Comment

The end of engagement

by Gareth Smith
written by Gareth Smith

During the 2008 United States presidential campaign, Barack Obama distanced himself from George Bush’s Middle East adventures and was given ample electoral space by his opponent, John McCain, who famously sung “bomb-bomb-bomb, bomb-bomb Iran” to a Beach Boys tune.

So Obama promised to engage Tehran. In truth, this hardly represented a departure in US foreign policy, as Washington has dealt diplomatically with many of its adversaries for decades. The Obama administration did join brief talks with Iran in October 2009 as part of the P5+1 (the permanent members of the UN Security Council plus Germany), and there was even a face-to-face meeting between William Burns, US under secretary of state, and Saaed Jalili, secretary of Iran’s Supreme National Security Council.

More substantive talks over Iraq, begun under the Bush presidency, helped foster tacit understandings allowing both Washington and Tehran to support Nouri al-Maliki’s government. But Obama has proved unable or unwilling to engage Iran more widely. Instead, sanctions against Tehran, and against companies or countries trading with Iran, have been tightened.

Historians will no doubt argue as to why. Engagement was opposed from the outset by the Israelis, who milked President Mahmoud Ahmadinejad’s theatrics on the Jewish holocaust as further justification for bolstering their arsenal, building more walls and attacking Palestinian “terrorists”.

And the protests after the disputed 2009 Iranian presidential election, and the authorities’ crackdown on dissent, exposed proponents of engagement in the US to charges of “appeasement” or worse.

Recent months have surely sounded the death-knell of Obama’s “engagement” policy. In August, the administration castigated Iran for backing the “brutal and unjust crackdown” in Syria, after earlier imposing sanctions on two senior Iranian policemen for allegedly advising Damascus on curbing protests.

In July, the US “designated” six alleged Al Qaeda operatives for running through Iran what a US treasury press release called the “core pipeline” for Al Qaeda’s “money, facilitators and operatives from across the Middle East to South Asia”. According to David Cohen, the under secretary for “terrorism and financial intelligence”, there had been “a secret deal” between Tehran and Al Qaeda.

The point of the exercise was likely more to up the ante on Iran than to sound alarms about Al Qaeda. Among the more fanciful claims about the relationship was a quote in the neo-conservative Weekly Standard from a “senior administration official” saying that “the most ready cadre” of Al Qaeda “operative types and senior-level managers” were in Tehran.

Of course sanctions targeting these men will have little effect, and only one of the six designated individuals was described as being “Iran-based”. Ezedin Abdel Aziz Khalil was said to have liaised with the Iranian government over the release of Al Qaeda operatives, presumably a reference back to the men detained by Iran soon after 9/11 as they fled American forces in Afghanistan. Since then, many of these detainees have been repatriated — to Saudi Arabia in many cases.

A leading politician in Tehran once told me that Iran’s basic strategy vis-à-vis Al Qaeda was to scheme and pray that the organization would be active elsewhere, and this continues to hold water. Even without violent Salafis who despise Shia as heretics, Iran is nervous over its Sunni minorities, principally the Kurds and the Baluchis.

Given all this, a more serious sign of growing US-Iran tension may be Washington’s allegations of Tehran orchestrating attacks in Iraq on American forces as their withdrawal looms in December. In seeking confirmation as chairman of the Joint Chiefs of Staff, General Martin Dempsey warned the Senate last month of a possible huge attack in Iraq similar to the 1983 bombing of the marine barracks in Beirut.

Of course, Iranian officials are well aware of the unpopularity within Iraq of the US presence and feel that time is on their side. Tehran has been more successful than Washington in developing relations with Iraq’s various groups and factions, and knows well that the broad brush of the US right, and the Israelis, hardly suits the terrain.

GARETH SMYTH has reported from around the Middle East for almost two decades and was formerly the Financial Times correspondent in Tehran

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Finance

Tallying the results

by Tamim Akiki
written by Tamim Akiki

Although investable assets of the Middle East’s most wealthy in 2010 are back to their 2007 level of $1.7 trillion, according to the Capgemini and Merrill Lynch’s World Wealth Report (WWR), return expectations and attitudes have changed considerably. In particular, Ultra High Net Worth individuals (UHNWIs), a category comprising households with over $50 million in investable assets, have shifted their focus to capital preservation through less risky, simple investments.

“UHNW investors are starting to understand that probably in the near-and-medium-term, returns will be smaller than in the past… and also what they want to achieve is to protect the assets which they have and then tactically invest in distressed opportunities,” said Heiner Weber, who heads the Middle East desk at Falcon Private Bank. 

Largest global private banks in 2010

Largest global private banks in 2010

In fact, rising fears of another global recession in 2011 come at a time when the Middle East’s High Net Worth Individuals (HNWIs) — defined as having more than $1 million in investable assets — and UHNWIs are better positioned and prepared for a crisis than they were in 2007.

A 2011 survey of private bankers by Booz & Company showed the low-risk fixed income asset class topping the list of preferred investments by the region’s investors. Fifty percent of those surveyed selected fixed income as their clients’ most favored category after the 2008 crisis, while cash and time deposits ranked second, with 40 percent of responses. On the other hand, only 15 percent of private bankers said the risky funds business was favored by their clients, behind equities, with 35 percent of responses.

Middle East HNWI wealth ($trillions)

Middle East HNWI wealth

Percentage of HNWI population under 55 in 2010

Source: Capgemini and Merrill Lynch 2011 World Wealth Report.

In addition to more defensive portfolios and lower return expectations, investors have become more familiar with the products they hold and even more thorough in selecting their private bankers. According to Stephen Evans, the Middle East’s regional head at Standard Chartered Private Bank, “The way the wealthy think about their advisors now has changed. They are very much more particular, choosy, discerning, they ask more questions now about the quality of their bankers, their qualifications, and they are asking the right questions.”

Although private bankers and clients in the region have built valuable relationship experience since 2008, the wealthy in the region are still more difficult to cater to than in developed markets, given product preferences, demographic structure and geographic breadth.

Firstly, a third of GCC clients prefer Islamic products over conventional products, presenting the need for additional skills and product development. The Islamic preferences of the region’s clients have so far handed local private banks a key advantage over global banks operating in the Middle East, although the latter are still perceived to have “more stability, brand equity and institutional trust,” according to Daniel Diemers, principal with Booz & Company in Dubai.

