Lebanon's economic revival to be slow
International rating agency Standard & Poor’s said Lebanon’s path to recovery over the next few years will be slow, but maintained a stable outlook of the country’s banking sector. “[S&P] anticipates that real GDP growth will recover only gradually from an estimated 1.5 percent in 2011 to 5 percent in 2014, after an 8.2 percent average from 2007-2010,” a statement by S&P said. The rating agency dismissed the possibility of any quick rebound in growth rates, as regional and local instabilities continue to take a toll on the country’s various economic sectors. “We do not expect growth to match pre-2011 rates in the medium term, since they mainly resulted from a convergence of several key factors, including political and macroeconomic stability, and the global low interest rate environment, which drove capital inflows into Lebanon,” the statement added. However, S&P maintained the country’s Banking Industry Country Risk Assessment at relatively stable “group 8.” BICRA is scored on a scale from 1 to 10, ranging from the lowest-risk banking systems at group 1, to the highest risk at group 10. Other countries in BICRA group 8 include Argentina, Kazakhstan, Latvia, Nigeria, Tunisia and Uruguay. Lebanon’s scores on the two main BICRA components, however, reflect discrepancies between risks on the national economy and banking industry. The report said risks on the Lebanese economy remain very high placing the country in the second most risky group 9. The banking industry in Lebanon scored far better, placed in group 6, which reflects overall stability and less acute risks. The overall position – group 8 – reflects the combination of the scores of the two components. “The growing instability in Syria, and the uncertainty associated with Lebanon’s extended political transition during the first half of 2011 are weighing negatively on investments and main business sectors such as tourism and financial services,” S&P said.
The industry risk score – group 6 – is based on their assessment that the country still faces high risks in its banking institutional framework and competitive dynamics, coupled with “intermediate risk” in funding. S&P said it continued to observe structural imbalances in the financial sector stemming mainly from sharp growth in lending. This is particularly due to the growth in finances made to the construction sector, which has consistently exceeded overall growth in GDP, the report said. Imbalances in the countries’ financial accounts also put strains on the banking sector, said the report. “Lebanon’s average current account deficit in 2008-2011 – representing an estimated 20.7 percent of GDP – is a weakness, in our view, for the banking system, where financing relies highly on continued investor confidence,” it said. Despite the lower medium-term GDP growth prospects, the report considered Lebanese banks’ ability to settle problematic loans, and the private sector’s ability to navigate through political crises as highly positive. This was reflected in the better score given to the industry. Citing an example, the report said the average ratio of non-performing loans and coverage by provisions improved to 4.1 percent and 60.5 percent respectively in 2011, from only 19.9 percent and 42.5 percent back in 2002. S&P classified the Lebanese financial authorities as supportive of the banking sector. It acknowledged the government’s swift and decisive actions to prevent contagion risk or breaches in confidence. “Still, we believe that the government’s limited financial flexibility would constrain its extraordinary support to the banking sector in times of stress,” the report highlighted. The report noted that the banking sector’s competitive landscape has become nearly overcrowded, but at the same time said it remained largely concentrated around a dozen stable banks.
Source: The Daily Star
Iranian sanctions biting the Emirates
The sanctions and freeze outs that were enforced on Iranian assets and oil trading by the United States and the United Nations are hardly only affecting the Iranian economy. Surrounding economies including Dubai are facing the aftermath of the fire. Dubai officials are asking the government for guidance about trading with Iran as exports to one of Dubai’s biggest markets has now shrunk. Exports of goods from Dubai to Iran were falling "day by day," said Hamad Buamim, the director general of the Dubai Chamber of Commerce and Industry. "Iran is a major market for Dubai businesses. A quarter of total volumes of exports and re-exports go to Iran," he said. "But with the further measures taken during 2011 and early this year, this share is shrinking down day by day." Dubai has stood as a gateway to Iran for several goods ranging from cars to grain. The flow of these goods is now being strangled by UN, U.S and the EU in light of these sanctions and restrictions. Reuters reported this month that the UAE Central Bank had told lenders to stop financing trade with Iran. The chamber is still encouraging its members to trade with Iran as long as they do not breach international sanctions but due to the wide variety of restrictions imposed means that there is less than a solid business flexibility and understanding. The problem with the sanctions is that they are not very clear. Initially they related to the nuclear sector, but recently the sanctions have widened to the whole of the financial services.
