Comment

Little evidence at the end of the line

by Nicholas Blanford
written by Nicholas Blanford

If Daniel Bellemare, the prosecutor for the Special Tribunal for Lebanon, is planning to base his case against the four Hezbollah members indicted for the assassination of Rafik Hariri solely on the telecommunications evidence contained within the indictment, the actual trials, should they occur, could be over in a very short time. As it is, the indictment acknowledged that the case against the accused is built “in large part on circumstantial evidence”. Indeed, at a certain level it must be tempting for Sayyed Hassan Nasrallah, Hezbollah’s secretary-general, to dispatch the four accused to the Netherlands with a good team of lawyers in the belief that they can beat the rap. After six years of investigations, we could be forgiven for expecting more than telecom analysis to support an indictment that has polarized Lebanese society more deeply than at any other time since the end of the civil war and still threatens further political turmoil. As it stands, the centerpieces of the indictment are five covert and overt mobile networks related to the assassination the prosecution says it discerned and color-coded from the millions of phone calls made each day in Lebanon.

It was widely expected that telecom analysis would play apart in the prosecution’s case; as long ago as October 2005 the cell phone networks used by the perpetrators of the assassination were made public in the first report of the United Nations commission charged with investigating the crime.

Regardless of whether Bellemare has more evidence to hand out or not, there are a couple of questions to ask regarding the contents of the indictment. First of all, the indictment acknowledges that the perpetrators were aware that at any given time their locations could be traced by the process of co-location — using mobile phone signals to triangulate the position of an individual. That, the indictment claims, is why the assassination team’s “red” network of color-coded phones was activated in Tripoli a month before the murder, an area where few Shiites live and home to Sunni Islamists on whom the accused planned to pin the blame for Hariri’s murder.

Yet, if the perpetrators were aware of this technological tracking system, why did they then continue to carry other color-coded phones along with their regular phones while going about their daily business? It was the proximity of their regular phones to the color-coded ones that apparently led to the identification of the alleged perpetrators. During the wave of assassinations of prominent anti-Syrian figures following Hariri’s death, people under potential threat routinely removed batteries and SIM cards from their cell phones before leaving home so that they could not be traced. Hezbollah’s signals intelligence and electronic warfare capabilities are highly advanced and its technicians thoroughly trained. It is inconceivable that the organization would have been unaware that a cell phone can still be tracked even when not in use.

The second, and more pressing, question is why Hezbollah would want Hariri dead in the first place. Certainly, Hezbollah and Hariri were poles apart politically, each having different visions of a future Lebanon. Hariri was a pragmatist, was well accustomed to the necessity for compromise and was not on a moral crusade to oust Syria from Lebanon or disarm Hezbollah. Hariri was willing to accept an armed Hezbollah and respect Syria’s interests in Lebanon so long as he was given free rein to run daily Lebanese affairs as prime minister.

In the months before his death, Hariri and Nasrallah struck up a close and secret friendship — one which even Hariri’s advisors still maintain was genuine — and they met at least once a week in secret. They had much in common, both being devout Muslims, originating from south Lebanon, sharing a strong sense of humor, and even both having lost their eldest sons.

Nasrallah must have not only realized that Hariri was not a threat to Hezbollah and Syria, but he could in fact be exploited as an asset. After all, Hariri’s friendship with Jacques Chirac, the then French president, helped keep Hezbollah’s name off the European Union list of terrorist organizations compiled in January 2005.

More importantly, Hezbollah did not possess the leeway to independently undertake an assassination of such strategic import. If there was Hezbollah involvement in the Hariri assassination, the orders came from elsewhere. That begs the question that if it has taken six years for the tribunal to accuse four men, two of whom supposedly played a minor, ancillary role, how much longer will it take for the tribunal to identify those whodecided that Hariri must go?

Nicholas Blanford is the Beirut-based correspondent for The Christian Science Monitor and The Times of London

 

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Society

Western media flaws only highlight our own

by Youmna el Asma, Zeina Loutfi & Ramsay G. Najjar
written by Youmna el Asma, Zeina Loutfi & Ramsay G. Najjar

The attacks perpetrated by Anders Behring Breivik in Norway on July 22 had the unintended effect of unveiling bias and prejudice in the Western media, and sparked worldwide debates about the role and responsibility of the press. The incident also raises important questions about the lessons that we can extract in our bid to harness our regional media’s power as an agent of positive change and a reflection of the aspirations and values of the people.

In the hours immediately following the massacre, the false assumptions and speculation as to the perpetrator revealed a significant lack of rigor and objectivity by some major news outlets. When the truth was out — that the massacres were not carried out by Islamic terrorists but in fact by an anti-Islamic Norwegian one — Middle Eastern journalists were quick to pour scorn on the mistakes made by the foreign media, seizing the opportunity to point out all the faults in coverage. It would seem that they forgot for a moment that our own media industry still has a long way to go before being able to brag about values like objectivity and truthfulness.

