North Africa

New investment arena

by Executive Contributor
written by Executive Contributor

Algeria open for business

Investors from Saudi Arabia, Kuwait and Egypt are stealing a march on most of the rest of the world, providing between them almost half of Algeria’s entire foreign direct investment (FDI) in 2005.
The achievements—and profits—racked up by these three countries are significant. The Egyptian conglomerate Orascom in telecommunications (Djezzy), construction and building materials (Orascom Construction), as well as their subsidiary Algerian Cement Company for cement, have foreign investors eyeing the country’s potential. The other notable foreign success stories include Kuwaiti firm Watanya, which owns local telecommunications player Nedjma, and Saudi Arabian company Sidar, which is involved in construction and real estate.
To spread the message that Algeria is open for business—and specifically geared to Arab states—Algeria will hold the 10th Congress of the Union of Arab Businessmen in Algiers on November 18-19. One of the other main objectives of this congress, which is estimated to attract over a thousand Arab businessmen, is to deliver tangible investment projects to further Algeria’s ongoing development.
This event, to be staged for the first time in Algeria, is backed by the office of the president of Algeria and the prime minister. Several chambers of commerce, notably Abu Dhabi and Dubai, as well as the Employer’s Association in Egypt have teamed up to promote and assist this international event, one of the largest of its kind for the Arab business world.
Omar Ramdane, the president of Algeria’s Managers Forum (FCE), said many Arab businessmen ignore the structural and economic changes in Algeria in the past few years. Indeed, in the last Investment Code released last month, Algeria has proposed more tax cuts and considerable financial incentives for potential investors across all sectors.

Lack of knowledge, lack of investment
The secretary-general of the Union of Arab Businessmen, Ali Youssef, a Jordanian, agreed. The lack of foreign investment in Algeria is principally due to the paucity of economic information, but also certain archaic and preconceived ideas which have persisted about Algeria, he said.
However, Arab investors’ interest in Algeria has grown in recent years, and not only as a result of the marketing and promotional efforts from different players. Brahim Benabdeslesm, the vice-president of the FCE and president of the commission overseeing the congress, said it is the successes of foreign investors in Algeria that is a key factor in the country’s rising international profile.

Massive hotel expansion
UAE group Emaar, one of the largest property development firms in the world, is on the forefront of several mega-projects aimed at redesigning and developing plots in Algiers and its surrounding areas. Next year, Emaar plans to invest in high-end, high-capacity hotel projects, with more than 20,000 beds. Sidar, already present on the market, is also seeking to join the fray, with plans for hotel and tourist developments with more than 5,000 beds.
As of late, Algeria has followed the path of neighboring Morocco and Tunisia in becoming a land of opportunity for Arab investors. The country’s geopolitical importance and large, underdeveloped market make it attractive to regional firms looking to expand their international presence. In addition, the ongoing liberalization of state-owned companies and the strengthening of economic and diplomatic ties with other regions of the globe, Algeria is truly becoming a focal point for foreign investment in North Africa, particularly from sources in the Middle East.
In the recent World Economic Forum’s influential Global Competitiveness Report, Algeria placed 76th, up six spots over 2005. As the report also highlighted though, the country’s major weaknesses remain the financial services sector, the general business climate and the heavy bureaucracy, which slow the pace of economic reform.

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North Africa

Balancing act

by Executive Contributor
written by Executive Contributor

The push
for tourism

In late September, Morocco, along with New Zealand, Fiji, Prague and Australia, was rated as one of the five coolest places on earth in a survey carried out by the British consultancy firm Superbrands. While it might be stretching things somewhat to describe a country as a brand, as was done in the survey, the accolade would be welcomed by the Moroccan tourism industry and government, both of which are working hard to lift the sector’s profile.
The Moroccan government has launched Vision 2010, a broad-based policy to almost double the number of visitors to the country from the 5.8 million last year to 10 million by the end of the decade. There are encouraging signs that Vision 2010 could become a reality, with a 29% rise in hard currency income from tourism in the first seven months of the year, with receipts totalling just over $3 billion.
In a recent press interview, Tourism Minister Adil Douiri said the government was looking to encourage $7 billion in investment by 2010 to attract both weekend holiday makers and long-term visitors. More directly, the government has embarked on a $58 million international promotion campaign, evenly balanced between the modern and traditional attractions of Morocco.

