Comment

Dollar not what it used to be

by Riad Al-Khouri
written by Riad Al-Khouri

The US dollar may still be king in terms of foreign-exchange reserves and denomination of international transactions, but the American currency is no longer absolute monarch of the global economy. The yawning US trade deficit and a huge overhang of debt denominated in greenback are causing concern regarding its reserve currency status. Since the middle of the 20th century, most countries have held the majority of their foreign exchange reserves in dollars. This means that the greenback is constantly in demand, whatever the underlying need for US products; now, with massive trade and budget deficits to finance, Americans are increasingly reliant on that status. The unprecedented weight of US liabilities means that a threat to the dollar’s dominance could result in a currency collapse.

Under present conditions, can dollar hegemony last? The Russians for one don’t think so, having since last spring openly questioned the greenback’s pre-eminence as the world’s reserve currency. At that time, Russia’s central bank held 60% of its reserves in dollars, 33% in euros and 7% in British pounds, but has since been busily diversifying, including an increase in Japanese yen holdings to several percentage points. The share of the yen in global foreign exchange reserves had declined to under 4% by the end of 2005 from over 6% at end-1999. However, with the Japanese currency looking undervalued, Russia, among others, may be adding more of it to their reserves and end-2006 global figures for official yen holdings should see them rising closer to late 90s levels.

With the world’s third largest official foreign exchange holding, which grew over 50% last year, Russia’s challenge to the dollar’s supremacy has fuelled speculation that other central banks could increasingly diversify. That in particular includes China, which is shifting away from dollars, a highly significant move as Chinese have the world’s largest reserves, about a trillion dollars at the end of 2006 and growing at a rate of $30 million an hour. Other Asian central banks have lost their appetite for holding dollars, with Japan also moving out of US debt instruments. Elsewhere in the world, Sweden in 2006 cut its dollar holdings from 37% of central bank reserves to 20%, with the euro’s share rising to 50%. Some OPEC countries are unloading US Treasuries at the fastest pace in more than three years; in particular, Iran in 2006 pledged to move its reserves away from the US dollar and into currencies such as the euro. Closer to home, Syria has just announced that it replaced the dollar with the euro for half of its foreign currency reserves. Given the tension between Washington and Damascus, such a move had been foreseen for some time, especially as the Syrian government at the start of 2006 issued an official circular instructing all ministries and state companies to adopt the euro instead of the dollar for foreign transactions. However, decisions such as these are not made just on the strength of emotional or diplomatic considerations: it is economically and financially smart for Syria to shift into euros, irrespective of the political correctness of the move. By the same token, what should be interesting to watch in 2007 will be how the central banks of other Arab countries, including Lebanon and Jordan, with local currencies pegged to the dollar and strong political ties to Washington, are able to move away from over-reliance on greenback reserves.

Arab banks cutting back on dollar reserves

However, whatever the Arabs do, the trend against the dollar is clear and possibly permanent. There are now more euros banknotes and coins in circulation worldwide than dollars, but the greenback remains the world’s most important reserve currency, though less significant than in the ’90s. The dollar’s share of global reserves dropped to under 67% at the end of 2005 from 71% in 1999, while the euro’s portion increased during the same period to over 24% from under 18%. Today, it is estimated that about 65% of foreign central bank exchange reserves are held in dollars, versus around 25% in euros, with the dollar exchange rate weakening 10% against the euro over the past year. The rise of gold is yet another sign that the dollar is not what it used to be. After central banks in various countries unloaded the yellow metal back in the ’90s, it is now making a comeback.

As the rest of the world continues to abandon the dollar as the global reserve currency, Americans will find borrowing more expensive. The US can maintain a large trade deficit only if foreigners continue to hold large numbers of dollars as their reserve currency, and that looks increasingly unlikely. Though holding a drop in the ocean of world reserves, the Syrians seem to have got it right, but how long will America’s friends in other Arab capitals continue to prop up the US consumer by holding on to dollar reserves? What the Saudis and their neighbors do with their dollars will mean a lot to America in 2007 as other countries continue to abandon the greenback.

RIAD KHOURY is an economist director of MEBA Ltd Amman and a senior associate at BNI, Inc. New York. 

0 comments
0 FacebookTwitterPinterestThreadsBlueskyEmail
Banking & Finance

Banking on shariah finance: Islamic banks on rise

by Executive Staff
written by Executive Staff

It happened at an international conference promoting Islamic real estate financing last month in Amman. After a session detailing product trends in real estate financing that meet the requirements of shariah, an American listener working in a real estate business in Jordan stood up and said, “I am completely confused about the products you have, but it sounds all very interesting.”

The man was not alone. Panelists presenting the latest models for Islamic real estate financing at the event said apologetically at several points that their explanations would “increase the confusion” of listeners, especially when questions ventured into the ethical underpinnings of specific Islamic products. Instead of trumpeting new flashy deals between Islamic bankers and regional real estate investors, speakers overall had their hands full with building awareness in a meeting that showed how the complexity of Islamic financial concepts in the past five years has grown faster than the corresponding knowledge base in the regional investor community.

As one example, sukuk—asset-backed securities that are employed in growing numbers for securitization operations with real estate as underlying assets—have ballooned into 17 different varietals on record with the Accounting & Auditing Organization for Islamic Financial Institutions (AAIOFI). The first modern sukuk was issued as simple arrangement but five years ago by the government of Malaysia.

