Year: 2009

Immensely popular with the country’s black majority, President Jacob Zuma will need to fight off the taint of corruption that hangs around him if the country’s economic affairs are to be turned around.

Described as unsuitable to lead South Africa by Archbishop Desmond Tutu, it seems that the electorate thought otherwise – Zuma is South Africa’s fourth black president. A self-taught Zulu farm boy (he only learnt to read and write while in prison on Robben Island) with an instinct for trouble, he has attracted many epithets during his controversial life, but dull is not one of them. His signature tune, after all, is called “Bring Me My Machine Gun”.

Among his more attractive qualities are his ability to connect with the downtrodden and his irrepressibility. But this is overtaken by a longer list of unattractive qualities and serious gaffes, such as his tendency to shoot from the hip, his dislike of gays and his casual attitude towards AIDS.

He has faced corruption charges, and when on trial for raping a 31-year-old family friend, his admission that, despite knowing the woman was HIV positive he had not used a condom, opting instead for a “vigorous” shower, made him a laughing stock – particularly as he was head of the country’s National AIDS Council at the time. There are many who regard Zuma’s presidency with trepidation. He has advocated tackling criminality by reintroducing the death penalty and has said that legal aid should be denied to those accused of serious crimes. His international reputation has been tarnished by alleged links to Mbokodo, the disciplinary arm of the ANC which is said to have been involved in torturing those who stepped out of line.

Yet the allegations surrounding Zuma have done nothing to diminish his popularity among the grass roots due to his impoverished childhood and the fact that he is a Zulu, the country’s biggest ethnic group (Mandela and Mbeke both had Xhosa backgrounds). His political awakening came when he joined the ANC’s armed wing when he was 16, and a 10 year prison sentence on Robben Island and deportation to Mozambique followed. He returned to South Africa from exile in Zambia after Mandela’s release in 1990.

When Mbeki became Mandela’s successor, Zuma became deputy president of both the party and the country and, somewhat ironically, head of the National Aids Council. But relations between the two quickly began to unravel, particularly as Zuma’s ebullient behaviour contrasted so heavily with Mbeki’s. Zuma’s alleged involvement in a number of corruption scandals also brought unnecessary – and unfavourable – attention onto Mbeki’s leadership.
In June 2005 Zuma’s former financial adviser Schabir Shaik was jailed for trying to solicit a bribe on his behalf from a French weapons company in an arms procurement deal. By October of that year, Zuma himself had been charged with 16 counts of corruption linked with the arms deal.

At an all-time low, he turned to trade unionists, the Communist Party and the ANC Youth League – all those who had been alienated by Mbeki’s conservatism – insisting he was the victim of a political conspiracy. As a result, he was able to turn the tables on Mbeki, becoming president of the ANC in 2007. Mbeki resigned as president of South Africa last year. All the charges against Zuma were dropped earlier in April prior to the election, although the fact he has never been acquitted means a cloud of suspicion hangs over him. His woeful views on AIDS and homosexuality are also major concerns, particularly as South Africa has the world’s largest HIV/AIDS population.

As Zuma celebrated his victory, it was left to Archbishop Desmond Tutu to capture the country’s ambivalence towards its new leader. Describing his presidency as a hiccup, he insisted South Africa had survived worse. “It will clear our throats and we’ll be okay, we’ll sing again,” he said.

Global recessionary fears have compelled many normally very reliable investors to begin to worry about depleting asset values right across investment classes, where many equities pose a prime concern for the current markets. We have seen many long term, high performing financial giants being forcibly removed from the face of the financial world, despite being perceived as the lords among the investment community. The impact of the financial crisis in the Middle East varied significantly from one economy to the next. Surprisingly early impact was visible in countries with strong links to the wider, global financial markets.

The negative impact started spreading to what were recognised as relatively well protected regional economies during the second half of last year – with commodity prices, especially oil prices, crashing to multi year lows from record highs. Oil dependent economies took a great deal of the toll with their equity indices falling by around 40-50 percent, on average. Stock indices in oil rich Gulf Cooperation Council (GCC) countries saw declines of between 30-60 percent in the last quarter of 2008 alone. In response, we have seen policy makers from across the world proposing various different qualities and quantities of monetary or fiscal stimulus plans to maintain liquidity and support their economies and stock markets.

All of these concerns and opportunities lead to one overarching question of fundamental importance: Where should fund managers deliver returns in order to make the most of the situation, effectively minimising risk?

