Posts Tagged Libya
With Islamist parties dominating recent elections in Arab Spring countries, the Islamic finance industry will likely find opportunities to capture large volumes of new customers and emerging infrastructure projects, according to a report by global law firm Simmons & Simmons.
Intent on maintaining a secular financial system, regimes in Egypt, Tunisia and Libya were not supporters of Islamic finance, notes Tariq Hameed, a Dubai-based managing associate with the firm, and author of the report, ‘Blue Print for Islamic Finance following the Arab Spring.’
But in elections that have seen Islamist parties come to power, such as the Muslim Brotherhood in Egypt, Shariah-compliant banking has been endorsed as part of a larger social and financial reform campaign. “All of the parties have gone on record saying they support Islamic finance,” Hameed says. “It reflects their beliefs.”
Hameed says at the consumer product level, there is huge potential for growth. Partly because many people in these countries do not have bank accounts — approximately 25% of Moroccans and 33% of Tunisians with bank accounts, and only 10% of Egyptians, according to his findings. “There was a lack of offerings,” he says. “Many didn’t engage with the conventional banking system.”
While expected customer growth would be in volume, Hameed notes that the majority of such accounts would likely be low-income savers. Compared to Arab Gulf countries, GDP per capita among the Arab Spring countries is low: Libya is the wealthiest, but GDP per capita is estimated at just $14,000.
In addition to creating savings products, one opportunity could come from the further development in Islamic microfinance offerings, Hameed notes. Currently there is very little being offered to grassroots Muslims, he says, but institutions will have to serve demand from rural communities and micro-enterprises. The state can act as sponsor of such an initiative, he suggests.
Separately, Islamic finance will become an option for these governments as they seek foreign investment. According to Reuters, a number of Islamic financial institutions are opening branches in Libya, for instance, as it explores the industry. Successful Islamic financing of infrastructure projects already exist in Bahrain, Saudi Arabia and Bangladesh, Hameed says, so there are models states can study for implementation.
There remain challenges for the Islamic finance industry before they can reap the potential of these markets, Hameed adds. There are several issues that need to be addressed to ensure growth, his report notes, including the strengthening of consumer protection laws, clarifying governance, and establishing central Shariah boards for finance.
For Western financial firms and businesses seeking to be in the region, they will have to have a capability to engage in Islamic finance, Hameed notes. “If the customer wants Islamic finance, competitors will provide it if they don’t,” he says.
Arab-American technology entrepreneurs have a special role to play in helping Arab Spring nations find their way back to stability and development, according to David Hamod, CEO of the National U.S.-Arab Chamber of Commerce.
Addressing an audience at the Plug-and-Play Tech Center, a well-known Silicon Valley incubator run by Iranian-born Saeed Amidi, Hamod said such members of the Arab Diaspora could provide the experience and skills needed to jump start innovation in Arab economies.
“For the Arab world to make the transition from hydrocarbon-based economies to knowledge-based economies, the next big thing in a sense is innovation,” Hamod said. “Innovation, hand-in-hand with entrepreneurship, will create those productive jobs that are so vital to growth in the Arab world.”
“There is a special role to be played in this process by Diaspora Arabs, who have made it in Silicon Valley, who have learned the lessons of Silicon Valley and who are uniquely situated to share those lessons with the Arab world,” he added.
Hamod spoke at a global forum examining ways to harness the economic potential of the Middle East and North Africa (MENA) region in the aftermath of the Arab Spring revolution. At a time of uncertainty as well as promise, Arab-Americans are looking inward to discover their role in helping usher in democracy and economic stability in their traditional homelands.
He told the forum attendees that technology alone is only part of the equation. “If the Arab Spring at its heart is about dignity, respect, having a voice, reducing economic disparities and being able to put bread on the table for one’s family, then there’s no time to lose in promoting innovation through entrepreneurial ecosystems,” he said.
Throughout the day some of Silicon Valley’s leading Arab-American technologists reiterated Hamod’s applause-inducing speech by creating an atmosphere that resembled a high school pep rally. There were discussions about cultivating the start-up ecosystem in MENA and perhaps most important, getting access to venture capital.
It is that final hurdle that deserves a watchful eye in the coming months as the grassroots revolutions turn to the formation of new governance. Political resolution might encourage the citizenry to return its attention to the daily duty of work. Hamod said there will be no return to the status quo, but where that leads the region to is anyone’s guess.
The forum was held on Martin Luther King Jr. Day, honoring the great civil rights leader. Hamod found a parallel between King’s fight for freedom in the 1960s and the protests in the Arab world that have broken the stranglehold of entrenched regimes.