The geographic fragmentation of GCC wealth also implies an added layer of cost to private banks. According to Booz & Company, Saudi Arabia has the largest pot of wealth in the region, with an estimated $530 billion in investable assets as of 2010, but others, such as the UAE and Kuwait, also hold considerable wealth, estimated at $270 billion and $145 billion, respectively, in investable assets.

As a result, private banks find themselves setting up multiple fully-staffed offices across various Middle Eastern cities. In particular, Switzerland-based banks, whose home country is viewed as a key source of geographic liquidity diversification, have offices in virtually every major city in the region. Credit Suisse and UBS offer private banking services in at least seven regional cities, with the latter employing more than 150 people in its Middle East operations.

Furthermore, the region’s wealthiest are far from the gray-haired clients typical of developed markets; The WWR showed that 56 percent of HNWIs in the Middle East are under 55 years of age, the second highest rate after Asia-Pacific, excluding Japan, with 69 percent and ahead of Europe’s 45 percent.

Despite the emerging global economic and financial challenges, the region’s wealthy and their advisers are better equipped than ever. However, upgrading Information Technology tools for investors and broadening the scope of services offered by private banks, especially in the corporate finance area to cater to the widespread family business model in the Middle East, will be critical to the industry’s resilience. 

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Finance

A perilous path

by Vanessa Khalil
written by Vanessa Khalil

Executive caught Rudy Sayegh at a bad time. “There’s blood on the street,” joked HSBC Lebanon’s managing director as he walked into his office. Sayegh had just wrapped up a 40-minute conference call with one of the bank’s ultra high net worth clients, and the urgency of the conversation was not without reason. Following weeks of volatility, the United States financial markets had hit another low that day, August 18, with the Dow Jones index down 4 percent, the S&P 500 down 4.6 percent and NASDAQ down 6.6 percent. Sayegh’s client was, naturally, worried. 

For wealth managers and private and investment bankers, both globally and in the Middle East and North Africa (MENA), their client portfolios’ high levels of exposure to US and European equity and debt markets is, unanimously, a great deal of concern. And while Merrill Lynch and Capgemini’s 2011 World Wealth Report posted more than healthy growth rates for the worldwide High Net Worth (HNW) population and its overall wealth, which respectively rose 8.3 percent and 9.7 percent respectively in 2010 year-on-year and surpassed levels prior to the 2008 financial crisis, it also revealed early warning signs of an uneven economic recovery path, as the 3.9 percent global economic growth of 2010 was driven primarily by emerging markets in Asia-Pacific and Latin America.

A little introspection

Daniel Diemers, principal at Booz and Company, says the situation in both the US and Eurozone sets an all-too-familiar scene for the global wealth management industry. “Again, most relationship managers in the region are facing the same dilemma: Rapidly sliding markets where clients want to shift portfolios to lower margin assets under high time pressure, while product providers, chief investment officers and chief economists struggle to provide clear guidance and issue recommendations that leave the front office one step ahead of the client and the market,” he said. But what could soften the blow, he added, is that global private banks have pursued market share much less aggressively since 2008, have focused on revamping their business andrevenue models and have redefined the roles of their higher management andinvestment support teams.

And as many would assure, wealth managers’ conservative and cautious strategies throughout the last three years have trickled down to their private bankers and relationship managers, who seem to have learned lessons on the risk and reward perception of high margin products, the suitability of those products for investor needs and, most importantly, the value of a good client risk profile assessment.

“The last decades witnessed the development of new economic theories on investor behavior. The consequences of introducing behavioral aspects to how investors make investment decisions are far-reaching, but essentially we believe that they help our clients to become more disciplined investors,” said Reto Bartel, senior representative at UBS AG in Beirut. According to Bartel, UBS had introduced a risk monitor framework after the 2008 financial crisis, and as a result advised its clients to sell Greek sovereign bonds in early 2010 when their yields were still below 6 percent.

“The fundamental lesson of the financial crisis, as far as the private bankers are concerned, had to do with putting the client first. Unfortunately, a lot of people were either not qualified or not properly trained to determine what information was relevant, or they decided to look at products rather than people,” said Stephen Evans head of private banking in the western hemisphere at Standard Chartered bank. The 2011 World Wealth Report shows that private bankers have redeemed themselves in the past three years, as 98 percent of clients surveyed had regained their trust in their financial advisors by 2010, while a large percentage of them felt less confident about financial markets as a whole, as well as their regulatory bodies and institutions.

Stuck with ‘em

For Selim Chami, director of investment banking at BSEC, high net worth individuals (HNWIs) do not have much of a choice to let go of their private bankers. “At first you would basically get frustrated. You would hold a grudge against your private bankers [and] blame it on them. But again, who do you have [to] better run your money?” he said. UBS’s Bartel explained that clients are aware that wide swaths of the developed world are overly indebted and face rising healthcare costs, aging societies, as well as a scarcity of resources, which calls for a reallocation of investments — one that a do-it-yourself approach could not possibly achieve.

Whether the clients choose big banks or smaller investment boutiques to reallocate those investments, however, has been a matter of debate over the last three years. While some experts advocate the big and established names in the wealth management industry, others are promoting multi-family offices and small-to-medium sized financial institutions that have increasingly gained favor with Ultra High Net Worth Individuals (UHNWIs) and HNWIs since 2008. A recent report by Scorpio Partnership states that, although the global top-10 banks still controlled two thirds of the high net worth managed assets worldwide in 2010, “the wealth management industry still has the aura of a boutique service within the financial services community.” Their research shows that while the top-20 banks in the world managed 77 percent of the high net worth market in 2010, there are approximately $10 trillion of high net worth assets left over to potentially be managed by banks — an opportunity as much it is a challenge, as big banks face declines in efficiency, a rise incost-to-income ratios and a continuous struggle to maintain and increase profitability.

“Big names, big banks have big kitchens that tailor-make investment products and then dump them onto a sales team that has targets to meet. That’s why we’ve been able to snap [up] lots of clients from them since 2008,” said Nael Raad, managing director at Al-Ahli Investment Group, adding that for the last three or four years, clients have been migrating from big banks to small-and-medium-sized ones.

“Definitely, we’re going into family offices, and that’s been for five or six years where they will take care of the investments of UHNW families. When you have your own investment institution then you can be an unbiased investor,” said Mohammed al-Hamidi, managing director at AMFinancials, adding that UHNWIs, who usually deal with more than one bank and banker, benefit from having their investment portfolios under one umbrella of a family office that saves a great deal on the cost of investment.

