Executive Magazine

Carbon offsets – the moral and necessary future of business

by Armen Vartanian March 3, 2009

written by Armen Vartanian

The good news about global warming is that we are still talking about it, despite the current difficult economic circumstances. The downturn’s local consequences are being felt by everyone, so it is heartening that we are maintaining a dialogue on long-term issues. The bad news is that climate change is happening and mankind’s continued contributions are now proven. If unchecked, climate change will continue to grow into a problem that will eclipse today’s financial woes.
Here are some examples of the pending financial costs we will face as the earth’s environment alters: the economic and social impact of 150 million refugees from higher sea levels and lost farmland; greater heating and cooling costs to deal with more extreme temperatures (new highs and lows); rebuilding or relocation of entire regions due to weather and fire events, and crop prices volatility as ecosystems adapt to new weather patterns. These costs will reduce future cash flows to society and therefore they represent a liability for corporations today. Therefore, reducing your company’s impact on global warming and reducing this future liability is a value-creating endeavor.

The growth of green
Companies worldwide reduce their contribution to climate change for many reasons, including complying with a corporate mandate, saving money by using less power, pleasing and retaining employees, improving corporate brand image and also doing ‘the right thing’ in joining the fight against climate change. From Morocco to Iran, there are many examples in the Middle East and North Africa (MENA) region of companies taking action on carbon emissions. Green building standards are being adopted in the UAE, Qatar and Bahrain. Abu Dhabi’s ambitious $15 billion dollar Masdar initiative, with its various funds and programs and a 50,000 resident carbon-neutral city, is a shining example of visionary green thinking that will generate value. Sabban Properties intends to make its $274 million Sabban Towers the first carbon neutral development in the MENA. Renewable energy projects, including wind and solar, are in advanced stages in Morocco, Jordan, Egypt, and Turkey. Startup recyclers are recovering value from significant construction wastes around the region.
An innovative and cheap way for an organization to reduce its carbon footprint with minimal effort is through the purchase of carbon offsets. Carbon offsets are essentially contracts that commit a third-party project company, usually in low-cost environments, to reduce carbon emissions on the purchaser’s behalf. For example, one offset project in Ethiopia replaces villagers’ kerosene-burning stoves with lower-emission butane stoves.
In order to attain ‘carbon neutrality,’ a person must measure their organization’s carbon footprint and purchase enough offsets to reduce the client’s emissions to zero, making them ‘carbon neutral.’ Then they must work to reduce their footprint so that the following year the number of carbon offsets needed to reduce their emissions to zero is lower than the previous. Eventually, the number of third-party carbon offsets needed to remain carbon neutral will be minimal and the outcome is significant reductions in carbon emissions.

How ‘on’ are offsets?
Opponents to the purchase of carbon offsets claim that they create a feeling of a clean conscience without actually changing the buyer’s behavior. We disagree. By following the process described above, a company can reduce their future liability from carbon emissions by contributing to offset solutions that are already set up. Then, at the same time, the company would be committing to reducing their carbon footprint through internal reductions — thus guaranteeing behavior change. Due to the global nature of climate change, purchasing carbon offsets from elsewhere in the world and reducing emissions locally have the same net effect on this worldwide problem.
The rationality of this argument, when translated to the context of the UAE, for example, would be as follows: an individual in the UAE can purchase carbon offsets worth $400 and reduce his carbon footprint to zero. If that same individual were to purchase and install solar panels on his home to offset his carbon emissions from automobile use and air travel, the system would cost him more than $10,000 and would last for around 10 years, costing him on average, $1,000 per year to achieve carbon neutrality instead of $400 with offsets. And the same thing goes for companies. The average company in the UAE can bring their headquarters, including flights, to carbon neutral for less than $35,000 per year.
The only question is, what are you waiting for? Reducing your carbon footprint is relatively inexpensive, easy to do with local specialists and just might help you sleep better at night.

March 3, 2009 0 comments

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An empty coup

by Peter Grimsditch March 3, 2009

written by Peter Grimsditch

Obama orders arrest of three four-star generals. Air Force and Marine chiefs accused of trying to overthrow the administration.” If these headlines were splashed across the front pages of the American press, worries in the United States about healthcare, stimulus packages and budget deficits would pale into afterthoughts. Yet life in Turkey continues as normal, at least for the moment, despite last month’s arrests of 49 former and active military officers. Those held include two former commanders of naval operations, two admirals, three vice-generals and one vice-admiral, as well as two rear admirals and two brigadier generals still on active duty.

On the surface, the arrests are an extension of the round-up over the past two years of nearly 300 people who are alleged to have been plotting to overthrow the government of the Justice and Development Party (AKP). The bizarre schemes in the latest charges included planning for a mosque to be bombed and a Turkish fighter jet to be shot down, so the armed forces could step in to rescue the country from chaos, conveniently deposing a democratically elected government perceived by some to be hell-bent on turning Turkey into an Islamic state.

The latest skirmish between the AKP and the military prompted President Abdullah Gul to arrange a meeting between Prime Minister Recep Tayyip Erdogan and armed forces chief General Ilker Basbug. After three hours of talks, Gul’s office said that any “current problems would be solved within the framework of the constitution.”

So, no joy for those fearing (or others hoping for) a military coup. In fact, the prospect is highly unlikely since the whole world has changed since the military last flexed its muscles that way in 1980. Turkey is no longer the last outpost before the start of the evil Soviet empire, and there is less incentive for foreign states to sanction military coups. The current charges stem from 2003 and a war game codenamed Sledgehammer, which included steps to unseat the Erdogan government by creating chaos in the country with the help of terrorist attacks, according to press reports. The AKP says it was for real; the army says it was part of a normal exercise.

