It is a time of perhaps unprecedented economic opportunities and challenges for the Middle East and North Africa (MENA). If the economies of the MENA region decisively harness the opportunities that have been created by the Arab Spring, they will potentially pave the way for a new phase of vibrant economic expansion led by a young, dynamic and aspirant private sector. Signs so far show that MENA is seizing those opportunities. Economic activity has shown high growth rates since the onset of the global financial crisis which is supported by accelerated government spending and large-scale infrastructure investment. The economies of the broader MENA region also have low levels of debt compared with Europe, Japan and the US. However, there are still structural weaknesses that have to be addressed. The book is divided into seven parts: Part 1 - Powering the global recovery. Part 2 - Regional financial hubs as catalysts for growth. Part 3 - Regional capital markets. Part 4 - MENA mergers and acquisitions, project finance and infrastructure investments. Part 5 - MENA wealth management. Part 6 - MENA Islamic banking and finance. Part 7 - MENA telecommunications and energy.
Investing in MENA provides expert insights and pragmatic perspectives into one of the fastest growing regions (Middle East North Africa, MENA) where there are very few worthwhile publications available on this region. Unique expertise of prominent market practitioners on MENA region is found in a single publication whereby Authors are leading experts in their field and have shared their knowledge, insights and practical experience of doing business in the region; each chapter imparts valuable information. The book is a practical compendium on a broad range of topics and an excellent reference source of data. This unique publication is a must read for both issuers and investors in the OECD world and the fast growing Emerging Markets (especially the BRICs) who are interested in increasing their business and growing their regional market share. The book will help readers to Gain a better understanding of the economic, financial and regulatory landscape and how best to participate and connect with the issuers and investors in the region.
Part 1 - Powering the global recovery 1 Macro economic outlook for the MENA region 3 Marios Maratheftis, Standard Chartered Bank Introduction 3 Global economic conditions and how they impact MENA 4 Regional and domestic growth drivers 5 Never waste a good crisis, especially if it is happening elsewhere 7 Summary 8 2 A GCC monetary union: benefits and role of central banks 9 Professor Hossein Askari, George Washington University Introduction 9 Potential benefits of a monetary union 9 Lessons from the Euro 10 The economic and financial realities of a GCC monetary union 11 The role of central banks, finance ministries and cooperation 14 Conclusion 15 3 The growing role of sovereign wealth funds in MENAs economic diversification 17 Victoria Barbary, Soverign Wealth Center, Institutional Investor The MENA sovereign wealth fund landscape to 2008 17 MENA SWFs and the global financial crisis 19 Diversification as a priority 20 Greenfield projects 21 Joint ventures 22 Investing abroad for technology transfer 23 Financing 24 Turning theory into reality 24 Infrastructure 25 Human assets 25 Institutional framework 25 Conclusion 25 4 Private equity in the MENA region: context and opportunity 27 Nasr-Eddine Benaissa and Muhammad Farooq Zahid, Eastgate Capital Private equity in the MENA region 27 Substantial growth in the Middle East private equity industry 28 Types of investors 28 Type of private equity players by geographic focus 29 Favourable macroeconomic drivers and capital markets reforms drive private equity in the MENA region 29 Supporting macroeconomic environment 29 Deepening capital markets and the introduction of regulatory platforms 36 Predominance of family businesses 37 Challenges facing MENA private equity 41 Deal sourcing 42 Information asymmetry and lack of information 42 Cultural challenges 42 Structuring challenges 43 Availability of leveraged finance 43 Availability of alternate capital structures 43 Tax regulations 44 Fundraising challenges 45 Facing up to the challenge 45 Part 2 - Regional financial hubs as catalysts for growth 5 Regional Hubs as catalysts for growth 49 Faisal Hasan, Global Investment House, Kuwait The role of a financial centre in the region 49 The demand drivers for an FC in the region are in place 50 A need to