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Economy, Investment

In October 2017, the government-owned news outlet The Jordan Times reported that Minister of Planning and International Cooperation Imad Fakhoury had met with members of the U.S. administration to ask for additional assistance in carrying out economic development projects in the country. For Fakhoury and the government of Jordan, continual reliance on such assistance from the international community is an important component of their economic development strategy. As one of the few beacons of stability in the region, Jordan has positioned itself as a reliable partner and ally for many countries. Jordan also wants to be increasingly seen as a prime location for international business ventures amidst the crises of the broader Middle East. The government is trying to balance international support with ongoing reform measures to make progress with the Jordan 2025 plan as the guiding mechanism for change.

In fiscal year 2017, the U.S. government reported it provided $1.28 billion in economic aid primarily through macroeconomic growth initiatives via the Department of State and USAID, making Jordan one of the largest recipients for aid.  That was under the Obama administration. Under President Trump, foreign assistance is just one area among several under consideration for deep cuts. As of now, only a little under $400 million is planned for economic assistance to Jordan. Such conversations for the government come at a time when Jordan is leading an ambitious national project to fundamentally revamp many aspects of the country. Launched by King Abdullah II in May 2015, the aforementioned Jordan 2025 plan aims to implement reforms focused on improving the private sector, expanding civil society, and increasing democratic institutionalization. Fakhoury noted, “the main objectives of the blueprint are to address the challenges of rising living costs, poverty and unemployment and to lead the community to a more prosperous level in the coming 10 years.Jordan is just one many countries in the region undertaking ambitious long-term economic plans in this manner. But as the GCC-Qatar rift persists and oil prices continue to fall, Jordan’s path toward diversification puts it further ahead than the Gulf countries.

One way in which these changes are happening on the economic front is through partnerships with other countries and international organizations. The International Monetary Fund (IMF) worked with Jordan to develop an economic development reform package in 2016 to complement the strategy of the Jordan 2015 plan. As part of the reform, an initial assessment of the situation was in order. While Jordan experienced economic progress from 2010 to 2014, stunted growth caused by an influx in Syrian refugees as a result of the Syrian civil war, rising debt and deficits, as well as disruptions in trade caused by regional crises has affected the country since 2015. Though the country is in the process of impleme. These are expected to continue for some time in order to get the country back on track.

Despite these harsh realities, Jordan’s reforms steps are steady. The World Bank recently noted in its 2018 “Doing Business” report that Jordan has improved its ranking to 103 which is not far behind most of the GCC and better than the regional average of 126. “Divided into subnational and regional level analyses, the report covered 11 indicator sets including starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.” Major contributors to this improvement over the last few years included how much easier it is to get credit and streamlining the customs processes at ports.

So what is in store for Jordan? Despite not having a wealth of natural resources like their neighbors in the Gulf and Iraq, Jordan plans to use their strategic geographic location in the region and political stability as a launchpad to the Middle East and Asia for international businesses. As noted in the Jordan 2025 plan, the Hashemite Kingdom wants to become a “regional hub for architectural and engineering services” as well as for transport and logistics. They also plan to further develop several other sectors like tourism, health care, digital business, and financial services. Jordan’s rather liberal society, openness to investment, and stability provide a fertile investment climate for would-be investors.

The major reforms and changes taking place in the country are directed at reducing trade barriers and clarifying and implementing procedures more in-line with international standards. Tariffs and other taxes are still applied to most imports and some items require licenses to import (like pharmaceuticals), but the environment is becoming more friendly to investors and this is a priority for the government. As Jordan moves forward with its reforms, international businesses can look forward to new opportunities in a country in the center of a rapidly changing region.

 

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Economy, Investment

In July 2017 the Central Bank of Egypt announced that they would not issue legislation allowing the trading of cryptocurrencies. The result is that Bitcoin and others are not legal money until they are regulated. Earlier in the summer, Bitcoin Egypt had announced it would go live in August 2017. It was, in fact, this announcement made by Bitcoin that promted the response seen above from the Central Bank of Egypt denying it. Currently the actual launch date is yet to be announced, and there will likely be many more hurdles before Bitcoin and others are able to get the regulation they seek. Cryptocurrency is one of many contentious issues affecting the future of cash in the Middle East.

While there are stark differences in terms of economic development between the oil-rich countries of the Arabian Gulf and the countries of North Africa still reeling from the aftermath of the Arab Spring protests of 2010-2011, there are commonalities. According to Finextra Research, cash is still the preferred method of payment in the Middle East. Most of the region uses smartphones and debit cards, but economic and technological infrastructure is lacking in much of the region. Do a quick Google search on “debit cards in the Middle East” and you will come across endless forums full of would-be travelers asking about the use of debit and credit cards at famous tourist destinations in the region. Unsurprisingly, seasoned tourists recommend they bring the cash and keep the debit card in case they need to use an ATM. While the use of debit cards is on the rise (particularly in the GCC countries), many merchants are not able to handle debit and credit card transactions.

