Executive Magazine

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

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

Economics & Policy Monaco

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

Economics & Policy

Executive Insight – Making the most of Lebanon’s resources

by Malek Takieddine June 3, 2012

written by Malek Takieddine

In its drive to become an oil and/or gas producing country, Lebanon currently faces the challenges of establishing and implementing a sound regulatory framework and an effective Petroleum Administration, the sector’s (supposedly) independent regulatory body.

Some of the most crucial aspects of the required system include creating farsighted mechanisms that will first prevent the occurrence of a number of problems that are commonly encountered in hydrocarbon producing provinces, and second, equip the Lebanese government with sufficient powers to address such problems swiftly and efficiently as they arise throughout the development of the upstream oil and/or gas industry in the country.

National vs. IOC interests

Arguably one of the worst oversights that can be committed by the early drafters of oil and gas legislation is the assumption that International Oil Companies (IOCs) would be always seeking to diligently explore their acreages in search of hydrocarbons, and that once they have found oil and/or gas, they would be eager to exploit it effectively and quickly.
Experience around the world shows that not long after licenses are granted or discoveries are made, some areas are often left to lay fallow and national governments discover that they do not have adequate powers to impose work obligations on the IOCs. As a prominent observer of the United Kingdom offshore licensing regime once noted, “the idea that licensees might make significant discoveries but then not develop them does not appear to have occurred to those who first drafted the offshore licensing arrangements in 1964/1965”.

In the UK, for example, rigorous state action was needed to address this problem and the government had to undergo the complexities of enforcing a “voluntary” scheme in order to rectify the situation of fallow areas and discoveries. The result was a shy governmental process that raised some concerns about the legality of such measures.

The efforts undertaken so far by the Lebanese government in drafting the offshore hydrocarbon legal framework suggests that the country is slowly making steady progress in the right direction. It is imperative to continue along this positive trajectory by appointing a Petroleum Administration that can play an effective role in monitoring, at a close distance, the petroleum operations to be undertaken by the IOCs.

Foresight needed

It can be also predicted that, in light of the current position of the Lebanese economy, the mere discovery of commercial oil and/or gas reserves would understandably be interpreted as a promising sign of future wealth, regardless of the quantities that would actually be produced.

Yet, once the initial joy of the first few barrels fades away, the Lebanese government must be well prepared to monitor the efficiency of its production and to make sure that its licensees are conducting their operations using the best practicable standards and methods to ensure acceptable recovery levels out of each reservoir.

The technical expertise and skills of the licensees (the operators) usually play a crucial role in determining the levels of recovery (i.e. how much oil and/or gas could be practicably produced).

For instance, a 70 percent oil recovery from an oil reservoir is considered to be a high percentage as it is almost impossible to extract entire reserves of any particular reservoir due to the constant reduction of pressure and the interference of other factors, such as oil density and depth of the reservoir, amongst others.

Countries such as Saudi Arabia are constantly aiming to increase their investments in enhanced recovery technologies, as they recognize how vital this is in order to boost recovery rates at their reservoirs from around 50 percent to 70 percent.

Once again, the Lebanese regulator must ensure that the government’s powers under any exploration and production agreement offer useful mechanisms for pushing the licensees towards more efficient recoveries, that is to say better stewardship.

In due course the government must put in place adequate mechanisms whereby field activities would be surveyed (preferably on a yearly basis) to determine the performance of each licensee (operator).

A process to deal with underperforming fields must also be decided. Such a process could, for example, include an initial consultation exercise between the government and the licensee (operator) to study possible ways to enhance stewardship. A set of targets could thereafter be agreed in conjunction with a clear and firm set of sanctions.

Failure to address certain crucial issues in the initial text of petroleum regulations and agreements could have disastrous consequences on the national interest and result in huge resources being lost or at least deferred.

