The ratings agency suggests that with bank funding becoming more expensive, alternative sources of financing will become more attractive, such as capital markets. The GCC’s debt capital markets are still in the nascent stage. “Rising interest rates and a repricing of corporate and infrastructure fixed income risk in the Gulf could narrow the arbitrage gap between bank and bond borrowing, which may also support increased capital market activity in the region,” says Nassif.
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Public private partnerships (PPP) are another avenue. The publication on in late September last year of an overhaul of Dubai’s public-private partnership legislation was widely of a watershed, pointing to the Emirate’s desire to increasingly tap private sector financing in support of infrastructure development. Dubai had already implemented a handful of PPP projects prior to the introduction of the new law, notably the recent Dubai solar photovoltaic (PV) projects. The new law is a turnaround in that in the past, the process in Dubai was one where infrastructure projects were let on a pure engineering, procurement, and construction (EPC) basis with those infrastructure assets then being owned, managed and run by ‘Dubai Inc’. Promulgation of the new PPP law sends a clear message to the market that Dubai is now open to non-traditional procurement approaches, such as PPP. Standard & Poor’s says that Oman is also preparing legislation in support of PPP, while Saudi Arabia is looking to finance the development of an airport in Taif on a PPP basis.
Integral to a successful strategy of funding substantial infrastructure development will be the efficient mobilisation of capital both inside and outside GCC countries. This means harnessing the leverage that both state, GREs and quasi state institutions can generate in the capital markets. It also means mobilising capital from banks, asset gatherers and the region’s sovereign wealth funds, to help finance the future of the region. It will involve the region’s governments moving away from traditional public procurement models to a more diversified strategy in achieving both industrial diversification and building the region’s infrastructure.
The article was initially published at FTSE Global Markets Digital Magazine.