Executive Magazine

Measuring business‘ burden

by Riad Al-Khouri November 3, 2008

written by Riad Al-Khouri

Economic indices have become even more popular over the past few years with, for example, the numbers churned out by the World Bank and International Finance Corporation’s annual Ease of Doing Business (EDB) survey being among the most widely anticipated and cited. The function of the EDB index, which tracks the time and cost of key aspects of doing business, is to tell a country how it is doing and so help it identify weaknesses to be addressed and strengths that could attract investment. The latter, however, were unfortunately not prominent for many of the region’s economies in the latest EDB, published in September, which, among other laggards, reported Lebanon in 99th place (down from 98 last year) among 181 countries globally and Palestine (listed as “West Bank and Gaza”) 131st, modestly up from 132.

Yet the picture is more complicated as the EDB index is actually a composite of ten sub-indices that can vary widely, as they do in the cases of Lebanon and Palestine. One of the worst components of the overall index for both is the ‘Enforcing Contracts’ sub-index, in which Lebanon was 118th worldwide, up one notch from the previous year, and Palestine 123rd, although it also improved slightly from last year’s 122. The Enforcing Contracts index is determined by following a payment dispute and tracking the time, cost, and number of procedures involved from the moment a plaintiff files the lawsuit until actual payment. A firm in Lebanon requires 37 procedures and 721 days to enforce commercial contracts, compared to an average of about 44 procedures and 689 days regionally and 31 procedures and 463 days in the more advanced countries of the Organization of Economic Co-operation and Development (OECD). Further, enforcing a contract in Lebanon costs almost 31% of the claim compared to about 24% regionally and 19% in OECD markets. To enforce a contract, Palestinian procedures are 44 in number, taking a total of 700 days and costing 21% of the claim.
On the positive side, the Lebanese and Palestinian components measuring the ease of paying taxes are among the best in the world, Palestine ranking 25th (though with a slippage from 23 last year) and Lebanon placing 45th worldwide, but down nine places from the previous year. The ‘Paying Taxes’ sub-index shows what a medium-size company must pay or withhold in a given year, as well the administrative burden in paying. These measures include the number of payments an entrepreneur must make (27 in the case of Palestine); the number of hours spent preparing, filing, and paying (154); and the share of their profits they must pay in taxes (about 16%). Generally, components of this measure are positive, though the number of payments compares badly with the region (23), let alone the OECD (13).
Somewhat like the Palestinians, the only component of the EDB index where the Lebanese seem to shine is the Paying Taxes sub-index, in which on the global level, Lebanon ranked ahead of the US but regionally placed behind Iraq. A medium-size firm in Lebanon has to make 19 tax payments annually, less than the regional average but more than the OECD. It takes a firm 180 hours to prepare, file and pay its taxes in Lebanon, significantly less than the MENA average of about 216 and the OECD’s 211. Also, companies in Lebanon pay 12% of profits in tax, less than the regional average of close to 13% and the OECD average of about 18%. However, that is not the whole picture and the bad news is that a company in Lebanon pays just over 24% of its profits in labor tax and contributions compared to around 16% for the region and about 24% in OECD economies; so overall, companies in Lebanon pay 36% of profits in tax compared to just over 33% regionally and about 45% in OECD countries.
In conclusion, though Lebanon and Palestine’s performances in the EDB are generally mediocre, when the overall index is dissected into its components, a mixture of good and bad emerges. The 10 components of the general indicator are varied and are themselves divided into different elements; so the lesson from this is that indices should be dissected and not just taken at face value. A second point is that comparisons within regions and globally are valuable: a seemingly low score by a middle-income country like Lebanon or an emerging economy such as Palestine could actually be very healthy if compared to neighboring economies. Finally, look for a temporal comparison: an index might seem bad but its improvement over the past few years could itself be a good sign — will that be the case for the Lebanese and the Palestinians in the next EDB?

Riad al Khouri, co-founder and principal of KryosAdvisors, is senior fellow of the William Davidson Institute at the University of Michigan

November 3, 2008 0 comments

Comment

India‘s fusion with US power

by Paul Cochrane November 3, 2008

written by Paul Cochrane

Over the last 1,000 days India has been trying to get its nuclear status green-lighted by the United States despite not being a signatory to the Non-Proliferation Treaty (NPT) or the Comprehensive Nuclear Test Ban Treaty.

The US Senate’s ratification in October of what is known in India as the ‘123 Agreement’ — in reference to Section 123 of the US Atomic Energy Act — will cause a profound shift in geo-politics for Asia, the Middle East and the West. For behind the deal is big power politics involving the two giants of Asia, China and India, the region’s basket cases, Afghanistan and Pakistan, and Washington’s perennial thorn-in-its-side, Iran. There is also the US- led ‘war on terror’ to consider.
In inking the 123 Agreement, India now has access to nuclear reactors, fuel and technologies from the US — 34 years after New Delhi first conducted a nuclear test in the Rajastani desert. The deal has also put the US top of the list to supply the nuclear technology, valued at $100 billion over the next 20 years and will enable India to develop 200 nuclear warheads as well as indigenously designed nuclear submarines. Sizeable arms deals and economic cooperation agreements have also been inked, with the US expected to get the proposed $10 billion Multi Role Combat Aircraft deal and replace Russia as India’s biggest weapons supplier.
But in the bigger picture, what the bilateral agreement has achieved for Washington is a new ally in Asia that can pressure Iran, with whom India has energy agreements yet still little desire to see Tehran become another nuclear power in the neighborhood. India can also act as a bulwark against the emerging dragon, China. Just over the border from India, in the Tibetan Autonomous Region, are an estimated 500,000 troops of the People’s Liberation Army (PLA), as well as Intercontinental Ballistic Missile (ICBM) bases. It has long been a trigger point and could be again, with numerous skirmishes occurring between the PLA and Indian troops over disputed border areas high in the Himalayas.
By bringing India — the world’s largest democracy at some 1.2 billion people and counting — onboard the US has a country that borders other states of concern whose democratic credentials are dubious at best: Pakistan, Myanmar, and Bangladesh.
The agreement may also well be the Bush administration’s last positive foreign policy achievement. It certainly put a smile on the face of American president when Indian Prime Minister Manmohan Singh told Bush that “India loved him.” But while the agreement is advantageous for Washington, it yet again sends signals of hypocrisy and double standards to the world. There are only four countries that are non-participants in the NPT: Israel, India, Pakistan and North Korea; but with the exception of Pyongyang, whose nuclear arsenal is still in an embryonic stage, the US has strong relations with the first three. Iran on the other hand, which is cooperating with the IAEA, is continuously under pressure to rein in its nuclear program.
The thawing of relations between New Delhi and Washington have, however, come at a time of heightened terrorist attacks within India by Islamists. Although homegrown, the attacks have links to Pakistan.
Islamabad was, after all, fingered as a perpetrator of the terrorist attack on the Indian embassy in Kabul in July, and there are allegations of financial support for Indian jihadists coming from Pakistan and Bangladesh. The deluge of fake Indian Rupees, which are a contributor to inflationary pressures, have also been traced to state-of- the-art printing presses in Pakistan. Furthermore, during meetings at the White House Bush and Singh reportedly discussed the prospect of Pakistan imploding and its notorious Inter-Services Intelligence (ISI) becoming “a state within a state.”
New Delhi is now mulling a beefed up anti-terrorist law and its National Security Agency has been briefed by the US Department of Homeland Security on how to set up a similar body to better integrate its intelligence services which, according to one analyst I spoke to in New Delhi, are still operating with a World War II mindset. Additionally, the Indian press has reported growing pressure on New Delhi to send troops to Afghanistan.
In the global ‘war on terror’, India clambering onboard the US train can been seen as a boon, but for the more skeptical, India has sold out in this new alliance and Washington DC has once again shown its Janus face when it comes to nuclear issues. Iran and China are the biggest losers in this, while the world has become an even more uni-polar place.

