Trends

An Unbalanced Scorecard

Clare Dunkley — Tue, 30 Dec 2008 08:29:55 +0000

It never rains but it pours,” might, sadly, be the best way to describe Yemen’s pent-up tourism potential. The devastating floods that struck the Hadramout province in late October not only killed dozens of residents and destroyed homes, but damaged the world-famous medieval mud-brick “high-rises” of Shibam – a UNESCO World Heritage site known as the “Manhattan of the desert” and a major draw for travelers who are intrepid enough to venture there.
The previous month, an attack by the shadowy al-Qaeda in Yemen (AQY) group on the US embassy in Sana’a killed 16 people and hit international headlines – discouraging tourism and wider foreign involvement in the country’s struggling economy. The government had only just pacified the latest outbreak of the sporadic Houthi rebellion in the northern Saada region.
President Ali Abdullah Saleh, who was re-elected in 2006 (having served as head of state since the union of north and south of the country in 1990), could be forgiven for thinking that attempts to promote swifter development were being deliberately thwarted by events beyond his control.
Transparency International’s annual Corruption Perception Index, published this year in late September, puts Yemen 141st out of 180 countries, with Saudi Arabia in 80th spot and its five GCC fellows considerably higher up the rankings. Close to 40 percent of the population lives below the poverty line, despite its oil revenues. Yet this blessing is also a curse. Being almost completely dependant on oil exports means Yemen will see falling revenues as output declines precipitously. Between 2006 and 2007, for instance, it dropped by 11.6 percent to 336,000 barrels/day (b/d).
An international donors conference convened in London in mid-November 2006, but it proved the GCC was more supportive financially than in terms of genuine political and economic integration. Out of a total of $4.7 billion pledged in support of Sana’a’s 2006-2010 Third Five-year Development Plan for Poverty Reduction and concurrent Public Investment Program (PIP), more than half the funds were promised by the Gulf states (they also played a central role in planning the gathering). The money should go most of the way towards plugging an estimated $5.5 billion gap between the government’s means and the $12.6 billion costing of the PIP, which aims to roughly double annual GDP growth by 2010 to 7 percent from about 3.6 percent in 2007.

Insurance of Arabia

Trends — Tue, 30 Dec 2008 08:22:30 +0000

Insurance only began to look like a proper industry in Saudi Arabia in May 2004. That was when regulation and a system of controls finally drove the cowboys out of town. Prior to that, setting up and operating an insurance company was a matter of opening an office and little more. Some did and there is one instance of a company disappearing overnight and leaving thousands of people without motor insurance.
While still young, the industry has quickly learned the benefits of tight regulation and transparency. The effect has been to reduce the number of smaller, unregistered companies while increasing the size of the 40 or so still operating today.
It’s an area that has already demonstrated tremendous growth and attracted the interest of conventional insurers from around the world. Not least among these is Prudential Insurance in the UK, which operates a Shari’ah compliant life insurance (takaful) section in the UK and in Saudi Arabia through a cooperative agreement with Bank al-Jazira.
The constitution of takaful companies prevents them from offering insurance to breweries, nightclubs and other areas where the activities are prevented by Shari’ah law. Nevertheless, it still can operate in a substantial range of areas within the Shari’ah system.
The energetic oil-driven economies of the Gulf region have shown sustained industrial and commercial development. This has provided fertile areas of growth for insurance such as marine, aviation, fire and engineering risks. And at the individual client level, health, home and buildings, motor and general accident insurance.

HOSPITALITY

Trends — Mon, 29 Dec 2008 09:17:17 +0000

DAMASCUS – InterContinental Hotels Group (IHG) has announced that it has signed an exclusive agreement with Syria’s Hedley International to develop the country’s first Holiday Inn in the capital city, Damascus. Due for completion in early 2011, Holiday Inn Damascus Old City is going to be set on a 2,000-square-meter site in the city center. The 300-room property is close to historic local landmarks such as the Citadel, Omayad Mosque and al-Hamidieh Souq. John Bamsey, the chief operating officer of IHG, Middle East and Africa, said: “The introduction of Holiday Inn into the country represents IHG’s continued expansion across the region, following our development announcement regarding the InterContinental Damascus earlier this year.” The proposed hotel is being designed with both business and leisure travelers in mind. Mohammed al-Refaey, the owner and chairman of Hedley International, said: “With the Syrian Government investing heavily in tourism, there is great potential to grow the hospitality sector throughout the country and we look forward to being part of this exciting development.” The UK-based company owns, manages, leases or franchises, through various subsidiaries, more than 4,000 hotels and more than 590,000 guest rooms in nearly 100 countries and territories around the world.

