Executive Magazine

Keeping alight the spark

by Paul Cochrane October 1, 2012

written by Paul Cochrane

Lebanese industry has been dealt many a bad card in its recent history. Yet when the sector went through a five-year boom, with exports nearly doubling in value from $2.17 billion in 2006 to $4.059 billion in 2010, it seemed as if industry had finally found some playable hands. The sector could raise the stakes, throw out an ace or two, and show the banking, real estate and tourism sectors that industry was an equally important player at the country’s economic big-boys’ table.

But the winning streak was not to last. The global financial crisis — which the sector had managed to bypass for a while — political uprisings throughout the region, and sluggish domestic economic growth all started to affect business in 2011, the second half in particular. In the words of the president of the Association of Lebanese Industrialists (ALI), Neemat Frem, “It was not a slowdown in growth but a complete stop”.

Although 2011 marked a new record in industrial exports from 2010 at $4.064 billion, growth was minimal and hardly comparable to the $729 million jump in exports between 2009 and 2010.

Furthermore, despite export figures being used as a benchmark to gauge the sector’s general health, they do not give the overall picture, given that exports account for only 40 percent of sales in domestically manufactured goods with the remainder destined for the local market.

The glass half empty?

The mood of industrialists certainly reflected the downturn. In the central bank’s quarterly business survey, it showed that by the fourth quarter industrial production had retreated, with a balance of opinion (the proportion of surveyed managers who consider that there was an improvement in a particular indicator and the proportion of those who reported a decline in the same indicator) standing at -11, compared to +18 at the same time in 2010 and zero during the third quarter of 2011. The balance of opinion for overall demand for industrial goods was no brighter, at -14 in the fourth quarter of 2011 compared to +4 in the same quarter of 2010.

To the sector’s relief, 2012 did not start out too shabbily, in exports at least, with first quarter results up 9 percent on 2011 at $808.1 million, according to Ministry of Industry figures. Yet the downbeat sentiment that had prevailed at the end of last year lingered, with the same debilitating factors deteriorating moods further: higher oil prices, more frequent power shortages and the situation in Syria on a slippery downwards slope. By the end of July exports were down 9.5 percent to $1.7 billion, when compared with the first seven months in 2011.

Consumer confidence was also in the gutter. A survey conducted in March and April 2012 by United States-based opinion polling think tank Pew Research Center indicated that 53 percent of Lebanese considered that the economic situation in Lebanon was very bad and 35 percent thought it was bad, compared to 12 percent who believed it was good.

“Three channels were hit the most: One: the flow of tourists was down, which lowered demand for industrial and agricultural goods; Two: exports through Syria were down, and Three: the loss of foreign investment into Lebanon, including industry, because of the security and political situation and heightened risk,” said economist Mazen Soueid.

Indeed, tourism figures were down 8 percent in the first half of the year. Exports that had gone overland via Syria were down, notably plunging by 40 percent to Turkey and by 15 percent to Iraq. Indicative of reduced investment in industry, imports of machinery were down 12 percent.

While Lebanese industry has long struggled to be price-competitive within the region and other emerging economies, from wages to operational overheads, the sector had another cost to factor in this year when the government raised the minimum wage.

“The increase in salaries has affected us. Our products are customized and cannot be mechanized so we rely on labor. Our prices are up 6 percent, so it’s significant,” said Daniel Abboud, general manager of Carosserie Abillama, which has a staff of 300 to manufacture trailers and other automotive add-ons that are exported to some 27 countries.

“The wage increase from $333 (500,000 LL) to $450 (675,000 LL) is a big jump if you have 150 women working for you. That is the basic minimum,” said Nizar Raad, managing director of Universal Metal Products (UMP), a leading manufacturer of collapsible aluminum tubes for pharmaceutical and cosmetic companies. “It is a big increase in costs for us and we can’t pass that on to customers easily as competition is worldwide, from Pakistan to India and China. And they don’t have the fuel costs we have. We are paying $0.15 a kilowatt while others are paying just $0.04.”

The country’s chronic power shortages, with Électricité du Liban (EDL) producing only 1,500 megawatts (MW) of electricity and peak demand at more than 2,500 MW, has long been an existential problem for industry. This year the power outages were even more frequent than in the past and were further compounded by oil prices averaging more than $100 a barrel, which has bitten into industry’s margins as well as lowered consumer purchasing power.

Some industrialists want to solve the crisis by developing their own power plants, with excess sold to the grid. They have submitted a proposal to the government but it has been stymied by EDL holding the monopoly on energy sales.

Logistics costs have also risen, partly due to oil prices but primarily because of the conflict in Syria affecting overland trade, with the number of trailers crossing the border down by around half, from 450 a day last year to 200 to 250 a day, according to Gezairi Transport. Trucking costs are up by around 15 percent to the Gulf due to oil prices and insurance premiums have increased to cover the risk of transporting through Syria. Such factors have prompted a rise in sea freight, but add further costs to companies, with sea cargo to the Gulf around 40 percent more expensive than by land, as well as taking an average of two weeks longer to get to the end destination.

