Comment

Salafi spillover

by Peter Speetjens
written by Peter Speetjens

"We salute the Free Syrian Army,” reads a banner in Badawi, a poor suburb of Tripoli, where the Lebanese flag is about as common as the three-starred flag that adorned flagpoles in Syria prior to the 1963 Baath Revolution. Further down the road, a billboard heaps praise upon the “Islamic” revolutions in Tunisia, Egypt and Yemen.

Tripoli and the north of Lebanon are increasingly entangled in the Syrian quagmire, which could have dangerous implications for the future of Lebanon as a whole. As the Syrian conflict grows increasingly violent, Tripoli is no longer merely a safe haven for civilian refugees. It is also a base for the FSA to treat its wounded, as well as pick up arms and supplies. Syria is not at all popular in the predominantly Sunni city. Most inhabitants have not forgotten the heavy-handed presence of the Syrian army during and after the Lebanese Civil War. Many people were killed, or “disappeared”, and members of the Islamic movements bore the brunt of Damascus’ wrath. 

Today, seeing their Muslim brethren being killed in Syria, they smell revenge. Mohamed, a Badawi shopkeeper, armed with a walkie-talkie and a handgun under his shirt, explained how cross-border activities between Lebanon and Syria concerned people, medication and arms. He complained about inflation: three dollars for a bullet and up to $2,000 for an AK-47. “Thank God, we are supported by the Gulf,” he said. The financial and logistic support for the Syrian uprising by countries such as Qatar and Saudi Arabia is no longer a secret. British daily The Times on January 22, for example, reported that Qatar and Saudi Arabia were beginning to fund the Syrian National Council (SNC) and armed groups fighting the Assad regime. On paper, the SNC is an umbrella organization for Syrian opposition groups. In reality, it is dominated by the Muslim Brotherhood, while there appear to be sharp internal divisions. Such growing pains are of course only normal for an organization less than a year old. 

On January 26, the SNC published a one-page ad in Al Hayat thanking Saudi King Abdullah for his generous support; the 87-year-old monarch as a symbol of change in the age of Twitter and Facebook — who could ever have thought? Other reports are even more worrisome. On February 12, Al Qaeda leader Ayman al-Zawahiri urged Muslims in Lebanon, Turkey and Jordan to join the struggle in Syria. A day earlier the Iraqi vice-Minister of Interior, Adnan al-Assadi, claimed that Iraqi arms and Jihadists were crossing the western border.

While most mainstream media continue to broadcast a black and white picture of “the people vs. the power,” the mood of Syrian artists, students and intellectuals in west Beirut’s trendier bars is changing. They feel “their” revolution is slipping out of their hands. 

“The regime has committed too many crimes — we want it to fall,” a student from Homs summed things up. “Yet you cannot deny that the opposition is mainly Sunni. The religious minorities and Kurds are hardly part of the uprising. If the majority of the Syrian people vote for an Islamic government, I think we should give it a try. But seeing the way things are going, I fear a civil war.”  

If that were to be the future for Syria, then Lebanon would be foolish to think it can remain unaffected. The recent deadly clashes between pro and anti-Syrian factions in Tripoli were but a warning shot. The suggested solution, to turn the city into an arms-free zone, was well-meant yet laughable. No sane Lebanese person would dare uphold that as a feasible option. The problem with arming (radical) Sunni groups in Afghanistan, Iraq, and even Libya, has proven to be an unpredictable affair, as they often have their own agendas. Lebanon should know, following the pitched battles with Sunni fundamentalists at Diniyeh and Nahr Al Bared. Ask a shopkeeper, such as Mohamed, what he thinks should come next and the answer is truly frightening. According to him, the Shia simply are not Muslims and it is only thanks to Hezbollah that Assad is still in power. Therefore, following the fall of the latter, it should be the former’s turn. “If we had not had a civil war in Lebanon, Lebanon would today be Palestine,” he said. “That’s why we need another civil war to get rid of Hezbollah, so Lebanon is not an Iranian satellite state.”

0 comments
0 FacebookTwitterPinterestEmail
Society

Treasure Islands

by Paul Cochrane
written by Paul Cochrane

There is only a passing mention of one of the Middle East’s tax havens, Dubai, and no mention of the other two contenders, Bahrain and Lebanon, in Nicholas Shaxson's book “Treasure Islands: Tax Havens and the Men Who Stole the World.” 

This is a shame as there are plenty of juicy tales to tell about shell companies, dodgy accounting and suitcases crammed with petrodollars, but there is a good reason for the lack of coverage. The Middle East three are small fry in this business, with more than half of world trade passing through tax havens, while in 2010 the balance sheets of small island financial centers alone were conservatively estimated by the International Monetary Fund to be worth a staggering $18 trillion — just less than a third of the world’s gross domestic product. 

Compare the Cayman Islands — population 56,000 — with Lebanon and Bahrain; in 2008, the Caymans had $2.2 trillion in equity liabilities (deposits and other obligations) and $750 billion in portfolio assets, while in 2010 Lebanese bank assets were $133 billion and Bahrain’s $210 billion. Likewise, the Dubai International Finance Center is a featherweight compared to the Dublin International Financial Services Center, which hosts 8,000 funds with $1.5 trillion in assets.  So, while the reader will find nothing about the 2008 law that enabled Lebanon to become an offshore center (there were 5,983 registered companies in 2010), “Treasure Islands” gives a full account of how tax havens developed worldwide, the back-room deals that prompted legislative change, and the problems that tax havens cause.