Cheap flights now available
Morocco has long drawn a steady stream of overseas visitors, mainly from Europe, attracted by the country’s exotic image, good weather and comparative low costs. However, one thing that prevented this flow from becoming a flood was the relatively high price of flights into the country. This is now a thing of the past, with Morocco becoming the first African country to join Europe’s flight zone earlier this year and opening up routes to a series of budget airlines.
Within the past few months, a number of Europe’s low-cost carriers have either begun flying direct to Morocco or have announced plans to do so. In September, Irish airline Ryanair announced it would begin operating on the Barcelona-Marrakesh route early next year, while Britain’s Easyjet revealed plans to fly from Madrid to Casablanca. Already these and other air lines are responsible for 100 flights a week to Marrakesh from London alone, up from 36 at the beginning of the year, boosting British tourist numbers to 40% of this year’s total.
With the increasing number of carriers operating on Moroccan routes, there has been a slashing of fares, with some seats costing as little as $60 one way, a further incentive for cost-conscious travellers.
It is not just the budget traveller that Morocco is seeking to attract though. There is an increasing move towards capturing a slice of the upper end of the regional tourism market.
The growing numbers of wealthy tourists have also served to kickstart a flurry of development projects to cater to their every need. Among the big ticket schemes is Colony Capital’s $2 billion resort on the Atlantic coast near Agadir that will cover more than 8 million sq m, include up to five deluxe hotels and offer varied outdoor activities for the well-heeled. Another is a project by Kerzner International to develop a resort, complete with 500-room hotel, golf course, spa and casino, 80 km outside of Casablanca.
In mid-September, the multi-national developer Domaine Palm Marrakesh signed an agreement with the Moroccan government to establish an international-standard golf resort Marrakesh. Projected to cost $215 million, the resort will add 5,300 beds to the country’s accommodation capacity and will create more than 1,500 new jobs.

Tourism the answer to unemployment?
According to the National Tour-ism Office, there are presently some 50 hotels and 30 golf courses either in the planning or development stage, with more to come in the future.
And employment is one of the prime forces driving the government’s support for the sector, with urban jobless rate running at an estimated 20% and the rural population heavily dependent on at-times fickle agriculture for survival. The government hopes that along with a doubling of foreign visitors, an additional 600,000 new jobs will be created in the tourism and related services industries.
However, there are concerns that the very things that attract visitors to Morocco—fine beaches, traditional lifestyles, raw nature and hospitality—will be swamped under the influx of cut-price tours, cheap flights and the drive by locals to cash in on the overseas stampede. It is a risk the government is aware of but says it is determined to avoid.
The government plans to plough part of the money generated from tourism back into restoring the old cities, preserving the country’s heritage and culture. Police will even be tasked with controlling street sellers to stop tourists being harassed by touts and unwanted tour guides.

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North AfricaUncategorized

Ad-vantage:

by Executive Contributor
written by Executive Contributor

Tunisia has it

During Ramadan, overall investment in advertising in the Islamic world peaks as consumer consumption reaches the highest levels of the year. But apart from the holy month, Tunisia’s advertising sector has been booming the last few years. The rapid expansion can be attributed to the liberalization of the sector since the mid-1980s, which has bolstered corporate access to media outlets. The expansion has also been spurred by the greater variety of available products and services, and the arrival of competition.
The latest figures on advertising investment produced by media agency Med Media, based on findings by Mediascan Tunisie, indicate that overall investment in advertising increased in 2005 by 13.25% over 2004, reaching TD61.5 million ($46.2 million), up from TD54.3 million ($40.8 million) in 2004. In addition, figures for the first eight months of 2006 show that overall investment is expected to reach record levels this year, as sector-wide spending on advertising has already totalled TD54 million ($40.6 million).
A breakdown of spending among the various media reveals an overall increase in radio advertising by 86.25%, television by 17.08% and print media by 34.73%.