Regional issues are also playing their part, with Saudi Arabia no longer allowing Syrian drivers multiple entry visas — Syrians account for around 80 percent of the truckers of Lebanese products — presumably for political reasons, which adds on more time for visa applications, while the kingdom is also squeezing the Lebanese electricity generator sector.

All in all, industry is facing many obstacles. “I think Lebanese industry is going through its worst period since the end of the Civil War,” said Soueid. “We have never had this agglomeration of domestic, regional and global factors affecting supply and demand. If this continues, and unfortunately the indicators point in that direction, we will see closures of industries in Lebanon.”

The glass half full?

While the economic situation is certainly not rosy, with overall growth forecast at 1.2 percent this year by the Washington-based Institute of International Finance, it is not all doom and gloom. Taking the ‘glass is half full’ approach, ALI’s Frem is confident that the sector will prevail, stating that while industrial machinery imports have dropped, they could have dropped more — especially after significant investment in recent years — and this year he forecasts that up to $200 million of newly purchased machinery will go “straight to the expansion of the sector”. Since being interviewed in early September, Frem’s outlook has been somewhat confirmed, with statistics released by the Ministry of Industry showing that industrial imports at the end of July were up 22 percent, to $172.2 million, on the same period in 2011.

Industries not overly reliant on the local market are stoic about the situation. “We have to live up to the challenge, otherwise we shouldn’t be here,” said Raad of UMC, which exports 85 percent of its products. “We will maintain the same figures as last year; not more or less growth.”

“Business is good, despite the situation,” said Asaad Saccal, general manager of generator manufacturer Saccal Industries. “The reason is 85 percent of our turnover is export. Lebanon is good business of course, but small in terms of quantities; we need bigger markets to sell to.”

To Abillama’s Abboud, companies should have anticipated the regional and domestic situation and adapted their business model accordingly rather than whining about the obstacles in place. “This is a problem I see many people complaining about, but they don’t look ahead, taking the punches while sitting down — move!” said Abboud. “The key is not to be static and wait, but to be proactive. As soon as things started to happen in Syria and we saw that the economy might slow down here, that the road to the Gulf might be difficult and we would have to focus on sea export, we put all [our] sales people on West Africa to be dynamic, and it worked,” he added, with Abillama having a “nice order book” for the year ahead.

Indeed, as the saying goes, one man’s loss is another man’s gain. Some exporters have benefited from the current regional crisis by picking up orders that Syrian and Turkish manufacturers cannot fill.

The economic sanctions imposed on Syria by the United States and the European Union (EU) have also been a boost for certain Lebanese companies, with imports from Syria down 8 percent in the first half of the year, and exports to Syria up 18 percent, according to global information company IHS. It would appear, though, that the negative impact on some Lebanese companies in losing the Syrian market and that export route outweigh the opportunities for their industries to fill the gap left by the collapse of Syrian industry.

Government support?

The government is not helping the sector through these trying times, with the Minister of Industry, Vrej Sbounjian — a Utopian at heart — stating there is no cause for concern.

“We don’t have any complaints concerning the economy or industry… We need to be more realistic and enjoy life a little bit. We don’t have to make money every year,” he told Executive.

The ministry itself could certainly do with more money, with a budget of just $5 million, just more than half that of the Ministry of Youth and Sports, at $9.7 million, and a third of the tourism ministry’s $14.6 million.

“The ministry’s share in the budget seems way too low to me,” said Abillama’s Abboud. “There should be more than just enough to pay salaries.”

“The ministry should be able to afford promotion programs and to fund delegations from the ministry to visit seminars and industrial meetings with specialized bodies in the Arab League, the EU or others,” he added.

There have also been no steps made to set up dedicated industrial zones despite government pledges over the years to do so. As Frem observed, “Forget about it, there is a complete paralysis on the economic zones.” Industry, as in the past, is being left to its own devices to stay alive, not even getting governmental contracts to bolster domestic sales.

However, the Ministry of Industry has put its, albeit limited, weight behind a joint scheme launched in September with the ALI to promote Lebanese products under the slogan “Your industry your identity: Buy Lebanese.”

While a promotional campaign may help, industry needs more than just marketing, it needs solid support from the government and for the ministry to tout the sector at international exhibitions, just as other countries do. A bigger industrial sector would, after all, help to lower unemployment and boost the overall economy.

“It is not that Lebanon cannot be industrial, but that it should be seen as a sustainable sector,” said Abboud. “It is great to have an ad agency here, but they could leave tomorrow; industries can’t get up and leave like that. Industry should be a priority and not be seen by the government as a cash cow. Industry is a social contributor as well as a fiscal one. In the past, industry was looked at as a polluting sector or as exploiting the masses — this is not the case anymore.”

To economist Soueid, the government needs to implement any of the economic plans drawn up over the years, whether by external actors such as the World Bank, or by ministries and economists. “Industries in Lebanon don’t need a ministry, they need an economic policy that supports industry and reforms in power, infrastructure and telecoms,” he said.

