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Editorial

Between sect and secular

by Yasser Akkaoui March 1, 2013
written by Yasser Akkaoui

A black and white video from half a century ago of former Egyptian President Gamal Abdel Nasser has resurfaced recently on YouTube. In it Nasser speaks from a podium to a large crowd, telling them about a meeting he had with the leader of the country’s Muslim Brotherhood movement in 1953. At this meeting Nasser was asked to make the headscarf mandatory for women to wear — such a preposterous thought at the time that Nasser’s audience breaks out in chuckles.

“‘If you are unable to make one woman, who is your daughter, wear the hijab, how do you want me to put the hijab on 10 million women myself?’” Nasser retells the conversation into the microphone, and the audience thunders with applause. This sort of socially progressive thought seems to have gone into full-scale retreat in the decades since, not just in Egypt, but around the Middle East and North Africa. As secular leaders failed to deliver on promises of prosperity, equality and justice and their societies suffered, the masses who followed them became disillusioned with socially progressive ideals — when faith in all else is shattered, people turn to religion.

Most Lebanese look at the conservative religiosity sweeping Egypt today and say “that could never happen here”. We invariably fancy ours the most socially progressive of Arab countries, often to the point of conceit. Perhaps we were right, at one point, but today we are slipping rapidly. The recently proposed ‘Orthodox Law’ to change the electoral system is an inflection point on this downward slope.
A law that relegates one’s political voice and right to representation to solely within a sect cannot be called anything but regressive. One only has to look at all the other laws that were skipped over to bring this one to the front of Parliament’s queue — including those that would help move Lebanese citizens’ personal status in the civil realm, rather than religious — to understand the direction we are headed.

Our leaders have almost entirely failed to implement progressive change in this country, and now they are digging us even deeper into our sectarian divisions, using religion to further isolate us from each other. This is the antithesis of building cohesion. It is a mentality that diseases our society and if we do not find an antidote in reason or foresight, one must wonder what, 50 years from now, our children’s children will think when they see old videos of how ‘progressive’ Lebanon used to be.

March 1, 2013 0 comments
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Economics & Policy

Old habits die hard

by Joe Dyke March 1, 2013
written by Joe Dyke

In September last year the Lebanese government banned smoking in public places, including restaurants and bars. As the months have ticked by the ban has increasingly been ignored, with many of the country’s establishments thinking up ‘ingenious’ ways to avoid implementing it. With seemingly little political will or capability to enforce the law, is it time to declare the ban a failure?

Not stubbed out

When Law 174 came into force in September, there was little optimism that it would be properly enforced. The Tourism Minister Fady Abboud, one of four ministers responsible for imposing it, had publicly declared himself opposed and, with more than one-third of Lebanon’s population smokers — according to a study by the American University of Beirut — many expected the law to join hundreds of other that are technically on the statute but not properly enforced.

5 ways establishments are getting around the smoking ban

1. Plastic Fantastic

By putting plastic covers up as a way to keep the heat in, bars and restaurants have managed to turn whole sections of their gardens into covered, warm, smoking areas.

2. Look, the window’s open

Sitting next to a big open window does not make you outside, but a number of Beirut establishments seem to think differently

3. Not us, guvnor

Some restaurants and bars have alleged that they have a temporary exemption to the law. They don’t. No such exemptions exist.

4. Private club

Under Lebanese law, private members clubs are exempt from the law. You may notice that beyond a certain point in the evening a bar’s door will swing shut and the proprietor will crack open a cigarette behind the counter. That means you are now in a private club.

5. Law, what law?

The most common technique, however, is just plain denial. Bars and restaurants owners ignore the law and have even been known to get aggressive to those that challenge them.

Yet it was initially rather successful. The vast majority of restaurants and bars set up outdoor smoking areas and a hotline was established to report those institutions that ignored it. Civil society campaigners succeeded in keeping the issue in the media and by early December across the country there was a 90 percent compliance rate, according to the Tobacco Free Initiative (TFI).

Since the New Year, however, that rate has fallen rapidly, with the TFI estimating that just 40 percent of bars and restaurants are still fully imposing the law. In bars increasingly people are again lighting up inside and people have even allegedly been abused for criticizing bar owners who allow it to continue.

