Capital Pirates Part I [Archives:2001/07/Business & Economy]

Dr. Najat Mohamed Juma’an 
Who are the capital pirates? What are their goals? How did they emerge? What is their effect on Yemen’s national economy? These are the questions that I will try to answer in this article concerning one of the most significant challenges to investment, capital pirates. 
First of all, there are two kinds of capital. The first is the capital of Yemeni expatriates in exile. The second is capital sent from Yemen to other countries overseas, while its owner stays in Yemen and exerts a lot of effort to build up wealth and assets but sends most of it -if not all of it- abroad and starts investing it out of the country. Unfortunately, neither kind of capital is being used to invest locally in Yemen. 
Asset pirates emerged recently as a number of influential multi-millionaire individuals, representing international banks that have offices all over the world and in our region especially in Dubai and the Gulf countries. These pirates look after the capital of businessmen in developing countries and encourage them to invest their assets in their gigantic banks. These banks have many different ways of investing this capital and one of these ways is the traditional investment technique of putting these assets into already successfully run investments in other countries, which provide an attractive return of profit for the banks. 
These pirates flex their muscles by showing their huge shares of stocks in worldwide markets. These stocks are mainly created by depositing in foreign countries (deposits under demand), buying shares for international companies, and investing in financial reserves constructed by these banks to ensure a certain level of profit and with a reasonable risk. These capital pirates or banks have reached a tremendously high level of creativity despite the fact that they started as normal traditional banks. A good example of the intelligence of these pirates is their approach to conservative Islamic investors. They used Islamic investment methods accepted by our traditional Islamic society to attract the capital of businessmen in Islamic countries to invest in these supposedly Islamic investments. 
This unique and distinguished method of financial administration enabled these pirates to collect assets and send them to other countries, which in turn serve as a fertile environment for the growth and prosperity of these national assets. At the same time, this costs the national economy part of its capital, which could have been used locally in national investments with reasonable benefit for the economy in terms of providing job opportunities etc., and could also have provided considerable financial profit. 
Coming to the bright side, there were shiny examples of national projects that were built using national capital that pirates failed to attract and take out of the country. Many Yemeni companies grew and developed in recent decades on Yemeni soil, challenging the various attractions of these pirates. But when we look at the picture from a different angle, we realize that the companies that resisted the attractions of the pirates and decided to use their capital in local projects got more revenues and profit than those that decided to use their capital in the international banks. In fact, it is no surprise that in the early years of their operations, these pirates actually gained a great deal of profit from their investments or partnerships with successful companies operating in developing countries. 
In page 51 of the book by Ramzi Zaki, “Despotic Liberalism” published in 1993, it is mentioned that many international companies started investing in developing countries and gained profits that were 150% more than what they used to get in developed countries. According to the book, many international companies gain an incredible profit of almost 40% of total capital per year. 
However, just as these pirates started investing in developed countries, they caused severe damage to developing countries. The undeniable fact that more investments exist in developed countries is truly a disadvantage for developing countries, and that the pirates we are talking about use most of their shares and stocks operating in developing countries. This means that if Yemeni businessmen decide to send their capital to these pirates, they are certainly depriving their country from revenues that could have been gained if the capital had been used in national investments. 
In other words, when investors of developing countries invest in developed countries they actually benefit these rich countries in terms of providing working opportunities, cash flow, reducing inflation, and increasing productivity level. Obviously this leads on the other hand to the increase in inflation, unemployment, and reduction of cash flow in developing countries, which is in fact the source of the capital in the first place. 
Next Week in Part II: Identifying and solving the problem 

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