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The 2011 guide toN
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Published in conjunction with:EFG HERMES
Discovering Value In MENA Equities
Research in the fore as the region takes off 2
Overview: The region’s time has arrived 3
Strategy: Prospects grow for opening up Saudi Arabia 6
The preference for a move to domestic exposure 7
A tale of two economies 8
Banks continue to rely on government spending 9
Saudi banks look to the young 10
Real estate: opportunities in diverse markets 11
Industries enjoy a unique global competitive profile on 12low energy prices
Telecoms: Saturation time for voice opportunities 13
New spending power and investment opportunities 14
EFG Hermes contacts 15
This guide is for the use of professionals only. It states the position of the market as at the time of going to press and is not a substitute for detailed local knowledge.
Euromoney Trading LtdNestor HousePlayhouse YardLondon EC4V 5EXTelephone: +44 20 7779 8888Facsimile: +44 20 7779 8739 / 8345
Chairman and editor-in-chief: Padraic FallonDirectors: Sir Patrick Sergeant, The Viscount Rothermere, Richard Ensor (managing director), Neil Osborn, Dan Cohen, John Botts, Colin Jones, Diane Alfano, Christopher Fordham, Jaime Gonzalez, Jane Wilkinson, Martin Morgan, David Pritchard, Bashar Al-Rehany
Editor: Sarah MinnsDirector of research guides: Mike Carrodus Cover illustration: Sarah MinnsPrinted in the United Kingdom by: Wyndeham Roche, UK
© Euromoney Trading Ltd London 2011Euromoney is registered as a trademark in the United States and the United Kingdom.
Contents
Research in the fore as the region takes off
The Middle East region offers investors an exciting opportunity. It
has two highly prized assets: favourable demographics and sound
economic fundamentals.
The demographic trends in the region are very positive. Some 60%
of the population is under 30 years old, presenting an enormous
and under-used resource. Coupled with the young and growing
population are diversified economies at an early stage in the
industrial life-cycle, backed by a wealth of natural resources.
As the economies of the region move forward, we expect the capital
markets to become deeper and more sophisticated. This would lead
to an increase in the number of listed equities across the region. It
is extraordinary that listed stocks in a region with this vast potential
account for a fraction of the capitalization of the global emerging
markets. Equally important is the need for further development at
the levels of corporate governance and capital market regulation.
While this area of the industry has moved forward in leaps and
bounds over the past decade, more can be done. Improving access
to markets and information will serve this region better and will
unleash its underlying potential.
Some companies have moved towards international standards
and practices faster than others. The overall changes that have
taken place at the corporate level during the past 10 years towards
becoming more ‘investor-friendly’ are nevertheless impressive.
Standards of transparency in some companies match the best in
emerging markets.
Such improvements in the access to data have enabled research
departments greatly to raise their game. The research published has
become more useful, more targeted and ultimately more conducive
to making a well-informed investment decision.
To make the most of the region’s opportunities, investors need top-
quality research. That is where EFG Hermes comes in. EFG Hermes
has one of the largest teams of dedicated analysts in the entire
MENA region, offering investors first-class coverage of the Middle
East and North Africa. Our people are on the ground across the
region, watching the latest developments and, most importantly,
putting them into a useful context.
With this opportunity ahead of us, with the prospects of the region
so attractive and within our grasp, research can only get more
important, more valuable for you as investors and more fun for us
as practitioners and observers of one of the most dynamic regions
in today’s global economy.
Th e Middle East is becoming the most dynamic region on earth, poised to move forward at an extraordinary rate. Investors need to take a closer look. By Wael Ziada, head of research, EFG Hermes
Wael Ziada, head of research, EFG Hermes
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The region’s time has arrivedThe Middle East story is a region in the throes of modernization and globalization. It is an untapped resource with latent potential. Fresh thinking from its leaders has the power to harness this resource. By Nick KochanThe MENA region is on the brink of a massive re-evaluation. This is
based on many factors. First of all, the economic strength of many of
its hydrocarbon-rich economies now ensures that it is particularly well
positioned to emerge from the global economic crisis with its industries
enhanced and its global investment portfolios widened. Second, its
primary resource of oil and gas has shown itself a sustainable source
of extended income and wealth. Third, the current political changes
put it at the threshold of a new era of economic development, once its
transition is accomplished. Fourth, its market regulators have taken on
board the necessary changes to laws and regulations, so moves are now
in place, albeit moving at a slower pace than many would like, to open its
markets to foreigners. This will have very profound implications for the
global investing community as well as for local companies. Fifth, govern-
ments have shown foresight in embarking on a series of diversifications,
so reducing dependence on oil and gas. Finally, global investors, alert to
these seismic developments, are preparing to move the region as an as-
set class bit by bit from frontier status to emerging-market status.
Post-global economic crisisMost but not all Middle Eastern institutions have tended to take a
highly conservative stance to investing outside their own country, let
alone their own region. Their preference for markets they understood,
the fact that many of their richest institutions were state-owned or
controlled, and the fact that their wealth was such that they did not
need to leverage it with currency and other risks entailed in global in-
vesting, ensured that funds were invested in highly conservative instru-
ments when the international crisis broke in 2008. It also meant that
their banks were domestically orientated ensuring that they were not
exposed to risks that they did not understand and that were outside
their control. This stance, which looked so risk-averse before the crisis,
served the region well.
It has produced many institutions and companies, both state and
privately owned, which are sound, well managed and financial secure.
Recovery in external and private consumption activities has been
notable in Dubai. This economy was regarded as the most outward-
looking pre-crisis but, when international investors in real estate were
hit, Dubai’s real estate markets – and companies linked to its develop-
ment – took the brunt. This impacted on the Dubai government, which,
in 2009, was forced to sell $10 billion-worth of bonds to the UAE to
ease its liquidity problems. Today, Dubai is seeing strong recovery, with
its plans to be the global financial hub of the region – symbolized by
its development of the Dubai International Financial Centre serving
global financial institutions and markets – unaffected.
The oil priceIt has often been observed that the region divides neatly between
those that produce oil and gas and those that do not. The produc-
ers have been the beneficiaries of a strengthening of the global oil
price over the past decade. Indeed, Monica Malik, EFG Hermes chief
economist, believes that an oil price of $100 a barrel for Brent crude is
comfortable for GCC fiscal positions, with budget breakeven oil prices
below this level except for Bahrain, despite the robust growth in gov-
ernment spending over multiple years.
The rise in oil prices means that growth is expected. For GCC coun-
tries, growth is predicted to reach 7.8% in 2011. For Qatar, EFG Hermes
expects real GDP growth of 11.5%. Growth is also expected in non-oil
sectors in these countries. The growth of non-oil sectors in 2011 is ex-
pected to be about 5.3% in real terms. The expansion in the non-hydro-
carbon sectors is partly linked to government investment programmes,
in particular in Saudi Arabia and Qatar.
