Executive Magazine

A skyline of skeleton towers

by Peter Speetjens March 3, 2012

written by Peter Speetjens

Reflecting the blue skies above, the Jordan Gate towers are the tallest — and arguably the emptiest — buildings on the Amman horizon. King Abdullah II in 2005 laid the foundation stone for the prestigious project, which was said to become the business address in the Hashemite Kingdom. Since 2009 however, the two giant cranes standing next to the towers have remained idle. The top floors have never been built and part of the glass exterior has come off. Today, the $300 million project remains a grim reminder of the days when the sky seemed the limit for Amman real estate.

The Jordan Gate was an initiative of the Gulf Finance House (GFH), a Bahrain-based investment firm badly hit by the 2008 financial crisis. GFH needed a $300 million loan to stay afloat and in 2010 escaped default only by agreeing to postpone the final repayment of $100 million. According to a prominent Jordanian contractor, who wished to remain anonymous due to fears public comments could jeopardize his business, GFH was not able to pay Al Hamad Contracting (AHC); instead, it offered the Sharjah-based firm the unfinished towers. Executive asked GFH and AHC to comment, but both declined.

“What happened is simple: the bubble burst,” said Wael Jaabari, owner of the large Jordanian real estate agency Abdoun Real Estate. “The developers had a business plan based on selling office space for some $4500 per square meter (sqm), which was, perhaps, feasible before the 2008 credit crunch. Yet they better get used to the new reality and swallow their losses. Maybe they can still rent out part of the building.”

“Compared to the peak prices of early 2008, prices in west Amman, depending on a property’s location and quality, have decreased by some 25 to 60 percent, while prices in the outskirts have decreased by some 80 percent,” said Jaabari. As an example, he refers to his office in Abdoun, a prime location, which he bought in 2010 for $1,200 per sqm, while a few years back people were paying up to $3,000.

And yet the Jordan Department of Lands and Surveys (DLS) last January reported that the real estate market grew by 8 percent in 2011 to amount to nearly $9.8 billion, following a 25 percent increase in 2010. Hopeful signs of recovery, although the increase follows upon a decline of more than 30 percent in 2009 alone. When compared to 2007, the 2011 market is only 14 percent larger.

There are other reasons to treat the DLS statistics with care. “One government measure to boost trading was to abolish the real estate registration fee of some 10 percent,” said economist Yusuf Mansur, chief executive officer and owner of Jordanian consulting firm EnConsult. “Today, a government employee estimates the value of a property or land, which is generally higher than what the contract states. What’s more, the sales of a small number of commercially viable plots of land boost and obscure the overall picture.”

Boom & Burst

The reasons behind Jordan’s real estate boom prior to the crisis are well known. The 2003 United States-led invasion of Iraq forced many Iraqis to flee to Jordan. Some arrived, quite literally, with suitcases full of money, which they used to buy homes in Amman’s affluent western section. Price increases of up to 400 percent were recorded and real estate trading increased by a whopping 74 percent and 48 percent in 2004 and 2005, respectively. The Amman market was awash with cash and seemingly everyone wanted a piece of the pie, including many foreign investors. An ABC Investments report states that 1,247 new construction companies were established between 2004 and 2008, of which 339 companies were established in 2008 alone.

Today, the days of plenty seem long gone indeed, if only for the fact that loans are not as easy to come by. The Central Bank has imposed a strict ceiling of 20 percent of customer deposits on the amount of facilities granted by banks to the real estate and construction sector. “Banks are less lenient regarding real estate loans,” said Jaabari. “For a while, they permitted firms to postpone payments. Pay a bit now, a bit later. Now they just want their money. As a consequence, we no longer have pinball property development. No more building to speculate and sell; it’s a buyer’s market.”

The Jordan Gate project was not the bubble’s only victim. The GFH initially also intended to build the $800 million Royal Village — a project that never saw the light of day. The same is true for The Living Wall, a project that is anything but alive. An enormous billboard still reminds Amman of the six luxury towers and Buddha Bar that were set to arise. In 2006, the project was even named Best Future Commercial Project at Cityscape Dubai. Today it remains a huge hole in the ground.

The Living Wall was the brain child of Mawared, a state-owned developer with close ties to the military, which has been tainted by a series of corruption scandals. Its former CEO, Akram Abu Hamdan, has been detained for allegedly pocketing millions of dollars.

Dubai World’s Limitless Towers did not even dig a hole. A massive marketing campaign prior to the crisis stressed the towers’ height: at 200 meters they would dwarf even the Jordan Gate, while the suspended swimming pool, at 125 meters, would be the world’s highest — would being the operative word, as the $300 million project was never even started.

Another failure concerns the $1 billion Saraya Aqaba resort. Construction started in 2006, yet has been stalled since 2008. Saraya Holdings, largely owned by former Lebanese Prime Minister Saad Hariri, also planned to build a $700 million Dead Sea resort. Announced with much fanfare at the 2007 World Economic Forum, construction never started. The same is true for the company’s regional projects. Small wonder therefore that the Saraya Holdings headquarter, which Hariri planned to build at his brother Bahaa’s Abdali Project, has been stalled as well [see box].

Abdali stays Afloat

“The Abdali Project was not spared the effects of the global financial crisis like so many other large, mixed use developments,” said Salim Majzoub, deputy CEO of Abdali Investment and Development. “Since the start of the crisis, not a single investor has pulled out; however, construction work on some of the projects was halted for a period of time. Currently, some 15 percent of the developments in ‘phase one’ are on hold.”

With an estimated cost of $3 billion, the first phase of the Abdali Project foresees, among other elements, the construction of 12 mixed-use buildings and a shopping boulevard and mall, which are the heart of the 1.7 million sqm regeneration development in central Amman. The project is a joint venture between Jordan’s Mawared and Horizon, a Lebanese property developing firm established in 2002 by Bahaa Hariri. Both Mawared and Bahaa Hariri own 44 percent; the remainder is in the hands of Kuwait Projects Co.

