Lebanon : Attractive investments in the Middle East

Many options

Although an economic slowdown in the region is expected in the wake of the global financial crisis, the region is expected to recover relatively quickly. It should present many investment opportunities this year. Let us look at some of the most attractive sectors.

SLOWED DOWN, BUT NOT OUT

The consensus of most experts is that the region will witness slower growth as a result of the financial crisis. JP Morgan has forecast that the MENA region will experience growth of 3.3 percent in 2009, as compared to 6.4 percent in 2008. Edward Gardner of the IMF said: The fundamental challenge will be in the extent of the depth of the economic slowdown, which we hope will be less burdensome in comparison with industrialized countries as well as other emerging markets." The crisis has shaken the confidence of investors and it has made it necessary to postpone many huge construction projects. Despite the negative effects, it appears that the region has fared relatively better than others in weathering the storm. The region has been able to transcend the crisis in comparison with the rest of the emerging markets," JP Morgan said. The region is still full of many investment opportunities, despite the repercussions of the international economic crisis," Gardner said.

INSURANCE SECTOR IS VERY PROMISING

The insurance sector is one of the most promising sectors. There is a high demand for insurance services in the region, driven by population growth on the one hand and the increasing awareness of the importance of insurance on the other hand. The sector is expected to grow by an annual rate of 25 percent to 30 percent in the next five years. The average of insurance premiums in the region per individual is not more than $25 per year, and this amount is low as compared to the levels that are found in advanced countries, which is more than $200 on the average. Samir Haja, the person in charge of the department of insurance expertise at PricewaterhouseCoopers, said: The financial crisis has only affected the insurance sector in the region in a slight and passing manner." The insurance sector, in particular life insurance, is expected to continue its growth in the region this year. Saudi Arabia, Qatar, and Bahrain are considered to be promising markets. For example, the health insurance sector in Saudi Arabia grew by 33 percent between 2006 and 2007, while life insurance grew by 50 percent. All of the Gulf countries are liberalizing their markets and granting new licenses, and they are promulgating more laws for compulsory insurance on vehicles and compulsory health insurance for workers. Standard & Poor's has estimated the rate of growth of the insurance sector in the region at 40 percent per year.

ISLAMIC BANKS ARE SAFE

Islamic banks have proved to be more resilient than traditional banks with respect to weathering the financial crisis. Saleh Al-Suheibani, director of the department of research and investment consultancy at Al-Rajihi Bank, said: Islamic banks are safe from any negative repercussions such as bankruptcy and liquidationÉbecause of good management, the increase in the volume of their assets, compliance with the Shariah, and the avoidance of toxic products." The region constitutes a fertile ground for the growth of this kind of bank, since 40 percent of Islamic banks are based in the Arab world, which is an indication of the demand for them. The assets of these banks are close to $520 billion, and the volume of their assets is expected to increase to $2 trillion by 2012. Islamic banks are growing by a rate that varies between 15 percent and 20 percent per year. The demand for Islamic services is no longer restricted to Muslims only. One of the positive effects of the crisis is that it has shed light on Islamic banking, especially since Islamic financing is based on a system of sharing profit and risk and it is linked to real investment in developmental projects," Al-Suheibani said.

BUY STOCKS, BUT WITH CARE

There are various investment opportunities in Arab stock exchanges, as share prices of companies in different sectors have reached tempting levels. However, caution is necessary. Abdul-Aziz Al-Dakhil, chairman of the board of directors of the Dakhil Financial Group, said: The year 2009 is a year of investment opportunities on Arab stock exchanges." The investor must of course always take oil prices into consideration: The investor must be prudent and keep his eyes on oil prices, because they are the fundamental pillar of the region's economies," Al-Dakhil said.

PRIVATE EQUITY IS A GROWTH SECTOR

The private equity sector is expected to grow, as it is one of the emerging sectors in the region. The sector's contribution to GDP does not exceed 0.3 percent, as compared to 3.5 percent in the United States and 1.7 percent in the United Kingdom. Private equity companies can invest in various sectors. According to Yorg Crisle, an independent consultant who specializes in the direct investment sector, the industrial, real estate, retail, IT, and education sectors are good targets for investment. In light of the presence of more than 100 million Arab students, the demand for quality private education, both academic and vocational, is growing in different countries of the region, especially in light of the inability of the official sector to meet competitive scientific criteria," he said.

TOURISM SECTOR IS A GOOD CHOICE

The tourism sector holds many opportunities for investment. With respect to hotel investment, the region lacks a sufficient number of businessmen's hotels and three-star and four-star hotels that offer quality service at competitive prices. The hotel apartment business should grow in the coming period. Maroun Al-Hashem, director of analysis at R Holding, said: The increase in foreign demand in the UAE on the one hand, and the continuing influx of pilgrims to Saudi Arabia, on the other hand, are among the principal incentives for increasing investments in these types of apartments." It has been estimated that the value of touristic investments in the region will reach around $4 trillion by 2020, while around 70 million tourists are expected to visit the region. Saudi Arabia is considered to be a prime candidate for growth in tourism. Returns from the tourism sector in Saudi Arabia are expected to increase from $34 billion in 2006 to more than $66 billion in 2016. Saudi spending on the tourism sector is expected to reach $16 billion in 2016. Rami Al-Thaqafi, first investment manager in private banking at National Emirates Dubai Bank, says: Riyadh for example is thirsting for five-star hotels, as a result of the shortage of supply." The sector of internal tourism and bilateral Arab tourism is expected to experience a noticeable boom, since it constitutes only 42 percent of the volume of Arab tourism. Bilateral tourism is expected to increase in the coming period, especially for five consecutive years, since Ramadan comes in the middle of the summer season and most of the Arabs, in particular those from the Gulf, prefer to spend the holiday period in an Arab country instead of in Europe," al-Thaqafi said.

