Executive Magazine

Drive Communication

by Paul Boulos March 3, 2009

written by Paul Boulos

How a country is perceived on the world stage by its own people or by other nations is crucial to its survival and success in the new globalized model. Nation branding and country positioning is an untapped concept in Lebanon and what it has to offer. While the notion of nation branding is not new on an international scale, on a regional scale it represents a hidden opportunity for Lebanon. Whether based on individual national objectives of trade, investment, travel and tourism, or through NGOs, positioning a country’s brand is more important than ever for small countries like Lebanon.
As a brand, so far Lebanon has been most successful at manufacturing human talent. This talent has demonstrated that it is cultured, competent and cost efficient. It mainly resides in the diaspora, a large pool of potential that has not yet been linked back to the ‘mother brand.’

Arab nation brands
Some Arab localities have made serious attempts to style their countries as brands, according to the national agenda of their governments and international interests. Examples of this include Dubai, Doha, Abu Dhabi and Manama. Dubai was sought after for its transit and service qualities; Doha as an international sports and education destination; Abu Dhabi for its culture and Manama as a smart business choice.
We have seen other attempts via one-off campaigns by the ministries of tourism in places like Turkey and Egypt. Yet such campaigns fell short of promoting their country brand under one unifying umbrella. India, China and Australia could serve as good examples of exploiting nation branding by building one unifying brand.

What does it take?
Today, the world we live in has no geographic boundaries when it comes to conducting business, especially when it comes to communication. If we are to shift our mindset and think of Lebanon as a ‘creative nation’ brand, we must first define the key performance indicators. Second, we must identify the industries that are considered ‘creative’ and see what it takes to execute them.
Thinking of Lebanon as a creative nation brand, we must be able to define our brand promise: For what do we stand? What is our cutting edge offering? What is the content that we will offer on the international market? How we will deliver it? What is our target market? Who are our customers and what do we know about them?

The ‘attention age’
Welcome to the ‘attention age’, where before delivering a message in a cluttered environment, countries must rise to the challenge of grabbing attention. Then, they must deliver a promise, live up to it and earn the respect and trust of investors, consumers, media and other nations.
The information age is over. We have officially entered the attention age, whereby attention is won and credibility through creative talent is the only sustainer. Lebanon is an ideal platform for a creative nation brand, as more and more products and businesses export ideas instead of tangible commodities. If we are to think of Lebanon as a cultural product, then this could be a start. The demand for creative products and industries is growing as consumers are more into cultural exchange and social media. In fact, consumers today are using creative products and selling them in order to connect with specific dreams and lifestyles.

Lebanon’s success in creative sectors
Lebanon has made some interesting breakthroughs in various sectors, which could easily be labeled as creative industries or creative sectors driven by talent. Examples of this include advertising, architecture, design, arts, media, film, music, tourism and gastronomy. All these creative industries have as their nucleus the work, ideas, energy and creativity of a small team. Positioning Lebanon as a creative nation brand takes much more than designing just a nice logo with an appealing tag line. It takes having the human talent, the energy, the will and a common vision. The biggest problem with branding a nation like Lebanon is there are many different organizations that operate in a sporadic and slow manner. They do not liaise with other entities such as the ministries of tourism, trade or export organizations. Essentially, everyone does their own thing. It’s nearly impossible to get everything together and host it all under the country’s umbrella. Thus comes the need to define a common vision as to what Lebanon should stand for as a creative brand.

Nation brand assessment measures
The Anholt nation brands index offers a systematic approach to measuring nations’ brand equities in an index that he sets for national assets, characteristics and competencies. These include exports, people, governance, tourism, culture and heritage, immigration and investment.
In essence, countries are a lot like humans. Therefore it is important to consider the emotional attributes of these nations as they are perceived by others in the world. Despite all the chaos that Lebanon is witnessing and the instability that surrounds it, we have no excuse not to think in this untapped strategic and essential direction. As chaotic as our nation is, we have a trilingual culture, competency and cost efficiency. Hence, we stand a real chance to succeed in the emerging new world order where geographic boundaries no longer apply. As for the present and the future, Lebanon as a creative brand must focus all its efforts on harboring, developing and retaining its own creative talent.

PAUL BOULOS is business development director — Middle East & North Africa, at Drive Communication

March 3, 2009 0 comments

Finance

IPO Watch – Hints of a thaw

by Executive Staff March 3, 2009

written by Executive Staff

Given the ongoing weakness in regional equity markets right now, it’s no surprise that the IPO market is still on the ropes. Many financial analysts from Ernest & Young, UBS, Gulf Capital, Global Invest and others maintain that 2009 will experience slow growth in IPO opportunities, and equity capital markets desks from Dubai to Saudi Arabia are sitting on their hands.