PAUL COCHRANE is a freelance journalist based in Beirut

November 3, 2008 0 comments

Comment

President Palin? God help us

by Claude Salhani November 3, 2008

written by Claude Salhani

The gossip around Washington these days compares Republican vice presidential candidate Sarah Palin to a ‘post turtle’. Not familiar with the term? Don’t worry, most urban folks aren’t.

Say you’re driving in the countryside and you see a turtle sitting on a post. First, you know it didn’t get there by itself. Second, you know it doesn’t belong up there. Third, it doesn’t know what to do while it’s up there. And fourth, you wonder what kind of dumb-ass put it up there to begin with.
The frightening reality is that this ‘post turtle’ could end up being the next vice president of the United States of America. Even more worrying is that she could also be president.
Republicans, or at least the ones who placed Palin on the post, believe she is highly qualified for the job. The reason is that she is so politically hollow inside that she can easily be molded by the neocons. Think Bush II, but far easier to influence and control. In defending Palin many Republicans have said she is qualified for the vice presidency (and therefore possibly the presidency, especially when the president is 72 years old and has a history of heart problems) because “she lives next door to Russia.”
Republican Party big shots and their supporters have gone on record with that statement, as unbelievable as it might sound; Fox News was the first to announce that Sarah Palin was knowledgeable in foreign affairs because “she is right up there in Alaska right next door to Russia.”
Frank Gaffney, a syndicated columnist, said that Palin has picked up foreign policy “by osmosis” as a result of Alaska’s geographic location.
The governor’s office in Alaska’s capital Juneau, where Palin works, is about 1,230 miles from the closest point in Russia. My office for the good part of the last 15 years was only 0.19 miles from the White House. Does that qualify me for the presidency? At least I could actually see the White House from my office.
Still, McCain’s wife, Cindy, told ABC News’ George Stephanopoulos that “Alaska is the closest part of our continent to Russia. It’s not as if she doesn’t understand what’s at stake here.” Appearing on ABC’s Charlie Gibson, being questioned about Palin’s lack of foreign policy experience, McCain was asked if in all honesty he could feel confident having on board someone who is as green in international affairs (about the only time anyone is likely to call Palin “green”) as his running mate. Until a year ago Palin had never applied for a passport or travelled outside the United States.
McCain replied that one of the key elements to America’s national security requirements are energy and that Palin “understands the energy issues better than anybody I know in Washington, D.C., and she understands Alaska is right next to Russia. She understands that.”
Hmmm.
Well, glad she got the geography part right, ‘cause she sure flunked in economics. When asked by CBS anchorwoman Katie Couric how the $700 billion economic bailout package the Bush administration and Congress negotiated would help taxpayers, this is how she replied: “What the bailout does is help those who are concerned about the health care reform that is needed, to help shore up our economy, helping… oh, it’s got to be all about job creation too, shoring up our economy and putting it back on the right track, so health care reform and reducing taxes and reining in spending has got to accompany tax reduction and tax relief for Americans and trade, we have to see trade as opportunity not as competitive, scary thing, but one in five jobs being created in the trade sector today, we’ve got to look at that as more opportunity, all those things under the umbrella of job creation, this bail out is a part of that.”
Wow! Yes, she sure is ready.
Kathleen Parker, a well-respected conservative columnist had this to say in the National Review website after watching the interview: “A candidate who is clearly out of her league,” adding that “If BS were currency, Palin could bail out Wall Street by herself.”
Just how clueless Palin is and how controlled she is by her Republican minders was made all the more obvious in the vice presidential debate where it was more than obvious that the governor of Alaska was getting immediate feedback and directives on her portable telephone via text messaging.
I wonder if the fact that Governor Palin “lives next door to Russia” will facilitate any dealing she may have with the Machiavellis of foreign politics? How would she stand up to negotiators with such as Russian Prime Minister Vladimir Putin, a former KGB officer?
The Palin saga has of course has provided late night talk shows with a gold mine of ammunition. Jon Stewart of the Daily Show cut to the chase, describing a Fox News commentator who supported the “living close to Russia” thesis as a “moron.”
Steve Benan, writing in the Washington Monthly described it as “the dumbest argument I’ve ever heard.”
“Palin and McCain are a good pair,” said the Tonight Show’s Jay Leno. “She’s pro-life and he’s clinging to life.”

Claude Salhani is editor of the Middle East Times and a political analyst in Washington.