Critics of the government point to statements made in December by Abboud and Minister of Interior Marwan Charbel suggesting that over the festive period implementation of the laws would be relaxed. “Since the New Year we have had no compliance, especially in narguileh (shisha) cafes and nightclubs,” Rania Baroud, vice-president of the TFI, told Executive.

Ali Fakhry from the environment NGO IndyAct agrees that willingness to impose the law has waned. “The political will to apply the law has been decreasing, not increasing. We are calling on the Minister of Interior to increase the number of police who are touring around applying the law, and the touristic police,” he said.

On top of ministerial ambivalence towards the law, the lack of fines has arguably exacerbated non-compliance. While Abboud has stressed that more than 1,000 establishments have been given LL3 million ($2,000) fines, the number that have paid is significantly lower. This is due to a several month time lag between the fines being handed out and court appearances. Baroud estimates that only 200 cases have actually made it to court as yet and is urging the judiciary to speed up the process.

Calling it quits

The falling compliance rates suggest that if Lebanon is to enforce the law it would likely require significant new resources. There are many who feel it is time to call it quits.

Paul Ariss, president of the Syndicate of Owners of Restaurants, Cafes, Nightclubs and Pastries in Lebanon, feels that the law was imposed without significant consideration of Lebanese culinary culture — with meals tending to be longer events coinciding with cigarettes and shisha.

He argues that while revenue in restaurants that sell European food has not been badly hit by the ban, those who focus on Lebanese food have struggled, with revenues falling by up to 70 percent. “60 percent of the Lebanese population is Muslim, of those around 70 percent do not drink alcohol in restaurants,” he said. “You sit for two or three hours with mezze. If they don’t drink alcohol and they don’t have narguileh they are not interested in going to restaurants.”

Ariss argues that Lebanon’s resources could be better focused on dealing with the deteriorating security situation and believes that many establishments will not comply, nomatter how strict the laws are. “The owners have decided to boycott the law. They will boycott the ban and to pay the fines,” he said.

Officially the government remains committed to the law. On Tuesday the four ministers involved met to offer their support to an increased crackdown on those establishments that disobey. But Fakhry believes that the responsibility does not lie merely with the government, but instead with Lebanese attitudes to breaking the law.

“This is not a decree by a minister, this is a law that has been worked on for three years and voted in the Lebanese Parliament, to issue a law which is constitutionally similar to law selling drugs and other illegal activities,” he said. “It is the responsibility of the civil society and the normal citizens is to impose the law… if we allow the owners of Falamanki [restaurant in Sodeco] to break the law then why don’t we tell the drug sellers just to pay a fine and carry on?”

Wandering into some Beirut bars and restaurants, you could be forgiven for thinking that the smoking ban had been abandoned altogether. But Baroud takes heart from the long struggles of European nations to impose the ban. “I am very optimistic because it has been similar even in France and other countries. In France it took six years for them to properly apply the law, in Geneva [Switzerland] it has been two years they couldn’t apply the law. What we are going through is normal,” she says. Yet Lebanon is not like France and, in a country where the rule of law remains only partially applied, such optimism may be misplaced.

March 1, 2013 0 comments
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The Buzz

Morning briefing: 1 Mar 2013

by Executive Staff March 1, 2013
written by Executive Staff

Economics

Brent crude slipped below $111 a barrel on Friday, weighed down by concerns that oil demand will be hurt if China's economy continues to sputter, the euro zone remains weak and automatic spending cuts are enacted in the United States.

More from Reuters

 

An unofficial ministerial meeting has failed to open a window of hope for a compromise solution between the government and labor unions over an ongoing strike.

More from The Daily Star

 

The US has pledged for the first time provide direct assistance to Syrian rebel forces fighting to overthrow the regime of Bashar Al Assad.

More from Reuters

 

Tunisia's ongoing political crisis may harm the economy, the central bank warned on Thursday, when it also said economic growth rebounded to 3.6 percent in 2012 after the 2011 revolution plunged the country into recession.

