Economics & Policy

Q&A – Vrej Sabounjian

by Executive Staff
written by Executive Staff

Vrej Sabounjian took the reins at the Ministry of Industry in June, taking his experience from the business boardroom to the political cabinet. It has been a bumpy ride for industrialists in 2011 and demands for government leadership and support are high. Executive sat with the minister to find out how he has dealt with his first months in office.

E  You told Executive back in July that you were confident that this government was pro industry, yet there was not a single mention of industry in the draft budget. What positive actions or proposals by the cabinet have shown support for industry?
I think we can say anything we have presented so far has not met any objection at all.  That’s sign enough for me that I have enough support from this government to push ahead with our industrial programs and we are going to sign a lot of bilateral agreements with other countries; it’s coming. We are going to make agreements with Sudan and Armenia and other countries and these agreements will help industry in Lebanon. 

E  The negotiations for these agreements are already underway?
Two are already ready… they will be signed very soon.  

E  With these agreements there will presumably be a decrease in trade barriers. Is this a trend you see developing?
The barriers to trade have already come down as we have moved into a global economy for some time. But the bilateral agreements help facilitate the relations between the two countries and their business people [with] measures such as visa agreements, more flights, accreditations and tax deals so there is no double taxation.

E  Is Lebanon still en route for accession to the World Trade Organization?
Yes.

E  Is that prudent in the troubled and uncertain global economic environment we are currently in?
Prudence is always good but I think we have also to understand we are living in an environment where all borders are opening and trade should be easy and accessible to all parties. But it has also to be fair in the sense that there are some countries which are bigger and stronger and others smaller and weaker, so we have to note those details in the agreements.

E  Can you provide details of the draft proposals you submitted to the minister of finance in relation to the tax exemption on exports?
The answer is very simple: if you manufacture a product in Lebanon and you export it you will be eligible to get a 50 percent tax credit on your profits, [depending] of course on whether the law passes the cabinet. Our tax rate is 15 percent so on your exports you would only pay 7.5 percent. 

E  Is there a time limit on this or would it be indefinite?
No.  It would be indefinite.

E  And how confident are you that this is going to get passed in the cabinet?
I’m pretty confident and I’m also relying on the support of our prime minister [Najib Mikati] and the minister of economy [Nicolas Nahas]. He’s my good friend and we have discussed this issue, and I am also sure the minister of finance [Mohamad Safadi] will not object.

E  Have the committees tasked with creating the nation’s industrial zones been created, as was promised in the ministerial statement?
We are almost finished. There are still some little details, and in a few weeks it will be ready.

E  The plan will be ready or the creation of the committee will be ready?
Both. On the plan we are doing some modifications and the committee is already under study.   

E  There is going to be a committee, or there is a committee?
There is going to be. There is not now. We are forming a committee. We will have a banker, an accountant, an engineer, an auditor and these kinds of people who can bring the maximum contribution for this project.

E  In the draft budget there was no mention of this project.  How do you envisage it being financed?
There are a few ideas which I don’t want to elaborate on now, but I would like to give a chance for the committee to come up with some ideas. We have ideas at the ministry and I have my ideas and I would like the committee to add on those ideas and bring their own.

E  Is the industrial sector able to absorb the blow of the proposed minimum wage increase?
I don’t think the industrial sector is waiting on the increase in minimum wage. I think all business people have already done the necessary adjustments related to inflation. 

E  But there are employees in the industrial sector whose pay would be affected by the proposals…
There are certainly people working close to the minimum wage, and that’s why it is the government’s responsibility to look at it, which we did in a responsible way. The increases are acceptable but I don’t want to elaborate on the percentages because there are differing views.

E  So in theory you support an increase in the minimum wage but not explicitly these figures?
I supported the increase in the minimum wage but I would also say I am not with the idea of increasing wages [other than] the minimum wage. It is the government’s duty to help minimum-wage workers but it should not get involved in any other kind of wages. However, this is my personal opinion and I will support my government whatever its decision is.

E  When you came into office you told Executive you were going to get an additional 25 percent added to your budget. Have you?
There is a problem in all of the ministries concerning their budgets. It’s a fact that we have a problem with the budget. So I guess we will still try to help the ministry of finance but at the same time we have to find a way to help our ministry because we really need the increase in budget.

E  But as of yet you have not received the 25 percent you were hoping for?
Not yet, no. The budget has been put to the cabinet and each minister is looking at it and is going to go back with his comments.

E  And yours will be?
I will stick to my plan. I will definitely ask for my 25 percent. 

E  How have the events across the border in Syria impacted Lebanese industrialists?
I’m sure some sectors or companies that had large business with Syria will have been impacted, but if that is the case then I advise them to take this opportunity to find new markets. They should not consider this as a setback but as an opportunity to find other markets.

E  With regards to the proposed electricity law, does it go far enough in addressing Lebanon’s energy infrastructure crisis and can industrialists be assured that there is the political will and ability for it to be delivered?
I think Lebanon has stability now. I think you could say we are one of the most stable countries in the Middle East. 

E  You’d hope so!
[Laughs] As for electricity, we have passed this law and, yes, we will have a much better electricity situation a year and a half from now.

E  You have encouraged industrialists to establish their businesses in the north, south and Bekaa, outside of the industrial heartlands. What incentives exist for them to do so?
If you move to the north or south the land is much cheaper and you can find lots of minimum-wage workers in those areas. You have more space…

E  Does the government have a role to play in the regionalization of industry or is it something that has to happen naturally?
It has to happen naturally. It is natural to expand.

E  How will the industrial sector have to adapt over the coming years if it is going to remain internationally competitive?
Governments don’t make companies competitive. I advise every chief executive officer or president or owner to have a good vision and be flexible. Times now benefit those who are flexible. Drop things that are not profitable, keep your ego away and be objective. I encourage Lebanese business people to be open-minded with regards to merging, which is still not much in the culture of the Arab world.

E  How would you sum up your first several months in office?
I am working hard but I will leave the assessment to others. I am working hard to finish my ideas. I am trying to finalize licenses and encourage people to come and do whatever they need from the ministry as soon as possible. We’re finishing their requests in a very short period of time… One more thing: we are planning to bring to the schools and the colleges [a program] which will give the students a chance to know more about industry in the country. I want the Lebanese to have trust in their industries and to have faith in a productive Lebanon and not just commerce. Look at some of the countries in Europe that depended too much on services and tourism. Shouldn’t we learn from that?

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Comment

A myriad of moving pieces

by Nicholas Blanford
written by Nicholas Blanford

The tumultuous start to 2011 with the collapse of the Saad Hariri government in Lebanon and the establishment, after several months of hard bargaining, of a new administration headed by Najib Mikati did not bode well for stability and economic improvement. But as the year draws to a close, the Mikati government has fared better than its detractors predicted.

