Iraj Abedian: Pan African Investments

MONEYWEB, Alec Hogg, 05 September 2006

The Iran situation in an investment perspective. ‘Kofi Annan should do his homework before he goes there.’

MONEYWEB: You’ve got to look at broad trends, Iraj Abedian, and particularly with the kind of work that you’re doing now – former chief economist at Standard Bank, but now you’re running your own company, Pan African Investments, which suggests that you’re looking at the African continent – and it still is a bit of a long-term story.

IRAJ ABEDIAN: Certainly, all the sections of [indistinct] becoming more and more short term still, and the spectrum is quite wide. Definitely the big opportunity is long term.

MONEYWEB: The future also belongs to those who try and work out what’s going to happen, and that’s really what we want to talk to you about tonight. You do hail from the Middle East originally, from Iran, and this week we had the meeting between Kofi Annan, UN Secretary-General, and the President of Iran, Mahmoud Ahmadinejad, and we have discussed him before. Your description of Mr Ahmadinejad was a little similar to George W Bush.

IRAJ ABEDIAN: That’s right. They both have a sort of Messianic attitude towards life. They’ve been brought to fulfil a particular mission, and they are very convinced of their mission. They do not want to be confused by facts or side issues, and in that sense they pretty much match each other from an ideological point of view, which is highly dangerous in the global conditions that we are in.

MONEYWEB: Just to put it into an investment context. When we saw 9/11 – in fact it’s now five years ago, September 2001 – the impact that had on the business environment was catastrophic. We’re only now coming out of the aftershocks, if you like, from an inflationary perspective. So, these big geopolitical events do have a direct effect on people’s money.

IRAJ ABEDIAN: Absolutely. They destroy wealth at a rate like nothing else, effectively, very, very quickly, but very importantly, depending how it happens and where it happens, they have medium- to long-term consequences. And the situation in Iran and the Middle East broadly is really related to the very concentrated oil conditions in the Middle East, because the situation in Iran is bound to affect the Gulf States – that includes the United Arab Emirates, Qatar, Bahrain, Saudi Arabia. Iraq is already in trouble. And that could be as catastrophic as anything for the global economy. That’s not just a question of geopolitical instabilities. It is also about a major commodity which would have a systemic effect on the global economy.

MONEYWEB: Systemic effect? What does it mean?

IRAJ ABEDIAN: That means that no economy will be spared in one or another way. You’ll have Japan highly dependent on the Middle Eastern oil, just about 100%. It’s now, depending on how you define it, either the second- or the third-largest economy on the globe, just coming out of years or decades of trouble, for the first time it registers growth, positive growth, current unexpected. If anything happens in the Middle East, the Japanese economy is really coming to a halt. And if it doesn’t, it would have to pay huge prices for its imported oil. Now you get China, very much dependent on imported oil, very much dependent on Iran, particularly. Saudi Arabia also.

MONEYWEB: And here at home …

IRAJ ABEDIAN: Here at home, we’re actually much better off than many countries because of Sasol. And yet, we’re not going to be spared. Nobody is going to be spared. When you have a global economy which is as integrated as we have become, it’s literally impossible, whether you’re an Ireland economy, whether you’re a US economy, you’re going to feel it. So, that whole thing weighs heavily on the minds and thoughts of the strategists, on the minds of portfolio analysts who have to take a strategic medium-term position, not too many type of in and out, 70c and 85c. But if you want to take a position which you know has got to be a three- to five-year position, you’ve got to think very, very carefully about these issues.

MONEYWEB: And that’s what investing is supposed to be about for most absolute-return investors

IRAJ ABEDIAN: Absolutely.

MONEYWEB: Let’s look at Iran itself. The world’s attention is most definitely on the Middle East right now, and particularly on Iran. And if you consider, perhaps we can just start with the funding of Hezbollah, which is the organisation that is, I suppose, behind, depending on which side of the fence you’re at,  the problems in Lebanon at the moment.

IRAJ ABEDIAN: That’s right.

MONEYWEB: How do they justify the funding? What’s motivating Iran to make mischief in that  way?

