Executive Magazine

Markets review

by Executive Editors December 25, 2011

written by Executive Editors

Beirut SE

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 728.99 points Period change: -25.01%

One has to wonder what is worse for the economically-minded living in the country once hailed as the Switzerland of the Middle East — the muddled perspective on economic and fiscal policies by the national government, the slide of equity values on the Beirut Stock Exchange or the external risks of exposure to trade disruption and internal warfare in one neighboring country and to unabated dangers of intrusion and armed interferences from a second. Although there is a link between external risks to the reduction of total turnover on the BSE to $405 million in 47 weeks of 2011, from $1.4 billion in the same period in 2010, this is not the primary factor affecting the country economically.

Amman SE

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 1,997.55 points Period change: -16.63%

Sitting on fences is generally a disingenuous activity and Jordanian equities certainly did not benefit from the country trying to keep one leg on either side during the Arab spring. Whereas the market capitalization of the Amman Stock Exchange (ASE) has been ahead of GDP in better years, the $26.7 billion market cap reading on Nov 24 suggests that it will close the year below $30 billion for the first time since 2006. Arab Bank, while weakened considerably with a 23.5 drop, remained the ASE’s most valuable company. Industrial assets Arab Potash Co. and Jordanian Phosphate Mining Co. closed the period 9.9 and 24.2 percent lower respectively but the stock of Northern Cement Co., which debuted on the ASE in spring 2011, managed to defend its value and was best nominal performer, with a share price gain of over 200 percent when compared with its initial public offering.

Abu Dhabi SE

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 2,418.13 points Period change: -11.78%

Representing a drop of 28 percent from the same period in 2010, the Abu Dhabi Exchange’s (ADX) total 2011 traded value up to market close on Nov 24 reached $6.2 billion, according to data company Zawya. Compared with the hyperactive 2008 and the pre-crisis year 2007, traded values in 2011 were down about 90 and 84 percent respectively. The last time the ADX had hovered lower than this was in February 2009, when the index fell below 2,200 points. The finance sector indices fared better than the benchmark, while the consumer, construction and industry indices underperformed the market thoroughly. Market leader Etisalat dropped under pressure in the second half of the review period but the NBAD, the largest bank registered, stayed in positive territory despite sliding from September. A brief upward ADX index interlude in June on the back of hopes of UAE inclusion in the MSCI’s Emerging Markets proved an aberration.

Dubai FM

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 1,348.59 points Period change: -19.16%

Those who believed that the UAE was an island of stability in a sea of uncertainty need only have paid a little more attention to the downswing of the Dubai Financial Market (DFM) to realize that UAE exchanges are nowhere near immune from global and regional concerns. Although not suffering the worst index fall in either the Gulf Cooperation Council or North Africa, the DFM on Nov 24 had moved only a millimeter away from a seven-year bottom. The exchange’s market cap was lower than at the end of November 2009, when the Dubai debt crisis was rattling international financial markets. Among the few gainers on the DFM were market cap leader Emirates NBD, albeit they were unable to hold onto most of their intra-year gains. Developer Emaar Properties was less fortunate, registering a 30 percent drop in its share price.

Kuwait SE

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 7,782.00 points Period change: -16.63%

Whatever Kuwaiti citizens did with the $4 billion in free cash the government gave them to celebrate 50 years of independence last January, there is no sign that any of it worked its way into the domestic stock market. The Kuwait Stock Exchange (KSE) market cap stood at $101.3 billion on Nov 24, down more than $20 billion from the end of 2010. When compared with the same period in 2010, total traded value from Jan 1 to Nov 24 dropped more than 50 percent. The National Bank of Kuwait, the KSE market cap leader, dropped 12.9 percent but the second largest, telecommunications firm Zain, weakened by 40 percent. Developers MENA Holding, troubled airline Wataniya Airways and investment bank Gulf Finance House were among the KSE’s worst losers but the budget flyer Jazeera Airways showed a steep ascent. The banking and food sector indices were among the market’s better performers.

Saudi Arabia SE

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 6,086.10 points Period change: -8.54%

Unlike many other markets in the Middle East and North Africa, the Saudi Stock Exchange (SSE) sported a broad range of stocks that achieved substantial gains in the 47 weeks covered by this review. However, the most valuable companies on the SSE, chemicals giant Sabic, Banking group Al Rajhi and telecom operator STC, all experienced double-digit drops in share prices. On the positive side, a number of smallish insurers were among the fewer than 10 stocks that closed the period between 50 and 125 percent higher, with agro firm Jazan Development Co the only non-insurer among the five top advancers. While there was a deep v-shaped cut in the first-quarter performance of the TASI benchmark index, caused by the political jitters that affected the kingdom during the Arab Spring’s initial period, the index curve in following months appeared more reflective of global market volatility than of domestic dissent.

Muscat SM

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 5,428.52 points Period change: -20.24%

The Muscat Securities Market (MSM) seems to be a case study in both contagions and fear, as the decline in its index appears to exceed any domestic threats, either economic or political. The total traded value on the MSM during the review period was down for the third year in a row. The only lines in Oman looking worse in 2011 than the MSM general index were those of the banking and industrial sector indices, which both underperformed this underperforming securities market. The services index was no anomaly, but it dropped a comparatively benign 12 percent from the start of 2011. Market heavies Bank Muscat, Omantel and Bank Dhofar were all trading down in the review period. However, unlike in Bahrain, there were also some strong gainers, led by leasing firm United Finance and by agricultural firm Salalah Mills.

