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The Buzz

Morning briefing: 1 May 2013

by Executive Staff May 1, 2013
written by Executive Staff

Economics and Policy

Lebanon has officially launched the first oil and gas licensing round as officials warned that any delay in issuing the decrees by any new Cabinet could postpone the offshore drilling and exploration in the east Mediterranean.

More from The Daily Star

 

Egypt’s economy is poised to grow by 3 percent in the fiscal year ending June 2014, a poll has suggested.

More from Reuters

 

Libya is aiming to carry out sensitive fuel market reforms and end all subsidies within three years, the country’s oil minister has said.

More from The Daily Star

 

Abu Dhabi is set to sign a deal to invest a reported $1.5bn in the UK alternative energy market, the UK’s Department of Energy & Climate Change has confirmed.

More from Arabian Business

 

The head of Lebanon’s National Audiovisual Media Council has urged Central Bank Governor Riad Salameh to help radio and TV stations obtain soft loans from commercial banks to survive.

More from The Daily Star

 

Companies and Business

Royal Dutch Shell has beaten France’s Total to a multi-billion-dollar project to develop a tricky gas field in Abu Dhabi.

More from Reuters

 

Emirates Aluminium has completed a significant portion of the $4 billion dollar fundraising to expand its smelter development, with the remaining debt to be finalized in the coming weeks.

More from Reuters

 

Qatar telecoms group Ooredoo reported a 13.6 per cent rise in first-quarter net profit, as increased revenue from Qatar, Iraq and Indonesia offset a sustained profit slump at its Kuwait and Oman units.

More from Reuters

 

Mashreq, Dubai’s third-biggest lender by market value, on Tuesday reported a 57 per cent jump in first-quarter net profit as a result of higher operating income.

More from Reuters

May 1, 2013 0 comments
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Dubai’s child labor complicity

by Juliane Kippenberg May 1, 2013
written by Juliane Kippenberg

Dubai confirmed its position as an international trade hub for gold in April. At a precious metals conference in the city, the United Arab Emirates’ government announced that the gold traded in the country in 2012 exceeded $70 billion, more than a quarter of the world’s global gold demand that year. Gold refiners and traders like Dubai as a tax-free, business-friendly, well-functioning location.
I recently had a chance to see for myself — I met with gold companies at Dubai’s Gold Souk as well as Jumeirah Lakes Free Trade Zone, where shiny skyscrapers in extraordinary shapes house some of Dubai’s precious metals companies.

The wealth of Dubai’s gold companies contrasts sharply with the poor conditions under which some of the gold is being mined. According to the International Labor Organization, more than 1 million children work in mining globally. In mining areas across Africa, Asia, and Latin America children as young as 6 work in small-scale gold mining and risk their lives as a result.
They work in unstable shafts that often collapse, haul backbreaking loads of heavy ore, and use toxic mercury to separate the gold from the ore. During field research in Tanzania in late 2012, Human Rights Watch interviewed 61 children working in gold mining. A 14-year old-boy retold how a mine pit collapsed on him. He was hospitalized and said “I fear a lot.”

Nineteen children also described how they handle mercury on a regular basis, often with their bare hands, when they create a mercury-gold amalgam which they or others then burn, causing the mercury to evaporate and leaving behind the raw gold. Mercury causes brain damage and is particularly harmful to children — to those who breathe in the fumes because they work or live nearby as well as those who work with it.

Tanzanian traders and officials told us that Dubai is one of the export destinations for Tanzania’s gold.

The gold industry has a responsibility to ensure that gold is not being mined under conditions that violate human rights. In line with the 2011 United Nations Guiding Principles on Business and Human Rights, companies should implement due diligence to ensure they do not benefit from unlawful child labor, directly or indirectly. Much more needs to be done to reach that goal.
One important opportunity for action is Dubai’s initiative for responsible sourcing of gold. At the precious metals conference in Dubai, the Dubai Multi Commodities Center — a government regulatory body and licensing authority for the Jumeirah Free Zone — presented its guidance standard for responsible sourcing, aimed at preventing support for warlords in conflict countries. This had become extremely necessary as a UN investigation found Dubai had been involved in illicit gold trade benefiting armed groups in the Democratic Republic of Congo. The guidance seeks to ensure that precious metals companies conduct due diligence and develop a risk management framework. It closely follows a standard developed by the Organization for Economic Cooperation and Development. 

