1 septembre 2009
Source: LatinFinance [LATF]
© 2009 Euromoney Institutional Investor PLC
by Karim Shariff*
Ghislain de Castelbajac, a French transnational living in Dubai, married to an Indian American with a son aptly named Vasco, understands the new globalization. In the dusty Gulf, Castelbajac is a known trailblazer. He now represents Fanalca – a large family conglomerate based in Colombia, active in the automotive industry, solid waste management, and urban mass transportation – finding strategic partners in the Gulf.
In March, Qatar and Cuba launched a $75 million project to create a five-star resort on the Caribbean island, which receives about 2.3 million tourists a year. The gas-rich Gulf state is set to become the first Arab country to invest in Cuba’s booming tourism sector.
Qatari Diar, established in December 2004 to support Qatar, has more than 80 projects worldwide worth a total of about $60 billion, but intends to make Cuba one of its principal areas of activity. “We want to send the clear message to the world that Qatar is at Cuba’s side,” booms Ghanim bin Saad Al Saad, CEO of Qatari Diar, which coordinates the country’s real estate development priorities and is a unit of the Qatar Investment Authority (QIA), which managed some $58 billion at the end of 2008, according to the Council on Foreign Relations.
The oil-rich Gulf states – Saudi Arabia, the United Arab Emirates, Kuwait, Bahrain, Oman and Qatar – recognized for geological serendipity, will attract increasing attention over the next few years. They are generating wealth at levels not seen since the 1980s, and have more than tripled GDP since 2002. Although the 2007 boom was driven by high oil prices, the region is no longer solely dependent on crude, but decisively diversifying.
Research by Capgemini and Merrill Lynch suggests that Arab investable assets could reach $3.4 trillion by 2012, from $1.7 trillion in 2007. PricewaterhouseCoopers estimates that financial wealth in the Gulf Cooperation Council may reach $4.5 trillion in 2010, with about 40% attributed to individuals and corporates.
Meanwhile, the financial crash of 2008 is a major setback for the West, unleashing a brutal recession in the US, Europe, and Japan. The breakdown in the global financial system and resulting weaknesses will accelerate trends that are shifting the world’s center of gravity. The US will have neither the resources nor the credibility to play same the role in global affairs.
The boom in South-South relations is not simply a difference in terms of trade and investment among emerging markets, but it also involves a major cognitive shift.
The combined economy of some 34 countries in South America as well as the Arab region is worth approximately $5 trillion, which represented 8% of the world economy last year. There are up to 20 million Arabs and descendants of Arabs living in Latin America, most of them in South America. In Brazil alone, there are an estimated 10 million, about eight million Lebanese, more than in Lebanon itself.
Brazil is also benefitting from upgrades, commodities and a re-rating of corporate debt. And Brazil now has a direct connection to the Arab world by sea – 130 years after King Pedro II made the journey to the Gulf. By eliminating the need for transshipment in European or Mediterranean ports, the new route will save one week’s worth of travel time and 20% in freight cost.
Brazil has seen trade with Arab countries zoom from $8 billion US dollars in 2004 to $20.2 billion in 2008. But this appears low considering their vast human and natural resources.
Brazilian companies have also aggressively entered the Arab landscape, via partnerships, industrial or commercial plants, and even through franchises. Cases such as Sadia and Perdigão are already well documented. There are also a great number of Brazilian companies in sectors like construction, such as
Odebrecht and Andrade Gutierrez.
Odebrecht is planning to capitalize on its knowledge of airport construction and establish a strong foothold in the Gulf. It has teamed up with local contractor Al Jaber Grinaker to win a bid for the new runway at Abu Dhabi International Airport – part of a package worth up to $270 million.
Elsewhere, Queiroz Galvão this year closed four contracts with the government of Libya, for a total of approximately $500 million. In general, these projects are in the area of infrastructure and urban planning.
It is difficult to know exactly how much Arab capital is currently invested in Brazil, as official figures disclose only funds coming directly from the region, with no intermediaries. But there is increasing flow.
