Executive Magazine

The United Nationalities of Work

by Thomas Schellen February 5, 2013

written by Thomas Schellen

Hearing the rank and file in the companies on the Great Places to Work (GPTW) list talk about their approaches to life at work is a humbling and exciting experience. And contagious.

From a numerical angle, the cumulative headcount of the 15 great workplaces in the United Arab Emirates does not seem humongous at all. According to the data provided by companies via their culture audits and passed on by GPTW, the total number of employees among the 15 organizations in the UAE comes to 12,644 souls.

That is a miniscule bunch, whether gaged against the estimated 7 million or so working-age expatriates who reside in the UAE, or measured against the close to 1.9 million strong cumulative global workforce of the 15, mostly multinational, companies that made the list.

Constituting a little over 0.6 percent of the global workforces of the 15 companies, and less than 0.2 percent of the UAE population on basis of the available figures, being an employee in a great workplace in the UAE qualifies as an exceedingly rare privilege.

Such dabbling in numbers and ratios, however, makes it even more shocking that every single individual in the 12,644 is a story and a message that is too vast to capture. I met about 40 of them and it is ridiculous to think that this could be enough to begin tracing the human reality of it all.

But in a slight bit of redemption there are some saving threads that keep the entire story collection a little more manageable.

There is the human commonality. Within the face-to-face interviews Executive conducted, some self-interests were put into proportion. Money was never cited as the prime factor for making a workplace great. This is not implying that there was some bacterium of unhealthy self-denial or a virus of pretense going around. The women and men, young and old, verbose and less so, in the great workplaces saw remuneration as important but not as key. As one group of three interviewees agreed among each other, “If you are not paid well, you get depressed. But if you get paid very well and you don’t love the job, you will also get depressed. It has to fit together.”

Qualifiers for what makes a great workplace in several cases were stated to be “the team”, with a strong common feel of valuing the “appreciation, support, and understanding” that characterizes a real community. Belonging was definitely a highly valued category, but rather than representing those on the lower rungs of companies, responses that emphasized belonging came from people at many different and often advanced levels of presumed social standing.

Diversity, more diversity

Then there is the dimension of diversity of identities and aspirations. To name but a few examples, I have conversed with a young Syrian lady who has her family in Aleppo to think of and says her dream job will be one where she can “evolve, use my talents or skills whatever they may be and be happy”; a middle aged Hawaiian who aims to build schools and an Egyptian go-getter who likes challenges and wants to be his country’s second secretary general of the United Nations.

Diversity of nationalities and cultures in the UAE workplace seeks its equal in any city. At General Electric Middle East, more than 50 nationalities are represented in the workforce. Ratios of internationalism are high among managers, mid-level employees and job starters. Many interviewees praised the multi-culturalism of their work environment, although it also emerged in the conversations that diversification can become a need in the generally multi-national workplace if a certain layer of a workforce is tilted toward one nationality to the point of creating barriers against outsiders. On the emotional issue of emiratization, which is so politically charged that GPTW is not likely to develop a list of best workplaces for Emiratis in the next few years, there can be not only the known difficulties of attracting nationals into the private sector but that Emirati citizens inversely can feel mono-culturally fenced in when working in the usual reservations of employment for nationals.

The diversity of the UAE workforce can indeed be a double-edged sword, commented Ehhsan Abdallah, senior practice consultant at the Gallup organization: “If you are able to harness the diversity that you have — and good managers are able to — and are able to hire people from an array of different [cultural and ethnic] backgrounds, the rewards are massive.

“However, if you are not able to harness it, you create a culture of disengaged teams and associates and what can happen is that the culture becomes very cliquey — you can be almost making ghettos in your workplace. In this scenario, the negative impact can be double for a company because instead of having one poor performer, the disengagement spreads and becomes toxic,” said Abdallah, an expert on behavioral economics.

A kingdom for equality

GPTW awarded recognition for being top workplaces for women to four companies — THE One, DHL, Marriott and Paramount (the latter is not in the Top 15). There were advancements of workplace gender equality visible at these and other companies in the Top 15. Some were outright surprising, such as the sponsorship of a “Women in Logistics Middle East” organization that is breaking new ground for female participation in this industry which is far from a ‘conventional domain’ of career women. Female and male employees at THE One shared their experiences of equality at all levels of the company. Microsoft has a new top-level female executive in the region, and others, such as media company OMG, are continuing to press toward gender parity in their ranks.

On the other hand, counter narrations of disadvantages for women and slow-going in implementing more equality and fairness also came up quite regularly in conversations with employees at great workplaces. Most of these experiences originated in the wider society of the UAE and not in the workplace, but there were also comments such as one by a young joiner in the UAE operation of a multinational who said, “If I look at our company here, we have no single woman in top management. There is definitely space for improvement. Europe is fighting to empower women, the US is fighting with the same dilemma, and here is even a step behind those.”

C.S.R.’US

The social engagement of GPTW companies is noticeably high and as such a common factor in the corporate identities of the high-trust employers. This prevalence of corporate responsibility is much more than a bonus for society or a sideline perk.

As Monique Ritacca-Herena, senior vice president, human resources & chief human resources officer- Asia, Middle East & Africa at PepsiCo, told Executive, people increasingly want to work for companies who share their values: “The foundation of our business is built upon performance with purpose, which is the idea that the short and long-term, sustainable success of the company can be aligned to what is good for society. It is the strategy in which performance is driven by purpose and purpose enhances performance,” she explained.

