    Investors were excited about the rise above 10,000 on the Dow Industrials, while many western citizens felt downright embittered by the surge in profits for money center banks, some of which recovered on the back of handouts from the U.S. and UK governments.
    Somewhat lost in that mixed bag of emotions was a one year high for crude prices above $75 a barrel. That is certainly quite a leap from December of last year when the mid-$30 range was the order of business at the height of uncertainty.
    We know that this latest rally is a mixture of dollar weakness and anticipation of global demand recovering. What most pundits have missed in the rally is the real demand coming out of China, where there is discussion of eight percent growth being a base to build on in the next few years.
    That continued optimism out East is a nice counterbalance to the lacklustre performance -- despite euphoric market gains -- in Europe and the United States. It has those who get excited about the new drivers of the world economy talking about “rebalancing of the world.”
    One such kindred spirit is Ben Simpfendorfer. By day he is a China economist for Royal Bank of Scotland and he combined his years of experience in the Middle East and East Asia to pen the “New Silk Road”, the first comprehensive look at the re-emerging trade links between the two regions.
    At the heart of this bond is what the Middle East is famous for: oil and gas. Saudi Arabia produces 13 percent of the world’s daily crude output. China currently consumes nine percent of world demand and the line on the chart is moving upwards.
    Prior to the western led economic shock, Simpfendorfer talked of a “Holy Trinity” -- not a religious trinity -- but an economic bond between the Middle East, China and America. The Middle East supplies energy, China exports to the U.S. and America consumer demand supports both.
    The author says that trinity has been broken -- not permanently -- but perhaps for long enough to mark global rebalancing. This is very convenient for Saudi Arabia which Simpfendorfer says is looking for a way to hedge its relationship with the U.S.
    China, having looked at its track record in the Saudi and Iran, has taken a view, as it has in Africa, that it will limit its presence to business and not politics. How long Beijing can sustain that position, Simpfendorfer says, remains in question. Basically, with power comes attention.
    In that context, many are starting to rumble about Washington’s long term sustainability as the world’s dominant military force, which in turn may undermine the dollar over time.
    The U.S. currency came under intense pressure after rumors surfaced about back door talks between Chinese, Russian and Gulf central bankers on pricing oil in other currencies. If there is a retreat in either Iraq or Afghanistan, Simpfendorfer believes that will only accelerate the long-term trend.
    While the U.S. in a post-9/11 world has been faced with skepticism, China filled the gap and has become the largest supplier to the Middle East. This is not a one way relationship. On our program, we like to think of the region as a large potential single market of more than 300 million consumers. China does too.
    “We have to start thinking about the world in a different way and the commercial investment links between the Eastern economies themselves are growing and strengthening,” says Simpfendorfer.
    This particularly applies to what he likes to call the Islamic Corridor, stretching from East Africa through the Middle East and down into Southeast Asia. Time and again we are witness to investments between Kuwait and Malaysia, Dubai and Djibouti and there is a common comfort zone within the Muslim world that Simpfendorfer says will only grow deeper with time.
    The routes that supported trade centuries ago, the Silk Road and the Spice Route, may look different in the 21st century due to modern day transport, but the same spirit is alive and well.

Пятница, 16 Октября 2009 года 14:39:00

A View from the Top

    The gleaming tower is impressive from all angles with the searing autumn sun bouncing off the mirrored glass and stainless steel. We know that when it opens the Burj Dubai will be the highest building in the world at over 800 meters, although the final height is being kept secret.
    The targeted completion date was also a closely guarded secret, until I sat down with the Chairman of Emaar, Mohamed Alabar, who confidently told me he is, “shooting for (UAE) National Day” and that the December 2 goal is achievable. His team, including the CEO of his hospitality unit, seemed surprised by that statement, which sets the bar high after a half year of delays.
    Dubai is a destination that has built its reputation on iconic buildings and development projects -- The Palm, The World and the sail-like Burj Al Arab. Next to the Burj Dubai is yet another landmark – “The Fountain.” Alabar invited me on an early evening tour of the fountain, which is the largest of its kind in the world.
    It cost of more than $250 million to install and the jets can reach a height of 50 storeys. The entire downtown complex, which includes the giant Dubai Mall and The Address hotel, is impressive, and Alabar beams with youthful enthusiasm as he shows me around. While we walk, Alabar tells me he thought it was important to deliver the project after the global downturn, which rattled the desert foundations of Dubai.
    My interview with the Emaar Chairman came during the eighth year of Cityscape, the property exhibition where in years gone by developers has money to burn. They launched multi-billion dollar projects and would splurge millions on model displays and stands. This year, the atmosphere was far more subdued and sober. Developers talked of completion dates and deliveries, not size and new products.
    Alabar, arguably the largest developer in a region, was reflective about the events of last year and where we are today.
    “We’ve learned the art of managing business, which has changed forever in my opinion. I thought I was conservative. I think I could have been more conservative,” adding, “I am much harsher in the operation now.”
    Alabar could not address issues regarding the proposed merger between his group and the property development entities of Dubai Holdings, but he did not shy away from some of the more sensitive topics on the table these days – like Dubai’s debt.
    On where demand would come from for the second tranche of the $20 billion bond offering, he said the “majority from the [UAE] government with some private sector.” Asked whether a total estimated debt of $59 billion can be serviced between now and the end of 2012, he said, “Between repayment and restructuring over the next three, four, five years, I really don’t see an issue there.”
    When digging through the analyst reports, it seems a disproportionate amount of that debt sits within the empire of Dubai World and its property group Nakheel. It is weighing heavily on the Emirate overall. Dubai is eager to move on from a 40-50 percent property price-drop over the past year.
    Questions remain about how certain entities will contend with that debt burden. When asked whether a major cleaning up was required, he was diplomatic and frank at the same time, “I think restructuring in all businesses is a must. We cannot do business the way we used to do. I have restructured my business and I am sure DP World is restructuring their business the way Mercedes Benz is restructuring its business. So the answer is yes.”
    Alabar, like other executives, is confident that Dubai’s position as a financial services and trade hub with a more advanced infrastructure than its neighbours will allow for a faster recovery. He pointed out higher traffic numbers for Emirates Airlines recently and the return of expatriate white collar workers.
    Our discussion took place while the IMF World Bank meetings were underway in Istanbul. The two organizations put out similar growth projections of between two and 2.5 percent for the UAE next year. The master developer thought that number is too conservative. The days of double digit growth are not coming back soon, but a figure about double that is what he has in mind for 2010.
    During another series of conversations with executives from around the region, we talked about the “new normal” -- a new term to describe the post-downturn economy. The developed world is bracing for much slower growth for the next five years as a result of record debt levels. Many in the region are adapting to a different reality, even as they get ready to deliver on the next “biggest thing.”

Пятница, 9 Октября 2009 года 09:10:00

The Q Factor

    During a drive down Doha’s seafront Corniche, one can begin to capture the scale of endeavour in Qatar. The concept that comes to mind this week is “The Q Factor,” something that is not quite tangible yet, but is unique to the Emirate of Qatar.
    For those who follow prime-time British TV closely (and I am not one of them) “The X Factor” is a hugely popular talent show franchise. It brings forward raw musical talent to compete for a major prize. “The Q Factor” is not dissimilar, because Qatar is clearly in a competition with itself and neighboring states to build out infrastructure across the spectrum -- from financial services to a new rail network -- by 2016.
    I got a glimpse of the future in a cabin tucked within the Qatari Diar real estate compound. A huge trailer, designed by the German railway group Deutsche Bahn, features a state-of-the-art 3D rendering produced by film director George Lucas of the futuristic railway station.
    The station, according to today’s plans, will see a number of different rail services coming together at one hub, even inter-connecting to Bahrain and Saudi Arabia. Once you step into the heat of the Gulf, you see for yourself the service tunnels being built to house the cables and the rest to support the structures.
    The first phase of the gigantic project -- if all goes according to plan -- will be completed by 2016. The entire network should be polished off a decade later. One could start to imagine what the Emir of Qatar and his tight knit team have planned. The population has doubled in the last decade from 800,000 to just over 1.6 million. Officials I spoke to say we are looking at baseline population growth of at least five percent a year for the next two decades.
    Financing this giant scale nation building is not a problem due to the natural gas production coming online as I write. According to energy officials, LNG production was boosted 50 percent last year and another 25 percent will be added next year. The head of the Qatari Businessmen Association Issa Abu Issa said after $80 billion of total investment, the sector will be cash flow positive by 2012. The North Field has a shelf life of 200 years, I am told on the ground, which means for the 300 thousand or so people who were born there life is good -- make that very good.
    Per capita income has risen by a factor of four in the last decade, to just under $100,000 and that is projected to keep growing. While the rest of the world was fretting about the worst downturn in six decades, the government saw it as an opportunity to regroup. Inflation, which was running in double digits before the downturn, is now a more manageable three to four percent. Growth projected at 8.5 percent this year is not what one would call a major slowdown.
    On the sidelines of the Economist Roundtable, which I was helping to chair, I spoke to Florence Eid of Passport Capital who talked about Qatar being nearly recession proof due to its relatively small size and large resources. This is giving “Team Qatar” plenty of creative luxury to paint a giant canvas of the future. Eid said you have to go back a century to witness such wealth creation in such a short period of time within Europe or the United States.
    This effort certainly is not without growing pains. One can see what I am talking about in the West Bay section of Doha. Many of the structures have been completed, but they are not collecting income, just a lot of dust. Other buildings look as if construction has been suspended. Businessmen say that the local property market is down 20-25 percent during this downturn. They point to a difficult 2010, but remain confident that beyond that the business climate looks promising.
    A CFO of a large industrial group told me that Qatar has the same challenge that other businessmen complain of these days. The government has plenty of surplus capital -- less so after the downturn -- but banks are reluctant to lend, even though sovereign capital was injected when the market turned sour. Executives say that the government responded to the global downturn with right amount of financial force and with the correct speed.
    The real test comes in the next decade as more projects develop. An updated master plan is expected in early 2010 to help map out the next quarter century. Most admit too much came on stream too fast in the last five years that the growing pains are evident today. Nearly 200 projects are on the books, totalling about $82 billion.
    During these go-go days in Doha, most don’t look back to the late eighties or early nineties -- pre-LNG, shall we say -- when Qatar’s debt to GDP soared above 80 percent. Times were tough, but the government, in the midst of the debt challenges, put forth their energy master plan with natural gas at the heart of that strategy.
    The Q Factor is paying huge dividends today and like The X Factor has millions of viewers watching with anticipation to see how this program will finish.

