His Excellency, Mr. Kamal bin Ahmed Mohammed. (Asharq Al-Awsat file photo)

London, Asharq Al-Awsat—Kamal bin Ahmed is the Bahraini minister of transportation and acting chief executive of the Economic Development Board. While visiting London, he spoke with Asharq Al-Awsat about recent economic developments in the country, among other issues such as this year’s Bahraini Formula 1 Grand Prix. He also discussed the latest restructuring of Gulf Air, which involved dismissing staff.

Like many oil-producing countries in the Gulf, much of Bahrain’s economic activity is focused on exporting oil and its derivatives, but Kamal bin Ahmed also talked about investments in non-oil sectors and their importance to the national economy, such as the country’s large aluminum industry.

Asharq Al-Awsat: What kind of growth are you expecting in non-oil sectors of the Bahraini economy?

Kamal bin Ahmed: According to the figures, 15% of GDP comes from non-oil sectors, making Bahrain’s economy the most diverse in the region. Also, the non-oil sector employs more people than the oil sector.

Diversification is continuing in order to create employment opportunities. The unemployment rate in Bahrain is no more than 3.8%. Nonetheless, we are working very hard to create valuable positions—not employment for employment’s sake, but for the benefit of the citizens and to improve the standard of living, as well as serving the national economy.

Creating low-paying jobs does not benefit the economy or Bahraini society. We believe that we must first develop the individual citizen. We are currently focusing on improving education and professional and technical training. We are likewise committed to investing in infrastructure and maintaining low competitive prices to attract investment.

Q: At the beginning of the year, you expected a 6% GDP growth rate. Does this expectation remain?

We expect the 2013 GDP to grow by more than 5%. The figure was reduced because oil production at the Abu Safah oil field was temporarily halted so that its production capacity could be increased.

Q: What are the most important non-oil sectors in Bahrain?

The banking sector remains one of the most important investment sectors in Bahrain, amounting to 17% of the GDP. There are more than 400 banks and financial institutions in Bahrain from all over the world, which serve all the countries in the region. The financial sector provides excellent employment opportunities for the people of Bahrain; roughly 67% percent of those working in this sector are Bahraini nationals and 38% are women.

Q: What about regional competitiveness in that sector?

I think that competition is beneficial, and that the market can absorb a lot of investments. Furthermore, the integration of the Gulf market supports economic growth as a whole and helps develop legislative frameworks and infrastructure. The Gulf is one of the most important economic powers in the world, and each county’s expansion plays a key part in the region succeeding as a whole. By 2020, USD 1.4 trillion will have grown into USD 2 trillion—nearly the size of the entire economy of India. Bahrain is a main investment gateway to the region, and there are many rich opportunities available.

Q: Formula 1 has had some tough times in the past—can you comment on the Bahraini Grand Prix this year and in the future?

By all standards, the Grand Prix this year was a success. I personally made sure that the delegations arrived and left in an orderly fashion. There can be no doubt about the economic benefits of the international grand prix that has put Bahrain on the map. The event creates roughly 3,000 jobs locally and brings in USD 330 million. I can say that all information released by the regulatory body indicates that there is a lot of confidence in Bahrain. We are confident that the license will be renewed in 2017 after the current contract for Formula 1 racing in Bahrain expires.

Q: There has been a lot of development in important sectors of the Bahraini economy, like insurance and aluminum. Why have these sectors become so prominent?

Laws and regulations set by the central bank over the years have made these sectors stable. They operate in a safe business and investment environment that attracts the likes of Allianz and Islamic Takaful to Bahrain.

Logistical, legal and consulting services distinguish Bahrain. The country’s economy is growing at a reasonable rate; the cost of establishing and building new businesses here is low; the price of land, offices and services is low. We cannot say that the investment environment in Bahrain is appropriate for all kinds of companies. For example, companies that require large volumes of gas do not suit Bahrain, given our inability to provide large quantities of gas. However, this may not be the case for other nations in the Gulf. Establishing a skilled workforce is one of the most important things that can be done.

Q: You have sought to add 6000 new jobs in Bahrain every year. Have you achieved this?

The Bahraini economy does indeed create more than 6000 jobs, but we need job creation that is appropriate for the Bahraini citizen. We need to change the types of jobs being offered.

Q: Gulf Air has experienced two very tough years. What progress has restructuring brought?

Like many airlines, Gulf Air has had some problems, but in January 2103 we launched a sweeping restructuring plan for the company. The first quarter has shown positive developments and all goals have been met. Among the most important steps was realigning its network, its fleet, and the number of employees needed by the company. We were forced to let go of some of the employees that were no longer necessary. Perhaps those steps should have been taken earlier, but we will make sure that every one of those workers is treated fairly, as stipulated in the labor laws.

