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GCC investment in Asia to rise to $30b in 2007

"The emergence and integration of Islamic finance centres in the Gulf and Asia have created an environment of flourishing activity reminiscent of the centuries old Silk Road," Dr Zeti Akhtar Aziz, Governor, Bank Negara Malaysia told top global investors and bankers, here in the Malaysian capital, Kuala Lumpur.

She said this new route not only carries flows of oil, goods, and technological innovation; but also direct investment, portfolio investment, private equity and human capital replacing silk. The GCC nations topped by the UAE, she said were increasingly focusing on making their investments in Asia which crossed $18 billion in 2006 and is projected to rise to a level of $20-30 billion this year. While world trade has expanded by ten per cent on an average, Asia's trade with the Middle East has increased by 24 per cent, said Zeti Akhtar Aziz.

She said more than half of the exports from the Gulf states goes to Asia and more than one-fifth of its imports are from the fast growing continent. For economic regions with high savings and surpluses such as Asia and the Middle East, the challenge is to recycle part of these funds to productive use, the governor stated.

The burgeoning foreign currency reserves exceeding $2 trillion in Asia and oil revenues of Middle East crossing $1 trillion since 2000, the management of surplus savings and reserves in both the blocks will offer significant investment opportunities. Besides the institutional pool of wealth, the rapidly expanding middle class in both regions is a further trend sustaining the high savings rate and the increased demand for more sophisticated products including consumer finance and wealth management.

She said that Asia has more than 2.4 million high net worth individuals, not far behind the US with 2.9 million and Europe with 2.8 million.

She said the Middle East investors have a greater need for diversification both in terms of geographical allocation and assets classes, beyond the traditional investment in the US and Europe. Asia in turn, offers highly diverse investment opportunities. Asia, which has $1 trillion worth infrastructure projects in pipeline in next five years, is in search of new partnerships and strategic investors to co-invest.

Islamic finance ,Dr Zeti said, has demonstrated its viability and competitiveness in a more liberalised and globalised financial environment and has become important in strengthening the linkages between the two regions. Shariah-based transactions since the last two years have amounted to $35 billion.

The use of Islamic finance promotes stability in the financial markets and financing flows, which is important for emerging market economies. The Malaysian central banker said that her country which is engaged in strengthening linkages through Islamic finance, is committed to be part of the new Silk Road to facilitate cross border transactions. "Our regulators in collaboration with Islamic financial industry have worked towards promoting inter-linkages with the global Islamic markets through liberalisation and competitiveness of the financial sector," said Dr Zeti.

The BNM has introduced new products like Commodity Murabah Programme to manage the short-term liquidity in the Islamic Inter-bank money market utilising crude palm oil based contracts as its asset, besides BNM Sukuk Murabah/tawaruq short term securities and Islamic derivative master agreement to mitigate investment risks.