How will MENA countries hit FDI targets? 

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Emerging market investments are shrinking. How will MENA countries hit FDI targets? 

By Amjad Ahmad in Atlantic Council

As the pandemic-fuelled liquidity begins to wane and the reality of inflation and higher interest rates sets in, many economies will face considerable challenges.  Middle East and North Africa (MENA) countries are vying to attract global investors and increase Foreign Direct Investment (FDI).  Yet, capital flows are reversing from emerging to developed markets—specifically in the United States, where interest rates are rising to levels not seen since 2018.  The year 2018 is illustrative: during that time, emerging markets experienced substantial capital outflows as international investors reduced their exposure and consolidated their risk into emerging economies with fewer perceived risks, given their proactive and progressive economic policies.

Attracting foreign investors into emerging market economies has always been difficult.  Nevertheless, thanks to the extended period of near-zero interest rates, emerging markets were blessed with investors hungry for higher returns. The plentiful supply of money coupled with historically low yields in rich countries led investors to explore higher yields in riskier markets across various assets, including public equities, public debt, private equity, and venture capital.  The lower cost of capital allowed investors to finance opportunities that otherwise would have been unfeasible.

Unfortunately, the party is over, and the pain is just beginning.  The US Federal Reserve has started an aggressive interest rate hiking campaign, which will likely be the sharpest rise in interest rates since former chair of the Federal Reserve Paul Volcker’s war on inflation from 1979 to 1982.  Many economists believe this will likely lead to a recession in the world’s biggest economy.

A US economic slowdown or a recession couldn’t come at a worse time for emerging markets, particularly those in MENA, where most are fighting chronic unemployment, especially among youth and women, slowing growth, and higher debt levels.  Large oil-exporting countries in the Gulf Cooperation Council (GCC) — such as Qatar, Saudi Arabia, and the United Arab Emirates (UAE) — are better positioned given heightened commodity prices. However, their lack of interest rate autonomy given the dollar peg limits their ability to deviate their monetary policy from that of the United States.

Additionally, the global demand destruction cannot be ignored as the post-pandemic surge in demand levels off, with consumers beginning to feel the pinch from inflation and rising interest rates.  This may put a damper on global energy demand and tourism. Inflation also impacts global emerging markets, causing a perfect storm for the arrival of tough economic times.  Currency depreciation against the dollar is increasing the cost of imports and repaying foreign currency debts for banks, companies, and governments, many of which racked up significant debt during the pandemic.

Research suggests that the impact of US monetary tightening on emerging markets will vary depending on the factors for the change. Interest rate hikes driven by US economic expansion will likely lead to positive spillover effects that benefit more than hurt emerging markets and, therefore, are neutral on capital flows.  On the other hand, interest rate hikes to fend off inflation will likely lead to emerging markets disruption.  Here, there are two key points to mention.  First, there is a more significant effect on emerging markets from rising interest rates due to inflation than those due to growth.  Second, emerging economies with stable domestic conditions and policies tend to fare better and experience less volatility. In a global economic environment with slower growth, higher cost of capital, and a shrinking capital pool for riskier assets, discerning international investors will consolidate their investments in the highest-quality emerging markets.

The Goldilocks moment experienced in markets over the past couple of years is subsiding.  Geopolitical risk, inflation, and US interest rates are all rising. In addition, two crucial macroeconomic trends will impact the future capital flows to emerging markets.  First, globalization policies that have focused overwhelmingly on cost efficiency and rationalization will now focus on resiliency and values-based investments.  At an Atlantic Council event on April 13, US Treasury Secretary Janet Yellen articulated a blueprint for US trade policy, stating, “The US would now favor the friend-shoring of supply chains to a large number of trusted countries that share a set of norms and values about how to operate in the global economy.”

Second, Environmental, Social, and Governance (ESG) issues are gaining more attention with countries and companies putting them on the agenda.  For an indication of what’s to come, consider Total, the French oil and gas giant, marking its shift to renewable energy and rebranding to TotalEnergies, as well as Engine No. 1, a US impact hedge fund, hijacking ExxonMobil’s board to drive a green strategy at the company.  As a result of the confluence of these complex issues on top of challenging macro-economic concerns, investor appetite for emerging market assets is weakening.  It will become more discerning in the coming years.

