Dubai mall fountain sculpture
Finance

Malls and mobiles

by Thomas Schellen
written by Thomas Schellen

Arab markets made a well behaved transition into September. Benchmark indices at all regionally relevant exchanges moved as one might expect top local influencers want them to in the 36th week of the year. Saudi Arabia’s TASI went sideways just after some analysts started to warn of potentials for overheating. The Egyptian and Qatari benchmarks fielded new peaks, with their gains of 40 percent for the year to date shooting flares drawing attention.

The two exchanges of the United Arab Emirates advanced nicely, with the Dubai market driven higher by almost 4 percent, courtesy of Emaar’s upcoming initial public offering of its malls unit and the linkage of ownership in Emaar Properties stock with priority allocation of shares in the IPO. This was confirmed by Emaar in a disclosure to the DFM dated September 2. According to Emaar, the priority allocation applies to 10 percent in the retail tranche of the offering, which in turn will amount to approximately 30 percent of the total offering of 2 billion shares, representing some 15 percent of the 13 billion shares in Emaar Malls Group. Expected tight allocation of IPO shares due to high demand is something that the regionally hot Emaar Malls IPO has in common with the similarly timed but globally watched IPO of Chinese online giant Alibaba on the New York Stock Exchange.

The share price of Emaar Properties, which leapt over 12 percent in the first two trading days of week 36 on the demand stirred by the company’s confirmation of its malls unit’s floatation, ended the week up 11.2 percent. While the ADX General Index advanced at a slower pace than its DFM counterpart, both UAE benchmarks marked September by sustaining levels above 5,000 points. Both UAE markets are back near multi-year highs. After losing the position of strongest year-to-date gainer during its summer upheaval, the DFM is once again the best performing Arab stock market for 2014 to date, with an index gain of over 50 percent.

The Qatari bourse rebounded from the profit taking seen at the end of week 35, and the index’s 4 percent gain in week 36 made it the period’s top performer in the MENA and gave the QE a new all time high. Ooredoo, the entity once known as Qatar Telecommunications, gained 15.5 percent on the week on a recovery from selling pressure at the end of week 35, yet the stock is still more than 20 percent cheaper when compared with its year-high at the end of May.

While not achieving a weekly gain, the TASI kept its nose above 11,000 points throughout week 36. This puts the Tadawul at a price level last seen at the beginning of 2008. Market cap leader Sabic edged up 0.3 percent.

In contrast to the Mashreq and Gulf region’s other smallish markets — Jordan, Lebanon and Bahrain — which moved lower during week 36, the MSM 30 index of the Omani bourse continued its ascent and ended the week at the highest level since fall 2008. According to statistics cited by the sultanate’s state news agency, share purchases by foreign investors in the month of August contributed to the market’s rise.

In Egypt, the EGX 30 index closed week 36 at a new post-global financial crisis peak. Neither a far reaching blackout in the country’s main industrial cities on the week’s last trading day nor news of the country scoring a dismal 119th in the Global Competitiveness Index deterred the rise of the Egyptian bourse. Factors that lifted the market included a decision of the central bank to keep interest rates steady, which was followed by higher demand for property stocks, and government approval for issuing landline operator Telecom Egypt with a license that will allow the firm to add mobile services to its portfolio. This led to a one day 4.7 percent price gain and a tremendous spike in transactions of the company’s stock on September 4, the day after the license news was announced.

On the Suez Canal front, sales of investment certificates went through the roof after presidential signature of the requisite law at the beginning of September. According to statements attributed to the governor of the central bank, Hisham Ramez, first-day sales of the certificates reaped EGP 6 billion ($840 million) and total sales escalated to EGP 14.5 billion ($2 billion) by September 7. This would put the country in an enviable position of having reached a quarter of its funding target after only two days in the initial round of issuing certificates.

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CommentWealth management

Wealth in Lebanon

by Ghassan Dibah
written by Ghassan Dibah

This article is part of an Executive special report on wealth management and private banking. Read more stories as they’re published here, or pick up September’s issue at newsstands in Lebanon.

The numbers are clear. There is something deeply wrong with Lebanese capitalism. Yes, there is considerable wealth that is readily visible to all as wealth manifests itself in buildings, cars, lifestyles and so on. But beyond the appearances of prosperity lie the festering problems of an economy that is unable to generate jobs for its young (24 percent unemployment among youth), produces mostly low paying jobs (average monthly wage around $1,000), excludes women from productive labor (23 percent female labor participation rate), suffers from a persistent debt problem (160 percent of GDP), is burdened by foreign debt that no one talks about (170 percent of GDP) and finally is unable to provide public services and goods such as electricity, water and a well equipped national army. The last problem of the ‘public system’ is mind boggling in a country that is an upper-middle income country with income per capita of $11,000. All countries that lack adequate supply of such goods are positioned very far below Lebanon on the worldwide income ladder and definitely have much less wealth.

High wealth inequality

Data on wealth and its distribution worldwide has been forthcoming lately. The United Nations University’s WIDER research project on global wealth has produced figures for most countries. In Lebanon, for the year 2000, net wealth per capita was around $13,000 and the Gini coefficient of wealth distribution was 76 (Gini measures the degree of inequality with 0 being perfect equality and 100 being perfect inequality). In 2013, the Credit Suisse Global Wealth Databook estimated net wealth per capita in Lebanon to be around $21,000 with a Gini coefficient of 86.3.

Compared to non-GCC countries in the MENA region and other developing countries, wealth in Lebanon is high (examples: Jordan: $8,200, Tunisia: $14,800, Costa Rica: $18,900). Globally, Lebanon belongs to the ‘intermediate wealth’ group (wealth range $25,000 to $100,000 per adult) which it shares in the MENA region with Bahrain, Oman and Saudi Arabia. Although wealth inequality is high around the world, Lebanon is one of the most unequal in wealth distribution, with around 66 percent of the adult population owning less than $10,000 in wealth and those with $100,000 or higher constituting only 3.5 percent of adults.

Wealth in Lebanon is composed mainly of financial and real estate wealth. Since many see GDP figures as controversial after 2007, I will use in the forthcoming analysis data from 2000 to 2007. During this period, gross wealth to income has greatly risen by between 3.3 and 4.6 times. According to Thomas Piketty in his book “Capital in the Twenty-First Century,” wealth to income has been increasing all over the world since the 1980s, driven by the retardation of growth rates and the rise in the return on capital. As long as the latter is larger than the former, this trend will continue and will reflect the rise of income from capital in capitalist economies at the expense of income from labor.

