GCC States Invest Over $1 Trillion At Home To Defuse An Unemployment Time-Bomb:.

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DUBAI - The six Arab Gulf Co-operation Council (GCC) governments have more than tripled their investment to well over US$1 trillion in domestic infrastructure projects. Their common priority is to tackle the problem of unemployment, a time-bomb in an oil-rich region where the private sector still prefers to rely on expatriate work forces from Asia.

The six governments are buoyed by $70/barrel crude oil prices and driven by a desire to diversify their economies away from petroleum. The staggering scale of their investments points to growing confidence that crude oil prices will remain strong for years.

The Middle East Economic Digest (MEED), which tracks projects in the region, says current or planned investments exceeded $1,000 bn in April, up from $277 bn 18 months before. While vast sums of petrodollars are being recycled overseas, economists say the emerging trend in the present oil boom is the greater focus on investing at home, where unemployment pressures have built up, particularly in Saudi Arabia.

However, the economic and fiscal boom to the six GCC countries has also triggered inflation despite government counter-measures. The rise in inflation is due to a surge in the prices of many consumer items fuelled by strong domestic demand caused by high growth in key sectors.

In a report highlighted by the press on July 3, the UN's Beirut-based Economic and Social Commission for Western Asia (ESCWA) said: "The combined inflation average in the six members, which sit atop 45% of the world's oil, was as low as 0.8% in 2002 but swelled to 1.3% in 2003, to around 1.8% in 2004 and as high as 2.7% in 2005. The rate is projected to climb down to around 2% in 2006". From 2.2% in 2002, the average inflation rate in the whole ESCWA region increased to 2.9% in 2003, to 4.6% in 2004 and 3.9% in 2005. The rate is expected to be around 3.8% this year.

The real GDP in the six GCC states - Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE - jumped 8.7% in 2003. It grew 7.2% in 2004 and 6.9% in 2005, one of the highest growth rates in the world. Growth will remain as high as 5.8% in 2006.

A breakdown showed that Qatar had the highest inflation rate in the GCC in 2005, standing at 8.8%. It was put at 5.4% in the UAE, 4.2% in Kuwait, 3.3% in Bahrain, 1.9% in Oman and 0.75 in Saudi Arabia. In 2006, the UAE is projected to have the highest inflation rate of 4.5%. It is forecast at about 2.7% in Qatar, 1.8% in Kuwait, 1.6% in Bahrain, 1.1% in Oman and 1% in Saudi Arabia.

As for real GDP, the ESCWA report said the UAE recorded the highest growth of 8% in 2005. It stood at 7.6% in Qatar, 6.8% in Saudi Arabia, 6.5% in Kuwait, 6.2% in Bahrain, and 4.2% in Oman.

Gulf News on July 3 quoted an Abu Dhabi-based economist as saying: "Economic growth, boosted by the remarkable growth in new and traditional economic sectors and the increase in international oil prices, is creating larger demand for goods and services than in the past; this additional demand has driven prices up".

Qatar and Abu Dhabi (the being the richest of the seven city-states in the UAE) are each planning more than $100 bn of new projects over the next five to 10 years.