Investing In The Middle East 101

So the "Middle East".... that place with a lot of camels and terrorists, right?

NO! Before even thinking of investing in the Middle East, you have to stop calling it the "Middle East".

It's Iran, Iraq, Turkey, Syria, Lebanon, Jordan, Israel/Palestine, Egypt, Saudi Arabia, Kuwait, Bahrain, Qatar, UAE (Americans call it Dubai), Oman, and Yemen.

Each country has it's own traditions, Languages (Arabic, Turkish, and Persian), and Markets.

Catch my drift? Great, now we can continue on to the Investing stuff.

First, geographically speaking there are 3 regions in the Middle East.

Egypt: it's that country with pyramids and camels (yes some of them ride camels), and their 90 million population, it has the Nile river, and the Seuz Canal, the most important waterway in the region and probably the world, great culture, and food.

Egypt has A GDP of 537 billion dollars! and imports worth of 30 billion dollars.
It's main industries are:

Textiles, Food Processing, Tourism, Chemicals, Pharmaceuticals, Hydrocarbons, Construction, Cement, Metals, and Light Manufactures.

The Second region is The Northern Middle East.

This region includes Iran, Iraq, Syria, Lebanon, Turkey, Jordan, And Palastine/Israel.

Why did I include all these different countries in one region?

Because even though they speak different languages (Arabic, Turkish, Persian, Kurdish, Syriac/Aramaic, and Hebrew), they share a common history, traditions, religious believes (Different kind of Islam from their Southern neighbors, Orthodox Christianity, And Judaism), and mostly they look and act and dress nearly the same.

The GDP of this region combined is 1.85 trillion dollars.

The main industries of this region are Agriculture, Oil and Gas, Banking (Lebanon), Tourism, Transport, Real estate, and Construction.

And then the third region in the Middle East, is the Arabian Peninsula, with Saudi Arabia, Qatar, Bahrain, Kuwait, UAE, Oman, and Yemen.

This region shares one history, one Language (Arabic), one religion (Wahhabi Islam in exception for Oman and some Shia muslims), common traditions, and They are full of sand and deserts.

The total GDP of this region combined is 2 trillion dollars.

The main industries in this region are Oil and Gas, Agriculture, Tourism, Financial Services, Pharmaceuticals, Textiles, and much more actually. This region doesn't necessarily count on Oil. For example 71% of UAE total GDP comes from non-oil sources!

So this concludes the first lesson about investing in the Middle East, this was just an introduction, more lessons are coming soon.

 

Good post OP, keep up the good work. here's my 2 cents on investing in the Middle East.

Do not invest in countries like Egypt, Iraq, Syria, Yemen, Or Jordan.

Why? you may ask, it's because these countries have poor investment laws, and because you're a foreigner and you can't speak the language of the country, you'll be kinda lost.

Insted you should invest in Turkey, Lebanon, Iran, and the Arabian Gulf countries.

it's just much safer investment, in terms of the countries laws, and so you don't get conned.

 

I myself from the Middle East, and I always recommend people to invest in the Middle East, because we have huge markets, and only local investors (Except for oil industry). good article Jack.

 

Well, it's obvious that you spend some good effort of this article.

I support the idea of investing in the Middle East, as long as you know what you are doing.

Some people mistaken the Middle East with their first world view of investing.

The Middle East is a gold mine if you know what are you doing, I for myself partnered with some Lebanese guy (the best people to do business with), and did some investments with him, the results were like this:

1- first investment was about 5000$ in some local farm, after nearly a year I got ROI of 230%, which means, I got 13000$ dollars as net profit.

2-The second investment, was in some construction firm in Jordan, this time I was confident, and invested 50000$, but it seemed that it was just too much, and after a year I only got ROI of 40%, which means 20000$ profit.

that's all I got to add.

 

Because of a couple of reasons:

1-There's not that a lot of investors, I mean I respect Middle Easterners, but they don't know $h#t about investing, people who make good money probably making it through their salary, and they spend it right away, and rich people, I mean really rich people, are afraid on investing in local business, so they go and invest in real estate, or foreign stocks.

2-I had a person from inside, my partner the Lebanese guy, he helped me a lot, and he knows the local market and what to invest in, he just needed some money to invest, and he didn't have much of that, until I came and offered it.

3-living standards in the Middle East are different, people in most of Middle Easterner countries, get about 50 to 300$ gross salary, and they actually live very well with that, a 200$ monthly can provide you a very decent living in the Middle East. so when I brought thousands of dollars with me, I had the chance to invest in the biggest businesses here, small local businesses couldn't compete with us.

 

I gave you a silver banana because I like your two former topics, this one is good though, I just like the funny discussions more from time to time.

my thoughts on the topic itself?

well I think it's good to have some insight about the Middle East rather than those news about wars and terrorism, it's nice to see it from a different angle.

 

I'm actually curious about this kind of thing, because there's so much more than GDP that goes into making an emerging economy viable. it's totally fine to have one industry (Israel is big in pharma, Saudi Arabia big in oil), but how sophisticated are your capital markets? how's liquidity? how much of the money is individual money versus institutional? domestic vs. foreign? how trustworthy are the numbers you read from an accounting standpoint? how stable are governments? how's the financial system?

so yeah, Egypt could have a great economy with diverse businesses, but if most of the liquidity in their top stocks is a few families and you can't trust pricing or earnings reports, you're going to get fucked. I'm not saying that's how it is, I'm posing the question because I truly don't know.

