Lebanon

The ABC Group does retail by the letter

by Executive Staff
written by Executive Staff

According to the latest figures in the retail real estatemarket, the sector is growing faster in the Gulf than in anyother region. The business website AME Info reports that by2010, nearly 50 million square meters of gross leasable area(GLA) will be available in the area, with the UAE and SaudiArabia taking up 44% and 30% of the pie, respectively. By2009, Dubai is also expected to have the highest retailspending in the GCC, beating out Saudi Arabia, despite itssmaller population. The city is gearing up for this increaseby building giant malls, such as the Dubai Mall, which isbeing hailed as the largest in the world. Hoping to cash inon this growing trend is the ABC Group—operators of the ABCdepartment stores and malls—which is scheduled to open two stores this year in Bahrainand Amman.

From the original store that was located in old Beirut onBab Idriss Street in 1936, the ABC Group has since morphedinto an expansive department store, with two shoppingcenters and a number of additional stores, including twonewly-added cosmetic and perfume outlets, under its belt.Despite the civil war that first claimed the Bab Idriss shopin 1976, followed by the 1982 destruction of the Hamra andTripoli stores, ABC has managed to become a member of theInternational Association of Department Stores (IADS),boasting retail spaces of over 60,000 m2.

Leader in Lebanon

According to figures provided by ABC, the Group enjoysone of the highest brand awareness rates in Lebanon,estimated at 97%, while 76% of consumers shop at one or moreof its locations. Within its first year of operation in2003, the ABC Mall in Ashrafieh was visited by five millionshoppers, with the number of visits to the Dbayeh mallamounting to 2.5 million per year. Branching out with ninedepartment stores into various Lebanese regions, such asBeirut, Zahleh, Kaslik and Tripoli, the company is supportedby a staff of over 600 employees.

The ABC concept as we know it today has shifted away fromits original exclusive focus on retail activities. “Thecompany started first as a regular retail business, addingat a later stage a real estate arm in charge of building,developing and leasing retail space, which resulted in ashopping center, comprising an inclusive ABC departmentstore,” said Robert Fadel, ABC’s director. This shift instrategy was marked by the construction of the Dbayehdepartment store, where for the first time, space was rentedto retail businesses. This move was subsequently followed bythe construction of the 42,000 m2 Ashrafieh mall. Otherservices, such as child daycare, information desks, weddinglists and a car wash were also added to the initial basketof products offered by the Group.

Expansion into foreign markets seemed like the naturalnext step. Prompted by booming Arab markets, Lebanese marketlimitations and a teetering political situation, variousfactors conspired to export the ABC concept to the MiddleEast. In the Jordanian and Bahraini markets, consideredstepping stones in the company’s overall expansion plan, thebusiness model adopted was either inspired from the Lebanonexperience or completely overhauled. “Occupying a 4,500 m2surface, the Amman department store will be similar to theBeirut one, although it will be developed on a smallerscale. The Bahrain 1,500 m2 concept store, however, focuseson women’s apparel, which includes accessories, shoes andlingerie,” added Fadel.

Positioned as mid- to high-end outlets, the ABC departmentstores offer various international brands, such as Carol,Tintoretto, A Priori, McGregor and Kookai, as well as luxuryitems from Chanel and various jewelry designers. The storesalso provide tableware and household items, shoes,accessories, cosmetics and perfumes, which are sold atcompetitive prices. With over 100 international, regionaland local brands holding sales stands at ABC, the group isthe largest retail developer in Lebanon, incorporating over200 tenants. Within the Middle East, the Bahrain and Jordanstores will also be positioned in the middle range of theretail spectrum, with Debenhams on the lower end and HarveyNichols on the higher end. “Besides these two contenders,basically anyone in the fashion industry is our competitor,”said Fadel.

Expansion plans

Collections on display in the Jordan and Bahrain storeswill also differ from the ones available in Lebanon, as aresult of differing store sizes as well as conflictingrepresentation and exclusivity contracts, a problemcurrently under examination by the ABC management. “TheAmman store will, however, include ‘shop-in-shops,’ such asKookaï or Chanel,” Fadel pointed out.

Despite expansion into foreign markets, ownership of thecompany will not be affected. “The company is owned up to80% by the founding family, with the remaining 20% dividedamong 100 shareholders,” explained Fadel. Owners also relyon a flexible structure based on three core activities:operation and services, leasing, and merchandising andmarketing.

Operation and services, the first sector of activity, isunderpinned by support services—including HR, purchasing,MIS, design and in-store marketing, maintenance,warehousing, finance and legal office departments. Store andmall operations are divided by area—including Dbayeh,Tripoli, Zahleh, Hamra, Ashrafieh, Kaslik and Furn elShebbak—and overall mall management. Leasing, the secondcore activity, is dependent on the company’s real estatearm. Lastly, the marketing activity involves events andpromotions, customer relationship management (CRM), marketresearch and communications. Purchasing is in charge ofregrouping ladies’ and men’s wear, shoes, lingerie,children’s wear, home items, appliances, toys andaccessories under one roof.

While the Group’s larger projects in Lebanon requiredmajor investments—the company’s total assets are currentlyestimated at over $100 million—the Bahrain and Jordanventures will require less capital. Including the cost ofmerchandise, the new ABC stores will fall within a bracketof $5 to $10 million and will be backed by staffs of 50 to200 employees. Fadel also expects sales revenue for the twonew outlets to vary between $4,000 and $7,000 per m2, afigure that can be put in perspective when compared to the$3,000 generated by local Lebanese stores. Considered one ofthe highest non-food ratios in Lebanon, ABC’s turnoverrepresents 13% of the $1.5 billion Beirut retail market.

Like any other company with an eye on attractive businessopportunities available in the Middle East, Fadel isconsidering ABC’s expansion into Kuwait, the UAE, Syria,Egypt or the KSA. As for going public, however, he has lessambitious plans. “It will eventually happen, sooner ratherthan later,” Fadel stated, “but there is no definite timeframe yet.”

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Lebanon

Parking meters Coming to Beirut

by Executive Staff
written by Executive Staff

This month will see 50 parking meters installed in one areaof the Beirut Central District. The pilot scheme, operatedby Near East Automatic Distributors (NEAD) in an $8 million,2.5-year, World Bank funded project, will then see a further10-20 on Charles Malik and Bliss streets and 50 more in thearea currently occupied by opposition campers. Althoughtargeting commercial areas, NEAD will eventually targetspecific residential zones to offer resident parking permitsin a system similar to that operated in London and othermajor cities.

“The number will eventually rise to 750 throughout Beirut,”says Chafic Sinno, NEAD’s managing director, “We will belocating them in the business districts, where we hope thecustomer will have the social wherewithal to understand andaccept the concept as something that is beneficial.”

The concept is simple. One main meter will dispense ticketsaccording to the “pay and display” system, with LL500 buying30 minutes and allowing a maximum stay period of twohours—perfect, Sinno believes, for the short-term parker.Customers who overstay their welcome will receive multiplefines—or citations—and further non-payment can result in a“booting” or immobilizing if the car is later spotted atother meter locations.

Drivers who think they can simply throw away the citationand disappear will be disappointed. Records are kept and,now that the mécanique renewal process is also under theauspices of the private sector, “wanted” drivers who haveoutstanding fines will not be able to renew their car papersuntil all debts have been cleared.

Handing out fines will be the responsibility of fieldoperators, all of whom will be accompanied by police, whosepresence—especially on the notoriously territorial BlissStreet running the length of the American University ofBeirut—will be welcome.

Those who have had run-ins with the often-threatening andintimidating parking attendants on Bliss might be skepticalabout NEAD’s chances of success on this busy,student-drenched thoroughfare. Even if they do contribute totraffic congestion, most businesses rely on double parkingfor their customers and, until now at least, the policehave, by and large, turned a blind eye.

Sinno is confident that the system will work and isrealistic about how people will react to the newrestrictions. “Listen, on Bliss Street, we will be flexible.We will not penalize very short term drivers if theyactivate their flashers, keep their windows down and ensuresomeone stays in the car,” he explains, adding that the jobwill become easier when the sidewalk is widened, a move thatshould make the street’s double parking culture impossible.He also insists that no one has been bought off in his bidto enforce parking.

“On Bliss, we are going head on,” he explains, “It will notbe easy. They [the shop keepers and restaurant owners] haveno idea we are coming and they will just have to deal withit. The police have been told that they too must cooperate.No one has been paid off. The orders have come from the verytop and we are receiving encouragement from all the seniormunicipal officials. In any case,” he laughs, “my marginsare too tight.”

Sinno confirmed that he had initially recruited 40 fieldoperators and that this number will rise to 150. He isconfident that if an operative is doing his job correctly,he should issue around 70 citations a day. In the firstyear, the government estimates it will generate revenues of$5 million, part of which will be given to NEAD—which hasbeen operating vending machines in universities, hospitalsand big offices for 12 years now—as its operating fee, andpart of which will be used to pay off the World Bank loan.

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Banking & Finance

Private equity booming

by Rami Bazzi
written by Rami Bazzi

The United Kingdom’s National Union of General andMunicipal Workers (GMB Union) has recently accused privateequity firms of evading tax payments on billions of poundsthat have been borrowed to fund their buyouts. The Union hasblamed the tax code for encouraging investors to overloadcompanies with debt in order to claim tax relief on theinterest payments.

However, evidence indicates that the private equity housesare delivering enviable results for investors and in factthe private equity industry has become a great Britishsuccess story.

The benefits are not simply the high rates of return oninvestment. There is evidence that takeovers by privateequity firms will, in the medium term, generate jobs, ratherthan destroy them. For instance, a study by NottinghamUniversity’s Center for Management Buyout Research studiedprivate equity deals over a five-year period, (1999-2004),and concluded that there was a significant increase inemployment, up by an average of 26%, after five years. Thatstriking figure suggests that private equity injectsefficiency and generates growth.

As a result, the private equity industry is booming inmany parts of the world and is highly regarded in the MiddleEast and other emerging markets including China, Sydney andthe US. According to Thomson Financial, private equity netreturns outperformed the S&P 500 19% to 9.7% for the 12months to last September and 14% to 9.7% for the past 20years. The firm predicts that new money will keep flowinginto private equity as long as the public market fails toallocate capital efficiently.

The immense benefits of private equity to the overalleconomy make it a vital cog in any market. Private equityhouses and activist fund managers of all kinds, includinghedge funds, play a much more valuable role than anygovernment or regulator in propelling the liquidity of ourcapital markets, in reducing the cost of capital, in drivingforward a country’s growth and in equipping the industry tosurvive and compete in the more challenging global marketsof today.

What we also need to remember is that private equity hasproven its potential in enabling the institutionalization offamily businesses and in the implementation of propercorporate governance, key to the sustained growth of today’senterprises.

Critics of private equity also highlight the limitedaccountability as one of the drawbacks. What they fail tounderstand is that in reality, when a private equity firmpurchases a company, ownership and control are much moreclosely aligned on the main shareholders. On the otherhand, in public companies, mechanisms of accountability haveto be developed because of the separation of ownership andcontrol.

The concentration of ownership in private equity meansthat formal accountability mechanisms become far lessimportant and the owners are actively engaged in thesupervision and management of the business.

If the importance of private equity has been wellestablished in developed markets, its role in supporting thedevelopment of emerging markets will be even moresignificant, especially in sectors such as IT and telecoms.For instance, in China, the total investment for 2005 was anincredible $1.057 billion invested over 233 enterprises in2005. As a result, hoards of foreign private equity firmshave rushed to quickly establish a physical presence in thecountry to take advantage of its huge domestic market, largepool of low cost engineering talent, technologicalinnovation and fast growing economy.

In the Middle East, the Islamic module of private equitypractices presents the optimum solution for many of thechallenges faced by private equity. The shariah law governsthe mechanics as well as the integrity of the investingoperations. For example, the shariah law prohibits investingin industries that are considered detrimental, such asalcohol, tobacco and weapons. The money invested also needsto be from permissible industries and cannot be from a fixedincome ROI whether it’s interest-based or interest-like.Another shariah investment requirement relates to acceptableleverage ratios. The ratio of the total debt of a targetcompany to its total assets must be less than 33%.

In Malaysia, such Islamic banking practices are popularamong non-Muslims and have proved to be a mainstreambusiness in many emerging markets, especially in the MiddleEast where the Islamic funds are mushrooming at anaccelerated rate. Those funds have proved to be lucrativeand trustworthy, as they can be a good alternative to theconventional funds whose integrity is in question.

Unfortunately however, the campaign against the privateequity industry is not tenuous. The growing use of“shareholder loans” in highly leveraged structures allowsprivate equity groups to disguise the equity as debts andobtain tax deductions. On the other hand, controversialquestions are being raised over jobs and working conditions,about private equity firms who made staff redundant andintimidate workers to maximize short term profits in firmsthey buy out.

The UK private equity industry continues to be the largestand most developed in Europe, and accounts for more thanhalf of the total annual European private equity investmentin 2005. Although private equity has been criticized by thelabor unions, wisdom dictates that the issue is actuallyrelated to tax policies and not necessarily to thefundamental characteristics of the private equity industry.We need to realize that exceptions cannot become the normsin free and open economic markets if economic progress isour underlying concern.

Rami Bazzi is principal fund manager at Injazat Capital

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Banking & Finance

Private Equity: A close look at a maturing asset class

by Executive Staff
written by Executive Staff

The Middle East and North Africa region has become apowerful magnet for private equity investment, as the totalnumber of capital raised reached $4.1 billion in 2006,according to insiders in this segment of the financialindustry. The experts expect private equity investments toincrease greatly in 2007, but also warn that the challengesfor the year ahead continue to be dominated by thedeployment of private equity cash into attractive companies.

