the falcon

An Egyptian Gulf Bank Publication Issue 1 May 2009

thefalcon Focusing on Middle East opportunities

Energy Green shoots of recovery Mortgage and Finance Soaring opportunities for mortgage lenders Smes Small business - the region’s untapped powerhouse Real Estate Rays of light break through real estate gloom Entertainment Film industry focuses on Middle East Tourism Tourism faces global challenge

Obama at the

crossroads

We don’t deal with numbers

thefalcon flies high I would like to extend a warm welcome to thefalcon. The purpose of this new monthly magazine is to fill what has until now been a gaping hole in the world’s media coverage of the Middle East. In covering business events from a regional perspective, existing publications have a tendency to analyse the region from an external perspective and hence frequently overlook lucrative business opportunities.

Like the bird of prey that inspired its name, thefalcon will focus on emerging opportunities throughout Egypt and the rest of the Middle East. Egyptian Gulf Bank believes that the region represents significant investment opportunities of which much of the rest of the world is sometimes unaware.

The mortgage market is one such example. In developed economies such as the US, an excessively aggressive level of mortgage lending is widely acknowledged to have triggered the current global financial crisis. By contrast, the mortgage market in an emerging economy such as Egypt is about to enter an era of robust growth.

A rapidly emerging middle class, a new computerised land registration system and an extremely low current level of penetration make Cairo, with its population of over 18 million, one of the most fertile markets on earth for mortgage lending. Saudi Arabia, with its youthful and affluent population, is this year scheduled to enact new laws establishing a legal framework for mortgages, with a draft already having been approved. This is expected to boost home ownership in the oil-rich kingdom.

Egypt also has a growing number of small to medium enterprise (SMEs) that are increasingly attracting an international client base. This is particularly true of the information technology (IT) outsourcing market, which is seeing large multinationals choosing small Egyptian companies for software development and the performance of back office functions. Egypt’s high level of education and linguistic skills, which commonly include French alongside English and Arabic, combine to make Egypt an outsourcing centre that is now seen to be rivalling more established outsourcing centers such as India and China.

The bird after which this magazine is named, the falcon, is the world’s most effective predator reaching speeds of up to 200 miles per hour. Its hunting methods combine vigilance and speed. The falcon will fly high and hover for long periods without changing position searching for prey. Once its target is sited, the falcon drops like a stone from the sky and seizes the opportunity in its claws. Egyptian Gulf Bank’s publication, thefalcon, intends to focus on emerging business opportunities throughout the region with a similar efficacy.

CEO and Managing Director Egyptian Gulf Bank

thefalcon

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Contents Cover Story Page 4

Green shoots of recovery

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Developed countries such as the US and emerging economies like those in the Middle East are now starting to seize the commercial opportunities offered by the growing global green lobby.

Obama at the crossroads

The new US president must now choose whether his administration will enter a new era of inward-looking protectionism or whether the US will embrace a global market in goods and services.

News Analysis

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Oil price rollercoaster slows Saudi launch defies financial crisis Telecoms market set for growth Approval for Dubai’s $20bn bond

Soaring opportunities for mortgage lenders

Rays of light break through real estate gloom

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Despite the crisis in Western economies caused by overselling of sub-prime mortgages, certain locations in the Middle East such as Cairo and Riyadh offer huge potential for mortgage lending.

In spite of the deepening gloom spreading over Dubai, some of the region’s real estate markets are proving surprisingly resilient to the fall in property values triggered by the financial crisis.

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Contents

Small business - the region’s untapped powerhouse

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The region is waking up to the potential SMEs offer for injecting a new commercial vitality into the economies of the Middle East with Egypt leading the way.

People on the move

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Australia names its new Egyptian ambassador.

Sky News to open new foreign bureau in Dubai.

Orascom Telecom promotes its Group COO to become Vice Chairman Corporate Strategy and Business Development.

Tourism faces global challenge Sport

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Having attracted recordbreaking numbers of tourists in 2008, Egypt is now finding new opportunities for growth despite the global financial crisis and the recent bomb attack in Cairo.

Film industry focuses on Middle East

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With Cairo rapidly becoming one of the film capitals of the world, the region’s burgeoning film industry has the potential to provide a boost for industries such as IT, tourism, textiles and fashion.

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‘Unfair’ domination of football by rich clubs Golf’s new stars Formula One teams fight to survive

Projects and tenders

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Top 5 Egyptian projects (By Value)

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Middle East

Obama at the crossroads

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lthough America’s new leader is perceived as facing his greatest challenge on the domestic front, his stance on the Middle East is likely to prove crucial to his success at home and abroad.

Dr. Magda Shahin, director of the Trade-Related Assistance Center within the American Chamber of Commerce (AmCham) in Egypt, believes the States’ weakened financial position will make Egypt and other developing markets an even more critical destination for American goods, lessening the leverage that the US may have to impose new trade terms.

“They cannot try now to take more protectionist policies and measures for their own markets when they need the external markets to get out of the crisis,” says Shahin.

And although the playing field may appear to be levelling, if only slightly, in Egypt’s favour, Shahin says it is important that both sides try to find a balance between their needs.

Taher Helmy, former

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president of AmCham and a law partner at Baker & McKenzie’s Cairo office, who also served on the Presidents’ Council, formed in 1995 under then-President Bill Clinton to enhance business ties between Egypt and the US, says that under normal circumstances, economic ties would likely improve under Obama, and that even during the current crisis, the stage is set for increased dialogue and improved political relations.

“I believe the appointment of Hillary Clinton as secretary of state is good because she is a known entity to us and I believe she will be more

The new US president must now choose whether his administration will enter a new era of inward-looking protectionism or whether the US will embrace a global market in goods and services

administration.”

The political orientation of the rest of the Obama team must also be taken into account, as his new cabinet contains many members that have decidedly pro-free trade views. Some served under the former Clinton administration, which worked diligently to expand free trade between the U.S. and other countries, the most notable being the new White

negotiations for a Free Trade Agreement with Egypt.

Following Egypt’s economic reforms and the signing of a Qualified Industrial Zones (QIZ) agreement with Israel and the US in 2004, a Free Trade Agreement with the US seemed to be the next logical step. But preliminary negotiations in 2005 failed to materialise and many commentators believe this will continue to be the case.

“I believe that this administration is not a big believer in regional free trade areas. This is why I believe that the US and Egypt will have a vested interest to look sector by sector how to work it out,” said Shahin.

Shahin suggests that Egypt should focus on expanding the QIZ opened in 2005, which allows Egyptian companies duty-free and quota-free exports to the US. A Generalized System of Preferences (GSP) agreement also allows certain products

To the Muslim world we seek a new way forward with mutual trust and respect Obama inclined to listen to Egypt and develop a relationship with Egypt and I think that’s why Egypt will have an advantage in the coming period,” he is reported to have said.

“Frankly, we were not listened to during the Bush

House chief of staff, Rahm Emmanuel.

Will the US reopen FTA negotiations?

One question now being asked is whether the new administration will reopen

from developing countries, including steel and textiles, to enter the US market duty free.

“I think despite the fact that there will be no umbrella negotiations having everything underneath, every thefalcon

Middle East country is going to eye the tradeoffs, so we would like certainly to use better the GSP, we would like to expand on QIZ, we would like to expand our exports,” Shahin is reported to have said.

Shahin added: “The US would like to see more forceful implementation of IPRs [intellectual property rights], the US would like to see an updating of the investment agreement to give additional rights; there are lots of points which we have rejected so far because we don’t see where are the tradeoffs.”

The picture becomes even more complex when Obama’s policies are seen in the context of an increasingly global marketplace for goods and services. Not only is trade between the US and the Middle East set to grow, there is also a range of lucrative business opportunities for US firms.

Countries such as Egypt, for example, are increasingly being seen as cost-effective outsourcing centres for Western companies’ information technology (IT) requirements.

It is an economic reality that, in order to remain internationally competitive, organisations need to outsource high-paid jobs such as those in the IT industry away from countries such as the US. An average salary for a software developer in the US is around $75,000 and a growing number of thefalcon

companies are now deciding to outsource to countries such as Egypt, with its high level of education, wide linguistic skills and committed workforce.

This world paradigm is at odds with the new president’s

pre-election pledges to keep jobs in America. Days before his inauguration, Obama is reported to have told workers in Ohio: "We're not looking to create just any kind of jobs here; we're looking to create good jobs that pay well and

can't be shipped overseas."

According to a recent report by global strategic advisory firm, the Hackett Group, US corporations will move at least 140,000 jobs offshore in 2009 and 2010, and more than ý

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Middle East 50% of those jobs will be in IT. Hackett predicts that, by 2010, about 25% of all IT jobs at the world's largest companies by market value will have been moved offshore.

Nevertheless, outsourcing IT jobs overseas has been a political hot potato in the US and is likely to become so again. For example, the recently passed $819 billion economic stimulus package, known as the American Recovery and Reinvestment Act is partly structured to create IT jobs. A $20 billion chunk of the stimulus package is directed at health information technology and the building of an infrastructure to promote the electronic exchange of health records. According to the Information Technology & Innovation Foundation, a nonpartisan think tank, the investment will create or retain 86,820 jobs for one year in high-paying industries such as computer hardware manufacturing, software, and IT services.

The stimulus act also includes another $6 billion to improve broadband Internet access in the U.S. That amount would create or retain 29,892 direct telecom jobs

We are a nation of Christians and Muslims, Jews, Hindus and nonbelievers Obama

for a year and 8,304 capital equipment jobs, according to the Information Technology & Innovation Foundation.

Around $11 billion in funds will go to modernizing the power grid in the US and will create or retain 64,509 direct and indirect IT jobs for a year, according to the foundation.

"IT did pretty well.

There's a real focus on digital infrastructures, there's real money there," says Robert Atkinson, president of the Information Technology

and Innovation Foundation.

"It basically affirmed the commitment that the country's building out IT networks is important to our future."

Against this background of expectations, it will be tough for Washington to resist pressure to pass legislation to try and prevent or at least slow down the flow of outsourced jobs from the US. However, the new president will have to make a decision whether the US is to adopt a new uncharacteristically protectionist stance or whether it is willing to look outwards and place its trust on a free global market in goods and services. In the end, this will be a matter of political faith on the part of the new president as much as commercial expediency.

Barack Obama had already begun to challenge the view that he was only focused on domestic US issues at his inaugural address.

Sentiments of friendship towards the Islamic world expressed by the incoming president seemed heartfelt and, as the financial crisis has incontestably proved, markets and economies across the globe are governed by

sentiment at least as much as are politics.

A new way forward “To the Muslim world we seek a new way forward with mutual trust and respect,” promised the new president.

Even when talking about the United States, President Obama was careful to paint a picture of a multi-faith society.

“We are a nation of Christians and Muslims, Jews, Hindus and nonbelievers,” America’s new president proudly proclaimed to the largest number of television viewers ever to watch a single event.

Although history has taught the world to maintain a healthy cynicism when it comes to presidential statements regarding the brotherhood of man, Obama has a deeper knowledge of the reality of the Islamic world than possibly any other US President. In the late 1960s, Barak Obama spent four of the most formative years of his life being educated in a primary school in Jakarta Indonesia, a primarily Muslim country.

There is also some evidence that Obama and his team really do intend to

Obama team intends to use a broader arsenal of diplomatic tools than their predecessors on Capitol Hill indicates Obama’s new secretary of state, Hilary Clinton 6

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Middle East rely less on force and more on diplomacy and economic treaties than the Bush administration.

Obama’s new secretary of state, Hilary Clinton has, for example, indicated that Obama team intends to use a broader arsenal of diplomatic tools than their predecessors on Capitol Hill. Instead of relying on military force to achieve America’s foreign policy objectives, Clinton has said she would prefer to rely on “smart power”, understood in part to be a reference to the tactical use of economic agreements.

