IN DEPTH January 10, 2008, 5:00PM EST
Who's Afraid of Mideast Money?
The men who manage the region's sovereign wealth funds are using the billions from Persian Gulf oil revenues to change the face of global finance

by Emily Thornton and Stanley Reed

Deep inside a fortress of government ministries in Kuwait City, Bader M. Al Sa'ad moves billion-dollar chunks of wealth around the world like chess pieces. Slim and stately, the head of the Kuwait Investment Authority manages $213 billion on behalf of his government. His portfolio, one of the biggest so-called sovereign wealth funds in the world, is constantly replenished with money that flows into Kuwait in exchange for the oil that flows out. As prices top $100 a barrel, Kuwait's coffers are swelling.

With portraits of the emir and crown prince looming above Al Sa'ad's desk, one might expect the 50-year-old money manager to be tight-lipped about his investment strategy. But Al Sa'ad, who has held his post for just four years, is in a chatty mood. He says he wants to invest more in China and Brazil and other hot emerging markets—and less in Britain and France. He's also keenly interested in leveraged buyouts and wants to spend at least $4 billion on big stakes in blue chip companies, especially American ones, on top of the roughly $17 billion he already holds. He's even interested in U.S. mortgage-backed securities, a contrarian play if there ever was one. Al Sa'ad says he has about 15% of the fund in emerging markets, hedge funds, and private equity, up from almost zero when he started. "We have been quiet for a while," he says. "But now we are knocking on doors."

Pounding is more like it. Sovereign wealth funds from the Persian Gulf are changing the face of global finance in ways that unnerve many Westerners. In recent months Gulf funds have bought large chunks of Citigroup (C), the private equity giant Carlyle Group, semiconductor heavyweight Advanced Micro Devices (AMD), planemaker European Aeronautic Defense & Space (EADS), and many other big companies. Gulf funds are also getting into leveraged buyouts, sometimes alongside private equity firms and sometimes by themselves—despite having little experience operating companies. "Large sovereign wealth funds have become major players in private equity, not only as investors but also as competitors," says David Rubenstein, a founder of Carlyle, which sold a 7.5% stake to an Abu Dhabi fund in September. Soon, says Gregory A. White, managing director at Thomas H. Lee Partners, "they will be the industry. We will be working for them."

BusinessWeek recently paid visits to four of the region's most powerful money managers: Kuwait's Al Sa'ad and Dubai's Sameer Al Ansari, Soud Ba'alawy, and David Jackson. Their rise from relative obscurity has been breathtaking; rarely have so few come to control so much, so quickly.

The fund managers insist that Western businessmen and politicians have nothing to fear. Al Sa'ad ticks off a well-rehearsed list of reasons why CEOs should rejoice at the prospect of having Kuwait as a major shareholder. Reason 1: His fund will agree to multiyear lockups, providing long-term capital. Reason 2: Al Sa'ad expresses concerns to CEOs behind closed doors, not in the press. "If I were a CEO, I'd look for stability," he says.

But recent actions by some funds belie those soothing sentiments. The $50 billion Qatar Investment Authority, run by Qatar's Prime Minister, Sheikh Hamad bin Jassim bin Jabir al-Thani, is working with hedge fund activist Nelson Peltz to shake up British beverage company Cadbury Schweppes (CSG). Dubai Holding was so aggressive in its pursuit of OMX Group of Sweden last summer that it ran afoul of regulators there. Even companies that do business with Gulf funds are on alert. Dubai International Capital, which manages a $12 billion fund for Dubai's ruler, Sheikh Mohammed bin Rashid Al Maktoum, flabbergasted Wall Street last fall when its chief, Sameer Al Ansari, shot off letters to Morgan Stanley (MS), UBS (UBS), Goldman Sachs (GS), Citigroup (C), and other top investment banks asking them to pony up $50 million each for a new fund or risk losing future business. Several, including Goldman and UBS, complied. "So far," says Roger Altman, chairman of Evercore Partners (EVR) and a former U.S. Deputy Treasury Secretary, "sovereign wealth funds have been more stabilizing than otherwise. But everyone is waiting to see how this evolves."

SHORT ON EXPERIENCE
Combine the Gulf funds' new, tougher tactics with their staggering wealth and relative inexperience managing companies, and you have the potential for trouble. Six Gulf states—Abu Dhabi, Dubai, Kuwait, Oman, Qatar, and Saudi Arabia—account for nearly half of the world's sovereign wealth fund assets. They control some $1.7 trillion, as much as all of the hedge funds in the world and more than the $1 trillion private equity industry—and Morgan Stanley predicts the total will grow by about $400 billion annually over the next several years. There's even talk that Saudi Arabia may soon unleash a new $500 billion-plus fund. Bankers estimate that Gulf funds earned about $180 billion from their sovereign wealth fund investments in 2007—more than half of the $315 billion they collected in oil and gas revenues.

Wall Street veterans worry in particular that Gulf funds are moving too far, too fast into private equity. Buying and running companies is vastly different from taking passive stakes in them. Even seasoned pros like Henry Kravis of Kohlberg Kravis Roberts have trouble managing a company when its industry hits the skids, debt payments become untenable, and key people jump ship. Nemir A. Kirdar, CEO of Bahrain money management firm Investcorp, says Gulf funds "should rely on professionals." In November, some bankers labeled Qatar's fund an "amateur" after it backed out of a $19 billion deal for British grocery chain Sainsbury at the 11th hour. "They've given Middle Eastern investors a bad name," says one.

The Gulf funds' lack of experience shows in their compensation practices. Historically, they've been unwilling to pay anywhere near as much as private asset managers for top talent, a tendency that has hampered their recruiting efforts and led to high turnover. Al Ansari acknowledges that the Gulf region is "very talent-poor." A senior banker in Dubai says "90% of the people who work in the region are second-rate. Only very recently are experienced individuals coming in."

Such problems wouldn't be so worrisome but for the fact that these massive funds are situated in a handful of tiny, oil-rich city-states in one of the world's most volatile regions. The tiny Gulf emirates rely on the U.S. military for protection from the likes of Iran and Iraq—and they rely on guest workers for much of their labor. It's a precarious situation, to say the least.

The Gulf funds, meanwhile, are nervously preparing for the day when the oil money stops flowing. For decades they mainly used the currency reserves that piled up from oil sales to buy safe investments like U.S. Treasury bonds. Now funds are trying to build the foundations for new, diversified, post-oil economies. To do that they must take more risk.