Unfortunately, the Dubai standard for responsible gold does not seek to address child labor in the supply chain. It is also purely voluntary and therefore lacks teeth. Dubai’s guidance, like several other voluntary standards for “responsible gold”, was developed after the United States adopted a law requiring publicly-listed extractives companies to disclose the source of minerals that originate from the war-torn Democratic Republic of Congo and neighboring countries. The law — part of the Dodd-Frank Act — is unusual because it makes due diligence a legal requirement.

To ensure that gold businesses in Dubai respect and protect rights, due diligence procedures should be made mandatory and include measures to check for child labor. And if child labor is found in a company’s supply chain, the company should make specific efforts to address the problem, for example by helping to transition children out of work and into education. 

Dubai should use its position, as a leader in the gold trade, to advance the rights of children at the bottom of the gold supply chain.

 

Juliane Kippenberg  is a senior researcher at Human Rights Watch, and has investigated child labor in Tanzania and Mali.

May 1, 2013 0 comments
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Editorial

Where talent lies idle

by Yasser Akkaoui April 30, 2013
written by Yasser Akkaoui

Lebanon is a country of opposing forces, and those rare times when it has enjoyed stability and prospered have come when these forces have been balanced. Achieving this is far from a simple process — aggregate the shifting geopolitical realities of our neighborhood, the foreign influences at play in the country and the plethora of domestic political interests and sectarian affiliations, and you may understand the task at hand.

Najib Mikati sought this balance. In upholding such things as the funding for the United Nations Special Tribunal for Lebanon, he defended priorities of the March 14 political bloc in a cabinet of March 8 ministers. When the Cabinet refused to renew the term of Internal Security Forces chief Ashraf Rifi, however, Mikati’s position as prime minister did not offer him the tools he needed to keep this equilibrium; thus, he resigned.

The government failed to successfully reform virtually any aspect of public infrastructure whether it be electricity, water or telecommunications. Any gains were piecemeal. What is more, the tricky, but absolutely essential, task of administrative reform was sidestepped. The debate over the public sector wage scale offered an opportunity to take the bull by the horns. It was missed.

This government had its chance to show its commitment to Lebanon’s prosperity. The implementation of a properly functioning public transportation system would, for example, benefit everyone by cutting commute times, easing pollution and frustration levels, as well as increasing the productivity of working Lebanese.

What did the government do instead? Minister of Public Works and Transportation Ghazi Aridi announced the purchase of 250 buses, but without a plan that addresses any of the litany of challenges the caused previous efforts at mass transit to become costly failures, while also shrouding aspects of the deal in obscurity, raising the specter of corruption and kickbacks.

Imagine if the state were not such an impediment to its own people, how might the Lebanese succeed? One need only look to New York. The city maintains the necessary equilibrium between competing interests and creates systems that foster success and efficiency. It is an example of how Lebanon’s sons and daughters can thrive when placed in an environment that allows them to do so.

The good news is that, despite the odds, Lebanon still miraculously produces these people of talent, punching well above its weight in the birth of potential. One can only hope that one day, the full potential of these Lebanese can be realized at home.

April 30, 2013 0 comments
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Finance

A beginner’s guide to Lebanon’s debt crisis

by Benjamin Redd April 30, 2013
written by Benjamin Redd
Hovering at around 140 percent of GDP, Lebanon’s public debt ratio is thought to be the fifth-highest in the world — making it a perennial problem for politicians and policymakers alike. Our interactive guide explains the causes and structure of Lebanon’s debt problem.
Click here to see the interactive chart.
April 30, 2013 0 comments
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Economics & Policy

The Car Seller of Kabul

by Raphael Thelen April 30, 2013
written by Raphael Thelen

The drive to Qasabah on the outskirts of Kabul is painstakingly slow. The shock absorbers of the cars shriek as drivers carefully maneuver through foot-deep potholes. The contours of the snowcapped summits of the Hindu Kush mountains slowly fray out against the darkening sky, with the hundreds of lamps and advertisement signs of Qasabah forming a dimly lit labyrinth of lights at the foot of the mountain.

