Finance

Credit Agricole Suisse

by Yasser Akkaoui
written by Yasser Akkaoui

Paul Wetterwald is the chief economist of Crédit Agricole Suisse, and was chief investment officer of Crédit Lyonnais Suisse from 1991 to 2005. Carine Hermon is head of private equity investor relations for Crédit Agricole Suisse. Executive sat with them to gain their perspective on developments in the global market. 

E   How can we make sense of the macroeconomic situation in the world today?

PW: I think that there are two points, one of which is that global growth is staying more or less at the same level, which is positive growth but at a lower level than before the big crisis of 2008. Now, we have various regional situations. Europe is back into positive territory in terms of growth but it’s lagging. We don’t have a figure but maybe we’ll have a weak figure. But what we expect is to still have low positive growth for next year with differences between Germany and southern countries. 

In the United States we expect growth to stay slightly above 2 percent, which means slight acceleration. And in China we think that we have bottomed out. The new rule for China is very likely 7 percent growth which is in terms of new money, new wealth — as much as when they had 12 percent on a lower basis. Something we have to keep in mind is that China is so large right now that 7.5 is a lot and maybe enough to supply the rest of the world. 

So positively, moderate growth and no inflation or risk in the mature economies, some inflation issues in the emerging markets. And in this context we have some central banks of mature economies that are maintaining very low interest rates. This is the main engine of growth for the financial markets and much more important than the rate of growth of gross domestic product (GDP) because when there is higher growth of the GDP we will have less accommodating central banks and this will be bad for the market. Next year, we still expect interest rates by the mature economies’ central banks to stay very close to 0 percent. 

It’s true that in the US the market is sometimes worried about tapering. What I would say is that tapering does not mean a narrower balance sheet of the Federal Reserve. This just means that the rate of expansion of the balance sheet will be lower. So it’s still expanding the balance sheet, but at a lower rate. And when they do this the Japanese central bank will print a lot of money at the same time. The European Central Bank (ECB) will likely restart long-term refinancing operations — maybe next January; the balance sheet of the ECB has been shrinking, so they cannot keep it like this. Economic growth in Europe is not strong enough for this. In the coming year you will have the asset quality review for the European banks and the stress test. And you know the stress test will be the first one that will really be supervised by the ECB, but I don’t think they will be the nice guys. They will try to find some bad banks and to compensate for this they will give a lot of financing at the beginning of next year.

Globally, a lot of liquidity will still be flowing into the market. That’s the point. Then of course if you think that 0 percent is not enough for short-term deposits you have to find other assets. This is the global picture. 

E   In France, there’s a big question mark about President François Hollande’s policies. What can we say about this?

I think that the first point is that a lot of French companies are doing business outside of France. What is happening in France is not that important for the big companies. 

The second point is that because of the structure of the involvement of the state in the French economy, consumption has always been very resilient. So it has given a cushion to European growth. Maybe you could say it’s not very healthy, but still it’s helping the consumers in France to stay afloat. And I don’t see that this can change very soon. So the short term in terms of the business cycle is not bad. 

Longer term, in terms of public finance, it’s still an issue. But we don’t see politics taking care of this. They are trying, but you see that every time they try to raise taxes on someone somewhere the people say, ‘Not us, [tax] the others.’ I think people have to learn that you cannot spend more than what you earn. There has to be a balance. 

Europe is making progress because if you remember 18 months ago with the collapse of the euro, we said Greece could go out, and still Europe is here, the euro is still here, and it’s actually strong. So I think we have to keep this in mind. There is a deficit of politics with respect to economics and this has to be filled out. It’s a slow process but we are not too pessimistic about this. What is true is that [the European economy] will remain low-growth rate — wealthy, but with low growth. Maybe [this will last] 2 to 3 years because of all the excess of debt that has been transferred to public finance. The only answer to the debt issue is you have to have time. You cannot expect debt to be resolved in two years. 

E   Switzerland has been under fire from the international community and is reassessing its own corporate culture. How is this affecting the banking and finance ecosystem?

Well I think it’s a new model that needs to be reinvented. You can compare it with the watch industry in the 70s when they missed the electronic watch and now the watch industry is doing well, but with way fewer people involved in the industry. So it could be the same for private banking in Switzerland. It’s very important for places like Geneva, but it’s much less important in other locations in Switzerland. It’s not like bankers are very popular people and everyone in Switzerland wants to save the banks. They saved the banks once in 2008 and now banks have to adapt. And specifically they will have higher costs in terms of legal and compliance work, so I guess the margins of the business will be lower. The Swiss economy globally is doing well despite the strength of the Swiss franc. Labor costs are high, but they are not getting higher. Whereas in other countries, the labor costs are increasing. In relative terms we are getting a bit more competitive.

E   How careful should banks be around the frontier markets, especially when alternatives have become very few around the world?

We have invested a small part of the equities into frontier markets through funds in order to get good diversification. But it’s difficult, and you have to know that it’s less liquid. When you look at the performance of those kinds of investments it looks like it’s less volatile. But those markets actually lack liquidity. So you have to stay in it for a longer period of time than usual. So, yes, we have a part invested in it, but it can only be a small part of the investment world. 

E   Now In 2013 it seems that private equity strategies are back. How did this image of private equity change and how did Crédit Agricole Suisse adapt to it? 

CH: Now to create value you have to transform the company. To have good performance in a private equity fund, you have to choose the team that can transform the company. So that is very important for us. Currently, at Crédit Agricole, we have deep due diligence on around 200 different general partnerships (GPs) and funds every year. And we choose only 10 per year to advise to our clients. And so that’s the first thing. We are concentrated on the team. That is most important. Because you don’t know where, or in which company, they will invest. So you have to be sure that the team will be able to invest in the good company. 

We are looking for different points. The first is the capacity to raise the target commitment. The second is the capacity to invest the raised money. After that what’s important is the capacity of the team to transform the company — sometimes change the management team, or sometimes the internal processes, and with external growth, so there are a lot of different possibilities to do that. At the end [of the process] it’s the capacity of the team to exit the company. 

To do that it’s important that the team have a realistic projection for the company and to say, ‘In 4 to 5 years I see the company to be like this and that.’ At the beginning, when they buy the company they have to know what they want to do with it. 

E   What is your approach when it comes to identifying target investments in the Middle East? 

It’s a shame but currently the Middle East is not a real area for private equity. Why? Because there is so much local capital that there is no opportunity for private equity. So currently there is no real opportunity in private equity. We can’t find any. There is no deal flow.

E   So the Middle East is perceived as a market where you pull money out from as opposed to investing in?

It’s not because we don’t want to. It’s just that there are no opportunities. Some private equity firms have few opportunities to invest in Africa and the Middle East, a little bit, but not a lot. The amount here is very low. The biggest place to do private equity is in the US, of course, but there are a lot of opportunities in Europe. I’m sure that we can find current opportunities in Europe, even if the market is not [experiencing] very big growth, and there are also opportunities in Asia. But in the Middle East, maybe in a few years we can find some opportunities, but currently there are none.

E   What are the expectations of your limited partnerships, and how have they changed in the past five years? Tell us more about your strategy. 

