Ernst & Young published a report talking about M&A activity in the MENA region during Q2 of this year. According to the report, M&A activity amassed to $12 billion, a rise of 100% from the previous quarter. However, the value of the transactions for the first half decilned to $18.5 billion, a decline of 15% from the same period last year. Although the value of the deals in Q2 increased, the number of deals decreased in Q2 to 67 deals, down from 76 deals in Q1. Kuwait had the most deals with 7 deals, while Jordan came in second at 5 deal, and Egypt along with the UAE and Saudi Arabia shared the third place with 3 deals each.

In my opinion, seeing a surge in M&A activity is healthy, as it might signal that corporations are finding valuations attractive enough to acquire other companies. Also, some companies might acquire their subsidieries (as is the case of Mazaya and First Dubai), which makes them financialy stronger.

Someone who goes through alot of news pieces a day may not read everything, and might just skim through the headlines. Once he reads a certain headline, he would make his judgment on the subject the article is talking about, or atleast believe what the headline is stating. But this practice is incorrect as headlines can be sometimes misleading. One headline might say that a company has beaten expectations with their earnings, leading a reader to assume that the company is making profits, however, they migh just mean that the loss is less than expected.

The image above is another example of misleading headlines. The first headline on the top left states that Japan maintained its position as second largest economy in the world, while the other two headlines are saying that China surpassed Japan as the world’s second economy. The first headline is from Al Arabiya, while the other two are from Bloomberg and the Wall Street Journal. What is the problem? Is someone lying to the readers? Is Western media more reliable than Arabic media? The answer is simple. The articles use different measures of the size of the economy. The Al Arabiya article uses GDP for the first half of 2010 ($ 2.587 trillion for Japan vs. $2.532 for China), while the Bloomberg and WSJ articles use the quarterly GDP ($1.288 vs. $1.337).

So remeber to not just read the headlines, and read the full article.

P.S. I hope my article’s headline wasn’t misleading.

The Blackberry banning virus is spreading all over the world, with countires starting to ban the service within thier borders after talks with Research in Motion, the Blackberry maker, broke down. The UAE and Saudi Arabia have already announced the banning of the service, with Kuwait, Indonesia, and India threatening to do the same unless certain conditions are met. The problem between the phone maker and these countries is that the countires want to setup proxy servers to moniter the Blackberry usuage (i.e. moniter emails, messages, etc.), which the company is refusing to do so. But there might be light at the end of the tunnel, as India may have reached an agreement with RIM, and Kuwait announced yestersday that RIM has agreed to block 3,000 porn sites.

This news led me to the question of the impact of the Blackberry’s ban on RIM’s earnings. The biggest market for the Blackberry is the US, followed by Canada (home of RIM), then the United Kingdom. The rest of the world contributes to 27% of the company’s revenues. The UAE and Saudi Arabia contribute a very small part of that, thus the ban in these countires has a minimal effect on the company’s earnings. However, India and Indonesia are both a bigger threrats. The two countries, two of the most populus countries in the world, contribute more to RIM, and represents a very ripe environment for future growth.

My bet is the effect of the ban on the local telecommunication companies is far greater than on RIM. Also out of the four companies (STC, Etisalat, Mobily, Du), Du and Mobily will be affected the most as these two companeis are concentrated within the UAE and Saudi Arabia, respectively, as STC and Etisalat have large busniess operations spanning through numerous countries.

Bloomberg announced today that Tiger Global, a global hedge fund, agreed to by an approx. 1% stake in Linked-In, a professional networking site, for $20 million, valuing the webiste at more than $2 billion. In 2007, Microsoft paid $240 million for a stake at Facebook, valuing the site at $15 billion. In 2005, News Corp, the media giant owned by billionaire Rupert Murdech, paid $580 million to acquire myspace.com, a major social networking website.

This is the value that multinational corporations are placing on social networking. Why are they paying this much? Is it just for the advertisement exposure? Or is it more?

Since many people decide to travel during the summer, I have dedicated this article to the people who decided to stay home and not travel. One of the popular locations of travel during the summer is the French Riviera. Among the areas that lie within the French Riviera is the municipality of Monaco. Monaco is a small city-state situated between France and Italy on the Mediterranean sea. Until the 19th century, the municipality had difficulties surviving financially. Not until 1856, gambling was legalized and the first casino started operating in Monte Carlo. The casino became the highest contributor to the state’s treasury. Nowadays other than attracting tourists, Monaco attracts business people as the country is considered a tax heaven as there is no income taxes and low business taxes. Taxes now contribute approximately 50% of the country’s income, while tourism contributes 25%. The country is also diversifying into services and small, high-value-added, nonpolluting industries. What’s interesting to note is that people from Monaco are not allowed to gamble in Monte Carlo.

Due to the recent oil spill in the Gulf of Mexico, BP is required to fetch out $20 billion to cover the costs of the spill, which include cleaning expenses, fines, lawsuits, etc. The company is also under threat of being bought out by a competitor. So, the CEO in a last chance move is trying to raise some equity to pay for the cleaning expenses and fend off potential bidders. A Saudi newspaper reported that an unnamed Saudi investor is planing to buy a 10-15% stake. BP’s CEO Tony Hayward is in Abu Dhabi to entice the emirate to invest in his troubled company. Kuwait Investment Authority, which already owns approx. 2% of the oil giant, has stated that they have no intentions of investing further in the company.

