Who Runs Russia? Organised crime has long been big business in Russia. But do powerful Mafiosi now enjoy the states protection?

Who runs Russia? Organised crime has long been big business in Russia. But do powerful Mafiosi now enjoy the states protection?
Russians have a strange attitude about their gangsters. What I mean is that in Russia, for a small amount of money, tour guides will actually guide you through Moscow’s Vagankovskoye cemetery, where several Mafiosi are buried. At the cemetery most Mafiosi are buried under life-sized statues or headstones. There is a radio station devoted to folk music that plays about prison life of the gangsters. But nothing demonstrates the veneration of all things gangster more than the untimely demise of a vor v zakone or Russian Mafia boss. It has almost become a ritual when a high level razborka, or execution, leads to the evening news, announcer dwelling lovingly on the details of the murder weapon, the getaway route, the model of Mercedes or the Maybach that the victim was driving. Then comes the grainy CCTV footage or mobile phone photos of the deceased slumped over his steering wheel or prone outside the entrance of a nightclub.
Within 24 hours the television stations have produced computer simulations of the attack and have made CGI style graphics of the attack. The properties of the weapons will be discussed by ballistic experts and they will also be looking into any cool gadgets involved in the operation. Top ranking “thieves in law” now own legitimate thriving businesses in Russia and they have armoured Maybachs to match. They also hang out with lawyers, judges, politicians and they have policemen on their payroll for their protection.
In a Wikileaks cable, a Spanish judge –an expert in Russian Mafia, who has studied the mob for 11 years – told US diplomats that he considers Russia a “mafia state”, where “one cannot differentiate between the activities of the government and the OC (organized crime) groups. For example, take the assassination of opposition journalist Anna Politkovskaya in 2006, those arrested included a professional mafia hitman, an active duty FSB colonel and members of a police special surveillance unit, who are all currently awaiting a second trial. Another high profile crime was the death of lawyer Sergei Magnitsky in prison in 2009. His fate was seal when he accused the police of tax fraud amounting to $230 million. However, all those involved are still free. Mafia killings of today are fewer in number compare to the early 1990s, but the quality of the killings and the method of the killings has changed. Twenty years ago, killings where carried out using knives because firearms where prohibited in the USSR. However, things changed and the mafia got round to using guns but there was a lot of collateral damage as the use of the fire arms was largely unskilled and the strategies used to carry out the hit was mainly flawed. These days, however, the level of professionalism is unbelievable and chilling. Snipers can make headshots at hundreds of metres or even escape 10 or more security cameras after a hit has been made. This simply means that new people have arrived on the scene and the old mafia groups are gone.

The New Egypt: Transition towards a difficult new dawn

At the recent Egyptian elections, the lines of voters waiting to vote stretched for hundreds of metres, but this didn’t deter the Egyptians who had come from their different homes to vote from voting at the polls. Many of them were casting their votes for the very first time. The elderly among the voters came with chairs and most who didn’t come with chairs were given or offered chairs to sit on while they waited. The general mood and atmosphere was one of excitement as many people turned out to vote in what would be a historic election, the first parliamentary poll since the revolt that toppled the regime of Hosni Mubarak in February of 2011. Elderly people who had turned out to vote believed that this was an important period for their country and for the people of Egypt. Many didn’t care who was elected, Islamists or others, it didn’t matter to them, all that mattered was that they did their part in the elections. It was clear that after several years of dictatorship and military regimes and countless rigged elections, the people where very enthusiastic as they went to the polls in the hope that they could bring to an end the chaos of the past year and the rule of the Supreme Council of the Armed Forces (SCAF)
 The multi-stage election in Egypt began on November 28, by which time it was evident that the Egyptians hard won confidence in how much they could influence change in their own government had all but evaporated. It had given way to frustration because over the past year the country has been torn by one crisis after the other. Political drift, demonstrations, labour strikes and frequent eruptions of sectarian violence between muslims and Christians have driven away investors and tourists, causing the economy to grind to a halt and as a result, life has increasing become hard for millions of poor people. The most disturbing part of the story in recent days has been the fracturing of the unity of purpose that prevailed during the protests. Basically, the people of Egypt seem to have become divided politically. There is a widening gap between the younger generation of people who started the revolt earlier in the year and the army generals who assisted to oust Mr Mubarak. This widening gap has also added to the tensions in the political scene. The military has accused activist and critics of working for foreign powers. There is a lack of trust between the activists and the military because the military has intimidated the people.
 The manner in which the military has handled the transition of power, has been at best, erratic. In the beginning, the military favored the muslim brotherhood because it was the biggest and the most organized political force. However, over the summer period, the generals have realized that islamists would dominate both the assembly and the drafting process and as a result, the military will have little control over the way the country was shaped. Having considered this, the military changed tactics and tried without success to get political forces to agree in advance to certain constitutional principles that shield the military from civilian scrutiny. Many Egyptians feel that the military are part of the old structure and have been fighting to preserve their status under the new structure. The Muslim brotherhood is proceeding cautiously in attempts to minimize confrontations with the military and also maintain a stable relationship with its key foreign partners like the United States. Despite leading in the elections, the Muslim brotherhood insists that it wants to share power with other political forces and it doesn’t plan to monopolize the drafting process. However, many businessmen and Egyptians believe that the problems facing Egypt are just too many and that any government formed is bound to fall short in the short term.

