yin shui si yuan

The state is dead. Long live the state!

2006-12-06T19:37:00.000Z

William Lind comments that IEDs will be seen in the United States, calling it the 'boomerang effect'.

I disagree with him entirely. IEDs have long been made in the United States. Kids with copies of 'The Anarchists' Cookbook' (aka 'The Jolly Roger Cookbook') have made IEDs for years. According to Wikipedia, the kids who perpetrated the Columbine massacre built 99 IEDs of various shapes and sizes.

It's unlike Lind to succumb to millenarian sensationalism. Plus ça change, plus c'est la meme chose - the power of non-state actors is not new, but an atavism. The state's monopoly of force has always been tenuous - the totalitarian turn of the mid-20thC was the fruit of the convergence of nationalism and industrialisation. Now that we are reverting to tribal affiliations, the state is weakening once more.

Happy Jacques

2006-11-29T12:54:00.000Z

But they couldn't stop Jacques, 'or the waters lapping,
And they couldn't prevent Jacques from being happy.

(Apologies to The Who)

There is no god but beer?

2006-11-23T11:35:00.000Z

Yes, that is indeed a beer stein reading La ilaha ilAllah in graff-style text.

From Khalifa Klothing, a Hizb ut Tahrir-linked online shop run out of BC, Canada.

Dodgy dossier 2.0

2006-09-14T16:15:00.000Z

The IAEA has branded a report published by the US House Intelligence Committee "outrageous" and "dishonest". The US report appears to distort the IAEA's findings to imply that the Iranian nuclear programme is far more advanced than it actually is, according to the BBC's account of the IAEA's letter.

Here we go again...

the social construction of reality

2006-08-07T15:26:00.000Z

currently extant institutions depend on current legitimating arguments which re-parse history to build justification. those legitimating arguments shape our world-views. hence europeans, through the narrative of nationalism, forget that 1000/1500 years ago they looked like lebanon, just with swords and spears instead of bombs and guns.

implicit taxation

2006-07-11T10:30:00.000Z

This paper is interesting - basically the authors argue that China's system of channelling private money through state-run banks into public works is a more efficient form of taxation than income tax, given the disparities of income and the low level of banking participation amongst the poorest in the country.

It puts me very much in mind of the IPO frenzy in the Gulf. Raising money for government-controlled companies through IPOs may not have been the most efficient in terms of the transaction costs, but given the lack of democratic participation income taxes are politically untenable. Raising the cash through IPOs helped engender a sense of participation and accountability, and it's hard not to see that the social/political value of those feelings would outweigh the social/political costs of taxation (though the Dubayyi govt does play with the idea of VAT quite often).

Of course, that begs the question of what impact the stock market collapse has had on Gulfi politics. It would be nice to find the time to do a properly structured survey of investor sentiment and of political sentiment and see how that correlates, but it would be pretty hard to conduct the latter part. That might have to be reliant on analysis of press coverage and interpretation of the significance of elite political acts, which is always quite difficult to pull off robustly.

Unity and Division in Islamic Discourse

2006-06-23T11:38:00.000Z

Abdullah tells Saudis they must accept diversity By Khalid al-Dakhil

Khalid al-Dakhil's excellent article picks up on a speech made by King Abdullah in Buraidah, the main city in the conservative Nejdi province of Qassim.

Here's the money shot:

"I have said, and will repeat here before you, that there are two things on which leniency would not be acceptable: Islamic Shari'ah, and our national unity. I would say to you quite frankly that it is not in tune with either the principles of the benevolent Shari'ah, nor the requirements of national unity that some should – out of ignorance or in bad faith – divide our citizens into categories that have no authority whatsoever, saying this person is a secularist, this one is a liberal, this one is a hypocrite and this one is an Islamic extremist, and so on."

"The truth of the matter is that all citizens are, God willing, loyalist. We do not doubt the religious faith, or national loyalty, of any person, until we are presented with absolute evidence that there are – God forbid – reasons for doubt."

"I plead with all citizens, and students, journalists and writers in particular, to rise above such conduct and recall God's words in the Quran: 'Believers, no people should deride other people, for the latter may be better than the former; nor should any woman deride other women, for these could be better than the former. Do not slander one another or assign to one another scornful nicknames; cursed be a scornful nickname once one has accepted the Faith. Those that do not recant are indeed transgressors.' The Prophet, God's peace and blessings be upon him, said: 'When someone calls another 'infidel', one of them shall be so'."

Al-Dakhil's excellent article argues that Abdullah sees no conflict between pluralism and Shari'ah, provided that all are good Muslims and good Saudis. Those who seek to label others, to accuse them of being bad Muslims, are sowing discord. I don't know if Abdullah used the term 'fitna', but that would appear to be the concept he's alluding to.

I'm going to get a little theoretical here - I will try to keep my language simple, but it might get a little abstruse.

Basically what appears to be at stake here is two different instrumentalisations of Islamic discourse, each the product of different points in the religion's history.

On the one hand, we have Islam used to advocate unity in pluralism. The paradigm for this kind of discourse is the hejira, Mohammed's flight to Mecca, where he developed the Shari'ah as a means for the warring tribes of that town to live together. The ability of Islam to achieve such unity was its great strength as an organisational principle on a landmass whose prior political structure had been based on a dynamic equibilibrium between sedentary pastoralists and traders on the one hand and raiding Bedu nomads on the other. Once all stopped fighting one another and joined in a communal project - which, granted, was a long process in which much blood was spilt - they were almost unstoppable, creating a Caliphate that spread from Persia to al-Andalus.

Which brings me on to the second instrumentalisation: Islam as a differentiator. During Islam's expansionary phase, it was necessary to establish a clear us/them divide so that the cohesion of the organisation, the umma, could be maintained and the proper martial attitude adopted towards foes. Behind the frontlines of the expansion, non-Muslims were obliged to pay jizya, essentially a protection tax. Many converted to Islam, to the consternation of the Arab elite who saw that their privileges would be diluted by such mass conversions. Arguing that the conversions were motivated by tax-avoidance rather than through belief, the Umayyads forced the conquered to continue paying the jizya, inspiring a wave of rebellions that eventually destabilised the Umayyad Caliphate and ushered in the era of the Abbasids.

The Saudi Arabian state, as political structure based on the hegemony of a Saudi/Wahhabi alliance, has long exploited these two discourses to shore up its legitimacy and to discredit opposition. That much is self-evident: what is particularly interesting about it, though, is how the discourses are being used by people outside the state apparatus to preserve their privileges. It is worth noting that the most conservative sentiments in the country appear to emanate from Qaseem, in the Nejd. It is an area that appears to contribute very little to the economy: they have no oil, they have no trade routes. What can they offer the state, then, in return for access to oil wealth? Unflinching loyalty about sums it up.

The problem with these kind of clientelistic relationships - ones that are based on attitude rather than on material exchange - is that they quite soon turn into craven brown-nosing competitions. You may remember that during the Egyptian presidential elections, local businessmen took out ads supporting Mubarak, with their own names displayed prominently. It's a very dangerous prisoner's dilemma. If you defect, you are cast out: no more access to state patronage, no more access to crucial business networks, no more access to cheap cash from friendly banks. But because you're competing with other people for preferential treatment, and because ultimately the state's judgment of your loyalty is entirely subjective, you have to continually outdo yourself and others in your expressions of loyalty. In Saudi Arabia, it has turned into a game of "I'm a better Muslim than you". Before you know it, you're having to deal with a bunch of takfiri zealots.

Of course, it gets even more complicated. I'm reminded of Vaclav Havel's Soviet grocer with a sign in his window saying 'Workers of the World, Unite!'. Havel wrote that the shopkeeper fools himself into believing that he is displyaing the slogan sincerely, for otherwise he would simply be admitting that he was afraid and obedient. Similarly in the Middle East: the emotional investment of clients in their relationships with power mean that they cannot simply switch views overnight. They must be persuaded and cajoled in a way that preserves their dignity, which means appealing to them in a way that does not conflict with the underlying logic of the relationship.

So, to my mind, that's the context for King Abdullah's speech. By reviving the hejira discourse, by pointing out that the Shari'ah and pluralism are not incompatible - that, in fact, pluralism is made possible through Shari'ah - the arguments of the takfiris can be undermined while allowing conservative Muslims to preserve their dignity. It's an incredibly nuanced discursive strategy. It will be interesting to see if it works.

Made-up illness #211565154

2006-06-09T13:24:00.000Z

Anger disorder is common in US population - New Scientist

More than 7% of people in the US have experienced "intermittent explosive disorder" (IED) at some point in their lives, says Ronald Kessler of the Harvard Medical School in Boston, Massachusetts, US, who led the study.

This means they will respond to certain situations with inappropriate levels of anger, for example resulting in road rage or irrational, violent acts such as throwing a television out of a window during an argument with a spouse or parent.

Now that having a short temper is a medical condition - treatable by doping oneself up to the eyeballs, naturally - what comes next? Intermittent unconsciousness syndrome?

US$70 oil for the rest of the year?

2006-04-25T15:06:00.000Z

Some of the economists at Morgan Stanley are saying that they are now expecting prices to stay around the US$70 mark for the rest of the year.

The price of crude has broken the $70/b line, crack spreads in the US are close to their post-Katrina peak and geo-political tensions are rising. We are thus revisiting the underlying fundamentals of our price baseline, extend it to 2008 and we look at alternative scenarios. In a nutshell, our conclusions are:

·We think that crude prices (WTI/Brent) are likely to range between $70 and $80/bl for the reminder of this year; we raise our 2006 annual average forecast from $61 to $73/bl (+19%);

·We believe that markets will remain tight next year, as new refinery capacity is coming slower than we had thought; We raise our 2007 annual average forecast from $48 to $68/bl (+43%);

·We continue to believe that price signals matter and that slower demand and stronger supply will ease tensions in the markets at some point. With the information we have in hand, we do not see that happening before 2008.

·In the short term, markets will remain highly sensitive to the mismatch between marginal demand and marginal supply, to possible supply-side shocks, political (Iran, Nigeria) or natural (Hurricane season)

I've been following their analysis of the oil markets for a couple of years now, and generally find them to be on the money.

What's particularly interesting is the mismatch between marginal supply and marginal demand. For the last couple of years, OPEC has been repeating like a mantra: oil demand may be high, but oil supply is in sync - it's just that refining bottlenecks mean that the oil isn't getting downstream in sufficient quantities. Most of the Gulfi states have taken steps to widen the bottleneck, and are investing heavily in refining capacity at home and abroad to help boost throughput (they're not averse to capturing a larger proportion of the added value that comes with refining and petrochems operations, either). They have also been oversupplying OECD countries so that they can build their inventories, which are now at record highs (as I pointed out last year).

OPEC is now taking on a much more worried tone. Prices prior to 2005 seemed to be largely driven by how much spare production capacity was left in the world, and the cartel tweaked production to keep OECD inventories large enough to sustain a supply shock but small enough to sustain reasonable prices. As prices increased, the linkage between production and pricing began to break down, and the cartel started building OECD inventories so that they could maintain a linkage between prices and inventories.

Now that linkage is breaking down too. Oil prices are continuing to rise despite high crude stocks, partially because of the refining bottleneck and partially because of the political risk premium. And OPEC isn't entirely sure what to do next:

"This price rise occurred despite the fact that the market continues to be well-supplied," OPEC official Adnan Shihab-Eldin told a meeting of the International Monetary Fund's policy committee on behalf of the oil cartel. . ..

He drew a distinction between the ample supplies on the crude side and tight supplies of refined products.

"The picture on the products side remains tight, given the persistently low levels of refinery spare capacity and more stringent products specifications" in the United States, the OPEC official said.

"As a result, any shortage caused by technical or logistic problems will continue to have a significant impact on the global market, affecting products prices and, consequently, crude oil prices," he added.

Shihab-Eldin lamented that ample crude stocks had failed to tamp down oil price volatility stemming from unexpected supply disruptions or geopolitical concerns.

"Unfortunately the upward rising trend indicates that healthy market fundamentals have been unable to outweigh fears of possible future supply disruptions," he said.

He said the breakdown in the link between inventories and prices had led to an "urgent" need to identify more-reliable signals of price trends. He also said OPEC was concerned over the impact lofty oil prices could have on developing countries, and would monitor development closely.

For their part, the Americans appear to finally understand that OPEC has been doing what it can to bring prices down:

[US Energy Secretary Sam] Bodman said record oil prices of around $75 were causing great "dislocation" in the United States and the rest of the world but there was little producers could do. "We have encouraged producing nations to keep oil markets well supplied – I think they've done that. I would encourage them to do more if they can," he said. "We are in a situation where supply is roughly equal to demand today."

So what next?

Unusually for any future scenario, the long term is clearer than the short term. High oil prices have already sparked investment in refining capacity, which should over the medium term help to minimise throughput disruptions like the ones we have today. They have inspired massive investment in renewable energy - a finance journo friend tells me that at a recent conference he went to, the bankers were falling over themselves to find decent investment opportunities in renewables - which in the long term should bring energy prices down in the aggregate and allow more hydrocarbons to be re-purposed for petrochemicals. And they are bringing about the demise of environment-killing SUVs - no bad thing in my book.

The short term is fraught, however. Uncertainty regarding Iran, potential environmental shocks to the oil supply chain, have created lucrative information arbitrage opportunities to young traders (generally under 25 at the International Petroleum Exchange in London). Take, for example, the unexplained blast in Iran on Feb 16, 2005 - traders at the IPE "were disappointed with security for allowing [Greenpeace activists to invade the trading floor] just at a time when the [crude] market was pushing higher on the back of reports that a missile had been fired at Iran. I kept on trading electronically but I could see the [Greenpeace] guys coming on to the viewing gallery and then they were pushed back."

With near-instantaneous information flows, we are pushing up against the limits of human cognition to deal with the massive volume of data to parse and intepret. Enterprising young traders can exploit the commonly-held belief (true or false) that an attack on Iran is imminent to manufacture a brief spike in oil prices, which, in the full knowledge that it's a micro-bubble, they can make large amounts of money from by using a mixture of put and call options.

The great problem with that is that the media then seizes on the rise in oil prices as evidence of greater instability. A mutual feedback loop then kicks in, with the both the traders and the journalists assuming that the one knows something the other doesn't. Prices spiral upwards, fed by people arbitraging the emotional responses of their peers to over-hyped information.

This is where the self-fulfilling prophecy of all the doom-mongering kicks in. While in the short term the feedback loop appears to have reached some kind of Nash equilibrium - i.e. it makes little sense for market participants to change their strategies in the short term - ultimately the game is one of chicken, in that having both people not swerving (ie continuing to hype prices) is going to result in them crashing into each other (massive reductions in fuel consumption through fuel substitution, efficiency increases or just plain old global recession) and the equilibrium is unstable.

Of course, once that happens the doom-mongers will say 'we told you so all along'...

UPDATE -

I've just noticed that Bush has announced that environmental regulations are going to be relaxed and additions to the Strategic Petroleum Reserve deferred until the end of the summer.

US gasoline stocks have plummeted over the course of April. Lower sulphur limits were introduced this year - bear in mind that most of the spare oil capacity in the world is quite sour - and refineries in the US have been undergoing their usual seasonal maintenance cycle. Moreover, after a particularly warm, dry March, especially on the East coast, it seems that the US driving season may have started early.

Bush's decision is likely to take some of the edge off the markets by reducing the pressure on refiners, though how much of an edge it will take off is anyone's guess. I think that it may be a finger-in-the-dyke tactic - it will improve the fundamentals and may bring oil prices down a few clicks, but the spike activity is riding off risk speculation, particularly about Iran, and I don't see that changing just yet.

Exploitation for dummies

2006-04-12T10:33:00.000Z

It's a perennial problem. Your economy is built on extracting the surplus value from a more-or-less indentured labour force, the human resource equivalent of opencast mining. Rape-and-run tactics, as the environmentalists call them, consist on extracting profits short term using morally questionable and environmentally damaging methods - dousing rocks in cyanide to extract tiny amounts of gold, for example, and leaving the accumulated chemicals to seep into the ecosystem; or piling tailings behind fragile dam and hoping that the dam doesn't breach, flooding the rivers and homes beneath it with water rich in heavy metals toxic to most forms of life. In human resource terms, the tools and techniques are intangible, hence harder to discern, but they largely work the same way. Build a dam - be it with guns or law - stop people from organising, take away their liberties by confining them with prison guards or by taking away their passports. Invest the bare minimum in the resource you are mining and extract from it surplus value that will make you rich and powerful. Pile up all your problems behind the dam, and hope that they won't come back to bite you.

Every now and again, though, the dam breaks. In the UAE, there have long been signs that the dam was under strain, but it was when workers blocked Sheikh Zayed Road that the first cracks appeared. The government stuck a thumb in the dyke, creating a meaningless 'black list' of companies that had not paid their workers and then backing down quickly on its initial promises to make the company pay immediately and in full. Then it went back to business as usual.

The riot at the Burj, though, has shown that the dam is in serious need of structural reinforcement. So the government has decided to co-opt the labour movement to buttress the dam.

"Labourers will be allowed to form unions. We're going to have one union, with separate representatives for the construction, fishing, agriculture and other industries," Labour Minister Ali Al Kaabi told The Associated Press.

It is a tactic with a long pedigree. The Soviet Union only allowed state-sanctioned and -controlled unions; Egypt's trades unions have long been a means for the state to force its will upon labour movements. In Mexico, the Partido Revolucionario Institucional's co-option of labour movements helped perpetuate its institutional dictatorship for 80 years. Italy's Syndical Laws of 1926 meant that only fascist trade unions would be recognised; in Nazi Germany, only fascist civil society organisations were tolerated, and collective bargaining was only mediated through the state - that is, not mediated at all. Third Reich Germans didn't have the right to move jobs without express permission from their employers, either.

I'm not saying the UAE is some neo-fascist dictatorship - far from it. But the government could damned well take a better inspiration for its labour policy.

Ali Naimi profile - Newsweek

2006-04-07T11:06:00.000Z

Newsweek has written a nice profile of Ali Naimi, Saudi Arabia's oil minister. It's largely hagiography, but it has an interesting observation towards the end: Naimi is one of the few remaining technocrats in Saudi society.

"Naimi is from the last generation that was exposed to different ways of doing things, both in Saudi Arabia and the U.S.," says Edward Chow, an oil consultant and former Chevron executive who has worked closely with Aramco. "What happens after him? There are probably a lot of princes who would like his job."

That's very true. The thing is, Aramco and the oil ministry are pretty much the only two things that seem to actually work in the Magic Kingdom, and their independence from the normal power/patronage networks mean that they are a source of genuinely constructive and objective thinking. Look, for example, at this presentation (35mb PDF, download only on a fast machine) made by Salim Al-Aydh, a senior offical at Saudi Aramco, at the Jeddah Dialogue in May 2005. It's startling in its frankness: he basically says "we have a problem, let's actually do something about it, otherwise we're screwed".

Would that culture of clear thinking survive the passing of Naimi?

IMF Art IV consultation with Kuwait

2006-04-07T10:21:00.000Z

The IMF has published a public info notice on its recent Art IV consultation with Kuwait.

It observes that "Kuwait's overall fiscal position will remain in comfortable surplus over the medium term".

Expect a concerted effort to make resting-upon-laurels the foundation of the Kuwaiti economy.

Fake Sheikh (Mazher Mahmood) Photo

2006-04-05T16:04:00.000Z

The News of the Screws has obtained an injunction (pdf) for 24 hours preventing publication of a picture (right) of Mazher Mahmood, the infamous 'Fake Sheikh' whose award-winning 'investigative' journalism consists of the deliberate entrapment of those who should know better.

Their latest mark, George Galloway, did know better, and is trying to rumble them.