Lazy assumptions

Some of the most influential broadcasters undoubtedly were too quick to jump to conclusions, favoring the Islamist and Al Qaeda route without any reliable facts. Looking back at the earliest hours after the attacks, most media directly assumed the terrorist attacks were linked to Islamic organizations and attempted to rationalize every new piece of information by integrating it into the Islamist hypothesis. For instance, an American commentator accounted for the fact that the killer was a “blonde Norwegian male” by deducing that Islamic terrorist organizations had probably moved to “a new level” by recruiting natives. Moreover, the foreign media’s choice of experts commenting on the event provided the grounds for erroneous interpretation; most specialized in researching Al Qaeda, Salafis and other Islamist extremists, thus automatically directing the media analysis towards the Islamist theory without any shred of evidence.

In fact, the Norway attacks could have been a chance for the international media to rectify the strong prejudice against Islam and Arabs that it has played a role in fostering since the 9/11 attacks in New York and Washington DC. Instead, it reinforced a false perception that continues to influence local and international politics around the world. In their reluctance to use the word “terrorist” once the man’s identity was discovered, the media helped perpetuate the idea that terrorism and Islam are often mutually inclusive, and to some extent interchangeable. The word terrorism, or its derivatives, was ubiquitously absent in the majority of the mainstream media’s coverage the day following the attacks, whereas some broadcasters used it only to reassure the audience that “it seems like this is not linked to any international terrorist organizations” and is “not Islamic-terror related”.

In addition, the media’s propensity for sensationalism, and its desire to fill airtime, was prevalent in the headlines used to cover the attacks. The headline that ran in the British tabloid The Sun — ‘Al Qaeda’ Massacre: Norway’s 9/11 — clearly has absolutely no relation to the reality but was immediately chosen as a convenient sound bite that would resonate with audiences, and a captivating branded product that could easily be “sold”.

Moreover, instead of focusing on the human aspect — the  young victims and their stories — the media chose to focus on the perpetrator and his ideology, inadvertently shifting the debate to the topic of immigration and integration, and thus somehow rationalize his horrendous act. The end result, while yet to fully unfold, seems to indicate that Breivik succeeded in what he set out to do,which was to sound the alarm bells over an issue that Europe has been grappling with for generations.

Our own failings

Returning to the media in the MENA region, which were given the rare opportunity to look down on their Western counterparts, the Norway attacks provide an opportunity to assess our own limitations. It is important to remember that our media is still far from performing its role effectively or living up to people’s expectations in terms of objectivity, editorial integrity and ‘fair and balanced’ reporting. The truth remains that, whereas many of the faults the foreign media committed in their coverage were caused by the race for the headline and the urge to fill the 24/7 airtime, the ones committed by our own media are mostly driven by the specific agendas of the media outlets ’financial backers.

One of the many examples is in the coverage of certain campaigns and elections in the region for which media entities are often quick, and more than willing, to announce winners even before official (if not credible) results are in. They often disseminate unfounded information, use sensationalism in their reporting through violent language and fear mongering, and reveal a clear lack of objectivity whether in the amount of airtime given to specific political parties or candidates, or in the partiality of the reporting of certain facts. Moreover, whenever there are security breaches or incidents, some of the media in the region are always ready to point fingers at specific parties, simply because it suits the agenda or interests of the government, politician, or “deep pocket” behind the media outlet.

And most recently the coverage of the Arab Spring has revealed the extent of the partiality in regional media outlets. Whether in the choice to cover, or to not cover, certain demonstrations and political events, or by taking sides between the opposition and the regime, media institutions have clearly failed to play their role as providers of unbiased information.The myth trumpeted by some media channels in the region that they abide by the highest industry standards when it comes to objectively showing both sides of the story, free from propaganda or self-serving interests has to a large degree been shattered in 2011.

For the media to truly reflect the high level of professionalism and integrity of many of its journalists, it should re-examine its practices and instate self-regulatory boundaries that prevent information from becoming a tool for public opinion manipulation. The media has a moral obligation to shun sensationalism that puts a shade on the human and social aspects of events and often directs the debate towards unconstructive dimensions. And it has a duty to avoid speculation and discriminatory discourse that further reinforces prejudices, as a step towards becoming a uniting, rather than a dividing, force.

Accepting responsibility

It is a fact that the media is no longer simply a medium to relay the news. It has a responsibility to use its reach and influence to educate and break down barriers enacted out of prejudice. Remaining faithful to these imperatives would most certainly set the media in the region on the right track; only then would it be in a position to criticize the western media for its shortcomings.

The western media’s coverage of the Norway attacks should serve as a lesson to MENA outlets on the power they have in shaping opinions and debates, and on their responsibility to not turn such power into propaganda. Then again, many would argue that putting the onus on the media, knowing the political climate and the industry’s dependence on advertising revenues and/or political and financial backing, is asking too much. Knowing this, what it all boils down to is that most regional media should free themselves from the shackles of political and financial servitude. Only with such freedom comes the ability to be objective and free of prejudice. Following the incredible societal achievements of the past months, one can only hope that the time has come for the media in the region to show some courage by looking closer into how they operate and re-examining their own system of values.

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Finance

Executive Insight – Value over quality

by Natacha Tannous
written by Natacha Tannous

Fear and panic drove the markets through most of August causing more than $4 trillion in wealth destruction, while policymakers responded with “soft patches” and short-term solutions to what are structural and fundamental sovereign-debt problems on either side of the Atlantic.

