Executive Magazine

Threadbare redress

by James Reddick August 3, 2011

written by James Reddick

When Ali Ismael, co-owner of Tricot Starlet Co., saw the wreckage of his clothing factory in Beirut’s southern suburbs, bombed just five days before the 33-day war ended, the shock literally sent him to the hospital with high blood pressure. “Everything I worked for my entire life just went to waste,” he said. “I did not inherit anything from my parents — neither my partner nor I. It was our entire life’s work and it was hard looking at it burn in front of my eyes.”

Little remained of the factory, located in a hard-hit area on Al Kassis Street next to what Ismael described as the “Hezbollah kitchen”. Initially, he considered this the final blow for the company; already, the textile industry was suffering in Lebanon, with cheaper competition from Asia and, contends Ismael, “mafias that can get in a whole container at the port for$15,000 without paying any customs.”

But his partner, Hussein Chehab, was unequivocal about the company reopening. “He was very brave and he directly decided to reopen again,” said Ali. “I wasn’t as brave but I supported him and his decisions.”

One of Tricot Starlet’s saving graces was a relatively immediate influx of money to help mitigate the $2 million of direct damage. First, he sold his two remaining warehouses for $415,000, which he used to buy a new facility in Hadath. Then his siblings and an American client with whom he used to work provided an undisclosed amount, while a Turkish supplier offered the company a generous $75,000 worth of credit. And lastly, Hezbollah provided $100,000 as compensation — not enough for a full restart — but sufficient to pay employees during the two months in which Tricot Starlet was out of commission before a new factory was opened in Hadath.

Left guessing

Notably absent in Ismael’s recounting of funding is the role of the Lebanese government. The United Nations Industrial Development Organization did provide $25,000 for four sewing machines, but Ismael has been unable to secure a central bank loan. Unlike many other factory owners Executive spoke with who were unwilling to mortgage their assets in order to receive a loan, Ismael is willing but has been left in limbo.

“The central bank sent some experts and auditors to appraise the damage,” he said. “I paid $12,000 to complete such procedures, but until now did not receive anything.”

Working through Bank of Beirut and Arab Countries (BBAC),Ismael said, the application was submitted to Banque du Liban, Lebanon’s central bank, and approved, but “has stopped there.”

Four years since the loan mechanism was created, and nearly three since the application deadline, Ismael no longer expects any assistance and is not sure of the problem. The central bank circular stipulates that a recipient must need the loan in order to continue operations, which for Ismael may not be the case. Still, nearly $2 million in damage is a hefty sum for a firm the size of his, with just 40 employees before the war, to have to pay.

Nonetheless, the business continues with apparent efficiency. Men and women crouch over sewing machines, guiding the fabric as the needle chugs along the seams. Ismael designs the clothes, for women and for men, but is aware that in Lebanon the viability of plants like his is waning. “The cost of the thread is increasing and the sales prices are declining,” he said. “There is no possibility to grow in this industry; it is fading.”

August 3, 2011 0 comments

Economics & Policy

The state of industry, 2011

by Zak Brophy August 3, 2011

written by Zak Brophy

The industrial sector in Lebanon is often regarded as the runt of the economic litter. Real estate, tourism and banking receive the lion’s share of attention and praise, not to mention political support. Perusing the figures over the past five years showing the manufacturing sector’s inexorable decline in share of value added to gross domestic product(GDP) — in comparison to other sectors of the economy — it is easy to see why attention is focused elsewhere.

Nassib Ghobril, head of economic research and analysis at Byblos Bank, holds firm that Lebanon’s industrialists are actually faring rather well, however. “The sector is doing well, and we shouldn’t always be putting it down saying it is on its way to disappearing and that industry is not in good health,” he said.

Indeed, when judged on its own merits, and not in comparison to other sectors of the economy, industry has proven resilient in recent years. Imports of industrial equipment — a good indicator of industrial activity —have increased by a compound annual growth rate of 9.2 percent over the past decade. What is more, the value the sector has added to the economy has increased at an accelerating rate, from 1.5 percent in 2001 to 11.3 percent in2009.

A rocky road

But this growth has not been without its blips. If anything, the vicissitudes of the local and regional political arena over the past decade have highlighted industry’s acute responsiveness to security concerns. The long-term nature of investment in the industrial sector means it is one of the first areas where investors get cold feet when the all-too-common specters of discord rear their ugly heads.

“They [industrialists] don’t want to borrow in a market where there is a lot of uncertainty and where cash flow is a major concern, especially when you have political concerns,” explained Jad Chaaban, acting president of the Lebanese Economics Association.

At the close of 2010, industrialists had good reason to hold their heads high after a strong performance throughout the year. Industrial exports were up 27 percent on 2009 and imports of industrial machinery and electrical equipment hit a record high of $227 million, up 14 percent from2009. In fact, industrial exports have been increasing consistently and strongly for most of the past decade — excluding 2008-2009 during the international financial crisis and a slow down following the 2006 war — with the prepared foodstuffs, machinery and mechanical appliances, pearls, precious and semi-precious stones (excluding gold ingots) and base metal sub-sectors performing consistently well.

But 2011 has ushered in upheavals in Lebanon and across the wider region, with events in Syria remaining the most pressing concern for Lebanon, and how the chips will fall is still far from certain.

Head of the Council for Industrial Exports’ Development Khaled Farshoukh fears the consequences for Lebanese industry. “There has been growth of around 20 percent to 25 percent every year [in industrial exports in the last three years],” he said. “When we compare that to the first quarter of2011 we can see there is no growth… When we look to the figures, if we don’t move up we will lose.”

His concerns are warranted — especially as imports of industrial machinery and electrical equipment also stagnated in the first quarter — but it is still too early to assess the impact of the recent regional turmoil on Lebanese industry. Heading into the second quarter, industrial exports were up 16.76 percent in April 2011 on the same month in 2010.

The new Minister of Industry Vrej Sabounjian told Executive, “I encourage Lebanese businesses to see this as an opportunity to search for new markets if theirs in the Middle East have been affected. It presents new challenges and new opportunities.” Beyond the creation of a stable and secure environment for investment, few Lebanese industrialists have high expectations of support from the government. General Manager of Dalal Steel Industries Toufic Dalal said, “people nag about the government. I don’t nag because if you compare between Lebanon and other countries — in Europe, for example, — you would pay 40 percent to 50 percent tax, but here I only pay 15 percent [corporation] tax. It offsets the costs we have to endure.”

Basic requests

But low expectation for services does not mean no expectations.

Ghobril from Byblos Bank reasoned that a “15 percent corporation tax is low, as is the capital gains tax, but that doesn’t excuse the government from providing basic services like electricity, roads and water. The very basics at least. Not to mention security. If the government can’t deliver these basic services it should not exist.”

Addressing the perennial saga of Lebanon’s debilitated energy system is one of the ‘basics’ where industrialists concede they need government support. “This is a very big problem… There is no clear government policy for the energy sector,” Farshoukh said. “Until now everyone is still working on diesel and there are no alternatives. So if there isn’t a push from the government to have a special price for diesel for industry we will continue to have the same problems.”