More from Reuters

 

Bahrain’s rulers have made no progress on key reform promises, failing to release unjustly imprisoned activists or to hold accountable high-level officials responsible for torture, Human Rights Watch has said.

More from Arabian Business

 

Lebanon’s public sector salary expenditures increased to $2.4 billion up to October 2012, according to the Finance Ministry, $460 million more than the same period in 2011.

More from The Daily Star

 

Egypt’s central bank is expected to report next week that it has slowed the rapid erosion of its foreign currency reserves but failed to halt it, despite sharp limits it has put on its sales of dollars, which economists say are punishing business.

More from Reuters

 

Companies

Most recruiters in the GCC region are adopting a cautious stance amid the global economic crunch, according to a new survey.

More from Arabian Business

 

There are increasing fears about the financial stability of Arabtec Holding – the UAE’s largest construction company.

More from Bloomberg

 

Emirates Airline has announced that it will add a second Airbus A380 service on its Sydney route from June 1.

More from Arabian Business

 

A detailed design masterplan for a $1bn medical city in Oman has been completed, officials have announced.

More from Arabian Business

March 1, 2013 0 comments
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Comment

China moves for Iraq’s black stuff

by Riad Al-Khouri March 1, 2013
written by Riad Al-Khouri

Since the American engagement in Iraq was downsized, other countries have continued to gain higher profiles there, and Iraq’s economic allegiances — and its resources — are being wooed by powers whose interests are in competition with those of the United States. Nothing demonstrates this change more dramatically than the state-owned China National Petroleum Corp (CNPC) acquisition of US oil giant ExxonMobil’s position in the West Qurna Phase 1 oilfield for $50 billion, one of the largest such energy deals ever made.

Beijing had become a big player in Iraq’s oil sector even before this transaction was announced in early February. CNPC, at the beginning of 2013, was jointly operating three fields producing 1.4 million barrels per day (b/d), more than half the country’s output. However, acquiring the new stake means that CNPC alone will soon account for 50 percent of Iraq’s crude production.

Beijing’s takeover of the Exxon concession came after a dispute between the Iraqi central government in Baghdad and the US oil company over its attempt to operate in both Kurdistan and the rest of Iraq. Already involved in the south of the country, Exxon was the first big oil company to sign an agreement with the autonomous Kurdistan Regional Government in Erbil, even after Baghdad had told the US giant that it couldn’t work with the Kurds and with the rest of Iraq at the same time.

See also: Beijing's Saudi Gamble

Gasoline prices across the Middle East

Beijing’s success in Iraq is partly based on its lower costs, with Chinese managers and engineers typically earning only 25 percent of the salaries paid by Western companies. Since Baghdad is giving foreign operators as little as a couple of dollars per barrel of crude produced, some Western firms like Chevron and Exxon are turning to the Kurds, who offer more lucrative production-sharing agreements.

Iraq’s output of crude is set to rise to more than 8 million b/d by 2030, 80 percent of which may go to China. To facilitate exporting Iraqi oil, the Chinese are engaged in various forms of infrastructure development, including pipelines. Regarding the latter, the China Petroleum Pipeline Company is reported to be favored to win a $650 million contract to build a pipeline linking Iraq’s southern oil fields to coastal storage depots. This new line with a wider diameter pipe will replace the existing outdated one, easing transport constriction and expanding oil export capacity. The new pipeline should be operational in early 2014, facilitating a planned increase in output in the targeted area from the current 230,000 b/d to around 400,000 b/d.

Nor are the Chinese the only Far Eastern players coming up in Iraq: the South Koreans are also busy with infrastructure and other work in the country. Among many other projects, South Korea is constructing a housing mega-complex of 100,000 units. And LS Industrial Systems, a leading South Korean manufacturer of electric components, won a $67 million contract to build a power distribution control center for the Iraqi government. Under the deal with Iraq’s Ministry of Electricity, the company will also later construct seven distribution control centers across the country. With this contract, LS Industrial has logged more than $106 million of new business in Iraq during the first few weeks of 2013.
Look for more such Far Eastern dynamism in Iraq this year and beyond, as the Chinese and others continue stepping into the Iraqi market with even greater force. On one level, this will be a purely economic phenomenon, simply meaning that more business is being done between Iraq and East Asia. The implications in geostrategic terms, however, could be even bigger, going beyond Iraq’s borders to impact other parts of the region.

