Comment

Jordan’s barter

by Riad Al-Khouri
written by Riad Al-Khouri

The setting up of the World Trade Organization (WTO) in the mid-1990s was supposed to have put the world economy on the path to multilateral trade liberalization. Yet, bilateral and regional free trade agreements (FTAs) have proliferated over the last decade or so.
In the 1990s, the European Union (EU) was a main proponent of bilateral accords. With the start of the Doha Round in 2001, however, the Europeans focused on the multilateral level, whereas the United States embarked on a major drive for regional and bilateral FTAs. Yet in 2006, with the Doha talks stalling, the EU developed a new strategy emphasizing bilateral free trade accords. While the EU and the US are among the more active players in this process of making trade agreements, others are similarly engaged.
Jordan provides the leading example of bilateral and regional trade liberalization since the late 1990s. Regarding trade agreements with the West, Jordan is the most heavily involved country in the Arab region. The US-Jordan FTA entered into force in December 2001. Previously, the two parties had also signed a Qualifying Industrial Zones (QIZ) trade agreement.
Relations between the EU and Jordan are governed by an Association Agreement signed in 1997 and implemented in 2002; and Jordan is a member of the ancillary Agadir Agreement with Egypt, Morocco and Tunisia. The kingdom is also part of the Arab Free Trade Area.
Bilateral FTAs with other countries have also been concluded or are being negotiated, notably with Canada, Israel and Singapore. Jordan’s trade liberalization has contributed to growing exports, including QIZ clothing sold to the US.
Jordan today is a highly open economy with diversified trade. The kingdom has undergone major economic reforms since the early 1990s, including rationalization of its fiscal policy, liberalizing trade, privatizing most state-owned enterprises and reforming customs, as well as other parts of the state administration.
Exports as well as imports have risen much faster than gross domestic product (GDP): the merchandise trade to GDP ratio reached 120 percent in 2008 (up from 82 percent in 1997) amounting to a staggering $9.1 billion.
Jordan’s National Agenda for 2006 to 2015 spelled out ambitious goals, including a cut in the net trade imbalance to $1.7 billion by 2012, and $900 million by 2017. This shortfall is financed by remittances, inflows of private capital, aid and some services income, such as that from tourism, which earned Jordan $2 billion last year. So the current external balance is not precarious: on the positive side, hard currency reserves in early 2009 stood at $8.3 billion, while foreign debt shrank. Expatriate remittances are estimated at $2.4 billion for 2008.
But the trend for the past few years has been for imports to rise faster than exports. The export to GDP ratio increased from 25 percent in 1997 to 35 percent today, while the comparable import ratio rose from 57 percent to 85 percent over the same period.
The structural characteristics of Jordan’s exports thus warrant attention. In 1997-2008, the kingdom’s total exports grew more than threefold, faster than global trade. Much of this growth is accounted for by exports to the US. The share of total Jordanian exports destined for the US increased from less than one percent in 1997 to more than 25 percent in 2008.
But the kingdom’s sales to America, heavily dominated by apparel, may decrease as Jordanian preferences in terms of US market access gradually erode. Jordan will thus need to diversify its exports to the US in order to compensate for flat or falling apparel figures.
Following a major liberalization effort in the context of its accession to the WTO in 2000, Jordan now has relatively low tariffs. Although the kingdom accepted and implemented the multilateral principles of the WTO, Jordan continues to support its external policies with a complex tissue of bilateral trade agreements.
Trade reforms have been implemented gradually since 1996 as governmental efforts addressed unilateral trade-related legislative adjustments in customs and taxes, as well as patent, copyright and trademark protection. Once full membership in the WTO was successfully reached in April 2000, Jordan agreed to assume all its market access commitments on goods. As for services, Jordan committed to removing 139 measures excluding market access, and 79 measures granting national treatment. The majority of commitments regard business services, transport, financial services and tourism, which are strategic to supporting the diversification of the kingdom’s economic structure.
Bilateral accords have also been important for Jordan in recent years. Since 1995, Jordan signed over two dozen bilateral agreements.
In conclusion, Jordan has moved over the past decade from being a closed economy to one that is very much in tune with the realities of globalized international trade. Yet, the results of this process have not always been positive, and the country still has some way to go in its quest to become a serious exporter.

Riad al Khouri is a Senior Associate Consultant, William Davidson Institute University of Michigan, Ann Arbor

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Levant

Change and Reform bloc – Opposition

by Executive Staff
written by Executive Staff

Farid el-Khazen, 49, has been a Member of Parliament since 2005 and is the author of The Breakdown of the State in Lebanon. He is also a professor of political science and former chairperson of the department of political studies and public administration at the American University of Beirut. Mr. Khazen is running with the Change and Reform bloc for the Maronite seat in the Kesrouan electoral district. 

E The United Nations estimates that 28.5 percent of Lebanon’s population lives below the poverty line and 300,000 people live in extreme poverty. What will you do to elevate the poverty situation?
Poverty in Lebanon is the result of a lack of policies to deal with this problem, and as you know the priorities of the government have been elsewhere since the end of the war in 1990. This is not an issue that was given sufficient attention. There has been attention or concern or interest by international organizations that dealt with this issue in Lebanon, but not much has been done when it comes to government and I think this has to go by sectors.
For instance, on the issue of hunger and households — I am not an expert on this issue but I assume that it has to go by age group, by gender and by region. The policy of simply giving aid, which is the classical approach, may be needed for the very poor, but beyond that I think that one should create security and jobs and provide an opportunity for these people to work. This is one effective way to elevate poverty.
Some regions are definitely poorer than others but there are also needy sectors or sectors that need development all over Lebanon, not only one region or another. This does not apply only to poverty; it applies to other areas.
In the region that I represent, Kesrouan, public schools are in very bad shape, while in other regions public schools are much better. I would not [just] go by region, I would go by where there is poverty and where there is need for infrastructure and the need for human development. Definitely there are more poor people in some regions than in others.

