Executive Magazine

Jasmine in bloom

by Amna Guellali November 3, 2011

written by Amna Guellali

Judging by the long queues at the polling stations, the elections for Tunisia’s Constituent Assembly on October 23 were an enormous success. People of all ages and walks of life, most voting for the first time in free, transparent and competitive elections, came en masse, steeped in emotion and with a new sense of dignity. Many patiently endured hours of waiting to experience democracy.

Two days after this historic moment, Tunisian streets are animated by debates over how to interpret the results.

The Constituent Assembly is tasked with writing a new constitution, drafting laws necessary for the transitional period and appointing a new interim government. A daunting challenge will be to reach agreement on how to incorporate into the state’s fundamental legal document the uprising’s ethos, with its aspirations for justice, dignity and freedom.

In elaborating the new constitution, the assembly should uphold international norms of human rights and create strong safeguards against backsliding into repressive rule. The first of these safeguards should be to remove the qualifying language and exceptions to exercising the rights to freedom of opinion, expression, press, assembly, association and movement that in the previous constitution eviscerated these rights of their content.

A second responsibility of the assembly is to revise the laws that the former president, Zine el-Abidine Ben Ali, and his government used to crush any genuine opposition, undermine judicial independence and limit political participation. While the interim government revised some of these laws during the past year —- such as the political parties law, the press code, and the law on associations —- more needs to be done to purge the country’s laws of all the repressive provisions that can be used to violate the rights of citizens.

The ability of the Constituent Assembly to incorporate human rights protections into the constitution and laws will depend on the dynamics among the various political forces that Tunisians elected to serve in that body.

While the good results of Al Nahdha came as no surprise, other outcomes were unexpected. The first of these was the failure of the Progressive Democratic Party and the coalition known as the Modernist Democratic Pole to gain traction — likely due to their inability to unite in a strong coalition, and a backlash against their secularist discourse. By contrast, the Congress for the Republic and Ettakattol, two modernist parties that did not rule out allying with Al Nahdha, did better than expected. Another surprise came from the almost unknown Popular Petition party, led by Hashmi Hamdi, which gained numerous seats in inland cities such as Sidi Bouzid and in the coastal cities of Sousse and Sfax.

The elections made clear the strength of the Islamist movement on the Tunisian political scene. We will soon see if it remains true to its campaign pledges to respect public freedoms and human rights.

Since Ben Ali was ousted, Al Nahdha has made significant efforts to dispel the suspicion that behind a veneer of moderation it has extremist and intolerant tendencies. Al Nahdha’s political platform, published September 13, abounds in references to democracy, human rights, respect for dignity and tolerance, and the party does not officially advocate applying or using Sharia as a source of law. In public speeches, its leaders have repeatedly stated that they will not seek to roll back Tunisia’s personal status code, perhaps the most progressive in the Muslim Arab world.

But even today, there are contradictions in the discourse of Al Nahdha leaders that make some skeptical about its professed attachment to human rights. While the party includes “freedom of expression” in its general program, it has qualified that right in some of its public positions. When protests erupted on October 9 against Nessma TV after it aired Persepolis, an animated feature film that includes a scene in which God is personified, Al Nahdha issued a communiqué that condemned attacks on the sanctity of Islamic principles and contended that a distinction should be made between freedom of expression and attacks on sacred beliefs.

Across the political spectrum, Tunisians hailed their election as fair. Nonetheless, more than a few are concerned by the configuration of the Constituent Assembly, with a plurality held by Al Nahdha and the strong showing of Popular Petition. Whether they serve in the ruling majority or not, the political parties should not forget, in the gambit of alliances and coalitions, that the struggle for dignity that set off the revolution nine months earlier was no fluke. The Constituent Assembly will exist only for a short interim phase and is expected to adopt a new Constitution one year after convening.

Tunisia is about to have real politics for the first time. Its parties should not squander this opportunity to profoundly remodel the legal and political system to embody the aspirations of Tunisians.

AMNA GUELLALI is the Tunisia researcher for Human Rights Watch

November 3, 2011 0 comments

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Rein in the ratings agencies

by Paul Cochrane November 3, 2011

written by Paul Cochrane

Why should we take credit ratings agencies seriously anymore? It is a question that has growing currency globally, and one that would not have been asked several years ago, certainly not by those in the financial sector. Yet in these turbulent economic times I have heard corporate bankers, private traders, insurance brokers and compliance officers rant about how the credit ratings agencies (CRAs) have gotten out of control.

People are starting to question why the CRAs’ “opinions” — for that is what their ratings are — should wield such power in the global markets given their prominent role in instigating the financial collapse. Subsequent moves over the past year have further escalated the crisis, such as downgrading Greece, Portugal and Italy in the midst of the European sovereign debt debacle.

The CRAs raising ire are the three majors in the United States, Moody’s, Standard & Poor’s (S&P) and Fitch, not the 70-plus other CRAs that operate on a much smaller scale worldwide. Indeed when China’s Dagong, the only non-Western sovereign CRA, downgraded the US in 2010 to “AA” status it hardly registered, especially compared to when S&P did the same (to “AA+”) a year later.

