Editorial

A different focus

by Yasser Akkaoui
written by Yasser Akkaoui

This year’s Executive Facts and Forecasts has picked three nations in the MENA region that it believes best represents its economic heartbeat: an emerging Sudan, a thrusting UAE and a Lebanon that is in transition but which has potential in abundance.

One of the exciting stories of the past years has been the resurgence of Sudan from decades of political conflict and war, enabling the country to truly access its natural resources — such as oil and sugar — and use these to develop a burgeoning economy. The result has been double-digit growth that has propelled Sudan into the limelight and made it attractive to investors seeking to diversify their emerging markets portfolio.

The UAE (and the rest of the GCC for that matter) had another record year and will continue to set new economic benchmarks. Those who believe that the oil boom is past its peak had better think again. This is not a flash-in-the-pan correction similar to what was experienced in the 70s; black gold will maintain its robustness to fund even greater projects and fuel prosperity throughout the region and beyond. But this success is not just down to increased oil revenues; they have merely helped implement a remarkable vision that has seen assets used to create sustainable economic development and transform a region into throbbing modern metropolis

Lebanon, being the regional barometer that it is, must thank its lucky stars that the political crisis that has plagued the little Mediterranean nation since mid-2006 happened during the current oil boom. The economic development in the GCC has allowed Lebanese talent to be absorbed into, and contribute to, the dream and brand Lebanon was able to diversify and become less reliant on an ailing and limited local economy. The good news is that the election of a new president at the end of 2007 should herald at least three years of calm and allow Lebanon to once again take its place as the most elegant boutique in the regional mall.

What we at Executive hope to showcase in this annual issue is that, despite the tag of instability that is so often attached to the region, the Middle East and North Africa is filled with credible and sustainable opportunities with the vision and talent to make them happen.

 

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North Africa

The Maghreb – Opening markets

by Executive Staff
written by Executive Staff

Although both Tunisia and Morocco have free trade deals with the European Union and Algeria’s economic and political ties with Britain have reached an unprecedented high, there is a growing feeling in all three Maghreb countries that rapid growth will be spurred from the southeast — the Gulf — rather than from the North.

Even before oil prices rocketed to $100 a barrel, Gulf investors had begun to move into North Africa in a big way, eyeing especially tourism and real estate opportunities in Tunisia and Morocco, while banking interests kept a close watch on the possibilities afforded by future privatization of the monolithic Algerian state banking sector.

Gulf money is, ironically, being starved of investment opportunities at home while in Europe much of the focus previously directed towards the Maghreb is shifting to the newer and poorer members of the EU in Central and Eastern Europe.

Yet the influx of Gulf money is neither charity towards fellow Arabs nor less demanding of moves to liberalize the Maghrebian economies and open up sectors previously denied to private sector investment. The UAE firms Emaar, Dubai Holding and Abu Khater Investment Group are moving into the region in a big way. And the decision to allow “alternative” financial products in Morocco — for which read Islamic finance — opens up the possibility for the spread of a banking system that is also gaining roots in London.

Backed by this new source of interest, the countries of the Maghreb can look forward to 2008 in a situation of macroeconomic stability and steady growth.

However, the region will have to keep up the pace of reform if it is to continue to attract petrodollars as well as tackle its leading economic and social headache — high unemployment among quickly-growing, young populations. All three have kept inflation in check but pressures remain, meaning that significant monetary and fiscal relaxation would be ill-advised. The encouragement of private sector job-creation as opposed to public sinecures is the priority. This will entail sustained deregulation and liberalization, robust financial sectors and the continued development of trade and investment ties.

Morocco

Morocco has achieved average GDP growth of 5.4% since 2001, thanks to a raft of reforms, but is expected to only achieve 2.5% this year. The drop is mainly due to the effect of a severe drought on agriculture, which contributes 20% to GDP and more than 40% to employment. The cereal harvest fell from 9.3 million tons to 2 million tons and exports of products like citrus fruits have also nosedived.

The country is committed to reducing its reliance on agriculture, and the government is confident the economy will bounce back and targeted 6.8% growth in 2008. The IMF forecasts a marginally more modest 5.9%. In the third quarter of 2007, due mainly to the lively services and construction sectors, unemployment dipped beneath the psychologically important 10% level, despite the loss of 20,000 agricultural jobs. As elsewhere in the region, unemployment is a serious issue, with the government saying 400,000 jobs a year must be created over the next 10 years to keep pace with population growth and reduce overall joblessness. This is no small feat — over the past 10 years, a period of relatively high growth, on average only 130,000 new jobs were created annually.

With fears of inflation eliminating any expansionary fiscal policy as a tool for cutting unemployment, job creation will have to come from the private sector, aided by the government’s pro-business stance. Sectors such as telecom, transport and the all-important labor-intensive tourism sector are all expected to register growth between 7 and 9% over the next year.

As well as seeking to strengthen the trade-oriented industries that benefit from EU open ties, Morocco is seeking to develop trading relations with its immediate neighbors, which have been weak up to this point, not least down to Algeria’s support for the Polisario Front in Rabat’s continuing conflict over the Western Sahara.

Tunisia

In 2007 Tunisia marked 20 years since the Change, when President Habib Bourguiba, who had led the country since independence, was replaced by Zine al-Abedine Ben Ali. Under Ben Ali, Bouguiba’s socialist model has been incrementally rolled back in favor of free markets and private enterprise.

For the past 35 years, Tunisia has made attracting FDI to the country a cornerstone of economic policy, and has specifically encouraged investment in export-oriented sectors. Its geographical position, relatively affordable land and labor, and most importantly a range of trade deals, particularly that with the EU, are touted by officials as ideal reasons to invest in the country.

This policy has been accelerated since the Change, with privatization and a gradually more open economic policy being keys to ensuring that foreign capital continues to flow in, and exports to flow out. FDI grew from $83 million in 1986 to $3.65 billion in 2006, and has created an estimated 270,000 jobs in that time.