OUTMANEUVERING MARKETS
Kuwait's Al Sa'ad feels intense pressure to generate returns, satisfy his political bosses, and gain Wall Street's respect. In the 1990s, the fund, which receives about 10% of Kuwait's revenues annually, lost as much as $5 billion in Spanish investments just as plunging oil prices and the fallout from the 1991 Gulf War left the government struggling to balance its budget. "We want to restore [our] name as a professional, global money manager," he says. The fund already generates profits about the size of Kuwait's national budget, but he plans to double its assets.

Al Sa'ad has long sought to outmaneuver markets. His father, Mohammed, was a successful merchant, but finance mesmerized Al Sa'ad, the seventh of 10 children, from a young age. After graduating from Kuwait University in 1980 with a degree in accounting, he got a job as a foreign exchange trader with a local bank, picking up new moves in the U.S. during training stints at Chase Manhattan in New York and the First National Bank of Chicago. In the 1990s, a local investment bank tapped Al Sa'ad to expand its merchant banking division, and his attention shifted to buyouts. In 2003 Kuwait's Finance Minister asked him to run the emirate's investment fund, already one of the biggest portfolios in the world. Al Sa'ad, intrigued with the idea of managing money, accepted. He asked to take a pay cut, he says, to reduce the salary gap with his underlings.

Al Sa'ad keeps the hours of any high-stakes money manager. He typically gets into the office at 7 a.m. and leaves around 3:15 p.m. to have lunch with his wife, Ola Al Mutairi, deputy editor of the women's magazine Osrati, and his five children. Then it's back to the office for several more hours. So far, Al Sa'ad has enjoyed success; his fund returned 13.3% in the fiscal year ended in March, 2007. But he isn't content. "We can be more dynamic," he says.

TAKING A BACKSEAT
The fund seeks to keep the vast majority of its returns in line with traditional market benchmarks like stock and bond indexes—60% of the portfolio is in stocks—while putting a sliver into riskier ventures like private equity and hedge funds. In 2006 it paid $720 million for a chunk of the initial public offering of Beijing's Industrial & Commercial Bank of China, a deal Al Sa'ad says kept him up at night. "If something goes wrong, I'll be under fire," he says. (ICBC's stock has zoomed 156% since the IPO.) Last year the fund invested $300 million in Texas utility TXU alongside private equity giants KKR and TPG. But Al Sa'ad is taking private equity slowly. He admits the fund's 400 employees, mostly civil servants who had limited contact with major buyout firms until recently, don't know how to operate companies. "We don't like to own 100% of businesses," he says.

By contrast, Sameer Al Ansari, manager of Dubai International Capital's relatively small $12 billion fund, displays some of the swagger of a private equity king. A compact, athletic man, Al Ansari, 45, wears designer suits and does business not from a drab civil service complex but sleek, sun-drenched quarters high up in a gleaming office building. His investment capital comes from Sheikh Mohammed's umbrella company, Dubai Holding, which invests 30% of its cash flow in Dubai International Capital and other funds.

Born in Kuwait of Palestinian parents and brought up in Britain, Al Ansari graduated from Loughborough University in 1985 with a degree in accounting and financial management. In demand as an Arabic speaker who could make sense of numbers, he soon moved to Dubai to take an accounting job with Ernst & Young. His work in cleaning up Dubai Aluminum, a large government company beset by problems, attracted the attention of Mohammed Gergawi, a close confidant of Sheikh Mohammed and now chief executive of Dubai Holding. Gergawi hired Al Ansari to be chief financial officer of the Sheikh's executive office, where he helped straighten out the ruler's sprawling business interests and set up Dubai Holding, which now manages most of those assets. After Al Ansari expressed alarm that almost all of the Sheikh's wealth was tied up in real estate, Gergawi gave him the go-ahead to set up Dubai International Capital, to diversify.

Despite his lack of buyout experience, Al Ansari has jumped in headlong, allocating about 60% of his portfolio to private equity. (A quarter is devoted to stakes in large companies and 15% to emerging markets.) In addition to co-investment deals with private equity firms, he has engineered six solo buyouts, including wax museum operator Tussauds Group, which he bought from Charterhouse Capital Partners for $1.6 billion in 2005. (Less than two years later he sold Tussauds to Blackstone Group for $2 billion in cash and a 20% stake in an entertainment company valued at more than $200 million.) Last year Al Ansari, who still speaks with a clipped British accent, nearly scooped up his beloved Liverpool soccer club, but lost out to a North American group that included buyout mogul Tom Hicks.

Al Ansari, like Al Sa'ad, seeks to double the size of his portfolio in a couple of years. To boost his firepower, he has taken on lots of debt from such banks as HSBC (HBC), Barclays, and Royal Bank of Scotland. His Global Strategic Equities Fund, which now holds stakes in Sony (SNE), HSBC, and EADS, borrows $4 for every $1 of its own money. The fund also buys derivatives to limit its losses. One former employee says: "Dubai plays a very shrewd game." But he worries that "it's leverage on leverage on leverage."

Al Ansari spends much of his time hunting up deals abroad. When he's in Dubai he typically spends 10 hours a day in the office, mostly taking meetings with investment bankers and private equity people pitching ideas. He says he's invited to three to six social events a day and usually goes to one or two. "Dubai is a work-hard, play-hard kind of place," he says—for better and for worse. "My career has gone from good to great in the past two years, but my personal life from bad to worse." Al Ansari's two sons, 17 and 14, live with him, while his daughter, 10, lives with his ex-wife. Over lunch at a Lebanese restaurant near his office, he confesses that trotting the globe for buyouts has only added to his exhaustion.

JUICY DEALS
Looking for help in coming up with new deals, Al Ansari last year began courting hedge funds. With the help of JPMorgan Chase he agreed last November to a $1.1 billion, 9.9% stake in Och-Ziff Capital Management (OZM). Al Ansari met with Och-Ziff founder Daniel S. Och several times in New York and London; the two sealed their bargain over dinner at the swank New York restaurant Daniel in a private, glass-walled room overlooking the kitchen. When Och visited Dubai after his firm's November, 2007, IPO, Al Ansari took him to the Al Muntaha restaurant, which rests 700 feet above the Gulf on top of the Burj al Arab Hotel, where rooms start at $2,000 a night. The two talked of Al Ansari's hopes to tap Och's global team for co-investment ideas and deal research, while helping Och-Ziff raise money in the Gulf. "We are very pleased with the relationship at this point," says Och.

