Friends in low places

In the neighbourhood The UAE and Saudi Arabia capture much of the attention of foreign investors, but the four other GCC members offer plenty of opportunities and challenges, too.

With its rapidly expanding natural-gas operation generating massive GDP growth, Qatar is seen by many analysts as the economic class of the GCC.

The UAE and Saudi Arabia capture much of the attention, positive and negative, of investors following the Gulf Co-operation Council markets, but the four other, lower-profile members offer plenty of opportunities and challenges, too. The countries that round out the GCC - Kuwait, Qatar, Oman and Bahrain - may seem like much of a muchness, but they differ from one another in two key characteristics: economic and financial soundness and the extent to which their territories are sodden with energy commodities. The two factors are not as highly correlated as common sense and a basic understanding of economics would suggest.

All four countries export energy, with Kuwait the clear leader in oil and Qatar in natural gas. But when it comes to economic growth, Qatar has far more to show for its energy wealth than Kuwait. Qatar is the richest GCC member, with gross domestic product of more than $70,000 per person, according to the International Monetary Fund. It's getting richer too: The organisation estimates that Qatar's economy expanded by 11.5 per cent in 2009, and it forecasts 18.5 per cent growth this year.

Kuwait's output shrank by 1.5 per cent last year, worst in the GCC, the IMF estimates. It is forecast to grow 3.3 per cent this year, trailed only by the UAE. Their bountiful energy exports have made Kuwait and Qatar extremely fiscally sound, with strong surpluses last year despite the global recession, while Bahrain and Oman ran deficits. Bahrain is the most heavily indebted GCC state, with a national debt equal to 26 per cent of GDP, nearly twice as much as any other member.

Investors certainly have acknowledged the variations among the four countries, and their stock markets have displayed greatly divergent performances. Oman and Qatar are the haves. The MSCI Barra indices for those countries have risen about 30 per cent and 20 per cent, respectively, in the last year. Kuwait and Bahrain are the have-nots. Kuwait is roughly unchanged, and Bahrain, more like a have-not-at-all, shows a loss of nearly 35 per cent. That is by far the worst result for any of the dozens of stock markets that MSCI follows.

If a single GCC currency, which might exclude the UAE and Oman, according to reports, is introduced, the economies and markets of the countries using it are likely to converge. That is expected to make them more appealing to foreign investors - being much of a muchness isn't necessarily a bad thing - but while steps have been taken lately to advance the project, it could be five years or more before it's completed.