IRAJ ABEDIAN: I think they don’t see it as a mischief. They see it as a mission. Very much if you go back to the Christianity and Middle Ages, when missionaries were being dispatched from Spain to go to Portugal and Mexico and Bolivia and the rest, they didn’t see it as mischief. They saw it as a mission you’re created to fulfil, and if you see it in that context, what the West sees as mischief, for Iran and for the Iranian regime is seen as a way of countering and fighting injustice, historic abuse of the sources and people who happen to be of the same religious beliefs. So, I think that is the dimension that should be seen as the key driver of whatever investment Iran does, whether it is in Iraq or whether it is in Palestine or in Lebanon and in the neighbourhood.

MONEYWEB: Now, during the Middle Ages the Christians did something similar, there was no stopping them. Is there any way that Iran can be brought around a table, perhaps to change its mind on this mission?

IRAJ ABEDIAN: I think again, if you want to change Iran’s mind, you’ve got to see the world from their mind. You’re a country surrounded by atomic powers – Pakistan, Russia, Israel – what’s good for the goose is good for the gander. You’ve got to see it in that context. If it is not good to have nuclear power, why is Pakistan supported by the Americans? So, it’s not about that. It’s about something else. It’s about control of the region. There has been historical British, French and, more recently, American domination of the powers in the region. For example, Saudi Arabia, which has got religious significance for the Moslem world, is pretty much under the control of the White House. Not now – it’s been there for decades. And it has implications for the use of economic resources. It’s got implications for the balance of power. It’s got implications for the ease with which Americans can invade Iraq, if that power base did not exist. So these are the issues that run the emotions and the strategies of the Iranian regime and, unless those issues are dealt with on a sustainable basis, any form of threat or palliating of short-term nature is going to be just that – short-lived.  And we see an example of it in the Middle East itself. We see decades now of trying to find short-term solutions to a fundamental, structural issue, which has got historic, religious, political, as well as geopolitical roots. So we need to deal with the issue in a far more sophisticated and nuanced way, and find a sustainable solution.

MONEYWEB: Now this week, or the past week, on the 31st of August, was the deadline set by the United Nations for Iran to stop enriching uranium. In effect, Iran said to Kofi Annan, who he arrived there, sorry, but we aren’t actually going to be listening to you. And I’d like to just read you a quote, from the Financial Times of London. It reported on members of the UN delegation. They said after an hour-and-a-half meeting, the UN delegation and Kofi Annan were surprised by the hectoring tone, which left the UN delegation stunned and the Secretary-General more pensive than usual. It sounds like he went in there perhaps with a naïve view that the Iranian president would come to the party, but got precisely the opposite effect.

IRAJ ABEDIAN: Of course, because I think it is a naïve way of approaching the issue. Kofi Annan should know that his bosses are divided. Kofi Annan has got no power when China can veto, when Russia can veto, when Germany is not behind him, when Italy is not behind him, when Japan is unpronounced on him. So, he goes in there without a mandate, without a solid mandate. All he has is potentially UK, United States and France, those three, and the rest are either against or unpronounced. If you look at the economic interest of Italy in Iran, and Germany, there is no way that they are going to throw away their economic interests. And Iran known it. Kofi Annan should know it. And Kofi Annan should do his homework before he goes there.

MONEYWEB: And the hypocrisy which is also being brought out in the reports – the United States is quite comfortable to support India’s uranium enrichment programme, even though it hasn’t signed the Non-Proliferation Agreement, but on the other hand it is taking a very hard line against Iran. Is this all politics, is this all posturing?

IRAJ ABEDIAN: Well, even more so than India is Pakistan. Pakistan is a militant military nuclear power, not a passive one. And it has not hidden the fact that, if need be, they’ll use it, because India is too big. And the reason for Pakistan having developed and investing hugely in that technology is because they would use it. Now, George Bush uses Pakistan – billions of dollars of support for that government. Why? Because it suits them as a base to fight the Taliban in Afghanistan. And if you have that situation, it’s more than hypocrisy. It’s within the same region, the same neighbourhood. you have two standards.