CH: When you have inflation on a growth of 3 percent, if you have only 5 percent of return it’s not good. But if you have 5 percent of return when there is no growth, it’s quite good. This is the same for private equity but on a different level. Currently, our goal is to have a return for our investor of more than 12 percent per annum. That is our goal. We select around 10 private equity funds each year. To do that we decided to invest in different geographic regions to diversify the portfolio: in the US, Asia and Europe. There are still some opportunities in Europe. 

PW: I think that the strategy is really an opportunistic one. I can name the companies I know, but Carine can give examples of companies in Northern Europe, Germany and Scandinavia. She can also give examples of companies in Thailand. So it’s more a case-by-case approach than telling you that they are focusing on you know, Italy. You have cases all over the world and it’s difficult to say we like this region more than that one.

E   What’s the process? You have your offices all over the world, and they will recommend GPs that are promising, is there a pre-selection?

CH: In fact, private equity work is quite small. Everybody knows everybody. So currently at the end of each year you know which new funds you will have in the next year. So you can expect that…you say, ‘Okay, I need to choose 10 different funds,’ after which you have different sets of due diligence, and then you say, ‘I will need some private equity fund invested in the US, one invested in Asia, one in Europe, we want some private equity in private equity debt, in private equity in capital, in equity, on real estate also.’ You have different debt like that. 

E   For the Middle East, have you been successful in identifying GPs that satisfy your ambitions?

No. not yet.

E   Although the private equity space is quite developed?

I know that, but for the moment at the beginning it’s critical to only focus on Europe because we are a French bank. After that we now have a team in Asia and so we will begin to invest there, and also we invest in the US because it is the biggest market now for private equity. We want to develop our investments worldwide, but for the moment we are more focused on these three areas. We have some GP who invest in emerging markets. And when I say emerging market it can be Asia or it can be Africa too. But we don’t select for the moment funds exclusively located in the Middle East or in Africa because it’s too selective. Maybe when we become bigger we will have more opportunities to propose to our clients and in that case we could have Middle East private equity funds. But for the moment it’s difficult to have something so specialized. 

We have a lot of our clients who come from Middle East and they would like to diversify their portfolio. So it’s simple for us to invest in Europe or in the US. They don’t want to have another fund in Middle East because they know it. 

E   We know that sovereign money or government money is the biggest source in the Middle East. What about individuals? How much do you focus your strategies of raising funds from governments as per other type of sources? 

PW: This is a private banking business. We are not looking for institutional money. 

CH: Yes, they can invest by themselves so they don’t need our advice to do that. In fact we are more focused on private people so we are not really [working] on an institutional level. Maybe if they need some help we can help them. But this is very rare because they have the knowledge.

PW: What is true is that the largest clients are pretty close to institutional. If you work with a big family for example you will have requirements that are really close to the investment authority. But basically in principle we don’t chase money from institutions.

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Business

Ambitious creativity

by Livia Murray
written by Livia Murray

Through a sliding glass door and up a white spiral staircase, the entrance to Innovo’s two-man office in the Beirut Digital District is guarded by a miniature army truck alongside a satellite dish. Though they look like toys, they were actually designed in the office’s small lab as side projects that Innovo’s founder Jad Berro and colleague Ihab Hajj developed when they weren’t toiling on projects for the clients of their hardware and electronics company. 

The creative process

The Innovo team use solutions devised through their more playful projects to give a creative edge to problem-solving in their contracted work, which includes work for Touch, Kidzmondo and Emirati telecom company Du.

“Most of the time the stuff I do for fun is related to the stuff I do for work,” says Berro. Spending roughly 70-80 percent of their time on contract work, they can then turn to their own projects the rest of the time. And it seems they might be onto something with their model since their creative projects often go on to inspire subsequent solutions for clients, demonstrating that playfulness can fuel creativity in business.

Some of Innovo’s side projects have obvious practical applications, some less so, and some remain purely in the domain of fun — although which category each fits into usually transpires late in the process. The satellite dish by the entrance is one project that began as pure fun, but later proved useful in developing products for clients. The dish tracks satellites and planes, providing information on their position, and can also pick up international TV stations. Latterly some of its algorithms and design elements were incorporated into client projects.

Although non-disclosure agreements stop Innovo from discussing the specifics of current clients, ongoing projects include robots, infrared sensors and receivers, and photographic drones. For previous customers it has designed products ranging from interactive vending machines to amusement park flying saucers. 

Berro launched the company in 2009, at the time delivering technology products to just a few clients. But, as he worked on more and more projects, he gradually gained in reputation until clients began approaching him. “I don’t even have a business card, it’s just people telling people,” he says.

The company’s work really took off two months ago, when Berro was approached by Tarek Dajani, chairman and chief operating officer of digital media umbrella group DNY, to work on a project whose content Berro could not disclose at the time of the interview. Since then they have moved to their current offices, joining the rest of the companies under the DNY Group umbrella. DNY delivers clients to Innovo, while Innovo brings a degree of technological know-how to the group. So far Innovo has two staff members but, by Dajani’s calculations, it’s likely to grow to 10-15 employees by the end of 2014.

The DNY culture

As far as creative thinking goes, Innovo’s recent integration into the DNY offices is in line with the work culture within the group. Experimentation “has been very much part of the DNA across the board in the companies,” explains Dajani. “You find yourself in a discussion with the client and a problem arises, or a constraint, and you would dig into what you’ve done for fun.” DNY has been experimenting for some time with various technologies. Its work with radio-frequency identification, a wireless data-transferring technology, dates back to around 2004-2005. “We’ve done a lot of projects. If I show you the list of things that worked, things that didn’t, things that made sense, things that didn’t, you’d be shocked,” says Dajani.

Dajani received his first degree in architecture at the American University of Beirut, and often likens DNY’s creative business approach to the process of architectural projects. Business and product development, like architecture, can be approached from a design perspective wherein the outcome of the product is not based on pure numbers but on a creative approach. “In design, you can have the same brief for a [piece of] land for architecture, and you end up with millions of permutations and designs addressing all the same constraints. That applies to business,” says Dajani. 

The DNY Beirut office, where the majority of its 80 employees work (the rest are stationed in Dubai), is designed to offer tools that stimulate communication and new ideas among its employees. Glass walls delineating different spaces give it an open feel and act as a note board, covered in scribbled plans from brainstorming sessions. The offices also contain a room of products that were previously designed for clients, and which stay in the building so staff can continue to work on improving them. “It’s a tough culture here because we’re demanding — no one settles for the obvious. We’re irrational sometimes in our expectations, very ambitious in terms of what we’d like to see and very rarely satisfied with the end product,” says Dajani.

Design thinking

Creativity has always played a large role in the technology industry, with innovation most obviously necessary in the research and development phase of product development. “But I think innovation is not just a tech thing — it’s a way of looking at things,” says Dajani. “There’s this design thinking approach to everything, this kind of philosophy, looking at business and designing across different disciplines. That’s becoming more the norm in terms of how you look at the business model and financial challenges.”

Popularized by big names such as Apple co-founder Steve Jobs, and David Kelly, founder of international design and innovation consulting firm IDEO, design thinking dates back to the first Apple mouse. It’s the idea that maintaining a healthy, creative culture among employees in a company will lead to more disruptive innovations. This entails changing the process by which you think in order to innovate. Adults tend to self-censor their own ideas, inhibiting creativity, so playfulness is positively encouraged to help counteract this process.