The Tripoli businessman took a gamble by accepting the premiership in January, something of a poisoned chalice for a Sunni given the acrimonious manner of the ousting of Hariri, the leader of Future Movement and the pre-eminent Sunni political leader. Although Hezbollah engineered the downfall of the Hariri government and remains the quiet power behind the current government, Mikati has shown that he is no puppet of the Shiite party.

He has a reputation and international contacts in his own right, which in some ways make him a more useful partner for Hezbollah than an obedient drone.

One example is the debate over Lebanon's share of the funding for the Special Tribunal for Lebanon (STL), which has dogged the political debate since the summer. Hezbollah has consistently said it opposes Lebanon paying its 49 percent share of the funding, a rejection echoed vociferously by the party's allies, especially Michel Aoun. Mikati, however, has assured the UN that Lebanon will honor its obligations and pay its share, going so far as to threaten resignation over the matter, and eventually fund it through a government body under his authority.

A Mikati who retains international credibility and is allowed to win some political tussles is not a threat to Hezbollah. On the contrary, Hezbollah is likely to pick its battles with the STL with care.  Hezbollah clearly will stick to its stance of rejecting the STL funding, but that does not mean the government will follow suit.

Still, the STL funding issue is a mere hiccup compared to the historic events roiling Syria. There is a feeling in Lebanon that if Syria continues its descent into violence, it will inevitably spill across the border into Lebanon. Barely a day goes by without the local press reporting rumors of assassinations or militants arriving in the Palestinian refugee camps plotting nefarious deeds. The government faces the dilemma of juggling its loyalty toward the Assad government and accepting the reality that the regime may well founder in the coming months. The former stance will spare the government Assad's wrath but the latter will reshuffle the political cards in Lebanon in potentially dangerous ways.

Generally, international and regional players recognize the dilemma facing the Lebanese government and cannot be surprised when Lebanon is one of only three countries to vote against an Arab League proposal to suspend Syria's membership in the organization. Burying one's head in the sand is an essentially Lebanese means of dealing with unpalatable problems. But the influx of Syrian refugees escaping the violence and the prospect that some Sunni-populated areas in Lebanon near the border could become small-scale staging grounds for Syrian opposition fighters and activists will complicate Lebanon's ability to distance itself from the upheaval next door.

It is inevitable that Lebanon will feel some of the shockwaves emanating from Syria in the coming months, particularly if the struggle develops further into a sectarian conflict. But the real earthquake for Lebanon could occur if and when Assad is toppled, especially if the next regime better reflects the Sunni majority in Syria and aligns itself further from Iran and closer to Saudi Arabia and Turkey. Such a development will give a boost of adrenaline to the March 14 movement, especially Future Movement. Would it sufficiently embolden them to make a fresh play at confronting Hezbollah, which, after all, will still remain Lebanon's strongest military and political player even without the strategic depth provided by an Assad-led Syria?

Hezbollah has a habit of reacting forcefully and decisively against any moves that threaten its resistance priority and the party will already have made plans to counter a reinvigorated March 14. Much depends on the tenacity of Assad to remain in power and how a deteriorating Syria will impact more broadly on the region. But 2012 appears to be shaping up to be a most interesting — and potentially unsettling — year.

 

NICHOLAS BLANFORD is Beirut correspondent for The Times of London and The Christian Science Monitor.

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Banking & Finance

Investment guide MENA stock tips

by Executive Editors
written by Executive Editors

Despite the release of third-quarter corporate earnings last month, the markets remained fixated on macroeconomic news coming out of Europe. With the European sovereign debt crisis still unresolved, the markets remained jittery with investors sitting on the sidelines. For recommendations on where to invest in such volatile markets,

Executive spoke to Georges Abboud, head of private banking at BLOM Bank, Nadim Kabbara, head of research at FFA Private Bank and Haitham Arabi, chief executive of Gulfmena Investments.

Georges Abboud

Bullish or bearish?

According to Abboud, most fund managers are sitting on a lot of cash at the moment as, at least in Europe and the United States, markets seem to be heading back into recession. “You can start building some positions now but you need to be careful,” says Abboud. He recommends investing in companies with solid cash flows, as Warren Buffett did when his investment vehicle, Berkshire Hathaway, acquired Burlington Northern Santa Fe in November 2009. “Buffett is intelligent, he saw what was coming, so he bought a company with secure cash flows for the long term.”

Favorite asset classes?

“Now is not the easiest time to ask me where to put my money,” admits Abboud, though he still recommends investing in companies with high dividend yields, low price-to-earnings (P/E) ratios and a vision for growth for the next five years. He believes that the high rates on deposits in Lebanon allow him to buy time and identify stocks to invest in. He would not invest in gold as it has “no transparency, we don’t know what we are buying, we don’t know who the market players are, we don’t know what the leverage is and the speculators are everywhere.”

Thoughts on the Middle East and North Africa, Lebanon and top picks?

Abboud would invest in the MENA region as well as the Lebanese market. His two favorite countries are Saudi Arabia, which has deep pockets and is diversifying away from oil through large infrastructure projects, and Qatar, which has strong development prospects, abundant gas and solid dividend yields. His top pick in the MENA region is Orascom Telecom, but he warns that it is a risky trade. Being a telecommunications company, it is defensive but it carries political risk. As for Lebanon, he does not believe Solidere is expensive but as there is no visibility within the current environment he prefers the local banks, which are cheap, diversified in terms of activities and offer solid dividend yields.

Other interesting ideas outside the MENA region?

 1) Indian government bonds —current yield is around 8 to 9 percent with potential currency appreciation, as he expects India to continue enjoying solid gross domestic product growth. 2) General Motors — recently unseated Toyota as the world’s number one automaker, maybe the most compelling turnaround story in this sector. 3) Eurotunnel Group — operator of the Channel Tunnel between Britain and France. It is now profitable (started paying dividends two years ago) and should benefit from a significant cash flow boost through 2014.

Nadim Kabbara

Bullish or bearish?

 Kabbara is cautious but optimistic. He is concerned by the recent reports coming out of the US, Europe and Asia which show that the global economy is slowing. He is also concerned that we have not yet seen companies materially increase their revenues.

Favorite asset classes?

Kabbara highlights the disconnect between dividend yields on equities and coupons on 10-year treasuries. He believes that “Once we move out of this fear situation, there will be a return to fundamentals,” and investors will start buying equities again. He recommends owning stocks in defensive sectors — such as telecommunication, utilities and staples — but says “If you think we are going to go back into recession, then invest in fixed income and hold cash instead.”

Thoughts on the MENA, Lebanon and top picks?