At this point, a definition of “tax haven” is worth making, for as Shaxson notes, there is little agreement. Shaxson’s definition is a broad but salient one, with a tax haven a “place that seeks to attract business by offering politically stable facilities to help people or entities get around the rules, laws and regulations of jurisdictions elsewhere.” This can refer to the obvious, evading tax, to more complex financial dealings such as repackaging capital and trade miss pricing, to usury specialties and lax corporate governance laws. What all havens, onshore and offshore, have in common is “secrecy in various forms,” while a giveaway is whether “the financial services industry is very large compared to the size of the local economy.” A further common marker is very low or zero taxation rates, which are typically offered to non-residents, whereas residents are taxed.

But these jurisdictions are not just obscure tropical islands, they are the renowned financial centers of the world: the United States, Luxembourg, Switzerland and Britain. Cumulatively, the biggest player is Britain, with its Crown Dependencies and overseas territories (Guernsey, Jersey, Cayman Islands, the British Virgin Islands etcetera), plus the former empire (Hong Kong, Singapore etcetera) accounting for 37 percent of all banking liabilities and 35 percent of all banking assets on the planet. If the City of London is added in, at 11 percent, the British group has almost half of the world’s banking assets.  Like the rest of the globe, the Middle East is linked to these tax haven networks, as a cursory glance through company registries will highlight a listing of places such as Panama, Cyprus, the Bahamas and so on. According to research published in 2011 by Global Financial Integrity (GFI), four Arab states were in the list of the top 10 countries worldwide with the highest illicit financial outflows between 2000 and 2009: Saudi Arabia with $380 billion, the United Arab Emirates with $296 billion, Kuwait with $271 billion and Qatar with $130 billion. The GFI notes that the prominent destinations of this capital flight were fiscal paradises and the interconnected global financial centers.

Curbing tax havens is a pressing concern, as they deprive countries of billions of dollars in tax revenues as well as the capital available for lending, and played a major role in triggering the financial crisis. Shaxson offers some solutions, but taking on tax havens and their clientele incurs serious opposition. Some two-thirds of global cross-border trade happens within multinational companies — the majority of which utilize tax havens — while 99 of Europe’s 100 largest companies use offshore subsidiaries, with the largest users being banks. 

While the reader is left with a degree of despondency given how intrinsically important tax havens are to the global financial system, Shaxson has done an invaluable service by making the public aware how rotten to the core it truly is.

0 comments
0 FacebookTwitterPinterestEmail
Comment

That moment unforeseen

by Nicholas Blanford
written by Nicholas Blanford

The world of journalism lost two giants of the trade last month with the deaths of Anthony Shadid, the Middle East correspondent for The New York Times, and Marie Colvin, a veteran war correspondent for Britain’s Sunday Times.

Both died in Syria — Shadid from a fatal asthma attack while heading to the Turkish border after spending several days with the rebel Free Syrian Army, and Colvin from an exploding artillery shell in Homs from where she had been reporting for a week.

Their deaths have provoked once more, among journalists covering conflict zones, deep introspection on how to assess the critical balance between the need to report a story to the outside world and the risks involved in obtaining it. The demands to produce material combined with ever growing numbers of correspondents covering the same story — from newly arrived hopefuls looking for a big break to seasoned veterans — have increased the sense of competition among reporters.

Shadid’s moving memorial at the American University of Beirut attracted a large number of colleagues, many of whom had flown in for the occasion from points across the Middle East, Europe and even the United States. During the lengthy drinks that followed, a leading topic of conversation was the dangers involved in infiltrating Syria to report on conditions on the ground as both Shadid and Colvin had done. More and more journalists are undertaking the perilous trip to sneak across the border to spend a few days with the Free Syrian Army or besieged civilian populations, providing crucial eyewitness accounts to supplement the flow of often unverified cell phone footage or reports offered by so-called ‘citizen journalists’.

Few doubt the importance of the story. After all, the fate of Syria in the coming months has the potential to reshape the geo-political map of the Middle East, and not necessarily to the collective good.

The violence wracking the country and the tragic examples of Shadid and Colvin, among other foreign journalists who have died or been wounded in Syria, is causing many to err on the side of caution. One brave journalist I know who covered the conflicts in Afghanistan, Iraq and the Arab Spring uprisings in North Africa, and has been kidnapped twice, told me that he was stepping aside from the Syria story. Too many close calls and a recent marriage had changed his perspective.

Gathering as much information about the situation on the ground is critical, which is then weighed with the importance of the story and personal factors. A war reporter who is well established, middle-aged and married with children has much more to balance in his or her decisions than an ambitious single 25-year-old just embarking upon a career. But there is also the dreadful burden of peer pressure. When one reporter takes the plunge and survives with a scoop, his competitors feel compelled to do the same or better. Then there is the not-so-subtle pressure from newspaper editors — “I see Smith of the [rival] Daily Standard got into Homs, would you be interested in having a crack at it? No pressure of course, just wanted to check…” An outright refusal could jeopardize one’s career, but accepting the assignment could get you killed.

How does one calculate acceptable risk? There is risk in crossing a road (especially in Beirut), but we all do it. And the more often we cross the road, the more confident we feel and the sense of risk diminishes. That’s when we blithely march across a busy street while sending text messages on a cell phone with barely a sideways glance and end up squashed like a bug on a truck’s radiator. War reporting is similar. The fear factor is highest usually when taking the first step — whether it is following troops into battle, driving down a highway notorious for roadside bomb ambushes or passing through kidnapping territory. Once that Rubicon has been crossed safely, there is a temptation to push on to the next level of risk. But surviving a succession of dire situations can breed complacency, which in turn leads one to take ever greater risks.

Of course, the level of acceptable risk is different for everyone, but the heartbreaking examples of Shadid and Colvin are sobering reminders that the risks are deadly real. No one can plan for all possible contingencies, and even decades of experience offer no shield against that moment unforeseen.

