As part of the Gulf Common Market (GCM), established to increase economic integration among GCC states, the UAE issued 1,884 licenses to GCC nationals last year.

The number of GCC investors trading in the UAE has increased 4 per cent, while joint stock companies listed on UAE exchanges that can be traded in by GCC nationals rose to 85 out of a total 153.

Governmental loans granted to GCC nationals to establish industrial projects rose to AED20m in 2009, compared to AED5.5m in 2008, while the number of GCC nationals who own property in the UAE rose to 22,706 last year.

The number of GCC nationals working in the UAE private sector reached 3,080 last year, compared to 2,117 in 2008, while GCC nationals working in federal government entities reached 605, and in local government 1,932.

HE Obaid Humaid Al Tayer, minister of state for financial affairs, said: “Our goal was, since the start of the GCM, to promote economic integration in the GCC, through the full support for bilateral trade among ourselves, and the same treatment for all citizens of the GCC countries in all economic fields. The statistics confirm our commitment to the GCM and highlight our contribution to GCC economic integration.”

Speaking to the Dubai School of Government about economic recovery in the GCC, Ali al Shihabi, Rasmala founder and chairman, said one of the weaknesses in the GCC economy is the lack of human talent in the public and private sectors.

He said: “In the GCC economy, one of the main acute weaknesses is a shortage of human talent. A shortage of management capabilities and that extends from the private to the public sector. People get surprised sometimes when you come into a government ministry, you see this beautiful building and you assume that it is going to be populated with a huge body of talent. But there isn’t that much talent.

“In Rasmala today we are looking for a PhD in economics who has good command of Arabic language and we are searching the whole region and we can’t find one.”

Shihabi said the economic infrastructure of the region in terms of policy making, be it central banks or ministries of finance or economics, “really doesn’t have a huge body of talent compared to any relatively advanced economy”.

He said: “Many people get surprised by the quality of policy making and wonder how some decisions get made and they try to find complicated reasons to explain that. And actually in some cases it is a simple answer, it is that the talent is not there. A smart minister by himself cannot commit miracles, he needs a body of people – think tanks, policy making staff, people to generate ideas, people to collect data. Without that in many cases he is flying blind. In the region we suffer from that lack of talent and we don’t really recognise it.”

Shihabi said a clear indication that the region has not recognised the shortage of talent is the number of new entities opening up in the GCC. He said:  “One of things that has happened in the past three or four years is this obsession with setting up new entities instead of reducing the number of entities and recognising that we have limited human talent. Whether its new companies, new government ministries or departments.

“This acute shortage of human talent is something we face and we suffer from and the solution to it is a long-term solution. In the interim we should recognise it and build our structures accordingly. The depth of talent that you need, you don’t have that.”

He also alluded to lack of transparency and an undeveloped legal infrastructure as two other major weaknesses for the region. He said the underdeveloped legal infrastructure in the Middle East is deterring international banks from setting up in the region.

“Another weakness is the undeveloped legal infrastructure. What that does is increase the risk premium, particularly for the banks. One of the big engines of economic development are banks and yet banks are very reluctant to lend in this region because the legal infrastructure is undeveloped and the chances of quick recovery of your money if you have a dispute are not very high.”

ARABTEC SAYS THE GCC'S OIL AND GAS PRODUCING COUNTRIES PROVIDE THE BEST OPPORTUNITIES FOR CONTRACTORS

Arabtec Holding’s finance chief said on Thursday that the oil and gas producing countries of Saudi Arabia, Qatar and Abu Dhabi offered the best opportunities for GCC contractors.

Ziad Makhzoumi said that with the populations of each country growing and far slower development timeframes, the need for soft and hard infrastructure was huge.

Strong government support due to the nature of the infrastructure projects made it more likely for contractors to get paid, he added.

In comments published by Construction News, Makhzoumi said: “There is a misconception that construction is purely high rise buildings and hotels. It is not,” said Makhzoumi in comments published by Construction News.

“Dubai grew very quickly and did lots of things that many others did not, so in some ways Abu Dhabi is behind, in some ways Qatar is behind, in some ways possibly Saudi Arabia is behind.

