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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 In an interview with Executive in April the minister assailed the poor regulation, outdated laws and hypocritical divergence between policy and practice relating to these economies of vice.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.

August 3, 2012 0 comments
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Finance

Mena stock tips, August 2012

by Executive Staff August 3, 2012
written by Executive Staff

Last month new banking scandals came to the forefront. JP Morgan announced  first-half trading losses of $5.8 billion amidst intensifying fraud investigations, while Barclays was engulfed in a rigging scandal regarding the London Interbank Offered Rate, which saw heads roll — including that of CEO Bob Diamond — with investigations potentially expanding to nearly two dozen banks. The European sovereign debt crisis is still heated, with Spain approving yet another austerity package — its fourth in seven months — and receiving a 100 billion euro bank bailout. For investment recommendations, Executive sits again with Khaled Zeidan, general manager of MedSecurities, a BankMed subsidiary and Ammar Bakheet, head of asset management at Bank Audi.   

Khaled Zeidan

General market thoughts? Zeidan is somewhat bullish and expects stock indices to end the year on a positive note. “Maybe up between 9 to 12 percent but in the meantime it could be choppy,” he says. He believes that there will be further stimulus from the United States because “the economy needs this.” He would avoid investing in Europe as he believes that we have not seen the worst yet. “I think there is no political will today to resolve this issue,” he adds.

Favorite asset classes? Last September, Zeidan recommended investing in both equities and bonds and now he recommends keeping a balance between asset classes with a slight preference for equities over bonds. With risk premiums up and with a positive correlation between the two asset classes, choosing one asset over another becomes “sort of insignificant” according to Zeidan. The only asset class which remains unhurt is cash but its “problem is that it is experiencing slow death which you don’t see; it’s like aging. You don’t feel it; then you see a friend you haven’t seen for 10 years and you realize that this is how they probably view me; that’s the problem with cash.”

Thoughts on the MENA region? His view on the region’s top markets  have not changed from last September as he still likes Saudi Arabia and Turkey, but he is also adding Egypt now as he expects the markets in this country to recover as “ultimately the Muslim Brotherhood are red-blooded capitalists. One of the main figures is Khairat al-Shater, one of the wealthiest men in Egypt.” Another MENA market he finds interesting is Iraq and he wouldn’t be surprised to see an “astounding performance” once the proper structure for equity markets is in place. 

Thoughts on Lebanese securities? He would only buy Solidere as he believes it is cheap and undervalued (to keep everything above board, it should be noted here that BankMed is one of Solidere’s largest shareholders). Once there is a resolution in Syria, “Solidere will be limit up [limit on the shareprice] for three to four days. You need to be willing to make that bet and I think its reasonable given that your downside is limited,” adds Zeidan. 

Ammar Bakheet

General market thoughts? Bakheet is risk averse and says investors generally are not excited about risky investments either, such as equities, due to the sovereign debt crisis in Europe, the slowdown in the economy of China and emerging markets. He would prefer being exposed to the US markets over Europe as he believes “Europe will be in a mess for a while.” Within Europe he would favor safe companies with solid earnings, good balance sheets and high dividend yields such as food manufacturer Nestle or pharmaceutical company Roche.

Favorite asset classes? In September, Bakheet recommended high quality fixed income bonds and blue chip companies. Now he recommends starting to gradually add exposure to the equity markets as they are at “very attractive levels.” He favors high quality stocks with solid dividends.

Thoughts on MENA markets? Bakheet is still sticking to the same countries he recommended last year: Saudi Arabia (SA) and Qatar because of their solid fundamentals, attractive valuations and dividend yields. As for Egypt, he prefers to see signs of stability before stepping into this market. He would invest in the telecommunications, banking, food and beverages, retail and cement sectors both in SA and Qatar. His top picks are Saudi Arabian telecommunications company Mobily — which he recommended back in September and is up 20 percent since — Al Rajhi Bank in SA and Qatar National Bank.

August 3, 2012 0 comments
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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
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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
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Finance

Information Minister Walid Daouk on the LIRA Law

by Executive Staff July 26, 2012
written by Executive Staff

Information Minister Walid Daouk discusses the thinking behind his controversial draft law regarding the regulation and control of websites based in Lebanon — the Lebanese Internet Regulation Act — and why his plans for a quick fix failed.