0 comments
0 FacebookTwitterPinterestEmail
Business

Still shipping

by Joe Dyke
written by Joe Dyke

In the list of Lebanese businesses, the name sticks out — Henry Heald and Co sounds incongruous. In many ways it is, yet it is believed to be the country’s oldest company.

Henry Heald and Company steamboat and shipping experts was registered in 1837, more than 100 years before the country gained independence. All of Mr Heald’s contemporaries have since closed down, meaning the shipping agents are believed to be the oldest continually registered company in Lebanon. 

Little is known about Heald, an Englishman from Yorkshire, apart from the fact that he had been living in the “Levant”, for several decades before setting up the company at a time when European trade was expanding rapidly. Philip Mansel, author of the book ‘Levant’ which tracks the history of Beirut and other port cities, explains how the Ottoman-led government of Muhammed Ali had opened up to foreigners.  “There was a complete change in attitude. The whole region was opening up because Muhammed Ali’s efficient modern administration arrived in 1831,” he says. “Customs receipts trebled in the 1830s and Heald’s were a part of that.”

In the late 1800s Heald’s nephew, Charles Smith, who had taken over the business, died, leaving it to his partner Earnest Joly, in whose family the business remains to this day and his great-granddaughter Harriet currently occupies the managing director chair. She explains it was the high-society connections of Earnest’s more affluent wife Catherine that enabled the takeover bid. 

“When Earnest and Catherine wanted to buy the rest of the company from Charles Smith, Smith’s sister was a bit of a snob,” Harriet explains. “This branch of our family had been living in Smyrna [now Izmir, Turkey] and Ms. Smith didn’t approve of the people from Smyrna and refused to sell her part of the company. Then Catherine produced a copy of Debrett’s [a magazine for Britain’s elites] showing her as the granddaughter of a Baron and immediately everything was alright and she was quite happy to sell.” Yet Earnest’s woes did not end there. With the company growing, both in Lebanon and other parts of the Middle East, he was taken prisoner by the Turks for a large part of the First World War. 

While many Europeans took the hostility to Westerners as their cue to abandon the Middle East, the Jolys returned to post-war Beirut to rebuild. And the family’s resilience was tested again 60 years later when they struggled to keep the business open throughout the Lebanese Civil War, despite the Beirut port closing for months and the company’s offices being blown up in 1975. Harriet’s dogged father kept operating, often risking personal harm to convince ships to dock.

“All the captains knew him but were frightened because there was a war going on, so they didn’t like coming in to port,” Harriet says. “Usually the condition for coming in was that they would give him a cabin and he would sleep on-board to prove it was safe.”

“Once he had a ship arrive and he took the captain and two visitors out for dinner over toward Jounieh. He sat them with their backs to the window and while they were eating a fire-fight broke out in the distance behind them,” she says. Once the fighting had abated he settled the bill and returned his guests, satiated and unawares to the affray, back to port.

Nowadays the company has around 15 staff in Lebanon, plus assets in other parts of the Middle East, and operates as a shipping agency, port services firm and recently even as an investigator of illicit insurance claims. Walking through the offices in Gemmayze there are few clues to the company’s unique heritage. Bar the odd ship’s wheel on the wall, you could be in any modern office in the country, with staff tapping away on computers, an impression Harriet admits is deliberate.

“When we are presenting to clients we always mention the history because we think that is kind of nice, but we like to also come across as very much up-to-date and in touch with the latest developments,” she says. “I think a lot of people have a downer on family businesses and think it’s not really the way it should be done.”

Much of the industry had a difficult 2011 as Hassan Qoreitem, head of Beirut port, admits. “It was a tough year not just because of Syria, but because of the situation in the region and in Lebanon as well. The local cargo decreased but we succeeded in increasing shipment cargo through the Port of Beirut.” 

Revenues for the port itself declined 4.79 percent in 2011, according to Blominvest Bank, but there was positive news as the port breached the landmark of handling one million containers for the first time.  Qoreitem describes Heald’s as “one of our most esteemed clients”, but the company has not been immune to the regional downturn. A crucial contract for the company is with NYK Roro to import cars to the Middle East but demand disappeared as uprisings swept the region, with just three shipments in the first six months of 2011. Yet it has slowly picked up in recent months, averaging one a month between August and January. 

Harriet sees room for expansion in the coming years, with freight forwarding and fraudulent claims on medical insurance among new potential areas of growth. She has two step daughters, a niece and a nephew, so the obvious question, therefore, is whether the business will stay in family hands for one more generation?

“It may or it may not,” she says. “No one is going to force someone to do something they don’t want to do, but it is obviously there for family to take over if anyone shows an interest.”

0 comments
0 FacebookTwitterPinterestEmail
Comment

Stored value in troubled times

by Jihad Yazigi
written by Jihad Yazigi

The unrest gripping Syria may have created havoc on the economy, but there is one industry that has benefitted from the turmoil — the real estate sector.

Within days of the beginning of the protests last March, frantic construction activity began across most of the country’s informal areas. Syrians seized on a relaxation of strict construction rules and a general weakening of state control to rush and build in areas and lands normally out of their reach. The government, facing countrywide protests and with no appetite for causing further discontent by clamping down on small scale developers, kept its eyes closed.

One year later, there are up to half a million new housing units that are believed to have been built, leading to a temporary surge in the price of building materials and labor, and a change in the landscape of many suburban and rural areas. Although in the last few weeks construction activity has largely returned to normal, this temporary boom has shed light on the importance of the real estate sector in the Syrian economy and society.

