Economics & PolicyLebanon's water crisis

Turn off the tap

by Matt Nash
written by Matt Nash

While some believe Lebanon houses the city where Jesus turned water into wine, most of the country’s residents today no doubt wish the government could miraculously do the opposite. Precipitation during the 2013–2014 rainy season was half the average, prompting widespread water shortages this summer. The government, however, has announced a plan: use less water and dig new wells — the latter of which may not help anytime soon.

In response to this year’s water crisis, the Ministry of Energy and Water is encouraging people to turn off their taps and conserve. How much water the Lebanese use each year and how much the ministry is hoping to save with its awareness campaign, however, remain a mystery.

“We don’t have accurate data,” says Randa Nemer, an advisor to Energy and Water Minister Arthur Nazarian. “But we know we’re using more than other countries per person because we pay a flat rate.”

Lebanon’s National Water Sector Strategy, approved by the government in 2012, notes that “around 10 percent” of water connections in Lebanon are metered and “volumetric tariffs based on real consumption are still not applied.” This means people are paying the same price for water no matter how much they use, so there is no financial incentive for conservation. For irrigation — which the strategy says “is the largest water consumer” — there is “very limited metering, preventing volumetric charges.”

While the strategy notes the need to “introduce and implement new tariff strategies,” it offers no further details and, even if it did, executive and legislative paralysis means that authorities are unlikely to address this issue before winter rainfalls (hopefully) replenish water supplies.

[pullquote]“If we drain our aquifers and if we have another year similar to this year, we will be draining our aquifers to 2 to 5 percent”[/pullquote]

Public mismanagement

Much like the electricity sector, Lebanon’s water sector is poorly managed. Since at least 2007, successive governments have been studying a new water code to improve management of the resource, but a draft of the code is still languishing with the Council of Ministers. Mahmoud Baroud, director of oversight at the Ministry of Energy, tells Executive that the draft must first be rewritten to reflect comments from the various ministries that have reviewed it before being formally approved by the cabinet and then sent to parliament for further discussion and, potentially, approval.

Speaking at the launch of the water conservation awareness campaign, Alexis Loeber, head of the cooperation section of the European Union’s delegation to Lebanon, said the EU was hoping to help Lebanon save water, not increase supply. The EU is footing the campaign’s €180,000 ($243,000) bill via a grant. The “shocking awareness campaign,” as a slide from the launch event described it, includes TV commercials, radio spots, billboards and educational pamphlets with water saving tips. Nemer described the campaign as the beginning of a “long term” plan to educate the public on water conservation.

In the short term, however, water scarcity will persist. Precipitation during the rainy months of 2013–2014 was 50 percent below the average of the 800 millimeters Lebanon normally receives. In a good year, water shortages begin in August as the water deficit is around 100 to 300 million cubic meters. Nemer wouldn’t say what the expected water deficit is this year.

Aside from the awareness campaign, Nemer tells Executive that the ministry is taking some steps to regulate private water suppliers. She says the Ministry of Energy sent a letter to the Ministry of Interior in the second week of July asking for a list of all the private water suppliers as well as the location of the wells they’re pumping water from. While she says the Ministry of Interior has not yet replied, if and when it does, the Ministry of Energy may “see if we can take over the wells” to either connect them to the national water grid or pump water and sell it to consumers.

Nemer notes that “preliminary information suggests that the majority of the wells are illegal.” Asked how many illegal wells have been drilled in the country, she says that the Ministry of Energy conducted a survey sometime between 2011 and 2013 — she could not confirm the exact date — and found there are at least 65,000, though she cautions that this is a “tentative figure.” She says there are 20,000 legal wells in Lebanon.

[pullquote]the Ministry of Energy conducted a survey sometime between 2011 and 2013 … and found there are at least 65,000 [wells][/pullquote]

Drilling more wells

Along with potentially commandeering some illegal wells, the ministry announced a plan in late July to dig more state-owned wells. Speaking to the press the day of the announcement, Minister Nazarian said the new wells are expected to produce 40,000 to 50,000 cubic meters of water per day. Nemer tells Executive the ministry has already “identified a couple of potential areas” in which to drill, and she says work will begin in the second to last week of July. Executive went to print before being able to verify whether or not work had actually started.

Both plans, however, may not bring water to residents before the rains are due to start again.

“At this point, in two months, to connect the wells is not an easy task,” says Nizar Aawar, a water expert with the Civic Influence Hub, the self-described lobby group behind the controversial Blue Gold plan. Proponents of the plan tout it as a way to give civil society and the private sector a more robust role in Lebanon’s water management, but critics deride it as an attempt to privatize the country’s water. On top of the connection problem, Aawar notes that more drilling will only put further strain on the country’s aquifers. “If we drain our aquifers and if we have another year similar to this year, we will be draining our aquifers [down] to 2 to 5 percent,” he says. Though we don’t have data or what level we are at today, the shortage of precipitation is putting a strain on the aquifers. Aawar explains that in a normal year, with average precipitation of 800 millimeters, the state estimates 650 million cubic meters (MCM) of water fill the aquifers. Since the 2013–2014 rainy season saw 50 percent less precipitation than average, there is only around 325 MCM for use in the aquifers this year. Draining inland aquifers increases the likelihood that contaminated wastewater — only 8 percent of which is captured and treated in Lebanon, according to the Ministry of Energy — will pour in, and draining coastal aquifers increases the chances of sea water seepage.

While people in Lebanon may be angry at suffering through the rest of summer and fall until rain and snow return, Nemer says that the shortages will, hopefully, only drive home the campaign’s point that households have to start using less water.

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Stars Communications' Verdun branch
Business

A world connected (to the US government)

by Jeremy Arbid
written by Jeremy Arbid

Last month the United States Treasury Department singled out local company Stars Group Holding for alleged ties to Hezbollah, adding the company, several subsidiaries and associated individuals to its ‘specially designated nationals’ (SDN) list. As part of its accusation, the Office of Foreign Assets Control (OFAC) said that these entities operate as a procurement front, purchasing sophisticated electronics for Hezbollah to use in the ongoing conflict in Syria.

“With disturbing reach far beyond Lebanon, Hezbollah’s extensive procurement networks exploit the international financial system to enhance its military capabilities in Syria and its terrorist activities worldwide,” David Cohen, the Treasury’s undersecretary for terrorism and financial intelligence, said in a statement released on July 10.

Based in Beirut, Stars Group Holding is one of Lebanon’s larger mobile phone distributors with branches in major shopping centers throughout the country. In addition, a number of Stars’ subsidiaries — in Lebanon, China and the United Arab Emirates — were also named by the Treasury Department.

In a press release on July 10, US State Department spokesperson Jen Psaki alleged that Hezbollah “relies heavily on front companies such as Stars Group Holding” while directly fingering the group as a covert purchaser of “sophisticated electronics and other technology from suppliers around the world, including a range of engines, communications, electronics, and navigation equipment” for Hezbollah.

The company disputes these allegations. “We don’t have any connection to Hezbollah, financial or otherwise, we’re just a general company,” explained Ayman Ibrahim, general manager of Unique Stars Mobile Phones, a subsidiary of Stars Group Holding located in Dubai.

Hezbollah’s media office declined to comment when reached by phone.

Practical Implications

For Stars Group Holding and the designated affiliates, the accusation may have drastic consequences. “It will make it very difficult for Stars Group Holding. It will affect their ability to operate,” explained Abbe Jolles, a criminal defense and international human rights litigator based in Washington.

This will be accomplished indirectly. “Most companies will stop working with them, and I would not be surprised if local banks stopped dealing with them,” explained Ibrahim Warde, an expert in underground financing at Tufts University.

[pullquote]“Most companies will stop working with them, and I would not be surprised if local banks stopped dealing with them”[/pullquote]

Just how drastic a change this will be for Stars isn’t yet clear, but their access to US financial markets will be completely blocked. How the group will react is still unknown. The company’s president and CEO, Kamel Amhaz, did not respond to interview requests for this article.

Intermediary companies might limit their exposure by cutting ties with the company. “It could affect insurance and transportation,” explains Warde. “Quite simply anyone doing business with them might be sanctioned; they normally will stop doing business right away.”

Long fingers of the US

Being placed on the SDN list blocks designees from the American financial system — the reach of which is far and wide. The US is the world’s dominant financial and payments center, with a huge share of payments and financing routed through the country.

“It’s difficult to stay out of the American financial radar and, consequently, [SDN listing] cuts companies from global financial markets,” explained Warde. Western Europe has typically been very cooperative in complying with American sanctions, said Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics and former deputy assistant secretary at the Treasury Department. But “in China or Russia, America’s influence is not so great,” Hufbauer said.

With subsidiaries in Dubai and China, Stars Group Holding may not be completely affected and could actually maintain access to financing. “Those countries where the reach of American law is not quite as significant will benefit,” added Warde.

Lebanese financial institutions

While “these designations do not affect the banking sector at all,” according to Makram Sader, secretary general of the Association of Banks in Lebanon, they are enforced through the country’s banks.

Because of this, the designation of Stars Group Holding raises corollary questions as to whether Lebanese banks are complying with American sanctions. In 2012 Banque du Liban, Lebanon’s central bank, issued Circular 126 to “ask Lebanese banks to respect all sanctions applied by their correspondent banks,” Sader explained.

When banks do not comply with US sanctions, the punishment can be huge. BNP Paribas, a major French bank, admitted guilt in June for evading American sanctions against entities in Iran, Cuba and Sudan. The bank will pay nearly $9 billion in fines to the US government — a judgment that sent a clear message to financial institutions around the world.

[pullquote]OFAC designates entities to the SDN list without a court ruling and it does not publish evidence to justify its decisions[/pullquote]

In mid-July FBME, a Lebanese-owned bank chartered in Tanzania but operating primarily in Cyprus, was accused by the Treasury Department of facilitating financial activity for transnational organized crime and for Hezbollah, receiving the label ‘primary money laundering concern’. Cyprus’ central bank swiftly seized control of the bank’s operations.

In 2011 the Treasury Department designated the Lebanese Canadian Bank also as a ‘primary money laundering concern’. The bank was subsequently shuttered and sold off to a competitor in a deal arranged by BDL. The specter of another such fiasco has put pressure on Lebanon’s banking sector to hew closely to US Treasury rules. “Lebanese banks comply fully with international sanctions, especially US sanctions,” Sader reiterated.

Difficulty of delisting

OFAC designates entities to the SDN list without a court ruling and it does not publish evidence to justify its decisions. “We don’t know what they’re talking about; we’re double checking everything. Where is the proof? Show us the proof,” Stars’ Ibrahim protested.

Stars Group Holding will not receive any proof from OFAC. “The burden is really on the company to prove it is not doing it,” said Hufbauer. OFAC’s standard is a determination that there is ‘a reasonable basis’ to believe activity is occurring that merits sanctions.

“You have to recognize that [the decision to name entities] to the list is based on intelligence that will not be revealed,” Hufbauer added.

According to Erich Ferrari, a Washington based lawyer specialized in OFAC sanctions, to be removed from the SDN list the entity must present its case to OFAC arguing either “that the designation was made by mistake; or that the circumstances underlying the original designation no longer exist and as such the designation should be removed.”

 This is a strenuous and expensive process. Disproving an OFAC accusation often requires “terminating business and personal relationships, providing financials to track money flows over a prior period [of] time, and instituting compliance programs for the SDN’s businesses to protect against money laundering and illicit financial activities,” explained Ferrari.

But that is just for sanctions to be reconsidered. OFAC must then review the information and follow up with the designated entity. “They rarely allow in-person meetings,” added Ferrari. Even gaining access to legal representation is an arduous process. According to Jolles, a lawyer can correspond with a SDN, so long as they’re not also on the terrorist watch list. But legal representation requires OFAC authorization “indicating terms under which the lawyer can engage in representation.” The lawyer must also provide quarterly reports of the legal fees paid by the SDN, Jolles says, documenting legal services rendered.

It’s a timely process further compounded by the limited manpower employed at OFAC. “The bureaucracy of OFAC has 300–400 people, which may sound like a lot but they have a lot of backed up cases,” said Hufbauer.

“There are a lot of companies that don’t receive attention because of this bureaucracy, so they must have done something big to draw the attention of OFAC,” claimed Hufbauer.

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Real Estate

High price madness

by Karim Makarem
written by Karim Makarem

Residential development trends are catchy. Companies in Lebanon very often adopt whatever seems to be working best or whatever is applied most on the residential market. Why reinvent the wheel, indeed? While this maxim may hold true in many instances and certainly simplifies life, the underlying reason behind a particular strategy may be diluted or entirely lost in the mechanical process of copy-pasting.

This is true for the strategy applied to price increments per floor in recently built residential buildings. Most developers in Beirut now follow a standard formula: increase the square meter asking price by $50–$100 per floor. In some exceptional cases, price increments can range from as low as $25 all the way up to $200 per square meter per floor.

Lower floor, lower prices

It is understandable that the first two floors of a building should have the lowest selling prices as they sit just above the noise and dust of the street and have very constricted views, poor ventilation and less natural light. But what exactly determines price increments for the subsequent floors?

Some very general patterns can be discerned. For instance, the poorer the quality of the area in which the residential building is located, the lower the increment. Asking sales prices in projects in middle market areas such as Bachoura, Tariq al-Jdideh or Fassouh usually increase by $25–$50 per square meter per floor.

On the other hand, some residential towers in prime, highly prized areas, such as Beirut Central District or along the Ain al-Mreisseh Corniche, increase their prices by $100–$200 per square meter per floor.

Unreasonable prices

The main drawback of systematically increasing prices by a fixed amount per floor starting from the first floor is that the upper floors become exorbitantly expensive. If prices increase by $100 per square meter per floor, then the per square meter sales price of an 11th floor apartment is $1,000 more expensive than the sales price of the first floor apartment.

The problem is that sometimes this difference in prices is not justified. It is true that the upper floors of some buildings offer better quality and unobstructed views. However, if the difference in quality is not substantial, then an additional expense of $1,000 per square meter is unreasonably steep to the potential buyer.

An increase of $100 per square meter translates into a total of $15,000 for a standard 150 square meter apartment. Supposing that the apartment in this example is listed at a sales price of $2,200 per square meter, then this additional $15,000 would be almost equivalent to the registration fees of 5 percent — not a negligible amount.

More rational calculations

Price increments per floor level should instead follow a methodological reasoning. In the first place, the increase in prices must be justified by two basic premises: the improvement in the quality of the view from the upper floors and the quality of the neighborhood.

A more rational strategy would be to group floor levels together based on the quality of the view they offer and increase prices from one group to the next instead of increasing them from one floor to the next. For instance, if the view on the 6th floor is of the rooftop of the buildings across the street, but the 7th floor has an unobstructed view of the sea, then the 2nd to the 6th floors should have the same selling price and an increment should be applied between the 6th and 7th floors only.

Increments must also be coherent with the general state of the neighborhood. Regardless of the improvement in the views at the upper floors of a residential tower in a low end neighbourhood, for instance, an increment of $100 per square meter per floor can never be justified. With the resulting large budgets on the upper floors, buyers could purchase a less expensive property in a neighborhood of much better quality.

By systematically applying a fixed price increment per floor, developers place their upper-floor apartments out of the financial reach of customers buying in a specific area. And such overpriced apartments risk remaining vacant for years.

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Special Report

Higher regulation

by Jeremy Arbid
written by Jeremy Arbid

The legal framework governing real estate in Lebanon is convoluted. While several administrative bodies are tasked with applying the multiple laws and decrees that outline regulations for real estate projects in the country, the sector is guided by no strategic vision. Regulations are either favorable to developers or riddled with loopholes. Frequent changes in the regulatory framework over past decades have allowed a more intensive exploitation of both land and built properties, as modifications in the law increased building allowances and facilitated foreign access to real estate investment.

The city’s most recent construction boom has dramatically changed its skyline. Whereas high-rise buildings were still fairly atypical in Beirut until the 1990s, a brief look at the city today, and a survey of projects recently or currently under construction, shows that large scale projects have become common. A similar phenomenon occurred in retail as well, with ever-larger malls — such as Beirut City Center, which opened in 2013 — now competing for footfall with traditional markets and street-level shops.

Patchy planning

Beirut’s urban planning still follows a master plan embodied in decree 6285/1954, loosely based on a vision laid out by the French urban planner Michel Ecochard. The decree, which remains the city’s planning reference, stipulates zoning regulations and a land parcel’s total exploitation ratio, as well as how the project under development fits in with its surroundings (e.g. distance setbacks, façade depth and width). Planning, however, has been left largely unmanaged by the government, despite several administrative bodies tasked with intervening, adopting the master plan and revising the construction law. Nonetheless, the plan, subject to minor amendments in 1955 and 1973, still technically applies to Beirut — except of course in the city’s central district, which is regulated by its own master plan, decree 5714 of 2001.

Other major Lebanese cities — such as Tripoli and Sidon — have their own master plans, Marwan Sakr of SAAS Lawyers tells Executive. A few municipalities have also adopted plans. And while the Directorate General of Urbanism within the Ministry of Public Works and Transport has studied numerous nationwide plans over the years, none has been adopted, Sakr says. This means that only 15 percent of Lebanon’s surface area is subject to any sort of zoning regulation, Sakr adds.

legal evolution

One of the clearest indicators of a trend of easing restrictions on large-scale projects has been the increase of building allowances, allowing for more built-up area (BUA) on a given plot of land than was previously permitted. This has mainly happened through changes to construction law.

Lebanon’s original construction law, number 61 from 1940, was designed in part to encourage a compact urban fabric in the city of Beirut. For example, it stipulated that buildings in Zones 1 and 2 — central Beirut, see map next page — could not rise above 26 meters, about eight stories. Modifications to Beirut’s zoning regulations through repeated revisions to the construction law have largely altered the urban fabric of Beirut to allow for higher density, while alterations of the implementation framework of the construction law have eased restrictions on large-scale projects.

Since the adoption of the original 1940 law, revisions have been made in 1971, 1983 and 2004. Construction law 646/2004 and its 2005 implementation decree 15874 significantly altered regulations by allowing developers more BUA and fewer height restrictions. The most recent legislation allows for more intensive construction but also codifies higher safety, cultural preservation and environmental standards.

The law is arguably more developer friendly than its predecessors. Sébastien Lamy-Willing, an academic expert in Lebanese real estate law at the Académie Libanaise des Beaux-Arts in Beirut (ALBA), explains that the 1983 law allowed developers to subtract parts of a building’s built-up area from the total exploitation area, or ‘building envelope.’ These deductions resulted in developers having around 8 percent more BUA than they would have otherwise been allowed. The 2004 law increased deductions — developers can subtract staircases, maid’s rooms and double walls from the calculation of a project’s BUA. By Lamy-Willing’s estimates, the new law lets developers add around 20 to 25 percent of BUA to a project’s total exploitation area.