In Lebanon, the rentier class wealth was buoyed by the rising return on financial capital since 1992 fuelled by public debt rise — if we had data on wealth since 1993, I conjecture that it would show a significant rise in the wealth-to-income ratio in Lebanon after the end of the civil war — and by the rise in real estate prices since 2007. Public debt played an important role in the rise of the rentier. By financing postwar reconstruction and fiscal expenditures through debt rather than through taxing the wealthy, the wealth of those who lent to the government increased.

Given the continuation of current low tax rates on capital and profits, the high public debt burden and the increase in the power of the rentier class in the economy, the Lebanese economy will continue to wobble. We need to tax capital in order to build up physical public capital, pay down public debt — the theory that the debt burden will be reduced by growth has been proven to be wrong as was the theory of solving the problems of employment and inequality by growth — and lay the ground for genuine economic growth with rising labor incomes. Otherwise we will have a country wealthy in money and land but poor in all other aspects such as productivity, entrepreneurship and infrastructure development. And in the end, these are what matter for long term prosperity.

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FinanceWealth management

Don’t ask for too much

by Thomas Schellen
written by Thomas Schellen

This article is part of an Executive special report on wealth management and private banking. Read more stories as they’re published here, or pick up September’s issue at newsstands in Lebanon.

 

Banque Libano-Française, a Lebanese alpha group bank whose assets stood at $11 billion at the end of June 2014, does not operate a private bank and its 2007 established wealth management unit has never focused on advertising itself and its asset management services. This notwithstanding, the unit has grown its wealth management and capital markets activities, not the least via developing a fund that is registered in Luxembourg but fully managed in Beirut. Executive talked about private banking prospects and challenges with BLF treasury, capital market and wealth management global head Georges Khoury and Jamil Koudim, head of fixed income and fund specialist.

 

What is your competitive environment from the perspective of BLF? Are you working mainly with customers of the bank or are you competing actively for new customers? 

GK Let’s face it: in Lebanon there is not a lot of private banking. The only competitors that we have are the international players, whose numbers are shrinking today. As we are talking private banking, we have a maximum of three or four [competitors] in Lebanon. Our competition is the prime bank, the big bank in Lebanon, and so far, we don’t want to differentiate ourselves from other players. What we are looking to go after is the diaspora, which exists in the GCC, in South America and some in Europe, particularly in France. Our objective is the Lebanese diaspora. No more, no less.

 

Cost structures of wealth management units and fees charged for private banking services have become a key issue in positioning vis-à-vis the client. What is your approach?

GK Customers are shopping around a lot because there is a lot of competition and sometimes they come with rates that we cannot afford to pay. But we have a policy in our private banking, [namely] that a customer who asks for more and more, is not fruitful for us any longer.

 

Asking for more? 

GK I mean, they always want higher interest rates and lower debit [rates and] lower commissions. This is not what we target. The more important thing for us is that the customer [receives] very good service, a good follow up, and is smiling at the end of the day.

 

Does pampering the customer play a role in your approach? Do you send clients to Brazil to watch football or to England for the Premier League, or perhaps the Salzburg Festival for cultural perks?

GK I wish. My club is Man United. We would hope to have something like that. We have more as far as concerts, and the Byblos Festival. We always offered customers pampering and we used to have a very nice dinner, the semaine gastronomique where we invited the best chefs from France…

 

Do you still do that?

GK We stopped it two years ago; we are thinking of doing something different.

 

What other competitive edge do you claim for your unit when compared with other private banks? 

GK The BLF Total Return Fund.

JK It is a solution for clients who want to generate a return from market movements but at the same time have money outside of Lebanon [that is] relatively safe in a non-volatile sort of investment. You can find a lot of funds that you can invest in but this is managed by us, so it is an internally run product. This complements the personalized approach of our private banking. 

GK The fund is custodial in Luxembourg so your money is safe. Also it is the only fund in the Middle East that only goes international, 80 percent investment grade and 20 percent non-investment grade. We will celebrate two years in September with a close of 14 percent [net return since inception].

 

What is the fund’s result for 2014?

JK Year to date we are 4.6 percent up; since inception it is 13.55 percent.

 

What do you see as the future of private banking in Lebanon? Is there any?

GK I think if you [adhere to] the right way in your private banking, facilitate the customer [experience], help them, be transparent, follow them and deliver, it will continue. But for me globally, I think private banking is shrinking a lot.

 

Are we in Lebanese private banking shrinking like private banking in Switzerland?

GK No we are not like Switzerland, unless the regulations change. There are only two countries in the world now with banking secrecy: Luxemburg and Lebanon. I don’t know how much the Americans will push us to get out of that issue, but we are going to continue and banking secrecy for me is very important.

 

How important do you see banking secrecy for being able to do private banking? 

GK For me it is number one.

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CommentWealth management

Growing more detailed

by Daniel Diemers & Walid Boustany
written by Daniel Diemers & Walid Boustany

This article is part of an Executive special report on wealth management and private banking. Read more stories as they’re published here, or pick up September’s issue at newsstands in Lebanon.

The GCC continues to be a standout region for wealth creation. Investable and liquid assets grew by 15 to 20 percent each year from 2009 to 2013, reaching around $2.2 trillion in the region, according to our forthcoming study “GCC Private Banking 2014–2015.” Wealth management centers such as Dubai, Saudi Arabia, Qatar and Kuwait have seen particularly robust growth in individuals’ assets, fuelled by increasing domestic wealth and inflows from politically unstable countries elsewhere in the Middle East and North Africa.

For the near future, the Middle East will remain an attractive but complex wealth management opportunity. Private bankers must pay close attention to its cultural and economic characteristics as well as regulatory issues, especially when operating across borders. Many local banks have built up their own wealth management offerings, which increasingly compete with those of larger international players. While some mid-sized international players have recently reduced their presence in the Middle East given its unique challenges, the region remains an important target market because so much private wealth is held and managed offshore.

We believe that to capture future asset growth in the region, private banks must adroitly manage three wealth management trends: the growing affluent customer base, increasing sub-segmentation within the high net worth individual (HNWI) client base and digital wealth management.

The growing affluent customer base

The affluent segment in the Middle East is the fastest growing wealth management segment. In 2013, affluent customers (i.e. with $200,000 to $1 million of investable assets) in the GCC had estimated net assets of over $500 million — a growth of over 20 percent per annum since 2009. Their ranks are expanding as ‘retail’ customers and the ‘mass affluent’ (the growing middle class) graduate to the next level of wealth.

Some of these newly affluent clients are the product of market performance and the broader impact of GCC economic growth. Others are Arab, Asian and Western expatriates. This is driving overall demand for basic investment services and financial planning, as well as product platforms and advisory offerings that provide advice and ‘best in class’ product solutions.

