Banking & Finance

Lebanese Capital Markets

by Executive Editors
written by Executive Editors

Lebanese equity markets

BLOM Stock Index (BSI)

Weighted effective yield of Eurobonds

Equities update

Although political tensions in Lebanon eased following the formation of a new cabinet, investor sentiment remained wary in light of escalating political upheaval throughout the Middle East and North Africa region. This was mainly reflected in low trade volumes on the Beirut Stock Exchange for the four-week period from June 20 to July 15, 2011. The daily average volume for the month reached 120,568 shares compared to 306,829 shares recorded over the preceding four weeks. Furthermore, the corresponding traded values fell by half to $1.56 million. The BLOM Stock Index (BSI), Lebanon’s equity gauge, fell considerably during the aforementioned period, ending at 1,320 points on July 15, 3.05 percent lower than its previous close on June 17, and amounting to a 10.5 percent loss  since the start of the year.

Compared to regional and emerging markets, the BSI underperformed both the S&P Pan Arab Composite Large MidCap and the MSCI Emerging indices.

Throughout this period, Solidere’s stocks dominated trades on the BSE, accounting for 65 percent of the total traded value. Nevertheless, the distorted political environment weighed negatively on the performance of the real estate stocks in classes A and B, which fell by more than 7 percent to settle below the $17 mark for the first time in 26 months. It is worth highlighting that BLOMINVEST Bank updated its coverage on Solidere with a ”Hold” recommendation and a fair value classification of $19.40 per share.

The performance of banking stocks also witnessed a downward trend, except for BLC bank’s stock, which rallied 12.6 percent to $1.87. The BLOM Bank Global Depository Receipt (GDR) stock declined 2.8 percent to $8.68 while its listed stock slipped 0.47 percent to $8.46. BLOM Bank preferred shares classes 2004 and 2005 were de-listed from the BSE in preparation for the issuing of $200 million worth of new five-year 2011 preferred shares. Bank Audi stocks followed suit, as its GDR and listed stocks dropped by a respective 4.42 percent and 0.43 percent. Byblos Bank common stock retreated, by 0.57 percent. The preferred stocks for Bank of Beirut classes D and E witnessed a mixed performance. The former lost 2.96 percent  while the latter rose 1.78 percent to reach $25.75.

Additionally, manufacturing sector equities closed on a negative note, as Holcim’s stock fell 9 percent to a four-month low of $16 due to the distribution of dividends.

Bond bulletin

With respect to debt instruments, the Lebanese Eurobond market sustained its advance between June 17 and July 15 with demand concentrated on medium and long-term bonds. This pushed the BLOM Bond Index upward 0.58 percent to 110.48 points. Consequently, the weighted yield on holding Eurobonds fell by 20 basis points (bps) to 5 percent and the spread against the US benchmark yield widened by 15 bps to 374 bps. Lebanon’s credit default swap for five years was trading between 340 bps and 367 bps on July 15, compared to 328 bps to 353 bps on June 17. In regional economies, CDS quotes for Dubai stood at 338 bps to 358 bps, with Saudi Arabia between 93 bps to 98 bps.

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Banking & Finance

For your information

by Executive Editors
written by Executive Editors

Lebanon’s newest bank receives  BDL approval

Banque du Liban (BDL), Lebanon’s central bank, granted its final approval for the establishment of the country’s newest specialized private bank, Cedrus Invest Bank, after the new enterprise fully covered its $44 million paid-up capital. During Cedrus’s general assembly held in June, Ghassan Ayyash, BDL’s former vice governor, was elected as chairman of the Board Of Directors (BOD), while Fadi Assali and Raed Khoury were appointed general managers of the bank. Other BOD members include Georges Atik, Ghazi Youssef, Ibrahim al-Jammaz and Elias Abou Farhat. Following BDL’s approval, Cedrus Invest Bank’s management issued a statement in which it explained that launching the bank at a time of domestic and regional political and economic distress was a vote of confidence from the bank’s investors and shareholders. The latter include around 30 Lebanese residents and expatriates, as well as investors from the Gulf Cooperation Council  countries. Lebanon’s newest bank aims at creating an office for high net-worth individuals and families alongside its other business lines, which include wealth management, capital markets, asset management and private equity. Cedrus Invest Bank will soon raise its paid-up capital to $50 million due to high demand for its shares, the statement added. The bank aims at expanding beyond the Lebanese market in the foreseeable future and will tap into the Levant region, with a focus on Syria and Iraq, as well as into the Gulf.