This fact is affecting e-commerce businesses as well. Careem–a ride-sharing competitor of Uber–is currently valued at $1.2 billion and outpaces Uber in the region. One interesting difference: riders can pay in cash. Careem’s success is not felt across sectors. Souq.com, an online shopping platform, was the region’s primary destination for online goods since 2005. In the spring of 2017, Amazon acquired Souq.com in an attempt to expand its reach further into the region after a decline in sales. But much like their earlier venture into e-commerce in the Middle East, a problem remains: how to get customers to pay online?

One idea that has been suggested is the use of Bitcoins, or generally, cryptocurrency. The huge advantage being that a user would not need a bank account, only an internet connection and an e-wallet. With this in mind, it is not surprising that a few Bitcoin companies have emerged in the region. ShuBitcoin touts the benefits, “The Middle East, unfortunately, ranks among the lowest in terms of access to financial services. However it also has one of the highest mobile penetration rates in the world, and Bitcoin has the potential to bring financial services to anyone with a phone.” Not only can this be helpful for the average person wishing to make transactions online, it also provides access to international markets for businesses which has been particularly helpful for startups in the Gulf.

Unfortunately cryptocurrencies have been abused and globally there have been many reports that terrorist groups have used Bitcoin transactions to fund their activities, undetected in the secure blockchain records. For governments that have difficulty monitoring financial activity and without strong institutional capacity to handle corruption, Bitcoin poses a problem. If Bitcoin is attractive because one does not need a bank account and because the transactions are secure, governments are more likely to have an issue.

Whatever the issues are for Bitcoin and other e-commerce activities, it cannot be denied that the use of internet for financial transactions is popular in the region. With a large youth population and high internet penetration and mobile phone usage, it is inevitable that the Middle East will become better integrated into trends of digital transactions and commerce.

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Geopolitics, Investment
For a long time China had viewed the Middle East as a US influence zone. But, as a reflection of its growing power and ambitions, it is now becoming a more visible actor in the Middle East. Beijing’s involvement in the region is primarily motivated by its economic interests. Qatar is China’s top gas provider and Saudi Arabia is its second largest oil supplier. The United Arab Emirates (UAE) serves as a distribution centre for China as most Chinese exports to the Gulf Cooperation Council, West Asia, Africa, and Europe go through the UAE. As demonstrated in the table below, its trade relations with the region have also grown tremendously and are likely to grow further. In fact, it has recently signed a major deal with Saudi Arabia that worth nearly $65 billion and agreed to increase bilateral trade with Iran to $600 billion in the next ten years.

 

China’s trade volume with S. Arabia, Iran, Egypt, Turkey, and UAE in 2005 vs. 2015

 

 

Saudi Arabia

Iran

Egypt

Turkey

UAE

Year

Export

Import

Exports

Imports

Exports

Imports

Exports

Imports

Exports

Imports

2005

3,824

12,246

3,297

6,787

1,934

211

4,254

622

8,730

2,046

2015

21,684

30,151

17,831

16,035

11,963

916

18,63

2,961

37,069

11,532

Note: Total Import / Export Value in millions of US Dollars – current value.

Source: Compiled from the World Integrated Trade Solution database (World Bank), which is available at http://wits.worldbank.org/CountryProfile/en/Country/CHN/Year/2005/TradeFlow/EXPIMP/Partner/ARE/Product/all-groups

China’s interest in the Middle East is also related to its ambitious “Belt and Road Initiative” (BRI). In 2014 Beijing launched this $40 billion project that aims to revive the Silk Road, its ancient trade network, to connect China to Central Asia, the Middle East, Africa and Europe through roads, railways, ports, and oil and gas pipelines. There are already noteworthy achievements. For example, in 2016, a freight train made the journey from China to Iran in just 14 days, significantly shortening the regular 45 days delivery time via sea route. Beijing is also currently negotiating a free trade agreement with the Gulf Cooperation Council (GCC) and working with Israel on a railway proposal to connect the Red Sea to the Mediterranean that bypasses the Suez Canal. Once completed, the BRI will significantly boost China’s trade and economic relations globally.