Who spent what and where?
Besides Ramadan, advertising spending was also much higher during major events such as the handball championships held in Tunis in 2005 or the African Nations Football Cup in 2006.
In terms of sectors, the heaviest advertisers in 2005 came from Information and Communication Technology (ICT), whose overall investment increased by 108.98% over 2004. The second largest advertiser was the private mobile operator Tunisiana, one of the key advertisers since its launch in 2002, whose investment grew by 4.57%. The launch of new promotions in the telecommunications sector, where Tunisiana and Tunisie Telecom are fiercely competing, contributed to this growth. Finally, Stial Delice Danone, a dairy products manufacturer, came in third, with investment growing by 9.27%.
Meanwhile, in the first six months of 2006, internet service providers and mobile operators were the heaviest advertisers, spending some TD5.9 million ($4.4 millioin) and representing 11.8% of overall investment, followed by dairy products manufacturers, cosmetics companies and food manufacturers.
Television continues to get the lion’s share of advertising revenues, with total expenditure reaching TD36.7 million ($27.6 million) in 2005. And no wonder. Television penetration reached 75.9% on average. It reached 83.9% during the first week of Ramadan 2006, especially during popular game shows such as Dlilek Mlak. Another specific aspect of TV advertising is brand sponsoring of TV shows, which nearly tripled and represented 46.67% of overall advertising in the first six months of 2006.
Kamel Khattech, the media research director at Med Media said that television is still undergoing a number of changes, particularly in terms of liberalization. Indeed, television advertising wasn’t allowed until the mid-1980s. Until recently, the ANPA (Agence Nationale de Promotion de l’Audiovisuel) charged foreign companies an extra 300% on fees for airtime for an advertisement. At the same time, another production company, Cactus Production, did not impose this fee structure. Since June 2005, most advertisements are not charged an extra fee.
Moreover, the launch of the privately owned channel Hannibal TV in February 2005, at first only available on cable, before becoming available on terrestrial TV in October 2005, also boosted TV advertising.

Print comes second
Meanwhile, print media remains second with some TD27.2 million ($20.4 million) in advertising revenues. Dailies Al-Shuruq and La Presse dominate the market both in terms of readership and advertising revenue. Internet service providers and mobile phone operators remain the heaviest advertisers. Indeed, the ICT sector mainly advertises in the print media, which is also the main channel for strong publicity campaigns, such as new promotions in the telecoms sector.
Also, radio advertising is booming, albeit with rather low advertising revenue compared to television or print, with revenue amounting to TD6.5m ($4.8m) in 2005. The low rates for advertising slots primarily account for the lower revenue. The launch of the first private radio, Mosaique FM (MFM) in 2003 boosted growth. More recently, the online broadcasting of MFM plus the launch of a regional private radio, Jawhara FM were among the reasons that attracted more radio listeners, thus leading to more advertising.

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North Africa

China syndrome

by Executive Contributor
written by Executive Contributor

Egypt pushes for China factories

Over the last few months, Egyptian authorities and the private sector have been giving the hard sell to China, and the Chinese have been listening. By eyeing Beijing’s increasing push into the African and Middle Eastern marketplace, Egypt sees the opportunity for the expansion of already close ties.
Cairo considers strengthening trade ties to China as so important that President Hosni Mubarak will be heading up Egypt’s delegation to the first ever China-Africa summit, to be held in early November.
Egypt’s Trade and Industry Minister Rachid Mohamed Rachid is a strong supporter of boosting business links with Beijing, having visited China in September to attend the World Economic China Business Summit and to promote Egypt as an investment destination.
“We want to be China’s gateway to Europe, Africa and the Middle East, through our basket of preferential trade agreements with these markets,” Rachid said.
Currently, the bulk of Chinese exports to Egypt are represented by parts of data processing equipment, tobacco, truck tires, generators, decoders and radio transmission equipment, while China gets Egyptian cotton, marble, plastics, petroleum products, linen, glass and cow hides.

Imbalance of trade
Though trade is sizeable, it only represents $2.3 billion, with the balance firmly in China’s favor. The Middle Kingdom exported $1.93 billion worth of goods to Egypt last year, with just $211 million going the other way. Both the level of trade and the imbalance is something both countries are aiming to address.
While in Beijing, Rachid signed agreements that foresee this bilateral trade increasing to $5 billion in the coming years. The trip also served to boost Chinese investments in Egypt, which are comparatively modest, with China ranked 29th on the list of foreign investors in the country.
Rachid’s visit to China saw the inking of a deal to set up an industrial zone in Egypt to specifically accommodate joint Chinese-Egyptian investment in textiles, footwear and pharmaceutical industries. The zone, which will cover some 500,000 m2 and be located in the Sixth of October City, will be established with the China National Chemical Engineering Group (CNCEC), the largest state-owned construction company in China.
Another joint Sino-Egyptian development that came out of the visit was the announcement that Citic Group, China’s biggest state-run company, is to build an $800 million aluminum smelter in Egypt. When fully operational in five years time, the plant will have an annual capacity of 270,000 tons. Citic will have an 85% stake in the project, with Egyptian banks holding the remaining shares.
There was also an agreement to establish three private sector-operated technology service centers in Egypt, to be jointly funded by the Egyptian and Chinese governments until they become self-sufficient. Two of the centers will focus on the needs of the Egyptian textile sector, while the third will offer Chinese expertise in marble and granite stonework to Egypt’s construction materials sector.

