Middle Eastern economies reliant on Gulf capital inflows for booming economic growth are seeing a drop in investment.

This follows the global financial crisis that has curtailed investors' appetite for the region, bankers and analysts said.

Cash-rich Gulf countries had poured billions of dollars in Egypt, Jordan, Lebanon and Syria as they invested in mega-real estate projects, equities and energy and telecoms
companies beyond their domestic markets.

'There are visible signs that intra-regional capital flows are tapering off, which will put a dampener on the accelerating momentum that we've been witnessing over the past several years,' said Omar Masri, director of the Edgo Group, a regional oil & gas company.

Masri echoed worries across the region about a drop in Gulf capital inflows that had contributed to the region's economic transformation as countries adopted investment friendly policies to attract projects to ease unemployment and rising poverty.

'These economies have become more susceptible to regional financial turmoil given their growing dependency on Gulf investment. Such countries have high birth rates and must maintain a robust GDP growth rate of at least 5-6 per cent just to absorb the new entrants into the labour force,' Masri added.

The IMF's latest report projected that growth could decelerate to 6 per cent in 2009 from 6.5 per cent in 2008 in emerging markets countries such as Egypt, Tunisia, Jordan, Morocco and Lebanon as a result of the global slowdown.

The global credit crisis has left local Middle East investors partnered with Gulf Arab investors uncertain about the changing credit terms for the financing of large real estate projects already underway, or infrastructure projects in the pipeline that rely on higher debt than equity.

'Investments in the region that are partly financed by debt will be affected especially if international banks are involved, as they are deleveraging,' said Talal Samhouri, head of Mena Asset Management, at Kuwait-based Global Investment House.

Although bankers already cite a drop in inflows and delays in future projects in the Middle East, they say the future will depend on how pronounced the impact of the global crisis will be on the oil-fuelled boom in the Gulf.-Reuters