 According to Kabbara, MENA markets are moving in the right direction but one must be careful when looking at individual names, “as there remains a lack of corporate governance, transparency and regulatory apparatus.” He likes Saudi Arabia, Qatar and the United Arab Emirates. For Saudi Arabia, it is because of increasing investment in the social framework of the country. As for Qatar and the UAE, they are sheltered from the regional turmoil, are increasing infrastructure spending and might be upgraded to MSCI emerging market status from their current frontier-market ranking. Mobily, telecom operator in Saudi Arabia, and Industries Qatar, producer of petrochemicals, steel and fertilizers, are Kabbara’s top picks in the MENA. BLOM Bank is his top pick in Lebanon due to what he calls their risk averse culture, solid operating metrics and capacity for growth. He would remain cautious this year as local banks have, prudently so, put growth projects on hold due to the turmoil in some parts of the MENA.

Top pick globally?

Barrick Gold, the world’s largest gold producer, as Kabbara believes investors have not paid enough attention to gold miners as compared to the physical (gold).

Haitham Arabi

Bullish or bearish?

Arabi is slightly bearish in the short term as “the European crisis is not entirely over and the Eurozone’s GDP is around 27 percent of the world economy, the numbers in the US are looking anaemic and we keep hearing that China’s figures are exaggerated, and that we might see a hard landing. All of which clearly indicate a slowing global economy.” Arabi, however, recommends being selective and gradually building positions on valuation grounds.

Thoughts on the MENA and top picks?

Arabi is cautiously optimistic about the region as, “from a markets perspective, Middle Eastern equity markets have stronger embedded fundamentals.” However, he is concerned that the global macro-environment will impact investor sentiment in the MENA markets. He believes that “in general, it’s time for stock picking, with a 6 to 12-month horizon before markets start to perform again.” Arabi likes Saudi Arabia and Qatar, which are in an expansionary fiscal policy mode. On Saudi Arabia, he adds, “it has around $21 trillion of oil reserves and its total debt to GDP ratio is only about 10 percent while some countries now have debt to GDP ratios in the region of 160 percent to 170 percent, so if anything Saudi is a great hedge for investors if they can read its fundamentals.” As for stock picks, Arabi likes Saudi Basic Industries Corporation as he believes “it is way undervalued”, trading at a P/E ratio of 8.5 times earnings for the first time in several years compared to a usual ratio of 18. It is one of his largest holdings. He also recommends the banking sector in Saudi Arabia and Qatar. In Saudi Arabia, he recommends Rajhi Bank, Riyadh Bank and Saudi British Bank. In Qatar, he likes Qatar National Bank, Commercial Bank of Qatar and Doha Bank.

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Economics & Policy

For your information

by Executive Editors
written by Executive Editors

Syria stutters

As Syria comes under further strain as a result of the ongoing uprising and government crackdown, a series of announcements last month reflected the effects on the country’s economy. In an interview with Bloomberg in late October, Adib Mayaleh, the governor of Syria’s central bank, said the country had spent $3 billion of a $5 billion emergency fund since the start of the uprising in March in order to defend its currency from devaluation and to finance trade. The fund’s existence was revealed in August when Mayaleh announced that $2 billion had already been spent. Mayaleh also noted that foreign currency reserves held by the central bank amount to around $18 billion.  European Union sanctions on oil imports from Syria are scheduled to start this month and are expected to deprive the government of an essential foreign currency source, accounting for 25 percent of total annual revenue. Last month Mayaleh also hinted the country may transition away from the euro towards the Russian ruble if the EU bans the country from dealing in their currency. “In the near future we will agree on parameters for switching to close cooperation with Russian banks and using the ruble for international settlements,” he told Bloomberg.  This year Syria’s economy is expected to contract by 2 percent, according to the International Monetary Fund. Other predictions are even worse for the Levantine state, with the Institute of International Finance positing a 3 percent decline. Syria’s finance minister announced in September the country was expecting gross domestic product growth to slow to around 1 percent this year from 5.5 percent in 2010. [See Dithering in Damascus]

Draft budget released

Last month Lebanon’s finance ministry proposed its draft budget for the year 2012, in accordance with the constitutional deadline for doing so. The budget proposed a series of new taxes including an increase in value added tax (VAT) from 10 percent to 12 percent, while removing VAT refunds on a series of fixed assets used to perform activities such as educational services, activities of non-profit organizations and manufacturing of books, newspapers and magazines. Last month Neemat Frem, president of the Association of Lebanese Industrialists, told Executive that industries have not been receiving their refunds from the VAT administration for over 18 months. “They are borrowing from the private sector without asking us, by force,” he said. The increase in VAT is expected to rake in around $262 million in 2012, according to the draft budget. However, last month Finance Minister Mohamad Safadi told a local radio station that the revenues from the VAT increase would  total $364 million. A 3 percent tax on sales of real estate was also proposed in anticipation of a tax on real estate profits by 2013. The budget also proposed raising the tax on gasoline by LL2,000 ($1.32) per jerry can (1 jerry can = 20 liters) after it was reduced by LL5,000 ($3.25) earlier this year. The budget also proposes a tax on the thorny issue of illegal privately owned maritime properties built on public land, without specifying the amount. The budget predicted real gross domestic product growth in 2012 at 4 percent with inflation expected to hit 5 percent. The total deficit was estimated to reach $4.1 billion, or 29.7 percent of total expenditure. Total debt servicing was estimated to come in at $3.86 billion, an increase of around $24 million on 2010. Other items proposed included exemptions from some fees for non-polluting vehicles and reducing late fines imposed on municipal fees by 70 percent for years prior to 2009. The budget did not account for the increase in minimum wage, decided upon by the cabinet last month, which Safadi stated would cost the government at least $700 million. The budget will have to be approved by cabinet and then sent to parliament to be debated before it is passed into law. Lebanon has been without a budget since 2005.

Lebanon gets thumbs up and down

A series of global economic rankings released last month provided a mixed outlook for Lebanon’s relative position in the region and globally. The World Bank/International Finance Corporation’s “Doing Business Report 2012”, released last month, ranked Lebanon in 104th place amongst the 183 countries surveyed, a drop of one place in the global rankings. The report is compiled according to a composite index of 10 sub-indices including availability of electricity, registering property, paying taxes and enforcing contracts, all of which are major problem areas in Lebanon. The country fared worse than the previous year in terms of getting credit, protecting investors and starting a business. Resolving insolvency was deemed to take around four years and 22 percent of a debtor’s total estate value on average, compared to 3.5 years and 14 percent in the region respectively.  Balancing this grim assessment was the right-wing Fraser Institute, based in Canada, which measures competitiveness and government intervention in global economies and praised Lebanon’s economic freedom, ranking the country second amongst 16 countries in the region last year, the same position as in 2009. The index measures five broad factors of economic freedom and 18 variables.

