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Comment

Please General, do your job

by Sami Halabi June 3, 2012
written by Sami Halabi

In most nations civilian rule of the army is hallowed political ground; it ensures that the power of the gun cannot be used to overcome that of the ballot box. Yet in a country such as ours, where the army is neutered by the executive, our parliament holds virtually no power to implement the laws it rarely passes, citizens are detained and released on a whim from a zaim while those convicted of working for Israel are set free, the prospect of independent decision making by the army would seem ideal. 

As the Syrian situation spills over into Lebanon this summer (and probably the next), the issue of whether the army should act to preserve the ‘interests of national security’ without the meddling of politicians will likely come up again and again. Our official policy of ‘disassociation’ from that conflict is an obvious self defense mechanism that has, until recently, served the country relatively well (considering the alternative of getting caught up in what is probably already a civil war). 

But disassociation cannot be an exclusive concept; rather it need be an inclusive one. It must extend to internal actors on both sides that would use Syria as the fire to fuel their extremist interests if it is to have any chance of effectiveness in the months (and perhaps years) that we will have to deal with trouble across the border. Instead of retreating to the barracks when fighting breaks out, the military must act as it is legally mandated to and ‘disassociate’ itself from those who would see us dragged into the sectarian strife  across the border. 

Yet a rush to the militarization of decision-making sets a dangerous precedent that we need consider before we call for the army to set itself to purpose. The history of nations, including ours, is rife with examples of how a rush to ‘preserve the republic’ leads to an oppressive military state, something that will not provide an answer to the problems ailing the country.

Take for example of how military men cannot be counted upon to uphold civil rights. Our presidents that ascended from the ranks and file have done practically nothing to keep their oath to uphold the constitution, as it is breached almost as a matter of habit by the governments they preside over. Those ex-commanders who are regarded as pallbearers of the state, such as former president Fouad Chehab, can easily be singled out for creating the conditions (such as discrimination against Palestinians) that led to the civil war itself. 

Yet every so often those chief consensus commanders do serve a purpose. President Suleiman’s call for a resumption of National Dialogue to deal with the issue of arms, and specifically (but not exclusively) those of the resistance, represents a tilt toward reform. But it is still early days. 

We should not forget that by the end of the last National Dialogue sessions in 2010, the country was rife with jokes about what a sham the whole affair was, precisely because Hezbollah rejected the issue of a national defense strategy that encapsulated its arms. But now that Syria could go either way, or no way at all, Hezbollah seems ready to hedge its bets, otherwise Suleiman would not have announced his plea. 

And since the last dialogue sessions it has become blatantly obvious that the political class in Lebanon cannot deal with the everyday issues that plague the country because of their obsession with the issue of weapons, as if they are the reason the lights go out or outbound planes are filled with our brightest young minds. 

So amidst all that we are faced with today, the convergence of both internal and external factors presents us with a rare opportunity to overcome the hurdle of arms that has divided us. Any attempts to set preconditions by the opposition are merely play for time, something we are running out of fast. If the army can do its job without overstepping its boundaries and the resistance is truly genuine in its commitment to real dialogue, the Arab uprisings could, perhaps, finally have reached our shores. 

The only other option is to continue to slip into an increasingly sectarian conflict, and we all know what happened the last time we tried that.   

June 3, 2012 0 comments
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Real estate

History under siege

by Jeff Neumann May 6, 2012
written by Jeff Neumann

In the arena of Lebanese architectural heritage some combatants are better at the game than others. Today activists, archaeologists, politicians and real estate developers have entered the stadium to battle it out over what is probably Lebanon’s oldest sporting venue. At issue is the fate of a Roman-era hippodrome downtown in Wadi Abu Jamil. Unchecked construction and the rush to build mega-sized steel and glass towers have taken a toll on historical sites in the city for nearly 20 years. The hippodrome site is privately owned and most of it has already been developed and built over, but a remaining plot of land in the middle of the former track has become the focus of many interests, all angling for different outcomes.

Some two thousand years ago the hippodrome hosted horse and chariot races. Today, it sits neglected in the heart of Beirut’s rebuilt downtown of exclusive villas and upscale shopping areas. Overgrown with tall grass and littered with garbage from nearby construction sites, it is almost impossible to imagine the hippodrome’s former glory. Assuming that you can get past the heavy security to even approach the site, the hippodrome today is virtually indistinguishable from any other neglected ancient ruins. But in spite of its current state, it has great significance: Lebanon is home to two out of five Roman hippodromes in the Levant — one in Tyre, and its twin in Beirut. The hippodromes of Lebanon are unique because they are the only ones in the world adjacent to Roman baths.

The great irony of the situation is that some of the loudest critics are largely responsible for the current state of the hippodrome. In March, former culture ministers Tamam Salam and Tarek Mitri held a press conference denouncing plans to build over the open remainder of the site. But the sale and development of various plots at the site in the preceding years were approved by both of them. Solidere, the private company in charge of reconstructing Beirut Central District, justified this earlier development using in-house archaeology experts. Development started by moving Roman-era baths to a different location nearby [see map], and progressed to the point where former Prime Minister Saad Hariri built a large private residence and garden squarely on top of the hippodrome.

So tight is the security at the site that current Culture Minster Gaby Layoun and his top advisor, Michel de Chadarevian, were not allowed past the rusty metal walls that have long encircled the area. “I went there with the minister last month and they would not allow us to even have a look,” de Chadarevian says. “We asked Saad Hariri’s office to let us look around, but we were denied access. We are not even allowed in to remove the grass.” Executive was directed by Hariri’s office to Future Movement Members of Parliament Salam and Nabil de Freige for comment, but neither was available for comment.

Build over, preserve under?

After signing off on development of much of the site, in 2009, Salam, then culture minister, placed the hippodrome on a list of protected historical sites, but the damage was already done. An area surrounding the reconstructed Maghen Abraham Synagogue was all that was left and today represents the plot of contention.