A 2010 report by the Ministry of Industry states that in 2007 industrial spend on energy from Electricité du Liban amounted to 1.3 percent of intermediate consumption — the cost of the inputs of production — which is proportionally not particularly high. However, because electricity supply is not constant, industrial establishments spent $192.3 million on fuel products for their own energy production, which constituted 4.1 percent of intermediate consumption. Additional costs to industrialists stem from disturbed production and increased depreciation of equipment, according to Chaaban. “The major cost for industrialists is the interruptions. The indirect cost is the replacement of the machines that are hit by these interruptions,” he said. A 2008 World Bank report states that the average industrial firm loses7 percent of its sales value due to interruptions in electricity supply.

The government could also foster a more propitious environment for industrial development with the creation of a well-designed and managed network of industrial zones. These would be designated areas of cheap land for industrial firms with the suitable infrastructure on site to provide a microcosm with lower operational costs [see Q&A with Neemat Frem on page94].

Industrial zones do already exist but they have failed to provide industrialists with the infrastructure or land price incentives to relocate.

In the late 1990s, the Investment Development Authority of Lebanon composed a strategy to encourage the migration of industrial firms into the zones but it was beset with difficulties. According to the Ministry of Environment’s “State of the Environment Report 2000”, almost 88 per cent of all industrial establishments in Lebanon in January 1999 were located outside of the 72 industrial zones in the country.

The issue is a sticking point for the new minister, however, as indicated by its inclusion in the new cabinet’s ministerial statement. The government “will also create a committee to administer industrial centers and look for industrial zones”, it says, and Minister Sabounjian confirmed to Executive that the issue of industrial zones was a top priority for the new cabinet. However, details on when the committee would be established, and its makeup, were not forthcoming.

Chaaban expressed trepidation at the expressed interest. “Every government program says, ‘We want to have industrial zones throughout he country’, but nothing happens. The problem is that those in charge are still driven by financial interests linked to the real estate and banking sectors.” Minister Sabounjian countered, saying “There is a great environment here [in the cabinet] and an atmosphere to do together what needs to be done for this country, especially in the Ministry of Industry. I feel the ministers are pro-industry; for the first time in a long time this government is pro-industry.”

But the jurisdiction and budget of the Ministry of Industry remains relatively limited; in 2010 its budget allocation was approximately$5.8 million, just 1 percent of the total for the general works and transport ministry and less than 10 percent of the agriculture ministry.

If Minister Sabounjian is going to execute his policies to stimulate the industrial sector he will need to enlist the support of several of his sister ministries. This should be easier with a somewhat unified cabinet, which needs to show it can deliver on its policy promises. However, first some concrete policies and plans need to be developed, which are at present woefully lacking in substance.

United we stand

There are clearly several infrastructural hurdles that need to be surmounted to improve the competitiveness and profitability of Lebanese industry. However, when firms do decide to invest, access to finance and capital is, generally speaking, readily available. According to Neemat Frem, president of the Association of Lebanese Industrialists (ALI), “this is not a problem at all”.

In 2007, $165 million in interest-subsidized loans were provided to the industrial sector, which constituted 67.2 percent of all such subsidized loans given that year. In fact, every year from 2004 to 2007 the industrial sector received more than 50 percent of offered interest-subsidized loans, which come through a number of channels, including the Banque du Liban, Kafalat, the European Investment Bank and leasing companies.

But while access to loans, often at discounted rates, is nota problem for Lebanese industrialists, Chaaban argues the reluctance of Lebanese family-run businesses to consolidate and open up their capital is a hindrance to growth in the sector. “There has to be some kind of consolidation. Until now it’s very family-oriented small units and it’s inefficient,” he said. “If you go to Dora and Bourj Hammoud everybody is producing the same products.” His assessment is supported by a 2007 Ministry of Industry study, which reported 78.2 percent of industrial establishments employed between five and 19workers.

Byblos Bank’s Ghobril pointed to the failure of private equity schemes to take root in Lebanon as an example of the reticence among Lebanese industrialists to open up stakes in their companies to outside investors. “The capital is there and the expertise to manage private equity funds exists in Lebanon, but family businesses are reluctant to open up their capital to institutional investors,” he said. “They prefer to go with their own internally generated funds or with loans, even though it is more expensive to borrow.”

Director General of the Beirut Chamber of Commerce Rabih Sabra argued that the predominance of small firms was due to the entrepreneurial spirit of the Lebanese, which in itself is a strength and a driver of growth. However, in a changing climate of increased competition, he added that consolidation in some sectors may be inevitable. “It will come when they feel there is competition, and companies from abroad are getting parts of the market. It’s a slow process but I hope that Lebanese companies realize that they can’t compete if they don’t merge and create partnerships,” he said.

While most people acknowledge certain sectors of industry would certainly benefit from more consolidation, opinions diverge on whether this needs to come from market incentives alone or if the government has an encouraging hand to play.

ALI’s Neemet Frem argued that while large is not always preferable to small, some sectors, such as agro-industry, would benefit from more consolidation. What is more, he will be campaigning for new laws and policies to incentivize mergers, including assistance with relocation costs, tax holidays and social security benefits.

Minister Sabounjian conversely reasoned that market forces alone should provide the incentives for firms to merge while the government keeps its nose out. It is a safe bet to say that devising policies to encourage greater consolidation will not be on the minister’s to-do list any time soon.

Keeping the edge

So, while Lebanese industrialists may be trundling along in the shadows of the economy’s power-house sectors, they should still be given credit for their tenacious toil. But fresh challenges and opportunities lie ahead for them. In recent years Lebanon has entered into a number of bi- and multi-lateral trade agreements, and trade liberalization is likely to continue in the coming period; Lebanon is still intent on joining the World Trade Organization.

As barriers to trade come down and protectionist measures are removed, Lebanese industry will clearly have to overcome a number of internal and external obstacles to remain competitive and thrive on the international stage.

The government is going to have to get its act together and provide industry with the stability and infrastructure that will encourage investment and lower operating costs. And, for their part, industrialists are going to have to show flexibility to adapt to the changing climate in which they will be operating, and when necessary abandon the ‘I’m the keeper of my castle’ mentality.

August 3, 2011 0 comments

Economics & Policy

Q&A – Neemat Frem

by James Reddick August 3, 2011

written by James Reddick

Neemat Frem is the president of the Association of Lebanese Industrialists, chief executive officer at INDEVCO Group and founder of technology service provider Phoenix Machinery. He recently sat down with Executive to look back at Lebanese industry since the 2006 war and to discuss the sector’s future needs.

E: It has been five years since the 2006 war. How has the sector fared since suffering so much damage?

If you look at the numbers over the last five years, the industrial sector was able to grow at a rate of 20 percent per year despite the2006 war. This is something exceptional. This growth was due mainly to the entrepreneurial craft of the Lebanese and relative stability since 2006, and probably a sense of optimism.

The number one exporters have traditionally been the printing sector and then it moved towards food products, and then lately, in the last two years, we have been witnessing a pick up in the electro-mechanical sector, with steady growth in what has always been number two, the jewelry sector. So the number one today is the electro-mechanical sector, in terms of exports.

