Executive Magazine

Where did everyone go?

by Peter Speetjens August 3, 2012

written by Peter Speetjens

With the electricity more off than on, it has been a hot, yet so far quiet summer. No waves of swaying black abayas in ABC and while Beirut’s hotels would normally be fully booked, a room these days is easy to find, often against bargain prices. A quick Internet search shows that a five-star Saturday night in mid-August costs $495 per room at the Movenpick Hotel and Resort, $240 at the Phoenicia Intercontinental, $135 at the Hilton Beirut Metropolitan Palace (down from $328!) and only $99 at the Commodore Hotel.

Now, Ramadan traditionally is a quiet time in terms of travel, yet a similar search for a Saturday in September again shows ample availability and only slightly higher prices. Surprisingly, the tourism sector’s main indicators at first sight do not seem all that bad. During the first five months of this year, 557,188 foreigners flocked to Lebanon, which represents only 6.5 percent decline compared to the same period last year. According to Ernst & Young’s survey of the Middle East hotel sector, the average occupancy rate at Beirut’s four and five-star hotels was 66 percent in the first five months of 2012, a 14 percent increase from the same period last year.

But these figures do not tell the full story. First, one should not forget that 2011 was already a precarious year. Only 1.65 million tourists visited Lebanon, a 23.7 percent decrease compared to 2010.

Secondly, the make-up of foreign visitors has changed. Most Arabs visiting Lebanon until June were Iraqis (48,125), Saudis (44,907) and Jordanians (39,744). Asian tourists recorded the sharpest decline, mainly due to the only 16,525 Iranians, an 80 percent drop compared to last year.

It illustrates the main issue at stake for Lebanon: Syria. Most Iranians normally visit Lebanon as part of a pilgrimage along the main Shiite sites in Syria. Yet, as Lebanon’s eastern neighbor has grown more and more dangerous, less and less Iranians go on holiday. The same is true for those Gulf Arabs and Jordanians — in 2010 the biggest group of foreign visitors — who tend to visit Lebanon by car.

In addition, following violent clashes in the streets of Tripoli and Beirut, the governments of Qatar, Kuwait, Bahrain and the United Arab Emirates in May urged their citizens not to travel to Lebanon. In early June, Saudi Arabia issued a similar warning. Many Lebanese believe the warning is partly politically motivated, as the Gulf Cooperation Council supports the Syrian opposition, while Lebanon’s government remains on somewhat good terms with the Assad regime.

“Until May 21, we had a relatively good year, but after the warnings we immediately felt the impact,” said Roger Saad, Director of Sales at the Four Seasons Beirut. “In July, we had an occupancy rate of only 55 to 58 percent, which is still not too bad seeing the circumstances. August will be much quieter, although we expect a strong pick-up to up to 85 percent for Eid at the end of August. Of course, we will have to wait and see. One major incident and all reservations are cancelled again.”

Following the travel warnings, Lebanon’s Tourism Minister Fadi Abboud headed to the Gulf claiming the reports about unrest in Lebanon were “exaggerated.” In July, Lebanon’s President Michel Sleiman followed in his footsteps. The efforts should not come as a surprise, knowing that tourists from these countries represented only 13 percent of foreign arrivals in 2011, yet were by far the biggest spenders.

Even this year, despite the decline in numbers, Global Blue, which maps shopping trends by analyzing VAT Returns, concluded that the biggest spenders were still Saudis, Emiratis and Kuwaitis, with a combined 41 percent of the total. Some 85 percent of their purchases concerned clothing and jewelry. According to Lebanon’s Ministry of Tourism the sector in 2010 contributed some $8 billion to the economy, or 20 percent of Lebanon’s gross domestic product. This decreased to some $7 billion in 2011, and this year it is feared it may drop below $6 billion.

The tourism toll

One of the main sectors affected is the hospitality market. “On July 2, Beirut high-end hotels reported an average occupancy rate of 74.5 percent, while over the first 6 months of 2012 the average occupancy income went up by 35 percent,” said Pierre Achkar, president of the Lebanese Hotel Association (LHA), as well as chief executive of the Monroe Hotel in Beirut and the Printania Palace Hotel in Broumana.

“However, that is only in Beirut, not in the rest of the country,” he continued. “Beirut’s high-end hotels will always attract corporate clients. Outside Beirut, that is hardly the case. The situation is extremely bad. At the Printania, we often have occupancy rates of 10 percent, which may go up to 40 percent on a very good day.” Achkar cited the negative travel advice or “embargo” as one reason for the malaise. Another, especially for places such as Broumana, is the situation in Syria, as most tourists who travel to Lebanon by car tend to stay in homes and hotels outside the capital. “Since the uprising began, we may have lost some 350,000 to 400,000 visitors coming through Syria,” he said.

The LHA figures for last year confirm the trend. By the end of 2011, over a third of Lebanon’s 18,593 hotel rooms belonged to 58 high-end hotels. While Beirut’s 5-star hotels in 2011 posted an average room occupancy rate of 53.56 percent, occupancy rates in 5-star hotels outside Beirut varied from 21 percent to 34 percent. The same was true for the country’s 4-star hotels.

The knock-on effect

The absence of tourists is not the hotels’ only problem. “In Broumana we do not have electricity for 16 to 18 hours a day,” said Achkar. “Still, people want AC and as we have a central cooling system that costs us about $1,000 a day. Also, we normally employ some 52 seasonal workers in summer, mostly students. This year only 11, as we have to bring our costs down.” While business has not been as bad for Beirut’s high-end hotels, they too have taken measures. “Nothing dramatic, but we must limit our overhead,” said Saad of The Four Seasons Hotel. “We are keeping our expenses down and spend less on ads and business trips. No one has been laid off yet, but we are pushing employees to take their (paid) holiday now.”

Paul Ariss, president of the Syndicate of Owners of Restaurants, Cafes, Nightclubs and Pastries in Lebanon, emphasized the problem did not start this summer. According to him, the sector’s combined turnover since early 2011 has taken an estimated 40 percent hit. However, he also stressed that not all venues have been affected in similar fashion, as some in particular target tourists, while others mainly depend on a local clientele.

He estimated the number of tourists normally traveling by car through Syria at some 40,000 a month. “There have so far not been more closures than normal, but we have seen some take-overs,” he said. He did not know how many Lebanesee lost their jobs, but signaled that, for more than a year, bars and restaurants have employed more and more foreign laborers.

