Comment

Iran’s economic jihad

by Gareth Smith
written by Gareth Smith

Fighting talk is nothing new in Iran, and cries of ‘economic jihad’ have revived since February’s decree on the ‘resistance economy’ from Ayatollah Ali Khamenei. Despite November’s Geneva interim agreement on the nuclear issue, Iran’s leader is aware of the continuing damage of western sanctions, especially United States and European Union measures that have halved oil exports to 1.1 million barrels a day. After two years of contraction, Iran has every reason to want to improve economic performance, and Khamenei’s decree offers a vision of a ‘resistance economy’ based on higher production, reduced imports, higher investment of energy revenue, financial reform, greater transparency and creating ‘knowledge-based’ industries.

Khamenei first used the term ‘resistance economy’ in 2010, emphasizing Iran becoming more self-sufficient and resilient to outside shocks. Little in the decree — other than perhaps a checklist for state bodies — is new. So why now? According to some observers, the decree reflects Khamenei’s worries over the perilous state of the economy even if sanctions ease with further diplomatic progress.

According to others, it’s all talk. “Everyone will pay lip-service for a while and then the decree will be put on a shelf to gather dust,” an Iranian journalist told me.

In what may be an example of what the journalist means, Hossein Panahian, managing director of the Iran Mercantile Exchange, told a press conference on Kish Island last month that the exchange would contribute to the ‘resistance economy’ by developing more vibrant capital markets.

Enhanced over-the-counter trade might not, however, be the usual idea of ‘economic jihad’, whose origins lie in the heady aftermath of the 1979 revolution and the 1980-88 war.

An early act of the new government was to form Jihad-e Sazandegi (Construction Jihad) to improve rural infrastructure. The body later merged with the Ministry of Agricultural Jihad. Both the Islamic Revolutionary Guard Corps (IRGC) and the Basij volunteer militia took to wartime construction with the same revolutionary enthusiasm shown by their comrades on the front line.

When hostilities ceased, war commander Rafsanjani became president and encouraged the IRGC to adopt peacetime projects. Gradually, the Guards developed an array of business interests and companies. They took the ethos of ‘resistance’ with them, even if many IRGC businesses were soon run by managers in smart jackets from the city.

Tightening sanctions enhanced the IRGC’s role, in import-export (including what might be seen as smuggling) and its affiliated companies also took over projects from  international companies. These included a $1.3 billion gas pipeline from the Persian Gulf to the Pakistani border, the exploration contract for phases 15/16 of the South Pars gas field and a $1.2 billion project to build a line of the Tehran metro.

Naturally, transparency has been limited by ‘security’ considerations, and no reliable figures exist for the IRGC’s turnover. Estimates reach many billions of dollars, and in a rare disclosure, businesses in 2006 were put at 30% of the Corps’ “capacities” by Brigadier General Abdol-Reza Abed, IRGC deputy commander and head of Khatam-ol-Anbia, one of its main companies.

Alongside sanctions, the populist economic policies under former President Mahmoud Ahmadinejad (2005-2013) undermined the private sector, which was less suited to the ‘security’ environment than those with the right connections. But President Hassan Rouhani now wants to develop a vibrant private sector, and has signaled that he envisages a reduced economic role for the IRGC.

All of this might suggest Khamenei’s ‘resistance economy’ decree represents a setback for Rouhani.  But things in Iran are often not what they appear. The decree was drafted by the Expediency Council, which is chaired by Rafsanjani, a Rouhani ally who has long regretted encouraging the IRGC into business in the 1990s.

It is likely that such pragmatic conservatives seek to remold the concepts of ‘economic jihad’ and ‘resistance economy’, thereby undermining opponents who want both to defend the IRGC’s economic position and to undermine Rouhani’s commitment to détente with the US.

Much of the decree’s checklist — including transparency and financial reform — is drawn from a more liberal economic agenda. This is a very different kind of jihad. Like the nuclear talks, the wily Rouhani has won backing from the leader.

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Comment

Freedom of expression under fire

by Lama Fakih
written by Lama Fakih

Recent charges and prosecutions against news outlets, journalists and bloggers by Lebanese government officials reflect an urgent need to reform press and other laws to improve protection for freedom of expression.

