Executive Magazine

We’ve heard that joke before

by Thomas Schellen May 3, 2012

written by Thomas Schellen

April has the connotation of pulling people’s legs. On April 1, for example, Israel’s naval commander Major General Ram Rotenberg’s ordering of three vessels to prepare an overnight sail to Naples to commence a 10 day exercise. Reports on Israel Radio said officers and crew were not amused when they found out on Sunday morning, after working through the night, that the whole thing was their commander’s idea of a wholesome joke. April Fools! One hopes it was not meant as such a cruel jest when it was suggested that Lebanon could get a new techno park for entrepreneurs — a locale where startup companies and small enterprises with a high-tech edge could avail themselves of broadband connectivity and hard and soft business infrastructure. Yet when two highly positioned voices in the Lebanese socioeconomic fabric said, in a curious coincidence of timings just ahead of April 1, that they could provide the country with a techno park, more than one person asked me if I thought they were serious.

The economic heavyweights who announced techno park project ideas were Mounir Douaidy, the general manager of Lebanon’s urban developer, Solidere, on March 29, and Nicolas Sehnaoui, the minister of telecommunications, on March 30. Doueidy positioned his projected park in Solidere’s Waterfront District while Sehnaoui pointed to a government property in the municipality of Dekwaneh.

The idea of a techno park is neither bad nor new. Clustering of businesses is a good way to enhance competitiveness and generate synergies. The concept rose to global acceptance in the 1990s through the mother of all information and communications technology (ICT) clusters, Silicon Valley. The datedness of the techno park concept, however, casts the first doubt over the seriousness of these latest Lebanese projects. There have been at least three major aborted ICT park projects in this country among the many victims of Lebanon’s chronic disease of unrealized projects. The latest attempt was called the Beirut Emerging Technology Zone (BETZ). Researched from the late 1990s, this tech zone project was finally shipwrecked about five years ago in Damour, the sleepy coastal town south of Beirut selected as “perfect” for locating the zone.

Why would a new Lebanese techno park succeed, more than a decade after other countries in the Middle East established their ICT clusters, such as Smart Villages in Egypt and Dubai Internet City in the United Arab Emirates? On the other hand, the absence of first-mover and big-size advantages doesn’t predicate failure of a good concept. Also, the success of other clusters in the Middle East (and some will argue, of Lebanon’s Berytech technopole) demonstrates the potential of new techno parks. The next question is why did Lebanon’s ICT zones never get off the ground at the time when they were avant-garde projects? Dumb question, sad answer: politics, of course. BETZ ran into petty political cliffs even on the municipal level. Looking at Damour in hindsight, it seems it was much easier to build beach resorts than create ICT clusters. This notwithstanding, there is no disputing Lebanon’s comparative advantages vis-à-vis other locations in the Middle East in human capital, entrepreneurial spirit, and even private sector business dynamism.

The ingredients are there, but are the consensus and will strong enough to overcome political inertia and clusters of administrative incompetence? This crucial question returns us to the issue of insincere projects and reputation management. Douaidy was sincere on the company’s agenda by saying that Solidere was thinking about making Waterfront lots available for the project on a temporary basis as, “it could be a few years before we start selling these lots for development.”

Even before his presentation at the ArabNet entrepreneurship summit in March, members of his team emphasized that Solidere is “only thinking about a techno park in the Waterfront.” Asked almost a month later if there was any progress on the idea, they said, no, not really.

It is true that temporary projects in Lebanon mysteriously instill more confidence than big master plans. But will a consultation with entrepreneurs and a presentation of a good idea be enough to start us on an ICT cluster in Beirut, where budding Lebanese entrepreneurs can gear up in the next few years toward serving the growing markets of countries such as Iraq and, hopefully, Syria?

Methinks not. Kindly, Lebanon, prove me wrong

May 3, 2012 0 comments

Business

Rooted in the roof

by Thomas Schellen May 3, 2012

written by Thomas Schellen

When people mess with botany in the design sort of way, you either get a sculpted garden or a jungle feeling. The former can be as totally enthralling as the Jardins du Château de Versailles, but at the economic cost of having to be manicured constantly and at the ecological expense of being and appearing highly artificial.

The less obviously intrusive design is the hallmark of the organic approach, which appears to be working well enough on the business side for Green Studios, a recent Lebanese entrepreneurial venture. Green is so ueber-in as a corporate marketing mantra that it is almost prohibitive to trust a company that comes bearing a green moniker on its forehead. But you can trust the business story of the Green Studios venture to be solidly rooted in the most traditional art of shaping and uplifting the human environment with greenery: they design and deliver rooftops and walls that resemble green fields and gardens. “We are a local startup of four major partners, each coming from a different discipline,” said Jamil Corbani, chief executive of Green Studios.

The twist is that the partners in Green Studios have approached this conventional business with some novel homegrown research and development (R&D), a patent (how rarely does a reporter hear of new patents made in Lebanon), and have sprouted from zero revenues to profitability in only the company’s second year, with a net income of slightly over $100,000 on revenues of $471,000 in 2011.

Profits bloom

For the current business year, (which ends on August 30), Green Studios predict a year-on-year increase of 17 percent in revenues to $550,000 and 7 percent net income hike to $110,000. Corbani said revenues and gross profits from September 2011 to February 2012 jumped 300 percent when compared with the same period in 2010 to 2011, implying that the company made a huge leap in the second half of its fiscal 2011. Green Studios was incorporated on September 1, 2009.