Manufacturing hub
Not surprisingly, Rachid was keen to tout the benefits of investing in his country to his hosts.
“Egypt today has labor costs which are if not equal to or lower than China, the energy cost is definitely lower than China, and we have other infrastructure in place,” Rachid said in an interview with a Chinese news agency. And in an interview with a business journal, Rachid again promoted the advantages that Egypt offered to Chinese investors.
“We want Chinese investors to start using Egypt as a manufacturing hub for the region, by setting up factories and taking advantage of our central geographic location and preferential trade agreements with the US, Europe, Africa and the Middle East,” he said.

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GCC

Gas lines

by Executive Contributor
written by Executive Contributor

UAE seeks deal with Iran

With the Iranians indicating that the deadlock over a natural gas pipeline between the UAE and Iran might soon be solved, the UAE may be one step closer to bolstering its gas supplies and energy for industrial zones.
According to the UAE local press, Dana Gas, the Sharjah-based energy company, will go to Tehran next week to settle the apparent pricing dispute that has delayed the export of Iranian natural gas to the emirate.

Resolution needed
An Iranian oil ministry official said Dana would accept a revision to the gas price regime, which was agreed upon back in 2001, that the Iranian government claims is now below market value.
Amid Iranian threats to look elsewhere if it doesn’t get a higher price, the reality is that both Iran and the UAE have already invested too much in this project to let it disintegrate. Barring a catastrophic event, both sides appear committed to gas deliveries by the first quarter of 2007.
A resolution to the dispute would certainly be good news for the UAE. Even though the country sits on the fifth-largest gas reserves in the world, most of the gas is extremely sour and unsuitable for commercial use without expensive processing.
Consequently, usable energy supplies have been stretched by the country’s world-beating economic growth and large population expansion. Forecasts predict the UAE gas demand will be double its supply by 2010 if consumption and production levels continue to develop at the same pace.
With goals to double its GDP and population in the coming years, Ras al-Khaimah predicts it needs to almost triple its gas feedstock by 2007.
Sharjah, which is one of the few emirates that has significant gas reserves, is also growing rapidly and can no longer shoulder the needs of the northern emirates like it once did. Although it once exported large amounts of gas to Dubai, industry experts believe these deliveries have dwindled to a trickle or stopped altogether.
For most of these northern emirate companies, a reliable supply of natural gas has been elusive. Only Arc International has been receiving regular supplies of natural gas in 2006, while other industries have relied on liquefied petroleum gas (LPG) or heavy fuels to run their operations.
“Sometimes we have shortages and have to use diesel,” said one cement producer in Ras al-Khaimah, adding they get up to 60% of their energy needs from diesel, a commodity that almost doubled in price in the last two years.
Even gas-based products are cutting into companies’ profits. In 2005, RAK Ceramics says it ran its operations on three months of natural gas and nine months of LPG, which is 15% more expensive. In 2006, it has fared only slightly better, getting natural gas again for three months, with promises of renewed supplies after the summer.

Natural gas supply limited
But even the occasional supply of natural gas is better than most companies receive in the UAE. The Sharjah-based Hamriyah Free Zone (HFZ), a haven for more than 1,700 companies mainly involved in heavy industries, is still running on LPG.
HFZ looks to benefit the most from natural gas supplies from across the Gulf. The free zone will receive a direct pipeline from Sharjah’s offshore Mubarak field, the future distribution point for Dana Gas’s purchased Iranian gas.
More importantly, long-term gas flows are vital for encouraging more foreign investment, a cornerstone of the UAE’s diversification process. In a region flush with hydrocarbons, companies expect to find energy costs that are lower than in other parts of the world.
If Dana Gas continues to find resistance in Tehran, the UAE will need to push other options. The Dolphin Energy Project, which will import gas from Qatar to the UAE, is set to begin deliveries by the end of 2006, and there is more potential to get additional cubic feet from Doha, albeit at a higher price than the first agreement. Also possible are different cross-border deals with Iran and Oman, and further down the line, the development of Abu Dhabi’s vast—but extremely costly—gas reserves.