If a tree falls in the forest…

As a forest of construction cranes continue to operate at Abdali, the project seems to have survived the onslaught that followed the 2008 crisis. “Approximately 75 percent of the mid-rise developments within the project will be ready for opening in 2012,” said Mazjoub. “They mainly consist of ‘Grade-A’ commercial and luxury residential space. The Abdali Boulevard has been over 80 percent completed and construction has started on the Abdali Mall, which is due to become operational by the end of 2013.”

Since 2008, the project has received several loans from Arab Bank, BLOM Bank and Bank Audi, with work underway on a number of banks’ offices, as well as offices for Saudi Arabia’s Rajihi Cement and Lebanon’s MedGulf. Also, five towers are being built, among which are the Rotana Hotel Tower (“the highest in the Kingdom”) and a DAMAC residential tower. The Emirati developer reportedly faced some financial woes, yet found new partners to complete the 34-story building, though abandoned the initial idea of building a total of 7 luxury towers in the Jordanian capital.

The Abdali Project is arguably the most prestigious in the country. Modeled to a large extent on Solidere’s downtown Beirut project, it aims to become the new (commercial) heart of Amman. Its failure would be an absolute disaster for Jordan’s international standing. It remains to be seen however, if the project will finally be executed as planned on the drawing board.

A planned university and medical city, reportedly, have already been cancelled. In the project’s $2 billion second phase are another nine high-rise towers and 25 mid-rise buildings. Seeing the fate of the twin coffins of the Royal Gate — and the many, many other plans to build Jordan’s biggest this and tallest that — perhaps a slightly humbler version is not entirely out of place.

Saraya dream turns sour

The Lebanese daily Al Akhbar reported on February 13 that King Abdullah of Saudi Arabia had saved Saad Hariri from bankruptcy by offering him a $2 billion interest-free loan. The latter firmly dismissed the report as Hezbollah propaganda. True or not, rumors over Hariri’s financial health have been persistent and if his real estate endeavors are anything to go by, then a major Saudi bailout would not come as a surprise.

Saad Hariri is the chairman and majority shareholder of Saraya Holdings, a Dubai-registered firm that aims to develop “luxurious mixed-use tourist destinations”. Its first and flagship project was announced in May 2005 at the World Economic Forum: Saraya Aqaba, a $1.2 billion mixed-use resort built around a man-made lagoon. In partnership with, among others, Arab Bank, the project had an initial capitalization of $242 million. It raised a further $120 million by issuing shares.

Other project announcements followed in quick succession. In September 2005, Saraya Holdings, Arab Bank and the Emirate of Ras Al Khaimeh signed an agreement to launch the $500 million Saraya Islands. In February 2006, Saraya and Arab Bank launched a $250 million real estate investment fund. In June 2006, Saraya signed a deal with Oman to create a first-class beach resort south of Muscat. In 2007, it announced a deal to create a $700 million Dead Sea resort and a luxury resort on Russia’s Black Sea coast. Then came the ‘Big Bang’ of 2008, and suddenly things turned very silent indeed at Saraya Holdings. Work at Saraya Aqaba, by the construction arm of Hariri-owned Saudi Oger, had started in January 2006 but was stalled in 2008. Executive requests to Saraya Aqaba for further information on the matter were declined.

Last year, a former Saraya employee told Jordan’s Jo Magazine that Saraya Aqaba’s business model was based on one-third equity, one-third loans and one-third pre-sales. A model quickly undermined, he said, as the project’s estimated cost ballooned from $700 million to $1.2 billion. “The company grew incredibly quickly,” said a prominent Jordanian contractor and former employee of Saraya Aqaba, who wished to remain anonymous due to fears public comments could jeopardize his business. “It seemed they were trying to inflate the brand name in order to go public. Then the crash happened and we had to scale back dramatically. The marketing department in Amman alone went from thirty-five employees to just four or five. We thought it would get better, but the CEO, Ali Kolaghassi, eventually admitted that it wasn’t looking good — and that’s when many of us lost our jobs.”

While most Saraya projects are “on hold”, there is a chance that Saraya Aqaba will still rise from its coma. In October 2011, the company announced a new cash injection of $240 million by an unnamed Abu Dhabi investor, which follows a previous $350 million injection by Saraya Holdings’ Aqaba partners Arab Bank, the Aqaba Development Corporation and Jordan’s Social Security Corporation.

By February 2012, with work at Aqaba still yet to be resumed, the company issued a rare press release promising to begin discussions with clients who had bought homes in Saraya Aqaba. “We do appreciate the patience of our customers and look forward to addressing their needs within the coming weeks,” wrote Saraya Aqaba’s general manager, Saud Soror. Whether that means Saraya’s dream world of villas, townhouses and a lagoon will indeed manifest, one can only wait and see.

March 3, 2012 0 comments

Society

Snap, crackle and pop-ups

by Ellen Hardy March 3, 2012

written by Ellen Hardy

Life is tough for Lebanese designers. Despite unreliable spending and tourist numbers in a contracting economy, retail rents per square meter per year range from $400-$2,000 in malls, and are totally unregulated elsewhere. Multi-brand stores are reluctant to support local names, and even established retailers rely on holiday seasons to boost slack sales. This makes setting up shop a daunting prospect for small local businesses that need to boost their brand presence and client bases while running on minimal staff and overheads.

Some brands are therefore operating ‘limited edition’ or seasonal stores, which are as blink-and-you’ll-miss-them as Lebanese profit margins themselves. They are inspired by the trend in America and Europe for ‘pop-up shops’, which in some cities have become ubiquitous in their popularity. Opening sometimes for days or even hours, these stores offer unique products and experiences, from Hermès pitching its scarves and swimwear to summer crowds in the Hamptons, to ‘Alcoholic Architecture’ by Bombas & Parr, which filled a venue in London with vaporized gin and tonic. Brands love the marketing buzz and sales hike — qualities that are exceptionably valuable to Lebanese designers struggling for a foothold.

Temporal retail

“It’s not that sales increase twofold during the holiday period like Christmas and August, it’s that they increase seven to eight times,” says Nayla Assaf, whose casual contemporary clothing line En Ville has been selling wholesale to multi-brand stores in Beirut and Amman from a studio in Ain El Mreisseh since early 2010. She convinced Solidere to let her and six other brands take over a line of empty shops in the Souks for six weeks over Christmas and the New Year.

