Prosperity before peace?
There is an old saying in the financial community that one has to measure the risk and reward ratio each time you value an investment opportunity.
Listening to some of the participants at the Palestine Investment Conference in
U.S. Treasury Deputy Secretary Robert Kimmit said investing in the
Both were referring to the obvious security challenges posed by roadblocks, security checkpoints and the isolation of
We had a taste of that when we tried to cross over one of the checkpoints and the police did not think we had the right accreditation. Short of clear instructions we travelled ten minutes down the road and went through another checkpoint minus the hassle.
This is life -- this is the challenge of doing business in
600 delegates showed up to the first Palestine Investment Conference. It was a healthy mix of Eastern and Western players. The
Real estate giant Qatari Diar inked a $350 million deal to build a full community. Saudi group Al Ard Al Qabeda chipped in with a $200 million agreement to construct office towers, shopping malls and a hotel, also in the
Maybe not, but it is not far off. It is difficult to do business if you cannot get your goods past a roadblock or determine whether a drive to the factory will take two hours or eight hours.
The reality is investors smell peace in the air and they are being enticed by a whole bucket full of cash committed at the Paris Donors Conference in December. Governments pledged $7.7 billion over the next three years. Ten percent of that has been released so far, with an obvious eye on whether peace talks will progress.
The early movers see opportunity and a large Palestinian diaspora ready to play its part. Three million people live in the
It helps for example that the managing director for the World Bank in the region, Juan Daboub is one of the members of the broader Palestinian community. His grandparents came from
They are supported by Western players who are seeking to “do good” for the
In our interview in a beautiful reconstructed palace in
What Blair and the others were trying to convey is a sense of hope. If peace can be delivered it will be good for
That is all true and right now the region has the wind at its back.
This investment conference was scheduled to take place two years ago but was called off when violence flared.
Deferred but not thrown off, the local businessmen and the diaspora pulled together for another try. Deals are happening and governments have committed funds. Now let’s hope that lasting peace will follow.
A three digit world
World Economic Forum meetings are, as one former Prime Minister put it over a nightcap, part private high-level talks, part networking and a lot of theatre. “Theatre
There was plenty to digest and discuss, but as usual the many of the more memorable thoughts came in the networking lounge over an espresso. I spoke to the CEO of a Gulf investment authority who, during our conversation said they really want to get it right this time, since they are blessed with the “three digits.”
The conversation continues, as I try to bluff my way through what “three digits” means. After another minute my curiosity gets the better of me and I confess my ignorance. “Three digits,” he tells me with a broad smile, “
There is no doubt about that and I confirm that after 20 years of covering OPEC meetings and visiting production facilities from the Gulf of Mexico to the Arabian Gulf, I know it cost about $4 to $6 per barrel for the major Middle Eastern producers to get their crude to market. To put it crudely, that is a profit of about $120 a barrel at today’s prices.
Spend it wisely
While the Gulf producers are happy to watch the savings roll in, they are very aware that the world is watching to see how they plan to use it. It was, no doubt, the number one issue on the agenda at this regional meeting. Somewhat boldly some members of the Arab community, which are not blessed with the same huge natural resources, spoke up in Sharm el Sheikh.
Egyptian Prime Minister Ahmed Nazif, the tall, silver haired reformist, noted that one cannot force money where it does not want to go, but, “I believe that real opportunities exist today in the region, whether it’s in infrastructure, whether it’s in capacity building, education and other aspects of it.”
A former government official from
If that is not an incentive to use the “three digits” wisely, I am not sure what is.
A History Lesson on the edge of the Silk Route
The government of Prime Minister Recep Tayyip Erdogan too is looking both East and West today. Turkish businessmen don’t readily see themselves as part of the Middle East, but the market of 71 million consumers has grown six to eight percent in the past five years based on the ability to export its construction know how to the fast-growing Gulf countries and leveraging its position as a major trading artery in both directions.