The beauty of it is that social investment is also contagious. Sitting around a table at THE One, store manager Clare Abad gave an example of how the engagement works for her: “I know that when we sell one more sofa, we earn one more brick for the school [in India].”

Rear Spoiler

Engaging in conversations with the people in the great places to work is an intense exercise of communication with far too many peaks. It is something like an interplanetary view of a mountain range — far too much information to facilitate a microscopic approach.

In this sense, it is necessary to question the importance of ranking differences between the great places to work. From the non-statistical plane of human communication there are 15 best places to listen, learn, and find interesting people that are captured on the GPTW list; in an uncharted territory of many more great workplaces that are waiting to be discovered. And all can be developed.

February 5, 2013 0 comments

Dreaming on the job

by Thomas Schellen February 5, 2013

written by Thomas Schellen

Dreaming at work must be a universal trait. Whatever culture, whatever age, there are tales and traces left behind by people who dream of something while they are at work.

Some dreaming at work is catastrophic — inattention causing damage and destruction is a peril for every company and the society that it is embedded in. Other dreaming at work is perilous more on the personal level. Management is not always understanding of those who appear to goof off.

The crux of all that dreaming, however, is what we can read from it, not in the sense of shamanic or Freudian interpretations but as signs telling us of engagement and disengagement.

About one third of all employees are highly engaged, suggest surveys and workplace studies such as the 2012 Global Workforce Study by international consulting group Towers Watson. Another quarter of employees are actively disengaged people, making the two categories the largest employee groups in work cultures stretching from Scandinavia to the Gulf. Research also says that companies with highly and sustainably engaged employees are far more productive than average companies. The question for an organization then is how to move from a mediocre fabric with few strands of high engagement, to a high collective level of engagement.

The possibility of reaching this state seems to me dependent on the veracity of cultural evolutionism, whereby human ideas and characteristic behaviors undergo long-term and durable changes into new ideas and behaviors.

As corporate evolutionism, this would make companies see their human capitals as their preeminent asset and the purpose of the enterprise as wellbeing instead of wealth, as another business brain trust, the Boston Consulting Group formulated last November. If impulses of cultural evolutionism shape corporate DNA, then this means that companies actually can abandon the predatory behaviors that ruled the past and adopt the upright walk of inspired and inspiring beings. If this whole idea holds water, then the great places to work of today are the pacesetters of future corporate behavior. To my mind, three points support this assumption: 1) The great places to work tend to maintain their status for some time; 2) Employees in great work environments represent a sample of humanity but align themselves extremely well with their work cultures; 3) Companies that stray from their corporate DNA can falter but can also recover.

Not to be confused with quantitative verification, here are my current perceptions why I consider these three points to be at least workable as indicators for a viable hypothesis, if not more.

The companies on the GPTW list in the United Arab Emirates are a diverse bunch by their fields of activity, their leadership and management patterns, and the economic and competitive environments in which they move. All exhibited a high degree of stability in their ability to be ranked as great places to work.

The employees of the great workplaces that I had a chance to meet in reviewing the GPTW process in 2012 and 2013 were highly diverse and yet all highly engaged. In both senior management and junior ranks, I had a chance to witness human behaviors that were in unity with the expectations that one has for a great workplace.

A first-rate case for the third point, the importance of a company not betraying its DNA, presented itself when I read last month how Toyota Corporation in 2012 regained its place for the world’s top car deliveries. The critics were amazed. Among keys to the recovery were a return to two virtues that made Toyota great — total quality focus and listening more to the employees.

When reviewing great places to work, one can either see the distance between one’s own house of labor and the environment of a great workplace — or one can see the potentials for copying some morsels of successful corporate DNA and embark on splicing them into the own self or organization.

The employees who I met at the GPTW list places in January 2013 without exception responded to one of my questions by sharing their exciting dreams of things they wanted to do. They were dreaming economic dreams, in the widest sense of contributing to the great scheme.

What did this tell me? Great job stories can show us how we can make our workplaces great. It starts with dreaming of what we want to achieve and then making it happen. Never stop dreaming of improving thy work, and keep at it until ye all get there.

Thomas Schellen is Executive's MENA business editor

February 5, 2013 0 comments

Economics & Policy Great places to work 2013

Symbiosis at work

by David Robert February 5, 2013

written by David Robert

If anything can be said with accuracy and certainty about the corporation in this relatively young year, it is that the job of leading a company in 2013 is more demanding than it was in 2012. Decision makers every year are faced with an ever growing flow of information and increasing complexities in their markets but also within their organizations.

Technology has been the great enabler in creating the global village. Its speed of advancement and innovation has corporate leaders and managers aching and we all know how vital it is to keep up with tech. The financial bottom line is our quarterly and annual checkpoint to see how well companies respond to market needs. But when thinking about a company’s assets and liabilities, how much value is created by its people – and how much importance do decision makers place on their people?

If we pause to think about this for a minute, we realize that companies all over the world are pressed for talent. As we see skill levels of employees expanding relentlessly, competition for the best and most promising young graduates drives more and more employers into intensive hiring campaigns. Is it then prudent for corporate leaders to view employees as a source of expense (payroll, benefits, etc.) or as a revenue-generating profit center? This is an important question for every company because the answer will ultimately define the organization’s corporate culture.

