High global oil prices that are driving rapid economic growth in the six countries of the Gulf Cooperation Council (GCC – Saudi Arabia, United Arab Emirates, Kuwait, Oman, Qatar and Bahrain) are stimulating an investment boom and yielding substantial current account surpluses of almost $230bn this year and more than $220bn next year, according to the Washington-based Institute of International Finance (IIF).
The IIF forecasts GCC 2006 nominal gross domestic product (GDP) growth of almost 19%, which will lift the combined GDP of the GCC to about $725bn, ranking the GCC as the world’s 16th largest economy. This amounts to a growth in GDP per capita for the region over the past three years to over $17,000 from $11,000.
“The oil windfall has supported increased government spending and lifted domestic confidence,” says IIF managing director Charles Dallara, “resulting in an investment boom. Projects worth over $1000bn, mostly in infrastructure, are either under way or planned, which aim to diversify the economic base and generate greater value added from hydrocarbons.”
Mr Dallara said that the GCC countries accumulated foreign assets worth $167bn in 2005, lifting the total for the past six years to more than $400bn. The IIF anticipates that foreign investment flows from the GCC will amount to at least $450bn during 2006 and 2007.
TOWER GROUP REPORT: RELATIONSHIP-BASED PRICING, OBVIOUS BUT DIFFICULT
Banking has evolved from a relationship business to a more standardised industry in which products are viewed by customers as commodities. The advent of technology and the pressure on margins has led many banks to base relationships on individual product offerings instead of a complete view of the customer.
Tower Group says the slowness of banks to renew and realign their value proposition is the reason that clients are attracted to alternative providers of financial services. But in relationship-based pricing, the bank gives its relationship managers the freedom to price a product or service (or bundles thereof).
To evolve to this state, Tower believes banks need to continue working to develop a holistic view of the client. Such a single view of all of an individual client’s relationships within the institution requires more effective communication of information about that individual to bank staff dealing with clients.
It also requires understanding the costs of each product, dividing the benefits among all staff responsible for profit and loss. Most important, improving client retention and profitability requires determining the overall value of a customer throughout the customer’s lifetime.
As a result, Tower estimates that effective dynamic pricing of product bundles should increase client retention levels by an average of six to eight months for European Tier 1 financial services providers.
