Society

Banquet on the bay

by Ellen Hardy
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.

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Economics & PolicyEnergy Wars

The most dire of straits

by Paul Cochrane
written by Paul Cochrane

The prospect of a war against Iran has been on the cards for decades. Since 2005, innumerable media reports have proclaimed that war is imminent, and this year will be the year it will happen. Think tanks, war strategists, risk consultancies and the various militaries have all compiled papers on how a conflict in the Gulf could play out. The headline of a 2009 article on the website of the United States Army sums it up: “Future Gulf War: Arab and American Forces against Iranian Capabilities.”

What is fundamentally different now is that there has been a sustained covert war by unknown actors against Iranian nuclear facilities and scientists over the past few years — from scientists killed by car bombs on the streets of Tehran to mysterious “accidents” and cyber attacks at nuclear facilities — and that an economic war has essentially been declared through the heightened sanctions by the US and European Union (EU) in recent months. 

Crucially, the oil sanctions, meant to hit Iran where it hurts given its budgetary reliance on hydrocarbons, have removed a major logistical obstacle to conflict, in that the EU, which imports 4 to 5 percent of its oil from Iran — some 600,000 barrels per day (bpd) — will not have to scramble for alternative energy sources in the advent of war; they are already doing so now.

While the sanctions are to go fully into effect by July, countries are already starting to abide by the decision; Britain, Austria, Poland and Portugal, for instance, cut their imports of Iranian crude to zero in the third quarter of 2011. Iran unilaterally halted exports to France and Britain last month and most international oil companies, with the exception of Asian firms, have also pulled out of Iran to abide by the new sanctions. 

The US has not imported Iranian oil since the overthrow of the Shah in 1979, and its reliance on Middle Eastern oil is the lowest it has been in decades. From 2005 to 2011, the US’ overall oil imports have fallen from 60.3 percent of consumption to 47 percent, while from the Persian Gulf it has dropped by 26.7 percent to 18 percent of total imports by 2011, according to the US’ Energy Information Administration (EIA) figures.

But with the 30km-wide Strait of Hormuz the conduit for more than 20 percent of the world’s oil and 40 percent of traded oil on the markets, it is essential to the global economy that this oil keeps flowing. With almost 17 million bpd passing through the passage in 2011, the Iranians’ threat to block the Strait is taken very seriously. As oil expert Daniel Yergin notes in “The Quest”, his recent bestselling book: “the Strait is the number one choke point for global oil supplies.”

It has been a long-term goal of the US to ensure the Strait remains open, spending an estimated $6.8 trillion (including baseline costs such as training, pensions, long-term debt repayments and military base usage globally connected to the Gulf) between 1976 and 2008 projecting military force in the Persian Gulf, according to research by Princeton’s Energy Policy department, averaging $492 billion annually between 2003 and 2008.

The US imported 663.2 million barrels from Saudi Arabia, Iraq and Kuwait in 2011. Through a rough calculation for 2011 using the five year annual average calculated above — $492 billion divided by 663.2 million barrels per year (b/y) — the US is paying $742 per barrel to ensure that this oil reaches its shores. When taking into consideration the 6.2 billion b/y that passes through the Strait annually, it is costing the “the world’s policeman” $79 a barrel to keep itself and everyone else in Gulf oil. 

The US Department of Defense’s January paper “Sustaining US Global Leadership: Priorities for 21st Century Defense” states, “US policy will emphasize Gulf security, in collaboration with Gulf Cooperation Council countries when appropriate, to prevent Iran’s development of a nuclear weapon capability and counter its destabilizing policies. The United States will do this while standing up for Israel’s security and a comprehensive Middle East peace.” The recent build up of naval activity can therefore be interpreted as the US reasserting its military dominance over the Gulf. But with the oil supplies for the main cheerleaders for confronting Iran — the US, EU and Israel —  largely cushioned  to any disruptions in the Strait (not least due to massive stockpiles in the US and EU), this has, more than ever, helped pave the way for the possibility of war.

Starving Asia

For Asian countries the situation is far more serious. Three-quarters of the Gulf’s oil exports are destined for the East; the closure of the Strait or a Gulf conflict would effectively starve Asia of energy, which would have serious economic ramifications regionally and globally. How to placate China, Japan, South Korea and India has therefore been a stumbling block in the West’s strategy to isolate Iran. Yet there is more at stake than energy imports. Russia and China were among the nine nations (out of 35) that voted against the International Atomic Energy Agency’s (IAEA) Iran file in November which said the Islamic Republic had carried out activities “relevant to” acquiring a nuclear weapon. While Iranian and Gulf energy supplies were a likely factor behind China’s “no”, Beijing is officially opposed to nuclear proliferation and has adopted a “studied neutrality” on Iran.  China is concerned with US encroachment in what it perceives as its own back yard, according to Kerry Brown, head of the Asia Programme at the Chatham House in London. He adds that there is a deep conviction in China that American policy in the Gulf aims to keep Chinese interests at bay, causing the country to feel increasingly contained. Furthermore, by controlling the Gulf, the US is able to use energy as a bargaining chip with China and other Asian countries. 