MONEYWEB: Iraj, you know the region, you come from that part of the world, you understand geopolitics. Where is it all going to end up? I had a very smart guy saying to me recently, he thinks World War III is in the brew.

IRAJ ABEDIAN: It’s interesting that at the moment analysts in, certainly, London and New York and Washington are pretty much divided. There’s a group – and these are not your armchair analysts, these are your active consultants to governments in those powerful capitals, who exactly hold the view that you’ve just mentioned – that it is the beginning of a process that would culminate in a massive confrontation. Has it got the potential to develop? Of course, we have to be absolutely careful that we do not end up in a self-fulfilling prophecy, because if enough analysts advise Washington and London and Paris on that, you will end up with a self-fulfilling prophecy. And, as we know in the marketplace and the investment arena, expectations very often become self-fulfilling. In the political arena, it is exactly the same. So, can it go there? Very much so, if you want to deal with it in a crude way. Can it be averted? Yes, but it requires an awful lot of – again I’m using this term that you question – a lot of systemic changes. We’ve got to deal with the issues of the region, we’ve got to deal with the issues of double standards, we’ve got to come up with not grandstanding on either side, whether on American side or Iranian side. The issue is about humanity. The issue is not about the United States and Iran. It’s not about Christianity or Islam. It’s a much bigger issue. And we’ve got to approach it in that way and bring a lot of forces to bear in order to avert a massive confrontation.

MONEYWEB: And understand the issues, as hopefully we do. We’ve made some progress in that respect tonight. From an investor’s perspective, though, sitting at home, listening to this insight for the first time probably, understanding both sides of the story, what strategy do you adopt?

IRAJ ABEDIAN: It’s a very difficult situation. The absolute requisite backdrop for investment is assuming that a political situation is going to be stable, because if the political backdrop is unstable, everything else becomes unstable and value is destroyed. So I think, from a portfolio investment, there isn’t much you can do. But from a strategic investment you’ve got to certainly hedge against a whole lot of stocks and investments that are all dependent, hedge them against the substitute energies, etc, etc, over a three- to five-year period, bearing in mind that, even if they go the route of confrontation, it is not going to be a six-month affair. There is going to be a lead time, there will be some space to hedge and to get out of it, but it will be a huge loss, because you won’t be the only one who wants to do that. Everybody will want to do the same thing, and when you get that, value is lost at a rate like never before. And that’s my concern.

MONEYWEB: What about an investor who’s got a lot of money tied up in Sasol, which has huge investments in that area, Qatar, also in Iran itself – and MTN, which is moving more aggressively into Iran at the moment?

IRAJ ABEDIAN: That’s right. I think those assets might not be adversely affected as one perceives them. In fact, MTN might not be affected in Iran at all, or Sasol’s operation in Qatar, which is gas-based. Where investments will be more adversely affected would be in countries like Japan, where energy will hit them hard, and the value of assets will be destroyed. All dependent countries, whether developed or undeveloped, or developing, will be hardest hit, and assets will be fastest destroyed, than the country itself.

MONEYWEB: Iraj Abedian, the chief executive of Pan African Investments, and not an alarmist by any issue, painting a picture that Arthur Buchner, even with your long-term view being two minutes, has got to be a little worrying?

ARTHUR BUCHNER:  Well, you know, at the end of the day, do you suddenly start climbing into defensive stocks, and do you get out of countries that rely on resources and stay in countries that manufacture resources – because essentially the view seems to be those that are dependent on other countries that are producing resources are going to have systemic risk attached to them – or do you believe that there won’t be a World War because we have got enough peacemakers and information dissemination that people can get around a table and actually sort it out. Well, that becomes then a fundamentalist view, and I think that what we saw in World War I and II is that there wasn’t the ability to get around a table quickly. It took you three days, four days, to get to London. It took you five days to get from London to Germany. Now, you get on a plane, you fly over there and say let’s sit down and let’s negotiate this whole thing. Maybe that can be the saviour at the end of the day.                    

MONEYWEB: For humanity’s sake, let’s hope that sanity does prevail, but it still is a risk, and that’s what investment is all about – realising what the risk is.

Posted in Market commentary

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