United Securities, a leading financial powerhouse, told World Finance that the answer to this million dollar question lies in the ability to extend ties within the regional equities markets.

According to Mustafa Ahmed Salman, CEO of United Securities “GCC equities, at this stage, offer the right investment asset class opportunities at the cheapest price ever.” This may ring false to many commentators and investors alike, who, granted, would be right in assuming that the GCC story is all about oil prices, which of course at this point in time are heading for record lows.

But there are many more unexplored opportunities and areas of potential within and across GCC markets.

Oil revenue, budget deficit, growth
A basic concern arises when we think of oil as the prime generator of revenue for many GCC states. Given the dependency on oil revenue, other infrastructure and development activities undertaken in the region move in tandem with average oil price realisation for many of these economies. The sharp and rapid deterioration in oil prices since last summer put an end to the latest GCC oil boom, that dates back to early 2003. Oil prices plummeted by more than two thirds from the lofty peaks recorded last July. This drop over the following six months washed away all the gains attained over the previous 30 month period for crude oil. The recession in the world economy, mainly in the more advanced countries, will inevitably continue throughout 2009, leaving less room for any significant short-term recovery in oil prices. To defend oil prices and secure their oil revenue streams, OPEC members have cut the cartel’s production by around 4.2 million barrels per day (mbpd), since last September.

Rising oil revenues over recent years have enabled GCC countries to achieve record surpluses in their government budgets, and add to their holdings of foreign assets. Combined budget finances of GCC countries moved from a deficit of around $7.4bn in 2002, to an estimated surplus of $220bn in 2008 (21 percent of GDP). These surpluses were achieved despite large increases in governmental expenditures.

The 2009 anticipated combined deficit in GCC budgets is considered modest (around $16bn) if compared to the size of accumulated surpluses around $2trn over the previous seven years.

The most important thing is that unlike the oil boom in the 1980s, GCC governments are exercising more discretion and flexibility in determining the appropriate levels of expenditure. At the beginning of the last oil boom, GCC governments saved most of their surpluses. There is a strong belief that government spending will continue, though at a slower pace. Oman announced a 10.8 percent increase in spending in 2009 compared to the 18.6 percent increase budgeted in the previous year. Similarly, the UAE’s 2009 budget shows a 9.2 percent increase in expenditures compared to 31 percent in the previous year.

Mr Hassan Ali Jawad, MD of United Securities, says he expects oil prices to recover towards the last quarter of 2009, as the ongoing stimulus and liquidity injection by governments regionally and worldwide would start boosting investors’ confidence and increase economic activity. Prices will also benefit from the recent cuts in OPEC supply which might cause a short term supply crunch. Futures markets suggest that OPEC crude prices are expected to reach around $70 per barrel in 2010, which significantly exceeds the costs of oil production in GCC countries and the breakeven prices that would balance their budgets.

Consequently, most Gulf countries are expected to see surpluses in their budgets next year, compensating for any deficits incurred in the current year. Overall, there are high expectations that investment activities will continue to develop, albeit at a slightly slower pace than would usually be expected.

With the potential for various opportunities lying ahead in the almost-immediate future, the need for a tried and tested financial advisor in the region is of utmost importance, particularly in order to get the timing right. United Securities, one of the leading financial powerhouses in the Middle East, has been serving clients across the globe for the last two decades. With headquarters in Muscat, Sultanate of Oman, United Securities is one of the leading financial intermediaries operating in the Middle East and North African (MENA) capital markets. It provides investment consultancy and brokerage services in the MENA equity markets, asset management, corporate finance, and equity research. It is a fully licensed company that provides a wide range of financial services to local, regional and international clients with discretionary assets under management in excess of $120m.

United Securities finds its strength in a team of young, talented, and confident individuals. Highly qualified professionals carry out different functions under the guidance of highly experienced and well informed promoters, Mustafa Ahmed Salman and Hassan Ali Jawad. The flexibility of the company in changing its strategy according to situations and the adaptability in implementing those strategies had helped it in withering the crisis with ease. It maintains its commitment to providing the highest standards of financial services to its clients. The research reports from United Securities command a great degree of respect among the investment community in many MENA markets. The research strategy is built upon years of experience and testing which have helped to understand the regional markets and functions.

Regional brokerage division
Through its subsidiary companies in Egypt and Saudi Arabia, and a number of well established professional associates spread across the region, United Securities is extending its MENA capital markets brokerage services to a large number of institutional as well as retail clients.

