Economics & Policy

The face of a new nation

by Sam Tarling
written by Sam Tarling
A tribal wrestler poses for a photograph in South Sudan's central Lakes State [Executive/Sam Tarling]
A damaged bridge turns into a diving board in South Sudan's central Lakes State [Executive/Sam Tarling]
Tribal wrestlers walk to an exhibition in Lakes State. Traditional wrestling is being touted by some as both a way to strengthen inter-tribal ties and, through its commercialization, a means to generate some kind of economy in this exceptionally poor country [Executive/Sam Tarling]
A cattle herder's child walks through a temporary 'cattle camp', where herders live in very basic conditions before moving their cows to new pastures [Executive/Sam Tarling]
Despite boasting vast swathes of fertile land, a stark lack of transport options due to an exceptionally poor road network has stymied South Sudan's agricultural sector. Malnutrition is rife [Executive/Sam Tarling]
Owning cattle is a huge status symbol in South Sudan, where cows are traded for wives and high dowries often force suitors to steal cattle from neighboring tribes. The omnipresence of small arms since the end of the Sudanese civil war means that such raids often leave high death tolls [Executive/Sam Tarling]
A youth participates in traditional dancing in Rumbek, the county capital of Lakes State [Executive/Sam Tarling]
The lack of decent roads makes motorbikes such as these a popular mode of transport [Executive/Sam Tarling]
Children pick up meat at a cattle market's slaughter yard on the outskirts of Juba; despite South Sudan having a great wealth of cattle, a traditional importance placed on owning large herds means that very few are traded [Executive/Sam Tarling]
Guns confiscated during a civilian disarmament program fill one of a number of storage containers at a military base in Juba. The proliferation of arms among civilians is currently amplifying age old tribal disputes into bloody massacres of unprecedented scale [Executive/Sam Tarling]
Juba, the capital of South Sudan, contains very few paved roads and very limited municipal amenities [Executive/Sam Tarling]
On the outskirts of Juba, a woman makes a meagre living smashing rocks into rubble, which is sold to builders [Executive/Sam Tarling]

Photoblog from inside South Sudan, the world’s newest nation.

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Economics & PolicyTechnology

An app a day

by Ellen Hardy
written by Ellen Hardy

As businesses are working out what mobile applications can do for them, the ways in which connected citizens shop, eat, play, or even participate in activism are also finding new angles through the medium of mobiles. Inevitably, apps for local businesses, or addressing local tastes and concerns, will come to hold a special place in the digital market. Here, Executive takes a looks at seven sectors where homegrown Lebanese mobile applications are beginning to offer consumers new possibilities, and sometimes new powers — although almost without exception, there’s still a long way to go.

Sophisticated shopping sprees

For a multi-brand, multi-venue shopping destination like Le Mall an app can both reflect some of the variety that is part of mall shopping, or help make the experince less painful for customers who see digitization as a way out of an overwhelming experience. The app can search more than 200 stores by category, floor or name, then locate them on a browse-able floor plan. When the device is shaken, it will throw up a daily highlighted event or promotion. 

While innovative, it’s a long way from, say, Selfridge’s in London, whose analysis of Christmas shoppers last year led them to launch a mobile optimized website aimed exclusively at the men who leave their purchases to the last minute, and whose (online) purchases, naturally, could be delivered home or collected in-store. 

For brand-specific retail apps, the move to a mobile interface can be an opportunity to cohere different strands of a business. V World, for example, is the app for Lebanese interior designer Vick Vanlian’s. The welcome screen draws together his style blog, Envy interiors, Galerie Vanlian, Vanlian Developments and Kare Design enterprises. For the present, though, the app remains largely a product showcase.

Appetite for life

Local fast food outlets Crepaway and Roadster Diner have both made their menus and outlet information available in mobile application form, so you can view your order (Crepaway) or shake your device for a random meal suggestion (Roadster). Cute, yes, but neither yet addresses the potential for app-based ordering made famous by American fast food brand Chipotle, launched in 2009, which offers users the chance to build, order and pay for their own burritos without ever speaking to a human being. The service was so popular it crashed servers during its first week and by May 2010 had over 700,000 downloads.

Away from fast food and into the kitchen, digital developers are also celebrating more traditional Lebanese food. Recipe sharing website shahiya.com built a collection of 101 tried and tested recipes for their app Cook Lebanese, which is carefully pitched to international cooks, ensuring that all ingredients are easily available worldwide. Consumers who want some local celebrity color could also choose the Lebanese cuisine app from TV star Chef Ramzi, which, as well as recipes, you can browse by region and type, features video and audio files from the chef and regular recipe updates.

Banking on it

Mobile account services allow smartphone users to process basic account functions on their handsets. Interest in mobile banking is growing worldwide, and despite continuing concerns about security, American mobile banking customers and businesses are beginning to be able to process large sums via their smart phones. The existing Lebanese banking apps cover these bases in a limited way; with Bank Audi’s free audimobile service, you use text messages to request your account balance and last five transactions, and if you have multiple Audi accounts linked up to audimobile, you can also transfer money between them. 

Banque Libano-Francaise’s free app, My BLF, has gone a step further including a nearest branch and ATM locator, and a loan simulator that allows customers to get an idea of new and used car loans, and personal, housing and educational loans at the touch of a button. 

A searching business

Apps also exist for searching Lebanese businesses online: 5Index and the Yellow Pages provide access to the contact details of a wide range of local services and businesses, through a straightforward search engine or a category search. When you’ve found the business you’re looking for, you can call or email them via their listing page, but there’s little in the way of other information, leaving customers waiting for advanced review, filter and map functions. A sector-specific app that is built on a website that already includes these functions would be perhaps more successful, such as Hotels in Lebanon, which includes star ratings, cut price deals, a map locator and is searchable by area.

Communication stations

Both of Lebanon’s mobile service operators, mtc touch and Alfa, allow users to send free web-to-mobile SMS; local application Foo-me harnesses this capability for smart phones and it also features a chat option and a raft of additional weather and horoscope-checking functionalities. Most of the buzz, however, is reserved for Silicon Valley-based application WhatsApp, that provides free cross-platform messaging and now group chat and is a runaway success that is starting to eat into SMS traffic around the world, which is beginning to decline.

Mobile media

Live TV streaming, episode clips, archives and programme schedules are available from LBCI and MTV, though users on Android Market report frequent crashing and incompatibility problems. Lower bit-rate entertainment can be found via apps like that of the well-known Beiruting.com social website. Beiruting.com allows for storing and sharing pictures of events and parties, but their mobile app draws together a range of functions, including a venue directory, event listings and daily deals. 

Gaming apps are some of the most popular worldwide, though especially in the US, where communications research firm Nielsen reported in June 2011 that gaming apps were the most used apps in the American market, and those consumers are most willing to pay for. Back in Lebanon, the locally developed Arabic language game Birdy Nam Nam was downloaded 250,000 times in its first week of release and ranked number one in the Arab world on the iTunes store, demonstrating the power of a well-made, if derivative, app with a local twist. 

Making a difference?

The power of the technologically enabled citizen has never been more discussed in the Arab world than in the last year, and some companies are using mobile applications to creatively engage smartphone users in corporate social responsibility campaigns. Cheyef 7alak — Lebanese Arabic written in colloquial SMS characters which roughly means ‘Do you see yourself’ — is a concept created by advertising agency Impact BBDO and endorsed by LBCI, which encourages citizens to photograph and share instances of traffic lawlessness (“If attention is what they’re looking for, why let them go unnoticed?” runs the tagline) and corruption. 

As campaigning tools go, so far it’s pretty static. But in a bid to justify some of the most expensive city cleaning fees in the world, Averda, the waste management company behind Sukleen, has boldly proposed an interactive community improvement tool with its iaverda campaign, launched in Abu Dhabi last year and due to eventually to arrive in Lebanon; iaverda invites citizens to photograph instances of waste and post them via the app, from where Averda will locate and clean up the mess, then post a photo of the results in return. 

Finally, with little sign of the government stepping up to the service provision table, sometimes citizens have to use advanced technology to find their own way around a problem. Witness the free Beirut Electricity Cut Off app for Android, which displays a calendar, dynamically updated every day, to keep track of the blackouts in your area or that of your friends and family. Complementary to this, on the way up the stairs in the dark, you can light the way with the various flashlight apps available for most smartphones.

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Economics & Policy

An unsavory policy

by Sami Halabi
written by Sami Halabi

The slew of food safety incidents that have hit the national news ealier this month, following the discovery of tons of rotting meat in a Sabra factory, do not constitute a new “crisis” — rather, they are the revelation of a reality that has long been present. The spike in public awareness, and consequent flurry of government activity, has simply made salient some uncomfortable truths that have long been with us.

Even in the most advanced societies, food safety is one of the most complex and challenging policy issues facing government. Just last year nearly 50 people died in France and Germany after contaminated seeds from Egypt ostensibly caused an outbreak of E. Coli bacteria. That was a crisis. And that the combined policy framework of both countries’ food safety authorities, and that of the European Union, were unable to contain the outbreak before it turned lethal is a wake up call we should heed.  

Many may wonder why similar incidents haven not emerge in Lebanon, given that our policy framework is written based on the demands of sectarian staffing quotas rather than public health. Some have, tongue-in-cheek, alluded to the inherent Lebanese ‘tolerance’ to contamination. In reality, luck coupled with a lack of transparency and awareness, are what have allowed us to ignore the issue for so long.

Food safety policy can be either reactive or active — but Lebanon’s is neither. Reactive food safety entails tracking a case of contamination from an ill patient to the source, and requires an intricate investigation of the patient’s food consumption, tracking down each source of possible contamination, having the authority to confiscate and test samples, and establishing viable evidence to persecute violators. In Lebanon what happens, more often than not, is that the patient is tended to, the government and hospitals circumvent the lengthy and expensive process of investigation, the issue is ignored and the extent of the problem is covered up.  

Active food safety policy, on the other hand, requires ensuring that local production and imports are up to scratch by conducting snap inspections, covert investigations, treating irrigation water, conducting awareness programs and cracking down on violators. In Lebanon, however, limited authority, resources and overlapping purviews hobble inspections by health ministry and consumer protection agency officials.

Food safety policy must be adopted ‘farm to fork’, but there is currently no single authority to oversee such an approach. The agriculture ministry is responsible for testing farming practices (such as the widespread use of wastewater for irrigation) and conducting inspections at import entry points, in conjunction with the ministry of economy and trade and the health ministry. The health ministry compiles statistics and coordinates with the interior ministry, which, in theory, raids warehouses containing contaminated products. The Ministry of Energy and Water is supposed to see to it that contaminated water does not reach farmers, while the ministry of transport should oversee transportation storage. And, in the end, the finance ministry has to agree pay for everything, whether there is a budget or not.

Of course, none of these ministries are eager to give up their authority to a centralized food safety authority, which was first proposed in a draft law years ago, but has spent most of time since collecting dust on parliamentary shelves. The last time it was discussed at the cabinet table was in 2011 — the agriculture minister objected to it and, after a public outcry, struck a deal with the prime minister that any new food safety law would not dilute his authority.

To his credit, the agriculture minister has been one of the most proactive players regarding food safety. But the agriculture ministry has for decades been under the purview of either Hezbollah or Amal, both of whom rely on their constituency of southern farmers for political support and to hold territory along the border from which to resist Israel when war comes calling. Thus, diluting the ministry’s authority is tantamount to compromising national security in the minds of the South’s political patrons. But political calculations should not trump public health.

Any new food safety authority would need the support and cooperation of the agriculture ministry to be effective. But before reaching that step, a new food safety law needs to be passed by parliament and the cabinet needs to find and appoint five qualified board members from different sects. What real prerogatives the authority would eventually have would be the differentiating factor between reform that actually works or just another toothless government body.

For a country the prides itself on its food, Lebanon has been extremely lucky that its lax food safety has not caused more ill — the needed reforms should happen before the first deadly portions are served at the dinner table.

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Economics & Policy

Billions beyond budget

by Zak Brophy
written by Zak Brophy

Headlines in the Lebanese press over recent weeks have been dominated by the mudslinging between politicians over the controversy surrounding some $22 billion in extra-budgetary spending. However, while the nation’s elected leaders cynically jostle for political points, most of the Lebanese people are left none the wiser as to exactly how the country’s accounts got into such a shameful mess in the first place.

The roots of the problem stretch back to the political crisis that crippled the government in 2006, with the ensuing paralysis of Lebanon’s body politic stranding the country without a budget to this day. According to legal attorney and lecturer in constitutional law Wassim Manssouri, the country is left in a state of “continual illegality.”

The Lebanese constitution clearly lays out the process for the creation and implementation of the budget. Article 83 specifies that during its October session the parliament must discuss and vote upon the budget that has been presented by the council of ministers. However, if the nation’s lawmakers fail to reach a consensus then an extraordinary session is held lasting until the end of January.

If by the end of this session there is still no agreement, then according to article 86 of the constitution, “the council of ministers may take a decision on the basis of which a decree is issued by the president giving effect to the [budget] estimates in the form in which they were submitted to the chamber.” That is to say, the council of ministers can bypass the parliament and adopt its budget.

However, for this to be legal the budget estimates need to be submitted to the chamber at least 15 days before the session begins. As this was never done the country was left in the pitiful predicament of not having a budget.

Due to its failure to pass a general budget law the government carried on its business based on a clause in the constitution called the “provisional twelfth,” which essentially amounts to the adoption of the last legal budget. As the name suggests the “provisional” twelfth is meant to be a temporary measure but as Manssouri explains, “These provisional measures seem to have become permanent.” And so it is that in 2012 Lebanon still runs on its 2005 budget.

However, reality dictates that the government will need to spend more from one year to the next, whether it be to fund reconstruction after the 2006 war, pay increased salaries to government workers, service the national debt or subsidize Lebanon’s growing burden from imported fuel. And herein lies the controversy of the billions spent in excess of the 2005 budget from 2006 until today.

Manssouri explains, “The problem with the provisional twelfth is that normally the money needed each year is more than the year before. So what can they do to get this extra money. The government must send any new expenses to the parliament for approval.”

However, with speaker of parliament Nabih Berri declaring the cabinet as unconstitutional in November 2006 the chord of communication between the cabinet and the parliament was cut. “There was a huge political problem. Berri did not get anything from the government and they did not ask for anything. The parliament did not do anything and the government did not present anything,” says Mohammad Chamseddine, analyst at Information International.

Under the Siniora governments from 2005 to 2009 it is estimated some $11 billion was spent in excess of the 2005 budget and under the Hariri government in 2010 such spending is believed to have amounted to around $5billion. It is this money that the Mikati government now wants to see the receipts for.

The feuding is fuelled by the efforts of the current government to legalize their excess spending of around $6 billion in 2011 but not that of the previous governments. They claim they have presented their detailed accounts whilst their predecessors have not. The opposition cries foul play.

In any case, as long as the playground antics in the parliament persist Lebanon is cursed to remain without a budget. “According to article 87 of the constitution we cannot publish a new budget unless we close the accounts on the old expenses, and in order to close the accounts on the other years we need to send all of the papers to the parliament, and the audit court,” explains lawyer Manssouri, referring to the nation's financial oversight body. 

After such a prolonged period of accounting-by-whim it is highly doubtful that this gargantuan task could actually be completed. “We cannot solve this problem by a financial, legal and technical route. It would take several years to solve because it is so extremely complicated,” reasons Chamseddine.

So why the recent fever of accusations leveled by Aoun and Hariri, and their respective followers?

“Now there is mutual pressure between the March the 14th and March 8th powers so Mikati and Berri are putting pressure on Hariri and Siniora to try and influence their stance,” argues Chamseddine.

As the squabbling coterie of men that control Lebanon continue to treat the nation’s finances as a bat with which to beat each other around the face the mere talk of a budget remains a fantasy. Public institutions will continue to languish in their pitiful state of malaise, Lebanon will likely remain on the lower rungs of global transparency ratings and the Lebanese people will stumble on in dark over how their money will be spent.

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Economics & PolicyLebanon 2013: The big ideas

Lebanon and outsiders: Time for some benign disassociation

by Tom Fletcher
written by Tom Fletcher

Lebanon is presented with the most serious challenges it has faced in the past decade. The economy is struggling, the internal security situation is deteriorating and the country’s neighbors pose real threats. In these circumstances the very fact that the country continues to operate can be seen as a success. And amidst everything, there are opportunities — not just in newfound offshore oil and gas but also within the country’s ingenious population.

As we head into 2013, what can be done to help the country unite, to overcome its challenges and ultimately to grow? Over the course of this week, eight influential figures will address seven important topics, each suggesting one proposal to help the country move forward. In this article, British Ambassador Tom Fletcher urges foreign powers to allow Lebanon the space to develop.

Lebanon remains a country of staggering complexity, potential and vulnerability. Over the years, external influences have always played a disproportionate part in shaping its history, perhaps inevitable given the geography.

You only have to stand on the rubble of 17 civilizations in Byblos to feel humbled by the way that the country has absorbed the changes around it — you can still see the tidemarks of empires as they have ebbed and flowed on these shores. Now, in a turbulent 21st century, Lebanon again has its geography to thank (or blame) for its position at the nexus of international interests and influences, a vector for regional instability. As an anxious state in a tough neighborhood, there is always someone outside to blame. 

Political factions in Lebanon often define themselves on the basis of their international allies. We on the international side have tended to encourage this. It is a habit that we all need to break.

I hope that one positive of the change in the region is that the Lebanese will look less to outsiders, and more to their own extraordinary talents. The 2013 election should be about policies, not personalities, a vision for Lebanon based on Lebanese interests, not those of any of the rest of us. The elections should be an opportunity to hold leaders to account, and to demand delivery on the issues that matter to all Lebanese, not to any individual faction.

So as Lebanon braces itself for challenges ahead, it needs to extend the policy of disassociation from the situation in Syria, to disassociation from the region more widely. I hope we will see Lebanese leaders challenged to set out their vision of #Leb2020, based on the interests of Lebanese citizens rather than external players.

As the international community, we have to play our part too. We need to deliver a stronger consensus that regional and international players should avoid any action that undermines Lebanese stability. We should be guided by a simple principle: get the international community and Lebanese leaders to start treating Lebanon as an independent state with its own interests, rights and responsibilities, not eternally seen through the Syrian prism. 