In particular, the problem is the way the three CRAs work to assess the risk of debt-based securities and other structured financial products: CRAs are paid by clients to “objectively” rate these same clients. But there is a clear conflict of interest here. As US Senator Charles Schumer remarked to the Senate Committee on Banking, Housing and Urban Affairs in 2008, this is comparable to “allowing students to pay for their grades,” for naturally, everyone wants to receive a higher rating. CRAs bestowed “AAA” ratings — the highest possible — on the bulk of the $3.2 trillion in mortgage-backed securities issued by banks during the build up of the housing bubble, despite the risky nature of bundling together what is known as ‘collateralized debt obligations’, while watching their profits double to $6 billion between 2002 and 2007. When the bubble burst the following year and the big three CRAs were asked during US government investigations why they kept these securities rated so highly, all three stated: “it’s an opinion.”

Among the core issues here is that these opinions — the downgrade on the debt of sovereign debt or unrealistically high appraisals of toxic assets — are a type of self-fulfilling mantra: a poor asset wrapped in the gloss of a high rating will attract people to invest in it, making it worth more. This warps a market and can cause havoc, as we continue to see. Credit ratings are also used to anticipate future credit worthiness, but CRAs cannot predict the future no matter how good the data at their fingertips, and especially not if they are inherently in a conflict of interest.

So what is the solution to curb the powers of the CRAs? The US Dodd-Frank Act, the financial overhaul law enacted in 2010, and the Securities and Exchange Commission (SEC) have proposed policies to crack down on the CRAs, but they do not go far enough, with pressure from the well-lined pockets of the CRAs and Wall Street lobbying for significant concessions.

A more radical — and simple — solution was proposed by economist David Raboy at a Congressional Oversight Panel in 2009. Raboy suggested creating an independent clearinghouse that would receive rating applications from securities issuers and allocate each assignment to a ratings agency in a random fashion, with payment dependent on the complexity of the securities involved. Accurate ratings would ensure assignment of further cases. This model could be applied nationally or even at an international level, such as for sovereign ratings. Another solution is to scrap the CRAs all together. After all, the stock markets are devoid of ratings, with investors getting by on research from firms and banks to make decisions. If neither of these solutions is adopted — which seems likely unless the ongoing protests of the Occupy Wall Street movement pick up momentum for greater change in economic policy — then one must hope that the SEC can effectively rein in the CRAs through tougher regulation.

In a world with properly functioning markets, however, it is likely CRAs would have already rated themselves out of business, with their lost credibility leaving the services they offer akin to stirring gossip and spreading rumor.

PAUL COCHRANE is the Middle East correspondent for International News Services

November 3, 2011 0 comments

Society

Executive Insight – The style and substance of Steve Jobs

by Line Tabet, Zeina Loutfi & Ramsay G. Najjar November 3, 2011

written by Line Tabet, Zeina Loutfi & Ramsay G. Najjar

Steve Jobs is being mourned the world over, not just as a revolutionary inventor and talismanic chief executive officer, but also as an iconic personal brand and a globally-recognized leader who touched the lives of everyone, not simply the Apple fan or the tech community. Jobs is praised for his creative genius, for changing the way we communicate and interact and for turning Apple from a fruit into an international brand spoken in all languages across the globe. If we scour through the deluge of articles and blogs recently written in tribute to Jobs, we see recurring references to him as a visionary leader and dreamer, with one article even echoing George Bernard Shaw by labeling him “an entrepreneur who dreamed things that never were and asked ‘why not?’” Although the visionary aspect of Jobs’ legacy will continue to be studied and lauded for decades to come, what is even more striking was his uncanny ability to actually turn his visions into concrete reality through his unflagging persistence and passion. It is the combination of dreamer and achiever, a man of style and substance, which makes him stand out in history.

Clearly, these dualities are incarnated in Apple’s products that marry design with technology. But as experts in communication, what really makes us stop and think is how he also applied these dualities, combining content with form. For most companies, style, design and form are means to an end, which is to maximize sales of their products. But for Jobs, these assets had a different meaning. He understood that these dichotomies, dreamer and achiever, design and technology, content and form, were the key words that should lead his strategic thinking, as they would turn Apple into the successful company it is today.

To the point

On the product front the adjectives that come to mind are innovative, pioneering and revolutionary but also beautiful, easy to use, simple and sleek. Jobs revolutionized the technological industry, reinventing the concept of personal computing and rendering it accessible to all. This was done by turning computers into designs while creating a great experience for users.

Steve Jobs worked religiously on upholding both the content and form of Apple’s communication. He recognized that during times of tough competition and struggle over market share, strong and creative ideas are needed and original content is critical to attracting and retaining customers. Jobs learned this the hard way from his mistakes at Apple and NeXT Computer.

As such, when he rejoined Apple in 1997 he made sure to make communication his top priority. Jobs started by developing a new branding platform with two syllable words for consumer products: the iPod, iPhone, iMac and iPad. There have been many speculations as to what the letter “I” signifies, with different theories including Internet, innovation, inspiration and individual. Jobs personally oversaw the taglines used to market and promote Apple and its products, including iconic slogans such as “Think Different”, “iThink, therefore iMac” and “It’s small. It talks. And it’s in color.”

The effectiveness of Apple advertising can be summarized in two words: simplicity and clarity. You would be hard-pressed to find lengthy press releases announcing new developments. Instead they employed short and impactful messages devoid of technical jargon and sweeping numbers. This was applied throughout Apple’s many events, where presentations were punctuated with short sentences rather than bulleted PowerPoint documents, sometimes even resorting to imagery instead of words.