E: Has the government assisted in reconstruction efforts?

No, actually this is the problem. We have more than 50 cases of plants completely bombed out and up to now we still don’t have the right support. On the contrary, we are having a lot of problems. Even tax holidays we don’t have. Really we have not seen any support for industrialists.

E: And was there support promised?

Yes, it has been promised. We have had special laws being worked on in this direction but nothing has materialized. At this minute, we have not yet had any support.

E: With the new minister, do you think this might change?

We hope so. I am demanding this with a louder voice more and more. But still, maybe it is dependent on the environment we were living in the last few years where we had a freeze basically of any decision because of this paralysis in government.

E: On that note, what should be the priorities of the new minister?

I have been working very closely with this minister because he is an industrialist and a close friend. The priorities for us will always be creating the proper industrial cities in Lebanon where we will have enough land and enough infrastructure in areas where we can develop and grow — where we will have cheap lands, availability of water, of roads and of labor. So we have been demanding these zones this last year and now will be even more. And today there is enough awareness of this issue. In the ministerial statement, it has been noted about the importance of making industrial cities.

E: What does that entail?

Industrial cities are locations in the five muhafazas (regions); these lands will be first of all cheap and will have proper development. As you make housing developments or tourist developments, we would like industrial developments for those lands where you would have local power generation, where you can create a microcosm for industrialists in Lebanon instead of waiting for the development of the rest of the country, because you know that we are suffering mainly from the fact that the industrial sector has been growing but infrastructure is not following. The whole country did not follow; the administration did not follow; even our laws did not follow. They need to be rejuvenated.

E: And how far along are these efforts?

There are two tracks on this. Track one: public administration. There is a law for forming the body to administer the industrial areas. This is what is meant in the ministerial statement. I hope this will be formed very quickly and headed by an industrial or an experienced engineer. When established, this body will have the duty to come up with geographical zones where you need to have the right infrastructure. So it’ll be a development exercise. Lebanon is known to have a slow pace for public administration so we need to also create another track that has a private initiative with the right investment to create these zones, and possibly have a private-public initiative where maybe you would have freehold lands to be developed by the private sector. But again, all of this is tied somehow to stability and the degree of optimism in Lebanon.

E: Lebanon’s industry is very concentrated in Mount Lebanon. Have the outside areas been neglected?

No, I would say that instability has been traditional in the south and other parts of Lebanon and is one of the biggest reasons for this. Also, the infrastructure availability has been ahead in Mount Lebanon compared with other areas. Now, what you are seeing in the last 15 years is that Mount Lebanon is having infrastructure problems whereas you have power plants in the south and the north, along with land availability in the south, north and Bekaa. So I foresee that if we are able to have enough stability in these areas they will be very promising for the industrial renaissance of Lebanon. At the same time, we should not forget about Mount Lebanon.

E: Growth in exports has stagnated so far this year. Are you concerned about the decline?

I am concerned, for sure. The whole economy in Lebanon is a reason for concern. I’m very much worried that we won’t achieve the growth that we want to achieve. Lebanon needs to grow at a rate of 6 or 7 percent a year; it’s not a luxury. We’re not a country that can grow at 1 or 2 percent and consider that acceptable. The focus of the whole cabinet should be on re-stimulating growth, especially that the area had all these problems. This could have been an opportunity for us. We should have been able to provide the needed stability.

E: Related to that, how has the regional upheaval affected Lebanese industry?

To tell you the truth, it has affected it as shown in the exports but not to a high extent. I consider the problems coming from a major consumer confidence issue in Lebanon. Today there is a slow-down in consumption. The countries that are still being effected — Libya and Yemen — we don’t sell much to. The Syrian market is affecting us, as we sell 5 percent to Syria.

E: The industrial sector doesn’t benefit from tax incentives as do others in Lebanon. Is this a problem?

Our tax laws need to be revised to incentivize the industrial sector. We need to have special tax holidays. This is how you attract foreign direct investment. Now we have a decree issued by [former Finance] Minister Rayya Hassan when she was a caretaker where we would have a 30 percent tax exemption for five years, which is quite an interesting initiative. We would like to see it implemented. All profits generated from exports should be tax exempt. If we do this, we will stimulate exports and hence increase the goods leaving the country. Right now we have a flat rate of 15 percent on profit. And another 10 percent as a distribution tax. I would think that is high compared to what we are receiving as services. The value proposition is wrong. I tend to agree with those schools that say that we should increase consumption taxes and decrease profit taxes. I think it’s easier to control and better for creating growth.

E: How do you feel about efforts to join the World Trade Organization (WTO)?

I think we’ve done much more than we should have done. I think we implemented it in the wrong way and it affected our productive sector. I don’t see any advantage in joining the WTO. We need to make sure that our productive sector isn’t hurt. In 2001, we did destroy our productive sector in the name of reducing all kinds of customs duties and opening at large our markets without providing the right manufacturing costs and providing the right environments to be productive.

E: So you don’t see liberalization as such a bad thing as long as the infrastructure is there?

This is the issue. Lebanon is so liberalized, more than any country I know of in the world, including the United States. This is not acceptable when you have such high manufacturing costs. We need to improve our manufacturing competitiveness in line with improving our manufacturing costs.

E: Small industries dominate the market. Do you see a decline in economies of scale as a problem in Lebanon?

What we see in Lebanon is a shifting from heavy to lighter industries. But this does not mean we should only have small industries. I believe large industries have a role to play. I think there are sectors that need to have more large industries. This is why we as an association have been working on making special laws to incentivize mergers of small companies. I believe personally that in the food sector it warrants to have one or two big entities which would allow the opening of new markets in the world, developing new products, strong marketing, to claim back the hummus, the falafel, you see? I would like to see the Nestle of Lebanon. Imagine Switzerland without Nestlé —without their food industry. We need this in Lebanon and we can have it and it is imminent. I tell you, this is a sector that needs to be developed.

August 3, 2011 0 comments

Comment

When every day is Friday in Syria

by Nicholas Blanford August 3, 2011

written by Nicholas Blanford

After four months of a steadily intensifying popular uprising, the regime of Bashar al-Assad, the Syrian president, is bracing for what may prove to be a climactic few weeks ahead.

August 1 marks the beginning of the holy month of Ramadan when pious Muslims fast during the daylight hours and — crucially in the Syrian context — visit mosques on a daily basis for prayer.

Since the uprising began in mid-March, demonstrations have focused on Fridays, Islam’s holy day of the week, when young men can freely gather in large numbers for prayers without hindrance from the security forces. Once prayers are over, the protestors are well placed to leave the mosques andlaunch straight into street demonstrations. In August, every day could be a Friday, turning this year’s Ramadan into a grinding and bloody test of stamina and determination on the part of both the protestors and the Syrian security forces. It is open to question how the already over-stretched security forces will be able to confront daily protests from opposition activists, many of whom will have the additional inspiration of the holy month to sustain them. On the other hand, if the security forces escalate their ruthless repression of the protest movement, with a corresponding escalation in casualties, the opposition activists will need all the resolve and nerve they can muster to keep returning to the streets day after day. Indeed, regardless of what one thinks of the Assad regime, the tenacity and courage of the protestors over the past four months has been extraordinary.

