Economy

UAE offers to aid banks as crisis worries investors

The United Arab Emirates' central bank stepped in at the beginning of the last week of November to head off pressure on banks and any potential capital flight as federal authorities tried to counter concerns over Dubai's debt problems. The bank set up an emergency liquidity facility, but investors remained nervous about the short-term impact on local markets as regional traders digested the global sell-off caused by the announcement that one of Dubai's flagship entities, Dubai World, was seeking a standstill agreement with creditors until May. As part of its efforts to calm investors' nerves, the UAE central bank said it would provide banks with access to fresh liquidity and pledged to stand behind UAE banks and branches of foreign banks. "The central bank stated that the UAE banking system is more sound and liquid than a year ago," a statement said.

European stocks down as Dubai debt worries linger

European stock markets fell again on Monday, November 30 amid concerns about Dubai's debt problems, even though the United Arab Emirates' central bank pledged to make extra funding available to all banks in the country, including foreign institutions with local branches. In Europe, the FTSE 100 index of leading British shares was down 40.95 points, or 0.8 per cent, at 5,204.78 while Germany's DAX fell 55.15 points, or 1 per cent, to 5,630.46. The CAC-40 in France was 51.02 points, or 1.4 per cent, lower at 3,670.43. Earlier, Asian markets rebounded by around 3 per cent after tumbling heavily, when European and U.S. stock markets had regained their poise. Investors in Europe, however, continued to worry about the fallout from Dubai World's announcement the week of November 23rd that it wanted to postpone forthcoming debt payments until May. Much of the US$60 billion debts held by the government investment company are thought to be with European banks, particularly those in Britain.

Oman: Moving forward

Having weathered the financial storm better than most, Oman's banks are reassessing their strategies and looking for new sources of growth. Through the global financial crisis, Omani banks have proved remarkably resilient, due to adequate provisioning and low exposure to the toxic assets that caused such turmoil elsewhere. The banking sector has a largely domestic and regional focus, sparing most institutions from the effects of collapses in North America and Europe. The cautious policy of the Central Bank of Oman regarding asset/liability management and funding, as well as its quick fire-fighting work as the effects economic crisis began to be felt, has helped shore up the system. The banking sector's transparency has long been seen as one of the its strong suits, and Omani banks have set a regional example in their clarity about exposure to bad assets, David Murray Sims, CEO of The National Bank of Oman (NBO), told OBG. Oman is not unscathed; some key projects, most notably in hydrocarbon extraction, were put on hold as liquidity dried up. The Duqm Refinery and Petrochemicals Complex, for example, has been frozen, though recent reports suggest that it may be restarted in the near future. Banks have also become somewhat more cautious. [source: OBG]

Dubai and its entities have US$100bn in debt

Ratings agency Moody's said it estimates the Dubai government and its related entities have debt of US$100 billion -- higher than the market estimate of around $80 billion. Moody's also said ports operator DP World and Jebel Ali Free Zone have approximately US$10 billion in debt. "Dubai's corporate landscape is now effectively a high-yield market," said Philip Lotter, senior vice president of EMEA corporate finance group at Moody's.

Egypt expects US$1.83 billion stimulus will spur growth

A new Egyptian economic stimulus package could eventually spur 8.5 per cent annual growth, but in the meantime the government will see if yet more money is needed, the finance minister said. The LE 10 billion stimulus, earmarked for infrastructure projects, was unveiled last month, the third the government has adopted since the global financial crisis broke out last year. “I’m hoping for 8-1/2 (growth). In two or three years I’ll be able to reach 8-1/2,” Youssef Boutros-Ghali told reporters. Egypt’s gross domestic product (GDP), which grew by 4.7 per cent in the fiscal year to June 30, has been relatively resilient to the global crisis. In the Jul-Oct quarter it grew by 4.9 per cent. Boutros-Ghali said he was expecting growth “a little north” of 5 percent in the current fiscal year. Still, the government will review the stimulus’s effect on the economy in a few months to see if more is needed.

