IFR hosted the latest in its Middle Eastern capital markets roundtable series in Dubai in June. Participants were broadly upbeat about prospects for the regional economy and capital markets. In the near term, though, there is concern about the slow pace of economic recovery and the fact that 2010 growth of 3.5% to 4% significantly lags the performance of other emerging markets.
Dubai’s debt overhang is a concern, as is the piecemeal approach to restructuring. But the issues are being dealt with as they arise, and market participants are starting to separate the debt story from the economic recovery story. On the plus side, the Dubai economy has spare capacity that it can grow into without having to incur significant expenditure.
Regional growth will be powered by government spending; the banking sector is unlikely to provide the quantum of credit needed to underpin growth. On the one hand, many banks are still deleveraging; on the other they are being squeezed by their high cost of dollar funds, which is excluding them from underwriting at current pricing levels.
As for the international banks, around 10 to 15 institutions continue to be active in the region. For these banks, the Middle East is a core region. The international banks that jumped onto the Middle East bandwagon late - and which retrenched at the time of the global financial crisis to deal with problems closer to home - have not returned and are unlikely to return any time soon.
As for the make-up of regional financing, attempts are being made to diversify borrowers away from syndicated lending into domestic currency capital markets. This is a work in progress, however, and there is unlikely to be any major shift in the near term.
Infrastructure continues to be a key theme in the region. Roundtable participants believe, however, that there will be less urgency to complete projects in the short term and that the timetable will be pushed out over a longer period of time.
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