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GCC

Saudi insurance

by Executive Contributor
written by Executive Contributor

Risky
business

The Saudi Arabian Council of Ministers has issued operating licenses to 13 new insurance companies in a landmark effort to encourage development in the sector.
Hamad al-Sayari, the governor of the Saudi Arabian Monetary Authority (SAMA), announced that the new companies would bring approximately SAR2.6 billion ($700 million) into the market with a significant proportion being opened up to investors through initial public offerings (IPOs).
Al-Sayari said that the value of these IPOs would be some SAR936 million ($250 million) which he hoped would add more depth to the Arab region’s largest stock exchange, the Tadawul All Share Index (TASI).
The commitment to offer stock to the public is part of the license agreement—nine of the companies will offer 40% of their stock, while the proportion intended to be offered by other companies ranges from 25% to 47.49%. “Measures such as this indicate that the authorities are attempting to give both the insurance sector a solid base but also develop other contingent areas such as the stock market,” Al-Sayari said. “SAMA has taken steps to organize the market, protect the rights of investors and ensure fair competition among the firms.”

An undeveloped market
Analysts have for some time spoken of the underdeveloped nature of the Saudi insurance market. One sign of this is that a further 18 companies have applied for operating licenses, but it is unclear when a decision will be made to admit them. The relatively exacting nature of Saudi’s new insurance regulations require that all companies have a paid-up capital of SAR100 million ($26.7 million) and some of the second-wave applicants have found this hard to achieve. There have also been concerns that their financial reporting has not been sufficiently complete and that another wave of IPOs so soon after the first 13 might put unreasonable pressure on the TASI.
The kingdom’s insurance market is small for the size of its economy, with a weak and often under-enforced regulatory framework. This is in part due to the fact that the National Company for Cooperative Insurance (NCCI) has been the only licensed company operating in the kingdom—and the only Standard & Poors-rated one for that matter (A). Not having had exclusive access to a potentially huge market has stifled balanced development of the sector.

Off-shore competition
Ali al-Subaihin, CEO of NCCI, said there has been direct competition for years. Competitors have simply used offshore bases for their operations. Going forward, the competition will be on a level playing field as all players will be regulated and supervised.
Indeed, there are currently over 70 insurance companies operating in the kingdom. They received a considerable boost with the introduction of compulsory vehicle insurance some time ago and the more recent decision to make health insurance required for expatriate workers. However, there are ample reports of companies failing to honor legitimate claims and having insufficient capital. The need for greater professionalism in the market has therefore been apparent for some time. SAMA, which regulates the sector, has declared that those existing companies unable to meet the licensing requirements will be forced to close next year.
The insurance market in Saudi, which has historically been dogged by low appetite levels and a lack of overall awareness, has plenty of room for expansion. Observers say they are confident that sufficient demand exists for all the proposed new entities and more, and expect that increased competition and publicity will raise the profile of insurance as part of a business’s strategic planning, rather than something to be taken only when obliged. Industry insiders also hope that the new companies will force SAMA to play a more active role as regulator.
The insurance market has not kept pace with the changes elsewhere in the economy and is now being forced to catch up. There is no shortage of new business to be written either, while the trend for insurers across the region to grow their own underwriting, instead of using international reinsurance, is catching on. This, coupled with increasing compulsory insurance coverage, associated life coverage in the fledgling mortgage market and the considerable interest in sharia-compliant insurance, all suggest that this is an attractive area for investment. Al-Subaihin of NCCI told the press that the current market, which is valued at SAR4.7 billion ($1.25 billion), looks set to double over the next five years.

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GCCUncategorized

UAE’s budget plan

by Executive Contributor
written by Executive Contributor

Balancing the books

The UAE announced its third consecutive zero deficit budget last month, justifying its move toward a performance-based budgeting strategy.
The 2007 federal budget is the first to apply the strategy since its introduction, along with a new budget law in 2005. The budget not only illustrates the federal government’s commitment to greater transparency and rigorous financial management but also highlights the key areas for national development for the next fiscal year and beyond.

