Banking & Finance

Money Matters by BLOMINVEST Bank

by Executive Staff
written by Executive Staff

Regional stock market indices

Regional currency rates

Saudi Arabia’s Liquidity Reaches $267B

Saudi Arabia’s liquidity rose to 1 Trillion Saudi Riyal ($267B) as the Saudi Arabian Monetary Agency (SAMA) adopted a list of measures to enhance banks’ lending ability. SAMA cut interest rates five time since October to encourage banks to finance new projects. Nevertheless, banks are still cautious about lending that led non-statutory deposits with SAMA to hit 74 Billions Saudi Riyal ($19.7B). In a related economic news, the IMF forecasted that Saudi Arabia’s economy will shrink by 0.9% in 2009 as a drop in oil prices coupled with a global credit markets crisis will harm the economy by hurting exports, investments and consumer spending.    

The Jordanian $10B Seawater Desalination Plant

In a strategy to save the Dead Sea from constant shrinking and to provide the Kingdom with much needed fresh water, the Jordanian government will implement a $10B seawater desalination plant project that is expected to be completed within 25-30 years. The project aims at addressing the country’s severe water shortage by providing 120 million cubic meters (mcm) of water in 2014 and expanding to 700mcm in later phases. The government also announced the development of other projects such as the manufacturing of military aircraft in Mafraq, in addition to the $100M loan agreement signed with the French Development Agency and the European Investment Bank for financing the Disi Water Conveyance Project. Worth noting that the Jordanian government and Shell signed an agreement where the latter will explore and extract oil shale reserves.

Kuwait’s Budget Surplus to Hit $20B

Kuwait’s budget may register a KD6.09B ($20.8B) surplus for the year 2008-2009, beating the budget draft projection of a KD7.5B ($25.61B) deficit, according to the country’s Finance Ministry. Total Revenues were KD21.1B ($72.8B), whereas expenditures totaled KD15B ($51B). Oil profits represented the bulk of revenues with a 94% stake ($68B), well above the forecasted ($40), as the 2008-2009 draft budget used an average oil price of $50 a barrel while oil peaked at $147.5 a barrel in 2008. Worth noting that the country posted a KD9B($30B) surplus in 2007-2008. Separately, in order to absorb the liquidity excess, the central bank of Kuwait  issued KD908M of treasury bonds in 2009. The auctions were successful with a high bid to cover ratio of 7, as investors showed interest in the country’s bond market at a time when the Kuwaiti equity index is negatively performing throughout 2009. 

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Capitalist Culture

America’s debate

by Michael Young
written by Michael Young

Rarely has the Middle East been as distant as it is today from the principles of capitalist culture — a culture of open minds and open markets. Some markets are opening, very gingerly, but by and large the Arab world continues to perfect its reputation as a place where minds are kept resolutely closed.

Enter a recent article by Richard Haass, the president of the Council on Foreign Relations. Haass has always been among the more effective proponents of a realist foreign policy, whereby the US should pursue its international aims according to a cold reading of where its national interests lie, without making it a priority to spread particular values, whether political, economic or social.

Against this stands, supposedly, a more idealistic foreign policy, one focused on values. Idealists believe the US, and the international community in general, must make a priority of advancing human and humanitarian rights, freedom, democracy, and so forth. For this to be effective, it means that powerful states like the US must shape even the internal behavior of states less committed to these values. That is why in his article, Haass writes that no debate is more persistent than that between those who believe that American foreign policy’s principal purpose should be to influence the external behavior of other states and those who hold that it should be to shape their internal nature.

Haass’ argument is a cry of triumph. After eight years of the two George W. Bush terms, during which the US made (or claimed to make) the spread of democracy a national priority, particularly in the Middle East, Haass points out that Barack Obama seems to be a realist, and that this change is both desirable and necessary. Democracy promotion is an uncertain proposition, Haass writes, because mature democracies do tend to act more responsibly, but immature democracies can easily succumb to populism and nationalism. While the US should advance democracy, democracy promotion is too uncertain a proposition, and the world too dangerous a place, for it to occupy center stage in what the United States does.