In a region that, historically, has rarely been stable, that has seen countless invasions and that sits on the crossroads of several trading routes, the attractiveness of investments that can act as stores of value is great — and this obviously applies to real estate as it does with gold. Few Syrian men, for instance, can be considered to have succeeded in life — and for that matter can dream to marry — unless they own at the very least a residence. Thus, beyond its purely economic logic, investment in real estate has a social weight of its own. In recent years, several factors encouraged investment in the sector. They include excess liquidity held by Syrian expatriates and Gulf investors on the back of booming oil prices; limited other investment opportunities — because the Syrian business environment, comparatively to other countries in the region, remains very poor — and negative real interest rates; finally, supply bottlenecks in several segments of the market, including quality commercial properties and upscale housing properties, played a role. Thus, in the mid-2000s, several of the major regional developers, such as Majid Al Futtaim, Emaar and Qatari Diar, announced the launch of a variety of projects across the country, while local investors focused on smaller scale ventures.

In practice, however, only a handful of these landmark projects took off. Emaar’s Eighth Gate commercial development — which will host the Damascus Securities Exchange — located in the upscale Damascus suburb of Yaafour is the only one of significance that has moved ahead. Almost all the others remain burdened by endless bureaucratic and regulatory obstacles as well as legal disputes over land ownership. Indeed, beyond the traditional problems faced by all investors wishing to do business in Syria, many other hurdles hamper a proper expansion of the real estate industry. The lack of sufficient land and of proper zoning in many parts of the country, in particular in the densely populated urban centers, have led to a rise in informal housing, which represents today a staggering 40 percent of all housing units in the country, and to a lack of investment opportunities. Similarly, state control and administration over huge portions of land in city centers, for instance in the Central Business District of Damascus, have rendered any major commercial development in these areas almost impossible. Another impediment is the very low average rental yield of most properties across the country. It is not uncommon, for instance, for a mid-size residential property located in the center of Damascus and worth around $400,000 to be rented out at less than $10,000 per annum, or an average yield of 2.5 percent, very low not only by international standards but also by regional ones.

In the near term, the best hope for the sector lies, ironically, in the unrest gripping Syria. Indeed, nearing two months into 2012, the Syrian Pound lost 14 percent of its value compared to the US dollar — coming on top of a 34 percent decline last year — while the inflation rate has reached double digit levels. Both these factors encourage the role of the sector as a store of value. In the longer-term, however, the broader political dynamics will weigh in much more on the development of the real estate industry, and unless the current stalemate comes to an end quickly, real estate can only resist significant disinvestment, as is happening in the rest of the economy, for so long.

0 comments
0 FacebookTwitterPinterestEmail
Business

Avoiding the double-hit

by Iyad Hourani
written by Iyad Hourani

After months of back-and-forth in cabinet over various wage hike proposals, Lebanese employers will finally face the inevitable. Wage Hike Decree (WHD) no. 7424 will have most employers opting for the “survival of the fittest” course in containing rising costs that could, otherwise, heavily impact their books.

The WHD will impose itself on companies’ income statements in two principal ways. The first is in the form of higher cash flows costs, from which there is no real escape. Employers may opt for cost-cutting strategies (such as cutting jobs, enforcing part-time work, putting expansion plans on hold, etc.) but at the end of the day, most companies will feel the impact. The second will appear in the form of higher non-cash accounting provisions within the income statements, such as the end-of-service indemnity provisions. Employers are fully aware that few fair measures for bypassing the higher cash flows exist; the question is can the same be said about the non-cash components, and the answer is yes. 

The aftermath

The recent WHD, effective February 1, raised the minimum wage to LL675,000, rescinding the 2008 cost of living increase of LL200,000. Moreover it imposes salary increases ranging between LL175,000 and LL299,000. 

This overall increase in workers’ wages is expected to have a major impact on company cash flows in 2012 and on their income statements: cash out-flows will increase as payrolls rise and consequently so will employers’ contributions to the National Social Security Fund (NSSF). Entities that mainly employ low-wage, low-skill workers will be significantly affected as their percentage increase in labor costs will be among the highest. As for their income statements, the financial hit will be a by-product of the increased provisions taken for the NSSF’s end of service indemnity (EOSI).

The NSSF’s EOSI branch is a mandatory program under which an employer pays contributions to the NSSF on behalf of its registered employees (the contribution being 8.5 percent of declared earnings, of which 0.5 percent goes to covering NSSF’s administrative expenses). At the time a worker cashes out his EOSI benefit, the employer may be liable to pay a settlement to the NSSF in the event that net paid contributions (8.0 percent), along with the interest credited, are insufficient to cover the EOSI amount. 

Employers typically keep, what is generally called an ‘EOSI provision’ to cover any possible future settlements payable to the NSSF. Under normal circumstances, this provision witnesses an annual growth due to a myriad of factors: the number of years served by employees, the evolution of declared earnings, worker movements, and so on. 

In addition to affecting employers’ total payroll, the latest WHD is expected to result in significantly higher EOSI provisions, which will further aggravate the impact on income statements in 2012.

Containing the adverse increase of the EOSI provision

Full implementation of International Accounting Standard no. 19 (IAS 19) — one of the International Financial Reporting Standards (IFRS) — can be seen as a readily available solution for employers wishing to mitigate part of the adverse impacts that will inevitably result from the WHD. In fact, fully complying with IAS 19 will likely cancel out most of (if not all) o the expected increase to the EOSI provision. 

Corporations in Lebanon are required to prepare their financial statements in accordance with the IFRS, including IAS 19. However, the majority of employers overlook certain aspects of this standard, in particular those pertaining to long-term, post-employment benefits. Indeed, an alternative accounting practice is commonly used in Lebanon and in the region to determine these provisions (including the EOSI provision); however the inherent inaccuracies of this practice overstate the fair level of such provisions by 20, 30 and sometimes as much as 50 percent. 

