Petro-dollars and the Middle East


by Sunny
28th November, 2007 at 7:08 am    

This article in the New York Times is interesting:

Flush with petrodollars, oil-producing countries have embarked on a global shopping spree. With a bold outlay of $7.5 billion, the Abu Dhabi Investment Authority is about to become one of the largest shareholders in Citigroup.

The Dubai stock exchange, meanwhile, is negotiating for 20 percent of a newly merged company that includes Nasdaq and the operator of stock markets in the Nordic region. Qatar, like Dubai a sheikdom in the Persian Gulf, might compete in that deal. In late October, Dubai, which has little oil but is part of the region’s energy economy, bought part of Och-Ziff Capital Management, a hedge fund in New York. Abu Dhabi this month invested in Advanced Micro Devices, the chip maker, and in September bought into the Carlyle Group, a private equity giant.

“The investments are diversifying outside the United States, though the U.S. still has the bulk of it,” said Diana Farrell, director of the McKinsey Global Institute, a research arm of the McKinsey consulting firm, which calculated in October that petrodollar investments reached $3.4 trillion to $3.8 trillion at the end of 2006.

“Europe is a prime target,” she added, “but at least 25 percent of foreign investments from the Persian Gulf are in Asia, the Middle East and North Africa.” Though oil-producing countries have been looking at investments in the West since the 1970s, their strategies back then were largely confined to safe assets with a low return, like United States Treasury debt.

Coincidentally, I have an article today on Comment is free about the growing economic power of Dubai and how it may impact the Middle East. I just hope these people would invest the money in building local employment than buying American assets. It would be good for all of us.


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  1. Natty — on 28th November, 2007 at 7:35 am  

    So true. The need for investment in the Middle East and local countries is great. It would also help employment for the Indian Subcontinent.

    Better rights for employees and better wages are a must.

    Again it would be good if they invested in North Africa and East Africa.

    Ideally as well pumping money into education, education, education.

    Instead I fear they are importing western culture at massive costs with huge sums spent on bring satellites of various Western Museums to the Middle East. When instead the priority should be to build infrastructure and education.

  2. Leon — on 28th November, 2007 at 11:50 am  

    I have an article today on Comment is free about the growing economic power of Dubai and how it may impact the Middle East. I just hope these people would invest the money in building local employment than buying American assets. It would be good for all of us.

    There’s some very interesting background to be read in John Perkins Confessions of an Economic Hitman

  3. Refresh — on 28th November, 2007 at 11:51 am  

    Sunny,

    “I just hope these people would invest the money in building local employment than buying American assets. It would be good for all of us.”

    I too would much rather they also started investing in Africa, and not simply because Bush/Brown instruct them to. This is something I had hoped for going way back to the 70′s.

    Why? For the simple reason I do not expect the West to do anything for this fabulous continent despite their G8 rhetoric.

    Then we would really be all better off.

    Very good points Natty.

  4. sonia — on 28th November, 2007 at 11:52 am  

    I suppose that’s why Dubai has been branding itself over the last 10 years or so as a gateway to the global economy and a ‘global hub’ etc. clearly they realise the oil will run out one day and what then?

  5. sonia — on 28th November, 2007 at 11:53 am  

    who is ‘they’? why would the UAE invest in North Africa? never mind the “West”, the GCC states wont invest in NOrth africa!

  6. Refresh — on 28th November, 2007 at 11:54 am  

    The biggest fear I have is that once the oil runs out, the middle east will be left a bit like Africa after the colonialists – depeleted.

  7. sonia — on 28th November, 2007 at 11:54 am  

    and its not “a” continent, but two continents.

  8. sonia — on 28th November, 2007 at 11:55 am  

    the point is rather that as a “region”, there is a long way to go in terms of collaboration. for all the talk about pan-Arabism in the past, apart from OPEC cartel-style deals, there has actually been very little collaboration. there is a lot to learn from the EU.

    and i could say the same about the indian subcontinent.

  9. Refresh — on 28th November, 2007 at 12:03 pm  

    Sonia

    Interesting point you make at #8. It was the conclusion Chairwoman, I and others came to way back.

    I would be very interested to hear what you think would need to be done so that they do collaborate.

