Editorial

An honest man, badly drawn

by Yasser Akkaoui
written by Yasser Akkaoui

While corporate governance continues to be the hot topic ina region with a still-evolving corporate culture, it isinteresting to note that even the supposed arch-exponents ofthe practice sometimes fall foul of the standards theyimpose.

George Bush-appointed World Bank chief and noted neocon,Paul Wolfowitz, appears to have been a victim of a campaignto discredit him over the treatment of his girlfriend, alsoa senior World Bank member, who, to avoid a conflict ofinterest, was found a plumb job at the US State Department.Despite the hullabaloo, the ex-deputy Secretary of State ofDefense, appears to have acquitted himself honorably and Iam sure that many Arab politicians and high ranking figuresare still wondering what all the fuss was about.

But the case highlights two interesting issues: First itshows just how important it is to walk the line in terms ofpersonal conduct and setting an example to all. Second,after the deeply flawed Seymour Hersh feature in thenormally stringent New Yorker, in which he accused the Bushadministration in not doing its homework and funnelingmonies to groups with al Qaeda-esque profiles backed by theLebanese government of Fuad Seniora, it is yet anotherexample of the deep-seated level of anti-Bushfeeling in certain corners of the Americanestablishment.

Wolfie was, as they say in London, stitched-up, even thoughhe did his best to play the collision of his private andpublic life by the book.

The new Arabia

This month we also doff our caps to the tremendous stepsmade state-owned enterprises in Dubai in particular and theUAE in general in turning what could easily has been left asa flabby desert outpost, living off dwindling naturalresources, into a muscular trading giant, real estate tyroand tourist heaven.

Its bilateral economic ties with China and India are aclear indicator of Dubai’s intentions to become a globalplayer by seeking out alliances with 3 billion newcapitalists, while its real estate giants are already atwork in the dragon kingdom, exporting their particular, andspectacular, brand of development know-how. From being anexpat backwater as recently as the early 90s, Dubai hasbecome a genuine holiday destination—the third most popularwith UK travelers—and a global venue for blue chip sportingevents that attracts the biggest names and fattest purses onthe planet.

It proves that a lot can be achieved by micro-managing themacro-economy if there is a strong ruling class with avision.

One wonders what Adam Smith might say to such a plan.

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Comment

Flashes in the neo-con pan!

by Peter Speetjens
written by Peter Speetjens

Muslims living in Holland should tear the Koran in half, as half of the book advocates violence, thus maverick Dutch politician Geert Wilders recently suggested, subtly adding:“If Mohammed lived here today, I could imagine chasing him out of the country tarred and feathered as an extremist.”

This was the latest in what has become an extensive repertoire of Wilders’ “wisdom” on immigration and Islam. He has also held forth on headscarves and mosque building, and it is this populist and provocative approach that has brought him headlines as well as friends and foes in equal measure. His nicknames include: bulldog, crusader, street fighter and, on account of his carefully waxed LouisXIV white locks, the Blond Dolly of The Hague.

Having left the liberal party in 2004, which he thought“too left,” Wilders went on to establish his Freedom Party, with which he won 9 out of 150 parliamentary seats during the 2006 elections; and according to a recent poll, Wilders would win seats, if elections were held today.

Latest in a series of political grandstanders

However, one would gravely underestimate current trends inHolland by writing off Wilders as a noisy crank, thrown out by the exotic tradition of Dutch coalition-based politics.Wilders is but the latest in a series of very colorful, if highly controversial politicians, who have played the anti-immigration card for significant political gains and triggered a wind of change, transforming the Dutch Kingdom from one of Europe’s most progressive and welcoming states into a country with the toughest immigration laws on the continent.

It all started at the end of the 1990s with the emergence of the flamboyant Pim Fortuyn, a former communist turned liberal university professor with a love for designer suits and controversy. Warning of “an Islamization of Dutch culture,” even though Muslims make up but 5% of the population, Fortuyn was the first to put immigration and integration firmly on the political agenda. He was shot dead in May 2002 by a Dutch environmentalist.

Next to carry the anti-immigration and anti-Islam flag was Ayaan Hirsi Ali, a Somali refugee who was granted political asylum in 1997 and who entered parliament for the LiberalParty in 2002, under a storm of criticism, as she had always been a member of the Labor Party. Ali was and still is a very ambitious woman and, like Fortuyn, emphasized the“backwardness” of Islam, especially regarding women.

Loyal to her new liberal party masters, Ali also called for tough immigration laws, until in May 2006 it was discovered that the 37-year-old had lied about her past. She had not lived through and survived the Somali civil war, but in fact attended one of the best schools in Kenya. Too much of a political hot potato for her party, Ali withdrew quietly from mainstream politics and accepted a job with the ultra-right American Enterprise Institute.

With Fortuyn killed and Hirsi Ali gone, only Wilders remains. Often called “the new Fortuyn”—a title he vehemently rejects—Wilders wants to be seen as` his own man.“I want people to judge me on who I am,” he stated during a visit to the United States. “I am Geert Wilders. What we share is our anger that the popular voice is not being translated into policy.”

The last sentence says it all. Like Fortuyn before him,Wilders claims that Dutch politicians have lost touch with“the street.” To back up his often outrageous comments,Wilders likes to refer to “the millions outside(parliament)” who think like him. Fortuyn claims he dared to say what “most people” only dare to think. Such populist references to “the silent majority” have had often disastrous consequences in the past. At the height of its popularity in 2003, Fortuyn’s party took only 17% of Dutch seats, while Wilders could only claim 6% in 2006.

The purpose of Wilders’ trip to the United States was to meet a number of neo-con and Christian right groups. “I want to explain what’s going to happen in Holland and ask for support—political support, maybe financial support, all the support possible.” Wilders is in dire need of support, mostly monetary, as he is no longer part of the well-offLiberal Party, and has become painfully aware of the fact that a political party cannot live on screaming headlines a lone. Yet, although the new breed of Dutch politicians can rely on some sympathy among America’s conservative elite, it is unlikely they are to receive much cash.

