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The Saudi Investment Authority is looking to invest US$750 million in an infrastructure fund for development in India. What does this mean for GCC efforts to grow the construction industry beyond the Arabian Peninsula?
August 20, 2012 2:16 by kippreport
One of the truisms of investing is to follow the money. When it comes to the Middle East, the benefits of high crude oil prices trickle down to many industries, not the least of which is construction. In recent years, these high prices have translated into impressive spending programs on highways, railways and – in the case of Saudi Arabia – even an entire university.
That’s why allocating a portion of any investment portfolio to stocks of publicly traded construction companies based in the Gulf region is a safe bet. Better still is that many of these companies are branching out beyond the Arabian Sea and attempting to take advantage of the coming infrastructure boom in South Asia. Investors bullish on the construction industry in the developing world are fond of pointing out that the last mile of rail laid in the entire Indian subcontinent was in 1947 – the year the British left.
It’s no wonder, then, that Saudi Arabia is looking to invest some US$750 million in a joint fund aimed at improving infrastructure in India, with an emphasis on hydrocarbon production and refineries. The construction giants of the Gulf Cooperation Council know that the best remedy to a slumping real estate market at home is lucrative business abroad. Especially in a country with such a great demand for new infrastructure development like India – the world’s second-fastest growing economy and soon to be the world’s largest country by population.
According to the Saudi Arabian Monetary Agency, Saudi Arabia is India’s fourth-largest trading partner; trade between the two countries surpassed US$25 billion last year alone. Although Saudi Arabia is the 11th-largest market in the world for Indian exports, it’s the source of only 5.51 percent of India’s global imports. India is the fifth-largest market for Saudi’s exports. There’s a lot of room for expansion.
Add to this scenario the fact that the eurozone continues to be a huge economic liability. Each time Europe’s finance ministers come up with a plan to prevent that continent from collapsing, its socialist economies go back to their free-spending ways and another, larger disaster looms on the horizon. For a modern and nimble construction sector like Saudi Arabia’s, who needs Europe?
To be sure, GCC investors remain bullish on the eurozone’s luxury real estate. The National Bank of Kuwait, for instance, has opened a real estate office in London focused entirely on servicing clients with investments there. “NBK London aims at making all real estate services more convenient,” the chief executive officer of NBK London, Fawzi Dajani, says. “In a simple and straightforward procedure, customers can now buy and sell, lease or rent, settle bills, receive real estate assessments and many other services with our competitive prices. We finance up to 70 percent of the value of the property which will be held as security.”
But India – and not Europe – is where the construction activity will be for GCC firms. Arab investors have always favored real estate as an investment over all other asset classes. But with the eurozone’s economy continuing to slump and India providing an enormous and virtually untapped market, construction and infrastructure investments are the way of the future for the sophisticated GCC investor.