Ahmad Shams El Din, EFG Hermes director, research, materials and
chemicals, says: “The strength of the oil price benefits governments
that have oil resources, local countries that produce and refine the
oil, and local countries that buy oil at low and subsidised prices for
incorporation in their products. These companies are most particularly
fertilizer and chemical companies. They have a competitive edge on
their global competitors by being able to buy the energy raw material
at much lower prices than other producers, who are forced to pay
global energy prices. The difference between the local and internation-
al energy price is the basis of their profitability.” The concern for these
Source: IMF WEO Database
Oil exporters cumulative current account surplus since 2000
companies is the trend towards the removal of subsidies in Egypt and
Saudi Arabia, as governments seek to support their budgets. The oil
price, it has been noted elsewhere, would need to fall to $30 before
international producers could match local firms on raw material costs.
This extended period of high oil prices has led to the building of
substantial sovereign wealth funds in the region’s main producers and
it has led to budget surpluses in many countries, in particular Qatar
and Kuwait – the strongest economies in the region.
Kuwait, for example has two reserve funds – the Fund for Future
Generations and the General Reserve Fund – both managed by
Kuwait Investment Authority, which took seventh place in the SWF In-
stitute Ranking in 2010. KIA has a 25% stake in Kuwait Finance House,
which in 1977 was established as the first bank operating according
to Islamic Shariah law.
The prospects of political changePolitical risk has been an endemic feature of the region since it took
its political shape over the course of the last century. Today’s upheaval
in a number of its members has added a new dimension to that risk,
but scarcely adds to its severity. Indeed, there had been a prevailing
sense for a number of years that a generational change in leadership
was long overdue. The means with which transition would be ac-
complished were as yet ill-defined. We now have a better sense of the
means for this disruption.
The importance for investors of the transition in Egypt, Libya, Tunisia
and potentially Syria, the four countries where change has been or
is in the process of being accomplished, is less the form or colour of
regime that results than the speed and clarity of the process. The longer
the process of governmental shift, the greater the scope for investor
concern. The decline in tourism, especially to Egypt, and the collapse
of FDI levels represent predictable short-term shocks, the result of the
instability created by political disruption, says Jan Pawel Hasman, EFG
Hermes lead analyst on real estate and tourism.
That said, the speed with which the new national leaderships, replac-
ing former unelected leaders and their families, have set about building
institutions gives confidence that the new map will be drawn quickly.
While the look of that map is less important than the speed with
which it is produced, some thought needs to be given to the impact
of the change on economic factors. The new leaders have given
little indication of economic policies. Many of these leaders are little
known and their qualifications for economic management have yet
to be tested. Their prevailing democratic approach would suggest
that they anticipate delegating and distributing economic wealth
from the centre; this represents a marked change from the approach
of their predecessors, who retained wealth in a few hands. Wealth dis-
tribution will benefit consumers and domestics markets. It will also,
over time, raise the penetration of banks and access to household
credit in the region.
The outlook for Tunisia, for example, in the wake of its election, is
promising. The interim government announced a $1.5 billion stimulus
package and requested help from the World Bank for a programme
to increase jobs, improve transparency, increase social and economic
inclusion and support private sector-led growth. The moderate Islamist
Ennahda leaders, recently elected, have endorsed this policy.
Political change in many regional countries has prompted others
to reward loyalty. The reserves of accumulated wealth have enabled
wealthy local countries, notably Saudi Arabia and Qatar, to increase
spending on government salaries, with state employees benefiting
from pay hikes of 60% in Qatar. Private sector institutions have followed
suit, giving outsize pay increases to employees. They have come under
pressure from central authorities to restrain retail prices.
This injection of liquidity has underpinned domestic commercial
banking and consumer stocks, while boosting GDP growth. This may
be seen as a windfall for local economies, and introduces an element of
stability from which investors can benefit at a time when international
New beginnings in Egypt
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markets are experiencing uncertainty and seeking new directions and
fundamentals are being re-evaluated. “Consumer, banking and retail
stocks have been particularly dynamic over the last year,” says Wafaa
Baddour, EFG Hermes director research, consumer.
The timing of the redistribution is well judged as leaders begin
to understand the power of their demographics. The growth in the
Middle Eastern population presents a valuable resource for builders
of economic growth. Failure to harness this resource carries risks, as
the recent political unrest demonstrates, but offers important rewards
when harnessed efficiently. All leaders face the challenge of dealing
with unemployment, although the problem is especially acute in Egypt
(the largest country by far in the region with a population of 84.5 mil-
lion), where some 30% of young people are without jobs. The country’s
macro-economic fundamentals are also challenging. Egypt’s deficit
represents about 8% of its GDP, general inflation stands at 10% and
food price inflation is running at 17%. Prices for staples such as rice and
sugar rose by 10% even after the revolution, in the month of June.
Modernization of economies and marketsBoth at a corporate, at a political and at an economic level, investors
can see a willingness to engage with international standards of gov-
ernance. “This will enhance efficiency and transparency while building
confidence in the boardrooms and governments. At a corporate level,
there are clear signs that Middle Eastern companies have embraced
international accounting, banking and business rules of engage-
ment,” says Wael Ziada, EFG Hermes head of research. So international
accounting standards are applied by many companies; Basle II – and
increasingly Basle III – liquidity and solvency levels have been adopt-
ed by all banks in the region. Stock markets across the region are
showing a willingness to remove restrictions on foreign ownership of
stocks, although many would like to see this process moving faster, in
particular in Saudi Arabia. The modernization of Saudi companies is
demonstrated by its inclusion at number 12 in the ‘Ease of Doing Busi-
ness index’, compared to a regional MENA average of 93.
On a political level, the more conservative countries, like Saudi
Arabia, are allowing women to vote in council elections, while
parliaments, even in the more traditional monarchies, have received
enhanced powers. The impact of the Arab Spring is likely to further
this process.
The need for diversificationThe regional markets will gain further investor support as they build
more diverse economies and industries. Oil dependence exposes the
country to the cyclical price movements of commodities. Limitation
on oil supplies and the long-term prospect of replacement of oil by
alternative energy sources adds further instability. Countries like Bah-
rain, which has built up a substantial aluminium sector, show the way
forward to a more diversified economy. Bahrain’s strength in Shariah-
compliant banking further enhances the economy. The Saudi govern-
ment is improving infrastructure; in particular it has plans to build six
‘economic cities’ to diversify its economy.
By 2020 Oman hopes to reduce oil revenue to just 9% of its
income, by boosting income from sources including tourism, re-
export, heavy manufacturing and information technology, through
its Knowledge Oasis Muscat complex. Belatedly the state is starting
to exploit its mineral wealth, including chromite, dolomite, zinc,
gypsum, silicon, gold, copper and iron. Libya also has a diverse
economy, with 20% of GDP accounted for by non-oil sectors, from
processing of agricultural goods to (more recently) the production
of iron, steel and aluminium. The leaders of the National Transition-
al Council have made overtures to international investors to seek
participation in rebuilding its war-torn infrastructure.