Bridging the Gulf

admin — Tue, 23 Dec 2008 12:08:12 +0000

Five and a half years after the invasion of Iraq, the bitter, but undeniable truth for the Saudis is that their closest ally, the United States, has contributed mightily to degrading the kingdom’s position in the Middle East.
The invasion and subsequent occupation of Iraq by American forces have shifted the balance of power across the Gulf region. In Riyadh’s case, it has meant watching its perennial rival, Iran, gather strength. The invasion has also inflamed the ancient sectarian rivalry between Sunni and Shi’ite Muslims. And on the kingdom’s northern border, the future of an important Arab country remains uncertain. These are huge challenges that Riyadh is pondering, rather than tackling.
In a change from only a year ago, when the media was all about Saudi Arabia’s apparent bid to become the new heavyweight Arab leader, the kingdom now seems to have become more introverted.
There are several reasons for this inactivity. Almost certainly, the kingdom is waiting for a new US administration to settle in and articulate its foreign policy agenda. In addition, an improvement in Iraq’s internal security has taken some urgency off Saudi concerns there.
But some Saudis see the return to a lower foreign-policy profile as a reflection of a problem in the kingdom’s establishment. The Saudis’ biggest foreign policy challenge is “the Saudi challenge,” says Awadh al-Badi, a scholar at the Riyadh-based King Faisal Center for Research and Islamic Studies. “And by that I mean [the need] to develop a certain vision towards the role they want to play in the region.”
The kingdom has a lot of moral and economic clout that would allow it to easily fill the current leadership vacuum in the Arab world, al-Badi adds. But Riyadh appears reluctant to take on that responsibility, he says, and instead “what we see is … a status quo country trying to manage things as they come.”
The last turn. After the ascension of King Abdullah bin Abdul Aziz in 2005, the kingdom adopted a more activist foreign policy, even demonstrating at times a willingness to oppose Washington. In 2007, for example, it brokered the Mecca Agreement between the Palestinian parties of Fatah and Hamas over US objections. The deal fell apart, but Saudi Arabia showed it could do it on its own.
Riyadh also vigorously promoted an Arab peace plan for the Israeli-Palestinian conflict, even going so far as using uncharacteristically blunt language to criticize Hezbollah for provoking the 2006 Israeli invasion of its northern neighbor.
Observers have speculated that Saudi Arabia might replace traditional leaders among Arab nations, who have now been sidelined: Egypt by internal economic and political problems, Syria by allying with Iran, and Iraq by the US occupation.
This change would have been significant. The traditional culture of Saudi Arabia has an inherent streak of politeness combined with a strong aversion to criticize.
The kingdom’s efforts to transcend this ideology are greater than people realize, notes Hadi Amr, executive director of the Brookings Institute think tank. “Traditionally, in this part of the world, you discuss your problems privately and not through the media. And so that’s how things have been done,” he adds.

