1TheEDGE

From ThE EDiTor

Kelly LewisManaging Editor

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Foreign trade is one of the sectors playing a central role in shaping the economic relations between Qatar and the rest of the world. Export revenues are the chief source of financing public expenditure and development in the country.

The state supports a free-market policy and is part of the World Trade Organization,

which Qatar joined in 1996. Qatars commitment to free

trade played a valuable role in hosting and facilitating the launch of the Doha negotiations (the Fourth Ministerial Conference in 2001 the Doha Round) the global trade negotiations, which aim to open markets and promote economic development.

Qatar is an active member in the Gulf Cooperation Council, the Organization of Petroleum Exporting Countries, the International Money Fund and the Organization of Arab Petroleum Exporting Countries. Additionally, it is a member of the Arab League and joined the United Nations in 1971, and has been an active participant in its various bodies and agencies.

The hydrocarbon industry continues to dominate Qatars export market and Asia is the primary destination for Qatari exports, most notably Japan, which acquires the majority of crude oil from Qatar.

In 2009, Japan took out pole position for Qatars major trade partners constituting QR58.9 million in trade followed by the European Union (EU) (QR44.3 million), South Korea (QR40.9 million), Singapore (QR16.3 million) and the United States (US) (QR12.7 million). Qatars top five major export partners were Japan (QR52.8 million), South Korea (QR34.2 million), Singapore (QR15.3 million), EU (QR14.7 million) and India (QR7.4 million). While the EU topped the charts for Qatars major import partners with QR29.7 million in trade, followed by the US (QR10.9 million), South Korea (QR6.7 million), Japan (QR6.5 million) and China (QR3.8 million).

While the hydrocarbon industry flexes the most muscle for the states economy, Qatars leaders have grown savvy in recent years to the fact that they cannot solely rely on a depletable resource-based economy. This mindshift has forced the country to embark upon an aggressive and major diversification programme.

As part of this programme, Qatar has opened its doors to a growing number of investors, entrepreneurs, foreign workers, international companies and both domestic and foreign individual investors. Qatar has evolved into a future focused forward thinking state, which has learnt from the free zone infrastructure success of its United Arab Emirate neighbour, Dubai.

Qatar has already developed popular free zones such as the Qatar Financial Centre and Qatar Science and Technology Park in a bid to encourage international investment. Building on this success the Ministry of Economy and Commerce of Qatar plans to develop three further free trade zones in various locations in Qatar, which are expected to be completed by 2013.

On the economics of Qatars diplomatic front, while American political influence is declining in the Middle East, Qatar is an emerging power with increasingly significant political and economic relations, which has regional and global dimensions.

In recent years, the tiny Persian Gulf emirate has spared little effort to bolster its international economic and diplomatic profile. It mediates conflicts across the Middle East and Africa, while pursuing policies that are often anathema to many of its allies. It has largely succeeded in these efforts because the disputing parties have welcomed its involvement, believing Qatar to be an impartial nation with large purse strings.

The countrys leadership plays a prominent role in the Arab world in promoting democratic values, good governance, the rule of law, popular participation in political processes and, more broadly, in reforms on a political, economic and social level. However, the guidance and goodwill the state provides at home and abroad will not, by itself, be enough for Qatar to sustain prominence. This emirate still faces several challenges relating to the delicate diplomatic balance it maintains with two of its greatest allies, the US and Iran.

Qatar hosts the Pentagons Middle East forward headquarters at Assaliyah, and the largest airbase outside North America, at Al Udeid.

However, it has maintained close relations with Iran sometimes to the frustration of regional powers such as Saudi Arabia and Egypt.

So far, Qatar has been successful in manoeuvring between sometimes-conflicting bilateral relationships. But, closer relations with Iran could have a wider impact in the region, in particular on Qatari relations with Saudi Arabia. Both Saudi Arabia and Egypt are wary of Qatars moves, and should Qatari ties with these countries come under strain, it may draw closer to Iran in response.

Qatar will have to remain vigilant of regional attempts to obstruct its ascension in the diplomatic realm. And there may be no greater test of Qatars statecraft than its ability to navigate the looming confrontation between the US and Iran.

WhoWE ArE

Firefly CommunicationsPO Box 11596, Doha , QatarTel: +974 44340360Fax: +974 44340359www.firefly-me.com

About TheEDGE:TheEDGE is an ambitious business magazine targeting professionals operating within Qatars multi-sector business landscape. Printed monthly, TheEDGE was launched in July 2009 to fill the market void and to provide the business community with insight into the latest business trends and market developments.TheEDGE is distributed 12 times yearly to a readership base of more than 7500 professionals, providing advertisers with the needed additional reach and frequency to their most important audience. TheEDGE is an authoritative business resource serving both large and small business operators.

TheEDGE is printed monthly 2010 Firefly Communications. All material strictly copyright and all rights reserved. Reproduction in whole or in part, without the prior written permission of Firefly Communications, is strictly forbidden. All content is believed to be factual at the time of publication. Views expressed by contributors are their own derived opinions and not necessarily endorsed by TheEDGE or Firefly Communications. No responsibility or liability is accepted by the editorial staff or the publishers for any loss occasioned to any individual or company, legal or physical, acting or refraining from action as a result of any statement, fact, figure, expression of opinion or belief contained in TheEDGE. The publisher (Firefly Communications) does not officially endorse any advertising or advertorial content for third party products. Photography/image credits and copyright, where not specifically stated, are that of Getty Images and/or iStock Photo.

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Managing editorKelly Lewisk.lewis@firefly-me.com+974 55067574

acting editorMiles Mastersonm.masterson@firefly-me.com+974 66080447

coPY editor Megan Mastersonmegan.masterson@firefly-me.com+974 55348748

regionaL SaLeS directorJulia Toonj.toon@firefly-me.com+974 66880228

Senior SaLeS ManagerEmma Land e.land@firefly-me.com+974 33197446

SaLeS executiveGiuseppe Ciccarellog.ciccarello@firefly-me.com+974 33842744

Marketing adMiniStratorAzqa Haroona.haroon@firefly-me.com+974 55692471

creative directorRoula Zinati Ayoub

art and deSignLara NakhlRena ChehayberRana CheikhaCharbel NajemHadeer Omar

FinaLiSerMichael Logaring

PhotograPher Herbert Villadelrey

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diStriBution and SuBScriPtionAzqa Haroona.haroon@firefly-me.com+974 55692471

Printed BYAli Bin Ali Printing Press, Doha, Qatar

TheEDGE4

CoNTENTS

www.theedge-me.com

CONTENTS

CONTribuTOrS A brief introduction to the specialised team of contributors who lend their expertise and insight to TheEDGE.

NEWS iN briEF A snapshot of the latest business developments affecting the business landscape within Qatar and the GCC region.

NEWS iN NuMbErS & PiCTurESImportant statistics that made an impact.

NEWS iN quOTESPowerful statements about the months biggest stories.

WEb WaTChOur top website picks for the business community.

ON ThE EDGEWhat lessons can Qatar learn from the disastrous public relations campaign of the 2010 Commonwealth Games? burNiNG quESTiON In this new section, TheEDGE approaches heads of trade and industry to get their feedback on our burning question of the month.

buSiNESS iNSiGhTTheEDGE speaks to industry professionals to uncover the latest news on the business front.

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iNSiDE EDGEPhil Strange questions the motives of the worlds central banks with regards to currency issues.

COVEr STOrYQatar has made headlines the world over with its intelligent and politically savvy international investment strategy. Rachel Morris reports.

ECONOMiC barOMETEr Karim Nakhle profiles the actions being taken by powerful countries to exert control over their currencies. Could this be the new Cold War?

ThiNKErS COrNErGallup and the Silatech Index indicate that the Arab Leagues brightest young minds are keen to emigrate.

iN ThE SPOTLiGhTAs scandal hits both FIFA and international cricket, Christine Toner investigates rising corruption in sports.

MarKET WaTChWe survey the promising results of the World Economic Forums Global Gender Gap Report 2010.

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ON ThE PuLSEFar-fetched as it may sound, there exists the possibility for sustainable desert farming, which could change the regions economies. Edward Jameson takes a closer look.

GrEEN buSiNESSSam Pickering investigates how sustainable biofuels will benefit Qatars quest to be carbon neutral.

ENTrEPrENEurMiles Masterson interviews Maryam Al Beshri about her first-of-its-kind business, Biz-Events, a franchise focused on corporate team building.