Means to an end
The budget, approved by the UAE cabinet on October 15, completes a three-year run of balanced budgets. Prior to 2005, the country had experienced a spate of budget deficits stretching back throughout the 1990s. The successful balancing of the last two budgets was complemented by the announcement of a new budgeting strategy in 2005. This policy is aimed at insulating the country’s fiscal management from short-term disruption to government revenue such as oil price volatility.
Mohammed Khalfan bin Kharbash, the UAE minister of state for financial and industrial affairs, stated at the announcement of the budget maintaining a zero-sum budget was the reason for implementing the performance and program-based accounting as a basis, in addition to the new budget law issued last year, which stipulates the necessity of drawing up balanced books. However, he noted that the primary importance of the budget is to facilitate the provision of public sector services. He added that a balanced budget is a means rather than an end to serve the budget program and to enable the different sectors to achieve their goals.
The Dh28.42 billion ($7.74 billion) budget for 2007 is 1.96% more than in 2006, which was Dh27.87 billion ($7.59 billion). Kharbash clarified, The increase in is due to the rise in the ministries’ revenues to Dh9.92 billion ($2.7 billion), as well as investment income to Dh3.67 billion ($1 billion). Abu Dhabi and Dubai contributed 52% to the budget, the ministries 35% and investment income 13%.
The largest federal expenditure for 2007 will be government salaries constituting 33% of the budget and amounting to Dh9.19 billion ($2.5 billion). Expenditures for goods and services will come to Dh3.66 billion ($996m). The number of public sector jobs is swelling with more staff in the health sector as well as the ministries of Foreign Affairs, Labor and the Interior.
Minister Kharbash outlined the areas of focus for the budget, asserting that the 10 central programs for the 2007 financial year are education, power generation, police services, educational curricula development, curative services, social development, foreign policy and higher education at the UAE University and the Higher Colleges of Technology.
Education will receive the largest provision with a commitment of Dh7.11 billion ($1.94 billion) or 25% of overall expenditure. The next areas to receive a boost are security (11.93%) and health (5.44%).

Public sector investment
The budget also allows for strong public sector investment in infrastructure with Dh434.8 million ($118.38 million) being allocated. The Dubai-Fujairah highway is a central component of this expenditure.
Kharbash pointed out that there would be no increase in the cost of government services as a result of the budget. He also stressed that the budget factors in major projects over the coming three years as the UAE seeks to move towards a five-year budgeting plan.
This fits into recent plans to update the UAE budget law and strategy as the country implements a modern performance-based budgeting to achieve better disclosure and greater transparency. By linking spending with outcomes and measurable results, the UAE hopes to have a dynamic planning tool for the next three years.
At the micro level, performance-based budgeting will allow government ministries and agencies to exercise greater discipline. Also, it is expected to foster the development of mechanisms to allow public sector managers to assume more authority in setting spending priorities.
At the macro level, this feeds into creating medium-term financing strategies that are not affected by short-term changes in revenue streams. The Emirates have achieved a balanced budget despite large increases in oil prices last year. It cannot allow volatility in oil prices to drive the budget and fiscal policies. Abu Dhabi’s aim is to keep a balanced and growing national budget while increasing the efficiency of government operations and the overall effectiveness of the financial resources available and deployed. The 2007 federal budget is a statement of this intent.

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GCC

Bahrain on the rise

by Executive Contributor
written by Executive Contributor

Island economy booming

In the build up to November 25 parliamentary elections, Bahrainis’ attention has been focused on the state of the kingdom’s economy—and wrenching social changes to the kingdom’s gender balance in government.
In the social arena, Bahrain will have its first female deputy after the election. This is known before a single ballot has been cast, given that Lateefa al-Geood is unchallenged in her bid for a seat in parliament. Reformists have broadly welcomed her accomplishment, but some women’s activists have expressed some discomfort given the way in which she will win her seat.
On the economic front, the recently-published World Investment Report 2006 indicated that last year, Bahrain had the fourth-highest outflows of foreign direct investment (FDI) of any country in the West Asian region.
With over $1 billion in outflow for the kingdom, only the UAE, Kuwait and Saudi Arabia recorded higher outward FDI. This placed the kingdom within the overall pattern of FDI behavior in the Middle East and Gulf Cooperation Council (GCC) areas. Receipts from hydrocarbons are increasingly being used by Gulf economies to invest in projects that aim to diversify the economy. The result is not only internal investment, but also regional and beyond, with Asia and Africa benefiting from much of the Gulf’s FDI.
In all, GCC outflows more than doubled in 2004-2005.

