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Eib B231 Meca Presentation V3.1

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Portfolio investment strategy for MECA region.

Portfolio investment strategy for MECA region.

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  • The next step of the screening process leads us into a “deeper dive” of the 5 short-listed countries Whereas before we were focused on capturing combinations of risks and rewards in a quantifiable index as a proxy, in the next section we conducted more of a qualitative assessment
  • The “deep-dive” method consisted of analyzing the 5 countries across 5 “perspectives” All of these perspectives contained a mix of qualitative and quantitative indicators. We also attempted to incorporate a prospective outlook into each of the perspectives, looking for things that might lead to instability in the foreseeable future
  • Recapping our analysis of the short-listed countries across the perspectives, Qatar and the telecom sector appear the most attractive relative to alternative sectors elsewhere The market provides a good mix of high economic indicators, low political instability, and a liberal business and investment environment In addition, the telecom sector is poised for rapid growth due to deregulation, and the expat population is sustaining high population growth for the region
  • Bar charts show growth of mobile phone subscribers over the past few years – you can see Bahrain, Oman and Qatar have shown the fastest growth The bottom of the slide illustrates the relative level of competitiveness of the GCC countries’ telecom sectors. Qatar has the most deregulation to do to be in compliance with WTO guidelines and therefore, we believe, offers the greatest potential ROI
  • Furthermore, market research indicates that the telecom sector in the region offers an attractive investment opportunity In particular, Qatar Telecom looks the best from a value perspective, being the most undervalued by analysts
  • Qatar Telecom therefore offers the best investment opportunity over our time horizon The company is the most profitable legacy telecom firm in the region, and is seeking to invest $2B in overseas expansion this year In the longer-term, the sector is attractive due to room for new entrants as the sector progressively deregulates, while domestic saturation will spur increasing competition The right-hand side is an interesting look at the risk of investing in Qatar weighted by the telecom sector. In other words if 100% of your investment went into telecoms, where is the lowest risk investment destination? From EIU Risk Tracker
  • So there’s your stock tip, we take 20% commission on trades
  • Transcript

    • 1. EIB-B231: International Business Strategy and Operations Spring, 2009 Country Presentation Investing in the Middle East and Central Asia (MECA) A Long-term Perspective Andreas Albeck Jordan Fabyanske Fatma Kayhan Frank D’Agnese Cecilia Guilford Adam Caplan
    • 2. Adopting an equity investor’s perspective, our approach to country selection entails a four-stage filtering process Four Key Work Steps for Equity Investment Opportunity Selection Source: Project Team Analysis Initial Screen for “Deal breakers” 1 Risk-Reward Assessment 2 In-depth Country Analysis 3 Opportunity Selection 4 Increasing Depth of Analysis Focus of Next Section
    • 3. Initially, we assess country attractiveness along four dimensions of relative risk-reward Human Capital Business Environment 2 3 Framework for Assessing Country Attractiveness Economic Climate 1 Security Situation 4 Country Attractiveness for Investment Reward Risk Key Dimensions Source: Project Team Analysis
    • 4. In terms of economic climate, Kyrgyzstan, Tajikistan, and Iraq are least attractive in terms of volatility-adjusted growth A Note: (*) Refers to quarterly growth in economic output at the inflation rate, i.e., quarter-on-quarter real GDP growth Source: Project Team Analysis 1. Economic Climate / = Economic Growth, Volatility, and Sharpe Ratio for MECA Countries (1998Q1-2009Q1) Average Quarterly Risk-free GDP Growth (*) – in % – Quarterly GDP Growth Volatility – in % – Sharpe Ratio – in ratio of reward to volatility – Egypt Jordan Iran Oman UAE Armenia Qatar Kazakhstan KSA Azerbaijan Pakistan Syria Kuwait Uzbekistan Lebanon Afghanistan Kyrgyzstan Israel Turkmenistan Turkey Iraq Tajikistan Yemen Bahrain Oman Yemen Egypt Bahrain Jordan Kazakhstan Kyrgyzstan Turkey Tajikistan Afghanistan Turkmenistan Azerbaijan Iraq Iran Lebanon KSA Uzbekistan Syria Pakistan UAE Kuwait Armenia Israel Qatar Kyrgyzstan Tajikistan Lebanon Turkey KSA Uzbekistan Israel Syria Yemen Pakistan Oman Egypt Jordan Iran Kuwait Bahrain Iraq UAE Afghanistan Kazakhstan Armenia Turkmenistan Qatar Azerbaijan Excluded on the basis of low reward and high volatility