E EDL has been a drain on the budget for more than a decade now; what would you do to decrease expenditure and improve efficiency?
The debt that Lebanon has is partly due to this problem, the funding of EDL. This is a monumental factor; it is the worst and the most costly problem in the country and it’s been going on since the end of the war — almost 20 years now and nothing has been done.
This is not a problem that surfaced last year or a few months ago. This is due to mismanagement, corruption and a variety of factors that all converge on one thing, the policy of the so called muhasasa [a situation by which parts of a whole are split up amongst stakeholders].
Over the years, the money that has been spent to subsidize the EDL could have been used in a different way and then used to build new plants. So what is the best approach today? We are still waiting to produce electricity by gas that we don’t have and we don’t have the proper infrastructure for it. It’s a vicious circle and in my view that should be given top priority. First we need to deal with the immediate problem and find ways to produce electricity at a lower price and again I am not an expert. I am not familiar with the proposals to comment whether it is a proposal by Mr.A or Mr.B.

E In order to service Lebanon’s mountain of debt, policy has always been enacted to tax the private sector. Will this continue to be the basis of the government under your party and what will you do to spur on private sector growth?
The private sector at some point in the ‘90s had been given incentives, but with the overall policy, the political process was not at all favorable for the public sector to flourish.
You say you lower taxes or eliminate taxation or whatever, but it is still uneven and there is no long term vision. You may support the private sector through certain policies, but there is an overall political situation that is really counter to that support, and there is also this problem of corruption which does not at all go well with the private sector and how it should operate.
The private sector — especially when you are dealing with exports — it’s not simply the issue of taxation. I don’t know what the tax rate is here in comparison with other neighboring countries, say Jordan or the Gulf, but definitely it’s a package of taxes and proper administrative procedures and the overall political situation. The package in Lebanon is not competitive. You have to make it competitive so that Lebanon can really become, once again, the business center of the region that it was before the war.

E Recently the ILO reported that 22,000 students dropped out of schools in Lebanon. What will you do to curb this phenomena and to facilitate human development in Lebanon?
We have other problems in the region, mainly infrastructure and the absence of any sewage system, water pollution and waste water treatment plants. This is a major problem in the region.
When it comes to schools, I mean public schools. Public schools cost [money]. The average student in a public school would cost more than in a private school and therefore there is a huge problem; it should cost less. Plus the level of education is not as good or comparable to that of private schools. Had it been better, more parents would have been likely to send their kids to public schools.
It’s not simply schools, it’s also universities and in recent years. In the last 10 years or so, the government or the Ministry of Education have given licenses to several institutions which are not qualified to become universities and today are called universities. Students will graduate from a so-called university; they have a diploma and they think they can work with this diploma when in fact they cannot. They cannot compete with the students graduating from the established universities in the country. We have so many engineering schools, so many businesses [schools], so many medical [schools] — its total chaos.
We are a small country and already we have more than 40 so- called universities and more to come. They keep on presenting proposals for licenses and there is no policy on this. There is a lack of enforcement and this started in the ‘90s and then became chaotic, and you have political interest at stake sometimes, sometimes clientelism, sometimes nepotism, all the ills of society are there so this is an issue that needs to be addressed first.

E Telecommunications privatization has been stifled by politics and market conditions. How will you encourage competition and root out bad governance in the sector?
There is bad governance in all sectors, in all of the above. The current minister has done something that is a great achievement by lowering prices. This is a major achievement and I don’t know why this was not done before Minister Bassil came to office. The minute this service started in the mid-90s, corruption started there.
When it comes to privatization, in this sector or in any other sector, it cannot be simply privatization by the norms that apply in a number of developing countries where privatization meant private property not [real] privatization. We have seen this in a number of countries in the Middle East and elsewhere. If it is privatization by the norms that apply in Europe or developed markets where there is transparency, then yes [we agree]. Otherwise privatization becomes synonymous with private business. Under the label of privatization we can get into a very bad situation in all sectors. So we are for privatization and we support privatization, but again it should not be politicized; it should be totally transparent and it should go by the rules and the norms that are in application in other countries. We opt for privatization when we know that we can assure that we can abide by these laws. Otherwise it’s not simply the rush for privatization. Privatization, if not applied properly, is not a recipe for reform. It becomes a recipe for corruption. [I support] no politicization, transparency and the norms that are in application — the best practices.

