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Comment

Concepts of conception

by Thomas Schellen June 6, 2012
written by Thomas Schellen

Without children, there is no society. Thus any society that seeks perpetuity will support the raising of children and in some form provide toward needs such as nutrition, education and medical care. But what about financing the beginning of life when the biological method has misfired? Should artificial conception be funded by society, whether through state provisions or via private health insurance? 

The issue is under debate in almost every society, including here in Lebanon. The debate revolves around advanced techniques in reproductive medicine, such as in-vitro fertilization (IVF), and it is charged with ideological, religious, cultural, demographic, financial, medical and bio-ethical aspects. But to bring the issue down to earth, the question that people ask if they desperately want a child is: “Why is IVF not paid for by health insurance?” Private providers, still behind the curve in terms of even maternity leave, are probably not the best place to start.  However, as the Lebanese state and its agencies have provided maternity-related medical care at overall rates of almost 95 percent in public hospitals, and more than 75 percent in private ones, it is a valid question for Lebanese society if the state shouldn’t fund IVF treatments for childless persons who want to conceive and cannot do so otherwise.  

Admittedly there are many aspects to this issue, but here we will look at IVF from a strictly economic perspective. On the simplest denominator, the fertility branch of the medical economy is a business activity that displays pronounced profit-seeking behaviors. It moreover is a market where there is a tight supply of qualified medical providers and a demand that is not only growing but also urgent, in the sense that a successful conception by IVF statistically requires numerous attempts and has to be accomplished before age 40 or 42, depending on local regulations. Attempts later in life have a dramatically reduced chance of sucess. The combination of desperate demand and a poorly regulated market opens the possibility for deception and abuse. This means that society needs to assume oversight of the supply side through precise operating standards that go beyond supervision of technical or medical competency, and of the market through a competent regulatory framework. Society must also decide what controls there must be over the demand side of fertility seekers. (An example of a country in our region that has been proactive on the issue and has departed from stonewalling against IVF was interestingly, the Islamic Republic of Iran.)  

Lebanese society, with its well known bent for ignoring the rule books, will need to very carefully regulate all three elements of supply, market, and demand side if it desires a platform where the pleas for children by the childless can be answered without opening the doors for unbearable supply-side corruption and market distortions.  There is another locale in the neighborhood that not only accepts IVF, but also claims to be the paradise of IVF. According to a May news article by Israeli writer Viva Sarah Press, the health ministry of Israel has announced that the number of babies conceived by IVF has risen to more than 4 percent of all births, and a 2011 story in the New York Times (NYT) called Israel “the world capital of in-vitro fertilization”. The practical factor driving Israel’s high rate of IVF treatments is that they are fully covered by the mandatory national health insurance. The rationale behind the societal willingness, according to the NYT story, was on one hand appreciation of family and on the other hand the desire to counter birth rates in Palestine.    

Political demographics aside, the fundamental issue is that life is not to be denied and that children are the greatest opportunity to fill it with meaning — Lebanese society needs to discuss where it stands on helping those who cannot have children.

June 6, 2012 0 comments
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Economics & PolicyMonaco

Bechara el-Khoury & Mustapha el-Solh

by Maya Sioufi June 3, 2012
written by Maya Sioufi
The relationship between the principality of Monaco and Lebanon started developing from the independence of Lebanon under the rule of Bechara el-Khoury, Lebanon’s first president and Riad el-Solh, Lebanon’s first prime minister. Today, Lebanon’s consul in Monaco is Mustapha el-Solh, the great grand nephew of the first prime minister and Monaco’s consul in Lebanon is Bechara el-Khoury, the grandson of the first president. Executive sat with both consuls to discuss this enduring relationship between the two countries.
Bechara el-Khoury 

How would you describe the relationship between Lebanon and Monaco?

There has always been a consul of Monaco in Lebanon, ever since my grandfather was president, as we are riverains de la Méditerranée. The relationship has always been very good and now we couldn’t have it better. Mustapha el-Solh is very well connected and I am not badly connected either [laughs]. The access is easy. That is what is the most important in bilateral relationships. 

How many Monégasques are there in Lebanon? 

Three: Eric Bessone (director of sales and marketing middle east at Monaco’s Société des Bains de Mer), the wife of my father, and myself. My brothers and sisters also have the nationality but they live in Paris and so does prominenet Lebanese businessman Toufic Abou Khater. Those are all the Lebanese with a Monegasque nationality. 

What are the ongoing projects between Lebanon and Monaco? 

Monaco is cooperating to finance projects in Lebanon such as sea cleaning, planting cedars and a few health programs for the United Nations Relief and Works Agency (UNRWA). There is a non-governmental organization (NGO) called Les Amis du Liban, which distributes 250,000 to 300,000 euros ($320,000 to 380,000) per year to different sectors of activity. When Prince Albert II came two years ago on a state visit to Lebanon to see President Sleiman, we organized training for the Lebanese fire brigade to go to Monaco and be trained to deal with fires in towers, because they had no previous training and we have more and more towers. This program is still ongoing. We also have a Maronite priest who stays at the Monaco cathedral on a revolving three-year loan. We are always working on projects to improve the relationship between Monaco, Lebanon and the Middle East. 

Do you also represent the Middle East? 

My job is not just for Lebanon. It is also for the area because Prince Albert II knows I have relationships across the Middle East. Whenever he goes to the region, he takes me with him. We can attract a lot of Arab tourists to Monaco. There is potential for the Middle East clientele to come and develop projects in Monaco. 

Where are the investment opportunities in Monaco?

