Banking & Finance

Investment guide MENA stock tips

by Executive Editors
written by Executive Editors

After a turbulent 2011, investors hoping for relief in 2012 are likely to be disappointed, with little prospect of a solution in Europe, an election year in the United States and a prolonged lack of stability in the Arab world. This month Executive asks Najib Semaan, assistant general manager and head of global markets at Bank of Beirut (BOB), and Yves Rahme, head of equities unit at Byblos Bank, for insights on where to invest in these challenging times.

Najib Semaan

Bullish or bearish? Semaan is cautious on prospects for global markets due mainly to the European sovereign debt crisis, but he does believe that “the end of the tunnel is near”. He expects the markets to reach their bottom toward the end of the first or second quarter of 2012.

Will politics drive the markets in 2012? The Middle East and North Africa region will be affected by the political situation. In Europe, as there are several decision makers wanting to influence the final decision to their own personal interest, politics will be a driver of the markets as well. In the United States, 2012 will be about growth, which will be better than 2011, while equities will also be in better shape. Semaan very shortly expects to see a bottom in US equities.

Favorite assets? Semaan will buy large cap equities and avoid small caps, as BOB cannot afford further pressure on their balance sheets. Large caps, on the other hand, might see lower volumes but they can afford another bad year. He also likes German government bonds and those of large European corporations.

Thoughts on the MENA region? Semaan expects the unrest in the region to remain for another two to three years. Within the MENA region, he has a preference for Qatar and Saudi Arabia and has enormous confidence in Lebanon. He believes that the Lebanese central bank’s monetary policy has created confidence in the economy but he stresses that it is critical that the government steps in to “restructure the debt and put in place a plan for growth”.

Thoughts on Lebanese securities? “Interest rates on Lebanese bonds are now close to their bottom and we can’t afford lower interest rates, as they are no longer justified relative to our fundamentals,” he says. He expects Lebanon to afford another one to two years of interest rates at these levels but in the long run, without restructuring, he expects rates to go up. As for the Beirut Stock Exchange, he doesn’t expect much as “Lebanese investors are short-term oriented” and since many Arab investors lost substantial funds during the revolutions, they are not taking new positions.

Top picks globally? Semaan would buy US large-cap stocks such as General Electric and well-capitalized US banks and oil companies globally. He would also buy German government bonds and bonds from large European corporations, such as Électricité de France.

Yves Rahme

Bullish or bearish? Rahme would prefer to wait for dips before buying into the markets. He highlights that the real losses in the markets are in Europe and the MENA region, as the US markets recovered their losses in 2011. The problems in Europe have not been resolved yet and although European policymakers “have helped Greece, it’s just like putting on a band-aid, they didn’t dig deeper”.

Will politics drive the markets in 2012? In the MENA region, “it will take a year or maybe more to put in place real governments after 40 years of dictatorship”, so politics will still drive the markets, according to Rahme. He fears that in Europe the main issue has not been resolved yet. Rahme believes that each European country should try to resolve its own deficit. He is concerned by the lack of coordinated action from Eurozone policymakers in taking “a bold step to show all the markets and investors that they will do whatever it takes to save the euro”. As for the US, Rahme believes the markets will be driven by politics, as 2012 is an election year.

Your favorite asset classes? Rahme would buy stocks in defensive sectors such as telecommunications, consumer retail and healthcare, or companies such as Visa and American Express, and would also recommend companies exposed to emerging markets. Rahme also likes companies such as McDonalds, which are not much affected by the net worth of people.

Thoughts on the MENA region?  Rahme likes Saudi Arabia and Qatar. He would invest in Saudi Arabia as it is an oil-rich economy with a large current account surplus and enjoys a growing GDP. As for Qatar, he would be investing there due to upcoming infrastructure investments driven by the World Cup in 2022 and Qatar Vision 2030, the country’s long-term strategy for economic growth.

Investment picks in MENA region? Rahme would invest in a Qatari bank as the developers of the large infrastructure projects need liquidity. His top pick in Qatar would be Qatar National Bank. In Saudi Arabia, he would buy National Industrialization Company, also known as Tasnee.

Your thoughts on Lebanese stocks? The issues with Lebanese equities at the moment are mainly political, according to Rahme. For Solidere, its depressed value is mainly due to local politics. For the banks, it is due to both local and regional politics, as the most traded banks have branches in Syria and Egypt. Rahme also highlights that Arab investors are selling their stocks everywhere, which is not helping Lebanese equities. For a long-term investor willing to wait two to three years for a return on his money, Rahme would buy Solidere. He would also look at Lebanese banks as they are conservative, they are doing well and they offer attractive dividends.

“It will take a year or maybe more to put in place real governments after 40 years of dictatorship”

Recommended stocks

Qatar National Bank, the country’s first Qatari-owned commercial bank, has 40 percent of the

market share in Qatar and is one of the largest financial institutions in the MENA region. It is up 13 percent year to date and has a $26 billion market capitalization. Qatar Investment Authority owns 50 percent and the remaining shares are listed on the stock exchange. Its regional presence has grown through stakes in several banks in the MENA region: 35 percent in Jordan-based Housing Bank for Trade and Finance, 24 percent in UAE based Commercial Bank International, 50 percent in Tunisian-Qatari bank, 23 percent in Iraqi-based Mansour Bank and 51 percent in QNB-Syria, a private stock company.

National Industrialization Company, also known as Tasnee, is a Saudi-based holding with worldwide industrial projects. It operates in five sectors: petrochemicals, chemicals, metals, diversified (includes plastic and batteries) and it also provides industrial services. It is the first Saudi joint stock company fully owned by the private sector. It has a market capitalization of $6 billion and is up 36 percent year to date.

0 comments
0 FacebookTwitterPinterestEmail
Banking & Finance

For your information

by Executive Editors
written by Executive Editors

Syria unrest sparks Lebanon banking downgrade

Moody’s downgraded its outlook on Lebanon’s banking system to “negative” from “stable” due to weak economic growth and regional political unrest. Moody’s is concerned by the political uncertainty in Syria, as well as the exposure of local banks to countries such as Jordan and Egypt with slower economic growth or political turmoil. The ratings agency expects the profitability of Lebanese banks to come under pressure in 2012 and also predicts the trend of non-performing loan improvement that spanned from 2006 to 2010 to be reversed. Moody’s is also worried by the banking system’s heavy exposure to Lebanon’s sovereign debt, estimated at more than $50 billion, rendering it highly geared to the performance of the government. Moody’s highlighted the solid liquidity and the resilient deposit base as alleviating the downside risks.

New UAE company law to raise international investor interest

The UAE has approved a draft company law that will raise the limit on foreign ownership above the current limit of 49 percent. The current law obliges foreigners who wish to establish a business outside a free zone to find a local partner to hold a majority stake. The new law will also introduce unified accounting standards for all businesses and mandatory corporate governance principles for joint stock and limited liability companies, and modify the requirements for share offerings in local capital markets to encourage listings by private companies. If passed, the changes will be the biggest in the country in 30 years, though no date has been set for the final approval of the law. “We think this will encourage the establishment of more new companies in Dubai, because it makes the regulations and business environment more attractive for foreign investors,” said Hamad Buamim, director general of the Dubai Chamber of Commerce and Industry.

Solidere and BLOM listed on S&P Arab Index

Standard & Poor’s Indices partnered with the Arab Federation of Exchanges (AFE) to launch the S&P AFE 40, designed to measure the performance of leading companies from the pan-Arab region. The S&P AFE 40 is made up of the 40 largest stocks, measured by float-adjusted market capitalization, from Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Tunisia and the United Arab Emirates. Each stock must have at least $50 million in value traded over the last 12 months, there can be no more than 10 stocks per country and at least one stock from each country must be included. “We are building a benchmark now for funds to invest in the region when the economy improves and oil prices pick up,” said Fadi Khalaf, the secretary general of the AFE. For Lebanon, Solidere and BLOM Bank have been included in the index.

