نظرة عن اداء الاقتصاد العالمي 2010 وتقعات 2011

MENA Year Book - 2011
• How did the global economy perform in 2010?

• Which countries drove the global economic revival in 2010?
• What were the key themes in global economic performance in the past
year?
• How did MENA’s economy perform in 2010?
• Was it fiscal stimulus or revival in energy prices which led to MENA’s strong
economic recovery?
• Will MENA sustain its economic momentum in 2011 as well?
• How was the performance of MENA debt and equity markets in 2010?
• What is the outlook for MENA capital markets in 2011?
1
Executive Summary
Global economies transitioning from recession to growth
Economies around the world rebounded sharply from the global downturn of 2008-09 in 2010.
World GDP grew 5% in 2010, after contracting 0.6% during the previous year. The global economic
revival was largely led by rapid economic expansion in emerging and developing economies. The
IMF estimates these economies to grow 7.1% in 2010, up from 2.6% in 2009. However, the pace of
recovery has been slow in advanced economies with high unemployment decreasing demand from
consumers. Despite this, developed economies grew 3% in 2010 as against the 3.4% decline
posted in 2009.
Slow recovery in the US is due to its high unemployment rate and stagnant housing market; the
country is expected to have expanded 2.8% in 2010. On a positive note, the pick-up in economic
growth in the final quarter of 2009 prompted the IMF to revise its 2011 growth forecast for the US
to 3% from the 2.3% estimated in October 2010. In the Eurozone, Germany emerged as the best
performer, benefiting from a sharp revival in exports even as other countries in the region took a
severe hit due to the widespread debt crisis. The German economy is estimated to have grown
3.6% in 2010, after contracting 4.7% in 2009; it is forecasted to expand 2.2% in 2011. Recovery in
the UK, on the other hand, is slower than expected—the country’s GDP declined 0.5% in the last
quarter of 2010. The economy is expected to grow 1.7% in 2010 and 2% in 2011. Also, the country
is focusing on reducing its high debt and fiscal deficit levels. The government has implemented
significant public spending cuts to address the situation; it has slashed the budget by around a fifth
and is trimming the country’s comprehensive welfare system. The severe austerity drive could
dent growth, considering that the private sector and housing market are still weak. Despite ex-
panding 4.3% in 2010 (as per the IMF), the Japanese economy is mired in deflation—prices have
fallen over the last 10 months in spite of stimulus measures and quantitative easing by the Bank of
Japan. A rising yen has aggravated the situation. This is because the country depends considerably
on imported goods. Therefore, when the currency appreciates, the cost of imports comes down,
lowering the overall consumer prices.
Asia, not hit as hard as others during the global economic downturn, is leading the recovery
among emerging economies. India and China posted strong growth during 2010. The IMF esti-
mates China’s economy expanded 10.3% in 2010, after increasing 9.2% in 2009. India’s GDP, it
projects, grew 9.7% in 2010 relative to the 5.7% growth recorded a year earlier. Rapid growth in
domestic activity and increased industrial production are leading growth in these countries. How-
ever, growing inflationary pressure largely due to high food prices is leading central banks across
Asia to tighten the monetary policy and raise benchmark interest rates. China has hiked interest
rates four times so far, while India has done the same seven times to combat inflation. Central
banks in Malaysia, Thailand, Indonesia and South Korea followed suit. Therefore, emerging econo-
mies are expected to see a slight moderation in economic activity in 2011 as monetary tightening
takes effect.. An uptrend in energy prices is driving growth in countries exporting hydrocarbons.
The Middle East and North Africa (MENA) region benefited the most from the rise in energy prices.
Among others, Australia, the largest exporter of iron ore and coking coal, gained from strong de-
mand from China and high commodity prices.
2
Global economies seem to have recovered from the global economic crisis. However, the emer-
gence of the sovereign debt crisis in Eurozone at the start of 2010 significantly affected economic
recovery in Europe. It began in Greece, where mounting fiscal woes, huge debt and a subsequent
debt downgrade triggered fears of a default by the government. The crisis spread rapidly to Ire-
land and other debt-ridden countries in the Eurozone, including Portugal, Spain and Italy. Bailout
packages were provided to Greece and Ireland to restore their economies. Also, strict measures in
the form of reduction in government and welfare expenditure were taken. However, the threat of
the sovereign debt crisis is not limited to these countries as other Eurozone members have high
exposure to the government debts of Portugal, Ireland, Italy, Greece and Spain. Therefore, fiscal
imbalances and subdued economic activity in periphery economies (Greece, Ireland, Portugal, Italy
and Spain) are the greatest risks to economic recovery in the region in the near term.
MENA Economies – Uptrend in energy prices aiding growth
Fiscal stimulus played a large role in supporting economic activity in the MENA region in 2009 and
as well as in 2010. Due to the rise in energy prices, oil exporting economies in MENA grew 3.8% in
2010. GCC nations fared even better with the region’s real GDP expanding 4.5%. Qatar posted the
strongest the growth worldwide, a little less than 16.0% in 2010. Saudi Arabia, the biggest GCC
economy, also expanded 3.4% during the year; it grew just 0.6% in 2009. The MENA region’s GDP
is expected to have increased 3.9% in 2010.
Despite higher energy prices contributing to robust growth during the past decade, oil rich coun-
tries are taking steps to diversify the economy. Consequently, the non-hydrocarbon sector has
emerged stronger than it was a decade before. In 2009, overall real GDP growth would have been
negative for the MENA region, had its non-oil real GDP not expanded 3.2%. Governments in the
past decade have directed massive revenues from hydrocarbons towards building infrastructure
and human resources to establish a more diversified economy. Some such as Saudi Arabia have
tried to build sustainable industrial bases; others, like the UAE, are focusing on creating trade,
tourism and financial hubs. The Saudi Arabian Monetary Authority (SAMA) and the UAE’s central
bank played a proactive role during the credit crisis by ensuring liquidity in the market and offering
special discount windows. Yet, growth in MENA economies was largely driven by exports, notably
of hydrocarbons, in 2010. According to estimates provided by the IMF, MENA oil exporters wit-
nessed an 18.8% rise in exports to US$944.1 billion in 2010; this indicated a reversal from the
30.6% decline in export values registered in 2009. The revival in exports has meant an improve-
ment in the block’s current account balances. Oil exporters witnessed a steep fall in current ac-
count surplus to 4.6% of GDP in 2009 from 19.5% a year before. However, due to the sharp rise in
energy prices, their trade balance increased by about 57.6% to US$186.9 billion in 2010. Oil im-
porters in the MENA region too benefited from the recovery in exports—their trade deficit de-
creased from US$61.7 billion in 2009 to US$59.6 billion in 2010. Also, government finances in the
region improved and debt levels fell. General government debt decreased from 39.3% of GDP in
2009 to 34.1% in 2010. The drop was more pronounced in the case of oil exporters—debt levels
declined from 27.0% of GDP in 2009 to an estimated 21.0% in 2010.
With economic activity gaining pace in the MENA region, the time to phase-out stimulus measures
gradually has come. KSA, which introduced the largest fiscal package among G20 countries (20% of
GDP) during the global downturn, has begun to unwind some of its economic stimulus.
3
Revival of the private sector has meant decreased need for government support even in oil im-
porting MENA economies. Growth has returned in this region, but rising inflationary pressures are
a fresh concern. Inflation in Saudi Arabia, for example, rose from approximately 3–4% in the fourth
quarter of 2009 to about 5.8% in October 2010. Annual inflation in the GCC block is estimated to
have been 4.2% in 2010. Rising prices of food globally as well as natural disasters in major food
producing nations, such as Australia and Russia, and in others like Pakistan are contributing to
supply shortages, resulting in imported inflation. This is because GCC countries, in particular, de-
pend heavily on the rest of the world for food. Food price inflation in Saudi Arabia stood at 8% in
the final quarter of 2010, while it was close to 11% in Kuwait. With the crisis coming to an end,
monetary policies seem to have stagnated. Interest rates are not likely to rise anytime soon even
as inflation edges up in most economies. A major reason for this is that the US Fed is not likely to
tighten monetary policy this year. The pick-up in global economic activity is expected to benefit
the MENA region as countries gain from strengthening fundamentals. Flow of investments from
abroad is expected to increase and this coupled with higher trade is likely to boost activity in the
private sector. At the same time, oil exporters stand to gain from rising energy prices as demand
increases globally aided by healthy growth in emerging markets and higher economic activity in
the US. GDP growth in the MENA region is expected to go up to 4.6% in 2011 from 3.9% the year
before. Sovereign debt concerns (Dubai-related) clouding the UAE’s economy are expected to fade
and the emirate’s overall GDP is likely to grow 3.2% in 2011 compared to 2.4% in 2010. Economic
growth in KSA is expected to increase to 4.5% in 2011 from 3.8% in 2010. Qatar is expected to
retain its fastest growing nation position, with GDP growth rate estimated to exceed 18% in 2011.
MENA equity and debt markets – Benefiting from high economic growth
The impressive macroeconomic performance of MENA countries in 2010 was mainly led by higher
oil prices and a positive global economic environment that revived the region’s capital markets.
MENA performed well on seven major indices in 2010 and ended in the green. Syria’s Damascus
Securities Exchange Index outperformed regional indices, gaining 72% YoY. Qatar’s DSM20 Index
came second, up 25% in the year. Indices of Morocco’s Casablanca Securities Exchange and Tuni-
sia’s Tunis Stock Exchange added 21% and 18%, respectively, in 2010. Banking and financial ser-
vices emerged as the undisputed leader in MENA in 2010, driven by strong returns in the banking
sector in six of the nine markets covered in our analysis. Egypt’s banking sector recorded the high-
est returns of 76%. The Qatari, Kuwaiti and Moroccan banking sectors also registered robust gains
during the year. In terms of valuation, Qatar, Egypt and Saudi Arabia look particularly attractive.
Qatar has the second-highest per capita income globally, with its GDP estimated to grow by dou-
ble digits in 2011.
As regional economies return to growth and equity markets recover swiftly, debt markets in the
MENA region are also staging a comeback. According to MEED, bonds worth US$23.9 billion are
estimated to have been issued in this region in 2010. The number of sukuk issuances decreased to
33 from 34 in 2009. However, this decline is less steep compared to that in 2008–09, indicating
that recovery is underway. Education, healthcare and alternative energy are promising sectors in
the MENA region. Huge infrastructure and development needs in the region are expected to drive
governments to raise funds efficiently and cost-effectively, mainly through debt. As GCC countries
invest heavily in infrastructure, which according to estimates requires about US$2.3 trillion in fi-
nancing, raising funds through debt securities seems appropriate.
4
MOVEMENTS OF GLOBAL ECONOMY IN 2010
From recession to growth
The global economic recovery gathered momentum in 2010, driven primarily by strong growth in
emerging economies. Growth however remained sluggish in advanced economies such as the US,
Eurozone and Japan. On a positive note however, the US economy gathered pace by the end of
The world economy grew the year with growth estimated to have accelerated to 3.2% in 4Q2010 from 2.6% the quarter
at an annual rate of before. Overall, world GDP grew at an annual rate of around 5.0% in 2010, sharply reversing
around 5.0% in 2010 course from the 0.6% contraction the year before. Rapid pick-up in economic activity in emerging
economies was the major factor behind the recovery; IMF estimates put the pace of growth for
emerging and developing economies at 7.1% in 2010, accelerating from 2.6% in 2009. On the other
hand, recovery in advanced economies was relatively slow due to high unemployment that de-
creased consumer demand. These economies grew at a mere 3.0% last year, although their per-
formance was much better than the 3.4% contraction in 2009.
Exhibit 1: Real GDP growth rate for different economic blocks
10%
6%
2%
-2%
-6%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010e 2011f 2012f
World Advanced economies

Euro area Emerging & developing economies
Middle East and North Africa Sub-Saharan Africa
Source: IMF World Economic Outlook, Updated for January 2011 published numbers
Across the world, growth post the downturn of 2008-09 was supported by strong fiscal and mone-
tary support. While governments put forth spending hikes and tax cuts, central banks provided
liquidity windows and slashed interest rates. However, with growth patterns differing between
advanced economies and emerging ones in 2010, the nature of policy action seem to be changing.
Most emerging econo-
On one hand, the US Federal Reserve, Bank of Japan, European Central Bank, and the Bank of Eng-
mies adopt monetary
land continue to keep monetary policy loose in order to support growth while on the other hand,
tightening as the risk of
central banks in emerging economies have tightened policy in order to curb rising inflation. For
inflation rises
example, while the Reserve Bank of India (RBI) raised rates six times in 2010 (for a total of 200
bps), the Bank of China (BOC) raised rates twice. Both banks have also raised their reserve require-
ments a number of times.
5
Economic performance of different blocs/regions
Advanced economies
Growth in US remains shaky
High unemployment and a stagnant housing market continue to cast a shadow on the US recovery.
The unemployment rate in the US rose to 9.8% in November 2010 from 9.6% a month earlier, far
The US unemployment higher than the 6.9% recorded some two years before. Even though this figure moderated to 9% in
rate was as high as 9.8% January 2011, weakness in the labor market is set to persist with the share of long-term unem-
in November 2010 ployed rising sharply. Meanwhile, privately-owned housing starts stood at a seasonally adjusted
annual rate of 529,000 in December 2010, down 8.2% YoY. Moreover, new home sales in the
country totaled 329,000 in the month, a 17.5% improvement MoM (Month over Month), but
down 7.6% YoY.
Due to weak economic activity, the US economy grew 2.6% in 3Q2010, below the expected 2.8%.
Nevertheless, the US economic growth is expected to have picked up to 3.2% in 4Q2010. This
prompted the IMF to revise its GDP growth forecast for the country for 2010 to 2.8% in its World
Economic Outlook (WEO) update published in January 2011, from 2.6% provided in its WEO Octo-
ber 2010. It also increased the GDP growth forecast for 2011 to 3% from its earlier projection of
2.3% published in October 2010.
Exhibit 2: US housing starts and new home Exhibit 3: US unemployment rate, November
sales (in 000’s) 2009 – November 2010 (%)
700 10.3
600 10.0
500 9.7
400 9.4
300 9.1
200 8.8
Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Dec-09 Mar-10 Jun-10 Sep-10 Jan-11
New home sales Housing starts
Source: US Census Bureau
The US announced a The US Fed is however concerned about deflation, as is apparent from their moves at a new round
second quantitative eas- of quantitative easing. Inflation has been edging lower in the country over the year with latest
ing to pump US$600 figures for December at 1.5%, higher than the 1.1% for the previous month. However, this is below
billion cash into the the 1.5–2.0% that the US Fed considers comfortable. To address the situation and help the country
economy recover faster, the Fed recently announced it would pump US$600 billion of cash into the econ-
omy by buying treasury bonds and keeping interest rates at the current historic low level of 0-
0.25% for an extended period.
6
Strong growth in Germany despite the Eurozone debt crisis
Robust growth in exports and increase in domestic demand, are the factors leading economic ex-
pansion in Germany, which remains relatively unaffected by the widespread debt crisis in the Eu-
rozone. As per Destatis, the German federal statistics office, the country’s exports grew 3.8% MoM
German economy grew and 21.1% YoY to EUR89.8 billion in October 2010. According to the IMF’s latest WEO update pub-
2.2% in 2Q 2010, its best lished in January 2011, German economy is estimated to have grown by 3.6% in 2010 after con-
quarterly performance tracting by 4.7% in 2009. The country is also witnessing impressive consumer demand led by low
since 1989 unemployment levels. Unemployment in the country fell to 7% in October 2010, the lowest level
since 1992. Moreover, according to the German Chambers of Commerce (DIHK), strong economic
growth is expected to create more than 100,000 jobs in the second half of 2010. With unemploy-
ment declining and personal income rising, domestic demand in Germany is increasing. Final con-
sumption expenditure in the country rose 0.2%, 0.6% and 0.4% QoQ in the first three quarters of
2010, respectively, after declining in 4Q 2009. Continued rise in consumer spending is ensuring
growth to remain stable, and also to reduce its dependence on exports in stimulating economic
growth. Led by Germany’s impressive recovery, the IMF revised its GDP growth forecast for the
country for 2011 to 2.2% from 2% provided in its WEO October 2010.
Exhibit 4: Private consumption in Germany (% Exhibit 5: Germany’s real GDP and exports
change QoQ) growth (% change QoQ)
1% 3% 12%
2% 8%
1%
1% 4%
0% 0% 0%
-1% -4%
-1%
-2% -8%
-1%
-3% -12%
-2% -4% -16%

3Q-07 2Q-08 1Q-09 4Q-09 3Q-10 3Q-07 2Q-08 1Q-09 4Q-09 3Q-10
GDP Exports
Source: Destatis - Federal Statistical Office, Germany
Right move by the UK to tackle deficit
The UK economy is undergoing a slower-than-expected recovery due to weaknesses in services

UK GDP growth slowed and construction. The UK’s GDP contracted 0.5% QoQ in 4Q 2010, after expanding 0.7% QoQ in
to 0.7% QoQ in 3Q 2010 3Q2010 due to harsh weather conditions. However, despite sluggish growth, focus during the early
from 1.1% QoQ in 2Q part of the year shifted to the country’s burgeoning debt and fiscal deficit levels. The UK’s net
2010 debt, excluding the temporary effects of financial interventions, was an enormous GBP889.1 bil-
lion, representing 59.3% of its GDP in December 2010. Moreover, the country’s budget deficit,
excluding the temporary effects of financial interventions, stood at GBP13.5 billion in December
2010.
7
In fact, the deterioration in government balances coupled with debt fears pertaining to the Euro-
zone even evoked concerns to a possible downgrade of the country’s sovereign debt in future. In
UK government depart- order to tackle the situation, the newly elected Tory – Liberal Democrat coalition enacted sharp
ments are to face an cuts in public spending. It slashed the budget by around a fifth and nixed the country’s compre-
average budget cut of hensive welfare system. Government departments, except health and overseas aid, face an aver-
19% over the next four age budget cut of 19% over the next four years. Some of the biggest reductions are in welfare,
years which accounts for around a third of government spending. Through these measures, the govern-
ment expects to save GBP7 billion a year. However, According to Office for Budget Responsibility
(OBR) this austerity drive is likely to cut 330,000 jobs in the public sector over four years from ap-
proximately 6 million currently.
The government has also acted on the revenue front, hiking VAT to 20% from earlier 17.5% to be
implemented by early 2011. Income taxes were also increased with income tax rate for high in-
come earners, whose earnings are more than GBP150,000 a year, hiking to 50% effective from
April 2010.
While the government’s austerity measures have brought in applause from markets, pundits ex-
Manufacturing is per- pect a dent to growth in the economy considering that private sector activity continues to face
forming well in UK with pressures and the housing market is still weak. However, manufacturing has been performing well.
output rising 1.4% in Manufacturing output rose 1.4% in 4Q2010 compared to an increase of 1.1% in 3Q2010. The gov-
4Q2010 ernment would also be hoping that a weaker pound combined with initiatives to access emerging
economies would increase trade and thereby growth. The IMF in its latest WEO update published
in January 2011 maintained its GDP growth forecast for the UK for 2010 at 1.7% and 2% for 2011
compared to its October 2010 publication.
Exhibit 6: Government net debt as a % of GDP Exhibit 7: UK real GDP growth (% change QoQ)
60% 2%
1%
50%
-1%
40%
-2%
30% -3%
Apr-07 Mar-08 Jan-09 Dec-09 Dec-10 4Q-08 2Q-09 4Q-09 2Q-10 4Q-10
Source: Destatis - Federal Statistical Office, Germany
Japan slips back into deflation
The Japanese economy rebounded sharply from the recession, benefiting from the uptrend in
exports, the pillar economic growth in Japan, as 2010 set in.
8
Exports grew 13.5% and 18% during the first two quarters of 2010, respectively, resulting in annu-
alized QoQ real GDP growth of 6.8% and 3%. However despite of a strong growth in 2010 (4.3% in
2010, as per IMF), the worry has been on the deflation front – with prices falling for the last ten
months despite stimulus measures and quantitative easing by the Bank of Japan. The Consumer
Price Index (CPI) in October 2010 stood at -0.6%. Moreover, a stronger yen is affecting the com-
Japan intervened in the petitiveness of Japanese products, negatively impacting exports. The yen has risen around 10%
foreign currency market since May 2010, touching its 15-month high against the US dollar in August 2010. During 3Q 2010,
for the first time in six growth in exports decelerated to 12.5%. Rising yen has not only affected Japan’s export competi-
years to weaken the yen tiveness but has also made the fight against deflation tougher. This is because the country de-
pends on a lot of imported goods. Hence, a rising currency results in lower import prices and
thereby leading to a fall in overall consumer prices. To weaken the yen, Japan intervened in the
foreign currency market for the first time in six years on September 15, 2010, by buying dollars.
Moreover, in order to tackle deflation, Bank of Japan kept its key interest rate near zero even in
December 2010. This was in addition to the earlier announced (October 2010) stimulus scheme of
buying assets to increase money supply and drive growth in consumption in the country. The bank
announced a US$61 billion fund to be used to purchase financial assets such as government securi-
ties and commercial paper. Furthermore, it is offering JPY30 trillion through a loan program.
Exhibit 8: Japan real GDP and exports growth (Annualized % change from previous quarter)
20% 42%
14% 28%
8% 14%
2% 0%
-4% -14%
-10% -28%
-16% -42%
-22% -56%
1Q-08 3Q-08 1Q-09 3Q-09 1Q-10 3Q-10
Real GDP Growth Exports growth
Source: Cabinet Office, Government of Japan
At around 5%, unemploy- Adding to the worries is a high unemployment rate. At around 5%, unemployment is high relative
ment in Japan is high to Japanese historical standards. In the light of the strong yen, high unemployment and consistent
relative to its historical deflation, the economic outlook for Japan for the fourth quarter of 2010 is bleak.
standards
Emerging economies
China, India lead global economic recovery
Asia, not hit as hard as others during the global economic downturn, is leading the recovery. In
most parts of the region, resilience in domestic demand—partly due to proactive policy stimulus—
has offset the drag from net exports.
9
Industrial production and retail sales have been strong in China and India, among others. Robust
activity in these countries is in turn powering growth in the rest of Asia.
According to IMF WEO update published in January 2011, China’s economy is expected to have
China’s real GDP grew grown by 10.3% in 2010, after posting 9.2% growth in 2009. Strong revival in exports was the ma-
10.3% YoY in 2Q 2010, jor driving force behind this growth. China’s total exports increased 31.3% YoY to US$1,577.93
after increasing 11.9% in billion in 2010. Sustained growth in retail sales and industrial production confirms that private
1Q 2010 sector activity has advanced beyond the lift from government stimulus. The IMF estimates private
demand in China to account for two-third of growth in the near term and government spending
about one-third. According to China’s Ministry of Industry and Information Technology, the coun-
try’s industrial production is expected to rise by 13.5% YoY in 2010. However, rising inflationary
pressures mainly due to increasing food prices has been an area of concern lately. Moreover, rising
property prices and house rents pose the threat of a real estate bubble in the country. To address
this, regulations have been introduced to reduce banks’ exposure to potentially risky property
loans. Moreover, other direct measures such as increased minimum down payments, lower loan-
to-value ratios, and higher mortgage rates for second homes were deployed to cool the property
market.
India’s macroeconomic performance has been robust, with industrial production at a two-year
high. Leading indicators, the production manufacturing index and measures of business and con-
sumer confidence, continue to point up. The Index of Industrial Production (IIP) rose 10.5% in 2009
-10 from 2.8% in 2008-09. This rise was broad-based with high growth in manufacturing industries
In India, the Index of
(10.9%), followed by mining (9.9%) and electricity (6.0%). Rapid growth in domestic activity, re-
Industrial Production
flected by the fast rise in inflation, led the central bank to increase the repo policy rate, in steps, by
(IIP) rose 10.5% in 2009-
a cumulative 125 basis points in October. The Reserve Bank of India aims to retain the repo rate at
10 from 2.8% in 2008-09
6.25%, as mentioned in its December 2010 release. Despite the decrease in inflation (based on
annual change in CPI) from 16.2% in February to 9.7% in November, inflationary pressures persist
due to domestic demand and higher global commodity prices. The pace of decline in food price
inflation has been slower than expected mainly owing to structural factors. Low dependence on
exports, accommodative policies, and strong capital inflows have supported domestic activity and
growth. The IMF’s growth estimate for 2010 in its October release was 9.7%, more or less similar
to 9.5% in the July release.
Central banks across Asia move to rein in inflation
Rising inflationary pressures driven by high food inflation is forcing central banks across Asia to
increase interest rates and implement measures to control food prices. In its World Economic Out-
World food prices hit a look (October 2010), the IMF expected inflation in developing Asia to touch 6.1% in 2010 from
record high in December 3.1% in 2009. Record high food prices mainly driven by supply-side constraints are the primary
2010, moving beyond the cause for the rising inflation. According to the United Nations' food agency (FAO), world food
levels of 2008 prices hit a record high in December 2010, moving beyond the levels of 2008, driven by high sugar,
grain and oilseed costs. An index of 55 food commodities tracked by the Food and Agriculture
Organization gained for the sixth month to 214.7 points in December 2010, above the previous all-
time high of 213.5 in June 2008. Food inflation in many Asian countries, such as India and China, is
in double digits. India's food price inflation rose to a one-year high of more than 18% at the end of
December 2010.
10
In China, the cost of food jumped 11.7% at the end of November 2010, while that of non-food
items grew just 1.9%. Rising inflation is a growing concern in other Asian countries as well such as
Malaysia, Thailand, Indonesia and South Korea. In response, nations hiked rates throughout 2010
China raised its bench-
from the record lows of 2009. China raised the benchmark interest rate for the first time in three
mark interest rate for the
years to 5.6% in October 2010, and three times post that to reach 6.06% in February 2011. India
first time in three years
increased it six times during 2010 to 5.25% at the end of December 2010 and again by 25 basis
to 5.6% in October 2010
points in January 2011 to reach 5.5%. Bank of Thailand raised the interest rate three times in 2010
to 2% by year-end and again by 25 basis points in January 2011 to reach 2.25%. Malaysia too
raised the interest rate thrice to 2.75% by the end of December 2010, while South Korea hiked it
twice during 2010 and once so far in 2011 to reach 2.75% in January 2011.
Exhibit 9: Benchmark interest rates for major Asian countries (%)
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Jul-09
Sep-09
Nov-09
Jul-10
Sep-10
Nov-10
Jan-09
Mar-09
May-09
Jan-10
Mar-10
May-10
China India South Korea Malaysia
Source: Bloomberg
On a negative note, just hiking interest rates is not likely to ease the pressure on food prices. On
China and India have the contrary, a rising interest rate results in currency appreciation, which hurts exports, the major
started implementing pillar of many economies. Therefore, several countries have started to implement direct price
direct pricing controls to controls. China, for example, implemented direct controls to limit the rise in food prices; also, the
tame food price inflation central government vowed to eliminate speculation in the country's commodities market. India
too increased the release of national stocks of grains and pledged to continue with duty-free im-
ports of crude vegetable oils.
Commodity producers
Revival in energy prices boosts growth for hydrocarbon exporters
The strong growth posted by major hydrocarbon exporters in 2010 is underpinned by the sharp
rebound in energy prices during the year from the lows of early 2009. The MENA region, home to
some of the largest oil & gas exporters, was the biggest beneficiary of the uptrend in energy
prices. The growth was also supported by the prudent fiscal stimulus, which helped drive the non-
oil sectors as well. According to IMF, oil prices have increased 23.3% YoY in 2010, after declining
36.3% in 2009.
11
The IMF, in its WEO (October 2010), projected the real GDP growth rate for the MENA region for
2010 at 4.1%; the region recorded real GDP growth of 2% in 2009. It is expected to be 5.1% in
2011. Gas-rich Qatar is likely to be at the top position by posting the highest real GDP growth rate
of 16% worldwide in 2010 compared to 8.6% in 2009. It is expected to be stronger in 2011 in the
MENA is expected to
country, at 18.6%. Other energy exporters are also likely to record a strong recovery in GDP
grow at 4.1% in 2010,
growth rate. The GDP of Saudi Arabia, the largest exported of oil exporter, is expected to grow
higher than the 2%
3.4% in 2010, after increasing 0.6% in 2009. Similarly, the GDP of Russia, the largest exported of
growth in 2009
gas, is expected to expand 4% in 2010, after contracting 7.9% in 2009. Sluggish demand from ad-
vanced economies, notably Europe, their biggest trading partner, poses a downside risk to MENA
economies. Nevertheless, strong demand from emerging economies is expected to support the
ongoing economic expansion.
Exhibit 10: Real GDP growth of major hydro- Exhibit 11: Movement in oil prices, Jan 2009–
carbon exporters (%) Jan 2011 (US$/bbl) QoQ)
20%
16% 100
15%
9% 80
10%
3% 4% 3%
5% 2%
1% 1% 60
0%
-1%
-5% -2% -2% 40
-8%
-10%
UAE
Norway
20
Saudi Arabia
Qatar
Russia
Canada
Sep-09
Sep-10
Jan-09
May-09
Jan-10
May-10
2009 2010* Jan-11
Source: IMF, 2010 numbers are estimates Source: Bloomberg
Growth in Australia led by rising demand from China
Australia, the largest exporter of iron ore and coking coal, benefited from strong demand from
emerging countries, notably China. Australia’s exports to China grew 18.3% YoY to A$46.5 billion in
2009-10, and 6.3% MoM to A$5.7 billion in November 2010. The country’s growing trade with
Australia’s GDP is ex- China is ascribed to Australia’s mineral wealth, its proximity to the latter and high commodity
pected to expand at a prices. The IMF expects Australia’s GDP to expand at the rate of 3% in 2010 compared to just 1.2%
rate of 3% in 2010 com- in 2009. According to the Australian Bureau of Agricultural and Resource Economics and Sciences
pared to just 1.2% in (Abares), the country’s commodity exports are estimated to reach A$211 billion for the 12-month
2009 period ending June 2011, up 23% from that in 2009-10. Export earnings for farm commodities are
forecasted at A$30.2 billion for 2010–11, higher than the A$28.5 billion earned in 2009-10. Contin-
ued uptrend in commodity prices and strong demand from China bode well for economic growth
in Australia in the coming year. The IMF expects Australia to grow 3.5% in 2011.
12
Major themes of economic importance across the globe
Threat of sovereign debt contagion gains prominence in Europe
The emergence of the sovereign debt crisis in Eurozone at the start of 2010 indicated that the
economic crisis was far from over. Due to its mounting fiscal woes, huge debt and rising cost of
Greece’s debt to GDP financing, Greece ran into trouble in the early part of the year. The country’s gross debt, a gigantic
ratio stood at a gigantic 115% of its GDP in 2009, is expected to increase to 130% in 2010; fiscal deficit stood at 15.7% of
115% in 2009 the GDP in 2009 (source: IMF WEO October 2010). On April 27, 2010, Standard & Poor's lowered
Greece’s debt rating to the first levels of 'junk' status amid fears of a default by the government.
To restore Greece’s economy, the country was provided with a bailout package of €110 billion by
Eurozone countries and the IMF. While it seemed that the bailout package is helping Greece to
subside the debt crisis, it moved on from Greece to attack Ireland. Ireland’s debt to GDP ratio
spiked to 93.6% in 2009 from 65.5% in 2008. The debt crisis also spread to other countries in the
Eurozone, including Portugal, Spain, and Italy. These Eurozone countries are also struggling with
heavy debt burdens and huge financing costs. Borrowings costs and yields on government bonds
increased in Portugal, while the debt ratings of Spain and Portugal were downgraded. Italy too is
facing a spiraling debt burden. Debt as a percentage of GDP stood at 83%, 63% and 118% for Por-
tugal, Spain and Italy, respectively, in 2009. The attack on Portugal, Spain and Italy has intensified
with repercussions on countries like Belgium as well due to the political instability. High debt and
slow economic growth mean that the debt sustainability of these countries remains uncertain.
Severe austerity measures in the form of cutting government and welfare expenditure have been
taken and bailout packages provided by European countries to restore the economy in Greece and
Ireland. Ireland was given a bailout package of US$137 billion by Eurozone countries and the IMF.
However, the threat of the sovereign debt crisis is not limited to these countries as other Eurozone
members have high exposure to the government debts of Portugal, Ireland, Italy, Greece and
Spain (PIIGS). Furthermore, the debt, totaling around US$2 trillion, is primarily held by European
According to BIS, Ger- banks, whose exposure is equivalent to around 20% of the Eurozone GDP. According to the statis-
many has the largest tics provided by Bank of International Settlements (BIS), Germany, Europe’s biggest economy, has
exposure to Greece, Por- the largest EUR226 billion combined foreign-bank exposure to Greece, Portugal and Spain, fol-
tugal and Spain, at lowed by France (€210 billion) and Britain (EUR107 billion). European banks are yet to fully recover
EUR226 billion from the losses of 2008-09 caused by the global financial meltdown and are not well capitalized or
restructured to face further blows. Therefore, significant exposure to sovereign debt poses a seri-
ous risk to ensuring smooth economic recovery in Europe. Moreover, the policy of bailouts may
not be sustainable, given the fragile economic conditions in most European countries.
13
Exhibit 12: Combined foreign-bank exposure Exhibit 13: General government gross debt as
to Greece, Portugal and Spain, EUR billion a % of GDP for major European countries
140
Rest of German
the y, 226 120
world,
100
216
80
60
France,
Other 40
210
Euro
20
Area, US, 52
326 0
2000
2002
2004
2006
2008
2010
Britain, Switzerl
107 and, 56 Greece Portugal Spain
Ireland Belgium Italy
Source: Bank of International Settlements Source: IMF WEO October 2010
Euro continues to suffer due to debt crisis
Factors such as the sovereign debt crisis in periphery economies, and the bailout packages pro-
vided to Greece and Ireland have reduced investor confidence in the euro. The 16-nation currency
Euro has dropped 7.7% dropped 7.7% to 1.32 on January 05, 2010 from January 2009, and touched a four-year low of 1.19
to EUR1.32 in January on June 07, 2010. Fears about economic stability in Europe triggered by the debt crisis caused the
2010 from January 2009 euro to tumble the most during 2010 in the past four years. The exposure of European banks to
the sovereign debt of troubled nations is also raising fears of default among investors. Moreover,
the bailout provided to Greece and Ireland and mounting debts in other economies such as Portu-
gal, Spain, Italy and Hungary are raising doubts regarding the sustainability of any such support.
Exhibit 14: Euro’s slide against the US dollar since the start of 2010 (% change)
5%
0%
-5%
-10%
-15%
-20%
-25%
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-10
Mar-10
May-10
Jan-11
Source: Bloomberg
14
With economic conditions in Europe fragile and budget deficits swelling from Ireland to Greece,
governments in the region may be forced to cut spending; this could lead to slower-than-expected
recovery in the Eurozone. Until the uncertainty surrounding these issues is over, the euro is likely
to continue to suffer in the near term. This is despite the fact that the US dollar may also remain
weak due to the quantitative easing measures.
US Fed moves ahead with second round of quantitative easing
Slower-than-expected economic recovery, high unemployment and low consumer spending in the
US forced the Fed to roll out the second round of quantitative easing (QE2) in November 2010 to
stimulate growth. The Fed would be injecting US$600 billion into the economy by buying long-
The US QE2 is intended
term treasury bonds until the end of June 2011 in order to increase money supply in the country’s
to stimulate borrowings
financial system. The move is intended to keep the interest rate at its current lows, thereby stimu-
and thereby domestic
lating borrowings, which in turn would increase domestic spending and support economic growth.
spending to drive eco-
Moreover, the current low level of inflation – lower than the levels which the Fed thinks are com-
nomic recovery
fortable – are also putting the pressure on government to infuse liquidity in order to avoid the
threat of deflation. However, controversies surround the Fed’s policy of using quantitative easing
to stimulate economic growth; whether it is really helping the domestic economy to come out of
the recession is being debated. This is because the excess liquidity, instead of fuelling domestic
spending, is largely being directed towards emerging economies as capital flows since interest
rates are higher in these regions and give increased returns.
According to the Institute of International Finance, net private capital inflows to emerging econo-
Net private capital flows mies are estimated to have been US$908 billion in 2010, which is 50% higher than in 2009. The
to emerging economies huge capital flows are driving inflation, oil and commodity prices higher, and could overheat
are expected to be emerging economies and create asset bubbles. Inflows to China are estimated to have reached an
US$908 billion in 2010 all-time high of US$227 billion in 2010. Net private capital flows in the Latin America are estimated
to have increased 52.7% YoY to US$220.2 billion in 2010 (Source: IIF). Brazil is driving most of the
increase forcing the government to impose capital controls. On the other hand, due to the low
level of interest rates in the US, the Indian rupee is appreciating; this is diminishing the competi-
tiveness of the Indian export sector and widening the current account deficit. The Indian rupee
appreciated by around 5% this year against the US dollar. Moreover, India is financing its current
account deficit through capital flows instead of foreign direct investments. Therefore, a reversal in
capital flows could mean a sharp sell-off of currencies, bonds and equities, creating a liquidity
crunch again. Even as this happens, whether or not it is stimulating economic growth in the US
remains unclear. One way to ensure liquidity for domestic economic activity in the US could be the
country regulating the outflow of capital. This would not only result in utilization of excess cash for
the country’s economic expansion, but would prevent overheating of Asian economies as well.
Threat of uncompetitive currency policies spreads
Sluggish economic recovery has forced consumption-driven economy such as the US to look at
exports as a means to speed up recovery as high unemployment in the country is leading consum-
ers to spend less. Moreover, for other advanced countries, such as Germany, Japan and South
Korea, export is the prime growth engine. Emerging economies such as China and Brazil also rely
on exports.
15
Therefore, to ensure export competitiveness, it is crucial to maintain a weak currency—artificial