But all isn’t lost.  There will be divergent outcomes and risks depending on the domestic conditions of each emerging market.  Thoughtful investors will continue to seek opportunities in emerging markets, especially in private markets, where the predominant share of opportunities exists.  However, as financial conditions tighten, differentiation between emerging markets will increase. MENA countries can better position themselves amongst others competing for capital by:

  1. Attracting and empowering strong policymakers to make dynamic and bold decisions that complex changes in the global economy require. Deepening the bench of talented policymakers should be another priority.
  2. Driving policies supportive of private sector development and investment. Reducing government-owned enterprises and providing ample space for private companies to grow and prosper on an even playing field is critical to building a dynamic economy.
  3. Continuing to nurture the nascent entrepreneurial ecosystem. Entrepreneurial economies are consistently more resilient and lead to better outcomes over the long term.
  4. Enhancing regional and international economic integration through bilateral and multilateral agreements with more robust economies. Proactive engagement with multilateral financial institutions will also increase financial stability and resilience.
  5. Standardizing policies according to global norms for greater regional and international integration. Investor appetite is greatly improved in emerging markets that adopt regulations and standards from developed countries.
  6. Increasing transparency and reducing uncertainty around laws and regulations. Investors and companies need more clarity on the game’s rules in order to play it confidently and competently.

Several MENA countries continue to take bold steps to improve their global competitiveness. One such example is the privatization programs of government-owned enterprises in Egypt, Saudi Arabia, and the UAE to increase liquidity in local capital markets, improve transparency, and expand private sector participation.  Those countries that maintain their momentum will be clear winners in the coming years. History is rich with evidence that economic challenges are followed by periods of historic gains.

Amjad Ahmad is Director and Senior Fellow at the Atlantic Council’s empower ME Initiative at the Rafik Hariri Center for the Middle East.  

Twitter: @AmjadAhmadVC.

 

Without Fossil Fuels There Is No Need For Electricity

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Without Fossil Fuels There Is No Need For Electricity – OpEd

By Ronald Stein

America is in a fast pursuit toward achieving President Biden’s stated goal that “we are going to get rid of fossil fuels  to achieve the Green New Deal’s (GND) pursuit of wind turbines and solar panels to provide electricity to run the world, but WAIT, everything in our materialistic lives and economies cannot exist without crude oil, coal, and natural gas.

Everything that needs electricity, from lights, vehicles, iPhones, defibrillators, computers, telecommunications, etc., are all made with the oil derivatives manufactured from crude oil.

The need for electricity will decrease over time without crude oil.  With no new things to power, and the deterioration of current things made with oil derivatives over the next few decades and centuries, the existing items that need electricity will not have replacement parts and will ultimately become obsolete in the future and the need for electricity will diminish accordingly.

The Green New Deal proposal calls on the federal government to wean the United States from fossil fuels and focus on electricity from wind and solar, but why? What will there be to power in the future without fossil fuels?

Rather than list the more than 6,000 products made from the oil derivatives manufactured from crude oil, I will let the readers list what is NOT dependent on oil derivatives that will need electricity. They can begin listing them here ______   ________    _______.

And by the way, crude oil came before electricity. The electricity that came AFTER the discovery of oil, is comprised of components made with those same oil derivatives from crude oil. Thus, getting rid of crude oil, also eliminates our ability to make wind turbines, solar panels, as well as those vehicles intended to be powered by an EV battery.

Today, Environmental, Social and Governance (ESG) divesting in fossil fuels are all the rage with big banks, Wall Street firms, and financial institutions, to divest in all 3 fossil fuels of coal, natural gas, and crude oil.  Both President Biden and the United Nations support allowing banks and investment giants to collude to reshape economies and our energy infrastructure toward JUST electricity from wind and solar.

