Marketplace Middle East - Blog
Wireless Wonder

There is a tendency to think of Global 100 brands when recalling growth leaders in different sectors. That would be a mistake when defining the pacesetters in the mobile phone market.

Vodafone, Orange/France Telecom, AT&T Wireless, T-Mobile and Telefonica spring to mind immediately. How about China Mobile, MTS in Russia, Bharti Airtel in India and Orascom in Egypt?

Like the emerging economies in the region we cover on Marketplace Middle East, there is a track record of better than average growth. Case in point certainly is Orascom.

When Vodafone for example paid $180 billion for Mannesmann in Germany back in 2000, Orascom was buying properties in Pakistan, Iraq and throughout North Africa. In sum founder Naguib Sawiris put Cairo at the centre of his global map and built his network from there. Less competition, faster growth and fewer buyers for the licenses he wanted and eventually landed.

The result: Sawiris is confident he can cross the 100 million-customer mark in 2008. He is not far off now with 90 million when adding his most recent purchases in Italy (Wind) and Greece (Tim Hellas). Those two countries are part of his Greater Mediterranean strategy.

While his forays into high growth markets are well documented, his next chess moves are not. Sawiris shared some of his insights this week for the time afforded in our television programme.

He is not planning to exit the market: “We’re building a war chest …what we are trying to find now is a target we can acquire without a price war.”

He is eventually open to a global partner like his brother Nassef who sold Orascom Cement to the French: “If I ever do a deal like that, I would like more than 11 percent for sure and I would like to have a say in the company.”

He wants to go back into India: “We’d go back indirectly through someone who is already there but we don’t believe in any new entries there.”

He has been frustrated by China's lack of openness: “We’ve been shouting and screaming and saying that it’s not fair…so we’re trying to find a way to get into China and we think we have found a way.”

He believes newcomers such as Zain and MTN are willing to pay too much: “All our neighbours are full of cash, driving prices up.”

And there some other nuggets that are trademark Sawiris, someone who is not afraid to speak his mind and court controversy.

In a global market that is getting more, not less competitive, it is difficult for him to secure high growth opportunities. Vietnam and Cambodia hold great economic promise, but from a mobile phone market perspective are too saturated already.

North Korea has the DNA market traits that he likes. In his words, they seem “peace-loving” and the dismantling of their “nuclear things” is a positive. Negotiations for that market are underway.

Then what. After building an estimated net worth of $10 billion, why fight the tide of competition? His answer, “Telecom is in my blood. If I ever do something, I will remain in telecom.”

And remain controversial. He is known within Egyptian social circles for his round-the-clock energy and more. Beyond speaking his mind in business, he has other thoughts about trends in the Muslim world. Most recently he said that the growing ranks of women wearing the hijab or veil in the streets of Cairo gave him “the impression of being in Iran. I feel like a foreigner.”

The statement prompted a fatwa from a conservative sheikh to boycott his company.

One should not expect an impact on Orascom nor on the free-speaking billionaire.
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Third time not a charm?
The great big marble building on 20th Street and Constitution Avenue in Washington has served as a beacon of financial stability. When decisions emerge from the Federal Reserve’s Board of Governors meeting or from a Capitol Hill testimony the world watches and financial markets respond.

They did so this week with the quarter point cut in short and long term interest rates. It was the third move by the Fed in recent months, but the response was not positive either in U.S. financial markets or throughout the Middle East. In order to pack a “one-two punch” central banks stepped up with a $100 billion transatlantic coordinated effort to provide liquidity to commercial banks.

In the United Arab Emirates, the central bank followed the lead of the Federal Reserve and matched its short-term rate to the U.S. at 4.25 percent. Great, this means the growth machine in the Gulf continues? Not exactly. The central bank cut rates because of the link or peg to the U.S. dollar, which will put more pressure on inflation of better than 9 percent in the Emirates. This week inflation in Saudi Arabia hit a ten-year high, crossing 5 percent. Both are mild compared to Qatar, which is witnessing inflation in excess of 14 percent. A recent trip to Doha tells the story. Revenues from the gigantic North Field natural gas deposits are fuelling a sizable expansion in the emirate of less than a million people.

So as we wind down 2007 and prepare for our holiday of choice, what can we expect from the Federal Reserve, its counterparts in the Middle East and from emerging markets in 2008?

As we have witnessed in the past five years, the U.S. Central Bank is prepared to move, hence this Fed statement accompanying Tuesday’s decision: “Economic growth is slowing reflecting the intensification of the housing correction and some softening in business and consumer spending.” The door is certainly ajar for more action.