One can dispute this. The essence of realism is that it breeds a fairly stable international order. Realists believe that if states are left to manage their own domestic affairs, without outside interference, they will generally behave responsibly. However, how true is that proposition? Is a dictator who has few constraints on his power more likely to respect international law, let’s say, than a democracy? Saddam Hussein did not. But even more minor figures, such as Presidents Bashar al-Assad of Syria and Omar Bashir of Sudan, have destabilized the countries around them in order to advance their interests and protect their regimes.

While dictatorships don’t necessarily breed instability, they are more prone to do so because their leaders do not fear accountability. What Haass gets wrong in his injunction that the US should not concern itself with the domestic abuses of dictatorships is that Arab dictatorships on the wane often create the most unstable regimes of all, because the only forces capable of replacing them are radical Islamists. What is the major source of regional instability in the Middle East today but an Iran that believes the time is ripe to impose its will on declining Arab despotisms, which are the same despotisms Haass insists the US should not try to change because that is not in its interest?

However, it is in economics that Haass’s arguments also require closer scrutiny. He writes that while encouraging the rule of law and civil society growth, the US must work with undemocratic governments because pressing problems, such as the economic crisis, nuclear proliferation and climate change, will not wait.

Quite right, but when Haass mentions the economic crisis, is he, similarly, of the view that state sovereignty should prevail? Is he just as clear that the principal purpose should be to influence the external behavior of other states, as realists believe, and not that it should be to shape their internal nature, as idealists believe?

Obviously, these neat absolutes don’t apply when it comes to the global financial crisis, which can only be resolved in a cooperative, global fashion where strictly national priorities, like protectionist measures, may endanger the financial interests of the international community. If ever there was mounting pressure on states to bring their domestic economies in sync with a global need, whether in terms of increasing government regulatory oversight, the loosening of credit, or the preservation of open markets, it is now. Obama may be a political realist, but he has led an international effort to revive the global economy that can only be deemed idealistic, especially in the moral opprobrium directed against those who made the crisis possible.

Realists believe they are back, particularly in the US. But there is much more to state relations than politics. No zero-sum game is possible between realism and idealism, because events invariably intervene to bring the ideologues of both back down to earth.

Michael Young

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Banking & Finance

Societe Generale de Banque au Liban – Georges Saghbini

by Executive Staff
written by Executive Staff

E Marwan Iskandar recently said that it is not realistic to think that Lebanon has not been affected by the global financial crisis, especially considering the public debt; what’s your take on this?

I don’t really think that the banking sector in Lebanon was affected by the crisis. There is only one way that the banking sector can be affected by the crisis, which is remittances. For the time being, this indicator is doing well.

E How will the parliamentary elections in June affect the banking sector?

Let’s be optimistic! What can go wrong with the elections? The system has shown its resiliency to all kind of crises. The key parameter of this macroeconomic setting is the stability of deposits and deposits in Lebanon represent more than 300 percent of GDP.

E Some believe that by lending the government money, Lebanese banks are actually helping to perpetuate the country’s debt problem. How much longer can the banks carry Lebanon’s debt?

The Association of Banks in Lebanon has issued statements saying that the government has to be more aware. The government has to take more critical measures to restructure the debt such as privatizing what needs to be privatized in order to decrease the debt. This not only applies to the nominal value of the debt, you can decrease the ratio of public debt over GDP, which is a more significant indicator than nominal value. Lastly, the state cannot manage Électricité du Liban; it’s not its role.

E If you were to prepare a list of requests for the new government, what would they entail?

Public sector reform in its broadest meaning in terms of less red tape, greater efficiency, introduction and strict implementation of accountability at all levels, combating corruption, budgeting according to international principles, rationalization of public spending, computerization of public administration, registers, supplemented by an in-depth reform of the judicial system.