The IMF has praised Tunisia’s “outward-oriented development strategy” which eschews protectionism and looks to encourage foreign participation in the economy and stimulate exports. Over the past decade, exports have grown by 15% annually and now contribute more than half of GDP, compared to 35% 20 years ago.

Now Tunisia is focusing on further improving its attractiveness to foreign investors and in increasing the export of “value-added” — i.e. more expensive and higher-margin — products. The 11th Development Plan includes pledges to “stimulate private investment, particularly in high value-added sectors” and “improve the business climate, attract more FDI.”

Legislation is in the pipeline to allow companies to apply for 10-year tax holidays on profits derived from exports, after which they will be taxed at 10% — equal to the lowest rate in the EU.

No set timeline has been laid out for the shift of the dinar to full convertibility. Most estimates are in a vague three-to-five year range, despite the undoubted benefits of convertibility to foreign investors. While Tunisia’s present system of controlled floating rates is seen both as transitional and not a huge barrier to investment, the fact that there is no set date for full convertibility puts in doubt the political will to implement a full float.

Tunisia’s macroeconomic stability looks secure enough, promoting a continuation of strong growth. This growth will be essential to ensuring that jobs are created for the growing population, many of whom are — or will be — young university graduates, equipped to work in high-end, demanding jobs.

Unemployment has remained stubbornly around 14% for the past half decade. By continuing to promote FDI in high-earning sectors, the government is taking some of the right steps to increase employment. However, they need to be supplemented by a loosening of red tape and an even more active encouragement of private enterprise. The official projection is for unemployment to be cut to 13.4% by 2011 — even taking into account fast population growth, this seems woefully short of what is needed.

Algeria

The soaring world price of energy defies all attempts by oil and gas rich countries to diversify the fundamentals of their economies. Algeria’s non-hydrocarbon growth this year is expected to be 6%, with overall growth of 5% as hydrocarbon output was reduced. Even so, the cash interpretation of these percentages is such that the significance of oil and gas in the economy is going up, not down.

Government coffers are brimming with hydrocarbon revenues, and money is being ploughed into big projects such as the $60 billion Complementary Plan for Support to Growth which aims to bring the country’s infrastructure up to the standards of the developed world, as well as providing jobs for the country’s unemployed.

This level of funding coming on-stream requires a continuation of careful monetary policy, particularly as other pressures such as rising food and construction costs are also present. The IMF predicts 4% inflation by year-end, tolerable for an emerging market, but has warned that keeping a lid on prices is a key priority for the country, along with the elusive goal of a diversification away from hydrocarbons.

Two other, thornier problems highlighted by the organization are high unemployment and an underdeveloped financial sector. Overall unemployment is 13% officially, but youth unemployment may be as high as 45% — a very serious issue indeed for the country. While public funds and continued growth should help cut unemployment to a degree, a report prepared for the IMF has suggested that supply-side reforms will also be beneficial. These include easing labor legislation to make hiring and firing easier, a reduction in employer contributions to social security, using oil revenues to cut taxes and ensuring that the financial system is robust enough to support private enterprise.

In 2007, Algeria recommenced privatizing its previously troubled banking sector, offering 51% of state-owned Crédit Populaire d’Algérie (CPA), the country’s fifth-largest bank, with a 15% market share. Technical bids were submitted by several large international banks, including Banco Santander, Citibank and BNP Paribas and the deal was expected to be sealed before the end of the year at the time of going to press.

The fact that such large banks are enthusiastic about the privatization bodes well for the Algerian banking sector, where previous privatisations ended in crisis and renationalization. It is also a fact that has not escaped the bigger Gulf banks. State-owned Algerian banks account for 95% of loans and deposits, but suffer from inefficiency and a high proportion of non-performing loans — around 38% of all credit, compared to 5.8% in the private sector.

However, there are currently no published plans to privatize the largest state banks, Banque Exterieur d’Algérie (BEA), Banque Nationale D’Algérie (BNA) and Banque de l’Agriculture et du Développement Rurale (BADR). Since they would all benefit from the capital, technology and professionalism that the private sector can bring, it is only a matter of time before the government applies the same logic to them that it did to CPA and Banque de Developpement Local (BDL).

And those all important new ties with Britain, now assuming the economic mantle once worn by France? Bouteflika’s two-day visit to London in July 2006 was the first visit for an Algerian head of state to the UK since the country gained independence from France in 1962. His 48 hours in London was aimed at promoting Algeria to potential UK investors and the broader international community, but especially to the British energy and telecom sectors. Britain’s recognition of the potential gains from these newly forged links was signalled by its intention to acquire larger premises in Algiers for its embassy and easier visa access. The British Council is also back after a 13 year absence.

Peter Grimsditch is editorial director of the Oxford Business Group.

 

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Comment

The Tunisian Change

by Peter Speetjens
written by Peter Speetjens

On November 7, 2007, it was precisely 20 years ago that “the change” took place. Today, one month later, the streets of Tunis are still colored red with tens of thousands of the nation’s flags and images of President Zine al-Abedine Ben Ali, while you cannot open a magazine without reading about the incredible progress the country made under the inspiring guidance of its great leader.

So, the national press agency reported that on the 20th anniversary of “the change” 3,000 intellectuals, members of civil society and jurists had signed a declaration praising the gains the country had achieved, while emphasizing that these could not have been achieved without the will and “perseverance” of the Tunisian President. Réalités Magazine put a heavily retouched photo of the president on the cover with the headline: “The new face of Tunisia.”

