Tapping into the MENA “Hot Spot”: Limitations of Listed Securities

On the final day of 2007, the Financial Times formally dubbed the Middle East and North Africa “the next investing hot spot” – a weighty endorsement confirming a meaningful trend. The FT cites BlackRock, T Rowe Price, Mizuho Bank (Japan), and Permal as actively raising funds to tap this market. Permal’s “Silk Road” fund – capitalizing on the increased trade flows between the Gulf, MENA, and Asia – reflects an important insight on how the regions’ economies are evolving.

The fundamental growth of MENA economies – and especially the Gulf states – is certainly inviting. Investors and asset managers need, however, to recognize the limitations of listed equity markets in tapping into the region’s growth.

Saudi Sovereign Fund: Scale, Demands & Surplus

In this usually quiet holiday period, the Financial Times broke a remarkable story (based on an unnamed source) that the Kingdom of Saudi Arabia (KSA) is contemplating a sovereign investment fund that would “dwarf Abu Dhabi’s $900bn” ADIA. The implications of such a fund, if and when created, would be far-reaching and profound.

For seasoned observers of the Gulf, the story raises more questions than answers.

Letter in the FT: Gulf Investors Exert New Control

On Tuesday, the Financial Times published my letter regarding the recently-announced joint venture between Dow Chemical and the Kuwait Petroleum Company (KPC). The letter is entitled “Gulf Investors Exert New Control” and the text is as follows:

GWU MBA Program: A Model for GCC Awareness

Understanding of the Gulf region and its business opportunities is, for the most part, highly limited amongst senior management at multinational corporations. This lack of “GCC awareness” is somewhat understandable: the GCC union did not even exist until 1981 and the region has only been exciting from a commercial perspective since the 1970s.

Less excusable is the low level of GCC awareness amongst business students today. While working on Dubai & Co., the research team conducted a survey of students at an Ivy League university (with one of the world’s top MBA programs) asking what a set of international abbreviations stands for. How many could identify the GCC?

Qatar & Conoco: A Shift in Posture

Earlier this week, ConocoPhillips struck a deal with Qatar Petroleum International (Qatar Petroleum’s global arm) by which the two will collaborate on expanding the Qatari firm’s global presence. Conoco will reportedly help QPI on energy projects beyond the Qatari market – which is phenomenally well endowed from an “upstream” perspective though small from the perspective of local consumption.

In reporting the deal, the Financial Times sees the arrangement as reflective of the “weakened position” of global oil companies when dealing with natural producers. Another perspective is that it reflects increased parity between producers and oil “majors”. In either case, the trends driving the shift in posture are here to stay.

Oil Consumption & the Gulf’s “Reserve Advantage”

Sunday’s New York Times ran a headline story on energy consumption in oil-producing countries. The data-rich piece stressed how local demand is reducing the level of oil exports and therefore the quantity available in international markets. This is seen a troubling trend for non-OPEC countries that import more oil than they ship abroad.

Observers of the Gulf should note a fundamental reality: the strategic implications of increased oil demand disproportionately benefit the GCC states more than other oil-exporting countries.

Chasing Exchanges: Borse Dubai, the QIA & OMX

Wednesday’s Financial Times reported that the Qatar Investment Authority (QIA) no longer seeks to increase its stake in the Nordic exchange OMX. This step leaves a joint offer by Borse Dubai and Nasdaq as the likely buyer of OMX, through a multi-step process. The process involves Borse Dubai purchasing the Nordic exchange and transferring it to a Nasdaq in exchange for (i) equity in a new JV and (ii) equity in the London Stock Exchange (LSE). The end result is that Borse Dubai is poised to end up holding pieces of both OMX and LSE, with Nasdaq as its partner.

Snatching up an exchange is, of course, a high profile acquisition. This begs the question: are Gulf buyers chasing exchanges as “trophy assets” or are there financial and strategic benefits to such transactions?

Harvard Meets MENA: Regional Firms Show Confidence

 

This past weekend, I spoke at a conference at Harvard on business in the Middle East and North Africa (MENA) region. Other speakers included the COO of Mubadala, Goldman Sachs’ Head of MENA Investment Banking, and the founder of McKinsey’s Dubai office. The first of its kind, the weekend-long event was a great success with over 400 participants.

The most powerful message of the conference was not the content presented, but the confidence with which the region was showcased.

Deloitte’s Shariah Appointment: Defining the Role

Last week, Deliotte announced the appointment of Mufti Hassan Kaleem, a classically-trained Islamic jurist, as its (presumably global) Shariah scholar. The appointment is a reflection of the fact that no financial institution – or advisory firm seeking to serve financial institutions – can be truly global without expertise in Islamic finance.

Reports in the press, including in the Financial Times, do not describe the scholar’s new role in detail. There is a reference to “signing off on products” and another to “different work with different exposure.” Were I defining the role, it would have three key elements: