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Banking & Finance

FOREIGN INVESTORS CURB THEIR APPETITE FOR LEBANON

by Executive Editors April 16, 2013
written by Executive Editors

Investments coming into Lebanon from abroad totaled just $1.1 billion in 2012, down almost 70 percent on 2011 and the second sharpest decline amongst emerging markets, according to a report by the Institute of International Finance. In the Middle East and Africa (MEA), Lebanon was the smallest recipient of foreign direct investment (FDI) and Saudi Arabia the largest, with $17.3 billion flowing into the kingdom. As for FDI outflows, a total of $650 million left the country for investment abroad, down 13 percent on 2011, and representing the third lowest in the MEA. As a percentage of the size of the economy, FDI accounts for just under 3 percent, a drop since 2008 when FDI accounted for 14 percent of gross domestic product — the MEA and emerging market average was 2 percent, according to the study.

Lebanese banks – the Cyprus exposure

There are 12 Lebanese banks operating in crisis-ridden Cyprus, constituting one third of the island’s 37 foreign banks according to Makram Sader, the secretary general of the Association of Banks in Lebanon. As of the end of 2012 the Lebanese banks’ deposits accounted for less than 3 percent of the total deposits of the country’s banking sector, which stood at $128 billion and for slightly less than 2.2 percent of the total $88 billion of deposits in the Cypriot banking sector as of January 2013. Some 74 percent of the total deposits in Cyprus are held by the top two banks, Bank of Cyprus and the Popular Bank of Cyprus (Laiki Bank), which is being wound down as part of a 10-billion-euro ($13 billion) bailout agreement between Cyprus and an international group of lenders.

Banking on pretty tiles

Lebanon’s Credit Bank has dashed ahead of current demand and competition by implementing the region’s first e-banking solution on Windows 8, Microsoft’s multi-device operating platform. Credit Bank’s Windows 8 app gives users access to online services across the contemporary gamut of connected computing devices, from PC to tablet and smartphone. The range of Windows 8 is still limited, especially in the important mobile segment, but the bank went ahead with commissioning the app because it wanted its online services to be compatible with all platforms in the market, said Hanadi Saad, Credit Bank’s assistant general manager of retail banking. “The main vision was to provide our customers with what they will look for, in anticipation of consumer demand. Sooner or later they’re going to ask for it so we wanted to be the first.”  According to Saad, the adoption rate of e-banking by the bank’s clients is around 20 percent, with expectation of significant growth. While glowing in colorful tiles, the app offers a meager set of standard options. That the advertised functionalities are skewed toward offerings such as “Checkbook Request” or “Change Session Time-Out” is no fault of the bank, as no platform innovation can change that Lebanon is an awful laggard in online banking regulations. “We definitely need the central bank to follow us with legislation and further e-banking functionalities,” Saad said. E-banking plays a major role in Credit Bank’s ongoing redesign of its identity and branches.    

April 16, 2013 0 comments
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Economics & Policy

Economy goes from slow to sputtering

by Executive Editors April 16, 2013
written by Executive Editors

Lebanon’s real economic growth was a meager 0.8 percent in 2012, according to the most recent evaluations from The Institute of International Finance (IIF), compared to an expansion of 1.8 percent in 2011. The downturn was primarily attributed to rising political tensions, declining domestic security and the Syrian conflict. Real private consumption was calculated to have increased by 3 percent in 2012, compared to 3.7 percent in 2011, while private investment contracted by 3.7 percent following a fall of 3.5 per cent in 2011. What is more, the IIF stated that the foreign direct investment represented a paltry 2.7 percent of gross domestic product in 2012, whereas it had amounted to 8.8 percent in 2011. The most recent figures from the Ministry of Finance (MoF) compound the bleak reflection on 2012, revealing a 67 percent increase in the fiscal deficit to reach $3.93 billion compared to 2011. The MoF based its monthly fiscal results on the Ministry of Telecommunications estimate of telecom receipts, which reached $1.3 billion in the first 11 months of last year, rather than on the funds actually received at the treasury. Although the MoF’s figures revealed that the cost of debt servicing decreased by 3.1 percent year-on-year over the first 11 months of 2012 to $3.4 billion, the IIF noted that the debt-to-GDP ratio actually increased to 140 percent, compared to 136 percent in 2011. This was the first such increase since 2006 and the IIF called on the government to implement measures to reverse the widening fiscal deficit.  

Mikati, Hariri families’ billionaire rankings

Six people from Lebanon feature on Forbes Magazine’s annual survey of the world’s billionaires; four hail from the family of former Prime Minister Rafiq Hariri and two from the family of recently-resigned Prime Minister, Najib Mikati. Indeed, Najib and his brother Taha Mikati ranked 384th place, down from 377th, despite the fact that their net worth grew to $3.5 billion each, up from $3 billion in 2012. The Mikati brothers are followed by Bahaa Hariri in 613th place and his brother, former Prime Minister Saad Hariri, ranked 792nd, down from 764th on the 2012 list, despite his personal fortune being estimated to have increased $200 million to reach $1.9 billion. The Mikati empire was built in telecoms, with the brothers founding Investcom in 1982 and selling most of their stake to South Africa’s MTN group in 2006; they remain the largest single shareholder through the holding company M1 Group. M1 Group investments include real estate, jet leasing, retail and industry. The Hariri family fortune includes investments in Saudi Arabia, other Arab countries and Europe, in the real estate, banking, telecommunications and media sectors. The richest man in the world is Carlos Slim, a Mexican national of Lebanese descent, and his fortune is estimated at $73 billion. 

