Are we all to blame for inflation problems?

With continuing commotion over the price of steel and cement we have missed the fact that the world has fewer and fewer suppliers. The steel companies became steel titans and they now control global markets.

Companies like Rio Tinto, Corus, and ArcelorMittal are but a few names that have consolidated in the past three years, and they now have a grip that can seriously affect global prices.

So what has this to do with rising costs here in the Gulf? Well… everything. We, the consumers are at the mercy of two factors. One we cannot control and the other a folly that is of our own making.

We are a great consuming nation. We hardly produce anything yet we consume like the thing we are buying will go out of fashion tomorrow. We are wasteful and irresponsible. Allow me to qualify what I have said. We, in the Gulf, could not be in a more perfect place for manufacturers of goods.

The average age of the inhabitants of the Gulf is between 15 and 20. We are exceedingly brand aware and have a great amount of discretionary and sometimes even cheap cash to spend, courtesy of the banks that are handing out credit cards like lollipops.

The concept of a national savings scheme is only now coming into the awareness of the people here. We have no credible consumer protection organisation and the laws, while beautifully put on paper, aren’t enforced. Oh! And most importantly, we are very status-conscious. All these factors play nicely into the hands of the companies who, in some cases, dump their products that won’t sell elsewhere here.

Let’s take a random product that comes to mind to illustrate what I mean. A certain four-wheel drive car from Germany that in my opinion is one of the ugliest automobiles on the road made by a great German company sells like hotcakes only in two parts of the world - the US and the Gulf.
Even the nouveau riche from Russia and China understand that this is not the best-looking car.

Do we need to buy this car? No, but we do because it makes a statement. Personally I think the statement says that I have no taste and I want others to know that I have money, but then there are people who genuinely like the car and to them I say, bravo.

Did you know that this vehicle costs at least 15% more here than even in Europe even though we only have a 5% import tax? Thus we contribute, through our actions, to the increasing costs that we complain about.

Secondly, we are stoking inflation by adding fuel to the fire locally. We have created an abundance of liquidity due to both government rebates such as in Kuwait and Bahrain and government-sponsored projects in the UAE, Qatar and Saudi Arabia.

Real estate prices have shot up to the point that they have become quite ridiculous. When a consumer looks at a house that is considered mid-range and has to consider parting with over one million dollars, this is no longer a normal market.

In 1996 Warren Buffett refused to join the internet frenzy because he thought the value of what was being offered was not justified in the price that was being asked then. As 1999 rolled by, magazines were writing Buffett’s obituary as the oracle of Omaha. He was passé as they said.

No longer in touch with what was happening, he missed out on all the glory of the internet boom. Then the internet bubble burst and like a flood, it washed everything in its way, leaving many bodies sprawled on the banks, broken and bruised.

Yet Buffett came out unscathed. In fact, today, people think that he is indeed entitled to the title of the oracle of Omaha because he stuck to his ideas of fundamentals and did not allow his emotions to get the better of him.

Mishal Kanoo is deputy chairman of Kanoo Group.

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Great points!!
Posted by Priyank Chandra, New Delhi, India on Tuesday 15 July 2008 at 10:26 UAE time

I liked your views on how developing countries ride a fast fad but then eventually settle down with more realistic picture. Something similar is happening in India, though fundamentals are very sound for India, it's time that we even need to learn credit management.

And yes!! mentioning about steel makers controlling prices, same is very true for gulf countires which have been stubborn to control oil prices even when they are dependent on other country for most important thing- Food :)

Inflation of our own making
Posted by Michael Malas, Dubai, UAE on Monday 14 July 2008 at 20:05 UAE time

Absolutely brilliant article by Mr. Kanoo. I always enjoy reading Mr. Kanoo's comments, but this one I have to say beats them all. You make a huge point with few paragraphs.

I could not agree with you more about the a certain German car, and as for the real estate prices, I would like to add that property prices in Beverley Hills and South of France or Spain are much less, and you get less dust and more green and much more fresh air. I am a steel trader in the UAE and I am very pleased that you made the real point why prices are increasing.

Lastly, it is ironic that today Mr. Warren Buffet can raise close to US$700,000 at an auction for the sake of having one dinner date with him. If it was not for a charity, I would have to say that this a real inflation of our own making.

Another Kanoo Insight
Posted by Richard, Abu Dhabi, UAE on Monday 14 July 2008 at 10:04 UAE time


Mishal Kanoo's contributions aren't to be missed!

hmmm..
Posted by S.Z., Dubai, UAE on Monday 14 July 2008 at 01:20 UAE time


Dont you think, as per your article, that this untamed spending is actually not effecting those who can spend but even more so, those who usually strive to pay bills and meet ends. Eventually the poor man gets hurt, the rich is only second.

pertinent observations concerning the gulf
Posted by The Baldchemist, Stockholm, sweden on Sunday 13 July 2008 at 12:06 UAE time

Bravo. Well said. A more compelling argument would be hard to find. Who is it that has decided "western" tastes are to be embraced?
A problem that has arisen over the years of course has been that of what to do with oil revenues.
One can invest overseas or find something viable to nurture at home.
Liberal consumption has been the benchmark of success. It's your time! Enjoy it!
Let the oil comsumers pay for it. They have benefited for so long. It's your turn now!
Good Luck to you all. The Baldchemist

Inflation of our own making
Posted by Joseph N, Chicago, USA on Thursday 10 July 2008 at 19:07 UAE time


I could not agree with you more. But I also think that one must understand that this is a phase which every developing country goes through. Inevitably every society goes through the highs and lows of an economic cycle. This presents an opportunity for the society to learn and grow from their experiences and progress towards becoming a mature society.

Carefree Consumption
Posted by Nazly, Cairo, Egypt on Thursday 10 July 2008 at 18:41 UAE time


Refreshingly direct and sound opinion. Even though I don't live in the Gulf, consumerist trends are certainly taking over the Middle East. We need to encourage a culture of entrepreneurship & productivity which then gives us license to consume. For now however, our consumption is unsubstantiated and in most likelihood, we will pay the penalty at some point in time.

Inflation of our own making.
Posted by Hombil, Muscat, Oman on Thursday 10 July 2008 at 16:40 UAE time

Bravo, Mr Kanoo. You have hit the nail on the head! Are the Gulf Governments listening? They need to set the example, for their citizens to follow!

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