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November 3, 2008 0 comments

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Dire straits for food & finance

by Peter Speetjens November 3, 2008

written by Peter Speetjens

As world leaders have their eyes fixed on the global financial crisis, which has seen western governments spend trillions of dollars to keep banks and financial institutions afloat, British aid organization Oxfam on October 16 issued Doubled Edged Prices, an alarming report about the ongoing global food crisis.

According to Oxfam, average prices of staple foods such as rice and cereals have risen up to 300% in some countries, which have pushed an extra 200 million people to the edge of starvation, bringing the worldwide total to nearly one billion. Key drivers of the crisis are increased demand, which includes increased demand for bio- fuels and meat; reduced supply due to an increase in extreme weather conditions; the hike in energy prices and financial speculation in commodity markets.
Hardest-hit are poor urban dwellers who spend up to 80% of their daily income on food and mainly live in food- importing countries in Africa, Asia and Latin America. The Middle East has not escaped the ordeal. According to the Arab NGO Network for Development (ANND), the price of corn and rice in Egypt has risen by more than 70% between 2007 and 2008, while in Sudan the price of wheat increased by 90%. In Lebanon, the average price of imported food has increased by 145%. Experts warned that an estimated 30% of Lebanese live under the poverty line, which could increase to 40%.
Massive bread riots in Egypt earlier this year showed what the political consequences of an empty stomach can be. The Egyptian government is currently paying billions of dollars to subsidize cheap bread production. Following years of drought and bad harvests, the Syrian government may soon be forced to start importing wheat. Meanwhile, Oxfam observed, the crisis is not a setback for everyone, as large agricultural corporations and supermarket chains have recorded soaring profits.
Interestingly, a BBC survey last summer found that 60% of respondents in 26 countries said higher food and energy prices had affected them “a great deal.” Dissatisfaction with their government in terms of tackling the crisis was greatest in Egypt, where 88% of respondents said to be unhappy with their leaders, followed by the Philippines (86%) and Lebanon (85%).
At first sight, the world’s financial and food crises could not be more different. While the first has so far mainly been felt by Wall Street bankers, boardroom directors and shareholders, the second predominantly hurts the poorest of the poor, who break their backs for a few dollars a day and for whom a 30% price increase on a loaf of bread is quite literally a matter of life and death. International aid organizations have warned that the crisis is most acute in Ethiopia where six million people survive through emergency food hand-outs, up from two million last April.
However, the crises have at least one thing in common: far-reaching deregulation and market liberalization appear have aggravated the suffering. Lack of overview and transparency in the US allowed banks to build an elaborate financial pyramid on what were essentially bad mortgage loans. In terms of food and agriculture, countries that have followed the wishes and international guidelines set by donor countries and global financial watchdogs have been hit harder than countries such as India and Brazil, which have stuck to a more protective agricultural policy.
“The trend in agriculture, as in international finance, has been towards deregulation and a reduced role for the State,” said Oxfam director Barbara Stocking. “This has had devastating effects and innocent lives have been blighted by exposure to market volatility. In countries where governments have invested in agriculture and put policies in place to target vulnerable or marginalized groups, the impacts of food price inflation have been less severe. In contrast, where there has been unmanaged trade liberalization, underinvestment in agriculture and little support from government, the effects have been devastating.”
For decades, financial organizations like the World Bank and IMF have pushed for free trade, open markets and deregulation, despite the fact that the US and Europe themselves have proved unwilling to stop paying billions of dollars in agricultural subsidies to domestic farmers. It was these same subsidies that caused the latest round of Doha free trade talks to collapse.
Haiti is an often-cited example of how open markets and free trade may in fact help create poverty. In 2007, some five million Haitians lived on less than a dollar a day, while almost half the population was undernourished — a situation only aggravated by recent price hikes and bad weather. Ironically, Haiti once was a significant rice producer, yet urged on by free trade ideologists the country opened its markets to allow for cheap imports to arrive, which caused a decline in local production and job creation. Later on, global food prices increased and thus became unaffordable for the increasingly impoverished population.
One thing is certain: less than two decades after the collapse of the Soviet Union, which prompted some conservative enthusiasts to hail the end of history, the world’s food and financial crises have painfully shown the shortcomings and limitations of the free market ideology.

Peter Speetjens is a Beirut-based journalist

November 3, 2008 0 comments

Comment

Georgia on my mind

by Norbert Schiller October 27, 2008

written by Norbert Schiller

Shortly after the collapse of the Soviet Union I joined a small group of Cairo-based journalists on a tour of the former Soviet republics of Azerbaijan, Armenia and Georgia. When we arrived in the Georgian capital of Tbilisi, one of the first things we wanted to do was interview the newly elected President, Eduard Shevardnadze. Shevardnadze had held numerous political posts during Soviet times, the last being minister of foreign affairs under the leadership of Mikhail Gorbachev.

Our initial queries proved fruitless until someone at the Ministry of Information suggested we contact a particular young member of parliament who was supposedly very close to Shevardnadze. After agreeing to meet us, the young MP said that he would try his best and see what he could do to arrange an interview. With nothing else to do but wait for an answer from the president, we sat in the MP’s office while he gave us a little background into his own personal life. He said that he had received a graduate fellowship from the US State Department and during his time in America he got a masters of law degree from Columbia University in New York. He also mentioned that he was married to a Dutch woman whom he met while attending a course on human right in France in 1993.

As the small talk with the MP continued, one of my colleagues, a Dutch journalist, turned to me and asked if I would be interested in illustrating a story about the MP and his wife for a Dutch magazine. “The story of a young woman from Holland falling in love and marrying a Georgian MP would be interesting for our readers,” he said.

After we were assured an audience with Shevardnadze the following day, our group decided to leave and spend the rest of the day site seeing around Tbilisi. My Dutch colleague and I stayed behind with the young MP and he proceeded to show us around parliament and then took us over to his home to meet his wife and young son. She in turn took us out (since the focus of the story was on her) and showed us where she worked as a volunteer with the Red Cross. Later that evening we returned to their home and enjoyed drinks, Georgian and Dutch folk songs and a bite to eat. The whole time I photographed their every move, trying to get a good portrait of the family so Dutch readers could get a feel for how one of their compatriots was living her life away from her homeland in a newly independent country.