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Comment

The capitalist mea culpa

by Peter Speetjens
written by Peter Speetjens

If the G-20 April meeting in London could be summarized in two words, they are regulation and internationalization.
“Major failures in financial regulation and supervision were fundamental causes of the crisis,” stated the G-20’s final communiqué, which promised to build “a stronger, more globally consistent, supervisory and regulatory framework.”
A key element of that framework will be the establishment of a new global watchdog, the Financial Stability Board, which is to closely cooperate with the International Monetary Fund (IMF). The latter, in turn, has been bolstered by a major cash injection. While the G-20 summit was arguably not the “new Bretton Woods,” as some politicians euphorically claimed, it did change its tune.
“We are for open economies and open markets, but open economies and open markets have to respect some rules,” said European Commission President Jose Manuel Baroso. According to French President Nicolas Sarkozy, the world had turned the page on the Anglo-Saxon model of free markets.
Significantly, it has not just been politicians who signaled a paradigm shift. “This is a reversal of the ideology of the 1990s, and at a very official level, a rejection of the ideas pushed by the US and others,” said Joseph Stiglitz, the World Bank’s former chief economist. “It’s a historic moment when the world came together and said we were wrong to push deregulation.”
In addition to the call for regulation, the summit agreed to increase the IMF’s cash reserves from $250 billion to $750 billion and issue $250 billion in Special Drawing Rights, the fund’s artificial currency that, based on a basket of currencies, is used to settle accounts among IMF member states.
“The IMF is back,” said the fund’s managing director, Dominique Strauss-Kahn, in reaction to the G-20’s decision. It should be noted however, that only half of the $500 billion increase is immediately available in the form of bilateral agreements with Japan, the EU, China and the US, while it is not clear yet where the other half will come from. Nevertheless, no one can deny that the London summit has been a real boost for the IMF.
Having witnessed the recent wave of multi-billion dollar bail-outs for banks, insurance companies and car manufacturers in response to the global financial meltdown, the G-20’s call for a stronger role of the IMF must have left a bit of a sour taste in the mouths of the inhabitants of countries like Argentina, Ecuador and Tanzania.
After all, when they went through a financial crisis in the 1980s, the IMF offered them a loan on the absolute condition that they did the exact opposite of what the world’s leading economies are doing today. They were told to liberalize, privatize, cut government spending and deregulate (financial) markets.
The IMF’s so called Structural Adjustment Programs prompted Stiglitz in 2000 to resign from the World Bank. A year onward he was awarded the Nobel Memorial Prize in Economic Sciences, while in 2002 he published his bestselling book Globalization and its Discontents, which severely criticized IMF and World Bank policies.
In response to Stiglitz and other critics, IMF managing director Strauss-Kahn announced in late March an “overhaul” of the IMF’s lending practices. Firstly, conditions associated with future IMF lending will be better tailored to each country’s specific circumstances. The new Flexible Credit Line makes high-volume financing available without conditions attached. But to qualify, countries must have relatively sound economies.
Most observers believe the option has mainly been created to serve the needs of countries such as Iceland, Hungary and other East European economies. For the countries that do not qualify, conditionality will be focused on core areas, while “structural conditions will be judged in a less formalistic manner.”
Also, for countries that do not meet the Flexible Credit Line standards, the IMF’s “Stand-By Arrangement” will be made more flexible to allow for higher financial access even before a crisis materializes. As well, the amount of lending available from the IMF is being raised substantially.
In a kind of soft-toned mea culpa, Strauss-Kahn wrote: “These steps address the core problems — the stigma associated in the past with IMF conditionality, the availability of early pre-crisis financing and the overall size of rescue packages — that have sometimes diminished the effectiveness of the Fund’s role as a crisis lender.”
Now, it remains to be seen to what extent the G-20’s call for regulation and a greater, if modified role for international institutions, will be put into practice. Still, the current debate must come as a cold shower for the followers of such free market prophets as Francis Fukuyama and Thomas Friedman.
Two decades after the victory of capitalism over communism, history has not ended, as Fukuyama once claimed, but just made a gigantic U-turn. Suddenly, the neo-cons’ ultra-liberal agenda seems a thing from the past, while John Maynard Keynes is firmly back from the dead. 

Peter Speetjens is a Beirut-based journalist

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Levant

Independent

by Executive Staff
written by Executive Staff

Nayla Tueni, 26, is currently the deputy general manager and member of the board at An-Nahar newspaper. She is also the daughter of former An-Nahar managing editor Gebran Tueni, who was assassinated in a car bombing in 2005. Ms. Tueni is an independent and running for the Greek Orthodox seat in the Beirut 1 electoral district.Note: Ms. Tueni preferred to reply to our questions by email and not to sit for a one-on-one interview with Executive.

E The United Nations estimates that 28.5 percent of Lebanon’s population lives below the poverty line and 300,000 people live in extreme poverty. What will you do to alleviate the poverty situation?
To alleviate poverty, you want to give the poor the tools to help themselves. It is not by throwing money at the problem that it will eventually go away. By raising awareness on the importance of education and how it is a weapon against poverty and facilitating access to it, we would be taking our first steps towards winning the war against poverty. Creating more job opportunities will be a step towards alleviating poverty. There should also be a fair distribution for development programs across the capital.
As a parliament representative of Ashrafieh, Saifi and Rmeil, I will focus my efforts on developing these regions.

E Lebanon’s electricity sector has been a drain on the budget for more than a decade. What will you do to decrease expenditure and improve efficiency? We know that among the possible options is privatization, but this has been stifled by politics and market conditions. How will you encourage competition and root out bad governance in the sector?
When talking about Électricité du Liban and the telecom industries, one word comes to mind: privatization. It is only by privatizing these two industries that we — as government, citizens and service providers — will be able to reap the benefits. These three players, by working together to institutionalize effective regulatory frameworks and practices — which will help increase investment and innovation — will lead to a higher contribution from the two sectors to the country’s overall economic and social development. Ultimately it is the end user who will benefit from the privatization of the telecom sector, since there will be an increased choice of service providers and services. This induces competition between operators, resulting in lower prices for the consumers, more advanced technologies and greater service variety.

E What initiatives will you take to decrease Lebanon’s risk factor with respect to investment and encourage Foreign Direct Investment?
The only way to address the risk factor issue is to have the parliament play its role in setting regulatory laws governing the investment climate. Moreover, committees need to follow up on the implementation of these laws in order to encourage Foreign Direct Investment and inspire faith in our economic system. As we know, lately there have been several proposed laws by the government that are aimed at stabilizing the investment climate; however, they are still pending in the parliament. The parliament should be encouraging the passing of these bills in order to attract foreign investments. By doing so, we will be promoting stability, and reinforcing investor’s confidence and trust.

E Recently the ILO reported that 22,000 students dropped out of schools in Lebanon which is indicative of a wider problem with regards to human development in Lebanon. What will you do to encourage human development in both the public and private sectors?
First off, there should be an investigation as to why 22,000 students dropped out of schools; we can not go about making assumptions on how to fix it if we don’t know the root of the problem. For example, if the majority is dropping out for financial reasons, then the problem should be addressed by encouraging scholarship programs and facilitating credit payments for the parents.
However, if the reason behind this rate is that the majority of students are dropping out because they are finding it more appealing to kick off their careers instead of pursuing their studies, then raising awareness on the importance and the benefits of education would be our main concern. After all we should be focusing on empowering the youth, and by educating them we will be giving them the most important tool they will need to build their futures.

