Executive Magazine

Turning tragedy into transformation

by Paul Cochrane May 3, 2012

written by Paul Cochrane

The notorious ‘old rent’ law that has pitted landlords against tenants for more than half a century may, after two decades of legislative delays, be seeing its last days. If the draft of the new rent law passes in Parliament this month, landlords and real estate developers will be lighting up the sky with fireworks. The prospect of reclaiming properties in the coming years — meaning land to be bought and sold — entails billions of dollars in potential earnings amid a renewed construction frenzy in land-scarce Beirut. But for tenants, a less certain future awaits, hinging on a planned government fund to financially assist economically disadvantaged tenants pay gradually higher and higher rents, and the actualization of public housing projects to re-house the dispossessed.

The lingering law

The ‘old rent’ law is one of the more bizarre laws still in existence. Enacted after World War II to prevent socio-economic deprivation and protect tenants from greedy landlords, the law resulted in the saying, “the tenant is an owner”, as it gave many rights to the renter. Under the law, all rental contracts would be extended — against the will of the landlord — until a new one was enacted, meaning rents were fixed at the originally agreed upon rate despite inflation and changes in market dynamics.

If that was not bad enough for the landlord, getting the tenant out is nearly impossible without significant financial compensation, which ranges from 25 to 50 percent of the value of the property (not the land) and decided upon by a judge based on the financial situation of the tenant in relation to the landlord.

Furthermore, there are only two ways to ask a tenant to leave if no contractual mistakes have been made: if the purpose is to destroy the building, or if the landlord (or his family) wants to live in the apartment for which they have to prove a need to do so. “You can’t lay a trap to kick out the tenant. The law provides a very powerful status and protection for tenants. The only way is by default [on contractual obligations] or to pay them to move out,” said Nader Obeid, a partner at law firm Alem and Associates.

Rent law number 160 materialized after the Civil War in 1992. Crucially it liberalized the rent market allowing for new contracts, with the landlord able to raise rent after three years, yet it made minimal difference to landlords with tenants paying old rents. These rents were adjusted in line with the depreciation of the Lebanese lira in the early 1990s and a government-mandated minimum wage increase, although not to market rates. For instance, according to research by The Monthly, a residential rent agreement from 1970 estimated at LL1,000 per year would come out to LL390,000 ($260) at today’s prices.

Since 1996, Rent Act 160 has been extended 12 times, with the last extension, law number 171 dated August 29, 2011, having expired at the end of March this year. If the new draft law does not pass, a 13th extension will have to be enacted.

Problematic numbers

While the old rent issue could have been a marginal one if the number of tenants was relatively low, according to the advocacy group named the Committee for the Rights of Tenants (CRT), some 170,000 of Beirut’s 210,000 tenants pay old rent rates. But just as no one is exactly sure how many people there are in Lebanon (the last national census was in 1932), the number of properties on old rents — and the number of people living in them — is not exact either.

“The differences in the estimates of how many people are on old rents is a weapon in the fight between the pro and against camps for restructuring the law,” said Obeid.

According to Ministry of Finance statistics published by Executive in 2010, there are 139,719 properties rented before 1992 throughout Lebanon, with 58,341 in Beirut. In February, online publication NOW Lebanon challenged these statistics, stating that the Finance Ministry did not have a breakdown between old and new rents, while the Central Administration of Statistics (CAS) also said they had never carried out any research, and information released in 2004 only distinguished between residential renters and owners. [However, CAS’s statistics in general are out-of-date and unreliable, notably claiming there are only 3.5 million people in Lebanon when other estimates put the figure at well over 4 million, if not closer to 5 million.

According to Joseph Zoghaib, head of the Association of Landlords in Lebanon, based on taxation records and copies of rent laws submitted by municipalities to the Finance Ministry, there are 81,000 tenants on old contracts and an estimated 40,000 to 50,000 on new contracts. As to the number of landlords affected, Zoghaib estimates it at anywhere between 15,000 to 20,000. Whatever the statistics are as to the number of tenants on old rent, clearly tens of thousands of Lebanese will be affected if the new law passes; at the same time thousands of landlords have been financially out of pocket due to receiving such low rents. [The Committee for the Rights of Tenants could not be reached for comment.]

No money for maintenance

Zoghaib likens the old rent law to a cancer as it has deprived landlords of return on initial investment in constructing buildings and meant there have been insufficient funds for proper maintenance of properties.

“Rent control is a cancer on Lebanon’s economy, the standard of living, and should be aggressively treated,” he said. “Most landlords have lost hope that the issue will ever be resolved.”