    • 5. Incorporating FDI growth considerations, Bahrain leads MECA countries in overall economic attractiveness 0.02 Note: (*) Indexes for each series calculated computing the difference between each value and the minimum of the series, then dividing by the range Source: World Development Indicators, World Bank; Project Team Analysis + = 50% Weight 50% 100% Calculation of Economic Attractiveness Index for MECA Countries (*) Iraq Azerbaijan Qatar Lebanon Turkmenistan Kazakhstan 0.00 Uzbekistan Yemen Afghanistan Armenia Israel Pakistan Iran Syria Bahrain UAE Tajikistan Jordan Egypt Turkey Oman Kuwait Kyrgyzstan KSA FDI CAGR Index (2002-2007) – in index – Kyrgyzstan 0.00 Tajikistan 0.00 Iraq Turkey Turkmenistan Israel Afghanistan Lebanon Uzbekistan Kuwait Syria Pakistan Azerbaijan KSA Kazakhstan Qatar Armenia UAE Oman Iran Jordan Egypt Yemen Bahrain Sharpe Ratio Index (1998Q1-2009Q1) – in index – Iraq Azerbaijan Tajikistan Turkmenistan Kyrgyzstan Turkey Lebanon Israel Afghanistan Uzbekistan Kazakhstan Pakistan Syria Qatar Armenia Kuwait UAE KSA Iran Oman Jordan Yemen Egypt Bahrain Economic Attractiveness Index – in index – 1. Economic Climate Excluded on the basis of low inward FDI growth
    • 6. Turning to human capital, we assess attractiveness in terms of health, education, and non-oil labor productivity Revised Framework for Human Capital Benchmarking Note: (1) ALR = adult literacy rate; (2) CGER = combined primary, secondary, and tertiary gross enrollment ratio Source: UNDP, Human Development Report 2008 Health Education Non-Oil Labor Productivity Human Capital Attractiveness Education Index Human Capital Attractiveness Index = + + Adult Literacy (ALI) and Gross Enrollment Index (GEI) Health Index Life Expectancy (LE) Index Non-Oil Labor Productivity GDP per employee (GDPemp) Index 3 Key Indicators Formulas 2/3 ALI + 1/3 GEI ALI = ALR (1) / 100 GEI = CGER (2) / 100 LE – 25 85 – 25 log(GDPemp) – log(100) log(40000) – log(100) 2. Human Capital
    • 7. Levantine and Gulf Cooperation Council (GCC) countries offer the most attractive living environments in terms of health Source: UNDP, Human Development Report 2008 Life Expectancy and Mortality in MECA Countries (2006) Israel UAE Kuwait Bahrain Qatar Oman Syria KSA Jordan Armenia Lebanon Turkey Egypt Iran Azerbaijan Uzbekistan Tajikistan Kazakhstan Kyrgyzstan Pakistan Turkmenistan Yemen Iraq Afghanistan UAE Kuwait Qatar Oman Bahrain Syria Jordan KSA Iran Israel Egypt Azerbaijan Turkey Tajikistan Uzbekistan Pakistan Lebanon Kyrgyzstan Yemen Turkmenistan Armenia Kazakhstan NA Afghanistan NA Iraq Life Expectancy at Birth (LE) – in years – Mortality Rate – in deaths per 1,000 – Infant Mortality – in deaths per 1,000 live births – 10.3 2. Human Capital 8 10 19 10 9 12 21 21 30 4 29 73 24 56 38 78 26 36 75 45 21 26 NA NA
    • 8. Kazakhstan ranks highest in both knowledge and education, while most others rank low in at least one respect Knowledge and Education in MECA Countries (2006) Note: (1) Lebanon ALR assumed equal to average ALR of countries with similar CGER Source: UNDP, Human Development Report 2008 Turkmenistan Armenia Azerbaijan Jordan Israel Kuwait Kyrgyzstan Bahrain UAE Uzbekistan Qatar Kazakhstan Tajikistan Turkey KSA 28.0 Iran Pakistan Oman Yemen Syria Afghanistan Egypt Lebanon (1) Iraq 39.3 Afghanistan Yemen Pakistan Iraq Kazakhstan Bahrain Israel Jordan Kyrgyzstan Qatar Lebanon Egypt KSA Turkmenistan Uzbekistan Iran Armenia Kuwait Turkey Tajikistan Oman Azerbaijan UAE Syria Adult Literacy Rate (ALR) – in % – Combined Gross Enrollment Rate (CGER) – in % – 50.1 2. Human Capital
    • 9. Labor productivity is a key driver of standard-of-living and a superior measure of attractiveness to investors… Human Capital Components of GDP-per-capita in MECA Countries (2007 (1) ) Note: (1) Data range between 1999 and 2000 depending upon availability Source: World Bank, World Development Indicators; World Economic Forum; CIA World Factbook; Project Team Analysis 27 40 40,847 32,919 30,319 36,792 23,688 19,147 20,038 10,718 10,300 3,261 4,641 4,084 2,810 1,179 5,513 2,278 1,590 2,337 4,113 1,150 2,625 Qatar 25,376 UAE 21,846 Kuwait 20,825 Israel 14,776 Bahrain 10,004 KSA 9,930 Oman 5,111 Lebanon 5,045 Turkey 2,324 Kazakhstan 2,248 Jordan 2,133 Iran 1,857 Azerbaijan 1,815 Egypt 1,461 Armenia 1,339 29,284 1,108 Iraq Uzbekistan Pakistan Syria Yemen Kyrgyzstan Tajikistan Afghanistan Turkmenistan GDP-per-capita – in 2000 US$ – Workforce Participation Rate – in % – Employment Rate – in % – Labor Productivity – in 2000 US$ per employee – x = x GDP capita Formula Total Workforce Population Employed Labor Total Workforce GDP Employed Labor INDICATIVE 0 2. Human Capital
    • 10. … and for MECA countries, a clearer picture of labor productivity excludes the bias towards the oil and gas sector n Knowledge and Education in MECA Countries (2006) Source: IMF Country Statistical Appendices; CIA World Factbook; EIU; World Bank, World Development Indicators; Project Team Analysis Tajikistan 28.0 Afghanistan Kyrgyzstan Yemen Pakistan Uzbekistan Turkmenistan Syria Armenia Azerbaijan Kazakhstan Iran Egypt Jordan Iraq Turkey Lebanon KSA Oman Bahrain Kuwait UAE Israel Qatar Tajikistan 39.3 Afghanistan Kyrgyzstan Yemen Pakistan Bahrain UAE Israel Azerbaijan Turkmenistan Iraq Uzbekistan Syria Kazakhstan Armenia Iran Egypt Jordan Oman Turkey KSA Lebanon Kuwait Qatar Labor Productivity INCLUDING Oil and Gas – in 2000 US$ per employee – Labor Productivity EXCLUDING Oil and Gas – in 2000 US$ per employee – INDICATIVE 2. Human Capital