Some financiers in Dubai think Al Ansari is in over his head. "He's a very smart guy, but he's not a fund manager by training," says one. While Al Ansari's people say privately that the fund is making 20% annual returns, bankers are skeptical. "I question what that's based on," says a senior Dubai-based investment banker, noting that the portfolio's private equity investments might not be easy to sell in today's turbulent markets. Moreover, the stock prices of EADS and HSBC are down some 20% and 10%, respectively, since Al Ansari bought them, while Och-Ziff has tumbled 23%. Al Ansari stresses that his big stock positions are hedged with derivatives. If HSBC's stock sinks further, he says, he might buy more. Och-Ziff, he insists, is misjudged.

For all the fixation on returns, sometimes a sovereign fund manager's larger strategic goals are just as important. Soud Ba'alawy, 46, a former Citigroup vice-president in Dubai, was tapped in 2000 to become chief investment officer of Sheikh Mohammed's office. His duties have since expanded greatly; he's now chairman of Dubai Group and the point man for the ruler's quest to turn the tiny emirate into the Wall Street of the Middle East. "We want to be the' financial services company in the region," says Ba'alawy of the Dubai Financial Group, one fast-growing wing of Dubai Group that he wants to take public this year for as much as $12 billion.

Unlike the British-tinged Al Ansari, Ba'alawy is still very much a man of the region. In Dubai he wears the traditional white robe and headdress and fasts during the month of Ramadan even when he's on the road chasing deals, which he says is 70% of the time. Intensely private, he resists talking about how much money he manages (insiders peg his returns at around 20% annually), much less his family life. He has two young daughters, but as to the rest he says "Our personal lives are our personal lives." Ba'alawy, a Dubai native, obtained a chartered accounting qualification from a small London school in the mid-1980s, and then returned to Dubai to work for his father's printing business. He joined Citigroup in 1990, rising to treasurer for the Gulf region. "I always loved markets," he says. "I wanted to be in the financial sector from the beginning."

BULKING UP
In 2000, while at Citi, Ba'alawy met Gergawi, the sheikh's right-hand man, who was then running a real estate project called Dubai Internet City. Ba'alawy joined that effort but left a few months later to set up an investment office for the ruler that quickly mushroomed into what is now called Dubai Group, the conglomerate that includes hotel management and financial services.

Over the past two years, Ba'alawy has been wooing financial institutions around the globe to join that growing empire. Using the cachet of his boss, Sheikh Mohammed, as an entrée, Ba'alawy has snapped up a 40% stake in Malaysia's Bank Islam and a 15% chunk of Oman's Bank Muscat. In December, Ba'alawy raised eyebrows when he slapped down $1.1 billion for a 25% stake in Cairo investment bank EFG-Hermes—just two weeks after being contacted by its owner, private equity firm Abraaj Capital, which had paid $500 million for it the previous year. Ba'alawy insists EFG is worth the hefty price.

Ba'alawy's biggest deal came in September, when he agreed to take a 19.9%, $2.1 billion stake in Nasdaq, part of an effort to bulk up the emirate's new Dubai International Financial Exchange, which had languished since its 2006 launch. The deal capped a flurry of maneuvering that started with Ba'alawy's March offer to take a stake in Sweden's OMX Group. But OMX declined and quickly accepted a $3.7 billion offer from Nasdaq. On Aug. 9, Ba'alawy's team quietly took steps to snatch up a 27% stake in OMX shares with the help of investment banks, a move that brought a reprimand from Swedish regulators. The idea, says someone close to the deal, was to make sure Dubai would be taken seriously. Later Dubai made a formal $4 billion offer for OMX, enraging Nasdaq but quelling the Swedish authorities.

A standoff between Ba'alawy and Nasdaq CEO Robert Greifeld seemed likely. But Ba'alawy changed course, reasoning that Nasdaq's big-name brand might be more valuable than OMX. In a series of meetings with Greifeld in New York, London, and Stockholm, the two hammered out a complex deal in which Nasdaq would buy OMX, Dubai would take a stake in Nasdaq, and Nasdaq would take a stake in the Dubai exchange, which would carry the Nasdaq brand. The terms were approved by U.S. regulators in December. "Nasdaq is coming to a market that is still virgin," says Ba'alawy. "They will become an important catalyst for change." A banker involved in the transaction says Dubai was willing to pay a stiff price for a move it considered strategic.

Ba'alawy's team works late hours in the same new building as Al Ansari's crew. One former staffer complains of a "chaotic" atmosphere and high turnover. "The priorities change constantly," he says. "People find it very difficult." Ba'alawy can be brusque, too. He recently barked at a new European recruit during a staff meeting for "needless playing with your BlackBerry to show how important you are."

Westerners are still fairly rare at Gulf funds, some of which have existed since the 1950s. David Jackson, the 41-year-old American chief of Dubai's Istithmar fund, has had a meteoric rise. With degrees from Princeton and Yale's business school, Jackson had spent nine years at Lehman Brothers (LEH), most recently advising on buyout deals in Asia. In 2003 a friend who was advising Sultan Ahmed Bin Sulayem, one of Sheikh Mohammed's closest advisers and chairman of Dubai World, asked Jackson to help him set up an investment fund, subsequently named Istithmar, or "investment" in Arabic, which launched a few months later.

At first Jackson was a one-man show. "It was difficult to get people to return my calls," he says. Jackson made his buyout bones in 2006 when he acquired resort and casino operator Kerzner International for $3.9 billion alongside Goldman Sachs and other partners. Later that year he took a $1 billion stake in London-listed Standard Chartered Bank. Last June he bought a 3% stake in the $20 billion European hedge fund GLG Partners (GLG). And in September his fund bought retailer Barney's, paying $942 million—after having been warned for 18 months that Barney's owner, Jones Apparel Group (JNY), was interested only in bids for the whole conglomerate.

STEP INTO THE VOID
Now, Jackson says he's keen on mortgage companies unfairly tarred by the subprime mess. He's also eyeing stakes in private equity firms along the lines of Abu Dhabi's $1.35 billion stake in Carlyle Group. And he's weighing several co-investment deals with buyout firms.