Effective revenue management

In addition to operational efficiency, an important matter that Lebanon must consider is the efficient management of its hydrocarbon revenues. Hydrocarbon resources are known to inject considerable financial revenues into state accounts. These revenues would usually have two main characteristics: one, they are likely to constitute a large percentage of the total yearly revenues of the state; and two, they are temporary.

As a result, several unfavorable consequences could be noticed in the national economy:
(i) Inflation due to the sudden increase in money supply.
(ii) An occurrence of the Dutch Disease, meaning the depreciation of the productive sectors as they becomes less competitive due to the oil-related increases in exchange rates.
(iii) An unstable budget balance due to the volatility of oil prices.
(iv) A decrease in income when the resources of the province begin to decline.
As part of the economic strategies that governments undertake to surmount the above challenges, national oil funds are often created by governments to accumulate and manage part of, or the entirety of, the state’s oil and gas revenues. In total, close to 20 petroleum-producing countries are known to have established national oil funds.

The specific purposes of such funds varies between countries; for instance, Norway’s aim is to use its fund to stabilize of the economy and to secure a steady income for future generations, even after the resources dry-up. Russia, however, does not give priority to saving for future generations and the purpose of its oil fund is, according to Vasily Astrov, an economist at the Vienna Institute for International Economic Studies: “reduce the vulnerability of the state budget to the volatility of world oil prices,” and to sterilize “the impact of oil-related foreign exchange inflows on the money supply and inflation.”

To Lebanon’s credit, the Lebanese Offshore Hydrocarbon Resources Law provides a clear provision that state hydrocarbon proceeds shall be injected into a sovereign fund.

The strategy shall be to keep the capital and part of the proceeds in an “investment fund for future generations”, while using the remaining funds to “guarantee the rights of the state and avoid serious, short or long-term negative economic consequences”.

In theory this is an excellent provision, however, the practical benefits thereof shall be largely affected by the seriousness of the special law that needs to be enacted by the Lebanese parliament to define the management structure of the sovereign wealth fund, and its investment principles, not to mention the effective implementation of such law. A close eye should be kept at how the Lebanese authorities will perform in the coming years in this respect.

Worthless oil and gas?

Indeed, some critics may argue that Lebanon’s oil and gas resources would be worthless to the country if they are badly managed and exploited. As the coming decades will show, the true worth of these ‘valuable’ resources will come down to the ability of the Lebanese authorities to manage this industry with high technical capabilities, foresight and transparency.

June 3, 2012 0 comments

Finance

Forcasts: Lebanon’s new normal

by Nadim Kabbara June 3, 2012

written by Nadim Kabbara

Robust economic growth in Lebanon came to a halt last year as domestic political uncertainty and regional turmoil took their toll on key sectors such as trade, tourism and real estate.

This year is not shaping up to look much different as challenges translate into weaker bank profitability: slower capital inflows will moderate asset funding, softer trade and loan activity will impact fee generation, and regional unrest will drive loan loss provisions in subsidiaries that were meant to be the engine for growth.

This subdued level of profitability for Lebanese banks could represent a ‘new normal’ in the near term. Management teams are prudently placing their expansion plans on hold in order to preserve balance-sheet quality in the face of slower economic activity, heightened political uncertainty and an increase in regulatory capital.

This new normal contrasts with previous years during which the banking sector nearly doubled its profits, from $850 million in 2006 to $1.6 billion in 2010. This was possible by sidestepping the global financial crisis, attracting significant financial inflows and stockpiling record reserves at Banque du Liban (BDL), Lebanon’s central bank, all of which boosted Lebanon’s reputation back to the forefront of regional financial centers.

However, slower profit growth could influence the lending behavior of commercial banks, as well as their participation in government debt auctions and their redeployment of capital aimed at maximizing shareholder returns. It is unlikely, though, that there will be a material shift away from the existing business model, which has worked well for years.

