Banking & Finance

Nixing GCC monetary union, Oman charts own way

by Jason J. Nash
written by Jason J. Nash

Oman’s decision in early 2007 to opt out of the GCCmonetary union project has come as a blow to efforts by GCCstates to establish closer economic relations. However, thedecision was not necessarily based on a complete rejectionof the scheme. Rather, it is a reassertion of Oman’s need tofollow a different path until a more solid set of monetaryunion objectives is implemented by the other GCC states. Ithas also put under the microscope the GCC’s level ofpreparedness in dealing with its 2010 deadline for theproject.

Prime candidate to join… on paper

With the most conservative GDP growth of the GCC memberstates, Oman seemed likely to benefit from the much-vaunted ‘catch-up effect’ of monetary union, as seenfollowing the introduction of the euro. Oman was certainlynot struggling to meet the negotiated requirements in termsof fiscal policy: budget deficits are required to be cappedat 3%, while Oman had a fiscal surplus in 2005 of over 11%;public debt was well below the limit the GCC imposed onitself; and Oman’s foreign exchange reserves could easilyfinance four months of imports. Although Oman was meetingthe initial entry criteria, Ahmed bin Abdulnabi Macki, theminister of national economy, announced in January that thesultanate had decided to withdraw from the monetary unionproject.

He affirmed that Oman had reservations, both with the lackof progress made on obtaining prerequisites for successfulunion by 2010 (no agreed regional headquarters or commonmarket) and also cited Oman’s aversion to surrenderingeconomic sovereignty. He stated to Reuters that, “Thesultanate has its own economic and financial compulsionswhich do not offer room for meeting the criteria set for thesingle GCC currency.”

Oman has always sought to distinguish itself from its GCCpartners, both in its approach to oil and industry, and howit is now marketing itself as a tourism destination. Thegovernment is aware that the country does not have the samedepth of oil and gas reserves that most other GCC stateshave, and that the sultanate’s economic diversificationefforts could perhaps lose market competitiveness under aunified regional currency. The slowness of the other GCCstates to move on readjusting their currencies in step withone another to help fight dollar-inspired inflation wouldseem to validate its approach.

Interestingly, the other GCC state not flush with oil andgas reserves, Bahrain, is also now beginning to voice itsown concerns over the prospect of monetary union. Commonthemes of discontent include a lack of preparedness and theincomplete implementation of a common economic marketbetween the member states. At the same time, Kuwait ishoping its fellow GCC members will move faster onreadjusting the currency peg with the US dollar to helpstave off inflation.

Oman’s voice speaks strongly of independent economicconsiderations, and this is also reflected by itsindependent partnerships outside of the regional bloc.Recent bilateral developments have given Oman a new platformfor trade and investment. Whilst this may have not beenwell-received by some GCC member states, it has opened up anumber of opportunities for the sultanate’s economy.

The Oman-US FTA has so far generated large bilateral tradereturns for Oman (45% increase in export revenues from theUS over the last 12 months). This agreement also gives Omanunrestricted access to the US market, and eliminates the 5%tariffs previously in place. This is particularly useful asthe US is Oman’s fourth-largest import partner, responsiblefor $538.7 million worth of imported goods in 2005,according to the central bank of Oman.

Ties beyond the Gulf

The so-called “FTA effect” is evident across the region,with Bahrain also entering bilateral agreements earlier lastyear. FTA countries in the MENA region have experienced anaverage 33.5% increase in trade with the US during2005-2006. Although the FTA effect may well slow down incoming years, the extra trade created will remain. However,revenue is not the only factor to be considered in Oman’scase, as strategic partnerships with the US would stand tobenefit diversification options in the country.

Oman’s intra-regional trade ties should not be forgotten.The sultanate has significant trading interests with its GCCpartners, accounting for 18% total imports and 10.7% totalexports. The UAE is Oman’s fourth largest trading partnerand still a key part of the GCC market area. Should themonetary union continue without Omani membership, thesultanate may well find itself facing higher transactioncosts to deal with the Gulf Dinar.

Oman has managed to create new space for itself in theglobal trading network, establishing bilateral agreementsand partnerships promptly and efficiently which fulfill itsdevelopment criteria. Comparatively, the GCC as anorganization has repeatedly prolonged negotiations to forgeUS-GCC arrangements and has encountered many points ofcontention in aligning members’ independent economicpolicies. Bahrain was the first to observe that going italone on a trade deal with the US might better serve itseconomic need to generate growth and jobs, and Oman’s FTAreiterated the concern that the differing priorities of GCCmember states may be hampering the growth of the smallerplayers.

Oman also seems to be bearing its Asian priorities inmind, since its three major trading partners are Japan,China and Korea, who account for a collective 44.5% of totaltrade (21.5% total imports and 58.0% total exports). This isa regional alliance that Oman has successfully enticed andis continuing to pursue. Sinopec is the sultanate’s largestexporter of crude oil (30%) and has recently announced aproposal to increase term purchases by up to 20% for thisyear. China is also bidding on industrial contracts in thecountry and is seemingly paving the way for a longrelationship with Oman.

Asian loans have proved crucial to financing governmentprojects: the Japan Bank for International Cooperation(JBIC) loaned $150 million to Oman as contribution tofinancing part of the project of the second phase of Soharport, financing construction as well as infrastructure.Japan also participates in a “human resources transfer”program, dispatching ‘experts’ in response to requests madeby the government. The Omani-Asian links continue tostrengthen and Oman is taking care to ensure that thispartnership does not become neglected at the expense ofregional economic cooperation. The GCC priority is inestablishing a trade agreement with the EU, something whichhas moved very slowly since the opening of negotiations in1990. Despite the EU being Oman’s fifth-largest trading partner, the essential composition of theGCC presents many institutional barriers to trade alliances,and Oman’s branching out may indicate its lack ofwillingness to keep on waiting.

Although there has been criticism of Oman’s decision towithdraw from the monetary union process, the move may cometo be seen as very sensible regarding the sultanate’seconomic position. Oman has sent a clear message to the GCCthat it will not marginalize its domestic concerns for thesake of regional unity. This decision has already encouragedGCC scrutiny of what many now agree are unrealisticdeadlines and criteria. The concept of a fully operationalGulf Dinar by 2010 looks unlikely, though an ECU-styleaccounting unit used as a precursor is one course now leftopen for the GCC partners. As for Oman, it seems more intenton developing on its links with the US and Asia, increasingits competitiveness to benefit from more diverse foreigninvestment and partnerships. And just perhaps, through theOmani move, the other GCC states may take a long look at themonetary union plan and revise the steps needed to achieveit.

Jason J. Nash is Head of Research at the Oxford Business Group

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Syria not yet folding its cards

by Nicholas Blanford
written by Nicholas Blanford

Like it or not, Syria’s leaders have no desire it seems toimitate Longfellow’s “Arabs” and “fold up their tents andquietly steal away into the night.”

Two years of diplomatic isolation and unrelentinginternational pressure have failed to persuade Damascus tosignificantly alter its course regarding key regionalissues: Lebanon, the Palestinians and Iraq. On the contrary,marginalization by the international community has had theeffect of drawing Damascus closer to Tehran. TheSyrian-Iranian relationship, one of the most unlikely andenduring alliances in the Middle East, has only grownstronger since the election of Iranian President MahmoudAhmadinejad in August 2005.

Both countries need each other. Syria allows Iran a toeholdinto the Arab-Israeli arena and serves as a vital conduit toHizbullah. In exchange, Syria has a powerful military andfinancial ally in Iran with which to face the cold shoulderof the West and the unease of other Arab nations.

The US effectively severed relations with Syria in the wakeof the assassination of former Prime Minister Rafik Hariri.By February 2005, the Bush administration’s patience withDamascus had waned considerably over a number of issuesincluding Syria’s support for Palestinian militant groupsand foot-dragging over a troop withdrawal from Lebanon, butchiefly over its unrelenting opposition to theAnglo-American invasion and occupation of Iraq.

The European Union, following the US lead, also distanceditself from Damascus, influenced by French President JacquesChirac who does not even try to hide his antipathy towardthe regime of Syrian President Bashar al-Assad.

The US told Syria that it must change its behavior beforethe Bush administration would consider re-engaging with it.An uncowed Syria instead turned toward Iran and embraced animage of Arab steadfastness against the bullying dictats ofthe West, a stance that resonated among many Arabs.

But the cracks in the edifice of isolation began to emergeat the end of last year with the release of the Baker-Hamilton commission’s report on Iraq, which recommended aresumption of dialogue with Syria and Iran. The Bushadministration initially dismissed the commission’s advice,insisting on its demand that Syria must take the first stepby changing its behavior. But several US senators,emboldened by the Democrats’ success in the mid-term US elections in November and by the findings of theBaker-Hamilton commission, traveled to Damascus, the firstsuch visits in two years. In November, Syrian ForeignMinister Walid Muallem visited Baghdad, which paved the wayfor a restoration of formal diplomatic relations betweenSyria and Iraq in December and the signing of a jointsecurity agreement. In January, Jalal Talabani visitedDamascus for the first time in his capacity as president ofIraq. The biggest indication that Syria could be coming infrom the cold was its invitation in February to attend—alongwith Iraq’s other neighbors—a conference in Baghdad todiscuss how to help stabilize Iraq.

The Europeans also have begun retreading the path toDamascus, most notably Javier Solana, the EU’s foreignminister.

A general rapprochement between Damascus and the West stillseems a long way off and will probably depend on the outcomeof the United Nations investigation into Hariri’s murder.But the tentative steps toward re-engagement has revived thedebate between those that believe that jaw-jaw is alwaysbetter than war-war and those who argue that talking toDamascus is futile. Both arguments have somejustification.

Syria’s critics maintain that the Syrian leadership has ahistory of frustrating and infuriating its internationalinterlocutors by making promises that go unfulfilled.Recommencing a dialogue with the Syrians, they argue, willbe taken as a sign of Western weakness and suggest thatDamascus has no need to change its policies. Much better,they say, to at least maintain and possibly increase thepressure on Syria in a bid to break the will of the Syrianleadership.

Supporters of dialogue, however, argue that the policy ofisolation over the past two years has not only failed topersuade Syria to yield to Western demands, it has had theopposite effect of helping cement the Syrian-Iranianrelationship. That strengthened bond forms the backbone ofthe anti-Western alliance spanning the Middle East fromTehran to Beirut’s southern suburbs. The alliance isdetermined to check the regional ambitions of the US andlies at the root of mounting Sunni Arab alarm at Iran’sgrowing reach into the Middle East.

A serious re-engagement with Damascus, they argue, wouldhelp pry Syria away from Iran, breaking the anti-Westernalliance and weakening Tehran’s ability to influence theArab-Israeli conflict. The bottom line, they say, is thatSyria cannot be expected to dance to the Western tune ifnothing serious is offered in exchange.

The debate over how to handle Syria remains heated andunresolved. But there is little doubt that it is hard toignore a country that lies at the nexus of so many of theregion’s conundrums.

NICHOLAS BLANFORD is a Beirut-based journalist and author of “Killing Mr Lebanon: – The Assassination of Rafik Hariri and its impact on the Middle East

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Consumer Society

High-end watches prove time is money

by Executive Staff
written by Executive Staff

The actor Daniel Craig made one of the most shamelessproduct plugs in the history of cinema when he flashed andthen further name-checked his Omega Seamaster mid-waythrough his debut as the new James Bond in Casino Royale.The Omega has been the standard issue timepiece for thelatter-day Bonds (though in the early films, and in the IanFleming novels on which the 007 film franchise is based,Bond never wore an Omega but rather a Rolex Oyster Perpetualor a Rolex Submariner). Still, whatever the watch, themessage remains the same—nothing bespeaks style and statuslike a wrist thrust from beneath a cuff to flash a majorpiece of high-end Swiss precision.

Watches dominate luxury goods sales

The wannabe Bonds of the world—and in the current globaleconomic climate there are many, both aspirers and oldmoney—are likely to start with the tailored suit and endwith the Aston Martin. But in between they will have toshell out for the watch. Perhaps as a result, within thegreater luxury goods market, the watches and jewelrycategory is surging, particularly in emerging markets suchas Russia, China, India and the Middle East.

“We have witnessed huge growth in the market for luxurytimepieces in the last three years, and it is clearlyshowing in Swiss exports to the region,” says George Becharaof Zenith, the high-end and venerable watchmaker now ownedby LVMH (Louis Vuitton Moet Hennessy) and which arrived inthe Middle East market early in 2004.

Regionally, says Bechara, who is based in the booming UAE,“Dubai is our … biggest market in terms of presence. Thegrowth in Dubai in units between 2005 and 2006 was up 78%,and in terms of turnover it was up 33%.”

Zenith’s parent company, LVMH, is widely considered theindustry leader in the global market for luxury goods. Withscores of brands under its name, LVMH holds a diverseportfolio that ranges from wines and spirits (Moet Chandon,Veuve Clicquot) to high-end fashion (Louis Vuitton, MarcJacobs) to fragrances and cosmetics (Christian Dior,Guerlain) to watches and jewelry (Zenith, Tag Heuer,Chaumet).

In 2000, watches and jewelry contributed only 5% of LVMH’soverall sales. By 2006, however, the category trumped allothers in terms of growth as sales increased 26% on theprevious year. A joint venture between LVMH and De Beers,the largest diamond supplier in the world, has no doubtcontributed to the category’s newfound muscle. Notcoincidentally, De Beers opened its first boutique in Dubailast year.

The market for luxury watches—defined as timepieces thatretail for upwards of $2,000—moved into the Gulf en massearound 2002. That year, Dubai imported some 700,000premium-quality Swiss watches, which at the time was roughlyequivalent to the size of the city’s population.

All major players make it to Dubai ontime

All the major players in the luxury watch market are nowpresent in Dubai—Rolex, Cartier, Chopard, Omega, Cartier,Patek Philippe and the Richemont Group—another global luxurygoods powerhouse, with its regional headquarters in theHazel W. S. Wong-designed Emirates Towers. Richemontincludes IWC, Piaget, Jaeger-LeCoultre, A. Lange & Sohne,Vacheron Constantin, Officine Panerai, and Baume & Mercier.

Dubai’s phenomenal growth is certainly fueling the market.According to a recent—and notably critical—article on Dubaiin the German newspaper Der Spiegel, there were just fourcompanies operating in Dubai 20 years ago. Now there are6,300 from more than 100 countries. The ruling Maktoumfamily expects the local population to grow from two millionto 10 million, and wants 20 million tourists to pass throughDubai every year. Given the potential for triggeringconspicuous consumption, it’s no wonder watchmakers havebeen flooding money into establishing headquarters andboutiques for themselves in Dubai, and then embarking uponan aggressive ad campaign.

“The growth of Dubai [has been] tremendous and crucial inbenefiting Zenith’s business,” says Bechara. “The hugeinvestments that are taking place here, the most importantcompanies setting [up] their regional offices here, the fuelprices, the attraction of tourists throughout the year—allthis brought us good business.”

Regionally speaking, the market for luxury timepiecesremains strongest in Saudi Arabia and the United ArabEmirates, though Kuwait, Qatar, Bahrain and the Levant offersizable room to grow. Rolex still leads the pack in terms ofmarket share (with 15% of the Saudi market alone). But whenit comes to the highest of high-end watches, market successisn’t always a matter of volume. Often it is a matter ofvalue.

Ziad Annan of Rolex in Lebanon says sales figures have beenimpacted by the political situation in the country, whetherthe war with Israel in the summer of 2006 or the oppositiondemonstrations that have, for four months and counting, madea ghost town of Beirut’s central district, where the upscaleRolex boutique is located.

Despite such extenuating circumstances, Annan notes that twonew Rolex timepieces have been particularly successful oflate—a Rolex Rolesor that was fashionable in the 1970s andre-launched last year and a new Rolex GMT Master II. Bothproducts have proven remarkably popular in the Lebanesemarket.

So where will the sector for exquisite watches—and bejeweledmobile phones—go from here? After five years of surginggrowth and breakneck expansion fueled by the outrageous paceof development in Dubai, it seems likely that the majorplayers in the region will turn their attention toconsolidating brand loyalties.

In 2006, says Zenith’s George Bechara, “we had a huge yearin terms of launching new products. This year we are morefocused on strengthening the existing collections, with somenovelties that will give a push to the brand.”

One factor that may contribute favorably to a period ofmarket consolidation is the arrival in the UAE of theauction houses Christie’s and Sotheby’s. Certainly much inkhas been spilled over the sales of international modern andcontemporary art staged by Christie’s in May 2006 andFebruary 2007. But it is worth noting that on Jan. 31,Christie’s held a major auction of jewels and watches in theEmirates Towers Hotel, a sale that trounced the totals ofboth art auctions by raking in $11.8 million. They were nomillion-dollar paintings on the bloc, but a marquise-cutdiamond ring by Van Cleef & Arpels went under the hammer for$1.2 million. The sale also featured watches by PatekPhilippe, Rolex, Cartier, Piaget, Chopard, and a limitededition Corum in 18-carat white gold, 20 jewels, and a whitedial with verses from “The Thousand and One Nights” in blackenameled Arabic script.

According to Michael Jeha, managing director of Christie’sDubai, there are 45 to 50 people working on the Dubai marketfor Christie’s. All the watches and jewels to be sold attwice yearly auctions will, for the time being, be sourcedfrom Europe to keep the material fresh. As a result, theauction houses could either edify Dubai-based enthusiasts ofluxury timepieces—or snag competition away from thetraditional watchmakers themselves.

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Jordan-US QIZ could be better

by Riad Al-Khouri
written by Riad Al-Khouri

The Jordanian economy has done pretty well recently, boasting high growth rates, attracting attention from regional investors, and enjoying increasing exports.Regarding the latter, the kingdom chalked up close to $4.1billion in national merchandise exports last year, up by almost 13% on 2005. Traditional Jordanian production such as fertilizers (the country’s second most important good sold abroad) still accounted for almost 8% of exports in 2006, with potash, another mainstay of the old Jordan economy, constituting over 6%. However, other products with a higher value added have become more prominent in the past few years. These include pharmaceuticals, currently the country’s third most important export, with a share of over7% last year, and most notably clothing, which has been number one for much of the present decade. Growing steadily from a very modest share in the late 90s, the clothing industry was responsible in 2006 for just over 30% of totalJordanian merchandise exports, a proportion roughly maintained since 2003, with the value of Jordanian clothing exported last year expanding by 18% compared to a rise of just over 5% in 2005.

So where are all these clothes sold? You’d think that shoppers in Lebanon, Iraq, or the GCC countries, traditional outlets for Jordan’s products, would see Jordanian garments in their local stores, but that is rarely the case.Actually, you would have to go to New York or LA to find most of these clothes. Is that a bizarre situation? Not at all, if you consider the importance of Middle East diplomacy to Jordan’s economy. In fact, Jordan’s success in this business rests on a break it got over a decade ago from its favorite uncle, a person with a red, white and blue top hat called Sam, with so-called Qualifying Industrial Zones(QIZs).

In the Zone

Under the QIZ—blatantly designed to reward Jordan for its pro-American stance and nudge the kingdom even closer toIsrael—a product with 11.7% added value from Jordanian, 7-8%from Israeli, and the balance of 35% from either country, the US or Palestine, enjoys duty-free entry into theAmerican market. For example, if a skirt costing $10 is imported into Jordan from India and dyed in Amman to raiseits value to $11.17, it cannot by such a transformation alone enter the US market free of duty under currentJordanian-American trade rules. However, if that same garment also gets, for example, Israeli zippers worth $0.80and American trim costing $1.53, then the finished product has added the necessary amount of value (in this case stipulated at a minimum of 35%) in the correct proportions to qualify for duty- free entry into the US market.

The roaring success of this arrangement has left the US as the main importer of Jordanian products last year, buying more than 31% of the kingdom’s exports, up from a derisory amount in the mid-90s. For various reasons, clothing has turned out to be the major exported QIZ item, with garments(most of which are produced in QIZs) amounting to almost 91%of Jordanian sales to the US in 2006.

Not that the QIZ deal has done that much for Jordan’s economy: for a start, most of the capital and many of the workers at QIZ factories are not Jordanian—as a lot of profits and wages are sent home outside the kingdom, Jordan gets that much less benefit. The other problem is that UncleSam in December 2004 also “rewarded” Egypt with a QIZ deal; as the Egyptians can more cost-effectively produce garments(and for that matter, other products) wanted by US consumers, Jordan QIZs had better watch out. Under theAmerican policy of “competitive liberalization” grantingQIZs to both neighbors seeks to make them more competitive, which is probably a good thing—if the Jordanians are up to it.

