Austerity Economics in Saudi Arabia

Published in Forbes Middle East, 15 November 2016

The Saudi central bank has had to step in as the country’s banks deal with a slowing economy, shrinking deposits and tighter liquidity.

Evidence of the strain the Saudi economy is under is coming thick and fast these days. On 26 September, 2016 the government ordered sharp pay cuts for officials in its latest effort to keep its fiscal position under control. A major bond issue is planned to help plug the large budget deficit, which is expected to be around 15% of GDP this year according to local bank Samba.

The country’s banks have been unable to avoid the fallout from the wider economic difficulties. Deposits have been dropping and demand for credit has been rising, leading to a liquidity squeeze. To try and alleviate some of their pain, on 25 September 2016 the central bank, the Saudi Arabian Monetary Agency (SAMA), said it would deposit SR20bn($5.3bn) with the country’s banks to support “the stability of [the] domestic financial condition”.

It was not the first such move by SAMA. The central bank has already offered around SR12bn in deposits and short-term loans to Saudi banks to ease short-term liquidity pressure. The latest move was both expected and welcomed by observers.

“It was clear that the banks had some stress and needed dollars. It’s just a reflection of the low oil price, the low amount of petro-dollars. The Saudis continue to act in a reasonable fashion and continue to provide liquidity support for the banking system,” says Peter Kinsella, head of emerging markets economic and foreign exchange research at Germany’s Commerzbank.

The problems facing the Saudi banks, and indeed the economy as a whole, stem from the low oil price Kinsella mentions. With far lower hydrocarbons revenues, the government has had to draw down some of its deposits and raise more debt to cover its spending commitments. The authorities have been trying to reduce expenditure too. Subsidies have been cut, projects put on hold, and payments to contractors delayed. With less government money in the system, private sector firms have had to turn to the banks for more credit to cover their short-term needs.

All this adds up to a difficult set of circumstances. “The Saudi banking system has faced a new challenging environment since mid-2014 when the oil price correction led to a considerable tightening of domestic liquidity,” said Brahim Razgallah, an economist at U.S. bank JP Morgan, in a research note issued on 2 September, 2016. “Despite the common shock across GCC countries, the kingdom has been one of the most affected, with pressure on interbank rates being the highest.”

What is more, the speed of change has been fairly rapid. According to SAMA, government deposits had fallen from SR1.6 trillion in August 2014 to SR1.06 trillion by August 2016, a drop of some 35% in just two years. Although the rate of withdrawals has slowed in recent months, the government will continue to use up its savings for the foreseeable future. Private sector deposits may be more reliable, but they aren’t able to offset the government’s withdrawals.

Saudi banks are not used to seeing deposits drop—total account balances have grown in an unbroken run since the early 1990s. In the 10 years to 2015, deposits grew by 10.5% a year, according to the local AlJazira Capital. In contrast, Samba thinks the banking sector will see deposits shrink by 0.5% this year, while private sector credit will grow by 9%.

That will lead to further rises in the loan-to-deposit ratio, which has already increased from 80% to 88% in the 12 months to the end of June this year. Acknowledging the situation, SAMA increased the limit on banks’ loan-to-deposit ratios from 85% to 90% in February 2016. However, the ratio has continued to grow since then, reaching above 90% in July according to some measures. That in turn is increasing the pressure on banks to compete strongly for deposits and to look elsewhere for funding. Moody’s Investors Service says more expensive wholesale market funding has increased from 6.1% of the overall bank funding in December last year to 7.9% by June 2016. The recent support from SAMA will help to relieve the pressure in this area. SAMA has also started to provide seven and 28-day repurchase agreements alongside its existing one-day repos, which will allow banks to access short-term borrowing at a lower and more stable cost than in the wholesale markets.

Even so, the situation is far from resolved. “We believe the deterioration of liquidity in the Saudi banking sector has slowed down. However, it has yet to stabilise as much as in some other GCC markets,” says Redmond Ramsdale, senior director for financial institutions at Fitch Ratings.

A good indicator of the pressure on the sector is the main interbank lending rate, the three-month Saibor. It has risen from 1.33% at the turn of the year to reach 2.27% in August, its highest level since December 2008.

And banks can’t escape from the gloomy outlook for the economy, which analysts suggest will only grow by between 0.6% and 1.7% this year. That may well include periods of contraction, although perhaps not a full-scale recession.

“Our GDP tracker, which is constructed from monthly activity data, suggests that the slump in Saudi Arabia’s economy has deepened, with output falling by around 2.3% year-on-year in June,” says Jason Tuvey, Middle East economist at London-based Capital Economics. “Over the second quarter as a whole, we estimate that output fell by 2% year-on-year. If our tracker is correct, this would be the first contraction in the Saudi economy since 2009. A recovery is likely to get underway over the rest of this year and in 2017-18, but it is likely to be slow-going.”

Despite all this, the banks are still in a fairly healthy position. Non-performing loans make up just 1.2% of the sector’s total loan book and most of the larger banks continue to report liquidity coverage ratios (LCRs)—a measure of their ability to meet short-term liquidity demands—well above 100%, even if these too have been falling.

And even if their use of market funding has been on the rise, banks can still rely on customer deposits to provide most of their funding needs at a cheap rate. According to Fitch, customer deposits represented 93% of total non-equity funding as of December 2015. Two-thirds of those deposits are in demand accounts that don’t pay any interest. In some cases the figure is far higher—for Al Rajhi Bank and National Commercial Bank (NCB) it is 99% and 82% of deposits respectively. This does make banks vulnerable to changes in customer attitude—as seen with the drop in government deposits over the past two years—but the benefits of low-cost funding are also clear.

In this environment, it’s unsurprising to find that the recent financial performance of banks has been rather mixed. According to data compiled by financial website Argaam, overall profits barely rose in the first half of 2016, reaching SR23.3bn compared to SR23.1bn in the first half of 2015. However, the second quarter of 2016 saw a year-on-year decline in profits for the first time in at least five years.

Of the country’s 12 local banks, six posted a rise in first-half profits, with the larger banks tending to do best. The country’s largest bank, National Commercial Bank, posted a 2% gain to SR5.1bn, while its closest rival Al Rajhi booked an 18% rise in profits to SR4.1bn. The far smaller Alinma Bank saw profits rise 13% to SR800m. Others posting gains included SABB, Bank Saudi Fransi and Riyad Bank. Among the rest, the steepest falls were at the Bank AlJazira, which saw profits slump 42% to SR558.8m, and Saudi Investment Bank, where they dropped 29% to SR532.4m. Others posting lower profits included Saudi Hollandi Bank, Arab National Bank, Samba and Bank Albilad.