Why make the case for design thinking? One can cut costs with a smart fiscal strategy, gain a greater market share through smart advertising tactics and marketing, and continue to test new products to keep up with the changing world. These are all important elements in the routine of a successful company. But companies that have really stood out are those which are able to incorporate revolutionary ideas into their products. These are the companies that made a mark, that disrupted markets.

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Business

The startup upstart

by Tara Nehme
written by Tara Nehme

When you live in Lebanon and the startup you created, or work, for is taking you to France — you know you’re doing something right. That was the recurring thought running through my mind as I and 11 other unique startup founders headed to Paris in December, to showcase the achievements of the Middle East startup scene at the Arab Pavilion at LeWeb 2013. 

LeWeb, as described by its creators, is “an international conference for startups and all web entrepreneurs looking to kick-start and accelerate their business, reach global media or discover the next great idea,” and we were there to sell our souls. This might seem like an extreme move. But when you’re paying obscene amounts of money to enter a massive room with Guy Kawasaki on stage, and representatives from every media and investment powerhouse floating among crowds trying to seek out the next big thing, soul-selling seems like the best plan to set yourself apart from the entrepreneurial herd. 

From hardware to health, matchmaking to crowdfunding and online entertainment to retail, the 12 of us successfully seized the attention of everyone that mattered. A euronews journalist said it best when he titled his article ‘Middle Eastern startups the talk of LeWeb 2013’. 

Let’s talk about conferences. Conferences, in general, are not the most thrilling concept and are usually associated with monotonous speakers, bad coffee and sleep-inducing boredom. For me, that misconception was cleared up as soon as I began my startup life, and even more so after LeWeb; an unparalleled experience to say the least. 

layers of opportunity

High powered, large-scale events such as LeWeb offer four essential layers of opportunity. First comes the networking, the toughest yet most valuable part. My business cards were my arsenal; I just needed to figure out whom to hand them out to and how I could speak to the important people that initially seemed inaccessible. A proper alignment of teamwork and hustling was the key. You will never get to everyone, so referring people whose interests better suited other startups to them and having them do the same worked like a charm. During our three days there many of us set the basis for potential partnerships that could catapult our startup out of the Middle East and onto the global market. 

LeWeb was graced by Google and their mini kingdom of powerful workshops — the second opportunity — which addressed topics such as measuring the impact of effective brand campaigns to monetizing video traffic. Third were the startup pitches, where early stage companies presented to an array of investors, a process that has been proven successful at these types of events worldwide, and specifically in the Middle East. Winning second place at ArabNet in Riyadh at the end of last year, for example, provided Presella.com with the opportunity to go to Silicon Valley for a month as part of a mentorship program by Progress in Technology Middle East. 

Fourth come the speakers: international success stories and panelists. Hala Fadel, chair of the MIT Enterprise Forum for the Pan Arab Region, challenged the many misconceptions of the Middle East and discussed — with Instabeat founder Hind Hobeika as an example — how the many hurdles faced by startups in the region have actually proved beneficial as they have forced companies to come up with innovative, bulletproof solutions, making startups more immune to future setbacks. 

I left LeWeb having met hundreds of cool people and one major contact; the potential for that one key relationship is what makes conferences useful. The real question is whether you are going to do whatever it takes to find it and grab it. 

Our presence at LeWeb marked a monumental achievement for the Middle Eastern startup scene. We were all people that were a part of or created companies from nothing more than an idea on a napkin. Somehow, we turned these ideas into real companies and found ourselves in France talking to international press, investors and potential partners, ending 2013 on a high note. LeWeb’s tagline reads “Where revolutionaries gather to the plot the future” and that’s exactly what we did. I don’t think the term “revolutionary” is more suited to anyone than us Arabs because, where we come from, being revolutionary is the only thing that works.

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Society

In with the old

by Nathalie Rosa Bucher
written by Nathalie Rosa Bucher

While the bulk of Lebanese would not hesitate before buying a secondhand car, most frown upon the idea of purchasing, let alone wearing, secondhand or vintage clothes. Deeply engrained as this attitude may be, secondhand and vintage fashion is on the rise in Beirut. 

“I wanted to open a vintage store as I knew that in Europe it was [all] the rage but didn’t exist here,” Yasmeen Borro, owner of Vintage Story, says. Borro opened her boutique, the first of its kind in the Middle East, in Kantari in 2008. Initially, she had vintage clothes as well as accessories in store but quickly came to realize that while her clientele was open to buying and wearing previously used earrings or handbags, most drew the line with garments or dresses. 

“The thought of it being old, that it may have been fished out of an old suitcase or been found on a flea market or thrift store — I go to and find things everywhere, across Europe but also at Souk el-Ahad, in Tripoli and Sabra — is unbearable to most,” Borro says. 

Once she realized that previously owned dresses wouldn’t work, she concentrated on her own original creations, under the label Vintage Story, while also selling actual vintage earrings, brooches, necklaces, armbands, handbags, headgear and some clothes. 

“The old inspires the new and that works,” she says of her label, which she classifies as “high end.” She describes her clientele as mixed, consisting of Arab women; half foreign, mainly from the Gulf, and half Lebanese.

“Initially, I was convinced that you could find many things in Beirut,” she says of her sourcing process. “However, Lebanese women don’t keep much… people move, much has been given away. I sometimes get calls, and people offering me things at exorbitant rates. They offer me something for $80 that I can find in Europe for €20.” Consequently very few of the vintage items she sells are from Lebanon; most come from Berlin, Paris and Belgium. “I have a big purveyor in Brussels who manufactured classy leather handbags all his life. Every time I’m there I take some of his stock.”

While jewelry requires little work before being ready for re-sale, clothes need to be carefully inspected, dry cleaned, stains removed and any damage repaired. 

Once a year, Borro takes part in an expo, usually in the Gulf. “Women there love individual pieces. They try and outdo each other and are bold in their choices. They buy massive amounts of [vintage] jewelry!”

a new concept for beirut

Similar to Vintage Story, about half the items for sale at Naela Nammour’s Pink Henna are vintage and the other half new creations. Her Mar Mikhael boutique also specializes in vintage accessories, including handbags, jewelry and homeware. 

Nammour classifies an item as vintage when it is 25 years old or more. She has bags going back to 1900 and 1910 and almost every decade of the 20th century is represented, up to the 1980s. Over decades of collecting, buying and selling vintage items, she has become a vintage expert. 

“To me, secondhand is more recent, vintage is older. Vintage may be secondhand, but not necessarily as you sometimes find items that have never been used,” Nammour says. “I lived in Paris for 20 years and travelled around the world, and have collected a lot.” While she dearly holds on to many items found in various parts of the world, some of her own collectables constituted the initial stock for Pink Henna, opened four years ago.  Her customers are mostly locals. “Locals have discovered vintage, they often come to look for a present. [Then] the person who received the present often comes to look for the place where it came from,” she says. 

Nammour recently started a Facebook page and has relied on word of mouth. “We’re listed in the Zawarib [Beirut city map] and sometimes magazines or production companies come to take items on consignment for ads or shoots.” Vintage Story’s Borro, who has also relied on word of mouth, is setting up a website for her clothing label but otherwise prefers to remain niche and not advertise. 

To stock up, Nammour travels once or twice a year to comb through some of Europe’s flea markets, and works with a few professional buyers in various places, including France, the United Kingdom and the United States, from whom she gets most of her stock. 