Re-rating of the regionThe culmination of the factors outlined above has been a re-
assessment by global indexes of the Middle East Region. The
perceived rigidities in the governance of the region’s markets
and companies, rather than the size of its economies, meant that
it been allocated ‘frontier’ status, and was included in frontier
indexes.
The region’s capacity to show that its institutions are sound, are
embracing more modern governance standards and are increasingly
outward-looking has been taken on board by international investors,
says Ziada. This message will lead in time to its inclusion – although
not all countries will move simultaneously – in the emerging market
bracket.
ConclusionThe Middle East story is powerful and convincing. It is based on
clear evidence that this is a region in the throes of modernization
and globalization. It is, in a sense, an untapped resource with latent
potential. Fresh thinking from its leaders has the power to harness this
resource. The new look of the Middle East will be forward-looking and
optimistic, at a time when many established and developed markets
look old and tired. That is the Eastern Promise. The region’s time has
only just arrived.
2011 GCC budget breakeven oil price ($/barrel) Potential for stock market deepening in UAE and Egypt
Source: Bloomberg, Stock ExchangesSource: Ministries of Finance and EFG Hermes estimates
Strategy: prospects grow for opening up Saudi ArabiaSaudi Arabia and its neighbours are taking cautious steps towards opening up their equity markets to foreign investors. By Nick Kochan
Saudi Arabia has long maintained a policy that prohibits foreign inves-
tors owning shares on its exchange. Indeed, it is the last frontier market
to exclude direct foreign ownership of shares. Yet investors have long
watched with great interest a market that is the most heavily traded in
the MENA region.
They also witness some signs of an opening up in the kingdom, albeit
at a cautious and conservative rate. The government has begun to
permit private sector and foreign investor participation in the power
generation and telecom sectors. As part of its effort to attract foreign
investment and diversify the economy, Saudi Arabia acceded to the
World Trade Organization in 2005 after many years of negotiations.
As a sign of such an opening up, foreigners have been allowed to
make indirect investments in the Saudi stock market. “This has to be
done via an equity swap. Foreigners are not allowed to own the shares
directly; rather, they own the derivatives. The investor is able, through
this mechanism, to benefit from the change in price of the underlying
asset but does not have actual ownership rights to the equity itself,”
says Fahd Iqbal, EFG Hermes director research, strategy. This suggests,
in the view of some observers, that the kingdom’s markets are making
their way towards allowing foreigners to own shares.
The impact of the opening up of Saudi Arabia to foreign share owner-
ship would be considerable given that it has both greater liquidity and
a greater breadth than any other regional market. It is likewise surpris-
ingly efficient regarding how shares are priced. Investors have noted
the market’s efficiency in pricing.
Restrictions elsewhereThe exclusion of foreign investment in local markets in Saudi Arabia
represents the most comprehensive restriction but it is far from the only
country to impose such a barrier. Restrictions also exist in the UAE and
Qatar, although they are less comprehensive than those in Saudi Arabia.
In the UAE, for example, federal laws require nearly all types of foreign-
owned company to have at least 51% of their shares owned by a UAE
national or a company wholly owned by UAE nationals (in the case of
some activities, this threshold is even higher). Where these restrictions
have been eased at federal level in the past, this has been to the extent
of allowing only citizens of other GCC member states exemption from
the 51% UAE national shareholder requirement. However, the “govern-
ments of the individual emirates have sought to encourage FDI by allow-
ing foreign investors 100% ownership of companies operating in the free
zones,” says Murad Ansari, EFG Hermes director research, banking.
These restrictions may be lifted as the UAE and Qatar, currently treated
as frontier markets, seek to negotiate their reclassification as emerg-
ing markets. The designation as ‘frontier market’ typically applies to
economies and financial markets that are less developed than emerging
markets and that have more restrictions on foreign ownership.
Over the past few years Saudi Arabia has been taking slow but
steady steps to liberalize and deregulate a wide variety of aspects of its
economy, including the financial sector. That has slowly opened it up to
non-Saudi national investors.
Any change in rules governing foreign involvement would come from
the Capital Market Authority. This was established in July 2003 under
the Capital Market Law (CML) by Royal Decree No (M/30). The CMA is
the sole regulator and supervisor of the capital market, it issues the
required rules and regulations to protect investors and ensure fairness
and efficiency in the market.
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Saudi Arabia has the potential to be a sizeable emerging market
Source: Bloomberg
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The preference for domestic exposureIn the current challenging global environment, investors are finding succour in domestic demand. By Nick Kochan
Strategic directions are currently determined by two key factors. On the
one hand, there is an unprecedented level of uncertainty in international
markets, reflected in a macro-economic weakening, with the oil price and
many commodity prices under pressure. On the other hand, some posi-
tive developments in local markets are visible, with particular strength
in domestic demand-driven stocks – such as banks and retailers – which
have benefited from government domestic spending, according to
Simon Kitchen, EFG Hermes vice president research, strategy. These two
factors justify emphasizing domestically-focused stocks and limiting
exposure to the global cycle. This decision has been justified by the ongo-
ing uncertainty and continues to determine our posture.
As a result of this re-orientation, EFG Hermes currently prefers stocks with
exposure to domestic demand like banks and retailing, to those more
exposed to global demand, such as petrochemicals, says Kitchen. Sectors
related to infrastructural investment are also likely to perform, as govern-
ment focus on building infrastructure – especially in Saudi Arabia – has
not shifted.
The challenge to investors building this domestically-oriented portfolio
is undoubtedly the limited number of quoted players. “The listed sector
does not have the benefit of the wide range of names to be found in
Western Europe,” says Wael Ziada, EFG Hermes head of research. However,
both Saudi Arabia and Qatar have utility companies, Saudi Arabia and
Egypt have consumer companies, while GCC countries have significant
listed pharmaceutical concerns. The region has a number of telecommu-
nications operators, although these are mostly state controlled.
Low beta and high-yield stocksIn addition to the traditional stocks, Fahd Iqbal, EFG Hermes director
research, strategy, says investment should focus on a number of other
criteria. First, there are companies with a low beta, that is to say that
stocks that are relatively less affected by market sentiment and market
movements. Such companies are likely to have assets with underlying
quality, which may not be fully reflected in the prevailing price. Low beta
assets fulfil the strategic need for a defensive orientation. Such a strategic
view will tolerate flat-lining on the basis of trade cycles, and serve as a
hedge against volatility.
Second are companies that offer attractive dividend yields. The MENA
region is unique in that companies tend to have a structurally higher divi-
dend payout ratio, in part due to the prevalence of state-owned entities.
Focusing on low beta and high dividend yield names can limit downside
risk for investors.
