Historic Shifts Are Underway on the New Silk Road Creating Investment Opportunities

You probably have heard of NAFTA (North America Free Trade Association), OPEC (Organization of Petroleum Exporting Countires), the EU (European Union) and the BRIC (Brazil Russia India China) countries … but have you heard about MENA?

One Belt - OBOReurope

Ok, you ask … what is it and why should I care?

When conventional wisdom is not working any more, we need alternative investment strategies and you should give consideration to a very important region that collectively has a bigger economy than Brazil, Russia, and India … 3 out of the 4 BRIC countries. And, in terms of growth, this region is growing faster than any of these countries.

Population wise, this region is bigger than the USA and is approximately equal in population to the EU China’s silk road economic belt. In addition, this region has an exploding population (which is good from an engine of growth perspective … reference a key theme in recent presentation from Stuart Varney of Fox News at WizeFEST 2009, a conference this author recently attended).

This region is in the center of a part of the world along the old Silk Road … where we think of a network of traders with caravans loaded with silk, spices, flowers, jewelry, and gold … and trading routes with the romance of the Indian Ocean. From Perth, Australia to Mombassa, Kenya along the coast of East Africa with passages up and down the Persian Gulf and the Red Sea.

There is a political thaw underway in a country in this region that has been the mercantile crossroads between East and West since its days as a link on the old Silk Road.

Examples of this thaw are that the US is sending an ambassador to this country after a four-year absence and the US is easing export bans to this country.

The region is called MENA or the Middle East and North Africa. Among its largest economies are Saudi Arabia (where this author had a home base for two years) and the United Arab Emirates (which includes the go-go city of Dubai). As a result, MENA holds 60% of the world’s proven oil reserves and nearly half of its natural gas.

Much has changed in this region over the years and its reach has expanded such that The New Silk Road weaves through Damascus, Riyadh, Dubai, Mumbai, Chennai, Kuala Lumpur, Singapore, and Hong Kong. Along The New Silk Road, key alternative growth strategies include the scarcity of water and food, infrastructure needs, energy (in terms of drilling, pumping, and distribution) and engineering services … and finally, it offers growth not dependent on US trade (which is expected to be quite anemic).

In 2000, China’s exports to the Arab world came to just $6B. Last year, China’s exports to the Arab world ($48B) nearly matched America’s exports to the Arab world ($50B). Earlier this year, China finally passed the USA to become the Arab world’s largest trading partner … highlighting how a rising Arab world is turning away from the West and Rediscovering China.

Syria is the country mentioned previously that has a political thaw underway and is the mercantile crossroads of the East and West on the old Silk Road.

The largest investor in Syria is the Chinese company, Haier, that makes washing machines and microwave ovens in the country. Another Chinese company recently completed a $180M hydroelectric plant. On the drawing board, there are big real estate projects, including resorts on the Syrian Mediterranean coast. They are 48,000 hotel beds coming online over the next three years and this will almost double the amount of beds currently available. Tourism is up significantly in this country and currently accounts for 13% of the economy.

The region benefits from expanded trade with China and the rest of the Asian countries that are in pursuit of the region’s oil.

The most interesting thing about this growth is that it is happening in a part of the world where water is scarce and it is most difficult to grow food. In Kuwait, one of the countries in the region, annual water consumption is 22 times the rainfall. Counties in the region import 60% of their food and are phasing out crop production in order to conserve water.

Ironically, many of the countries in the MENA block are investing in farmland overseas with major purchases of farmland in Indonesia, the Sudan, and Pakistan.

One of the key takeaways is that alternative investment opportunities in a growth region like MENA include food and water necessary to feed and meet the thirst of all these people as well as the energy, infrastructure, and engineering services to drill, pump, and distribute oil and natural gas.

Your author lived and worked in the region early in his career and was always impressed with the upside potential in the region once political barriers could be overcome.

In addition, a recent edition of The Economist had a cover story on the Arab world titled “Waking from its sleep” with a 14-page special report containing a collection of articles. Key points in these articles indicate that there has been two decades of political stagnation but there is a fever under the surface for change.

In the Arab world, its people are starting to speak out, to strike, and to take to the streets in pursuit of their demands. As more women are educated and as more business people want a say in the state-run economies, the old pattern of the Arab governments that are corrupt, opaque, and authoritarian, are changing.

The democratic and capitalistic movements underway include education, tolerance, and independent institutions such as judiciary and free press.

Once the last failed dictatorship is voted out, the quiet revolution will be complete and the tremendous upside potential from trade will grow the region even faster under the more liberalized economic governments.

I trust this article has introduced you to an emerging economic region … a crossroads where East meets West on The New Silk Road … and the various alternative wealth creating opportunities associated with water, food, infrastructure, energy, and engineering services related to oil and natural gas.

I will continue to monitor developments in the MENA region and report on alternative wealth creating strategies in future articles and updates at my blog (see address below).

Farrell, a former engineer with General Dynamics and management consultant at Deloitte … is on a mission to empower individuals by increasing their financial literacy, improve their ability for personal sustainability, and contribute to the program that has a goal of creating 100 Millionaires by 2012.

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