Gulf leaders avoid the World Economic Forum in Davos
Posted on 28 January 2010 with 1 comment from readers
In recent years Gulf business leaders have been prominent participants at the World Economic Forum in Davos, Switzerland. Not so this year, with the honorable exception of a big delegation from Bahrain.
Until the financial crisis smashed the oil boom in autumn 2008 the Gulf countries were frequently added to the BRICs – Brazil, Russia, China and India – as the motors of future global growth. That optimism has now cooled and Russia is also often dropped off this list.
Oil price crash
Indeed, the downturn in hydrocarbon prices hit both Russia and part of the Gulf very hard. Not that oil and gas prices are that low today. It is the voracious borrowing that accompanied the boom in Russia and the GCC that now weighs on these economies.
It is therefore not surprising that delegations from these countries are keeping a low profile, or not attending Davos at all. Why remind the many creditors in the audience of your existence when it is best if they forget about your troubles?
However, those gathered in Davos to be told that the future lies with China, India and Brazil ought to reflect a little further. Did not the appearance of sheikhs a couple of years ago signal that the oil boom was almost over?
You put your trust in emerging market at your peril. They are great investments when they are down on their luck. Post-1998 Asia comes to mind. But by the time business leaders are appearing on stage in Davos the game is likely almost up.
Emerging problems
China, for instance, had to spend the equivalent of half its GDP in the first half of 2009 to sustain its economic growth record. Private sector borrowing in India is also off the scale. Have people forgotten the legendary default record of South America?
It will be no surprise to the readers of ArabianMoney that we think this is where the next shoe will drop in the fall-out from the global financial crisis. This is the investment theme of yesterday, not the way to make money today, although when these markets have crashed again of course they might be a very good place to invest. We see China as the sell of the year, not a buy (see this article).
Actually, Gulf stock and real estate markets look far closer to attractive investment valuations than Brazil, China and India – a theme that this website will continue to pursue.
1 Comment posted by readers:
I’m amused whenever I hear that the BRICs are going to soon transform into paradise. Here are my guesses.
The population of Russia is decreasing. It would be a poverty stricken country without oil and gas export revenue. Alcoholism and drug use are rampant. Corruption is everywhere. They have to import foreigners to build skyscrapers in Moscow!
China is a repressive, one-party, totalitarian state which is running out of water in the northern part of the country. Half of China is some kind of near wasteland. It is desert, or you need oxygen to breathe. The eastern half is overcrowded. The local governments are corrupt. Oil will soon be a major problem since they don’t have much. Air pollution actually burns your throat. In 20 years the cancer rate will probably explode. By 2050, they will have the fastest aging population on Earth, because of the one child policy.
India can’t even get everyone to speak ths same language and has extensive poverty. They can’t keep the power on. Population growth is still too high for the land area.
Brazil has greatest potential to improve the living standards of its people, with vast natural resources, few climate problems, a huge size, a perpetual growing season, a lot of new oil discoveries, tremendous hydropower potential, unlimited fresh water, and no neighbors that can ever threaten them due to their size and population, so they don’t need to waste a lot on their military. This should be the Brazilian century, at last.
Peak oil cost will cripple China before most people can escape from poverty, prevent India from developing much beyond where they are now, keep the Russians from having to work too hard, and not impact Brazil. In 2100, the Brazilians SHOULD be living a lot better than the others. Politics is their greatest potential problem. And that can be a very big problem.
I hope that I’m wrong, and that affordable nuclear fusion is perfected (You can do a lot with nearly free, unlimited energy.) and everyone on the entire planet gets rich with second homes on Mars. Of course, a lot of money will be made within the BRICs, at least until the peal oil price crisis hits. I doubt that even the gifted Davos crowd, will be able to handle that problem. Can natural gas fill the fuel gap?