There are nonetheless important differences between local and expatriate affluent clients. Expatriates need multi-account openings on- and offshore, with convenient transfer of funds via partner banks, foreign exchange products to hedge currency exposure and better access to tax, pensions and insurance solutions. Meanwhile, many affluent GCC citizens want financial planning solutions, superior customer experience and, increasingly, Shari’a compliant offerings.

Sub-segmentation in HNWI

Interestingly, as wealth has grown in the region, private bank offerings have begun to resemble each other. Wealth managers offer many of the same ‘perks’ such as waiving brokerage fees and offering exclusive gifts. This suggests that local private banking clients are uniform in their needs and expectations. But the reality is that there are distinct HNWI sub-segments in the Middle East that demand more focused offerings.

A prime example is female HNWI investors, who control 20 percent to 25 percent of HNWI assets. In our research, wealth managers have found that women have distinct banking needs and behaviors — for instance typically investing more conservatively and focusing more on wealth preservation. In some GCC countries, ‘ladies’ branches’ are already available for retail and mass affluent clients. However, dedicated wealth management offerings for female HNWIs are not yet common.

Another attractive sub-segment is the ‘next generation’ of larger, typically ultra-HNW families (those with net assets of over $50 million). A large ultra-HNW family can have more than 20 to 30 young adults who expect lots of attention but do not actually control many assets. Their needs are fundamentally different from their parents’ generation. Private banks must decide how to cost effectively service this next generation without losing them to competitors or creating uneven service levels within one family.

Going Digital

Finally, our research has confirmed the importance of digitization to private banking. Wealth managers see changing client expectations and moderate growth of self-directed wealthy clients who embrace digital tools. As more HNWIs use technology to manage their wealth, the industry is slowly moving toward 24/7 multi-channel, digital offerings. This requires building a clear digital agenda, especially for younger and technology savvy clients. Typical elements of this agenda include: a 360 degree view of clients’ assets and behavioral profiles to provide competitive, personalized advice; real time, mobile access to portfolios, research and advice; enhanced quality and personalization of advice using big data to identify the most relevant opportunities for each client; and a greater selection of tools and other advisory applications designed for tablet and PCs.

Opportunities for those who look

Although wealth management in the GCC has never provided better opportunities, the market is subtle and contains extremely varied segments — whether women, newly affluent or younger generations. To win in this market, private bankers will need to tailor their offerings accordingly and master how to deliver them through the latest digital technology.

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Turtle
Economics & Policy

Lebanon’s competitiveness: Bottoming out

by Thomas Schellen
written by Thomas Schellen

Lebanon is not in bad company for a peer group. According to the just published World Economic Forum’s Global Competitiveness Report (GCR), we are among those countries that are — and in many cases have been for quite a while — transitioning from a medium stage of development where efficiency gains drive improvements in competitiveness to an advanced one where innovativeness is the key differentiator.

In WEF terminology, this phase is called the transition stage from efficiency driven to innovation driven economies, and it is the second most advanced of the five stages in the GCR. Inconveniently, though, Lebanon is the 2014 bottom scorer in the Global Competitiveness Index (GCI) among the 24 countries in this category, with a score of 3.68 points that translates overall into rank 113 of 144 in the report’s latest edition, which was released this week.

This is not a comfortable or even hopeful placement given that most countries in this group score between 4.04 points and 4.51 points, yielding midfield rankings between positions 40 and 80 in the WEF’s list.

The negative impression of Lebanon’s state of competitiveness from being a downward outlier in this peer group is exacerbated by the fact that the country looks stressed by any GCI measure. When compared with other countries in the Middle East and North Africa, Lebanon this year came in 14th place of 17 ranked Arab MENA countries. Only Yemen, Libya and Egypt were shown as less competitive in the region, noting that Syria and Iraq were not ranked.

Adding to the damage, Lebanon dropped by 10 places this year when compared with its ranking in the 2013 GCR. But while drawing a lot of attention — news reports on the GCR release this week focused by a huge margin on positions and ranking gains or drops — these relative positions are not ultimate truths. Leading development experts raise big questions regarding the relevancy of rankings as indicators because small changes in a country’s score can cause outsized and potentially misleading leaps up or down in a ranking list.

Lebanon’s drop in this regard thus might be somewhat acceptable if the relative weakening were because nearby ranked countries improved their scores but, alas, the reality is much worse. Year on year, the drop is actually a reflection of a fall in the Lebanese score from 3.8 points in 2013. Moreover, according to both hard facts and perceptions, the 2014 drop represents a continual weakening in the country’s competitiveness.

Over the past three editions of the GCR, Lebanon dropped 200 basis points in its score (3.68 in 2014 vs. 3.88 in 2012) and lost 22 places in the global ranking. Relative to the global leader, Switzerland, Lebanon is now 2,020 basis points behind, compared with a gap of 1,840 in 2012.

Crumbling pillars

The theoretical score range of the GCI spans from 1 (lowest) to 7 (best), or 6,000 basis points, but the actual range of the scores is narrower, extending this year from 2.79 points for Guinea at the bottom to Switzerland’s 5.70 points. A country’s score is determined by a compilation of perception factors based on a proprietary survey of business leaders and hard data taken from sources such as the International Monetary Fund, UNESCO and the World Health Organization.

The overall score combines the scores reached in 12 pillars, which in turn are computed from scores in a number of fields that vary per pillar between 4 and 21. Except for the pillar measuring the macroeconomic environment (based on fiscal and credit rating data), opinion survey results contribute to all pillars and are the primary influencers in determining the scores in eight pillars.

Over the past two years, Lebanon’s score in the macroeconomic environment pillar fell from a weak 3.32 to a disastrous 2.56, making the country rank second worst in the category. Except for a reduction in inflation, the country weakened in every field of the macroeconomic environment pillar in both absolute and relative terms.

The second, survey driven, area where the country’s score dropped precipitously when compared with 2012 was institutions. As far as fields building this pillar, Lebanon is currently the country where business executives see the lowest public trust in politicians and second worst in the assessment of wastefulness in government spending. It is no comfort at all that there are still five countries in the world which scored lower in the institutions pillar.

Lebanon’s best performing pillar in 2014 is health and primary education, with a score of 6.29 and a ranking of 30th in the world, followed by higher education and training with a score of 4.39 and ranking of 67th. Individual fields where Lebanon scored far above its global position were, besides life expectancy and some disease non-prevalence fields, the survey responses on quality of math and science education, where respondents perceived Lebanon at a score that equates to place 5 in the world, quality of primary education (16), quality of management schools (17), control of international distribution (20), which is protectionism to some, and soundness of banks (27).