This isn’t to say we should stand silent when abuses of human rights and democratic principles occur. We will always continue to support Lebanon as it develops towards a stable, sovereign and pluralistic society. But what that society looks like and how to get there is a vision for the Lebanese people, not for us outsiders. We in the international community should resist the temptation to come up with our answers, and give Lebanon the space to do so itself. Maybe we need to do some benign disassociation of our own.

 

Tom Fletcher is the British Ambassador to Lebanon

@HMATomFletcher

Contribute to the Twitter Debate using hashtags #Leb2013 and #Leb2020

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Consumer Society

For your information

by Executive Editors
written by Executive Editors

Bentley boom

Luxury car manufacturer Bentley is looking to capitalize on its success in the Middle East in 2011 by investing up to $9 million in the next six months on expanding operations, it announced at the Qatar International Motor Show. Bentley saw 3 percent growth last year to 566 cars sold in the Middle East — the second most successful year to date for Bentley in the region. The company now plans to open its largest workshop worldwide in Dubai, and new showrooms in Abu Dhabi and Jeddah. The Middle East remains one of the brand’s most important markets for the new Continental GT and the Bentley Mulsanne, and continued demand for these cars this year, together with the arrival of the new GTC, is expected to give Bentley double-digit growth in 2012, according to the company.

Art in the desert

Funding for the stalled $27 billion Saadiyat Cultural District project in Abu Dhabi has been approved, the Abu Dhabi Executive Council has announced. The project, which includes four new museums and a performance centre, has attracted some of the biggest names in art and design in the world. The scheduled openings include Jean Nouvel’s Louvre Abu Dhabi (in 2015), the Zayed National Museum designed by Lord Norman Foster (2016), and the Guggenheim Abu Dhabi designed by Frank Gehry (2017).  As yet unscheduled projects include a performing arts centre, designed by Zaha Hadid. The project is to be overseen by the Tourism Development and Investment Company, the state-owned company charged with turning Abu Dhabi into a global destination for arts and culture.

Bustling book fair

The Middle East’s largest annual literature festival will take place from March 8 to 12 at the Al Mamzar & InterContinental Hotel in Dubai Festival City. The Emirates Airline Festival of Literature was founded in 2009 and is expected to attract over 30,000 visitors. More than 100 Arab and International authors are scheduled to participate, including David Nicholls, AC Grayling, Palestinian poet Hind Shoufani and Lebanese novelist Dania el-Kadi, whose first full-length novel “Summer Blast”, set in the 2006 war in Lebanon, was released in 2011. In other literary news, the 2011 edition of the Prize for Arabic Literary Translation, now in its sixth year, has been awarded to Khaled Mattawa for his translation of “Adonis: Selected Poems”, published by Yale University Press. The four judges — novelist Joan Smith, professor of American literature Sarah Churchwell, lecturer in Arabic literature and the media Christina Phillips and editor of Banipal magazine Samuel Shimon – were unanimous in their decision to award Mattawa the prize, which is worth £3,000 ($4,738). Runner up for the prize was Barbara Romaine for her translation of Radwa Ashour’s “Spectres”, and commended is Maia Tabet for her translation of “White Masks” by Elias Khoury.

Reviving retail

According to the 2012 Global Powers of Retailing report by Deloitte, retailers in the Middle East have shown the strongest growth worldwide in a year that saw the annual sales of the world’s largest retailers increase by more than 5 percent. Middle Eastern and African retailers also reported the highest compound annual growth rate of all regions over the 2005-2010 period. Of the 195 companies that disclosed their bottom-line results, 183 operated at a profit in 2010, with net profitability increasing overall. Despite this growth, the Eurozone crisis and tighter fiscal policy worldwide has led Deloitte to predict slower growth in 2012. But retailers are encouraged to look ahead to the long term. Ira Kalish, director of Consumer Business for Deloitte Research, said: “Even though the economic environment in 2012 will be difficult, the long-term outlook for the global economy remains good. China will continue to grow while other emerging markets such as India, Brazil, Turkey, Indonesia, and parts of South America, sub-Saharan Africa and the Middle East offer the possibility of stronger growth as well as new opportunities for the world’s leading retailers.”

Designs on Dbayeh

Launched on February 15, ABC Dbayeh has introduced a new ‘Lebanese designer corner’ to its third level. The 205 square meter space will promote the collections of 18 home-grown designers for three months. Inspired by the commercial success of the 75 limited edition gifts created by Lebanese designers for ABC’s 75th anniversary, ABC will also offer the designers their operational expertise and marketing support. The participating designers are Atelier Nanou, Atelier S/Z, Boho, Cocoa & Co, En Ville, Hirafouna/A4C, Joanna Dahdah, Jojoba, Madame Rêve, Mojo, Nada Talhame, Nada Zeineh, Oumnia, Sarah’s Bag, Syma Beydoun, Smartiz & Co, Sunflowers and Yasmeen Farah. The designs cover accessories, handbags, shoes, clothing and homecare.

Sushi splash downtown

This summer will see a high profile new partnership between the celebrated contemporary Japanese restaurant Zuma and Beirut’s famous boutique hotel Le Gray. Zuma has been in operation in Dubai for three years, and the opening in Beirut is part of a planned series of restaurants across Middle Eastern cities. It will be the first Asian restaurant to open at Le Gray and one of very few in the Downtown area, offering high-end sushi and modern interpretations of traditional dishes.

Cream of the cupcakes

Having first come to the world’s attention as one of the addictions of Sex and the City character Carrie Bradshaw, the New York-based Magnolia Bakery has announced that it has signed franchise deals to open in Kuwait, Saudi Arabia, Lebanon and Qatar this year. The company’s first overseas outlet opened at Bloomingdales in Dubai in 2010. In Lebanon, they will be joining successful local enterprises like Sugar Daddy’s and The Cupcakery, who have tapped into a global craze for cupcakes and adapted it to the domestic market. According to an email statement from CEO and owner Steve Abrams, Magnolia Bakery will stick to its current classic American menu with a few specific items developed for the new locations.

