Comment

Network cooperation between telecom competitors

by Bahjat el-Darwiche & Louay Abou Chanab
written by Bahjat el-Darwiche & Louay Abou Chanab

Most recently, two fierce Italian telecom competitors with pending legal and regulatory claims resolved their differences and decided to share infrastructure. They are now jointly planning the rollout of their Next Generation Networks and they adopted a cooperation model open to all interested operators. This shift is a direct result of the need to focus on commercial offering and the drive to commoditize telecom networks.

This trend is growing in both developed and developing markets. In the Middle East and North Africa (MENA) region today, telecom networks are almost in every corner around us, yet the number of telecom operators is set to grow further. Policy makers and regulators understand the positive impact a balanced number of operators can have on competition and consequently on the economy as a whole. This raises a number of questions to answer: are investors still interested to fund more networks? Will those networks be profitable? And are there still enough available locations to deploy those networks without congestion risks?
Developed markets and recently developing markets have reached the conclusion that sharing telecom infrastructure can yield positive outcomes if managed properly. It mainly helps achieve the following:

1. Rationalized investments
It is not a hidden secret that building telecom networks is a costly activity. “Investment studies conducted during the early 3G hype in Europe put the average investment per 3G subscriber at around $500,” noted Bahjat El-Darwiche, a principal in the communication and technology practice with Booz & Company. “Sharing the cost to the 3G infrastructure buildup can generate savings of up to 40%,” he added. Sharing infrastructure can save critical investments thus significantly improving the profitability of the concerned operators

2. Develop new revenues
For incumbent operators in markets under liberalization, offering network components to competitors can generate new sources of revenues that would offset any potential losses from retail competition. “Sharing infrastructure can exceed 15% of an incumbent operator’s total revenues,” said Louay Abou Chanab, a senior associate in the communication and technology practice with Booz & Company.

3. Release capital
Competing operators, incumbents or new entrants are looking to diversify their revenue base and hence invest in different ventures locally or abroad. Sharing infrastructure allows all market players to release badly needed capital to invest in strategic ventures. In the case of India, $4 billion can be saved by 2010 if at least two operators share the needed 240,000 towers to improve coverage. The Indian government is even subsidizing towers should three or more operators decide to share it.

4. Improve competition
Infrastructure sharing has a dual impact on competition. On the one side it decreases entry barriers for new operators. Interested players will find it more appealing to enter that specific market given the ease with which they can start offering commercial services. From another perspective, operators now have less pressure to deploy networks and hence can shift their focus to innovation and better customer service. Both factors positively impact competition to the benefit of end-users.

5. Optimize use of scarce resources
Policy makers and regulators struggle with allocating frequencies to new entrants; municipalities also struggle with rights of way to allow the deployment of fixed networks. “Infrastructure sharing can alleviate some of the pressure we now have on allocating scarce resources to multiple operators,” said El-Darwiche. This optimization also serves to reduce the negative impact telecom networks may have on the environment.
A wide variety of infrastructure sharing forms can be leveraged by operators, policy makers and regulators. Sharing can focus on passive or active components of the network. For clarity, passive components are those that do not carry any electronic signals and can include mobile towers, ducts and even electric supply; active components on the other hand carry electronic signals and can include leased lines, switches and antennas.
In recent times, many innovative network sharing solutions have been implemented on both fixed and mobile sides. Stokab for instance, owned by the city of Stockholm, is building and operating a fiber-optic network in the city of Stockholm that is open to all service providers on equal terms. Stokab started in 1994 and now has coverage in over 27 municipalities in Sweden and is selling access to over 60 operators including the incumbent.
On the mobile side, a good example is one where Orange and Vodafone both agreed to share their respective networks in the UK and Spain. While each operator will still manage his own traffic independently, the UK sharing agreement will reduce capital and operating costs by up to 30% and in Spain it will reduce number of sites by around 40%.
Yet, the success of infrastructure sharing highly depends on key success factors. At a minimum, regulators should consider publishing certain safeguards as is the case in Jordan and Nigeria. Both countries have detailed certain behavior on the use of capacity, namely that it should be used on a first come first served basis and that any unused capacity should be returned.
Regulators should also consider pricing regulations for certain forms of infrastructure sharing like unbundling or site sharing; ideally, prices should be cost-based. What regulators should also aim to achieve is proper enforcement of the policy. It is foreseen that disputes will arise when sharing infrastructure. Regulators need to be ready to introduce regulatory compliance measures or intervene to resolve disputes.
In summary, it is important to seize the opportunity presenting itself today in the MENA region. While we have some successful examples, like in the case of Morocco where unbundling grew the broadband market by over 19% within six months, we need to maintain the momentum going forward. An incentive-based regulatory regime might significantly contribute to developing regional telecom markets and, in turn, the overall economy while rationalizing investments.