E In an interview with NOW Lebanon you stated your opposition to a quota for women in the Lebanese Parliament because it “could be limiting.” Do you still stand by this statement?
I strongly stand by my position on [a] women’s quota in the parliament. The quota is limiting to women’s potential influence in the parliament. Women are the backbone of our society; they are equal to men and should be treated as such. They should be able to participate in shaping the society they live in through the parliament and they should be able to have their mark on the political scene. By imposing a quota for women in the parliament, first off there would be a discrimination against them on the basis of sexes. Moreover, there will not be as much diversification of opinions as there would be.
I am a firm believer in the free market economic system. As members of parliament, it is our duty to set regulations favorable to this system, which help maintain it a well-oiled machine. Moreover, the private sector should be encouraged and nurtured since it is a vital player in the economic sector.

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Financial Indicators

Regional equity markets

by Executive Staff
written by Executive Staff

Beirut SE  (one month)

Current Year High: 1,629.74  Current Year Low: 705.56

The BLOM Stock Index tracking share prices on the Beirut Stock Exchange closed the March 27 session at 1047.92 points, 20 points lower than its close on February 27. The BSI is down 11 percent from the start of 2009. In the review period, eight sessions to close with a gain were outnumbered by 12 sessions that saw the market drop. However, all trading sessions ended with index fluctuations of less than one percent, except for March 25 when the index slipped 1.44 percent, pulled down by six percent and 3.2 percent price losses in the two share classes of real estate firm Solidere when a substantial amount of shares were offered for sale at a discount to the previous close. In Beirut, analysts assumed that this sudden drop in the share price of Solidere was triggered by an individual trader’s need for cash. In fiscal news, the Lebanese Republic announced that it successfully swapped $2.1 billion in Eurobonds with maturity in 2009 for longer-term bonds, which will mature in 2012 and 2017. As the elections for the Lebanese parliament are taking more and more hold of public attention, the BSE will likely be under the spell of the elections in the second quarter.

Amman SE  (one month)

Current Year High: 5,043.72  Current Year Low: 2,550.70

The Amman Stock Exchange (ASE) rode the bandwagon of market gains to close the March 29 session four percent higher at 2,721.48 points when compared with the close at the end of February. The positive sessions in March cut the ASE Index’s contraction in the first quarter of 2009 down to 1.3 percent. For the first quarter of 2009, the insurance sector index was the best performer on the ASE with a 16.3 percent gain. Banking took the other end of the share price spectrum, weakening 17 percent from the start of 2009. Banking was also the only sector to underperform the general index in March whereas the services index, up 7.4  percent, accounted for the month’s strongest gain. Real estate sector companies attracted significant action from traders while the undisputed top share price gainer was the specialized mortgage insurance firm Darkom Finance and Investments Co. The share price of the company, which had started operations in mid 2008, rose 68 percent in March.

Abu Dhabi SM  (one month)

Current Year High: 5,148.49  Current Year Low: 2,136.64

The larger of the UAE securities markets closed at 2,545.65 points on March 29 in a second consecutive month of gains, achieving 7.1 percent from the end of February. Gains rolled nicely in almost every session starting March 18 and the momentum flattened at the end of the review period as attention shifted towards first-quarter result expectations, which are mixed. The energy and telecommunications sub-indices led the market up with gains of 19.5 percent and 18 percent, whereas the construction index lagged behind and couldn’t catch the up-train. Construction ended 26 percent lower, however, real estate gained 8.3 percent. The strongest gainer in the period was the new health insurance specialist, Green Crescent Insurance Co; whereas the insurance sector index was flat, debutant Green Crescent added 38 percent in its first two trading sessions when compared with the issue price. Building materials company Arkan was the market’s biggest loser in March. The scrip, which had dropped about 55 percent in the first half of the month, made good some of its losses in the second half but ended the review period 37.8 percent lower.

Dubai FM  (one month)

Current Year High: 5,859.57  Current Year Low: 1,433.14

The Dubai Financial Market (DFM) closed at 1,604.71 points on March 29, representing a gain of just under three percent in the month of March. The trading range fluctuated between an intra-month low of 1,490 and a high of 1,623 points. The utilities sub-index was the strongest performer on the DFM but most sectors moved in positive territory, except for banking which ended the review period 1.6 percent lower and materials which lost five percent. When compared with the end of 2008, however, materials, investments, and real estate are all still quite deep in the hole, with losses ranging from 14 percent to 40 percent. Dubai Islamic Bank and sharia-compliant insurer Salama Group were the best performers of the month, moving up 33 percent and 29.5  percent, respectively. Drake and Skull International, the construction group which started trading last month on the DFM after waiting with its entry as long as possible since its initial public offering in July 2008, was not so lucky. The new stock was the DFM’s biggest loser in March, ending the period 33 percent lower from its issue price of 1 AED per share.  

Kuwait SE  (one month)

Current Year High: 15,654.80            Current Year Low: 6,391.50

The Kuwait Stock Exchange (KSE) Index ended the review period at 6,739.70 points on March 29, representing a climb of more than 5.4 percent from the last session in February. March performance mitigated the unfriendly picture of the first quarter, but the year-to-date loss at 13.4 percent remains one of the steeper slides on Arab bourses in 2009. By respectively adding 20 percent, 13 percent and 12 percent, the food, banking, and investment sub-indices were on the forefront of the bourse’s uptrend in March and most other sector indices moved range bound with the general index, except for insurance, which weakened in early March and stayed at the bottom during the review period. While the KSE still saw 12 companies lose between a fifth and half of their share prices in the month of March, this was more than countered by the number of gainers where 34 companies appreciated in share price by 20 percent or more — as biggest gainer, real estate company Massaleh almost doubled its share price, whereas Gulf Insurance Company had a second month of turmoil and ended 49.4 percent lower. Political worries weighed on the KSE as discussions of an economic stimulus package were juxtaposed with resignation of cabinet and dissolution of parliament.