Big boat boasts

The rankings of website superyachts.com have shown that of the top 10 largest yachts in the world, six are owned by Middle Eastern boat lovers. While the top spot was taken by Russian billionaire Roman Abramovich’s 164-meter Eclipse, the number two yacht in the world for sheer size is Dubai, owned by Sheik Mohammed bin Rashid al-Maktoum, at 162 meters long. It includes seven decks, a mosaic swimming pool and several Jacuzzis. Other top ranking Middle Eastern boats include the Emir of Qatar’s 133-meter Al Mirqab at number 10, Saudi Arabian Defence Minister Prince Sultan bin Abdul Aziz’s 139-meter Al Salamlah at number seven, and the Egyptian Presidential yacht, El Horriya, at 145.72 meters, owned by the Egyptian Navy.

Och aye!

According to a new report by the Scottish government, exports of food and drink from the country to the United Arab Emirates saw a 55 percent rise in the first two quarters of 2011 compared to the same period in 2010, to a value of £50.1 million ($78.7 million). The Middle East is also now the largest market for smoked salmon outside the EU, with an increase of 48 per cent to a value of £2.5 million ($3.9 million). Whisky exports to the UAE also saw an increase of 29 percent. The importance of this market for Scotland is compared to a global increase of 29 percent in food and drink exports, from £1.81 billion ($2.84 billion) to £2.34 billion ($3.69 billion). UAE diners are showing a particular penchant for smoked salmon – while exports of fresh salmon to the Emirates have remained steady at just over 500 tons, the volume of the smoked variety has gone up from 174 tons to 257 tons, up 48 percent.

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Real estate

For your information

by Executive Editors
written by Executive Editors

Lodging industry grappling for visitors

For the first time since 2007, Lebanese hotels and furnished apartments experienced a slump in occupants and revenue for 2011, according to the Ministry of Tourism and Byblos Bank research. Visitors spent $104.5 million on hotel and furnished apartments last year, a 17.3 percent fall compared to 2010 figures. Figures representing both the number of people who stayed in such lodgings and the total nights spent show a similar contraction of 15.8 percent and 17.3 percent, respectively. Besides Lebanese nationals, who made up 20 percent of the customers at such lodgings, Visitors from Saudi Arabia and Iraq made up 11 percent and 8.6 percent of clients, respectively, while Jordan, Syria and Kuwait made smaller visitor contributions. While clients from Iraq increased by 12.5 percent year-on-year, the number of hotel guests from Saudi Arabia and Kuwait shrunk by 25 percent each.

Hold on Hotels

One of the largest hotel management groups in the world, Millenium Hotels, has spoken up about curtailing its development plans in the Arab world, notably in response to instability in Syria, Egypt, Tunisia and Libya. “Things have changed dramatically. [In] Syria we were talking to people; [In] Egypt we were talking in Cairo; [In] Tunis we had an [memorandum of understanding] signed, which was affected as well,” Ali Hamad Lakhraim, the president and chief executive of Millennium & Copthorne Hotels (MCH) for the Middle East and Africa, told The National in a February 12 article. The group said that visitor numbers had dropped and that their investors in those countries were in a ‘wait-and-see’ mood until a clearer political picture evolved. Hotel occupancy in Cairo last year fell to an average of 36 percent, a roughly 45 percent drop year on year, according to Ernst & Young. Before the revolution started in Libya, MCH, which manages 120 properties worldwide, had five projects under negotiations in the oil-rich state. After a recent visit to Libya, Lakhraim said he hoped to sign on two of the deals this year as the political situation clears. Even though, according to Lakhraim, “Iraq…is not the easiest market,” MCH plans to build new hotels in the country’s northern cities of Sulaymaniyah and Erbil, and refurbish Sheraton-brand hotels in Basra and Baghdad. Moving to safer waters, MCH plans to capitalize on last year’s 13.2 percent hike in United Arab Emirates hotel occupancy by opening two hotels in Abu Dhabi later this year, in addition to Dubai’s Millennium Plaza hotel which opened in January. MCH is majority owned by CDL Hotels International, based in Singapore.

BLOM housing financing blooms in KSA

In line with growing demand for housing in Riyadh, the investment arm of Lebanon’s BLOM Bank has arranged for a $77.3 million loan to help finance the development of 400 homes in Riyadh, according to a February 11 press release. On February 8, BLOMINVEST Saudi Arabia arranged the project’s financing from the National Commercial Bank on behalf of IBAR development. The total cost of the project is $152.7 million. In addition to its financing role, BLOMINVEST Saudi Arabia also signed a 3-year contract with the main developer, Maskan Arabia, as a development partner. Abdulaziz Alsaghyir, chairman of IBAR Development, said at the signing ceremony that, “The [Saudi Arabian] real estate market has an annual demand for around 200,000 housing units and an expectation of 8 to10 percent growth in real estate investment in the coming period.”

Beirut’s towering property prices

In a study comparing the 2011 prices of 120-150 square-meter apartments across 94 cities, Beirut came in second place in the Arab world, and 50th place overall, with an average price of $3,223 per square meter. As a study on property investment, the Global Property guide looked at high-end apartments in selected areas of the world’s cities that are available for resale. The study collected prices of apartments in Ashrafieh, Verdun, Ramlet El Baida and the downtown district, among others. Noting that gross rental yields have dropped to 4.7 percent and that prices have increased in the Central Beirut district, those concurrent trends would likely be unsustainable. The study placed Beirut at the top of the Middle East and North Africa region for their price-to-rent ratio, or the number of years required for rent paid to equal the property’s sales price. Compared to an average ratio of 16 in the region, it takes an average of 22 years of rent to cover the purchase price in Beirut.

Bekaa to bustle

Lebanon’s Bekaa area will be home to the newly announced Cascada Village, a commercial, retail and entertainment complex to be built upon a 200,000 square meters (sqm) area which includes a 9,000sqm man-made lake, shopping center, offices, amphitheater and restaurants. The project developer is Inter Mall Group, based in Lebanon with operations in North and South America, while the design consultant is Chadi Massaad Group, based in Lebanon with offices all over the MENA region as well as Brazil and California, according to its website.  The 150,000sqm shopping center will include a supermarket and 100,000sqm of office and retail space. While the amphitheater will include seats for 4,000 people, a nearby hotel and wedding hall will accommodate for both local and regional parties. As the project is positioned almost halfway between Beirut and Damascus, its website adds that it will attract visitors from Syria and Jordan, and thus will accommodate for over 4,000 cars. Inter Mall Group has 30 years of experience in developing shopping centers, with its largest mall in Venezuela having 300 stores and 175 offices, according to the letter from the chairman, Maurice Torbey, on the project website. Calls made to the Kaslik office of the developer said that this is the group’s first commercial project in the Middle East, and that the group is currently deciding on anchor tenants in the mall.

