Spurred by high oil revenues, credit growth and economic diversification, real GDP growth rates in the GCC countries have been high in international comparison. They have been comparable to those of other emerging and developing markets and considerably higher than those of the world or the advanced economies on average (see Figure 1). Qatar and UAE, in particular, have witnessed breakneck development with growth rates in double digit territory until 2008. In 2009, only two GCC countries faced a mild recession (Kuwait and the UAE). While the IMF expects GCC growth to lag emerging and developing economies in the years to 2015, it will still remain at or above the world average. Together with growth in intra-GCC trade in the wake of the GCC customs union, this will inexorably lead to increased demand for financial services.

Whether it is petrochemical plants, aluminum smelters, power plants, railway lines, housing programs, roads or airports, all these projects are in need of finance. Besides, a rapidly growing population in the GCC countries has provided business for a substantial retail banking market. This increased need for finance meets underdeveloped capital markets in the GCC. While world capital markets show on average a balanced capital structure of debt securities, stock market capitalization and bank assets, the capital mix in the GCC countries is heavily skewed towards bank assets, with a share of nearly 60 percent. Stock markets constitute a significant portion with around a third, but bond markets are underdeveloped. In the GCC, the percentage of corporate bonds issued in comparison to GDP equaled 3.2 percent in 2007. In the US, the ratio was 112 per cent and in China, it was 10 percent. An increase in the relative importance of bond markets in the overall capital structure of the GCC is certainly warranted. It could lead to better capital access, efficiency gains and improved price discovery and risk assessment. GCC stock markets have developed by leaps and bounds over the last decade, but there is room for improvement. Market capitalization and turnover still focus on a limited number of large-cap stocks from specific sectors like banking and real estate. Often these companies also have the state as a majority stakeholder, while most family enterprises in the GCC are not publicly listed. Derivatives have fallen from grace in the wake of the global financial crisis, yet the nearly complete lack of derivative markets in the GCC could prove to be a disadvantage.