This kind of journalism can hardly do any good for the country, as it just screams for an ironic reply, knowing that “the change” first of all, and rather euphemistically, refers to the disposal of former President Habib Bourgiba by current President Ben Ali. After some 30 years at the helm, Bourgiba was judged “senile”. Newly sworn in, Ben Ali solemnly declared he would never stay as long in power as his predecessor, yet 20 years and two constitutional amendments later, Ben Ali still firmly sits on the throne. Hence, he also known as “Ben a vie” (Ben for life).

Still, putting irony aside, one cannot but admit that Tunisia has booked impressive results under Ben Ali’s leadership. For “the change” not only refers to the change at the top, but also to gradual transformation of Tunisian society: From a socialist-inspired model, in which the benevolent state took care of everything and everyone, to a more liberal scheme, in which free market forces and private enterprise were allowed to take center stage. Remarkably, Tunisia achieved its change without any major social upheavals or financial crises, despite the fact the country’s economy was in a deplorable shape by 1987.

While countries such as Egypt, Syria and Algeria are still struggling to come to terms with the reality of the post-Cold War era, the Tunisian private sector today contributes 76% to the country’s GDP of some $33 billion, employs 71% of the country’s workforce, and represents 64% and 85% of annual investments and exports respectively. In addition, Tunisia has known a more or less constant annual economic growth rate of 4% to 5% annually and consequently saw its GDP almost double since the infamous change.

The good thing about the Tunisia transformation is that economic progress so far did not come at the expense of social development. So, still some 80% of the population belongs to the country’s middle class, while less than 4% lives under the national poverty line. Nearly every household is connected to the electricity grid. An increase in health centers and hospitals, combined with free medical care for the needy, saw life expectancy increase to an average 73 years, while illiteracy has been reduced to less than 20%.

The latter may still seem a lot, yet one should know that by the end of the French colonial rule in 1956 no less than 98% of Tunisians were illiterate. In that sense, it is no exaggeration to state that Tunisia has come a very long way, especially as it did so without an abundance in natural resources. Add to that the country’s safety record and, last but not least, the fact that in 2008 Tunisia’s free trade agreement with the European Union will go into top gear, and one understands why Tunisia has become a darling destination for international investors.

So, the Spaniards bought themselves into the country’s formerly state-owned and quite lucrative cement industry. The Italians have signed up to construct an electricity plant and industrial city. The Turks are building an airport and the Indians a phosphate producing plant. In recent years however, it has especially been the Emiratis who have come to appreciate the Tunisian model and the country’s strategic position on the edge of Europe.

It made President Ben Ali a busy man. In July, he laid the cornerstone for “The City of the Century,” Dubai Holding’s $15 billion dollar mixed-use project on the edge of Tunis, while in November he laid yet another symbolic first stone for “Tunis Sorts City,” Bukhatir’s $5 billion theme-based development on the shores of the capital’s Lac du Nord.

Seeing Tunisia’s achievements over the last 20 years, it is all rather unfortunate that the country’s media still too often behave as a caged bird. Its overzealous parroting and personal worship only leads to unintended irony. Ben Ali, the new face of Tunisia? No, not quite. Ben Ali, the face of a remarkable Tunisian turnabout? Like it or not, but most probably the only reply to that question would be a wholehearted: yes, indeed.

 

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By Invitation

Web 2.0: Profiting from the threat

by Jad Hajj
written by Jad Hajj

Web 2.0 — the second generation of web-based services and communities that emphasize online collaboration, networking and user-created content — is growing at a phenomenal pace. A recent Booz Allen Hamilton study shows just how prevalent this interactive consumer behavior has become and puts to rest any notion that social networkers are all 17-year-old boys or that “average people” don’t read Weblogs. The study found that 50% of all internet users frequent social media sites, and that more than half of the visitors to MySpace, the notoriously youth-oriented social networking site, are 25 or older.

Among the many activities taking place on new technology platforms, such as blogs, wikis, podcasts and online communication pit stops, is one that should particularly pique the interest of corporate managers: More and more, consumers are sharing their opinions about products, services and the behavior of companies. What this means for business is not always clear, but most executives have a sense that their company must respond to this phenomenon. They’re just not sure what to do or how to begin.

One useful approach is to frame the issue as a challenge: How do internet-based social media change the marketing environment for companies? We have identified three ways that the internet is altering the landscape, along with the hidden opportunities in each.

Companies are no longer solely in control of their message

Corporations are unable to rely on traditional one-way methods of communication to reach and influence consumers. Web 2.0 has turbocharged the whole notion of “word-of-mouth,” circumventing traditional marketing by letting individuals talk directly to each other about their passions, their buying preferences and their pet peeves. Hence, instead of trying to control the message, companies should focus on joining in these conversations. Web 2.0 offers limitless opportunities for companies to engage their customers in meaningful dialogues and learn exactly what they’ve wanted to know all along: precisely what their consumers think about their products and brand. Companies can begin at sites like Technorati.com to find out what is being said about them online and respond to postings about their products or services or addressing concerns as warranted. And they can begin generating conversations themselves by creating their own blogs, as Sun CEO Jonathan Schwartz has done with Jonathan’s Blog.

Web 2.0 is fragmenting marketing channels

The explosion of blogs and social networking sites — some 100,000 new blogs launch daily — is breaking already-fragmented marketing channels into even tinier pieces. Visitors to the web no longer start at large portals like Yahoo or MSN; rather, they go straight to niche communities and websites catering to their specific interests. But fragmentation has its upside, offering companies a shortcut to highly desirable demographic groups. Want to get the attention of professionals with an average of 15 years of experience? Try LinkedIn.com. Moreover, establishing a brand presence on online channels costs a fraction of what it does in traditional media channels. And it allows companies to leverage “consumer evangelists” — those customers who, once captured, undertake their own word-of-mouth marketing campaigns and help a company’s customer base evolve.