Пятница, 2 Октября 2009 года 10:05:00

The Real Deal

    The G20 is coming to grips with what governments are and are not willing to do over the next year in terms of stimulus plans and regulations. Most agree that the bottom has been marked during this downturn, but that the recovery is going to be less than stellar in western eyes.
    The language in London has been downright bellicose when it comes to bank bonuses and re-gigging remuneration packages -- and that is what has been coming from the regulators! Whether concrete proposals actually crystallize is another matter altogether. The reality is most leaders have one hand on the populist pulse (re-elections in the case of Britain and Germany) and the other on the wheel of a ship which has been through one heck of a storm.
    Collective action, including more than a trillion dollars spent to prime the banking system, has provided us with more security, or at least the perception of more security than in September 2008. On the streets of London, we all witnessed a period of about a week when one did not know whether their financial institution would remain open. All of a sudden, depositors had to learn a great deal more about deposit insurance limits.
    At the start of this year when the western led downturn started to really bite, one wave of economists boldly stated the decoupling theory widely touted the previous year had been proved to be wishful thinking. The so-called BRIC countries are export dependent and cannot excel without the support of European and U.S. demand, the collective logic concluded.
    It is time for those doctors of emerging market doom to re-think their prognosis. Collectively, the U.S. and Europe will be lucky to grow between one and two percent over the next year. In contrast, China is already growing eight percent and India and Indonesia better than five and the broader Middle East around three and a half percent. This is not theory, but the real deal.
    This week, I sat down with Egypt’s Trade and Industry Minister, Rachid Mohamed Rachid who continues to comb the east and west for growth opportunities on behalf of Egyptian companies. These days he is logging more long-haul trips to China and India in search of joint ventures or to recruit companies for special economic zones under development.
    Rachid, as a former senior Unilever executive, is acutely aware of recessions and business cycles in general.
    “Today we are not talking about theory but about facts. We are seeing numbers that are totally different than the U.S. and Europe. We are seeing prospects that are more bullish than the rest of the world.”
    It is not easy to navigate larger economic tankers through these turbulent times, but that is exactly what some of these fast developing countries have done. When the export machine started to falter in China, it steered the economy to a domestic infrastructure build out -- not little league spending but some $9 trillion between now and 2017. The other billion person economy, India, was in the midst of a reconstruction plan that will see new railroads, airports and the rest built over the next two decades. Those who have travelled the roads or rails on India would not argue about the need to do more at this stage of development.
    Some would contend this is good sound planning by the two future giants. The fact is that luck and good timing had a lot to do with it. The infrastructure plans were on the books and were rightly accelerated to respond to the downturn.
    The storyline is not dissimilar in the Middle East. The Chief Executive of GE International Nani Beccalli-Falco points to the model of public-private partnerships in the region where there is a track record of growth.
    “We are getting out [of the downturn] because the so-called emerging countries, which in my mind are not emerging anymore because they have already emerged, are really pulling the global economy,” said the finely-dressed Italian from Turin, “You think about China, you think about India, you think about the Middle East, you think about Brazil.”
    So while government leaders try to develop a consensus for future action, those with capital reserves will keep their taps open on a large scale. That is, what they say in business, not theoretical but “the real deal.”

Пятница, 25 Сентября 2009 года 12:42:00

One giant leap for globalization

    This summer marked the 40th anniversary of astronaut Neil Armstrong’s first steps on the moon. On July 21st 1969 he uttered the phrase, “That's one small step for man, one giant leap for mankind."
    There has been hours and hours of analysis about dropping the “a” as in one small step for a man, because it formed a grammatical contradiction. Armstrong said he hoped history would grant him some leeway and again further analysis suggests that the audio signal might have been interrupted during his historic walk.
    I am recalling that famous two and a half hour journey on the moon’s surface because today there is a spirited intellectual debate on whether the financial crisis of the past year will fundamentally change our approach to business, or be just an interruption on the path to globalization.
    During this month, nearly every strand of the crisis is being revisited to understand where we have been and what regulatory steps will emerge at the G20 summit in Pittsburgh. But, maybe we are missing the bigger picture.
    I have listened to astronauts talking about the mind-stretching image of looking at earth from space. One’s perspective, I am told, changes dramatically after such an experience and maybe that is what we should be doing ourselves right now -- looking not at what transpired in the past year or the decade that led to the asset bubble, but instead on the global puzzle being assembled.
    The smart minds are looking both forwards and back. Each year I spend a few days in the Alps with a group of German industrialists and businessmen to make sense of the world today. Last year, the talks took place just two days prior to the collapse of Lehman Brothers. I went back to look at what was said then and the analysis was incredibly prescient.
    The business community pointed to historic bank bailouts on a scale we have not seen before, more regulation of financial products by central banks leading to global rules and finally an effort to weed out the Madoffs of the world. The final point seems to be more difficult to police after the other well-known and recent examples of Enron, WorldCom and Tyco.
    The reality is one would never have dreamed of a $1.5 trillion deficit for the U.S., that Washington must drag around like a ball and chain for years to come. Europe and the U.S. are learning, much like Japan during the lost decade of the 1990s, the long-term implications of such a financial shock to the system.
    J.P. Morgan Chase bank released a study talking about a sizable lowering of the classic return on equity for banks from 15 percent down to 11 percent with higher capital requirements and stricter regulations. No doubt, banks will remain under the magnifying glass.
    But the Chief Financial Officer of Siemens, Joe Kaeser is suggesting something a bit different. His company has over 400,000 employees all over the world and only recently recovered from its own shock linked to compliance practices and kickbacks in 2006. Kaeser sees this crisis as the next big step for globalization.
    While the West is living on borrowed time and money, the economies of the East have re-grouped quickly. Many tried to debunk the decoupling of the East from the West, but with the divergence of growth we are witnessing today it is difficult to not believe in a higher grade of de-coupling and the bigger march towards further globalization.
    Eight, five and five -- those are the expected percentage annual growth rates for China, India and Indonesia for 2009 and Chinese Premier Wen Jiabao is confident that his $9 trillion stimulus plan will maintain that expansion through 2015.
    Oil in the $60-70 range should provide above average growth for the Middle East. Both China and the Middle East remain dependent on Europe and the U.S. for growth, but certainly less so than before.
    The next big step in globalization for the major industrial groups means to go where opportunity presents itself. GE for example recently landed a $2.5 billion deal to build power stations in Kuwait. Siemens secured a similar size contract for a water and power operation in Saudi Arabia a few years back.
    It may have felt like we all stepped off the cliff in September 2008, with many forced to ask the simple question, "Is my bank safe?" Instead of winding the clock back a year, let’s take inspiration instead from Major General Armstrong and his historic words four decades ago.

Пятница, 18 Сентября 2009 года 11:22:00

Mind the Gap

    As I went for my morning espresso macchiato this week I glanced at a newspaper stand and saw the British headline “Recession is officially over”.
    A think tank here in London used the calculation of manufacturing output rising for two months in a row to support their premise. Everyone, including this writer, wants to call an end to the nasty times, after all this month marks one year since Lehman Brothers was allowed to go bust, which was the last nudge for the global banking system over the cliff.
    The Dow Jones Industrials index is reaching out for the 10,000 mark and the FTSE 100 has recently passed the 5000 threshold, both technical and psychological barriers for investors. But no one really wants to address the ten thousand pound elephant sitting on the table: the recovery in the West will be tepid at best.
    This past week on our programme we illustrated that point by suggesting we should all mind the gap — recalling the famous electronic audio call one hears in the London Underground marking the space between the train and the platform. But in this case, I am suggesting we should mind the gap of some of the global economic projections for next year.
    For example, the International Monetary Fund has upped its projection to three percent, from an earlier, more cautious call of two and a half percent. The United Nations division on trade and development UNCTAD is suggesting something much less – just above one and a half percent.
    Hold on a second; one is about the half level of the other which reflects the uncertainty that still hovers over next year. In the region, the outlook is brighter with the most populous country, Egypt, projected to grow about four percent and the UAE around three percent. This is where conservative banking rules and deeper pockets for the Gulf oil producers pay off.
    G20 finance ministers met in London to try and work out the more delicate issues before their leaders meet in Pittsburgh September 24. Devising formulas to cap and stretch out bonuses are still on the cards as is a drive to create global regulations for derivative products that got us into this mess.
    Sticking with our theme this week, there remains a gap that bankers are currently filling on their own. Current national rules governing those products don’t keep pace with those who are creating them. During the go-go days of the past decade that was okay when money was flowing in, but similar to life after 9/11 and the security that was introduced, rules to govern financial security need to evolve.
    The G20, with Saudi Arabia and Turkey as members representing the region, want to finalize the rule-making by the end of next year and aim for implementation by 2012. In sum, lawmakers want to make sure the recovery is well in place and that there is no rush to legislate, with the approach being “let’s get it done right or not get it done at all”.
    That is the positive way to view that approach. Dominique Strauss-Kahn the Managing Director of the IMF took a different view. Empowered to re-design the institution and play a leading role in the new global architecture, he said the consensus forming was impressive, but that the world is still awaiting stronger measures and definitive leadership.
    The consensus seems to be moving towards boosting capital requirements to match the risks taken on by banks. This formula would provide - as U.S. Treasury Secretary Timothy Geithner suggested - shock absorbers to buffer future downturns. What seems to be missing in this equation is the ability to rein in banks during the boom times when they are taking on all the risks. Who will play the “bad cop” if you will? No one seems to have the answer to that just yet.
    But that concern goes back to the failure of Lehman Brothers. In an era of globalization and consolidation, there are ever more powerful universal banks that combine commercial and investment banking activities under one umbrella. If they are indeed deemed to big to fail, will they curtail taking all that risk if big brother – the government – is willing to step in?
    Probably not, but not putting safeguards in place to prevent that would mean we would be asked yet again to mind the gap in expectation of future financial shocks.