By some measures, the region is poised to become the nextbig market in private equity, analysts say. “The privateequity industry globally is benefiting from enormous growthand the Middle East is no exception,” Colin Taylor, managingdirector and head of Credit Suisse’s Alternative CapitalDivision in Europe, told Executive. “There is a high levelof liquidity, enabling private equity players to raisesubstantial funds,” he added.

The region’s private equity evolution is trailing a fewyears behind the development of this industry in G7countries and is still small when compared with the region’seconomic engine and leading source of liquidity, the oilsector. OPEC is expected to generate close to half atrillion dollars this year, and the Middle East’s shareestimates are in the range of $320 billion in oil and gasexports revenues.

Despite a lot of buzz about private equity in conferencesand press statements, and despite the formation of aregional association for the industry, the real muscle ofprivate equity funding has not yet been shown to the curiouspublic. Numbers compiled by the international EmergingMarkets Private Equity Association (EMPEA), the regionalorganization Gulf Venture Capital Association andresearchers are several billion dollars apart in the amountsthey quote as results of Middle Eastern private equityfundraising for both the past decade and the past twoyears.

Moreover, if fundraising is the bulging biceps of PEmanagers, it has to work in productive interplay withinvestment activity as the triceps for distributing theaccumulated power into the corporate world. The fewavailable confirmed numbers on PE investments suggest thatit has been a challenge to turn collected funds intoprofit-making ventures.

A review of the funds that were active in 2006 or havebeen announced by the region’s PE firms shows that 20 fundswere in their fundraising phase with a cumulative targetamount of $4.15 billion. According to Zawya Private EquityMonitor, in total, 18 funds were in their investing phase.They had $5.76 billion in their war chests but did not sayhow much of that had already been invested into concreteprojects. For future funds, eight funds had been announcedwith combined target size of almost $3 billion, in additionto which market rumors knew of another seven fund projectsthat would be worth $1.54 billion.

Apart from the impact of the oil boom, analysts attributethis rapid growth in the private equity market, in both thenumber and size of funds, to reduced restrictions on foreigninvestment, the real estate boom—both in the GCC and Levant regions—substantial investmentsin infrastructure development and privatizations, familyconglomerates who are now interested in restructuring andgrowth strategies and favorable results for private equitymanagers from the recent high number of IPOs in the GCC.

“There is a fundamental reason why interest in emergingmarkets remains so strong: returns have not only beenimproving over the last three years, they are looking fairlyrobust on both an absolute basis and on a relative basiscompared to other PE markets,” said a report by EMPEA.

Big Deals

Private equity funds started to gain prominence in theregion in the mid-1990s, and by 1998, a small number offirms had over $300 million under management. Notsurprisingly, the overall industry picture has changeddramatically over the last three years. The private equityhas matured as an asset class with record fund raisings, asharp rise in average fund size and increasing acceptance ofprivate equity by leading institutional money managers.Today there are an estimated 83 firms with over 123 funds—announced, rumored, fund-raising, invested or closed—including those with multiple funds such as Abraaj Capital,Global Investment House, Swicorp Financial Advisory Servicesand EFG Hermes.

Although it’s growing fast, private equity in the MENAregion has yet to show the scale of returns and deal volumethat make PE a force in other global markets. Butnevertheless, there have been big deals in successfuloutbound investment, such as the $1.23 billion paid in 2006for UK’s Doncasters Group, an engineering firm, by DubaiInternational Capital for a majority stake, and Istithmar’sacquisition of billion-dollar stakes in Standard CharteredBank, pension insurance institutions, and properties in theUS and UK.

An example for a successful regional transaction was theDubai-based Abraaj Capital’s acquisition of a 25% stake inEFG Hermes, Egypt’s largest investment banking firm throughthe Abraaj Buyout Fund II in a deal valued at $501million.

And the big deals will continue to dominate in 2007, withDubai Islamic Bank and Dubai World’s announcement of a $5billion family of private equity funds to participate instrategic transactions on a global scale. Another rumoreddeal is from the US-based Carlyle Group MENA Fund, which isexpected to raise over $1.8 billion. Other substantial dealsinclude the $500 million Evolvence Private Equity GCC Fund,by Evolvence Capital, to invest in private companies invarious sectors in GCC.

The list also entails some international names that targetthe Middle East, with Credit Suisse and General Electriclaunching Global Infrastructure Partners, a $1 billion jointventure focused on energy, transportation and water projectsglobally. The fund is expected to take on infrastructureprojects in the GCC.

The need for regulation

The growth explosion in the industry and its economicimportance have not gone unnoticed by governments and themedia. This importance and the growing public awareness thatit brings have created a call for responsibility andaccountability to investors. Both in the United States andthe European Union, calls for increased regulation or for“tightening” the rules that govern private equity groups arenot new.

These same calls are now being echoed in the MENA region.Observers agree that the region should not fall in the sametrap as the US and EU, and should be prepared by developingmodern policies that would ensure the commercial climate isas supportive and competitive as possible, to protect bothsides on the private equity deal. “Regulatory changes willcontribute to growth by opening up investment opportunitiesfor PE, like the FDI rules for India, and by introducingplatforms like the DIFC to operate a PE business,” RodPalmer, a Dubai-based partner in international legal andmanagement firm Walkers Global told Executive.

Financial experts are suggesting a review of the industryin the region to promulgate new regulations that wouldensure market stability and create an oversight body forsupervision of registered firms. For example, the new bodywould look into the potential risk that PE activities mightpose to the broader financial system. Investigators shouldlook at the levels of debt in buyout deals and the growingprevalence of private equity backed bids for listedcompanies and the impact that this might have on the publicmarkets.

There has been another suggestion by experts in the EUthat call for moving away from a prescriptive mode ofregulation toward a more principles-based approach. Thisapproach places the burden on individual firms to spot therisks relevant to their businesses and to develop andimplement procedures to mitigate those risks. The biggestbenefit of this approach is that it provides a proportionateand flexible regulatory regime, allowing firms to have agreater hand in the way they implement policy. And finally,fund managers must provide more transparency by publishingdetails of their investments, investors, management andtrack record.

Some fund managers have suggested starting the wholeprocess by educating fund recipients and the public ingeneral in the dynamics and structures of the industry,thereby improving familiarity and clarifying the benefits ofprivate equity. “There needs to be a move towards educationon private equity, and then regulation should beconsidered,” Ashish Dave, partner and head of privateequity, Middle East and South Asia at KPMG, said. “PE willnot be hindered by appropriate regulation, but thegovernment and private equity firms should focus on adoptinga prudential approach to regulation,” he added.

What’s ahead for 2007?