MENA challenges

But Hamidi also realizes that local institutions in the MENA region, while a force to be reckoned with, face many challenges. “I think the biggest challenge for local and regional private banks is the distribution, expertise and depth of their capital,” he said, adding that the lack of talent in the MENA region, a problem that both local and global banks seem to suffer from, starts at the banks’ higher management level. “When we’re talking about the chief executive officers and the chief investment officers — all these big guys — usually if they’re really good, they’re not going to be in the region,” he said.

If the lack of technical expertise begins at the top of the hierarchy, BSEC’s Chami is sure that it does not get better at the bottom. “Private bankers in the Middle East — I don’t think they do much. They are more brokers than anything else. They take orders and execute for the clients,” he said. Georges Abboud, head of private banking at BlomInvest Bank, said that Lebanese investors in particular are mostly traders by nature, which does not allow much room for long-term wealth management. “But we are educating the bankers and the clients to move from a trading mentality to a more diversified, long-term strategy. This will take time. And at the same time you need to provide products and services to meet needs,” he said.

Structured products, which have been controversial for their complex payout terms and embedded risks that even bankers fail to understand at times, are largely off-limits to Lebanese private bankers because Banque du Liban (BDL), Lebanon’s central bank, has a tight rein on the development of banking products. “We need [central bank] approval for any product and that takes time, mainly because they want to control activities in this area, but also because  sometimes they needto build in-house expertise to understand and do the right due-diligence on[the products],” Abboud said, before adding that such measures are essential to promote a safe environment, as Lebanese private bankers generally still lack the sophistication to develop sound structured products.

Chami said bankers and brokers are one and the same thing in Lebanon because of limitations to both their job description and qualifications. “In Lebanon, you will hear private bankers say they can’t give their opinion on many things. You have those who put in a little more effort and give their recommendations. But I’m not sure that these people know enough about the markets,” he said, adding that modest trading volumes and a small client base in Lebanon push financial institutions toward economies of scale in hiring bankers who know a bit about all asset classes, but not enough about one in particular, which automatically results in a reduction in the quality of information and advisory services. “Normally speaking, if you look at developed economies you have specialization because they can afford it,” Chami added.

For Khaled Zeidan, general manager of securities and structured products at MedSecurities Investment, Lebanon’s small economies of scale do not allow for a legitimate private banking market in-country. “I think there is a future for asset management in Lebanon. In that aspect there is scale. For example, if I wanted to set up a Saudi Fund, or a MENA fixed income fund, then the cost of operating something like this is minimal. But for private banking, in the absence of scale, a few billion dollars of assets do not justify an operation,” he said, noting that global banks, on a standalone basis, often have assets under management equivalent to the whole Lebanese banking sector’s assets. “One should understand one’s limits,” said Zeidan, “I can’t do what Pictet [& Cie] can do.”

Weaning the clients

Another impediment to the development of the private banking industry in Lebanon is the mentality of clients themselves. “The majority of Lebanese, they like to trade. They are short-term speculators because in Lebanon we live in an environment of short-term vision because of the security situation,” said Hamidi. “So if you compare the activity of portfolio management, which is the main service of private bankers, and the activity of brokerage you see the [latter] in Lebanon is much bigger.” He added that Middle Eastern clients prefer not to concern themselves with industries outside of their core sphere of expertise, due either to a lack of time or blind faith in their bankers. “We present to clients for 15 minutes and they only hear the last two words: 10 percent or 5 percent or 12 percent [return],” said Hamidi.

This pushes bankers, said Chami, to only sell products that might appear to bear little risk and still yield high returns, a common yet unrealistic demand from clients in the region.

Regardless of these challenges, Raed Khoury, managing partner at Lebanon’s newest specialized private bank, Cedrus Invest, says there shuffling of wealth in the region, being driven by high oil prices, is a major opportunity for MENA private banking, even though building a platform for such an industry remains a challenge, especially in Lebanon. “Our approach is, we need to introduce more and more… to the Lebanese market the concept of wealth management, whereby we would look at the profile of the client, at their needs and at their family needs, [at] structuring [their] wealth — the whole spectrum.”

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Finance

Searching for security

by Zak Brophy
written by Zak Brophy

The cataclysmic crash in global financial markets in 2008 was a smack in the face with a wet fish for both bankers and investors alike. A new reality emerged in its wake: gone were the days of carefree flurries into magnificently low-risk and high-return financial products fueled by seemingly boundless levels of borrowing. After a high-octane binge of hedonism and excess the hangover kicked in.

Many investors, left reeling from their losses, woke up to the sober realization that, in the words of Al Ahli Investment Group Managing Director Nael Raad, “nothing is safe”. Daniel Diemers, principal at Booz &Company, explained: “Clients shifted their assets towards simple, transparent, liquidity-oriented products with lower margins. Structured products in particular fell from favor, and clients largely retreated from risky and complex asset classes.” 

From Spring 2009 to late 2010, confidence returned to the markets and many investors were once again upping their risk threshold to try and recoup their losses. But the bonanza was short lived. Profound structural defects in the United States and Europe have been hounding their economies and fear has reentered the market.

Safety first

Many of the private bankers who spoke with Executive for this special report said the turmoil in the markets has instigated a shift in mentality amongst clients. “People only learn from their mistakes,” said Khaled Zeidan, general manager of securities and structured products at Med Securities Investment, “and people have been burnt a lot here.”

According to AM Financials Managing Director Mohammed al-Hamidi, “In general, the environment is very conservative. Not a lot of people are taking risks and that’s why we see that yields on bonds in the US are going down, the stock market is very volatile… [Clients] are not trusting anybody”. It is a classic case of once bitten, twice shy.

Whilst there are still gamblers and seasoned traders seeking the quick buck to be made in the storm, most clients have shifted their expectations. Preservation of capital has usurped quick-fire trading as the order of the day. Head of Private Banking at BlomInvest Bank Georges Abboud said: “We are educating the bankers and the clients to move from a trading mentality to a more diversified, long term strategy.”

Abboud claims, however, that investing in equities can still be considered a responsible option if played right. “If there is a high yield, say 8 percent, low debt, and you have reliable revenues over the coming five years, then buy! There is a risk it could go down with the market but I am comfortable with the risk.”

Private bankers consider a core aspect of their work to educate and inform the clients. But Jean Riachi, chief executive officer of FFA Private Bank, has found that convincing the Lebanese client to ignore the short-term vicissitudes of the market is not always an easy task. “We would like to convince people to forget about the volatility in the short term. But people are very difficult to convince, they have to look almost daily, in any case monthly, at their net worth, and they will panic anytime you have a fall in this valuation,” he said.