Qatar’s new snatch

Qatar Holding has completed a real estate acquisition in London’s Canary Wharf district, expanding the UK property holdings of its parent Qatar Investment Authority, the country’s sovereign wealth fund. The holding said in a Feb 17 statement that it bought and leased-back the London headquarters of Credit Suisse at One Cabot Square. The bank will lease the building from Qatar Holding under a long-term agreement that runs until 2034. The statement did not declare a transaction value but The Telegraph reported on January 28 that the Qatar Holding offer was understood to be around $519 million. The Qatar Investment Authority (QIA) already owns 6 percent of Credit Suisse, making it the second largest shareholder, while the wealth fund’s subsidiary owns a 27.7 percent share in Songbird, the major owner of Canary Wharf Group.

Big Mall goes bigger

The largest mall in the world, Dubai Mall, will be expanded by 92,903 square meters (1/12th of its current size), as announced by its developer, Emaar, in mid-February. In 2011, 54 million visitors packed into the mall, and the expansion will include both retail space and hotel rooms.  On February 11, Emaar Retail reported that growth in leisure revenue had increased 13 percent in 2011, year-on-year. In other retail news, the United Arab Emirates’ Majid Al Futtaim Properties (MAF), the largest builder and operator of retail malls in the Middle East, announced its fully-leased Beirut City Mall under construction in Hazmieh, will be complete by February 2013 instead of summer 2012, as originally cited. The remarks were made by Alain Bejjani, the group’s head of business development, at a January 27 press conference in Dbayeh concerning Waterfront City, Lebanon’s largest mixed-use community development, a joint venture between MAF and Joseph Khoury Holding. MAF is currently looking for an operator to manage Waterfront City’s 5-star hotel with serviced apartments.

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Banking & Finance

Financial quotes of the month

by Executive Editors
written by Executive Editors

“It is our intention to vote against the deal unless the merger terms for Xstrata shareholders are materially improved.”

David Cumming, head of equities at Standard Life Investments on a proposed Xstrata-Glencore mining merge

“In a regional world marked with political uncertainties and a global world faced with economic difficulties, we must recognize Lebanon’s comparative advantage and its own secret for success. It is the Lebanese people.”

Riad Salameh, governor of Lebanon’s central bank

“As presented it’s very difficult to determine if the Arab spring fund is new wine in new bottles or old wine in new bottles.”

John Norris, Executive director at the Center for American Progress think-tank on US president Obama’s $800 million ‘Arab spring fund’

“We’ve actually spent a lot, but we still have a lot; a lot more than we need to run the company.”

Tim Cook, CEO of Apple

“In the last three years we have got rid of £700bn of bad assets – twice the entire size of the Greek national debt.”

Stephen Hester, CEO of Royal Bank of Scotland

“They cannot force Lebanon’s banking sector to violate sanctions [on Syria] because it is in the interest of the sector not to violate them.”

Najib Mikati, prime minister of Lebanon speaking about Syria’s allies in the Lebanese government

“Every investor will have his funds paid back, thanks to the wisdom and foresight of Sheikh Mohammed [bin Rashid].”

Abid Al Boom, Dubai property tycoon, after being cleared by Dubai’s highest court from a $272 million embezzlement charge

 “We have been proving everybody wrong in the last three years and this is going to be a fourth year proving everybody wrong.”“We have never said… that there’s a floor. I’m sure that we will never say so. There are no tactical obstacles to go further.”

Mohammed Al Shaibani, director general of the Dubai ruler’s court on Dubai’s debt

“We have never said… that there’s a floor. I’m sure that we will never say so. There are no tactical obstacles to go further.”

European Central Bank’s council member Erkki Liikanen on whether there was a floor to the ECB’s record-low one percent interest rate

“China will be our number one market this year. I’m very confident in the continued growth of the luxury market.”

Christophe Navarre, CEO of wine and spirits maker Moet Hennessy

“Nobody really wants Iran to have nuclear weapons … We shouldn’t change our line because it’s a threat by Iran, that’s not the way it works.”

European Union’s trade commissioner, Karel De Gucht following Iran’s suspension of oil supplies to several European countries
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Banking & Finance

Investment guide MENA stock tips

by Executive Editors
written by Executive Editors

The markets began to regain ground last month, and by mid-February the S&P 500 Index had gained 7 percent and the Dow Jones 5.6 percent since the start of the year. Despite the rise in the markets, economic fundamentals remain weak, leaving investors worried about whether these upward movements are just a correction or the beginning of a recovery. For a more nuanced view on recent market movements, Executive speaks to Nadi Barghouti, head of asset management at Shuaa Capital and Elias Feghali, head of capital markets at Middle East Capital Group, a subsidiary of First National Bank.

Nadi Barghouti

“In my opinion, the risky part is the political. I am conservative because of the political issues”

Thoughts on global markets?

Barghouti believes the strong performance of the bourses so far this year was not justified by solid fundamentals and he expects a pullback in the markets. He is being very cautious due to numerous global issues both political and economic. He would stay in defensive sectors and in domestic names with limited exposure to the global economy.

Favorite asset classes?

Barghouti would not ignore equities despite his conservatism and recommends exposure to defensive sectors such as retail, pharmaceuticals and food and beverages. He likes some exposure to fixed income, and is also fond of commodities, though not a huge fan due to the volatility of the sector.

Key concerns?

Barghouti stresses that there are a multitude of issues affecting the markets. On the European sovereign debt crisis, he believes that “it is just one issue and it will not be solved this year. It is just the start of worse things to come.” As for regional markets, he highlights several economic and political issues.  For instance, economically, there are lingering issues of transparency, corporate governance, liquidity and foreign ownership.  Politically, several countries in the region remain unstable and the geopolitical crisis in Iran will affect the markets negatively, he deems. Barghouti says he believes that some of these risks can be addressed and some are systematic and affect the entirety of the market. He is less concerned about the economic issues, as he is seeing a lot of positive signs such as new projects and an increase in government spending. “In my opinion, the risky part is the political. I am conservative because of the political issues,” says Barghouti.

