Executive Magazine

Arsal, located in Lebanon’s Bekaa Valley, has been overwhelmed with refugees

Refugees in their own homeland

by James Haines-Young & Maya Gebeily June 5, 2014

written by James Haines-Young & Maya Gebeily

Halima Zaroubi, a frail 80-something-year-old woman, breaks into tears when describing what’s happened to her home. “Our houses are gone, our lands have dried up,” her voice cracks. “Everything’s gone.” Since the outbreak of the Syrian civil war, millions of people have been forced from their homes. However, Syrians are not alone in having to escape the country’s overwhelming violence. Lebanese by birth and by nationality, Zaroubi had been living in Qusayr, a border town in Syria’s Damascus province, for 60 years. Like tens of thousands of other Lebanese who lived and worked in Syria for decades, Zaroubi and her family were forced to leave and settle back in their native country. But rather than settling back into their native land as citizens, they now live like refugees in their own country.

[/media-credit] Zaroubi and her daughter Noha live in a tent in an informal refugee camp in Wadi Hmeid near the Syrian border

Minimal aid

Hundreds of these families have settled in the Lebanese border town of Arsal, a low income community whose population has more than doubled in size due to the influx of refugees. Lebanese returnees living in Arsal and its outskirts, many of whom have been there for over two years, received their first food aid package in early May. Around 200 families received food boxes prepared by Lebanese NGO Food Blessed and the group Lebanese for Syrian Refugees. The food packages, part of the first widespread aid distribution package for Arsal’s returnees in two years, were distributed to the returnees by local partner NGO Shabab lil-Umma. After displaying his Lebanese identification card, returnee Abdul Malik Hassan Ezzedine collected a cardboard box with enough nonperishable food items for roughly one hundred meals. For him and his six children, the food package will barely last five days.

[pullquote]Unable to access UNHCR support, Lebanese returnees — especially those living in border areas like Arsal — have much less support from the Lebanese government and local and international NGOs[/pullquote]

UNHCR, the UN agency responsible for coordinating aid to Syrian refugees in Lebanon, cannot provide aid to anyone who is a Lebanese citizen. Palestinian refugees escaping Syria turn to UNRWA, the body created specifically to address their needs in the aftermath of the Nakba. Lebanese returnees are referred to the Lebanese government’s High Relief Commission (HRC) and the International Organization for Migration (IOM). According to IOM Emergency Coordinator Angela Santucci, HRC and IOM work with various local and international NGOs to assess where returnees are located and what their needs are. IOM and HRC conducted a registration drive between July and October of last year, registering over 17,000 Lebanese returnees (approximately 3,200 households) from Syria who are in need of assistance. However in a report about the situation released in December 2013, they estimated that the true number at the time was around 29,000 individuals (roughly 5,270 households). Their expectation is that once you add the number of new arrivals to the non-registered returnees the number will have significantly grown by the end of this year. “Although we haven’t been able to get updated statistics [since October], our projection is that there will be 50,000 [returnees] by the end of 2014,” Santucci said.

[pullquote]… the circumstances of Lebanese returnees are closer to those of Syrian refugees — despite some differences — than to the situation of poor Lebanese[/pullquote]

Most returnees registered by IOM had been living in Syria’s Homs province, with the next largest number coming from Damascus province. Fighting in Homs escalated significantly in 2012, driving both Syrians and Lebanese out of their homes. Like Syrian refugees, the largest number of Lebanese returnees settled in the Bekaa and are renting apartments or living with host families. Around 80 of the registered households live in tented settlements or collective shelters with Syrian refugees; but with so few returnee families officially registered, the number living in tented settlements is likely to be much higher.

Although IOM and its partners in Lebanon had been providing some food, health and shelter aid to returnees, assistance has been halted due to budget constraints. Both returnees and the IOM alike lament the Lebanese government’s lackluster response to the returnees. “Did the High Relief Commission give you anything at all?” Ezzedine asks his companions, pointing to each one. They shook their heads in turn. “No, no, no. Wouldn’t you expect something from your government if your house got completely destroyed?”

The IOM notes that the Lebanese government’s capabilities have become “severely overstretched” and that returnees’ basic access to resources must be drastically improved. “In the current context, the needs of Lebanese returnees have often been overlooked, either because they aren’t refugees or because there has been a lack of detailed information on their situation,” wrote Santucci in an IOM press release in December 2013.

Different realities

[/media-credit] Lebanese returnees in the town of Arsal stand in line to receive food packages

Though displaced by the same conflict, Syrian refugees and Lebanese returnees have had very different experiences. Unable to access UNHCR support, Lebanese returnees — especially those living in border areas like Arsal — have much less support from the Lebanese government and local and international NGOs. While registration with UNHCR for Syrian refugees in Lebanon has been continually open since 2011, IOM and HRC have suspended registration for Lebanese returnees due to budget constraints, thereby preventing people not already registered from getting access to what little assistance the agencies have available.

Nor are returnees’ lives similar to disadvantaged Lebanese citizens. The national average unemployment rate hovers around 10 percent, but the unemployment rate for Lebanese returnees is an alarming 69 percent. Only 2 percent of the 9,630 returnees aged between 18 and 64 have regular employment, and nearly 30 percent of returnee families have no wage earners at all, according to a recent IOM assessment. For Ezzedine and other Lebanese returnees in Arsal’s outskirts, the only option for employment is in the town’s quarries, where 12 hours of backbreaking work earns them LL 10,000 (less than $7).

[pullquote]For many returnees, Syria has been their home for decades, and, as soon as it is safe, it will be again[/pullquote]

In terms of employment, Lebanese returnees occupy a middle ground between refugee and citizen. While there is nothing legally preventing them from working, there simply aren’t jobs to take. This is largely due to returnees arriving in Lebanon’s border areas and the Bekaa valley, where jobs are already scarce and infrastructure is straining under the number of refugees. Rather than moving to find work, many returnees are choosing to remain close to Syria so that they can return more easily.

