Athens, Greece, May 31, 2007 — The Institute of International Finance in a new study today estimates that the total export earnings of the member countries of the Gulf Cooperation Council (GCC) during 2002-06 exceeded $1.5 trillion, which is more than double those in the previous five year period. About $1 trillion went towards imports. The remainder of the earnings - some $542 billion - represented surplus funds that entered global capital markets and contributed to an increase in GCC foreign asset holdings.

"The GCC (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) have earned enormous income since 2002 when global oil prices began their relentless ascent," said IIF Managing Director Charles Dallara. He added, "These countries, however, have not provided the degree of data transparency that the markets would like to see, and that are in line with the standards of the International Monetary Fund. We encourage the GCC governments to redouble their efforts, particularly in collaboration with the IMF, to improve data collection, compilation and publication regarding external capital flows and foreign asset holdings, in support of global financial market stability."

The IIF is the global association of financial services firms with over 360 member institutions. Today's report analyzes the 2002-06 period and stresses that the lack of solid data for previous years makes comparisons particularly difficult. The report suggests that the geographical distribution of the accumulated surplus of $542 billion consists of $300 billion in the United States, $100 billion in Europe, $60 billion each in the Middle East and in Asia, and $22 billion in other locations.

The report points out that some of its conclusions are based on publicly available data, notably information from the U.S. Treasury and Department of Commerce, the Bank for International Settlements, Bloomberg's database on mergers and acquisitions, and the direct investment data from the United Nations Conference on Trade and Development. These publicly available information sources account for about $260 billion of the total GCC surpluses analyzed in this report. Analysis of a further $280 billion has been based on interviews with authorities and other findings by the IIF staff. Some of the conclusions in the report on the disposition of the total of $542 billion of surplus funds include the following:

• Overall, the GCC's appetite for U.S. dollar denominated assets is seen as remaining healthy and accounting for approximately 55 percent of foreign investments at around $300 billion. There is no evidence in the analysis of the IIF of any significant shift from the dollar in terms of the composition of the foreign investments of the Arab oil exporting countries.
• As regards the composition of the identified assets of the GCC countries, the IIF finds that the GCC investors are displaying a much stronger appetite for direct investments through foreign mergers and acquisitions, notably in telecom firms, hotels, and downstream energy companies. Net FDI holdings are now seen to account for around 15 percent of the total identified asset base, up from around 11 percent in 2001.
• Also, there has apparently been an increasing focus on U.S. government debt. The strongest growth in proportional terms has been in holdings of short-term securities with their allocation increasing from 1.4 percent in 2001, to 7.9 percent in 2006. Demand for long term paper also remains robust, increasing from 14 percent to 20 percent over the period.
• A counterpoint to these increases has been a major shift away from bank deposits worldwide, down to about 27 percent of total identified assets in 2006 from 45 percent in 2001, reflecting both the rising importance of global capital markets for the allocation of funds, as well as low real deposit rates over the period.
• A substantial volume of GCC funds - possibly 11 percent of the total at around $60 billion - has stayed in the Middle East, where quickening liberalization, privatization, and regional integration, as well as an increased pace of project implementation, has lured capital that would otherwise have headed away from the Arab world. The percentage of these funds remaining in the region is most likely higher than was the case in previous periods of high oil surpluses. In addition, some of the GCC countries themselves are also investing in neighboring countries and Dubai has been a notable beneficiary here.
• The report also suggests that Europe is attracting a significant share of the funds, both in equities and in real estate, amounting in total over the last five years to around $100 billion. With regard to direct investment, the IIF notes that Europe has attracted possibly 55 percent of identified flows of this type from the GCC over the last five years. Notable investments include Dubai Ports' purchase of the UK's P&O for $7.8 billion in 2005; Arcapita's purchase of the UK's Virdian Group for $3.6 billion last year; SABIC's acquisition of the Dutch firm DSM Petrochemicals for $2 billion in 2002; and, most recently, the reported DIFC Investments' purchase of a $1.8 billion stake in Deutsche Bank.
• East Asia is also seen as having been another important destination for GCC capital over the period, accounting for a further $60 billion. The IIF said that indications are that financial and investment linkages between the GCC and Asia are growing. Gulf investors have been heavy buyers of Chinese IPOs and Asian real estate, banking and telecom ventures.