Society

A Passion for Adventure

by Executive Staff
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.”

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Society

The Formula One family car

by Yasser Akkaoui
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.

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Real estate

History under siege

by Jeff Neumann
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.”

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Real estate

For your information

by Executive Editors
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.

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Banking & Finance

Financial quotes of the month

by Executive Editors
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
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Banking & Finance

The expert opinion MENA stock tips

by Executive Editors
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.

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Banking & Finance

For your information

by Executive Editors
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. 

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Economics & Policy

For your information

by Executive Editors
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.

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Editorial

Parliament’s reckoning

by Yasser Akkaoui
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.

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Economics & Policy

Tunisia: Moderating Islam and government

by Daniel Harris
written by Daniel Harris

On a brisk spring day last month in the Tunis, one could have been forgiven for thinking the revolution was still in full swing. Stepping out of a hotel onto Habib Bourguiba Avenue — normally a bustling artery through the Tunisian capital lined with cafes and restaurants — Executive was enveloped in teargas and forced to flee down side streets with other bewildered bystanders, lest be trampled by the waves of whistle-blowing, baton-waving police in riot gear.

There was a sense of déjà vu to witnessing interior ministry forces in full pursuit of perhaps the very same shabaab (or ‘youth’) whose sustained protests helped oust former President Zine el-Abidine Ben Ali from power in January 2011. Now, however, instead chanting against dictatorship, they were denouncing the party that had won the plurality of seats in the first post-Ben Ali elections last fall, Ennahdha — or in English, the “Renaissance” Party.

Several days later at this once-banned Islamic movement’s headquarters — an apartment building draped with blue banners in the Montplaisir neighborhood of Tunis — phones rang incessantly and were answered by a young, multi-lingual staff, who hurried between offices clutching folders and papers. Men wore business suits, minus the tie, with clean-shaven faces or closely cropped beards; women mostly, though not uniformly, wore a hijab to compliment their western fashion sensibilities. The atmosphere was all at once casual, stressed and excited. There was energy in the air.

As it turned out, the casual factor was purposeful and came straight from the top. The movement’s septuagenarian founder, Rachid al-Ghannouchi, is “easy-going” and not the stuffy kind of Islamic theologian one might expect, according to an elderly man named Ahmad who sat in the waiting room. He would know — the two men shared persecution for their activist pursuits under the Habib Bourguiba regime that preceded Ben Ali, spent some two decades in exile together in London and returned to Tunisia only after revolution.   

Born in 1941, Ghannouchi, who studied philosophy in Damascus and at the Sorbonne in Paris, came back to Tunisia and joined the Quranic Preservation Society in 1970, helping to organize the Islamic Tendency Movement, Ennahdha’s predecessor, in 1981. As a political activist and Islamic philosopher, from early on his energies and publications had focused on real-life issues facing Tunisians — such as the economy, political reform and human rights — rather than doctrinal Islamic matters. 

“What concerns the young people of today?” Ghannouchi was quoted as saying in the early 1970s. “The position of the Mu’tazilites on the attributes of God?… Whether the Quran is pre-existent or created? Was Islam revealed for this kind of useless, sterile argument? I wonder how our students feel studying ‘Islamic philosophy’ when it offers them only a bunch of dead issues having nothing to do with the problems today.” For an Islamic leader in the Middle East, such opinions are decidedly liberal.

To protect and clarify

Back in the waiting room, after a seemingly endless stream of well-wishers, friends, advisers, petitioners and politicians and had passed through, Ghannouchi’s secretary — a pleasant young woman with a degree in English literature — ushered Executive into a large conference room.

In attire, Ghannouchi was an older version of his staff — dressed in a gray suit, blue shirt with an open collar and close-cropped beard — but he seemed worn for this late afternoon interview. There was a definite, if subdued, gravitas around the man who had been imprisoned, tortured, and exiled from his home, and now led the political party with the most power and influence in Tunisia at this crux in history.

After handshakes, the interview moved to a corner crook of black couches. Throughout the conversation Ghannouchi’s right eyebrow was cocked upward and he spoke slowly and purposefully in a soft, brittle English that stressed the burden his words carried. Ahmad, who sat close to his side, leaned in and as the interview went on his eyes took on a concerned look. Ahmad’s affection for the older man was obvious, and he interjected on occasion when Ghannouchi’s statement tripped on broken English. There was a sense that Ahmad was present both to clarify for, and protect, Ghannouchi.

Perhaps there was good reason to feel defensive. Since Ennahdha electoral victory and subsequent formation of a governing coalition to write a constitution, intermittent strikes and protests have gripped the country. The party has come under significant criticism of late, mostly from the Tunisian left. Secular organizations, trade unions and young activists who took part in the revolution claim that Ennahdha is stealing the revolution away from those who carried it out in order to Islamize the country.

“They fear sharia [Islamic law] because they don’t know the sense of sharia,” said Ghannouchi, adding that this fear is isolated to the Tunisian elites. After a teargas bath courtesy of Tunisian police, Executive questioned whether the situation was so easily explained.