Bahrain SE

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 1,161.34 points Period change: -18.67%

One extremely hard political bump in February killed of any idea of a normal year on the Bahrain Bourse and sent the small market’s index sliding to a dismal close on Nov 24. Although it is not the year-to-date’s lowest point, having bottomed out another 17 points further down on Oct 20, the scale of the crisis is captured by the fact that the index has not stooped this low at any moment since September 2003. Notwithstanding the impact of global crises, the domestic political connotations of the Bahraini equity market’s depression cannot be denied; the best hope for the Bourse in 2012 may be that the insular Kingdom’s professed will to reform will prove to be genuine.

Doha SM

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 8,564.59 points Period change: -2.02%

With roughly 90 percent of the year’s trading sessions in the bag, Qatari investors will be thankful that by November 24, 2011 the market capitalization of the Qatar Exchange (QE) was actually $4.4 billion higher than a year ago, at $123.5 billion, while the exchange’s total traded value of $19.3 billion in the period also exceeded the corresponding 2010 figure. In total, the QE, despite its marginal drop for the review period, was the best of a bad bunch in terms of markets across the Middle East and North Africa. If there was a slight dampener it was in real estate, where Mazaya Qatar (-21.2 percent) and Barwa (-19.2) rolled downhill the most of QE-listed stocks. Except for the Commercial Bank of Qatar, lenders stayed on top and the banking sector index outperformed the QE index.

Tunis SE

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 4,722.67 points Period change: -7.06%

The greatest relief currently available for any regional investor whose sentiments are torn between the profit motive of engaging in financial markets and enthusiasm for democratic change comes from the trading hall in Tunis. The Tunindex, pulled down 1,000 points or 20 percent in the hot revolutionary weeks from January through early March, has regained almost 700 points since March 7, displaying surprisingly little volatility during its steady rise in the past six months. While the remoteness and small dimension of the Tunis Stock Exchange (TSE) — market cap $9.6 billion on Nov 24 — do not lend themselves to extrapolating the local experience in the same way that Tunisia’s politics has influenced other countries, the rebound of the TSE demonstrates that good business, principled profits and freedom with dignity are indeed interconnected.

Casablanca SE

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 10,909.13 points Period change: -13.8%

While many stock market analysts had seen Morocco, before the start of the Middle East’s migration into the new and unknowable future, as the region’s best bet for investing in securities, the Casablanca Stock Exchange (CSE) has failed to meet expectations. Inverse to the trajectory in Tunisia, the MASI held relatively steady in the first five months, with a minimal net drop during that period, but has bowed to downward pressures in the six months since then. Speedier political reform in the country would have meant better performance for the CSE, though it is to be noted that Morocco’s bourse is presently the largest securities exchange in North Africa, with $60.65 billion in market capitalization versus the Egyptian Exchange’s $48.4 billion.

Egypt SE

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 3,332.87 points Period change: -46.86%

In the country’s social and political storms of 2011, market buying emerged as the only upward impulse on the EGX, with two periods of gains in May/June and October paling in insignificance when compared to the overall erosion of financial value. The drops are indicative of the poisonous mix of factors that have marred the state since Mubarak fell, including political uncertainty, social unrest, international fears of extremism, unclear relations with global funders and lethal patterns of oppression. In 2011, $32.7 billion in market cap has been wiped out on the EGX and, with minimal exceptions, stocks were in the red. In international investor parlance, the time for buying is good when blood is pumping, but that adage gets exposed for its financial fallacy when the real red stuff is being shed.

December 25, 2011 0 comments

Banking & Finance

Banking Talk

by Executive Editors December 25, 2011

written by Executive Editors

“The global picture is gloomy and the regional picture is not clear. Oil prices are still maintained but if the crisis persists there will not be enough global demand for oil. Syria is another question mark, and because of its historical and political ties to Lebanon there will be an impact on the local scene, whatever the outcome will be. These unclear issues lead me to believe that prospects for 2012 won’t be much better than 2011.”

“Lebanon cannot afford a crisis. You have seen what happened to Greece. Greece being a European country, having a strong currency, not having political or security problems, saw interest rates at 40 percent and was on the brink of defaulting, despite all the backing it had from very strong countries and the IMF (International Monetary Fund). Lebanon doesn’t have these advantages so we have to work on building up a real economy, and we have to keep our tradition of commercial banking. We want to have investment bankers and capital markets, but let it be outside of the commercial banking.”

“We expect next year to witness a better growth than this year. Regionally, the situation is affecting us negatively, as the instability is leading to lower growth. However, over the medium to long term, as the situation improves, stability is regained and economies enjoy more openness, the impact on us will be positive. It may also open doors for us to expand in other countries.”

“Lebanese banks are proving to be resilient so far to what is happening in Lebanon, in the region and over the world. Going into 2012, we have a lot of concerns: how things will develop in Syria is very important and critical for the banks and how the Lebanese government will tackle the budget deficit and the issue of the Special Tribunal for Lebanon. Lebanese banks are already very conservative and will continue to be so next year.”

Byblos Bank: Alain Wanna, Deputy General Manager – Head of Group Financial Markets Division

“I think the banking sector will remain stable during 2012, and I don’t believe we will see very interesting local growth opportunities. The challenge for the banking sector will be how to continue the high pace of growth. ”

BankMed: Khaled Zeidan, General Manager of Securities & Structured Products at MedSecurities

“In the current situation it is very difficult to make a forecast and see exactly what will happen tomorrow in Lebanon and the region; 2012 will definitely be a tough year. The situation in Syria is a concern, elections are coming up in the United States and in France, and the European crisis will continue and will have a strong impact. With all this, one will have to be cautious.”

“I think great companies as well as great banks are built during tough times, so for me these times present both an opportunity and a challenge for Lebanese banks. If they know how to weather the crisis, especially the banks exposed to countries such as Syria and Egypt, and even Jordan to a certain extent, they will emerge stronger. All these troubles will end, and when they do the banks will probably be able to grab the opportunity.”