Given the rough ride this year, Lebanese industrialists could use some better cards to play.

October 1, 2012 0 comments

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The Resistance goes on

by Nicholas Blanford October 1, 2012

written by Nicholas Blanford

President Michel Sleiman’s proposal for a national defense strategy, which includes placing Hezbollah’s arsenal of weapons under the command of the Lebanese army, is an attempt to fine tune an idea that was first aired around a decade ago.

The Sleiman proposal was unveiled at a meeting on September 21 that grouped most of the country’s top leaders for yet another of the seemingly interminable national dialogue sessions. Although the national dialogue began in early 2006 with the fate of Hezbollah’s arms as its chief raison d’être, the participants have only agreed on one item: closing the bases manned by Syrian-backed Palestinian factions in the Bekaa Valley and in Naameh south of Beirut.

However, despite unanimity on that decision it has yet to be put into effect and the Palestinian military bases continue to operate unmolested.

Sleiman’s proposal is unlikely to meet the approval of all participants to the national dialogue, let alone reach the stage of implementation. The bottom line is that Hezbollah will not voluntarily disarm nor hand over control of its weapons or decision-making capabilities to an external force. Ali Ammar, a Hezbollah Member of Parliament, was quite clear about this when he stated in June 2006 — a month before the war with Israel — that “the resistance will go on; the extent of the resistance is not the Shebaa Farms… nor the return of prisoners [from Israel], but its extent is when it becomes impossible for Israel to violate Lebanon’s sovereignty even with a paper kite.” In other words, the lifespan of the resistance is potentially infinite.

The late former MP Nassib Lahoud was an early proponent of blending Hezbollah into the army. With the onset of a debate on the fate of Hezbollah’s arms in the wake of the Israeli troop withdrawal from South Lebanon in 2000, Lahoud suggested that the resistance be turned into a paramilitary border defense force deployed along the southern frontier but placed under the command of the Lebanese army. His proposal was an attempt to find middle ground between the maximalist positions of Hezbollah, which wanted to keep the resistance intact, and the party’s critics, who wanted to see the resistance entirely disarmed.

Hezbollah argued that the success of the resistance in confronting Israel is that it has its own chain of command and is not part of the fabric of the army and therefore the state. The absence of a formal military chain of command and the relative degree of autonomy given to unit commanders (rare among Arab armies) allows the resistance to react more quickly to developments, ran Hezbollah’s argument. Furthermore, Hezbollah did not operate from open military barracks and bases such as those manned by the Lebanese army because of their vulnerability to attack. Instead it was a guerrilla force — fluid, mobile, stealthy — all the better to confront Israel’s conventional army.

Even as Hezbollah was advancing this argument a decade ago, its fighters were busy building secret underground fortresses in the hills of South Lebanon, a development that only became apparent with the advent of the 2006 war.
Before Syria’s political disengagement from Lebanon in April 2005, the future of the resistance was a largely academic debate: Hezbollah had no intention of disarming and the Syrians provided political cover. The national dialogue sessions first convened in 2006 when the debate over Hezbollah’s arms intensified and the party was compelled to at least accept the establishment of a forum to discuss the issue.

The key question, however, is who decides whether Lebanon goes to war or not — the state or the secretary-general of Hezbollah.

In 2006, the state was powerless to make such a decision as events on the ground moved too quickly. But if Israel was to launch a pre-emptive attack on Hezbollah in an attempt to degrade its military capabilities, would Sayyed Hassan Nasrallah look to the government for the green light to retaliate? Of course not. And he has implicitly stated that Hezbollah reserves the right to decide the manner of response to an attack by Israel in a series of “deterrence” speeches he has made in the past five years.

Sleiman’s proposal will continue to be discussed for many more months at future sessions of the national dialogue. But Hezbollah can probably rest assured that it will never proceed any further than the table in Baabda presidential palace.

Nicholas Blanford is the Beirut-based correspondent for The Christian Science Monitor and The Times of London

October 1, 2012 0 comments

The Buzz

The Innocence of Google

by Joe Dyke & Benjamin Redd October 1, 2012

written by Joe Dyke & Benjamin Redd

The decision by Google to restrict access to the hugely offensive anti-Islamic film “The Innocence of Muslims” in parts of the Middle East has proved almost as controversial as the film itself.

Click here or on the map below to see our exclusive infographic mapping how the film has been taken offline across almost the entire Middle East.

In some countries, such as Saudi Arabia, the film was clearly in breach of local laws and therefore the decision to ban it was semi-automatic.

In Sudan and Iran the decision to block the film came as part of a wider attack on Youtube and Google.

But in other countries — such as Egypt and Libya where demonstrations first broke out — the decision was made by Google after specific requests.

The company said the “very difficult situation” in those countries had led to the decision to “temporarily” restrict access.

The decisions have caused some free speech campaigners to worry about the precedent being set.

Jillian York, the Director of International Freedom of Expression at the Electronic Frontier Foundation, thinks the decision is a dangerous one.