The elements driving their growth spurt were initial market exposure through the Project Lebanon exhibition in June 2010, registration of its patent in April 2011, winning of an entrepreneurship award from the Beirut Traders’ Association and Bank Audi in June 2011, and landing a green wall project with the Lebanese benchmark developer, Solidere.

“As soon as we registered the patent we were well positioned for business,” Corbani said. He called the win of the first prize in the Beirut Traders’ Grow My Business (GMB) competition “super important” for boosting the team’s morale and for building the company’s momentum, in combination with the contract for the green wall in the Sweat Tea hospitality establishment in the Beirut Souks, the flagship commercial development of Solidere.

Working on the Sweat Tea project with a renowned French landscape architect and expert in green walls provided Green Studios with a huge learning experience, Corbani said. The company furthermore established contacts with a German firm, ZinCo Green Roof, which holds a number of patents in the technology. According to Corbani, Green Studios will collaborate with ZinCo on green roof technology for hot climates. Joachim Stroh, a spokesperson for ZinCo, confirmed to Executive that the two companies had signed a letter of intent.

The German firm, which has activities in about 40 countries and on its website claims to be a global market leader in the technology of green installations, eyes the Arab market for expansion, Stroh said.

Remarkably, the evolution of Green Studios did not, at least not initially, involve any market research or business plan. It was more of an existential move, as his spouse’s determination to have the couple’s first child in Lebanon motivated Corbani to look for an entrepreneurship opportunity in their home country where he could use his training as an economist and experience in hydroponics and agriculture. Linking up with friends versed in architecture, landscape architecture and agricultural engineering, led to the establishment of the company.

Each contributed modest financial capital — the company’s description in the business outline submitted to GMB put its combined common equity and additional paid-in capital at $106,000 — with Corbani the largest single shareholder at 46 percent. The partners split their investment capital equally between R&D into hydroponics and plants on one hand and landscape design capabilities on the other hand. The firm’s operational bases are a nursery in Tabarja, north of Beirut, and a small design office in the Beirut suburb of Antelias.

According to Corbani, the firm’s competitive edge lies in its specialization in green installations in hot climates. Its patent is for a “skin”, the plantable surface that can be mounted on a wall or roof to make it a green wall or roof.

The market size that Green Studios sees in Lebanon is only a rough guess. “We estimate that three percent of landscaping jobs are high-end jobs and that five percent of these high-end landscaping jobs are up for grabs [for the company]. This gives you a target to reach $3 million to $4 million annually after five years,” Corbani said.

In pursuing its long-term commercial aims of becoming a leader in green installations suitable for hot weathers, the company now wrestles with two objectives of doing more R&D and acquiring more business through regional expansion of operations. “Our main concern is how we will really balance these two, because we are very young and have time to grow,” Corbani said.

Balancing growing and growth

He aims to achieve the balance by registering several patents in the United States and through establishing a base outside of Lebanon as a platform for the next growth stage. “Then strategically I would be interested to team up with an American or Japanese company that is willing to enter into the hot-weather markets. I want to have such a partner.”

In the meanwhile, Green Studios is competing for work on high-end residential projects in Lebanon like the Beirut Terraces, an apartment tower scheduled for construction across from the Phoenicia InterContinental and Monroe hotels in the central district.

By midyear, work is also expected to start on a green roof for one block of the Hamra head office of Banque du Liban (BDL), Lebanon’s central bank. The initiative is a collaboration of BDL and the United Nations Development Project’s (UNDP) energy efficiency support program for Lebanon, dubbed Cedro.

Cedro-UNDP has taken the project through its preparatory phases to the point where three competitors for the project have been short-listed — a joing bid by Green Studios and ZinCo among the three — and the contract is to be awarded and execution to commence within two months from end of April, according to Cedro-UNDP Project Manager Hassan Harajli.

The project is for an intensive green installation with about 80 percent greenery and 20 percent recreational space for central bank employees, and thus fits the high-end categorization. Harajli told Executive he could not provide an estimate of the project’s value, but added that UNDP had allocated a budget and the BDL had committed to filling eventual funding gaps.

According to Harajli, Cedro will use the project to measure the green roof’s energy savings effect on the heating and cooling of the very active BDL floor located beneath, as a case study for energy efficiency.

But it is also a standard-setting project and for that reason the UNDP applied very stringent selection criteria on the qualification of contractors. Harajli said, “It is the first time doing a green roof of this size on a public building in Lebanon. We can’t get it wrong.”

May 3, 2012 0 comments

Comment

The perils of pipedreams

by Paul Cochrane May 3, 2012

written by Paul Cochrane

Serious plumbing problems have arisen in the last year for the region’s multibillion-dollar pipeline plans. For starters, the Euro Arab Mashreq Gas Pipeline, also known as the Arab Gas Pipeline (AGP), has been attacked 14 times over the past year in Egypt’s Sinai Peninsula, ending exports to Jordan, Syria and Lebanon, as well as to Israel via an offshoot pipeline. At the tail end of the 1,200 kilometer pipeline, the uprising in Syria has postponed the completion of the AGP’s final leg to Kilis in Turkey.