BIG DEMAND FOR HEALTH SERVICES

The gap between supply and demand in the region is expanding constantly with respect to hospitals and luxury health resorts. Demand for health care services in the region will increase by 240 percent until 2025, according to a report by McKinsey and Company. The UAE and Saudi Arabia are registering the highest rates of demand. It is estimated that the region will need 162,000 beds in the above-mentioned period, while the volume of spending on the health care sector is estimated at around $20 billion in Saudi Arabia alone by 2016. In Jordan for example, 350,000 people visit the country annually for treatment purposes.

REAL ESTATE STILL BECKONS

The real estate sector is slowing down, but investment opportunities are still likely to grow. Hussein Sijwani, CEO of Damak Holding Company, said: The region is still full of rewarding real estate investment opportunities, especially since the population in the markets is relatively young." Among the promising markets are the UAE, Saudi Arabia, and Qatar. According to Sijwani, despite the slowdown in the UAE, it remains a booming market and it has much to give to investors from the Middle East and from outside of the Middle East. The demand for prime locations in Dubai will remain high, and it is likely that its real estate sector will continue to provide excellent investment opportunities over the long term," he said. Hani BaUthman, CEO of Ayyan Arabian Holding Company, said: The real estate sector in the Kingdom does not bear any debt. In addition, it has big investment opportunities in the residential sector, especially since the Kingdom has one of the lowest rates of citizen ownership of residences in the Gulf, as it varies between only 20 percent and 30 percent." The Saudi residential sector is expected to witness much growth. Saudi Arabia is the most promising country with respect to growth of the real estate sector in the next five years because of the development of the housing sector there, ÒBa Uthman said. For his part, the Qatari economic expert Saleh Al-Nabet, said: Qatar is first with respect to real estate investment in the next five years. Qatar's superiority is attributable to the existence of favorable economic conditions and big opportunities for expansion in the real estate sector, in addition to the fact that most of the projects are big and related to gas and petroleum and other governmental sectors that have credibility, which makes the Qatari real estate sector able to serve these sectors."

INFRASTRUCTURE IS A SOLID INVESTMENT

The region is continuing to develop infrastructure projects. There is no fear for these projects, because they constitute long-term investments, and the government realize their importance as a boost for the local economies," Al-Nabet said. Even if the rates of government spending in the region decreased, this spending would affect spending on non-vital projects, and not those projects that are related to infrastructure projects," he said. The transportation sector needs investments of tens of billions of dollars in all of the countries of the region, in the absence of railroad networks in particular. Studies estimate that the air and land and maritime transport sectors need more investments. Among the attractive sectors are public transportation, maritime taxis, and air taxis for businessmen.

TELECOMMUNICATIONS SPUR DEVELOPMENT

Whereas the market for cellular services is witnessing saturation with rates of 188 percent in some markets, there is a big demand for broadband services on the part of both companies and individuals especially since rates of saturation are less than 40 percent. The recent downward trend in prices will increase demand in the future. Experts estimate the opportunities for growth in the cellular telephone sector at around ten percent per year. However opportunities for growth vary between 30 percent and 40 percent with respect to broadband services. The cooperation between cellular telephone companies and media companies is growing constantly. Big telecommunications companies are seeking to establish a successful reciprocal relationship with media content companies as a means of increasing their revenues. The size of the market is still modest, and it does not exceed some tens of millions of dollars. However, it is expected to grow rapidly so that its size will reach billions of dollars in a few years, especially after the recent expansions in providing broadband services to individual consumers. The telecommunications sector is considered to be a fundamental pillar for developing the economies in the region, and there is a pressing need to develop it in the coming period," Gardner said.

THINK ABOUT INVESTING IN THE ARAB REGION

The global financial crisis has made people think about investing in the region. Mirvat Talawi from the League of Arab States, who is general coordinator of the Arab economic summit that is expected to be held in Kuwait on January 20, 2009, said: The lesson of the crisis lies in the fact that it might make people think again about investing in the Arab world, and this is a strength for the region and a guarantee of its future for coming generations." According to her, governments in the region have a role to play in encouraging investments. She said: Countries must provide stable incentives and establish a court for settling disputes among businessmen on the one hand, and between businessmen and governments on the other hand, so that the owner of capital will be reassured that there exists an official agency that will examine his rights in the event that any unexpected dispute arises. It is also necessary to provide a suitable legislative environment as well as a good investment climate in order to attract this money."

Jody Jaffe, and Leila Rahbani.