EFG currently limits its exposure to the global cycle, but fertiliser stocks
are an exception. This sector differs from other more cyclical sectors as it
is fundamentally well underpinned. Firstly, the peak agricultural season
arises in the fourth quarter. Secondly, this period coincides with high
export tariffs being implemented in China (the Chinese government
implements high tariffs periodically and over a well-defined window).
During this period, Chinese exports do not enter the market, thus keep-
ing supply tight and prices sustained. The agricultural story also has very
compelling long-term supportive fundamentals from population growth
and demographic changes.
The strength of the domestic story is well grounded, though there is
a risk of a slowdown in the face of a sharp economic downturn, in turn
leading to a shock to oil prices. However, sustainably lower oil prices are
not expected and EFG Hermes maintains expectations of close to $100 a
barrel, says Iqbal.
Low correlationCorrelation between global emerging markets and global developed
markets has been consistently high – over 85% or 90% – since 2006. On
the other hand, the correlation of the MENA region to global markets has
varied between zero and up to 50%. In addition, the trend has not been a
very steady one, with correlation increasing sharply as a result of shocks
and unexpected global events. In short, correlation between MENA and
the rest of the world is low, providing a strong opportunity to at least
diversify your portfolio, says Kitchen. This suggests a compelling reason
for foreign investors to consider diversifying portfolios to include MENA
representation.
The realization that today’s frontier markets stand at the point where
emerging markets stood 20 years ago is a further indicator of the region’s
potential for predictable growth. Emerging and global markets have devel-
oped since 1980 from a low correlation in the early period, of some 20% to
80% in the later period. Such a correlation was stimulated by an increase in
foreign investment and foreign market penetration. The MENA markets can
be expected to take a similar path, with the move from frontier, through
emerging, to a fully mainstream investing destination.
Middle East & North African markets have a low correlation relative to global markets
Sou
rce: EFG H
ermes C
alculatio
ns
A tale of two economiesThe high price of oil is sustaining the GCC countries but elsewhere in the region political instability is a disruptive factor. By Nick Kochan
Two factors have been crucial in determining economic conditions in
the region in 2011 and going forward. The first is the recent political
turmoil, termed the Arab Spring. A number of countries have been af-
fected; some have lost governments, others have had to take measures
to forestall instability. Either way, the impact on the economy and
stability has been dramatic. The other factor is the strong government
spending, especially by GCC counties supported by FX reserve positions
and the price of oil. Oil, the key economic driver of the GCC countries,
has held up well, and is likely to continue to do so, in the face of instabil-
ity on international markets.
For countries in political flux, the medium term will be governed
by the speed with which countries make their transition to a stable
government. In short, “next year is going to be a very important year in
defining the new look of many countries, notably in Egypt and Libya,”
says Monica Malik, EFG Hermes chief economist.
Both are undergoing profound changes. Egypt is starting on parlia-
mentary elections, which will last from November 2011 to March 2012.
This will be followed by the drafting a new constitution and presiden-
tial elections. The process is likely to extend to H2 2012. This is creating
uncertainty, says Mohamed Abu Basha, EFG Hermes Associate, for
research, economics. He says this is made none the easier by the fact
that many of the leading players are relatively inexperienced.
The result of the political developments and uncertainty has been a
notable deterioration in the key external and domestic components of
the economy, including a steep decline in investment. FDI into Egypt
has been nearly zero since the revolution, compared with an average
of $8 billion annually in the previous two year. Foreign purchase of
Treasury bills has fallen sharply, pushing up the cost of funding the
deficit. Likewise, tax revenues will likely fall with the weaker economic
activity, a further blow to the fiscal position.
Spending to stay afloatMeanwhile, for the GCC the price of oil has proved a stabilizer and has
supported sentiment, along with the robust government spending. De-
spite a period of jitters in international markets, the price of Brent crude
has remained above $100 a barrel. Foreign exchange reserves in Kuwait,
UAE and Saudi Arabia stand at over 100% of GDP, with Qatar seeing
strong growth in its reserves and fast approaching this level. “These coun-
tries are in a relatively strong position globally and able to spend heavily
to keep economies afloat and populations supportive,” says Malik.
Government spending is expected to remain strong by historical stand-
ards in 2012, but unlikely to maintain the record levels seen in 2011. Thus,
while the headline growth numbers are likely to weaken in 2012 with
the deceleration in government spending and lower production levels,
the outlook remains strong. EFG Hermes expects government spending
to remain solid even in the event of a fall in the oil price as long as oil
remains above $70 a barrel for Brent. With their strong reserve positions,
GCC countries can afford a fiscal deficit.
Qatar and Saudi remain EFG Herme’s top economic picks for the
region, with greater progress being made with the implementation
of their investment programmes, along with solid private consump-
tion activity. Meanwhile, Dubai is seeing a strong performance on the
external side, which is also resulting in a pickup in domestic consump-
tion activity.
However, high oil prices have added additional pressures on oil
importing countries, which have been forced to continue paying
very significant government subsidies on fuel, along with food prices.
Across the region, governments’ ability to pass on rises in fuel prices
has been limited by political positions. Morocco has made the most
progress in implementing fiscal reforms in the past and has had the
most liberalized period of prices, which have passed through to the
consumer.
The non-GCC countries have also increased spending, but are not in
the same position as the hydrocarbon exporters. Moreover, these coun-
tries have been dependent on FDI to support investment, but since
2008 this investment has been falling with global developments as fo-
cus has shifted to domestic needs. Nevertheless, in Egypt, for example,
there is pressure to reform subsidies. They will also need support from
foreign countries to support their fiscal deficits. Egypt is in discussions
to conclude agreement with the IMF over a funding package, which is
absolutely critical.
Digesting reformPolitical reforms are being attempted in the monarchies of Jordan
and Morocco to ensure stability. But there are concerns as to how
far-reaching these reforms will be, and the extent to which they will
be accepted. The economies of both countries are digesting these
changes, while analysts assess their impact. Jordan is very dependent
on GCC funding, in terms of both FDI and grants. Morocco has a more
solid economy, but has stronger external linkages to the eurozone.
GCC countries have also increased their focus on job creation, a key
challenge for the region, along with some gradual signs of political
reforms.
Algeria is not seeing the same political challenges, despite a history
of political instability. Algeria has also increased spending to limit po-
litical and social tension. Nevertheless, despite having gas reserves, the
structural position of the economy is weaker than the hydrocarbon-
rich group. Recent legislation has been regarded as less than helpful to
foreign investors, says Malik.
The closure of Lebanon’s border with Syria, as a result of unrest in
Syria, has taken its toll on Lebanon, which relies on Syria to provide its
only land route to the Levant hinterland. Lebanon has also been host
to many tourists from Syria and Jordan. Domestic issues also remain
for Lebanon, including challenges linked to the Special Tribunal for
Lebanon and the need for fiscal reform to tackle its debt burden.
