Countries in the Gulf Cooperation Council (GCC) face a tricky situation. For years cheap imported labor from India, Bangladesh, Pakistan, and other countries has been providing a seemingly unlimited factor of production. That source, however, has recently realized its contribution to regional growth and has dared to ask for more compensation. Such claims have been supported by the government of the countries supplying labor to GCC countries as well.
Interestingly, some GCC countries have voluntarily engaged in practices to make immigrant labor more expensive in a bid to make the labor markets more competitive. Bahrain, for example, will be charging a visa fee and a per-head levy on foreign labor. GCC nationals like the lifestyle that they enjoy, which is mostly made possible by the work of migrant workers. What they don’t like is the competition it creates in the labor markets. Nationals are predominantly hired in artificial government positions and benefit from distribution of Petrodollars. This is while the private sector does not compete with the government to match salaries and instead hires immigrants for a fraction of the cost. The trick is to find the benefits that foreign labor brings and match them against the costs of unemployment (or employment in quazi positions) of local labor force.
Thursday, May 29, 2008
Tuesday, May 6, 2008
The Wealth Effect: The Gulf’s Difficulty in Spending its Vast Revenues
The geographic span to the south of the Persian Gulf and to the west of the Indian Ocean is flushed with economic activity. The region is home to several landmarks including man-made islands and record breaking sky scrapers. The rapid social and economic growth that has affected the Gulf has transformed a vast region from small tribal economies to global financial and business players. Abu Dhabi, the capitol of the United Arab Emirates, for example, lacked even a paved road before 1961. Now, it is a wealthy community, with control over major petroleum reserves and multi-national firms are present in every corner.
Despite the rapid growth, regional economies are facing a major hurdle: Absorbing the petro-dollars the accumulation of which is beginning to clog their arteries. The six nations of the Gulf Cooperation Council (GCC) earned $381 billion in 2007 from exports of oil and $26 billion from gas according to Institute of International Finance. If oil remains at $100 a barrel they will reap a windfall of $9 trillion by 2020 according to McKinsey Global Institute. This is when in 2007 the combined GDP of the GCC was $800 billion in 2007. To avoid overheating a large part of this windfall is stored in foreign assets. Some goes to central banks and sovereign wealth funds while some end up with wealthy families. It all added up to $1.8 trillion by the end of 2007, by Institute of International Finance’s estimates.
In the 1990s low oil prices left petroleum producing countries with small revenues and the level of spending was subsequently adjusted to match such low revenues. As the oil prices rose higher revenues outpaced their ability to spend. Recently, however, the GCC states’ ambitions have grown to catch up with their greater means. According to the Middle Eastern Economic Digest, members of GCC have begun projects worth $1.9 trillion in 2007, 43% more than a year ago. It is remarkable how these countries are beginning to spend on themselves.
Dubai has the tiniest oil reserves of all the UAE emirates but has been very aggressive and effective in spending its wealth widely and building an infrastructure that has transformed the small emirate into the most luxurious place in the region. Dubai has made a point of exhibiting its wealth and in the process, attracting businesses and capital from around the world. This is in part due to its long term reliance on its guests. It is now more than just a municipality with oil revenues. It’s both a destination and a business hub simultaneously.
Despite the rapid growth, regional economies are facing a major hurdle: Absorbing the petro-dollars the accumulation of which is beginning to clog their arteries. The six nations of the Gulf Cooperation Council (GCC) earned $381 billion in 2007 from exports of oil and $26 billion from gas according to Institute of International Finance. If oil remains at $100 a barrel they will reap a windfall of $9 trillion by 2020 according to McKinsey Global Institute. This is when in 2007 the combined GDP of the GCC was $800 billion in 2007. To avoid overheating a large part of this windfall is stored in foreign assets. Some goes to central banks and sovereign wealth funds while some end up with wealthy families. It all added up to $1.8 trillion by the end of 2007, by Institute of International Finance’s estimates.
In the 1990s low oil prices left petroleum producing countries with small revenues and the level of spending was subsequently adjusted to match such low revenues. As the oil prices rose higher revenues outpaced their ability to spend. Recently, however, the GCC states’ ambitions have grown to catch up with their greater means. According to the Middle Eastern Economic Digest, members of GCC have begun projects worth $1.9 trillion in 2007, 43% more than a year ago. It is remarkable how these countries are beginning to spend on themselves.
