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Economics & PolicyTourism

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
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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
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Syrian refugees leave schools struggling

by Nizar Ghanem August 3, 2012
written by Nizar Ghanem

Minister of Education Hassan Diab is probably not having easy days at the office. On top of the already decrepit state of public education, coupled with ongoing protests by teachers demanding higher wages and benefits, this year saw the student population grow by around 15,000 children, the majority of which lack proper shelter or families that can support them. We are of course not talking about the effects of a sudden baby boom, but rather the influx of Syrian students fleeing their alma maters for ours at a rate similar to the increase in violence.

Following various pressures by civil society organizations, Diab, presiding over thousands of employees, finally gave in. He issued a decree late last year instructing all schools operating within Lebanon to receive the incoming Syrian students regardless of their legal status and relieved the Syrian students of entrance fees. Problem solved?

If it were only about decrees, the Syrian students would have long been integrated in the Lebanese schools. With an enrollment rate estimated at 20 percent and a dropout rate approaching 30 percent (double the national average), the Syrian children are rare to be found in the Lebanese school system. Coming from a Baathist education, where Arabic is the main language of instruction, Syrian students in Lebanon face serious problems transitioning to curricula taught largely in French and English, not to mention the different teaching methods. The majority of students, nine years old and above, drop out of school because they cannot understand what is being spoken in class, and there has been no arrangement made between the Lebanese and Syrian governments to see that, if and when students return to Syria, they will be granted accreditation of equivalences.

While the minister’s decree requires schools to receive all Syrian students, many principals choose not to. For many in the border regions, the decree seems like a removed bureaucratic procedure that does not tackle the real problem. The Syrian students generally require intensive remedial classes, and/or a change in the curriculum that would account for their linguistic level in foreign languages — something public schools are not prepared to provide. Syrian students who attend higher classes are supposed to form complex phrase structures and read dense scientific passages in a language they can often only barely spell their name in. What’s more, in school Syrian students have been subjected to social isolation, discrimination and corporal punishment. With a teaching staff that was neither trained nor prepared to deal with this influx, the inevitable happens: Syrians drop out of school, or even worse, many do not even bother to enroll.

According to the decree, the principals should not charge Syrian students school fees as the ministry will reimburse them later. Knowing the state of affairs in the quasi-dysfunctional Lebanese government, the principals are unsurprisingly skeptical. Having to run their schools with tight budgets, they cannot afford delays in payment and so they do what any sane manager would: they cut their future losses by receiving a minimum number of Syrian students.

Other factors exacerbate the problem. With the majority of families suffering financially after leaving everything they had in Syria, many can barely afford a decent shelter, let alone education. Paying for transportation, stationery and other schooling requirements can exert a tremendous financial burden. The increasing insecurity in the North and Bekaa also adds to the feelings of uncertainty as families try to keep quiet and not take risks by sending their children to schools. It doesn’t help that Lebanon still refuses to classify incoming Syrians as refugees, or sign the United Nations Convention on the Status of Refugees that would protect them (and all the other refugees in the country).

Why should the Lebanese citizenry care? The overflowing problems of electricity and water cuts, inter-sectarian bickering, continuous political deadlocks and fear of a looming civil war seem to be sufficient reasons for them not to take notice of the implacable situation of Syrian refugees. However, as the Syrian influx to the country increases, the number of children between the ages of 12 and 18 is expected to grow. This age group is highly vulnerable to various social ailments such as child labor and militancy. Leaving thousands of desperate, poor and socially secluded teenagers on the streets does not seem a wise course of action.

 

NIZAR GHANEM is a policy consultant and researcher working with Syrian refugees in Lebanon and Turkey

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When resistance was simple

by Nicholas Blanford August 3, 2012
written by Nicholas Blanford

A few months ago, in a conversation with a Hezbollah official I said I could imagine Sayyed Hassan Nasrallah, the party’s leader, reminiscing about the good old days in the 1990s. Back then Hezbollah was engaged in resistance on a daily basis against the Israeli occupation, achieving ever greater feats on the battlefield, earning a consensus among Lebanese for its martial activities, and protected by Syria’s dominance of Lebanon. Other than a small but potent parliamentary presence, Hezbollah did not have to bother with the tangled and treacherous complexities of Lebanese politics but could concentrate on what it does best: resisting Israel.

But look at Hezbollah today, I continued. To defend its “resistance priority” it has had to build complicated alliances with potentially untrustworthy and difficult allies, and has become the dominant influence in an unpopular and near stagnant government; it faces growing Sunni resentment; it is in the crosshairs of the Special Tribunal for Lebanon in The Netherlands; its key ally Syria is mired in civil war with the durability of the pan-regional “axis of resistance” hanging by a thread.

“You’re right,” replied the Hezbollah official. “This is not where we want to be. Our cause flies with the angels above, but we find ourselves stuck in the political arena.”

Hezbollah has never been more powerful politically and militarily, but with the power of governance comes accountability. And in the Shia villages of the south and in the southern suburbs of Beirut it is easy to hear voices of discontent and frustration from those people who traditionally support and vote for Hezbollah. The reason for their anger is the chronic shortage of electricity. Parts of Dahiyah and the south barely receive three hours of electricity per day.