The firm’s associations with big names in the region, such as Damac Investments, Al Rajhi Group of Saudi Arabia and Shuaa capital of the UAE, provide their customers with much needed confidence in dealing with them.
Focus on a customer-first attitude, ethical and transparent business practices, respect for professionalism, research based value investing, and technological innovation has enabled the company to blossom into the broker of choice in this well established and highly regarded region of the world.

Global services
The firm believe that diversification is all about correlation and not the number of assets one has at hand. Relying on this as one of the major strategic pillars, United Securities has spread its wings to expand well beyond the region. The company is licensed to act as a direct Foreign Institutional Investor (FII) in the Indian Capital Markets. It is registered as a Foreign Institutional Investor with the Securities and Exchange Board of India, the apex regulatory body for investments in the Indian securities market. It offers different kinds of investment platforms to its customers through sub accounts, as well as trading accounts, for investing in the Indian Stock Markets.

As part of their recent ambitious growth, they recently extended many of their services by enabling clients to invest in the US financial markets as well. They have tied up plans with globally recognised names for dealing in the US markets. Investors can now create partnerships with the company for their investment needs in the western hemisphere, spreading their opportunities worldwide.

United Securities believe that the economic expansion of GCC countries is here to stay for longer time period. The governments are keen on developing the region as a key financial, tourism and investment destination in the MENA region. Increased spending of the governments towards achieving this goal is expected to keep corporate profits in the growth trajectory. Historically positive fiscal balances accrued from higher oil prices is the most supportive factor, whilst the diversification of revenue streams are expected to support consistent GDP growth.

They are well known for believing in informed investment decision making and therefore keep investors informed about the market, as well as the economy in general, by producing Macro as well as Micro economic reports, with sector as well as company specific reports. These reports enable the client to keep updated and take appropriate decisions in good time. They are available in global information vendors such as Bloomberg, Reuters as well as CapitalIQ.

Ever since ships first set sail, pirates have followed in boats to claim the cargo. Piracy is an age-old problem, and it does not look like receding when there are golden opportunities to exploit from heavy sea traffic and inadequate policing in one of the world’s busiest shipping lanes – the Gulf of Aden, which leads to the Suez Canal and connects the Far East with the Mediterranean.

A dramatic increase in attacks by Somali pirates has led to a near doubling in the number of ships attacked during the first quarter of this year compared with the same period in 2008. According to a report issued by the International Chamber of Commerce’s International Maritime Bureau (IMB) there was a total of 102 incidents reported to the IMB Piracy Reporting Centre (PRC) in the first three months of 2009 compared to 53 incidents in the first quarter of 2008. The quarterly report also said attacks increased by almost 20 percent over the same period last year.

The increase in the first quarter of 2009 is due almost entirely to increased Somali pirate activity off the Gulf of Aden and the east coast of Somalia. The two areas accounted for 61 of the 102 attacks during the first quarter compared to just six incidents for the same period in 2008.

Last year pirates hijacked 49 ships, took 889 crew members hostage and fired on another 46 vessels, according to the IMB’s Piracy Reporting Centre, with 111 incidents taking place in the Gulf of Aden off the coast of Somalia. Furthermore, the types of attacks have changed, with pirates – more heavily armed than in previous years – attacking larger ships and going farther out to sea.

The IMB reported that in the first quarter of this year worldwide a total of 34 vessels were boarded, 29 vessels fired upon, and nine vessels hijacked. A total of 178 crew members were taken hostage, nine were injured, five kidnapped, and two killed. In the majority of incidents, the attackers were heavily armed with guns or knives. In addition, violence against crew members continued to increase.

Forty-one incidents were reported in the Gulf of Aden region, including the hijacking of five vessels. In January 2009, one in every six vessels attacked was successfully hijacked, with the rate decreasing to one in eight for February 2009 and one in 13 for the month of March.

On average, one in eight vessels attacked was hijacked during the first quarter. The last quarter of last year saw a total of 41 incidents, in which the ratio was one in three vessels attacked being hijacked, the IMB reported.
Piracy risk is not just confined to the Gulf of Aden and Somalia. Nigeria continues to be a high risk area. In the first quarter the IMB received reports of only seven incidents, although unconfirmed reports would suggest that at least a further 13 attacks had occurred in the same period.

Oiling the spoils
Nearly all incidents have taken place on vessels supporting and connected to the oil industry. The IMB is urging vessels to report any attacks so that the Nigerian authorities can better prioritise and resource their law enforcement agencies to respond quickly and efficiently.