Meanwhile, the recent European Union (EU) sanctions on Iran have spelled the end of the viability of the much feted Nabucco gas pipeline that was to take gas from the AGP, Iran and the Caspian region, via Turkey, to Europe. The root of such pipeline problems is that usual suspect: politics. The AGP was attacked in the Sinai, according to statements by the Egyptian Ansar Al Jihad group, as part of a campaign against “the corrupt (Egyptian) regime and its Jewish and American backers.” Indeed, last year’s revelations about the preferential pricing of Egyptian gas have shown the shadowy political bends of the pipeline. When the AGP was launched in 2003, the Egyptian Natural Gas company described it as facilitating “the dawn of Arab integration”, but recently revelations have shown how it was used to sweeten Egyptian ties with Amman and Tel Aviv, with Washington’s blessing.

In 2005, Cairo had inked a long-term deal with Tel Aviv to sell gas at anywhere from $0.70 to $4 per million British thermal units (BTU), depending on which media sources one consults, well below the global average of $6 to $7. Jordan’s special price arrangement with Cairo was $3 per million BTU. The pipeline attacks have cost Egypt needed export revenues, likely the reason they pulled the plug on the Israeli contract last month. Now the Israelis will continue to shell out an additional $4 billion to source gas elsewhere while Jordan’s energy bill will be an extra $2.4 billion this year to offset the loss of as much as 25 percent of the kingdom’s energy supplies.

Significantly, the pipeline shutdown has highlighted the AGP’s over-dependence on Egyptian gas, something energy observers have pointed to for years. On paper, Egyptian gas was to flow through Jordan to Syria and Lebanon, with Syria pumping in its own gas for export on to Turkey and ostensibly to Europe. The problem is Egypt’s domestic energy consumption is rising fast, as is Jordan’s and Syria’s; even if the pipeline is completed, there will likely not be enough Egyptian or Syrian gas flowing through the AGP to meet even the Levant’s needs, let alone leave extra to sell on to Turkey or Europe.

For the AGP to be viable if or when it re-starts, more gas must be sourced — perhaps from Iraq or Qatar to supply the AGP in Syria, or from Iran and the Caspian region which can connect to the AGP via the Nabucco network in Turkey. Iraqi instability, however, means completion of that part of the pipeline network is years away, while the Nabucco pipeline is no closer to realization than when it was announced in 2002.

Financing Nabucco has been a major obstacle, which is forecasted to cost as much as $25 billion. But what may be the death knell was the EU’s decision to follow Washington in slapping sanctions on Iran earlier in the year, ending all energy exports from Iran to the EU. Nabucco is only commercially viable if it can draw on Iran’s reserves — the world’s second largest — as Azerbaijan and the Caspian states cannot provide enough gas for Europe, Turkey, the AGP and other export commitments.

What is supremely ironic about the EU’s decision is that Nabucco was supposed to loosen Russia’s grip on the EU’s gas imports — currently at some 34.2 percent — given Moscow’s propensity to turn off the taps to enforce its will, as it did during a price dispute with the Ukraine during the icy winter of 2009.

Theoretically, pipeline networks linking the Middle East, the Caspian region and Europe would make for glorious dividends for all involved. Political shenanigans, however, will likely keep these networks pipedreams, especially given that the crucial link — Syria — looks to be spinning down the tube for some time to come.

May 3, 2012 0 comments

Society

Views, Reviews, and Previews

by Thomas Schellen May 3, 2012

written by Thomas Schellen

The new book by Lebanese communications consultant and former ad-man Ramsay Najjar, “Views, Reviews, and Previews”, in intellectual association with Executive, is a tour de force of theories, recommendations and projections on the pivotal role of communications and journalism in the history of humanity, as well as in the unfolding of the Arab uprisings. Executive sat with the author to chat about his latest work.

What motivated you to write this book?

The driving force that pushed me to write this book was that I discovered, to my surprise, that we lacked a serious source on the deed of communications in this part of the world. A reference sounds a bit too academic, but this was the driving force. But that was the second reason, the less important. The first was the ‘Arab Spring’. I always had a theory that in this part of the world, [with maturity of legislative, executive and judiciary being a long way off], the fourth pillar — communication — might be our only shortcut and roadmap to real democracy. That is why when the ‘Arab Spring’ started, I felt ‘this is my theory!’ and I wanted to grab the opportunity to prove this was opening a window to reach democracy, which we always thought to be beyond our nature and beyond the organic gifts that were given to the Arabs.

Would you be able to summarize your book in three words?

The title is doing exactly what you are asking me to do. We have views, in the sense that we are writing about the essence of communication from its start with the dawn of humanity until today. The ‘reviews’ is a connection between this and the real life, be it in politics, in the lives of society, in struggles, in war, everything where communication becomes organically linked to the game of life, and the third part was the preview and the ‘Arab Spring’, how can we make sure that communication can be the real safety net that would guarantee for this change to be positive and evolutionary.

Some key words appear quite frequently in your book, one that you emphasized yourself was ‘nuances’ and another one was ‘noble’. Both terms are rarely used in connection with the topics of journalism and advertising. Are these translations from Arabic concepts?

These are original to the English book and the proof of that is that the Arabic version does not have an equivalent of the term nuance. This word is key in my book because I meant to write an ethical chart that people in media should respect and abide by. Nuances are strategic because of three chapters in my book where I meant to create a certain equilibrium that will help the reader understand why the media is the fourth estate, why it was given the privilege of being the only tool that the citizen has to practice his democratic belonging to a system to observe and render his rulers accountable and liable.