In addition, companies can take advantage of fragmented channels to perform targeted, inexpensive product research — partly because customers are already using these channels to describe what they love and loathe about companies’ offerings. Companies that collect and analyze this data can use it to improve and shorten product development cycles, which in turn can lead to increased predictability of product successes.

Web 2.0 offers a bullhorn for consumer complaints

Learn from computer maker Dell’s mistake: In 2005, it ignored a single blogger’s complaint about its poor customer service that eventually reached traditional media outlets such as the Wall Street Journal and the New York Times. In the months that followed, Dell’s customer satisfaction rating, market share and share price in the United States all plummeted.

Rather than ignoring — or fearing — criticism generated in Web 2.0 forums, companies should seize Web 2.0 tools to respond. For example, when frustrated JetBlue customers launched a blog recounting the hours that the airline left them stranded on the tarmac during a February 2007 storm, JetBlue responded with a video apology from its CEO on YouTube. The video was viewed 40,000 times in its first seven days online, during which time JetBlue received thousands of supportive e-mails from consumers. In addition, JetBlue was praised by blogger pundits for successfully incorporating social media into crisis communications.

Social media need not set off a panic. Although companies can no longer count on the power of one-way messaging, it’s also important to realize that new platforms carry new potential benefits. Furthermore, building competency with the new platforms is not an option; it’s a requirement. In the interactive context, traditional marketing campaigns are no longer enough; getting the desired message to the target audience takes vigilance and constant adjustment to the fast-changing communications landscape.

Jad Hajj is an associate for Booz Allen Hamilton in Dubai.

 

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By Invitation

Muscling the Mideast music market

by John Defterios
written by John Defterios

It took us a half hour to drive from Sheikh Zayed Road in the center of Dubai to the Al-Quoz Industrial Area where you’ll find the headquarters of Arab Media Group or AMG. Their three-letter acronym will soon have a very familiar three-letter brand running right along side it, MTV.

The one you know is celebrating the launch of its 60th channel this weekend, 53 of those outside the United States. The other, AMG, gets a chance overnight to play in the big leagues of global media, with its 10-year partnership agreement.

A great deal has been said already ahead of the launch, but let me boil it down into three headlines:

MTV is ready to enter a market of 50 music channels in the region. Their lead music channel will be built around Hip Hop and two-thirds of the population in the Arab World is under the age of 25, so there is room to grow.

What is equally important but often overlooked in the excitement about edgy programming and the rush for advertising dollars, or in this case dirhams, is what I call the third ‘D’, dialogue.

MTV sees itself as something much more than music television. It is a platform for debate to discuss drugs, health issues and can be a great vehicle to exchange cultures, music and ideas. Bill Clinton and Tony Blair jumped into MTV town hall meetings for the same reason advertisers choose this platform, to reach youth in their space.Bill Roedy, MTV’s global ambassador since 1989, not only gets excited about rap music emerging out of Saudi Arabia, but the potential to break down barriers. “I think often there are stereotypical views about the Middle East,” Roedy says, “And this will give us a chance to reflect this great culture and what I think is going to be a great product.”

His counter-part in the venture, Abdullatif al-Sayegh the 30-something CEO of AMG, did the interview with me in the traditional Arab tobb, against the MTV graffiti studio backdrop. He talks about listening to the Arab youth and engaging them through entertainment.

“Just go with the language they understand, with the language that they believe in, with the way that they can understand you better. I am sure we can fill a lot of gaps between the West and the Arab World if we do this.”

Sounds worthy, but possible. How about the backlash against the message coming from what is clearly a western brand? Not a problem. The Virgin Music Store we went into was filled with a mix of Arab and western expatriate youth, thumbing through the latest offerings and perusing New York Yankee baseball caps. Downstairs in the shopping mall, teenagers and their parents lined up at Starbucks to get their iced lattes and blended fruit drinks.

So the lesson we may all learn out of the latest launch of MTV, is that many on the streets of the Middle East may not agree with US policies in the region, but they do trust American brands and what they stand for — openness, edginess, and can we say it? Being hip.

John Defterios is the host of “CNN Marketplace Middle East,” a new weekly business program dedicated to the latest financial news and figures from across the Middle Eastern region.

 

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Financial Indicators

by Executive Contributor
written by Executive Contributor

 The Beirut Stock Exchange closed its fourth trading week in October with the year’s best index showing as the BLOM stock index reached 1373.636 points on Oct 26. Banking shares were the force behind the upwelling of optimism; the market buzz centered on talk of an acquisition offer for BLOM Bank. The bank’s GDR shares closed at $90.70 on Oct 26, its listed shares at $77.10. Bank Audi also pulled up, its GDRs reached $71.65 and its listed shares, $68. With some hopes emanating from political talks, Solidere also firmed further and closed at around $19 on Oct 26. Total value of shares traded on the BSE in the third quarter of 2007 was $257.4 million. A new run at auctioning two mobile phone operator licenses for the two existing cellular networks is scheduled for February, with distant hopes for broadening the activities on the BSE by listing part of the government’s stakes in the two operators. 

Beirut SE: Blom  (1 month)

Current Year High: 1,526.31         Current Year Low: 1,168.36

 The Amman Stock Exchange was the region’s Ramadan racer. It slowly rose from months of slumber in the mid-5000s at the beginning of the fasting period. In October, the ASE Index pulled up in a steep ascent to close at 6,713.02 points on Oct 25, its 17.3% gain for the month measuring near the top in the MENA region. Arab Bank, the bulky force behind many ASE developments, rallied by 29% between Oct 1 and Oct 25. It was the first time since February that the bank’s stock was quoted above JD 27 ($ 38.14) and the climb came ahead of its quarterly results announcement, in which the bank disclosed a 15.6% increase in net profit for the first nine months of 2007. After banking, the industrial, financial services and insurance sectors moved up on the ASE in the week to Oct 25. Noteworthy in the real estate sector was the IPO announcement by Damac Jordan for Real Estate Development with subscription in late October and early November. 