Lebanon performs well on The Banker’s list

Nine Lebanese banks ranked amongst the top thousand commercial banks in the world, seven of which improved their rankings since 2010, according to a recent survey by magazine The Banker. Taking into account only the core of a bank’s strength — the shareholders’ equity that is readily available to cover actual or potential losses — the survey ranked the banks based on their 2010 end of year tier one capital as per criteria set by the Bank for International Settlements. Bank of Beirut made the biggest leap among Lebanese institutions, rising by 120 places to reach 663rd while recording a 45.3 percent yearly increase in its tier one capital. Byblos Bank followed, ranking at 448th, jumping 58 places from its standing a year earlier and posting an 8.83 percent rise in its tier one capital-to-assets ratio. Recently acquired Lebanese Canadian Bank ranked 912th, a notable jump of 57 spots from the previous year. Meanwhile, both Bank Audi and BankMed saw their positions fall, dropping by 29 and 21 notches to the 355th and 659th spots, respectively. The aggregate tier one capital of the nine Lebanese banks totaled $8.67 billion by the end of 2010, a 15 percent yearly increase, compared to a 10 percent increase in the top thousand banks’ tier one capital, while their profits-to-tier one capital ratio reached 19.9 percent in 2010, also more than the 13 percent ratio for the top thousand banks.

Premiums land high in MENA rankings

Lebanon ranks first in the Middle East and North Africa (MENA) region and 52nd globally in terms of insurance penetration, or total insurance premiums as a share of gross domestic product (GDP), according to global reinsurer Swiss Re’s latest “World Insurance in 2010” report. Compared to 3.1 percent in 2009, Lebanon’s insurance penetration stood at 2.8 percent of GDP in 2010, above the MENA average of 1.3 percent for the same year, but still below the world average of 6.9 percent. Cover premiums in Lebanon totaled $1.1 billion last year, accounting for 0.02 percent, 0.17 percent and 3.2 percent of global, emerging markets and Middle East and Central Asia premiums, respectively. In terms of nominal premiums, Lebanon dropped two spots on the year before to 66th among 147 global markets, and slipped one place, to sixth, in the Arab world. Also included in Swiss Re’s report were estimations of the average amount spent per capita on insurance premiums, or insurance density, which placed the United Arab Emirates first in the MENA region, at $1,248, followed by Qatar at $619, Bahrain at $527, Oman at $261 and Lebanon at $253.

Cypriot banks’ deposit and debt ratings downgraded

A day after it had downgraded Cyprus’ long-term debt rating from A2 to Baa1, just two notches above junk, international ratings agency Moody slashed the deposit and debt ratings of the two main Cypriot banks, Marfin Popular Bank (MPB) and Bank of Cyprus (BoC), from Baa3/Prime-3 and Baa2/Prime-2, to Ba2/Not Prime and Ba1/Not Prime, respectively. Moody’s said the island’s high level of exposure to Greek Government Bonds (GGB) was the primary reason behind its ratings announcement, as it considered all rated Cypriot banks likely to take part in the Greek debt exchange.  MPB and BoC exposure to GGB is $4.9 billion and $3.5 billion, respectively, according to the European Banking Authority, constituting 95 percent and 55 percent of their tier one capitals, respectively.