devaluation of currencies is, hence, becoming a global strategy. The US administration has been
complaining about the artificially low value of yuan; it perceives this as a deliberate attempt to
Artificial devaluation of
boost Chinese exports. Likewise, continuation of the loose monetary policy and low interest rates
currencies is becoming a
in the US is weakening the US dollar. The roll out of easy money through quantitative easing is
global strategy to
putting further downward pressure on the US dollar. This has, however, caused other currencies
achieve export competi-
such as the yen and those of emerging markets to appreciate sharply against the dollar. The Japa-
tiveness
nese yen, for example, fell to JPY80.4 (per US$) in October 2010, its lowest in the last three years.
The yen’s increasing attractiveness as a safe asset is also one of the reasons for the appreciation
(while the US government debt is primarily owned by foreigners—China and Japan together ac-
count for nearly 50%—Japanese government debt is mainly held by domestic participants). The
Brazilian real too touched BRL1.65 in October 2010 from BRL1.75–1.8 at the start of the year. Nev-
ertheless, to support exporters, the Japanese central bank intervened in the currency market by
buying US dollars to keep the value of the yen down. Central banks in Chile, Colombia, Peru, South
Korea, Russia, Taiwan and Thailand too intervened recently in the currency market in an attempt
to stop the sharp appreciation of their currencies against the dollar.
The primary concern of competitive devaluation is that it could decrease international trade and,
thereby, lower global growth. Another fear is unstable capital flows, i.e., ‘hot money’ flows from
countries with loose monetary policy (e.g. the US) to high-growth economies (such as Brazil and
Unstable capital flows
South Korea). The issue is that these capital flows can be pulled out easily, destabilizing banking
from countries with loose
and financial markets. Countries such as Brazil, China, Taiwan, Thailand, South Korea and Indone-
monetary policy to high
sia are using capital controls to limit inflows. Thailand, for instance, introduced a tax on foreign
growth emerging mar-
holdings of government bonds to curb destabilizing capital inflows amid fears of a global currency
kets pose another con-
war. Brazil too tripled the IOF tax on foreign investment in bonds to 6% in 2010 and is considering
cern
various other measures to tackle the excessive capital flows. South Korea is also considering meas-
ures such as imposing a withholding tax on foreigners' purchases of Korean treasuries, and a levy
on banks; and further tightening of banks' exposure to foreign exchange derivatives.
Threat of asset bubbles and inflation across Asia
Emerging Asian economies face the risk of overheating as the region’s growth rate is expected to
outpace that of the rest of the world. In the IMF World Economic Outlook, October 2010, the GDP
growth rate for developing Asia is projected at 9.4% for 2010 and 8.4% for 2011, higher than the
CPI in India reached 9.7% estimate for overall emerging & developing economies at 7.1% and 6.4%, respectively. Asian coun-
in October 2010, while in tries, which earlier pumped in billions of dollars and cut the interest rate to fuel lending activities,
China; it touched 5.1% in are now reversing the strategy to remove excess cash from the economies to stabilize growth and
November 2010 rein in inflation. The CPI in India reached 9.7% in October 2010, while in China, it touched 5.1% in
November 2010, the highest in the last two years. Despite a decrease in inflation in India from
16.2% in February, inflationary pressures persist due to domestic demand and higher global com-
modity prices. The RBI increased the repo policy rate, in steps, by a cumulative 125 basis points to
6.25% in October 2010 to contain inflation. To check the rising inflation, the Chinese central bank
too raised the interest rate for the first time in about three years to 5.56% in October 2010; the
second time, it was increased to 5.69% in December 2010. Economies, including South Korea and
Hong Kong, are also witnessing a rise in asset prices, consumer credit and corporate loans aided by
record low interest rates and government stimulus.
16
Exhibit 15: India – Interest rate & inflation, (%) Exhibit 16: China – Interest rate & inflation,(%)
7.0 18 8 10
6.0 16 7 8
14 6
5.0 6
12
5
4.0 10 4
4
3.0 8 2
3
6
2.0 0
4 2
1.0 2 1 -2
0.0 0 0 -4
Jan-08 Dec-08 Nov-09 Oct-10 Jan-08 Dec-08 Nov-09 Oct-10
Interest rate Inflation Interest rate Inflation
Source: tradingeconomics.com
Yet another factor causing concern is the spillover of excess liquidity from Western countries in
the form of significant capital flows to Asian countries, such as China and India, which could lead
to asset bubbles. In April 2010, the IMF too warned that Asia is attracting capital inflows that may
cause the region to overheat and create asset bubbles. The hot money has inflated the Indian
Property prices in China market to an all-time high. The Indian benchmark index, the Sensex, surged 104.61% from
rose almost 24% in 2010 9,708.50 points in March 2009 (when the US first injected US$1 trillion through quantitative eas-
ing) to 19,930 in November 2010. The Sensex touched the 20,000 mark in September 2010 for the
first time since December 2007, returning to its pre-crisis level. According to Guangzhou Daily,
property prices in China rose almost 24% in 2010. The NDRC property price index indicates that
property prices recorded their highest YoY increase, above pre-crisis levels, in April 2010. To cool
the property market, China implemented tighter regulations to reduce banks’ exposure to poten-
tially risky property loans, and other direct measures such as increased minimum down payments,
lower loan-to-value ratios, and higher mortgage rates for second homes.
Exhibit 17: China property prices – NDRC property price index (% YoY change)
16
12
-4
Aug-05 Mar-06 Oct-06 May-07 Dec-07 Jul-08 Feb-09 Sep-09 Apr-10 Nov-10
Source: Bloomberg
17
The longer the period of The results were somewhat visible in the decline in the YoY increase in property price during Au-
monetary loosening and gust–November 2010. The roll out of the US Fed’s second round of quantitative easing is again
low interest rates, the expected to boost capital flows to Asian economies. Therefore, the formation of the asset bubble
higher the likelihood of depends on how the recovery in Western economies takes shape; the longer the period of mone-
Asia entering an asset tary loosening and low interest rates, the higher the likelihood of Asia entering an asset bubble.
bubble
International trade gains momentum in 2010 after previous year’s slug-
gishness
Revival in Chinese and German exports
China and Germany led exports growth in 2010 as economic recovery boosted global demand.
China surpassed Ger-
With exports totaling US$1.2 trillion in 2009, China surpassed Germany to become the largest
many to become the
exporter in the world. In 2010, China recorded the fastest exports growth in three years. The coun-
largest exporter in the
try’s import & export totaled US$2677.3 billion during January–November 2010, representing a
world in 2009
YoY growth of 36.3%. China’s exports contributed 53.2% (US$1423.8 billion) to total trade during
that period, depicting a YoY increase of 33%. In November 2010, the country’s exports rose 34.9%
YoY to reach a value of US$153.3 billion. During the first quarter of 2010, orders from the US,
European Union and Japan accounted for almost half of the growth.
Germany also registered an increase in exports to a number of euro area countries. The country’s
import & export grew 20.0% YoY to €1614.5 billion during January–November 2010; exports con-
tributed 54.4% (€877.8 billion) to total trade during that period. In November 2010, German ex-
ports stood at €88.0 billion, up 21.7% YoY.
Despite global economic recovery providing crucial impetus to German exporters, the third quar-
ter of 2010 was marked by slackened momentum in exports. In real terms, exports of goods rose
by a seasonally adjusted 31 2% on the quarter. During the first two months of the third quarter of
2010, exports to China (which grew very quickly in the first quarter) were not able to fully maintain
the previous quarter’s high-level momentum. Growth in exports to the US was also markedly
lower compared to the first half of 2010. Overall, demand from foreign customers during the year
remained focused on intermediate and capital goods.
Emerging Asia driving import growth this year
Rapid growth in emerging Asia over the last decade has had a significant impact on the global
Developing Asia ob- economy. In 2010, developing Asia contributed significantly to the increase in world exports; the
served the highest region also observed the highest change in imports. The International Monetary Fund (IMF) esti-
change in imports in mates the sector to grow by 22.4% in 2010 from the previous year’s level, primarily led by rapid
2010 industrialization. Advanced economies maintained its position of net importer in 2010, with cur-
rent account balance of US$110.1 billion; however, the region observed an increase of just 11.3%
in imports compared to the previous year – about half of that reported by developing Asia. Europe
emerged as a net exporter after two years, with a current account balance of US$21.3 billion in
2010. Like advanced economies, Europe observed far less change in international activity (imports
rose only by 9.1%) in 2010 compared to developing Asia.
18
Trading activities of commodity producers improve in 2010
Initial period of the year 2008 was marked by significant shifts in world energy prices after a sharp
rise in the prices of other commodities. However, with the emergence of global credit crisis, com-
Prices of agricultural modity prices collapsed during late 2008 and most of 2009. Nevertheless, the year 2010 witnessed
products increased for steady increase in all commodity groups. Non-energy commodity prices grew for the fifth straight
the sixth straight month month in November 2010 (up 3.4%) despite slight strengthening of the dollar. Crude oil prices
5.3% in November 2010 increased 3.4% in November, a fourth consecutive monthly rise. Prices of agricultural products as a
whole increased 5.3% in November, up for the sixth straight month. Base metal prices rose con-
secutively for five months; prices increased 0.8% in November.
Commodity producers were the largest beneficiaries of upward trend in prices. Trade levels of
commodity producers recouped from the lows of 2009. The highest shift in the 2010 terms of
trade (as estimated by the IMF) was observed in the MENA region (10.8%) – much of this can be
attributed to the significant increase in crude oil prices. This was followed by Sub-Saharan Africa
(9.4%), a major producer and exporter of most commodities, including agricultural products, oil,
precious metals and industrial metals. Not surprisingly, the two regions also observed the maxi-
mum downward shift in 2009 (-17.5% for MENA and -12.4% for Sub-Saharan Africa).
Outlook on the global economy

US: Unemployment and deficit reduction to confine growth
Unemployment rate in the US has remained close to 10% for the past one year. The figure is not
expected to come down soon, which can be a barrier to the country’s economic growth in the
coming year. In its World Economic Outlook, October 2010, the IMF estimated the US unemploy-
ment rate to average 9.6% in 2011; it is not expected to come down to the historical 5% level until
The US unemployment 2015. Persistent high unemployment, stagnant wages resulting into a weak consumer spending
rate is expected to aver- (constituting almost 70% of the US economy) is expected to keep the US economic growth sub-
age 9.6% in 2011 and is dued. Federal deficit and record high national debt are other threats to the country’s economy.
not expected to come According to the IMF, the country’s general government gross debt is estimated at 92.7% of GDP
down to the historical 5% in 2010, the highest since World War II. Moreover, the US president recently passed a US$858
level until 2015 billion tax-cut bill to encourage the ailing economy. This is expected to further raise debt burden
on the country. Loss of tax revenue has already forced many state and local governments to cut
services and lay-off workers. Increased debt level can force the government to implement deficit
reduction measures in the near-term, thus posing a risk to economic growth in the coming year.
The IMF has forecasted the US economy to grow at 2.3% in 2011, 0.6% lower than its earlier esti-
mate (July 2010 report).
Eurozone: Periphery economies remain a concern
Fiscal imbalances and subdued economic activity in periphery economies (Greece, Ireland, Portu-
Greece’s economy is
expected to contract gal, Italy and Spain) pose the greatest near-term threat to economic recovery in the Eurozone. In
2011, Greece’s economy is expected to contract 2.6%, while Portugal’s economy is forecasted to
2.6%, in 2011
decline 0.05%. Spain, Italy and Ireland also exhibit weak economic prospects for 2011. Strong ac-
tivity in Germany and France is the only symbol of hope for a steady Eurozone economic growth in
2011.
19
According to the IMF, in 2011, Germany and France (two of Eurozone’s largest economies) are
expected to expand by 2.2% and 1.6%, respectively. However, substantial exposure to government
debts of Greece, Portugal, Ireland, Italy and Spain is a major risk for European economies. Fiscal
consolidation and austerity measures to reduce debt burden in periphery economies point to fee-
ble overall growth in future. According to the IMF, Euro area is expected to record a growth rate of
1.5% in 2011, lower than the 1.7% in 2010.
Emerging economies: Growth may lower as policy tightening takes effect
After witnessing rapid economic recovery, emerging economies are expected to see a slight mod-
eration in economic activity in 2011 as Asian countries adopt monetary tightening measures to
contain inflation. According to the IMF projections, the Chinese economy is expected to expand by
9.6% in 2011, after growing 10.3% in 2010. India’s economic growth is also expected to slow to
8.4% in 2011 from 9.7% in 2010. Moderation in economic activity is expected in the light of tighter
quantitative limits on credit growth; measures to cool the property market and limit exposure of
Moderation in economic banks to this sector; and planned unwinding of fiscal stimulus in 2011. Commodity exporters Aus-
activity is expected in the tralia, Indonesia and New Zealand are expected to maintain their economic growth momentum.
light of tighter quantita- Australian economy is expected to expand by 3.5% in 2011, higher than 3% in 2010. Similarly, In-
tive limits on credit donesia and New Zealand are expected to grow by 6.2% and 3.2%, respectively, in 2011 (compared
growth to 6% and 3% in 2010). The Latin America and the Caribbean region may record slower growth due
to tighter monetary policies. MENA and African countries are likely to benefit from higher energy
prices. The IMF estimates the overall growth of emerging and developing economies at 6.4% in
2011, lower than 7.1% in 2010. Overheating, inflation and high capital flows remain near-term
concerns for emerging economies.
Outlook on key issues

Structural reorganization of economies to begin
With the pace of economic recovery gradually gaining momentum, countries such as China and
the US are forced to reassess their economic policies. The recent global economic crisis has ex-
posed China’s dependence on exports to fuel economic growth. This makes the country more vul-
nerable to slowdown in the US and Europe. Similarly, as the US had debt-driven consumption pat-
tern, liquidity-strapped consumers were suddenly denied access to borrowing amid the credit
crunch. Being a consumption-driven economy, the US suffered the most due to reduced consumer
spending. Hence, the US would be required to focus more on increasing exports and investment in
order to drive the economy away its large dependence on debt-ridden consumption pattern. China
as well as other export-driven Asian countries would need to adopt economic policies and strate-
gies that rely less on exports to the west. China is therefore feeling the need to stimulate domestic
household consumption and reduce dependence on exports.
Commodity prices to continue rising
The uptrend in commodity prices is expected to continue led by sustained demand from emerging
Demand for agricultural
and developing economies. Major commodities such as gold and oil are expected to remain strong
commodities too is likely
in 2011. Demand for agricultural commodities too is likely to outstrip supply, keeping prices high.
to outstrip supply, keep-
Major factors driving food prices high are tightening of inventory levels, limited supply and strong
ing prices high
demand from emerging markets, notably China.
20
Growing importance of agricultural innovation
Food security has become an important global agenda amid soaring food prices and growth in
population worldwide. According to the UN Food and Agriculture Organization, food production
must increase 70% in order to feed 2.3 billion more mouths by 2050. One way of achieving this is
Food production must through greater innovations in agriculture, as natural resources are finite and the land area avail-
increase 70% in order to able for farming is limited; modern techniques would help expand productivity in every facet of
feed 2.3 billion more agriculture. However, this requires massive and continuous investments in technological advance-
mouths by 2050 ments, towards building the appropriate infrastructure, and in training programs to help farmers
access updated information and markets. Some of latest initiatives in this regard are being carried
out in Africa. The Improved Maize of African Soils (IMAS) Alliance brings together foundations,
national research institutions, international donors and the private sector in a program to develop
new maize varieties that use fertilizers more efficiently. Similarly, researchers at the University of
Bern have recently teamed up with those in the private sector to explore ways to improve the
yield of tef, the most important cereal crop in Ethiopia. Furthermore, an innovative program in
Kenya, involving a mobile phone application payment system and automated weather stations,
offers insurance against financial losses if the crops are ruined by drought or floods. More such
initiatives are required to increase food security.
Necessity of investments in renewable and nuclear energy
With demand for energy increasing globally, especially in emerging economies, amid constrained
supplies, prices are likely to keep rising. Consequently, production rates are increasing; moreover,
resources are finite, which raises questions about the sustainability of conventional energy sup-
plies. Considering that conventional energy sources are increasingly becoming unaffordable and
scarce, the need to develop alternate energy resources is urgent. Renewable and nuclear energy
Europe aims to increase resources must be developed rapidly as greater economies of scale can make their implementa-
the share of renewable tion economically viable. Legislative barriers too should be reduced to facilitate the development
energy to 20% in the of renewable energy projects, the required infrastructure and technology. Advanced economies
total energy consump- such as the US, Germany, Spain and Denmark are ahead in the development of alternative energy
tion by 2020 resources such as solar and wind. However, emerging economies are far behind in terms of invest-
ment in renewable energy. Significant investments are required to implement renewable energy
projects, but technological advancements and economies of scale can considerably reduce the
cost of electricity generation in the medium to long term. Many governments have announced
plans to diversify their energy mix by utilizing alternate energy resources, and have set targets for
the consumption of alternative energy. For example, Europe aims to increase the share of renew-
able energy to 20% in the total energy consumption in the region by 2020.
Greater flexibility in emerging market currencies needed
The lack of flexibility of the Chinese yuan’s exchange rate against the US dollar has been a source
Greater appreciation of
of conflict lately. Currencies in other emerging markets are driven by market forces—a deprecia-
the yuan is required to
tion of the US dollar results in a sharp appreciation of the currency in these countries. However,
eliminate global trade
the Chinese Yuan changes only little due to the lack of flexibility. Countries such as Brazil, Chile,
imbalances
Colombia and Peru as well as fast-growing, developed economies such as Australia and South Ko-
rea face large pressure of currency appreciation. This is hurting their export and import-competing
sectors, principally agriculture and manufacturing.
21
Consequently, some countries have lost market share to China in exports, especially to the US. This
is forcing these economies to take measures such as currency appreciation, reserve accumulation
and capital controls. These actions could adversely impact competitiveness in trade and dent the
rapid global economic recovery. Therefore, greater appreciation of the yuan is required to elimi-
nate global imbalances and reduce undue exchange rate pressures on fast-growing developing
nations.
22
MENA ECONOMIC MOVEMENTS

MENA economies posted healthy growth in 2010
Reviving global economic activity post the downturn of 2009 has brought forth a stark difference
in growth patterns over the years. In contrast to decades before when global growth was primarily
driven by the advanced economies, this time around it has been emerging economies across Asia
and Latin America that have aided the recovery. While China, India and Brazil have mostly hogged
From 5.0% in 2008, the headlines off late, the Middle East and North African (MENA) region has also been growing
growth for the MENA fast, thereby attracting increasing amount of foreign investment and enjoying ever growing living
region more than halved standards. This has been true for both hydrocarbon-rich countries as well as others in the region.
to 2.0% in 2009 However, toward the end of 2008, growth slowed as the global downturn started having a nega-
tive impact on trade, investments and oil prices. From 5.0% in 2008, growth for the MENA region
more than halved to 2.0% in 2009. Oil exporters faced greater volatility with the GCC countries in
particular witnessing a slump in growth to 0.4% in 2009 compared to 7.0% a year before. On the
other hand, growth for oil importers fell only marginally to 4.6% in 2009 from 4.9% a year before.
Exhibit 18: Real GDP growth rate for different economic blocks (%)
0
2006 2007 2008 2009 2010E 2011E
MENA Oil importers Oil exporters GCC
Source: IMF WEO, October 2010; for MENA updated January 2011 figures have been used
Upward movement in global energy prices aid growth

However, as global growth rebounded last year, so did the fortunes of MENA economies. While
fiscal stimulus played a large role in propping up economic activity in 2009 and well into 2010 as
well, improving fundamentals brought about renewed private sector activity. At the same time,
Fiscal stimulus and rise in
rising international trade with its subsequent impact on higher movement of goods benefited
energy prices played a
countries like Egypt and the UAE. Meanwhile, the rise in energy prices since 4Q09 propped up
large role in propping up
growth for oil exporting countries. Rising economic activity across the world, primarily led by
economic activity in
China, India and Brazil propped up oil demand. Estimates by the International Energy Association
MENA in 2009 and 2010
(IEA) put total oil demand for 2010 at 87.3 million barrels/ day (mb/d), 2.3 mb/d higher than the
figure for 2009. Consequently, according to the IMF, average oil prices rose by as much as 23.3% in
2010, after having fallen by a little more than 36.0% in the previous year.
23
With reviving energy prices, oil exporters in the MENA region witnessed growth shooting up to
Qatar continued to lead 3.8% in 2010. GCC countries fared even better with real GDP for the region expanding by 4.5%.
the pack with a stellar Qatar continued to lead the pack (and the world) with stellar growth of a little less than 16.0%.
growth of around 16.0% Even in 2009, the country had clocked GDP growth of 8.6%, which was in stark contrast to the
slowdown experienced by many countries across the globe. Saudi Arabia, the region’s largest
economy, also saw growth moving up sharply to 3.4% from a mere 0.6% in 2009. Oil importers, yet
again displaying lesser volatility than their energy-rich peers, are estimated to have experienced a
marginally higher growth figure of 5.0%. While Egypt is set to grow at 5.3%, Morocco is expected
to grow by 4.0%. Overall, total MENA GDP is expected to have expanded by 3.9%.
Exhibit 19: Growth in key MENA economies Exhibit 20: Oil prices have revived in 2010
100 80%
30
60%
80
20 40%
60 20%
10
40 0%
0 -20%
20
-40%
-10
0 -60%
2010E
2011E
2012F
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010E
2011E
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Egypt Morocco
Avg crude price (US$ billion)
Qatar Saudi Arabia
Tunisia UAE Annual growth - RHS
Source: IMF
Contribution of the non-oil sector to growth

Despite strong growth over the past decade owing to higher energy prices, oil-rich countries in the
A 5.4% decline in oil real GCC region have tried hard at diversification of their economies. This has become more important
GDP dragged down over- for countries like Bahrain and Oman whose oil reserves are slated to run out in the next decade.
all growth to a mere However, despite significant strides towards developing their non-hydrocarbon sectors, GCC
0.4% in 2009 compared economies are still subject to the vagaries of the world energy markets. The downturn of 2009 was
to 7.0% in 2008 no exception with a 5.4% decline in oil real GDP dragging down overall growth to a mere 0.4%
compared to 7.0% real GDP growth a year before. While highlighting the dependence of these
economies on oil and gas, the downturn however brought forth the encouraging trend of a
stronger non-hydrocarbon sector than a decade before. In fact, in 2009 overall real GDP growth
would have been negative if not for a 3.2% expansion in non-oil real GDP of the region. Much of
the rise in economic activity in the non-oil sector was also a result of fiscal stimulus measures by
respective governments to support growth in the face of sharply falling energy revenues.
24
Exhibit 21: GCC oil & non-oil real GDP growth Exhibit 22: GCC non-oil real GDP growth
9 8.1 40
7.2
5.4 30
6 4.6
3.6 3.8 4.3
2.5 3.5
3 20
1.1 1.1
0 10
-3 0
2006 2007 2008 2009 2010E 2011F
-6 -5.1 -10
2006 2007 2008 2009 2010E 2011F Bahrain Kuwait Oman
Non-oil real GDP Oil real GDP Qatar KSA UAE
Source: IMF
Overall movement in the region’s diversification agenda
Governments over the past decade directed burgeoning hydrocarbon revenues toward building
Special economic zones infrastructure and human resources in order to establish a more diversified economy. Regulations
have been set up to covering banking, real estate and financial services have also been brought in and have been con-
boost re-exports, manu- stantly monitored and updated in order to encourage greater private sector activity. Special eco-
facturing and financial nomic zones have been opened to boost re-exports, manufacturing and financial services. At the
services in MENA same time, the region has been trying to encourage greater investment in the petrochemical sec-
tor in order to exploit its competitive advantage of high oil and gas reserves. Investments in other
energy-intensive industries like aluminum have also gone up. With growing integration within the
bloc, investors in GCC countries now face a wider market and this has become even wider with
trade linkages to the rest of the Arab world and to the rest of the world.
However, there are subtle differences in the direction of diversification of GCC economies. While
some of them like Saudi Arabia have tried to establish sustainable industrial bases, others like the
UAE have been focusing on creating trade, tourism and financial hubs. Even within the UAE there
have been fair amount of diversity in the path to development. However, across the entire region,
there seems to be an increasing focus on developing knowledge centers to induce research and
also to create a pool of human talent that is able to garner the new opportunities arising in indus-
try and services. Interestingly, sectors like renewable energy have also come into focus with Abu
Dhabi taking the lead by going ahead with the creation of the world’s largest sustainable zero-
carbon habitation – Masdar City. The Emirate currently hosts the headquarters of the International
Renewable Energy Association.
SAMA and the UAE Cen-
tral Bank proactively
Institutions have also become stronger over the years. The Saudi Arabian Monetary Authority
ensured liquidity and
(SAMA) and the UAE Central Bank were proactive during the credit crisis by ensuring liquidity and
offered special discount
offering special discount windows. SAMA has also been applauded for its role in enabling the Saudi
windows during the
banking sector to overcome the pitfalls of a real estate bust in neighboring peers in the GCC.
credit crisis
25
Exports aid the revival in economic activity in 2010
MENA oil exporters benefitted from higher energy prices
GCC countries’ exports One of the key ingredients of growth in the MENA region in 2010 was exports. This is more pro-
rose 17.7%YoY in 2010 nounced for hydrocarbon exporters in the region as they suffered from declines in both demand
reversing course from and consequently prices in the global energy market. According to IMF estimates, MENA oil ex-
the 29.8% YoY decline in porters are supposed to have witnessed an 18.8% rise in exports to USD 944.1 billion in 2010. This
2009 is a sharp and encouraging reversal from the massive 30.6% decline in export values in the year
before. The six nations of the GCC, which accounted for an estimated 70.4% of exports from MENA
oil exporters in 2010, saw export growth turn positive during the year – the bloc’s exports rose
17.7% reversing course from the 29.8% decline a year before.
Exhibit 23: Revival in exports in 2010 for MENA countries: annual growth in exports
40%
25% 33%
10% 18%
30% 28% 19% 5% 10% 11% 9%
-5% -31% -12%
-20%
-30%
-35%
2008 2009 2010E 2011F
MENA Oil Exporters GCC MENA Oil Importers
Source: IMF
MENA oil importers also witnessed a change in fortunes on the external sector front though the
pace of recovery in exports was not as much as their energy-rich peers in the region. This is natural
considering the volatile nature of energy prices, which was most evident during the boom of 2008
MENA oil importers saw and the subsequent sharp decline in 2009. Overall for oil importers, exports rose 4.4% to USD 181
exports rising 4.4% YoY billion. Although the figure is a great improvement from the 12.0% decline in 2009, it is neverthe-
in 2010 – large improve- less much lower than the 27.2% growth in export values in 2008. However, export growth for
ment over a 12% YoY these countries is set to accelerate this year to 9.1%. Exports from oil exporters on the other hand
decline in 2009 are set to accelerate much slower this year than in 2010 – total value is set to rise by 9.9% to touch
USD 1037.5 billion.
Improvement in current account balances in 2010
The revival in exports for the MENA region in 2010 has meant an improvement in current account
balances for the bloc. For oil exporters, whose surplus in the current account had fallen sharply to
4.6% of GDP in 2009 from 19.5% a year before, a sharp upturn in energy prices pushed up the
trade balance by about 57.6% in 2010 to USD 186.9 billion. Consequently, the current account
surplus for these countries as a whole went up to 6.7% of GDP for the year and the figure is ex-
pected to go up to 7.8% in 2011.
26
For the GCC, the current account surplus is estimated to have moved up to 10.2% of GDP in 2010
from 8.7% a year before; the figure is expected to move up to 11.2% this year. For oil importers
within the MENA region, reviving exports meant an improvement in the trade deficit – from USD
61.7 billion in 2009 to USD 59.6 billion in 2010. Consequently, the current account deficit improved
to 3.5% of GDP in 2010 from 4.4% in 2009.
Exhibit 24: Current Account balances (as % of GDP) – positive figure denotes surplus
30%
24%
19.5%
20%
10% 11%
9% 7.8%
10% 6.7%
4.6%
0%
-4.7% -3.5% -3.6%
-4.4%
-10%
2008 2009 2010E 2011F
MENA Oil Exporters GCC MENA Oil Importers
Source: IMF
Government finances improved in 2010