The commonly used method effectively calculates the EOSI provision based on the assumptions that the entity will terminate its operation on the balance sheet date and that all its workers will cash out their EOSI rights at that date, which is contrary to what is known as “going-concern”.  

Over the last few years, an increasing number of corporations started determining their provisions, pertaining to post-employment benefits (EOSI provision in particular), in accordance with IAS 19. These are typically multinational or large local companies from different industries. Moreover, several organizations have carried out an assessment of the financial impacts resulting from the potential implementation of IAS 19, since it is likely to be requested by auditors in the coming few years, though many have yet to actually apply the standard. 

IAS 19 in a nutshell

IAS 19 specifies the accounting methods and disclosure requirements for determining the employee benefits costs (cash & non-cash). In particular, it prescribes an adequate and objective approach for estimating employers’ obligations related to post-employment benefits by allocating the cost of such benefits in an orderly manner over the period where employees are expected to acquire them. 

And as such, through the use of actuarial techniques, the EOSI provision would be determined as the present value of accrued rights (at the balance sheet date) expected to be paid sometime in the future.

Company XYZ with 400 Employees

In an effort to elaborate on, and give a tangible sense to, the above, let’s take the case of a mock company (XYZ) which employs 400 workers in Lebanon. 

The line graph on the following page shows the declared earnings distribution (before and after the WHD), as well as the distribution of Years of Contribution to EOSI, for XYZ’s employee population as at February 2012.

The line chart and bar graph represent an EOSI provision based on the accounting method that is commonly used in Lebanon, as does the table. It clearly shows a 26 percent increase to this provision caused by the WHD. It also reveals that by implementing IAS 19, the level of EOSI provision drops back to around its initial level, which tells us that the current accounting method used by most Lebanese entities significantly overstates what would otherwise be the fair level of EOSI provisions; by 32 percent in the case of Company XYZ.

This fictive example also shows that generally, the pace of EOSI provision’s evolution is relatively slower under IAS 19 than under the accounting method commonly used in Lebanon.

Not a crisis

The passing of crises, political turmoil and government regulations, has taught many corporations that long term strategizing in the face of mounting costs is key to sustenance and survival. Lebanese employers should consider the applicability of all available solutions to their situation. 

Although the recent wage hike decree will inevitably strain companies’ finances, avoiding the double hit on their income statements in 2012 is possible if they heed the words of the late American poet Robert Lee Frost that “the best way out of a difficulty, is through it.”

0 comments
0 FacebookTwitterPinterestEmail
Comment

Aided innuendos

by Jonathan Wright
written by Jonathan Wright

Sooner or later it was bound to come to post-Mubarak Egypt: the disagreement between Egyptians and Americans over whether and on what terms the United States should continue to give the Egyptian government more than $1.5 billion a year in military and economic aid. But few could have predicted the aid debate would rise over a relatively petty dispute regarding American-backed nongovernmental organizations (NGOs) that have been operating in Egypt for years, without licenses perhaps but with the full knowledge and tacit acceptance of the Egyptian authorities. 

The Egyptian judicial authorities are pressing ahead with plans to prosecute more than 40 foreign NGO workers, including Americans who have taken refuge in the US embassy in Cairo. American politicians have threatened to withhold or cut the aid permanently if the charges are not dropped and the Americans allowed to leave the country. The US State Department, more cautiously, says that failure to reach a solution will affect the administration’s ability to help Egypt economically. Even the $3.2 billion in International Monetary Fund assistance Egypt is seeking to support its current account could be at stake. 

So how did it get to this stage, especially when the prime rationale for US aid to Egypt, the 1979 peace treaty with Israel, is not in any serious danger? None of the explanations are fully satisfactory. 

Some speculate that the Supreme Council of the Armed Forces (SCAF), the group of generals who have been running Egypt for the past year, whipped up a xenophobic frenzy to enhance their patriotic credentials and discredit the hardcore revolutionaries who continue to call for their immediate departure. The generals have pledged to hand power to an elected civilian president by the end of June but their commitment to similar promises leaves room for doubt). Besides, they have no obvious interest in jeopardizing the $1.3 billion a year in U.S. military aid, which enables them to free up defense budget money to support their comfortable lifestyles. 

Others blame Planning and International Cooperation Minister Fayza Aboul Naga, the only cabinet minister to have survived from the Mubarak era, who touts that the revolution last year was an American conspiracy to weaken Egypt. Bizarrely, Aboul Naga would in that case be acting alone against the interests and in defiance of the wishes of the generals, although she is reputed to have retained her cabinet position because she has one or more influential patrons on the military council. Another theory is that mysterious relics of the Mubarak regime, trying to provoke conflict of any kind, have promoted the investigation of NGOs from within the system. That begs the question of why SCAF and the government cannot counteract the influence of such forces.

The dispute over the NGOs, which include the foreign-assistance affiliates of the two big American political parties, has revealed the internal Egyptian debate over how a democratically elected government should deal with Israel, and whether it should accept aid from the US at all. The Muslim Brotherhood, holding almost 50 percent of the seats in the recently elected parliament and bound to dominate the next government, is keeping its options open. If the US cuts the aid, Egypt would have to reconsider the peace treaty with Israel, a Brotherhood spokesman said. But the corollary of that is that if the aid continues the peace treaty is safe — some comfort for the US and Israel, for whom the peace treaty is central to their regional policy. That’s also very much in line with SCAF's thinking; Wikileaks documents show that the generals see the aid money as the price Washington pays for peace with Israel. 