According to the culture ministry, the owner of the undeveloped plot, Nazem Ali Ahmed, consulted Italian architects to find a solution that would generate revenue, while also meet the requirement of having the ruins available for public viewing. His solution, while still in the early stages of development, is to construct a roofed, open air museum. The ruins would be viewable underneath thick glass flooring from walkways and landings. A second level would be reserved for retail and commercial space. Its height will be limited by the current regulations laid out by Solidere, the ministry says. Solidere did not respond to repeated requests for comment.

De Chadarevian says that the current plan to preserve the hippodrome is based on similar efforts in Greece to enclose ruins under glass and install modern walkways and viewing areas. He explains to Executive that the ministry is “happy to have an investor interested in creating and building a museum for free. We will not pay anything. He will do everything and we will all benefit.” (There have been unconfirmed media reports of a $30 million Kuwaiti-funded hotel and museum on the plot.)

This plan set off a public outcry from preservationists and archaeologists. Josef Haddad, founding member and current secretary of the Association for the Protection of the Lebanese Heritage, disputes the notion that a glass enclosure would preserve the ruins. “The glass will trap the heat and humidity and accelerate the deterioration of the site,” he says, pointing to the fact that Rome’s ancient ruins are largely out in the open and exposed to the elements. Under the current plan, portions of the ruins downtown, excluding the fragile section that was once spectator seating, will be removed during construction and replaced when the building is complete.

“We are surprised that out of all ministries, the Ministry of Culture is working the hardest to destroy the hippodrome,” Haddad says. “It belongs to the Lebanese people, not private landowners.” Haddad says that he and the Association for the Protection of the Lebanese Heritage “are doing our best to halt the process,” but adds that a real solution can only come from Solidere, Nazem Ali Ahmed, and the culture ministry.

Jeanine Abdul Massih, professor of archaeology at the Lebanese University, does not believe that constructing what would essentially be a shopping mall over the ruins would do the site justice. “If you want to really preserve it you need to take the whole thing, not just a part of it,” she says. “If you only preserve part of it, what do you really have left of this beautiful stadium? You cannot preserve just a part of a stadium to give an idea of what it was like.” Abdul Massih suggests protecting and restoring the entire site, and adding it to a Beirut historical walking trail. “We need to connect the people with the history,” she says.

Little room left to fight

“We are preserving this place — if the ministry could destroy all that Solidere has done in order to regain all of our antiquities, we would be very happy,” de Chadarevian says, striking a somewhat populist tone. In preservationist circles that might normally be a welcome statement, but he does not hide his contempt for activists seeking to reach a new deal for the hippodrome. “All the campaigns on Facebook, this is rubbish,” he says. “I asked them, ‘do you know what this is? Have you ever gone there and had a look around?’ No, they have not. So why are they even talking about this?”

According to de Chadarevian, the root of the problem is the location of Hariri’s home, and his former cabinet members using their influence to steer development deals. “The only problem is that new construction will block the view from Saad Hariri’s residence,” he claims, and points blame squarely at the two previous culture ministers: “[Tarek Mitri and Tamam Salam] agreed to destroy what remained of the hippodrome years ago.” Several members of Hariri’s Future Movement have rejected this claim.

Professor Abdul Massih suggests a land swap between the Beirut municipality and Nazem Ali Ahmed could resolve the dispute and come as close to satisfying all parties as possible. But the prime location of the hippodrome means this is a highly unlikely outcome. The current construction plan for the hippodrome site has top-down blessing, from Prime Minister Najib Mikati to the Ministry of Culture, as well as Solidere and the Beirut Municipality. Now, the municipality’s final approval of the building plans is all that stands in the way of commercial development at the hippodrome site. [No one from the Beirut Municipality was available for comment].

For those seeking full preservation, the overall outlook is grim. It is also nothing new, says Abdul Massih. “So many other beautiful things here have been destroyed, so nothing would surprise me,” she says. “But I will fight to preserve it.”

May 6, 2012 0 comments
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Real estate

For your information

by Executive Editors May 6, 2012
written by Executive Editors

Real estate market “flat”

The overall number of real estate transactions in Lebanon dropped 4.29 percent between January and February. But while the number of overall transactions was down — 5,156 in February from 5,387 in January — the nationwide average value per transaction rose 6.66 percent over the same time period.  The total number of real estate transactions fell by 12.02 percent last year to 82,984, compared with 94,320 transactions in 2010. Over the same year, the value of real estate transactions fell to $8.84 billion, compared to $9.48 billion in 2010. According to a Bank Audi report, Lebanon’s property market has shown “a somewhat flat performance” during the first two months of the year. According to year-on-year data, the total number of transactions fell 0.82 percent in the first two months of 2012, while the total value of transactions dropped $40 million to $1.16 billion. Using figures provided by the Order of Engineers, the report also notes a 3.5 percent overall rise in the number of construction permits issued across Lebanon this year. The data shows a 9.1 percent drop in new permits in Beirut and a 19.2 percent rise in the Mount Lebanon region.

Rent-to-own law passes cabinet

The Council of Ministers, Lebanon’s cabinet, approved a new draft rental law in late April, which would allow low-income families to buy property by making yearly or monthly payments. The Cabinet also agreed to amend a controversial rental law that, if passed, would allow landlords to raise rents by 20 to 80 percent over a four-year period [see page 30]. The Association of the Owners of Rental Buildings issued a statement the following day praising the passage of draft law 767, but also asked the Administration and Justice Committee of Parliament to “enter a new stage that ends the accumulated injustice against old landowners on the issue of rents” by quickly passing the law on to the General Assembly, and to establish a government fund to assist low-income renters who intend to buy residential property.