Mergers and Acquisitions between Gulf Banks: Any Hope?

Mergers and Acquisition between the Gulf Banks: Any Hope?
There has been little mergers and acquisition deals between the Gulf banks in recent years and there are several reasons for this. The size of banks within the Gulf region has remained small and unfortunately they have been unable to compete on the same level as more international banks around the world. There have been calls to create a global player within the region, however, this has been hindered by the fact that banks in the region are faced with hurdles of legislative requirements for any merger to take place with another bank. There are usually differences between shareholder and board of director’s interests over the issue of merging and acquiring another bank and this has led to limitations in corporate activities.
Acquisition and mergers between banks in the GCC region is estimated to be around $15 billion, which really is a small amount. However, much of this estimate has come from the merger between the National bank of Dubai and Emirates bank international in 2007. Since then, no other bank in the region has bought a competitor or merged with another.
The Bahrain Islamic Bank and its smaller rival, the AL Salam Bank has proposed to merge to create a $4.5 billion bank. If the merger goes ahead, it will become the largest Islamic lender in the Gulf Arab Kingdom and could pave the way for more consolidation, mergers and acquisitions within the region. The two Bahraini lenders have stated that they received approval from the central bank for their planned merger. If successful, the merger will be the first for the GCC based Islamic institutions. Many challenges remain however not least bank valuation, board and senior management appointments, and strategic direction.
When taking an overview of the banking markets in the region, including the larger systems found in the UAE, it is easy to see that there are many financial institutions chasing too few customers with in the region. This can especially be seen the Qatar markets, where many institutions are really chasing and search for new customers. In the UAE there are over 50 banks including both local banks and foreign banks. This together with the current banking conditions and the weak asset growth, suggests that the market is ripe for a corporate activity.
Emirates NBD took over the troubled Dubai Bank in October 2011. It was a take over that was initiated by the authorities and doesn’t signal any change in the attitude towards mergers or take overs. The Dubai Bank suffered tremendously from the local financial downturn and it recorded a loss in 2009. After this, it was taken over by the Dubai Government before being transferred to Emirates NBD
Foreign ownership rules have made it difficult for foreign banks to acquire banks in the region. In fact, a number of foreign banks are beginning to scale back their operations within the region. This can be attributed to several reasons. The first of which is the fact that global crisis has had a knock on effect on the banks and secondly there has been a significant fall in the volume of financial activity in the region. The pace of IPOs in the GCC region has halved to $400 million this year from $800 million in the same period in 2010 and $10 billion in 2008. The volume of deals in the Gulf state has also fallen 60 percent to $25 billion this year from $40 billion in the year earlier period.