    • 11. Combining indices, the top 10 MECA countries in terms of human capital are Israel, GCC countries, Lebanon, Turkey, and Jordan Human Capital Attractiveness Index in MECA Countries vs. Others Bottom 25% excluded from short-list of attractive countries for Investment Source: Project Team Analysis Afghanistan Yemen Pakistan Iraq Tajikistan Kyrgyzstan Turkmenistan Azerbaijan Uzbekistan Syria Egypt Kazakhstan Iran Armenia Jordan Turkey KSA Oman Lebanon Kuwait Qatar Bahrain UAE Israel 2. Human Capital Low ██   0.450–0.499 ██   0.400–0.449 ██   0.350–0.399 ██   under 0.350 ██   not available Medium ██   0.750–0.799 ██   0.700–0.749 ██   0.650–0.699 ██   0.600–0.649 ██   0.550–0.599 ██   0.500–0.549 High ██   0.950 and over ██   0.900-0.949 ██   0.850-0.899 ██   0.800-0.849
    • 12. To assess the business environment, regulations affecting ten stages of the life of a business are measured 3. Business Environment Source: World Bank “Doing Business Report 2009” Key Elements of Business Environment Assessment Starting a business Protecting investors Procedures, time, cost and paid-in minimum capital to open a new business Extent of disclosure index, extent of director liability index and ease of shareholder suits index Dealing with construction permits Paying taxes Procedures, time and cost to obtain construction permits, inspections and utility connections Number of tax payments, time to prepare and file tax returns and to pay taxes, total taxes as a share of profit before all taxes borne Employing workers Trading across borders Difficulty of hiring index, rigidity of hours index, difficulty of firing index, firing cost Documents, time and cost to export and import Registering property Enforcing contracts Procedures, time and cost to transfer commercial real estate Procedures, time and cost to resolve a commercial dispute Getting credit Closing a business Strength of legal rights index, depth of credit information index Recovery rate in bankruptcy
    • 13. Understanding these regulations allows for a comparison of the ease of doing business in each country Source: World Bank “Doing Business Report 2009,” Project team analysis Starting a business Dealing with construction permits Employing workers Registering property Getting credit Protecting investors Paying taxes Trading across borders Enforcing contracts Closing a business Qatar Kazakhstan Key Policy Differences Between Qatar and Kazakhstan Doing Business in Qatar and Kazakhstan (2009) ILLUSTRATIVE 3. Business Environment Qatar Kazakhstan Cost of construction permit (% of income per capita) 0.8% 1,432% Firing costs (weeks of wages) 69 weeks 9 weeks Private bureau credit coverage (% of adults) 0% 26% Cost to export (US$ per container) $735 $3,000
    • 14. Comparisons across various elements of the index reveal trends in regulatory policy throughout the region Starting a business + Registering property + Getting credit + Protecting investors + Enforcing contracts Dealing with construction permits + Paying taxes + Trading across borders + Closing a business Source: World Bank “Doing Business Report 2009,” Project team analysis Comparison of regulatory policy across the MECA region (2009) Easy Hard Hard Easy 3. Business Environment
    • 15. Combining all the elements, we find that countries with the most favorable business regulations are either in the Gulf or Caucasus Source: World Bank “Doing Business Report 2009,” Project team analysis Country Percentile (globally) Ease of doing business in MECA countries (2009) 3. Business Environment High >70 th percentile Medium >30 th percentile Low <30 th percentile
    • 16. Security situation can be characterized in terms of four major security concerns of investors Source: Project Team Analysis Major Security Concerns of Investors 4. Security Situation NON-EXHAUSTIVE Civil Unrest Crime Terrorism External Threats 1 2 3 4 Security Concern Key Elements
      • Politically destabilizing incidents and movements, including mass demonstrations, riots, strikes
      • Conflict arising from underlying religious, ethnic, or socioeconomic divisions
      • Organized criminal activities including extortion and kidnapping
      • Prevalence of petty theft and burglaries
      • Violent criminal activities that may threaten investor assets or personnel
      • Number and capability of domestic and international terrorist organizations
      • Stated aims and probable targets of terrorist groups
      • Degree of localization of terrorist threat
      • Threat of physical incursion from neighboring countries
      • Degree of “permeability” of borders, allowing for cross-border attacks from non-state actors
    • 17. On the basis of these security concerns, Yemen, Iraq, Lebanon, Afghanistan, and Pakistan are the least attractive for investment… Source: Global Insight; Project Team Analysis Security Situation Across MECA Countries by Concern (2009) Civil Unrest Crime Terrorism External Threats 1 2 3 4 Oman Qatar UAE Egypt Jordan Kuwait Bahrain Kazakhstan KSA Turkmenistan Syria Uzbekistan Armenia Azerbaijan Iran Kyrgyzstan Turkey Israel Tajikistan Yemen Iraq Lebanon Afghanistan Pakistan Country Concern Increasing Risk Bottom 20% excluded from short-list of attractive countries for Investment Low Risk High Risk 4. Security Situation
    • 18. … and Oman, Qatar, and UAE are most secure overall Source: Global Insight; Project Team Analysis Security Risk Index in MECA Countries vs. Others (2009) 4. Security Situation Extreme Medium Low High