Our 30 years of workplace research across the globe by the Great Place to Work (GPTW) Institute shows that investing in workplace culture and engaging employees as valuable profit centers yields definitive and tangible benefits. The geographic location, regional culture, size, or industry of the company does not matter. To be a great workplace requires a deep commitment to employees, a desire for continuous improvement and practice. In return for this investment, great workplaces experience lower voluntary staff turnover, higher-caliber job candidates and higher revenues and profit margins. GPTW case studies of top companies demonstrate further benefits such as lower inventory loss and an ability to move through periods of change more efficiently.

To answer the question of why great workplaces yield these types of benefits, a business leader needs only look at his or her personal relationships. Hopefully, most of us have at least one personal relationship or friendship that is based on a high degree of trust. These relationships stand out from others because there is a history of consistent behavior, a deep understanding of the other person and a willingness to support and protect the relationship. These types of relationships tend to be mutually beneficial, balanced and a source of comfort and confidence.

In great workplaces, these types of relationships are quite common. The relationship between employees and the organization is built on a high degree of trust from day one. A great workplace seeks to understand its employees, to provide an environment of support, to accept employees for who they are, to consistently inspire employees and to genuinely appreciate the value they bring. In turn, employees seek to understand the company and its mission, engage in activities that emotionally bond them to their contribution, are more likely to give the organization the benefit of the doubt, are fierce advocates for the organization and universally perform at a higher level. Simply put, in organizations in which employees are inspired, encouraged to be themselves, given permission to be creative and are supported when taking risks, those employees dream bigger, work smarter and consistently deliver at a higher level.

The essence of a great workplace can be summed up by the words of an employee at one of the UAE’s top companies. At a recent visit to the location where she works, I had a chance to sit down with her to talk about her workplace experience. “This is my family. I can be myself here and I see advancement opportunities for me. They (the company) believe in me so that makes me confident. I’m excited about my future.”

David Robert is Chief Executive of the Great Place to Work Institute Middle East

February 5, 2013 0 comments

Comment

Lebanon’s frigid, deadly Russian bride

by Moe Ali Nayel February 5, 2013

written by Moe Ali Nayel

It was a Saturday night when the temperature dropped. Beirut’s skies condensed with the thick gray clouds of January. Talk of wild weather started to snowball off the tongues of Beirutis. Bridges, buildings, highways and walls collapsed, floods reached peoples’ beds, blackouts affecting the whole country occurred and water disappeared from taps. Schools and universities closed their doors, grocery stores were left with empty shelves. At least five people died and the Minister of Interior advised citizens not to leave their houses.
No, this was not a tsunami, an earthquake, or the apocalypse; it was just another winter storm that hit with a bit more force this year. The storm, dubbed arous (bride) by the Lebanese, did not take Lebanon by surprise. This storm, which descended from Russia, was well forecasted; however, in the season of fabricating election laws Lebanese politicians paid little heed to the bride’s wedding march.

As usual it was the poor who paid the steepest price of the state’s ineptitude.

See also: Why does Lebanon flood so badly?

Syrian refugees scattered across the northern slopes sank in pools and shivered in their tents. Refugees in Palestinian camps started burning their shoes for heating while Lebanese from Akkar to Hermel were stranded, besieged in their homes by a thick layer of snow. On the outskirts of Beirut, residents of the impoverished suburb Hay Al Sellom found a forgotten river, Al Ghadir, invading their living rooms; a result of negligence on the part of the Ministry of Energy and Water, which had failed to conduct adequate maintenance of river courses across the country.

The bride laid bare the inadequacies of a state that cannot offer the bare minimum of services to its citizens. But faster than the emergency services struggling to respond were the ministers, ducking accountability and accusing each other of a dereliction of duty. Some leaders blamed Mother Nature, while others, such as Transportation Minister Ghazi Aridi, simply denied reality: “I am content that the transportation ministry has done all rehabilitation work during the summer in anticipation of rainfall,” he told reporters on his way to a cabinet meeting. Energy and Water Minister Gebran Bassil, who let a dispute over salaries and pensions with workers at the state-run Électricité du Liban power company drag on for almost a year, tried to blame those workers, telling Agence France Presse: “There is a storm, and there is a problem in the grid. The electricity workers are on strike, and they’re not letting anyone fix the problem.”

Yet even while the bride was huffing and puffing, spreading her white dress over Lebanon, the debate amongst Lebanon’s politicians continued to be about the upcoming parliamentary elections in sunny June; the cumulative response to the storm by the Council of Ministers, Lebanon’s cabinet, was to eventually agree to allocate a paltry $2 million for relief.

Abu Mohammad, a 67-year-old taxi driver, said he resented the whole Lebanese political class and vowed that he would not vote in the coming elections. “In 2005, after Hariri died, I urged my wife and said we should vote, it’s an important time. In 2009 I told my wife: ‘Let’s go vote, they will pay us after we cast our votes.’ But this year no matter how many promises [politicians] make, or how much they pay per vote, we are not voting.”

Elie Hana, a 73-year-old taxi driver, who spoke to me from behind the wheel of his 1968 blue Mercedes, came to Beirut from Aley looking for passengers the day the sun finally shone and the storm receded. “I have been driving this taxi for more than 40 years and through that time I have witnessed stronger and colder storms than this Bride, but this was the first time I saw the country paralyzed. This has nothing to do with the storm, it has to do with a state that doesn’t respect or care about its own people. What happened to those $52 billion [the politicians borrowed] to build Lebanon? Our infrastructure is worse than ever — did they spend it all on building luxury apartments in the city center?”

