Will The Gulf Capital Rule Over The West?

 Petrodollar-rich Arab countries keep on increasing their activity in global markets. Arab capital owns many world-famous Western companies now. Although these developments worry some people, it seems that as long as oil prices rise, the supremacy of Arab capital is likely to continue… 

 Having become a savior for the troubled giant companies of the Western world, Gulf capital is still being mentioned with its investments in various fields. Arab investors, who stand out with their investments in many areas ranging from finance to construction, from energy to entertainment, have recently hit the headlines after buying Manchester City, one of the most popular football clubs of England. It goes without saying that the real basis of Arab countries’ wealth is oil. The surge in oil prices is multiplying these oil-exporting countries’ revenues. The world saw rapid increases in oil prices many times in the past. The first surge in oil prices took place between 1972 and 1974. In these years, the price of oil increased from $1.90 per barrel up to $10.41 per barrel. The second surge in oil prices was witnessed between 1978 and 1980. In these years, oil prices per barrel rose from around 14 dollars to 38 dollars. Between 1988 and 1999, however, oil prices went up from $16 a barrel to $25. 

Every surge in oil prices has added to the wealth of Arab countries. With the increases in oil prices which began in 2002 that we observe also in recent periods, the price of oil rose above $100 per barrel. Having their source of wealth in petrodollars, investors from Arab countries have begun to play a more active role in global financial markets. 

Increasing Weight in Financial Markets

Although not at the current scale, Arabs have made investments in different fields in the US and Europe also in the past. But after September 11^th, relations between Arab countries and the US and Europe have become quite strained. This situation has affected investments to a great extent. Not being perceived as reliable by US and Europe and having received a cold treatment from them, Arab capital has had to divert its investments into new locations in the face of “restrictive” regulations and negative approaches. Having been shifted to many geographic regions like Asia and Africa, Gulf-originated investments have begun to assume the role of a genuine “savior” for Western companies which found themselves in a difficult situation in recent years, due to the global financial crisis. In the past, Arab investors used to invest in risk-free instruments like American Treasury bills or Eurodollar deposits. However, these investment strategies have changed in the course of time.

Directing their investments with the purpose of becoming a finance, tourism and commerce center in their region, Arab countries have also resorted to making strategic investments in developed countries in many different fields. These petrodollar-rich countries continue to put the resulting revenues to use in global financial markets and become still more important players with each passing day. The sovereign wealth funds set up by these countries for investing the revenues from oil exports in profitable areas are both a source of “money” and at the same time “worry” for developed countries as these funds have begun to have increasing power by investing in fields that are of strategic importance to these countries. The US and European countries try to take measures against these funds on the grounds that they lack adequate transparency and that they may want to have influence also on political structure in the coming periods. 

Help from Gulf to Giant Companies 

Observing the companies in which Arab capital has invested, Citigroup comes to mind first. On November 26, 2007, the Abu Dhabi Investment Authority (ADIA) agreed to invest $7.5 billion in Citigroup, buying 4.9% of the New York-based bank, making it the largest shareholder. The Mubadala Development Company, again another Abu Dhabi based investment group, bought an 8.1% equity stake in Advanced Micro Devices (AMD) the second-largest global supplier of microprocessors and chipsets, for $622 million. Besides this, Mubadala also owns 7.5% of the Carlyle Group, the largest private equity investment firm in the world. Dubai International Capital, again another strong Arab firm, has acquired a 3% stake in Sony for $1.5 billion. The plastics division of the global giant General Electric Co. was sold to a Saudi Arabian firm for $11.6 billion. In addition to all these developments, there are Arab investments in many Western companies such as, Apple, News Corporation, Four Seasons Hotel, Procter&Gamble, Hewlett-Packard, PepsiCo, Time Warner and Walt Disney. Similar news has made headlines recently. It was about Abu Dhabi United Group’s (ADUG) buying Manchester City football club for $360 million from the former Thai Prime Minister Thaksin Shinawatra.

It is expected by business circles all over the world that additional developments will also take place in this regard. Property is another field of investment in which Arabs are involved all around the world. The latest development in this context is that Abu Dhabi Investment Council bought Prudential Financial’s 75% stake in the Chrysler Building in Manhattan. It seems that entertainment sector will also get its share from the investments of Arab capital: It has been long said that the Abu Dhabi Investment Authority (ADIA) plans to spend over $1 billion developing, financing and producing up to 40 feature films over the next five years with big Hollywood studios. 

Arab Capital’s Investments in Turkey

Turkey is among the countries that want to receive a share of Arab capital. Desiring not to miss the opportunity of investing in profitable fields of business activity, Arab investors have made many attempts in Turkey which has been among the magnets for investment in recent years. Turkey sees this oil based capital as an opportunity and launches several initiatives for attracting Arab investors. The single most famous investment by Arab capital in Turkey is Türk Telekom. The 55% public stake in Türk Telekom was bought by Oger Telecom of Lebanese based Hariri Family for $6.5 billion in 2005. This sale has led to the remark that ‘Turkey’s communication infrastructure was handed over to Arab capital’ and the issue remained at the center of heated debates for long. The second highest bidder in the tender was also another Arab company: Etisalat Joint Venture Group of United Arab Emirates (UAE). Arab Bank and BankMed, which belong to Hariri Family, took over 91% of MNG Bank shares in 2006 and the bank was renamed as Turkland Bank. 

The Dubai-based real estate company Emaar Properties entered Turkey with its $700 million housing and commercial center project to be completed by a joint venture with Atasay Jewelry. Emaar Properties plans to invest up to $5 billion in Turkey until 2010. Aside from these, Kuwait Investment Authority (KIA) bought the Cevahir Mall at the downtown Istanbul, Europe's largest shopping mall, for $750 million. While Abraaj Capital has become a partner in Acıbadem Health Services; Saudi Arabia’s largest bank, The National Commercial Bank (NCB), bought 60% of Türkiye Finans in March 2008. Again, many Arab companies have opened branches in Turkey or set up new companies. On the one hand the Western world deems Arab capital as “unfavorable”; on the other hand it tries to draw these investments. Arabs also want to achieve returns on revenues they obtain from oil exports making huge investments for this purpose. As long as global energy demand increases, oil seems to maintain its reign and as long as oil prices rise Arab capital is likely to maintain its supremacy.