Whispers over the last several weeks that the GCC might unpeg their respective currencies from the dollar are beginning to grow as inflation continues unabated. More positively, this issue also covers business growth in Jordan in recent weeks at it continues its free market economic development program.

This issue also covers developments in Islamic finance. As you know, the AFF is preparing to launch a study on challenges to mainstreaming Islamic finance at its annual conference in July. We are currently soliciting an article covering the recent AAOIFI�s critiques on sharia compliance and what effects, if any, this will have on mainstream acceptance of the Islamic finance industry. If anyone is interested in writing an article on this, please contact me at cdbeard01@gmail.com.

I hope you enjoy this newsletter. Please let us know if you have any particular news items that you would like to have printed in the next newsletter.

All the best,

Charles Beard

Editor

Arab Financial Forum

http://www.arabfinancialforum.org

Banking & Finance

Lower interest rates, increasing competition cut UAE’s banks’ margins

The liquidity in the banking system is high on the back of oil revenues but the impact of lower interest rates due to the dirham’s peg to the US dollar and increasing competition in the banking sector is reducing profit margins.

Dollar Peg & GCC Currency Union

Gulf States May End Dollar Pegs, Kuwait Minister Says

Gulf states are considering dropping their pegs to the dollar after the U.S. currency’s decline stoked inflation across the region, Kuwaiti Finance Minister Mustafa al- Shimali said. �Yes, there are some� Gulf Cooperation Council states considering dropping their pegs to the dollar, which has fallen 13 percent against the euro in the last 12 months, al-Shimali said in an interview in Kuwait late yesterday without naming the countries. �Some countries will do what we are doing.�

Dubai Chamber urges UAE to revalue dirham by 15%

Despite the government’s categorical statement against currency revaluation, an official of the Dubai Chamber of Commerce and Industry has insisted that the UAE revalue the dirham by 15 per cent and move to a currency basket within two years.

UAE: Quick action required to prevent a debt crisis

UAE consumers flush with credit, are heading down the same road that has left the US and UK with a massive debt crisis, warned Abu Dhabi’s new English language daily publication. "Currently, personal debt levels (in the UAE) are proportionately a quarter the size of those in the UK, but they are growing quickly and the regulatory structure is in danger of not keeping up," reported the National. Citing figures from the Ministry of Finance, the paper said the value of personal loans in the country increased by 39 per cent last year to Dh43.6 billion from Dh28 billion in 2006.

Inflation in Kuwait soars to 9.5%

Kuwaiti annual inflation surged to a fresh record of 9.5 percent in January, spurred by strong housing and food costs. Inflation is on the rise across the region, almost doubling in five months in Saudi Arabia to a 27-year high of 8.7 percent in February, and holding at 13.7 percent in Qatar in December, just off a record. In Kuwait, prices more than doubled in the seven months to January even as the state allows its dinar currency to rise versus the dollar in a drive to curb imported inflation. A jump of 16.1 percent in housing costs which comprise about 27 percent of the index led the rise on Kuwait’s All Items Consumer Price Index, government data showed.

Saudi inflation rate hits record 9.6% in March

Saudi Arabia announced yesterday that the country’s annual inflation rate rose to a 27-year-peak of 9.6 percent in March 2008 against 8.7 percent in the previous month, spurred by increase in rents and food prices. An official report carried by the Saudi Press Agency said rents and fuel and water charges increased by 15.8 percent during March 2008, goods and services 14.5 percent, food and beverages 14.2 percent and healthcare costs 7.5 percent.

Saudi loan defaults increase to SR2b

The value of loan defaults in Saudi Arabia has increased by SR 2 billion in just one year, according to a Saudi economist, who said that the increase in the number of bad debts in the Kingdom is a matter of concern. Abdul Rahman Al Sultan, an economic expert, was quoted as saying by the Arabic economic daily Al Eqtesadiyah on Saturday that the value of loan defaults increased from SR 5 billion in 2006 to SR 7 billion last year.

Saudi business confidence declines on inflation

Saudi Arabia’s business confidence has been significantly affected due to increasing inflation and business costs, Khaleej Times reported. The kingdom’s confidence is down to 105.4 in the recent quarter as compared to 106.2 which was calculated against a base value of 100 in the first quarter of 2008.

