Arab Financial Newsletter

Supporting Arab Financial Markets

30 June 2008

Dear Reader:

Welcome to the Arab Financial Newsletter! The AFN is a fortnightly review of the news in economics and finance in the Arab world.

With the recent tensions between Israel and Iran causing oil to skyrocket to $143 per barrel today, we draw the reader’s attention to a very good analysis of the current situation, written by Dominic Moran of ISN Security Watch. The link can be found in the Political section.

There is extended coverage of row within OPEC over supply versus demand of oil. The reader may also find a worrying story over Gulf governments’ populist reaction to inflation, which may exacerbate the problem.

All the best,

Charles Beard

Editor

Inflation

Inflation in Gulf States Make them Less Attractive for Expats; Governments

Raise Salaries, Enact Price Controls to Rectify

The rising cost of living is making Gulf countries less attractive for expatriate workers. This could potentially undermine governments’ efforts to develop their non-oil sectors and thereby diversify away from oil, says a report issued by Moody’s Investors Service. Most governments of the Gulf Cooperation Council (GCC) have imposed price controls on basic commodities and/or rent caps. Many of them have also announced large salary hikes for public sector workers. The United Arab Emirates, for instance, raised federal government employees by 70 percent in November 2007. Many other Gulf governments have since passed similar, albeit less dramatic, public sector wage increases. Besides, most governments in the region are widening their subsidy nets.

Source: Arab News

Investments & Growth Areas

Bahrain Lucrative for ICT Market

The Bahrain information and communication technology (ICT) market is expected to reach $375 billion by 2010, due to high demand for IT products and services from both public and private sectors. In addition, the growing need for robust IT solutions is also being driven by massive eGovernment and eCommerce initiatives, which are aimed at achieving economic diversification. Bahrain is expected to continue to be a lucrative market for technology products and services, benefiting from Free Trade Agreement (FTA), strong demand from the financial sector, and government ICT procurements and broadband initiatives.

Source: MenaFN.com

Malaysia Sees Steady Stream of Investment from GCC

Malaysia is expected to continue attracting investors from the Gulf Cooperation Council (GCC) countries in the long term, according to SHAPE Financial Corp president and chief executive officer Abdulkader S. Thomas. The country’s robust Islamic capital markets (ICM) also serve as an attraction to Gulf investors as the markets in the GCC tend to be fragmented with a lack of integrated regulations and integrated understanding of sharia.

Source: The [Malaysian] Star

Kuwait fund KIA says acts as long-term investor

Sovereign wealth fund Kuwait Investment Authority (KIA) said it focused on the long-term value of companies, not short-term fluctuations, when managing the Gulf Arab state’s assets. KIA has come under fire from local media and some deputies in Kuwait’s parliament for investing $5 billion in U.S. banks Citigroup (C.N: Quote, Profile, Research) and Merrill Lynch (MER.N: Quote, Profile, Research) in January. The shares have fallen sharply since. "KIA is a long-term investor by nature and does not look at temporary price fluctuations and is always keen on diversifying its portfolio of investments geographically and in type to reduce risks," KIA’s managing director Bader al-Saad said in a statement.

Source: Reuters

QIA Invests £2 Billion in Barclays

The Gulf state of Qatar has agreed to invest more than £2bn in Barclays as the British high street bank calls on petrodollars to help strengthen its balance sheet in the midst of the credit crisis. In a long-awaited capital raising, the Qatar Investment Authority (QIA) will invest as much as £1.76bn and Challenger, a company representing the ruling family in Qatar, will pump in another £533m.

Source: The Daily Telegraph

Oil

India, Iran discuss IPI pipeline at Jeddah

India said on Sunday that it will sign "very soon" an agreement with Iran and Pakistan in connection with the transnational pipeline project involving the three countries. Indian Petroleum Minister Murli Deora after a meeting with his Iranian counterpart Gholam Hosein Nozari for talks on the 7.5 billion dollar Iran-Pakistan-India (IPI) pipeline project said there were "some minor problems" which have been sorted out.

Source: Press Trust of India

Saudi King Promise More Oil, Continues to Blame Speculation for High Prices

King Abdullah moved to calm anxiety in the oil market by promising the world a little more oil now and potentially a lot more later. But it is unclear whether the Saudi bid to reassert its oil muscle will be enough to slow a historic surge in crude prices that many fear could go far higher. Behind the handshakes and the talk of cooperation rumbled a deep disagreement over what has caused the oil-price surge. Saudi officials worked the halls, delivering the message that price volatility wasn’t related to oil supplies. King Abdullah, in his speech, decried the "selfishness" of those involved in the oil-futures market, speculators whom he derided as "despicable." The king said that many in the West continue to "point the finger of blame at OPEC alone," despite efforts within OPEC to keep pace with demand in recent months.