Gate to Gulf & African markets - Egypt gaining lucrative regional trade
Already a key conduit for both European and Asian trans-shipment activity, Egypt is working to gain a greater slice of lucrative regional trade as more land-based freighters look to the country as an alternative entry point to Gulf and African markets, Global Arab Network reports according to OBG. In late December, the minister of transport, Galal Al Saeed, announced that the Japan International Cooperation Agency had been assigned the task of developing a new master plan to meet the transport needs of the country. Central to this plan will be a proposal to link the Red Sea port of Sokhna by highway and rail to the port of El Dekheila, just to the west of Alexandria on Egypt’s Mediterranean coast. Such a development, the minister said, would enable Egypt to become a leading transit hub for goods passing between the east and the west. In order to achieve this, however, logistical centers would have to be established at October City outside of Cairo or in areas close to the ports. In addition, existing port facilities would have to be upgraded and extended to service larger vessels, while the latest technology, data systems and communications networks would have to be adopted, Al Saeed said. The idea of strengthening Egypt’s transport infrastructure, particularly the artery that runs from the Red Sea to the Mediterranean, is by no means new, having been introduced a number of times over the past 20 years. However, the commissioning of a study on the exact needs of the sector is a significant step towards developing a plan for the future. There is already growing international demand for Egypt to boost its transport links between the Mediterranean and the Red Sea. On December 27 Al Saeed told local business representatives that Turkey had decided to use Egypt as its new gateway to the Middle East and North Africa, after its route through strife-torn Syria was all but barred. Approximately 46,000 Turkish trucks transited Syria in 2010, the last year of uninterrupted trade. However, with the breakdown in relations between Damascus and Ankara – which saw Turkey impose sanctions on its neighbor in an effort to press Syria into implementing democratic reforms, followed by the Al Assad government suspending a bilateral free trade agreement and imposing a 30% tariff on all Turkish imports and prohibitive duties on fuel and freight – Egypt is now placed to host much of this traffic. According to the minister, ships would carry Turkish long-haul trucks from the port of Mersin on Turkey’s Mediterranean coast down to Alexandria, Port Said or Damietta, from where they would take over land routes to the Gulf or Africa. The shift of Turkish trade could bring in revenue of more than $165m a year. Promoting trade movement through Egyptian ports and land-based centers will be good for the economy, Al Saeed said, and the government will do all that is necessary to facilitate the transport of Turkish goods. This would help Egypt develop into a global logistics area, especially for the movement of goods between Europe and Africa, he said. Turkey is one of the largest road haulage operators in the region, and the one most likely to be affected by a long-term severing of land routes through Syria, but other countries also make extensive use of trucks to move freight, and they too may soon be coming to Egypt in search of new links to established destinations. Egypt is already a major player in the international transport sector, controlling one of the most important maritime arteries in the world – the Suez Canal. Annually, some 18,000 vessels pass through the man-made waterway, carrying a total volume of around 850m tons. The canal is also one of Egypt’s main foreign revenue earners, bringing in well over $400m a month in fees, a figure little affected by the political unrest of 2011. Though it was immune to the domestic problems that afflicted the economy in 2011, the canal could see a drop off in traffic this year. On December 22, Moody’s Investors Service downgraded its assessment of Egyptian government bonds, lowering the country’s rating from B1 to B2, while also saying they were under review for a further possible downgrade. Although the republic’s uncertain political environment bore most of the responsibility for the downgrade, an additional concern cited by Moody’s was the fact that Europe’s faltering economy could result in a slowing of traffic through the Suez Canal as demand for imports waned. It remains to be seen to what extent Europe’s woes will drain off traffic from the Suez Canal, and whether road haulage fees will offset any decline. However, if the new master plan is fully implemented, Egypt will be ideally placed to expand its role as a trans-shipment destination and a base for regional overland trade.
Source: Oxford Business Group
Jasmine Revolution Anniversary - signs of economic recovery
One year after the Jasmine Revolution, Tunisia’s economy is showing signs of recovery following last year’s political upheaval. The International Monetary Fund (IMF) predicts 3.9% GDP growth this year, and the Tunisian central bank expects expansion could climb as high as 4.5%. With support from international partners, returning foreign investment and a government commitment to fostering a business-friendly environment, prospects for economic revival look promising, Global Arab Network reports according to OBG. Tunisia’s economic climate is already benefitting greatly from a much-improved political situation in early 2012. The Ennahda Movement, a moderate Islamist party that took roughly 40% of the vote in the October elections for the Constitutional Assembly, now holds 89 of the 217 seats in the assembly. It has formed a ruling majority with the Congress for the Republic (CPR), a liberal party, and the center-left Ettakatol party. The parties reached a power sharing agreement in which Ennahda’s secretary-general, Hamadi Jbeli, serves as prime minister; Moncef Marzouki of the CPR serves as president; and Ettakatol’s Mustafa Ben Jaafar serves as speaker of the assembly. The main challenge for the new government will be economic, rather than political, however. The coalition has confirmed its intention to foster an open business climate in an effort to stimulate economic growth. The government has indicated it plans to improve national infrastructure to attract foreign investment and to work towards a regional common market. Beji Caid Essebsi, the former prime minister, offered somber remarks at a December economic conference, warning that short-term economic growth will be crucial to continuing political stability. The political upheaval of 2011 stalled many sectors and precipitated a sharp decline in foreign tourist numbers, from 7m