Bahjat El-Darwiche is a principal and LOUAY ABOU CHANAB is a senior associate in the communication and technology practice at Booz & Company

 

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Banking & Finance

The fallacy of projections

by Imad Ghandour
written by Imad Ghandour

In September 2006, the IMF in its Global Economic Output report projected that the US will be “the engine of global economic growth despite some uncertainty in the housing sector.” In its July 2008 report, less than two years later, the IMF revised downward (again) its projections for US economic growth to 1.3% (from 3.2% and 2.2% in the previous two semi-annual reports). The world’s most sophisticated economic forecaster failed to project the size and impact of one of the most serious financial crises in our modern history on the most monitored economy, although that event was on the radar screen for two years.

Recently I spent a few hours with a colleague of mine trying to “fit” the actual financial results of a company we had invested in into the model we had built for that company prior to that investment. The bottom-line projections were close to the actual results, yet we couldn’t put the right parameters in the model that will get us even close to reality.
It was an intellectual exercise, but at the end I had to pause and think: if a model cannot predict the past, how on earth were we confident that it could predict the future?
Make no mistake, this is a universal problem and is not a result of any individual incompetency.
Thousands of financial analysts pour their energy into predicting the “fair” value of stocks and other financial assets. They calculate with pinpoint accuracy the price of the stock after going through the mundane task of calculating things like future revenues, overheads, profits, discount rates, betas, comps, etc. Yet, with all the sophisticated modeling, I have rarely seen a numerical analysis explaining or predicting the “actual” market price of a stock. Furthermore, research has shown that actual prices do not necessarily gravitate towards “fair” prices, as the theory behind all this analysis suggests. In other words, the thousands of “fair” value models published by investment banks invariably fail to predict the present (or the past) and are unlikely to predict the future.
Yet we rely on projections to give us confidence in our decision. No investment is done in the modern financial world without a model. No model is without future projections. We project profits in 2015 to be $56,405,383.34, yet the only fact we can be sure of is that they will not be this number. We base our decisions on such numbers, and we focus our attention on things like the IRR as the analytical summary of thousands of assumptions and projections. We may reject an investment because the model calculated an IRR of 29%, while we all know that the same model with a little bit of subjective tweaking and twisting may give a magical boost to the IRR to, say, 39%.
Prior to inventing Lotus 123 and its successor MS Excel (and before I was born), investors relied on qualitative assessment and simple calculation to make their investment decisions. Did they take wrong decisions? Does a 1000 line model give an edge over such “unsophisticated” investors?
In his inspiring bestseller The Black Swan, Naseem Taleb skillfully argues that we simply cannot predict the future because “significant yet improbable events” (he called them “black swan events”) are the ones that will shape the future of individuals, countries, companies, and economies. We simply cannot predict or time or imagine such events, and we definitely cannot project their impact (hence the IMF miscalculation).
Projections are useful to the extent they are used as an analytical tool for possible future options. They may bring illusionary confidence, but reality will surely be different, especially in private equity investments that span several years. Embracing this fact as we price, negotiate, structure, and manage any investment is the key to sustained successful investment.

Imad Ghandour is the chairman of Information & Statistics Committee—Gulf Venture Capital Association

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Capitalist Culture

Rule of law – Deferred judgement

by Michael Young
written by Michael Young

It was an enlightening coincidence that the former leader of the Bosnian Serbs, Radovan Karadzic, was arrested and sent to The Hague shortly before Russia dispatched its army into Georgia. Where the first event suggested some kind of imposed benchmark of international justice and behavior was possible, the second made it clear we shouldn’t go too far in our expectations.

