Tuesday, September 30, 2008

Investors see South Africa as too risky

JOHANNESBURG, SOUTH AFRICA -- It was a bit like a mouse trying to calm a herd of frightened elephants.

With both the world financial markets and South Africa's political scene in turmoil, the country's new president went on national TV Sunday promising to avoid any sharp changes in economic policy.

The morning after  Motlanthe's speech, the rand currency slid even further. Investors are shunning emerging markets as just too risky.

A speech by Reserve Bank chief Tito Mboweni on Sept. 18 starkly exposed South Africa's vulnerability to the global economic turmoil. About 18 billion rand ($2.16 billion) has flooded out of the country so far this year as foreigners sold off stocks.

Motlanthe this month replaced President Thabo Mbeki, who was forced out by his African National Congress. Motlanthe is widely seen as a caretaker for ANC leader Jacob Zuma, who is likely to win the post in elections next year.

South Africa, an economic powerhouse in sub-Saharan Africa, exports commodities such as platinum, gold and diamonds. When the subprime crisis hit, South Africa initially weathered the storm well because its banks weren't exposed to the bad mortgage-related debt. But now it is suffering the secondary effects.

"We are seeing less capital being available in emerging markets generally and in particular South Africa," said Jac Laubscher, economist at Sanlam, a financial services group. "The fact we have a current-account deficit in excess of 7% means the financing of that current account becomes more of an issue, and there is a possibility of downward pressure on the rand."

Gold traditionally is a refuge for investors in time of turmoil, and the increase in gold prices is good for South Africa. But even more important to its economy is platinum, and its price has slumped about 50% since March.

"Platinum has overtaken gold as our most important export, and the platinum price has halved," Laubscher said, adding that increases in the gold price were unlikely to compensate.

South African gold trader Charles Leishman of Standard Bank said gold was being traded emotionally; platinum's price was falling because of weak industrial demand.

"They're actually very distinct, given the environment we're in the moment. [Platinum] is very demand driven. Gold at the moment is very emotionally driven.

"Nobody knows how long it [the global credit crisis] is going to go on for. You can inject all these billions of dollars but is that going to take the toxic sludge out of the system?"

By Robyn Dixon, Los Angeles Times Staff Writer 
September 30, 2008

http://www.latimes.com/news/nationworld/world/la-fg-africaecon30-2008sep30,0,3829996.story

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Four Companies in bid to build Iranian Pipeline

Four companies, two from Iran and one each from Europe and Asia, are bidding for the contract to build the 1,800km pipeline by 2014 under a Build-Own-Operate deal, Kasaeizadeh said.

A Build-Own-Operate contract gives rights to develop, finance, design, build, own, operate and maintain the project.

"Two Iranian contractors are ready to do it as a Build-Own-Operate deal and two foreign companies. This is new, for a foreign company to do a Build-Own-Operate contract for gas pipelines," Kasaeizadeh said in his last interview as head of NIGC before taking up the top post at National Iranian Gas Export Company (NIGEC).

The contract will be awarded to one Iranian company and one foreign company or the two Iranian bidders may form a consortium with one of the international firms, he added, speaking at the NIGC headquarters in Tehran.

Iran is moving ahead with the plan to export some of its vast gas resources to Europe via pipeline.

The new, Iranian Gas Trunkline 9, or IGAT-9, would be part of the planned 'Persian pipeline' project that aims to transport gas from South Pars to the city of Bazargan at the border with Turkey and on to Italy, Austria and Switzerland, according to Kasaeizadeh.

The South Pars field, which has an estimated 436tn cu ft in gas reserves, is located offshore Assaluyeh, a port town in Iran's southern Bushehr province, in the Persian Gulf.

Alternatively, Iran may pump the gas to Europe via the 3,300km Nabucco pipeline, which aims to pipe 31bn cu m a year of gas from the Caspian region, the Middle East and Egypt to Europe through Turkey, Bulgaria, Hungary, Romania and Austria.

Talks about Iran's participation in the scheme are still ongoing. But potential Iranian involvement in Nabucco and alternative plans for gas exports to Europe are facing stiff resistance from the US, which is seeking to curb international business with Tehran.

Iran, which sits on the world's second largest reserves of both oil and gas, is facing US sanctions over its civilian nuclear program.

Iranian officials have dismissed US sanctions as inefficient, saying that they are finding Asian partners instead. Several Chinese and other Asian firms are negotiating or signing up to oil and gas deals.

Following US pressures on companies to stop business with Tehran, many western companies decided to do a balancing act. They tried to maintain their presence in Iran, which is rich in oil and gas, but not getting into big deals that could endanger their interests in the US.

Yet, after oil giants in the West witnessed that their absence in big deals has provided Chinese, Indian and Russian companies with excellent opportunities to signing up to an increasing number of energy projects and earn billions of dollars, many western firms are slowly losing reluctance to invest or expand work in Iran.

Iran is seeking the participation of foreign firms in its IGAT-9 scheme in a bid to secure partial funding for the project due to its exorbitant cost, Kasaeizadeh said.

"The reason we want help from them is more to obtain financing. For this pipeline, we have 17 compressor stations. Each compressor station has around 4 turbo compressors. The cost of each station is around $100mln," he said.

The cost of the pipeline is also driven up by the difficult territory it's crossing, notably mountainous areas, Kasaeizadeh added.

The Iranian companies that will be involved in building the pipeline will be able to tap the country's Foreign Currency Reserve Fund, Iran's version of an oil stabilization fund, for funding, he said.

The fund "does not give loans to the Iranian government but they give loans to the private sector. It means that the Iranian private sector can get loans and build the lines," Kasaeizadeh said.

Kasaeizadeh said sanctions won't hinder Iran's plans. "Sanctions have not had any effect on our work. It is possible that it affects work in other places, but it has not had any effect on our work."

NIGC has already secured access to raw materials required to build its pipelines, having signed import contracts before a set of stricter sanctions was imposed on the country, he said.

"We have a long-term contract with European companies. Because our contract was already signed and just now we are working on it together, we have had no problem because it was before the sanctions," Kasaeizadeh said.