With Washington continuing to lose its appetite for involvement in the Middle East, a stronger Chinese position in the region could, for example, affect Syria and Iran, helping both to face Western pressure. Whatever the outcome of such a complex mix of business and politics in Iraq and regionally might be, the coming year is likely to be one of even greater flux than the one just past.

 

Riad el-Khouri is an economist and a principal at Development Equtiy Associates Inc, Washington DC

March 1, 2013 0 comments
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Economics & Policy

A month of strikes

by Sam Tarling February 28, 2013
written by Sam Tarling
Lebanese teachers and public sector workers march through Beirut on February 27 to protest delays in the parliament approving a cabinet-backed wage increase. The march was part of an ongoing open-ended strike which has seen daily demonstrations by public sector employees across the country for a month – beginning on February 19 [Photo: Sam Tarling/Executive]
Marchers at the February 27 protest, where organizers estimated that at least 20,000 people attended [Photo: Sam Tarling/Executive]
Charles Khoury, an art teacher from St Joseph's school in Aintoura, holds a sign in a made-up language as he claims the government "clearly doesn't understand Arabic. How come I am a teacher and I can’t afford to send my children to university?" he asks. "We're protesting for our pride, it's the least of our rights" [Photo: Sam Tarling/Executive]
A security official talks to a protester. The Lebanese authorities have largely permitted the protests without interference [Photo: Sam Tarling/Executive]
Lebanese teachers demonstrate near the presidential palace in Baabda on March 5 [Photo: Sam Tarling/Executive]
Protests continued outside Beirut Port on March 14 [Photo: Sam Tarling/Executive]
Bemused travelers work their way around the crowds as public sector workers demonstrate outside Beirut's Rafiq Hariri International Airport on March 15 [Photo: Sam Tarling/Executive]
A speaker at the airport rally encourages the crowd to force the government to honor their promises [Photo: Sam Tarling/Executive]
February 28, 2013 0 comments
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Society

Ditching popcorn for sushi

by Nabila Rahhal February 28, 2013
written by Nabila Rahhal

Butter soaked popcorn, dark packed theaters and noisy teenagers kicking the back of your seat are the thoughts on many people’s minds when it comes to the cinema experience. It’s little wonder that the older one gets, the more appealing the idea of watching movies at a home theater gets. But Beirut’s cinema owners are trying to provide a more refined and attractive movie watching experience — at least for those who can afford it.

Recently, cinema operators including Grand Cinemas and Cinemall have adopted the concept of VIP theaters to provide a more deluxe experience for the wealthier — and so inclined — film goers. For $30, you get a large seat, an alcoholic drink and something to eat (caviar and smoked salmon canapés in Grand Cinemas, nachos and popcorn in Cinemall). Yet you are essentially queuing in the same lines and having to visit the same over-crowded theater lobby as all the rest of the customers. Many, indeed, have concluded that they are somehow being cheated out of their money.

But Empire cinema in the Sodeco area of Beirut seems to have eliminated some of the problems faced by VIP theaters by creating a luxury cinema venue, and not merely a luxury theater.

Planning to open its doors in mid March, the Empire Premiere venue will have a lobby similar to that of a hotel, equipped with comfortable sofas, a book library, and a wine bar. Customers will have the option of the usual concession stand, which will offer gourmet popcorn featuring a flavor of the week, as well as the the option of something more exquisite catered by Le Sushi Bar — Japanese dishes will be especially prepared in a way that’s suitable to watching in a cinema.

The six theaters themselves, which once housed 180 seats each, will now have only 30 seats each in order to create a more comfortable homelike setting. Each lazy boy seat comes with a side table and lamp as well as a blanket and pillow for the attendee’s comfort. Films will play every half hour so there is no need to worry about the time when planning to catch a movie. The whole experience will cost $20 a ticket, food and beverages excluded.

