December 2009

Saudi banks have minimal exposure to Dubai and the direct impact on the Saudi economy will be small according to a report by Jadwa Investment, a Riyadh based investment firm. However, the recently published report also highlights that questions will be raised about Dubai led projects in Saudi Arabia.

As per Jadwa, Saudi banks have very little exposure to Dubai World. Official figures from SAMA state this exposure at just 0.2% of total financial sector assets. Though some financial institutions in Saudi hold Nakheel bonds, this again would be a small portion of the overall portfolio of these banks.

Saudi Stock Market ('Tadawul') fell by only 1.1 percent on the first day of trading after Dubai World announced standstill on its debt repayments. Statistics show that 1.2% of the total trade by value on Tadawul was transacted by non-Saudi GCC investors as per trade figures for November. This depicts limited exposure of non-Saudi investors on Tadawul who might sell their stocks to offset losses in other markets. It can be safely assumed that no correlation exists between the sharp fall in the Dubai Stock Market and the performance of Tadawul during the Dubai debt fallout thus somewhat isolating the Saudi market from the crisis.

The report adds that no data is available on Saudi real estate ownership in Dubai. However, the Dubai property market has already seen prices fall by more than 50% prior to the Dubai World announcement. This would suggest that Saudi investors who had such exposure have already suffered losses and the recent news will not have any major impact.

Discussing the potential impact on Saudi businesses with exposure to Dubai, the report adds that there were signs of improvement as property prices had risen and the exodus of expatriate workers during the summer period was lower than anticipated. However, this recovery process has faced a major setback in the face of this crisis and even the IMF has made a downward revision to its UAE GDP growth forecast.

Finally the report outlines an implication for Saudi companies in the sukuk market that were expecting to raise funds through this alternative source. The first major sukuk default will act as a litmus test for the resolution of such legal issues. Investors will be closely monitoring the fallout and any mishandling in this regard will complicate the sukuk issuance process for local and regional enterprises.

Source: Report by Jadwa Investments

Real GDP growth during 2010 is expected to be 3% on account of an aggressive fiscal policy plan which emphasizes capital expenditure and indirect stimulus to the non-oil sector as per a recent report by Financial Transaction House of Saudi Arabia. The report comments on the implications of the global financial crisis for Saudi Arabia and discusses the economic outlook for 2010.

Saudi Arabia continues to give strong signals to the global community on the commitment and determination to boost long-term economic growth through the government fiscal stimulus plan. The report suggests that with the decrease in interest rates and deposits growing at a faster pace than lending, the proactive fiscal policy of Saudi Arabian Monetary Agency ('SAMA') has lessened the impact of the global financial crisis on the banking sector. However, private lending has not achieved the anticipated growth as banks have been very strict in passing on credit to customers.

The report discusses that although the Capital Markets Authority ('CMA') has tried to stabilize the Saudi Stock Market ('Tadawul'), there still exists a lag in investor confidence. As the global economy shows signs of recovery coupled with improved crude oil prices and uplift in the global stock markets Saudi Tadawul is expected to gain upward momentum.

The market has already risen above 6,500 and with increased liquidity investors are likely to worry that these gains are unsustainable. However the report remains confident that Tadawul with its relaxed rules of trading for expatriates will steadily continue its upward journey.

Source: Zawya, Financial Transaction House

The "new entrepreneurs" of the Middle East must face up to the crisis or fail.

Private equity firms need to rethink their business models in order for the industry to have a bright future:

see commentary on Zawya Investor

Source: by Sultan Al Qassemi in The National

Exactly half a century ago a man known to UAE citizens as the father of modern Dubai headed to Kuwait, a commercial exporter of crude oil since 1946, to take a bold step forward. Sheikh Rashid managed to secure 400,000 Kuwaiti dinars (£500,000) from the highly respected Sheikh Abdullah Al Salim of Kuwait to realise his ambitious plan of turning Dubai into a service hub for the region. Needless to say, borrowing such a considerable amount was a risky step on the part of the 47-year-old ruler of Dubai.

Sheikh Rashid used this money to dredge what was until then a natural creek, which split historic Dubai into a northern and southern shore allowing boats from the Arab Gulf states, Iran, the Indian subcontinent, and East Africa to dock and offload their goods. Two decades later Sheikh Rashid realised that the Creek was too small to allow newer, larger shipping vessels being introduced in the region to dock and be serviced easily. His attention turned to a little known area called Jebel Ali 35km south of Dubai and about a quarter of the way towards Abu Dhabi to build the largest man-made container terminal in the world.

Two decades later, his son Sheikh Mohammed the current ruler of Dubai also dreamt big. His city would no longer compete regionally; the world was Dubai’s new challenge. Today this young city is the third largest re-export hub in the world after Hong Kong and Singapore; its financial centre is considered among the global top 20; its airport is the fifth busiest in the world in terms of international traffic, and houses one of the world’s most successful airlines, which has reported an increase in profits even during this downturn; its duty free is the world’s largest airport retail operator; its container port, Sheikh Rashid’s enduring legacy, is the fourth largest port operator in the world, managing close to 50 ports in every single continent; its inhabitants’ literacy rate increased from 20 per cent in the 1950s to more than 90 per cent.

Going back half a century, perhaps the most powerful achievement Dubai recorded is to break taboos that the region could not possibly be more than an oil-exporting centre. So powerful a force was this taboo-breaking mentality that “mini Dubais” have sprung up across the region. When Dubai hosted the World Bank and IMF meetings in September 2003 it was not known as a financial hub, but construction was already underway to build the Dubai International Financial Centre. The international press reported then that Bahrain, the traditional financial centre of the region, had launched a financial harbour “in response to the challenge posed” by the DIFC. Soon afterwards, Qatar and Saudi Arabia followed Dubai’s pioneering steps launching their own dedicated financial districts.