Both Ariss and Achkar remained positive, however. “We don’t care and just keep up,” said Ariss, while according to Achkar recovery in Lebanon is always rapid. “Arab nationals own some 35,000 to 40,000 homes in Lebanon, so they will come back sooner or later,” he said. “And look at 2006. As soon as the war was over, tourists were back. The same was true in 2008. Following the Doha Accord, we had a 100 percent occupancy rate within a week.”

August 3, 2012 0 comments

Society

A motley affair

by Kate Marris August 3, 2012

written by Kate Marris

"What do you get in an Italian restaurant in Beirut? Sashimi and a hamburger,” and perhaps some of the best Italian cooking outside Italy. This is how one member of the Arts Faculty at the American University of Beirut described the Beirut Art Fair 2012. In the aftermath of the third edition of Lebanon’s first art fair, Executive spoke to a wide range of participants: gallerists, critics, collectors, first-time buyers, sponsors, artists and the fair’s organizers Laure d’Hauteville and Pascal Odille. Each had something to say about an art fair exhibiting art of wildly varying calibre side by side. Yet for every word of criticism, of both the art itself and the conception of the fair, there has been levelheaded enthusiasm and support for the determination of Laure d’Hauteville and her tiny team — with its tiny budget — to put Beirut on the art world map.

The gamble

And it is in spite of everything. Imagine persuading galleries, particularly those outside of the region, to ship in millions of dollars worth of work to a country that is beginning to feel like a pressure cooker. There were huge questions facing local and international gallerists about insurance, how many big spending Gulf Arab tourists would come and whether people would buy art at a time when many Lebanese are considering an exit plan from a country increasingly under threat of a wide ranging regional conflict.

Gallerists’ fears were justified when only 12 of the 52 Gulf collectors invited showed up. Once again Lebanon felt the power of the media: “[It was] when I saw what’s happening in Tripoli,” explained a representative from ABK Gallery in Metz in France, which pulled out at the last moment because they deemed the risks greater than the rewards, and the fact that the artists simply wouldn’t allow their work to travel to Lebanon. And yet, the organizers still convinced 14 galleries to travel from abroad, among them Portugal’s Cordeiros Galeriad that showed, for the first time in the region, its Andy Warhol portrait of 1970s American starlet Barbara Molasky — a piece whose import to Beirut was felt to be a measure of the fair’s credibility.

“Convincing galleries and collectors to come was the biggest challenge,” said Odille, who also devised the fair’s three-day cultural program. Yet some came here not to make sales, at least not immediately. For Bruno Simpelaere, director of ChinaToday Gallery in Belgium, the object of exhibiting in Beirut was to develop a new Middle East client base and scout artists from the region. Why doesn’t he do this in Dubai? A big factor is cost: there is nowhere else in the region, or globally, where he said he can run an exhibition for just $10,000 to $12,000, including the hire of a 20-square meter booth for $7,200. Organizer d’Hauteville cites the size of Art Dubai, which hosted 75 exhibitors this year, as a reason relatively small Beirut appeals to some exhibitors who she says feel lost in the vastness of Dubai; an equivalent. 20-square-meter booth, depending on location and other marketing factors, costs double that of Beirut at approximately $15,000. A similarly small booth at an established fair like Art Basel can easily cost $30,000 and galleries have to sell hard to make back their costs.

Artful adolescence

But fair comparisons, says Simpelaere, only go so far. “Beirut Art Fair needs time. It is young, let the market evolve,” he said. “In the 90s no one paid attention to Hong Kong; now it’s been bought by Art Basel.” Incidentally, China Today no longer exhibits in Miami and other fairs in the United States, which Simpelaere says are an “organizational disaster”. On that front he had no complaints about Beirut, which he said provides attractive practical services available in a city where artists have been working for centuries: “Where else do you find a framer who turns around five to six works overnight and does an impeccable job?” asks Simpelaere, answering: “Not in Dubai.”

Corporate backing

Indeed, unlike the Gulf Cooperation Council states, Beirut’s own art community has grown organically over time; it is for this reason that local partners were lining up to support a commercial art fair that presents an opportunity for both the private and public sectors to cash in on spending from cultural tourism. While the three major international sponsors of the 2011 fair — Ferrari, luxury watch maker Girard Perregaux and Merrill Lynch — were feeling the pinch of declining budgets and withdrew their support, Mini Cooper Lebanon, Air France and major Lebanese banks and hotels provided significant financial and operational backup. For Rita Saad, public relations manager at Le Gray Hotel, the fair was an opportunity “to put Beirut in the limelight”. The downtown hotel opened its luxury suites to international visitors, threw a party and capitalized on an event which, said Saad, takes the city beyond its traditional tourist realms of “history, heritage and gastronomy."

BankMed was the biggest financial backer and hosted the opening party at the Phoenicia Hotel, while Byblos Bank launched its first event to support Lebanon’s young creative scene in conjunction with the art fair. In an award not unlike Deutsche Boerse’s annual photography prize (Lebanese photographer Walid Raad was the winner in 2007) Byblos short-listed 15 young Lebanese photographers who were given a collective exhibition space at the fair. Now the bank is giving the winner, Dora Younes, a student in Beirut, an exhibition, a catalogue and the kind of first break-through package every young artist looks for.

For Byblos Bank, the Beirut Art Fair “answered a specific CSR strategy in Lebanon,” said Nada Tawil, head of communications at Byblos, namely “a brand strategy to support contemporary art.” She said the bank perceives Lebanon as “an incubator of talent”, and wants to play an active part in that story.

So too does the public sector, even if funding is limited. For the first time since the fair’s inception, both the Ministry of Tourism and the Ministry of Culture were a visible part of the fair’s proceedings. When Executive spoke to Michel de Chedarevian, advisor to Culture Minister Gaby Layoun, he reiterated the sense that the public sector is waking up to the value of Lebanon’s artistic contribution in the international arena and there are plans to take Lebanon to next year’s Venice Biennale. (Last year the official Lebanese pavilion was withdrawn for reasons which are still unclear.) When asked what the ministry thought about the fair organizers flying in from France, de Chedarevian had no reservations: “Lebanon is a Francophone country — it’s not an issue.”

Too little Lebanese?