First of all, institutions linked to the US government will think twice before financing a Dutch opposition party, while Holland belongs to America’s most loyal allies in the so-called War on Terror. Secondly, conservative Holland is not quite yet conservative America. Wilders may be anti-Islam and cherish a free market ideology, yet he lives in a country that has formally embraced gay marriages, abortion, euthanasia and a liberal drugs policy.

What does this mean for the future of Wilders? Well, on the short term, he will no doubt continue to provoke headlines.Yet on the long term, a combination of limited finances and equally limited political experience will see the FreedomParty follow in the footsteps of Pim Fortuyn’s party, which failed to win a single seat in the 2006 elections.

PETER SPEETJENS is a Dutch writer and freelance consaltant

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Lebanon

French shipping firm with Lebanese roots boosts Beirut’s port activity

by Executive Staff
written by Executive Staff

The rise of Beirut Port with strong growth of freight volumeand earnings since late 2004 is partly due to the Frenchshipping firm with Lebanese roots, CMA CGM. With claims tobe the world’s third-largest container shipping line sinceacquiring Delmas—another French shipping line with strongAfrican business—in 2006, CMA CGM has demonstrated a visionfor its Beirut location that includes on the one hand aproject to construct a new office building and on the otherhand involves the group’s reliance on Beirut as a port ofcall and transshipment hub.

However, the company’s two recent activities—finalizing athree-year contract with the Beirut Port Authority at thestart of 2007 and laying the cornerstone for the newregional operations building with capacity for 400 employeesat the port’s free zone in April—are in no way interlaced,insists the general manager for CMA CGM (Compagnie Maritimed’Affrètement-Compagnie Générale Maritime) in Beirut,Georges Kurban who told Executive that it is “wrong” to askabout the two issues in one question.

Building in Beirut

In the core of the matter, the company’s decision to buildits own offices in Beirut is the older of the two moves andrelated to its global strategy. “The project has beendecided long time ago because this is our homeland, wherethe roots and origins of CMA CGM are. This step is withinthe process of the image of the company to have offices invarious parts of the world,” Kurban said.

Other office development projects of the firm include a newoperations center in Marseilles and a regional office inAlgiers, as well as a building in the American seaportVirginia Beach. While the international center of CMA CGMactivities will expand in Marseilles, the Beirut premiseswill also house Merit Corporation, the holding companythrough which CMA CGM’s Lebanese founder and presidentJacques Saade and his family control the shipping firm andseveral smaller sister companies involved in freightforwarding, overland transport, real estate ownership, andtrade in office supplies.

Active for decades

The company has been active in Beirut for decades, Kurbansaid, serving clients in Lebanon and the hinterland. Itexpanded its activities significantly in recent yearsthrough adding the port to its weekly shipping service onthe route that originates in the industrial ports ofnorthern China and Indonesia’s Port Kelang and offersservice to Jeddah, the Mediterranean, and Northern Europe,and last November on the reverse route from Europe to theFar East that also facilitates shipments from Beirut toJeddah and other Red Sea ports.

The weekly stops which CMA CGM secured through its newcontract with the Beirut Port Authority brought business andjobs to the port. When total container movements at the portin January and February increased by 70% from the sameperiod a year ago to over 154,000 twenty-foot-equivalentunits (TEU), transshipment activities by CMA CGM and itslarger rival MSC, which also transships at Beirut, can beexpected to have contributed significantly to the strongrise in traffic, on top of increases in Lebanon’s nationalexports and imports that have given some hopeful indicationsfrom the start of this year.

Kurban did not specify the number of containers which CMAvessels has loaded and unloaded in Beirut per month sincethe company started calling on the port on both legs of itsnorth China route but he confirmed that volumes coming fromChina are generally larger than the volumes traveling theother way.

The importance of the contract that secures CMA CGM’susage of the Beirut Port container terminal at Quay 16clearly lies in the fact that it brings transshipmentbusiness. Attracting major shipping lines to make Beirut ahub for regional traffic was one of the main objectivesbehind the expansion and rehabilitation of Beirut Port thatstarted in the 1990s and resulted in an operationalcontainer terminal with the installation of modern gantrycranes about three years ago.

On the strength of these cranes, which can transfercontainers between CMA CGM’s 6,500 TEUs carrying mothervessels and four (on average) smaller feeder vessels perweekly visit, the company serves its clients in easternMediterranean ports between Mersin in Anatolia and Damiettain Egypt from Beirut. In total, the hub operation coversseven ports in Turkey, Syria, Cyprus, and Egypt.

Beirut’s evolution into a successful transshipment centershows how much the port could achieve after years ofinfighting and various obstacles to its start of containeroperations were removed. It also proved skeptics—which in the past few years have included members of theshipping industry and the port administration—wrong in theirassumption that cargo increases at the port would mainly bedriven by terminating trade and not by transshipment trafficto other destinations.

Beirut’s ‘gift of nature’

For Kurban, the reason why Beirut could win the businessof major shipping lines is a mixture of the liftingcapacities, trained operators, and what he called a “gift ofnature”. “In comparison with other ports in the region,Beirut has new terminal and services that other ports cannotoffer. It also has a natural advantage in the water depth atthe quay that other ports cannot provide,” he said.

However, Kurban added that the gantry cranes of Beirutwith their 60-ton lifting capacity could soon enough beensurpassed by regional deployment of cranes with 100-toncapacity that can move containers at higher speed. Dependingon cargo flows and the services they offer, other nearbyports thus could in future successfully angle for becomingregional hubs.

He sees the future of shipping on global scale influencedpositively not only by China but also by the development ofcountries such as India and Vietnam or Latin Americancountries which claim greater manufacturing roles. “Theshipping industry from 20 years ago is totally differentfrom the shipping industry today, because of the developmentof the countries and the development of bigger and fasterships that offer better revenues and lower costs,” he said.He expects good development of the shipping and freightforwarding industry to continue further “but I believe noone can give you a date” on how long the industry will boomas it did in recent years.