During the week of August 8 the S&P500 — best single gauge of the United States equities market — went on a roller coaster ride, closing consecutively at -6.7 percent, +4.7 percent, -4.4 percent, +4.6percent, and +0.5 percent. While choppy and erratic, both American and European equity markets began a four-week downward near the end of July, with the heightened risk of a recession prompting investors to dump risky assets and seek safety in the Swissie (CHF), gold and in long-dated US Treasuries, in other words, there has been a general flight-to-quality.

Thus, the concern today is how to trade equity and foreign exchange markets, and hedge against potential event risks until the politicians and central bankers provide durable solutions to exit their debt conundrums and correct economic imbalances.

Approaches to equity and FX

Nouriel Roubini, also known as “Dr. Doom” for having predicted the 2008 financial crisis, recently told me that he assigned a “50 percent probability to a double-dip scenario… Or possibly more.”

For investors sharing this “doom and gloom” view, outright put options on US or European indices would make sense, if not shorting the indices directly. Since implied volatility hasn’t reached the 2008 and real crisis levels, protection is still cheap and below fair price if you calculate that the worst is yet to come. The put protection provides an attractive way to limit the downside, or potential losses, to the put premium if you happen to be wrong. If such structure is not affordable, an investor could play the correlation card — given that in times of global meltdown correlation tend stowards one, meaning the markets move in sync — and buy a best-of-put on a global basket where the index that will fall the least will still drop considerably in broad-based sell-offs.

Turmoil in the S&P

Turmoil in the S&P 500

Source: Standard & Poor’s

In the world of foreign exchange, investing in quality assets would protect from event risks, with possibilities including buying a barrier option for a targeted move in the USD-CHF rate, or play the Norwegian NOK if investors fear interventions from the Swiss National Bank (SNB) to control the appreciation of the Swissie.

The second group of investors — the bears — assign a lower probability of dramatic worsening of the sovereign crisis, but still believes that uncertainty will dominate markets. Even the fixed income markets in the Eurozone are pricing in a deeper debt crisis with Italian and Spanish 10-year yields flirting between 6 and 6.5 percent — that is until the European Central Bank decided to resume bond purchases — and more alarming, the Greek 2-year yield hitting 46.6 percent on August 25.

“Markets won’t give the benefit of the doubt [to theEurozone] until the results of policies to correct imbalances in public and private sector balance sheets as well as current accounts, and the new policy infrastructure, are visible,” highlights Mark Wall, managing director and co-head of European Economics at Deutsche Bank. “It is a ‘muddle through’ and as such markets don’t like it.” With this bearish view, buying (bear) put spreads on indices, for example, is a better alternative to outright puts —given the cheaper structure — as investors are willing to limit the upside, or potential gain, below the first strike.

A third and quite diverse group — the bulls — argues that the market has allegedly discounted the turmoil in the US or potential selective default in the Eurozone, with policymakers close to providing solutions; the more extreme ones even believe that ‘everything is a buy at current levels’. These investors are betting on this rally starting soon — and on a more inflationary world — and would rather buy call options on indices, for example, staking their money on the upside. Once again, this group covers a large spectrum and is quite hybrid, as being bullish does not necessarily entail being bullish on all markets.

If an investor bets on a faster resolution to economic imbalances in the US on the basis that the US has better fiscal tools at its disposal to solve the debt crisis, one could combine longs in the S&P 500 with shorts in E-STOXX50. This view can also be played through the FX market, and particularly the euro-dollar.

“As the ECB begins to aggressively accumulate Eurozone bonds— out of necessity — and overall risk appetite grows disappointed with any stimulus from the Fed, the euro-dollar is likely to make its way towards the $1.40 figure,” explains Ashraf Laidi, chief executive officer of Intermarket Strategy Ltd and author of Currency Trading & Intermarket Analysis. “The most important support remains $1.37, a break of which would flood the gates towards further downside.”

Last but not least, a growing group — the ‘risk off’ investors — would rather sit-and-wait. These investors do not wish to actively trade in these markets given the excessive uncertainty and irrationality; they prefer to dump investments across a spectrum of assets and sit on their cash, with the idea that “being flat is the new high.”

Taking a view

Looking at the divergence in trends between the end of July and what seems like a start of rally in equities and correction in quality assets during the last week of August heading into ‘Jackson Hole’ — the annual US Federal Reserve (Fed) symposium — it would seem that the irrationality of markets was more due to panic, a lack of liquidity (with many investors on holiday), day trading and market positioning, rather than to sensible trends. Either way, it seems that markets are largely untradeable, at least until we get more clarity from policymakers.

And yet, the investor has to do something, but what? Is ‘off risk’ the only logical option? The reality is, liquidity has been poor this summer and volatility high, so the investor can make the same amount of money with less notional than in a low volatility environment.

Thus in order to work out how much to put in, the real questions should be: What opportunity does the investor seek and how much does he want to make? Does the investor want a ‘high risk/high reward’ portfolio —investing in the banking sector like Warren Buffett’s recent $5 billion bet on Bank of America — or a portfolio with lower volatility, such as one with investments in the utilities sector?

Whether a sector, single-stock or asset class approach, investors must take a view, but one in search of what has been oversold and depressed, or conversely overbought and overvalued,  rather than rushing into safe haven currencies, gold or US Treasuries. In short, it is more sensible to bet on assets trading under or above ‘fair value’ rather than invest blindly in ‘safety’ — value over quality.

NATACHA TANNOUS is EXECUTIVE’s financial correspondent

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Real Estate

Q&A – Fadi Antonios

by Rayya Salem
written by Rayya Salem

Fadi Antonios presides over a network of industrial enterprises in the United Arab Emirates and has growing interests in Lebanese real estate. Through his development company, Antonios Projects, he is the sole owner and developer behind what will be Lebanon’s tallest tower, the 50-story Sama Beirut, currently under construction in Ashrafieh, where it will offer luxury retail space, offices and residences. Executive recently got the scoop on the project and on Antonios’ future plans for his home city.

Since the construction contract alone is well over $100 million for Sama Beirut, is it not risky to self-finance the entire project?

My father used to say, ‘In real estate, never take a partner; it’s like [having a] wife, you don’t take a partner.” [laughs] If you can realize your project without banking facilities it is better and less risky… Now we have a bridge loan [a guarantee from the bank in case of a financial shortfall]… but we don’t have any problems with financing. I always work by myself [without partners].

Besides that, I am working on a much bigger project. It will be a gated community, which will have close to 60 buildings in a prime location in Beirut and will have all internal facilities, security at the gates and a club for the families.

I am also starting an office building in Beirut, near Université Saint Joseph, where there is a need for “clever offices”. I bought the plot, which is close to 2,000 square meters, and we are now working on the drawings and architecture. Again, it is all being financed by myself.

To date, what is your total investment in Lebanon?

Quite a lot. I think investing in Lebanon in real estate is still the safest and most interesting place. Especially that we are Lebanese and we know the mentality, the people. It is much easier to navigate the construction field [in Lebanon] than anywhere else in the world.

The construction contract awarded to MAN Enterprise was more than $100 million whenannounced in June. Was this the original budget?  

Yes, but the construction budget has increased more than 50percent.

We didn’t expand floors but it is due to the improvements,choice of material, high technology and the devaluation of the US dollar.

How does Sama Beirut use solar water heating techniques?

We tried to use solar energy to produce basic electrical needs. Unfortunately the photovoltaic technology is still very expensive and it did not pay to invest in it. For the hot water, that is a much simpler technology and it’s enough to provide hot water for 24 hours without burning fuel… Fuel for boilers and maintenance of systems is getting more expensive. With solar, it’s a free system and maintenance is cheap.

In the UAE,developers have traditionally applied a mix of British and US fire safety standards, but the rules are currently being standardized, as some new residential buildings reach over 100 stories. What about in Sama Beirut?

Here we can use the service floors [every 10 floors] and we also have fire-proof elevators in addition to fire safety plans and installations. We are applying fire safety [techniques] that are a mix of the French and American systems.

Lebanese engineers are really the best, I would say. I enjoy working with these engineers and architects. I always use Gregory Gatzerelia for all my private residences… For Sama Beirut, we considered international contractors before choosing MAN Enterprise. [The deciding factor] was not price, it was experience in mastering Lebanese construction, rules and regulations — its name and its realizations are the best buildings in Beirut.

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Comment

Nokia’s got your number

by Paul Cochrane
written by Paul Cochrane

Nokia’s brand image is of two hands — one a child’s and one adult — reaching towards each other with the slogan: “Connecting People”; a nice image for a mobile phone manufacturer and service provider. But in a dozen countries in the Middle East and North Africa (MENA), the Finnish mobile phonegiant’s joint subsidiary with the German company Siemens, Nokia Siemens Network (NSN), has been connecting people in a way that consumers were not expecting: with the mukhabarat, or secret police.

Dozens of pro-democracy activists arrested in Bahrain by mukhabarat following the uprising that began in February were presented with transcripts of text messages and phone calls that they had made. Detainees were puzzled as to how their communications had been intercepted and were being used as evidence against them. They were not aware of the monitoring systems that 12 countries in the MENA, according to a report by Bloomberg published last month, had bought software from NSN and its subsidiary, Trovicor, that enables governments to intercept phone calls, emails and text messages. Such surveillance software also allows the powers that be to create disinformation by changing the contents of written communications and to scan phone networks through voice-recognition and keyword-search software, in addition to remotely activating laptop webcams and microphones on mobile phones, according to Wired magazine.

The Bloomberg exposé of the usage of such technologies in Bahrain is a first during the MENA uprisings of this year. That websites were being monitored was well known, and people in Syria, Libya, Egypt, Yemen and elsewhere have long been wary of what they said on the phone in case of a third, unwanted listener. But the level of interception and its usage by secret police is a concern not only for activists, protesters and the like but also for the very privacy of all people.

Furthermore, it is not an issue confined to Bahrain or the MENA. This follows the phone hacking scandal in Britain in July that reached the highest echelons of the police force, the offices of the prime minister as well as dozens of print publications, and add to this the news of Google’s cozy relations with not only Washington DC but also Beijing. This all comes on top of the revelations over the last decade about the joint American-British global surveillance system Echelon.