But for some it was. Local and foreign observers expressed dismay that this was not a locally conceived event. “But it is not my Beirut Art Fair,” repeats the French organizer d’Hauteville . In a country where debates surrounding national identity and power wielding inform every aspect of life, it should come as no surprise that an art fair in Lebanon is not immune from politics. But that is exactly the hope of Jean Doummar, a Lebanese businessman and collector whose views represent the many who are sick of Lebanon’s reputation for “cheap tourism and violence”.

“There is so much more,” he said, adding that he believed that whatever the shortcomings of some of the exhibits the organizers proved themselves first of all by managing to assemble 40-plus galleries, almost doubling the size of last year, and no less significantly by attracting wide coverage from the international press whose attention usually falls on political turmoil and Lebanon’s flailing economy.

At a time when the air was thick with the smell of burning tires, Paris Match, Le Figaro and art market publications such as Art Price cared more about revealing this new institution as a major success story for the country. But while galleries like Agial echoed this sentiment, achieving greater sales than expected (only five of the fair’s 43 galleries did not sell at all), and Mark Hachem’s works by autistic artists sold to both Christie’s and Sotheby’s on the back of the fair, many like Saleh Barakat, the director of Agial, were concerned about the quality of the art, the mixed-up souk effect of jewelry and design, and most of all, that this did not reflect the Lebanese art scene at its best.

“Its embarrassing,” said Kristine Khoury, an art writer based in Lebanon, who felt the overall “mishmash” impression and some of the embellishments of the fair overshadowed the stronger work represented in some of the booths. Rafiz Majzoub, an artist who exhibited at the fair (his studio is based in Beirut’s Dora neighborhood) told Executive that the fair was “simply not art in Lebanon.” Some of Lebanon’s most prominent galleries, including Sfeir Semmler, also choose not to exhibit.

Looking ahead

Organizers, and many of those who care about this fledgling institution, want expansion. And not just in size. Art collector Doummar believes the regional MENASA criteria – Middle East North Africa South Asia – is limiting. “Why limit yourself when there are 10 million Lebanese living all over the world?” Real Diaspora figures aside, he’s got a point, and added that the fair has the potential to mobilize Lebanese populations in, say, South America, where artists relatively new to the international market are fetching high prices.

The touch-and-go regional political situation aside, many factors are at play in the search for institutional identity. Local audiences want to see what is being produced in the rest of the world, while international — specifically Western collectors — are often interested in artists responding to the political conditions of the MENASA region.

With the right consideration these demands are not necessarily incompatible — as the graffiti tour this year showed — and the organizer d’Hauteville stresses that Beirut Art Fair can be a commerical exchange as much as it is a cultural forum. If the fair can successfully incorporate the pluralism that defines this country it may have the potential to sell to a uniquely multifaceted audience. And yet however uncontrollable political insecurities may be, one thing is certain: the quality of the art will determine if this new institution flourishes or whether ultimately Beirut Art becomes synonymous with Beirut Art Supermarket and simply fades away.

The initial version of this article included factual errors. They have been amended as of 24 September 2012

August 3, 2012 0 comments

Society

Carbon Democracy: Political Power in the Age of Oil

by Executive Staff August 3, 2012

written by Executive Staff

The oil industry’s manipulation of governments and the economies of countries to secure and increase profits has been happening almost since there was an industry to speak of. In Timothy Mitchell’s book “Carbon Democracy,” he highlights how through much of the early 20th century big oil companies worked to contain supply — in particular by preventing the emergence of an oil industry in the Middle East — to keep oil prices up, and consequently bolster profit margins.

Last year, the profits of the Big Five international oil companies (IOCs) — BP, Chevron, ConocoPhillips, ExxonMobil and Shell — were up 75 percent on 2010, at a record $137 billion, yet production was down by 4 percent. And rather than invest heavily in production or job creation, these companies sunk $38 billion, or 28 percent of annual net income, in repurchasing their own stock, therefore boosting investor returns.

However, a major difference from the first half of last century is that IOCs are not able to negotiate quite the same profitable agreements with oil producing countries, or delay development, as before. This is reflected in the 2011 oil export revenues earned by members of the Organization of Petroleum Exporting Countries (OPEC), which for the first time exceeded $1 trillion. At the same time the OPEC results were announced last month, the Fraser Institute’s 2012 Global Petroleum Survey indicated that Middle Eastern countries have higher barriers to investment in hydrocarbon exploration and production than anywhere else in the world. There is a clear correlation here, as OPEC members have had to learn the hard way about who takes what for the extraction of underground riches; the IOCs have responded to this through the modes they still have influence over to retain profits.

In Carbon Democracy, Mitchell’s focus is the relationship between hydrocarbons and political institutions, tracking the changes from the industrial revolution all the way up to the so-called “Arab Spring” and how revenues from hydrocarbons are connected to democracy and economic development. Without oil, Mitchell argues, the current economic model of unlimited growth would not be possible, while the management of economic growth provided modes of regulation to govern carbon democracy.

Controlling supply is clearly a way of influencing prices and means of governing. This is one reason why there is a distinct lack of refineries in some oil producing countries, as delaying refining can artificially restrict the amount of oil that flows to the markets. But another reason is to drive a wedge between production and transportation, which helps prevent strikes and disruptions to the flow of oil by not overly centralizing the value chain and thus not have large concentrations of workers. This is a crucial point in Mitchell’s revealing book, as it was a deliberate government policy in the West in the lead up to World War One to switch from coal to oil to nip-in-the-bud further strikes by miners that had brought economies to a standstill. After all, miners’ strikes had led to the adoption of better working hours and conditions, welfare, healthcare and more democratic rights.

The chapters on the Middle East are particularly revealing, along with his debunking of conventional historical accounts — namely the discovery of oil and delayed exploitation — and what is misleadingly called the “oil crisis” of 1973, which was a pivotal event in transforming international finance, national economies, flows of energy and in placing the weakened carbon democracy of the West into a new relationship with the oil states of the Middle East.

Rather than being a black and white textbook case of supply and demand at work, of OPEC members cutting oil supply to pressure the United States over its unequivocal support for Israel during the October 1973 war, Mitchell shows that it was difficult to know how much oil prices went up due to a cut in supply or even how much supply was actually cut. For while Saudi Arabia and Kuwait reduced exports, other countries increased production. Furthermore, unlike today, there was no ‘market price’ for crude oil, so no one could know what ‘the market’ actually was, while OPEC’s decision to raise tax on oil production by 70 percent at the time was somewhat coincidental, having been decided before the war broke out.

