Interview with Arab investors in Davos – Jay Yarow/Business Insider
At the World Economic Forum in Davos, we interviewed an Egypt-based Arab billionaire investor.
This is the second year in a row we spoke with this investor.
Last year, the investor agreed to answer our questions, but only if we redacted his name and only referred to him as an “Arab” investor and billionaire. We went with the same set up this year so we could get the most honest outlook on what’s happening in the Middle East.
With Russia dropping bombs in Syria, ISIS attacking around the planet, and Iran about to open to the outside world, it was a good opportunity to get a sense of what’s really happening in his part of the world.
Below is a full transcript. Here are some of the most interesting nuggets from our talk:
- ISIS has “signed its death warrant.” The world was OK with ISIS causing problems in Iraq and Syria, but now it’s exporting its issues to the rest of the world and he thinks the rest of the world will come down hard on ISIS.
- The Middle East today is where Europe was 300 years ago. There’s still blood in the streets.
- The area can change, it just needs some stability so businesses will invest and help grow the region.
- He is in favor of Russia bombing ISIS and intervening in Syria. He thinks the US has been weak in Syria.
- Why did the US not go after ISIS’s oil sooner, he wonders. Does it have something to do with Turkey?
- Dictators like Assad and Saddam Hussein aren’t the worst thing in the world. Sure, they kill their people, but they provide stability and that allows people gradually improve their lives, which has a better outcome long-term.
- The Iran deal is a good thing for the region overall. Economic growth will help people in Iran.
- He thinks Saudi Arabia is in trouble, and that’s why it’s talking about IPOing its oil company.
- He thinks Obama will be remembered as a good president.
- He is not impressed by the current group of people running for president in the US.
Here’s the full interview:
Business Insider: What’s the number one thing you’re watching right now?
Anonymous Arab Investor: Our part of the world has many challenges.
The first thing is, you have to watch what the Fed does, because that has the number one determinant of whether money flows to emerging markets or outside of emerging markets. So anybody who is half aware should see what the Fed is doing, and should, as a proxy to that, see how the jobs number that comes every month from the Office of Labor Statistics [is]. So that’s the direction of interest rates for the year is something that is quite important.
Second thing: Obviously what’s happening in China, because that has a huge implication on commodity prices, including oil, so: China.
The third thing in my view that people should start watching is the credit quality, especially as far as companies operating in certain sectors like upstream oil, like commodities extraction, etc, and in some countries which have suffered from a big devaluation, because that can be the transmission mechanism to a larger problem. You can have a transmission mechanism whereby the banking sector starts to suffer from the quality of credits in certain industries, especially that the magnitude of the move was quite fast. There wasn’t enough [of a] period for people to adjust and hence I can easily foresee a number of defaults and then sovereign debts, obviously, of certain countries, that are commodity-based, which will start to suffer.
So those are the global things that people, in my view, should watch.
Beyond that, in our part of the world, obviously oil prices again have a bearing, the rise of Daesh and ISIS and all the stuff that surrounds that, and the third thing is now, beyond that, is what’s happening in our part of the world in general, so —
Business Insider: One thing that’s obviously weighing on everybody’s mind is the situation in Syria with Russia, with the US. What’s the endgame there? Where do you see that going?
Anonymous Arab Investor: I think Daesh has more or less signed its death warrant, for a very simple reason: The world wants out of the Middle East. Provided, nobody explored [the impact of] that problem to the rest of the world. Once you have an immigration crisis, and then Paris and San Bernardino — that’s a different ballgame. People will mobilize and the attention will move from the South Pacific back to the Middle East — at least part of the attention will move back from the South Pacific to the Middle East to make sure that there is no export of problems from the Middle East to Europe and the rest of the world.
So, as far as I’m concerned, it’s good for people like me because — it’s not good for the world to forget the Middle East, because at a certain point in time, it was: “As long as you don’t export your problems to us, do whatever you want to do in your part of the world — we don’t care,” and that was a problem because the more moderate elements and the more enlightened elements were going to lose out to [he trails off, but ostensibly referring to extremist segments].
At this point of time, our part of the world is where you were 300 years back. We want to emerge from that with the separation of church and state, to a more inclusive — If you look at where you were — not the States, but Europe 300 years back, it was blood in the streets, or 400 years, there was blood in the streets in the name of God and in the name of.