The public sector will continue to finance its fiscal deficits with more debt, outside of enacting much needed reforms. BDL will continue to influence deposit rates to ensure that Lebanon attracts financial inflows, and will seek to reduce its intervention at treasury auctions. And banks will continue to participate at government auctions, at the very least maintaining their concentrated sovereign exposure.

Ultimately, the banking sector needs an avenue in which to continuously invest its excess liquidity; with a near-zero international benchmark rate in the interbank market, moderate private-sector demand and regional turmoil seen impacting asset quality in related subsidiaries, they don’t have many options left on the table.

With several headwinds on the horizon, the case between the banking sector, the Ministry of Finance and BDL is likely to be strengthened further as each major party shares a responsibility to maintain a healthy economy and a resilient banking sector. We have seen a concerted effort earlier this year on shorter-term local currency treasuries, which were auctioned at higher rates to ensure bank subscription, following the International Monetary Fund’s recommendations, but these higher rates were not enough to make up for the reduction in profit growth.

With tighter bank regulations, slower banking deposits, higher provisions caused by regional unrest, and cautious management focused on preserving asset quality, profitability for the banking sector could remain lackluster for now.

Although investors may have over-penalized the banks, judging by their very weak stock market performance on account of turmoil in Syria and Egypt, they will need to contend with a lower growth profile and less appetizing dividend payouts once visibility improves and their growth plans are back on track.

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

June 3, 2012 0 comments

Society

A Passion for Adventure

by Executive Staff June 3, 2012

written by Executive Staff

The story of Kuwait-based telecommunications operator Zain is a corporate lesson worthy of attention. The company grew by leaps and bounds for seven years, until in 2009 it became an Arab model in profit building, branding and positioning in the top tier of telecoms operators worldwide. “A Passion for Adventure” narrates this story from the perspective of Saad al-Barrak, who led the Zain team during that time.

A fluid read, the book will be most rewarding for anyone fascinated with telecommunications in this region and for students — in a wide sense of the word — of the Arab management experience.

Parts of the book that convey details on the acquisition of African network Celtel and on the creation of the Zain identity out of boringly named predecessor Mobile Telecommunications Company (MTC) were page turners. It is information of record that MTC paid $3.36 billion for Celtel and that South African rival network MTN, feeling duped at being bested by MTC, tried to have the agreement revoked in the courts. But the narration on how MTC reevaluated their too-low bid and turned the table in their favor by making an unsolicited higher offer in the last minute, is fresh and certainly worth reading.

Some parts of Barrak’s rendition of the Zain story — such as recollections of how this or that capable individual joined the team — might appeal more to the people who were part of the journey. Where the narration covers Iraq’s invasion of Kuwait and in a few other places in his book, the author cites sources for context that feel like alien additions sourced from a newspaper archive, rather than organic parts that belong.

More interesting to read was an earlier part of the tale in which Barrak recalls how he felt and responded when he was offered a position far beyond his experience and imagination by his first employer, International Turnkey Systems (ITS), a Kuwaiti ICT vendor and systems integrator for banks and other corporate clients. His recollection of how he was supported by the owners of ITS, whose company was bleeding money for needless expenses, offers worthwhile insights into Arab corporate culture.

From his testimony about the rise of Zain, it is evident that Saad al Barrak is a fortunate man. He started his career in leadership at a moment of opportunity and his decisions of expansion, branding and community building came at the right moments, benefiting from an age when all circumstances favored an operator combining a rich war chest with a daring growth ambition.

Barrak’s perception of Zain’s acheivements was poignantly illustrated when he told Executive, “It was Zain that got all these people inspired to move and become international companies and as Zain has stopped, everybody else has stopped, right? That shows the leadership and pioneering and inspirational role that Zain played in the region.”

“These people” refers to Arab telecommunications operators like Saudi Arabia’s STC and the United Arab Emirates’ Etisalat, which indeed embarked on international expansions after the Kuwaiti operator.