UAE and Qatar stuck at frontier market status

MSCI, Morgan Stanley’s influential index compiler, postponed for the third time their decision on whether to upgrade the United Arab Emirates and Qatar to emerging markets from frontier markets status, a disappointment for local investors expecting an increase in volumes traded on the back of the upgrade. Both countries will be reviewed again in June 2012. The MSCI Emerging Market index is used as a benchmark by fund managers and the markets of countries that are upgraded can benefit from billions of dollars in extra liquidity. With respect to the UAE, MSCI cited investor concern over the newly established Delivery versus Payment (DvP), a security settlement system. The DvP system was a key requirement by the MSCI for the countries to be considered for an upgrade. With respect to Qatar, MSCI cited concern over foreign ownership limit, which currently stands at 25 percent.

Lebanese companies growing fast

Twelve Lebanese companies were among Arabia 500’s fastest growing companies in the MENA region, Pakistan and Turkey. Semsom Restaurant, ranked 27th, is the fastest expanding Lebanese company, enjoying 218 percent growth between 2008 and 2010. Jordan leads the high-growth companies in the Levant, followed by Lebanon. The average growth for the 12 companies identified was 83 percent between 2008 and 2010, and the average number of employees stood at 89. The survey also identifies two start-ups to keep an eye on: ecoSolutions, a consulting firm specialized in developing solutions to build green buildings, and Cleartag, a web and graphic design firm. It also concludes that within the Levant region, Lebanon has the highest percentage of fastest-growing companies owned by women.

BDL’s $4 billion treasury buy

Banque du Liban (BDL), Lebanon’s central bank, bought more than $4 billion of treasury bills in the first three quarters of 2011 to keep interest rates at their current levels, according to BDL Governor Riad Salameh. Commercial banks favored the more liquid certificates of deposits over T-bills due to the political instability, according to the Association of Banks in Lebanon. This led the BDL to intervene, with its share of local public debt increasing from 27 percent as of the end of December 2010 to 32 percent as of the end of September 2011. Salameh recently highlighted that lending to the private sector by Lebanese commercial banks has exceeded their investments in treasury bills so far this year.

Banque Saudi Fransi exiting BEMO

Banque Saudi Fransi wants to sell its 10 percent stake in Banque BEMO, a Lebanese commercial bank, and its 27 percent stake in BEMO’s affiliate in Syria, Banque BEMO Saudi Fransi Syria. Its decision is based on concern regarding the increasing financial risks in Syria and follows sanctions imposed on the country by the Arab League. The directors representing Banque Saudi Fransi immediately submitted their resignation from the board of both BEMO Saudi Fransi Syria and BEMO Lebanon. “We received offers. But it is too early to make any commitment to anyone as long as the regulatory authorities in Lebanon and Syria do not approve selling these shares yet,” said Samih Saadeh, general manager of BEMO. Banque BEMO reported profits of $7 million for the first nine months of 2011, a 2 percent rise compared to the same period last year. Banque BEMO Saudi Fransi was launched in January 2004 and with 36 branches in Syria is considered one of the country’s leading banks.

UN to return Libya’s booty

The United Nations Security Council lifted its sanctions on assets of Libya’s central bank and its subsidiary, Libya Foreign Bank. The council in March froze Libya’s assets abroad, estimated at $150 billion, to put pressure on the government of Muammar Qadhafi. Once the sanctions had been lifted the United States unfroze more than $30 billion in Libyan government assets but not those held by Qadhafi’s family and members of his former government. The United Kingdom is also unfreezing more than $10 billion. By late November, only $18 billion, a fraction of the assets held abroad, had been released, with UN officials claiming only $3 billion reached Tripoli due to legal problems. The move by the UN Security Council was cited as being a move to assist the new government in rebuilding Libya after eight months of civil war.

0 comments
0 FacebookTwitterPinterestEmail
Editorial

The banks must be proactive

by Yasser Akkaoui
written by Yasser Akkaoui

Since the Israeli assault in the summer of 2006 we have known that the next war on Lebanon would likely be one of economics, not arms, and that the targets would not be bridges and bunkers, but the pillars upon which all commerce in the country depends — the banks.

In response to this new reality, how has the banking industry responded? Has the Association of Banks in Lebanon (ABL) formed a standing committee or task force to confront threats as they arise? Has the ABL made efforts to organize an effective lobby in Washington to push its interests at the heart of where, unquestionably, the greatest threat of sanctions lies? The answer to both is a resounding ‘No’.

At best, the banks have adapted ad hoc to circumstances that have arrived — case in point is the ABL’s last-minute deal to fund Lebanon’s $32 million obligation to the United Nations Special Tribunal investigating the assassination of former Prime Minister Rafiq Hariri, which allowed the country to dodge possible retaliation at the UN Security Council. The banks’ move had two other important consequences: it immerses them in the country’s political morass — which invariably comes with its own risks — while at the same time illuminating how crucial they are in preserving the country’s security.

Instead of their reactive tendency, however, is it not of immense importance to adopt a unified, pro-active approach in identifying the foreseeable dangers ahead of time and taking steps to mitigate the menace before it reaches crisis levels?

When the United States Department of the Treasury labeled Lebanese Canadian Bank (LCB) a money laundering threat earlier last year — effectively cutting LCB off from US dollar transactions in the international finance system and forcing its sale to Société Générale de Banque au Liban — fear coursed through Lebanon’s banking boardrooms about how exposed each institution was to being targeted next. Now 11 months on, it is far from clear that Lebanese banks have adopted any meaningful, collective strategy to build a firewall protecting them from the next disaster. And with Western countries tightening sanctions on Syria, Lebanon is falling ever more under the international magnifying glass for being a possible route for the regime in Damascus to circumvent the censure.

The banks failing to adopt a new approach would be an obscene negligence for which we would all end up paying.

0 comments
0 FacebookTwitterPinterestEmail
Economics & Policy

Make your own militia

by Sami Halabi
written by Sami Halabi

On the side of a busy street Abu Imad stands in front of his warehouse that appears much the same as any other. Inside, the air is humid and Abu Imad’s products are stacked in boxes from floor to ceiling. Just inside the entrance is a display area for customers who wish to view the goods on offer. But Abu Imad is not in the business of peas and carrots; he is one of the many arms dealers that have been making a killing off rising demand for weapons both inside Lebanon and next door. 

The smell of white chalk and sawdust from newly opened boxes full of M16s are telltale signs that the trade is booming, as is Abu Imad’s smile as he brags about his best selling items and Lebanon’s history of armed struggle. With a tinge of nostalgia in his voice he explains how collectors items and handguns, such as the Glock 17 and Sig “Swiss” P210, no longer drive demand. Now the market is dominated by M16s, AK47s, Zakharov machine guns (smaller versions of the AK47) and rocket-propelled grenade (RPG) launchers. 

Asked how and when prices began to rise, Abu Imad scratches his head and replies that between 2005 and 2008 prices were seen to have risen by some 100 to 150 percent on average, only to level out after the Doha accords. Back then he claims weapons were being bought by “the Salafis”, a terms he throws around liberally to describe anyone who opposes the Syrian regime. Then, with the onset of political tension in 2010 and the Syrian uprising last year, prices began to skyrocket on the back of an increase in demand and a cut in supply [see table]. Recently he says supply from Iraq has been disrupted, as has an intermittent supply from Jordan that actually came through Syria. 

If you’ve got the money

Most of Abu Imad’s weapons used to come from Iraq, as he claims many of the police and army were selling off their firearms in exchange for much-needed cash. But recently he claims there has been an inflow of older M16s into the market. He suspects these are coming from sources that had access to US-made weapons through America’s allies during the Lebanese Civil War — when the boxes are opened a plume of white dust emerges, a sign they have never been cracked before; the M16s themselves have a thinner barrel than the more recent models, an indication the weapons have been in storage for a while. If true, this would lend credibility to the rumor that the current arms supply is being fed by parties selling off stockpiles to take advantage of rising prices. 