  10. sonia — on 28th November, 2007 at 2:16 pm  

    well refresh if you really are interested to hear MY opinions this is what they are:

    people would have to get over their petty prejudices and -isms. Had you lived in the Middle East you would realise that for all the pan-Arabism talk, ( just like for all the Muslim Ummah talk) there is very little importance given to “human” rights and people are very tribal, so people’s perception of other people’s rights depend on which sub-group you belong to. the concept of your ‘own’ group is very significant and your ‘own’ group is actually quite a small sub-set of all the people who might happen to be in your nation. and by that i mean, very similar to how we dissect ourselves on so many different levels in the indian subcontinent. who is rich who is poor who is from which clan, who came from where etc. There is very little – as far as i can see – collective feeling for human development overall. if its your family, that’s fine. if its not, ooh. If some people have managed to get past one barrier, there will be another to stop them. people who think arab muslims are automatically interested/feel a bond with other muslims elsewhere – really -a trip to the ME is in order. Wealth is very important, if you come from a wealthy landed family in the indian subcontinent – and are not muslim – you will be in a different place to if you are an indian maid – who is muslim. (the muslim angle there is completely irrelevant) if you are comparing two people of equivalent class, then religion will play a difference. And my personal feeling is that with many Muslims, people only give “charity” in the way they are asked to – nothing more. For me, this reflects a lack of interest in other people’s well-being = for the sake of it, and why would you be very bothered to try and collaborate ( which is a hard thing to do anyway, even when you want to) if you didn’t have to? Plus the wealth factor is significant – different people have different amounts of oil, and there are different amounts of resentment. in any case, my main observation is that you’re so criss-crossed with different sub-tribes etc. within your own nation, you’re going to find it damn difficult to try and ‘break out’ and work together with a wider group of people in different nations. and MENA as a region is very disparate. The GCC states tend to feel they have a bit more in common, but even within those states, there is a huge amount of what i have described.

    so personally speaking, i think people have a long way to go. and this is the same thing i see in the indian subcontinent. if the fact your gujju hindu kid marries a muslim punjabi girl is enough to break people out into apoplexy, where the hell does that leave room for collaboration?

  11. sonia — on 28th November, 2007 at 2:18 pm  

    and as to what can be DONE – well i dont think there is anything that can be DONE unless people change their attitudes, and want to do so. which usually takes a long time. But focusing outwards all the time, blaming everybody else for racism and not looking at our own tribalisms – is a big problem and in my opinion, stops people from sorting themselves out.

  12. sonia — on 28th November, 2007 at 2:22 pm  

    or, i guess more aptly, the fact that people from india and pakistan and bangladesh and sri lanka have to go through so many more hoops to get visas to each others’ countries, than for example Brits, just goes to show the sad state of regional collaboration.

  13. Random Guy — on 28th November, 2007 at 3:01 pm  

    Hey ‘Joy’, since you are such a smart-arse, why don’t you go and tell them?

  14. Refresh — on 28th November, 2007 at 3:01 pm  

    Joy1, you’d have to presume they don’t already.

    In the case of the Palestinians even the middle east banks were forced not to deal with the elected government of the Palestinians choosing.

    If any money is/was given to charities operating in the area they were being designated terrorist fronts.

    But that aside there is a lot they will have to do before the oil runs out, or sucked out from under their feet.

  15. justforfun — on 28th November, 2007 at 3:04 pm  

    Sonia – its time to forgive that man at the Indian High Commission :-)

    Refresh – I would be very interested to hear what you think would need to be done so that they do collaborate.

    There is nothing to be done – leave them alone. That is half the problem – oil is the cause of interferance. When it is gone, the guest workers will go, the Americans will go, the British will go, everyone will go – and the people of the Middle East will wake up one morning and find they are not in the news anymore, Hurrah. Then they can all have a hearty breakfast and perhaps go out for a stoll – down to their rulers palace – it will of course be empty as they will have fled to where their cash is. When the people find their government is gone, they can start one that they like, and nobody will care what form it takes. Why should we – they will not have any oil anymore.

    Bugger – the flaw in my arguement is that the Middle East has alot of Sunlight and Solar energy – it looks like we could be there for some time after the oil has gone.