Modified stimulus

The Banque du Liban (BDL), Lebanon’s central bank, made some modifications in late February to the stimulus package mechanism announced in mid- January. Intermediary Circular 318 stipulates that banks operating in Lebanon can benefit from financial facilities from the BDL totaling up to $1.47 billion against guarantees from beneficiary banks, compared to $1.46 billion in the mid-January circular. The loans are to be extended on a first-come first-served basis with a fixed rate of 1 percent per month. The banks can take from the BDL advances equivalent to between 15 and 60 percent of loans offered to the productive sectors, 60 percent of non-housing loans extended in local currency, 100 percent of loans to small and medium sized enterprises (SMEs), 100 percent of loans that finance higher education, 150 percent of credits allocated to research and development in local currency, between 30 and 150 percent for loans extended to finance environmentally friendly projects and between 60 and 100 percent of allocated housing loans. Intermediary Circular 318 indicated that banks would not benefit from reductions in reserve requirements for these loans. The BDL also announced that it had allocated $817.2 million to housing, $353.6 million to environmentally friendly projects, $146 million to productive sectors, $79.6 million to non-housing loans, $33.2 million to education loans, $14.9 million to research and development projects and SMEs with $6.6 million.  

Pricier power

Between January and October 2012 the treasury transferred $1.8 billion to the national energy utility, Électricité du Liban (EDL), an increase of $446 million from the same period in 2011. The most recent figures released by the Ministry of Finance show that over the first 10 months of 2012, $1.8 billion of the transfers were used to reimburse Kuwait Petroleum Corporation (KPC) and Sonatrach for fuel oil and gas oil purchases, $71.27 million for debt servicing and $9.33 million as treasury advances for value added tax payments. The increase in transfers was partly offset by a $36.67 million decrease in natural gas purchases from Egypt. The largest increase came in the fuel bill from KPC and Sonatrach, which increased by 31 percent year-on-year, mainly due to increases in international oil prices. 2012 payments reflect consumption over the period May 2011 to May 2012, where the weighted crude oil average prices were $113.35 per barrel. The January to October 2011 payments reflect consumption over the period June 2010 to May 2011, where crude oil prices averaged $93.3 per barrel. The proportion of the oil bill funded by EDL in recent years has declined; from January to October 2010 EDL paid 11.4 percent out of an oil bill of $1.08 billion; over the same period in 2011 they contributed 6.4 percent of $1.47 billion; and for the same 10 month stretch in 2012 EDL stumped up just 3.7 percent of a $1.8 billion fuel ticket.

Strikes build steam

As his parting shot before resigning from his post in late March, Prime Minister Najib Mikati referred the public sector pay hike proposal to Parliament. Teachers and staff across the public sector had been on open-ended strike since February 19, staging a series of protests at key ministries, the airport, the Beirut Port and the Presidential Palace. The Union Coordination Committee launched the industrial action after Mikati had previously failed to refer the law to Parliament. Following Mikati’s decision, Minister of Finance Mohamad Safadi said the draft law would be “economically devastating” for Lebanon. The pay scale hike, which hasn’t occurred in 16 years, is expected to cost around $1.2 billion dollars per year. The draft law contains, among other measures, increased valued-added tax on certain luxury items, charges for construction violations and a 15 percent capital gains tax on real estate transactions. The proposal would also see the working week increase to 35 hours and the retirement age rise from 64 to 69. The proposal has faced fierce opposition from private sector lobby groups citing sluggish economic growth, inflation of around 10 percent and a fiscal deficit that ballooned last year by 67 percent to reach $3.93 billion.

Damming the Jeita Grotto

The Ministry of Energy and Water (MoEW) embarked on the first construction phase on the Janaa Dam along the Nahr Ibrahim river, despite warnings about the efficacy of the project and potential harm to the world-renowned geological tourist attraction, Jeita Grotto. The dam would be the second largest in Lebanon after the Qaraoun, at 165 meters, and a storage capacity of up to 95 million cubic meters and is slated to provide 18 million cubic meters for the Jbeil area and 20 million cubic meters to the capital Beirut. A report drafted by the German Federal Institute for Geosciences and Natural Resources warned that the dam is being built in an area that leaks large quantities of water into underlying networks that feed the Jeita cave network. If the initial findings are correct this could undermine the intended water storage purpose of the dam as well as the stability of the cave network, yet the MoEW has staunchly denied the veracity of the report’s findings. A further 10 dams are scheduled to be built across Lebanon this year.       

April 16, 2013 0 comments
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Finance

‘Lebanon remains a growth market’

by Thomas Schellen April 16, 2013
written by Thomas Schellen

London-headquartered, finance multinational HSBC is a stalwart of foreign banking in Lebanon, and Executive has consistently inquired with its senior management over the years about the bank’s strategies and views on the country. Logically, we did not let the opportunity skip by to be the first to sit down and chat with Peter Yeates, the British banker who has just taken the baton from Francois-Pascal de Maricourt as the new chief executive of HSBC Lebanon.

What are your first impressions of the Lebanese business climate?

It has been an exciting four weeks since my arrival and my first impressions are that this is a busy place, there is a lot to do and people are extremely welcoming. I have a really good feeling about our customer base and our staff and the enthusiasm that we have for business. I am picking up from somebody who has built a very well-managed and profitable business and am looking forward to the future.

In today’s global banking terms, where risk-based capital and the Basel regulations are paramount considerations, how can a market like Lebanon remain interesting for a global bank of the size of HSBC?

In 2011, we came out with our new group strategy that is based around five filters to determine if we like a market we are in or a job we are doing. The first one is to have a decent return on equity. Lebanon has been a growth market and we have been able to generate a good return on equity. The group set a benchmark of 12 to 15 percent. We are able to generate return on equity in excess of that, which is important. The cost efficiency ratio is the second filter and the group set a target for 48 to 52 percent cost efficiency. This is an important target to hit and we are investing in places that have the revenues to justify the cost that you spend. Thirdly, you have to be able to generate your own liquidity. It is important to generate that deposit base in order to fund your lending and we have been able to do that.