The jury is still out on what form such agreements might take or to what extent they might benefit or be detrimental to the economies of the Middle East. However, there can be little doubt that any successful diffusion of tensions between the US and the Islamic world could only benefit Middle Eastern trade in the long run. And in this respect, the Obama team’s heart would appear to be in the right place.

While much of the incoming president’s energy and that of his team will be focused on solving the US’s domestic financial crisis, there is also a feeling across the world that Barak Obama’s presidency may herald the beginning of new era of understanding between the US and the Islamic countries of the Middle East.

Since the swearing-in ceremony, U.S. President thefalcon

Barack Obama has voiced his readiness and willingness to engage in Middle Eastern affairs. Three days after the swearing-in ceremony, the U.S. president appointed veteran diplomat Mitchell as the new U.S. envoy to the Middle East. Mitchell served on an international commission that examined the escalating IsraeliPalestinian conflict in 2000.

Mitchell has described himself as an Arab-American.

His mother was an immigrant to the US from the Lebanon while his father was of Irish descent. This background gives him a unique perspective on the challenges facing the Middle East.

Mitchell is known to have excelled in his mediation role in Northern Ireland owing to his patience and readiness to

Three days after the swearing-in ceremony, the U.S. president appointed veteran diplomat Mitchell as the new U.S. envoy to the Middle East

“I believe that this administration is not a big believer in regional free trade areas. This is why I believe that the US and Egypt will have a vested interest to look sector by sector how to work it out,” Dr. Magda Shahin, director, AmCham listen to all parties involved in the conflict and to include them in a resolution. He first led a commission that established the principles on non-violence to which all parties in Northern Ireland had to adhere and subsequently chaired the all-party peace negotiations, which led to the Belfast Peace Agreement signed on Good Friday 1998 (known since as the Good Friday Agreement).

Mitchell's personal intervention with the parties is widely acknowledged to have been crucial to the success of the talks.

George Mitchell has already completed a maiden trip to the region. At a press conference following talks with Egyptian President Hosni Mubarak, Mitchell said it should be seen as a strong signal that the U.S. administration is committed to the Mideast peace as he was delegated to the region just one week after Obama assumed office.

This is now being seen as evidence by US academics

that the new president has devoted more resources to the Middle East than some US commentators had predicted.

While, for example, a country such as Egypt is a relatively minor trading partner for the US with just over $2 billion (LE 11.1 billion) in annual exports and $5.6 billion (LE 31 billion) in imports, keeping Egypt’s economy healthy is critical for the US in maintaining a politically and economically stable ally in the turbulent region.

According to Shahin: “From the US perspective, Egypt is an emerging and lucrative market for US goods and services as well as a hub for operating in the Middle East and Africa.

Furthermore, the economic fate of Egypt will indeed impact its political leverage in the region, leverage that the US will always rely upon.

Increased bilateral trade relations and encouraging foreign direct investment can therefore provide a sound platform for enhancing the security relationship.” l 7

Energy

Green shoots of recovery

T

he US has given the world a clear indication that it intends to take a lead in the drive to develop sources of green, or environmentally sustainable, energy in the form of a cash injection of over $70 billion from The American Recovery and Reinvestment Act (ARRA).

Developed countries such as the US have traditionally led the way in developing environmentally friendly projects and technologies, but emerging economies are now also beginning to rise to the global challenge.

Despite having one of the highest per capita footprints on the planet, the Middle East is also investing billions of dollars generated in the oil fields in environmentally friendly projects.

Amid growing worldwide concerns for the long-term environmental consequences of a world running on oil, the Middle East is reassessing its role as an energy powerhouse. When even the richest oil fields are bound to run dry one day, there is, in any case, a strong commercial argument for the Middle East to develop longterm energy sources.

Egypt is taking a lead in transforming the Middle East from being an oil 8

producer to also becoming a global production centre for ‘green’ energy. Speaking at a recent roundtable energy conference in Abu Dhabi organised by CNBC Arabiya, the Satellite TV channel behind the recently launched “Green Business” Bil Akhdar programme, Egypt said that its energy sector was now on track to become the leader in the Middle East on renewable energy initiatives.

According to Egypt’s Electricity and Energy Minister, Dr. Hassan Younes “Wind farms clustered in the Saidi area of Egypt will employ thousands of people and produce 20% of the country’s diversified energy

Wind farms clustered in the Saidi area of Egypt will employ thousands of people and produce 20% of the country’s diversified energy needs by 2020 Electricity and Energy Minister

Developed countries such as the US and emerging economies like those in the Middle East are now starting to seize the commercial opportunities offered by the growing global green lobby needs by 2020.”

He revealed that Egypt’s stand-alone project would involve moving electricitygenerating wind farms to the Saidi area. The new initiative will be welcomed

by Greenpeace activists who claimed two years ago that Egypt had over 80 times more energy available from renewable sources than was needed at the time for current electricity production.

In addition to the use of wind, there is also a major opportunity to harness more of the sun’s energy through the latest solar technologies.

In 2008, a number of new programmes were launched to protect Egypt's natural

resources and preserve its cultural heritage. These follow on a commitment to ‘green’ issues that has been in evidence for some years. In a bid to reduce the environmental impact of the growing influx of tourists while maximising economic opportunity, the Tourism Development Authority and Egyptian Environmental Affairs Agency partnered in 2005 with the US Agency for International Development to launch the Livelihoods and Income from the Environment (LIFE) programme.

The $20.5m initiative ended in September of last year. It focused on three major components of environmental protection in Egypt: integrated water resources management; lead pollution remediation and clean-up in the Qalyoubia governorate; and support for sustainable economic growth in the Red Sea governorate. The Red Sea region in particular received $12.7m, with funding going toward technical support, the implementation of new training programmes and fostering general awareness of environmental issues.

More specifically, LIFE helped design communitybased solid waste systems thefalcon

Energy

that will enable governments around the world, including our own, to meet the targets they are setting for the adoption of renewable energy.”

He added that international evidence of the widespread adoption of renewable energy includes recent commitments by the governments of Australia and the United States to make investments in renewable energy technologies, a commitment by the European Parliament to reduce carbon emissions by 20 per cent by 2020, and international efforts led by the governments of Germany, Denmark and Spain to establish an International Renewable Energy Agency.

"Looking at recent local and international commitments, it is our view that the world has reached a tipping point in the acceptance of renewable energy," Al Jaber said. "We have a long, challenging journey ahead of us, but we are heading in the right direction and the progress we are making is irreversible.”

in Marsa Alam, Hamata and Shalateen, along with a house reef management system for Red Sea hotels. The partnership also helped the EEAA to designate 14 islands in the Red Sea as protected territory, thus preserving approximately 17,000 sq km of sensitive habitat.

The United Arab Emirates is also taking steps to make better use of its resources.

Renewable energy sources will account for at least seven per cent of Abu Dhabi's power generation capacity by 2020, according to the chief executive of Abu Dhabi Future Energy Company, Dr. Sultan Ahmed Al Jaber, almost 85 per cent of the UAE's electricity generation capacity is gas-based, while the other plants are oil-fired.

Nearly all of Abu Dhabi and Dubai's electricity comes from gas-based stations.

Analysis shows that national annual peak demand for electricity is likely to be 40,858MW by 2020, up 162.82 per cent from the present, based on an annual growth rate of nine per cent from 2007 onwards.

Renewable energy continues to grow But Al Jaber is also reported to have said that despite the recent economic downturn, thefalcon

the renewable energy sector continues to grow.

"The Government of Abu Dhabi has indicated its own commitment to the adoption of renewable

energy, and will soon publish a comprehensive energy policy,” he said. “Masdar will be at the forefront of the research, development and deployment of solutions

Making the Red Sea green Around the world, tourist destinations are also facing pressure to become more ý 9

Energy

environmentally friendly.

Air-conditioning systems pumping out near Arctic conditions in hotel lobbies, around-the-clock fluorescent lighting and the rewashing of clean towels are all being seen as making major contributions to the tourism industry’s huge carbon footprint. There is a growing body of market research to suggest that tourists are becoming increasingly environmentally aware.

Ecotourism is commonly defined as travel that has a low impact on the environment. George Atalla, director of Booz & Co. Egypt, a business consultancy firm, says his company’s research shows ecotourism currently represents 4% of the global tourism market and that the percentage of ecotourists is forecasted to grow to 10% in the next few years.

According to professor

Terry De Lacy of Victoria University in Australia, CO2 levels are 31% above preindustrial age levels and that global surface temperatures will rise on average between 0.7 degrees and 1.7 degrees Celsius by 2020 and between 1.1 degrees and 6.4 degrees by 2100. Approximately 5% of all CO2 emissions are a result of tourism related activities.

In order to appeal to the untapped market in

ecotourism, Egypt Tourism Minister Zoheir Garrannah announced plans last November to turn Sharm ElSheikh into the country’s first carbon neutral destination.

This is also seen as urgent because this area of the country is also particularly vulnerable to the effects of climate change. A sea level rise of one meter would swallow miles of the Sinai Peninsula’s coast, while warmer seas will

in fact exploring a new model for urban life. Masdar will use one quarter of the energy of a conventional city its size (about 50,000 people) -- an amount that it will produce itself. ''When people think about sustainability, they think about devices,'' said Gerard Evenden, a partner at Foster and Partners.'' But here you're taking it to a city scale, which has much more of an impact -- connecting the devices to the structure to the transportation to the people.''

The city will be like no other on earth. It will, for example, have no cars.

Instead, people will move around using driverless electric vehicles that move on

a subterranean level. Even the air-conditioning will be solar powered.

It is hoped that the new city will draw the world’s attention to new and enjoyable environmentallyfriendly ways of living in an urban environment.

"Masdar estimates this commitment will create a renewable energy market valued at $6 billion-$8 billion in the emirate, creating business opportunities for local and international companies," ADFEC Chief Executive Dr Sultan Ahmad Al Jaber is reported to have told delegates attending the second edition of the World Future Energy Summit in Abu Dhabi.

Masdar - city of the future Masdar was planned as a model city that will generate no carbon emissions.

Designed by Norman Foster, the British architect, it is envisaged to include a satellite campus of the Massachusetts Institute of Technology, as well as a research park with laboratories affiliated with Imperial College London and other institutions.

The Masdar initiative was launched in April 2006.

The Abu Dhabi Future Energy Company (ADFEC) is the government-owned organisation mandated to develop and execute the $15 billion Masdar initiative. ''Abu Dhabi is an oilexporting country, and we 10

want to become an energyexporting country, and to do that we need to excel at the newer forms of energy,'' said Khaled Awad, a director of Masdar.

Initial plans for Masdar excluded both aluminium and conventional concrete because the production of those materials generates high levels of carbon emissions, which warm the planet. However, aluminium manufacturers protested and came back with a product that reduced emissions by 90 percent compared with regular aluminium and it is now included in the project.

But its backers believe that Masdar goes beyond creating new materials and is

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Energy

result in coral bleaching, eventually destroying the region’s delicate underwater ecosystems, along with its diving trade.

Garrannah told delegates at a November conference hosted by the ministry and United Nations World Tourism Organization (UNWTO): “With ecotourism now being the fastest growing market, consumers calculating how many cubic meters of CO2 emissions they contribute when they fly from New York to Cairo and the world’s natural ecobalance in danger, the reality of the matter is that we do not have the luxury to lag behind.”

He added that ecotourism offered a growing opportunity in the wake the global financial crisis. This is being seen as a particularly important opportunity in the light of the fact that UNWTO released a report in December stating global tourism numbers would likely “deteriorate” in the next six to nine months. The forecast was made by the UNWTO Resilience Committee, formed in November and chaired by Garrannah.

The plan is based on an ongoing project in Sri Lanka called Earth Lung.

There, the country’s tourism operators have teamed up with the government to thefalcon

Looking at recent local and international commitments, it is our view that the world has reached a tipping point in the acceptance of renewable energy Al Jaber become carbon neutral by 2018 by protecting some of the last untouched forests in South Asia and reducing the country’s overall carbon emissions.