Q: What about the first quarter results for the company?

The results from the first quarter have come out, and they indicate that the company’s performance is improving. Losses are down nearly 50% compared with where they stood prior to implementing the plan and taking bold steps to restructure the company.

Q: What are the most important aspects of the restructuring?

Redrawing the airlines’ network while maintaining profitable routes, especially those that benefit the Bahraini economy in the Gulf and surrounding regions. The fleet was reduced to 26 Airbus A330 planes and 20 A320 and A321 planes. Most of these aircraft are modern, reducing the average age of the fleet to 3.8 years—the younger the fleet, the better.

By the end of this month, the number of employees will have decreased by 770, more than half of whom will be foreigners. This was an important step in the plan, which was reflected in the company’s improved performance.

The economic model that the company had used since it started serving the Gulf market as one of four competitors was no longer appropriate, and restructuring has been necessary to prevent losses for some time.

Q: Regarding the investments in education and training for Bahraini youth, how substantial is the program for scholarships abroad?

We believe that information can come from anywhere in the world, so many government institutions are working to train and prepare students through courses both in Bahrain and abroad. An enabling institution could give scholarships to educate and train students or citizens, thus enhancing the Bahraini workforce. Last year saw a marked increase in accreditation, at a rate of 87%, while government support for these programs reached BHD 46 million that year. More than 75,000 people benefited from these programs. A further 4,700 Bahrainis benefited from the programs supporting professional degrees in different fields through 24 new projects. More than 15,000 have registered for training and professional development programs, bringing the total number of beneficiaries to 56,000; an increase of 32%. This is all being done to meet the demands of business owners, who need more than a thousand trained and qualified Bahraini workers every year.

A Palestinian cleans a smuggling tunnel in the Gaza Strip, 19 February 2013 after Egyptian authorities pumped wastewater into the tunnels running under the border in a campaign to stop smuggling into the Gaza Strip. Source: EPA

London, Asharq Al-Awsat—Fast-food takes on an entirely different meaning in the Gaza Strip, where some Gazans are willing to wait up to four hours for a delivery of KFC.

Unlike the West Bank, the 25-mile long coastal strip does not have any trademark fast-food outlets. But that has not stopped Khalil Efrangi, a 31-year-old Palestinian business owner, from providing the much craved and internationally renowned brand of fried chicken.

The lengthy process, in which KFC meals travel roughly 50 miles, begins in Gaza, where orders are taken. According to Yamama’s Facebook page—which issues regular reminders of upcoming deliveries and contact details for placing orders—there are usually two or three deliveries a week, each consisting of dozens of individual orders. After various phone calls and wire transfers, the chicken is prepared in neighboring Egypt at the KFC franchise store in El-Arish, nearly 30 miles from the Rafah border crossing.

Once the orders are made, they are taken by taxi to one of the many tunnels used for smuggling a plethora of items into the Gaza Strip, particularly as the territory has been subject to a restrictive blockade—imposed by Israel and Egypt—since June 2007. At this point, the food is taken underground into the tunnels, which are controlled and overseen by Hamas. Roughly 7,000 people are estimated to work in the network of over 1,000 tunnels, which are responsible for bringing an estimated 30% of Gaza’s imports.

The work is dangerous as the tunnels “could collapse any time and kill you,” as one eighteen-year-old smuggler told BBC News last year. Gazan human rights groups estimate that 233 individuals have died working in tunnels since 2007. Furthermore, Israeli air strikes have targeted the tunnels, which are also used to smuggle weapons and personnel. Egyptian authorities have likewise sought to prevent illegal activities, such as in February of this year, when they flooded the tunnels in response to the deteriorating security situation in the Sinai province.

While the food is being transported through the prearranged tunnel, a Palestinian taxi driver waits at the entrance, ready to transport the meals to Yamama’s store in Gaza city. Once there, the buckets of chicken and other food items are divided into the separate orders and delivered by their fleet of motorbikes.

They offer anything that is available at the store in El-Arish by ordering online, according to the delivery service’s Facebook page, although more specific items are subject to discussion where payment is concerned. “It’s our right to enjoy that taste the other people all over the world enjoy,” Mr. Efrangi told the New York Times.

Despite involving four separate payments, Mr. Erfangi’s latest business venture appears profitable. A 21-piece family box costs EGP 124.32 or USD 17.80 at Egyptian KFC stores. However after the extensive transportation process, it is sold by Yamama for ILS 135 or USD 37.00. The cost of moving the goods through the tunnels is USD 16.50, according to a New York Times reporter who witnessed the process, who added that, after other payments, Yamama makes roughly USD 6 profit per delivery.

File photo of an employee counting money in a bank in Cairo. (REUTERS)

Under the platform, Cobalt allows multiple insurers to pool their capacity and each can subscribe to the desired level of risk though individual Islamic windows, said chief executive Richard Bishop.