Government finances in the MENA region deteriorated during the downturn of 2009 as individual
governments launched fiscal stimulus packages in order to support economic activity. GCC govern-
ments were however best placed during that time to initiate fiscal measures as their balance
sheets looked much healthier than their compatriots. In fact, GCC governments over the years had
Saudi Arabia has reduced been using their energy revenues to reduce overall debt levels and improve their budget balances.
its government debt For example, Saudi Arabia has brought down total government debt from about 77.3% of GDP
from about 77.3% of GDP over 2000-05 to an estimated 16.0% last year. At the same time, Kuwait has reduced government
over 2000-05 to an esti- debt from about 25.2% of GDP to 7.7% over the same period. In fact, debt levels would have been
mated 16.0% last year lower had it not been for higher government support to the economy. In 2010, as governments
withdrew from stimulus measures and saw revenues rise, debt levels fell. For the MENA region as
a whole, general government debt fell from 39.3% of GDP to 34.1%. The reduction in debt levels
was more pronounced in case of oil exporters whose debt levels fell from 27.0% of GDP in 2009 to
an estimated 21.0% in 2010. GCC countries saw their debt levels reduce to 15.5% of GDP from
18.4% over the same period.
27
Exhibit 25: Fiscal balance as a percentage of Exhibit 26: General government debt as a
GDP percentage of GDP
40 80
70
30
60
20
50
10 40
0 30
20
-10
10
-20
0
2006 2007 2008 2009 2010E 2011F
2006 2007 2008 2009 2010E 2011F
Saudi Arabia Egypt Lebanon MENA Oil exporters Oil importers
Source: IMF
Oil revenues aid government finances
In 2010, however, as revenues increased for governments on the back of higher economic activity
and energy exports, fiscal balances improved for oil exporters in the MENA region. Stimulus meas-
Fiscal balances improved
ures which were gradually wound up due to reviving growth also contributed to improving govern-
for oil exporters in the
ment balances. Saudi Arabia, for example, experienced a fiscal surplus of 6.7% of GDP in 2010
MENA region led by
compared to a deficit of 6.1% in 2009. For the UAE, the deficit did not turn into a surplus, but the
higher economic activity
magnitude improved to 2.7% of GDP from 12.4% over the same period. MENA oil importers on the
and energy prices
other hand are not expected to experience the same trends. In fact, for these countries as a
whole, the fiscal deficit is estimated to have deteriorated to 6.3% of GDP in 2010 from 5.4% a year
before. However, the deficit is set to improve for these countries next year. Lebanon however is
expected to follow in the footsteps of oil exporters – its fiscal deficit is estimated to have fallen to
6.3% of GDP last year from 8.5% a year before.
Stage is set for toning down of fiscal stimulus as overall growth takes effect
Reviving economic activity has set the stage for a rollback and toning down of stimulus measures
in MENA economies. Saudi Arabia, which had launched the largest fiscal stimulus package among
G20 countries (20% of GDP) during the global downturn, has already begun unwinding some of its
stimulus measures. For example, Saudi Arabia’s 2011 budget reveal an expenditure hike of 7.4%
Saudi Arabia’s 2011
from the previous year’s estimated amount. This is far lower than the 13.7% hike in budgeted ex-
budget reveal an expen-
penditure for the 2010 budget over the one before that. It is also apparent that the budgeted ex-
diture hike of 7.4% lower
penditure for 2011 is 7.4% lower than the actual expenditure for 2010. This is not a surprise given
than the 13.7% hike in
the fact that oil prices have revived, thereby sprucing up the oil sector of the economy and
2010 budget
through its linkages to the non-oil sector to the overall economic activity of the country. The same
is true of other oil exporting economies as well. These countries are expected to tone down expen-
diture growth, although support to critical projects like infrastructure and economic diversification
are not likely to be toned down any time soon. Even for MENA oil importers, reviving private sec-
tor business activity has meant reduced need for government support. For example, for Egypt,
reviving international trade has meant greater revenues from movement of ships through the Suez
Canal.
28
At the same time, private sector investment has also gone up, thereby lowering the need for con-
tinued widespread government support to the economy.
Inflation edges up in the region

Although renewed growth in MENA countries as well as in the wider world has propped up eco-
The IMF expects inflation nomic sentiments in the region, rising price pressures seem to be emerging as an area of concern.
in the KSA to touch 5.5% Much of this price pressure has come from the supply side with rising international commodity
in 2010 before moderat- prices percolating into higher consumer prices. Saudi Arabia, for example, has seen inflation rise
ing slightly to 5.3% in from about 3-4% in the fourth quarter of 2009 to about 5.8% in October 2010. The IMF expects
2011 inflation in the Kingdom to touch 5.5% in 2010 before moderating slightly to 5.3% in 2011. For the
GCC as a bloc, 2010 annual inflation is estimated at 4.2% and is unlikely to change this year.
Exhibit 27: Average annual inflation figures for the MENA region
20
16
12
0
2000-05 2006 2007 2008 2009 2010e 2011f
MENA Oil Exporters MENA Oil Importers GCC
Source: IMF
Among oil importers within MENA, Egypt would be concerned with rising prices and so would be
Inflation for oil exporters
countries like Morocco and Tunisia. In Egypt, the IMF estimates inflation to have averaged 10.9%
as a bloc is set to decline
in 2010. While a high base effect is expected to moderate the rate of increase in consumer prices,
to 7.7% in 2011 from
the Fund nevertheless expects inflation to be about 9.5% for this year. Interestingly, while oil im-
9.3% in 2010
porters are expected to see inflation rise this year, inflation for oil exporters as a bloc is set to de-
cline to 7.7% from 9.3% in 2010; nevertheless a shock from the supply side could force prices
higher at a much faster than anticipated rate.
29
Exhibit 28: Average annual inflation figures for Saudi Arabia, UAE and Egypt
20
15
10
0
2000-05 2006 2007 2008 2009 2010e 2011f
-5
KSA UAE Egypt
Source: IMF
Rising global food prices romp up imported inflation

Global food prices have risen sharply over the past year with natural disasters in major food pro-
The FAO Food Price In- ducing nations like Australia, Russia and even those like Pakistan contributing to supply shortages.
dex, went up by 24.6% The FAO Food Price Index, which measures the wholesale price of basic foods within a basket,
YoY in December 2010, went up by 24.6% YoY in December 2010, up from 22.1% in the previous month. Apart from two
up from 22.1% in Novem- months in between, annual growth in the index has been in double digits since November 2009.
ber 2010 Soaring food prices are perhaps the foremost area of concern for MENA countries, given that the
region imports more than half of its food needs (World Bank).
GCC countries in particular are heavily reliant on the rest of the world for their food consumption
with agriculture nearly absent due to arid climatic conditions. Consequently, they are often faced
with imported inflation as a result of rising commodity prices. As in the second half of 2010, these
countries faced a similar situation in mid-2008 when they experienced strong upward pressure on
consumer prices due to high global food prices.
Saudi Arabia's food price inflation stood at 8% while for Kuwait the figure was close to 11% in the
Saudi Arabia's food price
final quarter of 2010. Although consumer prices in the UAE are considerably lower, inflation rose
inflation stood at 8%
at the fastest monthly pace in 11 months in August 2010 as food price inflation reached 4.2%.
while for Kuwait it was
Given that five of the six GCC economies are pegged to the US dollar, a weakening dollar and sub-
close to 11% in 4Q2010
sequent investor moves towards commodities since May 2010 has also been pushing the cost of
food imports higher.
30
Exhibit 29: Food related inflation for Egypt; YoY rise in the FAO food index
30
20
10
-10
-20
Sep-09
Dec-09
Oct-09
Nov-09
Feb-10
Apr-10
Jun-10
Jul-10
Aug-10
Sep-10
Dec-10
Oct-10
Nov-10
Jan-10
Mar-10
May-10
Egypt -Food & Bev FAO food Index
Source: Central Bank of Egypt, FAO
Housing related inflation revives in some economies like Saudi Arabia

After witnessing weakening property prices throughout 2009, housing prices are seen reviving in
Housing costs, account- Saudi Arabia once again. In fact, as economic recovery gathers momentum across the wider
ing for 18% of the Saudi MENA region, price pressures are set to strengthen further in the housing segment. Housing costs
inflation basket, has which accounts for 18% of the Saudi inflation basket has recorded a significant jump in recent
grown up 9% in Decem- months, rising 9% in December 2010. The economy has a shortage of dwellings and increasing
ber 2010 domestic revenue along with rising personal income is likely to aggravate the pressure on rents
further. However, some of the measures taken by the government like increased expenditure on
affordable housing could ease housing prices in the near term.
Exhibit 30: Rising rent and food prices in Saudi Arabia prop up consumer prices
25
20
15
10
-5
Dec-07
Dec-09
Oct-07
Feb-08
Apr-08
Jun-08
Aug-08
Dec-08
Oct-08
Feb-09
Apr-09
Jun-09
Aug-09
Oct-09
Feb-10
Apr-10
Jun-10
Aug-10
Dec-10
Oct-10
General Index Food Housing
Source: SAMA
Though global downturn had reduced inflationary pressure across the region from the record high
of 2008, rising price pressure is once again seen in the oil exporting countries.
31
Housing and transporta- Housing and transportation cost is steadily rising in the Arab economies. Although the growth
tion costs are gradually outlook for the MENA region remains positive, inflation in the region is expected to rise further
rise in the Arab econo- due to rising global food prices and shortage in residential housing. The recovery in domestic de-
mies mand is likely to further push the prices northwards.
Money and credit markets

Like central banks across the world, those in the MENA region played a significant role in stabiliz-
ing money markets and boosting confidence in the banking sector. To a large extent, the GCC
countries (barring Kuwait) have had to keep tune with the loose monetary policies of the US Fed
The Central Bank of the due to their currencies’ peg to the US Dollar. Even in Kuwait, the central bank almost always fol-
UAE, supported Dubai lows Fed policies as the Kuwaiti Dinar is pegged to a basket of currencies where the US Dollar is
when the Emirate’s sov- estimated to have a more than 80% share. While the mirroring of Fed policies had come under
ereign debt came under severe criticism in mid-2008 when Gulf countries had to lower rates under rising inflation, the
threat in 2009-10 same policy helped them in stoke money supply growth and thereby provide boost to the econ-
omy during the downturn. However, this in no way takes the credit away from central banks in
these countries in their countering the credit crisis. Central banks across the GCC and in the wider
MENA region responded to the crisis by providing special liquidity windows, lowering reserve re-
quirements and monitoring effectively the overall banking and financial sector. SAMA in particular
has come in for praise from analysts as they credited it with creating the right regulatory frame-
work which helped the Kingdom avoid the pitfalls of a real estate bust as witnessed in neighboring
UAE. In all fairness to the Central Bank of the UAE, it had also reacted aggressively to the crisis and
perhaps its greatest achievement came in the form of support to Dubai when the Emirate’s sover-
eign debt came under threat in 2009-10.
Monetary policy remains moribund in the absence of any Fed movement

Post the crisis however monetary policy seems to have remained stagnant with not much moves
expected from GCC central banks. Interest rates are not expected to rise anytime soon even as
Monetary policies in the inflation edges up in most economies. A large reason for this is the absence of any expected move-
GCC countries have re- ment by the US Fed to tighten monetary policy this year. The Fed did not deviate (over 2010) of
mained stagnant due to keeping its policy rate within the range of 0.0-0.25% and is not expected to do so in the near fu-
lack of policy movement ture as well, especially with unemployment near double digits and any further fiscal stimulus look-
by the Fed ing impossible. Instead, the Fed reacted recently with its second round of quantitative easing
worth USD 600 billion in order to drive investment and consumption. For other countries in the
MENA region which do not mirror the Fed, movement on monetary policy would be closely
watched. Some central banks would be aware of inflationary pressures in the economy, especially
with the threat of rising food and raw-material prices percolating down to overall consumer prices.
Egypt, for example, has the one of the highest interest rates in the region (11.4% in 2010) and the
central bank is expected to tighten policy over the current year as inflation continues to edge up-
ward. After adopting a monetary loosening policy since January 2009, the pressure is back on the
Central Bank of Egypt to drive interest rates up. However, both governments and central banks
would be wary about doing so aggressively, especially with global growth facing downside risks of
subdued economic sentiments in Europe and inflation bubbles in Asia.
32
Exhibit 31: Liquidity has returned to money markets in 2010
5.0
4.0
3.0
2.0
1.0
0.0
Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10
3M LIBOR 3M SAIBOR 3M EIBOR MOBRIM
Source: Bloomberg
Improvement in money market liquidity

Interbank offer rates in the MENA region have significantly eased from the high levels reached
M2 growth in Saudi Ara- during the financial crisis of 2008 suggesting that overall confidence in the region’s money markets
bia, stabilized in 2010, up have improved. The abundance of bank reserves and low interest rates regime in the region has
around 6% YoY after ensured ample liquidity condition in these economies. Money supply in the MENA region im-
being on a downward proved in 2010, which is likely to play an instrumental role in the region’s business cycle recovery.
trend since end-2008 A slow recovery in bank credit to the private sector has been a strong factor supporting the re-
gion’s domestic growth. As in many countries around the world, fiscal policy has been the main
support to pump in liquidity in the region. For example, in Saudi Arabia, broad money (M2) growth
stabilized in 2010, expanding at around 6% YoY after being on a downward trend since end-2008.
The primary reason for this was the lack of robust bank lending to the private sector as banks pre-
fer to park money as reserves. However, government’s efforts to diversify and strengthen the non-
oil private sector and to set up separate funds for easy availability of credit to the private sector
has fueled growth in the economy. Bank lending also remains in positive territory, registering a
growth of 2.6% YoY growth in November, indicating signs of revival. In the UAE, the government
tried to stabilize the economy by shifting the focus on investment opportunities away from real
estate and finance towards trade, logistics, aviation, and tourism. The government also encour-
aged the establishment of start-up companies by facilitating and cutting the cost of doing busi-
ness.
33
Exhibit 32: M2 growth has picked up since the middle of 2010
25%
20%
15%
10%
5%
0%
Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10
KSA Kuwait Egypt
Source: Bloomberg
Is credit growth enough to stimulate sustainable consumption growth?

One of the major impacts of the global financial crisis on the Middle East and North Africa (MENA)
Credit growth in the region has been a sharp slowdown in the region’s credit growth to the private sector. Most of
MENA region has picked these countries (Qatar, the United Arab Emirates, Saudi Arabia) experienced a credit boom prior to
up from a low of over 4% the crisis, wherein credit growth surpassed its historical trend by a sufficiently large amount. An-
in end-2009 to around nual credit growth has picked up somewhat in the MENA region, with the outlook for private sec-
7% in June 2010 tor credit set to improve further on the back of recent progress on Dubai World's debt restructur-
ing. According to analysts, credit growth in the MENA region has picked up from a low of just over
4% in end-2009 to around 7% in June 2010. However, it is still far away from the 32% growth
achieved right before the global financial crisis.
Exhibit 33: Credit growth has picked up once again in key MENA economies
45%
35%
25%
15%
5%
-5%
Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10
Lebanon (YOY) Saudi (YoY) Qatar (YOY)
Source: Bloomberg
34
Egypt is witnessing sig- In Egypt, there has been a significant slowdown in credit growth for private sector activity. This
nificant slowdown in would worry policymakers as reviving growth in the private sector is critical to sustain growth,
credit growth of private especially in the wake of expected tightening of government budgets in the country. Credit to non-
sector government entities has in fact been declining on a monthly basis since May 2010 with YoY growth
only a little over 1.0% in September 2010. In January 2010, YoY growth had stood at 8.2%.
Outlook for the MENA economy 2011

The upturn in global economic activity is expected to benefit the MENA region as countries gain
from improved fundamentals. While flow of investments from abroad are set to increase, greater
Oil exporters are set to trade and financial flows are set to benefit private sector activity. At the same time oil exporters
record a 5.5% growth in look set to garner the benefits of rising energy prices as global demand increases, backed by
real GDP in 2011, up strong growth in emerging markets and increased pace of economic activity in the US. Conse-
from 3.8% in 2010 quently, oil exporters are set to record a 5.5% growth in real GDP in 2011, up from 3.8% in 2010.
Oil importers though are expected to see GDP growth decline to 4.4% this year, as governments
try to reign in deficits by reducing stimulus measures. Nevertheless growth is expected to prop up
in the coming years as countries improve their balance sheets and initiate greater reforms towards
encouraging the private sector. GDP growth for the MENA bloc is expected to go up to 4.6% in
2011 from 3.9% the year before.
Exhibit 34: IMF forecasts for GDP growth in key MENA economies
20 18.6
16
12
9.3
8
5.5 5.7
4.6 4.7 4.3 5.0 4.5 4.4 4.8 5.0
3.9
3.2
4
0
MENA Egypt Morocco Qatar KSA Tunisia UAE
2011 2012
Source: IMF
Post debt related fears, UAE is set to post strong growth in 2011
The UAE economy shook off negative vibes emerging from Dubai’s sovereign debt concerns and a
Oil real GDP for the UAE real estate bust to post steady growth in 2010. Overall confidence in the economy received a shot
is set to rise 3.4% in 2011 in the arm with Dubai World’s debt restructuring plan winning the support of creditors in the sec-
to from 3.0% in 2010 ond half of 2010. The rise in oil prices was of course a key ingredient to growth last year and is set
to continue in 2011 as well. The country also drew the benefits of being a trade hub (especially
Dubai) as reviving world trade flows boosted its earnings from re-exports. Oil real GDP for the
country is set to rise further in 2011 to 3.4% from 3.0% in 2010. By complementing a growth of
3.1% in non-oil real GDP, overall GDP growth is set to rise to 3.2% in 2011 from 2.4% in 2010.
Growth however would continue to be lower than the average GCC growth of 5.1% in 2011.
35
Exhibit 35: Oil and non-oil GDP contribution in the UAE
100%
80%
64% 66% 67% 63%
75% 71%
60%
40%
20% 36% 34% 33% 37%

25% 29%
0%
2000-05 2006 2007 2008 2009 2010E
Oil GDP Non-oil GDP
Source: UAE central bank
Expansion of the Saudi economy will continue to keep pace

Recent rise in oil prices is Given the greater dependence of the Saudi Arabian economy on oil, the recent rise in oil prices is
likely to benefit the likely to benefit the Saudi Arabia economy more than the UAE. While economic growth in the
Saudi Arabia economy Kingdom increased to 3.8% in 2010 from 0.6% in 2009, this is set to increase further to 4.5% in
more than the UAE due 2011. While the oil sector is expected to grow at a pace of 4.3%, the non oil sector is expected to
to its greater depend- grow at a rapid pace of 4.6% in 2011.
ence on oil
Exhibit 36: Government expenditure was critical in boosting non-oil growth in 2009-10
46 44.5 5.2
42.8
42 40.7 4.8
38 4.4
34.4
34 4.0
32.1 32.0
30.8
30 3.6
2005 2006 2007 2008 2009 2010 E 2011 E
Government Expenditure (% of GDP) Non-oil real GDP growth (%)-RHS
Source: IMF
Saudi government is
Higher government spending to diversify the economy has been the main driver of growth in the
increasing capital spend-
non-oil economy. The Saudi government in the last three budgets has focused on increasing capi-
ing to the tune of
tal expenditures to the tune of SAR741 billion in infrastructure projects to spur growth in the econ-
SAR741 billion in infra-
omy as private sector activity continues to remain weak given the slow growth in credit since the
structure projects to fuel
end of 2008.
growth
36
Going forward, expectations of higher oil prices, continued government spending, healthy mone-
tary base and a low interest rate regime are expected to push the GDP growth rate to 4.5% in
2011. The hydrocarbon and the non hydrocarbon sectors are expected to grow at 4.6% and 4.3%,
respectively.
Strong growth expected for Qatar

Qatar has been the fastest growing economy in the world since quite some time now. In fact, even
Qatar expected to bene-
when global downturn was at its peak in 2009, it grew at an astounding pace of 8.6%. Given
fit immensely from its
Qatar’s immense reserves of natural gas, the nation is likely to benefit immensely by the recent
huge natural gas re-
uptrend in energy prices. According to the estimates of Qatar National Bank, the oil and gas sec-
serves
tors accounted for over half of Qatar’s GDP in 2010. The government has recently devoted more
resources to the development of new liquefied natural gas and gas-to-liquid technology produc-
tion facilities thus setting the stage for sustainable high growth.
Given the expectations of a rise in oil and gas price, strong liquidity condition and the low interest
rates, the economy is poised to remain the fastest growing economy, with a GDP growth rate of
above 18% in 2011. In fact, the government’s massive spending plans to the tune of USD100 bil-
lion, around 87% of GDP, on non hydrocarbon mega projects is likely to increase the share of non
hydrocarbon sector to the nation’s nominal GDP to 49% in 2011.
Exhibit 37: Qatar has the highest oil real GDP growth (%) in MENA region
30 26
23 23
21
20
14
8 8
10 7
4 4 5 3 4 3 3 2 4 3 4
2 1
0
-1
-4 -3 -3
-10 -7
-10
-11
-20
2000-05 2006 2007 2008 2009 2010E 2011F
Qatar Oman UAE Kuwait
Source: IMF
Outlook for key themes
Government debt set to decline; current accounts to strengthen

In oil exporting countries in the MENA region, a rise in oil revenues and a winding down of fiscal
Qatar expected to bene-
stimulus measures would lead to a decline in government deficit and debt levels this year. In fact,
fit immensely from its
government debt which fell sharply in 2010 for these economies is set to decline further to 19.4%
huge natural gas re-
of GDP in 2011. For GCC countries, government debt in 2011 is expected at 13.3%, down from
serves
15.5% of GDP in the previous year. While the level of government debt in Saudi Arabia is expected
at 11.0% of GDP this year, for UAE the figure is likely to be 21.6%.
37
Government debt for Oil importers are also set to witness a fall in government debt levels this year due to reviving
MENA oil importers is growth. However, levels will continue to be higher than those of energy-rich peers in the region.
expected to decline to As a whole, government debt for MENA oil importers is expected to decline to 62.0% of GDP in
62.0% of GDP in 2011, 2011, lower than the 63.5% figure for last year. While the figure for Egypt this year is expected at
lower than the 63.5% in 71.7% of GDP, for Lebanon it would still amount to more than GDP at 137.5%. However, continued
2010 instability due to political tensions could send debt levels higher as economic activity suffers and
governments are forced to raise expenditure in order to support growth.
Exhibit 38: General government debt is set to go down this year
100 89.6
75.4
80 69.1
64.7 63.9 63.5 62
60 49.7
40
29.9 24.3 27
21.1 21 19.4
20
0
2000-05 2006 2007 2008 2009 2010e 2011f
Oil exporters Oil importers
Source: IMF
On the current account front, given the increase in oil prices the IMF estimates oil exporting coun-
tries in the MENA region to witness a rise in their current-account surpluses. Overall, the current
Oil importing economies
account surplus for oil importers is expected to touch 7.8% of GDP in 2011, up from just 4.6% in
are estimated to witness
2009. Meanwhile, oil importing economies within the region are estimated to witness a current
a current account deficit
account deficit of 3.6% of GDP this year.
of 3.6% of GD Pin 2010
Gulf Monetary Union not likely this year
One of the casualties of the global downturn of 2008-09 has been the Gulf Monetary Union
(GMU), which was expected to have seen the light of day in 2010. However, more than economic
reasons, it was the disagreements on a more political level that has been stalling moves towards a
Disagreements on a
common currency. The UAE’s sudden pullout from the proposed GMU had more to do with its
more political level has
displeasure at not being chosen as the host nation for the common central bank for the union. At
been stalling moves to-
present, no agreements appear to be in sight and Saudi Arabia does not look to be in any mood in
wards a common cur-
acceding to UAE’s wishes. At the same time, there is no probability of Oman moving back into the
rency
GMU fold, although the country has been solid behind moves to strengthen and implement the
GCC customs union (in which it is still a member).
Currency peg is likely to continue
Just as a monetary union does not look probable in the near term, any change in monetary policy
is also not expected.
38
While 2007-08 witnessed repeated calls by economists for adopting a more flexible exchange rate
policy, this no longer seems to be the dominant cry. At that time, a weak US Dollar to which almost
all countries in the GCC peg their currencies had led to imported inflation while at the same time
rendering monetary policy ineffective in countering inflationary pressures. The problem was com-
prehended by different stage of the business cycle in the US and in the GCC with the US Fed (with
whom GCC central banks mirror policies due to the peg) slashing rates to stimulate growth while
inflation peaked in the GCC. However, the clamor for a change in the pegged exchange rate died
down with the global downturn with the Dollar regaining ground (given the attractiveness of US
Treasuries as a safest asset).
At the same time, any hopes of a move to peg GCC currencies (except Kuwait) to a basket of cur-
rencies have also died down. The Euro has suffered on account of instabilities in the Eurozone due
GCC countries’ monetary
to the sovereign debt crisis in the region. In fact, critics have questioned the sustainability of the
policy will continue to
Eurozone itself, though this does not seem likely. Consequently, GCC countries are not expected to
remain dependent on the
change from their fixed exchange rate regime any time soon and so their monetary policy will
US Fed
continue to remain dependent on the US Fed. A review of policies would have been possible had
the GMU come into force or moves towards it would have gathered paced. In the absence of nei-
ther, no change in policy is expected. Even though Kuwait keeps its currency pegged to a basket,
the Dollar which is estimated to account for more than 80% is set to continue its dominance in the
basket.
Greater intensity in trade negotiations with other countries/ economic blocs
A number of countries are currently in trade negotiations with MENA economies. Trade between
Trade between the GCC the GCC and China has increased 40% between 1999 and 2004, which led to a comprehensive free
and China grew 40% trade agreement in June 2004. In April 2007, China and the UAE signed a memorandum of under-
between 1999 and 2004, standing to strengthen economic relations between them. GCC economies are seen holding dia-
resulting into a free logues with the ASEAN nations to establish free trade agreements (FTA) with them. So far the GCC
trade agreement in June has signed a free trade agreement (FTA) with Singapore and is discussing similar agreements with
2004 Japan, India and Pakistan. The ongoing negotiations between the GCC and the EU are also likely to
gather pace, though a conclusive agreement does not look likely in the near term.
39
OVERVIEW OF MENA EQUITY AND DEBT MARKETS

Movements in MENA capital markets in 2010
Percolation of global and regional economic growth to equity markets
MENA countries’ impressive macroeconomic performance in 2010 led primarily by higher oil prices
From 5.0% in 2008, as well as positive global economic environment translated into revival of the region’s capital mar-
growth for the MENA kets. Most MENA equity markets recovered in the year with seven of the thirteen major regional
region more than halved stock indices ending positive. However, this performance was hurt by several regional and interna-
to 2.0% in 2009 tional issues such as concerns regarding debt restructuring, inadequate corporate governance and
liquidity problems following the Dubai debt crisis. Moreover, uncertainty about the pace of global
economic recovery and the emergence of Eurozone debt crisis had an impact on regional stock
markets.
Exhibit 39: Performance of regional equity markets
78%
58%
38%
18%
-2%
-22%
Dec-09 Mar-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10
ADX Ammam SE Bahrain SE Beirut SE
Casablanca SE Damascus SE Dubai FM Egypt SE
Kuwait SE Muscat SE Qatar SE Saudi SE
Tunis SE
Source: Zawya
Relative performance of equity markets in the region
Seven major indices in the MENA region emerged strongly in 2010 and ended in the green. Syria’s
Damascus Securities Exchange index outperformed the regional indices and posted a 72% gain
over the past year. The country’s encouraging economic performance amid higher oil prices
boosted investor interest. Strong interest in initial public offerings (IPOs)—most of which were
Syria’s stock index out- heavily oversubscribed—also supported the solid momentum in 2010. The stock market is, how-
performed the regional ever, still in its nascent stage (in the second year of operation) with only 18 companies listed on
indices by gaining 72% the exchange. Qatar recorded the strongest economic growth in 2010 globally; its DSM20 index
over the past year surged 25% in the year. Buoyed by the uptrend in energy prices, the petrochemical and fertilizer
sectors grew remarkably during the year. The banking sector also posted robust performance,
thereby supporting the stock market rally. The news of Qatar’s winning bid to host the Football
World Cup 2022 came during late 2010; this further boosted investor sentiment.
40
Indices of Morocco’s Casablanca Securities Exchange and Tunisia’s Tunis Stock Exchange added
21% and 18%, respectively, in 2010 due to encouraging economic performance. Egypt’s stock in-
Higher energy prices
dex posted a solid gain of 15% over the previous year. Strong performance by the country’s bank-
supported the growth in
ing sector and positive outlook for the construction sector supported the rally. According to the
petrochemical sectors in
Finance Minister, Egypt aims to boost its annual infrastructure budget to EGP100 billion over the
some of MENA markets
next five years. Saudi Arabia’s TASI increased 8%, while Oman’s MSM30 added 6% in 2010. Strong
gains in Saudi Arabia’s petrochemical sector due to increased commodity prices led the rally. The
market heavyweight SABIC (Saudi Basic Industries Corporation) gained 27% over the previous year.
Oman benefited from high energy prices that supported growth in the energy sector, as well as
from robust gains in its banking sector.
Six MENA markets ended 2010 in the red. Lebanon’s Beirut stock market was the worst performer
Both DFM and ADX indi- with a loss of 13% in the year. The market was hard hit by global selling pressures amid growing
ces underperformed the uncertainties over the Eurozone debt crisis. Dubai’s Dubai Financial market index (DFM) followed,
market due to concerns down 9.6% due to concerns over the Dubai debt crisis. Positive news on the Dubai World debt
over the Dubai debt crisis restructuring came in September 2010; however, indices in both the UAE markets, Abu Dhabi Ex-
change (ADX) and DFM, closed negative as investors remained concerned over the financial health
of companies affected by the Dubai debt crisis and liquidity in the market. Two other GCC markets,
Kuwait and Bahrain, registered losses. The Kuwait stock market index was down 0.7% in 2010,
while the Bahraini market ended with a 1.8% loss over the previous year.
Sectors driving as well as weighing down markets
The banking and financial services sector emerged as the undisputed winner in MENA in 2010,
driven by strong returns in the banking sector in six of the nine markets covered in our analysis
(please refer exhibit 26). Egypt’s banking sector posting the strongest returns of 76%. The Qatari,
Kuwaiti and Moroccan banking sectors also registered robust gains during the year. Morocco’s
mining sector recorded the highest gain of 128%, while Qatar’s insurance sector added an impres-
sive 68% over the past year.
Exhibit 40: Best performing sectors (by coun- Exhibit 41: Worst performing sectors (by coun-
try), 2010 try), 2010
Services (MSM) 0% 7% Services (Qatar)

Telecom (ADX) 8% -11% Banks (Muscat)
Petroch (Saudi) 17% -16% Real estate (Kuwait)

Consumer (DFM) 21% -16% Telecom (Egypt)
Hotels (Bahrain) 22% -17% Investment (Bahrain)

Banking (Kuwait) 42% -17% Beverages (Morocco)
Insurance (Qatar) 68% -27% Media & Publ (Saudi)
Banks (Egypt) 77% -46% Real Estate (ADX)

Mining (Morocco) 128% -59% Utilities (DFM)
0% 50% 100% 150% -70% -35% 0% 35%
Source: Respective exchange websites

41
The utilities sector on the DFM posted the largest loss of 59% in 2010. However, overall, real es-
tate was the worst performing sector during the year with four of the nine markets covered re-
porting losses. The sector was hurt by some of the largest losses posted by the UAE developers
such as Aldar and Union Properties. As a result, the ADX real estate index recorded the highest
decline of 46% in 2010. Saudi Arabia’s media & publishing sector registered a loss as high as 27% in
the year.
Other key features pertaining to equity market

Has liquidity improved this year?
Thin liquidity conditions in the MENA region failed to exhibit much improvement, notably in the
UAE markets following the Dubai World debt crisis. The sell off followed by the news that govern-
ment-owned Dubai Holdings is considering a six month debt freeze severely hurt market senti-
ment. Lack of information concerning the Dubai issue worsened conditions. The UAE markets,
which include the two domestic bourses DFM and ADX, were the worst performers among Gulf
The value of shares peers as lack of institutional participation impacted liquidity. Turnover and trading volumes on the
traded on the DFM DFM and ADX slumped since the 2008 financial crisis and debt issues among Dubai-based con-
dropped 59.8% YoY to glomerates limited foreign institutional participation in the markets. A sharp fall in trading vol-
AED69.7 billion in 2010 umes caused equity brokerages in the region to struggle with low revenues and rising costs. The
value of shares traded on the DFM during 2010 declined 59.8% to AED69.7 billion compared to
AED173.5 billion in 2009. The number of shares traded decreased 65.3% to 38.4 billion shares
from 110.7 billion in 2009. The number of transactions executed during 2010 fell 60% to 0.79 mil-
lion compared to 1.984 million deals the previous year. Similarly, the value of shares traded on the
ADX in 2009 fell 69.83% to AED69.98 billion from AED231.96 billion in 2008. This reflected the
liquidity pressures in the market. These conditions persisted in 2010 as the total value of shares
traded on the ADX declined 50.6% to AED34.58 billion over the past year. Stock markets in the
UAE require additional liquidity from government funds to counter slumping volumes and muted
investor activity. Sectors driving as well as weighing down markets.
Valuations
An analysis of PE and P/BV multiples of major MENA exchanges shows that there has not been a
Qatar, Egypt and Saudi
major shift in terms of valuations. However, improvement in corporate performance has mostly
Arabia boast attractive
led to lower multiples. Qatar, Egypt and Saudi Arabia particularly look attractive. Qatar boasts the
valuations due to rela-
second highest per capita income globally with a double-digit GDP growth estimate for 2011. Rela-
tively low multiples
tively low multiples in the country are likely to draw investors.
42
Exhibit 42: Market PE, 2009–10 Exhibit 43: Market P/BV, 2009–10
Tunis 14.7 2010 Tunis 2.0 2010