Lebanon still a draw for FDI

Among 18 Arab countries, Lebanon was the fourth major foreign direct investment (FDI) recipient in nominal terms and posted the fifth highest FDI growth rate for the year 2010, according to figures released by the Arab Investment and Export and Guarantee Corporation (AIEGC) last month. Lebanon attracted $4.96 billion of FDI in 2010, a 3.2 percent rise from $4.8 billion a year earlier, making it one of five Arab countries to have witnessed an increase in FDI last year, in contrast with a 23.4 percent yearly decrease in aggregate FDI to Arab economies in 2010. Lebanon ranked highest in the Arab world in terms of FDI inflows as a percentage of gross domestic product (GDP), which stood at 12 percent, followed by Jordan at 6.2 percent, Sudan at 5.4 percent and Qatar at 5.1 percent in 2010. Lebanon’s FDI inflows accounted for 7.7 percent and 8.7 percent of total inflows to Arab countries and to West Asia, respectively, and for 0.44 percent of global FDI in 2010, which increased by 0.7 percent for the same year.

Foreign currency flight from Syria exaggerated

Many an eyebrow was raised at the end of June when The Economist cited that an estimated $20 billion had left Syria since protests began to sweep the country in March. “There is obviously capital flight, but it is impossible that $20 billion left the country,” said Jihad Yazigi, editor of the economic newsletter Syria Report. With the World Bank pegging Syria’s overall economy as worth $52 billion at the end of 2010, and total deposits in private and state banks close to $30 billion, such capital outflows would have disemboweled the country’s finances. “The $20 billion figure is ridiculous, as the deposits of private banks are $11 billion and the deposit base of the whole banking system is $29.8 billion,” Freddie Baz, chief financial officer at Bank Audi, told Executive. “Estimates range between a 15 percent to an 18 percent drop in the deposit base of private banks, so there has been a decline of around $2 billion.” Lebanon’s Bank Audi, which operates Bank Audi Syria, is the second largest private bank in Syria with some 18 branches. However, in an effort to contain foreign currency deposit flight and alleviate pressure on the Syrian pound, the Central Bank of Syria (CBS) issued in early July a set of rules to implement new measures it had announced in May to control foreign currency purchase and withdrawal transactions. The measures include authorizing Syrians to open savings accounts in US dollars and Euros up and equivalent to $120,000, granted the amount is blocked for a minimum of six months, while also allowing foreign currency purchases of up to $60,000 for accounts with a minimum six-month maturity, with the maturity extended by one month for every additional $10,000 purchased. CBS governor, Adib Malayeh, said they had closed about 30 foreign exchange bureaus suspected of conducting illegal operations, with reports of the Syrian pound having been traded at between 10 and 15 percent lower than its official exchange rate. Malayeh said the Syrian pound was still rock solid despite the political unrest, with bank deposits up 4 percent for the second quarter of 2011 relative to the first.

Lebanese banks receive a Moody downgrade

Lebanon’s top four alpha banks, Bank Audi, BLOM Bank, Bank of Beirut and Byblos Bank saw their standalone Bank Financial Strength Ratings (BFSR) and Global-Local Currency (GLC) deposit ratings downgraded by Moody’s Investors Service. On July 19, Moody’s cut all four banks’ BFSRs and GLC deposit ratings to D- and Ba3, respectively, from a previous stable rating. It also reduced Byblos Bank’s B1 subordinated debt to negative. The international ratings agency mentioned the slowdown in the Lebanese economy and political tension, along with instability in neighboring Syria, as factors for increased domestic credit risk and weakened asset quality and profitability for rated banks. Both Bank Audi and BLOM Bank’s extensive operations in Syria suggest a great deal of material exposures to the country, which Moody’s estimated ranged from 70 to 125 percent of the banks’ tier one capital at the end of 2010. Moody’s ratings announcements also raised concerns over the four banks’ exposure to sovereign risk due to their low-rated Lebanese government securities portfolios, which equal several times their tier one capital levels and reflects the banks’ continuous funding of Lebanese public debt. By contrast, Moody’s said the banks’ long-term foreign currency deposit ratings remained unchanged, as those deposits are capped by Lebanon’s B1 ceiling. Lebanese bankers downplayed public concerns in response to the ratings announcement, asserting that Lebanon’s financial institutions have enough liquidity to overcome what is a temporary situation.