In fact, every Apple-related message was carefully written to convey the positioning of the company and allow customers to identify with its corporate culture based on innovation, passion and style. ‘Innovation’ because Steve Jobs’ purpose was not to sell products to customers, but rather experiences, something which translated into his messages. For Jobs, the iPod was “1,000 songs in your pocket”, the iPod Touch, “the funniest iPod ever” and the iPhone “the Internet in your pocket”. ‘Passion’ because Jobs believed that everyone should live to do something one loved and successfully achieve one’s dreams and as such would punctuate his sentences with words like ‘gorgeous’, ‘amazing’ and ‘fantastic’ when describing Apple products and services. ‘Style’ because Steve Jobs brought aesthetics to the heart of design, stating: “That’s not what we think design is. It’s not just what it looks like and feels like. Design is how it works.”

Another characteristic of Jobs’ communication was that he communicated solely about Apple, revealing little about himself. Nevertheless people dissected his messages in attempts to learn more about the man behind the logo. This was another carefully planned strategy to maintain an aura of mystery around him, not only reinforcing the perception of him as a visionary guru but also allowing each person to project his or her own ideas onto him and identify with him, with Apple and with its products. The video of his 2005 commencement speech at Stanford is a favorite on YouTube, which gave us a rare insight into the personal side of Steve Jobs, from Steve Jobs.

Hear what I say

As powerful as the substance and content is, it is only as impactful as the form or channel through which it is conveyed; in Jobs’ case that was his live performances. Jobs undoubtedly had talent and performance skills and knew how to leverage them. He made his live performances the most anticipated events in the tech year. The secrecy that surrounded his persona was extended to his products, creating anticipation among Apple fans who avidly waited for his performance. Each product launch was turned into a concert, whose rock star was Steve Jobs, a CEO full of energy and enthusiasm ready to introduce visionary products.

Among the more memorable moments were the envelope that was shown on the screen featuring the MacBook Air and Jobs reciting Bob Dylan’s “The Times They Are A-Changing” lyrics wearing a bow tie as he unveiled the Mac in 1984. The key success factor of these seemingly spontaneous shows was the perfectly coordinated build-up and weeks of rehearsal, which made these announcements a hit and demonstrated Jobs’ obsession with details and perfection. These timely performances, each of which had a specific purpose, were preceded by small pre-planned leaks, circulating information to raise curiosity and create drama. That said, Apple also bet on old school advertising with $420 million spent in 2010 on billboards, TV and online ads, all of which followed the rule of simple and clear messaging, with young people dancing and holding iPods or using the iPhone and iPad.

When it comes down to it, there is no secret recipe for successful communication. The equation is simple: content and form go hand-in-hand and no part of the equation should be favored over the other. Unfortunately, it is not something that companies and brands in our part of the world seem to have understood, with many still betting on the ability of flashy slogans and costly campaigns to make up for a lack of substance and content to back it up. From real estate to telecom, we have seen a myriad of regional companies put up impressive campaigns and creative visuals which have left us wondering: what is the real message, what do they stand for, what are they promising and can they deliver on it? These questions have remained unanswered and these companies have floundered in the aftermath of the global financial crisis. It is clear that in communication as in everything else, it is all about style and substance. Steve Jobs certainly understood that, and he will be missed sorely, not only for revolutionizing the technology industry but for setting the bar so high that it will be tough for anyone to follow suit.

November 3, 2011 0 comments

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Prisoners to politics

by Ahmed Moor November 3, 2011

written by Ahmed Moor

The prisoner exchange between Hamas and the Israeli government came at the only time it could; when the interests of both sides were aligned. In a sense, the actions of Mahmoud Abbas at the United Nations (UN) in September precipitated the deal. Both Hamas and the Netanyahu government sought to bolster their domestic popularity in its wake; something they managed with different degrees of success. The exchange — still unconcluded as October came to a close — has the potential to have an impact beyond its immediate implications, particularly for Palestinian reconciliation and the Gaza siege.

In June 2006 Hamas conducted a raid in which they killed two Israeli soldiers and captured one. The party’s stated intent was to gain enough leverage to compel Israel into conducting a prisoner swap for some of the roughly 8,000 Palestinians held in Israeli jails, many of whom are political prisoners.

On October 18, Hamas and Israel completed the first stage of that swap. When the two-stage swap is concluded, 1027 Palestinians and one Israeli will have been liberated. It is significant that the exchange happened now and not years ago when the two sides appeared to be close to a deal. The gap between them was likely bridged by a mutual deterioration in their political situations.

Abbas — probably unknowingly — was the common denominator between the two adversaries. His appearance at the UN successfully undermined Benjamin Netanyahu and, to a lesser extent, Hamas. The call for an independent Palestinian state resonated so deeply and widely in the international community that both the Israeli government and the Islamic movement were forced onto the defensive. Hamas has also become increasingly sensitive as its patron Syria has been marginalized. Both parties sought to boost their support among their constituencies and the high-visibility, high-impact strategy of securing the release of prisoners was the best way to do that. Hamas gained more from the deal but Netanyahu also experienced a bump in the polls. Furthermore, whether it was intended or not, the exchange had the added effect of undermining Abbas in two ways.

Firstly, Hamas demonstrated to the Palestinians that it could produce results: the release of Palestinian prisoners. Abbas by contrast seemed only capable of producing political theater. Further, Netanyahu made a massive concession to the extremists in his cabinet so as to gain their support for the deal. He agreed to the establishment of a new settlement which will consolidate the Israeli occupation of East Jerusalem, thus accelerating the erosion of Abbas’ credibility.