Gino Haddad, owner of Empire Theaters, believes the Premiere project could only be profitable in the Sodeco theater and attributes this primarily to the catchment area it is in: in proximity to Downtown, Ashrafieh and Hazmieh, the venue is ideally placed to attract Haddad’s targeted customers who are in the upper class aged from 30 to 60 years old.

Haddad says he first got the idea to create such a venue when his team’s research showed that cinemas in general are losing clients between the ages of 30 and 60 who are disenchanted with the whole “cinema in malls” experience currently dominated by teenagers. Despite the increasing numbers of cinema outlets — in some cases within months of each other — it appeared there were no venues that catered to that age group. Besides, according to Haddad, since Empire is in the process of constructing a fourteen-screen project in Downtown Beirut, it was important that they create a different concept in the Sodeco outlet, so as not to cannibalize themselves.

With renovations costing $1.5 million, the Sodeco theater targets upper class professionals who would appreciate such a venue, and those under 18 years of age will not be permitted. Empire looks to make profits in ways other than individual ticket sales. Theaters can be rented for corporate events and private showings for live broadcast events, making the venue even more attractive — especially during football season. Revenues through luxury advertising will be another moneymaker  as it would create a niche market for advertisers, gathering their potential clients in one place — Aishti and Lotus have already confirmed their interest.  

In the era of DVDs and home theaters, cinema operators have to be creative in coming up with experiences to compete with the comfort of one’s homes. With Empire Sodeco, Haddad believes his plan provides his audience with exactly that experience.

February 28, 2013 0 comments
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The Buzz

Morning briefing: 28 Feb 2013

by Executive Staff February 28, 2013
written by Executive Staff

Economics

Lebanon’s transportation unions put on hold Wednesday a strike scheduled for Thursday after the prime minister promised to take action on soaring fuel prices and make adjustments on new traffic law.

More from The Daily Star

 

Egypt's government deficit rose by more than a third in the seven months to the end of January from the same period a year earlier, state media reported on Wednesday.

More from Reuters

 

Iran gave an upbeat assessment of two days of nuclear talks with world powers that ended on Wednesday, but Western officials said Tehran must start taking concrete steps to ease mounting concerns about its atomic activity.

More from Reuters

 

The Lebanese Cabinet has extended the contracts with mobile operators Alfa and touch until the end of June and authorized the telecommunications minister to prepare for a new tender.

More from The Daily Star

 

Companies

First Gulf Bank, the UAE's second-largest lender by market value, expects its loan book to grow by 10 percent this year, driven by higher demand from consumers and government bodies.

More from Reuters

 

The Kuwaiti mobile operator Wataniya Telecom is expecting revenues from data to grow to 25 per cent of total sales by the end of this year.

More from The National

 

An Iraqi Airways plane landed in Kuwait City on Wednesday for the first time since Iraq's invasion of the emirate in August 1990, after a commercial dispute was resolved.

More from AFP

 

Barcelona soccer star Lionel Messi has become a global brand ambassador for Ooredoo, the Qatari telecoms operator formerly known as Qtel.

More from Gulf Business

 

Dubai’s Arabtec slumps to a six-week low after the contractor announced it aims to raise $1.8 billion through a rights issue and a convertible bond.

More from Reuters

 

And finally…

Consumers in the GCC are spending $2m a day eating at fast food giant McDonald’s, as the company experiences record growth in the region.

More from Arabian Business

February 28, 2013 0 comments
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Finance

MENA stock tips 2013

by Maya Sioufi February 28, 2013
written by Maya Sioufi

Global markets that began to rally in mid-November in anticipation of a resolution to the United States’ “fiscal cliff” are now making investors edgy, with major economies still shaky. This month, Executive sits again with Georges Abboud, head of private banking at BlomInvest, and Amer Khan, fund manager at Dubai-based Shuaa Asset Management, for their top investment recommendations.

Georges Abboud

Should we invest in the markets now? “It is hard because markets went up so quickly,” says Abboud. Still, he would add exposure to the US due to the deleveraging of the financial sector in the past couple of years, the recovery in US real estate and industrial sectors, and the low energy production costs there due to the use of shale gas (which faces heavy opposition in Europe). He is more cautious about Europe, especially with the euro trading at its current levels (the euro dollar rate was at 1.34 as Executive went to print). He recommends starting to place shorts on the euro and adding shorts if it strengthens further to reach 1.40 to the dollar.
 