FDI down

Lebanon is experiencing a downturn in foreign direct investment (FDI) and will continue to do so for the rest of this year, in line with the regional situation brought on by this year’s uprisings across the Middle East. According to the Kuwait-based Arab Investment and Export Credit Guarantee Corporation (AIECGC), total FDI in Lebanon will fall by 39.5 percent this year, from $5 billion in 2010 to $3 billion. Thirteen of the 21 Arab countries will experience a downturn this year, according to the organization, with the Arab world tipped to experience an FDI contraction of 17 percent in 2011 to $55.1 billion. Countries which have recently experienced uprisings were particularly affected by FDI contraction, with Egypt expected to see a 92 percent slide to just $500 million this year. Tunisia is expected to receive 21 percent less FDI year-on-year in 2011, Syria’s figure will fall by 65 percent and Libya’s is expected to see an 87 percent plummet. A total of seven Arab countries were tipped to see growth in FDI, including Saudi Arabia with $29 billion (up from $28 billion in 2010) and Iraq, which should see investment inflows of $3.5 billion this year according to the AIECGC. 

3G prices and legal problems

Last month Telecommunications Minister Nicolas Sehnaoui revealed the pricing structure for Third Generation telecommunication services (3G), tipped to be launched in February. Users will be charged $19 dollars by the ministry for every 500 megabits (Mb) of data they use over the service. Mobile operator Alfa also released their pricing scheme for the service last month saying that the service will be introduced in the ”coming few months”.  The ministry is still embroiled in a court case at the Shura council, Lebanon’s highest court, with the private data service provider Cedarcom over licenses to operate the service. The council ordered the ministry to halt execution of the 3G project on September 15 for one month pending the submission of a request for information by the court. Sources close to the proceedings told Executive that the government had submitted the requested documents, which stated that the mobile operators do not need a license because they are government-owned. When it came to pricing the service, which for public companies would require a cabinet decision, the sources said the ministry intended to treat the mobile operators as commercial entities able to set their own prices.

Hunt again for energy

The cabinet seemed intent to restart on the road to hydrocarbon wealth last month as it prepared for a proposed bidding round at the start of 2012. Last month the cabinet authorized the launch of a tender process to survey onshore hydrocarbon prospects. It also recommended a new draft law to regulate onshore oil and gas exploration similar to the one passed in August covering offshore exploration. The energy ministry also revealed that it has launched a tender process to reassess the seven existing onshore wells drilled between the 1930s and 1960s.

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Real estate

For your information

by Executive Editors
written by Executive Editors

Property sales taxed

The Lebanese government intends to introduce a 3 percent capital gains tax on real estate sales. The proposals come as part of the Ministry of Finance’s efforts to raise government revenues and increase next year’s expenditure by 13 percent, as revealed in the draft budget on October 4. In an interview in mid October, Finance Minister Mohammad Safadi said that the real estate tax, in principle, is acceptable as long as it is below 15 percent. In June 2010, under former Minister of Finance Raya al-Hassan, a draft budget proposed a hike on property registration fees from 5 percent to 7 percent on real estate valued over $500,000 as an alternative to a tax on real estate sales. It was not implemented before the collapse of the government in January 2011.

10 new levels of luxury

A Saudi Arabian firm, Al Shegrey Group KAS Investment, has opened the doors to its newly completed boutique hotel in the Beirut Central District, according to the group’s October 3 press release. Le Dix Hotel, named after the 10 suites which each occupy their own floor, was built at a cost of $25 million, and includes luxury amenities such as private butler service and limousine transport to and from the airport. Arguably built at the highest cost per room key for a hotel in Lebanon, the large suites include two or three bedrooms, kitchen and balcony with an unblocked sea view. Chief Operating Officer of the firm’s hospitality division, Abdulkader A. Hankir said in the press release,”We invite presidents, ministers, ambassadors and businessmen from all over the world to visit Le Dix and have a look at one of the most luxurious hotels in the Arabic region.”

Summerland’s back

The Summerland Village – Residential Apartments was launched October 20, as part of the mixed-use Summerland Hotel & Resorts Kempinski development in Ramlet al Baida, Beirut. Kempinski is the hotel operator, while the developer is London-based Sanbar Development Corporation, the architects are Samir Khairallah & Partners, and the main contractor is Gruppo Rizzani de Eccher. Set to open its doors in spring of 2013, Summerland Hotel will encompass 22,000 square meters of private land with 5000 square meters of private beach, a village composed of 73 residential apartments and a 60-boat-capacity marina. The original Summerland Hotel, which closed in 2001, was created by Société Générale d’Entreprises Touristiques SAL in 1967.

Saudi, king of construction in 2011

Saudi Arabia is dominating the Middle East and North Africa (MENA) construction market this year, having amassed $17 billion worth of new contracts in the first nine months of the year, a 152 percent increase from the same period last year, according to a Bank of America Merrill Lynch Emerging Markets report released October 20. The United Arab Emirates, meanwhile, experienced the steepest fall in new contracts for the same period, down 55 percent compared to the same period last year. For the whole MENA new contracts are up 19 percent year-on-year, but third quarter results were disappointing as contract awards were down 18 percent to $17.2 billion for the quarter. The report pointed out that major UAE construction firms like Drake & Scull International and Arabtec had succeeded in diversifying away from UAE markets, but that Arabtec’s “construction margins are weakening due to low contribution from high-margin projects reaching the end of their cycle and mobilization delays.”

Hilton to manage Habtoor

Al Habtoor Group, the Dubai-based construction giant, announced on October 17 that Hilton Worldwide will take over the management of the group’s two hotels in Lebanon.  The handover of the running of the Habtoor Grand and the Metropolitan Palace will be completed in early 2012. Although a Hilton Hotel in Beirut Central District has been ready for visitors for more than a year it is awaiting the necessary permits to open.  The deals between Hilton’s chief executive officer Christopher Nassetta and Habtoor’s chairman and founder Khalaf al-Habtoor were signed at a media conference in Dubai, where they also revealed that Habtoor’s upcoming 324-room hotel on Palm Jumeirah would be run by Hilton under their luxury Waldorf Astoria brand when complete in 2013. It will be the second Waldorf in the United Arab Emirates after the Ras Al Khaimah property is complete in 2012. Habtoor’s remaining four hotels in Dubai will remain under in-house management, but both speakers said they hope to conclude more contracts together in the future. “We have experience in running our own hotels and we did a great job ourselves, but now we thought it is the right time to hand over this new project to the people who are professional, who have more experience than us, who can provide worldwide experience and also to promote our property,” said Khalaf al-Habtoor.

