How a Fund Manager's Trying to Fix Some of the Mideast's Issues

SPEAKER_1 (0:00)

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Tracy Alloway (0:25)

Hello, and welcome to another edition of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:30)

And I'm Joe Weisenthal.

Tracy Alloway (0:32)

So Joe, do you know it's been almost a year to the day that I've been living out in the Middle East?

Joe Weisenthal (0:40)

I did, the time has, wait, I'm trying to think, I was gonna say time has flown by, but I don't, but that would be the opposite of, it's felt so long, it's felt like an eternity. I can't believe, I can't believe it's only been a year because it just seems like an eternity since you were here. Thank you. I'm trying to think of which is the way to frame it.

Tracy Alloway (0:58)

Yeah, good save, I think. Right, I mean, that actually means that we've been doing Odd Lots internationally for longer than we actually did it together in the same studio, which is kind of amazing when you think about it.

Joe Weisenthal (1:13)

That is pretty amazing.

Tracy Alloway (1:14)

All right, so.

Joe Weisenthal (1:15)

What's the point though? What's the point of this intro?

Tracy Alloway (1:16)

Okay, so when you think about the Middle East, obviously a lot of people think about it as a rather troubled region. What are some of the major issues that spring to mind when you think of the Middle East?

Joe Weisenthal (1:31)

Well, obviously one of them from an economic standpoint is the reliance of many countries on oil and the future of the petroleum economy. And then of course, what you were saying is the troubled aspects, the sort of continued tension regarding political systems and stuff like that.

Tracy Alloway (1:53)

I think you want to say religion as well, right?

Joe Weisenthal (1:56)

That as well, yeah. All of that, when I think of the Middle East, all of that seems combined, the tension of religious interest, political interest, opening up to sort of attempts at democracy and aversion of capitalism all seem to swirl around when I think of what's going on in the Middle East.

Tracy Alloway (2:16)

All right, well, to celebrate my one year anniversary, I guess, we're going to be discussing all these issues with someone in finance who is trying to solve pretty much all of them. So quite a hefty task, as you might imagine.

Joe Weisenthal (2:31)

That does sound like a hefty task.

Tracy Alloway (2:35)

All right, we're going to have on Imad Mostak. He is the co-chief investment officer for Capricorn Fund Managers. And really, I think one of the smartest guys around when it comes to emerging markets. Imad, thanks so much for coming on.

Emad Mostaque (2:49)

You're too kind.

Tracy Alloway (2:50)

So Imad, we got to it a little bit in the intro, but for the past year, I've really had a front row seat to see the impact of low oil prices on Gulf economies. And a lot of these economies have really built themselves around the energy industry. And it's really interesting to see them try to wean themselves off of it now.

Why is it so, or seemingly so difficult for them?

Emad Mostaque (3:17)

Well, I think that ultimately what you have is you've had a very established social contract for a number of years. And this is something we've seen across the world. It's like, what is the fundamental basis of your relationship with the governments?

In the Middle East, it was a case of they extracted energy rents and they provided almost a jobs guarantee for their citizens. And they bought an expatriate labor to actually have productive work.

That's being rewritten now because it's a question of can you keep on with these public sector jobs in particular when the oil prices have collapsed to such a degree?

Is this a cyclical collapse where the oil price is going to 50, it'll go back to 100, and then you know it'll keep on weaving? Or is it permanently at $50 or lower? And that's something that's really concerned them because they're like, maybe we can't afford to employ these millions of young people who are kind of coming through.

Joe Weisenthal (4:07)

You know, when you think about, there's sort of a famous fact that economies that are highly dependent on natural resources, they get trapped. They get these overvalued currencies. They get overly dependent on that specific resource. The rest of the economy kind of atrophies. If you're not in that resource, then you really have nothing going for you.