Economics and Policy
France has drawn up a blacklist of 17 countries including Lebanon that do not help investigate foreign aid fraud, banning the use of their banks to help distribute development funds.
A row has broken out between European ambassadors and a Lebanese news agency after they reported Western governments were preparing to evacuate their citizens.
The LibanCall news service carried a report on Sunday in which they alleged that European states were preparing to evacuate their citizens from Lebanon following the mortar attacks that injured four people in southern Beirut on Saturday night.
European Union (EU) representatives denied the report and the agency has refused to apologize for the claim.
Related article: Lebanon sucked in to Syria
“European embassies are being [sic] ready to evacuate their nationals from Lebanon, a source told LibanCall” the up-to-the-minute wire agency reported.
Danish Ambassador Jan Top Christensen said there was no truth to the claims, accusing LibanCall of poor-quality journalism. “They don’t allow themselves time to check the information. If they had checked with the head of the EU delegation they would have been told this was incorrect information,” he told Executive.
Christensen said that the European Union formally asked the company to send a message correcting for the message, but they refused. He added that they had decided to stop subscribing to the LibanCall service after the report.
“Things like [this are] serious misinformation — they didn’t want to correct it, we tried from an EU side but they referred to freedom of expression, so I said we will talk about freedom of subscription,” he quipped.
A representative of LibanCall, who did not want to be named, told Executive that they stood by the story and claimed that sources in multiple European embassies had tipped them off about the plans.
Christensen added that he had been dissatisfied with the service provided by the company for some time, and that he felt much of Lebanon’s media was motivated by political motivations, rather than objectivity.
“There is some serious [political] editing at the newspapers…unfortunately there is little tradition of critical journalism – where they really review the so-called information and check views expressed by one person with maybe the opposite,” he said.
In the current economic uproar of Gulf markets, art is in the spotlight, and among the various genres, Iranian works are in high demand in Dubai.
“Galleries have been progressively setting up shop in Dubai for the last five years; today there are some 25 of them,” said Myrna Ayad, special project manager at Mixed Media Publishing, owners of the art magazine Canvas. The growth of the UAE art scene has been dovetailed by the advent of fine art auctioneers and valuers such as Christie’s or Bonhams, recently establishing offices or organizing auctions in the Emirates.
Initiatives such as the Dubai and Abu Dhabi art fairs have contributed significantly to developing the scene. Other events, such as hosting the collection of Jewish Persian Nasser David Khalili — one of the wealthiest men in England — have placed Dubai on the international cultural map. Sharjah having been named cultural capital of the Arab world in 1998 was another factor contributing to the development arts in the UAE.
The Middle East’s social landscape also plays in promoting art. “Its large diasporas include artists who fled their home countries due to political tensions, whether from Iraq, Lebanon or Iran,” Ayad underlined. Most artists are sponsored by other nationals residing in the West or in the Gulf, as shown with Iranian communities on the US West Coast and Iraqis in London.
Cosmopolitan cities like Dubai and Abu Dhabi have benefited to a great extent from this particular trend. Home to affluent communities who view art as another essential asset after their yacht, plane or house — according to Ayad — she noted that art is increasingly acquiring the role of a status symbol.
She pointed out that the UAE art scene has been pulsating for the last six years. When it comes to art forms “the collectors’ focus has been mostly on contemporary art, but modern art has also been gaining attention.”
Iran in demand
Iranian art, whether in the form of paintings, sculptures or installations, is widely accepted in the UAE, according to Mira Khoubrou, managing director at the XVA gallery, adding that “Iranians are among the most sought after artists on the Dubai art scene. Their productions are shown in galleries and have been collecting the highest prices at auctions around the country.” According to her, Iranian artists are frequently choosing Dubai as a base.