The Georgian conflict has long been a complicated one, and Russia is no guiltier than other countries, such as the United States, in respecting international law only when it favors its interests. But in the hours after its invasion of Georgia, it was telling that Russia sought to cobble together a legal case accusing the Georgians of war crimes in South Ossetia — rather rank hypocrisy given that Russia’s army targeted civilian areas in Georgia, but Moscow apparently felt the need to offer a legal cover for its actions before the international community. Effectively the Russians twisted themselves into a pretzel to make it seem that they adhered to international legal and human rights norms.
So while the world may be a long way away from an effective and comprehensive system of international justice, Karadzic’s arrest, however, showed that once institutions are actually set up to affirm the rule of law, to circumvent these and their implications can be difficult.
The Hariri tribunal, which is currently being established in The Hague as well, is a case in point. Much has been written of late suggesting that the tribunal is dead, that its prosecutor has no case, that the system of international justice has been shown to be weak in the face of the political interests of individual states. That may well be true in some regards. The former United Nations investigator, Serge Brammertz, who just so happens to be Karadzic’s prosecutor today, clearly did not progress in his investigation as rapidly as he could have, earning him the biting criticism of his predecessor, the German judge Detlev Mehlis.
However, the pessimism may also have to be qualified. The international community and the UN may behave in the most cumbersome ways, but once they go to the trouble of setting up something like the Hariri tribunal, they usually have to give it some meat and meaning, or risk considerable embarrassment and antagonism. That’s why the Hariri tribunal — despite all the doubts surrounding it and the need to lower expectations in terms of who will be directly accused — is nonetheless likely to function and create far more waves than anyone expects. Once the tribunal opens up one sensitive door, it will likely be very difficult to control what comes afterward, and what other doors are opened.
In many respects that is a lesson about the possibilities of international justice, one pillar of a capitalist culture that seeks the amelioration of human freedom in the context of open minds and open markets. Justice doesn’t usually end up working because states or politicians want to improve the world (even if that motive can exist for a time), but because states sooner or later have a selfish interest in accepting justice.
That was certainly why Karadzic was handed over to the tribunal responsible for the former Yugoslavia. With Serbia looking to enter Europe, and the fact that the continued freedom of Karadzic and his collaborator Ratko Mladic presented a major obstacle to this, the Serbia government apparently weighed the costs and benefits of allowing the two men to be protected by certain power centers in Serbia. The conclusion was that protection wasn’t worth it, at least in Karadzic’s case.
That situation does not exist in Lebanon, or at least not yet. If anything, some might argue, the Syrian- Lebanese rapprochement effected in August may make any future blame directed against Damascus by the tribunal problematic for Lebanese interests, since relations between Lebanon and Syria might suffer. In other words Lebanon may have no advantage in seeing the Hariri tribunal go through. Perhaps, or perhaps the precise opposite may be true: If Syria was involved in Hariri’s elimination, as many believe, than what kind of interest can Lebanon have in pursuing a relationship with a regime that murdered a former prime minister? And if Syria is innocent, then it has nothing to fear from the tribunal.
Whichever answer ends up being the correct one, the superficial assumption that “justice always prevails” should be discarded. The point of international justice is not that it is invariably satisfied, but that its burdensome imperatives, even when imperfectly applied, often end up shaping states’ foreign behavior. And that opens up spaces forcing states to sometimes go along with an international consensus, even if they don’t care to do so. There is no certainty here, no guarantees, not even a chance to predict that norms of justice will gradually spread over time to encompass most states. Only the ability to say that some norms of justice are more likely to be applied today than previously.
It’s not much perhaps, but it’s no little thing either.

Michael Young

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Comment

The burden of luxury and the joy of taxes

by Zafiris Tzannatos
written by Zafiris Tzannatos

The July 2008 issue of this magazine was dedicated to “Luxury Economics,” focusing on the “Middle East’s appetite for surprising, exotic and authentic experiences.” A separate article in the same issue did not fail to note the move in the UAE to introduce a value added tax. Does luxury increase “happiness”? And does taxation decrease it? Paradoxically, the answer to both is “no” according to some new views. In a nutshell, luxury, once tried, becomes necessity and taxes can reduce materialism — a common theme in many religions — and help citizens preserve a healthy work/life balance. Let us examine each assertion in turn.
Historically, economists have related well-being to the level of incomes while development theories typically stress economic growth as the ultimate objective. The Gulf Cooperation Council (GGC) economies score well on both counts. The recent hike in the international price of oil has been associated with high government revenues and a corresponding fast rate of economic growth. And citizens have not only enjoyed traditionally high levels of incomes but, under popular pressure, recently managed to get unprecedented salary increases for reasons unrelated to their work effort and productivity.
However, it has been found that once wealth reaches a subsistence level, its effectiveness as a generator of well-being is greatly diminished — as if a “hedonic treadmill” were in operation: you keep moving just to stay in the same place. In other words, aspirations increase along with income and, after basic needs are met, relative rather than absolute levels of income influence well-being (“happiness”). If this is to be accepted, distributing the oil revenues across the population in some uncritical or untargeted way may have only a temporary effect on “happiness.”
The emerging theory of “happiness economics” aims to understand what determines the well-being of people. The theory has consequences for understanding happiness both as an individual as well as a societal goal. “Happiness economists” aim to change the way governments view well-being and how to allocate resources. And a new concept has been developed, the GNH (Gross National Happiness) that is broader than the conventional GNP (Gross National Product) or GDP (Gross Domestic Product).
If income alone is a poor approximation for happiness, what should economists take into consideration? The four pillars of GNH are the promotion of equitable and sustainable socio-economic development, preservation and promotion of cultural values, conservation of the natural environment, and establishment of good governance. What should one then look out for?
First, social comparisons. Happiness is derived from relative income as well as from absolute income. If everyone gains purchasing power, some may still turn out unhappier, if their position compared to others becomes relatively worse — as the case is with recent universal handouts given by the GCC governments. This effect does not necessarily turn economic growth into a zero sum game entirely, but it can diminish the way people perceive the benefits of their own hard work.
Second, adaptation. As people get used to higher income levels, their idea of a sufficient income grows with their income. In this case, if people fail to anticipate that effect, they will feel they work more than is good for their happiness.
Third, changing tastes. Individual preferences are not constant. They are increasingly mutable, shifting constantly according to the latest fashion, adapting cultural norms and what neighbors do. In turn, the perceived values of one’s accumulated possessions are subject to depreciation, ultimately having a negative effect on happiness.
All these considerations make sense. Humans adapt, often rapidly, to their current situation. They become habituated to the good or the bad. They are sensitive to the status they have relative to what they perceive others enjoy. More generally, despite the fact that external forces are constantly changing one’s life goals, happiness for most people is a relatively constant state. Regardless of how good things get, people report about the same level of happiness over time.
This has led some economists to argue that taxes can serve another purpose besides paying for public services (usually for public goods) and redistributing income (usually to the poorer citizens). This additional purpose of taxes is to counteract the cognitive bias that causes people to work more than is good for their happiness. That is, taxes could help citizens preserve a healthy work/life balance.
In short, money does not add much to happiness: Lottery winners are an example as, within a year, they are said to return to their former happiness level. And those handicapped in, say, a motor vehicle accident, usually return to former happiness levels, despite their loss of function. Some studies have suggested that a sense of “higher calling” or “purpose” can add to someone’s happiness. If so, perhaps the development of a national vision and the introduction of taxes in the GCC countries may cause the citizens to look outside themselves and become happier — even though they may consume fewer luxury goods.