Returnee children also face challenges in resuming their education in Lebanon. According to Santucci, although returnees’ Lebanese identification cards allow them to register with Lebanon’s state schools, they are accustomed to Syria’s Arabic-language school system and curriculum and find it very difficult to adjust to Lebanon’s French and English systems.

A full 85 percent of returnees own no property at all in Lebanon. And with many returnee families having spent more than six decades in Syria, many lack a network of Lebanese relatives or friends on which to rely.

While they are not classed in the same category as Syrian refugees, returnees’ stories are much the same. They arrived in Lebanon with nothing. “There are cases where these people have been living in Syria for so long — for decades — that their vulnerabilities are associated much more to Syrian refugees,” Santucci said. IOM noted in its December 2013 report that the circumstances of Lebanese returnees are closer to those of Syrian refugees — despite some differences — than to the situation of poor Lebanese.

Their inability to access basic services, find employment or be accepted by other Lebanese people is also hampered by people’s perceptions. Many have Syrian accents and are seen by much of Lebanon’s population as Syrian. “When you’ve been made a refugee from a country where your family has been living for 90 years, you’re in an entirely different situation,” said Ahmad Fliti, deputy mayor of Arsal. Many returnees who have settled in Arsal can trace their roots back to the border town.

Access denied

[pullquote]Lebanese returnees have the same legal status under Lebanese law as other Lebanese citizens[/pullquote]

The situation in the small town for both refugees and returnees is growing increasingly dire. The swelling population has placed extreme strain on the town’s infrastructure, including its electrical grids, water tanks and trash disposal services. There’s frequent shelling in the area and Syrian Air Force planes regularly fly over the town’s outskirts; kidnappings have also become increasingly common. “Our food packages are critical for Lebanese returnees because the security situation in Arsal means international NGOs don’t have a physical presence there,” said Lebanese for Syrian Refugees’ member Roa Abou Zeid. This was confirmed by UNHCR representative Lisa Khaled who said the agency used to have a bigger presence in the town but, like all other international agencies, they left when shelling over the border became common. While they do still work in Arsal, they are unable to operate in the area when there are evident security concerns.

Arsal has not gotten any easier to access. It is a historically Sunni town perceived to be pro-Syrian opposition, surrounded by Shiite towns with largely pro-Hezbollah populations. Lebanese Army checkpoints adorn Arsal’s only access road to the rest of Lebanon. Until very recently, a Hezbollah-operated checkpoint was stationed between the town and the adjacent Shiite-majority Labweh. This has left many within Arsal — refugees, returnees and residents of the town alike — extremely hesitant to travel outside the town.

“How are we supposed to get to Beirut? Our lives aren’t secure if we go there,” said Abdullah, a Lebanese returnee waiting in line to receive food packages. “Our lives aren’t even secure if we go to Labweh.” Last summer, returnees living in Arsal had to pass through Labweh to register with IOM and the HRC in larger Bekaa cities; the fear of crossing out of Arsal’s borders prevented many returnees from registering with the NGO.

“Even people who are from Arsal don’t leave the town,” Ezzedine said. His calloused hands hold up his Lebanese national identification card with a mixture of pride and disdain: he is happy to be Lebanese, he says, but adds that his nationality has complicated his ability to receive aid.

[/media-credit] “What are we supposed to do, eat rocks?” asks Ezzedine, 54, holding up his Lebanese ID card

Mere technicalities

According to IOM’s Santucci, Lebanese returnees have the same legal status under Lebanese law as other Lebanese citizens. There is no legal differentiation between a Lebanese who has lived in Beirut since birth and one who was born in Syria, as long as they both have national ID cards.

“As Lebanese citizens, it is the Lebanese government’s responsibility, from a legal standpoint, to adopt them and settle them in Lebanon with dignity,” said Nabil Halabi, a human rights lawyer and founder of the Lebanese Institute for Democracy and Human Rights. He added that the Lebanese government should not deal with returnees the same way it has responded to the influx of Syrian and Palestinian refugees. “If the Lebanese government considers Syrian refugees to be guests here, then the Lebanese who fled from the border areas should not be considered guests. These are our citizens.” Both he and Arsal’s Fliti said the onus is on the Ministry of Social Affairs to better assess returnee needs and coordinate aid to them.

[pullquote]The national average unemployment rate hovers around 10 percent, but the unemployment rate for Lebanese returnees is an alarming 69 percent[/pullquote]

The ministry itself may finally be making some moves. Ministry representative Hala Helou said the newly formed returnee department in the ministry is now taking on the role of coordinating the government response toward returnees with that of international organizations, much like what it already does for Syrian refugees. The ministerial department has presented a proposal to the Lebanese cabinet on how to structure the department and address the returnee crisis but, expectedly, there are delays in the ministerial approval. “The cabinet is doing its own thing for a few weeks, and when they approve our proposal, we’ll have clear guidelines for how to work,” Helou said.

IOM and HRC have been facing their own obstacles. Since the first wave of registrations last year, budget constraints have prevented both from registering and assisting other returnees. According to Fliti, rent assistance that IOM provided to 25 of the 200 Lebanese returnee families in Arsal only lasted two months, and much of the aid the group had been giving to other households in the Bekaa was limited due to a lack of funds. Santucci said that IOM expected to do another round of registration soon, depending on donor funding.

HRC itself has been embroiled in corruption charges. Its secretary general, Ibrahim Bashir, was indicted on May 13 on charges of embezzling over $10 million of public funds. Allegations of corruption within HRC are neither new nor uncommon; despite them, and despite HRC’s lack of accessible registration centers for many returnees, Santucci says Lebanese returnees are still seeking registration help from the institution. An HRC representative was unavailable for comment on the commission’s upcoming returnee activities.

As donor funding and aid grow increasingly scarce and Syria’s humanitarian situation continues to deteriorate, many returnees are left in limbo. A full 75 percent of those registered told IOM they were unsure when they’d be able to return to Syria, but that they were waiting on “one or several factors” to change before considering a journey back.

What has become clear, however, is that many no longer consider Lebanon their home. “We’re from Qusayr. We’ve been there for sixty years, since I got married,” Zaroubi recounts with tears in her eyes. She now lives in tented settlements on Arsal’s outskirts with other Lebanese families. For many returnees, Syria has been their home for decades, and, as soon as it is safe, it will be again.