Erdogan has distanced himself from the arrests by saying that the judiciary is in charge of the investigation and technically he is correct.

What may be just as intriguing as the alleged plot is the role in its revelation played by the Taraf newspaper, which has revealed many of the stories about the equally alleged coup attempt. The paper is only two years old, and its inception coincided with widespread arrests in relation to the “Ergenekon conspiracy” case, in which well over 200 people are still under arrest for conspiracy to overthrow the government. Taraf claims to have received material from military officers who are opposed to the plots. The fledgling daily has scooped its better-established rivals with lurid tales. The inherent conflict between the AKP and self-styled staunch secularists is rife with conjecture but not replete with facts. Each time the AKP uses its legitimate powers of patronage to appoint supporters into various establishment jobs, it risks the charge of adding yet another brick to the Islamist state it is supposedly building. There is never a mention that the secularists had been appointing their own favorites for more half a century before the AKP came into power in 2002. Predecessors of the AKP presided over rampant inflation — some lottery prizes are still advertised as offering prize money of trillions of liras — and wholesale corruption. The AKP has reduced inflation to single digits, expanded the economy at a rate never seen in modern Turkey’s history and stabilized the currency.

Some financial analysts warn the very public spat between the army and the government will destroy all these economic gains. One report said the lira would quickly lose 8 percent. More sanguine (and cynical) observers recall the results of the so-called ‘e-coup’ in April 2007, when the army warned the AKP not to pose a threat to secularism, and the attempt to close down the party in 2008. In both cases the markets and the currency quickly recovered.

There is no particular reason to believe that this trial of strength will have any different consequence, and a military coup in Turkey these days is as likely as Obama arresting four-star generals.

Peter Grimsditch is Executive Magazine’s Istanbul-based correspondent

March 3, 2009 0 comments

Executive Insights

Successful development of small and medium-sized enterprises

by Ziad Ferzly March 3, 2009

written by Ziad Ferzly

The majority of enterprises around the world are small and medium-sized enterprises (SMEs). According to the European Union, a small enterprise has a headcount of less than 50, and less than $12.5 million in turnover. A medium- sized enterprise has 50 to 249 employees, and a turnover below $62 million. There is a lot of attention given by international organizations, government agencies and donor institutions to the development of SMEs. SMEs are the backbone of economies, especially since they easily constitute more than 90 percent of the businesses in a given country. In fact, small businesses alone tend to make up more than 90 percent of all businesses and they typically come to mind when SMEs are mentioned. SME development ends up being the main component of economic development. SME development programs should typically focus on:

Better business environment: Policy makers should take the interests and input of SMEs into account when changing existing policies, rules, and regulations, or when setting new ones. Cutting red tape and streamlining processes are crucial to helping all companies grow. Starting a business, closing a business, hiring employees, letting them go, and enforcing contracts are just some aspects of the business environment that need to be evaluated and improved.
Improved access to finance: Capital is the lifeblood of a company. Small businesses are usually at a disadvantage when it comes to accessing finance to operate and grow. Creating and strengthening a variety of financing mechanisms (e.g. loan guarantees) are important to providing SMEs with required capital. Governments can make much longer-term investments than private investors, and can reap rewards in different forms, from higher employment and taxes to capital returns and productivity.
Greater access to services: SMEs typically need services and resources that they cannot afford or cannot pursue on their own. Providing business skills and entrepreneurship training, improving access to new markets, encouraging import substitution and enhancing coordination between companies in one economic sector are a few examples of SME assistance that can be offered.
Those who are planning, funding, and running SME development programs, and other types of programs too, should realize that many factors affect the success of their efforts. They include:
Commitment to success: The various players who are in charge of the SME development programs need to be committed to these programs, their stated goals, and their success. While this seems self- evident and intuitive, many programs do not really succeed because the people in charge do not care enough about the results.
Backing for the right time: Institutions need to back or support programs for the necessary length of time. So, if a program needs six years to achieve its goals and become sustainable, funding should not be cut after four years.
Knowledge and expertise: The people managing SME programs must know how development works. Consultants and employees should also have experience working with SMEs in a region, and expertise in the sectors targeted for assistance, as well as the functional help being offered.
Market-driven approach: It is important to listen to SMEs and understand what they need rather than come with a predetermined view of what they require. A short survey can shed light on what SMEs want. If SMEs are not willing to even partially pay for certain services, even when they can afford them, then those services are probably not needed.
Tailored programs: While “what” should be included in a SME development program at a very high level can be similar between two countries, “how” to proceed and “who” should drive can certainly vary from one country to the next. A tailored program will yield better results than one that is pre- packaged and imported from another country.
Overall coordination: Typically, there are many programs running at the same time in a country or a region. To avoid overlap, it is important to understand what other programs are doing to properly coordinate between them. That way, the SME program can have maximum effectiveness.
Flexibility: Finally, the programs need to be flexible and respond to changing needs as they arise. The implementation phase can reveal issues that were not apparent at program inception. The ability to respond to new data or changing conditions is important to the overall success of these programs.
Setting policies with SMEs in mind and having programs targeting their development and growth is good for the entire economy, and can benefit larger and more capable companies. Large companies benefit from a vibrant SME sector that can provide them with needed products and services. At the end of the day, SME development is critical to overall economic development.