Dubai has the tiniest oil reserves of all the UAE emirates but has been very aggressive and effective in spending its wealth widely and building an infrastructure that has transformed the small emirate into the most luxurious place in the region. Dubai has made a point of exhibiting its wealth and in the process, attracting businesses and capital from around the world. This is in part due to its long term reliance on its guests. It is now more than just a municipality with oil revenues. It’s both a destination and a business hub simultaneously.
Saturday, April 26, 2008
Rumble in the Gulf
The Rich Economies in the Gulf are Experiencing their Fastest Growth in Decades
The rich economies of the Persian Gulf are experiencing their fastest growth in decades. Thanks to high oil prices and the growing demand in non-oil sectors, these economies have experienced growth rates of 5.5% to 6% in their gross domestic products since 2004 and 2008 in not expected to be any slower. Such high growth is by no means confined to Dubai or the UAE. It is vividly felt across all Gulf Cooperation Council (GCC) countries: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
In a symbol of the region’s upward reach, the Burj Dubai officially became the world’s tallest tower on February 5, 2008. “We have only seen the tip of the iceberg,” said Mr. Omar Bin Sulaiman, Governor of the Dubai International Financial Center. “There will be a bigger boom in the next 5 to 10 years, as people keep coming to the region from around the world,” he added.
In Dubai, the Dubai International Financial Center (DIFC) is home to 550 companies and is arguably the current center of financial activity in the region. During the current cycle of rising oil prices, the substantial windfall has not only been invested outside the region but also in the GCC countries. This is the main distinguishing factor between the current boon in the Persian Gulf region and previous ones. As a result the GCC countries have become a hub for regional business activity and a powerhouse for global financial and business deals. In Dubai, for example, the country’s tremendous success has had a spillover effect for the whole region. Due to the fundamental strength of the current boom in the Gulf region the current growth pattern is expected to continue well into 2009 and beyond.
The GCC represents more than half of all petroleum reserves of the Organization of Petroleum Exporting Countries (OPEC). Saudi Arabia, whose oil revenues are approaching $1 billion per day, is building refineries and petrochemical plants to get the most value our of every barrel of oil that is sold and to develop an infrastructure that can help expand oil production.
As for the future of the oil market, it is anticipated to remain tight partly due to the rising demand from rapidly growing economies of India and China. With today’s global economy and with the emergence of solid, strong, and rapidly growing economies in Asia, the strength of the GCC economies is poised for sustained and rapid growth in the coming years. The Middle Eastern economies are less susceptible to a slow down in the US, making their growth less vulnerable to the crisis in the US markets.
“Dubai is certainly a vibrant place that is growing exponentially and is already the base for many international institutions and support services. Bahrain is obviously marketing its new Marina Financial Center hard and has some interesting benefits as a center of excellence in the field of Shariah based investment,” said Ms. Imogen Dillon Hatcher, Managing Director of FTSE Europe, Middle East, and Africa.
“It is no secret that businesses are thriving to expand to the GCC countries. The obvious advantages of having a presence in the region bring a strong motivation for companies to establish an active presence there,” said Mr. Nima Montazeri, Managing Director at Floyd Associates. “Benefits of having activities in the GCC include access to a growing and healthy consumer market, proximity to the fastest growing and most prestigious financial market in the Middle East, and potential access to investment capital for both growth companies and investment houses around the world,” he added.
About Floyd Associates
Floyd Associates is a privately held consulting firm with expertise in corporate finance, business strategy, and mergers and acquisitions. Our expert team advises companies of various sizes on capital raising instruments, optimal capital structures, and formation of strategic alliances. Capitalizing on years of experience, the Company offers complete solutions customized to meet the specific needs of each of its clients. The Company intends to form long lasting relationships with its clients and to maximize shareholder value through optimization of capital structure and business planning. Solutions include equity financing, business expansion plans, global corporate finance solutions, and international trade strategies. To read more about Floyd Associates please visit http://www.floyd-associates.com/. If you have questions or comments, please contact us by email at info@floyd-associates.com or call us at: +1 (310) 300-0890.
The rich economies of the Persian Gulf are experiencing their fastest growth in decades. Thanks to high oil prices and the growing demand in non-oil sectors, these economies have experienced growth rates of 5.5% to 6% in their gross domestic products since 2004 and 2008 in not expected to be any slower. Such high growth is by no means confined to Dubai or the UAE. It is vividly felt across all Gulf Cooperation Council (GCC) countries: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
In a symbol of the region’s upward reach, the Burj Dubai officially became the world’s tallest tower on February 5, 2008. “We have only seen the tip of the iceberg,” said Mr. Omar Bin Sulaiman, Governor of the Dubai International Financial Center. “There will be a bigger boom in the next 5 to 10 years, as people keep coming to the region from around the world,” he added.