In the UAE’s large avenues, all the talk is on prominent artists such Faredoun Ave, Reza Derakshani and Ramin Harizadeh whose works include photography, installations or paintings. “Dubai’s particular location on the world map, close to Iran and of easy access to the Middle East and Europe, accounts probably for the development of Iranian art on the country’s scene, with pieces that were previously only exhibited in Iran showcased in galleries around the city,” explained William Lawry of Christie’s.
Ayad reckons that Iranian art has generated top dollar at recent charities and auction events including the rotating Magic of Persia auction. Pieces by Farhad Moshiri were recently sold for about $500,000 at a first auction, for $600,000 during the Magic of Persia event and for $900,000 at the recent Bonhams auction. Sherine Neshat is another mover and shaker of the Iranian art scene, with the artist’s mixed media creations having fared extremely well around the world.
The pretty Persian penny
In the last few years, the value of Iranian art has increased dramatically, propelled to new heights by Iranian collectors. “Pieces by Iranian artists are priced on the average in tens of thousands of dollars, with some varying from $60,000 to $300,000. Such figures exceed by far original levels witnessed only a few years ago,” explained Khoubrou who believes that purchases by Iranian collectors account currently for more than 60% of total Iranian art sales.
Reza Derakshani, an artist whose collection is on display at XVA, agrees with this figure. “Dubai has been following a trend long set by Tehran where most collections are still, up until now, privately owned. Demand for Iranian art has been growing steadily and I’ve noticed at the recent Bonhams collection that Iranian collectors were competing for certain pieces,” he said.
According to Lawry, higher prices for Iranian art are encouraging sellers to place pieces of finer quality on consignment. Khoubrou concurred, stating that “we have more and more requests from companies who wish to develop their private collections. In such a context, the amount of liquidity witnessed by the region is certainly helping the art scene.”
Maneli Keykavoussi, head of Middle Eastern markets at the Fine Art Fund Group believes that demand is fueled by scarcity of supply in an environment where collectors and museums are not natural sellers. Collecting art is a long tradition in Iranian society, which saw a peak at the time of the last shah, under the patronage of his wife, Farah Diba.
A diverse crowd, Iranian collectors can be divided in two main groups. The first is comprised of an older and more affluent group of connoisseurs while the second, younger group includes art aficionados who either wish to establish their own private collections or are simply looking into a new and more profitable investment class. Keykavoussi underlined the emergence of art as a new asset class: in the last few years the Fine Art Fund, which is a close-ended fund, has witnessed an IRR of cash on cash return of 59.68%, and 36% on assets sold.
“Art is moving out into the investment field. Its low correlation with the equity and money markets and negative correlation with the bond market makes it less susceptible to a downfall and positions it as a new hedging tool,” she adds. As an example, the Indian art scene turnover has grown from $20 million to $400 million dollars per year. “I do not see why this trend could not be applied as well to the Middle East region,” she said.
Iranian art in Dubai is mainly marketed through galleries and action houses. Derakshani reckons he is usually either approached by gallery owners or has contacted them directly. On the other hand, Ayad believes that Canvas has certainly contributed to the promotion of the local art scene through their worldwide distribution network and attendance of art fairs.
“Institutions such as Christie’s and Bonhams have also helped shaping the sector,” she added. With galleries sprouting in Dubai’s older quarters, art has certainly been given a new address de charme.
Arab patrons, although choosing to maintain a low profile, are also scouring the region in search of the perfect oeuvre d’art — their personal master piece, and indirectly tend to ultimately set a benchmark for art pieces and define what’s hot and what’s not, Ayad believes.
The young project manager underlined that it is not Iranian art that has become necessarily more popular but the whole Middle East that is emerging as a new art scene.
“Iran is large country with a sizable expatriate community, while Iranian art is definitely popular, but so is Middle Eastern art, after Indian and Chinese art,” she concluded. At a recent Christie’s auction Middle Eastern art reaped some $12.6 million, with Iranian art along accounting for $5 million.