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Banks continue to rely on government spendingPrivate corporate investment in the GCC is showing signs of recovery after the financial crisis, but most banks remain dependent on public spending for lending opportunities. Elsewhere, political instability has been a brake on investment. By Nick Kochan
Government spending has been the main driver of growth for GCC
banks over the past couple of years, since the global financial crisis.
This is likely to remain a key driver of lending opportunities for banks
in most parts of the region over the short term, and especially in Qatar
and Saudi Arabia. One possible exception is Kuwait, where implementa-
tion of planned government spending tends to lag behind other GCC
countries.
The private sector, GCC-wide, went through a deleveraging phase
in the wake of the financial crisis. We now see some signs of recovery,
in particular in Qatar, with regard to private corporate investment.
“This is likely to be a precursor of wider growth, although that has yet
to come through outside the strongest hydrocarbon-rich countries.
Increases in salaries to Qatar government employees have been
matched by some private companies and this will lead to higher retail
spending, fuelling retail lending demand,” says Elena Sanchez-Cabe-
zudo, EFG Hermes director research, banking.
Loan growth slows in Egypt on political uncertaintiesOutside the GCC, private sectors retain their momentum, in
particular in Egypt and Morocco. However, political instability has
restrained corporate investment in Egypt during the period of
interim government. The market awaits November’s elections and
corporate borrowers are in a wait-and-see attitude pending the
outcome. Clearly they would like to see the elections run smoothly
and be followed by the introduction of suitable policies. Recent
developments have hampered banking sector growth very signifi-
cantly, compared with 2010, which was a very strong year. That said,
some private sector banks continue to report growth in the loan
book, although this tends to be the financing of working capital
and short-term lending to corporates rather than project finance or
lending related to investment.
Nevertheless corporate investors remain on the whole positive
about the medium- and long-term growth potential of the Egyptian
economy, and corporate investment might resume next year follow-
ing some clarity over political transition in the country.
Qatari growthIf one looks for areas of growth within the GCC, the places to look
are Qatar and Saudi Arabia, where buoyant hydrocarbon sectors
power the economies forward. There is also a resumption of real
estate buoyancy, further adding to growth. Government spend-
ing in Qatar is not only focused on the hydrocarbon sector but
also on infrastructure, with large projects providing opportuni-
ties for banks’ asset growth. The retail sector in Qatar has enjoyed
some spill-over benefit from government spending and the salary
increases announced in September, coupled with regulatory cuts
in retail lending rates in April this year, both factors being positive
catalysts for growth in personal lending.
Qatari banks have been key financiers of the government’s
investment programme, and the 10% increase in the share capital
in a number of Doha Stock Market (DSM)-listed banks by the Qatar
Investment Authority (QIA) in January 2011 has to be seen in the
context of the Qatari government ensuring that banks are in a posi-
tion to fund the investment programme.
Moroccan banks move aheadIn the wider region, one should acknowledge how Moroccan
banks have developed. Banking services have outpaced those else-
where in North Africa and beyond. The development of leasing and
factoring, for example, shows that these institutions are prepared
to move outside basic banking business, giving them an important
edge over some international competitors. “The largest banks have
expanded outside their domestic market and moved into sub-
Saharan African countries, such as Senegal and Cameroon, as well
as Tunisia,” says Sanchez-Cabezudo.
Growth in the retail banking sector in Morocco has been ahead
of that in Egypt, the closest market comparator in terms of income
per capita and the structure of the economy. The two countries also
have low hydrocarbon reserves per capita, compared with else-
where in the GCC. Both countries are dependent on external flows,
such as tourism and remittances, exports and FDI.
Moroccan banks have also benefited from a surge of activity in
the local economy prompted by a fall in interest rates over at least
the past decade. This has brought the cost of debt to levels much
lower than many countries in the region, in particular Egypt. The
Moroccan mortgage market has been a beneficiary of this macro-
economic trend.
Resilience in LebanonBanks in the Levant, in particular Lebanon, have shown considerable
resilience throughout its own internal political instability. Banks are
the main lender to government in Lebanon, where public debt-to-GDP
levels are around 140%. Budget deficits are funded by the banking
sector, while 50% of assets are either lodged with the government or
the central bank. One of the main sources of income to banks is their
lending to the government. The stability of the banks is further founded
on low loan-to-deposit ratios of between 32% and 35%.
Lebanese banks have expanded into other regional markets, in
particularly focusing on countries with low penetration levels and
low levels of competition. Lebanese banks can be found in Syria,
Egypt and Sudan, enabling them to diversify.
Saudi banks look to the youngSaudi Arabia’s young and growing population offers a long-term opportunity for its banks, which also benefit from the fact that the government has the resources to keep investing during the downturn. By Nick Kochan
The biggest opportunity for Saudi banks is that the country has a
young and growing population. Almost 60% of the population is under
30. Large numbers of young people are entering the labour force and
will require banking services. This is a long-term opportunity.
In the short term, Saudi banks spent 2009 and 2010 dealing with
asset-quality issues, in particular the prevalence of non-performing
loans. These have been largely addressed. “Banks have very strong and
defensive balance sheets and high capita-adequacy ratios. These enable
them to lend in a growing economy,” says Murad Ansari, EFG Hermes
director for research, banking.
The Saudi government has the ability and muscle to spend its way
through the economic downturn, thanks to reserves of more than $400
billion. The government has announced a number of projects, show-
ing its intention to continue spending to improve infrastructure and
diversify the economic base. This is also the strongest feature of Qatar,
the region’s fastest-growing market, but Saudi Arabia is not far behind.
Saudi Arabia moves at a slow pace but offers a strong short-term and
long-term opportunity for banks, enhanced by the quality of domestic
assets on their balance sheets.
As far as compliance with international regulations goes, Basle III is
still a work in progress for the region’s banks, who have sufficient time
for implementation. But Saudi banks are already compliant with most
of the basic regulations covering levels of capital and liquidity. “Saudi
banks are completely Basle II-compliant, and the regulator is expected
to move in line with international standards. More changes can be
expected but on most benchmarks they are in step,” says Ansari. The
banks typically use low levels of leverage, and have used deposits and
existing capital to grow their business; their level of borrowing from
international markets or external institutions is relatively low.
Their position is further enhanced by the fact that there is no hybrid
capital in the banks. The majority of capital is tier 1, so they are strongly
positioned to meet international requirements.
Conservatism reinforces stabilityBanks in the region more widely have tended to be conservative, rein-
forcing their stability. This has been enforced by the role of the central
banks, which have encouraged the banks to maintain a minimum capi-
tal adequacy level of 12%. The minimum requirement in Saudi Arabia
has been 12%, way above international standards.
The only direct impact of the global financial crisis as far as Saudi
banks were concerned arose from their limited exposure to the interna-
tional markets. Banks tended to adopt a policy of some diversification
in geographic spread of assets, with some invested in international
markets, some in regional markets, but most assets were invested in the
domestic market, protecting them from the worst effects of the crisis.