In Dubai, the Dubai International Financial Center (DIFC) is home to 550 companies and is arguably the current center of financial activity in the region. During the current cycle of rising oil prices, the substantial windfall has not only been invested outside the region but also in the GCC countries. This is the main distinguishing factor between the current boon in the Persian Gulf region and previous ones. As a result the GCC countries have become a hub for regional business activity and a powerhouse for global financial and business deals. In Dubai, for example, the country’s tremendous success has had a spillover effect for the whole region. Due to the fundamental strength of the current boom in the Gulf region the current growth pattern is expected to continue well into 2009 and beyond.
The GCC represents more than half of all petroleum reserves of the Organization of Petroleum Exporting Countries (OPEC). Saudi Arabia, whose oil revenues are approaching $1 billion per day, is building refineries and petrochemical plants to get the most value our of every barrel of oil that is sold and to develop an infrastructure that can help expand oil production.
As for the future of the oil market, it is anticipated to remain tight partly due to the rising demand from rapidly growing economies of India and China. With today’s global economy and with the emergence of solid, strong, and rapidly growing economies in Asia, the strength of the GCC economies is poised for sustained and rapid growth in the coming years. The Middle Eastern economies are less susceptible to a slow down in the US, making their growth less vulnerable to the crisis in the US markets.
“Dubai is certainly a vibrant place that is growing exponentially and is already the base for many international institutions and support services. Bahrain is obviously marketing its new Marina Financial Center hard and has some interesting benefits as a center of excellence in the field of Shariah based investment,” said Ms. Imogen Dillon Hatcher, Managing Director of FTSE Europe, Middle East, and Africa.
“It is no secret that businesses are thriving to expand to the GCC countries. The obvious advantages of having a presence in the region bring a strong motivation for companies to establish an active presence there,” said Mr. Nima Montazeri, Managing Director at Floyd Associates. “Benefits of having activities in the GCC include access to a growing and healthy consumer market, proximity to the fastest growing and most prestigious financial market in the Middle East, and potential access to investment capital for both growth companies and investment houses around the world,” he added.
About Floyd Associates
Floyd Associates is a privately held consulting firm with expertise in corporate finance, business strategy, and mergers and acquisitions. Our expert team advises companies of various sizes on capital raising instruments, optimal capital structures, and formation of strategic alliances. Capitalizing on years of experience, the Company offers complete solutions customized to meet the specific needs of each of its clients. The Company intends to form long lasting relationships with its clients and to maximize shareholder value through optimization of capital structure and business planning. Solutions include equity financing, business expansion plans, global corporate finance solutions, and international trade strategies. To read more about Floyd Associates please visit http://www.floyd-associates.com/. If you have questions or comments, please contact us by email at info@floyd-associates.com or call us at: +1 (310) 300-0890.
Saturday, March 29, 2008
Another Consequence of High Priced Oil: Large Sums of US Assets Purchased by Arab Gulf States Flush with Petroleum Dollars
In September 2007 in a complex set of transactions, Dubai proposed to acquire 19.9 percent of the NASDAQ, placing the Arab nation in an ownership position of a key US stock exchange. Earlier in the year through the state owned holding company for Dubai Financial Market (DFM) and Dubai International Financial Exchange (DIFX), Borse Dubai, the country announced a public all-cash offer to the shareholders of OMX AB, the Nordic Stock Exchange, headquartered in Stockholm Sweden.
This recent acquisitions of ownership in US and European entities by private and state-owned Middle Eastern entities are just part of the flood of oil wealth spilling from the region. Middle Eastern investments in the United States have been on the rise since mid 2006 and have been showing constant gains since the tense period following September 11, 2001. While some of these takeovers are triggering alarm, most famously the purchase by Dubai Ports World of a seaports management firm, others are evoking warm welcomes.
One of the most prominent figures behind the recent wave of expansions and acquisitions is the ruler of Dubai and the Prime Minister and Vice President of the United Arab Emirates, Sheikh Mohammed bin Rashid Al-Maktoum. A visionary and an entrepreneur, he has spent decades carefully shaping Dubai as a hub for trade and investments in the Middle East. Dubai has been transformed from a small city-state to one of the world's premier business center and tourist destination. Incentives like establishment of free trade zones have resulted in exponential growth of business activity in the Emirate.