GCC Retail Banking Expands

The retail and the SME sectors in the Gulf Banking sectors are  in slightly better shape that the corporate and commercial sectors. The reason for this is that the commercial sector has been hit hard by the regional and global downturn. This is due to the correction in the real estate sector and the investment sectors respectively. Having said this, there are still significant challenges facing the retail sectors in the GCC regions.
The retail banking sector in the Gulf is still developing despite the advanced level of sophistication at many banks.  The retail banking sector has be affected by regulatory frameworks and new guidelines which has led to the development within the sector. It is expected that the retail banking services by the Gulf banks will become more innovative as the regulatory framework for retail banking in the region is expanded or broadened.
Banks in all gulf banking markets will readily comment that one of the main stumbling blocks for the true development of retail banking in the Gulf is the problematic bankruptcy laws. Banks are positive that changes in the laws by the government will spur growth in the sector with banks given more confidence in financing retail and SME clients.
The current Euro debt crisis and the downturn in the global economy has had a negative knock on effect on the UAE banking sector. Investor confidence and sentiment has weakened due to the problems facing the world economy. As a result of this, the retail asset growth has been weaker than expected.
Given these conditions, the GCC banks have become more circumspect in retail banking loans. They are unwilling to lend more and have put in place more stringent rules and guidelines. Competition for customers is tough among the banks and most banks have put in place strategies that will distinguish them from the rest of the pack. High competition for customers has led to banks becoming more customer- oriented. Mashreq Bank, for example, is following a more integrated approach and providing end to end service  and so are most of the regions other banks.
How about Asset quality with in the retail banking sector? Well the fact is that asset quality within the retail banking sector has become more stabilized over the past year. This is the result of more a more conservative path taken by the banks. Banks within the region have put in place more conservative policies to watch over customer borrowing and loans. During the boom periods of the GCC economies, the banks were not watchful or vigilant about the number of credit cards and personal loans that each customer took out. This made it easy for customers to get loans and credit cards at the time. However, the rules have changed and the risk appetite has fallen and banks and regulators have introduced far more stringent lending criteria and monitoring processes. But having said that, the banks have remained in a very vulnerable position because there is a lack of credit bureau to aggregate risk information and exposures. Basically, there is a lack of proper risk assessment for each customer, which has led the banks into a more risk exposed position.
So what are the predictions for the UAE retail banking sector? Retail revenue for the UAE banks is expected to be weaker for 2011 and this is because of the personal loans limits that were introduced by the central bank at the start of 2011. Stricter lending policies by the bank and personal loan limits have led to subdued loan asset growth. The UAE retail banking revenues are expected to be lower by between 15-20 percent in 2011.
In contrast, the Saudi retail loans are expected to remain strong on positive demographics. The Saudi retail sector is favored by good liquidity and asset quality which are both factors that are expected to keep the countries retail loan growth healthy in 2012. According to SAMA data, retail lending is currently increasing by around 11 percent year on year, social welfare spending by the government along with bonus salaries will keep demand retail loans high.
The Gulf region has a low interest rate environment and the result of this is that banks has been compressed at the margins. However, in the growing retail sectors- where margins are much higher, banks have been supported with significant retail loan books on the balance sheet.

The Risk that Arab Spring Countries must Manage

Expectations of more jobs and growing prosperity need to be handled with care, says Henry Azzam
When young Arabs took to the streets of Cairo, Tunis, Damascus, Tripoli and Sana this year they hoped that bringing down autocratic regimes would not only end corruption and restore dignity but also generate employment and pave the way for a more prosperous future. Their expectations have not been met. On the contrary, conditions have worsened as businesses have retrenched and labour intensive sectors such as tourism, services and transport have been harmed by civil strife. Uncertainty and instability are to be expected during transition periods. Economic conditions in countries experiencing revolts are likely to worsen before they improve. During these transitions there are several risk elements that need to be managed:
• Peoples Expectations: Transition governments should send a clear message that reforms will be implemented and measures introduced to create jobs. However, such steps will be effective over a longer period rather than immediately. Managing peoples expectations requires presenting a clear road map of reforms and a specific time frame as to when their results will become visible.
• Credibility of Private Sectors: Private sector businesses have lost credibility in countries that have seen uprisings. Corruption and Nepotism are the results of cozy relationships between previous regimes and businessmen. Governments should resist the urge to treat all businesses that dealt with past regimes as necessarily corrupt. On the other hand, the private sector businesses have a role to play in convincing young people that they are willing and able to provide the finances and the support that they need to break the cycles of poverty and unemployment.
• The Rise of Political Islam: It is easy to say that the more organized Islamic parties will gain ground in the first round of elections, as we have seen in Tunisia. The Nahda party won the largest block in recent poll. In countries such as Turkey, Indonesia and Malaysia, political Islam and democracy have been cohabiting fairly comfortably. There is no reason why the Arab world cannot emulate the Turkish model of governance.
• Macroeconomic Stability: With the first sign of a revolt and discontent, several governments laid out generous packages including more jobs and pay in the public sector, and increased subsidies. The Measures announced amounted to 5 percent of GDP in Jordan, 10 percent in Egypt and 25 percent in Saudi Arabia and Algeria. Such fiscal policy is needed to maintain social cohesion and mitigate the impact of the downturn, however, these policies are known for their high level of instability and are known to fuel inflationary pressures and add to budgetary deficits and lead to higher government debt in oil exporting countries.
• Dependence on Foreign borrowing: The global economy is headed into a period of weaker growth.  The US, Europe and the emerging countries all plan to cut budgets in the next year. This is more likely to affect the oil prices negatively. It will also affect tourism, trade and foreign direct investment negatively. Large European banks are under pressure to improve their capital adequacy ratios, forcing them to deleverage. This will make it more challenging for highly indebted companies and countries to refinance maturing debt