She points out that the company had received no legal demand to remove the film, and YouTube itself said it did not violate its own rules.

“Had Google received a court order, I would be more understanding of their position — then the blame would be on the court, the government. But because Google made a decision for an entire nation, that’s scary,” she said.

York also blasted the company’s apparent disregard for the opinions of Egyptian civil liberties advocates, saying the company’s decision “ignored that fight and ignored their voices on the matter, instead attempting to determine what’s ‘best’ for Egypt.”

“The biggest long-term issue is that these companies — Google, Facebook, Twitter, etc. — have become the ‘virtual public square,’ but remain private companies with the right to make whatever decisions they want about content,” she added.”

October 1, 2012 0 comments

The Buzz

Morning briefing: 1 Oct 2012

by Executive Staff October 1, 2012

written by Executive Staff

Economics

Jordan, struggling to speed up its pace of economic and regulatory reforms, expects foreign direct investment to drop next year before ultimately rebounding, its industry and trade minister has said.

Jordan's economy has been hurt by regional protests and energy supply disruptions tied to the Arab Spring, Minister for Industry and Trade Shabib Ammari said in an interview.

"The last figure that I have in mind today with respect to FDI (foreign direct investment) during 2011 was a bit below $2 billion," he said on the sidelines of the International Economic Alliance symposium.

"I would expect 2013 to be maybe $1.5 billion, anywhere between $1 billion to $1.5 billion, 2014 may double this figure," he added.

Fiddling while Lebanon burns

by Yasser Akkaoui October 1, 2012

written by Yasser Akkaoui

The blatant disregard with which the government is treating the current economic crisis in the country is the height of irresponsibility. It is best characterized by the industry minister’s advice to the Lebanese to just need to relax because “we don’t need to make money every year.”

Indeed, for those among the political class who have been robbing the country blind for the past few decades, taking a year off to lay comfortably on their stolen wealth may be an option, but for those Lebanese who have worked hard to build their businesses and fight every day to make ends meet, this is not a luxury they can afford.

The Syrian situation is impacting Lebanon in a wash of negative ways: investments are evaporating, bank deposits are shrinking, the tourist season was a disaster, export market routes are cut and inflation is up. Gross domestic product growth is in decline while unemployment is growing.

In response the government has done nothing to help. Leaders from almost every sector of the economy are screaming for progressive policy reforms to help them survive. They don’t want handouts, they simply want the litany of government-imposed impediments to their business to be removed. If the government cannot provide the proper infrastructure the country needs — such as a functioning power grid — then it should not get in the way of the private sector doing so.

But instead our politicians have been mute, articulating no strategy forward for the country in the slightest. They have buried their heads in the sand, and it is time we kicked them in the ass.

October 1, 2012 0 comments

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Finally, a shred of hope

by Farea al-Muslimi October 1, 2012

written by Farea al-Muslimi

Yemen’s current president — formerly the quiet, powerless vice president — took office more than eight months ago, yet until recently those walking near his home would still say they were “near the vice president’s house.” Few took him or his new authority seriously. That, however, has now changed. Not only has Abdu Rabbu Mansour Hadi earned respect as a leader, he has aroused something many Yemenis had almost become allergic to, given how often it has let them down: hope.

Hadi came to power in February via a political deal brokered and backed by Gulf Cooperation Council states and the international community, which helped end more than a year of popular uprisings against the three-decade rule of Ali Abdullah Saleh. Few, however, thought Hadi could curb the heavy influence of the patronage networks and corrupt feudal systems that were the legacy of the former president.

Early August, however, President Hadi began a military reshuffling, removing key units from the command of Saleh’s son and a former Saleh ally, who headed the Republican Guard and the first Armed Division, respectively. This was welcomed as a step towards a comprehensive reconstruction of the army, which was one of the revolution’s main goals. To Saleh and his old friends, it was a medium-sized earthquake. A bigger shake-up came mid-September when Hadi targeted numerous governors, security officials and ministers for removal. Among these was the former head of National Security Ali al-Ansi, who had been Saleh’s most powerful ally behind the scenes. Yemen’s ‘National Security’ agency, like every dictator’s ‘intelligence department’, had been in charge of countering ‘terrorism’ and ‘anti-Saleh’ movements.

Hadi is the first president in Yemen’s history to take office with this level of local and international support, as well as having reached the presidency independently of the traditional political and tribal ladders. Since he was elected on February 21, he has surprised almost everyone with his intelligent use of power, while speaking publicly very infrequently and leaving traditional stakeholders on edge as to his next move. Before his election Hadi had the reputation as the weakest man in Yemen — today, after sacking air force commanders, southern district leaders and, equally importantly, civic leaders who were part of Saleh’s patronage networks, and doing so with utmost calm, one retired army officer said, “He is like a tank, very slow but very strong.”

Aside from military issues, Hadi established the Preparatory Committee for the National Dialogue, where Yemenis of all stripes will meet to negotiate the new Yemen they want for the future, and attempt to solve the country’s most critical conflicts and issues. President Hadi was also scheduled to be in New York last month to meet United States President Barack Obama and make the case for international aid at the ‘Friends of Yemen’ meeting.

