The woman, who one assumes was not a Muslim, was obviously referring to Islamic banking, whose potential role as an alternative financial system which connects banking and finance to real economic activities and which proscribes the receiving and paying of interest (Riba) and therefore speculative activities based on gambling, has come to the fore ever since the global financial crisis surfaced in 2008.

But whether the Muslim countries and the Islamic banking industry are rising or even capable of rising to the challenge remain a moot point. Whether it is at the Annual meetings of the World Bank/International Monetary Fund or the G20 meeting, whose members include three important Muslim countries in Saudi Arabia, Turkey and Indonesia, any talk of a potential role for Islamic finance, especially raising finance through a proven and increasingly popular off balance sheet mechanism such as sukuk issuance, is conspicuously absent. Muslim countries, it appears are either embarrassed by the attention Islamic finance is receiving or are living in denial because it may not be perceived as cool in the bastions of the Dar Al-Riba.

Contrast the uttering of two leaders at meetings last week - one Luc Frieden, the finance minister of Luxembourg, a Christian country which is trying to eke out a role as a European hub for Islamic finance especially as a domicile for funds and for sukuk listing, and the other King Hussein of Jordan, the ruler of a Muslim kingdom faced with dire economic and youth employment problems.

Frieden, leading a Luxembourg financial delegation to Singapore, Malaysia and China on October 17-20 to promote the Duchy as a major international financial center, was unequivocal about the value and the potential contribution Islamic finance can make to economic growth and financial stability.

Speaking at a financial forum in Kuala Lumpur, Frieden declared that "Europe can indeed learn a lot from Islamic finance through its principles of financial partnership between the creditor and the debtor; the absence of speculation and respect for ethical principles. The provisions against speculation and gambling which is prohibited in Islamic finance, is what we can concentrate on. The elements of ethical principles should not be limited to Islamic finance alone," he explained.

He reiterated the willingness and the policy of the Luxembourg government to develop Islamic finance in the context of the strategy of diversification and internationalization of the Duchy as a major global financial center. "Islamic finance has a growing interest in the international financial community, mainly because of the stability it has shown throughout the financial crisis. Islamic finance is now a component of more and more important in a diversified portfolio of assets. Working together we enrich our cultures and use our various financial products to contribute to the prosperity of all humanity," he added.

On the other hand, the words Islamic finance was nigh absent from the agenda and the speech of Jordan's King Abdullah when he opened the World Economic Forum's special meeting on "Economic Growth and Job Creation in the Arab World" which took place on October 21-23 at the Dead Sea in Jordan.

"Our region stands today at the gates to the future," said the King, noting that there are "four gates or crucial areas for consideration: dignity, opportunity, democracy, and peace and justice." King Abdullah emphasized that the region urgently needed economic growth, and that it has one of the world's highest youth unemployment rates, which is estimated between 25-40%.

The region, he maintained, required entrepreneurs, innovators, educators and policy-makers to create in excess of 85 million new jobs that are needed especially for the youth, who make up to 65% of the Arab population.

Corporate participants were equally disappointing in their perception and appreciation of the role Islamic finance industry can contribute to employment generation. In Malaysia for instance, the Islamic finance industry accounts for a 22% market share of the total banking sector, but provides over 35% of employment in the financial sector. Similarly, the financing and credit the sector extends to the general economy has a multiplier effect on employment in general.

Even Mohamed Al-Mady, vice-chairman and chief executive officer, Saudi Basic Industries Corp. (SABIC), which has marketed three sukuk issues, failed to note the growing role Islamic finance is playing as a diversification tool of sources of funding for global and local corporations.

The plenary sessions once again highlighted the increasing lack of efficacy of the WEF as a global platform to discuss the pressing issues faced by the world economies.

Even in the "New models for economic governance, and other sessions, Islamic finance was hardly on the agenda, even though topics such as enhancing institutions; addressing social and economic inequities; and building an inclusive private sector were addressed.

The only fleeting reference to an Islamic financial concept was the institution of Waqf (endowments). "Arabs," stressed a WEF communiqué, "should identify whatever is valuable in their own heritage and useful to solving today's problems. One suggestion was to revive the status and role of the Waqf system, an endowment that not only supports and finances religious services, but also non-religious, charitable services, and which encourages the wealthy to give back to society through donations to the Waqf."

The WEF has had the odd session on Islamic finance at its forum in Davos in the past. But judging by the transcripts, the level of debate has been woefully superficial and parochial, with the implication that Islamic finance has only got something limited to offer the Muslim countries and not beyond. This is because the phenomenon has grown rapidly in the Muslim world over the last decade or so and that it is now getting into the mainstream banking sector in these countries. However, its scope is limited because of various legal, regulatory and market constraints and because its market share of banking system assets is still low compared to the conventional banking sector.

Source: Arab News, Saudi Arabia, October 23, 2011. Changes were made in keeping with the editorial policy of www.memrieconomicblog.org.]]> staff@memrieconomicblog.org (By: Mushtak Parker) Fri, 28 Oct 2011 06:03:47 PST DUBAI: Saudi Arabia, the UAE and Qatar have the opportunity to become engines of growth in the Arab world in the aftermath of the Arab Spring, said Nasser Saidi, chief economist at the Dubai International Financial Centre (DIFC) and executive director of the Hawkamah-Institute for Corporate Governance.

He was speaking at an exclusive forum hosted by the Capital Club Dubai, the region's private business club and a member of the ENSHAA group of companies, to discuss the need for policy reforms, institutional change and extensive investment in the region in the wake of the Arab Spring.

"The GCC has big incentive to do it," said Saidi, who is a member of the IMF's regional advisory group for MENA and co-chair of the Organization of Economic Cooperation and Development's MENA Corporate Governance Working Group.

He said that the idea goes back to Egypt of 1953. But Egypt couldn't become the engine of growth. That opportunity has come to the GCC countries now.

"The GCC member states should take more active role, economically. They should widen the net and include countries like Egypt, Yemen, Jordan and Morocco into the GCC fold," he said.

He suggested that the GCC countries should prepare a roadmap for countries like Egypt and Yemen and present it to their governments while making it clear that they would have to follow the roadmap if they want to join the group.

Saidi, who was also named among the 50 most influential Arabs in the world by The Middle East magazine for the third time, this year, suggested privatization and more public-private partnerships to develop infrastructure in the countries torn by war and violence.

He also suggested setting up a MENA bank dedicated to reconstruction and development of the region. He pointed out that the US, Asia, Africa and Europe all have their own financial organizations for reconstruction and development. But MENA is the only region that doesn't have a bank for the cause.

Stressing upon the need for setting up the bank, Saidi said, "This is the time when we need an institution like this, because the transition is going to take years and we have to address all the challenges and vulnerabilities."

He said that the oil exporting countries in the GCC might be the main stakeholder in the bank. "We the Arab countries have to do it on our own. We cannot wait for people from other parts of the world to come and resolve our problems. This is the time that the Arab countries play their role in transformation, build their own institutions and bring the change.

"Although it seems very challenging at the moment, we need to realize that we are very rich, and have the natural resources. The potential is also certainly there," he added.

In the wake of the looming fear of global sovereign debt crisis, Saidi said that the increasing stature of Asian countries like China and India are the saving grace for the MENA region.

He said that the UAE has benefited from the recent political turmoil in the Arab region because of its political stability. The UAE remains an important hub for India and China to enter the GCC countries and the MENA region.

The economist said that Dubai recovered from the financial crisis much faster because of its strong links to India and China. He pointed out that Dubai's multinational companies like Dubai World, Emirates and Dubal are doing well in the emerging markets and tourist flow from Asia has increased substantially.

He suggested the GCC countries should benefit from the growth of India and China because they are growing much faster. The growth rate of the emerging markets is two to three times faster than the advanced economies of the world.

"The trade policies as well as economic and investment policies should be reoriented toward Asia, because that is where the growth is coming from. If you strengthen your links to the Asian giants, you will be less vulnerable than you were five to 10 years ago to what is happening in Europe and the United States," he said.

Source: Arab News, Saudi Arabia, October 22, 2011. Changes were made in keeping with the editorial policy of www.memrieconomicblog.org.]]> staff@memrieconomicblog.org (By: Mushtak Parker) Wed, 26 Oct 2011 08:33:45 PST Recent shifts in the Arab world coupled with an economic contraction at the global level have created a new urgency for decision-makers across the region: the need to address the fundamental conditions required to revive growth and support human development.

Now more than ever, it is critical to match employment, entrepreneurship and education prospects with the aspirations of young populations. This has clearly become a key in the decisions taken by government, industry and civil society in the Arab world. To respond to these apparent and urgent imperatives, the World Economic Forum will convene a "Special Meeting on Economic Growth and Job Creation in the Arab World" at the Dead Sea, Jordan.

The Special Meeting ended with a call for action and radical change in the region's mindset. "In the Middle East, we need fewer leaders and more doers," said Habib Haddad, Chief Executive Officer, Wamda, United Arab Emirates, a Co-Chair of the Special Meeting and a Young Global Leader. "We need to be ready to push all the buttons we have," he said. Haddad emphasized that the region needs more courageous investment. "It is not that the region doesn't have money," he said, "it is how we leverage and use it."

H.M. Queen Rania Al Abdullah of the Hashemite Kingdom of Jordan spoke of how education and support for small businesses can unlock Arab youth potential. "Partnering with academia, NGOs and the private sector could reposition the Arab world as a hub of creativity and innovation. We have within our people all the potential and power to change our fate," she told participants in a plenary session on Addressing the Employment Challenge. Tony Blair, UN Middle East Quartet Representative, speaking on a panel about geopolitical trends, said that translating the political changes of the Arab Spring into improvements in people's lives is the greatest challenge facing governments in the region today.

In an effort to tap into the potential of the youth generation, especially given recent events in the Arab world, the World Economic Forum today launched the Global Shapers Middle East Community. The Global Shapers Community is a worldwide network of Hubs led by 20- 30 year-olds who are exceptional in their potential, achievements and drive to make a positive contribution to their communities.

The Schwab Foundation announced two winners of the Social Entrepreneur of the Year for the Arab World award. Curt Rhodes of Questscope in Jordan provides non-formal education to vulnerable dropouts and Sameh Seif Ghali of Together Association for Development and the Environment in Upper Egypt improves sanitation and access to clean water in remote villages.

The Arab World Competitiveness Report, which continues the successful collaboration of the World Economic Forum and the Organization for Economic Co-operation and Development (OECD), is a contribution to understanding the key factors determining future prosperity and economic growth in the Arab world at this critical juncture. It offers policymakers and business leaders an important tool in formulating improved economic policies and institutional reforms.

The fourth edition of this report is published at a critical time for the region. The important changes taking place in North Africa and the Middle East have brought to light a number of socio- economic challenges - such as youth unemployment, regional inequalities, corruption, weak institutions, limited entrepreneurship, and the need to advance the role of women in the economy - that must be addressed if the aspirations of the region's citizens are to be met.