QIZ helps plug trade gap

Meanwhile, QIZ has helped Jordan to strengthen what would otherwise be anemic exports of goods, partially plugging a massive trade gap. In 2005, exports of Jordanian goods covered a mere 41% of the kingdom’s merchandise imports, but higher sales abroad from Jordan’s QIZs last year helped bring up the coverage to a little over 45%. The shortfall is partly made up by better figures in Jordan’s services trade balance, but in the end the kingdom regularly consumes more from abroad than it sells to the outside world, with the gap being made up by foreign largesse.

RIAD AL KHOURI is an economist, and Director MEBA Ltd Amman/Senior Associate BNI Inc New York; He can be contacted at [email protected]

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Consumer Society

Dubai asks the question, Yes, but is it art?

by Executive Staff
written by Executive Staff

Until recently, Dubai seemed content with its reputationas a booming former backwater, flush with oil revenues andripe for investment, but absent of any culture saveconspicuous consumption.

Having firmly established its identity as a tax-freecommercial oasis in a politically volatile region, in 2005,the UAE’s second largest emirate decided to accelerate thediversification of its economy away from oil revenues andattract a new breed of foreign capital—artworks.

Riding the wave of skyrocketing international contemporarysales, and underpinned by an emergent class of buyers fromRussia, China, and India, Dubai would position itself as aglobal hub linking hungry, if undiscerning collectors inburgeoning non-Western markets with their more establishedcounterparts in London and New York.

To this effect, Christie’s Auction House opened regionaloffices in Dubai in 2005, and has held three auctions sincethen in which, according to Michael Jeha, Christie’s Dubaimanaging director, 90% of the lots were sold, even if cynicspoint out that between Christie’s twin inaugural auctionsheld last February, jewelry accounted for almost 60% of the$20.5 million revenue. Meanwhile, Christie’s equallyvenerable competitor Sotheby’s has also announced plans toset up shop in Dubai, and sponsored a local educationinitiative for Emirati collectors, artists and galleryowners.

Ambitious art fair

On March 8, the Dubai International Financial Center(DIFC) sponsored the inaugural DIFC Art Fair, moving theemirate one step closer to its goal of becoming what formerBritish galleriste and fair director John Martin calls “acenter of art commerce.”

Nothing if not ambitious, fair organizers expect Dubai’sart market to mimic its rapid commercial growth, and“strategic partner” DIFC reckons the event will become oneof the top five art fairs in the world within three years,rivaling the reigning international triumvirate of Art Baselin Miami, the Armory in New York and Frieze in London.

Given the absence of a thriving gallery scene, anup-and-coming group of local artists and collectors, or arenowned art institute in the deserts of the GCC, the claimmight be dismissed as unrealistic at best and bombastic atworst. But if Dubai has learned anything during its rapidrise to become the Las Vegas of the Arab world, it is how tosell. And once stripped of its cultural pretensions, what isan art fair if not an aesthetically pleasing market?

While, the jury may still be out on both the DIFC fair andDubai’s ability to cut it culturally, its first outing wasnonetheless a good start. The three-day event (andconcurrent global art forum) brought cult galleries togetherwith the marquee names of the art world. Some were drawn bycuriosity, others by the promise of a new class of spender,spawned by a $500 billion oil boom, and others by what werevariously referred to by Ben Floyd the fair’s financedirector as the “incentives,” “bursaries,” and “smallsubsidies” given to a handful of galleries “that we reallywanted on board.”

The 40 exhibitors assembled in the Arena of the MedinatJumeirah resort included Hoxton Square-heavyweight WhiteCube and its slightly less cutting-edge, yet prominentMayfair counterpart Albion; Chelsea mainstay Max Lang andSeoul’s Gallery Hundai. Over $100 million worth of art wasassembled in the chinzy hotel conference center, butgalleries and fair organizers alike declined to reveal thetotal value sold.

“There are different ways to measure success,” Jeha saidwhen asked the total volume of sales. “The attendance andcontent was good, and I know a lot of Indian and Arab artsold, but I don’t know the tallies from western galleries.”

However, based on reports, it seems unlikely thatpetro-dollars, an all-star roster, and a media blitztranslated into bumper sales this time around. “There havebeen a lot of conversations and we’ve sold a few things, butit’s not like the usual levels we see at art fairs like theArmory or Basel where we sell millions,” explained GrahamSteele of White Cube early on the first public day of thefair, who admitted that the customers lacked knowledge.

“They didn’t prepare collectors and there is a lot ofexplaining. People don’t know that this is an iconic DamienHirst,” he says gesturing to an installation of a medicinecabinet stocked with pills. “Or they don’t understand whythis costs £850,000,” he says referring to another signatureHirst butterfly piece hanging nearby. Indeed, none ofHirst’s work—including the most expensive piece at the fair,his “Spot Mini” car owned by British collector CharlesSaatchi and insured for $2 million—sold. White Cube, like Albion, tailored its display toperceived demand, leaving the racy Tracy Emins at home, infavor of more “universal” pieces like a colorful painting ofthe Luis Vuitton symbol.