Technocrats Take Over Italy Helm

Italy has a caretaker government of technocrats led by Mario Monti, a 68 year economics professor. The caretaker government took charge of the Eurozones third largest economy on Wednesday, the 16 th of November. The 68 year old, economics professor, Mario Monti, took on the additional role of running the finance ministry.  Mario Monti also appointed Corrado Passera, head of intesa San Paolo, Italy’s largest retail bank, as head of a “superministry”. “All this will, I trust, translate into a calming of that part of the market difficulty which concerns our country”, said Mr. Monti. Angela Merkel, the German chancellor had a difficult time dealing with Silvio Berlusconi, the departing Italian minister, said she valued Mr Monti highly. Yields on Italy’s 10 year bonds remained above the 7 percent level, despite the fact that the ECB, European Central Bank has been buying the bonds heavily. The premium Rome pays over Berlin to borrow was 528 basis points. However, all other Eurozone bonds saw a sell off. The 17 unelected technocrats of Italy’s new administration are riding a wave of popular support in Italy, while they also carry the hopes of panicking investors and foreign capitals. Technocrat governments are not new in Italy. The last technocrat government was led by Lamberto Dini, who was ushered in from the Bank of Italy after the collapse of Silvio Berlusconi’s first government in 1994. The new cabinet has a lot of experience especially in Academia and the civil service. The youngest in the cabinet is 56 and the oldest is 75. Piero Giarda, professor of economics and former finance ministry undersecretary will play a key role as minister for relations with parliament. Mr. Antonio Catricala, who as cabinet undersecretary will deal with the daily nuts and bolts of running a government, he could act as a bridge to the past because he was particularly close to the former Prime Minister Silvio Berlusconi. An alliance of business groups that includes the influential Confindustria lobby praised the ministers as competent professionals demonstrating the spirit of service. “We launch an appeal to all political forces. It is absolutely essential that, starting from today, markets perceive that the government has a wide, strong and convinced support in parliament,” the alliance said.

The central bank fears weakening incentives for government to implement reforms. Financial crisis are times when the central banks can at least show their fire power. So the question being asked is why the European central bank has remained quiet and modest even in the face of escalating Eurozone financial crisis? This month saw a significant intervention from the ECB in government bond markets which helped to curb the rises in the Italian debt yields. The European Central Bank hasn’t indicated that government bonds purchases could be stepped up. Instead, Mario Draghi, the new ECB president has indicated that the banks actions would be limited and focused on ensuring that interest rate decisions where transmitted via financial markets to the real economy. An alternative would be for the ECB to set limits on the spread between interest rates on German bonds and other government bonds. Doing this would match its objective of ensuring the effective “transmission” of its interest rate decisions. The Eurozones six Triple A rated countries should have greater say in the economic affairs within the single currency and act as its inner core. Alex Stubb said in an interview he did not believe new institutions should be created to give the triple A countries more power. But he said that the European Union rules that allowed “enhanced cooperation” between member states might be needed so they could coordinate economic policies. A country that isn’t triple A rated isn’t going to be the best one to give you advice on your public finances. Mr Sarkozy, the French president, has been the strongest advocate of closer integration among a euro subset, arguing France and Germany should act on their own to set the standard.