    Justforfun

  16. Chris Stiles — on 28th November, 2007 at 3:58 pm  

    Why do these Middle Eastern Muslims discard their own kind.

    Because mostly they don’t see them as their ‘own kind’. Even if the question itself didn’t have a whiff of presupposition about it, what sonia says is basically a very good answer to this. The majority of these countries are based on tribal/familial ties, rather than anything else.

  17. bananabrain — on 28th November, 2007 at 5:03 pm  

    and, by not helping the palestinians, they can keep them as a whipping boy for the west. don’t be under any illusions about arab brotherhood. the palestinians long since gave up that particular illusion. the gulf states are more far sighted than most, but they’re also (apart from saudi) the source of most of the funding for loony jihadi groups. the more the rest of the world is concerned about the palestinians, the less transparency will be required of the rest of the arab world, hence the rhetoric about “the road to peace runs through palestine” and “we’ve got to fix the arab-israeli conflict before we reform the middle east” – it’s the most transparent of delaying tactics, rather similar to the israeli “first they’ve got to 100% behave themselves and then we can talk” and equally dishonest.

    b’shalom

    bananabrain

  18. sonia — on 28th November, 2007 at 5:51 pm  

    its very simple, because the focus has always been on ‘external’ colonialism, ‘internal’ imperialist social hierarchical systems are generally ignored. this we can see across the board. ( its the moral of animal farm in my opinion.)

    the fact is a quick look at the status of the Bidoon in GCC states, in kuwait for example.

    and its all very ‘caste-based’ in the end, effectively.
    its the way people lived their life for centuries, so attacking it is in many ways attacking the ‘traditional’ way of life. people knew their place, you don’t spend your time worrying about anyone else’s human rights, like your maids and workers and peasants. and it goes along the chain, from a landowning family that might involve a whole bunch of labourers, and if you’re “lower” down the chain it might be some homeless child who works as your servant/slave. its all around us now and nowhere more evident in how so many people treat their servants in countries all the way from kuwait to bangladesh.

    organisations like drishtipat have played a spotlight on the conditions domestic workers in bangladesh exist in. there are countless human rights reports on the state of domestic workers in the Gulf states and the lack of protection they face legally. and Never mind ‘domestic workers’, that french boy got raped in Dubai and there won’t even be a prosecution.

    jff :-) the man was very nice to me! ( btw men at embassies are always very nice to me!) the system doesn’t allow for bangladeshi nationals to get a double-entry visa, but he kindly saw reason and gave me one. :-)

  19. sonia — on 28th November, 2007 at 6:24 pm  

    that’s kind of the irony, systems are the nasty things, most humans operating in a different system aren’t nasty. corruption is a good example where this happens.

  20. Kits Coty — on 28th November, 2007 at 8:22 pm  

    There is also a good article about Dubai in the FT

    http://www.ft.com/cms/s/0/eea3210e-9854-11dc-8ca7-0000779fd2ac.html

    The real challenge for Dubai’s economy, particularly in the financial area, will be transparency and being effective at fighting corruption. The rulers have brought in advice from the City of London and FSA on this but it has not been entirely happy. I would also like to see more Dubai’s wealth spread out eventually around the rest of the Emirates to its real citizens.

    I think Sunny’s article enraged some of the CIF readers by suggesting economic growth could help solve some of the political/social problems.

  21. sonia — on 29th November, 2007 at 12:16 pm  

    Kits Coty, that’s not a challenge for just Dubai, but global financial services full stop.

  22. Kits Coty — on 29th November, 2007 at 2:18 pm  

    Of course but it is a particular challenge if you are building a global financial centre from scratch which is what the Sheikhs are trying to do. The temptation is always to ignore corruption because of the business it brings in but that has long term implications for durability if people see their money is invested in highly dubious entities.

    Getting the regulation right is partly why the world’s existing major financial centres have gained from globalisation and consolidated their positions. There is no guarantee of future success obviously (a point sometimes lost on politicos who take London’s position for granted) but having the right structural features right can see places like London and New York pull away even faster and places like Dubai staying in the second tier of centres.

    I think it would be good, not in the least for Arab self esteem and the way people perceive the Middle East, to have a modern open city, a world city.

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