Cement industry’s slower build

Cement deliveries in Lebanon reached 3.7 million tons in the first eight months of 2011, showing a 4.8 percent increase compared to the same period last year, according to Lebanon’s central bank. However, this growth is more modest than the 5.5 percent growth during that period in 2010, and the whopping 20.5 percent growth in that period of 2009. In August, cement deliveries reached 451,000 tons, indicating a year-on-year growth of 6.2 percent, according to Bank Audi. As for the major players in the local industry, Holcim Liban declared net profits of $19.9 million in the first half of 2011 versus $18 million for the first half of 2010, according to a Byblos Bank report. Net sales were at $97.1 million for the first half of 2011 compared with $92.7 million for the first half of 2010. Société Libanaise des Ciments Blancs recorded net profits amounting to $1.4 million for the first six months of 2011 versus $1.5 million in the first half of 2010. Sales revenues were $6.9 million in the first half of 2011 compared to $7.5 million for the same period in 2010. These figures indicate that after a slightly slower start this year compared to 2010 the rate on construction is finally picking up to its 2010 autumnal levels.

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Banking & Finance

Lebanese capital markets

by Executive Editors
written by Executive Editors

BLOM Stock Index (BSI)

Weighted effective yield of Eurobonds

Equity update

The shivering political situation in the Arab region, the gloomy economic situation in Lebanon and fears of another global recession weighed negatively on investors’ appetites for equities. This was reflected by the relatively low daily average volume of 150,811 shares valued at $1.02 million during the four-week period between September 16 and October 14, as opposed to an average 182,811 shares worth $1.72 million traded daily during the preceding four-week period. The BLOM Stock Index (BSI) hovered between a lower threshold of 1,205 points and a higher band of 1,244 points, before closing at 1,220 points on Friday, October 14, its lowest close since June 2009. The BSI closed around 2 percent lower than on September 16, and 17.3 percent lower than its value on December 30, 2010. 

On the regional front, the BSI outperformed the Morgan Stanley Emerging Market Index (MSCI), which lost 3.5 percent, during the four-week period, to settle at 930 points after distressing economic developments in  Europe at the end of September. As for the S&P Pan Arab Composite LargeMidCap Index, it fell by 1.2 percent to 106 points.  

Banking stocks captured the bulk of trade between September 16 and October 14, representing 63 percent of the total value traded. BLOM Bank stocks retreated during the period, as its Global Depository Receipts (GDR) lost 3.9 percent to hit $7.85 and its listed stock declined by 4.7 percent to settle at $7.80. However, BLOM Preferred 2011 added 0.1 percent, to settle at $10.12. Bank Audi listed stock dropped 3.55 percent to $5.98, while its GDR reversed the trend, adding 0.15 percent to reach $6.83. Both Audi and BLOM common stocks touched their lowest values since their respective stock splits in May and October 2010. It is worth noting that Bank Audi listed an additional 1 million GDRs on the Beirut Stock Exchange that were converted from Audi listed stocks as of September. Byblos and BEMO common stocks decreased a respective 1.2 percent and 3.9 percent to $1.63 and $2.47, whereas Bank of Beirut common stock gained 1.2 percent to hit $19.50.

In the real estate sector, Solidere A and B edged below their support level of $15, losing 1.3 percent and 2.6 percent to stand at $14.95 and $14.9 respectively, their lowest level in more than two years.

In the industrial sector, cement manufacturer Holcim Liban added 1.7 percent to reach $16.99 after revealing an 11 percent year-on-year growth in profits. Ciment Blanc Class B hit $3.25, its highest level since March 1998.

Eurobond bulletin

The Lebanese Eurobond market saw some selloffs on profit taking from foreign investors during the last two weeks of September, in order to cover some of their losses incurred in emerging markets. The BLOM Bond Index slipped 0.15 percent to 111.07 points. The portfolio weighted yield remained almost unchanged at 4.77 percent, whereas the spread against the US benchmark yield widened 16 basis points (bps) to 388bps as investors rushed for fixed income instruments. Lebanon’s credit default swap (CDS) for five years — a proxy for a country’s risk of default — reached 402-432bps compared to 395-425bps on September 16. Comparatively, in regional markets, Dubai and Saudi Arabia CDSs were quoted at 453-464bps and 111-118bps respectively.

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Banking & Finance

Market bulletin

by Executive Editors
written by Executive Editors

Beirut SE  

>  Review period:  Closed October 24 at 1,212.74 points   Period Change: -1.69%

The Beirut Stock Exchange was a ghost town in October as investors hid from uncertainty in Syria and worrying indicators for the outlook of the Lebanese government, economy and banking sector. In the meantime, a raise in the minimum wage united business owners and employee syndicates against the government but did little to attract investors desperate for stability. Class A shares of Solidere, the developer of Downtown Beirut, fell 2.05 percent during the period while Bank Audi, which reported its slowest growth in net profit since 2007, held its ground.

Amman SE  

>  Review period:  Closed October 24 at 1,955.62 points   Period Change: -1.81%

A positive mood reigned over Amman stocks in October with a new political leader promising reforms even more feverishly than his predecessor. To investors, however, the ride back looks bumpy at best, but the 1.8 percent rise from the low point on October 10 is a good start. Regional instability is making it tough for the market, given the economy’s dependence on declining tourism. Royal Jordanian shares plummeted 7.8 percent on large full-year loss estimates but management and trading in banks was light, with Arab Bank falling 2.3 percent during the period.

Abu Dhabi Exchange  

>  Review period: Closed October 24 at 2,446.71 points   Period Change: -3.42%

The Abu Dhabi Exchange’s dismal performance in October proved that money can not always buy investor happiness. Abu Dhabi stocks, previously considered safe from the Dubai debt crisis, plummeted to a 30-month low as risk-aversion emanating from Europe left investors watching from the sidelines. Although the National Bank of Abu Dhabi reported strong third quarter earnings, the bank’s shares were met with little cheer at empty exchange hallways, leaving the stock to tumble to 5.2 percent, a minor loss relative to real estate developer Sorouh’s 15.7 percent plummet before reporting results.

Dubai FM  

>  Review period: Closed October 24 at 1,359.77 points   Period Change: -5%

Dubai may be safe from Arab uprisings but local woes proved enough to upset the markets. The Dubai FM index was the region’s worst performer during the period as rumors surfaced that the exchange would not be upgraded to MSCI Emerging Markets status in December 2011. If that were not enough, Emirates NBD, which was forced to take over fallen Dubai Bank, said profits fell more than half in the third quarter, sending its stock down 8.5 percent. Real estate developer Emaar fared even worse ahead of earnings, down 9.8 percent.

Kuwait SE  

>  Review period:  Closed October 24 at 5,918.5 points   Period Change: +1.46%

Kuwait’s market recorded another month of positive growth, as a new wave of optimism came from an increase in real estate transactions: National Real Estate witnessed an outburst of trading that drove the stock up 56.8 percent. Banks suffered the fate of their peers elsewhere in the region as National Bank of Kuwait reported dismally flat third quarter earnings and floated 3.78 percent upwards on low volumes. Ahli United Bank struck down investors with a 10.6 percent scorcher ahead of earnings.

