(For other news from Reuters Middle East Investment Summit,
click on http://www.reuters.com/summit/MiddleEastInvestment12)
* Saudi, Qatar, Oman private sector loan growth in double
digits
* Signs of strong rise in private sector jobs
* Firms still vulnerable to lower oil prices, state spending
* Smaller companies viewed as "toxic assets" by banks
* Unpredictable, opaque regulation a big obstacle
ABU DHABI, Nov 21 (Reuters) - Four years after a collapse of
oil prices savaged Gulf Arab economies, private business
activity in most of the region is thriving again. Yet problems
with financing and regulation could cut short the boom.
Corporate executives and economists at the Reuters Middle
East Investment Summit this week said the private sector's gains
were vulnerable, warning growth could quickly slow if oil prices
retreat or governments slow spending in order to conserve their
financial reserves.
"The current good growth we are seeing is cyclical and has
its roots in government spending, but there are structural
impediments to longer term private sector growth," said Liz
Martins, senior regional economist at HSBC.
The oil market slide of 2008, in which prices slumped by as
much as three-quarters in the space of six months, revealed the
vulnerability of the Gulf countries and their big state-owned
oil sectors; Saudi Arabia only barely escaped recession in 2009.
Now high oil prices have ignited a consumer spending spree
that is buoying private firms across the Gulf Cooperation
Council (GCC), which comprises Saudi Arabia, the United Arab
Emirates, Kuwait, Qatar, Bahrain and Oman.
Middle East oil exporters will enjoy a near-record surplus
in trade of goods and services worth about $400 billion this
year, the International Monetary Fund estimates. Governments in
the Gulf are channelling much of those oil earnings into social
welfare and infrastructure projects.
This is helping private companies in two ways: directly,
through contracts awarded by Gulf governments, and indirectly,
by fattening the wallets of consumers who work for the
government or receive welfare benefits.
"Stable growth we have seen across the GCC over the last six
to eight quarters comes ... from the public sector boost, which
has stimulated the private sector as well," said Fabio
Scacciavillani, chief economist at Oman Investment Fund.
POLICY GOAL
For Gulf governments, developing the private sector has been
a top policy goal since the 2008 crash as they seek to diversify
their economies away from oil to reduce the risk of a similar
setback in future.
Fostering small private companies has become even more
important since last year's Arab Spring uprisings, because such
firms tend to create most jobs. Although Gulf governments
largely escaped the unrest, they are keen to cut unemployment to
remove a potential political threat.
Trends over the last year suggest they are having some
success. Bank lending growth to the private sector in Saudi
Arabia, Qatar and Oman has climbed into double digits and the
annual rate hit 14.8 percent in Saudi Arabia during September,
the fastest pace since March 2009.
The Saudi Ministry of Labour said in September that 380,000
jobs had been created in the past 10 months. Oman says it added
155,000 new private sector jobs in January-September.
The private sector boom is typified by companies such as
Saudi Arabia's Jarir Marketing Co, a retailer of
books, office supplies and electronics, which plans to boost the
number of its stores by at least 70 percent in the next five
years and expand into other GCC countries.
"We are growing in Saudi and in the Gulf, and we want to see
that we populate the GCC," Jarir Chairman Muhammad al-Agil, who
co-founded the chain with his family in 1979, told the Summit,
taking place at Reuters offices in the region.
In the United Arab Emirates, one of the most diversified
economies in the Gulf with the non-oil sector accounting for 62
percent of output, bank lending growth has been slower as the
country grapples with the aftermath of a real estate crash.
But the hospitality sector, a focus of private sector firms,
is booming; tourist arrivals grew 10 percent and hotel revenue
19 percent in the first half of 2012.
ACCESS TO FUNDS
Yet private business in the Gulf remains far from being able
to fuel its own growth, withstanding fluctuations in oil prices
and state spending. One problem is its access to financing.
Debt and equity capital markets are small so it's difficult
for small and medium-sized enterprises (SMEs) to use them to
raise money, said Martins at HSBC. That leaves bank loans, but
many banks in the Gulf are traditionally unwilling to lend to
small, little-known firms, preferring the security and
predictability of lending to big companies, preferably those
with state connections.
"Financial institutions look at them (SMEs) as toxic
assets," said Abdullah al-Darmaki, chief executive of the
Khalifa Fund for Enterprise Development, the Abu Dhabi
government's SME development agency.
Rick Pudner, chief executive of Dubai's biggest bank,
Emirates NBD, told the Reuters Summit that,
historically, "you have to have a three-year track record before
you can come to the table and ask for some money."
Pudner said that partly because of government efforts, the
access of SMEs to bank loans would improve: "You'll see it
probably getting a lot easier to access finance from banks,
maybe supported by some quasi-element of government support."
But even then, private companies may face another major
obstacle: regulation.
The risks of intrusive rule-setting were underlined last
week when Saudi Arabia said it would fine private sector firms
that employed more foreign workers than Saudis - a stance that
could have a big impact given that roughly nine in 10 employees
of private companies in Saudi Arabia are expatriates, according
to official estimates.
In other cases, opaque and complex regulation, or the lack
of any rules at all, is holding up private companies.
"One major area is bankruptcy law - also labour laws and
labour protection are skewed towards national citizens and lag
for foreigners. The other area is in terms of investor
protection," Scacciavillani said of the GCC.
"Awareness is there but in terms of delivery, little has
been done."
Follow Reuters Summits on Twitter @Reuters_Summits
(Additional reporting by Stanley Carvalho, David French and
Mirna Sleiman; Editing by Andrew and David Holmes)