“We are syndicating the risk across a panel of insurers. What we are about is developing an Islamic alternative in London for Islamic insurance,” Bishop said.

Cobalt aims to address capacity constraints in the takaful (Islamic insurance) industry, which is based on the concept of mutuality; where a company oversees a segregated pool of funds contributed by all policy holders.

In their investments, takaful firms must follow religious guidelines such as a ban on interest and pure speculation.

Global takaful contributions were expected to reach USD 12.4 billion in 2012, according to a report by consultants Ernst & Young last April.

The platform allows each insurer to have a takaful window, where policyholder funds are segregated from conventional funds, without affecting their rating levels and helping price the risk competitively, said Bishop.

“It is essential to our offering that all security is of at least an A rating in order to satisfy the requirements of both buyers and their financiers,” he said.

The risk is priced by a lead insurer and other firms must then subscribe under similar terms, a similar approach to the subscription model used in London’s insurance market.

COBALT, formed in 2012 with capital from Capita insurance services and the Bank of London and The Middle East, hopes its platform can address gaps in both the Islamic insurance and reinsurance sectors.

The firm has secured underwriting capacity from XL Group to insure property risks with capacity of up to USD 300 million.

Cobalt would seek to underwrite large transactions of no less than $30 million in value while it is also seeking to expand capacity into the construction sector, Bishop said.

In the long term, further capacity could be added for other risks including trade finance, Islamic finance institutions, energy and aviation, he added.

Operators in the takaful sector, which has its core markets in the Gulf and southeast Asia, have been limited in their ability to take on large commercial risks partly due to a lack of scale.

“Once you get beyond small commercial risk, takaful doesn’t work. We have created a multiple-insurer platform to provide the sort of capacity the industry needs,” Bishop said.

Reinsurance options are also scarce with some takaful firms forced to reinsure through conventional lines, a practice allowed under the concept of darura, or extreme necessity.

Industry scholars, however, are increasingly challenging whether the darura concept is still applicable in today’s market and are encouraging alternatives.

Several pricing models can be used under the platform such as mudaraba and wakala, the latter can incorporate an incentive fee which is the preferred format, Bishop said.

Under the mudaraba model, a firm acts as a managing partner for a policyholder’s money, working under a profit-sharing contract with any losses borne by participants.

In wakala, the firm operates under an agency agreement, managing funds on behalf of policyholders in exchange for a management fee, which can also include a performance fee.

DIFC CEO Jeff Singer during a visit to Asharq Al-Awsat’s Headquarters in London. (Asharq Al-Awsat photo by James Hanna)

Singer, who celebrates his first year as CEO this August, is responsible for the DIFC shift from a reactive model to a more proactive go-to-market strategy, with the aim of boosting the number of companies in the free zone, while also increasing the growth of firms already present in the DIFC.

Before joining the DIFC, Singer served as CEO of NASDAQ Dubai, a position he held from July 2008. Before his time in Dubai, Singer headed NASDAQ International, where he was responsible for the stock exchange’s global business development, which focused on managing international relationships with companies outside the Americas.

Asharq Al-Awsat met with Singer during a visit to our London headquarters for an in-depth interview.

Asharq Al-Awsat: August 1 this year will be your one-year anniversary as CEO. What have been the biggest challenges you have faced in the position so far?

Jeff Singer: We have focused on reshaping our go-to-market strategy around two key areas. One is to grow the number of companies coming into DIFC, and the second is to grow the presence of the firms already present in the centre.

This approach requires us to send representatives outside UAE to interact with the industry, as well as to have internally-focused people that work with the companies already in DIFC to ensure they’re receiving the right level of support.

Refining our approach to business development has been my focus for much of my first year.

Beyond our go-to-market strategy, we’re also looking at the broader strategy of the Centre. When I joined DIFC last year, the board had already approved a two-year strategy and planned how we’d execute against that. The strategy we’re working on now will guide our next phase of growth, through 2016.

Q: Competition is a healthy aspect of any economic activity. How does the DIFC compare with other finance centers in the Middle East, particularly Saudi Arabia and Qatar?

DIFC is home to over 900 companies, 345 of which are regulated, and 450 non-regulated, plus we have 117 retail outlets. Aside from scale, DIFC has also grown in diversity; a broad cross-section of the financial services industry is represented in the Centre. Our clients employ over 14,000 people, and occupy over 2 million square feet.