By Saturday afternoon, 12 of the 30 pieces Albion shippedto Dubai—including eight edition pieces from the Campagnabrothers—chairs covered in a furry orgy of stuffed animalspecies and sold for $18,000 each—had been snapped up, “andnot just by expatriate residents of Dubai,” said stafferMatt Langton, “but by locals too.”

Wide range of interests, but few sales

Elsewhere, interest in a photograph of Yasser Arafat and avideo installation of oil being spilled over a pile of sugarcubes by French-Algerian artist Kader Attia, both selectedbecause they were thought to be “appropriate to the area,”was muted, while at a booth shared by Max Lang, Malca FineArt and Enrico Navara, where pieces ranged from $25,000 to$2 million, reaction was “mixed.”

“We’ve had offers from European, Russian, and Indiancollectors but haven’t closed anything yet,” reported adecidedly unimpressed Lang, adding that Andy Warhol’s iconicdollar sign has had a lot of interest. Navara said localswere remarkably curious about contemporary art, and the“clueless were willing to find out why.” He plans to attendin 2008, and reap the rewards of the education dispensedthis year. Indeed, it was this level of phlegm that was theorder of the day as exhibitors, who forked out between$20,000 to $50,000 for a stand, took the lackluster sales instride. One gallery owner who huffily declared that he had“never lost so much money at a fair” in his career,grudgingly said he would return.

That smaller, regional galleries like Third Line, thefair’s sole Emirati exhibitioner, outperformed theirwestern counterparts (it sold at least half of its 23 works)bodes well for the sustainability of the fair, and theMiddle Eastern art market in general, according to AndréeSfeir Semler, the grand dame of Beirut’s fledgling galleryscene. “Its easy to attract international galleries thefirst year, and maybe the second, but most of them won’texhibit the third year unless the fair offers somethingdifferent from the others,” she explained. “Basel getsstronger every year because it has an identity. They’vestarted nicely here because they have Indian, Persian,Turkish galleries, and we’re from Beirut. And having theinternational galleries attend raises the standard of theevent, but no one is going to come to Dubai to see theWarhols. Regional artists have to draw on their own cultureto make a name from themselves and stop trying to imitatethe west,” she says.

The intersection of globalization and Islam threadedtogether the art on view, including a “Militant Snoopy”action figure wielding a beard and a gun, a $25,000gem-encrusted “Nation of Islam Knuckle Duster” with the wordAllah inscribed in Arabic, and “Diamond Head,” FarhadMoshiri’s glittery gold and black eagle painting, thatfetched $70,000 within two minutes of the fair opening.

John Martin said it is not unusual for new buyers toinitially invest in art from their country of origin, but astheir collection and awareness grow, the focus on aparticular geographic region melts away. “Most of the bigWestern pieces were bought by expats living in Dubai, justas Indian collectors bought most of the Indian work. But asfair gets bigger, Asian collectors will shift towardsWestern art, and vice-versa. We hope to position it as asandbar between the two cultures,” he added.

Most western galleries in attendance were not expecting bigsales, Marin insisted, but came to make connections in anart market with huge potential. Though he expects privatecollectors to be the engine of Dubai’s art market in thefuture, corporations setting up offices in the emirate areanother promising customer-base.

Art is a new staple of investmentportfolios

“Banks invest in contemporary art, not least because youcan hang it on your wall. Banks court wealthy clients, a lotof whom are private collectors, by setting up separate artconsulting branches. Art is becoming a staple of moderninvestment portfolios,” he said.

One needs to look no further than the growing number ofart investment funds for evidence of the growing appetitefor art as an investment vehicle. While the trend is by nomeans new, venture capital funds and financial institutionshave only recently begun to turn their gaze outwards toemerging markets. The question is whether the Middle Eastwill be next, and if Dubai will be able to assume a role asthe “third leg”—a title one gallery owner bestowed on HongKong—of the contemporary art market.

Much like Dubai itself, it is difficult to disengage thehype surrounding the fair from the reality, but Tim Harrisonof HSBC does not think the emirate’s potential as an artmarket has been inflated.

“If you look at the fair next to Christie’s successfulsales and the Louvre (to be built in Abu Dhabi), we areseeing a notable move towards investment in art,” Harrisonsays.

“There is a lot of art being produced in the Arab world,which will find more obvious channels for sale in theregion, and we have Indian collectors coming through. Dubaiis well positioned to be a trading hub for South-Asian,Middle Eastern, and Indian art.”

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Iran‘s home-grown auto market

by Gareth Smith
written by Gareth Smith

It’s an ill wind that blows someone some good. Tehran’s infamous traffic congestion may clog its roads and the lungs of its 12 million inhabitants, but it means big business forIran’s car makers.

Total production of new vehicles reached nearly 1 million for the Iranian year ending March 20, according to Ali RezaTahmasbi, the minister of industries and mines, makingIran’s output higher than Australia and three times that ofIndonesia.

The sector accounts for about 4% of GDP and 500,000 jobs, giving it a pressing importance for Iran’s rulers, while facing an unemployment rate officially at 11% and the prospect of further international sanctions over the country’s controversial nuclear and missile programs.