But some market observers are optimistic about the ice jam breaking for IPOs in the near-term, especially sometime in the second half of 2009. “The IPO window is closed for the moment due to prevailing market sentiments,” Ali Khan, executive director of capital markets at Arqaam Capital says. “However, six or nine months is a long time in capital markets, especially these days… once there is a better understanding of pricing trends, stock markets may rally well before house prices actually reach bottom, as investors will take a 12 to 18 month view ahead,” he adds.
The region’s IPO market is nowhere near recovery, but it looks like investors will have several offerings to choose from in the coming months. Saudi Arabia’s Mawarid Holding has appointed Saudi Hollandi Capital as lead manager for the planned IPO of its unit, Meed Trading Company. Although the company did not provide the details of the offering, the IPO is expected to be launched by the end of the 2009 after regulatory approvals. Meed Trading, which operates more than 200 retail outlets across the kingdom, “will be restructured prior to the IPO to make it a majority stake holder in seven other subsidiaries of the Mawarid Group,” the company said in a statement.
Also in Saudi Arabia, Abdul Mohsen Al Hokair Tourism & Development Group, announced plans for an IPO to raise funds to develop tourism projects on the Saudi coast and further develop plans to construct over 30 hotels across the Arab world. The company did not provide details as to the size of the offering and possible launch date, but Abdul Mohsen Al Hokair, the group’s chairman, said the launching is very much dependent “on the performance of the local stock market.”
In the region’s most battered economy due to the global financial crisis, one announcement came out of Dubai. Private charter Silver Air, said it will launch an IPO as part of its strategy to raise capital to expand its fleet with three additional Boeing aircraft. “This acquisition would be funded by an IPO in two to three years time with a listing in Dubai,” Steffen Harpoth, chief executive of Silver Air, told the press.
Meanwhile, the IPO of Etihad Atheeb Telecommunication or Atheeb, Saudi Arabia’s second fixed-line operator, was 3.5 times covered with subscriptions totaling more than $282 million. Atheeb launched its IPO in early February and the float was closely watched by market observers to assess investors’ appetite for IPOs. The company expects to list on the local stock market before mid-March and will begin its commercial operations by mid-2009.

Syrian markets
In the Levant, the Damascus Securities Exchange gave the go ahead to Bank Audi Syria and the United Group for Publishing, Advertising and Marketing, to list their shares. Bank Audi Syria is a subsidiary of Lebanon’s Bank Audi. Bank Audi Syria’s capital stood at $54.3 million at the end of 2007, according to available data. While Damascus-based United Group’s capital stood at $6.51 million at the end of last September.
Some analysts believe that individual and institutional investors remain in defensive mode, and in light of the current economic fundamentals and overall valuations, investors are more likely to buy shares in undervalued companies than in an IPO. “Investors’ reluctance regarding IPOs is understandable,” Samer Shaheene, senior analyst at Bloomberg says. “Many have been stung by stock market declines and a risk-tolerance level for IPOs is on the low end,” he adds. This has forced companies to seek out new sources of capital, where possible.
However, precedence shows that investors will always seek and find good investment opportunities in any market conditions. “When there is a period of lower-than-normal IPO issuance, bounce back is possible,” Jad Hawali, analyst at Zawya.com says. “The bounce back can happen without a solid overall equity market simply because there is pent-up demand for capital by private companies,” he added.
According to available data from Zawya.com, there are close to 60 IPOs planned for 2009 so far. Although there are alternative means to raising capital, the IPO is a favorite course for regional investors. Given the swiftness with which investors and companies respond to changing financial and economic conditions, this scenario may be what will play out at the end of the first quarter.

March 3, 2009 0 comments

Executive Insights

EM Leadership Center

by Tommy Weir March 3, 2009

written by Tommy Weir

Enough for now with giving attention solely to the limitations imposed by this financial crisis — instead take a break and concentrate on the coming opportunities. There is an immeasurable potential to grow your business, but it requires a market shift.
This market shift can be summarized by the term ‘peopleization’ — meaning the ‘massive people markets’. Never before in history have there been markets with the size and density of today’s. Three realities define peopleization and they are having a remarkable influence on the future of business.

The world is growing — huge
The current population of the world is nearing seven billion and growing by 135 people per minute. To put this in perspective, note that it took from the beginning of history until the early 1800s for the world’s population to reach one billion. Then, in 1927, more than 125 years later, it passed two billion. In 1987, the world population was five billion; 12 years later, in October 1999, it passed six billion.
Now every 14 years the world will grow by another one billion people. It’s no wonder that so many people are concerned about what this means for our future. You also need to be attentive to what this means for your business.
When we talk about world population, we may be distracted by the magnitude of the number. So, let’s break down what it means for the population to grow by one billion every 14 years. That means the world grows by approximately 71.5 million people each year, or close to 196,000 people per day. In other words, every eight days or so the world’s population increases enough to add a city the size of Beirut.

The world is becoming eastern
Think about this: while the West is sleeping, the entire rest of the world is working — literally and figuratively. The focus of the world is no longer on the West. Success is and will continue to come when you turn to the East. At one point, if you wanted to make it big, you had to succeed in Europe and then it moved to the US. Now if you want to make it big you must succeed in China and India.
The world is now an Asian World. The picture is changing; the developed world is growing at a measly rate of two people per minute and the developing world at an astonishing rate of 151 people per minute.
In terms of economic size, China will soon by-pass Japan and the United States. China is today’s powerhouse. The power of the market shift comes alive when you add together GDP growth and population growth. For example, China is growing at a rate of at least two times that of the US, and they are four times as big. Make this calculation and determine the impact it will have on business.
Asia is becoming the anchor economy of the world. They are the leading global importer; in addition, they are now a leading exporter and trendsetter. They not only dominate the region, they have a controlling interest in the world. This is the location of future business.

The world is urban
In 2007, the world reached the invisible, but momentous milestone of becoming an urban world with more than 52 percent of the world living in densely populated, high- rise cities. And the growth of the urban world is not showing any signs of slowing down as every second two people make the dream-fulfilling journey from the rural world to the urban world.
While the world’s urban population grew very rapidly over the 20th century (from 220 million to 2.8 billion), the next few decades will see an unprecedented scale of urban growth in the developing world. The cities of the emerging markets will comprise 81 percent of the urban footprint and be home to more than five billion people. The cities in the East are exploding compared to the snail’s paced growth of the cities in the developed world.
In order to make the market shift, you need to be able to answer a couple of questions: “What does the market shift mean for my business?” and “How can I make the shift?”
How can you succeed if you are not there?

Tommy Weir, Ph.D., is executive director of the EM Leadership Center, specializing in strategic leadership development for fast-growth and emerging markets.

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

Comment

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