On the Cheap

Ian Munroe — Sun, 21 Dec 2008 07:14:28 +0000

It’s almost absurd how unstable petroleum markets have become. Everything from striking Venezuelan workers to an unusually cool winter can sweep oil and gas prices one way or the other. But beneath the speculating, and short-term volatility lie some pretty clear signs demarcating where the in-dustry is headed.
In today’s money, a barrel of crude cost less than $20 until 1973. At the time of going to press, world oil prices were hovering around fifty-five dollars. That’s after a record-setting 26 percent drop in October and a fall of more than $90 since July. Month by month it’s a tug-of-war, but down the road you can bet up-ward price pressures will win out.
Just ask the world’s expert policy advisory on the subject. The International Energy Authority (IEA) predicts that oil prices will return to new heights, perhaps beyond the $200 mark, within the next two decades. It expects global demand for primary energy (which we get mostly from fossil fuels) to rise by 45 percent by 2030. While developed Western countries will be using less oil by then, hungrier developing countries will pick up the slack, and then some. China alone will generate nearly half the world’s expanding appetite for oil, the IEA predicts.
For the time being though, it looks like Middle East producers will have to cope with measly prices well below one hundred dollars. Bear in mind that forecasting how much a barrel of black gold will fetch in the short term is a black art. In the words of Oliver Cornock, regional editor at the Oxford Business Group consultancy, “anybody who starts telling you that they can predict which way oil prices are going as gospel truth is a lunatic.” All we can do is look for recent clues that demonstrate how the market is changing.
For instance, the American dollar has been recovering, which some economists believe discourages hedging on oil prices. Japan and the European Union are officially in recession (with two consecutive quarters of economic decline) and the US may be as well, unofficially (recessions there are calculated slightly differently). That has forced down projected petroleum demand. In the IEA’s case, it now says next year the world will need 670,000 barrels per day less than it had forecast previously.
“The two things hitting oil prices in the last three months have been a speculative wipeout on one hand, and a downgrading of consumption demand on the other, without a commensurate supply cut,” says Kevin LeCocq, chief investment officer at Barclays Wealth. The effects of this lull in price hikes are starting to be felt across the planet’s most oil-rich region, generating debate about how the industry, local governments and the Organization of Petroleum Exporting Countries (OPEC) that many of them belong to, will cope.
Public purses. For the regimes presiding over the Gulf’s incredible petroleum deposits, selling the stuff for less is obviously bad news. “Oil revenue and hydrocarbon export represents like 80 percent of the total revenue of these governments,” says Ibrahim Saif, an economist and scholar at the Carnegie Middle East Center, a public policy think tank in Beirut. “They are on the losing end, those who are exporting oil. They’re losing a very important and very substantial source of revenue.”

Pirates’ Eyl

Ed Blanche — Thu, 18 Dec 2008 12:11:05 +0000

Piracy is about all that’s keeping Somalia, which The Economist calls “the world’s most utterly failed state,” together. It’s become the war-ravaged country’s fastest growing and only industry, and its economic mainstay.
For many months, the Jolly Roger has ruled off Somalia’s 2,000 kilometers of coastline on the Gulf of Aden and Indian Ocean, defying the navies of a dozen countries, including the United States, in the greatest surge of maritime piracy in modern times.
Now, just as Great Britain sent its Royal Navy into the Caribbean in the 1700s to stamp out piracy, and as the Americans did along North Africa’s Barbary Coast a century later – other nations are sending their navies into the Gulf of Aden to combat a new breed of pirates.
The Gulf is one of the world’s major shipping routes, linking the Mediterranean and the Indian Oceans. Every year, 22,000 vessels pass through this strategic maritime artery between Europe, the Middle East and Asia. That includes vessels carrying nearly one-third of the world’s container cargo, almost half its bulk cargo and 5 percent of its oil supplies.
In the first 10 months of 2008, the pirates attacked at least 61 vessels in these waters, according to the International Maritime Bureau, a branch of the International Chamber of Commerce that monitors piracy worldwide. That marked an alarming surge. In all of 2004 there were only two such attacks off Somalia.
Chatham House, a think-tank in London, estimated in an Oct. 6 report on Somali piracy that the raiders had reaped up to $30 million in ransom payments from those attacks. According to Lloyd’s List, the shipping industry’s newspaper, total ransom will hit at least $50 million by the end of the year.
New heights. The most high-profile attack since the piracy surge began two years ago was the seizure of the Ukrainian-flagged freighter MV Faina on Sept. 25. It was carrying 33 Russian-built T-72 main battle tanks and a large amount of ammunition and other military supplies to Kenya.
The ultimate destination of the tanks remains unclear, but there are deep suspicions that Kenya was to pass them on to the government in neighboring Sudan, which is under a UN arms embargo. This has complicated negotiations with the pirates, who initially demanded a $35 million ransom (later reduced to $20 million) for the ship, its 20-man crew and the cargo.
There are an estimated 50 pirates aboard the freighter. Three were reported killed in a shootout between one faction that wanted to release the crew and the cargo, and hardliners holding out for a big payoff. A multinational fleet of warships has independently assembled to surround the freighter, but so far has made no move to assault the pirates, largely for fear that the ship’s crew would be massacred.
The Americans want to ensure that the T-72s and the other weapons on the Faina do not fall into the hands of Isla-mist militants linked to al-Qaeda fighting Somalia’s beleaguered and impoverished government in Mogadishu.