What are the other two filters?

The fourth one is the size of the economy. The economy of Lebanon obviously is not the United Kingdom or the United States. But the connectivity of the economy and the connectivity of the business is the fifth filter and Lebanon has incredible connectivity around the world. In terms of being an international bank connected to the region and the world and being able to fund trade business and cater to individuals and businesses that have connections around the world, that is really where we have an advantage.

Is your recent experience in private banking with HSBC in Miami an advantage for working in Lebanon, particularly in the area of connectivity?

Definitely. I have been with the bank for 29 years. Having worked 14 years in Asia, seven in Europe, three in the Middle East and seven years in the Americas, that experience, I think, gives you that connectivity to the world. You know the group, you know the geographies, you know people and the business lines. I haven’t always worked in one business line either. This is an advantage for me and I hope will it help in connecting Lebanon to the world as well.

Does the Lebanese market in Africa play a role for HSBC?

Africa is a market where we have a presence but it is not our strongest presence. The Lebanese diaspora has a big presence there but it has an even bigger presence in Latin America where we are extremely well represented.

Are you free to disclose some numbers on how well you perform on return on equity and cost efficiency filters? Are we within the 48 to 52 percent cost ratio?

We are comfortable with where we are in Lebanon in terms of this.

You said you are above 15 percent in return on equity. Can you tell us the exact return on equity ratio HSBC Lebanon achieved in 2012?

We try to be in that space, yes. However, I am afraid that I have to say that we don’t publish those numbers.

A main concern for international banking in the Levant is in the area of sanctions and compliance with requirements coming from the US and the European Union. Do those sanctions regimes and restrictions change your proposition for value generation in Lebanon in any way?

Obviously our focus is to comply with all the sanctions and all the regulatory requirements wherever we operate. It applies to us here in Lebanon as it will apply to any entity in the group anywhere in the world. In Lebanon, we do have geographic proximity [to sanctioned countries] and there might be more of an opportunity to come across this sort of business, but we are extremely diligent to make sure that we meet all the regulatory requirements. We are conscious of the fact that we haven’t always been perfect and we definitely made mistakes. We need to make sure that we don’t make any more mistakes.

Do you have your own compliance department in Lebanon?

We have our own compliance department in Lebanon and we invested hugely in our governance structure around the world. Investment in risk and compliance clearly reduces operational risk. 

Can you put some numbers to that investment?

We have increased compliance staff to more than 3,500 globally and spent over $290 million on remedial measures in the US as of the year-end of 2012.
 
Would it be fair to say the emphasis on global compliance involves a specific mandate for you in terms of supervision of governance and compliance here in Lebanon?

Absolutely. It is very key to us that we are fully compliant with the local regulations and with the global standards that we have set ourselves as a bank. We no longer run ourselves as federation of geographically distributed banks. We have a global standard and run ourselves along business lines and functions and do so much more today than historically.

Where, then, is compliance positioned in your ranking order of priorities in managing the operation in Lebanon when compared with targets such as increasing the customer base or improving financial performance?

I would put it as probably our highest priority that we are fully compliant, in line with the regulations, and that we have the highest standards and values in what we are doing. I think our stakeholders are very focused on investing in a well-run, well-governed institution that has the highest possible reputation.

As an international banker on your level, what makes Lebanon attractive in your career planning?

[One attraction is] having the opportunity to lead a team like we have here and lead a business that is doing well and is well established. To learn about the Middle East and its complexities, this is also a very interesting challenge and something that I always wanted to do. I am enjoying the challenge of being here. It is tremendous.

Coming here I passed a billboard where your brand was exhibited with a smiley face on a golf course. Does that imply that you are expanding into the leisure market, or are you targeting as customers mainly the kind of people who can spend the afternoon on the golf course?

This is our customer relationship campaign. It is based around making people smile. There are things in HSBC that will make you smile and you will find them just by having the relationship with HSBC.

So what makes you smile the most?

[Laughs] That is a difficult question. Me as an individual? I think friends, family, enjoying good moments with people that are both warm and open and friendly and trusting, challenging situations and overcoming challenges, those are the sort of things that make me smile. And working with a good team, with people that are engaged and actually enthusiastic about what they do.   
 

 

April 16, 2013 0 comments
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Negotiating chaos

by Farea al-Muslimi April 16, 2013
written by Farea al-Muslimi

It was like a scene from a great novel: Yemen’s most famous feminist screaming incandescently at the country’s most powerful tribal sheikh. Cameramen gathered round, eager to record history as Amal Basha told Shiekh Sadiq al-Ahmar exactly what she thought of him inside the conference hall that hosts the country’s already faltering National Dialogue.

Like most good rows, it started over something seemingly innocuous – the choosing of chair of a committee. The day before it seemed that consensus had been reached behind closed doors meetings that feminist Nabila al-Zubair would take charge of the body debating the future of the disputed city of Sada’h. But Ahmar, under pressure from his religiously conservative Islah party, changed his mind, sparking Basha’s ire.

For both the Islah movement and the Houthis of the north, Sada’h has particular resonance. It has been the scene of many of the most brutal clashes in the country in recent decades, with tens of thousands killed. For both sides, the city is roughly akin to what Leningrad meant to Stalin.

Both Islah and the Houthi leaders had agreed that an “independent” figure should chair the committee, but they were both pushing frantically for the right kind of independent to suit them. Ahmar initially backed Zubair but pulled away and tried to get a friendlier figure into the role.

Eventually, following his public flaying, the sheikh backed down and the secularists won this particular struggle. Speaking after Zubair’s appointment was confirmed, Basha smiled and commented, “the battle was won”.