“There is still an increase in deposits in the banking industry, which is a sign of confidence in Lebanon. If you look at the rates paid on the Eurobonds and the rate achieved on the latest Eurobond issued in May 2011, you can see the rate has dropped and not increased. That’s really a sign of confidence in Lebanon.”

HSBC: Francois Pascal de Maricourt, CEO Lebanon

“Going into 2012, I am quite optimistic about the banking sector in Lebanon, and I think economically Lebanon will fare much better next year. I am not worried about the outcome from Syria as I think we have already seen the worst and I only see things improving. The main opportunity looking forward will be the development of the capital market in Lebanon. The new law passed in August will definitely help.”

“I wish for economic prosperity and political stability so that Lebanon can continue to prosper and grow to the best of its ability. We have a strong banking sector and a strong regulatory environment; there are always opportunities for growth. Unfortunately, growth this year has been affected by lots of events but, I hope that we will go back to the growth momentum we enjoyed in previous years.”

Standard Chartered: Pik Yee Foong, CEO Lebanon

Credit Agricole: Mario Jamhouri, General Manager

“[For private banking portfolios] in terms of investments, cash in 2011 was king and bonds and commodities were also part of clients’ allocation. In the middle of a crisis people look for real assets, as witnessed by the real estate boom we saw in the past years in Lebanon. We are seeing our clients invest in real estate in Europe as well, as part of their asset allocation.”

December 25, 2011 0 comments

Editorial

Pride, if nothing else

by Yasser Akkaoui December 25, 2011

written by Yasser Akkaoui

The year began with hope — it was contagious after seeing Tunisians rise up and send the tyrant Zine el-Abidine Ben Ali fleeing the presidential palace for exile in Saudi Arabia. Next came Egypt, where the awe-inspiring resolve of millions of Egyptians not to yield Tahrir Square to the regime’s security forces and thugs led to the removal of President Hosni Mubarak.

However, nations of people rising up for the freedom to claim their own destiny was a veneer that became sullied shortly after the beginning of the Libyan revolution. As the NATO bombing campaign ramped up and global powers began jockeying for position in anticipation of the post-Qadhafi era, the work of foreign hands pulling strings in Arab affairs again became apparent.

Given the strategic importance of Bahrain to Western powers, the Saudi decision to invade and crush the uprising there could not have been made in a vacuum; Ali Abdullah Saleh’s dubious cooperation with the West against Al Qaeda led to the continued support for his regime, long after its brutality against protesters was exposed, while Syria, at the crossroads of a myriad of Middle Eastern conflicts, is a veritable playground for foreign interference from every direction.

But look around the world in 2011 and it is no longer clear that the global powers know what they are doing anymore. Currencies and economies are crumbling everywhere while mass public protests have taken hold throughout much of the West. There would seem to be a fundamental reordering of the global geopolitical and economic structures taking place, and with so many moving parts, where the world will settle in five years is beyond any plausible guess.

What is certain is only uncertainty. And, almost ironically, there are few people more schooled at adapting to, and thriving in, instability than the Lebanese — when the sky is falling, who else would think to begin exporting umbrellas?

Whatever the future of the uprisings across the Middle East and North Africa, however, and no matter how foreign influence contorts the counter revolutions, the one thing the Arabs have taken back in 2011, what will not be easily stolen again, is their pride.

December 25, 2011 0 comments

Comment

Palestine’s resurgent authority

by Ahmed Moor December 3, 2011

written by Ahmed Moor

The year 2011 began with a great deal of uncertainty — perhaps even promise — for the Palestinians. Much of that had to do with the revolutionary fervor that had taken hold in the region. The ousting of Tunisia’s Zine el-Abidine Ben Ali and Egypt’s Hosni Mubarak were regarded by many young Palestinians as an opening — an opportunity to force open their own binds.

The March 15 Palestinian youth movement successfully captured and focused the energy of the Arab uprisings on the need for rapprochement between the Hamas and Fatah parties. After a period of stiff resistance by both political leaderships, efforts were made to the end to the rift that has bedeviled the Palestinians since 2007.

Not all progress on reconciliation in the first part of the year can be linked to the agitations of young Palestinians. Much of the impetus for the renewed political process was tied to the fact that Mahmoud Abbas was politically weaker after losing his main Arab sponsor, President Mubarak, while Hamas took account of Syrian President Bashar al-Assad’s increasingly isolated position — as Damascus had worked to counterbalance Cairo — and sought to buttress their legitimacy by engaging with the Palestinian Authority (PA), though for several months the deal that had been inked went nowhere.

That began to change as autumn approached. In 2009, September 2011 had been set as the deadline for the realization of Palestinian statehood by Salaam Fayyad, prime minister of the PA. In September 2010, United States President Barack Obama affirmed such aspirations by declaring that a Palestinian state would come to be in the next year.

As September 2011 approached and it became clear the claims would be pursued, Benjamin Netanyahu’s government began to issue hysterical statements about the potential consequences. Obama had long since walked back from his pledge, and his administration stated that any Palestinian moves at the UN would be vetoed.

Officially, the Americans and Israelis claimed that the only way to resolve the occupation was through bilateral negotiations. But in fact the Israelis were more concerned about the implications that recognition of the Palestinian bid would have for them in the International Criminal Court, International Court of Justice, and other international bodies that would become more accessible to the Palestinians. And the Americans, for their part, continue to cave in to the desires of the Israel lobby.

As part of their statehood development track, the Palestinian Authority also approached UNESCO, the education, science and culture promotion wing of the United Nations, for membership. Their approval prompted the Americans and Israelis to withhold their funding contributions from the organization.

The push for statehood had two very important consequences for both Hamas and Israel as the moves taken by the Palestinian Authority comparatively weakened both of the PA’s adversaries. For Hamas, a surge in Abbas’ popularity meant a corresponding dip in theirs. And for Israel, the Palestinian attempt to highlight Israeli intransigence succeeded magnificently on a global stage.