Not only do they have to deal with the sweltering heat of summer without air conditioning, more importantly they cannot store food and dairy products in fridges. One night in July, residents of Dahiyah were sleeping in chairs on the streets to try to cool themselves and were mouthing curses at Hezbollah, declaring it had been a mistake to vote for them in the 2009 elections and vowing not to do so next year. Many hoped that Nasrallah would tackle the electricity crisis in his July 18 speech and were dismayed when the Hezbollah chief made no mention of it.

Of course, the electricity crisis did not begin with the present government. But the perception is that the “Hezbollah  government” has failed to deliver and it is the party’s support base that is suffering the most.

Such is the paradox facing Hezbollah three decades after it emerged in the wake of Israel’s 1982 invasion. It is a mistake to assume that Hezbollah has always sought power in Lebanon for the sake of power. The party is essentially a jihadist Islamist organization dedicated to the struggle against Israel. In its earliest manifestation it railed against Lebanon’s sectarian political system and refused to participate in it. During the 1990s, it was content to limit its participation in the political system to parliament, neither asking nor being offered seats in the Rafik Hariri and Salim Hoss governments of that decade.

The first time Hezbollah took the step of joining government was in 2005 and it did so to better protect its resistance priority, after the loss of Syrian protection following the disengagement of Damascus in the wake of the assassination of Rafik Hariri.

The goal of defending its arms also compelled it to organize a parliamentary no-confidence motion against Saad Hariri’s government, chiefly because of its refusal to renounce the Special Tribunal for Lebanon. Bringing down the Hariri government was relatively easy, but it was also a case of “you break it, you own it”. When the March 14 (now) opposition coalition refused to join a government of national unity under Prime Minister Najib Mikati, it meant that the cabinet was going to be dominated by Hezbollah and its allies, ergo the “Hezbollah government”.

Now Hezbollah finds itself diverting much of its energy to mollify and appease its numerous allies, especially the truculent Michel Aoun and the crafty Nabih Berri, neither of whom it particularly trusts but both of whom it needs in order to preserve the integrity of the government. But when the government fails to perform, regardless of the reason, Hezbollah is the one that will be blamed.

How Nasrallah must fondly reminisce of the golden years in the 1990s when life — and resistance — was so much simpler.

 

NICHOLAS BLANFORD is the Beirut-based correspondent for The Christian Science Monitor and the Times of London

August 3, 2012 0 comments
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Economics & Policy

Vice: regulating Lebanon’s darker side

by Zak Brophy August 3, 2012
written by Zak Brophy

It is time to have a serious debate about the thriving industries of prostitution, gambling, weapons and drugs in Lebanon — that is the opinion of Lebanon’s straight talking Minister of Tourism, Fadi Abboud. In an interview with Executive in April the minister assailed the poor regulation, outdated laws and hypocritical divergence between policy and practice relating to these economies of vice. What is more, Abboud has his eye on the bottom line, smells a fast buck and wants the government to have a piece, or at least a bigger piece, of the action.

In this report Executive investigates the murkier corners of Lebanon’s economy from the hashish fields of the northern Bekaa valley to the strip clubs on the Jounieh highway to find out who is cashing in, who is covering whose back and who would be the winners and the losers in a shake up of the status quo.

Guns for all

It may be widely accepted that Lebanon is awash with arms but in reality nobody has a clue about who has what. This is hardly surprising considering the country’s protracted years of warfare, weak government and plethora of sectarian militia leaders-cum-politicians now running the show. The regulation and monitoring of the industry are laughable, and Abboud wants to shake up the system, both to bring clarity to the situation and to rake in some dollars for the state’s coffers.

“Nowadays we expect there are no less than 3 million light arms and small weapons in the country — everyone has arms here,” estimates Fadi Abi Allam, president of the Permanent Peace Movement, a non-governmental organization that works on disarmament. “This is a huge problem and there is the problem of arms trading through Lebanon.”

There is a native stock of weaponry in the country, much of which is a remnant from the civil war as the militias’ agreement to disarm in 1989 resulted in most of the small and medium sized weapons disappearing into the homes and under the beds.

What is more, Lebanon’s porous borders and fragile security have facilitated the country becoming a conduit for smuggling and trade in combat weapons to and from neighboring Syria. And yet while a discussion on the weaponry within Lebanon could not be complete without acknowledging the huge yet clandestine arsenal of Hezbollah, Abi Allam says, “We can see different districts of security made by different political leaders. The issue is not just that Hezbollah has arms. Of course Hezbollah has kinds of arms that the others don’t, but all Lebanese groups have arms to some extent.” 

What’s on the books?

The law is quite clear on the issue of arms in Lebanon, but its application and the processes of regulation are not. The decree that deals with arms and ammunition from June 12, 1959, amended in 1999, classifies arms into different categories and makes it illegal for anyone to deal in arms unless they have permission from the Ministry of Defense and the Ministry of Interior. Law 220 from May 1993 further stipulates the need to have a license to carry a hunting rifle, and under Article 3 of the law; if you have any kind of gun without a license you can be sentenced from six months to three years in prison and subject to a fine.

Arms are categorized into five categories in Lebanon and those permitted for hunting are all in the fifth bracket. “We can sell hunting guns to everybody but once they are bought from us they need to get a license or the police might catch them, confiscate the weapon and arrest them,” says Joseph Abi Saab, importer and exporter of arms and owner of Brescia Middle East hunting store in Jounieh.