They are in real estate primarily. Also there is a law in Monaco which allows you to have worldwide revenues come in with no taxes and go out to pay your worldwide employees with no taxes, making it attractive for companies to set up an office in Monaco. That is why all the big ship owners are based in Monaco today. This is important because it is an enormous facility. Also there is no personal income tax in Monaco and a small corporate tax. 

What can Lebanon learn from success story of Monaco? 

Lebanon needs to attract more tourism. One of the strengths of Monaco is that every single day there is an event and there are conventions. Lebanon needs to do that too. Also, Monaco was promoting heavily the healthcare industry. This could be done in Lebanon. For instance,  Monaco has fantastic heart surgery unit. We have very good doctors so we [could] have more specialized centers. 

If you had to choose to live in either Lebanon or Monaco, where would you choose? 

Obviously, I was born in Lebanon and I carry a very famous name, but for my own personal choice I would live every day in Monaco. 

Mustapha El Solh 

As consul of Lebanon in Monaco, what does your role entail? 

The Lebanese consulate in Monaco is an honorary one and has existed since 1996.  We represent the interests of Lebanon across all sectors and we look after the interests of all the Lebanese residents in Monaco. We conduct all consular administrative services, such as passport renewals and visa issuance, and we organize many events throughout the year to promote Lebanon in Monaco. Last year, I organized the official trip of Prince Albert II to Lebanon with an economic delegation of 80 people during which many bilateral agreements were signed.  For example, four Lebanese TV stations signed distribution agreements with the local TV cable operator to transmit locally in Monaco. 

And as president of the Association of Consuls Honoraires de Monaco, what does your role entail? 

The Prince and the government of Monaco look highly to the consular corps for reinforcing the bilateral relationship between Monaco and the rest of the world; there are more than 80 consuls accredited in Monaco. In 2009, I was elected by all consuls in Monaco to become president for a five-year mandate. My main role in this post is to promote the consular function and most importantly to represent the interest of the consular corps during all the official events in Monaco.  

How strong is the current relationship between Lebanon and Monaco and how can it be further developed?

The relationship between the two countries is exceptional. In the past 20 years, there have been numerous agreements and exchange programs. On the economic side, companies have signed trade agreements allowing exchange of services and products (mainly in jewelry, insurance, shipping, etcetera). Major environmental agreements were executed between the two countries.  Bank Audi, Lebanon’s largest bank, opened a branch in Monaco two years ago.  A representative office for Monaco’s largest tourism and service company, the Société des Baines de Mer (SBM), opened in Beirut in 2010 and since then many cultural events have taken place in Beirut coming from Monaco.  

Do you have figures on how many Lebanese live in Monaco and how many visit Monaco per year?

There are more than 300 Lebanese living in Monaco and Lebanon features among the top 20 countries to visit Monaco. 

What can Lebanon learn from Monaco’s success story?

Up until the early 1970s, Lebanon used to be the success story of the whole Mediterranean basin. Whether for its touristic or financial infrastructure, Lebanon excelled in attracting visitors. Unfortunately, the civil war and the recent political turmoil impacted negatively Lebanon’s potential. On the other hand, Monaco always prioritized offering its residents and visitors a great experience and the principality has developed a sophisticated financial infrastructure with an absolutely secure environment. It manages the country as a large corporation and its general interest is to service a profitable and satisfactory business model. It also offers rich cultural programs including ballet, theatre, museums and art exhibitions. I strongly believe that once the political stability is regained in Lebanon, it would offer equivalent conditions and would become a key destination for people to reside throughout the year, as well as visit to discover the richness of our ‘patrie’.

How many years have you been living in Monaco? What do you like best about living in Monaco that you can’t find in Lebanon?

I have been in Monaco for 18 years and have been greatly welcomed by its society and people. The special thing about Monaco is that it is a cosmopolitan city but also maintains certain traditional and conservative habits. With time, Monaco grows on you due to the warmth and care of its citizens.

If you had to choose between living in Lebanon and Monaco, which country would you live in?

I left Lebanon almost 30 years ago and I have lived across many continents and cities. Lebanon has and will always be home. Monaco is a great place to live, it offers my family the best conditions and continues to be a second stable home.

June 3, 2012 0 comments
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Economics & PolicyMonaco

The East floats into town

by Maya Sioufi June 3, 2012
written by Maya Sioufi

It is early May and the famous Place du Casino — wherein lies one of the world’s oldest gambling houses, the renowned Monte Carlo Casino — is overflowing with tourists. 

Californias, 911s  and Continental GTs line the casino entrance for tourists to gawk over and take the cliché Monte Carlo postcard shot beside overpriced luxurious wheels with the Monte Carlo casino behind: the ultimate photo of lavishness. 

The European sovereign debt crisis engulfing the principality’s neighbors does not seem to have reached Monaco, but the faces flocking to these alluring two square kilometers do seem to have changed, with Asian and Eastern Europeans tourists replacing Western European and American ones. 

A look at the recent financial results of the Société de Bains de Mer (SBM), Monaco’s biggest employer and the company behind some of the principality’s most prestigious assets, does not paint the same rosy picture as the Place du Casino. 

SBM is the main economic actor of the principality and its assets include fours hotels, among which are the famous Hotel de Paris and Hermitage hotel, five casinos, including the Monte Carlo Casino, 33 restaurants and bars, three spas and the legendary Jimmy’z night club, a celebrity hotspot. Being 70 percent owned by the state of Monaco and the ruling Grimaldi family, with the remaining stake listed on the Paris stock exchange, “the SBM and the state are almost one” says Bechara el-Khoury, consul of Monaco in Lebanon. 