Eurozone bonds hit by massive sell offs and the Eurozone Turmoil

Eurozone bonds hit by mass sell-off and the Eurozone turmoil
The Eurozone bond market was hit by a massive sell of this month because of investor fears. Investor fears spread beyond Spain and Italy to other triple A rated countries such as France, Austria, Finland and the Netherlands. The premium that France pays over Germany rose to a Euro era record of 192 basis points and the premium that Austria pays over Germany rose to a Euro era record of 184 basis points. Markets are losing patience so they are going for the jugular, which are the core countries not the periphery. There is convergence but it is convergence on the weakest. All main Eurozone countries were affected by the rise in bond yields. The only country that wasn’t affected was Germany, and this suggests that the sovereign debt problems are entering a new phase. Italian bond yields moved above 7 percent, a position that is viewed as unsustainable. Spanish premium to Germany hit 482 bp. Traders said there were few buyers in many bond markets, with only the European Central Bank active in Italy and Spain.
German frustrations over Britain’s approach to the Eurozone crisis erupted when a close ally of Angela Merkel accused the UK of selfishness. Volker Kauder criticised Britain for opposing a European tax of financial transactions. He said that the UK was only defending its own interests and not that of the EU. Ms Merkel has urged the Eurozone to move ahead with the Tobin Tax if Britain continued to block the measure. The Eurozone should raise funds from the financial sector to help cash strapped governments. Mr Kauder told the CDU that annual conference that “The British are not members of the currency union but they are members of Europe and they have a responsibility for the success of Europe”. George Osborne, Britain’s Chancellor of the Exchequer, has called the Tobin tax plan a bullet aim at the heart of London.
President Nicolas Sarkozy announced a review of the funding of Frances social welfare system on Tuesday, the 15 th of November. In his review, he stated that the heavy labour costs it imposed hurt the economy and the country’s ability to compete internationally. The French employees appealed to the country’s politicians for structural reforms to cut labour costs, regenerate growth and overturn a big gap in economic performance between France and Germany that has damaged France ability to withstand the pressures of the Eurozone crisis. Mr Sarkozy intends to appoint an advisory council at the end of the year that will be responsible for proposing ways to reduce the weight of taxation on work. “We must rethink the system of financing our social system”, Mr. Sarkozy said. “The very high cost of labour in our country penalizes our economy and penalizes France in international competition”. Medef, the French business confederation, and Afep, the association of private enterprise, complained that France had lost ground to neighboring country, Germany in terms of export market share, balance of payments, fiscal strength and cost of labour and production.
Negotiators for Greek debt holders have offered to swap their bonds for new ones worth half their face value, but only if the new bonds contain high interest rates and have extra incentives, including annual payments if the Greek economy recovers. The confidential offer was proposed to the Greek authorities and it also insisted that the new bonds be issued under British rather than Greek law. Greek officials are expected to present their own counter proposal when talks begins over the bonds. The negotiations are intended to finalise details of the highly –touted deal struck on October 27 in which the Institute of International Finance agreed to take a 50 percent  haircut in the face value of their bonds. The deal left open questions on how the 50% hair cut would be achieved. Tweaks in interest rates and maturities for bonds used in swaps for the haircut can have a critical effect on how much bond holders are able to recoup, enabling them to achieve less of a hit on the net present value of their holdings than the headline number announced by the European leaders.