Qasabah is Kabul’s biggest car bazaar and is home to Wahid Jamshady’s dealership. “It was good that the Americans came to Afghanistan,“ he says, echoing views commonly expressed among the business class in Kabul and the northern part of the country — areas which have benefited more from the occupation led by North Atlantic Treaty Organization (NATO) forces than the south. “The economy grew and we have had all these development projects.”

Seated behind his desk looking out onto rows of polished SUVs and sleek sedans, Jamshady has the aura of a man who has achieved his life goals. As a child he washed cars in other people’s shops during school holidays — with the money he earned he bought used bicycles and sold them on for a small profit. Later he moved on to motorcycles. Then two years ago, at the age of 41 and after years of saving, he finally bought a car dealership.

Related article: Afghanistan's opium from the arm to the farm

Now he faces the prospect of his life’s efforts falling apart. The reason, he explains, is the withdrawal of international troops next year — a topic that dominates collegial chats and sales talks across Kabul. “Everybody is afraid of 2014,” Jamshady says, with a glance at his teenage son sitting on a couch in the office, “many people are selling their cars to leave the country.”

Many Afghans expect a sharp increase in violence as the withdrawal of international troops inches closer. And the surge in car sales is an early indicator of a phenomenon Afghanistan knows only too well: migration. “My business is being badly affected,” Jamshady says. “Nobody is investing anymore, because they don’t know what is going to happen.”

After four decades of conflict, Afghans are the biggest refugee population worldwide. However, in the decade since the invasion, 5.7 million Afghans have returned, according to the United Nations High Commissioner for Refugees. Most of them came from Iran and Pakistan but some 2.7 million remain registered refugees in the two countries, while an estimated 2.4 to 3.4 million live there illegally.

But hopes of convincing more to return may be dashed as whole families pack their bags and leave Afghanistan daily, hoping to make a living in the neighboring countries or find a passage to Europe. And for many of them Qasabah is an essential step in their preparation as they sell off their cars for cash. 

The increased supply can be seen in the automobile market. “The drop of car prices is making it more difficult for people who want to leave”, says Jamshady. Cars that he used to sell for $30,000 now go for $20,000 and he predicts they will fall further still as NATO forces sell off their superfluous vehicles on the cheap.

Officially, Afghanistan’s economy grew by an impressive twelve percent in 2012 and will continue to grow in 2013, according to the International Monetary Fund. Yet with more than a third of the country’s people still living below the poverty line, these figures sound like wishful thinking to most Afghans. And the post-2014 economy will take a serious hit with the decrease of international development spending. Despite billions of dollars in foreign aid, the international community has largely failed to build a sustainable economy — whole industries depend on the foreign subsidies, while widespread government corruption, a lack in professional education as well as foreign investment inhibit the growth of domestic industries. Most manufactured goods are imported from neighboring countries, as well as India and China.

Like so many of his customers, Jamshady also plans to leave the country as Western forces pull out. “If there is no money and the people have no jobs, crime and especially kidnapping will pick up,” Jamshady says. “Half a year ago an armed group tried to kidnap my son,” he says and nods to the skinny 14-year-old Elias, who tries to look brave. The car salesman found out beforehand of the plans and informed the police who arrested the kidnappers-to-be. “If they would have kidnapped him, I would have had to sell everything to get him back. It would have cost me $250,000”, he says. 

Since then he has been planning his own departure from the country. He recently returned from the Netherlands where most of his family already lives — soon he wants to follow with his wife and son. “I have thought a lot about leaving. I will miss Afghanistan — it is my country,” he says.

Yet the fear of kidnapping and the prospect of a return to Taliban rule prevails over all other considerations, including the concerns of his son about their potential life in Europe. “I don’t want to go”, Elias says, his voice hardly audible. “I’m afraid that I won’t fit in [the] new country.”

It is an open secret that, like Jamshady, a whole class of rich politicians and businessmen is preparing their departure. In the past decade they have sent their children to good universities and built lives in Dubai and elsewhere and now they are ready to leave if security deteriorates, with another brain drain a real possibility.

While the elite may leave, the majority of Afghans do not have this option. For them, selling their property will not take them much further than Iran or Pakistan. In the past Afghans were welcome as manual laborers in these countries but with Pakistan’s economic growth slowing and unemployment on the rise in Iran, both countries are less welcoming to foreigners. At the same time Europe is building ever-higher walls on its outer borders, forcing refugees to take increasingly dangerous routes. Scores of drowned Afghan refugees in the Mediterranean speak loudly of their desperate attempts.
 