While arguments should rarely be celebrated, the confrontation was a truly unique event. Rarely before has a citizen been treated on an equal footing to a high-level sheikh. The fact that she is a woman makes it even more special; in a highly patriarchal society such debates do not happen.

Outside the conference hall, it is unlikely the sheikh would have had to defend his actions. Normally he is surrounded by tens of heavily armed tribal bodyguards preventing critics from reaching him. But one of the conference’s rules is that all participants enter without any weapons, regardless of their status. In order to guarantee their safety the Movenpick Hotel – the most expensive hotel in Sana’a –  has been turned into a fortress. Citizens are not allowed close to the premises and security forces prowl the perimeter. Yet even this has not stopped all violence. Last month, Abdo Abu Ras, the Houthis’ representative at the negotiations, survived an assassination attempt as he left the debates, though three people were killed in the attack.

Strange bedfellows

The irony, of course, is that two years ago Basha and Ahmar were on the same side – calling for the downfall of Yemeni President Ali Abdullah Saleh. Ahmar’s decision, in May 2011, to formerly back the uprising was a key moment in Saleh’s downfall, with numerous other tribal leaders following suit in the months that followed.

Saleh has now gone — though he continues to have significant influence — and the two sides that shared a political cause are now at each other’s throats over social issues. In the middle of her tirade, Basha accused Ahmar of treachery for claiming to support the goals of the revolution yet refusing to back a woman for a senior position.

These kinds of disputes are perhaps an inevitable consequence of such a fundamental debate over the future of a diverse country that has suppressed debate for so long. The dialogue has brought 565 delegates from across Yemen’s diverse society together — revolutionaries, businessmen, sheikhs, politicians and warlords all rubbing shoulders. While the decision by key southern separatist groups to refuse to attend has hurt the dialogue’s legitimacy somewhat, it is still possibly the most diverse group of Yemenis ever found in one hall.

With a country in flux, strange alliances form and break apart in the hall. Revolutionary youth movements chat to those who two years ago were calling for them to be crushed, tribal sheikhs that were at war a year ago embrace as if long lost brothers. For the representatives of peaceful secular movements, they have to hope the negotiations can succeed – outside the Movenpick their words are much less powerful than the AK47s that Yemenis have become all too accustomed to solving their debates with.

Yet no matter the result, there are positives to be drawn from the forced interactions of the country’s myriad of different political groups. Pessimistic Yemenis are convinced that the dialogue will end in a vicious civil war, while those of a more optimistic nature hope to see meaningful solutions to the country’s biggest issues. Either way, the national dialogue is the most diverse political rally in the history of Yemen.

 

Farea al-Muslimi is Executive’s Yemen correspondent

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The Buzz

Morning briefing: 16 Apr 2013

by Executive Staff April 16, 2013
written by Executive Staff

Economics and Policy

The IMF and the Tunisian government have reached agreement on a $1.78 billion precautionary loan which will be announced later today.

More from Reuters

 

Bank employees in Lebanon have vowed  to stage fresh protests and sit-ins on April 28 to press their demand for the renewal of a 2008 collective labor agreement.

More from The Daily Star
 

Syria’s central bank set the exchange rate of the pound at $95.30 Monday, in a move aimed at propping up the country’s currency.

More from The Daily Star

 

Companies and Business

Dubai-listed companies increased earnings by 88.2 percent in 2012, leading the GCC’s economic recovery, according to an analysis by Kuwaiti-based Global Investment House.

More from Arabian Business

 

A law that will allow Egypt's Islamist-led state to issue Islamic bonds contravenes the sharia in numerous ways, according to a panel of senior Muslim clerics whose objections are likely to hold up ratification of the legislation.

More from Reuters

 

Barwa Bank, a Qatari lender part-owned by an arm of the state's sovereign wealth fund, plans to raise 2.05 billion riyals ($563 million) through two share sales including a public float on the Doha bourse.

More from Reuters

 

Odeabank AS, owned by Lebanon’s Banque Audi Sal-Audi Saradar Group, said it may consider acquisitions in Turkey, where chief executive officer Huseyin Ozkaya is seeking to attain a top-15 position for the bank.

More from Bloomberg

 

Qatar Petroleum International and Exxon Mobil Corp signed a memorandum of understanding on Monday to assess jointly unconventional gas resources in North America and global opportunities in liquefied natural gas (LNG).

More from Reuters

 

Emirates NBD, Dubai’s largest lender, expects its retail lending to jump between 25 and 40 per cent in 2013 as consumer confidence returns in the United Arab Emirates, its retail banking head said on Monday.

More from Reuters

 

Indebted telecom operator Zain Saudi said it narrowed losses in the first quarter as revenue rose and financing costs fell.

More from Reuters

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Public policy missed the train

by Thomas Schellen April 15, 2013
written by Thomas Schellen

I enjoy action thrillers. But when it comes to cinematic car chases, I suffer from acute thriller fatigue. Why am I bored by watching unrealistic, brain-numbing races in urban or rural traffic? Perhaps it’s because I live in Beirut.  

No ride down San Francisco’s Lombard Street or race along the Cote D’Azur holds half as much opportunity to observe risky and stupid — not to mention rude and reckless — traffic behavior as time spent at a Beirut intersection. I never know if first to scream, weep or laugh. I usually end my corner time just shaking my head and walking away laughing at the intensity of our human folly.    

The buses and taxis that comprise the totality of the country’s  public transport system play a role in this urban traffic disaster. In Beirut, you find no privileged lanes for mass transit and no rules giving buses priority over cars. Information flows only on the individual level and one would be an idiot to ask for schedules. Bus drivers are steering outmoded and polluting wheeled boxes with worn-down seats along impossible streets, and mini-bus passengers are ferried by drivers without a trace of professional driver training. And if you want to honestly discuss train service, be ready for a sad story. Why should it matter then, to talk about public transport options in Beirut? 