With global climate change, weather patterns are quickly becoming harsher in Lebanon, with colder winters and hotter, dryer, summers, and yet Lebanon lacks the disaster management capacities to cope. Indeed, this Russian bride made clear that the state ministries and institutions are having an affair with negligence and corruption, leaving us out in the cold. In abusive relationships such as this, at some point we will have to ask for a divorce.

Moe Ali Nayel is a freelance journalist based in Beirut

February 5, 2013 0 comments

Economics & Policy

Where is the private sector?

by Zak Brophy February 5, 2013

written by Zak Brophy

The Higher Council for Privatization (HCP) was created nine years ago; since then there have been no successful privatization programs, and after six years the public-private partnership (PPP) law is still gathering dust in Parliament. Executive challenged the Secretary General, Ziad Hayek, to find out why his office still exists.

Has the HCP failed in its mission?

We have not made any privatizations so in some way you could say we have failed. However, I would like to say that the HCP is not a corporate entity that has a legal identity of its own. It is a permanent ministerial committee, so it is not an entity that can succeed or not succeed in what it is doing. We are an arm of the Council of Ministers [Lebanon’s cabinet] that assists in carrying out their decisions regarding privatization. Some council ministers have been pro-privatization while others have been against.

Has the failure to develop independent and empowered regulatory bodies for the telecoms and energy sectors precluded previous or current privatization policies?

Yes. Having a regulatory authority is an important ingredient of the privatization process because as you privatize and move activities out of the purview of a particular ministry and pass those activities onto the private sector, an independent group of professionals needs to regulate that private sector involvement.

Why haven’t these bodies been created and given the powers stipulated under Laws 431 and 462 that govern the telecommunications and energy sectors respectively?

Under Law 431 for telecommunications a regulator for the sector was created, the TRA [Telecommunication Regulatory Authority], yet no regulator was created for the energy sector or civil aviation. The reason this has not been done in the last two cases and has been done poorly in the first is that a conflict of interest exists between having an independent body and the person of the minister in each one of these ministries.

The new plan from the telecoms ministry is to de-layer the sector, with a state-owned infrastructure and greater private sector involvement in the service operator and retail domains. Was your office involved at all in the adoption of this strategy?

No. I think it is unfortunate that ministers tend to devise strategies for the ministries that are not consistent with laws that have been passed by Parliament.

Why is this plan not in accordance with the law?

Law 431 is very clear that you need to establish the TRA and afford it certain powers. It also gives a clear path as to what should be done with regards to the development of a corporate entity called Liban Telecom that will own and operate the fixed line infrastructure and have a mobile license. This entity, Liban Telecom, is yet to be created and other policies about how to organize the sector are not consistent with 431 unless you create Liban Telecom.

How would you describe the current status of the TRA?

It is a diminished version of what it should be. We don’t have a true regulator at this time.

If the laws pertaining to the telecoms, electricity and aviation sectors are not being implemented, should they not just be consigned to the dustbin and new ones drawn up?

Those laws are not sacrosanct. They can be amended and likely should be amended. But in essence they are good laws. Ministers have tried to avoid implementing them. The laws have caused the ministers plenty of headaches. I have lobbied ministers and will continue to do so, to stop them circumventing legislation. If they don’t like it they need to work with Parliament to amend the laws, but if they are not amended [the ministers] need to implement the legislation.

Is the PPP law going to pass?

We have been working on this for the past six years and a fourth version is now being discussed in Parliament. Meanwhile, the finance and budget committee has taken it up on its agenda and it is favored by the president, the prime minister and the speaker of the parliament.

Yet there is still much opposition. Is that primarily ideological or political?

It is for the same reason that privatization has been delayed, and that is that the ministers perceive the passing of any project that hands the delivery of any public service onto the private sector as a reduction of their own authority. They pay lip service to it but in reality they don’t want to have an actual partnership with the private sector. They want to give the private sector some kind of modified version of a management contract or an outsourcing contract upon which the minister has the ultimate say.

Would PPP projects attract mainly native investors and funds from Lebanese bank deposits, or foreign investors?

I think it will in the first instance be Lebanese funds. The banks have around $140 billion in deposits and they are very interested in finding investment opportunities. We have Lebanese entrepreneurs running PPP projects worldwide. So we have the entrepreneurs and the money but we don’t have the enabling framework to make that happen in a professional and transparent way in Lebanon.

In 2010 you said that within the power sector the transfer of the national utility from being a government to corporate entity was a cornerstone of your efforts. Are you closer to achieving this goal?

No. We don’t set the policy for the sector. It is the same problem of the minister not wanting to transfer authority or employing people and granting contracts.

There are plenty of cases of PPPs failing to deliver better services, cheaper prices or more efficiency. With Lebanon’s record of poor transparency and corruption, shouldn’t widespread administrative reform come first?

PPP legislation has as one of its main objectives increased transparency and limits to the corruption you are talking about. Today in Lebanon you can do PPP projects, in fact we already have many. The problem is that they are all problematic. They are controversial and lack transparency. What we are trying to do is to remedy those problems.

The energy sector is in such a mess, can it really be considered a viable and attractive investment opportunity for the private sector?

