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The Real 'New Middle East'
Source:
Washington Post -
By Afshin Molavi
Last month, as images of war and carnage in Lebanon filled Arab
airwaves, more than 10 million Saudis joined together for a common
goal. A massive political protest? No. A petition calling for an end
to the fighting? Not that either. A boycott of American goods? No.
So, what did 10 million Saudis -- more than half the adult
population -- do? They bought stock.
For 10 days Saudis rushed
feverishly for a piece of the kingdom's most ambitious development
project ever: a $27 billion city that will create a seaport, an
industrial district, a financial center, an education and
health-care zone, resorts, and a residential area. The kingdom is no
stranger to massive infrastructure projects, but there's an
interesting twist here: The government won't be financing this one;
that task will be up to wealthy Saudi investors, public share
offerings and a high-flying Dubai-based property company.
The company, Emaar Properties, the most widely traded stock in
the United Arab Emirates, also happens to be the richest real estate
development firm in the world, with a market capitalization near $25
billion. It's also one of the most ambitious. On Aug. 1, as war
raged, the company bought a major British real estate firm. The next
day it announced an expansion into Algeria. It's building nearly 100
shopping malls in India, and retail and residential properties from
Casablanca to Karachi to Kuala Lumpur. Oh, and it's also
constructing what will be the tallest tower in the world, known as
the Burj Dubai.
It goes on. As the headlines screamed crisis, the business pages
told another story. The transport company Aramex, the first Arab
firm to go public on the Nasdaq Stock Market, announced a 73 percent
rise in second-quarter earnings. Bahrain-based Gulf Finance House, a
leading Islamic finance bank with global investments, announced an
87 percent increase in second-quarter profit. The billionaire Saudi
businessman Prince Alwaleed bin Talal, who owns nearly 10 percent of
Citigroup, publicly criticized management, sending tremors through
the company. And the Middle East construction boom -- mostly
centered in the oil-rich Arab states of the Persian Gulf --
surpassed the $1 trillion mark.
When Secretary of State Condoleezza Rice said that the Lebanon
war was a sign of the "birth pangs of a new Middle East," she was
both dramatically wrong and partially right. A "new Middle East" is
indeed being born, but it has little to do with Lebanon or President
Bush's democracy agenda. The "new Middle East" is forming in the
boardrooms of new and innovative businesses, in assertive private
sectors demanding reform, in booming equity markets, cash-rich
banks, state-owned investment houses and individual investors with
global outlooks, and in a new generation of entrepreneurs and
businessmen (and women) creating real companies with real underlying
values.
The folks at the Carlyle Group see this. Last week, as "Middle
East crisis" graphics flickered on our TV screens, they announced a
$1.3 billion fund for investment in the region. In the past, Carlyle
principally saw the Middle East as a source of funds for investments
elsewhere. This time it sees the Middle East as an investment
target.
Carlyle is not alone. The big investment banks -- Morgan Stanley,
Goldman Sachs and Lehman Brothers -- are increasing their presence
in the region, and Western private equity and hedge fund money is
circling.
Of course record oil prices have helped. The Institute of
International Finance reports that gross domestic product in the
Gulf Cooperation Council countries -- Saudi Arabia, Oman, Qatar,
Kuwait, the United Arab Emirates and Bahrain -- has grown 75 percent
over the past three years, making the GCC zone the 16th-largest
economy in the world. Those nations will earn half a trillion
dollars this year, mostly from oil and gas exports.
GCC businesses, banks and state entities are aggressively
investing across Asia. Dubai's government announced some $2
billion of investments in Pakistan. GCC investments targeted
at China and India are proliferating. Malaysia and Indonesia
are trendy investment spots, and investors also are pouring
money into projects in Jordan and Egypt and North Africa.
This brings up a new twist in the "new Middle East." The old
civilizational centers -- Persia (today's Iran), Mesopotamia
(today's Iraq), the Maghreb, Syria and Egypt -- are falling
behind the more nimble and business-minded places such as
Dubai, Qatar, Abu Dhabi, Bahrain and Oman.
That's why Egypt's economic reforms matter so much. A GCC
boom coupled with cross-border investments certainly helps
the region grow. But a thriving Egyptian economy would be a
huge boost in the Middle East. The International Monetary
Fund predicts a healthy 5.2 percent growth rate in 2006 for
Egypt. The government's economic "dream team" is winning
plaudits from the local private sector. A wave of Egyptian
business tigers is forming. A new mortgage finance law bodes
well for the future: By making homes more affordable, it
could serve as the catalyst for reviving Egypt's
long-suffering middle class.
And strong middle classes are the linchpin of sustainable
democracies.
All of this raises a fundamental question: Are we witnessing
simply a new way for elites to make more money or a lasting shift
toward the kind of economic growth that will lift all boats? That's
the real question U.S. policymakers ought to be grappling with, and
it's the real "birth pangs" we need to be watching closely.
The writer is a fellow at the New America Foundation.
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