The Syrian security forces — using a blend of the elite Fourth Division headed by Maher al-Assad, Bashar’s younger brother, intelligence agents and shabiha militiamen drawn from the Alawite sect — have rushed from one flashpoint to another, using brute force in a bid to stifle the rebellion. But the protest movement has refused to yield and is slowly gaining traction with demonstrations growing ever larger and more widespread.

The army numbers some 220,000 regular troops, but the vast majority of them are ill-trained Sunni conscripts, most of whom presumably have little intrinsic loyalty to the regime. Indeed it is the Alawite-heavy Fourth Division, which numbers some 20,000 troops, that has spearheaded the crackdown. Minor fissures have appeared in the army, mainly due to individual soldiers refusing to open fire on protestors, and allegedly some have been shot for disobeying orders, have escaped into Turkey or Lebanon or have joined the ranks of the protestors. The number of defectors appears minimal at this stage and does not as yet presage a major split within the army. But the collapse of the army remains a possibility in the longer term, particularly if the protest movement continues to gather momentum and the security forces are seen as incapable of suppressing the dissent.

An indicator to look for is defections or signs of dissent among Alawite army officers in the weeks and months ahead. Rami Makhlouf, Syria’s uber-oligarch and cousin of the president, told The New York Times in May that the regime would “fight to the end”. Such stark comments raise the specter of a sectarian conflict between the majority Sunnis, sensing that their time for ruling the country is at hand, and the Alawites, who fear the backlash should they lose power. The Assad regime has played upon those fears of sectarian conflict. Certainly, the smaller communities in Syria — including the Christians and Druze — generally have dithered between throwing their weight behind the opposition in the hope of a peaceful transition to democracy, or standing with the regime and its protection of Syria’s diverse minorities.

Worryingly, there have been isolated incidents of sectarian violence, mainly in mixed Alawite and Sunni neighborhoods, although it is too soon to say whether this is a harbinger of a broader communal struggle to come.

Still, it is doubtful that the Alawites really would stick together for a “Masada-style” finale in their lofty redoubts in the coastal mountains. Indeed, many analysts conclude that it is a mistake to lump all Alawites together as a single pro-Assad block (similarly Syria’s Sunnis are not a homogenous group). Alawite unity has frayed in the 11 years that Bashar al-Assad has ruled Syria, with power becoming more centralized within the extended Assad clan. Hafez al-Assad, the former president, was careful to disseminate the privileges of power, not only among fellow Alawites but among the Sunnis too, thus blurring Alawite control of the levers of power and honoring in perception if not in deed the secular ideology of the ruling Baath Party.

Other than a split within the army, the other key dynamic under watch is the fate of the Syrian economy and how it could shape the out comeof the confrontation between the regime and the opposition. The economy has been badly hit by four months of unrest. Syria achieved growth of about 3.5 percent in fiscal year 2010, but the economy is contracting by about 3 percent this year. Tourism, a key sector that accounts for about 18 percent of the economy, has been heavily hit, with visitors staying away this summer and hotels reporting record vacancies.

Even before the uprising took hold, the Syrian economy was facing several long-term threats. They include declining oil production, high unemployment and a devastating five-year drought that has decimated arable production and driven many country dwellers into the cities. Increasing public debt has forced the state to curb its long-standing policy of subsidizing everyday goods, from electricity to bread and cooking gas — a legacy of the Baath Party’s original socialist principles. The removal of subsidies has led to increased inflation (15 percent in 2008) and price rises, aggravating the economic plight of many ordinary citizens and serving as a motive for the protests. Cheap clothes imports from China and Asia have also put many Syrian textile factories out of business.

At the beginning of the year, the Syrian government announced a five-year plan to attract $11 billion in foreign investment. But foreign investment has slowed. Qatar Electricity and Water has cancelled a $900 million project to build power plants, and other foreign companies are also considering canceling projects.

Syria’s business community so far has watched the unrest from the sidelines, unwilling to make any commitments that could backfire against profit margins. But the longer the uprising continues, the more the economy will stagnate, which could force the hand of the merchant class. But for now the heterogeneous and divided opposition has offered little in the way of reassurance to the merchant community about how it intends to usher in a stable, free market democracy.

How this ends is anyone’s guess. But it is evident that the Syria over which Assad presided at the beginning of the year has gone. There can be no return to the status quo that existed before March. Some analysts maintain that the Assad regime cannot prevail in this struggle because it faces a no-win situation. If Assad ushers in a meaningful program of reforms, it will undermine the regime’s grip on power, thus leading to its eventual demise. If it does nothing and continues to rely on force it is similarly doomed.

Most of Syria’s Arab neighbors have watched Assad’s tribulations with unease mixed with quiet schadenfreude, with the latter growing stronger the further the country lies from Syria’s borders (and reach). The West has generally limited its stance to the unrest in Syria with repeated calls for Assad to reform or face losing his legitimacy, a response that most Syrian opposition activists consider tepid and redundant given the nearly 1,500 people killed so far.

Ultimately, the fate of Syria may be decided in the coming weeks as the protestors and security forces gird themselves for the Ramadan protests and a contest to see which has the stronger staying power.

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

August 3, 2011 0 comments

Society

Q&A – Nassib Boueri

by Emma Cosgrove August 3, 2011

written by Emma Cosgrove

As Chief Executive Officer of Y&R/Wunderman for the Middle East and North Africa, Nassib Boueri has had a lot to deal with in the first half of 2011. Shrinking budgets, unstable conditions and constant evolution have left some of the advertising industry’s cash cows dry. Executive caught up with him to talk about lessons learned and challenges faced during and after the ‘Arab Spring’.

What have you learned about the advertising industry since January?

The whole region has changed a lot since then. But I am a very strong believer that life goes on. Yes, there is a huge impact on business in these countries. There is a huge impact on consumers as well in terms of spend. But then again, we have learned from lessons in the past that people move past a certain moment and they move on. Yes, it has had a great affect on the economies and the spend in the advertising business. But if I look at places like Dubai or Abu Dhabi today, our industry is slightly picking up.

Saudi has always been and will always remain one of the most sustainable economies in the region. So as much as there is a downturn, or fear, there is always also an upturn somewhere else. [Qatar hosting the World Cup in 2022] is also a sign of things to come. Maybe it will not affect our industry today, but it certainly will in the next five or six years.

The economy is still bad in certain countries and it hasn’t picked up, but then again I haven’t seen anybody, neither our competitors, nor ourselves, close down in these countries that are in turmoil. You cannot pack up and leave the next day.

Regimes will change, be it Syria, be it Egypt, but the country is still there. The economy is still there. Economies do not disappear. They go through difficulties, but they don’t disappear. Countries don’t disappear – leaders do – but countries don’t. And our industry will get affected here or there but it will not get wiped out. So as a group we have not gone backward in terms of revenues or billing. And we are witnessing growth in certain markets and we are holding on in other countries. We have not closed our office in Egypt. We have not let anyone go in Egypt. Our global clients are spending; the budget cuts are minimal. The local client base has been affected that’s for sure. But nevertheless, business goes on.