It is noteworthy, however, that Dubai is only one of the states in the region with a success story. While Dubai owes most of its growth to Sheikh Mohammed's vision and not to a great extent to its oil wealth, other states in the region have great amounts of accumulated petroleum wealth. The rush of these petro dollars is creating enormous private and public wealth and reshaping regional businesses and society. A small portion of this wealth is being invested regionally but a great majority of it is being funneled back to the US in form of investments and joint ventures with Western entities.
Some notable acquisitions in 2006 include a $1 billion portfolio of 21,000 apartments in the US Sun Belt cities; a 2.2 percent stake in the automotive giant DaimlerChrysler AG; and a Manhattan landmark building. In March of 2006, we witnessed news of another Dubai acquisition of plants in Georgia and Connecticut that make precision components used in engines for military aircraft and tanks that drew scrutiny from the Bush administration because of national security risks.
As recently as July of 2007, Dubai International Capital, the private equity firm of Sheikh Mohammed announced plans to open an office in the United States as it seeks to add American companies to its European-focused portfolio. Speaking to the New York Times, Dubai International's CEO, Sameer al-Ansari, said, “it is very important for us to find and execute deals in the US, as we're trying to create a diversified portfolio.” Dubai International has acquired minority stakes this year in European Aeronautic Defense and Space, the parent company of Airbus; HSBC Holdings; and the Icici Bank of India. Five Fortune 500 companies are on a short list for possible investments and about 15 are on a close watch list, Mr. Ansari added.
Not all of such acquisition proposals are dealt with skepticism. The disclosure, several months ago, that Dubai Investment Group had acquired the Essex House hotel in Manhattan and promised to spend $50 million into renovating it, prompted New York City Mayor, Michael Bloomberg to exult: “Another iconic hotel overlooking Central Park will be preserved and its unionized workforce protected. This is excellent news for New York's tourism and hospitality.”
So what does all this mean for US businesses? Besides the obvious opportunities in raising capital through Middle Eastern funds, it is important to understand the forces behind the emerging interest in US businesses. Behind such transactions are two powerful forces. One, of course, is the high price of energy, which has left several oil-producing Arab countries swimming in cash. The other is the burgeoning U.S. trade deficit, $726 billion last year, which means that the United States needs foreign capital; a country that imports more than it exports must cover the gap with money from abroad.
Until now, investments in the United States from Europe and other parts of Asia have dwarfed those from the Middle East. But an increasing share of the foreign money required to fuel the U.S. economy is likely to come from places that, like Dubai, trigger visceral reactions among Americans seared by memories of the Sept. 11 attacks.
"The price of oil is going only one way, up, for the next five years, because it is going to take at least that long for alternatives to kick in," said Youssef M. Ibrahim, managing director of the Strategic Energy Investment Group, a consulting firm based in Dubai. "So there is no question in my mind that billions of dollars will continue flowing this way, and people cannot handle all of that kind of money here. You've got to circulate the money, and the United States is still the biggest market."
Already, the list of U.S. businesses owned by Arab investors, not just from Dubai, includes some well-known names. Among them are Caribou Coffee Co., the fast-growing rival to Starbucks Corp.; Church's Chicken, a fast-food concern; Loehmann's, a specialty retailer; TLC Health Care Services Inc., a provider of home nursing and hospice care; and even several financial publications, including the American Banker.
Such "direct" investment in hard assets (companies, factories and real estate) is generally preferable for the U.S. economy, in the view of most economists, to foreign investment in bonds, stocks and other financial assets. One advantage of direct investments is that they cannot be dumped in a panic the way that a Treasury bond can. Moreover, they often involve high-wage jobs. Average annual compensation per worker at U.S. subsidiaries of foreign companies is about $60,500, 34 percent higher than the rate at all U.S. companies, according to the Organization for International Investment.
Author: Nima Montazeri
Managing Director
Floyd Associates
This recent acquisitions of ownership in US and European entities by private and state-owned Middle Eastern entities are just part of the flood of oil wealth spilling from the region. Middle Eastern investments in the United States have been on the rise since mid 2006 and have been showing constant gains since the tense period following September 11, 2001. While some of these takeovers are triggering alarm, most famously the purchase by Dubai Ports World of a seaports management firm, others are evoking warm welcomes.