It was in this context that the Hamas-Israel prisoner swap was conducted. After more than five years of fruitless negotiations, the two sides agreed to exchange 1,027 Palestinians for one Israeli prisoner. While roughly 7,000 to 10,000 Palestinian prisoners remain incarcerated in Israel, the release of even a fraction of them greatly enhanced Hamas’ prestige. For Israel’s embattled prime minister, the move meant a temporary boost in his poll ratings as well.

But despite the political uproar, in the end the statehood bid that was submitted to the UN did not gain enough support for a vote, ostensibly, said Security Council members, because the Palestinians remained politically divided. In that way, the bid inadvertently created an added incentive for Hamas and Fatah to genuinely mend their rift. Khaled Meshaal — Hamas’ political leader — and Mahmoud Abbas met in November to discuss when elections could be held. Crucially, Salaam Fayyad agreed not to join the next government, a major point of contention for reconciliation.

As things stand it is difficult to foresee the future in Palestine and, given the symbolic nature of the UN bid, to assess 2011’s gains. But it appears that the drive to join international institutions is a sustainable one and, more importantly, elections for a national unity government are on track for May of next year. But, as ever, nothing is certain in Palestine.

Ahmed Moor is a contributor to Al Jazeera English and is a Master in Public policy candidate at Harvard University's Kennedy School of Government

December 3, 2011 0 comments

Finance

Executive Insight – The foray into frontier markets and emerging economies

by Nadim Kabbara December 3, 2011

written by Nadim Kabbara

For market participants and observers alike, 2011 brought about the sense that varying asset classes, which traditionally are not so closely linked to one another, had suddenly moved together in lockstep. This possibly shook some people’s belief in the benefits of diversification, attributed in modern times to Harry Markowitz under the Modern Portfolio Theory.

Riskier asset classes — from equities to high-yield fixed income and from real estate to currencies to commodities — have reacted in a similar fashion to the ebbs and flows of global headlines. Concerns of slowing economic growth from the two largest economies, the United States and China, uncertainty regarding the viability of the European Union and fears of a sovereign debt crisis in its southern members brought heightened nervousness and volatility to global markets.

Some market participants suggest that during times of market distress assets tend to move closer to, or to correlate with, one another. Looking at the severe stock market correction in 2009, correlation reached almost 0.9, according to MSCI index data (the maximum being 1 when securities move in perfect lockstep).

However, when markets are more volatile and risky — typically the time when investors cut back on perceived riskier assets and focus on safer holdings and domestic markets — the case for diversification across assets and markets should remain. One area where longer-term investors can capture higher risk-adjusted returns, while also benefiting from lower correlations to global markets, remains in emerging and frontier markets. The latter are economies with investable stock markets that have not reached the level of development found in emerging markets.

Within the context of weaker global economic growth, the International Monetary Fund has recently outlined the uneven two-stage recovery whereby emerging markets are leading economic growth, with 6 percent in real gross domestic product growth expected in 2012, compared to developed markets at 1.5 percent growth. Emerging markets boast growing populations, rising middle classes and current account surpluses, in contrast to developed markets that face aging populations and real sector issues in employment and housing, as well as required fiscal consolidation.

The MSCI Frontier Markets Index comprises the following countries from the Middle East and North Africa region: Bahrain, Jordan, Kuwait, Lebanon, Oman, Qatar, United Arab Emirates (UAE) and Tunisia. Qatar and the UAE are awaiting a decision by MSCI in December 2011 to be upgraded to emerging markets status, which would bode favorably for incumbents in these markets. Despite the higher risks in frontier economies, which consist of greater political uncertainty coupled with less developed economic, legal, financial and corporate governance frameworks, they have benefited from economic progress. While GDP per capita in frontier markets is low, at $4,200 on a purchasing parity basis in 2009, they achieved an average annual GDP growth of 4.4 percent between 2000 and 2009, slightly below emerging markets at 4.5 percent and double the rate of developed markets at 2.2 percent. In fact, 17 of the 20 fastest growing economies were from frontier markets over the same period, according to The Research Foundation of CFA Institute.

The relatively superior stock market performance of emerging markets is outlined using the latest MSCI index data. The MSCI Emerging Markets Index returned 6.8 percent on an annual basis over the past five years, as compared to 0.2 percent for the MSCI All Country World Index, and -5.2 percent for the MSCI Frontier Markets Index. While the MSCI Frontier Markets Index has relatively underperformed, the countries that comprise it represent more than 20 percent of the global population, 6 percent of global nominal GDP and 3 percent of global market capitalization, which suggests opportunities for investors as their economies and their stock markets reach the size and maturity of their more developed counterparts.

Longer-term investors should not overlook emerging and frontier markets as an area through which they can diversify their equity allocations and benefit from growing economies and markets less correlated to global developments. Despite the added volatility, equities have proven their place as an asset class that provides risk-adjusted growth to investor assets over longer periods of time.

December 3, 2011 0 comments

Comment

Juggling discontent in Jordan

by Peter Speetjens December 3, 2011

written by Peter Speetjens

Jordan likes to promote itself as an island of stability in a region in turmoil, and in 2011 the country largely lived up to that reputation. While elsewhere the winds of change shook or toppled one regime after another, Jordan’s King Abdullah II managed to weather the storm and today sits as firmly as ever on his Hashemite throne. That is not to say his rule was not challenged. Encouraged by events in Tunisia and Egypt, thousands of Jordanians hit the streets in the first weeks of 2011 to demand reform. In contrast to his Arab counterparts, however, Abdullah did not opt for a violent response. Instead, he proved himself a skillful juggler of (empty) promises, while playing give and take with the country’s domestic forces, always careful not to upset his foreign allies.