As the financial crisis hit the pockets of tourists, the profits of the SBM reversed from 31 million euros ($39 million) in fiscal year 2006/2007 (ended March 31) to a 22 million euros ($28 million) loss for the fiscal year 2010/2011. Its stock price got hacked too, down some 50 percent from the start of the financial crisis. Year to date, it is down 10 percent (as of May 18). In response, the company reshuffled its management in November 2011, appointing a new chief executive who replaced the former CEO of nine years, creating a deputy CEO position and adopting a new strategy. 

Attracting new customers

Sitting at the cozy yet refined Bar American in the Hotel de Paris, Axel Hoppenot, marketing director at the SBM, talks through the new strategy, which aims to identify how to develop revenues and readdress the cost structure. He reveals that they have witnessed a pickup in activity so far this year. 

While the European sovereign debt crisis is still weighing on their results, Hoppenot is confident that the “engines of growth from the new markets will help the company overcome this difficult period.” He confirmed that there has been a focus on attracting new markets to Monaco, most notably focusing on Russia, Eastern Europe, Asia and the Middle East. 

To cater to the Middle East, the SBM opened a representative office in Beirut at the end of 2010, headed by Eric Bessone, from which the company aims to cover the region. According to Bessone, the role of the Beirut office is to present offers of leisure, business, and well-being from the 50 institutions of the Monégasque company. 

Currently, the Middle East accounts for approximately eight percent of their total hotel revenues and can reach up to 10 to 12 percent in the summer. The Middle Eastern clientele has increased in the past couple of years, adding some two to three percentage points, according to Hoppenot. He does, however, warn that this year will not be as solid due to Ramadan falling in the middle of summer. 

Bringing Monaco to Lebanon

The interest in the Middle East was most striking with the opening of Saadiyat Monte Carlo Beach Club in Abu Dhabi last year, SBM’s first venture outside of Monaco. 

“Today it is more complex to set up a business in European capitals as the entry cost is much higher, and because of quality control we can only set up in prime locations” says Hoppenot. “Abu Dhabi is, in the Middle East, one of our most important markets.” 

When asked if SBM was considering more investments in the region, Hoppenot stated that for now, given the economically challenging times, SBM is focusing on consolidating their current assets in order to ameliorate the quality of service. 

As for Lebanon, SBM has been focusing on bringing the glamour of Monaco closer to home. The aim is to “get closer to our guests and help organize ‘tailor made’ stays in Monte Carlo”, says Bessone. In 2011, SBM organized the exchange of DJs between Monte Carlo’s Jimmy’z and Beirut’s famed Sky Bar. This successful exchange will take place again this year. 

It also brought the Les Ballets de Monte Carlo’s “Cendrillon” to the Casino du Liban in November. This year, it organized the exchange of chefs between La Posta’s Maroun Chedid and Blue Bay’s Marcel Ravin, with two events occurring in April and May. 

“Many Lebanese love to visit Monaco and these events make them feel like they are in Monaco,” says Bessone, “at least for a night, until they visit again.”

June 3, 2012 0 comments
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Economics & PolicyMonaco

Monaco’s book balancer

by Maya Sioufi June 3, 2012
written by Maya Sioufi

The principality of Monaco, renowned for its glamour, its “beautiful people”, its Grand Prix and its luxurious yachts, also boasts the highest gross national income per capita in the world — some $197,460, according to 2010 World Bank estimates. To better understand the dynamics behind this economic model, Executive travels to the city state in Southern France to sit with Italian Marco Piccinini, Monaco’s Minister of Finance and Economy, at his offices atop the famous Rock, Monaco’s old town. 

Initially, however, Piccinini seems more interested in hearing about Middle Eastern politics, as he spends the first 15 minutes asking questions about the Middle East. “Sorry if I am the one interviewing you” he says jokingly. Married to a Tunisian with whom he has one child, he is curious to understand the dynamics of the region.

When the tiny principality recently revealed its 2012 budget, it forecast balanced books for the year ahead, an envious feat for European neighbors struggling to restrain raging deficits. With 833 million euros ($1.06 billion) in both revenues and expenditures, it will be a turnaround on previous years. 

“We have experienced some budget deficit after the crisis, but already this year we are essentially ‘budget balanced’ and we will be back to a surplus in one to two years, maximum” says Piccinini. Unlike some of his European counterparts, raising taxes is not on his agenda. Piccinini says the aims are “cutting costs, investing in areas with better returns, moving resources from what brings nothing to what brings more.” 

Trying to be modest

Monaco boasts a mild taxation system. Famed for charging no personal income tax, it has attracted many “tax refugees” to its appealing shores. It also offers a mild corporate tax system, charging corporations a 33.3 percent tax rate if more than 25 percent of their revenues are generated from outside of the principality; otherwise, the rate is zero. 

“People ask me, ‘is your model with mild taxation sustainable?’ It can happen, because we never deviated for political or ideological reasons from our three pillars” says Piccinini. The three pillars of the economic and social model of Monaco are to have zero sovereign debt, to run a reserve fund covering four years of budget expenditures and to have a balanced budget with a possible budget surplus. “Our aim is to try to have a surplus which can be put away for difficult days,” he adds. 

But while Monaco’s relatively low tax environment becomes more appealing for businesses to come and set up shop, Piccinini stresses that the principality is not trying to compete with other tax havens. “We see ourselves more as a gateway to Europe for non-European investors. Taxes can be one of the elements but not the only element,” he says. 

