Read between the headlines
October 25, 2007
This was a week of extremes in financial markets that tells us a little bit about where excess capital is flowing these days and what we can likely expect in the next decade.
From New York the headline reads: "8bn blow for Merrill Lynch Sparks News Fears in the U.S." From London: “Wary Investors Desert London IPOs." And these were topped off by “Beware of the Aftershocks IMF Chief Warns."
Collectively the news would have global investors sprinting for the exits. They did at different times during the week on Wall Street and the City of London where many wanted to know if they are able to feel the ground below their feet (meaning if the bottom of the market is near.)
A colleague from Geneva wanted my insights into whether the London property market would finally crack under the weight of the sub-prime mortgage crisis. My answer: demographic demand remains strong, but who really knows what is to come next if both the head of International Monetary Fund and the governor of the Bank of England both warn the worst is not over.
Travel the same distance from London-New York but make it London-Dubai and there is a different set of headlines, with a markedly more upbeat tempo.
Try this: "IPO Floodgates Open" or "DP World to Silence Critics with Dubai IPO." While America’s venerable banking names, Merrill Lynch and Bank of America, doled out losses and job cuts, two of the Middle East’s emerging companies rolled out their plans for initial public offerings.
DP World, the port and logistics company embroiled in the U.S. security debate last year, unveiled its blueprint for a $4 billion dollar listing. In the same week, Abraaj Capital, a private equity house founded by a Pakistani national who oversees $4 billion dollars under management outlined a $1 billion dollar IPO. In an unusual twist (and possibly in part for political reasons to support the Emirate) they both said they plan to list only in Dubai, instead of opting for a dual listing with New York, London or Hong Kong as a partner.
There are two ways to read between the headlines. There is some $3 trillion dollars of liquidity in the Middle East these days, so why fight against the tide of negativity on both sides of the Atlantic when you know regional investors understand your objectives?
A more cynical view shared by a very wealthy business leader from their neighbourhood: both want to secure IPO funding before the good times end. Oil prices don’t appear poised for a downturn in the near future if one follows the International Energy Agency’s forecast, so capital is not a problem. But as many of you know (and what we are witnessing in both London and New York) confidence is based on a number of unknowns, such as the true exposure of banks to highly leveraged loans.
The answer between the headlines probably is a combination of both. List while ‘the going is good’ and pray that what has many sitting at the edge of their desks in London and New York does not find its way to the Gulf.
Rapid change, real investments
Dubai, October 17, 2007
Whether inspired by our heart or our brain, people usually remember firsts. This is the case when it comes to my initial visit to Dubai in the summer of 1990. It was the week following Saddam Hussein's march on Kuwait. 45 degrees and counting upwards and we were covering the entire region from a five star hotel.
Dubai was just beginning to open up. The government let a whole group of foreign journalists, like me, report from here on one condition -- that we did not identify where we were reporting from.
"Somewhere in the Gulf" was our on-air sign out and we would go to the satellite feed point every day and night trying to sneak some material past the screeners at the Ministry of Information.
There is a certain irony -- the home to Media City today with a long list of media companies including CNN inside -- was back then learning the ropes of a global media village.
Piqued by the changes, I extended my stay in Dubai and sought out stories for our business audience on protecting shipping lanes for oil traffic and the emergence of the emirate as a trading hub.
I even had a sneak preview at the big port and free trade zone expansion plans at Jebel Ali and looked at a blueprint of what was to come.
As reporters we often draw parallels to make the story relevant to our audience. To me the Hong Kong of the Middle East was apropos. First come trade in hard goods, a port, a free trade zone and later financial services.
And my story premise: would the emerging trade hub of this region be under threat by the instability of Iraq? The answer after two major upheavals in the country is a resounding no. If you speak to leading private equity investors here, they say risk has been factored into the market.
Seventeen years have passed. I see them as dog years, meaning let's multiply by 7, since the pace of change has been so rapid.
Face time with Nasser Al Ansari]] This week's show: real estate]] Cityscape Dubai]]
Like a rock in a pond, the example here is creating ripples in the region: Saudi Arabia, Qatar, Bahrain, Kuwait, and neighboring Abu Dhabi are all undergoing phenomenal transformations.