American army generals also want the aid to continue; they value the right to fly warplanes over Egypt at will, preferential treatment for US warships passing the Suez Canal and the cozy relationship with their Egyptian counterparts. 

The best-placed candidates in Egyptian presidential elections in May are also happy to take American money, if the terms are right. Islamist candidate Abdel Moneim Aboul Fotouh, for example, dismissed the NGO dispute as hot air and political theater. “There’s no patriotic body that rejects financial support and cooperation with others in the interests of the country,” he said in an interview. 

So everyone may get their way except the Egyptian people who overwhelmingly favor ending the special, and sometimes humiliating, relationship with Washington.

0 comments
0 FacebookTwitterPinterestEmail
Comment

Anthony Shadid

by Nadim Houry
written by Nadim Houry

Anthony made reporting look so easy. His writing was always fluid, transforming even the scariest of situations into the perfect setting for a good anecdote. I first met him in Tyre during the hot days of the July 2006 war when the Israeli air force was pounding southern Lebanon. Most journalists and NGO-types had gathered in one hotel in the city. It was hot, humid, and frankly a bit miserable. I was new to the journalists’ scene and it felt intimidating. Each evening, war photographers would trade stories on the day’s horrors dropping passing references to Grozny, Bosnia and Iraq.  

Anthony was different. Despite winning the Pulitzer Prize for his work on Iraq (he would go on to win a second one in 2010), he was approachable, modest and available to help others. He worked hard — was often the first out the door during that 2006 summer — but somehow never bragged about it. 

What set him apart was not just his beautiful prose or his attention to detail. It was his ability to get people to open up, to share with him intimate parts of their world. Iraqis, Tahrir square activists, southern Lebanese, Benghazi residents, all told him their stories, and he did a superb job relaying their fears, hopes and dreams. Steve Fainaru, a reporter who worked with him in Iraq was right when he called Anthony’s dispatches “poetry on deadline.” 

In an age of “embedded” journalists acting as scribes to invading armies, Anthony embedded himself in the societies he wrote about. He often reminded me of those mid-century anthropologists who spent months and sometimes years observing a society and striving to understand its unspoken rules. At his commemoration last month in Beirut, his brother said that even as a child, Anthony’s favorite past time on family vacations was to go discover. We should deem ourselves lucky that he shared his discoveries with us in writing.  

A few months ago, I met Anthony for coffee after he had returned from a particularly difficult and dangerous trip to Homs. He said it was one of the scariest trips he had ever made — a tall order for someone who had been shot in Ramallah and kidnapped in Libya. I teased him saying that with two Pulitzer prizes under his belt, maybe it was time to leave the running around the frontlines to others and write punditry. He smiled. He wanted to spend more time with his family, he said, but he loved reporting and there was so much going on in the region. That urge to go discover was still tugging at him.  

He died last month from an apparent asthma attack while trying to cross back to Turkey after reporting from northern Syria. Like so many great explorers before him, it was just one trip too many.

Anthony, you will be missed.

0 comments
0 FacebookTwitterPinterestEmail
Comment

Where outsiders fight

by Farea al-Muslimi
written by Farea al-Muslimi

Pessimists think of Yemen as the new Afghanistan or Somalia, while the optimists’ tend to see it as the new Egypt, or better yet, Tunisia. Situated somewhere between the two, there is also an opinion of growing prominence that recognizes in the new Yemen an awful lot of Lebanon. Most notably, Yemen, like Lebanon, is a proxy field for the region’s hottest “cold war”, between the Middle East’s two titans of theocracy: The Kingdom of Saudi Arabia (KSA) and the Islamic Republic of Iran. This in itself is not new, but the new political landscape shaping Yemen has upped its significance for both sides.

Shortly after the Iranian revolution in 1979 the competition between KSA and Iran began in earnest for influence in, and over, Yemen. The regional rivals set about inciting strife between Yemen’s two main sects, Shafai Sunnis and Zaidi Shias, who had previously enjoyed a largely moderate and tolerant coexistence with each other.  

In the 1980s, Saudi Arabia began funding what they called “The Scientific Institutions” which taught their Sunni students an extremist and intolerant brand of Salafi Islam, in an effort to marginalize Zaidi influence in Yemen. Recently ousted President Ali Abdullah Saleh was also very adept at manipulating Saudi fears of Iranian influence to extract bundles of cash from the KSA’s monarchs, even to the point of empowering Iran’s allies in Yemen whenever the Saudi cash would wane. 

Sectarian tension was inflamed in the last decade through six wars — between 2004 and 2009 — in the Saada governorate between the Yemeni army and the Al Houthi group, led by Abdulmalik al-Houthi, a prominent Zaidi figure. Thought the causes of the conflicts were largely political, the sixth war had a massively negative impact on Zaidi-Shafai relations. KSA forces entered the affray on the side of the Yemeni army after several incidents along the border between Saudi troops and Houthi fighters. The Houthis called the Saudis invaders and the Saudis claimed Iran had manipulated the Houthis to instigate the border classes.  What is more, local and regional media expounded vitriol according to their allegiance to either KSA or Iran.

The government in Sanaa has long accused the Houthis of being Iranian-funded and armed; it has never produced any evidence of this. While it is undeniable that the Houthis have been well supported in Iranian media coverage Houthi spokesman Houhsi Muhamemd al-Emad denied in a recent interview with a Yemeni newspaper that Iranian support extended to financial assistance. He added that Saudi interference in Yemen should also be condemned. KSA has been paying monthly salaries to hundreds of Yemeni tribal sheikhs and other prominent figures via a “The Special Committee”, which the KSA itself formed, and which many Yemenis regard as simply a vehicle to buy loyalty. 