Once Istithmar buys into a company, Jackson turns up the heat. In 2005, just months after the fund acquired a tiny 3% stake in Indian airline SpiceJet, the company installed a new CEO. "We needed people with more expertise," says Jackson. SpiceJet has since quadrupled its revenues, to $327 million, and plans to nearly double again by 2010. (Istithmar increased its stake to 14.7% last year.) Jackson expects a lot from his own people as well. In one management meeting recently, about a dozen investment officers ran through an array of deals at various stages in industries ranging from live entertainment to finance. Twice, Jackson tossed a box of tissues to team members who confessed that their investments weren't meeting expectations.

A bachelor who says he doesn't even have time for a pet, Jackson spends 40% of his year on the road scouring for deals—sometimes brushing up against fellow Dubai fund managers. He rattles off his record against Al Ansari: "One time we won. Two times they won. One time neither of us won. I don't think of them as any different from when I'm competing with Carlyle or TPG."

Jackson encourages his team, which has swelled to 85, to think thematically rather than engage in the traditional "check-box investing" that other fund managers follow. "I don't want to get into any rules," says Jackson. The GLG Partners deal, for example, was a bet that mutual fund investors will migrate either to cheap index funds or expensive hedge funds. The Standard Chartered deal sought to gain exposure to many emerging markets at once.

As the credit crisis deepens, investment banks and private equity firms are stepping away from dealmaking to nurse their wounds. Gulf funds are eagerly filling the void. "Sovereign funds have been shown every interesting idea in the last quarter," says Jeff Holzschuh, a Morgan Stanley banker who advised buyout firms on the TXU sale. "There is no question that they will change the deal world." But there is a question as to whether the change will be for the better. "This is capital we need desperately," says Felix Rohatyn, former Lazard Frères managing director and U.S. Ambassador to France. "But I don't think we should have any illusions that these are totally benign investments."

With Nandini Lakshman in Mumbai

January 20, 2008
The Construction Site Called Saudi Arabia

By JAD MOUAWAD
RABIGH, Saudi Arabia — THE alarm bell sounded the end of the lunch break here one November afternoon, and suddenly thousands of workers — on foot, on bicycles and in buses — streamed in, seemingly from out of nowhere, and jolted this huge construction site to life.

Amid a forest of cranes, towers and beams rising from the desert, more than 38,000 workers from China, India, Turkey and beyond have been toiling for two years in unforgiving conditions — often in temperatures exceeding 100 degrees — to complete one of the world’s largest petrochemical plants in record time.

By the end of the year, this massive city of steel at the edge of the Red Sea will take its place as a cog of globalization: plastics produced here will be used to make televisions in Japan, cellphones in China and thousands of other products to be sold in the United States and Europe. Construction costs at the plant, which spreads over eight square miles, have doubled to $10 billion because of shortages in materials and labor. The amount of steel being used is 10 times the weight of the Eiffel Tower.

“I’ve worked on many big things in my life, but I’ve never worked on anything this big,” an American project manager mused during a bus tour of the project, called Petro Rabigh, a joint venture of the state-run oil company Saudi Aramco and Sumitomo Chemical of Japan.

Size isn’t the only consideration. The project is Saudi Arabia’s boldest bet yet that this oil-rich kingdom can transform itself into an industrial powerhouse. The plant is part of a $500 billion investment program to build new cities, create millions of jobs and diversify the economy away from petroleum exports over the next two decades.

“The Saudi economy was in idle mode for 20 years,” said John Sfakianakis, the chief economist at SABB, formerly known as the Saudi British Bank, who is based in Riyadh, the Saudi capital. “Today, the feeling here is, ‘We’ve won the lottery; let’s not waste it.’ ”

The kingdom’s lofty economic goals would have been unthinkable without the surge in energy prices that has filled the coffers of oil producers. Oil prices have quadrupled since 2002 and reached $100 a barrel in New York this month.

Persian Gulf countries earned $1.5 trillion in oil revenue from 2002 to 2006, twice as much as in the previous five-year period, according to the Institute of International Finance, a global association of banks that is based in Washington. As the top exporter, Saudi Arabia has been the main beneficiary.

Despite all the recent headlines about Middle East investors bailing out troubled American banks like Citigroup, a growing share of today’s petrodollars are staying at home to finance megaprojects like Petro Rabigh, analysts say. That money is financing the biggest economic boom in a generation, helping to build not only the high-rises of Dubai, where the world’s tallest tower is going up, but also telecommunications networks, roads and universities throughout the Middle East.

Abu Dhabi is planning to spend close to $1 billion for a new museum with the help of the Louvre, in Paris. Dubai’s latest grandiose idea is to build a small-scale replica of the French city of Lyon, complete with residential housing, a museum, a culinary school and a soccer club.

In Saudi Arabia, Riyadh looks like a boom town: sprawling over 40 miles, it is teeming with shopping malls, electronics stores and luxury boutiques. But while times are good today, many Saudis realize that their country is locked in a race against time to create industries that produce more than just oil in order to keep a young and growing population employed. The kingdom, which has a population of 24.5 million, including nearly 7 million foreigners, has what one analyst called a “human time bomb.” About 40 percent of Saudis are under 15, and because the country has one of the world’s highest birth rates, the population is expected to reach nearly 40 million by 2025.

“It has been a social, and therefore a political, imperative of the Saudi government to develop the economy and to create employment opportunities,” said Timothy S. Gray, the chief executive of HSBC Saudi Arabia.

That could well mean that higher oil prices are here to stay. One paradox of modern-day Saudi Arabia is that while it seeks to reduce the importance of petroleum to its economy, it needs those exports more than ever.

TO be sure, the region’s economies are too small to absorb all the oil riches on their own. Too much money is chasing too few assets, analysts say, forcing oil producers to invest some of their revenue abroad and diversify their holdings, either through opaque state-owned investment funds or through direct private investments.

Last year, for example, a fund controlled by the government of Abu Dhabi bought a stake in Citigroup for $7.5 billion, while another run by Dubai’s ruler bought a large share in Sony, the Japanese consumer electronics giant. Sabic, a major Saudi petrochemical company, bought the plastics division of General Electric for $11.6 billion, and the Kuwait Petroleum Corporation bought half of Dow Chemical’s commodity-plastics unit for $9.5 billion.

In recent weeks, other big banks plagued by losses from the mortgage crisis, like Merrill Lynch and Morgan Stanley, have raised tens of billions of dollars from a variety of Middle Eastern and Asian funds, including ones from Kuwait or Saudi Arabia.