Aware of how weak the prisoner exchange with Hamas has made Abbas look, members of the Israeli government are now talking of attempting to bolster his public image by releasing more prisoners. However, hardliners led by Israeli Foreign Minister Avigdor Lieberman have protested loudly against any such move.

The political consequences of the prisoner exchange for the Palestinians are still unclear. It is likely that Hamas’ insistence upon the release of prisoners from all of the political factions earned the movement’s leadership goodwill among rank-and-file Fatah partisans. It may also work to thaw the hardened edges that have developed between the two factions in recent years, which would make a genuine reconciliation among the Palestinians possible.

Equally significant is the unprecedented degree of cooperation between Hamas and Israel. While not approaching anything like mutual recognition, the level of contact required for coordinating the exchange may provide the basis for future agreements on the scope of the Israeli siege on Gaza. Indeed, there have already been calls from both sides for the removal of the blockade — which was tightened punitively when Hamas captured the Israeli soldier.

The gains made by Hamas are also reflected on a regional level. According to recent media reports, Khaled Meshaal, Hamas’ political leader, may be meeting with Jordan’s King Abdullah soon. Observers believe that the organization is currently exploring the possibility of establishing political bureaus in Cairo and Amman.

Both Hamas and Israel have gained from the prisoner exchange. The Netanyahu government has improved its approval ratings while the Islamic party has reinvigorated its base and bolstered its reputation. What remains to be seen is whether the Hamas leadership is able to leverage the goodwill generated by the deal to weaken the siege on the Gaza Strip and achieve genuine reconciliation with Fatah.

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

November 3, 2011 0 comments

Economics & Policy

For your information

by Executive Editors October 24, 2011

written by Executive Editors

Low growth, higher debt

The prospects of a second-half economic rebound appear dimmer than ever as Lebanon rounds out the third quarter, with predictions for gross domestic product (GDP) growth in 2011 from several economic institutions looking grim. According to the Economist Intelligence Unit (EIU), the country’s economy will expand by just 1.3 percent, representing a drastic drop in anticipated growth, from 4.6 percent in April. The EIU maintained its 3.6 percent GDP growth outlook for 2012. The agency cited several reasons for the revision, including the usual political instability in the country and elsewhere in the region. The report stated that while it believed reforms would occur due to relative accord within the cabinet, they would be slow to take effect as corruption, patronage and an over-bloated public sector prevent further economic growth. Barclays Capital also predicted economic growth in 2011 to come in at just 1.8 percent because of spillover effects from the Syrian uprising and a weakening services sector. Barclays said that the deficit this year should stay at around 7.6 percent of GDP, but a 15 percent expected increase in expenditures next year will have a harrowing effect on debt dynamics as the predicted deficit widens to 8.5 percent. The International Monetary Fund (IMF) also weighed in with a projected growth figure of 1.5 percent, granting Lebanon the honor of the 16th slowest growth rate in the world. The IMF said that in the region Lebanon would come ahead of just Egypt and Tunisia in growth rates. Standard Chartered Bank also revised its previous 3 percent growth forecast downward to 1.5 percent.

Lebanon a little less risky

Lebanon has marginally improved its risk profile, if only in comparison to the rest of the Middle East. According to Euromoney magazine, Lebanon ranked 82nd out of 184 countries in terms of its risk profile and 11th out of 20 in the region. The rank is a 10-spot improvement on the June 2011 global rankings and represents the biggest leap in the region. The rankings were based on six weighted indicators: political risks (30 percent), economic performance (30 percent), access to bank finance and capital markets (10 percent), debt indicators (10 percent), credit ratings (10 percent) and a structural assessment (10 percent). Political risk declined by 1.3 percent since June, while Lebanon’s access to bank finance and capital markets rating increased by a whopping 288.7 percent.

Sharpening the stats

In an attempt to partially rectify the endemic lack of credible and timely data, the Central Administration for Statistics (CAS), Lebanon’s public bureau of statistics, is launching a new project that will form the basis of economic projections for some time to come. Last month the CAS announced that it will launch the National Household Budget Survey for 2011, the first such poll since 2004. The survey will cover a sampling of 4,000 households in cooperation with the World Bank and will quantify several elements related to the social, economic and demographic development in the country. The results will help assess poverty levels and provide a basis for updating the weights on different products used in the compilation of the consumer price index, the main indicator of inflation. Moreover, the survey will give a more accurate and timely reading on labor and unemployment levels.

Subsidy deal staves off strike

A nationwide strike by public transport sector workers was called off last month after a late-night deal to implement a subsidy for the drivers, which was agreed to during the previous cabinet’s term but never implemented. The subsidy will be doled out once a month and will cover the equivalent of 12.5 jerry cans (1 jerry can = 20 liters) of gas to around 40,000 licensed taxi drivers, as well as to an undisclosed number of truck drivers. The subsidy will provide taxi drivers with a total of LL470,000 ($311.77) per month, and truck drivers will receive LL350,000 ($232.17) over the next three months. The move comes after a reduction on the gasoline excise duty by LL5000 ($3.30) in February to a total of LL4,530 [$3.02] per jerry can.

