Economy

Bahrain c.banker says to keep dollar peg

Bahrain's dinar will remain pegged to the U.S. dollar as it is the best option for the Gulf country's economy, its central bank governor was quoted as saying. "We will keep our currency exchange rate pegged as it best serves our economy," Rasheed al-Maraj was quoted as saying on the sidelines of an economic conference in France. The small, non-OPEC oil producer plans to form a Gulf monetary union with Saudi Arabia, Kuwait and Qatar. Kuwait is the only Arab Gulf country, which has abandoned the greenback peg in favor of a currency basket to rein in inflation. Analysts expect the members of the union, which is at least five years away, to opt for the dollar peg initially to ensure a smooth transition and also to avoid budget volatility given their dependence on oil revenues.

Oman: Back to speed

Growth in Oman may rebound even stronger than anticipated this year, with a recent report predicting GDP will expand by 7.3% in 2010. The report, written by the Arab Organization for Industrial Development and Mining (AOIDM), singled out diversification in the non-oil sector as a leading spur for growth, with Oman’s non-oil GDP tripling from US$2.1bn to US$6.4bn between 2004 and 2008. The headline figure is notably higher than the government’s initial prediction in January of 6.1% for 2010 and more bullish than the IMF’s early estimate of 4.1%. If realized, it would mark a strong recovery from comparatively slow growth in 2009, when the global downturn and a slump in oil prices saw GDP expand by 1-2%. Indeed, the figure comes close to matching the 7.8% growth experienced in 2008, a boom year for the Gulf, which saw record oil prices nearing US$150 a barrel. In common with the rest of the Gulf, Oman’s current bright outlook has much to do with a steady strengthening in the price of oil in recent months. Oman oil (which serves as a benchmark for the region’s Asian exports) has recently been trading at close to US$75 a barrel. This is significantly higher than the government’s conservative estimate of US$50 a barrel, made at the start of the year during budget calculations. The higher price is likely to see the government register either a budget surplus for 2010, or a much reduced deficit. (Source: OBG).

Iraq seeks to sign twinning agreements with Italian cities

The new Iraqi Ambassador in Rome Siwan Barazani said that he seeks to achieve "twining" between Iraqi and Italian cities to develop economic relations in various domains, according to an Italian news agency. The agency quoted the diplomat as saying that Italy is Iraq's major European economic partner and also for many Arab countries and we have excellent relations with it, calling for developing these relations through a twinning between Iraqi and Italian cities. He said he seeks to make a number of twinning operations between cities of common characteristics like Basra and Bari and between Milano and Arbil, noting that he will visit a number of big Italian cities next week to foster these new understandings. "Contacts are underway to prepare for the joint Iraqi-Italian committee meeting in Baghdad next December," he continued. "Iraqis consider Italy as a strategic partnership in the oil sector through the Eni Company, which recently won the contract of al-Zubeir oilfield," the ambassador said.

Oman, India ink deal to set up joint investment fund

The pact was inked in New Delhi between the State General Reserve Fund (SGRF) and the State Bank of India (SBI) in the presence of Oman's National Economy Minister Ahmed bin Abdulnabi Macki and Indian Finance Minister Pranab Mukherjee. Macki underlined the role of the Omani-Indian Joint Investment Fund in promoting joint investments in various sectors. He noted that Oman's investments in India currently totaled US$200 million, mostly in the telecommunications and real estate sectors. "Moreover, there are joint investments between Indian companies and the Oman Oil Company in an Omani-Indian fertilizer project in the sultanate and the refinery project 'Pena' in Madhya Pradesh in India," he added. Kharusi said the new fund would give a new thrust to investments abroad by the Omani government, pointing out that SGRF had considerable experience in global investments. The joint fund, he added, would create new investment opportunities in both India and Oman, both of which, he said, were witnessing steady economic growth.

RAK: Buried wealth

From the very beginning of RAK's development efforts, it has had to address the fact that it has a limited supply of the hydrocarbons reserves that have fuelled the growth of many of its neighbors. This has both its benefits and its drawbacks. On the one hand, RAK's economy is strikingly diversified when compared to its neighbors, with light and heavy industry, pharmaceuticals, tourism and a nascent financial services sector all contributing to the overall economic picture. This breadth of investment makes RAK more resilient in the face of oil and gas price fluctuations, which can wreak havoc on the balance sheets of less-diversified economies. However, the emirate has also had to contend with higher energy costs and power shortages. In the summer of 2009, frequent power and occasional water cuts were reported by local press in the Northern Emirates. As the summer months of peak electricity demand have rolled around again, many will be wondering whether RAK's infrastructure has improved sufficiently to keep air conditioners and industrial cooling running smoothly. This will be of particular concern to RAK's mining industry. The extraction of non-oil minerals has seen a low take-up in the Gulf region due to the relative profitability of pumping oil and gas. Mining minerals and quarrying are water-intensive industries and require extensive infrastructure to be in place to transport the raw materials to export markets. Yet in RAK, quarrying the emirate's significant limestone deposits has already proved profitable, and the potential of RAK's other mineral deposits has attracted the attention of investors. In addition, the country's location on a major international shipping route reduces transit costs. (Source: OBG).

Bahrain: In for the long haul

Bahrain is continuing its drive to diversify its economy and ensure future prosperity, as well as develop resistance to external shocks. This program comes at a cost to the state budget. Though Bahrain managed to sail through the global recession, with its GDP increasing by 3.1% in 2009, last year did see a marked slowdown in the financial sector, which accounts for some 25% of the economy, and downshifting by the real estate sector, which continues to be sluggish. As a means of providing economic stimulus in the short term and to lay the foundations for economic growth in the future, Bahrain is investing heavily in infrastructure. The 2010 state budget allocated the Ministry of Works with a record US$570m for infrastructure development, with the ministry also being tasked with carrying out projects worth a further US$343m on behalf of other state agencies. Of these funds, some US$400m is being invested in road construction and maintenance, with additional funds spent on other transport and communications infrastructure. This increased spending is one of the reasons that the country's public debt has jumped to its highest level in at least four years. According to data released by the central bank on June 20, total public debt rose to US$5bn as of the end of the first quarter of the year, representing 24.2% of GDP, well up on the 17.4% at the close of 2009. (Source: OBG)