Amman SE  (1 month)

Current Year High: 6,764.93         Current Year Low: 5,267.27

The Abu Dhabi Securities Market displayed an even better mood than the Dubai bourse as far as fasting induced index gains. It soared 12% after Eid to close at 4,269.4 points on Oct 25, bringing its gains for the month to 22.2% and to 42% since the start of 2007. During Ramadan, Abu Dhabi’s key real estate stocks ALDAR and Sorouh set the pace for bullishness on the ADSM but banking and energy values also went strong. Energy company Taqa gained 17% from Oct 1 to Oct 25; banks First Gulf and NBAD moved up 25% each. Etisalat, which traded up just over 25% during the period, attracted attention on rumors that it would open its share ownership to foreign investors but denied late in the month that it would takAbu Dhabi SM  (1 month)

Current Year High: 4,291.22         Current Year Low: 2,839.16

 Fasting is good for the soul and it also looks to clear the mind with leanings for optimistic investment decisions nowhere in the GCC more than on the UAE bourses. The index moved to 4969.82 points on Oct 25, up about 17% from the first of the month. No more Mr. Sluggish, the Dubai Financial Market appears to have determined in introspection and even the weight of still lackluster Emaar with an unexciting third-quarter profit statement could not hold the DFM down. Between Oct 1 and 25, Deyaar (up 15%), Arabtec (up 22%), Air Arabia (up 24%), DFM Co (up 33%), and Amlak Finance (up 39%) were among the stocks that drove the positive market sentiment. While the end of the month saw some expected profit taking, analysts started talking about the index scaling the 5,000 points and further by end of 2007.

Dubai FM  (1 month)

Current Year High: 5,192.29         Current Year Low: 3,658.13

The Kuwait Stock Exchange embraced a new valuation level as its index closed above 13,000 points Oct 7 and stayed in record territory by its close of 13,096.4 points October 25. In peer comparison, however, the KSE paid a modest price for having been the year’s top artist in escaping from the hesitancy that held the UAE and Saudi markets in its grip in the second and third quarters during which the northern exchange soared ahead. In the one-month period from Sep 25 to Oct 25, the KSE index advanced by just under 2% while four of its neighbors took flight with increases above 10%. But since mid-October, the ratio of market cap to GDP in Kuwait exceeds two to one, far above this ratio in other GCC countries. The bourse’s oversight authorities made new attempts at increasing transparency by toughing up regulations in October but the initiative met with a backlash of criticism from major market players. Kuwait’s capital markets draft law is still under discussion in parliamentary committees.   

Kuwait SE  (1 month)

Current Year High: 13,175.20       Current Year Low: 9,164.30

 The Tadawul Index on the Saudi Stock Exchange closed at 8,364.51 points on Oct 27, an improvement of 517 points for the month. In its year-to-date performance, the gap between the SSE and GCC peers last month widened in favor of the latter, however, as the Tasi is trailing neighboring indices by between 12 and 37 percentage points. Analysts named banking and electricity as two sectors that contributed significantly to the subdued development. STC, seen as telecoms underperformer, closed Oct 27 up 4.2% on the month but third-quarter and nine-month results couldn’t impress even as the state-controlled company announced the third 12.5% quarterly dividend for 2007. The SSE led the region as far as time off for the Eid celebrations with closure from Oct 11 until Oct 20 but the exchange used the period to switch to a new trading system with wider capacities that debuted successfully on Oct 21.  

Saudi Arabia SE  (1 month)

Current Year High: 9,717.89         Current Year Low: 6,861.80

 The Muscat Securities Market rose 13.1% in October to a close of 7,942.94, a new record high. The market is up 42.3% since the start of the year. According to research by a Kuwaiti investment firm, the Omani market last month reached a price to earnings ratio of 15.50, behind Kuwait (20.20) and Qatar (19) but ahead of Saudi Arabia (15.40), the UAE (14.60) and Bahrain (13.70). BankMuscat, the sultanate’s largest bank, traded sideways with a 1.3% gain for the month; however, it reported a 40.7% increase in its nine-month profit. Debutant Galfar Engineering shot up 67% in its first two days of trading Oct 24 and 25. Telecoms operator Omantel, for which a partial sale of the government’s 70% stake to a strategic investor is expected in 2008, soared by 43.5% upon news of the planned sale. The UAE’s Etisalat is said to be among the companies interested in the stake. 

Muscat SM  (1 month)

Current Year High: 8,051.92         Current Year Low: 5,399.29

 The Bahrain Stock Exchange index closed at 2,615.85 points on Oct 25, its 2.8% rise on the month making it October’s second slowest index gainer after the Kuwaiti bourse and, after it was overtaken by the Dubai Financial Market, dropped to being the year’s second worst performer after the Saudi Stock Exchange. Banking stock played a mixed role, with a diverse showing of positive and negative profit growth in the third quarter. Gulf Finance House, which showed a 49.4% improvement in third-quarter profit, rose 12% from Oct 1 to Oct 25. Bank of Bahrain and Kuwait, which undertook a 15% rights issue on Oct 16, dropped 12% during the period. Telecoms firm Batelco closed 7% higher compared with the start of the month after retreating from a year high the stock reached on Oct 17. Newcomer Seef Properties, in its third month of trading, climbed 15% in October.  

Bahrain SE  (1 month)

Current Year High: 2,642.85         Current Year Low: 2,106.70

 The Doha Securities Market was also in full upswing in October. It started the month with a 200-point jump and closed on Oct 25 at 8,947.7 points, representing a 13.6% index increase over 30 days. Among the winners: Industries Qatar closed Oct 25 up by 17.5% compared with Sep 30; Al Khalij Bank advanced 22%, Rayan Bank 25%. Third quarter earnings were strong to exceptional for a number of companies, including Rayan Bank and also Nakilat which gained 27.5% while Q-Ship traded up 11% but reported a 56% drop in third-quarter profit on Oct 25. Also down in third-quarter profit (by 16%) was Salam International, which had a 22.5% rally till Oct 23 before profit taking set in. A rise of Gulf Warehousing Company stock accelerated after the firm on Oct 17 announced a return to profitability in 2007; the stock doubled in price in October. The DSM became a correspondent member of the World Federation of Exchanges, an international trade organization of securities markets. 