The Scenarios for the Mediterranean Region project began in August 2010 with the objective of exploring the long-term evolution of regional dynamics and the role of the private sector in the Mediterranean region, looking out to the year 2030. The project drew on the World Economic Forum's deep expertise in multistake-holder scenario thinking, competitiveness analysis and our long-standing engagement with the wider Europe and Middle East and North Africa (MENA) region.

The Scenarios for the Mediterranean Region report explores three possible futures for the region, based on long-term uncertainties related to the development of regional politics, regional resource management and the regional labor market.

H.M. King Abdullah II Ibn Al Hussein of the Hashemite Kingdom of Jordan opened the World Economic Forum Special Meeting on Economic Growth and Job Creation in the Arab World by observing that the Arab world has reached a critical turning point. "Our region stands today at the gates to the future," said the King, noting that there are four gates or crucial areas for consideration: dignity, opportunity, democracy, and peace and justice.

Source: Dead Sea, Jordan 21-23 October 2011 Special Meeting on Economic Growth and Job Creation in the Arab World. Changes were made in keeping with the editorial policy of www.memrieconomicblog.org.]]> staff@memrieconomicblog.org (By: Mushtak Parker) Mon, 24 Oct 2011 07:17:20 PST The energy world is changing and so is Saudi Aramco, the world's leading energy supplier.

The global dependence on crude is undergoing a major metamorphosis. It is definitely going to change, if not evaporate, over the next few decades. While the global economy already is in tatters, being kept in an oxygen tent as the capitalistic model is under threat all around, crude intensity is changing fast and for good. More efficient machines - from cars to airplanes and refrigerators to industrial equipment - all are attempting to reduce energy consumption. This would have a major impact on the global energy demand.

In the meantime, new energy frontiers are cropping up on the global horizon. Shalegas, oil sands, emerging Arctic, biofuels, growing Iraqi output - all are impacting the global resource structure immensely. Global energy centers are in transition.Indeed behind this transition is a lurking political desire. For strategic, geopolitical reasons, the West simply wants to reduce its dependence, if not move away outright, from the Middle Eastern crude.

Hence despite all the talk of creeping Peak Oil point, most now agree that the resource side may not be a major growth constraint in the coming decades. This is a changing equation with major, strategic implications.

Sitting at the giant Ghawar Center of Saudi Aramco, witnessing the signing ceremony of the strategic joint venture, SADARA, between Saudi Aramco President & CEO Khalid A. Al-Falih and Andrew N. Liveris, the DOW Chemical Company Chairman & CEO, the mind kept venturing into the changing future of the energy world. And that carries implications for Saudi Arabia too.

The state energy enterprise seems preparing for the eventuality. Senior people within the global energy giant are already talking in terms of "Accelerated Transformation Program."

While witnessing the signing ceremony and then the speeches thereafter, one also recalled the grand old man of the energy world, Ahmed Zaki Yamani, underlining repeatedly before the energy fraternity to remember, "coal didn't end, coal era came to an end." Indeed in the remarks one can't fail noticing the interesting analogy to oil.

One also can't miss out the changing regional environment and its impact. There seems an ongoing intellectual movement all around - extract oil from beneath the surface, add value to it, over the next few days, and then push it out of its shores. The stress seems on moving away from exporting the crude without adding value to it. Indeed planners from Riyadh to Muscat are insisting today on re-exporting the value-added product in the form of one plastic or the other. The prevalent model is to change. This also meant moving away from exporting the commodity resins. The current thinking emphasizes moving a further step beyond now - away from just producing and exporting the resin. Indeed this strategy also invoked the possibility of attracting, in the process, foreign direct investment. Then it also goes hand in hand with the increasing stress throughout the region from Riyadh to Manama on generating employment for the unemployed, frustrated youth.

A major transition thus seems to have taken place in the overall thinking process over the last few years. Saudi Aramco is acknowledging the changing times - with a rather big bang - the close to $20 billion SADARA jv in Jubail.

SADARA is to be a game changer - from Al-Falih to Liveris everyone emphasized that day. This was a major strategic in more than one sense. Some decades down the line, Aramco may not be the same organization as it is today. Indeed Aramco and to that effect Saudi Arabia, would continue to be a major player on the global energy horizon; it would continue to impact the global energy balance, yet the very orientation, the overall direction of the country and the company are changing.

Al-Falih was blunt. "This joint venture signals an important new chapter in Saudi Aramco's storied history, as well as the logical next step in our company's evolution. From our earliest days, Saudi Aramco has grown and changed with the times, and being a commercially driven entity, seized opportunities while anticipating the world's energy needs and responding to national interests," Al-Falih said in his speech at the SADARA signing ceremony.

"As such, we have progressed from primarily an oil and gas producing company, to an integrated petroleum enterprise with a sizable refining portfolio and significant global footprint.

Our downstream business is expected to further expand over the coming decade to encompass one of the world's largest refining portfolios. This evolution is in line with our primary strategy of steadily adding greater value to our hydrocarbon supplies," he said.

"Now, entering high-value chemicals is naturally our next phase, as we move down the petroleum value chain. Investing at the scale of Sadara, and with such an advanced product slate, is also consistent with our intent to become the world's leading integrated energy company by the year 2020," the Saudi Aramco CEO underlined.

Source: Arab News, Saudi Arabia, October 16, 2011. Changes were made in keeping with the editorial policy of www.memrieconomicblog.org .]]> staff@memrieconomicblog.org (By: Syed Rashid Husain) Mon, 24 Oct 2011 07:18:05 PST Innovation is the key to the future success of the Islamic finance industry and to meet the challenges of contributing to economic growth and to facilitate internationalization of the industry. According to Nor Mohamed Yakcop, minister in the prime minister's department in Malaysia, "the Islamic financial system has to continually innovate and adapt in order to be competitive. At the same time, innovation is also the driving force behind developing greater diversity of products and services. Therefore there is a need to focus on product innovation and development efforts that will provide a comprehensive array of Shariah-based products for the industry."

Yakcop was speaking at the KLIFF Islamic Finance Awards dinner which was held recently in Kuala Lumpur. While he may have been speaking in a Malaysian context, his words apply to the Islamic banking industry in general.

Yakcop is no ordinary observer of the Islamic finance industry. He together with others is the architect of the Malaysian Islamic financial system when he was adviser to Jafaar Hussein, the then governor of Bank Negara Malaysia, the central bank, and effectively helped the governor to implement his dream of developing a dual banking system in the country - an Islamic banking system operating side-by-side a conventional one, cooperating but not interacting.

He was also the pioneer of Malaysia's bilateral payments arrangement of settling accounts between central banks rather than using expensive correspondent banking services in London, New York and Frankfurt; a prime mover behind the concept of an Islamic dinar to settle trading accounts between Muslim countries.

However, Yakcop warned that while in Islamic finance, innovation has been significantly pervasive, the industry needs to further accelerate the innovation momentum to ensure that it achieves its objectives and aspirations. The challenge to innovate and adapt at the same time must be based on the core principles and values as well as the ethics of Islam.

"For innovation to become an important driver of growth, a critical area that needs attention is addressing the shortage of skilled and experienced professionals in the industry. WE need to build a pipeline of talents who have the ability and creativity to develop new ideas and the capacity to run ideas into achievable results," added Yakcop.

The greater awareness of the inbuilt strength of Islamic finance has contributed toward the increased international participation in Islamic financial markets. Indeed Malaysia has benefited from the internationalization of Islamic finance.

The minister highlighted Malaysia's leadership in the Islamic financial industry. For instance, in the issuance of sukuk, out of the Top 10 biggest sukuk issued globally in 2010, five originated from Malaysia. For this year todate, global sukuk issuances totaled $54.5 billion and Malaysia accounted for about 67 percent of the issuances.

The country had also attracted continued presence and interest of foreign issuers and investors, which has seen several successful issuances of foreign currency and ringgit [Malaysian currency) denominated sukuk by issuers including the Islamic Development Bank ($500 million), Gulf Investment Corporation (RM600 million), Nomura and National Bank of Abu Dhabi (RM500 million).

Yakcop also stressed that to facilitate greater internationalization of the Islamic capital market, the capacity to structure multi-currency and cross border transactions and to build greater scale needs to be further strengthened. This would allow intermediaries to make greater inroads into the international market. "The transition into the mainstream of the global financial system will provide opportunities for market intermediaries to seek new frontiers and expand new markets, as well as contribute toward further widening the diversity of products and services."

In Malaysia specifically, the country's march toward developed nation status by 2020 has required a shift toward new and competitive growth sectors characterized by higher value added and knowledge intensive activities. As identified by Prime Minister Mohd Najib Abdul Razak's Economic Transformation Program, these policy shifts also provide good opportunities for Islamic finance to also develop products which meet the needs of these growth areas.

Indeed in last week's budget 2012, Najib, who is also Malaysia's finance minister, outlined several opportunities for the Islamic finance industry including further incentives for certain types of sukuk origination, support for SMEs, for venture capital and the housing industry.

Source: Arab News, Saudi Arabia, October 16, 2011. Changes were made in keeping with the editorial policy of www.memrieconomicblog.org .]]> staff@memrieconomicblog.org (By: Mushtak Parker) Wed, 19 Oct 2011 06:34:45 PST DUBAI: Economic and financial experts say that the GCC Sovereign Wealth Funds (SWFs) are expected to be a key player in the Gulf region's overall development plans so as to activate the current economic climate, motivate development and recover the momentum of investment, which has been affected largely by the credit crisis that hit world economies since mid-2008.

These expected options seem to outweigh others, especially that the GCC countries have achieved record surpluses in their budgets for 2011 due to high oil prices globally.

The average price of oil per barrel is estimated between $50 and $60 in the budgets of GCC countries, while the average price per barrel in the markets is estimated at $80-90, an increase of 45% from the GCC budgets.

According to analysts, the state of confusion in sovereign fund investments is because that 31% of SWF direct investments go to the real estate sector, and 19% in form of indirect investments also go to the real estate sector. A recent report says that about 50% of the value of sovereign wealth funds is invested in the real estate sector, which does not generate jobs, and is neither considered a developmental sector.

In his remarks, Omar Al-Juraifani, economic and financial analyst, said: "We in the GCC countries have a chance to amend the path of SWF investments and shift it to knowledge-based industrial investment. The Euro zone is currently passing through a crisis, and many industries suffer from a significant lack of liquidity and accumulated debts - a situation that gives us a great chance to acquire industrial companies that have patents and huge knowledge, apart from accumulated experiences in the industrial sector in European countries."

The obvious poor performance of European companies makes the issue of acquiring some companies much easier, or at least having big stakes in these companies, in order to transfer the production lines or administrations of these companies to the Gulf region, Al-Juraifani added.

"This mechanism will offer job opportunities for our citizens and help us achieve high incomes from oil-reliant industries due to low costs, as well as circulate capital in our countries, instead of exporting them abroad through various investments," Al-Juraifani said.