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Feature

Portraits of freedom

by Executive Editors
written by Executive Editors

Images from Cairo’s Tahrir Square have become iconic symbols of the struggle against oppression and have helped inspire the fight for human rights across the Middle East and beyond; But many goals of the Egyptian Revolution are yet to be fulfilled. Repressive laws remain in place, the military continues to detain its critics and prosecute them in military courts and the torturers of the old regime have gone unpunished, prompting thousands to return to the streets to demand greater reforms. For a look at some of the Egyptians who helped begin the process of change in their country, Executive presents in the following pages portraits of men and women from all walks of life who joined the movement to end Hosni Mubarak’s 30 years of repressive rule. All photos taken by Platon in April 2011, commissioned by Human Rights Watch.

1) April 1, 2011: Egyptians return to Tahrir Square in Cairo for a rally to “save the revolution” and protect their right to demonstrate.

2) Ahmed Seif al-Islam, 60, is a veteran Egyptian lawyer, activist and former political prisoner and founder of the Hisham Mubarak Law Centre, which since 2008 has been the leading Egyptian NGO providing legal assistance to protesters.

3) Heba Morayef, the Cairo-based researcher for Human Rights Watch, covering Egypt. In the middle of the demonstrations and violence during the Tahrir protests, Morayef visited hospitals and morgues to document the civilian death toll from government attacks and sniper fire. 

4) Sama Lotfy, 2, Neama el-Sayed, 26, Yassin Lotfy, six months, the children and widow of a protester killed by Egyptian security forces during the Tahrir Square demonstrations.

5) Hossam Bahgat, 31, is the director of the Egyptian Initiative for Personal Rights, which he founded in 2002. He has long played a prominent role in exposing human rights violations in Egypt, including the government’s failure to prosecute sectarian violence against Coptic Christians.

6) Muslim-Christian unity youth organizers, from left to right: Moaz Abdel Kareem, 28, from the youth wing of the Muslim Brotherhood and a participant in the Tahrir Square protests. Sally Moore, 33, psychiatrist, feminist and Coptic Christian youth leader. Mohammed Abbas, 26, a member of the Muslim Brotherhood’s youth movement and a leader in Tahrir Square who worked with secular counterparts and the April 6 movement in planning protests. Mohammad Abbas and Sally Moore drafted a “birth certificate of a free Egypt” shortly after Mubarak’s resignation.

7) Wael Ghonim, 30, the Google regional marketing executive who administered the “We are all Khaled Said” Facebook page after the young Alexandria man’s brutal killing by police. Ghonim’s passionate appearance on Egyptian television after being detained for 12 days by the security police helped energize the protest movement.

8) Nawal el-Saadawi, 80, an Egyptian writer, veteran women’s rights advocate, psychiatrist and author of more than 40 fiction and non-fiction books, many of which address the persecution of Arab women. Saadawi’s decades-long struggle for women’s rights and against female genital mutilation helped pave the way for the adoption of a historic 2008 law that banned the practice in Egypt.

9) Sondos Shabayek, 25, a writer for independent Egyptian newspapers and magazines and a “citizen journalist” who participated in and tweeted the story of the Tahrir Square protests.

10) Sarrah Abdel Rahman, 23, a social medi activist who reported from Tahrir Square with her popular “sarrahsworld” YouTube commentaries.

11) Laila Said, the mother of 28-year-old Khaled Said, with influential Egyptian activist Wael Ghonim. Speaking out about the torture and murder of her son by Egyptian police in June 2010, Laila became known as the “Mother of Egypt” and as an emblem of the consequences of endemic police torture and impunity.

12) Alaa al-Aswany, an Egyptian writer born in 1957 and author of acclaimed novel The Yacoubian Building. He was a founding member of the political opposition movement Kefaya (“Enough”).