ZIAD FERZLY is managing director at Cedarwood Advisors, which provides strategic, financial, and investment management services to companies, investment firms, institutions and governments around the globe.

March 3, 2009 0 comments

Economics & Policy

Expat largesse

by Austin Mackell March 1, 2009

written by Austin Mackell

During the first quarter of 2009, Lebanon braced itself for a steep fall in remittances. The logic held that the global financial crisis would severely affect remittance inflows from outside the country, as Lebanese working abroad saw their own budgets tighten. The Lebanese government even prepared its 2009 budget proposal, which was never ratified, “on a very strict assumption of a 20 percent decrease in the level of remittances,” according to Lebanon’s Minister of Economics and Trade Mohammad Safadi.

It was a reasonable fear since, according to the International Monetary Fund, 70 percent of Lebanon’s remittance inflows are from the Gulf Cooperation Council and the United States, both of which were badly exposed to the crisis.

A few months into 2009, however, a less gloomy picture emerged with the IMF predicting a drop in remittances of 12 to 15 percent. Today the picture has brightened further, with Safadi saying that the predicted decline “has not yet materialized,” and pointing out that Standard & Poor’s ratings agency, who had expressed concerns that a fall in remittances could hurt Lebanon’s ability to pay its debts, had actually improved Lebanon’s credit rating.

In fact, in November 2009 the World Bank released its updated figures predicting that Lebanon would only experience a 2.5 percent drop, from $7.18 billion to $7 billion in remittance inflows for the year as a whole.

Projecting in the dark

The numbers are even more significant considering Lebanon’s remittance to gross domestic product ratio has also dropped, from 24.8 percent of GDP, using official figures, to a projected 21.4 percent, according to data provided by the World Bank, the IMF and Bank Audi.

The decrease can be attributed to the IMF’s forecast that Lebanon’s GDP will grow by 7 percent to reach $32.7 billion by the end of 2009. It should be noted, however, that many debate the methodology used to calculate Lebanon’s GDP [see page 58]. The Economist Intelligence Unit, for instance, expects Lebanon’s GDP to grow at a rate of 5.1 percent to reach a total of $30.2 billion by the end of 2009, resulting in markedly different figures.

Nassib Ghobril, head of research and analysis at Byblos Bank, is quick to point out the inexact nature of such predictions. “[At this stage] they’re not even forecasts, they’re expectations,” he says. “It’s very difficult to put your finger on a forecast given the lack of regular data… there simply are no figures since the end of 2008, and that’s exactly where we need greater transparency from the authorities.”

Ghobril frequently bemoans this lack of information.

“There are no remittance figures from local authorities here,” he says. “In Jordan, we have figures on remittances every month.”

Ghobril sees this lack of information as a major problem given how important remittances are to the economy, and he advocates that it be addressed immediately.

When contacted by Executive, the Banque du Liban, Lebanon’s central bank, said that they publish remittance results quarterly on their website. However, as Executive went to press, no data for 2009 had been published.

Not yet a science

The significance of remittances to development and world capital flows only became a fashionable part of economic calculations in the last decade, so even the figures that are released are somewhat questionable.

“The calculation of remittances is not a science yet,” says Ghobril. He points out that there are major methodological issues not yet settled. For example, the World Bank includes deposits (as opposed to transfers) of less than $10,000 made by expatriates into Lebanese banks in its calculations of remittances, despite the fact that in many cases these expatriates may simply be taking advantage of Lebanese banks’ high interest rates to maximize their savings and not directly contributing to actual economic activity.

The decision to include these deposits was part of a shift in the World Bank’s method for calculating remittances in 2003.

That year the World Bank reported that Lebanon received around around $4.7 billion in remittances, nearly doubling the 2002 figure of $2.5 billion — a jump Ghobril asserts was more a result of the change in methodology than an actual increase.

There has not been major methodological change since then, however, meaning that the growth from $4.7 billion in 2004 to $7.18 billion last year can be regarded as an authentic increase. The IMF also recently suggested including remittances in Lebanon’s GDP, which would significantly improve its debt-to-GDP ratio.

Uncertain inflows

As around $1.4 billion per month continue to flow into Lebanon’s banking sector from abroad, many believe that remittances must be doing well. It is also possible though that, in these uncertain economic times, a significant amount of this money is arriving from investors who have turned to Lebanon’s trusted banking sector as a safehaven to stash their cash, rather than true remittances, which would be Lebanese sending money home to be spent.

Kamal Hamdan, economist and managing director of the Consultation and Research Institute, says that a significant though unknown part of this year’s figure can be attributed to the liquidation of fixed and non-fixed assets from non-resident Lebanese.

“You liquidate once and for all so I don’t know if this $7 billion is a sign of strength or rather an ultimatum,” says Hamdan. He expects, however, that remittances will remain relatively steady in terms of their ratio to GDP “because a decrease of a few percentage points is not enough to affect its weight with respect to GDP.”

Another (and perhaps more meaningful) indicator that remittances can be expected to stay fairly stable is the lack of an influx of returning expatriates, tens of thousands of whom were predicted to return home as a result of the crisis — though in Hamdan’s view, the absence of repatriation figures constitutes “the worst example of the lack of accurate data.”

There was “no reversal of the brain drain phenomenon witnessed so far, despite the fact that local demand for skilled labor has been rising,” says Safadi.

While this return of talented expats would have presented positive opportunities, the fact that it hasn’t occurred also has a positive dynamic, as it means that those who have lost their jobs have likely taken up other employment, or moved from city to city or country to country seeking work in markets where wages are high and from which they can continue to send remittances.“We didn’t see thousands of Lebanese returning here, so that means they’re still working somewhere,” says Ghobril.