The strength of Iran’s car industry results not from a vibrant competitiveness geared to a tough world market, but rather from a mixture of high import tariffs, state ownership and petrol subsidized to the knock-down pump price of around 9 cents a liter (rising to 11 cents in May).

The government is keen for Iran to become a regional if nota world-wide auto manufacturer, and so Saipa and IranKhodro, the main domestic companies, are expanding business through exports, setting up overseas production lines and enticing foreign partners into joint ventures at home.

Renault returned to Iran in March after a 20-year absence, investing $150 million in a 51-49% partnership with Saipaand Khodro to make the Tondar-90, a version of the Logan, as mall family car first made by Renault’s Romanian subsidiaryDacia.

The car will have 60% local parts, rising in time to 80%,and Renault and its partners aim to make 300,000 units over three years. As the car went on pre-sale in March, with three models ranging from 82 million rials ($8,870) to 108million rials, Khodro claimed to be registering 22 buyers every minute. Business at the Khodro’s Tehran sales offices was certainly brisk, with customers relying more on memories of Renault’s past reputation in Iran than any detailed information on the new car.

The move is a clear challenge to Peugeot—the biggest foreign car manufacturer in Iran, assembling 400,000 cars a year in partnership with Khodro—and Renault has also decided to produce 15,000 Meganes, another small family car, in 2008, rather than importing the model from Turkey.

Renault’s decision raised eyebrows in Washington, where officials are trying to discourage international investment in Iran. But such was the French company’s commitment to the deal, first signed in principle in 2004, that it agreed to the Iranian demand that 20% of the 300,000 cars could be sold for export.

For the Iranians, such deals bring access to European technology, helping Iran in its aim to boost its non-oil exports.

Parviz Davoudi, Iran’s first vice-president, inaugurated a factory in Syria in March as a $60 million joint venture with Al-Sultan to make the Samands, Khodro’s budget family car, which will be re-branded as the Sham. Target production is 10,000 a year, a useful boost for the Samand, Iran’s only entirely indigenous model since production stopped in 2005of the Paykan, the model famously based on the UK’s HillmanHunter.

Iran also signed three auto making contracts valued at more than $1 billion with Russia and China during the Iranian calendar year ending March 20. Khodro agreed to export 6,000 Samand cars to Russia every year and to produce 30,000 inChina. Iran Khodro Diesel is to assemble 12,000 of a version of the Gazelle van, made by the Russian GAZ (GorkovskyAvtomobilny Zavod) company, beginning with importedCompletely Built-up Units (CBU) and gradually switching to50% of parts from domestic production.

Although the basic strength of the Iranian manufacturers remains a protected home market, there has been some easingof restrictions on imports.

Iran did lower slightly tariffs on imported vehicles in2006-7, allowing an increase from 10,000 to 26,000 andleading top-range manufacturers such as BMW and Mercedes-Benz to step up their limited efforts.

And domestic manufacturers have also brought in some models from their overseas partners Renault, Citroen and Hyundai.Khodro plans to add the Peugeot 407 to its sales line-up in2007-8, and will import a total of 2,000 Peugeots, with each priced at 300-400 million rials ($32,500-$43,500).

In another sign of improved fortunes for importers, Hyundai signed a contract to supply 13,450 CBUs worth about $227million to Iranian government agencies and official taxi operators, a move that came as a blow to Kerman Motors, which manufactures Hyundai models.

The relaxation of restrictions seems to have resulted from widespread public, media and even parliamentary criticism ofthe quality of Iranian-made cars.

But there is no sign of any serious challenge to the basic development model based on restricting imports. Parliamentdecided in February to keep a hefty 90% tariff in place for the coming year, ending March 2008.

Hence the cars clogging Tehran’s streets will likely for the foreseeable future, continue to be Iranian-made, even ifsome of the parts and a growing part of the technology that makes them are imported.

GARETH SMYTH is the Financial Times Tehran correspondent

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Executive Tools

Why equity capital is good for you

by Nagy Rizk
written by Nagy Rizk

You are owner of a small or medium (Lebanese)enterprise (SME) and you are facing one or more of the following situations:

• What you sell (products or services) have high potential but you have limited resources to grow (both human and financial);

• You are doing fine, but cannot afford the extra efforts needed;

• You have used all your capacity to raise debt and you are looking for alternative financing options;

• You need to open to new distribution channels on the local or regional/international market;

• You need to build a solid infrastructure to maintain and protect your edge;

• You want to grow but are concerned with the risk implications.

Your bank/friends/colleagues have recommended you to bring in investors in order to move forward. But the search is hard. You have checked around and some (distant)connection is offering to bring in investors on board to check out your business:

• But you have either to make the trip to meet with them, probably in the Gulf nowadays (taking expenses from more urgent or relevant items) or stay on hold, waiting for their next visit to Lebanon.

• The timing may be wrong: Lebanese SMEs could be a hard sell with the current market conditions on uncertainty and instability. Buyers assume you are desperate and ask for a bargain. You are tempted to wait.

• But the feeling of urgency is clear: unless you move immediately, you may lose a unique opportunity. The market is growing and you do not want to miss the train.