channel the available petrodollars 51 Growing demand from SWFs 51 Infrastructure development is underway 51 Integration with global markets is leading to demand for international financial institutions 52 Continued demand for Islamic finance related products 52 Emerging interest to provide insurance and reinsurance in the region 52 A need to find innovative investment avenues 52 The need for economic diversification 53 Regional initiatives are being implemented across economies - creating a competitive environment 54 Key challenges for GCC 54 Lack of regional co-operation 54 Absence of liquid debt markets 55 Entrenched regulatory barriers and inadequate corporate governance standards 55 Talent constraints 55 Areas of challenge - key recommendations 57 Regulation and licensing 57 Depth, liquidity and transparency 57 Product offering 57 Ancillary support services 58 Innovation in policy making 58 6 DIFCs growing attraction to emerging market issuers and investors 59 Hari Bhambra, Praesidium LLP Introduction 59 What do issuers and investors want? 59 What should investors and issuers be considering in emerging markets? 59 The role of emerging markets in the global financial recovery 62 Environmental issues and the UAE 62 Social issues and the UAE 62 Governance issues and the UAE 62 The Dubai International Financial Centre 64 The DIFC as an issuers platform 64 The DIFC as an investors platform 65 Conclusion 65 7 Qatar: gateway to regional opportunities 66 Shashank Srivastava, Qatar Financial Centre Authority Introduction 66 A dynamic region 66 A dynamic country 67 Financial services are central 69 The Qatar open market 69 A place to live 71 Regional opportunities 72 Asset management 72 Reinsurance 73 Captive insurance 74 Gateway to the region 74 8 Turkey: a dynamic economic growth and increasing attraction for MENA investors 76 Ertunc Tumen, Akbank Turkey: an attractive long term investment destination 76 Demographic advantages and potentials 77 Rediscovering Turkeys geographical advantage 77 A younger educated urban population with increasing life expectancy 77 Population is eager to adopt new technologies enabling better access to information 77 Stable political landscape and its ripples 78 EU accession has been the driver of reforms in Turkey 78 Turkey: becoming a more active player in world matters 79 Dynamics of the transformation in the Turkish economy 79 2001 crisis - the collapse of the old political and economic system; laying the groundwork of todays economic success 79 Turkey has registered a striking economic performance between 2002 - 2010 80 Becoming a merchant state: transformation to a diversified industrial and service economy 81 Opening up the Turkish economy: Turkey is rapidly expanding its exports 81 Product spectrum is becoming more sophisticated 81 Turkey is penetrating into new markets 81 A new industrial vision to become the production base of Eurasia 83 A success story: Turkish automotive industry 83 A new industry in the making: Turkish shipbuilding industry 83 Climbing the industrial value ladder - techno parks in Turkey: industry-university collaboration 84 Climbing the industrial value ladder - R&D is coming centre stage 84 Rise of Anatolian Tigers - emerging of a new business class 84 A new transportation infrastructure 85 Dynamism in Turkish airlines industry and the rise of THY 85 Motorways: improving the highways infrastructure 85 Railways strategy: high speed trains integrating the peripheries with metropolis 85 Tourism: Turkey becoming a top travel destination 86 Financial sector outlook 86 Making Istanbul a regional financial centre 86 A strong banking sector: bedrock of growth in Turkey 87 A competitive asset management and wealth management industry 87 The new Capital Markets Law 88 Prospects for Turkish equities 88 Policy challenges in front of Turkey 88 External deficit problem should be resolved to receive an investment grade rating 89 Foreign policy challenges should be managed properly 89 Conclusion 90 Part 3 - Regional capital markets 9 Overview of MENAs capital markets 93 Eric N Swats, Waleed El Bendary, Chandru Bhatia and Abdullah Ballool, Rasmala Introduction 93 Banking sector 93 Saudi Arabia 93 United Arab Emirates 94 Kuwait 94 Qatar 94 Oman 95 Bahrain 95 Egypt 96 Equity exchanges 96 GCC market overview 96 MENA sector allocation 96 IPO activity in the GCC since 2005 97 Saudi Arabia Stock Exchange 97 Information on the Exchange 97 Foreign ownership of stocks in Saudi Arabia 98 Kuwait Stock Exchange 