As my family and I embark on a summer sojourn to a Greek island, it seems only fitting to write about what could either be an ambitious political effort with great architecture or a hollow shell with 43 countries and little substance.
The cradle of civilization without even a Plato-inspired debate lies at the heart of the
In traditional French style, Sarkozy invited leaders to
German Chancellor Angela Merkel was not going to sit idle and let President Sarkozy design a non-E.U. driven structure, which would have seen only those countries bordering the
This would explain where we are today with 43 countries cobbled together. What is now being called Club Med is not a new initiative; it goes back to the so-called
A lot has changed since then. For one, there is economic stability and pretty decent growth-- 4.4 percent since the turn of the century. While no one can contend the non-E.U. countries represent a cradle for democracy, they do represent a handful of countries that have embarked on real economic reforms –
Those reforms caught the eye of some very wealthy Gulf neighbors who can clearly claim first mover status. Large development companies are building new cities, ports, factories and oil and gas facilities throughout Club Med.
As the Chief Executive of one Gulf real estate company aptly noted, “we are not a charity; we are out to make money, but if we help stabilize our region at the same time, so much the better.”
This is not the International Monetary Fund or World Bank at work, but the private sector smelling value.
European Trade Commissioner Peter Mandelson acknowledges the frustration many North African leaders have felt after a decade of limited leadership from Brussels, but sees the merits of this effort after the wave of investment.
“I think that it will bring greater political stability on the back of greater prosperity to the countries of the Southern Mediterranean and North Africa and that’s certainly in the interests of
The not-so-foreign direct investment from the Gulf (since they are in the same neighborhood) is the deciding factor for President Sarkozy. The economic risks are low, but the political upside is high and he could even carve out a role for
The challenge for all leaders is to make sure wealth can be distributed more evenly. This bloc trails only
That certainly is changing. DP World has, for example, a $3.5 billion port under construction in Tangiers and Renault Nissan has an automobile plant designed within the same facility. FDI is up six fold since the start of the century, with again Gulf players leading the modern day caravan across the Med.
"The Arab world today is in a dramatically different situation and a significantly more promising economic situation than it was in the mid 1990s,” says Florence Eid, President of Arabia Monitor. “On the back of six years of the oil windfall now, we are seeing dramatically different methods of investment."
The investment will provide a foundation for growth and hopefully long term job creation. It is the most pressing issue. Unemployment stands at about 12 percent in the non-E.U. Med countries; most experts contend it is double that amongst the youth.
If successful it will help stem the tide of immigrants who literally wash up on the shores of
President Sarkozy, with his Parisian hospitality, was out to make a statement that the Union of the Mediterranean can be grand, can lower barriers to trade, create jobs and assist in addressing one of
The Club Med launch party was relatively easy to pull off; the real work, however, just begins.
Many discussions, few solutions
“We have strong concerns about the sharp rise in oil prices, which poses risks to the global economy.”
This quote came from the G8 communiqué on the world economy from
Many pundits got excited by the $5 drop per barrel earlier in the week -- the largest single day fall since March. These analysts believed the drop pointed to a bottoming out for the U.S. dollar and falling demand for crude as a result of a global slowdown.
Personally, I think it is too early draw those conclusions on both fronts. The housing market remains dangerously weak in the
The dollar weakness that we have witnessed for the better part of three years is likely to remain until:
Political change often brings with it an ability to break with positions from the past. This could apply to both the dollar and oil prices.
Daily demand is holding up at around 87 million barrels a day, but according to OPEC and Saudi officials there is no demand beyond the current production now in place. Traders are basically making a big bet (and a lot of money in the short term) that demand from the developing world will outstrip the production earmarked to come on stream in the next few years.
On that front, the G8 also had something to say:
“Oil producing countries should ensure transparent and stable investment environments conducive to increase the production capacity needed to meet rising global demand.”
Transparent was a word used at great length this week in
With crude at this level, national oil companies don’t want to pump too much oil and want to hold onto the highest percentage of a field that they can. Many of these NOCs, according to non-government oil company officials I have spoken with, have been less than eager to speed into production or give too much away. This is not reported in the headlines of daily papers and telecasts, but it is the reality on the ground.
That equation is part of a greater co-dependency between the G8 and the
On the macro-economic level, G-8 countries are more dependent than ever on
In today’s scenario, the G8 is calling for great cooperation and dialogue. We saw a hint of this in
This effort was however a good start. A G-13 (despite the unlucky number) is much more welcoming than the current structure, which candidly seems dated. It should be a group of equals addressing concerns eye-to-eye. While the world seems to be in an expansive mode, we might want to think a bit differently.
It should not be a gathering of just energy consuming nations, but bring in the producers (either GCC or another structure) to take us from dialogue to action. Let’s not have one-off energy summits like the recent meeting in Jeddah, but make the process more inclusive, more productive and yes more transparent.
Over a barrel
Walking through the sprawling Feria de Madrid convention center in the outskirts of the Spanish capital one clearly gets the sense there is plenty of money around. $140 oil can buy a lot of exhibition stand space at the World Petroleum Congress.
On one side, there is Exxon Mobil’s towering display wrapped in semi-transparent modern mesh designed to match its global marketing campaign. In the other hall, front and center the twin stands of Saudi Aramco and Qatar Petroleum are the size of oil platforms. I was told the latter took up 1,200 sq. meters, supported by a full range of recycled goods.
This tri-annual event brings together energy ministers and oil chief executives to rub shoulders and conduct business. This year they all had a lot to say during scores of interviews and press conferences about the price of oil, except when it will peak.
The straight talking Chief
He and others don’t like it because they fear the severe spike up will lead to a dramatic fall from where we are today. The International Energy Agency is calling the record price run up a “third oil shock”. A partner at Ernst and Young (E&Y) labels this a “super spike scenario”.
Both groups say the implications of this never ending rally will be far reaching. Don Painter of E&Y believes this particular scenario is interesting because it will “drive changes in behaviour; consumer and consuming nation behavior”.
Having left suburbia for dinner in central
I guess he did not tune in to see the fuel protests on the streets of the capital. After a tremendous 12 year economic run and property boom,
To date, the downturn has been confined to the industrialized world. Asia as a whole continues to grow at six percent and, along with the
This backdrop leads me nicely into the blame game. There were calls by G8 leaders for OPEC to provide more crude to the market.
This is the headline: The Kingdom’s oil minister Ali Al Naimi says demand is not there.
In an interview with Marketplace Middle East, the President of OPEC, Chakib Khelil bluntly stated: “If you going to put more oil in the market, somebody has to buy it. If there is no use for that oil then it’s going go into stocks.”
He says inventories are running at better than 50 days, which is normal and not a crisis. Khelil and his other counterparts within OPEC pointed to three distinct factors driving prices higher:
Strip out these “special factors” and Khelil and most of the other energy players I spoke to this week said oil would be $80-$90 a barrel.
That may not sound like an entirely rosy scenario. But let’s say in a world where there are two giant countries with more than two billion people -- China and India -- developing their own middle classes and demanding energy at three times the rate of the developed countries, $80 a barrel may be the new $40. This means that producers can make money and consuming nations can survive comfortably when factoring in inflation and the depreciated dollar.
Missing from this debate are some cold hard facts from politicians who are looking to apportion blame somewhere else. Offshore oil drilling on the East and
The chief executive of Exxon Mobil, Rex Tillerson, did not want to be drawn into the debate over prices, but he does feel strongly that the public is not getting the full picture.
“It is unfortunate there is a lot fairly high-pitched rhetoric about energy independence on the part of consuming countries and resource nationalism on the part of producing countries.”
That certainly rang true this week in
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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