There should also be a privatization of key sectors such as the mobile networks, public transportation, and possibly the management of water and power networks.

E Do you expect to see mergers and acquisitions in the Lebanese banking sector?

Yes, the banking sector is very small compared to the region. Our capitalization is still low for each bank. The small banks should consolidate. It’s definitely something that has to happen somehow.

E Due to the slower pace of lending to the private sector compared to public sector lending, many feel that banks in Lebanon should increase their lending and are pressuring the central bank to lower interest rates in order to stimulate investment in the private sector and SMEs. What is your take on this?

The private sector has to be more structured to come and ask for loans. They also have to be more capitalized.

E Seeing as Lebanese banks are heavily exposed to government paper and thus largely dependent on government debt, is geographic expansion the solution to reducing dependency and strengthen the sector overall?

Definitely, because we’re a small economy.

E What are the top issues and concerns for Lebanese banks in 2009?

The risk factor is always the greatest concern, because as long as Lebanon’s risk is perceived as stable, or better still, improved, the stress in the money market is limited and banks are comfortable with doing business. Should elements of instability interfere, higher market stress will mean more expensive money and reduced or more expensive lending, which would penalize the domestic economy.

The international financial crisis and its direct impact on Lebanon has, until now, been basically limited to the return of human resources from Europe and the Gulf, as well as by a weaker appetite for real estate. The effects of the crisis will continue to be felt in the West and in the Gulf for several months, and the wave is bound to reach Lebanon, albeit indirectly, through a slowdown in the real economy. For banks, this means a slower dynamic and a shortfall in transfers, thus a slowdown in consumption as well.

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Banking & Finance

Lebanese Canadian Bank – Georges Abou Jaoude

by Executive Staff
written by Executive Staff

E Marwan Iskandar recently said that it is not realistic to think that Lebanon has not been affected by the global financial crisis, especially considering the public debt. He said that one way to deal with the public debt from worsening would be through government reforms; what’s your take on this?

We shouldn’t kid ourselves. Because of globalization, I doubt that any part of the world or any living creature has not been affected by the crisis. We have been hit a little bit less than other economies. We can feel effects on the real estate sector — prices were booming, now they have stabilized or are receding. What Iskandar said, to a certain extent, is true. As far as the banking sector goes, it is helping the government financially. We are making life easier for the politicians. In my view, we should apply many more conditions when we lend to the government.

It’s true we are giving a lot of money to the government. In return we should ask them to be keen on having an economy that grows much faster than the current one. The fact is most Lebanese production is done abroad. We are the only country in the world where our gross national product is much higher than our gross domestic product. I wish we could measure our debt to our GNP — the GNP is very difficult to measure, but with some effort from the government we should be able to measure this amount.

E Due to the slower pace of lending to the private sector compared to public sector lending, many feel that banks in Lebanon should increase their lending and are pressuring the central bank to lower interest rates in order to stimulate investment in the private sector. What is your take on this?

The central bank recently issued a new financial plan, which would help the private sector get money at a much lower rate, especially in Lebanese lira. They need to nationalize the economy and this is one way of doing it. I don’t think the economy in Lebanon needs much more money than it is already getting from the banks. On the other hand, the total deposits in Lebanese banks are much higher than what the economy needs. Deposits in Lebanon, which are over $800 billion, are almost three and a half times our GDP last year.

E The central bank governor, Riad Salameh, believes that if elections go smoothly, economic growth could exceed 6 percent, with the summer months accounting for 65 percent of Lebanon’s economic activity. How will the upcoming parliamentary elections in June affect the banking sector?

History has proved that Riad Salameh was right, while the International Monetary Fund was wrong for the last 13 years with respect to Lebanon. This is why he was applauded in Washington. I would say that if we have a smooth election, with summer coming and the inflow of tourists and the Lebanese diaspora, I wouldn’t be surprised to have a much higher growth [rate], especially considering that the Lebanese banking sector has proved resilient.