Infrastructure

KSA to invest $119b in energy infrastructure projects

Saudi Arabia is expected to invest USD 119 billion in energy infrastructure projects from 2007 to 2009, according to latest studies, with investments in the refining sector being expected to grow by a staggering 2189 per cent within the same period compared to figures from 2004 to 2006. The sizeable opportunities within the oil and gas sector have been identified by SAS, the leader in business intelligence and analytical software and services, which aims to deliver business-critical solutions to aid decision making within the oil and gas sector.

Editor�s Note: This story is cross-listed in the Oil & Energy Section

GCC nations build economic zones to cut oil dependency

Gulf Cooperation Council (GCC) members have recognised the need to develop their national economies beyond dependency on the oil sector. As a result, new economic zones - designated areas in which residents and companies are exempt from certain laws and taxes - are being introduced, centered on ICT, financial and other service sectors, said a new report by Booz Allen Hamilton.

Islamic Finance

DFM reveals share of dividend non-compliant with Shariah law

The Dubai Financial Market’s (DFM) Shariah Board announced yesterday that 3.66 per cent DFM’s 2007 cash dividend that has been distributed to shareholders is to be considered non-compliant with Sharia law. Hussein Hamid, Chairman of the DFM Sharia Board, said: "To give an example of what this means, take a hypothetical share amount valued at Dh100,000. A 10 per cent cash dividend of that share is worth Dh10,000. Since 3.66 per cent of that cash dividend has been declared non-compliant with Sharia law, Dh366 is the non-compliant amount. We suggest that amount be given to charity."

S&P: Morocco, Egypt and Nigeria deliver strong returns for Shariah investors

Equity markets in Morocco, Egypt and Nigeria delivered the highest returns for investors in companies deemed to comply with Islamic law during the first quarter of 2008, Standard & Poor’s Global Benchmark Shariah Index Series has revealed. Conversely, Shariah-compliant equities in Turkey, China and India experienced the largest declines over the quarter. During the first quarter of 2008, Shariah-compliant equities in Morocco returned 34.45% on a total return basis, followed by Egypt (18.93%) and Nigeria (13.42%). In Turkey, Shariah-compliant stocks fell by 26.67%, followed by China (-26.57%) and India (-26.43%). For a complete breakdown of performance by country and sector, please contact the media representatives listed below.

Jordan: Industrial Development Bank to become Islamic

The Industrial Development Bank (IDB) completed all procedures needed to be transformed into an Islamic bank, Chairman Mifleh Aqel said during a general assembly meeting on Saturday. A partnership agreement will be signed with Dubai Capital on April 28, he added. Last year, the bank posted an 11.1 per cent increase in its profits compared to 2006. Shareholder equity reached JD59.9 million compared to JD55.4 million in the previous year.

Source...

Editor�s Note: This story is cross-listed in the Jordan Section.

Bahrain: AAOIFI proposals spark fresh Sukuk debate

The global Islamic capital market, of which the Sukuk sector is the most important, is still reverberating from the recommendations of the Shariah Committee of the Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) relating to current Sukuk structures and their issuance. One scholar reportedly said that 80 percent of current Sukuk structures are not Islamic, a statement which has unfortunately made the headlines the world over.

Jordan

JD100m factories established at KADDB industrial park in Jordan

Companies from various countries have shown interest in investing in the King Abdullah II Design and Development Bureau (KADDB) Industrial Park, according to KADDB Chairman and CEO Moayad Samman. Samman said meetings with representatives of these companies are scheduled for May to familiarise them with investment opportunities available at the region’s first park specialised in defence and automotive industries.

Jordan, Iraq discuss trade relations, joint investments

Jordan and Iraq discussed on Wednesday means to enhance bilateral economic cooperation, removal of all obstacles facing the commercial exchange and the implementation of joint investment projects. At a meeting yesterday between Minister of Industry and Trade Amer Hadidi and his Iraqi counterpart Abdul Falah Sudani, the two sides emphasised the importance of taking all measures to boost the level of economic cooperation between the two countries.

Kuwaiti companies willing to establish private free zones in Jordan

Al Zamel International Real Estate Company, a Kuwaiti firm, will establish a private free zone in Al Karamah on a B.O.T (build, transfer and operate) basis, Jordanian Free Zones Corporation (JFZC) Director Mahmoud Qteishat said on Wednesday. Qteishat, who yesterday returned from a visit to Kuwait, said several other Kuwaiti companies also expressed willingness to establish private free zones in Al Karamah area in the Jordan Valley.