Четверг, 10 Сентября 2009 года 09:28:00

A Degree of History

    This time of year one can find plenty of tourists at Cambridge – especially from the faster growing emerging markets such as China, India and the Middle East.
    Few students are back, but boat traffic on the River Cam is high and tours at the center of Cambridge, near Kings College, are still bustling.
    Come mid-September that will change and more of those coming to fill the spaces available for study will be from the Middle East. Cambridge University says those attending from the region are up 15 percent in the past decade. This is not a one-university phenomenon. According to Ucas, Britain’s admission service, applications from the Middle East have surged five-fold since 2001.
    It looks like the perfect storm benefiting British education. A number of factors converged at the same time to account for the one way traffic. Let’s call the first one the “H-Factor” as in the long history of British institutions, especially Oxford or Cambridge – simply known as Oxbridge.
    “I don't have to tell you about the history,” says Tala Jarjour who is studying her PhD in ethno musicology at Trinity College in Cambridge, “The University is celebrating its 800th year and excellence is the word that comes up very often. You definitely see that and you get it in the experience as a scholar in the institution. So that's always a big plus really.”
    Jarjour pauses and adds another key factor, the lack of capacity today in her home country of Syria or in neighboring states in the region. A doctorate in music does not exist she says in the Middle East, at least not yet.
    Government leaders admit that university quality and capacity remain difficult hurdles despite the substantial amounts of money dedicated to the cause – a great deal of that devoted to higher education. One cannot expect the switch to be flipped and the lights shine brightly overnight.
    I was taken on a tour of Jesus College in Cambridge by a Lebanese scholar of Islamic studies Samir Mahmoud. Due to his area of study and the four years spent on the legendary campus, he gets enquiries from aspiring Oxbridge students in the region.
    “If I ask why they want to get in the answer is always because of the prestige,” says Mahmoud, “They want to guarantee a job when they get back. Just carrying that name with them brings a lot of social status in the Middle East and there's a lot of emphasis on social status and prestige.”
    That could explain why students from the region (their parents) and those from other non-European countries are willing to pay a premium which is three times higher than local tuition fees. While there was a shortage of spaces available to British undergrads this upcoming year, the international student body is welcomed by these universities.
    “It is a growth market,” says Dr. Shaun Curtis of Universities U.K., “British universities are expanding all around the world in terms of their recruitment drives. What we require is a diversification of markets and so we can't rely on China and India to provide the bulk of the student market. We want other countries as well. So we want more Middle East students to come.”
    British universities accelerated that recruitment drive in a post 9/11 environment, when U.S. authorities tightened visa requirements and America’s reputation in the region faltered. The tendency of late, due to the competition for undergrad spaces, is to emphasize graduate programs.
    I counted at least eight U.K. institutions that have set up campuses, classes or representative offices in the region. The drive is two-fold: they want to encourage more students to come and study in Britain and also set up programs on the ground. This will naturally create a beneficial technology transfer to the region as well.
    U.S. universities are not sitting idle and the new occupant at the White House sees education and entrepreneur programs as essential tools to re-build the country’s reputation throughout the region. President Obama made reference to their importance in his Cairo speech.
    Students say it is important for these universities to be independent in terms of their management and make the curriculum match the standards found on British or American soil. This drive to set up these satellite campuses, many believe, will falter unless given that independence.
    Eventually, with the development of British and U.S. campuses in the Middle East, China and India, these universities will morph into global institutions with not just offices but real campuses closer to where the growth is.
    To do so, they need strong brands to be global, but act local and they need that “H-Factor”, a degree of history behind them.

Пятница, 4 Сентября 2009 года 11:36:00

The New Prize

    Scottish Justice Secretary Kenny MacAskill and Abdel Baset al-Megrahi - the so-called Lockerbie bomber - must feel at this stage that they are pawn pieces on a large chess board in which they have little or no control.
    They both garnered their moment in the spotlight, whether they wanted it or not. The story of Megrahi’s release kept on getting waves of momentum on both sides of the Atlantic from leaks of British government memos, the families of the victims and heads of state in Washington, London and Tripoli.
    It is fair to say there might have been some disagreement over the fine print of diplomacy, because there were plenty of glitches. A hero’s welcome in Tripoli poured fuel on the fire of discord especially in the U.S.
    No doubt the debate will pass and news organizations will eventually move on without the closure that many of those closely involved were seeking. What will remain a constant with regards to Libya is the desire by western governments and their oil and gas producers for a share of the spoils below ground.
    The events over the past ten days had me thinking of Daniel Yergin’s seminal book on the energy industry called “The Prize”. It is not light reading, but the Pulitzer Prize winner does put all the pieces of the puzzle together.
    Libya is Africa’s largest holder of proven oil reserves according to OPEC’s official estimates at 43 billion barrels. It is producing less than two million barrels per day and only uses about 10 percent of that for domestic purposes. Equally as promising for Libya is its natural gas potential. The country is already sending exports to Europe via Italy through the Melita gas pipeline.
    This is where politics and economics converge. After then Prime Minister Tony Blair’s meeting with Colonel Muammar Gaddafi in 2004, sanctions were lifted and a whole boatload of energy companies (56 by Libya’s count) lined up to get involved in what remains one of the most promising, yet under explored energy nations.
    BP has a two billion dollar natural gas exploration project in the works. One might even call it a race to catch up with Italian energy company ENI – which has had operations in Libya going back a half century. They now have agreements stretching out to 2042 and 2047 for oil and natural gas development.
    Mr. Gaddafi’s visit to the G8 meeting in Italy by host Silvio Berlusconi was smart politics, even if the Libyan leader took the liberty to pitch his tent near the grounds of the meeting. That is a luxury not afforded others at the summit. We should not forget that a year ago the Italian Prime Minister’s gesture to pay five billion dollars to Libya to make up for misgivings during their colonial rule. A footnote included in the deal says that Italy will spread out the payments for a quarter century for major infrastructure projects. Mr. Berlusconi was candid in saying that he expected Italian construction companies to benefit as well from those investments.
    Meanwhile, Britain continued its own diplomacy track on Tony Blair’s subsequent visit in May 2007 which led to what was called a “natural gas cooperation accord”. Under that agreement BP will retain just over 19 percent of the income from discoveries, with the Libyan government and its sovereign fund keeping the other 81 percent, according to state oil officials.
    The harsh reality is that energy demand continues to grow in Europe and, for that matter, the entire world. The challenge for Europe is that supplies need to be found elsewhere. North Sea fields are depleting at a rapid rate. The major oil giants at this juncture still hold a technological advantage over their emerging market counterparts, but how long will that last, another decade or two?
    That question cannot be answered just yet, but the reality is those who own the oil and gas want to keep a larger share of the revenues. Examples of that abound in Russia, Kazakhstan, throughout the Gulf and, yes, in Libya. As their economies and energy fields are opened up to the forces of globalization, they have rightfully hardened their position to capture as much revenue as possible.
    But it would appear the prize in Libya is a big one, because the level of engagement for the last five years has been nothing short of exceptional.

Четверг, 27 Августа 2009 года 14:29:00

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.

Пятница, 21 Августа 2009 года 11:37:00

Not so Golden State

    While we are in the midst of a global power realignment between the G8 and the G20, I found it useful to get a temperature reading in what would be a G8 country on its own, my original home state of California.
    The landscape continues to attract scores of literary writers who are drawn by the size, diversity and the light. These are the same elements that provide the business vibrancy and creative energy. But there is a critical debate underway on whether the so called Golden State has passed its golden hour and what that may mean for the U.S. economic recovery.
    Anecdotally, California remains a magnet for Middle East and European visitors. My British Airways flights to and from Los Angeles were filled with visitors from the region. It is fair to say that our Gulf visitors may have set a record for both the quality and number of bags checked in. So the allure remains, but the shine certainly has been dulled for natives who can put various pieces of the puzzle together.
    For one, this downturn has created new terminology in the U.S: “staycation” - a very local vacation. My queries for a Santa Barbara beach house were met with a 20 percent inflation hike due to the local competition by Americans who could not afford or at least justify plane travel overseas.
    But far more serious indicators are easily found beyond the shores and nearby wine estates of California. For example, the research belt that surrounds the University of California at Santa Barbara resembles a silver mining ghost town at the turn of the 19th century. Building after building has “for lease” signs posted on former offices of technology and defense companies. California is home to a quarter of the country’s agriculture products, but the latest crop of signs is an eerie indicator for the future.
    Mohamed El-Erian, the respected Chief Executive of Pimco - the giant bond fund manager based in Newport Beach, California - recently signalled out “high and rising unemployment” as the main policy issue in the industrialized world. As the economic growth gap widens between emerging and developed countries, pressure will increase on G8 policymakers to protect jobs and wages. The International Monetary Fund placed that growth gap at four percent by mid-2010; it was a record six percent at the start of this year.
    While the Middle East is struggling after the contagion of the Western led banking collapse, leading projections still peg economic growth in the region at around three percent for 2010. The excitement this week that the U.S., Germany and France may have bottomed out, greatly exaggerate the breadth of the recovery. It is abundantly clear that central bankers threw as much liquidity as possible at the problem, but there is little left in the arsenal to combat the general sluggishness and unemployment that persists.
    A Los Angeles based friend has spent two decades as a banker for a handful of firms. He has been without a job for more than a year and candidly admits that he is not confident that a job exists in the same sector. All options are on the table he says, even moving away from a state that he loves. After being out of work for more than a year, he is no longer counted in the official national unemployment figures now at a 9.5 percent, a 26 year high. Others I spoke with told me not to overlook the “underemployed”, those who are working again but took pay cuts of 25-50 percent in which to do so. It is certainly difficult to fund education fees and buy homes if ones purchasing power has dropped so dramatically.
    I was based on the West Coast as a correspondent during the last severe U.S. recession in 1991-92. California felt it especially hard because of the collapse in defense spending after the fall of communism. Real estate prices plummeted, the fall in spending on research and development hit Silicon Valley and Hollywood was trying to adapt to the digital revolution beginning to take hold.
    The downturn forced changed and Californians adapted by retooling those sectors. The economy emerged stronger than before and continued to attract new businesses and foreign visitors to its shores. Both are hoping for the same response, but for some reason after this visit my gut says the script may be written differently during this tepid recovery.

