One consequence of the population growth forecasted for the Middle East is the increasing need for affordable housing. Until recently, the region’s main property developers focused on the high-end market, while the public sector built subsidized homes for lower income groups. This stereotypical state of affairs has gradually changed face, as the tendency today is for governments to enter private-public partnerships (PPPs) with the region’s leading construction firms. 

Tameer Jordan, for example, is to construct 16,000 affordable homes outside Amman, and Orascom Hotels and Development (OHD) is building some 50,000 units in the 6th of October City on the outskirts of Cairo. Emaar recently won a $100 million contract to build social homes in Egypt and, as early as 2006, signed a memo of understanding with the Syrian government to build low-cost housing.

One thing is certain: constructing social housing is not just about solidarity, but makes perfect business sense. While very lucrative, the top-end of the market is limited in size as, at most, 20 percent of the region’s population is able to afford a top-notch villa or luxury apartment, let alone second, third or even fourth homes.

Market of the masses

“Some 80 percent of the world’s population lives on less than $10 a day, while some 50 percent live on less than $2.50 a day: that’s an enormous market,” said Markus Giebel, chief executive officer of Deyaar Development in the United Arab Emirates. “While it remains difficult to target the extreme poor, there are certainly opportunities in the low-income segment.”

Jonathan Reckford, CEO of Habitat for Humanity (HH), an American non-governmental organization constructing homes for the poor, explained that builders and property developers have so far largely ignored the lower-end market segments for a few basic reasons. The market’s top-end segment is extremely profitable, the region suffers from land scarcity, especially in urban areas, and zoning laws in most countries favor high-end development.

“Most importantly, it is extremely difficult for low-income groups to obtain mortgage loans, especially in the Middle East, while micro financing for housing hardly exists,” he said. “We have run such a program in Egypt for the past decade or so, and the results have been very promising. Over 95 percent of recipients pay their installments on time.”

The reason for the Egyptian government to downscale the role of its public building arm and enter PPPs, according to Egypt’s Minister of Housing Ahmed El Maghrabi, lies in the fact that the state simply cannot keep up with the rise in demand, which is mainly driven by a population growth rate of more than one million people a year.

“We will continue to work with the private sector in the future,” he said. “The government’s role will be limited to offering subsidized land and housing loans.”

One of the main contractors to build low-income housing in Egypt is OHD, which is in negotiations with the Turkish and Moroccan governments to build similar projects. Chairman and CEO Samih Sawiris said a number of conditions should be met to make PPPs regarding social housing schemes a success. First of all, he warned, companies that are only interested in making short-term profit should forget about entering the business.

“It’s a long-term investment,” he said. “Ultimately, it will make money through the appreciation of residual land values. The revenue cycle is 10 to 15 years.”

Sawiris stressed that high volume is crucial to keep construction costs down and urged governments to avoid the mistake of pushing the urban poor into an area or suburb far  from the urban core where, he said, they commonly make their money.

“People will refuse to go, as they do not have the money to commute,” he said.

Wrapped up in regulation

Finally, the state and its inevitable layers of red tape should stay away. Sawiris pointed to Egyptian regulations that stipulate a three-lane-road should be constructed when a project reaches a certain size. Yet most poor people do not drive and prefer to pay less for a sand road and have access to public transport instead. “Let the government provide the land and developers will do the rest,” he said.

There was one big absentee in the debate: green building. Can developers offer mass low-cost housing schemes and provide for green solutions in terms of water and energy use?

Maghrabi admitted that his government’s focus has been on housing people. Green building practices will have to come later. At next year’s World Economic Forum perhaps?  

From May 15 to 17 the World Economic Forum (WEF) on the Middle East took place on the hot and humid shores of the Dead Sea in Jordan. Some 1,400 participants from across the globe, including some 1,000 private sector representatives, 14 heads of state and dozens of ministers, traveled to the earth’s lowest point to discuss the socio-economic issues facing the region.

As is so often the case with mega-gatherings such as the WEF, the most interesting words and opinions were not always expressed in the main conferences; many were found in the topic specific debates taking place on the meeting’s sidelines.

Participants and press happily met over coffee, lunch and dinner. And eat well they did as, according to one cook at the King Hussein Conference Center, the food bill for the first day amounted to some $90,000. Fortunately, the WEF has its sponsors.

There was also some controversy before the meeting even started. A small group of demonstrators in Amman protested over the attendance of an Israeli delegation, including Israeli President Shimon Peres, which was arguably the reason there were no Syrian or Iranian representatives.

In his opening speech, Jordan’s King Abdullah II referred at length to the Nakba and the Arab Peace Initiative (API). According to him, the Nakba was not just a catastrophe for the Palestinians, but for the entire region and the world.

“As we feel compassion for all who have suffered, let us also commit to joining the solution as well,” he said. That solution, said Abdullah, is the API.

“We have committed,” he said. “So now must Israel. The API has offered Israel a place in the neighborhood and more: acceptance by 57 nations.”

Abdullah also said that there can be no economic cooperation with Israel without a political solution. 

Away from politics, he identified the Arab youth as a “vital dynamic” of this year’s forum. 

“The 21st century has brought the Middle East its largest youth population in history,” said Abdullah. “In only a few years we will be looking to these 200 million young men and women for our region’s strategies, partnerships and solutions.”

From the plethora of topics discussed and debated at the Dead Sea, Executive highlights three in the following pages that in the future will play an ever more important role, particularly in the context of the region’s fast growing and ever younger population. These are the call for social housing; the state of the media; and the need for proper education.