Such phone hacking and monitoring is a growing concern reminiscent of George Orwell’s dystopian novel 1984, which depicts a society under the hyper-surveillance of “Big Brother”. The arguments given for such surveillance software in the hands of the state are acceptable when it comes to tracking terrorists, organized criminals and other deemed baddies, but, as always, it is how such technology is used, for what purpose and how you classify a “bad guy”. Inflicting human rights abuses on Bahraini activists for what they wrote and said via their mobile phone is not a shining example of what Trovicor calls in its website: “Making the world a safer place.” Safer for the Bahraini ruling elite perhaps, but not for its citizens.

Telling in the unveiling of Bahrain’s usage of Trovicor’s systems is the fact that it will most likely not cause the same outcry as when NSN was hauled over the coals in 2009 in the United States for providing the same technology to the Iranian government to snoop on protesters in the wake of the disputed presidential elections. What has become very clear this year in the region is that there are halal and haram revolutions, depending on the country’s relations with the US. Bahrain is of course in the latter category.

Conversely, Tehran’s usage of Trovicor’s systems and a “Noto Nokia” international boycott for its indirect role in human rights abuses resulted in NSN selling Trovicor to Germany’s Perusa Partners Fund in 2009, although management, staff and equipment have remained largely the same. Meanwhile, NSN sales teams have been instrumental in the continued roll out of the service in the MENA.

By connecting and informing protestors and by distributing news and video updates from the streets, technology and social media have been key components in the successes of some of the uprisings throughout the region. Unfortunately, these same mediums are being used as a tool of autocracy. Just as governments should be held accountable for repressing their people, so too should corporations who facilitate such brutality.

PAUL COCHRANE is the Middle East correspondent for International News Services

 

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Economics & Policy

A town on the frontlines

by Sam Tarling
written by Sam Tarling
Members of the Free Syrian Army take positions near the town of al-Qusayr in Homs province, Syria, in anticipation of an attack by regime forces that won't come [Executive/Sam Tarling]
Members of the Free Syrian Army's Ah Al Rassi (freedom for the river Assi) brigade take part in an attack on regime forces in the village of Nizareer, near the Lebanese border in Homs province, Syria, on Saturday, May 12th. The FSA said the attack was a response to a regime incursion into the village during which they killed villagers and imprisoned others [Executive/Sam Tarling]
This fighter survived his injuries after comrades patched his wounds before sending him back to safety [Executive/Sam Tarling]
A fighter is treated for his wounds after being shot in the torso and the leg while attempting to fire a rocket propelled grenade at government troops [Executive/Sam Tarling]
Member of the Free Syrian Army prepare to attack regime forces in the village of Nizareer, near the Lebanese border in Homs province [Executive/Sam Tarling]
Dead civilians are loaded onto the back of a truck outside a hospital in al-Qusayr, Homs province, after heavy fighting broke out in the town after the Syrian Army entered the town [Executive/Sam Tarling]
FSA fighters take a moment of solitude in the town's martyrs' cemetery, where some 200 people are buried [Executive/Sam Tarling]
Members of the Free Syrian Army's Mughaweer (commandos) Ah Al Rassi (freedom for the river Assi) brigades celebrate after an attack on regime forces in the village of Nizareer, near the Lebanese border. The FSA said the attack was in response to a regime incursion into the village during which they killed villagers and imprisoned others [Executive/Sam Tarling]
FSA brigades return home after attacking regime forces that had raided a village near the Lebanese border [Executive/Sam Tarling]
With the town's mosques unusable due to shell damage, Friday prayers are held in the street under the watchful eye of FSA guards [Executive/Sam Tarling]
United Nations monitors talk to community leaders in an effort to broker a cease fire. While there is an uneasy peace of sorts in al-Qusayr, it's frequently shattered by sniper attacks and shellfire. The efficacy of the UN mission in Syria is yet to be measured but its presence seems to have been welcomed by people in al-Qusayr [Executive/Sam Tarling]
A fighter from the Free Syrian Army's 'commandos brigade' receives treatment for a previous shrapnel wound at a field hospital in al-Qusayr [Executive/Sam Tarling]
Although al-Qusayr is effectively blockaded by the government, the FSA controls the bountiful arable land to the south of the town. Here an FSA fighter cooks beans over an impromptu barbecue [Executive/Sam Tarling]
Members of the Free Syrian Army 'commandos brigade' take positions near the town in anticipation of an attack by regime forces [Executive/Sam Tarling]
A moment of relief as the Syrian Red Crescent delivers two truck-loads of much needed food. [Executive/Sam Tarling]
A family packs up and leaves for the safety of Lebanon. Some 80 percent of the town's 50,000 residents have now left [Executive/Sam Tarling]
Heavy shelling has almost completely destroyed some parts of this small, rural town [Executive/Sam Tarling]
Members of the Free Syrian Army 'commandos brigade' take part in a training exercise [Executive/Sam Tarling]
FSA fighters take part in a training exercise in the countryside outside al-Qusayr [Executive/Sam Tarling]
Petrol for sale in bottles such as these are a common sight; there's no working gas station so the town is fueled by a stream of smugglers. Prices are exorbitant [Executive/Sam Tarling]
A woman makes bread by hand on a traditional 'saj' oven because oven-baked break is in short supply in al-Qusayr [Executive/Sam Tarling]
Every day, residents of al-Qusayr celebrate their freedom and protest openly against the regime [Executive/Sam Tarling]
Surgeons use basic equipment to save the life of a man who was shot by a sniper positioned at the town's hospital [Executive/Sam Tarling]
A boy brandishes the sole of a shoe at a picture of Syrian President Bashar al-Assad which is draped inside a dumpster in which other demonstrators have been throwing rubbish [Executive/Sam Tarling]
A barber is seen cutting hair through the broken window of his salon on Monday, May 7th, as a parliamentary election took place elsewhere in the country [Executive/Sam Tarling]
Due to trigger-happy government snipers, streets with checkpoints such as this are deserted [Executive/Sam Tarling]

