Infrastructure in the GCC is a top priority

03 October 2008
The drying-up of project finance poses a tough challenge to GCC states Pushing ahead with infrastructure development must be the priority.

The Gulf may have escaped the worst of the turmoil on international financial markets, but it is still suffering. In particular the way project finance has dried up this year presents one of the toughest challenges for GCC finance ministries and central banks.

With all but the smallest project deals struggling to secure funding, the pressure on governments to take action is increasing so that vital infrastructure projects can go ahead.

Among the schemes that are suffering are a host of water and power plants, as well as the ambitious programme in Saudi Arabia to develop six economic cities.

If the region’s economies are to grow and the populations in its booming cities are to have adequate power and water supplies then these schemes must go ahead.

But with almost all the commercial banks that operate in the region unable to offer long-term financing, there are not many options available to governments.

The choice facing the region’s governments is to either step in to guarantee the financing or provide it themselves.

If governments offer up the cash themselves they could do so through institutions that already exist, such as the Saudi Industrial Development Fund or the many sovereign wealth funds that have been set up in recent years.

Alternatively, they could set up new institutions, in a similar way to the establishment of Arab Banking Corporation or Gulf Investment Corporation in the early 1980s.

As yet there appears to be little appetite for such a move, but if the stasis in the financial markets continues for much longer, it may be the only realistic option.

Any move to guarantee funding for projects or provide it directly will mark a setback in some way for the region, which has been trying to develop the private sector and reduce the role of government in the economy in recent years.

However, the need to push ahead with infrastructure developments must be the priority.

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