“Asian demand is rising exponentially; the US having oversight of the Persian Gulf means an inside track when it comes to the Asian powers, and a prize the US is not going to give up like Britain following the 1958 Suez Crisis; the US has learned its lessons,” said Professor Anoush Ehteshami, head of the School of Government and International Affairs at Durham University in England. “Indicative is the US is buying less oil from Saudi Arabia than in the past 20 to 30 years but the relationship is stronger than ever.” 

Annoying the neighbors

The formidable Russian bear has been vexed and unsettled by some US regional strategies, facing encroachment in Eastern Europe from NATO’s planned deployment of a missile defense system, and in Central Asia from the large US military presence in Afghanistan. While Russia does not rely on Gulf oil and would stand to gain from rising oil prices upon the closure of the Straits, regime change in Tehran would equal the loss of a geo-strategic and non-aligned partner, and open the way for Russia to be circumvented as an energy corridor to the Caspian Sea and Central Asia, home to 48 billion barrels of oil and 449 trillion cubic feet of natural gas, according to statistics from BP. 

Such a scenario would likely raise the hackles of Moscow and Beijing alike. Their grievances would only be compounded by their strategic setbacks in Libya where they curried particular favor with the former Gaddafi regime, and the current risk, especially to Moscow, of the fall of Bashar al Assad. Already the Russians have lost $4.5 billion in weapons contracts in Libya, according to the Moscow-based Center for Analysis of World Arms Trade (CAWAT), while $18.8 billion worth of contracts with Chinese companies are now in jeopardy, according to official Chinese statistics. Furthermore, the Russians could have already lost $13 billion from the effect of a United Nations arms embargo on Iran according to CAWAT, and face billions in losses from cancelled weapons contracts with Syria where it has already invested more than $20 billion in the infrastructure, energy and tourism sectors, according to the global analysis and advisory firm Oxford Analytica. That’s enough to make any bear irate enough to start a fight, and arguably the main reason why there is a lot more at stake than just the flow of oil out of the Gulf being interrupted.

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Comment

Assessing the damage

by Executive Staff
written by Executive Staff

 

The annual meetings of the International Monetary Fund and World Bank offer a relatively informal atmosphere for finance ministers, central bank governors and private sector executives to discuss the previous year and set a direction for the next. In Istanbul last month, the meetings reviewed a year of economic turmoil and vast change in government policies. Representatives from the Middle East recalled that the 2008 annual meetings in Washington occurred in a week when crude oil prices dropped 17 percent, the United Arab Emirates federal government guaranteed bank deposits and intra-bank lending and the Saudi stock exchange dropped to their lowest level in four years.

This year’s affair was far calmer. The broad consensus in Istanbul was that the worst was over and that the Middle East had survived the global crisis better than most of the world. Lebanon and Saudi Arabia were praised by many, including Mohsin Khan, the former regional IMF chief, for their conservative banking policies. “Both countries didn’t allow their banks to hold structured products, and this was a very smart move,” he told me. But whatever the successes they may claim for the past year, representatives in Istanbul acknowledged that major challenges remain, especially over unemployment and poverty.

The region already has relatively high jobless figures. The World Bank projects unemployment will rise by 25 percent in 2009 and 2010 in the Middle East and by 13 percent in North Africa, despite regional growth second only to Asia.

“The message, globally, is that, yes, there are signs of recovery, but it [the situation] hasn’t settled deeply,” said Shamshad Akhtar, the World Bank vice-president for the Middle East and North Africa (MENA). “We already had 20 million people unemployed [in MENA], and we have new entrants to the labor force [due to high population growth], so we have a problem.” The IMF’s Regional Economic Outlook, launched in Dubai on October 11, projects regional growth will fall from 5.4 percent in 2008 to 2 percent in 2009, before rebounding to 4.2 percent in 2010. A particular danger is that a disproportionate number of people, especially in Egypt and Morocco, live just above the $2-per-day income threshold for poverty, meaning the region cannot afford complacency over joblessness. This has been the major factor behind the World Bank’s increased lending in MENA from $1.8 billion in 2008 and 2009 to over $3 billion in 2009 to 2010. “Demand is steep,” said Akhtar. “Our clients need [to finance] reforms – and not just at the macro-level. Countries want to strengthen their financial structures, they want more microfinance. They want affordable mortgages and pension reform. They want to restructure social safety nets.”

The World Bank’s 2009: Economic Developments and Prospects, launched in Istanbul, drew attention to the opportunity presented by the economic crisis for governments to “ease infrastructure bottlenecks and restructure ineffective — yet expensive — subsidies programs.”

Iran is the clearest case, with around 30 percent of GDP going into subsidies. Egypt’s food and energy subsidies are around 30 percent of government spending and 10 percent of GDP, while in Morocco 90 percent of subsidies go to groups other than the poor.