I don’t think anyone is interested in a privatization of the power sector, not foreign or local investors. PPP is a different animal. Many people are interested in PPPs in the power sector.

Everyone is talking about offshore oil and gas. Is the Petroleum Administration vulnerable to the same resistance and inertia as we have seen in the other sectors we have discussed?

I believe so because of the way in which it is set up. It is dependent on the minister, so as long as these decision makers are not independent we will have the same problems. This is not a fully independent board. The government does not have the ability or the wherewithal to fully exploit this sector so there will be a huge involvement of the private sector and this is where my concern lies.

February 5, 2013 0 comments

The Buzz

Morning briefing: 5 Feb 2013

by Executive Staff February 5, 2013

written by Executive Staff

Kuwait granted Lebanon an $85 million loan on Monday to finance the upgrading and rehabilitation of the Zouk and Jiyyeh power plants as part of efforts to overhaul the ailing electricity sector.

More from Reuters

Companies

Etihad Airways is close to taking a stake in India’s Jet Airways, the Abu Dhabi airline said on Monday after reporting a tripling in profits for last year.

More from Reuters

Emirates airline, which has multi-million dollar sponsorship deals with FIFA and Arsenal football club, inked a five-year partnership with Formula One motor racing on Tuesday, beginning this year.

More from Reuters

Aramex plans to target more acquisitions in Asia and Africa, the logistics firm said on Monday, and reported a 15-per cent rise in quarterly profits.

More from Reuters

British commodity trading and finance investment firm DVK Group is currently in talks with a Qatari royal to launch a Shariah-compliant investment fund targeted at women and with a capital target of up to US$500m.

The mineral miracle

by Robert Biddle February 5, 2013

written by Robert Biddle

Nuclear power has garnered a bad reputation, particularly after the Fukushima disaster in 2011 devastated Japan. Meltdowns at the Three Mile Island power plant in the United States in 1979, and at Chernobyl, Ukraine in 1986, among others, helped tinge talk of uranium-based power generation with the hint of impending catastrophe.

But what if there was a safer, more efficient alternative? At the TEDxBeirut conference in November, which consisted of a series of innovative and thought-provoking presentations, Salim Zwein argued that there is and its name is thorium.

“Thorium is an element that you find virtually everywhere. In every cubic meter of soil you have one gram of thorium,” said the Lebanese quality-control consultant and engineer in his presentation. He added that the metal is so energy-concentrated that it would only take 6,600 tons to meet global energy needs annually. The World Nuclear Association estimates that there are roughly 4.4 million tons of thorium globally, about three times more abundant than uranium.

What makes this metal so attractive is that it could potentially solve the conventional problems associated with nuclear power — waste management, cost efficiency and safety — while offering a high-quality energy source.

Many like Zwein have argued that thorium is more efficient than uranium. “To produce one gigawatt of electricity, you need one ton of thorium, but 35 tons of uranium.” Plus, he adds, 83 percent of the waste that thorium generates will stabilize in 10 years, and the other 17 percent will stabilize in a few hundred years. Uranium, on the other hand, produces more radioactive waste — less than one percent of the uranium is used in the reactor to create energy — and it takes 10,000 years to stabilize.

No bang for your buck

Of course, there is no discussion of nuclear energy without bringing up proliferation, or using nuclear power to make weapons. One of the benefits of thorium is that, while it is “not proliferation-proof”, it is significantly more difficult to produce bombs using a thorium-based fuel cycle, according to Zwein.

Thorium is not fissile, meaning that it cannot be used directly as an energy source. Rather, it is fertile and can be transmuted into what is essentially uranium-233, which is considered more efficient than the conventional uranium-235, using a fissile material. But a small uranium “driver” is required to start the thorium fuel cycle, and either the driver or the resulting uranium-233 can be used to make a bomb.

However, the transmutation of thorium also creates other isotopes of uranium, namely uranium-232. These particular isotopes “produce very high quantities of gamma rays,” says Zwein, explaining that this makes it prohibitively difficult to handle compared to traditional enriched uranium-235.

Moreover, he adds, even if one were to extract the uranium from the reactor while avoiding the uranium-232, the high levels of radiation can still be detected by satellite. The International Atomic Energy Agency keeps a close watch on all nuclear reactors so proliferation at a thorium reactor would not go unnoticed.

Another advantage thorium has is that its higher melting point of about 500 degrees Celsius means there is less of a chance of meltdown or nuclear disaster than with uranium.

Why hasn’t it been used?

If thorium is such a wonder, one might ask, then why is it not already a household name in electricity generation? Thorium’s properties were discovered in the 1940s and tested in the 1960s, but it lost the nuclear race to uranium.

“Scientists were more familiar with plutonium [and uranium] than thorium,” Zwein says. The molten salt reactor, another type of nuclear reactor that arguably would best utilize thorium in generating energy, was like “the strange kid in the room”. Instead, the light water reactor became the dominant choice — the same type of reactor that exploded at Chernobyl and Fukushima. After these catastrophes, Zwein remarks, there was a phobia attached to nuclear power and nobody wanted to finance it further.

But today, thorium is enjoying something of a revival. In 2008, Kirk Sorenson, a former National Aeronautics and Space Association engineer, rediscovered the experiment from the 1960s plant in Oak Ridge, Wisconsin, and began advocating for the idea around the world. The project to rebuild the molten salt reactor ultimately needs funding for research and development.