Further afield, Jordan and Egypt realised the success of Dubai’s media and internet cities and launched their very own creative hubs. Emiratis continue to be proud that this ambitious model is being replicated in a region that was short on hope and that inspired others to dream big.

In fact, Dubai went a step further. Armed with knowledge, the most powerful tool known to humanity, it shared its expertise with the rest of the region. Today, DP World manages ports in various regional countries. The UAE is considered among the top emerging states: a list that includes Saudi Arabia, Algeria and Egypt. Dubai assisted Syria in launching state-of-the-art television studios and Yemen in the imminent launch of its stock market. The Dubai School of Government is training scores of Arab government employees in the essentials of public administration using the very best faculty from across the world.

In recent times, heads of commercial entities owned by the Dubai government made gross errors in judgment, such as highly leveraged investments. But these individuals can easily be replaced and a more competent team introduced. With his emphasis on high quality service, Dubai’s current ruler has pulled the city out of crises before; over the past two decades trade with neighbouring countries was heavily affected due to the numerous wars launched in the region and yet Dubai’s logistics status has not only survived but grown exponentially. The emphasis on quality work by the ruler will certainly pull it through this crisis once the tough but necessary decisions are taken.

No other leader in the region starts his day by visiting government departments to make sure that the highest quality standards are met for customer service. As long as he, like his father before him, makes sure that Dubai’s young crown prince carries on with this tradition, Dubai’s ruler can rest assured that his city’s premier position as the region’s service and logistics hub is secure for a long time to come.

Source: by Naseem Tarawnah at The Black Iris

Melody TV has been producing, what are probably some of the funniest and most creative commercials I’ve ever seen aired in the Arab world. The irony here perhaps, is that these creative commercials are about creativity in the Arab world, or the lack there of. They depict an Egyptian film studio that is home to an eager filmmaker who is constantly coming to the studio’s head with new and original film ideas, all of which are, in fact, Hollywood productions, including Brave Heart, Titanic, Rocky and Seven. After pitching his idea, the filmmaker is constantly turned down by the studio head who is on the lookout for the conventional cliches that make Arab cinema “work”, such as the hero always winning, and a female character always being reduced to a sex object. The commercials tend to end with the studio head opening a desk drawer of scripts from actual Arab films and throwing one to the filmmaker. The viewer is then told what the “outcome” of that decision was, and it’s usually a disastrous, but realistic conclusion, and naturally, the original film goes to Hollywood. It’s a we-had-it-first tale gone wrong.

There’s a lot that one can read in to all this. The way we shun and kill any signs of creativity, constantly pursuing the formulaic, mostly because we believe that this is what our audiences demand. Thus we introduce nothing new, and everything is consistently recycled. There’s also the relationship between the mentor and the apprentice, one of the missing components in the Arab world. We are taught wrong, but generally worship those who teach or train us anyhow, because of their authoritative nature. After going to great lengths to impress his mentor, the filmmaker in these commercials will happily accept inexplicable rejection and admiringly accepts his new task - taking the studio head’s script while spurting out accolades like “ameer” (prince) and “professour” (professor).

Then there’s opportunity.

Watching these commercials reminded me of Gustave Eiffel who originally wanted to build his tower in Barcelona for the Universal Exposition of 1888, only to be turned down by city hall representatives who thought it to be too strange and expensive, and did not fit the design of the city. Eiffel took his design to Paris the following year and the rest is history. The Eiffel Tower is now an icon of Paris and France, and it is also the most visited paid monument in the entire world. One city lost an opportunity to make something great because it did not conform, and another took a chance on creativity and it proved fruitful. Think about the Arab world. How many of our creations in the past couple of decades were original and not western imitations?

The relationship between opportunity and risk is interesting. In the Arab world, creativity is often seen as being too “risky” to even consider. We are ingrained to believe, from an early stage in life, that anything creative is typically not worthwhile, and the best way to succeed is to follow in the same old footsteps. Think about the way we raise our kids to shun arts, music, even anything of a social science nature - and to pursue becoming doctors and engineers. And not great doctors and engineers, just mediocre doctors and engineers. Enough to make a decent living and to be socially considered as having a respectable profession. We have so many doctors and engineers in the Arab world that one would think we would be a region producing some of the most cutting edge breakthroughs in those fields. But we’re not. Not even close.

Our education system shuns creativity.

I would wager that very little is invested in the arts in our part of the world and I’ve been to schools who don’t even have art programs to begin with. We generally fail to see the connection the same way the bureaucrats in Barcelona’s city hall refused to see the connection. Creativity manifests itself in many ways, especially economically. Books, movies, music, architecture, design, marketing, etc. What do these fields and industries represent in financial terms for the western world? Billions upon billions of dollars?

Lest we forget that creativity also breed innovation. It takes real outside-the-box creative thinking to innovate. Interestingly, every so often you’ll read about someone in the Arab world having innovated something completely outside-the-box - the small doses of apparent creativity - and then they are never heard from again. If they’ve succeeded then they probably had to immigrate to a different environment that sees opportunity in what this person has created, and that is typically the west. Rarely will our governments or even our private sector invest in something outside-the-box and deemed “risky”. Even venture capitalists will tend to stick to the most conventional ideas out there.

Creativity is a natural resource that we have denied for so long that it has translated to large-scale missed golden opportunities. Social opportunities, cultural opportunities and economic opportunities. We are told to conform and to simply tread water. We are told to admiringly accept and welcome creativity only when it is produced by the western world, and it’s exactly what makes us surprisingly say “Is that Arab!?” when we see the rare glimpses of Arab creativity. Which is exactly what I said when I saw these commercials.

You can watch some of the Melody Aflam commercials here (subtitled in English):