    • 19. Across all four risk-reward dimensions, 10 countries were excluded on at least one basis… Initial Screening of MECA Countries for Attractiveness Source: Project Team Analysis Economic Attractiveness Human Capital Business Environment Security Situation 1 2 3 4 Country Dimension Afghanistan Iraq Kyrgyzstan Lebanon Syria Uzbekistan Tajikistan Pakistan All Other Countries                                     Basis for exclusion Acceptable for Investment   Yemen     Iran     Summary Azerbaijan    
    • 20. … and of the remaining countries, five stand out as most attractive: Qatar, UAE, Bahrain, Oman, and Kuwait n Risk-reward Profile for MECA Countries (*) Economic Attractiveness Human Capital Attractiveness Business Environment Security Situation High High Risk Low Low Note: (*) Data expressed in terms relative to other MECA countries Source: Project Team Analysis Tajikistan Syria Qatar Pakistan Oman Lebanon Kyrgyzstan Kuwait KSA Kazakhstan Jordan Israel Iraq Iran Egypt Bahrain Azerbaijan Armenia Yemen Uzbekistan UAE Turkmenistan Turkey Afghanistan Candidate for selection Excluded after initial filter 1 2 3 4 Five countries selected on the basis of low risk and high reward Summary Reward
    • 21. Having identified a short-list of countries, we now proceed with a more in-depth analysis Four Key Work Steps for Equity Investment Opportunity Selection Source: Project Team Analysis Initial Screen for “Deal breakers” 1 Risk-Reward Assessment 2 In-depth Country Analysis 3 Opportunity Selection 4 Increasing Depth of Analysis Focus of Next Section
    • 22. We compare short-listed countries using historical, demographic, political, macroeconomic, and enterprise perspectives Five Perspective Framework for Short-listed Country Analysis Oman UAE Qatar Bahrain Kuwait 1 2 3 4 5 Historical Demographic Political Macroeconomic Enterprise Short-listed Countries A B C D E Source: Project Team Analysis Key Elements per Perspective
      • Economic growth drivers, oil and gas history, key political events, etc.
      • Fertility, mortality, age, nationality, migration, future prospects
      • Form of government, major parties or factions, current political issues, future prospects
      • Inflation, interest and exchange rates, growth potential per sector, trade balance, current account balance, government debt, future prospects
      • Financial markets, stock exchanges and market capitalization, nature of key listed and unlisted companies, future prospects
    • 23. The history of the GCC is fundamentally a story of oil and gas Central Role of Oil and Gas in GCC Countries’ History (1930-2009) Note: (*) For example, Iraq’s 1990 invasion of Kuwait Source: Project Team Analysis 1. Historical Perspective Oil and Gas Discovery in 1930s/40s by Western states, now extracting Internal political stability, no taxes External threats (*) , but security guarantees from Western clients Reinvestment in economic development Exposure to volatile oil prices Gulf states control access, production, and prices High standards of living Sovereign wealth funds Wealth (In)stability
    • 24. Today, GCC countries stand at a crossroads, facing several key uncertainties that affect investment Scenarios and Uncertainties Faced by Short-listed Countries (2009-2025F) Source: World Economic Forum; Project Team Analysis Alternative Future Scenarios for GCC Regional Stability Regional Instability Ineffective Reform Effective Reform Current Situation Key Uncertainties Affecting Investment Demographic imbalances and risks of social unrest stemming from history of using oil wealth to import expatriate labor Political instability potentially stemming from leadership succession, with high concentration of oil wealth in few key tribes or families Macroeconomic risks stemming from high economic concentration in oil and gas sector and over-exposure to volatile oil prices Enterprise uncertainties surrounding current economic crisis and how GCC governments will choose to reinvest oil wealth in development 1 2 3 4 1. Historical Perspective
    • 25. In terms of demography, the GCC has experienced a population explosion entailing human capital challenges and opportunities a Population Trends in Short-listed Countries vs. Others Total Population Across Short-listed Countries – in millions – (2002–2007) Source: World Bank, World Development Indicators Population Growth in Short-listed Countries vs. Others – in % CAGR – (2002–2007) UAE Oman Kuwait Bahrain Qatar 4.75% 2008 12.7 38% 20% 27% 6% 9% 2007 12.1 37% 21% 27% 6% 8% 2006 11.5 37% 22% 28% 6% 7% 2005 11.1 37% 23% 27% 7% 7% 2004 10.5 36% 24% 26% 7% 7% 2003 10.0 36% 25% 26% 7% 7% 2002 9.6 35% 25% 25% 7% 7% Total CAGR China Tajikistan Kazakhstan Azerbaijan USA Oman Turkey Uzbekistan Lebanon India Turkmenistan Armenia Iran Bahrain Israel Pakistan Iraq Egypt Kyrgyzstan Jordan KSA Syria Yemen Afghanistan UAE Kuwait Qatar Growth mainly driven by immigration 2. Demographic Perspective Short-listed GCC Other MECA Other non-MECA
    • 26. Large expatriate populations entail risks of social unrest, but also greater labor market flexibility and lower unemployment