One area where he is certain arms are being sold is the infamous village of Brital, just west of Lebanon’s ‘handle’ between Zahle and Baalbek. Brital has long been known as a hub for all types of organized crime: from guns, to drugs, to stolen cars. “Usually the Shia sell to Shia, the Sunni sell to Sunni, but those bastards in Brital sell to anyone, they just want money,” Abu Imad says, releasing a slew of Arabic curses aimed at various members of his competitors’ families. 

As for buyers, he says that most in the market these days are the Syrian “Salafis”, but adds that “there is one guy, who comes around and buys up everything from all the middle men.”  

According to Abu Imad, the most popular smuggling routes to Syria are through Akkar in the north, Arsal east of Baalbek and another area called Jurit Al Araseleh through Marsharia Al Qaa, which has become the most recent causeway for his precious and deadly cargo. 

Asked about the Lebanese authorities’ attempts to stem arms smuggling to Syria, Abu Imad almost falls off his chair laughing. After composing himself he agrees that there have been more efforts and a few more checkpoints on the border but, he says, it is usually the Syrians, and not the Lebanese authorities, who catch the smugglers. The Ministry of Interior did not respond to Executive’s request for comment. 

“They are useless,” Abu Imad says about the Lebanese security services because no matter what they do “it’s impossible to seal the border.”

0 comments
0 FacebookTwitterPinterestEmail
The Buzz

The idle hands of youth

by Gareth Smith
written by Gareth Smith

Nearly three years ago, Ayatollah Ali Khamenei, Iran’s rahbar (leader), announced a five-year plan for 2010-15 with a target of 8 percent annual economic growth. But while the International Monetary Fund projects growth of 2.5 percent in 2011 and 3.4 percent in 2012 — arguably reasonable given international sanctions — this is well below enough to produce jobs for all the young people at the center of political unrest following the disputed 2009 presidential election.

The Middle East is a region of young people. Overall, 60 percent of Arabs are under 25, and the median age of the Arab world is 22, compared with 28 worldwide, ranging from 31.6 in Qatar to 17.4 in Yemen. 

But while Iran has a median age of 27.1, fully 35 percent of its population is aged between 15 and 29, the world’s highest recorded ratio of a group keen to move into jobs and forward with careers. This demographic anomaly follows a baby boom in the early years following the 1979 revolution and during the 1980-1988 war with Iraq, followed by successful population control beginning around 1989. For some years, conservative political strategists in Tehran looked with hope at the ageing baby boomers. They felt they would become concerned with the economic issues of settling down with a family and abandon demands for social reform that was such a persistent problem for former President Mohammad Khatami. Djavad Salehi-Isfahani, professor of economics at Virginia Polytechnic Institute and State University, has studied Iran’s ‘youth bulge’ in depth and believes the conservatives should have been more careful in what they wished for.

“It is not clear the government is better prepared to deliver on jobs than it was on social freedoms,” he told Executive. “In fact, providing greater social freedoms is easy in a way because it requires doing less, whereas providing jobs requires doing more.” Salehi-Isfahani believes Iran’s population changes are readily visible. “A visitor to Iran in the 1980s would have easily noticed the prevalence of children,” he wrote in a recent paper. “After 1995 [as the baby-boomers aged] the proportion of youth began increasing… To a visitor today, youth instead of children would be the most noticeable in Iran’s streets.”

The demographics mean that between 1996 and 2006, Iran’s working population (15-64) grew by 3.9 percent annually, over twice the rate of overall population growth. “Although the economy enjoyed robust growth during this period, it was unable to keep up with the rapid inflow of new workers,” wrote Salehi-Isfahani. “The economy grew by about 5 percent per year and created 5.9 million new jobs… but the overall unemployment rate increased from 9.8 percent to 12.7 percent.”

It is an interface between economics and demographics, rather than a youth bulge in itself, that tends to fuel frustration and unrest. “Youth bulges in East Asia have produced high economic growth rather than protests,” Ragui Assaad, professor of planning and public affairs at the University of Minnesota, told Executive. “A youth bulge becomes a problem only in combination with other factors, in particular economic policies that discriminate against youth and result in them not being able to find jobs.”

In Iran, improved education opportunities after the 1979 revolution hardly helped. Rather than serving as a route to well-paid jobs, education helped produce an imbalance between the supply of graduates and the demand for graduate-level skills.

Setting aside oil money

With a large state sector funded by oil income, the country has failed to develop vibrant companies in the private sector. The 2010-15 five-year plan envisaged “eliminating the government’s dependence on oil and gas revenue for current expenditure” by 2015, but last year income from oil exports at $73 billion equaled half of government revenues, according to the United States Department of Energy.

The five-year plan also envisaged ring-fencing 20 percent of oil income. While successive governments have pledged to ring-fence oil revenues for soft loans to the private sector, in practice the monies have proved too tempting a treasure chest for governments and parliament to fund pet projects or meet budget shortfalls. Under President Mahmoud Ahmadinejad, the government has become more opaque. Tighter sanctions and talk of American and Israeli infiltrators have led officials to treat figures for two ring-fenced funds as a security secret. The first fund, the Hesabe Zakhireye Arzi, the Foreign Exchange Reserve Fund (FERF, but known also as the Oil Stabilisation Fund), was established under President Khatami. A second fund, the Sandoghe Tose’e Melli (National Development Fund, NDF) was established in 2010, and as so often in Iran, there is factional fighting over its control.

“There is ambiguity about the future of FERF, since its balance is supposed to be turned to the new Sandoghe Tose’e Melli (NDF),” a leading Iranian business journalist told Executive. “Plus, it’s caught up in politics. The NDF was originally designed by [Akbar] Rafsanjani [the former president and critic of Ahmadinejad] and his friends to parallel FERF, away from the control of the president. But who knows? Perhaps Ahmadinejad will control the NDF as well.”

Government critics have alleged that not all ring-fenced money has gone into either fund. At the time the current budget was introduced (for the Iranian year ending March 2012) Jafar Qaderi, deputy chairman of parliament’s planning and budget committee, claimed $11.7 billion was unaccounted for. 

Entering ‘wait-hood’

Lack of investment in productive sectors, and the retention of government jobs by older workers, restricts opportunities for labor-market entrants. In human terms, the result is what academics call ‘wait-hood’, or, in other words, people forced to live at home with their parents.

“One in five youth in their late 20s is unemployed and one in two is unmarried and lives with his or her parents,” wrote Salehi-Isfahani. “After spending their school years in gruelling preparation for various national exams, they are told they must wait several more years before they can take full advantage of the opportunities that their nation offers its adult citizens and to be able to actively participate in running their country.”

The good news for Iran’s authorities is that the ‘youth bulge’ — unlike in many Arab countries — will gradually become a bulge of the middle-aged. By 2020, Iran’s youth ratio will fall to under 25 percent, a level found in economically advanced countries. Even by 2015, the 20 to 24 age group will have shrunk by 75 percent, to 5.2 million.

Even so, the lasting effects of ‘wait-hood’ are unknown. In his paper Salehi-Isfahani wondered how Iranian youth are to be prepared to take over their society without training: “As they wait to climb into the driver’s seat, are they gaining the necessary experience for the tasks that lie ahead, or are they instead slowly losing not only their skills but also their hope and optimism?”

One answer is to increase productive investment, but Salehi-Isfahani is skeptical. “This depends partly on how sanctions develop, as any tightening makes it difficult to see how investment can take off,” he said. But he suggests it also depended on how Iran’s domestic political struggles play out, especially with a presidential election due in 2013. “If the election is not credible and someone like Ali Larijani [a close ally of Ayatollah Khamenei] is elected [or] selected, then chances are not good for the private sector.”

Improvement, Salehi-Isfahani suggested, requires a better international situation and a more adaptable president, like Tehran mayor Mohammad-Bagher Ghalibaf: “The good scenario would be if sanctions level off or are lessened, and someone like Ghalibaf is elected president in an atmosphere of national reconciliation.”

