Investing in the Middle East and North Africa (MENA) Region: Fast Track Opportunities for Growth

With contributions from leading practitioners in their field, this insightful book offers a unique analysis of the MENA markets by investigating the challenges, approaches and opportunities for growth in the MENA region. The book covers a range of topics including an in depth economic analysis, the importance of sovereign wealth funds, the evolution of family offices, emergence of regional financial centres and securities exchanges, increasing number of infrastructure projects and the growing demand for wealth management and alternative investments. An essential reference tool for those involved with the MENA region and also those who are looking for new opportunities. In order to provide the most comprehensive and in-depth analysis, the book is made up of contributions from over 50 leading practitioners in their field so that they could share their knowledge and experience. Using their valuable insights, this book will guide you through the regional opportunities and challenges.

It is a time of perhaps unprecedented economic opportunities and challenges for the Middle East and North Africa (MENA). If the economies of the MENA region decisively harness the opportunities that have been created by the Arab Spring, they will potentially pave the way for a new phase of vibrant economic expansion led by a young, dynamic and aspirant private sector. Signs so far show that MENA is seizing those opportunities. Economic activity has shown high growth rates since the onset of the global financial crisis which is supported by accelerated government spending and large-scale infrastructure investment. The economies of the broader MENA region also have low levels of debt compared with Europe, Japan and the US. However, there are still structural weaknesses that have to be addressed.

The book is divided into seven parts:

Part 1 – Powering the global recovery.
Part 2 – Regional financial hubs as catalysts for growth.
Part 3 – Regional capital markets.
Part 4 – MENA mergers and acquisitions, project finance and infrastructure investments.
Part 5 – MENA wealth management.
Part 6 – MENA Islamic banking and finance.
Part 7 – MENA telecommunications and energy.

Investing in MENA provides expert insights and pragmatic perspectives into one of the fastest growing regions (Middle East North Africa, MENA) where there are very few worthwhile publications available on this region. Unique expertise of prominent market practitioners on MENA region is found in a single publication whereby Authors are leading experts in their field and have shared their knowledge, insights and practical experience of doing business in the region; each chapter imparts valuable information.

The book is a practical compendium on a broad range of topics and an excellent reference source of data. This unique publication is a must read for both issuers and investors in the OECD world and the fast growing Emerging Markets (especially the BRICs) who are interested in increasing their business and growing their regional market share.

The book will help readers to Gain a better understanding of the economic, financial and regulatory landscape and how best to participate and connect with the issuers and investors in the region.

Unique selling points

- Unique expertise of prominent market practitioners on MENA region is found in a single publication. There are very few worthwhile publications available on this region.
- A practical compendium on a broad range of topics and an excellent reference source of data

Target Market

- Institutional investors (CIOs, Treasurers )
- Sovereign Wealth Funds(SWFs)
- Investment Bankers
- Consultants
- Regulators
- Wealth and Fund Managers
- Supranationals
- Private Equity Managers
- Service Providers(custodian banks, lawyers, accountants, fund administrators, brokers) SHOW LESS READ MORE >

Foreword

Preface

Tackling the menace of unemployment

Promoting economic diversification

The importance of home ownership

Plugging the infrastructure gap

The role of private sector finance

Building new financial centres

Meeting the challenges

Editors' notes and acknowledgements

Structural challenges ahead

About the editors

About the contributors

Part 1 – Powering the global recovery

1 Macro economic outlook for the MENA region
Marios Maratheftis, Standard Chartered Bank
Introduction
Global economic conditions and how they impact MENA
Regional and domestic growth drivers
Never waste a good crisis, especially if it is happening elsewhere
Summary

2 A GCC monetary union: benefits and role of central banks
Professor Hossein Askari, George Washington University
Introduction
Potential benefits of a monetary union
Lessons from the Euro
The economic and financial realities of a GCC monetary union
The role of central banks, finance ministries and cooperation
Conclusion

