Posts Tagged Saudi Arabia
Wharton ethics and law experts say that in an effort to try and avoid the ire of Saudi censors, IKEA missed the bigger picture of how such a move would be perceived elsewhere in the world. Steps taken to clearly state company values and consult local culture could have avoided the reputational blow it received.
“Perhaps the company’s most striking failure wasn’t its lack of moral courage, but its stupidity in having fallen into the tangle in the first place,” says Tom Donaldson, director of the Zicklin Center for Research in Business Ethics at Wharton. “The mores in the Saudi state are notoriously conservative, as IKEA must know. Armed with deeper cultural knowledge and better foresight, IKEA could have either put the pictures of women into the catalog and readied a strong defense, or designed a different catalogue.”
Still, these factors don’t excuse IKEA’s deletion of women from its catalogue, says Ann Elizabeth Mayer, associate professor of legal studies and business ethics.
“Some people may claim that IKEA should not be criticized, because it was only seeking to respect Saudi Arabia’s strict social mores. Or, they propose that IKEA was following a rational business strategy, customizing products being sent to a foreign country where it knew that moral and cultural values were not the same as in Western societies — and certainly not like those in Sweden.
Read the full analysis: http://knowledge.wharton.upenn.edu/arabic/article.cfm?articleid=2880
The American consumer might get some relief at the gas pump this summer. A sluggish U.S. economy, prolonged fears about the eurozone, and U.S. crude supplies reaching a 22-year high have all contributed to a downward trend for crude oil prices. Much of the pricing of oil in recent months has to do with geopolitical factors, says Aldo Flores-Quiroga, the recently elected secretary general of the Riyadh-based International Energy Forum. He speaks with Arabic Knowledge@Wharton about fears over oil prices and supply amid further sanctions on oil producer Iran, and the impact of continued outages at energy producers.
Read the full story here: http://bit.ly/J17Xv9
Booz & Company’s Joe Saddi: The Arab Spring Toppled Governments, but High Unemployment Remains the Region’s Biggest Concern
Now a year beyond the first flush of the Arab Spring movements throughout Northern Africa and other parts of the Middle East, the difficulties of economic uplift in the area are becoming apparent. In a way, the sudden successes of the uprisings, particularly in Tunisia, Egypt and Libya, mask the real long-term difficulties of laying the foundations for sustained economic viability for the region.
Joe Saddi, the chairman of Booz & Company, has long done business in the region and spoke about both the Arab Spring’s upsides and downsides at the first Wharton Middle East North Africa (MENA) business conference recently.
“I hear often the phrase, ‘The Arabs never miss an opportunity to miss an opportunity’,” said Saddi. “But now that the opportunity to have an economic success is there, we can no longer afford to do that.”
Read the full story here: http://bit.ly/H9VmIn
Despite Wealthy Appearances, the Middle East’s Oil and Gas Exporters Worry about the Future of Energy
One of the great lamentations of the Western world is that its economy is being held hostage to Middle Eastern oligarchies, that the nations of the Middle East and North Africa are becoming richer and richer from monies the United States and the rest of the developed world lay at their feet.
Yet at a recent panel at the first Wharton Middle East and North Africa Business Conference, experts who have spent years looking at the oil industry, often first hand from those oil countries themselves, painted a different picture. It is one of worry about the future of oil, and a move in many places toward not only different industries, but completely different kinds of energy production.
“The challenges in the Middle East transcend oil,” said Morten Klumb, a partner at McKinsey & Company, who has spent the last six years for the firm in the Middle East, often focusing on infrastructure and real estate, not solely the oil business. The World Bank, said Klumb, estimates that the region has to spend billions of dollars on infrastructure just to get up to speed.
Read the full story here: http://bit.ly/Hd8qtD
Bala Balachandran, the J. L. Kellogg Distinguished Professor of accounting and information management at the Kellogg School of Management at Northwestern University, wonders how the commercial development of shale gas will forever alter Gulf economies.