A reduction in the usage of coal, natural gas, and crude oil would lead us to life as it was without the crude oil infrastructure and those products manufactured from oil that did not exist before 1900, i.e., the decarbonized world that existed in the 1800’s and before when life was hard, and life expectancy was short.

Ridding the world of crude oil would result in less manufactured oil derivatives and lead to a reduction in each of the following:

  • The 50,000 heavy-weight and long-range merchant ships that are moving products throughout the world.
  • The 50,000 heavy-weight and long-range jets used by commercial airlines, private usage, and the military.
  • The number of wind turbines and solar panels as they are made with oil derivatives from crude oil.
  • The pesticides to control locusts and other pests.
  • The tires for the billions of vehicles.
  • The asphalt for the millions of miles of roadways.
  • The medications and medical equipment.
  • The vaccines.
  • The water filtration systems.
  • The sanitation systems.
  • The communications systems, including cell phones, computers, iPhones, and iPads.
  • The number of cruise ships that now move twenty-five million passengers around the world.
  • The space program.

Before we rid the world of all three fossil fuels of coal, natural gas, and crude oil, the greenies need to identify the replacement or clone for crude oil, to keep the world’s population of 8 billion fed and healthy, and economies running with the more than 6,000 products now made with manufactured derivatives from crude oil, along with the fuels manufactured from crude oil to move the heavy-weight and long-range needs of more than 50,000 jets and more than 50,000 merchant ships, and the military and space programs.

Open government policies should be focused on reducing our usage, via both conservation and improved efficiencies, to REDUCE not ELIMINATE crude oil, and reduce its footprint as much as practical and possible, is truly the only plan that will work.

Wind and solar may be able to generate electricity from breezes and sunshine, but they cannot manufacture anything.  Again, what is the need for the Green New Deal’s electricity from breezes and sunshine when you have nothing new to power in the future?

Ronald Stein, Founder and Ambassador for Energy & Infrastructure of PTS Advance, headquartered in Irvine, California.

 

MENA states may be able to meet their green ambitions

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The desire to minimize dependency on fossil fuels, improve energy security, and decrease greenhouse gas emissions has prompted governments in the MENA (the Middle East and North Africa) area to commit to meeting aggressive renewable energy objectives. By 2030, MENA countries want to produce between 15% to 50% of their power from renewable sources. A favorable climate for the uptake of renewables, notably solar & wind power, is being created by falling technology costs and an increasing focus on green regulations. However, the MENA region has been reluctant to adopt renewable energy, with a total developed renewable energy capacity of only 10.6 gigawatts (GW) relative to a worldwide total of 2,799 GW by 2020.

ESS (Energy storage systems) will be critical in integrating variable renewable energy (VRE) technologies into power grids. Through capacity firming as well as other ancillary services like frequency and voltage management, ESS will improve the flexibility and stability of the power systems.

ESS offers a variety of services that can be combined to maximize value based on the demands and requirements of the power system and grid. Depending on market needs, these services are rewarded differently. Moreover, to the storage capacity payment, service stacking offers revenue stacking, making ESS’s business case more appealing. Traditionally, power system design has concentrated on increasing power-producing capacity to satisfy rising electrical demand. This has sparked a competition throughout the MENA region to increase power generation, which is primarily based on thermal energy and is growing at a rate of 7% per year. Population growth, subsidies, and the ever-increasing need for cooling and water are all driving up demand. The trend in power system design is toward lower peak loads, which is crucial for MENA nations to minimize the pace and rate of power output capacity addition.

Nations in the region are undertaking steps to increase their energy storage capability, with 30 projects expected to be completed by 2025. Pumped hydro storage (PHS) accounts for 55 percent of the region’s ESS installed capacity, relative to 90 percent globally, while batteries, especially lithium-ion and sodium-sulfur batteries, are predicted to rise from 7% to 45 percent of MENA’s ESS by 2025.