“The overall liquidity of the large banks is becoming increasingly stretched, but they are managing this well,” said Fitch Ratings in a report issued on 26 September 2016, after the latest SAMA funding had emerged. However, the tough market conditions are unlikely to ease substantially for some time. That means that the recent intervention by SAMA may yet need to be followed up with more assistance before long.

Rig count moves in line with oil strategy

Published in MEED, 25 October 2016

The Middle East has bucked a global trend for declining oil rig counts, spurred on by Saudi Arabia’s pursuit of market share

In most corners of the oil and gas industry there is a strong, and unsurprising, correlation between energy prices and the number of drilling rigs in use.

When prices were above $100 a barrel, as they were for most of the period from 2011 to 2014, the number of rigs in operation around the world was also high, reaching a peak in February 2012 of 3,900 rigs, according to US oil field services company Baker Hughes. But since the oil price began to spiral downwards in late 2014, so too have the number of drilling platforms. As of September this year, there were 1,584 rigs in operation around the world, some 59 per cent lower than the peak in the space of just four and a half years.

The Middle East, however, has bucked that global trend. When oil prices began to falter in 2014, the number of rigs in use in the region held fairly steady at just over 400. This year their number has slipped back a little, falling to 379 in August before recovering slightly in September to 386. That relative stability has meant the proportion of the world’s rigs that are now in the Middle East has risen from 10 per cent in 2012 to 24 per cent this year.

The unusual trend in the region stems, in large part, from the decision by Saudi Arabia to maintain high output levels even as prices were falling. Riyadh’s aim was to maintain its share of the global market and force other, high-cost producers – principally in the US – out of the market by making it uneconomical for them to continue drilling.

The policy has had only limited success. The US rig count fell dramatically as prices went south, from just over 1,900 rigs in late 2014 to a low of 408 rigs in May this year. Since then, however, the number has been creeping up again, reaching 481 rigs in August and 509 in September, as the oil price has shown some signs of life. Even more importantly, US production levels have remained relatively high – output peaked at 9.6 million barrels a day (b/d) in June 2015, but it was still running at 8.5 million b/d in late September this year, proving that US producers have been far more resilient than many analysts in Riyadh and elsewhere had expected.

Part of the reason for that resilience is that producers in the US have been cutting costs and focusing on lower-risk assets. This too is a global trend. “The new economics of exploration mean that rather than pursuing high-cost, high-risk exploration strategies, the majors have become more conscious of costs,” says Andrew Latham, vice-president of exploration research at UK consultancy Wood Mackenzie. “Smaller budgets have required them to choose only their best prospects for drilling, including more wells close to existing fields.”

Perhaps the biggest problem for the Saudi strategy is that any sign of a rise in the oil price tends to prompt US producers to invest and expand. As Saudi bank Jadwa Investment noted in a September 2016 report, the number of US oil rigs was steadily rising over the course of the summer months. “Oil prices around the $50 a barrel mark are encouraging US producers to add oil rigs,” it said.

Saudi Arabia needs oil prices to be higher if it is to have any chance of bringing its large budget deficit under control, but for that to happen it will also have to accept that it will no longer be the dominant actor in the market. The production cut announced at an Opec meeting in Algiers on 28 September, designed to prop up the price of oil, appears to be a recognition of this reality.

Nonetheless, Saudi Arabia remains the dominant figure in the regional industry. It has, by far, the highest number of rigs in operation and, while other countries have been holding their fleets steady (or seen them decline in the case of Iraq and Egypt), the kingdom has been expanding. From about 80 rigs through most of 2013, Saudi Arabia has increased the number to 124 as of September this year. That is almost twice the figure of the next largest operator, Oman, which has 64 rigs in use. Following them are Algeria with 53 rigs, Abu Dhabi with 49 and Kuwait with 48.

The majority of rigs in the Middle East today are onshore, accounting for about 87 per cent of the total. However, the picture varies considerably from country to country. In Abu Dhabi only 55 per cent of rigs are onshore, while in Algeria, Iraq, Kuwait and Oman, all of them are. In Saudi Arabia, the vast majority, 88 per cent, are on dry land.

As has been the case for many years, roughly three-quarters of the region’s rigs are used to pump oil rather than gas. The two countries where gas rigs account for a more sizeable minority are Algeria, where it is 34 per cent of the total, and Saudi Arabia (43 per cent).

The fall in global rig counts over the past two years means there is now significant oversupply in the market, which is leading to a sharp fall in costs, according to analysts. “Rig utilisation, vessel utilisation has plummeted and day-rates have fallen in some cases by more than 60 per cent,” says Steve Robertson, director of the research centre at UK energy consultancy Douglas-Westwood. “Oversupply will take some time to work its way out of the system as older units are scrapped.”

The future trajectory of the market depends, as ever, on factors such as oil prices and the balance between supply and demand, but some at least are predicting that activity and investment levels should start to pick up in the coming years. Douglas-Westwood forecasts that global expenditure on onshore oil field equipment is set to rise by 8 per cent a year between now and 2020, from $61bn in 2016 to $83bn in 2020. Most of the activity will be focused on onshore sites, with investment in more expensive offshore operations likely to decline from $67bn this year to $43bn by 2020. For Middle East producers, that could mean that competition will be getting tougher in the years to come.

The UAE's Northern Lights

Published in Forbes Middle East, 24 October 2016

There is a slowdown afoot in the northern emirates. According to real estate agency Cluttons, rents in Sharjah in the first quarter of this year were down by more than 8% year-on-year. That followed a 2.4% fall in the 12 months to December 2015. The drop at the start of this year was steepest in villa rental prices, which are down 9.6% over the past 12 months, while apartment rents fell by 7.7% over the same period. The real estate firm expects rental costs to drop a further 3-5% over the course of this year.

Yet, despite this weak outlook, significant new developments are still going ahead, both in Sharjah and beyond. In fact, some of the most ambitious real estate schemes the northern emirates have ever seen are currently being pursued.

In Umm al Quwain, Dubai-based Sobha Group is developing the Firdous Sobha scheme, a mixed-use island development that will have villas, apartments, hotels, shops and leisure facilities with a total value of around $6.8 billion. The scheme was announced in late April and will cover 4.9 square km.