Even more frequently than nuances, noble appears more than 120 times in the first 250 pages, or on average on every second page. Why do you stress so much on media as a noble cause and journalism as a noble profession?

Nobility is lacking in this part of the world. I think that we have imported the concept of media without its noble dimension. Even professionals in this line of business have a tendency of forgetting that they are in this noble cause. Only when they die, we remember that they are on a noble mission. My theory is that this fourth pillar can build the ‘temple of democracy’.

In the sixth chapter you defend the role of advertising and talk of its noble mission and benefits. Why is that a separate chapter?

All my life I felt that advertising is really underrated in this part of the world; that is what I try to say in that chapter. Also, the practitioners of advertising never have the time or motivation to defend themselves and their profession in the way I try to do.

Do you see it as realistic description when you say the journalist of the past was “super human, intelligent, enlightened, noble, daring, combative, and exemplary in seeking the truth and amplifying the voice of right and its achievements”?

Let us say it is the 17th or 18th century and you are recruiting a reporter. Would you have accepted to recruit someone who is less than that? In the early 20th century, you would have had Andre Gide, Albert Camus — those were the people with the profile of a journalist.

So you are not talking about the average practitioner of journalism?

No, I set a precept. Let us take Jean-Jacques Rousseau in the Renaissance; he was a journalist. Victor Hugo was a journalist. Milton, Baudelaire were journalists. Take the Arab example of what we pretend to call the Renaissance period, the Mohammed Abduh, Mohammed Ridha, Jurji Zaydan. All these were not only journalists but saw the fulfillment of their humanity would only be achieved if they either launch a newspaper or have a publishing house.

When you say that only the voluntary soldier and the journalist willingly face death, you seem to be saying that the journalist has something of a martyr impulse.

If he wants to abide by my ethical chart, yes.

You speak of a journalistic oath. How would one want to go about implementing this?

If doctors have it, engineers, pharmacists, and lawyers have it, I don’t see why we are until today not imposing on journalists to have a professional oath. Under the assimilation theory that I believe in, this [oath] will push you as journalist to be more disciplined. I am not saying that every single journalist will become a saint over night by respecting the code but at least it is the right way to go.

In your opinion, when you think of journalism as the brightest jewel in the crown of humanity, and taking all things into consideration, will quality journalism come back to the Middle East? Under your anthropological postulate will this new journalism provide leadership in the future and will your book help in giving birth to this journalism?

For me, the journalist should play the role of a catalyst, to empower the citizen to become more mature, more aware and vaccinated against all those diseases and viruses [of bad societies]. I believe that the ‘Arab Spring’ is definitely the opportunity for communication to play the role that is lacking in this part of the world, of empowering people to kind of elevate their IQ from instinct to the mind. I totally believe in that.

At the end of your book you develop scenarios on the future. How much probability do you give to this scenario where journalism as the fourth estate gives birth to democracy?

As a consultant I am not supposed to be present in the sense of ego. I am telling you that there is a scientific probability that is solid. Now, my personal subjective opinion is on a totally separate track but I believe it is possible and I can defend this. If four specific coordinates — the demographics, the freedom of expression, the law of ownership of media, the auto-regulation — are respected to the letter, the chances are very high. If they are not, we are doomed. We will go from bad to worse.

So its either good journalism or dictatorship?

Exactly. That is how I see it.

May 3, 2012 0 comments

Comment

Yemen’s long path of thorns

by Farea al-Muslimi May 3, 2012

written by Farea al-Muslimi

Yemen’s old history books speak of the fifth century King al-Tuba al-Yamani who, in the final seconds of his life, gives his heir some tips on ruling the country. The king whispers to his son that the one who rules the kingdom should “bear the bites of snakes and scorpions, devour its money, waste its blood, and kill the closest people to him, even it be his brother”. One might now wonder whether former President Ali Abdullah Saleh said anything of the kind to Abdu Rabbou Mansour Hadi, who took up the reigns of power at the end of February and has since gone about a purge of former Saleh loyalists

For 15 years before becoming president, Hadi had perhaps the most boring job in Yemen: as Saleh’s vice president his job was to attend ceremonies, cut ribbons and sit silently wearing his sunglasses. In just 60 days as president, he has sacked no less than 20 military commanders and 4 civilian governors.

This has relatives and loyalists of President Saleh, who still man many of the posts in Yemen’s government and military, feeling unnerved. Muhammed Saleh al-Ahmar, half-brother of the former president and the air force commander, refused to step down and shut down the airport upon hearing of Hadi’s decision to remove him. Eventually air force bases began to take orders from their new chief — the widely respected General Rashed al-Ganad — but Ahmar refused to hand over the air force's headquarters, stacked with Republican Guard units lead by one of Saleh’s son. He only left office on May 4, the same day tens of thousands of Yemeni’s took to the streets to demand the purge of Saleh loyalists.

The United Nations envoy to Yemen Jamal Benomar is now leading a new phase of negotiations between confronting sides. But getting Saleh’s relatives and allies to give up their financial and political power is an uphill battle. In Benomar’s own words before departing the country “the worst is yet to come.” Already there are murmurings in Sanaa that UN Sanctions could be imposed after a Security Council meeting on May 17. That’s not all.