Licenses range in price, with a single barrel costing some LL50,000 ($33), a double barrel LL100,000 ($66) and a semi automatic LL200,000 ($132). The state further benefits in this trade with each importer having to pay a license fee worth 1.5 percent of the import value, 5 percent customs duties on all imports and then importers and traders pay the same income and corporation taxes as any other business. Imports in arms and ammunition amounted to $28 million in 2011, which once import licenses, customs duties, VAT and corporation tax have been factored in amounts to a tidy little earner for the government.

The real money maker

However, it is the trade of weapons in categories one to four, meaning combat weapons, which is on Abboud’s radar. In theory, only the government, more precisely the Ministry of Defense, can import such weapons and even the trader who organizes the shipments never gets to see the weapons — he just works as the middleman and takes his commission while the army collects the goods.

There is, however, an inherent contradiction in the regulation of combat weapons, where people can be officially sanctioned to own firearms that could only have come from the black market. Basically, the Ministry of Defense offers licenses to owners of combat weapons — which must have been bought or imported illegally — without wanting to know how they were obtained or where they came from.

What is more, the licenses are often issued as mukhtalif, Arabic for ‘varied’, meaning that there is no specific gun type or number attached to the license, so the holder is permitted to handle any personal combat weapon from a handgun to an M16. A money exchanger, who has a license and spoke on condition of anonymity, said, “If you are an individual who is part of a political party or movement then you can easily get a license that says mukhtalif so you can own any kind of weapon… It completely depends on your connections. If you don’t have connections you don’t get a license.”

Despite numerous requests from Executive, the Ministry of Defense did not respond to requests for comment on the number of licenses issued, the registration process, the amount of money it makes from it, or the customs it pays on the weapons it imports.

Yet clearly, the supply of combat weapons is fed by a thriving black market that is much larger than the legitimate one.

“Lebanon is like a supermarket for weapons, I can get anything, anytime,” says Rifaat Ali Eid, leader of the Arab Democratic Party in the Jabal Mohsen neighborhood of Tripoli, whose militia regularly makes headlines on account of its armed clashes with the residents of Bab el Tabbeneh.

It is this supermarket of arms that Abboud wants to regulate and skim off the top of.

“We could put a license fee of 500,000LL ($330) every year for each gun and we could tax the purchase 200 percent. Today a Kalashnikov whose real price is $450 is selling for $2,500; why don’t we take this money, regulate the market and then we will know that every gun that is not registered is illegal.”

Just as the system of licensing combat weapons is maintained through a series of patronage networks linked to the political and military establishments, so too is the black market trade in arms. “Of course these traders are protected. No one can do this dangerous work without cover from people in power,” says legal importer Abi Saab. “If you are trading in combat weapons and the secret police catch you, and you are not backed up, then no one knows what could happen to you. They are all supported by politicians.”

For Abboud’s vision of Lebanon becoming a regulated and taxed trade hub for combat weapons to become a reality, he would have to find a way around those people in power who are profiteering from the status quo. Perhaps that explains why there is so much inertia against change.

“The government is not cooperative on this issue and they don’t have the intention to control this issue,” says Abi Allam. “The parliament has a lot of work in order to do something practical, but they are not doing anything at all.”   

Thank you Ma’am

Prostitution is illegal in Lebanon — well, on paper at least. The reality, however, is muddled by legal ambiguities and somewhat conflicting policies. The bottom line is that prostitution is rife and from the ghetto street corner to the 5-star penthouse suite women are selling their bodies. The price tag varies anywhere between $10 to $5,000, as surely, sex knows no class distinction.

Abboud harks back to the ‘heydays’ when prostitution was legal in Lebanon and the bordello was an acknowledged and legalized institution. He advocates a return to a similar system by bringing prostitution out of the dark and back into the open. The rationale he proffers is based on both concerns for the women involved and stone-cold profiteering. He argues that legalizing and regulating the ‘world’s oldest profession’ would offer increased protection and rights to the women, and at the same time, “could make $10 million a year or more for Lebanon.”

On February 6, 1931, while Lebanon was still being conceived, prostitution was legally acknowledged as a profession. This was only allowed in registered bordellos, which were regulated by the state and had to follow strict guidelines. The system persisted into the civil war by which time the majority of the bordellos were in downtown Beirut, where fighters would converge to forgo their internecine bloodletting and satisfy their sexual desires.

However, while this law has never been cancelled, prostitution within bordellos has become a thing of the past. “In Lebanon if you want to delete a law you need to issue another one but in this case that did not happen. They just stopped applying it,” explains Hiba Abou Chacra, social worker in the rehabilitation and reintegration center at the non-governmental organization Dar Al Amal. “Now prostitution is illegal in the eyes of the law, there is nothing known as legitimate prostitution.”

The end of the bordello certainly did not mean the end of prostitution, but rather what has come to exist is essentially the continuation of the trade within two sectors: The regulated and unregulated. Super nightclubs, certain licensed bars and massage parlors are not for prostitution per se, but in the vast majority of cases are involved in the sex trade in one way or another and are regulated and monitored by the state. On the other hand, to some extent, there are women working in street prostitution, illegal brothels, or those who are on call from certain phone numbers for ‘home delivery’, and this is all unregulated and unlicensed.