Professor Zafiris Tzannatos is Advisor to the World Bank and former chair of the Economics Department at the American University of Beirut. The views expressed are his own and do not necessarily represent those of the World Bank.

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Editorial

Corporate social profitability

by Yasser Akkaoui
written by Yasser Akkaoui

With this month’s special report, Executive has taken root in the CSR orchard; it has demonstrated that it is the business magazine that monitors and evaluates what is arguably the most dynamic, worthy and important weapon in today’s corporate arsenal: that of giving back to the community or developing initiatives that make our lives healthier, cleaner, relevant and enriching.

Businesses have recognized that, by allying themselves to good causes they can raise their profile, improve their image and shape their identity. They can fight back at accusations of environmental damage by going green, both in the office and in the community; they can fight back at accusations of exploitation by lobbying for trade reform, youth initiatives and working to make better lives for their workforce; and they can, by their CSR programs, bring together civil society and the private sector to appraise how governments are running our lives. In short, the corporate world is finding its conscience and the good news is that it is actually improving the bottom line.

Still, in every blue sky there looms a cloud. Last month’s adventurism by Russia not only trod on Georgian sovereignty, it sent out a dangerous message to those states who might see the so-called rescue mission into Georgia as a template upon which to build their own regional aspirations. Such a path of action would involve taking sides in what could easily turn into a Cold War Lite. The last time the Arab World took sides (with the USSR incidentally) was in 1967, a period in which the USA had not yet committed itself to any Middle East policy, though was forced, by default, to embrace an isolated Israel. History has a nasty habit of repeating itself but we can learn from it too and today, the Middle East, which has the potential to enter a golden age of commercial prosperity, should not be tempted to once again take sides by rekindling old habits.

Finally, as the Lebanese summer season draws to a close, we cannot but say a word about the thousands of expatriates who have descended on Beirut for a well-deserved break. Yes, it was difficult to find a good table at short notice, but the simple fact of the matter is that, not only have they driven our economy for the past year, their achievements in the region have set a benchmark of professional excellence and put a premium on Lebanese human resources. We have always maintained that Lebanon is the sum of its private sector endeavors both at home and abroad.

It would be a hard case to argue against.

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Financial Indicators

Global economic data

by Executive Staff
written by Executive Staff

Population growth rates

Average annual growth in percentage, 1993-2006 or latest available period

In 2006, OECD countries accounted for 18% of the world’s population of 6.5 billion people. China accounted for 20% of this number and India for another 17%. Within OECD, the United States accounted for 25% of the OECD total, followed by Japan (11%), Mexico (9%), Germany (7%) and Turkey (6%). Between 1993 and 2006, the population growth rate for all OECD countries averaged 0.7% per annum. Growth rates much higher than this were recorded for Mexico and Turkey (high birth rate countries) and for Australia, Canada, Luxembourg, Ireland, New Zealand and US (high net immigration). In the Czech Republic, Hungary and Poland, populations declined from a combination of low birth rates and net emigration. Growth rates were very low, although still positive, in Germany and the Slovak Republic. The population growth of OECD countries is expected to slow down in the coming decade. Until the middle of this century, the population of OECD countries is expected to grow by less than 0.3 per cent per annum. Total fertility rates have declined dramatically over the past few decades, falling on average from 2.7 in 1970 to 1.6 children per woman of childbearing age in 2005. By 2005, the total fertility rate was below its replacement level of 2.1 in all OECD countries except Mexico and Turkey. In all OECD countries, fertility rates have declined for women at younger ages and increased for women at older ages because, on average, women are postponing the age at which they start their families.

GDP defaltor

Average annual growth in percentage

Between 1993-2006, OECD inflation was lowest in 1999 at 1.2%. It then gradually increased to 2.5% in 2006. The average annual 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. Strong growth in the GDP deflator for Mexico and Turkey reflects general domestic inflation, though both countries have, drastically reduced their inflation from 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 between 1993-2006 for one or more years, but Japan is the only country where this has been sustained over several years.