Saudi 14.4 Saudi 2.0
2009 2009
Qatar 11.6 Qatar 2.2
MSM 12.6 MSM 1.8
Kuwait 20.1 Kuwait 1.7
Egypt 10.8 Egypt 1.5
DFM 10.9 DFM 0.8
Damascus 23.0 Damascus 2.8
Casablanca 20.3 Casablanca 4.5
BSE 12.2 BSE 1.2
ADX 9.4 ADX 1.1
Ammam 21.7 Ammam 1.6
0 10 20 30 0 2 4 6
Source: Zawya
Debt market performance

Government contribution to debt market offerings in the year
As regional economies return to growth path and equity markets recover swiftly, debt markets in
the MENA region also stage a comeback. According to MEED, US$23.9 billion worth of bonds were
According to MEED,
estimated to be issued in MENA in 2010. Qatar led with US$7billion worth bond issues, followed
US$23.9 billion worth of
by Dubai (US$4.3 billion). Debt markets exhibited a strong rebound from the events of 2009. Cor-
bonds were estimated to
porate and sovereign MENA bond yields declined during 2010 as market conditions improved and
be issued in MENA in
Dubai World reached a restructuring deal with creditors for US$25 billion of debt. Corporations are
2010
increasingly tapping the bond market as banks remain reluctant to lend. Besides, the popularity of
bonds as a vehicle to refinance maturing project loans is on the rise. Emaar Properties, the UAE’s
largest property developer, raised US$500 million through the sale of convertible bonds, while
Qatar Islamic Bank (QIB) received orders for US$6 billion as it sold US$750 million of Islamic debt.
Governments in the region are fast utilizing this instrument to finance big-ticket public infrastruc-
ture projects. The Dubai government sold US$1.25 billion worth of bonds in October 2010. In
terms of sukuk issuance, corporate sukuks staged an impressive recovery to seven in 2010 from
just three in the past year. On the contrary, sovereign and quasi-sovereign sukuk issuances during
the period dropped to 25 from 29 and one from two, respectively. Overall, debt markets in MENA
are recovering from the shockwaves of global and regional financial meltdowns with the encourag-
ing signs of increased corporate sector participation.
43
Exhibit 44: Type of sukuk issued in MENA, 2006–10
32 29
26 26 25
24
24 21
16 14 14
7
8
3 3
2 2 2 1
0
2006 2007 2008 2009 2010
Sovereign Quasi Sovereign Corporate
Source: Zawya
Is the Dubai debt crisis still putting downward pressure on markets?
The Dubai debt crisis had a far-reaching impact on regional debt markets, primarily in terms of
shaken creditworthiness of debt issuers in the region, thereby resulting in negative investor confi-
Several bond issues were
downgraded in 2009 as dence. Several bond issues were downgraded in 2009 as Dubai World delayed its debt repayment
plan; this triggered concerns over the possibility of the largest default by a government since Ar-
Dubai World delayed its
debt repayment plan gentina’s debt troubles in 2001. However, improved credit ratings on recent bond issuances by
state-owned companies indicate better creditworthiness in the region and a recovery in regional
debt markets after almost two years. Credit rating agencies recently upgraded the status of several
bonds issued by major state-owned companies such as the Dubai Electricity and Water Authority
(Dewa) and MB Petroleum, a major supplier of oil field services in Oman. In late October 2010,
Standard & Poor’s raised the rating on US$2 billion notes issued by Thor Asset Purchase, the Cay-
man Islands entity that issues debt for Dewa, to investment grade BBB- from junk status BB+. Im-
proved credit rating is mainly ascribed to Dewa’s strong results in 1H2010 and better cash flow, as
stated in the ratings report.
MB Holding, a family-owned company in Oman, was newly assigned a B credit rating with a posi-
tive outlook and scope for an upgrade if a planned bond issuance proceeds well. The subsidiary
MB Petroleum Services received its own new rating—also with a positive outlook—for a proposed
US$350 million bond issue designed to extend its debt maturity profile and improve liquidity. The
subsidiary reported debt of about US$367 million as of June 30, 2010; however, Standard & Poor’s
said it believed that weaknesses were partly offset by the firm’s strong domestic position in
Oman’s oil field services sector.
Higher market liquidity
and increase in compa- A subsidiary of International Petroleum Investment in Abu Dhabi, established specifically to issue
nies’ ability to refinance US$2.5 billion in bonds, was assigned a solid AA rating led by the company’s affiliation with the
debt portfolios are posi- Abu Dhabi government. Thus, improvements in market liquidity and increase in companies’ ability
tively impacting credit- to refinance debt portfolios with higher corporate results are positively impacting creditworthiness
worthiness in the region in the region.
44
Is a sukuk revival underway?
The number of sukuk issuances in the MENA region reduced to 33 in 2010 from 34 the previous
year. However, this decline is less steep compared to the 2008–09 period, thereby indicating that
recovery is underway. By country, Malaysia continued to dominate the global sukuk market with
72.3% of the total issuance value in 9M2010, followed by Indonesia (10.3%) and Saudi Arabia
Global sales of Islamic
(9.1%). An upswing in corporate spending, growing number of issuers seeking to diversify their
bonds are forecast to rise
sources of funding and improving investor sentiment in the region are expected to drive fundrais-
around 60% to more
ing activities in 2011. According to Reuters’ quarterly poll, global sales of Islamic bonds are fore-
than US$22 billion in
cast to rise around 60% to more than US$22 billion in the year. Qatar Islamic Bank and National
2011
Bank of Abu Dhabi launched sukuk sales in recent months; the Dubai government, Saudi Arabia’s
civil aviation authority, Gulf Investment Corporation and Saudi International Petrochemical Com-
pany are also expected to enter the market. A major chunk of sukuk issuance in 2011 is likely to
emerge from issuers in Malaysia and the Middle East, while the US, Singapore and Indonesia are
also expected to contribute. Banks, governments and companies in the infrastructure, real estate
and energy businesses are likely to be the main issuers.
Exhibit 45: Total Number and value of Sukuk issued in MENA region, 2006-2010
32 29
26 26 25
24
24 21
16 14 14
7
8
3 3
2 2 2 1
0
2006 2007 2008 2009 2010
Sovereign Quasi Sovereign Corporate
Source: Zawya
Outlook for equity markets in 2011

Sectors to watch out for
Education
MENA is fast realizing the need to invest in its education sector as the shortcomings of unavailabil-
The equation industry in ity of skilled personnel seems to limit its diversification initiatives. The region’s growing focus to
Saudi Arabia is the larg- upgrade the education sector offers lucrative growth opportunities. According to a research report
est in the GCC region “Saudi Arabia Education Forecast to 2013”, the equation industry in Saudi Arabia is the largest in
GCC and is growing at one of the fastest rates among prominent education hubs in the Middle
East. The budget allocation for education and manpower development in Saudi Arabia reached
SAR137.6 billion in 2010 from just SAR96.7 billion in 2007.
45
The sector has been consistently capturing more than 25% share of KSA’s total budget expendi-
ture, which is among the highest in the world. Besides Saudi Arabia, other GCC and MENA coun-
tries are increasingly investing in the education sector in MENA, thereby boosting its outlook in the
near term.
Healthcare
Lifestyle as well as social & cultural changes and growing standard of living in the MENA region are
causing modifications in food habits, thereby increasing the incidences of lifestyle-related ail-
ments. This has led to a rise in diabetes and cardiovascular and obesity-related illnesses to record
Pharmaceutical market
levels, putting further pressure on regional healthcare providers. According to organizers of the
in KSA is forecasted to
36th Arab Health Congress and Exhibition, healthcare spending in the Middle East is expected to
increase at a CAGR of
triple to US$60 billion annually and hospital bed count is estimated to double to 162,000 over the
5.66% from 2008 to
next 15 years. Moreover, Saudi Arabia ranked the largest among 17 healthcare markets across the
US$3.49 billion by 2013
Middle East and Africa, establishing KSA as one of the most lucrative healthcare markets. Its phar-
maceutical market alone is forecasted to increase at a compound annual growth rate (CAGR) of
5.66% to US$3.49 billion by 2013 from US$2.65 billion in 2008. Hence, the overall outlook for the
MENA region’s healthcare sector appears bright in the coming years.
Alternative energy
Alternative energy represents another lucrative investment opportunity in MENA, given the re-
gion’s increased focus to develop substitutes for traditional energy sources. As conventional en-
ergy becomes increasing scarce and unaffordable, its preservation is especially important for
MENA countries considering their huge economic dependence on hydrocarbon reserves. Countries
across the region are actively looking to implement energy efficient systems, and have even con-
ducted studies in the field of renewable energy resources as well as in the implementation of en-
ergy saving systems in street lighting, water pumping stations and for electricity generation. Sev-
eral MENA countries have set targets to achieve renewable energy generation in the coming years,
thereby attracting greater investment and enhancing the sector’s outlook in future.
Outlook for debt markets in 2011
Will the government and/or public sector continue to drive debt markets?
Huge infrastructure and development needs in MENA are expected to drive governments across
Huge infrastructure and the region to raise funds efficiently and cost-effectively—mainly through debt markets. As GCC
development needs in countries invest heavily in infrastructure, which according to estimates requires about US$2.3
MENA to drive govern- trillion in financing, it is opportune to raise this funding through debt securities. However, there
ments raise funds has also been higher corporate interest in the regional debt market. This is because the debt mar-
through debt markets ket emerged as an attractive financing alternative in the wake of the financial crisis when access to
liquidity was limited and bank lending almost ceased. Losses in MENA equity markets and the pro-
hibitive cost of long-term bank borrowing amid the global liquidity crunch have also supported a
substantial increase in debt market activity.
46
Hence, there has been a significant rise in demand for the Middle East corporate bonds from insti-
tutional and high net worth investors. Relatively faster economic recovery in the region combined
with improving risk appetite of portfolio investors is driving demand for emerging market bonds.
Hence, although we believe large-scale public sector investments are expected to play a crucial
role in the near-term debt market development, corporate sector participation in the overall debt
market is on the rise.
Outlook for sovereign risk
A broadly positive macroeconomic outlook coupled with improving investor sentiment for global
Energy price stability,
emerging markets stands to benefit the MENA economies going forward. Energy price stability,
strong banking sector
strong banking sector asset growth and significant new capital investments are among other posi-
asset growth and signifi-
tives. There may be some risk to ability to pay as adverse financing conditions could result in lower
cant new capital invest-
-than-expected real GDP growth forecasts. However, the impact on global emerging markets is less
ments reduce risk com-
severe than initially assumed, as evidenced by the rapid bounce in MENA markets.
ponent for MENA
Scenario for secondary trading
The MENA region’s secondary debt market is still developing as reflected from its small presence—
The bond market has moreover, only in certain MENA countries such as Saudi Arabia and the UAE. Lack of trading activ-
been highly inaccessible ity clearly reflected from the sukuk and bond trading trend on Tadawul has restricted growth of
to regional retail inves- this market in MENA. Several factors together make it a strong case to develop the secondary
tors due to lack of secon- bond market in the region. Institutional investors have typically been able to invest in MENA bond
dary trading platforms issuances so far. The bond market has been highly inaccessible to regional retail investors due to
lack of secondary trading platforms. Furthermore, volumes are extremely low even in exchanges
where bonds are traded. The development of an efficient secondary bond trading platform could
lead to better price discovery of fixed income instruments. In addition, the mix of bonds with dif-
ferent maturity profiles would assist in creating a yield curve, which the region lacks currently.
47
Exhibit 46: Key Performance Indicators
3M Avg.
Price Benchmark
Current Current Dividend EBIT mar- Net mar- Daily
Name of the company ROE (%) change 1 Index change
PE PB Yield (%) gin (%) gin (%) Volume
year (%) 1 year (%)
(mln)
Al Rajhi Bank 3.98 18.39 3.75 NA 57.04 22.55 1.52 7.1 1.6
Almarai Co 3.94 20.00 2.16 21.06 16.15 18.95 0.30 18.3 1.6
Attijariwafa Bank 3.45 14.04 1.41 NA 25.90 17.97 0.13 54.4 15.6
Barwa Real Estate Co 1.37 9.68 5.58 NA 34.48 11.02 1.75 27.2 27.6
Commercial Bank of Qatar 1.62 12.69 7.79 NA 43.31 10.05 0.31 39.5 27.6
Commercial International Bank Egypt 2.70 13.93 2.06 NA 44.86 20.37 1.65 15.0 (14.3)
DP World 1.52 21.86 135.54 17.64 14.38 5.04 7.09 48.5 1.7
Emaar Properties NA 4.56 NA 26.86 19.19 NA 11.26 3.9 (1.7)
Etihad Etisalat 2.43 9.18 3.72 27.20 32.63 39.40 1.44 16.7 1.6
Emirates Telecommunications 2.38 11.19 3.14 17.29 21.05 18.87 0.99 4.7 (1.7)
First Gulf Bank 1.01 6.46 2.76 NA 54.94 14.52 0.64 8.5 (1.7)
Industries Qatar 4.06 11.74 3.37 43.02 46.94 29.48 0.41 31.1 27.6
Masraf Al Rayan 2.50 11.83 0.00 NA 87.17 17.20 2.96 88.0 27.6
Mobile Telecommunications Co 2.09 22.59 12.32 34.65 26.54 12.33 7.84 16.9 (11.8)
National Bank of Kuwait 2.20 16.35 2.86 NA 62.08 14.75 3.31 26.3 (11.8)
Orascom Construction Industries 2.81 18.01 5.24 15.36 12.54 20.14 0.19 14.1 (14.3)
Qatar Electricity & Water Co 5.15 10.57 4.64 40.00 38.63 41.01 0.08 30.7 27.6
Qatar Islamic Bank 2.04 12.99 5.78 NA 87.21 19.20 0.39 6.2 27.6
Qatar National Bank 2.92 12.70 3.57 NA 71.86 26.53 0.22 48.3 27.6
Rabigh Refining & Petrochemicals Co 2.77 94.23 NA -0.24 0.41 2.64 2.72 (25.8) 1.6
Riyad Bank 1.35 14.13 4.96 NA 51.40 10.62 0.46 (3.9) 1.6
Saudi Basic Industries Corporation 2.58 14.56 1.45 24.94 22.12 19.76 4.61 18.5 1.6
Saudi Arabian Fertilizers Co 6.75 13.62 9.39 69.19 78.73 62.51 0.21 37.4 1.6
Samba Financial Group 2.07 12.43 3.06 NA 57.77 14.21 0.28 3.9 1.6
Saudi Arabian Mining Co 1.38 NA NA 4.90 -34.12 -1.56 4.50 43.7 1.6
Saudi Electricity Co 1.16 25.37 4.96 6.58 -4.54 -2.33 3.61 24.1 1.6
Saudi Kayan Petrochemical Co 1.85 NA NA NA N/A -0.11 10.97 2.7 1.6
Savola Group 2.11 18.04 NA 2.63 0.36 0.11 0.60 (19.8) 1.6
Telecom Egypt 1.01 9.31 4.68 22.84 18.41 11.46 0.75 26.6 (14.3)
Yanbu National Petrochemicals Co 3.56 16.01 NA 28.69 29.32 31.50 1.94 21.6 1.6
Source: Reuters Knowledge
48
COMPANY PROFILES
Al Rajhi Bank
Key statistics Shareholding
Sector: Banking Public 50.10%

Price – 16 Feb 2011 SAR78.75 Sulaiman A. S. Al Rajhi 19.90%
Market Cap (mn) SAR118, 125.00 Saleh A. S. Al Rajhi 14.20%
Price 52wk High/Low SAR86.50/72.00 Foreign ownership limit 49.00%
Ticker: Bloomberg/
RJHI:AB/ 1120.SE Shares Outstanding 1,500.00 mn
Reuters
Exhibit 47: Share Price Chart – 1 year (in SAR)
85
80
75
70
65
Feb-10 Apr-10 Jul-10 Sep-10 Nov-10 Feb-11
Source: Zawya
Business Description
Riyadh-based Al Rajhi Bank, founded in 1957, is one of the largest Islamic banks in the world. The
banks has a 13% market share by total assets (SAR170 billion or US$45 billion) in Saudi Arabia. Al
Rajhi is engaged in banking and investment operations in accordance to the Sharia principles.
The bank offers its services through two divisions: Personal Segment (accounting for 69.6% of the
total revenues) and Business Segment (contributing the rest). The Personal division covers current
accounts, affluent accounts, and private accounts through its Accounts sub-division as well as car
finance, real estate finance, personal finance, and credit cards through its Financing Solutions sub-
division. The Business division offers cash management, finance products, small- to medium-sized
enterprises (SME), and trade finance products through its Corporate Banking sub-division as well
as treasury services through its Treasury sub-division.
Al Rajhi has a network of over 500 branches, over 100 dedicated ladies branches, more than 2,500
ATMs, 18,000 POS terminals installed with merchants, and 130 remittance centers worldwide.
49
The bank offers its products and services in Saudi Arabia, Latin America, North America, Europe,
Africa, and Asia-Pacific.
Financial performance
For the nine months ended September 30, 2010, Al Rajhi's gross finance income (GFI) increased
1.4% to SAR6.9 billion owing to an 11.3% higher GFI from retail, a 5.8% rise in corporate GFI, and a
66.6% up in the GFI of investments, offsetting a 66.9% decrease in treasury GFI. Total customer
deposits and other customer accounts went up 13.2% y-o-y to SAR141.6 billion and total finance
provided increased 5.4% y-o-y to SAR119.3 billion. Total operating income rose 0.5% marginally to
SAR8.8 billion for the nine months ended in 2010 due to an increase in other operating income
and exchange income, offsetting lower investment income. Net income fell 3.7% to SAR5.1 billion
owing to a lower operating income, and a rise in depreciation and amortization, and general and
administrative expenses.
Comments/Outlook
The bank intends to expand into new geographic markets. In August 2010, Al Rajhi established a
branch in Kuwait, where it provides all banking products and services to individuals and compa-
nies. In the same year, the bank has completed all the official approvals to carry out banking activ-
ity in the Kingdom of Jordan; this will be the third market Al Rajhi enters after Malaysia and Kuwait
in the framework of plans for overseas expansion according to its strategy. The bank is currently
working on the selection and processing of a number of branches that will be distributed to the
cities in Jordan. Al Rajhi aims to add 90 new branches during 2010–12, and to have 546 branches
by 2012. The bank’s asset quality remains healthy; the loan loss provisions as a percentage of gross
loans increased marginally for the nine months ended at September 30 from 0.89% in 2009 to
0.91% in 2010.
Financials
Exhibit 48: Income Statement (in SAR million)
2006 2007 2008 2009 9M2010

Interest Income, Bank 10,342 10,182 11,504 12,076 8,967
Interest on Deposit 0 0 0 0 0
Interest on Other Borrowings 0 0 0 0 0
Others 0 0 0 0 0
Total Interest Expense 0 0 0 0 0
Net Interest Income 10,342 10,182 11,504 12,076 8,967
Loan Loss Provision 253 443 1,227 1,761 1,362
Net Interest Inc. After Loan Loss Prov. 10,089 9,739 10,277 10,315 7,605
Non-Interest Expense, Bank (2,788) (3,290) (3,750) (3,548) (2,502)
Net Income Before Taxes 7,302 6,450 6,527 6,767 5,103
Provision for Income Taxes 0 0 0 0 0
Net Income After Taxes 7,302 6,450 6,527 6,767 5,103
50
Exhibit 49: Balance Sheet (in SAR million)
2006 2007 2008 2009 9M2010

Cash & Due from Banks 11,415 14,842 15,108 13,390 5,156
Other Earning Assets, Total 2,209 2,578 3,110 2,562 22,974
Net Loans 89,563 104,876 142,287 151,595 150,126
Property/Plant/Equipment, Total - Gross 3,244 4,040 4,663 4,919 0
Accumulated Depreciation, Total (1,223) (1,449) (1,795) (1,737) 0
Property/Plant/Equipment, Total - Net 2,022 2,591 2,868 3,182 3,267
Total Assets 105,209 124,887 163,373 170,730 181,523
Accounts Payable 2,360 0 0 0 0
Total Deposits 79,012 95,349 126,643 128,964 146,705
Other Bearing Liabilities, Total 1,875 1,875 1,875 0
Other Liabilities, Total 1,782 4,056 7,824 13,025 5,802
Total Liabilities 85,029 101,280 136,341 141,989 152,507
Common Stock, Total 6,750 13,500 15,000 15,000 15,000
Retained Earnings (Accumulated Deficit) 13,430 10,106 12,032 13,741 14,016
Total Equity 20,180 23,606 27,032 28,741 29,016
Total Liabilities & Shareholders' Equity 105,209 124,887 163,373 170,730 181,523
Exhibit 50: Cash Flow Statement (in SAR million)
2006 2007 2008 2009 9M2010

Cash from Operating Activities 9,993 19,880 2,849 5,203 4,609
Cash from Investing Activities (10,093) (16,626) (630) (619) (344)
Cash from Financing Activities (450) (2,700) (2,550) (6,375) (4,500)
Net Change in Cash (550) 553 (331) (1,791) (235)
Net Cash - Beginning Balance 6,850 6,300 6,853 6,522 16,113
Net Cash - Ending Balance 6,300 6,853 6,522 4,731 15,878
51
Almarai Co
Sector: Agriculture & Food Industries Savola Group Company 29.90%
HH Prince Sultan Bin

Price – 16 Feb 2011 SAR102.75 Mohammed Bin Saud Al 28.60%
Kabir
Market Cap (mn) SAR23,632.50 Public 27.41%
Price 52wk High/Low SAR117.00/84.25
Foreign ownership limit 49.00%
Ticker: Bloomberg/
ALMARAI AB/2280.SE Shares Outstanding 230.00 mn
Reuters
120
110
100
90
80
Source: Zawya
Almarai Company, established in 1976, is a Saudi-based company engaged in the production and
distribution of consumer food and beverage products.
The company's main business segments are Dairy & Juice, Bakery, Poultry, and Arable and Horti-
culture. The dairy, fruit juice and related food business is operated under the brand name Almarai;
products are manufactured in Saudi Arabia and the UAE. Bakery products are manufactured and
traded by Western Bakeries Company Limited and Modern Food Industries Limited under the
brand names L'usine and 7 Days, respectively. Poultry products are manufactured and traded by
Hail Agricultural Development Company (HADCO) under the brand name ALYOUM. Almarai ac-
quired Western Bakeries in 2007 and HADCO in 2009.
Saudi Arabia contributes more than 70% to the company’s revenues, followed by the UAE (10.5%),
Kuwait (5.8%), Oman (5.0%), Qatar (4.3%) and Bahrain (2.3%).
52
Almarai’s revenues rose 18.1% y-o-y to SAR6,930.9 million in 2010, mainly driven by the growth in
poultry products (295.8%), bakery products (32.9%), fruit juices (20.2%), and long-life dairy prod-
ucts (17.1%). The company’s gross profit margin fell 40 basis points to 39.5% in 2010, led by higher
raw material costs (particularly feedstock and juice concentrate). Almarai’s net income increased
17.2% to SAR1,285.4 million in 2010 compared to the previous year. As a result, the company’s
EPS stood at SAR5.59 for 2010 versus SAR4.97 in 2009.
Comments/Outlook
Almarai is targeting annual turnover of SAR15.0 billion by 2015. To achieve this goal, the company
would need to expand its top line at a CAGR of 17.0% over the next five years. Almarai recorded a
CAGR of 25.9% in top line over 2006–10. The company would primarily focus on the Dairy & Juice
and Bakery businesses to achieve this growth. In 2010, sales of Dairy & Juice business stood at
SAR5,910.1 million, while that of Bakery business stood at SAR873.1 million.
The company’s management expects the feed, packaging, dairy commodities and juice input costs
to remain high in 2011. It plans to closely monitor this situation, going forward. The management
may increase prices in an attempt to mitigate the impact of higher costs.
Financials
2006 2007 2008 2009 2010

Total Revenue 2,757 3,770 5,030 5,869 6,931
% Change 28.5% 36.7% 33.4% 16.7% 18.1%
Cost of Sales 1,682 2,277 3,031 3,503 4,195
Gross Profit 1,075 1,493 1,999 2,366 2,736
Margin % 39% 40% 40% 40% 39%
Selling/General/administration expenses
540 713 938 972 1,132
total
Depreciation/Amortization 0 0 0 114 144
Other Operating Expenses, Total 0 0 0 0 0
Operating Income 535 781 1,061 1,279 1,460
Margin % 19% 21% 21% 22% 21%
Interest Inc.(Exp.),Net-Non-Op., Total 0 0 0 (2) (6)
Other, Net (56) (95) (125) (148) (121)
Net Income Before Taxes 479 686 935 1,129 1,333
Net Income After Taxes 465 668 911 1,100 1,307
Net Margin % 17% 18% 18% 19% 19%
Minority Interest (0) (1) (1) (3) (22)
Net Income 465 667 910 1,097 1,285
EPS 2.32 3.06 4.18 4.97 5.59
53
2006 2007 2008 2009 2010

Cash and Short Term Investments 68 138 247 508 241
Total Receivables, Net 150 252 319 376 443
Total Inventory 431 734 1,097 1,219 1,299
Prepaid Expenses 71 115 91 79 170
Other Current Assets, Total 6 1 7 0 7
Total Current Assets 726 1,240 1,760 2,182 2,160
Property/Plant/Equipment, Total - Gross 4,352 5,739 7,386 10,205 12,174
Accumulated Depreciation, Total (1,306) (1,697) (2,043) (3,188) (3,538)
Goodwill, Net 0 549 549 793 793
Long Term Investments 0 471 489 963 958
Other Long Term Assets, Total 0 35 40 32 24
Total Assets 3,772 6,336 8,181 10,987 12,571
Accounts Payable 234 362 350 428 646
Accrued Expenses 157 196 0 0 0
Notes Payable/Short Term Debt 111 182 511 396 546
Other Current liabilities, Total 13 28 428 617 687
Total Current Liabilities 514 768 1,289 1,440 1,878
Long Term Debt 1,277 2,409 3,133 3,981 4,301
Minority Interest 0 0 14 17 52
Other Liabilities, Total 82 105 128 166 206
Additional Paid-In Capital 0 612 612 1,601 1,601
Retained Earnings (Accumulated Deficit) 898 1,351 1,915 2,632 2,233
Total Equity 1,898 3,053 3,617 5,383 6,134
2006 2007 2008 2009 2010

Cash from Operating Activities 630 740 1,016 1,802 2,005
Cash from Investing Activities (824) (1,488) (1,572) (1,711) (2,189)
Cash from Financing Activities 221 818 665 170 (84)
Foreign Exchange Effects 0 0 0 0 0
Net Change in Cash 26 70 109 261 (267)
Net Cash - Beginning Balance 42 68 138 247 508
Net Cash - Ending Balance 68 138 247 508 241
54
Attijariwafa Bank
Sector: Banking Groupe ONA 15.24%
Financière
Price – 16 Feb 2011 MAD424.50 d'Investissements 14.74%
Industriels et Immobiliers
Market Cap (mn) MAD81,898.50 Public 14.24%
Price 52wk High/Low MAD480.00/269.00
Ticker: Bloomberg/
ATW MC/ATW.SE Shares Outstanding 193.00 mn
Reuters
Exhibit 55: Share Price Chart – 1 year (in MAD)
500
450
400
350
300
250
200
Source: Zawya
Morocco-based Attijariwafa Bank is a financial and banking group having a network of 1,874
branches, 4.3 million customers and operations in 22 countries, including France, Belgium, Spain,
Italy, Germany, Tunisia and Senegal. Its banking activities include personal and professional bank-
ing, corporate banking, investment banking and international banking. Attijariwafa Bank also of-
fers real estate investment guidance, insurance and banking services through its subsidiaries such
as Wafa Immobilier, Wafa Assurance, Wafasalaf, Wafabail, Wafacash, Wafa LLD and Attijari Factor-
ing Maroc.
Attijariwafa Bank is Morocco’s largest bank and the third-largest in Africa. It was established in
September 2004 after a merger between Banque Commerciale du Maroc and Wafabank. The bank
had 12,817 employees as of June 2010. It operates through a network of 615 ATMs and 624
branches in Morocco.
55
For the six months ended 30 June 2010, Attijariwafa Bank's total interest income grew 12.9% y-o-y
to MAD6.8 billion, driven by increased volume of loans granted to clients and financial institutions.
Net interest income after loan loss provision grew 27.5% y-o-y to MAD3.9 billion. Net income rose
15.1% y-o-y to MAD1.9 billion, benefitting from higher fees and commissions income, and operat-
ing non-banking income.
Comments/Outlook
The Attijariwafa Bank group plans to increase its presence in West Africa by opening new
branches. It is also looking to expand in Europe and enhance its reputation as one of the most
reliable and flexible banks in the region. Growing consumer spending and inward investment have
bolstered Morocco's economy in recent years, which has been further boosted by state-backed
infrastructure projects and tourism. The bank has strategic plans in place for 2012, where it fo-
cuses on developing the network of retail banking in Morocco, improving small-sized enterprise
management and financing of small enterprises, and consolidating its leadership position in the
field of investments, corporate and investment banking. The bank also aims to position itself as a
facilitator of economic and social development, establish new service quality standards, and grow
internationally with focus on the African continent.
Financials
Exhibit 56: Income Statement (in MAD million)
2006 2007 2008 2009 1H2010

Total Interest Expense 2,554 3,121 4,215 4,930 2,494
Loan Loss Provision 3 659 632 988 330
Non-Interest Income, Bank 5,649 6,420 7,635 9,602 4,534
Non-Interest Expense, Bank (6,393) (7,420) (8,466) (9,115) (5,053)
Provision for Income Taxes 1,471 1,165 1,862 2,277 1,128
Net Income 2,267 2,454 3,118 3,941 1,941
EPS (Basic) 11.75 12.72 16.16 20.42 10.06
56
Exhibit 57: Balance Sheet (in MAD million)
2006 2007 2008 2009 1H2010

Total Investment Securities 19,984 20,827 25,844 26,130 24,732
Net Loans 113,097 140,764 179,176 206,234 214,812
Property, Plant and Equipment, Total - Net 2,972 3,283 4,330 4,490 4,378
Goodwill, Net 3,890 4,091 5,055 6,409 6,382
Intangibles, Net 589 763 903 1,223 1,281
Long Term Investments 90 88 94 98 -
Other Long Term Assets, Total 727 684 781 732 805.11
Other Assets, Total 25,612 24,618 27,030 31,094 30762.82
Total Assets 182,550 211,911 258,942 290,347 297,660
Total Deposits 144,415 164,176 201,950 220,910 223,431
Other Bearing Liabilities 1,226 2,789 4,673 6,761 7,279
Long Term Debt 404 3,337 6,433 8,272 9,544
Deferred Income Tax 1,637 1,232 1,462 1,499 1,724
Minority Interest 124 295 519 650 334.94
Other Liabilities 19,651 23,133 25,171 31,096 33,420
Common Stock 7,367 7,367 7,367 7,367 7,367
Other Equity 1,045 1,271 957 701 784
Total Equity 15,093 16,948 18,734 21,158 21,925
Exhibit 58: Cash Flow Statement (in MAD million)
2006 2007 2008 2009 1H2010

Cash from Operating Activities 1,511 (301) (7,310) 1,107 (4,217)
Cash from Investing Activities (567) (828) (2,920) (2,857) (670)
Cash from Financing Activities (1,166) 3,524 3,966 2,978 522
Foreign Exchange Effects (0) (12) 38 13 87
Net Change in Cash (222) 2,383 (6,225) 1,241 (4,278)
57
Barwa Real Estate Co
Sector: Real Estate Public 55.00%
Qatari Diar Real Estate

Price – 16 Feb 2011 QAR35.50 Investment Company 45.00%
Market Cap (mn) QAR13,813.76