According to data compiled by Bloomberg News, overseas investments by Persian Gulf countries reached a record $75 billion in 2007. Arms deals, a time-worn way of recycling petrodollars, remain popular in the region; the United States is pushing for a $20 billion weapons sale to Saudi Arabia, for example. But while oil-rich states are still buying American Treasury bonds or military hardware from the West, analysts say the more significant trend is for a growing share of their investments to be pumped into local projects.

“The vision is to turn the kingdom into a major industrial power by 2020,” said Jean-François Seznec, a professor at Georgetown University who is a specialist in industrial policies in the Persian Gulf. “A billion dollars here and a billion there, and soon you’re talking about real money.”

Projects like Petro Rabigh, Mr. Seznec said, will allow Saudi Arabia to become one of the top three chemical producers in the world within a few years. Unlike Kuwait or Abu Dhabi, Saudi Arabia does not have a sovereign fund responsible for investing the country’s petroleum riches.

Ali Al-Naimi, the kingdom’s energy minister and one of the grand architects of Saudi industrial policy, summed up the country’s goals at the dedication ceremony for Petro Rabigh in 2006.

“I would like to highlight the fact that the Petro Rabigh project is part of a bigger picture,” Mr. Naimi said at the time. “This strategy includes expanding the base of the Saudi economy, diversifying national income sources, attracting international investments and reaping the direct and indirect benefits that these types of projects will accrue to the Saudi citizen.”

The trend to modernize and develop the economy is not entirely new, of course. Saudi Arabia has been trying to diversify itself for over two decades. It famously tried to make the desert bloom in the 1970s and ’80s by investing heavily in water desalinization plants and growing crops.

But a long period of low oil prices, from the mid-1980s through the 1990s, stalled much of its effort. The government still relies on petroleum exports for 90 percent of its revenue; oil sales account for half of the country’s gross domestic product.

The current level of oil prices has given the country’s industrialization strategy a new spring, allowing the government to improve its finances while investing in large infrastructure projects. The Saudi G.D.P. has doubled in the last five years. Not counting oil, economic growth has been 4 percent to 6 percent a year since 2002.

Oil has not been the only engine of growth. The country’s private sector has also thrived and now accounts for 45 percent of the economy, compared with just 20 percent about 20 years ago. Since the 1990s, the share of private Saudi money invested at home has doubled, and now represents about 20 percent of total holdings, according to SABB.

“There is a lot of money looking for investment opportunities,” said Mr. Gray at HSBC.

The financial turnaround has been spectacular. In 1999, the Saudi government’s debt amounted to 120 percent of G.D.P. That number has dropped to less than 20 percent as the government paid back its obligations and put its finances in order.

Last year, the government recorded a budget surplus of $48 billion, five times the surplus of 2003. This year, it has built its biggest budget to date around a conservative estimate of oil prices of $45 a barrel; that will almost certainly yield a substantial surplus at the end of the year.

All of that is a far cry from the 1990s, when oil averaged $20 a barrel, thanks mostly to Saudi concerns at the time to keep oil prices low.

One of the most noticeable illustrations of the industrialization push is a plan championed by King Abdullah, the 83-year-old Saudi monarch, to build six new cities throughout the country — including the King Abdullah Economic City on the western coast, near the city of Rabigh; the Knowledge Economic City, near Medina; and the Prince Abdulaziz bin Mousaed Economic City, in the north.

The intent is to create industrial centers that double as housing and commercial hubs for the country’s young and growing population. The Saudi Arabian General Investment Authority, a government agency, expects these cities to add $150 billion to the country’s G.D.P. by 2020, create one million new jobs and be home to as many as five million people.

Drawings of these new towns depict a cross of the futuristic “Blade Runner” and traditional Arabic design. But the new cities are also expected to become new industrial centers that focus on four main sectors: petrochemicals, aluminum, steel and fertilizers.

According to SABB, these cities together will have four times the geographical area of Hong Kong, three times the population of Dubai, and an economic output equal to Singapore’s. Other plans include building four refineries, two petrochemical plants and a modern graduate-level university with an endowment of $10 billion.

THE frenzied growth of the economy has had some serious downsides. Inflation has been rampant in the last year; food prices and rents have risen sharply. Traffic jams in Riyadh and other Saudi cities have become a constant affliction, while real estate values have soared and the construction sector is strained by a lack of workers.

The stock market, meanwhile, has yet to recover from its collapse two years ago. From 2000 to early 2006, the local Tadawul stock index surged from 2,000 points to a peak of 19,870, a return of almost 900 percent. But the overvalued market went into a panicky free fall that caused it to lose two-thirds of its value in a matter of months.

After being flat for most of 2007, the market has recovered in the last quarter, gaining more than 40 percent. Still, its value is only about half that of its peak two years ago.

One reason for the partial rebound was anticipation of the sale of shares in Petro Rabigh earlier this month. For the first time, Saudi investors had a chance to buy a major asset linked to Aramco. The initial public offering, for 25 percent of Petro Rabigh, raised $1.23 billion and was the largest stock sale in Saudi history. The stock is expected to begin trading at the end of the month.

The project itself is still about a year away from completion. Once in operation, it will produce 2.4 million tons of plastics a year. This venture, along with dozens of other megaprojects, will firmly anchor Saudi Arabia as one of the world’s top suppliers of chemical products as well as oil.

“Saudi Aramco has a vision of itself as Exxon Mobil,” Mr. Seznec of Georgetown said, “except much bigger.”

Boomtime in lands of oil and money
By Roula Khalaf
Published: November 19 2007 13:08 | Last updated: November 19 2007 13:08
The Gulf region has always produced its share of high-profile financiers. But after four years of oil-fuelled boom, their numbers, and wealth, have been steadily increasing, creating a class of investors who flex their muscles at home – and make waves in international markets.

While sovereign wealth funds attract most attention, the appetite of companies, private investors, and family funds for expansion in their domestic markets, in the wider region and beyond has also mounted.

This has drawn western investment bankers to the Gulf and fuelled an unprecedented growth in Islamic financial instruments. After last year’s stock market crash, foreign institutional investors also have been eyeing the region, deepening underdeveloped capital markets and boosting the recovery in the exchanges open to foreigners, such as the United Arab Emirates.

Flush with liquidity, the region has escaped much of the credit turmoil that has swept financial markets in recent months. There have, of course, been casualties – a Qatari-backed fund cited credit market conditions when it this month abandoned its bid for J Sainsbury, the UK supermarket group. But analysts say the impact of the global turbulence has been limited and the banking sector has been largely shielded.