Further north, in Ras al Khaimah, there are two major schemes underway. Al Marjan Island, a man-made archipelago stretching 4.5km out to sea, will be home to more than 20 hotels and resorts with the capacity to host up to 20,000 guests once completed, including properties from Anantara, Crowne Plaza and Marriott.

Elsewhere in the emirate, the local Al-Hamra Real Estate Development is working on its $272 million Falcon Island project, which will contain 150 villas and a marina on an island divided in two by a central canal. The larger Al Hamra Village scheme, which the island is part of, covers 77 million square feet and includes more than 1,000 villas and townhouses and nearly 2,500 apartments as well as five hotels, a golf course and a shopping mall.

Meanwhile, in Sharjah itself new developments are also under construction, such as the $654 million Tilal City gated residential scheme, which is open to foreign buyers and will be house up to 65,000 residents once complete. The project is being developed by Tilal Properties, a joint venture between Sharjah Asset Management and Eskan Real Estate Developments. The first plots of land are due to be handed over before the end of this year, with a second phase of plots to be handed over in December 2017.

Collectively, these projects add up to a big bet on the future potential of the northern emirates. Overall, there are more than $6.5 billion worth of construction projects planned or underway in the five northern emirates and a further $1.8 billion worth of hospitality projects, according to Dubai-based MEED Projects, which tracks such activity around the region.

The motivation for many of the larger schemes is a desire to inject some life into the local commercial and tourism industries by attracting more outside investment. The individual emirates themselves are certainly not large enough to support these developments on their own. The latest census for Ras al Khaimah, for example, which was carried out in 2015, showed it had a population of 345,000 people, almost 100,000 lower than previous estimates. Credit ratings agency Fitch Ratings noted in a report released in early May that “Hotel capacity is set to increase 50% over the next three years and a key challenge will be to develop Ras al Khaimah as a destination to capitalise on the planned new capacity.”

Tourism is a key element for the residential units being built as well. Given the distance from the main cities and the small size of the local economies, many potential buyers will be the sort of people who look to the northern emirates as a leisure destination rather than a place to live and work full-time. “People are going to the northern emirates, but more for holidays or weekends away from Dubai or Abu Dhabi,” says Suzanne Eveleigh, head of Sharjah at Cluttons. “People aren’t buying in terms of moving and living there, they’re buying property as a holiday home.”

The northern emirates do have some factors in their favour as they try to attract international money and visitors. In particular, the relatively low cost of property compared to the big cities of Dubai and Abu Dhabi is one element that they can exploit. Sharjah is well placed in this regard, being closest to the bigger cities and having long acted as a dormitory town for Dubai. The price differential is certainly large at the moment. A three-bedroom villa in Sharjah costs around $24,500 a year to rent, compared to anywhere between $32,600 and $92,500 in Dubai, according to Cluttons.

The other emirates further north also have an eye on the potential and are keen to stress how simple the process of buying property can be. “It’s very easy for foreigners to buy property in Ras al Khaimah. It’s become quite attractive because the price of property is a lot lower than comparable properties in Dubai or the other emirates,” says Haitham Mattar, chief executive officer of the Ras al Khaimah Tourism Development Authority. “You can still buy a property that is on the beach front or sea-facing at a fraction of the price that you’d pay in the other emirates.”

Mattar says that the two key source markets for those buying in Ras al Khaimah are the U.K. and Asia. For some of these buyers it’s simply a matter of investment, with the property being rented out thereafter, but others are more interested in buying a relatively cheap holiday home.

Yet alongside all these grand schemes, there is also a shortage of affordable housing for local buyers, many of whom cannot afford the prices attached to villas and apartments in the new high-end developments. In late February, Sheikh Mohammed bin Rashid al Maktoum, vice-president and prime minister of the U.A.E., visited the east coast of the country and approved $1.9 billion worth of infrastructure projects being planned by the Ministry of Infrastructure Development. The schemes will be developed across the northern emirates and include a substantial investment in housing. Some $1.3 billion of the total will be put into 12 compounds over the coming five years, providing homes for 42,000 people.

“Housing is an essential service and is every citizen’s right and a priority for the government,” he said at the time. These days it’s also a priority for a lot of developers in the northern emirates, even if they are targeting a different set of buyers.

MERS: Going Viral in Saudi Arabia

Published in Forbes Middle East, 24 October 2016

On 6 June 2016, a 59-year-old man from Tabuk in the north west of Saudi Arabia was admitted to hospital. Two days later he was diagnosed with Middle East Respiratory Syndrome and four days after that he passed away. Unfortunately, he will not be the last to die of MERS, as the disease is more commonly known.

The disease, which is caused by a coronavirus, was first identified in Saudi Arabia in 2012 and has since spread to 26 other countries. The World Health Organisation (WHO) says it has been notified of 1,769 confirmed cases to date and at least 630 deaths. The vast majority of these have been in Saudi Arabia, although there was a significant outbreak in South Korea in mid-2015 and there have been cases reported from the US to France to Malaysia.

There has been some criticism of the way in which the Saudi authorities handled the issue at first and how quickly it shared information with the rest of the world. This is not in itself unusual, as Dr. Keiji Fukuda, assistant director general for health security and environment at WHO, noted when talking in June 2015 about the slow response of the South Korean authorities to the outbreak there.

“In my experience in dealing with outbreaks for the last few decades, what’s true is that whenever they occur, particularly when we have new viruses and new diseases, they invariably take everybody by surprise,” he said. “They take the country by surprise, the responders and the government and there is always a period of time in which you have to get organised to deal with the outbreak… There is always a learning curve in the beginning of these outbreaks.”

It may not have helped that the Ministry of Health has been led by seven different people in the four years since the MERS outbreak began. At least some ministers or acting ministers have been dismissed due to their handling of the response to MERS, including Abdullah Al-Rabiah who lost the job in April 2014. Hospital managers have also been in the firing line. In May 2014, the then acting Minister of Health Adel Faqih replaced the director and deputy director of King Fahd Hospital. The official Saudi Press Agency said the changes were made “to better fight the corona virus,” as the disease is often known in the country.

In one sense at least, things have been getting better. In the early days of the disease, the fatality rate was running at around 60%, but it is now close to 36%. Even so, the problem is far from solved and new patients are diagnosed with the disease most weeks. Between mid-May and mid-June, five other people in Saudi Arabia were diagnosed with the condition, in addition to the 59-year-old from Tabuk, and one of them is in a critical condition. Between 16 and 20 June the numbers shot up, with 28 more cases in the country, the majority of them occurring in a hospital in Riyadh.