Municipal waste generation

kg per capita, 2005 or latest available year

The quantity of municipal waste generated in the OECD area (30 countries) has been rising since 1980 and exceeded 650 million tons in recent years (560 kg per capita). Generation intensity — i.e. kilograms per capita — has risen mostly in line with private final consumption expenditure and GDP, but there has been a slowdown in the rate of growth in recent years. The amount of municipal waste also depends on national waste management practices. Only a few countries have succeeded in reducing the quantity of solid waste to be disposed of. In most countries for which data are available, increased affluence, associated with economic growth and changes in consumption patterns, tends to generate higher rates of waste per capita.

Taxes on the average worker

As a percentage of labor cost

On average, the taxes on an average worker increased until 1997 and have since declined, in both the European Union and the OECD as a whole. However, there are important differences between countries. The countries that have experienced an overall increase in the taxes on an average worker since 2000 include Japan, Mexico and the Netherlands. Countries that have experienced an overall decline include Australia, Denmark, Finland, Ireland, Luxembourg and the Slovak Republic.

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Financial Indicators

Regional equity markets

by Executive Staff
written by Executive Staff

Beirut SE: Shuaa  (1 month)

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

The Blom Stock Index for the Beirut Stock Exchange closed the July 25 session at 2013.55 points, down some 38 points when compared with the last close in the previous month. After climbing to a peak of near $40 per share on July 7 in reflection of a 10% dividend that will be paid out starting end of August, shares of real estate firm Solidere traded lower ex-dividend and closed at $36.01 on July 25. As politicians seemed to get something right in their negotiations in the second week of the month, the economically hopeful formation of a new cabinet drove the BSI to a new record high of 2,119 points. There was a bit of a hangover caused by renewed and probably incessant political squabbles later in the month but on the balance, July underscored that political improvements are the key in unlocking economic growth potentials for listed stocks and the whole economy. The central bank announced that reserves reached $15.5 billion in mid-July; a new sovereign bond issue was under preparation with the help of local and international banks as a $399 million bond neared its date of maturing on August 6.

Amman SE  (1 month)

Current Year High: 5,043.72  Current Year Low: 3,003.07

Share price trends on the Amman Stock Exchange broadly pointed sideways in the review period. After shedding some points early in the month, the ASE general index fluctuated between 4,500 and 4,700 points and closed the July 24 session at 4,711.36 points. This volatility in the general index was influenced largely by fluctuations in industrial stocks. These fluctuations in turn were attributed mostly to plans for introduction of a capital gains tax, which were withdrawn by tax authorities in mid July. The industry index, the main force in upward movements on the ASE in 2008, underperformed the market in July but ended the period at par with the general index. Insurance and services trailed the general index throughout the month while the banking sector displayed the best performance and gained 4.2%.

Abu Dhabi SM  (1 month)

Current Year High: 5,148.49  Current Year Low: 3,327.86

The Abu Dhabi General Index clung to the 5,000 points mark as the summer’s trends for booking profits and investing in individual relaxation made their impact. With a close at 5,005.70 points on July 24, the ADX index recorded a small gain that month because the exchange had a positive week at the end of the review period, after three weeks of losses. Sector indices did not report much that was worth writing home about. Energy was buoyant and real estate and telecoms also were positive on the month while banking was very close to the general index. The insurance, consumer, construction, and industrial sub-indices dropped between 0.85% and 2.53%, underperforming the general index. Real estate and energy led the gains in the last week of the review period.

Dubai FM  (1 month)

Current Year High: 6,291.87  Current Year Low: 3,968.09

Owing to a 215-point uptrend in the latter part of the period, the Dubai Financial Market’s general index had one nostril above water on July 24. The index closed at 5,437.54 points, 0.1% up from the start of the month. July thus did not alleviate the DFM’s standing in the regional performance tables for 2008; with a drop of 8.34% year-to-date, the DFM is still the second-worst performer this year in the GCC after the Saudi bourse. The sub-indices broadly confirm the downtrend: most sectors were flat or slightly negative throughout July; compared with the start of January, the transport, real estate, telecoms and utilities sector indices are down between 15 and 30%. Only the indices for insurance and materials bucked the trend and moved in positive territory with year-to-date gains of 6.4 and 13.5%, respectively. On the other extreme, however, stocks in the consumer staples category plummeted by more than 39% in July. The small sector lost half its value since the start of 2008. Jeema Mineral Water Co, which had listed earlier this year, shed 50% of its share price between June 18 and July 24.

Kuwait SE  (1 month)

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

The Kuwait Stock Exchange had the highest index losses of any GCC bourse in July, closing at 14,887.80 points on July 24, down 3.7% from the start of the month. Pundits associated the slide, which had set in after the index reached a historic high above 15,650 points on June 24, with investor worries over potential attacks on Iran as the US and Israel deployed the verbal sledgehammer in their criticism of the ayatollahs’ nuclear theocracy. While all major sectors on the KSE weakened between June 24 and July 25, index losses during this particular period were the highest for industry (9.5%), followed by services (4.85%). The banking and insurance sub-indices, on the other hand, lost between 3% and 2% and suffered the least. When analyzing July share price movements alone, however, insurance and industry dropped between 5 and 6%, more than other sectors. Despite its loss in July, the KSE general index is still quite the looker for 2008 to date with a gain of 18.5% since January 1.  