Saudi Arabia SE  

>  Review period:  Closed October 24 at 6,132.25 points   Period Change: +0.33%

It appears nothing can shake the Saudi mammoth exchange, including the cancellation of the Zain Saudi Arabia takeover or the 53 percent drop in the company’s third quarter profit. Zain’s shares fell only 9.6 percent but the market remained buoyantly in positive territory. Banking stocks took the rudder, and with tailwinds of double digit growth in net profits in the third quarter, they brought in 2.3 percent from their bottom on October 4.

Muscat SM  

>  Review period:  Closed October 24 at 5,538.75 points   Period Change: -1.1%

The comeback from the end of September/early October slide was more difficult than expected for Muscat securities. Investors welcomed leaping profits at Bank Muscat, sending the stock up 3.4 percent, but kept National Bank of Oman flat despite increased third quarter earnings. The exchange’s newest comer, SMN Power, also received a warm welcome and a 3.6 percent rise over its subscription price. But the excitement remains limited by downbeat trading volumes, prompting brokerage firms to petition the Capital Markets Authority for more flexibility with margin trading rules.

Bahrain Bourse  

>  Review period:  Closed October 24 at 1,144.4 points   Period Change: -1.83%

Bahrain investors can take a breather from a marathon year of record losses. Mixed third quarter earnings kept some traders interested, but the cold pause in domestic politics and the rising tensions between Saudi Arabia and Iran do not bode well for the average capitalist. Arcapita’s rating was also downgraded and kept on negative watch by Moody’s as Gulf International Bank saw its profit dwindle 13 percent in the first nine months. Aluminum Bahrain fell 10 percent despite reporting growth in production, on fears of rising production costs and weaker global demand.

Qatar SE  

>  Review period:  Closed October 24 at 8,457.95 points   Period Change: +0.76%

It is not all good news for Qatari stock traders, but the worst is probably behind them. After an initial flop following rumors that the Qatar Exchange would not be upgraded to MSCI Emerging Market status in December 2011, stocks took comfort in strong profits at most companies and rallied 3.7 percent from their low point on October 5. Qatar National Bank, Qatar International Islamic Bank, Masraf Al Rayan and Commercial Bank of Qatar all bucked the MENA loss trend and reported healthy earnings, with the latter’s shares inching up 1.5 percent during the period.

Tunis SE  

>  Review period:  Closed October 24 at 4,538.41 points   Period Change: -2.74%

The victory of Islamic ‘renaissance’ party Ennahdha in Tunisia’s polls meant anything but a renaissance for Tunisian stocks. Although party leaders promised not to impose Sharia law or retract women’s rights, investors were cautious after several months of optimism. With lower tourist numbers, a crisis in nearby Europe and another round of elections in a year preceded by a re-drafting of the constitution, stocks fell. Tunis Air dropped 2.9 percent and Carthage Cement fell 3.8 percent during our review period through October 24.

Casablanca SE  

>  Review period:  Closed October 24 at 11,333.9 points   Period Change: -1.1%

Investors contemplated Moroccan stocks as they watched the forthcoming November 25 parliamentary elections on the horizon. A debate erupted over the construction of the country’s high speed train linking Tangiers to Casablanca. In choppy trading, Attijariwafa Bank, an exchange heavyweight, was off 3.42 percent during the period while Itissalat Al Maghreb held its ground. With the key tourism sector suffering, hopes are high for Gulf support after being promised full GCC membership.

Egypt SE  

>  Review period:  Closed October 24 at 4,311.88 points   Period Change: +4.22%

Egyptian stocks are again fertile land for investment. The resumption of negotiations with the IMF and World Bank over a subsidized $3 billion loan and 10 times more in promised funds by the G8 sent Egyptian stocks soaring to the top of MENA exchanges during the review period. The prisoner swap between Egypt and Israel and the recommencement of gas flows at revised prices boded well, and drove Orascom Construction Industries up 5.9 percent and Commercial International Bank up 12 percent.

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Banking & Finance

Financial quotes of the month

by Executive Editors
written by Executive Editors

“The biggest headwind the American economy is facing right now is uncertainty about Europe.”

Barack Obama, president of the United States

“Lebanon will not be affected by a recession in Europe as the Lebanese economy essentially is dollarized.”

Riad Salameh, governor of the Lebanese central bank

“You want to look for countries with relatively clean balance sheets, with AAA types of ratings and with the ability, importantly, to print money.”

Bill Gross, founder of Pacific Investment Management Co (PIMCO), the world’s biggest bond fund

“This is the most serious financial crisis at least since the 1930s, if not ever.”

Mervyn King, governor of the Bank of England

“It was a wrong decision.”

Khalaf al-Habtoor, chairman of Al Habtoor Group, on their decision to acquire a stake in British lender Barclays in 2008

“We are open to any investment opportunities in all parts of Europe.”

Mustapha al-Shamali, Kuwait’s finance minister

“Don’t be a dick.”

What an investor apparently told Glencore’s CEO Ivan Glasenberg after he asked about the possibility of a last minute increase in the list price of its $10 billion IPO

“They [the IMF] have very substantial resources that are uncommitted.”

Timothy Geithner, United States Treasury Secretary, on the US’s refusal to inject more funds into the IMF

“We do not look opportunistically at distressed assets or special assets that come up one way or the other.”

Mohamad al-Jasser, governor of Saudi Arabia’s central bank, when asked about buying European sovereign bonds
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Banking & Finance

For your information

by Executive Editors
written by Executive Editors

Beirut Stock Exchange trades thin

Trading activity on the Beirut Stock Exchange (BSE) is dire so far this year. The total volume traded stood at 64.2 million shares as of the end of September, a 54 percent year-on-year decrease. Turnover stood at $467 million, down a whopping 72 percent from September 2010, and the BSE’s market capitalization decreased 14 percent to reach $10.6 billion. While the Lebanese equity market is being hit, the spreads on the country’s credit default swaps (CDS) — effectively the market’s perception of a county’s default risk — have been outperforming global peers. Spreads on Lebanon’s CDS have widened just 22 percent in the third quarter and stood at 429.7 basis points according to CMA Datavision, a CDS and bond-pricing firm. This is a much better performance than the widening of spreads in Denmark (216 percent), The Netherlands (176 percent), Italy (165 percent) and Austria (160 percent). Only the United States, Venezuela and Ireland performed better than Lebanon in the third quarter.