Back in Cairo I developed films and put together a nice series of photos that were eventually published in the Dutch monthly magazine along with my colleague’s story. After that, I didn’t give the Georgian-Dutch couple much thought until recently.

About six months ago, I was going through a drawer stuffed full of papers and I noticed an envelope full of large photographic prints. I emptied the contents and found numerous pictures I had made of the Georgian MP and his family along with a copy of the article that was published. At the time I must have indented to send the envelope to them, but never got around to it. All of a sudden I felt a bit guilty and began thinking whether I should go ahead and send it now, 13 years later. After a moment’s pause, I thought again, and decided against it because who knows whether they were still living in the same place or for that matter if they were still married. Not wanting to deal with it, I put everything back in the envelope and stuffed it back into the drawer.

A few weeks ago, at the height of the Russian-Georgian crisis, I turned on CNN at the top of the hour to watch the news headlines and saw footage showing the Georgian president on a visit to the town of Gori, just south of the breakaway region of South Ossetia. The president was seen close up answering questions to reporters both in Georgian and English when suddenly a Russian plane passed overhead and the president said, “Let’s leave, let’s move away.” Then there was a lot of commotion as the president, his bodyguards and the media accompanying him started running for cover and jumping into vehicles. After the video clip ended and the CNN anchor switched gears to another story elsewhere, I sat back, stared at the ceiling and tried to recall where I had seen the Georgian president’s face before. It was not like I had been following events in Georgia very closely so he was not a television acquaintance. There was something more personal about it.

I got up and went over to the drawer stuffed full of papers, pulled out the envelope once again and stared at the photographs of the young Georgian MP I took 13 years before and tried to make the connection. Then I went my computer, typed in his name on Google, and read his biography. It mentioned his masters from Colombia Law School and, more importantly, his marriage to wife Sandra E. Roelofs, a Dutch citizen.

Bingo! I was staring at none other than Georgian President Mikheil Saakashvili, the former MP who I once had the privilege of spending a day with. Maybe now I should think seriously about sending those photographs with the article so he can at least remember back to happier times when he was working in the shadows of Shevardnadze, rather than ducking for cover across television screens at the top of the hour.

Norbert schiller is a Dubai-based photo-journalist and writer

October 27, 2008 0 comments

Feature

Heating wars

by Peter Grimsditch October 16, 2008

written by Peter Grimsditch

Having lost the cold war in a spending battle that almost bankrupted Moscow, the Russians seem determined to come out on top in the heating war. This July, energy companies from Turkey, Bulgaria, Romania, Hungary and Austria agreed to build the Nabucco gas pipeline, designed to funnel non-Russian energy into Europe through Turkey. Moscow stands accused of bullying its former satellite Ukraine by turning the gas taps on and off at will, in the process also disrupting supplies to Europe fed by the Ukrainian pipeline.

The Russians counter-attacked on at least three fronts. The first was to gather support for a rival pipeline, called South Stream, which would equally avoid Ukraine by forging a link with Turkey under the Black Sea. Anxious to flex its geographic muscles, Turkey signed up for this rival venture too. For Ankara it was an opportunity for a double whammy. It showed the European Union that treating its application for membership with near contempt risked a counter attack where it hurts — on energy supplies. Simultaneously, it demonstrated to Russia, Turkey’s biggest trading partner, that it has buried its past as NATO’s poodle. For good measure, it also provided a chance for Turkey to try to negotiate a better deal on the nuclear power station tender that was “won” last year by a Russian-led consortium in a one-horse race.

If you can’t beat them, buy them

In a heads-you-win and tails-you-can’t-lose move, Moscow opened a second front by taking shares in companies on which Nabucco would rely. Russian company Surgutneftegas acquired a decisive stake in the Hungarian energy firm MOL at nearly twice market value, according to a report in Foreign Policy magazine. Although little is known about Surgutneftegas, one Budapest newspaper shed light on the obscurity under the headline: “Mr. Putin, Declare Yourself.”

The story is similar in Austria, where both Nabucco and South Stream would end. Gazprom already owns 30 percent of Austria’s Baumgarten storage facilities and an obscure Russian company, Centrex Europe Energy & Gas, is seeking to buy a further 20 percent in partnership with Gazprom. Controlling commercial stakes in the key European partners for Nabucco gives Moscow at least two options — starve the venture of funds and thus try to prevent it from being built, or sit back and take the profits from transit fees and sales if the pipeline is constructed.

Politicians have been trying to quell newspaper headlines about a gas war

The third line of attack came in a finely targeted bid to deny gas to Nabucco. Since Azerbaijan’s resources are key to the project, Russian President Dmitry Medvedev signed an agreement giving Moscow the option to buy up to 500 million cubic feet of gas at well over market rate. In the North African theater of the heating wars, Gazprom is committing itself to infiltration of the Algerian market, a major supplier of gas to Europe with new transit pipelines planned to Sicily via Tunisia.

Since the non-Nabucco Europeans are split on the rival projects through Turkey, Ankara can fairly claim that it is entitled to back both sides. The Italian energy giant ENI is involved in South Stream and Prime Minister Silvio Berlusconi was in Ankara when his Turkish and Russian counterparts signed a series of deals in August. The French are almost disinterested observers because their energy mix does not include a heavy dependency on Russian gas and the Germans, despite massive vulnerability to energy supply interruptions, appear reluctant to antagonize Russia by openly backing the other side.

However, Nabucco’s committed supporters have not been idle. The European Commission announced last month it had opened negotiations with Turkey about becoming a full member of the Energy Community Treaty to enable it to align its energy rules with those of the 27 EU countries. Europe was also courting Azerbaijan before the Medvedev deal was signed and, in some respects, offered a better deal. While the Russian agreement made no specific commitment to buy any gas at all, the EU made an all-out commitment to building energy and trade links.

As a display of its even-handed approach, Germany’s former Foreign Minister Joschka Fischer has joined Nabucco while former Chancellor Gerhard Schröder threw his lot in with Gazprom four years ago. Both were private, not state appointments.