Almost 90% of the risk-weighted assets of Saudi banks are domestic,
with 3% elsewhere in the Middle East, 3% in the US and 3% in Europe.
Exposure to assets outside the region is thus no more than 7%.
The banks did have to sustain some pain on their international
exposures, particularly funds invested in global markets through
external fund managers. However, profitability levels of the banks were
sufficiently robust to absorb the impact.
Tight regulation by the central bank is also a feature of Oman, where
there are restrictions on the amount of investment allocated to external
assets. With the UAE serving as the hub for the region, banks in the UAE
are more regionally diversified in their exposures. Strong loan-growth
rates during the boom years and comparatively slower deposit growth
meant that banks became relatively more reliant on long-term funding
than their regional peers through debt issuances in the international
markets. Islamic banking has provided a key element in Saudi banking.
The country has three commercial banks that offer only Shariah-
compliant banking services – Al Rajhi, Albilad and Aljazira – and other
conventional banks have Islamic banking windows. “Banks are allowed
to carry out both services under the same umbrella. All banks offer
Islamic banking services,” says Ansari. Islamic banks tend to be more fo-
cused on the retail side, with larger retail depositor bases and consumer
lending a significant part of the business. More than 50% of Rajhi’s
lending book – Rajhi has the largest market share in retail – consists of
retail loans. This is twice the sector average. Albilad has a similar retail
orientation, although it has a much smaller balance sheet.
Saudi population structure
Source: EFG Hermes estimates
2011
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Real estate: opportunities in diverse markets Most of the MENA real estate markets are underpinned by strong fundamentals, with young populations, an expanding middle class and low household ownership. Significant discounts to fair values of real estate equities pose numerous long-term investment opportunities. By Nick Kochan
The picture for real estate is rather diverse across the region. Afford-
ability constraints and demand-supply gaps characterize most of the
markets while some areas historically marked by speculation face
oversupply, lack of real demand and challenging leverage introduced
in boom times when hopes for quick gains were high.
In Saudi Arabia, for example, where real demand for housing is
significant, there are affordability constraints, because of lack of pre-
sales or an efficient mortgage market. In contrast, the UAE market still
pays its price for overenthusiastic project offerings, with over-supply
having taken its toll on current rental yields and sales prices. Mean-
while, some of the market players face financing concerns as the
fragile market does not provide enough cashflow for debt service.
”The market fundamentals in Egypt and Saudi Arabia are strength-
ened by the presence of young populations with very low housing
ownership. There is also a rapidly growing middle-income class with
its increasing aspirations,” says Jan Pawel Hasman, the lead real estate
analyst at EFG Hermes. However, Egypt’s real estate market is crippled
by legal and regulatory concerns related to historical land grants and
Saudi Arabia does not have the proper means to address affordability
constraints. The problem was compounded by a law in Saudi Arabia
that barred the sale of a property before it was built, a convenient
way to make it more affordable for the buyer. This practice is preva-
lent in many GCC countries and Egypt. The lack of significant leverage
in Egypt and Saudi Arabia shielded investors from severe price
declines in the recent cyclical downturn. The development of law to
facilitate mortgage lending is perhaps the most critical factor in the
expansion of the property sector in the Kingdom, while bureaucracy
and the high cost of lending in Egypt also need to be addressed.
Once these obstacles are removed, these markets are likely to boom
again. These two markets have populations that need housing, and
increasingly have the means to acquire it. “There is some sign that
the introduction of a law to facilitate mortgages might make some
progress in Saudi Arabia in the medium term. Local banks are cur-
rently reluctant to participate in the real estate market,” says Hasman.
Meanwhile, the UAE market has been historically characterized by
active speculation and significant leverage, used by buyers financing
their transactions through mortgages and also by developers eager
to invest in rental portfolios but having insufficient equity. Lack of
direct taxation encouraged creative fair-value accounting used to
inflate asset book values on excessively optimistic assumptions to
borrow more. The property market in the UAE has yet to recover
from the practices of this period.
”Prices and rents in the property sector in Abu Dhabi and Dubai
are under pressure because of over-supply, the result of the buoy-
ancy that ruled in the marketplace three years ago,” says Hasman.
The situation in Dubai is gradually becoming more promising.
Demand for properties in very well-established, luxurious commu-
nities, with good facilities and amenities, shows a modest pick-up
as tenants seek upgrades at still preferable rates. Rents for villas, for
example, have remained firm over the past months, with freehold-
ers finding they are able to modestly raise their rents.
Tourism hit by political instabilityMost prominent real estate companies have exposure to the
tourism market through hotel portfolios. The Egypt-based Talaat
Moustafa Group, for example, one of the most liquid on the local ex-
change, has a valuable hotel portfolio including the Four Seasons-
operated hotels. They are capable of providing relatively stable
cashflows, often denominated in hard currencies, in times of real
estate downturns. They also act as good collateral for additional
leverage when needed.
The impact of recent political instability has been particularly
apparent in the region’s key tourist hub of Egypt. Carriers have
responded to the instability by simply shifting routes, expecting
Egyptian destinations not to be profitable for the time being. Mean-
while, big European tour operators sourcing arrivals to the country
focused on marketing alternative packages. Local tour operators
are highly depending on cooperation with foreign companies for
sale of their services, while low pricing is their main competitive
advantage.
While Egypt struggles to build its trade some positive messages
have been coming out of Dubai, which is showing some resilience.
This suggests that there is still some space for additional supply.
Industries enjoy a unique global competitive profile on low energy pricesLow energy prices help local petrochemical companies stay competitive in global markets. By Nick KochanThe fertilizer and petrochemicals sector in the MENA region enjoys a
unique competitive profile globally stemming from low energy prices,
which put the region’s feedstock costs at a fraction of those of the
world’s main producing countries. With ample oil and gas reserves,
the development of large-scale downstream industries was a strategic
imperative for the MENA countries to monetize hydrocarbon resources
and diversify their economies away from oil and gas. This initiative
materialized in 1975 through the establishment of the Saudi Basic
Industrial Corporation (SABIC) in Saudi Arabia. MENA’s chemicals sector
has grown exponentially since then, adding numerous plants and build-
ing several partnerships and joint ventures with industry’s key global
players, particularly in Saudi Arabia and Qatar, through a win-win for-
mula: technology in return for cheap feedstock. Now the MENA region
is home to some of world’s largest and most profitable petrochemicals
and fertilizer plants.