At the same time, these successes Hadi has been enjoying need to be placed in the context of the massive challenges Yemen faces. Almost concurrently with the August sackings, a suicide bomb targeted one of the most secured areas in the capital, around the prime minister’s office. The attack — thought to have targeted the Minister of Defense who has already survived five assassination attempts in the last 6 months — killed 10 civilians, injured six of the minister’s guards, and underlined the fragility of the country which Hadi is trying to lead.

The hope that the new president has generated is also founded on people having had such low expectations when he came to office. The deal replacing the president was aimed at preventing all-out civil war — anything more than that is icing on the cake.

And while Al Qaeda in the Arabian Peninsula (AQAP) has suffered substantial losses so far during Hadi’s term, the group seems to have changed to strategies similar to Al Qaeda in Iraq, employing hit-and-run tactics and suicide bombings, successfully assassinating top military leaders, including the head of the army’s southern division. Abyan, Hadi’s home province, is still yet to see the return of the tens of thousands who fled the heavy fighting between AQAP and the army. Add to this that the secession movement in the south is gaining traction, while Sada, among other governorates, still remains outside government control. And then there’s the country’s massive food crisis, where almost half of Yemenis don’t have enough to eat.

Thus, it is safe to say that President Hadi is not likely to be ‘The Savior’ of Yemen, but for all the terrible news coming from the country, he is at least a step in the right direction.

Farea Al-Muslimi is a Yemeni activist and writer for Almasdar

October 1, 2012 0 comments

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Admitting it hurts

by Gareth Smith October 1, 2012

written by Gareth Smith

After months of denial that this year’s new United States and European Union sanctions were having any effect, Iran’s leaders have changed their tune and are acknowledging that moves to stifle oil exports are biting.

In August, state media reported rahbar (‘leader’) Ayatollah Ali Khamenei calling for an “economy of resistance” to use “the nation’s full potential” to “break the illusions of the arrogant powers”.

The theme was taken up by many analysts in the Iranian media, and last month Mohsen Rezaei, a weathervane loyalist and former commander of the Islamic Revolutionary Guard Corps, spoke of a “new economic system” involving barter deals with other countries, lower taxes and reduced dependence on oil.

It would have been impossible to deny much longer the effects of US sanctions that threaten to bar from the American market any country or entity dealing with Iran’s central bank, the usual conduit for trade including oil, and the EU embargo on buying Iranian oil or selling insurance for Iranian trade.

Iran’s oil sales have been fluctuating a little, but have basically halved to between 1 million and 1.1 million barrels per day from double that late last year, curbing a revenue stream that has accounted for some 80 percent of Iran’s foreign earnings and 50 to 60 percent of government revenue. And it gets worse. The depreciation of the rial, from less than 10,000 to the dollar in late 2009 to an estimated 18,265 over the Iranian year 2012-13, has slashed the international value of Iran’s gross domestic product: calculations by Iqtisad Iran, the leading Tehran-based monthly, have it down from $406 billion in 2010-11 to $350 billion in 2012-13.

Even according to official figures, inflation is running at 23.9 percent and unemployment at 28.6 percent. Probably the most serious consequence for Iran in the medium term is a shortage of funds for productive investment, because without this, unemployment will rise further. The Oil Stabilization Fund (OSF), established under the previous government of Mohammad Khatami to collect windfall oil revenues for investment, is treated as a matter of national security and shrouded in the secrecy that has grown as tensions have increased over the nuclear program. But many suggested the OSF has been emptied to cover current spending. And fears of alienating the wider public at a time of international pressure have dogged the International Monetary Fund-backed program, begun at the end of 2010, to phase out at least $50 billion worth state subsidies of everyday items. Hence subsidies on fuel and bread have been replaced with ‘targeted payments’ that, in going to almost all Iran’s 75 million people, are effectively cash handouts.

The government’s intention was to phase out subsidies and target payments only at the poor, and yet the current payment of 485,000 rials (around $40 by the official exchange rate) per person per month is, as a near-universal payment, contributing to fiscal imbalance.

Calculations from Iqtisad Iran, based on an Economy Ministry report from February, estimate that from the introduction of the program until last month the government has saved 400 trillion rials on subsidies while spending 700 trillion rials on ‘targeted payments’, giving an overall loss of $20 billion (at an average rate of 13,000 rials to the dollar). This is not to say the Iranian economy is likely to collapse any time soon. Remarkable figures on gold imports from Turkey — with $6.2 billion in gold sales in the first seven months of 2012, five times the total of 2011 transactions — suggest the central bank may be seeking yellow liquidity for the government and private businesses to pay for imports without the problems of using dollars. They also suggest Iranians are retreating to their traditional safe haven of cold coins stashed at home. Neither is Iran about to cave in on the nuclear program. As one would expect, Rezaei breathed defiance in an interview with the Financial Times last month, vowing that Iran’s reaction to an Israeli attack “would be so severe that nobody would ever dare think of attacking us again”.