"We manufacture the pipeline in Iran. We only have to bring the raw materials from outside. Large pipes are carbon steel for which we get the raw materials from abroad," he added.

NIGC also has contracts with European companies for the supply of turbines and compressors, needed to pump the gas over long distances through the pipeline.

"One contract we have got is with Siemens. Another contract is with Ukrainian companies such as Zorya Mashproekt and Sumy Frunze NPO," he said.

Some European countries have also recently voiced interest in investment in Iran's energy sector after a gas deal was signed between Iran and Switzerland regardless of US sanctions.

The National Iranian Gas Export Company and Switzerland's Elektrizitaetsgesellschaft Laufenburg signed a 25-year deal in March for the delivery of 5.5 billion cubic meters of gas per year.

The biggest recent deal, worth €100m ($147m, £80m), was signed by Steiner Prematechnik Gastec, the German engineering company, this month to build equipment for three gas conversion plants in Iran. This is at a time when France's Total, Royal/Dutch Shell and Norway's Statoil have put on hold their shares in multi-billion dollar contracts.

Washington and its Western allies accuse Iran of trying to develop nuclear weapons under the cover of a civilian nuclear program, while they have never presented any corroborative document to substantiate their allegations. Iran denies the charges and insists that its nuclear program is for peaceful purposes only.

Tehran stresses that the country has always pursued a civilian path to provide power to the growing number of Iranian population, whose fossil fuel would eventually run dry.

Despite the rules enshrined in the Non-Proliferation Treaty (NPT) entitling every member state, including Iran, to the right of uranium enrichment, Tehran is now under three rounds of UN Security Council sanctions for turning down West's illegitimate calls to give up its right of uranium enrichment.

Tehran has dismissed West's demands as politically tainted and illogical, stressing that sanctions and pressures merely consolidate Iranians' national resolve to continue the path.

The UN sanctions address individuals and companies involved in nuclear- and arms-related activities without banning daily trade and non-nuclear investment.

But the US has imposed unilateral restrictions in particular on financial transactions and big investments.


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The US-UAE Trade and Investment Relationship

Executive Summary

The United States and the United Arab Emirates (UAE) enjoy a robust trade and investment relationship, much of which now has little direct relationship to UAE oil exports. Moreover, this is one of the fastest growing U.S. economic partnerships, both globally and especially in the Gulf region. The trade surplus in goods with the UAE throughout this decade reflects strong U.S. competitiveness in a number of sectors. In addition, the volume of U.S. exports and foreign direct investment into the UAE in recent years has grown dramatically and is likely to continue to grow in the future. This growth reflects the increasingly diversified UAE economy as well as its leading role as a modernizing influence in the Arab world.

Highlights

U.S. goods exports to the UAE increased by 352 percent from ••$2.6 billion in 2001 to $11.9 billion in 2006. This is far greater than the 42 percent increase for overall U.S. exports around the world.

The UAE’s share in U.S. exports to the Gulf Cooperation ••Council (GCC), which consists of the UAE, Saudi Arabia, Qatar, Bahrain, Kuwait, and Oman, doubled from 25
percent in 2001 to 49 percent in 2006.

The UAE is the single largest export market for U.S. goods and services in the Middle East, and U.S. exports to the UAE have expanded nearly five-fold from 2000 to 2006.

In 2006, the UAE imported $2,571 of U.S. goods per capita, which exceeded that of many important U.S. trading partners including Kuwait ($821), Saudi Arabia ($330), Japan ($468), Germany ($501), Mexico ($1,287), and Israel ($1,558).

U.S. exports to the UAE originate from a wide variety of U.S. ••states. In 2006, the five largest sources were: Washington (33 percent), Texas (21 percent), California (8 percent),
New York (6 percent), and Tennessee (3 percent).

U.S. foreign direct investment in the UAE rose 445 percent from ••at least $834 million in 2001 to $4,547 million in 2006. This far exceeds a worldwide increase of 63 percent in the same period and an increase of only 22 percent in Saudi Arabia.

The pace of UAE investments in the United States have also ••quickened. Recent examples include a proposed 20 percent share in NASDAQ, a 7.5 percent share in the Carlyle Group, an 8.1 percent share in Advanced Micro Devices, and a 4.9 percent stake in Citigroup.

Cooperation extends beyond the private sector. U.S. non-••profit organizations are also expanding their activities in the UAE, including a Johns Hopkins University partnership in a new cancer treatment center and a New York University plan to establish a campus in Abu Dhabi by 2010.

This economic relationship will likely deepen further in coming years, given the UAE’s growing status as a regional business powerhouse, the high world price of petroleum and resulting high UAE growth rates, and the UAE’s continued political stability and sound economic policies.

by Michael Moore
Professor of Economics and International Affairs
Director, Institute for International Economic Policy
Elliott School of International Affairs
George Washington University

Download the full report .pdf

http://www.usuaebusiness.org/view/resources/uploaded/usuaewhitepaper.pdf

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Iranian company to build cement factory in Southern Iraq

An Iranian firm based in the United Arab Emirates has won a deal to construct a cement factory in the southern Province of Dihqar, a senior official said.

Mohammed al-Hindawi, the head of reconstruction and investment bureau in the province, said the factory is designed to produce 3,000 tons of cement per day.

He said the provincial authorities have allocated a lot of land as a site for the company.

However, he declined to give details on the value of the contract.

Iranian firms are active in Iraq, particularly in the Kurdish north and the Shiite south, implementing projects worth hundreds of millions of dollars.

Some of the projects are part of an Iranian government’s credit plan which has made it easy and lucrative for the Iranian firms to work in the country.

Iran has extended credits to Iraq worth more than $1 billion.

Iran has emerged as the country’s top trading partner. There are no figures on bilateral trade but the volume is reported to have mushroomed in the past few months.

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Western Union in Iraq

Western Union, the leading provider of global money transfer services, has announced that it has signed a new agent in Iraq.

The Investment Bank of Iraq, a leading private financial institution in Iraq, will now offer the complete range of Western Union services across all its 19 branches.