Investors in companies involved in fertilizers and petrochemicals are
making a play on global energy price inflation, because of producers’
access to relatively fixed, significantly cheaper feedstock costs in a
global context, which allow them to make some of the world’s highest
margins. Natural gas is the main petrochemicals feedstock in the MENA
region, while naphtha (crude oil derivative) is the world’s main feed-
stock (particularly in Western Europe and Asia). Gas prices range from
$0.75 per million British thermal units (mBTU) in Saudi Arabia to $3/
mBTU in Egypt. In Qatar, gas prices are $2-2.5/mBTU. Heavier feedstock
types in the MENA region (such as propane and butane) are priced at a
25% to 30% discount to naphtha prices (Japan FOB).
In an era of high energy prices, MENA chemicals producers usually
benefit from the cost pressures on their global peers, which lift floor
commodities prices upwards, and the difference goes straight to their
profits. That said, the escalation in energy prices triggered migration of
basic chemicals capacities from the traditional production hubs in the
US and Western Europe to the Middle East because of its significant
cost advantage over Asia because of strong domestic demand and to
government strategic targets to reach self sufficiency in basic materials.
While the competitive advantage of Middle Eastern producers is
unrivalled, price hikes in energy and feedstock are expected, particularly
in Egypt, as the governments seek to phase out energy subsidies, and
in Saudi Arabia, where the current gas price mechanisms have been in
place over the past two decades. So Saudi Arabia is likely to increase
its gas price to between $2 to $3/mBTU (from $0.75/mBTU currently), if
one would assume Saudi will meet the Qatari and Bahraini benchmark.
”These producers will retain an absolute cost advantage over local pro-
ducers in the main consuming markets in Asia, and also maintain their
strong competitive edge over the US exporters, their main competitors
in China, who currently pay around $4.4/mBTU,” says Ahmad Shams El
Din, EFG Hermes director, research, materials and chemicals.
Hypothetically, the oil price would have to fall to $30 a barrel for
Brent crude for an international producer in Western Europe or in Asia
to meet the global cost advantage of a local producer in Saudi Arabia
or in Qatar. Egyptian producers could also face higher gas prices. They
currently pay $3/mBTU but as the Egyptian government removes or
phases out energy subsidies, this is likely to rise to $5. ”Some impact
on the sector’s profitability seems inevitable, but it will not destroy the
competitive advantage of the local producers,” says Shams El Din.
Fertilizer and petrochemicals companies are price takers and so they
are naturally exposed to global supply and demand dynamics. The
uncertainty over the global macro-economic outlook, following the
sovereign debt crisis in the eurozone and signs of economic slowdown
in the US and China, naturally poses downside risks to global commodi-
ties prices and to MENA chemicals earnings. However, the magnitude of
any correction in commodities prices should be much less severe than
2008’s free fall because of structural changes in the global inventory
cycle, supply/demand conditions and corporate financial positions.
In petrochemicals, investments in new ethylene capacity have been
limited since 2008 and global supply is set to grow by only 2% in 2011-
13 (compared with a 4% compound annual growth rate in 2005-08).
In fertilizers, the MENA region and China account for most new global
supply. Global urea supply should grow by a CAGR of 4.5% in 2011-13,
of which almost 52% will come on stream in China, which should have
a limited impact on global markets because of the strict export tariff
scheme in the country (China applies an aggressive 110% export tariff
during its peak agricultural season). Ironically, major capacity increase
outside China is scheduled in the MENA region.
In short, the story is low energy prices and attractive low-cost capacity
expansions, which enable MENA producers to weather any correction
in global commodities prices. The impact of economic slowdown on
global chemicals prices should be much less severe than 2008’vv free
fall because of structural changes in the global inventory cycle, supply/
demand conditions and corporate financial positions.
Q3 2011 ethylene costs by region ($/tonne)
Source: CMAI, EFG Hermes estimates
2011
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Telecoms: saturation time for voice opportunitiesMobile internet and data services are the focus for telecoms operators in a saturated market. By Nick KochanThe voice telephony market appears to be approaching saturation
point in the MENA region, and more specifically in the GCC. Conse-
quently, operators are now focusing on data; most countries now have
3G licences. They are concentrating on ways of enhancing this area,
such as value-added services, mobile internet and mobile broadband.
These are the main drivers.
In Saudi Arabia, for example, Mobily, the second company to enter
the market, focused on means of tackling data technology. “The
management followed the right strategy seeing that in Saudi Arabia
the data area was still untapped and underpenetrated,” says Marise
Ananian, EFG Hermes vice-president research, telecoms. Its early
investment in data technology put this company in a very good posi-
tion; it is now one of the most technologically advanced companies
in the region.
Investment in data technology undoubtedly requires capital ex-
penditure, but it is capital spent in pursuit of new technology and more
revenue generation. Capex spending is usually high at the beginning
of the cycle (early phases of the technology). The new technology
involved will be 4G. Operators are expected to spend large amounts on
4G early next year, either introducing it then or by the end of the year at
the latest. Operators in the UAE and Saudi Arabia have started introduc-
ing 4G services on limited scales.
The GCC countries may appear more advanced than North African
ones. For example, Algeria still does not have 3G services, whereas all
the GCC members have it. The pace of new technologies in these areas
differs. Algeria has great potential in telecoms. The Egyptian business-
man and politician Naguib Sawiris was an early investor there and
made considerable profits, but he encountered major problems two
years ago with the Algerian government, which opposed his wish to
sell Orascom Telecom’s operation (Djezzy) in Algeria.
“The capital required for 4G is not as high as analysts supposed; 3G
may have been more expensive when it was first launched, because
it represented a breakthrough and an advance in data speed. But the
difference between 3G and 4G, or 3.5G, will not be so enormous,” says
Ananian. In any case, it is too early to assess 4G, as the handsets needed
to use it are still not widely available.
Mergers off the boilRegarding mergers and acquisition activity in the region, it is now less
likely than a couple of years ago. Each individual operator is either gov-
ernment-owned (in the case of very large ones, such as Etisalat in the
UAE or STC in Saudi Arabia) and these governments are not likely to sell
their stakes, or, in the case of single-country operators, they are owned
by the big ones. Consolidation could only occur if two medium-size
or big operators were willing to merge, says Ananian. The few chances
of a government selling their stakes or selling new licences could be
Omantel in Oman (where the government owns 70%), Libya (many GCC
operators would be interested in buying one of the operators there or a
new licence), Syria and Lebanon.
The rest of the MENA region is fully liberalized. Even Egypt has only
one-fixed line operator but the government is unlikely to issue a new
licence and this monopoly will most likely remain. The voice fixed line is
a business in retreat, and there would be no interest in a second licence.
Opportunities exist only in very selective countries. In other words it is
a saturated market.
Demand is always there, but the GCC is very different from North Af-
rica. The GCC members are relatively rich countries, with high revenues
compared with such countries as Egypt. In terms of average revenue
per user per month (ARPU), the two regions are not comparable: for
example in Egypt it is $6; in the UAE, more than $30.
However, growth potential could be greater in North Africa than in
the GCC states. GDP per capita is, of course, much lower, so the revenue
that can be generated is lower. In the GCC, mobile voice telephony
has penetrated more than 110% of the population. People there often
have two or three SIMs. This explains why there is increasing invest-
ment in the value-added services, in data and voice bundles and in new
technologies.