In the retail market, the contracts and models for Islamic real estate finance have sprouted from relatively simple mudaraba transactions (in which a bank purchases a property and resells it to its client at a fixed higher price payable in installments) to multi-layered deals that include leasing (ijara), diminishing joint ownership (diminishing musharaka), and parallel and mixed leasing agreements.

The United Kingdom has acted as center for developing these shariah-compliant products, said Tariq Hameed, a partner in British law firm Norton Rose. However, when pressed for numbers and the UK market size for the Islamic product marvels, he estimated the number of existing contracts at 5,000 home finance deals—out of 410,000 Muslim households in the country. “Many Muslim families in the UK don’t trust that the contracts really are shariah-compliant,” he offered as explanation.

Lots of room for growth

In Jordan, the size of the Islamic housing market also has a lot of room for optimists. Jordan Islamic Bank (JIB), one of two shariah-compliant banks in the Hashemite Kingdom, has records of $700 million worth of home finance agreements—but that is a lifetime achievement of the bank in the past quarter century. The numbers for 2006 are a modest $45 million for JIB out of an estimated $70 to $80 million in Islamic house finance deals by all Jordanian providers last year, an advisor to JIB told Executive.

And for sukuk, while the papers are growing impressively in issue size and total numbers, the majority of investors come from a conventional background, with interests that are not driven by the Islamic aspect of the complex structures.

Islamic finance is, by definition, a practice of business which adheres to rules that transcend the mere mechanisms of the markets. Drawing strength from its roots and the blessings of wealth in Muslim societies, Islamic finance took shape between the early 1960s and late 1980s and has gained greatly in international stature since the mid 1990s. As such, modern Islamic finance for the past decade or so has with increasing vigor addressed the formidable challenge of conducting business activity in a manner that is satisfactory through both its economic rewards and its religious purity.

A very big part of this process has been and still is to set standards that meet the requirements of two very complex and inherently demanding systems: shariah law and the latest economic science. Creating standards that fuse these two realms into a winning partnership is the chosen task of organizations such as the Islamic Financial Services Board (IFSB), which was established in 2002 in Malaysia as international body of regulators and Islamic financial institutions.

The IFSB hosted a seminar on real estate financing standards back to back with the Amman conference last month and is generally very busy this year, with eight major event packages that discuss topics from legal issues to the “European challenge” for the industry.

This standard-setting and dissemination enthusiasm goes hand in hand with the growing awareness and expansion of Islamic financial services to highly developed conventional financial markets in Japan, where the central bank has shown interest in the specialty, and Europe, where the UK authorities have been taking steps to ease the facilitation of Islamic finance and where France recently has started considering a regulatory framework that will accommodate Islamic banking.

But there are signs suggesting that the course of Islamic finance is entering another phase of its development. In the past three years, more and more financial firms and general corporations in the Gulf region have been converting their operations to become shariah-compliant. However, as a survey by the IFSB showed last month, the growth rates of Islamic banks in many Muslim countries have dropped from exponential between 2003 and 2005 to more normal in 2006.

Islamic assets in the banking sectors of countries like Bahrain, Qatar, Jordan and Malaysia represent between 10% and 15% of total banking assets, with no significant increase in the percentage share in the first half of 2006. While Brunei was the only upward outlier with more than 40% of assets being Islamic, Lebanon joined Indonesia and Pakistan at the low end of the scale with no more than 2% of Islamic banking assets. According to the survey, Islamic finance is still growing in the Middle East but so is conventional banking, and the strongest growth rates are usually not on the side of Islamic banks.

For banks, specialization in Islamic real estate finance can be attractive in two ways, as facilitators of home or commercial property purchases by their customers, and as means for their own investments. While conventional banks are largely excluded from using real estate for profit-oriented own investments, the operating mandate of Islamic institutions has led regulators in several countries to allow these banks to include property in their investment portfolios.

Different jurisdictions, different regulations

However, the banks are facing different restrictions in different jurisdictions, as some regulators put limits on Islamic banks’ real estate investments and others don’t. In Europe, the practitioners also still face cost issues in home financing. These originate from tax laws that make no provisions for the special processes of Islamic finance, such as double transfer of deeds in a mudaraba structure. Only the UK has taken steps toward removing these cost barriers.

All this underpins the case made by the Islamic finance protagonists that the playing field for real estate finance by Islamic institutions should be made more level, beginning with continued standardization initiatives of central banks and regulators in Muslim countries.

Cost barriers and overly complex structures of Islamic products can be impediments for the growth of Islamic finance beyond sitting on a ledge as niche operators that address customers who will not enter the realm of conventional banking. While this target group is important, especially in developed countries, the ethics aspirations involved in the drive to expand Islamic finance extend into creating a humane economic realm, which will appeal to wide population groups—which as a larger aim underscores again the need for comprehensive standards.

And while the buzz of abundant liquidity by shariah-compliant investors and financial institutions in the Gulf certainly is no myth, the security and business convenience environment in the Levant has yet to infuse managers with more confidence. Take the example of Kuwait Finance House, a big player in channeling funds into real estate investments under observance of shariah, which has nearly $7.5 billion in property assets and funds.