3 The growing role of sovereign wealth funds in MENA's economic diversification
Victoria Barbary, Soverign Wealth Center, Institutional Investor
The MENA sovereign wealth fund landscape to 2008
MENA SWFs and the global financial crisis
Diversification as a priority
Greenfield projects
Joint ventures
Investing abroad for technology transfer
Financing
Turning theory into reality
Infrastructure
Human assets
Institutional framework
Conclusion

4 Private equity in the MENA region: context and opportunity
Nasr-Eddine Benaissa and Muhammad Farooq Zahid, Eastgate Capital
Private equity in the MENA region
Substantial growth in the Middle East private equity industry
Types of investors
Type of private equity players by geographic focus
Favourable macroeconomic drivers and capital markets reforms drive private equity in the MENA region
Supporting macroeconomic environment
Deepening capital markets and the introduction of regulatory platforms
Predominance of family businesses
Challenges facing MENA private equity
Deal sourcing
Information asymmetry and lack of information
Cultural challenges
Structuring challenges
Availability of leveraged finance
Availability of alternate capital structures
Tax regulations
Fundraising challenges
Facing up to the challenge

Part 2 – Regional financial hubs as catalysts for growth

5 Regional Hubs as catalysts for growth
Faisal Hasan, Global Investment House, Kuwait
The role of a financial centre in the region
The demand drivers for an FC in the region are in place
A need to channel the available petrodollars
Growing demand from SWFs
Infrastructure development is underway
Integration with global markets is leading to demand for international financial institutions
Continued demand for Islamic finance related products
Emerging interest to provide insurance and reinsurance in the region
A need to find innovative investment avenues
The need for economic diversification
Regional initiatives are being implemented across economies – creating a competitive environment
Key challenges for GCC
Lack of regional co-operation
Absence of liquid debt markets
Entrenched regulatory barriers and inadequate corporate governance standards
Talent constraints
Areas of challenge – key recommendations
Regulation and licensing
Depth, liquidity and transparency
Product offering
Ancillary support services
Innovation in policy making

6 DIFC's growing attraction to emerging market issuers and investors
Hari Bhambra, Praesidium LLP
Introduction
What do issuers and investors want?
What should investors and issuers be considering in emerging markets?
The role of emerging markets in the global financial recovery
Environmental issues and the UAE
Social issues and the UAE
Governance issues and the UAE
The Dubai International Financial Centre
The DIFC as an issuer's platform
The DIFC as an investor's platform
Conclusion

7 Qatar: gateway to regional opportunities
Shashank Srivastava, Qatar Financial Centre Authority
Introduction
A dynamic region
A dynamic country
Financial services are central
The Qatar open market
A place to live
Regional opportunities
Asset management
Reinsurance
Captive insurance
Gateway to the region

8 Turkey: a dynamic economic growth and increasing attraction for MENA investors
Ertunc Tumen, Akbank
Turkey: an attractive long term investment destination
Demographic advantages and potentials
Rediscovering Turkey's geographical advantage
A younger educated urban population with increasing life expectancy
Population is eager to adopt new technologies enabling better access to information
Stable political landscape and its ripples
EU accession has been the driver of reforms in Turkey
Turkey: becoming a more active player in world matters
Dynamics of the transformation in the Turkish economy
2001 crisis – the collapse of the old political and economic system; laying the groundwork of today's economic success
Turkey has registered a striking economic performance between 2002–2010
Becoming a merchant state: transformation to a diversified industrial and service economy
Opening up the Turkish economy: Turkey is rapidly expanding its exports
Product spectrum is becoming more sophisticated
Turkey is penetrating into new markets
A new industrial vision to become the production base of Eurasia
A success story: Turkish automotive industry
A new industry in the making: Turkish shipbuilding industry
Climbing the industrial value ladder – techno parks in Turkey: industry-university collaboration
Climbing the industrial value ladder – R&D is coming centre stage
Rise of Anatolian Tigers – emerging of a new business class
A new transportation infrastructure
Dynamism in Turkish airlines industry and the rise of THY
Motorways: improving the highways infrastructure
Railways strategy: high speed trains integrating the peripheries with metropolis
Tourism: Turkey becoming a top travel destination
Financial sector outlook
Making Istanbul a regional financial centre
A strong banking sector: bedrock of growth in Turkey
A competitive asset management and wealth management industry
The new Capital Markets Law
Prospects for Turkish equities
Policy challenges in front of Turkey
External deficit problem should be resolved to receive an investment grade rating
Foreign policy challenges should be managed properly
Conclusion

