Lebanon

Software development industry – Ahead of GITEX

by Executive Staff
written by Executive Staff

For techies, the GITEX, the annual information technology exhibition in Dubai, is one of the top three exhibitions in the world. It has steadily grown from 939 companies being represented in 2004 to 1,353 in 2006, with 133,139 visitors from 119 countries. The growth of GITEX reflects that of the MENA region overall as the third fastest growing IT market in the world after India and China. This year has already been sold out and will be the biggest exhibition ever in its history. At least 25 Lebanese firms have signed up along with a new conglomerate of companies known as Lebanon SoftShore.

GITEX is the place where developers unveil their latest designs such as Software Design Consulting Group’s (SDCG) Visual Dolphin Retail, that will allow retailers to manage their total business from the register, tax collection, inventory status and customer/supplier data. According to Raymonde El-Hayek Warde, general manager of SDCG, her company has participated in GITEX for 10 years and experienced constant growth that is “due in large part to the opportunities that GITEX offered in terms of exposure and importance in the Middle East.”

For others who are in the early stages of expansion to the Gulf and Arab counties, such as New Information Technology (NIT), GITEX provides the platform they need, said its managing director Selim Jamaty. NIT developed SoftPharm, a software package for pharmacies, and has achieved a market penetration rate of 97% in Lebanon. Now it is time to go to the Gulf.

Big things are happening on the Lebanese front in software development, an industry that has been able to withstand the many economic pressures facing the country. According to a 2001 Professional Computer Association’s assessment, the IT sector was estimated at $245 million with the software industry making up 14% or $34 million. Hardware and infrastructure made up the lion’s share of 58% and service another 28%. At the time, exports made up only 9%.

Focus on exports

Today, things have changed with exports accounting for the majority of business with few firms concentrating solely on the Lebanese market. Statistics on the ICT sector are hard to come by as there have been no recent studies to provide an accurate size of the industry. According to Joe Abi-Aad, president of the Association of the Lebanese Software Industry (ALSI), the sector is sorely in need of one but in the meantime independent estimates range from $250 million (Oxford Business Group 2005) with aggregate growth of the software development sector estimated at around 10% annually, to $320 million (ITG Group).

According to Abi-Aad, between 2001 and 2004 the market experienced a slight decline that coincided with the burst of the global technology bubble. Since then, members of ALSI have reported growth ranging from 5% at the lower end and up to 80% for the most successful firms who are outsourcing to the US, the EU and the Gulf. It is a burgeoning trend as developers can no longer rely on a cash-strapped Lebanese market where smaller clients are beginning to default on payment schedules. Both Fady Geagea, manager of Profiles Software Company and Nader Abdallah, general manager of Anzima, which has been serving the GCC since 2003, said doing business in the Gulf was critical for their survival in this current climate.

Another firm which had to deal with the economic fall-out from last summer’s war has opened up shop in China. Carole al-Sharabati, managing partner of software developers CME, said that they needed a back-up office for their clients overseas because of the instability in and risk perception of Lebanon. Also, the lower wages in China have helped her firm to increase international competitiveness.

One major development in the sector is the Euro-Lebanese Center for Industrial Modernization’s (ELCIM) initiative to create Lebanon SoftShore — The Software Cluster (LSS), a conglomerate of Lebanese software developers. LSS was formed this year as a means to strengthen Lebanon’s competitiveness abroad and provide Lebanese firms with a platform for greater exposure and organization to bring big outsourcing projects to the industry. So far 17 firms have joined the cluster, focusing on markets in the GCC, EU (mainly France, Switzerland and UK) and the US. LSS is headed by ELCIM and will pool the resources of the cluster members. ELCIM will promote the cluster members abroad and direct large projects.

Joining hands

For members like al-Sharabati of CME, “it is an opportunity to join hands and collaborate in a number of areas.” She views the cluster as a forum to exchange information and work together where she can assist other firms in expanding to the US while she hopes to gain exposure to the European market.

According to Talal Hijazi, coordinator of the software manufacturing sector for ELCIM, one of the advantages Lebanon has over many competing countries is its ability to develop software in many languages.

There are drawbacks to operating in Lebanon. Al-Sharabati’s firm pays $3,500 per month for a connection that in the US would not cost more than $100. Furthermore, the lines are unreliable and neither fast nor wide enough. Electricity prices have also increased along with those for generator services. Both — internet and electricity — are fundamental for the industry and their low quality a severe problem.

The greatest danger facing the industry is emigration. Most firms report difficulties to retain qualified engineers and developers. Al-Sharabati said that most young professionals are concerned only about the short term as a result of the recent instability and are therefore short-sighted when it comes to building a solid career, preferring instead to hop from one job to the next with their ultimate sight on going abroad.

As companies continue to grow, the demand for more engineers grows concomitantly leaving the market constrained by the lack of seasoned professionals. Few engineers with three to five years of experience can be found.

Software giants Microsoft and Cisco are working to address this problem through their Partnership for Lebanon that also includes GHAFARI Inc., Intel Corporation and Occidental Petroleum Corporation. The Partnership for Lebanon is focused on a number of issues to assist the Lebanese market ranging from educational initiatives to funding the private firms’ expansion efforts.

The partnership members recently announced that they will offer training programs for the IT sector — in cooperation with the Council for Development and Reconstruction — for students to help them acquire the skills and experience they need in the expanding market.

According to Hussam Kayyal, program director of corporate citizenship at Cisco, they were shocked when talking to high school students to find out that none of them were planning to stay and work in Lebanon. Since then, they have stressed to students the potential of the local sector through training and education.

Gender trends

Perhaps the most interesting trend is the issue of gender in IT. Female engineers are taking on the industry and shifting it from what was traditionally a male-dominated sphere to a more mixed one. According to al-Sharabati, the industry allows for much needed flexibility especially for females from more conservative backgrounds. CME is facing the issue that some young women have curfews imposed on them by their families and must be home by 5 p.m. Through telecommuting via the internet, these women can finish their work at home. Women are also less likely to move abroad for work and thus are becoming ever more attractive on the local market.

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Global Arab finance comes of age

by Riad Al-Khouri
written by Riad Al-Khouri

Surplus cash from Middle East energy producing countries has been running around the world for over three decades, seeking better returns in offshore havens. However, since the 1970s, investments by Arab states have had the potential to alarm destination countries. An important example of this came after the Kuwaitis acquired about 20% of British Petroleum in 1988 and the UK forced them to reduce the holding by over half, amid concerns about OPEC member influence on one of the world’s giant oil companies.