One marine risk consultant at a large European insurer says that “under-reporting from vessels involved in attempted – or actual – piracy incidents is still a great concern. Many vessels dismiss the idea that pirates have followed them or tried to engage as just boats that have come too close to them. The real reason may be a lot more frightening. Any boat that speeds up on approach or that circles the ship, for example, should be reported to the authorities.”

However, some countries have made great strides in reducing piracy risk. Indonesia, which held the record for the highest number of piracy attacks between 2003 and 2007, saw only one incident reported in the first quarter of 2009, compared to five incidents in the corresponding period in 2008.

The Malacca Straits – a major strategic trade route and another former piracy hot-spot – has reported only one incident this quarter. The drop in attacks is due to increased vigilance and patrolling by the littoral states (Indonesia, Malaysia and Singapore) and the continued precautionary measures on board ships.

The situation has also improved in Bangladesh (Chittagong) and Tanzania (Dar es Salaam), with a slight decrease in the number of incidents reported in the first quarter as compared to the corresponding period last year. During the same period this year, only one incident was reported for Bangladesh compared to three during the same period last year. Vessels calling at Tanzania reported two incidents as compared to four during the same period last year.

Insurers and risk experts suggest that piracy risk has moved from Far and South East Asia to Somalia and the Gulf of Aden. Malaysia and Singapore have worked well with the Indonesian authorities to cut down on piracy around Indonesia and the Malacca Straits.

However, such co-operation does not appear to be an option in the Gulf of Aden and Somalia, say insurers. As Somalia is virtually lawless and without an effective government, there are no agencies there that are prepared to police against pirate attacks.

As a result, insurers can only foresee a worsening situation in the area.

Increased presence
In response to the increased frequency of pirate attacks, several nations—including the US, the UK, other European Union Member States and other countries —have increased their naval presence in the Gulf of Aden, which vessels must traverse to get to the Suez Canal. But the logistics are against effective naval intervention.

The targeted area now encompasses over a quarter of the Indian Ocean, which means that it is impossible to police.
The alternative route to using the gulf – steaming around the southern tip of Africa – would add around two to three weeks to the journey time, and would hike transportation costs.

In mid-December 2008, the UN Security Council approved a resolution allowing countries to pursue Somali pirates on land as well as at sea – an extension of the powers countries already have to enter Somali waters to chase pirates.
But as long as Somalia continues to exist without an effective government, many believe lawlessness within the country and off its lengthy coast will only grow.

Some countries have tried to take matters into their own hands. While there is no international legal system for people accused of piracy, some states have started to put pirates on trial, such as in Kenya and France. The US, while also threatening pirates with criminal prosecution, has also started to meet the problem with force. When the Maersk Alabama was captured in April and the ship’s captain was held for ransom, US Navy Seals intervened and shot dead three pirates.

As the number of piracy incidents increase, marine underwriters are looking to cover piracy under war risk policies rather than the current hull and machinery coverage. According to those working in the London market – which underwrites most marine risk policies – in about 80 percent of cases, piracy is moving in this general direction.
Before 1983, piracy generally was covered under war risk policies and excluded from hull policies but since then, it has generally moved back into hull coverage.

In 2005, the Joint Hull Committee of the Lloyd’s Market Association introduced optional clauses that excluded piracy from hull policies and were intended to transfer the peril back to war risk. However, most underwriters did not adopt the optional clause, largely leaving piracy to remain under hull policies.

Marine insurers now want that to change. They want to see piracy risk moved into war insurance policies, as is the case in countries like Japan, Sweden and Norway.

War risk policies are typically paid per transit and underwriters often charge additional premium for trips through high-risk areas. The Gulf of Aden has been on the LMA Joint War Committee’s high-risk list since May 2008.

Increased insurance
Underwriters and other observers say the transition to war risk coverage of piracy risks could be helpful for insurers and policyholders alike because it would clarify ambiguity about how piracy is covered. Currently, shippers that do not have separate kidnap and ransom insurance often have piracy ransom covered by “general averages”, a voluntary agreement by the owner, charterers, insurers and other interests to pay a proportionate share of a vessel’s expenses. A declaration of general averages is made in cases of extraordinary sacrifice made to save a ship, cargo or crew – such as jettisoning cargo during an emergency. As a result, it can be difficult to determine what level of exposure insurers have to such risks under such policies. Moving piracy risk to a war insurance policy would help clarify this, say insurers.