With about 1% of the company’s global work force basedhere, Beirut cannot be expected to be an overpoweringrevenue factor in the books of CMA CGM. The company,according to its results presentation for last year fromMarch 2007, achieved a worldwide turnover of $8.4 billion ona shipping volume of 5.9 million TEUs, representingincreases of 33% and 28% respectively, as the groupintegrated the Delmas company from January 1, 2006. Netprofits last year increased by 5% to $611 million.

Growth strategies of CMA CGM include more acquisitionsworldwide, a near-term increase of its fleet to over 300vessels (on the back of accomplishing a 50% increase in itsfleet size to 286 vessels at the end of last year), andopening of new routes. In North Africa, the group has boldplans for Algeria, including financial services and railservices. In the Middle East, Iraq is a country where Kurbansees a strong role for CMA CGM as soon as the situationimproves, based on the company’s long presence andexperience in the area.

Kurban, on whose desk sat a brochure on an expansionproject of Lattakia Port at time of his interview withExecutive, said that the company’s growth plans for theEastern Mediterranean include operations in Syria andbidding for port projects there and wherever attractivecontracts are being offered. CMA CGM, which manages Maltaport under an exclusive agreement and has operatoragreements in 15 ports overall, had been a bidder for thecontainer terminal operator contract at Beirut Port but didnot win the deal.

In this age when the position of Beirut is that of a portcompeting with several others for a regional role in theEastern Mediterranean and the idea of ever seeing a sizeablecommercial fleet of Lebanese-flagged ships is remote, thefamily-run CMA CGM group built by entrepreneur Jacques Saadeinto a modern-day shipping firm with 11,500 employees (andan active global employer of Lebanese) is the closest thingto a Phoenician maritime trader empire which one can find inthe early 21st century.

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Banking & Finance

Bonds… Corporate Bonds – Debt trading comes on strong in region

by Executive Staff
written by Executive Staff

The growth of bond issuance in Arab markets, includingconventional and Islamic paper, has taken off in 2006-2007.Figures circulated by the financial industry say that bondissuance by GCC corporations reached $18.2 billion in 2006,compared with less than $2 billion in 2003. In total, GCCbond issuance surpassed $40 billion last year, comprisingsovereign, banking, project finance and corporate issues aswell as shariah-compliant issues.

The increase of 2006 was exceptional because numbers wereinflated by some very large issues from the UAE, namely aconventional bond by Abu Dhabi energy company Taqa worth$3.5 billion and by two similar-sized shariah-compliantissues from real estate developers Nakheel and from Dubai’sPorts, Customs, and Free Zone Corporation (PCFC), PhilippLotter, a senior credit officer of international ratingsagency Moody’s Investor Services, told Executive.
Lotter authored a study that forecasts 2007 to be anotherextraordinary growth year, with issuance of corporate bondsin the GCC to at least double by end of December and withoutrunning out of steam. Even issues much smaller than theheadline-making multi-billion-dollar bonds “faced strongdemand,” he said, and there is no danger yet that smallerissues will be crowded out.
 

Bond experts from the banking industry also see the MiddleEast just at the start of an epochal journey to develop theprimary and secondary markets for tradable fixed-incomesecurities. Coming from a minuscule base, “the market hasdeveloped very well. We foresee healthy growth for bonds andsukuk in 2007 and beyond,” said Tim Harrison, associatedirector of HSBC Bank Middle East for corporate andinvestment banking.

Corporates and government-backed companies last year werenot the region’s only forces with a mind to issue morebonds. According to Lotter, bond issuance in the GCC in 2006originated to $13 billion from banks and to $9 billion fromgovernments. Project finance for $3.5 billion pushed thetotal to $40.3 billion. Corporate issues were split 60-40between conventional bonds and sukuk.

The volume of fixed-income securities in the Middle East hasexpanded across all type of products, affirmed Adel Afiouni,a managing director with Credit Suisse based in London.Conventional and Islamic, debt, asset backed orequity-linked, etc. has increased substantially over thelast years and there is clearly room for much more growth,added Afiouni who heads CS’s Middle East & North AfricaInvestment Banking Coverage.

The bond market’s spell… You are getting verysleepy
 

What creates the spell of the bond market? Bond varietiesare much more numerous than spy movies but on average alsomore boring. An Aston Martin is not required, and neither isa Martini, but small is the band of people with fascinationand license to deliberate on semi-annual coupons, redemptionvalue, floating rates, puttability, and the inverse relationof price and yield.
 

The fixed-income market is also the domain of specialists.While individuals do buy bonds and US households have beensaid to hold about 10% of US bonds in circulation, theretail investor mostly interacts indirectly with the bondmarket—either through owning stakes in bond-investing funds,or as beneficiary of pensions and returns from otherinstitutions which rely heavily on sovereign bonds orcorporate issues.
 

But for companies as issuers and institutional investorsas buyers, the fixed-income market is a sexy propositionbecause it is a merry match to equity for serving fundingneeds, to such an extent that bonds today are amulti-trillion dollar market which makes the current size ofArab bond business look like an orientation course.
 

However, the exponential growth has been quite recent whentaken in the historic context of bond issuance which hasbeen closely aligned with the rise of the financial industryfor some four centuries.
 

Initially, the lenders of post-medieval Europe conceivedof bonds to meet the large funding needs of rulers and thosenoble families whose nobility referred to running upexpenses in chronic excess of their income.
 

Bonds helped the early bankers to source funding that theycould not provide on their own and distribute risk inserving such customers. The idea also caught on for warfare,the real money-burner of all ages. European countries andlater on the United States issued war bonds to cover theimmense cost burden of the World Wars. Depending on thesuccess and righteousness of the conflicts, war bonds werethe—by all means risky—mixture of patriotism andprofiteering that could generate excessive gains for somebut usually meant sacrifice for many, or ruin after lostwars.