Вторник, 18 Августа 2009 года 11:27:00

Qatar’s Masterplan

    There was a monster of a boardroom battle taking place in the heart of Germany’s industrial base in Stuttgart. On one side, there was Wendelin Wiedeking of Porsche and on the other Ferdinand Piech the Chairman of Volkswagen and a member of the one of the founding families of Porsche.
    After intense board meetings, Wiedeking was forced out after a failed takeover attempt of its larger rival VW. The story itself is not that unusual with nasty power-plays the norm; what makes it more intriguing is the role of the third party, which happens to be the ruling family of Qatar.
    Wiedeking was hoping to get a $10 billion investment from Qatar for an up to 25 percent stake in Porsche and the option to buy around 20 percent of VW. Qatar was Wiedeking’s white knight that would help the German sports car maker stay independent.
    Just a month ago, German media was reporting a deal was “imminent” and Qatar was poised to add a prestige brand to its portfolio. The story was not written that way. Instead, Qatari officials led by the Prime Minister Sheikh Hamad bin Jasim bin Jabir al-Thani did not play their hand too early. As they say here in London, they kept their powder dry, wisely waiting for the German tug-of-war to finish.
    This offer to put that much into play by Qatar is interesting on many fronts. It for one would take Qatar into Germany, a new market and the largest one in Europe. We have seen the Qatar Investment Authority take stakes in Barclays Bank and Credit Suisse, plus supermarket chain J. Sainsbury. This deal is in a different league.
    The sum would be the largest investment to date by a factor of two and could raise red flags of concern in Germany. Sovereign wealth fund specialist Sven Behrendt of the Carnegie Middle East Center in Beirut says that Germany recently passed legislation, similar to that in the United States, which calls for a review of any non-European investment. As one of the lead bankers flatly noted to me on background, there is no way the government would want any foreign entity to be the largest shareholder in a German icon, whether it is Porsche or Volkswagen. It gets even more complicated since the State of Lower Saxony is a 20.1 percent shareholder in VW.
    The move by Qatar is also fascinating because it sheds light on the rapid evolution of the State. In an interview here in London, Qatar’s polished Minister for Economy and Finance Yousef Hussain Kamal took me through what were near bankrupt times ten years ago. That financial crisis led the country to focus internally and invest in the expansion of its oil and more importantly natural gas operations.
    Today, Qatar is producing the equivalent of more than three million barrels a day if you combine their gas and oil exports. They have a surplus base of a half trillion dollars and it is growing rapidly.
    Officially, their sovereign fund is “only” $65 billion and expected to hit $100 billion in a few short years. But even that number is a bit misleading. The Emir of Qatar and his cabinet have wisely spread the wealth into a number of entities, including the Qatar Foundation. A trip to Doha will quickly fill in the blanks if you have not seen what is being developed in hyper-speed.
    As Minister Kamal noted, Qatar will use the benefit of being the largest natural gas exporter to build out three lines of additional regional expertise: financial services (especially the insurance market), health care and finally higher education and technical training.
    The goal, the minister confidently states, is to be zero dependent on hydrocarbons by the year 2020, maybe a couple years later as a result of this current global crisis.
    The crisis, by Qatari standards, has required capital injections into their banks and the cleaning up of real estate assets, but real growth this year is expected to be between 7-9 percent. That gives some insight of what is happening in Doha, why they have the capital to go abroad in a much more sizable way and how that all fits into Qatar’s Master Plan.

Понедельник, 27 Июля 2009 года 11:30:00

Signals along the Silk Road

    The ancient Silk Road was arguably one of the most important trade routes with a history stretching back two thousand years, but it's today’s revitalization of those links between Asia, the Middle East and Europe that makes for fascinating viewing and deal-making.
    Like the Silk Road which is going through its own rebirth, the Nabucco Gas Pipeline project came from the brink of extinction at the start of this year, to an actual signed memorandum of understanding this week in Ankara.
    On Marketplace Middle East, we take particular interest because it is a classic example of how the Middle East is playing a role in shaping business and energy policies as a bridge between East and West.
    For one, Turkey will serve as the key transit country for this gas pipeline, after the success of the BTC oil pipeline set up three years ago with a similar concept in mind.
    Secondly, Middle East supplies will be essential for this project to get off the ground. Kurdish officials in Iraq expressed an interest in providing their energy earlier on and that was backed on a national scale by Nouri al-Maliki this week when he attended the official ceremony with leaders from five transit countries.
    But this modern day Silk Road effort requires a big leap of faith to push ahead with the near $11 billion pipeline project.
    "We have received clear signals from Azerbaijan, Iraq and Turkmenistan that gas will be available for European gas imports," said Reinhard Mitschek, Managing Director of Nabucco Gas Pipeline International.
    If one reads between the lines, he may only be referring to Nabucco, but also to competing pipelines backed by Russia. In this large-scale game of geo-politics, no one wants to shut the door in the face of some of the major players, even if relations may be less than ideal at this juncture.
    When asked if, for example, Azeri President, Ilham Aliyev was hedging his bets by supplying gas to Russia and other countries, Mitschek stated matter-of-factly they will diversify their exports to maintain, "industrial and economic relationships with Russia."
    On this New Silk Road, the political winds can change direction rather quickly, so Central Asian leaders, literally squashed in between Russia, China and Europe are juggling those priorities and trying to keep all the balls in the air. Kazakhstan, the natural resource-rich state, with a bounty of oil, gas, coal and uranium, has oil pipeline connections to all three of those players.
    Nabucco will launch in 2014 with up to 10 billion cubic meters of natural gas in the pipeline. Officials say about three times that amount is expected by 2020. That is when it will get even more interesting. To fill that "pipe," supplies will be needed from Iran -- which sits on the second largest gas field in South Pars.
    In a recent interview on our program, European Energy Commissioner, Andris Piebalgs said with the cloud of Iran’s nuclear enrichment hanging over the economic sanctions regime in place, it is too early discuss that potential. In a game of carrot and stick, Turkey’s Prime Minister, Recep Tayyip Erdogan said he would like to see Iran’s gas as part of the Nabucco project. No date for that effort was announced.
    A great deal needs to happen between now and 2020 for Iran’s gas to get the green light. Before that happens, international oil companies will have to re-engage in the country to prepare its energy sector for exports.
    In preparation of this week’s Nabucco signing, I researched what the pipeline network looks like currently -- it resembles a spaghetti bowl of lines crisscrossing the terrain, and with a Russian bias.
    This will begin to change with the Nabucco project, but Russian-backed pipelines are being built in parallel. One across the Baltic Sea to Germany, the Nord Stream, is costing about $10 billion. The other, the South Stream pipeline, crossing the Black Sea to Italy will cost about double that.
    If you are wondering if all this new capactity will be needed, think again. According to Nabucco's Mitschek, up to 200 bcm of gas will be required from the East as production continues to drop in Europe.
    This means that if all goes as planned and demand recovers along with the global economy, all three new arteries of energy will be welcomed in this new world order.
    Nevertheless, as veteran energy analyst John Roberts of Platts said, "Russia has to observe the rules of the game much more closely." It is true that three years of winter gas interruptions by Moscow have forced all the players of Nabucco to get on with it.
    As a result, the signals from The New Silk Road are getting the all clear. Let’s hope that geo-politics doesn't interfere in what may be a bold move in name of business.

Четверг, 16 Июля 2009 года 17:39:00

That creaking sound

    The G-8 meeting in the Umbrian hills of Italy served less to inspire unity, and more as a historical turning point, marking the passage of a tired institution.
    The G-8 or “Gee-Otto” as the Italians say is misleading by both description and substance. For one, the members are no longer the leading industrialized nations, with China now the second largest economy in the world. Number two, the G-8 does not and cannot live life in isolation. In fact, 16 leaders were invited, with China’s President Hu Jintao needing to duck out early to attend to protests back home.
    There was little agreement from the core G-8 on the next steps to combat the worst downturn in six decades. Germany’s Chancellor Angela Merkel called for an exit strategy from the deficit spending and pump priming to inflate the global economy.
    A global climate change commitment remains challenging -– despite verbal commitments -- as the developing countries focus instead on job and wealth creation. This should not be at the expense of the environment. As mobile phone technology helped developing countries leap-frog after years of underinvestment in that sector, so too can rapidly evolving green technologies. Environmental policy is a prime example of why the G-20 is a more modern body and why the door should be shut on the creaking G-8.
    We will get a better idea if the G-20 can stand on its own in September when leaders gather in the old steel town, now modern research and development hub, of Pittsburgh. One cannot miss U.S. President Barack Obama’s motivations here. Observers can almost hear him saying “You too can modernize with the times as did the old rust belt of America.”
    While this summit was short on real solutions, there was a non-binding consensus on what is a quickly evolving fair price for a barrel of oil. The range of $70-80 was floated at the meeting and a spokesman for Russia’s President Dmitry Medvedev confirmed this raised few objections. Like most G-8 efforts, enforcement and follow through may be difficult, but the Goldilocks scenario –- of a price that is not too hot nor too cold –- is gathering momentum.
    At the recent European Union-OPEC Meeting in Vienna, a similar consensus emerged from the closed door sessions. When oil prices slid from a peak of $147 a year ago down to $35 in December, OPEC members decided to shelve 35 of 150 projects on their books. What we have not heard since this recovery to $60 plus is whether more and more of them will come back on-line.
    Middle East in Italy
    Summit host Silvio Berlusconi, under fire at home for what may have happened at his private parties, wanted to use this meeting as a means to shore up poll ratings. Rather quietly, the billionaire also extended invitations to help secure Italy’s long-term energy supplies.
    Leaders from Algeria, Egypt, Libya and Turkey attended this G-8 meeting. Three of the players are key natural gas exporters to Italy, the fourth, Turkey, is a key transit hub for both oil and natural gas.
    A few interesting facts to be aware of: Algeria ranks fourth in natural gas exports today; a large share of that gas ends up in the Italian market. Not surprisingly perhaps, Italian contractors are playing a major role in Algeria’s natural gas development with two of the first nine tenders going to Italian companies.
    There is a similar storyline playing out in Libya, where it is the largest holder of proven oil reserves in Africa, estimated at 41 billion barrels. Libya plans to expand oil production from 1.8 million barrels a day to three million in less than five years. It too is starting to ramp up natural gas production.
    Prime Minister Berlusconi had a two-pronged strategy when he visited Libya last summer. He apologized for Italy’s 30-year colonial rule and committed to a $5 billion compensation package spread out over two decades. The money will be used to modernize Libya’s infrastructure and very likely cement Italy’s relationship in this neighbourhood where energy is plentiful.
    Berlusconi was not reserved in saying during President Qaddafi’s recent visit to Rome last month that Italian companies should have priority or be “prima fila,” the front row, for future contracts.
    The G-8 may be short on concrete solutions for the global economy, but it may very well have served a purpose for Italy and by extension the European Union when it comes to energy.

