A perspective on the Middle East

A perspective on the Middle East

For those who do not know the Middle East it can seem a violent and confusing place with daily news reports on problems in Syria, Egypt, Libya, the Arab-Israeli conflict and looming behind it all the spectre of a nuclear-armed Iran. For those who do know it well, it can seem even more confusing, as a letter to Financial Times from Mr KN Al-Sabah of London on 26 August 2013 explains:

Sir, Iran is backing Assad. Gulf states are against Assad! Assad is against Muslim Brotherhood. Muslim Brotherhood and Obama are against General Sisi. But Gulf States are pro Sisi! Which means they are against Muslim Brotherhood! Iran is pro Hamas, but Hamas is backing Muslim Brotherhood! Obama is backing Muslim Brotherhood, yet Hamas is against the US! Gulf states are pro US. But Turkey is with Gulf states against Assad; yet Turkey is pro Muslim Brotherhood against General Sisi. And General Sisi is being backed by the Gulf states! Welcome to the Middle East and have a nice day.

The Middle East is generally characterised by the media in terms of conflict: Arab vs Israel; Sunni vs Shia; Persia vs Arabia; Western-backed dictators vs the Muslim Brotherhood; and so the list goes on. This is not only confusing but can be misleading as well.

For as anyone who has lived in the Middle East can attest, reality of life on the ground – unless you are in the middle of a conflict zone – is very different from the picture painted by the newspapers. Thanks largely to the massive and continuing influx of petrodollars into the oil rich states of Saudi Arabia and the Gulf, the Middle East has undergone as radical and dramatic a change in two generations as Europe went through in two centuries, though the economic boom is heavily focused on the oil producing states whereas energy importers such as Egypt, Jordan, Syria, Lebanon have very differently structured economies.

Huge modern cities such as Riyadh, Dubai and Abu Dhabi have sprung up in the desert where Bedouin tribesmen pitched their tents as they followed their camels or junk traders and pearl fishers eked a living. Populations have increased threefold, and the average age in many countries is around 15. Huge Arab owned and run businesses in oil services, construction, hospitality, retail and banking have been created, as well as many of the world’s largest sovereign wealth funds, many owning very substantial asset portfolios in the West as well as locally.

Although there are active local stock exchanges in Egypt, Saudi Arabia, Kuwait, UAE, Jordan and elsewhere, many if not most Arab businesses are privately – and family – owned. Indeed, you could say that the hereditary kingdoms and sheikhdoms of Saudi Arabia, UAE, Qatar, Kuwait and Bahrain are family owned countries – by the Al-Sauds, Al Nahyans, Al Thanis, Al Sabahs and Al-Khalifahs respectively. One of the largest such businesses is Kingdom Holding Company, owned and chaired by Prince Al-Waleed bin Talal, a nephew of King Abdullah of Saudi Arabia. Kingdom Holding has a multi-billion dollar portfolio that would make it one of the world’s most valuable companies in its own right, including large stakes in Citigroup, Apple, Twitter, Four Seasons and it is presently building Jeddah Tower in Jeddah, which will be the largest building in the world on completion at over one mile high.

While it is dangerous to generalise, most Middle Eastern businesses share certain characteristics. They are family owned, with all of the complexity that entails. Succession issues are rife as businesses are broken up and divided or passed down to children from sometimes multiple wives. Middle Eastern businesses are heavily focused on trading and physical assets, which reflects the Arabs’ transition from a trading people to a property owning class, with a strong preference for buildings, real estate, physical businesses and even gold over paper securities. There is an old saying that Arabs like to be able to see what they are buying, and with three major stock market crashes in the last twenty five years this has generally proved to be a wise investment strategy.

Some Arab business owners are also guided by Sharia principles, in which usury or the charging of interest (effectively making money out of money) is haram, or forbidden, as is investing in activities connected with forbidden activities such as alcohol and pornography. However, lease payments are permitted, as is trading, hence a preference for real estate and import-export. Construction and retail in the Middle East offer rich opportunities as the growing population needs housing, cars and household goods. Dealerships of all kinds but especially automobile dealerships can be very lucrative in the Middle East and often comprise the cornerstone of what has since become a diverse business empire.

Certain gulf states have taken a lead in sponsorship and promotion of new ventures. Dubai is a world leading city for new architecture and has also pioneered the concept of zoning the city into different areas of activity – financial, technological, education, sporting. Qatar, with its immense new gas wealth, is now the largest patron of the arts in the world, regularly outbidding established collectors to stock its new museums in Doha and also sponsors an outspoken Arab press, hosting the news network Al Jazeera.

And all this wealth needs management, which has spawned a multitude of advisors from silver tongued Lebanese brokers to smooth Swiss private bankers. More far sighted Arabs have long seen the need to diversify their assets in order to protect future generations from political risk within the region and the potential problem of what happens when the oil runs out. Arabs have been investing in prime Central London property since the 1970s and this trend has intensified in recent years. All the concomitant issues of tax, jurisdiction, visas and estate planning go with this, and the need for a really thorough and holistic approach to family office management is paramount.

Edmund Limerick, member of  the Advisory Board

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