Established in 1993, the Investment Bank of Iraq is a leading private financial services provider in Iraq, with branches in Baghdad, Basra, Karablaa and Najaf.

With the addition of the Investment Bank of Iraq as a cooperation partner, Western Union expands its presence in Iraq to 99 locations.

Mr. Hamza Dawood Halboon, Acting General Manager of Investment Bank of Iraq, said: 'Western Union is one of the most trusted and recognizable global money transfer service provider in the world, and we are very pleased to cooperate with them to extend their patent fast, reliable and convenient service to the expatriate workers living and working in Iraq, as well as to the Iraqi nationals residing in the country.'

Jean-Claude Farah, Western Union Regional Vice President for Middle East, Pakistan and Afghanistan said: 'The Investment Bank of Iraq is a major institution in the country and we are pleased to be associated with them in extending our presence in Iraq. We look forward to a long and fruitful relationship.'

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Saudi Arabia fetched the highest Foreign Direct Investments among the GCC states

Bahrain's attractive investment climate and the capacity to absorb maximum foreign investments in all vital sectors have put the Kingdom at the top in terms of investment performance among the GCC countries by the World Investment Report 2008, a senior UN official who launched the WIR 2008 in Manama yesterday said.

Nazha Benabbes Taarji, Director of Investment Promotion at the United Nations Conference on Trade and Development (UNCTAD) in a pre-launch interview of WIR 2008 highlighting the salient features of Bahraini's economic climate said in the Kingdom the FDIs in 2007 performed at its optimum level and benefits shared by the entire spectrum of the economy.

She lauded the steps taken by the Bahraini authorities by attracting more FDIs as well as opening up many areas for foreign investors as part of a strategic move.

Talking about the GCC economic climate Nazha Benabbes Taarji said the record oil revenues and excess liquidity which runs into trillions of dollars has bolstered the region's overall economic strength and made it a preferred region for foreign investors. The robust economic growth in West Asia in general and the GCC in particular contributed towards a sustained growth in flow of foreign investments.

Shaikh Mohammed bin Essa Al-Khalifa, Chief Executive of the Bahrain Economic Development Board said:

"This report reflects the great strides Bahrain has made towards modernising and liberalising our economy, with substantial investment in creating sustainable industries and economic activities such as the automotive, telecoms and financial services sectors. Bahrain is proud of its record as a leading destination for business and finance. It is the gateway to the Middle East and we will continue to forge a diverse, vibrant economy fully equipped for the demands of the world economy in the 21st century."

Saudi Arabia fetched the highest foreign direct investments among the GCC states and the Kingdom ranked top recipient in the World Investment Report 2008 with a total size of $24 billion FDIs out of total $43 billion attracted by the GCC in 2007.

The level of foreign direct investment flowing into all six GCC states increased by 30 per cent in 2007 from the previous year at $43 billion and overall in the Middle East and North Africa (MENA) region, FDI increased by 12 per cent to $71 billion, even though Iraq, Jordan, Lebanon, Syria and Yemen saw a drop in this figure by 20 per cent to $6.4 billion.

Bahrain's position as a regional leader for foreign investment has been confirmed after it was ranked number one in the GCC, and 12th globally, for inward foreign direct investment performance in the "World Investment Report 2008" announced today at the United Nations Conference on Trade and Development in Geneva.

Bahrain - internationally recognised as having the most open and liberal economy in the Middle East - was rated above fellow GCC states of UAE, Qatar, Oman, Saudi Arabia and Kuwait by the 2008 World Investment Report, which ranks countries by the Foreign Direct Investment they receive relative to their economic size.

The Economic Development Board and MENA OECD Investment Center hosted the regional launch last night of the (UNCTAD) World Investment Report 2008 titled Transnational Corporations and the Infrastructure Challenge. The report is published annually to analyze foreign direct investments (FDI) in countries.

The report was launched in Manama at a press conference held at the Diplomat Radisson SAS Hotel and Spa where Dr Abdullah Al-Sadiq, Vice Chairman of MENA Investment Centre gave the opening speech on behalf of Dr Supachai Panitchpakdi, Secretary-General of UNCTAD. Present were Nazha Al Taraji, Director of Investment Promotion at UNCTAD, amongst board members of the MENA Investment Center and Bahraini economists.

The report showed that Bahrain attracted $1.756 billion in FDI in 2007 and the Kingdom was ranked 2nd in the Gulf and 9th globally in the Outward FDI performance index. The index is based on factors such as ease of conducting business and the improvement of infrastructure in a country.

The World Investment Report also highlighted the increase in local investment which is growing more rapidly than foreign investment as countries wisely utilize surplus oil revenues to develop and improve their economies.

The roots of Bahrain's success lie in its unique social and economic attributes: the Kingdom's economy is recognised as the most free and diverse in the Middle East and its society as the most liberal, together with its strategic location in the Gulf allowing rapid access to Qatar and Saudi Arabia and strong trade links with booming South Asian economies. Bahrain is ideally suited to foreign companies looking to access lucrative Gulf markets It is distinctions such as these and its skilled Bahraini workforce and cost competitiveness that make Bahrain a primary destination for foreign business, foreign investment and expatriates.

By Mahmood Rafique Business Correspondent

http://www.zawya.com/Story.cfm/sidZAWYA20080925032453/Bahrain%20tops%20in%20investment%20performance%20among%20GCC%20countries


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South Africa - Trade Deficit Shrinks in August

JOHANNESBURG (Reuters) - South Africa's monthly trade deficit shrunk to 5.12 billion rand in August, largely due to a big fall in oil imports, official data showed on Tuesday.

The South African Revenue Service said the monthly shortfall narrowed from July's 9-month record high 14.3 billion rand.

Compared with the previous month, exports fell by 1.43 percent to 60.4 billion rand, while imports decreased by 13.34 percent to 65.51 billion rand, largely due to a 37 percent decline in imports of minerals products, which include oil.

Economists polled by Reuters last week had forecast a deficit of 4.7 billion rand.