Kuwait recorded a budget surplus of $29.9 billion for the third quarter of 2011, while Saudi Arabia's budget surplus is estimated at $33.8 billion, and Qatar's budget surplus stood at $8.5 billion, part of which will be invested in infrastructure projects as part of its preparations to host the 2022 FIFA World Cup, while the other part will go to sovereign funds.

According to the recent SWFs ranking in 2010, the Abu Dhabi Investment Authority with assets estimated at $738.9 billion is by far the world's biggest SWF, topping the list of the 10 largest global funds, while Saudi Arabia came in the third place (about $436.3 billion), then Kuwait came seventh with its fund's estimated value is $202.8 billion and Qatar came in the 10th place with its fund valued at $62 billion.

These figures show that the GCC countries have about 45% of the total value of the 10 largest global sovereign funds, which stood at $3,180 billion.

Source: Arab News, Saudi Arabia, October 15, 2011. Changes were made in keeping with the editorial policy of www.memrieconomicblog.org.]]> staff@memrieconomicblog.org (By: Mushtak Parker) Mon, 17 Oct 2011 07:20:48 PST The UAE is seen as a safe haven after the Arab Spring, says Links Group.

Relocation specialists Links Group said on Tuesday that more international firms were looking to set up Middle East operations in the UAE amid the impact of the Arab Spring.

The company, which recorded its strongest year on record for business incorporation in the UAE, said the Arab Spring movement had played to the UAE's advantage with regional companies choosing to relocate their core business functions or headquarters to the emirates.

Links said companies saw the UAE as a safe haven, where they have greater confidence in the economic and political future of the country.

In the first three quarters of 2011, Links Group recorded a 75% increase in onshore business license issuance in Dubai and Abu Dhabi compared to the same period last year, it said in a statement.

"This places demand for onshore company formation at higher levels than the firm experienced during the boom years of 2006-2008," the statement added.

According to Links Group, asset protection has been the major motivation of business unit relocation to the UAE, particularly for finance and HR functions.

John Martin St Valery, founder and CEO, Links Group, said that as economic uncertainty grips Europe and the U.S., foreign businesses are seeing the UAE as central to their business expansion strategies to tap opportunities in the neighboring GCC markets.

He added, "The increased interest in establishing a legal commercial presence in the UAE reaffirms the country's status as the regional trading hub and strategic gateway to the rest of the Middle East.

"This interest is not only coming from places like Egypt and Bahrain, but Europe and the US too where economies are also in decline or remain flat. This signals to us conviction in the UAE leadership and its pro-business environment and certainly bodes well for national GDP growth."

Construction, consultancy services and petrochemicals are the sectors in which Links Group has seen strongest growth in 2011, with many of these companies positioning themselves in the UAE to respond to the anticipated release of large project tenders in Qatar.

Source: arabianbusiness.com , October 11, 2011. Changes were made in keeping with the editorial policy of www.memrieconomicblog.org .]]> staff@memrieconomicblog.org (By: Mushtak Parker) Wed, 12 Oct 2011 06:13:13 PST [Editor's comment: American economist and sociologist Thorsten Veblen wrote a brilliant piece titled "The Theory of the Leisure Class" (1899) in which he expounded on "the conspicuous consumption" and waste of the Gilded Age.

The article below is a fine example of conspicuous consumption of the royal and wealthy families of the Gulf.]

Generally at weddings in Gulf countries, men and women are split into two separate groups, attendees say. Thousands of women gather together in one big ball room - all wearing haute couture - and some are not afraid to wear provocative and revealing outfits.

"Some women go for deep cleavage or even transparent fabrics," said Reem [The daughter of a wealthy construction baron], who regularly attends such weddings and buys between 30-40 designer dresses a year. At a royal wedding, the dress code calls for more restraint in terms of style, neckline and hemline.

Valued at €700m ($930m), designer clothing is by far the biggest segment of the luxury goods industry representing 42% of overall luxury goods sales in the UAE, the biggest buyer among Gulf states, with women's designer dresses and skirts leading the way, Euromonitor International said in a report published in June.

"For us, with China, the Middle East is the market that is growing the fastest," Hermes Chief Executive Patrick Thomas said at Paris Fashion Week. "These markets for a long time preferred a more ostentatious type of luxury and now want a more refined and discreet style," he added.

Thomas said the Middle East only started to pick up strongly two to three years ago and now generates 30-35% in annual sales growth a year.

For Dior, Chanel, Valentino, Stephane Rolland and other luxury labels favored by affluent Middle Eastern women, the biggest challenge is keeping a detailed track record of who buys what, to avoid selling the same dress to members of the same circles, attending the same event.

"A good retailer must know the whole family of the buyer and ask her as many questions as possible as we are not allowed to make mistakes," said a Dior sales assistant based in Western Europe, specializing in the brand's Middle Eastern clientele.

Very often, the race was on for the most expensive dress, not for the most elegant or stylish, she said, declining to be named.

With weddings lasting three, and sometimes up to seven, days, each client needs at least 5-10 different outfits - good news for fashion companies but complicated to keep track of. "Of course, we cannot centralize everything but we try," said the Dior sales assistant.

For Middle Eastern women, couture is a symbol of social status and success. At parties and weddings, they want to shine and impress potential mothers-in-law scouting for eligible brides.

Fashion experts say Middle Eastern women opt for dresses which use a lot of crystals, gems or heavily embroidered and embellished fabrics.

"I had the opportunity to see a wedding that was recently held here in Dubai. 4,000 women were invited to the reception and everybody in the room was wearing haute couture," said Simon Lock, who works as creative director for Dubai Fashion Week. "And there are lots and lots of weddings to attend. The wedding season is very expensive here.

"I have known of many occasions when a couturier will be invited to a private home for a showing. The hostess will buy maybe 20, 30 couture outfits for a season," says Lock, adding that prices start at $3,000 and can reach $75,000. A Dior wedding dress can fetch $1m.

Dior, Chanel and many other major luxury brands also stage private shows at hotels in the Middle East or in the comfort of the home of their most regular customers.

"Royal families are our buyers," said Dubai-based fashion designer Rabia Z. "They will call us for an appointment and we go as often as they ask us to come. They love the fact that we give them the option of changing the color, or making it shorter or longer."

But many prefer to fly to Paris, Milan or London than shop locally so they can have more choice and see up-to-date collections, fashion insiders say.

The shopping season usually starts in Italy in June. In July and August, it tends to concentrate around the Riviera, where many Gulf women spend holidays, and it finishes in September in Paris and London.

Qatar, the world's richest nation per capita, is one of the few economies in the world enjoying strong economic growth with a GDP growth forecast of 19% for this year, according to analysts.

Qatar is organizing its first fashion week with a target date of March 2012. One of the biggest supporters of the fashion event is Sheikha Mozah bint Nasser al-Missned, the glamorous wife of the emir of Qatar who regularly features in Gulf tabloids along with Queen Rania of Jordan.

Sheikha Mozah - regarded as one of the world's biggest buyers of couture, according to fashion experts - is also behind the creation of the Qatar Luxury Group in 2008. Based in Doha, it hired designer Stephane Rolland to create a fashion brand from scratch that it is aiming to unveil next spring.

The group, financially supported by the Qatar Foundation the Sheikha created, made its first acquisition this year when it snapped up Paris-listed leather goods maker Le Tanneur for €26m, and is on the lookout for more European brands.

The group is headed by Gregory Couillard, a former executive at the world's biggest luxury group LVMH, which owns Dior and Louis Vuitton. Couillard declined several requests for an interview

Source: arabianbusiness.com , October 6, 2011]]> staff@memrieconomicblog.org (By: Mushtak Parker) Mon, 10 Oct 2011 07:38:42 PST DUBAI: The Middle East and North Africa (MENA) could enjoy a period of rapid economic growth if the countries of the region seize on the Arab Spring upheavals to undertake political and economic reforms, a report by London-based Capital Economics says.

The Arab world could grow at an average annual rate of 6% a year, beating the four 4% annual pace they posed over the previous 20 years, according to Said Hirsh, MENA economist at Capital Economics.

That pace of growth would lift gross domestic product per capita to $26,000 annually by the year 2030, nearly five times its current level, he said.

Political reform has been the focus of the Arab Spring agenda, but most analysts say the region must address pressing problems like creating jobs and reducing gaps between the rich and poor by fostering faster economic growth in order to create a stable environment where democracy can take root.

Right now, however, the turmoil has weighed down on the region's economies. The International Monetary Fund recently lowered its economic-growth outlook for the region to 4% in 2011 and 3.6% in 2012. The hardest hit countries are those now contending with Arab Spring unrest, with the Syrian economy likely to contract this year.

One measure of the economic distress MENA is experiencing came in a report from the investment consulting firm Dealogic, which reported yesterday that the region's mergers and acquisitions activity dropped to its lowest level in six years.

The total value of Mideast-targeted M&A so far this year is $13.4 billion amid concerns about political stability, it said. But Hirsh said economic takeoffs in places like China and India took observers by surprise.

"When they started to happen most people were skeptical. Everyone looks at the history and asks why should things change now and then they're surprised at the transformation that comes," Hirsch said. "There's no reason that the Middle East could not be transformed in unexpected ways in the next few years."

While Capital Economics cited improving education, labor market regulations and other regulatory structures, as well as cracking down on corruption as the top reform-agenda items, Hirsh said progress would be limited on all of them without political reforms.

If the MENA region can begin implementing market reforms, the countries most likely to benefit are among the region's poorest.

Hirsh said Egypt had the potential to lead regional growth with GDP expanding close to eight% a year that would vault its economy to a value of $2.5 trillion by 2030, making it as big as Australia's or Canada's are projected to be.

"They (the Egyptians) have the potential for catch-up growth and for productivity gains from changes in education and the regulatory environment, plus they have a rapidly growing population. These are things that are positive," Hirsh said. "Potentially, Egypt could be a good growth story."

Among other potential growth leaders are Syria and Morocco, which enjoy conditions that could accelerate their annual growth to around 7% annually.

Capital Economics said efforts to diversify the economies of the hydrocarbon-rich countries of the Gulf by investing in industry, tourism and technology will take a decade or more to bear fruit.

Part of their problem is the absence of incentive for people to seek employment or start businesses because oil revenues finance generous social welfare programs and public sector employment. "The political will to change (especially following social unrest) is not evident," the report said.

Hirsh said the MENA region as a whole had a strong enough base for growth that, even without wide-ranging reforms, it could improve on its economic performance over the last two decades, which averaged 4% annually. At an annual average pace of growth of 5% annually, per capita GDP in the region would reach $20,000 by 2030, Capital Economics estimated.

While MENA has to overcome serious problems of corruption as well as poor educational systems and inefficient labor markets, it has considerable assets that other parts of the world like China and Eastern Europe lacked before their economies took off, the reported noted.

MENA has established market economies. It is also integrated into the global trading system and has little debt. Its high rate of population growth, which raises the threshold of minimum economic growth it needs to generate to create enough jobs, also serves to create growing demand.