More recently, Dubai Ports World (DPW) faced the American Congress’ opposition to acquisition of US ports; the controversy started in early 2006 with some Americans arguing that no Arab government should own such strategic assets. Later that year, DPW pulled out and sold its US port operations to an American group.

The DPW controversy reinforced fears that investments in the West had become politically risky for Arabs. However, part of the problem there seems to have been the high-profile hands-on status of the investor, and the answer may be to deployment of state money in subtler ways.

Giving mounting surpluses, this issue will undoubtedly become even more important in the next few years as Sovereign Wealth Funds (SWFs) of Arab countries roam the globe looking even more assiduously for investments. Previously, most Gulf countries had put their liquid assets (mainly dollars) in bank deposits or government bonds, typically American. However, Arab state agencies have been getting fidgety over the value of greenback deposits and American federal securities; so many Gulf SWFs are increasingly moving money into global equity markets.

The largest sovereign fund may be the Abu Dhabi Investment Authority, with as much as $500 billion under management, with Saudi Arabian SWFs not far behind. The Kuwait Investment Authority, created in 1960 to invest the emirate’s oil revenues, has accumulated more than $100 billion of assets; big Arab sovereign funds also include the Qatar Investment Authority with $40 billion, and UAE SWFs outside Abu Dhabi.

With oil revenues gushing in, these SWFs feel that their governments hold enough dollar-denominated government bonds, and so will increasingly target Western shares. A recent example came two months ago when France, Germany, and Spain welcomed Arab SWF money into the European Aeronautic Defense and Space Company (EADS), the world’s second largest aerospace conglomerate. The group includes the aircraft manufacturer Airbus, the world’s largest helicopter supplier Eurocopter, and EADS Astrium, the European leader in space programs. EADS is also the major partner in the Eurofighter consortium, develops the A400M military transport aircraft, and holds a stake in a joint venture that is the international leader in missile systems.

The $2 billion Global Strategic Equities Fund (GSEF) founded and sponsored by Dubai International Capital (DIC), the international investment arm of the state-owned firm Dubai Holding, acquired over 3% of the outstanding share capital of EADS, allowing the SWF to become one of the largest institutional shareholders in the company. In line with GSEF’s investment strategy, neither the fund nor DIC will seek a board seat or take an active role with EADS but will “build a strategic relationship with the EADS management and shareholders.”

This transaction comes less than two months after GSEF made a substantial investment in HSBC Bank Middle East, becoming one of the leading shareholders in the company. Another major investment by DIC, GSEF’s parent, was the $1.3 billion acquisition of the Doncasters Group (UK), which produces precision engineering components. Most important, target firms and host countries mostly welcomed these and other deals.

The bad news is that growth in Arab SWFs could create new risks for the global financial system, as opaque investment policies could mean that comments or rumors would tend to increase volatility in capital markets. In addition, in autocracies like the Gulf countries, officials imperfectly accountable to those for whom they are ultimately investing run the funds.

To counter these negative factors, SWFs need to be more open and commercially minded. The Norwegian Government Pension Fund, which invests much of the country’s oil riches, and is now worth over $300 billion, is a model of good governance and accountability, listing all 3,500 investments on its website; the fund’s stakes are typically small in each company so, far from feeling threatened by its investments, firms often welcome it. This seems to be the strategy of DIC, which is also aiming for greater transparency: if the deals of Arab SWFs are not to trigger protectionism, they must become transparent.

In any case, Arab SWFs are so large that a change in their investment strategy away from bonds and toward stocks could eventually cause prices to go up in major equities. In the present troubled state of the markets, this will be a good thing: as the financial acumen of Arab SWFs increases, so will the attraction of investments cleverly presented as saviors of Western interests.

RIAD AL KHOURI is the Director of MEBA w11, Amman, and Senior Associate of BNI Ltd, New York City

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Iran’s upcoming election

by Gareth Smith
written by Gareth Smith

The campaign for Iran’s next parliamentary campaign will not start officially until a couple of weeks before the poll in March 2008, but rising political temperatures in Tehran suggest the battle has already begun.

Conservative websites have been running a video allegedly showing former president Mohammad Khatami, still a leading reformist, shaking hands with women. President Mahmoud Ahmadinejad, under criticism over his economic management, has removed two important ministers to give fresh direction to his government. And the judiciary has once again banned Shargh, the lively reformist daily newspaper that regularly lampooned the president and his allies.

The attacks on Mr. Khatami show Iran’s conservatives are firmly on the defensive, says Mohammad Ali Abtahi, a vice-president when Khatami led Iran through an eight-year reformist era between 1997 and 2005.

“They have realized there is a chance he could run again in the 2009 presidential elections,” says Abtahi, who backs the idea. “But that’s two years away, and first we must pass the test of the Majlis [parliament] election.”

Conservative nerves over the Majlis poll result from the united front put forward by the reformists last December in elections both for local councils and for the Khobregan, or Assembly of Experts, the clerical body that chooses and supervises Iran’s supreme leader.

Drawing up common center-left lists for the parliamentary election is being entrusted to regular meetings of Khatami, the former parliamentary speaker Mehdi Karrubi, and the influential former president Akbar Hashemi Rafsanjani, who has gravitated towards the reformist camp because of his alarm at the policies and behavior of Ahmadinejad.

But the conservatives still say they are confident of keeping a majority — albeit a reduced one — in the 290-seat parliament.

Amir Mohebian, the wily political editor of Resalat, the conservative daily newspaper, believes the reformists’ chances are also hampered by a failure to go beyond calls for social freedom, and by their concentration on big cities rather than smaller towns and villages. “Tribal and family factors remain important in much of the country and usually decide who is elected,” he says.

Mohebian, a keen reader of Nicolo Machiavelli, sees the ageing of baby-boomers born in the early years after the 1979 Islamic Revolution as a key factor in Iranian politics — and one that naturally favors the conservatives.

“When voters are 17 or 18, they care about self-esteem and freedom of speech,” he says. “When they’re 25 to 26 they want new policies about daily life — marriage, getting a home and so on. As people age, they naturally become more conservative.”