When asked whether being in Lebanon makes him feel like a Lebanese national or a refugee, Ezzedine scoffed: “No one’s telling us, ‘You returned to your country, welcome back.’”

June 5, 2014 0 comments

Plus properties construction works in Ashrafieh Beirut.

Real Estate

Misleading law on measurements

by Karim Makarem June 5, 2014

written by Karim Makarem

Lebanon has witnessed an upheaval in recent months over the new law liberating old rental contracts. Inflamed, people took to the streets, some for — some against. While the rental law reopened the public debate over the implications of real estate legislation on social equity, the need for fair and adequate property legislation is hardly limited to the issue of rents.

A different real estate law is, in our opinion, very misleading to potential homebuyers and should be revised: the law on accounting for the metric size of a residential unit.

The homebuyer ends up receiving two different sizes for the apartment: the official size mentioned on the property deed and the size communicated by the developer. The official size on the property deed only accounts for the gross inner living area including shafts, the thickness of the walls, planters and flower beds, and the size of the balconies. Developers, however, add to this the common areas (staircases, landings, elevators, fire escapes etc.). Of course, every square centimeter of built-up area communicated by the developer gets billed at the going market rates.

Walk through the numbers

At the moment, a two-bedroom apartment — the minimum requirement for a young couple buying their first home — counts at least 120 square meters. Despite developers’ attempts to maximize living spaces, much of the space sold goes to areas other than net living space (i.e. carpet area). Regardless of the total final size of the apartment, homebuyers are always forced to pay for space that they will never actually use.

An example of a project currently under construction in an Ashrafieh neighborhood illustrates the problem well. The developer communicates apartments in this project as measuring 260 sqm. Of that total area, the net living space — including the thickness of the inner walls and balconies, which can then be closed — effectively measures 163 sqm.

The difference is staggering: about 37 percent of the space sold to homebuyers is unusable. These 97 sqm are divided among the different non-living spaces: the staircases, elevators, flower beds, fire escape, shafts and exterior walls.

Based on the developer’s listed value of $3,700 per sqm and the “official” size of 260 sqm, buying the apartment requires a total budget of $962,000. Effectively, however, the new owner of this apartment would be paying a whopping $81,400 just for the shafts — a perfectly empty space.

Who gets the shaft?

It is unfair and misleading to sell homebuyers square meters that they will not see or utilize in order to give buyers the impression that they are provided with a valuable property that posts a lower cost per square meter than what they actually end up paying. This highlights a legal loophole where the current law allows for discrepancies between the size of an apartment recorded on the property deed and the size at which the unit is advertised. Such discrepancies make it more difficult to eliminate the potential for fraud in real estate sales. Even in the standard case of honest transactions, this legal provision does not serve the interests of either homebuyers or the real estate market.

The Lebanese law on the metric size of residential units should mandate developers and property sellers to be much more transparent. Homebuyers have the right to know exactly how much carpet area they are buying. This has been done elsewhere; France adopted the Carrez Law in 1996 to specifically address this issue, protecting property buyers’ right to accurate information.

Such a law does not change the total price of an apartment or make living in Beirut more affordable. It will increase the value per square meter attributed to the carpet area being sold.

If such a measurement law were to be applied to our Ashrafieh apartment example, prices would take on a different appearance. The apartment would still be sold at the same total price of $962,000. However, this would only be applicable to the 163 sqm of living space. This means that the effective unit sales price would be of $5,902 per sqm instead of $3,700.

A new measurement law would naturally boost the price of the inhabitable square meter. After adjustment, prices in many neighborhoods of Beirut would probably list higher than in some districts in Paris. This would more accurately reflect the value of property in the Lebanese capital. And that’s a better deal for everyone.

June 5, 2014 1 comment

The Buzz

Measuring anguish

by Thomas Schellen June 4, 2014

written by Thomas Schellen

Remember happiness? When the Positive Experience Index (PEI) of 138 countries was released last month by global opinion surveying organization Gallup, Executive noted how Syria’s war had wrecked havoc on its people’s positive emotions and sense of happiness.

Now we have the pain test. In its just-released Negative Experience Index (NEI), Gallup measured the prevalence of negative emotions, and it shows a very clear and unenviable clustering of bad vibes in the Middle East and North Africa. According to the 2013 NEI, half of the ten most emotionally downtrodden countries — where people told surveyors they felt anger, stress, pain and worry the day prior — were in MENA. The rest of this unenviable top ten list was comprised of one country in each Asia and Africa, and three jurisdictions in Europe’s eastern Mediterranean.

Iraq led the ranking on negative experiences, followed by Iran. Egypt and Greece were tied in third place, ahead of Syria. Lebanon made the tenth spot in the NEI, where a higher rank indicates that more people felt negative emotions.

In similar fashion, the PEI had ranked countries by translating the number of ‘yes’ answers to positive-emotions questions into an index score. The two indices are not, however, inverses of each other. Syria’s fifth place finish in the NEI did not mirror its last place finish in the PIE; similarly, while Iraqis reported more negative emotions than anyone else, they also reported more positive emotions than those in 23 other locations.

In presenting the NEI findings, Gallup placed a strong emphasis on Iran’s lack of happiness, opining that “Iranians have every right to feel negative, given the high unemployment coupled with high inflation in their country that has crippled their ability to provide for their families, along with international sanctions over their nuclear program that have hurt their livelihoods.”

But while Iran ranked highly on the NEI, the Islamic republic actually scored 63 points in the PEI, placing it in the lower middle field of countries and tied with Luxembourg, South Korea, Kazakhstan and Czech Republic. It clearly underperformed on a global scale, but within the region compared favorably to both Syria and Iraq.

In short, emotions are complicated — and at times, seemingly contradictory.

June 4, 2014 0 comments

Banking 2014: Looming taxes Finance

Minding the moneylenders

by Livia Murray & Thomas Schellen June 4, 2014

written by Livia Murray & Thomas Schellen

Each year the observers and analysts of Lebanon’s banking performance eagerly await the publication of Bilanbanques, a wholly numbers-driven compendium of data and performance ratios on the banking sector produced by Bankdata Financial Services. Executive sat down for an interview with Dany Baz, Bankdata’s general manager, to enhance our understanding of the latest developments in the sector.