“At this point in time it did not make sense for me to open a permanent shop,” says Assaf. “So I wanted to tap into that holiday buzz and holiday crowd… by choosing a really prime location with lots of tourists.” Unlike other locations that were overpriced and whose owners were reluctant to draft temporary contracts, Solidere listened to Assaf’s case that “we’re entrepreneurs, we’re Lebanese, those shops are empty… but equally we’re going to bring people. We have our own mailing lists, we have our own contacts.”

For a “symbolic” rent, these retailers could test the location and market, meet new clients and boost sales. Compared to her sales for the same period the previous year, Assaf scored an increase of around 150 percent, offset by incidental expenses like staff, décor, packaging and the DJs and catering that were an essential part of the “buzz”. Two of the pop-ups — jewellery designers Joanna Laura Constantine and Smartiz handbags and accessories — decided to extend their contracts on the site across Valentine’s Day and Mother’s Day. Joanna Laura Constantine, 90 percent of whose customers are in the United States, says that “the potential of the market in the Middle East had low expectations for me until I opened the pop-up store,” which exceeded her predictions “20 times over”.

Elsewhere, Rouba Mortada’s paper products and homeware brand Choux à la Crème sells in a few local outlets, in Monocle stores worldwide and at Liberty in London, but she is not ready to commit to a Beirut boutique of her own. Instead, she opened her fourth-floor Clemenceau design studio to the public for two weeks in December, selling her standard and Christmas collections with special packaging and snacks on offer. A couple of posters and a Facebook group advertised “for two weeks only” and “limited edition pretty things”, generating 22 percent of her annual turnover. Simply, Mortada says, “it makes more sense and more money for me to sell on my own,” and the use-by date on a retail space can intensify this advantage. “It’s a whole experience,” says luxury brand consultant Marie-Noelle Azar from the agency Whyte Mulberry. “You’re selling them the product that they might not necessarily need but… because they know that in a week you won’t have it, they need to buy it now.” Mortada sees this potential as unexplored by established Lebanese brands: “One of the frustrations about Beirut is that it tends to run in the same circles… so I wouldn’t be surprised by any of the creatives doing a pop-up shop here.”

Seductive synergies

For Nour Sabbagh and Nur Kaoukji, their ‘Beirut Loves’ pop-up experience is an end in itself rather than a test run or a boost to an existing brand, opening for 15 days a year and focusing on products from a different country each time, starting in 2011 with ‘Beirut Loves Jaipur’.

“We both knew that we wanted something ephemeral, something that was a store and an event mixed into one,” says Kaoukji. “We imagine the store to be a kind of suitcase, something exciting we bring back from our travels.” They, too, scored a deal on a Downtown location. “People were initially surprised that we were only going to be present for 15 days, but that factor pulled them back. We received a lot of client’s details who were keen to be notified about our next pop-up.” For them, consumers are in a mood to be seduced by such projects. “One can sense their longing for this personal connection and we believe that this is going to affect businesses in the long run, the trend of the ‘one off’ or the handmade is growing stronger.”

Azar sees the pop-up trend in Beirut as an underdeveloped tool that, done properly, can bring together the best in online media, marketing and creative sales. “In terms of maturity… it’s still who you know that’s going to come and who you know that’s going to buy, it’s not commercial,” she says. “When pop-up stores started in Europe and the US they started in the main street where they know that they have traffic and they know that if they get the right product to this traffic they’re going to sell — you don’t have that here.” In an environment that lacks syndication, low-cost retail space or a healthy market for carefully crafted, locally branded goods, entrepreneurial artisans have always relied on exhibitions and exhibits to spread the word about their work; pop-up stores work on the same principle but with significantly more business benefits.

And when the store itself is the must-have limited-edition accessory, the possibilities are endless. Sara Darwiche at Chouchic.com, an invitation-only online boutique for the Middle East that deals in luxury labels, describes her marketing strategy as “a continuous virtual pop up store for a variety of high-end brands and trend setting styles [and] themes with a twist”.

Daily sales at noon are driven by membership and email alerts that cause “a daily flood of transactional traffic,” she says, for a “business model based on scarcity, selection and urgency,” where “hundreds of thousands of shoppers compete online for the limited inventory… we expect the majority of the ‘hot’ items to be sold within the first 10 minutes, with the bulk of sales occurring within the first 90 minutes.”

Attempting this sort of daily rush in the physical world, Hania Yaffawi from local multi-brand store Depeche Mode opened concept store 6:05 Downtown in January. Rather than spending money on traditional marketing, the store relies on the media and buzz generated by a daily cocktail hour with a DJ and weekly events with artists and musicians. If every day offers a unique or unusual experience, the theory goes, the clientele will be more diverse.

Big players in the industry are also waking up to the benefits of limited-edition, unusual events to hook customers. Retail rents at ABC Dbayeh might run at an estimated $1,000-$1,200 per square meter per year, but 205 square meters have been dedicated rent-free to temporary stalls for Lebanese designers for three months of 2012. The designers promote their wares in a new forum, and ABC benefits from corporate social responsibility brownie points, plus a percentage of the sales and publicity. As Azar says, it is a “win-win situation.”

March 3, 2012 0 comments

Society

Colored by uprising

by Executive Contributor March 3, 2012

written by Executive Contributor

As headlines are dominated by the Syrian political crisis, new exhibitions in Damascus have drawn to a halt. But the city’s art gallery doors are still open.

The conflict seems unlikely to deter the Syrian contemporary art boom that has lit up the market over the last five years. In 2007, a major work by Safwan Dahoul, a leading and much coveted Syrian painter, sold for $10,000. Today it reaches $150,000. The post-9/11 appetite for Arab culture may have played its part; as titles on Islam and the Middle East flew off the virtual shelves of amazon.com, art from the Middle East also experienced unprecedented international attention.