Despite the stark reality, De Lacy, who is also a cofounder of Earth Lung, says there are several ways Sharm El-Sheikh might get closer to carbon neutral status, the easiest being reducing the city’s overall energy use. If the project succeeds though, it is unlikely to make Sharm the first carbon neutral city in the Middle East.

In July 2008 the Egyptian Ministry of Tourism, AGEG Consultants and Orascom Hotels & Development joined together with the German Society for Technical Cooperation to create the Green Star Hotel Initiative, an environmentally friendly hotel management system.

The initiative will target a 10-30% reduction of energy and water consumption;

waste management and sewage treatment together with increased use of renewable energy. Hotels that fulfil requirements will be certified as meeting a certain standard of environmental sustainability. The programme is using the El Gouna area on the Red Sea as a pilot location, with eventual plans to spread the brand across the Middle East.

The enthusiasm for clean energy is now rapidly growing across the region.

The UAE, Saudi Arabia and Qatar have been collectively described by one American expert in green technology as making “a concerted push to become the Silicon Valley of Alternative energy.” Having built their wealth mainly on oil, oil rich states are able to understand more readily than others that it is a finite resource that is extremely vulnerable to competition from new energy sources.

Gulf leaders have simultaneously been establishing billion-dollar clean-technology investment funds. They are also putting substantial funds behind research projects from California to London while setting up green research funds within the Gulf.

In Saudi Arabia, the new state-owned King Abdullah University of Science and Technology, or Kaust, gave

eco friendly tourism According to Egypt’s Electricity and Energy Minister: “Wind farms clustered in the Saidi area of Egypt will employ thousands of people and produce 20% of the country’s diversified energy needs by 2020.”

Around the world, tourist destinations are also facing pressure to become more environmentally friendly. Airconditioning systems pumping out near Arctic conditions in hotel lobbies, around-the-clock fluorescent lighting and the rewashing of clean towels are all being seen as making major contributions to the tourism industry’s huge carbon footprint.

a Stanford scientist $25 million last year to start a research center on how to make the cost of solar power competitive with that of coal.

Experts say the vast investments from the Gulf states have already restarted stalled environmental technologies. l 11

News Analysis Oil price rollercoaster slows A rare spirit of communication among the 13 oil-producers’ cartel, OPEC, resulted in a modest rise in oil prices. The question now being asked is whether this strategy will be sufficient to support the region’s oil-based economies.

After a slump from last July’s price of $147 a barrel to lows of $35, oil prices recently rose above $50 a barrel. The recent oil price rally mirrors a jump in stock markets as markets anticipate an economic recovery later in 2009. The determination of Saudi Arabia, which is on the record as seeing $75 per barrel as its view of the ideal price under present circumstances, is regarded as the main driving force behind the unusual amount

of discipline shown by members. This has led to the spigots being shut to the extent of achieving about 75% of the production cuts that have been pledged since last September According to Business Monitor International (BMI), economic risks are the main threat to stability in Saudi Arabia in 2009, with a rise in unemployment and a decline in living standards having the potential to destabilise the Kingdom.

But BMI believes that the adverse impact of continuing low oil prices is likely to remain limited. “ This will not be a macroeconomic disaster for the Kingdom, and in the absence of any evidence of unrest,”

says BMI. “Our core scenario remains one of broad stability.”

Despite OPEC’s concern with today’s low prices, non-oil producing countries are anxious to reduce the dependence on imported oil.

The Egyptian government, for example, is continuing to attempt to expand its oil sector. The petroleum ministry is understood to be preparing

to hold an auction for oil and gas exploration acreage in seven new areas of the Mediterranean Sea. The ministry said that it was planning to launch 14 new exploration projects, in seven separate areas, by the end of 2008.

Meanwhile, UK-based Circle Oil says it has struck oil at one of its appraisal wells near the Gulf of Suez Basin. Circle reported that the onshore well in the North West Gemsa Concession, located about 190 miles (300 kilometers) southeast of Cairo, tested at an average of 5,785 barrels of oil per day and 7.8 million standard cubic feet per day of natural gas. An assessment of the reserves has yet to be completed.

Saudi refinery launch defies financial crisis Saudi Arbia's Rabigh for Refining and Petrochemical Company (PetroRabigh) is reported to be planning to launch one of the biggest

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projects in the Middle East by the end of March despite the global financial crisis .

The project had been expected to come on stream by

the end of 2008, but a $300 million rise in the total $10 billion cost postponed the launch. The company, however, now intends to go ahead with its plans immediately .

Joint venture partners Aramco and Sumitomo are reported to have re-issued tenders for the project due to prices of raw materials such as steel and cement falling sharply in the last four to five months as a result of the global economic crisis.

The facility is being constructed at the site of Saudi Aramco's existing Rabigh

Refinery, which produces 19% of the Kingdom's current refining capacity. Saudi Aramco handed over Rabigh refinery to PetroRabigh to operate last October 2008.

The PetroRabigh project will initially produce 18.4 million tonnes per annum of petroleum-based products and 2.4 million tonnes per annum of ethylene and propylene-based derivatives. PetroRabigh is owned by Saudi Aramco 37.5%, Sumitomo Chemicals 37.5% with the balance being held by private investors and institutions. thefalcon

News Analysis Approval for Dubai’s $20 bn bond programme The Dubai government’s launch of a $20 billion bond programme is being seen as a promising move by industry commentators.

It comes hard on the heels of a UAE Ministry of Finance decision to transfer AED50 billion and the Abu Dhabi’s government’s decision to inject AED16 billion.

Hani Al Hamili, general secretary of the Dubai Eco-

Dubai Bond strategy

$10b 4% Subscribed

by UAE Central bank

Annual interest on the unsecured paper

nomic Council, said the new initiative is a step towards bolstering flow of the local liquidity to meet all the finan-

cial commitments.

Sultan Butti bin Mijrin, director general of the Lands and Properties Department, said the Dubai government's move "comes in proper time as it will revive the emirate's economy”.

Mohammed Ali Al Hashimi, chief executive of Za'beel Investment Company, said the launch of the bond programme "is a sound decision

amid circumstances being witnessed by the market and reserve of the banks to offer the financial facilitations".

Engineer Hammed Bu Amim, director general of the Dubai Chamber of Commerce and Industry, said the launch of the bond programme "is an excellent step in the real sense of the word as it will boost confidence of local and foreign investors".

Telecoms market set for growth The Middle Eastern telecoms industry is expected to grow aggressively throughout the year.

According to forecasts by industry analysts and consultants Informa Telecoms and Media: “Despite a global economic crisis, the Middle Eastern telecommunications industry is expected to grow robustly in 2009, with 28.68 million net additions to the mobile market over the year.”

This effectively means that the number of mobile subscriptions in the Middle East will cross the quarterof-a-billion mark in late 2009 to reach 250.79 million at year-end.

Informa believes that, despite record growth of the past few years, there is still plenty of room for investment for the telecoms sector in the Middle East.

In contrast to the mature markets of the US and Euthefalcon

rope, some Middle Eastern markets are still characterised by relatively low rates of penetration and youthful growing populations. Countries that

are not blessed with high oil revenues and which have large populations are now proving increasingly attractive for the industry. Egypt,

for example, is the Arab world's most populous nation with 74 million inhabitants, but still only had a mobile penetration rate of 49.65% at end-September 2008.

In the past, the mobile phone industry tended to concentrate on selling basic services to emerging markets.

But they are now waking up to the fact that developing economies are also ripe for more advanced services. All the Egyptian mobile operators have now launched 3G, for example, allowing them to offer new data and content services.

"What is exciting about this region is that it is not just traditional countries where we see so much opportunity, it's coming from nations like Iraq and Iran as well," said Mike Woolfrey, Informa Telecoms and Media Managing Director - Industry Research.

13

Mortgage & Finance

Soaring opportunities for mortgage lenders

W

Despite the crisis in Western economies caused by overselling of sub-prime mortgages, certain locations in the Middle East such as Cairo and Riyadh offer huge potential for mortgage lending

14

estern mortgage markets are being blamed for triggering the current global financial crisis. Overlending to financially insecure borrowers at the low end of the market, particularly in the US, left the banks vulnerable when real estate prices began to fall.

The situation worsened when it was discovered these bad loans underpinned many of the financial services market’s more esoteric and highly valued products. International trading in increasingly complicated derivatives products, partly based on bad sub-prime mortgages, is now being held responsible for the current global crisis.

But this has little bearing on the potential for traditional mortgage lending in countries such as Saudi Arabia and Egypt, where there are young and growing populations, an expanding middle class, and a mushrooming appetite for home ownership.

Countries such as Saudi Arabia and Egypt now represent a huge potential long-term market for mortgage lenders with little of the risk associated in trying to develop market share in more developed Western markets.

Cairo has a rising thefalcon

Mortgage & Finance population of over 18 million people. Coupled with a gradually expanding middle class, it is predicted that population growth will increase residential demand and with it a desire for home ownership.

Cairo attracts the majority of investment activity in Egypt’s residential market. However, growth has been localised in the new communities of New Cairo and 6th October.

The Cairo housing market is underpinned by solid economic and demographic demand fundamentals. But the current focus on highend developments in the new communities remains a concern.

Egypt to stimulate mortgage industry In order to enable a wider segment of the population to own their homes, Egypt has embarked on an ambitious plan to stimulate its mortgage industry by freeing up billions of dollars trapped in unregistered property back to 1900. The land registration process takes an average of 193 days to complete and involves many complex steps.

Encouraged by an ascendant middle class keen to take advantage of mortgages, Egypt is streamlining the process and replacing the manual registry index in Cairo with a new computerised registration system.

According to Peter Rabley of US-based International thefalcon

In order to enable a wider segment of the population to own their homes, Egypt has embarked on an ambitious plan to stimulate its mortgage industry by freeing up billions of dollars trapped in unregistered property back to 1900.

Land Systems: “Low-income people all over the world often have just one asset: the property they own or occupy.

Unfortunately, this represents an untapped resource in many urban areas because such holders usually lack any officially recognised right to own or occupy. Formal recognition of ownership rights makes it easier for the government to extend health care, education and utilities.”

Saudi Arabia is this year scheduled to enact new laws establishing a legal framework for mortgages, with a draft already having been approved.

Saudi mortgages will differ from those in other markets in some key respects, notably where repossessions are concerned. The laws would fall short of allowing Western-style repossessions of properties where mortgage holders have defaulted on payments.

The Economist Intelligence Unit (EIU)

predicts that such a legal framework will inevitably increasingly allow people to own their own homes while simultaneously stabilising the property market. Owing to the stringencies of the new laws and the protection awarded owner-occupiers, it would be extremely unlikely that Saudi Arabia could ever witness the kind of overselling that crippled the mortgage market in the US. “Such a law would help to boost home ownership and should help to alleviate the upward pressure on rents,” said the EIU. “However, the limitations of the current system of credit risk assessment, and the likely inability to foreclose, will probably mean that access to mortgages will initially be restricted.”

Also, the recent establishment of the Saudi Credit Bureau (SIMAH) stands to mitigate the instances of delinquency and

default by aggregating credit related information to provide financiers with an objective risk profile of customers, which should have a positive effect on consumer payment habits.

In the context of Shariah based transactions, certain contractual provisions may be put in place to deter delinquencies. It is an established Shariah principle that late payment penalties which serve to create additional revenue for financiers are tantamount to riba and are therefore prohibited. However, certain Shariah scholars have approved delinquency deterrence mechanisms which trigger the payment of a fee in the event instalment payments are not received by a specific date.

Future Saudi demand underpinned by population growth As in other populous countries of the Middle East, future demand in the mortgage market is underpinned by rapid population growth.