MENA construction drops

The value of construction projects awarded in the first quarter of 2012 across the Middle East and North Africa (MENA) has fallen more than 30 percent from the first quarter in 2011, according to Citi Research and Analysis. Approximately $18.5 billion in projects have been awarded between January 1 and March 31 in the MENA region, the research unit of Citigroup Global Markets said in its MENA Construction Project Tracker, a monitor that tracks projects from announcement to completion. The comparison figure for the first quarter of 2011 was $27 billion. The cumulative value of projects awarded in March was $4.3 billion, the lowest figure for the year-to-date according to Citi Research. With 76 projects awarded in the year so far, the number of projects was similar to the same period in 2011. “Project awards are generally lumpy,” the report says, while forecasting spending to show “ongoing strength” because of MENA governments’ “desire to avoid unrest” in the wake of the Arab Spring. Kuwait accounted for 38 percent of project values in the first quarter, followed by Saudi Arabia and the United Arab Emirates with 16 percent, or $2.9 billion, each. However, the report noted that Kuwait’s leading share is derived mainly from one single $5.9 billion aviation-related project.

Needing more malls

An apparent dearth of retail space in new residential areas across Abu Dhabi is dragging down property prices, according to a report by UK-based property consultancy Cluttons. “A shortage of retail facilities at many of the new residential developments needs to be addressed, the lack of which is seen as a culprit to falling values,” the report said, before the opening of Cityscape Abu Dhabi last month. According to Cluttons, “Apartment values have been affected the most, with Al Reem and Marina Square apartments falling 7.4 percent and 7.3 percent, respectively, on third-quarter 2011 prices.” Abu Dhabi-based real estate consultancy CBRE also released data that shows residential apartment rents in the city are down 18 percent in the first quarter over the same period last year, and are down 3.5 percent since last quarter. Also at Cityscape, the National Bank of Abu Dhabi (NBAD) announced that its new wholly-owned subsidiary, NBAD Investment Management (DIFC) Limited, had been approved to start a real estate investment fund focused on “income-generating properties.” Zain Abdullah, senior executive officer of NBAD’s new unit said in a statement, “We believe that this fund will offer regional and international institutional investors a diversified avenue to access the UAE real estate market within a strong regulatory environment.”

UAE banks boost credit, offer 100% mortgages

As the United Arab Emirates’ property market continues to struggle, Emirates Islamic Bank announced in mid-April that it would offer 100 percent mortgages to UAE nationals. “For most people, owning a home is one of the biggest lifetime investments and provides an opportunity to build equity in real estate,” said general manager Faisal Aqil, speaking to The National in April. The new loans will be available for first time buyers or for buying off-plan, and can be approved within 24 hours. Variable rates will start at 4.99 percent. Home prices throughout the UAE have been trending downward in recent years, with Dubai as the exception, posting a meager 0.5 percent rise in home prices in 2011. In a statement to reporters, Abu Dhabi’s Aldar Properties announced a $1.09 billion credit facility from the 70 percent state-owned National Bank of Abu Dhabi. In addition to helping the developer manage its liquidity, the deal will be a three-year revolving facility to cover everyday operating costs.

Corruption ties and net loss for Egypt’s SODIC

Egypt’s third-largest property developer, Six of October Development and Investment (SODIC), posted a net loss of $32 million for 2011, after registering a profit of $22.4 million one year prior. In a statement, the company offered a stronger assessment of its operations, saying, “During a tough 2011 SODIC preserved the strength of its balance sheet, improved cash collection delinquency rates, increased receivables and maintained healthy levels of cash on hand.” Prior to the report, SODIC issued a statement about its former chairman Magdi Rasekh, who in April of last year was sentenced to five years in prison and fined $388 million for his role in an illegal land deal under the Mubarak regime, saying the ruling would not affect “the firm’s assets or the assets of the rest of its shareholders.” Also, last month, the Egyptian government announced a plan to sell nearly 8,000 plots of city land and certificates of deposit to expatriates living in the Gulf. By appealing to wealthy Egyptians living outside the country, the government hopes to raise some $4.5 billion with the new plan, which would also allow Egyptian joint stock companies to purchase land with a guaranteed 4 percent, one-year return on the investment. Additionally, any financing for the properties must be done through financial institutions based outside of Egypt.

Saudi prince seeks big tower loan

Kingdom Holding Co, Saudi Prince Alwaleed bin Talal’s investment company, is seeking a loan worth as much as $533 million by this summer to help pay for the construction of the Kingdom Tower in Jeddah, according to a Bloomberg report last month. According to plans, the Kingdom Tower will be more than 1,000 meters tall, with an estimated finishing cost of $1.2 billion. The building plans, drafted by Saudi Binladen Group — a 16.63 percent stakeholder in the project’s owner, Jeddah Economic Co — were approved by municipal authorities in February, and the project is expected to take over five years to complete after construction starts. When finished, the Kingdom Tower will become the world’s tallest building, surpassing Dubai’s Burj Khalifa, which stands at 829.84 meters.

May 6, 2012 0 comments
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Banking & Finance

Financial quotes of the month

by Executive Editors May 6, 2012
written by Executive Editors

“How can we grant bills of health from these [government run] labs when rats are running everywhere?”

Mohammad Choucair, head of the Beirut Chambers of Commerce

“The country will manage well, even if we don’t sell a single barrel of oil for two or three years.”

Mahmoud Ahmadinejad, Iranian President

“In Silicon Valley, there’s still too much money chasing too few ideas. If your idea is brilliant and your timing is right, you can become a multimillionaire overnight.”

Paul Saffo, Silicon Valley forecaster on Facebook’s $1 billion acquisition of popular photo application Instagram

“Spain is not going to be rescued; it’s not possible to rescue Spain, there’s no intention to, it’s not necessary and therefore it’s not going to be rescued.”

Mariano Rajoy,Spanish Prime Minister

“God willing, we will take the loan before a president for Egypt is in place.”

Mumtaz al-Saeed, Egyptian Finance Minister, on the proposed $3.2 billion International Monetary Fund loan

“Tonight, Senate Republicans voted to block the Buffett Rule, choosing once again to protect tax breaks for the wealthiest few Americans at the expense of the middle class.”