Favorite asset classes in the Middle East and North Africa region?

Barghouti likes equities in Saudi Arabia as he believes they will yield the highest return this year. He also highlights Qatar as an interesting investment opportunity due to its growth potential. He likes the value proposition in the United Arab Emirates as it enjoys solid fundamentals but he is concerned about the lack of liquidity. He believes Egypt is an interesting market to invest in but he would not buy into it today as it already had a good run and he would wait for a pull back to buy again.

Your top investment recommendations in the region?

Again, he stresses investment in defensive sectors. He highlights the retail, food and beverage and pharmaceutical sectors in Saudi Arabia and the UAE.

Elias Feghali

“With all the money printing, inflation will pick up and its just a question of time”

Bullish or bearish?

Feghali does not trust the markets, as he believes the recent upward trend is just a short-term correction and that we are going into ‘overbought’ territory. “You have to be bullish in the short term,” says Feghali and he highlights several reasons for this, such as the presidential elections in the United States, as each candidate will try to prove that they are good for the markets, as well as the announcement by Federal Reserve Chairman Ben Bernanke that he will not be raising interest rates until 2014.

Key concern going forward?

While Feghali is encouraged by some positive economic indicators coming out of the housing market in the US, he does not believe it will last and his key concern going forward is inflation. “With all the money printing, inflation will pick up and its just a question of time,” says Feghali. 

Your favorite asset classes? 

Feghali likes high-yielding stocks such as US tobacco companies Philipp Morris and Altria. He also has a preference for defensive sectors like consumer staples. He highlights Coca-Cola, Wal-Mart and McDonalds because even in times of economic crisis, they perform well.

Will Facebook’s upcoming listing help the markets? 

Feghali believes that the aura around Facebook’s upcoming initial public offering will help the market, as “even people who don’t understand and who don’t originally invest in the stock market, will be interested in buying Facebook.” Feghali recommends buying any stock which would benefit from Facebook’s IPO, such as the social network game developer Zynga. He highlights that there are strong IPOs in the pipeline, with talks of Twitter being next, though the timing depends on the performance of the markets. With gloomy markets, IPOs will be postponed according to Feghali.

Your thoughts on the Middle East and North Africa markets?

Feghali does not have much appetite for the region due to the revolutions in the Arab countries and the ongoing crisis in Iran. He prefers to invest in the US and in Europe for the time being. If he had to invest in the region, he would also go with high-yielding stocks and he highlights First Gulf Bank and National Bank of Kuwait.

Your thoughts on Lebanon?

Feghali likes to invest in Lebanese securities as some stocks are very cheap, but he would be cautious with the banking sector for now due to it’s exposure to Arab countries in turmoil. He would invest in Solidere at a level below $14. He does not believe it would move much but it offers a dividend yield of 7 percent, which he sees as attractive. He would not buy Lebanese bonds now unless there is an interesting new issue. “Whoever owns a Lebanese bond should keep it but I wouldn’t buy more now. For less risk, you can get a better return in the region and in the US,” says Feghali.

Your favorite stocks?

He would buy one stock exposed to gold and silver, one stock that would benefit from the Facebook IPO and one defensive stock such as McDonald’s or Altria.

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Banking & Finance

For your information

by Executive Editors
written by Executive Editors

MEA circles Cyprus Airways

Middle East Airlines said it may bid for a stake in Cyprus Airways, the island’s loss-making airline. The Cypriot government approved a capital raise for the state-run airline and announced it would consider offers for the sale of an unspecified stake. Cyprus Airways, 70 percent owned by the government, said that it entered into a ‘code-share’ agreement, a type of aviation business arrangement, with MEA. “We feel there is real potential for us and we are studying it seriously,” said MEA Chairman Mohamad el-Hout. The acquisition would be the first time MEA invests in a foreign airline. A Greek newspaper has reported that another airline, Russia’s OAO Aeroflot, has shown interest in a stake and is holding talks with Cyprus Airways. Trading in the struggling carrier’s shares were suspended after the reports of a potential stake sale, but were reinstated after Cyprus Airways released a statement saying “so far no specific proposal has been tabled.” Cyprus Airways which has a market capitalization of $36 million, lost $39 million in the first half of 2011, the last available results. It also received $26 million in compensation from the government for costs caused by Turkey’s flight ban on Cypriot traffic. MEA currently enjoys a monopoly on all domestic outgoing passenger aircraft in Lebanon, which is due to expire this year. 

IFC acquires stake in MedGulf

International Finance Corporation (IFC), a member of the World Bank Group, acquired 15 percent of Mediterranean & Gulf Insurance & Reinsurance (MedGulf), Lebanon’s largest insurance company, for $124 million. IFC, which provides financing for the private sector in developing countries, aims at helping MedGulf extend health and commercial risk insurance services to new Middle East and North Africa markets; in particular, the company is looking at Turkey, Egypt and Iraq. The MENA currently has one of the lowest rates of insurance coverage globally, with gross premiums standing at some 1 percent of regional gross domestic product. According to IFC, the share of the population aged 65 years and above is expected to more than triple by 2050, which will require an increase in health, life and pension insurance services. The United States gross premium rate stands at 9 percent and the European Union at 8 percent. “The partnership with IFC will help MedGulf grow its operational capabilities to extend security to people who would otherwise have limited means of coping with calamities,” said Lutfi al-Zein, chairman of Medgulf. In April 2011, the Lebanese firm LFZ Holding bought the remaining 49 percent of MedGulf it did not own from Saudi Oger, connected to the wealthy Hariri family, in a deal valued at $400 million.