Price 52wk High/Low QAR41.4/26.6
Ticker: Bloomberg/
BRES QD/BRES.SE Shares Outstanding 389.12 mn
Reuters
Exhibit 59: Share Price Chart – 1 year (in QAR)
45
40
35
30
25
20
Source: Zawya
Barwa Real Estate Company QSC (Barwa) is a Qatar-based real estate company engaged in the
acquisition, reclamation, development and reselling of lands to establish agricultural, industrial
and commercial projects. The company is also involved in real estate administration and opera-
tion. Barwa and its subsidiaries focus on domestic and international real estate development busi-
ness, investments, hotel ownership and management, financial services, consulting, advertise-
ment, and brokerage service, among others.
Barwa was created by government-owned Qatari Diar Real Estate Investment Company in 2004 to
focus on building medium-sized residential and tourism developments locally and abroad. The
company underwent an IPO on the Doha Securities Market in 2006. The IPO raised US$330 million
for 55% of the company's equity.
58
For the nine months ended September 30, 2010, Barwa Real Estate Company's total revenues rose
30.2% YoY to QAR2.6 billion, reflecting an increase in higher rental income, sale of properties &
projects, consulting & services income, and other incomes. Net income grew 24.6% YoY to
QAR775.7 million, primarily due to higher revenues and decline in impairment losses, partially
offset by rise in D&A expense and net finance costs.
Comments/Outlook
Barwa has large number of domestic and international projects in the pipeline, cementing strong
future growth. The domestic projects include the Barwa City project being built on a 2.7 million
square meter plot. The project is likely to be developed in two phases; phase one is scheduled for
completion by the end of 2011. The other domestic project is the Barwa Financial District being
built on a 71,000 square meter plot to cater to the growing needs of corporates; the project is
expected to be completed by 2013. On the international front, Barwa’s New Cairo Master Devel-
opment is estimated to be the company’s largest investment to date. The project has a planned
gross built up area of 8 million square meters with an anticipated completion date of 2023.
Barwa’s first investment in Saudi Arabia, Jeddah Central Market (a modern vegetable market), was
introduced through its international arm in 2007 to spearhead the company’s initiative in the King-
dom. The project is scheduled for completion by 1Q2011. Initiatives from the government-
promoted Qatar Vision for 2030 are well on track to achieve the national vision. The country also
has plans to continue its healthy government spending and is on target to post a fiscal surplus by
the end of 2012. Qatar’s budget for FY2010-11 allocates QAR117.9 billion for general spending. Of
the total QAR43.5 billion allocated to capital spending, 82% would be spent on infrastructure. This
is a positive driver for real estate and construction companies.
Financials
Exhibit 60: Income Statement (in QAR million)
2006 2007 2008 2009 9M2010

Total Revenue 554 1,109 1,229 3,013 2,581
% Change 100% 11% 145% 30%
Gross Profit 520 999 1,168 2,954 1,666
Margin % 94% 90% 95% 98% 65%
SG&A Expense 37 148 512 997 875
Interest Exp.(Inc.),Net-Operating, Total 0 0 (6) 0 55
Other Operating Expenses 64 394 435 1,224 882
Total Operating Expenses 102 547 957 2,273 1,812
Operating Income 453 562 271 740 769
Margin % 82% 51% 22% 25% 30%
Provision for Income Taxes 0 0 (35) (39) 2
Net Income After Taxes 453 562 306 780 767
Minority Interest 0 (32) 4 22 9
Net Income 453 530 310 802 776
EPS (Basic) 11.75 12.72 16.16 20.42 10.06
59
Exhibit 61: Balance Sheet (in QAR million)
2006 2007 2008 2009 9M2010

Cash and Short Term Investments 224 770 539 1,928 12,344
Total Receivables, Net 885 2,795 3,247 5,330 8,882
Prepaid Expenses - 49 84 170 -
Property, Plant and Equipment, Total - Net 15 322 1,010 1,292 1,360
Goodwill, Net - 69 98 - -
Intangibles, Net - 8 8 229 252
Long Term Investments 696 2,615 2,787 2,876 15,292
Note Receivable - Long Term 1,968 7 4 515 1,844
Other Long Term Assets, Total 1,520 9,062 16,542 22,658 25,012
Total Assets 5,309 15,696 24,317 34,998 64,986
Accounts Payable 278 2,868 2,558 4,231 5,397
Accrued Expenses 6 255 506 - -
Notes Payable/Short Term Debt 419 9,142 12,476 21,140 44,369
Other Current liabilities, Total 75 67 352 - -
Long Term Debt 1,124 - - - -
Deferred Income Tax - 139 108 42 36
Minority Interest - 250 330 635 660
Other Long Term Liabilities 944 - 3,543 3,717 4,242
Common Stock 2,000 2,000 2,625 2,625 3,891
Retained Earnings (Accumulated Deficit) 463 956 1,772 2,609 6,396
Treasury Stock - Common - - - (1) (5)
Other Equity - 19 46 - -
Total Equity 2,463 2,975 4,443 5,233 10,282
Exhibit 62: Cash Flow Statement (in QAR million)
2006 2007 2008 2009 9M2010

Cash from Operating Activities (1,102) 1,347 1,297 (1,279) NA
Cash from Investing Activities (1,104) (9,783) (6,356) (7,371) NA
Cash from Financing Activities 2,430 8,939 4,653 9,195 NA
Foreign Exchange Effects 0 43 16 55 NA
Net Change in Cash 224 546 (391) 600 NA
Net Cash - Beginning Balance 0 224 770 379 NA
Net Cash - Ending Balance 224 770 379 979 NA
60
Commercial Bank of Qatar QSC

QAR88.00 Qatar Investment
Price – 16 Feb 2011 9.10%
Authority
Market Cap (mn) QAR19,961.04 Qatar National Bank 2.97%
Ticker: Bloomberg/
CBQK QD/COMB.QA Shares Outstanding 226.83 mn
Reuters
100
90
80
70
60
50
Source: Zawya
The Commercial Bank of Qatar Q.S.C. (CBQ) was established in 1975 as Qatar’s first privately-
owned bank. The bank is primarily engaged in commercial and Islamic banking services. The range
of services includes corporate, retail, Islamic and investment services. CBQ has an extensive net-
work of 32 branches, including eight Islamic banking branches and 138 ATMs across the country.
The bank also acts as a holding company for its subsidiaries engaged in credit card business in
Oman and Egypt. CBQ has entered into strategic alliances with National Bank of Oman (NBO) in
Oman and United Arab Bank (UAB) in the UAE to expand its footprint. NBO is the second largest
bank in Oman with 67 branches in the country, five branches in Egypt and one in Abu Dhabi. UAB
operates 10 branches in the UAE.
CBQ recorded higher net interest income (NII) in 2010, benefiting from the healthy growth in loan
portfolio (5.8% y-o-y increase in 2010) and lower interest expenses (down 16.8% y-o-y to QAR1.2
billion).
61
The bank’s NII (before loan loss provisions) grew 7% y-o-y to QAR1.8 billion during the period.
Moreover, a significant reduction in CBQ’s loan loss provisions, down 63.9% y-o-y to QAR0.2 bil-
lion, supported higher NII. Hence, the bank’s NII (excluding loan loss provisions) increased 34.3% y-
o-y to QAR1.6 billion in 2010. The significant growth in NII helped CBQ offset the decline in non-
interest income (NOI), which dropped 18.5% y-o-y to QAR0.8 billion, and higher non-interest ex-
penses, up 16.8% y-o-y to QAR0.9 billion, in 2010. As a result, the bank reported a 7.3% y-o-y in-
crease in its bottom-line to QAR1.6 billion in 2010.
Comments/Outlook
CBQ is witnessing increased loan growth, notably from higher public sector lending. Considering
the bank has low public sector exposure (around 15% of its total loan portfolio), increasing contri-
bution from the public sector is a positive for diversifying its loan book. The bank is focusing on
enhancing its existing domestic corporate and retail customer base, while developing its presence
in the public sector. As a part of its diversification initiatives, CBQ and Qatar Insurance Company
announced the incorporation of Massoun Insurance Services, a joint venture to provide a range of
tailored insurance products, to cater to the bank’s retail and corporate customers. The incorpora-
tion would also provide increased cross-selling opportunities. Moreover, CBQ’s strategic partner-
ships augur well for its bottom-line expansion. Both UAB and NBO contributed to 9.5% of the
bank’s net income in 2010.
CBQ also displayed improved asset quality with non-performing loan (NPL) ratio, on a 90 day basis,
reducing to 3.16% at the end of 2010 from 3.56% at the end of 2009. The bank’s strong capital
position, with a capital adequacy ratio of 18.5% at the end of 2010, is well above the 10% mini-
mum threshold required by the Qatar Central Bank.
Financials
2006 2007 2008 2009 2010

Total Interest Expense 751 1,399 1,581 1,456 1,211
Net Interest Income 704 929 1,292 1,661 1,778
Net Interest Inc. After Loan Loss Prov. 699 881 1,233 1,200 1,611
Non-Interest Income, Bank 629 1,014 1,477 936 763
Non-Interest Expense, Bank (545) (637) (1,215) (765) (894)
Net Income Before Taxes 784 1,257 1,495 1,371 1,480
Net Income After Taxes 784 1,257 1,495 1,371 1,480
Equity In Affiliates 79 133 208 153 155
Net Income Before Extra. Items 863 1,391 1,702 1,524 1,635
62
2006 2007 2008 2009 2010

Trading Account Assets 5,493 9,019 14,316 5,644 4,238
Total Gross Loans 0 0 34,184 32,652 34,546
Loan Loss Allowances 0 0 (287) (722) (980)
Net Loans 4,321 4,665 38,672 41,677 43,590
Property/Plant/Equipment, Total - Gross 754 0 1,451 1,437 1,573
Accumulated Depreciation, Total (196) 0 (315) (407) (504)
Property/Plant/Equipment, Total - Net 558 721 1,136 1,030 1,069
Long Term Investments 1,285 3,330 3,641 3,760 3,840
Other Assets 17,682 25,413 704 833 1,081
Total Assets 30,358 45,397 61,485 57,317 62,520
Interest Bearing Deposits 16,701 24,657 29,338 24,021 29,911
Total Short Term Borrowings 2,695 4,908 10,923 7,391 3,553
Total Debt 2,695 4,908 10,923 7,391 3,553
Common Stock 1,402 1,402 2,062 2,165 2,268
Total Equity 5,631 6,228 9,978 12,010 12,500
2006 2007 2008 2009 2010

Cash from Operating Activities (1,473) 1,232 (80) (5,361) 6,753
Cash from Investing Activities (1,608) (2,176) (1,489) (1,792) (279)
Cash from Financing Activities 2,670 2,500 1,151 3,989 (210)
Net Change in Cash (410) 1,556 (418) (3,163) 6,264
63
Commercial International Bank Egypt SAE
Price – 27 Jan 2011 EGP36.49 Actis 9.33%

Market Cap (mn) EGP21,534.37
Price 52wk High/Low EGP47.70/29.76 Foreign ownership limit 100.00%
Ticker: Bloomberg/
COMI EY/COMI.CA Shares Outstanding 590.14 mn
Reuters
Exhibit 67: Share Price Chart – 1 year (in EGP)
50
45
40
35
30
25
Feb-10 Apr-10 Jun-10 Sep-10 Nov-10 Jan-11
Source: Zawya
Commercial International Bank (CIB) was founded by National Bank of Egypt (NBE) and Chase
Manhattan Bank (CMB) in 1975 under the Open Door Policy. CIB has since become Egypt’s leading
private sector bank, providing diversified services to its customers through 505 ATMs, 154
branches and 47 units. Since its successful IPO in September 1993, the bank has been one of the
Egyptian stock market’s blue chips.
CIB provides commercial banking services (including deposits, loans and credit cards), asset man-
agement services (including fund, wealth and portfolio management), investment banking services
(including corporate finance and investment advisory on M&As, IPOs and underwriting), direct
investments, and brokerage services.
The bank has an employee base of 4,500 and is the only Egyptian financial institution offering both
commercial and investment banking services. CIB is the market leader in terms of market cap,
profitability and net worth among all Egyptian private sector banks. The bank controls a 7.57%
market share of the total deposits and a 6.52% market share of the total loans (as of September
2010).
64
For the nine months ended September 30, 2010, CIB's total banking income increased 11.5% to
EGP2.3 billion driven by higher reported net interest income, and net fees & commissions income.
The net interest income (NII) rose 8.9% to EGP1.6 billion owing to a 71.7% higher NII from treasury
bills and bonds as well as a 0.9% up in interest received from loans to clients, offsetting a 19.9%
decrease in interest received from loans to other banks. The net fees and commissions income
went up 18.7% y-o-y to EGP630.6 million primarily due to higher fees and commissions related to
credit and an increase in other fees. Operating expenses witnessed a 13% y-o-y growth as an addi-
tional goodwill amortization worth EGP30.1 million was recorded that did not exist last year. These
resulted in a 5% rise in the operating income to EGP1.7 billion. Net income rose 11.4% to EGP1.4
billion owing to raised fees and commission income, an increase in profit from financial invest-
ments and a fall in losses incurred by impairment from loans.
Comments/Outlook
The bank’s long-term vision is to become the best financial institution in the Middle East and Africa
by 2020. Increased FDI in Egypt, constitutional changes aimed at stimulating free market expan-
sion, and introduction of banking reforms in the country are positive drivers for CIB. The bank has
focused on forming alliances and partnerships to help extend its presence in the Gulf region and
has also implemented an expansion plan. A large local consumption base, favorable demographics
and strong financial performance expected from private corporations in 2010 are certain other
factors that are expected to boost corporate lending. CIB also intends to enhance its consumer
banking platform by strengthening the wealth and business banking segments, and target to
achieve higher fee revenues from investment and insurance products.
Financials
Exhibit 68: Income Statement (in EGP million)
2006 2007 2008 2009 9M2010

Interest & Fees on Loans 1,749 2,998 3,765 4,033 3,310
Other Interest Income 568 0 0 0 0
Interest on Other Borrowings (1,375) (1,798) (1,967) (2,003) (1,666)
Net Interest Income 942 1,200 1,799 2,030 1,644
Net Interest Inc. After Loan Loss Prov. 748 949 1,388 1,933 1,615
Fees & Commissions from Operations 441 640 748 765 631
Other Unusual Income 280 227 455 486 437
Other Revenue 165 354 282 103 99
Non-Interest Income, Bank 886 1,220 1,484 1,354 1,167
Other Expense (699) (698) (1,256) (1,238) (1,057)
Minority Interest (1) (3) 5 (2) (1)
Net Income 852 1,286 1,371 1,708 1,416
65
Exhibit 69: Balance Sheet (in EGP million)
2006 2007 2008 2009 9M2010

Fed Funds Sold / Bought Under Resale 4,063 2,952 12,457 13,199 8,417
Trading Account Assets 901 684 642 491 1,118
Net Loans 17,464 20,479 26,330 27,304 33,904
Property, Plant and Equipment, Total - Net 507 620 748 750 726
Net Intangibles - - 641 573 523
Long-Term Investments 108 91 93 93 104
Other Long-Term Assets, Total 41 52 19 37 39
Other Assets 962 1,179 1,124 1,106 1,139
Total Assets 37,553 47,906 57,462 64,125 71,240
Accounts Payable 801 761 1,298 1,140 490
Total Deposits 31,567 39,476 48,790 54,649 60,498
Other bearing liabilities 1,360 2,541 430 671 914
Long-Term Debt 99 161 109 93 135
Other Liabilities 342 461 1,010 531 1,191
Common Stock 1,950 1,950 2,925 2,925 5,901
Total Equity 3,377 4,501 5,778 6,996 7,965
Exhibit 70: Cash Flow Statement (in EGP million)
2006 2007 2008 2009 9M2010

Cash from Operating Activities 994 1,663 5,580 6,683 1,495
Cash from Investing Activities 86 1,111 (1,271) (4,737) (4,402)
Cash from Financing Activities (20) (250) (397) (495) (594)
Net Change in Cash 1,061 2,524 3,912 1,452 (3,501)
66
DP World
Sector: Transportation Dubai World 80.45%
Price – 16 Feb 2011 USD0.59 Public 19.55%

Market Cap (mn) USD9,860.40
Price 52wk High/Low USD0.68/0.37 Foreign ownership limit 40.00%
Ticker: Bloomberg/
DPW DU/DPW.DI Shares Outstanding 16,600.00 mn
Reuters
Exhibit 71: Share Price Chart – 1 year (in USD)
0.7
0.6
0.5
0.4
0.3
Feb-10 Apr-10 Jul-10 Sep-10 Dec-10 Feb-11
Source: Zawya
DP World, formerly Galaxy Investments Limited, owns and operates marine terminals and sea-
ports. The company also provides rental services of port equipment and supplies, maritime sup-
port, port security, management of marine assets, and warehousing.
DP World is one of the largest marine terminal operators in the world with 50 terminals and 10
new developments as well as major expansions across 31 countries. In 2010, the company handled
49.6 million twenty foot equivalent container units (TEU) across its portfolio.
DP World is part of the government-owned Dubai World through Port & Free Zone World. The
company was formed in September 2005 with the integration of the terminal operations of Dubai
Ports Authority and Dubai Ports International. Acquisition of P&O for US$7.2 billion in March 2006
helped DP World establish its place amongst the top four terminal operators globally.
DP World reported revenues of US$1.52 billion in the first half of 2010, up 10.1% y-o-y. Higher
volumes and a strong price environment helped the company achieve this revenue growth. Con-
tainer revenues bounced back to its 2008 levels of US$90 per TEU in the first half of 2010.
67
However, revenue growth did not turn into higher profitability for the company. DP World’s gross
margins fell to 29.2% in the first half of 2010 from 33.1% in the same period of 2009. The decline
could be due to initial expenses relating to the new terminals in Qingdao (China) and Callao (Peru)
as well as lower utilization rates. Despite lower profit margins, the company earned a higher net
income of US$176.6 million in the first half of 2010 compared to US$175.3 million in the second
half of 2009; this was owing to a higher share in profit from joint ventures and associates. Lower
tax provision also added to bottom line growth. Though the full year results are not yet out, DP
World has announced that the company handled 49.6 million TEU across its portfolio in 2010, a
14% increase compared to 2009.
Comments/Outlook
The company is focusing on the emerging markets of South Asia, Africa and South America. DP
World recently offloaded a stake of nearly 75% in DP World Australia to Citi Infrastructure Inves-
tors netting AU$1.5 billion. According to various press releases, total proceeds from this will go
towards reducing the company's debt. DP World had a total debt of US$8.04 billion at the end of
the first half of 2010. The company is looking at improving its balance sheet flexibility by bringing
down the debt.
DP World is targeting to raise capacity to around 92 million TEU by 2020. The company would be
launching new terminals in Karachi (2011), Turkey (2012), Abu Dhabi (2013), London (2013), Sene-
gal (2013) and Kulpi (2013) over the next few years.
Financials
Exhibit 72: Income Statement (in USD million)
2006 2007 2008 2009 1H2010

Total Revenue 3,487 2,731 3,283 2,929 1,524
Cost of Sales 2,522 1,883 2,143 2,064 1,079
Gross Profit 964 848 1,140 865 445
Margin % 27.7% 31.1% 34.7% 29.5% 29.2%
SG&A expenses 525 295 436 305 159
Interest Expense, Net Non-Operating (403) (546) (349) (354) (191)
Interest/Invest Income - Non-Operating 131 567 87 185 106
Interest Inc.(Exp.),Net-Non-Op., Total (272) 21 (262) (169) (85)
Other, Net 43 45 35 33 30
Net Income Before Taxes 210 619 477 424 231
Net Margin % 5.7% 19.7% 13.1% 12.6% 14.4%
Discontinued Operations 19 611 0 0 0
Net Income After Taxes 192 1,105 382 333 177
68
Exhibit 73: Balance Sheet (in USD million)
2006 2007 2008 2009 1H2010

Cash and Short Term Investments 2,241 3,059 1,204 2,910 2,679
Total Receivables, Net 1,248 704 741 807 735
Total Inventory 64 54 57 60 57
Other Current Assets, Total 1,420 20 10 28 21
Total Current Assets 4,973 3,837 2,013 3,806 3,492
Property/Plant/Equipment, Total - Gross 4,272 4,379 5,199 6,032 NA
Accumulated Depreciation, Total (590) (939) (946) (1,172) NA
Goodwill - Net 3,104 2,510 2,154 2,425 2,275
Intangibles, Net 3,441 3,983 3,841 4,174 3,993
Total Assets 18,242 17,190 15,499 18,961 18,502
Accounts Payable 1,092 919 1,048 818 901
Current Port. of LT Debt/Capital Leases 192 111 172 483 669
Income Taxes Payable 0 468 122 127 0
Total Current Liabilities 1,819 1,767 1,434 1,484 1,708
Long Term Debt 5,526 5,608 5,197 7,475 7,372
Deferred Income Tax 1,278 991 1,168 1,305 1,253
Common Stock, Total 0 1,660 1,660 1,660 1,660
Additional Paid-In Capital 0 2,473 2,473 2,473 2,473
Retained Earnings (Accumulated Deficit) 228 3,040 3,102 3,233 3,251
Other Equity, Total 8,201 543 (801) (134) (636)
Total Equity 8,429 7,716 6,433 7,231 6,748
Exhibit 74: Cash Flow Statement (in USD million)
2006 2007 2008 2009 1H2010

Cash from Operating Activities 298 955 1,069 572 487
Cash from Investing Activities (7,212) 4,354 (2,007) (915) (490)
Cash from Financing Activities 8,368 (2,433) (686) 1,963 (190)
Foreign Exchange Effects 36 0 (97) 124 0
Net Change in Cash 1,490 2,876 (1,722) 1,744 (193)
Net Cash - Beginning Balance 250 0 2,876 1,154 2,869
69
Emaar Properties
Sector: Real Estate Public 68.78%

AED3.17 Investment Corporation
Price – 16 Feb 2011 31.22%
of Dubai
Market Cap (mn) AED19,309.23
Price 52wk High/Low AED4.14/2.85 Foreign ownership limit 49.00%
Ticker: Bloomberg/
EMAAR UH/EMAR.DU Shares Outstanding 6,091.24 mn
Reuters
Exhibit 75: Share Price Chart – 1 year (in AED)
4.5
4.0
3.5
3.0
2.5
Source: Zawya
Established in 1997, Emaar Properties is a UAE-based company engaged in property investment

and development, property management services, education, healthcare, retail and hospitality
sectors, as well as investing in financial service providers.
Emaar Properties is the largest publicly-listed property developer in the MENA region. The com-
pany operates domestically and internationally in 17 countries, including Saudi Arabia, Syria, Jor-
dan, Lebanon, Egypt, Morocco, India, Pakistan, Turkey, China, the US, Canada and the UK. Its do-
mestic projects include Burj Dubai, Dubai Marina, Arabian Ranches, Emirates Hills, The Meadows,
The Springs, The Greens, The Lakes, The Views, Emaar Tower and Mushrif Heights.
Emaar Properties also holds equity in Dubai Bank, focused on retail and commercial banking; Am-
lak Finance, an Islamic home financing company; and Emaar Finance and Industries, which focuses
on investments in high technology and light manufacturing industries. Government of Dubai owns
31.22% of Emaar Properties through Investment Corporation of Dubai.
70
Emaar Properties reported revenues totaling AED8,320.4 million for 9M2010 compared to
AED5,429.5 million during the same period last year. The 53.2% YoY growth in the revenues came
largely from the hospitality and malls businesses. Emaar Properties’ gross profit margins con-
tracted to 40.3% in 9M2010 compared to 49.3% in 9M2009 due to poor market conditions and
lower margins in the Dubai operations (33% in 9M2010 compared to 45% in 2009). As a result,
Emaar Properties ended 9M2010 with a net profit of AED2,174.8 million. The company incurred a
loss of AED392.8 million during the same period last year. Emaar Properties’ EPS stood at AED0.35
as against a loss per share of AED 0.06.
Comments/Outlook
Emaar has been taking efforts to extend its debt maturity profile. In January 2011, the company
raised US$500 million by selling Islamic bonds, or sukuk, its first fixed-income offering. The 5.5-
year sukuks would provide a yield of 8.50% to investors. In September 2010, the company raised
US$500 million with coupon of 7.5% to refinance short-term liabilities.
Emaar Properties’ long-debt debt totaled AED5,156.9 million at the end of September 30, 2010.
Financials
Exhibit 76: Income Statement (in AED million)
2006 2007 2008 2009 9M2010

Total Revenue 14,006 17,869 10,717 8,413 8,320
Cost of Sales 7,039 10,815 5,487 4,314 4,966
Gross Profit 6,966 7,054 5,230 4,099 3,354
Margin % 50% 39% 49% 49% 40%
SG&A expenses total 1,400 1,938 1,610 1,276 1,039
Other Operating Expenses, Total (176) (287) (169) (153) (102)
Operating Income 5,742 5,223 3,494 2,340 2,061
Margin % 41.0% 29.2% 32.6% 27.8% 24.8%
Interest Income - Non-Operating 367 396 422 356 199
Investment Income - Non-Operating 133 402 109 (534) (235)
Other, Net 253 684 240 83 469
Provision for Income Taxes 47 14 (3) (24) (1)
Net Margin % 45.4% 36.6% 39.1% 24.4% 26.6%
Discontinued Operations 0 0 (4,068) (1,762) (53)
Net Income 6,371 6,575 166 327 2,175
EPS 1.06 1.08 0.03 0.05 0.35
71
Exhibit 77: Balance Sheet (in AED million)
2006 2007 2008 2009 9M2010

Total Receivables, Net 2,690 3,969 4,569 4,193 4,076
Accumulated Depreciation, Total (261) (336) (479) (784) 0
Goodwill, Net 2,962 2,962 439 439 46
Note Receivable - Long Term 428 538 1,636 2,005 2,266
Other Assets, Total 1,469 0 0 0 0
Total Assets 41,690 60,973 66,680 64,145 62,933
Accounts Payable 6,265 5,919 9,680 9,545 1,131
Payable/Accrued 0 0 0 0 4,604
Notes Payable/Short Term Debt 1,100 1,563 4,564 4,500 4,776
Other Current liabilities, Total 876 15,148 19,188 17,048 16,218
Long Term Debt 2,893 6,140 4,610 4,125 5,157
Treasury Stock - Common 0 0 (1) (1) 0
Other Equity, Total 5 470 (401) (198) (61)
Total Equity 29,979 31,532 28,107 28,677 30,804
Exhibit 78: Cash Flow Statement (in AED million)
2006 2007 2008 2009 9M2010

Cash from Operating Activities 2,882 5,973 6,132 (1,632) 315
Cash from Investing Activities (11,361) (7,058) (2,681) (2,790) (1,022)
Cash from Financing Activities 684 1,960 1,160 1,210 1,037
Foreign Exchange Effects 8 7 (30) 11 (7)
Net Change in Cash (7,787) 883 4,581 (3,202) 323
72
Etihad Etisalat Co
Sector: Telecommunications Public 61.34%

SAR52.75 Emirates
Price – 16 Feb 2011 27.46%
Telecommunications Corp
SAR36,925.00 General Organization for
Market Cap (mn) 11.20%
Social Insurance
Price 52wk High/Low SAR57.00/44.20 Foreign ownership limit 49.00%
Ticker: Bloomberg/
EEC AB/7020.SE Shares Outstanding 700.00 mn
Reuters
60
55
50
45
40
Source: Zawya
The UAE-based telecom conglomerate Etihad Etisalat (Mobily), established in 2004 by a Etisalat-
led consortium, is the second largest mobile operator in the Kingdom of Saudi Arabia (KSA). Ac-
cording to the Communications and Information Technology Commission, Etihad Etisalat holds
more than 40% of the market share of mobile subscriptions in the KSA. The company bagged the
second mobile license in the KSA for SAR12.21 billion in July 2004 and launched its commercial
services in May 2005. Etihad Etisalat introduced 3G services in June 2006. The company is consid-
ered one of the biggest 3G mobile operators in the Middle East. Etihad Etisalat mainly offers GSM
mobile and internet services. The company’s presence in the fixed-line segment is very limited.
Etihad Etisalat and Saudi Telecom Company are the only operators who possess the rights to offer
mobile as well as fixed services in the KSA.
The company reported revenues of SAR16.01 billion in 2010, up 22.6% y-o-y. The revenue growth
was largely a result of a rising subscriber base and increased usage of data services.
73
Etihad Etisalat strengthened its data services offering through the acquisition of Bayanat Al Oula in
March 2008 (a licensed data service provider) and Zajil (a leading internet service provider) in No-
vember 2008. Despite a 300 basis point reduction in the gross profit margins, the company ended
2010 with an increase in operating profit margins. Etihad Etisalat managed to improve its operat-
ing profit margins to 27.2% in 2010 from 24.6% in 2009 due to tighter cost controls, particularly in
selling and marketing expenses (as a % of sales). Operating profit margins generated in the fourth
quarter of 2010 were the highest ever reported by the company in its five-year history. As a result,
Etihad Etisalat ended 2010 with a net income of SAR4.21 billion compared to SAR3.01 billion in
2009, representing a 39.7% growth.
Comments/Outlook
Having completed five successful years in the Saudi market, Etihad Etisalat is now pursuing what it
calls the 2011–15 strategic plan ‘GED’ to provide integrated telecom services built around fixed
and mobile broadband technologies. The three key elements of the plan are: Growth, Efficiency
and Differentiation (GED). The “Growth” dimension of the strategy refers to growing revenues
from the broadband and wholesale business, while “Efficiency” means to improve efficiency
through infrastructure sharing, better spectrum utilization, and technology optimization. The last
element “Differentiation” is to delight the customers by excelling in customer service and having
the best work environment for employees. Furthermore, Etihad Etisalat has joined seven other
operators in the region to build the RCN (Regional Cable Network), a 4,000 kilometer diversified
cable system. Once completed, the fiber optic cable line would provide robust bandwidth connec-
tivity to the operators.
Financials
2006 2007 2008 2009 2010

Total Revenue 6,183 8,440 10,795 13,058 16,013
% Change 268.0% 36.5% 27.9% 21.0% 22.6%
Cost of Sales 2,661 3,792 4,768 5,512 7,230
Gross Profit 3,522 4,648 6,026 7,547 8,783
Margin % 57.0% 55.1% 55.8% 57.8% 54.9%
SG&A expenses total 1,397 1,410 2,232 2,710 2,619
Depreciation/Amortization 845 1,031 1,299 1,629 1,810
Other Operating expenses 124 292 0 0 0
Margin % 18.7% 22.7% 23.1% 24.6% 27.2%
Other Non-Operating Income (Expense) (455) (512) (396) (163) (76)
Net Margin % 11.3% 16.3% 19.4% 23.1% 26.3%
EPS 1.11 2.18 4.00 4.31 6.02
74
2006 2007 2008 2009 2010

Cash and Short Term Investments 548 703 2,314 1,533 2,111
Total Receivables, Net 739 1,531 3,137 5,550 5,759
Prepaid Expenses 717 810 1,063 1,256 1,249
Accumulated Depreciation, Total (405) (922) (1,715) (2,817) (4,082)
Property/Plant/Equipment, Total – Net 3,848 5,479 8,117 10,370 12,457
Goodwill - Net 0 0 1,530 1,530 1,530
Intangibles, Net 11,800 11,287 10,923 10,450 10,028
Total Assets 17,689 19,881 27,192 30,822 33,430
Accrued Expenses 1,687 624 2,567 3,552 3,335
Notes Payable/Short Term Debt 7,840 0 1,862 377 599
Current Port. of LT Debt/Capital Leases 0 1,011 1,286 1,777 1,843
Other Current liabilities, Total 320 1,207 590 0 0
Long Term Debt 1,600 7,912 6,642 6,448 5,529
Retained Earnings (Accumulated Deficit) (467) 913 2,754 5,243 8,580
Total Equity 4,533 5,913 9,754 12,243 15,580
2006 2007 2008 2009 2010

Cash from Financing Activities 254 (119) 2,586 (1,687) (1,516)
Net Change in Cash 362 156 549 (331) 728
Net Cash - Beginning Balance 185 548 715 1,264 933
Net Cash - Ending Balance 548 703 1,264 933 1,661
75
Emirates Telecommunications Corporation
Emirates Investment
Sector: Telecommunications 60.03%
Authority
AED10.90 Public
Price – 16 Feb 2011 39.97%
Market Cap (mn) AED86,176.93

Ticker: Bloomberg/
ETISALAT UH/ETEL.AD Shares Outstanding 7,906.14 mn
Reuters
12
11
10
9
Source: Zawya
UAE-based Emirates Telecommunications Corporation (Etisalat) provides fixed-line, mobile, inter-

net, data and other telecommunications services in the UAE and other countries. The company’s
telecom operations are spread across 18 countries in Asia, the Middle East and Africa. Etisalat was
the only mobile and fixed-line operator in the UAE until Emirates Integrated Telecommunications
Company (Du) won a license in 2005 to become second such operator in the country. Etisalat’s
business divisions include eCompany, Ebtikar, Emirates Data Clearing House, Emirates Internet
Exchange, Etisalat Academy, Etisalat University College, The Contact Center, UAE Lab and UAE
Network Information Center. Etisalat’s core products and services feature voice communication,
wireless communication and data communication provided jointly with its subsidiaries, e-vision
and e-marine. The company’s subsidiaries also include Thuraya Satellite Telecommunications Com-
pany, Zanzibar Telecom Limited and Etihad Etisalat Company (Mobily).
Etisalat’s revenues fell 1.6% to AED23.3 billion in 9M2010 compared to the same period last year.
Intensifying competition in the domestic market, a major revenue contributor, is hurting growth.
76
The UAE contributes around 86% to Etisalat’s sales. While revenues dropped, operating expenses
increased resulting in reduced margins. Etisalat’s operating margin dropped to 20.4% in 9M2010
from 25.9% in 9M2009. As a result, operating income fell 22.6% YoY to AED4.7 billion in 9M2010.
As reduced operating performance trickled down to Etisalat’s bottom-line, the company reported
a net income of AED5.6 billion in 9M2010, a drop of 18.1% over the same period last year.
Comments/Outlook
Etisalat has been focusing on international expansion ever since it lost its monopoly in the domes-
tic market to Du in 2005. The company, which derives more than 80% of its revenues from the
UAE, is facing intense competition in its home market as reflected in its weak recent quarter re-
sults. This signifies the importance of increasing the share of revenues coming from outside the
UAE. Considering the increased international presence, Etisalat has announced several expansion
initiatives. Out of these, the company’s bid to buy a 46% stake in Kuwait’s biggest phone company
Mobile Telecommunications Co. (Zain) for around US$10.5 billion, is of vital importance. If con-
cluded, an investment in Zain would help Etisalat gain market share in high-growth markets in the
Middle East (including countries such as Kuwait and Iraq), where Zain has a strong foothold.
Etisalat is also looking for expansion in India, the world’s second-largest wireless market, and is in
talks with the country’s Reliance Communications Ltd. The company is also considering investing
in Idea Cellular Ltd., which provides mobile phone services in India. We believe, given Etisalat’s
rising focus on international acquisitions, the company is well placed to benefit from the growth in
these markets.
Financials
2006 2007 2008 2009 9M2010