There is no payback chapter tearing into the details of Zain’s partial dismantlement, only a very positive interpretation of the process that saw the company’s top international assets sold to Indian operator Bharti in mid 2010. People looking for angry testimonials or hard forensic analysis of that part of the Zain story will not be satisfied.

The inner core of Barrak’s tale, however, is not the growth and wane of Zain but his view on management, epitomized in his sentence: “The best of plans and strategies are the ones extracted from the hearts and minds of your people, or inculcated in the hearts and minds of your people.”

In narrating these views, he states his case for “preaching a new business and economic ideology… which is part and parcel of our universal, open philosophy — an all-encompassing philosophy considering the universe as our homeland and humanity as our tribe.”

Readers may regard this new business ideology to represent an incremental enhancement of management concepts rather than a total reinvention of the art of management. But it is in any case a notable Arab contribution and perspective on leadership. There cannot be arguing that such contributions deserve to be heard. As Barrak said, “We need inspiring examples from our region and this is what we tried to do in Zain.”

June 3, 2012 0 comments

Society

The Formula One family car

by Yasser Akkaoui June 3, 2012

written by Yasser Akkaoui

Ferrari has been on something of a new trajectory in recent years, and to get the word out on how things have been shaping up for the automaker, Executive was invited on an all-expenses-paid, one-day trip to the Modena province of Italy to sit with company officials, tour the Ferrari factory and test drive the new 2012 California model.

The company’s course of late could be seen as an assault on the turf of rival Porsche. In the 1990s, the German luxury carmaker made strategic decision to position itself as the manufacturer of the racecar one can also drive to the grocery store and pick up the kids with — magnificent engineering and performance potential paired with practical, everyday sensibilities.

First launched at the 2008 Paris Motor Show, Ferrari’s California was an offering of a similar genre, aiming to attract customers who might otherwise have been looking at a Porsche 911 Turbo, a Mercedes SL or even the Bentley GT. The four-seat, eight cylinder California was intended not only for those dazzled by the Ferrari brand, the curving lines of beauty and Formula One racing capabilities, but also those who want to throw their gym bag in the front and look good with the soft-top down on their commute to the office; the sort of versatility Porsche has made its hallmark.

If you’d fallen for the California in 2009, however, you might hardly think a square inch of her has aged in the 2012 model. Indeed, Ferrari has kept the appearance of the California almost exactly the same, instead focusing the evolutionary process on the DNA of the automobile, honing the mechanism inside the machine. The new model is 30 percent more fuel efficient, which helps to rebalance the environmentalist’s guilt-pleasure ratio when flying down the highway with 40 more horsepower and 30 less kilograms. That improved weight-to-power ratio has also trimmed 0.2 seconds off of the zero-to-100-kilometers-per-hour acceleration time — in the 2012 California, one can go from a dead stop at the lights to the highway speed in 3.8 seconds, bringing it equal to the Porsche 911 Turbo in the race to accumulate speeding tickets most rapidly.

Among the many other less apparent improvements are the software upgrades, new pistons and manifolds. A new body structure redistributes impact and shock absorption, improving one’s chances of walking away if, by chance, one were to blink or sneeze while rocketing towards the sound barrier and miss that hairpin turn. And while one’s insurance broker would likely have to cover the cost of removing your California from the crater in someone’s living room wall, for almost everything else, call Ferrari, as the company’s complimentary seven-year maintenance program will have you covered.

Why Executive was of particular interest to Ferrari is that the company sees Lebanon as a mature market and a trend setter for the region — cultivating a cool and sophisticated market positioned in fashion-conscious and notoriously fickle Beirut pays off in big money sales in Abu Dhabi, Dubai and Doha. And Ferrari’s strategy seems to be working. Not only did 70 percent of their new customers last year migrate from Porsche, Mercedes and Bentley, according to company officials, but of the 3,000 California’s manufactured last year, some 450 were sold in the Middle East and South Africa, with the United Arab Emirates being the top customer. Interestingly, the company has no part in the operations of Abu Dhabi’s Ferrari World theme park on Yas Island, but rather offers up its name and branding for the Emirate to use for the modest compensation of $40 million annually.