Analysts said while the gap had narrowed, it remained relatively large and would keep pressure on the country's ailing current account.

"It's another fairly large trade deficit and it would seem that the trade deficit for 2008 will be at least as big as last year's deficit ... we can still expect a huge current account deficit, between 7 and 8 percent, probably closer to 8 percent," Citadel economist Salomi Odendaal said.

Sustained gains in the rand between 2002 and 2005 eroded the value of South Africa's exports and attracted relatively cheap imports, widening the trade and current account gaps.

A weaker rand this year may help to boost exports, but a massive government infrastructure spending programme is expected to keep imports high, and the deficit on the current account large.

The shortfall on the current account eased to 7.3 percent of GDP in the second quarter from 8.9 percent in the first three months of the year. The deficit was at a 36-year high of 7.3 percent for 2007 as a whole.

The rand was steady at 8.2750 against the dollar after the data was released, about 0.8 percent firmer for the session, but still about 17 percent softer against the greenback so far in 2008.

SARS said the cumulative trade deficit for the first 8 months of the year was 54.4 billion rand compared to 50.8 billion rand during the same period last year.

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Monday, September 29, 2008

Trade imbalance creates shipping container shortage

Out of the box

Trade imbalance creates shipping container shortage

by Jaime Guillet
Major U.S. ports, such as Long Beach, Calif., are not being affected by a shipping container imbalance, but the Port of New Orleans, which is trying to grow its container business, is starting to feel the ripple effect.  (Photo courtesy Port of Long Beach)
Major U.S. ports, such as Long Beach, Calif., are not being affected by a shipping container imbalance, but the Port of New Orleans, which is trying to grow its container business, is starting to feel the ripple effect. (Photo courtesy Port of Long Beach)
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The hasty growth of exports from the United States coupled with the softening of foreign imports has shepherded a new trend in the maritime shipping world — a relative container famine.

The U.S. dollar’s decline in late 2007 and 2008 led to American exports rapidly increasing as other countries began gobbling up our cheaper goods. Foreign imports slackened as U.S. consumers halted spending.

This disparity resulted in an apparent shortage of the 20- and 40-foot steel cargo containers used for shipping on ocean vessels and rail lines.

At first glance, the dearth of containers resembles an overall global scarcity, but the real problem is containers are ending up in the wrong place at the right time, said Anne Kappel, vice president of the World Shipping Council, the national trade association of worldwide shippers.

“We have a trade imbalance right now,” Kappel said. “A slight shortage of containers is not necessarily a new phenomenon, but combined with new issues ... the difference makes everything tighter.”

While the problem hasn’t significantly affected container business at the Port of New Orleans, it is feeling the rippling effect.

The vast majority of imports entering the United States are finished consumer goods, such as tennis shoes and pencils, which manufacturers ship in containers. By contrast, the preponderance of North American exports is raw, unfinished goods such as lumber, grain and paper products.

A decade or two ago, most raw materials were shipped in break-bulk or not in containers. Today, they increasingly are being shipped in containers overseas.

When containers arrive in ports such as Houston and Long Beach, Calif., terminal operators unload them at the dock. The containers either go directly back on the ships to eventually return to their points of origin or sit as “empties” at distribution centers.

Exporters challenged

The container shortfall is primarily affecting U.S. growers, producers or manufacturers that want to export their goods out of the country but are not located where imported containers arrive, most often in highly populated urban areas.

“It’s less about how many (containers there are worldwide) and more about the flow for the U.S.,” Kappel said. “Physically there are boxes ... but there is still a significant imbalance — almost 2-to-1 imports to exports.”

The disparity can be seen even when looking at 2007 trade figures from the U.S. Maritime Administration. In 2007, the country received about 12 million containers via trade compared with the 6.8 million containers leaving the country.

“The change in U.S. trade patterns, an increase in export volumes coupled with slowing growth in some import corridors, has altered the historical patterns of equipment flows and balances,” said Bill Woodhour, North America sales manager for the Maersk shipping company.

Woodhour said while the U.S. remains import dominant overall, decreases in imports in some of its ports and the surge in exports have created the container imbalance.

“Overall, there is a sufficient supply of equipment in the U.S. to cover the export demand,” he said. “However, as a result of the changing equipment flows, there are some areas that require us to work closely with our customers to develop solutions to match the cargo with the equipment.”

Shifting services

Big-boy carriers such as Mediterranean Shipping Co. and Maersk Inc. that typically own their containers have adjusted to the tightened container demand by conducting “better forecasting and allocation of containers by carriers,” and requiring their customers to make reservations in advance, Kappel said.

Shippers’ customers, on the other hand, have started making multiple bookings with more than one carrier, which creates problems, she said.

“The manufacturer or exporter is trying to hedge their bets,” Kappel said. “It’s bad practice that’s been going on for a while.”

There are indications this trend of container shortages will alleviate as economies worldwide recoil following recent traumas to the U.S. investment markets.

Boston-based Global Insight, a consulting company that provides analysis of market conditions of more than 200 countries, recently projected U.S. container imports this year will decline 8.2 percent, a slightly more pessimistic forecast than Global’s previous projection of a 7.1 percent decline.

The revision is based mostly “on a deteriorating outlook for imports through the Gulf ports,” the company said in a statement.

On the positive side, Global increased its 2008 U.S. export growth forecast from 17.7 percent to 22.6 percent.

What does this trend mean for U.S. ports?

For major container ports such as the Port of Long Beach, where overall cargo figures are actually down, not too much, said spokesman Art Wong, adding that containers are going back on the ships or “too many boxes are sitting idle” at the port.

But at the Port of New Orleans, which is trying to expand its container business, it has had a slightly negative impact by requiring some U.S. exporters to consider carriers that do not serve New Orleans — all for availability of containers, said Robert Landry, the port’s marketing director.

“If you can’t get equipment, it’s a problem requiring some exporters to wait on available containers or forwarding it to another port,” Landry said.•

New Orleans City Business

Colliers International UAE launches Capital Investment Division

Colliers International, one of the world's largest real estate consultancies, adds investment services to its UAE business operations with the launch of its dedicated Capital Investment Division.