“A high rate of population growth will put pressure on Saudi Arabia’s infrastructure and services over the forecast period. Rapid working-age population growth should also underpin strong economic growth,” predicts the EIU. Official projections assume a population growth rate of an annual average of 2.3% in the 2003-15 period, with private sector estimates predicting ý 15

Mortgage & Finance even higher growth. Private sector estimates are based on the fact that there has not been a census since 2004 and there is a good chance that the population growth has risen since then.

The World Bank's recent Doing Business 2008 report identified Saudi Arabia as the 16th best nation on the planet in which to conduct business negotiations. According to Sami Al Hussain, business development manager for DAMAC properties, the country's vast amounts of

Saudi's population boom will require an additional 1.3 million units of housing over the next seven years land and richness of resources make Saudi Arabia perfect for foreign investment.

Al Hussain said: "These positive factors are vital concerning our strategic expansion and development plans in the kingdom, where we have already succeeded

With the highest per capita income in the world

Qatar is an opportunity Although the oil-rich state of Qatar does not offer the same scale of opportunity as those countries with high population growth, it nevertheless offers an attractive location for mortgage lenders.

As might be expected of a country with the highest per capita income in the world, Qatar has massive potential for real estate and mortgage market growth. Over the last three years, the capital Doha’s residential sector has seen an acute housing shortage coupled with increasing demand. Spurred by doubledigit GDP growth, demand has outstripped supply.

According to Colliers, current growth trends indicate

16

that Doha will have a population of approximately 800,000 in 2010, up from an estimated population of 660,000 at present with a resultant pressure on housing stock.

An expected annual increase of 15% in the influx of expatriate labour over the next three years will reduce Doha’s average household size from a 2007 average of 5.9 It is expected that this will further compound supply constraints.

in establishing a strong leadership position in the luxury property market."

He added that Saudi's population boom will require an additional 1.3 million units of housing over the next seven years.

'Saudi Arabia is in the midst of a population boom that will necessitate an estimated 1.3 million units over the next seven years, representing an annual requirement of 190,000 units, and requiring a total investment of more than SAR 680 billion,' said Al Hussain.

Riyadh is Saudi Arabia’s fastest-growing housing market. Over the past 15 years, the Saudi capital’s population has grown an annual average rate of 2.2%.

According to Colliers International: “The imminent introduction of the long awaited mortgage law will serve as a core catalyst in a market where only 22% of the population are owner-occupiers. We expect continued higher volumes of sales transactions with a complementary hardening of yields from current averages of 9%.”

The market’s transparency is also increasing, according to Colliers. As regional

developers have entered the market, the traditional practice of selling empty plots within a large scheme for investors to develop on a piecemeal basis, is gradually shifting towards a preference for finished units.

The north of Riyadh currently enjoys the market premium for residential properties.

The Riyadh Development Authority is reported to have estimated that housing demand will increase by 60 % over the next two decades with a projected housing stock of 1.5 million units required by 2018, up from a current total stock of 750,000.

These strong demand fundamentals underpin the future growth of the mortgage market in Saudi Arabia. A recent report from Global Property Guide (GPG) is bullish about Saudi Arabia, thefalcon

Mortgage & Finance Oman

pointing to the 'high natural growth rate of the Saudis at 3%-4% per year and the influx of expatriates, which accounted for 27% of the total population of Saudi Arabia'.

Oman’s potential is set to grow fast. The residential sector in Oman has witnessed sharp demand increases in the last three years. The country’s strong economic activity has powered domestic as well as foreign investments, leading to higher influxes of expatriate workers. As a result, the residential market is currently witnessing a supply shortfall.

According to the latest official data from the 2003 Census, the total number of housing units in the Governorate of Muscat was 118,473, representing a 33% increase since a 1993 census was carried out. thefalcon

Bahrain also has scope for growth. But, although its laws outline the legal framework for the creation of mortgages and give mortgage financiers priority in recovering payment over other creditors, the procedure for foreclosure is not well established.

Currently, Bahraini law does not address a financier's right to repossess a property in the case of default for nonpayment.

The most effective way for financiers to curtail mortgage default losses would be through the enactment of clear legislation that enforces the application of contractually created power of sale clauses in mortgage documents and crystallises the right of financiers to foreclose on defaulted mortgages.

Nevertheless, the financial crisis is likely to make lenders more conservative than in the past. Mortgage providers traditionally offer as much as 90-95% of the cost of the property, and in some cases even the value. However, it was reported recently that the Abu Dhabi-based UAE central bank has approached all banks and finance institutions to reduce this to 70-75%.

Were this policy to come into practice, it would make it harder for homebuyers without significant deposits to get a mortgage.

While the markets of the Middle East offer varying degrees of sophistication and maturity, taken as a whole they represent a vast

Abu Dhabi offers potential Despite the recent collapse of the property market in nearby Dubai, the Abu Dhabi market still offers significant potential for mortgage lenders in the United Arab Emirates.

Although Abu Dhabi’s regulators are anxious to avoid what they regard as the over-development of Dubai, they still have ambitious plans for expansion.

As many master-planned projects in Abu Dhabi are still in the early stages of development, the mortgage market is in its infancy in terms of volume and availability.

However, banks are seeing the future potential of the capital and this is leading

unlocked potential in terms of real estate development and mortgage lending. Many of the major cities of the region offer the mortgage market’s magic formula of a growing youthful population, a growing middle class and the cash liquidity needed for real estate development.

The question now facing the region is whether the boom that has characterised many of the region’s property markets in recent years will be adversely affected by the US financial crisis. The evidence currently on offer suggests that, while there may some short-term local corrections

more players to enter the market. One example of this is Emirates NBD who recently announced that they will finance properties from Aldar and Sorouh.

This means that Abu Dhabi has a huge potential mortgage market coupled with oil-fuelled cash liquidity and that competition in the mortgage lending market is likely to continue to grow.

Bahrain

in overheated markets such as Dubai, these will be outweighed by strengthening markets in less highly developed locations such as Abu Dhabi, Riyadh and Doha, with long-term growth also being seen in cities such as Cairo. l 17

Real Estate

Rays of light break through Despite the deepening gloom spreading over Dubai, some of the region’s real estate markets are proving surprisingly resilient to the fall in property values triggered by the financial crisis with analysts now identifying investment opportunities in some locations

T

he city of Dubai is living proof that the real estate markets of emerging economies are far from immune from the fallout from the global financial crisis. Only last summer, the local joke was that the city’s national symbol was a special kind of bird – the construction crane. Today, many of those cranes now stand idle and the city’s previously booming property market is now in freefall.

Construction investors and home buyers in the United Arab Emirates might default on payments for properties that have yet to be completed, creating a liability of up to $US25 billion ($39.2billion) for developers over the next two years, according to investment research from Swiss bank UBS.

SAUDI ARABIA: Bank Credit to building and Construction (SR bn) 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0

33% 23.5% 28% 23%

19.3%

18% 14.7%

4.6% 2002

2003

13% 8%

5.0% 2004

Credit to building & construction (LHS)

Source: Sama

18

38%

37.6%

2005

2006

2006

3Q2008

3%

Credit to building & construction (LHS)

"We believe delinquencies on payment terms will be a growing concern over the next few years," said Dubaibased UBS real estate and construction analyst Saud Masud.

The question now being asked across the Middle East is whether the property meltdown in Dubai will have a domino effect across the entire region or whether it will be proven to be a unique case, its partly completed building projects a stark warning to any who are foolish to believe that any property bubble can continue to grow forever.

But, while nowhere in the Middle East can claim its property markets to be entirely immune to the negative effects of the global crisis, there is now growing evidence that much of the rest of the region is likely to be spared the fate of Dubai and that there are some pockets of real growth.

According to a real estate report by Global Investment House published in February, while the Dubai market will see continued corrections, and Bahrain, Kuwait and Oman will continue to see a slowdown, Saudi Arabia will continue to see growth with Qatar also proving resilient.

According to Business Monitor International, Egypt will also see “a soft landing for real estate”.

Future demand in Saudi Arabia is underpinned by a rapidly growing and increasingly youthful population. Riyadh is Saudi Arabia’s fastest growing housing market. Over the past fifteen years, population has grown at an annual rate averaging 2.2%. The Riyadh Development Authority forecasts an annual demand for 30,000 new residential units until 2023, indicating stronger domestic demand fundamentals when compared to expatriate driven markets in most other GCC countries.

The Riyadh Development Authority has estimated that housing demand will increase by 60 per cent over the next two decades with a projected housing stock of 1.5 million units required by 2018, up from a current total stock of 750,000. Although many of these developments mirror regional trends of targeting high income segments by default, one of Saudi Arabia’s largest developers, Dar Al Arkan, has focused on middle-income segments.

“In Saudi Arabia, the real estate sector is set to continue its growth trajectory thefalcon

Real Estate

real estate gloom The real estate demand fundamentals increase its attractiveness for both domestic and foreign investors Global Investment House

SAUDI ARABIA: Population age group 2007

Under 30 years 64 years and above Between 30 to 64 years Source: Sama

thefalcon

between an average annual rate of 5% to 7% till 2012,” predicts Global Investment House. “The real estate sector is estimated to grow at an average annual rate of 5.8% during 2004-09, while the rental prices are expected to increase by around 10% in 2009.”

“The real estate demand fundamentals increase its attractiveness for both domestic and foreign investors,” said Global Investment House.

Colliers believes that the introduction of a long awaited mortgage law will also serve as a core catalyst in a market where only 22% of the population are owner-occupiers. As regional developers have entered the market, the traditional practice of selling empty plots within a large scheme for investors to develop on a piecemeal basis, is gradually shifting towards a preference for finished units. The north of Riyadh currently enjoys the market premium for residential properties.

“Soft landing” for Egypt real estate Business Monitor International (BMI) predicts: “a soft landing for the real estate and financial sectors,”

in Egypt, in contrast to Dubai, where boom has led inevitably to bust.

Even in some countries where real estate prices are not fuelled by oil, there has been growth. With its soaring population, it would be

surprising if Cairo had not seen real estate prices rise.

Cairo continues to attract the majority of investment activity in Egypt’s residential market, and has accordingly seen the sharpest price increases in the country ý 19

Real Estate over the past two years.

According to BMI: “While Dubai's population looks set to shrink as migrant workers return home, Egypt's population is still growing, and there is a severe shortage of housing. In addition, the market in Egypt is far less developed - meaning plenty of growth potential - and hence driven by genuine demand rather than speculation.�

This view corroborates the statement made by Egyptian housing minister Ahmed alMaghraby in November that 99% of the market is driven by real demand, and this is mostly financed by cash and not mortgages.

The focus of this price growth, however, has been in the new communities of New Cairo and 6th October City, where property values have, according to Colliers, registered annual jumps averaging 75% since 2005, particularly in the price of

While Dubai's population looks set to shrink as migrant workers return home, Egypt's population is still growing, and there is a severe shortage of housing. In addition, the market in Egypt is far less developed - meaning plenty of growth potential - and hence driven by genuine demand rather than speculation.

Business monitor international 20

land. Producing reliable figures on total residential supply in Cairo is made difficult by the fact that less than 10 per cent of all properties in Egypt are actually registered.

According to the Ministry of Housing Utilities and Urban Development, 280,000 new housing units were delivered to the Cairo market over the 2006-7 period.

Approximately 140,000 of these units were targeted towards the low income segment, as part of the National Housing Project

implemented in 2005. A further 40,000 units targeting middle income markets were developed, with 15,000 highend units. The remaining 85,000 units were in rural areas surrounding Greater Cairo. The private sector built 95% of total units over this period.

Another bright spot in the Middle East real estate market is likely to be Qatar.

It is believed that Qatar will remain insulated but with growth rates slowing in 2009. It is expected that the nominal GDP of Qatar is thefalcon

Real Estate likely to grow by 33.8% in 2008 and in 2009 the growth rate is likely to turn negative of about 0.8%. The real GDP growth of Qatar is estimated at about 10.4% and 9.4% in 2008 and 2009, respectively.

According to real estate consultants Colliers, Doha’s residential sector has seen an acute housing shortage over the last three years as increasing demand, spurred by double-digit GDP growth, has outstripped supply.