With the beginning of the Yemeni uprisings early 2011, the Houthis surprised all sides and joined the protests in the streets, peacefully standing side-by-side with their historical enemies: the Salafis and Muslim Brotherhood in Yemen. Such a move by the Houthis was considered pragmatic and welcomed by many other Yemenis, especially given the Houthis’ cache of arms. Within months, however, violence broke out anew between minority Wahhabi Salafis and Houthis in Saada, which by then was fully Houthi controlled, and more recently at the Dar Al Hadith religious school in Saada (among those set up by KSA in the 1980s). The violence has also spread to the neighboring Haja governorate.

Now, with Iranian influence taking a battering in Syria, the Yemeni arena looks more promising for them. Saudi Arabia’s influence in Yemen is also in retreat for two reasons: Firstly, Saudi Arabia has stuck by the old, traditional elites and political actors whose power at home has been rocked by the uprisings. Secondly, the Houthis and Iran are establishing partnerships with leftist and liberals who are wary of the power the Sunni Islamists will have in the country post-Saleh. These relationships have been publicized during the many conferences and workshops Iran has held with Yemeni actors inside and outside the country. 

Thus, while the proxy war between Iran and KSA in the Levant may seem to have swung toward the advantage of the latter, on the KSA’s own southern doorstep the “cold war” pendulum seems to be swinging the other way.

0 comments
0 FacebookTwitterPinterestEmail
Economics & Policy

The bribes between the bricks

by Zak Brophy
written by Zak Brophy

"Of course, there is no bribery in Lebanon, there is no bribery in this office,” quipped the official at the finance ministry’s Directorate of Cadaster and Real Estate (DCRE), where property owners in Beirut register their deeds. The wry smile and wink before adding, “no seriously, we have no comment,” belied the accusations of endemic corruption among the laws and bureaucracy that fashion the nation’s construction sector. 

As the villages, towns and cities metamorphose to fashion the future residential, commercial and industrial face of Lebanon, exorbitant amounts of money are being made. The construction sector has grown immensely over the years and today comprises some 15 percent of the Lebanese economy, double what it did in 2003, with yearly volumes peaking at $9.5 billion in 2010. Deciding what is built, for whom it is built and where it is built has a profound impact on the country’s social, environmental and physical fabric, and is also clearly near the center of its economic heart — precisely why Executive, in this following report, offers a closer inspection of the charges of institutional corruption, political patronage and irresponsible practices plaguing Lebanese real estate.  

The letter of the law

Construction in Lebanon is regulated by a plethora of laws, with the first Urban Planning Code passed in 1962 stating that “integrating the master plan and guidelines for cities and villages within the comprehensive plan for territory arrangement is mandatory.” Whilst this legal development endeavored, with very limited success, to realize a grand strategy for the nation’s territory, a decree passed in 1983 further outlined an urban planning code to map and implement designs and systems for urban areas. Within this plan construction is managed by a system of building permits, which are governed by the official Building Code.  

Article 25 of the urban planning code stipulates: “The construction, conversion, restoration and renewal of buildings of different types, are subject to the provisions of the Building Code. The building permit may only be granted if the works planned to take place are in conformity with the rules specified in the Building Code.” 

Obtaining such a permit from the local municipality is the first hurdle any developer must cross once they have purchased their property. Gripes of corruption and bribery at this stage are commonplace. “Everyone has to go through the ‘proper channels’,” said a developer we will call ‘Hani’, as he spoke on condition of anonymity to protect his business. “Nobody gets away without paying. It is big money. On big projects you are talking tens of thousands of dollars.” The accusations of widespread bribery within the real estate and construction sector are supported by a poll conducted in 2002 by Beirut-based research firm Information International which showed that 28.6 percent of respondents paid bribes within the sector, even when they had fully abided by the law, and 42.5 percent said they had not met the legal requirements but paid bribes to complete a transaction.

The system under the table

The rationale behind paying is two-fold. Firstly, developers know that if they don’t grease the right palms their application could get passed from pillar to post within the bureaucracy, leaving their project to stall. “A law was passed that limited the time they could take to return your file. Which is two months at the latest, but it is never enforced because even after that time they can always find something that needs to be changed and then you will resubmit again and then another two months and so on,” said Hani. Time is money, he reasoned, and as there is no escaping the inevitable requests for bribes, it is a price worth paying.

The second motive to pay bribes is to secure a lower price on the building permit itself, which is linked to the average value of land in the area. Hani explained: “There is no fixed amount of money for a square meter in a street. It is between X and Y, and the range is very big. They say they will give you the higher rate so you pay them a little under the table and they charge the lower fee. This is a very common practice.” 

An engineer, who also insisted on speaking anonymously, reinforced this assertion saying, “This board [that appraises average street value] is the head of the municipality, the head of the engineering department and a third person. You bribe these people and you will receive a discount on this assessment” — something he said happens with “every single permit”.

Bilal Hamad is the president of the municipal council of Beirut and presides over this committee. He resolutely denies that there is any scope for corruption in the process. “No way [is there bribing]. This is completely wrong. We put the price on the land based on our estimate of that sector in which the land is, depending on the zoning,” he said. “We try to play it as logically as possible.” 

Hamad admits that the prices within different sectors are not available to the public and any final valuation from the committee is based on “market prices” — however notoriously variable they might be from one block to the next. 

Once a developer has run the bureaucratic gauntlet within their municipality and purchased a building permit they can move on with their construction. However, as the diggers are put to work and the concrete set in its mold, complaints of further underhanded practices persist. 

“A $4 million project would cost around $100,000 in bribes from start to finish from building permits, occupancy permits and then electricity and so on,” said Mona Halak, an architect and a member of the Association for Protecting Natural Sites and Old Buildings in Lebanon (APSAD). “Every single issue in construction has a department and every one has its cost. It’s an industry within the municipality.”