KFH wants to expand in the Middle East, but for the time being, its property portfolio is invested in Europe, the Americas, and Asia. Said the manager of KFH’s international real estate department, Ali Al-Ghannam: “We have received many proposals for projects in Syria, Jordan, Lebanon, and North African countries, but so far we have no concrete projects.”

0 comments
0 FacebookTwitterPinterestThreadsBlueskyEmail
Comment

The so-called Iranian threat

by Lee Smith
written by Lee Smith

According to a recent Zogby poll, George W. Bush jumped ahead of Ariel Sharon this year as the world leader Arabs like least. Perhaps Bush owes his remarkable surge to the fact that the former prime minister was in a coma for all but two weeks of 2006. This same poll that surveyed respondents on the popularity of an Israeli leader who for all practical purposes is dead, also reports that the majority of Middle Easterners do not fear Iran. It is the answer to what seems a very fuzzy question, indeed a much politicized one designed to challenge what has recently become the White House’s regional flow-chart: The Sunni Arab states are lined up with the US and Israel, against Tehran and its regional allies, Syria and Hizbullah.

You can’t entirely blame the Zogby pollsters for wanting all the traditional enmities to still hold water: Arabs hate Israel and Bush most of all, and they like—er, ok, they don’t fear Iran! What seems like a fundamental re-alignment of interests has come as a surprise to almost everyone, here in Washington and elsewhere. Sunni powers like Egypt and Jordan have been quite clear about their concerns over the Iranian threat, while the Saudi royal family has put up a noble front, perhaps because they have the most to lose if Iran becomes the regional hegemon. But the issue’s even more interesting within the Palestinian Authority.

Now that the Mecca Agreement has, temporarily at least, ended the discord between Hamas and Fatah, maybe the Palestinian Prime Minister can relax about his fashion choices. Ever since a Fatah crowd started chanting “Shia, Shia” against their Tehran-funded rivals, it seems Ismail Haniyeh will not be photographed without a red and white kafiyeh on his head. Maybe the color-scheme is to distinguish himself from the late Chairman Arafat—or perhaps he just wants to wrap himself in Arab garb to avoid seeming too Persian. So, then perhaps the more useful question is not whether Arabs fear Iran, but if some Arabs are very worried about seeming too Iranian.

The Iranians of course are also anxious, which is why unlike their clueless ally in Damascus, they seem to want very much to avoid a sectarian civil war in Lebanon. Another Sunni-Shia conflict in the Middle East is probably not to the Islamic Republic’s advantage, especially since the US military’s “surge” in Iraq seems so far mostly to involve rolling up Iranian assets in Baghdad. And if Bashar al-Assad keeps trying to bring down the Seniora government for the sake of sidelining an investigation into the murder of a popular Sunni zai’m and empowering a Shia militia, then Tehran will lose much of the region-wide credit it earned this past summer, outside Lebanon at any rate, as benefactor and grand sorcerer of the Islamo-nationalist resistance against Israel. The fact is that the Iranians may have already reached the limits of their ability to project power in a region that is majority Sunni Arab.

Perhaps that’s why here in Washington we are watching an extraordinary publicity campaign on behalf of the Islamic Republic of Iran unfold, waged by a host of journalists and policy specialists in articles like “Courting the Saudis, and Catastrophe,” and “Why America Must Throw in its Lot with the Shia.” In short, the argument is that the US cannot abandon the Shia revival at this stage and return to the policies that allowed Sunni fanaticism to blossom and eventually bear fruit on September 11. The problem however is that the White House interprets regional transformation very differently than the Shia do: Washington means making room for democracy, or power-sharing, while the Iranians and Arab Shia from Iraq to Lebanon have largely taken it as a cue that after 1,400 years, they get to ride the pony now. Sure, the Shia reaction is a very understandable human response to more than a millennium of repressive violence, but the Americans are not going to run roughshod over all their strategic interests just so that the Shia can get their pound of flesh out of the Sunnis.

Elsewhere recently, New York Times columnist Thomas Friedman argues that Iranian civilization and the country’s well-educated and progressive populace make Iran a much more likely US ally than Riyadh. In an ideal world, Washington policymakers would very much like to have a relationship with Iran. Among other things, it would give the US some much-needed leverage over the Saudis to finally stop funding, inciting and staffing, if unwittingly, terror against Americans and American interests. Alas, it is not an ideal world, and the Iranian regime is a much bigger problem as it is openly fighting the US, its allies and interests across the Middle East, from Iraq to Lebanon.

Vali Nasr is one of the hot names in US policy circles these days, which is why just last month he was invited to testify before the Senate Committee on Foreign Relations. There, he explained that, “a policy that is focused on Iran rather than Iraq will escalate conflict in Iraq and across the Middle East, thereby deepening American involvement in the region with the potential for adversely impacting US interests.” In other words, let Iran go about its business of adversely impacting US interests.

In fact, it wasn’t until very recently that Washington recognized the significance of Iran’s campaign, an oversight that explains why the Americans were essentially conducting two Middle East policies—one to deal with Lebanon, Syria, the Gulf, etc. that saw Iran as the major strategic threat; and another for Iraq that ignored, as Nasr counseled, the extent of Iranian penetration there.

With Moqtada al-Sadr hiding himself away like another famous underground mullah, those days are gone. And now who knows what new alliances are yet in store—a Damascus isolated by Saudi Arabia and its anxious Iranian ally?

LEE SMITH is a Hudson Institute visiting fellow and reporter on Middle East affairs.