0 comments
0 FacebookTwitterPinterestEmail
Consumer Society

Marvels, made to measure

by Executive Editors
written by Executive Editors

Expensive tastes are exclusive ones — why spend thousands on an identikit interior when your home can be one-of-a-kind? But beyond the diamond-encrusted couches and Arabic-embroidered rugs hand-woven to order by Nepalese craftsmen, the trend for tailor-made interiors opens up exciting possibilities in design and enterprise. Executive takes a tour of some of Beirut’s creative companies in the business of fulfilling dreams clients didn’t even know they had.

“I don’t like the word creativity,” says architect and designer Karim Bekdache, sounding at odds with the sun-filled furniture showroom behind him, crammed with mesmerizing concoctions in wood, glass and steel. “I think [design] should answer a real need, and then it can be completely wild and you can call it creative, or it can be completely invisible — but for me, creating something completely invisible or completely wild is the same.” Trained in France and working mostly in Lebanon and Europe, Bekdache does not worry about imposing a particular architectural signature on a project. Being at the top of your game as an architect or designer isn’t just about the ‘wow’ factor. As luxury consumers globally are cutting back on flash statements in favor of projects with personal meaning, Bekdache seeks a sort of synthesis where clients, if the process goes well, feel that they are the ones who defined the work.

Bekdache gives the example of a project in Gemmayze whose owner was making the move from the mountains to Beirut. Based on this background, Bekdache commissioned the famous French botanist Patrick Blanc to create a vertical interior ‘green wall’ inside the property, a self-sustaining structure made entirely of plants and mosses. “It’s about installing something in the house that gives meaning,” he explains. Then, “there’s an inside relation between the client and the house.” Horrified by the spectacle of so many design catalogues of endless, stultifying choices, Bekdache has learned to bypass the books and magazines predicting the latest trend. “This is the meaning of modern for me,” he concludes. “Not to imitate, but to keep on going, further than you did the last time.”

Let there be light

When it comes to local companies who can realize unconventional visions, Bekdache has high praise for lighting design and manufacture firm .PSLAB. He describes their approach as “very very courageous and daring. It’s incredible… they throw away all the catalogues of all the possible spotlights in the world, and then you come to them and say ‘I need a light for this space,’ and sometimes they really get beyond this stuff and start telling you how the architecture should be.” .PSLAB, unlike any other lighting company in the region, design and manufacture all their products in-house, giving them total control of their exclusive ‘haute couture’ approach. For them, the specifics of a given space define the lighting, rather than the lighting imposing a mood on the space. Their contemporary, industrial chic products are crafted by teams of in-house artisans and never re-used on the same market; an approach that has won them devotees as far apart as Parisian design darling India Mahdavi and Beiruti architectural rock star Bernard Khoury.

.PSLAB compare themselves to a five-star hotel, where the customer’s needs define their experiences and where each experience can be completely different. This synthesis of forward-thinking design, controlled production and sophisticated client relations is a complete service that puts .PSLAB ahead, not just of other lighting companies, but also of many other ‘bespoke’ design services. 

High-class problems

High-end, high budget projects will often involve an unusual attention to structure and detailing. Architects like Bekdache might lower a ceiling or find a way around an awkward hallway, which ultimately will increase the value of a property that has been sculpted into its best possible form. But there are some challenges that need the expertise of master designers and craftsmen — a niche demand that Karim Chaya and his partner Raed Abillama stumbled upon in 1997 when they began the projects that led to their company Acid, specializing in architectural detailing. Chaya, who jokes that the team are “detail nerds,” explains: “We started becoming known as the ‘mission impossible’ company — whenever there was something difficult, strange, unresolved, out of a dream, they would come to us, a company that will take the headache out of [it].” From staircases, to lifts, to made-to-order wall cladding (such as in the new Downtown café, Grid, that glows pink and gold from sets of copper mesh screens imported from Turkey), Acid have built their reputation on “quality and sensibility above all,” an uncompromising stance that brooks no opposition over the amount of time it takes to do a thing properly — principles that have landed them commercial projects like Lanvin and Joseph boutiques worldwide.

The artisanal skills that Acid often relies on originate in the “back alleys in Bourj Hammoud,” of which Chaya says “the most valuable thing that I have acquired since we started is that network. Good people we can work with and who have the same ideas.” Far from throwing out the skills of generations of craftsmen, Acid is one of the companies keeping them in business, playing an intermediary role between the metal smiths, carpenters and leather workers and the off-the-wall requirements of high-end clients.

“What I got from my father as a heritage… we changed completely. Instead of accumulating more stock from all over the world, we did the contrary”

The business of bespoke

A more classical approach to customized interiors offers clients the opportunity to have total control of the design of luxury items — a methodology that is revolutionizing some local businesses. Opened a year ago in Ashrafieh, the United Kingdom’s Rug Company has developed a bespoke service that complements its already elite range of rug designs created by the likes of Vivienne Westwood and Alexander McQueen. Existing designs can be adapted in myriad ways, while the customer controls the colors and the silk content of the weaves, which range from around $500 to $3500 per square meter. But the premium service sees clients designing their own patterns, such as their name in Arabic calligraphy, which are then tried and tested on screen before being sent to Nepal, where teams of expert weavers take up to a year to produce the finished product.

Serge Nalbandian of Nalbandian Textiles offers similar services, having personalized rugs for Elie Saab and had his Tibetan weavers produce a pop art Superman number. He has also redesigned his family business around customization, with the company abandoning its history of trading antique Persian carpets and preferring to give clients what they want — pieces for the home that are about immediate pleasure, without re-saleable value.

“What I got from my father as a heritage… we changed completely,” he says. “Instead of accumulating more stock from all over the world, we did the contrary. What the customer needs, we can provide him with.” The new year will see a giant state-of-the-art screen installed at Nalbandian for the sole purpose of giving clients a multimedia customization experience. “There is no longer a way of investing in your decoration as an heirloom,” says Nalbandian. “It fits in your house, you live with it for the time that you’re enjoying it and this is it.”

Extreme dreams

Enjoying the moment can take many forms. “I’ll be the executor of your dreams,” smiles Vick Vanlian — and he should know, being responsible for creations including a diamond-strewn sofa. Like Serge Nalbandian, he developed his family business, Galerie Vanlian, in response to customer demand for the high-end customized items that now make up 50 percent of his business. This led to Envy, his three-floor Downtown boutique — a mind-boggling collection where there isn’t one object that doesn’t glitter or gleam or clamor for attention. Vanlian is aware of his celebrity cachet as a successful and distinctive young designer; a further gloss on custom projects, which always bear his characteristic signature.

As such, Vanlian excels at realizing flamboyant visions, from a ‘famous singer’ who requested a room designed around 150 pictures of herself, to a Saudi prince’s pleasure chamber. Working through an intermediary, Vanlian received instructions for it. “[The client] called it the massage room, but it was the sex room… it had a round bed in the middle with four stages on each corner, with dancing poles and big screens and in the middle a big cage that could come up and down… nicely put together for a porn movie, basically.” There will always be mileage — and a lot of fun — in being known for making any dream come true.

“It’s not easy because when you have custom-made designs you have to create all the time”

Made in Lebanon

None of these dreams come cheap, of course. Maria Halios started her own furniture gallery in Mar Mikhael last year, producing limited edition and bespoke pieces, after demand for customization necessitated her own working space. She points to a pair of hoop-like metal sculptures with finely textured surfaces. “Imagine that I have to do them a centimeter smaller,” she says. “Molds are required. Each mold costs a fortune and because you cannot have the same dimensions in another house, you basically throw the mold in the garbage. So you invest in a mold that is supposed to produce a hundred pieces, just for one piece — the cost is huge.” The cost of a dining table can jump from $5,000 to $15,000 if you want to be sure no one else has it.

Yet these are the prices you have to pay to keep ahead of the neighbors — a popular pastime in a high society as small as Lebanon’s. But Lebanon is also an exciting hub of creative talent with a distinct price advantage over Europe. Halios, like most of the companies mentioned here, works with clients overseas who are happy to undercut designers offering similar services in more developed markets.