Arguably, such a power source seems too good to be true and with such claims come skeptics. The National Nuclear Laboratory at the United Kingdom’s Department of Energy & Climate Change released a report in September that stated: “thorium has theoretical advantages regarding sustainability, reducing radio-toxicity and reducing proliferation risk. While there is some justification for these benefits, they are often overstated.”

Yet the report still recommended that the UK invest in a small amount of research on thorium, given its rising global popularity.

Indeed, China has been extremely interested in developing thorium reactors and at the beginning of January, allocated $350 million into the research and development process on thorium.

Prospects for Lebanon?

“I’m dreaming, but I want every single country in the world to participate in investing in this kind of energy,” Zwein says, and Lebanon is no exception. When asked about the likelihood of such a project being tackled in Lebanon, especially in light of the recent hype around the country’s potential billion-dollar offshore oil and gas reserves, he said: “Why not? With oil you have one golden ticket, with thorium you have another. Why not go with both?”

Lebanon currently needs around 2.5 gigawatts of power to provide countrywide 24-hour electricity. A ton of thorium is thought to be capable of producing a gigawatt of power and depending on market fluctuation, costs between $50,000 to $80,000. The country’s annual fuel costs could be met for a fee of $125,000 to $200,000: significantly less than the $1.45 billion spent on oil by Électricité du Liban from January to August in 2012.

It will be difficult to uproot the stigmas attached to nuclear power in order to cultivate popularity for thorium-based energy. For that, more questions need to be answered, meaning considerable investments of time and money into thorium’s research and development. It may be years before the world sees the first thorium reactor, but it could be the answer to the growing energy crisis.

February 5, 2013 0 comments

Society

Playing profits

by Nabila Rahhal February 4, 2013

written by Nabila Rahhal

Like most things in Lebanon, it all began with sectarianism. Or, more accurately, with one basketball team’s efforts to break free from the yoke of patronage.

The year was 2001 — the Syrians were rounding up opposition activists in unprecedented numbers, the South was basking in its freedom and basketball was booming in Lebanon. Riding the crest of the B-ball wave was Hoops Club, an academy and sports center in Downtown Beirut, which took the opportunity to turn the sport’s new popularity into hard cash.

“To have our competitive team be self-sufficient, and not reliant on any political party, our academy had to be money making,” says Yassem sKanso, founder and president of Hoops Club and previously a player with the Sporting team. “It took time for Lebanon to adopt the idea of the business of sports because sports games were usually subsidized by political entities, and this discouraged the public to actively embrace it for fear of being labeled. Hoops was the first academy to challenge this political dominance and be apolitical,” explains Kanso. Fast forward to 2013 and Hoops’ combination of public court-rental fees, corporate sponsorship, youth academy programs and gym membership fees has allowed them to expand to three locations. And they’re not alone.

With the apparent success of Hoops Club, sports centers caught the interest of athletic investors looking to capitalize on the growing demand for non-politically affiliated sports clubs in the country. One such center is SportsVille, owned by the Tahseen Khayat Group, located in the densely populated area of Sakiet El Janzeer where, for $90 per hour, a group of friends can rent a mini basketball or football field and work up a sweat. SportsVille’s courts are regularly full and clients usually have to book at least a week in advance.

“There is clearly a [demand] for these facilities, but they have to be combined with academies, as profits from court rental alone are not that high,” says Martin Mugharbil, a former professional basketball player and the founder of Never Too Late basketball training academy, which has a partnership agreement with SportsVille.

Youth academy programs take sports centers’ earning capacities to the next level. Monthly and potentially longer programs guarantee income and training schemes, and travel opportunities add value and build loyalty, an important factor given that courses are offered from ages four to 21.

Advanced Soccer Academy (ASA), an example of such a successful academy, was founded by Raed Saddik and Rani Ghaziri. Both were coaches at the American Community School in Beirut but left when what started as a side business developed into one of the few dedicated football academies in the country with 500 members.

ASA grew from an academy into court management at their Ansar branch. Like Hoops, their revenues essentially come from monthly membership fees, of approximately $160, training camps and sponsors. ASA also acts as an agent for its top players, sometimes letting them train free of charge, developing their talents and seeks to secure them contracts with European clubs. If such a contract is secured, ASA takes a 10 percent finder’s fee. “It is a profitable business and we easily returned our investments in a year and a half,” says Saddik.

Hitting the big time

Now, plans for “the biggest sports complex in the Middle East” are being laid in Hazmieh. Champs, owned by famed basketball player Fadi el-Khatib and Nader al-Jaber, is set to open by early 2014 and will include seemingly every sports facility imaginable stretched over 20,000 square meters.

An ambitious project, Khatib says Champs’ “state of the art professional facilities” will include an international spa franchise, a hotel for academies hosting teams from abroad, training camps during school vacations and a diner. Aishti’s Michel Salameh will have an outlet for his sports brands and will sponsor all outfits from the academy members’ uniforms to the trainers’ and other staff’s uniforms.

The project will cost an estimated $8 million and both partners are confident of its success, despite the competition from existing facilities in Hazmieh.

“We are at a better location and have more facilities under one roof, plus some entertainment in the form of the eatery outlets and bowling alleys. We’ve combined everything so that if you want to do anything sports-related, you will want to come to our place. Parents can come with their children; the child trains in football and the mother can be on the treadmill watching from above. It is for all ages and activities,” says Jaber.