Compared to artists from Lebanon, Morocco and Egypt, who were already relatively exposed to global galleries and collectors, Syria revealed itself to be an oil well of untapped talent, paint being the asset. Artwork prices soared, contemporary art galleries mushroomed and reports such as “Syrian Art Sizzles” (Time Magazine, Sept 2008) and “Damascus Evolves Into a Hub of Mideast Art” (New York Times, Nov 2010) saluted the awakening.

“The talent hiding over the last five or six years was the surprise factor, the shock factor, that made them globally interesting,” says Khaled Samawi, the owner of Ayyam Gallery, a blockbuster art enterprise with a roster of some of the most highly-valued Arab artists — the majority from Syria — and a triad of exhibition spaces in Damascus, Beirut and Dubai. “When we first opened in 2006 to 2007, in Damascus, it was absolute golden years. I’d say once a week a private jet would land from the Gulf or somewhere, who had come to Damascus just to visit Ayyam.” Samawi, a former hedge fund manager, has spearheaded the rise of Syrian contemporary art, with a smaller cluster of galleries, such as Damascus’ Tajalliyat Art Gallery, and auction houses Christie’s and Sotheby’s following suit. Most of Ayyam’s artists, such as Asaad Arabi and Oussama Diab, have seen their paintings rocket in value five to 10-fold, thanks to Ayyam’s polished and well-publicized exhibitions, record-breaking auctions and young artist competitions. By providing their artists financial stability and access to an international hit list of collectors, the market has grown so much that Edge Capital, a venture capital and private equity holding company, is now choosing to invest in Ayyam’s expansion. New galleries in London and New York will open in the next two to three years, a major triumph for Middle Eastern art. Samawi sees it as a “vote of confidence”, both for the artists and collectors, giving “the scoop” to Executive before the official press announcement.

Fearless expression

The investment strikes at the right time. The political uncertainty embroiling Syria is inspiring a new drive in contemporary art: angry, poignant and provocative. “They’re painting the best art they’ve ever produced. It’s painful, humanitarian art,” Samawi describes it.

“For years people have been living under fear, and now the fear is gone. Now artists can express themselves. There are no more taboos. They can talk about the president, the power, the party,” says Ammar Abd Rabbo, a Paris-based Syrian photojournalist who exhibited “Coming Soon”, a series of portraits of pregnant women, in Beirut last February. He believes there is a new, powerful generation of young Syrian artists in the making, “born from the crisis and revolution.”

Some art has already left Damascus’ citadel. “In Army We Trust”, a radical set of paintings by Thaier Helal, sold positively at Ayyam’s Dubai gallery earlier this year, despite its provocative title. Established artists Mohannad Orabi, Mouteea Murad, Kais Saman and Omran Younes have abandoned their solitary ateliers and transformed the empty Damascus gallery — which stopped hosting new exhibitions four months ago — into a remarkable shared workspace. The ferocious art being produced, both in quantity and subject matter, is broadcasted on a live feed from Ayyam’s website. “It’s probably the busiest the gallery has ever been,” says Samawi, who has offered the space as a cultural refuge to citizens surrounded by violence.

“We started the workshop to see this situation in a different way. There is a huge power inside us, and we have to make these ideas and feelings visual,” says young Damascus-born painter Mohannad Orabi, whose work is becoming “more realistic, more emotional.” The eerie, blackened eyes of his human figures are unmistakable, but Orabi now paints them “open.” “Now,” he says, “you can see the detail inside and the sparkle. This sparkle is a kind of hope.”

March 3, 2012 0 comments

Society

Banquet on the bay

by Ellen Hardy March 3, 2012

written by Ellen Hardy

Even by the standards of a city where you can dine at the tables of multi-Michelin-starred chefs one night (Yazhou, S.T.A.Y.) and be seen eating out at global trendsetters the next (Momo at the Souks, Gaucho), Zaitunay Bay is piquing interest. Pitching as it does a complex of 17 new restaurants, five retail outlets and a public promenade into the heart of the commercial district at a cost of $160 million, the brainchild of Beirut Waterfront Development (BWD) is a bold attempt to recreate the area’s pre-war sense of glamour and community. But what is it like for the local businesses whose hopes are riding on the project’s success?

Two concepts, Cro Magnon Steakhouse & Bar and St Elmo’s Seaside Brasserie, are the work of one set of five Lebanese investors, and for them, the location sealed the deal. Though rental prices in Hamra and Ashrafieh may have been anywhere from 10 to 20 per cent cheaper, “We wouldn’t have come on board if it wasn’t Zaitunay Bay,” says one of the investors, Mazen Fakhoury. Employing some 100 people between the two restaurants, Cro Magnon is a high-end, glamorous steak house, and St Elmo’s a more casual brasserie with a slew of theme nights. Putting together the $4.5 million initial investment required a special chemistry between the five shareholders, who came together through casual meetings and are mostly newcomers to the hospitality industry. Operations manager Joey Ghazal is the most experienced restaurateur of the group, with over 14 years in the restaurant industry in Montreal and London. He is joined by engineering and financial investment services CEO Houssam Batal, nightclub public relations and communications veteran Ramzi Traboulsi, oil and gas expert Mazen Fakhoury and finance professional Rami Batal.

Ghazal and Traboulsi first met with the BWD in February 2010, when they proposed a casual seaside brasserie. Learning that the landlord was also insisting on having a steakhouse in the project, they ended up signing the leases for two restaurants in December. “There are a lot of back office and operational expenses that you incur,” explains Ghazal, “and it’s obviously better to take those on over two profit centers.” On this day February, as the five settled into their distressed leather armchairs at Cro Magnon to sample their own menu of prime steaks and seafood, single malts and cigars, more than a desire to make a quick, high return on their investments ties them together. “You have to feel that there’s a measure of trust, a foundation of business understanding,” says Ghazal. All the investors contribute their business wherewithal; Rami Batal, for example, already has accounting and finance infrastructure in place for his other companies, so can manage the back office, while Traboulsi contributes PR expertise. “They’re their own number one clients,” winks Traboulsi. Established businessmen with a taste for the finer things in life, they came on board for the chance to bring a type of restaurant to Lebanon that they’ve admired abroad. “We are people who travel a lot and… appreciate the best class restaurants in the world,” says Houssam Batal. As such, he explains, they are long-term investors, not out to make a quick buck. They “hope to be able to pay back our investment in three years… you expect to double your money at least within the first five years maybe.”