“In Saudi Arabia particularly, you have a massive population, so the infrastructure requirements will be enormously more than they are in Dubai. The projects themselves will also be bigger because you have a big population that’s growing at a very fast rate.

“If you look at the studies that have been produced by the different institutions, they estimate that Saudi Arabia will require about US $ 2.4 trillion worth of infrastructure work in the coming years.”

Makhzoumi also said that governments flush with capital like those in Saudi Arabia, Qatar and Abu Dhabi were willing to spend big on infrastructure.

“Payment terms are up to the contractor to agree, but as long as the funding is there and the project is important and not cancelled or suspended then there is no reason why the client will not pay,” he added.

“For the projects which have been earmarked to be done there will be excess funding, and most will be done in the same timely manner that they have announced.”

Some of Arabtec’s ongoing projects include the Princess Noura Women’s University in Saudi Arabia. Earlier this year, the company secured two projects in Abu Dhabi and a further two in Qatar.

Earnings among UAE corporates have taken a huge leap to $3bn in this year’s opening quarter, a new report has revealed.

Kuwait Financial House’s study shows that the 120 percent rise from Q4 2009 was led by growth in the UAE’s banking and financial services sector, which accounted for $1.4bn. It added that the rise was most likely related to Dubai World’s debt announcement last November.

Across the GCC, corporate earnings soared to $11.4bn between January and March this year.

Kuwait was the second best performer with $1bn in earnings for the quarter, a 10-fold year-on-year increase. A revival in the country’s financial industry following a fraught 2009 was attributed to the growth.

Saudi Arabia, boosted by SABIC’s $1.4bn profit, posted a 68 per cent year-on-year gain in corporate earnings. But banking sector profits in the kingdom fell 10 per cent to $1.5bn during the same period as banks made more provisions.

In Qatar, telecoms growth spurred a six per cent yearly rise to $2bn, while earnings in Bahrain and Oman tumbled 10 per cent and 16 per cent respectively.

Poor performances for the banking industries in Bahrain and Oman contributed to their respective dips in corporate earnings.

Speaking at the inaugural GCC Mortgage Summit 2010, Central Bank of Bahrain’s executive director of banking supervision, Khalid Hamathe, said:

“Current prices are not affordable or realistic, and further falls are necessary and then economic fundamentals will start rebuilding market confidence.

“The fundamentals of the region are good, underpinned by growing global demand for oil. Particularly in commercial real estate demand is weak and prices are unrealistically high.

“And for residential property the demand is in the low and middle income segment while the supply is in the luxury market.”

Ernst & Young’s Head of the Islamic Financial Services Group, Sameer Abdi, pointed out that 80 per cent of Bahrain nationals earned less than BD1,200 per month, and with local mortgages at 9.25 per cent there is no way for this group to pay a large mortgage.

He said mortgage rates would need to fall to around three per cent for Bahraini nationals to afford to buy a villa, or house prices would have to come down.

This challenge to mortgage providers was taken up by R. Lakshmanan, CEO of Sakana, who noted the large role of expatriates in some GCC property markets, particularly the UAE.

“This industry is still in its infancy and a baby, and for the past two years has been coping with the impact of the global financial crisis and 25 to 50 per cent house price falls.”

From Saudi Arabia, Khalid Ali Aboodi, CEO of the Islamic Corporation for the Development of the Private Sector, explained how the kingdom is looking to home ownership as a means of both developing economic activity and the greater social responsibility that comes with it.

However, the development of the Saudi mortgage sector is currently hampered by the slow passage of the key mortgage law which Al Aboodi hoped would come ‘very soon’.

Confectionary giant Mars has opened a $40 million factory in Dubai to satisfy growing demand from the emirate’s chocolate lovers, the company said on Wednesday.

Mars and Snickers bars will be produced from a 6,000 sq m facility in Jebel Ali as the company bids to surpass last year’s $450 million net sales for the GCC.

“Mars GCC has been experiencing double digit growth year on year since the beginning of the decade…We are pleased that consumer demand in the Middle East has and continues to generate opportunities for stable long term growth,” said Ahmed Bayoumi, general manager of Mars GCC.

“We are committed to strengthening our position as the leading chocolate manufacturer in the Middle East and our increased presence in GCC will help us achieve this growth by supporting consumer and customer needs in the region,” he added.