The fake sheikh part and parcel of the News of the Screws' self-righteous desire to chair the court of public opinion, (which has led to paediatricians being attacked by paedo-bashers in Portsmouth, amongst other things), and which goes hand-in-hand with their usual high-minded editorial style of juxtaposing worryingly descriptive accounts of rape investigations with salacious kiss-and-tell stories, all interspersed with pictures of young women wearing little more than smiles.

The injunction expired at 4pm on the 5th of April, BST.

Dubai, 'freehold' and market contagion

2006-04-04T16:14:00.000Z

Dubai released a new property law on the 14th of March. Details(pdf) of the law, which was first shown only to lawyers, have since trickled out.

Curiously, the first two articles - where one would expect to find the definitions of key concepts, not least the contentious Dubayyi interpretation of 'freehold' (actually much more like a leasehold - so far as I can tell, you couldn't knock down your villa and build a new one on the plot, and it is far from clear that you could even add a conservatory or knock out an interior wall) - are omitted from the version of the law that has been circulated. Instead, there's a bunch of stuff about registration of title - which is all well and good and important and useful, but doesn't clear up the essential question of what you have a title to.

Dubai's stock market tanked on the 14th of March. Do you reckon that the government published a half-finished law and told people to report it positively to prevent contagion of a property market blatantly overheated by flipping and other kinds of speculation? Nah - they'd never do that, would they?

Integral Accidents

2006-03-31T15:00:00.000Z

Icelanders have their knickers in a twist (see here(pdf) and here(pdf)) over a Danish piece of research(pdf) by Danske Bank, which claims that their economy is the most overheated in the OECD. Unsurprisingly, Icelanders disagree - but investors are fleeing like rats a sinking ship (the metaphor would hold better if ships were powered by rats pedalling, but anyway).

Brad Setser has remarked on how much this reminds him of the Asian crash. All this reminds me, rather, of Paul Virilio 's concept of the 'integral accident' - that is, the idea that every technology has its own accident: "To invent the train is to invent derailment; to invent the ship is to invent the shipwreck".

Do 'information accidents' happen in our new 'knowledge economy'? Are we witnessing a ripple of lost confidence spread through emerging markets after the Great Arabian Bubble finally burst? I have no real way of knowing, but I wonder.

Morgan Stanley's chief economist on US protectionism

2006-03-24T15:38:00.000Z

Steve Roach is on the money, again:

From Beijing to Dubai, there is a growing undercurrent of economic anti-Americanism. The irony of it all is truly extraordinary: The US has the greatest external deficit in the history of the world, and is now sending increasingly negative signals to two of its most generous providers of foreign capital -- China and the Middle East. The United States has been extraordinarily lucky to finance its massive current account deficit on extremely attractive terms. If its lenders now start to push back, those terms could change quickly -- with adverse consequences for the dollar, real long-term US interest rates, and overly indebted American consumers. The slope is getting slipperier, and Washington could care less.

Welcome to Dubai, twinned with Gdansk

2006-03-24T14:16:00.000Z

After workers downed tools at Dubai International Airport in solidarity with workers on the Burj Dubai, the authorities are taking measures to browbeat them into giving up the main activists amongst them, while mollifying them with token gestures.

Lieutenant Colonel Rashid Bakhit told Khaleej Times:

"In my opinion, the workers do not know what exactly they want. The company has increased their salaries with ratio active affect, from the month of February; even this was not one of their demands."

Isn't that sweet. What is the quantum of the change? Will it improve their working conditions? Will it restore their passports?

Before moving on to standard divide-and-rule tactics:

"We have intervened immediately and asked workers who are willing to continue working with the company to sit a certain place and those who does not want or have demands. Unexpectedly, all of the workers and not even a single one revealed intention of not working," he said adding, "What could be the cause behind this protest and making up a mess except that there was some who are motivating these workers to do that."

Yes, those dastardly trouble-makers. Obviously they're to blame.

Solidarnosc in the 1980s

At the Lenin Shipyard in Gdańsk, workers were outraged and the sacking of Anna Walentynowicz, a popular crane operator and well-known activist, became a spark that pushed them into action[3].

On 14 August, the shipyard workers began their strike, organized by the Free Trade Unions of the Coast (Wolne Związki Zawodowe Wybrzeża). The workers were led by electrician Lech Wałęsa, a former shipyard worker who had been dismissed in 1976 for stirring up trouble and demanding higher pay, and who arrived at the shipyard on 1100 of the 14th August. The strike committee demanded rehiring of Anna Walentynowicz and Lech Wałęsa, raising a monument to the casualties of 1970, respecting of worker's rights and additional social demands.

Although government censorship spoke little about sporadic disturbances in work in Gdańsk, the transmissions of Radio Free Europe penetrating the Iron Curtain and spreading grapevine gossip ensured that the ideas of the Solidarity movement spread very quickly throughout Poland.

Though the authorities in Dubai have been bright and not allowed the workers back onto the sites, thus preventing them from occupying them. And of course, were Lech Walesa a young Keralan working in Dubai today, he would have been put on a flight home long ago...

Power to the poor sods who build it all

2006-03-23T18:18:00.000Z

Workers on the Burj Dubai are striking for better pay, conditions, and medical care. For the first time, it seems that the protests have got destructive: AP is reporting that a riot on Wednesday caused an estimated US$1m of damage. Workers at the airport have laid down their tools in solidarity.

To its credit, the government appears to be taking their demands seriously. "They are asking for small things," Interior Ministry official Lt. Col. Rashid Bakhit al-Jumairi told AP. "I promised them I would sit with them until everything is settled."

The abolition of slavery never really caught on amongst Gulfis: the British Political Agents would manumit those slaves who came to them, but the exploitation often continued even after the slaves became free men.

It's about bloody time they did away with it for good, instead of hiding behind the rhetoric of freedom of contract. Freedom of contract means an agreement freely entered into, not one entered into because of the deception of another and perpetuated because the other controls all channels for redress and confiscates your passport to make sure you can't just up and leave.

What al-Jumairi is doing is laudable - but reacting to problems when they arise is no longer enough.

Quote of the day

2006-03-23T17:15:00.000Z

"The market has gone berserk. Forget about rational valuations, price-earning ratios and growth fundamentals, we have turned into a frenzied mob in front of a roulette wheel," said Bassim Arida, director of international sales at Commercial International Brokerage Company two weeks ago, as the stock market continued to spiral upwards.

From Al Ahram Weekly

America bombing Dubai's Doncasters

2006-03-23T13:43:00.000Z

Back in December 2005, Dubai International Capital, a subsidiary of Dubai Holding, the investment vehicle that owns most of everything that's anything in Dubai, signed an agreement to buy Doncaster Group, an engineering firm, from Royal Bank of Scotland Equity Finance for AED4.5bn.

Doncasters, according to its website, "manufactures precision components and assemblies for the aerospace, industrial gas turbines, specialist automotive, medical orthopaedic and petrochemical markets."

For 'aerospace', read the 'A380 '(pdf); for 'specialist automotive', read ' Formula 1'(pdf).

So why the Doncasters deal? Dubai seems keen to move up the added value food chain, particularly in lucrative, knowledge-intensive industries like biotechnology and IT. February saw the launch of Dubai Aerospace, a company that will, alongside aircraft leasing and airport management operations, is intended to be a major player in aerospace maintenance, manufacturing and research.

Doncaster's contracts with Airbus are a significant bonus in that regard. Dubai's 'global transport hub' strategy is a perfect match with Airbus' hub-and-spoke vision for the future of air travel, and the emirate has bet US$19bn that they have got it right. With 45 A380s on order, Dubai has gone a long way towards helping Airbus' ambitious super-jumbo break even; in return, Airbus has been talking of setting up an aircraft maintenance centre in the Jebel Ali Airport City that, when finished, will be the centrepiece of Dubai's hub vision. Under a long-term contract with the Airbus, Doncasters is providing core components for the A380's brakes and engines. With that kind of know-how, the company is an ideal partner in the development of Dubai's aerospace industry.

But Doncasters has a darker side. For 'aerospace', also read 'Joint Strike Fighter', and for 'specialist automotive', also read ' M1A1 Abrams main battle tank'.

Unsurprisingly, the military contracts have US politicians all agog. American opinions towards the UAE have been poisoned by allegations that the country has been involved in terrorism. True, the UAE was one of the few countries to recognise the Taliban government in Afghanistan during the 1990s - the continuation of a US-encouraged policy to support the mujaheddin against the Soviet Union in the 1980s. And in 2004, George Tenet, former CIA chief, told the 9/11 Commission(pdf) that the organisation had declined to order a missile strike on a hunting camp south of Kandahar due to fears that a high-ranking Emirati official or member of the royal family might be present. "Clarke told us", the Commission wrote, that "the strike was called off after consultations with Director Tenet because the intelligence was dubious, and it seemed to Clarke as if the CIA was presenting an option to attack America's best counterterrorism ally in the Gulf" (9/11 Commission report, at page 138). Not that the story is told that way these days: 'Dubai officials, Osama cozy before 9/11, CIA says", reads one headline; "UAE royals, bin Laden's saviours" reads another.

But underneath the emotive 'anti-terrorism' saw is a more fundamental American concern: maintaining the country's technological edge. The US has long been loth to share high technologies with its development partners, regardless of how much money they put up for the R&D programmes. Despite ploughing US$1.3bn into the development of advanced radar and electronic war systems for the US F-22 Raptor, currently under development, the US has refused to share the source code for the systems with the UAE, which has the systems installed on the fleet of Block 60 F-16s currently being delivered.

So far as the Block 60s are concerned, the decision may be justifiable on the grounds that the UAE might not abide by undertakings not to pass on the technology - after all, howitzers bought by the UAE from the Swiss in 2004 mysteriously ended up in Morocco, despite clear undertakings that they would not pass them on to that country. But American possessiveness over its technology is not all that discriminating: the United Kingdom has been engaged in an ongoing scrap with the US over technology tied up in the Joint Strike Fighter project. The UK has invested US$2bn in R&D for the plane, and has committed to buy 150 of them once they reach production (Doncasters is also involved). In March, the UK threatened to pull out of the project if the Pentagon continued to refuse to share technologies that would allow the British to adapt the aircraft to their own requirements. Meanwhile, the other five project members - Norway, Italy, Turkey, Denmark and the Netherlands - have been planning a common negotiating strategy to persuade the US to reveal more of the technology involved in the JSF.

After Dubai's humiliating cllimbdown over P&O's American port management contracts, the emirate has little desire to be caught out again. While business leaders have expressed their shock and political leaders are reputed to be furious, they have been doing all they can to persuade US politicians not to block the Doncaster deal. Sheikha Lubna al Qassimi, the economy and planning minister and the UAE's first female cabinet member, went to Washington DC in March to launch a charm offensive supporting the deal.She has her work cut out for her.

Cross-posted at www.aqoul.com

Lemmings, trilobites and GCC stocks

2006-03-22T16:01:00.000Z

Okay, I'm in full financial pundit mode.

Yaser Nawar at the catchily-titled 'Equity Investment Ideas has quite a nice graph here. His post lays out the conventional wisdom on the boom and bust. As he points out, share prices were running at pretty large ratios to earnings, while a lack of liquidity meant that investors were clearing their portfolios to free up cash for yet more IPOs. Greed, speculation and naivete are the drivers of the cycle, he implies: the standard 'lemming' theory.

Zimran at Winterspeak also supports the lemming theory.

Evan at The Future Uncertain has an interesting and quite different take on the crash. Bubbles, he argues, are necessary mechanisms in rapidly developing markets. Investors know that changes are afoot, but are unable to tell beforehand which industries, technologies or companies will succeed. So they spread their bets across the lot of them. When the inevitable crash occurs, those that are left standing are the ones that are worthwhile.

It reminds me of the Cambrian Explosion, when evolution threw out a massive number of crazy-looking beasties that roiled and multiplied and evolved and then died off in huge numbers with the extinction event at the end of the Ordovician period. The worse adapted creatures died; the best adapted survived, and, millions of years later, evolved into us. I rather like that story, so I'll dub Evan's argument the Cambrian theory.

There is a problem with the theory, though. As Evan notes: "Egypt, a non-exporter of oil, is admittedly harder to explain using this approach, although the economy is perhaps tremendously dependent on remittances from the Gulf states."

Which suggests that it is too soon to start writing off the role of psychology in investment decisions.

In any case, the investor psychology angle implies one thing quite clearly: the crash will have political ramifications. In Saudi Arabia in particular, the bull run has been linked to the accession of King Abdullah to the throne and the benefits of his economic reform programme. Many are likely to take the crash as an indication that his reforms are ill-conceived.Problem is, it is still far too early for his reforms to have had much effect on the economy: most of them are long-term, structural reforms, not quick fixes. So inferring that the reforms are bad because the stocks have gone bad would be fallacious. Not that that ever stopped anyone.

The Cambrian Bubble theory, on the other hand, suggests that, if the reform initiative survives this downturn, there may be a strong basis for sustainable future growth. Those companies that survive will have proven themselves, and will feast upon the carcasses of those companies that failed - that is to say, they'll buy up their assets and cherry-pick their best ex-employees. Which should, if all goes well, make them stronger.

Edward Chancellor wrote an amusing piece on the subscription-only BreakingViews site last Friday which ended with the line 'Given the Kingdom's anti-boozing laws, foreign residents should be sober enough to resist the temptation [to invest in the stock market].' He's right that opening up the market to them only once the song is over is too little, too late, and doesn't say many nice things about Saudi attitudes to foreigners.

He has also written an interesting piece in the WSJ called 'The Seven Pillars of Folly'.

HIs seven pillars are: liquidity economic diversification stock market boom IPO boom property boom market inefficiency herd mentality

Which is a fair assessment of the situation.

Chancellor then goes on to say that the region's rulers have encouraged the boom, hoping to distract them from religious fundamentalism, and suggests that the day traders of today could be the terrorists of tomorrow.

That may be a little hyperbolic. Arab rulers have taken a great gamble on economic diversification, knowing that only through providing employment and opportunities to their populations can they stem the spreading malaise that feeds revolutionary sentiment. If the stock market crash means that they have lost that gamble, making glib comments about it being their own fault really isn't perhaps the most mature response.

But it is a risk. The crisis of confidence could lead to a retreat from some of the more ambitious reforms - which, circuitously, could lead to increased unrest - though linking it directly to terrorism is a little too tenuous. Which could explain why local governments are falling over themselves to intervene and try to hold off the inevitable. WaPo 15.3.06

Mohammed Ramady, a Finance and Economics professor at King Fahd Uni, points out that some may have compromised their futures by dropping out of education or neglecting their jobs to concentrate on the stock market. Those that stayed the course may well find their gamble paid off; those who abandoned it for easy riches are those most vocal that the government should bail them out.

Souhail Karam and Dayan Candappa or Reuters argue differently. ( Reuters, 21.3.06) "The popular notion that Saudi speculators were exclusively retail investors, leveraged to the teeth, buying stocks at outrageously high prices is misleading", they say: rather, massive hedge funds played the markets, often, they imply, making transactions that would move the market to their advantage. Those funds are now prowling for alternative investments, Europe and Asia may be the most likely targets.

So what next? Are we looking for lemmings or trilobites? Will the crash lead to a massive crisis of confidence, retrenchment and retreat, or will it bolster and strengthen the most viable Gulfi companies? Obviously, we'll see a bit of both. The question is which will outweigh the other.

Gravity's Rainbow

2006-03-14T10:11:00.000Z

What goes up, Isaac Newton might have remarked, must come down. Particularly if it's driven by rampant, hype-fueled exuberance completely unsupported by the fundamentals.

The Saudi stock market has dropped what looks to be about a quarter of its value. Naive speculators have been suffering heart attacks at the prospect of losing their dishdashes.

In Kuwait, the market also seems to have dropped by 25%. Disgruntled traders, evidently annoyed that taking risks is not entirely risk-free, have been protesting the fall in stock prices. The Kuwaiti government, ever helpful, has bowed to popular pressure and plans to swoop in and save them from their own stupidity by injecting money into the market.

The correction to Dubai's stock market is even more severe: the index has dropped down almost to where it was a eyar ago, before all the excitement really got going - almost a 50% loss in value. Amusingly, analysts are suggesting that over-confidence was actually the trigger: investors were divesting in preparation for yet another bout of over-subscribed IPOs.

Egypt and the Ghost of Marx

2006-02-25T13:40:00.000Z

Khalil El-Anani has written a particulaly compelling piece of Marxist inanity in al-Ahram that was just brought to my attention. It has irritated me enough to take a pause from my holiday to write a response.

The struggle between the NDP and the Ikhwan, he posits, is a struggle between two bourgeois classes: the NDP derives support from comprador bourgeois who are exploiting externally-imposed 'reform' for personal gain; the Ikhwan derives support from the petit bourgeois who are excluded from the commanding heights of the economy by the alliance of comprador capitalists and the state bureaucracy.

"This elite," he writes, "relied on external support more than connections on the domestic front..." Using international pressure for domestic leverage is an interesting tactic that I have seen deployed a couple of times in Saudi Arabia and Iran; I haven't really seen it employed in Egypt, given that the NDP tends well to the army and to ensuring its control over parliament.

Personally, my impression is that the NDP has a well-rehearsed strategy of co-opting as many local powerbrokers and fixers as it can - primarily by offering them incentives, whether for themselves or for their constituents - so that it can ensure its clear majority in parliament. Note well that relatively few NDP candidates won their races in the last parliamentary election: the NDP only secured its majority by coaxing 'independents' back into the fold. The regime's only nod to foreign interests lies in hyping up the Islamist threat so that America will continue paying for the army - which has very, very little to do with global capitalism and rather a lot to do with geopolitics and America's fear of Islam since the Iranians told them where to go in 1979.

I could be wrong, but I'd take a little more persuading than el-Inani has bothered with (ie. simple assertion sans supporting evidence).

"... the price of its incorporation into the global market paid by overlooking society's basic demands." Then he throws it all away. How
does he suppose the government is to pay for society's basic demands? You need an economy to generate wealth of which the government can appropriate a surplus which can then be plowed back into public services. And to have an economy you need the three factors of production: labour, land and capital. Labour and land Egypt has in
abundance; capital it does not. So it can't introduce the equipment it needs to better exploit its resources and create products that can be sold, whether domestically or abroad, without playing the international capitalism game one way or another. So it has gone to energy companies and said: "We have gas, put up the money to extract it and ship it abroad and make a profit after you've paid us your share"; it has said to international organisations like USAID and the EU "We have lots of poor people and little money, can we have some money to build sewerage and water treatment facilities and lay new pipes?"; and it has gone to major power firms and said "We need more power, we'll give you gas for this much and buy power from you for that much, go raise the money to build a power station yourself"; and it has gone to the likes of Microsoft and said "Our people has great potential but we have not the money nor the skills to give them the best opportunity: please pay for a university so that our people can join the new economy."

There is an alternative, of course. Egypt could go back to a feudalistic autarky, Mubarak could officially become Pharoah and they could build all of their public works through slave labour whilst the rest of the peasants pound corn between the reeds on the banks of the Nile. Oh - sorry, I forgot, they think that the Ancient Egyptians failed because their were dirty apostates. And modern Egyptians quite like TV and music and having an army and that kind of thing. Okay, maybe that's not so much of an option after all.