“Oil reserves here are good for only 40 more years,” Balachandran tells Arabic Knowledge@Wharton. “Shale gas reserves are something like 500 years. So if that becomes economically viable, the barrel of crude oil is going to go down to $US15 dollars in three years. Then what happens to the economy here? Is there an alternative strategic plan? This is something they have to think about.”
Balachandran acknowledges that Arab Gulf countries are still flush with cash, and are investing into alternative energy technology. But technology isn’t enough by itself, he notes, nor does being wealthy help innovation.
“When you’re affluent, you are not motivated to change,” he says. “When your survival is threatened, you’ll come forward.”
Read the full story here: http://bit.ly/zN2Clw
The Hormuz Strait is only 21 miles wide at its narrowest point. With shipping lanes only 2 miles wide to ferry a fifth of the world’s oil trade, it is a choke point in all senses of the word. If closed or blocked, attempts to reopen the strait would concern all of the world’s powers.
The obvious implications of any closure of the Hormuz Strait are stark. According to the U.S. Energy Information Administration, almost 17 million barrels of oil were transported daily through the Strait last year, representing nearly 20% of global oil trade. (Most Gulf oil exports now head to Asia.) A number of analysts predict prices for oil would jump 100%.
Closely neighboring Iran, most of the Arab Gulf countries would find themselves at risk and their economies under pressure. Instead of benefiting from a windfall from sudden increases in the price of oil, they would be dealing with increased security and logistical costs, a fleeing expatriate workforce, flight of investment capital and a squeeze on resource demands.
Read the story here: http://bit.ly/AmieD7
Stock markets in the Middle East have taken a financial beating because of Arab Spring protests this year. Since crowds flooded Cairo’s Tahrir Square, Egypt’s EGX 30 Index has lost almost 45% of its value; Saudi Arabia’s Tadawul All-Share Index has lost nearly 10%, while the Dubai Financial Market General Index has fell nearly 20%.
Arab exchanges were already weak because of the effects of the 2008 financial crisis, which exposed issues with sovereign debt in the Arab Gulf. Only two IPOs this year were listed in the exchanges of the Gulf Cooperation Council countries (Saudi Arabia, the United Arab Emirates, Qatar, Bahrain, Kuwait and Oman). Both were in Saudi Arabia, and generated US$219m, according to PwC Capital Markets Middle East.
But adding further injury, a much anticipated bid to upgrade the United Arab Emirates and Qatar to ‘Emerging Markets’ status by index compiler MSCI was thwarted again this past week. Currently both countries are part of MSCI’s Frontier Markets index; analysts say an upgrade would’ve channeled up to US$70 billion into Gulf markets.
MSCI has twice previously put off a decision about upgrading the status of both countries. It said it would look at the issue again in June, but noting that concerns remain about foreign ownership limits, market liquidity, securities lending, and limitations on short-selling.
It is expected that the UAE won’t be ready for another review in June, but it continues to push for reform on its exchanges. Last July, the Dubai exchange consolidated with Nasdaq Dubai, the region’s first exchange open to investors and issuers of any nationality. Investors hope for a merger now of Dubai’s exchange and that of Abu Dhabi, the UAE’s capital. Earlier this month, Standard & Poor’s announced it would launch an index comprised of the Arab world’s 40 blue chip companies, in a bid to open the market more to exchange-traded funds.
The World Bank is bearish on immediate prospects for the Middle East and North Africa (MENA) region, particularly hardest-hit Egypt, Tunisia and Libya. “Foreign direct investment flows [to the region] fell by 7% in 2010 and by another 16% in 2011,” notes a new report on world investment and political risk.
“Despite recent announcements of investment intentions in North Africa by other countries in MENA, short-term prospects are not promising. With Europe under economic strain and uncertainties surrounding the political environment of Egypt, Libya, and Tunisia, FDI into North Africa is likely to slump for longer and rebound more slowly than the rest of the MENA region.”