      • Large percentage of foreign born population (mostly male) poses a risk of social unrest and a threat to political stability
      • On the other hand, countries benefit from greater labor market flexibility , and increases in unemployment rate are tempered by emigration
      Source: Human Development Report, United Nations; Project Team Analysis Oman Bahrain Kuwait UAE Qatar Total Population – in mm – 0.8 3.4 0.7 2.7 4.8 Expatriate Population Imbalances and Implications in Short-listed Countries (2008) Total Foreign-born Population per Short-listed Country – in % of total population – Key Implications: Challenges and Opportunities 2. Demographic Perspective
    • 27. Observing such imbalances, GCC governments have instituted labor nationalization policies to promote locals in the workplace Source: Press Releases, Government Websites, Project Team Analysis Oman The Omanization policy sets quotas of 15% - 60% Omani employment in six sectors. Companies that reach mandated goals are given a &quot;green card&quot;, which brings them press attention and preferential treatment in their dealings with the government. Qatar The “Strategic Qatarization Plan” was initiated with the goal of achieving a 50% national workforce in the Energy and Industrial sectors. UAE Emiratization has focused on private sector job functions such as Public Affairs and Human Resources, but compliance is low. Kuwait Kuwaitization is the official policy, though there are no defined quotas. Many companies view employment of nationals as a CSR initiative. Bahrain Recent introduction of a BD10 ($27) monthly labor fee for each expatriate employee has resulted in vehement protests from employers. Key Labor Policies in Short-listed Countries (2009) 2. Demographic Perspective
    • 28. GCC countries are all authoritarian regimes with little or no enfranchised political opposition Source: CIA World Factbook; EIU Country Reports 0 Overview of Political and Legal Systems in Short-listed Countries (2009) 3. Political Perspective Bahrain Kuwait Oman Qatar UAE Form of government Constitutional monarchy Constitutional emirate Monarchy Constitutional emirate Federation with specified powers divided between emirates and federal government Head of state King Hamad bin Isa al-Khalifa Emir Sabah al-Ahmad al-Jabir al-Sabah Sultan and Prime Minister Qaboos bin Said al-Said Emir Hamad bin Khalifa al-Thani President Khalifa bin Zayid Al-Nuhayyan Legislature bicameral legislature - Consultative Council (40 members appointed by the King) and the Chamber of Deputies (40 seats directly elected) unicameral National Assembly or Majlis al-Umma (50 seats elected by popular vote) bicameral Majlis Oman consists of Majlis al-Dawla (71 appointed seats) and Majlis al-Shura or lower chamber (84 elected seats) unicameral Advisory Council or Majlis al-Shura (35 seats; members appointed) unicameral Federal National Council (20 appointed and 20 elected members) Political parties Prohibited Prohibited; informal religious and secular groups allowed Prohibited Prohibited Prohibited Political pressure groups Shia activists; Sunni Islamist legislators Islamists; merchants; secular liberals; Shia activists; tribal groups None None None Legal system based on Islamic law and English common law civil law system with Islamic law significant in personal matters based on English common law and Islamic law based on Islamic and civil law codes; discretionary system of law controlled by the Emir based on a dual system of Sharia and civil courts
    • 29. As such, political instability in GCC countries is relatively low, especially in Oman 0 Source: EIU Political Instability Index; ranking of 165 countries; Indexes scaled from 0.0 – 10.0 with higher values indicating greater risk Key Elements of Political Instability for Short-listed Countries (2009E) Lowest Political Instability 3. Political Perspective Political Instability Index Score Country Global Rank of Instability Underlying Vulnerability Economic Distress 2008 2007 Bahrain 99 5.0 6.0 5.5 4.5 Kuwait 99 5.0 6.0 5.5 3.5 Oman 149 3.8 4.0 3.9 2.9 Qatar 142 4.2 4.0 4.1 4.1 UAE 142 4.2 4.0 4.1 2.1 Inequality History of political instability State history Proclivity to labor unrest Corruption Level of social provision Ethnic fragmentation Neighboring countries Trust in institutions Regime type Status of minorities Regime type and factionalism Forecasted growth in incomes Unemployment rate Level of income per head
    • 30. Looking forward, GCC countries have moderate risk of political instability, and Oman has the best prospects in the near term 0
      • Kuwait
      • Dissolution of National Assembly reflects political rift between reformist government and socially conservative legislature
      • Al-Sabah family succession issues
      • Bahrain
      • - Tensions rising over economic inequalities, slow political liberalization and arrest of Shi’a opposition activists
      • Main foreign policy concern is Iran’s nuclear program and its respect for Bahrain’s sovereignty
      • Qatar
      • Little pressure for political liberalization due to high per capita wealth levels
      • High profile foreign policy projects image as impartial interlocutor
      • Oman
      • Political structure will remain stable under rule of the Sultan.