Article 13 of the Lebanese constitution guarantees freedom of expression and freedom of the press “within the limits established by law.” But the press law and penal code, audiovisual media law and military code of justice — which media outlets are also subject to — don’t have adequate safeguards to protect the rights of journalists and bloggers.  One of the critical issues with the current law is that it criminalizes defamation, authorizing prison terms for journalists and anyone else found guilty. Defamation cases in Lebanon have typically resulted in journalists being fined, not imprisoned; but the threat of prison has a chilling effect on freedom of expression, especially since defaming public figures is considered a crime.  In an alarming indication of increasing restrictions, the publications court on February 12 sentenced Jean Assy, a blogger, to two months in jail for defaming and insulting President Michel Sleiman on Twitter.

In recent months, the Internal Security Forces Cybercrimes Bureau has investigated Assy among others. It brought another blogger, Imad Bazzi, in for questioning on defamation charges on March 13 over a post he wrote on December 11 on his trella.org blog, criticizing former state minister Panos Mangyan for abuse of power. Bazzi was interrogated for three hours. The next day he appeared on the LBC News ‘Nharkom Saeed’ program, which the station purposely cut short to protest the range of issues they cannot discuss for fear of prosecution. In addition, ambiguous clauses in Lebanese law have been used to charge journalists and bloggers for opinions and statements that are protected under international human rights law.

One of these prohibits publishing material that “contradicts public ethics or is inimical to national or religious feelings or national unity.” Definitions of defamation are also ambiguous.

On February 26, the publications court fined Mohammed Nazzal, an Al Akhbar journalist, 27 million LBP ($18,000) after Judge Yaqzan brought a defamation case against him for an article on judicial corruption that was published last May. Nazzal was fined even though Judge Yaqzan, whom Nazzal had criticized for unlawfully releasing two drug dealers, had been demoted for doing so. Judge Qobeissi, against whom Nazzal had levied the same accusation, resigned.

Rasha Abou Zaki, an Al Akhbar contributor, was fined 4 million LBP ($2,667) by the publications court in February for defaming former Prime Minister Fouad Siniora, after she alleged corruption and embezzlement in the finance ministry. She was fined despite Judge Rokez Razk reportedly finding that she had been objective. Ibrahim al-Amin, the Al Akhbar editor, was sued for defaming and insulting President Sleiman for two articles he published claiming he was corrupt. Al-Amin is scheduled to appear before the court on April 9.

Foreign Minister Gebran Bassil is suing Executive Magazine for an article published while Bassil was energy minister. The article alleged that Bassil was seeking to monopolize control over the oil and gas sector and included allegations of bad practice against the minister.

In its 2013 annual report, the SKeyes Center for Media and Cultural Freedom detailed several examples of journalists who had been detained and assaulted by non-government figures in Lebanon, saying that police and other security forces had not protected them from such abuses. It also detailed physical attacks on journalists by members of security forces.

In one case, customs agents beat Riad Kobeissi, a journalist at Al Jadeed TV, and his colleagues, on November 26 as they tried to get access to the customs director to ask him about corruption at Rafic Hariri airport.
In 2009, Ghassan Moukheiber, a parliament member, proposed amending the press law to eliminate some of the ambiguous clauses, including what constitutes defamation, and to decriminalize defamation. The law was last debated in parliament in October 2012 but never passed.

Parliament should urgently revisit the debate on the draft law and make other badly needed legislative changes to ensure that freedom of expression is preserved, and Lebanese laws are in line with the country’s international obligations.

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Business

The story behind the Diwanee deal

by Livia Murray
written by Livia Murray

Finally proving that it is possible to start up, scale and sell in the country, Lebanon saw its first major acquisition in the tech and digital sector a few weeks ago, as French digital publishing company Webedia acquired Diwanee, a Lebanese digital media company that specializes in content creation targeting women in the Middle East.

According to estimates published by regional startup news platform Wamda and a source contacted independently by Executive, the investment range is between $12 million and $16 million for a majority equity stake between 50 and 60 percent. The company’s valuation falls between $23 million and $33 million. The Diwanee team has not revealed any specific numbers, but admits that estimates are not far off.

Dream big

The team describes the acquisition as a small victory, after trying to secure large-scale funding for a long time. “From day one we had a pretty ambitious project. The difficulty of it was finding investors who understand what we are trying to do, and who are willing to take the risk,” says Herve Cuviliez, one of Diwanee’s co-founders.

Cuviliez cites the difficulty in finding good terms for investments in the Middle East, where venture capital firms (VCs) were largely reluctant to make an investment of the size they were asking for. “We wanted to find investors who understand what it takes to build a digital company at a regional level and how difficult and cash-intensive” it is, he says. “You don’t build something like Diwanee with one or two million dollars financing. You need much more.”

