Executive Magazine

For your information

by Executive Editors May 6, 2012

written by Executive Editors

Real estate market “flat”

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

Rent-to-own law passes cabinet

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

MENA construction drops

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

Needing more malls

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

UAE banks boost credit, offer 100% mortgages

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

Corruption ties and net loss for Egypt’s SODIC

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

Saudi prince seeks big tower loan

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

May 6, 2012 0 comments

Banking & Finance

Financial quotes of the month

by Executive Editors May 6, 2012

written by Executive Editors

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

Mohammad Choucair, head of the Beirut Chambers of Commerce

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

“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.”

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

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

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

Barack Obama, President of the United States

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

Warren Buffett, billionaire investor legend when diagnosed with prostate cancer

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

Fadi Abboud, Lebanon’s Minister of Tourism

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

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

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

Fadi Ghandour, after resigning as CEO of Aramex, the delivery and logistics company he founded and managed for 30 years

May 6, 2012 0 comments

Banking & Finance

The expert opinion MENA stock tips

by Executive Editors May 6, 2012

written by Executive Editors

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

Elie Khoury

Bullish or bearish?

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

Main concerns?

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

Favorite asset classes?

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

Specific names?

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

MENA equities?

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

Nour Eldeen al-Hammoury

Bullish or bearish?

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

Main concerns?

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

Favorite asset class?

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

MENA equities?

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

Specific buy?

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

Any name in the MENA region?

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

May 6, 2012 0 comments

Banking & Finance

For your information

by Executive Editors May 6, 2012

written by Executive Editors

Banking secrecy exceptions

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

Eurobond oversubscribed

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

Qatar-Swiss mining mega merger

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

Egypt close to IMF loan

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

Kafalat loans drop

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

$100 million for MENA infrastructure

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

Financing Tunisia

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

Aabar dumps Daimler

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

May 6, 2012 0 comments

Economics & Policy

For your information

by Executive Editors May 6, 2012

written by Executive Editors

Popped for pills

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

Figures for thought

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

Lebanon failing its women

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

Prizing open the bandwidth

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

The MENA’s stunted growth

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

Less tourists spending more money

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

Fueling the future

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

May 6, 2012 0 comments

Editorial

Parliament’s reckoning

by Yasser Akkaoui May 6, 2012

written by Yasser Akkaoui

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

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

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

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

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

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

May 6, 2012 0 comments

Comment

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