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Portfolio > Economy & Markets

What Advisors Need to Know About Mideast Hot Spots—Slideshow

By Marlene Y. Satter

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With the ongoing turmoil in the Middle East/North Africa (MENA) region, your clients are undoubtedly wondering what effects the conflicts might have on their personal portfolios and on the U.S. economy and markets. Not all MENA countries are created equal when it comes to commodities, exports, and other trade and economic issues. Some, like Saudi Arabia, are major exporters to the United States. Others, like Egypt, are large recipients of American largesse in the form of aid (particularly military aid in Egypt's case).

We believe that an ounce of knowledge about these countries might be better than a pound of having to explain to clients why the mess in Libya doesn't directly affect the oil supply in the U.S., which might allow you to explain why oil prices and what clients pay at the pump for gas, for instance, don't always follow the strict laws of supply and demand.

To that educational end, we’ve taken a look at some of the salient points of economic, trade and political information for a number of the countries you might be asked about by clients: Bahrain, Egypt, Libya, Saudi Arabia, Tunisia and Yemen.

 

 

Talking points for your clients–and knowledge for you–on the economic and markets impact of regime change in North Africa and the Mideast.

Bahrain
Oil and Islamic Banking

Protesters and a workers’ general strike has brought Bahrain’s once-vibrant economy to a standstill, and fears of the unrest prompted other Gulf nations to send in troops the week of March 17 to support the regime of King Hamad bin Isa al-Khalifah.

Bahrain, with declining oil reserves, began a successful shift to focus on banking in the 1980s. It has also built up its petroleum refining and processing business. Its natural resources include oil, natural gas, fish, and pearls.

Prior to the most recent anti-government protests, the country had improved its communication and transportation infrastructures, giving Bahrain the edge in attracting multinational companies with operations or business in the Persian Gulf region. A free trade agreement with the U.S. also brought new opportunities. Nonetheless, the nation is still substantially focused on oil. Petroleum production and refining make up more than 60% of Bahrain’s export receipts, 70% of government revenues, and 11% of GDP, according to the CIA Factbook. Its second largest export after oil is aluminum production. Other large economic contributors are finance and construction.

Bahrain rivals Malaysia as a center of worldwide Islamic banking; it also seeks new sources of natural gas to fuel its aluminum and petrochemical industries, which are still growing.

Bahrain exports petroleum and petroleum products, aluminum, and textiles; in 2010, its exports totaled $15.13 billion. As of 2009, its chief export partners were India (4.2%) and Saudi Arabia (2.78%). It imports crude oil, machinery and chemicals, and in 2010 its imports totaled $12.14 billion. Its chief import partners as of 2009 were Saudi Arabia (22.91%), France (9.76%), the U.S. (7.95%), China (6.4%), South Korea (5.26%), Japan (5.19%), Germany (5.01%), and the U.K. (4.34%).

As of Dec. 31. 2010, its direct foreign investment stock abroad totaled $8.399 billion.

 

Talking points for your clients–and knowledge for you–on the economic and markets impact of regime change in North Africa and the Mideast..

Egypt
Tourism and Suez Canal

Egypt’s fertile Nile Valley is the scene of much of its economic activity. Under the now deposed long-time ruler Hosni Mubarak, the country sought to attract foreign investment and grow its GDP, but the global recession slowed this process. GDP pre-recession was at 7%, but in 2009 fell to 4.6% with lower tourism and manufacturing contributing to the slowdown. The Egyptian stock market reopened on March 23, but the most recent forecasts for economic growth now stand at 2.0%, down from 6.0% GDP expected for the year before the Egyptian revolution that overthrew Mubarak, partly due to weakened tourism. Foreign investors own about 15% of the Egyptian stock market’s capitalization. Its natural resources include petroleum, natural gas, iron ore, phosphates, manganese, limestone, gypsum, talc, asbestos, lead, rare earth elements, and zinc.