The new business unit has been established to satisfy growing demand for high quality investment opportunities in the booming Middle East region. 

Colliers Capital Investment Division enables investors to leverage the firm's extensive market intelligence and network of clients when investing in the global real estate market. 

With over $1 trillion worth of projects underway within the GCC, investors are becoming increasingly sophisticated in their search for suitable opportunities. According to Colliers, the key to making successful real estate investment decisions is in the quality of market intelligence available, and the firm is confident in its research capabilities which have enjoyed a market leading position across the Middle East since 1996. 

John Davis, CEO of Colliers, said: 

'We are pleased to now offer our valued clients the opportunity to invest in a selection of high-quality real estate investment portfolios from across the region. Our aim is to identify direct and indirect investment solutions that can meet our investors' target returns and risk profiles.'

Eamon Alashkar has been appointed Head of Colliers' Capital Investment division and is positive about the business unit's prospects. 

Mr. Alashkar said: 
'Middle Eastern real estate markets are experiencing varying degrees of upward growth. At the same time established western markets are reeling from the global credit crisis and are offering high-quality standing investments at very competitive prices. There are opportunities to be seized all around. Our ambition is to combine the strength of our Middle Eastern real estate market intelligence and our global network of specialist offices to bring ideal investment opportunities to our client base.


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Wlliam Nordhaus - New Economic Globe

Sterling Professor of Economics; Cowles Foundation, Yale University

Link to the New Economic Globe



World Trade and The Financial Crisis

GENEVA (Reuters) - Trade flows are likely to slow this year as consumers worried about the financial crisis cut back spending and a cyclical downturn bites into exports and imports, economists said.

But the crisis itself has so far had only a moderate impact on trade.

Exports and imports have been slowing markedly since the second quarter after growing strongly in the first, said Michael Finger, senior economist at the World Trade Organization (WTO).

"What we know already from the first seven-eight months is it's not a catastrophe, it's weakening. I don't see any panic or huge changes, it's relatively gradual," he told Reuters.

Trade would of course be vulnerable to a prolonged seizing-up of the banking system as commerce is financed by credit.

The picture is not quite as favorable as at first sight, because export and import figures earlier this year were inflated by record fuel prices.

In addition, business confidence has fallen to a three-year low in Germany, Europe's biggest economy which is powered by exports, and has also tumbled in the second biggest economy, France.

The head of shipping firm Excel Maritime Carriers Ltd (EXM.N: Quote,ProfileResearchStock Buzz) warned last week that banks were no longer lending to fund trade, and cargoes were being left stranded on docks even though the demand for goods is there. 

For the complete story go to:


By Jonathan Lynn @ Reuters


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Tata Communications in a partnership with Bahrain Telecommunications Company

Tata Communications has reported another key milestone in the global expansion of its MPLS network into the Middle East through a partnership with Bahrain Telecommunications Company. Batelco is Bahrain’s leading integrated communications provider, providing end-to-end telecommunications solutions to retail and enterprise customers in the Middle East region. This partnership enables Tata Communications to offer multi protocol label switching VPN services into Bahrain, Kuwait, Jordan and other locations within the region for its customers in the Middle East and elsewhere in the world. 

The Middle East region plays an increasingly important role the current global economic scenario, witnessing growth in business and a corresponding demand for global connectivity solutions. The partnership with Batelco extends Tata Communications’ capability to provide MPLS services in 78 countries and with Extended Access Service via P5cc gateways, in over 150 countries. 


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Libya to build Aluminium Smelter


The world's top aluminium firm United Company Rusal has signed an agreement with Libya to build an aluminium smelter in Libya with an annual capacity of 600,000 tonnes, reported AP. The parties also have agreed to build a 1,500 megawatt gas power station to supply energy to the smelter. The natural gas for the complex will be supplied by the National Oil Company of Libya under a contract intended to last at least 30 years. UC Rusal was formed in March 2007 by a merger between Russian producers Rusal and Sual, and the assets of Switzerland-based commodities trader Glencore.


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Abu Dhabi Investment Company and Union Bank of Switzerland Infrastructure Fund

The ADIC-UBS Infrastructure Investment Fund is currently bidding for four multi-billion dollar infrastructure projects including the Aqaba Port Redevelopment in Jordan, an independent power and water plant in Saudi Arabia, a sewage treatment plant in Bahrain, and a schools project in Egypt, reported Khaleej Times. Abu Dhabi Investment Company and Union Bank of Switzerland launched the infrastructure fund early this year, to invest in the expanding infrastructure in the MENA and Turkey. The fund will take up to a $100m equity stake in a 3,000 megawatt power project in Saudi Arabia worth $3.5-4bn.

80% of the worlds Platinum Reserves in Southern Africa

Platinum-group metals (PGMs) were a “very much misunderstood” group of metals that “the world just wouldn't operate without”, platinum mining doyen Brian Gilbertson said recently at the listing of his new Pallinghurst Resources company on the main board of the Johannesburg Stock Exchange (JSE). 

Gilbertson said that, while the use of platinum in automobile catalysts and jewellery was well-known, what was not as well known was the fact that without PGMs there would be:

* no fibreglass;
* no refining of oil that put petrol into vehicle fuel tanks;
* no nitric acid and therefore no nitrogenous fertiliser to grow crops; and
* the absence of an estimated 20% of all consumer products, that either contained PGMs or required the metals in their production.

“It’s a critically vital element, and 80% of the world’s reserves are here,” he said of the preponderance of PGMs in the Southern African region.

“It’s a set of metals that has a wonderful future for the years ahead,” said Gilbertson of the industry that provided his "first serious job” in the late 1960s.

Pallinghurst, which made its JSE debut at R7 a share as a large volume of equity was transferred from the Bermuda exchange, had two platinum projects that Gilbertson believed the company would be able to develop “very successfully”.

Both were on the western limb of the Bushveld Complex, one was in the Moepi group, which was being acquired, and the other at Magazynskraal.