Paranoia’s parade

The rotten roots of today’s market instability are sunk in the very shores that have long been the bedrock of the global economic system.The 2008 banking crisis, the Eurozone sovereign debt crises and the US credit rating downgrade have upended many previously held assumptions about what is a‘safe investment’.

According to Al Ahli’s Raad, “what’s risky nowadays are definitely the international banks in the US and Europe and sovereign bonds in Europe.” 

BlomInvest’s Abboud considers the western banking system a toxic miasma as well. “I have been telling the team since 2008 not to invest in any Western European or American banks. When the rates are low they don’t make money, and there is all the junk around in terms of assets, and they are having to make provisions on all the problems that have happened with the governments. We cannot know what the banks hold in terms of assets so you have to get away,”he said.

The sovereign debt traumas continue to hector the Eurozone, and what’s beyond the horizon is far from certain. The very real prospect of a Greek default would pose a significant threat to the solvency of the banks in Europe’s core nations of France and Germany (who hold substantial amounts of Greece’s outstanding debts). And that’s before we dare to look at Europe’s other tottering members Ireland, Spain, Portugal and Italy. A recent indication of the markets’ unease with the Eurozone is the almost 130 billion euros [$187.75 billion] banks are parking overnight in the European Central Bank’s deposit facility rather than lending to other banks.

FFA’s Riachi explained that the Euro-crisis presents a new and hostile territory for economists and bankers due to the fact that such an array of national economies are tied into a single currency. There is no real precedent to base their analysis on. “I don’t know what kind of solutions they will find but it’s really a very deep crisis and it needs to be solved as soon as possible. Germany needs to show leadership on this issue; otherwise they have to renounce the Eurozone,” he said.

Across the Atlantic, the US is also proving an insufferable headache for private bankers as they strive to offer sage advice to their clients. Opinions on whether it is going to relapse into a double dip recession remain divided but few disagree with HSBC Private Bank Managing Director Rudy Sayegh’s assessment that “everyone [American and European governments and consumers is up to the hilt in debt, so their capacity to spend is limited and thus what will come is slow growth, if not recession, but in a best case scenario slow growth for several years.” 

Despite the recent debacle over America’s debt, some private bankers still view it as a safe investment. “They downgraded the debt and at the same time the bond yield went down. You should have expected the contrary. So people still believe it is a safe haven,” said Abboud.

For Jean Riachi, the political fiasco of the debt ceiling debates, replete with playground histrionics and stern-browed brinkmanship, was as damaging as the underlying economic ills. “In the US, I think it was more of a leadership issue, and it was clearly stated by Standard & Poor’s when they did the downgrade that they know there is no doubt about the ability of the US to repay its debt,” he said.  

In any case American markets remain in a somewhat battered and disheveled state. When US companies released their mid-year reports at the end of July, they had much lower guidance for future earnings, a warning sign for equity markets. According to Sayegh, “People are selling equities on the concept that if you don’t have growth now the market should not be valued at this level but at less in terms of private equity.” 

Counting the fundamentals

Despite the woes in western markets, several bankers warned against overstating the case. When asked if investors should disassociate from European and American markets, MedSecurities Investment’s Zeidan sought todownplay reasons for alarm. “Let’s not be ridiculous. Despite all the problems and issues we have today in the US and Europe, these are mature markets. There are sound laws and there is protection for the investor.”

Nada Safa, regional manager for Audi Saradar Private Bank added: “You have to choose growth stocks. Look at the US and all the blue chips and growth stocks. It is true that they went down but we know that at the end of the day they will go up.”

While there may still be promise in western markets, it is clear there has been a shift in perceptions and investors are increasingly looking elsewhere. “Is it the time to invest in emerging markets? It’s been the time for 10 years,” said Georges Abboud. 

The Institute of International Finance (IIF) is projecting increases in overall net private capital flows to emerging markets this year to more than $1 trillion, after a 54 percent rise to $990 billion in 2010. IIF Managing Director Charles Dallara said, “The high level of capital flows to emerging markets reflects the rising weight of these economies [globally] and their very strong performance relative to mature economies in recent years.”

Nonetheless, Raad warned that investment in emerging economies still poses potential risks, and only informed and specifically targeted investments should be made. “You need to be much more selective. It’s not regional anymore. Which sector, which companies, which currency, you have to be selective. It’s not a broad idea like it used to be.”

Although private bankers are increasingly searching out those fruitful opportunities in emerging markets, it is still the US that sets the tune for the world to dance to. It is just unfortunate that the record is stuck on a Waltz and not a Polka.

Audi Saradar Private Bank’s Safa, speaking about Brazil, Russia, India and China, said: “they are all linked to the US, and you know if the US sneezes the whole world gets the flu. I think they are solid but still no one allocates more than 10 percent to 15 percent to emerging markets.”

Abboud agreed the US was still a dominant force in the global economy but argued the shift east was ineluctable. “The US market is still a big driver for the rest of the world, and it will remain that way because of its consumption. In time, though, it will de-correlate, and I am a firm believer that you have to move your money away to Asian economies, and to move away from the US dollar,” he said. 

With over 60 percent dollarization of Lebanon’s banking assets, investors are increasingly mindful of minimizing their exposure to a potentially precipitous decline in the value of the dollar. Reto Bartel, senior representative at UBS AG in Beirut, said, “We expect major currencies to remain relatively unattractive in the quarters ahead. When diversifying their US dollar and Euro exposure, investors might think of the Scandinavian currencies, the Canadian dollar and several Asian currencies.”

Looking ahead

The disorienting upheavals of the past couple of years have been a wakeup call to many investors, and private bankers now talk of customers being both better informed and more demanding. “They want to know everything,” said Abboud.

What is more, private bankers in Lebanon say their clients now have somewhat more realistic expectations with regards to protecting their capital and expanding their wealth. While the Lebanese predisposition to take risks has not been completely snuffed out, a more conservative approach to asset management now prevails.

The problem is that there are no longer any true safe havens. In the words of Zeidan, “there is no longer one black swan; there are 100…so we should not take anything for granted.”

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Finance

Executive Insight – Rebuilding relations

by Dory Hage
written by Dory Hage

Following unprecedented financial turmoil, investment scandals and the decline in world wealth, private banks and wealth managers are facing enormous challenges. Profits are declining, regulatory requirements are growing, compliance measures are multiplying, costs are increasing, privacy and secrecy are losing ground and trust between high net worth clients and their wealth managers is seriously damaged. Within this changing landscape, private banks try to redefine their role and most importantly to rebuild clients trust.