Some experts argue that a historic shift from public toprivate equity is occurring and that the region has alreadywitnessed the birth of an asset class, which by all measuresseems to have a very bright future. “Clearly, private equityhas huge potential in the Middle East, and we expect stronggrowth in both the number and size of new private equityvehicles,” Rod Palmer of Walkers said.

Most fund managers agree that PE has an advantage overother alternatives (in particular, hedge funds), becauseit’s comparatively easier to launch a shariah-compliant PEfund, which will be acceptable to a wide range of investorsin the region. Other benefits include the important role ofprivate equity in financing and fostering innovative firms,and in reallocating capital to more productive sectors ofthe economy. “PE benefits from the fact that local investorsunderstand and are comfortable with the nature of PE andthat many of the PE funds in the region areshariah-compliant,” Palmer added.

Palmer said the industry will face some challenges in thenext two to three years that are unique to the region. Oneof the challenges will be managing investors’ expectationsof high returns, as more and larger PE funds are launchedthat are all chasing deals in the region.

Another challenge is the lack of solid and attractiveventures out there. “We expect that it might become a caseof too many dollars chasing too few deals, and funds whichout bid others will end up with a high cost associated totheir investment,” said Jamil Brair, vice president of PEfirm SHUAA Partners in Dubai. “Proprietary deals become keyand it is the fund with the best network that will be ableto keep its deals off the market and away from biddingprocesses,” he added.

According to Credit Suisse’s Taylor, the asset classesattractive to PE investors in the region are maturing interms of geographic and deal diversity. “In the Middle East,we see investment potential in the energy, infrastructure,financial services and real estate sectors. We also expectopportunities to emerge in healthcare, media, retail andservices,” Taylor said.

In order to take advantage of these opportunities, PEplayers will have to attract and retain qualified assetmanagement professionals, Palmer said, adding that fundsthen would also grow further outside of the region. “Iexpect that as the market continues to mature, we will seean increase in outward investment by regional managersexpanding their investment mandate. We are already seeingthat with the real estate PE market, where a number ofwell-established based investment houses with stellarperformance records in MENA real estate are now expandingthe mandate of their PE funds and operations into realestate in Europe,” Palmer said.

What does the future hold for private equity in the MENAregion? Experts predict that within three years, aconsolidation phase will have started to take shape, and2007 will be a year to write home about.

“2007 will continue to announce new records in privateequity in the region—largest fund announced or raised, newindustry-focused funds,” said Jamil Brair.

Private equity as an asset class has been so far successfulin the MENA region and is on its way to playing an evengreater role in building corporate and national wealth.Players in the industry have gained much and have addedvalue and leverage to small companies benefiting from theunexpected growth. However, it remains unclear how effectiveprivate equity funds will be at deploying capital in deals10 times larger than what’s available now. Most expertsagree that there is no question that private equity in theregion has the critical mass and the diversity to warrant alot of attention. According to Palmer, the trend ofincreasing size of the funds launched will continue,“particularly as size and experience of the asset managementteams within the PE houses grow and they can handle morecapital.”

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Banking & Finance

Global private equity has a long reach

by Imad Ghandour
written by Imad Ghandour

The Middle Eastern Private Equity Internationalconference, held each year in the third week of March inDubai, has become the annual hotspot for the region’s PEindustry. Heads of international PE funds, like Carlyle’sDavid Rubenstein and CD&R’s Joseph Rice, descended on Dubaito explore how to expand their sprawling reach to one of thefew remaining untapped markets. In addition, rising PE starsfrom the region lectured about their experiences and theirvisions, eyeing further international expansion, and aimingto attract the attention of global PE giants.

Carlyle’s Rubenstein, in his keynote speech, predictedthat the Middle East will be the fourth pillar in the globalPE industry after US, Europe and the Far East. The region,loosely defined from India to Morocco, has more than 2billion inhabitants, $1.5 trillion GDP, and is one of themain exporters of capital. Rubenstein is practicing what hepreached by setting up a $1.8 billion fund targeting theMiddle East and Turkey.

Sarah Alexander, President of Emerging Market PrivateEquity Association (EMPEA), noticed the remarkable evolutionbetween the first conference in 2005 and the 2007 edition. In 2005, the local presenters were inquiring if it can bedone, how it can be done, and how lucrative it will be ifdone well. Today, local PE champions are speaking withconfidence about deals closed, problems overcome, exits madeand real realized returns. Between 2005 and 2007, theprivate equity industry has quadrupled in size, and controlsnow more than $15 billion in assets under management.

Where to go from here?

Rubenstein and Rice’s appearance at the conferences onlyhighlight the increasing attractiveness of the region as atarget for global PE funds. Other PE heavyweights have beenscouting the region and assessing its potential. Secondtier global PE players, like 3i, Ripplewood, Actis, CVC,HSBC and Emerging Market Partnership, have already starteddeploying funds since 2003. By tying up the region to theglobal PE network, regional investment practices will besignificantly alleviated, and PE will rise further invisibility.

In 2007, the $2 billion fund benchmark will probably besurpassed with the closing of Abraaj’s Infrastructure fund.In 2005, PE practitioners could barely identify a dozensmall-size deals. Today, the prospects have improvedsignificantly. A multi-billion privatization program, a direneed for infrastructure investment, an active need forpre-IPO institutional investors and a relentless need forequity financing to support corporate growth are presentingfunds with a continuous stream of investment opportunities. Infrastructure funds will become larger and larger in orderto finance the privatization and infrastructure programs,but the mid-cap market targeting investments in the $25-150million range will remain very active as well.

Global private equity has been under scrutiny bygovernments and media in both US and Europe. However, localPE leaders have been from the onset more proactive,advocating the benefits of PE for the region’s economicdevelopment. PE is frequently prescribed as a remedy for the“unemployment bomb” threatening the social and politicalstability in the region and the institutionalization of theprivate sector.

Access to capital was definitely not an issue that cameacross the conference speakers’ minds. Unlike other parts ofthe emerging world, the GCC is one of the largest exportersof capital. This excess liquidity will fund PE investmentsand their IPO exits.

UAE as the fourth capital of private equity

UAE is already the regional capital for private equity:three quarters of all PE funds are managed out of UAE, andthe UAE is the largest recipient of PE investments. AbuDhabi Investment Authority (ADIA) is also rumored to be theworld’s largest investor in private equity funds.

But reaching global prominence over the next few years is,to a large extent, in the hands of the leading firms. Themacro environment is expected to remain favorable in themedium term and investment opportunities will be abundant. The biggest challenges for PE firms are to identify, train,attract and retain talented and experienced professionals,and build a competitive advantage through the development ofsystems and operations at par with international standards.

Imad Ghandour is head of strategy and research at Gulf Capital

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Iraq needs its own Ataturk

by Claude Salhani
written by Claude Salhani

Some months after the fall of Saddam Hussein, I found myselfin Kuwait sharing a taxi from the airport to my hotel withan Iraqi journalist who had just come from Baghdad to attendthe same conference. We talked about the situation in Iraq,the violence and how it should be dealt with.