At the macro-management level, the annual meetings generally endorsed the region’s approach to the economic crisis, although there was also a clear sense that governments had much left to assess in their performance.

The region’s monetary reaction to the crisis was “unprecedented,” especially in guarantees to banks, explained Khan, now senior fellow at the Peterson Institute for International Economics in Washington. “Back in 2007, there was a lot of worry about the inflation rate. There was talk of reining in monetary expansion, the revaluation of exchange rates…that has changed.”

Governments, much like in developed countries, have lowered interest rates as inflationary pressures have eased. Although inflation is considered a danger in Egypt — where the IMF projects a rise to 16.2 percent in 2009 from 11.7 percent in 2008 — representatives at Istanbul agreed it would not become a regional issue in the near future. Their greater fear is that the global economic recovery could falter and depress the price of oil.

In the Gulf Cooperation Council, fiscal policies — especially with the vast reserves of Abu Dhabi and Saudi Arabia — have been at the forefront of the response to the downturn. But many in Istanbul pointed out that fiscal stimuli have been less innovative than monetary changes, as several state infrastructure projects in the Gulf are already in the pipeline.

The shadow of politics, as ever, loomed over discussion at the annual meetings of the regional outlook. Both Saudi Arabia and the UAE moved quickly to squash a poorly-sourced story in The Independent that secret meetings were underway to abandon the dollar as the currency in which oil contracts are made.

But their anger at the report reflected a sense that the region can ill afford any further disruption — and that any serious sharpening of tensions, especially over Iran, could quickly upset a mood of cautious optimism.

GARETH SMYTH has reported from the Middle East since 1992, mainly for The Financial Times

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Banking & Finance

Financial quotes of the month

by Executive Editors
written by Executive Editors

“Looking at the present situation in the Eurozone area one has to be more optimistic than one would have been six or seven months ago.”

Mario Draghi, European Central Bank president

“There will be no more ‘Kodak moments’ — after 133 years, the company has run its course.”

Don Strickland, a former Kodak vice-president

“Our wish and hope is [that] we can stabilize this oil price and keep it at a level around $100.”

Ali al-Naimi, Saudi Arabia’s oil minister

 “We want to be number one.”

Sheikh Mohammed bin Rashid al-Maktoum, ruler of Dubai and prime minister of the UAE

“This battlefield is not limited by borders; it is fought behind the scenes. You can’t see it and blood isn’t spilled, but there is a battle in new and developing worlds.”

Dan Meridor, Israel’s minister of intelligence and atomic energy, following the hacking of the websites of the Tel Aviv Stock Exchange and El Al airline

“We expect to increase revenues from the region this year… There are very few places in the world today [where] I can … [readily] write a big cheque and this is one of them.”

John Vitalo, Barclays’ chief executive officer for the MENA region

“Right now, the US Congress is considering legislation that could fatally damage the free and open Internet.”

Warning on Wikipedia’s home page on January 18 when it shut down the site to protest proposed piracy bills in the United States

“If the content industry would like to take advantage of our popularity, we are happy to enter into a dialogue. We have some good ideas.”

On Megaupload’s homepage, one of the Internet’s largest file sharing sites, after the arrest of seven individuals including founder Kim Schmitz

“We are confident that the privatization of the stock exchange will be of a great benefit to Kuwait’s economy, investors and the listed companies.”

Abdullah al-Gabandi, head of the exchange privatization committee at Kuwait’s Capital Markets Authority

“We will have a partial managed float, allow the rate to be determined by the market and intervene when necessary.”

Adib Mayaleh, governor of Syria’s central bank
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Banking & Finance

For your information

by Executive Editors
written by Executive Editors

RBS closing Middle East M&A arm

Royal Bank of Scotland, majority owned by the government of the United Kingdom, is in talks to sell its Middle East merger and acquisition business as part of a global restructuring at the bank. RBS did not give a timeframe for the sale or details on the possible buyers. RBS is currently working on four M&A deals in the Middle East, which include the sale of 50 percent of Saudi Arabia-based Aujan Industries to Coca-Cola for $980 million, and aims to close these deals in 2012. The exit by RBS from the region follows moves by other investment banks such as France’s Credit Agricole, which closed its regional offices for Middle East M&A and relocated the business to Paris. Lloyds Banking group, another UK bank, is in talks to close down its operations in the United Arab Emirates. Several European investment banks struggling to cope with the European sovereign debt crisis are looking to exit non-core businesses such as those in the Gulf region.

Kuwait privatizes bourse

Kuwait has hired British multinational bank HSBC to help with the privatization of its stock exchange, the third largest by market capitalization in the Gulf Cooperation Council, after Saudi Arabia and Qatar. The privatization plan, outlined in the new Capital Markets Authority (CMA) law, calls for an initial public offering of 50 percent of the stock exchange to Kuwaiti citizens and an auction of the remaining 50 percent to listed companies, with a maximum ownership per listed company of 5 percent. Currently the Dubai Financial Market is the only publicly traded exchange in the GCC. The CMA law in Kuwait was established in March 2011, more than 30 years after the formation of the Kuwait Stock Exchange, and it is the first stock market regulator in the country. “This will make Kuwait one of the first countries in the region to privatize its exchange and we are confident that the privatization will be of great benefit to the Kuwaiti economy, investors and the listed companies,” said Abdullah al-Gabandi, head of the exchange privatization committee at the CMA.