“Although at the 2006 auctions, Iranian art was mostly sought after by Iranian collectors, of late it has generated more international interest, especially from Arab collectors,” Lawry pointed out, and added that the 2007 Christie’s auction, the first and second largest buyers of Iranian works were Europeans, while the third was an Arab .
Economics and policy
The price of oil fell on Monday as traders concerned about global energy demand took profits ahead of economic data from China and the United States.
Elsewhere on Monday, Gold rose –extending its gains after its strongest week in a month, as the dollar slipped and European stock markets steadied, while physical buying remained strong in Asia.
The economy in Lebanon's second city of Tripoli is rapidly deteriorating, local business associations have warned, as they reiterated calls for calm to be restored following another wave of clashes in the northern city.
The opposition Syrian National Coalition is on the brink of collapse after five days of fractious wrangling.
Kuwait has granted fellow Gulf Arab state Oman $2.5 billion to fund development projects as part of a regional programme initiated in 2011 after protests, Oman's state news agency reported on Monday.
Companies and Business
Qatar Telecom QSC has raised $12 billion to finance its bid for a majority stake in Maroc Telecom SA as it seeks to expand through acquisitions, its chief executive officer said.
Qatar has unveiled plans to build a $5.5 billion island off the coast of Doha with floating hotels to house football fans expected to flock to the country for the World Cup in 2022.
Despite the government’s official policy, Lebanon has never been truly dissociated from the Syria conflict. However, until late the involvement of Lebanon’s divergent factions across the border has been covert, opaque and from afar. In this past month, that has changed — bringing the conflict ever closer to home.
The deteriorating security situation is perhaps not surprising but it is disturbing. On a trip in early May to the Hezbollah stronghold of Hermel, north Lebanon, Executive stood with local residents as they inspected the red hot tail of a rocket that had just crashed into a hillside overlooking a family fairground. “This is not the first and it won’t be the last,” one of them said. Correct, he was.
As he spoke Hezbollah was escalating its involvement in the bloody battle for the town of Qusayr, eight kilometers into Syria. A rise in the number of their fighters coming home in body bags has followed.
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The EU's pointless Syria gesture
Perhaps inevitably, as violence in the socially and economically dislocated Beka’a grew, the conflict enflamed again in Tripoli — the scene of on-off battles between groups in support of and opposed to Syrian president Bashar al-Assad for years. The body count from more than a week of fighting reached 29, including two Lebanese soldiers.
Then on Saturday, Hezbollah leader Sayyed Hassan Nasrallah delivered a speech that defiantly nailed the party’s colors to Assad’s mast. Describing the government in Damascus as the “backbone” of the resistance to Israel, Nasrallah declared, “We entered a new phase a few weeks ago: the phase of fortifying the resistance and protecting its backbone.”
Only hours after Nasrallah had proudly declared his party’s involvement in Syria, the violence within Lebanon completed its advance to the capital Beirut with two 107mm rockets slamming into the Shia and Hezbollah dominated Shiyeh southern suburbs. Five people were injured — and another unsettling line was traversed.
A battle for confidence
All of this is catastrophic for confidence, which is paramount for the Lebanese economy. One need just look at Banque du Liban’s — Lebanon’s central bank — coincident indicator (which gauges the country’s economic activity) to see how responsive the economy is to political and security developments. “In Lebanon confidence is the most important thing. Politics is 95 percent of it. You can feel it from the restaurant to the stock market,” observed Mazen Soueid, chief economist BankMed.
Foreign direct investment and consumer confidence have nosedived and growth in the economy plateaued at 1.2 percent over 2011 and 2012. A reflection of this debilitated situation came with the Moody’s downgrade in mid-May from stable to negative for the outlook on government bonds and for the deposits ratings of the country’s three biggest banks.
The security crisis is both related to and compounded by the almost complete paralysis of the political establishment, and this in turn is further stripping whatever confidence remains that Lebanon can shelter its economy from the Syrian tragedy. “We really need a government that can neutralize the economy from the political environment; this is especially true with everything that we see today,” said BankMed’s Soueid.