What is your most striking impression from recent data on banking in Lebanon?

What strikes me first is once again the resilience of the banking sector that was able to maintain a satisfactory performance despite the increasingly tough operating conditions. The banks that have chosen to expand regionally have handled the downturn in neighboring countries with minimal impact on their financial strength and performance, while banks that focused on the domestic market have had to face the slowdown of the Lebanese economy and the increasingly competitive operating conditions and have also managed to keep up.

Another striking fact is that there are pockets of opportunities for banks domestically, as some segments are under-borrowed; the SME [small and medium enterprise] sector for instance has also shown resilience versus the economic slowdown. Many of these enterprises have also decided to go cross border and have done so successfully.

How does the under-borrowing of SMEs affect us?

On a global level, the economy is running at a much slower pace than it should be. Companies in the category of small and medium enterprises, meaning SMEs with more than 5 and up to 150 employees, number approximately 20,000 companies that generate around $5 billion of annual turnover. If you take into consideration that there are something like 200,000 registered establishments, this shows that these 10 percent of enterprises generate around 10 percent of Lebanon’s GDP [of $43 billion]. Interestingly, only over a third of these SMEs are borrowers and their borrowings amount to around $2 billion of various loans and facilities. If this ratio is raised to 50 percent, it would represent about $600 million of untapped business for banks over the upcoming years.

[pullquote]There is quite a lot that the banks are doing for the economy and they should not be penalized because of the transparency they have adopted. [/pullquote]

Currently, with debates over profits and taxes of banks, it seems that the banker is everyone’s favorite villain. Do they deserve it?

Banks are traditionally the driving force behind economic growth and consequently contribute to the welfare of citizens. Obviously, banks are profit-oriented organizations and are definitely into improving their profitability and shareholder value. But I think you can say that of any venture and in some businesses, like the food industry where you can poison people, you have many more ethical concerns than in the money or service business.

Are banks paying enough taxes?

They are the biggest taxpayers in the country. They contribute more than one third of all taxes on profit and bank employees contribute nearly 30 percent of all payroll taxes in Lebanon. Banks settled about $400 million in taxes in 2012. Tell me one sector that is doing the same. I think banks are the number one employer, the number one taxpayer, and they don’t even recoup VAT [value added tax]. There is quite a lot that the banks are doing for the economy and they should not be penalized because of the transparency they have adopted. Tax evasion is estimated at $3 billion yearly, i.e. 7 percent of GDP — this is where the real change should take place.

In your opinion, would a permanent increase in the taxation rate of banks impact the economy?

I honestly don’t think that raising [VAT] by 2 percentage points is going to rock the boat. The problem is that the economy is in a slowdown and there is very little leeway for the government today. In a different context, I don’t think 2 percent would make a difference. But today nothing [in terms of tax increase] is acceptable.

That is on VAT in general. But how about the specific taxes on banks that have been proposed?

When you have a sector that is vital for the economy, you don’t want to burden it in times such as these. In my view, everything that was discussed is acceptable and I am sure even the banks will say that — but is it acceptable today? No.

What would you consider as a minimum healthy growth rate and prudent performance indicator for the banking sector?

The IMF estimates a 5 percent growth in customer deposits is the minimum required to finance public and private borrowing needs. I wouldn’t take the growth of assets as a measure for the health of banks. I would take the return on equity. Today we are at just over 12 percent in return on equity and this is low if we take a look at other financial sectors in MENA countries. Everybody will expect the ratio to be closer to 20 percent.

[pullquote]Tax evasion is estimated at $3 billion yearly, i.e. 7 percent of GDP — this is where the real change should take place[/pullquote]

Bankdata is the organization that initiated categorization of banks according to deposits. What is the rationale for making the distinction between alpha, beta, gamma and delta group banks?

Segmentation helps external people and the bankers themselves to benchmark against banks of the same size with comparable operating conditions in terms of network and staff, for instance. You have to compare apples to apples: the purpose was to facilitate comparisons.

You raised the threshold of financial size for the alpha banks to $2 billion in deposits quite a while back. When was that and why is it prudent to keep it at that level still today?

We raised it in 2004 so it will be ten years this year. We review it every year to see if a change in the definition of categories is warranted but if the difference [between the old and new deposit size benchmark] is around 10 percent, it is not worth [changing] it. The issue is to have a look at the even distribution of the four categories and not just the top banks.

Your company is regarded as the authority on measuring the performance of Lebanese banks. Should that be done by a private sector company, or rather by a government agency?

I don’t think it is the purpose of the regulator to publish market shares and ranks but rather to monitor compliance and follow up on performance. We are much more flexible in our approach and have two-way communication with the banks, which is not something that you would have if you were addressing this from the public sector.

How confident are you that the information you publish is accurate, especially on some highly watched ratios where people might want to look better than they are?

They cannot because we have our own controls, both specific and general. Of course there are human errors and if we see a growth rate by a bank that is incoherent on any criteria, even if it is a small item on the balance sheet, we immediately call the bank. And if there is a correction in one bank, we call 70 banks to align. This is our added value.

How many items do you check each time when you review the banking performance?

That is an interesting question and I have never looked at it this way. (Consults briefly with staff.) We review 410 items times 70 banks times two because we control two years in every edition [of the Bilanbanques yearbook]. That means we cover 57,000 pieces of data for every edition.

Do you do that for the love of numbers?

No, for the love of credibility.

How did the concept occur to you?

This is a company that was founded by my husband, Freddie [Baz]. He started it 32 years ago because this is his forte and I learned the job. The methodology and the continuous enhancement and update of the methodology rely a lot on him but I have been running the show.

[pullquote]Some banks provide unpublished figures and if they request for them not to be published, they will never be published or made available to anybody[/pullquote]

Are there any conflicts of interest for Bankdata because of the fact that your husband is a senior executive at the top bank in Lebanon?

