Sunday, September 16, 2007

Capitalism and Islam

Dubai World Begins MGM Mirage Tender

Ah good old capitalism it will make a believer out of Muslim businessmen yet.

Dubai's proposed purchase of a 9.5 per cent stake, as well as a 50 per cent share in MGM's $7bn CityCenter project, for a total outlay of $5bn, stunned the gaming industry when it was announced last week.

They invest in gambling while prohibiting it to believers. Making money off the vices of the infidel.

While it won't be just another day at the office, Nevada gambling regulators say they're ready to dig into a mass of paperwork to be filed in the $5.1 billion investment that the Persian Gulf state of Dubai is making in MGM Mirage.

The deal marks the first time a state has applied for a Nevada gambling license. And the applicant is part of a Middle Eastern emirate that strictly forbids gambling for its citizens.

Notice there has been no hew and cry about Dubai World buying MGM. Nope not a peep. Of course Congress is off on holidays. But what about Lou Dobbs? Nope not a peep.

MGM needs the investment money with credit drying up because of the sub-prime melt down.

Las Vegas Not Exempt From Money Woes

A silver lining to this means the hotel workers can be assured that management will meet their contract demands.
MGM Mirage workers: Unions approve contract


While on the global level it means the Gulf States, UAE, are using Dubai to create Arab capital to compete against other national capital. Since they have little in the way of military power in the region, they are amassing capital to compete with the other imperial powers.

Qatar Offers $2 Billion to Buy Nasdaq’s Share in London Stock Exchange

SABIC Concludes Purchase of GE Plastic Business



They are using their capital to further their own political agenda in the region;
Gulf’s Federation of Chambers of Commerce Welcome Free Trade with Iran

And typical of capitalism they have created a metropolis a capitol of capital in the region; Dubai.

Sovereign Wealth Funds: The Growth and Challenges of State-Sponsored Investments

A combination of an unprecedented volume of oil revenues in the last three years and a staggering American trade deficit have been the main causes of foreign exchange reserve buildup in countries around the world—specifically in the Gulf region (oil revenues) and East Asia (current account surplus). As economist Michael Pettis explains, “…it seems reasonably certain that what has powered the [globalization] boom in the last decade is the recycling of the massive U.S. trade deficit. As central banks and sovereign funds accumulate reserves as the flip side of the U.S. trade deficit, excess U.S. consumption is being converted into global excess savings.”

China and the Gulf countries, excluding Kuwait, actively ensure the growth of their respective sovereign wealth funds by holding down their exchange rates in order to retain the dollar amount of their funds, which draw on dollar-denominated oil revenues. Kuwait is the only Gulf country to have un-pegged its currency from the dollar as a measure to combat inflation. Saudi Arabia does not consider it in its interest to follow suit.

In addition to rapidly accelerating oil revenues, capital appreciation and dividends on initial country investments caused incomes to snowball long before the SWF became an investment vehicle. For instance, the father of Dubai’s current ruler, Sheikh Mohammed bin Rashid al-Maktoum, defied skeptics by investing a large part of the emirate’s oil revenue into developing the Jebel Ali Port in the 1970’s. The port is now one of if not the world’s busiest ports, and has firmly established Dubai as the region’s trading and transit hub.


Dubai World Ports Might Offer IPO of $4.2 Billion

On the other hand, the QE2's future is settled. Sold for $100 million, it will become a hotel permanently docked in Dubai, and many past passengers view that as a good thing.

Halliburton Spin-Off Positive

The KBR spin-off and an increased push in the Eastern Hemisphere through a headquarters in Dubai are both positive developments for Halliburton (NYSE: HAL). The spin-off of the high volume, low margin KBR business removes distractions, improves operational focus, and makes Halliburton a pure-play on the oilfield service market.


Ahmed Lotfy relocates to Dubai, strengthens Halliburton’s regional presence


Halliburton Company (NYSE:HAL) announced today that Ahmed Lotfy, Senior Vice President – Eastern Hemisphere, is relocating to Dubai following the opening of a second corporate headquarters office for Halliburton in the centrally located Gulf city.



Gone are the days when the oil sheikdoms simply amassed personal wealth and engaged in conspicuous consumption. Now that capital is being used to take on the imperial powers at home as the case of MGM and OMX show and by attracting their TNC's, like Halliburton, to Dubai.


