Strategy Notes
Codexa Capital
By Douglas Clark Johnson
July 18, 2012
The long slog ahead suggests a certain simplicity to the strategy outlook. The message may be to focus on specialization and output, rather than aspiration. Fortunately, there are plenty of stories in the developing world that fit this framework. We also offer thoughts on tension at the Straits of Hormuz, where the bulk of oil is transiting to vital Asian markets. In Libya, parliamentary election results may not be the sort of clear win that many project it to be.
Back to the Real Economy
You may have missed the announcement last week that Ali Kazma will be representing Turkey at the Venice Biennale in 2013. Truthfully, it may be more relevant than the Qataris buying another marquee asset.
Who? Kazma is best known for his work, “OK,” which the Smithsonian’s Hirshhorn Gallery in Washington featured earlier this year.
What? “OK” is an audio-video installation showing only the hands of a Turkish notary stamping corporate documents in rapid succession. The piece is strangely magnetic.
Why? In an interview with Art in America, Kazma claimed, “We still live in a world where such work as stamping papers exists. There are people who have developed this weird skill.”
Kazma suggests there are limits to digitalization. Our own understanding escalates to nostalgia for the real economy. There seems little affection nowadays for the financial economy, further reinforced by the LIBOR scandal.
Kazma has thrived in his interpretations of work process. Other projects have included portrayals of textile assembly-line workers and watch repairman, once even a taxidermist.
For the portfolio investor, the message may be to focus on specialization and output, rather than aspiration. Fortunately, there are plenty of stories in the developing world that fit this framework, offering a clue on how to survive the long slog ahead.
Straits of Hormuz: Insurance for Asian Growth
Months early, the UAE just uploaded oil from the new Habshan pipeline to a tanker at Fujairah and sent it on its way across the Arabian Sea. The terminal’s location outside of the Straits of Hormuz provides some relief to Abu Dhabi from Iranian threats. It may be irrelevant to the Qataris and Kuwaitis.
The pipeline, when at peak operation, could be responsible for about 70% of total Emirati output. However, for operational reasons, the average percentage will likely be much smaller. UAE officials quietly admit to strategic, not economic motivations for the project. Pipeline-related flows potentially represent less than 10% of the total volume that now transits through the Straits of Hormuz.
In a global context, the defense posture over the Straits of Hormuz is largely about assuring oil supply for Asian demand, where the overwhelming bulk of GCC oil is now heading. As China may add more vigor to the global market than any other country, supporting Asian demand matters. A spike in oil prices could threaten to derail that momentum, never mind the impact on a fragile US and European situation. Further, unimpeded market access helps ensure the vibrancy of GCC economies―a key concern as these nations take the lead in economic restructuring across the Arab world.
Political tension in the Gulf is extreme. The US Navy rattled the status quo when it fired at a motorboat boat off the coast of Jebel Ali this week, more than 175 kilometers from the Straits themselves. There is plenty of American force in the region; no Iranian move to block the Straits can succeed. Ultimately, US security efforts and developments like the new pipeline may be a way of assuring a lifeline for China and the rest of Asia.
With most of the world’s largest economies overwhelmed with structural disabilities, Asia stands apart, both by its relatively strong economy and its capacity to help the rest of the world move forward. We should keep it that way.
Libya: What’s Going on in Misrata?
By all appearances, the Western world breathed a collective sigh of relief at the landslide victory won by the National Forces Alliance in Libya’s legislative elections. The electoral mandate may be academic, however. Libya is traditionally a tribal nation. Witness the results in Misrata, representing a major blow for Mahmoud Jibril and his coalition.
Misrata is no backwater. It’s the third largest city in the country. If Benghazi depends on oil and Tripoli on government, then Misrata’s identity is its commercial savvy. Its port, Qasr Ahmed, is probably the largest multi-use port in the country; its corporate backbone includes the sprawling Libyan Iron and Steel Company.
In Misrata, voters disproportionately favored the Union for the Homeland. Abdurrahman Sewehli leads the party. Remember that name; we’ll likely hear a lot more from him as Libya evolves. UFH’s campaign focused on disputing Jabril’s integrity because of his pre-revolutionary ties to the Ghaddafi regime. Informally, “Misrata for the Misratans” may summarize their platform.
In a country well-known for its factionalism, disharmony is a given. Misrata-based militias have been unwilling to lay down their weapons. The Wadi Ahmar movement in the eastern part of the country shut down five oil facilities in protest over parliamentary seat distribution just before the election. We wage that the NFA is likely to lose patience with such dissent once the current flurry of political reorganization subsides.
Generalists look past these rumblings. After all, the IMF expects that growth will soar to 117% in 2012 after the collapse last year. But prospects for the years ahead are less clear, with the fiscal balance a likely lightening rod. Subsidies can be an effective ploy to satisfy constituent demands.
Regional discord may defer, if not deter, foreign direct investment, especially in the critical non-oil sector. External investors prefer a cohesive national framework, with marketing metrics spanning an entire geography. This approach isn’t available in Libya, at least for now. The few deals we’ve seen affirm this factionalism.
Disclosures
This material is for general information only. Opinions and estimates reflect current judgment as of the date appearing on the article; they are neither all-inclusive nor can they be guaranteed to be complete or accurate.
(c) Codexa Capital LLC
www.codexacapital.com