Demonstrations are officially banned in Jordan, yet Abdullah allowed people to gather and vent their frustrations, albeit under the watchful eye of an overwhelming police force. Standing among the protesters one day in February, it was impressive to see the finesse with which the regime managed to mold and manipulate the crowds. Friday had become the “day of rage” in Jordan and, after prayer, some 5,000 people would gather with flags and banners in front of the Al Husseini Mosque in downtown Amman. They would then march in a straight line of about a kilometer to the edge of the Municipality Square. The street between mosque and square, however, as well as the square itself, were hermetically sealed off by a sea of blue uniforms and the rally was preceded by a small, yet loud group of pro-Abdullah demonstrators.

Abdullah furthermore pleased the crowds by axing then Prime Minister Samir Rifai, who was widely disliked for pushing through a free market agenda. In addition, Abdullah reinstated subsidies, raised government salaries and established a parliamentary committee to formulate a set of democratic reforms. As opposition leaders were invited to partake in closed door sessions, the Friday demonstrations gradually lost momentum. By May, few objections were raised when Jordan — though hundreds of miles from the Persian Gulf — filed a request to become a member of the Gulf Cooperation Council (perhaps not the region’s leading pro-democracy club). The move was warmly welcomed by Saudi Arabia, which rewarded its backyard neighbor with a $400 million grant.

A similar calm reigned this summer when the parliamentary committee’s proposed amendments were made public. They rather modestly called for an independent constitutional court, an independent electoral commission and the enhancement of civil liberties, including a ban on all forms of torture. Within the reforms the king maintains most of his considerable powers. He retains the right to appoint and dismiss the country’s prime minister and upper house of parliament, though he can no longer do so twice in a row for the same reason. Big deal. In October, he exercised his prerogative once again, sending home his second prime minister in a year. Out went newly appointed former general Marouf Suleiman al-Bakhit and in came lawyer Awn Shawkat al-Khasawneh. Once again Abdullah knew how to please the crowds.

Bakhit had done his job. Just weeks earlier, the lower chamber of parliament had passed “his” ironically named anti-corruption law, which actually targets accusations of corruption “without solid facts” with fines of up to $84,000. Bakhit had already showed his undemocratic colors when in May he had instigated a criminal defamation case against journalist Alaa al-Fazza, who had dared to publish an article about a Facebook group supporting the reinstatement of former Crown Prince Hamza over King Abdullah’s son Hussein. Fazza was jailed for “working to change the constitution by unlawful means.”

Today, Jordan’s “day of rage” still exists. Every Friday, the police routinely seal off the whole of downtown Amman, even though little actual rage remains. Up to a thousand people, nearly all members of the Muslim Brotherhood, still gather, shout and march. Most passersby, however, are more interested in shopping, while the few police who are there seem more relaxed. The pro-king choir still precedes the masses, yet even they shout less ferociously. Political reform in Jordan? Ah well, maybe next year.

December 3, 2011 0 comments

Comment

Stagnating in stability

by Nadim Houry December 3, 2011

written by Nadim Houry

I never thought I would say it, but Lebanon was one of the most stable countries in the Middle East this past year. Many commentators and politicians expressed regret that Lebanon failed to capitalize on this to attract capital escaping the tumult of Cairo, Damascus and Tripoli. My regret is that Lebanon failed to use this opportunity to finally push forward reforms essential to make it a fairer and more transparent place.

2011 was a year of paralysis. The country had no government for the first six months, and while political life resumed in July following the formation of a new government, there was no progress on many draft laws — some that have been languishing in Parliament’s drawers for years — meant to prevent torture, improve the treatment of migrant domestic workers and protect women from domestic violence. The prisons are as crowded as ever. By the Ministry of Interior’s own account, the country’s main prison in Roumieh — a facility built for 1,500 inmates — held 3,700 in April of this year. Most troubling, 2,757 were awaiting trial. Faced with multiple inmate riots, Parliament finally approved the building of additional prisons in September but failed to tackle the real reasons behind the overcrowding: rampant overuse of pretrial detention and lengthy trials.

Lebanon’s military and security forces may be less intrusive than their Arab counterparts but there are worrying signs of increased harassment of activists and artists who criticize the army and certain high-ranking officials. In July, military intelligence summoned Saadeddine Shatila, of the international human rights group Alkarama, for his work documenting torture at the Ministry of Defense, and detained him for seven hours. Lebanese judicial authorities detained musician Zeid Hamdan — who toiled for years to promote Lebanon’s underground music scene — in July for several hours based on an accusation that he had defamed the Lebanese president in a song calling on him to “go home.”

The semi-naked images of women adorn our overcrowded highways, but when it comes to politics, women seem to have no place. Politicians spent months haggling with the Council of Ministers to ensure that all religious groups were adequately represented, but failed to include a single woman in the 30-person group. Dar Al Fatwa, the country’s highest Sunni Muslim authority, and the Higher Shia Islamic Council, are opposing a law that would protect women from domestic violence for fear that prosecuting husbands who beat their wives would affect the family unity.

Frankly, what harms the family in Lebanon are personal status laws that differentiate between citizens based on the religion into which they were born. These laws discriminate against women in matters like divorce, child custody and inheritance, forcing many of them to stay in abusive marriages. It is no wonder that an increasing number of Lebanese travel to Cyprus to get married.

Instead of finally shedding light on those who disappeared in Lebanon’s turbulent past, the authorities watched impassibly as more politically motivated kidnappings took place in 2011. The February kidnapping of three Syrian brothers from the Jasem family — one of whom had been detained for distributing flyers in Lebanon denouncing the Syrian regime — and the disappearance in May of Shibli Aisamy, an 86-year-old Syrian dissident, are painful reminders of the ongoing risk of politically motivated kidnappings. But even more troubling is what the Jasem case reveals about the state of Lebanon’s judiciary: a leaked police report contained evidence linking the kidnapping to a member of the Lebanese security forces in charge of the Syrian embassy’s security. Yet the judiciary has not investigated the accusations, proving yet again that it is incapable of resolving politically motivated crimes.