After the Property Crash - The Dubai Property Market

The real estate market in Dubai is showing signs of recovery after a 3 year slump. The real estate market in Dubai was worth around $31 billion at its peak in 2008. However, the mood today is one of cautious optimism as the market is now showing signs of recovery from the recession’s period. At this year’s Cityscape Global event in Dubai, investors had a more business to business atmosphere than in previous years. According to Jones Land LaSalle rental prices in the office and residential sectors are bottoming out and the retail and hotel sectors are already showing a growth buoyed by tourism. This follows a dip of around 18.6 percent in the real estate sector in 2009 and a recovery by around 2.5 percent in real terms in 2010 according to the National Bureau of Statistics. The real estate’s sectors contribution to the real GDP grew exponentially from Dhs 95.6 billion in 2006 to Dhs 111.1 billion in 2007 and to  Dhs 114 billion in 2008 before slumping to Dhs 92.7 billion in 2009. As a result of the real estate crash, the prices of property in Dubai plummeted 60 percent in Dubai. The result of this was that many projects and unplanned constructions where put on hold or even shelved. However, there were other factors at play. For example, the continued government spending on infrastructure, including the Dubai Metro and new roads, and visitor numbers increasing, the real estate sector rebounded to Dhs 95.1 billion in 2010.
One of the hardest hit developers during the real estate crash was Nakheel, which is currently undergoing a Dhs 16 billion debt restructuring programme and has been handed $8.71 billion bt the government and written off Dhs 78.6 billion of its real estate assets due to the emirates property crisis. Nakheel followed the ambitious Palm Jumeirah project with other projects such as other man made palm shaped islands in Deira and Jebel Ali, including the World. These projects left Nakheel exposed during the global financial crisis. But the company is expected to post profits by the end of 2011. The Arab spring has confirmed Dubai as a safe haven for tourists and investors alike. This is because Dubai has benefited from the Arab spring and has seen the rise in tourism and visitors. The Hotel and retail markets have benefited extremely from the Arab spring. But as a result of the sovereign debt crisis in Europe, the outlook here in the UAE has been one of caution. It is no longer about new product launches it is about existing projects. There are very few end users at Cityscape; it is now more an event for B2B contractors and suppliers. There has been a transition and it is more realistic with the overall market becoming a lot quieter because sales activities and the projects have slowed with people reassessing process making it all much more competitive.
The retail sector is growing because tourism is such a major part of the retail sector. The villa sector is starting to improve and the residential sector is starting to improve too. Apartment rentals are still declining, but there will be growth in the residential sector rents in 2012. However, the big cloud hanging over the market is the Eurozone and the US Recovery as Dubai is very closely linked. Recovery is expected to continue especially with the deal made by the Eurozone on the Greek debt crisis. This is seen as having a positive impact and a good effect on the UAE economic future. The Office market is feeling the brunt of the economic crisis and is the worst performer of all the markets. The Jones Lang LaSalle report points out key drivers for the Dubai real estate market stemming from the increase in passenger traffic to Dubai international Airport, increasing by 15 percent in 2010 and continuing to increase in 2011, and hotel occupancy rates at 78 percent as of July 2011, up on the 60 percent as of July 2009

World Economic Forum: Global business and government experts met in Abu Dhabi to address rapid globalisation and rising sovereign debt

The UAE participated in the 2011 G20 summit in Cannes and it also hosted IRENA, the global clean energy body. This shows and indicates that the UAE is increasingly becoming a global citizen in economic affairs around the world. According to leading political figures at the third World Economic Forum Summit in Abu Dhabi last month, this is a good indication of where the UAE is headed. Over 800 leading experts in academia, business and government convened in the UAE capital to discuss new models for the world’s most pressing challenges, including public debt, climate change and food security.
The continuing uncertain global economic outlook could drive a wedge between international interests if left unchecked. Unstable financial markets combined with rapid globalization and technology uptake are all new factors stoking the need for urgent global conversations. The rise in global wealth has lead to a richer world for many, but many millions are poorer than ever. There is a global inequality. We need to rethink our global competitiveness strategy because we need to address the quality of economic growth. Velocity and country interconnectivity have become so complex at the tipping point that the whole system may collapse. We need new models to survive. The great recession has blinded us to the great revolution.
In addition to increased connectivity across countries and continents, globalization has been paralleled by a shift in power towards the East, as China continues on its incredible growth trajectory and the US buckles under debt pressure and stagnant jobs data. In the last century, global production and consumption was heavily weighted to the west, but recent years have seen a dramatic shift as the BRICS consume and produce more global resources that ever before. Only 40 percent of the worlds production output is in the West and only 43 percent of investment goes to the West. The world is changing very fast. Producers and consumers must work together at this historical juncture.
The prolonged indecision on Europe’s debt woes has also set the stage for mistrust and a need for increased global co-operation. Europe is at the epicenter of today’s crisis. It has fiscal, banking and growth problems and the Euro will not survive. The European Central Bank will have to work to find a solution. What happens in one continent affects another. In a recent WEF poll of 1500 CEOs and academics, less than 10 percent of respondents expressed confidence in the state of global governance over the next 12 months. The world urgently needs to rebuild trust in leaders, government systems and among countries if the international community is to shape new models to solve global challenges