Karrubi surprised many fellow reformists by running his presidential campaign in 2005 on a simple promise to give everyone above 15 a monthly pay-out of 50,000 tomans (just over $50) from Iran’s growing oil revenue. But even though he came within 700,000 votes of beating Mr. Ahmadinejad into the second round run-off, the reformists have been slow to develop policies on day-to-day economic issues.

“In politics, you must choose your customers, and in a democracy this means the ordinary people — the reformists’ slogans about social freedoms are still for the elites,” says Mohebian.

Another problem for the reformists is that their energies are being lost in worrying over their candidates being blocked by the Guardian Council, a constitutional body that vets hopefuls. Precedents are mixed. The last parliamentary election in 2004 saw mass disqualifications, but in the presidential election of 2005, Ayatollah Ali Khamenei, the supreme leader, intervened to allow two reformists run after the council disqualified them.

“We have two problems — disqualifications and the fear of disqualifications,” says Abtahi. “We are looking for well-known people. But those who are unlikely to be disqualified are often those least keen on facing character assassination — this results from the film of Khatami [shaking hands with women].”

A competitive election could encourage a high turnout, which would be an important boost for Iran as it faces growing international pressure led by the United States over its controversial nuclear program. The last Majlis election saw around 51% of eligible voters at the polls, despite calls from some reformists for a boycott, although the turnout was only 18% in Tehran.

Turnout in the keenly fought presidential election two years ago was 63%, which Iranian analysts pointed out was comfortably higher than the 55% of eligible Americans who voted in the US presidential poll of 2004, which gave George W. Bush his second term.

But while March’s parliamentary election will be fought primarily on domestic and even local issues, the international situation remains an imponderable. Further sanctions from the UN and unilateral measures from the US might encourage voters to back the reformists, who have advocated a more cautious approach, but they might just just as easily favor the conservatives who can more easily easily wrap themselves in the flag.
GARETH SMYTH is the Financial Times Tehran correspondent

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The need for transparency in the Gulf oil markets

by Paul Cochrane
written by Paul Cochrane

While the Middle East makes baby steps towards implementing greater financial transparency, accountability and the rule of law, the region’s best-known commodity — oil — lacks transparency in the way tenders are allocated and, more disturbingly, in actual reserve estimates.

Information on oil, the lynchpin of the Gulf economies and the catalyst for numerous conflicts, coups and much other skulduggery in the Middle East, is being held back from not only the people of the region, but also the very markets that rely on that energy.

The most glaring examples are Iraq and Saudi Arabia.

In Iraq the issue is over the proposed oil law, which would give multinational oil companies such as Conoco, ExxonMobil and Chevron first dibs on developing the country’s oil fields under contracts of up to 30 years.

Iraqi politicians have complained that they don’t know what is going on with oil resources as the formulation of the law is being stage managed by a US consultancy firm. Furthermore, in a recent poll carried out by Custom Strategic Research in Iraq, only 4% of poll respondents felt they have been given “totally adequate” information about the oil law while a further 20% describe information provision as “somewhat adequate,” and 76% as “inadequate”. The poll also indicates that Iraqis are not happy with the sector being developed by foreign companies, with 63% replying they would prefer Iraq’s oil to be developed and produced by Iraqi public sector companies.

The need for greater transparency in allocating oil tenders and the drawing up of the new oil law — the bedrock for future development of the country — is essential for Iraqis to decide on how their oil wealth is to be used.

Of greater concern to the global markets are the oil reserves of Saudi Arabia, the world’s top oil producer and exporter. Future supply projections are largely based on the fact that Saudi Arabia will be producing as much as 20 to 25 million barrels of oil per day (bpd) within the next two to three decades. Yet current production capacity is 11.3 million bpd, around half of that estimate.

Although Saudi Arabia is carrying out several multi-billion dollar projects to raise capacity to 12.5 million bpd by 2009, such an increase is certianly not enough to prove to the world that the kingdom has the reported 261 billion barrels of proven oil reserves. That information, on how much each field contributes to total oil reserves, is treated as a state secret. The problem is compounded by Riyadh not allowing third-party verification of their ability to deliver. Additionally, there is speculation that the kingdom’s three most important fields, which have been producing at high rates for over 50 years and require a staggering 12 million barrels per day of water to be injected to create pressure for extraction, are reaching the end of their shelf life.

Saudi Arabia assures us that it can meet projected targets — which, to its credit, it has always done — but unless national oil company (NOC) Aramco provides more information on reserves, it will be hard to know how long they can effectively meet demand.

Such secrecy among NOCs is somewhat understandable, but not helpful in making future projections in a time of rapid global economic growth or holding NOCs — the dominant energy firms in the region — more accountable to their citizens.

Equally, a lack of transparency is also limiting NOCs’ access to external capital that could help raise capacity and resultantly meet surging world demand. And with the International Energy Agency (IEA) projecting that over the next 30 years some $2.2 trillion in new investments will be needed in the global oil sector to meet surging demand, much of this cash will be destined for the Middle East — but into whose pockets and for what ends?

There is an exception however to the secrecy so predominant in the Gulf: Bahrain. In 2005, Bahrain streamlined its oil operations from three authorities into one, the National Oil and Gas Authority (NOGA), with the head of NOGA, Abdul-Hussain Ali-Mirza, a technocrat, also being the minister of oil and gas affairs. Such an approach has given NOGA greater flexibility in meeting both domestic and international demand, attracting capital, and helping to remove bureaucratic obstacles that hampered growth. All tenders are now put online for companies to bid for.

“Oil and gas has been very secretive in the past but we want to change that as there is nothing to hide,” Ali-Mirza told me earlier this year. “Countries should be transparent and responsible, so we are setting the benchmark.”

With Bahrain relatively low on the global energy supply rankings, Manama has perhaps the least to lose in being transparent (we all know its supplies are running out), but Saudi Arabia and the other Gulf countries would do well to take a leaf out of Bahrain’s book to be more forthcoming in information on tenders and reserve estimates. The arkets demand it, and the people deserve it.