Despite its rising popularity, a stigma still remains around vintage pieces. “The concept is new, Lebanese are used to the word but not everybody understands the concept. Many think that it’s never worn — not quite,” says Maya Kaddoura, founder of Washed and Found, an online buyers and sellers marketplace for vintage and luxury items. 

 “When I used to live in Europe there were so many dépot-vente [boutiques where high-end brands are sold at seriously slashed prices], you would have to beg to sell your things. Here it is the other way,” she says. 

“In France it’s more valuable to have an item that has history. Here, people are starting to get into it, often though not because of the idea, but because it’s less expensive. If they could buy something new they would. Things that work well here are handbags.” 

Her mother and grandmother’s beautiful garments sparked the idea for a vintage business. “I tried to come up with a project with limited investment. Initially, I considered a blog, but eventually opted for the e-commerce route,” Kaddoura says. She set up a slick website with high quality images and tried to do much herself, including retouching the pictures and finding the items to sell. “Setting up a payment gateway costs between $4,000 and $10,000 and, especially in Lebanon, many people are still getting used to the idea of buying online,” she says. 

After a soft launch in August 2013, Kaddoura did an official launch in November. “At the beginning friends of friends and friends of my mom’s were my customers, that’s how I also got my first items — word of mouth worked. Many people wanted to sell initially but the situation has changed somewhat as now there are a bit more people who want to buy. Things I sell now are more interesting as I know what people like and will buy…I have everything from fashion to accessories to shoes. I’m looking for jewelry, and I’ve just uploaded the first bridal pictures to the site. A Chanel bag is the item to have!” 

unique treasures

Kaddoura takes items on consignment and, once sold, 30 percent of the cost goes to Washed and Found, which covers the photo shoot, social media, retouching and handling fees.  

Those who want to view something need to do so by appointment. The 350 items in stock are stored in an empty office, cheaper in rent than a boutique.  

“My customers mostly consist of women aged between 18 and 40, people who want to sell are older. They have been holding on to their old clothes. Women aged between 18 and 26 are the youngest and largest group — they go for secondhand. A 19-year-old girl bought the first Louis Vuitton vintage piece I had.” Men don’t really feature, although a few have shown interest. 

Washed and Found, which employs one part-time assistant, ships internationally using DHL for international shipments and LibanPost in Lebanon. 

When the bounty of years of collecting claimed too much space in her house, Nawal Akl looked for a place to store some of it. “I got this flat in Mar Mikhael,” she says. “I rented it at first, and stored some of the many things I have here. The ‘untouchables’ are still at home.” 

Eventually Akl bought the flat and started to sell secondhand and vintage clothes, jewelry, accessories and shoes in 2011, to surprising success. “I thought I would have to make it work but it worked by itself. It pleases me when I see these items looking good on someone else.” 

The small flat on Badawi Street, named Depot-Vente, is the ultimate treasure trove, full of spectacular, ridiculous, chic and everyday items, where one can find genuine near-new leather boots for LL20,000, designer pieces, real fur coats or a 1970s bathing costume.  “I often find things during my travels,” Akl says. “And I go through cupboards… I also find contemporary stuff. I buy everything, and sell much at LL3,000. Everything that is well made, made longer ago or is handmade is priced differently, as are Italian and French brands. Items made in China — even Ralph Lauren or Donna Karan — are sold at LL3,000 because that is the production cost. When people now see something at H&M for LL80,000 they know it’s worth LL3,000. I do a sort of consumer education.” 

“This place allows people to find unique pieces. It allows for individualism and goes against conformity. We’re tired of H&M, Mango and Zara — everywhere in the world you see the same dresses and fashion.” 

It looks like secondhand is here to stay. Next year will see the launch of the e-commerce website, Garage Luxe, specializing in luxury brands. So far operating only on Facebook and Instagram, the store has a vast array of classics that could make it a game-changer on the scene. 

What matters to Borro is the fact that an old garment is given a second life. “Maybe with the crisis we’re experiencing, Lebanese will come to accept it more,” she says.

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Society

Artistic vision on Beirut’s streets

by Maya Sioufi
written by Maya Sioufi

Close to Beirut’s Sodeco Square, a painting of a LL100,000 bill has popped up. It’s not an exact replica of the real note. It features a portrait of the late and renowned Lebanese writer, artist and poet Gibran Khalil Gibran.  This is not the first time 20-year-old graffiti artist Yazan Halwani has painted influential cultural figures on the city’s streets. Stroll down Gemmayze and you will come across a large depiction of Lebanese singer Fairouz. Head to the industrial area of Qarantina and you will spot a portrait of the late journalist and political activist Samir Kassir.

An activist at heart

When he is not studying for his undergraduate degree in computer and communications engineering (CCE) at the American University of Beirut (AUB), Halwani is making Beirut’s streets prettier. Typically choosing walls crammed with posters of electoral candidates; Halwani brings them down or paints over them. “All our role models are politicians so I wanted to replace them with people that are more positive and influential. If we use them as role models instead, maybe the country will go forward,” he says.

Halwani is not just a graffiti artist and an honors list student. He is an activist at heart. His graffiti of Ali Abdallah — a homeless man well-known around the Bliss Street area whose death from cold early last year shook the AUB community — serves as a reminder “not to wait for someone to die on the streets because of the cold [but] to help them out, you can help anytime,” he says. He has plans to make his pieces work for the homeless but prefers to only share these ideas once they materialize. 

From French Rap to Beirut Streets

Halwani’s artistic journey started at the age of 14 when he was a student at the Grand Lycée in Ashrafieh. A fan of French rap, Halwani was influenced by several bands such as IAM and NTM, who talked of graffiti in their songs. He says he just wanted to be cool and drawing graffiti had something of a gangster connotation. His talent swiftly caught the attention of his friends and he garnered a long list of requests to design them graffiti nametags. As his artistic journey evolved, he started experimenting with calligraphy, an artistic form he now includes in many of his pieces. Eventually his work went beyond arousing interest among his friends and was spotted by renowned German graffiti artist Tasso. In Beirut on a commission for the downtown nightclub The One, Tasso reached out to Halwani and spent a day working with him on a piece in Ashrafieh’s Abdel Wahab Street. 

A costly endeavor 

Halwani’s first outdoor piece was a flop. He underestimated how many spray cans he needed and couldn’t afford to complete the piece in the Jnah neighborhood. That’s when he realized that to undertake further street pieces — some of which cost up to $800 — he would have to find a way to fund himself. So, he started selling canvases and taking work on commission. Starting off with his friends, his roster of clients eventually expanded to include media group LBC and Kuwait’s Zain Telecom. 

Last year he had his first, and thus far only, solo exhibition in Gemmayze’s 392Rmeil393 gallery entitled “Banana republic” — a reflection of his view of Lebanon, a politically unstable country with an economy largely dependent on the export of a single resource: human capital. On one of the gallery’s walls Halwani drew a smiling monkey wearing a tie representing the typical political candidate, with a banana in the background instead of the party’s logo. To poke fun at the quotes that go along with the electoral posters such as “For Lebanon only” he also modified one of Gibran’s renowned quotes. “If Lebanon wasn’t my country, I would’ve chosen Lebanon as my country” was replaced with “If Lebanon wasn’t my country, I’d opt for Canada as my country” to underline his frustration with politicians’ uselessness at curtailing youth emigration. 