When he first started with [Bank] Audi, he was merely an adviser and there was no particular drawback. At some point, perhaps other banks might have felt a conflict of interest but they have realized that this is not the case. We cannot twist figures in any way. In addition, the fact that he combines macro and micro views and experience are a plus to continuously update and enhance our methodology.

So you would not provide information exclusively or faster to one bank than any other?

I would be shooting myself in the foot, honestly. The open climate that we have with the banks is based on them knowing that we are very keen on preserving [confidentiality]. They trust us with their figures. Some banks provide unpublished figures and if they request for them not to be published, they will never be published or made available to anybody.

What valuation do you attribute to the company that you manage?

Bankdata is a profitable company, but it is not a company that will crush records of profitability. We are a service company and also do consulting and have very decent revenue. We have invested into our platform but if I were to value the qualitative part of it and not the multiples, the benefit to the sector is really priceless.

Are you a family business?

Yes, we are.

Do you have succession planning?

We should (laughs). Probably [the succession] will not be in the family, so we would have to transform.

June 4, 2014 0 comments

ArabNet Dubai 2014 Business

Serious about games

by Livia Murray June 4, 2014

written by Livia Murray

Regional gaming startups now have a champion in the form of MEGAplay — the Middle East Gaming Alliance, an organization dedicated to nurturing regional gaming startups. The launch was announced Tuesday by David Munir Nabti, CEO of Lebanese startup space AltCity.

Choosing the afternoon of the first day of ArabNet Digital Summit 2014 in Dubai to unveil the new group, Nabti explains that MEGAplay is an initiative to help Middle Eastern startups take advantage of the appetite for games in the Middle East. “Gaming is a huge sector regionally, but startups are not tapping into that,” he says.

Nabti announced that MEGAplay will provide various support to gaming startups. It will offer workshops — both online and offline — using expert know-how to put regional companies on a more competitive footing in a global market worth perhaps $70 billion. The idea is “to help people start games [and] develop new concepts that are at the leading edge of trends, rather than behind the curve,” says Nabti. It will also hold competitions and help connect startups to investors.

MEGAplay is the brainchild of AltCity, with seed funding from the Netherlands Embassy in Lebanon. The initiative builds on AltCity’s involvement in gaming events in Beirut, as well as its lighter dabbling in the region. One such event was the group’s Beirut hackathon on May 3, which brought together developers, designers and entrepreneurs to build mobile apps and games within a 12 hour time frame.

But gaming is also a notoriously tough industry. An often cited example is the story behind Angry Birds, where Finnish developer Rovio failed 51 times at creating a viral game before producing an overnight success. This makes gaming startups inherently risky.

And regionally, the sector is quickly evolving, with promising names such as Jordan’s Taktek fizzling. Walid Hanna, managing partner at regional venture capital firm Middle East Venture Partners, told Executive in December that while the group had invested in gaming startups, they were trying to refrain from investing in them in the future because of the uncertainty of business.

When presented with these concerns, Nabti remains convinced of the potential of the market. He explains that the volatile nature of the business makes it all the more important how companies build themselves, learn to appreciate risk and increase their chances of success by developing the best methods.

“Gaming is already a huge market, and is becoming more connected to people’s lives,” he says, even to the point of overtaking cinema and TV.

June 4, 2014 1 comment

ArabNet Dubai 2014 The Buzz

Dubai: the next step

by Livia Murray June 3, 2014

written by Livia Murray

All Lebanese businesses must seek regional expansion — or so it is drilled into the heads of local entrepreneurs. A typical Lebanese business model is to test a product in Lebanon before scaling to the region. This reflects at once the limits of the very small Lebanese market, but also the increasing nature of seeking solutions that cover the entire Arab world.

Besides catering to the region, Lebanese companies are increasingly drawn to Dubai, an important regional hub for big businesses and the Middle Eastern capital of marketing and advertising. The move is a logical expansion for a Lebanese company — some relocating their businesses there altogether.

Likewise, ArabNet — a hub and conference organizer for digital entrepreneurs and professionals in the Arab world — expanded from its birthplace in Beirut to Dubai. The move was very successful: its Dubai event is now larger the original Beirut conference. This is due partly because of the political situation in Lebanon and partly because Dubai, being the business hub that it is today, is an attractive destination for regional companies to mingle. When Executive caught up with ArabNet founder Omar Christidis before March’s ArabNet Beirut, he explained that while the Lebanon event focused on the local Levantine market as a production hub for the region, the Dubai event would be more focused on big business.

Indeed, the conference will highlight many aspects of big businesses — the latest trends in e-commerce, marketing and advertising from industry leaders. But entrepreneurs also have a selection of talks to choose from for promoting startup ecosystems in the region — with the government-owned tech park Dubai Silicon Oasis, local i360 accelerator’s space The Cribb and the digital startup incubator Afkar among others represented.

Exhibitions and a digital showcase will highlight businesses big and small, creating opportunities for the two to liaise. Larger companies such as transportation and logistics company Aramex, market research company IPSOS and online payment gateway Gate2Play will be represented alongside smaller ones. Some of these smaller businesses were present at the Beirut event, such as animation company Wezank and social media topic analyzer tool Crowd Analyzer — which made the list of Executive’s favorite startups from ArabNet Beirut.

The combination of panels where industry leaders share best practices and startups showcase the newest technological innovations makes ArabNet the epicenter of tech and entrepreneurship in the region for the next three days. Stay tuned for Executive’s coverage of ArabNet Digital Summit Dubai.

June 3, 2014 0 comments

Tarek Khalife, Chairman at Credit Bank Lebanon

Banking 2014: Looming taxes Finance

A Lebanese lender’s philosophy

by Thomas Schellen June 3, 2014

written by Thomas Schellen

Creditbank Chair Tarek Khalife explains his views on banking and the roots of his strategy to prioritize lending to the private sector. Last week, Executive published a longer piece about Creditbank.

The impression from our conversation on Creditbank is that you neither aim to be the richest banker in town nor are angling for the biggest bragging rights. Why are you a banker?