Al-Qusayr pays a heavy toll for a taste of freedom – photos by Sam Tarling for Executive

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Consumer Society

Preparing for the transcendent web

by Karim Sabbagh, Olaf ackerDanny Karam & Jad Rahbani
written by Karim Sabbagh, Olaf ackerDanny Karam & Jad Rahbani

Imagine a world in which a movie search on your phone turns up only the kind of movies you like, and only those playing in your neighborhood; your behavior and interactions on social networks automatically produce lists of recommendations, potential friends, even job offers; searching and browsing the web becomes vastly more interesting and efficient, with results and link suggestions tailored specifically to your interests, and your “virtual representative,” a kind of online personal assistant, keeps working to find you the best information even when you are offline.

This is the world of web 3.0, or what we call the ‘transcendent web’, and it will bring profound changes to people and businesses alike. The benefits it will provide users include the creation of a much more personalized web experience and the automation of many of the services already in use. Businesses too, will benefit from vastly greater amounts of information about consumers and thus the opportunity to market and sell to them much more directly. They will also be able to take advantage of the greater operational efficiencies brought about by technologies that will keep people, processes and products much more tightly connected. The transcendent web will play a critical role in the digitization of industries as wide-ranging as telecommunications, financial services and healthcare.

The transcendent web is still on the horizon, but it is critical that companies understand what is coming, and how it will affect their businesses, if they hope to take full advantage of what it will offer.

Web 3.0 will build on the kinds of applications and services that have proved so popular in the past few years. Recommendation engines will produce much more complete and targeted information, based on a greater knowledge of the habits and preferences of users.

Search engines will become much more precise, taking context and wording into account in generating their results. And services will arise that enable users to create avatars to perform all these functions for them, automatically, depending on highly specific preferences.

These kinds of services will depend on new web technologies that are significantly more intelligent than current standards.

The Social Web: Social networking will continue to be a mainstay of the transcendent web. Indeed, much of the activity on web 3.0 will take place within the context of social media, as the connections among like-minded people become strengthened, reenforced and multiplied.

The Semantic Web: The semantic web will understand on a considerably deeper level the meaning of the search terms people use, and the context in which they are used. This in turn will enable far better results when searching and generating recommendations on the web.

The Internet of Things: More and more things are being made Internet-enabled — houses, cars, appliances, even clothing — allowing them not just to be located through technologies like radio frequency identification but to communicate richer amounts of information about themselves; all of this becomes not just possible but also visible to web users.

Artificial intelligence: Ultimately, the transcendent web will depend on a high level of artificial intelligence underlying many web processes. Using inputs from different sources, including browsing history, user-specified preferences and contextual information such as location, these systems will profile users to better understand both the content and the context of their requests.

The Impact of the Transcendent Web

As web 3.0 comes into being, its effect on both users and businesses will be profound. It will change how people work and play, and how companies use information to market and sell their products, and operate their businesses.

The huge increase in user data, behavior and preferences offers marketeers a great opportunity to attract more consumers to their websites, target their efforts to particular consumers, gather more information about those consumers and use that information more efficiently.

To do so, they must prepare to take advantage of the coming ‘semantic web’, optimizing their websites by embedding them with search engine–friendly, structured, semantic data to increase traffic. When Best Buy embedded semantics into the descriptions of its online products in 2009, describing not just the product, but also accessories, delivery and payment options, and warranty conditions, its site traffic increased by 30 percent.

Advertising too, will be transformed, as businesses come to understand and take advantage of behavioral advertising, in which the kinds of ads placed on websites will depend on highly specific information about who is visiting the site. The result will be a large boost in online sales, as companies learn how to target those consumers most likely to purchase their products.

The impact of the transcendent web will also allow companies to reexamine their entire organizational structures, business and governance processes, supply chains and product innovation efforts. What’s more, they will be able to further automate many processes, promote better communication among employees and enable far more efficient manufacturing, supply chain and inventory management practices, as parts, machines and finished products are linked together in the growing ‘internet of things’.

Enhanced customer feedback will allow companies to boost innovation and continuously improve product quality.

“The impact of the transcendent web will allow companies to reexamine their entire organizational structures, business and governance processes, supply chains and product innovation efforts”

Getting Ready for the Transcendent Web

Many critical elements of the transcendent web have yet to be put in place. We expect, however, that the effort to implement them will accelerate through the coming decade.

The evolution of the transcendent web will take time, but companies should not take that as an excuse to wait and see what it will look like once it is finished. Organizations need to begin now to build the capabilities that will be key to reaping those benefits.

Open up to the Internet world: Ensure that every critical business system is open and ready to interface in a secure way with external systems over Internet protocols.

Move to real time: Convert business systems from today’s often asynchronous data management operating models to real-time analytics and processing.