Jordan: Industrial Development Bank to become Islamic

Source...

Editor�s Note: This story is cross-listed in the Islamic Finance Section.

Jordan: Going private

In another boost for the kingdom’s economic reform policies, the Jordanian government has inked an agreement with United Arab Emirates-based Al Maabar International Investments to develop the country’s single open water port at Aqaba. Under the terms of the project, Al Maabar will redevelop the existing location with tourist, residential and commercial buildings, as well as a financial district and a rehabilitated corniche. The refurbished port will encompass 3.2m sq m and will be completed by 2015, said Yousef Al Nowis, Al Maabar’s managing director.

Jordan urged to expedite agriculture project in Sudan

The Sudanese government has set 2009 as the deadline for the implementation of an agreement signed in 1998 with Jordan, allowing it to rear livestock and grow crops on around 250,000 dunums of agricultural land. An official involved in the stalled project told The Jordan Times on Thursday the government is negotiating with two private sector companies which expressed

interest to engage in the project, which can help the Kingdom in its efforts to tackle rising prices of food items on the international market.

Markets

UAE: Finance House shareholders approve distribution of 75% cash dividend

The shareholders of Finance House approved the distribution of a cash dividend of 75 per cent. The company reported a net profit of Dh202.8 million for 2007, as against Dh160.6 million the previous year, registering an increase of 26 per cent. Total assets grew to Dh2.16 billion, an increase of 64 per cent over the previous year’s figure of Dh1.31 billion.

Investors look for results of blue chips in Saudi Arabia

Saudi shares extended gains last week giving the impression that the downward trend that lasted for several weeks could be over. The Tadawul All-Share Index (TASI) went up by 1.35 percent, bringing the total gains in two weeks to 4.9 percent.

IPO fever grips Bahrain’s market

Buoyed by the positive momentum of the Bahrain bourse, the Kingdom’s capital market was expected to see a surge in the number of IPOs during this year. Mobile telephone operator Zain has already announced its plan to sell its shares to the public later this year while there were also announcements about new Islamic banks being set up in Bahrain, which may come to the primary markets in due course, said the Head, Research, Securities and Investment Company, Jithesh Gopi in an article in the Central Bank of Bahrain’s latest Capital Market Review released yesterday.

Oil & Energy

World Poll: Oil running out as prime energy source

Most people believe oil is running out and governments need to find another fuel, but Americans are alone in thinking their leaders are out of touch with reality on this issue, an international poll said on Sunday. On average, 70 percent of respondents in 15 countries and the Palestinian territories said they thought oil supplies had peaked. Only 22 percent of the nearly 15,000 respondents in nations ranging from China to Mexico believed enough new oil would be found to keep it a primary fuel source.

Al-Naimi: No need for further Saudi oil capacity expansion

Top oil exporter Saudi Arabia has no plans to embark on further capacity expansion as long-term oil demand forecasts fall and alternative fuel supplies rise, the Saudi oil minister told industry newsletter Petroleum Argus. The holder of the world’s largest oil reserves sees no need to go beyond its 2009 capacity target of 12.5 million barrels per day "at least up to 2020," Minister of Petroleum and Mineral Resources Ali Al-Naimi said.

Syria: Gas-fired future

With its identified oil reserves declining, Syria is increasingly looking to natural gas as a means to earn foreign currency and meet its own energy needs. While domestic oil production is expected to fall to 360,000 barrels per day (bpd) this year, down from 380,000bpd in 2007, Syria has proven gas reserves of 300bn cubic metres, with a number of onshore and offshore blocks yet to be fully surveyed. According to Sufian Al Alaw, the minister of petroleum and natural resources, the rapid expansion of the Syrian economy has increased demand for energy. Speaking at the Syrian International Gas and Oil Exhibit in Damascus on April 7, he said the country needed to raise domestic output of both oil and gas.