Barack Obama, President of the United States

“I feel great — as if I were in my normal excellent health. And my energy level is 100 percent.”

Warren Buffett, billionaire investor legend when diagnosed with prostate cancer

“Investments in tourism are extremely good despite the fall in the number of tourists entering Lebanon through Syria.”

Fadi Abboud, Lebanon’s Minister of Tourism

“At times, elections can lead to uncertainties and, for investors, to a changing configuration of opportunities and risks. We are entering such a phase in Europe.”

Mohamed el-Erian, CEO of Pimco, the world’s largest bond investor, on the upcoming French, Greek and Irish elections in Europe

“If you wake up the morning after and still feel like the gazelle is running from the lion, or the lion is running for the gazelle, then everything is ok.”

Fadi Ghandour, after resigning as CEO of Aramex, the delivery and logistics company he founded and managed for 30 years
May 6, 2012 0 comments
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Banking & Finance

The expert opinion MENA stock tips

by Executive Editors May 6, 2012
written by Executive Editors

Black is still the dominant color on the market screens this year as equities continue their upward drift. In the midst of first-quarter corporate earnings season, which so far have proved resilient, investors are increasingly concerned that a correction is on the horizon as macroeconomics headlines remain frail. For this month, Executive speaks to Elie Khoury, cheif executive of Berytus Capital and Nour Eldeen al-Hammoury, chief market strategist at Amana Capital for their investment recommendations.

Elie Khoury

Bullish or bearish? 

Khoury is conservatively bullish on the markets in the United States  and slightly bearish on Europe, as the US enjoys much better fundamentals than Europe. He believes equities  will continue their upward trend because, “With central banks from the US to Europe to England pumping all this money, they are inflating everything which is why equity markets performed so well since beginning 2012 until today.” He adds that if the US unemployment and housing picture improves, he will be buying equities more aggressively.

Main concerns? 

Khoury’s greatest concern is banks’ exposure to derivatives. “At $188 trillion, this exposure is 14 times the size of the United States’ [gross domestic product]” he warns. In the short term, Khoury is mainly concerned with the economic issues in Spain and Italy; he adds that issues in Greece might resurface in May during the upcoming elections.

Favorite asset classes? 

Khoury favors equities. “The summer time will provide us with many opportunities. Markets will correct and investors will get the opportunity to invest,” he says. Khoury’s top sectors to invest in are technology and consumer products.

Specific names? 

He likes Pfizer in the pharmaceutical sector, Kraft in the non-cyclical consumer goods sector and Microsoft, Intel and Qualcomm in the technology sector. Khoury also highlights Costco, Home Depot, McDonalds and Starbucks as stocks he would be buying on the basis of their relative weakness to benefit from lower entry points.

MENA equities? 

While deterred by the unrest in the region he notes that it is “putting a floor on the price of crude which is good for Saudi Arabia so it is the only country in the region we could be positive on.”

Nour Eldeen al-Hammoury

Bullish or bearish? 

Hammoury warns against buying aggressively due to the very slow economic growth and the fact that the United Kingdom is back in recession. “The crisis is not over yet and it needs a minimum of 10 years to solve,” says Hammoury. He does not expect the recent rally in equities to continue and he is awaiting a correction in the markets, as “the waves of the tsunami are still rolling.”

Main concerns? 

Hammoury’s largest concern is the oil market, as a “higher oil prices are not good for the global economy.” He is also concerned with the sovereign debt crisis in Europe and the lack of transparency from politicians. “We saw an ‘Arab Spring’, we could see something of the sort in Europe as well,” warns Hammoury.

Favorite asset class? 

He would stick to gold and recommends buying between $1610 and $1625 per ounce. Within equities, Hammoury would remain in defensive sectors (such as utilities, consumer goods and telecoms).

MENA equities? 

He is not interested in investing in the region at this point, but he does highlight that the abundant cash reserves in MENA governments’ coffers provide support in these turbulent times and “the continuous high prices of oil that will carry on stimulating reserve cash for governments.”

Specific buy? 

His top stock globally is Apple. He sees it going to $700 or to $800.

Any name in the MENA region? 

He likes Dubai-based Tabreed, also known as the National Central Cooling Company.

May 6, 2012 0 comments
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Banking & Finance

For your information

by Executive Editors May 6, 2012
written by Executive Editors

Banking secrecy exceptions

Banking secrecy was lifted on 18 accounts in Lebanon last year according to the annual report of the Special Investigation Commission (SIC), an independent entity established 10 years ago by the Banque du Liban (BDL), Lebanon’s central bank, to fight money laundering. Of the 18 cases, five were referred from abroad and 13 were from domestic sources. In 2011, the SIC received 335 suspected cases, up from 245 in 2010 and 202 in 2009. Of the suspected cases, 100 were from foreign sources and 235 from local sources and the SIC investigated 285 cases. Counterfeiting, accounting for 13 percent of all reported cases, was the most common crime, followed by terrorism funding at 8.5 percent of reported cases, fraud of private funds at 6 percent, narcotics trade at 4.5 percent and embezzlement of public funds at 3 percent. Sixty five percent of the cases were not categorized. “Reporting entities were assessed via extensive on-site examinations and follow-up corrective measures were imposed,” according to central bank Governor Riad Salameh.

Eurobond oversubscribed

A $700 million Lebanese Eurobond issued last month was 30 percent oversubscribed, resulting in a boost to the finance ministry’s coffers. The first tranche of the Eurobonds brought in $600 million, up from the original plan to raise $350 million. It carries a 5 percent yield and matures October 12, 2017. The second tranche brought in $350 million as originally planned. It carries a 6.4 percent yield and will mature on April 27, 2026. Non-Lebanese accounted for 30 percent of the subscribers with the remaining issuance taken up by the local banks, holders of the majority of Lebanon’s hefty debt. Byblos Bank and Bank of America-Merrill Lynch were the lead managers on the Eurobond. The proceeds of this issue are to refinance $293 million and 115 million euros ($151 million) in Eurobonds which matured in March and April 2012, respectively. Lebanon’s finance ministry revealed earlier this year that it will be issuing $5 billion worth of Eurobonds and treasury bills to cover the public debt in 2012.