Zoghaib has plenty of accounts about the trials and tribulations of being a landlord with tenants on old rent, with some forced to become doormen in the buildings they own to get access to the National Social Security Fund. According to Zoghaib; one landlord is so fed up he is considering a class action suit against the Lebanese government in the United States to pressure Beirut to overturn the law or face having the state’s assets frozen in the US.

Anger runs deep among the association’s members over what Zoghaib calls an “unjust law”, while in TV talk-shows addressing the issue over the past year heated words have been spoken between those ‘pro-landlord’ and those ‘pro-tenant’.

“Landlords have been suffering for 70 years. Before, when we talked of our plight, we were laughed at, but the second generation are freedom fighters,” said Zoghaib. “The silent majority think they are not affected by the old rent issue, but they are. For every $1 the renter saves, the Lebanese public is paying thousands of times more when it comes to higher rent and higher real estate prices, and it has caused huge revenue losses to municipalities and the government.”

Indeed, it would make for an excellent research paper to estimate the financial losses incurred by old rents on the Lebanese economy and how this factored into current real estate prices. The existence of old and new rent contracts has certainly wreaked havoc on trying to effectively analyze the real estate market, while it has contributed to Lebanon having an average price-to-rent ratio (how long monthly rent would have to be paid to cover the selling price of the property) of 22 years, compared to 11 to 16 years in peer countries. Lebanon also has much lower gross rental yields than elsewhere, at 4.65 percent, whereas it is more than 6 percent in Egypt, Morocco and the United Arab Emirates, according to the global residential property investor portal Global Property Guide in 2011.

“There is a gap between rent and real estate prices. It is between 3.4 percent to 4.5 percent gross rental yield versus the price, while it should be 6 percent, 8 percent or even 10 percent,” said Ayman Sanyoura, general manager of ProServices, a property services and management company in Beirut.

The shortage of properties available for rent on post-1992 contracts has also driven up prices, while the existence of the old and new rent contracts has often caused confusion between tenants and landlords as to their rights. “People are still unconsciously living under the old law,” said Obeid.

Furthermore, the lack of funds for maintenance has led to the loss of heritage buildings throughout the country, with buildings in such a dilapidated state that it is cheaper to tear them down — once the tenants have been compensated to move — than renovate.

“We are fighting for the law to be changed to be more fair as far as owners are concerned. It is not possible that a 200 meter square apartment is rented for $200 a year,” said Mona Halak, an architect and member of the Association for Protecting Natural Sites and Old Buildings in Lebanon (APSAD). “For heritage buildings, the owner should have the right to charge more. When we ask an owner of a heritage building ‘why are you tearing it down?’, he says ‘I get $300 a year, so why keep it?’”

The draft law

What galvanized the government into action to address the old rent issue was the collapse of a building in the Fassouh district of Beirut in January that left 27 dead and 12 injured. While there were tenants paying new rents, the majority of the occupants had been on old rent contracts, which opponents of the old law cite as a reason for the building’s tragic collapse due to lack of funds for maintenance. “It is sad to say it took 27 dead people to shock the government to draft this new law,” said Zoghaib.

The new law was drafted by the Parliament’s Administration and Justice Committee, chaired by West Bekaa Member of Parliament Robert Ghanem. A copy of the draft law in the form submitted to the committee was obtained by Executive, despite Ghanem’s office attempting to withhold it from the media. In its current form, the draft law seeks to find a solution by having tenants on old rent pay gradually higher rents over a six year period. Through government-appointed experts that report to a judicial committee, properties will be evaluated and an amount agreed upon by both the landlord and tenant. Then each year for the first four years the tenant will pay a 15 percent increase in rent, then 20 percent per year for the fifth and sixth years. After this time, the property can be rented at free market prices, but the tenant has the right, if they notify the landlord three months before the period ends, to stay on for a further three years, although at market rates agreed upon between both parties.

If a landlord wants to reclaim the property for family usage during the six-year extension period, then he has to pay compensation to the tenant equivalent to four years rent after four years of rental increases. To tear down a building, the same principle will be applied but on the value of the total six years of increased rent. In either of the above situations, if a property is considered ‘luxurious’, compensation will be reduced by half.

This proposed solution means that the compensation landlords pay out to tenants would be significantly less than the 25 to 50 percent of the value of a property under the old law, which is clearly to the advantage of landlords keen to reclaim their properties. The big question if this law passes is whether tenants will be able to pay the higher rent.

According to Zoghaib, out of the 81,000 tenants he claims pay old rent, 13,000 are economically disadvantaged (again the Committee for the Rights of Tenants were not available for comment). To alleviate the pressure, a government fund is to be established for tenants with a household income that does not exceed three times the minimum wage of LL675,000 ($450) to cover the difference in rent for nine years. By that time, the plan would be for the Public Corporation of Housing to have built apartment blocks that evicted tenants could live in under a ‘lease-to-own’ agreement (which cabinet approved last month) with no age stipulation, meaning elderly tenants could be part of the scheme. However, while the draft law is still being hammered out at committee sessions, there have been no announcements as to how the housing scheme will be financed, what land will be available for construction or where, and how willing private banks are to be a part of the scheme. What is more, Lebanon has been without an official budget since 2005.