Working with Zaitunay Bay ensured that there would be no competing concepts on the site; the most intense negotiations were over the specific concept briefs. After that, says Ghazal, apart from external design issues, the BWD was surprisingly hands-off — though citing problems with ventilation and delivery access, he notes wryly that the complex overall “could have been designed by someone who has some knowledge of the restaurant industry. It wasn’t.” Other niggles of opening a restaurant in Beirut — such as a lack of qualified staff and the terrible truism that political uncertainty hangs over everything — are a standard part of the deal. Just two months into operation, it is too early for Zaitunay Bay to release meaningful footfall and revenue figures, but Ghazal will say that “the landlord assured us they were going to do everything in their power to ensure a certain amount of footfall per week or per day, and the project has kept its promise.”

Like most restaurant businesses, the shareholders are open to including other investors and franchising the concepts to other territories in the future. As Zaitunay Bay looks ahead to spring, its many partners will be hoping to see their investments flourish. “It’s a high risk, high reward country,” concludes Houssam Batal, and one that is unlikely to lose its appetite.

March 3, 2012 0 comments

Society

A crown for the wrist

by Michael Karam March 3, 2012

written by Michael Karam

Ask anyone on the street what he or she thinks the world’s most luxurious watch brand is, and they will probably say Rolex. They’d be wrong. But perception is everything, and the timepiece that is regarded as the sign that you have made it — a person to be reckoned with, a person imbued with a hint of rugged glamour — is indeed a Rolex. There are more accurate watches, more expensive brands and more prestigious brands, but Rolex has captured our imagination like no other.

Don’t get me wrong. There is no sleight of hand here. They are not, in luxury watch terms at least, overpriced (unlike some brands I could name). They are supremely well made and they will last forever. I should know; I have a steel Rolex Oyster Perpetual Datejust made in 1963. It still keeps immaculate time and has been serviced a maximum of four times in its life. It also looks almost identical to the current model — the only difference is an extra 2mm in the diameter, a sapphire glass and a quick date changer. So in a global luxury watch market that has gone bonkers in the last 20 years, Rolex has both pedigree and consistency.

The company was founded in London in 1905 by Hans Wilsdorf and Alfred Davis and moved to Switzerland in 1919 after the First World War. By 2003, Rolex was earning revenues of $3 billion annually, according to Stern Business, with BusinessWeek ranking it the 71st most valuable brand in the world in 2007. Like Patek Philippe, arguably the most prestigious watch brand in the world — and unlike other luxury brands such as Vacheron Constantine and Jaeger Le Coultre, both of whom are owned by the Richemont Group — Rolex is still a private company, a factor that arguably adds to its aura of distinction.

So what is it about Rolex’s enduring appeal? Luxury aside (Rolex caters to all tastes, even producing some eccentric designs for those who like a bit of diamond-encrusted bling), I would wager it is the fact that no other watch has as much history, glamour, sex appeal and adventure, allied to reliability and looks, wrapped up in one brand.

Take the Rolex Submariner, the iconic diving watch that was worn by Sean Connery’s Bond on a fabric NATO strap — to lady-killing effect — or the Explorer, the equally famous black-faced chronometer. You aren’t just buying a watch, you are buying into the very fabric of 20th century achievement. Omega is the only watch brand that comes close to matching this heritage (its Speedmaster was famously worn on the moon) but Rolex, with its functional designs and almost onomatopoeic name, has captured more of the public’s imagination, allying itself with sports stars, musicians and scientific pioneers the world over. Not surprisingly, Rolexes are among the few brands with a strong resale value, especially for the iconic Daytona Cosmograph with its famous Zenith “El Primero” movement, and the other professional models.

But at the end of the day, it’s all about owning the item that you love. And as my wife found out, Rolex watches are very desirable. She does not share my obsession with watches, but over the years has faithfully tramped round showrooms or stood patiently as I peered in shop windows like an excited schoolboy. For her a watch is a watch. It tells the time. Who cares if it’s manual, automatic or quartz, or if it’s a 36mm or a 45mm? But on New Year’s Eve, while I tried on a new Explorer II (now 42mm and with an orange 24 hour hand, if you must know) in the Rolex showroom in Beirut, she pointed to an Air King in brushed steel with subtle blue numeral batons on an off-white face. “I like that a LOT,” she said. It was the first time she had ever really expressed a genuine interest in a watch. What could I do?

March 3, 2012 0 comments

Society

Tender teachings

by Ali Kazma March 3, 2012

written by Ali Kazma

At any given moment in a randomly selected Lebanese café, one will likely spot an eight-year-old girl amusing herself with the newest iPad or other high-tech device. It is difficult to imagine that said young girl realizes that what she holds in her hands is worth more than what thousands of Lebanese families make each month. These children are being raised to see expensive things — and money itself — as playthings, and what many are not learning as they grow into adults is that financial success requires them to see money as a tool, not a toy.

In Beirut and other metropolitan areas, conspicuous consumption seems to be the order of the day. It is becoming all too easy to forget that almost 30 percent of the country lives in poverty, according to the United Nations. With all of this country’s outward displays of wealth, what’s slightly less apparent is how much of our nation’s youth is clueless about the true value of money, and the risks this financial illiteracy poses to the country at large.

While Lebanon was lucky enough to be relatively insulated from recent global economic crises, all over the country one can see the effect that poor money management is having on the nation as a whole. We live in a culture of waste at every level in our society — from the government sector to the corporate realm, and we often see examples of poor financial decision-making at work within individual homes. Consumer debt levels are climbing, while our public debt is estimated at a jaw dropping $54.3 billion, roughly 133 percent of GDP, among the highest ratios in the world. Lebanon exports relatively little aside from much needed human capital, but our taste for extravagant things still sees us importing products and luxury items at considerable levels. The Lebanese economy is increasingly dependent on remittances from those living abroad, but given the recent economic crises around the globe, this dependency will only make us more susceptible to market fluctuations elsewhere. All together, if this continues unchanged, it is a recipe for national disaster.