News Corp invests in Dubai’s media

News Corp, which is at the center of a phone hacking scandal in the United Kingdom, wants to boost its presence in the Middle East media industry. It is acquiring a minority stake in Dubai-based MOBY Group, the largest media company in Afghanistan and owned by the Mohseni family. Under the terms of the deal, News Corp gives up its 50 percent ownership of Broadcast Middle East, a Farsi-language television company owned by both News Corp and MOBY. In exchange, News Corp receives a minority stake in MOBY. No financial details were provided. News Corp already has a solid presence in Middle East media through its 15 percent stake in Rotana Media Group, majority-owned by Saudi billionaire Prince alWaleed bin Talal.  “Merging our Farsi joint venture into MOBY allows us to expand our activities with what is surely one of the most dynamic and exciting media businesses in emerging markets anywhere,” said James Murdoch, deputy chief operating officer at News Corp.

Knickers in a twist

Kuwaiti retailer Alshaya, one of the largest retail companies in the Middle East, invested in struggling United Kingdom lingerie company La Senza by acquiring 60 of its domestic stores as well as the brand in the UK, from KPMG the administrator of the now bankrupt chain. The remaining 84 stores and 18 concessions were shut down. La Senza was owned by private equity firm Lion Capital, which acquired it in 2006 from Theo Paphitis, famous for his BBC business investment show “Dragons’ Den”. Alshaya, which operates several British retail brands such as Debenhams, Mothercare and Next, intends to invest $156 million in the business. It already works closely with Limited Brands, the United States-based owners of the lingerie brand through franchise agreements for the Victoria’s Secret, Bath & Body Works and La Senza brands. The stores in the Middle East will not face closures as Limited brands confirmed that “our businesses in other territories, including the Middle East, is [sic] not impacted in anyway and it is very much business as usual.”

Qatar goes nutty

Al Rifai International Holding, a Lebanese based manufacturer of nuts, has sold a 15 percent stake at an undisclosed amount to Qatar First Investment Bank (QFIB), a Doha based Islamic investment bank established in 2009. Al Rifai sells nuts, kernels and Middle Eastern delicacies throughout the Middle East and Europe and its sales in 2011 grew by 50 percent. QFIB’s move is its first into the food and beverage industry and it provides the bank with access to new international locations. “From the outset, our strategy was to focus on sectors that benefit from key drivers of economic change,” said Emad Mansour, CEO of QFIB as he expects the fast growing global savory snack market to reach $85.4 billion in 2012.  “The partnership will also allow us access to multiple sources of funding and risk mitigation tools, thus helping our group implement and further develop its growth and improvement plans,” said Mohammad Rifai, CEO of Al Rifai. The holding previously raised $15 million in September 2010 through a private placement led by MedSecurities, a subsidiary of BankMed.

Lebanon’s risky debt

The cost of protecting against default on Lebanon’s debt rose further in 2011 as spreads on the country’s five-year credit default swaps widened by 150 basis points (bps) last year, compared to only 28 bps in 2010, and ended at 447.5 bps according to CMA Datavision, a CDS and bond-pricing firm. The widening of the spreads in 2011 mainly occurred in the first two quarters of 2011 due to the turbulent political situation in Lebanon and revolutions that shook the Arab world. The spread performed better in the fourth quarter relative to the rest of the year as it only widened by 17.8bps. The worst performing countries in this quarter were Greece, with spreads widening by 57 percent, followed by Slovenia at 46 percent, and Egypt at 35 percent.

A binary battle at the bourse

Unidentified pro-Palestinian hackers attacked the websites of the Tel Aviv stock exchange and El Al Israel Airlines, as well as the marketing websites of three banks (First International Bank of Israel and two subsidiary banks, Massad and Otzar Hahayal). Stock trading and flights were unaffected. The hacker group, which goes by the name “Nightmare”, warned of an impending attack the night before the hacking through an email to Ynet, a popular Israeli news website. Ynet reported that the email was sent by OxOman identifying himself as a Saudi hacker who has also exposed the numbers of thousands of Israeli credit cards in recent weeks. In retaliation, Israeli hackers calling themselves IDF team, named after the Israeli Defense Forces, attacked the website of the stock exchanges of Saudi Arabia and Abu Dhabi. Both exchanges, however, denied the claims that their sites had been attacked, with Abu Dhabi blaming the slowdown of its exchange on technical faults. “If the lame attacks from Saudi Arabia will continue, we will move to the next level which will disable these sites longer term,” the IDF-Team wrote. “You have been warned.”