Perhaps the strongest indicator of the continued strength of remittances, however, is data coming from the remittance sending countries. Saudi central bank data estimates that total remittances — to all countries — from Saudi Arabia reached $15 billion in the first eight months of 2009, an increase of 12 percent compared to 2008.

While this growth, probably fueled by the kingdom’s massive development plan, is a slowdown from the 26.7 percent growth in remittances that took place between 2007 and 2008, it certainly paints a brighter picture than many predicted when the financial crisis first kicked off.

Resilient but not immune

Other Gulf states have also dug into their remarkably deep pockets and ploughed ahead with their own long-term strategies for infrastructure development. This was reflected in the IMF’s Regional Economic Outlook report for October 2009, which said that counter-cyclical government spending had helped protect economies in the Middle East from the worst effects of the global economic downturn.

Overall, according to the World Bank’s latest data, outward remittance flows from the Gulf have dropped only 3 percent this year relative to last year. Remittances from the Gulf to other countries in the Middle East have dropped from $34 billion to $32.2 billion, according to data from the World Bank, IMF and Bank Audi, and the IMF outlook report predicts that remittances will stabilize at $34 billion next year and grow to $36 billion in 2011.

However, there are negative signs as well. In Jordan, (where data on remittances is more readily available than in Lebanon) there has been a decline of 6 percent in remittance inflows, and Egypt, the biggest recipient of remittances in the region, has announced a decline of 8.8 percent.There are reasons to believe that remittances from the US may have suffered a more serious decline, with remittances to Mexico having dropped 15 percent year-on-year in the year to August, as reported by The Wall Street Journal.

With the region expecting to have a better year in 2010 and the US officially out of a recession, there is reason to be optimistic.

However, as Ghobirl says: “There is no way not to be effected…The Lebanese economy has shown that it is insulated from the crisis but not isolated. It is resilient but not immune.”

March 1, 2009 0 comments

Business

Sayfco Holding

by Nada Nohra March 1, 2009

written by Nada Nohra

Cache Yerevanian, chairman of Sayfco Holding

Good news for middle income house seekers searching for affordable apartments: Sayfco Holding, the Lebanon-based high-end real estate developer is going back to its roots, said Chahe Yerevanian, Sayfco’s chairman. After having abandoned the middle income market for many years, the company is planning to launch a new housing project in Jdeideh (Metn) this month for mid-range budgets.

‘Abraj Jdeideh’ will feature five 15-storey towers and will include apartments ranging from 122 square meters, which will be priced at $140,000, to 166 square meters — priced at $180,000. Sayfco is not planning to stop developing luxurious housing projects, but is now entering a new market, which is projected to be healthier in the forthcoming years.

“Luxury [demand] will stop for a while because of the economic crisis. The prices [of high-end apartments] will never go down, but I think luxury will stop having a quick turnover,” said Yerevanian. Sayfco has finalized the plans and is waiting for the permits to come through in order to launch the project. Construction will start by the end of this year or beginning 2010 and will take around two years.

From politics to real estate

Even though Sayfco has not been involved in middle-income housing for some years now, this segment was the sole target of the company when it was first created. Ara Yerevanian, Chahe’s father, took the challenge upon himself, when he was elected a member of the Lebanese parliament in the 1950s, to provide housing for the middle income market, something which the government failed to do. He established ‘Ara Yerevanian Establishment’ and began building 200 to 300-unit residential developments, priced at around $30,000 per unit. When the Lebanese Civil War began, the family immigrated to Canada and started conducting its business there until they returned in 1995. The company was then renamed Ara Yerevanian & Sons. In 2000, Chahe took over the leadership of the company and started targeting Gulf Cooperation Council (GCC) clients, while also entering higher market segments.

“I foresaw that the luxury market is going to have a boom, so instead of building apartments for $100,000 to $150,000, we went up to half a million and from there we went to Clouds [Faqra Club]— 11 villas for $5 million each,” said Yerevanian.

In 2004, Ara Yerevanian & Sons was substituted with Sayfco Holding and all its subsidiaries were created: Sayfco Development, Sayfco Brokerage, Sayfco Financing, Marina Hills, Villa des Roches and Ahlam Lands. This move was the first step to restructuring Sayfco and turning it into a corporate entity, rather than a family business.

“I believe family businesses do not last more than two generations… once the kids and the cousins meet, and the wives come in, the company is gone,” said Yerevanian. Therefore, potentially, the management of Sayfco will be separated from its ownership and when Yerevanian retires, a non-family member may take his place. “This is how I see the future of Sayfco,” said Yerevanian.

Sayfco Holding
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March 1, 2009 0 comments

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Strengthened by sanctions

by Gareth Smith March 1, 2009

written by Gareth Smith

When Iran introduced gasoline rationing in 2007, Ehud Olmert, then Israeli prime minister, said the torching of some Tehran gas stations showed “economic sanctions are working increasingly well.” Threats to blockade Tehran’s gasoline imports brought rebellious Iranians to the streets and the Islamic Republic to its knees. But the more things change, the more they stay the same. Since 2007, there have been two more rounds of United Nations sanctions, far tighter United States sanctions and a European Union ban on investment in Iran’s energy sector.

And yet Iran’s nuclear program is further advanced, Mahmoud Ahmadinejad is still president and Ayatollah Ali Khamenei is still the supreme leader.