El-Anani's underlying argument about the comprador bourgeoisie - that people try to get into parliament not through any civic ideal but because it gives them access to state resources - I wouldn't disagree with, but it's hardly innovative. The really interesting thing, to my mind, is how they get there, what kinds of deals they cut, and how the cycle of deal-making might be broken - a lot of it basic decision theoretical stuff. All this nonsense about comprador bourgeoisie puts the blame on the global system - capitalism - instead of on the local system - a political/economic system built on wasta, nepotism, connexions and latant corruption rather than on meritocracy or any kind of civic ideal. Saying "oh well they're bound to act like that, they're comprador bourgeois, see it says so here in the book Cardoso wrote so it must be the eternal truth because he was a Marxist up until he became president and adopted remarkably liberal economic policies but we won't talk about that bit" is intellectual laziness and closes the door to what is probably one of the most important research agendas that there are in Egyptian political economy.

Which brings me to his final point - will the Ikhwan, qua 'petit bourgeois', really be an improvement on the current situation? It is hard to tell what their economic policies might be: what is fairly clear is that their basic political mobilisation strategy is co-optive and communitarian, subsuming the many smaller struggles of their constituents into their overarching worldview. Does that really make for a movement that will "regain the heritage of the Egyptian middle class"? It sounds rather like the emergence of a vanguard group that, through a powerful core idea, flexibility of ideology and intelligent bargaining, is proving able to subsume smaller groups and smaller struggles and interpose itself as the mediator between the individual and the body politic. That, to me, does not sound like the revival of civil society. For signs of that revival I would look, rather, to Baheyya's coverage of the judges' stand against the Mubarak government's abuse of executive power, which looks rather more like an authochthonous, independent form of organisation resisting co-option by the ruling elite.

Compradors? Give me a break.

Confucianism in Singapore

2006-01-26T19:05:00.000Z

From a Singapore Angle has an interesting post on Confucianism.

The question of communitarianism is quite a thorny one. I've often thought that communitarianism works better the more homogenous the society. Quite a lot of the old Arab traditions - consensus, equality, sharing - are quite communitarian in nature, and when Arabs were more alike each other they worked really rather well. Then oil came along and created quite stark divisions of wealth and power, and communitarianism became a way to paper over the cracks of inequality and relations of power.

The argument in Asia is similar, but what intrigues me particularly about Asia is that the population is much less homogenous than it is in individual Arab countries. Singapore is very much a mixed society, what with Indians, Chinese and ethnic Malays; China itself is an empire whose populations have been more or less assimilated - though there are still noticeable tensions around the peripheries. To a greater extent than is the case in the Arab world, communitarianism in Asia requires the use of an image of an archetypal citizen whose history is shared amongst all the real citizenry.

It all rather reminds me of growing up in Singapore. I remember there was a campaign to promote the use of Mandarin as the official Chinese dialect, and advertisements encouraging parents to be less demanding and more nurturing of their children's academic careers. All blatant social engineering, and all wrapped up in a reassuring communitarian bow. Rather than the ideal type being a charismatic individual, the ideal type was diligent, thoughtful and responsible, and cared about the people around him or her. That, of course, in a country where press freedom was limited at best. That's before even moving on to China, which I won't talk about more because I simply don't know where to start.

I look at the Arab world and I don't see a communitarian national spirit, actually. There's a lot of individualism and a lot of standing on other people's faces - particularly those of the poor immigrant bastards dying out there on the scaffolds in the blazing sun, in the Gulf. The main communitarian ideal seems to come from tribal links and wasta, though that seems to have been corrupted, thanks to oil, into nothing much more than the horribly materialistic and clientilistic badgering of well-placed uncles for well-paid jobs doing nothing. Only in the most deprived areas of the Arab world - the slums of Egypt and the Occupied Territories - have communitarian movements actually gained political clout, and their imagined community is primarily the umma, rather than any ethnic/national grouping. But that's besides the point: the point is that only in extreme circumstances in which groups of people are actually all in the same boat does communitarianism seem to stick in Arab societies.

And now politicians are talking about how communitarianism could revive Western politics. I'm a little concerned about the implications of that. The liberal democratic system emerged out of vicious struggles in heterogenous societies. Western democracies have all had their revolutions, civil wars and bouts of bloodletting: the systems that they have developed are designed precisely to prevent further bloodletting and to preserve a status quo in which no one side has conclusively won. For the Western world to adopt this communitarian ideal would be to choose one of the competing visions of the 'good' life and to hold it up as an obligatory standard for the rest of society.

Hmmm.... Not very conclusive this. I think I need to think more and return to the subject. But right now I have to go write some articles.

Boom town in the sandlands.

2006-01-26T18:30:00.000Z

"Over the past two years, as high-rise fever spread across town, prices for the luxury apartments ballooned...

Buyers, mostly interested in flipping them for quick profits, eagerly anted up five-figure down payments...

But the intense competition for the city's limited supply of contractors sent construction costs skyrocketing 30% last year, just as lending policies tightened, interest rates climbed and sales started to slow.

...experts say the abrupt reversal of fortune in the desert, where the mainstream residential real estate and hotel markets are still quite healthy, shows just how quickly the odds can change in even the most affluent markets if runaway speculation and overzealous development take hold. "

No, not Dubai - Vegas. Still, food for thought.

(hat tip - Emirates Economist)

Alain de Botton in the Times: "I am an idiot"*

2006-01-23T19:27:00.000Z

*may not have actually written these words. At least, not verbatim.

Alain de Botton reviews A Mind of Its Own, by psychologist Cordelia Fine. It's a book about something I'm quite fascinated by - how the mind can deceive itself, and how difficult it can be to trust our own perceptions.

Alain agrees - at least, it appears that he agrees, on the surface of things. But he complains that her book relies too much on reporting experiments. "Our criteria of proof in everyday life are infinitely lower than those of science", he pouts. "When a writer such as La Rochefoucauld tells us, "We all have strength enough to bear the misfortunes of others," it would be rare for an ordinary reader to ask for scientific proof to back this up. The charm of the insight is indeed based on the minimalism of its evidence."

Charm - yes, perhaps. After all, charm is ever so important to Mr. de Botton, with his artfully pretentious books filled with knowing allusions to the philosophers. But 'charm' misses the entire bloody point: empirical study is what allows us to *know* anything with any degree of certainty - not absolute certainty, of course, but at least we can feel reasonably confident of knowledge thus derived, up until someone comes up with better evidence. 'Charm' is a wilful, disingenuous back door through which we can let back in all that unreconstructed prejudice and ignorance. Because, as Mr de Botton fails to remember, our brain's susceptibility to self-deception means that the charms of insights wholly unsupported by evidence are dangerous indeed.

Reacting to Iran's nuclear programme

2006-01-11T18:03:00.000Z

This isn't as crafted as I would like, but it'll do as a brain dump on Iran.

I personally think that Iran is a status quo power. Their economy is in the doldrums and the government is having problems providing jobs and the mullahs are constantly having to deal with annoyingly principled people who object to them stealing the country's wealth for themselves (curiously, Ahmadinejad is one of those people). They know that people are so pissed off that they would not fight and die for the regime the way that they did in the war against Iraq. The only reason that they did so well in that war is because people were willing to fight and die in their millions for the republic. Ergo the only military security they have is harassment of the Iraqi type – which is a pretty last-ditch strategy, and doesn't really work if you're interested in milking the country for profit rather than (like Saddam) being Saladin – or the bomb.

Others believe that the anti-zionist rhetoric in which Iranian leaders often indulge – Ahmadinejad's rhetoric was foreshadowed by Rafsanjani gloating about how they would love to nuke Israel once they had warheads to put in their shiny new Shahab-3s – is a sign that the Iranians are unpredictable and kinda crazy. There's an extent to which the Iranians have cultivated this – taking a leaf out of the book of North Korea – and an extent to which the Israelis and the US have cultivated this. There's currently a press push to highlight the fact that Ahmadinejad may or may not belong to an anti-Baha'i anarchist sect of 12er Islam which thinks that chaos will bring the Mahdi back – though I'm sceptical, partially because everyone made similarly scaremongering claims about Strauss, partially because the same articles are casting a group called the 'Builders' as a similar cult, when in fact they're a movement in the majlis that everyone who knows anything about Iran has known about for ages.(rafsanjani's power base was with the Builders, who are technocratic economic reformers, when he was president).

So basically what it comes down to is: how comfortable do you feel with Iran having nukes? It rather depends on whether you agree with the status quo or the anarchist interpretations of Iranian foreign policy. To do that you can look at the overall political structure, or you can look at the psychology of individuals. I tend to go with the overall structure because my own personal feelings get less in the way. I tend to find that most of the people who go with the psychology of the individuals find it very difficult to be objective also – which is why you get lots of scaremongering about the crazy mullahs. But that's not to say that I'm right and they're wrong. The psychology people are better at winning the policy debate, that's for sure.

Bonne Année!

2006-01-02T23:28:00.000Z

My violence was exhilarating, almost cathartic. Huddled in the corner, trying to shield his face with his hands, the problem he posed me was purely aesthetic: how to achieve a fluidity and economy of movement that would ensure the maximum transmission of energy from my upper arms to the fleshier parts of his face and body. I regretted only that my brutality was not more precisely focused, more deftly delivered.

And then hands grabbed my shoulders and pinned my arms to my sides. "Arrête!", someone shouted, and with some reluctance I forced myself to be still, my heart still pounding and the blood still singing in my ears. "Il a essayé de la violer," I said, "il a essayé de la violer."

I should not have taken her there. It seemed safe enough at the time - a clean, well lit bar in an area which, though with a certain reputation, I had lived in and felt I knew well enough. We had planned to see the sunrise at the church on the hill, a reasonable idea on the face of it but pure idiocy given the rain and the state we were in. But what better way to end the year?

We must have been obvious to everyone in the place - loud, carefree, talking English. It was not long before two vultures began circling, though at first we were oblivious. When one began to play with her phone I realised that the situation had shifted to a place where we did not want to be, and as I took it back from him I asked her to be careful. "The rules are different here," I said. She, bubbly and optimistic and spontaneous in the way that I had always so admired, told me not to worry. She made a move to go to the toilets, and I asked her not to leave. She told me not to worry, and went. I gave her five minutes, and then went down.

He had pushed her down on her back on the stairs, pinning her there, his hands moving in ways I could not see. She looked up at me, and I saw that the heel of her hand was on his chin, trying to push his head away from hers. Then he was up against the wall, and I, with all the pride of a torturer, was trying to find the most articulate physical expression of my rage.

"Je pars," I said. "Je ramasse notre choses et nous partons". The hands let me go. Someone even, I think, said 'Bien fait'. And then she was there, holding on to me and I to her and the only sound my haggard breath as I sobbed into her hair.

What a way to start the year.

Uncertainty

2005-12-10T21:46:00.000Z

"'The Principle of Uncertainty is a bad name. In science--or outside of it--we are not uncertain; our knowledge is merely confined, within a certain tolerance. We should call it the Principle of Tolerance. And I propose that name in two senses: First, in the engineering sense--science has progressed, step by step, the most successful enterprise in the ascent of man, because it has understood that the exchange of information between man and nature, and man and man, can only take place with a certain tolerance. But second, I also use the word, passionately, about the real world. All knowledge--all information between human beings--can only be exchanged within a play of tolerance. And that is true whether the exchange is in science, or in literature, or in religion, or in politics, or in any form of thought that aspires to dogma. It's a major tragedy of my lifetime and yours that scientists were refining, to the most exquisite precision, the Principle of Tolerance--and turning their backs on the fact that all around them, tolerance was crashing to the ground beyond repair. The Principle of Uncertainty or, in my phrase, the Principle of Tolerance, fixed once for all the realization that all knowledge is limited. It is an irony of history that at the very time when this was being worked out there should rise, under Hitler in Germany and other tyrants elsewhere, a counter-conception: a principle of monstrous certainty. When the future looks back on the 1930s it will think of them as a crucial confrontation of culture as I have been expounding it, the ascent of man, against the throwback to the despots' belief that they have absolute certainty. It is said that science will dehumanize people and turn them into numbers. That is false: tragically false. Look for yourself. This is the concentration camp and crematorium at Auschwitz. This is where people were turned into numbers. Into this pond were flushed the ashes of four million people. And that was not done by gas. It was done by arrogance. It was done by dogma. It was done by ignorance. When people believe that they have absolute knowledge, with no test in reality--this is how they behave. This is what men do when they aspire to the knowledge of gods. Science is a very human form of knowledge. We are always at the brink of the known; we always feel forward for what is to be hoped. Every judgment in science stands on the edge of error, and is personal. Science is a tribute to what we can know although we are fallible. In the end, the words were said by Oliver Cromwell: "I beseech you, in the bowels of Christ: Think it possible you may be mistaken." We have to cure ourselves of the itch for absolute knowledge and power. We have to close the distance between the push-button order and the human act. We have to touch people.""

Jacob Bronowski

Wilkerson's reflections

2005-12-09T10:07:00.000Z

Der Spiegel has recently published an interview with Lawrence Wilkerson. It makes interesting reading - he basically lays the blame for most things that have gone wrong in the Bush admin. at the feet of Messrs Cheney and Rumsfeld.

Quote:
Wilkerson: Yes there was. Incredible arrogance. I call it the administration of hubris. How could anyone look at that region and believe it? As opposed to the Pentagon, we in the state department never signed up to that idea that our troops would be greeted with flowers. There were so many mistakes from the very outset of the administration -- beginning with sticking our finger in the world's eyes with our rejection of Kyoto without offering an explanation. The gracelessness, the ineptitude of how we confronted the world made foreign policy and international relations in general very difficult in the first Bush term.

they no know, either

2005-12-06T17:13:00.000Z

A while ago I blogged about how I didn't know anything.

It's a particularly pressing question for me because I'm generally expected to 'know' stuff and, worse of all, to make predictions about what will happen next. It's all seen as being somehow glamorous and exciting but I don't like doing it, to be honest. I sometimes succumb to the temptation and make bold, sweeping judgments about things, and then find that I feel tawdry and arrogant. And then I'll meet someone who's making bold statements themselves and I'll dislike them for their hubris and their insouciance.

Fortunately, it turns out that I'm not the only one. Tetlock, whose academic paper on why political 'experts' tend to have worse judgment than complete ingenues inspired my last post, has just published a book going into more detail. The New Yorker has a great review of it.

Here's the bit I find particularly heartening:

Low scorers look like hedgehogs: thinkers who "know one big thing," aggressively extend the explanatory reach of that one big thing into new domains, display bristly impatience with those who "do not get it," and express considerable confidence that they are already pretty proficient forecasters, at least in the long term. High scorers look like foxes: thinkers who know many small things (tricks of their trade), are skeptical of grand schemes, see explanation and prediction not as deductive exercises but rather as exercises in flexible "ad hocery" that require stitching together diverse sources of information, and are rather diffident about their own forecasting prowess.

A hedgehog is a person who sees international affairs to be ultimately determined by a single bottom-line force: balance-of-power considerations, or the clash of civilizations, or globalization and the spread of free markets. A hedgehog is the kind of person who holds a great-man theory of history, according to which the Cold War does not end if there is no Ronald Reagan. Or he or she might adhere to the "actor-dispensability thesis," according to which Soviet Communism was doomed no matter what. Whatever it is, the big idea, and that idea alone, dictates the probable outcome of events. For the hedgehog, therefore, predictions that fail are only "off on timing," or are "almost right," derailed by an unforeseeable accident. There are always little swerves in the short run, but the long run irons them out.

Foxes, on the other hand, don't see a single determining explanation in history. They tend, Tetlock says, "to see the world as a shifting mixture of self-fulfilling and self-negating prophecies: self-fulfilling ones in which success breeds success, and failure, failure but only up to a point, and then self-negating prophecies kick in as people recognize that things have gone too far."

As an admitted intellectual butterfly, the idea that flitting from idea to idea is a strength rather than a weakness is heartening - as is the idea that intellectual humility makes for better analysis. It helps me remember that being a know-it-all is bad thing in more ways that one.

Khashoggi's Angels

2005-12-02T14:01:00.000Z

Al-Hamedi has an interesting post on a Ms.Tanya Hsu on his blog. She writes PR pieces masquerading as journalism for the Saudi government.

Ms Hsu obtained a degree in economics from the University of London, according to her bio.(scroll down to the bottom) According to the same bio, she organised a conference on Arab-American understanding in 2003. The earliest piece that al-Hamedi has found is from 2003; I can't find anything from earlier either. I've checked Factiva, Lexis and Dialog too, though that's not foolproof.

In May 2003, Jamal Khashoggi was fired from al-Watan. By September 2003 he was ensconced in London as an adviser to the Saudi Embassy there.

I happen to know of one confirmed instance in which Mr Khashoggi has offered to pay for a young, well-educated and attractive woman to produce glossy magazines or other such material telling 'the truth' - but certainly not the whole truth - about Saudi Arabia.

I note from some of the tracks that Ms Hsu has left on the internet that she is a devotee of the Palestinian cause. Let me just say that I'm not inferring that there's anything wrong (or right, for that matter) with supporting the Palestinian cause. But the issue is the darling of leftists in London universities, and it is a frequent rallying point for student demos and the like.

She also fancies herself as a writer. That last link is a mawkish poem from 2002 in clear support of Palestinian resistance. It's a very well constructed poem, I think, for the genre, but I tend to find the genre as a whole rather mawkish.

So I have a picture in my head, which could well be wrong.

I'm imagining Ms Hsu in London in the autumn of 2003, perhaps having just finished her degree? or between jobs? Who knows. But she loves writing, she loves anything that supports the Palestinian cause, and she's evidently very political.

And I'm imagining Jamal Khashoggi in London in the autumn of 2003, having been persuaded that the Kingdom needs decent PR abroad, starts thinking that well-educated, Westernised and assertive women are just about the exact opposite of what people associate with Saudi Arabia. So who better to convey the message that the Kingdom is actually a great place?

Did you know that Ms. Hsu has published a book about the place?

My daydream is probably but a flight of fancy. Food for thought, though, eh?

a break from our normal programming

2005-12-01T22:11:00.000Z

so, a girl who i'm really, really supposed to be over by now tells me that she's made plans this evening. and for some reason i was really bothered about it.

anyway, that's not really the point. the point is that for some reason i've got it into my head that i need to get some kind of recognition from this girl to feel worthwhile. except i never seem satisfied by what acknowledgement i get. i'm very aware it's because nothing will ever be enough - in past relationships i've had exactly the same feeling, no matter how close we were or how good the relationship was. and i'm also aware that i am wont to pick people who are unlikely to want to play the role, just to make absolutely sure. when i read about lonely obsessives given restraining orders for chasing celebrities, my revulsion is multiplied by an unnerving feeling of self-recognition.

this isn't about women, though, really. it's about that need to have a reason to get out of bed in the morning. i don't know if it's an immaturity borne of a sheltered life or borne of our wider societal impatience and arrogance, but there's this niggling feeling that i should have at least half worked it out by now.

there was something i read once in a book by paul virilio - he quoted this french psychiatrist who worked with young people with addictive disorders. he said what characterised all of them - whether drug takers, alcoholics, compulsive speedsters - was the 'phantasm of total accomplishment'. it's that feeling you get through extreme behaviours, when it feels like, for a moment, it all clicks into place and you're lost in the moment and somehow, viscerally, you *understand*. i'm reminded of charles bukowski sat in his bed with a bottle of cheap wine listening to classical music and feeling like he's grasped the meaning of the music; of the girl i once knew who took coke because it made her feel 'interesting'; of hemingway and his need to cure the angst of writing through drink; of the romantic ideal of the starving poet in his garret; of the girl i still know who recited poetry to me on a bridge in paris under the mistaken impression that she was making sense.

and somewhere underneath all of that i dimly remember that the point is not to go for the quick fix of alcohol or idealised relationships or whatever else, but to somehow learn to fix that moment so that it becomes more and more frequent, more and more a normal occurence. not that an individual's emotional life isn't cyclical - but that the ups and downs should be closer together and less overwhelming. there's always the problem of the downside, though: those quiet moments when you can't remember why you're trying so damned hard and when the temptation to seize upon the easy options is all too great. i learned once in a dark room on my own in barcelona that a moment of simple intimacy between people - just reaching out to touch someone in the simplest way, with a sincere word or gesture - could make all that weight fall away like an old skin. but for all the beauty of that moment of recognition, i turned that understanding into another quick fix behaviour. ah well.

