Growth in the Middle East will be hard for companies in this decade. As the US recovers from its credit crisis, Europe is on the brink of its own problems. With those two topics dominating news headlines, Dubai’s debt problems haven’t been discussed as often as they should. Dubai is arguably the economic engine for Western growth in the Middle East. That economy’s powerhouse, Dubai World, is looking to restructure its debt and pay creditors 60 cents on the dollar, a 40% reduction in the $22 billion owed. I can recall a time when Dubai was seen as the center for global investment for the next century.
Whether or not it is classified as one, this financial collapse is a de facto bankruptcy. Perhaps the only thing that is delaying a formal filing is the continued pressure from the UAE government to delay a hasty decision by creditors seeking repayment. It’s not surprising that these events are unfolding now, halfway through the announced 6 month payment delay that Dubai World instituted. Investors are getting anxious that much of their capital is tied up in a company and in a country that hasn’t solidified plans for repayment. According to reports, neither the company nor the country has offered concrete restructuring plans for this debt.
With economic uncertainty in this friendly Middle Eastern economy and growing uncertainty of future prosperity in other Middle Eastern countries, Western investors struggle to find new opportunities. US Intelligence estimates that Iran has almost developed an atomic bomb. This report should convince even the most optimistic investors that the soundest investment strategy for the Middle East is via the US military-industrial complex.
I’m postulating that the anti-Western sentiments in parts of the Middle East come from a sense of geo-political inferiority. What else but recognition as a “big kid on the block” would cause President Mahmoud Ahmadinejad to announce that Iran is almost a nuclear power? Not to trivialize such a significant shift in world perception, but is a box of chocolates and a dozen roses all that it will take to prevent World War III? Middle Eastern nations need a significant win, a positive achievement worthy of global recognition. But for a bunch of dinosaurs dying there instead of here do we care to recognize Middle Eastern contributions to the global economy.
Western investors should be concerned about future investment in this region, rampant with uncertainty. I think this suggests that the strategy for future investment in the Middle East is the same as in the past: continued investment in energy. But, instead of focusing on building larger pipelines and developing new oil fields, focus on building renewable sources of energy. In a region dominated by sun and wind, leverage those resources. Use fewer of the limited fossil resources and focus on making them available for Western and Asian countries who continue to consume crude oil at alarming rates. Generating additional revenue by increasing exports and developing an industry focused on renewable energy. Middle Eastern countries can develop the practical knowledge on wind and solar power generation and quickly surpass the capabilities of Western and Asian companies.
Once Middle Eastern countries gain experience in the design and manufacture of sustainable energy, use the manufacturing capabilities developed for the oil industry to instead build wind turbines and solar panels. Use the shipping channels developed for oil to export this new generation of energy to Western and Asian countries that are slow to commit to renewable energy. The potential exists to further the expansion for these goods into northern Africa. The Green Economy is seen as distinctly American, but Dubai and the rest of the Middle East may recognize that reality sooner than we do.