There are also political motives that might explain the recent momentum in China-Middle East relations. Beijing’s most important foreign policy conflict involves the South China Sea (SCS), which is one of the most strategic commercial shipping routes in the world and also contains significant natural resource reserves. Beijing claims sovereignty for nearly the entire SCS. However, the United States doesn’t recognise Beijing’s claim, viewing it as a violation of international law and maintains a strong military presence in the region to challenge China. As a rising power, China first needs to secure control of its neighbourhood. Its greater involvement in the Middle East may help China in this regard by diverting US attention away from the SCC to the Middle East. In fact Beijing announced its first “Arab Policy Paper” in 2016, recently opened its first overseas naval base in Djibouti and started the construction of an arms factory in Saudi Arabia to manufacture armed. Others had previously refused as China has grasped the opportunity.

Beijing also actively promotes the Shanghai Cooperation Organisation (SCO) in the Middle East, a security organisation jointly led by China and Russia. Iran applied for SCO membership in 2008 and Turkish President Erdogan mentioned in 2016 that Turkey could also seek SCO membership. India and Pakistan have recently become full members, and China’s Deputy Foreign Minister Li Hailai stated that Beijing “welcomes and supports Iran’s wish to become a formal member of the SCO” and would also consider Turkey’s membership if it files an application. China’s Ankara ambassador also stated in May 2017 that Beijing “is ready for Turkey’s membership.”.

China is now a more active player in the Middle East, not only in economic but also in political terms. China’s active engagement in the Middle East may actually contribute to stability in the region. A stable Middle East serves China’s interests better as conflicts within the Middle East such as the Qatar crisis pose a threat to its energy supplies, free-trade negotiations, BRI project, and regional trade prospects. Beijing emphasises sovereignty, territorial integrity, and the principle of non-intervention and avoids taking a clear side in political conflicts in the area. It maintains good relations with both Iran and Saudi Arabia and has no major enemy in the region. Beijing appears to be an honest and impartial broker in Middle East conflicts and may soon play a greater role in mediating disputes, which may further strengthen its standing in the region in future.

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Investment

In March 2015, Egyptian President Abdel Fatah El-Sisi announced at the Egypt Economic Development Conference the intent of the government to build a new capital for the country. Dubbed the New Capital Cairo Project, the conference convened to encourage international investment in an ailing economy. According to the project’s website, “Cairo Capital is a momentous endeavour to build national spirit, foster consensus, provide for long-term sustainable growth and address various issues faced by Egypt through a new city, which will create more places to live, work and visit.”[1] The Egyptian government looks to the booming cities of the Gulf for inspiration in their desire to build smart cities fueled by renewable energy and controlled traffic congestion while reflecting Egypt’s unique geographical and geostrategic location. But Egypt is plagued by corruption and, despite the goals of the Arab Spring protests, an authoritarian government. International investors have taken to the project, seeing Egypt’s re-emerging role in the region as a boon for business. But only time will tell if this mega-project will have the intended effect of changing perceptions and situations for all Egyptians.

In late 2016, the Egyptian government announced new details on the project. The new capital will be located 28 miles (45 kilometers) to the east of Cairo and will occupy about 170,000 acres of land.  The first stage should be completed within two years and will include the construction of the buildings of the ministries and legislative bodies, embassies, universities, “smart” villages, and a central park, “the largest in the Middle East.”[2] The new capital is expected to house about 250,000 people downtown and about 5 million throughout the city. With this comes a need to address Egypt’s notorious traffic congestion issue. According to Youm7 news, the streets of the capital are expected to span about 124 meters over 6 lanes compared to Egypt’s maximum 90 meters across.[3]

While the government claims it will be built 100% by Egyptians, there has been much interest from international investors, particularly from China. Despite hiccups with Dubai-based and Chinese investors earlier in the year, the project is now moving forward with China Fortune Land Development (CFLD). “The company is developing similar projects for China’s own planned new central government district in Xiongan as well as other locations in China, Indonesia, Vietnam and India. The Egypt project would be its first in Africa.”[4] This is an important step for China, as it builds its influence in the region. While China’s competitors in the region–the United States and Russia–are embroiled in the conflicts in Syria and Iraq, the Middle Kingdom is looking towards a future beyond conflict. In 2016, China released strategy on engaging the Middle East.[5] China’s focus on developing the “Silk Road Initiative,” which aims to develop the economic capacity of China and 60 other nations into an economic zone, extends to Egypt. “Although most of the mutual trade between China and Egypt is represented in Chinese exports to the most populous Arab country, China imports of Egyptian commodities in the first two months of 2017 have reached 159 million dollars, with a 326.25 percent year-on-year growth.”[6]

The development of a new capital with modernised amenities seems like a dream for would-be Cairenes who grow weary of the grit and gridlock, but Egypt’s recent history of taking on mega projects without ample planning and forecasting may work against them. In the past two decades, the government constructed satellite cities around Cairo in hopes of encouraging people to move into less densely populated areas. Apartment complexes and shopping centers sprung up, but the move by city dwellers has been slow.[7] Not only is there a lack of available public transportation to downtown Cairo other than the city’s populous “microbus” system, but housing and entertainment amenities are expensive.