BP is also trying to sell some assets to gain some cash. Chinese giants Petro China and SINOPEC have shown interest in acquiring some assets. A company owned by the Kuwait Petroleum Corporation has also shown interest.

Is this infliction point in BP’s storied timeline the end of the British company? Or a start of a new era?

Mercer, a consulting firm, publishes an annual report that ranks cities of the world in terms of their cost of living. This report is used by various governmental bodies as well as multinational corporations, especially to determine employees’ compensations. This year’s report covers 214 cities spanning through 5 continents. The methodology that Mercer follows is that they have specified 200 items, including housing, clothing, food, transportation, and entertainment, that they compare the cost of from one city to the other.

The Top 10 most expensive cities in the world are:

1. Luanda, Angola
2. Tokyo, Japan
3. N’Djamena, Chad
4. Moscow, Russia
5. Geneva, Switzerland
6. Osaka, Japan
7. Liberville, Gabon
8. Zurich, Switzerland
   Hong Kong
9. Copenhagen, Denmark

As for cities in the GCC, Abu Dhabi is the most expensive ranked 50, Dubai ranked at 55, Manama at 139, Riyadh at 144, Doha at 146, Kuwait at 152, Muscat at 176, and Jeddah at 181.

It is surprising to see that among the top 10 most expensive cities in the world, 3 are African. Any thoughts on why?

Last week, regulators in China approved the IPO for Agricultural Bank of China, one of four big Chinese lenders. The bank has a strong presence in the Chinese rural areas, which houses 50% of the Chinese population. The bank is planning on raising $23 billion, overtaking its Chinese counterpart, Industrial and Commercial Bank of China, as the biggest IPO in the World. The lender is the third largest in China in terms of assets, amassing $1.4 trillion. The bank plans to list in two stock exchanges, listing $11 billion in Shanghai (A-Shares), which restrict ownership to the Chinese, and $12 billion in Hong Kong (H-Shares), which has no restrictions on foreign ownership.

Latest news suggests that players in the Middle East are heavily involved in the IPO, with Qatar pledging $2.8 billion to the IPO. Yesterday, Kuwaiti Minister of Finance announced that the Kuwait Investment Authority will pledge $800 million. However, some analysts are questioning the timing of the IPO and are suggesting that it might be delayed due to unfavorable market conditions. Also recent introduction of regulations on the property market by Chinese officials limiting mortgages will hurt the bank’s profitability. The bank already has the highest non-performing loans ratio among big banks, with a ratio of 2.9% compared to an average of 1.5%.

However, there might be light at the end of the tunnel, as the government has recently announced new tax cuts to the rural lenders, which goes hand in hand with the government’s plans to revive the Western and Central areas of China.

A study was recently done to see how investors are attracted to different sovereign wealth funds (SWF). The study asked participants from 19 countries, including the US, UK, China, India, Egypt, Germany, and Brazil. Money from Kuwait came in third, as 74% of respondents welcomed money from Kuwait, lagging only Norway and Hong Kong. Other countries included in the list are Singapore, Malaysia, Abu Dhabi, Dubai, Oman, Qatar, China, Bahrain, Oman, Mexico, Russia, Libya, Nigeria, and Algeria.

Personally I thought that investors would prefer more Middle Eastern SWFs than Asian and other SWFs, as many investors perceive these SWFs as unsophisticated and will give money to anybody. This perception is not only prevalent with SWFs but also other investment institutions. Many Westerners come to Kuwait and expect us just to pay them without providing adequate information about their funds.

What are your thoughts about the study and the Western perception of Middle Eastern investors?

Walking around Kuwaiti malls (Avenues in particular), you would see that many multinational retailers are represented in Kuwait. There was huge boom in terms of the number of retailers being represented in Kuwait, a boom that can be mainly attributed to Al Shaya Group. In the past year, we have seen the likes of P.F.Changs, American Eagle, Pottery Barn (soon), Pinkberry, among others arrive in Kuwait. The Kuwaiti consumer has a big appetite and a big spending power, making the Kuwaiti market an attractive one.

CB Richard Ellis published a report that discussed the retail business, and the destinations of retail giants’ expansions. The report pulled its data from 294 retail company in 69 countries. The result was that there has been a shift of focus from the developed markets (US, Europe) to emerging markets (Asia, Middle East), which is understandable as the countries are growing at much higher rates, and their population’s income is growing creating demand for retail outlets. Kuwait ranks as the 11th most important destination in the world, and Kuwait City ranks in the 18th spot in terms of cities. The rank is based on the percentage of the respondants that have presence in these countries/cities. What is notable as well is the jump in ranking among Middle Eastern cities, as Riyadh jumped from the 25th place to the 14th, Jeddah from the 26th to the 15th, and Kuwait City from the 28th to the 18th. The rankings of Kuwait City, Riyadh, and Jeddah all surpass that of Las Vegas, Barcelona, and Istanbul.

My question is are Middle Eastern cities more important than Las Vegas, Barcelona, and Istanbul (which attract millions of tourists annually) in the point of view of retailers, or do these cities have more domestic outlets and do not rely on big name retailers?