Doha SM: Qatar  (1 month)

Current Year High: 9,331.88         Current Year Low: 5,825.80

The Tunisian bourse closed at 2,532.49 points October 26, up 2.6% from its index reading of 2,468.27 on October 1. It was 8.64% up from the start of the year. Market heavyweight SFBT advanced over 5% in the course of the month. Banque de Tunisie, the bourse’s number two firm by market cap, gained 4.3% between Oct 1 and its close on Oct 26. Tunisair stayed on a slope and closed the month down by more than 12%.

Tunis SE  (1 month)

Current Year High: 2,712.33         Current Year Low: 2,294.38

 The Casablanca Exchange stayed its mellowing course with a 2.3% gain to 13,184.17 points on Oct 26. Year-to-date, the index is up 39%. In terms of price to earnings ratios, the Moroccan bourse is in a steam bath with PE of more than 28 times, above Egypt’s 19 times and above anything in the GCC but its protected status continues to be fending off correction impulses. Market aing 21% of total market cap, moved at the rate of the index, while leading bank Attijariwafa Bank closed Oct 26 with a very slight drop when compared with the first of the month. Atlanta Insurance started trading on the exchange Oct 16 aCasablanca SE All Shares  (1 month)

Current Year High: 13,506.29       Current Year Low: 8,431.06nd moved from its IPO price of MAD 1,200 ($152.7) the share to MAD 2,078 on October 26.  

  The Hermes Index of the Cairo & Alexandria Stock Exchanges vaulted over the 80,000 points line late October in post-Ramadan trading and closed at a record 81,062.75 points on Oct 25 on a single day jump by 1,200 points. Between Oct 1 and 25, Suez Cement pushed up 25% to a new year high; financial holding EFG Hermes moved up over 10% to a 17-month peak while Telecom Egypt moved to 20-month highs toward the end of the month. Real estate firm Sodic attracted buyers and continued to rise in October, adding 11%. Orascom Telecom rose 8%; Orascom Construction traded sideways but could announce it was awarded a $109 million contract to build Egypt’s first integrated solar power plant. On Oct 25 Egyptian authorities said the country’s new NILEX bourse for small cap stock (capital range $90,000 to $4.5 million) is assuming operations with modest first-year listing goals.

Cairo SE: Hermes  (1 month)

Current Year High: 82,439.79       Current Year Low: 55,853.97

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Uncategorized

World CO2 emissions from energy use

by Executive Contributor
written by Executive Contributor

 Global emissions of carbon dioxide have risen by 88% since 1971 and are projected to rise by another 52% by 2030. In 1971, the current OECD countries were responsible for 66% of the total. As a consequence of rapidly increasing emissions in the developing world, the OECD contributed 49% to the total in 2004, but this is expected to fall to 38% by 2030. By far, the largest increases in non-OECD countries occurred in Asia, where emissions in China have risen by 5.5% per annum between 1971 and 2004. The use of coal in China increased levels of CO2 by 3.2 billion tons over the 33-year period.

Two significant downturns can be seen in OECD CO2 emissions, following the oil shocks of the mid-1970s and early 1980s. Emissions from the economies in transition declined over the last decade, helping to offset the OECD increases between 1990 and the present. However, this decline did not stabilize global emissions as emissions in developing countries grew.

Disaggregating the emissions data shows substantial variations within individual sectors. Between 1971 and 2004, the combined share of electricity and heat generation and transport shifted from one-half to two-thirds of global emissions.

Fossil fuel shares in overall emissions changed slightly during the period. The relative weight of coal in global emissions has remained at approximately 40% since the early 1970s. The share of natural gas has increased from 15% in 1971 to 20% in 2004. Oil’s share decreased from 49% to 40%. Fuel switching and the increasing use of non-fossil energy sources reduced the CO2/total primary energy supply (TPES) ratio by 7% over the past 33 years.

Employment in companies under foreign control

As a percentage of total employment

The shares of foreign affiliates in manufacturing employment show considerable variation across OECD countries ranging from under 10% in Switzerland, Turkey and Portugal to 30% or more in Sweden, Belgium, the Czech Republic, Hungary, Luxembourg and Ireland. Employment in the service sector foreign affiliates is lower in all countries although as noted above, comparability is affected in several countries by the exclusion of employment in banking and insurance services.

In the period from 1997 to 2004, employment in foreign-controlled manufacturing affiliates grew or remained stable in all countries for which data is available except Spain and Ireland, where the rate slightly fell and in Austria, Portugal and the United States where the shares have remained fairly stable. Particularly sharp increases were recorded by the Czech Republic, Belgium, Finland, Norway, Poland and Sweden.

Remittances to major remittance receiving countries

As a percentage of GDP

The issue of immigrant remittances is not a new one but it has acquired a certain prominence in recent years, because of the realization that immigrants are transferring to their home countries amounts that significantly exceed the development aid given to the same countries by host-country governments of the countries where they are working. In certain countries, in particular Honduras, Lebanon, Bosnia-Herzegovina and Haiti, the amounts transferred are equivalent to close to 20% of the national gross domestic product.

As migration continues to increase (by over 3 million persons per year among long-term migrants as well as significantly many short-term migrants), the amounts transferred will continue to increase. Immigrants tend to transfer more in the early years after arrival but less as time goes on and the settlement decision becomes more definitive.