13) Ramy Essam, 23, a charismatic singer, guitarist and songwriter who  became famous during the Tahrir Square protests as “The Singer of the Square”, was detained and tortured by the Egyptian military after  President Hosni Mubarak fell.

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Editorial

One pillar is not stability

by Yasser Akkaoui
written by Yasser Akkaoui

If Riad Salameh were no longer driving the bus that is Lebanon’s economy, many of us would feel differently about being on it. Faith in the lira, confidence in the sanctity of our savings and a belief, if fragile, that Lebanon can withstand internal and external economic shocks are thanks to him. But as we breathe a sigh of relief at his re-appointment to a fourth term as governor of the Banque du Liban (BDL), Lebanon’s central bank, we must also look at the precedent being set: It is true that through times of siege from without and sabotage from within he has kept us from tumbling off the road to prosperity… But nothing gold can stay.

It is no coincidence that the banks have kept Lebanon’s economy (relatively) on course during Salameh’s tenure. In fact it is no less than obvious; a well-tended garden makes for better flowers. If other ministries took their cue from the BDL, they too might discover the wondrous results diligence, conservatism and foresight can produce.

 Manufacturing, industry, agriculture — long neglected by the state as unviable oddities in Lebanon’s gross domestic product — are precisely the sectors in need of investment to help broaden the foundation upon which our prosperity is based.

As it takes many pillars to support a temple, the government must give the Lebanese a reason to believe that this varied and vibrant country can have a varied and vibrant economy.  

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The generals’s last stand

by Sean Cox
written by Sean Cox

The rift between Turkey’s Justice and Development Party (AKP) and the Turkish military reached a critical breaking point with the resignation of the military’s top command staff. The resignations of four of the country’s five top generals is perhaps the most poignant protest in Turkey’s history, with those stepping down including the chief of staff and the leading commanders of the Army, Navy and Air Force.

For years, journalists and analysts have been concerned that the rising power of the AKP was a sign of increasing Islamic bent within a staunchly secular NATO ally. Throughout the history of the Turkish Republic, the military has been widely regarded as the defender of both secular and democratic civilian leadership, and in its history the military has unseated governments that pushed the bounds of their electoral mandates — whether secular or Islamist.

However, since a coup in 1980 established a military regime and rewrote the Turkish constitution, popular resentment against the military/secular establishment has intensified, with a significant portion of the more religious Muslim population feeling disenfranchised. The terms ‘secular’ and ‘democracy’ have often been espoused as synonymous in Turkey, leaving little room for Islamist currents in the political process.

This looked set to change in 1996, when the leader of Turkey’s Welfare Party (RP), Necmettin Erbakan, was elected prime minister. However, this Islamist foray into the upper echelons of Turkish politics was short lived, when less than a year later Erbakan stepped down at the behest of the military establishment.

Since coming to power in 2002 the AKP has wielded its strong electoral mandate to address this historical inability of the Muslim majority to gain, and maintain, representation at a national level; in no small part by steadily weakening the power of the military and its independence from civilian leadership.

Armed with loose terrorism legislation that enables the imprisonment of accused parties for 10 years without trial, and aided by the popular memories of military oppression the AKP has managed to steadily curtail the power of the military establishment.

Indeed, it is the pervasive public perception of the military’s involvement in extrajudicial torture and killing — whether against leftists, the militant Kurdistan Workers’ Party (PKK), or the Turkish far right— that has overrode a rational investigation of charges against military personnel. The so-called ‘Ergenekon Case’ has attempted to pin many of the county’s best-known scandals and terrorist activities on a clandestine kemalist ultra-nationalist group, with purported links to the military. Spanning the past decade the Ergenekon case has provided the legal basis for the imprisonment of nearly 200 military personnel — none of whom have yet been convicted (though they remain either in jail or under house arrest).

While the military must take responsibility for past transgressions, the Ergenekon Case is widely regarded as a farce. As Gareth Jenkins, of the Central Asia-Caucus Studies Institute’s Silk Road Studies Program, said in 2009: “The fear is that [the case] represents a major step not— as its proponents maintain — towards the consolidation of pluralistic democracy in Turkey, but towards an authoritarian one-party state.”