Capital Economics warned that despite MENA's strong foundation for growth there is still a risk that the region could continue to underperform economically.

Assuming that the region's economies push more people into their workforces, annual GDP growth would grow on average 3.5% and boost GDP per capita to $16,000.

To achieve that, MENA economies would have to increase the percentage of their working age populations in the labor force to 50% from the low rate of today of 45%.

Source: Arab News, Saudi Arabia, October 6, 2011. Changes were made in keeping with the editorial policy of www.memrieconomicblog.org.]]> staff@memrieconomicblog.org (By: David Rosenberg) Thu, 06 Oct 2011 09:00:06 PST Islamic finance got an important airing at the 2011 annual meetings of the World Bank /International Monetary Fund (IMF) held in Washington last week when Ahmad Mohamed Ali, president of the Islamic Development Bank (IDB) was invited for the first time to address the influential 84th Development Committee meeting of the World Bank as an observer.

This year's meeting of the Development Committee, explained Ali, "is taking place at a period when the global economic recovery is threatened by multiple problems including supply shocks (soaring oil prices and Japan's earthquake), financial shocks (euro zone and US debt crises and downgrade of US credit rating), high unemployment, famine and hunger in the Horn of Africa, social unrest in the Middle East and North Africa, and food crisis".

While Ali went on to also discuss his concerns over global economic recovery; the economic growth and prospects in IDB member countries; and the group's responses to the needs of the MENA countries, especially those ones undergoing political and economic transformation, he failed to take the opportunity to put the case for the role of Islamic finance in promoting economic growth and contributing to financial stability.

He instead urged IDB member countries to bolster domestic and regional markets through a coordinated intra-investment and intra-trade agenda that distribute production of goods and services among countries based on comparative advantage; and to enhance human development and critical infrastructure to create incentives for effective private sector growth that create jobs. In some MENA countries, for instance, youth unemployment ranged between 35 to 40%.

He expects economic prospects of the MENA countries to improve in 2012 mainly due to contribution of Saudi Arabia and Turkey, who are also members of the G20 and who have "sufficient fiscal space to provide countercyclical fiscal stimuli to support economic recovery".

The IDB has formulated a multi-tiered program to assist the affected Arab countries in achieving better alignment between economic growth and employment generation objectives, particularly through support to SMEs [small and medium enterprises] and improved access to microfinance facilities. For instance, the IDB along with International Finance Corporation (IFC) and the World Bank established an "Arab financing facility for infrastructure," which will mobilize new resources of up to $1 billion to support inclusive economic growth objectives.

The IDB along with the World Bank, the Arab Fund for Economic and Social Development (AFESD), the African Development Bank (AfDB), the European Investment Bank (EIB), the Agence Francaise de Developpement (AFD) and the Arab Trade Financing Program (ATFP) are also in final stages of establishing a "cross-border trade facilitation and infrastructure program."

The IDB and the IIFC are also mobilizing in the range of $1.5 billion to $2 billion over the next five years to support job creation opportunities and provision of relevant labor market skills for the Arab youth. The IDB itself is in the process of preparing an interim assistance strategy for both Egypt and Tunisia, covering the period 2011 to 2013, with an estimated financial envelop of $2.5 billion and $1.5 billion, respectively.

For that matter, Ibrahim Al-Assaf, minister of finance of Saudi Arabia, addressing the committee on behalf of the Arab group of countries, similarly did not allude to any potential role Islamic finance could play in economic development despite the fact that Islamic banking, according to Muhammad Al-Jasser, governor of the Saudi Arabian Monetary Agency (SAMA), accounts for about 38% of the banking sector assets in Saudi Arabia, which of course is also the largest Islamic banking market in the world in terms of capital and assets under management.

Al-Assaf, however did comment on two important issues which are very relevant to the Kingdom's economy and where Islamic finance does have a role - youth employment and gender equality in the economy. The World Bank in fact is due to publish its next World Development Report (WDR), but his warning was that each country should tackle these challenges within the context of their particular socio-cultural and economic norms.

"Recent developments have indeed put jobs at the center of the policy debate and it is entirely appropriate for the World Bank Group to take an integrated approach to this issue. In addressing issues of social change and social cohesion, the bank should remain within the bounds of its development mandate. [This was a warning shot in the face of the World Bank's policy to advocate gender equality which is an anathema is Saudi Arabia.] Cognizance must also be taken of the variety of cultures and economic settings across the bank's membership, and that no single policy prescription would fit all situations. Lack of adequate employment opportunities, especially for the young, can have significant negative impacts on social stability and the economy," he added.

Perhaps in the light of the recent decision by King Abdullah to give Saudi women the vote in the next elections, Al-Assaf's remarks on gender equality is room for optimism for Saudi women.

The gender equality initiative (of the WDR), he maintained, deserves consideration on its merits. "My overall reaction is that the potential for women's role in and contribution to, developing economies (presumably also the Kingdom) is far from fully realized. Economic empowerment of women is an important development goal because it makes economic sense," he said.

However, the Islamic finance and real economy development message resurfaced a few days after the World Bank Group proceedings on Sept. 29 at Columbia University's World Leaders Forum where IDB President Ali spoke on "The contributions of Islamic finance to global financial stability" in the presence of Professor Jeffrey Sachs, director of the Earth Institute at Columbia University, who advises on the IDB's Islamic Solidarity Fund for Development and its engagement in the Millennium Development Goals.

"The principles of Islamic finance," he emphasized, "are capable of minimizing the severity and frequency of financial crises by introducing greater discipline into the global financial system and requiring the financier to bear or share in the risk. Islamic finance also requires the creditor to bear the risk of default by prohibiting the sale of debt, thereby creating a proper enabling environment for ensuring due diligence by those who extend credit."

The elements of the Islamic financial system which are crucial for ensuring the health and stability of the global financial system include increasing equity financing and reducing debt; confining credit primarily to transactions that are related to the real sector so as to ensure that credit expansion moves more or less in tandem with the growth of the real economy; proper regulation and supervision of all financial institutions so that they remain healthy; and the extension of respite to the debtors who are in distress, so as not to cause misery and agony to them by auctioning off their properties at giveaway prices.

But Ali warmed that despite the negative role that credit default swaps played in the present financial crisis, financial instruments can play a positive role in encouraging healthy expansion of credit and economic growth as long as they are properly regulated.

However, he had a final message which probably would have been more appropriate and effective had he uttered it in his the Development Committee statement. "Let me emphasize that the essential principles of Islamic finance are not specific to the Islamic faith. They are a part of not only the divine religious but also secular paradigms. Therefore, the main message of Islamic finance, while ethical, is also universal. At a time when world leaders are calling for financial reforms, it is appropriate to have our financial systems rebuilt on widely accepted ethical and moral bases to serve the common good of humanity," he emphasized.

Source: Arab News, Saudi Arabia, October 3, 2011. Changes were made in keeping with the editorial policy of www.memrieconomicblog.org.]]> staff@memrieconomicblog.org (By: Mushtak Parker) Mon, 03 Oct 2011 07:12:04 PST Saudi Arabia is likely to keep a long-standing peg between the riyal and the dollar despite recent weakening of the U.S. currency and fears that this could fuel inflation, according to regional economists and market analysts who also cautioned that a stronger riyal might deter new investments in the Kingdom.

Commodities are priced in the U.S. currency and its weakness in recent years has helped boost demand from investors in other currencies. The U.S. is also a key market for Gulf oil producers.

Divergent views about exchange rates and inflation in Gulf countries have appeared in regional media since the Swiss National Bank shocked markets early this month with its decision to peg the franc to the euro and to buy unlimited amounts of foreign currencies to curb its appreciation.

Some business travelers and decision-makers in the region have also been suggesting that Kuwait's decision in 2007 to peg the dinar to a basket of currencies might have helped the Gulf state to shield its economy from the dollar's fluctuation.

But Paul Gamble, head of research at the Riyadh-based Jadwa Investment, told Arab News that Kuwait's record of fighting inflation "has been no better than Saudi Arabia's in recent years." Kuwait's currency is still very closely linked to the dollar, he pointed out.

Reuters reported recently that Kuwait's annual inflation eased to an 11-month low of 4.6% in July and edged up only slightly from the month before on higher food and transport prices. Analysts quoted by the news agency said they expect price pressures to stay muted in Kuwait.

A Jeddah-based economist said that Kuwait had actually paid for its basket in terms of less liquidity. "The Saudi and other pegs are simpler, more transparent and easier for markets to work with," said Jarmo T. Kotilaine, chief economist at Saudi Arabia's National Commercial Bank (NCB). He pointed out that weaker dollar will drive imported inflation when imports are denominated in currencies other than dollars.

He added: "It is not clear that de-pegging from the dollar would help much in containing inflationary pressures, especially since the only conceivable intermediate step would probably be a Kuwaiti-style basket which would still be heavily dollar-dominated." Kotilaine said the ability of the euro to protect from inflation is questionable in view of its own structural challenges." Even the yen faces longer-term risks while the emerging market currencies are still not true trading currencies," he pointed out.

"Under the circumstances, not much is likely to be gained from switching away from the dollar pegs and a lot would be lost in terms of reduced transparency and efficiency, as well as policy consistency and credibility," Kotilaine said.

Commenting further on the currency debate, Gamble of Jadwa hinted that de-pegging the riyal would probably push inflation lower over the short term. He said a fully floating riyal would be an attractive currency for foreign exchange traders - so large inflows would cause the riyal to strengthen, lowering the cost of imported goods. "However, it would also undermine the non-oil economy and introduce much greater volatility, which would deter investment," cautioned Gamble.

"If the peg was adjusted so that the riyal is strengthened against the dollar there would be a one-time fall in inflation owing to lower import costs, but this move would have many negative impacts elsewhere in the economy," Gamble said. Ultimately, he said the exchange rate is not an appropriate tool to tackle inflation and it would probably have little impact on it.

As market observers analyzed the emerging market trends, Saudi Arabian Monetary Agency (SAMA) Gov. Muhammad Al-Jasser reiterated earlier the determination of Gulf states to forge ahead with their plans for a single currency despite the global debt crisis. "I have heard doubts (expressed about the single currency) only in the media. It is untrue," Al-Jasser said following a meeting of regional central bank governors in Doha.

Financial markets declined in recent weeks as investors grew increasingly unnerved by the ability of euro zone leaders to solve the debt crisis that has engulfed Greece, Portugal and Ireland and now threatens Italy and Spain. Many U.S. indicators also point to stalling growth.

But Gamble said there had been no impact from the economic troubles in the U.S. and Europe on the Kingdom's currency peg.

Reacting to money market developments, Khan H. Zahid, vice president and chief economist at Riyad Capital, said: "A euro zone debt crisis would most likely lower the euro's value against the dollar and thus against the riyal, and that may also hurt euro zone imports from the Kingdom."

Estimates from ratings agencies and the IMF suggest that this year's inflation rate in the Kingdom could be in the range of 5.5% to s6%, up from 5.3% in 2010.