However, the resignation of Prime Minister Najib Mikati in late March has stripped the executive branch of its ability to pass any new decrees — reducing it to little more than the guardian of day-to-day business. Furthermore, despite the media circus of negotiations, it is now highly likely that the lack of consensus on a new electoral law will mean parliament’s term will be extended — a move that is constitutionally dubious to say the least.
Perhaps the biggest indicator of the lack of faith in politicians and the government to help shore up the flagging economy is the increasingly vocal reticence of Lebanon’s powerful banking sector to keep on unconditionally financing the national debt. “The banks have reduced their exposure to Lebanese pound-denominated treasury bills and while we continue to exchange Eurobonds I don’t think we will continue to indefinitely subscribe if there are no concrete reforms,” warned Nassib Gobril, head of research at Bank Byblos.
The central bank has stepped in to fill the void and buy up government papers in what is ultimately a short-term fix to an unstable and unsustainable situation. For now this intervention will keep the government afloat and stop interest rates from spiraling skyward, which would further hobble the economy.
Restoring some vestiges of confidence in the economy is first and foremost predicated on security. Although this month’s events don’t bode well, a good first step would be if all the involved parties, and they are plenty, were to step back from the affray, tone down the vitriol and show some commitment to the welfare of Lebanon.
If at least a veneer of stability can be maintained then perhaps the nation and its economy can be saved from being washed up on the rocks. This of course requires concerted political will. As the seeds of sedition are strewn around us, it is a tough ask to expect anyone to fix that conundrum.
In next month’s magazine, out on Saturday, Executive will dig deep into the country’s banking sector and whether it is the last hope for a faltering economy. To subscribe click here.
Operating a high-end diagnostic center in Lebanon may be life saving, commendable and personally rewarding, but the financial returns are unlikely to match those from a plastic surgery outfit.
Imbalances in the public and private sector reimbursement systems for diagnostic exams have distorted yields, conclude the partners of Doctors Center Radiology (DCR), a $10 million dollar facility established in 2000 in Beirut’s Hamra district.
Related article: Lebanon’s declining health spending
Danger awaits an unhealthy sector
“Some months we are in the negative, and some months we are in the positive,” says Dr. Anis Nasser, the center’s co-chief radiologist and founding medical strategist. “We are overall positive [in the financial results] but not as greatly positive as everyone imagines, due to the policy of the Lebanese government and the insurance companies.”
He tells Executive that inflation, expanding overhead costs and capital expenditures have weighed down the center’s bottom line. Meanwhile, compensation rates from the National Social Security Fund (NSSF) and commercial insurers have remained the same over many years, or have even decreased.
The financial compensation of diagnostic centers is not necessarily correlated to the quality of their physicians and equipment, adds Dr. Sami Faddoul, medical partner with Dr. Nasser in the venture and an assistant professor of radiology at Columbia University in New York.
“Unfortunately, in Lebanon nothing is standardized. You could have a [magnetic resonance imaging] machine that costs $50,000 and a machine like ours that costs $1.5 million. You can imagine the difference. But both [scans] are called an MRI and both are paid at the same rate by insurance companies and the NSSF; the reimbursement is the same.”
Nasser and Faddoul say that Lebanon is home to “hundreds” of diagnostic centers.
By their self-assessment, Doctors Center Radiology is the busiest center in the country and one of very few that have a full range of advanced radiology machines. They did not disclose to Executive the average daily number of patients at the facility, which employs four specialists and 45 staff members.
Healthy competition
The business model of Doctors Center Radiology is built on two pillars: quality diagnostic machinery and physicians, and strong customer service.
DCR also benefits from a favorable address. Since its inception, the center banked on locating its premises near to the American University of Beirut Medical Center (AUBMC). Nasser says he is well known to the doctors at AUBMC and has drawn referrals from them since he opened the center.