Current growth trends indicate that Doha will have a population of approximately 800,000 in 2010, up from an estimated population of 660,000 at present. Expected annual increases of 15% in the influx of expatriate labour over the next three years will reduce Doha’s average household size. It is predicted this will further increase the need for a larger number of smaller housing units.

However, growth is expected to slow over the next two years, owing to regulatory intervention rather than market forces.

In order to control inflation and reverse recent trends where expatriates have been dissuaded from relocating to Qatar due to escalating housing costs, the government revised its10% rent cap in February 2008 to a two year freeze on rents for leases signed after 1st January 2005.

Office rents have been boosted by a demand for primary grade office space thefalcon

over the past three years.

Financial institutions account for the highest proportion of new office demand in Doha.

The need for banks to locate themselves in West Bay in order to be in close proximity to their oil and gas sector clients has stimulated growth.

Another place proving resilient to the global collapse of the real estate market is Bahrain, where the market is being supported by a current lack of quality housing.

Considering the high influx of foreign nationals, demand is likely to remain firm and limited supply of homes in these regions would see the rental rates going up until the supply of housing improves.

But with significant supplies expected to be delivered in between 2010-2012, when nearly all of the current projects are scheduled to be finished, the demand is expected to match supply.

“In the middle income bracket, prices are likely to remain firm and may even grow by 10-20%as indigenous demand would remain strong due to the growing young population,” reports Global Investment House.

Middle East property more aligned with Western markets The chief concern among property investors across the Middle East is that an increasing globalisation of world markets means that when real estate prices

Traditionally, the region as a whole has always been counter-cyclical with the West. But I am increasingly afraid that it is becoming more aligned Don Bradley, chief executive Middle East at international real estate adviser Knight Frank

plummet in the West, those in the rest of the world also quickly feel a downward pull. This was not always the case. In the past, the real estate markets of the Middle East were generally seen as counter-cyclical to those in the US and Europe, allowing them to continue to boom while cities such as New York and London went into decline. But, according to senior industry sources, this has changed.

Don Bradley, chief executive Middle East at international real estate adviser Knight Frank, who

saudi arabia set to grow In Saudi Arabia, the real estate sector is set to continue its growth trajectory between an average annual rate of 5% to 7% till 2012,” predicts Global Investment House.

personally has 26 years of property consultancy in the Middle East, last year warned that the slump affecting real estate markets in the US and Europe could spread to the Middle East far faster than many anticipated.

“Traditionally, the region as a whole has always been counter-cyclical with the West. But I am increasingly afraid that it is becoming more aligned,” said Bradley.

“There are several factors why this should be the case. Trade has liberalised across the world and, in any case property markets are increasingly internationally aligned. Even with cash liquidity from high oil prices earlier in the year, the changes currently occurring in capital markets will have an impact, albeit at a different pace and in a different manner depending on the economies of different countries.”

Bradley believes that the impact of the financial crisis will be felt less or ý 21

Real Estate more harshly across different countries according to local market conditions.

“The nature of capital markets varies hugely across the region. Very wealthy institutions and private individuals will have the support to make long-term investment decisions,” said Bradley. “Where there are high capital values and low-yields they are more susceptible to a negative impact.”

He added that Saudi Arabia is the least likely to be affected because its property market has undergone a relatively low

residential vacancy rates have dropped from an average of 2.5% to less than 1%, contributing to the highest year-onyear rental increases yet since 2001 – at a growth rate of 65% between Q4 2007 and Q4 2008 Colliers International 22

level of development and has a relatively low price level. Dubai, by contrast, was obviously vulnerable.

This theory is borne out by the fact that the real estate meltdown being seen in Dubai is not being witnessed elsewhere in the UAE. The Abu Dhabi residential market continues to be characterised by chronic shortage of housing stock, the knock-on effect of a two year construction moratorium imposed between 1999 and 2001, and strong economic growth. Abu Dhabi was determined that its essentially Middle Eastern architectural character and ambiance should not be subsumed by an Asian style development boom. This slow pace of development had the effect of heightening demand.

According to Colliers International, residential vacancy rates have dropped from an average of 2.5% to

less than 1%, contributing to the highest year-on-year rental increases yet since 2001 – at a growth rate of 65% between Q4 2007 and Q4 2008. In these conditions of undersupply, the 5% rent cap revised at the beginning of 2008, may have had the adverse effect of driving up asking rents, with landlords factoring in expected future rental increases in today’s market.

As of the end of 2007, statistics by the Urban Planning Council estimated a total of 180,000 units within the city of Abu Dhabi.

Based on figures supplied by developers operating in Abu Dhabi for developments either under construction or planned, Colliers expects the supply of residential units to increase to over 213,000 by 2010. As many as 140,000 additional units are expected between 2011 and 2013, driven by the completion

of residential components within the Al Raha Beach and Al Reem Island mega projects. Colliers also recently reported that the market for Abu Dhabi office space looks healthy with unsatisfied demand for office space and limited supply entering the market over the past few years.

In conclusion, no real estate market in the region is likely to remain unaffected by the global financial crisis or by negative sentiment radiating out from the Dubai meltdown. At the same time, some markets will behave differently from others.

There is no ‘Middle Eastern real estate market’ as such.

Market pressures in Abu Dhabi are totally different from Cairo and Dubai will always be a case on its own. Overall, those places where prices were fuelled by speculation as opposed to the pressure of genuine demand will see the fastest falls.

The construction industry is already shifting its geographic strategy across the region. According to construction recruitment firm Alan & Partners: “The two countries… which are busy are Oman and Saudi Arabia.”

UBS estimates 20% of Dubai’s construction workforce will lose their jobs this year, with 30-40% of infrastructure projects being cancelled or delayed. UBS expects the population of Dubai to decline by 8% in 2009. l thefalcon

SMEs & Micro Finance

Small business – the region’s untapped powerhouse The region is waking up to the potential SMEs offer for injecting a new commercial vitality into the economies of the Middle East with Egypt leading the way

thefalcon

S

mall and mediumsized enterprises (SMEs) have for too long been perceived as street corner low-rent operations with little or no potential for significant growth. But this attitude is now changing with increasingly SMEs being seen as a crucial way of mitigating the worst effects of the global recession.

Until recently largely ignored by governments and financial institutions, Middle Eastern SMEs now appear increasingly resilient at a time when many large organisations are failing to weather the financial crisis.

For example, there are reported to be three and a half million SMEs in Egypt alone.

These companies represent around 80 per cent of the economy, but only account for about four per cent of exports.

Many of Egypt’s SMEs are initiated with no registration or licence, making it impossible to collect accurate data about the number of operating businesses and job opportunities available.

Encouraging registration ý 23

SMEs & Micro Finance also gives SMEs the advantage of legally dealing with banks and financial institutions to obtain funding.

In a major step to encourage the initiation of small and medium-sized enterprises (SMEs) in Egypt, last year the Ministry of Investment reduced the minimum capital requirement of limited liability companies from LE 1,000 to LE 200.The decree was part of a Ministry of Investment strategy to facilitate establishment of SMEs, simplify their procedures and encourage small investors to join different fields of investment.

“The dependency on SMEs is crucial if the economy is to sustain its growth. We cannot continue to depend on big businesses that are difficult to start [in terms of capital]…The final goal is to enable them to succeed and develop,” Ahmed Hassouna of the SME department at the General Authority for Investment and Free Zones (GAFI) was reported to say.

“By making the procedures easier and cheaper, company owners will prefer to enlist their businesses at GAFI, rather than operate them with no registration,” he added.

The decree also helps many companies to perform their activities in an institutional approach that ensures sustainability, regularity of accounts and access to all services 24

and facilities available to companies registered at GAFI, including project development, promotion and providing data on investment opportunities.

But the real boost for many of the region’s SMEs is coming from abroad with multinational organizations looking to SMEs in emerging markets to help them cut costs. The increasing trend for global corporations to outsource IT functions to emerging countries is, for example, providing a huge boost for many of Egypt’s SMEs. Previously, many of the outsourced IT contracts from Western economies went to locations such as India. But a combination of rising costs and scandals surrounding large outsourcing companies has resulted in a new trend. Hyderabad-based Satyam, for example, was plunged into turmoil recently after founder B. Ramalinga Raju said he overstated the company's profits over

Egypt was recently awarded the prize for best outsourcing destination by the British National Outsourcing Association (NOA)

several years and created a fictitious cash balance of more than $1 billion.

In an effort to reduce costs by cutting out the middle man, many western companies are now outsourcing direct to small IT firms in emerging countries such as Egypt, whose outsourcing sector is already attracting international recognition. A recent study by the US-based consultancy the Yankee Group, compared several Middle Eastern countries' base for outsourcing services, concluding that Egypt "has the strongest position in the outsourcing market."

The report praised Egypt's IT services against those of countries such as the United Arab Emirates, Oman, Bahrain, Jordan and the Kingdom of Saudi Arabia, and put Egypt on equal footing with India and China, stating that Egypt had a huge advantage in terms of the versatility of its language skills.

"The country's multilingual capabilities make Egypt attractive to Europe-based countries", the report said. "By contrast, China does not have the same level of comfort with Western culture and traditions as Egypt. India's bailiwick is its strong English-speaking workforce, which works well for US-based and UK-based companies... but the lack of other languages is a disadvantage in India

when it comes to EU-based countries."

Egypt ‘best outsourcing destination’ Egypt was recently awarded the prize for best outsourcing destination by the British National Outsourcing Association (NOA).

Hazem Abdel-Azim, chief executive of the Information Technology Industry Development Agency (ITIDA), who received the prize in the name of the Egyptian government, is reported to have said that it was "a source of pride for the thefalcon

SMEs & Micro Finance

Egyptian communications and information technology sector".

Mark Rorison, head of analysis at Egypt-based investment bank CI Capital, said that IT outsourcing is growing rapidly in Egypt as companies all over the world look to regions that can perform critical applications at a lower cost than their home markets.

He said: “There is a high level of education in Egypt that is reflected in the excellence of its software engineers and programmers, many of whom speak two thefalcon

or three languages. As well as being fluent in English and obviously in Arabic, many also speak French. And costs are very low compared to developed markets and represent high value even when compared with locations such as India.”

One of the Egyptian government’s key objectives is to develop the country as a location for outsourcing and business process outsourcing (BPO) services. In 2007 the government set an ambitious target for the country to capture US$1.1bn of the global outsourcing market by 2010, which would be four times the 2005 level.

In addition to attracting outsourcing agreements from foreign companies, Middle Eastern SMEs are likely themselves to generate IT spending growth. Many manufacturing and trading firms are now making the transition from manual environments to full automation of back-office systems. During the next five years, in addition to customer relationship management (CRM) and enterprise resource planning (ERP), high-growth categories are set to include business intelligence, storage and security products. Security software is also a growing opportunity, with the UAE currently the largest market.

Global IT companies are also increasingly targeting Egypt as a potential growth market. Oracle executives

are forecasting that SMEs will emerge as the main drivers of Egyptian applications spending over the next five years. Oracle has recently been hosting a series of events targeted at the SME sector across Egypt. Oracle is promoting a tailored approach to the SME community, providing solutions that are rich in features and yet easy to manage.

Microsoft to double Egypt investment Microsoft Chairman Bill Gates said that his company plans to double its US$150mn Egyptian investments, opening a new Innovation Centre in Egypt that will train young computer engineers.

President Mubarak has already stated that 20072016 is Egypt’s ‘decade of science and technology’.

Underlining the strategic importance of the sector, Mubarak emphasised the importance of science and IT in particular, not only to promote economic growth and competitiveness in the economy, but also to further social development.

However, Egypt must overcome a number of challenges to its plan to become the ‘India of the Middle East’.

In a speech in November 2007, IT Minister Tarek Kamel outlined a new emphasis on IT training as part of the government’s plan

to develop the offshoring industry. The Minister also emphasised other measures to create a favourable environment for offshoring development, including work on implementing PR protection and launching new telecoms licences.