Nipping the bud

We must combat these dangerous practices that place our entire economy at risk, and it is imperative we start the fight early. If we ever hope to witness the success borne from a financially responsible citizenry, we ought to begin by teaching Lebanese youth to respect and understand the value of a lira, by teaching them how any economy works: You work hard for financial rewards, and then you must make important decisions regarding how to best and most efficiently use those resources.

Understanding how money is earned, and learning through vivid and detailed first-hand experience how to make informed and conscientious financial decisions, will give our children the best tools to succeed in the modern world. Some parents already do this by involving their little ones in the purchases they make everyday. Parents need to let their children see and understand that money is not something to be toyed around with. Giving children strict allowances and spending limits, as well as explaining our own financial decisions, will help train youth to cope with the kind of financial choices they will be forced to make later on.

Outside the home, Lebanese parents and policy makers should begin to encourage activities for our children that will help us instill these important financial values early on. Fortunately for parents, teachers, and children alike, there are facilities popping up all over the globe that are developed with just this goal in mind, and one is set to open in Beirut in the summer of 2012. These facilities employ a concept called “edutainment,” and are rich, highly interactive mini-cities with functioning kid-sized economies that encourage children to learn the value of money by role-playing through numerous careers, earning “cash,” and offering choices on how to invest that money throughout the facility, with not all choices being equal.

Though money might not be a toy, if we aim to take a playful approach in transmitting these important economic practices, learning how to be financially responsible can still be great fun. If we do not, the opportunity to address our current state of financial illiteracy will skip another generation.

March 3, 2012 0 comments

The Buzz

Promise and peril

by James Reddick March 3, 2012

written by James Reddick

Above the vast expanse of the East African plains, signs of human life finally come into view. Hardly the congested maelstrom of its neighboring capital cities of Kampala and Nairobi, Juba spreads outwards in moderation, a seemingly sedate outpost along the Nile. As the plane circles, the thatched, pointed roofs of tukuls, mud huts not usually befitting a nation’s capital, appear, dotted among the city’s more robust structures.

After touching down, the weary arrivals pile into the stiflingly claustrophobic room that makes up this “international” airport’s baggage terminal and immigration hall. Some are returning home after years away, having left to escape the war and to seek out opportunity in neighboring Uganda and Kenya, or beyond, and anxiously await the reunion beyond these walls with their long-separated families. One man spots a woman outside — most likely his mother — and waves excitedly. She puts her hand to her face in exaggerated joy. Drawn back by the promises suggested by independence, and the prospect of lasting peace, what is actually to come for this man and other returnees, and for those who waited out the continent’s longest running civil war, is increasingly uncertain.

On the streets of Juba, and other semi-urban centers like Rumbek and Torit, the excitement in late 2011 remained palpable. The boyish face of John Garang, the founder of the Sudan People’s Liberation Army, which fought and won against Khartoum’s rule from the North, stares down approvingly from billboards throughout the capital, and t-shirts commemorating the July 9 day of independence are still very much the fashion du jour. But while nobody expected an easy transition to statehood for the world’s newest nation, just how calamitous an infancy it has proved to be has shocked those who for so long sponsored the idea of a sovereign South Sudan.

Nearly 40 years of civil war since united Sudan’s independence from British control in 1955 have naturally taken their toll — all the more so since one of the costs, and a principal motivation, of that guerilla war with the predominantly Arab North was a deprivation of development in the South. In terms of infrastructure, the country is virtually starting from scratch, with no homegrown electricity generation, 100 kilometers of paved roads in a country of approximately 660,000 square kilometers and no running water. In late fall of 2011, at the end of the rainy season, huge swaths of the country — nearly all of the northern half — were inaccessible by car, and even those routes with “safe passage” were a pock-marked mess, littered by the carcasses of trucks and vans left to rot after succumbing to one of many craters. For South Sudan, infrastructural development should be the number one priority of the new government, but the persistent threat of violent conflict both with Khartoum and among communities within the south is siphoning its resources and attention.

Cattle raiding — the practice of stealing another group’s livestock — is certainly not a new phenomenon among the country’s largely pastoral communities, but the scale of the raids and the collateral damage inflicted on civilians have escalated dramatically. At a certain point the term “cattle raiding” no longer does the violence justice; in December, a series of cyclical clashes between the Murle and Lou Nuer tribes in the largest and least developed state, Jonglei, prompted the release of an open letter by the Lou Nuer calling for the extermination of the rival group. In due course, “6,000 to 8,000” Lou Nuer youths brazenly attacked Murle villages over the span of several days and killed more than 3,000 people, according to a local commissioner (the figure has yet to be confirmed by the government). Despite tracking the column of fighters for weeks, neither United Nations peacekeepers, nor the SPLA (South Sudan’s army) soldiers deployed to prevent their approach were able to intervene, as the raiders’ forces dwarfed their own.

And particularly troubling in post-independence South Sudan are relations with the North, as the prospect for a return to war grows more imminent by the day. The two are linked by oil, a vital resource for both struggling economies, the majority of which lies in South Sudanese territory. Once extracted, however, it must pass through the North, up to Port Sudan. Since independence, the two sides have been unable to agree on a transit fee for the oil, leading Khartoum to seize shipments and Juba to halt its pumping altogether in January. And as the North suppresses an internal rebellion on its southern front, it has bombed the disputed town of Jau on multiple occasions, wounding several SPLA soldiers, as both sides mass forces along their respective borders.

This was not the narrative envisioned by John Garang, nor by those who danced in the streets on July 9 in cathartic jubilation. And it is certainly not the foundation of a new and better life envisioned by returnees — neither the more than 100,000 from the north, nor members of the diaspora who bring with them technical skills essential towards rebuilding a country. Blessed by largely untapped natural resources, South Sudan has the potential to be an economic powerhouse in East Africa, but the same conflict that has stunted its growth for decades continues to fester.