Qatar-Swiss mining mega merger

Qatar’s sovereign wealth fund, Qatar Investment Authority (QIA), has invested a whopping £1.7 billion ($2.7 billion) into Switzerland-based mining giant Xstrata. With a five percent holding, QIA now becomes Xstrata’s third largest investor after Glencore, the largest publicly traded commodities supplier, with a 34 percent stake, and asset manager Blackrock, with a five percent stake. This aggressive move comes ahead of a planned £23 billion ($36 billion) mega merger between Xstrata and Glencore and increases the chances of the deal tilting in Glencore’s favor. Aside from Blackrock, most of the top 10 investors are critical of the deal and want better terms from Glencore. Under the proposed deal, Xstrata shareholders would receive 2.8 Glencore shares for every share they own, but many shareholders want at least 3.6. Ivan Glasenberg, chief executive officer of Glencore and Mick Davis, CEO of Xstrata, are going on a global road show in the coming weeks to convince investors to agree to the “merger of equals”.  

Egypt close to IMF loan

Egypt’s finance ministry expects to secure a $3.2 billion loan from the International Monetary Fund (IMF) by May 15, before a new president is elected to run the country at the end of June. However, the deal, which has already been delayed from March, faces a significant obstacle. The Freedom and Justice Party, the Muslim Brotherhood’s political arm that holds almost half the seats in the new parliament, is heavily critical of the IMF loan, and has suggested several other options, such as collecting overdue taxes or re-evaluating gas export deals. The party says it is not outright opposed to the loan, but wants either better terms or the creation of a new government — not due until after the presidential elections — to oversee the distribution of the funds. According to Egypt’s finance minister Mumtaz al-Said, “Egypt needs $10 billion to $11 billion in the next 18 months to bring back economic stability.” Egypt has hemorrhaged more than $20 billion in currency reserves since the February 2011 revolution, which overthrew former president Hosni Mubarak. Whether Egypt succeeds in securing the loan remained unclear as Executive went to print.

Kafalat loans drop

The loan guarantee company Kafalat gave out $33 million loans to small and medium enterprises in the first three months of the year, down 21 percent from the same period last year. The number of loans dropped 20 percent to reach 240. The industry sector accounted for 36.7 percent of the total guarantees; the agriculture sector took 36.3 percent of total guarantees, while tourism accounted for the next 20 percent of the guarantees. Geographically, Mount Lebanon accounted for the majority of borrowing, taking up 44 percent of the loans, followed by North Lebanon at 16.3 percent, Bekaa at 15.4 percent and South Lebanon at 10 percent. Beirut accounted for just 7 percent of the loans.

$100 million for MENA infrastructure

The International Finance Corporation (IFC), part of the World Bank Group, and the Islamic Development Bank (IDB) plan to invest $100 million in infrastructure projects in the Middle East and North Africa region. Each institution will be investing $50 million into the Arab Infrastructure Investment Vehicle, part of the Arab Financing Facility for Infrastructure (AFFI), an initiative led by the World Bank, the Islamic Development Bank and IFC. The AFFI assists in financing and technical issues for cross-border infrastructure projects and encourages governments and the private sector to contribute to the development of these projects. The purpose of the investments is to spur economic growth in the region. MENA countries need to invest $70 billion annually in infrastructure to sustain their growth rates, according to the IFC, which invested approximately $2 billion in the region in 2011.

Financing Tunisia

Qatar has agreed to lend Tunisia $500 million at an interest rate of 2.5 percent, to be repaid in five years. The Gulf state was one of the main foreign backers of the revolution which overthrew longtime president Zine el-Abidine Ben Ali and resulted in the Ennahda party coming to power in Tunisia in October last year. Earlier this year, Turkey opened a $500 million credit line to Tunisia, repayable over 10 years. The United States recently announced that it aims to help finance the economic recovery in Tunisia by providing “several hundred million dollars” of loan guarantees before the end of June, according to the US Department of the Treasury. The Tunisian economy is still struggling following the political upheaval that shook the country last year. The International Monetary Fund forecasts 2.2 percent gross domestic product growth in 2012 and 3.5 percent in 2013, while expecting the unemployment rate to drop 2 percent this year to 17 percent.  

Aabar dumps Daimler

Abu Dhabi’s Aabar Investments, a government-owned company engaged in investing across sectors and countries, is reviewing its portfolio of overseas investments and intends to completely exit its investment in Daimler, as well as in the Formula One cooperation and Tesla Motors, the luxury electric carmaker, according to Germany’s Manager Magazin. Aabar acquired a 9 percent stake in the luxury carmaker by injecting 1.95 billion euros ($2.56 billion) in March 2009, which it reduced to a 3 percent holding in February after the surge in the price of the shares. The share price at the time of the investment stood at 20.27 euros ($27); as of 21st of April it was trading at 41 euros ($54), up 100 percent from the price that Aabar paid. Abu Dhabi National Energy (TAQA), an oil explorer and power supplier majority owned by the government, sold its 7 percent stake in Tesla Motors in April, making a profit of $113 million. In April, Aabar nearly doubled its stake in Dubai builder Arabtec to 10.45 percent. 

