Wednesday, July 29, 2009

Insider trading

A US regulator -- the Securities Exchange Commission -- has frozen the assets of an Emirati man accused of insider trading:
Despite legal structures covering insider trading, most regulators in the Gulf do not actively pursue such cases, according to Robert McKinnon, the head of research at Al Mal Capital in Dubai.

While the SEC employs complex algorithms to track the trading of the family and friends of people involved in mergers and acquisitions to root out any illegal activity, regulators in the Gulf typically rely on tipoffs before starting investigations.

“I don’t think it’s culturally accepted in any market, but wherever people have an opportunity, whether it is because of weak regulations or lax discipline in terms of Chinese walls and lax enforcement, you can have problems like these,” Mr McKinnon said.
In a companion op-ed in The National, Nasser Saidi, director at Hawkamah Institute for Corporate Governance and chief economist at the Dubai International Financial Centre, writes:
The key point, however, is that insider trading is difficult to prove and is more prevalent in a climate of poor disclosure. Improved transparency by companies with full and timely disclosure on all material matters will do more to reduce the opportunity and incentive for insider trading than tough enforcement of laws and regulation. Better disclosure by companies is still a key challenge for the region: as much as one third of GCC listed companies do not have a publicly available annual report in English, nor a website.

A corporate culture of secrecy and relationship-based transactions still prevails in the region. The main idea behind insider trading frameworks is to clarify the distinction between what is confidential or inside information and what information should be publicly disclosed. Individuals that may come across what would be considered “insider information” should be beholden to act responsibly. Transparency, fairness, accountability and responsibility are core governance values that help build trust in businesses and modern financial markets. As the region’s capital markets take to the global stage, we need to internalise these values and start looking at our old habits with an eye towards reform.

Sunday, July 26, 2009

Dubai's troubled finances

I'm just catching up on news. Here are some items I'd missed (in reverse chronological order).

PRWeek - PR firm sacked by Dubai, July 17:
Finsbury was initially brought in by Nasser al-Shaikh, the then head of Dubai's Department of Finance. He was replaced as its director general in May by Abdulrahman al Saleh in circumstances that remain unexplained.
Market participants were, however, keen to stress the difficulty of the role Finsbury had taken on - pointing to a lack of coherent reporting lines and a lack of direction from the client. 'Dubai doesn't know what it wants. It wants nice press, but has no idea how to get there,' one Middle East PR professional said.

Zawya - City-state forced to rein in ambitions, July 17
"The crisis is affecting business concerns about the sustainability of Dubai, especially where it comes to the honouring of contracts," says Elizabeth Stephens, risk analyst with insurance broker Jardine Lloyd Thompson.

A debt meltdown was averted in February by the federal government's $10bn soft loan, part of Dubai's $20bn bond programme.

Strong federal support for all UAE banks has underpinned Dubai's financial strength, from direct deposits to last month's guarantee for bank bonds, allowing them to raise money more easily. Half the $10bn loan was used by state-backed developers to pay contractors. Some have been paid fully and others partly, others as yet not at all.

Receipt of the second $10bn tranche of federal bail-out cash money should be a formality, so long as the government can convince the federal authorities that it is tempering its former exuberance.
The legal and regulatory infrastructure, set up in an oil boom, is inadequate for rising redundancies, insolvencies, and a real estate market in collapse.

Lawyers have been kept busy with a steady flow of debt recovery work, says Chris Mills of Clyde & Co, while also dealing with disputes between developers and contractors as investors try to exit agreements amid 50 per cent price falls.
[A] sense of drift since the federal bail-out loan in February has worsened since the public defenestration of de facto finance minister Nasser al Shaikh, one of the few officials prepared to take tough decisions.
The Economist - Trouble in the UAE, July 9:
“Nobody really knows what any of the statistics are,” says a Western analyst. “We haven’t seen the half of it yet,” says a Western banker, referring to the debt and the possible defaults. It is notable that almost nobody in business or government is prepared to talk publicly. Cohorts of public-relations people surround the bigwigs and shield them from scrutiny.
Some foreign building and dredging companies have not been paid for months, and some Dubai companies are offering to pay them only partially.
Earlier this year a leading Dubai figure said that the statelet’s consolidated debt was around $80 billion, but no one has issued a detailed breakdown of accounts; only a minority of Dubai companies are listed. Others say that the true sum of debt may be closer to $120 billion.