THE LAST WORD

admin — Wed, 17 Dec 2008 05:57:26 +0000

How long have you been coming to the region for?

I’ve been teaching here for at least eight years but I’ve been out here for tourism before that.

In the wake of the global meltdown, what factors do you think are going affect the region, and what will their impact be?

I think the region will be impacted – whether it’s impacted as adversely as, say, the UK or America is certainly yet to be seen. It’s certainly not immune from the global shocks that we’re seeing. If one thinks of stock markets, stock markets are all interrelated so the markets will be affected by the crashes that we’ve seen worldwide. In terms of employment, the region will obviously be protected by its oil revenues. What happens to the oil price will be impacted by the world economy generally, so a slowdown in the world economy will impact on the oil price and will therefore impact on the world economy. So, yet another interrelationship there.

Bond markets are now issuing local currency bonds, and there are calls to create a central currency for the Gulf. Are these sensible or protectionist measures?

First of all, you’ve mentioned protectionism. We’ve learned from the crash of the depression of 1929 that protectionism is bad for the world economy. So protectionism is not to be abdicated. And the local market is very much dependent on local trade. It doesn’t just survive by itself; it isn’t part of the global trade environment. So I don’t think protectionism will be good for the region. Whether it’s time to de-peg from the dollar; curiously it has been strengthening in recent months because of its safety so the dollar provides a measure of security and safety in times of turmoil. So, maybe now is not the time to be de-pegging from the dollar because of its consistency. In terms of finance, I think raising funds locally would make a lot of sense for a lot of companies. It’s a natural development for the economy. Dubai is developing, so that will be a natural extension anyway, perhaps accelerated by the recent turmoil.

Higher oil prices ensure revenues. What factors will Gulf states have to consider over the net 6-12 months?

Over the next six to 12 months there is very little they can do unless they can influence the price of oil itself by cutting production and controlling it, such as OPEC are discussing … but that just shows the problem of being dependent on just one source of revenue, and if that sort of revenue is affected by world markets then you are ultimately going to be affected. I think, to be fair to these economies … people have gotten used to that environment. So, although we’ve fallen back, we’re at the same place we were at last year. So those economies should still be strong, but not as strong as we’ve seen. They still run the risk of being dependent on oil.

Write Like an Egyptian

admin — Tue, 16 Dec 2008 13:19:02 +0000

For journalists, Abdel Halim Qandil and Wael Alebrashy, Dec. 6 could mean packing their bags and heading to Egypt’s vile prisons. Both will hear an appeal verdict against a 2007 court order sentencing them to one year in jail for libeling Egyptian President Hosni Mubarak and his son Gamal, deputy secretary-general of the ruling National Democratic Party (NDP).
“Prison is fonder to me than Muba-rak’s pardon. He holds the right to pardon us and we seize the right to criticize him,” says Abdel Halim Qandil, ex-editor-in-chief of al-Karama, the Al Karama Political Party’s weekly newspaper, and the spokesperson of the anti-Mubarak Kefaya (Enough) movement.
To Qandil, one of the most vocal critics of the Egyptian President, Mubarak’s pardon is both humiliating and deceptive. “[He] wants to beautify the image of the regime but proves [his] critics right. It is more dignified for the public prosecutor to suspend the imprisonment until the case reaches the Egyptian Supreme Court, the highest judicial institution.”
Qandil’s imprisonment would not come as a surprise to Egyptians. “It is bound to happen,” is a commonly-heard response to their predicament. Qandil’s columns have embarrassed Mubarak for engineering a fifth term of office and leaving the presidency to his son Gamal.
Alebrashy was not kidnapped, badly beaten or thrown half-naked, bruised and bleeding onto a motorway in 2004, as Qandil was. But he still remains a target of the undemocratic regime. Why? He published a blacklist of judges responsible for manipulating the results of the 2005 presidential elections.
“What do I expect? The law knows no expectations. I assume the worst. On the night of Dec. 6, I will pack my personal belongings in a bag and prepare myself for prison,” says Alebrashy, ex-editor-in-chief of Sawt al-Ummah, an independent weekly newspaper.