While this project may appear to be the solution to Cairo’s problems, there are other issues that must be addressed to ensure that the new capital does not end up like the last one. Chief among them is financial mismanagement. The Egyptian pound’s value has been decreasing since the 2011 revolution and the government has struggled to secure loans to fund various economic reforms such as cutting subsidies. Corruption is another challenge. According to the U.S Department of Commerce, “Businesses have described a dual system of payment for services, with one formal payment and a secondary, unofficial payment required for services to be rendered.”[8] Corruption runs deep and is one of the triggering factors of the Arab Spring protests. Unless these issues are addressed, Egypt’s grand new capital may flounder before it gets off the ground.

 

[1] http://thecapitalcairo.com/about.html

[2] http://www.youm7.com/story/2016/11/7/العاصمةالإداريةالجديدةمشروعقومىبأيادمصرية-100-تستوعب-6/2956949

[3] http://english.alarabiya.net/en/business/economy/2017/07/29/Egypt-s-new-capital-among-world-s-top-urban-mega-projects-.html

[4] https://asia.nikkei.com/Business/Companies/Chinese-project-to-build-new-Egyptian-capital-revived

[5] http://news.xinhuanet.com/english/china/2016-01/13/c_135006619.htm

[6] http://www.globaltimes.cn/content/1045999.shtml

[7] http://www.cnn.com/2016/10/09/africa/egypt-new-capital/index.html

[8] https://www.export.gov/article?id=Egypt-Corruption

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Geopolitics, Investment
In June 2017, Saudi Arabia, Bahrain, the United Arab Emirates (UAE), and Egypt cut political and economic ties with Qatar over an accusation that it supports terrorism in the region. Qatar, a small Gulf country that tries to pursue an “independent” foreign policy, has been under intense pressure by the Saudi camp. Saudi Arabia, Bahrain and UAE accused Qatar of sponsoring terrorism in the region several times in the past and even withdrew their diplomatic missions in 2014 for eight months. But this time the Saudi Camp has more support in the region and appears to be more aggressive. Qatar’s policymakers are now in a difficult position. Their domestic legitimacy and international standing will significantly weaken if they submit to the Saudi camp, but will face a political and economic isolation if they don’t.

Turkish President Erdogan harshly criticised the Saudi-led sanctions, immediately started delivering food supplies to the country and quickly ratified a previously signed military agreement to deploy troops to a Turkish military base in Qatar.

Turkey and Qatar already had strong ties before the crisis. Their foreign policies have been in alignment in most critical issues threatening the region. Both Turkey and Qatar have opposed the military coup in Egypt that carried Abdel Fattah el-Sisi to power, refused to recognise Hamas and the Muslim Brotherhood as terrorist organisations, and provided support for the rebel groups that fight against the Assad regime in Syria. Moreover, to the dismay of Saudi Arabia, which views Iran as a major security threat to its livelihood and thus aims to isolate it, Turkey and Qatar refuse to distance themselves from Iran.

Thus, what brings Turkey and Qatar closer is their similar foreign policy orientations in the region. The Erdogan administration doesn’t have many allies left in the region with a similar foreign policy outlook and is likely to face further political isolation in if it loses Qatar.

There are also additional reasons that might explain why Turkey backs Qatar in the conflict. On 18 December 2016, during one of their frequent meetings, Qatari Emir Al Thani signed an arms trade deal with Erdogan, agreeing to buy $2 billion worth of arms from Turkey. Qatar’s strong reserves serve as a foreign policy tool for the country. Such deals, whilst helping Qatar to diversify its arms suppliers, are particularly important for Erdogan as his administration which has been heavily investing in domestic arms production with a declared aim to change Turkey from being an ‘arms importer’ to an ‘exporter.’ The arms deal with Qatar in this regard sends a signal to Erdogan’s conservative supporters that the country is on the right track.

Qatar also serves as an emergency energy supplier for Turkey, which is located in an unstable political neighbourhood and has to rely on Russia and Iran for its energy needs. But this means that Turkey’s energy security is always at risk. Qatar provided liquefied gas to Turkey when its gas supplies were threatened after it shot down a Russian warplane in November 2015, demonstrating how important it is for Turkey to have a reliable energy supplier at the times of crisis.