He quoted from a portion of King’s famous 1957 speech delivered at the Prayer Pilgrimage for Freedom in Washington D.C.:
“Sometimes it gets hard, but it always difficult to get out of Egypt. The Red Sea always stands before you in discouraging dimensions. And even after you cross the Red Sea you have to move through a wilderness with prodigious hilltops of evil, gigantic mountains of opposition. But I say to you, keep moving. Let nothing slow you up. Move on with dignity and honor and respectability.”
King’s speech was meant for an African-American constituency. But it sounds less ethereal to modern Arabs, especially those who risked their lives in Tahrir Square protests one year ago, and for those who continue to grapple with how to move forward after creating unprecedented change.
The Arab Spring has shown regional leaders the dangers of ignoring unemployment and poverty – since the 1990s the unemployment rate in the Arab world has been among the highest in the world, with an overall rate of 10.3% and a staggering 23.7% for those under age 25, according to the International Labour Organization.
One of the surest, quickest ways to provide relief, according to a new paper done by students with the Lauder Institute of Management & International Studies at Wharton, is through regional governments organizing and reforming vocational education training (VET) which would prepare trainees for mid-level jobs based on manual or practical activities, such as carpentry or hospitality.
There are stigmas that need to be overcome — VET is traditionally seen as last-chance education for underperforming students — but if implemented effectively, the students argue VET could become a key component for solving the prevailing quandary of human capital development in the Middle East.
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Stock markets in the Middle East have taken a financial beating because of Arab Spring protests this year. Since crowds flooded Cairo’s Tahrir Square, Egypt’s EGX 30 Index has lost almost 45% of its value; Saudi Arabia’s Tadawul All-Share Index has lost nearly 10%, while the Dubai Financial Market General Index has fell nearly 20%.
Arab exchanges were already weak because of the effects of the 2008 financial crisis, which exposed issues with sovereign debt in the Arab Gulf. Only two IPOs this year were listed in the exchanges of the Gulf Cooperation Council countries (Saudi Arabia, the United Arab Emirates, Qatar, Bahrain, Kuwait and Oman). Both were in Saudi Arabia, and generated US$219m, according to PwC Capital Markets Middle East.
But adding further injury, a much anticipated bid to upgrade the United Arab Emirates and Qatar to ‘Emerging Markets’ status by index compiler MSCI was thwarted again this past week. Currently both countries are part of MSCI’s Frontier Markets index; analysts say an upgrade would’ve channeled up to US$70 billion into Gulf markets.
MSCI has twice previously put off a decision about upgrading the status of both countries. It said it would look at the issue again in June, but noting that concerns remain about foreign ownership limits, market liquidity, securities lending, and limitations on short-selling.
It is expected that the UAE won’t be ready for another review in June, but it continues to push for reform on its exchanges. Last July, the Dubai exchange consolidated with Nasdaq Dubai, the region’s first exchange open to investors and issuers of any nationality. Investors hope for a merger now of Dubai’s exchange and that of Abu Dhabi, the UAE’s capital. Earlier this month, Standard & Poor’s announced it would launch an index comprised of the Arab world’s 40 blue chip companies, in a bid to open the market more to exchange-traded funds.
The World Bank is bearish on immediate prospects for the Middle East and North Africa (MENA) region, particularly hardest-hit Egypt, Tunisia and Libya. “Foreign direct investment flows [to the region] fell by 7% in 2010 and by another 16% in 2011,” notes a new report on world investment and political risk.
“Despite recent announcements of investment intentions in North Africa by other countries in MENA, short-term prospects are not promising. With Europe under economic strain and uncertainties surrounding the political environment of Egypt, Libya, and Tunisia, FDI into North Africa is likely to slump for longer and rebound more slowly than the rest of the MENA region.”
The report also notes that though some investors pulling out of the region or placing plans on hold, recovery should begin in 2013. “Despite the recent turmoil, the longer-term outlook for the region remains promising and companies do not view the present unrest as posing a long-term barrier to doing business in that region.”
Considering the effect the Arab Spring has had on protests around the globe, the World Bank report adds that as an offshoot, “the recent events in the MENA region have accentuated the risks of political violence and non-honoring of sovereign financial obligations — not only in that region, but also more broadly.”
The sudden, bloody end to Colonel Muammar Qaddafi’s 42-year rule of Libya has observers concerned about the risk of a power struggle in the North African country. But for the moment, the world’s focus is on Libya’s oil economy.
Libya has primarily relied on its oil resources — according to 2010 figures from the CIA world factbook, before its civil war, the country’s petroleum industry produced 1.789 barrels per day, and its oil exports accounted for 25% of its GDP.
That production fell to less than 400,000 barrels a day during the conflict. The most optimistic suggest full production capacity could be restored by early next year. The country has roughly 46 billion barrels of oil reserves — ninth largest in the world — and nearly 55 trillion cubic feet of natural gas reserves.