Yet aside from the business of pursuing the most exclusive clients around, a genuine commitment to originality at all costs is at the heart of these projects. Halios fingers an origami-like paper maquette, the first stage in creating an intricate table of angular interlocking pieces. “I never imagined the beauty that could come from a mock-up like this,” she says. “It’s not easy because when you have custom-made designs you have to create all the time. It’s not like you create two collections a year and then you forget about it.”

Far from a cynical exploitation of the fantasies of the super-rich, these companies are challenging themselves, and the industry as a whole, to keep evolving the practice of made to measure design.

0 comments
0 FacebookTwitterPinterestEmail
Economics & Policy

Avoiding collateral damage

by Sami Halabi
written by Sami Halabi

A friend in need is a friend indeed, or so the saying goes, but when sticking up for your confidante means you find yourself in a heap of trouble, companionship can be more of a liability than an asset. The accord between Lebanon and Syria, as with any old couple, has seen its ups and downs, yet no matter how precarious the politics ever were, the economic bond between the two has kept the Levantine neighbors’ fates intertwined, especially when it comes to banking. 

“It has always been the case because there was no private banking sector in Syria and they are still at an early phase in terms of techniques,” said Elie Yachoui, dean of the School of Business Administration and Economics at Lebanon’s Notre Dame University. “The Syrians have always done their transactions in Lebanon and gone back to Syria. It’s nothing new.” 

What is new, however, are the widening sanctions being imposed on Syria by those near and far, as its economy and foreign currency reserves continue to buckle under international pressure. The United States, the European Union and Turkey have all recently imposed new sanctions on the Syrian government, its central bank and prominent members of the business community [see table]. The Arab League initially mirrored the moves in November after an initiative to impose similar sanctions, including asset freezes and travel bans, was leaked to the press. In theory, these sanctions were seen to be the most effective against the regime as most trade with Syria goes to its neighbors: close to 60 percent of its exports are to Arab countries. But the league’s sanctions were more or less declared dead on delivery. 

“They said they were going to freeze the Syrian government accounts but they allowed the Syrian government to pull 75 percent of the accounts before the decision was made,” said Yachoui. “They say they want to sanction the Syrian central bank but then allow Syrian expatriates to send foreign currencies back to Syria. So from one side you sanction and from another you nourish.” 

Ibrahim Saif, specialist on the political economy of the Middle East at the Carnegie Middle East Center think tank, agrees that the sanctions will have limited effect, “For the simple reason that those countries that seem to be very adamant about imposing the sanctions are not the countries that can effectively do it.”

As Executive went to press the Arab League was wavering and the list of sanctions was removed from the league’s website in December. Arab League Secretary General Nabil al-Arabi even released a statement last month denying that a ban on air travel would be implemented, given that discussions were ongoing between the league and the Syrian regime. 

“Many countries will not be applying [Arab League sanctions] and even [regarding] the countries that want to apply them, we don’t really know if they have the know-how and logistics to implement those measures,” said Jihad Yazigi, editor-in-chief of The Syria Report. “So in this sense they are not extremely meaningful.”

The ones that bite

The sanctions that are proving consequential are those coming from the West that pressure Syrian access to foreign currency, such as a ban on Syrian oil exports to Europe. Already the Syrian pound has lost some 25 percent of its value since March and an emergency reserve fund used by the Syrian central bank to prop up the currency is dwindling. With gross domestic product estimates for 2011 forecast (depending on who you ask) to fall by some 20 percent and the Syrian fiscal deficit continuing to climb on the back of an increase in subsidies and civil servant pay, the situation has produced an economic exodus according to Yazigi. “Everyone’s plan now is not to do anything. For everyone, business is dead here, they are just managing. Those who can are leaving,” he said. 

As the economic migration takes place, Lebanon is finding itself under increasing international pressure to abide by Western sanctions. A visit by US Treasury Assistant Secretary for Terrorism Financing Daniel Glaser in November set off a renewed wave of fears in the banking sector, especially after “concern” over the dealings of Lebanese Canadian Bank (LCB) threw the sector into crisis mode earlier in the year. 

While the case of LCB and Syrian sanctions are not directly related, the fear that further action could be taken by the US over assistance to the Syrian regime is ever-present, even though “US sanctions do not directly obligate Lebanese financial institutions,” according to a US Treasury department official who spoke to Executive. 

“Lebanese financial institutions may be choosing to perform their own enhanced due diligence on transactions associated with Syria due to the heightened risk associated with that jurisdiction,” the official said. 

True or not, reports of sanctioned individuals attempting to use Lebanon as an outlet abound, and a battle  has kicked off between those seeking to dodge the sanctions and financial institutions looking to protect themselves, the sector and by extension, the country’s economy.

“Now we are afraid of another LCB issue,” said Paul Morcos, founder of the Justicia law firm that provides legal consulting for the banking sector. “They need a new scapegoat so that the new procedures they are asking for can be implemented. Since our banks have accounts with correspondent banks in the US, they should be afraid.”

Avoiding lists

Sanctions are based on what those in the business of complying with them call ‘the lists’. The most infamous of all is the US’s Office of Foreign Assets Control (OFAC) list. Companies placed on this list, or those who have dealings with persons on them, are effectively banned from dealing in US dollars and any banks that carry out transactions for such a person could potentially be sanctioned themselves. Banks have relationships with other intermediary American banks to deal in US dollars, which would act as the initial trigger for any US-imposed sanctioning of transactions. “The banks have to do their due diligence and not have accounts with people who are on the lists, because they have relations with US banks,” said the manager of a compliance unit at one of Lebanon’s major banks, speaking on condition of anonymity. 

Of course, anyone on a list would likely not be naïve enough to think they could waltz into a Lebanese bank and open an account. But using an intermediary, or setting up a Lebanese company that then would work with the Syrian government, could be ways around this, given that, in theory at least, “the sanctions are on Syria and not Syrians,” according to the compliance manager. 

“Banks don’t hold any accounts for people listed on the OFAC lists or other lists,” said Morcos. But those who deal with or front for sanctioned individuals is another issue: “We don’t know if we have [sanctioned accounts] or not,” Morcos added. 

Camille Barkho, manager of Amerab Business Solutions, a firm that provides products to help financial institutions protect themselves against US money laundering and terrorist financing regulations, confirmed that some banks are simply saying “no” to Syrian traders. “But it’s institution by institution and it also depends on the sect the bank belongs to. For one sect it’s okay and for another it’s not.” 

He stressed that in principle the OFAC list targets money laundering, terrorist financing and other financial crimes and not sanctions, which come under a wider US legal principle called a country ruling. Even so, banks still use the lists as the basis for compliance. 

Lebanon’s legal texts do not actually cover sanctions per se, given that banking secrecy can only be lifted on accounts under Law 318, which, like the OFAC list, covers financial crime and not sanctions. Under that law, the Special Investigations Committee at Lebanon’s central bank can remove secrecy and look into the account after the banks raise the alert. Even then, very few of these cases actually make it to court. “You have rare cases in the courts, very rare cases. Most of them are not tried for specific reasons, like the case does not apply under Law 318,” said Morcos. Indeed, according to the compliance manager, “The central bank has nothing to do with this — it is up to each individual bank to do its due diligence.” 

Given the uncertainty, many banks are taking measures that go beyond the text of the law by refusing to bank with those on the OFAC list as well as their relatives, close friends, business associates and so on, according to Morcos. And, according to Yazigi, many Syrians can no longer open up accounts in Lebanon and find it very difficult to conduct financial transactions even if they do not have ties with the regime. “I would not open a [Syrian national’s] account. I would advise other banks not to give themselves a headache and just not take the account,” he said. 

In theory, holding the accounts of sanctioned individuals should not pose a problem for the banks, as long as they do not move money through them, especially in US dollars. And of course there are ways around that as well. “If I am a Syrian and I’m sanctioned and I have money, I can easily get four people to set up a company and trade with China and do it all with cash,” said Barkho. “When you trade with lots of cash the banks start asking, but all you have to do is convince them that you are generating daily sales. The main point is that it is not money laundering because it’s not covered by Law 318.” 