Recent government data showed that annual inflation eased to 4.8% in August and monthly price growth halved to 0.5% as a rise in housing and transport costs subsided.

Inflation in the Gulf is expected to creep higher this year on robust global commodity prices, a weak dollar and increased government spending, Reuters reported.

Commenting on consumer concerns about possible price increases and higher living costs amid global economic uncertainty, Gamble explained that there was no domestic pressure on the value of the riyal. Inflation is being driven by a combination of factors, he pointed out.

"Rents are one of the main source of inflation, caused by a shortage of accommodation, a rapidly growing population and a reduction in the average household size. International commodity prices, particularly for foodstuffs, some construction materials and precious metals are the other main source of inflation. Given the size of government and consumer spending this year, the lack of other inflationary pressures is notable," Gamble said.

"The global debt problems have not had much impact on inflation in the Kingdom. By causing the global economy to slow, they have pulled down commodity prices and so reduced inflationary pressure," he added.

Gamble said the dollar is still regarded as a safe haven despite the credit rating downgrade and this has also put downward pressure on inflation.

Source: Arab News, Saudi Arabia, September 28, 2011. Changes were made in keeping with the editorial policy of www.memrieconomicblog.org]]> staff@memrieconomicblog.org (By: S. Vilupolananda) Wed, 28 Sep 2011 06:00:18 PST When seen in the background of the worsening global, economic fundamentals, a free fall in oil prices cannot be ruled out altogether. There are definite ominous clouds on the crude horizon that one can't deny. Indeed when the [global] economy slows, so does demand for oil. And this carries price repercussions.

The wobbling state of the global economy, the very prospects of the economy slipping into a recessionary mode once again, are beginning to have ramifications. As the weekend approached in the northern hemisphere, markets were seen hovering around $80 a barrel after touching the lowest level in more than six weeks on Thursday of last week.

Crude for November settlement rose two cents to $80.53 a barrel at 1:50 p.m. on the New York Mercantile Exchange. Earlier, it touched $77.55, the lowest price since August 9. Futures are down 8.4% this week, headed for the biggest drop since the five days ended August 5. Prices have fallen 12% this year.

And as per a Bloomberg News survey of analysts, crude prices are expected to fall further. Twenty-two of 40 respondents, or 55%, forecast oil will decline through Sept. 30, while nine, or 23%, predicted prices will increase. Nine estimated there will be little change. Last week, 45% of the surveyed analysts projected a drop.

As oil markets continued to plunge, investors were seen running for cover as the fears for the world's two biggest economies, the United States and China, added to the tensions surrounding the Euro zone debt crisis.

And it is not just the state of global economy impacting the crude markets. Liquid fundamentals are adding to the woes of the market. "Energy demand is going to be very poor," says Michael Lynch, of Strategic Energy & Economic Research.

"The oil market is on a downside momentum with serious lack of risk appetite," said Myrto Sokou, at Sucden Financial Research. "In addition to the weak macroeconomic data, we have to acknowledge the lack of oil demand from the U.S. and emerging markets, amid ongoing concerns about growth opportunities in the medium-term," he underlined.

And as concerns over the macroeconomic outlook began gaining steam, both the Paris-based International Energy Agency (IEA), and the Vienna-based OPEC, revised their demand estimates lower for 2011 and 2012. The IEA projected oil demand will rise 1.36% to 89.3 mbpd [million barrels per day] this year and then 1.57% to 90.7 mbpd in 2012, compared with previous forecasts of 89.5 mbpd and 91.1 mbpd respectively.

The IEA also trimmed non-OPEC supply due to outages. Non-OPEC output is now forecasted to reach 52.8 mbpd (August: 53.0 mbpd) in 2011 before rising to 53.8 mbpd in 2012 (August: 54.0 mbpd), the IEA said in its report released earlier the month.

OPEC forecast global oil demand will only grow by 1.27% to 88.0 mbpd this year and then by 1.48% to 89.3 mbpd in 2012, compared with corresponding estimates of 88.1 mbpd and 89.4 mbpd made last month, dropping the demand growth by 1.1 million barrels per day - 150,000 barrels fewer than its earlier forecasts.

As non-OPEC and OPEC NGL outputs are expected to remain unchanged, the call on OPEC was also reduced for both the years by the agency.

Both agencies addressed the Libya issue as the civil war is now coming to an end. The IEA raised the Libyan crude production capacity to 350K-400K bpd by the end of 2011 and then to 1.1 mbpd by 4Q12 (Libya's pre-war production was estimated to be 1.6 mbpd). OPEC appeared more optimistic on the resumption of Libya's production capacity. It projected Libyan production to reach 1 mbpd within the next 6 months and 'the restoration of Libyan oil production to full capacity in less than a year-and-a-half appears to be realistic.'

OPEC also trimmed back its oil production outlook, saying it still expects output to increase, but by a slightly smaller - 500,000 barrels per day in 2011 = 80,000 barrels below its prior forecast.

Weaker-than-expected demand from China and "ongoing economic uncertainties" were reflective of a global slowdown in industrial activity in most major economies and this was reflected in the downgrading of demand expectations in the coming months, as the OPEC forecast for global economic growth too edged down to 3.6% for 2011. Previously it was projected at 3.7%. Similarly the 2012 projection was brought down to 3.9% from the previously expected 4%.

Yet despite the beating, Goldman Sachs in a note last week maintained that Brent would average $130 a barrel in 2012 due to tight supply.

However, the bank did revise down its projected price of U.S. benchmark West Texas Intermediate in the next three months due to the disconnect that has emerged between the U.S. crude marker and its European counterpart.

Logistical issues at WTI's delivery point of Cushing Okla. have led to a buildup of oil in the region, pushing down its price relative to Brent. Despite evidence of stock-draws in recent months, the price gap between the two crudes has hardly narrowed. "While we continue to expect WTI-Brent spreads to narrow in 2012, it is likely that the WTI-Brent spread will remain wide in coming months." The bank however, lowered its forecast for WTI significantly to $97.50 a barrel from $115 a barrel.

Prices "remain strong despite the market's concerns that rising sovereign debt issues and a significant slowdown in economic growth could push the US economy back into recession," said Goldman analysts in a weekly energy report.

Goldman Sachs said the "tight" oil supply has been alleviated somewhat by the release of 600,000 barrels per day, over the last seven weeks, by the Strategic Petroleum Reserve. But this won't last forever.

"We therefore expect that the market will tighten further for the remainder of the year and going into next year as this source of supply disappears, effectively drawing down OPEC spare capacity and pushing prices higher," wrote Goldman analysts David Greely and Stefan Wieler.

Global economy is passing through a turbulent phase. And when the economy melts, the prospect of crude markets surging becomes too tenuous.

Added with the growing emphasis on efficiency all around and the emergence of new frontiers in the search of new resources, oil markets are expected to be in for a bit of battering in the short to medium term. The oil scene supports the argument that neither is there any dearth of resources, nor is the demand going to increase fast enough to outpace supplies - at least in the short to medium term. The global oil demand - supply balance is thus expected to stay in a comfortable zone for some time to come. The current scenario is to ensure balanced fundamentals for some time to come. Hence despite the Goldman projections, oil markets are expected to continue to wobble and stay around the $100 mark - at max - for some time to come, one could dare say.

Crude markets are in for a rather arduous time.

Source: Arab News, Saudi Arabia, September 25, 2011. Changes were made in keeping with the editorial policy of www.memrieconomicblog.org ]]> staff@memrieconomicblog.org (By: Syed Rashid Husain) Mon, 26 Sep 2011 08:13:14 PST DUBAI - Emirates [of Dubai], the largest international airline, is set to become the world's biggest wide-body carrier in 2015 - overtaking Air France-KLM - when passenger traffic to and from the Middle East is expected to reach 140 million [supposedly, monthly].

The Gulf's two other fast growing carriers - Etihad Airways [of abu Dhabi] and Qatar Airways - will also sustain their phenomenal growth rate to figure in the ranks of the global top 20 by 2015, the Boston Consulting Group, or BCG, said Emirates, which currently operates more than 150 aircraft to 110 destinations in 66 countries, is also in a recruitment drive for 4,000 cabin-crew jobs to keep pace with its vibrant expansion that will see the Dubai-based carrier boosting its fleet size to 199 by 2012 and 300 by 2016.

With a new aircraft order worth $68 billion from Boeing and Airbus, Emirates is the largest single customer of Airbus' A380 superjumbo with 15 units already in service and 75 more on order.

BCG, in its report "Middle Eastern Megacarriers: Gaining Altitude," said passenger flows to and from the Middle East increased by 45 million passengers over the five-year period from 2005 through 2010, and they are expected to increase by another 45 million passengers over the next five-year period, from 2010 through 2015. Aerospace giant Boeing said in its latest forecast that Middle East carriers are on track to collectively spend $390 billion to acquire 2,340 new aircraft to keep pace with an average 7.1% traffic growth over the next 18 years.

The region, the third fastest-growing in the world in international air traffic after China and South America, will also account for a lion's share of new orders for long-haul capacity aircraft.

"Thanks to the world's three fastest-growing carriers - Emirates, Etihad and Qatar Airways - the region is set to boost its long haul capacity by 140,000 seats over the next 18 years, far outstripping projected capacity growth in Europe and Asia," Michael Warner, director of marketing for Boeing Commercial Airplanes, said.

According to the BCG study, the Middle East has become entrenched as a hub for long-haul travel.

Increases between 2005 and 2015 reflect a compound annual growth rate of 11%. Led by the Middle Eastern megacarriers - Emirates, Qatar Airways, and Etihad - airlines in the region are expected to triple their passenger capacity over the next 20 years, it said.

"Because the Middle Eastern megacarriers have been early developers of the region as an important hub for long-haul routes - and because they enjoy significant cost advantages -they are well positioned to compete aggressively with more financially constrained carriers," said Rend Stephan, partner and managing director at BCG Middle East.

BCG estimates that Emirates will grow its capacity by nine to 12% annually through 2015 - the specific growth rates will depend on how quickly the airline retires some of its older aircraft - to become the world's largest operator of wide-body aircraft.

The study pointed out that the Middle Eastern megacarriers share a common challenge as well: the need to manage the pressure that their aggressive expansion plans exert on their margins. Ultimately, Middle Eastern airlines must fill their added seats - either by expanding their networks or by capturing a greater share of their existing markets.

BCG expects Middle Eastern carriers to face competition from full-service legacy airlines, which can leverage their networks and schedule advantages to attract more-profitable business travelers who prefer nonstop flights at business-friendly departure times

There will also be greater regional competition among Emirates, Etihad Airways, and Qatar Airways for connecting traffic to non-hub destinations in the Middle East and for intercontinental travel.

Other challenges include competition from low-cost carriers within the Middle East, such as Flydubai and Air Arabia, the emergence of airlines in Turkey, India, and, potentially, China that embrace the same type of advantaged hub business models being used by the Middle Eastern megacarriers; and the possibility that foreign governments will restrict market access or alter pricing regimes. 