As with most countries in the Levant, Jordan has emerged relatively unharmed from the financial storm that ravaged the world. The Kingdom’s banking sector possessed few toxic assets. The Amman Stock Exchange (ASE) saw a decline of some 25 percent, far less than the world and Arab average. Still, Jordan’s economy appears faced with a tough road ahead. One of the crisis’ main victims so far has been real estate, which recorded a sharp fall in prices. In addition, remittances from the estimated 350,000 Jordanians living abroad are likely to decline and unemployment is set to rise. The economic growth forecast for 2009 is some 3 percent, down from 5.6 percent in 2008.

“The Jordanian banking sector has proven to be quite robust,” said Ali Nasser, an investment analyst at the Global Investment House in Amman. “The Central Bank of Jordan (CBJ) upholds strict regulations, which is one of the reasons that Jordan’s banks have not been directly affected by the credit crunch. Jordan’s loans to deposits ratio, for example, is 70 percent, while in the UAE it measures between 100 and 120 percent. In addition, the CBJ has responded adequately to the crisis. The only criticism one may have is that the CBJ could have reacted a bit earlier and more aggressively.”

Following the 2008 financial meltdown, Jordan’s central bank embraced an expansionary monetary policy in an attempt to boost the economy. Since last November, it cut interest rates three times, while the reserves to deposits ratio was reduced from 10 to 7 percent. Today, the re-discount rate stands at 5.25 percent and the interbank rate at 3.1 percent. To secure consumer confidence, the government guaranteed all bank deposits until the end of 2009.

In March, the International Monetary Fund’s mission to Jordan praised the measures, although most financial observers agree the central bank’s relaxation of monetary policy has so far not resulted in more dynamic lending practices. As with banks elsewhere, Jordanian banks have opted for a wait-and-see approach. Consequently, the CBJ currently holds excess bank reserves of some $4.5 billion.

“Banks will make profits in 2009, yet their results will be hampered by the economic slowdown and losses on the Jordan and other stock markets,” said Nasser. “In the first quarter of 2009, the prices of most bank shares were in decline, which is arguably the result of risk aversion in lending practices. Car loans for example were down some 70 percent, and it is very hard these days to get a housing loan.”

Amman Stock Exchange

Having recently celebrated its 10 year anniversary since privatization in 1999, the ASE has been affected by the financial crisis, although less than markets elsewhere. During the first half of 2008 the ASE price index had increased by some 30 percent to reach its highest level ever. Companies extracting potash and potassium did especially well, due to the food crisis and the demand for fertilizers.

Following the financial downturn in September 2008, however, the ASE price index went into free fall and closed the year 25 percent lower than the previous year. Market capitalization amounted to a bit more than $37 billion. While the industrial sector, which includes mining, declined by 11 percent, the service sector decreased by 17 percent, and the financial sector by 29 percent. The latter was dragged down by real estate firms that saw their average share price decrease by some 50 percent.

“Today, the ASE has absorbed the crisis and we can conclude that the losses were not as deep as elsewhere,” said ASE’s Chief Executive Officer Jalil Tarif. The Morgan Stanley index reveals that stock markets worldwide in 2008 declined by an average of 43 percent, while Arab markets fell by an average of 55 percent.

“One significant reason for the ASE’s limited losses has been the presence of foreign investors,” said Tarif. “This has had a stabilizing effect, as most of them are strategic partners; ‘hot money’ is not really an issue in Jordan.”

By the end of 2008, 49 percent of ASE shares were owned by foreigners, mostly Saudis (8 percent), Kuwaitis (7 percent), Lebanese (6 percent) and Qataris (4 percent). 

“The prospect for 2009 depends first of all on the direction of the international financial markets,” Tarif said. “Of course, the well-being of the US market is a key indicator for any market. Secondly, the movement of the oil price is important, as Jordan is a net-importer. Because of these factors, the future is difficult to predict. But this year’s first quarter results have been promising.”

The first quarter showed an average decline in profits of companies registered at the ASE of some 20 percent, yet the figure was dominated by the performance of financial and real estate firms.

“Ten years ago there were but five or six real estate firms registered at the ASE, while today there are some 40,” said Tarif. “Due to the crisis and banks being less willing to issue housing loans, some companies face difficulties to meet their obligations.”

Remittances

According to a report by the National Bank of Kuwait issued in February, some 350,000 Jordanians work in GCC countries. Their remittances amount to some 17 percent of the Jordan’s GDP. Due to the current crisis, especially in Dubai, remittances declined in the first quarter of 2009 by 18 percent compared to the last quarter of 2008. While most Jordanians abroad will try to stick it out as long as they can, many fear an increasing number will return home, putting more pressure on the domestic labor market. Officially, unemployment fell during the first quarter of 2009 to 12.1 percent, compared to 12.7 percent, yet in reality the number of jobless is thought to be double that figure.

In light of the above, Jordan’s central bank downgraded its forecast for economic growth from some 6 percent to an estimated 3 to 3.5 percent. But the good news is that inflation, which was a record-high 14 percent in 2008, fell to some 4 percent this year. That has not helped retail so far. While there were no vacancies to be seen in Amman’s main shopping centers, one shop keeper at the City Mall estimated a decrease in turnover of some 20 to 25 percent. So it seems that it is not just Jordan’s banks that are keeping a cautious eye on their money while awaiting better times ahead.