Meanwhile, Turkey offers encouragement to both sides and, some maintain, stands to win no matter which of the pipelines gets built. Politicians from various countries have been trying to quell newspaper headlines about a gas war by disingenuously claiming the two schemes through Turkey are not rivals but complementary.

The whole affair risks becoming a soap opera.

Peter Grimsditch is Executive’s correspondent in Istanbul

October 16, 2008 0 comments

Financial Indicators

Global economic data

by Executive Staff October 7, 2008

written by Executive Staff

Inflation: GDP deflator

Average annual growth in percentage

During the period 1993-2006, inflation in the OECD area fell to a record low of 1.2% in 1999. It then gradually increased to 2.5% in 2006. The average annual rate of inflation over the last three years was below 5% for all OECD countries, except Norway, Mexico and Turkey. The volatility in the Norwegian GDP deflator is mostly due to variations in the export prices of petroleum, and these grew very strongly over the last few years. The strong growth in the GDP deflator for Mexico and Turkey effectively reflects general domestic inflation occuring in their economies. These latter two countries have, however, drastically reduced their inflation rates over the period 1993-2006. At the other extreme, Finland, Germany, Korea, Japan, Sweden and Switzerland recorded average annual rates of inflation over the last three years of below 1%. Several countries (Canada, Czech Republic, Finland, Germany, Luxembourg, Norway and Switzerland) recorded deflation over the period 1993-2006 for one or more years, but Japan is the only country where this has been sustained over a number of years.

Household: Net saving rates

As a percentage of household disposable income

Household saving rates are very variable between countries. This is partly due to institutional differences between countries such as the extent to which old-age pensions are funded by government rather than through personal saving and the extent to which governments provide insurance against sickness and unemployment. The age composition of the population is also relevant because the elderly tend to run down financial assets acquired during their working life, so that a country with a high share of retired persons will usually have a low saving rate. Over the period covered in the table, saving rates have been stable or rising in Austria, France, Italy, Norway and Portugal but have been falling in the other countries. Particularly sharp declines occurred in Australia, Canada, Japan, the United Kingdom and the United States. Negative saving — which means that consumption expenditures by households exceeded their income — was recorded in some countries, in particular in Australia, Denmark, Greece and New Zealand.

Law, order and defense expenditure

As a percentage of GDP

Within the total, the shares of the two components — law and order and defense — vary considerably between countries with high shares for defense expenditures in the United States, Korea, Norway, Denmark, France and Sweden and high shares for law and order in Iceland, Luxembourg, Ireland, Spain and Belgium. On average, the share of expenditures on law and order has generally been growing faster than defense and now accounts for more than half of the total for the countries shown in the table. In 2005 — the latest year for which most countries can supply data — expenditure was highest in the United States and the United Kingdom, and lowest in Luxembourg, Iceland and Ireland. In the majority of countries the shares of expenditures on defense, law and order in GDP have been falling since 1995 with particularly large falls in Norway, Sweden, Ireland and France.

Prison population

Number per 100,000 inhabitants, 2004

Over the last fifteen years, most OECD countries have experienced a continuous rise in their prison population rates. On average, across the 30 OECD countries, this rate has increased from a level of 100 persons per 100,000 unit of the total population in the early 1990s to around 130 persons in 2004. The prison population rate is highest in the United States, where more than 700 per 100,000 population were in prison in 2004: such level is three to four times higher than the second highest OECD country (Poland), and has increased rapidly. This increase extends to most other OECD countries. Since 1992, the prison population rate has more than doubled in the Netherlands, Mexico, Japan, the Czech Republic, Luxembourg, Spain and the United Kingdom, while it appears to have declined only in Canada, Iceland and Korea. There are large differences across countries in the make-up of the prison population. On average, one in four prisoners is a pre-trial detainee or a remand prisoner, but these two categories account for a much higher share of the prison population in Turkey, Mexico and Luxembourg. Women and youths (aged below 18) account, on average, for 5% and 2% of the prison population respectively. A much larger share of prisoners is accounted for by foreigners (close to 20% of all prisoners, on average), with this share exceeding 40% of the total in Luxembourg, Switzerland, as well as Australia, Austria, Belgium and Greece. In several countries, the rapid rise in the prison population has stretched beyond the receptive capacity of existing institutions; occupancy levels are above 100% in more than half of OECD countries, and above 125% in Greece, Hungary, Italy, Spain and Mexico.

October 7, 2008 0 comments

Financial Indicators

Regional equity markets

by Executive Staff October 7, 2008

written by Executive Staff

Beirut SE (1 month)

Current Year High: 3,470.63 Current Year Low: 1,761.53

The weakness of global stock markets transpired on the Beirut Stock Exchange mostly as a drop in trading volume which dwindled to a 1.25 million shares trickle in the trading week that ended Sep 19. The Blom Stock Index closed the period at 1737.60 points, compared with 1,794.17 points at the end of August. Political worries are a constant factor in the Lebanese market and one perceives them almost as market fundamental. The real disruptor of trading fun was the global financial crisis although its impact on the valuations of Lebanese stocks was much smaller than elsewhere in the region. Lebanon’s central bank reaffirmed that the banking system is impacted only in minimal form by the problems of global financial institutions and Fitch Ratings reaffirmed its B minus ratings view on Lebanon as stable. Solidere, which initiated a 10% dividends payout at the end of August, saw one massive trade on Sep 8 which lifted the scrip briefly back above $31. During the review period, Solidere moved from $29.11 to $29.54 on Sep 22, making it one of the regions’s best performing real estate stocks in the period.

Amman SE (1 month)

Current Year High: 5,043.72 Current Year Low: 3,088.85

The Amman Stock Exchange index gave up 11.65% from the start of September to its close at 3.861.37 points on Sep 18. Despite its losses, however, the ASE was among the privileged few bourses in the region and beyond which could report gains in the year to date period, in which the ASE is up 5%. Insurance, banking, and services sectors moved down in the period but managed to perform better than the general index; the industry index experienced a massive drop, going down more than 24%. The stocks of resource miners Jordan Phosphate Mines Co and Arab Potash Co came under heavy selling pressure, losing 30.64% and 23.02%, respectively. Observers attributed their weakening to withdrawal of foreign investors from the ASE in connection with international and regional market volatility. However, industrial stocks are still quoted significantly higher when compared with the start of 2008, mostly due to buying sprees of regional investors earlier in the year. Banking, insurance and services sectors by contrast have shown much less fluctuations over the longer period but fell back into negative territory in September when compared with Jan 1.