   "question and answer"
   Charles Bukowski
   he sat naked and drunk in a room of summer
   night, running the blade of the knife
   under his fingernails, smiling, thinking
   of all the letters he had received
   telling him that
   the way he lived and wrote about
   that--
   it had kept them going when
   all seemed
   truly
   hopeless.

   putting the blade on the table, he
   flicked it with a finger
   and it whirled
   in a flashing circle
   under the light.

   who the hell is going to save
   me? he
   thought.

   as the knife stopped spinning
   the answer came:
   you're going to have to
   save yourself.

   still smiling,
   a: he lit a
   cigarette
   b: he poured
   another
   drink
   c: gave the blade
   another
   spin.

brain dump

2005-11-23T15:57:00.000Z

thinking of states is not the appropriate way to think about the middle east.

all norms and structures are practices: they are not constructed, in that they do not exist indepedently of their implementation; rather, they are patterns of practice and action that can be identified and that from which can be extrapolated reasonably predictable parameters within which action will occur.

all systems of surveillance, coercion and co-option in the middle east, as elsewhere, stem from constantly evolving practices: the state, as it is envisaged today, is basically the concentration of those practices in a bureaucratic organisation. as elsewhere, some practices evolved indigenously in the middle east while others were learnt from others.

the evolution of these practices can be readily observed by examining the longue duree.

many of the practices that characterise the middle east today are coded as norms. the establishment of identity and community is based on particular interpretations of the world, and specific practices are coded as proceeding inexorably from those interpretations. that linkage gives the normative weight to those practices, and allows the practices to become to some degree self-reinforcing.

while the interpretations hark back to a bygone age, today's practices are new, creating constellations of coercion and co-option that have not existed previously but that contain the echoes of previous constellations.

patterns of coercion and co-option existed on the arabian peninsula long before the prophet, and in those patterns, described by ibn Khaldoun, can be discerned the reflection of the modern Gramscian concept of hegemony.

the coming of the prophet broke down the steady system that had existed on the peninsula and triggered a violent realignment of power relations. by elaborating a system of practices that could pacify medina, a huge quantity of previously untapped power was released, which flowed across the peninsula and out along north africa and into spain and in the other direction into persia. but as the ripple that had started in medina spread outwards, it left the water in its wake calm - that is, it left behind it different steady system. the new steady system was constituted of old practices - for bedu of the desert, the merchants of the hejaz and the traders of trucial oman, little changed - upon which was superimposed the new discourse of islam. the old balance of power system revived, and ebbed and flowed until muhammed ibn saud made his pact with muhammed ibn abd al wahhab. through shari'a, the bedu could act in unison: again, the power that was unleashed swept all before it. but when the wahhabis took the hejaz they threatened the greater regional hegemon, the ottomans, and the egyptians were delegated to crush them. the egyptians benefitted from 'modern' (i.e. bureaucratised) practices/technologies of organisation and were thus they could muster superior force and defeated the al-Saud.

the british became increasingly interested in the region and the al-saud played them off the ottomans. the british supported the al saud and taught them new organisational technologies, which were then translated into practices that increasingly resembled statecraft. they taught similar technologies the rulers of the uae and oman. these new practices included many conceits copied from the british monarchy, which melded easily with the traditional concepts of sheikh and amir. so new practices of power were garbed in old clothes.

the discovery of oil meant that new practices had to be developed. these practices were concerned with the appropriation of the revenues resulting from those resources by those who were at the apex of the constellation of power relations and the redistribution of a proportion of those revenues in such a way as to perpetuate the trope of the benificent patriarch and to sate the jealousy of their more ambitious fellows. a new technology imported from the british allowed the development of such practices in a way that would not take the form of such an explicit pay-off. the advent of oil wealth meant that money had to be administered. the administration of resources for the public benefit was commonly conducted in the west by an organisation called a bureaucracy. the adoption of the organisational structure of the bureaucracy in the middle east provided both a conduit for the distribution of oil revenues and a legitimating discourse for such distribution. the government of oil - the practices of extracting oil and administering the resulting revenues - was the entire purpose of the new organisation, and those whose tribes had been at key points in the shifting structure of power relations in the pre-oil period expected and were expected to wield influence in the new steady system of bureaucracy.

Gnomic central bankers

2005-11-21T17:45:00.000Z

Remarks by Chairman Alan Greenspan
At the Annual Dinner and Francis Boyer Lecture of The American Enterprise Institute for Public Policy Research, Washington, D.C.
December 5, 1996

"...Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability. Indeed, the sharp stock market break of 1987 had few negative consequences for the economy. But we should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in asset prices particularly, must be an integral part of the development of monetary policy.

The public examination of Federal Reserve actions extends well beyond our stewardship of monetary policy. Our overall management of the Federal Reserve System should, and does, come under considerable scrutiny by the Congress. Since we expend unappropriated taxpayer funds, we have an especial obligation to be prudent and efficient with the use of those funds. I am not particularly concerned about the one-third of our annual $2 billion budget that is expended to provide financial services to the private sector in competition with other providers. Such services include the clearing of checks, the operation of the Fedwire system, and the processing of automated clearing house payments. We are reimbursed for those services, and at competitive prices still make a reasonable profit for the Treasury. If we became inefficient and uncompetitive, we would be priced out of the market, and eventually out of that line of business."

Speech of His Excellency the Governor (pdf)
To the Custodian of the Two Holy Mosques on the Occasion of the Presentation of SAMA's Forty-First Annual Report

"...It is highly gratifying that in assessing the performance of the Saudi economy, various international financial organizations and rating agencies have paid tribute to the economic policies followed by your wise leadership for continued maintenance of fiscal consolidation and confining expansion in expenditure to long-term investment in vital production sectors and programs aimed at improving the status of the categories of the community whose needs are paramount, particularly in view of the fact that the increase in revenues has resulted from developments in the global oil market which has been subject to considerable volatilities over time.

Your wise leadership will ensure, God willing, consolidation of the economic march and save the economy from the vagaries of the oil market. Your directives to rationalize expenditure in spite of the substantial improvement in revenue and to allocate the fiscal surplus for future projects and important programs, reduce public debt, and build appropriate reserves to meet adverse impacts that might result from unexpected and sudden changes in the oil market are quite reassuring and speak of Your Majesty's sagacity and foresightedness.

May the Almighty Allah guide your steps to success."

George Eliot

2005-11-04T00:47:00.000Z

"The sense of security more frequently springs from habit than from conviction, and for this reason it often subsists after such a change in the conditions as might have been expected to suggest alarm. The lapse of time during which a given event has not happened is, in this logic of habit, constantly alleged as a reason why the event should never happen, even when the lapse of time is precisely the added condition which makes the event imminent."

Hiatus

2005-10-18T21:36:00.000Z

Sorry I haven't been my usual self recently on the blogging front - deadlines gave way to politics gave way to fatigue, and now I'm going on holiday to get away from it all from a bit. I'm back Sunday, and should resume normal service from then.

Thanks for your concern, everyone who voiced it...

And a thought to leave you all with - for all the hubris, doesn't it look like Dubai is finally beginning to catch up with reality these days? Personally, I'm quite shocked at how mature the powers that be are being - quite out of character. Let's hope it sticks, eh?

Feel free to add your own thoughts below...

Iraqi calls Saudi 'camel jockey'

2005-10-03T14:18:00.000Z

BBC: Iraq minister hits out at Saudis

Bayan Jabr said Iraqis were proud of their country, and would not accept lessons on human rights and democracy from Saudi Arabia.

And he disparaged Foreign Minister Prince Saud al-Faisal, who made the comments, as a "Bedouin on a camel".

How amusing.

Cat gets tongue

2005-09-27T11:12:00.000Z

“The media in this region — words fail me for the right description, since I might get into trouble.”

Richard Evans, PepsiCo’s commercial vice president for the Middle East and Africa

Courtesy of Campaign Middle East (registration required)

Raging Bull

2005-09-25T16:00:00.000Z

The new realities of regional finance - MATEIN KHAILD, MENAFN

Khalid gives a pretty good rundown of the systemic risks that make the bull market in the GCC so very worrying.

My opinion - there's too much cash chasing too few investment opportunities in the region; too little oversight, regulation or transparency; too much exuberance - bear in mind, as Japanese bank Nomura pointed out, that Saudi Telecom's market capitalisation of US$74bn is worth more than BT (US$35bn), AT&T
(US$15bn), SK Telecom (US$15bn), and Telekom SA (US$9bn) combined - and far too many unsophisticated investors who think that having the names of a couple of ruling family members in the IPO prospectus is a valid alternative to a business plan - or, for that matter, an existing business.

Anyway. here are his conclusions:

Market valuations are now extremely inflated across the AGCC, raising the risks of panic sell offs and protracted corrections. The high degree of retail participation on the bourses, the role of excessive bank leverage, the absence of viable bond markets that could act as shock absorbers or an alternative liquid asset class or hot money on the exchanges, no real hedging instruments like index derivatives or market makers mandated to use their capital to stabilise falling shares on the regional stock exchanges are all a potent combination of systemic risk if sentiment changes.

...

Unfortunately, leverage cuts both ways. Leveraged bear markets can wreck havoc because buyers literally disappear since every market correction causes a new wave of distress selling from long only investors trapped by margin calls.

This is the daisy chain of capital markets panic that has triggered recession, banking crises and even credit crunches more than once elsewhere in the Middle East. After all, in Kuwait's Souk Al Manakh and Oman, the AGCC witnessed the leveraged daisy chain dominoes in the capital markets collapse and take down entire banking systems in a pyramid of paper speculation.

Let us hope that central bankers and securities regulators in the AGCC remember Santayana's warning that those who refuse to heed the lessons of history are doomed to repeat them.

Read it. Read it all.

Business-friendly UAE

2005-09-13T15:05:00.000Z

According to the wondrous periodical that is the Gulf News, ' UAE business procedures [are] 'highly streamlined'

It takes six documents, three signatures and 18 days in the UAE to move imported goods from ports to warehouse, which according to the latest World Bank report makes the country one of the most competitive in the Middle East

Ha!

With a company start-up capital requirement that favours the rich - 416.9% of per cap. income (as opposed to 28.9% of per cap income in the OECD); with a credit information index of 2 out of 10; with a shareholder protection index of 4.7 out of 10; an average delay of 614 days to enforce contracts (232 in the OECD); and an average recovery rate of 5.5 cents on the dollar from bankrupts – yeah, it's incredibly 'streamlined'.Particularly if you're rich, you plan on going bankrupt and have no intention of paying your creditors. BCCI anyone?

See for yourself.

me no know

2005-09-11T14:33:00.000Z

This is interesting.

Theory-Driven Reasoning About Plausible Pasts and Probable Futures in World Politics: Are We Prisoners of Our Preconceptions? (Word document)
Philip Tetlock, (American Journal of Political Science 43(2): 335-66).

Political analysts are wont to lapse into tautological thinking and most knowledge claims are inherently politicised. It's something that I've long thought, but this paper gives the observation some analytical rigour.

It's difficult to know what to do about it, though. There is an intractable epistemological conundrum at the heart of human consciousness that we have yet to solve. For the time being the best work-around we have developed is based on Descartes' privileging of concrete experience, but the simple fact of the matter is that the world has too many variables, all changing too quickly, for empiricism to much more than a valiant attempt to impose rigour on thought. When it comes to analysing fast-moving, stochastic datasets and trying to extrapolate future trends, empiricism is just too cumbersome for the job. So political analysis largely comes down to sophisticated heuristics.

There's a problem here, though, as well. As any (serious) political analyst will tell you, fortune-telling is a mug's game, but it's also what the readers really want you to do. There's little alternative but to draw vague, ephemeral conclusions that delimit the possible range of future outcomes, all hedged about with weasel words. And even then, as Nassim Nicholas Taleb points out in a fascinating paper (pdf) on prediction (it's in draft, so don't quote it), even when people limit themselves to delimiting a range, they get it very wrong - worse, experts get it even more wrong, largely because they find it more difficult to believe that they could be.

The thing is, though, that we're all in business, which means that we can't really just throw our hands up in the air and say "Well, how the hell would I know?". Tempting as it is. So what we end up doing is playing an elaborate confidence trick on - or perhaps more accurately, with - the readers.

The ranges of possible future outcomes are selected heuristically - that is to say, in a rough'n'ready 'kinda fits' way - and then hedged about with words like 'perhaps' and 'possible' so that there's a get-out clause if we get it completely wrong. What our heuristics come down to, though, is a whole bundle of unarticulated biases, assumptions and beliefs about what the world is and how it works - that essential epistemological conundrum to which I refered earlier.

The thing is that the reader doesn't have any alternative mechanism by which to assess the validity of our truth claims. All the reader is able to do is to deploy precisely the same sort of heuristic reasoning to see if the analysis 'kinda fits' their own interpretation of the world. If it does, then the material is deemed 'good' and they'll probably read it again.

Which brings us to the great danger of this process. It's become glaringly obvious over recent years that the popular press in most countries has abandoned the old ideal of journalism and has cynically embraced this feedback loop of heuristic reasoning. People buy newspapers these days not so much to read news, but to have their own views recycled back to them clad in the pscyhologically imposing (qua 'authoritative') form of the printed word. It's symbiotic: they like the reinforcement of their own personal paradigms, and the papers employ people who share the paradigm so that they can write copy that the readers will like. The way that I'm describing it makes it sound very transparent, but it's not - there are several layers of bluff and counter-bluff going on there to ensure the suspension of disbelief, most of them to do with the 'personality' attributed to the outlet's editorial line. 'Edginess' or being 'hard-hitting' or being 'salt of the earth' are some of the more obvious traits cultivated to maintain that underlying suspension of disbelief.

And it seems pretty obvious that exactly the same thing is going on in all analytical professions, whether it's political analysis, business analysis or financial analysis: most analysts end up producing analysis that looks remarkably like what their peers and competitors are producing (not least because they spend so much time looking at their peers' and competitors' analysis). And if they get it wrong, then just about everyone gets it wrong. They do this even if they know deep down that they're just telling people what they want to hear - just look at the tech bubble. And it's only in rare instances, like the tech bubble, that this symbiosis will break down and people will actually be taken to task for perpetuating the myth that we can see into the future.

It's a bit like the early priesthood, in a way. The people in the funny costumes who speak in a funny dialect full of arcanery are the people who don't have to go out into the fields to work, because they're the guardians of 'the knowledge'.

Anyway. The problem is: knowing this, what are we actually going to do? Should we give up prediction? Should we abandon analysis? No, actually, I don't think we should. There are two things that make me think that it is still worthwhile pushing on in this line of work. One of which is the fact that when people make decisions, most of the time, again, they will be relying on heuristics. Because heuristics are fuzzy, the best way to analyse them quickly is through fuzzy thinking. So when it comes to analysing decision-making, being imprecise isn't necessarily a flaw - so long as you recognise that the person you're analysing may be imprecise too.

Which is what this comes down to, for me. There has to be an element of intellectual humility involved here, and a degree of empathy. It is possible to understand decision-makers so long as you recognise that their decisions may be driven by emotion as much as by rationality, and that they often get it wrong. Far too much political analysis assumes an incredibly high level of rationality, cohesion and purpose in decision-making, when what you're looking is really only marginally more organised than pure chaos. The thing is that it's tempting for analysts to perpetuate the impression of complexity because it maintains their position as the guardians of 'the knowledge' - which is precisely what conspiracy theorists try to do at the lunatic fringe of the practice - when actually the analysis would be better if it were that much simpler and that much more sincere.

The most important part of that would be admitting making mistakes without trying to wriggle out of it. Playing with counterfactuals can indeed increase our understanding of the world, and if they are proven wrong, we can learn even more from why. To err, after all, is human. Unfortunately, we're generally too damned proud to admit it when we do screw up.

John Kay on 'heroic' executives

2005-09-06T17:56:00.000Z

War and Peace - a business primer for our time

At the conclusion of the Drissa meeting, Andrei “lost his standing in court circles forever by not asking to remain attached to the sovereign’s person, but for permission to serve in the army”. The success of a military action, Andrei concludes, depends not on commanders, but on the man in the ranks: “only in the ranks can one serve with assurance of being useful.” How could a 19th century Russian have understood modern business realities so well?

John Kay is great. This article sums up my employers.

Judicial stand-off

2005-09-05T15:04:00.000Z

Baheyya dissects the infiltration of the Egyptian judiciary by legal officers answering to the executive branch of government. Senior judges are clearly deeply committed to their constitutional role and to the doctrine of the separation of powers; the regime, through Supreme Constitutional Court Mamdouh Mare'i, is clearly determined to dilute their power, split their ranks, and limit their ability to grant legitimacy to, or withhold it from, the election.

On Friday, the judiciary took a strong stand against executive interference in their constitutionally mandated role to observe the elections. As Baheyya relates:

The majority of judges resolved to monitor the presidential poll next Wednesday, on the following terms: (1) judges will permit members of civil society watchdog groups to enter polling stations and observe the vote, (2) judges will hand over copies of voting figures to candidates' proxies, and (3) those judges who have been distanced from monitoring by fiat (approximately 1,700) will form their own fact-finding commissions and monitor the vote anyway, roving between polling stations much like the citizen watchdog groups.

Reinforcing the point, a court ruled Saturday in favour of a coalition of NGOs, saying that they could indeed observe the elections.

The Presidential Elections Commission responded almost immediately, re-iterating its ban on NGO participation in election monitoring, and also discounting a separate court decision to exclude a candidate who had lost the support of his party.

The implications should be obvious. A government body deriving its authority from the executive is arrogating the right to pick and choose which judicial decisions it considers binding. It will be interesting to see how this stand-off develops over the next two days.

Celebrity departures

2005-09-04T13:45:00.000Z

Secret Dubai diary: Book of the Dead

A monthly magazine celebrating the lives of famous dead celebrities is to be launched across the region by Corporate Publishing International, Campaign Middle East can reveal.

Called Goodbye, the "niche" publication is expected to hit the streets from the start of next month, priced around AED10 (US$2.70).
...
The idea came to de Sousa after he was reading a celebrity magazine that carried coverage of Pope John Paul II’s funeral. "I kept on seeing dead bodies of famous people being featured in magazines and thought about what these people had contributed during their lives."

Heh.

Monumental mistakes?

2005-08-23T20:48:00.000Z

I wish I had the leeway to write stuff like this for publication.

Palm before a storm?

Palm Jumeirah has become synonymous with the triumphalist expansion programme that is Dubai. But stuffing the palms like sardine tins, which may or not bear up to the traffic, is surely a questionable move. Nakheel did not respond to efforts by The Daily Telegraph to discuss concerns raised about this project. However, let us hope that, unlike the Colossus of Rhodes, one of the seven wonders of the ancient world, this self-declared eighth wonder of the contemporary one doesn't end up at the bottom of the ocean.

Via The Emirates Economist

It strikes me that the UAE govt is increasingly running the risk of getting caught out by its hubris.

Granted, members of hte ruling families - the Minister of Education, Sheikh Nahyan, being a sterling example - seem bright, on the ball, and to know what needs to be done.

And it's not as if, as a group, they are unwilling to listen to reason: vid. the way that the Central Bank, on the recommendation of the IMF, has issued treasury bills to soak up some of the liquidity that is making the Abu Dhabi and Dubai financial markets go crazy.