Четверг, 9 Июля 2009 года 18:02:00

Cases for Transparency

    Global downturns have a way of forcing action. What was perhaps overly ambitious in the past could be papered over as long as investors believed in the future and money was available. The climate has changed dramatically and so too has the response from business and government.
    Case in point is Emaar’s proposed merger with government run Dubai Holdings, with Dubai Properties, Sama Dubai and Tatweer under that umbrella. For those not familiar with some of the landmark projects under these property brands, they include: the Burj Dubai, Dubai Towers and the giant Dubailand entertainment complex.
    For one, this will create a $53 billion entity if it comes together as planned by autumn -- sizable by any global standard. Number two, expectations have changed in the region in part because of what Dubai Inc. has done over the past few years, having introduced a greater level of transparency into the process.
    The word got out that there was something in the works, so instead of waiting until the structure of the deal was complete, Emaar and others decided to flip the switch. As a result, there remains a great deal of uncertainty whether a consolidated property group will be net positive to existing shareholders.
    As the desert sands settled so too did the wave of negative comments surrounding the transaction. Robert McKinnon, Managing Director of Al Mal Capital believes that "from a property market perspective it is absolutely necessary and good for the market." McKinnon says the aim by the government is to clear up the property market in two years instead of letting it linger for a decade if not longer. McKinnon raised a valid question about the valuations which will be used as part of this process. Being too generous now with valuations in the short term, will not pay dividends long term.
    Ask Japanese investors what their experience was in the 1990s, which many still refer to as the lost decade. The fact the Japanese government decided to muddle through that decade without taking bolder measures though is a good lesson for everyone in the region today. This Dubai merger is designed in part to put a brave face on what has been a painful 40 percent correction in property values over the past year. Everyone will be eager to see which projects survive the merger process at the end of the day.
    Even in Saudi Arabia the default by two well-known family entities in the Kingdom is being handled in a much more transparent fashion than would have been the case just a few years ago.
    The Saad Group and Algosaibi restructuring of more than $6 billion in debt will incorporate nearly 40 different lenders. At least a dozen banks have come forward to say they do indeed have exposure to what many commonly refer to as the "problem" but they added it won’t be mission critical to their operations.
    This debt restructuring is a tricky one for Saudi regulators and for the region in general. As family entities and not publicly traded companies, Saudi central bank officials say the long arm of the law may in these cases have limited jurisdiction. Unless laws were broken, regulators in this more transparent environment will not likely play a major part in the process.
    Officials told me there is no systemic risk to the banking system, but it will indeed be painful for those who chose to lend at such prolific levels. It does not take a genius to read between the lines, that government bank bailouts won’t be in the works even if this first round of numbers is lower than the final tally in a few months time.
    What perhaps has not changed, if we use the Emaar merger and the debt restructuring as our benchmarks, is the desire by government officials to remain behind the scenes as both plans take shape. It is not difficult to reach officials on the phone or approach them in person, but few if any want to be on the record before they feel all the paperwork is in order and they are confident the worst is behind us.
    In this era of globalization and internet chatter, the region is indeed introducing greater transparency, but full disclosure may still be a ways off.

Четверг, 2 Июля 2009 года 14:31:00

Tremors after the Earthquake

    The temporary migration is officially underway. Arab businessmen swap 45 degree temperatures on the Arabian Peninsula for the very pleasant 25 degrees in the City of London to garner perspective for the year that was and where we go from here.
    There is a certain irony in annual summer escape to London. Only nine short months ago during the third week of September, depositors in this financial capital were wondering if they could find a safe haven for their hard earned cash. This week at the Arab Banking Summit they were in their comfort zone gauging the state of their union and the state of global banking.
    As one senior Arab private banker noted, we are still feeling the tremors from the earthquake. But all told, the 280 banks in the region, 80 of them in the top 1000 worldwide, are faring much better than their Far Eastern and western counterparts.
    The region is still growing, which provides some comfort with projections of 2.5 percent this year, 3.5 percent next year. This allows a base from which to work through non-performing loans. But all told, regional banks are sitting atop more than $2 trillion in assets and about half of that in deposits. Leverage was not in fashion the past few years and this allowed a few in the audience to say “I told you so.” One banker kindly suggested I take off my headsets during the heated comments pointing the blame at the “Americans.”
    As a long term resident of London who now spends up to ten days a month in the region, I take little offence when Uncle Sam comes under attack. But the banker made a valid point. While Wall Street is probably responsible for three-quarters of the banking crisis, the U.S. economy has had to absorb only 25 percent of the fall out. This was an equal opportunity crisis which spread its virus pretty evenly around the globe, hitting the large institutional investor and the small retail client with equal measure.
    These ministers and bankers also feel the discussion of the green shoots of recovery is lulling many back into the business as usual mentality. Compensation levels were and remain out of touch with normal society; they see bonuses creeping back up again and restless shareholders seeking 10-20 percent returns on capital, when the global economy is struggling to come back.
    Many of the participants talked about returning back to basics, which means knowing your customer, their appetite for risk and most importantly the bank’s appetite for risk. This is clearly where there was misalignment. The challenge now is insuring that the proper road to recovery and yes regulation is followed.
    This meeting took place as the largest debt restructuring in Saudi Arabian history --some $6.3 billion to two of the largest family companies in the Kingdom is unfolding. It was revealed that BNP Paribas and Citigroup top the list of 37 creditors with exposure to this restructuring. Hard lessons still need to be learned.
    These isolated incidents aside, the region has benefited greatly from traditionally high capital requirements and restrictions put in place to block exposure to the high risk instruments created over the last decade in London and on Wall Street.
    So the region will be forgiven for thinking it shouldn’t follow the trends in the West. One Arab executive even pleaded with his European counterparts to avoid the gravitational pull across the Atlantic. To make a new interpretation on the famous phrase from scorned financier Ivan Boesky, greed is not good at all cost.
    These bankers are eager to see the next phase of response to the crisis. There is some legitimate scepticism about whether the G20 will indeed follow up on the long laundry list of remedies to the global financial system.
    Supply side economists went out of fashion long ago and there is a strong belief that the region will have a nasty aftertaste from the deficit spending within the industrialized countries right now. With high deficits to finance for years to come, less money will find its way to the region in the form of foreign direct investment.
    This region continues to open up to the outside world to foster long term development, but as we work our way through the next few years, it will be funding closer to home that will need to be available.
    The conservative Arab approach to banking is still paying dividends.

Четверг, 25 Июня 2009 года 16:08:00

Iran's Missed Opportunity

    At this critical juncture, the economy is certainly not “front and center” of the protests in Iran since the future of the young republic, as some suggest, is at stake.
    But make no mistake, the phrase that former Clinton political strategist James Carville coined during the 1992 U.S. presidential campaign, “it’s the economy stupid” applies here. More specifically, it is the mismanagement of vast natural resources and economic isolation due to the country’s desire to develop its nuclear capabilities that has hurt the country.
    Iran, according to research from OPEC, ranks number two in proven oil reserves and number two in natural gas reserves. That puts Iran in the top slot on combined total energy reserves. Today, Iran officially says it produces 4.2 million barrels a day of crude, but actual production according to leading energy analysts is about a half million barrels a day short of that.
    The reason is quite simple. Iran as a result of economic sanctions has been isolated from the essential tools for development: technology and capital. In business terms, Iran has been a political hot potato that nobody in the West was willing to touch.
    Take the world’s largest gas field to illustrate the point. French energy giant Total finished off its work on phases 2 & 3 in the South Pars field at the end of last year. Negotiations on the next phase have been dragging on for a few years, until the National Iranian Oil Company signed a $4.7 billion deal with China National Petroleum Company earlier this month.
    Total’s straight talking Chief Executive, Christophe de Margerie said last summer that the political risk was too great. Still trying to keep the prospects warm, a company spokesman this week said negotiations are still underway. China sees only the upside, with little political fallout due to its size and seat on the U.N. Security Council.
    But China’s foray into the Iranian energy sector does not solve what has been an ongoing problem for the country. The international oil companies (IOCs), at this stage at least, possess the technology and know-how that Iran desperately needs. With technology and capital, veteran energy analyst Mehdi Varzi said Iran could be producing six million barrels a day, not four. You do the simple math, but at $70 a barrel, we are looking at another $140 million in daily revenues.
    Natural gas fits into another category, but we can see neighbouring Qatar growing at least eight percent this year based on the growth generated on the other side of the same giant gas field. Iran with skilled partners should be doing the same.
    Top line economic growth in Iran has been a promising 5.7 percent over the past five years, but as those in the developing world know, it is woefully short when two million young Iranians enter the workforce each year. They want opportunity, they see the world differently through the internet and they expect their leader to manage what has been handed to them, whether it is power or natural resources.
    While the current President has publicly thumbed his nose at capitalism and the forces of “western” globalization, the leadership has been in fact acting in quite a capitalistic fashion. In the last few years, the government has privatized a host of strategic companies ranging from copper to telecommunications. The financial services sector opened up this year, but the government still owns and operates about three-quarters of the economy.
    Recognizing that the state is not the best manager, the government passed Article 44 into law which calls for 80 percent of the economy to be in private hands in the next decade. As Tim De Borde of the London based boutique investment bank and fund manager Turquoise stated on our program, “Iran has been so isolated, but change is occurring.” That is why the fund sees opportunity and has posted average gains of 13 percent a year for the past five years with its Iranian investments.
    The problem for the Supreme Leader is that change is nearly unmanageable now because Iran took too long to open up. When that finally did happen, the President and chief communicator did not inspire a lot of risk taking by the major energy companies or banks who feared probes by Washington – some of which are still open today.
    Barack Obama offered an olive branch to Iran, cleverly delivered from afar before the elections. During his speech in Cairo President Obama talked about the region’s overdependence “only upon what comes out of the ground”. Many countries have accelerated the pace of reforms, based on the luxury of their energy reserves.
    But in Iran, the sums have not added up. The current government has built its budget on overly optimistic energy prices and massive subsidies. As a result, capital investment to support future production has been lacking and political pressure has been building.
    A market of 70 million consumers and an abundance of natural resources are appealing, but only if the risk-reward ratio is manageable. Today, it is not.