Sadly Halwani feels his creativity is not utilized within his CCE degree. “It’s all about ‘previouses’” — the exams of former semesters — he stresses. He has no sense of fulfillment as he doesn’t “create anything; he feels the degree lacks innovation and creativity. In computer engineering, you can always create something new and that’s missing” he adds. And so he diverts his creative energy to the city’s streets, making them prettier and hopefully influencing passersby to ignore the political figures that don’t matter, and focus on the cultural ones that do. 

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Making the worst of a bad situation

by Joe Dyke
written by Joe Dyke

In mid-December, the United Nations made another international appeal for Syria, the sixth since the country’s three-year civil war began.

The numbers were staggering – a total of $6.5 billion was requested for the whole of 2014 to aid Syrians both inside the country and in refugee communities in Lebanon, Jordan, Iraq, Turkey and Egypt, a figure roughly equal to the public spending of Iceland last year. This would provide support to 16 million people, including over 800,000 in Lebanon — the smallest of Syria’s neighbors but the one with the highest proportion of refugees (around 35 percent).

One noteworthy thing about the appeal was the declining role for the Lebanese government. In total the appeal requested $1.89 billion to support both the government and the work of international bodies, primarily UNHCR. But the breakdown was not even — $1.7 billion for the UN and just $165 million for the government, less than 10 percent of the total. The previous year, the ratio was roughly three to one — $1.2 billion for the United Nations and $450 million for the government. This shift in policy appears to reflect a collective vote of no confidence in the Lebanese political class. While 44 percent of the UN’s $1.2 billion from 2013’s appeal received funding, the state fund received 0 percent; not one donor was willing to back the government’s work.

Lebanon’s politicians have accused the international community of failing the country, with caretaker Prime Minister Najib Mikati saying last month: “Lebanon has never hesitated to carry out its humanitarian duties toward the Syrian refugees but [we are] disappointed with the international community for neglecting humanitarian considerations.”

If Mikati is looking to place blame, however, he may do better by looking closer to home, as Lebanon’s politicians have completely failed to make the most of a bad situation.

It may seem paradoxical, but while the war next door has had many hugely damaging effects on Lebanon, it has also presented opportunities. Hundreds of millions of dollars have poured into the economy, brought both by fleeing Syrians and from the international community as it supports both refugees and host communities.

In the short term, the sheer number of refugees was always going to strain the country’s education, health and other networks. But proper planning from the government could have helped turn some of this investment into long-term gains, improving those same networks for the post-war future. The country has also failed to attract investment from the Syrian business classes, who have instead preferred Turkey.

The main reason the opportunity has been squandered is the collective inertia of Lebanon’s political class. Since the collapse of the Mikati-led government in March, there have been few meaningful attempts to form another one — making international donors increasingly jittery.
The ministers have remained in their roles in a caretaker capacity but have preferred mud-slinging to unity. From Hezbollah to the Free Patriotic Movement, all parties have proved better at blaming refugees for their woes than seeking to solve them.

Indeed last month caretaker Finance Minister Mohammad Safadi and caretaker Public Works Minister Ghazi Aridi were questioned over their responsibility following December’s floods. The two men accused each other of corruption and ultimately, in some bizarre paradox, Aridi announced his resignation from the already resigned government. Both came away convinced that they had won the argument, but the cumulative effect was to compound the belief that the entire political class is rotten to the core.

On top of this, the lingering stench of corruption increases the hesitancy of would-be backers. In mid-November Ibrahim Bashir, head of the state-funded Higher Relief Commission through which millions of dollars of aid are funneled, was arrested along with his wife on suspicion of transferring $10 million to private accounts abroad.

In such a context, it is little surprise that international donors are going around the government, not through it. French Ambassador Patrice Paoli perhaps best summed up the sense of despair when he described Lebanon as a rudderless ship. “This boat is heading right to the rocks and nobody seems to be able to do anything.” Who would want to put their goods on that ship?

Joe Dyke is Executive's Economics and Online Editor

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Iran comes in from the cold

by Gareth Smith
written by Gareth Smith

So far, so good. Few would have expected the early months of Hassan Rouhani’s presidency to go so well. World powers including the United States have, at least for now, abandoned the United Nations Security Council requirement for Iran to suspend all uranium enrichment — allowing Rouhani to claim they have recognized Iran’s ‘right’ to a nuclear program. Talk has resumed of a negotiated solution in Syria.

At the same time the president has promised that, regardless of any easing in sanctions, better economic management and tighter fiscal discipline will lead by March 2015 to renewed growth (GDP fell 5.8 percent in the year ending March 2013) and reduced inflation, from 40 percent to 24 percent. Should sanctions be lifted beyond the six months of November’s interim Geneva agreement then the economy will pick up faster.

In his first draft budget, announced last month, Rouhani seeks to balance the books by reducing government spending. Ministers have looked long and hard at a costly $1.5 billion-per-month legacy from Mahmoud Ahmadinejad; the cash payments to Iranians that have become near-universal benefits, although they were supposed to target poorer people and cushion them against the phasing out of subsidies on everyday items like bread and gasoline. This is sensitive ground, partly because of politics and public perception, and partly because any cutbacks could undermine growth. There are no easy options given what the president described as “so much recession and inflation together” (aka stagflation).

Rouhani’s strategy is simple and with a mandate from June’s election, and the blessing of Supreme Leader Ayatollah Ali Khamenei, he is well placed to carry it through. When I recently asked Paul von Maltzahn, Germany’s former Ambassador to Iran, to characterize Rouhani, he chose the word “determined” to describe the man he remembers leading negotiators in Iran’s 2003-05 nuclear talks with the Europeans. Rouhani’s clearest exposition of his intentions came in a 110 minute television interview in November marking 100 days in office. The president stressed the importance of “informing” the people and of “sharing” problems with them. Such honesty conveniently involves criticism of the previous administration. “You cannot fight the world with slogans,” Rouhani told viewers.

The Ahmadinejad government had been “the richest [ever] in terms of foreign exchange, oil and non-oil revenues” with an “unprecedented” $600 billion in oil revenue in its eight years. And yet Rouhani found state coffers so empty that he had to borrow from the central bank and delay capital projects to pay public sector salaries. Shaming Ahmadinejad is not an end in itself. Rouhani wants to build public and parliamentary support and thereby reduce leeway for critics, including over the nuclear issue. He is preparing parliament and the public for tough and controversial decisions. He knows that vested groups, including the Islamic Revolutionary Guard Corps, will try to defend their economic interests if challenged. On the nuclear issue, Rouhani has stressed he will defend the “rights” belonging to the people while following the “framework” set by the leader. He has insisted uranium enrichment within Iran is a “red line” — a stance compatible with accepting suspension of enrichment to 20 percent (for medical and other purposes), more intrusive international inspections and even limits on lower-level enrichment (under 5 percent) for power generation.

On the reformist agenda, Rouhani has pledged vaguely to end state “interference in culture,” something over which Ayatollah Khamenei has already expressed qualms. The government will be cautious in easing controls on the media and universities. Early release is unlikely for imprisoned opposition ‘Green Movement’ leaders Mir-Hossein Mousavi and Mehdi Karroubi, although the conditions of their house arrest have improved.

For now, critics are muted. Reformists are still relieved at Ahmadinejad’s replacement with a pragmatist who has brought centrists and reformists into government. They are delighted with the diplomatic initiative with the West.

