in which one is overwhelmed by "newness" and signs of recent prosperity.

In truth, the countries that now make up the GCC have long histories of commerce and trade. For centuries, trade has been pivotal to sustaining the regional economy—the Gulf's agricultural and livestock base is very modest, and therefore the trade of goods was always crucial to developing the Gulf's wealth. In the area that is now the UAE, for example, the core economic sectors were historically pearl production, fishing, (modest) agriculture, and herding. Artisans produced some goods for local consumption, but the finest goods were imported from the Levant region of the Middle East (bilad al-Sham in Arabic, or what is today Syria, Iraq, Jordan, Lebanon, Palestine, and Israel), North Africa, and South Asia. The sparse agricultural endowments of the Arabian Peninsula and the reliance on trade were even mentioned in the Qur'an. Abraham, when leaving his family on the peninsula, prays, "O our Lord! I have made some of my offspring to dwell in an uncultivable valley by Your Sacred House"—with the last phrase being a reference to Makkah. Elsewhere, the Qur'an mentions "the journeys of the winter and the summer"—a reference to the trade routes that sustained the region for centuries.

The Gulf played an important role in the ancient trade route known as the Silk Road. The term refers to a longstanding trade pattern in which goods flowed between China, other parts of East Asia, India, Persia, the Arabian Peninsula, North Africa, and Europe. In this elaborate flow of trade, Gulf ports and the merchants therein were important intermediaries and enablers. Along with the exchange of goods came a mixing of cultures, ideas, and families, such that families with a broad range of ethnicities settled in the Gulf, and merchants from the Gulf settled elsewhere. Significant populations in Indonesia and Malaysia, for example, trace their roots back to Yemeni traders. In contemporary times, observers like BusinessWeek have discussed the rise of a "New Silk Road" as historical trade links between Asia and the Middle East have been revived. There is even an investment firm today by the name of New Silk Route (chaired by the former managing partner of McKinsey) that invests in businesses related to these growing economic flows.

Another key driver of the premodern Gulf economy—and one that remains important today—was the economic activity related to the Hajj. This pilgrimage to Mecca, required of all Muslims of means, now brings around 3 million pilgrims to Saudi Arabia each year. In premodern times, the numbers were far smaller, but the journeys were more elaborate. It was not uncommon for pilgrims to travel for several months and then to stay on the peninsula for several more months before returning home. The "Hajj economy"—in addition to pumping funds into the Saudi economy each year—has strategic implications for the development of key sectors. If fostered and applied more deeply, the capabilities and skills linked to the Hajj can be pivotal in developing and expanding world-class initiatives and companies in sectors such as infrastructure and logistics management, public health and safety management, and Shariah-compliant savings and financial services. Besides being an economic boon each year, the Hajj can also be—as it has been for centuries—a strategic component of the region's economic development.

The discovery and export of oil—especially during the successive oil booms of the 1970s and 2000s—have, of course, transformed GCC economies. Nonetheless, modern versions of the premodern sectors that supported the Gulf for ages remain visible today: massive ports like Dubai's Jebel Ali Free Zone facilitate trade between Asia and Europe; luxury goods inspired by the trade in gold and precious stones persist in modern form. Furthermore, the diversity of ethnicities integrated into Gulf society, especially in the western parts of Saudi Arabia, strongly reflects the heritage of the Silk Road and the Hajj economy.

A few decades ago, few would have imagined the massive wealth and rapid development that can now be seen in the Gulf. In a remarkably brief period of time, the countries of the GCC have made the transition from being minor economic actors (and often-overlooked markets for goods and services) to playing a meaningful role in the international economy. As discussed in length in Dubai & Co., this rapid growth has brought both benefits and challenges. One such challenge is a tremendous "backfill imperative to develop the social institutions—universities, cultural institutions, civic institutions, and the like—that are required for long-term economic competitiveness. Senior leaders in the Gulf remember a time when the region was in need. Today, the world recognizes Gulf capital—the fruits of GCC prosperity—as a new global player on the rise.

LARGE—AND GROWING—RESERVES

Over the past decades (but largely in the boom years of the 2000s), the economies of the Gulf have accumulated significant reserves. Consider the following figures:

* As of 2006, Gulf economies had about $1.9 trillion in foreign assets built up over the past decades.

* This pool of foreign wealth corresponds to over $47,000 per person living in the Gulf, and over $70,000 per GCC citizen.

* In contrast, the public debt of the United States in 2009 is over $11...