Even with its hefty banking sector (deposits in Monaco’s banks total some 19 times the size of its economy), Piccinini says Monaco has no aspirations of being a global financial hub akin to London or New York. “Let’s be humble. We cannot pretend to reproduce, in less than two square kilometers, what other financial hubs have produced; banking has been developing very well but we don’t want to become a financial hub which may be exposed to the uncertainties of this business.” The deposits in Monegasque banks in those two-square kilometers amount to a 78.4 billion euros ($100 billion) as of end 2010, the most recent consolidated figures available. That’s equivalent to 65 percent of the total deposits held in Lebanese banks. “It is the size of a small to medium sized bank. Our goal is not to increase assets under management. We want to remain a reasonably sized banking platform,” says Piccinini. 

Attracting the MENA region

The minister also eludes to Lebanese and Middle Eastern financiers beginning to wet their feet in the Monegasque financial fodder. Lebanon’s Audi Bank set up a branch in Monaco in January 2010 and Qatar recently acquired KBL, a Luxembourg-based bank with a branch in the principality. And the Middle East’s venture into the principality does not end at the banking sector. “We have Middle Eastern people from many businesses here. The tourism, banking, shipping and industry sectors are all pillars of Monaco’s economy and in many of these areas, Middle East nationals are very active. The Prince dedicates every year an official visit to the Middle East,” says Piccinini. As for investment, he says that Middle Eastern clients are mainly interested in investing in Monaco’s real estate sectors, in incorporating family offices in the principality and in having a base in Monaco, which becomes their gateway to Europe.  

Monaco seeks to remain “attractive as an overall destination by being an interesting hub for the [European] region and also a place where one can enjoy life,” says Piccinini. “That’s the attractiveness of Monaco”.

June 3, 2012 0 comments
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Seeded by neglect

by Zak Brophy June 3, 2012
written by Zak Brophy

In late May, Lebanon’s northern city of Tripoli erupted into deadly violence with the shockwaves eventually spreading south onto the streets of Beirut. By the time the politicians, generals and sheikhs had scrambled together some semblance of order, more than a dozen people had been killed and the stability of the nation was shaken to its feeble core.

The collapse in security was, of course, intrinsically linked to the unremitting uprising in Syria and the shaft that it drives through the opposing camps within Lebanon. However, generations of economic neglect and the more recent political estrangement of much of the north have helped lay the foundations for the unrest we see today. 

During the most recent fighting in Tripoli I spent a couple of days with the residents-cum-combatants in the staunchly anti-Syrian regime neighborhood of Bab El Tabbeneh. With his new high-powered rifle lying nearby — his last one had overheated and broken due to the intensity of the past days fighting — one of the men told me, “If there was an economy here, then we would not have all of these problems. If people had jobs and opportunities and a future then they would forget all of this. Why would we care for fighting? We would forget it all.”

In the poverty-ridden suburbs of Tripoli such as Bab el Tabbeneh it is hard to see beyond the bullet-scarred buildings, tired markets and rubbish-strewn streets. But step back and look a degree deeper and the decaying facades of beautiful Ottoman era buildings hint to a more prosperous past; Tripoli’s prized position as a major trading hub was quashed by the French in favor of Beirut, starting a decline within the city that continues to this day.  

Regardless of the political, religious or ideological slant of the fighters they all agreed, without hesitation, that they had been forgotten by the state. One of the men quipped, “There is nothing here and this has been an intentional policy to keep the people poor so they have to beg for money and then they become reliant.”

This is compounded by the disintegration in faith given to the traditional Sunni leaders within many of these communities (Tripoli is roughly 85 percent Sunni Muslim). Fighter Abou Wadih told me, “They are all liars. If I go and ask the politicians for help they offer nothing, only when there are elections will they give, and then once in power they go.” 

Prime Minister Najib Mikati may be a Sunni from Tripoli who enjoys a certain degree of support from the more affluent middle classes, but among the bitter and poor men bearing arms he is seen as a shrewd businessman and a political opportunist who has set up camp with their enemy, Syrian President Bashar al-Assad.

As for Saad Hariri, who inherited his father’s business and political empire but not his personal gravitas or political acumen, his standing has been on a downward slide since his humiliation at the hands of Hezbollah and their allies in 2008. “When they killed us he stayed quiet because he likes only his pen and his laptop,” said Abou Wadih. I think its fair to say that the lads on the front lines don’t pay much heed to Hariri’s oft-quoted tweets from his salubrious abodes in Riyadh and Paris.

Tripoli has always been a bastion of Sunni Islam in Lebanon but having been cut economically adrift without a political rudder, it is the Islamic institutions, and more specifically the ultra-conservative Salafi sheikhs, who have sought to fill the leadership void. Sheikh Salam al-Refai is a leading Salafi preacher in Tripoli who told me that the people were looking more and more to religious leaders like him for direction, although he assured, “we don’t want to play a political role.” But in the absence of the institutions and representatives of the state their leadership cannot be anything but political. 

It was the Salafi-led groups leading the protests against the security services’ capturing of Islamist Shady Mawlawi and, even if the fighters hail from a range of persuasions, it is from the Salafi mosques that decisions are made as to when the guns ring out in Bab El Tabbeneh. 

Generations of abandonment have made dry tinder of northern Lebanon as fires from Syria burn across the border. 

June 3, 2012 0 comments
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Real Estate

First sails to the wind

by Jeff Neumann June 3, 2012
written by Jeff Neumann

Power cuts several hours per day are a way of life in Beirut, and some rural areas of Lebanon go without electricity for upwards of 16 hours a day, every day. The irony, that a country which boasts a banking sector with deposits three times the size of its economy cannot produce mid-twentieth century levels of electricity for its citizens, is lost on no one. And yet nothing has been done to address the problem. Talk has ranged from leasing offshore electricity barges from Turkey, to importing thousands of megawatts (MW) of electricity overland from Iran in order to bridge the enormous gap between consumer demand and supply on hand.