Abu Dhabi SM (1 month)

Current Year High: 5,148.49 Current Year Low: 3,458.84

The Abu Dhabi Securities Exchange had no day that would invite satisfied smiles between the end of August and Sep 22 when it closed 9.04% down on the month at 4,014.47 points. During the entire period, the most positive performance by any sector on the ADX was a gain of not even 0.2% relative to the start of the month. The sector indices for consumer, banking, real estate, industry, and energy each lost more than 10% in the period under review. Construction and insurance showed stability in the upper realm of the market’s negative spectrum. Among four stocks which went more than 20% lower were two banks, one construction firm, and a hotel company. On the flipside, the bourse’s ratios were the most bargain-friendly of all GCC securities markets with a price to earnings ratio of only 10.45 times. The UAE central bank made an exceptional move of providing banks a $13.6 billion short-term lending facility to avert the threat of a lending crisis.

Dubai FM (1 month)

Current Year High: 6,291.87 Current Year Low: 4,162.97

The Dubai Financial Market closed at 4,200.53 points on Sep 22. It carried less volatility than its neighbor up in Qatar but lost 11.8% from the start of the month. After a few positive days and a 9.9% upswing on Sep 21, the last session of the review period saw the index fall over 2.5%, a reiteration of the motives of quick profit taking and general nervousness. The materials and telecom sector sub-indices kept their heads above water during the period; year-to-date, the materials sector is the DFM’s only positive performer. Mortgage lender Tamweel, whose former chief executive has been under investigation for embezzlement and breach of trust, was the DFM’s biggest loser with a 33.05% erosion of its share price. It was followed by investment bank Shuaa Capital, whose shares went down 23.6%. The crash of Lehman Bros caused tangible jitters in Dubai where an office of the failed investment bank was based.

Kuwait SE (1 month)

Current Year High: 15,654.80 Current Year Low: 12,039.00

The Kuwait Stock Exchange index closed at 13,140.40 points on Sep 22. But the day to watch was Sep 15, marking a red dawn over the entire GCC region. It was the markets, not some invasion by a communist superpower. But the picture certainly seemed worrisome enough on this day as the Kuwait Stock Exchange dipped into negative territory in its year-to-date performance. All GCC stock markets at that point were dripping red, both for the day and for the year. The KSE index recovered and returned into the green year-to-date with a gain of 4.63% by Sep 22. But the index still had to let go more than 9% over the review period. The parallel market sub-index traded sideways near the zero line, making it the outperformer of the period. Industry and investments were the sectors with the biggest losses. After the carnage of Sep 15, the Kuwait Investment Authority reportedly intervened with share buying which may have helped the KSE to return onto positive ground vis-à-vis the start of the year.

Saudi Arabia SE (1 month)

Current Year High: 11,895.47 Current Year Low: 7,216.71

The Saudi Stock Exchange suffered the greatest downward pressure of all GCC markets and closed at 7,461.14 points on Sep 22, nearly 15% down when compared with the end of August and 33.2% down from the start of the year. Departing from its positive performance of the previous month, selling prevailed almost unabated in the market that had evidently not forgotten its bad experiences from two years ago. Market cap heavyweight Sabic gave up 15.75%. No single sector escaped the maelstrom, with insurance coming out at the very bottom. Three insurance companies experienced the most severe selling pressure, each dropping around 40% of its market valuation like stones in the sector that was known for speculative share buying for some time. Blame for the Tadawul pains was attributed to foreign influences and the global crises of financial market actors.

Muscat SM (1 month)

Current Year High: 12,109.10 Current Year Low: 6,861.32

The performance graph for the Muscat Securities Market from Sep 1 to 22, 2008 showed a lopsided V whose left arm was longer than the right. Losing 8.11% over the period by its Sep 22 close at 8723.63 points, the MSM general index traveled as low as 7868.70 points in trading during the Sep 16 session. The industrial and banking sub-indices were locked to the general index with the closeness of tango steps while the services sub-index was the period’s relative over-performer. Telecom stocks were among the better regarded values. The National Detergent Co boiled 54.7% higher after a 10-for-1 stock split on Aug 31. Financial heavyweight Bank Muscat was in the period’s bottom group of performers with a share price loss of 24.29%.

Bahrain SE (1 month)

Current Year High: 2,902.68 Current Year Low: 2,490.91

The Bahrain Stock Exchange index closed at 2,569.74 points on Monday, Sep 22. This represents a slide of 5.79% in the September review period and a loss of 8.02% from the start of 2008 for the island kingdom’s bourse. After a 200-point free fall in the first half of September, the market looked up at the end of the period as it managed a 45-point climb over four sessions. The sub-index for hotel and tourism stocks, which entered September almost 24% improved from the start of the year, flat-lined until Sep 22 but this looked deliriously pretty against the backdrop of sagging by financial sub-indices on the BSE. Investment and banking stocks suffered from global markets disease and thus underperformed. Of listed companies, real estate investment firm Inovest and engineering contracting group Nass Corp were pushed down by 19.23% and 15.35%, respectively, followed by banks Salam and Ithmaar.

Doha SM (1 month)

Current Year High: 12,627.32 Current Year Low: 7,858.48

The Doha Securities Market displayed a fluctuation range of more than 2,900 points between the end of August and its close at 9,431.63 points on Sep 22, near its average index level for the period. Despite a rebound after the excess drop on Sep 15 and 16, the index scored a net loss of 9.7% in the time under review. The services sub-index was the DSM’s best performer, ending 5.8% down. Leasing company Alijarah, which had been on a downward trajectory since early June, closed the period at the head of the market with a 6% gain but only three stocks achieved a net gain by Sep 22. Real Estate companies UDC, QREIC, and Ezdan formed a trio of underperformers in a very rough phase of DSM history, closing 19.1%, 21.2%, and 29.3% lower.