In February Dubai’s department of finance issued the first $10 billion chunk of a bond totalling $20 billion to help stave off the creditors, open new lines of credit and reschedule debt. Now, at a time when international banks are still loth to lend, it has been reported that the second chunk will be guaranteed by the UAE’s government. More may still be needed.

It is not clear who is in charge—apart from Sheikh Mohammed bin Rashid al-Maktoum, Dubai’s ruler (pictured above), whose big interest is racehorses. He appointed a respected local man, Nasser al-Shaikh, to take over the department of finance and sort out the crisis. It was reckoned that, for a start, he would be empowered to identify the size of the debt, both commercial and government (often one and the same) and the extent of Dubai’s toxic assets. But in May he was summarily and mysteriously sacked. Some think he was blocked from looking too closely into the accounts at Nakheel, among other firms. Otherwise the old-guard management of Dubai—and the UAE—is still pretty intact. No one has been held responsible.
The Economist - Messenger Shot, May 20:
Mr Sheikh's original appointment came at the moment when Dubai's real estate-driven economic boom was coming to an abrupt halt. He was closely involved in efforts to clarify the level of indebtedness of the Dubai government and its corporate affiliates and in raising funds to cover these debts. In February, Mr Sheikh's department announced the launch of a US$20bn bond programme, to which the Central Bank of the UAE subscribed to the entirety of the US$10bn first tranche. Mr Sheikh indicated that he would in due course announce details of how these funds had been allocated, but this information has not yet been forthcoming. In the meantime, contractors have been complaining with increasing anxiety about the failure of Dubai developers to pay their bills.

In trying to unpick the tangle of Dubai's corporate liabilities Mr Sheikh ran the risk of offending some of the powerful protégés of the ruler who built up formidable business empires during the boom years. In an apparent effort to deflect criticism, he appointed the Rothschild investment bank to advise the government on managing the support fund. Another sensitive issue was Mr Sheikh's stated intention to consolidate some of these corporations.

Just before his dismissal, Mr Sheikh had spoken at length about Dubai's debt management plans at a World Economic Forum meeting in Jordan. He said that he planned to establish the corporate support fund as a separate legal entity, and that the government would soon raise the second US$10bn tranche in its bond programme, indicating that a number of international sovereign wealth funds had expressed interest in subscribing.

Wall Street Journal - Dubai's Shuffle Could Close Its Open Doors, May 20:
As one of the new breed of technocrats in Dubai, Mr. Shaikh had grasped the need for greater transparency to gain the confidence of international investors. Unlike many of his peers, he was comfortable discussing Dubai's challenges in restructuring its $80 billion debt pile.

The fear is that he has paid the price for his openness, which appears to have created enemies within Dubai's inner sanctum of government officials.
The National - Rothschild’s roadmap for Dubai’s economic recovery, May 17:
Last month it was announced that Rothschild’s Dubai office had been retained by the Government’s Department of Finance to advise on the US$10 billion (Dh36.7bn) financial support fund (FSF) raised by Dubai on the bond markets (with a further $10bn in the pipeline).
A key qualification for FSF eligibility, as explained on Saturday by Mr al Shaikh to the media at the World Economic Forum in Jordan, is this: recipients will be those government-related corporations that are regarded as essential for the long-term future development of Dubai’s economy. In practical terms, this is likely to boil down to a fairly short list of business sectors – infrastructure, transportation – including the Metro and Maktoum airport projects – aviation, ports and shipping. Tourism is also said to be included on the list, as a key component of Dubai’s role as a global hub.

Monday, July 20, 2009

Gulf Talent: Economic downturn reduces recruitment activity in the Gulf

No great surprises here, but it's always worth checking out Gulf Talent's studies. A link to the latest, Recession and Employment in the Gulf, can be found following this link to the summary article.

Sunday, July 19, 2009

Make no little plans

Make no little plans. It's what made Dubai. NYU's president is applying it to the university's campus in Abu Dhabi.

The National:
“Make no little plans,” the architect Daniel Burnham is reported to have said. “They have no magic to stir men’s blood.” Burnham was largely (and, by many accounts, megalomaniacally) responsible for shaping the modern city of Chicago, but his words could serve as a dictum for John Sexton’s tenure at New York University. In the two years since NYU Abu Dhabi was first announced, it has become clear that the new campus is anything but a little plan – and Sexton is as deeply involved in its creation as any administrator in his position possibly could be.
The author is John Gravois.

Thanks to a commenter for the pointer to The National article.


