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Tuesday, 28 April 2009

Political fat tails

Probability distributions didn’t do a great job predicting financial meltdown, and we’re not sure they’ll be much better at predicting general events. But, since it’s not far-fetched to think that political extremes can follow economic ones, for what it’s worth, here is the political application of fat tail risk.

Risk consultancy Eurasia Group is exploring the “increasing likelihood of radical political disjunctures”, or fat tail events in national-level politics.

Dubai contractors still concerned over payments

Some Dubai-based construction contractors are concerned over when they will receive further payments from state-linked developers despite cash beginning to trickle into their accounts in the former Gulf Arab boomtown.

Five out of eight contractors contacted by Reuters said that while they had started receiving money from the developers, payments were still slow and way behind schedule.

Dubai, which owns stakes in major local developers, launched a $20 billion bond programme in February, issuing the first half to the United Arab Emirates central bank to enable the government to help firms meet debt and other obligations. "No, it's still not enough. We are waiting to see the full impact of the bonds filtering through to these companies," said a director of a large construction firm, speaking on condition of anonymity.

Eurasia Group releases new report, "Fat Tails in an Uncertain World" (PDF)

As the global economic crisis has increased pressures on political leaders, institutions, and the stability of countries, certain "fat tails," highly volatile and seemingly improbable political scenarios, have become much more conceivable. Eurasia Group names ten places around the world where there is the potential for dramatic political changes.

Eurasia Grp Says UAE Faces "Fat Tail" Risk On Econ Crisis

The United Arab Emirates, the world's fifth-largest owner of oil reserves, faces growing political uncertainty from the effects of the global financial crisis, according to U.S.-based Eurasia Group.

The influential think-tank ranks the oil-rich emirates amongst a list of 10 states including Pakistan, Russia, Mexico and Argentina that could face a "fat tail" political crisis from the impact of the current economic downturn.

"The weakness of existing federal institutions and personalization in U.A.E. politics exposes Emirati leaders' inability to respond in unison to the current crisis," Eurasia Group said in the report entitled "Fat Tails in an Uncertain World."

In Dubai, Defaults Hit Developers

Developers here are scrambling to prevent a wave of investor defaults as they struggle to survive this city-state's real-estate bust.

During a frenzied property boom, many investors bought property on speculation, expecting to be able to quickly flip homes -- sometimes entire floors in buildings -- before construction was finished. But in recent months, prices have cratered, some falling by more than 50%.

Buyers of unfinished homes have all but disappeared. That has left many investors either unable or unwilling to make final payments, which often are due upon completion and amount to as much as 50% of the total price of the home.

Saudi banks to perform well this year on better interest income

Saudi Arabia's banks are expected to perform well in 2009 because of better interest income after a turbulent year as a result of the global financial distress, the Kingdom's largest bank said yesterday.

Balance sheets released by seven of the country's 12 commercial banks for the first quarter of 2009 showed the sector is so far doing well as their earnings leaped by nearly six times over those in the fourth quarter of 2008, the National Commercial Bank (NCB) said in its weekly bulletin, sent to Emirates Business.

NCB, the largest Saudi bank by assets, said 2008 was a challenging year which was also underscored in the fourth quarter as the Kingdom's banking sector pushed ahead with a drive to boost provisions against investment losses.

Sukuk market in the Gulf needs to be regulated, say analysts

The Gulf can foster growth in Islamic bonds (sukuk) market by adopting regulations and going in for measures such as credit rating, say analysts.

Even as the GCC holds a lion's share in the global sukuk market, estimated at $130 billion (Dh477bn), it lags behind when it comes to regulations. And a model like the one followed by Malaysia can help it tap the massive potential that the segment holds, they said.

"The GCC market holds a significant share of global market when it comes to volume. But if we talk of a regulated market, the comfort levels of having prudent policy guidelines from regulators are still not there, whether it is related to type of issuances or ratings," said Moinuddin Malim, Head of Corporate and Investment Banking, Badr-Al-Islami. Mashreq.

Aldar profits drop 35% as sales slow

Aldar Properties, Abu Dhabi’s largest property developer, saw its profits drop by 35 per cent in the first three months of the year compared with the same period last year, as sales slowed to a near halt and the company focused on building its projects.