So “where do we go now?”, to quote Nadine Labaki’s recent blockbuster movie about the dilemmas facing a divided Lebanese village. Change in Lebanon will not be easy. There is no dictator to topple, no common enemy to rally the country’s youths. It is doubtful that the current political elite can truly reform the system which keeps them in power. But short of systemic reform, they could at least open up the drawers in Parliament and in the ministries and start adopting and implementing many of the laws and decrees that have been left there to rot.

NADIM HOURY is director of the Beruit office of Human Rights Watch

December 3, 2011 0 comments

Real Estate

Back to basics

by Executive Staff December 3, 2011

written by Executive Staff

Following Lebanon’s skyrocketing success in 2010, this year saw a much calmed real estate sector. Though many buyers have been carefully shopping around and looking for the best deals, most industry representatives contend that prices will not fall any time soon.

Because of the limited availability of land plots in prime areas, the price of land remains high while developers have little reason to sell quickly as many have relatively small debts. Therefore, prices have remained stagnant this year, while sales across mid to high-end units have slowed.

Yet, one market that has continued to grow is small-size homes, 250 square meters or less, in proximity to the central business district.

Contrary to last year’s record-breaking sales, the statistics covering the first nine months of 2011 paint a downward slope in revenues, largely due to a 26 percent drop in sales to foreigners. In the words of Karim Makarem, director of real estate firm Ramco, “The market for foreign buyers is almost nonexistent today.”

The Directorate of Land Registry and Cadastre recorded $6.84 billion in total property sales during the first ten months of the year, a 10.78 percent drop compared to the same period last year; property transactions decreased by 14.5 percent to 66,143 throughout the same period.

Supply side figures are not much rosier. The Order of Engineers of Beirut and Tripoli reported that construction permits covered an area of 12.4 million square meters during the first nine months, down by 5.4 percent year-on-year. However, cement deliveries actually increased by 7.7 percent during the period.

For the Ministry of Finance, the slowdown means a 6.8 percent drop in property taxes, down from $453 million in the first nine months of 2010 to $422 million this year.

Slow sales

“A couple of years ago, half of the project would have been sold by the time excavation was complete… The absorption rate would have been 80 percent by the time it was delivered, now it is about 60 percent,” said Makarem, who insists there is still demand for in the right areas.

Slow sales may be attributed to the fact that rents in Beirut are still relatively cheap, with residential yields only 3.3 percent of the value, the lowest in years. Conversely property prices are over-inflated, leaving increasing numbers of people happy to remain in the rental market.

The September 2011 Global Property Guide rated Beirut 36th in terms of most expensive cities to have property in, with average prices pegged at $4,258 per square meter, and average rents at $2,342.

Secondary market

Not only have foreigners stopped buying in abundance, but some have also started to sell up and put their money into other regions where they feel there are gains to be made.

“There is a surge in the secondary market,” says Zina Dajani, managing director at Benchmark, the developer behind Beirut Terraces and other residential projects in Beirut. “Some owners who had bought their apartments at the early stages of some projects during the years 2007, 2008 and 2009, and that have now come to completion, are offering them at prices that are slightly lower than developer’s prices, making an acceptable profit but not necessarily doubling their money.”

“In our project (Venus Towers), we expect maybe 20 percent [of buyers] to resell,” said Salah Karameh, sales and marketing manager at Venus Real Estate development, asserting that prices have never dropped in Lebanon.

Especially in Beirut, real estate players expect prices to be stable for a few years and then rise again.

However, others are reluctant to resell. Capstone Investment Group’s Trabaud 1804 high-rise in Ashrafieh is 70 percent sold; it launched in mid-2010. Capstone Chairman Ziad Maalouf claims that though there is a waiting list for the small size apartments “no one who bought wants to resell for profit.”

Investment and financing

In 2010, $4.9 billion in foreign direct investment was funneled into real estate. Chairman of the Investment Development Authority of Lebanon (IDAL) Nabil Itani says 2011 saw less investment in real estate and tourism than previous years. Given the double effect of the financial crisis and political instability in the region, it is investment from Lebanese diaspora, rather than Europeans or Arabs buying second homes, which is keeping the market afloat.

Though there is still a residual oversupply of luxury apartments in Beirut that continue to struggle to attract serious buyers, developers have realized there is huge potential demand in the undersupplied middle segment, especially in the capital. As such, developers are focusing much more on lower quality apartments in peripheral areas to fit demand. It is this segment that is most efficiently supported by bank loans and subsidized lending through the Banque du Liban (BDL), Lebanon’s central bank.

Though developer borrowing to finance a project is capped at 50 percent by law, many Lebanese real estate firms have continued to use pre-sales as a buffer, so that debt financing is far below 50 percent. Some developers have priced their apartments at below market prices in order to sell all of their units in days, while others have used a private equity model to spur financing (see page 150). Still, leverage is limited so developers can afford to go one, two or three years without selling.

“If you look at all the unsold apartments, developers have already paid back their investment by selling 30, 40 or 50 percent of their buildings,” said Freddie Baz, chief financial officer at Bank Audi.

Banking loans to the housing sector grew by 61 percent in 2010 up to $4.5 billion, while bank loans to construction totaled $6.3 billion, up about 30 percent, according to BDL’s most recent figures. Yet Jean Riachi, chairman of FFA bank, sees little reason for optimism that current trends will continue.