Looking back at the past decade and the results of the US invasion of Afghanistan, Jamshady can’t avoid a grim smile at the irony of it all. “Everyone is after this country,” he says, “and all the Afghans want to leave.”

April 30, 2013 0 comments
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Finance

Investment ideas: May 2013

by Maya Sioufi April 30, 2013
written by Maya Sioufi

The Standard and Poor’s 500 Index reached an all-time high last month, surging past its previous record reached in October 2007. It was up 11 percent as of April 25 as investors continue to deploy cash in risky asset classes. The key market concerns have not abated though: the European sovereign debt crisis is still making headlines and the United States’ debt continues to balloon unabated. This month Executive takes investment recommendations from Samer Kanafani, senior equity analyst at MedSecurities, a BankMed subsidiary, and Amin el-Kholy, head of asset management at Arqaam Capital.

Samer Kanafani

Recent rally overdone? While Kanafani is bullish in the long term on US equity markets, he anticipates a correction soon and expects the markets to end around the same level, or slightly higher, by year end. “The world is not yet a happy place,” says Kanafani, adding that the markets are being “injected with steroids”, mainly due to the US and Japanese central banks continuing to print money. Combined with a lack of fundamental economic growth, he remains cautious in the short term.

How should investors position themselves? Kanafani recommends switching out of US cyclical names — which he favored at the beginning of the year — into defensive American sectors such as utilities. He also favors US companies with exposure to emerging markets. His other theme would be to invest in dividend plays, mainly companies with growing yields and buyback programs. In the US, he flags investment bank JP Morgan, fast food restaurant company Yum! Brands and conglomerate General Electric. In the region, he recommends Saudi telecommunication company Etihad Etisalat. 

Thoughts on Middle East markets? Kanafani recommends investing in Turkey and Saudi Arabia because of the relative liquidity and transparency of their equity markets. Given Turkey’s equity markets’ recent strong run — up 54 percent last year — he prefers Saudi Arabia, which has less volatility. As for Lebanese securities, he doesn’t see value in the current risk-reward environment due to a lack of liquidity and because “they are very much politicized.”

Top investment recommendations? In the US, he recommends Yum! Brands for their solid portfolio of eateries such as Pizza Hut, Kentucky Fried Chicken and Taco Bell, as well as for their emerging markets exposure contributing to around 50 percent of their sales. He also highlights utilities company Exelon for their defensive nature. As for the region, he favors Dubai-based real estate developer Emaar,  given the ongoing recovery of the real estate market, and for its exposure to the retail sector, with more than 50 percent of revenues generated from hotels and mall rentals.

Amin el-Kholy

Confidence in the markets on the rise? Kholy sees confidence gradually returning in Middle East and North African markets — his area of focus — from both institutions in the region and foreign institutional investors, which are showing some early signs of interest.

Favorite asset class and countries in the MENA region? He expects equities to outperform fixed income in the future, given the recent solid performance of fixed income. As for his favorite countries in the MENA markets, he is bullish on Saudi Arabia, the United Arab Emirates and Qatar. Despite the strong run in Turkish equity markets, he would also consider selective opportunities in this country. As for sectors, he recommends investing in the consumer sector for the increase in economic activity and government spending — which he expects to result in more disposable income — as well as for the level of innovation being seen at several of the publicly listed companies. He also recommends investing in reasonably priced banks that came off the financial crisis with repaired balance sheets and are growing again.

Interest in riskier markets such as Iraq and Egypt? Kholy is cautious when it comes to Egypt, as it is “still unclear when things will turn around.” He expects more bad economic news from there in the near future. Regarding Iraq, Kholy expects the country to present a “phenomenal investment opportunity in the next decade.” The only issue for now is that the equity markets are relatively small, but he expects that situation to change as more companies list on the exchange.

Top investment ideas? He recommends sticking to stable, high-dividend paying equities in the MENA region. Outside of the region, keep an eye on African markets: “They are somewhat risky and small but offer potentially attractive returns for people who have an appetite for risk,” says Kholy.

April 30, 2013 0 comments
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The Buzz

Morning briefing: 30 Apr 2013

by Executive Staff April 30, 2013
written by Executive Staff

Economics and Policy

Gold slipped back into negative territory on Tuesday after bargain hunting tapered off, while daily outflows from exchange-traded funds highlighted investors’ lack of confidence in the precious metal.