Back in the arrivals hall, the developmental depths out of which this nascent country will need to rise are on full display. The returnee jostles for position at the end of a conveyor belt, which unceremoniously dumps a suitcase to the floor while its owner scrambles to retrieve it, pushing people aside, before the next one falls on top. At the immigration desk, desperate hands wave passports at the two unfazed officials while a European NGO employee argues with another who has rebuffed her visa. It is not an easy thing to leave Juba Airport. Finally, passports stamped, bags collected and blood pressure high, the man steps out into the late morning sun of South Sudan, the world’s newest nation.

March 3, 2012 0 comments

Society

Porsches for courses

by Yasser Akkaoui March 3, 2012

written by Yasser Akkaoui

Las Palmas sprawls along the coast of the third largest of the Canary Islands archipelago, scattered in the warm seas just beyond the northwest coast of Africa. From a satellite’s eye view, the island is almost a perfect circle; Gran Canaria, with a surface area of 1,560 square kilometers, centers around its highest peak, the extinct volcano Pico de Las Nieves — the ‘peak of snows’ — at 1,949 meters. It’s a long way from Lebanon, and yet the charms are superficially similar: you can spend your days basking in balmy weather, draining the cocktail bars while admiring the snow-capped peaks above. It’s a superb destination for a Porsche press trip to test out their gleaming new 911 Carrera Cabriolet, but it also reminds you how pollution and traffic impede top-down driving in Beirut.

Until now, the choice between coupé and cabriolet might have been an agonizing one for someone considering dropping in the region of $100,000 (depending on customs fees) on the car of their dreams. Supreme performance from a coupé, or the style and freedom of a cabriolet with some compromises on the frame and engine? Now, a new intelligent lightweight design for the hood and all-aluminum frame for the body means that when the hood is up, the silhouettes of the coupé and the cabriolet are barely distinguishable. And, both of the 911 Careera Cabriolet and the sports version have the same engine as the 911 Carrera Coupé equivalent: 3.4 and 3.8 liter boxer engines, respectively, with 350 and 400 horse power. The driving power has been ratcheted up as well, with electro-mechanical power steering and, for the Carrera S, Porsche Torque Vectoring with differential lock featured as standard.

Foot to the floor

These features were amply put to the test spiraling up the sides of Pico de Las Nieves in a yellow Carrera S the morning after our arrival. The car, with its significantly reduced weight from previous models and torque of 390 Newton meters at 5,600 revolutions per minute, ate up the roads and cornered elegantly.

The fantasy trip came to an end on the sands of the Las Palmas autodrome. In this environment you really test the car, and the fact that these are seriously high quality racing sports cars comes to the fore. Handling them requires reaching top speeds of around 286 kilometers per hour and taking curves brutally fast, and after putting the pedal to the floor for two to three laps you have to cool the car down for one slow driving lap, a process that really drives home its racing credentials.

After honing my embrace of the car and witling down my lap time through the day, needless to say, I left Las Palmas with a smile on my face.

March 3, 2012 0 comments

Comment

Driving us mad

by Sami Halabi March 3, 2012

written by Sami Halabi

Inching along amid a cacophony of horns in one of Lebanon’s estimated 1.6 million vehicles leaves a driver with ample time for reflection. As the clock on the dash ticks past another hour and the feet maneuver endlessly from gas to brake, how the country reached this point inevitably comes to mind.

For the sixth year running the country is set to operate without a budget. The president has again broken his oath to uphold the constitution, which states a budget must be passed by the end of January.

This is beyond unfortunate. With a budget comes some sort of policy framework that, in theory, commits the government to put its money where its mouth is. What we have currently is the politically calculated calamity of treasury advances, a crude process where cabinet has to agree on every spending measure outside of the 2005 budget. In any case, hardly any money that came from the people that year, or any subsequent year, comes back to them through the budget. That’s because after the debt servicing is paid to the banks, the deficit of Électricité du Liban is covered and the salaries of the patronage apparatus (also known as the public sector) are paid, the state is already in a deficit.

Any further spending, with borrowed funds, lies solely in the hands of cabinet. In other words, the money borrowed on behalf of the public, that should be spent on the public good, becomes fodder for the overlords pulling the strings at the cabinet table in their petty battles and under-the-table deals. The fact that the funds of $1.2 billion agreed to by cabinet for new power plant construction is to be allocated from the next budget — regardless of how unlikely it is to manifest — and not done through a treasury advance, highlights how little intent exists in cabinet to actually implement reforms.

Thus no one should be surprised when they look out from the windows of their cars to find themselves locked tight in an inescapable labyrinth of metal, given the absence of government policy to reform public transportation. To say that we are approaching tipping point in terms of what our roads can handle would be tardy commentary — we are well past that point. Since our policy makers ceased producing budgetary policy, more than 500,000 cars have entered the country, with the current trend at around 100,000 cars every year. The traffic and the pollution can only get worse.

But traffic aside all these cars are, quite literally, starting to drive the economy and an increasing proportion of the job market. Already the value of the car imports totals some 4 percent of gross domestic product, which doesn’t help much given that this is money leaving the country, not staying in it to create employment. Then consider all the customs and fees, which account for another 4 percent of GDP, which people must pay to a government that does little for them in return. And since the years of economic growth were “jobless,” in the words of the last finance minister, many local private sector jobs are now being steered by those very same cars.

Figures relating to how many people are directly and indirectly employed in the automotive sector are sketchy, not least because a national labor survey has never been conducted. But the sprawl of the ‘car economy’ can easily be seen with just a glance at the countless mechanics in Goberi, Sarafand or on the road to Halba, or the armies of valet parking attendants and cabs in the capital.

With labor-intensive sectors such as agriculture in decline and the trade or services having a small labor component, the options left for gainful employment are hardly the professions that will produce a society that progresses beyond being passive consumers of imports, or one that has the political and economic infrastructure to build anything else. The longer we go without a shift in the financial dictates that rule the country, the more our job market and our economy will be skewed toward import-based sectors, rather than creating one that can compete productively on an international level.