The relationship between the center and AUBMC is more one of collaboration than competition, Faddoul adds. Patients who would have to wait days for a radiology exam at AUBMC can expect a faster treatment at DCR because its customer service is more flexible than the bureaucracy of the quasi-public university hospital.
Competition for business among radiology centers nonetheless appears intense and the impending creation of a rival center in a new building next door on Bliss Street is not a cherished arrival, judging from subdued comments by the two doctors.
Still, the doctors describe the interplay of clustering and constructive competition among diagnostic centers as beneficial overall because it pushes the providers to continually improve.
When the center invests into a new state-of-the-art MRI or positron emission tomography (PET) scanner, other centers and hospitals are provoked to upgrade to the same level, according to examples cited by Nasser.
Top dollar diagnosis…
Radiology is a “cornerstone in making an early and proper diagnosis”, says Faddoul. The discipline employs traditional X-rays, positron emission tomography (PET), and everything in between. Faddoul adds that because radiology is dependent on technology, it is the fastest growing specialty. “Every year there is a new modality and a new way of medical diagnosis.”
Because of this, it is imperative for radiologists to install the highest quality — and therefore highest cost — machinery to achieve the best results.
The machines of the highest diagnostic capabilities, however, are sometimes operated at a revenue loss because the center is reimbursed at sub-par rates from commercial insurers or the NSSF, both of which are indifferent to the higher complexity of the advanced scans.
DCR’s investments in the top machines pay off, though, because they attract patients to the center and increase the facility’s market share. The resultant higher usage rate of the entire set of radiology equipment translates into higher profitability on the balance sheet.
“We believe that quality pays, and we are not stupid,” says Faddoul. “We did not buy a $2.5 million MRI machine just because we have a lot of money and want to spend it on machines. Our philosophy is quality; so we invested in quality and are cashing in on quality. “
Patients are the main beneficiaries where competition on quality induces operators to invest in having top machines and top physicians.
…pays its way
The biggest remaining problem then, is the inadequacy of fees that the NSSF and insurers are willing to pay. In being agnostic on the quality of the diagnosis, commercial insurers push their policy holders to rely on cheap diagnostic centers, both Nasser and Faddoul lament.
According to Faddoul, the insurers are ill-advised and they risk losing large amounts by the way in which they direct their policy holders to radiology centers. “The majority of insurers push their policy holders to go to the cheapest places, and cheapest means bad quality,” he says. “If you give patients a bad diagnosis, it means bad surgery, and whatever you save on the MRI makes you end up paying big money in extra hospital costs.”
He recommends that insurers commission studies comparing hospital admission rates from cheap, mid-range, and high-end radiology centers. Variances in admission rates and hospitalization costs will highlight the long term cost-savings inherent to higher-quality radiology.
Diagnostic centers can compensate for price pressures from low reimbursement rates only to a point without jeopardizing the quality of their exams, says Nasser. He adds that investments in latest generation machines can be delayed if amortization of the equipment takes extra years.
The NSSF recently announced upward compensation adjustments for radiology scans, but raising the payment for an ultrasound scan of the kidneys from $40 to $48 was not enough to compensate the cost increases that operators have faced in the past few years, Nasser notes.
This all notwithstanding, the business skill set of operating a diagnostic facility is in substantial demand and Nasser sees regional and domestic growth potentials for Lebanese radiology centers, despite the issues they face. He admonishes, “Things are not as bad as they may appear but what is bad is that there is no control over quality, no control over qualification of doctors and no control over prices.”
Economics and Policy
The resignation of Kuwait’s oil minister Hani Hussein has been accepted, local media reported, after he came under pressure from lawmakers wanting to question him over a $2.2 billion compensation payment to Dow Chemical Co.
Arab spring countries face rising social tensions that could thwart an early economic recovery from over two years of political turmoil that has worsened fiscal pressures and threatens macroeconomic stability, a senior IMF official said over the weekend.