While government sources suggest the bill will pass in May, the socio-economic repercussions could force politicians to oppose it. “Nobody wants to lose the next elections [in 2013] for passing this law,” said Sanyoura. Indeed, it is such a contentious issue that Ghanem said at a committee meeting in early April that he had received an anonymous letter threatening to kill him, his wife and his children if the bill passes.

Billions to be made?

If the bill remains relatively intact after numerous rounds of amendments and reformulations, and then passes into law, it will have a profound impact on the real estate market.

“Definitely there are both positive and negative repercussions from the eventual introduction of a large [amount] of stock to the market,” said Karim Makarem, director of Ramco, a real estate advisory firm. “If landlords are looking to sell or to rent, a substantial amount comes online, not to mention that the former tenants who vacate will need to be housed. So there are many new possibilities as well for developers.” One possible knock-on effect would be more supply than demand, which would lower real estate prices. For that reason, Sanyoura suggested it is “a good time to consider implementing this law as we’re not in a boom market.”

With buildings being vacated and renovated, and others being torn down for new projects, Zoghaib opines that $50 billion could be pumped into the economy in the coming years. A back of the envelope calculation of 30,000 buildings being re-developed at an average of $500,000, would generate $15 billion and potentially billions more in associated services.

A further boom could occur if another stuck-in-a-time warp law is overturned: the pre-1992 law concerning commercial rents, which is similar to the residential law in fixing rents, but to remove a tenant requires the landlord to compensate for the “loss of footfall” to the premises. “We’ll have a party when the [new rent] law passes and the next day move onto proposing a commercial rents bill,” said Zoghaib.

May 3, 2012 1 comment

Economics & Policy

Tunisia: Moderating Islam and government

by Daniel Harris May 3, 2012

written by Daniel Harris

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

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

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

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

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

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

To protect and clarify

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

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

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

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

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

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

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

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

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

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

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

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

Same but different?

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

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

A ‘rational’ West

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

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

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

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

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

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

May 3, 2012 0 comments

Business

The shifting wings of Abu Dhabi

by Thomas Schellen May 3, 2012

written by Thomas Schellen

Eithad Airways, the Abu Dhabi-based carrier that recently canceled an order of seven Airbus A350 passenger jets, will reduce its original order with the plane-maker and substitute canceled planes to meet expansion targets, Etihad Chief Executive James Hogan told journalists in Beirut.“We are still committed to 10 options and 15 purchase rights. At the right time, we will take those aircraft,” Hogan said. Options and purchase rights are commitments that airplane manufacturers and their customers commonly enter into when agreeing on firm orders. Options and purchase rights can give jet buyers access to production slots and prices based on the agreements they negotiate with manufacturers. Hogan did not comment on the 12 remaining firm orders for A350 jets.

“I substituted to meet the growth strategy,” Hogan said, explaining that the carrier had ordered the 25 A350s plus placed additional 25 options and purchase rights back in 2008 “to meet our network expansion and expected them to come at a certain time.”

As the schedule for delivery of the A350s started sliding and the manufacturer was still working on the specifications of the A350-1000, “we took a view to reduce the firm commitments to 12 and canceled six in 2011 and seven in 2012. We still believe in the aircraft but we have bridged that with [Boeing] 787 [version]9 where we increased our order to 41. That’s business,” he said.

Etihad’s initial order for B787s, signed at the 2008 Farnborough International Airshow, was for 35 planes. The company said at the time that the total value of its order with Boeing, which also included 10 B777-300 planes, was more than $9 billion.

The original Etihad order for the 25 A350s, also signed at Farnborough in 2008, was part of a deal for 55 jets also including 10 A380s and 20 A320s with a value of approximately $12 billion, according to Etihad. Media reports put the value of the recently canceled seven A350s at $2.2 billion.

The cancellation of seven A350s was first reported earlier this month by Reuters, based on data from Airbus. Media in the United Arab Emirates this week quoted analyst speculations that Etihad would fully step away from the wide-bodied Airbus in favor of the competing 787 but Hogan said this is incorrect.

Airbus and Boeing have been intensely competing with their long-range, wide-bodied A350 and 787 model lines, both designed to become workhorses in the next generation of fuel efficient passenger aircraft. Each highly-touted model, however, also had shares of technical challenges to contend with.