Throughout the course of the company’s existence before the acquisition, they had only been able to raise $6 million in financing. Their most recent round of funding came from a private placement in June worth $3.25 million dollars by MedSecurities Investment, a subsidiary of BankMed. Though they were unable to secure any funding from regional VCs, Cuviliez admits that out of all the people saying no, “you just need one to say yes.”

Seize the day

The deal was the result of a five-year-old connection that turned into an opportunity. A mutual friend first introduced Cuviliez and his wife and co-founder, Delphine Edde, to Guillaume Multrier, co-founder of Webedia, in 2009. Diwanee was only a few months old, and Edde and Cuviliez had just moved to Lebanon after having spent most of their professional lives in Paris, Cuviliez having been involved in the digital media scene since the mid-’90s. Over coffee they joked that Diwanee was the Webedia of the Middle East.

Four years later, the opportunity surfaced when Webedia was acquired by Fimalac Group, the French holding company for credit rating agency Fitch Rating. According to Cuviliez, Fimalac Group was looking to branch out into digital media when it acquired Webedia, which according to its CrunchBase profile was a deal worth 70 million euros. Cuviliez claims that the deal was made possible because of Webedia’s desire to expand and interest in the Middle Eastern market.

The Diwanee team jumped on the idea when Multrier reached out to them last July. In September, they drafted a joint proposal and by the end of November had reached a consensus. “Once we decided it made sense, it went very fast,” says Cuviliez. The acquisition was approved by Webedia’s board in mid-December, they did the due diligence in January, and closed the deal at the end of February.

“It was a very good match because we were looking for more than money,” says Cuviliez. The deal will permit Diwanee to improve its advertising and content management tools by benefiting from Webedia’s more sophisticated technology. “There are a lot of synergies now with Webedia, where we can both share the same tools, the same technologies, so this makes sense,” says Edde. Specifically, they are looking to improve the way content and advertising are paired to create personalized advertising based on behaviors of the site’s 5 million unique monthly visitors. Developing these technologies in-house, according to the co-founders, would have been much too costly.

Diwanee is seeking to expand within the Middle East, both through new countries and new vertical growth. As part of the deal, Webedia is injecting an additional $5 million in cash to grow the company. The Diwanee team did not disclose the projected internal rate of return, but Cuviliez says they expect to double in size over the next three years. Diwanee currently has about 130 employees, the majority of whom are based in Lebanon.

Diwanee’s acquisition is a success story that gives hope to Lebanese entrepreneurs, and one that they will no doubt try to replicate. Though by no means an easy process, the acquisition has shown what is possible for a Lebanese company to achieve. “If you are ambitious enough, it is doable for Lebanon,” says Cuviliez.

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Society

Three issues with Lebanon’s new domestic violence law

by Livia Murray
written by Livia Murray

The Lebanese parliament passed a draft law on Tuesday on the Protection of Women and Family Members Against Domestic Violence Abuse. This would appear on the surface as a victory for the civil society organizations that advocated and pushed for this law. Yet despite this, members of KAFA, the organization that wrote the draft law, and other activists took to the streets of Downtown Beirut to protest the law’s adoption in its current form.

The version KAFA originally drafted was called the Law to Protect Women from Domestic Violence. It was eventually put on the agenda of joint parliamentary committees in 2011. It was intensely examined for over a year before the sub-committees proposed an amended draft law.

This law was hugely different from the original draft law. KAFA, believing the changes had weakened the law, proposed a series of amendments. The law that was passed on Tuesday, however, did not take their amendments into consideration. Here are the top three things they believe are missing:

  1. Keeping the focus on women: One of the greatest changes the sub-committees made was to generalize the law to apply to all members of the family – including men, the elderly, and children. “We did not accept that because the law was formulated upon the needs of the woman,” says Zoya Rouhana, managing director of KAFA. “The law is not applicable to all the members of the family. The way it was written and formulated was to respond to the women’s needs.” While she is not opposed to laws protecting other vulnerable family members, she claims that generalizing the law is diluting the notion that women are most often the victims of gender-based violence.
  2. Criminalizing marital rape: Perhaps parliament’s most chilling amendment to the original draft law was to remove the clause criminalizing marital rape. After a lot of civil society campaigning to have it re-introduced, the new clause criminalizes only the use of force in the act of “redeeming marital rights to intercourse.” (Article 3) “We want to criminalize the act itself, not the use of violence,” says Rouhana.
  3. Removing ties to the personal status laws: The law gives the victim subject to domestic violence and her children the right to a protection order. The parliament’s law added a clause, defining children as those “who are in the age of legal custody as per the provisions of the Codes on Personal Statute and their applicable laws.” (Article 12) This addition is problematic, according to Rouhana, since the age of custody for children differs among sects and varies between boys and girls.
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Comment