PAUL COCHRANE is a freelance journalist based in Beirut. His work has appeared in Britain’s Petroleum Review and The Independent on Sunday

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Educating Iraq‘s child refugees

by John Dagge
written by John Dagge

Waiting outside the UNHCR Iraqi registration center on the outskirts of Damascus, Khalid, a middle-age Iraqi father of four from Ramadi, points to his family and declares: “We don’t know what the future will bring.” Over the past eight months he has relocated twice between Iraq and Syria. In the moves from one county to another and the daily struggle to make ends meet, his children’s education has fallen by the wayside. “We don’t have a permanent home now, so my children haven’t been able to go to school,” he said. “Without an education, what is their future?”

For a growing Iraqi refugee population — most of whom are living off dwindling savings or remittances from family members abroad — covering the daily necessities of life is an all encompassing concern. As the conflict in their homeland drags on, however, the absence of a formal education among the numerous refugee communities scattered throughout the Middle East looms as a major obstacle to the future development of their country.

“We don’t want a whole generation to miss out on education,” UNHCR regional public information officer Sybella Wilkes said. “These children will be the future of Iraq, so it’s essential they receive an education.”

The Iraq refugee crisis now stands as the greatest mass exodus in the Middle East’s history. More than 4 million Iraqis — one in seven — have been displaced by violence and around 2.4 million have fled their homeland, the vast majority seeking shelter in Jordan and Syria. The UNHCR estimates there are about 500,000 school age children now residing in the neighboring countries of Syria, Jordan, Egypt and Lebanon. Of this group, little more than 50,000 are presently enrolled in school.

“Prior to the war, Iraq had one of the higher literacy and school enrollment rates in the region,” Wilkes said. “Now we are seeing a major gap in the education of the country’s younger generation and the impact of this down the track, as Iraq tries to rebuild cannot really be calculated.”

To combat rising illiteracy among Iraqi refugees, UNHCR recently launched a $129 million appeal with the aim of enrolling an additional 155,000 children in schools throughout the Middle East. Syria, which has absorbed an estimated 1.4 million refugees since 2003, is the main target with the UNHCR hoping to enroll 100,000 children in schools by the end of the year. To date, only 33,000 out of an estimated 300,000 school-aged children are enrolled in Syrian schools. Other targeted countries include Jordan (50,000), Jordan (2,000) and Lebanon (1,500).

The funds will cover the costs of building new schools and upgrading existing facilities, the hiring of more than 4,000 school teachers, as well as buses to transport the children. Specially designed bridging programs will be taught to bring children back up to speed with their studies, along with psychological support services to reintegrate traumatized children back into a school environment.

For many Iraqis, the lapse in a formal education started before they fled their homeland. Due to rising violence, many parents regard sending their children to school as too dangerous and as such are keeping them at home. While Syria has always held that Iraqis have free access to the country’s education system — Jordan recently announced it will open its schools to Iraqi children — a variety of reasons have resulted in a poor take up of the offer. The inherent instability associated with coming to a new country has meant that many parents simply have not had the time to arrange schooling for their children. At the same time, other families are unaware their children are able to receive an education in Syria, while in a growing number of families, children are being put to work and in some cases are a family’s primary income earners.

Red tape barriers exist as well. The drive to register Iraqis living in Syria has been met with much suspicion by Iraqis and many fear it may eventually lead to deportation. As such, unregistered parents have been unwilling to enroll their children in local schools as attendance requires the family to register their details with Syrian authorities.

With many classrooms in Damascus already numbering 50 students, there has also been resistance from Syrian authorities to enroll Iraqi students in the public education sector until additional schools have been built. Iraqi parents enquiring about sending their children to Syrian publics schools have been told that their simply is not enough room for their children. For most families, a private education is too expensive.

The bid to raise the number of school children receiving an education is also more than just about improving literacy rates. It is also about returning a sense of normality to the lives of Iraqis, both children and parents.

“Getting children into schools also helps families readjust,” Wilkes said. “It gives them some sort of routine in their life, it helps restore a sense of normality back into a family’s life, a sense that in many cases has been missing for some years and the absence of which can put great pressure on families.”

JOHN DAGGE is a freelance journalist based in Dimascus

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Financial Indicators

by Executive Editors
written by Executive Editors

Un Under the shadow of the non-event of St. Cloud that failed to generate any improvement to Lebanon’s crippling disease of politics, the Beirut Stock Exchange did what it has been doing in the first half of the year: hang on by its teeth, gums bleeding. The BSI capped at 1172.86 on Jul 26, July trading volumes were largely insignificant. Report-worthy movements in the banking sector included the competition among local banks to buy the domestic business of BLC from the Qatar Investment Authority and the acquisition of Banque de la Bekaa by Bank of Sharjah (BoS) for $25 million. BoS essentially acquired a license which it wants to use to build an operation in the Levant. As far as stock market confidence indicators go, first-half 2007 findings by the semi-annual MasterIndex survey gave 20.5 out of 100 points in consumer confidence to the BSE (data were collected in April). That’s a drop of 63% from six months ­earlier. Compared with other Arab markets in the survey, the BSE scored 60 to 74 points lower.

Beirut SE: Blom  (1 month)

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

n The Amman Stock Exchange Index closed at 5,682.08 points on July 26, some 177 points lower than its July 1 closing. In year-to-date sector performance, the financial services sector made the weakest showing, down by almost 11%. Hospitality, mining, and real estate are still up more than the general index YTD, banks are barely holding their ground. Heavyweight Arab Bank led trading volumes but its share price moved down 5% in the course of July. Noteworthy transactions included a $440 million block trade in stock of HBTF. Financial services firm First Jordan Investment, an affiliate of Kuwait’s Global Investment House, carried out the subscription for its $85 million initial public offering between July 10 and 23, about eight months later than announced in first plans for the step. Saudi food conglomerate Savola and real estate firm Tameer Jordan entered an agreement by which Savola is expected to acquire 5% of Tameer.

Amman SE  (1 month)

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

 Straying upwards but a little from its plateau in the mid 3,500 points, the ADSM index closed at 3574.54 points on July 26, less than 20 points better than its 3,556.21 points at the first of the month. Summertime vacation pressures pushed the first-half disclosure season into high gear from early in the month while trading volumes tended lower. While in Dubai the new banking partners Emirates Banking Group and National Bank of Dubai proceeded with their merger to become Emirates NBD on rationale of gaining more oomph and regional profile, local champion National Bank of Abu Dhabi released second-quarter results that showed a 16% increase in profits to $160 million, saying that domestic banking was its biggest growth driver.   