Egypt’s commodity exports are crude oil and petroleum products, cotton, textiles, metal products, chemicals, and processed food. In 2010, its exports totaled some $25.34 billion. As of 2009, its chief export partners were the U.S. (7.95%), Italy (7.26%), Spain (6.78%), India (6.69%), Saudi Arabia (5.53%), Syria (5.3%), France (4.39%), and South Korea (4.27%). Import figures for 2010 were $46.52 billion; it brings in machinery and equipment, foodstuffs, chemicals, wood products, and fuels. Chief import partners as of 2009 were the U.S. (9.92%), China (9.63%), Germany (6.98%), Italy (6.88%), and Turkey (4.94%).

As of Dec. 31, 2010, its direct foreign investment stock abroad totaled $4.9 billion. U.S. direct aid to Egypt has totaled about $2 billion each year, reports ProPublica; more than $1.3 billion of that amount supports the Egyptian military.

While Egypt does not account for a huge impact on the global economy through its own asset prices, the Suez Canal accounts for some 8% of all global seaborne trade. The country also drives much policy direction and sentiment in the Middle East. These two factors could account for a great deal of change in global markets, due either to restricted shipping through the canal that would increase prices and impact supply lines, or a move toward Islamic Sharia law, which would have an impact on leverage and interest; Sharia law forbids charging interest.

Egypt’s economy accounts for approximately 0.3% of the MSCI emerging market index. There are 166 funds worldwide that invest in the Middle East and North Africa, including Egypt; these funds represent approximately $13.4 billion of equity and bond assets under management in mutual funds and ETFs. Of the $23.7 trillion invested in mutual fund assets globally at the end of Q3 2010, that is a very small portion, according to the Investment Company Institute (ICI) .

 

Talking points for your clients–and knowledge for you–on the economic and markets impact of regime change in North Africa and the Mideast.

Libya
Oil and Chemicals

Libya is now in the midst of a civil war between the regime of Col. Moammar Gadhafi and rebels, who starting on March 18 began receiving air support from an American-backed coalition. The country is heavily dependent on oil for its economic survival, with 95% of its export earnings, 25% of its GDP, and 80% of its government’s revenue coming from the sector, with most of those revenues being concentrated at the top and little trickling down to its citizens despite its relatively high per capita GDP.

Its natural resources are petroleum, natural gas, and gypsum. According to the CIA Factbook, non-oil manufacturing and construction sectors, making up more than 20% of the country’s GDP, have expanded from processing mostly agricultural products to include petrochemicals, iron, steel and aluminum. Libya’s climate and soil are poor, meaning that it is seriously dependent on imports for its food, bringing in 75% from elsewhere.

In 2010, Libya’s exports totaled $44.89 billion and its chief exports were crude oil, refined petroleum products, natural gas and chemicals. As of 2009, its chief export partners were Italy (37.65%), Germany (10.11%), France (8.44%), Spain (7.94%), Switzerland (5.93%), and the U.S. (5.27%). Its 2010 imports totaled $24.47 billion, and its chief imports were machinery, semifinished goods, food, transport equipment and consumer products. Its chief import partners as of 2009 were Italy (18.9%), China (10.54%), Turkey (9.92%), Germany (9.78%), France (5.63%), Tunisia (5.25%), and South Korea (4.02%).

As of Dec. 31, 2010, its direct foreign investment stock abroad totaled $15.32 billion.

 

Talking points for your clients–and knowledge for you–on the economic and markets impact of regime change in North Africa and the Mideast.

Saudi Arabia
Oil and Oil

When first Tunisia and then Egypt threw out its repressive leaders, the reigning family led by King Abdullah was quick to open its pocketbook to its citizens to forestall serious unrest at home.

Saudi Arabia holds more than 20% of the world’s oil reserves, according to the CIA Factbook, and boasts natural resources of petroleum, natural gas, iron ore, gold and copper. It also possesses over 1,600 miles of coastline between the Persian Gulf and the Red Sea, giving it considerable leverage on shipping through the Persian Gulf and the Suez Canal. It is the largest petroleum exporter and exerts substantial power in OPEC. Efforts to diversify its economy are focused on the power generation, telecommunications, natural gas exploration and petrochemical sectors. The nation also joined the WTO in 2005 as part of its move to attract foreign investment.