Why AUB students are protesting

by Tamara Jurdi
written by Tamara Jurdi

The American University of Beirut (AUB) is in many ways a great institution. A private, non-sectarian university founded in 1866, it ranks 250th in the world according to the QS World Ranking and is one of the top universities in the region. It is renowned for continuously graduating some of the most qualified talents in the Middle East, and is the alma mater of several of the region’s top politicians, architects, businessmen and doctors. With a number of different merit, scholarship, financial aid and work-study programs, students from different socioeconomic backgrounds have traditionally been given the opportunity to hone their talents there. But as of late, these opportunities have become harder to come by.

This is because, three weeks prior to the Autumn 2013 semester, the management announced an unjustified 6 percent increase in tuition fees. This was not an isolated incident. In fact, since the university imposed a new 15-credit system in 2010, fees have risen 37 percent for many courses. Tuition fees now typically range between $8,000 and $10,000 per semester, despite an average starting salary of $800 for many fresh graduates. This has gone alongside a dismal lack of transparency, a complete failure to involve students in the decision-making process and worsening services. Students feel targeted by the administration, and trust has been lost.

Since plans for the increase were announced, students have been fighting back. Following cries of disapproval from the student body, a committee made up of representatives of different student clubs and societies was established to look for solutions.

After this year’s student elections, the newly elected University Student Faculty Committee (USFC) created a Tuition Increase Committee (TIC). Within a month, the TIC revealed a number of perceived inefficiencies in the system, presented them to management and raised a number of questions. The student body was appalled with the findings and a number of independent activists decided to readopt the previous year’s Stop the Tuition Fee Increase (STFI) movement. This committee aims to mobilize the students on campus to further voice their demands and build pressure on the administration as well as AUB’s Board of Trustees.

The administration’s justification for the increases has been far from convincing. There are clear inefficiencies in the system and the students are being asked to pay the price. The administration argues that an increase is necessary to ensure academic enhancement through programs and buildings but this should not be at the expense of students. At the end of the day, students are what make or break a university, not its buildings and programs. This is not just students that believe this, the university’s own Dean has backed the campaign.

The TIC believes that certain projects should be put on hold until additional capital is raised from sources other than tuition. The administration argues there were unforeseen costs in the form of taxes, but those could be paid from the university’s considerable reserves. Questions are also being raised about the mismanagement of funds, with multiple bodies appearing to do the same job and concerns over the university’s new $7 million IT support system. In that particular case, the hired company was allegedly directly contracted for unknown reasons, instead of going through the normal bidding process.

The university has argued that these fees are necessary but they will protect poorer students. This is simply untrue. The supposed increase in financial aid (FAID) does not match the increase in tuition fees; some students receiving 40 percent financial aid currently pay more than students receiving 20 percent financial aid five years ago. FAID has switched from a 40:60 ratio (40 percent tuition fees, 60 percent grants and gifts) to a 60:40 ratio. Despite the planned increase, FAID may actually decrease next year.

And the fact is, thousands of students are barely getting by as is. Some don’t eat all day because they can’t afford it, while others work long hours in part-time jobs to cover their expenses. Many simply cannot afford another increase and would have to change universities should it go through.

For a university that allegedly thrives on diversity, a huge number of deserving students are being marginalized. The feeling that most students have nowadays is that unless you have money growing in your backyard, the future is bleak.

Through protests, petitions and a strike, students feel they have done all they can to voice their point of view. If no compromise is reached, they promise to raise the stakes.

 

Executive asked the American University of Beirut to write a counter argument explaining their reasons for the tuition increase but they declined.

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Business

Head in the clouds to help the little guy

by Livia Murray
written by Livia Murray

Company: Pi Slice
Entrepreneur: Genny Ghanimeh
Country: United Arab Emirates
Industry: Microfinance
Established in: March 2013

Many entrepreneurs can be accused of starting with their heads in the clouds, but few do so literally. In 2010 while Genny Ghanimeh was climbing Mount Kilimanjaro in Tanzania, her guide admitted to making the climb to pay for his daughter’s education. “I was surprised he did it six times a year, but he told me he had to do it.” The climb being no small feat, Ghanimeh was inspired and set on a course to make finance more accessible in places where it was lacking. She joined the entrepreneurial clan in Dubai in March 2013 when she launched Pi Slice, a crowdlending platform for micro-finance entrepreneurs in the Middle East.