“It is normal for the Ministry of the Interior to forbid demonstrations in some streets, in some places in the capital,” said Ghannouchi. He explained that there had been a temporary ban enacted on Habib Bourguiba Avenue at the request of businesses on the street. Previous demonstrations had disrupted the flow of foot traffic, driving away customers and tourists from the cafes and the Old City at a time when the economy is already suffering. He pointed out that protests on major thoroughfares in European capitals were also not allowed. While critics had compared Ennahdha’s use of police suppression to that of former President Ben Ali’s, Ghannouchi dismissed this as exaggeration and propaganda designed to damage Ennahdha’s reputation.

At a press conference following the protests, Ghannouchi had appealed to Tunisians to be patient. But how patient are Tunisians at this point? Are they not fed up with waiting for positive change?

“People now are fed up with demonstrations, with [streets being cut off], and strikes,” said Ghannouchi. “People would like to work. They are fed up with the freezing of the economy.”

The demonstrators, claimed Ghannouchi, want to stop Tunisia’s economic progress — they want Tunisia to fail because that would mean Ennahdha would fail too. It was those elites, not the main body of the Tunisian people, who were afraid, and were acting in this way.

“We respect this fear,” he said. “And we would like to build our constitution on common ground… Fifty-one percent is not enough to build a constitution.”

To its credit, Ennahdha has gone allayed many secular fears. Its officials have stated that it will not try to ban alcohol or force the hijab on women, and Ghannouchi recently announced that it will not include sharia law in the constitution. And yet the fear persists, amongst both Tunisians and outside observers, that Ennahdha will eventually go too far.

Ennahda’s fellow Islamists, the Salafists, compound that fear among the more secular segments of Tunisian society. When a Salafist Skeikh called for Jews to be murdered, there was a popular outrage in Tunis and Ennahda was critizied for not condemning the statement quick enough. “We oppose what some Salafists have done,” Ghannouchi countered when asked about this an other incidents such as attacks on media by Salafists. “When they made some slogans against the [Jewish minority] in the country, I phoned the Chief Rabbi and I [expressed my support]. The Chief Rabbi, after we won the elections, he visited me to congratulate our movement and explained that he had no fear from Ennahdha, that it was moderate, but he said he feared the Salafists..”And while he may not approve of media outlets publishing caricatures of God or the Prophet Muhammad, Ghannouchi said that he disavows the use of any violence to oppose it.

Same but different?

For many Tunisians, the ills of Ben Ali’s rule have not faded, not least the economic ones like the 18 percent offical unemployment rate. Ennahdha’s platform would initially seem to differ little from that of former President Ben Ali, in its support of free market mechanisms and privatization buffered by a social welfare net, and its emphasis on tourism. Acknowledging this, Ghannouchi underlined two main differences: “Ben Ali [was] corrupt,” he said plainly, eliciting frank nods and laughter from others in the room. “We want to have a sacred war against corruption.” Secondly, Ghannouchi stressed that the focus of public spending would switch from the more developed coastal regions to developing the neglected interior. The government is planning to pour public resources and infrastructure programs in cities such as Kasserine, Gafsa, and Sidi Bouzid — hometown of Mohammad Bouazizi, whose self-immolation sparked the Tunisian revolution, and indeed the entire so called Arab Spring.

Ghannouchi admitted this increase in public spending would strain government coffers, but said it was necessary in the short-term to spur the private sector recovery, growth and employment in the long term, while also creating an environment attractive to foreign investment. “The real enemy of Tunisia now is unemployment,” he noted. Pointing to the positives, Ghannouchi said the investment, tourism and exports had all seen recent increases.

A ‘rational’ West

When it came to foreign relations, one could imagine an American official at State Department listening in to Ghannouchi while going down a checklist of things that they want to hear an Islamist leader in the Middle East say. While the United States supported the previous regimes in Tunisia, Egypt and Yemen, Ghannouchi pointed out that the US did not intervene to try to save them when the revolutions erupted.

“The US behaved, vis-à-vis the ‘Arab Spring’, rationally, supporting democratic change, supporting its development,” said Ghannouchi. “What we want is for the US to not give any priority to any side because of ideology, to treat all parties the same, equally, regardless of religious background.”

There will be changes in foreign policy, however: “Ben Ali and Bourguiba opened only one door. This door is towards Europe and the West. We will preserve this door, and we will widen this door,” he said, “but we will open other doors, to the [Arab Maghreb], the Middle East, the [Persian] Gulf, Africa, Asia, [Latin America]… We keep this door to the west open, but we will open other doors.”

Throughout the interview it was clear that Ghannouchi wanted to impress upon people that Ennahdha was different — different than Ben Ali and different than other Islamist movements. And yet the paranoia persists that Ennahdha has a secret agenda to impose strict Islamic adherence upon the country.

One must concede that in such an environment it is entirely possible that Ennahdha’s opponents are demonizing it in order to weaken it, that Ghannouchi may have a case in claiming that the demonstrators would rather see Ennahdha fail then see Tunisia succeed. However, the youth on the streets of Tunis today would surely beg to differ.

“Freedom and justice is the main sense of Islam,” he said at one point in the discussion. If it really is just about freedom and justice, than it remains to be seen what makes Ennahdha different from secular Tunisian political parties that emphasize the same things. And perhaps it may be Rachid Ghannouchi himself, with his story of struggle, persecution and return from exile to a homeland that becomes Tunisia’s Nelson Mandela, or just another Islamist.      

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