More from Reuters

 

Fuel provided to a Turkish electricity barge in Lebanon was up to standard, supplier Electricite du Liban said Monday, raising further questions over its recent shutdown.

More from The Daily Star

 

Qatar wants 5-percent interest on $3 billion in bonds it has offered to buy from Egypt, an Egyptian official involved in the talks said Monday, a price higher than expected yet one that Cairo may have to accept.

More from Reuters

 

Total revenues generated by Abu Dhabi hotels in the first quarter of 2013 rose 15 percent to $389.9m, according to new figures.

More from Arabian Business

 

Companies and Business

Kuwait’s Agility Public Warehousing reported a 46 per cent increase in net profit for the first quarter on Monday thanks to a rise in revenues driven by its logistics and infrastructure divisions.

More from Reuters

 

Jordan's Housing Bank for Trade and Finance achieved a 5.7 percent increase in first-quarter net profit to $36.5 million.

More from Reuters

 

Turkey's energy minister said Ankara will announce by the weekend which country will construct its second nuclear power station, a project expected to cost around $22 billion.

More from Reuters

April 30, 2013 0 comments
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The Buzz

Morning briefing: 29 Apr 2013

by Executive Staff April 29, 2013
written by Executive Staff

Economics and Policy

Gold rose more than one per cent on Monday and held near its highest level in more than a week as a rebound in prices from multi-year lows failed to curb investor appetite for the precious metal, leading to a shortage in physical supply.

More from Reuters

 

The oil-rich emirate of Abu Dhabi is putting finishing touches to plans to establish a financial free zone that could resemble, and therefore compete with, the Dubai International Financial Centre.

More from Reuters

 

The Association of Banks in Lebanon has reaffirmed its commitment to complying with any sanctions imposed by the U.S. Treasury after two Lebanese money exchange houses were designated as a primary money-laundering concern.

More from The Daily Star

 

Iraqi authorities announced have revoked the operating licences of Al Jazeera and nine other satellite TV channels for promoting sectarianism during a wave of violence.

More from Associated Press

 

The Dubai Land Department (LD) announced that the total value of real estate transactions in the emirate in the first quarter of the year was up 63 per cent on the same period in 2012.

More from Gulf Business

 

Companies and Business

Food giant Savola Group could become the first company in Saudi Arabia to move to Friday-Saturday weekends ahead of a wider country change.

More from Arabian Business

 

Horizon Terminals Limited (HTL), a wholly owned subsidiary of Dubai’s Emirates National Oil Company (ENOC), has announced that its new oil terminal in Jebel Ali is on track for expected completion by end-2013.

More from Gulf Business

 

Hassad Food Co, the agricultural investment arm of Qatar’s sovereign wealth fund, said on Sunday it has appointed a new CEO.

More from Arabian Business

 

Oman’s No.2 telecom operator Nawras reported a 21 per cent drop in first-quarter profit on Sunday, missing analysts’ estimates as text and domestic call income fell.

More from Reuters

April 29, 2013 0 comments
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Comment

Jordan’s electric problems

by Riad Al-Khouri April 29, 2013
written by Riad Al-Khouri

Jordanian Prime Minister Abdullah Ensour's incoming government last week won a vote of confidence in Parliament, securing the approval of 82 out of the Lower House’s 150 deputies. To most observers, the outcome was never in doubt, but, as an ally of the United States, Jordan’s political process must be presented in fairly glowing terms to convince foreign donors that all is well in such a model Arab state. As such, the supposed travails in the new cabinet’s advent were sold to onlookers as an expression of popular will, without the drama of elections elsewhere in the region.

Ensour lost little sleep between his designation in March and last week’s confirmation vote. Yet, the process of seeking confidence was this time presented in better terms than other cabinets’ recent efforts.

In Jordan’s stunted political culture, there may be little room for overt sarcasm, but one catchy expression has entered the local political vocabulary: “one-eleven.” This refers to the 111 deputies — out of an even smaller Lower House than the present body — that voted to grant confidence to the last Jordanian government formed before the “Arab Spring” began in December 2010. The term is one of approbation for kowtowing parliamentarians much more in line with the King’s wishes than that of their citizens. Interestingly, however, Ensour wasn’t part of that 111, having voted as an MP at the time  that he had no-confidence in the government, as well as opposing subsequent governments.