Saudi Arabia SE  (1 month)

Current Year High: 11,895.47            Current Year Low: 7,506.45

The Tadawul Index on the Saudi Stock Exchange dipped down to 8,706 points on July 16, its lowest reading since October 2007. The SSE recovered to a close at 9,080.87 points in its July 23 session, signifying a 2.9% drop in the opening period of the year’s second half and certainly not enough to change the SSE’s situation as the most underperforming Middle Eastern securities market this year. Three sub-indices out of 15 in the SSE showed gains in the review period, namely telecommunications, retail, and industrial investments. All three major telecommunications companies, Etisalat Etihad, Zain Saudi, and STC, made gains toward the end of the review period but STC advanced the most, lifting away from a 12-months low recorded on July 16 on news of a good outlook for the Saudi telecommunications industry. Among debutants, Alinma Bank continued trading lower in the second month of its life on SSE.

Muscat SM  (1 month)

Current Year High: 12,109.10            Current Year Low: 6,423.95

The Muscat market was not to be caught by its GCC peers in July. The Muscat Securities Market general index closed the review period up 2% at 11,544.61 points on July 23 ahead of a long national holiday weekend. While the month did not see trading reach exhilarating levels, the MSM performance ahead of the other GCC bourses secured the Omani bourse’s claim to being the strongest gainer in 2008 at being up almost 28% when compared with the start of the year. Banking stocks struggled in the review period relative to other sectors; the banking sub-index closed 1.14% lower on July 23 when compared with the beginning of July. Industrial stocks, which had frequently served as drivers of the market gains in the first half of 2008, stayed married to the general index, leaving it to the services sector to outperform the general index with a gain of 4.2% on the month. The shares of Omantel were among the most watched during the month as the stock drew attention from buyers on announcements that the government plans to sell another major chunk of its 70% stake. 

Bahrain SE  (1 month)

Current Year High: 2,902.68  Current Year Low: 2,495.28

Stocks on the Bahraini bourse moved generally lower in July as the Bahrain Stock Exchange extended its losing streak into a second month. The general index closed at 2819.58 points on July 24, down 1.4% on the month and up 2.3% on the year. The sub-index for hotel and tourism companies, already the best performer among the BSE sector indices in the first half of 2008, continued to stay ahead of the market and added 3.7% in the July review period. Banking, insurance, services, and investments on the other hand moved lower last month; the investments sector gave up 2.4% and underperformed the general index the most, by a full percentage point. Al Khaleej Development Co, the BSE’s best performer this year so far, made further modest gains while the sharp slide of Arab Banking Corporation – the year’s hardest hit stock in Bahrain – appeared to be tapering out into a more stable picture (but one of a negative price to earnings ratio).

Doha SM: Qatar  (1 month)

Current Year High: 12,627.32            Current Year Low: 7,340.06

The Doha Securities Market’s general index slipped in July but switched to a sideways pattern in the second part of the month. The market closed at 11,851.02 points on July 24, representing a drop of 0.7% on the month and a retreat by 845 points from its year high on June 11. Banking stocks shadowed the general index in their July trend whereas industrial and insurance values outperformed the index, adding 3.9 and 2.8%, respectively. The services sector underperformed with a drop of 4%. Reporting a price to earnings ratio of 19.89x, the DSM is the most expensive market in the GCC, though, and it serves to remember that the bourse is up over 50% when compared with a year ago. In the real estate sector, Barwa Real Estate, whose share price fluctuated in the upper 80s (Riyals) in July, tops most DSM traded stocks in terms of the P/E ratio, at 43.81x. However, 2008 newcomer Ezdan, also a real estate player, displays an even higher P/E of astounding 67.03x.

Tunis SE  (1 month)

Current Year High: 3,059.63  Current Year Low: 2,436.94

The Tunis Stock Exchange had a month that ended better than it started. Dropping some 75 points in the first ten days of July, the Tunindex gained most back and closed the July 24 session at 3020.55 points. Investors on the TSE got some exciting news in July as agro, manufacturing, and real estate conglomerate Poulina Group Holding (PGH) announced plans to list 10% of its capital via a capital increase on the exchange in what PGH touted as the largest initial public offering in the TSE’s history. PGH, which has 71 subsidiaries, moreover said it will be the bourse’s new market cap leader after the flotation; subscription in the IPO was opened in roughly equal proportions to local investors and foreign institutional investors and was scheduled to run from July 24 to August 6. In other market news, the Tunisian government was reported to be planning to sell a 35% stake in listed insurance company STAR to the French insurer Groupama.

Casablanca SE All Shares  (1 month)

Current Year High: 14,925.99            Current Year Low: 11,394.32

The Casablanca Stock Exchange index added 272 points between July 1 and its close at 14,463.40 points on July 25. Up 13.93% since the start of 2008, the Moroccan bourse remains at the top of the price ladder for all stock exchanges in the Middle East and North Africa, with a proud price to earnings ratio of 32.75x. Market cap leader Maroc Telecom traded sideways in July; however, the company announced 10% higher net profits in the first half of 2008 when compared with the same period in 2007. The company attributed the profit increase firstly to revenue growth at its domestic mobile communications division.

