The Century Mark
In September 2007 western equity and capital markets were enjoying the go-go days of low interest rates, unusually robust (which turned out to be in many cases false) returns for hedge funds and consumers were borrowing heavily against their homes to fund Range Rovers and a range of boy toys.
During this window in time, the Middle East was starting to hit its stride. Most outside the region were unaware of the big and, shall I say, broader growth story that had been unfolding. Record surpluses were piling up, fortifying the already influential sovereign wealth funds.
This past week we marked our 100th program on Marketplace Middle East. Two years zipped by in part because the global economy was moving at hyper speed. It has not been a straight path forward, but a rollercoaster ride best reflected in the price of crude. We covered the ramifications of $147 oil back in July 2008 and witnessed its fall to $32 in December of the same year.
“It is has been a tremendous roller coaster ride,” said Khaldoon Al Mubarak Chief Executive of Mubadala on our first program. “The growth in Abu Dhabi, the growth in the region has been tremendous. It requires executives like me running around making sure we have the right deals, right partnerships in place and have the right sustainable growth strategies.”
The surge in prices past $100 last spring helped develop a new and almost certainly reoccurring theme, “three digit oil.” Anything over the century mark opens up a full range of possibilities. The tendency has been to compete against neighbors by building shiny new structures. In light of rapid birth rates all over the region and the burden it places on the education system, it is heartening to see that the next generation of leaders view the emphasis on construction as problematic.
“Real estate and brand new building while stunning architecturally, are not going to solve anything unless there are qualified people inside them,” said the Crown Prince of Bahrain Sheikh Salman Bin Hamad Al-Khalifa during our interview a month after oil prices hit a record high.
I am in the tent (a fairly empty one) that says the downturn, albeit painful for contractors still awaiting their payments and bankers who extended their bets, clears out the frothiness.
As the speaker of the UAE Parliament and Chairman of Mashreq Bank Abdul Aziz al Ghurair said in November when crisis started to bite, “Fundamentals of business have been built, now we can afford to reconsider where we are going next, being slowing down our growth, postponing some of projects, that’s okay.”
In sum, those who have been left standing are on firm ground and want to call the Middle East home – expat or not. The lobby of the Emirates Towers hotel may be less crowded today, but the discussions are based on prudent projections and having to do a great deal less with real estate projects.
The critical aspect of this recent and rapid downturn has been the sovereign wealth fund money staying closer to home. We are looking at a consumer market in total of nearly 500 million people. If money from the Gulf is invested in projects closer to home, barriers to investment and hard goods will continue to come down. There may even be greater impetus to create a single currency with more members in the Gulf as well.
That is not to say the SWFs have left the scene in the West. Qatar’s stakes in Porsche and Barclays Bank are two clear examples of snatching opportunities when they are presented and Abu Dhabi’s Mubadala has taken long term positions in General Electric, EADS and chipmaker AMD as it builds out its portfolio and the emirate’s industrial base. As an interesting side note, in the past two years Premier League fans know much more than they did about the Gulf and who controls the purse strings.
Regional and global private equity players are hopping on fewer planes to London, Paris and Frankfurt and instead are picking Tunisia, Jordan, Egypt and Morocco as their new destinations. Growth in all four of those countries is holding up nicely, despite the global turbulence and the tepid recoveries we are witnessing in the West.
What can we expect as we begin our work on the next 100 programs? Qatar, Saudi Arabia and the UAE will continue to drive new projects with the goal of completing not only their infrastructure build outs but their human capital development as well. Billions have been allocated, but privately government and business leaders want to see that all the plans are delivered with the results promised on the PowerPoint slides and the animation videos.
Finally, Dubai and other Middle Eastern cities are no longer dots on the map that indicate the hub and spoke transfer system of a particular carrier. We no longer think of the business day rising in Asia, skipping to Europe and finishing with a crescendo on Wall Street. The region has carved out its place, which is far beyond a passing fad or quick opportunity.
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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