A tour this week through the largest real estate and development event in the world, Cityscape in Dubai, provided a reality check. 70,000 square meters (700,000 square feet) of exhibition space, showing off $1 trillion dollars of investments that are underway or planned for the next decade. (We are talking about major cities being built from scratch.)
In 2002 this show had only 1000 participants; today it has over 40,000. And if you are not a believer in this growth, why has Cityscape added another five emerging market events on the annual calendar including Shanghai? It is part of a seismic economic shift, supported by record energy prices.
When I was a child growing up in California, a memorable children's program came on every afternoon. The character Hobo Kelly would wear great big magic sunglasses and pretend she could see children at a distance watching her on TV. We somehow knew as four or five year olds that was not true, but we wanted to share a vision of what could be.
I use this analogy of Hobo Kelly because it is what we can see from here that makes our world so interesting. From Dubai we see partnerships with North Africa: Jordan, Egypt, Morocco, Algeria, Libya, Tunisia and going further south into Rwanda, Tanzania and Zanzibar.
It all sounds grand when one puts the numbers into a discussion and looks fantasy-like when touring the giant project displays. But this is no children's program, but the real deal into today's Middle East.
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.
One part minister, one part executive, one part princess
October 3, 2007
The accent sounds familiar from afar. An undergraduate degree in computer sciences from California State University at Chico (my home state) explains why. It is one of the many intriguing facets to the first female minister in the United Arab Emirates and highest-ranking female minister in the region.
Other facets include CEO of a B2B technology platform, the name behind a new perfume line (with the proceeds earmarked to fight cancer) and a niece to the Ruler of Sharjah, one of seven emirates that make up the U.A.E.
The office sitting atop of the Economy Ministry tower is a near shrine to her VVIP (Very Very Important People) encounters. A photo-op with George Bush Sr., a high-level South Korean trade delegation and most recently receiving the 'Stella Re' award in Turin, Italy given to a woman making strides in contemporary society.
The photos, memorabilia and awards are recognition for the role she has carved out. In fairness, Sheikha Lubna is blessed with lineage but also tested at the highest level. She captured the attention of Sheikh Mohammed bin Rashid Al Maktoum, the Ruler of Dubai and Vice President and Prime Minister of the UAE, when she designed a customized system for clearing goods through ports. It is something computer heads get excited about and those who do business, since her work cut cargo turnaround time from one hour to ten minutes. The technology helped the Port of Jebel Ali build its reputation as a shipping hub for companies in 120 countries.
From port technology to a B2B marketplace called Tejari.com, which was the first platform of its kind in the Middle East. This was an award-winning success and a barrier breaker. No one really expected a company in Dubai to sustain a trading platform for hard goods. With the click of a mouse, bureaucracy in the region tumbles. That same approach was taken by Sheikha Lubna with Dubai e-government, where amongst other things, it was one of the first places one could pay traffic violations online. Not such a great thing if you rack up lots of fines.
As we say in the business world, these are hard deliverables from a businesswoman, offered with a velvet touch and without hype. In the latest role, life is not so black and white. Yes, she has to put forth a budget; keep rapidly growing inflation in check (as best she can) and work within a government team.
She also has to serve as a 'key face' for her government. When DP World strained U.S.-U.A.E. relations over an acquisition of P&O, Sheikha Lubna was thrust onto the frontline to make the case. Much to the ire of Congress the deal included six U.S. ports, meaning these facilities would come under foreign control.
Eventually to soothe tensions the ports were sold off. Companies and governments from the Middle East to China (remember CNOOC and Unocal) now prepare their public affairs strategy alongside their investments. But asked what was learned in the spat of heated diplomacy, the message was kind, but powerful, like the Minister, "If you're going to lock up your interest in terms of selling because either of protectionism or a particular idea in your mind ... there are other places." Translation, "we should all be careful when it comes to those who want to invest in your country."
Sheikha Lubna knows that all too well. The primary reason she moves fast is to help her government sustain first mover status. And beyond the big picture of government, she has another role to play.
"In my personal belief, you need a bridge, you need a door opener for women," as minister, as executive and yes as a princess.
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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