Economy

Egypt: Subsidies coming to an end

Egypt's gradual phasing out of energy subsidies will likely be put on timeout due to the continuing repercussions of the financial crisis. Industry will benefit, but an extended grace period could increase the national deficit and derail plans for restructuring the country's energy model. Most likely, Egypt's fiscal reforms will be pushed back two years. On January 13, the Energy Pricing Committee recommended that current prices in non-energy intensive industries be maintained for the next six months in order to protect the economy, although a final decision has yet to be taken by the prime minister, Ahmed Nazif. Just last October, the Industrial Development Authority had announced a 29 per cent price hike would go into effect at the beginning of 2010. In 2006, following a spike in demand from industries and households, the ruling National Democratic Party began a program to reduce the country's costly energy subsidies. In the 2007-08 fiscal year, subsidies were removed from energy-intensive industries, including petrochemicals, steel and cement production. But by that time, oil consumption had outstripped domestic supplies, forcing Egypt to import at steep international prices. Long seen as part of the social contract, remaining energy subsidies cost the state an estimated $5.89bn in 2009, and constituted 70 per cent of its total subsidies. (Source: OBG))

S&P supports launch of the Gulf Bond and Sukuk Association

Standard & Poor’s, a leading provider of financial market intelligence, announced it will be a member of the Gulf Bond and Sukuk Association (GBSA) Steering Committee. The GBSA is a new independent membership body devoted to the development of fixed income markets across the Gulf Cooperation Council (GCC). The move underscores Standard & Poor’s ongoing commitment to supporting the development of the region’s capital markets. The GBSA, which was launched at the end of January at a ceremony in Dubai, will provide a forum for local bond market and sukuk issuers and investors and will carry out its work in conjunction with local governments, regulators, corporations, banks and asset managers. It will champion efforts to deepen and widen regional capital markets by promoting international best practice, contribute to the development of legislation and regulation, raise professional standards, and facilitate further training and professional education..

Jordan: A year in review 2009

Jordan has managed to avoid the worst of the global recession in 2009, with the economy still expanding. Nevertheless, the drying up of liquidity and a slowing of business activity, along with a widening gap between state revenue and expenditure, means that the effects of the international crisis will continue to be with the Kingdom well into the new year. Though final figures have yet to be tabulated, the pace at which Jordan's economy grew in 2009 will be significantly slower than the year before, when GDP climbed by as much as 8 per cent. For 2009, the figure is expected to be in the range of 3-3.5 per cent, the easing of growth attributed by the IMF in a report it released in mid-December to "sluggish activity in the finance, trade and mining sectors". The IMF was more positive for the coming year, stating that the Kingdom's economic growth should pick up to around 4 per cent, reflecting slowly recovering global and regional conditions. While 3.5 per cent growth for 2009 is impressive - especially in times of global recession - Jordan needs to maintain or surpass this rate of expansion in order to provide jobs for its increasing population and to replace dwindling foreign assistance as a component of the economy, with aid and grants falling by more than 40 per cent in 2009 to an estimated US$570 million. (Source: OBG)

Global corporate FDI plans on hold, but FDI opportunities remain in the Middle East

FDI flows globally will likely remain disappointing through 2011, according to the 2010 A.T. Kearney Foreign Direct Investment Confidence Index, a regular assessment of senior executive sentiment at the world's largest companies. Unlike many emerging markets, the economies of the Middle East fared well and investor confidence is even higher than in past years. The top destination in the region, the United Arab Emirates, home to Dubai and Abu Dhabi, held up well in spite of a flurry of negative publicity during the survey period. Conducted regularly since 1998 by global management consulting firm A.T. Kearney, the Index provides a unique look at the present and future prospects for international investment flows. Companies participating in the survey account for more than US$2 trillion in annual global revenue. China remains the top-ranked destination by foreign investors, a title it has held since 2002. The United States retakes second place from India, which had surpassed it in 2005. India, Brazil and Germany complete the top five favored investment destinations.

Abu Dhabi: Year in review 2009

The year 2009 saw Abu Dhabi avoid the worst of the global financial crisis, lay out long-term economic plans, buttress its credentials as a home for green technologies and make noteworthy inroads into the global tourism market. Despite troubling economic results globally, Abu Dhabi is expected by most to register small but positive GDP expansion for 2009. Compared to recent years such modest growth appears unimpressive but when weighed against most economies around the world, the forecasts are actually quite positive. Moreover, the silver lining to the global slump has been a reduction in inflationary pressures. According to Statistics Centre-Abu Dhabi, the emirate recorded a 0.85 per cent inflation rate in the first 11 months of the year, making it the lowest in the UAE. Meanwhile, in January 2009 the government made public its Abu Dhabi Economic Vision 2030. The overall aim of the document is to build a sustainable economy by ensuring balanced social and regional economic development. Revenue diversification via strengthening the non-oil sector is seen as the cornerstone of achieving such a lofty goal. (Source: OBG)

Bahrain and Russia geared up to increase cooperation

Russia can launch a communication satellite for Bahrain, but it has not been decided yet when such a project may be carried out, Russian First Deputy Prime Minister Viktor Zubkov has announced after a series of talks with the leadership of Bahrain. "The question of launching a communication satellite for Bahrain may be raised," he said. He added that Moscow and Manama are only beginning to establish trade and economic cooperation. "The first large-scale visit of a big Russian delegation to Bahrain is under way. It has shown that our countries have good prospects of bringing relations to a new level," Zubkov said. "Trade turnover is miniscule but Bahrain shows great interest in cooperation and we are glad about it," he said.