Whether fairly or not, these additional areas are still charged to the apartment buyer in full, misleading purchasers on the usable square meters they are buying.

convolutions

The Higher Council for Urban Planning (HCUP), formed in 1963 through decree 13472, approves the plans and regulations for building laws and approves requests for high-rise buildings and large projects, while the Directorate General of Urbanism oversees urban planning. The HCUP is composed of 12 members and presided over by the Director General of Urban Planning (DGUP). Its members include the directors general of select ministries (interior and municipalities, public works and transport, justice, and environment), representatives from several institutions (such as the Council for Development and Reconstruction), and urban planning specialists. The body advises on urban planning projects, regulations and large-scale development projects. Since the HCUP is chaired by the Director General of Urban Planning, Lamy-Willing argues this confuses the decisionmaking process: is the Director General signing on behalf of the DGUP or as the chair of the HCUP?

The current law allows building constructions in Beirut to reach 50 meters in height — about 15 stories — and defines the shape of the exploitable ‘building envelope’ on a plot of land. If the project is to exceed these regulations then the developer must apply for an exemption. The HCUP grants exemptions in two instances: (i) if the developer has four times the area of the plot of land of the project and stays within the building envelope as specified

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Special Report

Can Lebanon attract more Brazilian investment?

by Joe Dyke
written by Joe Dyke

One of the challenges that Foreign Minister Gebran Bassil has set himself is to encourage more investment from the diaspora. At a conference in May, Bassil made a bold appeal for those with Lebanese roots to invest in the country.

“The Lebanese people look for investment opportunities,” he said in a speech opening the event. “Did we give them offers, did we give them incentives? Don’t they deserve for the sake of sharing to be able to invest in oil and gas, electricity plans?” Bassil asked. In particular, he mentioned trade with Latin American countries as an area of potential growth — and a number of powerful Brazilians were in attendance, including Roberto Duailibi, one of the country’s top advertising executives.

Bassil’s commitment to Latin America appears extensive — while it has not been publicly confirmed, Executive understands that he will travel to São Paulo in July to encourage investment. Yet the challenge may be a daunting one — few Lebanese–Brazilians that Executive spoke to expressed an interest in opportunities in Lebanon.

Any moves made in this direction would almost require starting from scratch. Current trade between the two countries is around $350 million annually, according to the Lebanese–Brazilian Chamber of Commerce (LBCC) in São Paulo. While for Lebanon, with a GDP of around $40 billion, that is moderately significant, for an economy the size of Brazil’s — with  a GDP of over $2 trillion — that is smaller than small fry. This is made worse still by the unbalanced nature of the trade — around 95 percent is Brazilian exports to Lebanon, with key products being meat, coffee, glass and other foodstuffs.

This lack of trade is partly because of high barriers — Mercosur, Brazil’s free-market agreement with some Latin American countries, means there are fewer incentives to seek trade outside of the region. Crucially, it also includes protection on some industries, including, most notably for the Lebanese, wine and olive oil.

Alfredo Cotait, a former senator and head of the LBCC, has even put forward proposals for a free trade agreement between Mercosur and Lebanon. Asked if he is optimistic of it being passed in the medium term, he simply says, “No.” His deputy Guilherme Mattar puts it in more polite language. “We have to be [optimistic] even if rationally we know that it will be very difficult. Fighting for such a thing is already an accomplishment; we have to fight lost causes as these can evolve into another meaningful thing.”

For those Brazilians looking to invest in the Middle East, however, Mattar sees the small Mediterranean state as a perfect launch pad. “Lebanon can be a window to the Arab world, to make products fashionable or known among Arabs — provided that Lebanon is functioning and that there is tourism and the expatriates come back and bring back with them influences,” he says. “That’s where the omnipresence of the diaspora should play an important role.”

Yet there are also other problems that make it hard to attract Brazilians to invest in Lebanon. The first is clearly location and history. João Sayad, an economist and former senior banker, is proud of his Lebanese roots but says he would never advise companies from Brazil to look there for profits. “It is too far away. I don’t have a Lebanese partner that I trust and I don’t know anything about Lebanon — except that I love the idea of going [there on holiday]. Add to that civil war, new wars, and it would make it very risky.”

There are also differences in the economic structures of the two societies, with Lebanon’s small and relatively closed economy scaring off potential investors. Carlos Eddé is perhaps uniquely positioned to know the differences between the two economies. Having lived his whole life in Brazil, largely working in the private sector, when his uncle died in 2000 he was asked to replace him as leader of the Lebanese National Bloc party in Beirut. Initially he refused, but after some cajoling he acquiesced — a decision that he appears to have had second thoughts about.

“I took on the challenge because I thought that a certain amount of rationality was needed in Lebanese politics. But I have realized now after 14 years that most rational people have left the country through emigration and what we are left with are people who put their emotions above their personal, family and national interests and people who are so linked to the past they are unable to look at the future. They think politics is all about settling old scores and not about making society better for the next generation.”

This attitude also goes for the economy. He contrasts the static, semi-feudal economic structures in Lebanon with the can-do attitude of the Lebanese in the diaspora — who have prospered economically across the world. “When they [the Lebanese in the diaspora] come here they see that priorities are different. When you go to Brazil you focus, which is why the Lebanese are so successful outside Lebanon and so unsuccessful here.” A third factor undermining potential trade has been Lebanon’s checkered history.

In many cases it is a matter of once bitten, twice shy — with Lebanese-Brazilians having tried out the market and found it unreliable and unpredictable. Eddé points out that many powerful businesspeople have previously invested in the country of their ancestors, only to see it disappear down the drain. “A lot of Lebanese who wanted to help during the war and postwar gave money to associations. Then they discovered it was a scam — that all this help they were giving was not going where it was intended,” he says. “And those that invested in business were robbed, simply put.”

Mattar agrees that security problems have undermined the work of the LBCC. “In early June 2006, we brought a business delegation to Lebanon. They were excited and were [planning to do] a lot of business. Then a few weeks later, boom!” he says, referencing the start of the month-long war with Israel that devastated the country’s economy. “Whenever we say ‘now it will work,’ something tragic happens.”

Giving, not investing

Perhaps more realistic than pushing for investments is to encourage philanthropy. Riad Yunus has an impressive enthusiasm for Lebanon. The doctor is one of Brazil’s top cancer experts, having published over 130 papers on the topic, yet he still finds time to raise money for better health care in the country he lived in until 1976.

His current plan is for a $2.5 million radiation center to be established in Chtaura. The land has been donated by a Lebanese expat, while the money for construction and two years’ running costs have already been raised from amongst the Lebanese–Latino diaspora. “Everybody with cancer will be treated completely for free; you just go there, and if you need radiation therapy, you get your radiation therapy.”