May 6, 2012 0 comments
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Economics & Policy

For your information

by Executive Editors May 6, 2012
written by Executive Editors

Popped for pills

The Pharmaceutical Research and Manufacturers of America (PhRMA), which represents most of the major pharmaceutical corporations in America, has petitioned the United States Trade Representative to put Lebanon on the 2012 Priority Watch List. They have complained that there is a lack of adequate intellectual property protection in the Lebanese pharmaceutical market. While it was noted that the new industrial property law passed in 2000 represented a major step forward from the 1924 law, PhRMA claim it does not provide sufficient pipeline or transitional patent protection and gives an incomplete definition of confidential information. Another point of contention the US body raised was the ministry of public health’s failure to implement sound regulation practices to distinguish between innovative and generic medicines. The Ministry of Public Health was also mentioned for having failed to successfully crack down on parallel imports, which result in a ‘grey’ market of counterfeit medicinal products in the country. Lebanon was one of 17 countries from the region recommended for the black list, including Israel and Algeria. 

Figures for thought

The most recent figures from the Ministry of Finance indicate that the total fiscal deficit for 2011 of LL3.5 billion ($23 million) was LL833 million ($555,333) less than its 2010 equivalent. These figures are the result of a LL1.37 trillion ($924 million) increase in revenues, or 11 percent, which offset the 3 percent increase in expenditures of LL553 billion ($368.7 million). It is important to note that the fiscal deficit saw a healthy decrease in November 2011 when the budget surplus from the telecoms ministry was paid, which was LL2.3 trillion ($1.53 billion) compared to LL957 billion ($638 million) in 2010. Despite the growth in total revenues, the tax contribution to the public purse actually decreased mainly due to a slowdown in the taxes on international trade, with decreases in excises and customs by LL590 billion ($393.3 billion) and LL33 billion ($220 million), respectively. Lebanon’s loss-making electricity company significantly increased its burden on the public purse, requiring an extra 46 percent in transfers reaching LL2.6 billion ($173 million) in 2011. Gross public debt continued to creep up over the same period, rising by just less than 2 percent to LL80,869 billion ($53.6 billion) in 2011.

Lebanon failing its women

Lebanon ranked 6th in a survey on women’s socio-economic advancement from a selection of 8 Middle Eastern countries. The MasterCard Worldwide Index on Women’s Advancement used indicators such as tertiary education, employment, business ownership and leadership positions to assess the standing of women in society in comparison to their male compatriots. Only Egypt and Saudi Arabia scored lower than Lebanon, while Bahrain, the United Arab Emirates, Qatar, Kuwait and Oman were deemed to have a better record in women’s advancement. Interestingly, Lebanon had the lowest proportion of female business and government leaders.  Conversely, Lebanon had the highest rate of regular employment opportunities for women.

Prizing open the bandwidth

Lebanon’s Internet capacity will be increased from the current 23 Gigabits per second (Gbs) to 33Gbs within two months and to 43 Gbs within four months, according to plans unveiled by the Ministry of Telecommunications (MoT). The government intends to increase capacity by making increased use of the India-Middle East-Western Europe (IMEWE) submarine cable, which runs from Mumbai to Marseille. Lebanon became a member of IMEWE consortium in December 2010 and started limited use of the fibreoptic cable in June 2011. What’s more, Lebanon and Cyprus agreed in February on the principles of cooperation for the Europa submarine cable, which would complement the IMEWE, but Lebanon’s cabinet is yet to endorse financing of the project. With regards to the tariff structure, MoT proposals for unlimited nighttime usage between 12:00 am and 7:00 am have been approved.

The MENA’s stunted growth

Growth has stalled and the outlook is uncertain in the Middle East and North Africa (MENA) region, according to the International Monetary Fund’s (IMF) 2012 World Economic Outlook. Among oil exporters, high oil prices contributed to growth of 4 percent, while among oil importers growth was only 2 percent in 2011, even after the exclusion of data from Syria. Looking forward the baseline forecast is for growth of 4.25 percent in 2012 and 3.75 percent in 2013. Among the oil importing nations, strong oil prices, anemic tourism associated with social unrest, and lower trade and remittance flows reflecting ongoing problems in Europe are the major challenges that lay ahead. The IMF identifies the reorientation of fiscal policies toward poverty reduction and the promotion of productive investment as a key medium-term fiscal policy objective.

Less tourists spending more money

The number of tourists coming to Lebanon in the first quarter of 2012 decreased nearly 8 percent on the same period in 2011. However, despite the fact the number of visitors to Lebanon fell, the amount of money they spent actually increased. According to Global Blue, the VAT refund operator for international shoppers, total tourist spending increased by 36 percent in the first three months of 2012 compared to the same period in 2011. The rise in spending by visitors was in a large part due to the fact that there had been a severe contraction in tourism in 2011, especially in the first half of the year. In early 2012 visitors from the Gulf flashed the most cash, with guests from Saudi Arabia accounting for 22 percent of total tourist spending in January.

Fueling the future

Starting in 2015, Lebanon looks set to turn to Liquid Natural Gas (LNG) to meet its growing energy demand. In early April, The Ministry of Energy and Water, launched a call for expressions of interest to build, own and operate a floating storage and regasification unit (FSRU), which is recommended to be at least 125,000 cubic meters (m³) in size with a regasification capacity of up to 3.5 million tons per annum (mtpa), according to the tender document. The deadline for companies’ proposals, which can be used for a new FSRU, existing FSRU or a vessel conversion, is June 4. Lebanon already has two combined cycle gas turbines (CCGT), but according to the MoEW the country also plans to increase the number of gas-fired power plants, which will gradually lift its LNG requirement from 1.2 mtpa in 2015 to 1.7mtpa in 2016, and up to 3.5mtpa by 2022. The FSRU will be located in the north of the country near the majority of its current and planned CCGT capacity and it is slated to operate on a tolling structure, whereby MoEW would pay a fixed monthly capacity fee to the FSRU owner, and then a monthly throughput fee for operating costs incurred for actual usage.

May 6, 2012 0 comments
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Editorial

Parliament’s reckoning

by Yasser Akkaoui May 6, 2012
written by Yasser Akkaoui

Given the opaque functioning of the Lebanese state, it is good that sessions of the Parliament are open for the public to see. Unfortunately, they are akin to vultures tearing apart a carcass. In some 62 speeches and 28 hours of debate that took place over the three-day session last month, there were screams and accusations, name-calling and finger pointing, with hardly an allusion to progressive public policy.