Although the total size of direct acquisitions abroad by Gulf investors (public and private) over the past three years is only about $65bn, an increasingly aggressive attitude by government-backed funds – Qatar and Dubai went head-to-head this year in a battle for European exchanges – has dramatically raised their profile.

On one hand, the vast pool of capital and Gulf investors’ tendency to favour long-term investments have put them on the radar screen of western companies, some of which are now actively seeking investors from the region.

On the other, the heated activity has intensified western governments’ unease about the lack of transparency of sovereign wealth funds, and their potential for using financial power to advance political ambitions.

The rush of petrodollars, and the search for ways of recycling them, is also creating financial centres within the region, with Dubai emerging as a leading hub, where international banks, private investment funds and private equity firms are setting up a regional base.

Dubai’s diversification strategy – its oil reserves have been on a steady decline – and its foray into services has encouraged neighbours to follow a similar path, stimulating the growth of a financial services industry.

Tristan Cooper, senior analyst at Moody’s, the rating agency, says Qatar and Dubai have been competing for international acquisitions partly to promote their brand and help establish themselves as financial centres. The development of the financial industry and emergence of a new class of Arab investors is, above all, a result of the gradual shift in priorities.

In the first phase of the liquidity boom, governments used their pool of new savings to pay down debt, clean up their balance sheets, and spend on basic infrastructure. Over the past year they have moved into a more vigorous investment phase.

“The first phase of the boom was about spending. The second is about investing,” says Kito de Boer, managing director for the Middle East at McKinsey, the consultancy.

The continued strength of the oil price, which has been inching closer to the symbolic $100 per barrel mark, suggests the progress will continue, if not intensify.

According to the International Monetary Fund, oil exports of the six states making up the Gulf Co-operation Council – Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Oman and Bahrain – should reach $400bn this year, and $450bn next year, on conservative oil price assumptions. The cumulative current account balance since 2003 is set to reach $700bn this year and $900bn in 2008.

Mohsin Khan, head of the Middle East region at the IMF, says the GCC will this year need to place $200bn in international instruments, but he estimates that the bulk of the oil windfall will be invested in the region, where more than $1,000bn of projects are planned.

“Mega-projects still have to come online and most of the money will go there,” says Mr Khan.

A study by McKinsey, meanwhile, estimates that over the period 2005 to 2020, the Gulf is likely to have a $3,000bn oil surplus, half of which will stay in the region, with another $750bn or so of capital going into investments in the wider Middle East and North Africa. The rest is likely to go into wealth funds and portfolio investments.

Beyond the headline-grabbing acquisitions, the exact destination of most Gulf capital remains a mystery. But bankers and analysts say government funds and private investors continue to diversify across markets, currencies, and asset classes. They are also becoming more adventurous.

While Saudi Arabia is sticking to its traditional conservative approach, placing, say analysts, much of its oil surplus in western fixed-income securities, other regional states, including Abu Dhabi, are more heavily invested in equities.

The Abu Dhabi Investment Authority, the emirate’s sovereign wealth fund, has assets worth between $250bn and $875bn, according to analysts, and it is also said to be one of the biggest investors in hedge funds.

The weakening dollar is bound to have accelerated an already perceptible shift into euros. But the IMF’s Mr Khan says the Gulf is not dumping dollars and the bulk of investments is still dollar-denominated.

“The [governments’] view is there’s no other market in the world that can handle this kind of money,” he says.

“The Saudis have to invest $100bn this year and the US market is the only one that can take money of that size.”

Another trend gaining momentum is intraregional mergers and acquisition activity, with companies such as Dubai’s Emaar, the real estate development giant, leading the way.

“Gulf investors are going very big on North Africa – in Morocco, foreign direct investment commitments over the next decade from the United Arab Emirates alone are to the tune of one-third of the country’s gross domestic product,” says Florence Eid, partner at Pantera Capital Management, a global hedge fund.

Perhaps the least visible yet important development is the growing sophistication of Middle East investors, who are now more comfortable with complex financial products and more efficient in the use of their capital.

As Anais Faraj, Nomura’s head of Middle East investment banking, says, investors now want more sophisticated structured products when they borrow.

On the investment side, meanwhile, Gulf funds are trying hard to shed the image, often entertained by bankers, that they are willing to pay more than western investors and willing to receive lower returns.

“Some companies come to us and say can you get us Middle East investors to take a 30 per cent stake, no board seat, and just sit quietly. But people mistake long-term investing with low performance,” says one analyst in the region who asked not to be named.

“Sovereign funds or family operations have a 20-year horizon but they want to make 15 per cent to 20 per cent a year. Their expectations are as aggressive as anyone else’s.”

Copyright The Financial Times Limited 2008

The 'Lone Wolf' Disconnect

January 30, 2008 | 1546 GMT
By Fred Burton and Scott Stewart

The idea that a lone individual will appear seemingly out of nowhere to launch a horrific terrorist attack sends shivers down the spines of public security planners and law enforcement officers — not to mention average citizens. Because of their unique traits, “lone wolves” present very real challenges to the law enforcement and security professionals charged with guarding against such threats.

However, with the road from desire to actual destruction fraught with obstacles, the lone-wolf terrorist — one capable of causing mass casualties — is a rare individual indeed.

The flames of fear regarding lone wolves are fanned by the near-constant bantering about such operatives in radical circles, in movies and books and even in analyses pertaining to domestic and international terrorism. For many years now, domestic radicals such as neo-Nazi Tom Metzger and former Klansman Louis Beam have championed the “leaderless resistance” model of operation. Beam’s 1992 essay, “Leaderless Resistance,” has been widely embraced by many on the radical right as the definitive work on the subject and has been translated into many languages.

In his essay, Beam envisions a two-tiered approach to revolutionary struggle. One tier would be the above-ground “organs of information,” who would “distribute information using newspapers, leaflets, computers, etc.” The organs of information were not to conduct any illegal activities but rather to provide direction for lone wolves, as well as issue propaganda for recruitment purposes. The second tier would be made up of individual operators and small “phantom” cells that would conduct attacks. These people were to remain low-key and anonymous, with no connections to the above-ground activists. Of course, in 1992, Beam likely never imagined how the Internet would become an almost perfect medium for the organs of information to disseminate information to the detached, anonymous lone wolves.