Четверг, 18 Июня 2009 года 12:38:00

Call of the Arab Youth

    Iranians went to the polls this weekend after a thorough airing of heated exchanges during a handful of televised debates. The most prevalent topic surrounded whether incumbent President Mahmoud Ahmadinejad heightened or worsened Iran’s standing in the world.
    The subject ignited the youth who took to the streets to share their views, but the campaign did little to address the issue that impacts the next generation the most, creating jobs for them in the future.
    Every year two million Iranians are born in a country which is second in the region only to Turkey and Egypt in population size. Nearly two-thirds of the population is below the age of 30, the bulk of the youth, 98 percent, is between the ages of 15-24. With that backdrop, job opportunities and economic management should have taken higher priority.
    Iran is a prime example of the challenge that exists throughout the region today. The accepted figure, according to the World Bank, is that 100 million jobs need to be created by 2020 for unemployment to stay where it is, since the birth rate continues to surge.
    Youth unemployment is estimated at 20 percent depending on the market, meaning at least one in five is out of a job. The former foreign minister of Jordan and now the Senior Vice President for External Relations at the World Bank, Marwan Muasher said during an interview that “they (the youth) are basically fertile ground for radical ideas.”
    What we are talking about here is a complete mismatch between skills provided in schools today and what is needed tomorrow, which, Muasher says, requires, “A totally changed mindset in which people are trained to question authority, to think critically; this is the basis for all innovation and creativity.”
    The Middle East has enjoyed regional growth of nearly six percent a year before the downturn, but executives contend that to create the jobs needed we are looking at sustained growth of 8-9 percent for the next dozen years -- that will be hard to accomplish.
    The policymakers and chief executives I spoke with are not throwing their hands up in despair. Instead, they are being proactive by taking matters into their own hands.
    They single out Lebanon and Jordan as two economies that are providing the training necessary to foster talent. Not surprisingly, they are the two regional economies holding up best during this downturn, minus Qatar which floats on a sea of natural gas.
    Within the Gulf Cooperation Council there is another reality, that the private sector is in competition with the public sector for workers. Government has a long standing tradition of creating jobs, even when the role is not needed.
    As Tarek Sultan, Chairman and Managing Director of global logistics company, Agility, bluntly stated, "It makes it difficult for us to then propose jobs for them in the private sector if they actually have to work and spend a nine hour day doing something productive." This view is coming from a company operating in 120 countries with 34,000 employees from a base in Kuwait City.
    The young leader added, "We would like to see more engagement by the GCC nationals in what we are trying to achieve." Translation: If you are willing to work hard, we have a job and opportunity for you.
    To be fair, governments across the region are not sitting idle. The oil rich states in particular are boosting their education budgets by 10-30 percent to address this very issue. Some have probably spent too much money at the top end of the education chain by paying to bring over western institutions, instead of focusing first on primary and secondary education.
    We should not forget that technical training is an important part of the mix. For example, Abu Dhabi is setting up an airline services hub with GE and EADS and they are already beginning their plans to train future technicians.
    The new generation of regional leaders recognizes the challenge. Last summer when I interviewed the Crown Prince of Bahrain, Salman Bin Hamad Bin Isa Al-Khalifa, he acknowledged what he called an over reliance on the public sector.
    As part of a process of labor reforms, the government has created a fund for training Bahrainis to match the jobs needed on the ground -- from financial services to food production.
    What we want to do is make the private sector the main engine,” said the British and American educated Crown Prince. “We seek to do that by investing in our people, by transforming the role of government.”
    Bahrain remains an attractive target for foreign direct investment, but the region as a whole is taking in only four percent of the total pool of $1 trillion looking for fresh opportunities.
    To dent double digit youth unemployment, Middle East leaders need to capture a greater share of foreign direct investment. They must convince investors that they are up to the challenge, by ensuring the next generation of local executives will be as well.

Четверг, 11 Июня 2009 года 18:10:00

A Fresh Start For Business

    Chalk one up for the new guy.
    The 44th President is fighting more hot blazes than the whole state of California during peak fire fighting season. From bank rescue packages and auto-maker bailouts to challenges on the Korean Peninsula, the priority list is long and patience amongst his electorate is not a bottomless well.
    Against that backdrop, Barack Obama visited the Middle East for the first time since taking the oath of office. He wisely laid down the foundation for the visit by welcoming leaders from Jordan, Israel and the Palestinian Authority to the White House before leaving for the Middle East.
    The tone was serious but collaborative: In Cairo, the President said he brought the “goodwill of the American people,” with warm gestures in Arabic. The message: the Middle East is a priority for his administration and will not be left to the sunset of his Presidency -- a mistake repeated by his two immediate predecessors, Bush and Clinton.
    A year ago I was sitting in the audience of the World Economic Forum meeting in Sharm el Sheikh with a Middle Eastern colleague taking in the speech of George W. Bush. Participants remained in awe of the trappings of the White House entourage and respectful of the office itself, but they leaned back in their seats after absorbing the tenor of the address. At the peak of daily bombings in Iraq and unrest in the Palestinian Territories, it was seen as a lesson in democracy that rang hollow.
     The U.S. economic downturn was just beginning to take hold when President Bush visited Egypt but the region was in the sweet spot of economic expansion. After five years of economic reforms (encouraged by the U.S. I might add), regional leaders were enjoying average growth of six percent, $100 oil and growing surpluses. They were not expecting a tutorial on political reforms.
    We are witnessing an unusual by-product of that approach. Support is high for the 44th President, but the bar has been set incredibly low. The unusual mix offers an opportunity to surprise people on the upside -- and Obama knows it. As he outlined to the people of Egypt and the rest of the Middle East, the countries will make a “sustained effort to listen to each other and learn from each other.”
    President Obama admitted it is early days in the conversation. Don’t expect miracles but don’t expect inaction. Early in my career in Washington, they used to say on Capitol Hill “politics is business.” Business cannot prosper without the right political conditions and politicians cannot survive without the support of the business community.
    The business community in the region is yearning for a peace dividend. A unified Arab front at peace with Israel could focus attention on rebuilding the Palestinian territories. Money has been pledged, but political risk has held back disbursement of funds. Arab leaders could re-direct energies spent on Israel to addressing the most pressing issue of their time, creating at least 100 million jobs in the next 10 years for the next generation.
    President Obama said the region should not be fearful of globalization: “There is no contradiction between development and tradition.” He singled out the progress of both Malaysia and Dubai as examples of modern Islamic economies which have embraced the 21st century.
    While it is certain that meetings in Riyadh included in-depth discussions about the recent recovery in oil prices and sustaining ample supplies during the early stages of economic recovery, the U.S. President encouraged the region to look beyond energy, noting that “education and innovation will be the currency of the future.”
    This is where the President sees a role for American businessmen and educators -- as agents of change to support entrepreneurs, to encourage student exchanges and to build goodwill at the same time.
    While the president spent ample time on the region’s long history and the cultural roots of Islam, he elected to leave the audience of three thousand students and dignitaries with a simple phrase in an effort to put recent history behind us, “if we are bound to the past, we cannot move forward.”
    Perhaps the fresh start really is underway.

Четверг, 4 Июня 2009 года 15:38:00

A Very Public Debate

    As we have all witnessed in the past year, economic downturns have a tendency to unearth all the nasty bits that may be hidden on the balance sheets of major banks. Challenging times also reveal some of the deep policy schisms that stand in the way of rapid decision making.
    While this region was booming and cash piles were building, airing the family laundry was kept to a minimum. That is changing. In the past few weeks, I have chaired panels at the World Economic Forum in the Dead Sea and again this week at the London Business School Middle East Day. Both events brought together top shelf ministers, policy decision makers and business leaders. They are not seeing the future through the same lens.
    Governments right across the region have been reforming for the past five years, some of course at a faster pace than others. There were a half trillion dollars of investment poured into hard and soft infrastructure last year alone in an effort to play catch up for the lack of foresight and/or funds over the previous twenty years.
    When the downturn took hold, there were fears that government leaders would retrench and not continue with their reforms or their spending plans. So far that has not been the case. One needs to look just at Saudi Arabia and its $400 billion dollar, five year plans to illustrate the point. The slowdown will certainly stretch out projects by three to seven years, but I don’t see the shutters coming down.
    The real question is, will barriers to trade and market opening measures go up? We found out at the G20 Summit that 17 members of the group have been using existing rules of the World Trade Organization to protect some of their prized sectors. The so called “name and shame” game put forth by WTO Director General Pascal Lamy has helped put those genies back in their bottles, but we should take a closer look at who has led the charge to put up the barriers.
    Rachid Rachid is now the Minister of Trade and Industry, but for years ran the MENA operations for consumer goods giant Unilever. In front of an audience of 800 or so peers, he wanted to clarify that he thought it was business not government that is holding back the train of reforms today.
    For the past few years, businessmen through groups like the Arab Business Council (Minister Rachid was a founding member as a private sector man) have lobbied their governments to accelerate the pace of change, reform labor laws and lower taxes. They were clear in saying that 100 million jobs need to be created by 2020 to basically tread water, since the youth population continues to explode. If we want stability, want to create opportunity for the next generation, then they said let business do what it does best.
    By and large, that is what government has done. But according to Minister Rachid, certain elements of the business community are privately lobbying for protection of their particular sector or to at least slow down the pace of change. This prompted a fairly civil but heated debate amongst panellists representing business.
    Within the global community, the concept of public-private-partnerships (PPPs) has been in vogue along with corporate social responsibility initiatives. The concept is for government and business to approach some of the most challenging issues for example healthcare, education or poverty together. In the region, this partnership is showing signs of strain.
    Two other participants on these panels, who have taken the opposite route from Minister Rachid and left government to join the private sector, have a different take on the challenge. While they admit the large trading families of the region have lived for too long with cosy dominance in their home markets, they expressed that there remains an underlying issue of government mistrust. Business leaders have seen governments go down the path of reform in the past, only to apply the brakes when public popularity begins to wane in the face of high unemployment from difficult reforms.
    The attitude of mistrust these businessmen suggested is holding back the appetite for risk and to reinvest in their own companies to expand. Research and development spending, a good barometer of a company’s desire to break new ground, remains woefully low in the Middle East. According to consultancy Booz & Company that is running at point three percent, only a fraction of the three-four percent in OECD countries.
    The business community is looking for assurances that “big brother” (the government) will not change course. Government for its part needs to reduce the role it plays in providing employment in the public sector.
    Most importantly the two sides need to close the gap on what is needed for the future. Right across the region, there is constant complaint that today’s graduates are lacking the skills to fill the roles needed by the leading private sector innovators. It is the primary reason youth employment remains stubbornly high at 20-25 percent, depending on the market.
    Public debate is always healthy. It was sorely missing in the region a decade or so ago. But as one observer at these meetings suggested, we can argue over what is wrong forever. It would be wiser to bring back the PPP – public-private-partnership.