Ghanimeh identified a gap in microfinance in the MENA region, where out of the six million households identified by microfinance institutions (MFIs) as eligible for loans, there are three million who remain in need of funding, according to Ghanimeh’s research in the sector. Assuming the average micro loan is roughly $1,200 the funding gap according to her research stands at $3.6 billion. This is exacerbated by the region’s poor standing for its microfinance environment. According to a 2013 study by the Economist’s Intelligence Unit, the microfinance business environment in the Middle East and North Africa has improved little in recent years.

Microfinance meets CSR

Ghanimeh partnered with several major microfinance institutions around the region in Lebanon, Jordan, and Palestine, as well as with MicroWorld, a microcredit organization which is part of Paris-based PlaNet Finance, one of the largest NGOs for microfinance in the world.  These MFIs opened up their portfolios of micro-entrepreneurs to the application, and users browsing PiSlice’s website from around the world can make a contribution to finance a portion of a specific loan’s total amount. Pi Slice plans to expand its coverage to include Iraq soon as well.

“I created a model where I bridge all of this to the private sector,” explained Ghanimeh. To attract more lenders, she approached large corporations and encouraged them to direct their policies of corporate social responsibility (CSR) towards microlending. “So I go to big corporates with big employees. I design a page branded with their logo, and the countries on which they want to focus.” Both employees and corporates can lend, and a system of dollar-to-dollar matching encourages lending. Companies are given an incentive to participate with a page on Pi Slice’s website tracking their loans.

On March 2nd, Pi Slice announced its partnership with Stanton Chase Middle East, a branch of the global headhunting and consulting firm. Stanton has subsequently launched its own lending page through PiSlice as part of their CSR initiative.

With an average ticket size of $1,500 dollars, Pi Slice aims to create 5,000 jobs for microentrepreneurs by the middle of 2015.

Though CSR has its critics and has not helped confidence in business which is still below 55 percent in many countries according to McKinsey&Company, CSR is nevertheless seen as a must for any serious company. Ghanimeh believes that CSR still has room to grow in the region, and is actively campaigning to promote it as an avenue for businesses to engage with their communities while still witnessing tangible benefits. She has spoken on the topic at institutions such as the London Business School and at events such as the recent CSR Summit in Jeddah.

Taking a slice

Pi Slice takes a commission fee of 5 percent off the transaction. Though Ghanimeh claims that the companies that have signed on were willing to pay the fee, they decided to waive it for the first year in order to focus on building traction. “When you’re doing a social business, (it’s) different that doing a regular business. It should not be focused on revenues, at least in the first phase.” She is confident that as corporate leaders see more stories of companies reaping the benefits of successful CSR campaigns, more will be attracted to their services. “Of course because this is something new. As people see case studies, we will have more enrollment from the private sector.”

The World Bank estimates that to deal with unemployment in the MENA region, a whopping 85 million additional jobs need to be created in the next decade. Microfinance has to date played an important role in financial inclusion and job creation. By diversifying the sources of microlenders, both by type by encouraging corporates to sign on and by scope as the online platform opens up the lending process to anyone with internet, Pi Slice has the potential to make a mark on MENA microentrepreneurship.

 

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The Buzz

Lebanon to ‘rejoin space race’

by Liam Ying
written by Liam Ying

The Republic of Lebanon is set to reignite its space program, more than 40 years after the first Lebanese rocket ascended 140 kilometers into the thermosphere.

In a landmark decision, the new government is seeking funding for a multimillion dollar program that could see the country send an astronaut into space within a decade, sources told Executive.

Created in 1960 as a science club at Haigazian University in Beirut, the Lebanese Rocket Society was the first attempt at a national space program. It had its heyday with the launch of the Cedar IV rocket in 1963 and inspired a 2012 movie.

Spurred on by this movie and the untapped potential of the Lebanese intelligentsia, the new space program will be much more ambitious and may even focus on developing commercial space tourism and shuttle services. Details of the new program remain sketchy and will not be released until approved through an extraordinary meeting of the National Dialogue Committee, said a former director general from the department of railways and public transport involved in planning the program. “The main aim, in these difficult times, is to remind Lebanese people of our untapped potential. This is among the cabinet’s top priorities,” he said.

The cabinet committee for exploration of interstellar resources on April 1 filed requests for funding with the International Monetary Fund, Make a Wish Foundation, Banque du Liban, and former Prime Minister Najib Mikati, all of whom signaled partially favorable responses.