Mobile penetration rate in the MENA region
Source: ITU, EFG Hermes
Consumer: new spending power and investment opportunities Saudi quoted consumer and retail companies’ results are boosted by higher consumption, while Egyptian companies show mixed results as Egyptians focus on the basics for now. By Nick Kochan
Pay increases and bonuses in the public and private sectors have
stimulated consumer activity in some countries in the region, such
as Saudi Arabia. This addition of liquidity to the market, largely by
government, but quickly followed by private-sector companies, has
pump-primed the consumer and speciality retail sector. Monthly
point-of-sale transactions, published by Saudi Arabian Monetary
Agency (SAMA), surged in value terms by an average of 37% year on
year over January to August 2011.
One of the key retail beneficiaries in Saudi Arabia has been the
luxury product market, with discretionary product sales surging.
Good evidence for this can be seen at the Jarir Bookstore, which
sells laptops and computer supplies, electronics (smart phones),
office and school supplies and books. Jarir posted a 48% increase
in its third-quarter net profit to SR152 million, from SR103 million
in the same period a year earlier. The chairman has said that he
also expects double-digit growth in the fourth quarter. He said that
demand was driven by growth in electronics (smart phones in par-
ticular) and tablets, where growth surged in the third quarter.
In Egypt the political instability has affected the consumer sector,
particularly durables, while the basic foods market remains resilient.
Food companies have largely maintained sales and revenues. The
strength of Juhayna for example, the largest dairy producer in
Egypt, is a weather vane for the food sector; it has shown double-
digit growth in revenue in the first half of 2011. On the other hand,
purchases of more expensive goods, such as cars and white goods,
have suffered as consumers have shown themselves to be cautious
about upgrading or renewing their more expensive possessions.
Salary increases in the public and private sectors have provided
some support but this was likely offset by the decline in tourist ar-
rivals (and consumption) and accordingly a higher unemployment
rate in the tourism sector. Sales of durables have seen month-
on-month improvements but remain well below 2010 levels. For
example, Egypt’s total vehicle sales declined 19% year on year, but
showed a month-on-month rise of 7% in September 2011 to 17,514
vehicles, according to a report by the Automotive Marketing Infor-
mation Council (AMIC). Economists say that they will be surprised if
private consumption grows as much as 3% in the coming year, less
than half the typical annual growth number of 5% or more.
There are big opportunities in Egypt for mergers and acquisitions
in the food-manufacturing segment and expansion in the retail
segment, although these are likely to be hindered by political and
security instability in the short term. The Egyptian consumer sector
is largely fragmented, with many companies in each segment, and
very few listed companies. Despite being highly populous, Egypt
has yet to build a retailing infrastructure to service the new con-
sumer. The country has very few large hypermarkets and super-
markets; the rest are very small baqalas and small supermarkets
owned by individuals. The country lacks the chains found in more
developed markets in the region such as Dubai. Carrefour and
Spinneys have however set up in Egypt to service the new middle
class, in addition to some other local chains (Metro Markets). In
short, the organized retail segment is believed to account for less
than 10% of the total food retail market. This is likely to change
as consumers follow movements outside Egypt and adopt more
modern lifestyles, where they opt to do their shopping in a single
place, at malls and shopping precincts. Additionally, new cities
in Egypt have seen higher residency rates by youths, and several
regional real estate developers are building Dubai-style shopping
malls to serve them. Such a trend will accelerate as income per
capita grows.
The longer-term opportunities for market growth are to be
found in countries that are currently on the cusp of a consumer
breakthrough, but where security and political issues are restrain-
ing activity, let alone expansion. Suppliers (including Egyptian
exporters) are eyeing markets such as Libya, which has enormous
promise after announcing the fall of its old regime.
“Pay increases and bonuses in the public and private sectors have stimulated consumer activity in some countries in the region, such as Saudi Arabia”
2011
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EFG Hermes research contacts
Monica Malik,
Director
Tel: +971 4 364 1902
Email: [email protected]
Economics
Mohamed Abu Basha,
Associate
Tel: +20 2 35356157
Email: [email protected]
Mohamad Al Hajj,
Analyst
Tel: +9714 3641903
Consumers and Industrials
Wafaa Baddour,
Director
Tel: +20 2 35356163
Tarek El-Shawarby,
VP
Tel: +20 2 35356379
Email: [email protected]
Hatem Alaa,
VP
Tel: +20 2 35356156
Email: [email protected]
Nada Amin,
Analyst
Tel: +20 2 35356385
Email: [email protected]
Khaled Sadek,
Associate
Energy & Utilities
Abid Riaz,
Director
Tel: +971 4 363 4005
Email: [email protected]
Redwan Ahmed,
VP
Tel: +971 4 364 1905
Murad Ansari,
Director
Tel: +9661 279 8649
Email: [email protected]
Financials
Elena Sánchez- Cabezudo,
Director
Tel: +97143634007
Email: [email protected]
Shabbir Malik,
Associate VP
Tel: +971 4 363 4009
Email: [email protected]
Jan Pawel Hasman
Associate VP
Tel: +20 2 35356139
Email: [email protected]
Shaza El Kady,
Analyst
Tel: +202 35356158
Email: [email protected]
Real Estate Development
Mohamed EL Hefny,
Analyst
Tel: +9714-3634010
Email: [email protected]
Ahmad Shams El Din,
Director
Tel: +20 2 35356143
Email: [email protected]
Rita Guindy,
Associate
Tel: +20 2 35356387
Email: [email protected]
Youssef El Hussainy,
Associate
Tel: +20 2 35356013
Email: [email protected]
Malak Youssef,
Associate
Tel: +20 2 35356044
Email: [email protected]
Materials
2011
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Marise Ananian,
VP
Tel: +20 2 35356152
Email: [email protected]
Telecoms
Nadine Ghobrial,
Associate
Tel: +20 2 35356051
Email: [email protected]
Omar Maher,
Associate
Tel: +20 2 35356388
Email: [email protected]
Strategy & Data
Fahd Iqbal,
Director
Tel: +971 4 363 4004
Email: [email protected]
Simon Kitchen,
VP
Tel: +20 2 35356144
Email: [email protected]
Ahmed Difrawy,
VP
Tel: +20 2 35356144
Email: [email protected]
Sales contacts:
Publication
Ahmed Gad,
Director
Tel: +971 4 364 1904
Email: [email protected]
Rasha Samir,
Director
Tel: +20 2 35356142
Email: [email protected]
Mohamed Aly,
Director, Institutional Sales
Tel: +202 35356052
Email: maly @EFG Hermes.com
Chahir Hosni,
Director, GCC Institutional Sales
Tel: +9714-3634090
Email: chosni@EFG Hermes.com
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