Our clients have made DIFC a tremendous success, and they favor DIFC for two reasons. First is that we have what I consider to be the best value proposition in the Middle East. DIFC is something of a financial Vatican: we have our own commercial laws, our own regulations, and our own courts. Our infrastructure enables business, provides the certainty of justice, the rule of law, and well-understood regulations from around the world. The free zone concept is not a new concept to the Gulf. There are many free zones in Dubai; the main benefit of a free zone is that foreign companies are allowed 100% ownership. We provide that, of course, but the financial services companies wouldn’t come into the DIFC if it was only about ownership. They need certainty around their contracts, around the deals they are doing. Therefore, the DIFC, with its own laws and its own regulations, has been recognized as a very strong value proposition.

That’s half of it. The other half we call “lifestyle”. If you’re a firm from anywhere around the world coming into the Middle East and you compare Dubai and UAE with other parts of the region—you quickly see that Dubai is easily the best choice. Dubai provides access to great schools, hospitals, roads, housing, and what many consider is the most liberal and most accepting culture in the region.

If you look at the evolution of the DIFC, when people first started coming into it in 2004, it was all about servicing the UAE. Now, nine years later, they’re coming into the DIFC because they’re using that as a headquarters or a base for their MENA and Indian subcontinent business.

You can get to anywhere from Dubai. I heard this yesterday at the conference: you can get to more places in Africa from Dubai than you can from Africa. You can get to get to more places from Dubai into India than you can from India itself. The infrastructure in Dubai, its commitment to trade, is unparalleled for the region.

Q: There are some banks based in the DIFC who have complained about unequal treatment from the UAE central bank. What’s the DIFC doing to help with that?

Last month the Securities and Commodities Authority (SCA) clarified through a board resolution that if you want to serve the retail market then you need a license from the SCA or through the central bank; or you could go through a local partner to service your products. But if you’re serving the wholesale market, then a license from DIFC’s regulator, the Dubai Financial Services Authority is sufficient.

Most of the firms coming into the DIFC are serving the wholesale market, so that ambiguity has been cleared up.

Q: Islamic Banking is gaining popularity globally. What is the DIFC doing to facilitate those transactions in Dubai?

DIFC is has been embracing Islamic finance since 2005/6. Recently, Sheikh Mohammed’s announcement that he wanted to create Dubai as an Islamic affairs hub—not just for finance, but for all things Islamic—has really changed the enthusiasm around Islamic finance in Dubai. Because we had an early start on the laws and the regulations around them, many firms have located in the DIFC to do Islamic finance. Our regulator has been set up; the DFSA has also created methods and processes to ensure they know how to regulate Islamic finance. We have many products that are being created out of the DIFC that are for Islamic investors that are then being regulated by the DFSA. We have Islamic banks that are in the DIFC that are servicing the markets. We have Islamic re-takaful, we have two Islamic re-takaful (re-insurance) that are being done from the DIFC.

There are many products, many companies, and many aspects. The regulations and the laws are already there. What we’re going to do now with this renewed commitment from Sheikh Mohammed on the Islamic economy—and we’re just the is finance piece of it—is we’re going to look at how we can further promote Islamic finance from the DIFC. The key for us will be the laws and the regulations, and we’ll go from there and make it very, very easy to do Islamic finance from the DIFC.

Q: Dubai has a lot of naysayers. When it comes to the DIFC, some observers say it has moved more towards property development, rather than being a hub. The DIFC was split in two, into a property side and an authority side. Has the property side surpassed the authority side?

No. The reason it was split in two is that you fundamentally have two different skill sets, in terms of either running the authority or running the properties. The DIFC property is 110 acres; we have 2 million square feet completed. We have third party buildings: we have other companies that have built within the DIFC. The DIFC still has nine uncompleted properties. The question is, what do you do with this?

You also have the 2 million square feet that we’re running right now: the leases, the facilities management, all that kind of stuff. As they were looking at skill sets to run properties and the authority, they realized it was two different people, two different backgrounds. So a separate properties division was made, and Brett Schafer was hired a few weeks ago to run DIFC properties. He’s just going to focus on building up the complete DIFC master plan, as well as the facilities management of the DIFC. My responsibility is on the authority, on the growth and development of the DIFC, and the policies and regulations that support that growth and the companies that are there. It’s two different areas. Brett and I work closely together; both of us report to the board. Ultimately, the president of the DIFC is Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, the Deputy Ruler of Dubai. Honestly, if there are naysayers around now that’s a pretty miniscule issue. Dubai typically has been focused around property only, and Dubai is really good at building things.

The question for the DIFC and the free zones will how to go from Version 1.0 to Version 2.0. Version 1.0 is the buildings—it’s the infrastructure, the schools, the roads, it’s everything. It’s how you create a livable city. Version 2.0 is how to create true hubs within the city. What are the rules and laws that support the firms that are already there? If you look at the DIFC, you’ll say, ‘Ok, the evolution of growth has been just firms that want to be part of the deal flow within the Middle East, and now increasingly the region, and so they locate there—and that has typically been their sales offices and their distribution offices.’ But if you really want to create a hub, you have to get people to transact business there. You have to get them to broker business there. You have to get funds to manage the funds and invest into the region from DIFC.