Mitchell’s book ends by considering the impact of supply constraints due to the rising demand for oil, and how climate change impacts market conditions in a post-oil world where alternative forms of energy will affect how people and economies are governed. How and when we might emerge into the post-oil world is, however, a question that remains to be answered.

August 3, 2012 0 comments

Real Estate

More Bling on the beach

by Jeff Neumann August 3, 2012

written by Jeff Neumann

To the more timid businessman, breaking ground on another exclusive beach club in Lebanon might not seem like a sound investment at the moment — given this summer’s grim tourism receipts and the grimmer questions over the civil war next door and how long that will go on. But the doom has done little to gloom the enthusiasm of another breed of developers who see so much long-term profit potential on Lebanon’s beaches that they won’t be deterred by a bit of war.

Among the new investment destinations is Nikki Beach, a project for a 46-villa seaside resort with hotel and club south of Beirut that is being developed as collaboration between local property company Zardman and Nikki Beach EMEA Hotels and Resorts, a unit of the Miami-based brand that specializes in glamour hospitality.

Forget your troubles in luxury
The chief underlying asset for the project is a 42,000-square meter seafront property in Damour and Zardman touts the location and accessibility from Beirut as selling points sure to attract investors when sales open later this month.

According to the developer, the project will entail a boutique hotel on the property, as well as amenities that five-star resort patrons would expect: spas, multiple swimming pools, restaurants, water sports, a fitness center and more.

However the resort's biggest asset, according to general manager of Zardman, Makram Zard, is its very limited capacity. “We are being very exclusive with sales,” he says, adding that, “If a client comes in with no background or familiarity with us we simply will not give them information. You will not see billboards advertising the sale [of our villas], we know who we want to attract.”

But another key selling point will be the Nikki Beach moniker aiming to brand the resort with global glitterati appeal. “We will operate the hotel and Zardman will sell villas. We will focus on quality of service and invest heavily in staff training,” Jihad Khoury, the chief executive of Nikki Beach EMEA Hotels and Resorts, tells Executive.

Set for delivery in 2014, the resort would be the third Nikki Beach in the Middle East and North Africa region, after resorts that are scheduled to open (with different partners) in Qatar this year and Cyprus in 2013. Plans for expansion of the Nikki Beach brand in the Middle East date back a few more years but did not pan out either in Lebanon or in Aqaba, Jordan.

Lebanon's 225-kilometers long coastline is dotted with many clubs and resorts in every price range and type, from the low-key bohemian to the techno-blasting beach party. Offering a glimpse on what Nikki Beach will use as lure for its clientele in Lebanon, the group eagerly flashes that it was once called the “Sexiest Place on Earth" in a British newspaper and voted the “World's #1 Sexiest Beach Bar” by international media outlets.

“When we met with the people from Nikki Beach we clicked right away,” says Zard. “We had the same vision for the project and knew this is something we would both benefit from.” Most of Zardman’s staff are in their 20s and early 30s — "a very young company,” according to Zard — and are tapped into what the mostly young and affluent clientele that Nikki Beach attracts worldwide are looking for in a beach destination.

Villas will start at around $320,000 and reach up to $600,000, and are offered in three sizes: 105, 125 and 155 square meters. Payment plans for the villas start at 15 percent down with the remaining balance to be paid over a four-year period. For the overall design, the Beirut office of US-based Soma Architects was tapped to lay out the villas, with Gatserelia Nawar & Associates handling the interiors.

A sunny (and sandy) future
The Damour project will be Zardman’s first resort and while eager to disclose the price range for the villas the company would not disclose the cost of the entire planned development or the value of the assets it brings to the beach. Zardman holds a 27-year renewable lease on the land but would divulge in an interview with Executive only that the deed is held by its founder, and former Lebanese Canadian Bank chairman, Georges Zard Abou Jaoude.

According to Khoury, Nikki Beach EMEA Hotels and Resorts came aboard the project in 2011 after all licenses and planning for building structures had been completed. His rationale for getting involved is that Lebanon will remain a regional reference in hospitality and high-level entertainment and Nikki Beach would be seen as missing out if it did not open a branded resort here.

Khoury radiates confidence that the new project will be a winner even as the current wind is blowing tourism straight in the face. “It is an act of faith and as Lebanese, we have to have courage. The good years will more than make up for the bad ones," he says.

August 3, 2012 0 comments

Comment

Rebuilding Syria after revolution

by Jihad Yazigi August 3, 2012

written by Jihad Yazigi

Although now is apparently the time for destruction in Syria, hopefully, the time for reconstruction is not far off.

While it is difficult to estimate the actual cost of the damage inflicted to the country’s physical infrastructure by more than 16 months of a popular uprising — most of the destruction having actually occurred after the summer of 2011 — the Syrian National Council (SNC), which is considered by Western nations as their main interlocutor in the opposition, recently estimated that Syria would need some $12 billion in immediate financial support in the first six months after a potential fall of the regime.

While little of Syria’s large industrial concerns — such as power plants and refineries — have been hit, the urban landscape of many of the country’s cities is littered with flattened buildings, destroyed water, electricity and phone networks and crumbled roads and bridges. The cities of Homs — the country’s third-largest city — and Deir-ez-Zor have been particularly devastated, but so too have been dozens of smaller cities and towns across the country, in additional to the suburbs of Damascus and Aleppo. All-in-all, large parts of Syria will need to be entirely rebuilt.

It’s difficult to estimate what the $12 billion figure encompasses but if it were to cover only the first six months, this amount would exclude the cost of rebuilding most of the hard infrastructure, as this would obviously take much more than six months to carry out — in other words the total budget for rebuilding the country is likely to run much higher. In all cases, the question of how to source the money remains open.

Spokespersons from the SNC have said that they will seek support from “friends.” Knowing the financial turmoil the European Union and the United States are going through, they probably have in mind the deep-pocketed Gulf states, in particular Saudi Arabia and Qatar, which have been very active in supporting the opposition. Another issue to have in mind is the handling of any large disbursement of money. Indeed, contrary, for instance, to Libya or Iraq, which have vast reserves of oil and gas and therefore the means to reimburse almost any amount of debt they incur, Syrians will need to be very careful to efficiently use the money they will receive. Indeed, no one will lend money to Syria for free, and aside from the political cost that will come with such help there is also a financial cost, i.e. a debt burden that will be supported by the population for years if not decades to come.