      • Greatest risk is due to uncertainty over succession
      Source: EIU Political Instability Index; Country Reports
      • UAE
      • Relatively liberal social and economic policies although little impetus exists for substantive electoral reforms
      • Foreign policy is defined largely by strategic alliance with Western powers
      Political Instability Outlook (2009-2010F) Best Political Prospects 3. Political Perspective
    • 31. The oil and gas sector is the driving force behind the selected GCC economies, dominating exports and comprising much of GDP Note: (*) Oil/Gas vs. Non-Oil/Gas distribution based on 2005 WDI data; (**) Based on 2005 and 2006 ratios to total goods exports and GDP Source: CIA World Factbook; World Development Indicators, World Bank; Global Insight; IMF; country Central Banks; Project Team Analysis 4. Macroeconomic Perspective Oil/Gas Non-Oil/Gas Dubai $52.3 Kuwait $149.1 5% 25% 75% 59% 41% Oman $67.0 Qatar $85.4 41% 59% 60% 40% Abu Dhabi $26.7 Bahrain 46% 54% 95% $111.4 UAE Bahrain Oman Qatar Kuwait Significance of Oil and Gas Sector in Short-listed Country Economies Oil/Gas vs. Non-Oil/Gas Share of GDP – in US$ bn at PPP – (2008E (*) ) Oil/Gas Exports as Share of Total Exports and GDP – in % – (2008E (**) ) Average = 41% Oil/Gas as % GDP as % Exports
    • 32. Economic growth has varied with oil prices as government expenditure is sensitive to oil revenues… 60% Source: World Development Indicators, World Bank; country Central Bank websites; Project Team Analysis Relationship Between Oil Price and Economic Growth in Short-listed Countries Sensitivity of Total Output to Oil Prices in Previous Year – in % – (1991-2005) Correlation between Oil Price and GDP Growth – in % – (1977-2005) Bahrain Oman Qatar Kuwait UAE 2005 33% 2003 2001 1999 1997 1995 1993 -16% 1991 Change in Oil Price Change in Real GDP Change in Real GDP for All Short-listed Countries Y-o-Y Change in Oil Price in Previous Year Sensitivity of output to oil prices is due to changes in government expenditure following changes in oil revenues 4. Macroeconomic Perspective GDP in GCC Countries more than doubled since 2002
    • 33. … and while capital inflows from oil and gas exports have driven inflation, interest rates are increasingly attractive to foreign investors e Note: (*) Exchange rates in all short-listed countries are pegged to the US dollar, which is currently appreciating against most currencies Source: U.S. Energy Information Agency; Global Insight; World Development Indicators, World Bank; Project Team Analysis Impact of Oil Price on Inflation and Interest Rate in Short-listed Countries (*) 2009 35 99 2008 94 76 70 65 2007 2006 56 48 2005 41 2004 26 26 25 2003 Y-o-Y CPI Inflation vs. Quarterly Oil Price (Q1 2003 – Q1 2009E) Short-term Interest Rate vs. Quarterly Oil Price (Q1 2001 – Q1 2007) Oil Price UAE Oman Qatar Kuwait Bahrain 2007 55 56 2006 2005 35 41 32 30 2004 28 26 2003 28 28 25 2002 24 23 2001 Y-o-Y CPI Inflation (in %) Short-term Interest Rate (in %) Beg. of Quarter Oil Price (in US$ per bbl) Beg. of Quarter Oil Price (in US$ per bbl) 4. Macroeconomic Perspective
    • 34. In financial markets, Dubai was hit hardest by the economic crisis, while Oman and others have been more resilient Size and Performance of Selected Financial Markets Note: (1) Data from October 2008 Source: Gulfbase.com; individual country stock exchange websites Change in Selected Stock Exchange Indices – in % change since 01 Jan 07 – (01 Jan 07 – 01 Apr 09) Oman 13,235 Bahrain 17,898 Dubai 34,130 Qatar 58,076 Abu Dhabi 62,048 Kuwait 89,427 New York (1) 10,100,000 Total Market Capitalization per Stock Exchange – in US$ mm – (01 Apr 09) Total Listed Firms 2,773 133 49 65 43 66 218 S&P 500 5. Enterprise Perspective Oman Bahrain Dubai Abu Dhabi Qatar Kuwait