In 2008, Saudi company HiTs Telecom announced, as part of its pan-emerging markets strategy, the purchase, for $62 million, of 49% of the capital of Unicel, which is licensed to operate mobile telephony services in metropolitan São Paulo. In the beginning of the year, a foreign fund with Arab capital bought one of the towers at real estate enterprise Ventura Corporate Towers, in Rio de Janeiro, for $422 million.
Another Saudi company, Amiantit, has been present in Brazil for longer. In 2002, it purchased Amitech, a maker of large-diameter pipes and connections based in the interior of the state of São Paulo. Last year, the company sold its majority stake in the company to Colombia’s Inversiones Mundial, but maintained a 30% share.
In the wake of last year’s food crisis several Gulf countries announced plans to invest in overseas land in an attempt to export the produce back to their home market to ensure food security. Saudi Arabia is at the forefront of such plans and recently announced a $800 million company to support private-sector investment in overseas farms. Brazil has 14% of the world’s freshwater resources, the most of any country and as a geography is being
promoted by agricultural funds including AgriFarma.
Overseas acquisitions are increasingly part of global corporate strategies rather than mere portfolio investments.
DP World, which is backed by the sovereign wealth fund of the emirate of Dubai, revealed in October 2007 that it will commit some $250 million in a joint venture with the Cuban government to transform Mariel, about 30 miles to the west of Havana, into a world-class transshipment center. The flow of Arab capital into an undervalued but strategic asset like Mariel could transform Cuba once again into a major entrepôt at the crossroads of the global
Families, particularly within emerging markets, have complex wealth profiles and participants. They have multiple – often conflicting – goals and constraints and their portfolios have several different kinds of assets, all of which need to be considered simultaneously. In place of the standard assumption that all decisions are rational, we subscribe to the growing view that more work has to be done understanding how people make decisions,
reconciling the standard efficient markets hypothesis with behavioral alternatives.
Regional investors have an increasing need for customized solutions that combine a pragmatic understanding of liabilities with an asset allocation framework incorporating risk and liquidity concerns. Moreover, there is a misalignment of interest and a lack of comfort between investors and the Western financial intermediaries who serve them. The excessive commercialization of the global financial product platforms has left a noticeable
service gap. Mistrust and mutual misunderstanding persist.
The financial crisis reinforces our view that sustainable inter-emerging market regional development will be a primary driver of economic and industrial change over the next 25 years. Even beyond the bailouts and recent volatility, the challenges of the climate crisis, water scarcity, income disparity, security, extreme poverty and disease, particularly within the emerging regional markets, command our urgent attention.
Regional public and private investors are engaged in increasingly active portfolio management and disintermediation and their investment strategies can have a significant impact on both Western and other emerging economies. Proof of that is the rising number of Arab organizations registered at Brazil’s Securities and Exchange Commission (CVM), so as to inject funds into the local market. Only one registration was made in 2001, and then two years passed by without new entries. In 2004, there were three new registrations, then five more in 2005, another five in 2006, with a peak of 12 in 2007.
The recent highly correlated fall in equity prices and oil prices potentially remind us of the need to hold assets that retain value during a global economic contraction. Both public and private sector participants want to acquire diverse assets and revenue streams, along with the underlying technology and expertise that ought to allow a transition to something more sustainable and vibrant. Building deeper and more sophisticated capital markets is,
of course, one part of the larger equation.
Although LatAm’s thirst for capital, Asia’s requirement for natural resources and the Middle East’s need for stable food supply make the three regions complementary economic blocs, opportunities go beyond this.
Brazil’s president Lula has legitimately seized the “South-South” mantle, reminding a Saudi audience in May that the mere possession of wealth is no guarantee of its preservation, let alone growth over generations. He boldly suggests that if instead of putting monetary reserves into US Treasuries, countries like Brazil and Saudi Arabia should build factories across their own geographies, invest in science and technology, universities and food
Of course, the question for any prudent investor, however, is “How long will liberalization and graduation from emergence take?” A century later, about two-fifths of all the markets that were previously classified as “emerging” remain so. In a region where Hugo Chávez is the longest serving president and his own attachment to Iran palpable, linear projections of growth and emergence are subject to the nonlinear vicissitudes and realties of politics and culture. LF
* Karim Shariff is the managing partner of Majlis Partners, a Dubai-based wealth management firm.