Oman: Bouncing back

The Omani government is expecting the economy to bounce back strongly in 2010, following slower growth in 2009 as a result of the global financial crisis. The minister of national economy, Ahmed Macki, was reported on January 2 saying that he anticipated Oman's GDP to grow by 6.1 per cent in real terms during 2010, with inflation remaining relatively stable at 3.5 per cent. Macki also revealed to the public that Oman's debt as of the end of 2009 stood at RO722 million (US$1.88bn), with RO252 million (US$655m) held domestically. The 2008 debt figures are not available (no IMF article IV consultation was held last year, and the Central Bank of Oman does not report debt figures). However, in 2007 national debt stood at RO1.001billion (US$2.6bn), indicating that the government is continuing to pay down debt. (Source: OBG)

Kuwait may write off billions in loans to Iraq

Kuwait will forgive billions of dollars of Iraqi debt in exchange for guaranteed security and good relations with its northern neighbor, the minister of foreign affairs, Sheikh Mohammed Sabah Salem al Sabah, said in January. “We do not want money, and we did not ask you for that. All that we need is security and peace,” Sheikh Mohammed said in an interview with the local newspaper Al Qabas. Iraq owes Kuwait US$16 billion (Dh58.8bn) from loans that were mostly made during the 1980s when Saddam Hussein’s regime was fighting a war with Iran. The Iraqi government owes an additional US$25 billion in war reparations to Kuwait as a result of the 1990 invasion. Sheikh Mohammed said he was referring only to the money owed to Kuwait through loans, and not compensation, which he said has its own “international mechanism”.

Bahrain: Strength in diversity

Bahrain appears to have finished 2009 in better shape than many could have foreseen at the beginning of the year, and will be looking to 2010 with a confidence garnered from the solid performance of the country's economy under pressure. There had been fears that Bahrain would be hard hit by the global crisis, especially as one of the key components of its economy is the financial sector, but as 2009 drew to a close it became apparent that the country is far more resilient than some had thought. Year-end predictions are for a contraction of GDP of less than 1 per cent, with some projections putting the decline at just 0.1 per cent, prompting analysts to expect moderate growth to kick in for 2010. With the global economy having slumped into recession in 2009, Bahrain's performance is a positive achievement, testimony to the long-term policy of diversifying and broadening the base of the economy. That policy has seen a strong push towards establishing Bahrain as the region's premier banking centre, with more than 400 conventional and Islamic financial service providers operating out of the Kingdom in 2009. While almost all of these institutions have been affected by the crises, the broad spread of investments and the highly regulated nature of the financial system in Bahrain have mitigated the impact. Most recently, concerns over the debt levels of Dubai World prompted Rasheed Al Maraj, the governor of the Central Bank of Bahrain (CBB), to issue a statement that, while all the banks on the island had some exposure to the Dubai-based corporation, this added up to less than 0.1 per cent of their combined assets. (Source: OBG)

Kuwaiti lawmakers sign off on market regulator

Kuwait's parliament has approved a capital markets law that allows for the formation of an independent stock market regulator. The official KUNA news agency said a number of lawmakers voiced hopes the capital markets authority law would also provide greater oversight of investment funds and protection for small investors who were among the hardest hit in the tiny oil-rich nation during the global economic meltdown. Critics and some lawmakers contend Kuwait's stock exchange _ the Gulf region's oldest _ is rife with insider trading and shady deals and needs greater transparency.

Syria: Debate deadlock

Hopes that an ongoing deadlock between the EU and Syria might meet an early resolution were dashed earlier this month, as the Syrian government announced it was demurring on signing an association agreement (AA) with its largest trading partner. The AA, which is the cornerstone of the EU's neighborhood policy (ENP), is designed to replace the prior model of cooperation created by the Euro-Mediterranean Partnership (also known as the Barcelona process). Since 2004 the EU has successfully concluded AAs with all of its neighbors, with the remaining exceptions of Syria and Libya. Negotiations with the Syrians to sign an AA have been ongoing for a number of years, and indeed a document has already been initialed by both parties. However, opposition from certain EU members (notably The Netherlands and the Czech Republic, which until recently held the rotating EU presidency) has until now prevented a final signing and implementation of the agreement. Sources at the European Commission (EC) in Damascus, however, were hopeful that with the EU presidency passing on to Sweden, and a high-level EU meeting planned for October where the subject of the AA with Syria would be discussed, the final hurdles to signing the AA would be removed. (Source: OBG)

Oman: Year in review 2009

In common with the rest of the world, 2009 was a year of challenges for the Omani economy. A gloomy outlook for global demand, coupled with depressed energy prices on the international markets, meant the Sultanate has had to look inward for continued economic growth, while also pressing ahead with its economic diversification strategy. The year 2009 began on a positive note, with the realization of a free trade agreement (FTA) with the US on January 1. The accession marked the fourth such agreement signed between the US and an Arab country, and reflects Oman's continued commitment to the liberalization of international trade, despite the challenging conditions prevailing at the time. The US FTA followed hot on the heels of a similar GCC-wide agreement signed with Singapore the previous month, while 2009 also marked progress for Oman in terms of its growing trade relationship with India - set to hit US$2.5 billion by the end of the year. Altogether, Oman's integration with the global economy continued to strengthen in 2009, in spite of the constraints on international trade. (Source: OBG)