De-globalization will undo benefits such as increased global trade and peace
sections of the economy that are highly dependent, both directly and indirectly, on oil related spending. Some will get hurt in the short term as subsidies are withdrawn.
“There is no doubt about the overall strategy or the direction of travel, however. It is correct and necessary, but it is also a truism the world over, that plans are easier to draw up than to execute. External headwinds, particularly as the world economy slows, are clearly not helpful. Foreign investors want to see quicker and more effective implementation of the overall privatization program, not just Aramco,” Fadlallah added. There has been speculation recently that the Saudi oil giant might opt for Tokyo as the main foreign market for an initial public offering (IPO) outside the Kingdom. Fadlallah thinks it is too early to comment on this prospect, but did say: “Recent announcements suggest a renewed determination to proceed with an IPO. Since the announcement of its likely listing, Aramco’s privatization process yet US stock markets are close to their all-time highs,” Fadlallah warned.
The US-China trade war is high on his list of concerns. “President Trump is happy, but I’m slightly confused. Trump’s obsession with the stock market, and his eye on the next election, suggest that he will accept a deal with China soon and spin it as a win, but the damage is done.
“The lurch away from multilateralism and towards nationalism bodes poorly for international economic development and my biggest fear is that de-globalization will undo the benefits that have included increased global trade, prosperity and peace,” he said.
The chaotic situation in the UK over the country’s plans to leave the EU is also a worry. “Uncertainty over Brexit is hurting foreign investment in the British economy where Japan already has major manufacturing facilities, such as Nissan in Sunderland. Japanese companies have voiced their preference for Britain to remain part of the single market. It’s difficult to see any significant new commitments until the matter is resolved,” he said.
There is a glimmer of a silver lining in the UK situation for regional investors. “The interest of Middle Eastern investors is mainly in the real estate sector which has softened since the referendum, and while this has hit portfolio valuations, the opportunity to bargain hunt in the context of a weaker currency is becoming rather appealing,” he added.
Finally, Japan can teach the Middle East a lesson in how to get through periods of economic weakness. “Having witnessed the agonizing struggles of companies during the prolonged Japanese economic downturn, I am keen to share that experience with companies across the region as they look to adapt in a transforming economy.”
But Fadlallah warned: “Unfortunately, sincere advice is not always welcomed, especially when it goes against vested interests, and can sometimes be misinterpreted as criticism. The region faces enormous challenges, and we have to be big enough to rise to the task.”