Perhaps the most endearing aspect of the California is that Ferrari has made the design so enduring. When you pull up to the stoplight, no one watching could guess whether you bought it yesterday or four years ago; you’ve opted out of the race to catch up with the latest model. Rather, with Ferrari’s California there is a sense of elegant timelessness, and in that lies the making of an icon.

June 3, 2012 0 comments

Economics & Policy

Executive Insight – Doubts for Arab democracy

by Executive Contributor June 3, 2012

written by Executive Contributor

Several countries at the heart of the 2011 Arab uprisings have held parliamentary or presidential elections. While it seems more than fair that it should now be the Arab world’s turn at democratization, the question has to be raised if citizens of the region’s changeover countries are united in the belief that equitable social development under newly won political and economic freedoms is a realistic promise.

A dynamic and equitable market is a requirement for a democracy that works and the unified belief in a better economic future can make or break a successful transition from an uprising to a resilient democracy and a healthy, just and efficient, economy. It is a crucial need for Arab societies to achieve this democratic consolidation in order to avert dangers of new dictatorships or civil wars, and there are some legitimate doubts whether the Arab world is itself sufficiently prepared and equipped with enough international support to meet this condition.

For one, many Arab citizens today question their states’ legitimacy. They can point to good reasons for this, because at the formation of many of today’s countries stood colonial rulers who lumped different tribes into new countries in the space of a few years. However, when democratization swept over Latin America or over Central and Eastern Europe after the fall of the Berlin Wall, states with strong national identities mastered the transition more easily than states with weak national identities; for example, the former Soviet States or the Balkan countries. As Arabs now question their heritages of nationalities construed by foreign powers, there are signs of suppressed identity-conflicts. As these have been breaking out in the past year, they could carry on with the same ferociousness as they have in the Balkans. And the Arab world has many Balkans: Syria, Iraq, Libya, and Yemen.

Inequity’s undermining of democracy
The next barrier is engrained inequality. Equitable social development is the ultimate insurance for successful democratic consolidation. The thought that the middle class is the stabilizing element in a society goes back to ancient Greek philosopher Aristotle, in whose mind a democracy was built upon a society with a strong middle class. The Arab world, on the other hand, has to transform unequal societies into equal ones. Relying on democracy as the means to achieve this transformation might be asking too much from democratization.

To have a chance for non-violent transition from ownership concentrated in the hands of a few to a society prospering peacefully under freedom, equal opportunities must be present, or as renowned Arab medieval philosopher Ibn Khaldun wrote: “Justice is a balance set up among mankind.”

Again there are many examples, such as the opportunities of American settlers to stake land claims out West and land reforms in East Asian economies after World War II, showing that developmental success of democratizing countries can be attributed to the creation of equal opportunities. Inversely, social conflict and entrenched economic inequality in Latin America and Sub-Saharan Africa can today still be traced to the lack of opportunities during and after colonialism. In many Arab countries fertile land is scarce and ownership of land and natural resources are presently concentrated in the hands of political elites. Democratization therefore is bound to generate many redistributive demands. It remains to be seen whether majority demands for reform of ownership will be democratically accepted by the privileged minority.

Societies without trust
One source of doubt in the mutual will of the voting majority and privileged minority is the high level of social mistrust in the Arab world. In 2007, the PEW Research Center’s Global Attitudes Project included six Arab countries in a survey of 46 countries: Lebanon, Egypt, Jordan, Kuwait, Morocco, as well as the West Bank and Gaza. Asked about the statement “Most people in this society are trustworthy,” 57 percent of the surveyed people in the Arab countries responded with “disagree” or “strongly disagree.” This mistrust does not bode well for economic growth by democratization. Democratic effectiveness originates in trust; it does not build it, and thus requires a cooperative platform for decision making.