Fleet purchases by Etihad in the carrier’s first years of operation have favoredAirbus jets . When asked if the shift to 787s signified an end of his love affair with Airbus, Hogan said, “I love both Boeing and Airbus, equally. In this business, you have to work with Boeing and Airbus.” He emphasized that Etihad has a considerable fleet of Airbus planes and in addition to the A350s, more A321s and 10 A380s will be added to its fleet in the next few years.

According to Hogan, Etihad will report a financial revenue performance of $5 billion, implying growth above 22 percent when compared with 2011 results of $4.1 billion. Last year was the first time the airline reported a profit as its revenue improved 36 percent on 2010.

On the sidelines of the press conference Hogan told Executive that Etihad will achieve the targeted ten-million passenger mark this year. In 2011, the airline reported passenger growth figures of 17 percentwhile registering a first quarter year-on-year increase in passengers by 27.4 percent to 2.36 million from 1.85 million, according to an April 4 announcement.

The Lebanese connection

Hogan came to Beirut to celebrate the success of Etihad’s eight-year service to the Lebanese capital, which commenced in November 2003. Beirut was Etihad’s first commercial destination.

According to Hogan the carrier’s strongest demand from Beirut-originating travelers is for flights to Sydney, followed by Abu Dhabi. In 2012, Etihad’s Beirut office has a revenue projection of $31 million, he added.

Joseph Chamoun, Etihad’s country manager for Lebanon, also told Executive that the operation is the airline’s top performing market in the Levant and Africa. In important long-haul services from Beirut to Australia and some Southeast Asian destinations Etihad’s share of the outbound Lebanese travel is above 40 percent, he claimed.

During the first quarter of this year Beirut airport saw 204,670 outbound passengers, according to Lebanon’s Civil Aviation Authority At the time of posting, statistics on the number of travelers to Oceania within that total were not available.

Etihad also anticipates that its network’s expansion intoLagos, Nigeria this summer and next year’s expansion to Brazil as the first Latin-American destination will be drawing in many travelers from the large expatriate Lebanese communities in those two nations, Hogan said. In previous press statements, Etihad had announced the start of its service to Latin America for 2013 but did not specifically say that it would serve Brazil as its first destination in the continent.

May 3, 2012 0 comments

Society

A brand by any other name

by Zeina George May 3, 2012

written by Zeina George

The recent news of Kraft naming its global foods company “Mondel?z International” has sparked controversy in the business world, with Forbes describing the move as one that raises a “huge red flag”.

The new name, meant to call to mind the image of a “delicious world”, is actually supposed to be pronounced “Mohn-dah-LEEZ”, hence the accent on the second ‘e’. This has incited mockery in the media, with CNN jokingly titling its article on the news of Kraft’s recent decision “Monde-what?”.

On top of it being difficult to pronounce, Mondel?z sounds very similar to what was described as a “very dirty” word in Russian slang. As a result of all this, many have called for yet another rebrand, emphasizing the detrimental impact that the wrong name can have on brand equity and positioning.

What we find particularly perplexing about the decision to opt for the name Mondel?z, though, is the fact that Kraft, a corporation based in the United States, had the option of choosing a name from the English language, universally spoken in today’s globalized business world. Yet it chose a name inspired by the Romance languages and complicated matters even further with the addition of an accent that many do not recognize. This naturally brings to mind the very different reality faced by many Arab companies, whose names often contain letters that do not exist in other languages (and could not be pronounced by non-Arabs if they tried). These companies go to great lengths to make their names easily pronounceable to a Western audience, as has been the case with Almarai, Saudi Arabia’s leading food producer, and Emaar, the Dubai-based property developer.

This is not the first instance of a less than ideal brand name. There are many such examples that mark the annals of branding history. One instance was the embarrassment Mitsubishi caused itself in Spain when it named one of its new models “Pajero”, a local slang term that is, to put it mildly, sexually explicit (a quick Google search will suffice to reveal the meaning of the word to more curious readers). Another equally comical yet serious misnomer that caused an entire advertising campaign to fail in Italy occurred when Schweppes Tonic Water translated its name as “Schweppes Toilet Water”. These examples are extreme cases featuring linguistic missteps, when in reality brand naming mistakes can occur for reasons much less blatantly obvious. The point, however, is this: brand naming is not a matter to be taken lightly. Brand names are the first step in establishing a successful business and creating a story around your brand. A strong name can set the brand apart in an overly saturated market, communicate a company’s culture, describe what it does in a word or two, or even automatically bring to mind desired associations.

Conversely, the wrong brand name can limit opportunities for expansion and diversification or take away from the equity created by a company’s actual work. In light of all this, if brand names are not carefully selected, businesses run the risk of being “branded” by the marketplace, forfeiting the right they have to shaping how the public perceives them.