Iran’s reformists have long pointed out that sanctions strengthen the very people they are supposedly designed to undermine, enhancing the role of the state and its various agencies. US President Barack Obama was elected with a pledge to “engage” Iran, but once in office strengthened the sanctions regime developed under President George W. Bush, on the grounds it may push Iran to abandon its nuclear program. Many Obama supporters say this is the only alternative to military action — hence those who back sanctions need to show they are “working” or come up with new ideas for sanctions that will “work” better.

The saga of gasoline imports shows the pattern all too well. It was fear of sanctions — rather than, say, the chronic air pollution in Tehran — that led Ahmadinejad’s government to introduce gasoline rationing in 2007. Politicians had long dragged their feet over increasing the price of fuel from a subsidized price of 9 cents a liter, despite a consequent demand for gasoline that Iran’s own refineries were unable to supply.

When rationing was introduced in 2007, the allocation of cheap petrol was 100 liters a week, with motorists paying a higher price for any extra. The ration stayed at this level for three years, but was reduced to 80 liters at the beginning of the current Iranian year (in March) and to 60 liters in June, despite the usually higher consumption of the summer holiday period. During the summer, oil minister Masoud Mir-Kazemi put production at 44.5 million liters per day and imports at 20 million liters.

At the time of rationing, consumption was 75 million liters per day and appears to have fallen 14 percent to 64.5 million, while imports — 35 million liters daily back in 2007 — have fallen from 47 percent of consumption to 31 percent. A report in August from the Paris-based International Energy Agency forecast a 75 percent fall in the cost of Iran’s gasoline imports within five years, partly through opening new refineries and curbs in consumption. Incrediblely, the National Iranian Oil Company announced at the end of last month that a sudden 40 percent jump in domestic production had allowed the country to actually begin exporting gasoline, having covered domestic demand.

As production has increased and consumption has fallen, the sources of supply that have made up the difference have also shifted. Oil traders such as Glencore, Trafigura and Vitol, and companies such as Total and Shell began to end gasoline sales earlier this year as talk of sanctions increased. But the gap left by Western companies has been filled by Turkish refiner Tupras and state-owned Chinese companies including Sinopec.

Chinese companies have supplied around half of Iran’s gasoline imports in recent months, and there have even been reports that the Russian oil giant Lukoil, despite its substantial US retail operation, has resumed sales to Iran in a partnership with China’s Zhuhai Zhenrong. All this despite Lloyd’s of London — which has 15 to 20 percent of world marine insurance — announcing in July it would not insure or reinsure gasoline shipments to Iran. Iran’s trading partners and neighbors lack sympathy with the American approach, arguing sanctions should relate solely to Tehran’s nuclear and missile programs. The new UN measures passed in June blocked assets of individuals and entities allegedly involved in proliferation, whereas EU and US sanctions go much further. Washington’s financial sanctions seek to block from the US market not just Iranian businesses but third parties with significant dealings in Iran’s energy and financial sectors.

Widespread resentment at the US approach aids Iran’s search for partners willing to continue or expand trade. As one Iranian economist recently told me: “I actually believe Ahmadinejad likes sanctions. They help make him the underdog, standing up for his country’s rights against a superpower behaving unfairly.”

March 1, 2009 0 comments

Economics & Policy

Shaking up the system

by Sami Halabi March 1, 2009

written by Sami Halabi

Until recently, thelabor laws of the United Arab Emirates seemed as stationary as the tectonicplates under the Arabian Gulf. Those plates seldom shift, but when they do the result is earth shattering.

The new laborregulations in the UAE may not be as dramatic, but they do have the potentialto shake up the country’s antiquated employment market.

The regulations came inlate December in the form of a ministerial decree, an edict from the laborministry that is not actually a piece of legislation. As Executive went topress, an official document had not been posted by the labor ministry, but theminister of labor had made radio and press announcements.

Perhaps the mostsignificant reform is that workers looking to change jobs will no longer need a“no-objection certificate” (NOC) from their former employer, without whichworkers were previously barred from taking up new employment for a ‘coolingoff’ period of six months.

But this regulation doesnot apply equally to all; a classification system has been put in place tocategorize workers according to their qualifications. Those with universitydegrees or a management position can move to new jobs without the NOC, buteveryone else must remain in their jobs for two years (as opposed to theprevious three-year validity of labor cards) before they may change theiremployer.

The measure to reducethe duration of labor cards to two years is expected to save private sectoremployers $184 million in costs incurred by the defaulted contracts of the 70percent of employees that left before the three-year period. According to arecent poll of workers in the UAE by Bayt.com, a recruitment and job researchcompany, 24 percent of workers stay in their position for a period of two yearsand only 21 percent stay for all three.

“The recent UAE Ministryof Labor announcements are set to give more freedom to employees to switch jobswithout the previously… imposed six months ban and the required no-objectionletters from employers,” said Amer Zureikat, vice president of sales atBayt.com. “We see this as an attempt to not only attract more talent to thecountry but also to promote flexibility and transparency at the workplace —which was deemed ‘very’ important by 72 percent of UAE participants in a recentBayt.com poll.”

Local jobs for localpeople

That added flexibilitymight well be stymied, however, by the inclusion of another regulation in thereforms that seeks to increase the level of UAE nationals in the private sectorto 15 percent. Currently the private sector workforce is less than 1 percentEmirati, with most locals preferring to be employed in the public sector, whichin 2008 saw a low of 54.5 percent of employees being Emirati, reaching to 60.9percent in April 2010, according to recently released official figures. It hadbeen reported that the 15 percent target was to be hit by July, but officialsfrom the International Labor Organization (ILO) told Executive this was not thecase.

