Working For Asia-Gulf Partnership

July 14, 2008

Cash from SWFs, technology from Japan could give push to development

"The Future of Asia" conference focused on ways to deal with surging crude oil prices and their impact on Asia. During a panel discussion titled "New Partnerships in an Era of Surging Oil Prices," three corporate leaders - Yoshihiro Shigehisa, CEO of JGC Corp.; Nasser Saidi from Dubai International Financial Center; and Ikmal Hijaz Hashim, CEO of Malaysia's Iskandar Regional Development Authority - discussed cooperation between oil-rich nations and Asia.

Moderator: Crude oil prices have kept rising. The combined current account surplus of the six Gulf Cooperation Council states is larger than that of Japan.

Saidi: The rapid GCC economic growth positively affects India and other economies. The GCC's current account surplus translates into 26% of the group's combined gross domestic product. The total amount of surplus in the last five years is over $1 trillion. With the members becoming less dependent on oil, nonoil sectors are growing at a faster pace than the oil sector. Investment returns have become more important than oil revenue.

Sovereign wealth funds from GCC states are worth $1 trillion. Most of their assets used to be dollar-denominated, but (these funds) are now diversifying their portfolios as dollar-based investment yields low returns.

The SWFs are expected to directly invest 20-30% of their assets in Asia. GCC money will allow Asian companies to list themselves on stock markets of the member nations.

Ikmal: The Iskandar region in southern Malaysia is located in the middle of Southeast Asia. We aim to raise its population from the current 1.4 million to 3 million by 2025 with a targeted GDP of $93.3 billion. We are offering tax incentives to attract investment in healthcare, education and finance. The region is divided into blocks such as finance, resorts, ports and airports. A Dubai company takes part in resort development, while Abu Dhabi invests in entertainment and medical projects. The total amount of investment is expected to be around $20 billion.

Shigehisa: The surge in crude oil prices that began in 2004 has progressed at a faster pace than I thought. An estimate shows the GCC will have $4 trillion on hand for investment if prices stay above $100 a barrel. Asia, with 3.2 billion people, can become the world's largest economic block if it can attract money from the GCC and utilize Japan's technologies.

But economic growth will bring a surge in energy demand, while oil consumption in the Middle East is expected to grow faster than in India and China. What Japan should do is shift its focus from manufacturing to technology and lead energy-saving efforts.

Moderator: Asia and the Middle East share the same problems in infrastructure and personnel education. How will they cooperate?

Saidi: The GCC can play an important role in solar power generation. With Japanese technology, the GCC can build power supply networks in Asia. We should jointly invest in emerging economies' infrastructure.

Ikmal: Investment from the Middle East is important for Southeast Asian development. Iskandar has high cost competitiveness, and its population will increase. While Malaysia actively invests in the Middle East, efforts are needed to boost investment from the region to Asia too.

Shigehisa: Although the GCC is eager to promote solar power generation, I think nuclear power is a better choice to meet the world's energy demands.

Moderator: Middle Eastern nations are increasingly interested in Asia. Can Japan take the initiative to strengthen ties between the two regions?

Saidi: Definitely. But the two sides need to create a framework to promote joint development, such as a trade and investment agreement. Such a framework would enable joint ventures by the GCC and Japan to smoothly procure funds from capital markets.

Ikmal: Malaysia and Singapore are interested in Islamic finance and Middle Eastern funds. It's necessary to bring them to Asia.

Shigehisa: Many oil refinement projects were launched recently in Vietnam. I expect joint ventures with Japanese funds and technology and GCC funds and oil will increase. My company wants to join such projects.

Titles of speakers, names of companies, etc., were correct as of the time when the forum was held.