In many ways, the radical Islamist world also has embraced this operational model and the Internet technology. Scores of Web sites dedicated to serving as jihadist organs of information aim to radicalize individual Muslims and then equip these radicalized individuals with information on how to conduct terrorist attacks. Al Qaeda franchises even have produced online magazines, such as Maaskar al-Battar (Al-Battar Training Camp), which was produced by al Qaeda’s Saudi node. These magazines are designed to further support radical ideology, teach individual radicals how to train for jihad and provide guidance on how to surveil and select targets — and even how to properly employ a number of weapons systems.

However, in spite of the fact that the concept of leaderless resistance has been publicly and widely embraced in both the domestic terrorism and jihadist realms, few terrorist attacks have been perpetrated by lone-wolf operatives. In fact, we have seen more mentally disturbed lone gunmen than politically motivated lone-wolf terrorists. A main reason for this lack of operatives in the political realm is the disconnect — the lack of translation from theory to action.
Definition of a Lone Wolf

It is important to define the term “lone wolf” because many people — both in the militant realm and in law enforcement and intelligence circles — misuse it or use it imprecisely. A lone wolf is a person who acts on his or her own without orders from — or even connections to — an organization. The theory is that this distance will prevent disclosure of attack planning to informants or technical surveillance and therefore provide superior operational security.

A lone wolf is distinct from a sleeper operative in that a sleeper is an operative who infiltrates the targeted society or organization and then remains dormant — sometimes for quite some time — until being activated, perhaps by a prearranged signal or a certain chain of events. A lone wolf is a standalone operative who by his very nature is embedded in the targeted society and is capable of self-activation at any time.

Most militant groups do not have the resources or patience to launch a true sleeper operation. While militant groups do frequently utilize covert operatives, such as the 9/11 attackers, we are unaware of any instance in which a militant group ran a true sleeper cell operation. (Most of the sleeper operations we know of involve attempts at international espionage.) Clearly, most covert militant operatives engage in some sort of operational activity and do not remain dormant. One cannot carry out operational activities and be a sleeper.

Also, it must be remembered that a sleeper — or other covert operative, for that matter — is trained and dispatched by an organization. The existence of this connection to an organization means that the operative cannot, by definition, be a true lone wolf.

Al Qaeda and its jihadist cousins and progeny across the globe have used a number of different operational models, some of them quite decentralized. However, even decentralized grassroots operatives, such as the London Underground attackers, have contact with an organization and so are not, by definition, lone wolves.

Some lone wolves are ideologically motivated, some are religiously inspired, some are mentally disturbed and still others are influenced by a combination of these factors. Our focus here is on politically or religiously motivated attackers, not on mentally ill individuals motivated for other reasons (such as Virginia Tech shooter Seung-Hui Cho). Certainly such individuals create terror during their rampages, but they are not conducting politically motivated terrorist attacks. We distinguish between lone wolves and “lone nuts” because, although many politically motivated attackers do have some degree of mental illness, rational and irrational individuals operate differently. Mentally disturbed individuals are far more likely to self-radicalize in a vacuum and have less concern for their own safety than do most politically motivated attackers. This lack of concern for their own safety often helps them to overcome their lack of skill.
Easier Said Than Done

The rubber meets the road when potential attackers try to place lone-wolf theory into action. Like much political theory, or even business theory, it often is easier to design a system than it is to apply it to a real-world situation — one that involves fallible people.

One of the biggest problems for lone-wolf operators is acquiring the skills necessary to conduct a successful terrorist attack. Perhaps this is one reason suicide bombers rarely are lone wolves; there simply is too much involved in preparing for such an attack.

In his essay on leaderless resistance, Beam wrote, “It becomes the responsibility of the individual to acquire the necessary skills and information as to what is to be done.” This, of course, is an obvious condition of leaderless resistance — and it is easy enough to write. But acquiring these skills in the real world can pose quite a daunting challenge. (As a decorated Vietnam War veteran, Beam likely did not realize how difficult it might be for someone lacking his military and combat experience to pick up those skills.)

In fact, some of the most successful lone-wolf assailants, including Olympic bomber Eric Rudolph, had served in and been trained by the military. Some people consider Oklahoma City bomber Timothy McVeigh an example of a military-trained lone wolf, but his possible association with the Aryan Resistance Army, his connections to The Covenant, the Sword and the Arm of the Lord group in Elohim City, Okla., and his connections to like-minded individuals — including Michael Fortier and Terry Nichols — suggest he was a grassroots operative and not a truly isolated lone wolf.

Military training is not a necessity for lone-wolf success. Joseph Paul Franklin carried out a series of killings (perhaps as many as 20 in several states), robberies and arsons from 1977 to 1980 in an attempt to ignite a race war in the United States. His attempts to assassinate high-profile targets Vernon Jordan and Larry Flynt failed, though he seriously wounded both of them and left Flynt paralyzed.

Even though many Web sites and military manuals provide instruction on such things as making bombs and marksmanship, there is no substitute for hands-on experience in the real world. Playing the neo-Nazi video game “Ethnic Cleansing” or similar games for hours will not automatically make a person an expert tactical shooter. Gaining such expertise requires practice. Intellectual prowess also is no substitute for experience. For example, even a genius like Unabomber Theodore Kaczynski had to do much experimentation in order to improve the design of his explosive devices. Of the 16 devices Kaczynski sent, several either did not explode or did not function as designed. In the end, Kaczynski’s 18-year bombing campaign killed only three people.

Because of the difficulty of successfully manufacturing (in Kaczynski’s case) or even stealing (in Rudolph’s case) effective explosives, many would-be lone wolves attempt to procure explosives or military weaponry. It is at this stage, when the lone wolf reaches out for assistance, that many of these individuals have come to the attention of law enforcement. One such case was Derrick Shareef, who was arrested in December 2006 while attempting to trade stereo speakers for hand grenades and a pistol he sought to use in an attack against the CherryVale shopping mall in Rockford, Ill. The person Shareef approached to help him obtain the weapons happened to be a police informant.

Immaturity and lack of common sense also are significant hurdles for some would-be lone-wolf attackers. For instance, a person who attempts to buy an illicit fully automatic weapon when he could easily — and legally — obtain a less expensive semiautomatic version of the same weapon clearly is influenced by Hollywood and does not understand the effectiveness of controlled, sustained fire versus the spray-and-pray shooting he sees in the movies or on TV. As Franklin and several mentally disturbed shooters have demonstrated, automatic weapons are not needed to inflict carnage.