0 comments
0 FacebookTwitterPinterestThreadsBlueskyEmail
Comment

Yes, Iraq was all about the oil

by Peter Speetjens
written by Peter Speetjens

We were told that the war in Iraq was waged for many reasons: Saddam Hussein had weapons of mass destruction, supported terrorism and nourished links with al Qaeda. Demonstrators holding up banners reading “No Blood for Oil” were dismissed as ignorant and naive.

All wars start way before the first bullet is fired, and the Iraqi war was no exception. A possible starting date might be January 26, 1998, when 18 members of the Project for a New American Century (PNAC), wrote to then-US President Bill Clinton, urging him to use military action to overthrow Saddam. If not, they warned, he would be jeopardizing a sizeable chunk of the world’s oil supply. PNAC’s clout was significant. Ten of its 28 founding members—including such neocon luminaries as Dick Cheney, Donald Rumsfeld, Paul Wolfowitz and Zalmay Khalizad—would go on to serve in the Bush administration

Clinton did not act. He of course did not have the oil background of his successor, George Bush, who within two weeks of his inauguration in January 2001 appointed Cheney head of the Energy Task Force. The former Halliburton CEO went on to hold regular meetings with oil industry representatives and lobbyists and later declared that, “by any estimation, Middle East oil producers will remain central to world security. The Gulf will be a primary focus of US international energy policy.”

The activities of “Team Cheney” were not isolated. As Jane Mayer revealed in The New Yorker, a secret National Security Council memo directed its staff “to cooperate fully” with Cheney’s task force and, specifically, to join “the review of operational policies towards rogue states such as Iraq and actions regarding the capture of new and existing oil and gas fields.”

The US State Department too joined the party, launching the Future of Iraq Project (FIP) 18 months before the war began, a period during which the US administration denied it had any specific war plans for Iraq. Within the FIP, however, experts from Iraq and the US produced 2,000 pages on how to deal with post-war Iraq, stating that the country should be, “opened to international oil companies as quickly as possible after the war.”

Which it was—almost overnight, the US-lead Coalition Provisional Authority turned Iraq into one of the most privatized nations on earth. State-owned enterprises were put up for sale, corporate taxes slashed and foreign firms could enter the market and repatriate profits tax-free. According to the Center for Public Integrity, 15 American companies were awarded contracts worth $50 billion—but not to oil companies.

That might have made things too obvious. It would also have been a violation of the Iraqi constitution. So a new law was needed, a work in progress ever since. To the immense frustration of the Americans, the main Iraqi power brokers have so far been unable to agree on a framework. The Kurds want regional authorities to have the main say, the Sunnis want a strong national authority, and Shi’ites want something in between.

All parties, including the Americans, agree on one thing: the Iraqi oil sector will be open to foreign investors. Fair enough. The shattered Iraqi oil industry is in dire need of a cash injection, some $25 billion over the next five years. The trouble is that any new oil law appears to be heading towards Production Sharing Agreements or PSAs.

In exchange for investments in exploration and production, a PSA allows oil companies to keep revenues until its initial investments are covered. Fair enough … or is it? British oil watchdog Platform has warned how PSAs allow for extremely high profit margins, up to 13 times a company’s minimum target.

Currently just 12% of the world’s oil is governed by PSAs, as they are only used in countries with small or difficult to reach oilfields, or in case of high-risk exploration. In Iraq, however, most fields have been very well documented, oil lies close to the surface and is cheap to extract.

When current Iraqi Vice-President Adel Mahdi first announced the liberalization of the Iraqi oil sector in Washington in 2004, he proclaimed it “very promising to American investors and American enterprise, certainly to oil companies.”

And yet, just days before the first tanks rolled over the Iraqi border, British Prime Minister Tony Blair assured a baying British public that, “Iraqi oil revenues, which people falsely claim we want to seize, should be put in a trust fund for the Iraqi people.” Who was being ignorant and naive?
 

PETER SPEETJENS is a Dutch writer and freelance consultant

0 comments
0 FacebookTwitterPinterestThreadsBlueskyEmail
Comment

Saudis moving to block Iranians

by Gareth Smith
written by Gareth Smith

While many analysts have in recent weeks trumpeted the role of Iran as an emerging regional power, the more astute have pointed to the remarkable role of Saudi Arabia in shaping the regional agenda across both the Persian Gulf and the Levant.

The two key developments were February’s Saudi-brokered Mecca agreement between Hamas and Fatah, and Saudi Arabia’s series of meetings with Iran’s top security official, Ali Larijani, over both Lebanon and Tehran’s nuclear program. But there was also huge significance in February’s visit to Saudi by Vladimir Putin, the first by a Russian leader to any country of the Gulf Cooperation Council.

Riyadh’s relationship with Tehran remains delicate. The persisting political vacuum in Iraq, where the Shia-led government is struggling to establish any effective authority, inevitably sucks in neighbors, with the Persian Gulf’s two leading powers having opposing visions of Iraq’s future.

“Iran would like a strong Shia state whereas the Saudis want a Sunni state,” says one insider in Tehran. “But it’s all been complicated by the naive vision of the US, Iraq’s third important player, which sought a quiet, ‘democratic’ Iraq with US military bases for at least 20 years. I don’t see the Americans being successful in reconciling these three visions, whether or not they send more troops.”