I don’t regard myself only as a banker. If you think of yourself as a banker, you reduce yourself to calculating your margin on every transaction. I like to think of myself as a common denominator in the business world where people need a financier.

How do you define the difference?

Being a financier is more than being a banker. People think of a banker as someone who gets a lick of every deal that passes under his nose. This is not the picture that I have. If you asked me what I think of Creditbank, I would tell you that Creditbank is catering to people who are producing. If you are involved in banking in Lebanon today and like it, it is because you think everything is undervalued.

Undervalued in what way?

I think everything in Lebanon could be at a higher and better value. This is the confidence that we have in this market and this is why we still lend to people in this market. If we didn’t believe that tomorrow would be brighter than today, we would not be taking the exposure to the private sector [that we are taking]. By taking private sector exposure, we are saying “I would rather take the upside of the private sector than the fixed return I can get on sovereign risk.”

How does the risk of private sector exposure correlate with your strategy for seeking growth?

Going to a restaurant, hospital, clinic and retailer [as their lender] is saying that I am investing in the goodwill of all these operations and in their relationship with me. When [these businesses] are going to be bigger and more successful, I will grow [with them] because I have taken the risk in the bad days. It makes sense to us because we believe that there is an upside to the market. Lebanon can only [go up] in the future and the private sector is going to benefit from many things. We believe in this economy and the people that are the talent and the resource. As a bank you have to have the right morality vis-à-vis the client and the right productivity to reply to his needs. If you have those two, then you have a success.

June 3, 2014 0 comments

The Lebanese Canadian Bank fiasco is fresh on the minds of Lebanese bankers racing to fully comply with FATCA

Banking 2014: Looming taxes Finance

Lebanon’s financial sector braces for FATCA

by Paul Cochrane June 3, 2014

written by Paul Cochrane

The countdown is on, with just a month to go before the United States’ Foreign Account Tax Compliance Act (FATCA) goes live on July 1. Aimed at curbing tax evasion by American citizens, an estimated 26,000 foreign financial institutions (FFIs) around the world will have to be FATCA compliant or be shut out of the US financial system. As a result, FFIs — primarily banks — are scrambling to be ready to report to central banks or directly to the US’s International Revenue Service (IRS), depending on governmental agreements.

[pullquote]“In substance, the threat is to be cut off from the US financial system.”[/pullquote]

In the MENA region, Lebanon is considered by local bankers to be ahead of the pack, followed by Jordan, Saudi Arabia and other Gulf countries. “We’re really well prepared to meet FATCA, and I think with all modesty, the most prepared in the MENA today, because we started at the beginning — some three years ago — and have carried out intensive training,” said Makram Sader, secretary general of the Association of Banks in Lebanon (ABL). “But very few FFIs will be on time in MENA.”

The Lebanese banking sector has been preparing for FATCA like the teacher’s pet not because it is a major advocate of reining in tax havens — Lebanese law explicitly allows companies set up with offshore tax status — or greater taxation transparency and new tax laws in the country. Rather, the sector is exceedingly wary of international regulators, specifically of falling foul of the US Treasury. This is due to Lebanon’s immense exposure to American leverage: some 70 percent of local deposits are held in US dollars; banks need to keep good relations with correspondent banks in the US and elsewhere; and no one wants a repeat of the 2011 Lebanese Canadian Bank fiasco, when the bank was accused by the US of money laundering and subsequently closed its doors.

“Banks want to avoid the danger of having another [Lebanese Canadian Bank] right now, as it would affect the sector as a whole, so all banks are being careful that FATCA will be properly applied,” said Malek Costa, head of compliance at BLOM Bank. “In substance, the threat is to be cut off from the US financial system.”

[pullquote]“I don’t believe any Lebanese bank will not be compliant, and if there are mistakes, it will be in the details not the general direction.”[/pullquote]

Compliance has become a major concern for the sector, pushed by the central bank, Banque du Liban (BDL), which issued two circulars — 126 and 128 — in 2012 and 2013 for banks to abide by international regulations and establish compliance departments, respectively. Indeed, compliance with anti-money laundering and counterterrorism financing regulations — with FATCA the latest such addition — is being taken so seriously that Sader conceded that he has spent about 20 percent of his time over the past two years on compliance issues alone.

That said, Sader claimed Lebanon is well positioned to capitalize on providing financial services related to FATCA. “Maybe we can prepare other MENA countries to implement FATCA by exporting that skill. For example, we are supporting the Association of Iraqi Banks, as there are 11 Lebanese banks there, by educating our bank partners and supporting the Central Bank of Iraq,” he said.

Legal issues

However, that the banking sector has prepared for FATCA so early can be read as a further indication of the country’s inability to defy US demands. Indeed, as one compliance officer put it off the record, “It is ridiculous that it takes a foreigner to come here and say you have to apply regulations, and we do it, but not because we are afraid of the Lebanese regulator.”

FATCA has been a problematic law to apply globally, with governments having to amend domestic legislation — in Lebanon’s case to allow for US clients to waive banking secrecy. Moreover, the act was met with political resistance and a lackluster uptake by many jurisdictions, so much so that the IRS had to delay FATCA’s rollout multiple times. Adding to the law’s problems, none of the rising BRICs (Brazil, Russia, India or China) have signed up yet. However, there has been a flurry of jurisdictions signing intergovernmental agreements (IGAs) with the US just in the past few months as the IRS went on a global push, fearing that FATCA’s effectiveness could be undermined before it even started.

Another potential reason for the push was to end the current period in which Americans can renounce their citizenship without paying back taxes. “There are around 3,000 renunciations a year of US citizenship and there is growing interest, but they don’t say if it’s because of FATCA or a travel risk element, but certainly FATCA has an impact because of the complexity of banking in this world,” claimed Armand Arton, president and CEO of global financial advisory business Arton Capital.

Loss of business?

[pullquote]“We are working as if FATCA already exists”[/pullquote]

BDL opted to not go for an IGA with Washington but rather for banks to report directly to the IRS, concerned that if it signed an IGA there would be the remote possibility of the US freezing BDL money in the event of non-compliance. “It was a political reason, to not be an agent of the IRS,” said a senior source at BDL speaking on the condition of anonymity.