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SPECiaL FEaTurEInvesting in art is increasingly seen as a lucrative means of financial returns. Miles Masterson investigates the global rise in interest in so-called Islamic art and asks whether buying art is indeed a wise investment.

buSiNESS ViEW rEaL ESTaTE Edd Brookes takes a closer look at the new residential hot spot of Doha, The Pearl.

SPECiaL rEPOrT New regulations for Islamic banking in Qatar will change the way conventional banks offer Shariah-compliant services. Greg Harris reports.

braND bEaTCharlotte Stubbs asks if the creative energy and different objectives of art and design can be harnessed to help an organisation connect with its marketplace.

baLaNCE ShEETAhmed Hussains overview of issues affecting how foreign entities are able to conduct business in Qatar.

LEGaL iNSiGhTNikk Bond and Hani Naja discuss the details of Qatars new E-commerce Law.

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CoNTENTS

EVENTS aND CONFErENCESYour monthly go-to list for the latest business opportunities in Qatar.

qaTar PrOJECTSAn update on projects taking shape in Qatar.

TENDErSYour monthly go-to list for the latest business opportunities in Qatar.

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hOW-TO GuiDEGet the best out of your corporate blog.

TECh TOOLSTheEDGE looks at the latest gadgets hitting the shelves this month.

LiFE & STYLEThomas Woolf discovers the danger of sick building syndrome on the bottom line, and Megan Masterson goes mad for Melbourne.

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78buSiNESS KNOW-hOWWhat is the one critical trait that todays greatest leaders have in common? Wassim Karkabi discovers that it is not what you may expect.

hEaLTh & SaFETY When there are no standardised methods for measuring health and safety perfomance, Mark Kenyon recommends a proactive approach.

iNDuSTrY FOCuSDerek Atkinson looks at the exciting new developments that may offer solutions for environmentally friendly alternative fuels.

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P.52 SaM PickeringManaging DirectorBG2 Global SolutionsLondon, United Kingdom

P.49 edward JaMeSonSenior Business Journalist Middle East and North Africa region

P.72ahMed huSSainPartner in ChargeKPMG Doha, Qatar

P.46 kariM nakhLeSenior Business Strategist Doha, Qatar

P.37 PhiL StrangeChief Financial OfficerDun and Bradstreet South Asia Middle East

P.30chriStine tonerEconomic CorrespondentLondon, United Kingdom

P.63 edd BrookeS Director and Head of Valuation DTZMiddle East

P.75hani naJaLegal ConsultantDLA PiperDoha, Qatar

P.75nikk BondSenior Legal Consultant DLA Piper Doha, Qatar

P.81Mark kenYonHealth and Safety Group LeaderURS Qatar LLCDoha, Qatar

the uSuaL SuSPectS...

All contributors to TheEDGE are well-regarded leaders in their respective industries. If you are interested in joining the esteemed panel of contributors, please contact the managing editor, Kelly Lewis at k.lewis@firefly-me.com

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P.70charLotte StuBBSClient Services Creative Action DesignDoha, Qatar

P.68greg harriS Editorial ManagerOxford Business GroupDoha, Qatar

P.40 racheL MorriSFreelance JournalistMiddle East and North Africa Region

P.94 thoMaS wooLFFounderPTX Performance Training Doha, Qatar

NEWSiN BriEF

TheEDGE

FiFa QueStionS SPain and Qatar over Bid coLLuSion FIFAs ethics committee will investigate the leaders of the Iberian and Qatar bids to host the World Cup over allegations of vote trading.The investigation was formally opened late last month. Ethics committee chairman Claudio Sulser is looking at the allegations that the two bids agreed to back each other in the separate contests for 2018 and 2022 respectively. FIFA general secretary Jrme Valcke said the collusion allegations were first brought to his attention several weeks ago. The committee will also consider what role executive committee members allied to Qatar and Spain may have played.

Qatar MoSt PreFerred eQuitY Market in gcc Twenty-five brokers published 288 research notes on 133 companies during the third quarter, compared to the 270 research notes on 110 companies published in the second quarter of the year, according to a recent report by Kuwait Financial Centre Markaz on Gulf Equity Research Statistics. During this quarter, 19 percent of all Gulf companies received research coverage, representing 71 percent of the total market cap. Qatar remained the most preferred equity market, with all 19 research notes during the third quarter receiving buy ratings.

new Qatar ProJectS to toP uS$120 BiLLion over the next 10 YearSQatar is to invest QR450 billion into local projects over the next 10 years, according to a senior government official.Speaking to the Arab daily newspaper Alwatan, Yousef Hussain Kamal, the countrys Minister of Economy and Finance said that the government would invest billions of riyals into the development of infrastructure, oil, gas and petrochemical projects.However, this does not mean that Qatar will stop investment abroad, he said.Kamal said Qatars investments enjoy diversity and variety internally and externally.

LOCAL

Qatar to oPen eMBaSSY in San JoSQatar announced plans to open its sixth embassy in the Americas in the Costa Rican capital of San Jos. The embassy would be Qatars only diplomatic office on the Central American isthmus and one of five in the Americas. It would also be the only Arab embassy in Costa Rica.The groundwork for diplomatic relations was laid in the Oscar Arias administration, during an exchange in New York in September 2007, and a later visit by Arias to the Middle Eastern country. Ariass visit was reciprocated in January when the Emir of Qatar visited the northwestern province of Guanacaste. During that meeting, representatives from both countries discussed investments from Qatar in fields such as technology, science and the economy.

Qatar and uae rank eighth gLoBaLLY in BroadBand LeaderShiPThe Qatar and United Arab Emirates (UAE) broadband quality is better than most of the developed countries, including those of G-7 states, and has been ranked among top 10 in a survey of broadband leadership.According to Ciscos third annual broadband quality survey, broadband access to households has reached 100 percent as against 70 percent last year and 65 percent in the previous year.The UAE ranking has been constantly improving over the past three years. It was ranked eighth worldwide in 2010 against 12 in 2009 and 18 in the previous year. Qatar has also been ranked on par with the UAE in 2010.In terms of evolution, the UAE has seen steady improvement in the ranking. It has jumped to eighth position in 2010 from 12 in 2009 and 19

in the previous year. However, Qatar fell from second position in 2009 to eighth this year.

araBS eYe initiative to coMBat huMan traFFicking in MiddLe eaSt The five-day Conference of the Parties to the United Nations (UN) Convention against Transnational Organised Crime hosted more than 300 delegates and experts representing member states last month. Director General of Qatar Foundation for Human Trafficking Combating, Maryam Al Maliki submitted, during the meeting, a report on the role of Qatar as subsidiser and financer of the above-mentioned initiative. In addition, a report was also presented by the Norwegian delegate on the role of his country in offering financial support to the Arab initiative.

guLF airLineS Face new euroPean chaLLengeThe Gulfs airlines, which over the last decade conquered the worlds skies with armadas of long-haul jets serviced by glitzy airports, face a new challenge to their business from their European rivals, even as they move to double their capacity.Led by Emirates, Qatar Airways and Etihad Airways, Gulf carriers have US$200 billion (QR728 billion) of new jets on order for delivery over the next 10 years, a buying spree that will more than double the number of seats they can offer fliers. Were heading for a big bloodletting, Philip Butterworth-Hayes, lead consultant at the British-based aviation consultancy PMI Media, told The Media Line. This growth rate is sustainable for the moment, but the big legacy carriers in Europe are starting to forge more effective alliances.

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harrodS couLd Soon Be a hoteL Well-heeled London travellers may soon be able to shop at Harrods without ever leaving their hotel, according to Londons Evening Standard.The newspaper reported that Qatars royal family is looking to open a hotel atop the store to attract wealthy tourists to the ritzy Knightsbridge area, home to such top-tier hotels as the Mandarin Oriental.The idea is reported to be still in the planning stages, but is said to be part of a strategy to expand the Harrods brand which includes an in-store Harrods Bank that sells gold bars and coins by opening a chain of luxury hotels in other cities.

deaL to deveLoP waLkie taLkie SkYScraPerLand Securities and Canary Wharf Group have agreed a GBP500 million (QR2.8 billion) joint venture backed by sovereign wealth from China and Qatar that will see the development of Londons next large skyscraper, the Walkie Talkie.Canary Wharf, the owner of the Docklands estate, recently finalised a deal to buy half the 690,000 square foot tower development for about GBP250 million (QR1.4 billion). The developer is expected to bring in China Investment Corporation, Qatar Holdings and Morgan Stanley, three of the main shareholders of Songbird, its parent company, to acquire stakes in its share of the scheme.

gerManY undaunted BY SignS oF SLowdownGerman business sentiment hit a three-and-a-half year high last month, another sign that the recovery of Europes largest economy could continue despite problems faced by the United States and other big trading partners. The Ifo Institute for Economic Research said its business-climate index rose to 107.6 last month, 1.2 points more than in September, a move that surprised analysts, who had expected the index to decline. The only path for German business confidence appears to be up, said Alexander Koch, an economist at Unicredit, noting that companies seemed unimpressed by signs that the global economy is slowing.