Taking apart Saleh's old power apparatus is just one issue facing Hadi as he tries to balance an extremely fragile peace in Sanaa and quell mounting violence outside the capital. Yemen was already in an economic crisis before the uprising. Today it faces a humanitarian crisis, armed conflicts in many governates, governates outside the government control, fighting with Al Qaida in the Arabian Peninsula in the south, just to name a few burning issues. Yet, for all the press Yemen gets because of its role at the crossroads of so many conflicts in the region, little is done to actually help those who rose up against autocracy. So far the UN has received only $63 million dollars out of the $447 million dollars it needs for its humanitarian operations in Yemen. Moreover, the northern province of Saadaa is now under the harsh control of ethnic Houthi elements, and could inflame another sectarian conflict like the other six that occurred between 2004 and 2009.

Perhaps the largest challenge facing Hadi (and the rest of those with an interest in Yemen, from the United States to Iran,) goes is beyond military and security issues. Yemen’s youth movements remain camped out in the country's squares, unemployed yet determined to see out their revolution to wherever it may take them. But with idle hands in the devil's workshop, the more they sit around, the less likely they are to join the workforce.

Indeed, with the almost surreal swirl of calamitous circumstances enveloping Yemen, Hadi may need a miracle to come out of the coming months with the country anywhere near a semblance of stability — but it is not impossible. Thus, if he manages to continue his purging of Saleh’s old guard on the back of international, regional and local support, Yemen's downward spiral may be begin to plateau, and perhaps he may have more favorable advice to offer whoever is next at the helm.

May 3, 2012 0 comments

Business

Sweet offerings

by Sami Halabi May 3, 2012

written by Sami Halabi

Patchi International (Patchi), the family owned Lebanon-based chocolatier with operations in over 29 countries, is planning to offer up to 49 percent of its ownership to a strategic partner in the next two years, its Founder and Chairman Nizar Choucair tells Executive.

“We believe that we cannot continue by ourselves,” says Choucair. “We are not in need of funding. We just need companies in our field of business that have more expertise than us in the areas we are willing to invest.” Strategic partners will be included on the company’s board of directors on condition that they do not divest for a period of five years from time of acquisition.

The plan for expanding its shareholder base was first hatched in 2009 when Patchi had announced that it was interested in floating 49 percent of the company through an initial public offering (IPO) but later called off the listing citing post financial crisis market conditions as the reason.

Choucair declined to give details on how much the company was worth or what the target price of any IPO would be, stating that a valuation for the company has not yet been set. However, he says the company has seen a 45 percent increase in turnover since global coca prices spiked in 2010.

According to Choucair, who has run the business since 1974, the new expansion could be a mix of equity participation and IPO but the company has yet to decide whether it would offer the entire proposed stake to a strategic partner, put it on the market, or seek a combination of both. He adds that currently the company is targeting a sale of between 45 and 49 percent.

Listing in Lebanon, however, is not an option for Patchi because, “Lebanon has no laws that protect you or the partners you work with and lawyers can fool you,” says Choucair. Instead, he adds that the company will actually move its registration to the United Kingdom’s island of Jersey for its tax laws and because it “acknowledges the [Sunni] Islamic laws that state that when the owner dies, they give a share to the son, and half of that to the daughter.”

When asked about the type of partner Patchi would be willing to consider selling a stake to Choucair stressed that the company was not looking to sell to a private equity fund but rather to a company larger than Patchi in the same line of business in order to serve their new target markets.

According to Choucair, in the coming years Patchi will focus its retail expansion in the Far East with a focus on China. The move is another in a series of expansionary measures by the company away from its local Lebanese market. Patchi’s largest operation is in Saudi Arabia where it also has concentrated the manufacture of its chocolates.

But while the company’s main expansion focus is outside its home nation Choucair insists he is not giving up on Lebanon. He tells Executive that a new 15,000 square meter factory some 40 kilometers south of Beirut is slated for opening by the end of the year and adds that Patchi also expects to open four new branches in the country (Hazmieh, Nabatiyeh, Jbeil and Tyre). “But that would be it in Lebanon,” he says. “I love Lebanon and am still investing here since this is where I belong. However, I will not invest any more than that.”

May 3, 2012 0 comments

Economics & Policy

Lebanon’s awkward first steps

by Zak Brophy May 3, 2012

written by Zak Brophy

For more than 14 years Lebanon has watched in frustration as neighboring Israel and Cyprus have searched for and discovered rich reserves of hydrocarbon fuels under their maritime waters. Political instability and ineptitude had ensured that Lebanon remained a jealous bystander during this period. However, the passing of the first implementation decree pertaining to the Offshore Petroleum Resources Law on January 4 suggested that the country was finally on course to join the bonanza.

A short flurry of hubristic statements for the press at the beginning of the year suggested the petro-dollars would soon be bulging from the state’s coffers, providing plenty for all. However, while credit must be given to the Ministry of Energy and Water (MoEW) for having finally got the show on the road, some faltering and somewhat dubious occurrences suggest the country has stumbled as it shoots out of the starting blocks in its race for hydrocarbon riches.

Gebran Bassil, minister for energy and water, confidently told reporters back in January that the Petroleum Administration (PA) would be named within a month, the first tender round would begin within three months and the first exploration contracts would be signed by the end of the year. However, as Executive went to print at the end of April, the PA had yet to be appointed.

“This administration is the most important thing for the pre-launching of the exploration rounds and the tender rounds,” says Roudi Baroudi, an independent energy consultant and secretary general of the World Energy Council’s Lebanon member committee. “Once the PA has been nominated they can immediately move ahead with the different consultants they have to start preparing the bid rounds for exploration and to define which blocks they would like to have the companies bid for.”