An open approach

During the last crisis, investors suffered from losses resulting from a massive price decline. A major part of these losses derived from risks investors weren’t aware of, triggering a significant transparency issue. This breach of trust by some managers has had a profound impact on investor confidence. Taking into consideration these facts, high net worth clients have raised the bar and are now demanding more from their wealth managers in terms of product offerings, transparency and due diligence. They look much more for transparent product offerings, product suitability, robust due diligence and a proactive risk/reward analysis of their wealth and holdings. Private clients also want more information about how their holdings are being transacted, processed and managed.

In order to meet these requirements, wealth managers need to rethink their model, improve their skill-sets and adapt their tools.

In some cases high net worth clients feel that their private bank is steering them toward in-house products to make money for the overall firm. Private Banks have to review their approach by adjusting product offerings to reduce these fears. Adopting an open architecture versus an exclusively in-house approach, by including third party products, would reduce client distrust.

The skills of the wealth manager are crucial to exercise this business. Many wealth managers focus on sales and marketing; they have arange of products and they spend their time convincing clients to buy them. A wealth manager is not a salesperson; he has to develop a comprehensive understanding of the client, his needs, his profile and his appetite for risk. Once this is done, he can suggest to each client the investments adapted to his profile. A wealth manager has to understand the product he is selling and to present to the client the advantages of this product as well as the related risks. In this case, the investor will be able to take his investment decisions comfortably.

Meeting clients’ sophisticated demands requires private banks to invest in advanced technology to survive. Online client service platforms should become a priority over the next few years. They provide innovative, high-quality online client interfaces that could increase client loyalty and, importantly, free their relationship managers to focus on higher-value client interactions.

Recently, a row over the debt ceiling in the US raised concerns over the fiscal imbalances of the US and the worrying debt to GDP level. Consequently, the US saw its credit rating decreased by S&P from AAA to AA+ with a negative outlook. In Europe, the sovereign debt crisis is weighing on the economic recovery through squeezed liquidity and tighter credit. Consequently, stock markets tumbled globally amid concerns of weak economic growth prospects. Within this lack of visibility, investors are overweighting what they consider “safe havens”. They are mainly buying gold and tangible assets such as real estate.

Limited choice

Three years ago, inspired by an unstable international environment with interest rates nearing zero percent, Lebanese investors were assured by the resilience of the Lebanese banking system and attracted by high interest rates. On the fixed income side, they are mainly allocating to deposits and Lebanese government Eurobonds. Meanwhile, real estate in Lebanon was undervalued relative to the region; as a hedge, investors rushed into real estate investments. Today, interest rates have decreased significantly compared to three years ago and the real estate market is slowing. Consequently, Lebanese investors are looking to diversify their exposure, but the choice is still limited especially with the current uncertainty global markets are witnessing.

The current behavior of investors locally and globally could be explained by the temporary lack of confidence. This concentration could outperform but that should not be considered certain. Investors should take into consideration the suitability of investments to the financial environment and remember that diversification is still the fundamental rule.

DORY HAGE is head of advisory at Libano-Française Finance (LFF), a subsidiary of Banque Libano-Française.

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Economics & Policy

Rebalancing the equation

by Thomas Schellen
written by Thomas Schellen

Events following the September 11, 2001 terrorist attacks in New York and Washington on the global stage involved wars and fundamental challenges to the established political and economic frameworks. While the ability to draw direct correlations between a past event and present challenges dissipates over time, now, a decade after the event, 9/11 must be acknowledged as a turning point in contemporary history for the immense changes it precipitated in the United States, the Arab world and the global order.  

Did 9/11 succeeded in sparking a conflict between Muslim and Western civilizations? From an American vantage point the clash of civilizations is not a given, according James Zogby, the president of the Arab American Institute and senior analyst at Zogby International, the pollster firm founded by his brother John. “The majority opinion in America [on Arabs] is not as bad as people think it to be. Our polling indicates that,” he told Executive.  

According to Zogby, public opinion in the United States trends toward a balanced view on Arab issues. “Elderly, white, born-again Christians are very pro-Israel, and decidedly so, but African American, Asian and Hispanic — who after all are about a third of the population — as well as young and educated people are more pro-balance and pro-peace,” he said.

What issue is most important for the US to address in order to improve ties with the Arab World?

Issue most important for US to address

Questions were asked in spring 2011, Source: Arab Attitudes 2011 survey by Zogby International for Arab American Institute Foundation

Ahmed Younis, senior analyst with Gallup, also notes that the polling organization’s surveys have found that the Western perception that religiously observant Muslims nurse anti-American sentiments runs counter to the actual trend: “What we find in the data for Muslims globally is that the more religious you are and the more regularly you attend the mosque, the more likely you are to say that you are ready for engagement with the West and to say that the conflict with the West is not inevitable.”

“What 9/11 did do in the minds of people in the West and in Muslim-majority societies was to have them enter the process of exploring if the conflict [between Muslim and Western worlds] is inevitable or if there is readiness for the two groups to engage,” he added.

Repondents with positive view of the US (%)

Respondents with positive view of US

Source: Arab American Institute Foundation/Zogby International

The increased American interest in understanding Muslim and Arab cultures has been tangible since 9/11, confirmed Lara Alameh, executive director of the Safadi Foundation USA, a civil society organization that aims to further economic development and job creation in Lebanon and other Arab countries. “I think some prejudices have increased [post 9/11] but at the same time there has been a huge interest,” she said, illustrating from her personal experience that, when graduating in 2001 from a university in Washington, DC, she was “one of about two people with a major in Middle Eastern studies. If you look at the graduating classes of Middle Eastern studies at the same university now, you have hundreds [of graduates].” Alameh added that she is being increasingly approached by young Americans who want to travel to Lebanon for employment or internship opportunities.

Where things went wrong

In parallel to the growth of interest, prejudice and discrimination against Arab-Americans — who account for about 1 percent of the US population — is a growing concern within the national culture. According to Younis, a recent Gallup poll found that a majority of American Muslims said that they experience discrimination and prejudice regularly. “They have a perception that the average American discriminates against Muslims,” he said, but noted black and Asian Muslims generally do not experience more prejudice than other non-Muslim members of the same race.