KSA to invest $119b in energy infrastructure projects

Editor�s Note: This story is cross-listed in the Infrastructure Section

Going nuclear: Qatar clears the deck for launch of nuclear plant

Qatar, which is struggling to meet its growing demand for electricity and water, is all set to launch a nuclear plant. The country has decided to send experts to attend a crucial meeting of the International Atomic Energy Agency (IAEA) to be held in Vienna next month to discuss the guidelines for setting up a nuclear plant, top sources told The Peninsula.

UAE to develop nuclear energy programs

The double-digit energy consumption increase, fuelled by mounting growth and consumption rates, has necessitated a global trend to use alternative energy resources, particularly nuclear power, to reduce the huge expenses of constructing energy plants, keep the environment clean, and forestall the harmful effects of global warming.

Political

Bahrain, India closer to labor agreement

The Indian Minister for Overseas Affairs, Vayalar Ravi, who held key talks with visiting Bahrain’s Labour Minister, Majid Al Alawi, yesterday, said the proposed labour pact between the two countries would be inked soon. Once the agreement comes into force, there would be a proper labour contract between the employer and the employee and the Indian embassy would play the role of a watchdog, Ravi explained.

Re-thinking US Democracy Efforts in the Middle East

President George W. Bush intended to bring democracy to the Middle East, but the early results were dispiriting. After stalemate in Iraq and the electoral success of Hamas, many observers concluded that the pursuit of Arab democracy was a fool’s errand. Despite these setbacks, Tamara Cofman Wittes argues that democracy promotion in the Arab world remains an essential component of any strategy to achieve long-term American goals in that critical region. She writes:"Think of this book as a realist’s argument for democracy promotion in the Middle East and a guidebook for making the choices that a realistic strategy demands." Find out more by clicking http://www.brookings.edu/press/Books/2008/freedomsunsteadymarch.aspx

Real Estate

Most Bahraini real estate investors see purchases mainly as investments

Reflecting the booming real estate market of the Kingdom, Bahrain has the highest percentage of buyers looking for property as an investment in the entire Gulf Cooperation Council region, a survey of the six-nation Gulf Cooperation Council region’s property markets revealed yesterday. More than four in five (86.67 per cent) of the property owners in the Kingdom said they viewed their purchase as either a pure investment vehicle or as both a place to live and a long-term investment, the annual property survey of the Dubai-based portal, ArabianBusiness.com revealed.

Qatar: One percent registration fee for property purchase

Residents buying real estate in localities designated by the government in Greater Doha have to pay one percent of the total value of the property for registration at Doha Municipality. Those giving away their properties on rent will be required to pay one percent of the total annual rental to register the tenancy contract.

Editor�s Note: This story is cross-listed in the Regulation Section.

Bahrain’s real estate market growth maintainable

The Chief Executive Officer at Bahrain’s Manara Developments announced that the kingdom’s real estate market will be sustainable for at least five years as the company plans seven major projects in the kingdom, Gulf Daily News reported.

Most property purchases in Qatar through mortgage

More than 69 percent of those who bought property in Qatar borrowed 71 percent or more of the purchase price, with 15.38 percent taking out mortgage of over 90 percent, says a study. The study is based on a survey (Property Survey 2008) carried out in the region by ArabianBusiness.com.

Kuwait: Stormy waters in real estate

Despite being relatively well-insulated from the types of financial products related to the subprime crisis currently afflicting parts of Europe and the US, Kuwait has nonetheless suffered a sharp downturn in its domestic real estate market since the beginning of the year. The residential sector has seen the biggest fall, with February’s average unit prices dipping below both 2007 and 2006 averages. In all, the average residential unit price dropped 47% for the month, with total real estate sales falling 20% from January figures.

Regulation

Bahrain PM: Preserve family firms

Prime Minister Shaikh Khalifa bin Salman Al Khalifa has called for preserving family companies and reorganizing them to surmount impediments because they embed the deep-rootedness of trade in Bahrain. He hailed the achievements of these families throughout the Kingdom’s history. The persistence of these companies means the continuity of trade success in Bahrain, the premier explained, calling on these families to prepare the new generations to proceed with the businesses of their forefathers.

Bahrain: Intellectual property protection

With industry experts highlighting copyright infringement as a concern for the kingdom, Bahrain’s government is taking an increased interest in protecting intellectual property rights. During a seminar related to intellectual property crimes in Manama on April 13, public prosecutor Ali bin Fadhel Al Buainain said Bahrain would continue to improve the regulatory framework to protect copyright owners, with the help of local authorities and international experts. Al Buainain said efforts to clamp down on offenders thus far had been successful, even without the planned upgrading of regulations.