Business Insider: Can the region get to that, though?
Anonymous Arab Investor: Yeah, absolutely.
Business Insider: What will that take?
Anonymous Arab Investor: It will take development, for one, because the solution to this is to provide jobs for people — economic opportunity is the name of the game. People will, the saliency of religion, in my view, is going to be, in a certain — as you move with economic progress, I think, and as — you need to encourage how you want to imagine that we don’t need to spell 400 years of bloodletting before we reach that. Today, with the internet, with communications, with that, there is probably a faster track to reach that before the beheading and the blood in the street type.
Business Insider: What can you do in that region to get to the economic security and stability for folks when you still have it being a war zone essentially? How do you get to that point?
Anonymous Arab Investor: You continue to push, push, push, push, push, and continue to invest, invest, invest.
Business Insider: But nobody would invest today in Syria, right? Or in Iraq. Would you invest in that?
Anonymous Arab Investor: Today? Well, we have a cement plant. We have all the land, the quarries, the licenses for a cement plant, and I’m not going to put a penny in today — that’s crazy. That’s beyond the risk appetite of any rational — half-rational investor.
Business Insider: How do we get to the point where you would be willing to invest?
Anonymous Arab Investor: You need to have stability. The problem is that the word stability has a different meaning for a lot of folks. In this part of the world, you have a mosaic of a lot of people and you need, for a certain period of time, people like Saddam Hussein and Bashar al-Assad, unfortunately — but that is that.
You need people who do not think about the world in sectarian terms. Saddam Hussein, at the end of the day — he was a brutal dictator, and he was an assassin, okay? But at least his prism did not include — you know, Shia and Sunni — did not include Christian — the best times for Christian were under Saddam Hussein. Meet any Iraqi Christian and he will tell you: “I’ll tell you, I long for Saddam Hussein.” An assassin, a dictator, okay? So don’t get me wrong. But for a period a time you need people in that mold who do not think in broad, sectarian — or actually nano-sectarian terms — so, Shia, Ahsan, Druze, Alevi, et cetera, et cetera …
Business Insider: So is there anyone in the region, then, right now, that you see is doing that? Or is just all, mixed?
Anonymous Arab Investor: I met recently one of the big, big, big development banks. There was a lot of criticism for our president. But at the end, I told him, you should put a small statue for our president in your country — he comes from Europe. He looks at me, he said, “why?” I told him because instead of 300,000 Syrians, you would have had 15,000,000 Egyptians — OK, and we’re much better rowers.
Business Insider: What do you think of the Iran Deal that the US is pushing through? What’s your view on that?
Business Insider: I think it’s a good thing, in my view. This is not a view that is shared within our part of the world. But my view is that it’s a good thing. We need to integrate Iran into the world economy. But this is, again: I am a very, very small minority in our country and even a smaller minority in our region.
Business Insider: Is it just that people are scared of Iran getting more power?
Anonymous Arab Investor: Yeah, power, nuclear ambition, sectarian violence moving into Iraq and Syria, because they have ambitions, so they are trying, obviously, to have more influence in Iraq and Syria by virtue of sectarian, by virtue of Shia. If they play their cards half right, I think they will emerge as an important economic power in this part of the world.
Business Insider: Why is that? What will drive it? What will do that for them?
Anonymous Arab Investor: I said if they are half intelligent.
Business Insider: But is it that they will have money to invest in their people, will it be technology? Oil?
Anonymous Arab Investor: Absolutely, Iran is a huge country. Is has lots of wealth, it has an educated workforce. It’s not a country that you can ignore. If there are pillars within this region, certainly Iran is one of them. I may not like, necessarily, their stance vis-a-vis religion. I think they are too religious — The government is religious and that’s very dangerous, so that’s something that always needs to be guarded against. Religion is in the domain of people, you know not in the domain of governments. Separation of church and state, or mosque and state in this case, is a very important.
Business Insider: I reread the interview from a year ago. A year ago, I don’t think anyone saw oil going to where it’s at now, which is $30. What is that doing to the region? What is that doing to the area?