The problems, however, are politics and regulations. A succession of health ministers have supported the idea but not stayed in their posts long enough to get it passed. Yunus is hopeful that when the country eventually confirms its new president, construction can begin within a few months. Yet he points out that in order to assuage the doubts of Lebanese–Brazilian donors, the money cannot be seen to go through the Lebanese state. “It will be absolutely transparent — I know that Lebanon people are sometimes afraid what they will do with the money. It will be controlled from Brazil; every cent will be clearly accounted for.”  Lody Brais and her sister Nouha are also tireless campaigners for Lebanese–Brazilian connections. The head of the Lebanese–Brazilian Cultural Association, Lody has organized dozens of events to celebrate Lebanon’s role in Brazil’s history — including a major role in former President Michel Sleiman’s visit to Brazil.

She has already put in place plans to bring Lebanon’s new president to the country — irrespective of which candidate is appointed. “I have talked with Aoun’s people, with Gemayel’s people. I have people working on it and I have been working on it for three months. Whoever comes in, I want to bring them here,” she says. Yet she believes there has been little attempt by Lebanese leaders to create a meaningful lobby to connect the diaspora with the country of their forefathers — something that could help encourage both investment and charity. “[Many of] the Jews in the US put millions a year into doing this [with Israel]. But I am doing this on my own,” she says. “We are working hard here but there is no one I can work with in Lebanon.”

What distinguishes these two campaigners, however, is perhaps that they are both first generation — Brais moved when she was five, Yunus when he was 14. Among the second and third generation, the connection with the physical state of Lebanon is often looser.

Bassil’s challenge, therefore, appears a daunting one — faced with a diaspora who have less interest in their region than their forefathers and a country with continued political, security and economic problems, it will take far more than a few conferences to reverse the trend.

Eddé, who has spent over a decade trying to encourage Lebanese–Brazilians to engage in Lebanon, believes hopes for more diaspora engagement are “wishful thinking” until Lebanon changes itself. “When they come here, they realize the state of mind, the situation and the internal disputes. They say, ‘Well, I couldn’t help.’”

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Finance

The irrational hand of the market

by Thomas Schellen
written by Thomas Schellen

The third trading week in Ramadan was the third week of near universal index gains in the securities markets of the Middle East and North Africa. Volumes were mixed, with the anticipated summer slowdown happening in some markets but certainly not all around the region. The indices of the ASE and BSE in the Mashreq and of Saudi Arabia’s Tadawul receded by small margins — but Dubai produced yet another crazy show.

Index performance, week 29

Kuwait broke out of summer lull with comparatively high volumes and an intraweek spike driven by small caps but settled on a low gain in its weekly balance after profit taking on Thursday. Bahrain, albeit on low volumes, advanced to its highest index reading in four years before closing week 29 a tad below this peak. Oman’s MSM 30 set a new six-year record, narrowly topping the previous high reached in January 2014. The Oman Daily Observer reported that banking stocks were driving index gains there.

The TASI traveled sideways as trading activity fell in line with summer volumes and earnings forecasts. Sabic, the market cap leader on Tadawul, reported 7 percent higher earnings for the second quarter when compared with Q2 2013. Amounting to $1.72 billion in quarterly profit, Sabic results represented no departure from expectations, but some Saudi real estate and mid-cap petrochemical companies delivered lower than expected growth when reporting during the week.

But then, the volatile trio

Indices for Dubai, Doha and Abu Dhabi exhibited a third week of gains that also marked a third week of some investors’ faith in these markets that was simply confusing. Given that the three bourses — with no important changes in underlying economic and overall corporate performances — rose just as precipitously in July as they had waned in June, the three markets currently appear to be neither bull nor bear but just irrational.

This was reinforced by the fact that it was once again a page in the Arabtec narrative which provided the main impetus on the weekly performance of the DFM General Index and its 7.2 percent gain. Incredibly, buying of Arabtec shares shot up not on confirmed news but on an unconfirmed media ‘scoop’ when Bloomberg reported possible talks about a share deal between Arabtec’s biggest institutional — if one wants to call it that — investor, Abu Dhabi-controlled Aabar, and the company’s biggest individual shareholder Hasan Ismaik — until last month, Arabtec’s chief executive.

Rumors of such negotiations appear to have already been circulating earlier in the week and Bloomberg cited nothing more than a single uncorroborated source — “a person with knowledge of the situation” — but the hypersensitive market responded with demand that translated into an unbelievable one-day gain of over 13 percent in Arabtec’s share price. Because Arabtec did not issue a timely statement in response to the rumor, UAE market regulator SCA pulled the emergency brake surprisingly fast, and on July 17 suspended the stock from trading until the company provides clarification.

As Aabar produced a response but no clarity on the next trading day, July 20, the contractor’s nasty tale is certain to have further chapters written during this summer.

[pullquote]…the three markets currently appear to be neither bull nor bear but just irrational[/pullquote]

Meanwhile, at least one Dubai-listed company could not prop up its repute, but certainly its earnings, with a healthy contribution by the extremely high turnover in Arabtec stock in recent months. DFM.CO, the listed operator of the Dubai Financial Market, at the end of week 29 disclosed a 263 percent improved net profit of AED 252.5 million ($68.7 million) for the second quarter of 2014 when compared with Q2 2013. For the first six months in 2014, the operator, which derives its revenue mainly from trading fees, reported a year-on-year 384 percent net profit hike to $127.3 million.

Broad complacency

Taking a look at global scenarios these days speaks to the fact that economic faith is neither rooted in perfect reason nor free from existential risk. When United States Federal Reserve Chair Janet Yellen presented the Fed’s Semiannual Monetary Policy Report to the US Senate’s banking committee and the financial services committee in the House on July 15 and 16, she delivered a series of not particularly remarkable statements that told the government and the markets that the economy was developing according to plan as per the Fed’s objectives of “maximum [American] employment and price stability,” the, later referring to the 2 percent US inflation target.

Apart from very minor points on small biotech and social media stocks which were not part of her spoken testimony, she said nothing that the markets, judging by index responses such as a new record close on the Dow Jones Industrial Average on Wednesday, did not want to hear. Then, moving into the final quarter of her testimony, Yellen’s prepared notes entailed a particularly unremarkable sentence: “Of course, the outlook for the economy and financial markets is never certain, and now is no exception.”

The grave potential for uncertainty in the global economic outlook was confirmed while her chair in the hearing room was still warm. That was when some mad dog of war pushed a button somewhere in Eastern Europe’s relatively new crisis zone and murdered nearly 300 people traveling above in a civilian airliner.