Most cases have been attributed to human-to-human infections, particularly in hospitals and other healthcare settings where poor hygiene standards and other problems are to blame. One recent case highlights the risks: a 49 year-old woman was admitted to a hospital in Riyadh on 10 June with symptoms unrelated to MERS and kept in a multi-bed ward. During that time, at least 50 healthcare workers and patients were exposed and at least 20 of them have since tested positive for MERS.

It is widely suspected, although not proven, that infected camels are the original source of the disease and many others who have been diagnosed with the disease have had a history of close contact with camels. As a result, WHO says people should avoid drinking raw camel milk or eating camel meat that has not been properly cooked.

MERS is a tricky condition to diagnose at first. As with other respiratory infections, the early symptoms are non-specific, including fever, coughing and shortness of breath, but some carriers of the disease are asymptomatic. Patients can go on to suffer pneumonia and organ failure, especially of the kidneys. Older people, those with chronic diseases such as diabetes, cancer and chronic lung disease, and those with weakened immune systems, are all at higher risk.

No vaccine has yet been discovered for the disease. However, moves are afoot to develop one. In the U.S., the National Institute of Allergy and Infectious Diseases reported some promising results in tests of a vaccine on mice, rhesus macaques and camels in 2015.

In December that year, a team of Dutch, Spanish and German scientists revealed, in a paper published in the journal Science, that they had developed a vaccine that makes infected camels excrete less virus, something which could help to prevent transmission to humans. “It is possible that the risk of outbreaks among humans can be minimized by vaccinating camels,” said Bart Haagmans, leader of the study and a virologist at the Erasmus Medical Center, based in Rotterdam in the Netherlands. At the time, the Erasmus Medical Center said the new vaccine could also be used to vaccinate humans, and that a fresh study was being undertaken to determine this. As yet, no results have been announced from that study.

Along with the human cost of the disease, there is also an economic cost to be borne, although to date it has not been as bad in Saudi Arabia as some may have feared. The government has placed some restrictions on travel during the Haj in recent years, which reduces the number of the most vulnerable coming to the country. The Command and Control Centre of the Ministry of Health advises that people over 65, pregnant women, children under 12, and those suffering immunodeficiency or chronic ailments should postpone their trip this year.

Even so, the amount of international visitors to the kingdom has continued to climb most years, from 16 million in 2012 and 2013 to 18 million in 2014 and 19 million in 2015, according to data from the country’s central bank, the Saudi Arabian Monetary Agency (Sama).

The Saudi economy has taken a hit in recent years, but mainly because of the fall in oil prices since 2014, and it is hard to separate out any impact that MERS might have had on the economy overall. However, while Saudi Arabia appears to have escaped any major economic impact so far, the same could not be said of South Korea, which saw its growth rate sharply dip in 2015 when it suffered a large outbreak of the disease. The problem was traced back to a businessman who had been infected on a visit to Saudi Arabia and then returned home.

The way Saudi Arabia and South Korea struggled to deal with the initial incidences points to a wider issue about the preparedness of the world for such outbreaks. MERS was not the first big disease to hit the headlines in recent years, nor the last. Others have included the severe acute respiratory syndrome (SARS) in Asia in 2003, Ebola in West Africa in 2014 and, most recently, the Zika virus in Brazil in 2015. On each occasion, medical authorities have struggled to cope and there has been a global scramble to deal with the problem.

That has prompted some to advocate a new approach. Speaking about the outbreak of the Zika virus, Marion Koopmans, head of the department of virology at the Erasmus Medical Center, told Dutch current affairs programme NOS Nieuwsuur in May that “We are surprised every time. There are again no vaccines or diagnostic tests and we are again one step behind.”

Koopmans suggested that a global fund should be set up to ensure there are sufficient financial resources to fund vaccines and diagnostic tests for viruses in the future, whether they are completely new or simply new strains of existing viruses. While the world waits for that to happen and for a vaccine to be discovered, visitors to Saudi Arabia would do well to follow the suggested precautions.

UAE Real Estate: A Buyers’ Market

Published in Forbes Middle East, 23 October 2016

The real estate developers were putting a brave face on it, saying they had been remarkably busy, but there was no hiding the fact that the Dubai Property Show in London in mid-May was both small and, at least on the first day of the show on Friday afternoon, sparsely attended. Around a dozen developers including Dubap Properties, Tebyan Real Estate Development and Binghatti Developers filled part of the Olympia West exhibition hall, which was dominated by a Nakheel stand in the centre.

It was certainly a far cry from the likes of the Cityscape show in Dubai, but that’s perhaps to be expected. London is after all a long way from the U.A.E., and the gloss has come off Dubai’s real estate scene of late. Prices are down by 15% from their mid-2014 peak and confidence is low in the light of the oil price slump.

In addition, the rise of the U.A.E dirham (and other Gulf currencies pegged to the dollar) means that inward investment into the region is becoming more expensive for a lot of po­tential buyers. And while expat residents in the Gulf who are earning money in the local currency are not affected, the re­gional economic slowdown also means that some of them are losing their jobs, selling up and leaving the country.

Craig Plumb, head of research at estate agency Jones Lang LaSalle (JLL), says the rising value of the dirham has “definite­ly been a factor” for international investors in the residential market. “The volume of residential sales in Dubai over the first half of 2016 is down by around 30% compared to the same period last year,” he says.

But such trends do not mean the whole system is about to come crashing down. In broad terms, the market for cross-bor­der real estate investment continues to be fairly vibrant, even if these days the bulk of the deals involve Gulf investors putting their money in international markets, rather than overseas buyers picking up properties within the region. Plumb says Middle East investors bought almost $9.5 billion of real estate outside the region in the second quarter of this year, compared to $2.3 billion of capital flowing into the region.

“There has been a shift in the nature of [outbound] invest­ments, with private investors becoming relatively more impor­tant compared to the major sovereign wealth funds,” he adds. “But the desire to invest in real estate assets outside the region remains.”

This trend has been developing for a couple of years. According to CBRE, another real estate consultancy, a total of $14.1 billion of investment flowed from the Gulf to other parts of the world in 2014, with Qatar leading the way with $4.9 billion of purchases, followed by Saudi Arabia ($2.3 billion) and the U.A.E. ($1.6 billion). The total was down on the $16.3 billion a year before but it still made the Gulf the third largest source of capital in the world after North America ($66.5 bil­lion) and Asia ($28 billion).