EEZ finally rubber stamped

After a long wait, the Lebanese government is one step closer to future offshore oil and gas exploration. Last month the cabinet signed off on the borders of Lebanon’s exclusive economic zone in the Mediterranean Sea, which was ratified by Parliament in August. The declared border puts the country at odds with Israel after the latter declared a different border demarcation earlier this year. The cabinet decision follows an agreement between Tel Aviv and Nicosia that adopted “Point 1” as the ending point for Israel’s proposed border with Lebanon, which starts in Ras Naqoura and ends 133 kilometers off the coast at an angle of 291 degrees. Lebanon also signed an agreement with Cyprus adopting “Point 1” but never ratified it in Parliament. The new law proposes an end point around 17 kilometers southwest of “Point 1”, which corresponds to Israel’s existing northernmost contract blocs — areas where oil and gas companies can come to explore and extract hydrocarbon resources. The difference of opinion has resulted in a disputed area of some 854 square kilometers and has fueled fears of potential conflict.

Improving irrigation

The ongoing issues over a lack of irrigation in Lebanon’s rural areas will be addressed after an agreement between the ministries of agriculture, energy and water, the United Nations Food and Agriculture Organization and the Italian government was inked last month. The agreement will see $370 million provided by the Italian government go towards the rehabilitation of outdated water networks. The project seeks to deliver water to about 15,000 hectares (150 square kilometers) over the next five years. Irrigation accounts for around 60 percent of Lebanon’s water demand.

EDL hemorrhages ever more

Transfers from the treasury to Electricité du Liban during the first half of the year came in at $684 million, a 22 percent increase on the first half of 2010, according to the finance ministry. The increase in transfers, said the ministry, is due to higher prices for fuel and increased payments to the Egyptian Natural Gas Holding Company (EGAS) for natural gas delivered via pipeline. Payments to Lebanon’s two fuel providers, the Kuwait Petroleum Corporation (KPC) and Algerian energy conglomerate Sonatrach, totaled $620 million, constituting 90.6 percent of payments, while $36.4 million, or 5.3 percent of payment, went to EGAS, with debt servicing accounting for the rest. According to the Finance Ministry, average oil prices increased for the first half of 2011 by 14 percent, along with a 10 percent increase in the quantity of imports.

Striking for a higher lowest pay

As a general strike planned for October 12, called for by the General Labor Confederation (GLC), Lebanon’s largest union, looms on the horizon, a report released by the consulting and actuarial firm Muhanna and Co outlined the effects of increasing the minimum wage to the GLC’s proposed LL1,250,000 [$829.18] per month from its current level of LL500,000 [$333.3]. The report outlined the potential consequences the increase could have on different sectors of the economy and found that the increase would raise labor costs the most in agriculture, with a projected 99 percent increase, though operating expenditure in the sector would rise just 15 percent. Other sectors would also be hit by rising labor and operating costs, such as banking and insurance (24 percent and 12 percent, respectively), construction (72 percent and 15 percent), education and health (72 percent and 36 percent), energy and water (32 percent and 2 percent), industry (67 percent and 11 percent), market services (49 percent and 29 percent), trade (64 percent and 26 percent) and transport and communication (44 percent and 9 percent). The report proposed that the minimum wage should be raised to 150 percent of the poverty line, or LL750,000 ($497.51) per month. The labor ministry has formed a committee to study the effects of a minimum wage increase while, as Executive went to print, negotiations with the GLC to avert the strike were ongoing.

October 24, 2011 0 comments

Real estate

For your information

by Executive Editors October 24, 2011

written by Executive Editors

In District//S, size does matter

The developer behind the 22-building residential and retail community District//S in Beirut’s Saifi area has launched a new initiative to satisfy those looking for pied-à-terres in the city in September. The launch, at Lebanon’s DREAM exhibition in the Beirut International Exhibition and Leisure Center, unveiled the plan for 20 one and two-bedroom studios. The studio apartments will be fully furnished and serviced (cleaning, laundry, concierge service, gym access), with the local interior design firm Nabil Dada and Associates offering four schemes. All of the studios, ranging from 65 to 160 square meters, will be offered within one five-story building of District//S, according to Estates co-founder Anthony el-Khoury. Namir Cortas, chief executive officer of Saifi Modern, owner of District//S and co-founder of Estates, told Executive that there could be more than 20 studios if there is more demand in the future. The price differential of the studios is about $1,500 more per square meter than the $7,000 per sqm starting price of other apartments in the development. “The price differential is our estimated cost for furnishing them and equipping them,” said Cortas. Studio construction is expected to be complete within four years, in line with the rest of the project.

DREAM goes green

London-based green-building consultancy firm, G, has partnered with 45 buildings in Lebanon to lead them to Leadership in Energy and Environmental Design (LEED) certification. Nader Nakib, chief executive officer of G, told Executive at the DREAM exhibition in Beirut that for the first time investing in green technology in Lebanon is worth it for developers. “The cost of going green for a first level certification is around 2 percent extra of the construction cost,” he said, adding “but the central bank subsidy allows for up to 45 percent of the construction cost at almost zero percent interest fee.” G is the LEED consultant for a number of developments in Lebanon, including Audi Plaza, Beirut Terraces, Beirut Waterfront, Beirut Harbor, Saifi 178, Verdun Hights, the ESCWA Building and most recently Saifi Gardens. In the District//S residential community, G will ensure rainwater collection techniques, the use of recycled material where possible and the use of environmentally friendly gases for ventilation and air conditioning systems.

Real Estate branches out

Jouzour Loubnan, an environmental non-governmental organization working towards the restoration of Lebanese woodland, is partnering with both private developers and government municipalities to continue planting trees in Lebanon on government land. Raoul Nehme, president of the organization, told Executive at the DREAM exhibition that, in addition to 38,000 trees already planted since 2007, the group hopes its partnership with developers like Estates and HAR Properties will mean an additional 35,000 trees planted this year alone. The programs with real estate developers, launched two months ago, mean that “for every meter squared built and sold, one meter squared of new forest area will be planted,” Nehme said. The 2011 budget for the group is $400,000 based on an average cost of $10 per tree planted. Phillippe Tabet, chief executive officer of HAR Properties, the developer behind the AYA building in Mar Mikhael and UPark building in Ashrafieh, said at the exhibition that HAR’s contract with Jouzour does not directly help sales but is still part of the group’s “dedication” to green building.