Пятница, 29 Мая 2009 года 15:15:00

The Potential Power of Peace

     Every four or five star hotel in Amman has a metal detector and handbag screener; the same goes for the shopping malls. As one Jordanian businessman said in a matter of fact fashion, it is the price of security. He does not mind the extra screening, frisking and the watchful eye over the passport. Without irony, he may be more accepting since he is chief executive of a company specializing in iris scan technologies for airports and even ATMs.
    But imagine business without these extra precautionary measures and nuisance. Imagine business with the potential power of peace.
    The hurdles to leap are higher than ever. Israel’s Prime Minister Benjamin Netanyahu seems like the reluctant bachelor who does not want to commit to marriage. The phrase “two-state solution” seems to be the no-go zone for him. It seems unlikely at this juncture that citizens of Iran will swing to the center during their mid-June elections. And Hamas and Fatah seem just as far apart now as they were when they first sat down for talks in Cairo.
    However when I posed the idea of all those elements coming together to a senior advisor to King Abdullah II of Jordan, he quickly replied that the payoff would be “huge”. Barriers to movement, barriers to business and barriers to peace would tumble. Iran would find it difficult to play the role of spoiler if a two-state solution took hold. Imagine a world where Saudi Arabia, Qatar and Egypt all read from the same page.
    In an interview with Gamal Mubarak while at the Dead Sea for the World Economic Forum, the Egyptian President’s son urged Israel not to go back in time.
    “If we are going to be held hostage every couple of years after a change in government, on either side, that decides to start all over again, that decides to say, you know, ‘I'm not going to be committed to what has been agreed to before and let's start all over again’, we're never going to get anywhere.”
    Senior Arab officials privately hold out more hope than they are publicly willing to share these days. They believe that Americans, especially Jewish Americans, have shifted in the past year and as a whole want to see peace take hold. One regional official involved in the process says the new U.S. President is sensing that change in sentiment.
    After sizing up the different discussions at the Dead Sea and thereafter in Amman, one should not hold one’s breath for an overnight shift in the tectonic plates of the Middle East, but as Washington’s ambassador to the United Nations recently stated, the parties involved don’t want to be seen dithering either. There are plenty of fuses burning in the region, as well as in Afghanistan and Pakistan and action is needed.
    Prior to our video reportage in Amman, I bumped into the chief executive of leading mobile group Zain Telecom, Saad al-Barrak. He was in Jordan to finalize a deal for Paltel, the Palestinian telecom group and swap shares in its Jordanian holdings. He is not letting the uncertainty of an elusive peace deal hold up business. Goodwill, al-Barrak says, is built during these difficult times, that when security arrives will pay dividends for years to come. It is the same strategy Zain has implemented in Iraq and 18 other countries.
    Though doing business is not easy in red-alert zones for mobile operators, the freedom of movement and goods are not essential. One can make phone calls even when are hindered by road blocks and security checkpoints in the West Bank. Shipping hard, perishable goods is another story.
    So businessmen on the ground are looking for movement from the new leadership in Israel. As Gamal Mubarak noted, “If we don't give the Palestinians some hope, a track - it's going to take time, obviously - I don't think this is going to be a positive or an encouraging start.”
    As the temperature dropped on what was an unseasonably warm day in Amman, a leading businessman shared his enthusiasm for peace: with no checkpoints, and no security barriers the drive from Amman to Jerusalem would take less than an hour.
    A year ago, I attended the Palestinian Investment Conference where a standing room only crowd to expressed their support for peace and invest in the territories. There has been a lot of water under the bridge since then, but that has not stopped businessmen from visualizing the potential power of peace.

Четверг, 21 Мая 2009 года 14:48:00

Green Shoots in the Sand

After a buoyant global market rally and the passing of the so-called bank stress tests in the U.S., most everyone is eager to claim that the worst is behind us and we are witnessing the green shoots of recovery.

Followers of history would have us think again. During the Great Depression investors were head-faked into believing that the initial recovery would be a lasting one -- and they licked their wounds for another four years thereafter.

This week I had the chance to co-chair the Arabian Hotel Investment Conference in Dubai and interviewed two sizable players on stage at the event – Sultan Ahmed bin Sulayem of Dubai World and Prince Sultan Salman Abudulaiz Al-Saud of the Supreme Commission on Tourism. The latter is better known for taking the big picture view of the world as an astronaut on the 1985 Discovery mission.

Both in their half hour appearances on stage gave candid assessments of where we are today. The chairman of Dubai World said he would complete all the projects under construction but would delay any new developments, including the one kilometer tower designed to surpass the world’s tallest tower, the Burj Dubai. Sultan bin Sulayem trimmed the sails of his property group Nakheel by cutting 15 percent of the workforce. “Everything that cannot be currently financed will be delayed,” said the development veteran.

Saudi Arabia’s story remains one of expansion. After six years of surpluses, the Kingdom is spending freely on education, healthcare and yes, even tourism. Prince Sultan is trying to recapture some of the $15 billion Saudi citizens spend abroad each year on holidays. At the same time, the country is modernizing its infrastructure. With a population of 28 million people, including six million ex-pats, Saudi Arabia has decided to either refurbish or open 22 domestic and international airports. This runs in parallel with a strategy to develop four new economic cities from scratch.

Marios Maratheftis of Standard Chartered told the hotel developers that the Middle East is the “most resilient region in the world.” He is certainly correct in one respect -- with the bank forecasting that the Middle East will stay above water in 2009, with growth of about 1 percent. Americans and Europeans would thank their lucky stars for that performance this year.

Having taken the business temperature as the heat surged in Dubai during my three day stint, one quickly finds out that realism has arrived in the region’s financial center. A group of attorneys stopped to share their thoughts while I was flagging down a taxi. One said they are fine as a firm this year, but if 2010 looks the same they may not survive this slowdown.

That, unfortunately, is at the heart of the challenge. Next year is not looking so bright, with credit still scarce and government and corporate debt coming due starting in the autumn. Government officials expressed their confidence that the $10 billion bond offering will go well -- and Sultan Bin Sulayem shared that view for Dubai World, with more than $4.5 billion in need of refinancing in the next year.

The region has been tested before and worked through the challenges. While touring his beach hotel complex via an electric powered abra (boat), Gerald Lawless, the Executive Chairman of Jumeirah Group, compared this economic challenge to the rapid response needed after 9/11 and the Gulf War.

Lawless, a 30 year veteran of the region, said Dubai has made a “very real assessment of where we are. We know it is pretty deep but it could have been a whole lot worse.”

Beyond the staff cuts, Dubai Inc. has had to respond in force to get visitors in place. Hoteliers like Lawless teamed up with Emirates Airlines to put forth bundled offers. Lawless says that his beach resorts had 97 percent occupancy in April -- but this came at a price, with revenue per available room down 20 percent in the first quarter.

The Jumeirah Group has big expansion plans, but the owner-operator of the iconic Burj Al Arab hotel is also taking a more measured pace. The first of six hotels planned for China has been delayed again until the spring or summer of next year. Lawless, however, plans to have 60 hotels under management by 2012, with half of them opened by then.

After the conference, I took an hour to take in “The Walk” at JumeirahBeach, a modern boardwalk of restaurants and high end shops. Locals and tourists alike were out spending, not with the frantic pace of just a year ago, but in a more measured way.

At the start of this stroll, I stopped to take in an unusual scene in the Gulf. It was a crane with a giant wrecking ball tearing down an “old” structure. This prime location was being cleared for what seems to be another residence. It was a rare burst of new activity in a city which has been in a big rush for the past two decades, and is taking a pause to spot the green shoots of recovery in these desert sands.

Четверг, 7 Мая 2009 года 15:16:00

Pipeline Politics

There is a nasty tug of war going on. It does not involve two teams pulling at ropes, but two consortiums wrestling to see their pipeline prevail. This big time struggle will certainly have implications for the Middle East, but it is too early to tell just how.

The Summit on Natural Gas for Europe and Security and Partnership recently brought together 29 leaders and ministers to Sofia, Bulgaria. They signed a declaration to support the “rapid development of international gas infrastructure … to guarantee diversification of gas supplies.” Nice words indeed after Europeans saw their gas supplies interrupted every year for the past three years, but it brought us no closer on how to get there.

In case you missed the story on our program, Turkey is positioning itself as a key transit point for the Nabucco pipeline, a 3,300 kilometer project that can take gas from the Caspian Sea region to Europe. Backed by the European Union and the United States, it would cost nearly €8 billion to pull off.

In the other corner (considering this a heavyweight boxing match) is the Russian backed South Stream project, weighing in at €10 billion. Italy’s Eni is involved and would take gas from Russia, under the Black Sea, to Bulgaria and beyond. It also helps in terms of political clout that Europe’s largest economy Germany has long established ties to Moscow as well.

Turkey’s President Abdullah Gul said the “necessary political will” is there in his country to implement the project, but it does not seem to be anywhere else. As veteran oil and gas analyst Mehdi Varzi said, “I am just curious why they (Europe and the U.S.) are not putting their weight behind it.”

We are expecting a decision on whether to proceed with Nabucco by June, but in the meantime there is a lot of scrambling and lobbying going on with those who control the gas -- Azerbaijan, Turkmenistan and Kazakhstan. While this real life, high stakes drama plays out, Middle East players are beginning to show their cards on the other precious fossil fuel -- natural gas.

“Qatar is way ahead of anyone else here,” says Varzi, and that is a fair bet considering the amount of money the nation is putting into the Ras Laffan gas operation.

"Ras Laffan is the future of Qatar, simply because of the reserves. This is the gas city of the world and the gas city of Qatar," says Faisal Al Suwaidi, CEO of Qatargas.

The tiny state sits atop the largest single gas field in the world and ranks number three behind Russia and Iran in reserves. The North Field is feeding natural gas to the United Arab Emirates and Oman via the Dolphin Energy project, and loading up giant LNG tankers for markets such as Britain, with Poland knocking at the door as well.

Iran this past week sent signals that it is gearing up to develop the same field on its side of the territorial divide, South Pars. Iran’s state export gas company said China’s Sinopec may join Repsol of Spain and Royal Dutch Shell to develop the Persian LNG project. The Iranians say a decision is expected by mid-May.

Varzi, originally from Iran, says the country’s “energy development is very confusing and it arises from what I call political bickering in the country.”

It is obvious that the weight of sanctions is forcing companies to tread a fine line -- they want to be involved in future developments, but they want to see political daylight before rushing ahead. Industry analysts say we could witness the Obama effect, with the olive branch extended to Tehran, but it will take the June elections to pass before we begin to see clarity on that front.

The so-called peace pipeline is also in the mix. It could deliver gas from Iran through Pakistan to India. We have heard about it for years, but again resistance from Washington has stalled activity.

That is the backdrop for the region’s number one and two holders of reserves -- but with Saudi Arabia, UAE and Algeria all in the top ten, future prospects get interesting.

The current price scenario is complicating matters. While oil is trading at around $50 in this global slump, natural gas is at the equivalent of $20-$30 a barrel. Unlike oil, the bulk of all shipments are passing through pipelines these days, which means you need both upstream partners and downstream customers to make this equation work.

Because developments (minus Qatar) have been slow off the mark, the Middle East is not awash with available natural gas. All the buildings and desalination plants require fuel to run them – gas is the cleanest burning and cheapest alternative available.

So the headline number of the region sitting on 45 percent of the world’s gas reserves looks promising; getting it to market remains the challenge.