SharP PuLLS out oF Pc BuSineSSSharp announced its plans to withdraw from the PC business to focus solely on new endeavours like the Galapagos tablets slated to be released this December, in addition to e-books, music and video content for the Galapagos and similar products.This move comes after Sharps admission of its inability to bring profitability to the standalone PC business model. However, the Japanese electronics giant maintains this to be a strategic move, and the company may return to the PC business in the future. However, Sharp will still manufacture ultra compact devices, which include the Netwalker series of devices.

indiaS aBg ShiPYard BagS orderS worth uS$84 MiLLionABG Shipyard, an Indian ship manufacturing and repairing company, announced that it has received orders worth US$84 million (QR305 million) from two different customers.The first order is worth US$65 million (QR236 million) from Qatar-based Halul Offshore, which is being jointly promoted by Qatar Shipping Company and Qatar Navigation, it said in a filing to the Bombay Stock Exchange.The second order, of US$17.5 million (QR63.7 million), is from an Italian shipping company, Marnavi Spa.

guLF countrieS have the LargeSt ecoLogicaL FootPrintRanking among the top 10 in the world is usually an amazing accomplishment, but not when it comes to the data released late last month. According to World Wildlife Fund international Living Planet Report, two Gulf states hold the dubious distinction of first and second place among countries with the largest ecological footprints. United Arab Emirates ranks first, followed by Qatar, while Denmark, Belgium, the United States, Estonia, Canada, Australia, Kuwait and Ireland round out the top 10.

reactionS to aStakoS canceLLationThe sector head for development and competitiveness of Greeces main opposition party New Democracy Costis Hatzidakis, and sector head for energy and natural resources, Michalis Yannakis, made a joint statement late last month in reaction to the cancellation of the Qatari investment in Astakos, underlining that the governments jubilation has proven to be premature. They also underlined that the government policy on the specific investment was not clear, considering that some of the ministers involved appeared to support its acceleration and others its deceleration.

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The Gulf Cooperation Council (GCC) states are expected to spend as much as US$100 billion (QR364 billion) over the next few years buying F-15 Eagles, F/A-18 Hornets and Lockheed Martins Thaad missile defence systems, according to recent reports.Fears of a threat from Iran are driving GCC states to spend billions on new arms. Last month, the United States unveiled a record arms export plan to sell Saudi Arabia up to US$60 billion (QR218 billion) in aircraft, helicopters and other arms. The United Arab Emirates is also expected to spend as much as US$17 billion (QR61.8 billion) in coming years to buy an advanced missile defence system and fighter planes.Gulf states need to consider the safety of their citizens and up-and-coming financial hubs in Dubai, Abu Dhabi and Doha that have attracted billions in foreign investment. They are increasingly nervous about a retaliatory attack by Iran if it faces military action by Israel or Western states over its nuclear programme.

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Pic of the Month

Anti-nuclear puppets sit on a bench with a sign reading Irradiated for ever? No in order to protest against the castor container transport to the storage facility for nuclear waste in a salt deposit in Gorleben, northern Germany.

News in Numbers

This Month in History

TheEDGE

NEWS iNNUmBErS

Barack Obama becomes the first African-American to be elected President of the

United States.

The Netherlands experiences Car Free Sunday caused by the oil crisis, and highways are

deserted except for cyclists and roller skaters.

Lebanese magazine, Ash-Shiraa, reports that the United States has been secretly selling

weapons to Iran in order to secure the release of seven American hostages.

Yasser Arafats death is confirmed by the Palestine Liberation Organization.

The United States introduces income tax.

British archaeologist, Howard Carter, finds the entrance to Pharaoh Tutankhamuns tomb in

the Valley of the Kings in Egypt.

Nazis close off the Warsaw Ghetto from the rest of the world in occupied Poland.

In Alabama, the Hodges Meteorite crashes through a roof and hits a woman in the only

documented case of a human being being hit by a rock from space.

American president, John F. Kennedy is assassinated in Dallas, Texas.

The Paris-based Louvre is opened to the public as a museum by the French

revolutionary government.

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NEWS iN QUoTES

Were willing to take calculated risks on early stage ideas and projects that can have dramatic impacts while offering attractive returnsthis willingness to be ahead of the industry and invest in large-scale innovative projects is core to our success as a company.Rick Needham, Googles green business operations director said in relation to Googles investment in the Atlantic Wind Connection transmission project.

Heavy-handed regulation and structural deficiencies are holding back member airlines, while global competitors are forging ahead, sponsored and supported as instruments of national policy.Association of European Airlines chairman and British Airways CEO Willie Walsh said at the bodys Presidents Assembly in London recently, likely referring to the aggressive growth of Persian Gulf-based airlines, Emirates, Etihad Airways and Qatar Airways.

The countries with the biggest ecological footprint per person are: United Arab Emirates, Qatar, Denmark, Belgium, United States, Estonia, Canada, Australia, Kuwait, Ireland.A new report by the World Wildlife Fund, the Zoological Society of London and the Global Footprint Network, Living Planet Report, stated.

the whole of the gulf cooperation council (gcc) region has witnessed large inflows from western economiesinterest rates have come down [in qatar] quite dramatically over the course of the nine months [this year] and as a result, a lot of the hot money has flown elsewhere into the gcc where [interest] rates are higher.Commercial Bank of Qatar chief executive Andy Stevens told Zawya Dow Jones, dismissing fears that heavy capital inflows into the Gulf Arab state could hurt the banking system.

Are we looking at it? Yes. Have we considered it? Yes. Is it something we would do? No plans have been put forward but it is one of them.Harrods managing director Michael Ward told the Evening Standard in relation to rumours that the luxury store could soon become a hotel.

England 2018 is delighted it is now clear the Fifa World Cup will be coming to Europe in 2018 following the withdrawal of the United States bid.A spokesperson from the England bid committee said England has formally withdrawn its bid for the 2022 event and is seen as a leading contender for the 2018 bid.

CARTOON CORNER

WEB WATCh

www.silatech.comWhat is it? The website recently launched by Silatech, an initiative founded and chaired by Sheikha Mozah bint Nasser Al Missned of Qatar to address the need for jobs and opportunities for young people in the Middle East and North Africa (MENA) region.

Why should you log on? Silatech has partnered with research firm Gallup, and as it develops, this website is set to become a vital information and contact resource for those interested in and relying on youth employment and entrepreneurship in the Middle East.

TheEdgE s new column profiles websites from the region and around the world of interest to the the Middle Eastern business community.

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www.weforum.orgWhat is it? The World Economic Forum (WEF) is arguably the most powerful independent organisation of its kind, whose motto is entrepreneurship in the global public interest, and facilitates initiatives and conferences towards this end.

Why should you log on? This is the WEFs primary online information portal, and contains details of their activities, events, communities and affiliates, as well as access to WEFs research reports. Keep an eye on this site in the lead up to Davos 2011 for expert analysis and commentary.

http://paper.liWhat is it? The purpose of the site is primarily to organise links shared on Twitter into a user-friendly online newspaper style format, and it has grown into one of the most popular new online social media marketing formats.

Why should you log on? Tech-savvy business wishing to develop their online marketing strategy beyond Facebook and Twitter, may be interested in creating their own digital newspaper using this innovative related and fun widget technology.

www.fool.comWhat is it? A Shakespearean reference to jesters of the Middle Ages, which both instructed and amused, and could speak the truth to the king without getting their heads lopped off. Motley Fools mantra is to educate, amuse and enrich as they offer ostensibly sage financial advice to their subscribers.

Why should you log on? Aimed at both experienced and novice investors around the globe, Motley Fool provides a plethora of sensible stock tips, business news and information, and regular newsletters.

www.zappos.comWhat is it? Started by Tony Hsieh in 1999 as an online shoe store, Zappos.com has grown into one of the worlds most powerful online retail companies, selling a variety of items from clothing to sunglasses and watches.