Khatib says membership fees will be reasonable. “We are going to compete and it will be affordable, without sacrificing the project and our investment,” says Khatib. “You are going to get a better experience for the same price, so why not?” adds Jaber.

Why not indeed? For a country where the lack of available and convenient public sports spaces forces enthusiasts of all ages into paying gym memberships and court rental fees — or more commonly, giving up physical activity altogether — the increasing number of such facilities can only be a good sign of a healthier culture.

As Hoops’ Kanso summarizes: “I always encourage such businesses because, at the end, we are promoting the culture of sports. I’m even happy with my competition as it ends up being a matter of who offers the best service; it creates a healthy competition and so sports become a culture and a habit in our country.”

February 4, 2013 0 comments

Comment

Paving a new silk road

by Jihad Yazigi February 4, 2013

written by Jihad Yazigi

The signing of several economic agreements on January 16 between Iran and Syria confirmed the persistently strong strategic relations between the two countries. However, contrary to a widely held belief, and to the claims of the two governments, bilateral trade ties have historically been very limited. Hence, in 2010, according to Syrian government statistics, bilateral trade between Syria and Iran reached $312 million — this was lower than trade between America and Syria, despite various economic sanctions imposed by successive United States administrations on Damascus since at least the late 1970s.

The trade balance was largely to the benefit of Iran, which exported $297 million in goods to its long-term ally and imported only $15 million from Syria.

Bilateral investments are also paltry and do not exceed a handful of projects by Iranian investors in the Syrian manufacturing sector — mainly a petrochemical venture located south of Damascus and two car assembly plants based near Damascus and Homs. And while Syria joined the Greater Arab Free Trade Area in 2005 and signed a free trade agreement with Turkey as early as 2007, it signed a preferential trade agreement (PTA) with Iran only in 2011.

It is difficult to comprehend why the two countries failed for so long to expand their ties but a number of objective factors can explain this.

The two economies do not complement each other — the main export item for both countries is crude oil, while their main import items are oil derivatives, manufactured products and industrial equipment that are not produced in significant volumes; they do not have a contiguous border, as Iraq — which has had an extended period of poor relations with both countries — stands between them; there are no historical trade links comparable to the relations existing between Syria and Turkey from the Ottoman period or between Damascus and the Hejaz; since the Iranian revolution in 1979 the governments of the two countries have systematically prioritized their political and military ties at the expense of most other types of relations.

In recent years, a number of events helped change this dynamic, including the fact that economic issues started to take on increasing importance in the decision-making process in Damascus.

Several large tenders by the Syrian government were awarded to Iranian contractors in the energy, manufacturing and water sectors. These have included the construction of several power plants by Iranian companies, including a 470 megawatt (MW) combined-cycle plant awarded last year to Mapna; a water sewage project in the region of Latakia awarded in 2009 to Mirab, an engineering firm, for an amount of $64 million; segments of a water irrigation scheme worth $31 million in the area of Aleppo awarded to contractor Sabir and; the construction of 10 grain silos awarded to Tosee Siloha, a civil engineering house.

Another important turning point has been a change in relations between the two countries and Iraq, which has stabilized to some extent and whose government is now close to the Iranian authorities.

The improvement in ties with Baghdad helped both Syria and Iran envisage the PTA between them, and also to look at other ventures that use Iraqi territory. This has included, for instance, a quadripartite deal inked in early 2012 involving the sale of some 1,300 MW of electricity from Iran to Iraq, Syria and Lebanon. While Baghdad will receive 1,000 MW, Damascus and Beirut will share the balance.

More significant is the scheme to build a gas pipeline dubbed the “Islamic Pipeline”, a route that will carry gas from Iran’s South Pars Gas Field through Iraq and Syria. The 56-inch pipeline will be some 2,000 kilometers long and will have a daily capacity of 110 million cubic meters. The construction costs are estimated at between $2 billion and $2.5 billion. The long-term ambition of Tehran is to expand the pipeline in order to reach the crucial European market.

While the Syrian uprising brought back to the fore the security aspects in the relation between the two governments, it is likely that the potential “loss” of Syria, will not only be a major strategic setback for Iran but also mark a rapid end of promising economic opportunities that had just begun to unfold.

Jihad Yazigi is editor-in-chief of The Syria Report

February 4, 2013 0 comments

Business

Standing tall amid the fallen

by Maya Sioufi February 4, 2013

written by Maya Sioufi

Long gone are the days when the Middle East was the hot spot to set up shop, raise funds and invest in private companies with the promise of phenomenal returns. Before the global financial crisis struck in 2008, the region’s nascent private equity (PE) industry saw a boom in the number of firms while listings on Arab stock markets were oversubscribed to near insanity. Yet today, the PE industry’s easy pickings have all but vanished with the socio-political turmoil engulfing the Middle East. But even while the amount of capital raised in the region in recent years has fallen, one PE firm is still holding on to its bets: Saudi-based Amwal AlKhaleej.

Through two funds totaling some $650 million, Amwal acquired stakes between 20 and 40 percent in Middle East companies across different sectors, with an average ticket size of $30 million. Fully deployed, its current portfolio includes stakes in 14 companies after completing 10 exits since its establishment in 2004, making it one of the oldest PE firms in the region. For the first fund, which started deploying capital in 2005 and with 85 percent of its exits completed, the rate of return on investment averages 30 percent. The second fund, which started deploying capital in 2008 — just before the global financial crisis — has completed three exits, out of a total of 11 investments, and still managed double-digit returns.