But they are only human, and humans are fallible, and some mistakes may well have been made. Given the incredible scale of the work going on and the blistering pace of change, the ramifications of those mistakes seem to be materialising more rapidly than it is possible to fix them.

That said, I don't believe that any of these mistakes is fatal - nor, though I worry, do I think that they are all fatal even when taken in the aggregate. But I think there's going to be a period of some difficulty before things are finally resolved. If it's any consolation, by the end of it the government will have learned how best
to deal with problems.

Good article on over-heating GCC financial markets

2005-08-22T16:46:00.000Z

Reducing Leveraging Can Bring Back a Sense of Realism to Gulf Stock Markets

Henry T. Azzam gets it pretty much right...

Peter Galbraith on Iraq

2005-08-19T11:12:00.000Z

Peter Galbraith's piece in the New York Review of Books on Iraq is pretty good, though I always find the US-centric prism of American commentators a little grating (not that you can really blame them for it, it's only natural).

In this instance, though, I think it is detrimental to his analysis. He talks in ominous tones about Iran's pervasive influence in Iraq, particularly through its proxy the SCIRI. But he doesn't note the divergences within the Shi'a community - the fact that Sadr does not want a situation where the SCIRI has overall control over the organs of the state; the fact that Sistani does not advocate the same system of clerical control over government that exists in Iran, epitomised in the velayet-e faqih.

He also sees relations between the two as a zero-sum game vis-a-vis the US - where Iran gains clout in Iraq, the US loses it. That is a superficial, short-termist analysis. Better relations between the two will help to ensure the stability of the new Iraqi government and will help to remove one the greatest causes of instability in the wider region over the last twenty yeras - the rivalry between Iraq and Iran. Moreover, there are strong pressures in Iran - both from liberal middle class kids in the cities and poor Muslim families in the countryside - for the clerical elite to become less corrupt, more accountable, and actually do something to improve the lot of the vast majority of Iranians. I don't think it would be any surprise if this were the same popular sentiment in a more stable Iraq under a Shi'a Islamic government.

In the short term, Shi'a theocracy may look scary to the US, but even Shi'a theocrats aren't immune from the pressures of demographics and economics. I'm just not as worried by the possibility, essentially - most of the aggression towards the West in Iran is just elite posturing to distract the more gullible from the country's economic problems.

Random musing on energy lingo

2005-08-19T09:40:00.000Z

Power companies always talk about 'producing' power. Oil and gas companies always talk about 'producing' oil and gas. But they don't 'produce' anything - oil companies extract energy-laden minerals, energy companies convert those minerals into electricity. Increasingly, now, we also have companies that sequester carbon emissions resulting from that conversion process.

Perhaps the most important shift towards greater environmental responsibility will be a linguistic one - perhaps when eventually the language we use to describe the process of power generation will reflect that it is a cycle, we will begin to engineer our power generation cycle as a wholistic process that internalises what had previous been seen as externalities.

Alhamedi on the Saudi Civil Service

2005-08-11T09:27:00.000Z

The much-missed blogger behind The Religious Policeman is back. Amongst other things, he had this wry observation on the Saudi bureaucracy:

Well, in Saudi Arabia, we have massive unemployment, and a massive job creation scheme known as the Civil Service (although the "Civil" does not refer to the politeness of its servants). "Civil" servants pursue job preservation strategies that involve making everything as time-consuming, complicated and difficult as possible.

King Abdullah takes the throne

2005-08-03T16:11:00.000Z

King Fahd, as most will doubtless know by now, has died. The playboy-turned-diplomat-turned-moderniser-turned-COTTHP*-turned-invalid has finally shuffled off this mortal coil, ten years after his last attempt and somewhat more conclusively this time.
*Custodian of the Two Holy Places

I'm not about to praise Fahd for his reign; nor do I feel the need to blame him for the world's ills. He was a man like any other, with a man's strengths and frailties – though perhaps, like many of us, with more of the latter than the former. His incredible wealth exaggerated those traits beyond imagining.

I'm far more curious about what happens next.

There's a tendency on the part of us hacks to look for drama in a situation. It makes it more interesting to read, for sure. But in the case of a subject as complex and as opaque as the House of Saud, it doesn't really help our analyses. I will try to bear that in mind as I run through my thinking on what we're looking at in the Kingdom.

The King is dead! Long live the King!
When Fahd died, few doubted that Abdullah would succeed him. The question had been resolved in the mid 90s, after Fahd's 1992 edict on succession.

The edict formalised a principle that has become common practice amongst the Gulf monarchies: the ruler has the power to appoint and dismiss his heirs. But since the time of King Faisal, the King has typically nominated not his immediate heir, but the heir's heir: the position of Second Deputy Prime Minister.

Abdullah was nominated to the position of Second Deputy Prime Minister in 1975 by King Khalid, an elderly and ailing man before he even took the throne. They may have had something in common: both were men more of the desert than of the casino. Khalid explained the rationale behind decisions to the press, and worked on the development of governmental institutions. And while the common view is that Khalid contented himself with being a figurehead while Fahd ruled, it was during Khalid's brief reign that the Kingdom invested heavily in infrastructure, in what was probably the first instance of the 'supply-led growth' model that Dubai is now championing.

Abdullah is also a strange fish amongst the al-Saud. His relatively austere lifestyle and his love of the desert make him more reminiscent of the UAE's much-loved Sheikh Zayed than of heavy-boozing playboy Fahd. His rapport with the tribes led Faisal to make him head of the National Guard in 1962, a tribally-based force that evolved out of the Ikhwan that had helped Ibn Saud conquer the Nejd and the Hejaz in the 1920s (on which more later).

Fahd, the eldest of the al-Sudairi – seven brothers by the same mother – had been appointed successor to Khalid by Faisal. For Khalid to appoint Abdullah successor to Fahd balanced the overwhelming influence of the al-Sudairi. So when, in 1992, Fahd issued his edict, his full brother Prince Sultan sought to oust Abdullah.

But in 1992, the Kingdom was experiencing one of its episodic renegotiations of the relationship between rulers and ruled (on which, again, more later). The modernisation polices of the 1970s under King Khalid had made traditionalists feel threatened, but while the standard of living was high, their dissent was muted, apart from one major exception (on which more later). But after Fahd took the throne in 1982, GDP per capita plunged precipitously.

[Vid. this graph]

Fahd's decision, in 1990, to allow US forces to be based on Saudi territory brought many of the underlying tensions in the Kingdom to a head (on which more later).

Abdullah's close relationship to the descendents of the Ikhwan and his austere lifestyle made him invaluable to Fahd as an acceptable face for the regime. But he was not without his opponents. When Fahd's youthful antics caught up with him in the form of a crippling embolism in 1995, the Sudairis and other princes moved to ensure that the King did not die, hoping to block Abdullah's early succession to the throne. While it would be a mistake to call Abdullah pro-Western, it had long been clear that he has opposed corruption and supported the creation of solid politico-economic institutions: hence the threat he posed to the more spoilt and kleptocratic princes.

But in the late 1990s, as the threat to the regime from a new wave of Islamic dissent – this time drawing equal inspiration from the salaf and from the Egyptian theorist Qutb – Abdullah was able to consolidate his hold on power.

But he has not been able to escape from symbiosis with the al-Sudairi. Abdullah has no full brothers, and found himself reliant on the two most powerful of the al-Sudairi – Defence Minister Prince Sultan and Interior Minister Prince Nayef – to help him defeat the insurgency that wracked the kingdom in the early 2000s.

Which brings us to the present day. What will King Abdullah's reign hold for the Magic Kingdom? Clearly, much will be business as usual: after all, Abdullah's interests and the interests of the al-Sudairi overlap in many places, particularly in foreign policy and in oil policy. The crucial question is whether Abdullah will be able to indulge his desire for institutional reform. But while the country direly needs reform, it is far from clear that he will.

Déjà vu?
Saudi Arabia is currently enduring the latest episode in a crisis whose roots go back to its formation. It is a crisis in constant evolution, whose shape changes in each episode, but the underlying discourse and dynamics are often the same.

The first uprising
In the early C20th, Ibn Saud consolidated his hold over the Nejd and the Hejaz with the aid of the Ikhwan, warrior Bedouin dedicated to spreading Islam as the Prophet had done before.

Ibn Saud's spreading hegemony across the Peninsula started to break down the complex balance of power that had existed between the tribes of the Nejd in the 1910s. Combined with Ibn Saud's entirely strategic Wahhabi proselytising (he saw it as a means to claim legitimacy), the dissolution of an old way of life set in motion a Salafi revival amongst the Bedouin.

When the Prophet abandoned his tribe and left Mecca, he moved to Medina, a move called the hijra. The tribes of Medina , unable to adjust to urbanisation, had long been at war with each other. The developing religious/political/legal code of shari'a helped Mohammed to unify the warring tribes there and helped the tribes to adjust to urbanisation.

In the 1910s, the Ikhwan abandoned their Bedu lifestyle and to settle the land and submit completely to Allah in tribal unity. Their villages were called hujra (the plural of hijra). Ibn Saud gave them money, agricultural implements and weapons: by 1915, there were 60,000 of them.

For Mohammed, the hijra was a brief moment of calm before the period of war by which he took control of most of the Arabian Peninsula. His successors were to spread the Caliphate to Mesopotamia, Persia, the Levant, the Maghreb and al-Andalus.

The Ikhwan clearly hoped to follow in the footsteps of the Prophet and his companions. Sweeping all before them, they took the rest of the Nejd, Asir and the Hejaz. Through marriages and patronage Ibn Saud secured the loyalty of the defeated sheikhs.

But unlike Mohammed and his companions (the 'salafi', in the original sense of the word), Ibn Saud had to deal with a greater, industrialised hegemon: the British. The British had guaranteed the protection of the peripheral emirates of the Trucial Coast, (today's UAE, Oman and Qatar), and launched punitive raids against the Ikhwan when they tried to invade the British Mandates of Mesopotamia and Jordan in the early 1920s.

Ibn Saud had long recognised that the British held the balance of power on the Peninsula, and once he had secured control over the Peninsula, he allied with the British to consolidate his power and refine his instruments of coercion, particularly in the creation of a standing army.

The Ikhwan were disgusted with Ibn Saud's modernisation policies and his collaboration with the British, and claimed that he was betraying the path of the salaf.

British armour and planes helped Ibn Saud defeat their 1929-30 rebellion.

The second uprising
In the 1970s, King Khalid's modernisation policies once again threatened the way of life on the Peninsula. With the Kingdom's coffers swelled by the OPEC price hike, the King was free to make massive investments in infrastructure projects, which were performed by expat workers. But as many Princes sought to skim the cream off the investment programme, inequalities in the Kingdom deepened. The tribes who had made up the Ikhwan, in particular, had been left out of the massive distribution of oil rents.

In 1979, Salafi purists led by Juhayman al-Utaybi, a descendent of the Ikhwan, occupied the Grand Mosque at Mecca. They criticised the Saudi royal family for its decadence, for its collaboration with infidels, and for what they saw as its abandonment of Islam. Much of their theology came from Sheikh Abd-al Aziz bin Baz, who had criticised Ibn Saud in the 1940s for allowing the Americans to exploit the Kingdoms oil.

It took French security forces to dislodge them.

As the occupation of the Grand Mosque came at roughly the same time as the Islamic Revolution in Iran, the House of Saud thought that it would best preserve itself by bolstering its religious credentials once more. King Khalid and after him King Fahd went to the Wahhabi ulema for support, fatefully handing it control over education policy, amongst other things, in the interests of short-term stability.

The third uprising
In the early 2000s, the al-Saud have once again come under fire for their decadence, abandonment of Islam and collaboration with infidel Western imperialists.

A different kind of Ikhwan inspired this most recent crisis, however: today's militants are inspired by an ideology heavily influenced by the thinking of the Egyptian Muslim Brotherhood, in its mid-C20th form when it was more interested in revolution than in elections.

The al-sahwa al-islamiyya, the 'Islamic Awakening' inspired by Qutbist thinking, began in the 1960s but took on new significance in response to the transparent way the al-Saud turned to the ulema to legitimise its rule in the 1980s. For Qutb, the world was immersed in Jahiliyya, the pre-Muslim state of ignorance. Only a revolutionary new Islamic state could resolve the decadence of the world. For the Salafis who had tried time and again to follow in Mohammed's footsteps and overthrow the decadent House of Saud and restore the caliphate, the idea clearly struck a chord.

The House of Saud, nevertheless, left the young sahwa Sheikhs more or less alone, while encouraging the radical young men to whom they appealed to go pursue jihad in Afghanistan . There, the intermingling of Salafi and Qutbist ideas accelerated.

(NB – Osama bin Laden is actually a Deobandi rather than a Salafi, though the two systems share a rejection of the seductive materialism of the West. His closest links are to the Asiris, who were also poorly integrated into Saudi Arabia and marginalised during the years of the oil boom. Nine of the 15 9/11 hijackers were from the Asiri al-Ghamdi tribe).

When King Fahd leant on the clergy once again to sanction the presence of infidels in Arabia to wage Operation Desert Storm, the sahwa reviled the move. In the latter part of the 1990s, many were locked up. Towards the end of the decade, al-Qa'eda started its campaign.

Presque vu?
It's hard to define exactly what the links are between each of these episodes, but there is a pattern. Each of the uprisings used similar language to oppose the power of the House of Saud. All criticised a perceived corruption of Muslim culture by Western interference; all criticised the House of Saud for its decadence and avarice; and all were rooted in communities excluded from wealth and power by the House of Saud. And each time, the al-Saud have sought to deflect this opposition through expressions of piety and by giving more money and power to the ulema.

These dynamics are going to re-emerge strongly over the coming years, but rather than in the streets, the coming battles are more likely to be fought in ministries, in newspapers, in schools and in mosques. Saudi Arabia is facing an unparalleled demographic and economic challenge which Abdullah will find incredibly difficult to resolve.

Alongside the advent of advanced medicine and (individual) food security with the economic boom of the 1970s came a baby boom. The population grew by just under 5% a year in the 1970s and 1980s. The Ministry of Planning estimates that the Saudi population will increase by 90% between 2000 and 2020. Similar patterns exist in most developing countries. This new generation of Saudis is coming of age right now.

And they all need jobs. The Ministry of Planning also estimates that the Saudi labour force will swell from 3.99 million in 2004 to 8.26 million in 2020.

The problem, again, is the policies that the government has employed to forestall unrest. Most Saudis are employed by the state as high pay, low productivity civil servants. A full 85% of the government's budget currently goes to paying salaries and pensions (pdf). But because the government has not needed to court foreign investment, has not needed taxation for funds, and whose only real economic policy tool has thus far been infrastructure investment, the private sector in Saudi Arabia is weak.

Admittedly, the autocratic nature of the country has made it more stable and hence more prosperous than would be the case were it democratic (pdf): democratic rentier states tend to be incredibly unstable as self-interested groups constantly compete to capture the state and thence pass rents to their supporters. To that extent the autocratic distributive model has worked well.

But it is a strategy that only really works well for small rentier states, where the mineral wealth is far greater than the capacity of the population to spend it. In Saudi Arabia, population growth has outstripped the growth in oil rents over the last 25 years. Real GDP per capita in the Kingdom is back where it was in 1973.

Until now, the government's strategy has been to court foreign investment, and then slap quotas on companies forcing them to employ Saudi nationals – the euphemistically named 'Saudisation' policy. It is essentially parasitical in nature, an outsourcing of the same unproductive rent distribution that characterises the public sector. Foreign companies tend to agree, albeit sotto voce: nationals employed under Saudisation targets are all-too-often seen as a fixed cost, a bureaucratic expense of doing business in the country.

More importantly, the policy just doesn't work. For one, the public sector continues to pay more to Saudis than the private sector (where wages are driven down by expat labour). Increasing the costs of hiring expats may make wages converge, but is unlikely to solve the other problem: a worldview inconsistent with the needs of the modern economy. Work, for far too many in the Gulf, is something expats do: employment (in the public sector) is nationals' entitlement, and is more likely to be obtained through wasta than through merit.

Look at Bahrain (pdf), for example – a much more open country than Saudi Arabia: 70% Bahrain University entrants can't pass a TOEFL (English language) test; more than 70% have only basic algebra; and 39% of students in tertiary education are studying subjects with limited relevance to the economy. Across the GCC, education systems emphasise rote learning and the authority of the text over critical thinking, problem solving and rational enquiry. A factory-line approach to education reminiscent of Dickens' Professor Gradgrind has emphasised material inputs over learning processes, leaving Gulf students woefully unable to cope (pdf) with the exigencies of our de-Taylorised, knowledge-based modern economy.

To their credit, many members of the Kingdom's elite are aware of the challenges that must be overcome. Some have called for massive investment in education, particular in hard sciences and education. But they are up against the entrenched interests of the sahwa and the ulema, whose knee-jerk aversion to the introduction of Western-inspired education policies is but another expression of the globally felt but locally expressed anxiety faced with the interdependence and intermingling wrought by globalisation.

The problem is that, for all its money and influence, the House of Saud is remarkably weak. In nation-states, bureaucracy is strong and pervasive, and a sense of common nationality binds us together with that strong underlying sense of community that is the main bulwark of the political system.

In Saudi Arabia, religion is the only thing that has bound the state together. It would be wrong to talk of the Kingdom as a nation-state: tribal identity in the Kingdom – which is still incredibly strong - was only trumped by Islam. The shared identity that binds Saudis to each other is the umma. But, as in Western nation-states, the threatened and the marginalised try to exclude, rhetorically, their enemies from that shared identity. Hence the Kingdom's cycle of religious dissent. Moreover, the bureaucracy is weak and inefficient and does little to increase Saudi labour productivity.

This is why progress is likely to be halting. The al-Saud are dependent on the ulema to bind their state together, but must fight against the ulema to avert the greatest threat to the Kingdom's stability. The reformation of the Kingdom's education system could well involve a profound cultural shift, a re-evaluation of the bases of the shared Saudi identity. It is a shift that will not go uncontested, and the struggle will be long and difficult. While the gathering insurgency, beginning in the 1990s and reaching a bloody crescendo with the events of 9/11 and the Khobar bombings has convinced Abdullah that the Kingdom is in crisis, it took an exceptionally public tragedy to give him the opportunity to take action against the religious establishment's stranglehold on the education system: the horrible deaths of girls trapped in a burning school.

More UAE IPO news

2005-08-03T08:53:00.000Z

From Shuaa, August 3

UAE's Ministry of Economy and Planning has halted the licensing of 15 newly incorporated companies that were planning to open their shares to investors through initial public offerings until the new company law is issued.

I wonder if this is a way of trying to take some of the heat out of the market.

'Italy bans burqas'

2005-08-01T09:01:00.000Z

According to a piece in The Australian the Italians have just banned burqas. I hadn't realised that this was in the pipeline. It is part of wider anti-terrorism legislation, which prohibits anyone from covering their face in public.

I have a feeling that some in the Middle East will interpret this as yet another Western attack on Islam. I'd point out that it doesn't ban chadors, only burqas, and that the burqa is more of a cultural thing than a Muslim thing (they're not the norm in all Muslim countries, after all). I'd also point out that it seems to be primarily a security consideration, given that it's a blanket ban on face coverings.

Somehow I don't think it will make any difference, though, particularly as there will inevitably a small minority of xenophobic nutcases in the West who will applaud this move because of its effect on the burqa, further fuelling Muslim fears.