Changing Patterns of Investment in the Gulf Region: The Case of Dubai

The massive increase in oil revenues in most of the six members of the Gulf Cooperation Council (GCC)—Saudi Arabia, United Arab Emirates, Qatar, Bahrain, Oman and Kuwait—has created unprecedented opportunities for the building of infrastructure, the provision of social services and, at the same time, for investments overseas.

These investments have been channeled through two principal pipelines—acquisition of assets and the purchase of shares in high quality financial and industrial firms. According to the London daily al-Sharq al-Awsat of August 13, the Gulf countries have channeled $140 billion into overseas investments in the last three years. In a relatively short time, some of the Gulf countries have become respectable actors on the international financial scene.

At the same time, a hospitable investment environment, the privatization of state-owned entities and the prospects of mutually profitable deals have attracted a massive influx of Western financial services and industry to the Gulf region. The opening of the real estate market for foreign investors, particularly in Dubai, has created a massive construction boom which is fueling economic growth at a rapid rate.

The purpose of this article is to shed light on the investment activities of Dubai, and how an enlightened and entrepreneurial leadership has turned what was a small desert outpost just a few decades ago into a bustling metropolis with a vigorous economy that is subject to both envy and emulation.

In contrast to the earlier oil booms of the 1970’s and 1980’s, however, these countries are not squandering their oil revenues on spending sprees, but rather are focusing on diversifying their assets and buttressing their fiscal solvency through massive investment schemes.

Dubai, one of the seven emirates that make up the UAE, in particular, exemplifies the investment trends of the Middle East, mostly on account of the fact that it is an investment powerhouse out of necessity. The emirate seeks to open itself to and extend its reach within international markets in order to hedge any risk it faces due to the steady decline of its oil and gas reserves, which are expected to reach depletion within twenty years. Dubai currently has a strong penchant for the real-estate sector, but is learning to thoroughly diversify its assets in its search for some high-yielding financial instruments.

The current generation of economic and industry ministers in the Gulf region is largely composed of men who began their careers in the private sector. This correlates with efforts in almost all MENA countries to increase the privatization of state-owned entities in an attempt to create an “open market” atmosphere. As the Middle East daily al-Sharq al-Awsat reported on August 8, 2007, an international investment firm in Kuwait noted that privatization trends in Gulf countries—which are competing amongst themselves to become the next global “financial capitol”—are reflected in the flow of private capital into publicly traded stocks and other financial instruments. In 2006 this amount totaled $7.07 billion, which was a 61.6% increase over the previous year.

The Carlyle Group LP says that the Middle East is now the “hot spot” for private equity deals, and HSBC reports that as much as one third of all project finance involves Middle Eastern projects. Dubai is a particular hub of this activity. The chief executive of oil services company Halliburton has recently opted to relocate at least part of the company’s corporate and executive headquarters from Houston to Dubai. Other prospective buyers of property in the emirate include Oracle, Cisco and Microsoft.

Expanding Horizons

While Western banking, financial and information technology industries are rapidly being drawn to the Gulf countries, Gulf investment is not necessarily giving preferential treatment to the Western hemisphere that has largely responsible for its explosion of financial power.

While it is true that various emirate companies invested $3.5 billion in the US last year, many of those same companies are also shifting their interest to Asian markets on account of the falling dollar and for the sake of diversification:

- Dubai International Capital and DIFC Investments are working to extend their reach into Pakistan, India and South Korea.

- Istithmar’s real estate arm, which is part of the Dubai World group of companies, plans to increase the 5% of its assets it has invested in Asia to 30% within five years.

- The Dubai government firm Emaar is responsible for the housing boom taking place across Asia, most recently securing a deal to construct a 1,200-hectare project, set on the pristine Mandalika Beach, estimated at $600 million in worth.

- Remaining oil exports in the Dubai are being used to help launch the Dubai Mercantile Exchange, a joint venture with Nymex that is to create a futures market for Mideast crude oil exported to Asia.

- Dubai Ports World, in its attempt to double its capacity in 10 years, is developing terminals in China, India, Vietnam and Pakistan.

These investment patterns place the Gulf region, and especially Dubai, in a unique position. As relationships increase in number and depth within certain markets, namely Iran and China, diplomatic ties with Washington and Europe will probably occasionally feel a squeeze.

SEE:

At Least It's Not Dubai Ports

Calgary Fraud Funds Dubai Boom



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