On the other side, ‘principle-ists’ or fundamentalists may have stopped licking their wounds after Rouhani crushed their candidates in June. But they are restrained in venting their dislike of talks with the US or their contempt for the urbane style of the US educated foreign minister, Mohammad Javad Zarif. The reason is simple. Principle-ists believe almost by definition in vilayat-e faqih (rule of the jurist) and Ayatollah Khamenei has made clear Rouhani’s negotiators have his support.

Gareth Smyth has reported from around the Middle East for nearly two decades and is the former Financial Times correspondent in Tehran

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Economics & Policy

A long-term fix to the GCC’s water problems

by Walid Fayad, Nadim Batri & Johnny Ayoub
written by Walid Fayad, Nadim Batri & Johnny Ayoub

If you live in one of the countries of the Gulf Cooperation Council (GCC), the chances are that last time you ran the kitchen tap you were using water that was in the sea not too long ago. Desalinated seawater accounts for more than 4 billion cubic meters of GCC water annually, an astounding 75 percent of what’s used for domestic purposes. 

Desalination plants operating in Jebel Ali, Shoaiba and other ports represent a technological feat that shields most GCC residents from the fact that they live in climates that don’t provide sufficient naturally occurring water to sustain many basic activities. Saudi Arabia, the United Arab Emirates and Qatar consume more than 10 times the amount of annual renewable water.

GCC governments know how finely balanced their water positions are. They know that, under present conditions, they will not be able to desalinate ever-more seawater — a process that uses vast amounts of fuel and has an environmental cost. Officials know they are depleting  aquifers far faster than they are replenished. So they must intensify efforts to address the issue of water scarcity now if they are to avoid more serious problems in the future.

The good news is that the path to a sustainable water sector is clear. It comes down to three imperatives: managing demand, supply and the overall sector.

Managing demand

Despite living with what the World Bank characterizes as acute water scarcity, per-capita GCC inhabitants consume about 65 percent more water than the global average. 

There are many ways to discourage excessive usage. For instance, water tariffs set at a reasonable level would make consumers more aware of their water use. At the moment, most countries do not recover enough of the cost of producing water.

For households, tariffs could be structured so that pricing follows usage, with heavy users paying the most. Better metering and regulations addressing issues between owners and tenants can help achieve the full potential of tariff restructuring in the region.

Other regulatory enforcements, such as green building specifications and standards for water-dispensing devices, could also help reduce demand. For example, most GCC countries do not discourage companies from using drinkable water (desalinated at great economic and environmental cost) in sprinkler systems and decorative fountains. New regulations could end this and would make a difference.

 Above all, there is the opportunity represented by agriculture. The agricultural sector consumes over 80 percent of the GCC’s water, yet generates less than 2 percent of the region’s economic output. Some of this consumption is due to poor irrigation practices — leading to leaks, runoff, high levels of evaporation and more — while some is a consequence of growing water-intensive crops in a dry climate. 

GCC governments are already seeking to change how agriculture operates. In the past, they encouraged the sector to secure food supplies, diversify economies away from hydrocarbons and promote rural economic development. Now, however, they should promote better practices, including the use of timers and sensors to avoid waste. There should also be a recalibration of what to grow at home and what to import. Saudi Arabia has already told domestic wheat farmers it will stop buying from them in 2016. Some GCC countries have purchased farmland overseas, growing the crops needed for domestic consumption in places where water is less scarce.

It’s also vital over the long term to promote behavior change through education and information that leads to the adoption of best practices and the acceptance of new tariffs. Utilities can play a lead role in this, by providing consumers with more details about their consumption trends and levels compared to peers.

Managing supply

Good water policy begins with making the most of what each country has. In terms of supply-side management this means being more judicious about desalinated water usage. Instead of using desalinated seawater for landscaping and industry, countries can substitute treated sewage effluent, which has far lower environmental costs. GCC governments must also fix excessive leakage in distribution networks.

Finally, improved supply management includes collecting more of the region’s rainfall, using channels and drains in cities, and dams in less-populous areas. Oman does a good job of this, using dams to replenish its aquifers and supply its capital during periods of drought.

Managing the overall sector

This last imperative has three elements to it. The first has to do with countries’ institutional frameworks. GCC countries’ water sectors should be administered and governed centrally. They need strong regulators to oversee utilities, enforce rules, allocate costs and set tariffs. In addition, water-sector planning should be integrated so that policymaking is coordinated across the water, energy, food, and environmental sectors. In many countries, the planning in these sectors can be uncoordinated, resulting in less than ideal policies for both water conservation and the ultimate good of society.

The second aspect relates to research and development. Desalinated water will be necessary in the GCC for the foreseeable future, but there are less energy-intensive ways to produce it, including solar thermal and deep geothermal technologies. These energy sources are already in use, but are yet to be tested for large-scale applications.

The third element is laying the seeds, via government investments and incentives, for an ecosystem of local water-sector suppliers. This could possibly include companies that produce the membrane technology needed by desalination plants, that provide other services to such plants, and that supply chemicals to wastewater treatment facilities.

Finally, GCC countries can learn from each other’s experiences and similar initiatives around the world. Such knowledge sharing will allow them to improve their national and regional water position, thereby promoting sustainability. So while these three imperatives represent big changes, they are also within reach for GCC governments given the advances in their water sectors in recent decades.

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Real Estate

It’s a first-time buyers’ market

by Tiziana Cauli
written by Tiziana Cauli

Yaara and Tarek Kessouf are blissful newlyweds, full of excitement over their young marriage and the home they could afford to buy in the capital last year. They moved into their new 120 square meter (sqm) flat in the trendy Mar Mkhayel neighborhood in Achrafieh as soon as they got married last summer. The young couple initially considered renting but soon realized that buying was the better option for them, taking advantage of one of the 96,000 home loans subsidized in 2013 by Banque du Liban (BDL).

While it represented a welcome benefit that Tarek qualified for a subsidized loan available to buyers of a primary residence, it was not, however, a decisive factor in their decision to buy. The couple were determined and would have made the purchase even without the subsidies, they tell Executive, mainly because they found an apartment of convenient size, at a reasonable price, in the area they wanted.

The couple, both 28, are a perfect example of a new category of property buyers who, according to real estate experts, are moving the Lebanese housing market now that foreign investors are scared away by political instability in the region.

Although there are currently no statistics available regarding their market share in the past years, new families looking for their first house are identified by market experts as the segment of buyers who benefited from, and will keep taking advantage of, lower interest rates on mortgages — made possible by the central bank’s stimulus package for economic growth.

Over 50 percent of the $1.47 billion that BDL put at the disposal of the country’s commercial banks at 1 percent rate of interest in 2013 was aimed at supporting the real estate sector by encouraging lenders to lower the cost of mortgages. Every subsidized loan has a ceiling of LL800 million, or $530,700.

Boosting local buyers 

The central bank announced at the end of last year that the plan would be extended to 2014 with a total of $800 million available to commercial banks; after they used 75 percent of the initial funding by the end of September last year.

Easier access to housing loans is now expected to help boost internal demand and help the property market — one of the leading sectors in Lebanon’s economy along with services — pick up again after a significant drop in sales in 2013.

“We have noticed that this program is really interesting,” says Mireille Korab, head of sales with FFA Private Bank’s real estate subsidiary. Although she says that it is still too early to estimate the impact of the central bank’s measures on the housing market, Korab remains convinced that it has produced some positive effects.