Quantifying the number of people involved in illicit industries is never an exact science, but, “It has been estimated that there are tens of thousands women in prostitution,” says Ghada Jabbour, head of the exploitation and trafficking in women unit at the women’s rights NGO Kafa. “There are around 6,000 to 7,000 ‘artists’ working in the country in the super nightclubs. It is incredibly difficult to know how many women are involved in street prostitution, apartment brothels, internet prostitution, massage parlors and so on.” Lebanon’s super nightclubs employ foreign women who enter the country on an ‘Artist’ visa system that permits them entry to the country for three months at a time.

Lt Colonel Elie Al Asmar leads a department of around 25 men within the Internal Security Forces (ISF) that deals with prostitution in Lebanon, and he takes exception to the suggestion that prostitution is in any way regulated in Lebanon: “Prostitution is not regulated. There is no regulated prostitution in Lebanon,” he says. “All prostitution is clandestine. There is no prostitution allowed.”

Yet while this may be true to the letter of the law it is not really true to the spirit of the law.  Ostensibly the super nightclubs are not in any way involved in prostitution but there is a ritual that everyone from the customer to the girls to the law enforcement officer knows all too well.

As the manager at a super night club in Jounieh told Executive, “It’s very simple, you come and choose a girl to sit with, you buy a bottle of champagne from us for $70, and the next day you take her and have sex with her. Of course you will pay her for that around $100 to $150. What more is there to say?”

The women are tightly controlled and regulated by rules, strictly enforced by the General Security, which confines them to the super nightclub or their hotel for the majority of the time. However, from 1pm to 8pm every day they are given ‘free time’ and it is in these few hours that the women can leave and go meet the customer to complete the deal that was sealed the night before with the bottle of champagne.

While the super nightclubs and authorities may wipe their hands of any responsibility once the women are out of the premises, the ceremony is well known and in practice amounts to a kind of regulated prostitution. “There is a two-faceted policy adopted by the authorities,” says Kafa’s Jabbour. “On one hand, the authorities say prostitution is banned in this country but then they are involved in regulating it. Everything goes through them. In practice it is kind of legalized without any legal text.”

Furthermore, the most recent United States State Department’s Trafficking in Persons Report from last year stated that, “In 2010 5,595 women entered Lebanon on the Artiste three-month visa system, which serves to sustain a significant sex trade and enables forced prostitution through such acts as withholding passports and restriction on movement.”

The security forces keep close tabs on these activities but it is much harder to monitor the unregulated sector, in which nearly all Lebanese prostitutes work. A concierge at one of Beirut’s most prestigious hotels, speaking on condition of anonymity, tells of parties where groups of men would bring 30 to 40 prostitutes, all of whom would receive hundreds of dollars each. Serving the big spenders within the hotel affords the worker an inside track on their more illicit activities. He claims there are a number of pimps who service the super rich enjoying the seedier side of Lebanon’s reputation as the party capital of the Middle East. “People pay up to $5,000 a night for a prostitute,” he says.

While this kind of prostitution is prevalent in Lebanon it is not easy to police. General Michel Shakkour, ex-head of the ISF General Crime Directory, reasons, “Can you imagine me sending my people to the lobby of the Phoenicia or the Metropolitan and checking all the girls entering and leaving? It would not be possible. We are a touristic country.”

Legalizing love-for-sale

And here in lies the crux of the Abboud’s argument. Lebanon is highly dependent on the tourists’ dollar, which is estimated to constitute anywhere from a fifth to a third of the economy, and the prevalence and ease of access to prostitution is undoubtedly a draw for many cash-flashing men seeking illicit thrills. The minister argues in true profiteering style, “We are being pushed out of the market by other countries in the region already like the UAE [United Arab Emirates].”

Adding a humane veneer to his business logic Abboud reasons that proper regulation would end the “slave-like” conditions of the ‘artists’, while offering greater protection and ensuring healthier environments for all women in the sex industry. Abou Chacra from Dar al Amal may take exception to Abboud framing his reasoning in terms of financial gain, but acknowledges, “We imagine that the organization of this work within a legal framework may bring positive results. The current system is chaotic and unclear so it exposes the women to a number of dangers such as violence, exploitation and health problems.”

However Kafa’s Jabbour is unconvinced by the argument that legalizing prostitution offers greater protection and safety to women, and posits that legalizing the prostitution industry will provide a safe haven to pimps, human traffickers and others who profit from buying and selling women. She backs up her argument by pointing to evidence, which shows that legalizing prostitution in the Netherlands did not eradicate trafficking and exploitation of women, or eliminate underground prostitution. She espouses decriminalizing the women but criminalizing the industry, which would mean targeting the pimps, traffickers and clients, a policy that has shown some success in Sweden.

While Jabbour and Abou Chacra may differ regarding decriminalizing prostitution, they are both ardently against using it to promote tourism.

“What do we want to say? That we are a country where women can be bought and sold just to make some quick money,” asks Jabbour rhetorically. The temptation does seem to exist, however, to turn the state into the biggest pimp of them all.

Hashing it out

It was during the 1980s, with Lebanon verging on a failed state rife with war, kidnappings and chaos, that “Lebanese Blond” and “Red Leb” earned international notoriety. No, these were not references to the country’s beautiful fair haired ladies, but to varieties of hashish produced in the fertile Bekaa Valley and exported to international markets.