Gold rose and equity markets shuddered upon news of the disaster over Ukraine and of the latest Israeli ground invasion of Gaza — but only for a single volatile day of 1-percent range drops in Dow and S&P 500. On Friday, the focus in US equity markets was back on better-than-projected second quarter earnings with the Dow jumping back above 17,000 points and the S&P 500 rising 1 percent.

Only one stock listed in international markets, ticker symbol MAS, was heavily impacted by the disaster. Malaysia Airlines, which was hit this year by an unprecedented duality of aviation disasters after decades of sound operations, is now threatened in its existence.

Immediate reactions to the destruction of MH17 said that the 298 victims alerted the world to a crisis that was mistakenly believed to be far away, even in a country like the Netherlands where the latest violent confrontation on the European fringe has just now been felt in all its cruelty due to the many Dutch passengers who died.

Ukraine, however, is only one geopolitical threat of 2014. No archduke was assassinated in the Balkans in the middle of this year, as it happened on June 28, 1914 in Sarajevo, but hundreds died needlessly last week in Gaza and over Ukraine. Developed and developing markets alike are in no way immune to the thickening dangers in current geopolitics, and the indifference of markets to these political risks and the humanitarian catastrophes that come with them is a sign of dangerous complacency.

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Real Estate

In photos: The creative cave

by Thomas Schellen & Greg Demarque
written by Thomas Schellen & Greg Demarque

Every human dwelling owes something to the primordial need for shelter that is associated with the stereotype of a caveman — which is usually a synonym for a life with ample room for cultural refinement. But unfortunately, far too many apartments and even so-called villas of our day and age fit the caveman ticket at least in their exteriors. Cities today, just like the past 100 years have the flair of stacked caves that are crowded into buildings are deficient of character. They are structures built from primitive design or shortsighted greed, or both. Consequently, millions of buildings in thousands of cities are only theoretically conducive of social life and economic activity, lacking structural character that would support their owners and tenants in improving their lives.

Beirut also is stacked with buildings that create feelings ranging from distance to disgust, whether as fancy but wholly unimaginative towers or as barely functional boxes used for commerce, housing, leisure or education. But that is not the whole truth. There is not only a small and dwindling portfolio of heritage buildings that help the city to breathe civilization, there is also a small but growing stock of new buildings that represent ingenuity and some that even make us think — and perhaps help us think more constructively.

When Executive last month surveyed one such building, the new home of the Issam Fares Institute think tank on the grounds of the American University of Beirut, IFI director Rami Khouri said that the new building had immediately boosted his team’s ability “to do better work.” Part of this was due to the structure’s information and communications technology features and the high visibility that the building provided. But another part of the productivity gains derives from the building’s design and the conducive environment that it generates, Khouri said, inspiring staffers to conduct their “core activities with much greater enthusiasm.”

With a tip of the hat to the project owners, architects and developers that have invested themselves in unconventional projects, Executive has put together a selection of recently completed buildings that impress us as concepts, and which give us something to think about. Some may even be seen as entrenched, positive elements of the city’s fabric in 100 years time.

East Village is a residential tower that makes creative use of conventional shapes. It relies on traditional materials but funnels a fresh wind into Ashrafieh’s Mar Mikhael neighborhood. Executive especially likes the vertical garden on East Village’s western surface. Architecture: J-M Bonfils & Associates. Completion: 2014. Area: 6,000 sqm. Usage: Residential
Skyline is one of several ongoing projects that emblematic Lebanese architect Bernard Khoury has signed with his name, including an outstandingly designed lofts project that is nearing completion on the outskirts of Beirut proper. Skyline is a project saying that tall (by Beirut standards) residential buildings do not need to be off-putting. As residential towers go, it is a safe assumption that Khoury’s well-reputed designs denote properties that combine an up-market price tag with long-term viability. Architecture: Bernard Khoury. Completion: 2014. Area: over 13,000 sqm. Usage: Residential
As far as name giving goes, the Holcom Head Office is at best a generic compilation, but the building is a star example for positively disrupting a drab area of faceless industriousness. With a new skin and full credentials of energy efficiency, the building offers ways that many Lebanese corporations should want to follow with their headquarters. Architecture: Atelier des Architectes Associés (AAA) with lead design by Lombardini Italy. Projected completion: 2014. Area 33,000 sqm. Usage: Commercial
Le Yacht Club sits at the intersection of Beirut’s most pretentious assemblage of high-end properties with the city’s (yet to be implemented) new urban lung and the sea’s immutable expanse. The design may not be everyone’s favorite but the pricey project is dignified in the way of 21st century capitalism. Architecture: Steven Holl. Completion: 2014: Area 10,000 sqm (plus 4,000 sqm in Zaitunay Bay hospitality and retail zone). Usage: Leisure and residential
Branded as CinemaCity, the new entertainment complex in the Souks of downtown Beirut complements the area’s historicizing ambiance and few genuine heritage buildings with a bright dash of tomorrow. Although it has been open for just over half a year, it feels as if it has always belonged. Architecture: Velode et Pistre and Annabel Kassar. Completion: 2013. Area: 27,000 sqm Usage: Leisure
The Campus de L’Innovation et du Sport of the Saint Joseph University (USJ) seeks to create harmony among disparate historic and social components, and achieve integration of the students’ educational experience within the urban context. These lofty ambitions are more than buzz when one takes time to contemplate the building and its myriad Mousharabieh-aligned patterns. Architecture: 109 Architectes and Youssef Tohme. Completion: 2011. Area: 57,000 sqm. Usage: Education
Photo by Greg Demarque

Correction: A previous version of this article mistakenly listed Peia Associati as the architects of the Holcom Head Office; it is Atelier des Architectes Associés (AAA) with lead design by Lombardini Italy. It also listed the office at 10,000 sqm instead of 33,000 sqm. Apologies.

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Leaders

Banks’ new dilemma

by Executive Editors
written by Executive Editors

For years, big Lebanese banks have operated under a cushy deal: finance government debt, and be rewarded with a handsome profit. While this arrangement has been arguably necessary, it has also led to an unwarranted level of risk aversion and capital hoarding in the sector — notably harming the development of business startups, who are simultaneously in dire need of investment.

Sensing this distortion, Banque du Liban issued Circular 331 in August of last year. The order sets up a facility at the central bank that subsidizes 75 percent of commercial banks’ investment in startup companies — making such deals much more appetizing to the banks.

This new facility presents an opportunity that cannot be missed. It could be a huge boon to the economy by facilitating finance to companies at their earliest stages. The amount of money that could be pumped into the ecosystem — up to some $400 million, divided into small tickets — could be just the push needed to stimulate the creation of small companies. This is something badly needed in Lebanon’s business ecosystem.