A key regional concern

The issue of brand naming is of key relevance to the Middle East. Historically, many major Arab companies have not had to struggle with the issue as they were government-owned utility corporations (e.g. Saudi Telecom, The Emirates Telecommunication Corporation) or family businesses (e.g. Majid Al Futtaim Holding, Al Khorafi Group). Nowadays, the brand naming process is less straightforward, with most businesses operating in a highly competitive globalized economy. Add to this the fact that it is estimated that the youth bubble in the Middle East will require 8 million jobs to be created every year until 2020.

Private and public sector actors alike realize that sufficient job opportunities do not currently exist in the region; they will have to be created. Practically speaking, this means that entrepreneurial youth will be establishing startups that will naturally need to be named. Brand naming thus becomes highly relevant, and getting it right can seriously increase an up-and-coming business’s chances of gaining visibility and establishing desired strategic positioning.

The right way to name a brand

The brand naming process can follow several routes, some of which are self-explanatory and include Latin and Greek-inspired names, initials and family names. Other less self-evident routes include:

Onomatopoeic and Invented: Onomatopoeic names use a word that sounds like the entity or idea it signifies. It creates names that are both catchy and musical. Examples include Zippo and Bing. Invented names are either based on an already existing word to create a new sound or a completely unheard of name that is phonetically appealing. Such brand names are memorable and distinctive due to their uniqueness. Examples include Oreo, Kleenex, and Du. Both invented and onomatopoeic names have become increasingly popular recently, as they allow for the creation of fresh, new names that simultaneously avert the problem of the widespread trade marking of most existing words.

Cultural and Linguistic: This involves using a term or phrase specific to the particular culture or dialect of the target market, appealing directly to local consumers. One such example would be Zaatar W Zeit.

Functional: Such names depict the company’s line of business. This approach holds the possibility of creating strong brand equity for the company or product, centered on the name. Examples include Ford Motor Company and Saudi Telecom.

Lifestyle: This approach evokes a particular lifestyle and calls on consumers to partake in the experience of the brand. Examples include Free People and Marlboro.

Each of these proposed routes offers a brand name something unique. Once companies have decided what route they would like to follow, basing their choice on the nature, positioning, and market of their brand, they must also ensure that final selection abides by certain important criteria.

The name must be in line with the brand promise and positioning and should serve to bolster brand strategy and equity. For instance, Abbott Laboratories recently decided to brand its pharmaceutical spinoff as Abbvie, a name derived from that of its parent company combined with the Latin word for “life”. Upon closer examination, it becomes apparent that the name is contradictory with the desired positioning for the brand, as the pharmaceutical company was seeking to position itself as being cutting edge, yet selected a name whose Latin root evokes the antiquated past.

A brand name needs to constitute a good cultural and linguistic fit. In the Middle East, this means taking into account the different realities defining the market, from the youth majority demanding “edgier” communication to the nonetheless prevailing culture of traditionalism.

A brand name ought to have cultural relevance yet remain capable of transcending cultural boundaries. Though this may seem like an impossibly tricky feat, it has been achieved with such brands as “Zain” and “Yamli” – Arabic names possessing universal appeal thanks to ease of pronunciation and the fact that they simply “roll off the tongue”.

The nature of today’s globalized economy dictates that a name also be in line with worldwide consumer trends. A look at today’s international trends reveals a certain move away from what many perceive as “stuffy” Latin and Greek-inspired names, accompanied by increasing demand for distinctive brand names that are functional and relatable. One example is JCrew’s “Madewell” women’s clothing line.

The final and essential point is a simple one: due diligence. Once a company has decided upon a given brand name, it can never be too sure of its effectiveness or marketability. The brand name ought thus to be validated with several different stakeholders and experts before it is officially rolled out.

Though it may pain some to learn this, readers should be cautioned that the real work starts after a brand name has been selected.

Building the verbal identity of a brand permeates every activity carried out by a business and ought to manifest itself in the construction of overall brand personality and identity. Indeed, a name is the first chapter in the telling of a compelling brand story that captivates the public through the strategic use of communication — but those are matters for another article.

May 3, 2012 0 comments

Comment

Devastated by laissez-faire

by Peter Speetjens May 3, 2012

written by Peter Speetjens

If Michel Ecochard were alive today to see his beloved Beirut, he would arguably want to drop dead on the spot. Beginning in the 1930s, the French architect and urban planner worked for some 30 years in Lebanon and the region. He had especially high hopes for Beirut, as it was blessed with what he called, “One of the most beautiful sites in the world.”

