Iranians gather during a protest to voice their anger after Esfahan's river dried up due to drought and diversion. AFP
Iranians gather during a protest to voice their anger after Esfahan's river dried up due to drought and diversion. AFP


The Middle East politicises water at its peril



December 23, 2021

Over the past few decades, people in Iran, Iraq and Syria have had plenty of reasons to protest. And on many occasions, at great risk to themselves, they have. Ongoing political oppression, incompetence and corruption has seen to that. But recent ones in the Iranian city of Esfahan are indicative of a new, deeply destabilising trend that will only get worse across all three countries: growing desperation over water scarcity.

The people of Iran, Iraq and Syria have proven resilient in the face of political oppression and economic hardship. But no one can survive without water. It takes just three days to die from dehydration. Even short droughts can devastate crops, livestock and livelihoods.

For years the world has known that the Middle East will be at the sharp end of the climate crisis, but in this corner of the region, there has been a lack of preparation. November's protests in Esfahan focussed on the drying up of the city's river, a historic symbol of its richness and vital to the surrounding environment. Today, the river's absence is a symbol of the government's disastrous water-management policies, based on building an unsustainably high number of hydroelectric dams and diverting flows to the country's religious centres.

The implications of this policy are being felt in Iraq, too. This week, Iraq is sending a technical delegation to Iran to negotiate the release of water across the border, critical to stopping the further desertification of Iraq's marshes and rivers. Earlier this month, the country's ministry of water resources completed procedures to file a lawsuit with the International Court of Justice against Tehran's water policy. While this particular problem starts in Iran, the Iraqi government has also failed to, for example, modernise irrigation methods, another significant drain on the country's supplies.

In Syria, prolonged conflict is aggravating an already water-stressed environment. This is hitting Idlib particularly hard, an area that has seen some of the fiercest fighting over the past decade. In 2019, eight water facilities in the south of the province were bombed in the space of two months, affecting 250,000 people. Millions are now drinking contaminated or disease-ridden water.

All this is happening in a region that is bearing the earliest brunt of rising global temperatures. The climate crisis might be here to stay, but governments can act to manage this difficult reality. These important regional discussions will take place in Abu Dhabi in March at a conference to address the demand gap for clean or desalinated water, and ensure sustainable solutions for water security.

In the meantime, even the simplest measures can relieve people in the most stressed parts of the region. Iran should listen to Iraqi concerns, and work on common approaches. There should be no nationalism in water management, and desperate protestors are not "counter revolutionaries". At this stage their concerns are more than political. They are increasingly about survival.

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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.”

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