While much of the outward investment has historically been done by sovereign wealth funds, in the wake of lower oil prices they have been drawing down some assets to help plug their government’s budget deficits. That leaves them with less to invest. However, that trend is being partly balanced by the fact that rich individuals are showing more inclination to in­vest overseas. CBRE predicts that while sovereign wealth fund investments in global real estate will fall from $9-11 billion a year to around $7-9 billion a year going forward, non-institu­tional investments from the Middle East will rise to an annual figure of $6-7 billion, up from an average of around $3 billion in 2010-2013.

London has long been the most enticing market for Middle East investors and it still holds the top spot, but it is not as dominant as it once was. In 2014, the U.K. capital city accounted for 32% of all outbound investment, compared to 45% in 2013. Other large Western cities followed it in popular­ity, including Paris ($2.2 billion), New York ($1.3 billion) and Washington ($481 million).

More recent events have altered the landscape, in particu­lar the vote by the U.K. in June this year to leave the European Union. That is pushing investors to re-evaluate their position. A recent survey by financial advisory firm DeVere Group found that 69% of its clients, including some in the U.A.E. and Qatar, intended to decrease their investment exposure to the U.K. following the Brexit vote.

“High net worth investors are overwhelmingly consider­ing rebalancing and diversifying their portfolios following the U.K.’s decision to leave the EU,” says Nigel Green, chief executive officer of the firm. “These investors are seeking to reduce their exposure to U.K.-based assets in the wake of the impending Brexit.”

Nonetheless, the motivation to invest in overseas markets still remains strong, whether because investors want to diver­sify their portfolios away from their home market and from dollar-denominated (or dollar-pegged) assets, or simply a de­sire to buy a residence for themselves or family members in overseas cities.

That helps to explain the results of another survey released earlier this year by property consultancy Cluttons, which found that 61% of high-net-worth individuals (HNWIs) in the GCC were likely to invest in their preferred location in 2016, against 25% who said they were unlikely to (the remaining 14% said they weren’t sure). Of those, London was the preferred city for 13% of investors, followed by New York and Bangalore in India. Half of these investors were targeting residential prop­erty, while 22% favored commercial property and 28% were looking for a mixture of both.

They are not just investing in distant lands though. Just over half (53%) of HNWIs in the U.A.E. told Cluttons that Middle East locations were among their top three investment targets for the year ahead. Dubai and Abu Dhabi were, perhaps unsurprisingly, the most popular, cited by 30% and 23% of re­spondents respectively. They were followed by Sharjah (8%), Muscat, Kuwait City, Doha and Riyadh. The reasons for the U.A.E. cities’ popularity stem from the country’s role as both a trading hub for the region and also—particularly in the case of Dubai—its position as a safe haven.

That too has been one of the long-term attractions of London. And although the political uncertainty caused by Brexit has unnerved some investors and led them to postpone or cancel some deals, demand is expected to recover before long. For one thing, the rise of the U.A.E. dirham and other Gulf currencies pegged to the dollar over the past few years means that it is now far cheaper for Gulf investors to buy U.K. property than it was previously, all the more so following the slump in the value of the pound after the Brexit vote.

As a result, many real estate agents say they are expecting interest in London to recover in the second half of the year.

“One of the key things of benefit to buyers from the Gulf is the fact that the majority of them, except for Kuwait, maintain a fixed exchange rate with the U.S. dollar. That means they’re effectively purchasing in dollars, so for them London property became 12% cheaper overnight on 23 June [the date of the ref­erendum],” says Faisal Durrani, head of research at Cluttons. “Since the referendum, some of our offices in locations like Belgravia and Chelsea have reported an upturn in interest from buyers from the Gulf.”

Whether the investments follow remains to be seen but, for everyone involved, the ups and downs of recent years in Dubai and London alike is at least a useful reminder of the inherent volatility in real estate investment no matter where you are in the world.

The Data Will See You Now

Published in Forbes Middle East, 20 October 2016

How to securely handle sensitive personal health information is becoming a critical issue for the region’s health services as they go digital.

Over the summer months in 2016, Emirates Integrated Telecommunications Company (Du) will be taking a step into a whole new area, with a project to provide secure access to patients’ electronic healthcare records (EHRs) in local hospitals and clinics. It may seem a strange move for a telecoms firm, but such initiatives are going to become increasingly common in the future.

The amount of data being collected in every area of our lives is proliferating, and finding a way to handle it safely and smartly is as critical an issue for the healthcare sector as for any industry. Patients need to know their health records are both accurate and secure. The Du project, which will test a system for sharing EHRs using block chain technology, might go some way to ensuring that is the case.

“Electronic health records are fantastic to have, but they generate a problem in terms of security because the information in the system can be accessed by people in hospitals or externally. They can be malicious, they can be mistaken” says Jose Valles, vice-president of enterprise commerce, new business and innovation at Du. “It is important to provide another layer of security. Block chain provides that. We are able to track changes in the EHR. We are going to be able to have alerts in case something is changed. You are going to know who is doing what when.”

If you’ve heard of block chain before, it is almost certainly in relation to the virtual currency Bitcoin, which uses it as the basis for its entire system. Block chains are essentially public databases, which allow users to share and verify information without the presence of a central authority. While virtual currencies have already harnessed its potential, advocates of the technology say it has far wider potential and can help in any situation where critical information is exchanged, from contract exchanges to voting.

The Dubai authorities have latched onto the idea with enthusiasm, setting up the Global Block chain Council in February which will launch a series of projects to test the technology. The Du project is merely one of the first. The project isn’t a complete leap into the unknown though. Du is working with Amsterdam-headquartered Guard time, which has already rolled out the technology in the Estonian health service.

“Today in Estonia every single healthcare record is backed by block chain,” says Mike Gault, chief executive officer of Guard time. “If there is any access or any change to a healthcare record, that digital activity is registered in the block chain. That does several things. It allows citizens to verify what happened to their healthcare record and it prevents hackers manipulating those records. It becomes impossible for insiders in the hospital or outsiders to get in there and cover up their tracks. You have this transparency, this accountability that has never been possible before.”

Even so, the health authorities in the U.A.E. are not rushing in and the Du project is very much a proof of concept rather than a full roll-out. The precise details of it haven’t been revealed, but only a small number of clinics and hospitals will be involved at first.

“The authorities are exactly the same here as they are in the U.K. or Spain or anywhere,” says Valles. “They are interested but they are cautious, because at the end of the day they are handling something that is very important. But there is a willingness to adopt technologies in the U.A.E. that I don’t see in other places. So hopefully after the results of the pilot they’re going to embrace it. Right now, they’re observing, which is wise.”