Among the favorites to work with the government, however, are Virgin Galactic. A statement from Virgin’s President Sir Richard Branson said they were considering their options. “Lebanon, being the true center of the earth, is the ideal location for a space program,” he said in a statement. “And with the wealth of Lebanese talent, we would not need to hire expensive foreign expertise.”

An early sticking point, the former director general said, has been discussion of control over the ministry’s extensive resources. A senior figure in the March 14 political camp stressed to Executive the importance of state monopoly over space exploration, though he refused to comment on rumors that part of Saudi’s $3 billion grant to Lebanon will be used to fund the project.

There is also concern over the country’s fractious political balance, with concerns that the initial spacecraft may only fit three pilots. “We can’t have an unequal number of Christians and Muslims on this historic journey,” said the former director general. “I think we may have to just go with two pilots, or maybe appoint a foreigner to take the third seat.”

The move comes only two weeks after Syria announced it was to establish its own space agency, despite three years of a crippling civil war. It is not yet known whether there will be any collaboration between the two agencies, with fears of potential ‘space race’ across the Middle East. “It’s important for Lebanon’s standing in the world that the country is seen to be in space,” the former director general said.

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Real Estate

Bella Casa suspension: real estate on the edge?

by Karim Makarem
written by Karim Makarem

According to a report in French-language magazine Le Commerce du Levant, prominent Lebanese developer MENA Capital recently decided to discontinue a major residential project. This is the first time in years that a well-known company with great experience in mega developments has officially pulled the plug on a flagship project. The official reason: the very low sales ratio.

When it was announced in May 2012, the Bella Casa residential project in the Corniche el Nahr area stood out by combining a large project size with relatively small unit sizes. The project’s three towers (22, 24 and 28 floors) were to entail over 180 apartments and lofts, with apartment sizes of 120 to 264 square meters. Besides offering units that were described as affordable and convenient in size when compared with other projects in the capital, Bella Casa was to become “a gated community,” in easy reach of two of the city’s main business districts — downtown and Ashrafieh.

Almost two years after launching Bella Casa, the developer has declared that the project had managed to sell no more than 20 percent of its stock. This was despite an aggressive advertising campaign and a recent 15 percent reduction of the original launching price, which placed the starting sales price at $2,800 per square meter — among the lowest in the project’s neighborhood on the eastern periphery of the Ashrafieh district.

One explanation put forth by the developer is that the project catered mainly to the Lebanese expatriate community. Given the ongoing security crisis and the resulting economic stagnation, Lebanese living abroad are reluctant to invest back home.

A promotional video from the now discontinued Bella Casa project

Obviously, the decision has a financial cost to the developer — the expenses incurred in developing the architectural plans, obtaining construction permits and of course launching a full-blaze advertising campaign. The land, of course, retains its value and the developer can always resell it — at a profit.

A struggling market

Yet, this public acknowledgment of defeat, particularly by a large development company in Lebanon, with a very solid track record and some of the capital’s most noteworthy landmark projects, is a worrying sign for the rest of the industry.

Is this an isolated incident, the result of the specific strategies and design choices of a particular development company, or is it a sign of general malaise in the real estate market?

The market has been stagnating since the end of 2010. It started showing signs of decline when the first price drops were recorded toward the middle of 2012. Real estate indicators are in the red across the board: cement deliveries, new construction permits, volume and value of sales transactions, number of unsold apartments, sales ratios, etc.

Market data also points in that direction. Sales ratios in new residential projects have dropped over the past few years, affecting project financing, as residential projects normally obtain the bulk of their financing through pre-sales. In boom years, anything from 20 to 30 percent of a project used to be sold off-plan before the project broke ground.

The case of the suspended Bella Casa development is only one example among many that point to a sharp drop in the number of pre-sales. As these pre-sales finance the launching construction works of new residential projects, dropping pre-sales ratios will certainly have a negative effect on the launching of new projects.

Combined with waning demand, new projects are few on today’s market. For instance, not a single new project has been launched in the Beirut Central District during the past 12 months.

The relatively low sales ratios of projects currently under construction might not cause more market exits of new projects, as construction is already at advanced stages. But only established developers with an assured niche target market are embarking on new projects under such difficult market conditions.

The most probable scenario is that projects currently under way that do not cater to a specific niche clientele will continue to experience difficulties in selling their stock. New projects will most likely be slower coming onto the market.

For the moment, this one cancellation of a major development, although unseen before, remains an isolated fact. Demand for land is still healthy. Developers still seek new opportunities to purchase land to build. They are keenly aware, however, that they cannot make any development mistakes.