As the civil war drew to a close with the signing of the Taif accords in 1989, American authorities pressured both the Lebanese and Syrians to clamp down on the Bekaa’s hashish and heroin industries. Production subsequently plummeted, but in the not so hidden corners of the northern Bekaa farmers have continued to grow the marijuana plants (botanically referred to as ‘cannabis’) from which the resin is extracted to produce hashish. According to the United Nations Office on Drugs and Crime’s 2011 World Drug Report, Lebanon is “increasingly reported as a source of cannabis resin [hashish],” and is identified within the top five producers in global markets.

A combination of officials being paid to look away, politicians trying to secure their voting base and farmers willing to run the risk of having their crop eradicated to secure up to 10 times more revenue than they could from growing vegetables, means the state has failed to stamp out this illegal trade. Again, Minister Abboud suggests that perhaps it is time to face up to reality, accept this economy of vice and look into growing the crop for alternative uses such as medicinal byproducts.

Every year farmers in the impoverished northern Bekaa grow plots of marijuana plants with the knowledge that their crop may be uprooted and burnt. They continue to do so quite simply because if they manage to give the authorities the slip then the returns are so handsome then it will have been worth the gamble. Indeed, as Executive went to print clashes were erupting in the Bekaa between ISF soldiers and hashish farmers as the annual show down of crop eradication began.

“You are comparing gold and lead here,” says Dominique Choueiter, industrial hemp project coordinator at the United Nations Development Program (UNDP), when comparing hashish and normal produce.

Fields of green

As the wide flat plain of the northern Bekaa lifts up to hug the lower eastern slopes of the Mount Lebanon range, a farmer nicknamed Abou Elie runs his fingers through the potent smelling leaves of his cannabis bushes that are only a couple of months away from budding. The hot dry days and cold crisp nights are perfect for maximizing the content of the mind altering chemical in the plants, Tetrahydrocannabinol (THC).

“I hedge my bets with what I grow,” he says. “If the market fails for my fruits and vegetables then I can compensate with hash or tobacco. On the flip side if the government comes and destroys my crop of hashish then I would sink if I don’t continue growing the potatoes, onions, carrots, garlic and so on.” Abou Elie is growing 10 dunums (10,000 square meters) of marijuana plants and if all goes well he should bring in about $12,000 gross, or $10,000 net, in profits this year. That is without irrigation, whereas farmers who irrigate can expect around $30,000 to $50,000 for the same sized plot, according to the ISF sources. Abou Elie calculates that if his crop survives, in a worst case scenario, his profits will be three times better than from alternative produce, but will most likely be “much, much more.”  The divergence in returns varies greatly year-to-year as fruit and vegetable markets are notoriously volatile in the face of global fluctuations. Furthermore, this year the Syrian crisis has put an extra squeeze on the markets of agricultural farmers, who are thus pinning even greater hopes on their hashish crops. A crude calculation of the value of the Lebanese hashish industry can be worked out from the eradication of 35,000 dunums last year. The UNDP’s Choueiter says few farmers escaped the cull, and if we assume half was irrigated and half was non-irrigated then that amounts to $87.5 million at the wholesale price between trader and farmer. This would increaseat least 10-fold in value by the time it gets to the street, amounting to $875 million. That’s no small fry.

In mid-July, Colonel Adel Mashmoushi, the man at the ISF charged with policing drugs in Lebanon, told Executive he believed the families and tribes controlling the hashish trade in the Northern Bekaa were preparing to ambush them. He was not mistaken. Within the week his men were under attack from gun and mortar fire. The eradication program is no easy pickings and takes about 1,000 ISF men, with the support of the army, two months to complete and Choueiter calculates that the cost to the ISF in 2011 was about LL500 million ($331,674).

Colonel Mashmoushi’s job is not only hindered by the lawlessness in the areas he has to work in, but also the complicity of elements from within the security forces and political establishment.

“There are officials and officers who profit handsomely from this,” explains Abou Elie. “Everyone involved has a partner among the authorities. They all take their cut at every step of the game. We will have to pay half of what we earn. If you pay you are fine, and if you don’t then they will simply arrest you.”

Colonel Mashmoushi is dependent on the intelligence from forces in the field, and sent around a memo in the weeks leading up to the eradication requesting tip-offs about where the cannabis crops were. Asked whether corruption and bribery could be squandering his efforts he replies, “In the ISF we are from the population, with relations to the people, and of course sometimes people take bribes, but this is not common. We have our morality and punish severely anyone caught doing this.” Statistics on investigations into corruption and bribery within the ISF are deemed “too sensitive” to be made public, according to Mashmoushi.

Society in the northern Bekaa is woven with tribal affiliations, and securing the loyalty of the families producing hashish can be a determining factor for the political parties in keeping large extended kin networks of voters on board. For the ISF teams being sent to uproot the marijuana plantations, a lack of political support on the ground makes the job a hell of a lot harder to execute. “I need support from all of the population and political cover but sometimes they need the votes, which means they won’t take the same position as me,” gripes Colonel Mashmoushi. Abou Elie goes a step further and claims that many of the local political parties are getting fat off the hashish trade by direct involvement. “Of course the parties make a lot of money off this — it is all about politics and the parties,” he says. “Everyone here belongs to parties. You don’t take your own decisions. If the party says yes, then it’s a yes, if the party says no then it’s a no.”