Part 3 – Regional capital markets

9 Overview of MENA's capital markets
Eric N Swats, Waleed El Bendary, Chandru Bhatia and Abdullah Ballool, Rasmala
Introduction
Banking sector
Saudi Arabia
United Arab Emirates
Kuwait
Qatar
Oman
Bahrain
Egypt
Equity exchanges
GCC market overview
MENA sector allocation
IPO activity in the GCC since 2005
Saudi Arabia Stock Exchange
Information on the Exchange
Foreign ownership of stocks in Saudi Arabia
Kuwait Stock Exchange
Dubai Financial Market
Abu Dhabi Securities Exchange
Qatar Stock Exchange
Bahrain Stock Exchange
Muscat Stock Market
Egypt Stock Exchange
Fixed income market
Structure
Present state
Recent developments and trends
Challenges of fixed-income securities in the GCC
Critical issues
Local currency debt market
Current market
Forecast future market development
Conclusion

10 The growth and development of major regional and national exchanges in MENA
Adnan Abou Ghazaleh and Rabih Sader, Zawya
Introduction
Liquidity
Corporate governance and transparency
Developments in GCC markets rules and regulations
Recommendations
References

11 Indices paving the way towards investing in the MENA region
Alka Banerjee and Michael Orzano, S&P Indices
Introduction
MENA equity markets growth
Growing interest, lingering challenges
Conventional access to the MENA stock markets
Additional float-adjustment complexities
Regional sub-indices
Size benchmarks
Sector classification and sector indices
Country classification for global equity indices
Stock market performance
Shariah investing in the MENA region
Environmental, social and governance indices
Exchange traded funds
Conclusion

12 Capital markets: a regulator's perspective
Gerald Santing and Eric Salomons, DFSA
Capital markets in the MENA region: a regulator's perspective
Capital markets in the UAE: international markets with local features
Transparency
London versus local markets
Corporate governance
Financial reporting and auditing
Liquidity
Settlement process
Socio-geographical factors
Qualified and retail investors
The regulatory answer
Changes to the regulation of banks
Offer of securities to the public
DFSA corporate governance rules
Anti-money laundering and combating the financing of terrorism
Commodity derivatives exchanges

13 Financing of a mortgage market and structural changes required in the MENA region
Jarmo T Kotilaine, The National Commercial Bank, Saudi Arabia
Introduction
Defining the market
Established models
Mortgage funding in the Middle East: the current state of affairs
What to do and what not to do?

Part 4 – MENA M&A, project finance and infrastructure investments

14 Increasing consolidation through mergers and acquisitions in MENA
Ziad Awad, Bank of America Merrill Lynch
Introduction
What are the drivers of M&A in the MENA region?
Two important sovereign motivations: SWF investments and national champion creation
What are the obstacles to M&A in the MENA region?
How should we define consolidation?
What are the benefits of consolidation?
We see two broad types of consolidation deals in MENA
Regional consolidation
Global consolidation
Looking forward

15 Restructurings in the MENA region
Ian Schneider, PricewaterhouseCoopers Dubai
Introduction
A fresh challenge to the Middle East insolvency and restructuring regimes
Insolvency and restructuring regimes
Other local law considerations
Conclusion
Capital structures
Corporate governance and conflicts with stakeholders
Sponsors and lenders' position
Lessons learned

16 Opportunities and challenges in project finance
Jesdev Saggar, Deloitte Dubai
The story so far
MENA region overview
Impact of the Arab Spring
Diversifying economies
Banking liquidity and tenors
Outlook
MENA country outlook
Bahrain
Kingdom of Saudi Arabia
Kuwait
Oman
Qatar
UAE
Algeria
Egypt
Iraq
Jordan
Lebanon
Libya
Morocco
Syria
Tunisia