The whole project is an interesting case of how technology is becoming an integral part of healthcare systems. In part, the expansion of technology is being led by patients, using smart watches, mobile phones or other wearable devices like Fitbit to monitor their health. Data from these devices isn’t typically shared with doctors yet, but it could be in the future. But the healthcare system is itself also generating ever large quantities of data.

“Astoundingly large amounts of data are generated in healthcare in structured, semi-structured and unstructured formats,” says Lina Shadid, healthcare leader for IBM Middle East and Africa. “The ability to use insights from this big data will be the key to improving patient care and the sustainability of health systems in the coming years. We believe that getting the right insights from that healthcare data into the hands of health practitioners will dramatically improve outcomes for patients. Big data can also help manage population health, identifying at-risk population segments for early proactive intervention and care.”

At the moment, the region and the industry are in the early stages of figuring out how best to achieve these aims, and it is not just in the Gulf where initiatives are being tested. US technology firm Cisco has been working with the Jordanian government on a ‘telehealth’ project, which links specialists at the Prince Hamzah Hospital in Amman with patients in two rural locations, at Al-Mafraq and Queen Rania Governmental hospitals.

“Licensed healthcare professionals staff the remote location and assist with patient examinations while critical data on patient information can be instantly accessed by the specialists through the network-connected medical devices,” explains Mike Weston, vice-president of Cisco Middle East. “Given the choice between an appointment in Amman or a scheduled specialist consultation at the telehealth clinic, patients are increasingly choosing the local option. To date, over 110,000 patients have benefited.”

But making the most of the possibilities requires heavy investment. Research firm IDC estimates that, globally, the quickest rise in IT spending in the next few years will be in the healthcare sector. In a report issued in February it said healthcare IT spending would grow by 5.5% a year between 2015 and 2019.

The growth rate will be even faster in the Middle East, at 7.1%. Qatar, Saudi Arabia and the U.A.E. will see the fastest growth of over 8.5% annually. This year alone, total IT spending by the healthcare sector in the Middle East will reach $1.24bn, of which half is being spent in the GCC. They have a lot of catching up to do though. According to Nino Giguashvili, lead healthcare analyst for the Middle East at IDC, less than 20% of hospitals in the Middle East currently use some type of ‘big data’ technology.

Perhaps more than anything else all this data also needs to be secure. If not, patients will start to lose confidence in the entire system. Given that risk, the use of blockchain and other technologies is likely to be a critical feature of the healthcare systems in the years ahead.

“The balance between access to and portability of health information and the need for confidentiality are obvious. As with credit card and bank account data, the risk of losing the privacy of your health data is critical,” says Shadid. “The risks include security, data breach and data hacking. These risks are amplified with the increase of mobile devices and apps which collect personal health information.”

The use of data to manage healthcare issues has a long history and it has at times been controversial. In 1902, insurance companies in the U.S. got together to form the Medical Information Bureau to share data on their customers’ health conditions. It has garnered plenty of criticism over the years, often because of the secrecy surrounding it, but the companies involved insist that it means health insurance is cheaper for U.S. consumers.

But technology and big data don’t work miracles every time. A much-hyped project by Google to try and predict where flu and dengue fever outbreaks were likely to happen next, based on people searching for related terms on their computers, was set up in 2008. But it was dropped in 2015 when it proved to be of no use. More information is not in itself a useful thing unless it can be analysed properly, much like a doctor looking at an EHR.

Iran’s markets come in from the cold

Published in Euromoney, 3 October 2016

The country’s financial system is still not easy to access; money has trickled rather than flooded into its stock exchange since January’s deal with the US to lift sanctions. Nevertheless, as the country emerges from years of isolation, important changes are taking place that could herald a new era for Iran’s capital markets.

Attracting investors to the Iranian capital markets has long been a challenge. International investors have been scared off by sanctions and the reputational risk of doing business in Iran; even their domestic counterparts have found it more profitable to keep their money in banks than in the more volatile stock market. Yet the outlook is changing for both groups. Could the Tehran Stock Exchange be on the cusp of a breakthrough?

The appeal for many investors of the TSE and the junior Farabourse market is largely tied to the difference between bank deposit rates and the returns they can expect from investments in listed companies. That gap has been narrowing, most recently in June when the Central Bank of Iran cut the one-year deposit rate from 18% to 15%, still an astronomical level for most markets.

Turquoise Partners, a Tehran-based investment firm, noted hopefully in a recent market review issued “with dividend yields on the market at 12%, not far below deposit rates of 15%, things are edging ever closer to a tipping point where the stock market becomes the most attractive asset class.”

For foreign investors, the big change was the Joint Comprehensive Plan of Action (JCPOA) in January to lift most sanctions, in return for Tehran scaling back its nuclear programme. Since then, investors have been keen to unearth opportunities to justify the hype. Invariably, those coming to Iran find the puzzle that is more complex than they might like, but the pieces are gradually falling into place.

“We are seeing signs of increased activity, both in terms of FDI [foreign direct investment] and foreign portfolio investment,” Ramin Rabii, chief executive of Iran-focused Turquoise Partners, said on a call with investors in mid-June. “Having said that, the ease of doing business is far from perfect. There are a lot of challenges. The main one is the issue of the banking route and banking transfers, which has remained a main obstacle for transfer of funds back and forth.”

Just how difficult it has been to move money into the country (or indeed out again) is obvious from a story dating back to January, when the US government put $400 million worth of cash, made up of Swiss francs, euros and other currencies, onto a cargo plane and flew it to Tehran. This was part of a larger debt the US has owed Iran for decades, after a deal to sell military equipment was cancelled in the wake of the 1979 revolution. It was a rather novel way of getting around the lack of formal banking channels between the US and Iran; it also highlighted that doing business with Iran sometimes requires a flexible approach.

A number of smaller European banks are now said to be processing transactions with Iran, along with others in Malaysia and the UAE. The Iranian authorities have also been trying to forge new banking ties with other countries. For example, in August, the central bank signed a memorandum of understanding with its counterpart in Azerbaijan to set up correspondent relationships between banks in the two countries.

A second sticking point has been the relatively high cost of bank transfers, but this is also set to change. Until recently, bank transfers had to be based on the official exchange rate, which in early August was running at IR30,900 to the dollar, around 14% more expensive than the market rate of IR35,344. However, in late July the central bank said it would allow banks to offer the market rate on foreign exchange transactions, which should mean that more investment will flow into the country through the banks.