Trains push developing bond market
 

Another great source feeding the evolution of bonds wasinfrastructure finance, especially railroad bonds, whichwere the rage in the 19th century rail transport revolutionfrom economizing Czarist Russia over train spotting Britainto freewheeling North America. In an age of wild expansionand no supervision, the surge of railroad bonds offered theunintended side-effect of giving fraudsters handyinstruments for duping gullible buyers with worthless fakes.
 

The transport industry debt instruments thus contributedprominently to the emergence of the credit ratings industry,which started out with small providers of information ondebt instruments such as railroad bonds to investors at thebeginning of the 20th century. But it wasn’t until theproliferation of debt markets and bond issues from the 1970sthat ratings agencies started booming and fee-based ratingof corporations and debt issuers became a phenomenal growthbusiness.
 

US corporations were the first to delve into bonds asalternatives to equity and bank debt, followed in the 1990sby European companies. Researchers say that issuance ofcommercial paper alone increased almost threefold in the USin the last 10 years of the 20th century, supporting annualrevenue growth rates of 15% for the leading ratings agency,Moody’s. Europe’s corporate bond market benefited from theMaastricht treaty and euro introduction and more thandoubled between 1995 and 2000.
 

The growth was accompanied by introduction of newregulatory and ratings mechanisms. But risk shocks have notentirely vanished in corporate issuance, even when theissuer is not an unrated entity or producer of a junk bond.An example for a bad risk that caught the US market offguard was the case of telecommunications firm WorldCom fiveyears ago.
 

Investors in bonds by WorldCom—which had made the recordbooks with an $11.9 billion corporate bond issue rated byagencies as investment-grade just a year before itsdevastating fraud and financial scandal in 2002—lost abouttwo thirds of their money when the company went belly up.The partial recovery of investments meant that bond holderswere still better off than other WorldCom stakeholders butthe case reverberated in the courts.

In the Middle East, bonds are coming into big play a good30 years later than their rise in the US and about 15 yearslater than in Europe. But this does not mean that the bondidea is past its prime. Given the relative saturation of theUS bond market, indicators suggest that the Middle East candraw a lot of attention to its bond issues, bothconventional bonds and their Islamic equivalent, sukuk.

Benefiting from a ‘virtuous circle’
 

The bond market in the Middle East is benefiting from a“virtuous circle of increased issuance by regional borrowersand increased interest from international investors,” saidAfiouni. He told Executive that the increase in the volumeof new corporate bonds over the last years is the result ofissuers realizing that they can benefit from globalliquidity to diversify their source of funding away fromtraditional local banks lending and tap into a new investorbase. International bond buyers in turn are attracted by thefact that Middle Eastern bonds provide diversification andstill offer some premium and an attractive risk returnprofile over comparably rated bonds from issuers in otherdeveloped markets.
 

In April, the growing role of regional bond finance wasfurther illustrated by news that Saudi billionaire Maan AlSanea (a Saudi Arabian financier who won global attentionthis year by being included for the first time in the Forbesbillionaires list) intends to finance acquisitions andexpansion measures of the Saad group by issuing conventionaland Islamic bonds worth about $5 billion. The news came onthe heels of an announcement that Sanea bought a $6.6billion stake in HSBC.
Given that integration of financial markets andliberalization/deregulation measures are among the mainelements that stimulate the growth of the financialindustry, Arab bond markets are likely to get further boostsfrom convergence measures, including the planned monetaryunion.

Euro gains currency as bond instrument
 

In this context, European central bankers have pointed outthat the euro has gained in importance as bond issuingcurrency through the European Monetary Union, which moreoverhas boosted intra-eurozone trade volumes by around 10%without hurting external trade. This raises the question howstrongly the GCC joint currency project will influence thegrowth of trade and financial markets in the region—if itsucceeds as planned—and how much this will enhance the bondscene.
 

However, the majority of current GCC bond issuers addressinternational markets, said Harrison, implying that theimpact of regional economic integration will be less of afactor for the Middle East bond market boost.
 

“In the Dubai ports issue, 95% of investors came fromoutside,” he said, adding that the majority of currentissues, including Islamic ones, are denominated in dollar,because that makes them much more appealing to internationalbuyers.
Elements of the overall bond issuance picture incurrencies and formats that appeal internationally are alsothe Euro Medium-Term Note Programs (EMTN), debt instrumentswhich several regional banks have deployed successfully inthe past two years.
 

The market shows trends of broadening into local and otheremerging markets currencies, though. Last month, EmiratesBank Group closed its first bond denominated in the ThaiBaht, a $61.5 million issue that was lead-managed byStandard Chartered Bank, the same bank that had arranged GCCbond issues targeting other Asian markets by beingdenominated in Singapore and Hong Kong dollars.

Local investor hunger
 

In an example for companies responding to local investorhunger, Kuwait’s Global Investment House in late Aprilclosed a KWD45 million ($156 million) bond issue withfive-year maturity in two tranches, one paying 7% annualinterest and one with a floating rate. It is the financialfirm’s second bond and will be used to repay other debt andfinance investments.
 

Global’s senior vice president for marketable securities,Saidu Mohammed, told Executive that the investment bankdecided to issue the bond, which it also manages, todiversify and extend maturity of its financing tools, whichinclude funds and Islamic instruments.
 

It is not necessarily cheaper for companies to issue bondsthan obtaining bank loans, said Lotter, but by accessing thebond market firms can diversify their funding base and theirinvestor base. As a lesser motive, corporations also maywant to reap some benefits from the publicity associatedwith launching a massive bond and spreading the news of itsrating in the global financial industry.

Sukuk are bound to claim a greater role in regional fixedincome and are expected to penetrate global markets. Thatinfrastructure development is one major reason for theincrease in sukuk issuance creates a certain parallel in thegrowth of the asset-backed Islamic financial instruments tothe historic emergence of bonds in the debt markets ofEurope and North America. The plans of the UK and Japan, andalso of Germany, to issue new sovereign or government-backedsukuk will make sukuk again more palatable to investors.
To behave like bonds elsewhere, the Islamic andconventional issues need a liquid secondary market wheretrading of bonds stimulates further financial flows. Mostexperts agree that the region’s secondary bond markets arestill some time away, with the Dubai International FinancialExchange—where more sukuk are listed than anywhere else—andthe London Stock Exchange—which recently announced theestablishment of a secondary market for sukuk—being ahead ofothers in the attempt to grab the trading action.
 