Source: Khaleej Times online, UAE, September 16, 2011. Changes were made in keeping with the editorial policy of www.memrieconomicblog.org.]]> staff@memrieconomicblog.org (By: Isaac John) Tue, 20 Sep 2011 06:57:51 PST [Editor's introduction: With the end of the monsoon season, Somali sea piracy is bound to increase. The cost of the piracy will be in the billions of dollars to the shipping industry, the insurance companies and the exporters themselves.

This article reviews the problem of piracy from the perspective of the GCC countries which, as a group, are the largest exporters of crude oil in the world.]

Oman has been the site of a number of pirate attacks and experts warn the hijackings will increase

Gulf states including the GCC and Oman must ramp up measures to fend off the growing problem of marine pirate attacks, or risk becoming a hotbed for hijackings, analysts said.

Oman in August saw two attacks on ships near the port of Salalah, with one tanker and crew snatched from inside the port in front of the coast guard, and experts warn these attacks may be the tip of the iceberg.

"The problem will only worsen in the short-term as the Monsoon season is due to end in mid-September. The Gulf of Oman might be a new area of focus, which will pose a concern for Emirati shipping interests which must pass through the area," said John Drake, a senior risk consultant at AKE Group.

Piracy is a well-organized and highly lucrative business and has expanded into a vast area off the coast of Somalia. An estimated $150m was paid in ransoms for ships, cargoes and crews to pirate gangs last year, while a record 1,181 seafarers were kidnapped, according to consultancy Dryad Maritime Intelligence.

"For the UAE, the problem must be carefully monitored and ensure that it does not continue to expand into the Gulf of Oman," said Tim Hart, maritime security analyst from Maritime and Underwater Security Consultants. "If the problem isn't resolved and is allowed to continue it will encourage more potential pirates to turn to the crime. They will go to greater and greater lengths to hijack vessels, adapting to onboard precautions and potentially moving into areas they had not previously operated in trying to find the more lucrative targets."

Oman lies at the mouth of the Gulf, a strategic, heavily patrolled waterway which channels a bulk of the world's crude shipments. Somali pirates usually operate in Indian Ocean waters, but the waters around Salalah have seen a rising number of attacks.

Several oil tankers have also been attacked in the pirate-infested Gulf of Aden, with their valuable cargoes being used by pirates to demand ransoms.

The potential risk will put shipping companies in the region under increasing pressure to protect their crew and vessels from attacks, Drake said.

"Shipping companies will have to implement risk management techniques, including the use of barbed wire and safe-rooms. These measures will make it harder for pirates to gain access to a ship and reach the crew, and significantly reduce the likelihood of a vessel being seized."

Recent incidents involving UAE ships include that of the MV Jubba XX, a small oil tanker seized by pirates off the Yemen coast on its way to port of Berbera in mid-July.

The tanker, which was released a few weeks later, was carrying 3,500 tons of oil products and had a crew of 17 people.

It was the third UAE ship to be hijacked this year, in addition to the MV Iceberg I, owned by the Dubai-based Azal Shipping, seized in March, and an unknown vessel purportedly named the MV Al Nasri, which was hijacked 35 miles outside the port of Bossaso in Puntland.

Analysts say piracy is a land-based problem, triggered by a combination of poverty in a coastal community, lawlessness and increasing use of weaponry.

Somalia has lacked a functioning government for two decades. The United Nations last month declared a famine in Somalia and said that 3.7 million people were in need of food assistance.

Source: Arabian Business, September 1, 2011. Changes were made in keeping with the editorial policy of www.memrieconomicblog.org]]> staff@memrieconomicblog.org (By: Elizabeth Broomhall) Thu, 15 Sep 2011 07:10:16 PST Qatar's liquefied petroleum gas (LPG) [1] output will reach 11 million tons per year by 2012, making it one of the largest global exporters, Tasweeq [Marketing] CEO Saad al-Kuwari has said.
"The more we produce liquefied natural gas (LNG), the more LPG we get," al-Kuwari told Gulf Times yesterday.
Asked whether Qatar's LPG output would increase given that the country had achieved its targeted liquefied natural gas production capacity (of 77 million tpy), [ton per year] al-Kuwari said, "Maybe there will be a slight increase with local projects such as Barzan and AKG2 getting commissioned. But I can't say how much more LPG we will produce with the start-up of the two local projects."
Currently, Qatar produces about 10.7 million tons per year of liquefied petroleum gas.
Tasweeq delivers regulated products exported from Qatar, such as liquid petroleum gas (LPG), condensate, sulphur and refined products, including naphtha, motor gasoline, jet fuel and most recently GTL naphtha (a high quality product from Pearl GTL, the world's largest gas-to-liquids plant in Qatar).
Tasweeq also markets QP's crude oil entitlements (non-regulated products) under an agency agreement.
The Tasweeq CEO had recently said that the state-owned company was expected to export 190 million barrels of condensates in 2012. The company also expected to export 3 million tons of refined products, 7.5 million tons of naphtha and 11 million tons of LPG, he said while addressing the company's global customers in Singapore.
"The LPG Industry is set to scale newer heights with countries around the world realizing the significance of adopting green energy," al-Kuwari said.
"The World LP Gas Association (WLPGA) has constantly reached out to varied markets in both developed and developing countries, encouraging the shift to LPG. Qatar's strategic geographic location connects us with prime markets such as the Far East and the Indian Sub-Continent."
LPG is a clean-burning and efficient fuel and a vital source of energy for hundreds of millions of people throughout the world.
LPG can be used anywhere and is available now without large investments in technology and infrastructure. It is a multi-purpose energy with literally thousands of applications.
It is portable, can be transported, stored and used virtually anywhere in the world and there are sufficient reserves to last for many decades. Importantly, LPG demonstrates lower green house gas emissions than petrol, diesel, and electricity, on an energy-equivalent basis.

Source: Gulf News, Qatar, September 13, 2011. Changes were made in keeping with the editorial policy of www.memrieconomicblog.org.

[1] LPG is a mixture of several gases that is generally called "propane".]]> staff@memrieconomicblog.org (By: Pratap John) Wed, 14 Sep 2011 07:22:04 PST

Long before it understood the value of oil, the desert Kingdom of Saudi Arabia knew the worth of water.

But the leading oil exporter's water challenges are growing as energy-intensive desalination erodes oil revenues.

Water use in the desert Kingdom is already almost double the per capita global average and increasing at an ever faster rate with the rapid expansion of Saudi Arabia's population and industrial development.

Riyadh in 2008 abandoned what was in retrospect clearly a flawed plan to achieve self-sufficiency in wheat and aims to be 100% reliant on imports by 2016.

"The decision to import is to preserve water," said Saudi Deputy Minister of Agriculture for Research and Development Abdullah Al-Obaid. "It's not a matter of cost. The government buys wheat at prices higher than in the local market."

Critics complain the policies are still not joined up, however, and say the risk is that Saudi farmers will turn to even thirstier cash crops.

"Many farmers who used to grow wheat start growing fodder (animal feed) instead that generates quick cash. But unfortunately fodder's use of water is four times more than for wheat," said Abdulaziz Rabih Al-Harbi, professor at the King Saud University and a member of the agriculture committee at the Riyadh Chamber of Commerce and Industry.

"Other farmers grow palms instead of wheat and this also consumes huge amounts of water and may not achieve the desired goal of efficient water consumption."

As one of the Kingdom's primary sources of development and employment, agriculture is a sensitive political issue and so scaling back is not an option.

But with such a small amount of the country suitable for cultivation, a comprehensive solution is required, industry officials say.

A water quota for the agriculture sector and a push to reduce wheat consumption, which is rising by 5% a year, are possible solutions, said Hasan Al-Shehri, chairman of the Cooperative Association of Wheat in the Kingdom and general manager at the Saudi Agricultural Development Co.

"We need coordination between the ministries of agriculture and water," said Al-Shehri.
The lack of water also poses a major challenge to the Kingdom's hopes to develop its mining sector to diversify its economy given the water-intensive nature of the industry.

"Gold is there but we don't have water," Mohammed Hany Al-Dabbagh, vice president of precious metals and exploration at state-controlled minerals firm Saudi Arabian Mining Co. said.

"Water is as precious as gold."

Peak Water

Saudi Minister of Water and Power Abdullah Al-Hussayen said in May the nation's demand for water is rising by more than 7% each year and that more than 500 billion riyals ($ 133 billion) of investment in the water and power sector will be required over the next decade.

Consultancy Booz and Company estimates Saudi water use is around 950 cubic meters per capita each year, compared with a world average of 500 cubic meters.
Agriculture is the single biggest user, absorbing 85-90% of the Kingdom's supplies, according to Saudi deputy minister of agriculture for research and development. Of that, almost 80-85% came from underground aquifers.

With average annual rainfall around 100 mm (4 inches), Kingdom's ancient underground aquifers are its lifeblood.

But just as peak oil theorists believe the world's conventional oil supplies are at or near their peak, proponents of the peak water view have said the resource has been irreversibly drained.

Booz and Company has said some of the region's aquifers - also referred to as "fossil water" as they contain rain that fell thousands of years ago - have become too salty to drink.

Injecting water into oilfields has also had an impact, although sea water is now generally used to maintain reservoir pressure.

High Cost, High Energy

The alternative to desalination - the energy-intensive process of converting salt water to fresh water - robs Saudi Arabia of its other precious resource, oil, by eating up both fuel and fuel revenues.

Saudi Arabia's Saline Water Conversion Corp (SWCC) produces 3.36 million cubic meters of desalinated water per day, a daily cost of 8.6 million riyals based on the SWCC's 2009 figures - the latest available - when the cost of producing one cubic meter of desalinated water was 2.57 riyals. Transporting it added an extra 1.12 riyals per cubic meter.

Analysts and industry leaders say the authorities need to pass on more of the costs to the end-user to curb demand and reduce waste - an argument that holds true for power and fuel but which requires very careful handling in the case of water.

"It is necessary to raise water tariffs," Isao Takekoh, a director at the US-based International Desalination Association, said. "But it should be conducted very carefully and step-by-step because water is, needless to say, indispensable for human life."

By burning up energy, desalination reduces the amount of crude available for lucrative export markets. Takekoh estimated energy represented between 45 and 55% of unit production costs.

The International Energy Agency and analysts at HSBC bank estimated Saudi Arabia's rate of direct crude burning more than doubled from 2008 to 2010 because of a rapid rise in power demand and a shortage of natural gas. How much of that went to desalination is not known but experts believe it is significant.

Industry officials and experts say the fact that Saudi Arabia is adjusting its agriculture policies shows it is aware of the challenges but like the rest of the world, it needs to move fast.

"Saudi Arabia realized they should start thinking about using their water in a more efficient way," said Peter Brabeck, chairman of Nestle, one of the world's largest food companies and a leading campaigner to avert a world water crisis.

"They understand water has more value than oil in the long term," he said.