Will any transitional government in Syria have the means to manage and spend $12 billion in financial support, let alone that it will have to be spent in only six months? From a political perspective, can a non-elected body — because any transitional authority is unlikely to be elected — legitimately spend such a large amount of money, an amount that will burden Syrians for years to come? How about the longer term and the larger amounts of money that will be associated with any reconstruction program that a future Syrian government will be in charge of? Can Syrians avoid the missteps and massive corruption that have come to be associated with the Iraqi reconstruction program?

The current and previous Syrian governments have shown a remarkable inability to handle large projects and to manage efficiently investments that carry significant costs. Indeed, very few of the large infrastructure projects announced by the Syrian authorities in the last two decades have taken off because of numerous bureaucratic and political constraints; and those that have been carried out have faced endless delays, cost overruns and suspicions of corruption. It would be naïve to think that these obstacles will be bypassed easily. From what the opposition has shown in terms of (lack of) knowhow and capacity, and from what we know from the Iraqi experience, there is serious ground to worry.

Because of its political implications and future costs, any reconstruction program for Syria will have to make clear how it will be funded and repaid and what measures will be taken to limit corruption as much as possible; more importantly, however, it must be sanctioned by legitimate representatives of the people if it is to embody a meaningful new beginning for the country.

JIHAD YAZIGI is editor-in-chief of The Syrian Report

August 3, 2012 0 comments

Economics & Policy

Oil and gas as a catalog for peace

by Roudi Baroudi August 3, 2012

written by Roudi Baroudi

The science is still in progress, but it now seems clear that the Eastern Mediterranean Basin holds oil and gas deposits that are truly mammoth. While the precise amount and locations of the resources in question are far from assured, the current estimates suggest there is likely to be some $170 billion worth of oil and almost $2 trillion worth of gas.

For Lebanon, simply achieving energy self-sufficiency would be an unprecedented game-changer, slashing costs for households and businesses, freeing up the funds for improved social welfare and enabling the government to service its gargantuan debts. Now consider that even under the most conservative estimates of the deposits and of Lebanon’s share thereof, developing the resources in question would enable the country to garner billions in annual export revenues for the next century or so.

Odds are that each of the principal entrants in this bonanza — Cyprus, Israel, Lebanon, Palestine, Syria, and the Turkish Republic of Northern Cyprus (TRNC) — also stand to reap dramatic fiscal benefits. For some, at least, it would be no exaggeration to describe the income from oil and/or gas exports as a form of national salvation.

Yes, there is that much at stake. The gas alone may be worth more than the annual gross domestic product of Canada, Russia, or India.

The problem, however, is the relations within and between these players present severe obstacles to the successful extraction, sale and delivery of whatever deposits there are down there. Turkey and Cyprus do not have diplomatic relations; Lebanon and Syria are still at war with Israel; Israel at least partially occupies parts of Palestine, Lebanon and Syria; Turkey has not officially defined their Exclusive Economic Zone (EEZ), and although Israel has made a claim to this effect, it does not have legal legitimacy because Israel is not signatory to the United Nations Convention on the Law of the Sea. Syria is also preoccupied with what is for all intents and purposes a civil war that threatens to bring down the government; Lebanon is so badly divided internally that civil war is a perennial threat; and for good measure Palestine and the TRNC are not even fully fledged nation-states.

Who gets the rights?

The combined implications of these ‘inconvenient’ facts are that getting three or more of the various claimants to discuss — let alone agree on — anything is bound to be exceedingly difficult. If the result of this were simply a stalemate, it would be relatively easy to roll one’s eyes, express regret at the time being lost, and wait for the proverbial air to clear. But a stalemate is not how the situation is shaping up. Israel and Cyprus have already reached a bilateral agreement that could prejudice the rights of both Lebanon — which has vowed to defend its interests — and the TRNC, which is strongly backed by Turkey. The Turks and the Israelis have repeatedly traded harsh words over this issue, and their air forces have reportedly played cat-and-mouse off the coast of the TRNC, even if only a few years ago they were holding joint military operations. Now Israel’s navy has officially sought almost $1 billion to acquire new warships and sophisticated missile-defense systems.

No winner in war

There may be times when going to war seems necessary, but the gathering crisis described above is clearly not one of them. In fact, for each of the countries involved, the surest way to protect the national interest is to seek a compromise, however imperfect and/or temporary, that allows them to start collecting revenues in the shortest time possible. Even for Israel, the most powerful of the direct actors in military terms, defending the sensitive equipment required to exploit a disputed field might prove impossible, or too costly to be justified.

The potential for conflict here is clear, and if war does break out no one can claim they did not see it coming. The policies being followed by some of the major players may make the outcome all too predictable and even those not engaged in provocative actions or incendiary rhetoric will share some of the blame for not having done enough to stave off the impending — though not yet inevitable — clash(es). For both weak and strong alike, a peaceful solution is the optimal solution. The absence of a viable deal will be a deterrent to investment and hinder the potential economic benefits for all parties. Prospective companies will impose higher costs for drilling and seek more favorable contract terms when operating in potential conflict zones.

There can be no real victors in such a conflict, only various degrees of losers. If cooler heads prevail with dialogue and diplomacy, however, there can be winners all around the Eastern Mediterranean. A negotiated solution will require yeoman efforts and (almost certainly) outside mediation, but the rewards will be more than worth it.

Provided all sides refrain from gestures or acts that might inflame the situation, there is plenty of scope to design and implement an agreement. The first priority, though, has to be a moratorium on unilateral acts that threaten to scuttle negotiations before they begin. Lebanon and Israel, for instance, share the obvious option of initially restricting exploration and extraction to areas that are in no way under dispute. Cyprus and the TRNC would have a harder time on this score, but the same goal — conflict prevention — could be accomplished by mutually agreed observers, escrow accounts, and/or other mechanisms to ensure equal rights, all with the understanding that economic agreements would not prejudice the terms of any eventual political reconciliation between the two sides, especially during the Cypriot six-months presidency of the European Union, which started in July.

Likewise, the logistical hurdles of conducting negotiations between countries that have no ties with one another are imposing but not impossible. Proximity talks or other forms of indirect discussions would allow the claimants to protect their interests without sacrificing principle or breaking ranks. Third parties like the EU or the UN could act as guarantors to inspire confidence, and the International Court of Justice could adjudicate disputes that were not resolved by arbitration.