Source: Wall Street Journal

OPEC President Denies Increased Oil Demand, Says More Production Not Needed

OPEC President Chakib Khelil said the only significant new oil market factors in the past year were the U.S. subprime crisis, the rise of biofuels, and tensions involving Israel and Iran - in other words nothing specifically to do with oil supply/demand. Turning to world refinery capacity, Khelil said this could not be increased rapidly because major industrial investments were needed. 

Source: Reuters

Korean Think Tank: Dubai’s Crude Prices May Stabilize in H2

A drop in overall demand for crude and greater production are expected to help stabilise oil prices in the second half of this year, a South Korean state-run think tank the Korea Energy Economic Institute (KEEI) said yesterday in a report release to the media. In addition, the think tanks said a stabilisation of the exchange rate could help keep crude oil prices down. Experts have claimed the weakness of the greenback contributed to higher fuel crude prices because oil exporters tended to raise prices to make up for a drop in the buying power of the dollar.

Source: MenaFN.com

Qatar rules out cut in oil supply

Oil markets are oversupplied but it would not be wise for any Opec exporter to tighten the taps given the risk of exacerbating prices, Qatari Oil Minister Abdullah Al Attiyah said. Attiyah’s remarks came after Libya’s most senior oil official said on Thursday he was studying the possibility of reducing output in response to a US threat to sue Opec members, although he said the North African country had no concrete plans to do so for now.

Source: MenaFN.com

Iraq Fails to Sign Contract with Global Oil Majors

Iraq said on Monday it has failed to sign technical support agreements with global oil majors which were aimed at helping boost the war-torn country’s oil production. Iraq is negotiating with Shell, BP, ExxonMobil, Chevron and Total, and a consortium of other smaller oil companies, Oil Minister Hussein al-Shahristani said at press briefing. "We did not finalise any agreement with them because they refused to offer consultancy based on fees, as they wanted a share of the oil," he said.

Source: Breitbart
Please note: This story is cross-listed with the Political section.

National Debts

Jordan Agreement Reduces Debt to Manageable Levels

Jordan’s external debt dropped during the first quarter of this year by 38.6 per cent from its level at the end of last year as a result of the government’s recent debt purchase agreement. In March, the Kingdom signed a debt purchase agreement with 10 Paris Club member states to ease the Kingdom’s foreign debt volume. The amount of debt subject to the agreement was around $2.4 billion at 11 per cent discount par value, bringing down the total amount that the Kingdom had to pay under the financial transaction to around $2.1 billion. According to the Ministry of Finance monthly bulletin, the Kingdom’s external debt totalled about JD3.8 billion at the end of March this year, representing 29.5 per cent of the estimated gross domestic product (GDP). At the end of 2007, the country’s external debt was JD5.25 billion, representing around 46.8 per cent of the GDP, the bulletin indicated.

Source: MenaFN.com

Political

Analysis of Israeli-Iranian Tensions

Iraq Fails to Sign Contract with Global Oil Majors

Iraq said on Monday it has failed to sign technical support agreements with global oil majors which were aimed at helping boost the war-torn country’s oil production. Iraq is negotiating with Shell, BP, ExxonMobil, Chevron and Total, and a consortium of other smaller oil companies, Oil Minister Hussein al-Shahristani said at press briefing. "We did not finalise any agreement with them because they refused to offer consultancy based on fees, as they wanted a share of the oil," he said.

Source: Breitbart
Please note: This story is cross-listed with the Oil section.

GCC social stability dependent on creating 50 million new jobs

The continued social stability of Arabian Gulf countries is dependent on the creation of up to 50 million new jobs over the next three decades, according to a leading financial analyst. Speaking on 23 June in Dubai at the opening of the Private Equity Forum, Ali Erfan, senior advisor to Ithmar Capital, one of the leading private equity firms in the region and headline sponsor of the forum, identified demographics as a "huge challenge" that private equity must confront in the Gulf Co-operation Council (GCC) countries.

Source: MenaFN.com

Stock Markets

S&P Introduces 7-Day Pricing for Gulf Indices

Standard & Poor’s Monday announced plans to introduce 7-day index calculations on its range of benchmark and investable equity indices for Gulf Cooperation Council (GCC) markets. The move to full week pricing reflects Standard & Poor’s commitment to providing its growing regional client base with reliable and timely index data that will enable them to measure the performance of publicly listed companies, support the issuance and trading of new index-linked investment products and foster the development of exchange traded funds in the Gulf.

Source: MenaFN.com