Major concern in these markets? “Sovereign debt”, says Abboud. “If you have a sovereign debt problem, you have problems with banks that can’t sustain the debt.”

Thoughts on Middle East and North Africa markets? Consistent with previous recommendations to Executive, Abboud still has an appetite for exposure to Saudi Arabia due to the kingdom’s solid fundamentals. He would also invest in Lebanese equities with a strong preference for Blom Bank — the bank he works for — due to its cheap valuation and solid dividend yield standing at 5 percent.

Top investment tips? At the end of last year, Abboud recommended to Executive readers to short the yen; own Google, Total, General Motors and Nissan for US large cap companies; LinkedIn in the US and Groupe Eurotunnel in Europe for smaller companies; and Blom and Solidere for Lebanese equities. These recommendations generated an average return of 24 percent, assuming the investments were equally distributed. Going forward, he recommends keeping Google, adding LinkedIn and General Motors on any correction, and building exposure to German automotive company Daimler AG.

Amer Khan

Thoughts on global markets? Khan expects 2013 and 2014 to be good for equities on a global level given the solid economic data coming out of the US and China. “Two of the largest economies will end up with a solid year and they will pull the world along,” says Khan. As for Europe, he believes it is in nobody’s interest to have a large fallout — be it a Greek exit or a breakup of the currency — and “when push comes to shove, Europe tends to come together and think outside the box,” he adds.

Expect more flows into MENA equities? With not much left in the bond market as yields are at multi-decade lows, “equities are the natural place to invest,” says Khan. He is positive about the valuation of equities in the region and the solid fundamentals of companies with strong balance sheets that operate in economies with no fiscal issues and offering attractive dividend yields. He expects investors to eventually look at the fundamentals and deploy further capital into this asset class.

Favorite countries in the region? For 2013, his top three equity markets to invest in are Saudi Arabia and Qatar, due to their commitments to high levels of government spending, and the United Arab Emirates for the attractive valuation of its stock market.

MENA equity market most likely to surprise on the upside? “If the Egyptian government gets its act together, it could probably be the biggest surprise”, says Khan. He also highlights Amman as another market, which investors have been shying away from recently. “If regional markets were to rally, inevitably people will be looking for laggards and Amman might be it.”

Top sectors in the region? He recommends investing in the UAE banking sector given the banks’ solid capitalization, the valuation discount relative to their regional peers and the attractive dividend yield. He also recommends investing in consumer plays in Saudi Arabia through buying stocks in consumer staples and consumer discretionary sectors, given the government’s spending commitment. He also likes real estate in Saudi Arabia given the country’s housing shortage but would play this theme via the banking sector as real estate companies are low on disclosure.

Top three stocks? Union National Bank in the UAE, electronic retailer eXtra in Saudi Arabia and Qatar National Bank.

February 28, 2013 0 comments
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The Buzz

Morning briefing: 27 Feb 2013

by Executive Staff February 27, 2013
written by Executive Staff

Economics

Gold traded flat on Wednesday, perching near a 1-1/2-week high hit in the previous session as the US Federal Reserve reassured investors of its commitment to loose monetary policy, burnishing bullion's appeal as a hedge against inflation.

More from Reuters

 

Lebanese civil servants and teachers will march on Wednesday toward the government’s headquarters in Beirut to increase pressure on the Cabinet to refer a wage hike draft bill to Parliament.

More from The Daily Star

 

The Institute of International Finance estimated that Lebanon’s GDP growth fell to 0.8 percent in 2012, down from 1.8 percent in 2011, saying the decline highlighted the need for a stable political environment and structural reform.

More from The Daily Star

 

Companies

Lebanon's energy ministry has signed a $348 million contract with a Danish-German consortium to build new power plants in Jiyyeh and Zouk.

More from The Daily Star

 

Qatar’s sovereign wealth fund has hired UBS to advise on a possible $3 billion investment in Russian state-owned bank VTB.