The real question is: are sanctions a prelude to war or an alternative? The strategy of sanctions was put forward in the West, not least by the Obama administration, as a prelude to talks. So, as the measures bite, the time for a serious diplomatic initiative, if there is to be one, has come.

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

October 1, 2012 0 comments

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When best friends stray

by Ahmed Moor October 1, 2012

written by Ahmed Moor

The past three years have seen the ‘special’ relationship between Israel and the United States deteriorate in ways unseen since at least the George H.W. Bush presidency. While American subsidies and loan guarantees, along with American military technology, continue to flow to its client state, the personal antipathy between the countries’ two leaders is a fact that has helped make Israel a partisan issue. But just as significantly, the divergence between America and Israel’s interests has been growing more pronounced in recent years, particularly where Iran is concerned.

By all accounts US President Barack Hussein Obama is not regarded sympathetically in Israel, where his part-Muslim heritage is a source of suspicion in a country where Muslims are second-class citizens. Furthermore, his early exposure to members of the Palestinian and Arab-American communities in Chicago reinforced the pre-election impression that he would be less indulgent than both presidents Bill Clinton and George W. Bush had been.
When Obama decided to visit Cairo early in his administration many Israelis felt that their fears were validated. Indeed, his Cairo speech — as his address at Cairo University came to be called — condemned Israeli colonization in the West Bank. However mild and obvious the president’s statements may have been, Israeli leadership interpreted them as an early barb issued by a hostile administration.

Since then, tensions between America and Israel have only grown. Several recent incidents either contributed to or highlighted the erosion of the relationship.

In September, the American right and Israelis stridently criticized Democrats for omitting both the word “God” and mention of Jerusalem as Israel’s capital from their platform. The party leadership retreated in short order and engineered a rare amendment to the party platform on the second day of their convention. The vote to amend the platform failed three times before the moderator, Los Angeles Mayor Antonio Villaraigosa, made the unilateral decision to change the language. The moment highlighted the discontent with Israel among members of the Democratic party’s base — something party bosses are eager to conceal from major pro-Israel donors.

The Democrat’s initial decision to reinforce decades of official American policy came in the aftermath of an all-but-explicit Benjamin Netanyahu endorsement of Republican Mitt Romney’s campaign for president. The message was communicated to Democrats when Romney visited Jerusalem and declared his allegiance to a Likud vision for Palestine and Israel.

Netanyahu’s spectacular arrogance — which has undoubtedly contributed to the erosion in support — was on further display recently when he issued a stern public rebuke to the American president and his Secretary of State, a virtually unprecedented move by a leader of a client state.

“Those in the international community who refuse to put red lines before Iran don’t have a moral right to place a red light before Israel,” he said on the issue of Iran. Sharp condemnations of his unseemly behavior were quickly issued from all quarters.

When Netanyahu later requested a meeting with the president on a visit to New York, his request was denied. Obama’s decision had the two-force impact of dampening Israeli hopes that America would wage war on Iran on their behalf, and firmly situated Netanyahu in the backseat on Iran policy.

The worsening relationship between the American administration and the Israeli leadership carries several implications for the region. The most obvious is that war against Iran — which American neoconservatives and their Israeli counterparts have been working to develop for years — is not a certainty yet. To be sure, the crippling American pressure and sanctions that have been directed against the Islamic Republic will not likely be reduced in the near term, but the threat of war is greatly diminished nonetheless.

For the Palestinians however, the erosion in American support for Israel is unlikely to impact their near-term outlook for freedom. Obama is aware that he stands to gain little by prodding a recalcitrant Israeli public into adhering to civilized norms of behavior; apartheid is a fairly permanent part of that society now.

Change will hinge on the question of whether the recent diminution of mutual regard between America and Israel is a permanent feature of the political landscape, or whether it is an aberration. Is the erosion in support simply the consequence of a bad personal relationship or symptomatic of a deeper rift?

Ahmed Moor is co-editor of "After Zionism: One State for Israel and Palestine" and a Masters in Public Policy candidate at Harvard University's Kennedy School of Government

October 1, 2012 0 comments

Finance

Default on the horizon?

by Maya Sioufi October 1, 2012

written by Maya Sioufi

"People are killing each other to steal LL100,000 or LL200,000,” says Mohamad Choucair, president of Lebanon’s Chamber of Commerce, Industry and Agriculture. “That’s how bad the situation is.”

While perhaps infused with a pinch of hyperbole, his sentiments are echoed by Nicolas Chammas of the Beirut Traders Association, who says the current situation in the country “is extremely painful and no one would have imagined the extent of the economic chaos due to the situation in Syria”.

Indeed, Byblos Bank’s consumer confidence index, initiated in July 2007, has reached its lowest point ever, following a summer season in which Lebanese watched kidnappings and roadblocks scare away tourists and hack away at security, economic growth and employment.