Total Revenue 16,290 21,340 29,360 30,831 23,325
Cost of Revenue, Total 10,694 14,730 13,024 12,258 7,554
Gross Profit 5,596 6,610 16,336 18,573 15,772
Margin % 34.4% 31.0% 55.6% 60.2% 67.6%
Selling/General/Admin. Expenses, Total 0 0 8,665 8,836 8,866
Depreciation/Amortization 0 0 1,592 1,604 2,156
Total Operating Expense 10,694 14,730 23,280 22,698 18,575
Interest Inc.(Exp.) (262) (503) 2,108 694 409
Other, Net 476 736 0 0 (133)
Margin % 35.7% 31.5% 27.2% 27.8% 21.4%
Equity In Affiliates 0 0 0 0 504
Net Income Before Extra. Items 5,860 7,297 8,511 8,836 5,606
EPS 0.7 0.9 1.1 1.1 0.7
77
2006 2007 2008 2009 9M2010

Goodwill, Net 0 0 2,915 3,128 3,128
Intangibles, Net 11,230 13,886 13,289 13,650 12,732
Deferred Charges 0 12 101 136 213
Other Long Term Assets 0 0 0 0 16
Total Assets 45,908 52,448 62,918 71,379 74,142
Accounts Payable 9,501 14,530 18,685 19,389 0
Payable/Accrued 0 0 0 0 21,324
Notes Payable/Short Term Debt 1,537 343 722 1,079 4,025
Other Current liabilities, Total 2,567 2,793 2,009 3,020 3,118
Total Debt 8,518 3,484 3,367 4,501 5,375
Deferred Income Tax 0 147 326 538 567
Minority Interest 2,208 1,838 4,188 3,998 4,035
Common Stock 4,538 4,991 5,990 7,187 7,906
Total Equity 19,187 24,057 31,432 36,392 36,854
2006 2007 2008 2009 9M2010

Cash from Financing Activities 8,651 (5,924) (5,642) (3,407) (3,800)
Net Change in Cash 646 (871) 1,862 14 (659)
78
First Gulf Bank
Abu Dhabi ruling family

Sector: Banking 61.30%
members
AED17.95 Public
Price – 16 Feb 2011 26.23%
Market Cap (mn) AED24,681.25 Direct Access Investments 6.87%

Ticker: Bloomberg/
FGB UH/FGB.SE Shares Outstanding 1,375.00 mn
Reuters
20
18
15
13
10
Source: Zawya
UAE-based First Gulf Bank PJSC provides commercial, investment and retail banking services. The
bank, established in 1979 and headquartered in Abu Dhabi, offers its services through four primary
business segments: Corporate Banking, Retail Banking, Treasury & Investments, and Real Estate
Activities. The Corporate Banking segment handles loans, credit facilities, and deposits and current
accounts for corporate and institutional customers. The Retail Banking segment handles individual
customers' deposits, consumer loans, overdrafts, credit cards and funds transfer facilities. The
Treasury & Investments division offers money market, trading, treasury services and funds man-
agement. Real Estate Activities include acquisition, leasing, brokerage, management and resale of
properties. First Gulf Bank operates through a network of branches across the UAE, a subsidiary in
Libya, a branch in Singapore and representative offices in the UK, Qatar and India. The bank had
969 employees and 63 ATMs as of March 2010.
For the nine months ended 30 September 2010, First Gulf Bank's net interest income increased
11.9% YoY to AED3.2 billion.
79
This was primarily due to an 18.0% decline in interest expense and Islamic financing expense, par-
tially offset by a 0.8% fall in total interest income. Net interest income after loan loss provision
remained flat at AED1.8 billion. Net income increased 4.1% YoY to AED2.6 billion, benefitting from
higher commission, fee and rental income, partially offset by decline in share of profits of associ-
ates and increase in loan loss provisions.
Comments/Outlook
As part of its strategic plan to derive future growth, First Gulf intends to focus more on the UAE
nationals (through a UAE national centric strategy). International expansion is a part of the com-
pany’s diversification strategy, with a focus on fast growing markets. The bank is looking at future
acquisition opportunities in the UK and Chinese markets. Significant price corrections in the prop-
erty sector, loan defaults and higher provisioning had impacted UAE’s banking sector. However,
during 3Q2010, most banks were seen recovering from the downturn, and registered higher
growth in the loan book, customer deposits and net income. The UAE government is taking meas-
ures to improve the banking sector’s financial health and transparency. Recent guidelines by the
central bank require a lender to book provisions covering non-performing loans on a quarterly
basis instead of year-end (which used to be followed earlier). The new directives also require lend-
ers to generate provisions equivalent to 1.5% of risk-weighted assets over a four-year period, com-
pared to 1.25% earlier. This is likely to help in improving the health of the banking sector.
Financials
2006 2007 2008 2009 9M2010

Loan Loss Provision 132 207 566 1,680 1,310
Non-Interest Income, Bank 860 1,494 2,118 2,240 1,520
Non-Interest Expense, Bank (400) (611) (1,135) (1,081) (804)
Minority Interest 0 0 8 (3) (3)
Net Income 1,536 2,008 3,005 3,310 2,555
EPS (Basic) 1.12 1.46 2.10 2.23 1.74
80
2006 2007 2008 2009 9M2010

Net Loans 24,805 44,409 79,363 90,386 95,577
Property, Plant and Equipment, Total - Net 334 1,526 2,012 639 632
Other Assets, Total 371 741 3,780 4,231 3,519.73
Total Assets 47,759 73,198 107,522 125,473 137,454
Total Deposits 34,732 55,042 81,275 88,362 97,912
Other Bearing Liabilities 287 461 466 368 -
Long Term Debt 3,398 5,785 5,785 9,820 11,191
Minority Interest - 0 374 385 387
Other Liabilities, Total 358 1,789 3,376 4,020 4,298
Common Stock 1,250 1,250 1,375 1,375 1,375
Treasury Stock - Common - - (45) (199) (669)
Other Equity - - 3,582 7,585 3,600
Total Equity 8,985 10,120 16,245 22,518 23,667
2006 2007 2008 2009 9M2010

Cash from Operating Activities 6,956 (57) (5,892) 1,863 8,179
Foreign Exchange Effects 0 0 (18) 8 (2)
Net Change in Cash 7,223 (5,581) (5,660) 748 6,047
81
Industries Qatar
Sector: Petrochemicals Qatar Petroleum 70.00%
Price – 16 Feb 2011 QAR144.00 Public 25.68%
Market Cap (mn) QAR79,920.00 Others 4.20%

Price 52wk High/Low QAR153.00/95.00 Foreign ownership limit 25.00%
Ticker: Bloomberg/
IQCD QD/IQCD.QA Shares Outstanding 555.00 mn
Reuters
160
140
120
100
80
Source: Zawya
Industries Qatar, incorporated on April 19, 2003, operates in four distinct segments: petrochemi-
cals, fertilizers, steel, and real estate and property development. The company’s subsidiaries and
joint ventures include: Qatar Petrochemical Company Limited (QAPCO) that manufactures and
markets ethylene, polyethylene, hexane and other related products; Qatar Fertilizer Company
(QAFCO) which is engaged in the manufacture and marketing of ammonia and urea; Qatar Steel
Company (QS) that manufactures hot bricked iron, direct reduced iron, steel billets, bars and coils;
Qatar Fuel Additives Company Limited (QAFAC) which is involved in the production and export of
methyl tertiary-butyl-ether and methanol; and Fereej Real Estate Company (FEREEJ) which under-
takes real estate investment, management and rental activities. The company is 70% owned by
Qatar Petroleum, a state owned enterprise.
Industries Qatar’s revenues grew 19.6% YoY to QAR8.5 billion in 9M2010, primarily led by the pet-
rochemicals segment that contributes a little more than a third to total revenues.
82
Net profit and EPS for the first nine months of 2010 stood at QAR4.1 billion and QAR7.37, respec-
tively, an increase of 5.9% compared to the year-ago period. In fact, when we exclude the QAR1.2
billion claim received by the company’s steel subsidiary from the government in 2009, the YoY
growth stands at a remarkable 52.6%.
Comments/Outlook
Industries Qatar is targeting to double its group sales to over QAR20 billion by 2014, which trans-
lates into an average growth rate of 16%. The company is building new facilities and expanding
existing ones across all segments in an attempt to support this growth, Some of Industries Qatar’s
major projects are QAFCO V (QAR9.6 billion), Qatofin LLDPE & Ras Laffan Olefin Cracker (QAR2.6
billion) and QAFCO VI (QAR1.7 billion).
However, Industries Qatar’s most ambitious capital investment plans exist within the steel seg-
ment, which may entail an outlay of approximately QAR9.8 billion. Qatar Steel is looking at build-
ing new facilities – a move that could significantly increase the tonnage of billets and bars as well
as widen product range to include galvanized wire, PC strands and coil.
Financials
2006 2007 2008 2009 9M2010

Total Revenue 7,778 9,326 14,743 9,657 8,479
% Change 18% 20% 58% -35% 20%
Cost of Sales 4,092 4,395 7,413 5,757 4,348
Gross Profit 3,686 4,931 7,331 3,900 4,131
Margin % 47% 53% 50% 40% 49%
SG&A expenses total 414 456 554 534 507
Margin % 42.1% 48.0% 45.7% 34.4% 42.7%
Interest/Invest Income - Non-Operating 194 297 589 411 211
Other, Net 200 292 94 1,369 322
Net Margin % 46.6% 53.4% 49.4% 50.5% 47.8%
Net Income 3,619 4,983 7,276 4,876 4,053
EPS (Basic) 6.58 9.06 13.23 8.86 7.37
83
2006 2007 2008 2009 9M2010

Total Inventory 1,142 1,373 2,521 1,377 1,770
Property/Plant/Equipment, Total - Gross 14,188 NA NA NA NA
Accumulated Depreciation, Total (7,802) NA NA NA NA
Intangibles, Net 72 72 72 96 96
Total Assets 14,880 20,142 27,450 27,121 29,652
Accounts Payable 592 2,019 1,367 1,117 1,012
Notes Payable/Short Term Debt 205 1,084 2,668 307 311
Other Current liabilities, Total 878 746 1,024 506 618
Long Term Debt 1,962 2,358 3,369 5,692 6,851
Total Equity 11,072 13,667 18,243 19,047 20,034
2006 2007 2008 2009 9M2010

Cash from Operating Activities 4,101 6,074 5,614 4,216 NA
Cash from Investing Activities (2,411) (4,310) (3,936) (2,038) NA
Cash from Financing Activities (1,243) (1,228) 594 (3,274) NA
Foreign Exchange Effects 0 0 0 0 NA
Net Change in Cash 447 537 2,272 (1,096) NA
Net Cash - Beginning Balance 2,680 3,127 3,664 5,936 NA
Net Cash - Ending Balance 3,127 3,664 5,936 4,840 NA
84
Masraf Al Rayan
Price – 16 Feb 2011 QAR23.31 Qatar Investment

10.00%
Authority
Market Cap (mn) QAR17,482.50 Qatar Special Projects 2.30%
Price 52wk High/Low QAR25.30/12.00 Foreign ownership limit 49.00%
Ticker: Bloomberg/
MARK QD/MARK.SE Shares Outstanding 750.00 mn
Reuters
25
20
15
10
5
Source: Zawya
Established in 2006, Masraf Al Rayan is a Qatar-based public shareholding company engaged in the
provision of banking, financial and investment services in accordance to the Islamic Sharia princi-
ples. The bank operates through a network of eight branches, 27 ATMs and a total of 325 employ-
ees across Qatar. Masraf Al Rayan is structured into four main business divisions: Retail Banking,
Corporate Banking, Al Rayan Investment and Private Banking. Retail Banking offers current and
savings accounts, time deposit accounts, financing, credit cards, kid’s accounts, and pay & go pre-
paid cards. Corporate Banking offers corporate finance and advisory services, financing products,
cash management, treasury and trade finance. Al Rayan Investment offers asset management, real
estate and financial advisory. Private Banking offers solutions in areas of investment planning and
asset management, wealth management, credit planning and management, cash management,
and business planning.
In 2010, Masraf Al Rayan's interest income grew 48.2% YoY to QAR1.7 billion, driven by rise in
income from financing (up 49.5% YoY) and investing activities (28.4% YoY). revenues.
85
Total operating income rose 23.7% YoY to QAR1.9 billion due to higher interest income and in-
creased gains from forex operations. Net income grew 37.5% YoY to QAR1.2 billion due to positive
impact from decline in impairment losses on receivables from financing activities, decrease in im-
pairment losses on assets and an increase in recoveries of impairment losses on assets.
Comments/Outlook
Masraf Al Rayan plans to develop new Islamic Sharia-compliant products and add innovative fea-
tures to existing market products. The bank aims to expand its operations both inside and outside
Qatar through additional financing, promoting international offerings and offering expert advisory
services. Masraf Al Rayan also plans to build up Corporate Banking and Al Rayan Investment divi-
sions by offering differentiated financial services and products. The next phase of growth is to
create an investment banking platform, connecting the GCC and Asia with a two-way flow of capi-
tal. To facilitate this, Al Rayan Investment proposes to launch new investment products and add
relevant resources. The company also plans to diversify its customer base and build relationships
with companies in Qatar that share a unique vision and have a well-drafted future growth plan.
Financials
2006 2007 2008 2009 2010

Interest Income, Bank 179 1,437 1,328 1,150 1,705
Net Interest Income 178 1,305 1,079 713 1,134
Net Interest Inc. After Loan Loss Prov. 178 1,297 1,079 705 1,132
Non-Interest Income, Bank 0 86 100 390 95
Non-Interest Expense, Bank (65) (190) (262) (214) (16)
Net Income Before Taxes 113 1,192 917 881 1,211
Net Income 113 1,192 917 881 1,211
EPS (Basic) 0.15 1.59 1.22 1.17 1.62
86
2006 2007 2008 2009 2010

Cash & Due from Banks 25 457 501 716 1,482
Other Earning Assets, Total 9 36 47 48 141
Net Loans 4,280 9,639 16,147 23,174 32,589
Other Assets, Total 0 0 (73) (109) (2)
Total Assets 4,324 10,191 16,769 24,124 34,683
Total Deposits 23 406 414 1,470 1,292
Other Bearing Liabilities, Total 200 4,537 10,484 16,361 25,724
Long Term Debt 0 0 0 0 0
Total Liabilities 245 5,033 11,075 18,162 27,557
Common Stock 3,750 3,750 4,125 4,125 5,073
Retained Earnings (Accumulated Deficit) 329 659 951 888 77
Other Equity 0 750 619 949 1,976
Total Equity 4,079 5,159 5,694 5,962 7,126
2006 2007 2008 2009 2010

Cash from Operating Activities (3,994) (6,021) (7,133) (1,873) (6,942)
Cash from Investing Activities (149) 229 263 (188) (1,462)
Cash from Financing Activities 4,165 8,502 5,576 5,254 9,363
Net Change in Cash 22 2,710 (1,294) 3,193 959
Net Cash - Ending Balance 22 2,710 1,416 4,609 5,568
87
Mobile Telecommunications Company (Zain)

Sector: Telecommunications Public 58.22%
Price – 16 Feb 2011 KWD1.38 Kuwait Investment Authority 24.61%

Market Cap (mn) KWD5,923.59
Mohamed Abdulmohsin Al 12.67%
Price 52wk High/Low KWD1.56/0.93
Ticker: Bloomberg/ Foreign ownership limit 100.00%
ZAIN KK/ZAIN.KW
Reuters Shares Outstanding 4,292.46 mn
Exhibit 99: Share Price Chart – 1 year
1.6
1.5
1.3
1.2
1.0
Source: Zawya
Mobile Telecommunications Company (Zain), established in 1983, is a Kuwait-based telecom con-

glomerate with presence in eight countries across the Middle East and North Africa (MENA) re-
gion. The company offers a comprehensive range of mobile voice and data services to over 35.3
million business and individual customers. The company operates under the brand names of
“Zain” (in Bahrain, Jordan, Kuwait, Iraq, Saudi Arabia and Sudan) and “MTC Touch” (in Lebanon).
Kuwait Investment Authority is the largest shareholder (24.6%) of the company. In June 2010, Zain
sold 100% of Zain Africa BV to Indian telecom operator Bharti Airtel Limited (Bharti) for a consid-
eration of US$10.7bn. Following this, Bharti gained access to 15 countries in Africa.
Zain’s top line expanded 8.3% YoY to KWD1bn in 9M2010, led by increased subscriber base
(notably in Iraq, Sudan and KSA). In 3Q2010, the company’s customer base in the Middle East
reached 35.3mn, depicting a growth of 25% compared to the year-ago period. Iraq was the largest
contributor (31%) to total revenues. The country recorded an increase of 17% YoY in customer
base to 11.7mn – the largest for Zain in any nation – at the end of 3Q2010. The company reported
a 17% YoY increase in total operating expenses to KWD686.2mn. Zain’s operating margin declined
to 32% in 9M2010 from 37.1% during the year-ago period.
88
Consequently, the company’s operating income fell 6.5% YoY to KWD323.6mn in 9M2010. Never-
theless, Zain’s bottom line benefited from several provision reversals and higher foreign currency
adjustment gains. As a result, the company’s net income (excluding the extraordinary gains) in-
creased 28.3% YoY to KWD233.8mn in 9M2010. Net income growth was also supported by capital
gain worth KWD741.8mn from the sale of Zain Africa to Bharti in June 2010. Including this, Zain’s
net profit surged 412.2% YoY to KWD975.6mn during 9M2010.
Comments/Outlook
Zain’s outlook has been lately driven by UAE-based telecom operator Emirates Telecommunica-
tions Corp (Etisalat)’s bid to acquire a 46% stake in the company at KWD1.7 per share, valuing the
deal at around US$12bn. The offer was made to Zain's second-largest shareholder, Kharafi Group,
which holds around 13% stake in the company. Although the offer is subject to a number of condi-
tions, it is expected to be a key factor impacting Zain’s share price movement in the short- to me-
dium-term. While the company is expected to grow organically, the deal provides excellent inte-
gration opportunities for Etisalat’s operations. This is because geographic footprint of the com-
pany largely complements that of Etisalat. However, Zain has been an attractive target for many
telecom giants across the region. Çukurova, a Turkish conglomerate, is also in talks to buy a large
stake in Zain. Hence, the near-term prospects for Zain depend on the outcome of this stake acqui-
sition pursuit.
Financials
Exhibit 100: Income Statement (in KWD million)
2006 2007 2008 2009 9M2010

Total Revenue 1,297 1,677 2,003 2,318 1,010
Cost of Revenue 275 381 571 640 267
Gross Profit 1,023 1,296 1,432 1,679 742
Margin (%) 78.8% 77.3% 71.5% 72.4% 73.5%
Selling/General/Administrative Expense 455 608 685 752 295
Impairment-Assets Held for Use 6 0 63 23 0
Total Operating Expense 898 1,226 1,622 1,813 686
Interest Income (Expense) 32 45 163 (60) (29)
Foreign Currency Adjustment 3 13 (37) (38) 24
Other Non-Operating Income (Expense) (79) (118) (107) (149) (35)
Margin (%) 24.2% 20.4% 16.8% 9.1% 24.7%
Net Income Before Extra. Items 295 320 322 195 234
Net Income 295 320 322 195 976
EPS (Excluding extra. Items) 0.08 0.09 0.09 0.05 0.06
EPS (Including extra. Items) 0.08 0.09 0.09 0.05 0.25

89
Exhibit 101: Balance Sheet (in KWD million)
2006 2007 2008 2009 9M2010

Cash and Short Term Investments 493 284 385 275 643
Accounts Receivable - Trade, Gross 224 289 405 457 0
Provision for Doubtful Accounts (39) (43) (50) (51) 0
Other Current Assets 0 0 80 0 0
Total Current Assets 692 553 850 713 1,178
Accumulated Depreciation, Total (574) (778) (1,108) (1,431) 0
Property/Plant/Equipment, Total - Net 1,131 1,496 2,027 2,152 776
Goodwill, Net 1,315 0 1,659 1,704 0
Intangibles, Net 163 1,637 576 541 1,352
Total Assets 3,491 4,367 5,516 5,697 3,753
Total Current Liabilities 1,043 1,030 1,201 1,476 770
Long Term Debt 921 1,532 1,671 1,616 108
Total Debt 1,382 1,985 1,902 2,152 290
Common Stock 126 189 427 428 429
Additional Paid-In Capital 624 624 1,691 1,691 1,698
Retained Earnings (Accumulated Deficit) 644 810 767 766 1,143
Treasury Stock - Common (16) (16) (568) (568) (568)
Translation Adjustment (24) (26) (98) (21) (69)
Total Equity 1,354 1,582 2,219 2,297 2,633
Exhibit 102: Cash Flow Statement (in KWD million)
2006 2007 2008 2009 9M2010

Cash from Operating Activities 802 672 668 848 367
Cash from Investing Activities (992) (1,056) (697) (709) 1,861
Cash from Financing Activities 360 184 135 (253) (2,028)
Net Change in Cash 181 (213) 107 (101) 196
Net Cash - Beginning Balance 293 474 261 368 267
Net Cash - Ending Balance 474 261 368 267 464

90
National Bank of Kuwait SAK
Price – 16 Feb 2011 KWD1.38
Market Cap (mn) KWD4,892.47

Price 52wk High/Low KWD1.48/0.99 Foreign ownership limit 49.00%
Ticker: Bloomberg/
NBK KK/NBK.KSE Shares Outstanding 3,545.27 mn
Reuters
Exhibit 103: Share Price Chart – 1 year (in KWD)
1.6
1.4
1.2
1.0
0.8
Source: Zawya
Incorporated in 1952 as the first native bank in the Gulf region, National Bank of Kuwait (NBK) is a
Kuwait-based public shareholding company. It offers banking, financial and investment services in
Kuwait and 17 other countries (across GCC and international markets). The bank provides its ser-
vices through three main divisions: Consumer Banking, Corporate Banking, and Investment Bank-
ing & Asset Management.
The Consumer Banking division provides a diversified range of retail and commercial banking prod-
ucts and services to individuals, including loans, credit cards, deposit accounts, foreign exchange
and other related services. The Corporate Banking division provides comprehensive products and
services to business and corporate customers. These include lending, deposits, trade finance, for-
eign exchange and advisory services. The Investment Banking & Asset Management division offers
a range of capital market advisory and execution services such as wealth and asset management,
custody, brokerage and research services. NBK is the largest bank in Kuwait; it has assets totaling
more than US$43.4 billion and over 30% market share in all business segments. With 69 branches
and 205 ATMs, NBK also has the largest and most diversified distribution network in Kuwait as of
June 2010.
91
For the fiscal year ended December 31, 2010, NBK's net interest income fell 4.8% YoY to
KWD358.8 million, primarily due to a decline in interest income (11.9% YoY), partially offset by a
decrease in interest expense (27.5% YoY). Operating expenses fell 11.6% YoY to KWD159.1 million
due to reduction in staff and other administrative expenses. Net income rose 13.7% YoY to
KWD301.7 million due to an increase in dividend income and other operating income as well as a
decline in operating expenses.
Comments/Outlook
In the medium-term, NBK aims to expand its operations outside Kuwait and contribute 50% of the
bank’s net profits by 2012. The bank plans to capitalize on its wide international reach and rela-
tionships in the Kuwaiti and MENA markets to support growth in the Gulf region. As part of its
international expansion initiatives, NBK plans to follow a selective approach for new acquisitions,
wherein it has a competitive advantage, as well as focus on high-growth economies with favorable
demographic trends. The bank plans to increase its corporate business by targeting international
and regional companies focusing on the MENA region. Expansion of the bank’s regional presence
and distribution channels in the MENA region is also a key part of its diversification strategy. The
economic crisis had impacted the overall GDP growth and government earnings in Kuwait, but
Central Bank’s measures such as lowering interest rates and deposit guarantee helped to
strengthen the banking sector. Also, the economic growth is back on track due to revival in oil
prices.
Financials
Exhibit 104: Income Statement (in KWD million)
2006 2007 2008 2009 2010

Interest Income, Bank 478 608 684 547 482
Net Interest Income 262 284 367 377 359
Net Interest Inc. After Loan Loss Prov. 231 260 286 339 347
Net Income 253 274 255 265 302
EPS (Basic) 0.10 0.10 0.09 0.08 0.09
92
Exhibit 105: Balance Sheet (in KWD million)
2006 2007 2008 2009 2010

Cash & Due from Banks 846 1,778 1,399 1,622 1,172
Net Loans 4,310 5,920 6,955 7,817 7,853
Goodwill, Net 0 245 243 250 174
Other Assets, Total 93 131 119 96 73
Total Assets 7,898 11,539 11,973 12,907 12,899
Total Deposits 6,680 9,619 10,168 10,869 10,459
Long Term Debt 0 0 0 0 0
Common Stock 195 246 270 297 360
Additional Paid-In Capital 200 569 569 569 700
Retained Earnings (Accumulated Deficit) 676 840 880 1,007 1,140
Treasury Stock - Common (24) 0 (154) (59) (12)
Other Equity 12 31 (8) 11 31
Total Equity 1,060 1,686 1,558 1,825 2,218
Exhibit 106: Cash Flow Statement (in KWD million)
2006 2007 2008 2009 2010

Cash from Operating Activities 335 940 430 484 (244)
Cash from Investing Activities (130) (341) (463) (241) (275)
Cash from Financing Activities 60 336 (342) (44) 95
Foreign Exchange Effects 0 (3) (5) 24 (26)
Net Change in Cash 265 933 (379) 223 (450)
93
Orascom Construction Industries SAE

Nassef Onsi Najib Sawiris and

Sector: Construction 55.00%
family
Price – 27 Jan 2011 EGP227.07 Public 33.82%
Market Cap (mn) EGP46,984.98 Infrastructure and Growth
6.17%
Price 52wk High/Low EGP294.5/215.0 Capital Fund
OCIC EY/OCIC.SE
Reuters Shares Outstanding 206.92 mn
300
275
250
225
200
Feb-10 Apr-10 Jun-10 Sep-10 Nov-10 Jan-11
Source: Zawya
Orascom Construction Industries (OCI) was founded in 1976 and listed on the Egyptian Stock Ex-
change (EGX), formerly Cairo and Alexandria Stock Exchange, in 1999. OCI is primarily involved in
construction related activities and production of nitrogen-based fertilizers. The Construction seg-
ment’s activities mainly include contracting; manufacturing; engineering services; supply and in-
stallation of machinery, equipment and tools; and supply of materials required for construction
activities in Egypt and internationally. OCI also undertakes residential, industrial, commercial and
infrastructure projects for public and private customers in Europe, the Middle East and North Af-
rica. The segment’s total production capacity equates to 120,000 tons of fabricated steel per year.
The Fertilizer segment produces different types of nitrogen-based fertilizers, including urea and
ammonia, with a production capacity of 2.0 million tons. The Cement segment manufactures ce-
ment, aggregates, ready-mix concrete and cement bags in Egypt, Algeria, northern Iraq, Pakistan,
the UAE, Turkey and Spain. The company’s employee strength stood at 86,000 as of May 28, 2010.
For the nine months ended September 30, 2010, OCI's total revenue increased 26.6% y-o-y to
EGP20.0 billion, driven by higher sales in the Fertilizer and Construction segments.
94
Product sales exceeded 2.6 million metric tons in the Fertilizer segment, whereas the Construction
segment reported a construction backlog of EGP110.1 billion and won new awards worth EGP12.1
billion during the first nine months of 2010. The company’s net income rose 18.3% y-o-y to EGP2.3
billion, primarily due to an increase in investment income from Gavilon and decline in interest
expenses, partially offset by lower interest income.
Comments/Outlook
OCI focuses on expanding the Fertilizer business—construction of Sorfert Algerie’s greenfield fer-
tilizer plant (wherein OCI holds 51% stake) is currently underway. The plant’s progress is on-track
with 95.6% completion at the end of September 2010; commissioning is expected to take place in
the first half of 2011. With the commencement of production at this plant, OCI’s aggregate pro-
duction capacity is estimated to increase to 7.7 million tons per annum by 2012. Key production
capacities will likely include 3.3 million tons of urea, two million tons of ammonia and 1.45 million
tons of calcium ammonium nitrate. The company expects growth in the Construction segment due
to high entry barriers, thereby ensuring a competitive edge in its core geographical markets, and
proposed government spending worth trillions of dollars in the markets where it has a presence.
OCI is currently one of the leading contractors in the MENA region and is expected to be ranked
among the top three nitrogen fertilizer producers by 2012.
Financials
2006 2007 2008 2009 9M2010

Total Revenue 12,543 13,148 20,253 21,313 19,978
% Change 5% 54% 5% 27%
Cost of Revenue 10,206 10,975 14,952 16,581 15,158
Gross Profit 2,337 2,173 5,300 4,732 4,820
Margin % 19% 17% 26% 22% 24%
SG&A Expense 750 741 1,093 1,284 1,230
Other Operating Expense 97 82 201 212 402

Margin % 12% 10% 20% 15% 16%
Interest Inc.(Exp.),Net-Non-Op., Total (112) (78) 504 (363) (158)
Gain (Loss) on Sale of Assets 6 9 15 39 8
Other Non-Operating Income (Expense) 67 110 49 129 74
Net Margin % 11% 10% 20% 12% 12%
Net Income Before Extra. Items 590 1,201 3,922 2,417 2,280
Discontinued Operations 2,081 64,821 1,445 0 0
Net Income 2,671 66,021 5,367 2,417 2,280
EPS 3.01 5.98 18.87 11.74 11.08

95
2006 2007 2008 2009 9M2010

Total Inventory 1,437 673 1,398 1,335 1,772
Other Current Assets, Total 371 78,902 599 605 592
Goodwill, Net 0 0 9,907 9,871 10,374
Note Receivable - Long Term 222 76 255 247 432
Total Assets 28,616 94,952 43,026 46,858 56,365
Current portion of long term debt 2,988 10,648 3,671 2,266 7,757
Other Current liabilities, Total 494 1,174 1,090 1,011 10,919
Long Term Debt 6,262 1,035 7,754 11,219 12,332
Minority Interest 2,488 1,049 227 750 915
Other Long Term Liabilities 991 2,568 2,505 2,484 2,744
Common Stock 1,010 1,010 1,074 1,035 1,035
Treasury Stock - Common (137) (94) (1,668) (200) (200)
Other Equity 153 12 (86) (15) (127)
Total Equity 8,672 72,847 17,355 16,393 16,641
2006 2007 2008 2009 9M2010

Cash from Operating Activities 3,090 927 2,578 3,186 1,014
Cash from Investing Activities (7,918) (7,654) 64,517 (4,616) (3,491)
Cash from Financing Activities 5,397 7,906 (62,743) (1,073) 4,316
Foreign Exchange Effects 0 0 0 159 (99)
Net Change in Cash 570 1,179 4,352 (2,344) 1,740
96
Qatar Electricity & Water Co

Sector: Electric Utilities Public 58.00%
Price – 16 Feb 2011 QAR129.40 Government of Qatar 42.00%

Ticker: Bloomberg/ Shares Outstanding 100.00 mn
QEWS QD/QEWC.QA
Reuters
140
130
120
110
100
90
Source: Zawya
Established in 1990, Qatar Electricity & Water Company (QEWC) is a Qatar-based public sharehold-
ing company that operates in the field of power and water production. The company owns and
operates power generation and water desalination plants. It holds capital shares in a number of
jointly-owned projects by local and international companies. It also holds stakes in five Qatar-
based companies, namely AES Ras Laffan Operating Company WLL, Ras Laffan Power Company
Limited QSC, Q Power QSC, Mesaieed Power Company Ltd and Ras Girtas Power Company Ltd.
QEWC owns and operates electricity generation plants with a total installed capacity of 2,187
megawatts (MW) and water desalination plants with a capacity of 217 million gallons per day (as
of Dec 2007).
For the nine months ended 30 September 2010, QEWC's total revenue increased 19.9% YoY to
QAR2.34 billion. Revenue from water desalination plants grew 17.1% to QAR802.1 million, while
those from electricity sales rose 7.6% to QAR1.2 billion. Net income increased 16.0% to QAR834.5
million primarily due to higher revenues, rise in interest and other operating income, and de-
creased G&A expenses, partially offset by a significant rise in finance costs, higher damages costs
of KAHRAMMA as well as lower dividend income.
97
Comments/Outlook
QEWC has adopted a 10-year long-term plan (financial policy) in order to ascertain its financial
position and cash flows, generate equitable returns for its shareholders and optimally utilize the
company’s financial resources in the field of power generation and water desalination. The com-
pany is also concentrating on overseas investment opportunities by participating in new power
and water projects in association with leading international names in these sectors. QEWC re-
cently completed two projects (Ras Abu Fontas Station - A1 Project and Mesaieed Power Project)
and has one project under construction (Ras Girtas Project). The company has 100% ownership In
the Ras Abu Fontas Station project, which was completed at the end of December 2010. Through
this project, the company aims to increase the total capacity of the plant to 70 MIGD, adding 45
MIGD of desalinated water. In the other two projects, the company has a partial ownership stake.
Masaieed Power Project was completed in April 2010 (comprising a 2,000 MW power plant), while
the Ras Girtas Project (expected to have an hourly output capacity of 2,730 MW of electricity and
63 MIGD of water) is expected to be completed by April 2011. The company’s expansion plans are
in sync with the growing demand in the region and they aim to increase the power generation
capacity from 7,600 MW during 3Q2010 to 9,000 MW on a consolidated basis by 2011.
Financials
2006 2007 2008 2009 9M2010