One of the first questions I put to my Iraqi colleague waswhat he thought should be done to bring stability to Iraq.Without a moment’s hesitation he said, “Iraqis need a‘Saddam-lite,’ a benevolent dictator. Someone not as bad andpowerful as Saddam, but someone who can frighten the peopleinto accepting discipline.”

It was a strange but nonetheless realistic point of viewthat chaos in Iraq could only be contained by installing aleader who could rule with an iron fist, while working tobring democracy to the country—an Arab Atatürk if you will.(Mustafa Kemal, better known as Atatürk or “father of theTurks,” emerged as a military hero in the Dardanelles in1915. He led the founding of the modern Turkish republic in1923, after the collapse of the 600-year rule of the Ottoman Empire. After a three-year war ofindependence, Atatürk led Turkey into the 20th century andmodernization, and did so with a firm rule.)

Indeed, at a time when President George W. Bush had highhopes that Iraq would be the new shining light from whichdemocracy would spread throughout the Arab world, similarthoughts were being put forward by moderate Arab countries.One was King Abdullah II of Jordan.

Abdullah saw that a possible solution out of the Iraqiquagmire would be to install a strong military leader. Sucha leader, said the king, could instill law and order in thechaos that is Iraq today.

“I would say that the profile would be somebody from inside,somebody who’s very strong, has some sort of popularfeeling,” said the Hashemite monarch in the InternationalHerald Tribune, on his return from Washington where he metwith President Bush. “I would probably imagine—again this isoff the top of my head—someone with a military background who has the experience ofbeing a tough guy who could hold Iraq together for the nextyear.”

Today, four years on, Iraq is experiencing an unprecedentedcrime wave. Aside from the politically-related violence, which is claiming hundreds of lives on adaily basis, the country is being hit by organized and pettycrime and the contrast between Saddam Hussein’s 30-year rule as an absolute dictator who cracked down hard oncrime, and the sudden void of authority felt in the countryafter the dissolution of the army and the Baath Party couldnot have been greater.

I remember asking my traveling partner what he expectedwould happen when the US-led coalition handed over partialsovereignty to an Iraqi government. “I fear there will becivil war,” he replied. “Perhaps not immediately, butcertainly in due course.”

He was equally skeptical about democracy. “Forgetelections,” he said.

“They are simply not ready for it,” he said, and then,echoing King Abdullah’s sentiments, he went on, “Give them astrong army man who can pull it together. Someone who canrule with an iron fist and bring back law and order. Someonenot as bad as Saddam, but who has experience in themilitary, and in getting respect. That’s what we need.”

But there are two problems in putting such an idea intopractice. First, it would be in-your-face evidence that theBush Doctrine of freedom for the Middle East, with Iraq as ashowpiece, was a failure—something this White House wouldsavagely oppose. And second, the mechanism needed to realizesuch a venture—mainly a strong military—is no longer present in today’s Iraq. Alas, this means Iraqmay be destined to live through more years of instabilityuntil a strong figure can emerge to lead the country out ofthe darkness.

It wasn’t exactly what President Bush had in mind,especially as it would mean accepting that the democracyexperiment in Iraq has failed, at least for the moment, butamid the mounting chaos that is gripping Iraq today, theidea of a benevolent dictator—an Iraqi Atatürk—is beingtouted as a genuine option, one that was even debated—“Thishouse believes only a new dictator can end the violence inIraq”—recently on the BBC’s Doha debate.

Identifying an Iraqi “Atatürk” might not be all that simple—just think of the ethno-religious hurdles: a Sunni would be rejected by Shi’ites and vice versa. For sadly, Saddam’s over-inflated megalomaniac ego did not leave room for any Iraqi heroes—at least not any whose hands are not stained with Iraqi blood.

CLAUDE SALHANI is international editor and a political analyst with United Press International in Washington

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Banking & Finance

Regulating the shadows – Hawalas test global financial system

by Executive Staff
written by Executive Staff

During a recent conference at the Abu Dhabi Central Bankattended by members of the financial sector and experts fromthe region, Europe and the US, a focus was on how to betterregulate the informal money transfer system of hawala, whichhas been linked to money laundering, organized crime andterrorist financing.

Hawala, which can be traced back to the 8th century, is apopular, cheap and effective way to send money that isfrequently used by the Gulf’s massive expatriate Asianpopulation.

Money is transferred through a network of hawala brokers,or hawaladars. A customer approaches a broker in one cityand provides a sum of money to be transferred to a recipientin another country. The broker who has received the moneycalls his counterpart in the recipient’s city, providinginstructions on the disposal of the funds and promising tosettle the debt at a later date.

Although much of the money transferred is legitimate, adrug bust by the Italian police late last year connectedseveral Pakistanis with a Dubai-based Indian who receivedmoney through his informal bank to channel funds to drugcartels and arms dealers.

This incident is far from unique, with the UAE and Britishauthorities busting a drug network operating between the UKand Afghanistan only last month (March) that used the UAE asa ’cash pool’ to launder an estimated $194.7 million.

The ancient versus the modern

The problem facing central banks and regulatory bodies isthat the majority of hawala transactions are completelylegal and a primary source of income for many people aroundthe world. According to the UN, in 2005 there were 175million migrants worldwide sending remittances in excess of$300 billion, of which some $167 billion went to emergingeconomies and accounted for up to two-thirds of GDP incertain countries.

That trend is likely to increase, particularly as thedemand for young workers spikes in the aging populations ofEurope and North America.

The issue is of particular importance in Somalia, where upto 15% of the population lives abroad and remits $1.5billion annually to the Horn of Africa.

“The Somali economy is more dependent on remittances thanany other country on earth,” said Muhammed Djirdeh of theSomali Money Transmitters Association. Around 40% of theSomali population is reliant on remittances from relatives,and remittances are a source of finance for up to 80% of newbusinesses.

But with the recent clamp down on the hawala system,hawaladars are feeling the heat.

“We suffer, like all others in this business, from animage problem,” said Djirdeh, citing the example of theMogadishu-based Al Barakat money transmitter that was closeddown after 9-11 by the US authorities for connections toterrorism.

“Our problems are regulations, forcing some of us to quitthe business or work without compliance. The US is veryprohibitive for us to work in and with as we are the smallboy in the neighborhood—banks close our accounts, and wecannot do without working in the system. On top of that,transaction costs are going up. We charge 5% to send$100-$150, but have to pay agencies and commissions, so theoperator gets a small income,” added Djirdeh.

By comparison, a bank in Europe or the UAE will charge upto 20% for a transaction of the same amount.

But low costs are not the only reason for using the hawalasystem. In many developing countries, the banking system isso underdeveloped that informal money transmitters are theonly means to transfer money. In addition, hawala is highlyefficient, taking a maximum of two days to get to therecipient.