“Libya is fortunate in having a small population of a bit over 6 million and valuable oil resources; it has the potential to derive a large income from oil after an initial period of reconstructing the infrastructure,” says Ann E. Mayer, Associate Professor of Legal Studies and Business Ethics at Wharton. “But, the oil sector cannot offer enough jobs to satisfy all Libyans demanding employment.”
Mayer notes under Qaddafi, “the unemployment rate among Libyan citizens was high, in part because of the distaste that Libyans felt for accepting work in low status jobs that were seen to be demeaning, which were left for migrants to handle.” Most migrant laborers fled the country when civil war broke out.
The International Energy Agency (IEA) advised caution on expectations of renewed oil production in Libya. “If [Qaddafi’s death] leads to greater political clarity within Libya, and to a more stable operating and investment environment, then it may result in a more rapid restoration of the Libyan oil sector,” stated David Fyfe, head of the IEA’s oil industry and markets division.
“However, many logistical, operational, and security-related challenges remain in that country, so we are not changing our underlying assumptions on Libyan production recovery for now. We still believe it could take many months for production to regain pre-crisis levels.”
The thorny question of who takes control of Libya’s oil exports was first raised while fighting still raged in the country. Speaking with Reuters, the head of the country’s National Oil Company speculated that he would not remain in a potential reshuffle. Divisions between the Western and Eastern parts of the country also loom large in future control of the country’s oil resources.
Most analysts suggest that little stability will exist while a transitional government in forms, hindering any plans to get Libya’s oil flowing again. “The death of Qaddafi changes very little in the underlying dynamics of the oil picture on the ground,” said Barclays Capital analysts.
Juan Cole, a Middle East expert at the University of Michigan, told Reuters that strife in Libya between its tribes could be avoided through egalitarian economic policy. “A more or less democratic government that spreads around [Libya’s] oil largesse more equitably could easily overcome this divide, which is contingent and not structural,” Cole said.
Mayer says Libyan economic planners will also have to figure out how to address unemployment concerns, “which will include deciding whether or not to revive the former system of extensive reliance on a vast underclass of migrant workers, a system that is typical in oil-rich countries but that naturally creates social tensions and imbalances.
“Do they want to invite back the same diverse population of migrants? Do they prefer to try to integrate their economy with the economies of Egypt and Tunisia by favoring their nationals? Do they want to try to alter Libyans’ attitudes so that they will accept to work in jobs that were previously left for migrants? A lot will hinge on the answers to these questions.”
When protestors first took to the streets across the Middle East early this year, the world watched as thousands of Arabs demanded an end to governments that were corrupt and self-serving. Dubbed the Arab Spring, it was a movement propelled by technology, imbued with optimism for change, and aiming to create a more equitable economy.
After the initial blush with relatively peaceful demonstrations in Tunisia and Egypt, the social revolution has led to strife rather than reform, as Yemen, Bahrain and Egypt have all witnessed bloody protests, while Syria and Libya have been plunged into all-out civil war. Much of this violent turn of events, says Wharton’s Stuart Diamond, is because of dashed expectations.
“Entrepreneurs know that the idea is just the start; without building out an enterprise, no value is created,” says Diamond, who teaches negotiation courses at Wharton, and is a Pulitzer Prize winner and best-selling author of Getting More: How To Negotiate to Achieve Your Goals in the Real World. “This is the problem with the Arab Spring. Now that many have more power, they actually have to do the hard work to build out a different sort of economy.”
Another failing of the movement is the emphasis on past grievances — putting Egypt’s former president Hosni Mubarak on trial, Diamond says, is the wrong way to start rebuilding Egypt. “Negotiate with him on what he and others in his circle will provide,” he suggests. “Leave them with something to get them to agree. Now that would better help in building a new Egypt than a trial of a sick old man.”
For those challenging leadership, such as protestors in Syria, the best thing would be to avoid confrontation, he adds. “If Syrian protestors stop the violence, all the negative focus will be on the existing government, which will not be able to withstand the continuing criticism. The goal of the protestors now should be to document everything and keep telling the world.”
Diamond adds that the situation in Libya, “is perhaps the best example today of the stupidity of not negotiating … Libya will never be able to provide a better life for its citizens until the war stops. And the quickest way to do that is negotiate with Qaddafi.”
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It is a mistake to view the mass economic protests in the Arab world as a trend limited to the Middle East, says Erwann Michel-Kerjan, managing director ofWharton’s Risk Management and Decision Processes Center. Given the protests’ speed and unclear leadership, the civil unrest that rocked North Africa and spread to the rest of the Middle East can apply to any country, and their occurrence signaled a change in the world, not unlike the events of 9/11, he adds, noting that governments can no longer afford to ignore citizen concerns surrounding economic disparity and globalization.
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