In 2010, Saudi Arabia’s exports totaled $235.3 billion, with petroleum and petroleum products making up 90% of the total. As of 2009, its main export partners were Japan (15.33%), South Korea (12.71%), the U.S. (12.2%), China (10.38%), India (7.12%), Taiwan (4.54%) and Singapore (4.25%). Its 2010 imports were estimated at $99.17 billion, consisting of machinery and equipment, foodstuffs, chemicals, motor vehicles and textiles. Its main import partners as of 2009 were the U.S. (12.32%), China (12.06%), Germany (7.67%), Japan (6.15%), South Korea (5.32%), India (4.99%), the U.K. (4.72%), and France (4.05%). As of Dec. 31, 2010, its stock of direct foreign investment abroad totaled $18 billion.

 

Talking points for your clients–and knowledge for you–on the economic and markets impact of regime change in North Africa and the Mideast.

Tunisia
Ties to Europe

The popular uprisings in North Africa and the Middle East began in Tunisia in December 2010, and ended with the ouster of long-time President Zine El Abidine Ben Ali in January 2011, and inspired the uprising in Egypt and other countries in MENA.

With natural resources of petroleum, phosphates, iron ore, lead, zinc and salt, and a strategic location in the central Mediterranean, Tunisia, according to the CIA Factbook, has a diverse economy that includes agricultural, mining, tourism, and manufacturing sectors. Its largest export market, Europe, declined during the recession, slowing Tunisia’s growth in turn from an average of nearly 5% over the previous decade to 4.6% in 2008 and 3% to 4% in 2009-2010. However, development of the services sector and non-textile manufacturing and revival of agricultural production helped somewhat to offset those losses.

Exports that in 2010 totaled $16.11 billion included clothing, semi-finished goods and textiles, agricultural products, mechanical goods, phosphates and chemicals, oil and electrical equipment. As of 2009, its main export partners were France (29.6%), Italy (21%), Germany (8.8%), Libya (5.8%), Spain (5%), and the U.K. (4.8%) It imported, in 2010. In 2009 it imported $20.02 billion in goods that included textiles, machinery and equipment, hydrocarbons, chemicals and foodstuffs. Its main import partners, as of 2009, were France (20.1%), Italy (16.4%), Germany (8.8%), China (5%), Spain (4.5%), and the U.S. (4%). Its direct foreign investment stock abroad as of Dec. 31, 2010 amounted to $251 million.

 

Talking points for your clients–and knowledge for you–on the economic and markets impact of regime change in North Africa and the Mideast.

Yemen
Oil and LNG

Politically, the opposition in Yemen has been demonstrating against its rulers since January, calling for the ouster of President Ali Abdullah Saleh, a long-time U.S. ally, and has turned down his offer to resign following promised year-end 2011 elections.

A mostly desert country with a temperate and mountainous western region, Yemen is a poor nation highly dependent on its diminishing oil resources for much of its income. While its chief natural resources are petroleum, fish, rock salt, and marble; small deposits of coal, gold, lead, nickel, and copper; and fertile soil in the temperate and mountainous west, the country exports oil and some liquid natural gas (LNG), as well as coffee and dried and salted fish. In 2010, its exports totaled $7.462 billion. As of 2009, its chief export partners were China (36%), Thailand (17.63%), India (13.54%), South Africa (6.16%), Japan (5.49%), and the UAE (4.99%). In 2010, its imports totaled $8.35 billion. Its main Import partners, also as of 2009, were China (13.98%), the UAE (12.3%), India (8.63%), Saudi Arabia (5.8%), the U.S. (4.52%), Brazil (4.51%), Turkey (4.51%), Kuwait (4.33%), and France (4.24%). Yemen imports food and live animals, machinery and equipment, and chemicals.

In August 2010, it was the recipient of a three-year, $370 million program approved by the International Monetary Fund (IMF) to help it diversify its economy and attract outside investment.

In December 2010, Yemen said it planned to raise some $500 million in 2011 from the sale of sukuk, Islamic bonds that pay investors with asset returns rather than interest, which is forbidden by Islamic Sharia law.

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