From council to council

The passing of the decree approving the bylaws of the PA in early January should have immediately paved the way for the creation and staffing of the PA. However, on January 29 the Shura Council, Lebanon’s administrative advisory body, issued an opinion noting no less than 51 points of contention with the decree. In a copy of the document obtained by Executive, the first point raised is that it is incumbent upon ministers to send decrees to the Shura Council before they are sent to the Council of Ministers (COM), Lebanon’s cabinet. It notes that in this case the Shura Council was bypassed and the decree was submitted directly to the COM.

Cesar Abou Khalil, advisor to the energy minister, said, “The Council of Ministers re-voted on this decree and confirmed it, so it is pointless to discuss what issues the Shura Council has raised now that the Council of Ministers has used its prerogatives and have confirmed it. It is confirmed and in vigor.”

Shura council rulings on decrees are advisory, but they ensure that they are harmonious with Lebanese laws and the constitution. However, the course of events ensured that the COM was caught in a bind whereby, even if they had wanted to, it would have been difficult to adopt the Shura Council recommendations after already issuing the first decree. In such a scenario they would have been obligated to pass a revised decree, which would have left them looking both incompetent and inconsistent in the eyes of the prospective oil companies. The COM voted on March 21 to ignore the Shura Council and proceed with the January decree in its original form.

The majority of the 51 points from the Shura ruling are for minor technical details, but some significant issues are raised with regards to the independence enjoyed by the PA. For example, the Shura Council ruled that article 6 of the decree that gives the minister power to impose punitive sanctions on the PA, including a deduction in benefits, was in contradiction to the Offshore Petroleum Resources Law passed on August 24, 2010. In that law the PA is afforded financial and administrative independence under the Wasiyeh, or tutelage, of the MoEW and it is the level of control incorporated into this Wasiyeh to which the Shura Council took exception.

Abou Khalil from the MoEW, however, argued, “[The Petroleum Administration] is purely advisory… They have administrative independence because they are named by the COM and only the COM can dismiss them. The minister cannot dismiss any of them. But by law 132, [August 28, 2010] it is an advisory body to the MoEW. Under our watch, there will no breach to the constitution. The minister is the head of his sector.”

According to Abou Khalil the ministry is fighting a precedent set during the time of former Premiers Rafiq and Saad Hariri, as well as Fouad Saniora, which “hollowed the ministries by creating these independent bodies which are under the tutelage of the prime minister… The oil sector should be under the minister and it is the same in all of the ministries.”

Another significant objection of the Shura Council was to the proposed rotating chair of the PA. Under the MoEW plans the six members will each spend a year presiding over the body, which breaks with the convention of appointing one chairperson within such bodies. Opposition member of Parliament and head of the Parliamentary Energy and Public Works Committee, Mohammad Qabbani, is opposed to the level of control the MoEW is set to have over the PA arguing, “The idea of the presidency rotating between the six members will only weaken the power of the administration.”

Abou Khalil confirmed this was for all intents and purposes true, but argued that it is a positive and necessary development: “When there is a rotating presidency there is a cross auditing between the members… This sector, we believe, will become one of the main drivers of our economy and development in the near future. We need to be tough on this issue, we don’t want to create another body that can become stronger than the government.”

The COM is within its rights to either heed or ignore judgments by the Shura Council on proposed decrees, but the fact that the Shura Council was not initially consulted, as is both protocol and law, and topics of considerable import were later contested, hardly sets a promising precedent for the development of this nascent industry.

Filling seats in the PA

Malek Takieddine, a Beirut-based legal consultant who works closely with international oil companies in the United Kingdom and Iraq, pointed out that the delay in appointing the members of the petroleum administration has been a cause for concern for some oil companies. Nonetheless, he argued there is still strong interest from international players in Lebanon’s play, given the initial achievements of the ministry.

With the decree in its original form re-voted on by the COM, Prime Minister Najib Mikati told Parliament in mid-April that the PA would be announced within the month, and as Executive went to print the government was in the process of selecting candidates through the Office of the Minister of State for Administrative Reform and Development (OMSAR).

There was a time lag of some three weeks between the passing of the decree in March and the launching of this process, raising concerns that the major political players had tried and failed to barter the PA appointments before moving to the more formal approach. Going forward, which strings will be pulled to influence the appointment of the PA and the PA’s day-to-day operation remains an open question.

“If a minister decides to go through a procedure where there is deliberating, accepting applications and examining CVs before taking it to the Council of Ministers then we hear such accusations,” said Abou Khalil. “And if we propose the names right away to the COM they scream ‘oh, they brought their guys.’”

The oil and gas industry is incredibly complex, with large sums of money at play, and so the PA requires high caliber professionals with extensive and particular skills —however, qualified candidates will not be easy to land.

One of the pre-requisites for applicants is 10 years experience in the industry, but Takieddine reasoned, “It needs to be clarified when we say experience, it needs to be specifically upstream.” In common speech upstream is a reference to stages within the industry such as exploration and production, while much of Lebanon’s current involvement, and therefore skill-base, in the sector is in downstream activities such as marketing and distribution.

Furthermore, industry opinions point out that the wages envisaged for members of the PA, while being hugely generous for a Lebanese government employee — expected to be around $10,000 per month — would be considerably lower than similar-level private sector posts in the oil and gas industry. The majority of Lebanon’s talented workers with suitable upstream experience are based abroad and the government may struggle to lure them home with such wages.