Egypt CASE (1 month)

Current Year High: 11,935.67            Current Year Low: 7,517.77

Although it had a couple of positive sessions in mid-month, the Cairo & Alexandria Stock Exchanges could not come to a liftoff in July. The CASE 30 index closed at 9382.51 points on July 24, down 4.5% from the start of July. Market capitalization leader Orascom Construction Industries had a volatile time but showed a net gain of EGP 20 the share on the month to close at EGP 387.55 on July 24. The second largest company on CASE by market cap, Orascom Telecom Holding was less fortunate and saw its shares lose 14.9% in value between July 1 and 24. OTH additionally received a valuation rebuff from international investment bank Morgan Stanley; the bank’s analysts reportedly lowered their target price for OTH by more than 25%, citing the company’s uncertainty over strategy and vulnerability to inflation. OTH, OCI, and Orascom Hotels & Development, the third large firm in the family, each lost between 30 and 40% of their value since the start of 2008. Showing few positive examples of companies that currently enjoy trust of investors, the market is still looking for its new champions.

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Executive EducationSpecial Report

Money Matters by BLOMINVEST Bank

by Executive Staff
written by Executive Staff

Regional stock market indices

Regional currency rates

Middle East contracts at $5.4 billion

According to the Middle East Economic Digest, contracts awarded in the Middle East in the first half of this year reached $5.4 billion. The most prominent projects are Saudi Arabia’s installation of a 1,200mw thermal power plant that is commissioned to Alstom (France) at $3 billion. On the other hand, United Arab Emirates’ (UAE) Shah gas field exploration by Abu Dhabi National Oil Company (Adnoc) and Conoco Phillips is worth $1 billion. Other prominent projects include Tunisia’s 400mw combined cycle power plant that is being built by Alstom for $529 million. Country wise, UAE’s total awarded projects stand at $1.6 billion, Saudi Arabia’s at $3.15 billion and Kuwait’s at $158.5 million.

GE and Mubadala in $8 billion partnership

Mubadala Development Company, an investment company owned by the Abu Dhabi government, announced an $8 billion partnership agreement with GE to establish a commercial financial business. The aim of the agreement is to invest in infrastructure assets, real estate, clean energy research and development and aviation. Both parties will contribute $4 billion each in equity to the joint venture over the next three years and expect to build assets up to $40 billion over the next 12-18 months. It is worth noting that according to Khaldoon Al Mubarak, CEO of Mubadala, the company’s long term plan is to become one of the top ten shareholders in GE through buying shares on the open market. GE is worth about $3.3 billion.  

Fitch upgrades Saudi Arabia’s credit rating to AA-

The Middle East and Africa monitor expects Saudi Arabia’s real GDP growth to push higher in 2008 and 2009, to be around 4.0% and 4.3% respectively. This is mainly due to the non-oil sector expansion, increasing oil production and a jump in global oil prices. Moreover, the monitor expects the OPEC basket to average $121.5/bbl in 2008, up 57% from the previous year. This will spill over other areas of the economy, notably the external sector that will lead to a trade surplus of around $328 billion, more than double the $151 billion recorded in 2007. In line with Saudi Arabia’s growing economic strength, on the back of record oil prices and increasing energy production, Fitch Ratings have upgraded the kingdom’s credit rating from A+ to AA-. The agency also changed the kingdom’s long-term ratings outlook from positive to stable. The new ratings put Saudi Arabia on a par with Kuwait, and one notch below Abu Dhabi, and although Saudi Arabia is unlikely to need any additional financing in the short-to-medium term, the upgrade is likely to increase foreign direct investments.

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Executive EducationSpecial Report

Morocco’s educational capital

by Executive Staff
written by Executive Staff

As the global economy continues on its path of integration, more Moroccan students and professionals are turning to business schools to gain an edge in competitive job markets. Enrollment in business and management programs increased by 3.1% in 2003/04 from the previous school year, according to the Ministry of Education. A growing group of public and private schools are offering advanced degrees in business and management education to meet rising demand. 

Schools of today and tomorrow

Business and management schools are adapting their programs to changes in the global business environment. In particular, demand is growing for English-language MBAs and executive education. Al Akhawayn University, the Hassania School of Public Works (Ecole Hassania des Travaux Publics), and Ecole des Mines de Rabat all offer executive MBAs taught in English. To encourage innovation in business development, institutions also foster synergies with engineering schools and combine research into local business development with global dimensions of business education.

Houdaifa Ameziane, director of the National School of Business and Management of Tangier (ENCG), calls the evolution of Moroccan business schools “very satisfying.”