Notwithstanding the fact that the comparatively high perceptions of Lebanon in areas such as banking sector soundness and quality of business schools will not surprise readers of Executive, the extreme variance of opinions in ranking the quality of government spending and the quality of math education is a reminder that the perceptions of — in the Lebanese case — about 40, albeit presumably highly reputed, business leaders as a survey base calls for a healthy skepticism and scrutinizing for biases.

Addressing biases

The presence of biases is a reasonable assumption in any country, and in the context of Lebanon’s visibly and demonstrably deteriorated economic and security position when comparing the survey timings of spring 2014 and spring 2012, it can also be presumed that changed mood factors could influence survey responses on a factor such as ‘reliance on professional management’ where the assessments dropped from 3.9 in 2012 to 3.3 in 2014. Such a swing seems unlikely to be based in reality — otherwise, Lebanese business or news media would have reported waves of firings of qualified managers.

For Lebanon, questions seem warranted even on hard data. For example, the country’s ratio of female participation in the labor force is reported as one of the lowest in the world (position 138), which seems counterintuitive to statistics on high ratios of female graduates in universities, the known ratio of women to men working in the banking sector (nearly 1 to 1 in 2010), general impressions in the workplaces and even voices of outspoken women who decry a perceived counter gap in gender presence.

The challenges of data security and balancing for biases have certainly not escaped the attention of the GCR’s authors. Following audits of its surveying methodology in 2008 and 2012, the WEF has stepped up efforts to counterbalance or exclude heavily biased survey results, which in the past three years meant discounting survey results from three to four countries per year.

One country that was ranked in the top 30 in 2012 and 2013 but not covered in the 2014 GCR was Brunei Darussalam, because according to the WEF the 2014 survey of business executives in this country (and two other countries, Benin and Liberia) was “not completed to minimum requirements.” In several other countries, including Morocco, Saudi Arabia, Qatar, Jordan, the United Arab Emirates and Oman, the data quality of survey responses raised red flags in one year or another because of inexplicable large swings in responses or obvious incongruencies between survey responses and developments on the ground.

Making sense of positions

As the GCI has now reached its tenth edition, it appears to be ever clearer that the exercise of collecting survey based scores and hard data gives readings whose annual fluctuations provides a mixture of high grade entertainment values and quotable numbers for conference presentations, small talk at business dinners, economic–political debates and magazine articles.

A more important challenge now seems to be to understand how well the GCI readings chart a country’s competitiveness journey and how far the index readings can help a country in improving its competitive positioning.

In the 2014 GCR, the WEF asserts that statistics corroborate the validity of the GCI as a “sound estimate of the level of productivity” in the countries which the index has covered for the past 10 years. To this effect, the GCR cites two equations that measure bivariate relations between GCI and per capita GDP and between GCI and countries’ economic growth rates after netting out the convergence effect. Under the second statistical quest, the GCI scores of the 144 countries could be related to the net growth rates of these countries, because “the growth rate of GDP per capita of country i is a positive function of the GCI score and a negative function of time t,” in the formula used for computing the relationship, the GCR said.

The result of the computations is that the report assures that “the GCI’s estimate of the determinants of competitiveness … is validated on a statistical level.”

This validation may still not explain completely why Lebanon scores far lower on competitiveness than other countries in the peer group that is transitioning from efficiency driven to innovation driven economies and which are classified as members of this group mainly by having per capita GDP of $9,000 to $17,000, except for oil exporting countries where GDP is discounted as a differentiator.

This group includes large countries such as Brazil, Russia, Turkey, Mexico and Malaysia along with demographically mid-sized and small countries such as Poland, Uruguay, Croatia, Argentina, Barbados, Costa Rica and Mauritius. Two thirds of the 24 countries in the group are ranked between 40 and 80 in the GCI. There are four upward outliers, topped by the United Arab Emirates (12) and Malaysia (20); another four countries are laggards, and here Lebanon is the least competitive player behind Suriname (110) and Argentina (104).

Another issue deserving of consideration may be the degree to which GCI readings fluctuate. According to a very quick review of 2014 GCI results by Executive, country scores and rankings are most static in the top 20. In this group, a quarter of countries appeared in exactly the same positions as they did in 2013, 14 economies moved by between one and four positions and only one country, the United Arab Emirates at plus 7, changed its ranking by more than four spots.

In the 20 to 40 cohort, positions are still fairly stable and small movements of up to four places predominate. However, in all other cohorts of 20 from place 41 to 144, the number and intensity of fluctuations are higher — in the 81 to 100 cohort for example 13 countries moved by five or more positions up or down — and below rank 74 (Botswana) no country appeared in exactly the same position in 2014 and 2013.

But how to dig out?

In summary of the perspective offered by the GCR over the past three years, some countries, like the Philippines, Mauritius, Greece, Portugal and the United Arab Emirates, have achieved strong gains in their competitiveness and other countries have maintained their positions. Lebanon on the other hand was among a handful of countries that lost a significant number of positions over the past three years, such as Argentina (-10), India (-12), Egypt (-12) and Iran (-17).

In their write-up introducing the 2014 GCI, the GCR authors said — in a text rife with cautionary terminology such as ‘seems’ and ‘may be’ — that the report comes at a time “when the world seems to be finally emerging from the worst financial and economic crisis of the past 80 years and returning to a pre-crisis situation.”

Although the text’s following sentences suggest otherwise, this statement’s face value begs the question if we can now presume to return to normalcy or better start to ponder an impending new crisis.

But regardless of such musings, and while noting in appreciation that the WEF is currently undertaking a review of the GCI for further improvements, it seems that the most pertinent question for all providers of competitiveness gauges is how to create tools by which countries can translate the insights from their GCI scores into actual gains in competitive positions, and do so structurally rather than on levels of symptoms or appearances.

For a country such as Lebanon, whose scores in the GCI are torn between high and low and whose performance lags against regional peers and per capita income peers, knowing that we are in a hole — and being reminded of it every time the light goes off or the water stops — seems certainly less instructive than getting new and practical ideas on how to climb out.

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Leaders

Heads in the sand

by Executive Editors
written by Executive Editors

The frustration and humiliation are just too much. Daily trips to the roof to check water levels, often followed by a round of phone calls begging private water delivery drivers to spare 1,000 liters, have been the norm for months now for many Lebanese. That we must pay twice for a basic service the state by now should have been able to provide without interruption is the clearest indication that those in power simply do not care about the citizenry. This year’s water shortage is far worse than normal, but likely a harbinger for the future. While the Ministry of Energy and Water’s strategy is drill now and pray for rain this winter, we humbly propose a more scientific solution: monitor and manage this resource.