Rejuvenating Iraq’s housing stock

Iraq has the biggest shortage of affordable housing in the Middle East and North Africa (MENA) region after Egypt, with about a million homes needed to bridge the gap, according to a September Jones Lang LaSalle report for the MENA region entitled “Why Affordable Housing Matters”. The National Investment Commission in Iraq is to construct 1 million affordable houses, and up to 430,000 of them are expected to be completed by the end of the first quarter of 2012, according to the report. In related news, Faleh al-Ammiri, under secretary of the Iraqi Ministry of Housing and Construction, told Gulf News in a September 16 interview that the National Housing Plan currently includes 30 projects where units are to be sold to nationals at cost price or below. He added that financing for real estate is still in its infancy: “We look forward to a time when the private banking system takes part in financing investment projects and the limited housing projects with the cooperation of the state’s ministries,” he said.

Jordan’s unpaid builders

Local contractors are owed $282 million by developers and public sector institutions, President of the Jordan Construction Contractors’ Association Ahmad Tarawneh claimed in September. Tarawneh told The Jordan Times that the gap would force contractors to lay off staff if payment is not received in the short term. He highlighted major Turkish developer GAMA, which is carrying out the Disi Water Conveyance Project, but claimed that other projects like Andalucia and Abdali Urban Regeneration Project also failed to pay local firms. “For the past two years, developers have been promising to pay their financial obligations to contractors, but nothing happened,” he said. In a September 12 statement to Construction Week Online, Yahya Kisbi, Jordanian minister of public works and housing, disputed the figures claiming the government only owes local contractors $70.6 million, with the Ministry of Planning and Internal Cooperations owing $29.6 million. In related news, an official at the Central Bank of Jordan told The Jordan Times in a September 13 article that the loans extended to the property sector reached 2.2 billion Jordanian dinars ($3.09 billion) by the end of July, or 12 percent of the overall deposits at local banks. Commenting on the figures, President of the Housing Investors Society Zuhair Omari said that the availability of this cash at the banks, coupled with the improved lending policies in the local banking sector, should galvanize the property market in the final quarter.

Riding the wave in Oman

Consolidated Contractors Company Oman, a subsidiary of CCC group, headquartered in Athens, has won the contracting tender to build the Omagine mixed-use development of residences, educational buildings, hotels and theme park along Muscat’s waterfront near Seeb Al Hail in Oman. The total cost of the project is $2.59 billion, which will see the US-based Omagine Inc. developers create an integrated touristic and residential area on more than 1 million square meters that will complement the upcoming The Wave touristic marina and retail center in the capital. A total of 2000 homes will be built around a marina, which will have an array of hotels and resorts ranging from three-star to five-star. The centerpiece of the development includes a cultural theme park that will feature exhibition buildings and an open-air amphitheatre. According to the Oman Daily Observer in a September 17 article, Omagine’s equity holding in the project is 60 percent, while newly formalized shareholders include the Office of Royal Court Affairs (25 percent), Consolidated Contractors Company SA (10 percent) and Consolidated Contractors Co Oman LLC (5 percent). CCC boasts a 120,000-strong workforce in the region and is already commissioned to several other projects in Oman.

October 24, 2011 0 comments

Banking & Finance

Lebanese capital markets

by Executive Editors October 24, 2011

written by Executive Editors

BLOM Stock Index (BSI)

Weighted effective yield of Eurobonds

Equity update

Persistent political unrest in the region and volatility in the international markets continued to have a negative impact on the Beirut Stock Exchange (BSE). The BLOM Stock Index (BSI), Lebanon’s equity gauge, followed a downward path between August 16 and September 16, 2011, to hit a 27-month low of 1,244 points. The BSI was down 4.7 percent on the previous month, extending its year-to-date retreat to 15.7 percent. The BSE witnessed a daily average volume per month of 182,811 shares, worth $1.71 million, during the four-week period of August 16 to September 16, as compared to 153,424 shares, valued at $1.74 million, over the preceding four-week period.

When compared to regional equity markets, the BSI underperformed the S&P Pan Arab Composite LargeMidCap Index and the Morgan Stanley Emerging Markets Index. The former inched up 0.3 percent to 107.3 points and the latter slipped 2.6 percent to 963.7 points as investors remained wary.

During the period, banking stocks dominated on the BSE, accounting for 64 percent of the total value traded. BLOM Bank’s stocks witnessed a mixed performance, with its Global Depository Receipts (GDR) falling 4.4 percent to settle at $8.17 while BLOM listed stock advanced 2 percent to $8.19. Audi Bank’s GDR and listed stocks fell, with the former declining 5.2 percent to $6.82 and the latter falling 9.9 percent to $6.2, hitting their lowest level since the 10 to 1 split became effective in May 2010. Byblos Bank’s common stock retreated as well, inching down 0.6 percent to $1.65, whereas Bank BEMO stocks slipped by 6.2 percent to an all-time low of $2.57. Bank of Beirut’s common stock reached a peak of $20 on September 9 before ending at $19.26 on September 16, still 1.4 percent higher than its close on August 12. With regard to preferred stocks, Byblos preferred 2008 and 2009 lost 0.5 percent each to align at $100, while Bank of Beirut preferred D and E declined by 1.6 percent each to stand at $26. BLOM preferred 2011 rose 1.1 percent to close at $10.11.