Why should you log on? Any business interested in developing an online retail strategy would do well to visit this website, which also contains a variety of digital resources, including blogs, videos and further insights into their business model.

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oN ThE EDGE

After a shambolic build-up to delhis 2010 Commonwealth games, and weeks before the announcement of the 2022 World Cup host country, here is our guide to the stuff-ups that Qatar would do well to take heed of.By Megan Masterson

emerged that bribery was to blame for shoddy work all over the city. Sev-eral contractors offices were raided post-games to investigate claims of corruption. Certainly, a lack of cash was not behind the nations problems. The budget for the two-week event ballooned from GBP450 million (QR2.5 billion) to GBP4.22billion (QR24 billion).

Once the athletes began arriving, a whole new slew of problems arose. When 15 Australian and English swimmers fell ill, officials launched an

inquiry into whether poor water in the swimming pool was the reason, and many of the competing countries refused to let their athletes train in what they suspected to be dodgy water.

As it turned out the swimmers were suffering from the famed Delhi belly, an affliction that hit many athletes, including Robert Hurley. The Australian headed home after picking up a stomach bug following a meal in the athletes village. Pity the English competitor, Rebecca Adlington, who abruptly ended an interview with BBC Sports, saying, I need to go before I am sick on you.

Of course, a soccer World Cup brings with it an entirely different set of possible glitches, most of them tied to what was described in South Af-rican media as the Death Star and that is the Fdration Internationale de Football Assocation (FIFA). FIFA brought its own form of imperialism to the African continent, when two Dutch women were arrested at the 2010 World Cup for wearing orange minidresses with tiny beer logos. The charge? Ambush marketing. Politicians and companies became increasing-ly vocal in their distaste for FIFAs strong arm tactics. No wonder then that one of the most popular T-shirts sold in South Africa this year featured the slogan, Fick Fufa.

Qatar, consider yourself warned.

B efore the 2010 Commonwealth Games in Delhi even kicked off, the world was braced for the worst. Poorly disorganised with glaring failures in almost every sphere of preparation, the nation had to call in the army and believe it or not monkeys in an effort to run an event that many countries threatened not to show up at.

It began at the athletes village, images of which were beamed around the world, showing conditions that were described as filthy, unhygienic and, according to one critic, unfit for human habitation. There were toilets that did not flush, exposed electrical wires running through pools of stagnant water, a partially collapsed floor, building rubble in the bath-rooms, an Indian boxer who fell through his bed, elevators that did not work, and animal paw prints on bedding and then there were the snakes.

Workers discovered a 1.2-metre-long deadly cobra slithering down a drain in the new tennis stadium a day after a snake was discovered in a South African athletes room. In total, seven snakes were discovered at sports venues and six at the athletes village, including five poisonous cobras

This, sadly for the country keen to prove itself as an emerging power, was only the beginning of a disastrous campaign that put it in the global spotlight for all the wrong reasons. Some of the dramas endured were beyond human control, such as the outbreak of dengue fever, a mosquito-borne disease that causes internal bleeding and possible death. But the majority of the events that soured the games were because of mismanage-ment and rampant corruption.

When a bridge collapsed days before the start of the games, it required the help of the army to rebuild. Then a giant scoreboard crashed to the ground at a Rugby Sevens venue just before a match kicked off. It soon

WhaT CaN GO WrONG, WiLL.

BUrNiNGQUESTioN

18 TheEDGE

In a bid to continue to deliver the business community with compelling editorial content TheEDGE, this month, is introducing a new and regular section under the banner of Burning Question.For this new section we are directly approaching heads of industry and trade in a bid to unearth leaders views on particular topic of debate and/or interest.Each month, members of the business community will be approached for this column and be given the opportunity to respond to the opinion column.

If you would like to participate in our Burning Question section, please contact Kelly Lewis on k.lewis@firefly-me.com

Broadly speaking a deflationary cycle would have a negative impact on any business. With a receding economy, there is absolutely no growth in any given market. For our product offerings at Sony, which greatly focus on luxury purchases for the end-consumer, the normal trend in a deflationary environment would be to stall or to decline the purchase.

In contrast, an inflationary cycle would cause the cost of goods and services to peak. This phase would experience liquidity and a boom in the market leading consumers to make purchases resulting in overall growth for all businesses, be it big or small.

Prior to 2008, our market experienced a hyper-inflationary phase, where although prices of commodities were skyrocketing, consumers were still willing to spend money as they had a steady flow of income.

Post-2008, when the economy faced a downturn, our market went through the deflationary phase. Prices of goods fell as fast as they had risen, many people lost their jobs and amount of disposable income was greatly controlled. There was no confidence in the market and overall growth suffered.

However, the current scenario in the region is looking relatively positive. There has been a gradual but sustained improvement in the market. Consumers are regaining confidence and spending power is steadily gaining momentum as well.

Post-2008, when the economy faced a downturn, our market went through the deflationary phase. Prices of goods fell as fast as they had risen, many people lost their jobs and amount of disposable income was greatly controlled.

Electronic payments serve as a powerful catalyst for economic activity and growth in societies around the world, therefore MasterCards strategy remains to consistently help our stakeholders weather the headwinds of economic events. MasterCards business model as a franchisor, processor and adviser represents a competitive advantage, as financial institutions around the world tap into the power of the MasterCard brand, payment-processing network and industry expertise, to build stronger relationships with their cardholders. This model has served MasterCard well and continues to do so now as we work with our stakeholders to optimise portfolios, maximise efficiencies, and mitigate risks.

Our research shows that in the Middle East and Levant region, 63 percent of the consumers planned on maintaining the same level of discretionary/recreation spending in the last six months and 20 percent planned to increase their discretionary/recreation spending.

A deflationary cycle may have an adverse effect on consumer spending, but while many consumers may shift their spending away from discretionary items to nondiscretionary expenses, we believe they will still choose payment cards to better manage their finances.

MasterCards world-renowned brands drive value for financial institutions seeking to increase usage, merchants striving to attract customers, and consumers seeking greater ease and convenience no matter where in the world they go. Markets offer tremendous opportunities; technological advances are driving new and innovative product ideas; and, the secular trend toward electronic payments continues to gather force. Our ongoing dialogue with regulators and governments also allow us to play our part in advancing commerce in each market, globally.

eLectronicS FinanciaLServiceS

oSaMu Miura, Managing director oF SonY guLF

SaFdar khan, vice PreSident, Qatar and oMan, MaStercard worLdwide

WhAT DoES A DEFLATioNArY CYCLE rAThEr ThAN AN iNFLATioNArY CYCLE mEAN To YoUr BUSiNESS?Q:

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Hedging your betsIn recent times the hedge fund industry has come under intense speculation and scrutiny. To gain more insight on where the industry is heading Kelly Lewis spoke to a world-class thought leader in the field of hedge funds, professor of Finance for the London Business School and director for the Hedge Fund Research Centre, professor Narayan Naik. Naik is also a consultant to the World Bank, several private corporations and investment banks.

What do you predict the future of the hedge fund industry to look like?

As an academic researcher, I believe after the credit crisis of 2008, the industry looks very different going forward.

What we are finding is that the industry at an aggregate level globally is becoming top heavy. What I mean by top heavy is the top 10 percent of the hedge fund management companies are controlling 85 to 90 percent of the assets under management. These findings are based on five different databases that we receive every month. We consolidate them, remove duplication and identify any errors, etcetera, because not every hedge fund company reports to all the databases. Then we add up all the assets managed by that particular hedge fund company across all its hedge funds, the share class categories, the jurisdiction categories, the currency categories and we sort them by the declining order of their size, or by the total assets managed by a particular family. Additionally, there is a well-known list called Institutional Investors Top 100 Hedge Fund Firms, from which we find about 45 to 50 percent of that top 100 report to the standard databases like Hedge Fund Research, Eureka Hedge, and Barclays Hedge and so on. But, ultimately what we find is that the market is becoming more and more concentrated.

Secondly, since the end of 2001, we have conducted an exercise with hedge fund families where we place them in different deciles, for example, the top 10 percent. If I look at the number of hedge fund families, which were existing in 2001 and which were still existing at the end of 2009, we find their survival rate is 90 percent plus. Therefore, in the top decile category the top 10 percent by assets under management 90 percent of the families are

still in business, but the remaining 10 percent have either stopped reporting, or may have fallen into the second decile. Very few hedge fund families die and disappear from the databases, but rather they stop reporting as they have gathered enough assets and dont need the advertising anymore.