E Seeing as Lebanese banks are heavily exposed to government paper and thus largely dependent on government debt, is geographic expansion the solution to reduce dependency and strengthen the sector overall?

It is a necessity. Salameh is encouraging all banks to go abroad for many reasons. The first being that the resources the banking sector has are bigger than what the Lebanese economy needs.

E If the central bank had not prevented local banks from investing in structured products, derivatives and toxic assets, do you think they would have invested in them?

Lebanese banks are relatively very conservative. Nevertheless, there would have been much more losses than what they have incurred, which happened to be meaningless versus their equity.

E What will happen to foreign remittances into Lebanese banks this year? Will they beat last year’s record of over $6 billion?

Up till now, we haven’t felt a slowdown in remittances. Many people are afraid that many Lebanese employees from overseas would come back to Lebanon. I think that is overstated.

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Banking & Finance

Bank of Beirut – Salim G. Sfeir

by Executive Staff
written by Executive Staff

E What is the main reason you believe that Lebanon’s banks have weathered the worst effects of the global financial crisis?

The year 2008 confirmed to us that what characterizes the Lebanese economy is its resilience to the aftermath of the global crisis that affected many wealthy and strong countries. In my opinion, the main reason behind such resilience lies in the strength and breadth of the Lebanese diaspora, which derives an annual value added almost as large as the entire Lebanese GDP. This translates into sizable incoming foreign remittances that reached around $5.6 billion last year, and which have been instrumental in equilibrating the country’s balance of payments, hence contributing to reviving the economic cycle and to supporting the domestic currency.

E Even so, hasn’t the financial crisis affected Lebanese banks to some extent?

The Lebanese banking sector has long proved its resistance in the face of the various crises that our country faced during the last decades, including the latest global financial crisis. It goes without saying that such resilience is not a result of chance; but is instead a combination of several factors such as the personal skills and talent of Lebanese bankers whose competency has long been confirmed whether in Lebanon or in several other countries. Another factor is the leadership and vision of the monetary authorities represented by the governor of the Central Bank of Lebanon, which led to a stable monetary and banking environment as well as strict regulations that are being enforced thanks to the effective contribution of the Banking Control Commission.

The biggest concern of the banking sector remains tied to any disruption in the country’s political stability, which exerts considerable influence on the economic stability so that we can say that there is no financial soundness in the presence of political shakiness. Banks, as funds takers, are accountable for the deposits of their customers, and such responsibility requires an active participation to preserve the financial stability and the high liquidity of the banking system.

E What have you learned from the global financial crisis?

The main lesson learned by banks is that they should strictly apply the principles of risk management on all their investments, control the levels of financing in terms of leverage and avoid investing in complex financial structures that are not backed by real securities.

As for the most important lesson, it is undoubtedly that, in the long run, the best investments are in real estate, since other types of investments could evaporate rapidly while fixed assets’ value will always subsist.

E What is the current liquidity status of banks in Lebanon?

Another characteristic of the Lebanese banking sector lies in the strong balance sheet liquidity which, at around 30 percent, is one of the highest in the world. Such levels have been attained via the combination of the prudent policies of the Central Bank of Lebanon as well as the conservative management of the Lebanese banks, which learned from previous experience and kept high levels of liquidity to face any contingency. Liquidity is a “safety cushion” for Lebanese banks as it enabled them, in times where their capitalization dropped to extremely low levels, to continue operating as usual because they had liquidity, without which their role would have been over. This lesson cannot be forgotten by Lebanese banks.

E What is your opinion on the central bank’s policies from a historical perspective? Have they always been as prudent as you say?

The central bank is the far-sighted safety valve of our banking system. The central bank has always had a very effective role in providing monetary stability since 1993, which was not the case previously. Just as a reminder, the central bank was founded in 1964 and in 1966 the Intra Bank crisis took place; its repercussions continued until 1975, when the war began, and the price of the dollar jumped from 2.5 Lebanese lira to 2,800 Lebanese lira.