Real estate leader Solidere saw its market dominance decline. Solidere A and B stocks tumbled an average of 9 percent to a 28-month low of $15.15 and $15.30, respectively.

In the industrial sector, cement manufacturer Holcim’s stock reached its highest level since October 2008, peaking at $17.88 on September 8 before settling at $16.70, 1.3 percent higher than its close the month before. Ciment Blanc Class B hit its highest level since March 1998, touching $3.25, before declining to $3.07, though still up 3.4 percent from August 12, whereas Ciment Blanc Class N rallied 11 percent to $1.72.

Rasamny Younis Motor Company stocks fell 7.4 percent to a one-year low of $2.50.

Eurobond bulletin

The Lebanese Eurobond market has been volatile over the month. The market witnessed some selloffs on long-term maturities, especially on the 2021 issue between the middle and end of August before it rebounded, boosted by higher demand from local investors on the long end of the curve. Thus, the BLOM Bond Index rose 0.3 percent to reach 111.24 points. Consequently, the portfolio weighted yield fell by 14 basis points (bps) to 4.8 percent, while the spread against the United States benchmark yield widened 7 bps to 404 bps. Lebanon’s five-year credit default swaps (CDS) — which vary positively with the country’s default risk — reached 395-425 bps compared to 361-391 bps on August 12. Comparatively, in regional markets, Dubai and Saudi Arabia CDS were quoted at 415-430 bps and 111-113 bps, respectively.

October 24, 2011 0 comments

Banking & Finance

Financial quotes of the month

by Executive Editors October 24, 2011

written by Executive Editors

“We should resign ourselves to the fact that the ‘new normality’ is characterized by volatility and uncertainty”

Mohammad Safadi, Finance Minister of Lebanon

“Looking forward it’s gloomy and at best, the economies will not perform. Far Eastern economies and third-world economies like Lebanon will keep on growing, but not as fast”

Sheikh Mohammed Bin Rashid al-Maktoum, ruler of Dubai

“Dubai is well”

“The German public still thinks that it has a choice about whether to support the euro or to abandon it. That is a mistake”

Mohammad Jleilati, Syrian Minister of Finance, on the GDP growth of Syria

“Now, it will be around one percent, because of the events… maybe between one to two percent”

“We’re facing a challenge which one can call historic. If the euro fails, then Europe will fail”

Mohamad al-Jasser, Saudi Arabia’s central bank governor on the future of the common GCC currency

“The economic situation in our countries is excellent and nothing is delaying the currency”

Riad Salameh, Lebanon’s central bank governor

“Lebanon is immune to what is happening in Syria or worldwide because of the model we have, which is a highly liquid, prudent approach to credit and low leverage”

Jacek Rostowski, Poland’s finance minister

“The risk of all sorts of authoritarian political movements, and therefore even war, in the long horizon, rises”

October 24, 2011 0 comments

Banking & Finance

MENA stocks tips

by Executive Editors October 24, 2011

written by Executive Editors

With the European sovereign debt crisis taking center stage last month, the United States economy still in tatters and uprisings continuing in parts of the Middle East, uncertainty prevailed in the markets. Surrounded by such volatility, what is a Middle Eastern investor to do?

For an expert opinion on how to navigate the markets, Executive spoke to Ammar Bakheet, head of asset management at Audi Bank, and Khaled Zeidan, general manager at MedSecurities, a BankMed subsidiary.

The scoop

Bakheet remains very conservative in his approach, as he believes that the market turbulence will persist at least until the end of the year. However, he sees significant opportunities in the current environment and recommends buying high quality, fixed-income instruments rated triple B or better, and big blue chip companies with high dividend yields. Zeidan also favors fixed-income and equities; he believes equities are very cheap and advises to buy defensive names — such as telecommunications and utilities — as they have been beaten down badly along with the growth sectors like technology. Both Bakheet and Zeidan say they would avoid gold. Bakheet believes buying gold now is a gamble, and Zeidan prefers investing in productive assets.

Both Bakheet and Zeidan are optimistic about the investment opportunities they see in the Middle East and North Africa. According to Zeidan, the interesting thing about the region is that it offers solid names with high dividend yields. Saudi Telecom Company (STC), as an example, is one of the largest telecom companies in the region and in emerging markets generally, and has had a consistent dividend yield of 7.5 percent on a currency that is pegged to the US dollar. Zeidan pointed out that this is better than buying a corporate or government bond as the yield is more attractive. His favorite regional countries to invest in are Saudi Arabia and Turkey, as both countries have solid growth, relative political stability and a young population. According to Bakheet, with oil prices still holding high, the region is raking in revenue and many infrastructure projects are being announced. His favorite MENA countries to invest in are Saudi Arabia, the United Arab Emirates and Qatar.

As for long-term stock recommendations, Bakheet suggests buying Mobily, the second mobile telecommunications company in Saudi Arabia. He would also buy Maaden, the largest mining company in Saudi Arabia. Zeidan on the other hand would buy leading Turkish banks due to the fact that their stock prices have been severely beaten down, yet they have great balance sheets and no exposure to Europe. He would also buy into the telecommunications sector in Saudi Arabia, such as Mobily and STC.