Experts estimate that demand for electricity in Lebanon will reach 4,000 MW in less than three years. Today, the country produces only around 1,500 MW of electricity, while at peak times around 2,500 MW is actually needed. As a net energy importer with an outdated and ramshackle power grid, Lebanon must get creative.

One significant part of the solution could come from wind turbines. Early last month, a company called Hawa Akkar officially launched a wind farm project for north Lebanon that it says will eventually contribute 60 megawatts of electricity to the national power grid. 

But the biggest hurdle for the project is, perhaps unsurprisingly, the Lebanese government. Electricity generation cannot be privatized in Lebanon because the law has not been implemented yet. That means the state-run institution that everyone loves to hate, Électricité du Liban (EDL), will maintain its power monopoly into the foreseeable future.

New wind beneath the wings

The Hawa Akkar plan calls for twenty wind turbines to be spaced out along a north-south ridge line that tops out at 800 meters high near the town of Machta Hammoud in Lebanon’s northern Akkar region. Akkar has long been neglected by the government in Beirut, and many local officials see this wind farm as the potential start of a new era of prosperity for the region, creating jobs and spurring outside investment. “The people of Akkar are fed up with power shortages” and want the government to act, says Najji Ramadan, mayor of Machta Hammoud. 

If Hawa Akkar’s ambitious plan stays on track, the wind farm will be fully operational by early November 2013.

The proposed site of the Hawa Akkar Wind Farm can be compared to several current locations along southern Europe’s Mediterranean coastline. In terms of topography, average annual temperature and vegetation cover —all of which factor prominently into the harnessing of wind energy — the closest comparison would be Portugal’s Candeeiros wind farm. Its 37 wind turbines, the same model that would be used by Hawa Akkar, together produce 111 MW of power.

Hawa Akkar has teamed up with Spanish wind turbine producer Vestas for the venture, but the project remains 100 percent Lebanese-owned. The current plan for Machta Hammoud calls for 20 turbines. These are the V90 3MW model — each capable of producing 3 MW, enough to power some 60,000 homes across Lebanon. The total cost of Hawa Akkar is expected to reach an estimated $100 million.

General manager of Hawa Akkar, Albert Khoury, also the deputy general manager of E-Aley, an electricity concession that distributes electricity to the district of Aley, is passionate about the benefits of bringing the first wind farm to Lebanon: “We know this can happen, and will continue to push until it is done. We have so much support [in the government and private sector] and we are closer than we have been since the idea first came about.” He says the plan was initially discussed in 2008, and a measurement campaign began in Machta Hammoud in July 2009.

More than electricity

Along with Mayor Ramadan, Khoury points to the knock-on effect that a wind farm would have on the area. “Hawa Akkar has the potential to produce hundreds of jobs in the area,” he says, citing everything from the dozens of employees required to maintain the project, to an increase in tourism for the area, meaning new hotels, restaurants and improved roads and infrastructure for the local population.

Khoury says the government’s reaction has been “very positive,” but he hopes it will turn its words into action soon. A spokesperson from the Ministry of Energy and Water (MoEW) declined to comment on the likelihood of Hawa Akkar gaining full approval from the government, but did say the ministry is “studying all aspects of wind energy production, including Hawa Akkar.” The MoEW’s 2010 Policy Paper for the Electricity Sector looks to produce 60 – 100 MW using wind power, stating that the ministry will “complete a wind atlas for Lebanon and launch Independent Power Production wind farms with the private sector.” The cost of producing 60 MW was estimated at $117 million, almost 20 percent higher than Hawa Akkar’s proposal. 

In January of last year, some 18 months after the Policy Paper was released, the United Nations Development Programme and the Country Energy Efficiency and Renewable Energy Demonstration Project for the Recovery of Lebanon (CEDRO) drafted a National Wind Atlas of Lebanon. 

At last year’s Copenhagen Climate Change Conference, Lebanon pledged that by 2020, 12 percent of the country’s energy needs will be met from renewable sources, such as wind farms and thermal power plants. Given the sensitivity of the energy sector in Lebanese politics, and the inevitable stalling and bickering that goes along with it, that target date may be overly ambitious. 

And it is not only a decrepit power grid that is keeping Lebanon in the dark. Last month, EDL last month claimed that political violence and instability in north Lebanon, “resulted in stopping the maintenance works on the first gas turbine at the Deir Ammar power plant,” and that 200 MW of power would be lost from the national grid. Akkar can be volatile, as events this year have proven.

According to Steve Sawyer, secretary general of  Global Wind Energy Council, a lobbying group, “There is almost always resistance from the grid/system operators to doing something new.” Speaking in general terms not specific to Lebanon, Sawyer says, “typically, 10 to 15 percent wind power capacity can be added [to a national grid] without substantial modifications and relatively minor operational ones. Higher penetrations generally require more substantial modifications both in terms of the infrastructure and the management.”

Khoury emphasizes that the plan is not for Hawa Akkar to compete with EDL or any potential private electricity distributors in the future, but rather his company only intends to “contribute” to the national supply of electricity, whether by generator barges or overland imports.

Forecasts for the future

For two years now, since the Policy Paper for the Electricity Sector was released, the MoEW has claimed that “the legal framework for privatization [law 462] … exists but is not applied.” Statements like this only fuel public cynicism.

The thought of not having to pay for daily access to a generator during rolling power cuts seems far fetched today. But if plans such as Hawa Akkar Wind Farm, or other renewable sources of energy production come to pass, 24-hour electricity across Lebanon could become reality. While the Hawa Akkar Wind Farm plan is ambitious, it will only provide a fraction of Lebanon’s energy needs. But it could be a start and, if successful, will encourage other private companies to follow the same route toward a more energy independent Lebanon. And it is quite simple, as Mayor Ramadan says: “We not only own the land, but we own the energy, too.”