Lebanese dynasties among the region’s billionaires

The  Lebanese Hariri and Hayek families made it to Arabian Business’ list of top Arab 50 billionaires. Saad Hariri, former prime minister of Lebanon, was ranked 28th richest Arab, down one spot from 2010, with an estimated fortune of $3.8 billion, up from $3.7 billion in 2010. His older brother Bahaa is ranked 32nd, up seven places from last year with an estimated wealth of $3.35 billion, up from $3 billion in 2010. His younger brother Ayman also made the list, ranked 36th, up from 44th place in 2010, with an estimated fortune of $3.15 billion, up from $2.4 billion last year. The two other Lebanese on the Arab rich list, Nick and Nayla Hayek, are newcomers to the list and amassed fortunes running Swatch group, the world’s largest manufacturer of watches. They ranked 38th place with a fortune estimated at $3.1 billion.

Kafalat loans down 3 percent in 2011

Kafalat loans, extended by commercial banks to small and medium enterprises and supported by the Lebanese government, decreased by 2.6 percent in 2011 to reach $165 million. The number of loan guarantees amounted to 1,272 in 2011, down from 1,404 in 2010, while the average loan size increased to $129 in 2011 from $120 in 2010. The agriculture sector received the most Kafalat loans as it had 41 percent of the total guarantees. It is followed closely by the industrial sector at 38 percent. Tourism received 17 percent of the total Kafalat loans.

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Economics & Policy

For your information

by Executive Editors
written by Executive Editors

Fishing for phonelines

Lebanon’s telecom sector is set for a tumultuous month as the operating contracts of both mobile network operators Alfa and mtc are set to expire. Last month Prime Minister Najib Mikati confirmed to the press that a decision to renew the management contracts of Alfa, owned by Orascom Telecom, and mtc, owned by the Kuwaiti telecom company Zain, was anything but assured. Speaking at a press conference after meeting with the telecommunications minister, Mikati said that a decision to renew the contracts which were to expire on January 31 had not been taken and that the government was considering three options: renew the contracts with the same companies, adopt contracts with other companies or bring the sector back into the government’s fold. A new tender, however, would take between three and six months, during which time the existing contracts would be renewed, the premier said. Mikati also announced that a $47 million project to increase the number of available landlines by some 7,000 lines would need another two years to be implemented.

Beyond puppy fat

New studies released last month show a worrying trend among the Lebanese who seem to be piling on the pounds as the years progress. Research from a three-year collaborative study conducted by the National Center for Scientific Research, the American University of Beirut, Saint Joseph University and Universite Saint-Esprit de Kaslik, showed that obesity among children and adults has almost doubled over the past 15 years, thus increasing the risk of diseases such as diabetes and cardiovascular disorders, according to researchers. “Research has shown that diet in the first two years of a child’s life sets the stage for chronic diseases and other health problems later on in life,” said Professor Nahla Hwalla, lead researcher and the dean of the Faculty of Agricultural and Food Sciences at AUB. According to the new set of data, which was collected in 2009, one in six children younger than 10 years old are now obese, while only one in 10 children under 10 was obese in 1997.

World Bank and IMF diverge in their gloom

Leading global economic bodies were seen to take a divergent stance on Lebanon’s economic prospects last month when the World Bank posited an estimation of last year’s growth twice that of its sister organization, the International Monetary Fund. According to the World Bank, Lebanon’s gross domestic product should have grown by 3 percent last year, while the IMF maintained a 1.5 percent estimation, a figure also touted by government officials. In the Middle East as a whole, growth in 2011 was weighed down by the effect of the unrest across the region, while higher oil prices buoyed the growth of oil exporting countries, which added $200 billion in revenues on 2010. Flows of foreign direct investment across the region, and mostly in the countries of the Gulf Cooperation Council, were seen to have fallen by nearly 40 percent. Going forward the Bank added that the Middle East and North Africa is “highly exposed to an exacerbation of the European crisis, with strong and broad links through trade, tourism arrivals, migrant remittances, and to a lesser degree, finance.” The net effect of oil was also seen to be one of the factors weighing down growth this year with GDP impacts ranging between -0.8 and -1.2 percent for oil importers and -0.2 and -0.6 percent for oil exporters.

Inflation flummox

Figures released by different economic institutions last month point to a common theme, that prices are still on the rise. But just how much prices have risen continues to be a matter where no consensus can be reached. According to official figures from the Central Administration for Statistics, the Consumer Price Index (CPI), the major indicator of inflation, rose just 3.1 percent over the course of 2011. The main drivers of the rise were prices of food and non-alcoholic beverages, which rose 5.8 percent and constitute one fifth of the weight of the total consumer basket used to compile the index. The only item that saw a fall in prices was transportation, dropping 2.6 percent. Many economists have criticized the government’s figures, which are relative to December 2007 baseline prices. Conversely, the privately owned Consultation and Research Institute which has been monitoring prices since the 1970s, said the CPI had risen 4.6 percent because of a rise in prices in every item except for housing.