What kind of questions has your board in New York asked you and what have you told them?

There has been a lot of change at the global level for Y&R. There has been a new CEO and he has formed a global executive committee, which I am on. The challenges have two axes. One is the economic crisis, which is affecting the whole world. And then there is ours, which is the political unrest in the region. But we all still believe that this region is a region of opportunities and a region of growth and they see that as well. Companies don’t look at things short-term.

Today, if we have to be very simplistic about things, Iran has untapped potential for business. Because of the embargo, nobody can go there yet. Iraq has untapped potential. We are there but remotely and we are increasing our presence there as we speak.

Egypt has huge potential regardless of how you break it down between the rich, the poor, you still have 80 million people. If you move from there you have Algeria. Algeria has surpluses of billions of dollars in the banks and this is one of the key issues in Algeria because the government is holding onto the money. And the people are in need of a structure — education, healthcare, services. I have been to Algeria twice this year and the potential there is huge.

When you look at our region, there is potential for the years to come. And like anywhere else in the world you go through difficulties, but I don’t fear for the region and I don’t fear for the future of our industry.

Our issues going forward are not mainly the economies of the region. Our major problems are how to develop our business; how to get the clients to understand that they need to spend. How do we tell them that what they are spending today is way less than the global average? How do we help them to build their brands? How can we keep the young generation interested and excited about our business, which is becoming less and less attractive and exciting?

Why do you feel that young people are less and less interested in working in the advertising industry?

Today it is difficult to keep people interested in this business the way they were 20 years ago. This was a very flashy industry 20years ago. Today it is banking and finance. When somebody graduates today, they are looking for opportunities, for money, for salaries, so they look where the trend is going. In the last five years, all those who were in brokerage and investments made tons of revenues and returns. Today we are still a sexy industry. Then again, it is not easy getting people into Saudi. It is not easy getting people into the Gulf anymore because it is becoming even more expensive.

Today retention of talent and getting new talent is a challenge. Growing the brands and ensuring that the clients understand that the investment they put behind the brand is not an expenditure, it is an investment. When done properly, it is an investment.

What is your opinion of using images from events such as the Egyptian revolution in advertising campaigns?

To me, anything that is taken from its own context, to be used in another context, is unethical. So if I am going to use a picture of a revolution anywhere in the world for a cause that is different than the revolution, then I don’t believe in that on a personal level.

What about recreating images or scenes similar to these events?

I believe in recognizing causes and efforts. Recreating will always depend on what is the usage of this material. If the usage is to diminish from the cause itself then I am against it. If it builds on the cause then I am totally for it.

Let’s assume I take what happened in north Lebanon in 2007or the demonstrations that happened in March 2008 and there were some plastic chairs and you promote ‘I am selling the plastic chairs [from the demonstrations] so my plastic chairs are stronger. Look! I’ve sat 100 million people on them.’ This takes away from the cause. If it is something that builds on the cause then it is fine to be nationalistic; I am more than happy. I am for creating these campaigns. I am for national pride. I am for patriotism. I am for using the local insight to build that, but not to abuse it by diminishing it into something else.

August 3, 2011 0 comments

Economics & Policy

Q&A – Vrej Sabounjian

by Zak Brophy August 3, 2011

written by Zak Brophy

The new Minister of Industry, Vrej Sabounjian, has made his mark in Lebanese business as the president and owner of the food service and laundry manufacturing firm, Vresso. Having just gotten his seat warm at the ministry following his appointment, Executive met with him to discuss his vision for the sector.

E: Do you have any intention of pursuing a policy of tax exemption on income from exports?

I am pro that decision 100 percent with some little modifications. I think she [former Minister of Finance, Rayya Hassan] wanted to limit it for only five years. Industry doesn’t return its capital within five years, so I suggest somewhere between 50 and 100 percent tax credit on exports without a time limit.

E: How much continuity can we expect from this government with regards to previous policies in the industrial sector?

The minister who was here was doing a great job, taking into consideration the situation of the previous government. I am very optimistic that whatever plans we bring to the new government, with a very pro-business prime minister, we will find quick acceptance.

E: What does it mean when it is written in the ministerial statement that the government ‘will also create a committee to administer industrial centers and look for industrial zones’ and how will these zones be funded?

We are going to create a committee which is going to oversee a number of regional committees. The regional committees will make their own recommendations and then the main committee will adapt or make any modifications. If we have a good credible project in hand I’m sure there’s going to be a lot of help from the private sector.

E: Lebanese industry is very heavily concentrated around Mount Lebanon and Beirut. Do you have any policies to revive industry in the outlying areas?

That is the whole purpose. We can create a zone, for example, in the north and it will probably not be very active and we can do another zone in Mount Lebanon and it will probably be very active. It depends where the industrialists and the manufacturers are from and where they want to do their business.

E: But will the ministry try and encourage industrial activity in areas where industry has declined over the past years?

Well there must be a reason for a decline. All I can tell you is the ministry will be fair for all the areas.

E: Are there certain sectors that would benefit from giving small firms incentives to merge and consolidate?

Merging in my personal opinion is a matter of culture. Now that we are in a global economy and the Lebanese are known to adapt good ideas immediately I don’t see why they should not try to merge. I don’t think a company should merge with another company because of government incentives though.

E: A lot of the policies you are going to want to enact will require the support of other ministries. Will you get it?

For the first time in a long time this government is pro-industry. I think the policies previous governments adopted were not pro-industry. In this government there is a shift to giving industry its fair space to grow and have good policies for all the industries in Lebanon.

E: How much power do you have as a ministry to alleviate that burden of expensive and unreliable electricity and energy on industrialists?

You know unfortunately Lebanon is one of the countries in the Middle East that has no resources, until now, for energy. This is a big concern for all of us. I don’t think it’s just going to be a case of drawing a line and having a final solution but it is in the government’s intention to work on this issue and to try to come up with solutions. How long it is going to take, I don’t know.

E: In the interim period, could industrialists get subsidized fuel for their generators or a more preferential tariff on their energy from the government?

I don’t know if Lebanon can subsidize or give more preferential tariffs. As you know we are buying our energy. But the Ministry of Industry is working on a program to try to make the cost of energy less. This is a priority for us.

E: You have a comparatively small budget. Do you have the resources to enact the policies and reforms needed to develop the industrial sector?

We asked to have our budget increased 25 percent, and I am confident we are going to get it. For us to be successful we need to listen, be transparent and be honest about what we can realistically achieve.

E: What are your intentions with regards to World Trade Organization accession?

It is still in the cards.

E: What niches of Lebanese industry will be most competitive in the international arena as barriers to trade come down?

If we are talking about appliances I don’t think Lebanon is going to have lots of factories making TVs or cameras for example. But there are a lot of things which we are doing tastefully and at good prices. Clothes, food, jewelry, fashion, wine…

E: Is the agro-food sector too fragmented?

No. I’m not always a believer in a big firm and the big size. Why don’t we look at the profitability? We should be concentrating more on the profitability and the possibility of adapting and changing quickly. If you have a huge-sized company you cannot change as easily. So if you have a smaller size but a profitable business you can change and see what the market requirement is and make the necessary changes.