Abu Dhabi SM  (1 month)

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

The Dubai Financial Market closed at 4332.31 points on July 26, its lowest stand in two months. Earlier in July, however, it had touched its highest level in over eight months, at 4549.4 points. Air Arabia started trading with high volumes but limited gains. Emaar Properties, whose first-half results were to the dislike of share buyers, was sent 7% lower between its July 15 results disclosure and July 26. Early in the month, the DFM released a list of 13 most actively traded stocks in the first half of 2007. Including usual suspects in real estate, finance, communications and transport, companies on the “More Active Stocks” list are given a higher ceiling of 15% as daily fluctuation limit; other stocks have a ceiling of 5%. An important non-event from an international equity angle was the decision by DP World to drop its listing plans on the London Stock Exchange, judging bond financing more advantageous than the intended IPO. 

Dubai FM  (1 month)

Current Year High: 4,985.39         Current Year Low: 3,658.13

The Kuwait Stock Exchange soared on, reaching P/E levels that made some listed stock appear overpriced to regional and international analysts. Up by 24.08% from the start of the year, the KSE closed at a new record of 12,491.10 points on July 25. Its index gain in the course of the month amounted to 445.3 points, representing an increase of 3.7%. Financial firms provided serial cross border expansion announcements. Investment Dar received approval to establish an Islamic bank in Bahrain with $200 million capital. National Bank of Kuwait stated it is negotiating a deal to buy an unnamed bank in Turkey. Commercial Bank of Kuwait said it will buy 25% in a small Yemeni bank jointly with the IFC. Blue chip telecommunications stock MTC had a string of five sessions at the down limit after its second quarter profit disappointed investors but recovered some ground at the end of the month. On strong revenues from asset sales, KIPCO posted a 2.5 times higher net profit for the second quarter 2007 at $96.2 million.

Kuwait SE  (1 month)

Current Year High: 12,491.10       Current Year Low: 9,164.30

The SSE tried for another recovery before the full heat of the summer vacation. Although still trailing everyone else in the GCC as the only Gulf bourse ending July lower than its index level at the start of the year, the TASI improved rather nicely from 6,900.50 points on July 1 to a closing at 7,633.54 points on July 26. Sabic announced 42% higher Q2 net profit at $1.7 billion. The share price of Sahara Petrochemicals rose before a bonus share issue and slumped afterwards. Four new insurers entered the fold of listed firms and Prince Al-Waleed bin Talal’s Kingdom Holding, whose 5% initial public offering was covered two-and-a-half times by demand earlier in the month, announced its rather speedy start of trading on the SSE for July 29, which should make it the 100th company on the bourse. The Wall Street Journal, seemingly determined to ruffle some feathers in the desert kingdom, published a major story alleging links between Al-Rajhi Bank and terrorism finance.

Saudi Arabia SE  (1 month)

Current Year High: 11,709.10       Current Year Low: 6,861.80

The Muscat Securities Market appeared a tad under the weather toward the end of July. The index advanced from 6,314.17 points on July 1 to a year and all time-high of 6,504.18 points mid-month before softening to 6431.31 on July 26. The market is also up by 15% year-to-date. Oman United Insurance reported a first-half net loss of $5.2 million, on account of claims related to cyclone Gonu. BankMuscat reported net profit of $104 million (44% up year-on-year); National Bank of Oman and Raysut Cement came in with first-half profit gains of 46% and 35% while several smaller firms also posted good results. Kuwait’s Global Investment House made a bid to buy 51% in Omani pipe maker Al-Jazeera Steel Products.

Muscat SM  (1 month)

Current Year High: 6,504.18         Current Year Low: 4,718.74

The Bahrain Stock Exchange was not to stand behind its larger neighbor in Kuwait and produced a record performance, soaring from 2410.87 index points at the start of the month to a new historic peak of 2,503.03 points on July 26. Although at all-time best mark, commotion over the good performance was noticeably less than similar successes had been hailed during the 2005/2006 GCC markets boom. Market heavyweight Batelco contributed to the market performance with respectable profit gains and announcement of a new regional expansion strategy which it termed “niche-growth.” A corporate Kuwaiti shareholder in Bahrain’s largest listed bank, Ahli United Bank, received an acquisition offer for his stake from International Bank of Qatar, a privately-held commercial and retail bank in Qatar with four branches.

Bahrain SE  (1 month)

Current Year High: 2,503.03         Current Year Low: 2,047.28

The Doha Securities Market lost a bit of steam in the second half of July. After a climb from 7,432.54 points on July 1 to near 8,000 points on July 9, the index retreated in the rest of the month to a July 26 closing at 7569.59. The market is still among the weaker performers in the GCC this year, up by about 6% year-to-date. Industries Qatar helped the DSM to some rosy moments towards the end of the month with a substantive improvement in first-half profit. IQ and QTEL are among Gulf stocks favored by investment analysts of Credit Suisse. DSM regulators announced that they will from this month on post all information on stock trades by executives and board members in listed companies on the DSM website and market monitors. Internationally, Qatar attracted attention with its ambition to buy UK supermarket chain, Sainsbury.

Doha SM: Qatar  (1 month)

Current Year High: 7,997.53         Current Year Low: 5,825.80

The Tunisian Exchange registered negative movement that saw the Tunindex tumble 3% in the course of the month, from 2509.79 points on July 2 to 2437.21 points on July 26. After recording a historic peak in February, the bourse has not made any significant gains in four months and closed July on 4.55% up compared with the start of 2007. Market heavyweight SFBT traded lower after a 5-for-1 stock split on July 8; its share price weakened by about 12% in the two weeks afterwards. The market saw an initial public offering in July by industrial manufacturer Tunisie Profiles Aluminium. The company put 4.8 million shares, representing 16% of equity, on the market for $15.5 million. Subscription closed on July 24, with no oversubscription reported.

Tunis SE  (1 month)

Current Year High: 2,712.33         Current Year Low: 1,909.26

The Casablanca All Shares Index trained further in its quickstep sideways dance, starting the month at 11,374.11 points on July 2 and closing at 11,394.32 points on July 26. Initiating the exchange’s most significant primary market action in some time state-owned real estate firm CGI (Compagnie Generale Immobiliere) put 20% of its shares on the market in an initial public offering cum capital increase worth $428 million. Subscription closed on July 27. In industrial news, American paper manufacturer International Paper paid $40 million to buy the 35% stake in local sector company Compagnie Marocaine des Bois et Matériaux which it did not yet own.