More from Reuters

 

The Abu Dhabi stock exchange is looking to list some of the emirate’s large private companies to help boost liquidity on the bourse and ensure its benchmark index better reflects the economy, its chief executive has said.

More from Gulf Business

 

Lebanese property developer Solidere expects to report lower profits for 2012, its general manager said, describing the company’s share price as “severely undervalued” because of political instability and Syria’s civil war.

More from Reuters

 

Dubai's Emirates Airline, the largest customer for Airbus's A380 superjumbo, is confident in the safety of the aircraft, Sheikh Ahmed bin Saeed Al Maktoum, chairman and CEO of the carrier said.

More from Arabian Business

 

Marriott plans to open a further 49 hotels across the Middle East and Africa region during the next five years.

More from Gulf Business

 

Goldman Sachs has raised net profit estimates for Air Arabia, the region’s fast growing low cost carrier, in fiscal 2013-14 on improving earning margins driven by lower costs and increase capacity.

February 27, 2013 0 comments
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Real Estate

Signs of a UAE stock surge

by Thomas Schellen February 27, 2013
written by Thomas Schellen

The twin exchanges of the United Arab Emirates — Dubai Financial Market (DFM) and Abu Dhabi Exchange (ADX) — have had a positive start to 2013, particularly when compared to overall emerging markets trends.

From the opening on January 2 until close on February 25, the MSCI Emerging Markets Index (MXEF) — the world’s most prominent emerging markets index — retreated by around 2 percent. In contrast the UAE benchmark indices soared in the same period: the ADX added 14.2 percent and the DFM’s rise was just a decimal short of 20 percent.

Juxtaposed with the troubles in emerging markets, which analysts saw linked to weaker prospects for exports to the United States and European Union, the gains of both ADX and DFM make the UAE equity markets look their strongest in years.

Riding the real estate

The most exciting stocks to watch in the UAE over the period were the big names in real estate. In Abu Dhabi, the slowly progressing merger project of developers Aldar and Sorouh boosted shares of both companies. From the time that their boards recommended the merger in January, up until the companies had to postpone extraordinary general meetings (EGM) of shareholders on February 21 because of insufficient stock representation, Aldar gained 4.1 percent and Sorouch 9.4 percent, according to Reuters.

Favorable votes in the shareholder assemblies are needed for approving the merger but there is high confidence that the second round of voting on March 3 — when only a 50 percent representation of stock is required for a quorum — will yield the shareholder approval. 

In Dubai, the first two months of 2013 marked the resurgence of the King Kong of regional real estate stocks: Emaar Properties. The company, the developer of Burj Khalifa and arguably the region’s best-known real estate company, surged in both value and volume of trade. Between December 26 and February 25, the stock gained an astounding 43 percent and closed at its highest since those days of encroaching darkness in November 2008.

Some investors cashed out on Emaar stock when the company announced on February 26 that it will not increase its dividend payment. From a daily markets performance, this meant a snag of -2.84 percent for the company, just as other property leaders Aldar and Sorouh dropped a few days earlier in wake of their postponed EGMs. However, those kinks in the paths of the three biggest names in UAE real estate pale when gauged against the enthusiasm that these real estate stocks have attracted in the year to date.

Emaar was quite instrumental in sparking new interest in the UAE real estate equities. The company’s glowing sales reports, and stories of newly extreme demand from property buyers in the last quarter of 2012, contributed a major thread to the narrative that Dubai real estate is recouping its state as an economic driver.

Warning signs

While UAE watchers will be happy to see strong growth, the concurrent surge of real estate stocks and UAE indices also carries a warning message. While the past four years have been characterized by growth in tourism, retail and some industrial activities, real estate stocks seem to be the lead ingredient that makes the stock indexes fly.

The fact that the spike in the indexes coincided with property increases shows that the UAE economy is anything but de-coupled from its property market. Whether that linkage is a great thing in what it says about the perception of the UAE economy, remains a matter of perspective.

But the focus on notoriously unpredictable real estate market leaves the UAE’s stock markets prone to surges. Smart investors should be wary of this.

February 27, 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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