The presence of many Caribbean and Latin American countries in the table reflects the importance of the United States as a major destination country for persons from these countries.

A certain number of OECD countries appear towards the bottom of the table, not all of them for migration-related reasons, however. The remittances for Belgium in particular reflect essentially the large number of residents of that country working cross-border in the Netherlands and especially Luxembourg.

Road motor vehicles

Per thousand population

 In 2005, ratios of motor vehicles to population range from 780 per thousand inhabitants in Portugal to 86 in Turkey. Over the periods shown, ratios of vehicles to population increased in all countries except in the United States. Sharp increases of this ratio occurred in Greece, Poland, Iceland and the Russian Federation.

In 2005, road fatalities per million inhabitants ranged from over 237 per million inhabitants in the Russian Federation to 46 in the Netherlands. Over the periods shown, rates decreased in all countries except in the Russian Federation with particularly sharp falls in Portugal, Slovenia, New Zealand, Luxembourg, Finland and Spain.

Road fatality rates per million inhabitants are an ambiguous indicator of road safety since the number of accidents depends to a great extent on the number of vehicles in each country. Rates per million vehicles are affected by driving habits, road design and other factors over which governments may exercise control. In 2005, fatality rates per million vehicles were less than 100 in the Netherlands, Iceland, Norway, and Switzerland, but exceeded 400 in Slovak Republic and Korea. Note that low fatality rates per million inhabitants may be associated with very high fatality rates per million vehicles. For example, a country with a small vehicle population may show a low fatality rate per million inhabitants but a high fatality rate per vehicle.

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North Africa

Tunisia Increased Learning

by Executive Contributor
written by Executive Contributor

The process of reforms initiated by the government during the last 20 years has lead to a quantitative change in the educational system in Tunisia. After having succeeded at raising the attendance rate, the country must now take on the challenge of modernizing and improving the quality of its educational system.

Free schooling and the recent reforms have resulted in an attendance rate of 99% for children aged 6 and a literacy rate of 94.3% for ages 15 to 24, according to figures released by the Ministry of Education. Such figures are impressive in comparison to most other states in the MENA region.

Nevertheless, the education budget has created a solvency problem due to the demand and heavy burden on public finances, claiming nearly a third of the state’s general budget, or 7.5% of the country’s GDP.

The increasing number of students, which should reach some 500,000 by 2009, will further burden the slice of the budget allotted to education, especially if the state system remains predominant. In competition with the free public system, private institutions still remain largely “marginalized”, with student bodies made up mostly of foreign students and the children of affluent Tunisian families.

Quality issues

Faced with this growing demand, the challenge concerns not only the ability to accommodate students but above all, the quality of education received. The growing need for teachers explains why a large proportion of the 19,000 teachers is recruited without experience and are themselves still a part of the student population. These teachers are often saddled with responsibilities exceeding their capabilities, a fact which is affecting education quality.

In fact, many professionals have noted a significant decline, reflected by low skill levels among the new generations of graduates, requiring companies to invest in the training of their employees. These conditions contribute to the existence of a genuine market for private institutions.

These challenges make the renovation of the education system the focus of the school year 2007-2008, aimed at improving the quality of instruction. Lazhar Bououny, the minister of higher education, scientific research and technology, has emphasized the need to “create a partnership among businesses, the educational system and professional training programs, by developing new skills and by adapting university programs to the needs of the economy, in order to assure a better level of employability among graduates.”

The unemployment rate among young graduates is estimated at above 25% according to analysts (18-19% according to official figures). The goal is thus to increase the number of students in the most promising sectors and to achieve increased employability (especially in the service sector and the new information and communication technologies) through the creation of new educational departments in line with university education in the countries of the EU.

The BMD (bachelor’s-master’s-doctoral) reforms officially adopted in July 2005 are part of this framework. The central objective of these reforms is to raise the level of the tertiary educational system in order to meet international standards by facilitating the equivalence of Tunisian diplomas with foreign diplomas and adapting training programs to employers’ needs through the professionalization of university studies. The BMD scheme has received 48 million euros from the EU under its program to modernize higher education.

The implementation of the bachelor’s degree will be followed by the master’s degree in 2008 and the doctorate in 2010. While 59 out of the 190 institutions of higher education have already adhered to the BMD system, this figure is expected to reach 107 in 2008.

Close collaboration among representatives from the field of public education and the private sector will lead to the preparation of a workforce better qualified and more able to compete in the national and international economy. As Tunisia does not have the resource wealth of its two biggest neighbors, Algeria and Libya, creating a smart workforce remains the best way to maintain economic growth.

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North Africa

Morocco Growth Withers

by Executive Contributor
written by Executive Contributor

Morocco faced a disappointing setback to its recent positive GDP growth, plummeting from 9.3% during Q3 in 2006 to 1.7% in Q3 2007. The High Commissariat for Planning released a report in September noting this decelerating growth rate and stated that a production output drop of 20.9% in agriculture is largely responsible, a situation which arose from failed crop harvests and prolonged drought this summer.

A limited supply of exportable agricultural produce (agriculture accounts for 11% of total export value in Morocco) required the country to import commodities it is used to providing in surplus, such as wheat, flour and cereal.

Wheat yields for 2006/2007 dropped to 20 million quintals, down from 90 million quintals in the previous season. The national stock of wheat was only sufficient to provide flour for two months, forcing the government to import over 3 million quintals of wheat.

This indicator flags the country’s reliance on agricultural output, which provided $67.4 billion of GDP in 2006 (14.1% of total GDP). Agriculture remains important in the kingdom, currently employing 40% of the active labor force. With the majority of Moroccan crops highly rain-dependent, this sector often produces fluctuating yields. Key crops such as grapes, wheat and fruits, which are all grown in the north and rely on the area’s milder climate with higher precipitation levels, have suffered volume decreases of up to 80% (in the case of wheat) due to adverse weather conditions.