However, in the same period from 2001 to 2009, the bottom decile the smallest 10 percent of the companies, which are assets under management we find 70 percent of them just disappeared, they either died or progressed to the second, or third decile from the bottom. So they do grow, but there are many others, who for want of a better word, are slowly bled to death. What I mean by that is the assets under management are slowly dwindling, their performance is not stellar and investors slowly withdraw moneyat a certain point in time, they just drop off from the databases. So the moral of the story here is that the big firms either have better survival capabilities compared to the small ones, or they have better risk management ability.

Another thing that has happened, not only from the managers point of view, but from the investors point of view, is that investors are growing more and more cautious about who they are giving their money to, to manage. This is partly because in 2008, investors received a nasty shock when a number of hedge fund firms imposed gates and lockups stating We cannot return your money, or Its in your best interest that we give your money a couple of years down the road, which may be truemaybe there is some small print in the contract, which allowed them to do that, but investors really did not expect this to happen because it had never happened in the previous 20 years. So these gates, redemptions, suspensions or delays,

I am sure was a part of the contract, but the hedge fund managers had never implemented or imposed it, or taken the liberty of imposing it, and that shocked quite a few investors and now hedge fund managers will say, Hey it was part of the contract. Another problem was the investors who were wanting redemptions for their liquidity needs, or cash flow needs. The only ones that were providing redemptions were the liquid strategies like the managed futures or commodity trading advisors, or equity, long/short or market neutral, those kind of people, who are at the liquid end of the market. They started redeeming and, unfortunately, it turned out that these were the strategies, which did well in 2008, but a number of funds of hedge funds that were facing redemptions just looked at their portfolio and asked, Who is giving me monthly liquidity? and just redeemed out of it to pay for the investors redemption request. As a result, their strategic balance was not decided by the risk-return opportunities of different strategies, but by the liquidity terms the different managers were offering, and they did much worse because they redeemed out of strategies that were doing better, because in an illiquid situation where there is a liquidity crisis, which it was in 2008, the less liquid strategies do badly, the more liquid strategies do well. As a result fund of hedge fund business came under much more scrutiny.

The market environment is challenging to some extent because there is a great deal of volatility and all sorts of uncertainties out there like the sovereign debt crisis, and investors are left questioning how many further such shocks are ahead. Therefore, investors are getting much more cautious and risk averse in terms of who they are giving their money to. What that means is that they seem to be looking for track record and finding comfort in size. They go

Hedge Funds

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for the blue chip or the big names rather than emerging managers, who may be doing some exciting things, but investors do not want the risk of small managers blowing up. This means it will be difficult for smaller managers to start up business or survive. Those who survived 2008, may remain small because of this kind of across-the-board reaction by investors, particularly institutional investors. And the new ones will find it more difficult to start their funds because of the increased regulation, both in the United States (US) and within the European Union, as well as some other countries that are following their lead. This, therefore, imposes much more cost in terms of compliance and in terms of reporting, and in the United Kingdom (UK) particularly we have seen that its quite a bit.

What that means for the Middle East is, although there are different kinds of opportunities in this part of the world, the established firms, which have a presence in the region, may have some advantages over the smaller players that are starting out afresheven if they may have bright ideas, it is just that they are swimming against the tide. While some of them will manage to succeed, others will find that they have to put in more effort as compared to 2005 or 2006 if they were in that part of the world. Additionally, there are parts of the Middle East that have not been adversely affected by the economic crisis, which means there are chances and opportunities out there if firms are able to identify them and know how to exploit and benefit from them.

In regard to Middle East-based hedge funds, they have suffered the economic recession less than their US- and Europe-based counterparts. However, the hedge fund market in the region as a whole is still considered to be an embryonic market. What does the future of Middle East hedge funds look like?

I think the Middle Eastern hedge funds are in a better position partly because the economy to some extent has not been affected as much. Secondly, investors may become a little more cautious about managers, as they tend to feel more confident about companies within their geographical location. For example, when individual investors from the UK are investing, they tend to feel more comfortable about companies that are based within the UK rather those based in other parts of Europe. Further, within Europe they would feel more comfortable with companies in the bigger nations as compared to the smaller nations. Therefore, I think that Middle East-based investors may feel

a little more comfortable with the local guys as compared to going abroad. However, investors will still look abroad, but the trend may be that they are more inclined to look toward the domestic talent partly because they got burnt in 2008 by some of the overseas talentthere are opportunities in the Middle East region and the local talent may have a comparative advantage in exploiting it as compared to somebody who does not understand that part of the world as well.

In the wake of the downturn, competitiveness coupled with the current volatility in the markets has lead to a constant push to create new hedge fund investment models and strategies. As the number of competing hedge funds has increased in recent years, what type of strategies are required for hedge funds to perform?

Hedge fund strategies are clearly linked to the economic cycle. In a bull market, a more directional equity long/short hedge or long-bias strategy works better, while in a bear market, or in a downturn, more highly distressed investing, partly credit-related and such kind of strategies, which are more targeted to the illiquid end of the market, can withstand the test of time.

Fund managers recognise this and investors would like the manager to be style-pure. So if there were a merger arbitrage manager, who has done well, the investor would like to kind of categorise them as a merger arbitrage manager, but what happens if there are no merger deals going on? There are not many managers, who will return money to investors, so what managers say is there are not enough merger deals availablethe merger arbitrage manager will naturally diversify their business risk, because they know that merger arbitrage works better when the economy is booming and lots of merger deals are going on. But they have to survive as well, they cannot shut the shop and then come back after two years and restart, it is costly. Its not that it cant be done, but its costly returning the money and theres no guarantee that the investors will come back again. As a result, what happens is managers experience tremendous pressure and in a way they

deviate from being style-pure, they become multi-strategy. They start as a single strategy, they make money, they make their name, but just from a business survival point of view, in response to different market conditions, they become multi-strategy funds as such. There are different strategies, which will work well, and in todays market, would be more to do with distress investing based in the middle to illiquid end of the market. While there are strategies, which benefit when the markets are more volatile, such as long volatility type of strategies. Having said that, you cannot stereotype the entire world economy by this.

Given the current state of the markets and the recent downturn, can you discuss the importance of risk management procedures at both the business and portfolio management levels?

This is very important, in fact what we noticed is that people, when they think about mutual funds, long only types of strategies, the main risk comes from the asset side of the balance sheet, in the sense of what kind of assets they invest in and what kind of trading strategies they follow. While when it comes to hedge funds, you have these asset classes, the trading strategy, but you also experience a risk, or are exposed to a risk that comes from the liability side of the balance sheet, which comes from the prime brokerage borrowing, or funding, or leveraging that you use. Most of the time when the leverage gets too cheap and there is an abundance of it, and these go simultaneously, the wealth of competition makes it cheaper and that is the time when a number of hedge funds will gear themselves up considerably. If this is the case and when suddenly they experience a shock as they did in 2008, they struggle and liquidate perfectly logical trading strategies on the asset side of the balance sheet, which makes sense, but they needed the money because they were receiving margin calls from the prime brokers, or the lenders, and they were forced to liquidate at fire-sale prices, at not-so-attractive prices, due to the positions they were holding. Therefore, what we realise when we look at the performance of

although there are different kinds of opportunities in this part of the world, the established firms, which have a presence in the region, may have some advantages over the smaller players that are starting out afresh.

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these big hedge fund families, is that, generally speaking, they tend to be delivering closer to absolute return like payoff, while the smaller ones have been subject to more market volatility. So I think the experience of these big firms, which have survived previous shocks and have been in existence for longer they kind of keep their gunpowder dry just in case they need it. In a way they do risk management much better.

There is an old saying, which is, There are old pilots and there are bold pilots, but there are no old-bold pilots. Bold pilots are the ones who fly too close to the groundthese are the young guys, who want to show fantastic performance, etcetera, and then there are the old pilots, who do risk management and fly at a safe distance from bankruptcy and such kinds of problems and they survive, but not so much with an impressive performance. However, their experience tells them it is not necessarily just the performance that investors care about, but rather the risk management part of itthis is the experienced pilot who has seen some ups and downs, and who knows how to navigate when things get tough.

In regard to regulation of the hedge fund industry, do you think that there needs to be heavier regulation on the industry, paired with greater disclosure on the part of the hedge fund managers and operators, in a bid to help the industry become more profitable and sustainable, as well as offering investors less risk and more return?