    • 35. Today, the largest and fastest growing listed firms are majority state-owned telecom companies, banks, and real estate firms Key Firms Listed on Short-listed Country Stock Exchanges Note: (1) Refers to market capitalization in current US$ mm; (2) refers to top % gainers in stock performance on 01 April 2009 Source: Zawya Recent Market Movers (2) Largest Listed Firms (1) Mobile Telecom Co. ($10,417 mm) National Bank of K. ($10,415 mm) Kuwait Finance House ($9,342 mm) Gulf Bank ($5,382 mm) K. National Cinema (+11.63%) Al Dar Real Estate (+10.00%) Int’l Resorts Co. (+9.80%) MENA Holding (+9.62%) Mashreq Bank ($6,282 mm) National Bank of Dubai ($4,388 mm) Emaar Properties ($3,652 mm) Dubai Islamic Bank ($2,542 mm) Ekttitab Holding (+14.93%) DSI Power (+6.25%) Ajman Islamic Bank (+2.97%) National Bank of Dubai (+2.57%) SNAPSHOT Bahrain Telecom Co. ($2,063 mm) Ahli United Bank ($1,987 mm) Arab Banking Corp. ($1,840 mm) Albaraka Banking Grp. ($1,488 mm) Innovative Investments (+2.78%) Gulf Finance House (+2.78%) Bahrain Islamic Bank (+1.43%) AD Telecom Corp. ($20,546 mm) National Bank of AD ($5,399 mm) AD Nat’l Energy Co. ($3,373 mm) First Gulf Bank ($3,316 mm) ASMAK Fishing Co. (+9.64%) Abu Dhabi Aviation (+8.45%) ALDAR Properties (+8.00%) RAKBANK (+6.71%) Oman Telecom Co. ($2,248 mm) BankMuscat ($1,572 mm) Nat’l Bank of Oman ($767 mm) Bank Dhofar ($692 mm) Al Shams (+9.17%) Oman Cables Industry (+8.80%) Voltamp Group (+7.88%) Jazeera Steel (+7.18%) Industries Qatar ($12,101 mm) Qatar Nat’l Bank ($7,841 mm) Qatar Telecom ($3,819 mm) Qatar Islamic Bank ($3,356 mm) Q. Tech Inspection Co. (+9.68%) Family Food Center (+7.25%) Doha Insurance Co. (+4.22%) Diala Holding (+2.94%) United Finance Co. (+8.82%) 5. Enterprise Perspective Bahrain Kuwait Oman Qatar Abu Dhabi Dubai
    • 36. Looking across individual firms, we found that investments in telecom are delivering the highest returns on equity… 31.8% 18.9% 13.2% 11.3% 17.6% 20.1% 17.3% 13.9% 15.6% 17.2% 15.2% 2.9% 14.5% 23.1% 15.7% 10.5% 26.1% 8.8% 4.5% 24.1% 7.3% 19.2% 7.1% 25.5% 9.0% 13.0% 20.5% Average Return on Equity of Listed Firms by Sector and Stock Exchange (*) – in % – (April 2009) Note: (*) Based on sample of top listed firms per economic sector and country stock exchange; (**) excludes companies in Manufacturing, which mostly operate in FTZs, as well as ‘Other Services’, such as healthcare, which are largely unlisted across selected stock exchanges Source: Gulfbase.com; Country stock exchange websites; Project Team Analysis Bahrain Kuwait Oman Qatar Abu Dhabi Dubai Oil and Gas Electricity and Water Real Estate, Building, and Construction Trade, Restaurants, and Hotels Transportation and Logistics Finance and Insurance Telecommunications Unlisted Unlisted Unlisted Unlisted Unlisted Unlisted Sector (**) Country Unlisted Unlisted Unlisted Unlisted Unlisted Unlisted Unlisted Unlisted See Abu Dhabi INDICATIVE 5. Enterprise Perspective
    • 37. … and telecom firms are mostly open for foreign direct investment, with caveats for UAE and Oman Openness to Foreign Direct Investment (FDI) by Sector and Short-listed Country (2009) Note: (*) Excludes manufacturing firms, which mostly operate in FTZs; (**) Max 25% foreign ownership Source: U.S. Commercial Service; country investment promotion websites Oil and Gas Electricity and Water Real Estate, Building, and Construction Trade, Restaurants, and Hotels Transportation and Logistics Finance and Insurance Telecommunications Closed to FDI Open to FDI   Caveats and Exceptions 70:30 rule outside FTZs 51:49 rule outside FTZs Sector (*) Country 5. Enterprise Perspective Oman UAE Qatar Bahrain Kuwait 1 2 3 4 5                                (**)    
    • 38. Integrating perspectives, it is apparent that Qatar’s telecom sector is most attractive for equity investment Historical Demographic Political Macroeconomic Enterprise A B C D E Summary of Key Takeaways per Short-listed Country Short-listed Countries Source: Project Team Analysis Key Takeaways Across Perspectives
      • Highest GDP-per-capita in the world
      • Low political risk
      • Liberal investment climate
      • High % expats, but highest pop growth
      • Liberal non-gas labor policies
      • Telecom poised for rapid growth with dereg.
      • Finance sector closed for invest.