“What’s amazing is in today’s electronic world it takesfive days for a check to clear in the UK,” said ProfessorHannah Scobie of the European Economics and Financial Centerin London. “If there were hawala brokers between the UK andItaly, we would use them, as banks can take up to twoweeks,” she added.

Some observers also believe that hawala has been unfairlysingled out as a system abused by criminals and terrorists.As World-Check, a British company that runs an intelligencedatabase on financial risk, has pointed out, 60% of all bankfraud is internally driven. Equally, other forms oftransmitting funds are widely used but garner less attentionby regulators, the financial system or the press.

For instance, settlements can also be made via a cashcourier, as cargo, via diamond smuggling or through multi-country settlements.

“The latter is particularly popular as it is a way to cutcosts and make money on currency exchanges,” said NikosPassas, professor of criminal justice at NortheasternUniversity.

“The money of migrants wanting to send money goes into acash pool. The dollars go to an exporter of goods, and thenrupees go to the families—that’s how you minimizecross-border transactions and score tons of money,” headded.

As another example of avoiding cross-border transactions,Passas said Taiwanese boats going to meeting points ininternational waters to trade narcotics for commercial goodsthat will then enter Hong Kong, which acts as the financialhub to effectively launder the money.

“The other ways are through goods. The value of a good mayofficially be declared at $30, but only worth $1.20, whichis fraud,” said Passas.

Finding the right balance

The struggle for regulators is to find the right balancebetween over- and under-regulating informal moneytransmitters.

“It is difficult to regulate hawala without driving itunderground,” said Jean-Francois Thony, assistant generalcounsel of the financial integrity group at the IMF.“Regulations are not the panacea to avoid misuse,” he added.

If a regulatory body is particularly zealous, it will notonly be hawaladars and low-income workers that areaffected.

“Over-regulation can lead to capital flight,” saidProfessor Scobie. “But banks and regulators have gonecompletely wild following 9-11. Every time you turn around,there is a new form to fill in. This is very disturbing forcustomers, and on looking closer, these forms are for banksto get more information to sell more products.”

So what is the solution between excessive regulation thatcould drive informal transmitters underground and bankstrying to flog extra services?

In the UAE, the central bank has started encouraginghawaladars and exchange commissions over the last threeyears to come forward to register themselves.

“We realize hawala could be used to launder money andfinance terrorism, so we want to control—not end—hawala, asit is important for people in poor countries,” said AhmedIsmet of the UAE central bank

Initially expecting around 100 applicants, 215 dealershave been officially certified and 43 applications are stillpending.

“The first stage is registration [by hawaladars]. Morestringent and restrictive regulations will come in time asit could be counterproductive if done earlier,” said IbrahimAl Hosani of the UAE Central Bank.

Countering terrorist financing and money laundering is notconfined to reining in the hawala system, as such informalmoney transmitters also use official banking channels. Sothe financial community also needs to be brought onboard.

The issue is of major significance for banks, as evenallegations of being a channel for criminal activity couldhave long-lasting effects on a bank’s reputation and brandequity. Equally, Arab banks with branches in the US have tobe proactive in countering money laundering and terroristfinancing to comply with the USA Patriot Act’s InternationalMoney Laundering Abatement and Anti-Terrorist Financing Act of 2001.

But figuring out the bad transactions from the good is noeasy task.

“If every A4 paper transaction made by LloydsTSB worldwidewas piled up over a week, it would endanger a 747 jet flyingto the US—that’s 35,000 feet of paper. To single out one badtransaction is very difficult,” said Richard Stockdale, headof LloydsTSB Global Services.

Agreements between banks and central banks for automatedclearing houses to reduce the cost of money transfers inbanks was suggested as one way to wean customers off thehawala system.

Alex Cunningham, head of the New York-based Middle Eastand Balkans Program at the Financial Services VolunteerCorps, thought that one way out of the dilemma was a morerepresentative banking system.

“Banks need to become more focused on low-income bankingand offer different products, such as lottery tickets andphone cards in low-income branches,” he said.

Greater transparency between the private and public sectorwas also highlighted as necessary to make it easier to spotsuspicious activities.

“The whole financial control framework does nothing if tradeisn’t transparent,” said Passas. “Despite all thisinfrastructure for anti-money laundering and counter-terrorist financing, take a look at the business environmentand there are huge holes—not loop holes—but black holes thatany half-decent criminal entrepreneur can take advantageof.”

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Financial Indicators

Global economic data

by Executive Staff
written by Executive Staff

Prison population

Convicted adults admitted to prisons

Number per 100,000 population

Since the 1970s, OECD countries have experienced steady increases in prison population, with the exception of Finland where the rate has continued to decline. Over the last 10 years, Portugal has recorded one of the largest increases together with Spain among European countries. However, levels in both countries remain far below the United States, where the prison population has witnessed a huge jump that bears no historical comparison, with a population in 2000 four times as high as in the early 1970s. Differences across countries have, surprisingly, only little to do with the prevalence and development of crimes but more likely to do with political factors and responses to the increasing belief in certain countries that prison is preferable to other alternatives. When comparing prison populations in 2000, the United States again stands far above the norm with an incarceration rate five times as high as the OECD average and three times larger than the Czech Republic, ranking second. More than 1.2 million convicted American adults are in jail (a little less than 2 million when pre-trial and non-guilty offenders are included), and this may have a significant distorting role on the labor market for young males. Rising prison populations, unless fully resourced, generally reduce the effectiveness of criminal re-education. Upward trends can pull down the staff-prisoner ratio, a key component for achieving effective prevention of re-offending and promoting reintegration in the community. Moreover, prison overcrowding tends to exacerbate already high levels of tensions and violence, raising the risks of self-injury, suicide and sexually transmitted diseases including HIV/AIDS. Overcrowded prisons are also more likely to act as “universities of crime.”

Migration of the highly educated

Foreign-born persons with tertiary education

As a percentage of all residents with tertiary education

In the total OECD area, about 4% of persons with tertiary education are immigrants from other OECD countries. Those from non-OECD countries account for about 6% of all current residents with tertiary attainment. Net stocks of foreign-born persons with tertiary attainment are highest in the traditional “settlement” countries of Australia, Canada and the United States, but also in Luxembourg and Switzerland. Other countries with a large excess of foreign-born persons with tertiary attainment relative to their nationals living in other OECD countries include Sweden and France (8-9%). On the other hand, countries having a large percentage of tertiary-educated former residents living in other OECD countries include Ireland and New Zealand (at close to 25%); Austria, Switzerland, the United Kingdom, Luxembourg, Poland, Portugal and the Slovak Republic (all at more than 10%); and the Czech Republic, Germany and the Netherlands (at close to 9%).