Some amount of regulation is required and is desirable, but I think regulation measures are becoming too heavy to some extent. Additionally, there is no globally coordinated regulation effort and the US wants to regulate it their way because their duty is towards the US investors. Actually some of the fund managers I have come across have returned the capital of American investors saying that its too costly for them to service and answer all the queries of the Securities and Exchange Commission (SEC) and the Internal Revenue Service. They say they would rather return the American money and replace it with money from Europe or other parts of the world.

So the world of the hedge fund manager is becoming like a silo there are those who are willing to accept US money, those who are concentrating mainly on the UK and Europe and those who are focused on the rest of the world. The industry regulations are becoming more territorial if I may say. There is one set of rules for hedge funds, which are based within the EU, and there is a different set of rules for hedge funds operating out of say Japan or Australia, or the Middle East, when they want to sell to investors in the EU and these barriers are a little more rigorous.

Regulation serves some purpose, but think of it this way, if there is going to be fraud or if there is going to be a problem, no matter how much regulators try, they are not going to be able to wipe it out. A simple example of this is Enron. It was an onshore, UK, SEC-regulated company followed by numerous analysts, it belonged to various indexes, and an abundance of fund managers had it in their portfolios, but that did not stop the company from blowing up.

So I think some amount of regulation is good, but there has to be some coordination, some uniformity and the European and American regulators need to work together as a consortium, to establish more uniformity in regulatory standards.

Do you have any closing statements?Well, in the hedge fund world I think there

is a new challenge coming up, which is from the so-called hedge fund replicators, the synthetic hedge funds or hedge fund clones, and what that does is that it distinguishes the hedge fund strategy from a hedge fund manager. Think of it in this way: The assembly lines of automobile companies are constructed by robots or machines, and the advantage of having a machine is that it does not require breaks, it works 24 hours and it carries out certain pre-specified things. What has happened in the hedge fund industry is that research has shown that a part of the hedge fund return comes from the strategy, and part of it comes from deal selection and security selection. And a few years ago it was not possible, but now there are a number

of vehicles that are available, which allow you to access the strategy return at a much cheaper rate compared to the fees charged by hedge fund managers. Instead of paying say two percent fixed management fee and 20 percent incentive fee, or in the case of funds of hedge funds on top of it, you have one percent fixed management fee and 10 percent incentive fee, loosely speaking, it is not exactly three and 30, but it is pretty high, a part of it you might be able to get it at 60 basis points or less than one percent fixed, which is the replication through the clones, with almost daily liquidity, much more transparency, onshore, no counter party risks and things of that sort, using financial market instruments.

So this is something like when Vanguard introduced its S&P 500 tracking fund. Today what you find is that a sizeable amount of money goes into this passive tracking fund and some amount of money goes to active managers.

Some active managers survive to outperform the passive index, which is the benchmark, while others struggle because of the fees, transaction costs, and so on and so forth. Something similar is happening in the hedge fund world as well.Because of academic research over the past 10 or 12 years, we have identified what part of the return belongs to the strategy, and a number of investment banks have started offering products, which give the strategy-based return at a much cheaper price and daily liquidity more transparency, no Enrons, no Madoffs, no Bear Stearns those kinds of operational risks, and it gives an additional tool in the hands of the investors to compare and benchmark the hedge fund managers performance.

Clearly the good managers love it because they say Now I can prove that I have alpha, and I can add value. While the managers, who do not have that much and who may be contaminating their return with some market exposure, find it more difficult to justify their fees vis--vis libor. The investor will say Well for half a percent or one percent fixed deal I can get this risk return profile, which is similar to the strategy you are following, I will give you money only if you outperform that and I will give you a performance fee only if you beat that.

So, libor is no more the benchmark nor is the treasury bills. This so-called absolute return space is now becoming a relative return space, where it is relative not to cash or libor, but it is relative to the synthetic hedge funds or hedge fund clones or some passive investment strategy, which replicates hedge fund-like pay off.

there are old pilots and there are bold pilots, but there are no no old-bold pilots...however, their experience tells them it is not necessarily just the performance that investors care about, but rather the risk management part of it.

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What are the most prominent challenges facing project financing in the Middle East currently, and what are the differences in the business environment and mitigating risk in the region as compared to Western-type markets?

Well, its a fairly complex area, so let me deconstruct that question. There is a distinct difference in, for example, project financing of a power project and/or a utility project such as wastewater. For the purposes of this article, I will define project financing in respect to essential public infrastructure. By essential public infrastructure, I mean what is essential for the publics wellbeing; power, water, wastewater, roads, ports, schools, universities, hospitals, etcetera.

The challenges facing procures, or government procurement authorities in mobilising private capital to finance these types of essential public infrastructure in todays market, I would argue that primarily, financing is one of the key challenges. The other main challenge is perhaps competition for resource.

Firstly, lets think about those two key elements: Mobilising private sector financing and competition for resource. Mobilising private sector financing is an obvious one given the constrained liquidity in the market for project financing, and here we are talking about procurement by way of a privatisation. Therefore, we are moving away from government procured, standard engineering, procurement and construction (EPC) type procurement, and we are suggesting

Position of powerEnergy Financing

The Middle East remains one of the strongest markets for those involved in the power and water industries. Currently there are power generation, transmission and distribution projects planned or underway worth an estimated US$125 billion (QR455 billion) in the gulf Cooperation Council (gCC) region and by 2019, future investment in power and water desalination is estimated at more than US$135 billion (QR491 billion). Last year, Qatar held the record for growth in power demand among the gCC countries and by 2015, dohas growing demand for power and water is set to increase by 10.8 and 9.5 percent respectively. Kelly Lewis spoke directly to Matthew Nathan, director, HSBC Project Team in the United Arab Emirates (UAE) during last months Powergen Middle East conference to discuss the challenges related to financing power projects in the region.

that the government is now moving into a privatisation model, whereby they are looking to the private sector to bring both expertise to this sector, know-how, as well as the financing required to build the essential public infrastructure as weve defined it.

So the next question: Why is there an issue with financing? Again, it is a constrained liquidity market where there is a significant pipeline of projects in the region with a reduced number of pools of liquidity, and the reason for that reduced pool of liquidity is due to the financial crisis, and shrinkage of various banks balance sheets and complete stepping away of some of the banks from project financing. However, all is not bleak and we have still seen well structured projects in the region, especially when it is to do with essential public infrastructure because that is a risk that banks typically like, and where we have seen significant capital still successfully mobilised for those types of projects in the region.

In regard to the differences in the business environment as compared to Western-type markets and mitigating risk in the region; a key difference is that a lot of the build out of essential public infrastructure in the emerging markets, for example, the Middle East, are greenfield-based. The governments in the region are at an infancy stage of building out their infrastructure, whereas in developed markets, typically there is a mix of aging assets, which need to be refinanced, or rehabilitated with some measure of greenfield opportunity.

Additionally, because the economies in the developed markets are by their very nature not growing at the same pace as those in the emerging markets, a combination of having the brownfield assets already having been built and a slower growth of the economy, there is not such a strong pipeline of new greenfield build-up. Whereas that completely exists in an economy like in the Middle East, for example, where there is a lack of infrastructure build-up coupled with strong economic growth, which requires even stronger demand for essential public infrastructure going forward. That I would argue is the key difference. Therefore, developers in the emerging markets typically need to expand their horizons and look for new business opportunities in the emerging markets.

Are there trends emerging in power projects being financed through global and regional multilateral institutions, borrowing from regional development banks and private funding sources, or is it largely a combination of public/private ownership?

Yes youre absolutely right. Typically the governments in the Middle East have always sought to procure the infrastructure through standard EPC procurement. What governments here would do is either fund that from their governments own balance sheet or borrow from either development banks, or from the capital markets to fund infrastructure build-up. And there is a trend, a shifting, which I refer to as a paradigm shift, which is for these government agencies to look towards the private sector by

way of public-private partnerships (PPP) to assist them in the roll-out of the infrastructure and the reason for this trend basically stems from the fact that, A: There is such a strong demand in the pipeline for infrastructure that the government cannot sustain that kind of sort of build-up on a simultaneous basis, unless they look to mobilise private sector financing, because otherwise it is a strain on their budget. B: If they continue to adopt this sort of the old school standard EPC procurement, they can then only build-out projects sequentially as opposed to simultaneously.