Assisting SMEs is also at the heart of the Jeddah-based Islamic Development Bank (IDB)’s plans to help some Muslim countries overcome the impact of global financial turmoil. IDB president Ahmad Mohammad Ali said that the 56-member bank will issue Islamic bonds in order to collect funds from international markets to support the member countries affected by the crisis, according to a statement issued by the bank’s Jeddah media office.

The IDB is understood to expect that there will be a decline in foreign investment as a result of the global recession. Ali is reported to have said the IDB would be developed from a mere financing organisation to an institution that would spur growth in member countries and strengthen cooperation among them by introducing new economic programmes.

"The bank’s development plan will include introduction of new tools and mechanisms to amass financial resources," said the IDB president.

"We established contacts with a number of financial organisations and funds to finance SMEs that will ý 25

SMEs & Micro Finance create more jobs for young men and women.”

"The IDB has achieved tremendous experience in financing development and trade projects of member countries. We have so far given finances worth $51 billion," added Ali.

SMEs crucial to rebuild Iraq economy In Iraq, the encouragement of SMEs is seen as crucial to rebuilding the economy.

Iraq’s Minister of Labour and Social Affairs recently hailed the achievements of the government’s soft loan programme, saying that it has had a positive effect on businesses in Baghdad and would be rolled out across the other governorates.

Speaking at a meeting of donors to the governments soft loan programme for SMEs, Mahmoud al-Sheikh Radi is reported to have said

Egypt ‘best outsourcing destination’ A recent study by the US-based consultancy the Yankee Group, compared several Middle Eastern countries' base for outsourcing services, concluding that Egypt “has the strongest position in the outsourcing market.”

26

that the loans had stimulated business activity boosting the local economy, noting that 6,157 loans had been provided creating 18,000 new jobs.

The central government now intends to export this programme across Iraq’s 18 governorates, with 3,000 soft loans assigned to each, with the exception of Basra for which 5,000 loans have been allocated. The soft loans programme aims to provide 50,000 SMEs with funding and to create 125,000 employment opportunities.

Al-Sheikh Radi is reported to have said that the government had chosen soft loans over grants to entice businesses to work towards their goals instead of relying on handouts with no strings attached He added: “The owner of a project has to work hard for the sake of his success.”

He also drew attention to the priority in awarding loans to unemployed university and technical institute graduates but said that this had not prevented the project from opening up to ordinary individuals.

Radi expressed his hope that 2008 would be a year of education and entrepreneurship, stimulating local economic growth and containing growing unemployment. The growth of SMEs is crucial to the future of the entire region. By creating jobs and prosperity at a local level and enabling the financial wealth of

The real boost for many of the region’s SMEs is coming from abroad with multinational organizations looking to SMEs in emerging markets to help them cut costs.

powerful companies and individuals to filter down through services and subcontracts, the growth of SMEs can achieve far more than economic growth by creating a society where ambition and hard work at almost any social level can be rewarded. The Dubai Export Development Corporation (EDC) and the Islamic Corporation for the Insurance of Investments and Export Credit (ICIEC) have agreed to provide high quality Islamic credit insurance services to support local exporters based in the UAE. ICIEC is a member of the Islamic Development Bank Group (IDB) headquartered in Saudi Arabia.

The two organisations have agreed to offer credit insurance facilities to manufacturers trading organisations and service providers in the country by providing them assurance against export credit risks in overseas markets.

SMEs in particular stand to benefit from such a credit insurance service which will free them from non-payment risks by their customers and,

thereby help them enter new markets with confidence.

"Since 1994, ICIEC has had long experience in facilitating export trade, and has been encouraging exports including facilitating the flow of foreign direct investments to its member countries…

We are aiming to capitalise on this solid experience, particularly the insurance and re-insurance systems, marketing platform and debt collection for the promotion of exports from the Emirates," said EDC chief executive Saed Al Awadi.

The idea for the establishment of an entity to provide investment and export credit insurance for Islamic countries is the main reason for the formation of ICIEC. Through the Islamic Development Bank, ICIEC grants export credit insurance against the risk of non-payment which helps exporters to enter new markets safely.

If the region’s financial services can co-operate with one another to extend a helping hand to those ambitious entrepreneurs who have previously failed to meet traditional fiscal criteria, they will have achieved something more than economic growth. They will have enabled millions of men and women to escape the poverty trap and to have a vested interest in the long-term security of those societies in which they play a crucial role. l thefalcon

Tourism Having attracted record-breaking numbers of tourists in 2008, Egypt is now finding new opportunities for growth despite the global financial crisis and the recent bomb attack in Cairo

Tourism faces global challenge thefalcon

E

gypt’s tourism industry is faces a mounting challenge when confronted with the deepening global financial crisis and adverse publicity following a recent bomb attack in Cairo’s historic Hussein Square. ý

27

Tourism

Tourism revenues during the first quarter of the 20082009 fiscal year, ending in September, were up 15 per cent to $3.28 billion from the same period the previous year 28

Statistically, however, the industry looks healthy.

Tourism revenues during the first quarter of the 2008-2009 fiscal year, the three months ending in September, were up 15 per cent to $3.28 billion from the same period the previous year. A major global marketing campaign planned by the Egyptian Tourist Authority for the summer also looks set to give a boost to Egypt’s international reputation as a leading holiday destination.

But tourism is especially vulnerable to fluctuations in average expendable incomes and there can be little doubt

that the global financial crisis will impact the industry by forcing many people to rethink their holiday plans by either reducing the number of trips abroad or radically cutting the price of each trip.

It is also too early to judge whether the September revenue figure reflects the reality of the financial crisis. Even by last September, the full global impact of the deepening financial crisis had yet to be felt. Holidays taken in a specific quarter may easily be booked a full year in advance, in which case, the real impact of the deepening crisis might not be fully felt until

the second half of 2009.

However, the underlying trend for long term growth appears to be in Egypt’s favour. The overall number of tourists who visited Egypt in 2008 was 12.8 million compared to 11.2 million in 2007.

The total of 12.8 million tourists in 2008 comprised ten per cent from South East Asia, 64 per cent from western and central Europe, 18 per cent from the Gulf and the rest from other markets like US and Canada.

Egypt is becoming increasingly successful at attracting tourists from the US. According to an annual thefalcon

Tourism survey of 50 member tour companies by the US Tour Operators Association, Egypt was the second to top international destination for packaged travel. The first time the country has shown up in that category for the survey. Italy ranked top. China was named as offering the best value, and the Middle East was chosen as the most up-and-coming area.

The Egyptian tourism industry now plans to capitalise on its growing global success with an international marketing campaign scheduled to start in the summer. The Egyptian Tourist Authority (ETA) is reported to be planning to launch a global campaign focusing on different facets of the destination such as leisure, golfing, diving, and safaris to attract end consumers to visit Egypt.

The one-year campaign will be launched in 24 countries worldwide and is expected to start from July this year. The tourism authority will incur an investment of $40 million.

The global campaign will be promoted through a mix of advertising media such as print and the internet.

“We are in the process of developing new brochures for various activities and destinations in Egypt and the campaign will start from July 1, 2009 and end in July 2010. We will also focus on branding the destination for which we will get a new tag line, which is not yet finalised,” Samy Mahmoud, thefalcon

Under Secretary-The Head of International Tourism Sector, Egyptian Tourist Authority, is reported to have said. Egypt's existing tag line for branding is 'Nothing Compares.’

But despite its bullish plans, ETA remains cautious about making predictions that could be hard to meet in the current financial climate.

“It is difficult to say about the targets for this year, due to the global economic slowdown and the recession.

We will have to wait and watch how markets perform,” Mahmoud is reported to have said.

According to industry estimates, Egypt now accounts for around 25% of the Middle East and North African tourism market, and 33% of North African tourism and

Growth Expected The underlying trend for long term growth appears to be in Egypt’s favour. The overall number of tourists who visited Egypt in 2008 was 12.8 million compared to 11.2 million in 2007. The total of 12.8 million tourists in 2008 comprised ten per cent from South East Asia, 64 per cent from western and central Europe, 18 per cent from the Gulf and the rest from other markets like US and Canada.

travel demand.

Egypt’s growing attraction as a tourist destination is part of a long-term trend with visitors becoming increasingly appreciative of the country’s magnificent coastline, its unparalleled antiquities and the good value it represents. The Egyptian tourism market experienced particularly strong growth in the early part of the decade, with tourist arrivals ballooning in 2003 and 2004, and visitors spending increasingly long amounts of time in the country, leading to outstanding growth in international tourist nights and international tourist receipts. The country also saw improved hotel occupancy levels and hotel capacity, particularly in the Red Sea and South Sinai areas. Much of this was in part believed to be the result of a large fall in the value of the Egyptian pound.

But growth in international arrivals began to slow in 2005 though, with 8.6 million arrivals, a rise of just over 6% on 2004 figures.

This nevertheless represented solid growth considering the major terrorist attack on the tourism sector at Sharm el-Sheikh in the summer of 2005, which came less than a year after a bomb attack in Taba. The events failed to cause a meltdown in arrivals.

This is believed to be partly because major terrorist attacks elsewhere, including in Turkey and in European capitals such as London ý

Egypt was among the top five destinations for conferences and events in the Gulf and wider Middle East region

29

Tourism

Egyptian tourism federation In August 2007, the Egyptian Tourism Federation (ETF) met separately with tourism representatives from Russia and Sudan, with the aim of strengthening tourism ties with both of these countries.

30

helped diminish the effect the bombings had on perceptions of Egypt, with tourists in general becoming increasingly inured to terrorist attacks.

The first major attack against foreign tourists took place in 1992 with an attack on a group of British tourists that killed one British woman. A much bigger attack took place in 1996 when 18 mostly Greek tourists were killed in an attack. The following year saw the Luxor massacre, in which 62 people including 58 tourists were massacred, again by terrorists.

The current wave of violence, however, began in 2004 . In 2005 a suicide bombing that killed several people in Cairo was followed by the attacks on Sharm el-Sheikh, killing at least 64 people (up to 88 according to hospital figures) at the popular resort. The latest attack saw at least 23 people killed in Dahab in April 2006.

However, despite the large scale and repetition of the attacks the tourism industry has proven relatively resilient and is likely to do so again in the wake of the recent Cairo bomb attack if past events are to be seen as an indication of current sentiment.

There is, however, growing concern that Egypt’s history of terrorism could adversely affect the country’s tourist industry. Although tourist confidence recovered fairly swiftly following previous more serious at-

tacks. Holidaymakers in the current economic climate are far less willing to part with their money in the first place, meaning that choices will be more considered.

Attacks in the past clearly had some deterrent effect, with growth in 2005 as a whole disappointing when compared to the 16% yearon-year growth in arrivals between January and April of the same year. Although the Dahab attacks in 2006 clearly had a detrimental affect on foreign arrivals, they were less significant since the resort is principally used by Egyptians rather than foreign tourists. Prior to the attacks, 2006 got off to a reasonably good start; January saw 706,000 tourist arrivals, a strong 11.3% increase on January 2005 (however these were partially depressed by the Taba bombings two months previously). Arrivals had also grown strongly in November and December 2005 (8.8% and 16.3% y-o-y growth respectively), indicating that the sector had begun to recover from the Sharm el Sheikh attacks.

In 2005, Germany sent the most foreign tourists to Egypt, with 969,000 German visitors, according to official sources. However, the strongest rise in tourist numbers came from the UK, which sent 53% more tourists to Egypt than in 2004. Arab tourism to Egypt grew up 14% to 1.7mn visitors, helped by an increase in oil revenues

and an ongoing trend towards intra-Arab travel. Western European arrivals accounted for the majority of visitors to Egypt, although the proportion they make up has been falling in recent years as the country successfully thefalcon

Tourism

diversifies its source markets, including attracting more tourists from the rest of the Arab world.