If taken advantage of, banks would at once be opening their doors to new sources of revenues that could potentially be made off of successful startups, as well as boosting the economy — potentially creating opportunities for more and larger transactions in the future.

But due to their overly conservative nature, equity investments in small and risky ventures do not typically strike one as something the Lebanese banks would want to touch — indeed, they never have on any scale. But Circular 331 ought to change that. Banks now face a choice: use the circular as an opportunity to invest in startups, or ignore it altogether and go about their regular banking business.

Failing to use the circular would be a missed opportunity, both for the banks who are closing their doors to a potential stream of revenue, as well as to startups who need cash.

But rushing to invest in startups would also present dangers since banks have no institutional experience investing in such companies. They are used to dealing with SMEs, but mostly in a lending — not investing — capacity. While they have numbers to support the profiles of who they are lending to and know how to assess the riskiness, they currently have neither the knowledge nor the background in investing in startups.

This then is the banks’ new dilemma. To take advantage of the new opportunity, they must learn how to invest in startups, which will require setting up specialized departments and hiring or training individuals in this field.

These departments would ensure that best practices are followed for startup investment, which are often counterintuitive. For instance, risk averse banks might want to play it safe by taking large stakes of equity in exchange for their investment. This, however, would likely demotivate startup founders, ultimately weakening the company’s chances of success. When Marwan Kheireddine sat down with Executive to talk about Al-Mawarid Bank’s investment in local startup Presella (see pages 28 and 30), he said that he would only take 20 percent for precisely this reason. The circular lets banks take up to 80 percent equity in any single company.

Banks may also try to minimize their risk by only investing in a few companies. This is also counter to best practice, which is diversifying by investing in at least 10 to 20 startups to guarantee that at least one investment is successful.

Several banks have already taken measures that indicate both an aversion to risk and a deferral of the responsibility to learn the best practices by pledging significant sums of money to venture capital funds, which would invest on their behalf.

This may generate some returns for the banks, but will not create the same economic disruptions. Because venture capital funds can pool many banks’ money together, they intend on investing in bigger ticket sizes to the likes of over $2 million, despite many fund managers complaining that there is not always enough deal flow. Whereas investing in smaller tickets would have helped increase the deal flow from the bottom of the food chain, investing in larger tickets does not have the same ramifications, and will not create the broader economic change the central bank was hoping to achieve.

For everyone’s sake, banks should learn how to invest in startups and begin taking advantage of Circular 331. But as banks’ long-term performance is inevitably pegged to the performance of the local economy, perhaps most of all, they should do it for their own sake.

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Developing rulesReal Estate

Taking their time

by Matt Nash
written by Matt Nash

Two years ago, in a real estate special report, Executive quoted a source saying that by 2014 there would be an abundance of empty apartments on the market.

Today, “there are unsold apartments,” says Massaad Fares, CEO of Prime Consult. Getting more personal, Fares says that “slightly more than half” of his company’s mixed-use Sama Beirut is sold. The tower near Sodeco Square is the city’s tallest building and is set to be delivered in 2015. 

There are indications the real estate market may be picking back up. Cement deliveries in the first four months of 2014, according to the most recent data, are up 9 percent compared to the same period in 2013. Both the number of real estate transactions and the value of said transactions are also up, but Jihad Ibrahim, general manager of Jamil Ibrahim Establishment, tells Executive that these last two figures can be misleading.

Slow years for development companies

The number and value of transactions are recorded at the General Directorate for Real Estate Affairs when apartments are handed over, not when contracts are signed (i.e., when sales happen), Ibrahim says. He notes that many developers focus heavily on off-plan sales, so many contracts are signed years before they are registered.

Therefore, increases in the number and value of transactions are not reliable indicators of new sales activity, he argues. 

In the nation’s capital, “the only oxygen in the market is in the low-income segment,” says Ibrahim, whose family owned development company builds multimillion dollar flats for the top 1 percent of buyers.

Ibrahim’s firm has been particularly hard hit by the slow years. He says 40 percent of his stock is unsold and he’s sitting on parcels of land that should be holes in the ground by now.

“We’re finishing the projects we have on hand, and there are three or four big projects, and we stopped everything else,” he says. “We have seven projects with their permits ready that were supposed to be phased in … What we did was completely stop to see what we’ll do with the stock we have on hand.”

While 2014 may reverse the trend, real estate transactions reported to the country’s official registry had been shrinking in number since 2011, after nearly a decade of growth. Prices, however, have not followed transactions south given the particularities of Lebanon’s real estate market — its size is small, developers are not heavily leveraged, domestic demand is steady and expatriates are hungry for a slice of their homeland, even if that appetite can be suppressed by political and security instability.

While new projects (both big and small) are still being announced, Premiere Properties’ CEO Antoine Habr says developers are taking their time before launching new ventures.

“Business doesn’t stop, it just slows down,” he says. “I would say, instead of jumping immediately to the next idea or the next opportunity, people would [want to] take more time to analyze the market, study, recruit the right people to give them the right feedback and information, and [do] more pre-work preparation before jumping to the next opportunity like everyone used to do.”

With an eye on better times, Prime Consult’s Fares says many developers are buying up space for future use.

“They are all now buying land,” he says. “Developers, instead of developing, are buying the land, preparing the plans and taking their time in preparation.”

Habr argues it’s a buyer’s market all round.

“This is the right time to buy. This is the right time to invest,” he says. “There’s more room for negotiation on all levels. Definitely you can have good opportunities out there. There are no panic sales or anything, it’s just that when you sit with somebody, you’ll be able to negotiate better and get more of what you want, more than [you could] before.”

Meanwhile, for Ibrahim, land is an extra revenue stream in times he says are so tough that the company is laying off employees “for the first time in our history.”

He says the company has purchased large tracts of land in the Bekaa and the South, which is partially being developed into low-cost housing by subcontractors and partially sold at a profit.

Buying land in the meantime

“We’re not interested in the return on the construction, it is so insignificant for us,” says Ibrahim. “What’s significant is when you take a big lot, divvy it up and then sell it; there, the internal rate of return is much, much higher. When construction stops, we go into related businesses, which is land appropriation. We can afford to do that, keep ourselves busy, but it’s definitely not the answer.”

While groundbreakings may be fewer and farther between, there are new projects in the pipeline. Sayfco Holding announced late last year that it would be taking a 50,000-square-meter bite into the Mediterranean to build a new, $1 billion resort in Zouk, just north of Beirut. The company says it has a permit to reclaim land from the sea for the project that will sprawl over 100,000 square meters and become the country’s largest resort.