Deposits drop, lending up

With economic growth shriveling for the second year in a row, Lebanon’s corporate and consumer debt becomes all the more worrisome, with the latter group swallowing an increasingly larger slice of the pie; consumer loans, of which half are going to finance homes, account for a quarter of total private debt. The Lebanese private sector has been increasingly reliant on loans from domestic banks in recent years, with a total of $42 billion in debt now weighing on its shoulders, amounting to almost 30 percent of the banking sector’s assets. Notably, this surpasses cash lent to the public sector, which makes up 20 percent of commercial bank assets.

There is no reason for panic, however — at least not yet. Despite the significant expansion in private sector loans in recent years, they were starting from a comparatively low base and assessing this portfolio relative to gross domestic product does much to calm nerves. Standing at 85 percent in 2011, according to World Bank estimates, Lebanon’s private sector debt vs. GDP ratio pales in comparison to Spain’s staggering 204 percent, the United States’ 193 percent and the United Kingdom’s 188 percent. But with slow economic growth — estimated by the International Monetary Fund (IMF) at a meager 1.5 percent in 2011 and 2012 not looking any better — it is only prudent to question the private sector’s capacity to meet their payments and the banking sector’s ability to continue on lending — especially if the sector continues to see an outflow in deposits.

The banking sector, the backbone of the economy, registered a net outflow of $110 million worth of deposits in July, after seeing deposits grow through the previous months of the year.

“This outflow reflects depositors’ concern,” says Byblos Bank’s chief economist, Nassib Ghobril, while highlighting that previous periods when the sector experienced an outflow of deposits were in February 2005 following the assassination of former Prime Minister Rafik Hariri, in the summer of 2006 due to the war with Israel and in January 2011, after the collapse of the Lebanese government.

Ghobril says the severity of Lebanon’s economic crisis is “the worst I have seen in the 15 years I’ve been in Lebanon”, and he expects banks’ August numbers to show an even more significant drop in deposits, due to the unrest and kidnappings.

Seemingly undeterred by falling deposits, banks have still been lending to the private sector, with loans up 5.4 percent in the first seven months of the year, almost two percent more than the growth in deposits. With more attractive interest rates on private sector loans than on public sector debt, banks still have the stomach in these dire economic conditions to extend their lending arm. Consumer loans grew 27 percent in the first half of the year vs. 9 percent growth for corporate loans — both solid growth rates given the wretched state of the economy.

“Of course if the current economic situation continues, it will be more difficult to increase loans,” says Marwan Mikhael, chief economist at Blom Bank. Indeed, both consumers and corporates are filling out less loan applications lately. “Consumers’ demand for loans is receding because they want to hold on to their spending for now,” says Elias Aractingi, deputy general manager of Blom Bank. Corporates are also adopting a wait and see approach; “They didn’t need extra borrowing with no new projects since the beginning of 2011,” adds Ghobril.

Covering their assets

Most private sector loans are secured, meaning the bank holds collateral in case of default — as would be expected from the conservative Lebanese banking sector. “In small loans like credit cards, you extend a small amount without taking collateral because that’s the nature of the beast everywhere in the world,” says Aractingi. The overall amount of non-asset backed loans is only a small percentage of overall loans, according to Mikhael.

So if Choucair and Chammas’ gloomy assessment holds and leads to their forecasts of bankruptcies and mass layoffs, the banking sector should have its back covered in terms of defaults. For now, with regards to their distressed clients, “Banks are giving a grace period, they are being a bit more flexible because it is better to negotiate with the clients than to launch a legal procedure and that’s why we have not seen many legal cases,” says Jihad Rizkallah, lawyer at El Meouchi law firm.

For personal loans that are not asset backed and merely linked to salaries, for instance, a redundancy will lead to the bank having to write off the debt.
“That’s why we suggest to banks to take other guarantees in the form of assets such as a car or a bank deposit,” adds Rizkallah, while stressing that non-asset backed loans are done for small amounts.

So far, despite the economic headwinds, there have been no mass redundancies, though economic associations in Lebanon have been foreboding that they are expecting them soon.

For now, the banking sector, accustomed to dealing with challenges, is taking the situation in stride. But with domestic unrest gnawing away at the county’s commerce on one end, and regional turmoil shutting down trade abroad, the future outlook is in question. Longer term, banks’ capacity to continue lending will eventually have to match their ability to attract deposits. For many consumers, the situation may increasingly come down to not just losing their jobs, but their collateralized homes as well if the economic situation does not improve.

October 1, 2012 0 comments

Finance

Q&A: Mohammad Choucair

by Maya Sioufi October 1, 2012

written by Maya Sioufi

Kidnappings, blocked roads, robbed banks and travel warnings are among Lebanon’s latest upheavals. The country’s economy is feeling the pressure with stores and restaurants closing down, hotel occupancy rates plummeting and trading activity dwindling. The private sector is sounding the alarm. For a better understanding of the severity of the economic crisis, Executive sat with Mohammad Choucair, president of the Chamber of Commerce, Industry and Agriculture (CCIA) of Beirut and Mount Lebanon.

You have said that Lebanon is witnessing its worst economic crisis. What is leading you to such a gloomy observation?