Few alternative crops

In such an environment it is little wonder the farmers continue to produce hashish. A 2007 report by the UNDP concluded that, “farmers will likely continue to cultivate illicit cannabis, and there is a danger of a return to illicit opium cultivation, unless appropriate measures and/or meaningful development alternatives are made available.”

Despite the fact several studies have illustrated therapeutic affects related to THC consumption, there is not a sufficient market in manufactured medicines that could substantiate legitimate exportation of cannabis grown in Lebanon, according to the UNDP. Another alternative is growing industrial hemp plants, which are varieties of the cannabis plant that contain less that 1 percent THC — compared to the normal 20 percent or higher found in marijuana plants — and thus are useless as narcotics. Once processed, hemp is among the strongest natural fibers in the world, while the plants also produce an oil whose many uses vary from fuel to medicine, and most importantly hemp has a growing international market. However, Choueiter’s study found that while hemp could provide an alternative for the hashish farmers, such a program would need strong government support in terms of implementation, policing and, at least initially, subsidies.

The reality is that there simply is not the will among the politicians or the strength and support within the security apparatus to bring this to fruition. The annual game of cat and mouse between the ISF and the hashish merchants will continue as politicians and policemen continue to fatten their wallets from the sidelines.

Raising the stakes

The Casino Du Liban (CDL) has for many a year been synonymous with the Lebanese high life, as dignitaries, VIPs and stars of the silver screen have graced its gaming tables. Ensconced on the near vertical slopes overlooking the Jounieh Bay, Lebanon’s betting hub is partly owned by the state and enjoys a legal monopoly on nearly all kinds of gambling within Lebanon. However, corruption and patronage maintain an illicit gambling economy outside the confines of the CDL from which the government is not getting its cut. In the eyes of Minister Abboud, it is time to open up the playing field and bring some diversity to the table.

Every night, officials from the Ministry of Finance (MoF) survey the floor of the casino and as the final chips are cashed they take a flat rate of 40 percent of all earnings. Last year alone the state profited LL168 billion ($112 million) from the dashed hopes of gamblers at the CDL. The government owns its stake in the casino through an investment body called Intra Investment in which the Banque du Liban (BDL), Lebanon’s central bank, owns 38 percent of the shares. Intra Investment is the majority stakeholder in the CDL with 52.32 percent, while the Abela Tourism Development Company owns 14 percent and the remainder is held by unlisted ‘private investors’.

The legal hegemony afforded to the casino dates back to decree 6919 from June 29, 1995, which granted the CDL a monopoly for 30 years. This law essentially annulled the gambling law from 1959 that had previously applied to the sector. The annexes of the 1995 decree strictly outline the vast majority of gaming activities that are confined to the CDL while other gaming activities may be permitted elsewhere, but only with the appropriate permission.

“You even need permission for pin ball machines,” says lawyer Wassim Mansouri. “Poker machines? You need permission for that. You even need a license for playing cards without money.”

Despite this there are a plethora of gaming centers in Lebanon, whose bright lights and promise of a “gambling paradise” are more often than not filled with rows of slot machines and despondent characters tapping away in silence in the vain hope that their chips will come in. Glamorous this is not.

The licensing and monitoring of these machines is littered with ambiguities and contradictions. According to a spokesperson at the Ministry of Finance, an annual license fee of LL1 million ($666.67) is collected for each poker machine, but this flies in the face of a 2008 agreement between the CDL and the MoF that all poker machines in Lebanon must be on the premises of the CDL. In its July 11 meeting the cabinet called on the Ministry of the Interior and the municipalities to clamp down on all gambling establishments operating outside of their licenses, and yet the MoF continues to collect the license fees.

With such inconsistencies between the authorities it is perhaps not surprising that the rules are bent and bastardized as standard practice. Khalil, a young man who manages the front house for one of the gaming centers on the Jounieh highway, claims illegal machines are imported, illicit poker nights are held, licensing hours are routinely flouted and machines are tampered with to charge higher playing fees. This is all possible because, “The police know the story, if you pay you can do whatever you want, but not in public.”

Colonel Ali Sheri is in charge of the department in the ISF responsible for policing gambling, and he denies corruption is a major problem but concedes that gambling violations are not a priority in the eyes of many of those applying the law. “You are happy if you catch people breaking the law but then the judge will say ‘what is this?’ and then let him go,” says Sheri. “The punishment needs to be stronger in terms of arrests and fines and closing places down.”

In addition to the abundance of small gaming centers routinely flouting their licenses, there are poker clubs that sprout up for a month of two, in which time they harvest their profits before shutting down and relocating. “Of course they have cover from political people and if they can stay open for several months then it is worth their while,” complains Lara Hafez, marketing manager at the CDL. As for the more well-heeled and well-connected high rollers that want to escape the regulations of the CDL and the taxes of the MoF, poker parties are organized in private homes, which almost always stay aloft from the meddling ways of the ISF.

