GCC

Supermarket They’ve got it all

by Executive Contributor
written by Executive Contributor

With gigantic malls opening around Gulf cities, the retail food industry has morphed considerably in the past ten years and supermarkets, critical elements in the food distribution network, are playing a more important role in the retail chain by providing a greater variety of food at lower cost.

Saudi Arabia and the UAE markets are the heavyweights of the GCC food retail industry. “UAE hypermarkets have witnessed a 105% growth in the last four years while supermarkets progressed by 77%,” said Himanshu Vashishtha, managing director at The Nielsen Company UAE, the privately-owned global information, research and media company. “In KSA, hypermarkets have grown by 45% and supermarkets by 21%,” he added.

According to ShopperTrends 2007, an annual study recently released by Nielsen, Saudi households spend an average of $400 (1,500 Riyals) per month on household shopping — a figure closely matched by UAE consumers — 40% of which goes towards fresh food such as meats, fruits and vegetables.

Large players dominate the GCC retail food market: Panda and El Watni are positioned atop the KSA food chain while Carrefour, Spinney’s and Lulu’s — a company targeting Indian expatriates — are the main market breakers in the UAE. The Emirates market also includes large cooperatives in Sharjah and Abu Dhabi which operate in collaboration with the government. “These outlets are impressive in terms of size and turnover and offer a varied assortment of products, but they need to improve the quality of service rendered. Such structures appeal to locals and feature bargain offers all year-round, without being necessarily cheaper than other chains,” said Vashishtha. 

Targeting a diverse population

The UAE market is extremely diverse: Gulf nationals amount to 20% of the overall population of Arabs, Indians and Westerners. “Market diversity affects significantly products lines carried by hyper and supermarkets alike, with distributors trying to cater to different market segments by featuring special ethnic food sections,” underscored Vashishtha. Supermarkets have also learned as well to adapt to growing population of singles — mainly caused by high costs of living as males send their spouse and families back to their home country- thus dedicating special sections for prepared meals.

Furthermore, supermarkets target various categories of consumers:  Lulu’s is mostly sought after by the Indian community while Spinney’s is favored by Westerners. Most UAE consumers perceive shopping as a matter of convenience. They have also recently adopted the concept of shoppertainment, a blending of shopping and entertainment. “With most supermarkets located in malls, consumers tend to identify grocery shopping as an outing for the entire family. For instance, a typical family will buy groceries, shop for clothes, enjoy a meal and watch a movie,” explains Vashishtha. The trend also seems to exist in Saudi Arabia where only few entertainment choices are available. In the KSA, two other factors shape consumer behavior: the prohibition against women driving implies that females often rely on husbands, sons, or brothers for their grocery shopping. The other factor is that grocery stores do not offer delivery services due to restricted access to residential areas.

The operation manager observed that GCC consumers are generally loyal to brands; they seek good bargains but are rarely aware of how much money they have actually saved on their purchases. “A supermarket can increase its footfall by having frequent promotional offers. This tool is more effective when it comes to Indians and westerners who are usually more price conscious than Arabs,” he said. 

Catering to Islamic culture

The Islamic culture widespread in the GCC countries has also reflected on product mixes as well as design of points of sales. “Hyper-and supermarkets will feature isolated special sections dedicated to the sale of pork products, a model that is rarely duplicated by groceries because of constraints such as the limited space available,” says Vashishtha. On average, the overall design of GCC outlets meets western standards, but contrarily to Europe, stand alone supermarkets are not common phenomena and are mostly located within shopping malls. Grocery stores, which seek a different mix of fast stock keeping units (SKUs), can also be found either around or attached to residential areas.

Most super- and hypermarkets in the GCC region such as Carrefour — owned by the Al Futhaim group — are franchised and monitored by a global partner. On the other hand, some chains like Spinney’s are directly owned by a mother company. As Vashishtha concluded, “The nationality of the chain has little or no impact on consumer behavior.”

KSA main players
Azizia Panda
Azizia Panda Hyper
Al Othaim
Giant
Bin Dawood/Al Danoub
Al Raya
Carrefour

UAE main players
Carrefour
Abu Dhabi Co-op
Spinney’s
Lulu/EMKE
Al Safeer
Sharjah Coop

Source: The Nielsen Company

Shopping Modality

The Nielsen Company — which also owns marketing information brands (ACNielsen), media information (Nielsen Media Research), business publications (Billboard, The Hollywood Reporter, Adweek), trade shows and the newspaper sector (Scarborough Research) — has released this month a study on Shopping Modality highlighting consumers’ four shopping modes. Depending on the type of items purchased, shoppers can be in auto-pilot mode (grab and go), variety mode, (seeking new tastes and formats), susceptible to “buzz” mode, thus open to engaging advertising or are simply on the hunt for a bargain (on the lookout for price discounts and promotions). “The study was led all over the world as well as in the KSA and the UAE, which are the most relevant markets in the region in terms of size,” says Vashishta. 

According to the study, shoppers don’t waste energy on everyday decisions. To simplify their lives, they often shop in grab-and-go mode, reaching for the brands they usually buy without checking label or price. In these moments shoppers are not willing to try anything new, and marketers need to tailor their strategies to such behavior for a more effective reach. Items such as coffee, cereal, cheese, margarine and mayonnaise fall within a shoppers’ “auto-pilot” mode. For this particular category, the implication for marketers is that they need to avoid radical repositioning or pack changes if they are leaders, not to be negatively perceived by consumers. 

However, the same rules don’t apply to buzz-activated categories such as chocolate, energy, sports and yogurt drinks. “Customers radar is fully turned on as they actively explore alternatives. Marketers of ‘buzz’ categories need to generate ‘buzz’ through exciting advertising, new introductions and innovative packaging that leaps off the shelves to grab the consumers’ interest and attention,” said the study.

With variety-activated categories, auto-pilot mode is also often switched off when shoppers cruise frozen foods and cold cereal aisles. Consumers get bored with the same choices, and are on the lookout for a “household chef” who can deliver variety and surprise. “In this context, exciting and informative packaging plays a major role in purchase decision as consumers are browsing actively and are on the lookout for interesting and new product innovations. Biscuits, chewing gum and salad dressings also fall into the variety seeking shopper mode,” underlined the report.

Finally, bargain-hunting activated categories are driven by price comparison and promotions. This category includes canned tuna and tomatoes, cheese, canned fruit and pasta sauce.

According to the report, “It all comes down to marketers knowing what ‘mode’ shoppers are in when they shop for specific products or categories.”

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GCC

GCC Playing family fortunes

by Executive Contributor
written by Executive Contributor

It could well be argued that local firms in the UAE have an easy time of it. Thanks to favorable company laws, a demographic explosion and soaring oil prices, the major groups — which are almost all family-run — have seen their fortunes multiply over the past few years without needing to open their capital to outside investors.

But change now looks to be afoot. A recent amendment to IPO regulations, as well as the prospect of a key commercial law being relaxed, means that the traditional family business model might require some tweaking in the future.

No one believes that the dominance which the bigger family firms still enjoy in the economic landscape of the UAE will be substantially reduced, but for various reasons, that landscape could well look slightly different in five years’ time.

List chance

One key change may start on the country’s capital markets in Dubai and Abu Dhabi. At the end of August, a federal decree amended regulations on capital markets listings to allow family companies to float a minimum of 30% of their capital. Under the old rules, which dated back to 1982, firms had been required to list at least 55%.