Development challenges

Rain in Morocco never falls at the same time of the year, and never falls in the same area. This irregularity poses a huge challenge for the agricultural sector, as only 11.5% of agricultural lands are properly irrigated.

key crops such as wheat and fruits have suffered volume

decreases up to 80%

Reliance on rainfall is therefore a development challenge for the Moroccan economy. Despite diversification efforts, agriculture remains one of the country’s key income providers. Agricultural land covers 8.7 million hectares, 20% of the country’s total area. Cereal crops cover the greatest area, accounting for 68% of land under production.

Moroccan agricultural production provides a core component of the country’s demand for primary food products. In 2006 domestic production provided 72% of domestic cereal demand, 25% of oil, 87% of milk and 100% of fruit and vegetables.

This year, the government was forced to not only to import but also to raise consumer prices to counteract import costs. The value of Morocco’s wheat imports for 2007 at the end of July exceeded 287 million euros ($407 million). This represented an increase of 66% compared with 2006 imports, and goes a significant way to explain the ensuing price hikes for basic foodstuffs.

The period of Ramadan saw the climax of social unrest surrounding price hikes, with sit-ins, protests and violent clashes between hungry rioters and security forces. This compelled the government to lower prices during the holy month, which knocked 7% off the price for vegetables but did not address the underlying issue of dependency. 

The government has recently received donor aid money from the African Development Bank ($63 million) and the US Millennium Challenge Compact ($700 million), a slice of which has been earmarked for rural development. Current projects still prioritize rural infrastructure, linking remote communities with their nearest trading depot.

It seems, however, that the pressing problem is addressing water dependency in a country which cannot afford to rely on rainfall for crop success. The World Bank has recently indicated that with Morocco using 90% of its economically accessible water resources, figures for 2035 project that 35% of Moroccans could have access to less than 500 cubic meters per capita (current per capita water access is 700 cubic meters).

Much remains to be done as Morocco addresses its water dependency. Irrigation techniques, desalination methods and exploiting untapped reserves are key areas to be explored. Although Morocco has been keen in the past to increase the number of dams and other water storage mechanisms, inefficiency in distribution has reduced the effectiveness of such infrastructure works. However, should natural gas exploration plans prove successful, the question of how to pay for the energy needed to fire desalination plants could be solved.

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North Africa

Algeria Property power

by Executive Contributor
written by Executive Contributor

After nosing around the market for the past few years, Emaar of the UAE now appears ready to dive head first into the Algerian real estate market. On October 3, the company announced plans for four multi-purpose developments in and around Algiers. Worth $20 billion, Emaar’s new venture represents the largest single investment in the Algerian property sector.

The new scheme dwarfs the company’s previous largest development in North Africa, the $14 billion Century City in Tunisia, where work began in August this year under the aegis of Sama Dubai.

The center piece of Emaar’s Algerian venture will be in Sidi Abdullah, an upmarket development covering up to 1500 hectares some 30 kilometers from the capital. The Sidi Abdullah project, slated to be an “education” city by the Algiers government, had long been stalled owing to the political uncertainty of the 1990s. Although infrastructure and roadwork will need to be brought, a number of developers are beginning to now move in on the creation of this new satellite city for the capital. Emaar’s other three endeavors include a modern health care city at Staouali and a tourist resort at Colonel Abbes to the west of Algiers, as well as a mixed-use waterfront redevelopment on Algiers Bay.

Creating a positive investment climate

Emaar’s management said that, when finished, the four developments will create several thousand jobs in the tourism, information technology and health sectors, and will encourage foreign direct investment in the Algerian economy.

According to Mohamed Ali Alabbar, chairman of the Dubai developer, Algeria’s strong growth rate and its program of economic reforms were among the motives behind Emaar buying into the country.

“Radical economic changes proposed by President Abdelaziz Bouteflika and Prime Minister Abdelaziz Belkhadem have created a favorable investment climate that complements Emaar’s plan for international expansion,” he said.

Emaar is not the only Dubai firm with projects envisioned or already underway in Algeria. Harbor and cargo handling management firm Dubai Ports World is still seeking to clinch an agreement that will see it take a 50% stake in the Djen Djen container terminal. However, while the deal could earn Algeria $70 million and see a further $150 million in investments and upgrading of facilities, it is being opposed by local trade unions, who fear job losses if the Emirate’s company wins control of the port.

In March, the Dubai Aluminum Company (DUBAL) joined forces with Abu Dhabi’s Mubadala Development Company and Algeria’s national oil and gas company Sonatrach to develop the country’s first aluminium smelter. With a $5 billion budget, the project was the largest foreign investment in Algeria at the time.

While good news for the Algerian economy, Emaar’s entry into the Algerian property development sector is not exactly recent news, with the projects first being floated last year.

However, the at times lengthy negotiation and approval process for foreign projects in Algeria has added to the time lag between the developments first being discussed and the ink drying on contracts. This is despite the fact that the Algerian president has close ties to a number of Emirati notables, having spent a period of political exile in the UAE during the 1980s. In fact, it was in October last year that Hamid Temmar, Algeria’s minister of participation and investment promotion, announced that the government had initially approved the Emaar projects, which were first presented to the president in August 2006.

During a visit to Abu Dhabi in mid-June, Belkhadem said that developers whose projects had been waiting to be granted final approval for up to a year would be getting “good news” soon. One of those on the waiting list was Emaar.

The time lag for many projects in Algeria was underscored by the annual report issued by the World Bank in late September on ease of doing business. The report showed that Algeria had actually slipped nine places down the rankings, placing it 125th out of 175 countries, and stated that investors had to go through 14 separate stages to register and open a business.

Nevertheless, these difficulties do not appear to be enough to deter potential developers as foreign investors continue to show enthusiasm for Algeria.

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