Money flows out, flows in
At the same time, the GCC’s booming economies have continued to be major recipients of FDI. The same report showed that of the Gulf States, the UAE and Saudi Arabia attracted the highest volume of inward investment, followed by Turkey. The UAE pulled some $12 billion in 2005, while the Saudis received some $4.6 billion. Somewhat surprisingly, the Turks blew away a history of poor past performance in FDI by attracting some $9.7 billion. These three economies attracted more than 75% of the West Asian area’s total FDI inflow. The figure on inflows for West Asia rose 85% year-on-year.
The other interesting factor that became visible in 2005 was the importance of FDI to gross fixed capital formation in the Gulf. In the West Asian region overall, 15% of this formation was due to FDI, making the region a bigger draw for foreign investment than both Asia and Oceania for the first time ever.
Much of this inflow was in service-sector industries, such as finance and telecoms. Yet it has also been good news for local projects hoping to arouse foreign interest in other areas.
As an example, one of Bahrain’s largest real estate projects, the Bahrain Investment Wharf (BIW), recently announced that it had signed a dredging and land reclamation supervision contract with Dar Al-Handasah Consultants-Shair and Partners. This came after BIW had assigned the task of carrying out the dredging work to Great Lakes Dredge and Dock Company.

Unique privately-owned project
When completed, BIW will be a mixed-use estate, featuring industrial, business, logistics, warehousing, commercial and residential property. Built on around 1.7 million m2, it will be the only privately owned, operated and managed project of its kind in the country. The project is currently a public private partnership (PPP) between the Bahraini Ministry of Trade and Tameer.
The project runs through several phases, with the award of the Great Lakes contract signalling the completion of a major stage in the plan.
The reclamation work on 55% of the remaining land of the Bahrain Investment Wharf will be completed in about 11 months, BIW chairman Ahmed al-Qattan told reporters on October 14.
A number of different complexes will be developed on the new land, with the industrial park expected to house light, medium and convertible industries. The services complex will see transport, cargo and storage investors as well as other support companies. A logistic base and residential and commercial quarters will also be provided to help lure international firms operating in transport and warehousing.

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GCC

Power talks

by Executive Contributor
written by Executive Contributor

Qatari-Indian ties to deepen

In its push to diversify its economy and expand investment and business activities abroad, Qatar is reaching out to India – and India is reaching back.
Within the past month there has been much activity in Qatari-Indian business relations, some in the more traditional field of energy but also in finance and other non-oil related sectors. Qatar has long had close ties with the Indian economy, being the country’s largest single supplier of gas, a position that is set to expand. India, too, is home to many of the migrant workers employed in Qatar, whose remittances are a major source of cash for the Indian economy.
With the growth of India’s economy into a global powerhouse, and Qatar’s drive to spread its economic wings, the relationship is set to deepen. Bilateral trade between India and Qatar has an estimated value of just $1 billion, the majority represented by the export of $690 million worth of Qatari liquid natural gas (LNG).
In mid-October, the Qatar National Bank announced it was seeking to break into the Indian market: “Entry is difficult but we are looking at different options for entry into India,” said Ali Shareef al-Emadi, the bank’s acting chief executive in October, adding that the move was part of a wider expansion plan for the bank.

Looking for options
In early October, another door opened for Qatari investment in India, with the country’s National Thermal Power Corporation offering the Qatar Investment Authority a 40% stake in its gas-fired power project in the state of Kerala. NTPC is planning a major expansion of its plant there, lifting capacity from 350MW to 1,950MW, and it is looking for partners; Qatar, as India’s leading gas supplier, is a natural choice.
The proposal came only a week after a call for Qatar to buy a stake in Indian gas company Petronet. Following a meeting with Qatar’s finance minister, Yusuf Hussain Kamal, Petronet’s managing director said that he had proposed Qatar buy a stake of up to 12.5% in the company through a soon-to-be-floated $100 million foreign currency convertible bond issue. A delegation of officials from the Qatar Investment Agency will visit India shortly to look into the proposal.