100 Dubai Financial Market 102 Abu Dhabi Securities Exchange 104 Qatar Stock Exchange 106 Bahrain Stock Exchange 108 Muscat Stock Market 110 Egypt Stock Exchange 112 Fixed income market 113 Structure 113 Present state 115 Recent developments and trends 115 Challenges of fixed-income securities in the GCC 116 Critical issues 117 Local currency debt market 117 Current market 117 Forecast future market development 119 Conclusion 119 10 The growth and development of major regional and national exchanges in MENA 120 Adnan Abou Ghazaleh and Rabih Sader, Zawya Introduction 120 Liquidity 120 Corporate governance and transparency 124 Developments in GCC markets rules and regulations 125 Recommendations 126 References 127 11 Indices paving the way towards investing in the MENA region 129 Alka Banerjee and Michael Orzano, S&P Indices Introduction 129 MENA equity markets growth 129 Growing interest, lingering challenges 130 Conventional access to the MENA stock markets 131 Additional float-adjustment complexities 131 Regional sub-indices 133 Size benchmarks 133 Sector classification and sector indices 133 Country classification for global equity indices 134 Stock market performance 136 Shariah investing in the MENA region 137 Environmental, social and governance indices 138 Exchange traded funds 141 Conclusion 141 12 Capital markets: a regulators perspective 144 Gerald Santing and Eric Salomons, DFSA Capital markets in the MENA region: a regulators perspective 144 Capital markets in the UAE: international markets with local features 144 Transparency 145 London versus local markets 145 Corporate governance 145 Financial reporting and auditing 146 Liquidity 147 Settlement process 147 Socio-geographical factors 148 Qualified and retail investors 148 The regulatory answer 148 Changes to the regulation of banks 150 Offer of securities to the public 150 DFSA corporate governance rules 151 Anti-money laundering and combating the financing of terrorism 151 Commodity derivatives exchanges 151 13 Financing of a mortgage market and structural changes required in the MENA region 153 Jarmo T Kotilaine, The National Commercial Bank, Saudi Arabia Introduction 153 Defining the market 154 Established models 155 Mortgage funding in the Middle East: the current state of affairs 157 What to do and what not to do? 161 Part 4 - MENA M&A, project finance and infrastructure investments 14 Increasing consolidation through mergers and acquisitions in MENA 165 Ziad Awad, Bank of America Merrill Lynch Introduction 165 What are the drivers of M&A in the MENA region? 168 Two important sovereign motivations: SWF investments and national champion creation 169 What are the obstacles to M&A in the MENA region? 170 How should we define consolidation? 174 What are the benefits of consolidation? 174 We see two broad types of consolidation deals in MENA 177 Regional consolidation 177 Global consolidation 178 Looking forward 183 15 Restructurings in the MENA region 184 Ian Schneider, PricewaterhouseCoopers Dubai Introduction 184 A fresh challenge to the Middle East insolvency and restructuring regimes 184 Insolvency and restructuring regimes 184 Other local law considerations 185 Conclusion 185 Capital structures 186 Corporate governance and conflicts with stakeholders 187 Sponsors and lenders position 189 Lessons learned 190 16 Opportunities and challenges in project finance 192 Jesdev Saggar, Deloitte Dubai The story so far 192 MENA region overview 193 Impact of the Arab Spring 193 Diversifying economies 194 Banking liquidity and tenors 194 Outlook 194 MENA country outlook 195 Bahrain 195 Kingdom of Saudi Arabia 195 Kuwait 196 Oman 196 Qatar 197 UAE 197 Algeria 198 Egypt 198 Iraq 199 Jordan 199 Lebanon 200 Libya 200 Morocco 201 Syria 201 Tunisia 201 17 Infrastructure and regional integration in MENA 202 Shamshad Akhtar and Elena Ianchovichina, World Bank Introduction 202 The state of MENAs infrastructure 203 Infrastructure needs 210 Private participation in infrastructure - MENA 214 Regional infrastructure development 217 Energy sector 219 Transport and logistics 222 Water supply and sanitation 224 Concluding remarks 227 Further reading 228 Appendix 230 18 An economic analysis of foreign direct investment and its impact on trade and growth in Pakistan 232 Faisal Ali Baig and Sajid Yoosufani, Punjab Board of Investment & Trade Introduction 232 Saving and investment behaviours 232 Development requirements 233 Pakistans experience with foreign direct investment 235 Conclusion 238 