Casablanca SE All Shares  (1 month)

Current Year High: 12,723.23       Current Year Low: 7,029.45

After a month-long rally which saw the Hermes Index scale a new record at 74,964.86 points on July 10, CASE closed at 74,390.06 on July 26. Volume performers included the Orascom group companies in telecommunications and construction. Orascom Telecom Holding placed a formal $120 million bid offer to sector company Raya on July 22 but the firm rejected the offer as too low. More attention grabbers were in the banking sector, where CIB was reported in newspapers to be negotiating a merger with Arab-African International Bank (owned mostly by the governments of Egypt and Kuwait), which would create a new strong domestic banking player with 8% market share by assets. CIB shares rallied. In another development, the government said it would bust the chains of Banque du Caire and sell 80% of one of Egypt’s top banks. The move values Banque du Caire at above $2 billion and replaces a plan of merging it with Bank Misr, which would have been too costly in terms of money, network restructuring, and employment impact. 

Cairo SE: Hermes  (1 month)

Current Year High: 74,964.86       Current Year Low: 49,705.98

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Gglobal indicators

Immigration in Arab countries

by Executive Contributor
written by Executive Contributor

The UN Population Division database delivers an overall picture of immigration in the Arab World. Aggregating all Arab countries gives a number of 20.9 million immigrants (thus including intra-regional migrants from one Arab country to another). An alternative source could be national data of the countries of destination.  The resulting figure is lower than that of the UN. In the 14 Arab countries that have published immigration data, the aggregated number of immigrants 13 million. For the same 14 countries, the UN estimate is 18.8 million immigrants, i.e. 1.45 times higher. If the Palestinian Territories and Jordan where the discrepancy is explained by UNRWA refugees being counted as immigrants by the UN are excluded from the comparison, 12 countries give an aggregated number of immigrants of 12,288 million to be compared with 14,983 provided by the UN (22% higher than national figures). The gap between the two sources (2.7 million) is partly, but not entirely, explained by the fact that UNHCR refugees are counted in migration statistics by the UN, but not by national sources.

Top Sugar Producers

More than 100 countries produce sugar, 74% of which is made from sugar cane grown primarily in the tropical and sub-tropical zones of the southern hemisphere, and the balance from sugar beet which is grown mainly in the temperate zones of the northern hemisphere. Generally, the costs of producing sugar from sugar cane are lower than those in respect of processing sugar beets. Currently 69% of the world’s sugar is consumed in the country of origin whilst the balance is traded on world markets.

n The five largest exporters in 2005/06, Brazil, the EU, Australia, Thailand and South Africa, are expected to supply approximately 76% of all world free market exports.

n Global sugar production in 2005/06 is estimated as 147.7 million tons, 79% of which is produced by the world’s top ten sugar producers.

Exports of information and communications equipment

Growth of exports has been particularly high for the countries that started with a low base in 1996 — Hungary, Iceland, the Slovak Republic and the Czech Republic, Turkey and Poland. Germany and especially South Korea stand out as countries which started the period with substantial ICT exports and which have seen them grow rapidly between 1996 and 2005.

By the end of the period, the OECD countries could be divided into three groups — United States, Japan, Germany and South Korea with high exports of ICT goods, a middle group consisting of the Netherlands, United Kingdom, Mexico, France and Ireland and the remainder with relatively low values of ICT exports. As noted above, however, some of these, such as the four Central European countries, are rapidly increasing the value of their ICT exports.

Among the five non-member countries, growth of ICT exports has been slow and steady for all except China which has experienced spectacular growth in exports of ICT goods. Between 1996 and 2004, the value of ICT exports from China have been growing at an average rate of 33% per year and in 2004, China’s ICT exports surpassed those of the United States.

Bottled Water Consumption

Per Capital

Global consumption of bottled water has been growing over the past five years despite the fact that in a many places, including Europe and the US, there are more regulations governing the quality of tap water than bottled water. Although the US leads the world in the consumption of bottled water, at 26 billion liters in 2004, the bottled water craze is a global phenomenon. According to Beverage Marketing Corporation, worldwide consumption reached 154 billion liters (41 billion gallons) in 2004, an increase of 57% in five years. On a per capita basis, Italians are the biggest consumers of bottled water, at nearly 184 liters in 2004 — the equivalent of more than two glasses a day. Second and third place in per capita consumption are Mexico and the United Arab Emirates, at 169 and 164 liters respectively. Belgium (including Luxembourg in the statistics) and France are close, with consumption just under 145 liters per person annually.

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Special Report

Banking & Finance FFA goes private

by Executive Contributor
written by Executive Contributor

In the past few years, bullish financial markets have witnessed an unequaled surge in profits, on which financial institutions have capitalized massively. In the MENA region, the constant income stream stemming from spiking oil prices has added to this phenomenon. Financial Funds Advisors (FFA,) a Lebanese financial institution, seems to be gearing up for the race to offer sanctuary for this surplus of Arab money. Quintupling its shareholder’s equity to $25 million, it has moved into the rarefied circles of private banking

Established in 1994 as a brokerage firm focusing on financial advice delivery and mutual fund distribution, FFA has recently acquired a specialized license from the Central Bank, allowing it to become FFA Private Bank. Its change in status, which required moving from the structure of financial institution and brokerage firm to a private investment bank, was mainly drawn from the need to build recognition among potential local clients and correspondent institutions.

“The status of a financial institution in Lebanon is the equivalent of an investment bank anywhere else in the world. It specializes in non-commercial banking services such as lending, fiduciary deposits, portfolio management and brokerage as well as advisory services,” explains Jean Riachi, chairman and general manager of FFA Private Bank. “However clients and other company stakeholders had trouble grasping our institution’s former status,” he adds.

Setting a precedent

Another underlying reason behind FFA’s change of status was rooted in some of the operation’s technical aspects. “Investment operation activities are for the most part off the balance sheet ,” says Riachi. “In terms of wealth management, a client can hold with us custody money, securities or cash under fiduciary. But we also need to offer him the option of term deposit accounts.”

In addition to providing equity and debt financing, the new license allows FFA to participate directly in companies with its own funds without reverting to outside investors.