Yet while many jurisdictions have not yet signed up to FATCA, and some are unlikely to at all — Russia is a prime example — and certain MENA countries lag behind, the Lebanese banks are more than ready. “We are working as if FATCA already exists,” said Abdul Razzak Achour, chair and general manager of Fenicia Bank. “We are contacting all FFIs that we do business with and checking if [they are] FATCA compliant; if not, we will act accordingly.”

But herein lies the primary problem with the law. How will FATCA compliant Lebanese banks deal with what the IRS calls “recalcitrant” FFIs? And does the sector stand to lose business by not dealing with non-participating FFIs in say West Africa, Algeria or China? No one interviewed by Executive could give a clear answer.

“I’m not sure if we’ll lose business. Even the worst country in Africa has clean businesses and wants to do business with good banks,” said Sader. “Yet in terms of business, [Lebanese banks are] in 30 different countries, and maybe five, six or seven countries will not comply [with FATCA].”

Practical short game, long term worries

[pullquote]In the MENA region, Lebanon is considered by local bankers to be ahead of the pack, followed by Jordan, Saudi Arabia and other Gulf countries.[/pullquote]

Joseph El Fadl, a managing partner at Deloitte, which was contracted to draw up a FATCA implementation manual for the ABL, believes the IRS will initially be pragmatic once FATCA goes live. “The IRS acknowledges it’s not going to be a piece of cake and indicates it is not going to be difficult with FFIs in the early stages,” he said. “We’ve seen that international banks want compliant FFIs, but what will be the reaction? We may have two layers, big banks refraining from doing business with non-participating FFIs, and medium banks applying withholding tax, but we don’t know yet.”

Initially, FATCA will be implemented in two phases. “The first is to screen all existing accounts with a threshold of over $1 million, so not a big task [in Lebanon] as that’s not more than 2 to 4 percent of customer deposits. Then it will move to thresholds of $50,000 and above, and about documentation and questions, with a short list of who could fall under FATCA,” said El Fadl.

This second stage will prove the most trying, as banks will have to sift through all bank accounts for possible US indicia — citizenship, residency, addresses, etc. — with Sader estimating there could be as many as three million accounts to go through.

Elsewhere in the region this may be more challenging. For example, Syria is requiring banks to be FATCA compliant, including Lebanese banks operating in the country. “There’s a large number of displaced Syrians, so it will be a challenge as a number of clients are outside the country, and there may be a mismatch between addresses on record and current addresses because of the security situation,” said Chahdan Jebeyli, who wears several hats as chief legal and compliance officer at Bank Audi, chairman of the ABL’s anti-money laundering committee, and the Union of Arab Banks’ head of compliance.

If clients are not cooperative, banks will have to decide whether to close an account or withhold 30 percent of interest returns in tax, as stipulated by FATCA. “The main issue banks will face is confronting pre-existing customers to make them fill out the necessary documents,” said Costa. “For example, if a client having US indicia showing in the core banking system or customer file says, ‘No, I am not a US citizen,’ we’ll say, ‘Prove it within 90 days or we’ll close the account, or withhold.’”

What is expected is that the financial sector will essentially police itself by dealing with only compliant FFIs. “You will see banks across the world asking other banks if [they are] FATCA compliant, asking about the Global Intermediary Identification Number [GIIN — to be registered with the IRS] and it will be a main factor in evaluating the continuing relationship,” said Jebeyli. “I don’t believe any Lebanese bank will not be compliant, and if there are mistakes, it will be in the details not the general direction.”

June 3, 2014 0 comments

Egypt's election deflates the Egyptian Exchange

Finance

Presidential plummet

by Thomas Schellen June 2, 2014

written by Thomas Schellen

In an inverted image from the previous week, Gulf markets roared and Egypt flopped in the 22nd week of the year. However, the factors underlying the market movements remained unchanged: Influences of MSCI classification drove three markets in the Gulf while political developments ruled in Egypt. On the weekly balance, four MENA exchanges were flat, six were up and two dropped.

Egypt’s election

The Egyptian Exchange traded up at the start of the week and reached a new post-Arab Spring high intraday on Monday before retreating. After the market closed on Tuesday, the EGX 30 weakened further on Wednesday while the predicted presidential win of former army leader Abdel Fattah al-Sisi was sealed on an unplanned third day of voting. Indications such as provision of free public transport on that day and threats of fines for non-voters suggested that the voting period was extended in order to increase participation and strengthen the appearance of legitimacy of Sisi’s mandate.

With Sisi’s win, the EGX 30 started Thursday with gains but then reversed, ending the day with a 3.5 percent drop due to news that the cabinet was preparing to levy a 10 percent capital gains tax on stock market investors. Media reports on Thursday gave the impression that the information arrived out of the blue, first spread in local media and then confirmed by finance minister Hany Dimian in an interview with Reuters.

The same day, the Egyptian Exchange posted an announcement it attributed to the finance ministry. The one-sentence statement said “Reference [sic] to what has been circulated about imposing taxes on capital gains achieved in the Egyptian Exchange, ministry of finance confirmed that the calculation of the tax on profits will be on the net value of the market capitalization portfolio by the end of year, compared to its value at the date of approving that law regardless of the purchase date preceding this law, taking into consideration to relay any losses achieved by the investor for the coming 3 years.”

Curiously, attempts to introduce a capital gains tax first on initial public offerings and then on incomes from share sales were twice announced and dropped in Egypt’s recent past — in December 2012 and March 2013 — both by the government of former President Mohammed Morsi.

Investors in the Egyptian bourse were confused and outraged by the latest tax announcement as much as by the announcement’s disorganized presentation and timing on the day when expectations were focused on the outcome of presidential elections. On June 1, the Egyptian Exchange was still in upheaval and trading was suspended from 11:20 am until 11:45 am. By market close at 2:30 pm the EGX 30 was nonetheless down 4.2 percent for the day.