“Before the new rules came in, it was somewhat unattractive for certain family businesses to list their capital, as they would have to float a majority stake and lose full control,” says Ahmad Shahin, senior associate in the research department of Shuaa Capital in Dubai. “We now expect to see a lot more IPOs from family-owned firms here.”

In general the move, which had been under discussion for over two years according to local market watchers, has been welcomed in the business community. Although it is too early to judge its impact, a number of large family-owned concerns have already expressed interest in partial listings.

Al Habtoor Engineering, part of the giant Al Habtoor Group, has said that it would consider opening its capital to fund further expansion throughout the region. Another large family-owned company, the Al Fahim Group, issued a press release saying that it would consider listing its real estate and hotel units under the new regulations.

There are also reports that Dubai Ports World, which is part of the state-owned Dubai World group, plans to list 20% of its shares on the Dubai International Financial Exchange (DIFX) before the end of the year.

“There are a lot of key industries that are completely absent from the capital markets in the UAE,” says Shahin. “The retail sector, among others, is one sector that people would really want to tap into, and we hope to see a wider range of listings available for investors.”

Others say that it will take time for newly listed family-owned groups to meet the standards of reporting and corporate governance that outside investors might expect.

“We need to have more liquidity in the market before more family firms can successfully list,” says Ahmed Hamad, a trader with the Prime Emirates brokerage in Abu Dhabi. 

“There are already opportunities for foreign or institutional clients, and I think that such clients would be reluctant to invest in family-run firms in which they have no control. It’s more likely that local investors and high net worth individuals from the GCC will invest in these types of companies, should they list.”

Agents of profit

Another potential regulatory change might trigger a different shift in the family business model. Many of the largest such firms in the UAE have built empires around the country’s agency laws, which stipulate that foreign companies wishing to establish new entities, or import and distribute their products on Emirati soil, must do so through a local partner. This partner must control at least 51% of the company.

The laws have been particularly beneficial to local families in sectors like retail and import distribution, where a kind of snowball effect can occur. Foreign firms looking to enter the UAE market are more likely to choose a firm which already has a track record in distributing similar goods, which reinforces their position in the market.

But earlier this summer, the UAE’s Minister of Economy, Sheikha Lubna al-Qassimi, announced the submission of a draft law which would permit 100% foreign ownership in certain sectors.

“The company law has been handed to the justice ministry and could be ready this summer,” said Sheikha Lubna in June. There is no news yet as to what sectors it may apply to, but, “preference will go to companies that help to attract cutting edge technology and bring major benefits to the national economy,” she said.

Such a change has apparently been on the drawing board for some time, although encountered opposition as it could potentially erode the power of influential local groups who play a part in decision making at the highest level.

“There is so much money and power vested in the large local families that any dilution will necessarily be slow,” said one Dubai-based analyst who declined to be named. “There is a lot at stake, and it will not be given up easily.”

The issue is also thought to have contributed towards the breakdown of talks on a possible US-UAE free trade agreement, which faltered earlier this year, whilst the World Trade Organization (WTO) has identified the need to amend the companies law in order to sustain foreign investment in the long-term. In the short-term though, FDI continues to reach new heights, growing from $10.9 billion in 2005 to $12.8 billion in 2006.

Going abroad

“There is so much money and power vested in the large local families that any dilution will

necessarily be slow. There is a lot at stake,

and it will not be given up easily”

Perhaps looking to the longer term, with fiercer competition in their small home markets, some of the UAE’s largest family groups are starting to go regional and even global — a move which might also encourage more firms to list or access the debt markets in order to fund their growth.

Leading this global expansion are the holding groups and investment vehicles which are ultimately owned by the ruling families of the UAE, and particularly those in Abu Dhabi and Dubai.

The Abu Dhabi Investment Authority (ADIA), for instance, is said to boast over $500 billion in assets generated from the Emirate’s oil revenues, which are the largest in the country. The vast majority of its investments are thought to be held outside of the GCC in relatively conservative bets such as treasury bills, prime real estate and financial services.

Dubai has been brasher, with investment arms like Dubai International Capital and Istithmar not afraid to make high-profile purchases in the US or the UK — including bids for football clubs, household-name hotels and major tourist attractions, with the best-known example being Dubai’s bid for a number of US ports, which met major political opposition and was eventually dropped.

Other family companies are following suit. UAE property developers and construction companies have been increasingly active across the Arab World, most notably in building the region’s “mega-projects,” while retail developers tell a similar story. The Majid al-Futtaim  Group, for instance, has brought the French supermarket Carrefour to various locations in the Middle East and wants to roll out more malls across the region.

Future horizons

Interesting times, then, could lie ahead for the UAE’s larger family companies. The head of one business intelligence agency in Dubai predicts a merger and acquisition (M&A) boom, a “giant card game” which would see assets swapped and consolidated as family conglomerates streamlined to focus on a smaller number of core activities which they can take regional or even global.

Yet the conclusion that most analysts make, and it’s a fairly natural one, is that any erosion of the families’ power in the UAE will be sluggish, even if the new companies law does come into force. It may in any case be counterbalanced by overseas expansion, through a greater willingness to access debt markets or float portions of their capital under the newly-introduced IPO rules. But as UAE firms continue to make high-profile acquisitions in overseas markets which permit 100% foreign ownership, external pressure is likely to mount on the Emiratis to grant foreign companies the right to do the same in the UAE. The trick might lie in balancing the interests of the wealthy, politically influential local families against the need to further open up the local market and sustain growth.

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Levant

Palestine Requiem for Gaza

by Executive Contributor
written by Executive Contributor

If figures ever speak for themselves, they certainly do so in the case of the Gaza Strip. Every self-respecting UN agency in recent moths has issued a report with the most alarming figures and warned of a devastating economic and humanitarian crisis, yet no one seems to hear. To achieve certain political goals, i.e. the downfall of the Hamas government, it appears Isreal has carte blanche to do what it must, even if it brings the entire population to its knees.

On September 19, the Israeli government announced it is henceforth regarding Gaza as a “hostile entity,” which would allow for cutting off water, fuel and electricity supplies. This is only the latest in a series of measures that have virtually isolated Gaza from the world. While international aid is allowed in, borders have been sealed and essentially. The economic and humanitarian consequences are overwhelming.

The United Nations Relief and Works Agency (UNRWA), the UN body concerned with the plight of Palestinian refugees, reported that 850,000 Gazans currently survive on emergency food hand-outs, while 87% of the 1.5 million population live below the poverty line set at a humble $2.4 a day.

The World Bank, too, has joined the chorus of alarm. “The pillars of Gaza’s economy have weakened over the years,” stated to Gaza Faris Hadad-Zervos, country director for the West Bank and Gaza. “Now, with a sustained closure on this current scale, they would be at risk of virtually irreversible collapse. A solution must be reached very soon, if not immediately. Otherwise, Gaza’s dependence on humanitarian assistance could become a long-term and comprehensive situation.”

Complete isolation

Yet another UN agency, the Office for the Coordination of Humanitarian Affairs (OCHA), issued a similar warning in August. It pointed, among other examples, at the fact that some 600 Gaza-based garment factories have closed down, laying off 25,000 employees, due to a shortage of raw materials. Likewise, as no construction materials are allowed to enter, nearly all of the 250 cement, tiles and bricks factories are no longer operating. The Palestinian Federation of Industries estimates that over 75% of Gaza’s of 3,900 factories have closed.