Ever since the year 1994, the central bank’s governorship has pursued a policy of stabilizing the exchange rate, which has been maintained at around 1,500 Lebanese lira for several years. This has allowed investments and projects to be undertaken continuously, despite all the volatility and uncertainties encountered by Lebanon, the most important of which being the assassination of [former] Prime Minister Rafiq Hariri.

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Banking & Finance

Banque Libano-Francaise – Walid Raphaël

by Executive Staff
written by Executive Staff

E Marwan Iskandar recently said that it is not realistic to think that Lebanon has not been affected by the global financial crisis, especially considering the public debt; what’s your take on this?

It’s clear that we cannot say the international crisis has not affected Lebanon. We live in a global economy and Lebanon is very involved in the world; many Lebanese work abroad so they will either not be able to send any money or will send less money home. Up till now, a reduction of remittances has not materialized but we have not seen any figures, it’s just speculation. This is only part of the equation.

The first [Lebanese] people that were really affected by the crisis in the Lebanese diaspora were those working in the banking sectors abroad. Nevertheless, what we’ve experienced in the past few years is a very strong euro and very strong commodity prices and we should see much less inflation this year. Also, the Beirut Stock Exchange was affected by the crisis but it was delayed.

Moreover, depositors realized that the profile of risk for Lebanese banks was totally different than other banks abroad, because they didn’t have structured products or toxic assets. First of all you have the central bank’s regulations, but also there is the conservative approach of Lebanese bankers. We’re used to crises in the past, so we always have to be cautious and keep very high liquidity. If you look at the past four years, there have been major earthquakes — the first being the assassination of [former Prime Minister] Hariri. After that catastrophe we had only 3.5 percent of withdrawal from the banking system. After a couple of months the money came back and we had a strong increase over that year.

E Some believe that by lending the government money, Lebanese banks are perpetuating the country’s debt problem. How  much longer can the banks carry Lebanon’s debt?

There are definitely structural reforms that have to be implemented. All the economic associations have asked for this for years. The Lebanese economy has huge potential and we need politicians to help raise this potential, and this will only happen through new reforms. We hope that with the new parliament, the right decisions will be taken towards reforms.

As banks, we are not encouraging the government to raise the public debt. We’re playing an active role to help the government and the state reform in order to help the economy grow. We believe there’s huge potential in the economy, we can easily double the GDP just by letting private initiative work. If you have the right set of laws and reduce bureaucracy, you will probably see a doubling of the GDP. If the GDP doubles, the level of debt that Lebanon has today will be reduced by half and it will be equal to the ratio you are seeing today in the Western world. Already you can see that the ratio of debt over GDP reduced tremendously last year, because of the strong increase in GDP and because of inflation. This is a manageable issue, but the most important thing really is to let people work, develop the economy of the country and continue to attract foreign direct investment in Lebanon.

E Do you expect to see mergers and acquisitions in the Lebanese banking sector?

Definitely there is very strong competition between banks and I think the Lebanese are getting the benefits of this competition through unbelievable rates for their deposits and their credits. Mergers and acquisitions is something that’s needed for the banks to be larger, stronger and play a major role in the region as well as on a global scale. It’s something we’d like to see but it’s not easy. The 10 largest banks in Lebanon account for 90 percent of the total balance sheets of the banks; so the other 45 groups are boutiques.

E In your opinion, what are the top issues and concerns for Lebanese banks in 2009?

To continue to see the internal stability and security, this is key for the development of the banking system and the economy. We’re monitoring the global crisis, because we’ve been quite immune up till now but if this crisis lasts we’ll definitely see an impact on businesses in Lebanon.