Source: Saudi Gazette, September 9, 2011. Changes were made in keeping with the Editorial political of www.memrieconomicblog.org.]]> staff@memrieconomicblog.org (By: Pratap John) Tue, 13 Sep 2011 07:23:31 PST Oil markets have travelled a long distance. $100 is the new norm. A few years back, when oil markets broke this psychological barrier for the first time, pundits were taken aback.

Producers were taken to task. The unusual was to impact the global economy - rather adversely - many asserted. That the global economy was able to sustain this high price and still make impressive growth in the intervening years is another story.

The new norm gave fillip to an altogether new, engrossing and interesting debate: What was driving the market to new heights? Were high oil prices the result of tight fundamentals or pure financial speculation - remained a major issue.

The world got divided in two distinct camps. Producers kept insisting that markets were beset with speculation and supply was not the issue. Flow of speculative dollars was keeping markets on boil. On the other hand, consumers kept asserting that fundamentals were mainly to be blamed for the woes of the market. Producers were subjected to severe pressure. Open the taps further, they were told.

Yet producers remained convinced that speculation was primarily to be blamed. In 2008, while the oil markets were scaling one peak after the other, Saudi Arabian Oil Minister Ali Al-Naimi did underline that speculation was the major culprit. And he had facts to back it.

With dollar under pressure, and global economy in tatters, fund managers were seen moving their money largely into commodities. And indeed oil remains the worlds' largest traded commodity, crude remained a major attraction.

The bond and equity markets in the U.S. alone are valued at roughly $50 trillion, Minister Al-Naimi asserted in 2008. If money managers decided to reallocate a nominal one-half-of-one percent of those assets into the oil commodity, $250 billion influx of funds could be expected in the crude trade. And interestingly this small percentage equaled the value of the entire NYMEX WTI markets.

And after intense debate all these years, the diverging sides seem to be closing in on a sort of compromise. New studies are painting a more balanced view, blaming fundamentals, but crucially speculative activity too, for the rises, particularly over short periods of time. Financial activity in the futures market can significantly destabilize oil prices, a large number of pundits are now beginning to concede.

"In 2007 and 2008, destabilizing financial activity caused oil prices to respectively over- and undershoot their fundamental values by significant amounts," Ine Van Robays, of the Department of Financial Economics at Ghent University in Belgium, told the Commodity Futures Trading Commission (CFTC). However, she also underlined that financial activity in the futures market typically produces a short-term impact.

The agency is currently considering stricter position limits for energy, agriculture or metals derivatives, seeking to curb speculation and potential manipulation by hedge funds and other investors. It may vote soon on the controversial position limits proposal, which was introduced in January.

Her comments were backed up by David Frenk, research director for progressive watchdog group Better Markets. "Financial flows can and do dominate commodity price formation, not all the time, but enough of the time to make a real difference," he said.

Frenk said that financial speculation is excessive and is causing higher, more volatile prices than would otherwise be the case. He insisted that purely financial price increases of commodities needed to be stopped.

The European Central Bank too has just published a study saying that "some speculative and trend chasing behavior may have been adding to oil prices" since 2004.

The research paper 'What is driving oil futures prices? Fundamentals versus speculation' by Isabel Vansteenkiste builds a theoretical model to study the impact of traders buying and selling oil futures based on fundamentals and those following price trends.

After reviewing the January 1992 to April 2011 period, it concludes that "up to 2004, movements in oil futures prices are best explained by underlying fundamentals." Since then, however, the research notes that "regime switching has become more frequent and the chartist regime (speculative investment) has been the most prominent."

Late in August U.S. Sen. Bernie Sanders too said federal regulators should stop thumbing their noses at a year-old law and enforce limits on excessive speculation in oil markets. He cited secret data collected by the Commodity Futures Trading Commission, showing that Goldman Sachs, Morgan Stanley and other banks and hedge funds dominated oil markets in 2008 when prices rose sharply and topped $140 a barrel. The records - first made public by Sanders - shed light on the role of speculators at a time when oil prices were soaring. In the letter Sanders said the CFTC has been collecting this data for at least three years and called for an emergency meeting "to eliminate excessive oil speculation as soon as possible."

"While making this confidential information public may have upset Wall Street oil speculators, the American people have a right to know exactly what caused gasoline prices to skyrocket to more than $4 a gallon back in the summer of 2008," Sanders said. "Further, there is little doubt that the same speculators who caused gasoline and heating oil prices to unnecessarily spike in 2008 are playing the same games again in 2011. This is simply unacceptable and must not be allowed to continue."

However, certain authoritative voices continue to argue the role of speculators. University of California economics professor James Hamilton told the CFTC recently that the big picture driving the price of oil has been stagnating global production of crude in the face of big increases in world incomes and a spike in demand for oil products in emerging markets - not financial speculation.

"Sure it is fine to talk about (financial) speculation, but we should all be able to agree on the big picture that the real story driving the price of oil has been stagnating world supply in the face of a big increase in world incomes," Hamilton said.

Hamilton downplayed the impact of financial speculation by hedge funds and other traders on oil prices, insisting that market fundamentals are the key factor to consider when thinking broadly about the price of oil.

To back his conclusion, Hamilton pointed out that global production of crude oil, in millions of barrels of oil a day, in the past decade has stagnated, particularly between 2005 and 2009. He also cited International Monetary Fund data that showed global real gross domestic product increased 17.2% between 2005 and 2009, driven largely by growth in emerging economies.

"The big story is that global production of oil has stagnated and it is a very important event that everybody ought to be aware of and think about how this jives with tremendous demand for oil products in the emerging markets and fundamentals," he added.

The debate continues. Yet the pendulum is swinging - finally - the other way!

Source: Arab News, Saudi Arabia, September 11, 2011. Changes were made in keeping with the editorial policy of www.memrieconomicblog.org]]> staff@memrieconomicblog.org (By: Syed Rashid Husain) Mon, 12 Sep 2011 07:19:32 PST If ever there is an opportunity for the Islamic finance industry to stand up and be counted and to be creative, it is now in Libya's hour of need. As the National Transitional Council (TNC) consolidates its position as the legitimate interim government of Libya recognized by the United Nations and the Organization of Islamic Conference (OIC), albeit a potential final showdown with the diehard remnants of pro-Qaddafi forces in Sirte may still be on the cards, the business and reconstruction opportunities in various parts of the country and sectors of the economy beckoning are sizable.

The Islamic finance industry whether the multilaterals or the private sector have an ideal opportunity in Libya to demonstrate that the sector is not just about being fair weather friends and can actually be innovative in helping to revive a Muslim economy in adversity.

Libya is no Iraq, Afghanistan, Somalia or even Syria. The conduct and ambitions of the TNC augurs well for the future of the country. It is a prosperous oil producer with a small population whose innocence was brutally usurped through a military coup more than four decades ago.

The regime of Muammar Qaddafi was ambivalent to Islamic finance - on the one hand traditionally hostile to its very ethos because it erroneously or conveniently saw the phenomenon associated with Islamic radicalism; and on the other hand over the last few years allowing a limited number of Islamic financial deals to be effected.

Libya does not have a stand-alone Islamic banking law or any authorized Islamic bank. Libya is one of several IDB [Islamic Development Bank] member countries that have yet to open up its financial market to Islamic finance. But last year the Central Bank of Libya allowed the local Wahda Bank, in which Arab Bank Limited of Jordan has an equity stake, to launch ad hoc Islamic financial products on the basis what risks the products have and how these products affect financial stability.

Farhat Bengdara, the governor of the Libyan Central Bank, up till the uprising, while acknowledging the phenomenal growth of the Islamic finance industry globally remained a skeptic. "There are problems with Islamic banking with the prudent regulations and there are also ethical problems because various scholars interpret what is halal (permissible) and what is not halal, so people are sometimes confused. There is not a well-established regulation system for Islamic products because a lot of Islamic products are a risky business. We have to consider the risk side," he explained at a meeting at the London Stock Exchange during a visit in late 2009.

The good news is that the TNC is much more accommodating to a potential role for the Islamic finance industry in the future financial services sector in Libya. One Libyan banker envisages a good future for Islamic finance in the country based on the requisite legal, regulatory and supervisory frameworks.

Italy, France, Spain and Germany were by far the largest trading partners of Libya during the Qaddafi era. But Turkey had a "favored nation status" and amassed huge construction contracts in the North African country especially in the 1980s and 1990s following the rapprochement with the Middle East launched by Gen. Kenan Evren, then the Turkish president. While relations with the unpredictable Qaddafi were strained at times and payment in oil to Turkish companies even delayed on several occasions, the two countries have enjoyed a good workable relationship.

This puts Turkish banks, including the Islamic participation banking sector, in a pole position to facilitate and finance the anticipated growth in trade and reconstruction work. Asya Bank, one of the four participation banks, has strong links with Africa and has a joint venture with the Islamic Corporation for the Development of the Private Sector (ICD), the stand alone private sector funding arm of IDB. The joint venture, Tamweel Africa, invests in equity of Islamic financial institutions and extends lines of credit and other financing to banks and companies in Africa.

The IDB is in a unique position to help Libya especially in the short-to-medium term. Libya after all is the second largest owner of the subscribed capital of the IDB with 9.47% of the total subscribed capital of 17,475.6 million Islamic dinars (One Islamic dinar is equivalent to one special drawing right of the International Monetary Fund). Only Saudi Arabia has a higher share of the IDB subscribed capital at 23.61%.

At the end of 2010, according to the IDB, some $692.8 million of financing was approved for Libya, which is very small considering that Iran, which owns 8.28% of the IDB subscribed capital, had $4,753.8 million worth of financing approved by the IDB to date. The IDB similarly approved $44.09 billion worth of financing for Saudi Arabia to date.

Libya is also an equity subscriber of the four main entities of the IDB, namely the parent bank; ICD; the Islamic Corporation for the Insurance of Export Credit and Investment (ICIEC); and the Islamic Trade Finance Corporation (ITFC).

The IDB last year launched a new initiative, the member country partnership strategy (MCPS), to identify, target, allocate, implement and evaluate its financing more efficiently in member countries. This could be a good starting point for the IDB's medium-term involvement in Libya. In addition there are the bread-and-butter facilities such as humanitarian aid, technical assistance, import and export finance and development finance.

IDB entities such as ICIEC are unfazed by the impact of the Arab Spring - the protests and demonstrations that is sweeping most of the MENA region - on its business, especially political risk and investment insurance. The events in the MENA region, maintains Abdel Rahman Taha, CEO of ICIEC, are expected to affect ICIEC's business as similar to other insures of political risk. Nonetheless, ICIEC remains open for business in some of the affected countries where "we feel that the fundamentals are sound. Indeed, the corporation is ready to take calculated risks in countries where the political crisis is contained. However, it is inevitable that the crisis will eventually generate more business. In short, the region has both challenges and opportunities, and ICIEC will deal with them accordingly."