In utopia, parliamentarians represent their constituents’ demands before the convention of government, which then attempts to fulfill these demands within resource constraints. In Lebanon, the Parliament is utterly detached from the lives of the Lebanese, its members asserting the interests of their sectarian overlords and the public purse fought over for plunder.

For years now Lebanon’s enterprising and entrepreneurial private sector has been surrogate mother to a people abandoned by the state, spurring new business and generating new wealth and employment. But even the private sector can only slow Lebanon’s current slide. Among many other issues, Beirut has become expensive well beyond the means of most of its residents.

Paying “old rent” has allowed hundreds of thousands of Lebanese to scrape by and afford their other costs of living, but it has effectively been a subsidy the private sector pays in place of government policy to address public housing needs. This warped rental market has led to dangerously dilapidated buildings, the decay of heritage structures and stunted economic development. A draft rental law that has resurfaced after lying dormant for years would phase out old rents, but its vagaries on public housing mean it will almost certainly fail to help people afford homes.

In utopia, parliamentarians would engage in earnest debate and develop legislation that would leave a lasting legacy. In Lebanon, pursuing policy development seems far from parliamentary minds, but at least they let us know.

Their reckoning may be nigh, however, with increasing public protests in the country showing a gathering rage that may soon force accountability upon those who were elected to serve the public good.

May 6, 2012 0 comments
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Comment

Hope of compromise in Iran

by Gareth Smith May 3, 2012
written by Gareth Smith

Talks between Iran and the leading world powers, including the United States, in mid-April have revived hopes of compromise on Tehran’s nuclear program. Essentially the two sides agreed that the basis for agreement would be the Nuclear Non-Proliferation treaty (NPT) and so respect Iran’s right to peaceful use of nuclear energy, with specialists preparing in advance for a second round of talks in Baghdad on May 23.

As I have written here before, the outlines of a potential agreement with Iran have knocked around for some years.  But an article by Dennis Ross, the pro-Israeli former Obama adviser, in the New York Times in February was telling in suggesting Washington would accept Iran enriching uranium, a “concession” that could enable Iran to claim victory with its “rights” acknowledged.

In a second article, Hossein Mousavian, the former Iranian security official at Princeton University, argued Tehran’s bottom line was “the ability to produce reliable civilian nuclear energy” as “entitled” under the NPT, while the US and European bottom line was “never having Iran develop nuclear weapons or a short-notice breakout capability.” 

Discussion in Washington over how to achieve its bottom line reflects the nature of nuclear technology. In broad terms, enriching uranium to low-level for civil use — to 3.5 to 20 percent — implies the ability to enrich to the higher level — 90 percent — required for a bomb. Broadly, you just keep the centrifuges spinning.

This is “break out”. A country can enrich uranium for civil purposes while developing missile delivery systems and so maneuver itself into a position where it can move relatively quickly towards making an atomic bomb.

Hence Mohammed ElBaradei, then head of the International Atomic Agency (IAEA), the UN body that monitors the NPT, said in 2004 that 35 to 40 states had the technology to make a bomb.

So why have the NPT? The first five states to possess nuclear weapons — the US, Russia, France, Great Britain and France — are among the 189 NPT signatories, but the only other states who subsequently developed weapons either left the NPT — North Korea — or were not signatories — Israel, Pakistan and India.

This suggests developing nuclear weapons within the NPT is far from easy, which is because signatories face IAEA monitoring, under article 3 of the NPT, to prevent “diversion of nuclear energy from peaceful uses.” 

The limits of basic monitoring under the NPT led to additional protocols (APs) with over 100 countries giving the IAEA more intrusive powers of inspection of declared and “possible undeclared” nuclear facilities. Iran agreed an AP in 2003, when it also suspended uranium enrichment as a goodwill gesture during talks with the European Union, but in 2006 announced it would resume enrichment and no longer apply the AP.

The US and allies are now demanding that Iran re-apply the AP, so building confidence it could not undetected divert enriched uranium into a weapons program. This could happen in one of three ways: by operating clandestine plants, by diverting nuclear material from declared facilities, or by leaving the NPT.

An enhanced AP — known as a ‘Model AP’ — could widen monitoring from enrichment facilities to mines and waste disposal, and so reduce both the danger of diversion from declared sites and the feeding of undeclared sites. It could even involve 24-hour access to sites not under inspection.

Clandestine activity is considered the most likely and most dangerous option by the Americans, given IAEA inspections are currently limited to declared facilities. Hence Washington’s interest in an extensive Model AP.

One option is WAES (wide-area environmental sampling) under which monitoring stations would be built through Iran to check air, water and sediments for unusual readings. This would amount to what one US report calls “expansion from monitoring individual facilities to monitoring the state as a whole”. 

The US considers the third danger — of Iran leaving the NPT, which any state may do under the treaty’s Article X on grounds of “supreme national interest” — the least likely. But even so, negotiators may want an Iranian commitment it would never do so.

There are certainly devils in the technical details. And there are also questions of political acceptability. Crucially, even if sanctions are lifted ‘step by step’ and Iran can unlock the real potential of its energy reserves, it remains to be seen how far the leadership in Tehran may go in accepting an inspection regime far beyond that agreed by any other country in the past.

May 3, 2012 0 comments
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Society

Interview: Saad al-Barrak

by Thomas Schellen May 3, 2012
written by Thomas Schellen

The story of Arab telecommunications is rife with great achievements, rapid changes, sudden setbacks, and yet-to-be-realized potential. New technology, infrastructure and mass uptake have allowed the region’s information communications technology (ICT) sector to provide more exciting corporate tales than most other industries between Casablanca and Kuwait City could offer. The Arab ICT sector has also attracted some of the most enterprising and daring minds in corporate Arabia — among them is Saad al-Barrak. As the head of Kuwait’s MTC/Zain, Barrak led the telecom company from a purview over one small nation to a customer base of some 70 million customers and an intercontinental footprint. His narrative of how Zain became a marker in the history of Arab enterprise success is the subject of his first book, “A Passion for Adventure”. Barrak sat down with Executive for an exclusive interview to discuss his newly published work.   