Recommendations 241 Part 5 - MENA wealth management 19 Successful growth strategies for private banking in MENA 247 Peter Vayanos and Dr Daniel Diemers, Booz & Company Abu Dhabi Introduction 247 Key characteristic 1: local family businesses 249 Further institutionalising the family office 249 Enhancing governance structures 250 Managing succession and transfer of wealth 250 Accessing illiquid wealth 250 Key characteristic 2: large expatriate communities 251 Key characteristic 3: Sharia-compliant offerings 251 Key characteristic 4: offshore versus onshore investing 255 The competitive landscape 255 Local banks 256 International players 256 International universal banks 257 US investment banks 257 Pure-play private banks 257 Specialist providers 257 Building cornerstones for growth 258 Conclusion 258 20 Increasing attraction of multi-manager investments 259 Jahangir Aka, SEI Dubai Introduction 259 Multi-manager investing: the basics 260 Types: fund of funds versus manager of managers 262 Multi-manager versus other investment approaches 262 Recommended: an outsourced manager of managers programme 263 Required Shariah compliance and oversight 265 Implementation of the manager of managers approach 265 The SEI approach 265 Step 1 - asset allocation 266 Step 2 - portfolio design 267 Step 3 - manager selection 267 Step 4 - portfolio construction 269 Step 5 - risk management 269 Multi-manager investing in MENA today 271 21 Structured investment products 272 Evren Yazman, JP Morgan London Background 272 Creating structured investments 273 Using structured investments in MENA: three As of structured investments 273 Adjust the risk profile 273 Credit risk 274 Asset risk 274 Capital protection 274 Leverage 276 Income products 276 Hedging unwanted risks 276 Access different assets 277 Equity access 277 Alternative access 278 Fixed income access 278 Apply custom market views 278 Conclusion: structured investments as a competitive advantage 279 22 Opportunities and challenges for private equity in MENA 280 Junaid Jafar, Tadhamon Capital Bahrain Summary 280 Opportunities 280 Strong economic growth 280 PE deals expected to increase 281 Governments emphasis on infrastructure development 282 Attractive sectors/countries 282 MENA has large family businesses - many privately held 284 Small and medium enterprise segment in MENA 284 Challenges 284 PE fundraising in the MENA region has declined 284 Issues pertaining to the nature of fund raising and transactions 285 Islamic finance - availability and structuring 286 Limited openness of family groups for PE investments 286 Small average deal size 287 Lack of human capital and incentive structures in PE firms 287 Unrest in the MENA region is a concern 287 Conclusion 288 23 Gulf family fortunes 289 Walid S Chiniara and Ciara Howie, The Family Business Advisory Group Family wealth 289 Social wealth 289 Human wealth 290 Intellectual wealth 290 Financial wealth 290 Factors influencing family wealth 290 The social and ethical environment 290 Historical background 290 The regional and global environment 291 The economy 291 Law, regulation and compliance 291 Family dynamics in the family business 293 Transitioning generations 293 The road ahead 293 Part 6 - MENA Islamic banking and finance 24 Emerging trends and opportunities for Islamic banking and finance in MENA 207 Professor Rodney Wilson, Durham University and Qatar Faculty of Islamic Studies Prospects for Islamic finance in Bahrain 297 Islamic finance in Dubai 299 The market for Islamic finance in Saudi Arabia 300 Islamic banking in North Africa 301 Islamic banking in Turkey 303 The role of Islamic funds in the Middle East 304 Prospects for the issuance and trading of Islamic securities 305 The medium term outlook for Islamic finance in the Middle East 308 25 Islamic finance in Turkey 309 Neil Miller, Erdal Tikmak and Hasan Saricicek, KPMG Introduction 309 The Turkish economy and the role of Islamic finance 309 The banking sector in Turkey 311 Participation/interest free banks 312 The growth of participation banks: financial indicators 315 Market share - assets of participation banks 315 Asset share - between participation banks 317 Market share - lending/financing activities 317 Market share - deposits 318 Profitability of participation banks 321 Other indicators 323 Regulation and supervision of participation banks 323 Financial regulation 323 Sharia governance 324 Corporate governance 324 Accounting standards 325 Constraints for participation banks in Turkey 