In listing, Pallinghurst was honouring a commitment to early investors that the company would list in Johannesburg.

From the outset, Pallinghurst had sought half a dozen opportunities in the mining industry that investors had not fully recognised and that could be “turned around” in order to realise their full value.

“We have four at the moment,” Gilbertson told Mining Weekly Online.

Besides platinum, a second would involve the rebuilding Faberge as one of the world’s iconic brands, the third was to build a business in colour gemstones that was “absolutely booming” internationally but without the required consolidation and investment, and the fourth was in manganese and other raw materials needed for the making of steel, which was an economic growth prerequisite.

“We have acquired a very interesting opportunity in manganese,” Gilbertson said, adding that he was not ready, at this stage, to talk about the “one or two” other areas into which Pallinghurst might move.

On the cyclicality of the resources business, Gilbertson said that the opportunities had to be built in such a way that they were beneficial to investors irrespective of whether the cycle was up or down.

World growth was dependent on steel, platinum, copper and aluminium.

“Fundamentally, the outlook for decades is really positive. It’s really hard to see prices going back to what they were 20 years ago. Input materials are higher priced, there are no cheap easy-to-mine deposits. So fundamentally, commodities is a good place to be in for a long time,” he said.

COLOUR GEMSTONES


Until a decade ago, pure white diamonds were in widespread demand, but increasingly colour gemstones were coming into favour.

The windows of jewellery stores in London and Paris were now resplendent with emeralds, sapphires and rubies and even diamonds had moved from white to champagne and pink.

“It’s like moving to colour television from black-and-white television,” he said.

Fine rubies, sapphires and emeralds were achieving as much per carat, if not more, than the finest diamonds.

He saw great opportunities to develop this further not only in coloured-gemstone marketing, but also in mining.

“De Beers a century ago brought order to the mining diamond business, but in colour gemstones it appears to be artisanal mining with people almost coming out of the bush with a bucket and spade to mine it,” he said.

Despite the lack of investment to make mining efficient, the margins were higher than in diamond mining.

“There is a great opportunity to do the kinds of things in coloured gemstones that De Beers did so successfully a century ago for diamonds,” he said.

Pallinghurst had acquired an important stake in Zambia, which produced 20% of the world’s emeralds.

In the few months that the company had been involved there, output had improved materially.

“You will be able to track an emerald from that mine to the date that it was sourced and you will know that it is ethically sourced. The very finest ones will have embedded in them the Fabergé brand,” he said.

Fabergé had instant recognition among consumers and always achieved higher than its estimated value at auctions.

The Fabergé brand had been reunited with the family for the first time since the Russian Revolution and the first collection of Fabergé jewellery would appear at the Basle Fair next year.

Ultimately, luxury Fabergé handbags, eyewear and fine watches might be marketed and the first Fabergé “egg” since 1915 might be reintroduced from the reconstituted house of Fabergé, which might take the form of “something of great artistic value”.

Fabergé eggs sold at prices raging from £10-million to £15-million each at auctions, he said.

By: Martin Creamer

Sunday, September 28, 2008

Sovereign funds steer clear of US deals

As the entire US investment banking industry seems to teeter on the brink of disaster, investors are asking: Where are the Middle East mega-funds, flush with oil money?

After all, less than a year ago, these funds happily invested billions of dollars for minority stakes in some of the biggest Wall Street names. And as oil approached $150 a barrel in July, Middle East sovereign wealth funds amassed even more cash for deals. But as venerable banks like Goldman Sachs and Morgan Stanley slide, Middle East funds are keeping their distance.

The explanation is simple, bankers in the Middle East say: There are plenty of other, more attractive assets vying for the attention of these funds. While no one would rule out entirely the possibility that a Middle East fund will rescue Goldman Sachs or Morgan Stanley, it seems unlikely, they say.

Markets around the world have been hit by a downturn, said Youssef Nasr, chief executive of HSBC Bank Middle East, so there are compelling, value-priced deals available all over—sports teams in Britain, publicly traded companies in Russia and opportunities closer to home, like Middle East infrastructure acquisitions.

Middle East funds certainly got out their wallets this month—just not for Wall Street banks. A unit of the Kuwait Investment Authority is taking stakes in the country’s national telecommunications company. An Abu Dhabi investment fund owned by the royal family purchased the Manchester City Football Club, a popular soccer team. A Dubai fund is in talks with the British real estate developer Minerva. Saudi funds are looking at agricultural deals in Pakistan.

Because these funds have already invested billions of dollars in US financial institutions, they are less likely, not more likely, to put more cash into that sector right now, bankers say. Middle East sovereign wealth funds “put more money in a few months ago than they would have ideally done” because shares of financial institutions were relatively inexpensive then, Nasr said. That has “unbalanced” the portfolios of these sovereign wealth investors, he said.

“Now they need to go in the other direction,” he said, buying assets other than financial institutions, to diversify.

Jan Randolph, head of sovereign risk at Global Insight, an economic forecasting firm, said sovereign wealth funds “haven’t disappeared. They’ve remained on the sidelines or gone elsewhere”.

Middle East investors who were eager to seek stakes in financial companies a few quarters ago are staying away because the “magnitude of the crisis is much bigger than anyone thought,” Randolph said.

The sovereign wealth funds are also likely to be turned off by regulatory hurdles, political scrutiny and management issues.

Foreign purchases of US banks have attracted particular attention, ever since a scandal in 1991 involving the Bank of Credit and Commerce International, a bank based in Luxembourg that was seized in a coordinated action by regulators that year. BCCI had purchased stakes in US financial institutions without fully disclosing its involvement to regulators.

And none of the big sovereign wealth funds wants to engage in another bruising battle in the US Congress like the one that erupted when CNOOC of China tried to acquire UNOCAL in 2005. The US oil company went to Chevron.
Finally, the sovereign wealth funds generally have small staffs and have few people whom they could send to protect their interests in the event they took control of a major US investment bank.

Some sovereign wealth funds in Asia are still interested in US financial assets, though. The South Korean state-run fund, Korea Asset Management, for example, is hoping to buy nearly a billion dollars in nonperforming loans in the United States.