Friday, July 17, 2009

Getting your carbon signals right

If you are environmentally conscious and want to make purchasing decisions based the carbon impact, Tim Harford points out the answer is easy.
If you put a price on carbon. The carbon-footprinting process often produces surprises. An environmentally conscious consumer in the crisps aisle of the supermarket will probably be thinking about packaging or “food miles”. The Carbon Trust reckons that about 1 per cent of the climate impact of a packet of crisps is from moving potatoes around. The largest single culprit is the production of the nitrogen fertiliser, and half of the climate impact in general takes place at the agricultural stage. The point is not that agriculture is always the problem, but that it is very hard for a well-meaning consumer to work out what the green purchasing decision actually is. For this reason, the Carbon Trust has a carbon labelling scheme. The trouble is that many consumers simply do not care enough to pay more or choose a less enjoyable product simply because of the low carbon label.

A government role is necessary, then, but it is even harder for governments to regulate such fine details. All this is why economists continue to advocate some kind of carbon price, which would give an incentive to everyone involved in these complex supply chains to trim carbon dioxide emissions. A modest and credible price for carbon is slowly becoming the conventional policy wisdom.
In other words, join Greg Mankiw and other members of the Pigou Club.


An idea whose time has come?

At least during Ramadan. College classes at midnight. The Chronicle of Higher Education has the story:
At a time of night when many people are hitting the sack, a number of Bunker Hill Community College students will be hitting the classroom this fall.

To accommodate working adults and open more class times for its growing student population, the Massachusetts college will offer two courses that run from 11:45 p.m. to 2:30 a.m.: “Principles of Psychology,” on Tuesdays, and “College Writing I,” on Thursdays. Both are three-credit courses.

College officials chose the midnight time slot for people who get off work late and have to be up early with their children.
Carpe Diem files this under Markets in Everything.

Labels: ,

Thursday, July 16, 2009

Surprisingly lively form of entertainment

What could that be? Answer: Economics blogs.

Americans trying to understand the nail-biting financial trauma of the past several months are flocking by the millions to a surprisingly lively source of enlightenment: blogs written by economists.
The result is a watershed moment for economics bloggers, ranging from academics to armchair economists, who are all too happy to help readers fill in the blanks—or find a place to vent their frustrations. Traffic to the top sites, such as Marginal Revolution, Freakonomics and the blogs from academics such as Paul Krugman, Greg Mankiw and Brad DeLong, surged anywhere from 80% to 250% from July to September 2008 as the financial crisis intensified, according to, a Web site that measures Internet traffic. The most popular blogs can attract as many as 50,000 to 100,000 page views a day.
But could there be too much of a good thing? Some Chinese parents think so:
Internet addiction has become a growing problem in China, where officials believe as many as four million people spend more than six hours a day online.

Several clinics have sprung up, offering parents the chance to "cure" their children of the
uncontrollable urge to blog or play online games.

Tao Ran, from the Beijing Military General Hospital, runs a camp which gives addicts a mixture of counselling, military discipline and hypnosis.

However, a psychiatric hospital in Linyi, Shandong, charged parents £500 a month to apply "xingnao", or "brain-waking", electric shocks to their children.

Some children suffered painful burns, but no parents had complained, according to the Chinese press.

Nevertheless, the health ministry has asked all hospitals to stop "electrical stimulation" for internet addiction while the treatment is investigated.
Emphasis added.

Here are some publicly available economics blog rankings:

1. EconDirectory

2. Palgrave


4. Bankling

5. Wikio


Monday, July 13, 2009

The Economist headline: "Trouble in the UAE"

From The Economist:
For the first time since the seven Gulf statelets joined together as a union in 1971, people are beginning to mutter—rather quietly, for sure— whether there may be something amiss with the autocratic, opaque system that hitherto seemed to work so well behind closed doors. “Nobody really knows what any of the statistics are,” says a Western analyst. “We haven’t seen the half of it yet,” says a Western banker, referring to the debt and the possible defaults. It is notable that almost nobody in business or government is prepared to talk publicly. Cohorts of public-relations people surround the bigwigs and shield them from scrutiny.
In the short run, the much richer and more conservative state of Abu Dhabi, with 90% of the UAE’s oil reserves, will bail out its miscreant, extravagant neighbour, along with the other five, poorer statelets if they need help too. “In the long run, Dubai has enough assets to tide it over,” says a banker in Abu Dhabi, pointing to Dubai’s huge container trans-shipment business, its airline, aluminium smelter, tourism, and role as a regional services hub. Above all, Dubai and Abu Dhabi are too enmeshed to allow one part to fail.