See also: Buses bought to die

Photos: Lebanon's historic train route

Because this city has so much underused potential, even in transport. First, Beirut is a comparatively small city in geographic terms. Unlike Istanbul or Cairo, it is no mega-conurbation of 10 million or more inhabitants. Its metropolitan area is 27 to 33 times smaller than those two cities. With such compactness and a well-educated populace, it should be a piece of cake to implement an urban commuting structure that can make Beirut one of the most productive knowledge cities in the world. Second, this city has mystifying survival qualities, even in transport. The total breakdown of Beirut traffic, while a daily and always increasing possibility, has not happened. I believe this is owing to the amazing flexibility of the Lebanese, their readiness to use the smallest opportunity and live with chaos as a co-operating principle of society.

But be not mistaken. While Beirut traffic is a no-entry-fee entertainment option with a highly reliable thrill factor, it is a painful burden on the national economy. When activists credibly claim that a two-hour commute from northern and southern suburbia could be condensed to 30 daily mass-transit minutes, what they are really saying is that many of us waste 15 or so percent of our economic productivity on vehicular insanity. Imagine that as an annual deduction from your savings account.   

Assessing the real price of having no true public transport in Lebanon is important because cities are organisms of opportunity and cost. Even mega-conurbations with more than 10 million inhabitants can keep growing and improving if they can magnify economic opportunities. However, in a recent work on the decline of economies, Scottish historian Niall Ferguson said, “The net benefits of urbanization are conditioned by the institutional frameworks within which cities operate.”  

This raises the specter that Beirut and its urban economy could soon be doomed to perennial net losses and abandoned in non-competitiveness. Our road infrastructure is already in shambles because of dysfunctional institutions and so is our public transportation. 

In this situation, we don’t need populists in politics or media who take the bus once every decade to show off their commonness. We don’t need negative role models of traffic misbehavior from people in business and officialdom who treat the whole city as their park-where-I-please fiefdoms with their obnoxiously massive personal vehicles. 

Beirut and Lebanon definitely cannot afford losing more time bemoaning old toll-road concepts or betting on imported consulting schemes, and we certainly cannot afford sequels of corruption in procurement and hasty implementation of some half-assed public transport network.  

Quite simply, Beirut needs to invest in real urban transport solutions immediately, and in any which way possible. Perhaps we can get ourselves motivated to do so if we study the real cost-benefit story of investing in urban infrastructures and understand that we will lose big money if we further postpone creating privately managed, accountable and economically beneficial public transport.   

 

Thomas Schellen is Executive's MENA business editor

April 15, 2013 0 comments
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The Buzz

Morning briefing: 15 Apr 2013

by Executive Staff April 15, 2013
written by Executive Staff

Economics and Policy

Iran wants oil prices to stay above $100 a barrel, its oil minister said on Sunday after crude touched nine-month lows near $101 on Friday and ahead of OPEC's next meeting on May 31.

More from Reuters

 

 

Lebanon's public debt rose 8 percent to $58bn at the end of January from the same month a year earlier, according to data from the Association of Banks in Lebanon.

More from Arabian Business

 

Egypt expects its economy to grow by 2.5 percent in the fiscal year ending in June, its planning minister said in remarks run by state news agency MENA on Sunday, cutting the forecast for a second time this year.

More from Reuters

 

Elsewhere on Sunday, Cairo’s central bank held an exceptional foreign exchange auction for $600 million to cover strategic imports such as wheat, meat and cooking oil.

More from The Daily Star

 

Companies and Business

Leading Lebanese banks’ profit growth will be on the upswing in the first quarter of 2013, according to FFA Private Bank market research.

More from The Daily Star

 

Saudi Arabia's largest lender by assets, National Commercial Bank (NCB), posted a 19.4 percent increase in first-quarter net profit on the back of higher special commission and fee income, it said on Sunday.

More from Arabian Business

 

Dubai Islamic Bank (DIB), the largest sharia-compliant lender in the emirate, said on Sunday its first-quarter net profit climbed 17 percent, after the bank posted strong asset growth since December.

More from Reuters

 

Private companies need to do more to attract Emiratis, focusing on career progression and other benefits rather than wages, a UAE government official has said.

More from The National

 

Dubai Islamic Bank (DIB), the largest sharia-compliant lender in the emirate, has announced its first-quarter net profit climbed 17 per cent, after the bank posted strong asset growth since December.

More from Reuters

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Economics & Policy

Buses bought to die

by Zak Brophy April 15, 2013
written by Zak Brophy

Transportation within Lebanon, especially within the greater Beirut area, has become synonymous with congestion and chaos. The system is built, almost entirely, around the personal car with a road network that is severely wanting in both quality and structure. Tragically, public transport has become little more than a scarce afterthought. “If we carry on along this path then we are just building one giant car park,” warns Elie Helou, transport engineer at the Council for Development and Reconstruction (CDR).

See also: Photos: Lebanon's historic train route

Public policy missed the train

The Minister of Public Works and Transportation, Ghazi Aridi, has been grabbing headlines for months with promises to deliver on a signature policy of his to purchase a fleet of 250 buses. In mid-January the ministry proceeded with the tender for the fleet and the delivery of the buses is expected by late summer. Could it be that Lebanon is finally moving towards integrating public transport initiatives into the mix? History gives reason for caution and the fact that past mistakes have compelled negligible reform gives reason to be outright cynical.

Crash and Burn in ‘75

Lebanon used to have the most advanced transport system in the Middle East, with trams, buses and trains accompanying the rise of the personal automobile. However, the fraternal infighting that ripped through the material and social fabric of Lebanon during the civil war from 1975 to 1991 laid waste to this sophisticated transport network. 