Amwal AlKhaleej’s survival during the recent turbulent years boils down to two things, according to Chief Executive Fadi Arbid: no use of leverage to fund their investments and a very aggressive pricing strategy. “We’ve got a stingy reputation which in many ways I don’t mind,” he says. “I am protecting the money given to me; today if we are making money on our exits it’s because we bought cheap,” he adds. Multiples on investments in companies in the region have been decreasing in recent years as investors have been less keen on deploying capital in a rocky Middle East, meaning fund managers who paid generous sums for their initial investments are now hard pressed to find buyers for an exit, thus squeezing them to sell at a loss.

The end of easy money

The business of Middle Eastern PE funds was booming prior to the global financial crisis. According to a report conducted by business school INSEAD and consulting firm Booz, the amount of money raised by PE funds went from $1 billion in 2004 to $10 billion in 2008, with around 100 funds ready to deploy capital in the Middle East. With fund terms averaging five years, the outlook for lucrative exit strategies at that point seemed whopping. And then the pain began. As the global financial crisis came closer to home, the completed PE transactions in the region fell from 73 in 2008 to 49 in 2009 — a year during which “committed funds in the region had declined to levels not seen since the end of the 1990s”, according to the report. Another blow came with the Arab uprisings, which left no industry unscathed. “Before [the financial crisis], when you sold to the public, [initial public offerings] used to be 20 to 30 times and sometimes even 100 times oversubscribed,” says Arbid. “Now if you get two to three times you are a champion.” A stark example of the hype for Middle Eastern IPOs prior to the financial crisis was the $435 million listing of the shares of the Dubai Financial Market, which was 300 times oversubscribed.

Of Amwal AlKhaleej’s 10 exits, only two were completed on the public market; listing on an exchange is far more challenging than selling to a strategic buyer, since it hinges on abiding by strict regulatory requirements, on being scrutinized by the public market and on being subject to the volatility of both global and regional markets, but Arbid says that his investments are groomed for a public listing. He added that his firm turns investments into IPO candidates through the implementation of solid growth strategies that adhere to international corporate governance standards.

With 30 percent of Amwal’s portfolio exposed to Egypt, if pressured to sell now, Arbid “would be uneasy and uncomfortable to find buyers at the right price for all the assets”, but with his fund spanning across 2016, he has the luxury to be able to wait. Another 40 percent of the portfolio is exposed to Saudi Arabia, 20 percent to the United Arab Emirates and the rest mostly to the Levant area. The first fund had some exposure to Lebanon through investments in Bank Audi and Lebanese Canadian Bank, exiting in 2006 and 2007, respectively. Arbid says investment in these did very well, but Lebanon was avoided by the second fund due to its political uncertainty.

Third is a charm

As the second fund starts shaping up for exits, Arbid says he is assessing his options but he is optimistic, having completed three exits from the two funds in 2012, of which one was the highly publicized IPO of Saudi-based Al Tayyar Travel Group. After a failed attempt to list in 2009, Amwal’s team was “stubborn, rolled [its] sleeves up and eventually as a key shareholder strongly got involved in the listing process with the company and its advisors,” says Arbid. Six times oversubscribed, Al Tayyar’s listing raised $2.2 billion on the Saudi Stock Exchange in June 2012. “Tayyar makes us proud, not just because it was completed at an extremely high multiple but also because it is an investment that embodies a lot of our values. We took a sizable minority stake, we were on the board of the company, it embodies the value added we bring in, we undertook a lot of corporate finance actions and we worked a lot and hard to take it public,” adds Arbid.

The form of a third fund is shaping up to look different than the previous two, and Arbid estimates that there is enough appetite to raise up to $350 million. With investors less keen on deploying capital into a blind pool of funds, whereby investors deploy capital and fund managers decide where it goes, the PE industry, as well as Arbid’s Amwal AlKhaleej, is shifting more to a deal-by-deal model, whereby investors deploy capital into a specific transaction.

Another direction the Saudi PE firm is also shifting to is raising capital from Western institutional clients, not just regional investors, with a target to have 60 percent of the third fund’s capital from these institutions that provide “sticky money that is unemotional”, says Arbid. As their business is to invest, they could eventually become long-term partners of the PE firm if the investments do well. ‘Family money’ on the other hand “could decide to stop investing if their operating businesses are not doing well”, says Arbid. He adds that the remaining 40 percent will be raised from 10 to 15 regional investors, who are capable of bringing in deals and “intelligence”.

Funds and fundamentals

Going forward, the Middle East PE industry is slowly adapting to the new socio-political and economic realities taking shape across the region. In addition to Arbid’s expectation of seeing a move to a deal-to-deal model from a blind-pooled funds model, he anticipates that the region will have fewer PE firms of smaller sizes in the next five years, but with a larger mandate moving beyond PE into alternative space such as opportunistic investments. When political stability returns to the region — and fingers are crossed that will occur in the near-term — the Middle East’s solid fundamentals should help the region’s private equity industry regain some of its pre-financial crisis momentum, according to Arbid. The strong growth potential, good demographics and upcoming structural reforms are motivation, he says, to continue on deploying capital as “private equity should mirror the fundamentals of the region”.

February 4, 2013 0 comments