 
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Well, taking UAE as an example, the GDP per capita is 63k$.

for stability, the Arabian Peninsula is 100% stable (except for Yemen, and there's some problems happening in Bahrain as well, but not as nearly as bad as Yemen), Egypt is stable right now as well, Israel, well you know I admit it, this guys are stable, and I don't see them shaken anytime soon, Iraq and Syria are not stable at all, and Lebanon is A democratic country, stability depends on what politics can bring with it, but they are going to be better soon, Iran and Jordan are the most stable in the northern region, and no one really knows what is going to happen in Turkey, not even the best political analysts.

for market sophistication, l think you should be more specific about which industry and country we are talking about, but generally speaking the region isn't sophisticated enough, and unless we are talking about detergents, Oil, clothing, or Agriculture products, the markets are not even close to sophisticated.

And about the financial sector in the Middle East, you have Lebanon (which is called the Arab's Switzerland, because of it's Banks), with a western-type capitalist economic system.

Saudi Arabia, Oman and Kuwait, they have Islamic Financial sector, that itself needs a whole topic about.

UAE, Qatar, Bahrain, All have strong capitalist financial sectors, growing steadily more and more important regionally and worldwide.

Syria and Iraq, are Socialist countries, banks mostly are Limited by governmental regulations, they also have Islamic banks, and investment banks there shouldn't be named that.

and Jordan have a weak financial sectors, even though Jordan is somewhat capitalist, but still it's a poor country.

Israel, they have a stable and strong financial sector, nothing more needs to be said.

Turkey, Iran, and Egypt, all have stable financial sectors, diversed between normal banks and Islamic banks, they have also have free markets (with some limits in case of Iran).

liquid money can be found in all those countries, but mainly in The Gulf countries, Turkey, Israel, Egypt, and Iran.

for Egypt, they have a 90 million population, most Famous brands, market themselves in Egypt, most Arabic TV ads are made in Egyptian dialect, yes some families have a lot of money, but you can't be wrong with such a huge market, if you know what are you selling, and who are you selling to.

ask me more questions if you have any, I'll be happy answering them.

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interesting to read your thoughts on egypt.

i've been there (2009), Cairo seemed like absolute chaos, 5-10x more volatile than anywhere i've been in s.america or east asia. at the time i would've told you i wouldn't trust it as far as i could throw it (that's 0 feet, fyi)

But i'm sure if you're very familiar with the territory you can potentially make a smart investment there

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AFAIK Iran is NOT a middle eastern country and Iranians take offence when you refer to them as middle eastern.

Coming to the topic , Saudi Arabia is trying to diversify its economy and trying to move away from having Oil as its base. Think the listing of Aramco is proof of that. But still the ISIS conflict and the radical wahabbi ideology must still be a turn off I imagine

 

I don't think Iranians get offended by calling them Middle Easterners, because the Middle East is a more of a geographic location, and the Middle East is Geographically wider than the countries I mentioned, it actually reaches out to Libya and Somalia, and Afghanistan And Pakistan, and Sudan.

What they actually get offended by is calling them Arabs, call them that, and you'll get yourself shot (Just kidding though).

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Here is my two cents, coming from Kuwait

The banking/financial sector is not Islamic ! It has a single Islamic bank though and it advocates Islamic financial industry !

The "Kuwait investment Authority" is the world's first and oldest sovereign wealth fund.

The current Emir ( prince) of Kuwait declared the kuwaits vision and strategy for 2035, to be a central financial hub in the region, as a result the so called " Direct investment promotion authority" was established recently 2015 to give foriegn investors direct access and tax exemption to the local market.

About the region

The gulf countries ( Kuwait , Saudi, Bahrain , UAE, Qatar , Bahrain ) after the recent oil crisis are building developmental strategies away from the oil and gas dependence.

Egypt, Jordan and Lebanon are money drain and will never pay of their debts.

Lebanon never was the switzerland of Arabs for their banking system, it used to be a main tourist destination for the gulf countries but not anymore becuase of its political/terrorist activity with hizbullah.

Iran is a rich country in resources, yet iranian are very self dependent and don't like investors.

Israel I would say is one of the best country to invest in, it's known as the startup nation for heavens sake.

Libya, Iraq , Syria and Yemen are currently screwed up .

Sudan and oil rich southern Sudan conflicts and dictatorship.

Then you have Morrocos tourism industry while Tunisia and Algeria agriculture especially olives.

 

Same as Jack, might disagree on a lot of points but the input is important. However what you wrote confirms my thoughts on how the Gulf people look at the region.

On the other hand, I will need to tell you that the region doesn't need more financial centers than the DIFC.

You have Qatar, KSA and Kuwait working on one. Was DIFC a success? Yes it was, however it's because the region had no real financial center, but it is important to highlight that DIFC is very well planned as well and an attractive place to do business.

Why doesn't the region need more than the DIFC? Simply because there is not enough business in the region and the economies around are not mature/open enough for big IPOs, M&A and trading activities on a regular and constant basis that justifies the existence of 4 financial centers in a 2 Trillion dollar regional economy. Remember the financial sector gets the money through decimal %s on these activities. If that was to happen, these 4 will probably compete to death on lowering fees or commissions which would not generate enough Alpha to pay the office rent in a luxurious district.

For these services to flourish here, you need to pump manufacturing, industrial, technology and medical sectors and all others, and that doesn’t happen by inviting Apple to open a regional office, it is by creating the next Apple etc.. or building the next big pharma company.. All that takes a lotttt of time, until that happens, I personally believe that DIFC supplies enough services for the demand in the region, at least for the next 10 years. How the landscape looks like in the next 10 years is completely uncertain.

 

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