Any successful resource planning is based on well researched, reliable data. This is not the case for Lebanon’s water sector plan. There are data deficiencies at every point of the water cycle, and in order for the country to properly manage this vital resource, more information is urgently needed. 

Most shockingly, the nation of proud skiers and posh resorts doesn’t even record the amount of snowfall it receives each year. Nor are there enough rainfall monitoring stations to give a full, nationwide picture of yearly rain. Rain and snow feed rivers and springs as well as refill groundwater aquifers. Understanding how much precipitation falls is a crucial first step for having any accurate idea of what Lebanon’s water resources really are. And basing a national strategy on incomplete data is folly. As a first step, the government must urgently invest in the equipment needed to accurately measure snow and rain fall — or resort to begging donor nations, as is its wont.

But the data problem does not end there. With around 20,000 licensed wells and an estimated 60,000 unlicensed wells, it is appalling that only 29 are dedicated to monitoring groundwater. Experts believe at least twice that number are needed to properly understand and keep track of the country’s groundwater. Knowing how much groundwater the country has is essential to devising a plan to properly manage it. And management will be crucial for the future. Every year there are water shortages in Lebanon, this year being particularly bad. If a real management plan is to be put into place, an accurate understanding of how much there is to manage is key.

Equally important is understanding how much water is being used each year. The country’s four water establishments — responsible for distributing water to consumers — do not keep records of how much water they pump out. Nor are there usage meters for individual customers. Again, this is unacceptable. One cannot be expected to conserve water if one does not know how much is being used. Flow meters and piezometers (which measure the level of water in a well) should be installed on all public wells and usage meters should be installed for each water customer.

Finally, private sector water distribution must be regulated. It’s bad enough that the country’s four water establishments have no clue how much water they’re giving consumers. Compounding the stress on groundwater supplies is the completely unregulated and unsupervised private water delivery business. We currently have no idea what impact all this private pumping is having on the quantity of Lebanon’s freshwater supplies.

What we do know, however, is that as stress gets put on the quantity of groundwater, its quality begins to deteriorate. This is already an indisputable fact in many coastal areas of Beirut — just ask residents of Raouche or Ramlet al-Baida who shower in salt water because the wells their buildings use are inundated with seawater. The more private operators are allowed to pump as much water as they like from places like Antelias, Jal al-Dib and Hazmieh, the more we risk further seawater infiltration. This magazine is a champion of private enterprise, but not when that enterprise threatens the health and livelihoods of entire communities.

But instead of regulating, the ministry’s response is to exacerbate this situation by drilling more wells and pumping more water. This extraction will be done without any planning to set up data collection systems in the future. Instead, the ministry wants to forge blindly ahead without any idea how much groundwater Lebanon currently has, its quality, how quickly it is being used or how quickly it is being replenished. While this may be an inescapable tactic to alleviate the immediate crisis, it does not qualify as even the start of the needed response when the country may be facing more frequent droughts and higher usage rates in the future. Don’t expect your morning routine of hunting for water to change.

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FinanceWealth management

Feeling our presence

by Livia Murray & Thomas Schellen
written by Livia Murray & Thomas Schellen

This article is part of an Executive special report on wealth management and private banking. Read more stories as they’re published here, or pick up September’s issue at newsstands in Lebanon.

 

Roula Habis is a new managing partner at Optimum Invest, a Beirut based financial company. Formerly the general manager of Middle East Capital Group, she has 20 years of experience in financial products and joined Optimum to complement the firm’s fixed income business with her wealth management expertise. Executive sat with her to chat about the long term trends in the sector.

 

Optimum Invest describes itself as a boutique firm, meaning not a large player. Can a small firm offer value in wealth management? 

Classical wealth management is what people describe as asset allocation and diversification. You build a portfolio of stocks and bonds and might add some private equity into it. We will have this, but our approach is to go out of the box and find ideas for wealthy people in a way that is more like partnering with our clients and being their open eyes and ears.

 

Ten or fifteen years ago, local wealth advisors were mainly preoccupied with marketing fund products that were designed abroad, different from the tailored approach you’re talking about today. 

It’s the evolution, it’s the change. It used to be simply being an advisor or an intermediary, where you give them access to an open architecture. You would take funds from everywhere and you just build it for clients according to their profile and according to their needs in terms of liquidity. But this is offered by everybody, when you go to Citi, to HSBC, to all these big banks. You go and tell them: “I have a million, 10 million, 15 million dollars,” and this is what they would do for you. They will do an asset allocation and they will diversify according to the sector, to the geography, to the needs and to the rating from A to CCC. This is something which we still do. But we have to do something more.

 

How do you compete for Lebanese clients against those big name wealth management providers in Switzerland or in Dubai?

You know, it’s not that we are competing [against the big banks]. They are bigger, they have research departments, but their services are not as personalized as ours. And this goes back to what I started saying, which is that we in the Middle East, or in this part of the world, trust and knowing the person is very important before we go into placing their money.

 

Has there been any real progress in quantity or quality in the wealth management culture that we have in our region? Has there been a learning curve?

If you compare how much was invested in bonds and stocks versus private equity in 2004 and 2014, you would see that today there is a huge demand for private equity (PE). [Clients] know that it is long term but they know that it works well, it will pay well. If you go back 10 or 15 years, few people knew about private equity; those were really only the elite people who have always been investing abroad. But when you say private equity today, most investors would understand. They have seen the dotcoms, the internet bubble and then the biotech and the pharmaceutical companies, how they initially started with a clever idea or product and some PE investors who believed in it. There are many examples of great successes in this field but also resounding failures, and investors have become better at identifying good opportunities.

 

After the 2008 global crisis there was a lot of distrust among the HNWI (high net worth individual) community globally concerning wealth managers who were unable to anticipate or balance their losses. In response, global wealth reports were talking a lot about the need to rebuild trust. When looking at the industry today, what do people want most from their wealth managers?

You know what the people wanted in this crisis? Transparency and presence. Because when everything is great, everybody is calling you. However, when there is something that is bad, human beings have the tendency to, you know, disappear. This is what happened during this crisis. What people really wanted was for you as their advisor to be directly by their side, telling them exactly what was happening, why their portfolio was going down and perhaps take the appropriate decisions together.

The rebuilding of confidence came with the market as it started to recover. What mattered in the time of the crisis was to make sure that you stopped your leverage. If you were leveraged, instead of having to totally lose or double your losses because you were leveraged, the most important thing was either to liquidate to cover your leverage, or bring in cash from somewhere to cover your leverage. So the problem was the presence. This is why I am telling you it’s servicing. The most important thing is for the client to feel your presence near them, and this is what will make you different from everybody else.