July 26, 2012 0 comments
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Economics & Policy

Lebanon – Cannabis Farming

by Zak Brophy July 26, 2012
written by Zak Brophy

An inside look at the cannabis farming of the Bekaa Valley

 

July 26, 2012 0 comments
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Finance

Banks in the crosshairs

by Joslyn Massad July 12, 2012
written by Joslyn Massad

Lebanon’s banks see soaring profits slow as trouble brews both at home and next door in Syria, while American muscle-flexing makes for costly compliance measures

July 12, 2012 0 comments
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Comment

Syria’s arms economy

by Nicholas Blanford July 11, 2012
written by Nicholas Blanford

The prices of some popular weapons on Lebanon's black market have dropped for the first time since the uprising against the regime of Syrian President Bashar al-Assad began in March 2011.

Bearing in mind that the demand that drove prices to record highs was almost all from Syria, the recent dip appears to strengthen reports that Syria's armed opposition is gaining ever-greater access to weapons and ammunition.

The two weapon types that recorded the largest drop are AK-47 rifles and rocket-propelled grenades. In March 2011, a good-quality Russian AK-47 or the Polish-manufactured version, known in Lebanon as a “Circle 11” from the stamp on the metalwork, cost around $1,100. By April this year, however, the rifle had doubled in price to around $2,200. The price climb for RPGs was even higher. A single grenade in March 2011 was worth $100 (itself a significant rise given that five years earlier it was selling for about $10). By April, however, it was nudging close to $1,000. Arms dealers were grumbling that they could not even find RPG rounds on the market.

However, since the beginning of May, both AK-47 and RPG prices have dropped to around $1,800 and $700 respectively. The cost of 7.62mm ammunition for the AK-47 also has declined from around $100 for a box of 50 rounds in April to $83 in June. Both AK-47 rifles and RPGs were the most commonly used, and sought after, weapons for the Free Syrian Army (FSA) and other armed opposition groups. The drop in prices suggests that the FSA is receiving a regular supply of armaments today, which has lessened demand in Lebanon.

It is widely believed that Saudi Arabia and Qatar have begun funding the FSA and that fresh arms supplies are reaching the fighters, mainly from Turkey. The New York Times reported in mid-June that CIA officers were in Turkey monitoring the flow of weapons to ensure that the recipients were not groups that shared Al-Qaeda's ideology.

The FSA also has had increasing success in raiding Syrian army depots and stealing weapons and ammunition, or co-opting Syrian army officers with access to arsenals. Indeed, the profits to be made from selling weapons have spurred Syrian soldiers to steal weapons and sell them on the black market, according to Lebanese arms dealers. That has led to some Syrian army weapons, including RPG rounds, to enter the Lebanese market.

The enormous profits to be made from selling arms has blurred political loyalties. There is a story presently circulating in the Bekaa about a member of a Syrian-backed political party who was in charge of the group's arsenal in his village. He struck a deal with a man from an influential family to sell the weapons to the Syrian opposition and they would split the proceeds. The weapons were duly sold across the border, but the second man then refused to share the profit with the party member. In revenge, the party member told the police where they could find the second man, who had a string of arrest warrants. The police laid an ambush and the second man died in a gunfight. The relatives of the second man then kidnapped the party member and he has not been seen since.

While AK-47 and RPG prices have declined, the cost of prestige weapons continues to climb. They include arms such as the AKS-74U, popularly known in Lebanon as the “Bin Laden gun” as it apparently was favored by the former Al-Qaeda leader. A Bin Laden gun costs $5,000 today, compared to about $2,800 a year ago. A Russian “Dushka” 12.7mm heavy machine gun is worth a staggering $9,000 compared to $3,000 in March 2011. Even that pales to the price of an American M4 assault rifle fitted with a M203 grenade launcher. Worth $5,000 in March 2011, today it will set you back at least $15,000.

 

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

July 11, 2012 0 comments
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Since its first edition emerged on the newsstands in 1999, Executive Magazine has been dedicated to providing its readers with the most up-to-date local and regional business news. Executive is a monthly business magazine that offers readers in-depth analyses on the Lebanese world of commerce, covering all the major sectors – from banking, finance, and insurance to technology, tourism, hospitality, media, and retail.

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