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North Africa

Constructing stimulus

by Executive Staff
written by Executive Staff

Construction has long been a mainstay of the Tunisian economy, and this year new projects will help stimulate an economy that is likely to see a contraction resulting from the global financial crisis. Since Gulf investors stepped up their interest in 2006, the construction sector has been dominated by high-end, mixed-use developments, but this year domestic spending on infrastructure and housing is a top priority.

Tunisia’s fourth largest industry in 2008 was construction. According to Chokri Driss, the director of the National Federation of Buildings and Public Works Entrepreneurs, it accounted for approximately 7 percent of the economy and employed 33 percent of the working population. But its strength is a relatively recent development.

Although the government has long encouraged private investment, the sector suffered from a lack of financing until 2006 and was characterized by small-scale local investments. Since then, the promise of Gulf investments totaling nearly $50 billion has led to new competencies and a revitalized sector.

Foreign direct investment will likely now be harder to secure, particularly for luxury proposals. For even though big residential, office, retail, tourism and leisure complexes are still in the works, the downturn has led to slower progress.

Despite these factors, foreign direct investment remains a central component of the government’s plan to upgrade infrastructure and spur on construction, with expansion set to continue. A $550 million project for the Enfidha Airport, 80 kilometers south of Tunis, was awarded to the Turkish firm Tepe-Akfen-Vie Airports Holding, under a build-operate-transfer contract, and is slated for completion by October. The Japanese International Cooperation Agency’s joint roadway project with the Tunisian government to build the $106 million Radès-La Goulette highway in Tunis is also in its final stages.

In January, Slaheddine Malouce, the minister of equipment, housing and physical planning, announced that $318 million would be allocated to development. Projects under the new spending plan include extending existing highways, such as the Tunis-Hammamet-Sud and the Sfax-Gabe connections, the upgrade and consolidation of roads and the construction of new bridges.

In addition to transport infrastructure, foreign investors are also providing financing for energy facilities, such as France-based Alstrom’s construction of a 400 megawatt power plant that is expected to be operational by the end of 2009, the joint Tunisian-Italian El Haouaria 1,200 megawatt gas plant, and the joint Spanish-Tunisian Bizerte project to build wind turbines that will generate 120 megawatts.

Malouce also unveiled the government’s plan to build new low and middle-range housing units. There has long been a shortage of affordable housing in Tunisia, and with the population growing at an annual rate of 1.2 percent, the lack of supply is becoming increasingly pressing. The centerpiece of the strategy is the eleventh development plan, which calls for the construction of 300,000 homes.

In 2009, the Société Nationale Immobilière de Tunisie plans to build nearly 3,000 homes throughout the country, 58 percent of which will be low-range units and 36 percent mid-range. The government is also working to develop a village for social housing in the governorate of Ariana, which will include 1,700 homes.

Making the old new again

There are also plans to revitalize older communities. An urban renewal program will target 200,000 inhabitants in 56 districts from 2009 to 2012, primarily by addressing the lack of basic infrastructure. The program, which covers sanitation and utilities, also finances s economic activities such as the construction of roads and the extension of waste-water treatment canals and  storm-water drainage.

While the majority of these investments will go toward upgrading infrastructure, 30 percent is reserved for microcredit, trades and training, which will enable small business owners to access funding, as well as prepare unskilled workers for the job market.

The government hopes that holistic community development programs will help ease the difficulties of the slowdown in growth, giving residents the necessary skill sets to find work. By channeling these plans through construction projects, the government is both filling a necessary housing gap and using public funds to stimulate the economy during a difficult period.

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North Africa

Strengthening connections

by Executive Staff
written by Executive Staff

A recent internet disruption in Algeria was a sobering reminder of the challenges the country’s internet services sector faces. It also underlines the importance of the government’s continuing efforts to develop a comprehensive internet policy framework, while highlighting the potential for WiMAX licensing and the development of asymmetric digital subscriber lines (ADSL).