Whether the taste of a McDonalds meal has helped or hindered US-Arab relations remains a subject of debate

Evidence of Americans’ split perceptions of Arabs and Muslims is as far reaching as ever. From initiatives to ban “Islamic law” on state levels to anti-Arab rants in the media and blogosphere, the tensions are clear and the divisions evident. One telling case was when the embassy of the United Arab Emirates in Washington last month donated funding for computers to the children of the town of Joplin, Missouri, which had been devastated by a May 22 tornado. In response to the announcement, online ‘opinionators’ in the southern town immediately questioned whether the community had sold out to that “country that brought us the 9/11 hijackers”, and produced other slander —which was then quickly rebuked by other members of the community.      

According to Zogby, the views of Arab issues in the US are indeed strained by a partisan split but the researcher attributed this less to the original terror attacks and more to the response of the American leadership of the time: “The Bush administration fed this nascent conflict and gave it life and made it real. The war in Iraq and the way Afghanistan was handled and the neglect and reckless approach to the Israeli Palestinian situation dug very deep holes between America and the Arab world.”

More recently, the strain on American–Arab relations within the US seems largely due to Republican politicians and their supporters fueling attacks against a Democratic president through fomenting fear of, and anger toward, Muslims — indeed the extent of their success was evident in the political fire-storm that was ignited by the popularized assertion that President Barack Obama is actually a Muslim in Christian guise.

Economic Realities

It is an open debate as to what degree economic relations can be the foundations for peace, though it has often been documented how economic interests have historically been the motives for war. This notwithstanding, the strengthening of mutually beneficial business ties between Arab countries and the US has a great potential for changing both realities and perceptions.

Of all Arab countries, only Saudi Arabia is a major actor —regularly one of America’s top 10 or 15 trade partners in the monthly US import statistics — when it comes to Arab economic dealings with the United States. Saudi export performance to the US, however, is hugely distorted by the dominant role of petroleum, as is the case for Kuwait, the second GCC member state with a large trade surplus vis-à-vis the US in 2010. Of combined deliveries to the US worth almost $37 billion in 2010 from Saudi Arabia and Kuwait, non-oil exports accounted for less than 3 percent of total value.

Moreover, it is only oil that the US is buying from the Arab world in significant quantities. A country like Qatar, whose international trade revenue is based on liquefied natural gas production, currently does not even reach an annual export volume of $1 billion to the US.American exports

The impact of purpose-designed incentives has also been noticeable, though on a small scale. The prime example here is Jordan, whose exports to the US ballooned at the start of the century as result of Jordanian-Israelico-production in exportable goods in special economic zones, instituted as a reward for Jordan’s peace treaty with Israel. 

But while the billion-dollar annual shipments of goods from Jordan to the United States has not maintained growth momentum through the second half of the last decade, the Israeli-American trade story is a demonstration of an economically successful interaction for a country in the Eastern Mediterranean. Since 1994, the US trade balance with Israel has been skewed in Israel’s favor each and every year.

According to the office of the US Trade Representative, Israel has established a solid role as supplier of several categories of machinery to the US ($3.7 billion in 2010), pharmaceutical products ($5.2billion) and of diamonds and precious stones ($7.9 billion). Perhaps also telling is the difficulty in finding a Palestinian export to the US of note.

Imports to the US from Israel from January 2010 through June 2011 amounted to six times the value of goods imported in the same period from Israel’s direct Arab neighbor states, namely Egypt, Jordan, Syria and Lebanon. While this ratio, from an Arab perspective, represents something of an improvement when compared with the period of 1996 to 2000 — when annual Israeli exports to America were roughly 12 times the size of the same four Arab countries — it was almost unchanged when compared with the skew in favor of Israel between 2000 and 2005.

Even without discussing the selective offering of American military hardware, the imbalance of positive and mutually profitable business ties between the US and Arab countries and the US and Israel, is as deeply engrained as it is massive.   

While politics and culture play a role in the absence of real trade development between Arab countries and America, it would be futile, faulty and self-defeating for advocates of Arab trade expansion to attribute the miserable performance only to factors of identity and affinity. As Gallup’s Ahmed Younis pointed out, the Arab problem is much more direct and practical. “In order to trade, you must have the capacity to create something that the market on the other side of the divide is interested in consuming. The primary challenge [is] in creating a trade balance that brings about equality and respect in Muslim-Western relations — the primary obstacle is that most Muslim majority societies are not producing anything that they can trade,” he said.

Younis added that the middle-income Arab countries are crucial for developing genuine trade. In his recommendation, “there must be the entrance of multi-national companies and the ability of governments in the region and around the world to help catalyze the development of small-to-medium-size enterprises that serve as supply chains for these multinational corporations.”

A slowly expanding pattern in the promulgation of local bases in Arab countries for such economic relations with the multinationals of the world has been created by entrepreneurship initiatives. Fostered by a variety of civil society entities, government programs and capitalist ventures, entrepreneurship drives are a part of the post-9/11 decade in the Arab world that have, to a large part, been motivated by the ideology of modern business empowerment rather than by political considerations. However, according to the Safadi Foundation’s Alameh, policy makers in Washington still rely on “old thinking” about the Middle East. “The main interests — oil, Israeli security and containing Iraq/Iran have not changed in the post-9/11 context. What has changed is the rhetoric, the language used with the people, but actual strategies I don’t think have changed much,” she said.

The 10th anniversary of 9/11, then, will pass as inequitable trade relations remain between countries such as Lebanon and the US. According to Tarek Sadi, the Lebanon managing director of Endeavor, a global entrepreneurship organization headquartered in the US, for entrepreneurs in the Middle East “selling to America is an important part of their plans.” Viable growth of trade, however, should be seen as a policy for the next 10 years.

Experts contend that the Arab governments and elites of today are still ill equipped for managing and driving entrepreneurship programs and rely on foreign expertise even where funding of programs can be achieved with ease from local sources in the region. However, with research showing that the desire to start one’s own business is up to 10 times higher among young Arabs of today than among the same age group in Western societies, policies and initiatives in favor of entrepreneurship would go a long way towards treating economic disenfranchisement.

Still a way to go

According to the findings of a Gallup poll of Muslims in the Arab world, being exposed to cultural disrespect is one of three main grievances they hold against the West. The perception of being disrespected, when analyzed more closely, is tied to absence of “fairness and equity of engagement”. Muslims, says Younis, ask: “Why is it that the freedom that you consider inalienable to you, your government is not making available to me and my country?’ In order to reverse that perception of disrespect, to reverse the perception of inequity, America and western countries need to play a role in bringing about those things that Muslims see globally as good in America and good for their own societies, and those things that they want for their own societies.”