“I think the banks will be more conservative with regard to lending to real estate, be it housing loans or loans to developers, because obviously the market is slowing down so they have to be careful.”

Priced out of pocket

While budgets haven’t changed much in the past few years, property prices have increased tremendously, particularly in Beirut, pricing many locals out of the central market.

The suburban area of Hazmieh has experienced increased construction activity in the last year, with the biggest Spinney’s super market in the country, a new airport link and the upcoming Hazmieh City Center only likely to increase demand. Two developments there plan to ask for Ashrafieh-level prices, according to Ramco.

In addition, areas like Baabda and Metn have experienced a revived interest in real estate activity in the past few years, while other areas like Fanar, Horch Tabet and Aramoun have rising potential.

The Mechref suburb of Beirut will soon see large investment, with Zardman real estate planning to build an ‘affordable’ housing community there. Yarze, however, “is facing a bit of a downturn because it was over -reaching and I think certain brokers there played a part in that, evidenced by [the fact that] property there that has been on the market for a while and hasn’t sold,” says Makarem.

Developers have also realized that there is greater potential in some underdeveloped areas where land is cheaper. Ramco stated in its third quarter report that developers have turned to areas such as Corniche El Nahr (in Ashrafieh) and Jnah to build housing, where the cost of land is under $1,500 per square meter, whereas Beirut’s prime land can cost up to $5,000 per sqm of built up area (see chart above).

As there are few empty plots left in prime locations such as Ashrafieh, many heritage buildings and landmarks are being torn down by developers to build more profitable towers, a phenomena many consider a crime against Lebanon’s cultural and social history. Though Beirut’s Mayor Bilal Hamad told CNN in August that developers have to get a permit from the Ministry of Culture before they can build on site of old buildings, so far less than 300 classified heritage buildings remain from around 1,000 that were documented in 1995.

Predictions

In November 2010, the director general of the Ministry of Economics and Trade predicted that Lebanon’s real estate market would grow by up to 15 percent in the next three years. With this year’s stagnation in sales and downward statistics across both supply and demand indicators, and with most experts predicting that prices won’t budge and sales may remain slow for the next two years, it seems his prediction was highly ambitious.

It can, however, be applied to underdeveloped regions around the periphery of Beirut where developers are able to buy and construct projects that cater to the undersupplied, middle-income housing market. A prime example is the success of FFA Real Estate’s first development project in Badaro, where apartments ranging from 75 to 214 square meters sold out within five days in May.

With 15,000 additional homes required each year to keep up with rising local demand, a sound real estate market remains on the horizon — as long as developers shift focus to a more reasonable, middle class segment.

December 3, 2011 0 comments

Comment

The year since Mubarak

by Jonathan Wright December 3, 2011

written by Jonathan Wright

The year began in Egypt with a sudden but thankfully short-lived rash of self-immolations by aggrieved Egyptians following the example of Mohamed Bouazizi, the young street vendor who set himself ablaze in a solitary protest in southern Tunisia, December 2010. Tongue in cheek, commentator Issandr el-Amrani predicted “a year of spontaneous combustion” and imagined the authorities grappling with an epidemic of suicides across the oppressed nation. But millions of Egyptians, inspired by the Tunisians who drove out President Zine al-Abidine Ben Ali, had other ideas about how best to express their grievances. Less than a month after the first Egyptian doused himself with petrol and lit the match, President Hosni Mubarak had been toppled from the throne he had held for almost 30 years, pushed out of office by the largest street demonstrations the Middle East has seen since the Iranian revolution of 1979.

As the sun set on February 11, Vice President Omar Suleiman appeared on television to announce that Mubarak had ceded power to the Supreme Council of the Armed Forces, a group of some 20 generals who remain in power as the year draws to a close. Egyptians went home to rest, declaring themselves confident that their revolution was in safe hands and the generals would oversee a speedy transition to democratic and civilian government.
But the next 10 months have not been easy for almost anyone in Egypt. Many of the revolutionaries, especially the liberals and the leftists, say the military council has betrayed their revolution; the generals have sent more civilians to military trial than Mubarak ever did and have failed to purge the security forces and bureaucracy of the brutal and corrupt officials who thrived under Mubarak. The generals themselves soon learned that managing civilians was not the same as barking orders at conscripts in boot camp and that there were limits to the goodwill Egyptians showed them when they took power. Ordinary Egyptians lamented the lawlessness in outlying areas, the rising unemployment and the higher prices. Egypt's Coptic Christians, said to make up some 10 percent of the population, saw four of their churches set ablaze or demolished and then scores of young Christians massacred outside the state television building on October 9, in an incident that the military shows no willingness to investigate.

Hundreds of thousands of workers and civil servants, no longer deterred by state security and the riot police, have staged strikes, sit-ins and protests for better conditions; strapped for cash, the government cannot possibly meet all their demands. The upper echelons of the old regime have had it rough, but not as rough as many thought they deserved. Mubarak himself appeared in court lying on a gurney, charged with giving orders to shoot the demonstrators who brought him down in January and February; his sons and senior ministers are in detention, some convicted of financial crimes, others still on trial. The Islamists appeared to be the most obvious beneficiaries. Free to campaign for imminent parliamentary elections without fear of harassment, they have made hay while the sun shines. But their politics is fragmented across a broad ideological spectrum — from the hard-line and literalist Salafis to urbane intellectuals for whom Islam is the cultural backdrop to liberal democratic politics.

What happened in Egypt was not quite, or is not yet, a revolution. State structures have survived, though much weakened and vulnerable to contestation by competing political forces. The ruling military council has been cautious and conservative to a fault, taking no bold initiatives and usually acting only in response to street protests. The police force collapsed in the first few days of the uprising but is slowly finding its feet, without any fundamental change in its authoritarian mentality. The social and economic systems remain in place, and there is little popular demand for dramatic changes that go beyond eliminating corruption, favoritism, inefficiency and other vices.