June 3, 2012 0 comments
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Bulldogs beneath the carpet

by Daniel Harris June 3, 2012
written by Daniel Harris

Winston Churchill once said that watching the Kremlin was like watching two bulldogs fight beneath a carpet — outsiders have little idea what is going on until the bones of the loser fly out from beneath. These days much of the same could be said of politics in Tehran.

Although his bones are still intact, Iranian President Mahmoud Ahmadinejad has taken a severe beating recently as a result of his ongoing, byzantine dispute with Supreme Leader Ayatollah Ali Khamenei. While rifts between political factions in Iran are well documented, this particular conflict illustrates the reality that the supreme leader and those around him are resorting to increasingly drastic measures to snuff out political pluralism in the Islamic Republic, and that the fallout with their erstwhile neoconservative allies will have far reaching repercussions for Iranian politics in the future.

The split between the conservatives and neoconservatives occurred after the latter emerged as a political force in the 2005 presidential election. Behind Mahmoud Ahmadinejad, their message of economic populism, revolutionary zeal, and puritanical moralism struck a chord with the traditional conservatives looking for an ally against the reformist movement. Ahmadinejad found popular support by promising to root out corruption and redirect Iran’s oil revenue to the country’s poor. 

But now the neoconservatives are in serious decline. 

Three events illustrate this trend. The first is the trouncing they suffered in the recent parliamentary elections. Conservative members of Parliament now dominate the Majlis (the Iranian Parliament) and are incensed at what they perceive as the president’s lack of respect for parliament, exemplified recently when Ahmadinejad came before the Majlis to answer questions and instead mocked the MPs and cracked jokes. The Majlis is so hostile to the president that some conservative MPs have called for his impeachment. 

Secondly, Ali Larijani was re-elected as Speaker of the Majlis. Larijani is an outspoken critic of Ahmadinejad from the conservative camp and is seen as close to Khamenei. He is well placed to frustrate Ahmadinejad’s last year, and is also well placed for the presidential elections in 2013. 

Thirdly, Khamenei re-appointed former president Rafsanjani as head of the Expediency Council, a religious supervisory body. Rafsanjani is also a rival of the president, and was not expected to retain his post because of his soured relationship with Khamenei. Even if he is at odds with the supreme leader, Rafsanjani’s presence in the government will keep pressure on Ahmadinejad’s administration and strengthen Khamenei’s network of supporters, even if he doesn’t like him very much. 

These events, in addition to Khamenei’s surprise statement last year in support of the idea of abolishing the presidency altogether, will weaken Ahmadinejad at the end of his term. Yet he remains defiant, and will likely continue to press his policies, try to limit Khamenei’s influence and try to position his allies to propagate neoconservative influence. Regardless, he will find this difficult in the face of the setbacks he has suffered. 

That Khamenei mooted the possibility of eliminating the position of the presidency is significant. It says that essentially the conservatives are willing to bring back the position of prime minister, elected by the Majlis, as a replacement for the president, who is directly elected. Khamenei and his camp see the presidency — a position the previous supreme leader sought to empower in the late 1980s — as a liability. The last three administrations have not been sufficiently amenable, and it is not clear if the conservatives have a candidate able to win by direct vote from the people. Therefore, since they have been able to exert more influence over the Majlis through their members on the Guardian Council — which interprets the constitution and approves MPs — having a prime minister instead of a president would mean more conservative control. 

With the decline of the neocons, the conservatives now are moving to maintain their control over the republican institutions of the government. They do not want a repeat of Ahmadinejad. Eliminating the presidency would aid them in this, but it remains to be seen if they will pursue it before the next presidential election in one year’s time. Either way, they will likely try to limit political pluralism and increase the checks and balances on the electorate. Their experience with the neoconservatives has taught them they can’t even trust their friends, and so now they are loath to leave anything to chance in the future.

June 3, 2012 0 comments
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Real Estate

Hoping good fences make good neighbors

by Jeff Neumann June 3, 2012
written by Jeff Neumann

At first thought, a new 10,000 square-meter gated community might seem like the last thing an already overcrowded Beirut needs. But the forthcoming Bella Casa, by MENA Capital, takes a different approach to sequestered living. Instead of avenues lined with cookie-cutter tract homes, Bella Casa will feature three residential towers of small and medium-sized apartments, spacious lofts and penthouses, while leaving roughly 8,000 square meters for communal space.

Nabil Sawabini, chairman of MENA Capital, says: “When we started about five years ago, our focus was on the high-end market because there was a genuine demand for that kind of product.” Times have changed, he adds, and buyers are now looking for smaller, more practical living spaces: “We started to notice just over a year ago that there was a shift towards medium to smaller-sized apartments, and the shift was principally because the price-per-square-meter went up considerably. People simply could not afford the larger apartments anymore.” 

According to Sawabini, the current plan calls for MENA Capital to break ground this month near the Adlieh roundabout in Ashrafieh, with delivery expected in the summer of 2015.

Financing

Bella Casa is funded principally through a MENA Capital investment vehicle, Signature Properties. There are co-investors for 20 percent of the project, with the remaining balance — some $8 million to $10 million — financed by Bank Audi for the purchase of the land.  

“Normally we do not pursue a project unless we [have sold] a minimum of about 20 percent of the project,” Sawabini explains. “By selling that much up front, we insure that there is marketability. And by doing so we reduce the funding requirements for the project and the risk involved. Once you go over the 50 percent mark the bank becomes very heavy handed. They can then dictate the terms [of the project].”