Despite the high incidences of bird flu fatalities in Egypt in 2006 and the Dahab bombings, thefalcon

the official target of 9.1mn visitor arrivals in 2006 was met, representing a growth rate of 5.5% on the previous year. The UK ranked as the top country for visitors to Egypt, with 1,033,000 arrivals, representing a considerable 23.4% increase over 2005. Russia, although a relatively new market, remained the second largest source country, with 998,000 visitors to Egypt. The third most important source market was Germany with 966,000 visitors, while Italy ranked fourth, with 786,000 visitors.

Other important source markets included France, the United States and Canada.

In August 2007, the Egyptian Tourism Federation (ETF) met separately with tourism representatives from Russia and Sudan, with the aim of strengthening tourism ties with both of these countries.

According to the World Tourism Organization (WTO), in the first four months of 2007, there was very strong growth in arrivals from Europe. There was also a stronger-than-expected increase in international tourist arrivals to the Middle East as a whole. As regards the source regions for incoming tourists, European visitors accounted for the majority of arrivals, with the relative importance of the region increasing to 74% (of the total) from 69% in the previous year. This was largely due to a surge in

arrivals from Eastern Europe, particularly from Russia, Poland and Ukraine. In respect of Asia, the number of visitors from India and China were also up sharply y-o-y. It was also reported that during 2007, Egypt was among the top five destinations for conferences and events in the Gulf and wider Middle East region (the other locations included Dubai, Morocco, Abu Dhabi and Jordan).

In line with recent comments and statistics by the WTO, which show that Egypt recorded doubledigit growth in international tourist arrivals in the first few months of 2008, BMI has raised the forecast growth rate for foreign tourist arrivals in the fiscal year 2007/08 to over 12% year-on-year to some 11mn arrivals prior to the recent Cairo bombing. However, it was expected that growth in foreign arrivals will slow in the following year.

This is premised on weaker economic conditions Ă˝

According to the World Tourism Organization (WTO), in the first four months of 2007, there was very strong growth in arrivals from Europe and a stronger-than-expected increase in international tourist arrivals to the Middle East as a whole.

31

Tourism

in key source markets, especially the eurozone and the UK. Added to this, the forecast strength of the Egyptian pound against the US dollar and, more importantly, the euro, over the coming years could erode some of the country's competitiveness as a tourist destination. The outlook also assumes that there are no additional terror attacks and that the threat of bird flu in the country is brought under 32

control.

With more than half of visitors to Egypt coming from Western and Southern Europe, the economic fortunes of the eurozone are key to the Egyptian tourist industry. In 2004, tourist arrivals to Egypt boomed, most likely because of the significant drop in the value of the Egyptian pound against the euro in 2003 and 2004.

The pound strengthened slightly against the euro

in 2005, partly accounting for the slowdown in tourist arrival growth, but remained largely unchanged in 2006.

The global credit crunch has, however, taken its toll on the UK economy and the real GDP growth outlook is also looking less favourable for Germany. The US is currently also grappling with a worsening crisis. All of these source markets are likely to have less expendable income in the immediate future. This

will have a likely knock on effect on the global tourist industry with inevitable consequences for Egypt.

However, set against this is potential future growth in tourism from other emerging markets such as China and India. Other positive factors include the good value of Egypt as a tourist destination and the determination of groups such as the ETA to boost the industry’s performance. l thefalcon

Film

Film industry focuses on Middle East

T

he Middle East’s film industry has now become a global player with Cairo ranking alongside America’s Hollywood and India’s Bollywood as one of the world’s leading film industry capitals.

Egypt has a number of key advantages as far as both domestic and foreign film companies are concerned.

It has the kind of sunny climate that outdoor shooting requires. The country also benefits from a growing pool of the kind of IT talent needed for the increasingly crucial and complex digital post-production stage of film making.

Recent examples of Egyptian films include Hassan and Morqos, starring Egypt’s best known international star Omar Sharif and Egyptian comedy legend Adel Imam.

The film centres on the friendship between a Muslim preacher and a Coptic Christian priest. Ten years ago, only roughly 16 feature films were produced in Egypt.

Today that figure is 40 and rising. thefalcon

With Cairo rapidly becoming one of the film capitals of the world, the region’s burgeoning film industry has the potential to provide a boost for industries such as IT, tourism, textiles and fashion.

In addition to being the capital of the burgeoning Arab-speaking film industry and creating blockbusters such as Hassan and Morqos, Cairo is also experiencing a new trend with Hollywood film companies now rushing to take advantage of a combination of low labour costs, the excellent climate and a growing global reputation for technical expertise.

According to Julie Woods-Moss of BT Global Services: “What has happened in the past is that the film industry, based in Hollywood, California, used to outsource to Vancouver in Canada or

London in England. The industry is now waking up to the new imperatives of the global economy. “ “The US-based film industry is embracing lowcost facilities in growth economies. India is an obvious location. But the emerging post-production capital outside Hollywood is the Egyptian capital of Cairo,” added Woods-Moss.

BT Global Services provides the digital backbone for much of the world’s media transmission and has identified a new trend for globalisation of the entertainment industry. The company is developing new technologies to enable more effective production and transmission methods for ý

33

Film the film industry “BT has deals with a number of big Hollywood studios and Middle Eastern media clients which will be announced in the near future,” said Woods-Moss.

The increasing international nature of the region’s film industry has the potential to act as a tremendous boost to Middle Eastern exports. When funding Hollywood in its early days, the then US President Wilson said that, if people watched American films, they would buy American products. He was proven right, as filmgoers across the world strove to wear the fashions and acquire the kind of products they saw on the screen. Similarly, a thriving Middle Eastern film industry would act as a boost for industries such as tourism, textiles and fashion.

“There are definite commercial advantages for the region in showing its

content across the world. The image of the Middle East and its product can only benefit from a greater understanding of Middle Eastern culture outside the region,” said Woods-Moss.

She added: “MENA is benefiting from a globalisation of the industry.

This particularly applies to post-production work. What has happened in the past is that the film industry, based in Hollywood, California, used to outsource to Vancouver in Canada or London in England.

The industry is now waking up to the new imperatives of the global economy.”

“Hollywood postproduction work is about quality as well as costs. Cairo has a pool of skilled labour at a highly competitive price.

This particular industry will not just outsource anywhere,” said Woods-Moss.

She added that Cairo also benefits from the kind of sunny dry weather that makes

The US-based film industry is embracing low-cost facilities in growth economies. India is an obvious location. But the emerging post-production capital outside Hollywood is the Egyptian capital of Cairo.

Julie Woods-Moss of BT Global Services 34

Egypt perfectly suited for film production.

“The climate is another factor for Hollywood as it means it is possible to shoot outdoors at any time of the year, which is the reason the US film industry initially migrated from New York to Hollywood in California,” said Woods-Moss.

This is not the first time that the US film industry has looked across the sea to find cost-effective production locations. In 1970s, Hollywood witnessed the birth of the ‘Spaghetti Western’, socalled because they were shot in the Italian as opposed to the Californian sunshine at a time

when the Lire-driven Italian economy represented great value for the US. The genre launched the career of leading Hollywood actor and director Clint Eastwood.

Film industry now far more internationally based But today the film industry is far more internationally based than it was in the days when Clint Eastwood was making his name. The reason is that in today’s industry, as much work is carried out on the computer screen as behind a camera. Digital effects harness the power of computer chips to create the special effects on thefalcon

Film

which so many major movies now rely.

A handful of extras can be recopied over and over again to recreate a vast crowd scene.

Details such as costumes can be altered digitally and the characters shown making different gestures or movements so that the overall effect is indistinguishable from the kind of traditional Hollywood epic that once employed thousands of extras. The attraction of this kind of digital effect as far as the industry is concerned is that it costs a tiny fraction of the price of a traditional Hollywood epic.

For some productions, it thefalcon

is not even necessary to shoot the film stars on location.

Actors creating a scene in front of a blank blue screen light can be transported anywhere in the world by simply adding the appropriate film background.

Techniques are now so advanced that they have long since migrated from special effects studios into the mainstream of film production. Digital graphics studios across the world are now providing postproduction services for Hollywood. The location of the new post-production centres has less to do with the traditional requirements of a sunny climate and more to do with the availability of young IT graduates.

Although screen-based post-production film workers prefer to be called “graphic artists” rather than programmers, theirs is essentially an IT based skillset. Initially, the main post-production centres were in locations with a link to the film industry. For example, one of the main post-production facilities outside Hollywood is located in London’s Soho, centred around Wardour Street, traditionally the home of the UK film industry.

But the same global economics that have persuaded IT companies to outsource to low-cost countries and away from Western Europe and the US are now influencing the

MENA is benefiting from a globalisation of the industry. This particularly applies to post-production work Woods-Moss film industry. The growing importance of Egypt as an IT outsourcing centre is now making it an increasingly post-production centre for the global film industry.

According to WoodsMoss: “MENA is benefiting from a globalisation of the industry. This particularly applies to post-production work.”

She added that the effect of this is to move much of the film industry’s postproduction to locations like Egypt.

Cairo is emerging post-production capital outside Hollywood This trend is now starting to create a virtuous circle

for the Middle Eastern film industry. Cairo is already becoming an increasingly attractive location for Western companies outsourcing IT. The new trend for the global film industry to outsource post-production work to Egypt is also having the effect of rapidly modernising the Middle Eastern film industry and creating a rapidly growing pool of skilled film industry technicians.

In an industry traditionally dominated by the US, there is now a growing acceptance that the next new blockbuster can come from anywhere.

This year’s Oscar ceremonies in Hollywood signalled a sea change in the global industry with Slumdog Millionaire netting eight trophies ý

35

Film

In today’s industry, as much work is carried out on the computer screen as behind a camera.

Digital effects harness the power of computer chips to create the special effects on which so many major movies now rely.

36

including best picture, direction, adapted screenplay and cinematography. Director Danny Boyle's fictional account of a Mumbai orphan's surprising winning streak on India's version of Who Wants to be a Millionaire also won Oscars for editing, original score, original song and sound mixing.

Remarkably, the film owed little if anything to the Hollywood-based US film industry. It was produced by a British company, co-financed by a French distributor and made by a largely Indian cast and crew. Its success has now opened a door for films made outside Hollywood. The Middle East is now making new efforts to publicise its film industry’s offerings across the world.

“People don’t know a lot about the Middle East,” said Basma Kandil from the Egyptian Exporters’ Association. He is representing the Arab world at this year’s Berlin Film Festival.

Underscoring the Arab world’s new international movie ambitions, both Egypt and Jordan have moved to beef up their presence at the world’s leading film trade fairs, including the Berlin Film Festival’s business event, the European Film Market (EFM). As part of this regional film drive, Egypt’s top four production companies have now come together to promote Egyptian film in Berlin as well in Cannes and

The increasing international nature of the region’s film industry has the potential to act as a tremendous boost to Middle Eastern exports

the American Film Market (AFM).

Meanwhile, Jordan has for the first time established a foothold in Berlin’s EFM and is also aiming to have a presence at the film trade shows in Cannes and the AFM. “It is still early days for the film business in Jordan,” said George David, representing Jordan’s Royal Film Commission. “One of our objectives is to make it internationally.”

However, the industry in Jordan is growing quickly.

About two decades ago Jordan produced about five feature films a year. Now the number has risen to about 20 with a new crop of young Jordanian directors coming to the fore.

The film industry is ‘a part of a nation’s culture,’ said David, adding that it can help to further a country’s identity.

Jordan’s fledgling film industry is also fortunate to have been given the royal seal of approval. Jordanian King Abdullah II is reported to be a keen movie buff.

Like Egypt, Jordan is also taking advantage of its excellent climate and dramatic local scenery to enable location shooting.

Nearly half a century after Jordan’s magnificent Wadi Rum provided the backdrop to David Lean’s Lawrence of Arabia, the nation has now also moved to revive its film location business. A string of international movies have recently been shot in the country. This includes Michael Bay’s Revenge of the Fallen and Brian de Palma’s controversial Iraq war drama Redacted.