In 1943, he was asked to produce an urban blueprint that could accommodate Beirut’s future growth. Taking into account the city’s existing character and natural setting, he proposed strict zoning, a modern infrastructure to cope with the growing popularity of the car, and a string of gardens and parks as the city’s green lungs.

Today, the AUB campus and Sanayeh Garden offer a rare glimpse of what Beirut could have been, while the city’s ever increasing traffic jams echo the fact that Ecochard’s plan was never approved in Parliament. Not surprisingly, the most vocal opposition stemmed from Beirut’s property owners and landed elite.

The situation did not improve following World War II. The newly independent “merchant republic” under the presidencies of Camille Chamoun and Bechara Khoury were neoliberal avant la lettre, in the sense that the state was to stay out of social and economic affairs in order not to hamper the private sector’s potential to generate profit. Urban planning was among the least of its concerns.

Having worked in such cities as Casablanca, Damascus and Aleppo, Ecochard returned in 1961 when President Fouad Chehab asked him to again produce a master plan for Greater Beirut. Despite his earlier disappointment, Ecochard accepted. “Beirut can still be saved, but action must be taken immediately,” he said.

Again, Ecochard called for zoning, the creation and protection of green spaces and an improved infrastructure. He also proposed building government cities to decongest the capital, and social housing schemes for east and south Beirut to raise the living standards among the many new arrivals in search of a better future. Finally, he advocated strict building regulations to discourage speculation. Again, his plan came to nothing. Parliament, in 1964, adopted a watered down version of his proposal, in which some industrial zoning remained and construction along beaches was (temporarily) frozen.

Ecochard disassociated himself from the plan and soon after left the country. Contrary to what many Lebanese think, the urban chaos that characterizes Beirut today has not been the result of 15 years of Civil War. Ecochard was hardly the only planner that tried to tame Beirut. Before him, there was 1930s French urbanist Rene Danger. After him there were Greek, Swiss and homegrown plans. The problem was that, time and time again, plans were compromised or shelved entirely. In other words, the lack of urban planning dates straight back to Lebanon’s independence in 1948, and is directly linked with the impotence of the Lebanese state. “[Ultimately,] Beirut’s urban landscape symbolizes the difficulty of the state to affirm its authority,” concludes modern urban historian Eric Verdeill in his book ‘Beyrouth et Ses Urbanistes’.

The consequences of this inability are plenty. The lack of proper public transport and the ever increasing fleet of wheels, for example, is strangling the city. There are hardly any parks and there is little or no sense of social, aesthetic or historic value, as everything is measured by the mighty $-sign. As a result, Beirut’s cultural heritage is rapidly making way for ever higher high-rise that makes you wonder: what ever happened to the art of architecture?

A recent low point on a long list of urban disasters was the adoption of the 2004 building law. While in the 1960s a building was allowed to be only as high as 1.5 times the width of a street it faced, since 2004 it can be 2.5 times the street’s width. This change prompted a forest of towers to be erected everywhere, even along the Corniche. While most are a slap in the face of beauty, they also have disastrous consequences for the city’s air and traffic circulation.

“It was the private domain… that invaded the public domain and hacked away at its flailing carcass,” wrote the late Samir Kassir in summing up the sad history of urban planning in his book ‘Beirut’. “The metropolitan area was little more than a mass of infringements and trespasses against the ability to breathe that is no less essential to a city than a person.”

Sweet dreams, Monsieur Ecochard.

May 3, 2012 0 comments

Society

A watch for life

by Michael Karam May 3, 2012

written by Michael Karam

A watch has become a necessity but not necessarily for telling the time,” explains Mhir Atamian, whose family business is one of Lebanon’s leading watch importers. “For men, it is one of the few pieces that they can wear, but for both male and female consumers, it has become as important as what clothes they wear or the car they drive. Among their peers, it is important to be seen to have the ‘right’ watch.”

So which is the right watch? It’s not just a case of what you like in terms of design or functionality or price; what Atamian might have been alluding to was that, in modern Lebanon, or anywhere else for that matter, is that you may often be judged — in terms of status, taste and even credibility — by the watch on your wrist.

To many people, a watch is a watch. It tells the time. You could be wearing a $250,000 Patek Phillipe chronograph and many people would not be the wiser; but to the trained eye your watch can say a lot about you. Are you an arch-vulgarian, an aficionado, or simply someone who wants to wear a decent piece of engineering success on the wrist?

It is fun to match watches to certain jobs. The photographer, designer or creative director might demand a watch that is both functional and a design classic. He or she will want us to know that form is appreciated just as well as function. Where others see cliché, they see an icon.

So what are we talking about? Omega’s Speedmaster Professional that was designed for astronauts, together with Breitling’s Navitimer, a pilot’s watch, and the Rolex Explorer (the white face “polar” edition in particular) all fit the bill. They are proven designs that have hardly changed over the years. While fads come and go, the classics still remain.

