Executive Magazine

Artistic vision on Beirut’s streets

by Maya Sioufi January 10, 2014

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.

January 10, 2014 0 comments

Society

Gurus of globetrotting

by Nabila Rahhal January 10, 2014

written by Nabila Rahhal

In today’s global economy, it is imperative for multinationals and large corporations to develop and maintain an international market to remain competitive. Whereas once upon a time that meant hefty periods of travel in any working calendar, today online meetings and virtual conference calls are beginning to replace the time and expense of travelling. But in Lebanon, where the internet connection leaves a lot to be desired, travelling is still really the only means to preserve relations with international clients, despite the cost.

Travel agencies in Lebanon have been quick to meet the demands of Lebanese businesses and multinationals that have offices in the country by establishing separate corporate travel divisions within their agenices to handle frequent travelers and corporate accounts.

Today corporate travel divisions are an essential part of Lebanese travel agencies. Selim Boutros, corporate travel manager at Kurban Travel, says their corporate division constitutes 60 percent of the agency’s business and handles more than 250 companies in Lebanon and the region. They achieve this mainly through their Hogg Robinson Group (HRG) section — an international corporate service provider and travel management company which Kurban joined in 2006 and for which it now acts as the regional hub and contact center in Lebanon and the Levant area — and also through the Kurban Corporate section which handles smaller companies based in Lebanon and the group’s meetings and events section.

Nadine Kekhwa, director of the corporate department at Nakhal & Cie travel agency, says they manage around 60 corporations in Lebanon for full travel packages, without counting the companies who book only airline tickets through them. She explains that, especially in the winter season, it is the corporate accounts — with their steady stream of travel — that bring in the most revenues to Nakhal, since most leisure clients go on only one or two vacations per year.

Although Wild Discovery declined to provide the exact number of their corporate clients, Claudia Rouhana, head of their corporate desk, says they handle “the biggest travel accounts in town.”

According to the travel agencies interviewed, clients are mainly from sectors with significant travel budgets, such as pharmaceutical, insurance and consultancy companies, as well as major banks and multinationals. Employees of such corporations, according to the agencies, travel mainly to Middle Eastern countries or to Europe and usually for a period of two to three days for either international conferences and exhibitions or meetings with clients.

For a corporate division to be viable to a travel agency, explains Kurban Travel’s Boutros, volume of travel is usually more important than company size or number of clients. Nakhal’s Kekhwa says that some multinational companies have such a big volume of travel that they need a dedicated employee to handle them separately. Such companies, whose accounts can reach up to $70,000 per month according to Kekhwa, bring in more revenue than several small client companies combined.

While the internet may not provide a reliable alternative to travel agencies in Lebanon, agencies nonetheless face competition when it comes to possible clients booking and finding deals online.

Agencies view themselves more in the role of consultants than airline ticket bookers for corporate clients, and though corporations can certainly use online resources to independently arrange their trip, agencies believe they are still irreplaceable as travel managers. According to Kurban Travel’s Boutros: “We are walking away from merely booking and more into management and consultancy, which cannot be achieved online. Our clients are very happy and surprised with what we do and we have double-digit growth figures in the corporate division.”

“It is true that Lebanese travelers tend to go online to look for competitive prices,” says Wild Discovery’s Rouhana, ‘‘but most of them rely on their travel agent to finalize the booking. The online platform is not seen as a real challenge for us as Wild Discovery launched an online booking engine last year — a complete online solution that compares prices and addresses the ticketing and hotel needs of its clients — and yet we still have a demand for consultancy and assistance from our business travelers, which implies that human expertise and know-how are essential.”

Corporations look for ‘‘flexibility, solutions, availability of a dedicated account handler and competitive rates,” from a travel agency, says Rouhana. While Kekhwa says that corporations generally ask for the whole package including hotel reservations, transfers within their destinations and visas.

The main concern for corporations when it comes to travel remains how much they can save financially without cutting down on important trips. Corporate travel divisions can help in this regard. “Some corporations have huge travel budgets both regionally and locally and are starting to be concerned. They realize they are spending that much on travelling but how are they spending it? Can they save and how can they monitor this? That’s where we come in,” says Boutros, adding that when they start managing corporate travel accounts, they save the company an average of 15 percent of their previously unmanaged travel budget, and can save up to 25 percent.

Kurban Travel, explains Boutros, is able to achieve these percentages by consolidating figures and savings with participating hotels and airlines made possible through HRG which provides them with the necessary large travel volume. “Let’s say we are spending $10 million with Middle East Airlines (MEA), we go to MEA and negotiate a better deal, over and above the traditional miles. Mind you, this only works with corporations with a specific volume and destinations,” says Boutros adding that when they take over an account, after researching it, they commit to a tangible amount of savings based on the data gathered from the company. The specific amount of savings depends on travel volume and complexity.

Kekhwa says Nakhal recognizes the importance of using their expertise to provide clients with the best rates in order to maintain loyalty: “If a corporation finds a hotel room at a lower price than the one offered by us, they will never use our services again and our goal is long term. This is why we have our contractors always seeking out the best rates.”

As part of their corporate travel services, Kurban Travel maintains a constantly updated and extremely comprehensive database of their clients’ travel needs and policies. This allows companies to maintain compliance with their travel policies as Kurban acts as their gateway, not allowing employees to book against the terms of the policy — which not only saves companies money but also the awkwardness of informing senior employees that they cannot book in a certain airline or hotel class. This database also functions as a tracking system, allowing large corporations to immediately locate and reach their travelling employees through text messages in times of crisis.