Structure your data: Move to structure all of your company’s data so that it can be used in different ways both internally and externally by your business partners. This will require the automation of tagging to provide for how data is managed and searched in context.

Develop your people: Create a plan to ensure that your company has the skills needed to take advantage of today’s needs and tomorrow’s opportunities. Keep in mind that the skills required will extend beyond the technology department to encompass the entire organization.

Involve your customers: If you have not done so already, start now to move your customers from a passive, “lean-back” approach to a more active, “lean-forward” attitude. Stimulate an active online dialogue about your products and services, then capture the information produced and use it to further refine your products and services, and to enhance your marketing activities.

Each stage of the journey will bring benefits, and the companies that begin planning now will reap those incremental benefits and be that much better prepared when all the pieces are in place.

KARIM SABBAGH is senior partner and the global leader for the Communications, Media and Technology Practice at Booz & Company; OLAF ACKER is a partner, DANNY KARAM a senior associate and JAD RAHBANI an associate with Booz & Company

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Consumer Society

Eric Vergnes

by Executive Editors
written by Executive Editors

In an effort to move from a pure traditional watch brand to a full-on lifestyle brand, the 151-year-old Swiss manufacturer, TAG Heuer, is taking some bold risks. As the world’s fourth largest luxury watch brand and number one worldwide in chronograph pieces, it is also launching its second generation of luxury phones, called “Link”, the first luxury smart phone developed on an android platform. Its expansion plan in the Middle East is no less ambitious. In July the firm opened its 10th boutique in the Middle East, in the Beirut Souks, with the Atamian family as their exclusive agent. Beirut will be one of the first markets in the region to be exposed to the new “1887”, which is an update of the iconic Carrera watch, with a twist. Though originally launched in 1964, the firm is now a chronograph manufacturer, so movements are made for the first time via the firm’s 100 percent in-house department, instead of sourcing from Swiss suppliers of chronograph movements like Zenith and ETA. Executive got in on the details during a cozy bar room chat with General Manager of LVMH Watch & Jewelry, Middle East, Eric Vergnes. [TAG Heuer is one of the 60 brands under LVMH]

  • How much does it cost to produce the movement yourself?

It’s a huge investment… We are still at 25 percent of what we are aiming to produce in the future. But the difference in price would be only around 10 percent.

  • You don’t feel that the people would rather choose the Zenith or the ETA movement?

The Zenith is very limited in terms of supplies, quantities. We have a Zenith modified movement “Caliber 36”, it’s on the very high-end, around $12,000, compared to $4,000 for the other ones.

  • On a point-of-sale level, how are you going to adapt your boutiques to allow these new models to be represented?

Our targeted customer is the feminine one; we have this very strong image of being a masculine brand, but today, in the region, more than 50 percent of our sales, in value, are done with ladies.

  • Where does the strategy of diversifying away from watches come from?

We don’t have diversification in the main families of the watches, which are the Carrera, Monaco 1969 and Grand Carrera. Seven years ago we launched the eyewear, and now, for every two watches we sell one pair of eyewear, and 100,000 units of eyewear are sold every year. We are one of the very few luxury brands making mobile phones. Of course we are very small compared to Vertu. For every 10 Vertu mobile phones sold, we sell one [Link].

  • In the last four to five years the performance of luxury phone manufacturers was not very good. How would you justify the Link [priced at $6,750]?

There was a survey that [said] that the market of luxury phones will eventually be as big as the market of luxury watches. Nokia has had difficulties, but Vertu is extremely successful in China, the Middle East and Russia. Our main competitors are stuck with their in-house software, but Link has a late generation of androids and the catalog of android applications. 

  • How much does the Middle East represent out of your total sales?

Approximately 5 percent, but we have huge potential for growth in the Middle East. We’re not very big in Saudi yet… Iran and the United Arab Emirates look very promising. We will not double the sales but we can certainly grow by 30, 40, 50 percent.

  • How did TAG Heuer manage the relationship with the retail agents around the world after the financial crisis?

All partners in the region (in mid 2008) had all of a sudden nearly two years of stock. We didn’t push the selling, instead we did as much advertising as possible and by the end of 2009 they were back to one year of inventory. No partner has dumped product.

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Economics & Policy

For your information

by Executive Editors
written by Executive Editors

Paying more for the same

Prices of consumer goods in Lebanon continue to rise, with last month’s consumer price index, the major indicator of inflation, showing that the trend of increasing prices since 2000 continues unabated. Even though real estate and communication prices remained steady, the first half of this year witnessed a 6 percent increase in inflation compared to June 2010 levels, according to the Central Administration of Statistics, though many economists fear that actual inflation may be much higher. The rise in prices was mostly attributed to an increase in the price of clothing and footwear (+21.1 percent), electricity, water, gas and other fuels (+13.1 percent), as well as more moderate rises in the price of education, restaurants and hotels. According to the International Monetary Fund the index hit 127.62 in 2009 and is expected to exceed the 150 mark in 2015. Most analysts agree that Lebanon imports around 70 percent of its inflation.