Riyadh-Tehran jousting

While both Tehran and the Saudis—officially or unofficially—pour resources into intelligence operations in Iraq, both governments are concerned at the dangers of sectarian conflict between Shia and Sunni, which can embolden extremists in Iraq and elsewhere. Pragmatists in both Saudi Arabia and Iran would like to get back to the growing realism of their relationship under former Iranian presidents Akbar Hashemi Rafsanjani and Mohammad Khatami.

“Even if Iran has more influence than the Saudis in Iraq, Saudi Arabia has more influence across the Islamic world, and this can genuinely harm Iran,” an official in Tehran says.

Ayatollah Ali Khamenei, Iran’s supreme leader, has warned publicly of differences among Muslims being fueled by “those who, for the happiness of US and Zionists, talk about an imagined … ‘Shia crescent’ and those who stir up insecurity and brother-killings in Iraq to make the Islamic and popular [Iraqi] government fail.”

Meanwhile, Saudi Arabia’s “cautious welcome” of the new US Iraq policy reflected relief at the easing of earlier fears that Washington was contemplating a pull-out, even though the strategy had been agreed upon during Vice-President Dick Cheney’s visit to Riyadh in November.

Tehran is also concerned over Saudi influence in Lebanon, growing since the Syrian withdrawal and cemented by the donation of $1 billion to the central bank during the summer’s Israeli onslaught and the Gulf kingdom’s sponsorship of reconstruction in mainly Shi’a South Lebanon. Conservatives in Tehran also charge the Saudis with encouraging Hamas, the militant Palestinian group, to keep a distance from Tehran, and fostering anti-Shi’a sentiment among Sunni clerics in Pakistan.

The Saudis are wary both of Iran’s nuclear program and of the popularity of President Mahmoud Ahmadinejad in the Arab and Islamic worlds, and are well aware of the wave of sympathy likely to be generated for Iran should it be attacked by the US or Israel.

An opinion poll released last month by Zogby International found that 61% of Arabs backed Iran’s nuclear program, even if it led to the acquisition of weapons. Nearly 80% identified the US and Israel as the main threats to regional security with only 6% naming Iran.

Hence the Saudis have opted for subtle economic pressure on Iran in the hope this will lead Tehran to compromise. Riyadh moved in January to keep oil prices at a relatively low level, vetoing a proposed emergency OPEC meeting when the price dipped below $50 a barrel. The move constrained Iran’s oil income, which generates around 60% of government revenue, at a time when US-encouraged banking sanctions are squeezing Tehran’s access to capital badly needed for oil and gas projects.

Blocking Iran

The Mecca accord, which went down badly in Washington, but has also done something to neutralize Tehran’s appeal as the “true” defender of Palestinian rights and remind the region that the 2002 “Arab peace plan,” agreed at the Beirut Arab League summit and still on the table, was essentially a Saudi proposal.

And hence the Saudis’ desire to agree a minimum framework with Tehran over Lebanon—including the acceptance of the UN enquiry into the murder of Rafik Hariri—and reduce the possibility that the persisting stand-off between the government of Fuad Seniora and the Hizbullah-led opposition could get out of hand.

The end-game of the Saudi strategy is probably both the halting of the Iranian nuclear program and the beginnings of strategic dialogue between Washington and Tehran. That neither will be easily accomplished should not detract from the real progress that has already been made.

GARETH SMYTH is the Financial Times Tehran correspondent.

0 comments
0 FacebookTwitterPinterestThreadsBlueskyEmail
GCC

Dubai aims to buy Liverpool giants

by Executive Staff
written by Executive Staff

Dubai looks set to enter the first division of world football, with news that the state-owned corporation Dubai International Capital (DIC) is closing in on a buyout of English Premier League giant Liverpool.

In a deal worth an estimated $880 million, DIC would acquire the majority stake in the club, winner of 18 English league titles and a number of European trophies, including the 2004-05 Champions League.

Liverpool’s chief executive officer, Rick Parry, said on Jan. 15 that DIC was in the process of putting the finishing touches to the details of its bid and completing the legal work associated with the offer.

“It is a case of finalizing the due diligence and pulling everything together, which we hope will be completed relatively quickly,” Parry said during an interview with British media. “A huge amount of work has been going on from both parts. I imagine we’ll have something to say relatively soon on that.”

Not the first foreign owners in football

If the deal goes through, as all parties expect it to, it would not be the first time that overseas buyers have gained control of one of English football’s icons. Both Manchester United, the current Premier League leaders, and Chelsea, the reigning champions, are foreign-owned, by American and Russian concerns respectively. A number of other teams in the English leagues have large shareholdings in foreign hands.

Owning a football team does not just mean getting the best seats at games. Should the DIC buyout of Liverpool go ahead, the Dubai investor would have a billion-dollar business on its hands and own an internationally recognized brand. Television rights, shirt sales, merchandising and promotional value are all the up side of such a deal.

Of course, football is a high-risk enterprise, and failure on the pitch can bring losses away from the playing field. If it becomes the owner of Liverpool, DIC will be expected to invest heavily in star talent, as well as in the new stadium the Reds have long been planning.