Anonymous Arab Investor: Ah, here we have to separate. Egypt benefits tremendously because Egypt imports roughly 30 million tons of petroleum products. That used to cost Egypt $25 billion last year, or two years back. Today it costs Egypt somewhere in the neighborhood of $6 billion. So a big $19 billion swing in the balance toward Egypt is huge. Obviously Saudi, Qatar, the UAE, suffer as a result of higher budget deficits and lower receipts for all that oil, but even within the region you have to segregate a bit between Saudi and the UAE. UAE has the highest global reserves per capita. The numbers belie — you have to look beyond the numbers. UAE has 1.4 billion of reserves, but you have to remember they are only 3 million or, I don’t know exactly the number, but not very different from that. [Editor’s note: UAE’s population is roughly 5.8 million]. Saudi has 500 billion but they are 30 million people in population. So on a per capita basis, UAE is much, much, much better cushioned to absorb any dollar swing.
Business Insider: So what happens in Saudi Arabia right now? It seems like there’s a lot going on there.
Anonymous Arab Investor: They’re suffering, but you have to remember that government in general, the US included, any government, they only move in response to crisis. Everybody knows now that the US has a big problem in Medicare and Medicaid and Social Security. Nobody has any illusion that those three have huge problems. And yet nobody’s necessarily doing anything to address those issues. At a certain point in time, their back will be so much against the wall that people will start reforming, and you’re falling into the debate of: Is it taxes or entitlement, and everybody has a view on that, but that’s a separate thing. So governments in the region and many parts of Africa are starting very intense reform programs.
If you look at the UAE, they have lifted all petroleum-product subsidies. Saudi have increased their petroleum-product prices. They moved it up 70%, including electricity, et cetera. So there is a reform program — structural-adjustment program — throughout the region, and that, I think, has gone unnoticed. Those reforms are going to yield results over a certain period of time. But the amount of reforms that exist throughout the region, on the back of a crisis, is mind-boggling. Those things were unthinkable — for the crown prince of Saudi to come say, “I will float Aramco,” that’s something that was —
Business Insider: Why are they doing that?
Anonymous Arab Investor: They need the money? They need the investments.
Business Insider: Just because the oil price is down and —
Anonymous Arab Investor: You tell me, but my first reaction is: They want to monetize — not now, they don’t need the money now, but down the line … And maybe they are also convinced of the efficiency consideration that will come with that. And I personally believe that.
Business Insider: It doesn’t seem in the big picture like it would be a lot of money for an IPO for them, no matter what — even if they raised $20, $30, $40 billion off an IPO—
Anonymous Arab Investor: Even if they raise $3 or $4 billion, it’s not only the — it is the direction. It’s not necessarily the amount of money that you will be able to raise. It is the signal that you send, and look at what President Sisi said yesterday, regarding floating two banks — two publicly owned banks.
Business Insider: The signal is?
Anonymous Arab Investor: The signal is: There are certain reforms that we have to go through and those reforms are structural, monetary, or fiscal — the three together. And the best results are accrued when you have the three types of reform coming together.
So, in other words, the Middle East, short-term, will suffer [because of low oil prices]. For obvious reasons, geopolitical issues, budget-deficit issues, balance-of-payment issues, social issues, et cetera. But you have to look at the direction of reforms. It’s a very positive direction.
Business Insider: The reforms are kind of to put you on an even footing with the way the global economy works and operates?
Anonymous Arab Investor: Absolutely. I think, more or less now, and over the last five years and over the next maybe five years, a certain set of global ways of doing business has started to emerge. That includes more transparency, that includes less production, that includes women’s rights and religious rights. That includes a variety of factors that people look at in assessing a business environment.
Business Insider: What is your take on Russia and its involvement in the region, kind of moving in and trying to bomb in Syria and attack the rebels there? What do you feel about that?
Anonymous Arab Investor: I think it’s a welcome development.
Business Insider: Really?
Anonymous Arab Investor: The US, over the last three years, was being ineffective — I don’t know whether on purpose or because of clouds — what is the percentage of bombing raids that came out without delivering bombs, do you know?
Business Insider: No, I don’t know.
Anonymous Arab Investor: Please check this number. I think the number is about 60%. And you wonder whether this is paying lip service to fighting Daesh or whether they were serious about it. But today, with the Russians, certainly they are going ahead and hitting those guys.
Business Insider: Now, everyone was saying — the reports in the US, anyway, were that Russia was bombing Syrian rebels but not actually going after ISIS. Is that wrong?