Lebanon, which is the country with the greatest democratic legacy in the Arab world, can serve as a reference case for other countries. Like many other Arab countries, Lebanon has a long history of political and economic elitism and redistributive conflict that led to internal divides. These divides ultimately invited outside intervention and third-party meddling.

Internal conflict and third party meddling can also be observed now in Libya, Bahrain, Iraq, and Syria. The political and economic grievances that have built up over decades may pose greater challenges than today’s fledgling democratic practices can resolve.

Challenges to development
The Arab region’s economic development prospects are also unlikely to help promote and safeguard the advance of democratic consolidation. Where my home country, Germany, could make strong fiscal commitments to developing the eastern German states after national unification in 1989, and where the prospect of joining the European Union provided a strong tailwind for fast democratic consolidation to economies in Central and Eastern Europe, the outlook for economic development as a driver of successful democratic consolidation is by comparison dismal in the Arab world on at least three counts.

Firstly, Central and Eastern Europe’s reform movement was sustained by a collective memory of private farming and free entrepreneurship. In the absence of such a collective memory, it seems not yet convincing to me that entrepreneurship will emerge strongly and fast enough to accelerate economic growth to the needed levels. It is simply not yet clear what kind of economic development paradigm will eventually emerge after the Arab uprisings.

Secondly, economies in Central and Eastern Europe benefited from starting with a clean slate in parallel political and economic reforms. New political leaders in Prague or Warsaw also had strength in the knowledge that the West had come out in support of democracy-demanding protesters on the streets. By contrast, the Arab world has already experimented with top-down economic reforms since the 1990s and the results were mixed at best. Although the World Bank and International Organizations praised the efforts of the “Maghreb tigers”, these reforms failed to create jobs.

Nepotism and unequal socioeconomic development prevented economic reforms from reaching the youth, and instead economic liberalization bred new economic elites whose fortunes were not based on hard work and entrepreneurship, but on favoritism and tribalism. Additionally, the international community and so-called Western economic reforms have greatly lost credibility among Arab citizens, as the West has for a long time supported autocrats ruling from palaces in Tunis, Cairo, and even Tripoli.

Third, there is much reason to doubt that the West has a sincere interest in true economic reforms in the Arab world. When comparing the West’s economic gain potentials in Central and Eastern Europe with what it could stand to reap from the changes in the Arab world, the reform dividend from the fall of the Berlin Wall was much greater than any reform dividend in the Arab world.

Consequently, the West surely will not commit to the Arab world as it did to Central and Eastern Europe. All rhetoric aside, oil remains what primarily makes Arab economies attractive to the West. The international community is not so much interested in developing new economic opportunities in the Arab world, but in preserving the existing ones.

What awaits
The Arab uprisings will hopefully be remembered as marking the end of dark chapters of the past, but until a bright new chapter is clearly written and the twin pillars of efficient democracy and healthy economy have been tested, smoke will likely continue to rise up and shroud the future of the Arab world.

June 3, 2012 0 comments

Society

Worthy prince to the king

by Michael Karam June 3, 2012

written by Michael Karam

Last month saw the launch of the Tudor “Ducati” Fastrider chronograph in Lebanon. Tudor has a standard Fastrider, but as the brand is Ducati’s global timing partner, a special edition watch was created. The event was a building block in the positioning of Tudor in the Lebanese market and an opportunity to acquaint consumers with some of the most exciting sports watches to emerge in recent years.

That said, Tudor is not yet a permanent dot on Lebanon’s consumer radar. The nation’s watch aficionados are, by and large, swayed by the more obvious brands — Rolex, Audemars Piguet, Panerai and Cartier to name a few — and many models, no matter how prestigious, are bought more for what they stand for rather than discernment. Indeed, as far as I am concerned, Tudor’s build quality and mechanism would leave at least two of the previously mentioned brands in the dust.