Saudi Arabia SE  (one month)

Current Year High: 10,291.47            Current Year Low: 4,264.52

The Saudi Stock Exchange (TASI) closed at 4,752.32 points on March 25, up 8.39 percent from the last close in February. It ended the first quarter with a loss of 1.05 percent when comparing the March 25 close with the last close in 2008 and with a loss of 5.87 percent when compared with the close on the first trading day. The difference in TASI performance between the two methods of defining the year-to-date period in 2009 is exceptionally wide which is a reminder of the volatility of the trading, making it more interesting to check other vitality stats. The TASI trading volume in the first quarter represented close to 75 percent of total GCC trading volume, a dominant proportion of regional trading activity and substantially higher than the Saudi bourse’s 44 percent share in total GCC market cap at the end of Q1, according to Zawya financial data. Led by three insurers and debutant Ethihad Atheeb, the share prices of 24 stocks rose by more than 25 percent apiece, whereas nine stocks shed a quarter of their wealth or more. Overall, gainers outnumbered losers by healthy margins in the quarter, but the ratio in March was about equal. 

Muscat SM  (one month)

Current Year High: 12,109.10            Current Year Low: 4,223.63

The only market that suffered a drop in its general index in March 2009 was Oman. Whereas it had held up better than other GCC exchanges in February, the Muscat Securities Market Index closed at 4,722.95 points on March 29, representing drops of 2.69  percent on the month and of 13.2  percent on the year. The industry sub-index made an upward escape in the March review period and closed 9.2 percent higher; banking and services did not manage to cross into positive territory. Losers outnumbered gainers four to three in the review period from February 26, but it is not to be overlooked that the majority of share price drops were contained in the bracket of less than 10 percent. Market cap leader Omantel, whose CEO resigned at the end of March, suffered a 14.4 percent contraction in share price in the review period. While the company had reported positive results for 2008, its Q4 net profit declined by two thirds due to a difficult time at its subsidiary in Pakistan. Banking heavyweight Bank Muscat showed a slight share price gain at 1.4 percent in March. 

Bahrain SE  (one month)

Current Year High: 2,902.68  Current Year Low: 1,572.19

Of the six GCC bourses that showed gains in the month of March, the Bahrain Stock Exchange (BSE) Index added the least, with a 0.85 percent index improvement to 1,590.92 points at its March 29 close when compared with the last session in February. The BSE has a negative performance for the first quarter, with a drop of 11.2  percent since the start of the year. Banking (-18.5  percent) and services (-13.5 percent) were the sectors with significant underperformance in the first three months of 2009. In March, however, the previously oversold banking index made a contrarian move and outperformed the general index by more than five percentage points, with investments (+1.1  percent) a distant second place in up-moving sectors. As the financial world is awaiting the next round of global restructuring talks, this time by the G20, the tiny Bahraini bourse is as good an example as any for the uncertainty of markets under the thumb of global influences. While a pessimistic band of dark augers, the region’s investment houses described recent upswings in developed markets as bear market rallies and not as a swing into recovery. One may be wise not to exclude any possibilities, not even positive surprises later in 2009.

Doha SM  (one month)

Current Year High: 12,627.32            Current Year Low: 4,230.19

Investors on the Doha Stock Market (DSM) apparently exhausted their capacity for pessimism and, at least for the review period from February 26 to March 29, they made the stocks shine on the DSM. The general index added net 660 points over the period to its close at 5,098.51 points on March 29, representing a GCC-leading gain of 14.9 percent even as profit taking occurred in the last session of the review period. Volatility on the DSM was significant, at 48 percent according to Zawya. Industrial and banking outperformed the general index, while the insurance index underperformed. Notably, many large caps were in demand and gainers included all five of the strongest companies by market cap: Industries Qatar (+30.9 percent), Qatar National Bank (+37.7 percent), Qatar Telecom (+16.4 percent), Qatar Islamic Bank (+8.9 percent) and Ezdan Real Estate (+39.7 percent). Other strong gainers were Ahli Bank and Qatar Commercial Bank. The banking sector received positive news at the beginning of March as the government took measures to infuse liquidity into banks through a decision to purchase investment portfolios held by banks on the DSM.

Tunis SE  (one month)

Current Year High: 3,418.13  Current Year Low: 2,685.76

Adding 29.5 points from February 26 to March 27 means that the Tunindex of the Tunisian Stock Exchange benefited only with a one percent gain from the positive developments, which pushed the Nasdaq for the first time this year into the black on March 26 and let most GCC securities markets partly recover from their losses in the first ten or eleven weeks of the year — but then the TSE was already moving up in the first two months of 2009 so that its status at the end of Q1 is 6.6 percent up year-to-date. Battery manufacturer Assad was the market’s top advancer in March with a 16 percent increase in its share price. Market cap heavyweights Poulina Holding and Banque de Tunisie recorded moderate drops in their share prices, weakening by 2.3 percent and 1.1  percent, respectively.

Casablanca SE  (one month)

Current Year High: 14,878.30            Current Year Low: 9,405.86

Buying moods from earlier in 2009 faded on the Casablanca Stock Exchange (CSA) in March and the Index retreated 5.3 percent to close at 10,628.29 points on March 27. The index slipped especially in the period between March 16 and 24 before adding about 200 points to the end of the review period. For the year to date, the weaker performance in March means that the CSE Index neared the end of the first quarter at a 3.25 percent lower reading than at the start of 2009. In news relating to listed companies, the Moroccan government announced the licensing of a new mobile operator. The third GSM license went to a company called Wana, part of the Omnium North Africa conglomerate. Maroc Telecom, the market cap leader on the CSE, saw its share price under pressure after the announcement and ended March 4.8 percent lower. Maroc Telecom formally announced its 2008 results on March 23, reporting an increase in net profits of almost 19 percent.