Tunis SE (1 month)

Current Year High: 3,418.13 Current Year Low: 2,445.51

The bourse of Tunis achieved the rare feat of trading sideways when comparing its close at 3,340.79 points on Sep 19 with its start into the month. Nonetheless, intra-month the TSE had its moments of relative volatility, moving below 3,300 and above 3,400 points. Poulina Group, the exchange’s new heavyweight, slipped by 8.97% in the review period; when compared with its Aug 2008 issue price of TND 5.95 ($4.84), the scrip ended its first month of trading about 20% up. Somocer, a tile manufacturer whose share price had almost doubled in August, fell back more than 25%, making it the period’s top loser. UIB, not one of the country’s top banks, was the period’s best performer, jumping up 18.02%.

Casablanca SE (1 month)

Current Year High: 14,925.99 Current Year Low: 12,230.58

The Casablanca Stock Exchange index closed at 13,092.11 points on Sep 19, which represented a 7.04% negative return when compared with the beginning of the month. However, the market rallied more than 750 points in the last two days of the review period, pushing back up after the shock selling caused by the world market contagion. Gainers, the strongest of which was beverages company Oulmes with an increase of 19.85%, were outnumbered three to one by losers over the review period. Real estate group Alliances Développement, which had debuted on the exchange in mid July, weakened the most, giving up 29.63% in just over half a month in September. With a price to earnings ratio of 22.85x, the CSE was at the upper end of the regional spectrum at the end of the review period.

Egypt CASE (1 month)

Current Year High: 11,935.67 Current Year Low: 7,071.16

The CASE 30 index closed at 7,071.16 points on Sep 18 with a loss of 16.31% since the start of September. After the local panic over capital gains taxation and cutting of subsidies, the correlation between the Egyptian exchange and global markets supplied further down pressure on the Cairo and Alexandria Stock Exchanges in September to the point that the market closed the Sep 18 session 32.97% lower from the start of the year, making it at least unlikely that investors will have much to worry about capital gains tax until the end of 2008. Losers outnumbered gainers seven times in the review period; major real estate, industrial, consumer goods, financial services, telecommunications, and construction companies were represented in the about 10% of stocks that each lost more than a quarter of their market cap in September. Market cap leader Orascom Construction Industries fared comparatively well with an 8.16% drop; the company also reported some successes in new contracts for a mega project in Abu Dhabi.

October 7, 2008 0 comments

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Money Matters by BLOMINVEST Bank

by Executive Staff October 7, 2008

written by Executive Staff

Regional stock market indices

Regional currency rates

GCC countries adopt draft for single currency

The Gulf Cooperation Council (GCC) approved a draft agreement regarding the creation of a single currency for five of the six member countries. Saudi Arabia, Bahrain, Kuwait, Qatar and the United Arab Emirates plan on introducing this monetary union by 2010. However, many issues face the implementation of the currency by that time. According to Qatar’s central bank governor, it is extremely important for the unified currency to have strong foundations on both the monetary and the fiscal policies side and all other economic sectors. In addition to that, the GCC countries have not yet decided on a location for a central bank, noting that at least two countries are competing to host the bank. These issues are expected to be decided during the next GCC meeting to be held in Oman later in 2008, though it is the only country planning not to participate in the monetary unification.

Private Arab investments over $94 billion

Private investments in the Arab world have totaled $94.5 billion in the last 12 years. The UAE is among the five leading locations for private investment, as it also ranked second in terms of exporting foreign direct investment (FDI) outside the Middle East. Saudi Arabia, the world’s leading oil exporter, attained the highest amount of private capital at $40.5 billion, or 42% of total inter-Arab private investments of $94.5 billion. Lebanon was reported as the second recipient of investments at an amount of $12.1 billion followed by Egypt at $8.7 billion. Despite this year’s surge in Arab investments, inter-Arab rates remain much smaller than the overseas amount of Arab assets at $1 trillion. The discrepancy results from a lack of Arab confidence in terms of investing in their own countries. Kuwait led the list in terms of private FDI outflow at a sum of $15.1 billion. It is followed by the UAE at $10.9 billion, Saudi Arabia at $4.6 billion and Lebanon at $3.2 billion. Total Arab private FDI stands at $41.7 billion, a negligible proportion of the $8.3 trillion global amount.

Morocco suffers a doubling deficit

Morocco’s budget deficit is expected to double in 2008 as the government attempts to protect its citizens from the rising oil and food prices through the implementation of higher subsidies, as reported by Standard and Poor’s (S&P). The deficit, which was 2.7% of GDP last year at $2.14 billion, will hit 5.5% of GDP for this year approaching $4.2 billion. It will hence be 3.1% higher than the originally expected 2.4% rate. The reason for the increasing deficit is the lower than expected growth, first estimated at 7%, but will probably waver around 5.5%. This is leading to less tax collection. On the other hand, Morocco has avoided making cuts to its subsidies to shore up public finances. However, Rabat is expected to limit inflation to just 5% this year because of the continued commitment to its subsidy programme. The Moroccan government holds billions of dirhams in a social security fund that if included, will lower the budget deficit to 3.6% of GDP. This smaller amount however is compared to a 0.7% surplus in 2007.

October 7, 2008 0 comments

Consumer Electronics Special Report

The catalyst of technology

by Executive Staff October 7, 2008

written by Executive Staff

Margaret Thatcher once said, “You and I come by road or rail, but economists travel on infrastructure.” The former British prime minister was speaking about transport at the time, but the same idea can be applied to almost any industry; especially technology and electronics.

Today infrastructure is viewed as the main catalyst for growth in developing economies. “They are still growing because it’s all about infrastructure build-up,” said Robert Chu, vice president of Asia Pacific at Hitachi, told Reuters when asked about the reasons emerging markets like the Middle East are still seeing rapid growth. The same applies to the consumer electronics industry where the development of technological infrastructure is fueling growth in the industry. Throughout the MENA region, depending on which nation you are dealing with, national infrastructure is having either a beneficial or an adverse effect on consumer electronics products, as well as consumer behavior. Moreover, demarcation lines defining what products and services are feasible are beginning to take shape across the region.

