Davos Q&A: Cheap Oil ‘Another Straw on the Camel’s Back’ for Struggling Emerging Markets

PwC's chairman on why CEOs fear the Islamic State and how cheap oil will transform the Middle East.


More than two-thirds of corporate CEOs around the world are concerned about the growth prospects of their own companies and see risky times ahead, according to a survey released earlier this week by PricewaterhouseCoopers. On the sidelines of the World Economic Forum in Davos, Bob Moritz, the tax consultancy’s chairman and senior partner, explained why the Islamic State has business leaders spooked, why the Middle East is in trouble, and why more attention should be paid to India. (Interview edited for length and clarity).

FP: Explain to me why the Islamic State is going to impact business. It’s small and relatively contained.

Moritz: It causes the level of uncertainty on the things I can’t control to go up. Even the stuff I can control, it causes me to doubt how much.

For instance, an organization is investing about $2 billion in Europe. The CEO and board conversation very much centered around, ‘Have you done a political risk assessment as to where I want to spend money, time and energy?’ They want to understand the terror risks that might be coming. How good is the organization in that particular state or country, in terms of protecting its interest if something happens? It caused the CEO not to change dramatically, but definitely change his investment philosophy.

FP: Is the era of $100 barrel of oil a day over?

Moritz: I don’t know if it’s over. For the foreseeable future, you’re not going to see $100 per barrel. But the natural cost of drilling, the exploration, the delivery, will justify a higher than $26 per barrel number. Having said that, I do think you’re going to have political and geopolitical issues that will naturally force that number down, when you look at Iran.

FP: What’s the impact of this on emerging markets, many which rely on energy to grow?

Moritz: Take a Venezuela or Argentina. There was not a solid enough foundation in some of the countries, politically and economically. This is another straw on the camel’s back that makes things a hell of alot worse.

Shift then to Russia. They are a little different because they have always been on the prominent stage in the world order, and now, because of that price, is not.

Let’s go to the Middle East, where I think it’s really interesting. At $100 per barrel, there was plenty of cash flow to fund tremendous infrastructure change to deal with some systemic issues like the lack of fresh water, and other needs of the country in terms of for purposes of education, health care, defense, security. At $20-odd some bucks a barrel, they have to start thinking about tax codes, for the first time ever in some places. They have to start thinking about, ‘How am I going to leverage technology different to find fresh water because before, I had plenty of infrastructure to dig deep to get fresh water from wells, but it would cost me a hell of a lot of money to do it?’ They have to come up with a more cost-efficient way to do it.

FP: Where are the areas that are flying under the radar, in terms of geopolitical risk?

Moritz: You have to look at South America, outside of Brazil. When you look at South America in general, in terms of is it connected enough to the world and Brazil and Mexico, that’s another question mark.

FP: Where do we stand a year from now, in terms of the U.S. and global economy?

Moritz: I think you probably muddle your way through it for the next year. You look at OK growth out of the U.S.. I don’t think it will change that dramatically. There’s still enough momentum and tailwinds to carry us through part of the year. I’m not sure if it will for all of the year.

What’s concerning is people’s general morale. Because of all the negative news, because of the uncertainty in political elections, negatively will weigh on people.

Having said that, the U.S. is a relative gain with the rest of the world. It’s still the number one investment area where CEOs want to invest.  

FP: What else should I be paying attention to?

Moritz: India. India has a tremendous amount of momentum within it right now. The rest of the world is not yet convinced. Can [Indian Prime Minister Narendra] Modi deliver the goods? He’s started some things. If he can sustain it and do some things and get good results, it will boost confidence for outsiders who want to more in India.

Photo Credit: Andres Cristaldo Benitez/EPA

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