This week a major congress of transport ministers from Far East Asia to the edge of
While these transport ministers were busy looking forward to what can be over the next twenty years with the reconstruction of the
Gorbachev took delegates through that window in time twenty years ago when the Cold War was still real, when communism was still very much alive but there was no discussion about a
He shares with great disappointment the “possibilities that were not realized” to bring greater safety and security to society. People he said are asking what kind of future awaits them and are yearning for action on the Kyoto Protocol, the Millennium Development Goals to reduce poverty and the end-game in the Middle East after what he called a “mistaken strategy” in Iraq.
While not trying to overplay the role he and his peers at the time played -- Reagan, Thatcher, Mitterrand and Kohl -- to patch together a new world order, Gorbachev talked of a leadership vacuum today. Elected officials, especially those in
Gorbachev was preaching to the converted when he talked about creating a “healthy vascular system for trade” from
A sea of cranes
I stepped out onto the terrace of my hotel this week in
This is the beat of
I was in
Stringing together their comments from those interviews, it is abundantly clear -- using an automobile analogy here -- that the pedal remains down to the floor. The sea of cranes will be more populated and the 150 different nationalities that now live in the Emirates will remain in the Gulf in search of riches. In historical terms, it reminds me of the California Gold Rush which started in 1848. While that lasted for seven years, no one is willing just yet to call an end to this boom. There is too much money being made and yes plenty of capital available within the region itself for expansion.
My visit coincided with yet another record for oil prices this week. Based on a conservative calculation, the six
With that heady backdrop of growth, I spent time asking these players and others if there are any landmines waiting that may bring this growth spiral down to more reasonable levels. This is the first time after many visits that developers and investors talk of a potential correction. In traditional terms, that could be a fall of 10 to 20 percent. It is also the first time that many of them privately said it would be a healthy occurrence. Investment as they all know from experience is not a one way path that always points north.
Mohammed Ali Alabbar would not be drawn into my question if we are 50, 75, 85 or 95 percent through the development of
The handful of major players who are implementing the master plans for
The numbers tell a less than measured story. Research out this week from Proleads tracked a total of $2.8 trillion in development projects in the
Pressure to Move
The U.S. Federal Reserve moved for the seventh time in the past six months taking interest rates down to two percent in the
Ben Bernanke and his team at the Fed hope this will be the last of the cuts and that the worst of the credit crisis has past -- don’t be too certain about that. This is what concerns central bank counterparts in the Middle East, especially those in the
Watching with anxiety what is transpiring in the
The problem, as we have talked about in this column, is quite different in the Gulf and it became more difficult this week in the region’s largest economy,
The United Arab Emirates, which is traditionally slow in releasing these figures, officially is seeing an inflation rate of 9.3 percent, but that goes back a half year. Other fast-growing, energy rich states are facing similar challenges. The real issue is what to do about it.
Finding an answer is not easy. For one, interest rates should be going up, not down. Number two, wages cannot keep pace with inflation, but leaders like Hosni Mubarak of
Fuelling the Titanic
The real challenge with inflation, as central bankers and economists know, is that when it accelerates it is very difficult to slow it down. For purposes of an easy analogy, this is not a nimble racing boat, but a high speed Titanic. The real danger at hand is the threat inflation poses for the economic development cycle now underway in the
The other issue is keeping workers in all those “castles in the sand” being constructed. The number is staggering; $3 trillion is either at work already or on the drawing boards. It will be very difficult to sustain those mega-projects if one cannot attract builders and very importantly laborers to get through the summer heat so they can send monies home to
Food for All
The region, minus the North African states, is overly dependent on imports, especially food. Gulf countries are paying for those imports with a weak dollar, which is down 35 percent against the euro in three years. The European Union is the number one market for those goods. This is where the loyalty to the dollar gets very pricey. Leaders from the United Nations and the World Bank held an emergency meeting in
It is hard to argue that countries seeing record oil revenues are suffering as badly as those say in Sub-Sahara Africa – that is certainly not the case – but rising prices are a real problem and will continue to be so.
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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