Tourist numbers tumble

Figures released by the tourism ministry last month indicate that the country received nearly a quarter less visitors in 2011 than 2010, with 1.7 million and 2.2 million arrivals in those years, respectively. The figure represents the first decline since 2005 and 2006 when the assassination of former Prime Minister Rafiq Hariri and a 34-day war with Israel, respectively, tarnished the industry. Arab visitors constituted 35.1 percent of all those coming to Lebanon while 29.3 percent came from Europe and another 14.8 percent from Asia. The nationalities that visited Lebanon most were Jordanians and Germans, both constituting 7.8 percent of total visitors.

Minimum wage up… finally

After months of political wrangling a decision to raise the minimum wage and salaries across the country was taken by the cabinet. According to two decrees issued by the cabinet, the minimum wage will rise from LL500,000 ($331.67) to LL675,000 ($447.76). Salaries between LL500,000 and LL1 million ($663.34) will receive a salary increase of LL200,000 ($132.67), while wages ranging between LL1 million and LL1.5 million ($995.02) will rise by a maximum of LL250,000 ($166.67). Salaries more than LL1.5 million can rise by up to LL299,000 ($198.34). Pay raises will be dependent on any other rises granted since the last correction of wages in 2008. The move comes after the finance minister reneged on his promise not to approve the measure until a long standing draft law on competition was passed. The labor minister has also refused to sign a third cabinet decree to increase transportation and education allowances because, he claims, it was technically illegal.

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Feature

Syria’s rebel army

by Executive Staff
written by Executive Staff

Outnumbered, outgunned and isolated, the defected soldiers of the ‘Free Syrian Army’ are still managing to hound the forces of Syrian President Bashar al-Assad. From one desperate day to the next, these rebels claim to protect demonstrations and conduct skirmishes on government forces, while living in constant fear for the safety of themselves and their families.

1) Defecting Syrian soldiers gathered under the umbrella of the Free Syrian Army (FSA) are contributing to a growing armed resistance to the regime in Damascus.

2) The rebels live a furtive existence, holed up in abandoned farm houses, hidden away in the Syrian countryside.

3) The body of a demonstrator, freshly killed by security forces in the town of Qusayr, is cleaned by FSA members and sympathetic locals. The FSA have tried to assert their role as armed protection for civilian demonstrators against attacks from government forces.

4&5) Despite reports of a dramatic rise in arms smuggling into Syria, the FSA soldiers outside the village of Qusayr said that most of their weapons were bought from sympathetic soldiers still serving in the regular Syrian army. 

6) A defected security agent tells his story to a journalist in a safe house outside of Homs. So far, defections from the ranks of the security forces have been limited, but this deserter said that if a ‘safe zone’ was arranged, those “without blood on their hands” would flee in droves.

7) An FSA soldier stands guard on a misty night outside a countryside hideout.

8) The next morning, FSA fighters modify a pickup truck in order to mount it with a heavy machine gun, in a similar fashion as those widely used by the rebel fighters in Libya last year. Similar to Libyan rebels, the FSA are calling for a NATO imposed ‘no-fly’ zone.

9) However, with international intervention looking unlikely, the FSA seem set for an uphill struggle as they continue to launch operations from farmyard hideouts such as these.

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Editorial

Last chance to turn the tide

by Yasser Akkaoui
written by Yasser Akkaoui

Assuming that the optimists are correct, our country could see some $140 billion stream into the economy from oil and gas revenues in the next 20-odd years. When 3.5 times your current GDP comes knocking, you’d better listen, and listen close. 

It’s no exaggeration to say that the fate of our nation, its people and its economic wellbeing could rest on whether this precious resource is used for good or for ill. Already, our economy is skewed toward sectors that cannot create the jobs we need to sustain our competitiveness, which at the moment is sorely lacking, in no short measure due to endemic corruption, security or any sort of policy framework. 

From our waters to our lands to our mountains, the nation’s history is tainted with examples of how we have exploited our resources for the benefit of vested interests over public good. Without the proper mechanisms and safeguards to ensure that the money from any oil or gas wealth comes back as working capital and not as ‘miscellaneous expenses’, we will probably be better off without it.

Unless that money goes towards diversifying the economy so it produces, not just GDP, but jobs at both the top and bottom of the salary scales and across sectors, then we should not be optimistic about the panacea touted by our political patrons. As things stand we have only one exportable asset: our people and their entrepreneurial drive.

The gap that exists today between those that consume and drive GDP, and those that do not, will not be bridged by our current political and administrative setup. We should not think for a moment that those who have plundered the nation and enervated the prospects of our people will change tack now that our seas may offer fresh bounty.

If we play this right the nation could be offered an opportunity to finally stem the all too common beeline from the graduation party to the airport.  If we get it wrong we can kiss goodbye to our greatest selling point: Our talented youth.

So before we embark upon this journey to explore our seas for what could be our last scarce resource, we must be certain that it will be used to give those that never had the chance their opportunity to succeed.

A Sovereign Wealth Fund in a country that is not sovereign, cannot pass a budget and funds itself with money it doesn’t have, is not something we should look forward to at this point. 

Money alone will not solve structural problems.