Source: Arab News, Saudi Arabia, September 5, 2011. Changes were made in keeping with the editorial policy of www.memrieconomicblog.org .]]> staff@memrieconomicblog.org (By: Mushtak Parker) Tue, 06 Sep 2011 06:20:12 PST City-based international law firm Norton Rose LLP published a paper on "Protections against unauthorized use of Sharia-compliant financial methods and structures" in July 2011 which raises several issues relating to copyright and intellectual property especially with regards to the Sharia structures.

These issues are nascent in the context of the contemporary Islamic finance movement, which only started in the mid-1970s. But they have raised some searching questions which some critics maintain, may have blurred the lines between the required transparency of a Fatwa (legal opinion) and that of confidentially of a financial structure and contract.

There have been some celebrated cases where asset management companies and Islamic banks have launched particular Sharia-compliant products which have been trumpeted as "pioneering" and "first-of-its-kind" but whose underlying Sharia structures have never been revealed because of so-called intellectual property considerations and the Sharia advisory boards sworn to secrecy under confidentiality clauses.

Questions such as "Can a Fatwa be classified as intellectual property?" and "If an Islamic financial structure is classified as confidential how can peers evaluate that the structure is truly Sharia-compliant?" are valid and should be discussed head. Some Islamic banks have even refused to make fatwas pertaining to a product public on the grounds that they are confidential and are construed as intellectual property.

The "Guiding Principles on Sharia Governance Systems for Institutions Offering Islamic Financial Services" published by the Islamic Financial Services Board (IFSB) in December 2009 sheds some light on the question of Sharia advisories and structures and confidentiality. According to the IFSB principles, "Sharia board members should ensure that internal information obtained in the course of their duties is kept confidential."

In another article, it clarifies that "confidential information here refers to information received by members of the Sharia board or Sharia advisory firm in the course of their duties that is not public and is not authorized to be made public.

This includes information received under seal, expressly marked or designated by the Islamic financial institution to be kept confidential, or relating to the deliberative processes of the institution."

Perhaps more importantly, the guiding principles expressly stress that "information that is not considered confidential includes Sharia rules and principles, reports and pronouncements/resolutions of the Sharia board published by the Islamic financial institution for public knowledge, and other information disclosed in public documents or proceedings."

In its paper, Norton Rose rightly stressed that in the field of Islamic finance significant amounts of time, effort and money are spent creating Sharia-compliant financial methods and structures. Those who have invested their resources into creating these structures often want to prevent their repeated use (usually to protect a competitive advantage rather than to create a monopoly that could be exploited by licensing the use of the structure to third parties). It goes on to examine three principal ways in which Islamic finance methods and structures can be protected by laws pertaining to copyright, patents and confidentiality.

Copyright protects the expression or physical embodiment of an idea rather than the idea itself (the latter may be afforded protection as a patent). Where it applies, copyright will provide protection and reward a creator for the effort spent in creating the work by preventing its copying. An Islamic contract structure recorded in writing, according to the paper, may be protected by "literary" copyright. It must be "original" in order to qualify for protection; this requirement will be satisfied where work is the result of the creator's effort and skill rather than having been copied from elsewhere.

Whereas confidentiality and copyright laws may protect the unlawful disclosure of a confidential legal structure or the unlawful copying of the expression of such structure, a successfully granted patent could afford protection to the Sharia-compliant method or structure itself, says Norton Rose. A patent allows the inventor to prevent unauthorized third parties from using the invention by granting a monopoly right for the duration of the patent, which will generally commence on the date of filing the application (known as the "priority date").

However, it warns that even if a Sharia compliant financial structure can be shown to be new, inventive over what is known at the time and not obvious, it may be excluded from patent protection as it is essentially a business method. Traditionally, patent regulators have been unwilling to grant patents for business methods, although this may be changing.

The United States Patent and Trademark Office, for instance, has granted a small number of patents relating to Sharia-compliant business methods, including for a "Sharia-compliant performance linked note" and for "methods and systems for issuing a convertible financial instrument" Patent applications have also been filed for methods for providing Sharia-compliant financial services, including for a "computer-system for Sharia-compliant computer-aided method for securing a Sharia compliant credit enhancement" (filing date on Oct. 7, 2003) and a "system and method of operating a Sharia-compliant payment card" (filing date on Sept. 1, 2009). However, as Norton Rose contends, these patents and patent applications relate to inventions which involve technology through which the method or structure is implemented, rather than being based on the method or structure alone.

On the other hand, confidentiality laws may protect the onward disclosure of Sharia-compliant financial methods or structure to the extent that they are not publicly known. This might provide the only source of legal protection if the method or structure is not afforded intellectual property protection.

By way of example, in order for information to be classed as "confidential" and attract the relevant protections under English law, it must be confidential in nature and disclosed in circumstances in which an obligation of confidentiality can be imported.

"A Sharia-compliant financial method or structure that is new and innovative, such as a proprietary derivative contract, will almost certainly be inherently confidential in nature. Established contractual modes and methods of finance will, conversely, be publicly known and would probably not benefit from confidentiality protections. The details of a new method or structure are most likely to be disclosed in a business setting, which is very likely to satisfy the criteria of being disclosed in circumstances in which an obligation of confidence can be imported," stresses the paper.

The IFSB guiding principles deal exhaustively with the confidentiality issues pertaining to Islamic financial institutions and contracts; and the duties and responsibilities of Sharia advisories in this respect.

The problem is that IFSB guiding principles and standards are issued under "voluntary adoption" principles and do not carry any force in law unless enshrined by individual countries though ratification and adoption.

Norton Rose concludes that rights conferred under confidentiality and copyright laws are easier and cheaper protections to secure than patent protection. However, should the inventor of a method or structure be successful in securing a patent, this right will provide more robust protection against infringement as it creates a monopoly right for the inventor. It warns however that a patent application can be a lengthy and costly process and a patent is only enforceable in the jurisdiction in which it is granted.

In the meantime, the law of copyright and law of confidence (together with any contractual rights that can be enforced) will continue to form the primary options for legal protection of Sharia-compliant financial methods and structures.

Source: Arab News, Saudi Arabia, August 29, 2011. Changes were made in keeping with the editorial policy of www.memrieconomicblog.org.]]> staff@memrieconomicblog.org (By: Mushtak Parker) Mon, 29 Aug 2011 06:49:45 PST TRIPOLI: Libya's new leaders in the post-Qaddafi era, whoever they may be, start from an economic baseline that their counterparts in Egypt and Tunisia can only envy: How to best manage the country's vast oil and financial assets.

But doing that will be tricky, analysts told The Media Line on Monday as rebel forces entered the capital of Tripoli, putting them in striking distance of ending the 42-year rule of Muamar Qaddafi.

The first order of business will be to establish some form of workable government and to get oil exports up and running, analysts said. Long-term, Libya faces the challenges of preventing corruption and waste from squandering its oil wealth as well as finding ways to diversify the economy, which is now almost entirely based on oil and related, services, and to create jobs.

"One of problems that Libya always has faced in hydrocarbons is that it didn't have any viable industry apart from oil and gas. Now, the oil and gas is offline," Geoff Porter, of the political risk form North Africa Risk Consulting, told The Media Line. "The question is how well the Transitional National Council (TNC) will be able to manage the assets."

On paper, Libya is prosperous. Before fighting broke out in February, it was producing 1.6 million barrels of oil a day. The country has an estimated $150 billion in assets, including stakes in British publisher Pearson, Italian bank UniCredit and the automaker Fiat, and very little debt. Gross domestic per capita is about $14,000, putting it on par with many eastern European countries.

After suffering years of Western sanctions in connection with Libya's role in the downing of a Pan Am jet in 1988, Qaddafi made amends with the West and the country began to open from 2006 to foreign investment. Oil companies poured in, followed by makers of consumer products and the tourism industry.

But Libya also faces serious problems. Although it had made some moves toward reforming its government-dominated economy under Qaddafi, the country has little potential for job-creating sectors like agriculture or industry. Qaddafi ran the Libyan state as a private enterprise, so he leaves behind few institutions or experienced managers. Close to a third of the labor force was unemployed even before the civil war brought the economy to a standstill.

Although rebels stanched the flow of oil from the country's Mediterranean ports early in the conflict, an official of Libya's Arabian Gulf Oil Company (AGOCO) told Reuters this week that production could resume in as little as three weeks - if security is restored. But Porter said no one is sure about the extent of damage and the lengthy shutdown of operations is likely to have created problems, such as the buildup of waxy deposits in pipelines, which will take time to fix.
The problem is that Libya doesn't have time to wait. Some 95 percent of its export revenues come from petroleum, which it needs to pay for essential imports like food and manufactured goods. Before the war, it was importing 75 percent of its food.

While Libya can probably start exporting small quantities of petroleum, Porter estimated it would take three to six months for quantity deliveries to begin. In the meantime, countries may have to come to its aid with loans and other assistance.

Looking further down the road, Libya needs to continue developing its energy assets, said Charles Gurdon, managing director of the London-based political risk consultancy Menas Associates. Although international energy companies (IOCs) returned to Libya after 2006, they have very little oil to date and many had abandoned their efforts.

"The main thing for Libya short to medium term is to get the IOCs to come back," Gurdon told The Media Line. "It may have to change terms and conditions being offered, which were heavily skewed in favor of the government. You had some companies in Libya that accepted deal where they would only receive seven, eight or 9% of any oil they found. The other 93% went to the state. That's not really viable."

If it is ready to business, however, Libya has reserves to be exploited. It has yet to explore for oil offshore, nor has it troubled to tap what are assumed to be extensive natural gas reserves, Gurdon said.

Oil is critical for the economy's long-term future because the country has few other prospects for industrial and agricultural development, analysts said. Qaddafi invested a lot in education, sending Libyan abroad to university, but there were no real jobs to come home to, leaving a dearth of managerial talent. The industry that exists is often propped up by oil revenues.

People tell the story of Qaddafi visiting a Libyan chocolate factory, only to discover that the chocolate was made it Switzerland while the plant simply wrapped it in "Made in Libya" cellophane. The success of other Arab oil states using their petroleum riches to investment in new industries has been mixed at best.

"Libya has very few natural resources other than oil or gas. The idea that it will turn into a major industrial power is not going to happen. In the past, a great deal of money was spent on white elephant projects," said Menas' Gurdon. "Tourism is certainly a possibility. But it's not going to have mass tourism as Egypt or Tunisia. It would work in terms of soaking up unemployment."

But the biggest challenge of all may be getting a new government into place and functioning, analysts said. Six months of civil war have not produced a coherent opposition leadership and the transition to political stability may well be long and arduous. Porter, for one, is skeptical that the TNC will succeed.

"It's going to be hamstrung by infighting, by jockeying for power and over the distribution of resources to constituencies," he said. "The likelihood of violence is high but the level of violence will be low. The possibility of the TNC being completely incompetent is pretty high."

Source: Arab News, Saudi Arabia, August 23, 2011. Changes were made in keeping with the editorial policy of www.memrieconomicblog.org ]]> staff@memrieconomicblog.org (By: David Rosenberg) Wed, 24 Aug 2011 06:16:58 PST