Other reforms includelowering the minimum working age to 16, while imposing tough regulations onwhich type of work can be practiced by minors. Expats are also now allowed toofficially take on a second part-time job or part-time work, which applies topeople with spouse visas as well. Six-month work visas are also to become parfor the course.

While the internationallabor community has lauded these measures, the UAE still has much more to do tofall in line with international standards. According to the ILO, the countrystill does not have any legal representation in the form of unions orcollectives, and these regulations are not expected to cover the tens ofthousands of workers in the free zones.

UAE labor law alsoleaves out domestic labor, which therefore excludes an estimated 300,000 to500,000 domestic workers.

If these issues, alongwith the kafeel, or guarantor, system are reformed in the future, perhaps thenthe changes really could be viewed as a tectonic shift in policy as opposed toan aftershock from the financial crisis.

March 1, 2009 0 comments

Financial Indicators

Global economic data

by Executive Staff February 22, 2009

written by Executive Staff

CLIs signal deep slowdown in OECD area and major non-OECD member economiesn OECD Composite Leading Indicators (CLIs) for November 2008 point to deep slowdowns in the major seven economies and in major non-OECD member economies, particularly China, India and Russia. The following outlines the extent of these slowdowns:

The CLI for the OECD area decreased 1.3 points in November 2008 and was 7.3 points lower than in November 2007.
The CLI for the United States fell 1.7 point in November, 8.7 points lower than a year ago.
The Euro area’s CLI dropped 1.1 points in November, and was 7.6 points lower than a year ago.
In November, the CLI for Japan decreased 1.6 points, and was 5.5 points lower than a year ago.
The CLI for the United Kingdom fell 0.6 points in November 2008 and was 6.7 points lower than a year ago.
The CLI for Canada fell 1.2 points in November and was 6.1 points lower than a year ago.
For France, the CLI decreased 0.8 point in November and was 5.7 points lower than a year ago.
The CLI for Germany fell 2.0 points in November and was 10.7 points lower than a year ago.
For Italy, the CLI fell 0.2 point in November and stood 5.0 points lower than a year ago.
The CLI for China decreased 3.1 points in November 2008 and was 12.9 points lower than a year ago.
The CLI for India fell 1.2 point in November 2008 and was 7.6 points lower than in November 2007.
The CLI for Russia decreased 4.3 points in November and was 13.8 points lower than a year ago.
In November 2008 the CLI for Brazil dropped 1.1 point and was 2.9 points lower than a year ago.

Strong slowdown in the OECD area

Strong slowdown in the United States

Strong slowdown in the Euro area

Strong slowdown in China

Strong slowdown in the United Kingdom

Strong slowdown in Canada

Strong slowdown in France

Strong slowdown in Germany

Strong slowdown in Italy

Strong slowdown in Japan

Strong slowdown in India

Strong slowdown in Russia

Downturn in Brazil

The above graphs show each country’s growth cycle outlook based on the CLI, which attempts to indicate turning points in economic activity approximately six months in advance. Shaded areas represent observed growth cycle downswings (measured from peak to trough) in the reference series (economic activity).

February 22, 2009 0 comments

Financial Indicators

Regional equity markets

by Executive Staff February 22, 2009

written by Executive Staff

Beirut SE (1 month)

Current Year High: 1,629.74 Current Year Low: 724.04

The Beirut Stock Exchange ended the review period with low trade volumes as the BLOM Stock Index closed the January 23 session at 1,114.77 points, down 5.3 percent from the start of 2009. Shares of real estate firm Solidere recorded limited price movements in the $16 range throughout January, whereas banking sector stocks BLOM and Audi came under some selling pressure. Although the Lebanese banks have been regarded as largely impervious to the calamities experienced by financial institutions in most other countries, the two largest banks on the Beirut bourse traded lower by 5 percent to 10 percent in the first weeks of 2009. Political and security concerns, which intruded upon the country in January through the Gaza invasion and its potential implications on Lebanon, are known as depressants for trade on the BSE, whose wishes for good fortunes in 2009 are likely to depend predominantly on internal stability, regional economics and international progress in solving conflicts in this part of the world.

Amman SE (1 month)

Current Year High: 5,043.72 Current Year Low: 2,561.30

The Amman Stock Exchange Index closed at 2,677.03 points on January 22, trading lower in the first weeks of 2009 but only at a minor net loss of 2.95 percent from the start of the year. When measured against the first trading session on January 4, the trajectories of the four official sub-indices on the ASE showed industrial and banking sectors underperform the general index by 5.5 percent and 3.5 percent, respectively, to January 22, while services and insurance did better than the general index by small margins. Jordan’s parliament started debating the issue of legislating stronger supervision of financial intermediaries, most specifically foreign exchange companies whose dabbling in brokerage last year had caused problems. Arab Bank started the year under pressure, weakening 12.7 percent between January 4 and January 22. Mining firms Arab Potash Co. and Jordan Phosphate Mines Co. dropped 6.5 percent and 8.4 percent, respectively, in the same period. With a price to earnings ratio of 14.78 times as per Zawya calculations, the ASE is in the top tier of share valuations across the MENA region at this time.