But remember, while these watches are not cheap — the Speedmaster is the most affordable at around $3,000 — they do not belong to the true elite of the watch world. This brings us to the banker or the businessman: which is the right watch for the man or woman who lives in life’s first class lounge? For the person who takes life at a calculated, more measured pace and who, whenever they shoot a cuff, want the world to see understated elegance?

For those who have plowed their professional furrow and are looking to reap a rich harvest, there are four of five watch houses from which to draw horological inspiration. Patek Philippe – naturally – A. Lange Sohne, Vacheron Constantin, Girard Perregaux and perhaps a Jaeger LeCoultre constitute grown-up watches and, in many cases, potential family heirlooms.

Which leaves us with the man who simply wants to reward himself and send a signal to the world that he has ditched that Swatch; a man that has between $5,000 and $10,000 to blow on a watch that will be a friend for life but which won’t let him down at the beach, the club or the boardroom. IWC, Jaeger LeCoultre, Omega and of course Rolex are my top picks. Women can have all these too and they can mine Cartier’s rich deposits of classic designs.

In fact, women consumers can often have more fun. With the fad for oversized watches, they can really make a statement. Cartier’s oversized Ballon Bleu in particular is a current favorite as is the 42mm IWC Portuguese, steel on a black strap.

You will have noticed some brands (perhaps unfairly) have not made the cut. Tag Heuer, Longines and Baume and Mercier are all fantastic watches and, in the case of Longines and Tag in particular, have an enviable heritage, but, and this is just my opinion, they just fall outside the “watch for life” segment. They are perfect “step-up” or “second” watches.

Also absent are Panerai — too big and brash (even if many of us secretly want one) — and Tudor, which needs more time to win over a new generation of fans, although the new Black Bay Diver and the Chrono Heritage are both destined for cult status.

Finally, if you are reading this and are thinking that this is all a load of elitist tosh and you are very happy with your trusty Seiko, take comfort from knowing you wear one of the best made and most reliable watches on the planet. Fact.

May 3, 2012 0 comments

Comment

Healthy profits or people?

by Zak Brophy May 3, 2012

written by Zak Brophy

Nicotine is an insidious drug that ensnares people with remarkable effectiveness, and yet despite increased awareness of the perils of tobacco addiction, Lebanon is still hooked. The tobacco industry is sustained through a combination of dogged lobbying from the industry big guns, a pliant government that listens to them and a citizenry that puffs its way through, on average, more than twelve packets of cigarettes per month.

Lebanon may have ratified the United Nations’ Framework Convention on Tobacco Control (FCTC) in 2005, but the all too familiar tradition of putting pen to paper but not policy into practice was adopted. The major tobacco corporations continued to enjoy significant influence within the government and the nation remained virtually devoid of any tobacco control policy.

In September last year, the prevailing winds started to shift course with the passing of a tobacco control law. Advertising, promotion and sponsorship of tobacco products have been banned and it is now illegal to smoke in public places (although this does not apply to hospitality venues until September 2012). The jury is still out regarding to what degree the law will be enforced, but its adoption is certainly a positive development. Despite being the most effective tool in the policy maker’s box of tricks to tackle tobacco use, taxes were left on the bylines when lobbying for this most recent law. This was tactful and not neglectful.

There was strong resistance to the law from the international tobacco corporations and their Lebanese business partners, many of who are snuggly ensconced among the political decision makers. Introducing a tax hike into the debate would have increased inertia among the nation’s lawmakers and perhaps derailed the campaign. With the tobacco control law now enacted, taxes are back on the table.

A recent study by a team of economists at the American University of Beirut shows that increasing taxes on tobacco products would lead to a win-win scenario of increased tax revenues and lower smoking rates. Such a fiscal challenge to the tobacco industry will face tougher opposition than the recent law because money matters. The government could keep on enjoying its healthy profits from the tobacco trade in the short term, but over time the goal of these legislative and fiscal measures is to wean Lebanon off its tobacco dependence. It is this that the profiteers within the industry fear.

The tobacco trade in Lebanon is managed through a government controlled monopoly, the Regie Libanaise du Tabac et Tombacs (Regie), under the auspices of the Ministry of Finance. For the Regie the nation’s penchant for a puff amounts to a healthy little earner and it enjoyed profits of $408 million last year.

The perpetuation of a thriving tobacco trade provides handsome business for a few, with a 2010 economic analysis calculating a net annual benefit of $271 million for the direct stakeholders. However, when the same study incorporated factors such as lost productivity and associated health costs it found that the loss for Lebanese society amounted to an excess of $50 million.