Egypt CASE (one month)

Current Year High: 11,935.67            Current Year Low: 3,389.31

The Egyptian bourse, long seen as the region’s exchange with the strongest alignment to international markets, in March boomed more than any other Arab securities market. The EGX 30 Index closed the March 29 session at 4,332.56 points, signifying a 20.5 percent increase from the last session in February. However, it is a reminder of how steeply the EGX fell in the first two months of 2009 that the index is still 5.74 percent down from the start of the year. With only seven companies seeing their share prices go deeper in the red in March, the positive mood on the exchange was broad even as its capability of endurance cannot be judged as yet. Two companies in the market’s medium to small size range more than doubled their share prices in March but more significantly, the market cap heavyweights Orascom Telecom Holding and Orascom Construction Industries respectively added 43.4 percent and 27 percent and were way up there in the gainers together with a diverse spectrum of companies from real estate to manufacturing.

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Banking & Finance

Money Matters by BLOMINVEST Bank

by Executive Staff
written by Executive Staff

Regional stock market indices

Regional currency rates

Cairo to build a $2 billion power plant

Cairo will be constructing a $2 billion power plant in Ain Sokhna on the Gulf of Suez. The plant will provide 1,300 megawatts (MW) of steam power and will be the first in Egypt to use supercritical technology. A similar venture will increase the overall efficiency of the plant allowing a faster response to the change in demand while reducing emissions. The project will be financed by two loans and several funds by Arab contributors. The first loan amounting to $450 million is signed with the African Development Bank and will cover 22 percent of the cost of the project, while the second loan will be given by the World Bank and will amount to $600 million. The remaining funding for the project will come from the Egyptian Electricity Holding Company (EEHC), the Arab Fund for Economic & Social Development (AFESD), and the Kuwaiti Fund for Arab Economic Development (KFAED).

Saudi company to sign $2.5 billion power project

The Saudi Electricity Company (SEC) will sign a deal with both Korea Electric Power corporation and the local Acwa Power International for the $2.5 billion Rabigh independent power project (IPP). The SEC stated that it will announce the pre-qualified bidders for the PP11 IPP power project in Riyadh by the end of March. The SEC changed the shareholding structure of the project, giving a 51 percent stake for the winning bidder, while the remaining 49 percent will be sold in an initial public offering (IPO). The old ratio had been 40:60, giving the bulk to individual shareholders. In another economic highlight, inflation in Saudi Arabia is excepted to continue falling this year. Consumer prices retreated in February to 6.9 percent from 7.9 percent in the previous month.

UAE inflation to drop in 2009

The key drivers of inflation in 2008 — liquidity, cost of housing and cost of food — are not expected to increase this year. Therefore, inflation in the UAE is expected to ease to two to three percent in 2009. Next year is expected to be the year of recovery from the financial crisis for the Gulf, Asia and Africa, which are relatively less affected than the US, UK and the Eurozone, where the recovery is expected to take a longer period. Moreover, the UAE is putting into action the lessons learned from the recession. For example, the other side of the downturn in the UAE’s real estate sector could be positive for the economy as funds and human resources that were primarily geared for the real estate sector could now be used in other productive industries. In addition, the fiscal and monetary measures taken by the UAE authorities, in the form of direct liquidity injections, has boosted the confidence of investors locally and regionally. This confidence is being confirmed by the current satisfactory levels of credit growth that range between 10 percent to 15 percent, after reaching 49 percent last June.

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North Africa

Clashing cells

by Executive Staff
written by Executive Staff

Maroc Telecom (MT) has long held a dominant share of Morocco’s mobile market, but a new entrant will increase competition for the kingdom’s subscribers. On February 4, the National Agency for the Regulation of Telecommunications (Agence Nationale de Réglementation des Télécommunications, ANRT) announced that the third second-generation (2G) mobile license had been awarded to Wana, a subsidiary of domestic conglomerate Omnium Nord Afrique (ONA).

Wana’s new 2G GSM license, which pits it against current incumbents MT and Méditel, is only the latest addition to the company’s telecoms portfolio that also includes a third generation (3G) license awarded in 2006. Details on the exact amount of Wana’s bid have not yet been released, but both the ANRT and Wana have described it as a “significant investment.” The new 15-year nationwide license gives Wana access to a market that includes 22.82 million mobile subscribers, according to figures published by the ANRT.

Despite its late start, Wana will hope to take advantage of an under-saturated market, which has a penetration rate of 74 percent, and to entice subscribers with competitive technology and pricing.

ANRT announced the tender on October 30, 2008 as a measure to boost competition and bring down prices in the sector. Since its creation in 1998, after the amendment of the Post Office and Telecommunications Act, the ANRT has been charged with modernizing, regulating and supervising the telecoms sector, while implementing the law, which calls for increased competition to provide consumers with more choice and better products and services. MT, the formerly state-owned company, had a monopoly over the sector until liberalization began in 1999.

MT is a formidable competitor with Vivendi, Europe’s largest entertainment group, now holding a controlling 54 percent share in the company. According to the most recent figures released by the ANRT, Wana controls 1.2 percent of the market, while MT and Meditel have market shares of 65.6 percent and 33.2 percent, respectively.

Despite increased competition from the new entrant, MT has stated that it expects to build on its 2008 growth, predicting a revenue increase of more than three percent this year. On February 23, MT announced that its 2008 net profits rose 18.5 percent year-on-year to $1.16 billion, and that its consolidated earnings from operations were up 13.5 percent to $1.62 billion, with revenue growing 7.2 percent to $3.53 billion, mostly on the back of mobile customers.