In addition to the land purchase, Bank Audi was also brought on board to provide mortgages to buyers. Sawabini says the plan is for Bella Casa to remain “affordable” to potential homeowners who have “high standards of living” but perhaps cannot, or simply do not wish to, live in downtown Beirut.

MENA Capital’s vision of Bella Casa is one of a wide range of options for buyers. There are one, two and three-bedroom apartments, as well as lofts and penthouses, but perhaps the most significant part of the design is the focus on communal green spaces.

Located “literally minutes from Ashrafieh and Downtown Beirut,” Sawabini says, “We started thinking of doing something that is accessible, good quality, tasteful in terms of design, and with the amenities that people truly want when they live in the city and, in many cases, that are lacking right now. 

The thinking was, “what areas of Beirut could possibly accommodate something like this?’”

Sawabini boasts that Bella Casa, while less expensive than some other properties in the area, will use “premium” materials usually reserved for the higher end of the market.

Running tracks, two swimming pools, a gym and playgrounds for children will take up much of the land allotted for residents’ use. “It just doesn’t make sense to fill an 8,000 square-meter lot with concrete,” Sawabini says, adding, “you have to build vertically.” The footprint of all three towers combined will be between 1,500 and 1,600 square meters.

And to stay in line with the global push toward greener building practices, Bella Casa will use the latest environmentally conscious technologies for waste management and heating. 

Of course, it is all speculation that there is a place in a crowded Lebanese market for a massive new gated community on the outskirts of Beirut. But if MENA Capital’s ambitious plan is a success, it could usher in a new era of smaller, self-contained communities here. 

Whether or not that is necessarily a good thing — in terms of the general sense of community more organic neighborhoods here typically have — remains to be seen.

June 3, 2012 0 comments
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Comment

The tribal curse

by Farea al-Muslimi June 3, 2012
written by Farea al-Muslimi

Perhaps most of Yemen’s problems, if properly addressed, could be resolved within a short or medium timeframe — that is, except for the issue of tribes. Nothing in the country is more complex than its tribes. Even if not immediately apparent on the surface, tribal connections influence almost every aspect of Yemeni society and interaction, and lay the framework sustaining many of the country’s other problems.

The tribal system has existed in Yemen for thousands of years, but never quite in as problematic a form as it does now. Historically, the sheikhs that led the tribes represented the interests of their people before the national government, a setup that made practical sense given Yemen’s rugged geography and remote communities. Today, however, the focus of most sheikhs has turned to using their positions to concentrate wealth and power for themselves and their families. These tribes have, in many ways, replaced the role of the state, and become mini-states inside the state. A tribal sheikh acts as businessman, contractor, judge, lawyer, governor and every other type of bureaucratic functionary for his people. Some even have their own prisons for those who would disobey their tribal rule of law.

Economically, the impact has been terrible. Yemeni economists have estimated that 80 percent of the country’s income goes to a 2 percent segment of the population, with tribal sheikhs being among the most powerful of these elites. Having more than one salary from different government agencies, Yemenis even joke that some sheikhs get salaries as martyrs even if they are living. 

Though still a problem in Southern Yemen, the power of sheikhs is weaker there, given that it had been curbed during the communist years before the 1990 reunification. The north, however, is a mess, where, since Yemen’s revolution in 1962, the power of the tribes has been continually shifting. When former President Ibrahim al-Hamdi tried to enforce the rule of law and weaken the sheikhs’ power in 1977, he was assassinated. Recently deposed President Ali Abdullah Saleh took a very different approach during his three-decade rule, empowering the sheikhs and legitimizing his rule with tribal support, while fueling wars between those tribes that challenged him.

The so-called “war on terror” is only complicating the issue, with the West allying with tribes to fight Al Qaeda in Yemen. Western cash and support is now a new source of wealth and corruption for tribal leaders, and has been counterproductive in terms of counter-terrorism. If the existence of Al Qaeda is bringing you money, would you really try to kill them off?

For the last few decades, Yemeni tribal leaders have also had monthly salaries from regional powers; from Saudi Arabia to Iran, Qatar and even from Libya’s Muammar Qaddafi, cash poured in. It was as if tribal leaders were saying to Saleh: “You get paid by the Americans, we get paid by others.” Some were even getting paid by two opposing countries at the same time and working to achieve both agendas, such as Libya’s and Saudi Arabia’s.

In April, the Yemeni Parliament tried to pass the annual budget, including $60 million for the tribal sheikhs. This incited rage around the country, especially among the youth who still occupy many of the city squares around Yemen. This amount was actually only a small portion of what sheikhs used to get from the former regime every month as a guarantee for their loyalty to Saleh. For the first time, Yemenis spoke publicly against this practice, and prime minister himself went into the street and promised not to pay the sheikhs. In response, the sheikhs held a national conference, condemning the prime minister and accusing him of trying to “explode a crisis in the country.”

At the same time, international humanitarian organizations and Yemeni government were begging the world to fund the $262 million shortfall in funding for humanitarian crisis response operations in Yemen; more than 1 million children suffer from acute malnutrition and more than 10 million Yemenis do not have enough to eat, according to the director of Save The Children in Yemen, Larry Farrell. Yet while humanitarian aid organizations call on the world to save Yemen from a catastrophe, and the World Bank warns of Yemen running out of oil to fund itself, both of them seem to overlook the millions of dollars still being funneled to the tribal sheikhs — money that could go a long way in help Yemen feed its own children and solve its own problems. 