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Egypt’s great divide

by Daniel Williams
written by Daniel Williams

In this Nile River town in Upper Egypt, a pious and politically active Islamist group is handing out pamphlets that warn of what it claims are the dangers of a secular state.

“Gay marriage! Alcohol! Nude beaches!” the fliers fearfully predict.

The pamphlets represent an extreme end of post-Mubarak Egypt’s intense debate over the country’s political future. On one side stand some Islamists who contend that, as Egypt is a majority Muslim country, basic citizen rights and duties are enshrined in the tenets of Islam. Any other path, they assert, takes Egypt to perdition.

On the other side are Egyptians who assert that the key guarantor of all citizen rights is the “civil state," whose rules trump religious doctrines. Religious minorities — chiefly Coptic Christians — also favor a civil state, while agreeing with Muslims who want their own religious authorities to deal with personal status issues like marriage and divorce.

In response to months of campaigning by liberal politicians, on August 10, Deputy Prime Minister Ali al-Selmy endorsed a proposal to decrees upra-constitutional principles that would guide the creation of a new constitution, to be written after November parliamentary elections. Selmy’s outline included what he called the foundation of a “civil democratic state.”

Islamists, including the Muslim Brotherhood, the oldest and largest Islamic political organization, say this would short-circuit a democratic process in which a new elected parliament would establish the procedure for drafting the constitution. Islamists also say such guidelines would open the way to a political order hostile to religion, and they are threatening street protests.

These debates and mutual suspicions are not new, but after the ouster of President Hosni Mubarak, activists initially shunted aside such differences. For instance, none of the major non-Islamist parties advocate cancelling Article 2 of the old constitution, which declares the principles of Islam as the main source of the country’s legislation.

The debate assumed a striking manifestation when Salafists — a term referring to pious Muslims who contend that believers must strictly follow the example of early Muslims — entered Tahrir Square, the Cairo epicenter of Egypt’s democratic uprising, and called for an Islamic state. “The people demand the laws of Allah,’’ they chanted, a sharp revision of the earlier, unified Tahrir call, “The people demand the end of the regime.”

A key peril in the divide is the chance that one side or the other will feel betrayed by Egypt’s new democratic order. Under Mubarak, many Islamists were imprisoned without charge and tortured for their political activity. Both before and since his downfall the Muslim Brotherhood has campaigned against torture and arbitrary arrest. Islamists understandably want their new-found freedom of political participation to be permanent and distrust liberal politicians, some of whom tolerated Mubarak’s exclusion of Islamists.

Liberal Egyptians worry that statements by various Islamists that Christians and women should not be president of Egypt foreshadow an Iranian-style political and cultural repression in the name of religion. They want individual liberty guarantees, including freedom of expression, and minority and women’s equality. According to an account published on August 28 in the Masry Al Youm newspaper, the proposed pre-constitutional text includes the phrase: “Discrimination on basis of gender, race, language, religion,wealth or social status is prohibited.”

Such a guarantee would be an excellent way for Egypt to start meeting international standards on equality it has signed up to. Human rights are not the monopoly of secularists or Islamists. The protections against torture and arbitrary detention that Islamists campaign for are also fundamental.

Islamist and non-Islamist thought each constitute traditional elements of Egypt’s political soul and similar divisions are at play in Tunisia and undoubtedly will arise in Libya. Failure to reach accommodation brings another risk; already some liberals are appealing to military authorities to bridge political divides, prolonging rule by the opaque and authoritarian Supreme Council of the Armed Forces.

The dangers of this approach include continuing military trials of demonstrators and other critics, and arbitrary banning of strikes and demonstrations. Neither Islamists nor their opponents should want that kind of future. Rather, Egypt’s future requires structures and institutions that will guarantee basic rights — including freedom from torture and arbitrary detention, the right of all to practice their religion, and freedom from discrimination, including by gender or religion — regardless of who is inpower.

DANIEL WILLIAMS is a senior researcher at Human Rights Watch
 

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The fortunes of upheaval

by Yasser Akkaoui
written by Yasser Akkaoui

The Libyan rebel forces’ rout of government troops from Tripoli last month heralded a pivotal moment in history, with the toppling of Muammar al-Qadhafi’s regime marking the third North African autocrat to fall to popular uprisings this year. Even while the security situation remains perilous, world powers and multinational companies are climbing over each other for a chance to reap their slice of the spoils of war: Libya’s fabulous resource wealth of oil and gas.

The Libyan revolution and its impact on global energy prices have been among the factors playing into the economic turmoil of late, where the sovereign debt crises in the United States and Eurozone have raised fears of a double-dip recession, sending markets into a flailing panic and rendering them near untradeable at times. In this environment, protecting one’s wealth becomes an anxious business. Executive has sought out the brightest minds in the business, locally, regionally and globally, for their take on how to navigate the storm.

Much of the world’s attention this month will also be focused on the 10-year anniversary of the September 11, 2001 terrorist attacks in New York and Washington. How much does this event, and the reactions it was used to justify, still impact the world we live in today? And is the so-called ‘clash of civilizations’ as clear-cut as its proponents would have us believe?

Despite all the turmoil, however, one must not forget to always look for opportunity. Perhaps that is a thought to ponder as one cruises what just recently became a long, open highway from the Gaza border to the doorstep of Algeria.

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Trailing the truth in Syria

by Moe Ali Nayel
written by Moe Ali Nayel

Sitting in my West Beirut office at the end of July, pondering the Syrian revolution and the conflicting reports from state media and activists on the ground, I decided I ought to visit.

For three days I travelled around Damascus, visiting the suburbs reported to be places of protest — they were hard to miss given the army deployment in these areas — but I saw little of what I expected. Where there were protests, such as in Qaboun, they ended within 10 minutes and were male-only marches; women were asked to leave for their own safety. Seeing the situation in Damascus made it clear how the regime is dealing with protests through a choking military siege. Was it like this all over Syria?

The Homs bus station of my youth had been bustling with vehicles and travelers but when I arrived last month it was a ghost town. As I jumped off the bus I heard gunshots in the distance. Later that night my nostalgia of Homs as a place where sects co-existed peacefully vanished when my Christian waiter told me he was worried about the “conspiracy” — touted by Syrian state media — that the militant Islamists sought to foment “chaos”.

“We Christians are afraid,” he said. “We saw how Al Qaeda groups killed Christians in Iraq after the American invasion. We are a minority here, and if this regime falls we are in danger.”