Last week on Marketplace Middle East we reported that the five remaining members of the Gulf Cooperation Council (Kuwait already de-pegged) were not prepared to remove their collective pegs to the U.S. currency. 2008 may provide a fresh impetus to rethink this strategy if -- and a big IF here -- regional and global growth outside the U.S. continues at this pace.

At its spring meetings in Washington, the International Monetary Fund predicted that global growth could tick along at a rate of 5 percent this year and next after posting growth of 5.4 percent in 2006. The fuel has been coming from India, China and the Middle East. The two emerging giants are growing between 8-10 percent and regional growth of 7 percent in the Middle East is nothing to sneeze at.

This will be a phenomenal test for the new East-East axis for trade, driving growth from the Middle East to East Asia. While Citigroup brought in Vikram Pandit as CEO, Wall Street was bracing for the next round of write-offs due to the credit crunch. On the other side of the mood barometer, the CEO of General Electric, Jeffrey Immelt, is pointing to strong global growth to drive 2008 profits, while saying he would not put a “happy face” on any division that is overly dependent on the U.S.

Which means what for our friends in the Middle East? Federal Reserve Chairman Ben Bernanke and his team in that great marble building probably have not finished cutting interest rates, and central bankers in the region may need to cut their ties to the U.S. dollar to help ward off inflation and to align with economies they are more in sync with.

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Saudi Arabian days & nights
A journey to the Red Sea commercial hub of Jeddah and the Saudi capital Riyadh this week offered a unique vantage point for what were some politically charged economic decisions for Middle East leaders.

Despite the weight of 95 percent of the region’s “expert opinion”, the Gulf Cooperation Council decided to do nothing, which in turn means something – loyalty to the White House and, for the time being, loyalty to the beleaguered U.S. dollar.

Washington can thank Riyadh for this one. King Abdullah’s high profile visit to Doha for the GCC Summit dominated headlines while in Saudi Arabia, having declared his support for the dollar peg before boarding his private jet. There would be no revaluation of the riyal or a shift to a basket of currencies (euro, pound, yen and dollar) to better reflect the imports coming into the region.

Times they are a changing

According to Dr. Nahed Taher, CEO of Gulf One Investment Bank, Saudi Arabia imports only 20 percent of their products from the U.S. During an interview in Jeddah this week, the young, first female CEO of an investment bank in the Gulf says that with a weaker dollar and the riyal linked to the greenback, Saudi Arabia is importing record inflation, along with the goods from Europe, Britain, China and India. This is putting the squeeze on the Saudi public, the 90 percent not enjoying the fruits of record oil prices. Even the domestic workers complain these days how the weak dollar is eroding their repatriations back home.

Saudi Arabia stood down recent calls from officials in Qatar and the U.A.E for change, which gives the dollar a chance to recover as tensions with Iran subside and the U.S. Treasury offers an array of tools to fix the credit crisis.

One who called the Saudi action (or inaction) correctly was Dr. John Sfakianakis, chief economist of SABB (HSBC’s partner bank in the region). Over dinner in Riyadh, and a toast with Saudi martinis (the famous non-alcoholic fruit concoction) he didn’t say “I told you so” but he did tell me so more than a month ago. This was no time for Saudi Arabia to throw its weight against Washington, but behind it. With oil priced in dollars, the world’s largest producer also did not want to re-price its riyal and undercut revenues.

So instead of a historic, collective GCC move to re-price their currencies when they captured at least part of the global spotlight, discretion ruled. However, I would not bet this will be the last on this subject. Once the attention shifts away from the Gulf, a re-evaluation against the dollar or going to “the basket” might be in the offing.

The New Frontier

This trip to Saudi Arabia was also a fascinating look through the window of what might be. King Abdullah is putting forth change at what is a rapid pace for his citizens. You can see this for yourself when both driving the streets and looking at the blueprints for the future. On the drawing board today is a plan to build six cities from scratch, 20 regional airports and a $6 billion dollar cross country railway. Infrastructure is needed and this leader knows the country has been run down. After all it is the biggest economy in region, possesses the largest oil reserves in the world – collecting $165 billion this year alone -- and right now is the largest investor outside its country. And that is the rub. Saudi business leaders have focussed on other markets for real estate and manufacturing. This economy needs to spruce up what it has today, offer a world class infrastructure for tomorrow and capture a unique selling proposition. The private sector – the famously discreet Saudi trading families – will be part of the process, but one gets the sense that the path to partnership still needs to be defined so that this corner of the Arabian Desert can fully leverage what lies below.

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John 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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