The coming IPO frenzy

2005-07-27T17:48:00.000Z

There are about 15 IPOs due to hit the UAE in the coming months. Shuaa has some interesting commentary:

Shuaa Capital Insight, July 2005

Pulling Liquidity

The two most active markets in terms of capital raising in the Gulf region today, are
by no coincidence the two best performing and most liquid; Saudi Arabia and the UAE. The latter market in particular is slated to see no less than 10 capital raising exercises over the next three months through rights issues and IPOs. The total amount of liquidity that will be raised will amount to nearly USD 9 billion. This liquidity will be directly sourced from the same pool that has been fueling the UAE market to record gains of over 100% in 2005 to-date alone. This amount represents around 6% of the market's total market capitalization, or more importantly 12% of the market's approximate free-float market capitalization, which is by most estimates already burdened by relatively high degree of leverage. It corresponds to around 22 days of average trading levels on the exchanges. It also corresponds to around 13% of
total bank deposits and 14% of money supply in the country as at the end of 2004. It is a substantial amount that will probably have an immediate and profound effect on the liquidity available to the market. It may even be the elusive trigger we have been anticipating for a market-wide correction, which from a valuations perspective is overdue. On the other hand, oil prices have reached a new record high recently, exceeding the USD 60 per barrel barrier. Trying to determine the net effect of these two contradicting factors on the liquidity in the market is difficult. The effect of higher oil prices has a more long term impact on liquidity, as it typically takes six months to a year to filter through to markets, with its short-term impact on the market limited to a boost in general sentiment and expectations. The anticipated capital draw will have a more immediate impact, and coupled with regular increases in interest rates, may result in a correction in the short to medium term, in which we expect the market to give up around 20% of its value at the peak. The long-term direction of the market will be determined by the rate at which this liquidity is replenished.

I'm very curious about whether Shuaa – whose straight-talking, pithy analysis has made them my favourite investment bank of the moment – has taken into consideration the overvaluation of the property market in the UAE.

A stock market correction of about 20% would be painful, but if it cascaded into a property market crash it could be excruciating.

Rents, democracy, aid - lit review

2005-07-25T15:12:00.000Z

Is Aid Oil? An analysis of whether Africa can absorb more aid.
Paul Collier
June 16th, 2005

Nutshell précis: aid is not equivalent to rent because donors impose parameters on aid, either by imposing conditionality or by ringfencing aid for specific projects. Essentially, aid money is subject to scrutiny. Making aid like rent - through, for example, debt relief - isn't that good an idea.

Democracy and Resource Rents
Paul Collier and Anke Hoeffler
April 26, 2005

Nutshell: Resource rents pervert democracy, reducing it to a competition for control of rents and patronage rather than a competition for the provision of public goods.

In the absence of resource rents democracies outperform autocracies, in the presence of large resource rents autocracies outperform democracies.
...
We found that the antidote to these adverse effects of democracy was intensified checks and balances, including specifically, the freedom of the press.

Again, scrutiny appears to be the crucial factor - and given that rents make control of the political apparatus that much more lucrative, rentier states need particularly intense scrutiny.

New old news - Egypt/Israeli gas deal

2005-07-23T15:56:00.000Z

July 21 - Eastern Mediterranean Gas will supply Israel Electric Corporation with natural gas under a $2.5 billion, 15-year contract.

This gas deal was actually drawn up in the first peace process, but it faltered after the assassination of Yitzhak Rabin. Anyway, there were two crucial players in the deal, both former spooks: Hussein Salem for the Egyptians, and Yossi Maiman for the Israelis. Salem has an investment vehicle called Masaka Group, and Maiman has one called Merhav.

The Midor Refinery in Egypt was part of the same package as this gas deal, and although it was eventually built, the Egyptian government had to bail it out a couple of times because the investment dried up after Rabin’s death.

Then when they finished it they found that they couldn’t actually buy any Arab oil while there was still Israeli money in the project, despite Oil Minister Fahmy going on tour round the Gulf to beg for the stuff, so they had to buy Merhav out of Midor.

Salem is CEO and Chairman of Midor. Current oil Minister Sameh Fahmy was once a vice chairman.

The major reason that the US has always been so keen on the deal is because of the classical liberal idea that economic interdependence makes war less likely. Hence the high-level interest in the deal and the role of the spooks.

There has been pressure to revive the gas project since this new peace process started picking up steam last summer, and the Israeli Electric Co signed an agreement in principle with East Mediterrannean Gas to buy the gas in May 2004.

Hussein Salem is chairman of EMG, Maiman is vice-chairman and has a significant stake in the company. Sameh Fahmy used to be chairman of EMG.

But some in Israel didn’t want the gas deal to happen, notably Joseph Paritzky, then the Infrastructure Minister, who favoured an alternative deal proposed by BG using recently discovered Palestinian gas.

So Maiman released a tape that on which Paritzky could be heard planning a smear campaign against a political opponent within his party. The cassette, it transpired, had been recorded two years before by a trade union seeking to discredit Paritzky, and had come into the possession of a private investigator retained by Maiman. With Paritzky discredited, opposition to the deal with Egypt pretty much dried up.

There was no way in hell Egypt or Israel were going to let this deal fall apart.

Romantic Sheikhs

2005-07-23T11:44:00.000Z

Pulp publishers apparently do a nice line in incredibly ill-informed, orientalist, romantic fantasies involving oil sheikhs.

Excerpt from 'The Sheikh's Reward', Lucy Gordon, Harlequin (parent company to Mills and Boon), 2000

Fran snatched away her veil and faced him. "If you have the nerve to think that "your humble servant" is going to bow to you--"

"But I don't," he said, laughing. "That's why I took the precaution of making sure we were alone first. If my servants had seen you greet me disrespectfully I should have had to cast you into a snakepit, which would rather have spoiled our evening."

Fran regarded him. "How dare you send for me as though you had only to snap your fingers and I must jump to attention?" she seethed.

"But I'm afraid that's exactly true," Ali said apologetically. "I appreciate that you are unfamiliar with this arrangement, but don't worry. You'll get used to it."

"Not in a million years!"

There's even a fansite.

How incredibly amusing.

Modernity

2005-07-22T14:20:00.000Z

William Pfaff writes in the IHT what I have been trying to find a way to articulate for a while now.

He argues that terrorism is the snarl of the traditional, bristling at the onslaught of godless, soulless, materialistic Western modernity.

But the West is trying to impose not only foreign ideas on everyone else, but ideas that contradict and would destroy the fundamental values and assumptions of non-Western societies.

It says: This is progress. Our progress is your destabilization, the destruction of your cultures, the creation of millions of culturally alienated, deracinated, displaced persons, ripped from their own past to become integrated into a radically materialistic ethic.

It should hardly be surprising that the reaction to this is nihilistic violence.

It is worth fully grasping the import of this. While our arrogance makes us look at the world beyond as different, as strange, as uncivilised and barbaric, it is in fact we who are alien. The vast majority of people on this planet live as they have done for countless generations: over the course of history, great civilisations would be built up around specific technologies of economic production, divisions labour, military organisation and advanced tools. These civilisations would sometimes fall under the weight of their own internal contradictions; other times they would come into contact with civilisations with stronger - or at least, more appropriate - technologies, and they would be conquered. Few lasted.

Our Western civilisation may yet succumb to its internal contradictions, but that has been prophesied for generations and shows little sign of coming to pass in the next. But the fact of the matter is that it is still an anomaly.

Egyptian ambassador alive? Sting in the tale...

2005-07-20T17:16:00.000Z

Breaking news –

Naguib Sawiris, the head of Orascom Telecom (which runs the Iraqna network in Iraq), has told an Egyptian state-owned paper that he believes the Egyptian ambassador to Iraq, Ihab al-Sherif, is still alive.

From AP, July 20:

"We have information suggesting that the Egyptian ambassador is still alive and has not been killed," Sawiris told the pro-government al-Gomhouria newspaper, in remarks published Wednesday that were later confirmed by The Associated Press.

"I will not put his life at risk to give you news," said Sawiris in a telephone interview with The AP.

Ihab al-Sherif was abducted on July 2, and a video was released of him on July 7, wearing a blindfold. Al-Qa'eda in Mesopotamia claimed that it had killed the ambassador, though the video did not document this and no body has been produced.

The Egyptian government maintains that it has no reason to suspect that the claim is false, questioning why anyone would make such a statement falsely.

Why indeed?

I don't usually go in for conspiracy theories, but this is too big a deal to go uncommented. There are too many odd facts that seem to suggest something more complex afoot.

Egypt's official news agency, MENA, provides this snippet of information (courtesy of BBC Monitoring):

For unknown reasons, Al-Sharif refused during the day of abduction to be escorted by guards although he had six Egyptian well-trained guards and a number of Iraqi guards at his disposal, said [Egyptian Foreign Minister] Abu-al-Ghayt.

The video released on July 7, unlike other videos produced by Zarqawi's group, studiously avoids showing any background. Previous videos showed hooded men standing around the detainee, with a flag prominently displayed in the background: all this one shows is the head and upper torso of the ambassador as he speaks to the camera, and the voice of the questioner has been muted and replaced with captions.

The Egyptian government was unusually prescient in its comments on the death of the ambassador. Egyptian newspaper Nahdat Misr reported July 19 that, in a report sent by Foreign Minister Ahmad Abu-al-Ghayt to the Majlis (parliament), the government said:

It was not feasible that the kidnappers would announce the execution of a person if they indeed did not kill him unless they wanted to measure the reaction and its effects.

Indeed, it would seem odd.

In the week to July 15, US and Iraqi forces detained 30 suspected al-Qa'eda suspects in Iraq, amongst them Khamis Abdul-Fahdawi, believed to be behind the attacks on the Bahraini and Pakistani ambassadors as well as the possible murder of Ihab al-Sherif. Another man - Abdullah Ibrahim al-Shadad, or Abu Abdul Aziz – was also detained. He has variously described as operations officer and the top operative in Baghdad for al-Qa'eda in Iraq. Zarqawi's group has downplayed the arrests, but in any case it looks like there has been a fairly substantial operation going on.

Okay, here is where I go into complete paranoid speculation. Bear with me.

Back in January 2005, it hit the press that the Pentagon had been considering a 'Salvador Option' – what the media interpreted to mean 'death squads' killing civilians at will with no respect for the law. I don't want to comment on El Salvador, not knowing enough about the civil war there to comment meaningfully.

But I did recently read a just-published piece of military scholarship on 'Pseudo Operations and Counterinsurgency' published by the Army War College and written by Lawrence E Cline, an intelligence professor and consultant who

is a retired U.S. Army Military Intelligence officer, and was trained as a Middle Eastern Foreign Area officer. He served as a United Nations (UN) Military Observer in Egypt and in Lebanon during its civil war; a staff officer with 7^th Special Forces Group; advisor in El Salvador during its civil war;
senior intelligence analyst with Central Command during Operation DESERT STORM; and as intelligence production chief for United Task Force (UNITAF) in Somalia. His final assignment was as Chief, Middle East Intelligence Branch, J-2, Joint Chiefs of Staff.

It is an erudite work of scholarship – Cline knows counterinsurgency inside out.

These 'pseudo operations' are what the media jumped all over in January. Basically they involve 'turning' captured guerrillas and using them against the insurgency, primarily for intelligence gathering though in some cases for combat operations. Generally they have had quite a good success rate, if used properly, Cline concludes. But a major problem is working out how far they can go in trying to act like insurgents (which they need to do to establish their cover) – perhaps an allusion to mistakes made in El Salvador.

One interesting section reads thusly:

The insistence of both the British in Kenya and the Rhodesians in using white officers led to practical difficulties. Reid-Daly notes the problems in "blackening-up."63 In most cases involving contacts with the insurgents, the white officers had to hide outside of the village or camp in which their African team members were meeting the guerrillas. In at least one case, however, a team used a white member as a "prisoner" to gain access to a group of guerrillas.

Okay, here's my theory.

The US has been operating 'pseudo gangs' in Iraq since at least January in an attempt to gather intelligence and to identify key figures in the insurgency and kill or capture them. Given that most kidnapping operations have carried out by gangs of 'guns for hire' – petty criminals and low-level former mukhabarat or military – who then sell their captives to political groups, it can't have been too difficult to establish a cover.

Cline notes that the British found, when they were using the Mau Mau in Kenya, that the best candidates for 'pseudo gangs' were the ones driven by a sense of adventure rather than by ideology – which fits these 'guns for hire' perfectly.

So intelligence emerges that there is a plan to hit ambassadors to Iraq, to try to scare countries off having diplomatic contact with the elected government. Maybe the gig was offered straight to the 'pseudo gang'.

Bear in mind that most of the attempts failed, because the security around the ambassadors was fairly tight. Except for the Egyptian ambassador, who went out without his security detail.

So my suspicion is that the Egyptian ambassador agreed to go as a 'prisoner' with the 'pseudo gang' in a hope that such a tantalising prize would be enough to draw out the senior leadership of al-Qa'eda in Iraq. That's why Sawiris (who has had to go to the Iraqi underworld to buy the release of kidnapped Orascom employees) thinks that he's alive – he's heard the plan on the grapevine. And they managed to nab Zarqawi's man in Baghdad as a result of what looks to have been a very high-risk sting operation.

That's if he is alive. If it turns out he is dead, then my sincerest apologies for indulging in this speculation.

The Egyptian Suspect

2005-07-19T15:26:00.000Z

Issandr el-Amrani (the editor of Cairo Magazine) is saying that he thinks the Egyptian (bio)chemist Magdy Al Nashar may have had nothing to do with the bombings in London. He's also got a very good backgrounder on the guy in the magazine, which does tend to support the idea that al-Nashar had far more to lose than he had to gain by assisting in the attack.

But then there's a flipside. When the communiqué was released just after the bombings, Juan Cole (Prof. of History at Michigan Uni) said that it struck him as the writing of an Egyptian in the Ikhwan or al-Jihad al-Islami mould rather than a Salafi in the al-Q mould.

Juan Cole quotes al-Hayat as saying that the guy is now confessing helping Hasib Hussein (the bus bomber) get an apartment - the one currently being searched by UK police. There are some reports swirliing suggesting that Nashar may even have had links to Islamic Jihad, but some of these have been pulled so they don't look very robust at present.

The Egyptian Interior Ministry, for its part, is reiterating that al-Nashar is claiming to be innocent, and is emphasising that they believe that he has nothing to do with al-Qa'eda in any way, shape or form.

This is at odds with British claims that a 'clear al Qa'eda link' is likely.

I wonder why the Egyptian government is saying what it's saying, then.

It could tie into the country's general downplaying of anything resembling organised militant activity - vid. the reaction to the small spate of terrorist attacks in Cairo in April, which the government attributed to a small, badly organised group of radicals.

For one, the government has long suggested that after Omar Suleiman's crackdown, organised militancy is no more in Egypt, so the claims fit that pattern. For another, it may have something to do with the internal politics of the NDP - after all, the argument of the old guard has long been that democratisation would open up a Pandora's Box of Islamic radicalism and violence, and that the only way to maintain stability is to maintain the state of emergency and military control.

Mubarak the elder has made an explicit decision to side with the reformist wing of the NDP, leaving the old guard looking very confused and rather disorganised. Any hint of organised militancy could play into their hands, though, as it would translate into political capital readily cashed with the military.

That said, I don't think this guy is the mastermind - more likely some peripheral character who was leant on to help find a flat and later to provide materials smuggled out of the lab.

London bombs

2005-07-09T13:17:00.000Z

Oxford Analytica has quite a good analysis of the London bomb attacks. Juan Cole points out that the statement released by the Al-Qaeda in Europe group, if authentic, sounds less like Salafi rhetoric and more like pan-Arabist rhetoric.

Everyone I know in London seems to be fine, which is reassuring.

Single mums = Criminals in UAE

2005-07-09T12:41:00.000Z

I'm more than slightly taken aback by this report of a stewardess being convicted of being pregant out of wedlock:

The Singaporean stewardess - who works for an international airline and lives in Dubai - fainted on-board a plane heading to England. It was found out later that she was pregnant out of wedlock.

A court has sentenced her to one month in jail. However, the ruling has been suspended and the case has been referred to the Sharia Court after the suspect said that she is married.

It leaves a bit of a sour taste, doesn't it?

Janan Harb

2005-07-06T22:52:00.000Z

Ha! I was right - she *is* a Scientologist! See here

Africa

2005-07-06T21:35:00.000Z

In a change from the Middle East, I'm going to comment on an interesting - if controversial - article that I just read on Spiegel Online.

Here's the beginning of the interview:

SPIEGEL: Mr. Shikwati, the G8 summit at Gleneagles is about to beef up the development aid for Africa...

Shikwati: ... for God's sake, please just stop.

SPIEGEL: Stop? The industrialized nations of the West want to eliminate hunger and poverty.

Shikwati: Such intentions have been damaging our continent for the past 40 years. If the industrial nations really want to help the Africans, they should finally terminate this awful aid. The countries that have collected the most development aid are also the ones that are in the worst shape. Despite the billions that have poured in to Africa, the continent remains poor.

SPIEGEL: Do you have an explanation for this paradox?

Shikwati: Huge bureaucracies are financed (with the aid money), corruption and complacency are promoted, Africans are taught to be beggars and not to be independent. In addition, development aid weakens the local markets everywhere and dampens the spirit of entrepreneurship that we so desperately need. As absurd as it may sound: Development aid is one of the reasons for Africa's problems. If the West were to cancel these payments, normal Africans wouldn't even notice. Only the functionaries would be hard hit. Which is why they maintain that the world would stop turning without this development aid.

In essence, our good will is perpetuating a system of rentier states in Africa based on aid money. The principle is the same - getting money for no productive work - and the result is the same: a huge, overweaning and corrupt bureaucracy that is the main distributive channel of the rents and the main locus of political power.

I'm reminded of Marx's observation that capitalism was a necessary waypoint towards communism. It does seem that the disaggregated decision-making and the diffusion of political and economic power that are characteristic of free market economies are the greatest bulwarks against the centralisation of power in an elite class.

UAE blogger lets rip on media

2005-06-23T14:37:00.000Z

Secret Dubai diary: Cooking up a Dubai storycake

This is possibly the sharpest comment I've yet to see on the media's coverage of Dubai.

Rule of law, UAE-style

2005-06-22T19:03:00.000Z

House of Commons Hansard Debates for 24 May 2005 (pt 35)

Scroll down to Russell Clamp.

"... After Mr. Clamp was released, he met up with others who had also been released from the same investigation. It appeared that the company SSS Corporate Research had a connection with Israel, and that Leisure International—the company that Mr. Clamp first set up—had done work in the past for SSS. Two days later,

24 May 2005 : Column 679

he was contacted by the British embassy and told that the prosecutor in Abu Dhabi wanted to ask some questions. Four appointments were made, which were not kept by that official.

On his final attempt to keep the appointment, Mr. Clamp was handcuffed and taken to a police holding cell in Dubai. Once again, he was stripped of all personal belongings. He was put in a cell with 16 other people. The cell was filthy, and its floor covered with rotten food and spit. The lavatory facilities were only very basic, and there were cockroaches. The 17 people in the cell had to sleep with their legs entwined.

Over the next five or six days, my constituent received several beatings from Arab inmates. He sustained two broken ribs, nine broken teeth, open wounds to his spine and lower back, and bruises over his entire body. In the end, he was moved into solitary confinement. He says that that cell was filthy but that at least he was safe from being beaten."

"... The Emirates are not a banana republic. They are not some poverty stricken third world country. They are more than able to afford decent prison conditions for those who, regrettably, have to be housed there. They are a country supposedly under the rule of law, but there is no redress under that law for people who are victims of its abuse, rather than its use and reasonable exercise. I am seriously concerned about this case and I am concerned by the apparent impotence of the Foreign Office in dealing with it. I do not mean that as a criticism. I do not suggest that the Foreign Office has not tried to deal with the matter, but it would appear to be as impotent as Mr. Clamp in achieving any result."

To think I gave an interview yesterday saying nice things about the place.

