Surging oil prices are likely to come under scrutiny at the World Economic Forum in Davos this week as politicians and business leaders gather at the Swiss ski resort to discuss the fallout of a commodities boom.
An increase in crude prices has led to progressively more upbeat outlooks for GCC economies in recent months. For consumer countries, however, the surge could pose risks for the sustainability of economic expansion, say economists.
"It's a concern for oil consumers," said Dr Giyas Gokkent, the chief economist for National Bank of Abu Dhabi. "And from a producer's point of view you've got to strike a balance as you don't want to kill the goose that laid the golden egg."
Prices of European Brent have sailed close to US$100 a barrel recently, prompting some analysts to raise their forecasts for the year ahead. Brent crude on London's ICE Futures exchange rose to $98.11 yesterday.
Participants at forum's annual meeting, which opens tomorrow, will be keen to discuss the commodity's future prospects.
Big names such as Khalid al Falih, the president and chief executive of Saudi Aramco, and energy ministers from the Gulf will be among regional oil players rubbing shoulders with officials from the principal consuming nations such as China.
Oil's price rise comes against a backdrop of rising price pressures in other commodities such as food.
Unlike oil, increases in basic staples have economic concerns for the Gulf, a region that imports about 85 per cent of its requirements. Global food prices rose to a record high last month, the latest data from the UN Food and Agriculture Organisation shows.
Recent floods in producers such as Australia, Brazil and India have already contributed to pushing up prices for consumers in UAE shops, traders say.
People across much of the Arab world from Tunisia to Yemen have also taken to the streets to protest against soaring food bills.
"Food price inflation and food security is a growing concern for the region because of structural price pressure from China," said Jarmo Kotilaine, the chief economist of NCB in Saudi Arabia.
Globally, a focus of the 2,500 people attending the five-day event in Davos are likely to be on a gradual shifting of the balance of power from the developed world to emerging markets. Nimble economies such as China, India and Brazil are outflanking a more sluggish US and Europe.
Talk may surround how to build a financial architecture better at reflecting a changing global economy. France and India have both proposed reforming the international monetary system.
Debate over the US dollar's status as a reserve currency intensified after a year of volatility in currencies. Any change would have implications for the GCC, with five of the six regional states linking their currencies to the dollar.
"Discussions will be about the role of the US and China," said John Sfakianakis, the chief economist of Banque Saudi Fransi. "But the dollar is here to stay as the currency reserve; there are no viable alternatives."
Sovereign debt problems in Greece dominated the headlines during Davos last year. This year Portugal is likely to be the focus of worries about the EU. But despite continuing woes in the euro zone, some economists anticipate a more optimistic feel to meetings in the mountain resort this year.
"Attendants will be keen to move away from the crisis conditions and introspection of the last two years and be more expansive about the opportunities that lie ahead," said Tim Fox, the chief economist of Emirates NBD.
tarnold@thenational.ae
The Great Derangement: Climate Change and the Unthinkable
Amitav Ghosh, University of Chicago Press
The smuggler
Eldarir had arrived at JFK in January 2020 with three suitcases, containing goods he valued at $300, when he was directed to a search area.
Officers found 41 gold artefacts among the bags, including amulets from a funerary set which prepared the deceased for the afterlife.
Also found was a cartouche of a Ptolemaic king on a relief that was originally part of a royal building or temple.
The largest single group of items found in Eldarir’s cases were 400 shabtis, or figurines.
Khouli conviction
Khouli smuggled items into the US by making false declarations to customs about the country of origin and value of the items.
According to Immigration and Customs Enforcement, he provided “false provenances which stated that [two] Egyptian antiquities were part of a collection assembled by Khouli's father in Israel in the 1960s” when in fact “Khouli acquired the Egyptian antiquities from other dealers”.
He was sentenced to one year of probation, six months of home confinement and 200 hours of community service in 2012 after admitting buying and smuggling Egyptian antiquities, including coffins, funerary boats and limestone figures.
For sale
A number of other items said to come from the collection of Ezeldeen Taha Eldarir are currently or recently for sale.
Their provenance is described in near identical terms as the British Museum shabti: bought from Salahaddin Sirmali, "authenticated and appraised" by Hossen Rashed, then imported to the US in 1948.
- An Egyptian Mummy mask dating from 700BC-30BC, is on offer for £11,807 ($15,275) online by a seller in Mexico
- A coffin lid dating back to 664BC-332BC was offered for sale by a Colorado-based art dealer, with a starting price of $65,000
- A shabti that was on sale through a Chicago-based coin dealer, dating from 1567BC-1085BC, is up for $1,950
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
COMPANY PROFILE
Name: Qyubic
Started: October 2023
Founder: Namrata Raina
Based: Dubai
Sector: E-commerce
Current number of staff: 10
Investment stage: Pre-seed
Initial investment: Undisclosed
If you go
The flights
Emirates and Etihad fly direct to Nairobi, with fares starting from Dh1,695. The resort can be reached from Nairobi via a 35-minute flight from Wilson Airport or Jomo Kenyatta International Airport, or by road, which takes at least three hours.
The rooms
Rooms at Fairmont Mount Kenya range from Dh1,870 per night for a deluxe room to Dh11,000 per night for the William Holden Cottage.
THE SPECS
Engine: 1.5-litre
Transmission: 6-speed automatic
Power: 110 horsepower
Torque: 147Nm
Price: From Dh59,700
On sale: now
Tenet
Director: Christopher Nolan
Stars: John David Washington, Robert Pattinson, Elizabeth Debicki, Dimple Kapadia, Michael Caine, Kenneth Branagh
Rating: 5/5