But transferring these risks from one policy to another is not going to ring-fence insurers from receiving large claims, or from legal action because of disputed claims arising from piracy. In April Amlin, part of the Lloyds’ market, announced that it is facing an £8.9m claim after Somali pirates hijacked a tanker loaded with biodiesel. It is also claiming damages and interest running at $2,920 a day.

The ship, Bunga Melati Dua, was on its way from Malaysia to Rotterdam when it was attacked by pirates last summer while travelling through the Gulf of Aden. One of the crew members was killed during the attack, and the remaining crew were taken, with the vessel, into Somali waters.

Six weeks later, Malaysian shipping line MISC Berhad paid a $2.7m ransom to the pirates for the return of the ship, and her sister tanker Bunga Melati Lima, hijacked ten days later. The crew of 29 Malaysians and ten Filipinos had been held with the 32,000 tonne ship during its captivity. The pirates released the vessel after owners paid the ransom and she arrived in Rotterdam on October 26 where her cargo was placed in storage.

Now, Swiss commodities trading company Masefield AG is suing Lloyds underwriters Amlin Corporate Member over her cargo.
Masefield says as soon as the pirates seized the ship the two parcels of palm oil became a total loss, and that it served a “notice of abandonment” on September 18, seeking payment of its value from insurers. But according to a High Court writ, Amlin has breached its insurance deal by refusing to meet Masefield’s claim.

In its writ, Masefield says that when the cargo was discharged at Rotterdam, it could not be sold immediately: with the approach of winter, the amount of palm oil that can be blended with other oils to make biodiesel falls and its price drops dramatically.

The cargo is currently being stored until it can be sold on behalf of insurers for a reasonable price, the writ claims. Amlin says that it is defending the claims vigorously.

One insurer in the London market who asked not to be named says that the number of disputes between insurers and their insureds is likely to grow until policy wordings are clarified and piracy is moved to war risk insurance.

“At the moment, there is a problem with the percentage of liability that insurers and their clients carry with regards to piracy risk, as each incident can trigger clauses in their hull and machinery policies, war insurance policies and cargo policies. Furthermore, these can be underwritten by several insurers. The easiest solution for the insurance industry is to move piracy to just one policy – war insurance – where it can be covered by just one insurer. Then, insurers and their clients are clear about what risks are being covered and to what degree.”

A country rich in natural resources, Thailand is unique in its region due to having never been ruled by a foreign power. Despite recent news that the new military government is changing investment laws that would make it harder for foreigners to control Thai companies, it insists it is simply closing a loophole in existing policy, and that foreign manufacturers, exporters or companies with investment privileges would be unaffected.

Although experiencing continued political turbulence, Thailand’s fiscal situation remains strong and, with a focus on attracting private investment, a strengthened financial sector, and a trade balance surplus in the first quarter of 2009, the country stands in good stead to withstand the global economic crisis.

• 1932 saw a westernised military elite stage a coup d’état and forced the king to accept the role of constitutional monarch.

• In 1939, Phiban came to power, a nationalistic ruler, changing the country’s name from Siam to Thailand.

•  The 1990s witnessed increasing private participation in the telecommunications sector, as state monopolies began to grant concessions to private operators. In fixed line services, concessions were granted to two private operators, True and TOT.

•  Between 2002-2004, due to a highly developed infrastructure, free enterprise economics, and genuinely pro-investment policies, it became one of East Asia’s best performers with an average six percent annual real GDP growth.

•  In 2005, the Telecommunications Business Law was amended which effectively raised the limit of allowable foreign ownership from 25 percent to 49 percent.

• In 2006 Shin Corporation was purchased by Temasek Holdings in a controversial deal which saw Thaksin Shinawatra with a 49.6 percent stake. The biggest deal in Thai stock-market history was shrouded in secrecy and controversy.

• September 2006 saw a military coup which ousted PM Shinawatra. Elections were held in December 2007, with Shinawatra’s People’s Power Party (PPP) emerging positively.

•  In May 2008 anti-Shinawatra People’s Alliance for Democracy (PAD) began street demonstrations, occupying the prime minister’s office in August.

•  In December 2008, Abhisit Vejjajiva was elected leader of the Democratic Party, according to results of a parliamentary vote. The new leader implements free market economics to encourage private investment.

Molotov cocktails were launched during New Year celebrations, as deadly riots broke out in support of Shinawatra. According to the NSDB the riots sparked losses of 220 million baht ($6.61m) in damage to public property and loss of state income, whilst Prime Minister Abhisit Vejjajiva announced that tourism was likely to fall by more than 102 billion baht ($2.97bn).