Nakheel listed its sukuk on DIFX and LSE, and DubaiIslamic Bank has the same agenda for its new musharakasukuk. But trading in securities on DIFX is still somewhattheoretical and other contenders are in the race for hostingthe secondary market in Middle Eastern bonds. Thesecontenders include Bahrain and Kuala Lumpur, both placeswhere Islamic finance is strong.
 

Given the recentness of bond issuance in the GCC, theexperts would not estimate the timeframe for building aliquid secondary market. “It will take several years,”Lotter estimated. Afiouni noted that the investment behaviorof banks and other bond buyers in the Middle East was, untilrecently, still predominantly characterized by abuy-and-hold mentality. “They put them into the drawer untilmaturity,” he said, “but we expect this to change asinternational investors become more actively involved.”
 

In Kuwait, bond buyers are still holding to maturity,Mohammed said. While he expects the market to grow into moreissues, he sees the emergence of a secondary market for themoment as a wishful proposition. The market is “not thatliquid. If we want to see a liquid bond market, we will haveto be patient,” he said.
 

Harrison, however, claimed that a secondary market forover-the-counter trading of Middle Eastern bonds is alreadytaking off in Dubai. “It is starting already,” he said,referring to an active trading desk at HSBC.
 

With the latest announcements of bond projects, trends for2007 indicate that corporate issuance could well increasebeyond $40 billion this year and peak in a wave of growththat will continue at high rates well into the next decade.Besides the implications for development of a secondarymarket, the booming bonds imply that need for ratings andauxiliary services will increase in the next few years.Information on issuers, overall market conditions, anddetailed fixed-income trends and daily news will be a strongbusiness opportunity.

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Lebanon

A woman‘s work is needed in Lebanon

by Executive Staff
written by Executive Staff

The Lebanese business community gathered recently at one ofBeirut’s posher eateries to celebrate the signing of a tradememorandum between the Beirut and Paris Chambers ofCommerce. However, it was neither the place nor the occasionthat was remarkable, but the fact that among the 100 or soguests, there were only a handful of women.

Studies conducted by the Gender Entrepreneurial Marketprogram (GEM) show that female labor participation inLebanon—which increased from 12.5% in the 1960s to 32.3%% in2000—was estimated in 2003, at 21.7% of the total laborforce. Tapping into this unexploited labor market, theLebanese League for Women in Business (LLWB), anon-partisan, non-profit organization, aims to empower womenin the economic environment by providing a structured forumfor women in order to achieve their entrepreneurial potential.

Filling the vacuum

The NGO was the result of a happy coincidence when the 12founding members met by chance at a conference forbusinesswomen in Tunisia in May 2005. “The conferencebrought together women from all over the MENA region, whichinspired us to reproduce a similar model in Lebanon,” saysNajwa Tohme, manager at Al Rifai Roastery and president ofLLWB. With only 22% of Lebanese women contributing to theworkforce, the founders of LLWB tried to utilize the laborvacuum prompted by increasing numbers of experienced maleemployees leaving the country in search of better careerprospects.

“We decided to support women, trying to facilitate theirentry into the job market. I don’t have exact figures formale versus female productivity, but as Mr. Adnan Kassar,Fransabank’s CEO, stated at our inaugurating conference,when women and men are put together in the same workenvironment, women tend to be more accurate and loanscontracted by female debtors seem also to result in lowerdefault rates.”

Opting for education and vocation

To accomplish its mission statement, namely to “encouragewomen to take the lead to succeed,” LLWB has opted foreducational and vocational programs, networking, advocacyand incubators. “We intend to organize conferences andtrainings that will assist women and point them in the rightdirection. The educational programs will address variousaspects of the business process such as setting up anoperation, drafting a business plan, market research, orapproaching financial institutions,” adds Tohme.

In addition, women employed in private companies willbenefit from the training sessions, by reinforcing theirknowledge base and learning to apply concepts to their ownactivities. To promote the role of women in economy, LLWBwill also approach fresh university graduates. Thereinsertion of women in the workforce after an extensiveleave of absence, usually caused by pregnancy, is anothergoal on the organization’s agenda.

“Once they’ve tended to their family and their children areall grown up, women feel left behind. We can update theirskills, through training sessions, in order to facilitatethe integration process. A perfect example would be offeringcomputer classes.”

Networking

Networking is another tool used for promoting women in theworkplace. This will be done mainly through the conferencingactivity where people can come together, exchange businessideas and present their products. The last field, advocacy,highlights women rights in business, it is supported by ateam of four lawyers, who are also members of the NGO. “Therole of women is quite narrow in business. If one takes aquick look at the banking sector, positions such branchmanager are within a woman’s reach, whereas boardmemberships are a rare occurrence, unless the woman owns astake in the organization,” adds Tohme. “Companiesadvertising CEO positions ultimately favor male over femalecandidates.”

Incubators, the last weapon in the NGO’s hand, offermanagement guidance, technical assistance and consulting,tailored to young growing companies. Once the NGO is largeenough and capable of offering a wide array of expertise,incubators will be used to guide women through the businessmaze. “This particular instrument is part of our medium tolong-term plan,” points-out Tohme.

As LLWB aims to achieve equal opportunities andunrestricted access to resource for women, as well as toenhance female entrepreneurship and leadership, Tohmebelieves that benchmarking will be measured against resultsachieved, as the NGO activities grow.

To build awareness among the business community, LLWBorganized a conference last month devoted to theassociation’s goals and mission, bringing in speakers todiscuss access to SME funding, such as Carlos Lebbos head ofspecialized credits at BLC, Tarek Itani, credit manager atKafalat and Nagy Rizk from the Building Block Equity Fund.NGOs, major business associations and companies as well asAmerican embassy officials were invited to take part in theevent. Few bothered to show up.