The report also notes that though some investors pulling out of the region or placing plans on hold, recovery should begin in 2013. “Despite the recent turmoil, the longer-term outlook for the region remains promising and companies do not view the present unrest as posing a long-term barrier to doing business in that region.”
Considering the effect the Arab Spring has had on protests around the globe, the World Bank report adds that as an offshoot, “the recent events in the MENA region have accentuated the risks of political violence and non-honoring of sovereign financial obligations — not only in that region, but also more broadly.”
Like most Gulf nations, the United Arab Emirates (UAE) has little agricultural resources, forcing it to import the majority of its food supply. The oil-rich country brings in roughly 80% of its supply; Dubai, its most famous Emirate, imported over 4 million tons of food in the first half of this year alone.
Its neighbors are similarly active buyers in the food market. In September, Iran became the biggest buyer of Brazilian beef for the first time in its history. Such dependence is projected to only rise with time. According to the World Bank, the Arab region’s need for food imports is expected to increase by almost 64% over the next 20 years.
As a result, these Gulf economies and the region as a whole have found themselves particularly vulnerable to rapid global food price increases. The United Nations reported in September that its world food price index climbed 19% from last year, a rise from 194 to 231 index points.
It has translated into higher costs at the grocery store across the region. In the UAE, a survey by Gulf research group YouGov Siraj of over 1,500 residents found that over a quarter of respondents had been paying more for meat and fresh vegetables in the past six months. A summer survey by Middle East job site Bayt.com reported that after housing, over 40% of respondents said their biggest monthly expense was grocery bills.
Even in Qatar, which the International Monetary Fund recently named the world’s richest country in terms of per capita wealth, there is local concern about the price of food going up – prompted partially by the Qatari government’s recent announcement that it would hike salaries for nationals working in the government sector by 60%.
The World Bank study notes the Middle East and North Africa consume 30% of the world’s wheat. Any rise in the cost of bread, cereal and rice falls hardest on the largely South Asian expatriates in the region’s laborer class, wherein a worker’s monthly wages often do not exceed US$200 a month.
In response, Gulf governments have taken two different actions. Some are applying economic controls, mandating grocery stores in their countries to freeze prices of certain foodstuffs. In the UAE, hundreds of goods are price fixed until the end of the year. A number of international food companies have questioned the measure, including Unilever and Kraft.
Additionally, some Gulf nations are buying foreign land for food production. The UAE, Saudi Arabia and Qatar have made investments or have purchased freehold farms across the world. According to a study by Washington, D.C.-based International Food Policy Research Institute, the UAE is behind only China and South Korea as one of the top purchasers of global farmland.
There is added incentive for Middle Eastern governments to ensure that food prices remain at a low cost. A number of academic reports suggest that rapid food price increases in the region had a role to play in the popular discontent that led to the Arab Spring — unrest that Gulf countries such as Saudi Arabia have allocated billions in social spending to prevent from happening within their own borders.
GDF Suez came to the Gulf region as its countries were just celebrating their independence. Now, it is the major electricity producer in the Gulf marketplace. Guy Richelle, GDF Suez Energy CEO and president for the Middle East, Asia, and Africa, spoke with Arabic Knowledge@Wharton in Oman to talk about his first experiences in the country, his company’s latest double project there, and doing business in the energy sector in the Gulf.
“There has been an evolution in doing business in the Gulf,” Richelle says. “Before, the local sponsor was inevitable. Then, free zones came up here and there. Now, the ownership share changes from one kind of project to another.”
There is new competition in the market from Asia, Richelle adds. “We work a lot with Korean companies. We were the first to work with them in this sector. The Chinese have begun to get into the market. They won a project in Salalah (Oman), and another in Rabigh (Saudi Arabia). But they need to prove themselves in this sector.”
Power demand has increased across the Gulf, Richelle notes. “In Saudi Arabia, during the next five years, this annual growth will be 8%. It is essentially as if a new power plant should be built every year. For the GCC, the current capacity is 75 gigawatts (GW) and the additional need will reach 60 GW by 2020.”
Read the story here: http://bit.ly/qaCx7J