Football is increasingly becoming big business in Dubai, with a number of top European clubs drawn to the emirate during their mid-season breaks. Taking advantage of quality training facilities and the mild weather, teams such as Germany’s Bayern Munich, Benfica of Portugal and Italian outfit Lazio came to Dubai in January to both sharpen their training regime and recharge their batteries. Such visits not only earn money for the local tourism industry but also help promote Dubai in the overseas media, which always keeps a close watch on the doings of their sides.

Dubai is taking the task of becoming a football venue seriously, having poured millions into staging a showcase competition early in the new year. The Dubai Football Challenge 2007, which kicked off on January 8, pitted the national sides of the UAE and Iran and foreign teams such as German Bundesliga Hamburg SV and VfB Stuttgart against each other.

Played at Dubai’s showcase Maktoom Stadium, the three-day tournament drew good crowds and rated highly on television.

According to Jochen Schneider, VfB Stuttgart’s manager and sport administrator, the success of the first Dubai Football Challenge will enhance the appeal of the emirate for leading teams in the future.

High class, global appeal

To get such high class teams for the first tournament is testament to its global appeal, and the attraction of Dubai to big teams, he said. “We came to Dubai in January 2006 and that successful trip has been part of our domestic success throughout last year.”

Increasing the profile of sports such as football in Dubai is part of a wider strategy to expand the economy’s base as well as the emirate’s attraction to visitors. More than $2.5 billion is being spent to develop Dubai Sports City, a sporting and tourism project that aim to offer world-class facilities and act as a springboard for Dubai’s bid to host the 2016 Olympics.

Billing itself as the world’s first fully integrated purpose built sports city, the development will feature four major stadiums, and offer facilities for sports such as football, cricket, tennis, golf, rugby, athletics, swimming and hockey. One of its features will be a Manchester United Soccer School, continuing the strong push towards promoting football in the region.

0 comments
0 FacebookTwitterPinterestThreadsBlueskyEmail
GCC

GCC sees insurance industry booming With Dubai leading the way

by Executive Staff
written by Executive Staff

In tandem with the emirate’s development, Dubai’s insurance industry is set to reach new heights over the next few years. Meanwhile, throughout the Gulf Cooperation Council (GCC) the insurance sector is booming.

According to a recent study published by Nexus Insurance Brokers, the region’s largest independent financial adviser, the GCC insurance industry will enjoy a period of strong and sustainable growth, fuelled by a surge in regional demand for insurance products. The sector is expected to grow by some $2 billion by 2010, reaching $7.1 billion. In particular, it seems the UAE insurance sector is currently growing by around 20% per annum.

With over 47 insurance companies, 23 of which are locally owned, the UAE has the largest insurance sector in the region. Most of these companies are based or have an office in Dubai. The sector may appear overcrowded, but a number of small insurance companies have low risk retention and act more as captive agents than real insurance companies. In addition, risk is offset by international reinsurance companies, which play an active role in the region. Meanwhile, some insiders predict mergers between small insurance companies in the near future.

The latest official figures on the insurance sector in 2005 released by the Ministry of Economy and Planning indicate that premiums rose from $1.29 billion in 2004 to  $1.85 billion in 2005, accounting for a healthy increase of 30%. A breakdown of premiums by class of insurance reveals that the non-life segment made up more than 74% of premiums. However, the life segment is expected to grow faster over the next few years.

While local firms dominate the non-life market and collect 75% of premiums, foreign firms control the life insurance market with a similar share with giants such as Arab Insurance Group, American Life Insurance Company (Alico), Axa-Norwich Union or Allianz. Their products are mainly sold to Western expatriates.

In the non-life or general insurance market, a breakdown of segments indicate that accidents and liability account for 61.8%, fire 16.9%, the land, sea and air transport 16.7% and medical 7.6%.

Despite this, UAE market is underdeveloped

Overall, the insurance market in the UAE remains underdeveloped by international standards. Indeed, although one of the highest in the region, the insurance premium density per capita, or the average amount of money spent on insurance products per person per year, stood at $444 in the UAE, compared to $4,508 in the UK or $5,716 in Switzerland.

The GCC governments have played an instrumental role in promoting the benefits of insurance policies. In July this year, the UAE introduced a new health insurance scheme in Abu Dhabi, a move which many say will undoubtedly boost and revitalize the insurance industry for years to come. This new product is finally becoming more acceptable in the GCC. Under the scheme, companies with a staff of more than 1000 will have to provide health insurance for their employees and their close families. An estimated 500,000 people will benefit from the plan, including low-wage workers. The scheme is set to be introduced in Dubai in early 2007.

The insurance industry as a whole is already starting to reap the benefits of this rejuvenating plan, set to expand given the predominantly young population.

Aside from health insurance, a new regulator will also emerge in 2007. Although still under the auspices of the Ministry of the Economy, the new authority will work to improve relations between insurance brokers and companies, as well as consider new solutions for motor insurance and professional indemnities for each sector.

0 comments
0 FacebookTwitterPinterestThreadsBlueskyEmail
GCC

UAE’s ‘du’ service Tackles foes

by Executive Staff
written by Executive Staff

This year saw new UAE telecoms operator Emirates Integrated Telecommunications Company, branded as du, secure its customer base ahead of its expected launch of operations in February.

Du, which launched a campaign allowing customers to book their phone numbers with the company in November, has received approximately 500,000 subscribers booking 750,000 numbers. Under the campaign, customers are allowed to keep their old phone number but must change the prefix from ‘050’ to ‘055’. The ease of switching operators and the option for customers to retain their mobile number seems to have had a positive impact on du’s efforts to build a substantial customer base.