Colonel Ali Sheri retells a recent bust, on a tip off from the CDL, in which he raided a large private villa in the mountains that was surrounded by top-of-the-range cars and filled with a banquet hall and a series of poker tables. “Of course there are important figures at such events and this makes things very difficult for us,” he says. “If they have lots of money and power what can we do?”

Abboud would like to open the market, regulate these clandestine gambling activities and allow Lebanon to become a gambling destination to rival its regional competitor; Turkish Controlled Northern Cyprus. However, the CDL’s monopoly has 12 years left to run and considering the fact it is part owned by the BDL and heavily taxed by the MoF, it is a long shot to imagine that a new law will be passed to overrule the 1995 decree.

The CDL’s Hafez was at best elusive when asked if there may be a conflict of interest with the government holding a major stake in the casino. “The management may have political connections, but they are not answerable to politicians and act independently,” she says. Back in 2006 Riad Salameh raised the idea of selling the bank’s shares in the CDL but that suggestion quickly slipped off the table and according to Hafez, “It does not seem to be an option for the time being.” 

What’s more, Abboud lambastes the CDL for not expanding its activities, opening new branches or reaching out to wider segments of the market. However, at the casino Hafez counters that they are confined by the law to their current location, but have plans for expansion on site, although details were patchy as “plans are still under review.”

The cozy set up between the casino, the bank and the politicians looks set to stay regardless of Abboud’s gripes. For the coming 12 years at least the challenge, including for Abboud’s tourism police, is simply to implement the law as is.

The profits of vice

Lebanon’s economies of vice are thriving. Weak security, rampant corruption and rackets within the corridors of power are making sure of that. It would appear protecting mini-fiefdoms is much easier than actually formulating, implementing and enforcing coherent national strategies or legislation that addresses reality.

When assessing how to tackle these problems the answers are rarely black and white. But that is exactly why the country is in such dire need of a straight-up debate about these issues that are so flippantly swept under the carpet. Minister Abboud is certainly right about that much at least.

August 3, 2012 0 comments
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Opportunity in crisis

by Yasser Akkaoui August 3, 2012
written by Yasser Akkaoui
The fruit of opportunity is rotting on the branch in the fertile Bekaa Valley, literally. The Syrian civil war has effectively closed the border to trucks carrying exports of Lebanese fruit and vegetables to markets in neighboring countries and beyond. 
 
Now imagine — and this will take some effort — a government responsive to crisis, innovative in plotting solutions and effective in carrying them out. There is the military airport at Rayak in the middle of the Bekaa; why not schedule flights — through the state-owned Middle East Airlines or mobilize Lebanon’s fleet of private jets sitting — to fly shipments of Bekaa-grown produce to Gulf markets for Ramadan? While it would be a form of subsidy and a short-term fix, it would maintain the continuity of supply chains, help farmers and communities over the hump of this current crisis, and generate massive kudos for the Lebanese state — there is no better way to build a cohesive nation than to create a sense in people that their government is looking out for them.
 
With tourism in decline, the economy stalling and the region in crisis, it is incumbent upon our so-called leaders to use the resources at their disposal to come up with these sorts of innovative solutions to steer the country into the clear. Or tap the entrepreneurial spirit of Lebanon’s private sector to develop creative detours around the country’s economic impasses.
 
Crisis is a time of opportunity — if only our leaders could lead. 
August 3, 2012 0 comments
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Finance

Getting off the ground

by Maya Sioufi August 3, 2012
written by Maya Sioufi

The ingredients for creating a successful technology hub in Lebanon are on the table: ambitious entrepreneurs, power hungry venture capitalists and enthusiastic accelerators and incubators. Along with this growing ecosystem, there are increasing opportunities to invest in startups and when opportunities arise, money usually follows.

In previous years, there were essentially two cards to play to fund a business in Lebanon: ask family and friends (the most commonly played card), or apply for a loan with Kafalat, the government-sponsored entity that helps provide small and medium enterprises (SMEs) with commercial bank funding by acting as a guarantor. The straight loan-from-a-bank card was, and still is, absent from the deck. “The environment is risky and startups are even riskier,” says Ibrahim Salibi, head of commercial and corporate banking at Bank Audi. “It might not be the right timing today [for banks] to finance startups.” 

 
So far, banks have predominantly provided funds to new businesses through their corporate social responsibility departments — by launching competitions for instance — and through providing Kafalat loans, with a total of $165 million in loans extended last year and another $71 million in the first six months of this year.  “I call Kafalat the Lebanese miracle,” says Walid Hanna, chief executive of Middle East Venture Partners (MEVP). “They are credited to having started and funded thousands of companies in Lebanon and created tens of thousands of jobs.” Guaranteeing at least 75 percent of the payment, Kafalat allows banks to confidently lend to entrepreneurs but those loans are not extended to all sectors; they cover the industry, agriculture, tourism, traditional crafts and high technology sectors, leaving some startups without access to these loans.
 
While stressing the “fantastic value” of the Kafalat program, Habib Haddad, chief executive of Wamda, a regional platform for entrepreneurs, does not recommend taking on such a loan at an early stage as he believes “the earlier the stage of the startup, the more value added it needs beyond cash in the form of mentorship, contacts, helping in hiring and in negotiating with clients etcetera. All this comes from venture capitalists.”