Unless our financial policy makes an abrupt U-turn, we will continue to be driven mad by our politicians and, perhaps deservedly, ourselves.

March 3, 2012 0 comments

Society

Journey to the opening bell

by Line Tabet, Ramsay G. Najjar & Zeina Loutfi March 3, 2012

written by Line Tabet, Ramsay G. Najjar & Zeina Loutfi

Facebook recently announced that it is going public, in a move which would constitute one of the biggest offerings and tech initial public offerings in history, estimated to reach $5 billion. While dwarfing the $1.67 billion raised by Google in 2004, this news can only remind us of the buzz that surrounded Google, turning it into one of the fastest growing companies and most attractive places to work at.

All this ado about Facebook cannot but get us thinking about IPOs in our region, which have been relatively few and far between compared to most developed and emerging economies. Surely there are several challenges that stand in the way of regional companies wishing to go public, ranging from unfavorable regulatory and market conditions to lack of investor confidence in such times of political upheaval. However, there are several areas that a company can work on to prepare the grounds internally and thus improve its chances of carrying out a successful IPO.

It is true that no one can predict the volatility of the stock market or the investors’ mood; however, it has become widely acknowledged that communication is key to any successful organizational change, especially when it involves going public.

A well-established corporate culture is crucial to successful organizations. In fact, a corporate culture that all employees identify with is an enabler of their alignment around the company’s purpose, strategy and goals; it enhances productivity and increases their pride and sense of belonging to the organization.

Part of the family

But having a solid and well-established corporate culture becomes much more critical when a company ventures into an IPO. This is because when a company goes public, it is moving from being privately managed to becoming publicly transparent and accountable, thus welcoming a new stakeholder to its family: the shareholders. The way business is managed changes and thus requires the company to adopt new management processes that reflect best leadership and management practices. This places employees under scrutiny and pressure; they feel vulnerable and are reluctant to change. Clearly, all these adjustments put a strain on the corporate culture, which would need to be solid and resilient to smoothly navigate the bumpy road of an IPO. As a very recent example of this, Zynga, the world’s largest social gaming company behind the popular Farmville Facebook game, decided to go public and succeeded in raising $1 Billion when it first traded on NASDAQ in December 2011. However, the company’s shares went down by 5 percent soon after the launch and upon announcing first quarter results that were more or less in line with expectations the stock fell nearly 18 percent. One of the reasons according to experts was the company’s corporate culture. Employees describe the corporate culture as intense and data-driven, where objectives and key results are the basis for employee and staff evaluation, and where performance data are used to calculate hard work, thus creating an atmosphere of competition and even all-out war between colleagues and departments.

However, even having a strong corporate culture in place is not a sufficient guarantee that employees will remain on board during and after the IPO. Efforts should be put on internal communication to reassure employees that the change in the way business is conducted and the addition of new business partners does not imply that their performance will be questioned or that the company will no longer value them. Communication efforts should strive to make employees feel proud of being part of the IPO adventure; they should feel part of a family rather than pawns manipulated by top management. Google understood that the reason behind its success is in attracting top notch professionals and young minds, and as such, its IPO letter started by “Our employees, who have named themselves Googlers, are everything,” putting the emphasis on the idea that going public will not change their corporate culture but rather reinforce it.

Returning to the Arab region, we note the large number of companies that have yet to institutionalize their corporate cultures, let alone establish strong and solid ones which could withstand the strains of an IPO. With a vast majority of companies being family-owned businesses, family feuding, nepotism and emotions remain at the center of management practices. Non-family employees many times feel like outsiders and thus lose the motivation and desire to work, never mind getting into a long process of an IPO that will bring new stakeholders on board and make the family members richer. There is no secret ingredient in the recipe of a strong corporate culture. However, there are key drivers that any organization should have in order to build or reinforce a distinctive yet common corporate culture; this should start by gathering all employees around the same mission, vision and values of the company and establishing a two-way communication whereby leadership would make sure to listen to concerns, address doubts and acknowledge achievements.

Weaving a tale

The second success factor that can go a long way in helping ensure a smooth IPO is elaborating a story or narrative around the company, one that would go beyond business and profit to emphasize its achievements, namely in terms of how it touches the lives of its various stakeholders. Who can forget the story of Facebook that has been turned into an award-winning movie? It would be a generalization to say that behind every successful company that went public is the story of a young student with a genius idea who tried to make it happen from his bedroom.

However, Steve Jobs, Larry Page, Sergey Brin and now Mark Zuckerberg are the first names that come to mind, when we think of successful companies that went public. In fact, the common ground between them is that all these high-listed companies were first start-ups whose founders wanted to make the lives of people easier through a certain service or product. Sometimes these stories might be far from reality, such as the story of e-bay founder Pierre Omidyar who started the e-shop concept following a discussion with his wife about how to acquire PEZ-dispensers. The anecdote might not be true; however, it succeeded in attracting potential investors, increasing familiarity with the company, allowing the public to relate to its founder, while downplaying the fact that he was already a multi-millionaire when he created the company.

As such, it is important to create a story around the company, whether it is centered on its founding and evolution, its services and products, or the noble cause that it espouses, as it will help generate considerable brand awareness and often loyalty, allowing stakeholders to identify with it and providing it with significant communication mileage. But most importantly, a story helps establish an emotional bond and paint a human side to a company, particularly at a time when the schism between the corporate world and the rest of society is growing wider. A feel-good, inspiring story encourages people to often unconsciously root for the company over others, providing it with a competitive edge that can translate into a solid goodwill bank that might shield it in times of crises and positively impact its bottom line.

When we think about IPOs, the first thing that comes to mind is a number in billions, a ringing opening bell at Wall Street, and a success story of entrepreneurship. This entrenched image could very well be duplicated in the Middle East, especially since the region is now becoming an investment hub with many countries well on their way in carrying out capital market reforms and instituting regulations that are in line with international practices. With communication as a pivotal enabler behind the success of any IPO, regional companies should start by cementing their corporate cultures and creating an inspirational story behind their success. Who knows, the next Facebook or Google might just be around the corner.

March 3, 2012 0 comments