It is worth recalling that the 1994 Paris Protocol on Economic Relations between Israel and the Palestinian Authority stipulates “there will be free movement of industrial goods free of any restrictions including customs and import taxes between the two sides” and “the Palestinians will have the right to export their industrial produce to external markets without restrictions.”

Although the Paris Protocol also demands there be free movement of agricultural produce, free of customs and import taxes, OCHA has forecasted that Gaza’s farmers are likely to cultivate less than 50 hectares in 2007, due to shortages in raw materials and the unlikelihood of exporting any goods. During the 2006 season, more than 300 hectares of various crops were cultivated.

Finally, the UN Conference on Trade and Development (UNCTAD) estimates that the Palestinian economy has lost one-third of its production capacity since 1998. According to UNCTAD’s Mahmoud Elkhafif, the restriction of movement for people and goods from, to and even within the West Bank and Gaza over the past seven years “have effectively isolated the Palestinian economy from the rest of the world.”

The West’s problem with Hamas

The acute economic malaise of “the gateway between Asia and Africa,” as Napoleon once called it, is first of all caused by the Israeli reaction to the coming to power of Hamas in 2005, yet has its roots in Israel’s overall failure to implement the 1993 Oslo Agreement and 1994 Paris Protocol.

Israel, and most of the western world, will only recognize a Hamas government if the latter recognizes Israel’s right to exist, renounces all violence, and acknowledges all previous agreements, including the guiding principles of the Road Map. Hamas is willing to agree to a cease-fire, but refuses to recognize Israel in its current shape and form, while it refuses to lay down its arms as it has a “right to resist” the occupation.

gaza is like a schoolboy who receives his weekly pocket money from his father but, when he doesn’t behave, receives nothing”

In an attempt to force Hamas to accept the above conditions, or force the population to oust Hamas, Israel has not only closed down borders, but also refuses to hand over some $600 million worth of custom duties it collected on behalf of the Palestinian Authority. The West condones the policy, while it cut down on aid to the beleaguered Gaza Strip.

Custom duties and foreign aid are Gaza’s main sources of income. According to UNCTAD, international donor support between 2000 and 2005 averaged $1.2 billion annually, which was reduced to $900 million in 2006. According to Usama Hamdan, Hamas’ representative to Lebanon, one cannot really speak of economics in Gaza.

“Gaza is like a schoolboy who receives his weekly pocket money from his father but, when he doesn’t behave, receives nothing.” According to Hamdan, the problem of foreign aid is not only that the government is not free in deciding how to spend it, but also that Israel, for security reasons, has to grant permission for any major investments. “In 1996, Israel prevented the establishment of a Japanese factory to produce car parts,” Hamdan said. “That was an investment of some $300 million and would’ve provided some 6,800 jobs.”

According to the Oslo Accord, Israel has the right to control all in- and outgoing products from the Palestinian Territories, as well as its water household, while it should grant permission for any investments made in Gaza or the West Bank. The reality is that anything that could be a threat to Israel’s domestic production is not allowed. As a consequence, Palestinian industrial output has stayed virtually unchanged since the 1960s, representing some 8% of GDP.

The Paris Protocol formalizes the customs union with Israel that has officially been in effect since 1967, and calls for free trade. Already in 2001, Claude Astrup and Sebastian Dessus concluded in a World Bank study that the Palestinian economy since 1994 had only slowed down “due to poor implementation (…) as restrictions on the movement of goods continue.”

“All trade in and out of the Palestinian Territories must go through Israel,” Hamdan explained. “Gaza can still import through Egypt and profit from tax exemptions there. Yet no goods are allowed to enter through the Rafah crossing. All goods must go through Israel, where custom duties are due, before entering Gaza, where again duties are due. Not only does this practice make goods unnecessary expensive, it is Israel that collects custom duties on behalf of the PA, which it refuses to transfer.”

To illustrate the fact that the current crisis in Gaza, though aggravated by recent Israeli measures, has existed for many years, it is useful to return to 2003, when Raji Sourani, director of the Palestinian Human Rights Center (PHCR) in Gaza, warned me not to focus on the Second Intifada as the problem to solve, but on the situation that caused the 2000 popular uprising.

Restrictive policies by Israel

“The Israeli reaction has always been disproportional and excessive,” he said. “But the Intifada didn’t fundamentally change anything. By the end of the interim agreement on May 4, 1999, the Palestinian territories were suffering from total economic suffocation and de facto apartheid, as neither the Oslo Peace Agreement or the Paris Protocol was implemented.”

Sara Roy, Professor at the Center for Middle Eastern Studies at Harvard University, could not agree more. “The pauperization of Gaza’s economy is not accidental but deliberate, the result of continuous restrictive Israeli policies (primarily closure), particularly since the start of the current uprising, and more recently of the international aid embargo imposed on the Palestinians after the installation of the democratically elected Hamas-led government,” Roy wrote in her paper The Economy of Gaza.

“One only need to look at the economy of Gaza on the eve of the uprising,” she continued, “to realize that the devastation is not recent. By the time the second Intifada broke out, Israel’s closure policy had been in force for seven years, leading to by then unprecedented levels of unemployment and poverty.”

And all the while, the world has been watching in silence. As it is watching today how half the population would starve to death if there were not any food hand-outs, while some 86% of the population makes less than $2.4 a day. On top of it all, the population of Gaza is due to increase from 1.4. million today to some 2 million by 2012. Every UN agency, and even the World Bank, have warned the consequences will be disastrous if the Israeli restriction on movements of goods and people are not eased.

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Financial Indicators

Municipal waste generation

by Executive Contributor
written by Executive Contributor

 The amount of municipal waste generated in a country is related to the rate of urbanization, the types and patterns of consumption, household revenue and lifestyles. While municipal waste is only one part of total waste generated, its management and treatment often absorbs more than one third of the public sector’s financial efforts to abate and control pollution.

The main environmental concerns relate to the potential impact from inappropriate waste management on human health and the environment (soil and water contamination, air quality, and land use).

The quantity of municipal waste generated in the OECD area has been rising since 1980 and exceeded 590 million tons in recent years (570 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 capital.

Obesity

Percentage of population aged 15 and above with a BMI greater than 30

Obesity is a known risk factor for several diseases such as diabetes, hypertension, cardiovascular disease, respiratory problems (asthma) and musculoskeletal diseases (arthritis). At an individual level, several factors can lead to obesity, including excessive calorie consumption, lack of physical activity, genetic predisposition and disorders of the endocrine system.

More than 50% of adults are now defined as either being overweight or obese in no less than 10 OECD countries: the United States, the United Kingdom, Mexico, Australia, Canada, Greece, New Zealand, Luxembourg, Hungary and the Czech Republic. By comparison, overweight and obesity rates are much lower in the OECD’s two Asian countries (Japan and Korea) and in some European countries (France and Switzerland), although overweight and obesity rates are also increasing in these countries. Focusing only on obesity, the prevalence of obesity among adults varies from a low of 3% in Japan and Korea to a high of 32% in the United States.

Based on consistent measures of obesity over time, the rate of obesity has more than doubled over the past 20 years in the United States, while it has almost tripled in Australia and more than tripled in the United Kingdom. The obesity rate in many Western European countries has also increased substantially over the past decade.

Gender differences are striking. In all countries, more men are overweight than women, but in just over half of OECD countries, more women are obese than men. Taking overweight and obesity together, the rate for women exceeds that for men in only two countries — Mexico and Turkey.