Lots of companies are closing down; just in Solidere, 254 stores shut down since the beginning of 2011, so imagine how many closed in Lebanon over this period. We are witnessing crimes for money with people killing each other to steal 100,000LL or 200,000LL. That’s how bad the situation is. Lebanon has never seen six banks get robbed over a period of six months, neither has its minister of labor ever received requests for mass redundancies. The state can no longer enforce law and order. We are back to the language of threats and kidnappings. Now Qatar is threatening us and saying that if any Qatari gets kidnapped, they will kick out their Lebanese residents and there are more than 55,000 in Qatar. In the Gulf, there are 400,000 to 500,000 Lebanese workers. If Lebanon is still standing, it’s thanks to them. If they lose their jobs, we will eat each other.

Are there more companies at risk of bankruptcy going forward?

There are hundreds of companies in danger of bankruptcy and all sectors are being hit. The labor minister is telling me there are mass redundancies and this is what I was afraid of when the minimum wage increase was implemented. Trading activity in Beirut is down 50 to 70 percent so far this year over last year and outside Beirut, it is down from 70 to 85 percent. How [long] will companies last? I think not too long. I hope no company will close by the end of the year but if I look at bounced checks, at the 10,000 containers sitting in the ports of Beirut with owners unable to pay the costs of shipping, the taxes or the customs, I am concerned.

How much did the minimum wage increase contribute to heightened economic pressure faced by the private sector?

The minimum wage increase added 15 percent to the costs of the private sector. It was a huge mistake and the private sector takes responsibility. We couldn’t handle the political faction on this issue. We should have done strikes, we should have said no. Today we are all paying for it, the private sector, the workers and the government. The government can’t pay for the raise for employees of the public sector and if it does pay, there is a danger to the Lebanese lira.

The National Social Security Fund (NSSF) is calling for the salary ceiling of contributions to the healthcare fund to be raised from LL1.5 million to LL2.5 million. How will this be felt in the private sector?

The private sector can’t support anything anymore. When we raised salaries [as a result of the minimum wage increase], it brought in additional revenues of $250 million for the NSSF. When they wanted to raise the ceiling, we objected. The economic associations have now decided to raise the ceiling to LL2 million for two reasons: one is that this is a human issue and I won’t tolerate citizens being humiliated when receiving treatment and second of all, we can’t support more social troubles in Lebanon. With a LL2 million ceiling, the NSSF will no longer have extra hospital costs and it will be left with an additional $11 million.

You have recently called for opening the Qlaiaat airport. How essential is this in supporting the Lebanese economy?

From an economic point of view, it is essential for the north. The main airport will always be the Rafik Hariri International Airport in Beirut. We don’t want to eliminate it but we need the Qlaiaat airport for two goals: so that Lebanon becomes the regional hub of shipping and for the low cost airlines.

Wouldn’t the airport need significant investment to be ready to operate?

It doesn’t need further investments. Airbus 330 and Boeing 777 can land there. The land size is 5.5 million square meters (550 hectares) and it has a runway of 3.6 kilometers that can be increased by another 400 meters. The other airports have a size of three million square meters (300 hectares) and can only cater to small planes. I am preparing a letter on behalf of the CCIA asking the government to allow us to run this airport. The majority of airports in Europe are run by the private sector and we hope to do that too.

Are you willing to call for a strike if the economic situation does not improve?

Who are we going to strike against? Government officials? They are not here. Today, my priority is to have security as without it, we can’t have economic growth. I’m asking for the state to enforce law and order. I congratulated parliamentary speaker Nabih Berri on his decision [on August 22] to “cut the hands” of every person who cuts the road to the airport; if only they took this decision three months ago and broke the hands, legs and head of every person who cut any road and not just the one leading to the airport.

What do you want from government officials?

I have just one wish and it is for the state to enforce law and order without which we can’t bring back investors. There should be justice on the kidnappings. If every person who needs money goes off and kidnaps someone then half of the population would be kidnapped. This is a problem; it’s not a joke. I hope that the government officials will save what is left for the benefits of the Lebanese citizens. We are approaching elections and maybe some politicians can only focus on having an extra deputy here and there but you can’t enjoy ruling when the people are hungry and broke. The more people are hungry, the less they will let you rule. I am not afraid when a citizen demonstrates but has a job — I am afraid when he takes to the streets and he is unemployed.

Is there light at the end of the tunnel?

I wish I had a positive message for you. The kidnappings brought us back 20 to 30 years and it reminded people of the war. We have a responsibility as an economic association to bring back confidence for the foreign investor, but he will think a lot before coming back. From 2005 to 2010, foreign investments reached $4 billion to $5 billion a year and last year it was zero. This year, it will fall into negative territory as some projects are being withdrawn. It will take at least two to three years to bring back confidence. We need to focus on bringing back the Lebanese expat first. Despite all this we are staying in Lebanon. Hopefully it’s a phase that we will overcome in the quickest way possible; Lebanon will be on its feet again soon and we will see smiles on people’s faces.

October 1, 2012 0 comments