The United States has launched a $4 billion development fund aimed at transforming the economy of the West Bank and restarting the Israel-Palestinian peace process.
Just three percent of UAE workers are happy with their current salary, according to the findings of a poll, while 67 percent believe they are underpaid compared to their industry peers.
Companies and Business
Dubai mall developer Majid Al Futtaim Holding is looking to raise at least $500 million from the issue of a hybrid debt sale to finance its buyout of French hypermarket chain Carrefour’s stake in a regional venture.
Jordan’s Arab Bank, the country’s largest lender, expects double digit profitability in 2013 as much lower provisions and steady growth in net operating income improved the bank’s bottom line.
Daewoo Shipbuilding & Marine Engineering Co Ltd has won an 897 billion won ($796m) order to build oil production facilities in the Upper Zakum oil fields for the Zakum Development Company (ZADCO), a subsidiary of Abu Dhabi National Oil Company.
The Lebanese might be excused for laughing at the suggestion that their country is set to become a regional telecommunications hub. But while farcical Internet speeds, unreliable service and inflated prices justify such cynicism, the man at the helm of the sector, Minister of Telecommunications Nicolas Sehnaoui, insists that this is indeed the path on which Lebanon is set.
In an effort to improve the country’s languishing state of connectivity, the Ministry of Telecommunications (MoT) and the Cyprus Telecommunications Authority (Cyta) entered into an agreement in early March to share capacity on Cyta’s Alexandros submarine cable. Lebanon will enjoy 24 percent. Designs are also under way to construct a new submarine cable, dubbed “Europa,” that will link Cyprus to Lebanon.
Lebanon today relies primarily on two international cables for its Internet connection: IMEWE (India-Middle East-Western Europe) and Cadmos. Beginning construction on the new Europa cable is critical, as it is meant to replace the Cadmos line, which is scheduled to ‘die’ in five years. According to a June 2012 MoT market report, Lebanon’s contribution to the construction of the cable will be less than $10 million, excluding the cost of the equipment.
“I am very proud to say that this step is a historical step for Lebanon [and] Cyprus,” said Sehnaoui in a press conference in Sassine Square to announce the deal. “It gives us the redundancy we badly need because no regional hub can claim it is a regional hub if it doesn’t have redundancy.”
The need for redundancy was stressed last summer when Lebanon’s connection to IMEWE was damaged. A country-wide Internet blackout lasted for several days, and the MoT estimated $11 million per day in economic losses.
The Alexandros cable can potentially provide up to 700 gigabytes per second (gbps) of additional Internet throughput to Lebanon. This may rise with future technological advancements. This augments the 200 gbps of capacity currently available on IMEWE and 79 gbps on Cadmos. Lebanon’s actual in-service capacity, however, is closer to around 30 gbps today – a significant increase from 3 gbps in mid-2011. This figure represents the rented capacity on the submarine cables as well as the local fiber-optic transmission capacity in place to handle the bandwidth to-and-from the international Internet gateways.
“Eventually, we want to be able to sell capacity. We have now a cable that connects Lebanon to Syria,” said Ministry Adviser Firas Abi-Nassif. “We can sell on any cable such as IMEWE or Beritar [an Internet cable connecting to Syria].”
Abi-Nassif remained vague on how much bandwidth will be distributed domestically versus sold regionally, but he maintained that the first priority is to distribute the additional throughput to Lebanese consumers. He noted that the current political situation in Syria might dampen plans to distribute excess capacity.
Unused bandwidth is necessary for future upgrades and unforeseen connection problems, making it integral for development in the sector. However, while more international bandwidth should translate into faster speeds and lower costs, the ministry still needs to overcome several obstacles if they are to capitalize on all of the additional capacity that they have purchased.
Beset by in-fighting
“Delays have hit the utilization of increased international broadband bandwidth, with the finger of blame pointed both at the government and Ogero,” said Tom Shepherd, research analyst at TeleGeography. “Political squabbles continue to beset the [telecommunications] sector.”