Qatar also provides an investment platform for Turkish companies that have lost their market shares in Libya, Egypt, Russia, Iraq, and Syria. This is especially important for the Turkish construction industry, which is one of the most prominent sectors in Turkey and dominated by contractors with close ties to Erdogan. The Turkish construction industry has already set its sights on the $170 billion investment budget that Qatar has allocated for its hosting of the 2022 World Cup. In fact, Turkish Deputy Prime Minister Mehmet Simsek recently said: “Turkish contractors have undertaken projects worth $13.7 billion in Qatar. Qatar is according positive discrimination to Turkey not only in words but also in deeds, giving strong support to Turkish companies doing business there… I’d like to also underline that we are ready to provide any contribution to our Qatari friends in the 2022 World Cup organization.” (http://www.atimes.com/article/qatari-money-rise-turkey/)

It should be noted that Turkey’s support to Qatar is primarily motivated by political concerns, not by economic ones. In fact, Saudi Arabia and the UAE have always been a more important economic partner for Turkey and the Erdogan administration has been trying to further improve Turkey’s economic relations with them. According to the World Bank trade data, Turkey’s exports to the UAE totalled $4.7 billion and to Saudi Arabia $3.5 billion in 2015, while the same figure for Qatar was only $423 million. (http://wits.worldbank.org/CountryProfile/en/Country/TUR/Year/2015/TradeFlow/EXPIMP/Partner/SAU/Product/all-groups) But there are now social media campaigns in Saudi Arabia and the UAE that call people to boycott Turkish products. (http://www.birgun.net/haber-detay/calls-from-saudi-arabia-and-uae-to-boycott-products-of-turkey-amid-qatar-crisis-163961.html). There are also reports that the Al-Sisi government in Egypt has asked the Saudi-led coalition to apply economic sanctions against Turkey. (https://www.middleeastobserver.org/2017/06/16/37406/)

Because Turkey’s foreign policy orientation is similar to that of Qatar, it delivers a great blow to Turkey’s international legitimacy and standing if Qatar submits to the Saudi camp. But Turkey has also no intention of upsetting its relations with Saudi Arabia and its allies like the UAE. Having said this Ankara cannot assume a mediator role in the crisis because of its involvement in Qatar. This is why Erdogan’s July 23-24 visit to Gulf countries may be interpreted as a damage control attempt by Erdogan to show that Turkey’s involvement in Qatar is not an anti-Saudi move and his administration would like to maintain good relations with the Saudi camp. The problem lies in the fact that Turkey has already become a party to the conflict. At the moment, the Erdogan administration can only hope that the mediation efforts undertaken by Kuwait and the United States will resolve the crisis on favourable terms to Turkey.
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Investment

In a statement posted on his personal website, Saudi Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud called for the end of the prohibition on driving for Saudi women. “Preventing a woman from driving is today an issue of rights similar to the one that forbade her from receiving an education or having an independent identity.” The Saudi royal and businessman saw what much of the world has seen for quite some time: that the calls for more improvements and independence for Saudi women is just another wave of change sweeping across the Gulf countries reflected in the slowed growth of the once strong oil-based economies.

For human rights activists and civil society leaders in the region, the call to allow women to drive reflects universal norms and the global movement from international organizations to push women’s rights forward around the world. The driving prohibition has been mocked on social media and international fora particularly over the last decade as an indication that despite Saudi Arabia’s economic strength, it still enforces antiquated laws particularly against women that are often bolstered by controversial imams and their fatwas.

Saudi Arabia’s rulers and lawmakers are walking a difficult balancing act between preserving perceived traditional Arab culture and the need to diversity Saudi’s economy. The International Monetary Fund noted in 2014 that economic diversification for GCC countries away from oil dependence would be difficult but necessary in order to maintain current levels of revenue. Since the governments of the GCC control the oil industry in their respective countries, they are responsible for the distribution of wealth among nationals throughout their countries. And since the oil industry and public sector overall relies heavily on low-wage workers from foreign countries, “it is becoming increasingly expensive for the public sector to employ nationals” who desire more high-paid jobs often after returning with their Western university degrees. Oil revenue are not expected to increase drastically, so it is important that the GCC diversity their economies and encourage private sector development.

Saudi Vision 2030 is expected to provide the roadmap for doing just this. In the Vision 2030 plan Deputy Crown Prince Mohammed Bin Salman Alsaud calls for an ambitious plan to diversify the economy and improve the livelihoods of Saudi citizens. “We are determined to reinforce and diversify the capabilities of our economy, turning our key strengths into enabling tools for a fully diversified future.” As part of the “Thriving Economy” theme, the Vision calls for harnessing the talents and skills of Saudi women by increasing their participation in the economy from 22% to 30% by the year 2030.