“As a private bank, we can operate fully with some restrictions on the retail and commercial side of activities, such as short term credit and deposit, which in any case, we have, no real interest,” underscores Riachi.

Two years ago, FFA held talks with Central Bank governor Riad Salame who said he also believed it was time to strengthen areas such as the capital market, mutual funds and investment banking. “We informed the governor of our desire and commitment to consolidate our human and financial structure by increasing capital, inviting powerful shareholders and hiring additional staff,” Riachi recalls. “However, we did not feel comfortable with the FFA financial institution status.” One possible solution was to aquire an existing commercial bank.

“We went through some of the files on hand and came to the conclusion that much time and resources were needed to restructure any available operation, something which we did not really have. As a matter of fact, we were not really interested in the commercial banking activity.”

Another option was to obtain a specialized bank license — which imposed restrictions on certain operations such as short term deposits and credits. “Today, we’re the first independent private bank in the Lebanese market, where the investment banking activity is, for the most, affiliated either one way or the other, or fully owned by financial institutions and commercial banks. I believe granting a specialized license to a private group constitutes a precedent for the Central Bank,” says Riachi.

Given the positive sector reactions, Riachi feels the launch of FFA Private Bank will set a much needed trend within the Lebanese financial sector. “Commercial banks are commercial banks and this can lead to a conflict of interest when dovetailed with private banking,” he says. Riachi believes that commercial banks may adopt a less aggressive stance towards their investment banking arm and not allocate sufficient resources. “It is also a question of corporate culture, one that varies greatly between private investment and commercial banking structures, leading sometimes to undeclared conflicts, when the two operations are functioning within one framework. Today, I can see the sector increasingly moving towards banks splitting and spinning off these two activities.”

The FFA Private Bank depends on a revamped framework comprised of several core activities such as private wealth management, capital markets, asset management, corporate and merchant banking, online trading and a real estate division. According to Riachi, its independent structure grants FFA a competitive advantage in terms of mutual funds, allowing it to deal with many different providers and hand picking the best. The private wealth management arm is built on a strict approach to asset allocation comprising sector and regional diversification. “Of course, in terms of asset management we are free to focus on areas where we believe we can add the most value,” he adds. One of such examples would be the Lebanese real estate fund offered by FFA. In Georges Abou Jaoudeh’s opinion, FFA’s other general manager, the real estate development activity has proved to be successful and the company intends to duplicate the same line of business in the Gulf region. “We are working also on launching a real estate fund that will be investing in Lebanon and the neighboring countries,” he adds. “Since all of FFA Private Bank’s high-net-worth clients in Lebanon and the region are very sophisticated, customized financial solutions have been devised through FFA open architecture platform, in order to respond to all their needs,” says Abou Jaoudeh.

Hence, a product in relation with the equity regional market is under preparation. The company is supported by an online division dubbed FFA direct, a platform for online trading in equities, future markets and currencies, headed by Elie Khoury.

In a market dominated by major international players, Riachi has relied on the advantage of cultural and physical proximity FFA offers. “This advantage is backed by a reputation for offering the highest standard in terms of service and performance, as well as access to the best fund managers in the world.” For clients who are concerned by the unstable situation prevailing on the local level, Riachi believes that as security accounts are not exposed to corporate or country risk.

Carving a niche

“Regarding the corporate and merchant activity, we understand that competing with big players might be difficult. On the other hand, we believe that we can carve a niche for ourselves in the market of medium-size deals, which by nature are not handled by big industry names for reasons of economies of scale,” states Riachi. The FFA chairman nonetheless concedes that although the company may face much competition on the different corporate levels, the challenge is part of the job. “In the corporate and merchant banking sector, FFA Private Bank has yet to prove itself.”

FFA’s regional presence is secured through its DIFC subsidiary FFA (Dubai) Limited, a financial service provider that will essentially cover the GCC countries and will be fully operational by next fall. “Our marketing approach targets very high net worth individual with $1 million or more in liquid assets. Such clients are constituted for the most by business owners and we intend to capitalize on this specific factor to market our corporate and merchant finance activities,” says Riachi.

To build and expand its client base, FFA is looking into new investment tools. Abou Jaoudeh underlines that FFA is closely following the success and growth of Islamic financial  products in the region. “We aim through our asset management division to participate in structuring new financial products that will be sharia compliant,” he explains. “We are monitoring the Arab equity markets and believe that there is tremendous growth potential; consequently we are in the process of finalizing and launching a new certificate that will give exposure and participation, through one product, to all the upside potential of these markets.”

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North Africa

Morocco On the Road

by Executive Contributor
written by Executive Contributor

In June, King Mohammed VI hosted Renault CEO Carlos Ghosn to celebrate the first export of Moroccan-assembled cars to France and Spain. The visit demonstrated the good relations between Morocco and French carmakers and aimed to develop the activity of Société Marocaine de Constructions Automobiles (SOMACA) for the local and foreign markets, notably towards the EU.

SOMACA is a Moroccan-French car company in which Renault has an 80% capital share. Philippe Cornet, the chief executive, announced that the company plans to export between 5,000 and 10,000 Logan cars a year to the EU, mainly to the French and Spanish markets. It is also planning to expand its exports to the Belgian and German markets by 2008. SOMACA will also export some 5,000 units to Egypt, Jordan and Tunisia. The success of further SOMACA operations is set to contribute to attracting new investments in car part manufacturers. The present success of Morocco’s automotive sector makes a marked change from the difficulties it was suffering just 5 years ago.

The Logan was introduced into the Moroccan market in 2006 and has become the leading brand in the low-cost car segment of the market, with some 13,000 units produced in 2006. SOMACA plans to assemble some 40,000 vehicles in 2007, including the Renault Kangoo, the Peugeot Partner, and the Citroën Berlingo.

Attracting investment

“It’s a first for the Moroccan automobile industry, which made a great leap forward with this announcement,” said Cornet. He also added that it is the first time Morocco has exported a finished industrial product to Europe apart from textiles. With a 19.6% share of the passenger car and LCV market, Renault leads the Moroccan market, which has grown by 17% since the beginning of 2005.

After Romania in 2004 and Russia in spring 2005, Morocco is the third country to launch Logan production. Renault has invested $30 million in the project. In fact, Morocco is the first country where the Group’s three brands — Renault, Dacia and Renault Samsung Motors — are sold simultaneously.

