A letter from the Middle East (April 2011) - Andrew White
Like so many across the Middle East, Sydney Fernandes hasn’t slept soundly in a good couple of months. A senior manager at Kuwait-based logistics giant Agility, the Indian was on constant call when violent unrest gripped Egypt, finally toppling its leader after three decades of dictatorship. Today he is first contact for Agility’s Tripoli office, shuttered by its 26 staff as they try to ride out the death rattle of another totalitarian regime.
‘We all fear for their safety, and we’ve heard hardly anything since the conflict began,’ Fernandes says. ‘E-mails have mostly been down, and communication has been very sporadic.
‘We’ve been pursuing humanitarian channels and talking to non-governmental organisations, but on our own all we can do is make sure our people stay at home. If the UN, the US and some of Libya’s neighbours have been unable to stop the violence, then what can one company do?’
Fernandes is as well placed as anyone to assess the toll taken on Middle East trade by the widespread bloodshed of 2011. Agility employs more than 8,000 staff across 14 different countries in the Middle East and Africa, and has offices in other trouble spots including Tunisia, Bahrain and Oman. And it has watched helplessly as a series of springtime revolutions have swept from the Mediterranean to the Red Sea and even the Arabian Gulf; violence erupting in countries that had been presumed politically stable.
When Tunisian dictator Al-Abidine Ben Ali was ousted in January, residents of the six-nation Gulf Cooperation Council (GCC) could never have anticipated that such scenes could be repeated on the streets of Riyadh, Dubai or Abu Dhabi. Since then, civilian deaths in Bahrain and Oman have stunned GCC nationals accustomed to the largely benevolent hereditary rule of oil-rich sheikhs. After security forces opened fire on protestors in the centre of Bahraini capital Manama, Pearl Square has became as symbolic to dissenters on the tiny island, as Tahrir Square is to Egyptians.
In North Africa, meanwhile, Fernandes highlights a significant difference between circumstances in Egypt, where the country’s military refused to intervene on Hosni Mubarak’s behalf, and Libya, where Colonel Muammar Gaddafi has unleashed the full fury of the army and air force on his own people. ‘In Egypt you had governance, a fully-fledged army, a parliament in place and a culture that could lead to a caretaker government,’ he notes. ‘While there was no succession plan, or at least no plan for succession outside the [Mubarak] family, Egypt had a hierarchy. ‘Libya is on a completely different level, it’s the complete opposite. The power is in one man’s hands and there are no ministers with any kind of power. It’s chaos.’
His fears are echoed by Agility’s share price, down almost 40 per cent in the first two months of the year, and while Fernandes naturally will have more pressing concerns than the stock ticker, this decline is illustrative of desperate times on regional bourses. Standard & Poor’s pan-Arab composite of 15 MENA stock indexes dropped more than nine per cent in the first two months of 2011. Moreover, the major losses weren’t limited solely to markets in countries that have seen violence on the streets. If the uprisings have proved contagious, they’re nothing compared to the speed with which peripheral stock markets have caught the bug.
Bourses in Tunis and Cairo have tumbled significantly, but the largest share market in the Middle East, the Saudi stock exchange, lost more than 16 per cent of its value in the first two months of the year. Dubai, which by end-2010 was looking as though it had recovered some of its poise after the Dubai World debacle, dropped almost 13 per cent in the same period. Kuwait, meanwhile, crashed almost ten per cent in January and February. These markets are paying the price for their own immaturity, as well as that of their investors. While established bourses in New York and London are dominated by international institutional players – the so- called ‘smart money’, which is traditionally traded on fundamentals – Middle East markets are home to an abundance of retail investors. The locals are driven more by sentiment than brass tacks, and the recent political instability has sent them running scared, selling as they go.
As a consequence, markets don’t appear to have recognised the return of high oil prices, which will bring significant revenues to oil producing countries and are likely to impact positively on their growing economies in the months and years ahead. According to Kate Dourian, Middle East Editor for Platts, the loss of production due to the current turmoil represents the ‘biggest shock to the system since the Iraqi invasion of Kuwait in 1990’; economists and policy-makers in the US and Europe have openly discussed the threat of US$200 oil.
But while they may be making money handover- iron-fist, the rulers of oil-rich Arab states aren’t celebrating just now. Alongside the prospect of US$200 oil comes the queasy possibility that they will be next to face the opprobrium of their people. ‘These are scary times for the oil producers,’ says Dourian. ‘Facebook “days of rage” are being called in Algeria, Yemen and Oman, and so you’ve got all kinds of energy-producing countries at risk. The loss of another producer would push the system to the limit.’
With this in mind, everyone’s eyes are trained firmly on Saudi, Iran and Algeria. The former has attempted to appease would-be rebels even before they take to the streets, with 86-year-old King Abdullah announcing a US$22bn benefits package for lower and middle income Saudis. In Tehran and Algiers, however, bloody recent protests suggest that the Rubicon has already been passed.
Back at Agility, Fernandes confirms that his company has contingency plans in place for Saudi and Oman, as well as other Arab states, should the popular uprisings spread further. While he won’t be drawn on details, he admits the company is braced for an indeterminate period of instability, and the financial implications that entails.
‘The unrest will be reflected in our February numbers, and there will certainly be an impact on our first quarter figures, as there will be with every company in the region,’ he admits. ‘We’re all just scratching our heads, as we try to work out what’s going to come next.’
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Andrew White is a freelance writer and former editor of Arabian Business magazine. He is based in Dubai and can be contacted at email@example.com
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