“It did boost the demand for specific products, although this does not concern high-end buyers, but couples who want to get married and get a house,” she says.

According to Korab, demand in the Lebanese housing market is now mostly domestic and dominated by low-volume transactions involving small-sized flats below 100 sqm. Buyers, she says, are mainly newlyweds in need of primary housing who are likely to keep benefiting from more accessible loans through this year.

“The year 2014 should be a good one,” Korab says. “And this is because of the local demand. Local buyers are the ones who are moving the market now. Before, it was the foreigners.”

Korab said that local demand from couples is particularly steady and reliable as it involves players who “need to buy, whatever happens in the market.” In this sense, she adds, BDL’s package supporting housing loans may be hitting the right target.

However, these interventions can only be effective within a framework of potential demand. “Loans are for people who want to buy, not for those who don’t want to,” says Korab. “Those who didn’t want to buy will not buy anyway but couples who were reluctant because of the financial risk are now feeling more comfortable as they are keeping more cash in        their hands.”

Financial risks or high costs of mortgages are not the only source of concern for real estate buyers in Lebanon, and there is nothing that the central bank can do to alleviate these other concerns.

Instability and the Syrian conflict are fueling reluctance to invest, which is affecting the demand for residential property in all parts of the country. The security fears are a huge factor in Tripoli, the country’s second biggest market after Beirut, because local tensions are adding to the burden of external instability. But in Beirut too, the danger of conflict influences people’s investment moods.

“Lebanese do have a lot of cash,” says property broker Christian Baz, who has run a real estate agency in Achrafieh for the past decade. “But nobody wants to buy because they are saving in case there is a war and they have to leave. Even someone who really wants to buy would think twice now and prefer to put the money in the bank, which gives you 5 percent interest or 7 percent if it’s in Lebanese pounds.”

foreign assets

According to what Baz has observed while dealing with his clients, this preference for keeping assets liquid is now predominant despite a traditional Lebanese tendency to invest in property and land. The real estate agent said his business has declined by 50 percent in the past three years and he had to launch a property management service to support it.

He has little faith in the stimulus package. “It works but very slowly,” he says. “Banks are giving special loans to help families, but they come with many conditions. You have to occupy the house and can’t rent it out. And the difference in the interest rate is not very big, so some people would still prefer ordinary loans.”

A connoisseur of Lebanon’s real estate market, Baz said that if he had the money he would definitely invest in property. “I would buy three or four small apartments close to downtown Beirut. It would be a good investment as I could rent them out to foreigners who come here to work without their families.”

But, he says, he has three kids and a struggling property business to focus on. The stimulus package will not be enough to help him invest, especially as the prime area he mentioned is among the most expensive in the country’s property market.

According to Simon Neaime, director of the Institute of Financial Economics at the American University of Beirut, buildings in these high-price areas are often owned by foreigners who are not in any rush to sell up. “Thousands of flats are left empty in downtown, and their prices are not moving downwards,” he says. “Owners prefer to keep the assets rather than selling them at a loss.”

What worries Neaime is that the combination of inflated prices and reluctance to sell is not sustainable in the long term. “We may have a market crash similar to that of Dubai real estate,” he warns. The central bank stimulus package in his view will not be able to boost the real estate market as it does not remedy the main problem.

“The problem with real estate in Lebanon is not a lack of subsidized mortgages,” he says. “The problem with real estate, especially in Beirut, is prices. They have been structurally high because most of the demand was foreign, mainly coming from the Gulf. This means that prices are determined by outside factors. In Beirut, prices are outrageously high. They have lost 10 to 20 percent [in the past two years] but they remained abnormally high.”

According to Neaime, though, the ongoing retreat of Gulf buyers, who are slowly deserting Lebanon’s real estate investment market, may soon lead to further adjustments. “Due to political tensions there has been a decline in the Arab demand. In 2014 I see an additional 15 percent for a total 30 percent decline in prices. However, whether this will allow locals to purchase flats in Beirut is a different story.”

Foreign investors have been fleeing Lebanon’s property market in the past two years, according to research by Bank Audi, which places the decline of transactions involving buyers from abroad at 8.9 percent in 2012 and 8.6 percent in the first half of 2013 only.

This slowdown has already had a heavy impact on Lebanon’s property sector. Particularly in Beirut’s prime areas — where foreign investors have been traditionally predominant — the effects of their departure are visible in the number of empty flats still on sale.

According to experts, this category of buyers was not addressed by BDL’s measures, as their current reluctance to invest in Lebanon is not related to the cost of mortgages.

“The central bank has an excess in liquidity and they need to channel it somehow,” Neaime says. “But my impression is that the real estate market was never affected by low credit from banks. It has never really relied on loans but on fresh capital coming from outside. What we need is a market correction, which may happen if political instability prevails for some time.”

Although he believes that the effect of the stimulus package in boosting the property market will be very limited, Neaime admits that its outcome is likely to be a positive one overall. “It won’t produce any negative effects. This is the reason why they renewed it,” he says. “Real estate is driving the economy anyway and it’s better to have banks involved in that market rather than in government treasury bills.”

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Blue Gold aims to improve Lebanon's water system
Economics & Policy

Can civil society save Lebanon’s water?

by Joe Dyke
written by Joe Dyke

A completely new future for Lebanon’s water network; taking the sector out of the control of feuding politicians and into the realm of citizen control. Well at least that’s how it was billed.

The launch of the Blue Gold initiative, the first project from the newly-formed Civic Influence Hub (CIH), in early December was supported by an impressive line-up — the president, the prime minister designate and the caretaker minister of economy were all in attendance.

Yet while the CIH states a convincing and elaborately documented case that radical reform of Lebanon’s water sector is needed, there are doubts about the project — especially whether or not it has the necessary political support to be a success. In a country where civil society is often willfully ignored by the political classes, the project will need much more than the benefit of scientific accuracy to succeed.

The necessity of change

Blue Gold, developed by more than 30 experts over the course of a year, aims to completely rework Lebanon’s water network over a five-year period from 2015 to 2020. The need for change is clear. Lebanon has the highest amount of rainfall per capita in the Middle East, with an average of 8 billion cubic meters  a year, yet suffers from acute water shortages, with just 17 percent of that rainfall being used. In summer, residents of Beirut can go weeks without water — indeed even as the storms hit the capital in early December many houses in the city were dry. The primary reasons are well-known: a failing and politicized infrastructure network, lack of proper regulation and an extremely high level of leakage. Last year 48 percent of the country’s water was lost through holes and cracks in the network, 11 percent more than the Middle East and North Africa average.

In a report released in November 2012, the United Nations Development Program (UNDP) highlighted the dire state of water management across the Arab world. While the region suffers from a lack of rainfall, the primary cause of water shortages is mismanagement, the UNDP said, calling on states to “reorient policy, reform institutions, promote education and awareness, increase stakeholder participation, establish international agreements and link policy to research and development.”

The Blue Gold project aims to achieve all these things for Lebanon. The broad-reaching proposal suggests 15 ways in which the country can revitalize its water network, ranging from huge technical changes such as rethinking Lebanon’s network of dams to smaller projects such as harvesting rainwater from rooftops. The aim is to reverse Lebanon’s water shortage from a deficit of 73 million cubic meters of water (mm3) in 2011 to a surplus of 500 mm3 by 2020.