Abu Dhabi SM (1 month)

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

The Abu Dhabi Securities Exchange index closed at a 52-week low of 2,136.64 points on January 22, 10.6 percent down from the start of 2009. At first glance, the ADX has moved in step with its smaller neighbor, the Dubai Financial Market. Both waded through troughs in the last two weeks of 2008, both reached relative highs at the end of the first week in 2009 and both have weakened since. Real estate, banking and finance sub-indices accounted for the ADX descent, with a notable difference to the DFM in that Dubai’s banking values performed better than the investment companies tracked by a separate sub-index. Analysts have many arguments about Abu Dhabi’s real estate outlook being more robust than Dubai’s, but in the review period the ADX real estate sector index dropped more than its DFM counterpart. While much fuss had been made in the past three months about the differences between the two emirates, in early 2009 their bourses point to them being on the same macroeconomic team.

Dubai FM (1 month)

Current Year High: 5,960.16 Current Year Low: 1,462.11

The Dubai Financial Market closed at 1,472.82 points on January 22, representing a drop of 10 percent from the start of 2009. Real estate and construction stocks have been through the mill again last month as the concerns and often highly emotional decisions of investors continued to drive the market. Emaar Properties, Union Properties and Arabtec Holding were among the companies hit by selling pressure. Arabtec traded at $0.29 and Emaar at $0.51 on January 22, both down in the 90 percent range from their 2008 highs. On macroeconomic turf, forecasters of banks such as Standard Chartered revised their forecasts for the Dubai economy even lower than their views had been around October, in the previous round of prediction making. Standard Chartered in January dared an estimate of 0.5 percent real GDP growth for Dubai in 2009. Sector-wise, the emirate appears to have developed a collective over-sensitivity to bad real estate predictions, just as it had seemed oblivious to all warnings of potential bubbles and downsides of property markets until spring of last year.

Kuwait SE (1 month)

Current Year High: 15,654.80 Current Year Low: 6,496.80

The index of the Kuwait Stock Exchange moved south, in daily increments, during the January 1 to January 22 review period. Its close at 6496.80 points on January 22 indicated a new 52-week low as well as a 16.5 percent drop from the start of the year. In international and regional context, the KSE underperformed the Dow but was not far from the MSCI Arabian Markets, which also exhibited strong downward pressure in the same period, with a drop of near 17 percent. In terms of sectors, real estate, investments and banking underperformed the KSE general index by between 4 and 7 percentage points. Besides worries about oil prices in the massively energy export-dependent country, punches to the securities market came in the form of news that Investment Dar (TID) and Global Investment House had been hit by problems. TID, overexposed on the debt side, slumped 62.75 in the review period. Global, whose shares similarly lost more than half of their value, had defaulted on close to $3 billion in debt obligations but in mid-January was given 60 days to find a solution. The company could also bask in being winner of an award as “Best Islamic Fund Manager,” according to a January 22 press release.

Saudi Arabia SE (1 month)

Current Year High: 10,351.03 Current Year Low: 4,264.52

The Saudi Stock Exchange’s Tasi fared like a man with mild stomach flu in the middle of a GCC epidemic of markets diarrhea. Closing at 4,556.80 points on January 21, the Tasi was down 5.13 percent from the opening of its first session in the year. Results season has cast increasingly darker shadows from the middle of the month. The big bad earnings day on the SSE was January 20 when market leader Sabic presented its astoundingly low Q4, 2008 net profit of $90 million — representing a drop of 95 percent from Q4, 2007 and undercutting analyst expectations for the last quarter by around $800 million. The company attributed the change in net profit to global weakening of demand for its products. Sabic’s share price lost around 21 percent from January 1 to January 21; theoretically, similar to many other stocks in MENA, Sabic is now a total bargain. Another massive downward surprise came from food conglomerate Savola, whose shares plummeted by close to 30 percent over some 15 days before and just after the company announced a Q4 loss of $124 million because of provisioning related to deterioration in the value of its investment portfolio.

Muscat SM (1 month)

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

The Muscat Securities Market just doesn’t get the full attention of international analysts, and there aren’t really many opinions to choose from why the MSM index dropped 19 percent from January 1 to January 22, to a close at 4,405.43 points. Banking stocks were the most obvious culprits in the downtrend; while Bank Dhofar achieved a seven percent price gain during the review period, its peers Bank Muscat and National Bank of Oman traded at the other end of the price development spectrum and saw their share prices drop 25.5 percent and 33 percent, respectively. Jazeera Steel was the market’s worst performer, with share price losses of almost 47 percent, presumably linked to the weakening demand expectations for steel pipes. An international analyst opined that Oman would face economic pressures in 2009 due to the falling oil price and its comparatively low amount of oil resources.

Bahrain SE (1 month)

Current Year High: 2,902.68 Current Year Low: 1,660.05

The Bahrain Stock Exchange Index closed at 1,660.05 on January 22. This reading also represented a new 52-week low, as the KSE recorded on the same day, but the drop from the start of 2009 for the BSE was a comparatively benign eight percent. The BSE might even boast of doing better than the Dow these days, if only the tiny bourse were not light years behind the size of a major stock exchange. By sectors, the banking and investment sub-indices were the BSE’s downward drivers, while hotels, insurance, industry, and services kept their noses pretty much above water. Market cap leader Batelco could report a modest increase in its annual results to $276.4 million net profit for 2008; its fourth-quarter results in 2008 appeared to be in line with the overall earnings development. Batelco shares gained less than one percent in the review period, meaning the company was among the BSE’s best performers in the year to date.