“We came on the scene somewhat timidly several years ago, to fulfill the needs of local businesses by according training programs in management aptitude. After that, we organized on-the-site training in the enterprise, with modules specially formulated for groups installed in the region. Since then, we have passed to the stage of master’s level diplomas available for students who seek managerial know-how and for professionals interested in continuing their education.” The ENCG network has invested heavily in relations with the region’s socio-economic powerhouses. Representatives from the shipping and transport companies that are rapidly growing in the Tangier region, and from the nation-wide telecommunications, manufacturing and banking sectors regularly recruit from the pool of ENCG’s students.

Going back to school

For those who have already joined the workforce, several institutions offer continuing education programs in business and business-related fields. Al Akhawayn University, a leader among Moroccan higher education institutions, offers a master of science in corporate finance, international master in e-business management, and an executive MBA. The executive MBA is completed through short weekend classes and evening seminars in Casablanca and residential sessions at the idyllic Ifrane campus. A part-time MBA is also available for public and business administration managers who want to raise their earning potential without sacrificing their current employment.

Some higher education institutions are tailoring their programs for the globalizing world by developing partnerships with international schools in Europe, Canada, and America and providing joint degrees. Joint degree programs are mainly master’s and executive master’s in various fields, such as business administration, public management, logistics, finance, and operation management. There are also franchising networks of private institutions from within Morocco, and others created by consortia of businesses, who groom students as trainees or future employees.

Casablanca business school ESCA recently teamed up with France’s Grenoble School of Management to offer Grenoble’s ‘specialized masters in business intelligence’ to students and executives living in Morocco. The Grenoble school said in a statement that the program was formulated to respond to particular problem areas in Moroccan businesses, “as business intelligence is increasingly playing a significant role in terms of business performance, but lacks specialists notably in the retail, marketing, consulting, and project management fields.”

Moroccan executives regularly lament the lack of qualified personnel in the region, and often recruit foreigners, particularly French nationals, for high-level positions. In turn, foreigners come equipped with high-level training, but often have trouble understanding local business practices and culture. With Morocco becoming a hub of regional investment and trade, local business schools are increasingly important in creating the skilled professionals needed to manage new wealth and sustain high levels of growth.

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Executive EducationSpecial Report

Jordan’s business class

by Executive Staff
written by Executive Staff

Executive education in Jordan has yet to become a staple of academic institutions, but the country’s accelerating integration into the global economy means that ambitious Jordanians increasingly have to be on the lookout for the competitive advantages offered by focused higher degrees. Faced with more competition, one way for the young Jordanian executive to keep up is through a mid-career boost from a small but growing number of master of business administration (MBA) and similar courses. Particularly innovative is the new MBA degree offered by the German-Jordan University (GJU) at its Talal Abu-Ghazaleh College of Business (TAG CB) in Amman. Established in 2006 as one of the faculties of the new university, TAG CB represents an education partnership rare in the Arab world between academe and the region’s private sector, bringing the expertise of the Abu-Ghazaleh business consulting and services group to the GJU. The latter, a public university jointly launched in 2004 by the German and Jordanian governments, is headquartered in Amman and plans to open branches in various other Arab cities.

Designed as a passport to a higher management career for ambitious young executives, the GJU MBA program enforces the concept of transferring knowledge from classes into real-world workplaces. Normally, students in this program will have qualified some three to five years previously with a Bachelor’s degree and then gone on to perform well and show leadership at work. In a sign of the times, GJU points out that its MBA graduates could go on to serve as effective managers not only in the private sector, but also in business aspects of government or other public agencies. Though not at the level of Dubai and other high-flying economies where state offices often function as smoothly as private business, Jordan’s public sector is nevertheless moving in that direction — helped by a growing number of bright young graduates of executive education programs. In particular, GJU allows its MBA students to specialize in such areas as finance, statistics, marketing, or international business, not to mention the Abu-Ghazaleh specialties of Intellectual Property and Accounting.

More specialized, but still aimed at the executive, is the MBA offered by Jordan’s Queen Nour Civil Aviation Technical College. Established in 1973 and recently privatized, the college meets Jordanian and regional civil aviation needs through a two year program leading to a community college diploma, as well as by special training. However, in the process of upgrading and revamping its offering, eight years ago the college started an MBA in Aviation Management. Designed for high-flyers, as it were, Jordanians and students from elsewhere in the region have benefited from this course, helping their respective airlines compete an increasingly sophisticated and vital sector.

Finally, for Jordan’s finest young executives, the Queen Rania Global Leader Scholarship is offered annually by the famed Thunderbird School of Global Management in Arizona. The scholarship goes to Jordanian business leaders interested in pursuing an MBA in global management. Candidates for the award must have a minimum of two years’ work experience and they have to be motivated by factors other than personal advancement. In fact, applicants for this MBA scholarship must submit an essay on how they intend to use their education to make a positive contribution to their nation, region and/or the world community. Jordan’s Queen Rania promotes the award saying that empowering women is, “perhaps, the single greatest legacy we can bestow upon our children.” Although in the age of gender equality, men are also eligible for this prestigious MBA scholarship. Look for more of these initiatives in Jordan, as well as an expansion of home-grown MBAs, over the next few years.

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