 

How many wealth management clients are in Lebanon?

I don’t have a number. It is not large. But it would also depend on the threshold that you use to classify clients. Some would use $5 million, others $10 million. Each firm has its own threshold.

 

We have seen a global wave of new regulations on almost everything in the financial industry after the 2008 crisis …

Which was a good thing.

 

Has this increased the cost of doing business?

Of course. The regulatory environment is much tighter than before. In Lebanon, measures have been imposed by the central bank, the Banking Control Commission and now the Capital Markets Authority where you have to have a compliance officer, a legal officer and so forth. You need at least three or four persons in your back office and have a much bigger payroll on the back office side. This is okay for big financial institutions which can handle the cost, but small ones that are not performing well cannot really go on and have to shut their doors or sell their operations.

 

And have regulations become a bit more relaxed or are they still on the increase?

Definitely on the increase. Right now things are stable in the sense that authorities have put the rules in place and are auditing you to see if you are implementing the regulations. But everything is still evolving. I would expect even tighter controls in the area of compliance and anti-money laundering, and more costs associated with that.

 

The World Bank said in an assessment of Lebanon’s financial sector that our capital markets are weak and should be developed by, among other things, growth driven by non-bank financial institutions and incentives for investment funds domiciliated in Lebanon. From where you are standing, is that realistic?

In Lebanon? Not yet.

 

The development of the Lebanese capital market, from what you are telling us, is not a very hot short term issue.

How can it be, with the situation the country is in?

 

So if the World Bank says there should be more efforts to increase the supply and demand of securities, or more mutual funds, or initial public offerings by more of the regulated entities such as unlisted banks and insurers, what do you make of that?

In principle it should [happen] and in absolute terms, [the development of our capital markets] has to be done in this way. What the World Bank wants is what we want. Don’t you think we want a bigger stock exchange? You can have good returns on Lebanese Eurobonds and the risk is limited and the country is very well controlled in terms of the banking and financial sector. Don’t you think we want to be active and create something? But we have a problem, and it is political and regional and this is what is stopping us. The problem is not local anymore. It used to be local, but what is happening today is beyond us.

 

Knowing that there are many problems of regional and wider scope that no one in Lebanon can control or remedy, what is the biggest problem for wealth management in Beirut today that you can solve?

Transparency and knowing what’s happening. Being clear and transparent so that you know what are the risks at all levels and before investing or doing anything you would know that this is the added value.

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FinanceWealth management

Lebanon’s capital markets

by Livia Murray
written by Livia Murray

This article is part of an Executive special report on wealth management and private banking. Read more stories as they’re published here, or pick up September’s issue at newsstands in Lebanon.

With the lack of active capital markets, banks have as of yet provided the largest source of outside financing to private companies, resulting largely in a lending monoculture. Yet, their conservative lending policies dictate a disproportionate amount of collateral on loans, leaving much of the market financially underserved. In most economies, capital market and traditional banking activities complement each other when financing companies. There is little doubt that the proper and rigorous development of capital markets would equally benefit the Lebanese economy.

Historically weak capital markets

Despite the fact that Lebanese companies across all sectors are highly underfinanced, the development of Lebanese capital markets throughout the years has not been treated with the utmost priority. With various draft laws surfacing to regulate the capital markets as early as the 1990s, it was not until 2011 that the Capital Markets Law was passed (along with the Insider Trading Law on the same date), in a move that would create the framework to establish proper regulations.

Before the passage of this law, capital markets were regulated as a peripheral activity from a department within Banque du Liban (BDL), which would approve new financial instruments before they were released, and supervised by the Banking Control Commission (BCC). The most recent World Bank report on Lebanon’s financial sector, published in 2013, noted in its assessment of Lebanon’s capital markets that this supervision focused on prudential issues — consistency with standards within the various organizations — largely overlooking market conduct.

This under-regulation compounded the inactivity of Lebanese capital markets, already shaken by a civil war, ongoing political and security instability, skeptical investors, as well as reluctant owners of family businesses who were not entirely sold on the idea of opening their companies to outsider ownership and scrutiny.

The most striking example of market inactivity is today’s Beirut Stock Exchange (BSE), the country’s sole securities market. With a mere 11 companies listed — most of which are financial institutions — it had an average daily traded volume of 230,000 shares over the past three months (May–July 2014). Although set up in 1920 as the region’s second stock exchange after Egypt, BSE activity pales in comparison to a genuinely active stock exchange such as the Dubai Financial Market which saw a 50-day average volume of 619 million shares as of mid-August. Until the 2011 Capital Markets Law placed it under the mandate of the Capital Markets Authority (CMA), the BSE was self-regulated under the supervision of the Ministry of Finance.

The CMA: A credible regulator?

The Capital Markets Law of 2011 called for a handing over of all regulatory duties to and for the establishment of the CMA. Within the CMA, the law called for a board, secretariat, capital markets control unit and sanctions committee. The mandate of the CMA includes “organizing and developing capital markets in Lebanon and promoting their use by investors and issuers alike,” “protecting investors from illegal, irregular or unfair practices, including the prohibition of direct or indirect insider trading,” and “sanctioning administrative violations of this law.” This law was the most inclusive and detailed document on capital markets thus far, and according to Chadia El Meouchi, managing partner at Badri and Salim El Meouchi law firm, it is of “high standards.”

Once the CMA’s board of directors was selected a year after the law was passed in July 2012, it took them another nine months to completely take over activities from the BDL as capital markets regulator. “You can’t just get into the market, suddenly create a new authority and start spreading new rules and laws and regulations in the market,” says Firas Safieddine, vice chair on the board of the CMA, speaking of the delay.

While the capital markets control unit has been set up to supervise the market, neither the sanctions committee that the law calls for nor a separate capital markets tribunal have been set up because “they require ministers’ nomination followed by cabinet approval,” according to Safieddine. This creates something of a split situation whereby the CMA has some real and some not fully realized powers. The agency has teams working on licensing of financial products and on supervising both the business and market conduct of various institutions, but the functions of sanctioning and filing charges over violations have not yet been fully established. Until the sanctions committee is staffed, the CMA relies on other bodies to assist in legally executing these oversight functions. “We can revoke a license, we can send letters of warnings … [but] we currently fall short of having proper sanctioning,” says Safieddine.

A long-term failure to implement the sanctions committee could make the CMA border on irrelevancy, but this is a remote danger and the committee’s absence, according to El Meouchi, so far does not cripple the regulatory efforts. “It definitely hinders [the operation] from a legal perspective because you don’t have the body in place to enforce the regulations,” she says, but adds that in most countries “there is a transition period for companies to get used to [new regulations], and people will usually not get sanctioned during a transitional period, because they will give time and adaptation for the market to get used to it … And then by that time hopefully the committee will be in place.” She adds that for any new law there needs to be a learning curve, where the authority gives warnings rather than sanctions directly, and that Lebanon was only at the beginning of the learning curve.