For a part of the world so accustomed to wars both hot and cold, there is a chance just now to move away from — if not entirely outside of — the cycle of enmity. Although needs are greater for some than for others, all those in question stand to reap huge economic, social and political benefits by exchanging crippling energy costs for lucrative energy revenues. First, though, their respective governments have to get their priorities in order by asking one simple question: is it more important to provide for one’s own or to deprive one’s neighbors? The answer being obvious — it is time to rein in the rabble rousers and send out the diplomats.

August 3, 2012 0 comments

Economics & Policy

Women and the Arab world’s glass ceiling

by Karim Sabbagh August 3, 2012

written by Karim Sabbagh

Based on figures from the International Labor Organization (ILO), at least 90 million women in the Middle East and North Africa are today part of what has been called the “Third Billion”, which is the approximate number of women worldwide who will be claiming their place as employees, producers and entrepreneurs in the global economy by 2030.

Until now, these women have been excluded from economic empowerment by either lack of opportunities or insufficient preparedness. Projected to number around 865 million by 2020, most of these women live in emerging and developing nations. The impact of this geographically dispersed group will be so large — equivalent to that of the billion-plus populations of China and India — that they have been dubbed the Third Billion.

The Third Billion was calculated by combining the forecast for “not prepared” and/or “not enabled” women globally between the ages of 20 and 65 in 2020. “Prepared” refers to having received a sufficient education, usually secondary school. Opportunities for basic education and literacy are prerequisites to women’s economic empowerment. “Enabled” refers to having sufficient social and political support to engage with the labor market. This support spans family, logistical, legal, and financial parameters.

The MENA's missing share

It is not surprising that more than 10 percent, or about double of the region’s share in world population, of the Third Billion live in the Middle East and North Africa (MENA) region. The World Bank places the female labor force participation rate in the MENA at just 26 percent, the lowest of any region globally. Although women have achieved equal, or better, education levels compared to men in most MENA countries, they are not making similar gains at work.

In entrepreneurship, too, women have not caught up. The World Bank estimates that women own just 20 percent of MENA companies, compared to 32 percent in countries from the Organization for Economic Cooperation and Development (OECD), and 39 percent percent in Latin America and the Caribbean.

Women must have the freedom to participate in the workforce and ultimately advance to senior positions to reach their economic potential. They should have the same opportunities as men to start their own companies. As long as women have limited economic opportunities, Middle Eastern countries will be unable to join the modern global economy.

The World Bank argues if rates of female participation in the labor force increased to levels predicted by women’s education, age, and fertility, average household earnings would increase by as much as 25 percent. For many families, that is the ticket to the middle class. If female participation rates had been at these predicted levels, per capita gross domestic product growth rates might have been up to 35 percent higher, according to the World Bank.

Entrenched gender roles

The environment in Egypt, the Middle East’s most populous country, is fluid. Women organized in a remarkable way during and after the 2011 revolution. They have since been vocal in demanding new reforms and have sought to defend previous social and economic gains. While the near-term in Egypt is hard to predict, what is clear is that Egyptian women are underrepresented in the workforce. The female participation rate was just 24 percent in 2010. Egyptian women cluster in a few sectors: agriculture, education, public administration, health and social work.

Some governments are attempting to redress the economic and workplace balance to assist female participation. Saudi Arabia is trying to integrate women into the workforce at a pace that balances economic needs with social norms. Legislation on workplace requirements is evolving to allow women and men in the same facility. Oftentimes, however, the legacies of old laws and traditions prevent female participation. There is a strong feeling within the private sector that it can be simpler for companies to retain all-male workforces than to pay for buildings that accommodate mixed gender staffs or to tackle potential resistance to female workers.

As a result, although women constitute 57 percent of Saudi Arabia’s university graduates, the participation rate of female nationals was just 12 percent in 2009. Women in the workforce often congregate in the public sector, despite government encouragement of a more vibrant, inclusive private sector. Women tend to focus on education and health because of gender perceptions and the lack of career guidance.

While each country has unique challenges, several approaches can apply regionally. To this end, Booz & Company has created the Third Billion Index, which ranks 128 developing and developing countries. The index highlights how countries have fostered economic opportunities for women, and where they can improve. To make the index relevant for ranked countries, we offer concrete recommendations. For MENA countries in particular, we see great potential in following these recommendations.

How to advance women

The first recommendation is for government-private sector partnerships to draw women into the workforce. Experience demonstrates that government mandates alone will not be effective. Forcing women into work without the necessary skills and workplace policies will damage productivity and could create an employer backlash.

At the same time, a clear official signal that female workforce integration is a priority can catalyze corporate commitment and investment. Together, government and enterprises can reinforce each other’s desire to promote female inclusion.

Second, governments and companies that employ women should establish mentoring programs. Men already benefit from informal ties, the “old boys’ network.” Mentoring programs can connect young women entering the workforce with successful women who have already broken in. We should not underestimate the power that role models, along with advice and encouragement from career women, can give to younger women entering the male-dominated workplace.

An example of such mentoring comes from the Prince Sultan Bin Abdul Aziz Fund for Women's Development. Over 1,300 women have gone through the fund’s various training programs. Similarly, the fund has provided finance to 40 female entrepreneurs. The result of these initiatives is that women have gone on to start businesses and create more than 200 jobs. Women’s business networks can also fill an important information gap on the economic status, education needs, and social roles of women. Governments, the private sector, and not-for-profits should collect this evidence-based data collaboratively. They can pool feedback to design high-impact programs.

In the United Arab Emirates, the Khalifa Fund in Abu Dhabi, Mohammed Bin Rashid Establishment for Young Business Leaders in Dubai, and Sharjah Tatweer Forum are providing such information — although their focus is not solely on women. Such organizations need to be better staffed and funded, have wider geographic coverage, and should network to share knowledge.

Third, governments and companies should examine success stories and innovative methods of bringing women into the workforce.

One example is Bupa Arabia. The company, a provider of health insurance products and services in Saudi Arabia, has a 40 percent female staff after a decade’s effort. The health insurance provider broke with stereotypes and partnered with the government to train women in job skills. By employing women in all departments — finance, human resources, information technology, operations, regulatory affairs and sales — the firm dispensed with the notion of “women’s work” that elsewhere confines them to supporting roles. Indeed, the company now has an all-female telesales team. This is good business — female customers in the healthcare market prefer female sales agents.