Doha SM (1 month)

Current Year High: 12,627.32 Current Year Low: 4,589.76

Qatar was the least fortuitous securities market in the GCC in the early weeks of 2009. The Doha Securities Market index closed at 4815.02 points on January 22, down 30 percent from the start of the year. Note that making a fresh start doesn’t mean that things go well from the first minute. All investors and market augers who might have hoped that 2009, either from the get-go on January 1 or from the Obama presidential oath on January 20, would see global financial markets blessed by a magical Oz factor have the counter proof: the most-watched US index performed unimpressively during inauguration week and even dropped below 8,000 points on inauguration day. When measured against its first active day in 2009, the Dow gave up 10 percent by market close on January 22. Of all GCC exchanges, only the Saudi and Bahraini ones performed better than the Dow in the New Year, while Qatar came in abysmally. One wonders why the DSM underperformed every market in sight, but Doha-based analysts don’t appear unified on the issue quite yet: some experts explained the slide as catching-up with peers, while one investment firm simply called a one-week, 14 percent drop “a mixed performance.”

Tunis SE (1 month)

Current Year High: 3,418.13 Current Year Low: 2,648.43

The Tunindex accomplished a gain of 2.41 percent from January 1 to January 23 when it closed at 2,959.66 points. With its economic and political profile that is more removed from oil export prices and from the Near Eastern conflict, the Tunis Stock Exchange started the year under the conditions of a positive disconnect from regional and global share price trends. Poulina Group Holding, which since its entry to the exchange in September of last year is the TSE’s strongest company by market capitalization, shed 5.63 percent in the review period. Banque de Tunisie, the exchange’s strongest bank, ended the period 1.8 percent higher. According to ratios computed by Zawya, the Tunisian bourse saw 8.69 percent volatility in January trading and its price to earnings ratio stood at 11.58 times at the end of the review period.

Casablanca SE (1 month)

Current Year High: 14,925.99 Current Year Low: 9,405.86

The Casablanca Stock Exchange opened the year with a sudden and strong slide of nearly 1,600 points that resulted in a two-year low of 9,405.86 points when 2009 was just a week old. The index then regained 450 points and closed its January 23 session at 9,979.81, down 5.6 percent from the January 2 session. The CSE’s market cap leader, Maroc Telecom, saw some volatility and experienced a net drop of 5.4 percent in the review period; the company announced positive results for both the fourth quarter of 2008 and the entire year on January 19. Its net profit for 2008 grew 7.2 percent to $3.5 billion. The real estate group Addoha and the conglomerate ONA Holding were among the weaker performers in the review period, registering share price losses of around 15 percent each.

Egypt CASE (1 month)

Current Year High: 11,935.67 Current Year Low: 3,643.34

With the start of 2009, the Egyptian bourse headed straight into another tunnel with only the slightest glimpse of light around after the year’s first full three weeks of trading. When measured from the January 4 year-opening session until its January 22 close, the CASE 30 Index dropped 19.1 percent and only just moved up a notch from a two-month low in the final session of the review period. It closed the day at 3,810.18 points. Local market analysts and brokers pointed to regional and international conditions, saying that the Cairo and Alexandria Exchanges were affected by heavy selling from regional investors; the analysts added they saw nothing wrong with the domestic market that would explain the above-average downward pressure. Orascom family heavyweights Orascom Telecom Holding and Orascom Construction Industries shed around 24 percent apiece from the start of the year. Manufacturing firm El Sewedy Cables took a steeper fall and lost over 30 percent.

February 22, 2009 0 comments

Finance

Money Matters by BLOMINVEST Bank

by Executive Staff February 22, 2009

written by Executive Staff

Regional stock market indices

Regional currency rates

Algeria connects Spain to gas pipeline

Medgaz, the international natural gas consortium of five companies, completed the process of laying pipeline between Algeria and Spain. The 210 kilometer distance separating the coasts of the two countries is now connected by a 61 centimeter diameter subterranean pipeline. The pipeline that is laid at depths of up to 2,160 meter is projected to transport 8 billion cubic meters of natural gas per year between Spain and Algeria. The project that cost $1.27 billion was signed in August 2000 and will start transporting gas before the second half of 2009.

Oman to develop airports’ maintenance facilities

The Middle East maintenance, repair and overhaul (MRO) sector was worth $2.2 billion last year and is expected to grow by 70 percent to $3.4 billion over the next 10 years. The Omani government is participating in this growth with issuing tenders for contracts to design and supervise the construction of two new maintenance facilities at Muscat and Salalah airports. The Transport and Communication Ministry is continuing the expansion scheme at the two airports by planning a maintenance, repair and overhaul facility for both sites. The project has an objective for enhancing the Omani aviation services capabilities and developing the country’s transport and tourism infrastructure.

Morocco’s inflation hits five-year high

Inflation in Morocco has reached its highest level in five years. Prices increased by 3.9 percent in 2008, compared with an inflation of 2 percent in 2007. The rise in food prices was the main factor, with food inflation at 6.8 percent, while non-food inflation was just 1.4 percent. It is worth noting that Morocco’s underlying inflation, which excludes commodities such as diesel that are subsidized by the government, grew by 4.5 percent and is higher than the overall inflation. Rabat recorded an inflation rate of 4.9 percent, Tangier and Casablanca’s inflation were 4.5 percent and 4.1 percent respectively. On the other hand, unemployment in 2008 is projected to hit 9.5 percent, down from 9.75 percent in 2007, with a labor force of 11.3 million. Furthermore, in 2008, Morocco’s main exports of phosphate rock increased by 168 percent over 2007 to $5.66 billion with a price of $409 per ton in the third quarter of 2008.

February 22, 2009 0 comments