Talk to the Boss

admin — Sun, 14 Dec 2008 13:44:13 +0000

There are signs Washington has stopped seriously considering an attack on Iran. One of American Vice President Dick Cheney’s aides declared that 2007 was to be “Iran Year.” But that was before the financial crisis, before President Bush became a lame-duck President, and the surge in Iraq seemed to have somehow energized public opinion. That was when the risk for a serious clash with Iran was at its height. But no war horns were sounded.
In 2008, more than ever, a plethora of military experts, Middle East pundits and global think tanks stressed that bombing Iran stood little chance of preventing its nuclear drive. First, Iranian nuclear facilities are spread across their large country and some of them are buried deep underground. Second, even if it were possible to destroy all of them, Iranian scientists’ technological know-how is not susceptible to being destroyed by bombs. Iran’s sense of insecurity can hardly be addressed by bombing it. Any attack will only further Iranians’ consensus that a nuclear deterrent is indispensable.
Many experts also rightly warned that the security, political and economic reverberations of such an attack are too frightening to contemplate. It would destabilize the region, strengthen the Iranian regime and disrupt supplies of energy. It would expose Western targets to assaults by empowered proxies such as Hezbollah. Most importantly, it would deprive the West of its best potential ally to address the region’s issues.

THE CONUNDRUM

admin — Sun, 14 Dec 2008 13:35:14 +0000

The World Economic Forum’s (WEF’s) recent inaugural summit in Dubai represented the equivalent of an intellectual assault course for its delegates on a range of socioeconomic and geopolitical issues (68 in fact). And at the heart of it lies a puzzle.
Effectively, the experts have set the agenda that will be mooted by the deciders at Davos in January next year. This was no easy feat. A battalion of well-credentialed delegates had 48 hours to transform the issues into a working agenda. In uncertain times, it wasn’t easy to decide what the important issues were. “I’m not sure there has been much of a consensus apart from the fact that change is needed. I think that the change in the way we organize the world … it’s a very ambitious agenda, which the World Economic Forum has put in place,” said Allan Gyngell, executive director of the Lowy Institute for International Policy.
The good news is that the mood was one of resolve and determination, not depression or panic. “I was in Tianjin at the World Economic Forum in China and it was dominated by the crisis and there was a lot of uncertainty and people were standing up and making these impassioned speeches about how terrible it could be and so on,” said one of the delegates, sustainable energy expert Michael Liebreich. “Whereas here, there’s very much the feeling that people are starting to work through the issues and ask, ‘what does it mean? How does my sector deal with it?’ And that’s very interesting to see.”
The only disappointing thing about the forum was that the media were not allowed into sessions where discussions took place. One delegate admitted that the sessions can be fraught with debate and (sometimes verbal) conflict, which leads to the supposition that, like making sausages, this is not a process that should be on public display.
Nevertheless, it was the paradox amidst a general call for greater transparency among organizations globally, combined with the need for more stringent corporate governance. Yet this region is still lacking in these areas and has much to do to improve its attractiveness to international investment. Don’t forget that the Santiago accord on sovereign wealth funds gives those funds a licence for opacity.
What surprised many in the final agenda was that the economy was second in importance to the environment. As one delegate told the gathered assembly, “the financial crisis is just a bump in the road.” Meanwhile Mohammed al-Abbar, the CEO of Emaar and the forum’s co-chairman, assured the media that Dubai’s assets outweigh its debts.
This seems laudable, but for one flaw. Last issue, TRENDS found that economics outweigh green issues in the region (“Pale Shade of Green,” November, 2008), and a survey by Neilsen that was commissioned by local PR company Asda’a found that, where Western youth see climate change as one of the three most important issues on their radar, it does not even register as a blip for Arab youth.
These issues will affect the region, which is accumulating global influence. Indeed, out of the 700 delegates, 50 were from the region. Sheikh Mo-hammed, the UAE’s vice president and ruler of Dubai, gave a keynote speech and the emirate’s government reportedly contributed $10 million towards the event. At the G20 summit soon afterwards, the Gulf was represented by Saudi Arabia. The world order is changing, as Martha Kelly Carlson, chair of the Water Forum, noted. “It’s … symbolic that we’re holding this in Dubai, because the center of power is changing in the world. And this is one of the places it’s moving to.”
The conundrum is this: while the region’s global influence is increasing, two of the major issues addressed are ones that do not resonate here. Even if the environmental issue is brushed aside (as it frequently is), getting businesses to be more transparent is not going to be easy. One idea came to mind: tougher lending criteria may well require businesses to be more open about their dealings, to gain funding. But that practice, which is common in the West, remains untried here.