In Kuwait, Lebanon, Morocco, and the UAE, there is now a corporate funded program called the Arab Women’s Entrepreneurship Project. The project is run by AMIDEAST, a US educational institute. Funded by the Citi Foundation and leveraging the Cisco Entrepreneur Institute’s training program, the Arab Women’s Entrepreneurship Project will provide education and mentoring to 80 women entrepreneurs from disadvantaged backgrounds.

Fourth, companies and governments should turn social restrictions into opportunities for commerce and innovation. For example, Ataalam in Saudi Arabia has created a women’s virtual learning environment to allow women to study from home. The company is a female-owned private venture that arose from a Saudi government-sponsored innovation incubator named “BADIR.”

Combining these approaches can have an immediate impact on employment and skills building. Today, hard-working, high-profile women are chipping away at the “cement ceiling” and making it possible for others to do the same. Similarly, multi-sector cooperation will result in further success stories and role models that can alter mindsets and inspire young women. With more women at work, the Middle East can achieve its economic potential.

August 3, 2012 0 comments

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Lebanon’s terrible first impression

by Zak Brophy August 3, 2012

written by Zak Brophy

The odds are now stacked in favor of there being a treasure trove of hydrocarbons locked under Lebanon’s seabed. Nobody can be certain until the first field has successfully been tapped but it is certainly looking promising. So when the government held the Lebanon International Petroleum Exploration Forum & Exhibition in early July it is no surprise that industry players from far and wide were swarming like bees around the proverbial honey pot.

Representatives from the big guns to the small fry came to Beirut to sniff out what the government had on offer and they had two reasons to be interested. The first is the fact that Lebanon is sitting on the same geographical structures that have already come up trumps for Israel and Cyprus.

Houston-based Nobel Energy has been operating in Israeli waters since 1998 but in recent years has had two massive finds. In 2009 they successfully drilled a natural gas field of 237 billion cubic meters (BCM) and then in 2010 a 453 BCM field was tapped. With the subsequent discovery of a 226 BCM field in Cypriot waters the international oil companies (IOCs) must be salivating at the prospect of what else could be down there.

This needs to be considered in light of the fact that the 2010 United States Geological Survey predicted that the Levant Basin Province — a geological formation in the Eastern Mediterranean extending from Syria to the Sinai — contains 1.7 billion barrels of recoverable oil and 3.5 trillion cubic meters of recoverable gas.

The second carrot dangling in the face of the IOCs is the detailed and comprehensive library of seismic data within the 20,000 square kilometers of deep water in Lebanon’s Exclusive Economic Zone (EEZ), which has been collected by the companies Geco-Prakla, Spectrum Geo and Petroleum Geo-Services (PGS).

The prospective companies’ geological experts use this data to assess if there is actually anything down there and how accessible they anticipate it would be to drill and extract. The findings are promising and suggest a number of unexplored potential hydrocarbon hotspots including the Syrian Arc, the Levant Basin Province and the Levant Margin.

So with an attentive audience of bigwigs in town it was upon the government, and more specifically, the Ministry of Energy and Water (MoEW), to show that it finally has some impetus and momentum to push the sector forward.

“Triggered by the success in Israel and Cyprus we cannot afford to idly sit by,” remarked Fadi Nader, advisor to the energy minister.

The MoEW, however, tripped at the first step. The man at the head of the ministry, Gebran Bassil, had announced triumphantly in the first week of January that the Petroleum Administration (PA) would be named within a month, as the decree approving the bylaws for body had been passed. Come late July and there is still no PA and without a PA the whole progress of the sector is stuck in stasis, as none of the other areas of the Offshore Petroleum Resources Law from August 2010 can be enacted.

The hundreds of delegates were told, of course, that the naming of the PA was just weeks away. However, many of the attendees I spoke to were not exactly filled with confidence, as Lebanon’s reputation for inter-party and inter-sectarian squabbling over who sits where at which table precedes the country.

What was more, the Ministry of Finance did a rather good job of revealing pretty much nothing about the kind of tax regime prospective companies could expect to be subject to — discussions regarding income tax, value added tax, built property tax, stamp and customs duties were at best vague, while the entire presentation had that distinct vacuousness many associate with “a waste of time.”

The ministry representative who had the unenviable job of filling the airtime told the expectant crowd, “in any case the taxation system in the whole of Lebanon is very soon going to be reviewed.” Which is funny because the new budget — the first since 2005 — passed by the cabinet just weeks later, was devoid of anything that resembled a review of the tax system.

Alas, the government regrettably missed a trick; the forum intended to convince industry players to partake in Lebanon’s embryotic energy sector but instead it gave them every reason they needed to question the wisdom of doing just that.

ZAK BROPHY is Executive’s economics and policy editor

August 3, 2012 0 comments

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Simple measures to end Lebanon’s energy crisis

by Paul Cochrane August 3, 2012

written by Paul Cochrane

Lebanon is going through one of its worst energy shortages in years. Even the most electrified part of the country, central Beirut, is experiencing more than the usually standard three-hour outages. Tires have been burnt in protest and people’s tempers are rising along with the mercury.

While wrangling at Électricité du Liban (EDL) over contract workers has caused interruptions of late and the state electricity provider has undoubted culpability in the chronic shortages, the rise in energy demand is also to blame. Last year, EDL produced the same amount of electricity as now — some 1,600 megawatts (MW) — while demand rose to over 2,300 MW. And what has caused more frequent and longer blackouts this summer is not the tourism season, weak as it is, but a surge in the use of high energy usage appliances.

One of the biggest energy guzzlers are widescreen LCD televisions, which have become so affordable to be almost ubiquitous, glaring away in so many homes, offices, restaurants and stores. For instance, a 40-inch LCD TV uses 240 watts per hour, and a 50-inch screen 400 watts, compared to 42 watts for a 28-inch LCD, and 87 watts for a conventional TV of the same size. While such wall-dominating screens are a drain on energy, watt usage rises again when coupled with air conditioning (A/C) units, which have risen in popularity in Lebanon as in much of the world, with global sales up 13 percent in 2011 on 2010. There are no accurate local figures, but in neighboring Gulf countries A/C accounts for a whopping 70 percent of annual peak electricity consumption and is expected to triple by 2030 to require the equivalent of 1.5 million barrels of oil per day to power.

