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John Burgess on Teshkeel Media and Investment
posted September 29, 2006
 

[Original Article Referenced]

Your theory about Arab investors and banks choosing to invest in Arab investments that nonetheless diversify their investments is probably somewhat correct. Somewhat. In a case like this where the investors will own large chunks of the company, they will want to have a lot of say and control. That’s easier to do if the company is “local”. And to be sure, for most investors who have enough money to make large investments like this, a media company represents diversification from their primary sources of wealth, which are likely to be oil and oil services or possibly construction.

But I would contend that this is a risky investment, and probably there is another reason why investors and investment banks in the Middle East are willing to invest here. They have too much cash. There is too much liquidity in the Middle East (for obvious reasons), and this leads (according the time-honored rules of supply and demand) to investors chasing after either smaller returns or riskier returns. In such a situation, there are simply fewer good investment opportunities relative to the amount of money chasing them. So Teshkeel probably isn’t the best investment opportunity.

Is this bad? Well, for some Arab investors it will be. Just as when Japan was awash in cash and investors went on a spending spree in the U.S., some investors will end up with white elephants or worse. Think of the Japanese family who bought the Empire State Building.

That said, some of these risky investments will pay off, and they will belong to companies with innovative ideas that might find it hard to get financing in normal times. Teshkeel could end up being one of these.