The euphoria of the uprising has dissipated, along with the sense of unity and purpose that opposition to the Mubarak regime generated. But for the moment Egypt is a place where people can breathe more freely and can cast their votes with some confidence that they are choosing their own leaders.

December 3, 2011 0 comments

Society

Q&A – Nicolas Chammas

by Executive Staff December 3, 2011

written by Executive Staff

As chairman of the Beirut Traders Association, Nicolas Chammas oversees study and research into Lebanon’s commercial sector and lobbies the Lebanese government on behalf of traders. In a chat with Executive he spoke about the contracting economy and the need for policymakers to cut retailers some slack through more supportive legislation.

E Where has 2011’s poor economic performance left Lebanon’s retailers?
The year 2011 started very weakly because we had a hangover from 2010. The political bickering really dragged the entire economy down. And then in the very early days of January the government collapsed. So all in all, with the absence of government and no decision makers at all and the troubles in Syria, in the first semester of 2011 the [commercial sector] activity collapsed by about 30 percent. There has been a correction upwards in the third quarter… there was a slight increase in the number of tourists and number of visitors and on the retail scene as well. So I would say that we are looking overall at a 20 percent decrease in 2011. The first semester was terrible, and we were able to get some breathing room in the second part of 2011. Lebanon is a resilient country — the economy goes through terrible cycles, very deep troughs and very high peaks. But our problem now is a macroeconomic one, because we have fallen down from an 8 percent to a 1 percent growth rate and now you need some momentum in order to go back up.

E How exactly has the regional unrest affected the economic performance of the retail sector?
You have to bear in mind that the situation in Beirut is different to the situation in other regions. [In Lebanon] you have two types of interactions with Syria — you have the interactions at the borders in Tripoli and in Zahlé, whereby you have a daily exchange between the Lebanese and the Syrians. In Beirut, you have the final customer coming to shop from the retailers and you have the retailers of Syria coming to buy from the wholesalers, so all these have been affected.

E Have some consumer sectors been disproportionately affected?
You have three segments of consumers in Lebanon. You have the Lebanese residents who constitute perhaps, depending on the sectors, at least two thirds of the consumers, you have the Lebanese expatriates and you have the Arab residents. When you talk about the luxury segment, you have perhaps 40–30–30 [distribution across these segments], because the purchasing power of the visiting Lebanese is much higher than the local residents. We have estimated that the revenues of a typical Lebanese residing abroad are four to five times higher than his counterpart here in Lebanon, so this directly affects the luxury sector.

The medium level [of the retail sector] has been really affected because of the melting purchasing power of the population. The luxury items and international brands have not been suffering because of the constant flow of visitors and expatriates. The number of tourists coming by land has drastically decreased, and it’s true that visitors from the Gulf states have decreased in number, but if you look at the purchasing ticket, it has stayed strong, which at the end of the day makes for a good sales volume in luxury products. The problem is the down periods are measured in months and the up periods are measured in days or at best in weeks.

E Are some shopping areas within Lebanon succeeding more than others?
Malls are becoming more and more important, and they are taking away some business from the traditional markets. You have typical streets in Beirut — I would say Hamra, Verdun, Ashrafieh [and] lesser-known areas like Mar Elias and Barbour. These areas are suffering because malls are one-stop shops. Parking is a terrible thing, so you are in a tough spot if you are a middle-of-the-road retailer on one of the streets of Beirut. On the contrary, you are in a sweet spot if you have a strong international brand and [are] located either in one of the known malls or in one or two streets in Downtown Beirut. So you have a matrix in terms of positioning and location.

E What does the Beirut Traders Association envision for Lebanon’s retail sector?
Our aim is to make Lebanon the showcase of the Arab world and the meeting point of trade currents between East and West. We believe that in the past, in the ‘60s and ‘70s, Lebanon actually played that role. So we see it as our responsibility to replicate this — trade is a traditional sector, but its interests have been overlooked, unfortunately.

E What specific legislation are you lobbying for to try and support retailers?
Subsidized loans have been awarded to the tourism, IT and agriculture industries. [Retailers] did not benefit from this at all. There was a misconception because [the government] thought that as traders our balance sheets mostly consist of current assets, which is not the case. We need to get subsidized loans on commercial investments. The cheapest boutique costs $3 million to $4 million. This is our single most important demand from the government. They bet on laissez-faire whenever it makes their case easier, but it will not happen spontaneously this time. You need to inject either some liquidity or maybe remove some constraints; give the economy more degrees of freedom. And it seems they are taking us the wrong way, because now we are negotiating the minimum wage and so on.

E Is it not difficult to get the numbers to back up your campaigns?
Data is very scarce. [The Beirut Traders Association] analyses the data, we do the number crunching and we face the government on behalf of the entire business community. As far as micro data is concerned… companies are not listed; most companies are family businesses and they don’t have any obligation whatsoever to publish their results. And then you have a banking secrecy law, which makes things even more difficult, so our aim is to try to find some proxies or some alternative ways. We need the data rather than the individual traders because… when we are bargaining with the government we need stronger data.

E What unique strengths does Lebanon have as a retail destination going forward?
The strong demand. [International shoppers] will keep coming because Lebanon has traditionally been the showcase for the Arab world. So even if it is small compared to Dubai and elsewhere, it is an elegant and sophisticated market. It is also perhaps a testing ground for the large companies, so they cannot afford not to be in Lebanon — not so much for the volume they will achieve here, but for the image. Being in Lebanon is important because Lebanon also is a trendsetter. As long as you have political stability, they will keep coming. We would like Lebanon to be a shopping destination for all seasons, and we will work hard toward achieving this goal.

December 3, 2011 0 comments