“This is very significant, as it should allow large FDI to come into Iran more easily,” says Kiyan Zandiyeh, portfolio manager for London-based Sturgeon Capital, which operates an equity fund investing in listed Iranian companies.

In the medium term, the central bank has vowed to close the gap between the two rates and end the system of parallel exchange rates, either later in 2016, or at least by the end of the current Iranian year, which falls in March 2017.

The cost and complexity of bank transfers has not put off all investors. German industrial conglomerate Henkel, which has been active in Iran since the early 1970s, increased its stake in local detergent manufacturer Henkel Pakvash, which is listed on the Farabourse, from 60% to 90% in May. Wulf Klüppelholz, a spokesman for Henkel, confirmed the deal but declined to give any further details.

However, Afsaneh Orouji, director of inspection and audit at the Farabourse, said in a statement issued a few days after it was completed that the deal for €51 million was approved by the Securities and Exchange Organization and that “the amount was calculated in the currency exchange rate set by Iran’s Central Bank rather than [the] free market rate in the country”.

Exchange houses

Instead of using banks, other investors have preferred to transfer money into Iran via exchange houses – credit institutions regulated by the central bank that can facilitate cross-border money transfers.

Before the recent change in rules for banks, the exchange houses had the key advantage that their transactions were based on the cheaper market rate for the Iranian rial. Several of the international funds investing in the country’s stock market have used them, including Sturgeon Capital and Charlemagne Capital, which is also based in London. Now that banks are also able to offer the market rate, the exchange houses are likely to lose out on some or all of this business.

To date the amount of money that has come into the market has been limited, even if the number of potential investors continues to rise. According to the Central Securities Depository of Iran, stock market trading licences have been given to 636 foreign investors to date, including 25 in July alone. The investors come from 31 countries, ranging across Asia, the Middle East, Africa and Europe, as well as the US, despite some sanctions remaining in place.

Such licences are necessary to buy and sell shares. However, given the amount of money that has actually been invested, it appears that many are setting up, but not yet making meaningful investments in shares, with the bulk of the money ending up in bonds. Ali Naghavi, chairman of the Iran Financial Centre, says around $500 million has been invested in the Iranian capital market since January.

But Zandiyeh says, excluding the Henkel deal, overseas investors have put just $22 million into listed Iranian companies so far this year. On an exchange with a total market capitalization of more than $90 billion, that is a very small drop. Zandiyeh says, the numbers suggest “there’s a lot of money waiting on the sidelines”.

Sturgeon Capital launched its Cayman Island-domiciled Iran fund in December 2015 and has just under $10 million in assets under management with stakes in 20 listed companies across the TSE and Farabourse, as well as in three bond issues.

The UK’s Charlemagne Capital is running another fund in partnership with Turquoise Partners. Turquoise set up the Cyprus-domiciled fund in 2006 and Charlemagne came on board in December last year. At roughly €65 million, it is the largest active fund investing exclusively in Iranian securities, according to Dominic Bokor-Ingram, fund manager at Charlemagne.

Both Sturgeon and Charlemagne say their equity funds have made good gains so far this year. Zandiyeh says Sturgeon’s fund is up more than 14% in euro terms since it started investing in February, while Bokor-Ingram says that as of June the Charlemagne-Turquoise fund was up by 26% from the start of the year.

Another new entrant is the Griffon Iran Flagship Fund, launched by Tehran-based Griffon Capital earlier this year. The fund is also domiciled in the Cayman Islands.

Alongside these, there has also been a small but noteworthy trend for new private equity funds. Griffon already runs one such fund, while Turquoise is setting up a venture capital fund, in partnership with Swiss firm Reyl & Cie. The Iranian firm says it will focus on local consumer goods, pharmaceuticals and hospitality companies and is aiming to raise $200 million this year. It’s also looking at establishing a fixed-income fund for the Iran market.

Another, indirect route for investors wanting exposure to Iran’s stock market should emerge in the coming months, when Swedish investment house Pomegranate lists its shares on the Stockholm Stock Exchange, which it plans to do before May 2017. Pomegranate focuses on investments in unlisted consumer technology companies in Iran, such as car-sharing start-up Carvanro and online classifieds platform Sheypoor. However, it also has a 15.2% stake in Griffon Capital, which it valued at €2.8 million in its 2015 annual report.

In May this year, Pomegranate raised €60 million in what it described as a pre-IPO placing. The investors were mainly from Europe. That fits in with a larger pattern of corporate investment in Iran in the months since the JCPOA came into force.

However, some investment executives say they are seeing most interest from the US. While US citizens are barred from dealing with Iran due to the continuing sanctions programme, there are efforts afoot to explore any legal loopholes that could bypass these provisions. Some doubt that such an option will be possible for some time and the Office of Foreign Assets Control (OFAC), the arm of the US Treasury that deals with sanctions, is likely to keep a close eye on anyone who tries.

Ali Nassersaeid, co-founder of the American-Iranian Business Council, says the chances of US investors being able to access the TSE are “pretty much slim to none, at least for the next couple of years. There are ways to structure an entity outside the US to conduct transactions. However, the entity cannot include a US person in a controlling capacity. The only safe way to proceed with such a plan involving a US person would be to apply to OFAC for a licence.”

Volatility

For those who are willing and able to get involved, there are some decent gains to be made, although there are many risks too. The Tedpix, the TSE’s main index, has more than tripled in value over the past four years, rising from around 24,000 points in August 2012 to more than 78,000 points by August this year. In comparison, the MSCI Emerging Markets index has lost 8% of its value over that time, while the MSCI Frontier 100 Index rose by 26.5%.

Of course a stock market would not be a stock market without volatility, and there has been plenty of that too. The Tedpix was on a bull run from late 2012 until it peaked at 89,500 points on January 5, 2014. Some of those gains drifted away over the course of the next two years, but the market has rebounded strongly this year. The index shot up in January, around the time the sanctions deal was confirmed. It continued to rise in February and March. Thereafter some ground was lost, with a 9% fall in the second quarter of the year, followed by a rebound in July and August. Even with that second quarter slump, the market was up 26% since the turn of the year.

This year’s movements reflect two big (and opposing) trends: enthusiasm for companies’ prospects in a post-sanctions era, mixed with realism about the difficulty in attracting capital from overseas. For investors this means that stocks have to be chosen with care. Sentiment and rumour play a big part in the trajectory of stocks on the TSE, not least because retail investors account for around half of the trading volumes, but also because reliable information is often a scarce commodity.