In the postwar period the emphasis has been almost entirely on more cars and more roads, and there is now almost one car for every two people in the country. It is no small irony that the Lebanese addiction to the motorcar is one of the most immobilizing ailments within this society.

“We missed a great opportunity in the 1990s… to rebuild the system in a modern and sustainable manner,” says Youssef Fawaz, executive director at Al Majmoua Lebanese Association for Development. As the tarmac capillaries of the nation were restored and built upon, insignificant consideration and calculation was given to the design of this system. Instead, outdated plans from the pre-war period were dusted off, superficially tweaked and put into action. And so it was that the foundations for gridlock were laid. 

The organs of government were even more battered and incapacitated by the war than the nation’s infrastructure. To overcome this hindrance, the reconstruction program, led by former Prime Minister Rafiq Hariri, encompassed the creation of the CDR, which is essentially a contracting agency for the government whose projects are primarily financed by external donors. 

The theory back in the day was that the ministries would eventually be developed and staffed to a level where they could implement their own infrastructure programs. That never transpired, and it is still the CDR that designs, raises the funds for and implements the country’s major transport infrastructure projects.

In 1995, the government sanctioned the CDR to carry out a greater Beirut transport plan, which included detailed road building projects, traffic management schemes and public transport proposals. Almost 20 years later and projects, such as parking meters and a centralized traffic control center, are only now coming into effect. 

A number of the road developments have been constructed, although often piecemeal and delayed. One of the major mistakes of postwar transport regeneration was to postpone the building of the Greater Beirut ring road, which was to be the “backbone to all the other roads,” according to the CDR’s Helou. If this vital artery were to be built now, the government would have to stump up around $1.2 billion for expropriation due to highly inflated land costs — international donors will not fund these expenses.    

Most of all, there is a glaring gap between the CDR study’s public transport recommendations and the reality. The mass transit network was meant to include bus, rail and metro systems and was slated to capture about 15 percent of all trips in the greater Beirut area. What has actually come to transpire is a handful of bus lines running ad hoc, unreliable and slow services on outdated and dirty buses. There has quite simply been no political will to advance the proposals regarding public transport, write them into policy and mandate the CDR to turn them into reality. 

Aside from the bus service, one of the main components of what could, at a stretch, be called public transport is the service system of shared taxis. This however, is also highly inefficient and ill conceived, and any kind of reform is likely to be highly costly. The red plates that all services and buses hold are the private property of their owner and are almost completely unregulated. “The red plate services have an occupancy of around 1.2 people, which is very low. It is a hugely polluting and congesting system, and the drivers only scrape by a living,” explains Fawaz. 

As far back as 1994 Nakkash and planners within the CDR proposed that the government buyout a significant share of the plates as they were relatively cheap and it could have helped lay the groundwork for other transport reforms. But it was not to be, as the lawmakers, inspired by little more than political expediency, decided to issue thousands more red plates. The consequence today is that any efforts to reduce and regulate the red plate system is likely to be highly politically contentious and involve significant payouts.

 

Bad policy piles up

With this rather ignominious track record on public transport during the postwar era, the minister’s plans to buy a fleet of buses clearly requires some inspection. Buying things is easy for politicians — in fact, it serves their cause with vote-winning headlines and budget boosting funds for their ministries — but sustaining those purchases is much more taxing. “Buying buses is the first and simplest process in a long cycle,” says Nakkash. “It needs management and organization behind it, and frankly this is not present.” 

Ingloriously dumped in the old train yard in the Mar Mikhael district of Beirut, lie dozens of rusting, deflated and broken bus carcasses, testaments to public transportation policies tried and failed. Many are the remnants of 200 buses that were purchased in 1998. Due to bad policies and half-hearted implementation, however, only a dozen or so remain on the roads. Those that were scrapped to Mar Mikhael are a sad reminder of how ill conceived policies only add to the detritus of Lebanon’s neglected public transport sector. “Public transport is beyond being sidelined. There is no real debate,” laments Fawaz.

So what of the 250 buses that the incumbent ministry is purchasing? The intention is that they will form part of a fully integrated network with 910 bus stops throughout greater Beirut, for which the government has already allocated $33 million. With a World Bank grant, American IBI Group and Lebanon’s Team International were selected to carry out initial studies for the                  bus network.

“Buses will have Global Positioning System (GPS) with a control center in the ministry [of transport] to overview all the lines; the bus stops will have message signs which show the number of lines, the destination, the expected arrival time, etcetera, and the ticketing system will also be of international standards,” explains Abdel Hafeez Kayssi, director general of Land and Maritime Transport since 2000. 

While beginning with greater Beirut, Kayssi expects the network to eventually cover all of Lebanon within five years, at an estimated cost of $75 million. As for funding, he says that the goal now is to have success with the pilot project in greater Beirut, “then international funds can be encouraged [to finance the network] for outside greater Beirut.” 

Sounds good, right? The problem is that the same administrative and organizational inadequacies that ultimately resulted in the scrapping of the bus fleet in Mar Mikhael have not been addressed. As things currently stand in the sector, there are a number of overlapping bodies with unclear jurisdictions that are oftentimes understaffed and under-resourced to fulfill their mandate.

At the top of the pile is the Ministry of Public Works and Transport, a feeble public body with scant resources subject to the same obstructionism and political tomfoolery present throughout most government departments. There are a number of skilled and concerned individuals within the ministry, as Kayssi seems to exemplify, but in its entirety the ministry does not have the institutional wherewithal or talented workforce to lead such large-scale projects. “How can you run a ministry with just a handful of good people? It’s not possible,” frets Nikkash.