E: Is the ‘law for the protection of national production’ fit for the purpose and can you assure industrialists it will be applied to protect them from over-subsidized imports?

I don’t like protection in business. I like competition. Competition is good for the consumers, and it’s good also for the manufacturers. However, from the point of protection we should be aware of our size. If we have a contractual agreement with any other country we should take into consideration the size and capabilities of both parties.

E: Lebanon has a big problem with regards to infringement of intellectual property rights, which is particularly damaging to the knowledge-based industries. How do you intend to address this problem?

It is our priority to try and enforce the laws that exist. We all have to live under the law…

E: …but now they are not being properly enforced.

This is very important to us. I can assure you.

E: How adversely affected do you think Lebanon has been by the unrest and political uncertainty in Lebanon and the wider region?

In Lebanon I don’t see any situation that is not pro business. The laws are pro business and I think there are good opportunities here. I also encourage Lebanese businesses to see this as an opportunity to search for new markets if their markets in the Middle East have been affected. It presents new challenges and new opportunities.

August 3, 2011 0 comments

Economics & Policy

A homegrown shortfall

by Sami Halabi August 3, 2011

written by Sami Halabi

The need for security is a constant refrain among Lebanese politicians and journalists, who tend to intone that it has something to do with ministers meeting their maker on a Sunday drive to the mountains, or with the ongoing drama with the country’s southern neighbor. But there is another danger that goes beyond bombs and blasts which policy makers have both ignored and neglected: food security.

Without going into elements of nutritional content and purchasing power dynamics in depth, food security is commonly accepted to require both availability and access to food. Food sovereignty, on the other hand, focuses on the “right” of people in their respective countries to define the systems that feed them rather than having them subject to international market pressures.

The surging price of wheat, and the government’s costly measures to dull the effects provide the most recent reminder of Lebanon’s vulnerability. Last year, Russia imposed an export ban on wheat, the Ukraine limited exports and erratic weather saw other major world producers’ harvests fall; hoarding ensued, and the global price of wheat skyrocketed. Such shocks had an immediate effect on a country as import-dependent as Lebanon and policy action had to be taken. Wheat — which has always been subsidized to support farm production, and at the mill level when necessary to maintain the price of bread — was purchased and stored, and mills began to receive wheat from the local grain board at subsidized rates for the baking of bread. And again, during the first quarter of this year, the government spent $18.5 million to purchase 48,532 metric tons (MT) of imported wheat, which was resold to mills at a subsidized price in order to maintain the price of Arabic bread at $1 per kilogram.

The drastic measures following global fluctuations in wheat prices is indicative of Lebanon’s larger problem: The country’s precariously lopsided agricultural import to export ratio. For example, Lebanon produces around 100,000 MT of wheat a year and imports 700,000 MT, according to Abdolreza Abbassian, senior economist at the United Nations Food and Agriculture Organization (FAO).

“We are already food insecure because we don’t have any more farmers,” says Ali Darwiche, secretary general of Green Line, a Lebanese association that promotes sustainable development. Over the years, he says, Lebanese farmers have been forced to abandon their plots due mainly to the fact that their products have to compete with imports that are cheaper to produce elsewhere and enter Lebanon without import tariffs.

In any given year, more than 80 percent of Lebanon’s food supply is made up of imports, according to the agriculture ministry. This puts the country at the mercy of international commodity prices and frames the issue of food security as one predicated on a lack of food sovereignty.

The global financial firm Nomura classified Lebanon as the fifth most vulnerable country in the world to a crisis due to rising food prices, on the basis of gross domestic product (GDP) per capita, food as a percentage of household consumption and net food exports as a percentage of GDP.

According to the latest official government figures, the rise in the consumer price index of food and non-alcoholic beverages was 7.6percent year-on-year in June 2011, reflecting a continuous upward climb since the statistics were first recorded in December 2007.

Making matters worse in Lebanon is the fact that when prices go up there is no guarantee that they will come down again, even when global prices drop, due to the asymmetric price transmission within Lebanese markets —meaning, prices stay high because the few who control the market are happier with high margins and have little incentive for competitive pricing.

According to a UN study on economic competition commissioned by the Ministry of Economy and Trade in 2003, which the ministry now says it “does not endorse or validate,” half the products sold in the Lebanese market come from sectors where there is an oligopoly in place, where over 40 percent of the market is owned by four companies or less. According to the document, 72percent of farms in the country are controlled by 6 percent of farmers. The same goes for other products related to food production, like mineral water, pesticides, fuel and so on.

“In something like the tomato market, it is not an oligopoly; the farmers are diverse, but the wholesalers are concentrated and fermented. You’re kind of creating sub economies,” says Jad Chaaban, acting president of the Lebanese Economics Association and a specialist in the economics of food. “It’s a cartel that is spread up across interest groups and professions. We need a more integrated, better-regulated market, and a tackling of oligopolies, because it will increase local sales and decrease imports.”

An unbalanced hunger

Further contributing to Lebanon’s food insecurity are its drastic disparities in wealth. The UN estimates that 28 percent of the Lebanese population lives under the upper poverty line of $4 per person per day, and there is a “wild gap between rich and poor,” says the FAO’s Abbassian.

“From the data we’ve been collecting it seems that… there are pockets of poverty and food insecurity in certain areas in the country,” says Hala Ghattas, assistant professor of community nutrition at the American University of Beirut.

The level of inequality is so wide that the poorest 20percent of the population accounts for 7 percent of all consumption, while the top 20 percent accounts for over 43 percent. “No matter what food prices are, some people will always be able to access food and some will keep falling below a certain threshold; these are the more food insecure,” says Ghattas.

Already consumption patterns have been affected. “We’ve already seen that people were unable to buy meat,” says Chaaban, who explained that the price increase on meats is a reflection of other increases in the components of animal feed. Globally, meat has shot up by 19.9 percent in the first five months of this year, according to the latest FAO figures.

“When the prices are so high, some people reduce substantially their consumption so that it creates health problems,” says Chaaban, who claims that research is beginning to show that the poorest people in Lebanon are starting to show signs of micronutrient deficiencies.

Overall, however, Lebanon does better on nutritional food security indicators than it does on economic ones. The International Food Policy Research Institute, an international food research organization, puts undernourishment at just 2 percent (between 2003 and 2005), well below the global average of 21.3 percent. And another major indicator used to measure food security, the Global Hunger Index (the average of the percentage of general undernourishment, children under five who are underweight, and mortality rates under five years old) fell from 5 percent just after the civil war to 3.5 percent in 2005 and now remains under 5 percent.

Regardless, Lebanon’s lack of agricultural production and large wealth inequities make food security a critical issue in need of governmental attention. However, many of the reforms needed will take time, a continuity of policy and a good deal of money. Essentially, to increase food security, local production will have to increase.

Potential for production

In theory at least, Lebanon has a good deal of potential compared to others in the region.