The reasons for ESS deployment differ per area. Ambitious renewable energy objectives encourage Jordan, Egypt, Morocco, and the majority of Gulf republics. This applies mostly to utility-scale FTM (front-of-meter) applications — grid-scale energy storage linked to generation sources or even transmission and distribution (T&D) networks — mainly through renewable energy-plus-storage auctions or even the co-location of solar and wind power plus storage. Currently, FTM applications account for 89 percent of the region’s ESS installed capacity. Significant power supply shortages, on the other hand, provide another push for ESS in countries that experience frequent power outages, such as Iraq and Lebanon. This is largely in terms of behind-the-meter (BTM) solutions, which mitigate the socioeconomic losses linked with blackouts by storing electricity on-premises behind the consumer’s meter.

Despite these factors, ESS deployment in the Middle East and North Africa is currently around 1.46 GW, relative to a worldwide capacity of around 10 GW, or simply below 15% of overall capacity – roughly equivalent to battery storage in the United Kingdom. To expedite ESS and VRE implementation in the region, governments, power utilities, and financial institutions will require to address a number of legislative, financial, and market impediments.

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Climate change, overuse kill off Iraq Sawa Lake

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Reporting on one particular water scarcity that is sweeping the Middle East, Kuwait News found that the situation is not only due to climate change, but to overuse that kill off Iraq Sawa Lake thus human mismanagement of the vital resource would be looked at.

Climate change, overuse kill off Iraq Sawa Lake

The above-featured image is SAMAWAH: An aerial view that shows a pond remaining at the dried-up Sawa Lake in Iraq’s southern province of Al-Muthanna.- AFP

SAWA LAKE: A “No Fishing” sign on the edge of Iraq’s western desert is one of the few clues that this was once Sawa Lake, a biodiverse wetland and recreational landmark. Human activity and climate change have combined to turn the site into a barren wasteland with piles of salt.  Abandoned hotels and tourist facilities here hark back to the 1990s when the salt lake, circled by sandy banks, was in its heyday and popular with newly-weds and families who came to swim and picnic.

But today, the lake near the city of Samawa, south of the capital Baghdad, is completely dry. Bottles litter its former banks and plastic bags dangle from sun-scorched shrubs, while two pontoons have been reduced to rust. “This year, for the first time, the lake has disappeared,” environmental activist Husam Subhi said. “In previous years, the water area had decreased during the dry seasons.”

Today, on the sandy ground sprinkled with salt, only a pond remains where tiny fish swim, in a source that connects the lake to an underground water table. The five-square-kilometer lake has been drying up since 2014, says Youssef Jabbar, environmental department head of Muthana province. The causes have been “climate change and rising temperatures,” he explained. “Muthana is a desert province, it suffers from drought and lack of rainfall.”

1,000 illegal wells

A government statement issued last week also pointed to “more than 1,000 wells illegally dug” for agriculture in the area. Additionally, nearby cement and salt factories have “drained significant amounts of water from the groundwater that feeds the lake”, Jabbar said. It would take nothing short of a miracle to bring Sawa Lake back to life.

Use of aquifers would have to be curbed and, following three years of drought, the area would now need several seasons of abundant rainfall, in a country hit by desertification and regarded as one of the five most vulnerable to climate change. The Ramsar Convention on Wetlands, a global treaty, recognized Sawa as “unique… because it is a closed water body in an area of sabkha (salt flat) with no inlet or outlet.

“The lake is formed over limestone rock and is isolated by gypsum barriers surrounding the lake; its water chemistry is unique,” says the convention’s website. A stopover for migratory birds, the lake was once “home to several globally vulnerable species” such as the eastern imperial eagle, houbara bustard and marbled duck.

‘Lake died before me’

Sawa is not the only body of water in Iraq facing the perils of drought. Iraqi social media is often filled with photos of grotesquely cracked soil, such as in the UNESCO-listed Howeiza marshes in the south, or Razzaza Lake in the central province of Karbala. In Sawa, a sharp drop in rainfall – now only 30 percent of what used to be normal for the region – has lowered the underground water table, itself drained by wells, said Aoun Dhiab, a senior advisor at Iraq’s water resources ministry.