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In Yemen, kidnapping is a growing business

by Farea al-Muslimi
written by Farea al-Muslimi

Whenever we find ourselves strapped for cash, my closest friend in Yemen — an American citizen — and I joke that I should arrange for his kidnapping. We would surreptitiously take him to my village with the aim of eventually ransoming him for enough money to allow us to never have to work another day in our lives. He always responds by stressing that his country won’t pay, but inevitably someone will point out the possibility that the Qataris might.

Such jokes are drawn from an increasing phenomenon in Yemen: a foreigner gets kidnapped, the kidnappers demand a ransom, and then, allegedly, Qatar — via its allies in Sanaa — steps in to pay the ransom, securing the hostages release.

Kidnappings of foreigners in Yemen are far from new; the first incidents took place in the 1990s, in the south of the country. However, in the vast majority of cases, hostages were never harmed and ransoms were never paid. Rather than money, the demand of the kidnappers was usually in kind, such as a new road or the release of a prisoner from their tribe. As soon as the government began to respond to their demands, the hostage would be released, unharmed after something more akin to forced hospitality than a terrifying extended brush with death. Stories of kidnappings fuelled the rise of an odd — and, ultimately, poorly thought out — brand of tourism, as some foreigners travelled to the country with barely concealed hopes of being kidnapped.

Yet this phenomenon has now changed. Since 2011, kidnapping a foreigner has become one of the most lucrative of cash cows. Armed criminals now kidnap foreigners and sell them to Al Qaeda in the Arabian Peninsula (AQAP). No longer motivated by lingering issues with the government, today’s kidnappers have money in mind;  in 2013 alone AQAP made an estimated $20 million plus from kidnappings, ranging from $3-5 million per person depending on their importance and citizenship.

In March 2012, a Swiss English teacher was kidnapped in Yemen for over a year. She was abducted by armed tribesmen and then sold to Al Qaeda. According to Yemeni media at that time, the Qatari government paid the ransom via its local allies in Yemen — funding her release to Doha.

A few months after she was kidnapped, I discussed her case with a prominent southern tribal leader — from a part of Yemen known for AQAP’s presence — who was involved in negotiations aimed at releasing her before giving up out of frustration. The sheikh explained the details of the mediation process at length, stressing the importance of the government’s commitment to not attempt to free hostages while negotiations were ongoing. Another prominent tribal leader actually broadcasts updates on mediations he is involved in via Twitter.

Since Al Qaeda-affiliated militants were forced to abandon their hold on Yemen’s south, their income has decreased; the loss of control has robbed it of the revenues it gained by functioning as the local government. Buying kidnapped foreigners from tribesmen and then negotiating their release for a high ransom has more than made up for the loss. In the process, business opportunities have merged for many new actors, allowing kidnappers, negotiators and sellers to reap the benefits of AQAP’s new fundraising technique.

The new cycle of business is now more firmly established than at any other time in the country’s history. Kidnapping is no longer exclusive to foreigners in Yemen: relatives of rich Yemeni businessmen have been kidnapped by tribesmen to pressure their families on land or financial disputes, albeit garnering far less attention both locally and internationally.

Yemenis are familiar with the old joke: a tribal man asks his son to kidnap a foreigner to pressure the government over his demands. The next day, his son finds a Chinese worker and takes him back to the tribe. While the Chinese worker enjoys the tribal hospitality compared to his poor working conditions, the father worries that no one has come looking. After time passes, the father yells at his son for failing to kidnap a more skittish western European, leading him to release the hostage, who is reluctant to abandon the free food and lodging.

The joke is no longer funny. In its most recent resolution concerning Yemen in late February, the UN Security Council stressed that countries should not pay ransoms to groups who kidnap individuals. The topic has escalated to make the whole world worry about the new habit of making quick cash. Just as counter-terrorism in Yemen is a never ending cash cow, kidnapping is now a real and serious problem. At the end of the day, it’s business.

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Finance

Egypt’s stock market: Backing the crackdown?

by Thomas Schellen
written by Thomas Schellen

Political outrage may be good for news ratings but does not necessarily have much of an effect on stock markets. This was the week’s message if one scours the index movements on important global and Arab markets.

After the world’s leading economic powers announced on March 24 that they had given the boot to Russia over its Crimea policy and thus were the G8 no longer, indices such as Japan’s Nikkei and Germany’s Dax went on to have a jolly performance the rest of the week. This implied, according to analysts, that the cancellation of a G8 Summit in Russia was not a big deal because the G7 stepped back from firmer retaliations. The Moscow Exchange’s MICEX likewise continued its recovery from lows it suffered at the outbreak at the crisis.

