RIYADH // One of the globe's richest men recently disclosed details about his newest real estate development, unveiling plans for constructing the world's tallest building just outside Jeddah. In a ceremony on Saturday attended by Saudi Arabia's King Abdullah bin Abdul Aziz, Prince Alwaleed bin Talal bin Abdul Aziz, the chairman of Kingdom Holding Company, displayed a model of Kingdom City, a SR100 billion (Dh98bn) project of more than seven sq km to be constructed near Jeddah's international airport.
Its most prominent feature will be a tower of more than 1,000m (the exact height is a secret) for offices, luxury residences and a five-star hotel. The new community, expected to attract up to 80,000 residents, "will signify Kingdom Holding Company's contribution in placing Saudi Arabia at the forefront of the first world," Prince Alwaleed said in a press release. Officials at his company declined to answer questions about how the project will be financed. But with a fortune estimated by Forbes of US$21 billion (Dh77bn), the prince is not just the world's 19th richest man. He also is someone with no problem getting loans or credit.
The long-expected, formal unveiling of his latest development, and his apparent confidence in the future, is symbolic of the general sentiment in Saudi Arabia and, to a lesser extent, in other Gulf countries, about how they may fare in the current global financial crisis. Despite the ill effects so far, which include a slide in oil prices and a disastrous two weeks in stock markets, government officials and outside experts are predicting that, barring an unexpectedly severe global depression, their oil-rich region will not suffer as much as the rest of the world.
"Gulf countries are going to feel the pinch," said Howard Handy, the chief economist at Samba Financial Group. "But I think from everything I've seen so far, it is not going to be fatal." The Gulf nations, Mr Handy said, are facing the financial crisis "from a position of great strength" stemming from their huge budget surpluses and reserves garnered from high oil prices in recent years. "This, by all means, is a very serious crisis,"the Saudi economist Ihsan Buhulaiga said of the events emanating from Wall Street in recent weeks. And Saudi Arabia has seen some trauma: in the first four days of opening after the Eid holiday, its stock market lost about 22 per cent of its value, Mr Buhulaiga said.
"And over the whole year, it has lost 46 per cent," he said. Still, the economist predicted that the impact on GCC countries will be far less than on the G7 industrial nations. With the G7, "we're talking about zero growth or contraction", he said. In the GCC, economic growth will slow down but still be positive, he said. Similar to Mr Handy, Mr Buhulaiga predicted that even with less revenue from oil sales, Saudi Arabia and other states will be able to pay their regular bills and finance many of their large development projects out of their current reserves.
Ibrahim Al Assaf, the Saudi finance minister, said much the same thing. "Oil revenues will definitely cover these projects in addition to what we have in reserve," he told Saudi television. Mr Assaf said Saudi banks had shown "excellent third-quarter results", proving "that they were not affected by the subprime mortgage crisis in the US". The minister called the sell-offs in the Saudi stock market "unjustifiable" and predicted the market would regain stability - which it did. The Tadawul, taking its cue from Asia and Europe, bounced back early this week.
But whether that bounce will be permanent is an open question. Brad Bourland, the chief economist at Jadwa Investment in Riyadh, wrote last week that "regional stock markets are overwhelmed by panic" and "investor confidence is exceptionally fragile". He predicted that "a sustainable recovery is not likely in the near term". Mr Bourland said the drying up of credit internationally "is hampering implementation of the project boom in the region".
And there are other concerns. Many Saudi banks and the government - which owns huge foreign assets managed by the Saudi Arabian Monetary Authority (Sama), the country's central bank - have not yet disclosed how much those foreign investments have suffered. According to Reuters, Sama reported in August that it had $285bn invested in foreign securities and $79bn in foreign bank deposits. Other government bodies, the news wire said, had $63bn in foreign securities and $5bn deposits with foreign banks.
Another concern is whether the depression that most economists see coming will be worse than anticipated, with demand for oil dropping beyond expectations. After its record price zenith of $147 a barrel in July, oil has fallen steadily, closing last week below $80 a barrel. That still leaves a huge cushion for Saudi Arabia, whose current budget is based on a conservative price prediction of $50 a barrel.
But drops below that would mean a whole new ball game for the kingdom and its Gulf neighbours. @Email:cmurphy@thenational.ae