And rising temperatures have increased evaporation. Dhiab said authorities have banned the digging of new wells and are working to close illegally-dug wells across the country. Latif Dibes, who divides his time between his hometown of Samawa and his adopted country of Sweden, has worked for the past decade to raise environmental awareness.

The former driving school instructor cleans up the banks of the Euphrates River and has turned the vast, lush garden of his home into a public park. He remembers the school trips and holidays of his childhood, when the family would go swimming at Sawa. “If the authorities had taken an interest, the lake would not have disappeared at this rate. It’s unbelievable,” he said. “I am 60 years old and I grew up with the lake. I thought I would disappear before it, but unfortunately, it has died before me.”

– AFP

Sustainability actions speak louder, says Oracle study

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TECHWIRE ASIA looks like yet another media to confirm that Sustainability actions speak louder, all per an Oracle study.

When it comes to sustainability, how much action is actually taken, given the efforts announced today? While organizations continue to make sustainability announcements and find ways to reduce their carbon emissions, the reality is, that people are fed up with the lack of progress society is making toward sustainability and social initiatives.

According to the No Planet B study by Oracle and Pamela Rucker, CIO Advisor and Instructor for Harvard Professional Development, people want businesses to turn talk into action, and believe technology can help businesses succeed where people have failed. The study involved more than 11,000 consumers and business leaders across 15 countries, including  500 from Singapore.  

The statistics from Singapore show an increasing demand for businesses to step up sustainability and social efforts. In fact, 97% believe sustainability and social factors are more important than ever with 95% also believing that society has not made enough progress.

About half of the respondents attribute the lack of progress to people being too busy with other priorities with 39% believing people are just too lazy or selfish to help save the planet. 53% also believe businesses can make more meaningful changes on sustainability and social factors than individuals or governments alone.

Interestingly, 92% believe businesses would make more progress towards sustainability and social goals with the help of AI, and 62% even believe bots will succeed where humans have failed. For business leaders, they are aware that sustainability efforts are critical to corporate success and even trust bots over humans alone to drive sustainability and social efforts.

As such, 97% of business leaders would trust a bot over a human to make sustainability and social decisions. They believe bots are better at predicting future outcomes based on metrics/past performance, collecting different types of data without error, and making rational, unbiased decisions.

At the same time, business leaders also believe people are still essential to the success of sustainability and social initiatives and believe people are better at educating others on the information needed to make decisions, implementing changes based on feedback from stakeholders, and making context-informed strategic decisions.

Sustainability actions lauded

Another interesting highlight from the survey showed that people will cut ties with businesses that don’t take action on sustainability and social initiatives. Simply put, businesses need to prioritize sustainability and social issues and rethink how they use technology to make an impact, or risk facing major consequences.

The report also showed that if organizations can clearly demonstrate the progress they are making on environmental and social issues, people would be more willing to pay a premium for their products and services, work for them, and invest in their companies. Business leaders understand the importance and urgency with 95% believing sustainability and societal metrics should be used to inform traditional business metrics. 93% also want to increase their investment in sustainability.

For Pamela Rucker, CIO Advisor and Instructor for Harvard Professional Development, the events of the past two years have put sustainability and social initiatives under the microscope and people are demanding material change. While there are challenges to tackling these issues, Rucker pointed out that businesses have an immense opportunity to change the world for the better.

“The results show that people are more likely to do business with and work for organizations that act responsibly toward our society and the environment. This is an opportune moment. While thinking has evolved, technology has as well, and it can play a key role in overcoming many of the obstacles that have held progress back,” added Rucker.

Juergen Lindner, senior vice president, and CMO, Global Marketing SaaS at Oracle also commented that while business leaders understand the importance, they often have the erroneous assumption that they need to prioritize either profits or sustainability.

“The truth is this is not a zero-sum game. The technology that can eliminate all the obstacles to ESG efforts is now available, and organizations that get this right can not only support their communities and the environment, but also realize significant revenue gains, cost savings, and other benefits that impact the bottom line,” said Linder.