Last month Executive called 12 Lebanese banks, both large and small, asking how they were dealing with accounts held by Syrian nationals. None of the banks responded.

Many ways to still move money

Those seeking to dodge the sanctions are likely to employ the same methods that money launderers do, given that these techniques have proven useful in the past. In essence, what those seeking to skirt sanctions will do is find ways to generate cash and obfuscate the origin of funds and to whom transfers are going. It’s up to the banks to monitor and report suspicious transactions.  

What launderers generally do is generate the illusion of as many cash sales as possible to justify their cash deposits. Supermarkets are a good way to do this, given the number of retail operations that take place in a single day. “What you can do is go to the supermarket and stand at the cash register and count the cash. But who is going to do that?” Barkho asked rhetorically. The only legal entity theoretically authorized to do so is the financial general prosecutor’s office, but the fact that the government currently has $11 billion unaccounted for on its books does little to inspire confidence that it will be able to keep pace with the launderers.  

Another tool used by launderers are pre-paid cards offered by banks where one can deposit cash on a card and then use it to withdraw money internationally, with some banks offering ‘buy-one-get-one-free’ packages. “Pre-paid cards are not customers, you don’t know them,” said Barkho. “Basically the banks are creating a tool for money laundering.” 

Executive, posing as a potential customer, enquired at one of Lebanon’s top banks about the buy-one-get-one-free offer and was told that it was indeed available. The bank said the second cardholder did not have to come to the bank or sign any paperwork and could give the card to someone else whenever they wanted. The card itself carried a daily limit of $5,000 and could be used internationally, said the sales rep. 

Covert conversions 

Since the LCB scandal, which allegedly involved a fair amount of currency conversion, the exchange sector has come under increased scrutiny from the central bank. 

Given that the Syrian pound has lost around 25 percent of its value since the uprising began, there is considerable pressure on Syrians to change their money into another currency or place it in a fixed asset. So far the Central Bank of Syria has taken several measures to limit this conversion, including closing dozens of exchange houses in Damascus, increasing the interest rates on deposits in Syria from 7 to 9 percent, reducing the amount foreign currency banks and Syrian exchange houses can give out to local residents from $10,000 to $5,000, as well as further limits on how much foreign currency can be taken abroad, especially in Arab countries. 

“It’s about the time when the foreign currency issue they are having and their injections into the market will not be adequate to protect the Syrian pound,” said the Carnegie’s Saif. “Already there is a black market for the Syrian lira. The more you witness of this the less likely you will see the resistance of the Syrian economy.” According to Yazigi, the Syrian pound was trading at roughly 60 pounds to the US dollar on the black market in mid-December. The official rate at the start of the uprising was around 47 pounds to the dollar. 

Lebanese exchange houses are regulated by Law 347, enacted in 2001, which declares that if they issue checks for more than $10,000 they must notify their affiliate bank, give the identity of the beneficiary and the purpose for issuing the check. Otherwise they legally have free reign and this simultaneously places pressure on and creates opportunities for, the Lebanese exchange market. Even so, most people believe that this avenue has been closing in recent months. 

“No one should think that millions of dollars a day are being exchanged at the exchange companies but there is nothing stopping someone with small amounts to exchange,” said Yachoui. “Today the borders are open. If someone brings in banknotes, especially dollars, in a suitcase and this comes into the market, there is no way to find out where it came from.”

Indeed what many Syrians are looking to do is change their money into fixed assets that hold value. “You either keep your money and pray that it is not going to deteriorate further, or if you have more money you buy real estate or invest in something,” said Yazigi. With the banking sector effectively closed off, and discounts on real estate purchases aplenty at a time when the market is cooling, this has become an increasingly viable option to place money.  

“If you are known to be a real estate promoter and I bring you $700,000 in cash and buy an apartment from you, you go and put it in the bank, they ask you where it came from, you tell them you made a sale, the bank is not going to ask more than this,” said Yachoui. “He’s not going to ask you who your customer is when you have hundreds of them.” 

Indeed, the compliance officer agreed: “Every bank is responsible for their accounts but we don’t have a crystal ball to see other accounts. It’s not your business to ask the nationality or the source of money of the other [third] party. The client is responsible. We flag it if there is much more cash than a real estate transaction would normally be.” 

Trouble down the road

As the Syrian currency and economy continue to take a beating and the uprising takes on new dimensions, Lebanese financial institutions seem to have chosen which side of the divide they stand on. In mid-December the Association of Banks in Lebanon announced that its members would fund the government’s contribution to the Special Tribunal for Lebanon, something that Syria’s main ally and the accused party in the investigation, Hezbollah, has stated should not have happened. 

“At every moment, every instant and every second they [Americans] can do what they want with us. If there is a decision to do something to us, they do it. But right now there is no decision,” said Yachoui. “No matter what precautions the banks take, don’t think for one second that all the records are clean. They can always find a million reasons to take action, but for now there is no decision to do so. The target is not Lebanon, it’s Syria.” 

 

Reporting contributed by Youssef Zbib

 
0 comments
0 FacebookTwitterPinterestEmail
Finance

Executive Insight -Nada Safa

by Nada Safa
written by Nada Safa

In times of deep uncertainty, we are often overwhelmed with information and use mental shortcuts to arrive at snap decisions and judgements. Sometimes, such assumptions work, but this approach can also lead to biases, errors and confusion, especially when it comes to investment decisions.

A year of indecision

Under ordinary circumstances, the world has time to catch its breath between major news events. The sheer speed at which history happened during 2011, though, created deep market uncertainty, from Japan’s earthquake cum tsunami to a tragic nuclear disaster, from war in Libya to escalating political turmoil across the Middle East and North Africa, from limited concern over weaker Eurozone members to widespread fears of single currency break-up.

Not since the Second World War have investors had to navigate such a barrage of events. Many fell into a trap that rendered their rational capacities useless, with financial markets driven instead by fear, short-termism, stop-losses and political instability. By the third quarter, many had resorted to cash, waiting for a meaningful United States recovery, for eurozone “leadership”, for signs of Middle Eastern entente. We might as well have been “Waiting for Godot”.

The year started relatively well, as markets continued to benefit from the 2010 year-end rally. Investors were looking forward to strong growth in the US and continued buoyancy from the emerging markets. By spring, though, reality was breaking through. America’s recovery was paltry and Western Europe’s largely unforeseen sovereign debt crisis was coming into view. Rapid Asian growth was also stoking inflation.

The response to all three problems was fiscal constraint, which stoked fears of recession in the Western world and culminated in a rather vicious August sell-off, with global markets giving up their year-to-date gains in a single, wicked week. By the end of 2011, investor sentiment had yet to recover with global markets still locked in a deep malaise. As a new year dawns, opinion is divided between adherents of “risk-on” and “risk-off”, with neither side completely convinced, but the more cautious definitely holding sway.

A Japanese tragedy

In December 2010, Goldman Sachs placed Japanese equities in their list of “favorite” 2011 investments with a 12,000 target for the Nikkei, based on a strong macro backdrop. As the world’s third-largest economy was struck by an earthquake and tsunami in March, killing thousands, Asian markets dropped severely and continued their descent amidst ever-worsening news, not least the Fukushima nuclear disaster. Alongside the ghastly human impact, the shutdown of car plants and oil refineries imposed vast economic costs, as global supply chains seized. The Japanese government suggests the bill could ultimately reach an astonishing $320 billion.

Black gold

Despite a sluggish global economy, world oil demand reached 89.3 million barrels per day in 2011, according to the International Energy Agency. That’s an all-time high, up from 84.1 million in 2009 and 76.4 million in 2000. This growth was driven by spiraling Asian consumption. China consumed almost 15 percent more oil in 2011 than in 2010. As the emerging markets continue to grow, and their massive populations adopt more energy-intensive lifestyles, the IEA foresees global crude use of 93.4 million barrels a day by 2015.