Net migration rate

Per 1,000 population

 Migration movements include not only entries of persons of foreign nationality, on which public attention tends to be focused; they also include movements of nationals and emigrants. Net migration summarizes the overall effect of these movements. It is in more and more OECD countries the main source of increases in population.

Since 1995, Poland is the only OECD country among the countries shown in the table that has shown negative net migration on a systematic basis. Among countries showing significant increases in population (> 0.5%) over the 1995-1999 period as a result of international migration are Australia, Canada, Spain, Ireland and Luxembourg. Since then Italy, Portugal and Switzerland have joined the list. Former emigration countries (Ireland, Italy, Portugal and Spain) thus figure prominently among high net migration countries, a trend which is likely to continue.

There are nonetheless a number of countries where net migration is currently contributing less to population increase than was the case five to 10 years ago. These include Luxembourg, Greece, Denmark, the Netherlands and Germany. Those where it is contributing more are the same four former emigration countries as well as Austria and Switzerland. Indeed, all but eight OECD countries are showing a larger contribution to population growth from net migration in recent years. With the retirement of baby-boomers in the near future, to be replaced by smaller entering labor force cohorts, labor supply needs may well increase and OECD countries see a continuing rise in net migration.

Household net saving rates

As a percentage of disposable household income

 Household saving is the main domestic source of funds to finance capital investment, which is a major impetus for long-term economic growth.

Household saving rates are very variable between countries. This is partly due to institutional differences between countries such as the extent to which old-age pensions are funded by government rather than through personal saving and the extent to which governments provide insurance against sickness and unemployment. The age composition of the population is also relevant because the elderly tend to run down financial assets acquired during their working life, so that a country with a high share of retired persons will usually have a low saving rate.

Over the period covered in the table, saving rates have been stable or rising in Austria, France, Italy, Norway and Portugal but have been falling in the other countries. Particularly sharp declines occurred in Australia, Canada, Japan, the UK and the US. Negative saving — which means that consumption expenditures by households exceeded their income — was recorded in some countries, in particular in Australia, Denmark, Greece and New Zealand.

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Financial Indicators

by Executive Contributor
written by Executive Contributor

 The Beirut Stock Exchange’s BSI closed at 1,277.34 points on Sept. 26, representing a year-to-date improvement in the index of 7.79%. In contrast to the country’s weak economy, there was good news for several equities. Real estate firm Solidere edged above $17 in the last week of September after trading in the low to mid-$16 range earlier in the month on increasing demand. Banking stocks and GDRs, most importantly Audi and Blom, were buoyed by talk of regional investor interest for taking a sizeable stake in a local bank. In future telecom privatization steps, the government wants to open mobile operators to wider ownership by listing one third of their shares on the BSE. Good and bad news were supplied on the political and security side, starting with good through the defeat of the Nahr al-Bared insurgency. Deplorable to the highest extent was the murder of MP Antoine Ghanem; simple exasperation followed upon the charade-esque announcement to dismiss the parliamentary session for presidential elections on Sept. 23 and reconvene a month later.      

Beirut SE: Blom  (1 month)

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

 The Amman Stock Exchange comes out of the summer on an upwind. The ASE Index ended a one-month losing streak in mid-September and moved up over 140 points in the space of a week, closing at 5730.46 points on Sept. 26. When compared to the GCC bourses, this put the ASE on middle ground on a one-month basis but the Jordanian exchange lags behind most GCC markets in the year-to-date. Banking stocks, above all Arab Bank, contributed to the market’s gains from mid-September. The share price of real estate firm Tameer Jordan improved by over 7% in the second half of September. Local investment holding United Arab Investors Company (UAIC) sold a 5% stake in Tameer Jordan to Saudi Arabia’s Savola Group early in the month. UAIC stock rose by 21% between the start of the month and Sep 26. To increase investor access to market information, the ASE launched a new online stock tracking service that went live Sept. 16.

Amman SE  (1 month)

Current Year High: 6,543.67         Current Year Low: 5,267.27

The Abu Dhabi Securities Market ended the month up 17.61% year-to-date, the third best performance this year among GCC stock exchanges. After an unexciting start into the month, the ADSM Index improved 110 points from Sept. 17 to close at 3,527.75 points on Sept. 26. Real estate stocks RAK Properties, Aldar and Sorouh continued climbing from mid-September but the latter two saw some profit taking on Sept. 26. Energy stock Taqa tended sideways during the month. Taqa announced its third major purchase in the Canadian energy sector with placing a friendly offer for gas and oil producer PrimeWest Energy Trust in a transaction worth $4.9 billion. In rate decisions with potential impact on inflation, the UAE central bank initiated two rate cuts on Certificates of Deposit but denied that a unilateral revaluation of the dirham could be on the agenda. The ADSM appointed a former CEO of the Irish Stock Exchange as its new director general in mid-September.

Abu Dhabi SM  (1 month)

Current Year High: 3,705.32         Current Year Low: 2,839.16

The Omani bourse was a top performer among regional stock markets in September, with an index gain of over 5.4% in course of the month. Reaching a new historic peak, the Muscat Securities Market closed at 7,008.38 points on Sept. 26. Subscription in the initial public offering of Galfar Engineering set a new record for the MSM with 14.5 times oversubscription. Industrial shares were active and Raysut Cement rallied in the second half of the month. In the development with the strongest impact on MSM trading activity, banking heavyweight BankMuscat announced that it agreed on $619 million shareholding participation by Dubai’s state-owned Dubai Financial Group by way of a 15% capital increase. The bank wants to expand its business internationally; its shares, valued at OMR 1.475 per share in the deal, rose steeply in the third week of September and closed at OMR 1.503 on Sept. 26.

Muscat SM  (1 month)

Current Year High: 7,008.38         Current Year Low: 4,718.74

 The Bahrain Stock Exchange Index closed at 2,538.62 points on September 26, up by some 10 points when compared with the start of the month and 18 points higher than an intra-month low of 2,520.19 points on Sept. 16. Volumes remained limited, with banking stocks among the leaders in activity. Bahrain Islamic Bank signaled serious regional growth intentions with a 100% rights issue worth $225 million that was fully subscribed in the second-half of September. Bahrain Islamic Bank doesn’t see much trading but Kuwait’s Securities House divested a 7.59 stake in the bank on Sept. 24. Two banks that are part of the Al Baraka Banking Group in Bahrain, Al Baraka Islamic Bank and investment banking specialist Al Amin Bank, announced that they will merge into a single institution. In a regional transaction, the acquisition of at least 60% in investment bank TAIB Bank through Dubai Financial Group moved forward with approval by TAIB Bank shareholders. Trading in TAIB Bank on the BSE has been suspended since mid-May.

Bahrain SE  (1 month)

Current Year High: 2,592.02         Current Year Low: 2,106.70

September brought relief to the Doha Securities Market and saw the index on Sept. 23 return to levels near its year-high of 7,957.72 points from early July. Moving up in stages throughout the month, the DSM Index closed at 7,892.78 on Sept. 26, up by over 408 points, or 5.4%, since the beginning of the month. In equity news, Aamal, a planned Qatari holding company for trade and real estate, said it wants to open an IPO to subscription from expatriates as the first primary issue to approach to foreigners. Inversely, other Qatari entities had outbound cross border activities high on their agenda. Commercialbank, the country’s number two, gained approvals from central banks in Qatar and the UAE to acquire 40% in Sharjah-based United Arab Bank (UAB) in a $601 million transaction. Commercialbank’s share price appreciated 7% in September. In competition to Bourse Dubai’s bid for international forays into exchange operations, the Qatar Investment Authority bought a 20% stake in the London Stock Exchange and almost 10% in Scandinavia’s OMX.  