The call by Saudi Prince Alwaleed Bin Talal reflected these concerns about economic diversification and potential stagnation and not so much in terms of women’s rights and the desire for “modernity.” The primary emphasis on economic improvement while simultaneously confirming that allowing women to drive (within particular guidelines) can still ensure the safety and dignity of Saudi women and the security of the Saudi family, which is considered the foundation of the society. Not only does Prince Alwaleed Bin Talal discuss how cutting out the need for Saudi-based foreign drivers would save families money and ensure their revenues are not remitted back to the home countries of the drivers, he highlights that it will open jobs for Saudi themselves, including for women. In this manner, he believes this is beginning to address the issue of hiring Saudis in the public sector which is generally occupied by the expatriate workers.

Last year in August 2016, it was reported that Deputy Prince Mohammed Bin Salman seemed to think Saudi society was not ready for such change. “Women driving is not a religious issue as much as it is an issue that relates to the community itself that either accepts it or refuses it.” It is this very reason that Prince Alwaleed Bin Talal mentioned in his letter that it would not be compulsory for families to get rid of their drivers, but rather an option for families to consider.

Just this month, Saudi Arabia was elected to the UN’s Commission on the Status of Women (CSW) much to the shock of Western nations and human rights activists. There’s no doubt that this step for Saudi Arabia represents a step toward altering their image globally, particularly when it comes to women’s rights. The CSW is not made up of only Western countries with what might be termed ‘developed’ women’s rights.  Instead what we find is a mixture of representation from Europe, South America, Asia, Africa, and the Middle East because the purpose of the CSW is to adopt “multi-year work programmes to appraise progress and make further recommendations to accelerate the implementation of the Platform for Action.”

As with most change in the region, allowing women to drive is not something that can be forced by outside actors–whether or Western or native–but something that has to be gradually accepted within the society. Having prominent leaders in the country publically express interest in and even support for allowing women to drive is a step in the right direction for female drives in Saudi Arabia, but the change will happen on Saudi’s own terms.

 

 

 

 

 

 

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Investment

We are all familiar with the doomsday scenario of a hacker collective taking control of an entire electrical grid and plunging an entire economy into an apocalyptic meltdown.

Recently, however, hackers have struck less predictable targets. Whether it’s the hack of the Democratic Party’s emails by Guccifer 2.0, the theft of the National Security Agency’s sophisticated cyber weapons or the “Peace” dumps of Yahoo user data on the Dark Web, 2016 was quite a year for cyber security.

The emergence of cyber security as a global industry is a direct result of the weaponisation of code. In 2004, the global cyber security market was worth $3.5 billion. By 2017 it is estimated to be worth $120 billion. That is a staggering growth rate.

According to Peter Singer, co-author of Cybersecurity and Cyberwar: What Everyone Needs to Know, “if five billion new people are coming online, five billion new security problems are coming online.”

So too, cyber security has emerged as a major issue for the Gulf States. As Gulf nations such as the UAE forge ahead with their economy developments such as eGovernment, smart cities and other online-based strategies, the potential for attacks will only grow.

Amir Kolahzadeh, managing director of Itsec, a leading cyber security company in the Middle East, pointed to 85 percent of UAE residents being online as an indicator of the potential carnage a major cyber attack could wreak. “The UAE is a major target because of its glamour and vision,” Kolahzadeh added.

The Arab Gulf States Institute in Washington believe cyber attacks in the region cost US$1 billion a year, an amount predicted to grow. The institute said the Middle East was fertile ground for cyber crime, with its accelerating adoption of technology to step-change its growth and development drive and high-value targets.

Mike Weston, vice president of Cisco Middle East, said that although there were more than a million cyber security positions available worldwide, the shortage of professionals to fill them was likely to grow rapidly.

The Cisco Annual Security Report 2016 indicated the deficit of cyber security workers would rise to 1.5 million by 2019 at the current rates of development.

“More and more organisations are looking to digitisation to compete in an increasingly global economy, while inadvertently increasing exposure to cyber attacks,” Mr. Weston said.

“Organisations need to invest in the people, processes, and technology that will enable them to become more resilient in the face of new attacks.”

Certainly, on the surface, the Gulf appears to be a target rich environment. Two major programs championed by Dubai are its Smart Dubai initiative, a city-wide initiative to transform Dubai and its Dubai Future Accelerators (DFA) a program which pairs top startups with the Dubai government entities allowing them to build, test and deploy solutions for 21st-century. DFA is exploring Police drones, AI, immigration technologies, telemedicine, blockchain and 3D printing amongst a host of potential technology-driven social innovations.

David Michaux, of online security company Whispering Bell, said talent was a “big factor” in the UAE’s vulnerability.

“We seem to have a lot of thinkers who advise companies on how to change strategies and reorganise their security,” Mr. Michaux said. “We need more people to do hands-on fixing.”

