Putting Genie or Jinn back in the bottle
London, October 10, 2007
In Arabian mythology Jinn are supernatural creatures. In Wall Street or City of London parlance, economists during the go-go days of the 1980's would say it is difficult to put 'Genie back in the bottle', referring to rising prices.
2007 is perhaps when Arabian mythology and Wall Street intersect. I am sure you have not missed the fact that oil remains stubbornly high at, or above, $80 dollars a barrel. For countries such as Saudi Arabia, Kuwait, the United Arab Emirates and Qatar, this rise not only means a wider pipeline of cash ($165 billion dollars for Saudi Arabia this year), but along with the oil gains comes real inflation.
The so-called headline numbers tell part of the story. The Emirate of Abu Dhabi this week reported that inflation is running at 11.5 percent, Dubai and Qatar 10 percent and Kuwait a more modest 5 percent.
During this weekend of Eid celebrations in the Muslim world, there are stern requests by governments for retailers not to price gouge consumers.
If one explores 'jinn' a bit deeper in the Islamic world you find out that superstition points to invisible creatures living in a parallel world. This mythical world applies today with rising prices in the Middle East. They are there, but many in the region, including ministers and economists, either brush off the suggestion or choose not to see them.
A trip to the emirates or countries noted above provides you a constant reminder. Rents in Dubai for example were up 26 percent in the past year. Even a face-lift in Dubai is more expensive than anywhere else, at nearly $11,000 on average. Plane tickets from London to the Gulf are higher than London to New York. There are plenty of planes flying; they are just all full. The same is true for hotels. As one guest from Lebanon commented at dinner this week, 'London is starting to look like a bargain', this proceeded the extra time he and his wife allocated for a bit more shopping before leaving. That says it a lot with the British pound at a record high against the dollar.
According to the consulting firm Mercer, the dollar's fall is the primary reason Dubai (Ranked 34) and Abu Dhabi (Ranked 45) both dropped in the 2007 world's most expensive city survey, because the Dirham is pegged to the dollar.
Policymakers, expats and citizens of the region are not fooled by rankings and know that with the rise of oil, comes a rise in government spending, leading to growth, opportunity and, yes, inflation.
Genie or Jinn won't be going back in the bottle anytime soon.
ABOUT THIS BLOGJohn Defterios’ blog accompanies the weekly business program, Marketplace Middle East (MME) that is dedicated to the latest financial news from the Middle East. As MME anchor, John Defterios talks to the people in the know, finding out their opinions on the big business moves in the region, he provides his views via this weekly blog. We hope you will join the discussion around the issues raised.
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