London Dispatch / Carina Kamel: Uprisings across the Middle East are a good thing for investors, Goldman Sachs tells Al Arabiya

In his first-ever Arabic media interview, the head of Goldman Sachs Asset Management Jim O’Neill told Al Arabiya that the Middle East and North Africa could become the next BRIC, referring to the acronym he coined a decade ago about high growth economies Brazil Russia India and China.

Mr. O’Neill said that Saudi Arabia, Egypt and Iran all have the potential to “make the leap to growth markets in the foreseeable future,” given their high populations, but he added that leap is provisional on their respective governments following the correct path to sustainable growth and high productivity.

Saudi Arabia is particularly interesting, according to Mr. O’Neill, who explained that although the Kingdom “doesn’t have a lot of people in a global context, the economy is very large by Middle East standards,” which makes it well positioned to become what he called a “Growth Market.”

Mr. O’Neill sat down with Al Arabiya just days ahead of Goldman Sachs’ first ever MENA conference taking place in Dubai on Wednesday, May 25, where the bank will lay out its investment strategy which focuses on emerging economies or “Growth Markets,” as he prefers to call them.

Mr. O’Neill said he views the uprisings across the region positively, adding: “It feels to me as though we are in some kind of Berlin Wall moment for the region,” referring to the fall of the Berlin Wall in 1989 after which East Germany was unified with West Germany and enjoyed a period of growth and prosperity.

He told Al Arabiya he expects the road to growth to be “quite messy,” but thinks we are witnessing “the early days of the region starting to become engaged with the rest of the world.” He added a word of caution saying that the outcome of elections in Egypt slated for September of this year was really important.

Despite his overall optimism for the region, he predicted oil prices will retreat to around $80 a barrel this year and said he felt that price is adequate to cover the budgetary needs and expenditures of oil-exporting nations. He attributed current high prices to the action of speculative investors saying that “I can’t see how oil prices can be justified other than through short periods of intense speculative focus on something above $100 a barrel.”

As for gold, O’Neill explained that the precious metal’s price has historically been linked to fiscal policy in the seven most industrialized nations known as the Group of Seven or G7, specifically, policies of the Federal Reserve in the United States and the Central Bank of Japan. Given that interest rates are expected to rise in G7 nations, and have already risen in the Eurozone in April 2011, he expects the price of gold to come off the record highs reached earlier this year. In fact, Mr. O’Neill said he expects gold to lose its luster and did not see it as a “quality investment,” because of its inability to hold on to current levels.

Perhaps most concerning for Mr. O’Neill is the Eurozone debt crisis plaguing peripheral European economies such as Greece and Portugal. This is exacerbated, in his opinion, by the inability of European officials to resolve the problems thus far. “The longer European policymakers take in trying to find a solution to the Greek dilemma, the greater that risk is of other countries getting sucked into the whole problem,” he said.

Interestingly, Mr. O’Neill sees the current bipartisan debate in Washington over the US debt ceiling, which was reached on May 16 when it hit $14.3 trillion, as nothing more than “political theater,” and said he expected politicians from both sides of the aisle to reach an agreement on how to raise the debt ceiling to avoid a sovereign default. The real challenge for the US economy, Mr. O’Neill said, is how to tighten monetary policy after the end of the Federal Reserve’s money injecting policy known as Quantitative Easing or QE, without threatening the recovery.

(Carina Kamel, Senior Correspondent at Al Arabiya’s London bureau, can be reached at: [email protected], she can be followed on twitter @Carina_bn )