Ziad Annan, exclusive Lebanese agent for Tudor, and its more exalted parent company Rolex, would like to see a shift in how we choose our watches. “We have to reach a point where people are buying watches for quality rather than on reputation,” he sighs. He is passionate about craftsmanship and wants to convince consumers that it’s okay to say, “I like it. It’s a brilliant watch. I like it for what it is and I don’t care what people think.” Tudor is arguably the brand to start this switch in mindset. It used to be, rather unfairly, perceived as the poor man’s Rolex by those who did not know what they were talking about. But if we bought watches like we bought our cars, the Lebanese would already covet Tudor. Take the Volkswagen Touareg and the Porsche Cayenne. Both built on the same platform, but the Touareg is the more affordable. Few are the people who will avoid buying one because it is perceived as a more affordable Porsche. Yet there are many who will buy it precisely for that reason.

Rolex founder Hans Wilsdorf, who created the Tudor brand in 1946, had the same idea. He wanted to make an affordable and functional watch that was underpinned with the same standards of reliability set by Rolex. It was a savvy move in a post-war Europe that was defined in part by austerity — just the right market for a no-nonsense, dependable watch.

The positioning was subtle but it spoke volumes. Rolex may have made iconic sports watches, but the brand was undeniably associated with luxury at a time when Europe was rebuilding. Tudor owners saw themselves as practical, understated people who nonetheless appreciated quality. Tudor fitted their profile perfectly.

From Basel to Beirut

The current excitement surrounding Tudor stems from the brand’s decision to mine its vast sports legacy and alloy it with modern styling. The result is that Tudor has broken away from being a Rolex sub-brand. “The people at Rolex asked what the Tudor brand was all about,” explains Annan. “They opened the archives and they realized there was this enormous heritage.”

Indeed, the release of the Tudor Heritage Chrono at the annual Basel watch fair in 2010 was arguably the most significant milestone in the Tudor renaissance. Based on the 1970 Oysterdate Chronograph, and sold with a second strap made of tough seatbelt fabric, it sent a ripple of excitement through the watch world. Almost overnight, Oysterdates doubled in value, and the word on the street was that Tudor was taking chances that Rolex could not. The result was a brand that added a new and exhilarating dimension to the Rolex portfolio. Everyone was a winner.

So will the Lebanese consumer embrace Tudor? Well, it’s going up against the likes of Omega and Breitling, and some models will set the heart racing more than others. While the Pelagos still looks too much like a Rolex Submariner and the Advisor is a bit lost in terms of styling, I predict two models will lead the charge for Tudor this summer (Say you read it here first). The Heritage Chrono with its early 70s styling and the Black Bay Diver with a glorious garnet red bezel are surely contenders for retro design classics. Even the Fastrider, which is not my favorite, might become something of a must have for bikers.

Whatever happens, Tudor has moved out of the shadows and is a thrilling addition to the luxury watch constellation.

June 3, 2012 0 comments

The Buzz

A town stands tall

by Sam Tarling June 3, 2012

written by Sam Tarling

There's no call to prayer in Al Qusayr these days. It is not that the townsfolk have forgotten their faith, but rather the mosques have been blown full of holes, rubble and dust. The daily dawn call is a smatter of machine gun fire from the government checkpoints and the occasional percussive bass of an artillery round landing.

Here, as in other restive Syrian towns such as Homs, Rastan and Idlib, residents say their peaceful protest movement turned to armed resistance after facing a lethal crackdown from government forces. Now, some 15 months after the first demonstrators took to the streets, Al Qusayr is a town cut in two. The heads of the town’s family groups have elected a local council that is backed by numerous brigades of soldiers claiming membership in the ‘Free Syrian Army’, control roughly half of Al Qusayr and most of the surrounding countryside.