Nakhal’s corporate clients have 24-hour access to their agents through their personal cellphone numbers. They also have the option to settle their account at the end of the month in accordance with the terms of their agreement with Nakhal. “This is a service which our corporate clients enjoy; some corporations send their employees abroad on a weekly basis and you know how the accounting process is in corporations! It is more convenient for them to pay the statement of account at the end of the month,” says Kekhwa.

Wild Discovery’s Rouhana sums up their role by saying that in the business world, time is money and they can save their corporate clients time through handling all details of their trips and prevent them from facing the unexpected while abroad.

January 10, 2014 0 comments

Comment

Making the worst of a bad situation

by Joe Dyke January 9, 2014

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

January 9, 2014 0 comments

Comment

Iran comes in from the cold

by Gareth Smith January 9, 2014

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

January 9, 2014 0 comments

Economics & Policy

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

by Walid Fayad, Nadim Batri & Johnny Ayoub January 9, 2014

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.

January 9, 2014 0 comments

Real Estate

It’s a first-time buyers’ market

by Tiziana Cauli January 9, 2014

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.”

January 9, 2014 2 comments

Blue Gold aims to improve Lebanon's water system

Economics & Policy

Can civil society save Lebanon’s water?

by Joe Dyke January 8, 2014

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.”

January 8, 2014 1 comment

The Buzz

Executive Magazine Front Covers 2010

by Executive Staff January 1, 2014

written by Executive Staff

Executive Magazine has been producing in-depth reports about Lebanon and the Middle East since 1999. Here are all our front covers from 2010.

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January’s issue focused on future effects climate change will have on Lebanon.

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February’s issue focused on the Israeli siege on Gaza.

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March’s issue focused on the Lebanese real estate market.

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April’s issue focused on pre-war Lebanon.

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May’s issue focused on tobacco control in Lebanon.

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June’s issue offered an insight into the Lebanese dog fighting “sports”. You can read the article here.

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July’s issue focused on the government’s lack of plan to fight the increasing debt.

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August’s issue with a focus on the Ministry of Energy’s policies.

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August’s issue focused on surging price of wheat, and the government’s costly measures to dull the effects.

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October’s issue focused on who the real decision makers are in Lebanon.

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November’s issue focused on how to make money in times of recession.

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December’s main story is a review on the event’s that occurred throughout the year and an insight into the future.

January 1, 2014 0 comments

The Buzz

Executive Magazine Front Covers 2011

by Executive Staff January 1, 2014

written by Executive Staff

Executive Magazine has been producing in-depth reports about Lebanon and the Middle East since 1999. Here are all our front covers from 2011.

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January’s issue focused on the slow internet speed in Lebanon

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February’s issue focused on the “Arab Spring”, the revolutions that are reshaping the Arab world.

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March’s issue focused on the region’s future in the wake of the “Arab Spring”

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April’s issue focused on citizen journalism.

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May’s issue focused on USA’s warning message for Lebanon.

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June’s issue focused on the Lebanese economy that’s ready to crash at any moment.

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July’s issue focused on the new “Suited” cabinet of ministers, and how they should know they can’t blame anyone else for the cabinet’s mistakes anymore.

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August’s issue focused on the reappointment of Riad Salameh as governor of Lebanon’s Central Bank. The article can be read here.

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September’s issue focused on the future of post-Gaddafi Libya. It can be read here.

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October’s issue focused on the West’s sanctions against Syria.

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November’s issue focused on the wage hike preposition. The article can be read here.

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December’s main story is a review on the event’s that occurred throughout the year and an insight into the future.

January 1, 2014 0 comments

Editorial

The fall of the gun

by Yasser Akkaoui January 1, 2014

written by Yasser Akkaoui

The Lebanese civil war of 1975 to 1990 did more than destroy the country — it made it impossible to put it back together again. Institutions were demolished, corruption was normalized and, most importantly, a generation of militiamen rose to power who cared little about unity.

The founding fathers of Lebanon — those brave men (for they were sadly all men) who formed the country on the basis of independence, tolerance and moderation — were sidelined, never to return.

In their place the very same militiamen who fought each other for over a decade swapped the sword for the suit and learned to call each other statesmen. But clothes do not make the man and the majority of them have not changed one bit. They claim their share of the pie and keep their foreign masters happy but do nothing to help the country develop independently.

Since 2005, Hezbollah has become the latest party to be transformed from militia to pseudo-statesman, with the 2008 Doha Accords effectively offering them a seat at the top table. And in the past year we have seen a new player on the ground — the Salafis and Al-Qaeda affiliates — pushing for influence. They may be easy to dismiss but make no mistake; they are a rising force and are looking for their share. It is clear that any global agreement over Syria, which will impact Lebanon, will include them.

For those moderates that survived the civil war, it has been a cold winter as the rule of the gun has taken hold. We have been isolated and ignored; condemned as traitors for refusing to pledge allegiance to one foreign power or another.

But we may be seeing the first signs of spring. Prominent businessman Farid Chehab and others have launched the Blue Gold project, which aims to claim the country’s vast and deeply politicized water resources for the Lebanese people. In the process they aim to nurture a strong, independent civil society that puts the country first.

Their plans are grand, utopian some might say, and they are certainly flawed. But they are laudable. Civil society has to demand the impossible, if only to force action from the political class.

The rule of the gun never lasts. One day we will get our country back, and when we do we need a strong civil society to help us move forward.

January 1, 2014 0 comments