It’s earnings season, and the Chinese banks are reporting.
In its 1H09 release today, China Construction Bank said it plans to earn more revenues from overseas lending. By coincidence, a colleague sent me a separate report today saying much the same thing. IFR, a popular financial magazine, writes that Chinese banks have started to fund some large Gulf projects, stepping in to fill the gap left by other foreign banks. The report notes that while only four deals have been signed so far this year, their average size is large.
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Saudi billionaire Prince Al Waleed is the emerging world’s Warren Buffet. He’s as comfortable investing in the United Bank of Africa as he is investing in Citibank. So, it was worth taking notice when the Turkish daily, Sabah, reported last week that Al Waleed intends to invest up to $5 billion in Turkey.
He isn’t the first. Arab investors have poured over $6 billion into Turkey during the past five years. Only European investors have outspent them dollar for dollar.
I can see the attraction. Turkey has a similar sized population to Egypt, the region’s other giant. But it’s twice as wealthy. The country’s annual output is worth $13,000 per person. In Egypt, it’s a far lower $6,000. Turkey also has road, rail, and air links to Europe. All of this makes for a compelling sales pitch.
I see four major changes as a result as a result of this type of intra-East investment.
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Land is the new oil, just ask Saudi Arabia.
O.K., Saudi Arabia has plenty of land, but it isn’t easy growing wheat and rice on largely rocky desert. So, the country has to import a large share of the food it consumes, and that’s a problem when the price of food soars.
Saudi Arabia has responded by buying wheat fields and banana plantations in places like Sudan, Pakistan, and Indonesia, and using it to grow food for dinner tables in Riyadh, Jeddah, and Dhahran. In short, it’s using its oil exports to buy food imports.
It isn’t alone. In fact, the Silk Road countries rank among the world’s largest buyers of foreign farmland.
A recent report by Grain, a non-profit organization, highlights this point: the report cites 13 countries as large buyers of foreign farmland―12 of the 13 are Silk Road countries, including, China, Egypt, Jordan, Kuwait, Qatar, and Saudi Arabia.
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I was eating breakfast in a Doha hotel last month. The restaurant was split in two by a series of white bed sheets strung from the roof. I sat on one side. About 80 Filipino men sat on the other. An instructor was lecturing them on worksite safety using an ageing overhead projector. I felt for them. It was a Sunday. The air was also stifling inside the restaurant and the men were struggling to stay awake.
The Philippines is a long way from the ‘old’ Silk Road. But it’s an integral part of the ‘new’ Silk Road. Its army of English-speaking workers is found all over the region from Hong Kong to Lebanon. Indeed, there are over 2.2 million Filipino workers in the Middle East alone. It’s a mind bending statistic. It means that more than 1 in 50 Filipinos live in a Middle East country.
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I imagine that the drop in oil prices is keeping Gulf rulers occupied. The last time oil prices fell so steeply was shortly after the Asian crisis in 1998. Oil prices fell to $10 a barrel at the time. It cost just $15 to fill up the average mid-sized car versus $55 today.
But a lot has changed in the past decade. In 1998, Gulf rulers were fixated by just oil prices. Today, they are equally fixated by stock prices. Why? The Gulf countries have over a $1,000 billion dollars invested in foreign assets. The returns are an increasingly important source of income.
Kuwait’s experience illustrates the point. I estimate its oil exports will be worth around $80 billion this year. This is roughly equivalent to $257,000 per Kuwait household. It’s not a bad annual income.
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