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.
Real estate prices have shot up to the point that they have become ridiculous.
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 the deputy chairman of the Kanoo Group. It is one of the largest family-owned companies in the Gulf. The Kanoo family is the 11th richest in the Arab world with a fortune of US$6.1bn.
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