October 24, 2011 0 comments

Banking & Finance

For your information

by Executive Editors October 24, 2011

written by Executive Editors

Gold boosts BDL assets

Total assets at Banque du Liban (BDL), Lebanon’s central bank, rose 6.2 percent in August to reach $72.75 billion, mainly due to an increase in the international price of gold. The value of BDL’s gold reserves increased by 12.5 percent to $16.75 billion, accounting for 44 percent of the rise in total assets. Lebanon plans to keep its gold reserves at around $17 billion as it tries to protect its economy from domestic unrest in neighboring countries, according to BDL Governor Riad Salameh. The central bank’s foreign assets (excluding gold) rose by 5.6 percent in August to $32.14 billion due to an increase in confidence in the Lebanese currency. On the liabilities side, private sector deposits increased 3.7 percent to $48.6 billion, while public sector deposits went up around 7 percent to $6.08 billion.

HSBC axes Lebanon branches and jobs

HSBC is closing three branches in Lebanon, consolidating its network by half, not including its headquarters. The move is part of an ongoing global effort of the HSBC Group to “improve efficiency”. The bank plans to cut 30,000 jobs by 2013, which amounts to approximately 10 percent of HSBC’s total workforce. As well as the job cuts, HSBC is closing its retail banking operations in Russia and Poland and selling three insurance businesses as part of pre-announced plans to save $2.5 billion to $3.5 billion by 2013. HSBC recently sold 195 retail branches in the United States, primarily in New York, to First Niagara Bank for approximately $1 billion.

Lebanon moves up the global competitiveness ranks

Lebanon is ranked 89th in The World Economic Forum’s global competitiveness report for 2011-2012, up three places year-on-year. Qatar is the most competitive country in the Middle East and ranked number 14 overall, up three places from a year ago, followed by Saudi Arabia (17), which enters the top 20 for the first time and gained four places on the year before. The United Arab Emirates (27) fell two slots. The most competitive country in the world is Switzerland, followed by Singapore, which overtook Sweden for second position. Northern and Western European countries dominate the top 10.

Iran’s banking scam reaches Ahmadinejad

Several Iranian banks have been targeted in one of the biggest frauds in the Islamic republic’s history, losing nearly $2.6 billion over more than two years. The financial scandal involved the forging of documents to secure credit from various financial institutions, including Bank Saderat, one of the largest in the Middle East. The proceeds were then used to purchase state-owned enterprises, such as the Khuzestan Steel Company, as the government implemented its controversial privatization scheme, which began in 2004. Iran’s Minister of Economic Affairs and Finance Shamseddin Hosseini said on September 18 that the chief suspect of the banking scam had been detained but gave no further information. Kayhan, a conservative newspaper under the direct supervision of the Office of the Supreme Leader, identified the suspect as billionaire mogul Amir-Mansour Aria and alleged complicity on the part of President Mahmoud Ahmadinejad’s top ally, chief of staff Esfandiar Rahim Mashaei. Ahmadinejad denies Mashaei’s link to the scandal.

Growth forecast in Syria hit by ongoing unrest

The International Monetary Fund (IMF) cut its growth forecast for some countries in the Middle East and North Africa due to the continuing social unrest in the region and the volatility in the oil price. According to the report, “the outlook is subject to large downside risks”. Lebanon is expected to grow 1.5 percent in 2011 and 3.5 percent in 2012. For oil-exporting economies, the IMF expects a 5 percent growth in 2011 and 4 percent growth in 2012. Qatar will continue to lead the way, followed by Iraq (which has the highest growth forecast in 2012) and Saudi Arabia. For oil importers in the MENA, the forecast is grim, as the IMF expects average growth of 1.5 percent in 2011 and 2.5 percent in 2012. Syria has the worst growth forecast in the MENA region, as it is expected to contract by 2 percent this year (down from an April forecast of 3 percent growth) due to the more than six month uprising and European sanctions.

Qatar investing in Greek banks

EFG Eurobank and Alpha Bank, the second and third largest banks in Greece, respectively, are to merge with the help of Qatar. The merger will take place via an all-share swap with a 1.25 billion euro [$1.68 billion] rights issue, followed by a 500 million euro [$672.7 million] convertible bond to be covered by Qatar. Alpha will offer Eurobank investors five new shares for each seven they hold. The expected deal will result in the formation of the biggest bank in southeast Europe. Qatar, which already owns 4.5 percent of Alpha, will become the largest shareholder with a 17 percent stake in the combined bank. Banks are not the only assets in Greece that Qatar seems interested in. According to the Greek Reporter, the ruler of Qatar, Sheikh Hamad bin Khalifa al-Thani, is interested in acquiring two islands, including Scorpios, which was originally bought by Greek billionaire Aristotle Onassis and whose granddaughter is now looking to sell the land. But according to Theodoros Varikos, mayor of the region, the elder Onassis specified in his will that the island could not be sold.

US targets Israeli banks

In its effort to pursue offshore tax evaders, the United States is now targeting Israel, as three of its largest banks are suspected of helping American clients evade taxes through their Swiss outposts. The banks targeted by the US Justice Department’s criminal tax division are Bank Hapoalim, Bank Leumi le-Israel B.M. and Mizrahi-Tefahot. The inspection of the three Swiss branches of the Israeli banks comes during a wide-ranging campaign by the Justice Department to force nearly a dozen Swiss banks now under scrutiny to pay collectively billions of dollars in fines and to admit to criminal wrongdoing.

October 24, 2011 0 comments