Etisalat and du square off

However, the imminent launch of du’s operations has led the existing operator, Etisalat, and the newcomer to adopt aggressive marketing strategies to showcase their new products, services and pricing. The mobile penetration rate in the country is extremely high, with estimates placing it at 125%—the highest mobile penetration rate in the Arab world. It also has internet penetration levels of 60%. Against such a backdrop, competition between du and Etisalat is set to be fierce.

Some analysts fear that this will not dramatically impact prices. Osman Sultan, CEO of du, said that the company will be looking to grab a 30% market share within three years of launching operations. However, this will not be achieved through a price war. According to Sultan, “We have a great deal of respect for Etisalat as a strong regional player with a very deep pocket. We will not be getting into a price war with them as such cut-throat competition would not be in the interest of either company.” However, Wisam Francis, BIS Shrapnel’s project manager for the Middle East telecom sector believes that du will struggle to achieve its ambitious targets, suggesting that it will only achieve between 10-20% market share up to 2009.

Du has been investing heavily in its infrastructure and human resources in preparation for the commencement of operations. The company has also been keen to make its mark ahead of the launch, highlighting its next-generation network and pricing structure. Particular areas of emphasis for both Etisalat and du are broadband and mobile television, both of which are expected to gain prominence in 2007. Du has also stressed its per second pricing strategy that distinguishes it from its competitor Etisalat. All customers will have the option to be charged on a second by second basis on all mobile voice calls. Sultan said that this was a particularly important development because, “It is only fair that our customers pay for precisely what they use.”

Etisalat is also preparing for the arrival of the new operator by readjusting its pricing structure. One key area that Etisalat is looking to address is international calls. The company is going to offer off-peak rates to business customers on their international calls, constituting a 35% discount on current rates. Ahmad Abdul Karim Julfar, the chief operating officer at Etisalat, seemed to concede that this decision was driven by the changing nature of the market in the UAE and recent developments. He argued, “In light of the current market environment we have reviewed our services and rates to ensure that the true cost of the service is more accurately reflected in the charges.”

VoIP still a controversial technology

However, it would appear that the rationale behind cutting prices on international calls is not simply driven by the imminent arrival of a new mobile operator in the UAE. Etisalat is also taking into account the potential changes to regulation on Voice over Internet Protocol (VoIP) in the emirates. This issue continues to dominate the telecommunications sector in the country. As it stands, the technology is still illegal with services such as Skype blocked in the UAE.

It has been rumored that the national regulatory body, the Telecommunications Regulatory Authority (TRA) is set to legalize VoIP. However, it has issued a rebuttal this week saying that the technology is still under review. The TRA’s manager for administration and public relations, Adnan al-Bahar told the local press, “Until the regulatory framework is in place VoIP is illegal.”

Nevertheless, it would appear that it is only a matter of time until the regulatory framework is put in place issuing in the legalization of VoIP. This is seen as a particularly important growth area in the telecommunications sector in the Middle East and North Africa region. According to Luke Kabamba, the Dubai-based ESM business unit head for IT software management company CA’s Europe Middle East and Africa eastern markets, The Middle East market has witnessed a huge surge in the last couple of years and many companies today have plans of investing in VoIP, which not only helps increase customer satisfaction and staff efficiency but also simplifies and reduces the cost of managing voice communication systems.

0 comments
0 FacebookTwitterPinterestThreadsBlueskyEmail
GCC

UAE, Oman link exchanges

by Executive Staff
written by Executive Staff

In early January, the Abu Dhabi Securities Market (ADSM) signed a cross-listing agreement with the Muscat Securities Market (MSM), reflecting its will to attract foreign investors, improve its performance and strengthen its links with regional markets.

The agreement between the ADSM, the MSM and the Muscat Depository & Securities Registration Company allows for the listing of Omani companies in Abu Dhabi. Oman and Emirates Company will be the first Omani company to list in the UAE.

According to Abdullah al-Nabhani, the general manager of Muscat Depository & Securities Registration Company, the establishment of an electronic link between the two Gulf markets has fostered greater interest in the UAE markets. “Since MSM established the electronic link with ADSM, we have seen a huge increase in demand for UAE securities in Oman. We hope this agreement will help to not only meet this demand, but also offer investors the opportunity to diversify their risks by having more choice.”

The ADSM currently has 54,000 Omani investors registered making up 7% of the total and contributing $62.62 million to the market. The agreement with Muscat is part of a wider strategy on behalf of the ADSM to broaden its investor base and the number of foreign companies listed on the market. According to Rashed al-Baloushi, the ADSM’s acting director general, “As long as we continue to bring international companies and more diverse investment opportunities to the UAE local markets, we are helping investors to spread their risks, contributing to long-term market stability and ultimately furthering economic growth in the UAE.”

Similar agreements

Qatar, Pakistan and Jordan already have similar agreements with the ADSM, facilitating cooperation and dual listing on their respective markets. Pakistan was the first non-Gulf country to sign such an agreement with the Abu Dhabi market. As a result of the memorandum of understanding between the ADSM and the Central Depository Company (CDC) of Pakistan, 10 Pakistani companies have already received approval for cross listing.