‘Normal’ life has come to a halt: the schools are all closed and only a handful of stores are open. It is almost as if the town were on an extended public holiday, except one marred by frequent, sporadic moments of extreme terror and violence.

“We spend all our time with our children in our houses,” says Abbas Muhebeddin, head of the town’s recently elected local coordination committee. “Everything has changed. We spend a long time with a our families but we cannot think, we cannot do anything, we cannot even teach them because we are thinking always [about] what will happen. You are always worried.”

Of a town once home to 50,000 residents, just some 10,000 remain, and more are leaving everyday. Some half of those that are left are effectively trapped, however, according to Muhebeddin, with their names on a government blacklist. Leaving the protection of Al Qusayr would put them at risk of being picked up by the Syrian regime’s security forces.

Inside the town, fear, death and hardship are never far away.

In the ground floor of what was until recently a residential property, a busy team of medics poke around inside the 30-centimeter gash they have cut into the chest of a man, shot by snipers positioned atop of the town’s actual hospital. One holds a table lamp to accompany the jerry-rigged operating light that hangs above, as an aging pump sucks fluids from the patient, through tubes, to splash into a bucket.

This is one of the lucky ones; doctor Kasem al-Zeim and his team are able to save him, unlike the some 200 other residents who now occupy a small martyrs’ cemetery on the edge of town.

“They haven’t killed everybody but every two, three days they kill one person,” says Muhebeddin. “It is a difficult time, we are living like we are living in jail.”

The cost of living

Prices of everyday goods have soared, such as petrol, which has increased by 300 percent. Cigarettes, food and drinks have all taken similar hikes. “All the food gets more expensive, only [human life] gets cheaper in Syria,” says Hussein, previously a clerk in the family construction firm who now puts his language skills to use helping visiting foreign journalists.

The local council controls the only diesel in town. Deliveries come with a hefty add-on of a 50,000 Syrian pound ($870) bribe to the mukhabarat (government intelligence agents), and are used sparingly for baking bread and powering street cleaning and electricity maintenance vehicles.

The local council also coordinates donations of money and goods, be it from wealthier residents, those who have left, expats or aid organizations, and distributes them to the most needy. “We purchase sugar, rice, bulgur wheat,” explains Muhebeddin. “We have more than 1,500 families we are spending for, arranging food, medicine, milk… We arrange everything for these people, even bread.”

According to Muhebeddin, on the other side of the fence it’s a bonanza.

“[The government soldiers] steal everything from the houses. At any checkpoint it is like a supermarket: you want a fridge, you want a washer… you want a tractor, you want a car, you want a motorcycle, you want a cylinder of gas, fridge, chairs, blankets, everything, carpet, everything is for sale.”

Muhebeddin claims that the stolen goods are taken to pro-regime neighborhoods and villages where they are sold-off cheap to the party faithful. “There, in the streets you can find a fridge that would cost 30,000 SYP for 2,000 SYP,” he says.

Yet despite the constant fear of death or arrest, scarcity of food and rocketing prices, residents of ‘free’ Al Qusayr say they wouldn’t turn back the clock for a second.

“Now, in this bad condition we are glad and we are happier than before because now we respect ourselves. Before we hadn’t any respect for ourselves because one person from the mukhabarat could take all this city out, like animals,” says Muhebeddin.

But the fate of Qusayr lies in larger hands than the residents who fought for their freedom.

While Dr Zeim says that the recent uprising in Syria’s industrial heartland of Aleppo is buying the town time, school teacher Fatima spells out the fragile nature of their situation: “[The regime] will not stop. The army is still here, we are surrounded. We can’t go out. All the men in our town are [wanted]. If they catch them they’ll be arrested and killed,” she says. “Now we’re coming to a more dangerous stage. Now we want to get rid of [Syrian President Bashar al-Assad]. We don’t want him, he is not our president.”

“We think that the time that is coming will be very dangerous,” says Fatima. “There is no safety in our town.”

June 3, 2012 0 comments