As part of a drive to attract foreign investors to reinforce the sub-contracting in the auto spare parts segment in Morocco, the Investment Directorate (ID) announced in May the establishment of an industrial free trade zone in the automobile sector, named Tanger Auto City (TAC).

“This new concept of specialized industrial zones aims to attract investors and automobile equipment makers employed by manufacturers especially those based on the European continent,” said Hassan Bernoussi, the director of ID, during a conference organized by the Moroccan MBA Association (MMA) in May in Casablanca.

The setting up of TAC reflects the government’s willingness significantly to improve what Morocco can offer in terms of foreign direct investment (FDI) options in developing sectors such as the automotive sector.

According to Salaheddine Mezouar, the minister for the automotive industry, the share of the automobile industry in gross domestic product (GDP) rose from 16.7% in 2004 to 19.6% in 2005. Mezouar noted that the automotive industry in Morocco encompasses 300 companies and provides 30,000 jobs and $2.5 billion in turnover. Considered more modernized than other industries, it generates 6% of total processing industry production and 12% of exports of industrial goods, which increased from $71 million in 1996 to $285 million in 2002. “The sector represents more than 40% of investments, or $130 million, which allowed the creation of more than 12,000 jobs in 6 years in the free trade zone alone,” said Omar Chaib, the zone’s commercial director.

Mohammed Ali Enneifer, the CEO of COFICAB, an auto cable company already based in the TAC agrees. According to Enneifer the production capacity in the Moroccan auto sector has risen by 4.3% year-on-year. “The integration of the Automotive City will help out existing companies by consolidating subcontracting and transferring foreign know-how to local companies,” he said.

Tanger Free Trade Zone (FTZ) is an example of the potential of the TAC. The FTZ has succeeded in attracting FDI due to its competitive legal and fiscal framework. Its special status allows for 100% foreign ownership, exemption from import and export tax and VAT on goods and on company tax for 5 years and a rate reduction thereafter. These benefits have attracted investors in the automotive sector, which is already the most developed sector in the FTZ.

Despite the recent announcement of car exports to Europe, the impact of TAC project may be limited on a local level. According to Bouchaib Barhoumy, the CEO of Yazaki, a Japanese company specialized in auto cable beams, the impact could be greater if, rather than spare parts, TAC concentrates on the development of the production of finished products to be exported.

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North Africa

Morocco All to Port

by Executive Contributor
written by Executive Contributor

With construction work on schedule, the 550-square- kilometer Special Development Zone, also known as the Tanger-Med port, will be operational in July according to recent government announcements. The first customers looking to use the Tanger-Med facilities are now able to set up in the northern city of Tangier. The zone is designed to emerge as a key transit point for container traffic between the US and the Mediterranean region.

When the Moroccan government launched the Tanger-Med project in 2002 in the north of the country, its aim was to develop this region as a strategic center for transshipment, industry and trade. The project was managed by a governmental agency with privately-held company status, the Tanger-Med Special Agency.

Among the services and facilities offered by the port are a 53km extension to the Casablanca-Tangier highway, and a 45km railway connecting the port to the city of Tangier. The close proximity of the port will ensure the quick and efficient movement of goods and effective connectivity to regional and international markets.

Tanger-Med port offers logistic facilities accessible by sea, land and air for investors. The container terminal has 2,100 meters of berths with two container terminals operated by APM terminals and Eurogate-Contship. These possess 3.5m TEUs of nominal capacity and allow a draught up to 18 meters, well within the range of even the largest bulk freight transporters.

The ro-ro terminal has a capacity of eight berths, connection to the railway passenger station and the capacity for 5m passengers, 1m cars and 500,000 trucks per annum.

With a berth at 15 meters water depth and an open area of 15 hectares, the bulk and general cargo terminal looks to target the grain business.

Already planning the extension

The hydrocarbons terminal is designed to offer bunkering services to vessels calling at the port and to supply the port hinterland with refined oil products. It has a capacity of 2m tons per year. If all goes according to the plan, Tanger-Med will receive its first commercial ship in July. In fact, because about half of the project was completed within 18 months, there are already plans for its extension. Muhammad Said Benameur, the chief project director, said that, “Since the Tanger-Med has been a success, notably in terms of timing, we have already endorsed its extension before the first zone even started to be operational.” The second phase of the project will be 100% funded by the private sector, he added.

Tanger-Med already plans to raise its capacity as traffic across the Gibraltar strait is expected to increase significantly. “We expect sea traffic to rise by 7% or 8% in the next five to eight years worldwide,” said the president of TMSA, Said Elhadi. “Knowing that the number of containers crossing the Strait of Gibraltar represents about 20% of global traffic, Tanger-Med will consequently be directly affected by worldwide growth, which will eventually have major consequences for the region.”

Elhadi added, “The terminals will see a rapid increase in traffic in the coming years. Tanger Med II has been launched in preparation of our existing and potential customers’ needs. The project will help to increase significantly the capacity of the port facilities from 2012-2013 onwards.”

The existing Tangier Free Zone demonstrates the potential of Tangier-Med. The July 25 edition of pan-Arab daily al-Sharq al-Awsat reported that following its establishment in 1999, it had created some 16,000 jobs. The daily also reported that approximately 115 Moroccan and foreign companies were located in the area, with another 77 companies expected to set up shop. As a result, total jobs provided by the free zone was expected to reach 22,000 by the end of 2007.

One important development was the announcement in June that Dubai’s Jebel Ali Free Zone Authority International had been awarded the 10-year logistics free zone management concession at the port, an important achievement for the company, which already has free zone management experience outside Dubai, in both Djibouti and at Malaysia’s Port Klang Free Zone.

The establishment of Tanger-Med should also help to boost the development of Morocco’s northern region. The director of the Regional Center for Investment, Jelloul Samsseme, said that the port would help to reinforce the region’s existing infrastructure, create new export-oriented free trade zones and raise the skill level of the workforce in the region.

On the same note, the general director of the Agency for the Promotion and Economic Development of Northern Provinces, Fouad Brini, told the press that Tanger-Med will be a positive development in integrating the north of Morocco with the rest of the kingdom and facilitate the integration between the northern provinces themselves, especially by setting up facilities that will encourage large-scale trade and industrial activities in the region.

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