Merrill Lynch and Barclays recommend Lebanese Eurobonds

Merrill Lynch upgraded its rating on Lebanon’s external debt to “Overweight” from “Market Weight” within its emerging markets portfolio, placing Lebanon in the same category as Abu Dhabi, Qatar, Jordan, South Africa, the Philippines and Uruguay. The upgrade is driven by the low beta correlation of Lebanese Eurobonds to the international markets, due largely to an increased risk aversion. Merrill Lynch also raised Lebanon’s allocation in its portfolio to 3.9  percent from 3.5 percent and highlighted that Lebanon’s external debt returns were the only ones in positive territory among the 42 emerging economies in the portfolio. Barclays Capital maintained its “Market Weight” recommendation on Lebanese Eurobonds in its emerging markets credit portfolio but raised Lebanon’s allocation to 2.8 from 2.4 percent.

Tier one capital ratio to hit 12 percent

Lebanon plans to raise its tier one capital ratio, the core measure of a bank’s financial strength, to 12 percent within seven years, more than required by BASEL III, a new global regulatory standard on bank capital adequacy. Basel III requires banks to hold a tier one capital of 6 percent, up from 4 percent, by 2015. According to Riad Salameh, governor of Banque du Liban (BDL), Lebanon’s central bank, the new capital requirement imposed on Lebanese banks would place them “among the highest in terms of capital adequacy.” BDL will soon issue a directive requesting a 10 percent target for tier one capital within four years, rising to 12 percent three years later. During meetings at the International Monetary Fund, Salameh indicated that he does not expect Lebanese banks, which have an insignificant exposure to European sovereign debt, to be affected by the European crisis. He added that current regulations encourage solvency and liquidity in line with Basel III.

Gulf investors drop bid for Zain Saudi

Kingdom Holding, own- ed by Saudi billionaire Prince al-Waleed bin Talal, and Bahrain Telecommunications (Batelco) dropped their $950 million bid to buy a 25 percent stake in Zain Saudi, the kingdom’s third-largest mobile phone company which is owned by Zain, Kuwait’s biggest mobile phone company. The failure of the deal follows the collapse of two previous attempts to acquire a 46 percent stake in Zain: one in March for $12 billion by the United Arab Emirates’ operator Etisalat, and one in September 2009 for $13.7 billion by India’s Vavasi Group and Malaysian billionaire Syed Mokhtar al-Bukhary. Zain Saudi’s third quarter results showed accumulated losses of $2.5 billion, pushing the company to focus on capital restructuring. Zain Saudi recently appointed Khalid al-Omar as chief executive officer after the resignation of Saad al-Barrak. As of October 13, Zain Saudi’s stock price was down 27 percent on the year.

Commercial bank assets up

The total assets of Lebanese commercial banks stood at $138.1 billion as of the end of August 2011, a 10 percent year-on-year increase. Private sector deposits also increased 10 percent year-on-year and stood at $113 billion. Deposits in Lebanese lira stood at $37.8 billion, down 1.7 percent year-on-year while deposits in foreign currencies rose 17 percent to reach $75.2 billion. The dollarization rate of deposits rose to 66.6 percent, up from 62.6 percent a year ago. Loans to the private sector increased 17 percent year-on-year and amounted to $39 billion, of which $5.6 billion went to the non-resident private sector.

Emirates NBD takes over Dubai Bank

Emirates NBD, the largest lender in the United Arab Emirates, has taken over the struggling Islamic lender Dubai Bank for an undisclosed amount on the orders of Sheikh Mohammed bin Rashid al-Maktoum, the ruler of Dubai. The Dubai government, which holds a 55.6 percent stake in Emirates NBD, had acquired Dubai Bank in May after it was hit hard by the financial crisis. Before the takeover it was owned by both Dubai Holding, with a 70 percent stake, and Emaar properties, with a 30 percent stake. In an emailed statement, the government’s media office said the takeover was “in line with Dubai government efforts to enhance the banking sector in the emirate.”

Iraqi Telecommunications IPO delayed

Iraq’s three telecommunications operators, Korek Telecom, Zain Iraq and Asiacell, missed their planned deadline for floating on the Iraqi Stock Exchange (ISX). The companies were expected to be listed by the end of August 2011 but will not be penalized for missing their targets and now seem unlikely to launch an initial public offering (IPO) until the middle of 2012. The operators are first required to change from private companies to shareholding firms, which is expected to take a month to complete. The Iraqi exchange’s market capitalization stands at just $4 billion, with the average daily volume traded just $2 million — yet, technically, it is one of the world’s best performing markets this year. Taha Abdulsalam, chief executive of the ISX, expects the current market capitalization to double when operators list on the Iraqi bourse.

Qatar investing in gold and Luxembourg banks

Qatar Holding, a subsidiary of the gulf state’s sovereign wealth fund, the Qatar Investment Authority (QIA), is planning to create a standalone investment vehicle called “Qatar Gold” to invest in gold companies. It began by acquiring a 10 percent stake in British mining company European Goldfields at a cost of $775 million, of which $600 million will finance mine development in Greece. The Qatari royal family is also buying two banks in Luxembourg previously owned by troubled Belgian banks, Dexia and KBC. Precision Capital, a Qatari-backed firm based in Luxembourg, agreed to buy KBC’s private banking unit, KBL European Private Bankers, for $1.4 billion. Following the break up of Dexia by the French and Belgian governments, the Qatari royal family agreed to acquire Dexia’s troubled unit in Luxembourg, Dexia Banque Internationale Luxembourg (BIL), for an undisclosed amount. Qatar National Bank, which is 50 percent owned by the QIA, is in talks to buy the Turkish division of Dexia, Denizbank, in a deal that could potentially be worth $6 billion.

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Feature

Revolution reaches for the next level

by Executive Editors
written by Executive Editors

Since February 11, Tahrir has been taken to the factories,” says workers’ rights activist and blogger Hossam al-Hamalawy. “The barometer for progress has been [thought of as] how many people gather in Tahrir, but that’s not true. The labor strikes that have taken place after former president Hosni Mubarak’s fall are phase two of the revolution.” 

Egypt has witnessed more than 120 different labor strikes since March this year, according to data from the Egyptian non-governmental organization (NGO) Awlad El Ard Association for Human Rights. This is in addition to over 490 sit-ins, demonstrations and protests. Experts estimate that roughly half a million workers participated in strikes in August and September alone.

The current wave of labor actions found its roots in December 2006, when the nation’s center of textile production in the industrial city of Mahalla El Kubra saw an outbreak of wildcat strikes. These protests in many ways helped pave the way for this year’s 18-day uprising and its perceived success after workers took to the streets during the final days of the revolution, ensuring Mubarak’s dethroning.