As the telecommunications arm of ONA, Wana already has a strong foundation to build on. ONA is Morocco’s biggest conglomerate, with broad interests such as banking, insurance, retailing and mining. Although Wana has been active in other segments of the telecoms market, such as Internet and fixed-line telephony, the new license gives it access to one of the sector’s most lucrative areas. The first mobile phone network, introduced in Rabat in 1989, had 700 subscribers, a figure that jumped to three million by 2000. Mobile phone use has continued to rise and the current national penetration rate of 74 percent far exceeds ANRT’s growth prediction. A 2004 study forecast that it would take until 2014 to reach this level.

Mobile subscribers jumped from 700 in 1989 to three million by the year 2000

Spinning the web

Despite the impressive subscriber growth to date, the government is doing even more to expand the reach of the kingdom’s mobile phone network. In November 2006, the ANRT adopted the Program for Universal Access to Telecommunications (PACT), which aims to connect some two million people and 9,200 remote villages by 2011. The program extends to telephony and Internet services. MT recently signed a $342 million contract to connect more than 7,000 towns and villages nationwide, which represents some 80 percent of the PACT program.

Morocco’s mobile expansion is part of a larger regional trend. Cell phone sales have proved resilient in the Middle East and Africa and purchases are projected to increase 14.77 percent from 176 million units in 2008 to 202 million units in 2009, as prices for handsets fall and more 3G networks are established.

For the kingdom, mobile telephony contributes significantly to the value of the telecoms sector as a whole. Its continued liberalization is expected to increase the industry’s proportion of GDP from seven percent in 2008 to 10 percent in 2009. At a time when other sectors are facing declining demand, telecom is a bright spot in Morocco’s economy.

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North Africa

Private accounts on hold

by Executive Staff
written by Executive Staff

Algeria’s banking reform has been slow but could pick up later this year as the general election approaches. The sector appears to have avoided the worst of the global economic crisis, having had little exposure to toxic loans and low levels of overseas activity. Prime Minister Ahmed Ouyahia remarked last October that the Algerian economic and financial system was protected from the worst of the crisis as it was not as “evolved and our stock market is not fully integrated into the world financial markets.”

The downturn in the international markets has slowed the reform process. A key component of the reform platform was the privatization of some of the six state banks, with the first of these — Crédit Populaire d’Algérie (CPA) — initially slated for sale in early 2008.

Having planned to sell a 51 percent stake and received expressions of interest from a number of foreign banks, the government announced it was suspending the privatization of CPA indefinitely due to concerns over the impact of the global financial crisis. Officials said that conditions were not right for the sale, which the state hoped would raise some $1.5 billion.

It was also suggested that the overall privatization process had been put on hold due to concerns within Algeria over foreign dominance of the banking sector, as well as perceptions that overseas investors across the economy were repatriating profits without contributing to the country.

The Banque d’Algérie serves as both the country’s central bank and as the regulator for the sector. Though the Banque d’Algérie lists 16 private banks as operating in Algeria, it is the six state-owned institutions that dominate the market. According to a report issued by the Gulf Investment House in December 2008, state banks account for 95 percent of the sector’s total assets. To a large extent, this is due to a 2004 government decree that requires public sector entities to work exclusively with state banks, restricting deposit flows to the private segment.

However, Minister of Industry and Investment Promotion, Hamid Temmar, told parliament in mid-January that the government remained committed to privatization and said that the only state enterprises that would not be sold off were those in the energy sector — Sonatrach and Sonelgaz — and the national railway.

Public banks too have problems of their own. Though they do not have any difficulty in attracting deposits, they are proving less successful in keeping staff. According to a report by the Professional Assembly of Banks and Financial Institutions, more than 2,500 officers of state banks have transferred to the private sector since 2001, lured by higher wages. To try to stem the outward flow of staff, the government offered the state’s 23,000 bank employees up to 30 percent pay rises in June 2008.

With a presidential election scheduled for April 9, there is a chance that the stalled privatization process may be reignited, along with the program of banking reform.

The need for reform in the banking sector was highlighted in the latest study by the US-based Heritage Foundation on the openness of the global economy. In its 2009 Index of Economic Freedom, Algeria’s overall economy was ranked 107 out of the 183 countries assessed and 14 out of 17 countries in the Middle East and North African region, with a score of 56.6 out of 100. However, while scoring highly in some categories, such as 72.5 for business freedom, Algeria’s worst result was in financial freedom, rating just 30 points, almost 20 points below the global average.

The report said that the pace of overhauling the banking sector in Algeria had been slow and uneven and that “reform is critical if resource allocation and private sector development are to improve.”

The government wants to see greater diversity in the economy, to move away from a dependency on the energy industry and to broaden the private sector. To achieve this, it will need to push ahead with its reforms of the banking industry, especially the privatization of state lenders, a step that would result in the return of public funds into the private sector.

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Levant

Tanking up with tax

by Executive Staff
written by Executive Staff

At a time when oil prices are half of what they were a year ago, the retail price of gasoline in Lebanon has been stagnant or climbing. For example, in July 2007 when the price of Brent crude was around $78 per barrel, the government raised taxes on gasoline which pushed the price from $14.90 per 20 liters — the standard measurement for gasoline in Lebanon — to $15.64 per 20 liters. This is roughly the same price of gasoline in today’s retail market, at a time when crude sells at around $50 per barrel. Needless to say, this illogical development is confusing for the consumer.

In 1985, then Minister of Finance Camille Chamoun issued a governmental decree abolishing state subsidies on gasoline; so legally the subsidy was removed. However, the government has levied a tax on gasoline, which it increases or decreases at will. When the government decreases the tax, gasoline prices drop giving the feel of a subsidy.

Further exacerbating the situation is that most people in Lebanon rely on private transport. Lebanon’s approximately 1.4 million registered vehicles consume around five million liters of gasoline per day, according to Bahij Abou Hamzeh, president of the Association of Petroleum Importing Companies (APIC) in Lebanon.