“The crucial part of the process is to ensure that buy/sell decisions are based on accurate information,” says Nassersaeid. “The TSE and its regulatory branches are still working through their processes to ensure accurate, timely and transparent information is released.”

Unsurprisingly, views differ widely as to what sectors offer the best opportunity in such a market. Naghavi points to petrochemicals, insurance, power and industries related to oil and gas as attractive options. Nassersaeid suggests the two most promising sectors for the longer term are petrochemicals and raw materials firms producing copper, iron ore and the like. He is warier about other areas such as construction, banking, insurance and IT until economic conditions improve.

There is certainly the potential for the Iranian economy to grow quickly, but its short-term fortunes rely on domestic and international political issues, which are hard to predict. For one thing, the outcome of Iran’s presidential elections in May 2017 will set the template for the country’s relations with the outside world for years to come. Even so, some appear optimistic.

“Our thesis for Iran is the same as in any frontier market that’s coming out of one political or economic system and going into another,” says Bokor-Ingram. “Political reform leads to economic growth and we want to be exposed to sectors and companies that can take advantage of that economic growth. We forecast that the Iranian economy, if things progress as they should do, can grow by 6% to 8% a year for the next 10 years. There’s certainly the spare capacity in the economy for that to happen, and we want to be in companies that can take advantage of that growth.”

Others predict slower growth rates for the near term, with the IMF suggesting GDP will expand by 3.7% to 4.5% between now and 2021. However, there are a few reasons why some companies should grow quickly in the coming years, even if the economy as a whole does not match the highest hopes.

For one thing, many Iranian businesses have been operating below capacity during the sanctions years and, with the shackles now removed, they should be able to expand their output even without much investment. For companies that were more productive, expansion plans that had been put on hold can start to move forward. Turquoise predicts that listed companies will post earnings growth of around 10% on average over the year to March 2017.

The biggest boost of all could come from Iran’s inclusion in international indices, such as those run by MSCI. Zandiyeh says that, based on the size of the TSE, it “should conservatively occupy between 25% and 30% of the MSCI Frontier Index. Looking at the money which tracks the index, up to $7 billion to $10 billion would have to enter the market. That could happen in the next year or two.”

Set against all that, there are some reasons for caution, not least the risk of ending up with a stake in a company run by the Islamic Revolutionary Guards Corp (IRGC), which remains a firm target of US sanctions. IRGC’s principle holding in a publicly listed company is in Telecommunication Company of Iran (TCI), the monopoly fixed-line telecoms provider. The IRGC owns 50% of TCI via its Etemad-e Mobin affiliate. TCI in turn owns 90% of Iran’s largest mobile operator, Mobile Telecommunication Company of Iran (MCI), which has its own stock market listing. Both TCI and MCI are among the top five companies on the Iranian bourse, with market values of $4.2 billion and $4.1 billion respectively at the end of June.

There have been suggestions that the IRGC could sell its stakes in these firms. The IRGC did offload its interest in carmaker Bahman Group in June, with local media reporting that Visman Motor has become the majority shareholder.

“The removal of sanctions has opened up the available pool of companies that Sturgeon Capital can invest in,” says Zandiyeh. “Of the 600 or so stocks across the TSE and the Farabourse, all but 50 were off-limits while sanctions were in place. Now the investment universe has expanded to include almost the entire stock market, with the only exceptions being companies controlled by the Revolutionary Guards.”

Further concerns

Beyond the problems of scarce banking links, parallel exchange rates and IRGC involvement, there are further concerns for investors, as a consequence of the relatively immature nature of the market and because it has been separated from the international mainstream for so many years.

Local regulations stipulate that stocks cannot be held by a global custodian, but instead must be held by the Central Securities Depository of Iran (CSDI). That will be a stumbling block for those leading institutional investors that prefer to use custodians. The authorities have tried to address this problem, with Mohammad Sajjad Siahkarzadeh, international affairs director at the CSDI, telling the Securities & Exchange News Agency in August that there are numerous other ways to invest in the market without using a global custodian.

“There are at least six ways for foreign investors to get into the Iranian market,” he said, although the report then somewhat confusingly included the option of using global custodians to help with investment as one of the six.

Furthermore, there are no credit ratings agencies working in Iran, nor a culture of analyst reports and coverage. Financial reports and other data are often only available in Farsi, and global accounting norms, such as international financial accounting standards are only starting to be introduced. All this makes it harder to evaluate companies for investment. Instead, investors will have to rely on the forward guidance that companies issue and their own research into a company’s performance and prospects.

Some of these concerns are being addressed and there have been signs that the market is moving to become more professional, with a wider range of tools on offer to investors. For example, Pouya Finance, a subsidiary of Mofid Securities, the largest broker in Iran, recently launched BourseView, an online tool providing real-time and historic information about TSE and Farabourse stocks. One investor describes this as “the Bloomberg of Iran”. In addition, the Securities and Exchange Organization (SEO) has invited credit ratings agencies to apply for licences.

The regulatory structure is also undergoing change, with Shapour Mohammadi appointed as the new chairman of the SEO in July, taking over from Mohammad Fetanat, who resigned and has been appointed as an adviser to Ali Tayebnia, minister of economic affairs and finance. Mohammadi subsequently outlined some of his priorities in a speech, including a promise to push for the introduction of derivatives trading, short-selling and buying stocks on credit.

Macroeconomic trends in Iran ought to drive more investors towards the market too, helping improve liquidity levels, which are another concern, particularly for many of the smaller stocks.

As well as bank interest rates dropping from 18% to 15%, interest rates on loans came down from 22% to 18% in June and the inflation rate has also been steadily falling since president Hassan Rouhani came to power in August 2013. Three years ago, inflation was running at close to 40%, by this summer it had dropped below 10%.

Bonds are underwritten by the banks in Iran, carry high fixed interest rates for multiple years and can always be redeemed for at least their par value. That means investors can lock in high double-digit returns for several years.

Clemente Cappello, chief investment officer of Sturgeon Capital, says: “Nearly $10 trillion in global bonds trade at negative yields, whereas in Iran the yields are 18% to 20%. GDP is rising, and the population is young – 60% are under the age of 30 – while it is ageing in the west. It makes for an interesting situation for investment.”

The question is how quickly will international investors be willing, able or brave enough to take advantage of those trends.