Ogero is the cornerstone of Lebanon’s telecoms sector, responsible for connecting the telecoms network internationally as well as internally. Although in theory Ogero is government-owned and operates under the supervision of the MoT, it has often acted against MoT policies, leading to confusion in the industry and delayed Internet access for users.
When the IMEWE cable was first opened in December 2010, Ogero and the MoT clashed publicly, with more than eight months passing before the international bandwidth was distributed to consumers in July 2011. The conflicting political affiliations and agendas of the MoT and Ogero are likely to remain a deadweight on the industry’s advancement in the foreseeable future.
Ogero has also been accused of not distributing bandwidth packages to Internet service providers (ISPs), akin to choking competition in the supply of Internet. These packages, known as E1s, are what allow ISPs to deliver Internet to consumers. By restricting their supply, Ogero is inhibiting private ISPs from competing with the state.
Ministry Adviser Abi-Nassif confirmed that ISPs claim to have not received their mandated E1 allocations from Ogero and maintained that “there should be absolutely no reason why, for other than technical reasons, there should be problems giving [out] bandwidth.”
Falling at the final hurdle
Another hurdle facing the MoT is modernizing the ‘last mile’ connection of the delivery network, where speeds bottleneck in Lebanon. If infrastructure between ISPs and consumers remains outdated, end-users will not enjoy higher Internet speeds despite the additional bandwidth from abroad. ISPs are not legally allowed to install these ‘last mile’ connections; they must rely on Ogero and the MoT, instead.
“Before IMEWE, there was no reason to do a proper network so there was almost no fiber optic network,” said Denys Fedoryshchenko, information technology consultant at Virtual ISP, a local service provider.
The ministry’s plans include rolling out a fiber-to-home project in select areas as well as upgrading current connections that use older technology such as DSL. The ministry aims to have 100 percent ‘last mile’ coverage from these two initiatives. Ogero, however, recently announced that they had not received funding from the MoT for their projects over the past two years. Abi-Nassif acknowledged this and said that whatever funding Ogero needed for the ‘last mile’ connection, “the ministry is happy to provide it.” He declined to comment on where funding for the fiber-to-home project would come from. Minister Sehnaoui also announced in December his plan for “delayering” or restructuring the industry, aiming to decrease the government’s presence and allow privatization in certain areas. Most of the press on the new plan has focused on what this means for mobile, but the MoT confirmed to Executive that the delayering plan applies to the whole industry. The plan has come under considerable scrutiny as it does little to encourage meaningful private sector involvement and is likely to only superficially increase competition or incentivize infrastructure investment.
In a global ranking of Internet download speeds, Lebanon ranks number 153 out of 184 according to NetIndex.com, fairing worse than Afghanistan and Zimbabwe.
Although the ministry has made some commendable headway, such as through the Alexandros cable deal, major political and technical obstacles remain. There is still a long way to go before we are even close to the minister’s stated goal of Lebanon becoming a regional telecommunications hub.
Economics and Policy
A controversial pipeline between Iraqi Kurdistan and Turkey, which would allow the Kurdish Regional Government to export hydrocarbons without the backing of Baghdad, is almost complete.
US President Barack Obama has defended his policy of drone strikes in the MIddle East and elsewhere, but has promised to close Guantanamo Bay.
A senior Palestinian official yesterday expressed pessimism about returning to negotiations with Israel as John Kerry, the US secretary of state, continued his efforts to revive the deadlocked peace process.
Tunisia is in talks with Qatar over a deposit in Tunis' central bank "with easy conditions" Prime Minister Ali Larayedh said on Thursday.
Companies and Business
Three Lebanese startup companies have just been given a boost of $1.15 million to expand their operations regionally.
A Fifa World-Cup themed shopping mall in Doha has attracted an “extreme” amount of interest from the region’s biggest retailers, more than two years ahead of its scheduled opening.