• You do not know what to expect and how to deal with the“mighty investor.” A savior, a foe or just a partner? You are in for a long ride: long wait, long process, and uncertain outcome.

You are also concerned about loss of control of your business to the new investor, the reporting constraints, and the loss of independence. You are already missing your comfortable space, not having to report to anyone. Why would you want to bring in strangers?

Many questions are crossing and clashing into your mind.You are tempted to put things on hold, then to do something,then to wait and see. You are turning in circles. You wish you could have a clearer picture; you wish you could makethe wise choices at low cost; you wish you could be lucky and find the perfect fit.

You have a very heavy responsibility: You want to take your company to the next phase, efficiently and cost effectively. But the tasks ahead are too tedious and tricky.

Private equity funds for development are the pools of capital invested by private equity firms. The fund obtains capital commitments from certain qualified investors such as financial institutions and wealthy individuals to invest a specified amount in the equity of existing businesses.Private equity funds buy in equity against stakes in the business. They check out the business, they evaluate the business during the due diligence exercise, draw a road map on how to invest in the business, set the development objectives, and how to exit within a limited period. Along the way they make sure their investment is well-treated and they get returns that live up to the promises.

The Lebanese market may not be too familiar with equity capital funding for historical and structural reasons. But recently, there have been many success stories and positive experiences of value-creation and mutually beneficial partnerships. Of course, there have also been reports of some horror stories and bad experiences.

So, should you consider equity funding for your business?Is equity funding right for you?

10 good reasons to consider equity capital funding:

1- Risk sharing is a good tradeoff

Loans for business—especially the subsidized ones currently offered on the Lebanese market—are very attractive. You probably have used your limit. And when you take a loan, no one shares the risk with you. You have to pay it all back yourself, whatever the circumstances. You are on your own, dealing with risks of uncertainty, instability, and market downturn. The equity capital investor is aware of all the painful realities of the business life. He has integrated them in his analysis andvaluation. He is sharing the risks with you. And he will be doing his best to minimize and mitigate them. It is good to have a partner.

2- Dealing with the professionals always pays off

You are dealing with professionals all the way: their valuation of your company is rational, documented and integrating all the relevant factors. Negotiations are clear and streamlined. You will not be wasting time and resources dealing with amateurs or unsophisticated potential partners.The professional equity fund managers have very clearly defined rules and organizational structure. You are pretty safe.

3- Clearly defined process

Whenever you reach an agreement, all the important issues will be addressed and clarified. Many scenarios will be anticipated. No improvisation or rule-bending along the way.No bad surprises around the corner.

4- You are not losing control of your business

Your new partners want you to succeed. They want you to continue doing what you are best at doing. When necessary, they are willing to bring in the missing skills for a healthy growth. They would not mind minimizing their intervention. They are not into micro-management (unless necessary). They invest in people and your ability to deliver.

5- Credibility for your business

When the professional equity investors get in, they examine your business. If they like it, they let you know it. They see a potential for growth and value creation. They show faith in you. They give you a validation stamp.Credibility is fundamental to accelerate your entry into anew market, reduce your sales cycle, recruit new talents, and negotiate better funding terms and business deals. Youhave already won a solid vote. Your business is bankable.

6- Articulated strategy for your business

Professional equity investors look at your business, ask questions, and articulate all the necessary details including strategy for positioning, development, and growth.They share with you their vision, perspective, and experience. Your equity partner sees the value in your business and its potential, and gives you a fair assessment, and like the other board members will look at the big picture and thinking outside the box. You see the road ahead clearly. You know where you are going and how far and how fast you should get there. Motivation and clear objectives are good drivers.

7- Monetization of your business

You used to run the business, and whenever you needed loans or funds, you would have to offer personal guarantees or start a painful seduction dance to prove the value of your business. Once an equity fund has invested in your business, it is an easier sell to convince the market at large of the starting valuation. More leverage possibilities for the business or for your own shares for a second round.Well done.

8- One Agenda, clear objectives

The equity fund will get on board with the clear objective of creating value—aggressively if possible—build an attractive item, sell it out, make profits, and move on. The equity fund investor does not target to take over your business or to run it indefinitely. The rules of the game are clearly defined from the beginning. No change in the agenda along the way. No need to watch your back. You can focus on your business.

9- Your business is on the map

The equity capital professionals have come on board. They have created value. Time for them to move out. They offer their shares to potential buyers (insiders or outsiders).The buyers take notice of your value, your competitive edge, and your potential in their own portfolio. You are more visible. And that is good for business.

10- Bottom line

If every thing goes right on track, if you succeed in attracting a professional equity investor to your business, you will benefit from a very good learning experience, get help creating value for your business, and build a more sustainable business. Your future has improved, significantly.

If you feel you can make the cut and get an equity investor to take notice, prepare yourself thoroughly.Increasingly, many players are will be looking for opportunities on the Lebanese equity market. They say there is a lot of untapped value and high potential.

Having said all that, there will be situations where you will not need equity financing: If your business has very low risk, is not facing challenges for growth and survival or if you do not need to sell out for cash, then you do not need to share your benefits with outsiders with limited potential for added value. Just keep on doing what you have been doing, the good old-fashioned way.

Nagy Rizk Fund Manager The Building Block Equity fund [email protected]

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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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