Finally, I guess which is a key point sometimes overlooked, by going down the different PPP models, for example, sharing or involving the private sector in the infrastructure build-up in the region, the added benefits of that, which are overlooked, is the fact that there is a risk sharing element in the sense that by mobilising the private sector, you are then de-risking the governments from constructing, operating and maintaining these assets, and you are basically getting people who do this for a living. This is the core business of the private sector developers, equipment manufacturers and EPC contractors to do this.

The 2010 World Energy Outlook is due to be released this month by the International Energy Agency (IEA). But in its 2009 report, the IEA it identified that as a result of the financial crisis, investment in upstream oil and gas had been cut by more than US$90 billion (QR327 billion) in 2009 compared with 2008. But in a bid to meet the worlds growing energy demand, many are calling for increased investment in fossil-fuel projects. How do you see this gap between project financing and development being bridged in regard to the Middle East going forward?

Clearly project financing has a role to play as one has seen from the recent mega transactions in Saudi Arabia, for example, the Jubail Refinery Complex. I am not intimately close to the deal, but it succeeded in mobilising significant private sector capital for the funding of the refinery. Typically oil and gas investments require large amounts of liquidity and, so one could argue, obviously there is

a role to play for the project finance banks simply because by mobilising as much debt as possible for the project, you inevitably reduce the projects cost of capital, because that is cheaper. So the proof is in the pudding. I guess that the hydrocarbon sector is still capable of mobilising that sort of capital. In other jurisdictions, for example, in Kuwait where there is a need and demand to grow the oil and gas upstream investment, again developers and sponsors and the Kuwaiti authorities are looking to mobilise ways and methods to muster private sector capital to fund their production facilities. Therefore, I agree with the statement and I think there is a role for project finance to play in these oil and gas sectors to help meet the growing demand for energy.

In recent years there has been decreasing trend in energy project financing in the Arab world. Is this a reflection of capacity restraints of GCC banks, and should businesses look for capital beyond traditional sources?

First of all addressing the trend, I think if we look at the period 2007 to 2008, we were pretty much at the peak of the project finance markets and indeed the trend has shifted downwards since then. However, it has recovered slightly in 2010 and looking, I think, strongly to rebound in 2011that is the view. Now, whether or not sponsors, procurement authorities and developers should look to alternative sources of capital, I think there is always a need to do that. The question is: What are those alternative sources of capital that we are talking about? There are not that many. If we look to financing projects by way of debt, you either look through your pools of liquidity to come from the commercial banks, which are indeed constrained as compared to their heydays and their

multilateralsgoing back to pools of liquidity for commercial banks and the multilaterals, there are the export credit agencies, and the likes of the development banks, for example, the World Bank, Islamic Development Bank and the African Development Bank, which are the pools of liquidity by way of debt finance.

In regard to alternative sources of capitalproject bonds per se are indeed a potential additional source of liquidity, however, theyre unproven and theyre typically shorter-term, and dont yet have the ability to absorb most of the construction risks. Most of the bonds that have been issued in this region...the risk of construction has not been passed over to the bond investors and, therefore, one needs to question what is the benefitits short-term, there is a very low liquidity still for project bonds and the risk diversification from the government, or the sponsor does not achieve as much as you would do by way of sort of standard project financing. I think its instrumental for the future to certainly grow as the bond investor market develops over time, but for the time being I think in the short- to medium-term, we still see project financing and traditional pools of liquidity as being extremely important to continue to support the growth of project financing.

What is the regional outlook for power and utility project financing in 2011?

Traditionally, I think the power and utility sector has attracted the most amount of project financing in the region. Looking at the power and water projects, for example, in the region, the private sector has, in the Middle East and North Africa region, participated in approximately 30,000 megawatts, and in the process mobilised US$35 billion (QR127 billion) in this sector. Okay, those numbers do not mean

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its instrumental for the future to certainly grow as the bond investor market develops over time...in the short-to medium-term, we still see project financing and traditional pools of liquidity as being extremely important... for project financing.

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anything unless you put them in context and I guess what I am trying to say is, traditionally this has been the house, or the stronger draw for project financing in the region. The reason for this is basically very well developed frameworks and well developed IPP framework in most of the GCC countries, notably in the UAE, Saudi Arabia and Oman and Bahrain, which have numerous facilitated banks becoming comfortable with the risk allocation and, therefore, willing to participate strongly in support of those sectors.

So to answer your question, I expect that trend to continue and to be the leading draw for project financing, for two reasons. One, for the reason I just mentioned, because the IPP framework is already in place and there is continued strong demand for growth, for power in the region. One source, for example, that you can download is the Oman Power and Water Procurement Company seven-year (2010-2016) demand outlook for power and desalinated water. Another source is the website for the Egyptian Electricity Transmission Company, which publishes supply and demand figures. From these sources you will soon see that the growth for power demand is expected to surge circa five to seven percent year-on-year for the next five years. If you take Egypt, for example, which has a grid of around 30,000 megawattsa seven percent growth is, to give you some context, basically two gigawatts of new capacity required year-on-year and that is huge. We are looking at two to three billion dollar projects just in the power sector alone in one country and I suspect that the number is somewhat understated.

In recent years there have been countries in the GCC that have received a greater share of project financing from traditional streams in comparison to

neighbouring countries, for example Saudi Arabia. Do you predict to see GCC project financing level out to be more proportionate to other GCC countries going forward?

There has been a balanced development across the GCC with Oman, Saudi, Bahrain, and the UAE leading the way, but it is just in terms of the quantum of projects, there is a lot more going on in Saudi Arabia because of sheer size of the countys project. Therefore, it seems to have received the most, but if you look at the numbers relatively, I would say the recipients have been fairly balanced across the four countries of the GCC that I mentioned. Additionally, I think there will be a growing spread of project financing across the region as obviously banks will look not to concentrate all of their asset build in one country per se, but rather spread across the region, and in fact, banks will look to grow into North Africa as well. So we will start to see North Africa rise to be recipients of increased project financing going forward as well, and particularly in Egypt where they have just opened up their power market.

If I go back to your previous question where power has been the home for project financing a very comfortable asset class for banks, given the familiarity with the IPP model and that Egypt has just opened up its IPP tender bidding again after a hiatus of almost 10 years, with a circa 2.3 gigawatt project in Egypt, I think we will start to see this shift not only in the GCC, but growth in the North African market as well.

Qatars power demand growth per annum for 2010 stands at nine percent as compared to 7.7 percent for the GCC. In 2011, Qatar is expected to reach 10 percent of the total GCC power consumption. Considering that Qatars

growth demands will only continue to grow, how can local companies design attractive project packages in a bid to attract financing?

What does the procurement authority need to do to ensure strong interest in its projectand going back to the first question that you asked: What are the key challenges faced by procurement authorities and sponsors alike? The first thing that the procurement authority need to do, is to think about what are the key challenges in procuring infrastructure in todays market. One of the key challenges is that we are facing a constrained market in terms of resources.

We are not in the same type of environment as we were in 2007 and early 2008, where it was a completely ridiculous EPC market and where prices were inflating at 20 to 25 percent year-on-year due to overarching demand, and not enough supply, we are not in those kinds of markets. However, because there is such a strong pipeline of projects, there is still a need for the government to consider competition from their regional counterparts. Going forward, Qatar will not be the only country tendering for an IPP or IWPP, there will be tenders from Oman, UAE and from Saudi Arabia. Therefore, you are putting out a tender, or you are floating a tender and are seeking to compete with your regional brethren if you like. So that is what I meant by competition for resource.

Companies need to think about making a project attractive, so that in the context of competition in the region, for example, in the power sector, developers will look at your bid, take it seriously and bid competitively, and equally banks will pay the due attention.

The last point, in order to consider those challenges in its totality and, therefore, structure a balance risk allocation, a tender framework, that is able to attract the interest and attract the types of sponsors that the country wants to see bid for its project, they should hire good and experienced advisors, who have a proven track record in assisting governments in structuring those types of processes time saved in the structuring will save exponential amount of time once the request for proposal is out of the market for a poorly structured project.

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i think there will be a growing spread of project financing across the [gulf] region, as obviously banks will look not to concentrate all of their asset build in one country per se, but rather spread across the region...

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Ensuring the integrity of computers and industrial networks

The spread of illegal activity on the Internet and independent computer networks is intensifying. Indeed, the methods of international computer-based criminal cabals such as the Stuxnet industrial worm, now widespread in parts of the Middle East are becoming highly sophisticated. According to Stefan Tanase, a senior security researcher at European-based Kaspersky Lab, criminals infiltrating companies of all sizes in targeted attacks are also on the rise. Tanase recently hosted a talk at the International data Corporation (IdC) conference in doha. Miles Masterson spoke to Tanase about the growth of cyber crime and malware, and how to prevent it.