Even so, those hoping for change may be disappointed. Ensour does not claim to be ushering in revolution, and while he has an element of independence, he is to all intents and purposes a regime stalwart. Formerly a cabinet member and vice-premier, he has, especially since 2010, also been part of the loyal opposition — before becoming prime minister himself last year for the first time (this is his second stint in the top job).

An electric problem

Nevertheless, Ensour talks of major reforms and there is certainly a lot to do. Apart from anything else, an acute problem currently worrying many in the country concerns electricity prices: state-run power operations suffer an annual loss of close to $1.8 billion due to subsidized rates. If this deficit is not addressed, “we will find ourselves forced to take harsh measures including scheduled power cuts, a stage we do not want to reach,” Ensour told parliamentarians last week. However, he pledged to consult with deputies before deciding to take the potentially unpopular decision to increase electricity prices, saying that his cabinet "will not make such a move unless we have exhausted all other options."

Although he promised to postpone any such measures till the early summer, this particular question must be settled to pull Jordan back from a potential fiscal cliff. Ensour’s record on such matters is better than most in Amman: he recently pushed through an increase in fuel prices — now absorbed and forgotten by the public, especially as the global oil price has since fallen.

The way out of the electricity pricing issue may involve Ensour making some deft political maneuvers. In particular, he indicated that a cabinet shuffle will come soon — an odd statement during a parliamentary confidence debate on a new government. Ensour went so far as to declare that a shuffled cabinet team with more parliamentarians on board is "inevitable”, noting that he would add deputies to his more-or-less technocratic team before too long.

To be able to achieve reform without facing prolonged street protests, Ensour needs as broad a coalition as possible and there are indications that he may try co-opt those who currently oppose him. The current 18-member government is the smallest in decades, with merged ministries and joint portfolios appearing to signal efficient streamlining and austerity amid the country’s current financial woes.

Later in the year, however, several rebellious MPs could be brought into the government, being granted parts of currently doubled-up ministries in return for loyalty to Ensour on vital issues, including electricity.

If that all sound like the usual horse-trading in the country's divided political system, it’s because it is. But the state of the country's finances make meaningful reforms a necessity.

 

Riad al Khouri, a Jordanian economist who lives and works in the region, is principal of DEA Inc, Washington DC

 

April 29, 2013 0 comments
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The Buzz

Morning briefing: 26 Apr 2013

by Executive Staff April 26, 2013
written by Executive Staff

Economics and Policy

Israel shot down a drone on Thursday as it approached the country's northern coast, the military said, with Lebanese group Hezbollah blamed.

More from AP

 

Lebanon's tourism sector has seen a significant improvement over the past few weeks, as Gulf Cooperation Council states seem to have eased travel warnings that have discouraged their citizens from visiting Lebanon for more than a year.

More from The Daily Star

 

A United Nations mission to Bahrain to assess the country's progress in eliminating torture has been unilaterally "cancelled" by authorities in Manama, the organisation's special rapporteur for torture has said.

More from The National

 

Companies and Business

A Turkish firm operating an electricity barge supplying power to Lebanon on Thursday blamed low-quality fuel oil for a sharp drop in production a day earlier, but a source at Electricite du Liban disputed the company’s claim.

More from The Daily Star

 

Fast-growing United Arab Emirates carrier Etihad Airways said it would partner with Air Canada in a new codeshare agreement, days after the two countries put aside disagreements and eased visa rules.

More from Reuters

 

Abu Dhabi Commercial Bank reported a five per cent rise in first-quarter net profit on Thursday, beating the average expectation of analysts.

More from Gulf Business

 

Lebanon is not alarmed by the U.S. Treasury Department’s sanctions this week against two Lebanese exchange houses accused of money-laundering, caretaker Finance Minister Mohammad Safadi said on Thursday.

More from Bloomberg

April 26, 2013 0 comments
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Since its first edition emerged on the newsstands in 1999, Executive Magazine has been dedicated to providing its readers with the most up-to-date local and regional business news. Executive is a monthly business magazine that offers readers in-depth analyses on the Lebanese world of commerce, covering all the major sectors – from banking, finance, and insurance to technology, tourism, hospitality, media, and retail.

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