Mey Jurdi, head of hydrology at the American University of Beirut and one of the CIH’s expert advisers, believes that there has been nothing as comprehensive or broad ranging as Blue Gold before. Previous reform plans have not, she says, been “an integrated strategy of water resources — they have been lists of activities and this is the difference. When we say integrated water management we mean moving ahead with all areas together.”
CIH aims to be non-political and non-sectarian. Ziad al-Sayegh, CEO of the body, believes that the proposals could prove an all-important moment for public policymaking in the country. “Through water we can unify Lebanese people, from the north to the south. We are talking about a partnership for national wealth; this is new in Lebanon,” he says.

Waves of doubt

Lofty ideals, no doubt, but the mountains Blue Gold will have to move to make the project a reality are perhaps even higher.

The first concern is money. Implementing Blue Gold requires $5 billion, planned to be raised primarily from the private sector without them gaining ownership of the water. Asked about the specifics of the funding mechanism, Sayegh is a little vague. He stresses that it will not be privatization and that the “private sector will be an operator and a service provider but the infrastructure will be protected and owned by the state and by the people.” He continues by saying that some of the money could come from bonds bought by Lebanese citizens — “instead of going only to put your money in the banks, come and put your money in the sector.” He declines to provide further details on how the financing mechanism would work and what return rates they might offer.

Though the plan intends for the bulk of money to come from the private sector and donors, the appetite for international bodies to engage is limited. Public-private partnerships (PPP), the preferred method for infrastructure investments of this type, have yet to become a reality in Lebanon and international donors and multilateral development banks have grown weary of false promises from various Lebanese governments. Indeed in January 2012 the World Bank lent the Lebanese government $200 million for the development of the Greater Beirut Water Supply Project, which is currently behind schedule.

As such, the responsibility for funding will fall on the private sector. Ziad Hayek, secretary-general of the Higher Council of Privatization (HCP) and another expert adviser to the CIH, believes that if conditions were right the capital could be raised. “If the private sector sees there is an environment where it can make money, it will be interested. Every public-private partnership-type tender that has been offered to the private sector [in Lebanon] has had a large number of companies interested,” he said.

A perennial problem

Even if Hayek is right to believe that the money could be found if conditions were right, they are currently far from so. Lebanon not only lacks a PPP law but the various privatization attempts in other sectors, most notably telecommunications, have all ended in failure.

The most fundamental hurdle to Blue Gold’s success is the necessary legal framework. The water sector is currently run by the Ministry of Energy and Water (MoEW) and four water establishments. Blue Gold aims to replace these with a national water council, a water regulatory authority, a national monitoring center, a water users’ association and an independent watchdog.

The water regulatory authority would be the most powerful of these and would include representatives of the government, political parties and civil society. Sayegh is confident that there will be no significant legal hiccups in pushing this body through. “We are working to prepare new laws and out of them we want to implement the public-private partnership. [It will need] a law dedicated to the establishment of a national water council so there is a legal framework,” he says.

Talk of independent regulatory authorities in Lebanon is to be treated with suspicion. There is a long history of politicians committing to them in principle but not in practice, with the Telecoms Regulatory Authority and the Petroleum Administration providing two key examples of bodies that are in theory independent but in practice remain under ministerial control or influence.

Furthermore, there is little reason to believe that the MoEW would embrace the idea of handing over a key sector to the control of an independent authority. Off the record sources stressed that caretaker Minister of Energy Gebran Bassil has opposed Blue Gold.

In fact the ministry has its own proposal for developing the water sector: the 2012 water policy. Sayegh believes that Blue Gold develops this proposal rather than supersedes it, but there is no indication that the ministry sees it that way.

A new goverment

The implementation of the CIH’s bold water sector proposals will first require the formation of a new government in which the energy ministry will play a decisive role in the project’s chances of success. But even if a new government were committed to Blue Gold, the required legislation, the creation of an independent council and the money and technical expertise sourced from private sector partners all mean implementation could still face communal roadblocks.

A history of Lebanon’s water reforms

 

Younes Hassib, technical adviser with the Lebanese branch of the German development agency GIZ, points out that policies that make sense nationally are often deeply controversial on a local level. “On the ground it might be difficult as water resources are within a given community, and this community says ‘this is our water and we don’t accept water meters’ — these are things that we have seen,” Hassib says.

Partly for this reason, policies are often shelved in parliament for years, waiting for some seal of approval or another. Another factor is the structure of the legislative process, a well-known time consumer. Sayegh admits that even if the government were to adopt the policy, “it should afterwards be passed to the parliament [and] discussed in the committee dedicated to this — the Energy and Water committee.” However, he is enthusiastic that the committee will back the proposal swiftly. “We are already in contact with them,” he says.

Mohammed Qabbani, the head of that committee, tells Executive that he is as yet “not very familiar with the project” but would be interested in learning more. He has been a major critic of Bassil’s 2012 plan, which he says is corrupt, and would prefer to move forward along the basis of an earlier plan, drawn up in 2000. “I think we have a chance of reviewing the [2000] plan; I don’t believe that the plan is something sacred and I think there are mistakes in it. This might be a chance for us.”

With several obstacles standing in the way of the CIH, perhaps the most important thing for the organization is internal unity in making the case for their plan. The CIH professes to have a strong sense of purpose and a shared goal within the organization, but already the movement seems to be fraying at the edges.

Fathi Chatila, hydro-geologist and editor-in-chief of Arab Water World magazine, is listed as a participating expert in Blue Gold’s official five-year plan but says he has had little contact with the group. He accuses Fadi Comair, one of the members of the CIH’s steering committee and a long-time ministry official, of seeking to use a façade of civil society to gain access to new funds, alleging that the MoEW will seek to control the project. “Blue Gold is the best way to revive and re-nourish corruption… at the end of the day the ministry will still appoint the tenders,” he says. “[Politicians] have wasted public money so now they are [hoping to] make the private sector pay.”

Claims of corruption in public bodies are easier to make than to prove but it certainly suggests a lack of unity if such suspicions are raised by an expert listed in Blue Gold’s own literature.

Rising to the challenge?

Blue Gold is a technically solid proposal, according to both the people who worked on it and the parties that examined it, but the incredibly high barriers to implementation are perhaps an indication of why civil society is so reluctant to suggest policy in Lebanon. The predominant fear is that an ultimately innovative series of proposals will become stuck in Lebanon’s political quagmire.

“Everyone involved in this project is well-meaning but by advertising it so much I hope we don’t let people down,” HCP’s Hayek says. “People are going to expect results and unfortunately the CIH or civil society by themselves are not able to deliver the results. It needs government and it needs the cabinet to approve some legislation and send it to parliament and parliament to enact it into law. I worry this may take a long time.”

Yet, as Truman Capote once wrote, “Failure is the condiment that gives success its flavor.” So while Blue Gold may be unlikely to succeed in its entirety, some of its protagonists focus on it not because of its macroeconomic project value, which is as high as it is theoretical, but as an attempt to push policy, rather than politics, back into the Lebanese debate. And if and when there are achievements, they will taste all the sweeter. “I am very realistic and I know not all the projects will be implemented,” says AUB’s Jurdi. “But sometimes if you want to get a 90 you should aim at 100. If you aim at 30 you will end up at zero.”

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