Algérie Télécom (AT), the public telecommunications company, attributed the limited nationwide connectivity to a rupture in one of the two submarine fiber-optic cables that provide Algeria with its broadband data network. The ruptured cable, named the South East Asia-Middle East-West Europe 4, is maintained by France Télécom Marine, and extends from Marseille to Singapore with a stopover in Annaba, east of Algiers. All of the data activity was transferred to an already saturated cable system, ALPAL-2, which connects the island of Majorca to El Djemila, near the capital. The result was a slow to non-existent connection for Algeria’s ADSL subscribers.

The disruption’s impact on local businesses was limited though, due to the low level of connectivity. Algeria has few internet-based businesses, although in recent years it has become a popular destination for call centers.

Internet connectivity in Algeria’s business community can be broken down into two sectors. State-owned companies, which dominate market activity, rely on phone and fax as their primary means of communication, although email is on the rise.

Larger multinationals, primarily in the oil and gas sector, tend not to rely on the local networks, opting for more stable but costlier satellite-linked very small aperture terminals (VSAT) or WiMAX solutions. These corporations cannot afford to have internet downtime or have operations in rural areas not covered by the ADSL network. Oil and gas rigs, for example, transfer high volumes of data to headquarters on a daily basis.

“There is no way of knowing what is going on in a rig unless it is connected 100 percent of the time,” said Stéphane Valici, the chief executive officer of Divona, a licensed VSAT operator.

The propensity of multinationals to rely on alternative forms of connectivity highlights the enormous potential in the country’s IT sector. WiMAX technology, if properly exploited, is capable of providing broadband internet access to consumers without the need for cables. This is of crucial importance since much of Algeria’s connectivity problems stem from its “last mile” cable network — the final link from the provider to the consumer — rather than the internal fibre-optics.

According to Mohamed Fadi Gouasmia, the general manager of Anwarnet, “WiMAX eliminates the need to depend on this cable network by going completely wireless.”

So far, national scale investment in WiMAX has been limited by the lack of a licensed operator. However, this is now slowly starting to change. The government has begun to hand out exploration authorizations, to seven companies thus far, allowing them to operate WiMAX services over the 3.5 GHz frequency. However, only three of these companies are actively marketing WiMAX services. Divona’s Valici and Anwarnet’s Gouasmia both agree the bandwidth provided operators is too limited for them to expand.

Some of these players do not have adequate resources and consolidation in the industry is being delayed due to the uncertainty regarding their status if a license is issued. Furthermore, companies are not allowed to cede their licenses, nor be acquired without the approval of the national regulator, Autorité de Régulation de la Poste et des Télécommunications.

“WiMAX technology,” Valici said, “is likely to remain a niche in Algeria unless licensing issues are resolved.”

For now, retail users and small and medium-sized companies must use the country’s oversaturated ADSL network. Ali Kahlane, the CEO of Satlinker, an internet service provider (ISP) and virtual private network operator, said this underlines the need for an upgraded ADSL network.

“AT heavily promoted its ADSL services by lowering prices without expanding its bandwidth,” said Kahlane, who is also the current head of the Algerian Association of ISPs.

This promotion, without expanded capability, caused network oversaturation. There was a rush to sign-up in high-density urban areas, and subscriptions ran out quickly.

Other areas with lower populations often have excess capacity. The network is in need of a overhaul that will allow for increased internet penetration and a rise in subscriber numbers. Officially, ADSL penetration has reached 430,000, with 500,000 connections available.

And yet the future looks positive: Kahlane says the Ministry of Post, Media Technology, and Telecommunication and Algérie Télécom have “noticeably” begun to separate “internet policy from telecoms policy,” which will provide a more rigorous legal framework for IT connectivity.

Given the potential in both the corporate and retail segments, combined with an impending $150 billion government spending plan, a robust strategy to build a strong information and communications technology sector could improve Algeria’s profile as a knowledge economy.