Doha SM: Qatar  (1 month)

Current Year High: 7,957.72         Current Year Low: 5,825.80

Tunis SE  (1 month)

Current Year High: 2,712.33         Current Year Low: 2,132.41

 The Tunisian bourse softened further in September, with the Tunindex dropping from 2,502.79 points on September 3 to 2,445.51 points at market close on September 26. Compared with its year-high of 2,712.33 points six months ago, the index is down by around 10%, but still stands 4.9% better than at the beginning of 2007. Market heavyweight SFBT weakened by almost 5%. Aviation stocks Tunisair and Karthago Airlines were among the losers during September; Tunisair’s share price slipped by more than 7%. Bucking the market trend, the share price of insurance firm STAR moved up from TD 18.80 to 21.10 in the course of the month. 

Casablanca SE All Shares  (1 month)

Current Year High: 13,506.29       Current Year Low: 7,704.66

The Casablanca Stock Exchange’s Casa All Shares Index closed at 12,681.70 points on September 26, after retreating from an all-time high of 13,506.29 points reached on the fifth of the month. With a year-to-date value increase of 33.8%, the Moroccan bourse is the region’s highest performer, ahead of Kuwait and Oman. Maroc Telecom saw some volatility during the month and closed at MAD 138.25 on Sept. 26. Real Estate firm CGI, in its second month of trading, remained above MAD 2,000 per share with intra-month share price fluctuation between MAD 2,300 and MAD 2,700. The stock had debuted in August at MAD 952. Leading bank Attijariwafa Bank traded sideways in the second half of September, after a spike in its share price in the first week of the month.

Cairo SE: Hermes  (1 month)

Current Year High: 75,918.68       Current Year Low: 54,667.56

After being hit by the fallout from international markets — credit crunch and sub-prime fears — the Cairo and Alexandria Exchanges recovered their earlier momentum in September and soared to a record high of more than 75,918 points on Sept. 19. Add in some profit taking in the following week and the EFG Hermes Index closes at strong 75,099.66 points on Sept. 26, more than 6,000 points up from the start of the month. Foreign investors on CASE got a helpful morale boost reminder from the World Bank Group, which named Egypt top country for improving business regulations in its latest Doing Business survey. The construction sector saw good trading action; the share price of heavyweight Orascom Construction Industries advanced by 25% during the month. In banking, NBK’s formal bid for Al Watany Bank arrived with a $1 billion transaction value. To broaden the domestic market action, Egyptian authorities said they are going to launch a bourse for small and medium enterprise caps in October. CASE also wants to create a derivatives market before the end of 2007.

Dubai FM  (1 month)

Current Year High: 4,927.42         Current Year Low: 3,658.13

The Dubai Financial Market Index had a calmer month compared with the turmoil of August but remained one of the GCC’s poorer performers. The index closed at 4,222.48 points on Sept. 26, compared with a close at 4,255.29 points on Aug 30. Debutant of the month was real estate firm Deyaar, which closed at AED 1.85 on Sept. 26, compared with its Sept. 5 market entry at AED 1.02. Unsurprisingly, banks EBI and NBD progressed smoothly in their merger motions. Toward the end of September, Air Arabia and Deyaar saw substantial trade volumes but the market’s hottest newsmaker was Bourse Dubai, the brainy new entity apparently designed to capture an entire flock of finance flamingoes with a single net. After mis-stepping in their initial hasty offer for Nordic exchange operator OMX through unannounced book building, Bourse Dubai dealmakers excelled in a rapprochement where Nasdaq, LSE, OMX, and Bourse Dubai look like a big grinning family with intermingled stake holding. The DFM co. share price recovered nicely from a drop to AED 2.66 on Aug. 22; it closed at AED 3.14 on Sept. 26. 

Kuwait SE  (1 month)

Current Year High: 12,950.80       Current Year Low: 9,164.30

Cooling its ascent in its seventh straight month of gains, the Kuwait Stock Exchange Index stood at 12,883.80 points at the end of the September 26 trading day, down by 67 points from a record high of 12,950.80 points it scaled on Sept. 23. The KSE value gain since the start of 2007 now stands at almost 28%. Real estate and investment stocks accounted for a big chunk of trading during the month whereby some real estate and investment holding companies displayed sharply divergent price movements. Burgan Holding was a gainer with a 20% rise during the month to Sept. 26 while Jeezan dropped 28% in reversal of its meteoric ascent a month earlier. The general assembly of NBK, the country’s biggest bank, approved a 20% capital increase through a rights issue with aim to finance regional expansion and Kuwait Finance House declared its intent to establish a $356 million venture for trading of Sukuk in a secondary market.

Saudi Arabia SE  (1 month)

Current Year High: 11,410.04       Current Year Low: 6,861.80

The TASI index slipped in September, closing at 7,929.71 points on Sept. 26, some 144 points lower than its value on Sept. 1. In mid-month, the market tested the resistance line of 7,800 points. Large company stocks, real estate and banking shares felt selling pressure in a month that saw the Saudi Stock Exchange perform at the lower end of the spectrum of regional stock markets. In an encouraging move, market regulator CMA announced late in the month that GCC nationals will henceforth be treated equally to Saudi citizens in matters pertaining to trading shares on the SSE, although not in primary market offerings. Media reported on an opaque litigation case that was filed by privately held Jadawel International against Emaar Properties, the UAE real estate developer, and allegedly involved their Emaar Saudi joint venture. Meanwhile, SSE-listed Emaar the Economic City announced that it sold all units it had offered in a first batch of residences in the King Abdallah Economic City.

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Real estate

UAE property The second wave

by Executive Contributor
written by Executive Contributor

Approach the United Arab Emirates from any angle you choose, and you will be confronted with real estate. By air, sea, or travel on the ground in the UAE, real estate seeks to overwhelm you with news of a hundred projects and with a thousand pictures allegedly worth a million words. Blazing from unipoles, banners, and the fences of construction sites in the two main cities, Abu Dhabi and Dubai, are messages from companies that “are building” and from developers out to provide us with the homes of our dreams — as if such mega-alerts were necessary against the backdrop of the now 150-floor Burj Dubai project and countless ongoing developments in both emirates.

But the visitor gets primed on property already before. While flying into Abu Dhabi on Etihad — after Emirates, Etihad is the UAE’s second flag carrier — the airline’s in-flight magazine’s over 60 full-page ads are made up to 20% by real estate advertisements. And if one were to drop in from farther afield, say Mars, then the proverbial monochrome little men in their gravity-repelling tableware would be compelled to consider real estate in the Dubai locality with its artful island conglomerations of Earth and the three Palms, the world’s top man-made properties that are discernible in plain view from outer space. 

Taken up close and visual, Dubai’s ongoing second wave of property mass development momentarily stuns any criticism of the emirate’s hothouse economy. With Burj Dubai standing at 555 meters in mid-September (and still a year and quite probably well over 150 meters from completion), it is already delivering on its promise of scraping the skies more intimately than any other building in human history. Below this spire of aspiration, clusters and chains of monumental building projects occupy a stretch of land that three years ago was a mere expanse of sandy nowhere. Now it is a new midtown Manhattan nearing completion — only on fast track and bigger than any dreams on 34th Street or the appetites of tower builders up on Fifth Avenue.