Fares says Prime Consult recently bought some 100,000 square meters of land on the Metn highway and is in negotiations to buy land in Jounieh — he refuses to reveal where — also for a resort.

Habr also teases details of a “well studied,” soon-to-be announced, two-tower gated community in the Mar Rukouz area of the eastern suburbs of Beirut. Like Premiere Properties’ other projects, the new one will utilize a dedicated, audited account with a major local bank for any money made off of pre-sales.

“We guarantee in this way that the funds of this project are dedicated to the construction of the project and not for speculation toward other investments, whether it be in real estate or for personal use,” Habr says.

“This is an initiative from the private sector whereby a few private developers are implementing this business model. But it’s not a [law]. That’s the problem. Like in Dubai or London or anywhere in Europe … it’s imposed by the legislation. In Lebanon it’s not.”

Of the new development’s location, Habr says the area is attractive because of its proximity to Beirut.

Fares calls the eastern suburbs “the future.” “The land in Beirut has become so expensive, it has become prohibitive to buy an apartment in Beirut,” he says.

An interesting question moving forward is what the future will hold for both the eastern suburbs and the rest of the country. To date, there has been no real long-term urban planning for the country’s development, and legislation has consistently become more friendly to developer’s wants (see “Higher Regulation“). A common theme that emerged from the interviews for this report is that developers will continue to buy up large parcels of land for self-sustained — often gated — communities. 

What is unclear is whether or not the public sector — be it on the national level or in municipal offices — is thinking of how to oversee such future developments or how feasible it will be to tame the sprawling regulatory framework currently in place.

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Namir Cortas, president of the Real Estate Developers Association of Lebanon
Developing rulesReal Estate

Tangled in a web of red tape

by Matt Nash
written by Matt Nash

Executive sits down with Namir Cortas, a founder of Estates Property Development and Investment, as well as president of the recently-formed Real Estate Developers Association of Lebanon (REDAL), to talk taxes, regulation and corruption.

 

Why was REDAL created?

We created an association that aims at pooling the major developers in an effort to better communicate our role to various governmental and other economic parties, as well as the public at large. 

 

What’s your take on new tax proposals?

We suffer more indirect taxes, I believe, than any other sector.

 

How so?

Stamp fees, registration fees, permits. When we have archeological inspections to go through, we foot the whole bill. We suffer V.A.T. on construction. We don’t recover it. [In a project my company is working on, indirect taxes] will account for 30 to 35 percent of the overall project cost. 

 

Is getting all of the paperwork in order to start a project complicated?

Yes. We go through municipalities. We go through the urban planning bodies, including the central one. We go through several other paths from the department of electricity, to EDL, to other services. It really should be one. At least there should be some coordination body where you know what you need to do and how to get it done. All of these procedures, instead of getting simpler, are getting more complicated. The world is going digital, but the government is not. Not in terms of construction permits.

 

So how long does it take and what do you have to do to get a construction permit?

Essentially there should be two [bodies to deal with]: There should be the municipality and there should be, in some instances, at least where big projects are involved urban planning. To go to either, you go through the Order of Engineers. If you’re developing downtown, in the area controlled by Solidere, you have to go through Solidere as well. Then you have [even more offices to visit] … These [procedures] are not only costly, they’re complicated and they create uncertainty in terms of timeframes. For instance, it’s such a bureaucratic process — I must have been involved in 15 projects, maybe more, since I’ve come back, and I don’t think there has been one where I haven’t learned a new turn … I haven’t seen anyone who defends the system. Not the mayor of Beirut, not the head of the Directorate General of Urbanism, not the head of the order of engineers. 

 

What’s the solution?

We need one body. One body to go to. 

 

In terms of monitoring construction, are there enough state inspectors to make sure projects are being built safely and in line with the laws on the books?

I truly believe the quality of construction has improved. It has certainly improved in the up-market sector.

 

Is that because of a private sector initiative or because of more inspectors or better inspection?

I think it’s unrelated to codes, at least to Lebanese law codes. I think it happened because the reconstruction of Beirut was led by the Solidere effort, and I think you could notice in the 1990s how buildings around Solidere, [in some areas] started looking better … in terms of quality of construction. Also, there are more professional developers now.

 

But has there been improvement in inspection and monitoring?

The government is doing its part. They are now insisting that … [developers] employ something called Bureau de Controle. For fire safety, for such issues, it’s a review of design and implementation but I believe the private sector has a bigger role. Yes the laws are there on all levels … But, to be honest, I don’t see a deterioration in the quality of construction. I see a proliferation, in some parts, in middle-income developments, that are substandard in some aspects. I don’t find it dangerous, but I find waterproofing to be of terrible quality, [for example]. 

 

While the government may be doing its job on that front, planning is still a problem in that no one seems to be doing it. Is it too late for urban planning?

I used to think it was … There are efforts on the part of some of the municipalities to tackle these things, and it’s working. But even they have to go through other bodies, and it’s taking a long time.

 

Are you pushing legislative fixes for any of the issues you have with the sector?

Legislation is very important for many things, and we’re finding, for instance, in the fees and tax issues, that it’s more to do with legislation than with policy and policymakers. But I personally believe that, in general, the problem with development in this country, or from the government side, is that the laws are archaic and I think we need more planning than regulation … I don’t think laws can replace planning. And I think that you can criticize Solidere for many things, but there are things that a master planner can do which laws cannot. We need to address these urban disasters and deal with them. And we have to develop around the villages and not destroy the villages themselves. 

 

How do we weed out corruption?

In the last two years, it’s gotten pretty bad. It’s always been, you know. But it’s gotten worse because the economy has weakened, I suppose and because governance has gone to new lows. I do not know where to begin in addressing these issues … From my experience, the corruption does not help you pay less than what is fair [in taxes and fees] … My solution is simply the process. Create one assessment body for all properties and somebody or some committee to appeal to in case there’s something wrong. You can’t deal with 15 bodies when you don’t know why and who and how … I can’t see why it is so hard. I would say simplify the process and find a more objective way of measuring the fees. And look a little more long-term-ish as lawmakers, in terms of understanding the implications of the laws you create and of how simplifying these laws and these measures [can help] … I don’t think the solution is so much for us to fight it as much as it is to continually remind them and say, “Let’s talk about making it all fairer, making it all simpler.” We’re not saying we don’t want to pay. The system is organized enough that nobody can escape paying, no matter what the impression is. We don’t bribe our way and pay less. We ease the documents process because one has to, but that’s besides the real problem.

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