The Alawite neighborhoods in Homs were guarded by tanks and mukhabarat (secret service) and there were few people in the streets — not so different from the rest of the city save the posters declaring “We love you Assad”. Here nearly everyone swore to me that the revolution was a conspiracy, an American and Saudi plot to separate Syria from the axis of resistance, distance it from Palestine and force it sign a peace treaty with Israel. The international media’s inflated reporting of the protests has compounded this sentiment, causing Syrians on the ground to lose respect for their accountability and playing directly into the regime’s claims of an international conspiracy against it.

Now, it was time to see the places of protests, from where the echoing gunshots were fired.

The Khaldeyh neighborhood after Friday prayers saw wave after wave of men arrive to form a sea of protest, a mass movement that brought with it a sense of unity and security. The safety I felt in Khaldeyh encouraged me to travel to Bab-Amr, Bab-Dreb, Bab-sbe’a and Hola, near Hama, where I saw people, mostly poor, protesting courageously for their freedom. No one had guns; I did see signs of people trying to protect their neighborhoods with sticks and stones, but this seems the least one can expect from those attacked and threatened by battalions of state security.

Worryingly, I also saw people drifting unknowingly towards extremism. Lacking strong opposition figures, many found guidance in the words of Sheikh Adnan al-Ar’our, a Syrian religious leader broadcast by satellite from exile in Saudi Arabia. His fiery rhetoric incites Sunnis to take back their country, and graffiti in protest epicenters testifies to his revered status. As much an indication of the religious coloring of the movement, Ar’our’s influence speaks to disillusionment within the largely secular opposition. Repeatedly I was told the opposition were “doing a great job meeting and planning, but they don’t represent us”. “We are here on the streets striking, protesting and facing Assad’s bullets with our bare chests,” people would say, while the opposition “hangs out in hotels”. These sentiments resonated on August 20 when a transitional council was formed in Turkey by outside Syrian opposition figures. On social media networks Syrian activists have questioned who these people are and who chose them.

The danger now lies in this revolution being hijacked by those who do not have the people’s interests at heart, those in “hotel rooms” far from the streets, those who are empowered by foreign countries that want to shape the revolution and sectarian divisions to serve their own ends. As an Arab youth myself I stand by the protestors: this is our time. The older Arab generation had their chance and they left us with dictators, oligarchs, widespread unemployment, illiteracy and poverty; but the old ways die hard. Selmeyeh (peacefully) is how the Syrian revolution started and selmeyeh is the way it must remain to bring about true change, rather than the old tyranny under a new name.

MOE ALI NAYEL is a Beirut-based freelance journalist

 

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Only one state left

by Ahmed Moor
written by Ahmed Moor

Decades of fruitless, frustrating and ultimately self-defeating negotiations have yielded nothing meaningful for the Palestinians. For the Israelis, however, 20 years of the Oslo process have been immensely productive. During that period, the number of Israelis colonizing East Jerusalem and the West Bank swelled by several hundred thousand; today, there are more than half a million settlers in the Occupied Palestinian Territories.

But the putative Palestinian leadership — with Mahmoud Abbasat its head — has signaled that it recognizes the actual nature of the Oslofarce. September will see the Palestinians issue Oslo’s final dirge when a vote on Palestinian statehood is put to the United Nations. While helpful, the move will not impact the likeliest outcome of the conflict: The emergence of a single, non-Zionist, multinational state within Palestine/Israel. Mahmoud Abbas, the President of the Palestinian Authority, will be submitting an application for full membership in the United Nations in September. He will request that the West Bank, Gaza and East Jerusalem be henceforth recognized as Palestine, a state among equals. The move is expected to receive overwhelming support in the General Assembly, but it will require backing from the permanent members of the Security Council in order to be presented for a vote in the Assembly. The United States’ representative to the UN, however, will undoubtedly veto the measure, thereby ensuring that a Palestinian state is not recognized.

The American and Israeli leaders insist that by actively obstructing the Palestinian bid for statehood, they enhance the prospects for peace. According to them, a negotiated settlement is the only way to ensure that a strong and secure peace emerges in Palestine/Israel. In reality, Palestinian statehood would complicate Israeli efforts to continue colonizing Jerusalem and the West Bank; invading a fellow UN member state carries more international penalties than colonizing occupied territories. Over 40 years of colonization has ensured that no Palestinian state could come into existence in the occupied territories. More than 100 settlements and an equally large number of outposts (early-stage settlements) have rendered the West Bank non-contiguous for Palestinians. Moreover, a vast network of settler-only roads has worked to further geographically fragment the West Bank. Jerusalem too has been segregated from its Palestinian hinterlands by a ring of settlements.

Israel’s dependence on Palestinian water further increasesthe likelihood that a separate Palestinian state will not materialize. The mountain and coastal aquifers — which sit beneath the West Bank and Gaza, respectively — are important sources of freshwater for the Jewish state. In a region where the scarcity of potable water is a permanent feature of the conflict landscape, the Israelis cannot be expected to relinquish control of this vital Palestinian resource. Yet, the fact that the US and Israel have effectively aborted any Palestinian state does not mean that the UN vote is meaningless. Indeed, the vote will enable the Palestinians to highlight Israeli intransigence, thereby promoting its increased isolation and bolstering the global Boycott, Divestment and Sanctions (BDS) movement — which aims to defeat Israeli apartheid by adopting South African anti-apartheid strategies.

In this way, the UN vote on Palestinian statehood will promote the most likely outcome of the conflict; the emergence of a binational, single state with equal voting rights for all citizens, following the trajectory set by South Africa for contemporary colonial conflicts in a decolonizing world. 

While it may sound like a novel solution to a hitherto intractable conflict, the one-state solution was in fact a central goal of the Palestinian national movement for decades after the establishment of the state of Israel. The transition to the two-state process was only completed by Palestinian leaders in the past 20 years or so. Indeed, many activists, leaders and academics insist that the empirical reality of Palestine/Israel is already that of a single state — a deeply segregated state with apartheid and institutionalized racism, but a single state nonetheless. The vote on Palestinian statehood at the United Nations will not result in a state due to American and Israeli obstructionism. But it will aid the Palestinian quest for freedom by helping to further isolate Israel and its patron, the US. By empowering the BDS movement, the UN vote will further enhance the prospects for the establishment of a single, non-racist state in Palestine/Israel. At this stage, that is the only viable solution.

AHMED MOOR is a Master in Public Policy candidate at Harvard University’s Kennedy School of Government

 

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