On Friday, July 29, the highest-ranking members of the chain of command attempted to make a final stand against this effort.

A meeting that morning between Chief of Staff Isik Kosaner, Prime Minister Recep Tayyip Erdogan and President Abdullah Gul preceded the indictments by a Turkish court of 22 military generals and officers. In response to the charges the chief of staff and the commanding officers of every arm of the military, except the Jandarma (the gendarmerie), announced their retirement.

In the scramble following the resignations, the PM promoted General Necdet Ozel from Jandarma general commander to the position of land forces commander, just hours before appointing him chief of staff. This enabled Ozel to co-chair the meeting the following Monday of the Supreme Military Council (YAS). Over the course of the four-day meeting, it was expected that YAS would decide on the promotions of Turkey’s next commanding officer class, with the PM having the final say in the highest appointments.

For the first time in Turkish history, a civilian and Islamist government has the opportunity to change the military’s essential role in the country — first established by Kemal Ataturk with the modern Turkish state nearly a century ago.

Further resignations are yet expected.

SEAN COX is an Istanbul-based researcher and political analyst

 

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A Cairene cacophony

by Josh Wood
written by Josh Wood

Tahrir Square of late has come to resemble an Egyptian version of the famed Speakers’ Corner in London’s Hyde Park; the difference being, perhaps, that it is ringed with barricades of barbed wire and those gathered here are actually somewhat relevant to their country’s future. Ever-multiplying platforms are scattered around a central encampment where speakers take to the podiums to espouse their political ideas and demands. But, unlike the days of the revolution when the masses gathered at Tahrir with one booming voice to chant the clear and simple demand for the regime to fall, the political demands and aspirations of protesters today range from Islamism to socialism and beyond, and when one stops and attempts to listen, the voices of the pontificates seem to blend into an earnest white noise, with nary two among them expounding a complementary vision for a direction forward.

Egypt’s “second revolution”, as the protesters are calling it, has stemmed from the frustrations with the way the country’s interim military leaders — the group of generals known as the Supreme Council of the Armed Forces (SCAF) — are running the country. There is a feeling that the revolution is not in fact over and that to bring additional changes they must continue the struggle.

After protesters reoccupied the square on July 8,  SCAF quickly began to offer partial concessions in an attempt at appeasement; the cabinet was reshuffled, more than 600 police officers were fired for offenses committed during the revolution six months ago, and while the protesters were not asking for it, elections were delayed, ostensibly to give political parties more time to better organize. Cynics would say that such overtures are aimed at creating additional discord between the protesters, and if such is the case, SCAF would be employing tactics similar to those of the Mubarak regime, just much more refined, subtle and perhaps successful. Whether intended or not, by going halfway on some issues — such as firing police officers as a response to the initial, basic protesters’ demand of bringing policemen to justice for crimes during the revolution — SCAF has placated some and further agitated the debate over what should be demanded from them. The delay in parliamentary elections will let more parties crowd into Tahrir Square and give even more time for the already disunited platforms of the protesters to drift farther apart.

The latest episode of disunity came with the debate among protesters over whether or not to march on SCAF. While at the start of their reoccupation of the square protesters first feared that the military might once again try to forcibly clear them, this was not to pass; instead, SCAF let the protesters come to them. And on July 23, Egypt’s national day, several thousand of them did, marching to the Ministry of Defense only to find themselves confronted by the army, which watched them battle for hours with angry local residents and SCAF supporters wielding stones, sticks and other weapons.

As the clashes — some of the worst violence Cairo has seen since the revolution — kicked into high gear, few spoke of it on the streets downtown. Shops remained open, families ate dinner, traffic was as bad as ever, oblivious to the chaos just miles away.