visitors in 2010 to an estimated 4.5m last year. Tourism is one of Tunisia’s biggest sources of income, and sector revenue is expected to have plunged by roughly 50% in 2011 to €1.2bn. As a result, Tunisia’s net foreign currency reserves decreased by 20%, or TD2.4bn (€1.23bn), from January to November 2011. While the economy grew by 1.5% in the third quarter of 2011, full-year growth rang in at 0.2%. External effects, such as declining demand from the EU, Tunisia’s primary trade partner, and the conflict in Libya, its main trade partner in the region, further intensified the negative economic impact. However, the country’s outlook is improving for 2012 as Tunisia receives support from many of its trade and development partners. EU governments announced December 14 they would start trade talks with Tunisia’s new government. The increased cooperation is intended to support a democratic transition by lowering barriers to trade and spurring economic growth. For Tunisia, the talks may extend current trade agreements to new areas such as agriculture and services, and may help build regional cooperation. European Commission officials told Reuters talks will go beyond existing tariffs agreements to include regulatory issues such as public procurement and investment protection. Tunisia is also strengthening relationships outside its main trade partners. During a recent visit to Turkey by Foreign Minister Rafik Abdessalem, both countries highlighted their willingness to increase economic engagement. Also in January, Tunisia and the Netherlands announced the launch of a program to increase bilateral investment and partnerships. The program will put in place a €250,000 fund, which may be increased to €1.5m, to support the creation of joint ventures between companies in both countries. The government is also planning to increase spending in 2012 in an effort to reinvigorate the economy. Budget officials estimate the 2012 budget deficit will rise to 6% of GDP, up from roughly 4.5% in 2011. The 2012 budget was set at TD22.94bn (€11.8bn), a 7.5% increase on 2011. National press has reported that the current account deficit would also be kept at a particularly high 5.4% of GDP in 2012. The government hopes not to exceed a 6% budget deficit, to avoid risking its investment grade credit rating. While public spending aimed at raising wages and subsidies should be beneficial in the short term, these must be matched by rising productivity levels to ensure growth continues. With signs of recovery from local industry and support from international partners, Tunisia should be on its way back to economic growth.
Source: Oxford Business Group
Bahrain plans to reduce 'lavish spending'
Bahrain must tighten its belt to reduce lavishness, rationalize spending and protect public money, His Royal Highness Prime Minister Prince Khalifa bin Salman Al Khalifa said.
Welfare spending will be trimmed substantially among a string of other measures, he said as he chaired a work meeting of the Cabinet. The session discussed Bahrain's financial standing and economic challenges it is facing amid global developments, said a report in the Gulf Daily News, our sister newspaper. The Premier gave directives to reduce unnecessary spending and instructed to hold violators accountable and activate financial control mechanisms. Finance Minister Shaikh Ahmed bin Mohammed Al Khalifa has been charged to submit recommendations on enforcing sound spending policies. The Premier instructed authorities concerned to draw up a three-year program to promote state revenues. The scheme, to be reviewed every six months, should aim to reduce budget deficit as part of efforts to balance revenues and spending without eroding citizens' purchasing power. The Premier issued directives to downsize official delegations for events which do not require high-level participation and promote the role of ambassadors. He gave instructions to keep records of spending violations and ensure the ministries' commitment to financial prudence. The session stressed the necessity to put in place a viable program to cut spending, boost revenues and achieve financial stability in the medium and long term. The high-level meeting discussed Bahrain's financial policies and the current fiscal situation. It also spotlight present and future measures undertake by the Government to spur economic growth, ensure financial stability and keep budget deficit and public debts under control. The Premier stressed the Government's tangible achievements, withstanding volatile regional and global political and economic conditions. 'Bahrain rose to the challenges, emerging from hard situations stronger than ever', he said, stressed sound policies in addressing challenges. He pointed out viable Government initiatives that promote citizens' living standard and spur sustained economic growth amid growing demography. The Premier also stressed the necessary to engage radical structural reforms and implement sound economic policies.
Source: TradeArabia News Service
Kuwait set to register huge budget surplus
OPEC member Kuwait was forecast to post its largest revenues and budget surplus this current fiscal year on the back of high oil prices and production, a local economic report said. Revenues in the 2011-2012 fiscal year, which ends on March 31, are expected to top $100 billion for the first time, ending between $10 billion and $104 billion, the National Bank of Kuwait (NBK) said. Oil income is forecast to contribute around 95 per cent of the revenues, according to NBK, which said the average price for Kuwaiti oil will be about $109 a barrel, way above the budget price of $60. Kuwait, which ended the past 12 fiscal years in surplus amassing over $200 billion, will also post a record windfall topping $41 billion at the end of 2011-2012 year, NBK said. Its previous record revenues reached last fiscal year $79 billion, while its largest budget surplus was $33.5 billion in the 2007-2008 fiscal year. The emirate has been pumping around three million barrels per day (bpd), even when its OPEC output quota was just 2.2 million bpd. Based on official figures, the country posted revenues of $77 billion in the first three quarters of the fiscal year, up a massive 41.7 per cent a year ago, with almost all the increase coming from oil. As the income rose sharply, spending also increased at a fast pace, tripling in the past six years to around $70 billion. The Governor of the central bank Shaikh Salem Abdulaziz Al Sabah quit earlier this month in protest at the rapid growth in public expenditures. The sharp increase in spending has caused alarm that the emirate, which has a native population of 1.17 million, could face serious consequences if oil prices crash as they did in 2008.
Source: TradeArabia News Service