17 Infrastructure and regional integration in MENA
Shamshad Akhtar and Elena Ianchovichina, World Bank
Introduction
The state of MENA's infrastructure
Infrastructure needs
Private participation in infrastructure – MENA
Regional infrastructure development
Energy sector
Transport and logistics
Water supply and sanitation
Concluding remarks
Further reading
Appendix

18 An economic analysis of foreign direct investment and its impact on trade and growth in Pakistan
Faisal Ali Baig and Sajid Yoosufani, Punjab Board of Investment & Trade
Introduction
Saving and investment behaviours
Development requirements
Pakistan's experience with foreign direct investment
Conclusion
Recommendations

Part 5 – MENA wealth management

19 Successful growth strategies for private banking in MENA
Peter Vayanos and Dr Daniel Diemers, Booz & Company Abu Dhabi
Introduction
Key characteristic 1: local family businesses
Further institutionalising the family office
Enhancing governance structures
Managing succession and transfer of wealth
Accessing illiquid wealth
Key characteristic 2: large expatriate communities
Key characteristic 3: Shari'a-compliant offerings
Key characteristic 4: offshore versus onshore investing
The competitive landscape
Local banks
International players
International universal banks
US investment banks
Pure-play private banks
Specialist providers
Building cornerstones for growth
Conclusion

20 Increasing attraction of multi-manager investments
Jahangir Aka, SEI Dubai
Introduction
Multi-manager investing: the basics
Types: fund of funds versus manager of managers
Multi-manager versus other investment approaches
Recommended: an outsourced manager of managers programme
Required Shariah compliance and oversight
Implementation of the manager of managers approach
The SEI approach
Step 1 – asset allocation
Step 2 – portfolio design
Step 3 – manager selection
Step 4 – portfolio construction
Step 5 – risk management
Multi-manager investing in MENA today

21 Structured investment products
Evren Yazman, JP Morgan London
Background
Creating structured investments
Using structured investments in MENA: three ‘A's of structured investments
Adjust the risk profile
Credit risk
Asset risk
Capital protection
Leverage
Income products
Hedging unwanted risks
Access different assets
Equity access
Alternative access
Fixed income access
Apply custom market views
Conclusion: structured investments as a competitive advantage

22 Opportunities and challenges for private equity in MENA
Junaid Jafar, Tadhamon Capital Bahrain
Summary
Opportunities
Strong economic growth
PE deals expected to increase
Government's emphasis on infrastructure development
Attractive sectors/countries
MENA has large family businesses – many privately held
Small and medium enterprise segment in MENA
Challenges
PE fundraising in the MENA region has declined
Issues pertaining to the nature of fund raising and transactions
Islamic finance – availability and structuring
Limited openness of family groups for PE investments
Small average deal size
Lack of human capital and incentive structures in PE firms
Unrest in the MENA region is a concern
Conclusion

23 Gulf family fortunes
Walid S Chiniara and Ciara Howie, The Family Business Advisory Group
Family wealth
Social wealth
Human wealth
Intellectual wealth
Financial wealth
Factors influencing family wealth
The social and ethical environment
Historical background
The regional and global environment
The economy
Law, regulation and compliance
Family dynamics in the family business
Transitioning generations
The road ahead

Part 6 – MENA Islamic banking and finance

24 Emerging trends and opportunities for Islamic banking and finance in MENA
Professor Rodney Wilson, Durham University and Qatar Faculty of
Islamic Studies
Prospects for Islamic finance in Bahrain
Islamic finance in Dubai
The market for Islamic finance in Saudi Arabia
Islamic banking in North Africa
Islamic banking in Turkey
The role of Islamic funds in the Middle East
Prospects for the issuance and trading of Islamic securities
The medium term outlook for Islamic finance in the Middle East