Anonymous Arab Investor: I’m sure that both parties were — you can’t get away by not doing ISIS. Maybe there are collateral things that you do on purpose for the rebel. And I’m sure also that the US was bombing Daesh but also bombing the Syrian army.
Business Insider: What I saw was that the US was bombing ISIS more than any other country. But maybe I need to recheck that.
Anonymous Arab Investor: That’s another — I don’t know about the Russians. It’s interesting. And you would wonder about the Turks and what they were doing. And why is it that the US was not going after the oil installations earlier in the campaign, and who was benefiting from this decision, and where is Daesh funded, etc. There are a lot of questions that were not answered.
Business Insider: What is the answer to them?
Anonymous Arab Investor: I don’t know. You wonder whether the Turks were benefiting.
Business Insider: From the oil?
Anonymous Arab Investor: One has to wonder. It’s a question mark in my mind.
Business Insider: And then Turkey shot down the Russian plane.
Anonymous Arab Investor: Yeah.
Business Insider: What do you think of that? Crazy?
Anonymous Arab Investor: Even the US was not — people need to … [He just smiles and shrugs.]
Business Insider: [Laughter] What would be your assessment of the Obama administration?
Anonymous Arab Investor: I am positive on Obama. I think when history is said and done, I think people will look at him as a good president. Let’s remember how he inherited the US. Let’s remember November when he took office, what was the state of the US economy? It was a disaster, it was in shambles. Now, the largest growth — the largest work employment generation over a certain period of time. The US is in the strongest economy at this point in time in the world.
On social issues, he tried to move into a more responsible role. But again my view of the world is different than many people [who] would dispute what I’m saying tremendously. But let’s wait on the judgment of President Obama maybe. I may disagree what he did as far as politics is concerned, but as far as the US is concerned, I think he will come down in history as a very reasonable president.
Business Insider: What is the view from your region of a Donald Trump, of the current state of the race?
Anonymous Arab Investor: [After a long pause] The US is left with very bad choices.
If you look at all four choice potentials, I’m not very convinced that any would be able to do the job. Either Trump, which would become the mother of all disasters. Ted Cruz would become a problem. And both on the Democratic side, I think, are unconvincing.
One: It’s very difficult for me to imagine a socialist — a self-processed socialist, although he says a social democrat which people truncate and say socialist — I understand the difference.
And Hillary: I don’t know. Probably the best choice — if I was a US citizen, I would probably vote for Hillary, but unconvincingly. It’s not a positive vote, but it’s the lesser of four evils.
Business Insider: You’ve been here for two days now. The feeling, the mood that you’re picking up? The mood seems to be surprising optimism despite the market?
Anonymous Arab Investor: I did not see surprising optimism. There is a worry about the global economy slowing down further.
The quantitative easing — there is a law of diminishing returns from quantitative easing. You can’t go on printing money the way you are expanding the balance sheet of the Federal Reserve and expanding the balance sheet of the ECB and expanding — there is a limit.
Soon, you have negative interest rates. In Europe, many of the long-dated sovereign debts have negative interest rates. So: Germany, France, etc. With negative interest rates, you’re not able to encourage growth, so — what is the 10-year yield on the treasuries now — 2%? 2.2, 2.5? 2.02, 2.05? Something like that.
It’s a very benign environment, and in spite of that, the world is not growing, so that tells you that there is a limit to what quantitative easing is doing. I’m not sure that the world is going to be able to grow at the 3.4% that the IMF is projecting, I can’t see that.
Business Insider: From my perspective, I talked to a CEO of an enterprise company — he’s more US centric — he said, looking in the US, all the companies he talked to, they were all very bullish, all saw lots of opportunity and growth, but then they saw the stock market go sideways and it’s confusing. Is it that just that the US is OK and the rest of the world is bad? Is that the story?
Anonymous Arab Investor: So the US is certainly doing much better than the rest of the world and probably it has to do with the very aggressive cleaning up of financial institutions that took place very early in the game, as opposed to Europe, which is meddling through a period or has meddled through a longer period for the banking sector.
But I don’t know — even within the States there are certain parts that are going to become a drag on the economy, especially oil. Oil and commodities. You have a lot of oil companies and those oil companies are going to cause — they are startling people, I’m sure, heavy oil is gone.