June 3, 2012 0 comments
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Finance

Doors close across the border

by Paul Cochrane June 3, 2012
written by Paul Cochrane

Lebanese banks with operations in Syria are caught between the proverbial rock and a hard place. The uprising that kicked off last spring has forced banks into survival mode as the Syrian economy has weakened and profits have been slashed. Some banks have considered exiting the country, expansion plans have been put on hold, and all players have set aside millions of dollars in provisions.

While Lebanese bankers are used to operating in crisis mode, the international sanctions against Syria — by the United States, the European Union and the Arab League — have presented further operational challenges and the specter of reputational risk. Although Lebanese banks are not legally obligated to comply with the sanctions — and operations within Syria are essentially unaffected — the sector has pledged to do so. The US Treasury in particular has breathed heavily down the necks of Lebanese bankers to comply with the sanctions and for Lebanon to not be a conduit for Syrian cash.

Such internal and external pressure has impacted the bottom lines of the seven Lebanese banks with Syrian affiliates, both within the affiliate itself and at group headquarters in Beirut. For while Lebanese banks only entered Syria from 2004 onwards, the market was under-banked and ripe for growth, with the banks attracting $6.79 billion in aggregate assets by the end of 2010.

“Before the uprising the banking sector was on a fast track and expanding throughout Syria. Profits were good and it was a virgin market that needed everything,” said Samih Saadeh, managing director of Banque Bemo, which has a stake in Banque BEMO Saudi Fransi (BBSF) in Syria.

At the end of 2011, aggregate assets had dropped by 17.2 percent to $5.8 billion. As Saad Azhari, chairman and general manager of BLOM Bank put it, “Syria was the (sector's) second most important market after Lebanon.”
The pull of gravity
Indicative of the impact of the uprising on the banking sector is BLOM's affiliate, the Bank of Syria and Overseas, where loans to Syrians dropped 60 percent over the past year, from $650 million to $250 million. As Jihad Yazigi, editor of the financial publication, The Syria Report, remarked: “Nobody is investing, nobody is spending, and companies are closing. Whole areas are out of business entirely. I think gross domestic product will decline 10 to 12 percent this year.”

To cover bad loans and banks’ exposure, provisions are being hastily put aside (see table). “All Lebanese banks are taking profits as collective provisions,” said Alain Wanna, head of Group Financial Markets Division at Byblos Bank. “In Syria the decision was for all profits made in Syria to act as collective provisions, as we don’t know how long (the instability) will last.”

Financial Safety Valve
Last year, Bank Byblos Syria's profits slumped 26.8 percent to $3 million. Wanna conceded that internally, the bank's management discussed exiting Syria on several occasions, but in the end decided to reduce its exposure to the country.

Most affected by the Syrian crisis has been Bank Audi Syria (BAS), with profits down 83.20 percent to $2.1 million, attributed to problems with their portfolio (BAS' management turned down Executive’s interview requests). Less affected have been the newcomers, BLF's Al Sharq, First National Bank's Syria Gulf Bank, and Fransabank Syria, which saw profits, assets and customer deposits actually increase. BLF's general manager, Walid Raphael, put Al Sharq's 72.2 percent growth in assets, from $161 million in 2010 to $284 million in 2012, down to its recent start and a focus on commercial rather than retail banking, adding a new branch that opened in May. However, that has been the exception rather than the norm.

BBSF, the largest private bank in Syria with 40 branches, has put on hold plans to open three new branches in Damascus and one in the conflict-ridden city of Homs. “We are not looking for more business, but our strategy is to stay there and no branches have closed except in the hot areas,” said Saadeh. Profits at BBSF dropped 1.2 percent last year, to $11.8 million, but in the first quarter of 2012, with BEMO holding 22 percent of BBSF and profits down, the Beirut arm “got zero,” said Saadeh, which negatively impacted BEMO's net profits, dropping 53.57 percent on the first quarter of 2011, to just $1.45 million.

Causing further headaches for the sector was a requirement by the Central Bank of Syria (CBS) initiated prior to the uprising, for banks to increase capital from $100 million to $200 million. “There was a list of banks and a schedule for each to reach (in phases),” said Byblos’ Wanna. “Ours was in August last year. We tried to negotiate with the CBS to say the balance sheet was down but they insisted on the increase.” Currently Byblos Syria’s capitalization is $120 million for a balance sheet of $700 million. BBSF has also reached the first phase of the higher capital requirements.
Looking ahead
The banking sector has proved remarkably resilient in the face of the conflict. The limited run on the banks last spring by depositors was a “panic move,” said Saadeh, while deposits and withdrawals have “balanced out” since then. Bank share prices on the Damascus Stock Exchange (DSE) have also not plummeted as some might have expected, although they have been somewhat artificially salvaged by only 3 days of trading  a week, and stock only being allowed to decline by just 1 percent a day and increase by 5 percent. Nonetheless, the DSE has slumped by 40 percent since the uprising broke out, according to figures released by the International Monetary Fund.

Cross Border Performance

Summing it up
“We’ve not seen any banks go under in Syria yet, and that is a positive thing. People haven't withdrawn all their money and I see it as a stabilizing factor,” said Ayham Kamel, a Syria expert at risk consultancy firm, Eurasia Group, who formerly worked in the Syrian financial sector.

Yet with the economy expected to contract further this year, more sanctions slapped on Syria by the EU in May — including on the CBS governor Adib Mayaleh — and operational costs higher due to the crisis amid a slump in business, the outlook for Lebanese banks in Syria could not be described as peachy.

“There is a risk for Lebanese banks at some point, as I'd expect them to hit the red zone and become unprofitable,” said Kamel. “To me, it is not a question of if but when, given the current trajectory in Syria. They are going to find it very hard to manage the books and have profitability towards the end of the year or in 2013.”

 

This article was published as part of a special report in Executive's July 2012 issue.

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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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