A mirror reflects a computer screen displaying binary code in Taipei, Taiwan. EPA
A mirror reflects a computer screen displaying binary code in Taipei, Taiwan. EPA
A mirror reflects a computer screen displaying binary code in Taipei, Taiwan. EPA
A mirror reflects a computer screen displaying binary code in Taipei, Taiwan. EPA

The future of choke points


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A choke point is defined as a point of congestion or blockage. We all encounter such disruptions going about our daily business – be that on the roads, in busy shopping malls or queueing in a coffee shop for our morning latte. But it is in the geopolitical context that they present a far more complex conundrum for governments and states.

As The National reported yesterday, a Chatham House report identifies 14 major choke points, the shipping lanes through which commerce courses, around the world. The London think-tank’s report also finds that only one of these choke points – the Strait of Gibraltar – has not seen a major disruption in the past 15 years, although the occasionally simmering row between UK and Spain over Gibraltar may one day upend that statistic.

It is, perhaps, this region’s misfortune (or good fortune) to be home to a number of critical points: the Suez Canal, a source of billions of dollars of revenue each year for the Egyptian government, is still, when it comes down to it, just a thin ribbon of water that remains vulnerable to terrorism. Bab Al Mandeb Strait between Yemen and Djibouti has regularly been preyed upon by pirates. Closer to home, Strait of Hormuz, through which 17 million barrels of oil are transited every day, is a keenly watched space. Over the years, governments have been able to mitigate some of the risks posed by choke points through policy and programmes. The UAE built an oil pipeline to Fujairah to reduce the number of oil shipments through the Strait.

But governments and states need to start thinking about choke points beyond the realms of sea and land as this week’s cyberattack on western Europe and last month’s WannaCry ransomware outbreak underscore. The choke points of the future are more likely to be identified as wherever clusters of sophisticated hackers reside or work. This week those places were Ukraine and Russia; last month the hack emanated from Asia. Previous hacks began in North Korea. The problem for policymakers is that digital choke points keep shifting. To keep track, policy must too.

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The panel’s 2017 report followed a trail to West Africa where large sums of cash and gold were hidden by Abdullah Al Senussi, Qaddafi’s former intelligence chief, in 2011.

Cases filled with cash that was said to amount to $560m in 100 dollar notes, that was kept by a group of Libyans in Ouagadougou, Burkina Faso.

A second stash was said to have been held in Accra, Ghana, inside boxes at the local offices of an international human rights organisation based in France.

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Who's who in Yemen conflict

Houthis: Iran-backed rebels who occupy Sanaa and run unrecognised government

Yemeni government: Exiled government in Aden led by eight-member Presidential Leadership Council

Southern Transitional Council: Faction in Yemeni government that seeks autonomy for the south

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”