Rafsanjani Supporters

2005-06-17T14:02:00.000Z

Photos from Mehr News

My only comment at this stage: I'm forever bemused by young Iranians' fascination for designer sunglasses.

Microsoft censors Chinese blogs

2005-06-17T10:11:00.000Z

Asharq Alawsat Newspaper (English)

Words and phrases banned in the subject line of entries for Microsoft's MSN Spaces on Tuesday also included "Taiwan independence" and "demonstration," which returned an error message saying "prohibited language, please remove."

Not even former and current leaders' names such as "Mao Zedong" or "Hu Jintao" were allowed.

Most of the phrases, however, were allowed in the body of the entries.

Not a huge deal if it's just in the subject line, but it's a PR disaster for Microsoft - the blogosphere is a very much positioned as a counterculture and going along with Chinese government policy puts MS on the wrong side of the divide.

Chinese bloggers will just go elsewhere, after all... There are always ways to get round govt restrictions, as the Iranian blogosphere shows pretty well...

Economist on the BBC's internet news

2005-06-17T09:25:00.000Z

The media and the internet | Old news and a new contender | Economist.com

The only way online information providers can compete in a marketplace where the BBC exists is by providing greater value-add, which means tighter analysis - which is why the FT's website works. The Beeb is great for superficial reportage, and does that far better than the overly opinionated daily papers whose blithe ignorance of reality is often troubling. But the Beeb isn't so good for hardcore analysis, and that's where other information providers need to focus.

Liquidity, IPOs and Dubai's development imperative

2005-06-16T13:14:00.000Z

I have mentioned before the weird and wonderful things that are currently going on in UAE's financial markets. My thinking, at first, was that it was a form of hidden taxation by the ruling families. When Sheikha Lubna al-Qassimi, the UAE's Minister of Economy and Planning, announced that the company law would be amended to allow 'successful' families to launch IPOs in their companies without losing control, I thought that my suspicions were confirmed: the amendment to the law will essentially allow the ruling families to soak up the excess liquidity floating around the region for their own ends.

On further reflection, I don't think that hunch was wrong - but, as ever, there seems to be a great deal more to the story.

The Middle East has a problem: growing populations, whose growth has been in no small part accelerated by the discovery of oil wealth, are now outstripping that wealth. Per capita GDP in Saudi Arabia today is where it was in the early 1970s; around half the population of the entire region is under the age of 25. Across the region, according to the World Bank, "the number of new entrants to the labor force will average 4.2 million a year [during the 2000-2010 period] - twice the number for the previous two decades."

And that's in a region where unemployment is already high, and that's ignoring the un- and underemployment hidden in the region's bloated state bureaucracies.

So how to develop the economy and create all those new jobs? The mantra has long been 'diversification', but there have rarely been any concrete suggestions of how such diversification might be achieved in the Middle East. In Egypt, cash crops and state-led industrialisation didn't work particularly well - mainly because the state didn't really know where to begin. Palestinian economist Yusuf Sayigh recounted to Fred Halliday an mid 70s meeting with Saddam Hussein in which the dictator asked to be told about 'economic development'. It soon dawned on Sayigh that Saddam did not have the education to grasp the issues involved.

Crucial to achieving that diversification, then, is bringing in the know-how to make industrial development work. Multinationals may not be the most popular forms of human organisation in the world, but they are incredible repositories of extremely detailed knowledge, built up over many years, of how to do certain things and how to do them well. Gleaning knowledge from and securing technology transfer from foreign companies is essential to the economies of the Middle East - it is a crucial component of bridging the capability gap which separates MENA countries from effective economic development.

The main mechanism of such technology transfer is foreign direct investment. But the Middle East has been woefully neglected (pdf) in international FDI flows:

The MENA region is only responsible for 0.9 percent of global flows of FDI and 4 percent of FDI flowing to the developing world. The situation is even worse in the oil-rich GCC, which received just 0.1 per cent or one-tenth of one per cent of global FDI and only 7.88 per cent of the region's total FDI inflows in 2002. This is a feeble performance for 5 percent of the globe’s population. In a nutshell, the region has ignored FDI and FDI has ignored the MENA world.

What investment there has been, has largely been in petrochemicals - the route Saudi Arabia is currently taking to try to improve its income and reduce its vulnerability to fluctuations in oil prices (more on that another day). Other types of investment have been fairly minimal.

Meanwhile, local investors traditionally sent their money abroad, where they could earn healthy returns:

Private capital flows from the GCC to other MENA countries are a potentially significant source of future private investment. High net worth citizens of the GCC states have invested roughly $1.2 trillion (about 85 percent of their wealth) abroad, mostly in the United States. Also notable is the considerable amount of outward FDI flows and stock in the Arab world. Kuwait has a much higher outward FDI stock ($1.98bn) than inward FDI stock ($527 mn) as of 2000.

Since 9/11, things have changed somewhat. The huge windfall revenues caused by high oil prices have fattened wallets in the region; and a significant proportion of that US$1.2 trillion has been repatriated as Western countries impose stringent tracing requirements on Arab money. The result: huge amounts of liqudity in the region. And with immature financial markets, all that money is competing for a very limited range of investment opportunities.

Let's take a step back for a second. The MENA region has largely been neglected by FDI (particularly the Gulf, for that matter); and FDI is needed for technology transfer. The problem is that foreign investors don't tend to want to invest if local investors aren't investing - if the locals don't trust it, why should we? So if the ruling elites want to start attracting FDI, they have to start investing, and fast.

The question is: what to invest in? Without clear investment opportunities, all that money could end up going off to China or other countries with fewer scruples about Arab money. So the ruling family of Dubai put some of their oil money into flamboyant figurehead projects and marketed them in an incredibly aggressive way, essentially manufacturing a market out of hype - what they like to call 'supply-led demand".

These IPOs - especially now that the law is being changed in the UAE to ensure that the ruling families don't lose control of the companies being floated - allow the families to suck in large amounts of additional capital which can then be redeployed. IPOs work well in mature markets because investors can take them or leave them: in the Gulf today, IPOs are regularly oversubscribed hundreds of times, making one wonder if there can be anything like a proper market valuation going on. But as a mechanism for securing funds from the public, they're even better than taxation, actually, because you're not limited to nationals: you can compete for investors' money across the Gulf and across the world.

The end result isn't to line their own pockets, however: the ruling family of Dubai is doing this so that it can mobilise capital in the most effective and targeted way possible so that it can build something that foreign investors will find attractive. Once the FDI inflows reach a certain critical mass, they won't stop coming, short of a massive crash.

Avoiding a crash, though - that's another question. Inflation is spiralling out of control and Dubai's property market is dangerously overvalued. Time will tell, I guess...

Janan Harb's embarrassment to King Fahd

2005-06-15T17:08:00.000Z

Janan Harb, who claims to be the wife of King Fahd, is suing for maintenance.

The court of appeal has held that the King's argument of sovereign immunity must be held in an open court.

Janan George Harb vs His Majesty King Fahd Bin Abdul Aziz

This line in the judgment is interesting:

Clearly Mrs Harb was seen as a potential source of embarrassment. That is well illustrated by the fact that on the 1st March 2001 an undisclosed principal (in reality the King) had paid Mrs Harb a very substantial sum for entering into a binding deed of confidentiality covering all aspects of her past relationship with the King.

I wonder why she was seen as an embarrassment.

A quick google for 'Janan Harb' reveals that one Janan Harb is a Scientologist.

2004 list of members:
Scientology : members of the IAS

and has been for a while:

Impact Magazine Honour Role for 1993 (Impact magazine is an official Scientologist publication, so far as I know).

Now, I have no way of knowing if this is indeed the same Janan Harb. But I would imagine that it could be very embarrassing for the defender of the Holy Places of Islam if his wife had converted away from Islam (apostasy) to become a Scientologist. If, of course, that is in fact what happened, of which I have no way of knowing.

Giscard hits nail on head

2005-06-15T09:46:00.000Z

From EUobserver.com:

One crucial mistake was to send out the entire three-part, 448-article document to every French voter, said Mr Giscard.

Over the phone he had warned Mr Chirac already in March: "I said, 'Don't do it, don't do it'".

"It is not possible for anyone to understand the full text".

From the mouths of babes…

India's energy-driven foreign policy

2005-06-09T17:06:00.000Z

Hunger for Energy Transforms How India Operates - New York Times

Interesting piece, though the corrections are a little worrying.

Baheyya: Egypt Analysis and Whimsy

2005-05-27T16:41:00.000Z

Baheyya has a very nice little montage of photos of and quotes on the Egyptian referendum on the amendment of Article 76. Check it out.

UPDATE

Which she has followed up with what is possibly the best piece of analysis I've read on Egypt in recent memory.

[Towards the end of the piece]

When regime hacks claim that Egyptians aren’t ready for democracy, or when foreign know-nothings pontificate about the baby steps of democracy, or when Egyptians entrenched in the status quo wrap their fear of change in claims of the unsuitability of democracy, I can only marvel at the brazen spinning of such rank lies.

And then I reach for my nearest history text. There I don’t find comforting proof of Egyptians’ readiness for democracy, for that is not and never has been the issue. Nor do I find triumphal stories of democratic happy endings, for that is not how democracy comes about. I do find a dizzying diversity of socio-political mobilisation, a fevered clash of interests, heated contests of ideas, high-stakes political brinksmanship, stupendous miscalculations, felicitous and unexpected advances, regrettable losses, shameful failures, and everything in between. In sum, a chequered political history of one democratic step forward, three steps back. The puzzle is not that we have not yet achieved democracy, but that there are those who would rob us of this history, distort and falsify it, and package it into a claim that Egyptians lack the maturity “necessary” for democracy.

Oil Market Update

2005-05-27T12:23:00.000Z

On May 9, the Algerian oil minister confidedthat even with OPEC pumping at maximium capacity, world oil supply would not be enough to meet demand in Q4.

“Let’s assume we go to a maximum (in output) and assuming we don’t have any (significant) stocks, we are not going to meet demand in the fourth quarter,” Khelil said on the sidelines of an energy ceremony in the capital Algiers.

“What you need to do is raise stocks in the third quarter to accumulate enough of them in the third quarter that you can deplete stocks and maintain a high level of production for the fourth quarter. That’s what I’ve been saying we need to do,” he said.

Which appears to be precisely what's happening. US oil stocks are at a six year high, as the EIA's Week in Petroleum shows:

At a speech at the Economic Club of New York on May 20, Alan Greenspan noted that a similar accumulation of oil stocks was taking place in other major countries.

He also notes that the oil futures market is in contango - that is, present delivery is at a discount to future delivery. His explanation is that a demand slowdown combined with expanded production have caused prices to drop in the short term: presumably by that he infers that higher future price is the real market price for oil. The contango situation also seems to square with Khelil's anticipated Q4 tightness.

This is a clear shift in tack for OPEC. Speaking at the WEF conference in Amman at the weekend, the current president of the cartel, Kuwaiti Oil Minister Sheikh Ahmad Fahad al-Ahmad Al Sabah, made the slightly confusing statement that instead of focusing on stocks, OPEC was now focusing on prices. Given the tight linkages between the two, the comment doesn't enlighten particularly. But looking at the pattern of inventory accumulation, the statement becomes clearer.

To backtrack a little - OPEC's strategy up until now has been to keep foreign oil stocks low. Some might argue that this is just to buoy up the price: the more nuanced argument is that it is a way to maintain a tight linkage between OPEC oil production and market prices. When stocks are low, demand for OPEC oil is inelastic, regardless of the price; when stocks are high, they can theoretically be substituted for imported oil and so demand for OPEC production becomes more elastic. So making sure that foreign stocks are low mean that by playing with supply OPEC could keep a very tight hold over prices.

All of this broke down over the last year, however, as increasing demand narrowed official OPEC spare capacity to about 1 million barrels per day. Khelil's comments suggest that even that margin may be exhausted at the moment, and after all the OPEC members are notorious for not abiding by their quotas.

So the new strategy is to use US stocks to replace the missing buffer zone. Reports of higher inventories have dampened some of the volatility in the oil futures market, but without causing a major dip in prices - WTI and Brent are both hovering around the US$50 mark and show little sign of dropping below US$40 in the near future - which seems to be persuading OPEC that it is safe to continue allowing major oil consumers to carry on building their inventories ahead of the Q4 squeeze.

The Iraq Scene on al-Jazeera

2005-05-26T15:49:00.000Z

Informed Comment

Juan Cole picks up on an interesting debate on al-Jazeera between: Dr Tariq al-Hashimi, secretary general of the Iraqi Islamic Party; Sa'd Jawad Qandil, member of the Political Bureau of the Supreme Council for the Islamic Revolution in Iraq [SCIRI] and Dr Ghassan al-Atiyah, director of the Iraqi Institute for Democracy and Development.

(translation all courtesy of BBC Monitoring)

Ghassan al-Atiyah has some interesting, if worrying, comments. He says "Today we are really in the furnace of civil war", and blames the resurgence of sectarian divisions on the CPA policy of allocating seats along ethnoreligious lines:

"Actually, the current situation is the result of a number of policies which began with the formation of the Governing Council and the way things were handled. Things were handled on a sectarian and ethnic basis. We were divided into Shi'is, Sunnis, Kurds, and Turkomans. There was no room for us to deal with each other as citizens. Posts were later distributed along these lines."

Tariq al-Hashimi agrees on that, though while al-Atiyah says that Iraqis as a whole are responsible for the descent into sectarian violence, al-Hasmihi maintains that it is the state of occupation that is the heart of the problem. He also blames al-Iraqiya:

"Incitement campaigns by Al-Iraqiyah television and other suspect channels and news media with the aim of planting the seeds of an abominable sectarianism must immediately stop." He adds that Al-Iraqiyah television "disseminated false claims by persons who claimed to have been involved in killings."

Presumably he's referring to the 'Terrorists in the Hands of Justice' programme, the brainchild of one General Adnan Thabit, a former Ba'athist from Samarra. Peter Maas has an excellent piece on the Special Police Commando unit which General Adnan commands in the NYT.

What's interesting is that all three emphasise the importance of national unity. Granted, all the groups have their conditions and interests that they want to guard/pursue, but I'm not left with the feeling of utter resignation to sectarian conflict that I got from spokespeople for the three sides in the Bosnian conflict. Back then Alijah Izetbegovic said something along the lines of "We have no choice but to be sectional".

That said, I'm equally worried by the increasing use of the terms 'genocide' and 'ethnic cleansing'. What is happening in some of the contested towns is indeed starting to resemble the low-level ethnic cleansing that was going on in Kosovo in the late 1990s. Fortunately we don't seem to be facing that scale of refugee problem at present - there are refugees, don't get me wrong, notably from Fallujah and al-Qaim but also even some left over from the Iran/Iraq war - but I don't think we're looking at the use of refugee flows as an instrument of war as they were in the Balkans. And for all the bad press the likes of Thabit and the Badr Brigades get (and ignoring for a second Zarqawi, who has similarities but completely different motivations and tactics), we don't seem to be seeing many Arkans knocking about. Violence is being used in a fairly controlled fashion - to destabilise the existing government and weaken the will of the Coalition, yes, but not to create the kind of absolute bloody chaos and havoc that was required for the attempted land-grabs in the Balkans. Should neo-Ba'athists succeed in seizing control of the state apparatus, they'd want to be able to impose order quite quickly so as to establish their legitimacy - so the national unity argument would work in their favour too.

At least, those are my thoughts. It's not often a productive game, fortune-telling.

Thomas P.M. Barnett :: Weblog: The other culprit on high oil prices

2005-05-26T10:06:00.000Z

Thomas P.M. Barnett :: Weblog: The other culprit on high oil prices

I never know quite what to make of Thomas P.M. Barnett. On the one hand, his Core/Gap theory set out in ‘The Pentagon’s New Map’ was an inspired synthesis of Gramsci’s reading of hegemony and Wallerstein’s world system theory, repackaged for the US military. On the other hand, he seems to be milking the idea for all it’s worth, which leaves something of a bad taste in my mouth – it was a better idea when there wasn’t such an air of self-congratulation about it. Still, that’s my personal opinion.

Anyway, he picked up on this WSJ front page from May 24 - Oil Industry's Refining Squeeze Limits Prospects of Price Relief
By Bhushan Bahree and Thaddeus Herrick (sub only) – which is actually more than a little behind the curve. Its basic argument is that oil prices will stay high until 2007/2008 because there isn’t enough oil refining capacity to go around. Saudi Arabia has actually been saying exactly this since April 2004 – at a speech (pdf) at CSIS in Washington Saudi Oil Minister Ali Naimi said:

“In the U.S. a plethora or state and local regulations have vulcanized the gasoline markets placing increasing strains on refiners to meet local demands.

On this occasion let me state emphatically that Saudi Arabia is willing and ready to invest in two new 500,000 barrel per day refineries and their associated marketing facilities in the U.S. to help alleviate some of the bottlenecks in product availability.”

Noozz.com also covered this in January 2005 in a round-up of OPEC policy at the time of their Cairo policy.

The WSJ gets something quite wrong in their analysis, too – they imply that all refiners are enjoying huge profits. The ones that can only run light sweet crude aren’t – Valero, the refiner they take as an example, is making money hand over fist because it can process heavy sour crudes, which means it can buy heavy sour at a discount and sell at a high market price set by the scarcity of light sweet crude.

Barnett says:

“What's interesting about this is that it's really a self-fulfilling prophecy: the oil companies resist sinking the big bucks because they fear oil is receding in importance in coming years and decades as we shift to hydrogen (e.g., British Petroleum becomes Beyond Petroleum), and so by eschewing these investments, they create persistent high prices that accelerate that shift.”

Cart, horse… Oil majors and national oil companies (NOCs) didn’t invest in refining capacity when oil was $10 a barrel because they didn’t really have enough money. They didn’t spend as much on E&P either during that period. The alternative fuels thing is an important part of their long-term game-plan and also a strong PR strategy to re-cast themselves as future-oriented, environmentally friendly companies rather than polluting remnants of early 20thC imperialism. Now the NOCs are investing heavily in refining because they have realised that they need to guarantee throughput as well as supply if they are not to encourage diversification of the world’s energy mix away from petroleum. Hence Saudi Aramco’s investment in refineries both on the Peninsula and in Asia.

The oil majors aren’t likely to invest as much in refining because their role in the market is changing. There was a fear that they were being hollowed out to become oil services firms like Halliburton and Schlumberger, it doesn’t look like they are any more – instead they’re becoming more like project managers, the people who come in and help set a strategy for a field while the state retains overall control over production and the services firms sink the holes and lay the pipes. In that role, they don’t need to worry so much about the relationship between production and processing – that’s the role of the much more cash-rich NOCs.

(NB – African production tends to be sweet and light so although there aren’t NOCs there in quite the same way as in the Middle East the same logic doesn’t apply to refining capacity).

Nakheel IPO?

2005-05-24T11:50:00.000Z

Bloomberg is reporting that Nakheel’s chairman, Sultan bin Sulayem, is talking about launching some IPOs at some point in the foreseeable future (though not before next year) – in his words, it "is inevitable and will be worth billions." He’s not wrong: Nakheel is the company behind the Palms and the World, among other things, and is worth about US$25 billion.

The IPOs are likely to be structured as investments in the individual developments rather than Nakheel itself.

The sceptical part of me sees this as a fairly transparent strategy to shift the not inconsiderable risk associated with these developments off Nakheel’s (and, for that matter, the government’s) books and onto (local) speculators while creaming money off for reinvestment in other white elephants. All completely above board, don’t get me wrong, but the fact that the IPOs are likely to be in the individual projects rather than the parent company makes me think it’s more about risk than anything else.