Asset management has to book the business in the local currency and then be able to hold that currency locally. Right now, many of the asset management firms are booking their business in London or in Zurich. There hasn’t been any true destination within the DIFC for this, and if you look at the trading of the firms, you have the DFM [Dubai Financial Market] and the Abu Dhabi stock exchange—which in 2007/8 were extremely liquid, but today they haven’t been as liquid as they were in the past. How do you increase trading of the local shares? How to do you get the family companies and the semi-governments and even the governments to go enlist part of their shares and create a dynamic capital market? Off that capital market is how you share the wealth into the region; it’s how you create wealth in terms of a middle class being able to invest into these companies.
That’s part of the next step of the DIFC, to create a vibrant capital market in Dubai. What laws do we have to have to support that; what kind of regulations will support that? I’d say those would be the longer-term aspects of creating a hub. You have to be business friendly. Not just from the infrastructure—not just, ‘My family can be here, we have schools, we have good health care, we can drive around, we can live a comfortable life here,’ right? That’s the first aspect, but the second aspect is, ‘I want to do a deal, I want to sign a contract, I want to be able to conduct business here locally,’ and right now a lot of that is being outsourced.

Q: At the moment, the DIFC is pursuing China and Asia aggressively. Why?

What we’re seeing is an influx of Chinese firms that are going into the Gulf, the subcontinent, and most particularly—more than anywhere else—Africa. You’re seeing the Chinese go into Africa. With that move of Chinese firms exporting their businesses outside China into other locations, you’re going to need Chinese financing. The most poignant example I can give you of why a Chinese bank needs to be in the DIFC is from Africa a few years ago. You had two people who went into an African country to look at a mine that they wanted to purchase. They did a weeks’ worth of due diligence—if this was a Western firm, they’d take a year. A week later, they came back and signed the terms sheet without any changes—which is also unheard of—and the only requirement they had was to have 250,000 visas to be able to run the mine. They would export 250,000 people into Africa.

So the question I have for you is who’s going to finance that? Do you think JP Morgan or City or RBS are going to take that? No way. The only people who are going to finance that are Chinese banks. The Chinese banks don’t want to go into Africa. There just isn’t a regulatory or legal environment to support them there, so they looked at the region and they found that the DIFC was the natural place for them to locate for all the reasons I just outlined. So you see a lot of these Chinese banks coming into Dubai.

Q: So it’s not to offset any loss in Western clients?

No, no. We have a few that have gone—Morgan Stanley, JP Morgan and Citi have all announced layoffs—but for the most part it’s not to offset that. But all those firms I mentioned? They’re staying; they’re strong. They’re doing deals in the region. It’s really just this wave of Chinese companies coming into the Gulf and into Africa that require support from China, because they’re not going to get it from the firms that you and I know.

Q: At Harvard business school event, you said that in the next ten years the region will require USD 4 trillion in investment. How much of that is the DIFC going to capture?

The USD 4 trillion is really about how much infrastructure has been announced over the next ten years.

Q: Regionally?

Gulf, not MENA—just Gulf. Of that USD 4 trillion—that’s a huge, huge number—my guess is that Saudi will probably finance a lot of that USD 4 trillion, but there’s going to be a lot of building in Qatar, Jordan, Yemen, Oman, and of course in UAE. That’s going to require external financing. I believe DIFC will play a role with many of the banks that will be coming over, and with the laws and the regulations needed for those deals to be transacted. A lot of that’s going to be trade finance oriented, so you’ll have Standard Chartered and HSBC playing a huge role.

Both of them have a strong presence in Dubai. Standard Chartered, as I mentioned, has their regional headquarters in the DIFC. So you’ll see the way that Dubai takes advantage—or at least the DIFC takes advantage—of that USD 4 trillion is the deal flow. It’ll be companies that come to set up and be part of the growth and the development, as opposed to a portion of that money physically being used to develop out the DIFC. That’s not the way we grow. We grow by the companies locating in the Centre: they pay us a lease, and we use that lease to further invest into the DIFC.

Q: Do you hope to double the size in ten years?

That’s the goal, that’s the goal.

Q: Are you worried about Turkish Prime Minister Erdoğan’s project, the Istanbul International Financial Centre, from a competition perspective? Or perhaps because Turkey might be perceived as offering a better quality of life?

Turkey’s a great country, and right now it has a very vibrant economy. I know that Turkey has aspirations of coming into the Eurozone and becoming more a part of the European equation. Do I have an eye on it? Of course I do. But the reason people come to Dubai is not really to serve Turkey or the European area. They come for the Gulf, India and Pakistan—the subcontinent region—as well as Africa. So if you look at where our growth and our development is coming from, it’s not from Turkey. There are some people that go up into Turkey, and there are people that come down from Turkey into Dubai—but that’s not where our growth and development is, that’s not where our focus is. We’re really on that east—west corridor, and the north–south isn’t as prevalent.