One of the largest obstacles to the implementation of this bus network is the fact that the ministry has put the cart before the horse by pushing ahead with the procurement of the buses before defining its relationship with the local municipalities. In almost every city in the world, public transport is managed at a municipal level, but in Lebanon successive ministers of transport have ensured that it remains under their purview. 

Public transport is rarely financially self-sustainable, so municipalities have to subsidize it — normally around 10 to 22 percent of ticket prices. The alleviation of  congestion justifies the cost. “How can you have public transport managed by the Ministry of Public Works and Transport and financed by the municipalities? It is not possible,” reasons Rachid Achkar, council member and transport specialist within the Municipal Council of Beirut. 

Even if the ministry had been engaging in meaningful cooperation with the Municipality of Beirut — which it has not — there would still be a major problem in that the greater Beirut area is actually a conglomeration of around 50 municipal councils. The folks at the Municipal Council of Beirut are pushing for both a high authority for transportation within government and a federation of municipalities of the greater Beirut area. The Minister of Interior at least has given a verbal agreement to the creation of the federation of municipalities. “We are ready to cooperate and share in the costs of operating this system,” says Achkar, “the Ministry [of Public Works and Transport] is perhaps starting to be ready.”

The other gray zone that should be of concern to any observer is the role of the private sector in the operation and maintenance of the bus network. The government’s track record of private sector engagement could be called shoddy at best and few measures are in place to suggest the case would be any different in the case of public transport. 

It is common international practice for transportation regulatory agencies to plan the system, set routes to be tendered to the private sector and to ensure the safe, efficient application of these agreements. However, “the regulatory capabilities are very, very, very weak and there is currently no organization which has this function,’ warns Nakkash. 

Decongestion derailed

The regeneration of the old coastal train line is an idea that has been regularly aired over the years as another area of Lebanon’s looming public transport revival, and sure enough it is part of the transport reform Kayssi states the ministry is pursuing. With the coastal line of Abboudieh to Beirut as a first priority, its upgrade has been divided in three parts: first, the 35.5 kilometer northern coastal line from Tripoli’s port to Abboudieh; the second part goes from Tripoli’s port to Tabarja and runs 70 kilometers; and the final part covers the 20 kilometers from Tabarja to Beirut.

These, however, are old plans and there is little reason to suspect that their implementation will be realized any time soon. Not because it is impossible but because there has been little demonstrable political will.

Although there has been some encroachment on the route, it could easily be restored and put to use. A wise use of this throughway could substantially alleviate the traffic load on the corridor running north of Beirut, which is perhaps the most chronic bottleneck in the whole of Lebanon. Peak time traffic is reduced to a crawling, smoggy column of cars and trucks and there is virtually no scope for extra road capacity. An alternative solution is clearly a necessity.  

Numerous studies have analyzed the different potential uses of this unused causeway including heavy rail, light rail or bus rapid transit (BRT) – a route that is only used by buses but functions like a light railway with fixed passenger platforms. All offer different benefits but the BRT is the least capital intensive and perhaps the easiest to implement. But alas, “You need to have a clear policy and someone to champion this policy, but sadly neither of these exist,” laments Nakkash.

A badly needed tune-up

The lack of any serious public transport program within Lebanon means the country is riding on a crumbling chassis. The economic, social and health costs of traffic congestion are only going to get worse until there is a serious political will to cede some authority to those specialists who actually have the ability and vision to advance a meaningful public transport policy. 

It will take a lot more than a bunch of buses to solve the problem. There are achievable solutions and there are talented and experienced people to implement them, but reform and rejuvenation of the administration need to precede headline grabbing shopping sprees. Until that happens, the slow choke toward gridlock will persevere.      

April 15, 2013 0 comments
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Economics & PolicyLebanese in New York

Q&A-Nawaf Salam

by Yasser Akkaoui April 12, 2013
written by Yasser Akkaoui

There is only one Arab seat on the 15-member United Nations Security Council, which rotates every two years among the 22 Arab countries. That means Lebanon is offered the seat only once every 44 years. It can only be called serendipitous, then, that when the most sweeping change to come to the Arab world in the modern era began in early 2011, Lebanon was in this seat. Nawaf Salam, the permanent representative of Lebanon to the United Nations, sat with Executive in New York to discuss what it was like being privy to, and influential in, the international power plays that took place in constructing the collective global response to these historic times in our region.

 

You have acted as the Lebanese Ambassador to the Untied Nations during very exciting times, when political and economic powers have been shifting worldwide. What can you tell us about the changes you have witnessed?

They are indeed exciting times. First… it was a big challenge. You may recall the Lebanese political establishment was divided as to whether we should go for the seat in the Security Council or withdraw our candidacy. Not running at the last moment would have sent the worst signal, I think: that we are incapable of making decisions, that we are a failed state. I was supported by President Sleiman and [Fouad] Siniora, who was then Prime Minister, to see this as an opportunity to prove to the world that we are a state that is recovering and rebuilding its foreign policy, and also to project a different image of Lebanon, far from the images of a battle ground or divided country. 

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When the Lebanese aimed for the stars

Two: the exciting times were mainly because of the Arab Spring, and I was on the council when it started in Tunisia and the fall of Egypt. In both cases, the council didn’t interfere but in Libya, the council played a critical role and Lebanon, being the only Arab member in the council, was the most critical country in the council.

[Also], we had to present, as the only Arab country in the council, the Palestinian case for membership in the UN, and so we had to develop the legal and political briefs in defense of Palestinian statehood and the right to be a full member in the UN.

Finally, we had to handle Syria. I think the lessons to be drawn from the handling of Syria are in the disassociation policy we ended up adopting and are important to the future of Lebanese foreign policy. 

 

You represent a Lebanon, whether on the council or not, that is divided into extremes. How do you manage this equilibrium when it comes to, for example, the ousting of former Libyan leader Colonel Muammar al-Qadhafi?