Second-wave developments

The second-wave developments in what is called New Dubai come on the heels of the city’s earlier expansion along the stretch of Sheikh Zayed Road near the Dubai World Trade Center exhibition complex and the Dubai International Financial Center (DIFC). This older — by two to five years — area, which would count as a massive addition to any conurbation in a G7 country, today constitutes only one of the urban centers that give Dubai its real estate flair. Estimates vary, but Dubai has around $300 billion of ongoing real estate projects, not including infrastructure and industrial projects.

Next to Dubai is old friend and rival Abu Dhabi. When Dubai leveraged its trade and economic dynamism for the creation of its first high wave of property development between 2003 and 2005, oil-rich Abu Dhabi kept to its more conservative ways. However, between 2004 and 2005 it established a platform for its own real estate boom by opening the property market and creating its state-aligned development companies, ALDAR and Sorouh.

Analysts of Abu Dhabi’s real estate market expect the city to change hugely in the next two years, driven by a long-term strategic real estate expansion plan to develop over 200 million square meters of land at an estimated cost of $1 trillion — the largest real estate development plan in the world. Abu Dhabi currently has around $270 billion invested in ongoing real estate projects and last month announced the establishment of a new Urban Planning Council that will be the final authority on all real estate planning and licensing.

The five less well-known emirates of the UAE that make up the rest of the federation have less territory than Abu Dhabi, which makes up four-fifths of the UAE in terms of surface, and less economic pull than Dubai, where the majority of new entrepreneurs and job seekers hunt their fortune. Nonetheless, the “northern emirates” have announced their ambitions to be part of the property miracle. The smallest, Ajman, and the northernmost, Ras al-Khaimah, are now experiencing massive real estate growth and attract foreign investments with the possibility of 100% ownership rights and guaranteed residency visas for buyers. According to a report by Emirates Industrial Bank, Ajman now boasts around 200 leasehold residential towers “either under construction or completed since the city’s freehold property sector started in 2004.”

The smell of new also permeates Sharjah, whose proximity to Dubai made it a place of — somewhat — more affordable living for many in the growing workforce. Its neighbor to the north, Umm Al-Quwain, is laden with both large residential and industrial projects, including a “Peace City” (Al-Salam City) projected to become home to 300,000. Fujairah, the emirate located on the Indian Ocean side of the UAE, has notable prospects for development in two divergent realms, as the site of a new UAE oil terminal and in hosting nature tourism.     

foreign players are happily

investing billions of dollars in the uae while simultaneously, uae

companies are branching out into foreign markets

Globalizing Real Estate

The most recent observable fact is that foreign players are happily investing billions of dollars in the UAE while simultaneously, UAE companies are branching out into foreign markets where they are pumping an estimated $30 billion into real estate investments. Foreigners are drawn to the UAE in general and to Dubai in particular by potential investment returns of 25%, hard to come by in mature economies such as the US or the EU.

UAE firms with surplus liquidity from windfall oil revenues find foreign markets enticing because of the opportunity to become global players in their respective sectors. Other attractions for them in foreign markets include low prices on land, an easier operating environment and a high return on investment (ROI). The global real estate market is forecast to reach a value of about $450 billion by 2008. A large number of property developers in the UAE like Emaar, Nakheel and DAMAC have already entered the European and US markets for further expansion and an enhanced reputation that includes international expertise and experience.

Year-to-date, Emaar has embarked on projects valued at $110 billion and the region’s real estate giant is expected to earn around 60% of its revenues from international operations. In early September, Emaar chairman Mohammed Alabbar even flew his private plane to North Korea, sparking rumors that the trip may be related to future investment in the communist country. Other UAE companies investing abroad include Al Manal Development which is working on its second project in Geneva.

Dubai-based Deyaar, whose shares have doubled in value in less then a week after being listed on the DFM in early September, said it was developing real estate projects worth $544.5 million in Kazakhstan, Turkey and Lebanon. Deyaar’s chief executive, Zach Shahin, announced a $5 billion development, the township project in India with Ansal Properties & Infrastructure.

Naturally, the UAE government is playing an encouraging role in promoting the sector’s expansion, which has significantly contributed to the country’s non-oil GDP and the attraction of FDI. According to figures issued by the Ministry of Economy, the real estate sector’s added value to UAE’s GDP, in nominal terms, grew at an average of 16.2% between 2001 and 2005. Growth was equally impressive in real terms, registering a rate of 12.3% per annum. In addition, the government subsidized and granted free land to a number of developers, a move that permitted real estate firms to reach critical mass in record time.

Going Strong

The crisis of the US sub-prime mortgage defaults in August hit stock markets across Asia and Europe hard but regional stock markets, and the UAE in particular, rode out the credit squeeze. The real estate sector, specifically, remained strong as the shortage in residential and commercial units, combined with the annual 9% population rise, is expected to generate favorable returns for investors in the next three years. 

“Structural factors underpinning strong demand for UAE real estate would not be affected by the turbulence in financial markets, which had resulted in a re-pricing of credit risk in both advanced and emerging markets,” Abu Dhabi Commercial Bank’s consultant chief economist Richard Gibbs wrote in a report on the sector. “While there was evidence of a severe tightening of credit conditions in some markets, it should be remembered that the Gulf Cooperation Council economies were net suppliers of savings and credit to the global financial system,” he added.

Although Dubai is the ninth most expensive city in the world in terms of office or apartment rentals, according to a report released in August by CB Richard Ellis, demand for real estate continues to rise exponentially and the tourism sector continues to be the cornerstone of Dubai’s development. Estimates by the Dubai department of tourism and commerce marketing show a necessity for around 80,000 additional hotel rooms to be built by 2010 to accommodate the swelling number of tourists. In anticipation, more than 100 hotels are expected to be constructed by 2010. The projects include the $54 billion Bawadi, which will feature 31 hotels, the Ottoman Place Hotel and Resort, the $218 million Al-Magreb Resort and Spa and the $504 million America Hotel and Resort. And the list goes on.

The market for office space is soaring beyond control despite all the mega projects such as the 5.9 million square meter Business Bay — a commercial and financial hub — a new city within a city in Dubai that features residential and office towers including pathways and water canals. Other projects include the Culture Village, the Jumeirah Beach Residence, the Jumeirah Lake Towers and many more. Investment Bank Prime said in a research note that the commercial market continues to evolve, “The amount of commercial space is forecast to triple to an announced 7 million square meter by 2010,” Prime added. “Most of the commercial space additions are expected to hit the market in 2008 and 2009, with major deliveries in Jumeirah Lake Towers, Business Bay and DIFC.”

Sine qua non

Domestic and foreign demand for property in the UAE has surged alongside rapid economic growth and analysts do not foresee an end to this trend for the next five years. They point out that the market is buoyant and this can be credited to surplus in regional liquidity, exceptional rise in disposable incomes, monetary policy liberalization and better credit policies. Dubai-based Shuaa Capital expects UAE listed companies to record a positive growth rate in 2007 and this bodes well for the sector. Although the Dubai and Abu Dhabi Real Estate indexes on the Dubai Financial Market and the Abu Dhabi Market respectively, have performed weaker then expected the trend as of mid-September is looking upward. “The highest growth will come from the real estate, construction and construction materials sector, the non-banking financial and the services sectors,” Shuaa said in a report published in September.