In Beirut demand for A/C is driven in large part by what is called the “urban heat island effect,” where buildings retain heat and warm up the surroundings, which then increases humidity. On average, A/C units use 900 watts per hour, although more energy efficient ones use around 800 watts when initially turned on, then consumption drops to 600 watts and can drop to less than 80 watts if set at a high temperature. By comparison, a ceiling fan, at full power, uses just 75 watts per hour.

So what to do about this surge in energy demand? Widescreen TVs can of course be turned off or watched selectively, but turning off A/C in the height of summer is not an option for most, especially if there actually is electricity. Pleas for people to turn off A/Cs and use fans instead will no doubt fall on deaf ears — even though fans can make the temperature feel four to eight degrees cooler — as once people have made the switch to A/C it is hard to go back. But more efficient usage of A/C is possible, as was demonstrated in Japan a few years ago when the prime minister, expecting energy demand to spike in the summer months as A/C usage rose, suggested workers don more practical summer outfits, of short sleeved shirts over suits and ties, and set A/C units at 26 to 28 degrees instead of the temperature of a warmish spring day of 16 to 18 degrees. Although it is hard to judge the success of the initiative, according to one government survey, 43 percent of employees did lighten up on the office A/C. Another technique called district cooling, using available sea water, could also offer a cheap and affordable option to knock off as much as 30 percent of consumption during peak hours.

Lebanon, however, is not renowned for successful collective efforts ‘for the good of all’. Even if the president, prime minister and speaker of the house all gave a joint press conference uniformly dressed in short sleeved shirts, shorts and sandals with a message to encourage people to turn off the widescreen and set their A/Cs at 28 degrees, it would be unlikely that people would follow suit.

But the private sector could be encouraged to adopt a summer uniform and lower the A/Cs. One, it would reduce overheads through lower electricity bills; two, companies could tout such a move as part of a “going green” policy of corporate social responsibility; and three, staff will be more relaxed in the office. Even a partial reduction in energy use would help to keep the lights, fans and yes, even A/Cs on for just a bit longer in what is going to be a hot and humid few months ahead.

PAUL COCHRANE is the Middle East correspondent for International News Services

August 3, 2012 0 comments

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Banks caught in Iranian propaganda war

by Maya Sioufi August 3, 2012

written by Maya Sioufi

"What else can go wrong?,” Lebanese bankers might ask these days as they flip through the news channels and jot down new additions to their “critical issues” list. When newscasts aren’t covering the civil war in neighboring Syria, commentators are wailing about volatile international markets and the European sovereign mess. What is more, record-low interest rates globally are limiting the range of investment options for Lebanon’s deposit-rich banks who are under intense international scrutiny, mainly spurred from Washington. Its all enough to keep a Lebanese bank manager up at night.

Tormenting their insomnia last month was the United States-based anti-Iranian lobby group, United Against Nuclear Iran (UANI), which publicly accused Banque du Liban (BDL), Lebanon’s central bank, and the country’s private banking sector of laundering massive amounts of cash for Hezbollah, Iran and Syria. “The LBS [Lebanese Banking System] is a fraud” and “the focal point of the fraudulent Lebanese banking centers on BDL,” were among UANI’s quotes in major international news outlets. As part of this campaign, UANI is pressuring Wall Street and European financial firms to divest of their holdings in Lebanese sovereign debt, requesting that credit rating agencies re-rate Lebanese debt to “no-rating,” and calling for Lebanon to be cut off from the US financial system, which would cripple the country’s highly dollarized economy. UANI is not inept either, having successfully lobbied the European Union to oblige Belgium’s Society of Worldwide Interbank Financial Telecommunication (Swift) to remove blacklisted Iranian banks from its network and thus restrain their worldwide financial transfers.

UANI’s board just so happens to feature Zionist luminaries such as Meir Dagan, former director of Mossad until 2011, as well as James Woosley, former director of the US Central Intelligence Agency, August Hanning, former head of the German intelligence service, and Richard Dearlove, former head of the British MI6 intelligence service. Fancy that.

The evidence supporting UANI’s claim that “vast inflows of deposits” are being washed in Lebanese banks is scant, with the group’s conclusions extrapolated from tenuous correlations that would amount to libel in any American court. The actual deposit figures — calculated by BDL, Lebanon’s Ministry of Finance and concurrent with those of international institutions such as the World Bank and International Monetary Fund — paint a different picture. In 2011, deposits grew by just 8 percent, down from a 12 percent growth in 2010 and 23 percent in 2009, and for the first four months of this year, deposits grew by just 3 percent. In response to UANI’s allegation, BDL Governor Riad Salameh pointed out that Syrian deposits held by Lebanese banks operating in Syria or in Lebanon have actually decreased since the start of the uprising in 2011.

UANI also claims that, for Lebanon, “the obvious risk of default is great” unless Hezbollah, Iran and Syria are supporting the “economic house of cards.” Had these ‘intelligence’ chiefs bothered to pick up a copy of Executive from time-to-time, they would have known better. For starters, default is less likely now then it has been in a while, as Lebanon’s debt-to-gross domestic product ratio, while still staggeringly high at well over 130 percent, has actually dropped more than 30 percent in the last five years. More importantly, the vast majority of Lebanese sovereign debt is held by local banks and not international institutions, and thus UANI’s call for foreign divestment of Lebanese debt has more bark than bite. Lebanese banks have admittedly voiced concerns about continuing to fund the highly indebted nation but, lacking better investment opportunities in international markets, sovereign paper still looks attractive, as does keeping the government from default. And, whenever there has been any uncomfortable up-ticks in yields demanded by the market to purchase Lebanese debt, the central bank has stepped in instead and bought the debt at lower rates — not Iran, Syria, nor any other state or non-state actor.

UANI’s indictments against Lebanon are baseless and its assessment of the country’s vulnerabilities flawed. It is unfortunate that these well-placed propagandists will likely never have to account for their deception, while Lebanon’s bankers are forced to defend their industry from yet another assault on its reputation. Given everything else they are dealing with these days, however, UANI is a speed bump rather than a roadblock, an annoyance amongst matters of actual substance.

MAYA SIOUFI is Executive's banking and finance editor

August 3, 2012 0 comments