The MoEW’s Abou Khalil dismissed these concerns, assuring that the quality of the applications were more than up to scratch. “They will be stunned when they see the CVs,” he said, and while acknowledging that the wage would be small compared to what could be expected from comparable posts with major oil firms, he was confident that enough talented Lebanese would want to share in the development of this potentially very lucrative sector for the country.

As with all public sector posts there is an age limit for applicants, which in this case has been bumped up from 35 to 57. However, Takieddine argued that the posts on the PA are perfectly suited for highly skilled and experienced people who are near, or past, retirement age, and would be more likely to accept a considerable drop in pay in order to return home and take on these important and challenging roles. Although the maximum age is 57 he argued an exception could be beneficial in this case. When asked if the MoEW would consider such a move Abou Khalil responded, “Then we would have a real problem with the Shura Council…We have pushed it to the maximum that we could.”

Perhaps one of the biggest hindrances to filling the PA with qualified people is the rigmarole of satisfying the sectarian divide. Within the pool of grade one posts in government, such as the PA, there has to be a balance in the representation of Muslims and Christians according to the constitution. However, over the years, it has become protocol to balance the allocations not just across the whole body of grade one posts but in every administrative body across the country’s main religious sects. Qabbani argued, “It should not apply to every administration. It should be a ratio that applies to the whole basket of first grade positions. It’s suicide.”

Considering the massive importance of administering and managing the oil and gas sector properly, there have been calls for the PA to be staffed purely on ability. “In the current arrangement qualifications and merit are not being sought after but rather it will be the blackmailing of each community against the others,” says Yahya Hakim, board member of the Lebanese Transparency Association, the local arm of the global anti-corruption organization. “Each community will be putting [forward] someone who speaks in their name, not someone who can really run the show. So all of the issues will be political and not in the hands of the professionals as it should be.”

Although it is only a legal requirement to balance the sectarian ratios across all first grade posts, and not in every administration, it seems that this practice will still be applied to the PA. “We will employ people with the best capabilities while respecting the Lebanese system,” said Abou Khalil, in reference to the sectarian balancing act in top level recruitment.

Minister Gebran Bassil has surrounded himself with a technical staff that has worked assiduously to lay the groundwork for the development of Lebanon’s oil and gas sector. Some progress is being made. However, the irregular way in which the decree was passed raises concerns over the integrity of the approach. All eyes are now focused on exactly what kind of body the PA will be and what role it will play in the evolution of this embryonic, yet potentially vital, industry.

May 3, 2012 0 comments

Comment

Rolling back the frontiers of reform

by Jihad Yazigi May 3, 2012

written by Jihad Yazigi

On March 18 the Syrian government announced it would set price controls for a whole set of key commodity items, and that all retailers will have to comply with the new restrictions. The decision is a response to the surge in prices witnessed recently in the local market. Indeed, while inflation remained relatively under control for most of last year, the last few weeks of 2011 saw a steep rise in the price of various consumer items, particularly food products; this trend has only accelerated since the beginning of this year.

The factors behind these price rises include the depreciation of the Syrian pound, the suspension of the free trade agreement with Turkey, the rising costs of banking and transport insurance due to economic sanctions, logistical and supply difficulties across the country and the increase in production costs due to growing power shortages. The prices of many food items such as sugar, rice, vegetable oil, tea, poultry, meat, eggs and butter have risen by double digit-figures in recent weeks; sometimes by up to 100 percent.

In effect, this dramatic move by the government marks a return to price control practices that had been abandoned long ago, when the Syrian government began to liberalize its economy in the mid-1980s. It is also a move to show the Syrian people that their government is doing something to relieve them from increasingly difficult living conditions. The Minister of Economy Mohammed Nedal al-Shaar said that “some greedy” traders were trying to benefit from the Syrian crisis, with local press accusing them of “sucking the blood of poor Syrians.”

This discourse on the responsibility of the business community is likely to be well received by large segments of the population. Four decades of socialist policies and anti-business discourses have, indeed, helped shape the mind of many Syrians. The Baath party’s rise to power, which promoted the country’s rural population and widened the size of country’s middle class, was largely made at the expense of the land-owning and urban elite that ruled the country since its independence from France in 1946. Putting the blame on capitalists, traders and the bourgeoisie was a regular part of the official speeches of Syrian leaders from most of the 1960s to the mid-1980s.

Obviously, the accusation was not to the liking of the business community and, in a statement, the head of the Damascus Chamber of Commerce asked the local media to stop blaming traders, who were “part of society and not imported!” The bad press for traders is, however, not solely to be blamed on ideology. It is also to a large extent the reflection of the severe market distortions present in the Syrian economy. Indeed, oligopolistic situations continue to prevail in a wide number of business sectors and although in recent years government officials used to acknowledge this more or less openly, nothing significant was made to curb these practices — doing so would, indeed, have endangered the interests of too many people closely tied with the government.

More significantly, the trade in accusations between government officials and traders reflects the dismal way in which the liberalization of the Syrian economy was conducted. Under the management of Abdallah Dardari, the key decision maker on economic policy in the Syrian government for almost a decade, large sectors were liberalized in the hope of attracting private investment. While in itself this opening was widely deemed necessary, it was conducted in a largely unregulated environment.