A Saudi trader counts Saudi riyal banknotes in Mecca in this October 20, 2012 file photo. (REUTERS/Amr Abdallah Dalsh/Files)

The drive by the Saudi Arabian Monetary Agency (SAMA) coincides with efforts from the kingdom’s Ministry of Labor to increase possible employment opportunities for Saudis.

According to an informed source who spoke to Asharq Al-Awsat on the condition of anonymity, the circular from the Saudi central bank had suggested that complete localization is possible in some functions, including work in retail banking branches and human resources departments.

“The move was taken as banks were estimated to be able to increase their recruitment of Saudis by 95%,” the source told Asharq Al-Awsat, adding that it was part of the coordination between SAMA and the labor ministry to curb the unemployment.

He added that Saudi employees already represent at least 86% of the workforce in most Saudi banks, which altogether employ around 50,000 people inside the kingdom.

Commenting on this development, renowned economist Fahad Al-Mushari told Asharq Al-Awsat that secretarial and human development jobs in banks could be taken by Saudis, while top consultancy posts would be harder to localize.

In recent months, Saudi Arabia has instituted tough new measures to tackle unemployment among local people by making it harder for private companies to employ some of the nearly 9 million expatriates registered as living in the country.

A screen displaying stock market index is seen at the Saudi stock market in Riyadh. (Reuters)

Saudi Arabia, home to the Gulf Arab region’s largest stock exchange, has been slowly amending its regulatory framework to bring it closer to international standards; market participants hope this will allow the bourse to open to direct investment by foreigners, a step which authorities are considering.

CMA chief Mohammed bin Abdulmalik Al al-Sheikh, who was appointed in February, said last week that the regulator was trying to limit “high levels of speculation” in the stock market and encourage more investment by institutions rather than individuals.

The CMA is discussing with industry participants a proposal to calculate a stock’s closing price using the average price in the last 15 minutes of trading, weighted by volume, instead of simply the price of the last trade, it said in a statement on Monday.

The consultation will close on May 31, and follows a study recommending the move that “included global benchmarking and consultation of industry experts”, the CMA added.

A second proposal would begin sanctioning listed firms if their accumulated losses exceeded 50 percent of their capital, as opposed to the current regulation which does so when they hit 75 percent.

The announcement comes days after the authorities ordered the delisting and liquidation of Saudi Integrated Telecom Co , a relatively small and new firm which had struggled for months under the weight of its losses.

“Many experts were calling for such a decision to separate good companies and others at risk,” Mazen al Sudairi, senior financial analyst at Al Istithmar Capital, said of the proposal on loss-making companies.

“This will benefit the national economy as it will make sure society’s savings are not wasted on failed companies.”

Under the proposal, firms whose accumulated losses exceeded 50 percent of their capital would be required to announce plans immediately to remedy their financial positions and make monthly disclosures to the bourse on their progress.

If such a proposal were introduced today, four firms – one in agriculture and three in insurance – would find themselves over the 50 percent accumulated losses limit, according to Turki Fadaak, head of research at Al Bilad Investment Co.

News of the proposal sent share prices of many small-capital firms lower on Monday; Al Ahlia Cooperative Insurance Co slumped its maximum permitted move of 9.8 percent.

On Sunday, the CMA announced that stocks on the kingdom’s bourse would be limited to price swings of 10 percent on their first day of trade, as opposed to the unlimited movement allowed previously – another step to reduce volatility and speculation.

“CMA is developing a strategy to promote institutional trading…” Al-Sheikh said last week, adding: “While out of the total 47 billion stocks listed 45 percent are held by individuals, nearly 93 percent of daily trading is done by retailers.”

Traders at the Qatar Exchange. (Reuters)

Qatar unveiled plans to create the investment company in February and said its sovereign fund arm, Qatar Holding, will transfer USD 3 billion worth of assets into the new firm, with a similar amount raised in an initial public offering on the Qatar Exchange.

The IPO has been postponed “until all requirements and approvals from the concerned authorities are obtained,” Hussein Ali Al Abdullah, acting chairman of both Qatar Holding and the bourse, said in a statement.

A new date for the IPO will be announced in the local news media, Abdullah said, without providing any additional details.

In this Sunday, March 17, 2013 file photo, an Egyptian activist walks past burning tires during an anti-Muslim Brotherhood protest, in Cairo, Egypt. (AP)

Madrid, Asharq Al-Awsat—Egypt’s government and international allies are scrambling to avert a summer energy crunch mostly driven by a growing natural gas deficit that, compounded with current economic woes, threatens to increase political instability and social unrest at this critical juncture.