For more information: please visit the LLWB Web site at:www.llwb.org

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Lebanon

Retailors join forces

by Executive Staff
written by Executive Staff

Major Lebanese businesses, such as Aïshti, Bank Audi, ABC, Patchi, MEA, BankMed, InterContinental Phoenicia, Virgin Megastore, Global Refund and CityMall have joined forces in a new campaign dubbed “Bhebak Bil Rabih,” (I Love You in Spring.) Promoting Lebanon as a tourist and shopping destination in a conference held on March 1, business owners highlighted the activities planned, including fashion shows, festivals, prizes, car giveaways and more. Participants took, however, a stern stance against both the Lebanese government and politicians, who were taxed with irresponsibility for their failure to solve the ongoing political deadlock paralyzing the BCD (Beirut central district) since the beginning of December. 

“In this year alone, we have witnessed a 70% drop in activity. We’re currently trying to compile loss estimates, while our lawyers study different options, including a possible lawsuit,” said Tony Salameh, chairman of the Aïshti department stores. “A committee mainly responsible for looking into rental, electricity and tax expenses with a possible waiver of companies’ payments will be also formed.”

Michel Ferneyni, owner of La Posta, said Lebanon’s political situation presented an unfathomable paradox that started first with the “ongoing dialogue” resulting in the closure of the BCD, followed by “pacific demonstrations,” which crippled the country’s economy. According to participants, to date, over 80 companies have closed down, most of them permanently. Rumors also circulated about the Habtoor Hotel being put up for sale.

Paul Ariss, president of the Syndicate of Restaurant Owners, who met recently with leaders from all political factions, announced that the prime minister’s office had formed a committee, including representatives from the economy, tourism and finance ministries as well as leaders of industry associations to look into possible solutions. In addition, he asked the government to subsidize no interest, medium and long-term loans for existing businesses.

“The greatest damage done is not merely to Lebanon’s economy, but to its image as well, as the people are increasingly losing faith in their country,” concluded Ferneyni. “Many employees, even those with a secure job in Lebanon, are opting for a career abroad, and will never be coming back.” 

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Lebanon

Radio Orient goes global

by Executive Staff
written by Executive Staff

Radio Orient, aka Izaat Al Shark, has become the first Arabic language radio station broadcasting worldwide. In its January issue, Forbes included the station, which is owned by Future TV, as number 17 on its list of the top 40 brands in Middle East. This month, in order to take advantage of its new global reach and maximize its coverage, the station is revamping its grid of programs, bolstered by three major shows as well as a prime entertainment program called “With a Stars.”

Available all over the MENA region through its internet and satellite networks, the radio station is using local channels to retransmit its programs. “In some countries they’re even retransmitted in full,” said Elie Rahme, manager of Radio Orient in Lebanon. The program grid has been modified to take advantage of its new global coverage, including the morning show (airing during peak drive time in Australia), the afternoon show (broadcast in the morning in the US), and the night show. The program “With a Star” features a different Arab star every week, with giveaway prizes that have participants calling in from the all over the world.

Although Rahme did not reveal international market penetration figures, he stated that the international audience participation to the station’s various programs is substantial. “The fact that people call from the United States, Iraq, Australia or Africa provides us with a clear idea of the station’s global reach,” he explained. 

Radio Orient is supported by a staff of 17 employees based in Lebanon, with the sound operators and editors shared with Future TV. The joint features of the TV and radio stations explain the unified overall marketing approach, however, it should be pointed out that they do not share advertisement booking deals. “People advertising with Future TV will not necessarily use our radio network, because each medium achieves a different type of exposure,” explained Fayez Bizri, Future TV’s financial manager.

According to Bizri, Radio Orient complements Future TV’s network by reaching beyond the traditional televised medium. “Whether they’re at work or driving in their cars, most people have access to a radio. This exposure will likely increase in countries where driving distances are longer,” says Bizri.

When asked about the cost of the worldwide reach of Radio Orient, Bizri did not disclose any figures, saying, “It is difficult to tabulate leasing, licensing and marketing expenses involved in the process.” He did state, however, that the most advanced technology had been used to place the radio station on the satellite system.

Further bolstering Radio Orient’s appeal is the growth of Future TV’s network. “The TV station expansion plan includes the addition of a 24-hour news channel – scheduled to air in April or June – which will definitely benefit Radio Orient by providing up-to-the-minute reporting,” said Rahme.

During April, Future TV will witness another major overhaul besides its new expansion plan and program grid, when current Chairman Nadim Munla will be replaced by BankMed executive, Samir Hammoud.

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Financial Indicators

Global economic data

by Executive Staff
written by Executive Staff

Obesity

Percentage of population aged 15 and above with a MBI greater than 30, 2003 or latest available year

Source: OECD

More than 50% of adults are now defined as either being overweight or obese in no less than 10 OECD countries: the United States, Mexico, the United Kingdom, Australia, the Slovak Republic, Greece, New Zealand, Hungary, Luxembourg 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 31% in the United States.

Based on consistent measures of obesity over time, the rate of obesity has more than doubled over the past twenty 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. Over 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.

Forest

Forest and other wooded land

As a percentage of land area, latest available year

Source: OECD

The percentage of land covered by forest and other wooded land varies widely from country to country: from shares of over 60% in Finland, Sweden, Japan and Korea to 10% or less in the United Kingdom, the Netherlands, Ireland and Iceland.

Long time series are required to capture changes in forest areas. Increases are generally due to active government policies of land afforestation while decreases may be caused by fires, clear-felling of forests without replanting, and conversion of forest land to residential, agricultural and other uses.

The area of forests and wooded land has remained stable or has slightly increased at national level in most OECD countries and has remained stable in the OECD as a whole. However, forest areas have been decreasing at the world level due in part to continued deforestation in tropical countries.