The Middle East film industry renaissance is likely to continue for the foreseeable future as it is underpinned not only by film making talent but also by the kind of 21st Century technology skills needed by today’s movie industry. The region stands to benefit hugely from the boost that a growing international film industry can offer its export industry. l thefalcon

People on the Move Orascom Telecom

Thales The aerospace and defense group has appointed Michelangelo Neri as division country director in the United Arab Emirates (UAE). In his new position, he will coordinate all market-

ing and sales activities, for Thales's Security Solutions and Services business in the UAE. He is also director of the Integration Center based in Dubai.

Australia names new ambassador to Egypt

Memac Ogilvy Egypt The communications agency has appointed Mr. Jed Donohoe as its new Creative Director. Donohoe began his advertising career in Ogilvy Sri Lanka ten years ago. Since that time, he has won his share of international awards and has written for various trade publications.

Sky News Sky News has announced that it is to open a new foreign bureau in Dubai. Sky News reporter Ashish Joshi has been named as the new correspondent and will be taking up his new role in March. Ashish joined Sky News in 2004 after spending 10 years at the Asian broadcaster, ZEE TV.

KIT digital, Inc.

AREIT

The Internet protocol technologies firm has appointed Marcus Evans as chief marketing officer, based in the company's Dubai headquarters.

AREIT Management Limited, the manager of the Arabian Real Estate Investment Trust (AREIT) has named Chris Purdon as Chief Investment Officer.

CB Richard Ellis The commercial real estate services company has named Matthew Green as Head of Research and Consultancy for the UAE region, based in Dubai. His previous work in the region included development advice on two separate villa developments in Dubai and Al Ain.

thefalcon

Ms Stephanie Shwabsky is to be Australia's new ambassador to Egypt.

Ms Shwabsky served as ambassador to Lebanon (2002-06), counsellor and deputy head of mission in East Timor (2000-02) and Cambodia (1996-99).

The telecoms group has announced that, effective April 1, 2009, Emad Farid, current Group Chief Operating Officer of Orascom Telecom, is promoted to the position of Vice Chairman, Corporate Strategy and Business Development. He is also currently a member/ Chairman of the Board of several Orascom Telecom and Weather subsidiaries.

Sheraton

Saatchi & Saatchi

The Sheraton Dubai Creek Hotel & Towers in Dubai has appointed Heinz F. Grub as General Manager. Grub's area responsibility involves overseeing the operations of all the seven Starwood properties in Dubai.

The advertising agency has appointed Elias Ashkar to the newly created position of Regional Chief Executive Officer for the Middle East & North Africa. Ashkar began his career with Procter & Gamble before taking on a global marketing role with Mattel, based in Los Angeles.

Coldwell Banker InterContinental Affiliates The real estate services provider has named Omar Fateen as chief information officer (CIO). Fateen held leadership/senior consulting positions for several Fortune Ă˝ 50 companies includ-

ing: American International Group, United Technologies Corporation, and Citigroup.

37

Sport

Rich clubs gain ‘unfair’ advantage As the tail end of the Champions League approaches, there is growing criticism that the sport is being dominated by the richest clubs.

Holland’s finest player, Johan Cruyff recently warned that the striking success of England’s four major clubs in the Champions League is damaging to the rest. A threetimes winner of Europe’s premier trophy as a player with Ajax and again as the manager of Barcelona, Cruyff argues that a harmful and widening gap is being created between the big clubs and the rest.

“In England, there are four teams in the Champions League and just one in the Uefa Cup,” Cruyff is reported

to have said. “The gap is getting bigger all the time and that is bad for football. It has become all about resources.

Clubs can now buy so many players that 10 or 20 guys who could be top players elsewhere cannot play. This is a problem for a lot of countries. The top guys are only going to England, Italy or Spain.”

There is also a view which is understood to be shared by Uefa president Michel Latini that the Premier League’s elite teams have gained an unfair advantage by buying success with borrowed money. There is now thought to be a real danger that the talent gap between the top of the English League and the

rest of Europe may continue to widen.

Meanwhile South Africa is preparing to host the 2010 World Cup. Of the three million tickets, 15 per cent have been set aside for South African residents at around $15 each in recognition of high poverty rates. Fifa have attempted to avert any black market sale of these tickets by ensuring they can only be

collected at designated centres. Even so, the “Category Four” ticket price is still far in excess of prices charged for South African League games.

Fifa’s recent concerns about the industrial unrest that has plagued preparations for the World Cup have been assuaged by the fact that most of the stadium construction is now on schedule.

Golf’s rising stars A new generation of golfing stars is now aspiring to challenge Tiger Woods for his crown. Teenagers Rory Mcilroy, Roy Ishikawa and Danny Lee are now being tipped to do something their older twenty-something rivals have so far failed to do, provide Woods with a serious rival.

Mcilroy is a native of Northern Ireland who is ranked 17th in the world

38

and is being seen by some as a potential successor to Woods. He shot a 68 in the opening round of the 2007 British Open at Camoustie.

In 2008, he exceeded expectations by making it to the Volvo Masters at Valderrama and entering the elite of the top 100 in the Official World Golf Rankings. His maiden victory came in the 2009 Dubai Desert Classic where he endured a dra-

thefalcon

Sport

Formula One teams fight to survive No sport is immune from the effects of the worldwide financial crisis, least of all Formula One motor racing.

But the recently formed Formula One Teams’ Association is determined to battle through.

The sport’s financially strapped teams recently announced a 50 per cent cut in operating budgets for the 2010 season. But the association is, in addition to cutting costs, determined to grow revenues while improving the sport.

Association chairman and the Ferrari president Luca di Montezemolo, said: “We are looking at this crisis with a positive attitude.”

He is reported to have

added: “It is a huge opportunity to improve Formula One in terms of cost and competition. We want to preserve the DNA of the sport. We want a stable Formula One, a positive Formula One, so international brands can be present and we want to increase the audience.”

According to sources close to the teams, Formula One manufacturers are committed to the sport until at least 2012. The Honda team, for example, was recently staring oblivion in the face after its Japanese parent company withdrew from Formula One in December. But the team is now understood to have been saved by a management buyout.

The teams have also agreed to sign the Concord Agreement binding them to Bernie Eccleston’s Formula One Management as well as to the Federation Internationale de l’Automobile, which regulates Formula One. The association is also understood to have agreed to cut the use of wind tunnels by half in order to reduce testing costs and to further limit the

number of updates made to cars throughout the season.

The manufacturers are also reported to have agreed to supply engines and gearboxes to independent teams in 2010 for under $7.5 million. There are also said to be calls to standardise the new KERS power systems as some teams are reported to have spent up to around $100 million developing KERS. There is also a growing view that races should be shortened from 200 miles to 150 miles.

It is estimated that the new initiatives will reduce the cost of running a Formula One team by $75 million to $225 million. Last season, teams were spending around $300 million.

matic final hole, ultimately beating Justin Rose to the title by one shot.

Woods’ confidant Mark O’Meara played with Mcilroy in Dubai earlier this year and is reported to have said: “ball-striking wise at 19, he’s probably better than Tiger was.”

But the sport’s veterans believe that the new generation has a lot to learn from their predecessors and that Mcilroy still has a long way to go before he could seriously challenge Woods.

Golfing legend Gary

Player, who himself won all four majors before turning 30 and who recently competed in his 52nd and final Masters, had some advice for Mcilroy.

“Rory must use Tiger as a role model and raise the bar,” said Player.

Danny Lee is a South Korean whose family moved to New Zealand in 2001.

He supplanted Woods as the youngest US Amateur champion at 18 years and one month and this year won a European tour event, the Johnnie Walker Classic.

Ryo Ishikawa, who does not turn 18 until September, has been nicknamed “The Bashful Prince”. He already has six top five finishes on the Japan tour.

“The quality of golf is definitely getting better with the younger generation,” said Anthony Kim, who won twice on the PGA tour and has been known to joke about suddenly feeling old at 23. “I think kids like myself and other guys…our technique is probably a lot better because we have access to great facilities and

great coaching.”

Woods himself also offered some advice to McIlroy: “He certainly shows the talent. It’s just a matter of gaining the experience in big events.

There’s no hurry. There’s no rush.”

Although golf’s crown prince may feel that there is “no rush” for golf’s rising stars, Woods may need to look to his laurels sooner than he would wish if the new generation’s early successes are anything to go by.

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Tenders

For more in-depth coverage of Egyptian Projects and Tenders, see www.noozz.com/projects

Top 5 (by value) Egyptian Projects Project Name : Marassi Resort Project Owner : Emaar Misr Location : Alexandria Budget : US$ 17,400.00 Million Scope of Work : The project calls for design and construction of new resort. The project will be located close to Alexandria and a few miles away from the historic city of El Alamein along the Sidi Abdul Rahman Gulf. The project will be built on 1,544 acres of pristine waterfront. The project will include 6 districts, amphitheatres, resort villas, spas, and retail, hospitality and entertainment components. It will also include 18-hole golf course, network of lagoons line townhouses and luxury resorts with up to 3,000 guest rooms.

Latest Notes : Turner Construction International acting as the project manager for the development.

Schedule : 23.31 %

Project Name : Madinaty Development in Cairo Project Owner : Talaat Moustafa Group Location : Cairo Budget : US$ 14,000.00 Million Scope of Work : The project calls for design and construction of the Madinaty development which will include residential areas, from villas to buildings, green areas, golf playgrounds, hotels with 2,000 rooms and suites, daily services, entertainment areas, exposition halls, conferences halls, shopping areas, educational establishments, medical centres, polyclinics, office parks, restaurants, coffee shops, parks, cinemas, theatres, party halls, social buildings, medical resort, water games area.

Latest Notes : Sources indicate that construction work is ongoing and expected to be complete in 2023.

Schedule : 9.77 %

Project Name : Gamsha Bay Township near Hurghada Project Owner : Damac Properties Location : Hurghada Budget : US$ 16,300.00 Million Scope of Work : The project calls for design and construction of new township. The project will be located along the Red Sea 60 kilometres (km.) north of Hurghada. The project will be built on 320 million square feet (sq. ft.) and divided into distinct zones which are Gamsha Marina, Marina Park, Coral Golf Course, Sea View Crescent, Creek Retreat, Gamsha Bay, Peninsula Luxury Villas, Downtown Gamsha and Extreme Sports World Theme Park. The development will stretch 39 km along the coastline of which 25 kilometres (km.) will be the beach. The project will have 55,000 units, villas, townhouses, retail establishments, shopping centres, marinas, apartments. Besides 18-hole golf course, spa resorts, 5 star hotels, beach resorts, theme park, marina village, educational facilities, cinemas, shopping boulevards and scuba diving facilities.

Latest Notes : Sources indicated that infrastructure portion is under construction.

Schedule : 12.98 %

Project Name : Egas - Al Hamra GTL Plant Project Owner : Egyptian Natural Gas Holding Company (Egas) Location : Alexandria Budget : US$ 10,000.00 Million Scope of Work : The project calls for the development of a GTL plant in El-Hamra, west of Alexandria. The proposed capacity is 47,000 barrels per day (b/d) that could be increased to 94,000 barrels per day (b/d).

Latest Notes : Proposals for feasibility study are still in evaluation.

Schedule : 0 %

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Project Name : Hyde Park in Cairo Project Owner : Damac Properties Egypt Location : Cairo Budget : US$ 5,400.00 Million Scope of Work : The project covers over 4.7 million square metres (sq. m.) and comprises more than 3,000 detached and attached villas.

Latest Notes : DAMAC Properties signed a contract with Engineers Consultants Group (ECG) to supervise the first phase of their latest project located in New Cairo. The contract will see ECG supervising, designing and evaluating the first phase of Hyde Park development for three and a half years.

Schedule : 3.93 % thefalcon

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