With their established commercial relationships in the Gulf, British exporters would appear to be well positioned to surf this rising tide of cyber security investment

While the British Government has announced its Cyber Security Strategy, doors to the EU’s own cyber security budget may be closing fast given Brexit has been formally triggered. The Gulf offers revenue, distribution and service opportunities for British exporters with the right relationships, competitive products, and expertise. New Government-led Gulf initiatives with digital technology at their hearts are signaling the emergence of the Gulf as a lucrative cyber security opportunity for agile firms and savvy investors.


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Investment

Whether it’s importing products from Italy or Spain or selling to customers in Germany and France, Europe has been a major market for Britain’s online retailers.

With Western Europe accounting for 50 percent of Britain’s online exports, uncertainty over Brexit is putting pressure on Britain’s online retailers to articulate a strategy to either replace that potential lost revenue or complement it with sales to less volatile regions. One of those markets may prove to be the Gulf’s emerging eCommerce ecosystem.

Why look at the Gulf’s ecommerce sector?

The gradual maturing of eCommerce platforms such as premium luxury eTailer ounass.com, and mass-market players theduaibazarre.com and wadi.com has been overshadowed by the recent decision by Amazon to acquire pioneering market leader souq.com and the impending launch of the Gulf’s biggest eCommerce website, noon.com.

Saudi Arabia’s Public Investment Fund and a group of GCC investors are funding the $1 billion noon.com venture equally. It is targeting an inventory of 20 million products and aims to grow online sales in the Middle East from two percent of the total market ($3 billion) to 15 percent ($70 billion) within a decade.

Seductive growth prospects

Commenting on the announcement of the launch of Noon.com Emaar Properties chairman Mohamed Alabbar said, “We want to turn the e-commerce market in the Middle East upside down. Noon will be a game-changing e-commerce platform.”

The retailer is building a 3.5 million sq ft warehousing facility in the Dubai World Trade Center. Other warehouses and distribution centers are planned for Riyadh and Jeddah. Noon has already tied up local distributors, brands, small vendors, and retailers. Noon’s CEO Fodhil Benturquia commented, “Our prices will be very competitive and we will offer a great customer experience. We will deliver authentic products on time and meet customer expectations. Physical stores also have the opportunity to sell on our platform.”

This dynamic environment offers opportunities for British brands and British goods to find lucrative markets under this expanding eCommerce umbrella.

As Ali Haji, head of online retail operations at the GCP Group, owner of thedubaibazaar.com observed, “We believe there are opportunities for existing players to flourish as they step up to the challenge.” Haji went on to explain, “That’s part of capitalising on the “long tail phenomenon” in the online selling space. We have seen it elsewhere, where even small niche operators can develop and even thrive in the paths cleared by the likes of Amazon.”

As Saudi Arabia and the UAE beat the path for eCommerce, secondary markets such as Egypt are building momentum, providing British exporters with significant growth opportunities in a region renowned for viewing shopping as a major recreational activity.

Potential perils ahead for British retailing

With Brexit turmoil promising to plunge the sector into uncertainty for the next two years, the Gulf offers revenue, distribution and service opportunities. Newly developed expertise in online niche segments, coupled with advances in logistics, warehousing, and delivery services are signaling the emergence of the Gulf as an eCommerce opportunity for canny investors and businesses.

Get in touch to see how Pegasus Strategic Advisory can help your company.

 


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Investment

Fine art has long played a role in a balanced investment portfolio. However, with tremors in global financial markets, greater volatility entering the market, and a challenging wealth management environment, canny investors have looked for alternate ways to hedge their portfolio risk.

Art has been a popular and successful investment option since the 2008 Global Economic Crisis. However Brexit fears over London’s place in the international financial sector, a downturn in the luxury goods sector and a shift in influence east towards China and the Middle East is posing challenges for British investors.

Art As An Inflation Hedge

Accepted as a tangible asset and eminently convertible form of wealth, art has been adopted as a hedge against inflation. As Salma Shaheem, Joint Venture Partner and Head of Middle Eastern Markets at The Fine Art Group put it, “Art is a real asset that enjoys a negative correlation with traditional assets, and therefore acts as a hedge against inflation. A valuable collection can start with as little as five or six very rare, museum quality pieces.”

Art Genesis For Fine Art Service Sector

Fine art is also stimulating the emergence of its own niche services sector with British firms well placed to capture a major share of its future growth. As a Deloitte’s Art & Finance Report (2016) put it, “We believe that in an increasingly competitive market place, client-centric services around passion assets, on the one hand, offer significant potential in building stronger bonds between the wealth management industry and their clients and, on the other hand, have a fiduciary responsibility to incorporate art and collectibles in their service offering as more and more wealth is allocated to passion assets.”