Tsunami aid

DAC member country responses to the tsunami disaster

Millions of US dollars

Source: OECD

The unprecedented humanitarian response to the Indian Ocean tsunami prompted governments, international organizations, private individuals, charities and companies to pledge $13.6 billion to the affected countries. Of that, $5.3 billion was from OECD member governments, and a further amount from private citizens in OECD countries.

Donor governments and the European Commission have committed $1.7 billion to emergency aid and $1.9 billion to longer-term reconstruction projects, to be spent by 2009. More than 90% of the emergency aid—nearly $1.6 billion—was spent in the nine months immediately following the disaster. For reconstruction, $473 million has been spent, leaving $1.4 billion committed and in the pipeline for spending over the coming years.

Together, Indonesia and Sri Lanka have received more than 60% of the funds committed so far.

Government debt

General government gross financial liabilities

As a percentage of GDP

Source: OECD

From 1990 to 1996, government gross financial liabilities were rising in most countries. Since then, government debt has been decreasing as a percentage of GDP in many of the 27 countries in the table. There are, however, exceptions: government debt ratios continued to increase particularly fast in Japan and Korea and significantly in France, Germany and Greece. Korea’s government debt ratio rose by over 7% per year from 1990 to 2003, but this is measured from a very low initial rate and by 2003, Korea’s government debt ratio was still among the lowest in the OECD.

In 2004, government debt ratios exceeded 100% in Greece, Italy and Japan and was close to 100% in Belgium. Most countries were in a band between 40% and 70%, with three countries reporting debt ratios of under 20%—Luxembourg, Korea and Australia.

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Financial Indicators

Regional equity markets

by Executive Staff
written by Executive Staff

Beirut SE: Blom  (1 month)

Current Year High: 1,625.45  Current Year Low: 1,168.36

Between Feb. 28 and March 16, the BSE saw a spike in hope, as much as spikes go in a coma. The index moved from a year low of 1,168.36 points in late February to 1,248 points on March 16, basically driven up by talks between the opposing sides in the Lebanese political quagmire. As the voices announcing impending solutions faded, so did the traders’ enthusiasm and the third week pushed the BSI lower, to 1,224.19 points on March 26. Research, which Dubai-based investment bank Shuaa conducted on Audi Saradar banking group and concluded with a Neutral recommendation, led Audi to shoot back and claim that the fair value of its stock is significantly better than the $61.09 calculated by Shuaa. Audi shares closed at $63 on Mar 26.

Amman SE  (1 month)

Current Year High: 7,407.15  Current Year Low: 5,267.27

The Amman Stock Exchange moved sideways in a range above 6,200 points to close at 6,219.51 points on Mar 26. Arab Bank made headlines, beginning with having to deny a story in a US newspaper that warmed up allegations from a lawsuit that the bank had been used to finance “terrorism.” Later in March, the bank said it halted negotiations on a share sale to a strategic investor thought to be Emaar Properties, and the Jordanian government was said to be increasing its shareholding in Arab Bank in order to keep the Hariri family shareholders from buying up a controlling stake. The stock saw some lively trading in March, with a downward drift. Real estate firm Taameer Jordan was one of the main volume movers toward the end of March. Its share price regained in the second half of the month what it had given in the first half.    

Abu Dhabi SM  (1 month)

Current Year High: 4,648.80  Current Year Low: 2,899.43

The Abu Dhabi Securities Market could not sustain the gains it had made in late February when it clawed its way above 3,000 points. The index dropped by 4% between March 1 and its close of 2,939 on March 25. At the end of the month, property and energy stocks were on the sunny side of the ADSM while banking values were selling. National Bank of Abu Dhabi, which issued 40% cash dividend and 30% bonus shares on March 22, traded down by 11% in the week between March 19-26. Banking news from neighboring Dubai with its impending merger between Emirates Bank and National Bank of Dubai mean the NBAD will, upon completion of the merger, lose its claim to being the biggest bank in the UAE.

Dubai FM  (1 month)

Current Year High: 6,987.91  Current Year Low: 3,675.93

The DFM had a bad month in March, as its index weakened by almost 13% to a new year low of 3,675.93 points on March 25, from 4,207.51 points on Feb. 25. The DFM’s own shares started trading. Emaar, which pleased some analysts with a lower than expected dividend of 20% but disappointed stock owners with the move, traded down and was pushed even to a 12-month low of AED 10.60 on March 25 after Dubai Holding said it will acquire 28% in Emaar through a land-for-shares deal. Shuaa Capital bought back 3 million shares and the stock jumped 10.8% on a single day with high trading volume before sliding again.

Kuwait SE  (1 month)

Current Year High: 10,812.30            Current Year Low: 9,164.30

The Kuwait Stock Exchange had a period of growth as its index strengthened by almost 6% to 10,341.3 points on March 26 from 9,769.2 points on Feb. 27. Telecommunications events supplied major influences on the KSE. In the beginning of the month, the share price of Kipco got a boost from the company’s extraordinary profit from selling shares in Kuwaiti mobile operator Wataniya to Qatar’s Qtel. Shares of MTC, the leading telco in Kuwait, advanced 15% to KWD 3.20 on Mar 26, from KWD 2.79 on Feb. 28. At the end of March, MTC emerged as highest bidder in the contest for Saudi Arabia’s third mobile phone license.

Saudi Arabia SE  (1 month)

Current Year High: 17,730.96            Current Year Low: 6,916.85

The Saudi Stock Exchange ended a month of modest gains and sideways movements with a splash of cold water. The TASI lost 522 points, or just over 6%, on March 26 in its worst one-day drop since falling 6.3% on July 19 of last year. Sell-offs on March 26 included blue chip companies and leading banks such as Sabic, Al Rajhi Bank, SEC, and the two telcos. For the month, the market moved from 8,356.48 points on Feb. 27 to 8,098.36 points on the evening of March 26. Insurance industry IPOs came in a bundle of five simultaneous subscription offerings worth combined SAR 266 million. The Saudi government created a new $320 million company to operate the SSE, with a long-term view of taking the bourse public. 

