28 September 2005 - Speech of UGB Chairman Mr. Faisal Al Ayyar - Recipient of ABANA’s 2005 Achievement Award

Good evening Ladies and Gentlemen,

I am very pleased to be with you this evening, and I am deeply honoured to receive the ABANA Achievement Award.

I thank His Excellency Mr. AbdulKarim Al Kabariti for his kind and generous words. He has to his credit a great number of significant achievements, in the political and business arenas

Thanks are also due my friend and colleague Mr. Samer Khanachet, who works with me to make some of our dreams become reality.

I join all of you to pay tribute to two great leaders we lost in 2005: His Excellency Prime Minister Rafiq Hariri and Mr. Abdul Majeed Shoman. During their lifetimes they each made major contributions to the development of the Middle East. We will miss their wisdom, but we cherish their memories. In Africa, they say a man dies only when he is forgotten. These two great men will not die.

I would like to share this Achievement Award with my family who paid a great price as they sacrificed many years of family time, but always with a smile: especially my wife Amal for being my dearest friend, most faithful supporter and mother of our children.

To my colleagues, I thank you for your unwavering support and faithfulness. It has been a blessing to have such a dedicated team to work with over the last decade.

I am especially thankful to our shareholders, and in particular His Excellency Sheikh Hamad Al Sabah. Our chairman has been a leader, a friend and brother, believing in our long-term vision and supporting us when we deferred current returns in exchange for sustainable long-term earnings and growth. Our shareholders have been patient with us, while others investors in the region collected quick returns. Believe me; it is not easy to make such choice, and go against the trend.

This award comes at a crucial time, when our region faces the threats of terrorism, alongside the rest of the world.

We are faced with the instability of Iraq, the effect of the evolution of democracy and the possibility of escalating nuclear disputes.

But despite all this, the people of the region - sophisticated or otherwise - are bullish, daring and ready to go on to the challenges and opportunities.

They are pushing ahead - making investments, starting companies, and launching projects at a scale and speed previously unheard of in our region.

This new wave of dynamic activity is boosting self-confidence, hope - and at times, euphoria.

There are fundamental reasons for this optimism, some cyclical and some structural, in the region’s economic, government, and business environment:

• Oil prices are at a record high and experts believe they will remain high for the medium term.
• Liquidity both in public and private sectors is very high.
• The mistakes of governments over the previous 25 years and resulting financial liabilities are in the process of being absorbed by the last 3-4 years of high oil prices. Now the public sector is back investing in infrastructure and energy projects.
• The private sector is more vibrant and more daring – it is a growing monster, making both rational and irrational business decisions.
• Private and public sectors are all speaking the same language on economic reforms, - less dependence on the public sector, and more involvement of the private sector.
• Governments are moving slowly in the right direction, and speaking the right words.

THINGS ARE CHANGING. Definite measures and initiatives have been taken in the past few years. The Arab world is gradually liberalising its economies to benefit from international trade. Middle East and North African countries are joining organizations such as the WTO, GCC Customs Union, and the Arab Free Trade Agreement, to provide a more attractive investment climate for entrepreneurs and investors and easier cross border trade.

This is showing tangible results - according to the European investment Agencies, there are currently over 800 projects listed to go private in the Arab world.

Another key indicator of economic well being is the rise in the Business Confidence Index. A recent survey shows a marked increase in business confidence in the region, with the index moving from 100 to 108 from May 2004 to March 2005. AN ALLTIME HIGH.

The stock markets of the region are at varying stages of development, with increasing number of local exchanges adopting international standards.

The GCC region as a whole is witnessing high stock valuations. The region’s total market capitalisation is now more than 800 billion US dollars - second only to Asia among emerging markets. It accounts for 170 per cent of the region’s GDP compared to 50 per cent three years ago.

The Middle East represents 20 per cent of the total market capitalization of emerging markets. Daily trading value in the Middle East accounts for 32 per cent of total trading in global emerging markets.

Of course, no discussion about our region is complete without talking about oil:

• As many of you are aware, in 2004, oil accounted for 8 per cent of global trade in goods and services, more than any other commodity.
• According to the (EIA) Energy Information Administration, the Gulf region holds about 57 per cent of the world’s crude oil reserves, or 715 billion barrels. According to an IMF report, GCC member states together own 45 per cent of the world’s proven oil reserves.
• At the end of 2003, major producers in the region produced about 22.9 million barrels per day, or, 32 per cent of the world total. More important, regional producers have maintained almost all of the world’s excess production capacity. In fact, from early September 2003, excess world oil production capacity was entirely located in Saudi Arabia.

However, the greatest impact from oil has surely been on government budgets. Indeed, from 2002 to 2004, Gulf governments have generated surpluses exceeding 100 billion US dollars. The 2005 figure is likely to be much higher.

A mountain of cash is building up in the region, which will act as a strong tailwind to the economies of the Middle East and North Africa for years to come.

All these factors are clearly creating real and lasting value in the region.

The normal euphoria that emerges in this environment is creating pockets of bubble. Like all bubbles - they will eventually burst.

But the fundamental strength of the economies will I hope allow them to ride out the effects of such a situation. Regulators in the region have historically adopted a fairly conservative stance to ensure that banks and financial institutions’ exposure to stock market and real estate remain at prudent levels. This has acted as a check on speculative activity.

At the same time, society is evolving around two distinct broad blocks: the block that wants to progress and become part of the global world; and the other block that wants to maintain, or go back to, the old ways.

Success perhaps can be achieved if governments in our region use these positive economic conditions to further social justice, democratic reform, education, and investment initiatives that will create jobs for the fast growing number of youth entering the job market. Government action can tilt the balance and will aid the process of our region in merging with the global economy.

Considering all these opportunities and challenges, imagine, dream or even wish what this region could do, if peace and quiet prevailed for just a decade.

For further information please contact United Gulf Bank on telephone +973 17533233 or email info@ugbbah.com.