Forecasts, Gross Leasable Area,

UAE Shopping Malls, 1,000 sq. meters

Across the UAE, real estate is judged to still have a solid demand outlook, based on the strong projections of economic growth and expansionary job market for the two biggest emirates. Supply overhangs of housing units are most likely to occur in the medium term in Dubai, where analysts have forecasted a bulge in new unit deliveries by 2009. In Abu Dhabi, where real estate experts say the flood of new apartments will arrive around two years from now, demand is set to swell in the intermediate time.

Given the cyclical aspects of the real estate business with fluctuations from relative overvaluation to relative undervaluation, prospective real estate developers and buyers in the UAE may want to take a step back from the assumption that real estate valuations have no way but up. As far as anticipating demand for new apartments, factors such as affordability and relative pricing can change a picture that is built entirely on forecasted job market growth.

The high public profile of real estate developers in the UAE appears justified in a market where it is three times easier to find a promising new job than to secure adequate housing. In Dubai, the property sector increased significantly more than most other sectors in its macroeconomic role between 2000 and 2005; only trade and construction recorded stronger shifts in their favor in their contributions to GDP. Nonetheless, the visual presence of developers and sales hype for new homes and offices is clearly reaching beyond the role of the property sector in the UAE economy and also beyond the weight of sector companies in the emirates’ economic fabric.

This marketing overstatement of real estate players is illustrated by the fact that sector companies make up only 10% of the 150 largest publicly-traded companies in the GCC, much less than their presence in advertising. The six UAE-based developers in the list of 150 (compiled by Shuaa Capital) outperformed their peers in Saudi Arabia in terms of market cap gains in the 12 months to last July. In order to cement their current towering contributions to the economy in the longer term through national and international activities, however, the UAE real estate developers will have to make true on their professed strategic aims, converting them from lofty statements into unshakable realities.   

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North Africa

Tunisia  Strong tourism potential

by Executive Contributor
written by Executive Contributor

Figures recently released by the Tunisian National Tourist Office (TNTO) revealed that the tourism sector performed well during the first two quarters of 2007. It is expected that tourism revenues will surpass the previous forecasts made by the Ministry of Tourism by the end of the year. While indicators are positive, there is nevertheless a gradual overhaul of the tourism sector highlighting the weaknesses of tourism in Tunisia. Constrained by its seasonability and its image as a mass tourism destination, Tunisia needs to raise its profile internationally and maximize the potential of the sector.

Tourism numbers on the rise

According to the latest statistics released by the TNTO, the measures initiated to promote and develop the tourism sector are showing results. The 2007 tourism season should reach higher levels than in 2006. All indicators have risen compared to last year: with 4.41 million visitors, tourism was up 3.7%, tourism revenues up 9.1% to $1.45 billion, the number of night stays by 1% and the occupancy rate in hotels by 2.6%. According to the TNTO, it is expected that tourism revenues will increase by 8.6% in 2007.

Tourism is a major pillar of the national economy, contributing around 7% of the gross domestic product. It is Tunisia’s top foreign currency earner as well as the country’s biggest employer with 400,000 jobs. Though the TNTO figures point to a healthy tourism sector, Tunisia captures only a tiny portion of tourist flows worldwide — less than 1%. Moreover, the number of European tourists (in particular Germans, British, Italian, Spanish, Portuguese and Maltese), a traditional target of the Tunisian tourism sector, is on a downward trend. Therefore, the country is looking at courting new areas, particularly booming markets such as Eastern Europe and further afield such as the US, Australia, China and Japan. These promising markets are progressing fast — 8%, 7.3%, 56.5% and 18.3% respectively. Tourism in North Africa as a whole is also on the rise, especially in Libya (8.4%) and Algeria (2.6%).

Although the sector is developing, quantity ranks before quality and much needs to be done to boost Tunisian tourism.

As one industry insider said to Oxford Business Group, “Though Tunisia was a pioneer of mass tourism in the 1970s, it has been unable to prepare and adapt itself to globalization and is now penalized by its image as a mass tourism destination. Constrained by its seasonality, Tunisia must diversify tourist activities and infrastructure by maximizing its resources. In this way, the tourism season will extend all year round and will attract well-known tour operators. The new Enfidha airport will contribute to develop year-round tourism thanks to regular flights. The means and abilities exist but Tunisia does not develop and promote its tourism sector efficiently enough at the international level.”

Upgrading hotel services

Aware of the gaps to be filled in the sector, the government launched a major upgrading campaign for hotels in 2005, with the aim of raising the competitiveness and profitability of hotels, improving the level of services offered to tourists, and cashing in on the diversification of tourist activities while developing the communication strategy. An assessment of the first phase, which was completed in July, will be released by the end of September and will identify the strengths and weaknesses of the sector. The findings will be used to amend the overall upgrading program as necessary. There is strong potential for developing tourism in Tunisia, provided public authorities’ national development strategy can maximize the capacity of the sector to raise the profile of Tunisia abroad. However, the problem of the seasons may not be so easily solved, with only the southern half of the country close to Djerba truly appropriate fo

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North Africa

Algeria  Going private

by Executive Contributor
written by Executive Contributor

Algeria has launched the latest wave of its extensive privatization program while the country’s unions have threatened to try to hold back the rising tide of sell-offs.

On September 1, the industry and investment promotion ministry launched the initial call for tenders for 13 state-owned enterprises. In a statement accompanying the call, the ministry said at least 50% of the capital of each of the companies being put on the block would be on offer to private bidders.

This round of privatizations mainly focuses on the state divesting itself of manufacturing firms, with white goods producer Enien; Electro-Industries, which makes electric motors; and battery producer Enpec all being put up for sale. Also listed for privatization are road construction companies EVSM and Sonatro; chemical manufacturers Enasel, Alphyt and Aldar; and Alfel, Alfet and Alfon, all operating in the metals sector.

To date, the state has sold off well over half of the enterprises slated for privatization, with 430 enterprises having gone under the hammer so far, and another 300 listed as being eligible for transfer to the private sector.

One of the jewels in the crown of the privatization program is Algérie Télécom, with the state planning to sell off between 35% and 51% of the company before the end of this year. Among the 45 potential bidders who Post, Media and Information Technologies Minister Boudjemaa Haichour said have expressed interest in the sale are Portugal Telecom, Saudi Telecom and British Telecom, with the privatization tipped to bring in around $3 billion.

Big-tickets items up for privatization

Another of the big-ticket items being offered by the state is the bank Crédit Populaire d’Algérie (CPA). On September 4, Finance Minister Karim Djoudi said technical submissions by six foreign banks would be assessed in early October, followed by a final decision on which of the bidders would be allowed to take part in the auction for the 51% stake in CPA.

With some 70,000 clients and around 130 branches, CPA is one of Algeria’s larger banks in a market that is still dominated by the state, which accounts for 95% of bank assets and loan portfolios.

the state has sold off well over half of the enterprises slated for privatization

Algeria’s banking industry is one that has so far been little touched by the privatization program, but the planned sale of a controlling interest in CPA indicates that the government has heeded calls for the country’s financial sector to be opened up and improved.

BNP Paribas, Société Générale, Crédit Agricole and Natexis, all of France; US-based Citibank, and Spain’s Banco Santander have all been short-listed for the CPA sale, though the total number is expected to be whittled down in the technical assessment process, with the final sale expected to take place before the end of the year.

Yet another state enterprise attracting international interest is the state-owned tobacco company Société Nationale des Tabacs et Allumettes (SNTA), with British American Tobacco and Altadis reported to have sought details of the firm and any planned sale.