For the folks at the Regie, talk of a tax hike is foolhardy. In 1999 the government increased tobacco taxes from 51 percent to 113 percent and, contrary to the anticipated rise in revenues, they fell sharply. This was not because people stopped smoking but because smuggling from neighboring markets shot up. While smuggling will undoubtedly rise in the face of a tax hike, this need not necessarily stave off the policy: The AUB study factored in a 200 percent increase in smuggling. However, the illegal cross border trade in tobacco products is in many cases only enabled by political complicity and the support of the international tobacco companies. By using funds from the inflated tax revenues to enact the right safeguards and policies the rise in smuggling could be reduced to a manageable level.

When discussing the AUB study on increasing tobacco taxes, Minister of Finance Mohamad Safadi, said, “The health of the Lebanese citizen is the number one priority”, before trailing off along the industry line about the threat of smuggling. However, as long his ministry is in charge of the monopoly that profits so handsomely from this societal addiction, action must follow words if we are to believe the minister is doing anything more than blowing smoke.

May 3, 2012 0 comments

Comment

No right to laugh

by Sami Halabi May 3, 2012

written by Sami Halabi

It is the proper application of law that separates anarchy from order, suppression from representation, people from slaves and fosters a society with a respect for the structures of governance. The opposite is just as true, where it is the selective application of law — for example when charges are conjured up to suppress freedom of expression in the name of preserving ‘public morality’ — that leads to the destruction of faith in the institution of law itself. As citizens’ distrust of their government mounts, the social contract between the two becomes less tenable and society breaks down. This is where Lebanon is today.

Following a recent string of arrests related to freedom of expression, last month actress Rawya el-Chab and comedian Edmund Hedded were in court to appeal a one-month sentence of imprisonment and a fine for committing “acts of offense against public morality”. Their crime: hosting a mock-auction of men at a pub in 2009 in order to raise money for the Brave Heart Foundation, which helps children with heart diseases.

The General Prosecutor’s office dug deep through the Penal Code to find a way to invoke paragraphs two and three of Article 532 which cover, respectively, “words or screams that have been manifested by a person and heard by a party that has nothing to do with the act,” and “visuals presented in a public context or for a public or in exhibition or broadcasted or sold or distributed to one or more persons.”

While Parliament’s library (yes, it does exist) is stacked with unapplied laws relating to the most basic functions of the state and serving the public — such as passing a budget, providing public services (electricity, water, telecoms) and ensuring human rights (among them the law against child abuse) — our justice system found the time to apply its energies and resources to exercise obscure laws to subdue free speech.

But to think that the judiciary all of a sudden has the intent to weed out villainous threats to virtue and goodness would be a laughable assertion. Aside from the absurdity of a subjective concept such as ‘morality’ existing in a piece of law, an hour of local television will provide one with more than a dose of ‘immoral’ words and screams and the visuals to go with it, especially if one watched Parliament last month. Fortunately for them, our MPs can hide behind their legal immunity; we cannot. And, as if there were not more pressing issues in the country, those who claim to defend freedom of expression — journalists from El Nashra and Annahar —provoked the judiciary by writing articles critical of the mock-auction. Indeed, the judge who sentenced the comic duo did so largely on the basis of these media articles. At the Appeals Court last month it was clear that the judge had no clue what the case was about and, worse still, after expelling the public from the courtroom, cross-examined the accused and the prosecutor, without allowing the defending lawyer to be heard; that will only happen on May 30.

This is no laughing matter. If the General Prosecutor can convict someone for violating some backwards piece of legislation on the basis of an article, and without an investigation, then a harrowing precedent has already been set.

Furthermore, what faith should the public have that the judiciary has any sense of ‘justice’ about it? Or that the laws passed by our government have as their intent any sort of proper governance?

What are meant to be the sacred words of our social covenant, also known as the constitution, have been defiled by the very people who are supposed to uphold them. We, the people, are not “sovereign, free, and independent,” the people are not “the source of authority and sovereignty,” the political system is not “established on the principle of separation, balance, and cooperation amongst the various branches of government.” Instead, imbeciles and their whims are given authority over our freedom of speech.

If they wish to begin winning back the faith of the people they have so often betrayed rather than served, it is incumbent on our judiciary to see to it that these sentences are repealed, the charges dropped, and spare us their selective morality.

May 3, 2012 0 comments

Comment

Hope of compromise in Iran

by Gareth Smith May 3, 2012

written by Gareth Smith

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

May 3, 2012 0 comments

Society

Interview: Saad al-Barrak

by Thomas Schellen May 3, 2012

written by Thomas Schellen

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Do you want to play a role in Kuwaiti politics?

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

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

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

So you take a financial stake in those companies?

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

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

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

May 3, 2012 0 comments