Wage woes at the banks

Following the government’s recent wage hike decree, negotiations for the renewal of bank employees’ collective labor agreement have been thrown into turmoil. The contract, which expired in 2010 but is still being used as the basis for labor contracts in the sector, regulates relationships in the banking sector between the administration and the employees. The dispute centers around an article in the agreement which stipulates that, in addition to any wage increase by the government, all employees will receive an increase of 25 percent on their salary up to the point of the minimum wage. Previously the first bracket was set at 550,000 lira ($365) and has now risen to 675,000 lira ($478), meaning all employees will receive a raise of $111 dollars in addition to whatever increase they receive under the new wage hike decree. Banks, concerned about the hit to their profits following the application of this article, have informed the labor ministry and the Association of Banks in Lebanon (ABL) that they are not going to implement the article for employees on the third salary bracket (from 1.5 million lira upwards). “All the benefits of contract should continue until the renewal of the agreement and the Lebanese law did not put period or deadline for the negotiations,” said George Hajj, head of Union of Syndicates of Bank Employees. In a recent meeting orchestrated by the labor ministry, the ABL and the bank employees association agreed to renew the collective contract for now while identifying the key controversial articles to be addressed. The employees association has warned that failure to address these articles would oblige them to take escalatory steps such as sit-ins and demonstrations. The final outcome of the negotiations remains unclear as Executive goes to print.

M&A down in 2011

The value of merger and acquisitions deals completed in the Middle East and North Africa region dropped by 28 percent in 2011 to hit $31.7 billion, according to a recent report by accounting firm Ernst & Young, while at the same time the number of deals increased 4 percent to reach 416. “A larger number of deals at smaller valuations signifies that asset values across the region have taken a tumble in light of the lower regional economic growth and also the projections for future growth,” said Phil Gandier, MENA head of Transaction Advisory Services at Ernst & Young. The countries that enjoyed the largest percentage of deal value in the domestic space were the United Arab Emirates with $3.9 billion of total disclosed deal value, followed by Saudi Arabia at $2.8 billion and Kuwait at $1.1 billion. The sectors that witnessed the most M&A activity in 2011 were the diversified industrial products sector and the real estate sector. Only 11 percent of the 416 deals announced in the MENA region in 2011 were in the sovereign wealth fund and private equity space.

Anti-expansionary Zionists

In a bid to boost competition and improve affordable living standards, Israel is looking to break up some of the largest conglomerates in the country, partly blamed for the rising cost of basic goods, which lead to mass protests last summer. Israel’s 10 largest businesses hold just over 40 percent of the market value of public companies, according to the finance ministry, leaving the country with one of the highest concentrations of corporate power in the developed world. The main recommendations, which still need to be approved in the Knesset, Israeli’s parliament, include requiring holding companies to limit their tiers of subsidiaries. Companies will not be allowed to hold a financial firm with assets more than 40 billion shekels ($11 billion) or a non-financial company with more than 6 billion shekels ($1.6 billion). Companies should abide by the new rules within four years. Some of the most significant corporate reshaping that would have to occur as a result would be for Israel Discount Bank Group, one of Israel’s largest banks, to divest one of its key holdings such as Clal Insurance or Cellcom, Israel’s largest mobile phone operator. Private equity firm Apax Partners would also have to divest either food maker Tnuva or the Psagot brokerage.

Etisalat and Batelco exiting India

United Arab Emirates telecommunications operator Etisalat is shutting down operations in its Indian joint venture (JV) Etisalat DB (EDB) after India’s Supreme Court cancelled 122 licenses in the country amid a corruption inquiry. EDB has licenses in 15 of India’s 22 telecommunications zones and 1.7 million subscribers, ranking the operator 14th in a 15-operator market. Etisalat, which owns 45 percent of the JV, has written down $827 million related to EDB. The UAE operator had paid $900 million in 2008 for its stake in the emergent company, then called Swan Telecom, and said it invested more than $1 billion in the JV, renamed Etisalat DB. The UAE operator has launched legal proceedings against its Indian joint venture partners for fraud and misrepresentation in an attempt to recoup some of the losses. “Etisalat’s case is that it was induced in its investment in the company that was then Swan, without any disclosure of the matters that are now alleged to have occurred in connection with the obtaining of 2G licences by EDB,” Etisalat said in a statement. Bahrain Telecommunications Company (Batelco) has also seen its licenses in India revoked and is selling its 43 percent stake in its Indian subsidiary S Tel to its Indian partner for $175 million, the same price it had paid to acquire the business. Batelco said the sale would help it achieve double-digit growth in 2012.

Qatar interested in Oger Telecom

Qatar has approached Saudi Oger, owned by the Hariri family, for its 55 percent stake in Turk Telecom, one of the largest listed companies in Turkey with a market capitalization of $14 billion. If Qatar secures the Oger Telecom stake, it would also get Turk Telecom’s mobile unit Avea with a customer base of 12 million, as well as South Africa’s third largest operator Cell C, in which Oger holds a 75 percent stake. As Cell C is not listed, valuing the deal is not straightforward but the Turk Telecom stake alone would be worth at least $8.6 billion. Saudi Telecom (STC), which owns 35 percent of Oger Telecom, has a right of first refusal, the right to acquire the stake before it becomes available for sale, which could complicate the transaction. In addition to STC’s right of refusal, there are other challenges to the deal such as the requirement to make an offer to the minority shareholders of Turk Telecom if the stake sale occurs. Qatar’s sovereign wealth fund has been an aggressive investor across sectors and countries and has put money in high profile names such as German carmaker Porsche, football club Paris Saint-Germain and London’s luxury department store Harrods. Qatar is now keen on enhancing its presence in Turkey.

Moody’s and S&P on Lebanese banks

Credit rating agency Moody’s withdrew its rating on Bank of Beirut for its “own business reasons” and without stating whether it was requested by the bank itself. The rating was a D- standalone bank financial strength rating. Moody’s kept its rating unchanged on the three other banks covered, Bank Audi, Byblos Bank and BLOM Bank. Another rating agency, Standard & Poor’s, linked the upgrade of its ratings on the three Lebanese banks covered, Bank Audi, BLOM Bank and BankMed, to political stability in Lebanon and the implementation of structural reforms. It stated that the most important risk for the three banks covered is their high exposure to the sovereign debt, while noting that their ratings benefit from their solid financial position as reflected by strong liquidity and a rigid operating performance. BLOM Bank’s exposure to the sovereign debt stood at 5.2 times its common shareholders’ equity as of end of 2010, Bank Audi’s exposure stood at 4.2 times and BankMed’s at 4 times. The rating agency also noted that the capitalization level is moderate for Bank Audi and BLOM Bank and weak for BankMed.

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