Total Revenue 1,714 1,927 2,273 2,651 2,345
% Change 12% 18% 17% 20%
Cost of Revenue 1,055 1,139 1,346 1,535 1,291
SG&A Expense 93 93 119 124 111
Depreciation & Amortization 4 5 12 2 0
Other Operating Expense (33) 11 12 37 (22)
Margin (%) 35% 35% 35% 36% 41%
Interest Inc.(Exp.),Net-Non-Op., Total 9 4 (15) 51 264
Other Non-Operating Income (Expense) 166 (69) (13) (82) (395)
Net Margin % 45% 32% 33% 35% 36%
EPS 7.72 6.14 7.57 9.22 8.35
98
2006 2007 2008 2009 9M2010

Cash and Short Term Investments 499 654 1,615 2,307 2,767
Other Current Assets 11 0 0 0 0
Long Term Investments 418.77 537.92 436.68 522.57 562.45
Note Receivable - Long Term 720 1,148 1,479 3,821 6,905.71
Total Assets 7,097 9,189 13,588 18,048 20,127
Accounts Payable 176 232 565 645 1,569
Current portion of long term debt 251 24 805 774 1,895
Other Current Liabilities 42 471 3,013 1,248 2,619
Long Term Debt 2,645 4,502 7,484 11,281 11,428
Other Long Term Liabilities 112 90 91 92 93
Common Stock 1,000 1,000 1,000 1,000 1,000
Retained Earnings (Accumulated Deficit) 2,685 2,709 308 2,590 1,523
Total Equity 3,685 3,709 1,308 3,590 2,523
2006 2007 2008 2009 9M2010

Cash from Operating Activities 362 572 1,408 1,331 999
Cash from Financing Activities 754 1,277 3,363 3,315 768
Net Change in Cash 101 155 961 692 460
Net Cash - Beginning Balance 399 499 654 1,615 2,307
Net Cash - Ending Balance 499 654 1,615 2,307 2,767
99
Qatar Islamic Bank

Price – 16 Feb 2011 QAR84.30 Qatar Investment Authority 5.00%

QIBK QD/QISB.QA
Reuters
100
90
80
70
60
Source: Zawya
Qatar Islamic Bank (QIB), established in 1982, is the largest Islamic bank in Qatar. The bank has
around 50% share in the country’s Islamic banking assets and 10% in its banking sector. QIB offers
various banking, investment and financing services through various Islamic modes of finance such
as Murabaha, Mudaraba, Musharaka, Musawama and Istisnaa. QIB operates through 27 branches
and more than 100 ATMs in Qatar. Keen on expanding internationally, the bank has built a strong
international presence by picking stakes in a range of finance houses in the Middle East, Europe
and Asia. QIB, for example, has majority stake in the UK’s European Finance House and minority
interest in Malaysia’s Asian Finance Bank.
QIB’s financial performance was subdued in 2010 due to slower growth in net interest income (NII)
and non-interest income (NOI) during the year. The bank’s NII grew 0.6% y-o-y to QAR1.6 billion in
2010, while NOI increased 1.8% y-o-y to QAR0.3 billion. This was despite strong growth in its bal-
ance sheet; decreased yields on interest earning assets are likely to have led to slower growth in
NII and NOI. QIB’s loan portfolio increased 31.1% y-o-y to QAR33.7 billion in 2010, while deposits
rose 33.1% y-o-y to QAR38.7 billion during the year. On a positive note, the bank’s cost efficiency
improved with non-interest expense declining 18.5% y-o-y to QAR0.5 billion in 2010.
100
Consequently, QIB’s net income after taxes increased 7.1% y-o-y to QAR1.4 billion. However,
losses from minority interests and equity in affiliates offset the rise to some extent. Consequently,
its net income grew a modest 0.9% y-o-y to QAR1.3 billion in 2010.
Comments/Outlook
Despite its weak performance on the top and bottom-line fronts, QIB recorded strong growth in
balance sheet during 2010. The bank’s growth strategy is to strengthen QIB’s position in the local
market and build presence internationally over a five-year period spanning 2008–12. The bank’s
leading position with a strong retail franchise of 27 branches in the Islamic banking sector in Qatar
is also a positive. Even as QIB’s non-performing loans (NPL) increased 10.5% y-o-y to QAR326 mil-
lion in 2010, its NPL to gross loans ratio declined to 1.1% from 1.3% in 2009. However, considering
the strong growth in the bank’s loans and increase in delinquencies in sectors such as real estate,
credit cards and personal loans, QIB’s NPLs could rise in the near term.
Financials
2006 2007 2008 2009 2010

Interest on Deposit 258 36 389 510 447
Net Interest Income 872 1,544 2,011 1,581 1,591
Loan Loss Provision 70 1 (48) 31 50
Net Interest Inc. After Loan Loss Prov. 802 1,542 2,059 1,550 1,541

Provision for Income Taxes 0 0 0 (11) 0
Minority Interest (27) (67) (62) 27 (27)
Equity In Affiliates 0 0 0 0 (25)
101
2006 2007 2008 2009 2010

Other Short Term Investments 1,016 2,085 1,692 1,203 1,115
Total Gross Loans 0 13,294 21,235 25,734 33,746
Loan Loss Allowances 0 (283) (234) (264) (363)
Unearned Income 0 (1,332) (2,135) (2,807) (4,031)
Net Loans 7,156 11,679 18,866 22,663 29,352
Property/Plant/Equipment, Total - Gross 213 206 384 446 551
Accumulated Depreciation, Total (105) (104) (124) (147) (180)
Property/Plant/Equipment, Total - Net 108 102 260 299 371
Other Assets 437 732 737 1,430 1,685
Total Assets 14,889 21,336 33,543 39,273 51,840
Non-Interest Bearing Deposits 6,369 7,816 11,495 13,642 21,527
Total Deposits 9,880 15,805 25,289 29,052 38,670
Long Term Debt 0 0 0 0 2,713
Other Liabilities, Total 591 783 886 1,022 1,124
Common Stock 1,193 1,193 1,969 2,068 2,166
Total Equity 4,255 4,629 7,143 9,005 9,124
2006 2007 2008 2009 2010

Cash from Operating Activities 784 253 (856) (624) (3,410)
Cash from Investing Activities (1,304) (642) (1,800) 1,666 (1,529)
Cash from Financing Activities 2,936 559 4,304 2,171 8,946
Net Change in Cash 2,417 169 1,648 3,213 4,006
102
Qatar National Bank

Price – 16 Feb 2011 QAR138.00 Qatar Investment Authority 50.00%

QNBK QD/QNBK.QA
Reuters
160
140
120
100
80
Source: Zawya
Qatar National Bank SAQ (QNB) was established in 1964 as the first Qatari-owned commercial
bank with ownership structure split between the Qatar Investment Authority (50%) and the pri-
vate sector (50%). QNB is the largest bank in Qatar; it holds around 40% market share of the coun-
try’s banking sector assets. The bank is engaged in the provision of commercial and Islamic bank-
ing services. It offers a range of retail, corporate, investment, treasury, wealth management, and
Islamic banking products and services to individuals, corporate institutions and government enti-
ties. QNB has the largest distribution network in the country, with 59 branches and more than 170
ATMs. The bank operates in 23 countries, including branches in Yemen, Oman, Kuwait and Singa-
pore as well as representative offices in Iran and Libya. The bank also recently established an Is-
lamic branch in Sudan, which offers a full range of Islamic banking services and products. QNB’s
subsidiaries include Ansbacher Group Holding Limited (owned through its Luxembourg-based sub-
sidiary holding company), QNB International Holdings Limited, QNB Switzerland, QNB Syria and
QNB Capital LLC.
QNB’s net interest income (NII) rose 52.3% y-o-y to QAR5.7 billion in 2010 led by strong growth in
loan portfolio, which increased 21.1% y-o-y to QAR131.7 billion by the end of 2010.
103
Moreover, the bank’s non-interest income rose 4.9% y-o-y to QAR1.7 billion in 2010 driven by
higher fees and commission income during the year.
The bank was also able to improve its efficiency ratio (cost-to-income) ratio to 16.6% in 2010 from
17.5% in 2009 due to strong operating income and efficient cost management. As a result, QNB
reported a 35.8% y-o-y rise in its bottom line to QAR5.7 billion in 2010.
Comments/Outlook
QNB’s leading market position, strong liquidity profile, close links to the Qatari government and
strong income generating capabilities are its key positives. The bank had a cash balance of
QAR33.9 billion at the end of 2010, adequately placing it to meet any uncertain operational risk.
Moreover, QNB recently announced it would increase its share capital through a rights issue. The
rights issue is expected to further improve its Tier 1 capital ratio, enabling it to spur the growth in
its lending portfolio. This would help the bank to grow at a faster rate. Furthermore, the bank has
reported higher growth in its deposits compared to loans in 2010. This further enhances its ability
to lend more. Also, with a coverage ratio as high as 117.7% in 2010, QNB has sufficiently cushioned
any rise in NPLs (Non-performing loans) resulting from strong expansion of its retail portfolio.
Financials
2006 2007 2008 2009 2010

Interest on Deposit 1,447 1,849 2,071 2,054 2,215
Interest on Other Borrowings 263 841 1,210 615 0
Loan Loss Provision 139 20 (248) (281) (538)
Non-Interest Expense, Bank (834) (841) (973) (892) (1,138)
Net Income 1,998 2,508 3,653 4,202 5,704
104
2006 2007 2008 2009 2010

Total Gross Loans 0 0 0 95,156 106,100
Loan Loss Allowances 0 0 0 (871) (1,404)
Net Loans 46,227 66,064 100,053 108,783 131,696
Other Assets 675 1,381 1,576 1,995 3,476
Total Assets 71,663 114,361 151,974 179,329 223,382
Total Short Term Borrowings 0 9,210 8,987 8,809 14,321
Long Term Debt 1,177 9,928 19,721 20,794 12,160
Total Debt 1,177 19,138 28,708 29,603 26,481
Common Stock 1,298 1,825 2,409 3,011 3,915
Total Equity 8,441 13,858 16,643 19,685 24,237
2006 2007 2008 2009 2010

Cash from Investing Activities (2,421) (3,507) (4,508) 2,240 (779)
Cash from Financing Activities (772) 1,653 1,725 (1,820) 4,200
Net Change in Cash 3,761 15,936 521 7,129 17,075
105
Rabigh Refining & Petrochemical Co

Sumitomo Chemical Com-

Sector: Petrochemicals 37.50%
pany
Price – 16 Feb 2011 SAR24.55 Saudi Arabian Oil Company 37.50%
Market Cap (mn) SAR21,505.80
Public 25.00%
PETROR AB/2380.SE
40
35
30
25
20
Source: Zawya
Saudi Arabia-based Rabigh Refining and Petrochemical Company (Petro Rabigh) is engaged in the
development, construction and operation of an integrated petroleum refining and petrochemical
complex, including the manufacturing of refined petroleum products, petrochemical products and
other hydrocarbon products.
Petro Rabigh comprises 23 plants producing 18.4 million tons per annum (mtpa) of petroleum-
based products and 2.4 mtpa of ethylene and propylene-based derivatives. Petro Rabigh was
formed through an equally owned joint venture between Saudi Aramco and Japan’s Sumitomo
Chemical. The ownership of both parties stands reduced to 37.5% each, after Petro Rabigh held its
initial public offering in 2008. Petro Rabigh employs over 2,000 people, 80% of which are Saudi
nationals.
Petro Rabigh’s revenues rose 59.2% to SAR46,837.9 million in 2010 compared to previous year.
The company benefitted from higher sales volume (newly commenced units) and better pricing
environment in 2010. Its gross profit was SAR728.7 million compared to a loss of SAR455.4 million
in 2009. The gross profit could have been higher but was affected by unplanned outages of some
plants in 3Q2010.
106
Petro Rabigh reported better numbers in 2010 than 2009 as it officially began operations only in
May 2009, thus resulting in plant availability just for seven months during 2009.
Comments/Outlook
Petro Rabigh is considering a major expansion through the “Rabigh II Project” and has already
commenced feasibility study for the same.
The company plans to achieve the following through the Rabigh II Project: Expanding the existing
ethane cracker for an additional 30 million standard cubic feet per day of feedstock ethane; build-
ing a new aromatics complex using around three million tons per year of naphtha; and construct-
ing various units of petrochemical products having higher value and specialty such as EPR, TPO,
MMA, PMMA, LDPE/EVA, caprolactam, polyols, cumene, phenol/acetone, acrylic acid, SAP and
Nylon-6. The US$7.0 billion Rabigh II Project would add about 17 new products to the portfolio,
most of which would go beyond basic commodities and target the niche market.
Financials
2006 2007 2008 2009 2010

Total Revenue 0 0 6,543 29,423 46,838
% Change NM NM NM 349.7% 59.2%
Cost of Sales 0 0 7,165 29,878 46,109
Gross Profit 0 0 (622) (455) 729
Margin % NM NM -9.5% -1.5% 1.6%
Selling/General/administration expenses
260 423 680 754 841
total
Operating Income (260) (423) (1,302) (1,209) (113)
Margin % NM NM NM NM NM
Interest Inc.(Exp.),Net-Non-Op., Total 85 (20) 45 127 175
Other, Net 0 0 0 (351) 146
Net Income Before Taxes (175) (443) (1,256) (1,433) 209
Net Income After Taxes (175) (443) (1,256) (1,433) 209
Net Margin % NM NM NM NM 0.4%
Net Income (175) (443) (1,256) (1,433) 209
EPS (0.20) (0.51) (1.46) (1.64) 0.24
107
2006 2007 2008 2009 2010

Cash and Short Term Investments 2,080 186 1,534 1,306 2,548
Total Receivables, Net 0 0 2,348 4,682 6,452
Total Inventory 0 0 974 2,670 2,826
Total Current Assets 2,999 697 5,056 8,948 12,212
Accumulated Depreciation, Total 0 0 (83) (790) NA
Long Term Investments 331 2,451 3,338 3,212 9
Other Long Term Assets, Total 0 0 6,548 6,301 3,250
Total Assets 11,171 26,961 47,911 52,146 47,243
Accounts Payable 564 915 6,647 9,455 11,510
Current Port. of LT Debt/Capital Leases 0 0 131 140 1,287
Other Current liabilities, Total 1,266 204 0 0 74
Long Term Debt 6,769 19,444 24,900 26,475 25,197
Capital Lease Obligations 0 0 6,539 6,486 368
Retained Earnings (Accumulated Deficit) (175) (617) 535 (898) (719)
Other Equity, Total 0 0 (32) (31) (31)
Total Equity 2,450 5,953 9,264 7,831 8,010
2006 2007 2008 2009 2010

Cash from Operating Activities (407) (423) 1,520 (1,465) 2,085
Cash from Investing Activities (8,172) (18,092) (10,127) (1,101) 60
Net Change in Cash 2,080 (1,894) 1,348 (228) 1,242
Net Cash - Beginning Balance 0 2,080 186 1,534 1,306
Net Cash - Ending Balance 2,080 186 1,534 1,306 2,549
108
Riyad Bank
Price – 16 Feb 2011 SAR25.90 Public Investment Fund 21.70%

Market Cap (mn) SAR38,850.00 General Organization for
21.60%
Social Insurance
Ticker: Bloomberg/
RIBL:AB/1010.SE Shares Outstanding 1,500.00 mn
Reuters
32.5
30.0
27.5
25.0
22.5
Source: Zawya
Riyad Bank is the largest bank in Saudi Arabia with around 12% market share by total assets. It
provides banking and investment services in accordance to the Islamic Sharia principles.
Riyad Bank offers its services through four divisions: Retail Banking accounted for 28.3% of the
total operating income for the first nine months of 2010, Investment and Brokerage segment
(3.8%), Corporate Banking (40.5%), and Treasury & Investment Banking (14.0%). The Retail Bank-
ing division covers deposit, credit and investment products for individuals and small to medium
sized businesses. Investment banking and Brokerage segment covers investment management
services and asset management activities related to dealing, managing, arranging, advising and
custody of securities. The Corporate Banking division includes direct debit solutions, cash manage-
ment, scheduled transfers, trade finance solutions and credit solutions. The Treasury division of-
fers foreign exchange, deposits and hedging instruments, Saudi Government bonds, as well as
investment services.
Riyad Bank operates through a network of 216 branches across Saudi Arabia. It also has a branch
at London, an agency in Huston, US, and a representative office in Singapore.
109
For the nine months ended September 30, 2010, Riyad Bank's special commission income de-
creased 19.4% to SAR3.6 billion. However, operating income rose by 2.5% due to higher fee and
commission income from Retail Banking, Brokerage, Treasury and Investment segments. Favorable
currency impact and gain on non-trading investments also contributed to the rise in operating
income. Net income decreased 2.7% to SAR2.1 billion due to lower special commission income and
higher impairment charges and loss.
Comments/Outlook
For the nine months ended September 30, 2010, the loan loss provisions as a percentage of net
loans increased from 0.41% in 2009 to 0.74% in 2010.
Riyad Bank was awarded the highest ratings by Standard & Poors, an international credit rating
agency, in 2009. The bank has been awarded A+ and A-1 ratings for long term and short term li-
abilities, respectively. These were the highest credit ratings among banks in the Kingdom. Fitch
awarded the bank an A+ rating for long term liabilities and an F1 for short term liabilities. Addition-
ally, Riyad Bank has been awarded an AA- for long term liabilities and an A+ for short term liabili-
ties by Capital Intelligence.
Financials
2006 2007 2008 2009 9M2010

Total Interest Expense (2,582) (2,943) (2,790) (1,467) (541)
Loan Loss Provision (372) (346) (349) (619) (775)
Fees & Commissions from Operations 1,317 1,011 1,187 1,223 1,070
Dealer Trading Account Profit 358 480 (283) (6) (5)
Investment Securities Gains 19 102 53 (19) 109
Foreign Currency Gains 142 272 264 166 174
Other Revenue 124 38 80 249 47
Labor & Related Expenses (875) (960) (1,053) (1,118) (860)
Depreciation Expense (150) (195) (231) (262) (201)
Other Unusual Expense - - (174) (118) 85
Other Expense (580) (656) (803) (813) (683)
% Margin 99% 92% 67% 70% 66%
% Margin 99% 92% 67% 70% 66%
EPS 2.4 2.5 1.8 2.0 1.4
110
2006 2007 2008 2009 9M2010

Loan Loss Allowances (1,477) (1,525) (1,072) 0 0
Net Loans 52,183 67,340 96,430 106,515 105,042
Other Real Estate Owned 485 493 514 407 397
Other Assets 1,790 3,556 3,415 3,216 4,335
Total Assets 94,016 121,351 159,653 176,399 171,717
Accounts Payable 550 1,157 0 0 0
Other Deposits 8,167 17,798 21,213 16,163 12,416
Other Bearing Liabilities 275 593 0 0 0
Long Term Debt 1,871 1,872 1,874 1,873 1,874
Common Stock 6,250 6,250 15,000 15,000 15,000
2006 2007 2008 2009 9M2010

Cash from Operating Activities 4,325 11,445 (2,593) 5,466 (66)
Cash from Investing Activities (497) (281) (14,058) 9,317 920
Cash from Financing Activities 69 (1,988) 10,925 (2,015) (2,058)
Net Change in Cash 3,897 9,177 (5,726) 12,769 (1,204)
111
Saudi Basic Industries Corp. (SABIC)

Sector: Petrochemicals Public Investment Fund 70.00%
Price – 16 Feb 2011 SAR101.25 Public 24.90%

5.10%
Social Insurance
Ticker: Bloomberg/
SABIC:AB/2010.SE Shares Outstanding 3,000.00 mn
Reuters
120
110
100
90
80
70
Source: Zawya
Established in 1976 by the Government of Saudi Arabia, SABIC is the world’s sixth largest petro-
chemical company. It is the largest petrochemical company in the Middle East. The company is
primarily engaged in the production of basic, intermediate and industrial chemicals and plastics.
SABIC operates through four business units – Chemicals contributing 83.8% to the 2010 gross reve-
nues before consolidated adjustments and eliminations, Fertilizers (3.4%), Metals (6.7%), and Cor-
porate (6.1%). Chemicals segment includes olefins, oxygenates, aromatics, chemical intermediates,
fiber intermediates, industrial gases and linear alpha olefins. Fertilizers products include urea,
ammonia, phosphate, and sulfuric acid. Metals products comprise flat and long steel products.
SABIC has wide geographic presence in Saudi Arabia, with Al-Jubail and Dammam on the Arabian
Gulf and Yanbu on the Red Sea. The company also operates in other international regions, includ-
ing the Middle East, Africa, Asia, the Americas and Europe. SABIC’s manufacturing and compound-
ing complexes are spread across the world – 24 in the Middle East, 11 in Asia, 12 in Europe and 17
in the Americas.
SABIC’s revenues rose 47.2% YoY to SR21.59 billion in 2010 due to growth across segments, par-
ticularly Chemicals, which grew 49.9% YoY to SR167.8 billion on higher volumes and prices.
112
Revenues from Corporate segment increased 100.1% to SR12.3 billion due to higher volumes and
improved plastics prices. SABIC’s net income jumped 2.4x YoY to SR21.59 billion in 2010 owing to
improved operating performance and absence of loss on impairment of goodwill (SR1.8 billion in
2009).
Comments/Outlook
SABIC plans to further diversify its product portfolio. It has taken some strategic initiatives to boost
its performance chemicals business. For instance, in April 2010, SABIC signed an agreement with
the Celanese Corporation for the construction of a 50,000 ton polyacetal (POM) production facility
at the SABIC affiliate National Methanol (IBN SINA) complex in Jubail Industrial City, Saudi Arabia.
The engineering and construction of the facility is expected to begin by 2011 and would be opera-
tional by 2013; it would use methanol produced by IBN SINA. The new facility can boost SABIC's
position in the performance chemicals industry. In August 2010, SABIC signed an agreement with
Lurgi, a German firm, for technology licensing and engineering. The agreement would allow SABIC
to produce oleo-chemicals at Saudi Kayan Petrochemical Company, its affiliate company, following
the completion of new facilities in Jubail, Saudi Arabia. The new production line is expected to be
operational by the end of 2013. SABIC's diversification into oleo-chemical products would increase
its performance chemicals portfolio. The capacity additions in 2010 included the setting up of
Yansab plant encompassing a production capacity of 4.0 mtpa of petrochemical products and the
Sinopec-SABIC joint venture petrochemical complex at Tianjin (China), having a production capac-
ity of 3.2 mtpa. The total capacity of SABIC for petrochemical and other chemical products cur-
rently stands at 69.7 mtpa. With SABIC-Celanese and SABIC-MRC joint ventures commencing op-
erations of their petrochemical plants, the capacity is expected to reach 70.03 mtpa by 2013.
SABIC believes the aggressive expansion strategy would help to increase its total production capac-
ity to 130.0 mtpa by 2020.
Financials
2006 2007 2008 2009 2010

Total Revenue 86,328 126,204 150,810 103,062 151,711
% Change 0.0% 46.2% 19.5% -31.7% 47.2%
Cost of Sales 51,100 78,254 105,046 74,442 103,168
Gross Profit 35,228 47,950 45,763 28,620 48,542
Margin % 0.0% 36.1% -4.6% -37.5% 69.6%
Staff Costs 0 0 4,094 3,558 0
Selling & General expenses 4,342 6,904 8,482 8,004 10,710
Other Operating expenses 0 0 690 1,812 0
Investment Income 2,552 4,230 4,545 1,496 1,360
Finance Charges (1,567) (2,869) (3,801) (3,026) (3,382)
Provision for Income Taxes 1,050 1,800 1,400 900 2,500
Net Margin % 0.0% 31.8% -11.5% -54.4% 103.4%
EPS 6.76 9.01 7.34 3.79 7.59
Source: Reuters Knowledge 113

2006 2007 2008 2009 2010

Total Inventory 14,097 22,831 25,160 24,552 26,240
Goodwill, Net 0 0 14,972 14,061 0
Intangibles, Net 5,094 22,964 8,007 7,840 22,263
Other Long Term Assets, Total 4,018 3,327 3,093 2,659 4,636
Total Assets 166,589 253,731 271,760 296,861 317,214
Accrued Expenses 7,748 12,279 11,864 12,268 10,826
Notes Payable/Short Term Debt 608 1,399 1,236 940 1,121
Current Port. of LT Debt/Capital Leases 5,521 3,272 3,053 5,537 15,501
Dividends Payable 0 0 0 0 625
Income Taxes Payable 1,767 2,166 1,721 1,978
Long Term Debt 33,612 75,438 88,368 100,538 94,031
Minority Interest 27,607 43,342 43,709 44,375 45,342
Total Equity 72,883 91,154 102,933 108,255 120,839
2006 2007 2008 2009 2010

Cash from Financing Activities (5,484) 33,521 (11,272) 3,973 (16,083)
Net Change in Cash 11,384 6,472 5,151 5,350 (5,732)
114
Saudi Arabian Fertilizers Co

Saudi Basic Industries Corpo-

ration
16.70%
Social Insurance
Ticker: Bloomberg/
SAFCO AB/2020.SE Shares Outstanding 250.00 mn
Reuters
200
180
160
140
120
100
Source: Zawya
Saudi Arabian Fertilizer Company (SAFCO), established in 1965, is engaged in the production, proc-
essing and marketing of chemicals such as ammonia, urea, melamine and sulfuric acid. The com-
pany’s products are sold in local as well as international markets. SAFCO’s ammonia and urea
plants in Dammam produce 2.1 million tons of ammonia and 2.3 million tons of urea annually. Its
last major expansion, SAFCO IV, was carried out in 2007 and added 1.1 million tons per annum
(mtpa) of ammonia and 1.1 mtpa of urea capacity. SAFCO is an affiliate of Saudi Arabian Basic In-
dustries (SABIC), which owns a 42.9% stake in the company.
SAFCO’s revenue grew to SAR3,789.5 million in 2010 compared to SAR2,741.7 million in 2009,
owing to higher price realization and increase in sales volumes driven by pickup in demand for
fertilizer products across the globe. In 2010, SAFCO’s gross profit margins improved by 860 basis
points to 71.0% due to higher capacity utilization and effective cost control measures. SAFCO pro-
cures its feedstock, natural gas, from Saudi Aramco at a fixed cost of US$0.75/mmbtu.
As a result, SAFCO posted a net profit of SAR3,234.6 million, up 79.3% over the last year. Further-
more, the company also benefited from a non-operational income of SAR302.5 million in 2010.
115
Earnings per share were SR12.94 in 2010 compared to SAR7.22 in the previous year.
Comments/Outlook
SAFCO has not expanded its production capacity since 2007. It was pursuing two new projects,
SAFCO V and HADEED JV, to expand its current urea and ammonia production capacities as well as
diversify into the steel business. However, these projects were facing delays for quite some time.
In January 2011, SAFCO announced that it has decided to opt out of the planned JV with HADEED
for the construction of a flat steel plant in Jubail Industrial City, and instead would carry out feasi-
bility studies for the construction of a new plant, SAFCO V, for the production of urea.
SAFCO V would have a design capacity to produce 1.2 million tons of ammonia and 1.5 million tons
of urea.
Financials
2006 2007 2008 2009 2010

Total Revenue 1,831 3,105 5,236 2,741 3,789
% Change 0.4% 69.5% 68.6% -47.7% 38.3%
Cost of Sales 741 816 895 1,031 1,100
Gross Profit 1,090 2,289 4,341 1,710 2,690
Margin % 59.5% 73.7% 82.9% 62.4% 71.0%
Selling & General expenses 73 108 15 12 68
Research & Development 28 45 76 40 0

Operating Income 988 2,136 4,250 1,658 2,622
Margin % 54.0% 68.8% 81.2% 60.5% 69.2%
Interest Income (Expense) 209 193 465 179 307
Other, Net (19) (33) (75) (8) 65
Net Margin % 62.9% 71.5% 86.5% 63.2% 77.4%
Total Extraordinary Items 0 (10) (251) 71 303
Net Income 1,151 2,209 4,280 1,804 3,235
EPS 4.61 8.84 17.12 7.22 12.94
116
2006 2007 2008 2009 2010

Cash and Short Term Investments 594 1,573 3,925 2,965 2,256
Property/Plant/Equipment, Gross 6,060 6,222 6,113 5,734 NA
Accumulated Depreciation (2,171) (2,410) (2,655) (2,282) NA
Property/Plant/Equipment- Net 3,889 3,812 3,458 3,452 3,243
Long Term Investments 908 633 235 380 1,269
Other Long Term Assets 313 828 997 901 229
Total Assets 6,729 8,083 9,850 8,808 8,379
Other Current liabilities 71 119 180 138 0
Total Current Liabilities 589 809 739 1,030 630
Long Term Debt 1,063 826 590 353 160
Other Liabilities 337 433 488 411 455
Common Stock 2,000 2,000 2,500 2,500 2,500
Total Equity 4,739 6,014 8,034 7,015 7,134
2006 2007 2008 2009 2010

Cash from Investing Activities 138 29 162 52 474
Cash from Financing Activities (853) (1,465) (2,048) (3,237) (3,487)
Net Cash - Beginning Balance 290 979 2,345 (954) (709)
Net Cash - Ending Balance 304 594 1,573 3,918 2,965
117
Samba Financial Group

Price – 16 Feb 2011 SAR56.75 Public Investment Fund 22.90%

Market Cap (mn) SAR51,075.00 Public Pension Agency 15.00%
Ticker: Bloomberg/
SAMBA:AB/1090.SE Shares Outstanding 900.00mn
Reuters
70
65
60
55
50
45
Source: Zawya
Established in February 1980, Samba Financial Group (Samba) is one of the leading banking and
financial services company in Saudi Arabia. Samba offers its services through four business seg-
ments: Individual, which accounted for 32.8% of the net income for nine months ended Septem-
ber 2010, Corporate (36.2%), Treasury (25.5%) and Investment banking (5.5%).
Through consumer segment, the company provides customer deposit products, credit cards, retail
investment products and consumer loans. Additionally, it provides international and domestic
shares brokerage services and fiduciary funds management services. Corporate segment offers a
wide range of banking products such as corporate time deposits, call and current accounts, over-
drafts, loans and other credit facilities to corporate customers. It also provides cash management
services, investment services, trading and derivative services. Treasury segment deals with ser-
vices related to money market, commission rate trading, foreign exchange and derivatives for
institutional, corporate customers. Samba’s Investment banking segment is involved in asset man-
agement activities in relation with dealing, managing, arranging, and advising businesses on invest-
ments.
Samba operates through a network of 65 branches across Saudi Arabia, a branch in Dubai, and in
London. It also operates in Pakistan through Crescent Commercial Bank, its subsidiary.
118
For the nine months ended September 30, 2010, Samba’s total income decreased 20.1% to SAR4.0
billion due to decline in special commission income. Net special commission income fell 12.0% to
SAR3.1 billion, partly offset by lower special commission expenses and loan loss provisions.
Net income decreased 4.9% to SAR3.5 billion due to lower commission income and trading and
foreign exchange income offsetting income from financial instruments (against a loss of SAR14.7
million last year), higher investments income and other commission income and lower staff ex-
pense.
Comments/Outlook
In April 2010, Samba signed a collaboration agreement with Sejel, which operates and develops
the Hajj and Umrah Information Centre, to develop new Umrah automated payment solution for
collecting payments relating to Umrah packages. Samba opened its first branch in Doha, Qatar, in
the same month. The new branch services include customer deposits, consultancy in the field of
investment, arrangement for investments deals, credit facilities, provision and custody of securi-
ties and investment management.
Loan loss ratio as a percentage of net loans increased marginally from 0.44% in September 2009 to
0.46% in September 2010. Samba has been assigned a stable outlook by Capital Intelligence, an
international credit rating agency. Capital Intelligence upgraded Samba’s rating from A+ to AA-
based on the credit profile and financial strength.
Financials
2006 2007 2008 2009 9M2010

Total Interest Expense 3,442 3,365 3,365 1,282 481
Non-Interest Income 2,252 1,951 1,951 2,040 1,860
Labor & Related Expenses (1,289) (1,366) (1,366) (1,266) (909)