The CMA is in the process of updating and releasing new regulations. They released 16 regulations so far which govern financial markets including disclosure policy, crowdfunding, insider trading, derivatives, securitization and collective investment schemes, as well as regulations concerning financial institutions and the suitability of people selling financial products. On this end, “we don’t have to go back to parliament and sit 10 years before a new regulation comes out. We are free to create our own regulations when it comes to capital markets,” says Safieddine. “We came in, we rewrote all the regulations that existed. Today we are drafting new, proper regulations, in collaboration with the World Bank. We’re writing regulations with the market, these regulations are best business practices.” Currently, every new fund or financial instrument has to get their approval before it can be released on the market.

The CMA is operating on a one-time contribution from the state budget of LBP 15 billion ($10 million), but are supposed to sustain themselves in the future with contributions imposed on listed companies, charges and fees for licenses, requests and submission, as well as profits from the stock exchange and, of course, aid and donations. So far they have spent about $3 million according to their annual report, which also estimates that they will be down by a total of about $6 million by the end of 2014. The remaining $4 million “will keep us going for another year or two,” according to Safieddine, though it is debatable whether this will be enough time to build up a capital market strong enough to sustain their activities.

Next tangible steps

The regulations are a first step to developing capital markets, but following suit is the question of supply and demand. For the development of active capital markets, the next steps include getting more companies to list and attracting the attention of more investors. While the World Bank’s most recent survey of Lebanon’s capital markets proposes a plethora of sweeping recommendations such as creating more appetite for institutional investment through insurance companies or by creating a national social security fund, stakeholders have proposed a few modest and tangible steps that could be taken at this time. The Capital Markets law calls for the BSE to be turned into a joint-stock company. This would provide incentive for the shareholders to increase activity because it would be run as a for-profit business. “Once you have a joint-stock company, you would have a board of directors and a CEO that would run it properly,” says Safieddine. “We [currently] have a stock exchange that is a government institution, that has a board without a CEO… So the demand for participation or investing in the stock exchange was by default, by the nature of the setup,” he adds.

Ghaleb Mahmassani, the president of the BSE, is equally eager to see the stock market turn into a joint-stock company. He tells Executive that the BSE has prepared a roadmap for this change but it is awaiting a decision from the council of ministers. “We hope that once fully privatized, the trust of operators and investors will increase and will help and boost other companies to register,” he says.

Other options to increase supply on the stock exchange include listing government-owned companies, as well as creating incentives for family-owned companies to list. El Meouchi proposes this be done through tax incentives, such as providing a tax waiver that would make it more attractive for companies to list.

While the supply and demand issue is sometimes regarded as secondary after the regulations, it will be of more and more relevance over time. And while Lebanese capital markets still have a long way to go before the regulation mechanisms are in full force, these beginnings are certainly a step in the right direction.

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FinanceWealth management

The international edge

by Thomas Schellen
written by Thomas Schellen

This is the first installment of an Executive special report on wealth management and private banking. The rest of the report will be published here over the coming week.

It should not be surprising that combinations of Swiss and Lebanese virtues have a lot of potential for profitable relationships, including some that are taciturn to the point of being almost clandestine. Private banking is first among them. Although the business is as old as banking itself, private banking would never have become what it is today — namely a business model built from confidentiality, asset management fees and ultimate skill in pampering the rich — had it not been for people like the ultra-discrete Edmond Safra moving from Lebanon into the world and for others walking in his footsteps. Union Bancaire Privée (UBP), the Geneva wealth vault of Beirut born Edgar de Picciotto, a Mizrahi Jew like Safra, is a supreme example.

In building his private banking universe, Safra circled the world from Beirut to Milan, São Paulo, Geneva, New York and back to Geneva. His path evidences that, while private banking always went across borders, it had morphed into a veritably global banking play already in the ’60s and ’70s of the past century.

From this perspective, there is nothing unnatural about the fact that international private banks beat the asphalt of downtown Beirut in search of business to take to their parent offices in, mainly, Geneva. This financial invasion force includes Swiss providers Credit Suisse, Crédit Agricole Suisse and UBP, which are licensed financial institutions, as well as UBS, which according to Banque du Liban is active via a representative office.

The local recipe

Their presence is a challenge to the assumption that private Lebanese financial assets should serve the Lebanese economy by being invested here. However, the story of managing wealth and development is neither this simple nor likely to change in the short or long term.

Crédit Agricole Suisse Liban, which resides in downtown Beirut’s Annahar Building, is actually seeking to expand its footprint in Beirut, says the financial institution’s chairman and general manager Peter Chamlian. Himself a Lebanese banker of Armenian origins, he sees every practical as well as fundamental reason for international private banks to be offering their services here.

On account of fundamentals, Chamlian’s rationale for the presence of international private banks in Beirut can be captured in one exhortation: diversification. “Private banking is a lot about allowing people to diversify their assets outside from where they are. It is my belief that one should not invest all his assets in one place,” he tells Executive, reasoning that in the context of our open global economy, international private banks provide avenues to diversify their assets beyond their geographic locations and areas of business expertise.

This is extremely hard to argue against, given the size restrictions that hamper the Lebanese economy as a sole or even partial destination of investments and also given that diversification as a concept is about as deeply entrenched in the history of wealth preservation as the idea of wealth itself.

In practical terms, being in Beirut simply allows the bank to better tap into Middle Eastern assets. “We consider the Middle East to be an important part of our business; it is an important chunk in terms of total assets under management [AuM], which are around CHF 44 billion [$48 billion] and the strategy is to continue to focus on the area,” says Chamlian. He concedes, however, that the non-availability of data precludes quantifying the size of the wealth management business of Lebanese banks and thus does not allow comparing the bank’s market position to those of other providers in the way it can be done in Switzerland.

He confirms that the regional base of high net worth individuals (HNWIs) has been contributing a growing portion to total AuM at CA Suisse, against a backdrop of the financial institution’s flat-trending AuM in the past two years. In regard to the Middle East based HNWI clientele, CA Suisse Liban collaborates closely with the United Arab Emirates based satellite office of CA Suisse. “We are sister companies and the presence of Lebanese in Dubai mandates that we cooperate a lot,” Chamlian says. He declines, however, to quantify the regional business volume and growth rates, citing group policy.