One man’s burden is another man’s gain, and there are offices of people who make a healthy living navigating the inner machinations of the bureaucracy, making sure the right papers are signed and the money-packed envelopes placed in the right drawers. 

“I have someone who knows all the people and I pay them to go and do it for me,” said Hani. “This is very common. There are offices specifically for this purpose. I’ll be paying those offices around five to ten thousand dollars [per project] for this service.” 

When asked whether bribery and corruption with regards to construction were common practice within the Beirut municipality, Hamad said he would not comment on the specifics because, he claimed, the responsibility lay within the concerned departments of the municipality and he was not privy to the details. 

“I come from a world of ethics and I am trying to do as much as possible to raise the level of ethical awareness in the municipality,” said Hamad. “We are trying to review the structure to reduce the time between application for the permit and the issuance, and also any possible violation of laws and regulations.” 

When challenged on whether there were any specific policies or oversight mechanisms being employed, he declined to comment.

As the construction phase on a building nears completion and the cranes come to rest the developer has to reenter the bureaucratic melee, but this time at a department within the ministry of finance. To obtain the property deeds the final construction has to be appraised at the DCRE’s Afraaz inshaat, roughly translated as the ‘building registry’, upon which one percent will be paid on the total value. With the deeds in hand the developer can sell the building or apartments within it, but with a sale comes a transfer of title, which carries a cost of 5.25 percent. So once again there is an appraisal and once again the developers will pay bribes to get a favorable price.  

“The government is screwed here,” said Hani. “Lets say you buy an apartment for $1 million and pay 5.25 percent — you are paying $52,000; if you register it for $600,000 you are paying $31,500. So the government gets around half of what it should get. As for the person registering it, they take a healthy cut. How much? It depends, there really is no science in that calculation.” Officials at the registry refused to comment on the accusation.

The developers’ law

Assem Salam, former president of the Order of Architects and Engineers, lamented the failings of the state in managing urban development: “All of these permits are to the law but the problem is that the law and all the regulations are wrong, because these laws were outlined not in the interest of the community, not after a study of the socio-economic areas, not after a study of the welfare of the communities, but they are a result of the pressure from landowners and speculators for the maximum coefficient of land use irrespective of the damage it creates on the community.”  

On June 20, 2009, decree 2366 was passed in which the government adopted a comprehensive plan for development in Lebanon, albeit with a delayed implementation of four years. The fact that there is no ministry of planning, or any other body which coordinates between ministries, lends credence to Salam’s assertion that the laws and the governing institutions are kept purposefully weak so as to allow the property developers and speculators free rein. 

“The Building Code is constantly being changed in favor of the developers because it is really controlled by… the main developers who are the ones who determine what is in this law,” said Architect Mona Halak. “They have a committee where they come together and meet and decide what needs changing to accommodate what they need in the coming years. It is a secret club, but everybody knows about it.” 

She cited a recent amendment whereby areas such as lifts, stairwells and secondary walls were taken out of the calculations measuring the construction area, thereby increasing the potential exploitation factor (how much floor space can be built on any piece of land) on buildings by up to 30 percent. That is to say a building that would have previously been permitted to have 5,000 square meters (sqm) could be increased to 8,000 sqm.    

“There is no urban planning policy in this country,” said Muhammad Fawaz, the former director general of urban planning. “There is talk of urban planning but there is no actual implementation on the ground… The government has no role in the speculation that happens. There are no property policies. They have no desire to interfere in this sector.” 

The octogenarian still writes and campaigns on this issue and at his office in southern Beirut he brandished the most recent building law passed in December 2004. “This was made by the developers… this is their law,” he said.

Salam claimed the “devilish arrangement between the Council of Ministers [Lebanon’s Cabinet], the politicians and the speculators,” is enabled by the fact that the responsibility for the establishment of land use and urban plans does not lie with the municipalities, but ultimately with the Council of Ministers, which, “is a political body subject to political desiderates, and to influence by the speculators on a higher level.”

Architect Halak explained that even within these laws, corners can, and regularly are, cut due to both professional incompetence and legal loopholes. For example, every tower that is built requires a traffic impact assessment to see how the increased car load from the development will affect the local infrastructure and road network.

“People buy traffic impact studies, they are just photocopied because no one really reads them,” she said. “They don’t care what is in the report; they just want to see it is there.” 

This flagrant disregard for the sound development of Lebanon’s shared urban areas may be disconcerting, but when the same practice is done with the soil reports the implications have the potential to be far more serious, or even fatal in the event of building collapse. Halak maintains that these documents, which say whether the soil in a certain plot can support a particular structure, are similarly bought as slightly doctored copies of recent reports. Policing these and similarly shady building practices is the responsibility of the Internal Security Forces [ISF], tasked with monitoring the implementation of the building permits. Considering that the ISF regularly fails to even direct traffic properly, it can be of no surprise that they have little inclination or capability to monitor technical building practices. 

View from the street

Construction is about more than just steel and concrete — it is about creating the spaces where people live. Proper regulations and their implementation ought to ensure that this development leaves people with places they can afford to live in, is sustainable with the natural environment and contributes to the physical and social wellbeing within the communities we all share. What the corruption endemic in Lebanon’s real estate sector does is erode all of those things, lowering the quality of life for those who reside in this country.

Indeed, we would do well to take heed of a quote from a bygone era: “First we shape our buildings and then they shape us.”

This article is part of a ongoing series covering corruption in different sectors carried out with the support of the Lebanese Transparency Association.

0 comments
0 FacebookTwitterPinterestEmail