Long-term unemployment

Persons unemployed for 12 months or more as a percentage of total unemployed, 2004*

In 2004, rates of long-term unemployment varied from 10% or less in Canada, Korea, Mexico and Norway to 50% or more in the Czech Republic, Germany, Greece and the Slovak Republic. Lower rates of long-term unemployment are generally found in countries that have enjoyed relatively high rates of economic growth in recent years. There appears to be a two-way causal relationship here. On the one hand, jobs are easier to find in a fast growing economy and, on the other, economies may grow faster by making unemployment an unattractive proposition. Over the period shown in the table, long-term unemployment rates have been relatively stable for the OECD as a whole, but there have been some sharp rises in several countries and equally sharp falls in others. Rates of long-term unemployment have more than doubled in the Czech Republic, Hungary, Finland and the United States (albeit from low levels) and have also risen sharply in Iceland (although from very low levels), Japan and Switzerland. On the other hand, there have been large falls in the long-term unemployment rates in Belgium, Ireland, Italy, Luxembourg, Netherlands and Spain. It is noticeable that, since 1990, the share of long-term unemployed has halved in Korea, Norway, Luxembourg, Ireland and New Zealand.

*Latest available figures

Languages on the Web

Top 10 languages used in the Web

( Number of internet users by language )

There are 87,253,448 Spanish speaking people using the internet, representing 8.0% of all the Internet users in the world. Out of the estimated 512,036,778 world population that speaks Spanish, only 17.0 % use the internet. The number of Spanish speaking internet users has grown 253.4 % in the last six years (2000-2007). Arabic speakers saw the largest growth—930.2%—although they still has the fewest speakers online (2.6%) and least penetration among speakers (8.4%).

Employment rates by gender

Employment rates: total

Average annual growth in percentage, 1991-2004 or latest available year

Employment rates: men

Average annual growth in percentage, 1991-2004 or latest available year

Employment rates: women

Average annual growth in percentage, 1991-2004 or latest available year

All OECD countries use the ILO Guidelines for measuring employment, but the operational definitions used in national labor force surveys vary slightly in Iceland, Mexico and Turkey. Employment levels are also likely to be affected by changes in the survey design and/or the survey conduct, but employment rates are likely to be fairly consistent over time. For the denominators—the population in each age group—the data are taken from labor force surveys. Over the period shown in the tables, total employment rates (men and women) have fallen in 13 countries and risen in 17. Particularly large falls were recorded in Turkey, Poland, Sweden, Czech Republic and Slovak Republic and particularly large increases occurred in Ireland, Spain and the Netherlands. Growth in employment rates was very different for men and women. Employment rates for men decreased in 19 countries during the period with an annual fall of more than 0.5% in Poland, Turkey, Sweden and Germany. For women, on the other hand, employment rates grew in 23 countries with increases of 1% per year or more recorded for Ireland, Spain, Netherlands, Greece, Italy, Belgium, Mexico, Luxembourg and New Zealand. Clearly, these differences in the growth of employment rates are leading to convergence in the rates for women and men although differences remain large in many countries.

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Financial Indicators

Regional equity markets

by Executive Staff
written by Executive Staff

Beirut SE: Blom  (1 month)

Current Year High: 1,713.79  Current Year Low: 1,168.85

The BSE short seems inauspicious to inspire trading volumes these days, but the Beirut Stock Exchange undercut the Bahraini bourse in matters of confidence last month. After no more then a hiccup of an improvement to 1,208.57 points on January 26, the day after Lebanon was promised $7.6 billion in international funding, the Blom Stock Index went lower and lower to close at 1,171.47 on February 23. Solidere slumbered in the troughs while BLOM Bank did a bit better than its sector peers. Traders said they did not want to be quoted with comments on the whole market performance, because “nothing is happening, it is the same shit every day.”

Amman SE  (1 month)

Current Year High: 7,584.32  Current Year Low: 5,267.27

The Amman Stock Exchange continued a surprisingly strong show of growth to close at 6,467.63 points on February 25, representing a 17.2% improvement in the index for the year-to-date in the best two-month performance for any regional market at the start of 2007. On the month, the ASE index climbed by around 480 points since January 28. Top market power Arab Bank was strong in volume and share price development to JOD 27.50; it is now up by JOD 6.20 since the start of 2007. Select real estate stocks saw good volume, including Taameer Jordan and Arab East for Real Estate Investment. The share price of the latter advanced by 25% in the course of one month. Upstart Jordanian television station ATV said it wants to become the first station in the region to go on the bourse. 

Abu Dhabi SM  (1 month)

Current Year High: 4,648.80  Current Year Low: 2,925.03

The Abu Dhabi Securities Market had a U-shaped trajectory in February, with a hanging chad at the end. Starting at 3040.50 points on January 28, the ADSM index fell by over 90 points by February 1. It remained below the 3,000 line until it jumped to 3,035.12 points on the 20th of the month but retreated again to a close of 3,004.03 on February 25. Energy sector company Dana Gas saw strong trading volume and one of the interesting movers was oil sector company Aabar Petroleum, with a 44% rise to AED 2.21 in the latter part of the month. Some market traders thought that the rise was initiated by a case of mistaken identity, because a Kuwaiti company with similar call sign had been awarded a government contract in Kuwait. However, Aabar also had news of its own, with a new contract and production increases in Thailand.

Dubai FM  (1 month)

Current Year High: 6,731.63  Current Year Low: 3,997.29

The Dubai Financial Market moved with no clear direction in the range between 4,314 and 4,120 points. The start of the month saw the index drop by nearly 200 points but after some up and down, the market closed at 4.207.51 points on February 25. Earnings seasons added some spice to a not overly exciting month. After announcing 35% year-on-year higher net profits for 2006, market heavyweight Emaar Properties saw a spike in volume but the stock never moved far from AED 13 throughout the month. Investment bank Shuaa Capital share prices pointed downward in February, but the stock did not appear to suffer heavily from allegations by magazine Trends Arabies that the company had manipulated a Kuwaiti stock deal in 2005. Shuaa denied the allegations.

Kuwait SE  (1 month)

Current Year High: 11,542.90            Current Year Low: 9,164.30

The Kuwait Stock Exchange was one of three GCC bourses that traded lower in the fourth week of February than at the start of the year, with Bahrain and Qatar being the other two. The KSE rebounded from a month-low of 9,584.5 points on February 10 but closed not higher than 9,726.40 points on February 21. One of the market’s gainers was telecoms firm MTC, which released strong results on February 19. With most gains before the results announcement, MTC’s stock appreciated by 17% between the start of the month and February 21. Holding firm Kipco made news by saying late in the month that it is leading a consortium tasked with selling 51% of telecoms firm Wataniya. Share prices of Kipco and Wataniya are expected to benefit from the move.  

Saudi Arabia SE  (1 month)

Current Year High: 19,502.65            Current Year Low: 6,916.85

The Saudi Stock Exchange gently traversed the entire 7,000 points realm in February and reported in at 8,385.45 points on February 25. Dipping only slightly on profit taking early in the month, the Tadawul index over the period improved by 21% from 6,916.85 points on January 29. The big thing in the market for this month, and probably a few more times in the coming months, is insurance. Initial public offerings of insurers Medgulf and Malath were oversubscribed by healthy margins. Being the first two insurance IPOs in a lineup of recently licensed providers, the flotations will be followed by others and add a new dimension to the SSE.