Malware is an abbreviation of malicious software, a term used by computer security experts to describe programs, worms and viruses designed to infiltrate computers and networks for criminal reasons. Tanase noted alarming statistics on this kind of computer crime, which he warned were increasing sharply, and thrive on the ignorance of computer users and organisations.

We process about 40,000 new malicious programs every day and about 15 million in a year, he revealed.

In recent years, cyber criminals worldwide have realised that utilising these programs is a highly lucrative means to earn illicit income by either conducting their own scams, or essentially becoming online mercenaries providing their services to the highest bidder, which can include companies intending to undermine or even destroy their competitors.

Among other purposes, these methods of operating include: stealing money from individuals through online banking scams; subjecting companies to extortion by ransoming information or to restore a network they have crippled; hijacking bandwidth and computer storage space for illegal rental or to use as unwitting proxies; conducting industrial espionage; or sabotaging the operating systems of corporate, industrial and government networks.

Among others, some of the more widespread malware and methods include: Botnets(whichallowanattackertotakecontrol

of a users computer and turn it into a zombie to appropriate information or computer capacity);

Didos(distributeddenialofservice,whentheattacker who has gained control of a botnet, overloads and shuts down a server or network),

Phishing(onlinebankingscamsthatstealusers credit card or personal and banking details, utilising fake emails leading to copycat websites),

Trojans(apopulartypeofbankingmalwaremostly utilised to siphon funds from private bank accounts without the users knowledge).Of the latter, Tanase said a Trojan called

Zeus was the most sophisticated and could bypass even the most secure online banking technologies. Utilising keystroke logging, Zeus can monitor online banking activities undetected and divert funds from your account when you make payments.

You dont see anything on your screen and you think you are paying your bill, explained Tanase, but your money is going into the account of the criminal.

Increasingly, malware programs such as Zeus are being transferred through social media such as Facebook, stated Tanase.

Social networks are a very hot distribution network for malware because they bring in a component that was missing from the lifecycle of malware and this is trust.

This not only has risk repercussions for individuals using computers at home, but also at the workplace, where many employees of companies large and small visit social media websites during working hours. As an example, Tanase described what he termed a classic

social engineering trick, incorporating the abuse of social network trust that criminal programmers use to spread malware.

A user will receive a link from one of their trusted contacts, saying Hey this is a video of me, explained Tanase.

They are is much more likely to click on that link, as opposed to a link received in a random email. Usually the user is presented with a so-called video player, and then when you try to play the video, it will say that you need to upgrade the version, or install this product, but it is actually a piece of malware a Trojan or a virus.

Even the most seemingly secure networks of large organisations are vulnerable. Recent examples of this include well-documented infiltrations of American private and public institutions. Internet search giant Google was also a victim of a cyber attack in China late last year.

Google publically admitted in January that at the end of 2009 its Chinese office branch was attackedsaying the only purpose of the attack was to extract confidential information from its networks, said Tanase.

This was the most sophisticated attack that it had ever seenand the first moment everybody realised how dangerous targeted attacks can be.

Though in Googles case the attacks were suspected to have emanated from China or Taiwan, Tanase said that the sources of information- or sabotage-driven targeted attacks could be much more difficult to locate than banking scams, which usually leave some sort of

Cyber Security

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trail. This is because stolen information etcetera can be easily moved through scores of countries on computers belonging to innocent individuals proxies and is impossible to trace.

Usually they like to host them in countries where the legislation is very permissive, so servers getting seized or shut down is very low, Tanase stated.

That is why China is a popular place to host malicious websites, but the thing with China is that it will probably be very hard to take down by any law enforcement, but at the same time they will not get such good connectivity. The servers cyber criminals use need to be close to the victims.

Regardless, no matter where they originate from or what means they use to infect computers, Tanase claimed that targeted attacks were a growing problem for businesses worldwide.

Their aim is to infiltrate an organisation to get their hands on confidential information, such as future product specifications, sensitive source code, executive emails, customer information, third party data hosted by the victim or credentials for production systems, Tanase stated.

Another form of targeted attack is malware worms (self-replicating programs that rapidly affect networks), injected into corporate, parastatal and governmental computer networks, many of which are not connected to the Internet. This includes specific worms, such as Stuxnet, which infects Windows-run Scala networks in Siemens industrial control systems, and, stated Tanase, was the most sophisticated piece of malware ever seen.

Right now Stuxnet is the turning point, he explained, [and] can really affect infrastructure; water pipelines, factories and the systems controlling information in power plants. It doesnt steal credit card numbers or do anything with functionality that could point us towards the authors intention. It is specifically designed to inject code into the Scala networks, specifically into devices called the programmable logic controllers (PLCs), which run code designed take care of automation processes.

Once it infects a system, Stuxnet spreads throughout computer networks. Because most of these networks are not connected to the Internet, Tanase said, they required some sort of internal access via subterfuge. However, once loaded, he said they could spread quickly via USB sticks and other portable means. Stuxnet is also more difficult to detect than its predecessors because the malware is programmed to hide itself, he added.

If you open up Windows and go to the folder where the worm should be, you wont see it because it has modified Windows itself.

The technical intricacies are myriad, but the bottom line is Stuxnet and other programes like it, present a very real threat not only businesses, but also the security of all extensive automated networks worldwide, including airports and military installations.

When it comes to advice on how organisations and institutions can tighten their cyber security, Tanase suggested a two-fold strategy approach.

One is the human part and the other is the technical, because you can have the best technology to protect you, but if the user switches it off it becomes useless. So it is a matter of both educating the users and the implementing the best protection.

Firstly, Tanase advocated elevating the general level of awareness among all employees, including towards Internet scams and social media, almost to the point of paranoia.

Just simple things, like how to spot a suspicious or phishing email...they should also have a reporting process, so that the moment an employee suspects he is being targeted [there is] an immediate follow-up, he said.

Depending on the size of the organisation, Tanase advised all companies to appoint an individual, or team, dedicated to enforcing cyber security and not just the classic system administrator, who is busy with email boxes getting clogged up and computers not working.

Secondly. Tanase said companies must also ensure their computer systems and networks were airtight. These steps include: Ensuringthatallsoftwareisupdated,asolder

versions often include bugs that have not been fixed, which hackers can exploit,

Avoidingacorporatemonoculturethatuses the same computer programs and software across the entire system. Uniform systems are cheaper to install and simpler to train employees to use, but varying these will make it more difficult for hackers to infiltrate networks,

Avoidingthemostpopularprogramsandbrowsers, as malware programmers tend to focus on these for widest reach (which is why

Windows is more vulnerable than Linux or Mac OS, for example),

Enforcingtheseparationofinternalnetworksin departments and buildings within an organisation wherever possible, as this also makes it more difficult for a hacker to access the entire networks.

Investinginproactivesoftware,which,putsimply, can isolate a perceived cyber threat and warn companies such as Kaspersky, which can take immediate measures to assist in the prevention of further infection,

Beingwaryofanti-virussoftwarethatcomes from uncertified or dubious sources, especially online, as these have been known to spread the malware they are actually supposed to guard against,

Establishingarelationshipwiththelocalcomputer emergency response team of which Tanase said Qatar had one of the best in the Gulf region.Nevertheless, while there is a low level of cyber

crime and malware infection in the Middle East as compared to other parts of the world, the area is becoming increasingly vulnerable to targeted attacks, as the current high prevalence of Stuxnet in Iran and the United Arab Emirates attests.

While Qatari businesses rank-low as a potential target, targeted attacks are imposing a growing concern, stated Tanase.

Fortunately, worldwide, cyber security experts such as Tanase are making headway in preventing, isolating and repairing these attacks. Though international law is erratic and the Internet is notoriously hard to police, by working with law enforcement agencies such as the United States Federal Bureau of Investigation and Interpol, cyber criminals are increasingly being prosecuted.

Nevertheless, closes Tanase, it is also the responsibility of companies to make sure they put the necessary measures in place.

The bigger a business gets, the more the need for informtion technology security, so it makes sense to have someone in the team who takes care of cyber security, and if not, hire someone to do it or outsource it to a consultant.

the bigger a business gets, the more the need for information technology security, so it makes sense to have s