The new facility will manufacture a range of Galaxy chocolate, distributing them along with Mars and Snickers bars to more than 20 countries in the GCC, Middle East, Africa and Europe.

It will also help create more jobs as chocolate production increases, the company said.

EMIRATES PALACE, ONE OF ABU DHABI'S LEADING HOTELS

Tourism numbers in UAE capital bolstered by GCC visitors, according to Abu Dhabi Tourism Authority figures.

Abu Dhabi’s tourism sector has been bolstered by increasing numbers of visiting GCC nationals, according to figures released by the Abu Dhabi Tourism Authority (ADTA).

In the first quarter of 2010, some 26,685 GCC nationals stayed at hotels within the emirate, a 29 per cent increase on the same period last year.

Particularly in the depressed economic climate of the last 18-24 months, Gulf countries have been a primary source market for Abu Dhabi. GCC countries now rank as the second biggest tourism market for the UAE capital, eclipsed only by the UK in this regard.

According to Faisal Al Sheikh, ADTA events manager, Saudi Arabia accounts for the biggest proportion of these visitors, with the number having jumped significantly in the last 12 months. “The number of Saudi guests who stayed in Abu Dhabi hotels during the first quarter of this year numbered 9,083, which is a 23 per cent increase compared to figures for Q1 of 2009. Saudi remains our biggest market in the GCC,” he said.

Strong air links between the Kingdom and Abu Dhabi is one reason for the growth in Saudi Arabian visitor numbers. Etihad, the national airline of the UAE, flies seven times a week from Jeddah and eight times a week from Riyadh to Abu Dhabi. Saudi Arabian Airlines operates three and four flights a week respectively from Jeddah and Riyadh.

Experts say Islamic finance has potential to reach $4trn in next 10 years, providing skills shortage and GCC bank asset fears do not hinder growth.

The Islamic finance industry could hit $4trn within 10 years, but fears loom large over a chronic talent shortage and the asset quality of GCC banks, according to research by Kuwait Finance House (KFH).

Islamic banking assets worldwide have grown 10 per cent annually from about $150bn in the mid-1990s to $770bn in 2009.

But despite a positive post-crisis recovery, the future growth of the Shariah industry is still up in the air, said Baljeet Kaur Grewal, managing director and vice chairman at KFH Research.

“In the GCC, although liquidity is slowly returning, expect financing growth to remain lacklustre on the back of a challenging operating environment and concerns over banks’ asset quality.

“The Islamic finance industry is growing at a much faster rate than it is developing and acquiring new talent. The shortage of human capital could turn out to be the main impediment to growth if not addressed immediately,” she said.

Within Islamic financial services, Grewal expects a global recovery led by the sukuk market on the back of the popularity of Islamic products and because of the investment and financing requirements of the GCC and Asia.

Islamic financial institutions are subject to Shariah regulations and are forbidden from investing in the complex derivative instruments that brought down many of the traditional banks in the West.

But Grewal said although this afforded the industry some protection, it does not exist in an economic “vacuum”.

Sukuk issuances slumped 54.9 per cent $15.5ln in 2008, while Islamic equities dropped 39 per cent worldwide.

Despite this, KFH Research, one of the world’s few Islamic bank-backed research houses, expects 2010 sukuk issuance to come in at about $30bn.

Regulatory changes and greater transparency will provide more financial stability across GCC markets, IIF says.

Growth across the GCC will fall to at least four per cent as the effects of the Dubai World debt and Saad-Algosaibi fallout continue to reverberate throughout the region, the IIF has claimed.

During a press conference on Monday, the Institute of International Finance said that 4-5 per cent growth was likely in the medium term compared to seven per cent from 2003-08.

Dr George Abed, senior counsellor and director for IIF’s Africa and Middle East department, said regulatory change was needed to boost the GCC’s growth to previous levels.

“The default of the two family affiliated conglomerates in Saudi Arabia, and most recently Dubai World’s debt crisis, have been a wake up call for policy makers in the region,” he said.

“Dubai’s rapid growth in 2002-2008, which depended in part on leverage and debt, will need to change significantly.