Muscat SM  (1 month)

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

The Muscat Securities Market closed at 5,780.39 points on February 25, up some 11 points when compared with January 28. Sailing southward in the first half of the month, the index turned back north after February 11. Flag carrier Oman Air was suspended from trading for most of February pending a capital restructuring. The sultanate’s government plans to infuse new capital into the firm, which would increase the government’s stake from 33 to 84%. Brokers on the MSM said that the shareholding of GCC investors in Omani listed companies at the end of January 2007 was substantially higher than a year earlier. GCC investors owned a total of 14% of MSM-listed stocks, up from 10% in January 2006. Shareholding by non-GCC investors remained basically unchanged at 6.5%.

Bahrain SE  (1 month)

Current Year High: 2,265.58  Current Year Low: 1,996.68

The Bahrain Stock Exchange closed February 25 at 2,160.65 points, down some 21 points compared with its close on January 28. Gulf Finance House, Nass Corporation, and Ahli United Bank were among the most active stocks in the muted market. Gulf Finance House announced a mixed cash and shares dividend of 75% after its 2006 results came with a 51% higher net profit of $212 million. The stock’s price dropped by $0.20 in the days after the announcement and closed at $2.03 on February 25. The BSE board issued a warning to one and a reprimand to another listed company for violating guidelines against insider trading and not following disclosure standards.

Doha SM: Qatar  (1 month)

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

The Doha Securities Market had the roughest ride of all GCC markets last month, closing at 6,237.51 points on February 25, down from 6,781.08 points on January 28 and more than 12.5% down since the start of 2007. Industries Qatar climbed in the second half of the month and saw high trading volume on announcing a 50% cash dividend. Shipping company Nakilat with its capital call was also among the most active stocks; the company also announced new construction orders for six LNG vessels. In the second half of the month, government and central bank officials tried talking confidence into the market by highlighting the strong growth of the Qatari economy in 2006 and the good performance of the banking sector.

Tunis SE  (1 month)

Current Year High: 2,712.33  Current Year Low: 1,732.72

Like its colleague in Casablanca, the Tunindex conquered a new historic pinnacle in February, reaching 2,712.33 points on February 9. It slipped back by a bit over 100 points in the following week but then returned to growth, closing at 2,646.75 on February 23. The bourse is 13.54% up since the start of 2007; its market capitalization is closing in on the $5 billion mark but on our record date of February 23 it is not quite there yet, reporting $4.907 billion. The new market cap leader is drinks maker SFBT after a steep rise in its share price between the start of 2007 and mid February. Its market cap was $575 million on February 23, compared with $569.5 million for Banque de Tunisie whose stock in February retreated from historic highs in the TND 104 range and closed at TND 99.20 on February 23. 

Casablanca SE All Shares  (1 month)

Current Year High: 11,207.82            Current Year Low: 6,563.27

The Casablanca All Shares Index went up by 1,000 points in the first part of February, to scale a new record of 11,201.82 points on February 19. From that peak, however, it retreated back to 10,518.13 points at its close on February 23. It is too early to say if the market is turning. It is still up by more than 10% since the start of the year, but one reminisces about the experience of the Saudi market exactly 12 months ago. On February 23, the Casablanca Exchange saw 23 stocks go up and 29 stocks go down, with 4 unchanged.

Cairo SE: Hermes  (1 month)

Current Year High: 64,978.48            Current Year Low: 41,965.37

In the measurement of the Hermes Index, the Cairo and Alexandria Exchanges moved up nicely from 57,013.49 points on January 29 to 64,655.63 on February 25. Viewed together with the uptrend of the Saudi Stock Exchange, the 13% rise of CASE made February a gainful month for the region’s leading bourses by market size and by number of listed companies. Orascom Telecom Holding (OTH) and its chairman Naguib Sawiris were the Egyptian market’s international newsmakers last month, as OTH bid for Saudi Arabia’s third mobile license and as Sawiris-owned Weather Investments bought Greek operator TIM Hellas. The OTH share price chased new records in February and closed 19% higher at EGP 440 on February 25 when compared with its quotation on January 28.

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Banking & Finance

Money Matters by BLOMINVEST Bank

by Executive Staff
written by Executive Staff

Regional stock market indices

Regional currency rates

Doha Bank opens representative office in japan

Doha Bank, established in Qatar in 1979, opened a representative office in Tokyo, Japan as part of the bank’s implementation of its globalization plan. Doha Bank, with 32 branches in Qatar as well as branches and representative offices in Dubai, New York, Japan, Turkey and Singapore posted net profits of QAR744m ($204m) in 2006 up down 5.81% year-on-year. The bank’s total assets rose 42.45% for the same period to reach QAR22 billion ($6 billion) in 2006.

UAE’s Etisalat 2006 net profits reached $1.6 billion

Etisalat, the sixth largest telecommunication corporation in the Middle East, declared a rise of 37.7% in 2006 net profits to reach AED5.9 billion ($1.6 billion) and a 91% rise in its 2006 total assets to reach AED45.9 billion ($12.5 billion). This rise in assets is mainly attributed to the company’s international expansion, through the acquisition of a 51% stake in Pakistan Telecommunication Company Ltd, in addition to negotiations with the Afghan government for the country’s third mobile license and the purchase of Egypt’s third mobile network license. The UAE government currently owns 60% of Etisalat while the public owns the remaining 40%.

Country profile: Saudi Arabia

Global Investment House (GIH) issued a report estimating Saudi Arabia’s nominal GDP growth at 12.4% in 2006 to SR1.30 trillion ($346.9 billion). In turn, real GDP grew 4.2% to SR799.9 billion ($213.3 billion) The Compounded Annual Growth Rate (CAGR) of Saudi Arabia’s nominal GDP growth for the period 2002-2006 was at 16.5%. According to GIH’s report, the Saudi Arabian private sector grew by 7.9% in nominal terms in 2006, while the oil sector registered a nominal growth of 16% for the same period. According to the Ministry of Finance 2007 budget report, the Kingdom’s public debt is estimated to drop by 23% to SR366 ($97.6m) in 2006, some 28% of GDP. The expansion in Saudi Arabia’s economy was not affected by the correction in the stock market as all indicators show an “exceptionally sound and robust” 2006 performance.  Standard & Poor’s Rating Services recently upgraded Saudi Arabia’s long term foreign currency credit rating to “A+” from “A” and affirmed the county’s long term local currency rating at A+ and short term sovereign credit rating at A-1, all with a stable outlook. Saudi Arabia is the largest oil producer among the Gulf Cooperation Council countries, producing around 10% of the world’s oil.

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