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North Africa

Bank kings

by Executive Staff
written by Executive Staff

Despite continuing volatility in the global financial markets, Morocco’s relative isolation has thus far minimized the effects of the turmoil on the country’s banks. The Kingdom’s sound financial fundamentals may, however, still face the effects of a global contraction. Although these factors will certainly provide challenges in 2009, the central bank, Bank Al Maghreb, has already begun to take proactive measures, while the underlying strength of the banking system should prevent significant decline.

In a recent report, Standard & Poor’s credits highly restrictive regulations for reducing the North African nation’s exposure to international investment products. However, the analysis cautions that the weakening economy may become a risk to the banking sector as remittances, tourism inflows, trade volumes and foreign direct investment (FDI) decline. A drop in these sources of revenue, coupled with a correction in the real estate sector, may affect the strength of Morocco’s banks.

Still, the government is prepared to act pre-emptively to soften the results of the recession. One such effort was an interest rate cut in March. Bank Al Maghreb lowered its key interest rate from 3.5 percent to 3.25 percent, as inflation continues to decline. The interest rate cut follows the December reduction of the mandatory reserve ratio, as the government works to make more capital available to banks in a bid to stimulate lending.

Although lending was up 23 percent in December from the previous year, it declined from the 26 percent growth posted in the third quarter. Starting January 1, the central bank reduced the ratio three points to 12 percent, which will inject around $1.3 billion into the money market.

The cuts will help provide extra liquidity, but overall Morocco’s banks are in a good shape despite potential external shocks. In 2008, they provided $63.6 billion in credit, up nearly 23 percent on 2007, and received $70.1 billion in deposits, up 13 percent from the previous year.

The big players

The sector continues to be dominated by Attijariwafa Bank, Crédit Populaire du Maroc and Banque Marocaine du Commerce Extérieur, which posted healthy increases in net profit in 2008 of 27 percent, 16 percent and 46 percent respectively.

In recent years the banking sector has made considerable strides, with an October 2008 report from the International Monetary Fund noting that a number of reforms have been implemented and that the sector is “stable, adequately capitalized, profitable and resilient to shocks.”

The broad changes include the restructuring and privatization of previously specialized public banks, strengthening the power of the securities regulator Conseil Deontologique des Valeurs Mobilieres (CDVM), the modernization of the payment system, and the adoption of anti-money laundering and counter-terrorism financing laws. While there are still a number of areas that need reform, including the reduction of non-performing loans and the increase of accessibility, Morocco’s banks are steadily improving.

The sector’s strength will be increasingly important as the global slowdown affects the Kingdom’s other sectors. Morocco’s primary trading partner, the Eurozone, has contracted, and thus so too have some of Morocco’s significant revenues.

Manufacturing has always been a strong contributor to the economy, but exports fell 32 percent in the first two months of the year, including exports of electric cables, textiles, electronic components and phosphates.  

In the same period, remittances from Moroccans abroad have declined 15 percent.  Remittances have become a crucial source of foreign currency for both the country’s financial institutions and families.

Similarly, tourism contributes around 6 percent annually to GDP, but receipts were down 3.5 percent in 2008 compared to 2007, decreasing from $7.2 billion to $7 billion. 

This year may also prove a challenging time to secure FDI. Although Morocco is traditionally a major recipient, Europe’s recession and the Gulf’s declining oil prices will likely limit contributions. A reduction in FDI may also affect the real estate sector’s significant investment levels.

Construction and mortgage loans have been an engine of growth for banks in the past five years, but signs of a correction are showing, particularly in the luxury segment. According to Standard & Poor’s, if the correction extends to the middle-market segment, banks will feel the effects. Although unlikely to pose a serious problem for solvency, real estate will no longer be a reliable source of growth in the coming year.

Still, Morocco’s banks should be able to rely on a relatively strong economy in 2009, with economic growth expected to range between 5.8 per cent and 6.7 percent, roughly the same as in 2008. This steady growth rate should shore up banks’ confidence and maintain a rise in lending, thus ensuring a continuation in Morocco’s economic momentum, even during these difficult times.

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