Economy

Kuwait: Bailout debate

While Kuwait’s banks avoided the extremes of the global economic downturn, their exposure to international markets through investment firms continues to have an adverse impact. Business leaders are now urging Kuwait’s government to step in and buy the risky assets affecting banks’ stability. However, they say parliament’s plans for a complete bailout of consumer debt would be an intervention too far. With the government-controlled energy sector dominating the economy, local banks were underexposed to lending for domestic industry, among other sectors. Debt was instead focused on investment firms and real estate projects, which both took a major hit during the crisis. During the boom period preceding the downturn, with excess liquidity and a strong appetite for returns, over 100 Kuwaiti investment firms were licensed. Many used short-term borrowing to finance long-term investments, resulting in a maturities mismatch when funding froze and projects faced delays. Despite the crisis, these investment companies still hold healthy assets on and off their balance sheets worth more than 100 per cent of GDP, while Kuwait’s banks are also exposed, although to a lesser degree. This has led to increasing calls for government action. So far, the government’s main intervention in support of struggling investment firms has been the Financial Stability Law of 2009, which covered bankruptcy protection and credit provision. However, the financial community says the law is not fully tested and its terms are too strict, so a wider effort to bolster liquidity is needed. (Source: OBG)

Saudi Arabia investments in Jordan reach US$1.97bn

The volume of Saudi investments benefiting from the Investment Promotion Law as well as other investment in industrial estates until June 2010 totaled JD 1.4 billion (US$1.97bn). Adviser at Jordan Investment Board (JIB) Nidal Dabbas said that since passing the Investment Promotion law in 1995, Saudi investments reached JD1.34 billion until last June. The largest chunk of these investments, which stood at JD90 million, is in the industrial sector, with the hotel sector coming in the second place with investments worth JD164 million, he added. According to Dabbas, Saudi investments in the hospital sector stood at JD 41 million, followed by entertainment and tourism sector JD21 million, agricultural sector JD12 million and transport and railways sector JD9 million. Director of Jordan Industrial Estates Corporation (JIEC) Amer Majali stated that since the establishment of the corporation, Saudi investors found in Jordan, an appropriate and excellent investment environment.

Egypt signs free trade deal to increase exports to Latin American markets

Egypt and Mercosur signed on August 3rd, 2010 a free trade agreement. The deal provides preferential advantages for Egyptian exports to help them find their way to Latin American markets. Under the agreement, the cost of some Egyptian imports will be decreased. Egyptian Minister of Trade and Industry Rasheed Mohamed Rasheed signed the deal in Argentina. Rasheed said that the deal will be a bridge of communication between the Middle East and Africa on the one hand and Latin America on the other. The agreement will open up vistas of economic cooperation between the two continents, said Rasheed. In a word, he expected that the volume of trade exchange between Egypt and Mercosur countries will be doubled from the current US$2.7 billion.

Growth in banking and insurance in Bahrain

Growth in retail banking and insurance has formed an important part of the changing nature of the financial services industry in Bahrain, according to the Annual Economic Review, which was officially launched in late July by the Bahrain Economic Development Board. The Annual Economic Review: Sustainable Prosperity focuses on Bahrain ’s recent economic performance. It surveys the previous decade and assesses the challenges in the years to come. The diversity of Bahrain ’s economy meant that despite the worst global financial crisis for over sixty years where financial services suffered heavily in other economies, growth in Bahrain ’s financial services sector remained broadly steady as a result of strong growth in retail banking and insurance. In particular, the insurance industry has doubled in size in the last five years and grew by 6 per cent in 2009 despite the global crisis. Bahrain currently counts 169 onshore insurance firms in total, of which 9 offer Shari’a-compliant insurance products. Retail banking, too, has shown steady growth. The financial services sector accounts for about a quarter of Bahrain ’s GDP and has contributed nearly 23 per cent of the total increase in GDP over the last six years.

GCC needs exit plan: IMF

The Washington-based fund said massive government spending by GCC countries helped to contain the impact of the global downturn on their respective economies, but they should "start preparing an exit strategy" from the current high spending levels and should implement it once the time is right. "As the region pulls out of the downturn, it needs to boost transparency and improve corporate oversight," the International Monetary Fund, or IMF, said in an updated report on the GCC. The IMF believes that while economic growth in the GCC is strengthening, the region faces a risk to its outlook if oil prices remain low for a protracted period. The report, released in early August, revised up IMF's growth forecast for non-oil growth for GCC states to 4.3 per cent, higher than the four per cent it forecast in May in a regional outlook. The fund warned that the challenges faced by the financial sectors of GCC nations would restrain growth in that region for the short-term, but is not expected to have long-term implications.

Bahrain pushes for a Gulf stability fund

Bahrain, the smallest economy in a six-nation Gulf Arab economic bloc, is pushing for the creation of a regional stability fund to counter potential fiscal crises, its finance minister said in published remarks. The fund should also work on bridging economic disparities among the member states of the Gulf Cooperation Council (GCC), Sheikh Ahmed bin Mohammed Al Khalifa said in an interview published on the bloc's July news bulletin Almaseera. The GCC aims to forge an economic and monetary union emulating the euro zone, some of whose members have recently run into serious fiscal problems. Debt problems at Dubai's flagship state conglomerate Dubai World have raised concern among officials in some GCC member states. "Bahrain put forward in December ... a proposal to set up a fund dedicated to support fiscal stability and economic growth in GCC countries. The proposal is currently under examination," Sheikh Ahmed said in the undated interview. "The proposal aims mainly at creating a mechanism that would provide necessary support to member states if needed, in a way that would ensure both a convergence of economic models within the GCC and similar standards of living for its citizens," he added.