Until recently forecast to be one of the world’s largest sources of gas production growth, Egypt is already experiencing a supply deficit that is forcing it to idle part of its export capacity while diverting industrial supplies to its power sector to meet soaring demand. The country produces more than it consumes, but production growth is insufficient to meet its long-term export contracts and rising domestic demand.

The government is working with neighbors and allies to access credit and import gas more urgently through a planned floating liquefied natural gas (LNG) terminal that it wants running by this summer to offset expected supply shortfalls, although experts doubt it will be able to do so in the short term.

The gas deficit has been a long time coming, a result of population growth and heavily subsidized industrial and electricity prices. The gap widened after Hosni Mubarak was removed from power, as political instability slowed vital private investment in production capacity additions. But while the root of the problem is not political, the consequences are.

Dwindling supplies will inevitably add to the tenuous political and social stability in the country and drain its currency reserves at a critical juncture, in a vicious circle that can only be resolved with time. Most of Egypt’s gas—about 55%—is used in power generation. A gas crunch during the peak summer season will likely fuel unrest as blackouts increase, which in turn will further erode investor appetite and thus worsen the macroeconomic situation and stability, analysts say.

“Egypt will have a shortfall in gas. It’s unavoidable. They pay high prices to import LNG, while their currency reserves are falling. And they are under pressure to reduce subsidies, but they need it to keep people from taking to the street,” said Michael Nayebi, a senior Middle East analyst in the Houston-based geopolitical intelligence firm Stratfor.

The government has already said it plans to phase out subsidies, but it “has to be very careful, because it will touch middle-class Egyptians and that could be an issue. None of these reforms can be implemented in any meaningful way until after parliamentary elections and the chances are that any government would have had no choice but to reform energy sector significantly,” said Yasser El-Shimy, a Cairo-based analyst at the International Crisis Group and former diplomat.

The government is diverting industrial supplies to increase the electricity sector’s needs, but the fact the military is the single biggest industrial player only makes it all the more complicated. “The military is heavily invested in the economy and they receive heavy subsidies for energy, and it’s difficult to curb military subsidies,” Nayebi said.

EGYPT’S GAS RESERVES of 2.2 trillion cubic feet are plentiful—enough to last decades—but the current trends are unsustainable. Production fell in 2012 for a third straight year, albeit only slightly, while demand soared more than 5% over 2011, after rising 10% from 2010 to 2011, according to a combination of Egyptian and international data.

Exports, equal to about a quarter of gas production, rose slightly in 2012, but are expected to fall in 2013 as a result of government decisions to divert supplies to its power sector, which is gradually consuming a greater share of total production. Industrial consumption, equal to nearly 30% in previous years, is also expected to decrease in 2013, while demand in the residential and transportation sectors, which together account for less than 5%, will likely remain constrained.

Several factors explain these trends. To begin with, production expectations were overblown. The global economic crisis also hurt global gas prices and investment, which inevitably affected projections.

Compounding deteriorating global markets and demand, increasing production has been hampered by the depletion of shallow, easy and cheap deposits. Developing the deeper, more complex and expensive reserves requires significantly more investment, which has not been forthcoming under current market conditions.

“Egypt was the big hope that didn’t pan out. The gas plays are not as prolific as expected, and you just have a lot of small investors not able to handle the deeper more complicated deposits,” Nayebi said.

The government’s plan to import LNG from Qatar using a floating terminal is also troublesome. “I’m not sure they have capacity to handle that in the short term. Even with a floating terminal, Egypt’s gas network infrastructure couldn’t fully utilize that,” Nayemi said.

Furthermore, energy issues are just one of the pressing economic problems for Egypt. Foreign reserves are rapidly being depleted to buoy the Egyptian currency and to pay for rising unpaid international debts spread across the economy, including in the gas sector.

“The fact that the Egyptian government has had a liquidity crunch, and has struggled to pay companies in full and in hard currency for gas purchases, has worsened [the situation],” said Shimy. “Not a lot of companies have been thrilled to work in these circumstances.”

Cuts to energy subsidies, which Oil Minister Osama Kamal recently announced would exceed USD 17 billion this year, are inevitable—and the government agrees. But scrapping the subsidies at this time would likely be counterproductive, not only because of political instability, but because economic growth would suffer.

Egypt has for some time been negotiating an International Monetary Fund initial loan of nearly USD 5 billion, but creditors want Egypt to cut pervasive subsidies, not only in energy, but in most sectors of the economy.