Четверг, 30 Апреля 2009 года 09:34:00

The Perils of 21st Century Piracy

    We are becoming experts of geography, or at the very minimum, we're intrigued by the region’s sea lanes -- and 21st century piracy off the coast of Somalia.
    Needless to say, having two key arteries for hard goods and up to 40 percent of the world’s oil passing through an area can pique one’s interest.
    Welcome to the Suez Canal, feeding into the Gulf of Aden and the Strait of Hormuz that funnels into the Arabian Sea. The two passageways were taken for granted until the swashbuckling style of these less-than-modern-day pirates threw trade off kilter and confidence for a loop.
    We have heard from scores of experts on the subject, with the average television viewer peering into the coverage wondering the obvious: why is it that a flotilla of military vessels cannot wrestle complete control of the seas off the coast of Somalia?
    Now that U.S. Secretary of State, Hillary Clinton has expressed Washington’s desire to rally for tighter international patrols and coordination, we are likely to see more action -- but also more challenges -- from the pirates.
    First and foremost, in one of the poorest and least governed countries in the world, these pirates must believe the upside potential is superb, with the downside risks relatively controlled by their track record of success. According to a handful of sources, the pirates brought in about $80 million dollars last year –- with the Sirius Star carrying a $100 million payload of Saudi crude the biggest target to date.
    In researching this topic you learn quite a bit along the way. Slow-moving ships are the most vulnerable, anything travelling under 16 knots. The very large crew carriers (VLCCs) are rare targets, unless carrying a huge load, which slows them down.
    Martin Murphy is one who now spends his life tracking the perilous seas, and says we may be lacking perspective. He is the author of "Small Boats, Weak States, and Dirty Money: Piracy and Maritime Terrorism in the Modern World." His research indicates that no more than one percent of the ships passing through the Gulf of Aden have been either attacked or hijacked.
    "The bigger impact is the psychological effect on the owners and the operators. Almost any crew man that has been pirated over any stage of their career never goes to sea again," says Murphy.
    Captain Richard Phillips, as a free man, standing on soil must wonder whether his life should still be on the high seas.
    When exploring the numbers, it would appear that shipping companies are steering clear of the Gulf of Aden for security reasons. Murphy invites us to think again -- he says it is more about the fees being charged by the Suez Canal Company and, therefore, the Egyptian government.
    Revenues through the Suez Canal are down 21 percent year over year, partially due to those higher fees and the fact that trade is projected to be down nine percent this year, according to the World Trade Organization. The number of vessels going through the canal was down 20 percent in the same period for these very reasons.
    Passage fees, according to those tracking the industry, have surged up to between $300,000 and $600,000 per vessel. Specialty piracy insurance only adds an additional cost along the way since Lloyds of London has declared large parts of the Gulf of Aden a war risk.
    Sounds ominous, but again we need a bit of perspective according to Murphy. "When you compare Somali piracy to piracy in other areas of the world," says the King's College scholar, "The level of violence we see in other parts of the world, Nigeria, the Philippines, Somali piracy is uncomfortable but relatively benign."
    That is certainly not our perception at the moment, but images can outgun reality anytime in this world of 24 hour news and internet activity.
    This brings us to another point: the lasting impact we may see as a result of the latest rounds of attacks. Security will be fortified. The pirates will raise the stakes, and new strategies to counter their attacks are being discussed.
    In a post 9/11 world, I asked Murphy if it wouldn’t be wiser to deploy armed marshals on board, as some of the airlines do. "This is a lively debate within the maritime shipping community," he said, adding that the bulk of the shipping community believes that armed guards "are inappropriate for merchant vessels." Some believe putting armed guards on board will only import more danger.
    If one were to take a helicopter view of the situation, using a mix of security and diplomatic tools makes the most sense. Yes, it needs to be addressed onshore with the governments (or quasi-governments); yes, a flotilla of military ships to serve as escorts should continue; and finally, some added security onboard to fend off these renegades seems not dangerous, but logical.
    And finally, let’s not overlook the impact this may have on the region in general. Countries that line the Red Sea and the Gulf of Aden have active ports; even the smaller territories such as Djibouti have attracted foreign direct investment on the back of regional growth. If the pirates are not brought under control, don’t expect foreign investors to ignore the dangers that are flaring up far too often.

Пятница, 17 Апреля 2009 года 14:37:00

Round three of the G-20

    It is not easy to round up 20 leaders, have them more or less sing from the same hymn sheet and finally agree to a communiqué that was long on bold headlines but fell short in the way concrete measures.
    That was the outcome of round two of the G-20 meeting in London. This, indeed, is the worst downturn witnessed in seven decades, so it may be worth viewing the road to recovery as a 15 round boxing championship.
    Behind the scenes, we at CNN had a healthy debate on what the actual package was worth -- was it $750 billion or $0.5 trillion for the International Monetary Fund. Wait a second, how do we get to $1.1 trillion? In actual fact, $250 billion of that total is being set aside for trade credits, with another $100 billion for developing countries. However, the devil is in the detail. Who will have access to those funds? Moreover, who will be putting up the fresh capital to make that happen?
    These are key questions that were not addressed in London, but they are waiting for round three in Washington, at the spring meetings of the IMF and World Bank to go to the next level.
    Since the financial community in general (including financial journalists) is so conditioned by the former G7 process, very few tuned into the emerging voices of the 21st Century economy, notably China, Saudi Arabia and Russia –- the new surplus countries. Not one of them offered fresh funds on the new equation of $1.1 trillion.
    During the deliberations, I was on the phone with a Saudi banker who was waiting for a call from the London delegation to see what may be put on the table. I was told the Kingdom was not asked to offer more funds to the big number.
    Now, there are many interpretations along that front. First and foremost, China and Saudi Arabia probably feel they have offered more than their fair share; after all they are major buyers and holders of U.S. Treasury bonds. Like the Japanese, who put up $100 billion in loans to the IMF, Beijing and Riyadh could have done the same, but it seems quite clear after the dust has settled that they were not convinced to do so.
    Which leaves us where in the process? Just prior to the G-20 meeting, I interviewed the First Deputy Managing Director of the IMF, John Lipsky, in Vienna. While addressing the OPEC seminar and acknowledging the vast stimulus provided by $45 dollar oil, he expressed concern that there may be stimulus fatigue in 2010. Collectively, G-20 countries have spent about 1.8 percent of their GDP to free up capital in an attempt to put air back into the economic balloon. That is a record according to Lipsky.
    What is not clear from the vague language of the final communiqué in London is what happens next year. German Chancellor Angela Merkel and French President Nicolas Sarkozy made it clear they were not offering more money just yet and they wanted to move to towards a policy agreement for global financial regulation. All agreed that better regulation is needed; how to get there was not defined. So, that is big issue number two for third round of talks in Washington.
    If there is a key issue number three for round three, it has to be the fate of the Doha Development Round. While in Brussels to drum up support for his efforts, WTO Director General Pascal Lamy talked of the need to ward off protectionist measures within the current rules of the Geneva-based organization and offer a bit of "blue sky" to developing countries that cannot simply open their financial taps and spend a record amount of money.
    In the communiqué there was language to cover off the financial markets (investors get extremely nervous at the thought of trade barriers), but leaders were short of concrete answers or a firm timeline to get the Doha Round done and dusted. What was agreed to, cleverly inserted by Lamy and British Prime Minister Gordon Brown, was a "name and shame" game. The WTO will identify those who are erecting barriers to free trade and they will be asked politely to watch their step. Lamy will have a great deal of work to do since the World Bank identified 17 of the G-20 as being overly aggressive with their trade claims within the current WTO framework.
    There are, of course, some very worrying hurdles to cross. The Paris-based OECD is projecting that the industrialized countries will decline by a record 4.3 percent. The WTO says trade is already collapsing with a record decline of nine percent projected.
    These are the numbers that make up the real story that could be outshone by the glare of photo-ops, a new U.S. president and one huge headline number of $1 trillion, but this fight against a global recession will only get more challenging in the later rounds.

Четверг, 9 Апреля 2009 года 16:52:00

Bridge Builder

    A visit to the bustling city of Istanbul captures the essence of Turkey’s evolving role in the world.
    The Bosphorus strait divides Europe and Asia. The giant bridge of the same name that crosses it links the two continents together.
    Beyond the symbolism of the bustling city, Turkey is currently experiencing an expansion of its role as a bridge builder -- largely due to the new occupant in the White House.
    It is very symbolic that Barack Obama chose Turkey as his first port of call in a Muslim country during his first 100 days in office.
    Turkey remains secular, continues to knock on the European Union’s door for membership, and has a handful of relationships in the Middle East that could be vital in the peace process.
    During an exclusive interview in Brussels, Turkey’s President Abudullah Gul provided more than a few glimpses into the shuttle diplomacy, with Washington’s blessing, that is now underway.
    President Gul recently met with the Supreme Leader of Iran Ayatollah Ali Khamenei -- it was no accident that it was just days before President Obama reached out with his message to Iran.
    "I was able to speak in a very free and sincere atmosphere. I am sure they are listening, they are deliberating and I am sure that at the end when they are convinced that all these messages are sincere, then we can see action," said Gul on the sidelines of the European Business Summit.
    Asked whether the elections will need to pass before there is a response to President Obama’s olive branch, Gul said, "The politicians before the election, they have to be populists. So, therefore after the election maybe these serious issues can be handled better."
    In the meantime, Turkey is sustaining its shuttle diplomacy with Israel and Syria.
    Gul, it is fair to say, is very positive about the change in leadership in Washington and the gestures overall to the Middle East.
    "[Middle East leaders]should not miss this opportunity because President Obama is saying we are going to listen to you. We are not going to enforce our own policies on you. This is a good starting point."
    While Middle East politics evolve, Turkey is filling another role for the West -- as an energy transport hub to counterbalance the inconsistent gestures from Moscow on supplies to Europe.
    Washington was a big supporter of the BTC –- the Baku, Tbilisi, Ceyhan oil pipeline that runs from Azerbaijan to Turkey’s south-eastern coast.
    The next goal is the potential building of the Nabucco gas pipeline that will deliver energy from Central Asia to Austria via Turkey. There is some good old fashioned wrangling behind the scenes over transit fees and local supplies for Turkey, while Russia is busy trying to tie up the gas supplies through its network.
    But the fact is Turkey will play a bigger role on this front in the next decade.
    "It is a bridge between East and West," says Nobuo Tanaka, Executive Director of the International Energy Agency. "In the energy sector it certainly contributes as a very important bridge of resources of the Middle East to the West."
    According to the Center for European Reform, Turkey is near 70 percent of the world’s proven reserves of natural gas. Neighboring Iran and Iraq have still not exploited their natural gas exports.
    President Gul calls Turkey position in this geo-political game "a unique role."
    "You have to diversify the sources. If you have the sources you should secure transportation."
    This sounds simple but, of course, it is not. With Turkey eager to see accession talks to the European Union move at a more rapid pace, there are concerns in Brussels that the Turkish leadership is playing the energy card.
    Turkey can help deliver energy to the West, especially Europe, but expect a price tag to be attached.
    As the former President of TUSIAD, the powerful Turkish business association noted, "There are some powers, there are even some companies, that take Turkey for granted. That there is a particular role for Turkey to play and that is it. I don’t think that it will evolve that way, in that simple manner."
    No one ever said straddling both sides of the fence is easy; straddling two continents is even more complicated and yes more interesting.

Четверг, 2 Апреля 2009 года 11:47:00

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