Another factor experts in Lebanon point to is unfair competition. “There is an oligopoly controlling gasoline imports to Lebanon and this is the heart of the problem,” says Jad Chaaban, professor of economics at the American University of Beirut and acting president of the Lebanese Economic Association. “The prices are set by the Ministry of Energy in consultation with the APIC. When you have an oligopoly controlling an import sector you cannot pass on decreasing or rising prices with the same efficiency as when you have a competitive market.”

Collusion in a free market

For his part, Abou Hamzeh admits that the association does collude with the Lebanese Ministry of Energy, but insists that the market is open to anyone who has the means to set up the infrastructure.

“We regulate the market in cooperation with the ministry but we have to do it because it’s the only product in Lebanon that has a ceiling for the price,” claims Abou Hamzeh. “The government is setting the ceiling of the price on a weekly basis. This doesn’t mean we cooperate in order to monopolize the market; it’s not what we are after.”

Abou Hamzeh blames the government who earlier this year raised the level of taxes on gasoline to $6.35 per 20 liters of imported gasoline when the price of oil was at around $35 per barrel. Abou Hamzeh adds that the gasoline price ceiling, set weekly, is too low. “The government imposes a ceiling according to the international prices and a small margin to cover additional costs,” says Abou Hamzeh. “This margin does not cover our costs. We cannot continue like this; we are making a loss not a profit.”

Whether or not competition is fair, one thing does remains clear: that the government is making a lot of money. Most estimates are that government revenues from gas tax will increase this year to around $466 million as opposed to $199 million in 2008. On March 19, the Lebanese General Confederation of Labor Unions gathered in front of the Lebanese parliament to protest the high prices and taxes on gasoline and around 150 cars blocked one of Beirut’s main commercial districts.

Tax of necessity

The government, however, seems to have little choice when it comes to removing the tax, since it is already drowning in a sea of debt and in need of more revenue. Furthermore, according to a high ranking member at the Ministry of Finance who spoke on condition of anonymity, the government must keep the higher gasoline tax in place because it has already reneged on two of its other promises made to donors at Paris III: the five to seven percent taxation on bank deposits and the increase of Value Added Tax (VAT). The cherry on top may be that many in the government are reluctant to enact policy due to the upcoming elections in early June.

“When we protest the government tells you, ‘you are right but now we have to have the election’,” says Abou Hamzeh.

Whatever the reasons may be, for the immediate future it seems that the high gasoline prices and price fixing will continue. Once again it seems it will be Lebanon’s people and industries that pay the final price.

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Levant

Carrying capacity

by Peter Grimsditch
written by Peter Grimsditch

Turkey has high hopes of becoming a major transit hub for land and sea cargo freighting, linking Central Asia and the Middle East with Europe, though it will need to invest heavily in infrastructure if its hopes are to be fulfilled. The transport grid already has around 11,000 kilometers (km) of rail lines; 430,000km of roads, including 62,000km of motorways and main roads; a network of ports along its Black Sea, Aegean and Mediterranean coasts and at least one airport in each of its 81 provinces. Even so, the results of a joint study conducted by the European Commission and Turkey’s Ministry of Transport and Communications, released in 2008, showed Turkey has a long way to go before its transport network can service the future needs of the economy.

The Transport Infrastructure Need Assessment (TINA) said priority should be given to improving transport in the North-South and East-West axes to better integrate Turkish transport with international transport networks; upgrading intermodal transport facilities and services, and improving the country’s ports and maritime connections. These improvements will be needed if the assessment’s projections are correct. The report said Turkey’s road freight demand would reach at least 305 million tons by 2020, more than 230 percent up on 2004, the base year used for the study. Train hauled cargos are predicted to more than double to 31.5 million tons, while the merchant marine is expected by 2020 to lift its base total by around 60 percent to 25.3 million tons.

Finding the cash

To meet this demand, Turkey will need to invest more than $25 billion by 2020, with $11 billion dedicated to its rail network and $10.75 billion on roads, according to TINA. The key challenge will be to raise this cash at a time when many other calls are being made on the limited national treasury — including upgrading electricity generation and distribution grids, resolving environmental issues such as waste water processing and improving the health and education services. Though some of this funding gap could be filled by assistance from the EU through its trans-European transport network (TEN-T) program, most of the money will have to come from the state or the private sector, both of which are currently finding it hard to raise funds due to the tight credit markets.

Some of these major projects are well advanced, such as the Marmaray rail project which includes a tunnel beneath the Bosphorus that will link Europe to Asia, and a new high-speed train connection between Ankara and Istanbul. However others, such as duplication of many of the country’s main rail lines, remain on the drawing board. While the government is looking to upgrade and extend infrastructure links with limited fiscal means, the transport industry may find itself in less of a position to enjoy the benefits of the improved networks, at least in the short-term. With Turkey’s economy slowing, in line with those of its major export markets, there has been a fall in demand for long haul road, rail and maritime freighting.

The outline of decline

According to figures released by the Turkish Exporters Association (TIM) in March, overseas sales dropped 35 percent year-on-year in February to $6.87 billion. Industrial output is also contracting, down by 17.6 percent in December compared to the same month in 2008, the Turkish Statistical Institute reported. Lower industrial production means fewer raw materials are being freighted to factories, fewer finished products need to be shipped out, while falling export demand sees reduced calls being made on Turkey’s cargo haulage capacity.

The number of long haul trucks being shipped across the Dardanelles Strait is down by more than 20 percent so far this year, according to local ferry officials. Additionally, according to Erol Yücel, assembly chairman of the Turkish Chamber of Shipping, the steep drop in demand for shipping capacity due to low cargo levels has seen rental prices for ships fall by as much as 98 percent. Turkish exports, and therefore production and the transport sector, may get a boost from the sharp drop in the value of the local currency, with the Turkish lira hitting an all-time-low of 1.78 against the US dollar on March 10. With the cost of Turkish goods becoming more attractive, trade could pick up, helping the transport sector onto the road to recovery.

Peter Grimsditch is Executive’s Turkey correspondent

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