The decisive factor in making Beirut a viable business location for CA Suisse, however, appears to be the African and Latin American diaspora of wealthy expatriate Lebanese. This group comprises “easily 50 percent” of the bank’s business in Beirut, Chamlian explains. “When these people, who work for instance in Africa, earn money and want to preserve it, they tend to favor places such as Switzerland for diversification purposes. Lebanon is a very good hub to serve these people; we either visit them [in the countries where they work] or see them in Lebanon when they come here.”

While they seek to place money in assets that are located outside of Lebanon, members of the diaspora tend to visit Beirut regularly, making it beneficial for CA Suisse to have a physical presence here. An auxiliary factor for drawing business is that CA Suisse’s parent, France based Crédit Agricole Group, which claims 49 million customers, is a familiar name to many expatriate Lebanese who reside in francophone Africa. “We don’t meet people who have never heard of Crédit Agricole,” Chamlian says.

International advantage

In terms of locally based competition, the Beirut office vies for clients mainly against the handful of other international private banking names who have a presence in Lebanon. By contrast, Chamlian claims that Lebanese banks are not major competitors. He alludes that the international–local contest is somewhat unequal because on the one hand CA Suisse is a Europe based entity whose assets are outside of the country and thus the bank cannot offer the same deposit interest rates as Lebanese banks award to their private banking clients.

On the other hand, having the larger and more sophisticated structure of a Swiss bank, the wealth management products and portfolio reporting services that CA Suisse affords its clients cannot be fully matched by Lebanese providers, the banker maintains. “The quality [of reporting], with all due respect to Lebanese banks, does not compare. Portfolio valuations, monitoring and advice on their transactions that clients receive require sophisticated IT systems. Given the size of the market, local banks cannot place such big capital to have sophisticated IT as you find in Switzerland.”

Of course, having world class IT, whose services CA Suisse according to Chamlian hires out to some 20 smaller banks in Switzerland but not to a single bank in Lebanon, does nowadays not mean that a financial institute is sheltered from all vagaries of financial existence; and neither is there total safety in being a private bank based in Geneva.

Hard hits

Crédit Agricole Group, which already two years ago sold its Greek subsidiary Emporiki for €1 ($1.33) after incurring billions of euros in losses from the Athens based commercial bank which it had acquired for €2.2 billion ($2.9 billion) in 2006, last month again took a hit, to the tune of €700 million ($900 million), from the recent unexpected crumbling of Portuguese lender Banco Espírito Santo (BES). The French group wrote down its entire 15 percent stake in BES.

In terms of wealth management, the fallout from the global financial crisis has brought upheavals, reputation losses and forced consolidations upon the financial industry. Swiss private banks were no exception as shown in the example of UBP, which was hurt massively by the Madoff fraud. The bank recently reported figures indicative of a recovery, however, led by its octogenarian chairman de Picciotto who had come back from retirement to restore its fortunes.

Moreover, in a world where the hunt for wealthy tax evaders and violators of political sanctions — and their bankers — has become the favorite sport of the United States and numerous European governments, Swiss private banks have become high value targets, to the point that industry insiders are talking about an impending second wave of consolidations after player numbers already shrank 20 percent in the past five years.

Worlds and oysters

While the next recipe for private banking, also common in Switzerland, seems to be based on the well known paradigm toward concentration of capital, this should probably not be interpreted as a sign that private banking in places such as Beirut will breathe freer from foreign competition in any future. Asia is seeing the formation of new private banking centers, such as Singapore, and also from Switzerland there will be no lack of wealth management offers, including from players with historic links to Lebanon such as the Safras, whose J. Safra Sarasin Holding agreed just in April to take over Morgan Stanley’s private banking activities in Switzerland. The Basel headquartered J. Safra Sarasin private bank was formed in 2013 through the Safras’ acquisition of a controlling Sarasin stake from Holland’s Rabobank.

There is every evidence, then, that international wealth management is here to stay, with incremental rather than fundamental changes afoot. Yet that may not be enough to help with the global picture. Under the perspective of the ongoing big wealth distribution discussion, private banking is a cog in the overall machine that has in recent years functioned perhaps a bit too well for the preservation of capital, at least when one subscribes to the findings of Thomas Piketty.

Certainly, for all the wealth they manage, private banks appear outmatched when it comes to the question of fair distribution of wealth. Yet, from the perspective of a private banker such as Chamlian, HNWI clients and their wealth managers are in the end just as sensitive as anyone when it comes to doing stuff for others. CA Suisse, like so many financial institutions, has a philanthropic foundation that coincidentally did its first-ever project in Lebanon, he says, adding with a small sigh that such efforts are too often merely taken note of but not emphasized enough.

Correction: A previous version of this article mistakenly claimed that Union Bancaire Privée only operates in Lebanon through a representative office. The bank has recently established a financial institution. Apologies.

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Editorial

Hope is not a plan

by Yasser Akkaoui
written by Yasser Akkaoui

They say ignorance is bliss, so let’s indulge.

Let’s ignore that global temperatures are rising — albeit at a slower pace since 1999. Let’s ignore that springtime snow cover in the northern hemisphere has dropped 2 percent per decade since 1996. Let’s also ignore the possibility that an El Niño event this winter could make the ski season warmer than average in Lebanon. Finally, let’s not forget to ignore what we’ve all seen for the past few years — dirt paths snaking down from the mountaintop in Faraya in January. If we ignore the problem and hope for the best this coming winter, everything will work itself out.

Not buying it? Neither am I. The Ministry of Energy and Water, however, must be headquartered in a place where hopes and wishes are just as effective as sound policy and proper resource management. Consequences be damned, they’re drilling more wells to deal with the current water shortage, putting blind faith in the fact that — sure as the sun rises — it will rain this winter. And snow. In abundance. Unless it doesn’t. And then we’re in even bigger trouble.

I wonder how many elected officials take two trips to the roof each day to check how much water they have. I wonder how many look disappointedly at the trickle of state supplied water that comes for a few hours every other day. How many let the laundry pile up so they can use the toilet and wash their hands. How many worry about the quality of expensive, untreated, untested, privately delivered water as they brush their teeth in the morning. I wonder what they go without to afford a second water bill. I wonder if they even care.

It sure seems like they don’t. Water scarcity has always been an end-of-summer problem in Lebanon, yet plans to address the problem have only been haphazardly implemented. Our leaders monitor neither snowfall nor groundwater, yet try to convince us that some time in the future, they will be able to properly manage what they don’t measure. It is quite likely that this year is a portent of things to come, rather than an anomaly. Climate change is a reality. And while it is too early to predict exactly what it will mean for Lebanon, wise leaders would be preparing for the worst. Our leaders, on the other hand, seem content to do nothing while we all suffer the consequences.

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