Keeping the country watered

Minister of Energy and Water Gibran Bassil inaugurated last month the Lebanese Center for Water Conservation and Management and announced a strategy aimed at conserving water in the country. According to the minister, unless new measures are taken soon Lebanon will face a water deficit by the year 2020. The project was put together to “promote sustainable water management through both technical and policy-level support”, according to the United Nations Development Program (UNDP) website. It will be conducted with the support of Italy and Spain, through their embassies in Lebanon. According to the UNDP, the strategy has three components: technical capacity building on sustainable water management, the promotion of public awareness on the issue and an assessment and collection of data on groundwater.

Trade deficit hits five-year high

According to Ministry of Finance figures, the period from January to May 2011 registered the highest trade deficit in five years in terms of value. Lebanon’s trade deficit was about $5.95 billion, or 10 percent higher than the trade deficit recorded the same period last year ($5.4 billion). In fact, the economy witnessed a 7 percent increase in imports, which reached $7.66 billion, while exports decreased by 1 percent to $1.71 billion. The main reason was the rise in oil prices. However, an increase in prices of Lebanon’s most important imports was also a key reason (such as a 49 percent rise in the value of unwrought and semi-manufactured gold, precious stones and metals, and a 19 percent rise in pharmaceutical products). Imports from major trading partners Italy and France increased, according to a Byblos Bank report last month, while key export destinations like Switzerland, the United Arab Emirates and Syria fell 17 percent. Lebanon’s main exports include jewelry (33 percent of total exports), base metal (15 percent), machinery and mechanical appliances (13 percent), prepared foodstuff (9 percent) and chemical products (8 percent).   

Debt roll over, and over, and…

The government’s strategy of rolling over short-term debt for longer maturity periods looks to continue as reports emerged in July that the finance ministry was seeking to issue Eurobonds this month. The issuance will be the first under the new government and is an indicator of the level of confidence in Lebanese paper. The ministry is looking to make a $950 million issuance that reportedly consists of a $750 million principal and $200 million in interest. According to various reports Citigroup and BLOM Bank will handle the book running for the issuance. The last issuance of Eurobonds occurred in May when $1 billion were issued in two tranches, the first at a rate of 6 percent with a maturity of eight years and a value of $650 million, and a second at a rate of 6.1 percent with an 11-year maturity and a value of $350 million. This month’s issuance will be part of the remaining $2.1 billion in Eurobonds that will mature this year. The public debt maintained its level of $52.7 billion at the end of May, unchanged since the beginning of the year.

Internet penetration on the rise in MENA

According to the International Telecommunications Union (ITU) the United Nations agency for information and communication technology, the rate of Internet penetration in Lebanon rose from 24.7 percent in 2009 to 31 percent in 2010. The figures ranked Lebanon 10th in the Middle East and North Africa in this category, and 100th among 233 countries worldwide — surpassing Egypt and Syria with 26.7 percent and 20.7 percent penetration, respectively. However, Lebanon still has a long way to go to catch up with the leaders in the region. The country is still far behind the United Arab Emirates and Qatar, with 78 percent and 69 percent penetration, respectively. As for fixed-line communications, Lebanon is ranked highest in the Middle East and North Africa region with a 21 percent rate of subscription for fixed lines, compared to a 9.19 percent average in the region; worldwide Lebanon ranks 97th.

Fewer tourists, spending more

An unstable political situation in Lebanon and the region has resulted in a 20 percent decline in tourist arrivals to the country during the first six months of the year, compared to the same period last year — from 964,067 down to 774,214. However, tourist spending grew by 6 percent in the first half of this year, according to duty free agency Global Blue. Arab tourists accounted for 31.9 percent of total arrivals and 54 percent of tourist spending in Lebanon. Among them, tourists from Saudi Arabia took the lead, at 20 percent, followed by the United Arab Emirates (11 percent), Kuwait (9 percent), Syria (8 percent) and Egypt (6 percent). Some analysts say the rise in tourist spending comes on the back of the financial crisis of recent years.

Another growth downgrade for Lebanon

The Institute of International Finance (IIF) has followed other institutional surveys and reduced Lebanon’s real gross domestic product (GDP) growth expectation for 2011 from 4 percent to a range of 1.1 to 3.0 percent. The global bank HSBC made a similar move a few weeks prior, cutting Lebanon’s growth forecast from 3.2 percent to 2.7 percent. Indeed, so far most economic proxy indicators have witnessed a decline, with observers saying that growth will depend on the development of the political situation in Lebanon and the region. In that vein, the IIF has predicted two separate scenarios. The first, with a 70 percent probability of occurrence, assumes that the situation in Lebanon and Syria will remain unchanged, in which case any recovery would be insignificant and GDP growth would not exceed 1.3 percent. With a stable political situation, in other words the return of political calm in Syria and a resolution to strife over the Special Tribunal for Lebanon, the organization would expect 5.1 percent growth in the second half of 2011.

Minimum wage still lagging

As prices rise, wages should follow suit. That was the sentiment last month of Lebanon’s largest labor union, the General Labor Confederation (GLC), when asking that the minimum wage be raised once again. The GLC demanded that the Lebanese government increase the minimum wage in the country by 150 percent, from $333 to $833. However, according to the Association of Lebanese Industrialists and the Federation of Chambers of Commerce, Industry and Agriculture, before being able to do so the government needs to create incentives for companies to increase their level of productivity. Otherwise such a move could lead to the bankruptcy and/or closure of many factories and private companies due to increased wage costs.

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