“The tables have turned,” the chief executive, Lee Chol Hwi, told Bloomberg News this week. Now Asian fund managers are coming to bail out US banks, the reverse of a decade ago, he said.

By Heather Timmons and Keith Bradsher

Global Financial Problems and Oil Price Volatility

US crude dived below the US$100 per barrel mark for the first time since 27th Feb 2008 to settle at US$91.49 per barrel on 16th Sep 2008, before recovering to US$104.55 per barrel on 19th Sep 2008. US crude fell 8.6% during the review period (Aug 19-Sep 19, 2008).Worldwide credit crunch in the aftermath of subprime crisis, appreciation of the US dollar to a one-year high against the Euro, minimal damage from Hurricane Gustav overwhelmed the geo-political risk arising from conflict in the Caucuses and potential damage by Hurricane Ike to pull down crude prices to a seven month low on 16th Sep 2008. OPEC basket and Kuwait export crude price followed the same pattern declining by 15.3% and 13.9% during the review period. Both OPEC basket and Kuwait crude settled at US$91.72 per barrel.


World oil demand is expected to grow by 0.9mn bopd to average 86.8mn bopd in 2008 (OPEC). Decline in demand from OECD countries was offset by increase in summer demand from China, Middle East and the rest of Asia by 4.0%. The decline in OECD demand is largely attributed to decline in US demand as a result of higher retail prices and worsening economic indicators. Forming of dark clouds over Wall Street with the fall of giant financial sector firms has further intensified fears of a global financial crisis which might lead to revisions in the World demand outlook.
World Oil supply was 86.3mn bopd, a rise of 3% YoY in August. Non-OPEC supply is expected to average 49.9mn bopd during 2008. (OPEC). This estimate is subject to revisions as the assessment of damage caused by Hurricane Ike in the Gulf of Mexico, where all the major oil facilities of the US are located, is still in an early stage. On the other side of the Atlantic OPEC decided to shed 520,000 bopd to 28.8mn bopd in the recently concluded meeting in Vienna citing sufficient oil supply in the markets.


The refining saw contrasting fortunes across the globe. Refining margins for WTI crude at US gulf surged by US$2.93 per barrel to US$6.16 per barrel from US$3.23 per barrel last month. (OPEC). Annual maintenance and disruptions by hurricanes is increasing crack margins despite a slowdown in product demand. Banking on the surge in US refining margins, Brent crude oil margins at Rotterdam increased to US$4.13 per barrel from US$1.39 per barrel in July. Refining margins in Asia saw a beating due to lower imports by China and higher regional output. Refining margin for Dubai crude oil in Singapore declined by US$1.93 per barrel to reach a negative US$0.25 per barrel in August.
Total US commercial stocks stood at 983.3mn barrels at the end of August 2008 compared to 988.8mn barrels at the end of July 2008 (OPEC) with Gasoline stocks declining the most by 14.8% during August 2008 to 194mn barrels from the July 2008 levels. Western European total oil stocks witnessed a decline of 10.8% during August 2008 to 1,110.6mn barrels from July 2008 levels largely due to a 15.9% decline in crude oil stocks to 469.mn barrels during the same period.


Crude Oil Prices
US crude oil lost US$5.67 (5.6%) on 15th Sep 2008 as news of Lehman Brothers bankruptcy and sale of Merrill Lynch swept the financial markets. With American international Group (AIG), North America’s largest insurer saved from a similar fate after an US$85bn bail out from the US government, the indications are clear that the impact of the sub-prime mortgage crisis hasn’t bottomed out yet. The credit crunch situation is likely to worsen which is sending down shivers in the commodities markets.
US crude oil prices have lost 28% in two month since it reached an all time high of US$145.16 per barrel on 14th Jul 2008. Strengthening of the US$, decline in demand in the OECD countries due to higher retail prices and phased removal of subsidies in the developing countries is also playing its part in pulling down the prices.


During the first week of the review period (Aug 19-Sep19 08) the crude oil prices settled slightly upward with the prices rising by 5.0% on 21 Aug 2008 amid potential supply shortfall in the wake of tension in the Caucuses and possible production disruption from the Hurricanes in the Gulf of Mexico. However since 27th Aug 2008 the markets witnessed a sustained decline of 19.0% to reach US$91.49 per barrel on 16th Sep 2008. Subsequently, the prices recovered to US$104.55 per barrel on 19th Sep 2008 as investors turned back towards the commodities to shield themselves against a possible devaluation of the US$ in the backdrop of the financial crisis and falling equity values worldwide. OPEC basket and Kuwait export crude price followed the same pattern declining by 15.3% and 13.9% during the review period. Both OPEC basket and Kuwait crude settled at US$91.72 per barrel.
In the futures market profit-taking was witnessed amid sufficient supply of oil, strengthening of the US dollar and signs of slower world economic growth. During the month of August 2008, the weekly average net positions fell to 4,300 contracts from 11,800 in July, which is the lowest level since Feb 2007.
Crude Oil Price Movements in the Middle East
An across-the-board decline was witnessed in August in the crudes in the Middle East with Bonny Light declining the most by 20.7% and BCF-17 declining the least by 14.0%. WTI/Brent differential increased from US$0.63 per barrel in July to US$3.55 per barrel in August. Brent/OPEC Reference Basket difference narrowed down from US$1.97 per barrel in July to US$0.62 per barrel in August. The difference between various crude oil prices is based on quality which in return is determined by the sulphur content present and other properties. Typically the WTI has traded at a premium of US$1 per barrel over Brent and US$2 per barrel over OPEC basket price. The variation in prices is caused by other market factors.


