September 26, 2005
Gulf Finance, Booms & Inefficiencies
Our friend and sometime contributor Waterboy draws attention to something obvious to all involved, and yet an item that remains out of control: overliquidity in the Gulf region and the consquent mad asset price boom in the Gulf. His observation is spot on, that there is
there's too much cash chasing too few investment opportunities in the region; too little oversight, regulation or transparency; too much exuberance - bear in mind, as Japanese bank Nomura pointed out, that Saudi Telecom's market capitalisation of US$74bn is worth more than BT (US$35bn), AT&T
(US$15bn), SK Telecom (US$15bn), and Telekom SA (US$9bn) combined - and far too many unsophisticated investors who think that having the names of a couple of ruling family members in the IPO prospectus is a valid alternative to a business plan - or, for that matter, an existing business.
No doubt about this at all. Some conversations I had over the past week painfully illustrated that. This aside, a key point of disequilibrium is the degree to which despite the asset valuations in the Gulf being absolutely looney to the point of surreal, the money is not flowing within the region to a reasonable degree.
There is very clearly far too much money chasing too few assets (recalling the Gulf economies remain heavily dominated by State firms and closed shop monopolies). Superficially given the degree to which "Arab market(s)" and "the region" one would expect that money to begin prospecting the neighboring ex-GCC markets more. Superficially, of course. But one thing one learns from being in investing in the region, for all that the business plans love to cite to the total population of the region as the market, to assert various things about "the Arab market" and the "common language, culture" etc. (I just came away from reading a prospectus that said just these things), the reality is the markets are terribly fragmented and in fact the flows are difficult to achieve.
Of course, no doubt making things worse, among the national markets that make the most sense by fundamentals (above all ability to acquire potentially growable assets at attractive valuations) in the region are the two small North African markets - Tunisia and Morocco - but which also have a very divergent culture, business style, etc., that appears to put off the Gulfies. Lebanon and Egypt are certainly far easier for the Gulfies in terms of language, culture and similar styles of doing business, however their severe issues in terms of near term stability (regardless of the idiotic posturing in public) and in Egypt's case bloody pain in the ass bureaucracy are severe brakes.
Solutions? None are terribly obvious, other than the same old improve the bloody climate for moving money.
Posted by The Lounsbury at September 26, 2005 04:59 PM
Filed Under: Biz - Policy & Development , Biz - Private in MENA , Business , Economics , Egypt , Jazeera-Arabia , MENA Region General , North Africa , Sham-Levant
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Tracked on September 27, 2005 12:56 AM
the business plans love to cite to the total population of the region as the market
Tell me about it. Dubai loves to go on about how 2 billion people in not just the Arab world but also India, Pakistan, Iran, Central Asia et al. can be reached from here.
Nice port and airport? Sure. Will that help you buy bicycles from a small factory near the Indo-Nepalese border? I think not.
Posted by: Dubaiwalla at September 27, 2005 05:43 PM