“The organization and awareness of workers is in itself outstanding… I think in the future, these workers will lead the way to change”

Unions unquelled

Labor agitation escalated in mid-September, most significantly when tens of thousands of teachers descended on downtown Cairo as part of a larger strike calling for increased wages. That same week, hundreds of thousands of doctors, nurses and health technicians walked out of public hospitals, while transportation networks ground to a crawl when workers from 25 bus depots across Greater Cairo staged a partial strike.

“The organization and awareness of workers is in itself outstanding,” says labor activist and journalist Moustafa Basyouni. “I think in the future, these workers will lead the way to change.”

Egypt’s labor force is more than 25 million people and worker protests have affected all sectors of the economy, most occurring in the public sector. Acting government officials eventually negotiated with teachers and transport workers. However, other strikers have been completely ignored.

“It just depends on the power of the strike,” says Hamalawy. “Look at the aviation workers; you can’t mess with them. They brought Cairo to a halt.” When air traffic controllers went on partial strike in early October, hundreds of flights were delayed and travelers stranded, forcing officials to address their concerns.

In what human rights activists consider among the more troubling responses to the strikes, workers have been arrested and tried in military courts. Many cite the authorities’ failure to address workers’ concerns in a consistent manner as an obstruction to a return to normalcy, wreaking havoc on the economy.

The government’s projected 3.5 percent economic growth rate for 2011-2012 is unrealistic given the unstable political and social environment, according to Magda Kandil of the Egyptian Center for Economic Studies.

“We know that growth rate has slowed to 1.8 percent,” she says, “and I’m not confident at this point that it’s back on track. The private sector remains at a standstill and foreign investors are concerned [about financial risk], so they’ve scaled down involvement.”

“The military is not dealing well with the labor strike movement,” she adds, referring to the Supreme Council of the Armed Forces (SCAF), the ruling junta that rose to power following Mubarak’s ousting.

“I think the frustration in the labor movement reflects [the fact] that many people are not happy,” says Kandil. “The best thing the ruling council can do is ensure a swift transition.” Parliamentary elections are slated to begin on November 28, but SCAF says it will retain power until a new president is elected, with this ballot now expected as late as 2013.

The number of civilians subjected to military tribunals by the ruling council exceeds the total number of people tried this way under Mubarak’s 30-year rule

SCAF’s bludgeon of ‘justice’

Within the confines of a military prison, Khamis Mohammad was stripped and beaten brutally. “I was treated as an enemy of the country, as if I was the reason for the poor economy,” says the young Egyptian who is one of many arrested on charges of public assembly in violation of an anti-strike law.

After being plucked from a 200-man sit-in outside Cairo’s petroleum ministry, Mohammad remained in a dingy jail cell for weeks until he was given a one-year suspended sentence by a military — not civilian — court. Such trials are just one aspect of post-revolution governance by the ruling military council that human rights organizations claim undermine a smooth transition to democracy.

“Military trials are a way of intimidating the opposition and are counter-revolutionary by nature,” says Shahira Abu Leil of the human rights group No Military Trials for Civilians. “The revolution was about freedom of expression and free speech. And the military has tried people who were exercising these rights.”

“SCAF is doing this because it’s a way to put people back into a disciplined state,” she adds.

Some 12,000 Egyptians have appeared before military courts since the start of the revolution; roughly 8,000 remain in prison and 4,000 have been released, according to Abu Leil. Courts have acquitted 795 of the total number of cases, equating to a conviction rate of 93 percent, Human Rights Watch (HRW) said in a September 2011 report; 1,836 individuals, like Mohammad, were released on suspended sentences.

“The judges are in a clear hierarchy, so one of the concerns we’ve had with the military justice system is there have been cases of clear political instruction,” says Heba Morayef of HRW. “In your average [civilian] courts judges make independent decisions, but in these cases SCAF is making the decisions.”

The ruling council has held their ground on the judicial system refusing calls to end military tribunals, citing increased crime rates and the need to prosecute baltageya — or thugs — who have been on the prowl since the January uprising.

“Military trials are easy and efficient,” Morayef says. The average length of each trial is between twenty and forty minutes and civilians are sometimes tried and sentenced in groups. “But decisions are often not based on proper examination of the evidence,” she argues.

The number of civilians subjected to military tribunals since the ruling council rose to power on February 11 exceeds the total number of people tried this way under Mubarak’s 30-year rule. Those convicted range from laborers to activists, such as blogger Maikel Nabil who went on a hunger strike after being sentenced to three years in jail for “spreading false information” and “insulting the military establishment”.

In early October, seven demonstrators were plucked from a protest in the Nile Delta city of Shabin El Koom while demanding improved factory conditions and increased job stability for workers at the Turkish textile company, Mega Textile. Those arrested were given 15-day jail sentences while investigations took place, an act allowed under Egypt’s Emergency Law.

“This needs to be changed because the people are considered guilty until they’re proven innocent,” says Egyptian lawyer Mohammad Hassan as he stands among a group of workers in the city.

Egypt’s widely reviled Emergency Law has long been a hot-button issue for activists because it gives the military government the right to detain people without charge and criminalize mass gatherings. Emergency law was to expire at the end of September but was renewed following a violent attack on the Israeli Embassy in Cairo.

“The recent crackdown is on political protests, labor protests,” HRW’s Morayef says, “and from a freedom of assembly standpoint, that’s very serious.”

SCAF is refusing to repeal emergency law despite requests not only by enraged activists but also by the Obama administration. United States Defense Secretary Leon Panetta raised concerns about the Emergency Law while visiting Egypt in October, and US President Barack Obama is urging Field Marshal Hussein Tantawi to repeal the action and put an end to military trials. As part of the widening crackdown, SCAF has placed a firmer grip on civil society, restricted press freedoms and carried out arbitrary arrests — all characteristics of Mubarak’s regime.

The Egyptian cabinet announced in September that more than 30 Egyptian NGOs are being investigated for receiving foreign funding without being properly registered. Should these groups be found guilty of “treason”, Egypt’s human rights network could effectively be shut down.

“The recent crackdown is on political protests, labor protests… and from a freedom of assembly standpoint, that’s very serious”

Silencing the press

Additionally, the military council is censoring media following months of relative press freedom. In mid September, plainclothes police  stormed the offices of Al Jazeera’s Mubasher Misr Channel , taking equipment and rouging up staff. Two weeks later, an edition of the weekly Sawt Al Umma and the daily Rose Al Youssef were prevented from going to print allegedly over controversial stories. In a subtler form of censorship, a writer at a popular Cairo-based magazine says management was told specifically not to write articles that criticize the military, or they would face punishment.

Most severely, military forces clashed with civilians on October 9 during a demonstration by Coptic Christians, leaving 24 dead and hundreds injured. The same evening, the US-funded Al Hurra television station was raided by military forces brandishing automatic weapons. Telephone, electricity and Internet services were also cut to one of Egypt’s leading newspapers, according to the Committee to Protect Journalists.

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