However, Algeria’s privatization program is not without its critics. Many have described the sell-off of state enterprises as being carried out with undue haste and have claimed that not enough consideration has been given to employees. Another criticism has been the large numbers of Algerian firms that are winding up in foreign hands.

Sell-offs protested by unions

In July, the umbrella group representing workers on the country’s docks and in its maritime sector, Coordination Nationale des Syndicats des Ports d’Algérie (CNSPA), said the proposed sale of a 50% stake in the container terminal at the port of Djen Djen to Dubai Ports World was contrary to national interests. The waterfront unions have threatened strike action if the government continues holding talks with the Emirati firm. Discussions with DPW are apparently continuing with the government, with the end of the year indicated as the date for concluding the deal.

Other unions have also flagged industrial action in other sectors of the economy, to voice opposition to the privatization program and to protect the interests of their members.

However, while strikes and calls from Algeria’s unions to reverse the privatization program may dig a few potholes in the road of the state’s plans to sell off more enterprises, they are unlikely to sway the government from its path.

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North Africa

Morocco  Olive Production

by Executive Contributor
written by Executive Contributor

In a drive to increase Morocco’s value-added agricultural production, the first of 10 state-of-the art olive farms are expected to be planted in the region of Beni Hellal in September. The olive farms, each with 1,000 hectares of olive trees, will be concentrated in the Haouz, Tensift, Tadla and Meknes regions. With the first harvest expected in 2010, the majority of the oil produced will be for export, given the growing appetite for olive oil products in Europe.

Crédit Agricole du Maroc and the Société Générale Asset Management joined forces to launch the olive cultivation program. The investment fund, named Olea Capital, aims to revitalize Morocco’s centuries-old olive oil industry. The project aims to take Morocco’s olive oil production to 30,000 tons per year.

The Moroccan government is equally committed to boosting olive oil production. The National Olive Production Plan aims to dramatically increase the scale of the industry. At present, some 500,000 hectares of land are dedicated to olive cultivation, a figure the government seeks to double by 2010. The plan also focuses on raising the quality of olive oil, most of which does not comply with international standards.

Tariq Sijilmassi, president of Crédit Agricole Morocco, said he believes Olea Capital is an important step for agriculture in Morocco, a sector “in need of success stories” and in need of “a modern financial framework.”

Modernization of presses needed

The fund will inject money into rural areas and help to encourage balanced economic growth.

Sijilmassi said he is confident Moroccan olive oil is a strong product that will see good investment returns, due to its popularity in the European market. Olea Capital is the equivalent of a Plan Azur for the agricultural sector, said Sijilmassi (Plan Azur being the national tourism campaign to boost arrivals to 10 million per year by 2010 and to create 600,000 new jobs).

Morocco has a long-established tradition of olive oil production, but existing methods can be inefficient — and sometimes unhygienic. At present, most olive oil is produced in small artisan-style oil presses know as maâsras, many of which are still powered by horses. There are an estimated 16,000 of these in use in rural Morocco. The maâsras is not of a high enough quality to produce olive oil for export, with most of the oil being consumed by the producers or sold in local markets.

“Maâsras are also wasteful; after pressing by traditional methods, the pulp and pits still contain a lot of oil,” said Mustapha Ismail-Alaoui of the Institut Agricole et Vétérinaire Hassan II. It is estimated that up to 900,000 liters of oil are wasted every year. Storage and transportation are also major obstacles to the growth of the industry.

Learning from Tunisia

Harvested olives are often left in boxes or piled on the ground for weeks and allowed to ferment before they are processed. To stop the rot, farmers cover the olives with coarse salt, but since they are often not washed before pressing, salt finds its way into the oil. By international standards, a lot of the oil is not fit for human consumption due to its high acidity, said Ismail-Aloaui, although many Moroccans are used to the taste.

the fund will inject money into rural

areas and help

encourage balanced economic growth

According to Philippe Brosse, director-general of Société Générale Asset Management, the central aim of Olea Capital and the National Olive Production Plan is capacity building to meet a rising demand. These projects will promote efficient, modern methods that should enable Morocco to become an internationally competitive producer of olive oil.

However, Morocco needs to be careful not to emulate the semi-success of Tunisia on the olive oil market. Although a major producer in the Mediterranean region, much of Tunisia’s production is sold in bulk to Spanish and Italian firms, who then blend and brand it as their own. In doing this, much of the value-added is lost to the Tunisian economy. For Morocco’s plan to work, it needs to consider more than what happens before the oil leaves the farm gate.

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North Africa

Morocco  Keeping promises

by Executive Contributor
written by Executive Contributor

Less than two weeks after Morocco’s parliamentary elections, King Mohammed VI on September 19 chose Abbas el-Fassi, leader of the nationalist Istiqlal (Independence) Party, as Morocco’s next prime minister.

On September 7, Morocco’s parliamentary elections ended in a win for the Istiqlal Party, a partner in Morocco’s ruling coalition, though marked by a record-low turnout. Istiqlal won 52 seats in the 325-member lower house, up from 48 in the last parliament, followed by the opposition Islamist Justice and Development Party (PJD) with 47 seats, and the Union of Socialist Popular Forces (USFP) with 36 seats.

The complex electoral system, based on proportional representation, makes it very difficult for a single party to gain an absolute majority. Intense negotiations over forming a new governing coalition will thus follow. All eyes are now set on the appointment of a new cabinet, which should take place in the next few weeks.

According to political analysts, the disappointing electorate participation, down from 52% in the last election in 2002 to 37% of the 15.5 million voters, reflects Moroccans’ feeling that the government has not done enough to eradicate widespread poverty, unemployment and corruption.

However, economic growth and unemployment dominated the Moroccan election. During the course of the campaign, all of the parties made ambitious pledges to cut taxes and create jobs.

Unemployment remains a key concern for Moroccans, in a country where over 60,000 university graduates enter the job market every year. The Istiqlal Party pledged to create 1.3 million new jobs over the next five years and lower unemployment to less than 7% from its current 10% by promoting opportunities in key industrial and service sectors, including agriculture, fisheries, car assembly, telecoms and health. These have been highlighted as key areas for economic development.

Following through on commitments

The party said it is committed to achieve GDP growth of 6%, excluding cereal production (after efforts to diversify and not rely upon cereal revenues following this year’s crop failures). It has also promised to allocate Dh1,200 ($146) to underprivileged families for enabling each child to enroll in school; Dh6,000 ($732) to families caring for a disabled person and Dh3,000 ($366) to those looking after an elderly person.

Another pledge worth noting is the party’s commitment to tax cuts, which were high on the agenda for both Istiqlal and the USFP during the campaign. Istiqlal proposed cutting the personal income tax imposed on middle-class workers to 35% down from 40% at present, and reducing Value Added Tax (VAT) from 20% to 18% by 2012. It also proposed dividing business income taxes into three categories according to size and revenue: 2.5% for micro-companies (those with revenues not exceeding Dh100,000), 25% for SMEs and 35% for large businesses and financial and service sector companies. All the political parties stressed the need to ease tax burdens on companies to encourage both recruitment and investment.

An impressive and bold economic reform platform is evident, but how and when it will be delivered remains to be seen. Morocco’s economic indicators are at a current high for this quarter with real GDP growth reaching 8% and unemployment falling to just below the 10% mark. But as unemployment and poverty are the main concerns of the electorate, the new government will need to commit to economic reform soon.

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