Oil rich nations eager to encourage investment are pouring money into their infrastructure. For example, due to its continuing investment in technological infrastructure, the UAE was recently ranked as the region’s most ‘e-ready’ nation, according to the World Economic Forum. Services that require technological infrastructure, such as GPS, have been embraced by mainstream consumers throughout the GCC as price levels become more affordable in unison with infrastructure initiatives.

“You need an appreciation for the technology in terms of an educated market that is willing to pay for those [advanced] features,” said Agop Kassabian, executive director of sales & marketing at Toshiba’s exclusive distributor in Lebanon, “and you [also] need other players that complement that have the available technology for the consumer to make use of these products.”

Despite the rosy outlook for the GCC, not all the Middle East is taking advantage of the fruits of infrastructure. Many countries in the region, such as Lebanon, are suffering from limited buying power amongst their citizens as well as lack of basic services, both of which greatly hinder sales and investment in the consumer electronics industry. “Today in Lebanon we still lack some of the basic means of life — we don’t have power — first we need the basics in order to work on something else,” said Cesar Chalhoub, vice president of ITG Holdings.

In Lebanon, political wrangling and a lack of vision have crippled infrastructure and slowed the pace of progress to a crawl. “There is no futuristic vision … it’s a mentality issue,” explained George Khoury, CEO of Khoury Home. “In terms of the political aspect, if a futuristic idea is proposed, because you are from a certain [political] party, other parties will block your initiative purely for political reasons so as not to give you the credit for implementing such an idea.”

Infrastructure issues are also effect on the cost of finished goods as consumers are having to invest more in order to protect their products from damages. “If you buy a TV set for $1,500 you have to pay an additional $300 for a UPS or a stabilizer to protect it,” Khoury said. Distributors are also feeling the infrastructure crunch in Lebanon. “We have to apply a standard warranty on products by default,” said Adib Cherfan, CEO of Samsung’s exclusive agent in Lebanon, “and if we find that it is an electrical problem that caused this TV to crash, we are repairing the problem ourselves, even though it is not covered by the standard warranty.”

On the other hand, the same consumer behavior that is being adversely affected by the lack of infrastructure is also making up for infrastructure shortcomings. “You have to overcome these infrastructure issues until the government installs the appropriate infrastructure,” Khoury explained. “But people will not stop buying products because of infrastructure constraints. People will purchase products and wait till the infrastructure is available.”

Show me the way

The future of the consumer electronics lies in integration as consumers demand more and more flexibility and compatibility between products. “Everything is becoming digitalized which allows more flexibility in terms of sending and receiving data,” stated Chalhoub. “Also being able to convert data into different types of media and to transfer and communicate these elements […] integrating and automating everything, whether remotely, wired, or wirelessly is a major technological concern for the consumer.”

This trend is also occurring on the product level as consumer behavior is becoming increasingly dictated by integration capabilities. “The product itself is becoming an integrated product that is compatible across the consumer electronics spectrum,” said Chahwan. “These features push consumers to demand more, so instead of being satisfied by one item they have to have the complete the set.”

This idea resonates with what many of the major consumer electronics manufacturers are promoting as their ‘next big thing’. The answer in terms of products is wireless boxes that communicate with several devices in the home or office to provide consumers with a truly integrated environment. “You already have wireless speakers and wireless communication between notebooks and printers,” said Selim Antaki, CEO of LG’s distribution agency in Lebanon. “Next year, you will have wireless communication between your DVD player, home theater system, and your flat-screen television.” With the recent growth in the consumer electronics industry, the focus of integration seems to be centered on the flat-screen TV and in particular the LCD. “The LCD will be the main unit when it comes to the CE industry carrying all other CE products and peripherals,” stated Karl Zalum, commercial manager of Philips’s exclusive agent in Lebanon. “This will create a centralized technological environment around the LCD that will encompass everything from your mobile phone, to your laptop, to the Internet,” he said.

Other technologies on the horizon such as Blu-ray DVD players and High Definition Television (HDTV) have yet to penetrate regional markets due to high retail prices and infrastructure constraints. Blu-ray initially won the battle against Toshiba’s HDDVD format, which the Japanese company abandoned due to accurate forecasting in relation to limited adoption levels associated with high definition DVD technology.

“The battle was not fought for very long because the market demand for such a product was not that great,” Kassabian explained, “so it wasn’t worth the investment, and the proof is that we don’t see Blu-ray catching on like wild fire.” Blu-ray DVD players are still seen by most as too expensive for mass adoption. “It will take over as soon as it is more affordable and well positioned to reach everyone,” said Chalhoub. Antaki added that “for a Blu-ray, you pay more than 10 times what you pay for a conventional DVD player.”

Regional piracy also plays a role in the adoption of Blu-ray technology. “Blu-rays biggest issue is piracy,” Antaki stated. “People can buy cheap video CDs and DVDs; if they want to use Blu-ray they have to pay fifteen-fold what they are paying locally.”

HDTV has taken off in Europe and North America, though infrastructure constraints and the inavailability of complementary products essential to high definition broadcasting are stunting the growth of this technology in the region.

“There are no high definition receivers on the market,” Kassabian said, “and even if you do have a high definition receiver you need an HDMI (High-Definition Multimedia Interface) cable and a high definition subscription that doesn’t exist.” The main reason behind the unavailability of high definition signals is that most broadcasters do not yet see enough potential revenue in terms of advertising and subscriptions if this service is offered to consumers in the region.

“It is difficult to put a time frame on exactly when we will begin, because it needs to make good business sense,” said Azhar Malik, the vice president of marketing and public relations at Showtime Arabia, to The National. “The decision to begin will be dictated by customer needs and their willingness to adopt and pay for the technology […] We are not at that stage today.”

Moreover, some countries in the region still rely mainly on analogue signals and rather than digital transmission. However, technology products such as FPTVs are beginning to promote the idea of digital transmission in order for customers to make the most out of their products. “LCDs and Plasma television adoption has affected the quality issue,” Antaki observed. “So it is driving people to demand a better [quality] signal.”

Keeping this in mind: many of the industry players believe that the pressure from products and consumers will eventually lead to high definition signals becoming available to the wider market. “It’s just a matter of time until high definition signals are picked up [in the region],” Kassabian said, “and once the consumer sees the picture quality of high definition they will get hooked.”

October 7, 2008 0 comments