North Africa

It would have been nice to see sensitivity of Arab markets to domestic decisions that caused outrage in the international community but there was no such luck. Egypt’s ongoing crackdown on political opposition had only a muted effect on its markets. In the week that the country announced that 528 Muslim Brotherhood members were to be executed, it was the worst performing market in North Africa – with the Egyptian Exchange 30 (EGX 30) index dropping over 200 points, or 2.5 percent.

Yet that may not be due to the crackdown on civil liberties at all. In fact, as the world on March 25 cried out in protest against the Egyptian mass death sentences, the market actually had its best day of the week and closed the day up. It was when the country’s new strongman Abdel Fattah Sisi on March 26 announced his presidential candidacy that the EGX 30 fell 2.7 percent on the following day. Market analysts in Cairo attributed the drop to a normal correction as Sisi’s announcement confirmed expectations that had been priced into the market’s recent rally.

Chart of EGX 30, 23-27 Mar 2014

In many ways, this ambivalence towards the dubious state of Egyptian democracy is a continuation of an ongoing trend. Since elected Muslim Brotherhood President Mohammed Morsi was removed from power last summer, the country’s stock exchange has boomed.

There was little movement to report from the other markets in North Africa. On the Casablanca Stock Exchange, the MASI reached its highest reading since December 2012 on March 27 but gave up 60 points the day after and ended the week flat when compared with its opening on March 24. The Tunis Stock Exchange’s Tunindex fell 0.6 percent, and neither of the two markets showed volumes that would hint at great excitement over either political or economic news in the two countries.

The Levant

One easily surmises that politics is always present in the moods on the Levantine exchanges these days. But that observation goes no farther than saying that the Near East’s entrenched political problems are big contributors to the entrenched illiquidity and weak enthusiasm of the Jordanian and Lebanese securities markets. Jordan’s ASE Index fell 0.5 percent in week 13.

Also in Lebanon, if the Beirut Stock Exchange has any energy left to reflect political moods, the Blom Index’s flat performance between March 24 and 28 signals that the world has to wait a bit longer to see a readable market expectation for the Lebanese presidential elections. According to the Lebanese constitution the elections have to be accomplished in two months’ time.

The Gulf

Riding 1.8 percent higher between March 23 and 27 and again best regional gainer of the week was Dubai’s DFM, the Arab securities market where the state’s ambition and participation is focused most directly on the economy and least on being a player in regional politicking. Not far behind, the Abu Dhabi market’s ADX Index advanced 1.5 percent and the QE index in Doha moved up 1 percent.

Two other markets in the Gulf Cooperation Council showed indices that barely moved: the Kuwait Stock Exchange index added a mere 0.4 percent and the Muscat Securities Market index in Oman gave up less than 0.1 percent. Bahrain was the GCC’s only perceptible loser as the Bourse Bahrain Index fell every day of the week for a total 3.2 percent drop. Profit taking seems a reasonable assumption since the BBI retreated from the bourse’s highest close for the year to date, which it achieved on March 20. For believers in higher justice an unrelated note of caution can be added, however, given that the authorities in Manama earned their own black mark on human rights by leveling 10-year prison sentences against 25 persons arrested over 2012 political protests in the tiny kingdom.

Another Arab market with big political news in week 13 was Saudi Arabia where the TASI ended the week 1.3 percent higher. The kingdom was all steeped in politics, with emphasis on royal issues. The two events of note were the visit by US President Barrack Obama and a new succession announcement by King Abdullah.

The American visitor was paying the king a visit to mend fences, some media said; others speculated about the future divergence of the two powers’ paths. Just prior to Obama’s arrival, the king had announced that his half-brother Moqren bin Abdul Aziz would be crown prince if current heir Prince Salman bin Abdul Aziz ascends to the throne, locking in the succession.

In the ever-popular game of guessing future Saudi directions, the royal succession announcement was a sure and immediate trigger for talks about the health of both Abdullah and Salman. If Salman were to pass on the burden, Moqren could be king sooner rather than later according to watchers of the royals.

The succession announcement was made official on the last day of the trading week but those sorts of decisions throw their shadows ahead. This makes it worth noting that investors in Tadawul, the Saudi Stock Exchange, appeared to bet on continuity. While the political news was brewing, trading volumes in week 13 tended to the lower side when compared with the previous three weeks. The TASI was also very calm just ahead of Obama’s arrival as the index accomplished its weekly net gain of around 119 points basically on the week’s first trading day.

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