Long-term agreement
India has also announced that it is seeking a further long-term agreement with Qatar to provide an additional 10 million tons of LNG annually, starting from 2010, yet another fillip to Qatar’s strongly performing energy export trade.
In mid-September, on the sidelines of the Non-Aligned Summit in Havana, Qatar’s Crown Prince Sheikh Tamim bin Hamad Al Thani met with Indian Prime Minister Manmohan Singh, with the focus of talks being further direct Qatari involvement in the Indian economy.
Though the full details of the discussions were not made public, a statement following the meeting said that Qatar was considering investments in India’s infrastructure and energy sectors. Likewise, India is considering opportunities in Qatar’s construction, transport, communication, oil-related service industries, IT, education and banking sectors.
However, there is a sticking point with Qatar’s desire to become more deeply involved in India’s economy, said al-Emad: India has only just begun opening up its market to overseas banks and financial institutions.
An example of this is Doha Bank’s application to operate in India, which has been held up at the Reserve Bank of India since last year. It is important for India to further liberalize policies to promote trade to the maximum, said Doha Bank Deputy Chief Executive Officer R. Seetharaman.
India must look at the bigger picture, he said. Since funds are required for infrastructure development, financial institutions and banks must be allowed to come in to speed up the process.
In many ways, Qatar and India are natural business partners. Both are looking to expand their economies, with the emirate having cash to invest and India actively seeking investment. Qatar already has a strong position in the Indian energy sector as a major supplier—a position that appears set to be consolidated as India’s demand for gas expands along with its economy. If India lowers a few more barriers in its financial sector, the distance between these two countries will narrow further.

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Levant

Visiting Syria

by Executive Editors
written by Executive Editors

Historical
investment

No doubt inspired by the growth of tourism in Lebanon, Syria has launched a concerted push to promote itself as a tourist destination by cashing in on its abundance of natural and historical sites to attract foreign visitors—and their currencies.
According to Syria’s tourism ministry, 3.4 million foreigners visited the country in 2005, a figure Damascus wants to see reach 7 million by the end of the decade. Investments in the tourism sector rose from $100 million in 2003 to $800 million by the end of last year, again a figure Damascus wants to see more than double in the coming years.
As an incentive to investors, the Syrian government has set out an attractive build-operate-transfer (BOT) scheme, with lease terms of up to 99 years. The government has waived a number of taxes formerly applied to investments in the tourism industry, including stamp duty on contracts. It has also cut the time and complexity needed for applications to make investments in the sector and identified 82 sites to be set aside for tourism development. Further incentives include tax holidays for investors for the first seven years of operation and tax cuts of up to 50% from the eighth year onwards.
The government has also given a commitment that it will boost infrastructure in areas listed as being of high tourism potential and upgrade the quality of services provided at sites of interest to visitors.

Facing challenges
However, Syria’s tourism industry does face a number of challenges. Compared to some of its neighbors, it does not have the number of high-end resorts and facilities needed to cater to the well-heeled visitors who are increasingly becoming the focus of the market. Damascus is attempting to redress this deficiency by actively seeking out foreign, and especially Arab, capital inflow to help the industry blossom.
In the past months, Syria has been wooing Arab investors, with more than a little success. Leading the charge has been Sadallah Agha al-Qala, the minister of tourism, who has been touting both the country’s tourism potential and the increasing ease and attractiveness of doing business in the country.
“The Syrian government has opened the way for scores of tourist sites that achieve economic and tourist feasibility in addition to issuing a large number of decisions and decrees which encourage the launching of new tourist projects,” the minister was quoted as saying to a delegation from Iran’s Amiran Group for Investment in late September.
Amiran’s chairman, Hasan Akhondi, said his group was looking into setting up a tourism resort complex on the Mediterranean coast near Lattakia that would include hotels, chalets and associated facilities. Though still in the negotiation stage, Akhondi said Damascus’ new measures to encourage investment in tourism were encouraging.

Regional interest
The Iranian interest in Syria, and especially around Lattakia, has been mirrored by other investors from the region, with Kuwaiti company al-Nour looking into launching a major development on the shores of the nearby November 16 Lake. In September, representatives of Qatari tourism developer al-Diyyar signed a memorandum of understanding with the Syrian government to invest $250 million in a new coastal project at Ibn Hani, which will include a five-star hotel, villas and chalets, a shopping complex and eateries, to be built on an area of 220,000 m2.
Naser al-Ansari, Al-Diyyar’s executive director, said that the Ibn Hani project would not be the last his firm would invest in, but rather the first of many.
These are only some of the new projects coming on line. According to Fareed Karima, Syria’s director of tourism projects, there has been a growing interest in the country’s tourism sector. In a press statement released in early September, Karima said 51 investors had made bids on 18 of the tourism sites identified by the government. The total value of these bids alone added up to $500 million.
The last three years have seen a constant 6% increase in foreign arrivals, with receipts growing apace. Having already taken steps to liberalize the sector and encourage investment, Syria is looking to build on its newly laid solid foundations.

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