In 2011, the price per barrel of Brent crude reached $110, up from an average of $79 in 2010. This was driven by relentless Asian demand and from MENA-based supply concerns fuelled by the Arab uprisings. Libya is still pumping nowhere near the 1.7 million barrels it supplied daily to world markets in 2010.

US deficit

The tortuous negotiations between Congress and the White House over raising the US debt ceiling made the markets take notice of America’s $14 trillion of public debt. The Federal Reserve made the unprecedented announcement that base interest rates would be nailed to the floor until 2013. As the end of 2011 came into view, global markets finally accepted that the US could be in for a much longer period of weaker growth than previously expected. 

With a budget deficit standing at 10 percent of gross domestic product, America’s fiscal situation is dire. The Congressional “super committee” seems unable to fulfill its remit of finding $1.2 trillion of spending cuts and new revenues by January 2013. As Uncle Sam’s debt continues to spiral, heading for $18 trillion by 2016, even the seemingly impossible spending cuts may not be enough. For now, as the euro suffers, the dollar looks strong. But America’s fiscal woes will inevitably come back to hurt the markets. 

The Eurozone debacle

Throughout much of 2011, the European Central Bank (ECB) took a relatively aggressive interest rate stance, as Germany’s inflation aversion prevailed and higher borrowing costs exacerbated the creeping austerity across the Eurozone. While Greece took center-stage, the other PIIGS (Portugal, Italy, Ireland, Greece and Spain) also began to squeal due to their high-debt burdens and spiralling sovereign bond yields. Several member states are effectively insolvent, which suggest default and debt rescheduling is inevitable, something policymakers seem determined not to accept.

As 2011 comes to an end, the PIIGS government yields are reaching new euro-era highs. A previously unthinkable default is threatening the ECB due to the refusal of member states to sufficiently raise the bailout to stop the contagion. The infection of Europe’s “core” (France, Austria, the Netherlands and even Germany) is now a fact, and could spell systemic disaster for the Eurozone.

Golden horizons

Gold maintained a broadly upward trend and crossed the $1,900 level before reversing course. The strength of the gold price has been supported by soaring gold coin sales, America’s debt ceiling debacle and Eurozone worries, together with almost unprecedented gold stockpiling by central banks. The trend has been marked by bumps stemming from margin calls, liquidity constraints, hedge fund liquidation, profit taking and investors’ capitulation.

Popular pennies

Angst about US and European economies led the Swiss franc and the yen to benefit from “safe haven” flows. Strong currencies often are not welcome though. Switzerland’s central bank pegged the Swiss franc at 1.20 to the euro to boost its local economy. The Bank of Japan remains undecided with regards to the yen, leaving it at relatively strong levels.

Persistent pains

As 2011 comes to an end, Europe is in the midst of many changes. Mario Dragi, an Italian banker, replaced Jean Claude Trichet as ECB governor. In Greece, former ECB Vice President Lucas Papademos replaced Georges Papandreou as prime minister; in Italy, having failed to charm parliament due to fiscal problems and a long history of sex scandals, Silvio Berlusconi resigned as prime minister, leaving Mario Monti, an economist, to shoulder Italy’s burden. During the “make or break” Brussels summit in December, Europe’s leaders threw the kitchen sink at the Eurozone conundrum, unveiling a new European Stability Mechanism and promising fiscal union. Yet again, the bond markets remained unimpressed, with many still pricing-in a ‘Eurozone break-up’.

With presidential elections in the US and France in 2012, challenges remain to be tackled whether with new blood or new reforms, but investor sentiment looks set to remain unchanged, with rattled nerves playing havoc with both investor psychology and asset prices.

 

NADA SAFA is a private banker

0 comments
0 FacebookTwitterPinterestEmail
Finance

Lebanese capital markets

by Maya Sioufi
written by Maya Sioufi

The payment of Lebanon’s $32.6 million share of the annual funding for the Special Tribunal for Lebanon boosted activity on the Beirut Stock Exchange (BSE) in the latter part of November. The BLOM Stock Index (BSI) climbed by more than 4% during the period to 1,224 points, before retreating to 1,189 points by the end of the fourth week (December 12-16). Hence, the BSI advanced 1.2% from its previous close on November 18, with total losses in 2011 at 19.39%. The daily average volume per month rose more than seven-fold to 513,173 shares, up from 69,186 shares in the preceding four-week period, due largely to 6.8 million shares in Byblos’s common stock being traded on 16  December.

On the regional front, the BSI managed to outperform both the MSCI Emerging Market Index and the S&P Pan Arab Composite LargeMid Cap index. The former fell between November 18 and December 16 by 6.5% to 897 points, reflecting fears over the European debt crisis and signs of economic slowdown in China and South Korea. The S&P index followed suit, retreating 1% to 106 points.

Most banking stocks ended the four week-period in the red, affected by Moody’s Investors Service Outlook‘s downgrade for local banks to ‘negative’ from ‘stable.’ In fact, BLOM’s global depositary receipts lost 2.5% and BEMO common stock retreated by 4.9% to $7.70 and $2.35 respectively. Bank of Beirut stocks followed suit as its common stock declined by 1.3% to $19.20, while its preferred Class D lost 0.4% to $26. Bank Audi stocks also drew back, with its GDR losing 2.3% to $6.29. Its listed stock fell 2.2% to $5.85 and its preferred Class D decreased by 0.5% to $10.30. Byblos common stock was the sole gainer among banking stocks, rising 3% to settle at $1.65.

Solidere stocks A and B, which accounted for around 42% of total value traded, rallied during the first three weeks to hit $16, their highest level since mid-August 2011, before closing at $14.5 each on December 16 with a monthly increase of 6% and 7.5%, respectively.

Within the manufacturing sector, Holcim stock grew 1.5% to $16.15, whereas Ciment Blancs Nominal Class witnessed a single trade of 2,496 shares, lifting its price by 40% to $2.41, its highest level since inception. 

0 comments
0 FacebookTwitterPinterestEmail
The Buzz

Attack of the killer chickens

by Fernande van Tets
written by Fernande van Tets

Genetically engineered chickens have become killing machines, invading Dubai, Egypt, Lebanon and the rest of the Arab world. You can only stop them by shooting them and destroying their eggs. Luckily this dystopian nightmare is not coming to a street near you, but is the storyline behind Birdy Nam Nam, an Arabic mobile game which was downloaded more than 250,000 times within a week of its release in September, and ranked number one in the Arab world on the iTunes store.

This is just one example of Lebanese talent tapping into the profitable computer gaming market, which, with a projected annual global growth rate of 12 percent, makes it the largest growth sector of the media industry. Digital games can be played online (on PCs or game consoles) or on mobile devices such as smartphones and tablets. In revenue terms, such games earn $56 billion annually; at least three times as much as the global music industry, which saw revenue decline by 8.4 percent to $15.9 billion last year. In the United States gaming makes $22 billion, which is more than the music ($10.4 billion) and film industry ($9.5 billion) combined.

Despite many obstacles, in terms of knowledge as well as infrastructure, gaming in the Arab world shows huge potential. Demand for local products far outstrips supply; less than 1 percent of content is in Arabic, while over 60 percent of Arab users prefer content in their first language on the Internet, according to the Dubai Press Club’s Arab Media Outlook 2010. “If you do anything in Arabic now, it will work,” says Lebnan Nader, one of Birdy Nam Nam’s creators.

Gaming in the Arab world started in the 1990s, when international fighting games such as Counterstrike and Starcraft drew large crowds at cafes, where people would play on a Local Area Network (LAN) connection.

With the advent of the Internet, games moved online, but the social function of the café remained and the popularity of massive multiplayer online (MMO) games such as World of Warcraft grew. In 2005 Travian Games, a German company, entered the market with an Arabized version of its MMO game Travian. United Arab Emirates-based GamePower7 was the first regional company to try and tap into the market in 2007 by Arabizing the game Rappelz, while Jordanian Quirkat developed the region’s first original MMO game in 2008, with ‘Arabian Lords’ allowing players to be merchants in the time of the rise of Islam.