Depreciation Expense (123) (137) (137) (143) (102)
Real Estate Operation Expense (181) (199) (199) (222) (168)
Other Expense (373) (409) (409) (320) (256)
Non-Interest Expense (1,966) (2,111) (2,111) (1,951) (1,435)
Net Income 4,828 4,454 4,454 4,560 3,534
EPS 5.36 4.95 4.95 5.07 3.94

119
2006 2007 2008 2009 9M2010

Interest-earning Deposits 2,312 878 878 3,499 3,003
Other Short Term Investments 53,574 54,213 54,213 54,967 64,350
Total Gross Loans 83,553 101,220 101,220 87,522 0
Loan Loss Allowances (2,999) (3,073) (3,073) (3,376) 0
Net Loans 80,553 98,147 98,147 84,147 81,316
Other Assets 6,033 10,977 10,977 6,154 7,738
Total Assets 154,414 178,891 178,891 185,518 185,014
Non-Interest Bearing Deposits 0 43,590 43,590 57,207 0
Other Deposits 115,811 6,373 7,317 7,116 131,929
Other Bearing Liabilities 0 6,584 6,584 2,767 0
Long Term Debt 2,039 1,873 1,873 1,874 1,875
Common Stock 6,000 9,000 9,000 9,000 9,000
Translation Adjustment 0 (75) 0 0 0
Other Equity (288) (433) (433) (710) (1,160)
Total Equity 17,845 19,846 19,846 22,310 25,452
2006 2007 2008 2009 9M2010

Cash from Financing Activities (4,335) (1,609) (1,609) (1,657) (2,084)
Net Cash - Beginning Balance (3,991) 1,267 1,267 21,479 (7,831)
120
Saudi Arabian Mining Co (Ma'aden)

Sector: Mining Public Investment Fund 50.00%

8.40%
Price 52wk High/Low SAR24.70/15.80 Social Insurance
MAADEN AB/1211.SE
26
24
22
20
18
16
14
Source: Zawya
Saudi Arabian Mining Co (Ma'aden) was formed in March 1997 for developing Saudi Arabia’s min-
eral resources. For most part of its history, Ma'aden has been engaged in mining of gold and some
base metals. It operates five gold mines in the KSA, namely Mahd Ad Dahab, Al Hajar, Sukhaybarat,
Bulghah and Al Amar. In line with its bid to become a world-class international mineral resource
company, Ma’aden is now expanding activities beyond mining of gold and base metals to phos-
phate, bauxite, magnesite, caustic soda and others. Ma'aden has tied up with SABIC for a Phos-
phate Project and with Alcoa for an Aluminium Project. It also plans to produce caustic soda in
joint venture (JV) with Sahara Petrochemical Company.
Ma'aden reported sales of SAR706.5 million in 2010, up 11.4% YoY. The company benefitted from
higher gold prices, as gross profit margins expanded by a little more than 400 basis points to 55.8%
in 2010 from 51.7% in 2009. Data from the World Gold Council suggests that gold prices rose 29%
in 2010 to US$1,406 per oz by December-end on the London PM fx.
Despite generating a higher gross profit, Ma'aden ended 2010 with a net loss of SAR12.8 million
compared to a net profit of SAR394.8 million in 2009, owing to higher selling, general & adminis-
trative (SG&A) expenses and higher tax (Zakat) provisions.
121
SG&A expenses jumped 38.5% in 2010 to SAR217.4 million from SAR156.9 million a year earlier.
The company stated that Zakat provision for 2010 was re-calculated and hence, resulted in a huge
loss in 4Q2010 and effectively the entire 2010.
Comments/Outlook
The Phosphate Project, which is being developed as a 70:30 JV with SABIC, is set to be operational
soon (3Q2011). Commencement of the USD5.5 billion plant is expected to boost the earnings of
Ma'aden.
The Phosphate Project comprises two sub-projects. The first, at the Al-Jalamid mine in the north of
KSA, would comprise a phosphate mine and a beneficiation plant. The second, at the Ras az-Zawr
site about 90 km north of Al-Jubail, would have a fertilizer production facility comprising diammo-
nium phosphate (DAP), ammonia, sulphuric acid and phosphoric acid processing plants.
Once complete, the Phosphate Project would produce an estimated 2.92 million tonnes per year
(MTPA) of granular DAP, in addition to approximately 0.44 MTPA of excess ammonia for exporting
to the world markets.
Financials
2006 2007 2008 2009 2010

Total Revenue 350 244 460 634 707
% Change 25.8% -30.2% 88.5% 37.9% 11.4%
Cost of Sales 188 167 239 306 312
Gross Profit 162 77 221 328 394
Margin % 46.3% 31.4% 48.0% 51.7% 55.8%
Selling & General expenses 56 94 219 157 217
Operating Income 44 (54) (88) 44 35
Margin % 12.7% -22.2% -19.0% 7.0% 4.9%
Interest Income (Expenses) 274 226 290 314 168
Other, Net 0 28 (1) 300 (14)
Net Income After Taxes 318 199 202 390 (18)
Net Margin % 90.9% 81.6% 43.8% 61.5% NM
Net Income 318 199 203 395 (13)
EPS 0.34 (0.27) 0.22 0.43 (0.01)
122
2006 2007 2008 2009 2010

Other Current Assets, Total 7 82 753 292 2,750
Property/Plant/Equipment, Total - Gross 720 777 7,552 14,727 20,980
Property/Plant/Equipment, Total - Net 310 341 7,053 14,144 20,319
Long Term Investments 0 1,816 0 0 0
Note Receivable - Long Term 64 0 66 19 86
Other Long Term Assets, Total 674 474 1,810 2,936 2,016
Total Assets 6,038 5,848 21,358 29,230 34,910
Accounts Payable 83 147 2,429 623 692
Accrued Expenses 110 106 1,144 969 1,517
Total Current Liabilities 193 253 3,573 1,906 2,494
Long Term Debt 0 0 820 8,783 13,517
Minority Interest 0 0 639 1,782 2,134
Total Liabilities 306 364 5,171 12,647 18,341
Additional Paid-In Capital 0 0 5,250 5,250 5,250
Treasury Stock - Common 183 183 204 243 243
Total Equity 5,731 5,484 16,188 16,582 16,570
2006 2007 2008 2009 2010

Cash from Operating Activities 159 (645) 3,026 138 307
Cash from Investing Activities (94) 1,058 (11,249) (8,874) (5,609)
Cash from Financing Activities 0 0 11,183 7,963 5,091
Net Change in Cash 65 413 2,961 (774) (210)
Net Cash - Beginning Balance 4,682 183 596 4,145 3,371
Net Cash - Ending Balance 4,747 596 3,556 3,371 3,161
123
Saudi Electricity Company

Ministry of Water and Elec-

Sector: Electric Utilities 100.00%
tricity (Saudi Arabia)
Price – 16 Feb 2011 SAR14.00 Foreign ownership limit 49.00%
Market Cap (mn) SAR58,332.26 Shares Outstanding 4,166.59
Ticker: Bloomberg/
SECO:AB/5110.SE
Reuters
16
15
13
12
10
Source: Zawya
Saudi Electricity Company (SECO), a leading electric utility in Saudi Arabia, is primarily engaged in
the generation, transmission and distribution of electric power in the country. The company caters
to governmental, industrial, agricultural, commercial and residential consumers. It generates
power through its gas, steam, diesel and cogeneration units, which have annual combined genera-
tion capacity of 39,242 megawatts.
Power transmission activity is carried out through the company’s high-voltage transmission net-
work, which comprises around 39,793 circuit km of underground and overhead cables and 170,400
circuit km of distribution lines. SECO transmits power to around 5,420,810 customers. The com-
pany’s Transmission Business Unit (TBU) owns and operates of the transmission system through
570 substations and 1653 power transformers, which have a combined capacity of well over
148,088 MVA. Established in 2000 in Riyadh, SECO employs around 28,315 people.
Total revenues increased 16.8% to SAR27.86 billion for the fiscal year ended December 31, 2010,
led by a growth in electricity sale due to higher reading and maintenance of meters as well as in-
creased gains on electricity transmission. Operating income rose 2.3x to SAR1.8 billon on a fall in
total costs (as a percentage of revenue), primarily cost of production.
124
Net income grew 97.3% to SAR2.3 billion in 2010 from SAR1.1 billion in 2009 on account of a
32.7% increase in other non-operating income.
Comments/Outlook
SECO is a major player in power generation. It commands a 45.7% market share in Middle East and
around 85% in Saudi Arabia. The company contributes around 90% to the country’s total power
generation capacity and serves more than 5.42 million customers in Saudi Arabia. Moreover, it
enjoys a monopoly in electricity transmission and distribution services. The company expects to
build a customer base of 7.9 million by the end of 2016 as it seeks to meet the rising demand for
power in the Persian Gulf’s most populated Arab country. It plans to add 12,752 megawatts during
2012–2016.
In an attempt to further expand its business, the company has signed several new business deals
in 2010. In August 2010, SECO awarded generation and transmission projects worth SAR14.7 bil-
lion for the expansion of its power generation plant in Rabigh and establishment of a transfer sta-
tion in Al Jaouf with a capacity of 380 kilovolt. SECO also signed a contract worth SAR12.8 billion
with Doosan Heavy Industries & Construction Ltd to expand Rabigh power plant’s total capacity to
2,555 megawatts annually. SECO has entered into a pact with ABB Ltd to build six substations in
Saudi Arabia. As per the contract, ABB will design, supply, install and commission six substations,
with a capacity of around 110/13.8 kilovolt. This project is scheduled for completion in 2012. The
company is also developing a new substation, which would ensure reliable power supply in Ri-
yadh’s King Abdullah Financial District.
Financials
2006 2007 2008 2009 2010

Total Revenue 19,707 20,839 22,289 23,851 27,858
% Change 6% 7% 7% 17%
Cost of Revenue 12,304 13,069 14,563 15,208 17,288
Gross Profit 7,403 7,770 7,726 8,643 10,570
% Margin 38% 37% 35% 36% 38%
Selling/General/Administrative Expense 183 284 217 316 382
Depreciation/Amortization 6,065 6,372 6,745 7,515 8,355

Operating Income 1,155 1,114 764 812 1,833
% Margin 4% 4% 3% 3% 7%
Net Income 1,414 1,413 1,105 1,170 2,307
% Margin 5% 5% 4% 4% 8%
EPS 0.3 0.3 0.3 0.3 0.6
125
2006 2007 2008 2009 2010

Accounts Receivable - Trade, Net 9,630 12,362 14,257 9,675 9,949
Receivables - Other 911 922 817 911 0
Total Inventory 4,696 6,587 5,807 5,623 5,702
Prepaid Expenses 1,580 1,719 2,898 1,956 3,635
Property/Plant/Equipment, Gross 195,311 209,650 231,773 262,264 28,198
Accumulated Depreciation, (100,994) (106,945) (113,561) (120,940) 0
Property/Plant/Equipment, Net 94,317 102,705 118,212 141,324 161,704
Other Long Term Assets 11,125 4,825 0 366 366
Total Assets 127,208 136,370 145,382 166,091 190,875
Accrued Expenses 353 455 327 1,440 0
Current Port. of LT Debt/Capital Leases 741 979 556 828 1,189
Dividends Payable 330 283 302 0 0
Other Payables 335 419 289 0 4,405
Other Current Liabilities 233 337 395 0 0
Long Term Debt 23,953 18,784 19,586 21,450 29,320
Pension Benefits - Underfunded 3,974 4,009 4,351 4,422 4,690
Other Long Term Liabilities 24,812 30,907 32,744 41,425 51,121
Common Stock 41,666 41,666 41,666 41,666 41,666
Total Equity 47,129 47,994 48,553 49,175 50,686
2006 2007 2008 2009 2010

Cash from Financing Activities 895 (526) (150) 8,609 14,691
Net Change in Cash 3,193 1,389 (4,357) 1,650 4,340
126
Saudi Kayan Petrochemical Company

Sector: Petrochemicals Public 45.00%
Price – 16 Feb 2011 SAR18.80 SABIC 35.00%

Market Cap (mn) SAR28,200.00 Al Kayan Petrochemical
20.00%
Company
Ticker: Bloomberg/
KAYAN AB/2350.SE Shares Outstanding 1,500.00 mn
Reuters
25.0
22.5
20.0
17.5
15.0
Source: Zawya
Saudi Kayan Petrochemical Company, a Saudi Arabia-based public shareholding company, was
established in 2005 through a partnership between Saudi Basic Industries Corp. (SABIC) and Al-
Kayan Petrochemical Company (Kayan). The company went public in April 2007. Saudi Kayan Pet-
rochemical Company operates in the chemicals and petrochemicals industry and manages Saudi
Kayan Industrial Complex (a petrochemical complex located at Jubail Industrial City) that has an
annual production capacity of over 4 million metric tons of petrochemical and chemical products.
The company’s product portfolio includes ethylene, propylene, benzene, polyethylene, polypropyl-
ene, ethylene glycols, polycarbonate, ethanolamines, acetone, dimethyl formamide, ethoxylates,
choline chloride, and Bisphenol A.
Since Saudi Kayan Petrochemical Company is yet to commence production, it has not recorded any
product revenues. Net loss decreased by 12.5% to SAR14.7 million, in FY2010 primarily due to
lower pre-operation costs. It is important to note that the financial results are non-comparable as
the company is still in the pre-operational phase and all profits and losses are non-operating. The
company is expected to commence commercial operations in 2012.
127
Comments/Outlook
Saudi Kayan Industrial Complex has drafted major plans to promote specialized chemicals in the
Saudi marketplace. Such products, which would be produced for the first time in the country, are
expected to provide wide opportunities for downstream industries. The company also plans to
establish an applications center focusing on the development of industrial products and applica-
tions. The center would stress on polycarbonate research and target other newly added down-
stream industries in Saudi Arabia. Saudi Kayan Petrochemical Company recently announced it has
begun trial operations of High Density Polyethylene (HDPE) plant and Phenolics plant. Besides this,
it signed an agreement in January 2011 to build and operate N-Butanol plant in Jubail Industrial
City.
Financials
2007 2008 2009 2010

Total Revenue 0 0 0 0
Cost of Revenue 0 0 0 0
Gross Profit 0 0 0 0
SG&A Expense 70 66 5 0
Research & Development 30 30 0 0
Other Operating Expense 26 76 12 14
Total Operating Expense 126 172 17 14

Operating Income (126) (172) (17) (14)
Interest Income (Expense) 495 677 0 0
Other Non-Operating Income (Expense) (38) 2 0 0
Net Income Before Taxes 330 507 (17) (14)
Provision for Income Taxes 8 13 0 1
Net Income 323 494 (17) (15)
EPS (Basic) 0.22 0.33 (0.01) (0.01)
128
2007 2008 2009 2010

Cash and Short Term Investments 10,765 3,522 2,472 967
Total Receivables, Net 64 64 147 1,298
Total Inventory - - - 498
Prepaid Expenses 40 24 21 120
Property, Plant and Equipment, Total - Net 4,837 18,764 33,147 40,528
Other Long Term Assets, Total 6 27 21 34
Total Assets 15,713 22,402 35,808 43,445
Accounts Payable 229 540 272 262
Current portion of long term debt - - - 580
Other Current liabilities, Total 135 500 883 1,517
Long Term Debt - 5,815 19,113 25,535
Other Long Term Liabilities 26 52 62 89
Total Liabilities 391 6,908 20,331 27,983
Common Stock 15,000 15,000 15,000 15,000
Retained Earnings (Accumulated Deficit) 323 494 477 462
Total Equity 15,323 15,494 15,477 15,462
Total Liabilities & Shareholders' Equity 15,713 22,402 35,808 43,445
2007 2008 2009 2010

Cash from Operating Activities 390 577 (946) (2,758)
Cash from Investing Activities (4,624) (17,870) (13,404) (5,749)
Cash from Financing Activities 15,000 20,815 13,299 7,002
Net Change in Cash 1,389 3,522 (1,051) (1,505)
Net Cash - Beginning Balance 4,201 0 3,522 2,472
Net Cash - Ending Balance 5,589 3,522 2,472 967
129
Savola Group
Sector: Agriculture & Food Industries Public 60.10%

Mohammed Ibrahim Mo-
Price – 16 Feb 2011 SAR29.10 11.90%
hammed Al Issa
10.90%
SAVOLA AB/2050.SE Shares Outstanding 500.00 mn
Reuters
40.0
37.5
35.0
32.5
30.0
27.5
25.0
Source: Zawya
Established in 1979, the Savola Group is a Saudi Arabia-based company that is primarily engaged in
manufacturing and marketing vegetable oils, food products, retailing, packaging materials and fast
food operations. The Savola Group operates through four core sectors: (i) Savola Foods Sector,
dealing in edible oils, foods and sugar; (ii) Savola Retail Sector, which operates retail stores (Panda
and Hyper Panda); (iii) Real Estate Sector (Kinan International) and; (iv) Savola Plastics Sector. The
group also has a franchising unit that has exclusive rights in Saudi Arabia for 10 international
brands of fashion wears from different countries.
The Savola Group also holds stake in Al Marai Dairy Company (30%), Herfy Foods Services Com-
pany (49%), Jordanian Tameer Company (5%), Knowledge Economic City (Madinah) and King Ab-
dullah Economic City (Rabigh). The company employs over 17,000 people, both inside KSA and
overseas.
Savola posted revenues of SAR21,055.6 million in 2010, up 17.5% y-o-y. As has been the case in
previous years, retail sales and edible oil sales contributed to over 75% of the group’s top line.
Savola has been focusing and consolidating interests in the retail sector.
130
The group’s Panda retail chain is a dominant player in the Kingdom’s grocery retail market; it
bought Al-Hokair Group’s 7% stake in Azizia Panda for SAR297.6 million in September 2010. In
addition, Savola has a 62% share in Saudi Arabia’s edible oil market. However, despite growth in
revenues, the group earned lower gross profit margins of 15.8% in 2010 as compared to 17.3% in
2009 due to higher commodity food prices.
Savola ended 2010 with a net income of SAR886.7 million for an EPS of SAR1.77 as compared to a
net income of SAR951.6 million for an EPS of SAR1.90 in 2009. The group’s 2010 net income was
affected by impairment losses of SAR283.8 million relating to provisions for accumulated losses in
the food division and decline in its investment’s market value.
Comments/Outlook
Savola has a clear two-fold strategy: focus on accelerating growth in the core businesses; and lev-
erage on core competencies. The group has been buying out minorities and undertaking organic
expansion in edible oil, sugar and food retail businesses. Savola has also been taking steps to lever-
age its branding power, geographical footprint, logistics infrastructure and distribution network.
The group spent over SAR1.2 billion to buy an additional 5% stake in Savola Foods Company, ac-
quire minority shareholdings of Afia Egypt and New Marina Egypt, buy Saudi Géant, and acquire
Tate and Lyle’s shareholding in the sugar business. Savola realized SAR550 million cash by exiting
non-core investments.
Financials
2006 2007 2008 2009 2010

Total Revenue 9,097 10,410 13,821 17,917 21,056
% Change 32.7% 14.4% 32.8% 29.6% 17.5%
Cost of Sales 7,553 8,706 12,007 14,810 17,723
Gross Profit 1,543 1,704 1,814 3,107 3,332
Margin % 17.0% 16.4% 13.1% 17.3% 15.8%
Selling & General expenses 863 1,039 1,289 2,162 2,494
Other Operating Expenses 73 250 582 222 284
Operating Income 479 297 (217) 723 554
Margin % 5.3% 2.9% -1.6% 4.0% 2.6%
Interest Income (Expenses) 841 1,108 492 671 652
Other, Net 26 49 (52) (147) (54)
Net Income Before Taxes 1,347 1,453 223 1,247 1,152
Net Income After Taxes 1,301 1,338 170 1,183 1,024
Net Margin % 14.3% 12.9% 1.2% 6.6% 4.9%
Minority Interest (152) (108) 32 (232) (137)
Net Income 1,149 1,230 202 952 887
EPS 1.41 1.44 0.40 1.90 1.77

131
2006 2007 2008 2009 2010

Cash and Short Term Investments 2,918 1,282 753 1,091 845
Total Receivables, Net 1,047 664 920 1,417 1,518
Total Inventory 1,377 1,267 2,099 2,408 2,513
Prepaid Expenses 551 534 1,017 829 981
Other Current Assets, Total (39) (35) (60) (111) 0
Accumulated Depreciation, Total (1,791) (1,879) (2,407) (2,957) NA
Intangibles, Net 205 238 654 918 1,020
Total Assets 11,275 11,590 14,546 17,257 17,720
Accounts Payable 866 782 1,216 1,830 2,003
Accrued Expenses 929 910 1,324 1,461 1,689
Notes Payable/Short Term Debt 1,703 1,314 3,294 2,227 2,074
Long Term Debt 560 457 1,117 1,996 2,393
Minority Interest 792 616 748 1,567 1,188
Unrealized Gain (Loss) 54 451 (127) (22) (82)
Other Equity, Total (103) (92) (161) (194) (274)
Total Equity 6,084 7,157 6,389 6,961 7,031
2006 2007 2008 2009 2010

Cash from Operating Activities 325 887 472 2,342 1,768
Cash from Investing Activities 536 (2,548) (2,351) (1,500) (1,255)
Cash from Financing Activities 1,757 (829) 2,153 (444) (886)
Net Change in Cash 0 (2,490) 274 397 (374)
Net Cash - Beginning Balance 2,618 2,820 330 604 1,001
Net Cash - Ending Balance 202 330 604 1,001 628
132
Telecom Egypt SAE

Sector: Telecommunications Government of Egypt 80.00%
Price – 27 Jan 2011 EGP16.03 Public 20.00%

Market Cap (mn) EGP27,364.33
Price 52wk High/Low EGP20.49/14.92
Ticker: Bloomberg/ Shares Outstanding 1,707.07 mn
ETEL EY/ETEL.CA
Reuters
22
20
18
16
14
Jan-10 Apr-10 Jun-10 Aug-10 Nov-10 Jan-11
Source: Zawya
Telecom Egypt is a provider of landline, retail and wholesale telecommunication services in Egypt.
Retail services of Telecom Egypt include access revenues, voice revenues, international service
revenues and data transmission revenues. Wholesale services include broadband capacity leasing,
internet services, and national and international interconnection services.
In terms of revenue mix, retail services accounted for 58% of the total revenues in 2009, while
wholesale services contributed to the rest. Contribution of wholesale services has increased from
39% in 2008.Telecom Egypt had 9.4 million voice customers and over 819,000 broadband subscrib-
ers at the end of September 2010. The company also owns a 44.95% stake in Vodafone Egypt.
For nine months ending September 30, 2010, Telecom Egypt reported revenues of EGP7,793.3
million, up 0.7% y-o-y. In terms of segmental growth, wholesale services grew 17% y-o-y as against
a 5% decline in retail services. The rise in revenues from wholesale services can be ascribed to
growth in domestic wholesale, particularly due to infrastructure leasing to mobile providers and
ISPs, with some additional growth in mobile interconnections. Income from Vodafone Egypt added
EGP1,022 million to Telecom Egypt’s net profit in 9M 2010.
133
Despite a highly competitive mobile market in the country, Vodafone Egypt has gained market
share and increased its customer base to about 29 million subscribers as on September 30, 2010.
Consolidated net profit for the nine months of 2010 was EGP2,728.5 million, a 5.9% rise y-o-y. This
translates into an EPS of EGP1.60 for the company.
Comments/Outlook
Financials of the last four years clearly indicate that Telecom Egypt has not recorded much growth.
This is driving the biggest telecom operator in Egypt to look at ways to increase exposure in the
mobile market through several alternatives. These include enhancing stake in Vodafone Egypt or
applying for the fourth mobile license in Egypt, among others.
Telecom Egypt recently declared that it is now considering acquiring a Mobile Virtual Network
Operator (MVNO) license. This news was taken positively by investors since an MVNO requires less
capital expenditure, both for acquiring the license as well as rolling out services. Minimal invest-
ments in the MVNO would leave the company with ample free cash, which could be used to re-
ward shareholders. Telecom Egypt had cut the shareholders’ dividend by 40% to EGP0.75 in 2009
from EGP1.30 in 2008 to save cash to acquire growth.
Financials
2006 2007 2008 2009 9M2010

Total Revenue 9,517 9,993 10,117 9,960 7,793
% Change 11.3% 5.0% 1.2% -1.5% 0.7%
Cost of Sales 1,478 1,447 1,270 999 4,322
Gross Profit 8,039 8,546 8,847 8,961 3,471
Margin % 84.5% 85.5% 87.4% 90.0% 44.5%
Selling & General expenses 1,322 1,485 1,782 1,911 1,458
Depreciation/Amortization 2,726 2,737 2,550 2,475 0
Other Operating Expenses 1,784 2,172 2,577 2,631 0
Margin % 23.2% 21.5% 19.1% 19.5% 25.8%
Interest Income (Expense) 155 466 1,119 1,407 (114)
Other, Net 536 436 251 158 236
Net Margin % 25.5% 25.4% 27.6% 30.7% 21.9%
Equity In Affiliates 0 0 0 0 1,020
Net Income 2,427 2,534 2,790 3,051 2,728
EPS 1.42 1.48 1.63 1.79 1.60
134
2006 2007 2008 2009 9M2010

Cash and Short Term Investments 712 1,397 2,735 2,453 4,158
Accumulated Depreciation, Total (17,411) (20,222) (22,759) (25,187) (26,529)
Other Long Term Assets, Total 1,267 650 164 142 263
Total Assets 35,929 34,591 33,870 32,461 32,346
Accounts Payable 182 130 205 157 3,709
Current Port. of LT Debt/Capital Leases 1,291 1,827 1,513 179 153
Other Current liabilities, Total 3,185 3,255 3,371 3,570 353
Long Term Debt 6,105 3,151 1,626 858 742
Total Equity 24,563 25,745 26,631 27,228 27,204
2006 2007 2008 2009 9M2010

Cash from Investing Activities (6,265) (149) 515 (65) (1,711)
Cash from Financing Activities 2,572 (2,487) (1,826) (2,085) (2,191)
Net Change in Cash (115) 809 1,284 (244) (668)
135
Yanbu National Petrochemicals Co

Saudi Basic Industries Corpo-

ration
9.20%
YANSAB AB/2290.SE
60
54
48
42
36
30
Source: Zawya
Established in 2006, Yanbu National Petrochemicals Company (Yansab) is a Saudi Arabia-based

public joint stock company operating in the petrochemicals industry. The company manufactures
petrochemical products such as ethylene, propylene, mono-ethylene glycol (MEG), di-ethylene
glycol, tri-ethylene glycol, polypropylene, low linear density polyethylene, high-density polyethyl-
ene, butane, methyl-butyl ether (MTBE), and benzene.
Yansab has an annual production capacity of 4.0 million tons of petrochemical products. The com-
pany was listed on the Tadawul Stock Exchange (TASI) following an IPO in February 2006. Yansab is
a subsidiary of Saudi Basic Industries Corporation (SABIC), which has 51% stake in the company.
For the fiscal year ended December 31, 2010, Yanbu National Petrochemicals Company's revenues
totaled SAR5.8 billion. No comparative figures are available for the previous year since Yansab
started commercial operations in March 2010. The growth in revenues was primarily driven by an
increase in prices and higher sales volume of polymers and mono-ethylene glycol (MEG). Most
petrochemical companies benefited from the improved price environment in 2010. Yansab’s oper-
ating income totaled SAR167.4 million in 2010. The company’s operating margins came in at 28.7%
in the year; certain technical faults at the plant site negatively affected margins in 3Q2010.
136
Yansab’s operating income totaled SAR167.4 million in 2010. The company’s operating margins
came in at 28.7% in the year; certain technical faults at the plant site negatively affected margins
in 3Q2010. Yansab recorded a net profit of SAR1.7 billion in 2010 as against a net loss of SAR29.2
million in the previous year.
Comments/Outlook
Yansab is handling one of the two major capex projects currently being undertaken by the SABIC
group at Yanbu on the west coast. Yansab mainly focuses on the production of basic chemicals
such as ethylene and propylene, and helps its parent company SABIC meet demand from Asia and
other growing markets. Lowest feedstock costs, favorable government policies, growing demand
from Asian countries and large-scale capacity expansions are likely to improve the performance of
petrochemical companies in Saudi Arabia.
Yansab benefits from SABIC’s infrastructure, which includes financial support, cheaper feedstock
and marketing channels.
Financials
2006 2007 2008 2009 2010

Total Revenue 0 0 0 0 5,822
Cost of Revenue 0 0 0 0 3,652
Gross Profit 0 0 0 0 2,170
Margin % 0 0 0 0 37%
SG&A Expense 49 83 26 29 123
Other Operating Expense 0 0 0 0 376
Total Operating Expense 49 83 26 29 4,151

Operating Income (49) (83) (26) (29) 1,670
Margin % 0 0 0 0 29%
Net Income Before Taxes 144 114 (26) (29) 1,713
Net Income 140 110 (26) (29) 1,673
Net Margin % 0 0 0 0 29%
EPS 0.25 0.20 (0.05) (0.05) 2.97
137
2006 2007 2008 2009 2010

Cash & Cash Equivalents 821 1,694 1,033 606 790
Total Receivables, Net 0 0 77 865 2,736
Total Assets 7,082 15,309 18,677 21,124 23,163
Accrued Expenses 1,081 1,267 1,039 488 1,058
Current portion of long term debt 0 0 669 916 947
Long Term Debt 0 8,166 11,128 13,696 13,464
Other Long Term Liabilities 37 49 81 81 98
Common Stock 5,625 5,625 5,625 5,625 5,625
Retained Earnings (Accumulated Deficit) 128 98 72 43 1,715
Total Equity 5,753 5,723 5,697 5,668 7,340
2006 2007 2008 2009 2010

Cash from Operating Activities 1,402 1,220 (178) (1,787) 1,697
Net Change in Cash 821 1,694 (661) (427) 184
Net Cash - Beginning Balance 0 0 1,694 1,033 606
Net Cash - Ending Balance 821 1,694 1,033 606 790
138
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Dubai-UAE
P.O.Box 506838
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Fax: +971 4 4534145
Email: Research@almasahcapital.com
Website : www.almasahcapital.com
Disclaimer:
This report is prepared by Al Masah capital Management Limited (“AMCML”). AMCML is a company incorporated under the
DIFC Companies Law and is regulated by the Dubai Financial Services Authority (“DFSA”). The information contained in this
report does not constitute an offer to sell securities or the solicitation of an offer to buy, or recommendation for investment in,
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Copyright © 2011 Al Masah Capital Management Limited
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نظرة عن اداء الاقتصاد العالمي 2010 وتقعات 2011

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MENA Year Book - 2011

• How did the global economy perform in 2010?

Global economies transitioning from recession to growth

MENA Economies – Uptrend in energy prices aiding growth

MOVEMENTS OF GLOBAL ECONOMY IN 2010

From recession to growth

Exhibit 1: Real GDP growth rate for different economic blocks

World Advanced economies

Economic performance of different blocs/regions

Growth in US remains shaky

New home sales Housing starts

Source: US Census Bureau

Strong growth in Germany despite the Eurozone debt crisis

-2% -4% -16%

Source: Destatis - Federal Statistical Office, Germany

Right move by the UK to tackle deficit

The UK economy is undergoing a slower-than-expected recovery due to weaknesses in services

Source: Destatis - Federal Statistical Office, Germany

Japan slips back into deflation

Real GDP Growth Exports growth

Source: Cabinet Office, Government of Japan

China, India lead global economic recovery

Central banks across Asia move to rein in inflation

Exhibit 9: Benchmark interest rates for major Asian countries (%)

China India South Korea Malaysia

Revival in energy prices boosts growth for hydrocarbon exporters

2009 2010* Jan-11

Source: IMF, 2010 numbers are estimates Source: Bloomberg

Growth in Australia led by rising demand from China

Major themes of economic importance across the globe

Threat of sovereign debt contagion gains prominence in Europe

Source: Bank of International Settlements Source: IMF WEO October 2010

Euro continues to suffer due to debt crisis

US Fed moves ahead with second round of quantitative easing

Threat of uncompetitive currency policies spreads

Therefore, to ensure export competitiveness, it is crucial to maintain a weak currency—artificial

Threat of asset bubbles and inflation across Asia

Interest rate Inflation Interest rate Inflation

Revival in Chinese and German exports

Emerging Asia driving import growth this year

Trading activities of commodity producers improve in 2010

Outlook on the global economy

Eurozone: Periphery economies remain a concern

Emerging economies: Growth may lower as policy tightening takes effect

Outlook on key issues

Commodity prices to continue rising

Growing importance of agricultural innovation

Necessity of investments in renewable and nuclear energy

Greater flexibility in emerging market currencies needed

MENA ECONOMIC MOVEMENTS

MENA Oil importers Oil exporters GCC

Upward movement in global energy prices aid growth

Contribution of the non-oil sector to growth

2006 2007 2008 2009 2010E 2011F Bahrain Kuwait Oman

Non-oil real GDP Oil real GDP Qatar KSA UAE

Overall movement in the region’s diversification agenda

Exports aid the revival in economic activity in 2010

MENA oil exporters benefitted from higher energy prices

-5% -31% -12%

MENA Oil Exporters GCC MENA Oil Importers

Improvement in current account balances in 2010

MENA Oil Exporters GCC MENA Oil Importers

Government finances improved in 2010