For starters, if Lebanon actually wanted to employ much of the arable land it has available it could do so rather easily. According to the“ optimistic view” of the UN, the amount of potential arable land in the country is 269,000 hectares, on top of the 306,000 already being used, or 88 percent more potential agricultural land, as compared to a country like Egypt with just3 percent of usable farmland yet to be cultivated.

However, even if there was the will to employ this land for agriculture, arable land does not necessarily translate into useful and productive crops. “The main factor for food security is the land use planning and you need to make sure that not every piece of land is a piece of real estate,” says Green Line’s Darwiche. “For us the value of a piece of land is in its real estate, not in what it can produce. Prices should go up; it is not fair when real estate goes up by this much, while fruit prices stay low.”

Up until today there is no master plan for land use in the country, with much of the profitable area along the coast already built up, both legally and illegally. Of course any master plan would need political consensus, which would not be an easy thing to navigate in the morass of Lebanese land politics, where each sect has its enclave, and the notion of a national project as one state has been fleeting.

And beyond the issue of land allocation, farmers need incentives to produce in Lebanon. “The government should protect the farmer; the ministries should make sure they get irrigation, electricity and labor,[but] the main problem is the open market economy that doesn’t protect food security. In Lebanon, we don’t have the qualifications to be food secure,”Darwiche says. Accession to the World Trade Organization (WTO), which has been pushed for since 1999 by the Ministry of Economy and Trade, certainly would not help producers who are already facing prohibitive competition from importers cashing in on Lebanon’s lax customs duties. “Where the level of domestic protection is high, as in the Syrian Arab Republic, trade liberalization is likely to reduce domestic agricultural prices, unlike in countries where domestic protection is lower, such as in Egypt, Jordan or Lebanon,” reads a recent UN report on food security in the Middle East.

Along with incentivizing and allocating new agricultural land, there should be a push to make existing food production more effective. At present, Lebanon’s cereal yield stands at 2,619 kilograms per hectare(kg/ha), which is just above the regional, but below the global, average. Countries with more sophisticated irrigation systems like Egypt register 7,589kg/ha.

“To improve yields you need to have bigger lots to justify mechanization and irrigation and use of pesticides within reasonable limits,” says President of Dora Flour Mills and Chair of the Agrifood Traders Syndicate, Arslan Sinno. “You have limited land resources so how can you seek to be self-sufficient when there are alternatives [such as imports]?” According to Sinno, an increase in productivity would take at least 20 years, during which Lebanon should expect price volatility. “Our lots are small and the production is small… and there are no silos or central collection centers. There is no room to separate the types of wheat and clean them, and if you don’t clean them you cannot export them,” he says.

At the current rate, Lebanon is heading into a period of increased food insecurity. Indeed, according to global food charity Oxfam, food prices are set to double by 2030. Right now only the Ministry of Agriculture has put forward a strategy, based on eight axes that include updating laws, reforming the ministry, improving infrastructure and developing microcredit, though as yet nothing concrete in terms of time or costs has been decided. But Lebanon cannot bide its time on such an important and increasingly relevant issue. The land is there; the policy must follow. “We need a real government,” says Darwiche. “Then when we have net balance in food imports and exports equal to zero, we can consider that we have food security.”

August 3, 2011 0 comments

Economics & Policy

The Survival Industry

by James Reddick August 3, 2011

written by James Reddick

It is five years to the month since the 2006 war with Israel ended. The aftermath saw more than 1,100 Lebanese dead, infrastructure in disrepair and entire villages and urban neighborhoods flattened. Since, economists and the media have marveled at the miraculous resurgence of the economy, driven primarily by the reconstruction boom and an influx of foreign cash. But while the economy recovered (for a time at least), the owners of industrial enterprises bombed during the war were for the most part left with their livelihoods in doubt, massive debt and little to no assistance from the central government to get their businesses back on track. In this Special Report, Executive examines the story of Lebanese industrialists and their struggle since 2006 to build back the businesses that support both them and their communities.

A devastating toll

The scope of the destruction was devastating; in all, 192manufacturing facilities were damaged, with 114 experiencing what the Association of Lebanese Industrialists (ALI) classified as “total damage”. Owners estimated in November 2006 the value of damage to industrial production at $245 million, a number excluding any loss of stock, contract losses and work stoppages. The size of the firms hit ran the gamut, from the Bekaa’s dairy heavyweight Liban Lait, to the more modest Tricot Starlet clothing factory in Beirut’s southern suburbs. Along with these two firms, whose factories were completely leveled, Executive spoke with affected industrialists from around the country, and while a good portion received aid of some kind, all expressed disillusionment with the often misleading response of the government, whose initial pledges never materialized. Many were back in business and upbeat about their commercial prospects, but others, five years later, were emotional about their hardships and the uphill struggle still before them.

The immediate aftermath

Immediately following the end of the 2006 war, the Ministry of Industry and ALI began to collect information on the scope of the damage to factory owners. At the time, hopes were high that direct assistance would flow into the sector.

In late August, the Stockholm Conference brought together donors from around the world, resulting in approximately $900 million in pledges to assist the country, and then at the beginning of 2007, the Paris III conference followed with more than $7 billion in additional contributions. Much of this went towards rebuilding basic infrastructure and damaged hospitals, schools and residential areas. Within this package, two soft loans, one from the Arab Fund for Economic and Social Development (AFESD) and the other from the European Investment Bank (EIB), were pledged to directly assist enterprises damaged in the war, totaling $86 million and $140 million, respectively, but these required ratification by parliament.

According to an unnamed representative of the Council for Development and Reconstruction (CDR) responding to questions by fax: “After three years of signature and due to political constraints, the parliament did not ratify those loans. By the end of 2010, the EIB decided to cancel this facility, the AFESD loan [is] still at the parliament awaiting ratification. Therefore the damaged industrial plants did not get the chance to benefit from these credits.”

In a phone interview, another CDR representative who also requested anonymity said, “at the time when SMEs [small-to-medium enterprises] were in need of this assistance, parliament wasn’t functioning and no decisions were being made.”

One chunk of funding did make it out of the Stockholm Conference and was applied as originally intended — a $4.5 million grant for the United Nations Industrial Development Organization (UNIDO), in partnership with the Ministry of Industry. According to UNIDO National Project Coordinator Nada Barakat, 85 damaged industries have received assistance. But the modest budget is reflective of the endemic lack of support for industry in Lebanon. Out of a total of $45 million from European donors funneled into the United Nations Development Program-managed Lebanon Recovery Fund, just 10 percent was allocated for industrial recovery. Because of this, only small to medium-sized factories with modest needs were targeted, as each allocation had a total limit of approximately $50,000. Nonetheless, UNIDO’s contributions have been critical for the recovery of many business owners.

One such owner, Jihad Sadaka, whose pastry and sweets factory was damaged in the war when the buildings on each side of his shop in Beirut’s southern suburbs were leveled, received a UNIDO equipment donation of a generator and water sanitation system. Sadaka also took part in the organization’s “capacity building” exercises, thereby improving his workplace standards and food safety. With the framed ISO (International Organization for Standardization) certification prominently displayed on his new desk, Sadaka said, “if someone wants to come into the factory now, I’m really proud to show them. Believe me, this was the best thing of my life.”