This agreement paves the way for further investment between the two countries. There are currently 2,200 Pakistani investors registered on the ADSM, with investments worth $13.61 million. However, investment from the UAE to Pakistan is seen as a key consideration in this agreement. Al Baloushi believes that this agreement will help to consolidate Emirati investment into Pakistan. “Abu Dhabi is a significant investor in Pakistani companies so it is important for us to cement close ties between our markets. We also look forward to working closely with the three Pakistan stock exchanges as we implement our best practice program and continue to improve the regulation and governance standards in the UAE financial markets,” he said.

Hanif Jakhura, the chief executive of the CDC, also pointed out that the agreement would facilitate investment from the Pakistani expatriate community into their home markets.

Similarly, the agreement between the Securities Depository Center of Jordan and the ADSM is a step forward for facilitating investment relations between the two markets. Arab Bank is likely to be the first Jordanian company listed on the Abu Dhabi market. The presence of Jordanian investors in the UAE is already well established with approximately 7000 investors registered and investments amounting to $168.8 million.

Seeking more arrangements

Al-Baloushi said that the ADSM is seeking out more agreements along the same lines. Khaled al-Suwaidi, the manager of ADSM’s listed companies department, also recently told a conference in Singapore that attracting foreign investment is a strong priority for Abu Dhabi’s stock market. He further laid out the measures taken by the ADSM to bring the market into line with international best practice. The ADSM has suggested a corporate governance code for all listed companies as well as a UAE trust and custody law.  

These measures are seen as particularly important to attract foreign and institutional investors. Currently, foreigners can invest in 38 out of the 61 listed securities on the ADSM and account for 40% of investors in the market. Al-Suwaidi believes that this figure will increase because of the positive economic development prospects for the emirate.

In spite of the current slump in the market, al-Suwaidi believes the economic conditions of Abu Dhabi are conducive to investment. “Abu Dhabi’s progressive economic agenda, promoting diversification, liberalization and an enhanced role for the private sector, demonstrates that the long-term fundamentals for growth are in place,” he said. 

0 comments
0 FacebookTwitterPinterestThreadsBlueskyEmail
Levant

Jordan’s tourism industry takes hit But Amman optimistic

by Executive Staff
written by Executive Staff

Figures released at the end of December 2006 by the Jordanian Ministry of Tourism for the first nine months of 2006 showed a 7.4% rise in the total number of tourist arrivals, with 4.9 million visitors entering the country. The vast majority of these were from Arab states, with Jordan’s near neighbors contributing 3.75 million tourists to the overall arrivals, with just under 1 million coming from Saudi Arabia.

However, while there was also an increase in the number of Europeans and Americans visiting the kingdom, up by 7.9% and 30.8% respectively, the ministry figures showed a far greater fall off in the amount of time these tourists stayed in Jordan. The amount of time spent by European tourists fell by 26.8% compared to the January to September period in 2005, while there was a similar drop among US visitors. There was also a marked decline in the number of package tours from both Europe and the US, down by 25.8% and 74%.

Another interesting statistic was that were far fewer visitors to Jordan’s recognized tourist sites—the ancient ruins and museums for which the country is famed—with numbers down by more than 20%.

Petra sees fall off in visitors

This was borne out by news that Jordan’s best-known tourism attraction had seen a dramatic fall off in visitor numbers. The ancient city of Petra, a marvel hewn out of living rose red rock dating back thousands of years that serves as one of the symbols of Jordan, drew just over 359,000 foreign visitors last year, 12.7% down on 2005.

Officials blamed the decline on political tensions in the region, particularly Israel’s military strike against Lebanon, launched in July. That month, Petra saw a 30% fall in tourist numbers, followed by a 52% drop in August compared to the same months in 2005, according to figures released on January 12.

Ironically, news of Petra’s waning popularity came only days before the announcement that the city had been short-listed in an international competition to name the “New Seven Wonders of the World.”

However, the drop in numbers of package tour visitors and those visiting tourist sites does not necessarily mean that Jordan is losing its appeal as a holiday destination. After all, both overall arrivals and revenue from the sector were up last year. What these conflicting figures may represent is a shift in the kingdom’s tourism industry, one towards the higher end of the international market.

Major investments soon to pay off

The past few years have seen major investments in Jordanian tourism, mainly coming from Gulf states. The latest, and indeed Jordan’s largest ever property and tourism development, is a joint project between Saudi construction firm Saudi Oger and Saraya Aqaba for a $995 million complex on the Red Sea near Aqaba. The project, to be built around a man-made lagoon, will feature shopping, dining, entertainment, hotels, freehold accommodation and cultural facilities.

Other major developments, including a number in Amman, have targeted Arab buyers not put off by the large price tags on villas and luxury apartments.

A recent report prepared by the Capital Investments Bank and the Jordan Center for Public Policy Research and Dialogue predicted a continuation of growth for both the Jordanian economy and the country’s tourism sector. The report said that not only would the industry overcome the effects of the war in Lebanon, but also in the longer term tourists from the region may tend towards choosing Amman over Beirut as a holiday destination.

Despite the damage done to both its infrastructure and visitor confidence by the war with Israel, Lebanon still managed to attract higher levels of overseas tourism investments than Jordan in 2006. Syria too has seen a sharp rise in FDI flowing into its tourism industry while Egypt remains the region’s giant in the sector.

0 comments
0 FacebookTwitterPinterestThreadsBlueskyEmail