With mobile and Internet penetration exploding across the Middle East, local entrepreneurs are searching for ways to tap into the opportunity, with the videogame market in the Middle East and Africa set to grow to $3.2 billion by 2016, according to the research company Ovum. 

The largest markets are Saudi Arabia, Egypt and the UAE, while companies have been springing up across the region, especially in Jordan where the government has stimulated the sector’s growth through the Jordanian Gaming Task Force.

According to its chairman, Nour Khrais, online and mobile gaming revenues in the Arab world reached about $450 million in 2010, while the overall value of the gaming market in the Arab world, including investments and advertising, exceeds $1 billion. Jordanian companies develop 70 percent of the Arab world’s mobile and online games. In Lebanon, where there are just a handful of companies known to be producing games, with less than 20 released so far, the market is still immature.

Birdie makes a bang

Birdy Nam Nam (BNN), the Lebanon-based company that published the namesake game, credits its success to the use of the Arabic language, emulating international games that have entered the market through ‘Arabizing’ their blockbusters. Wixel Studios, Lebanon’s first gaming company that opened in 2007, scored its greatest success with its first game Douma, a fighting game based on Lebanese politics.

The game has been played online over 2 million times. The three-man company has released 13 titles, including games about a manouche bakery and the Egyptian elections. Falafel Games, a company started in 2010 by three Arab gaming veterans, uses Islam as the theme for their multiplayer online game ‘Knights of Glory’, which is set during the Islamic conquests of 632 to 636. All claim competition is virtually non-existent, with only a handful of regional competitors operating in their field.

Recognizing the opportunities, venture capital funds are starting to show an interest. “Gaming is a segment within technology which requires customization and local product development… The demand is there,” says Walid Mansour of Middle East Venture Partners (MEVP). The fund decided to invest in Falafel Games a few months ago, and is eager to enter the multiplayer online market, projected to be worth $400 million regionally by 2015 — a tenfold increase in five years.

Regional consumers tend to be big spenders; the average revenue per paid user in Saudi Arabia is $50, twice the global average. Most games developed in emerging markets rely on a free-to-play model that sells advertising and, in particular, virtual goods or one-time premium upgrades through micro-transactions. Within Knights of Glory, for example, extra defenses or more sophisticated weaponry can be purchased with virtual gold, which costs real money.

Although the lack of credit card owners in the region poses an obstacle, platforms such as OneCard, Cashu and Gate2Play are overcoming this issue by offering alternative ways of payment. In the West, a subscription model is popular, however this model is struggling in the Middle East as pirated versions of a game are readily available, though often lacking features.

Birdy Nam Nam, for example, was initially released for free, but sales on iTunes alone have garnered $20,000 in revenue, while its creators see the potential as much higher as they continue to monetize their product.

Mobile is the future

Console games still tend to come from big international manufacturers such as Sony and Nintendo, but browser and mobile gaming have opened up the market. The mobile platform shows the most potential regionally, especially with the advent of third generation (3G) Internet.

Of Arabic-speaking mobile Internet users, 85 percent have downloaded apps, with 27 percent downloading more than one per week, according to research published by Spot On Public Relations in January 2011. Of those apps, almost 20 percent are games, with women playing more than men, illustrating how gaming’s target audience has shifted over the past decade with the diversification of games on offer. Social Girl, which allows you to “go on the hottest dates and shop for the trendiest clothes”, is currently one of the most popular apps in Saudi Arabia. With women largely confined to their homes and veiled when in public, it is not hard to imagine why. Furthermore, many mobile games such as ‘Arabic Crossword’ appeal to both sexes.

BNN is looking to keep growing within mobile gaming. In addition to the benefits of a pre-existing end-user market and relatively easy payment methods through SMS, Nader sees two other factors playing a role. First, as the margin on voice calls drops, mobile operators are fighting for customers by offering extra services and unique content such as games. Second, corporate use of games for advertising — for example BMW offering potential customers a virtual test drive in their newest model car — will pick up. “With mobile marketing you can measure your impact; you know how many people are playing,” Nader says. Wixel Studios has already tapped into the advertising market through so-called ‘advergames’ for Kit Kat and Almaza. The latter was a football game that formed the centerpiece of the beer maker’s marketing strategy during the World Cup. Wixel aims to switch from browser-based games to the mobile platform next year.

Representatives for both Wixel and BNN said they aim to expand beyond the Middle East market over the next year, as less than 5 percent of all Internet users are Arabs. They wish to do this by offering unique content to a global audience. But, so far, the key to regional success is producing content that is recognizable to an Arab audience, in terms of landmarks, language or culture. Furthermore, people are immensely proud of locally developed games. “We got many emails saying how proud people were that BNN was created by Lebanese. Some were kind of disappointed to see that there was a French guy on the team,” smiles Jean-Christophe Hoelt, the French developer who wrote the code for BNN.

A lack of human resources?

The need for a French developer highlights one of the main obstacles to creating games in Lebanon; a lack of human resources. “I know that it is hard for people to find somebody, because they want me,” says Hoelt. There are plenty of graphic designers, but not many with sufficient experience to create a complex game. “High tech 3D animation or virtualisation, virtual realities, we cannot do this,” says Elie Boujaoude of Berytech Fund, the other Lebanese venture capital fund with a game company in its portfolio. “But if you stay below that [technological barrier] you can do very well.”

The lack of skilled employees to create a gaming industry is not just a Lebanese concern; the sentiment was echoed in a regional setting at the fourth Dubai World Game Expo conference last month. Falafel Games is based out of Hong Kong due to the availability of coders and artists with an extremely varied set of skills. “I tried Egypt, Jordan, Syria, I just couldn’t find the talent,” explains Vince Ghossoub, Falafel’s Lebanese founder. 

Some companies, such as BNN and Wixel, do believe in setting up shop in Lebanon. “Part of our message is to be here. We want to create a success story for Lebanon to convince youngsters that they have the potential to do it here,” says Ziad Feghali of Wixel Studios. Both companies and investors highlight the diversity and creativity of Lebanon’s workforce, which allows it to create games that will resonate with both Western and Middle Eastern audiences.

Feghali hopes to transcend the lack of technical knowledge through in-house training; all three of Wixel’s founders have teaching experience. Birdy Nam Nam also feels that guidance can overcome lack of technical knowledge and is in the process of hiring several Lebanese developers. Ubisoft, one of the world’s largest game developers, just opened offices in the UAE, citing an abundance of raw talent. Notre Dame University in Beirut now runs a game design course, though it is a far cry from a full-fledged degree.

It is the only course in Lebanon since Digipen closed its institute and offices at Holy Spirit University of Kaslik following the 2006 war. All three of Wixel’s founders are graduates. Since then, most of Lebanon’s few game developers learn their skills independently through online tutorials and experimentation.

Stimulating local talent is especially important as developing a game is a continuous process, lasting well beyond the launch date. “Outsourcing everything is not a solution… because you need to respond to customer feedback,” explains MEVP’s Mansour.

“A good game can be played for years,” says Tarek Chehab, formerly on the Lebanese team for the game Counter-Strike. But building such a game, and a corresponding industry, takes time and requires mature investors. “We have the talent, have what it takes, all we need is investment,” says Nader. Such investment would be used to fund the development of  new games as well as their marketing. Companies are wary of sharing specifics, but Nader estimates that a team of six people could work for a year and half with a $300,000 to $400,000 investment, with return on investment  in a maximum of two years.

Normally, for MEVP to enter a deal, the fund expects a 30 percent yearly return on any investment (which vary between $200,000 to $1.5 million), while Berytech aspires to obtain a four to five times value multiplication over five to six years on its investments of up to $1 million.

“Venture capital firms are looking at the MENA region,” says Nader. “In the near future, this region will be a really good place.”

0 comments
0 FacebookTwitterPinterestEmail