Qatar, which is becoming one of the single most important supporters of Egypt, also agreed to inject another USD 3 billion, on top of a previous USD 5 billion, to avert financial meltdown—but that is insufficient to stabilize the Egyptian economy. Gross domestic product growth in the last two years slowed to less than 3% from the more than 6% of each of the previous four years. Unemployment is rising, as is inflation, the latter by nearly 10% annually.

“They would have had this problem even with Mubarak,” Nayemi said. “But the Muslim Brotherhood gained leverage through handouts. Now [that they are] in power, they face the daunting challenge of balancing the economy and keeping people happy.”

“Every protest, slowly chips away the foundations of stability,” Nayebi said, although he predicted that power demand is unlikely to be a tipping point. “People won’t rise up because they have no power, but every protest just adds to this, and investors take notice.”

“It’s a very troublesome scenario. What happens when the Muslim Brotherhood can’t deliver? There is some wiggle room, but if that gas isn’t there to redistribute, do you force the industrial complex to take a hit or do you have rolling blackouts? And would it be enough?” asked Nayemi. “Egypt is in a tough patch for a while.”

Malian soldiers take positions during a training session given by soldiers from Luxembourg in Koulikoro May 7, 2013. (REUTERS)

Paris launched a ground and air operation in its former colony in January to break the Islamist rebel hold on the northern two-thirds of the country, saying the militants posed a threat to the security of West Africa and Europe.

The rapid offensive took back most of the territory seized by the militants but has failed to stop them from waging a guerrilla war.

On Friday, suspected Islamists carried out three suicide attacks on soldiers from Mali and Niger in northern Mali, wounding a Malian soldier. At least five bombers died.

In a document drawn up for an international donors’ conference in Brussels on Wednesday, the Malian government said it would be able to finance just over half of a EUR 4.34 billion plan for this year and next, but needed help with the rest.

“The international community is greatly needed to finance and implement the plan, up to a level of EUR 1.96 billion,” the government said in the document, posted in French on the conference web site.

“To get out of the crisis and to begin lasting development, Mali needs and depends on the technical and financial support of the international community,” it said.

The plan sets out 12 priorities, including keeping the peace, organizing credible elections and fighting corruption.

Next week’s conference, organized by France and the European Union, will aim to raise at least USD 600 to USD 700 million, diplomatic sources said.

Due to attend are Mali’s interim president, Dioncounda Traoré, a number of other African leaders, French president Francçois Hollande and European Commission president José Manuel Barroso.

France is now looking to withdraw thousands of its troops and hand over security duties to a UN peacekeeping mission.

Donors who suspended assistance to Mali following a military coup in March 2012 have resumed budget support and project aid.

The EU has unblocked EUR 250 million in frozen development aid and Paris has restored EUR 150 million, including a EUR 10 million emergency assistance fund to rebuild key services such as water and electricity.

Speakers are seen at the podium during the Euromoney Conference in Riyadh May 7, 2013. (REUTERS/Faisal Al Nasser)

During the conference, Saudi minister of economy and planning Muhammad Al-Jasser identified four key challenges facing Saudi Arabia’s efforts to increase productivity: the multiple constituent components of the job market; the diversity of the economic base; attracting international medium-sized enterprises, particularly from developing countries; and limiting subsidies, particularly fuel subsidies, to people who genuinely require them.

Jasser acknowledged that the subsidy program is an important challenge for the kingdom, particularly due to the high cost of subsidies on the Saudi economy. He added that Saudi Arabia is attempting to address this issue in a prudent, balanced and cautious manner, including via the development of the public transport system.

Finance Minister Dr. Ibrahim Al-Assaf stressed that the financial, economic and monetary stability Saudi Arabia is experiencing is due the policy of development that the kingdom has actively pursued over the past years. He stressed that these policies have enabled the national economy to achieve a growth rate of approximately 7% over the past year, thanks to the effective performance of the private sector.

He noted that the Fitch Ratings Agency has recently affirmed Saudi Arabia’s sovereign rating of AA–, stressing that the kingdom will continue to strengthen growth and development.

Fitch Ratings had earlier said that Saudi Arabia could see an upgrade in coming months because of progress in handling social stressors and strengthened budget buffers. Fitch also revised Saudi Arabia’s outlook from stable to positive.

Addressing the conference, Housing Minister Dr. Shwaish Al-Duwaihi revealed that Saudi Arabia’s Real Estate Development Fund has provided 800,000 interest-free loans worth a total of SAR 224 billion.

He also noted that the housing minister recently signed an infrastructure project in Riyadh, which will see the construction of nearly 7,000 housing units.

Secretary-general of the Gulf Cooperation Council (GCC), Abdullatif Al-Zayani, was also in attendance at the conference. He asserted that the GCC is working to achieve the following four strategic goals: defending GCC member states from all political, security and economic threats, supporting and increasing economic growth, achieving high levels of human development, and ensuring that GCC member states address and recover from all crises and risks.