Despite serving 25 years with the International Monetary Fund (IMF), Mounir Rached bucks the stereotype of the cosseted economist for whom statistics are sacrosanct. Although his new office in the Ministry of Finance is littered with economic studies and proposals, he gives the impression of distrusting most of them.
Searching through stacks of papers, he says many of Lebanon’s statistics are unreliable. “We have statistics issued in an IMF document showing that…from 2000 to 2005 we having cumulative inflation of only 1.5 percent. How can that be possible?” Skepticism, he says, is key to understanding Lebanese economic figures. “In Lebanon some people collect statistics when they are sitting at home,” he half-jokes.
That same critical eye must be applied to Lebanon’s main inflation measure – the consumer price index (CPI). Last week Executive revealed that, because of a dispute between the government and the Central Administration of Statistics (CAS), no data had been collected since December. This means the country has no inflation statistics, making policy-making incredibly difficult.
Rached suggests that the problem is bigger than just the short-term, alleging that the system is flawed and government officials are unimpressed with the CAS’ methodology. “The CPI has been misunderstood – especially more recently,” he declares flatly. If you break the index down into its components, he explains, you find that housing stayed the same from July 2009 until July 2012, before abruptly jumping 44 percent – “a rather unbelievable one-off rise.”
Since that jump the CPI has hovered at around 10 percent year-on-year – at least until the index was suspended in January. “What’s behind these numbers? If you look at the other numbers in the CPI, the rate of increase for the whole year is 3.8 percent, which is not really much different from previous years.”
Of course, which number you use for inflation might depend on your political objectives. Since the CAS falls directly under the Prime Minister’s Office, political interference is a potential problem. In the past, Rached claims, “some [prime ministers] who came to office had an interest to exaggerate the numbers in terms of their improvement. They would have high growth and low inflation. [Others] don’t have that instinct.”
Currently, among Lebanon’s biggest issues are protests over pay scales for teachers and public servants, whose salaries are not linked to inflation and have not been adjusted for years. The rate of inflation has become a key tool for union leaders in their arguments for higher pay.
“The higher the CPI, the better for [teachers and civil servants], so they were quoting a CPI of 10 percent” during strikes and negotiations with the government earlier this year, says Rached. He adds that this “was putting pressure on the government without anybody…from the government elaborating on why the CPI has increased and why [housing] was included now and not any other time.”
To pay for the public sector wage increase, the government has proposed a list of some 20 new and adjusted taxes, ranging from increased value added taxes on certain items to higher stamp duties – a list that hints at several dysfunctions within the government.
Most obviously, says Rached, “there are too many [proposed tax measures]… to try to remember these taxes is a headache by itself. To implement them would take about a year, so you are losing time.”
The large number of tax measures also speaks to the government’s backwards approach to debt and deficit management. “If you want to address the fiscal situation, you address the total deficit, not [only] this deficit. I’m not applying new taxes because I have a new deficit coming from increasing the wages of teachers of civil servants; I have to look at the tax at the fiscal [level] as a whole…. [The current proposal] is a piecemeal approach.” If this is a procedural problem, though, a deeper issue lies in the tax measures’ substance. Rached claims they’re “not organized and not studied carefully.”
Although Rached is an advisor to the Ministry of Finance in addition to being vice-president of the Lebanese Economic Association, he doesn’t pull his punches. “[The] Lebanese government is notorious for not having enough economists. There are [only a few economists] in the Ministry of Finance; there’s one or two advisors and myself, and one or two junior people who have studied pure economics – very few professional economists at the senior level. The same applies to even the central bank…it doesn’t have enough.”
At the root of the problem is education, he posits, with few Lebanese being truly economically literate. The result of this is a sorry trail of missteps: poor understanding and explanation of CPI, politicization of economic statistics, ad-hoc approaches to budgeting, and economic planning done by those with no training in economics. And aggregated, he says, it leads to “a cumbersome and complex system that makes the government less efficient and the private sector less efficient.”