      Summary
      • High % expats
      • Relatively liberal labor policy
      • Potential for social unrest in long-term
      • 51:49 rule
      • Least exposed to oil shocks
      • Dubai most exposed to financial crisis
      • Lowest inflation
      • Attractive real estate market in Abu Dhabi
      • Sectarian tensions
      • Relatively liberal labor policy
      • No FDI restrictions
      • Most competitive telecom sector
      • Moderate risk of political instability
      • Most stable financial market
      • Best business environment
      • Least dependent on oil sector
      • Lowest % expats
      • Strict local labor employment policy
      • Lowest political instability
      • Historically high growth in telecom
      • But be wary of high interest rates
      • 70:30 rule
      • Highest inflation
      • Highest political risks in the region
      • Most stable interest rates
      • Highly exposed to financial crisis
      • Only average ROEs among top Kuwaiti firms
      • Oil/gas sector closed for invest.
      Oman UAE Qatar Bahrain Kuwait 1 2 3 4 5
    • 39. The mobile telecom market has grown at a staggering rate as the five GCC countries have deregulated telecom for WTO ascension E Note: (*) Total worldwide mobile subscribers increased at a CAGR of just 23.3% (2002-2007); (**) Telecom liberalization commitment is a requirement for WTO accession which makes it imperative for GCC countries to commit to open their telecommunications sector Source: World Development Indicators, World Bank; Global Investment House; Project Team Analysis Total Mobile Phone Subscribers in Short-listed Countries – in millions – (2002-2007) UAE (25.6%) Kuwait (17.7%) Oman (40.1%) Qatar (36.5%) Bahrain (65.8%) 27.8% 15.25 50% 18% 16% 8% 2007 7% 2006 11.69 47% 22% 16% 8% 8% 2005 9.61 47% 24% 14% 7% 8% 2004 7.63 48% 26% 11% 6% 9% 2003 5.81 51% 24% 10% 6% 8% 2002 4.47 54% 27% 10% 6% 2% CAGR Country (CAGR) Recent deregulation in GCC countries has resulted in some of the fastest market expansion in the world (*) Path to Telecom Market Liberalization (**) (2009) Qatar Bahrain Oman UAE Kuwait Low Competition High Competition Recommendation
    • 40. Telecom earnings growth is expected to outstrip all other sectors in 2009, and industry analysts encourage investment in all of the major companies Note: (*) Refers to the leading, previously state-owned telecom company per short-listed country; (**) valuation implicitly reflects expectations of future cash flows; P/E ratio data retrieved 13, Apr, 2009, and low P/E values can be due to under-valuation Source: Markaz Research, Feb 2009; Global Investment House, Fall 2008; Bloomberg; Project Team Analysis Expected Profitability of the Telecom Sector and Legacy Companies (*) Expected Earnings Growth per Selected GCC Sector – in % – (2009-2010F) Investment services Real estate Industrial conglomerates Marine port services Construction materials Banks Oil and gas refining Utilities Steel Chemicals-commodity Telecom Estimated Under-valuation of Stock per Legacy Company – in est. % premium to market value – (2009F (**) ) Qatar Telecom (Qtel) Emirates Telecom (Etisalat) Oman Telecom (OTEL) 77.16% Bahrain Telecom (Batelco) 50.00% Kuwait Telecom (Wataniya) 18.72% 38.71% 17.95% BUY BUY BUY BUY BUY P/E Ratio 5.28 7.39 7.46 10.21 9.39 Recommendation
    • 41. Specifically, ‘Qtel’ offers the best short-term and long-term prospects, and experts confirm that Qatar telecom is low risk 2 Qatar Telecom Evidence of Highest Rewards and Lowest Risk for Equity Investment in Qatar Telecom (2009-2019F) Source: Pantera Capital; EIU; Project Team Analysis Recommendation Telecom Risks per Short-listed Country – in risk score (1 to 100) per category – (21 April 2009) Evidence of Highest Rewards in Short-term and Long-term (21 April 2009)
      • Short-term:
      • Highly profitable and among the highest EBITDA margins across region
      • Qtel seeking rapid international expansion, investing up to US$2 billion overseas in 2009
      • Long-term:
      • Capitalize on a fast-growing and young population with demand for high-tech services
      • Liberalization and consolidation is favoring emergence of significantly larger players
      • Domestic saturation driving expansion into the low penetration regional MENA markets
      Kuwait 382 18% 13% 12% 14% 10% 10% 7% 11% 6% UAE 328 15% 16% 13% 14% 13% 8% 12% 4% 4% Bahrain 306 17% 16% 23% 13% 10% 8% 4% 2% 7% Oman 287 18% 16% 17% 12% 13% 7% 4% 7% 4% Qatar 247 15% 17% 12% 12% 15% 7% 8% 11% 3% Gov’t effectiveness risk Legal & regulatory risk Political stability risk Labor market risk Financial risk Infrastructure risk Macroeconomic risk Tax policy risk Foreign trade risk Lowest Risk
    • 42. Invest in Qtel! % Andreas Albeck Jordan Fabyanske Fatma Kayhan Frank D’Agnese Adam Caplan Cecilia Guilford

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