Muscat SM  (1 month)

Current Year High: 5,956.46  Current Year Low: 4,657.16

After a slide in February to 5,781.1 points on Feb 26, the Muscat Securities Market went down by 216.73 points, or 3.7%, between Feb. 26 and March 14 before regaining some ground to close at 5616.24 on March 26. The sultanate’s primary market raised new expectations as four companies announced IPO plans. Besides engineering firm Galfar’s OMR 60 million flotation, Oman Merchant Bank and government-owned investment firm Takamul (in May) and Oman Oil Marketing Company are the IPO candidates for 2007. Additionally, Al Omaniya Financial Services will float a two-year OMR 8 million convertible bond.

Bahrain SE  (1 month)

Current Year High: 2,251.15  Current Year Low: 1,996.68

The Bahrain Stock Exchange closed at 2,130.71 points on March 26, down by 0.6% when compared with its level on Feb. 27. The index had dipped lower in the middle of the month but things appeared uneventful and volumes were once again low. Esterad Investment Company moved up 12% in the second half of March and Nass Corp saw some volume toward the end of the month. Mobile phone operator Batelco announced the purchase of 20% in Yemeni network SabaFon for $144 million.

Doha SM: Qatar  (1 month)

Current Year High: 9,878.10  Current Year Low: 5,825.80

The downward movement of the Doha Securities Market slowed but did not cease and the DSM index slipped 3.5% to 6,060.16 points on March 26 from 6,277.1 points on Feb. 27. This performance put the DSM again as the GCC’s largest underperformer for the year-to-date with a drop of 15% since Jan. 1. After dividend events, banking stocks such as Ahli and Commercialbank paced the market’s downward trend in the later part of the month. Qtel, which initiated the purchase of 51% in Kuwait’s Wataniya telecom, stabilized toward the end of the month. Nakilat continued its rise that started in February and gained 18% in March. DSM market authorities suspended a brokerage for one month for violating regulations.

Tunis SE  (1 month)

Current Year High: 2,712.33  Current Year Low: 1,861.15

The Tunisian Stock Exchange in March traded sideways on a high plateau and the Tunindex closed at 2,610.14 points on March 26, about 100 points below its year high from Feb. 9. Tunis International Bank participated as lenders in a 55 million euros project finance facility for a new residential project in Libya, the first such finance arrangement in Libya’s real estate sector.

Casablanca SE All Shares  (1 month)

Current Year High: 11,552.97            Current Year Low: 6,563.27

The Moroccan exchange broke through the 11,000 points line in early March and scaled further index gains to close at 11,478.87 points on March 26 in continuation of its rise which brought its gain for the year to date to a tidy 21%. Morocco’s central bank said it expects commercial banks in the country to be compliant with Basel II rules by this summer. With ongoing reforms, the central bank also hinted that a loosening of restrictions on investing in foreign bourses might be on the books, which might take steam out of the Casablanca Exchange and its extended rally.

Cairo SE: Hermes  (1 month)

Current Year High: 65,135.08            Current Year Low: 41,965.37

The Cairo and Alexandria Stock Exchanges entered the month with a week of downward motion to the 61,000 points level but the index moved back up and closed at 63,859.80 points on March 26. While Telecom Egypt shares made some gains in late March on news of higher 2006 results and a very faint outlook of a secondary 20% flotation in a few years’ time, Orascom Telecom Holding received three regulatory decisions against its MobiNil affiliate and got disqualified from bidding for the third Saudi mobile license, with rumors going wild on the reasons. Al-Watany Bank found several suitors interested in buying a strategic stake. Emaar Properties subsidiary Emaar Misr said it would file a complaint over a CASE decision refusing to list its shares.  

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InsuranceSpecial Report

Islamic Insurance: The concept

by Jihad Feitrouni
written by Jihad Feitrouni

People have used insurance in the past to protect against impact of damages and risks.

In the absence of the social insurance, which Islamic countries shoulder to counter the effect and impact of damage to a nation and its assets, and as the majority of countries relinquished their responsibilities in reinforcing cooperation between their people, there grew the need to look for an alternative that guarantees to protect against damage and loss. This alternative is insurance companies operating in Islamic countries, similar to those commercial insurance companies operating in western countries.

Since the nature of transactions practiced within non-Islamic commercial insurance companies do not comply with provisions of Islamic shariah (and often insure establishments and companies that practice types of business not in compliance with shariah provisions), it became essential to look for an Islamic alternative, one that adopted cooperative insurance principles in its business transactions. Islamic insurance is known as “a collective insurance contract” by virtue of the fact that every contributor pays a specific amount of money as a donation for the purpose of indemnifying other contributions on the basis of solidarity and takaful.

Insurance operations are managed by a specialized company on basis of proxy wakala against a pre-determined charge. The subject of the contract is the commitment by all those insured to bear the risk sustained by another contributor. Thus, it is a contractual relationship based on solidarity and takaful to spread risk.

The role of insurance companies in the Islamic insurance system is to manage insurance operations by way of underwriting and execution since this is beyond the policy holder’s capabilities due to the large number of contributors. The company enters into agreement with the contributors by which it collects insurance premiums and pays incurred indemnity to those who have sustained damages in accordance with the regulations, principles and criteria dedicated for the purpose, in addition to all other operations which are required within the insurance industry. All these duties are performed in its capacity as a proxy wakeel against a predetermined charge. The company promises, in the name, and interest of the contributors, to either indemnify against a great portion of damages and losses sustained or indemnify it totally.

As for insurance premiums which are collected from contributors, it is usually enough to cover operational costs, pay incurred indemnity amounts or allot to all types of technical reserve amounts.

For the purpose of determining the amount of insurance premiums, formal statistical principles are applied for each type of cover. Should the premiums not be enough to meet the liabilities, the deficit will be covered by the shareholders on the basis of al qardh al hasan or  “Good Loan,” and if the company has a reserve balance as a result of insurance premiums profit surplus, the deficit then will be met by that surplus.

Jihad Feitrouni is the general manager of Dubai Islamic Insurance & Reinsurance

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