The PR announcement of your book trumpets that Saad al-Barrak “transformed a moribund ex-state-owned Kuwaiti operator into the telecom giant Zain”. Do you see the story this way, as one person’s singlehanded triumph – yours?  

Nothing could be further [from the truth]. There is no one-man show. No, I think the issue was building a coalition and extending it to a whole organization composed of people who are believers and achievers at the same time, because believing is achieving. And that is how it happened; it was the Zain cult that achieved this transformation.

You wrote about your mother as being the ruler of the bayt (house), the interior life in the family and that she was very important for your evolution. How does this reverence for your mother as a person who manages the home correlate with the ability to manage a global company?

It correlates very well. It [describes] dedication, belief, and determination. For example my mother’s dedication to her family and to her children was insurmountable. Family is a unit and managing it is managing a group of people trying to achieve objectives. This is very much in line with managing [a company] where you are responsible for managing a certain group of people and achieve objectives. The sense of dedication and commitment and sacrifice and tenacity in pursuing your objectives are extremely interrelated.

You highlight the importance of achieving objectives, but in your book you took a jab at Peter Drucker’s management by objectives and said your way is management by love. Why?

That’s right. I think objectives are stationary or static and limited in that regard. We therefore should look at objectives as the floor and not as the ceiling. We also should look at them in an evolutionary way because objectives evolve. For example when we started our 3x3x3 [Zain growth strategy] we were talking about 30 million customers, which soon moved to 100 million as our objective. The issue is the direction and the way forward, thriving, growth, and so on. To thrive you need objectives as stepping-stones and not as the architecture itself.

You said that 90 percent of managers are stuck in a structural approach to management of the type introduced by 19th century economist Frederick Taylor. Do you see this high prevalence of focusing on management by task as opposed to relationship as something specific to the Middle East region?

No, I think it was an outcome of the industrial age. Mechanization was a historical stage. People were too loose and you needed quantification to measure and streamline advancement. That is needed and Taylor was definitely one of the greatest contributors to management who tried to take a step forward by bringing quantification and mechanization in a way that is conducive to better managing and progressing in your objectives. It is great as long as we look at it as a stage, but we must not forget the essence of management, which is the human side and the humanization of business. I say the emotional, spiritual side is the essence of management and leadership, not quantification.

The story of Zain as you were involved has a beginning and an end. In your book, did you conceal any regrets about how it ended?

Not at all. I am a warrior, not a worrier. If I finish one battle, I go to another battle. If I finish one war — and by that I mean peaceful war — I go to another one. I have no regrets in that regard. Of course, I look at regrets as learning episodes and not mourning episodes. I will have to employ this in the next episode of my life, but it is a journey and the achievements have already happened. We have achieved a great dream of taking a very small company from a very small country to be nearly a global company, highly international with massive achievements and 16,000 people working on it. The moments of happiness were 99 percent. I hope we will all enter our new stage in life, wherever we are and whatever direction we are taking, in a very positive and enticed way that should make us happier and make us better achievers and better global citizens.

In the sense that Zain’s role did not continue on the world stage and that the project regressed to a smaller level, is this not a point of regret?

It is not a matter of regret. It is a matter of being objective and pragmatic. We always strive to change it but we are not surprised or shocked to see that this limitation is there. It is sad if you go back to a smaller level, definitely. We wanted to be an example to the whole world and set an example for our region at the same time.

Seeing yourself as you say as cultural revolutionary, can you change the mindset of the Arab corporations?

That is the reason why I wrote this book. We wanted to document the great experience of the Zain story and reflect in it the new business and economic ideology that we are preaching and which is compliant and part and parcel of our universal, open philosophy — an all-encompassing philosophy considering the universe as our homeland and humanity as our tribe.

In your opinion, why are there not more globally known Kuwaiti entrepreneurs?

Kuwait is a very rich country and many Kuwaitis can make a lot by staying in Kuwait and around it. This did not really push them to be on the bigger platform. No incentive.

Do you want to play a role in Kuwaiti politics?

That is a very dangerous question. I also have a passion for politics as I have a passion for leadership. So far I am really enjoying the private sector and the space that the private sector gives you. Politics is very limiting to the space. I still can give and be very active and so [being in politics] could be extremely inhibiting to my soul. But later on, at the right moment and with the right combination of the leading change coalition, if the circumstances are conducive and if the country is ready to accept such a coalition to change it to a better country, I will not hesitate to be part of this.

Looking forward, you are talking about a company and other ventures. Where do we stand?

I have started a company called Ila, meaning forward or toward in Arabic. In this company we focus on two things. One is that we provide management expertise and strategic advisory for ventures in telecom and telecom-related IT. The other side of the business is investing in very small startups that are extremely promising.

So you take a financial stake in those companies?

We invest in each startup between $1 million and $5 million. Later on, we want to set up a fund of $300 million to invest in telecom-related IT, according to our philosophy of creating small startups that are very promising in value creation.

One of your statements is do not set out to make money, set out to make history and the money will follow. What is your net worth as result of practicing this maxim?

We made money for our company, for Zain. But it was on our expense, because it took all our efforts and the remuneration was not as commensurate as it should have been. We have no regrets in that regard. We are trying now to make good wealth out of this new venture, Ila. 

May 3, 2012 0 comments
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Since its first edition emerged on the newsstands in 1999, Executive Magazine has been dedicated to providing its readers with the most up-to-date local and regional business news. Executive is a monthly business magazine that offers readers in-depth analyses on the Lebanese world of commerce, covering all the major sectors – from banking, finance, and insurance to technology, tourism, hospitality, media, and retail.

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