Qadhafi was easy for the world, easy for the Arabs and easy for Lebanon. Syria was much more difficult. Yemen was not very easy. Qadhafi was easy because he managed to antagonize everyone: the Americans, the French, the Russians were not very happy. He also isolated himself in the Arab world to the point where it was really easy… for the Arab League to decide to suspend Libya’s membership. 

Domestically, the unity against Qadhafi was easy, despite of his Arab alliances… because of the Musa Sadr affair. Libya is actually a good example because it shows you that when you have a united domestic front, your margin to maneuver becomes significant and we were really able to play a leading role on the Security Council and in the Arab group because I had the clear support back home.

On other issues, yes Lebanon is divided, but we are not an exception as many countries are divided — Belgium, Bosnia… we are not a unique situation. However, because the situation was so polarized in Lebanon, we had a much more difficult time than others, but the general rule is the following: despite the outcome of unity you see in positions of any state, foreign policy is the result of two processes, domestic negotiations and international negotiations. 

Within each and every state there are different domestic players with different interests who seek to influence the decision of their country… for example, [with regard to] Iran, where Lebanon was divided, I voted for abstention, though Lebanon was divided on that and we were not alone in abstaining… our main agenda is to protect the interest of our country, to preserve our national unity and stability… These are the most important factors for us and there is no shame in that. Lebanese are not used to thinking like that. We always think of the interests of other countries, but the unity of this country is the most important.

 

How difficult was taking a stand in Egypt compared to Libya and Tunis?

We did not have to take a position in the council regarding Egypt as it never reached the council since it ended in 18 days and [President Hosni] Mubarak fell.

Libya was hard in several places. It was the first time that the responsibility to protect involved the use of force. [Qadhafi] was heading to Benghazi so how do you stop him? The use of force was authorized [by] all members. The Russians and Chinese [abstained]. What turned it into an operation was that NATO took the lead. In the referral to the International Criminal Court, we were seeking to influence Qadhafi’s entourage more than Qadhafi himself. But here we had Qadhafi and his son Saif who said they will show “rivers of blood”. It was not a hypothetical issue and the end game is known on his part. 

 

The reaction of the international community after the assassination of [Lebanese security chief] Wissam el-Hassan seemed to show a determination to preserve the then government and that it is not our turn for change, until Syria’s situation is over. Are there winds of change coming toward Lebanon?

There are winds of change blowing in the region. They are good winds because they shook the stagnation that has been there for so long. But what really has changed between before [former Tunisian President Zine El Abidine] Ben Ali and Mubarak and after Ben Ali and Mubarak? Under them, it was more of the same and there was no perspective whatsoever, nothing was possible. Now everything has become possible, post Mubarak and Ben Ali. These transitions are going to see ups and downs, of course, but you now have real empowerment of the people and this is irreversible: the genie and people are out of the bottle. They may not get it right from the beginning or consistently but there is a mechanism that will auto-correct. 

 

You witnessed the Palestinian quest to become a member country in the United Nations and the powers within the U.N. for and against. What are the lessons learned?

It’s true that I followed the bid for statehood from day one. I spent hours with them and they are both unprepared and facing a tough lobby. But, big scale, it shows that though slowly and in an incremental way the question of Palestinian statehood and its recognition, and ultimately its membership in the UN, has been put on the right track and it is very difficult to stop. 

Even though it is a state under occupation, it is still recognized as a state. They have all the requirements of a statehood: people, territories, government… the problem is that it is a state under occupation but that does not undermine its statehood but places a burden on the international community to end its occupation and grant it a full membership in the UN.

I think that the elements of a final solution are known, whether what to do with the settlements (two percent [of built-up area]) or frontiers (the 1967 borders, plus or minus). Jerusalem will remain united but the capital for two states and with a sort of internalization of the Holy Land. 

There is more than one formula to address the refugees and the right of return to Palestine… what is missing are two things: the right package of frontier and security and international guarantees to the two parties. The only player that can do this is the American administration; they have to show leadership. They need an end-game package deal approach. Step-by-step confidence building will take us nowhere today. 

Putting the parties on the same table and getting them to talk will lead to nothing as they have been talking since Madrid, for 20 years, and yet nothing has really happened to close the deal… Without the [United States], this will not be achieved and yet the US, left to its own devices, will not do it. So here you need the European community and you need greater Arab involvement [to pressure the US]. I really believe in this. 

April 12, 2013 0 comments
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The Buzz

Morning briefing: 12 Apr 2013

by Executive Staff April 12, 2013
written by Executive Staff

Economy and Politics

Egypt’s bourse hit a two-week high on Thursday after Qatar and Libya pledged $5 billion in funding to the cash-strapped Arab country, while most Gulf markets also gain in earnings anticipation.

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Standard & Poor’s Ratings Services affirmed the long- and short-term foreign and local currency sovereign credit ratings of Lebanon at B/B, meaning the outlook remains negative.

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The cost of bailing out Cyprus has swollen to €23bn ($30bn), with the crisis-hit country having to take on the lion's share of the measures needed to avoid bankruptcy, according to a draft document by the country's international creditors.

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Palestinian Prime Minister Salam Fayyad has offered to resign because of an increasingly bitter dispute with President Mahmoud Abbas over the extent of his authority.

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Companies and Business

Arabtec Holding climbed to the highest in a month on investor bets the shares of the Gulf's largest publicly traded builder are cheap compared with Dubai-based property developers.

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Mubadala, the Abu Dhabi investment fund with a mandate to boost the emirate’s local economy, swung to a net profit in 2012, helped by improved margins at some of its core businesses and lower impairments, it said on Thursday.

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Lebanon needs to generate around 20,000 additional jobs per year over the next decade, the World Bank said in a highly critical study released Thursday.

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