“Progress in structural reforms including improvements in the legal and regulatory environment, and enhancement of transparency and governance, supported by a benign global market environment, should lift the region’s economy to a higher growth path.”

Dr Abed added transparency among GCC corporations, stronger financial reporting and development of local debt markets was essential to the region’s prosperity.

Oil and gas is expected to rise from $323bn last year to $419bn in 2010, while GCC countries’ net foreign assets will likely climb to $1,340bn by late 2011 from $1,049bn at year end 2009.

The IIF report also forecast non-oil GDP growth of 3.7 per cent and 1.8 per cent in Saudi Arabia and the UAE respectively.

“With a successful resolution of Dubai’s debt issues, especially if this sparks an acceleration of reforms, non-oil growth in the UAE could reach 2.7 per cent in 2010 and 4.3 per cent in 2011,” said Dr Garbis Iradian, senior economist for IIF’s Africa and Middle East department. “In this case, Dubai would avoid another contraction in its economy.”

He added that inflation pressures would generally remain contained at less than 1 per cent for Qatar and the UAE, four per cent in Kuwait and five per cent in Saudi Arabia.

Robert Broadwell discusses why more GCC-based financiers should invest in exchange traded funds.

We’ve seen a flurry of news in the GCC financial press about exchange traded funds (ETFs), but many investors are still unfamiliar with the basic structure and how they may be used in efficient portfolio construction. ETFs represent a simple proposition – it is an  investment vehicle constructed like a mutual fund but trading like an individual security on a stock exchange.

The key benefits of ETFs are that they offer low cost, diversified and transparent exposure to equity, fixed income and commodity  indices as simply as trading a stock. The goal of an ETF is to deliver a return in line with the total return index that the fund aims to track.

ETFs are listed on stock exchanges around the world and like a share, they can be traded in real time whenever the exchange is open. Unlike many other types of funds, there is no active stock/bond selection in ETFs. Instead the investor is given exposure to whichever companies make up the index that the ETF is tracking, with the market price of the securities in the index dictating the price of ETFs on exchange. As with all investments the value of a holding in ETFs may go down as well as up and an investor may not get back the amount invested.

At the end of February 2010 the global ETF industry had 2,090 ETFs with 3,997 listings and assets of US$1,001.5bn from 115 providers on 40 exchanges around the world. The product category is booming and the ETF growth is set to continue; we predict European growth to be in the region of 20 to 30 per cent in 2010.

GCC-based investment professionals are using ETFs in multiple ways including core/satellite strategies, gaining access to ‘under-researched’ investment areas and managing cash flows. Most professional investors would concede that while they are experts in their specialist area of investment, they might not have the level of knowledge or time required to make informed decisions in areas with which they are less familiar. Buying into an appropriate ETF would provide a practical and cost-efficient solution. An example would be a GCC-based company that would like to increase its exposure to Japanese equities in their investment portfolio.

The fund manager, however, does not have the in-house resource or time to pick individual Japanese equities, Instead, the manager decides to invest in an ETF benchmarked to the MSCI Japan Index. The net result is that the portfolio manger will have increased the overall exposure to Japan, while reducing the single stock risk that would have been the case if he had simply bought a few select Japanese equities.

The more likely scenario is that the portfolio manager would have split the investments for Japan into a core holding in ETFs and satellite investments into actively managed Japanese Equity funds with a solid record of out-performing the overall Japanese market.

Managing cash flow is also important as active fund mangers typically maintain a cash buffer of between 1 per cent and 3 per cent of a fund’s total assets in order to effectively meet client redemptions. Conversely, new investments into a fund can generate a cash balance that might exceed the desired weighting.

An example here might be a GCC-based mutual fund manager running a global equity fund. They may be using external active managers for global equity, but need a tool to “park the cash” before meeting the minimum investment amounts needed to fund larger mandates with external managers.  The manager could buy an ETF tracking MSCI World Index as a way to keep the money invested in the market until the cash may be allocated to the external manager.

In essence, ETFs are liquid and inexpensive to trade, they make efficient hedging tools and can be traded in real time through a stock exchange, providing access to previously closed markets for investors.

Robert Broadwell is vice president of iShares, a family of ETFs managed by global investment manager BlackRock.