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GLOOM: George Soros described the global credit crunch as the worst financial crisis in 60 years.

As global buyout deals slow to a trickle and lending costs soar, the oil-fuelled economies of the Gulf are providing the liquidity needed to sustain a local infrastructure boom. In this special report, we examine the growth of private equity, the expansion of sovereign wealth funds and the emergence of the Gulf as the world's lender of last resort.

Gulf economies could generate US1$ trillion budget surpluses within a decade, fuelling a boom in private equity deals and the expansion of the region's largest family-run trading groups.

That prediction from the Abraaj Capital CEO Arif Naqvi explains why private equity is poised for unprecedented growth in the Middle East, as the flood of petrodollars from Riyadh to Doha replaces liquidity lost from global credit markets.

The region needs infrastructure investment of about US$676bn according to Naqvi, which he says can only be described as "silly money". As much as US$200bn of this is needed for power infrastructure while a further US$188bn is required for transport projects.

"It's going to happen in a public-private partnership and when it happens, the knock-on effect for the private sector will be massive," he told a gathering of private equity professionals in Dubai this week.

Such private partnerships are expected to fuel the expansion of the sector in the Gulf while the changing structure of the region's traditional family businesses will also create demand for private equity from a second generation of Arab entrepreneurs.

The six Gulf states supply about 22% of the world's oil, earning them about US$1.5bn a day at current prices, from pumping about 15 million barrels of crude. Saudi Arabia earned about US$206bn from oil sales last year.

The rising oil price has helped fund a building boom, with the region developing projects worth about US$1.5 trillion, according to a report from ING Wholesale Banking.

The surging oil price is also expected to see local economies grow at an average of 9% in 2008, or more than twice the global average.

The projected growth in the Gulf's private equity sector comes as buyout activity in the rest of the world slows to a trickle, with the cost of bonds and loans used to fund buyouts doubling since June, according to Merrill Lynch.

The slowdown has been caused by a global credit crunch, described by veteran financier George Soros as the world's worst financial crisis in 60 years.

While the opportunities created by those distressed markets have not gone unnoticed by the big private equity houses in the Gulf, the abundance of opportunities created by the expansion of local family trading groups is also being seen as a home for local private equity.

"The region's family businesses are much more receptive to the idea of private equity now," Sameer Al Ansari, CEO of Dubai International Capital, told Arabian Business.

Dubai International Capital, which manages about US$13bn, including stakes in HSBC and Sony Corporation, is seeking to tap the growth in the region's largest family-run trading groups as they expand across borders.

"I guess finally they are more aware and recognise the issues that they face," he said.

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