The retreat of the state coincided with the lack of a civil society and of its institutionalization (for instance consumer protection bodies) which enjoy little judicial oversight over enforcement. The large number of restrictions, which formally regulate business practices, helped give the impression that the State continued to cater to the general welfare. But in practice, a structurally corrupt administration acted more as a middleman for business actors than as an efficient body defending the interests of society.

The consequence of all this has been an increasing income gap and a gradual meltdown of state institutions. In a statement to the press, Shaar admitted to how empty-handed he felt. In reference to when the state still had a strong hand in regulating the economy he said: “We are no more in [the year] 2000.” It was also the year Bashar al-Assad became president.

May 3, 2012 0 comments

Advertising Special Report

Ad-vice from the top

by Executive Editors April 14, 2012

written by Executive Editors

“The problem is this [‘Arab Spring’] came in the wake of the remnants of financial struggle. The environment is not conducive to a high level of investments. Clients are maintaining their strategies rather than implementing aggressive ones.”

“At times like the ones we are in today, tactical or immediate-result advertising becomes the main requirement. The pressure is definitely on creatives today to deliver immediate or short-term results. I can see that 2012 will be similar to 2011 and 2013 will also be similar in the way that everybody is looking for immediate results. The big ideas and big deliveries will not disappear but they will be less and less.”

Joseph Ghossoub, chairman and chief executive officer, Menacom Group

“We have come a long way in developing planning and doing campaigns that no longer address a single media but are integrated. Our creative people are now thinking in a broad spectrum way of thinking, rather than in the silos of the media disciplines.”

Ramzi Raad, group chairman and chief executive officer, TBWA Raad

“The agencies are being put under pressure and our margins are suffering because of the pressure, but at the end of the day you have to stand for something and if you stand for quality and a certain standard, you have to find a way or quit this business.”

Raja Trad, chief executive officer, Leo Burnett Group MENA

“Mobile, specifically in our markets, will take up more and more share of the digital spending. The opportunity to connect with people on a 24/7 platform will generate exponential growth, especially [since] we’re starting from such a low base.”

Tarek Miknas, chief executive officer, Promoseven Group

“With the apps model we finally have a way where people can pay one dollar for something. With a paid website you obviously want people to pay but more importantly you want some people to think it is so valuable that they are willing to pay for it.”

Jimmy Wales, Internet entrepreneur, founder, Wikipedia

“I would say 2011 was the year when companies significantly improved their online investments. Better infrastructure means more users in the GCC. North Africa and the Levant also show significant improvements in [online] usage, so ads [will] follow.”

Ari Kesisoglu, Google regional director for MENA

Hussein Friejeh, commercial director, Yahoo Middle East:“The industry is dominated by 30 clients. Out of those 30, you have 10 who spend up to 10 percent of their ad budgets online. Once other clients get onboard, market will jump.”

Ajay Shrikhande, chief executive officer, DDB Gulf:“Perhaps one can compare the advertising industry awards with the air cargo industry awards, and how is the public excited with the air cargo industry awards?”

“We still have high hopes for Syria. It is a big market, a manufacturing market, and we believe that a lot of Syrian manufacturers and services providers will eventually grow into the region, including Iraq and Lebanon.”

Mark Daou, chief operating officer overseas, Rizkgroup Communications

April 14, 2012 0 comments

Feature

Syria rendez-vous with the rebellion

by Executive Editors April 14, 2012

written by Executive Editors

The deep, single boom announces a symphony of staccato gunfire, and the calm spring morning in Syria’s eastern mountains descends into chaos.

Two rag-tag groups of Syrian Army defectors, part of a loose umbrella group commonly known as the Free Syrian Army (FSA) have just detonated a gas canister full of explosives beneath a Syrian army tank which was patrolling outside their village. Having left their hilltop hideouts late the night before, the 11 rebel soldiers are now executing their hastily planned attack. Their payload delivered, the rebels fight their way home beneath airburst anti-personnel artillery and withering fire from the Syrian Army; of the three wounded that day one would later die.

Holed up in a small farm building on a cliff-top near the village of Janoudiyeh, this small group of defectors operating autonomously but in loose collaboration with similar groups in the area, is one of many such units striving to write the next page in the Syrian uprising. Saying they have learned from the mistakes of Homs, where the FSA was forced to make a “tactical withdrawal” after a month-long artillery bombardment, these fighters have taken to the hills, preferring quick surprise attacks over a protracted urban struggle.

But while they may maintain the element of surprise, supplies are scarce. This group relies on FSA comrades in a nearby village to keep them stocked up with food, but on a bad day lunch is foraged from the ground outside: cabbages, greens and spring onions.

A string of government assaults have recently driven the FSA from many of its strongholds, but the group’s fortunes may be on the rise. On Saturday, March 24, FSA chief Colonel Riad al-Asaad joined forces with a unit led by the most senior army deserter, General Mustafa al-Sheikh, to form a united military council.

The FSA needs to move beyond its fractious nature if it is to prove a substantive oppositional force. Foreign states with an interest in seeing the FSA succeed would then find it far easier to supply the weapons and support it with what it desperately needs.

“Given the weapons we have and what they have, we can’t do anything. Of course we don’t want outside interference but if things keep going the way they are then of course I hope that NATO would interfere,” said Lieutenant Mohammed el-Hajj. “Any kind of alliance…let Israel come into the country and it would be better than Bashar al-Assad… At least if they are bombing our children we would know it is not our brothers, cousins, our [own] army bombing us.”

April 14, 2012 0 comments