But most of the stories from recovering industrialists have not been so bright. For companies with losses too substantial for UNIDO assistance, their only potential recourse has been through loan assistance from Banque du Liban (BDL), Lebanon’s central bank. In the midst of political paralysis, the BDL issued two circulars, in May and September of 2007,establishing mechanisms to channel loan assistance through local private banks. According to Mazen Halawi, head of division in BDL’s financing unit, to qualify “clients were required to be unable to continue work without a loan and unable to service their debts from before July 31, 2006.” Both the client’s bank and the BDL would audit the level of damage. Once a value was agreed on the BDL would effectively cover 60 percent (funneled through private banks) via a loan that was forgiven once conditions were met; company owners would have to provide at least 20 percent through their private equity and the BDL also stipulated conditions for a soft loan arrangement to meet the remaining 20percent.

However, in extensive interviews with industrialists, the loan scheme was repeatedly described as unfavorable. Ali Ismael, co-owner of Tricot Starlet, and Sadaka each said it would have required them to mortgage their homes. Furthermore, according to Recovery Lebanon’s August 2008 “Progress and Challenges” report: “The impact of this compensation mechanism has been insignificant. Banks have not shown any interest in supporting enterprises… mainly because of the pay-back period of the granted money.” The central bank could not provide details as to the number of recipients, but Abbas Safieddine of plastics company PlastiMed (who did acquire a loan) speculated that it was “only four or five large companies”.

Political payments

Then there was reconstruction funding from Hezbollah, for which the party is well known. While their donations appear to have been fairly widespread throughout their geographic heartlands, the sums hardly softened the blows to industrialists. Sadaka received a $15,000 sum and Tricot Starlet’s Ismael $100,000 — nothing to scoff at but not nearly enough to rebuild a business.

“My understanding is that they directly assisted in rebuilding or at least compensating for small merchants and supermarkets who were ‘their people’. The losses for the [biggest] companies were too big for them to compensate,” Safieddine said. “At the end it’s politics. Most of the big industries that got hit were in no way affiliated or even close politically to Hezbollah. So there was no push from this side, no push from that side; we are in limbo.”

Despite operating in an economic climate that, in the best of times, is riddled with infrastructural deficiencies and a lack of protection from imports, and in the worst of times threatens to leave family businesses in piles of rubble with little hope of help from the government, industrialists have proved resilient in their efforts to rebuild. When asked if they were concerned about the possibility of a future war, the standard response was to leave it in God’s hands. But some of the responsibility lies with the government, not with The Maker. Despite the best efforts of organizations like UNIDO, what little funding was procured for the industrial sector was squandered by political squabbling in the post-2006 years.

Oussama Halbawi, president of the Association of Industrialists for the Southern Suburbs and the owner of a mattress, fabric and textiles factory that was completely destroyed, expressed his indignation. “In case of war, it’s the government’s responsibility to help out the victims. I was paying taxes so I expect something in return.”

For a micro-economic assessment of the impact of the 2006 war on Lebanese manufacturing, Executive presents the case studies of four factories that were completely destroyed, and documents the unique challenges faced by each as they rebuilt their business from out of the rubble.

August 3, 2011 0 comments

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Jordan’s assault on journalism

by Christoph Wilcke August 3, 2011

written by Christoph Wilcke

Character assassination is a hot topic in Jordan these days as thousands of demonstrators, riding the winds of the ‘Arab Spring’, call for reform and accuse government officials and business leaders of abuse of power and corruption. Asking judges to put critical journalists behind bars is also popular among a ruling class that feels threatened by the sudden surge in revelations pouring out on the street and from the media.

The government of Prime Minister Marouf al-Bikhit is doing its bit to stifle free speech in the name of fighting corruption. A draft amendment to a law setting up an anti-corruption agency would punish people who spread “unjustified” rumors about corruption that “lead to insulting the reputation or infringing upon the dignity” of another person, with at least six months in prison. Taher Odwan, the government spokesperson, resigned over the proposed amendment on June 21.

Rather than add new provisions criminalizing defamation, Jordan should cancel those already in its penal code that send peaceful critics to jail for “insulting” the king or government institutions. In May, Secretary General of the Political Development Ministry Malek Twal promised that a new media strategy would reform those provisions. The government adopted the strategy in June, but it strangely remains unpublished. Instead, Bikhit said he would refer alleged character assassins to the courts.

Bikhit made good on his promise in late May by yanking a criminal defamation case against a journalist, Alaa al-Fazza, from a civilian court and referring it to the military-dominated State Security Court (SSC). The SSC prosecutor promptly detained Fazza for “working to change the constitution by unlawful means,” an offense punishable by death, based on an article he published about a Facebook group that supports the reinstatement of former Crown Prince Hamza, King Abdullah’s half-brother, whom Abdullah replaced with his own son Hussein. Allegedly among its members were 10 members of parliament and two former ministers, including Nabil al-Sharif, the former information minister who had brought the complaint against Fazza. Unlike Fazza, Sharif was not detained or investigated for suspected unconstitutional activities. Fazza is out on bail, but the case continues.

Fazza also incurred the wrath of police chief Huseinal-Majali over an article that blamed him and the interior minister for allowing Khalid Shahin, a business tycoon convicted on corruption charges, to leave prison and the country for medical treatment abroad, never to return. The scandal cost the health and justice ministers their positions, and Majali filed a criminal complaint against Fazza for “spreading false rumors”. Fazza was spared in a general amnesty, but Majali in July filed a civil suit seeking10,000 dinars [$14,100] in damages for harming the police department’s reputation.

Yahya Sa’ud, a member of parliament with roots in the town of Tafileh, was so upset over a June 13 Agence France-Presse (AFP) report that Tafileh residents attacked the king’s convoy on a visit there that he led protests seeking to have AFP Amman bureau chief, Randa Habib, referred to the SSC; two days later, a mob ransacked the AFP offices, and witnesses put Sa’ud at the scene. A police car stationed nearby to protect Al Jazeera’s offices did not intervene.

Al Jazeera correspondents have also been the victims of physical and verbal attacks. Two correspondents’ cars were smashed in March, and a policeman assaulted the bureau chief, Yasir Abu Hilala, while he was covering a demonstration in Amman on July 15. An internal police report on the incident, in which police beat 10 journalists and some protesters, stated that policemen “did not differentiate between protester and journalist” in their beatings “because of the angry commotion that took hold” of them following previous protests on March 25 in Amman and April 15 in Zarqa’, in which numerous policemen were injured.

The police report recommended referring the heavyhanded policemen to court, but Jordan has a dismal record in holding officials to account for violence. When police stood by while a pro-government gang attacked demonstrators in February, there was no investigation, a police spokesperson told Human Rights Watch. And police who failed to stop similar attacks on March 25 and then attacked protesters themselves also faced no charges. Sa’ud faces no charges and is free to launch new attacks on AFP.

Jordan is attacking free speech, both by pursuing journalists under draconian laws and by failing to hold police accountable when they stand by doing nothing — or even join in — when journalists are attacked.

CHRISTOPH WILCKE is a senior Middle East researcher for Human Rights Watch

August 3, 2011 0 comments