THIS ORIGINAL
POST WAS PUBLISHED OCTOBER 12, 2011
Arab Spring: is Investment Momentum Broken?
A lot of attention in news coverage is nowadays
dedicated to Arab
Spring. Googling gives
130,000,000 hits: among them Wikipedia page, The Guardian’sArab spring: an interactive timeline of Middle East
protests, and many others. In the contest of our business it is important to
understand – how do the current events affect investment climate, and in
particular – investments in mining sector? Generally speaking, besides specific
industry peculiarities, investments in mining follow the common rules of
investments.
Broken momentum, but mixed outlook – this exactly fitting term was applied to current
situation with investments in MENA region (Economic Commentary by Arab Petroleum
Investments Corporation Volume 6 No 9‐10, September‐October 2011).
The “wait and watch” approach is
characteristic for investors. And quite naturally, most of them envision
detailed studies of political risks and thorough due diligence of all projects
with key focus on macroeconomic risks.
In this content, the picture of MENA looks very complex.
Let’s look at the recent newswires:
What the population thinks:
·
Qatar: 92% economy is getting better
·
Morocco: 68% economy is getting better.
·
Tunisia: 50% economy is doing better; 20% doing worse and 27%
“staying the same.”
·
Egypt: 42% see conditions in their country “getting” better, versus 37% who said
it is “getting worse”
·
Syria: 34% economy getting worse ; 32% getting better
·
Yemen: 19% doing better
·
Iraq: 16% economy looks to be doing better
Top ranking H1 2011 M&A Deals:
·
As to volumes of
M&A deals: Jordan, UAE and Oman
·
AS to deals
value: Qatar, UAE, Kuwait
·
Sectors: banking, education and healthcare, construction
Factors like political stability and security of income are at the
forefront of investment decisions
·
Secure and
stable markets: Abu Dhabi, Dubai,
Qatar, and Saudi Arabia
·
Uncertain: Bahrain, Egypt, and Syria
Algeria, Bahrain, Iran, and Yemen are most at risk of
further unrest
FDI inflows into 21 Arab nations are forecast to fall
to $55.1 billion this year compared to $66.2 billion in 2010, the Kuwait-based
Arab Investment and Export Credit Guarantee Corp. said in a report. FDI inflows
into 21 Arab nations are forecast to fall to $55.1 billion this year compared
to $66.2 billion in 2010, the Kuwait-based Arab Investment and Export Credit
Guarantee Corp. said in a report.
Estimated cuts in FDI
·
Egypt – 92%,
·
Libya – 87%,
·
Syria – 65% ,
·
Bahrain – 35%
Increase – 7 countries; the biggest – Saudi Arabia and Iraq
The London-based EBRD launched plans in May to expand into the region,
after a wave of uprisings in the so-called Arab Spring, and wants to start investing in the area next year
The international community, especially the European Union, has pledged an aid package of hundreds of millions
of euros in support of the Arab Spring inTunisia, Egypt and Libya,
so as to help them continue on the path to democracy and rebuild their
economies.
The Financial Times notes that many international
companies have found themselves in a very delicate position as transitional
governments in Tunisia, Egypt and Libya review foreign investments with links
to former members of deposed corrupt and autocratic regimes.
MENA Venture Capital: “The private equity industry may be pausing to reflect
on these changes of 2011. However, it is a pause to see how to clutch on the
emerging opportunities whilst avoiding short-term risks,”
In June HSBC states: Regional political turmoil fails to dampen business
confidence and Global companies positive about future for business in
Middle East, reveals Grant
Thornton research
What about Private Equity?
“Most PE firms that
participated in the PwC/INSEAD survey, continue to believe that the MENA
region’s sound demographics and vast natural resources will spur economic
growth in the next five years. This positive sentiment is largely driven by the
growth propects of the Gulf countries, the economic engine of the wider region,
which has remained largely sheltered from the political turmoil.”
These is one of the points that is listed in just released by PwC/INSEAD,
Abu Dhabi report “The Next Five Years, MENA PE”
This screenshot form the report’s Contents Page gives a very clear picture:
A deep dejection feeling is overwhelming when we look on the report’s data
and graphs. However, let us look at some positive
signs:
·
GCC countries
remain largely unaffected by social unrest;
·
investments to resume soon,
·
fundraising efforts to continue.
And many survey participants offer some good advice:
·
Better wealth redistribution
·
Greater transparency
·
Less corrupt environment
And of course, the top diagram of this report is the following:
© INSEAD and PwC
Thus, making any decision to invest may be linked to the above mentioned
analytic.
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