Indeed, the Dubai disaster may prompt Dubai’s Maktoum family and Abu Dhabi’s ruling Nahyans to strengthen the federation and work towards a system of greater accountability and openness. A half-appointed Federal National Council is toothless, though it can now call ministers before it.
Abu Dhabi is ahead of Dubai in terms of government openness and efficiency. But in both the emirates all the big decisions are still taken behind closed doors. In the mild words of a diplomat, “neither Abu Dhabi nor Dubai are very good at clarity in decision-making.” Vital decisions are often not put in writing.

The aim of the two ruling families has been to modernise and open up the economy without modernising or opening up the politics to the extent that the people might one day dispense with their royal rulers. In the short run, there seems little chance of that happening. The expatriates who manage much of business have little say in the running of the place, but are generally content to live well and ask no questions about delicate matters of state. An English-language newspaper, the National, backed by the Nahyans, has opened a healthy space for discussion, though royal scandals or provocative words like “bail-out” or “in denial” are virtually taboo.

The indigenous emiratis, who count for less than a fifth of the 5m people living in the UAE, have hitherto been mollycoddled by benevolent rulers. In a couple of years, a recovery may ensue. A resurgence of oil prices is helping. But if the economy gets stuck, the glory days, at least of the Maktoums, may be numbered.
Read it all.

The economic decline has made it more difficult to quiet elements of dissent. The balancing act of maintaining power has become more difficult. The kerfuffle of over admission of Jewish tennis players is but example -- the rulers would never have allowed that to happen in the past.

Thursday, July 09, 2009

T. Boone Pickens goes long in windmills

Forbes, What The Pickens Fiasco Means To Green
He's stuck with $2 billion worth of General Electric turbines, which he hopes to move to smaller projects throughout the Midwest and Canada. He's also decided to wait for the government to build transmission to carry wind power in Texas.

Transmission is a critical and often overlooked component to making green energy work, particularly because wind and solar resources are often located in rural areas far from major transmission backbones.
With respect to this project, Pickens was always tilting at windmills.

Good line:
In May 2008, Pickens announced that his company, Mesa Power LP, would order 687 wind turbines, or 1,000 megawatts of capacity, from GE for about $2 billion. By 2014, he expected to expand the Panhandle wind farm to 4,000 megawatts.
GE will start delivering them in the first quarter of 2011. Pickens has about 18 months to find a place to put them.

"I don't have that big a garage to put them in, so I've got to start getting ready to use them," he said.

Pickens said company officials are considering six sites, including places in Wisconsin, Oklahoma, Kansas and Texas. He aims to build three or four wind farms with around 150 turbines each.
The Emirates has lots of wind and solar potential. The "only problem" is how to you get it to market? Transmission is a problem. There's only so much local demand.

But Helene Pelosse thinks the transmission problem of shipping out Gulf generated solar and wind could be surmounted. It's not as easy, though, as it might be in China. Even if substantial technological progress in shipping electricity great distances was made, you have the same political problems you have with getting pipelines completed across several political jurisdictions.

You only have to look to the troubled history of electrical interconnectivity between Dubai, Sharjah -- and the rest of the seven Emirates for the matter.

WESTON, W.Va. - The Lewis County Commission has become the fifth county commission in West Virginia to formally oppose a proposed high voltage multistate transmission line.

The county has filed for intervenor status with the state Public Service Commission. That would allow it to present written testimony and participate in cross examination at evidentiary hearings.

The PSC is considering whether to approve the Potomac-Appalachian Transmission Highline, or PATH, a joint venture of Pennsylvania's Allegheny Energy Co. and Ohio's American Electric Power Co.

It would run from AEP's John Amos plant in Putnam County, across parts of northern Virginia, and end at a substation near Kemptown, Md.

Saturday, July 04, 2009

6 Minute Man

Apparently all it takes is 6 minutes to a new you:
In one of the group’s recent studies, Gibala and his colleagues had a group of college students, who were healthy but not athletes, ride a stationary bike at a sustainable pace for between 90 and 120 minutes. Another set of students grunted through a series of short, strenuous intervals: 20 to 30 seconds of cycling at the highest intensity the riders could stand. After resting for four minutes, the students pedaled hard again for another 20 to 30 seconds, repeating the cycle four to six times (depending on how much each person could stand), “for a total of two to three minutes of very intense exercise per training session,” Gibala says.

Each of the two groups exercised three times a week. After two weeks, both groups showed almost identical increases in their endurance (as measured in a stationary bicycle time trial), even though the one group had exercised for six to nine minutes per week, and the other about five hours. Additionally, molecular changes that signal increased fitness were evident equally in both groups.
6 minutes doesn't sound like much more than zero. Not that I resemble that remark.