25 Islamic finance in Turkey
Neil Miller, Erdal Tikmak and Hasan Sariçiçek, KPMG
Introduction
The Turkish economy and the role of Islamic finance
The banking sector in Turkey
Participation/interest free banks
The growth of participation banks: financial indicators
Market share – assets of participation banks
Asset share – between participation banks
Market share – lending/financing activities
Market share – deposits
Profitability of participation banks
Other indicators
Regulation and supervision of participation banks
Financial regulation
Shari'a governance
Corporate governance
Accounting standards
Constraints for participation banks in Turkey
Liquidity management
Asset liability timing mismatch
Recent developments
The participation banking sector has also been innovating rapidly
Other issues of interest
Islamic insurance/Takaful
Islamic asset management and pension funds
Recent Sukuk/rent certificates related tax amendments
Rent certificates (Sukuk al Ijara)
Source company and asset leasing company
New Tax Amendments and Law No: 6111
Value Added Tax
Corporate tax
Income tax
Stamp tax
Regulations on fiscal charges
Decree (2011/1854)
Prospects for the future and conclusion

26 Growing demand for Shariah-compliant investments
Sultan Arif and Farhan Mumtaz, Eurekahedge
Introduction
Overview of the Islamic fund industry
Developments in Islamic finance products
Industry make-up and growth trends
Manager location
Geographies
Allocation to asset classes
In closing

27 Innovation in Sharia-compliant wealth management
Datin Maznah Mahbob and Al Juan Rusli, AmIslamic Funds Management
Why Sharia-compliant wealth management?
Global demand-led opportunities
The obvious Muslim market: growing, increasingly significant
but fragmented
The less obvious non-Muslim market
Sharia-compliant wealth management industry landscape
Supply and delivery of Sharia-compliant wealth management solutions: fraught with challenges, but provide fertile grounds for innovation
Sharia non-uniformity
Supply and liquidity of instruments and Sukuk
Regulatory framework uneven across markets
Distribution
Awareness
Alchemy: the innovation process
(Sharia + investment) building blocks = Sharia-compliant wealth management solutions
Sukuk
Takaful
Innovation: beyond Sukuk and Takaful
Investment strategies
Sharia compliance as an alpha source
Product structures
Product risk
Volatility risk
Underlying assets
Innovation: beyond investment products
Delivery and distribution platforms
Organisational structures
Business models
Industry structure
Innovation: core driver of Sharia-compliant wealth management

28 Winning strategy in Bancatakaful
Manoj Kumar, Bancassurance Consultants Worldwide Ltd (UK)
Introduction
Growth potential
Goals and objective setting
Product development
Partner selection
Channel management
Knowledge management
Induction training
Product training
Insurance technical training
Sales technique
Policy and procedure training
Compliance and AML training
Technology
Regulatory issues
Opportunity and challenges
Conclusion

29 Benefiting from responsible investment: interfacing Shariah investing with SRI and ESG
Datuk Noripah Kamso, CIMB-Principal Islamic Asset Management
Similarities of Shariah investing with SRI and ESG
Similarities shared by ethical and Shariah investment approaches
Differences between ethical and Shariah investment approaches
A comparison of MSCI Islamic, ESG and SRI indices and methodologies
Conclusion

30 Shariah-compliant indices: starting the information journey from Shariah compliance to Shariah-based
Rushdi Siddiqui, Rafiza Ghazali, Dr Sayd Farook and Wiebke Buelow,
Thomson Reuters
Where are we?
Shariah screening
Shariah compliance in OIC and Israel
Indexing
External environment
ESG index
Islamic sustainability index
Shariah-based indices
Increasing compliant companies
Saudi Arabia
Malaysia
Balance sheet recap
Conclusion

Part 7 – MENA telecommunications and energy

31 Telecom investments in the MENA region: emergence of the adjacent opportunity
Thomas Kuruvilla, Arthur D Little
Introduction
Evolution of global telecom landscape
Background of telecom investments in the MENA region
Are the ‘core services' still attractive in the MENA region?
What is the adjacent opportunity?
Content/media
Mobile payments
Information communication and technology (ICT)
Can MENA operators capitalise on the adjacent opportunity?
Distinctive capabilities
Market readiness
Ecosystem with critical mass
Innovation culture
Conclusion

32 Show me the money: opportunities for private sector investment in the Middle East oil and gas sector
Kenneth McKellar, Ashish Joseph, Deloitte Abu Dhabi
Introduction
Upstream
Petrochemicals and refining
Oil field services
Conclusion