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Real estate

For your information

by Executive Editors
written by Executive Editors

Tragedy tumbles downward

Twenty-seven victims perished after a seven-story building in the Fassouh district of Ashrafieh collapsed on the evening of January 15, while 12 more were injured, according to the Higher Relief Council. The combination of poor sandstone construction dating from the 1930s and stormy weather conditions contributed to the devastating crumble of the building, but some experts believe a more direct cause was damage to the building’s foundations due to negligent conditions at a nearby construction site. One vocal urban planner, Abir Saksouk, criticized a 2004 “new construction” law, which deregulates conditions for new construction even though such practices can damage the foundations of nearby buildings if not done properly. “The whole law was defined and fabricated in a way to benefit real estate developers,” she told Al Akhbar newspaper in a January 16 article. More than 15 families in the adjacent building were also forced to leave their homes since conditions were deemed unsafe by engineers from Beirut’s municipality, which had enlisted the help of the Khatib & Alami engineering firm to help with inspections. On January 17, the same day the building’s owner, Michel Saadeh, was arrested and placed under investigation, Lebanese daily An Nahar reported that 20,000 buildings are at risk of collapsing in Lebanon, quoting Member of Parliament Mohammad Qabbani, the chair of Parliament’s Public Works, Transport, Energy and Water Committee, while Public Works and Transportation Minister Ghazi Aridi said that the Jal El Dib bridge north of Beirut was also at risk of collapsing. The bridge will now be torn down. The tragic collapse comes at a time of unprecedented construction of luxury towers within the Ashrafieh area, while several activists complain that Lebanon does not build or subsidize housing for low-income citizens. In August of 2011, Ramco real estate advisors said that more than 125 building sites could be counted in Ashrafieh, commanding up to $5,500 per square meter, as many of the projects are targeted for luxury buyers. In comparison, some residents of the collapsed building were paying as little as LL25,000 per month, around $16, under a rent contract that equates current-day rents with pre-inflationary levels. Successive governments have hesitated to impose a new rental law since it could cause a steep housing crisis, affecting roughly 80,000 people. While the government agreed to pay $20,000 to the families of every victim, the Higher Relief Council has the responsibility of finding temporary housing for those affected.

Kuwaiti help on the way

The Kuwait Fund for Arab Economic Development (KFAED) has stepped up its efforts to galvanize Lebanese infrastructure projects. On January 19, Kuwait News Agency (KUNA) announced that KFAED would spend $146 million to construct a road network involving 11 intersections that will link the Bekaa region with Beirut, while also renovating two lanes and constructing sidewalks over 24 kilometers long. KFAED’s Director General Abdulwahab al-Bader told KUNA that the roads will ease traffic of “passengers and goods between the cities of Beirut and the Bekaa, as well as neighboring Arab countries.” Earlier in the week, on January 17, KFAED and the Arab Fund committed to finance some 85 percent of a $330 million project, which will irrigate roughly 15,000 hectares of agricultural land in the western Bekaa region, while around 100 towns, including up to 340,000 residents, will receive drinking water.

Tycoon’s jail suite

On January 12, a Detroit judge sentenced Lebanese-American construction tycoon Manuel “Matty” Maroun to jail on charges of contempt of court, after his construction firm Detroit International Bridge Company failed to complete supplementary construction on the Ambassador Bridge, despite a February 2010 federal order to complete the $230 million project, according to Bloomberg. The 84-year-old billionaire and owner of the Ambassador Bridge spent the night in jail with the company’s president, Dan Stemper. After his son unsuccessfully attempted to appeal the decision, the two businessmen were freed on January 13 and were ordered back to the Michigan Court of Appeals on February 2 according to the Chicago Tribune. The Ambassador Bridge is one of the busiest in the country and is a crucial link between Detroit and Windsor, Canada, allowing transportation between the auto assembly plants in both regions. By failing to complete two connecting interstates to the bridge, heavy traffic has ensued on several Detroit streets and has caused logistical delays for crucial industries. Maroun’s net worth was estimated at $1.5 billion by Forbes in September 2011.

While Indians were the largest foreign investors in freehold properties in Dubai last year, Lebanese contributed AED629 million ($171.2 million) out of a total pool of AED 39billion ($10.6 billion) spent by foreign property buyers, according to the Dubai Land and Property Department. The pool of foreign ownership sales made up 27 percent of the total real estate market in 2011. Indians contributed 18 percent of the total pool of foreign ownership, which translates into AED6.97 billion ($1.9 billion). Sultan Butti bin Mujrin, the department’s director general, told Al Khaleej newspaper in a January 9 article, “Speculators are out, the property market is becoming mature and investors have become more aware of the significance of long-term investment in the emirate’s real estate sector.” In June 2011, the United Arab Emirates extended visas for investors who spend more than AED 1 million on property in the UAE to three years, a sharp increase on the previous six-month visas, in an effort to boost the ailing real estate market which saw home prices drop by more than half since their peak in 2008.