Profits for the first quarter were Dh888.6 million (US$241.9m). The company’s drop in net operating profit to Dh14.2m was worse, compared with Dh982m for the same period last year.

Net operating profit is income that comes from cash-generating items on the balance sheet, like sales of property.

Lines drawn in Etisalat fight

Etisalat could face fines worth millions of dirhams if it fails to follow a Telecommunications Regulatory Authority (TRA) directive on competition in the fixed-line telephone market, the authority said yesterday.

In 2005, the TRA ordered Etisalat and its competitor, du, to introduce a system allowing customers to switch their landline accounts from one to the other. Until the middle of last year, neither had introduced it.

Last June, the regulator gave both companies until January to comply with the order. While du has since complied, Etisalat told the regulator last month that the costs and practicalities involved meant it would hold off until late next year, when it had switched all of its customers to the new national fibre-optic network.

Government monitors bank liquidity

The Government will monitor more closely the health of local banks and the quality of their assets, according to a statement released by the Central Bank yesterday.
But it said the banking system had enough access to credit and large enough stores of capital to weather further financial ­trouble.

Government measures taken in the past year to battle the effects of the financial crisis – including federal government pledges of more than Dh120 billion (US$32.67bn) in emergency funds to the local banking system – have resulted in “a marked improvement in the banking soundness indicators, including liquidity, which we closely monitor”, said Saeed al Hamiz, the director of banking supervision at the Central Bank.

The ratio of liquid assets to short-term liabilities increased from 76 per cent in January to 92 per cent this month in the country’s banking system. The ratio measures how much extra cash banks have on hand compared with their upcoming payments and is used to determine their solvency.

Redundant workers to get visa extension

People who lose their jobs could be allowed to stay in the country for up to six months, the Minister of Labour said yesterday.

Saqr Ghobash said the change was included in one of two laws aimed at helping expatriate workers. Both are finished and awaiting approval, he said.

The first, which will give extra protection to labourers, could be passed by the Cabinet and signed into law within two weeks.

Coface maintains UAE's A2 rating

The probability for corporate defaults in the Gulf Cooperation Council (GCC) states remains low overall, according to the country ratings assigned by global credit insurance firm, Coface. In its latest quarterly rankings, Coface has maintained the GCC and Middle East and North Africa (Mena) country ratings at their previous risk level.

The UAE is ranked at A2, although the rating had been on a negative watchlist since December 2008. However, according to the Coface ratings report, the probability of corporate defaults remains low.

"The slowdowns in construction and financial services is expected to continue in 2009 as a result of the credit crisis and decline in demand," says the report on the UAE rating.

Judge denies bail to Deyaar's ex-CEO and two suspects

A court has rejected a bail request which Deyaar's former chief executive made yesterday following 14 months in detention during which time he claims he suffered heart disease.

"Your honour. Today [Monday] I have been brought to court from hospital after three months of treatment. I have been detained for nearly 14 months now during which time I encountered heart disease& I pledge you to grant me bail so I can recover," said the 43-year-old American ex-CEO, Z.S., who was in a neck brace when he pleaded not guilty to alleged corruption and fraud charges before the Dubai Misdemeanours Court.

Z.S. said the time he spent in detention has made his family suffer and he has incurred damage to his health and suffered financial harm when he addressed Presiding Judge Rifaat Mahmoud Tulba Othman.

UAE goes shopping for US weapons (Video)

Despite the global economic crisis, the United Arab Emirates, a country of under a million people, is set to see its total defence spending for this year soar to over $7bn.

Al Jazeera's Owen Fay reports on the reasons behind the tiny Gulf nation's increased defence spending, which has seen it become the world's third largest importer of American weapons.

Reform in Gaddafi's Libya is still shrouded in ambiguity

The western part of the waterfront in downtown Tripoli looks like a massive construction site. Cranes tower over the landscape, while armies of labourers, many of them migrants from sub-Saharan Africa, scurry around doing the heavy menial work.

Some 20 major building projects, including international luxury hotels and swish office blocks, are to be completed in the area in the next few years transforming the appearance of the city and confirming Libya's emergence from four decades of isolation.

Residents say the scale of the new construction is a response to soaring demand for office space, hotel rooms and housing as more foreign companies turn their attention to opportunities in the oil rich North African state.