One of the most prominent figures behind the recent wave of expansions and acquisitions is the ruler of Dubai and the Prime Minister and Vice President of the United Arab Emirates, Sheikh Mohammed bin Rashid Al-Maktoum. A visionary and an entrepreneur, he has spent decades carefully shaping Dubai as a hub for trade and investments in the Middle East. Dubai has been transformed from a small city-state to one of the world's premier business center and tourist destination. Incentives like establishment of free trade zones have resulted in exponential growth of business activity in the Emirate.
It is noteworthy, however, that Dubai is only one of the states in the region with a success story. While Dubai owes most of its growth to Sheikh Mohammed's vision and not to a great extent to its oil wealth, other states in the region have great amounts of accumulated petroleum wealth. The rush of these petro dollars is creating enormous private and public wealth and reshaping regional businesses and society. A small portion of this wealth is being invested regionally but a great majority of it is being funneled back to the US in form of investments and joint ventures with Western entities.
Some notable acquisitions in 2006 include a $1 billion portfolio of 21,000 apartments in the US Sun Belt cities; a 2.2 percent stake in the automotive giant DaimlerChrysler AG; and a Manhattan landmark building. In March of 2006, we witnessed news of another Dubai acquisition of plants in Georgia and Connecticut that make precision components used in engines for military aircraft and tanks that drew scrutiny from the Bush administration because of national security risks.
As recently as July of 2007, Dubai International Capital, the private equity firm of Sheikh Mohammed announced plans to open an office in the United States as it seeks to add American companies to its European-focused portfolio. Speaking to the New York Times, Dubai International's CEO, Sameer al-Ansari, said, “it is very important for us to find and execute deals in the US, as we're trying to create a diversified portfolio.” Dubai International has acquired minority stakes this year in European Aeronautic Defense and Space, the parent company of Airbus; HSBC Holdings; and the Icici Bank of India. Five Fortune 500 companies are on a short list for possible investments and about 15 are on a close watch list, Mr. Ansari added.
Not all of such acquisition proposals are dealt with skepticism. The disclosure, several months ago, that Dubai Investment Group had acquired the Essex House hotel in Manhattan and promised to spend $50 million into renovating it, prompted New York City Mayor, Michael Bloomberg to exult: “Another iconic hotel overlooking Central Park will be preserved and its unionized workforce protected. This is excellent news for New York's tourism and hospitality.”
So what does all this mean for US businesses? Besides the obvious opportunities in raising capital through Middle Eastern funds, it is important to understand the forces behind the emerging interest in US businesses. Behind such transactions are two powerful forces. One, of course, is the high price of energy, which has left several oil-producing Arab countries swimming in cash. The other is the burgeoning U.S. trade deficit, $726 billion last year, which means that the United States needs foreign capital; a country that imports more than it exports must cover the gap with money from abroad.
Until now, investments in the United States from Europe and other parts of Asia have dwarfed those from the Middle East. But an increasing share of the foreign money required to fuel the U.S. economy is likely to come from places that, like Dubai, trigger visceral reactions among Americans seared by memories of the Sept. 11 attacks.
"The price of oil is going only one way, up, for the next five years, because it is going to take at least that long for alternatives to kick in," said Youssef M. Ibrahim, managing director of the Strategic Energy Investment Group, a consulting firm based in Dubai. "So there is no question in my mind that billions of dollars will continue flowing this way, and people cannot handle all of that kind of money here. You've got to circulate the money, and the United States is still the biggest market."
Already, the list of U.S. businesses owned by Arab investors, not just from Dubai, includes some well-known names. Among them are Caribou Coffee Co., the fast-growing rival to Starbucks Corp.; Church's Chicken, a fast-food concern; Loehmann's, a specialty retailer; TLC Health Care Services Inc., a provider of home nursing and hospice care; and even several financial publications, including the American Banker.
Such "direct" investment in hard assets (companies, factories and real estate) is generally preferable for the U.S. economy, in the view of most economists, to foreign investment in bonds, stocks and other financial assets. One advantage of direct investments is that they cannot be dumped in a panic the way that a Treasury bond can. Moreover, they often involve high-wage jobs. Average annual compensation per worker at U.S. subsidiaries of foreign companies is about $60,500, 34 percent higher than the rate at all U.S. companies, according to the Organization for International Investment.
Author: Nima Montazeri
Managing Director
Floyd Associates
Friday, February 9, 2007
PIPE Market in 2006
According to Sagient Research, 2006 was a record year in the PIPE market with 1,326 transactions totalling $28.14 billion in equity and equity-linked capital raised.
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