World Oil Demand
According to OPEC, forecast the world demand growth in 2008 will be 0.9mn bopd to average 86.8mn bopd. There has been a downward revision of 0.1mn bopd arising from a decline in OECD demand. The US, which is the largest consumer accounting for approximately 25.0% of the total world demand, witnessed a decline in demand amid worsening economic indicators and high retail prices. The US demand is projected to decline by 2.0% in 2008. Demand growth from Western European countries is expected to remain slack at 0.5% due to higher retail prices and shrinking pool of gasoline engine vehicles.
Demand growth is being led by Non-OECD countries particularly China and the Middle East and rest of Asia. With the financial markets going through turmoil in the aftermath of the sub-prime crisis, these figures are vulnerable to downward revisions as credit crunch might lead to a slowdown in economic activities world over.
World Oil Supply
According to OPEC, non-OPEC supply is expected to average 49.94mn bopd in 2008, a growth of 510,000 bopd over the previous year. There was a downward estimate of 70,000 bopd to the earlier estimates due to the BTC pipeline explosion and impact of Hurricane Gustav and Ike. Hurricane Ike appeared to have caused widespread damage in the US Gulf of Mexico. Though it is still early to assess the damage that it might have caused, it may lead to downward revision in supply.


OPEC Production
OPEC oil production averaged 32.5mn bopd in August, a decline of 20,000 bopd according to OPEC Sep 2008 monthly report. OPEC production not including Iraq was 30.12mn bopd. In the recently concluded meeting in Vienna, OPEC decided to cut its output to 28.8mn bopd (excl Iraq, Indonesia incl. Angola and Ecuador). The member countries in the conference agreed to strictly comply with the September 2007 production allocations. Anglola and Ecuador are the new members of OPEC while Indonesia’s request for withdrawal from the organisation was accepted in the meeting..
Refinery Margins and Utlisation
The refining margins have received a boost due to declining crude oil price, precautionary shutdowns in the US Gulf coast and more US draw downs of stocks. Refining margins for WTI crude at US gulf surged by US$2.93 per barrel to US$6.16 per barrel from US$3.23 per barrel last month. Banking on the surge in US refining margins, Brent crude oil margins at Rotterdam increased to US$4.13 from US$1.39. Refining margins in Asia saw a beating due to lower imports by China and higher regional output. Refining margin for Dubai crude oil in Singapore slid by US$1.93 to reach a negative US$0.25 in June.
Historically the throughput has increased during the driving season. However this time around decline in demand due to higher prices have led to lower throughput as can be seen in the table below. Throughput declined for all the countries with the exception of Japan and the UK which witnessed an increase of 0.19mn bopd and 0.02mn bopd respectively in August 2008 compared to July 2008. Similarly refinery utilization rates witnessed a declined with the exception of Japan and the UK . The utilization rate in US is likely to come down further as Hurricane Ike appears to have caused widespread damage. Low utilization rates will maintain its upward pressure on crack margins.


Refinery Product Prices
In absolute terms, the prices of all the major products witnessed a decline with Gasoil/diesel declining by at least US$25 per barrel in all the major markets. However the crack spread for gasoil for the WTI crude at the US Gulf coast surged to US$21.75 per barrel in the first week of September from US$10.75 per barrel in the corresponding period last month as hurricanes disrupted activities over there. Jet/kerosene oil prices registered a decline of around US$26 per barrel. Naphta prices declined US$17 per barrel in the Asian market and by US$16.75 per barrel in the European market.
World Oil Stocks
Total US commercial stocks stood at 983.3mn barrels at the end of Aug 2008 compared to 988.8mn barrels at the end of July 2008 with Gasoline stocks declining the most by 14.8% to 194mn barrels in Aug 2008 as compared to July 2008. The steep decline in gasoline stocks was due to lower imports and lower production from refineries. Commercial stocks in general fell in the first week of Sep 2008 to 974.6mn barrels from 983.3mn at the end of August 2008 due to production disruptions from hurricane activity.
Western European total oil stocks witnessed a decline of 10.8% in August 2008 to 1,110.6mn barrels from the July 2008 levels largely due to a 15.9% decline in crude oil stocks to 469.9mn barrels during the same period. Crude oil stocks declined amid lower production from North Sea and lower imports from BTC pipeline. In contrast distillates witnessed an increase of 6.9% in August 2008 as compared to July 2008.


Oil Production Plans in GCC
The major expansion plans are being executed by Saudi Arabia. Saudi Arabia is planning to raise production capacity to 12.5mn bopd by the end of the decade. Aramco is undertaking the major expansion plans with the largest expansion plan in place through Aramco Khurais development project which is expected to yield 1.2mn bopd by 3Q2009.
Other major expansions are coming in the UAE which is looking to expand its production capacity by 650,000 bopd by 2010. The major expansion work is being undertaken by Abu Dhabi Company for Onshore Oil Operations (ADCO) which is looking to expand its capacity to 1.8mn bopd from the current 1.4mn bopd by executing a US$3bn project ADCO phase 1 project which is expected to come online by 2010.
Kuwait Oil Company (KOC) is planning to increase oil production to 4mn bopd by 2020. The early production facility phase 1 and phase 2 are a part of this plan. Phase 2 is expected to process about 120,000 bopd of wet sour crude and 2mn cm per day of Liquefied Petroleum Gas (LPG) from Ratqa and Abdali fileds. Phase 2 will be located close to the EPF Phase1. The project is expected to come online by 2012.


The other major expansion will come online till 2030 which will be undertaken by Kuwait petroleum corporation (KPC). The Ministry of Energy and KPC plans to expand oil production in the northern fields from the current 550,000-600,000 bopd to 900,000 bopd, and sustain it over a 20-30 year period. The venture was initially proposed in 1992. The venture which is also known as Project Kuwait has a vision of a consortium of International Oil Companies (IOCs) providing the investment and technology needed to exploit reserves in the diffcult terrain in the northern fields in order to expand production

Oman is in the process of increasing its capacity by 200,000 bopd per day by 2011. PDO - Harweel Cluster Development Phase- 2A/B is expected to add 100,000 bopd by 2010.
In Qatar Maersk, which operates Al Shaheen under a production sharing deal with Qatar Petroleum, is carrying out US$5bn expansion at the Al-Shaheen Block-5, an offshore block, to raise production to 525,000 bopd by 2009 from the current 240,000 bopd.

September 26, 2008

By Global Investment House