Enter The Gulf

While China get all the public love and affection, particularly from the great auction houses of Christies and Sotheby’s, the inflow of epic wealth into the Gulf over the past decade has produced a generation of western-educated high net worth individuals who increasingly see art and collectables as an engaging cultural interest, a means to signal their social standing and as a natural hedge. Both Christies and Sotheby’s have offices in Dubai, evidence of the Gulf’s growing attractiveness as a growth destination.

Views On 2017 – 2018

As Cairo, Baghdad, Beirut, and Damascus are consumed by internal strife, a new generation of outward-looking cities have emerged in the Gulf: Dubai, Doha and Abu Dhabi are assuming the predecessor’s mantle of cultural ambassadors. To this rising generation, art is international and extends well beyond traditional Islamic art, or politics and conflict as inspiration, fuelling interest in western as well as regional artists.

Enter Art Dubai

Art Dubai is an international art fair with roots in the Middle East, Africa, and South Asia. It is the pre-eminent art festival in the Gulf. The eleventh edition of Art Dubai took place in March 2017 in Dubai, United Arab Emirates. In 2017, more than 90 galleries representing 44 countries participated in the festival, with 75 percent of them repeat exhibitors.

Conclusion

British investors interested in exploring art as part of their portfolio strategy have enjoyed solid returns in the run up to 2016. After some market turbulence, recent London sales indicate the international fine art market is rebounding. Growing demand for significant paintings and works of art fuelled by private collectors and the creation of major new art galleries in the Gulf offers British investors access to a market with potential for both international auctions and as an export market for art-related expertise.

 


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Investment

Brexit fears, a threatened boycott of British produce post-Brexit over GM contamination fears by the EU, price spikes, supply issues and the usual litany of floods and extreme weather are making life interesting for British food companies.

Whether primary producers or food processors and manufacturers, food has been in the news lately. The emergence of a black market in lettuce brought on by poor growing conditions across the Mediterranean, media campaigns highlighting shrinking pack sizes (thank you Toblerone) and price spikes have put British food companies under pressure to explore other avenues for growth.

One of the more notable is the Gulf with its growing population and seemingly bottomless appetite for both investment and partnerships. The Middle East market for packaged Food and Beverages is tipped to reach US$2.2 trillion by 2020. In KPMG’s latest ‘Hungry For More?’ report, Anuraj Bajpai Partner and Head of Retail in the Lower Gulf describes the latest drivers of F&B success in the Gulf, “Innovation, whether in terms of menu enhancements or new ways of understanding consumer preferences is a differentiator. The wide array of formats, concepts and cuisines offered in the UAE mirrors its varied demographics.”

With long-term market indicators remaining positive, Bajpai is keen to point out the region is not without challenges. ”Operators need to understand and predict customer behaviour – which can be challenging.”

Showcasing the Very Best of British

British companies attending Gulfood 2017 in Dubai are anticipating a bumper year, with a weak pound driving food exports to the region. Sterling is hovering around $1.24, having slipped from a high of $1.49 prior to the UK’s decision to leave the European Union. This currency move has translated into a significant advantage for meat and dairy exporters. Premium lamb, traditionally one of Britain’s most expensive meats, is enjoying renewed popularity in the region.

Nasco, a British wholesale of brands including Weetabix, John West tuna and Ribena is expecting its best show in five years, “Our business in January has already shown a 30-40 per cent pick up on last year,” said Ashish Vidani, a Nasco Director.

Birmingham’s Food State International is expanding its product range including its new London Flavours crisps and snacks range. “Our business in this region is growing, it has been really successful for us. The value of the pound is helping, but it’s a dynamic market which constantly demands new product,” commented Lisa Burrows, Project & Marketing Manager.

Gulfood is the world’s biggest annual food and hospitality show, connecting exporters with buyers and distributor from the Middle East, Africa and South Asia. In 2017, Gulfoood spans more than 1 million square feet of exhibition space for 5,000 international exhibitors, including more than 1,000 new-to-show food and beverage producers.

So what?

British investors with a direct or indirect investment in the food and beverage sector have enjoyed sound returns in the past few years. Sustained demand coupled with the release of new products, packaging and retail displays have offset some of the market volatility. However, with the traditional European export market under pressure due in part to the uncertainty associated with the May Government’s Brexit strategy, British domestic growth is under a cloud. For investors, this is cause for anxiety. In a post-Europe environment companies that do not have an effective international growth strategy in place are likely to struggle. The Gulf holds out the prospect of continuing to be a bright spot on the world’s growth map.

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