Build-up in Beirut

Conseil et Gestion Immobilière (CGI), the real estate arm of Audi Saradar Group, announced in a January Bank Audi report that it would be delivering 110,000 square meters of built-up area within three upcoming residential developments in Beirut, to be completed by 2015. In addition to Gemmayze Village and Abdelwahab 618 buildings, where some 60 percent of the units have already been sold, the group is also building Urban Dreams in Corniche El Nahr, which consists of small apartments between 100 and 250 square meters in size. Meanwhile, Beirut-based retail group, Fawaz Holding, plans to deliver larger apartments in their upcoming five-story Perimetre Avenue du Park residential building in Minet El Hosn. When complete in 2015, it will deliver 15 units in sizes ranging from 375 to 1,300 square meters. The company, which owns cosmetics and clothing stores in Beirut, will also have two retail spaces totaling more than 2,500 square meters. On their website, the group claims to have branched out into development of commercial buildings in prime downtown areas, “in its bid to gain a stronghold in the retail business… to guarantee the future availability of prime location in an area of Lebanon where locations are as dear as they are rare.” In the low-rise Wadi Abu Jmil area of downtown, the company plans to build another residential building consisting of eight apartments and two duplexes, with sizes starting at 350 square meters. 

Fairmont to bloom by 2016

Fairmont Hotels, a luxury hotel chain which operates 88 properties globally, plans to add seven hotels to its Middle East and North Africa network by 2016, adding to the 10 existing properties and four which are under construction. While eventually planning to add a hotel in Beirut, the first hotel in the Levant will be in Amman, Jordan, where foundation work has started on a 300-room property, to be completed by 2014 with Isam Khatib & Partners, a development firm. Encouraged by an 11 percent increase in revenue at its Dubai and Abu Dhabi properties in 2011, Fairmont looks to expand to other MENA cities, according to regional director of development, Rami Moukarzel. “We are working on key gateway cities, in Saudi Arabia… Beirut is a very important city as well… Doha is another key city that we are looking at,” he told Hotelier Middle East in a December 17 article. Fairmont is owned by Los Angeles-based Colony Capital and Riyadh’s Kingdom Hotels International.

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Banking & Finance

Lebanese capital markets

by Executive Editors
written by Executive Editors

The healthy financial results released by top Lebanese banks at the end of January 2012 offset investors’ worries over the regional security situation and its implications on Lebanon. Hence, the BLOM Stock index (BSI), Lebanon’s equity gauge, moved in whipsaws between a lower band of 1,163 and its highest band of 1,184 points before ending the five-week period in green. The BSI rose 1 percent to settle at 1,183 points, widening its year-to-date performance to 0.57 percent.

 Trading activity on the Beirut Stock Exchange (BSE) was subdued between January 16 and February 17, as the daily average volume of trades per month decreased to 196,470 shares worth $1.45 million, as opposed to 237,574 stocks valued $1.42 million recorded in the preceding four-week period. On a regional comparative scale, the Lebanese equity benchmark index underperformed the S&P Pan Arab Composite Large Mid Cap index that rose 5.7 percent from its previous close on January 13. Moreover, the BSI failed to outperform the MSCI Emerging market index that grew 5.8 percent to 1,049 points.

With respect to stock activity, the financial sector grasped the lion’s share of trades on the BSE accounting for 71 percent of the total value traded while real estate stocks represented the remaining 29 percent. The BLOM Bank GDR stock rallied during the past five-week period, rising 5.2 percent to $7.68. On the other hand, Audi stocks witnessed a mixed performance as its GDR and listed stocks advanced by a respective 6.5 percent and 5.2 percent to $6.35 and $6.01, while its preferred stock class “E” slightly fell by 0.1 percent to $100.4. Byblos stocks closed all in green; its common stock advanced by 1.86 percent to a two-week high of $1.64 whereas its preferred stocks 2008 and 2009 rose by 0.49 percent each to align at $102. It is worth highlighting that the top three banks in Lebanon, Audi, BLOM and Byblos, reported a respective net profit of $364 million, $331 million and $179 million for the year 2011.

On the other side, Bank of Beirut and BEMO common stocks retreated by 0.52 percent and 6.4 percent to settle at $19.3 and $2.2 respectively. BLC Bank listed during last week of January 400,000 new Class A preferred shares and 550,000 Class B preferred shares on the BSE.

Lebanese Eurobond prices remained high and stable with limited offers during the past five weeks as investors waited for the new possible swap for the bonds maturing in 2012. The BLOM Bond Index (BBI) remained almost flat, adding a slight 0.1% from its previous close on January 13 to hit a level of 111.1 points. This cut the portfolio’s weighted effective yield by 8 basis points (bps) to 4.70% and the spread against the US benchmark yield by 11bps to 396bps. Five-year issues of Lebanon’s credit default swaps (a proxy for a country’s default risk) stood at 480-500bps compared to 465-495bps on January 13. On a comparative scale, Saudi Arabia and Dubai credit default swaps reached 132-141bps and 398-411bps respectively.

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