UAE withdrew from monetary union for "fundamental reasons"

The UAE's withdrawal from the Gulf Arab monetary union was based on fundamental reservations including currency plans and the role of the monetary council, the UAE central bank chief said. "The UAE had fundamental and secondary reservations on the monetary union agreement," Governor Sultan bin Nasser al-Suweidi said. The UAE's pull out of the region's single currency project in May came after the Saudi Arabian capital Riyadh was chosen to host the headquarters of the planned regional central bank. Suweidi said the central bank's location decision was "political" and did not consider the advantages of the UAE banking sector. But this was not the only reason. One of the fundamental reservations, he said, was "sidelining the GCC unit of account" issue.

GCC unified currency may not be pegged to dollar

Kuwaiti ministers say the planned united currency of several Gulf states will not necessarily be pegged to the US dollar, local media reported. A local daily quoted the finance and foreign ministers of Kuwait as saying the new monetary unit, whose launch date keeps getting pushed back, could be pegged to a basket of currencies, if the countries decide to fix the exchange rate. Saudi Arabia, Qatar, Bahrain and Kuwait have said they need more time to launch their joint currency. Oman will delay its entry as its monetary system was not yet ripe, while the United Arab Emirates pulled out, apparently upset that the joint central bank will be based in Riyadh. While the birth of the Gulf Cooperation Council (GCC) currency had been planned for next year, observers and ministers now say the earliest date would likely be 2013 if not later. No name has been given for the new currency, although some reports speculate it might be called the khaleej, or gulf.

Iraq urges French firms to invest, offers oil

Iraqi President Jalal Talabani promised major deals -- including large oil contracts -- to French business chiefs keen to restore their place as Iraq's top business partners. To warm applause, the Iraqi leader gave Baghdad's strongest hint yet that it would grant French energy giant Total development contracts for two of its major oil fields at a rights auction next month. "You need to be brave, you need to be courageous and to invest in all sectors," Talabani told a meeting with France's influential MEDEF employers' association. "Iraq is a very promising basket for investors, without risk." The 75-year-old leader said he wanted to see the French energy giant Total working in his country's oil fields and would look favorably on its bids in an upcoming second round auction for exploration rights in Iraq.

Iraq rebuilding its economy, shuns US firms

Iraq Baghdad Trade Fair ended in early November, six years and trillion dollars after an American invasion that toppled Saddam Hussein, and the US was conspicuously absent. Of 396 companies that exhibited their wares, there were two or three American participants. American companies are not seeing much lasting benefit from their country's investment in Iraq. Some American businesses have calculated that high security costs and fear of violence make Iraq business no-go area. Even those who are interested and want to come are hampered by American companies' reputation for overcharging and shoddy workmanship, outgrowth of first years of occupation, and lasting and widespread anti-Americanism. Iraq's imports nearly doubled in 2008, to US$43.5 billion from US$25.67 billion in 2007, but imports from American companies stayed flat at $2 billion over that period. Among investors, United Arab Emirates leads field, with $31 billion in Iraq, most of that in 2008.

Pakistan, Saudi Arabia in US$380m loan deal

The Governments of Islamic Republic of Pakistan and the Kingdom of Saudi Arabia signed three loan agreements in November, under which Pakistan would get US$380 million. The agreements were signed in a ceremony held in Economic Affairs Division. The Saudi delegation was led by Yousef Ibrahim AI-Bassam, Vice Chairman and Managing Director, Saudi Fund for Development. The first agreement related to a time deposit of $200 million by Saudi Arabia with State Bank of Pakistan. The second agreement from the pledged amount was export credit of US$100 million. This loan shall be used for import of urea fertilizer from Saudi Arabia. A separate agreement will be concluded between TCP and Saudi Arabian Basic Industries Corporation (SABle), which will execute this agreement.