325 Liquidity management 325 Asset liability timing mismatch 325 Recent developments 325 The participation banking sector has also been innovating rapidly 326 Other issues of interest 327 Islamic insurance/Takaful 327 Islamic asset management and pension funds 327 Recent Sukuk/rent certificates related tax amendments 327 Rent certificates (Sukuk al Ijara) 327 Source company and asset leasing company 327 New Tax Amendments and Law No: 6111 328 Value Added Tax 328 Corporate tax 328 Income tax 328 Stamp tax 329 Regulations on fiscal charges 329 Decree (2011/1854) 329 Prospects for the future and conclusion 329 26 Growing demand for Shariah-compliant investments 330 Sultan Arif and Farhan Mumtaz, Eurekahedge Introduction 330 Overview of the Islamic fund industry 330 Developments in Islamic finance products 331 Industry make-up and growth trends 333 Manager location 336 Geographies 337 Allocation to asset classes 340 In closing 340 27 Innovation in Sharia-compliant wealth management 341 Datin Maznah Mahbob and Al Juan Rusli, AmIslamic Funds Management Why Sharia-compliant wealth management? 341 Global demand-led opportunities 341 The obvious Muslim market: growing, increasingly significant but fragmented 341 The less obvious non-Muslim market 342 Sharia-compliant wealth management industry landscape 342 Supply and delivery of Sharia-compliant wealth management solutions: fraught with challenges, but provide fertile grounds for innovation 343 Sharia non-uniformity 343 Supply and liquidity of instruments and Sukuk 343 Regulatory framework uneven across markets 343 Distribution 343 Awareness 344 Alchemy: the innovation process 344 (Sharia + investment) building blocks = Sharia-compliant wealth management solutions 345 Sukuk 345 Takaful 345 Innovation: beyond Sukuk and Takaful 346 Investment strategies 346 Sharia compliance as an alpha source 346 Product structures 346 Product risk 347 Volatility risk 347 Underlying assets 347 Innovation: beyond investment products 348 Delivery and distribution platforms 348 Organisational structures 348 Business models 349 Industry structure 349 Innovation: core driver of Sharia-compliant wealth management 349 28 Winning strategy in Bancatakaful 351 Manoj Kumar, Bancassurance Consultants Worldwide Ltd (UK) Introduction 351 Growth potential 351 Goals and objective setting 353 Product development 353 Partner selection 354 Channel management 355 Knowledge management 355 Induction training 356 Product training 356 Insurance technical training 356 Sales technique 356 Policy and procedure training 356 Compliance and AML training 356 Technology 357 Regulatory issues 357 Opportunity and challenges 359 Conclusion 359 29 Benefiting from responsible investment: interfacing Shariah investing with SRI and ESG 361 Datuk Noripah Kamso, CIMB-Principal Islamic Asset Management Similarities of Shariah investing with SRI and ESG 362 Similarities shared by ethical and Shariah investment approaches 363 Differences between ethical and Shariah investment approaches 363 A comparison of MSCI Islamic, ESG and SRI indices and methodologies 364 Conclusion 366 30 Shariah-compliant indices: starting the information journey from Shariah compliance to Shariah-based 369 Rushdi Siddiqui, Rafiza Ghazali, Dr Sayd Farook and Wiebke Buelow, Thomson Reuters Where are we? 369 Shariah screening 370 Shariah compliance in OIC and Israel 370 Indexing 375 External environment 376 ESG index 381 Islamic sustainability index 381 Shariah-based indices 384 Increasing compliant companies 391 Saudi Arabia 391 Malaysia 393 Balance sheet recap 394 Conclusion 395 Part 7 - MENA telecommunications and energy 31 Telecom investments in the MENA region: emergence of the adjacent opportunity 399 Thomas Kuruvilla, Arthur D Little Introduction 399 Evolution of global telecom landscape 399 Background of telecom investments in the MENA region 405 Are the core services still attractive in the MENA region? 407 What is the adjacent opportunity? 407 Content/media 409 Mobile payments 411 Information communication and technology (ICT) 414 Can MENA operators capitalise on the adjacent opportunity? 418 Distinctive capabilities 418 Market readiness 419 Ecosystem with critical mass 419 Innovation culture 421 Conclusion 423 32 Show me the money: opportunities for private sector investment in the Middle East oil and gas sector 424 Kenneth McKellar, Ashish Joseph, Deloitte Abu Dhabi Introduction 424 Upstream 426 Petrochemicals and refining 427 Oil field services 428 Conclusion 429