Qatar: One percent registration fee for property purchase

Editor�s Note: This story is cross-listed in the Real Estate Section.

Bahrain: Stringent rules, skilled workforce drive growth

Bahrain’s attractive investment climate, liberal economic environment backed by stringent rules and regulations put in place by the Central Bank of Bahrain as well as the availability of a highly skilled local workforce are but a few very important drivers behind the rapid growth of banking and financial sector, a senior executive at one of the leading financial institutions said. Bahrain, with a well-diversified, robust economy and presence of over 400 financial institutions, has elevated the Kingdom’s status as undisputed financial centre in the Middle East. "The financial sector accounts for 27 per cent of gross domestic product.�

Sovereign Wealth Funds

Markaz research reveals the dominance of GCC SWF

Kuwait Financial Centre ("Markaz") in its recent research titled "The Golden Portfolio" has analyzed the role of Sovereign Wealth Funds (SWF’s) based in the region in terms of their investment in local stock market. According to the study conducted by M. R. Raghu, Head of

Research and Sarah Al Khaled, Analyst, there are 36 Sovereign Wealth Funds (SWF) holding 131 GCC listed companies among themselves accounting for 27% of GCC market capitalization valued at USD 300 billion.

Tourism

Ideal climate to lure tourism investments in Oman

The government is in the process of formulating a regulatory framework to prevent speculations and protect investors in the real estate and tourism sector. This was disclosed yesterday by Dr Rajiha bint Abdul Amir bin Ali, minister of tourism, during a panel discussion on ’Investment Opportunities in Real Estate and Tourism’ on the second day of the Oman Economic Forum at Shangri La’s Barr Al Jissah Resort & Spa.

Middle East’s economy thrives on tourism

With billions of dollars investments in the pipeline, the tourism and leisure sector has emerged as one of the strongest pillars of regional economies, a senior official at Sabre, Middle East, said yesterday. Ramzi Al Qassab, regional director, Sabre Network said the firm, with operations in 11 countries in the Middle East, views the region as a window of opportunity. He said Sabre would make major announcements at Bahrain International Travel Expo and the Arabian Travel Market, in Dubai, both taking place next month.

Trade & Commodities

DGCX & Shanghai Exchange partner for stronger trading futures

The partnership will facilitate deeper cooperation in areas such as product development, clearing and technology, adding a new dimension to the information and expertise that already exists in the UAE and the People’s Republic of China. The Memorandum of Understanding (MOU) signed by the two exchanges caps an initiative that began last year. "The agreement with Shanghai Futures Exchange, one of Asia’s prominent markets, will open a new window of opportunities for market participants in both regions," said Malcolm Wall Morris, Chief Executive Officer, DGCX. "It will also enable us to jointly pursue initiatives aimed at higher efficiencies and improved liquidity."

Abu Dhabi’s non-oil trade rises 37.5% in 07

The Deputy Director at the Abu Dhabi Department of Finance’s Customs Administration said that Abu Dhabi has registered an increase of 37.5 percent last year in non-oil trade, Khaleej Times reported.

Oman: Targeting aluminium

Oman is poised to become one of the leading producers of aluminium in the Middle East, with a new plant at Sohar due to come on line in June. Attention is now turning to building up markets for the sultanate’s aluminium output, as well as developing domestic downstream industries to make use of the bounty. Sohar Aluminium’s $2.4bn greenfield smelter project is scheduled to begin production in June, with a projected output of 350,000 tonnes. When at full capacity, the plant is expected to contribute 2% to Oman’s gross domestic product (GDP).

Lebanon: Automotives feeling bullish

Lebanon’s car dealers are hoping the automotive sector can buck the slowdown seen across the country’s economy, with strong sales in the first quarter building on a year of solid growth in 2007. According to figures released by Lebanon’s Association of Automobile Importers (AAI) in the beginning of April, 5274 new cars were sold in the first three months of 2008, a 69% increase on the 3179 sold during the same period in 2007. Though sales in the second two months were somewhat down on of the 2021 units sold in January, they still averaged more than 1600 units, well above the corresponding months for 2007.

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