The ventures of capital
Venture capitalists (VCs) are a more recent card added to the funding deck. While only a handful of VCs are active in the local market, the increasing awareness of the value added provided by these experienced backers, combined with the growing need for capital, is making this avenue of financing one that is gaining more and more importance. Many banks are also supporting VC players by investing in their funds.

“The general attitude of local banks is ‘let someone else get the process right’, as the industry has not been streamlined yet. It will take some time and once we start to see real genuine long-term businesses, we will allocate resources to it; this a testing period,” says Khaled Zeidan, who wears both the hat of a banker as general manager of MedSecurities, a BankMed subsidiary, and of a venture capitalist as chairman of one of MEVP’s two funds.

Berytech Fund, MEVP, Cedrus Ventures and more recently Wamda are all looking to invest in early stage startups. Accelerator Seeqnce has also jumped on the bandwagon through a different proposal: a competition in which anyone with an idea within the tech space can apply and the founding members will eventually create eight startups — each receiving $100,000 of which $38,000 is in cash and the rest in services — in exchange for a 30 percent equity in their newly founded startup.

Lack of upstream support 
Fadi Bizri, one of the founders of Seeqnce, said the idea to start this competition came because of the lack of upstream support for start-ups in Lebanon. Entrepreneurs at an early stage often struggle to find enough support — regarding things such as developing a business plan or finding missing talent in the team — to turn their ideas into viable businesses that would eventually become interesting investment opportunities.

Hanna believes that what is missing within the ecosystem is “more of the like of Seeqnce and Berytech”, providers of upstream support for early stage entrepreneurs. Michel Nehme of Cedrus Ventures agrees on this shortfall and believes that all venture capitalists should provide a “shove” to entrepreneurs through mentorship on a voluntary basis.

Targeting that lack of upstream support, Ideaz Factory has made a call for business ideas from Lebanese between the age of 16 and 30, to be submitted to a high profile jury made up of established entrepreneurs who will select eight ideas and help develop them into viable businesses. The whole process, which ends with the selection of a winner, will be broadcast on national television from mid-September and provide an opportunity for the public to invest in the ideas too. Many believe the lack of upstream support curtails the development of quality start-ups and investment opportunities. Zeidan notes, “There are very few quality companies and quality entrepreneurs in Lebanon.” Hanna concurs, saying “there are only one or two crème de la crème start ups in Lebanon."

Collaboration vs. competition

With only a few quality startups to pick from, one might think there would be tight competition between VCs to scoop up the best pickings, but, running small funds — no larger than $15 million in size — they are actually more likely to cooperate and share the meals. For instance, Berytech’s fund and MEVP invested together this year in Wixel Studios, a provider of gaming applications, for an undisclosed amount. Hanna says that VCs go “clubbing together” and share investment ideas.

A celebration for innovation
Large scale competitions, networking activities, opportunities to meet investors, chances to add talent to a team — these are some examples of the activities organized by Global Entrepreneurship Week (GEW), a worldwide event, launched in 2008 and held annually in November. Starting initially with 37 countries, GEW now takes place in 115 countries, including Lebanon. With more than 24,000 partner organizations on board, GEW aims to honor innovators and helping startups reach their full potential through organizing more than 37,000 activities globally. This year GEW is being held between November 12 and 18, and eight countries from the Middle East will be participating: Bahrain, Egypt, Kuwait, Lebanon, Qatar, Saudi Arabia, United Arab Emirates and Yemen. Lebanon will be hosting its fourth GEW and the number of participating partners has more than doubled in just one year, from 27 in 2011 up to 59 this year. Incubators, venture capital firms, governmental and non-governmental organizations are all hopping on the bandwagon. 45 activities were organized during the week last year and more than double are expected this year with several partners organizing joint events. Expect a lot of noise both online and offline in the build up of these activities.

Cooperation can spoil the meal though, as hungry VCs can turn into “vulture capitalists” by taking control of the venture from the entrepreneurs. “Asshole VCs that team up together can come up with very harsh terms,” complains Haddad. Bizri adds that “a lot of entrepreneurs know very little about raising funds, don’t know what their options are and they get massively ripped off by people.”

Infrastructure issues

The workshop, however, for building any sort of hub for innovation in Lebanon is lacking some tools, among them proper Internet and telecommunication connections, online payments facilitated by local banks and talent mobility, to name a few.

“If you want to use Lebanon as a test bed for your e-commerce company it is very tough to do that,” says Haddad of Wamda. Stephane Abi Chaker, head of investment banking at Blom Bank also notes that, “information technology (IT) infrastructure is much more important than financing for technology and telecommunication start-ups.”

Talent mobility is another issue. “In the United States, a country of 300 million people, there is lack of talent as Google and Facebook hire from all over world,” says Haddad. “So in a country of four million people, of course there is a lack of talent and we need to open up to allow that talent to come in.” He points to Jordan’s more advanced web space and to companies such as Maktoob Yahoo as sources of potential talent.

In the end, however, “If you are a real entrepreneur, nothing will stop you,” says Nehme of Cedrus Ventures. Financing issues seem to be less of a challenge, as most of the players of the ecosystem tend to agree that when there is a good deal, there is the money. Getting more of the deals “investment ready” seems to be the key obstacle for now. “Entrepreneurs in Lebanon are not mature enough and not trained well enough to become investment ready but once they are investment ready, they could find money” adds Hanna.

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