You might want to reconsider that name

Russia has entered a natural gas venture with Nigeria with the name Nigaz.

Will that be with or without attitude? Apologies to N.W.A.

Friday, July 03, 2009

An invisible curriculum you learn from having a job

Some news from the U.S.

While Obama blames the unexpectedly steep rise in unemployment this month on the Bush administration, it could have more to do with the hike in the minimum wage.

The outlook for teen jobs is so bleak that it's weighing down the entire employment report, which the Bureau of Labor Statistics released on Thursday. The country is headed for an entire decade with no job growth. In June, the report showed unemployment climbed to 9.6% from 9.5%, and 467,000 jobs were lost, thanks in large part to the decline in jobs for teens.
Minimum wage increases raise the bar for entry-level employment. From 1997 until 2007, the minimum wage stood at $5.15. Congress raised it to $5.85 in 2007, to $6.55 last year, and in July it is scheduled to increase again to $7.25.

In June 2006, 7 million teens were working. Since the wage hikes and recession kicked in, 1.4 million of those jobs have disappeared. For African-American teens, the job market is even worse--their unemployment rate is 38%.

"For teens who are not in the work force, as many as 10 years later there are financial impacts to that. Ten years later, if you were not employed, you're lagging behind your peers," says Lopez Eastlick. "There's an invisible curriculum you learn from having a job."

Dubai continues restructuring of finances

Dubai's 2nd $10B Bond May Get UAE Govt Guarantee (WSJ)
"It will be the first time an emirate's bond has been backed by the federal government," the Dubai government official, who is involved with the bond told Zawya Dow Jones. Dubai is seeking federal support to help sell the bond to international banks who otherwise may be reluctant to buy the debt as the emirate continues to restructure its finances. The bond issue will be the first by Dubai backed by the federal government.
The bond program will support government spending plans and the private sector at a time when loans from international banks have dried up as global lenders have become too nervous to lend. At the same time, local banks are grappling with a large loan-to-deposit gap of about AED90 billion.
S&P cuts ratings on 3 Dubai GREs (AP)
A leading international ratings service said Tuesday it had cut its credit rating of three Dubai government-backed entities, voicing concerns about the emirate’s willingness to continue backing some companies in the one-time Arab boomtown hard hit by the global recession.

Standard & Poor’s Ratings Service said it downgraded the ratings for port operator DP World, the Jebel Ali Free Zone and Dubai Multi Commodities Centre Authority, all of which had been on credit watch with negative implications since the end of April.

“The rating actions reflect Standard & Poor’s reappraisal of the likelihood of extraordinary financial support by the Government of Dubai to its GREs to ensure the timely repayment of their financial obligations,” the agency said in a statement. S&P said the reappraisal also was the result of “increased uncertainty regarding the government’s willingness to provide such support” to Nakheel, the property developer famed for building Dubai’s manmade islands.
UAE Banks in Talks with Saudi Debtors (Khaleej Times)
Although UAE banks refused to specify their individual exposures to the Saudi borrrowers, Central Bank Governor Sultan bin Nasser Al Suwaidi, speaking earlier this week, described their combined exposure as “significant.” Media reports peg total outstanding loans from UAE banks at around $767 million — more than one-tenth the estimated $7.4 billion that all banks worldwide have lent to the Saudi groups.

“Some of the banks in the UAE have large gross exposure to these groups but they also have large collateral,” said Emmanuel Volland, Senior Director for Financial Institutions Ratings at Standard & Poor’s. “You need to look not at the gross exposure but (the) net of the collateral. Of course, you have to evaluate the quality of this collateral — cash being the best.”

Standard & Poor’s does not rate all UAE banks and cannot comment on their total exposure, said Volland, who is based in Paris. “We rate two banks in Abu Dhabi, NBAD and ADCB.

Both banks have recently received (a) capital infusion by the [federal] government.
No doubt Abu Dhabi will attach strings to the loan guarantees to Dubai, and has examined the quality of the collateral Dubai has to offer.

In other news Dubai continues to think big, and studying the possibility of submitting a bid for the 2020 Olympics. The construction costs are estimated in the billions of dollars.

Thursday, July 02, 2009

al-Maktoums and al-Nahyans at odds in court?

In the UAE slander is broadly defined and taken seriously. Abu Dhabi has reached out to help Dubai weather the worldwide economic downturn. One wonders whether a disagreement over the publication of horse doping story could harm that relationship.