MSCIng the thrills

Compared with the drama on the Cairo financial scene, the market movements in the rest of North Africa and the Levant could not fascinate. The Moroccan, Tunisian and Jordanian markets each fluctuated by less than 2 percent to the downside, but all three recouped that ground and closed the review period flat when compared with the end of the week prior.

The Beirut Stock Exchange, however, ended a period of small index movements with a 20 points gain on May 29–30, which looked to be the biggest two-day rise in the BLOM Index since mid-January. According to the BSE Bulletin, Bank Audi and Solidere were the key gainers on each of the two days. Daily gains ranged from 1.3 percent to 2.2 percent for the two share classes of the real estate company. Bank Audi GDRs rose 3.1 percent on May 29 and the bank’s common shares advanced 3.8 percent the following day.

Massive trading volumes drove the markets in Qatar and the United Arab Emirates on May’s last trading day as the much discussed MSCI Emerging Markets index’s inclusion of 19 stocks from across the three markets triggered share buying by international funds. This drove the ADX General Index 6.6 percent higher on the week, followed by gains of 5.3 percent in Qatar and 4.6 percent in Dubai. The QE Index’s rise brought it to a new all-time high.

Passive activity

Index tracking or ‘passive’ funds hold stock portfolios whose composition mirrors that of an index. When compared with active funds, whose managers pick stocks based on a fund’s respective criteria and buy and sell shares according to their own research, passive funds offer investors much lower operating costs.

One can think of passive funds as financial markets’ equivalent of Carrefour and Walmart, while active funds are akin to Neiman Marcus or Harrods. Active funds will dote on investors with a taste for tailored products in exchange for a hefty fee, but in terms of value for cost, the passive funds occasionally deliver more.

As May 29 was the first day for passive funds to compulsively adjust their portfolios in accordance with the revised MSCI EM index composition, their demand pushed share prices for 12 out of the 19 index entrants from the UAE and Qatar up by more than five percent each. However, the market dynamics also saw stocks go up which were not part of the MSCI selection.

In Abu Dhabi, eleven companies rose by between five percent and the daily limit of 15 percent on Thursday, of which four were driven higher by the MSCI EM siren song. These four were National Bank of Abu Dhabi, Abu Dhabi Commercial Bank, First Gulf Bank and Aldar. NBAD, which experienced extreme demand when compared with its average trading volumes, and ADCB rose at the upper limit; Aldar and FGB respectively gained 7.3 percent and 5.6 percent. The seven other ADX gainers of more than 5 percent included one bank, one insurer, two agricultural firms, a construction materials company, a services company and the cross-listed Qatari telco Ooredoo, which is an entrant to the EM index.

On the Qatar Exchange, however, Ooredoo was only a small gainer on Thursday, moving up just 0.6 percent. In Doha, the companies with share price gains of more than 5 percent each included MSCI EM entrants Vodafone, Barwa, Al Rayan Bank and Qatar Islamic Bank. Of the six other Qatari entrants, including Ooredoo, three saw their share prices go up while three dropped. Elsewhere on the QE, the Qatar National Cement Company’s 6.4 percent gain made it the one strong riser that was not part of the MSCI selection.

On the Dubai Financial Market, some of the EM debutants showed strong gains, as did several others. Emaar Properties and Arabtec pushed 7.2 and 6.3 percent higher while Dubai Islamic Bank added 6.2 percent. The one stock in Dubai to climb at the daily limit was the stock market operator, DFMCO. Outside of the debutant group, Ajman Bank gained 7.1 percent, Dubai Investment Co 5.8 percent and Shuaa Capital 9.6 percent.

Gulf media cited both analysts and research into behavior of reclassified markets to caution that the passive funds — in comparison to active funds’ far smaller assets under management — must not be expected to inject further massive amounts into the UAE and Qatari markets and that post-upgrade, further gains in the markets should not be speculated on.

Of the four other GCC markets, Oman’s MSM 30 was the strongest gainer with 1.7 percent, followed by Tadawul with 0.7 percent. The Bahraini bourse index was flat and the KSE Index gave up 0.8 percent in a trading week that was cut one day short.

June 2, 2014 0 comments

Editorial

The real bad guys

by Yasser Akkaoui June 2, 2014

written by Yasser Akkaoui

When Lebanon was on its descent into civil war in 1975, some militia bosses sicced the ‘poor’ upon the ‘rich’, telling their followers to loot the Spinneys store in Ramlet el-Baida. I remember watching the riot from our balcony — the first to drive up to the deserted store were the warlords and their top goons. After they carried off the store’s fine wines, caviar and quality foodstuffs in their luxury cars, they allowed their disheveled band of followers to raid what was left. Only after their departure, poor people from the area were able to pick through the little that the professional looters had left behind. I saw a child that took away a can of dog food.

The warlords had plundered a private business, then left the scraps to the poor. But that was only the beginning. Those same villains began to spread a destructive thought among the Lebanese: that success should be punished and that those who had worked hard did not deserve their riches. That taking was more important than making. We all know what followed.

Today, the private sector — specifically the banks — again finds itself attacked by crooks. To pay for a public sector wage hike, the government needs money from somewhere. But more bank taxes are being mentioned for one reason alone: they’re easy to take. Banks are transparent and profitable. They already pay taxes and must publish a wealth of financial information. Hiding your profits is hard if you’re a bank in Lebanon.

And once again, we hear echoes from Lebanon’s past — from those who would tax bankers out of envy. The idea is the same as it was in the early 1970s: anyone that is successful is one of the bad guys. Although the logic is tortured, it has an implicit populist appeal.

This, however, is a clever misdirection. It is not the bankers who are denying public sector workers a living wage. It is those same corrupt leaders who champion the wage hike, knowing they will never have to pay for it because they never pay taxes. These are the real bad guys, and our country is full of them.

The real bad guys would love for us to point our fingers at anyone but them. And astonishingly, they are succeeding in vilifying the only transparent sector in Lebanon.

We cannot allow such character assassination to take place. But more importantly, we must direct blame where it truly lies: with corrupt leaders and politicians. We must hold them accountable — and the only way to truly do that is through their finances, by making them pay the taxes they owe.

Otherwise, we will all be left with only dog food to eat.

June 2, 2014 0 comments