Anyway it’d be interesting to see the Palms rise and fall on the stock market – a nice visual representation of their fortunes…

Islamist Democracy

2005-05-23T15:59:00.000Z

Saad Eddin Ibrahim’s piece in the NYTimes on Mid East democratisation and the role of Islamic groups reminded me of a comment made by Dr Charles Tripp, from London’s SOAS, at a conference last year on the role of the clergy in post-war Iraq. I paraphrase of course, but he said something along the lines of “I don’t think that the current resurgence in religious sentiment will survive a couple of years of watching Islamic groups arguing about taxes”.

I think I agree with him – the problem is that the ‘one man, one vote, once’ trope has been firmly established in the popular consciousness: people sincerely believe that political groupings based on religious belief are simply entryists hiding their true colours. The general pragmatism of the Islamist Turkish government doesn’t really seem to bear that fear out. Put simply, no government, Islamic or secular, is going to last very long if it doesn’t deal with the pressing economic problems that are pervasive in the region, so I think it’ll be very difficult for an Islamic government to avoid contact with reality for very long. Just look at Iran – most young people are a little sick of the regime, and they make up, oh, 70% of the population? Change isn’t very far away (though the likelihood of it being change that people in the West aren’t scared of for one reason or another is slim).

Though on reflection I think it's important to add a little nuance to that. The persistence of the Islamic Republic in Iran seems to me to have much more to do with the regime's stranglehold on the economy and unchallengeable political position that it does with its Islamic character. I'd point at Egypt, another large predominantly Muslim country with a history stretching back millennia and a heavily centralised, autocratic government whose traditional policy orientation has been left-leaning central planning in economic terms and a heady mix of conservatism and nationalism in social issues. Only in Egypt the autocracy is secular. In both, any gradual social opening seems to be linked with a gradual economic opening - in both, the elite's believes that jobs are crucial to maintaining stability, and they are using whatever bargaining chips they have to attract FDI. Anyway, it's possible to push the comparison too far, but I felt the point needed clarification.

OPEC calls for more refining capacity

2005-05-23T12:41:00.000Z

The FT reports that Sheikh Ahmad al-Fahd al-Sabah, Kuwait’s Oil Minister and holder of the rotation OPEC presidency, has called for increased investment in refining, attributing high oil prices to downstream bottlenecks. His argument is fairly close to the argument Saudi Oil Minister Al Naimi made at CSIS last week.

The FT quotes al-Sabah thusly:

"What's needed now is joint investment in both upstream and downstream operations. To make downstream investment attractive to international oil companies it should be tied in to upstream investment".

Which is interesting, because it raises the prospect of some kind of investment conditionality being attached to E&P contracts. Makes sense, really: what’s the use of raising the oil if you can’t process it?

UPDATE

Saudi Aramco is investing in several joint venture refineries in Asia which will be entitled to a guaranteed supply exempt from OPEC quotas. So Aramco gets guaranteed buyers, establishes strong strategic linkages with rising Asian economies, and gets to stick two fingers up at the US (which turned down Ali Naimi’s offer of two refineries). It’ll be interesting to unpick the various JVs and see what deals Aramco cut with the Asian importers.

That said, the 3 refineries that Aramco is building (worth US$50bn) are intended primarily for export. Which presumably means that the US and EU are still going to be able to buy petroleum products from the Kingdom – but they’ll be subject to OPEC quotas.

Truth, politics, and rationality.

2005-05-20T17:30:00.000Z

I was reminded by this article by the American realist John Mearsheimer of Hans Morgenthau. Morgenthau was something of an anachronism, to my mind, straddling several eras intellectually and fitting in none neatly. His influences ranged as far as Pascal, Niehbur, Arendt and Nietzsche; he could quote Machiavelli and Marx in the same breath and have it make complete sense.

It set me to thinking. Much wrong has been done to political thought in the name of the Realist School, not least in the form of Kenneth Waltz’s parsimonious and utterly unelucidating state/anarchy theory.

Yet Morgenthau’s thought is still as cogent today as it was 40 or 50 years ago, as this round denunciation of the war in Vietnam shows – just substitute ‘The Middle East’ for ‘China’ and ‘Iraq’ for ‘Vietnam’ and think of Iran’s nuclear programme (and before anyone suggests otherwise, even the Iranians themselves have no illusions about the true purposes of the programme).

Much of his intellectual power seems to reside in the fact that he admitted no moral or intellectual absolutism:

"Politics must be understood through reason, yet it is not in reason that it finds its model. The principles of scientific reason are always simple, consistent, and abstract; the social world is always complicated, incongruous, and concrete. To apply the former to the latter is either futile, in that the social reality remains impervious to the attack of that one-eyed reason, deficient in its vision of depth; or it is fatal, in that it will bring about results destructive of the intended purpose. Politics is an art and not a science, and what is required for its mastery is not the rationality of the engineer but the wisdom and the moral strength of the statesman. The social world, deaf to the appeal to reason pure and simple, yields only to that intricate combination of moral and material pressures which the art of the statesman creates and maintains.

"Contemptuous of power politics and incapable of the statesmanship which alone is able to master it, the age has tried to make politics a science. By doing so, it has demonstrated its intellectual confusion, moral blindness, and political decay. A book such as this can picture the disease but cannot cure it. More especially, it must leave the production of neat and rational solutions to those who believe in the philosophy against which this book is written. It must deprive the reader of that exhilaration which the rational solution of an oversimplified problem, from the single tax to the outlawry of war, so easily imparts. Yet, if it might lift the veil of oblivion from a truth once known, it would do for the theory and, in the long run, for the practice of politics all that a book can do."

From this review of a biography of the man.

Later, the reviewer quotes Morgenthau quoting Pascal:

Morgenthau quotes Pascal - "Man is neither angel nor beast and his misery is that he who would act the angel acts the brute" — only to add:

"It is only the awareness of the tragic presence of evil in all political action which at least enables man to choose the lesser evil and to be as good as he can be in an evil world. Neither science nor ethics nor politics can resolve the conflict between politics and ethics into harmony. We have no choice between power and the common good. To act successfully, that is, according to the rules of the political art, is political wisdom. To know with despair that the political act is inevitably evil, and to act nevertheless, is moral courage. To choose among several expedient actions the least evil one is moral judgment. In the combination of political wisdom, moral courage, and moral judgment, man reconciles his political nature with his moral destiny. That this conciliation is nothing more than a modus vivendi, uneasy, precarious, and even paradoxical, can disappoint only those who prefer to gloss over and to distort the tragic contradictions of human existence with the soothing logic of a specious concord."

As with many of the best thinkers that I have come across, Morgenthau never claimed to have a perfect map of the world – only the understanding that our understanding was necessarily flawed, and a healthy scepticism of those who, however earnestly, claimed to have all the answers – who, as Pascal noted, often cause more grief than joy.

UAE Markets

2005-05-19T11:12:00.000Z

Aabar IPO story continues
Well, it looks like the proverbial has hit the fan in Abu Dhabi after it emerged that some banks had flouted central bank regulations and loaned clients up to ten times their own contribution to buy shares in the Aabar IPO (see here for a recap, it’s about halfway through). Shuaa Capital reports that the Central Bank is penalising 4 national banks for breaching the lending limit of 4 times the cash contribution and for breaking their own exposure limits.

The names of the 4 banks haven’t been released, but I’ll be keeping an eye out to see if the names trickle out somewhere.

Real Estate
I don’t entirely know how to describe the atmosphere of the UAE markets at the moment. The government is very keen to present an image of fiscal probity and economic responsibility, but investors seem to be as frantic as a bunch of Mexican jumping beans in a very small jar. Nowhere is this more apparent than in the property market, which is dominated by off-plan – designed but not yet built, to the uninitiated – dwellings in high profile developments like the infamous Palms. Most of these properties sell out in a matter of days, and it seems that most of them go to GCC investors with little intention of actually living in the properties. The frenetic pace of the market, combined with Dubai’s all-too-successful hype has consisted driven prices upwards, despite the fact that many of these residences have yet to be completed. The situation was enough to worry the director of Nakheel, the company behind the Palms and other projects: in January he warned that speculation was too large a proportion of market transactions.

Despite the forced optimism of most of the local news outlets – whose coverage ranges from superficial arguments saying that ‘prices are going up because Dubai is a good investment’ to more nuanced arguments drawing comparisons with the foreign property markets. Most of the foreign arguments tend to hinge on interest rates – they argue that because interest rates are low in the UAE, people will be able to take out mortgages to buy property which will keep the market buoyant. The problem is, speculators have access to lending at the same interest rates, and can borrow quite a bit more, allowing them to crowd residents out of the market – precisely what is happening at present. In any case, none of these arguments seem to be convincing the people on the ground – a survey (pdf) conducted in March by MEED and HSBC showed that 83.3% of respondents believed that the UAE was experiencing a property bubble and was due for a market correction. Granted, as Everett-Heath (a director at Kroll) points out, most seem to think that the correction is still some way off – not until at least 2006 – but to be honest that kind of logic makes me feel uncomfortable. Make hay while the sun shines, sure, but don’t pull the barn down to make more room for the hay. Or something. My metaphors are strained these days. The problem is that our innate tendency (doc) to loss aversion seems to mean that people are reluctant to pull out of the market when they should – rather than take their gains and withdraw from the market, they stay involved for fear of losing out. It comes down primarily to the way in which the market is framed, which is where all the hype comes in: the papers emphasise the upside potential of the market and hype up the danger of prematurely exiting the market, which essentially frames the investment decision as a loss avoidance issue rather than what it really is, which is a gain on investment issue. I suspect the more sophisticated investors are well aware of the true nature of the investment decision, but I wonder how many of the people pushing prices upwards could be called sophisticated investors. Most anecdotal evidence seems to be that many people are getting involved on recommendations from friends, who point out the upside potential and then back it up with “it’d be a shame to miss out.”

At the same time, rental prices are increasing. A report (pdf) by a local job agency suggests that rental prices are beginning to force people out of Dubai, which isn’t good for the future of the property market. The optimists argue that once all the off-plan properties are completed, the increased supply will dampen rental prices and provide a soft landing for the boom. That’s one possibility, yes: the other is that a sudden spike in supply could make rental prices drop suddenly, which would then reduce the values of the properties to the investors. Given the volatility on the upward curve, there’s every reason to believe that the market will react in just as hysterical a fashion and all the loss-averse investors will pile out of the market as quickly as they piled in. That’s something the Dubai government is going to have to be very careful about, because the future of the emirate’s economy depends on it – research by EFG Hermes suggests that property is about to overtake oil as the largest contributor to Dubai’s GDP.

Meanwhile, delays, difficult labour relations and materials ‘problems’ are continuing to dog the construction of all these off-plan developments. Yay!

CSIS Oil Conference

2005-05-17T23:41:00.000Z

There was quite a big conference at CSIS in Washington today. Speeches were given by Saudi Arabian Oil Minister Ali al-Naimi, the new US Energy Secretary, Samuel Bodman, and Senator Jeff Bingham. Apparently Jeff Bingham (D, NM) was the minority member on the Senate Energy and Natural Resources Committee in 2003 - presumably he still is, I haven't come across him before.

Naimi's speech (pdf) contains quite a bit of useful information, though his allusions are a little opaque if you're not familiar with the oil market.

He begins by pointing out that while oil producers are committed to being environmentally friendly, environmental regulations in OECD countries have made it difficult for oil producers. Local opposition to the construction of oil infrastructure, combined with the lack of investment in the sector during the era of USD$10-$15 oil, has "tended to reduce flexibility in the system creating situations where isolated supply/demand imbalances become magnified, affecting world price levels."

This is a pretty explicit description of what has become the Saudi position on the state of the oil market, and I have to say I agree with it. The period of cheap oil coincided with the progressive introduction of fairly stringent environmental regulations on oil products, not least in the imposition of sulphur limits. Since there was ample supply of sweet (low sulphur) oil in the market during that period and oil was cheap, few companies thought fit to invest in refineries which can process sour oil. The last two years, however, saw Indian and particularly Chinese demand increase significantly, and refiners suddenly found that the price of light sweet oil was rocketing. Because few had the capacity to process sour oil, sour oil started trading at quite an increasingly large discount to sweet oil, and those refiners that could process sour made a killing running their refineries at full capacity and taking advantage of the high petrol prices.

The differentials between sweet and sour seem to be easing slightly at the moment, but the Saudi government has taken the issue very seriously - at a previous appearance at CSIS, Naimi offered to build two refineries in the US (presumably ones that could deal with sour crude). He was told that he'd be lucky to get them past environmental regulations. So Saudi Aramco is now spending US$5bn building a refinery in Yanbu. It is also investing in refineries in India and China. I'm under the impression that it's more cost effective to ship crude than refined products, hence the Saudi interest in building refineries at the target markets rather than refining at home and shipping the products, so I imagine that the Chinese and Indian refineries will be able to deal with sour crude as well.

Next Naimi moves onto concrete policy directions. I'll go through them one by one.

a) Increase global crude production capacity.

There isn't much spare capacity left in the world, because most countries with oil produce at full capacity because they're desperate for the cash. Only Saudi Arabia and UAE have room to expand, and they're both investing to do just that. KSA is already running at full capacity, though they don't like to advertise the fact, and they're investing in an additional 2.2m bpd to take their capacity up to 12m bpd.

b) Address downstream bottlenecks

That's pretty much the refining issue which I mentioned above. There is also the question of tankers, which are in scarce supply just at the moment. In October 2004 KSA put an order in to Hyundai for 6 tankers worth US$380m.

c) Upgrade Saudi energy infrastructure

This is interesting. They're investing to increase capacity to produce oil derivatives, which are going to be useful if Saudi industry ever takes off in a meaningful way. Whether there's scope for export I'm not sure, but it'll be interesting to check that out.

d) Improve efficiency and conservation

This is quite an important policy. Oil is Saudi's legacy, its great gift and curse. They need to focus on how to make the most of it. Greater efficiency, whether on the production or the consumption side is going to make the oil last longer; conservation may well mean that KSA will be less willing to push its fields hard for the sake of bringing prices down. There are already suggestions that some damage may have been done to some of the reservoirs by pushing them too hard (a problem Iraq is currently facing rather acutely).

e) Improve transparency. Naimi mentions that they put up a building so that the International Energy Forum Secretariat in Riyadh, though to be honest I'm not entirely sure what the forum achieves - it's an elite talking shop, not a negotiating arena (according to the RIIA), and it has been slated for not producing much of any real use. Though there's something to be said with increasing communication between producers and consumers, which would help to filter out some of the speculative froth that has been making oil prices particularly volatile. To that end, the Joint Oil Data Initiative would be a particularly useful step. It has been talked about for rather a while, though, and as of yet the database is still in development, you can't use any of the information in it, and you need a password to get at it. All of which means that it is having precisely no effect on the market, which is precisely where the information is needed. Pricing is just coded information signals, after all.

f) Expand human capital in the industry

This is pretty standard, actually - Saudisation and so on.

g) Innovate technologically

Also fairly standard, but also rather crucial. Minimising oil left behind (that is, the oil they can't get out of the reservoirs at an economic price) means investing in more advanced technologies. Finding more oil and making existing unextractable oil (at current economic conditions) extractable also means investing more in technology.

The first thing that strikes me about Bodman's speech is that it's printed in huge type with a large white space at the bottom for him to hold it. Good thinking, I always seem to end up squinting at the page when I'm giving a presentation.

More seriously, his speech is more diplomatic (I don't mean 'soft', I mean instrumental). He basically says that the US appreciates Saudi efforts but that it's going to invest large amounts of money in alternative energy because a) pricing is too volatile and b) it's a finite resource. I'd read that not only as a statement of intent but as a veiled threat to KSA - as in, 'improve your game or we'll have no choice but to stop playing'. In the nicest possible way, of course, but why else talk about alternative energy sources at length to an ally whose only real strategic value is its energy resources and attendant financial clout? KSA needs to start being a lot more open with its data, first and foremost - that is the single thing that would take a lot of froth out of the markets. At the moment speculators are able to feed quite nicely off the oil depletion trope, which although not inaccurate is more than slightly overegged - a 40-year window is still rather a long time, given the rate of technological advancement in this day and age.

I'm leaving Bingham's speech, he seems just to say that he's glad KSA is taking the US' issues seriously and so on.

2005 MENA Economic Developments and Prospects

2005-05-17T19:05:00.000Z

The World Bank has issued a report which, on the face of it, seems to be telling the rentier states of the Gulf what to do with all this money that they're accumulating thanks to the high oil prices . It might well have been titled "How to make hay while the sun is shining."

You can get the report here.

One theme of the report is that while things might be going well at the moment - there's nothing like oodles of cash to speed up decision-making - the lack of public accountability and specifically the lack of useful, transparent and comprehensive information means that there is no mechanism to check bad decision-making. The UAE springs to mind - after giving civil servants (read 'Emiratis') a pay rise back at the beginning of April, the government is now frantically trying to make sure that the decision doesn't translate into wage-push inflation.

It's an odd way of making economic policy. Along similar lines, the government of Dubai had to buy Chevron's subsidiary Caltex out of the national petrol station business in April because the government's insistence that petrol should be sold cheaply meant that the company, EPPCO, was losing money hand over fist. Now the government is effectively subsidising cheap petrol. Thankfully for Dubayyis, the secret police is quite effective or else it'd all end up on the black market like in Iraq.

Another interesting theme is the way that the region has turned in on itself. After the sociopolitical shock of 9/11, Westerners have been more reluctant to go to the MENA, and locals have been reluctant to go abroad. There has been a significant repatriation of capital by Gulf investors, which has flooded the region with liquidity.

The liquidity flood seems to be making the financial markets get very, very hot. IPOs and bond issues are regularly oversubscribed many, many times - at the end of April, an IPO in Aabar, which as of yet seems only to exist in brochures (al-Bayan reported on April 1 that it was 'in process of creation'), was oversubscribed 800 times.

To my untrained eye, it looks like there's a risk of a feedback loop setting into the financial markets in the Gulf, particularly in the UAE. The high levels of liquidity in the world in general mean that lenders are already underpricing risk, and there's an inordinate amount of speculation in Gulf stocks and bonds. Combine the two and you have a heady mix. As the FT's Lex Column noted on May 16:

And there are reports that some of those buying shares in Aabar were able to get loans of more than 10 times their own cash contribution to fund it. In the world's most volatile region, that sort of leverage is about the last thing that is needed.

And concerns were raised by a senior Abu Dhabi banker in Gulf News:

"I don't think banks have adhered to Central Bank regulations. Much of the money gone into the subscriptions is bank money or paper money and not the investors' own money," said Ziad Al Dabbas, the manager of National Bank of Abu Dhabi's domestic capital markets group.

A great deal of this IPO and bond issuing activity looks to me like a stealth tax for a region without taxation. Aabar looks rather like a private equity firm: its stated purpose is to aquire existing oil companies in the region. The question is, who owns the oil companies? And with 45% of its shares to be allocated to local firms and individuals (who just might include those close to the ruling families), I don't see Aabar leaving government control.

The rest of the WB report says that governments are generally reacting to the current oil boom more prudently than in previous booms, but that there is still rather a lot of work to be done. In all the economies of the region, the major problem is removing protection and subsidies, which, as Westerners also know all too well, is a pretty difficult thing to do even in a relatively prosperous economy, regardless of whether it's better for the economy or not. There is a strong risk that the oil boom will allow the region to defer its problems rather than addressing them - though in that regard the general push towards more liberal economic policies is quite encouraging. That's particularly the case in Egypt and Dubai, where hydocarbon resources are rather more limited. But overall, the regional economies have not improved anything like quickly enough to properly deal with the pressure of rapid demographic growth - for many of the rentier states, their baby boomers are just coming of age.

Watch this space, then, I suppose...