Another consideration is that the process of radicalization — to the point that a person undertakes a terrorist attack — rarely occurs in a solitary setting. Many individuals require the feedback and encouragement of like-minded individuals to help them reach that point. And this group dynamic crosses ideological divides. It is seen in gangs of racist skinheads and radical Jews as much as it is in jihadists. In many cases that first appear to involve a lone wolf, further investigation shows that the person’s activities were motivated and facilitated by others. Only certain types of individuals can go through this process of radicalization and indoctrination and then motivate themselves to take violent action outside of a group dynamic. Franklin, Kaczynski and Rudolph, for example, tended to be loners even before they became radicalized.
Related Special Topic Pages
Surveillance and Countersurveillance
Terrorist Attack Cycle

Furthermore, even if someone can cross the hurdle of self-radicalization to the point that he is willing to conduct an attack, and even if he can build effective explosive devices or shoot a gun, he still must have other subtler abilities — street skills — that are difficult to master without practice and actual training. Perhaps the most significant of these street skills is surveillance tradecraft.

Although radical Web sites and online training magazines provide written instruction in surveillance, mastering the complex and subtle set of skills required to be a good surveillance operative takes a great deal of training and practical experience. It is not impossible for someone to develop and hone these skills on his own, but it is extremely difficult. Even Rudolph, a lone wolf who practiced excellent operational security and had good bombmaking and wilderness-survival skills, ultimately was captured because he lacked street skills. It was his suspicious behavior while on a street that caused a citizen to follow him back to his truck and report the vehicle’s license tag to the police.

While the fictional and theoretical versions of lone-wolf operatives can be terrifying, real-life examples demonstrate that not only are such attackers fairly rare, but the constraints their isolation imposes on them (in acquiring weapons and training) usually limits the amount of damage they can do. Moreover, a lone wolf who reaches out for external assistance or training eventually finds himself interacting with other militants — and then he no longer is considered a lone wolf

Give Gaza to Egypt

by Daniel Pipes
Jerusalem Post
January 30, 2008
http://www.danielpipes.org/article/5426

Startling developments in Gaza highlight the need for a change in Western policy toward this troubled territory of 1.3 million persons.

Gaza's contemporary history began in 1948, when Egyptian forces overran the British-controlled area and Cairo sponsored the nominal "All-Palestine Government" while de facto ruling the territory as a protectorate. That arrangement ended in 1967, when the Israeli leadership defensively took control of Gaza, reluctantly inheriting a densely populated, poor, and hostile territory.

Nonetheless, for twenty years Gazans largely acquiesced to Israeli rule. Only with the intifada beginning in 1987 did Gazans assert themselves; its violence and political costs convinced Israelis to open a diplomatic process that culminated with the Oslo accords of 1993. The Gaza-Jericho Agreement of 1994 then off-loaded the territory to Yasir Arafat's Fatah.

Those agreements were supposed to bring stability and prosperity to Gaza. Returning businessmen would jump-start the economy. The Palestinian Authority would repress Islamists and suppress terrorists. Yasir Arafat proclaimed he would "build a Singapore" there, actually an apt comparison, for independent Singapore began inauspiciously in 1965, poor and ethnically conflict-ridden.

Of course, Arafat was no Lee Kuan Yew. Gazan conditions deteriorated and Islamists, far from being shut out, rose to power: Hamas won the 2006 elections and in 2007 seized full control of Gaza. The economy shrunk. Rather than stop terrorism, Fatah joined in. Gazans began launching rockets over the border in 2002, increasing their frequency, range, and deadliness with time, eventually rendering the Israeli town of Sderot nearly uninhabitable.

Faced with a lethal Gaza, the Israeli government of Ehud Olmert decided to isolate it, hoping that economic hardship would cause Gazans to blame Hamas and turn against it. To an extent, the squeeze worked, for Hamas' popularity did fall. The Israelis also conducted raids against terrorists to stop the rocket attacks. Still, the assaults continued; so, on January 17, the Israelis escalated by cutting fuel deliveries and closing the borders. "As far as I'm concerned," Olmert announced, "Gaza residents will walk, without gas for their cars, because they have a murderous, terrorist regime that doesn't let people in southern Israel live in peace."

That sounded reasonable but the press reported heart-rending stories about Gazans suffering and dying due to the cutoffs, and these immediately swamped the Israeli position. Appeals and denunciations from around the world demanded that Israelis ease up.



Gazans crossing into Egyptian territory on January 23 through a breach in the 13-meter tall fence.Then, on January 23, Hamas took matters into its own hands with a clever surprise tactic: after months of preparation, it pulled down large segments of the 12-km long, 13-meter high border wall separating Gaza from Egypt, simultaneously winning goodwill from Gazans and dragging Cairo into the picture. Politically, Egyptian authorities had no choice but uneasily to absorb 38 wounded border guards and permit hundreds of thousands of persons temporarily to enter the far northeast of their country.

Israelis had brought themselves to this completely avoidable predicament through incompetence – signing bad agreements, turning Gaza over to the thug Arafat, expelling their own citizens, permitting premature elections, acquiescing to the Hamas conquest, and abandoning control of Gaza's western border.

What might Western states now do? The border breaching, ironically, offers an opportunity to clean up a mess.

Washington and other capitals should declare the experiment in Gazan self-rule a failure and press President Hosni Mubarak of Egypt to help, perhaps providing Gaza with additional land or even annexing it as a province. This would revert to the situation of 1948-67, except this time Cairo would not keep Gaza at arm's length but take responsibility for it.

Culturally, this connection is a natural: Gazans speak a colloquial Arabic identical to the Egyptians of Sinai, have more family ties to Egypt than to the West Bank, and are economically more tied to Egypt (recall the many smugglers' tunnels). Further, Hamas derives from an Egyptian organization, the Muslim Brethren. As David Warren of the Ottawa Citizen notes, calling Gazans "Palestinians" is less accurate than politically correct.

Why not formalize the Egyptian connection? Among other benefits, this would (1) end the rocket fire against Israel, (2) expose the superficiality of Palestinian nationalism, an ideology under a century old, and perhaps (3) break the Arab-Israeli logjam.

It's hard to divine what benefit American taxpayers have received for the US$65 billion they have lavished on Egypt since 1948; but Egypt's absorbing Gaza might justify their continuing to shell out $1.8 billion a year.

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