This is perhaps not surprising. The disunity of Tahrir Square has driven away many who, despite being present in the square during the 18-day-long uprising that toppled Hosni Mubarak and still strongly against SCAF, no longer readily see the value in showing up to the square, let alone marching to directly confront SCAF. During the daytime heat, the square is quiet. At night, the numbers swell, but it is difficult to tell who is there for a protest movement and who is there for the food vendors and carnival atmosphere.

Many Cairenes are just plain sick of conflict and yearn for stability rather than more days of broken curbstones and Molotov cocktails. Although they may also oppose the way SCAF is running the show, for them to rejoin the protesters in Tahrir and strengthen the movement, those in the square will first have to agree on what they are fighting for.

JOSH WOOD is a contributor for The International Herald Tribune

and Esquire Magazine

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Neither justice nor stability

by Sami Halabi
written by Sami Halabi

In the past, other Arab countries have looked to Lebanon as a model of democracy and free expression in a region submerged in autocracy and monarchism. But the Arab Spring has put us Lebanese in awe of the feats we thought our brethren were incapable of achieving, and has highlighted the systemic flaws within what we once believed to be the most representative system of government in the Arab world. 

As much of the region’s citizenry fight to determine their political future, the matter of debate in the wake of the Special Tribunal for Lebanon’s (STL) indictment of four Hezbollah members is whether justice or stability is preferable in Lebanon. But instead of referring back to our own political reference books, we should be looking to those who are currently rewriting their history.

The latest round of protests in Egypt in July have come more than half a year since the pharaonic figure of Hosni Mubarak was ousted — plenty of time for any military council to hand power over to a civilian body that is already in place. The notion of genuine justice has become the mantra of the protestors, who want to see those who ordered and carried out killings during the uprising held to account. They are not concerned with the tired excuses that have helped to stunt the evolution of a truly representative Arab society and preserve a “stability” laced with corruption and inequality, and neither should the Lebanese.

The difference between the Egyptians and the Lebanese, however, is not only that the justice they seek follows a true overhaul of their political system, but also that they seek it on their own terms, not on those of foreign institutions. Egypt, and to a greater extent Tunisia — which has largely fallen out of the international media’s attention — have realized that revolution is a constant struggle and that they can rely only on themselves to direct its course. They understand that they must shatter the bedrock on which the previous system sat so comfortably, one institution at a time, before they can achieve what they initiated back in January.

Here in Lebanon, on the other hand, such a self-reliant fervor is not evident. Many seem to think that it is the international community that will deliver justice in Lebanon. But anyone who has taken even the most cursory look at our history and our current affairs knows that Lebanon is the playing field where conflicts and assassinations are carried out, as opposed to being resolved, in the game of nations.

A bona fide contribution to the country from the international community would have been to make good on one of the STL’s first promises: to focus on reforming the judiciary so that it could try its own cases. Perhaps if that had been a priority, six and a half years after the assassination of former Prime Minister Rafiq Hariri, Lebanon could have managed its own affairs rather than being swept up in the geopolitical wave of the tribunal.

As for those who propound stability over justice, the predication itself constitutes an insult to our collective intelligence and a means by which to point fingers and inflame sectarian conflict. By suggesting that stability will be harmed by the indictments because they pit Shia Hezbollah against the Sunni Future Movement automatically infers that the indictment amounts to a conviction in the minds of the latter, which it most certainly does not; many Sunnis are not about to swallow whole the STL pill given its grievous legal mishaps over the years. Trying to frame it as such only serves to add fuel to the fire of extremists, whose purpose is served by viewing every action or accusation by a sectarian party such as Hezbollah as representative of an entire sect, which again, it most certainly is not.

Thus the polemic that has emerged between justice and stability is just another testament to how susceptible we are to the pitfalls of sectarian rhetoric and the goading of international powers. We continually miss the point in the truth and stability equation: the two are inseparable. But if we allow our politicians to formulate their tired old narratives at a time when even the nations closest to us will not listen to the same old jazz, then perhaps we should expect to get exactly what we deserve: neither justice nor stability.

SAMI HALABI is deputy editor

at EXECUTIVE

 

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Economics & Policy

Forging steel from ash

by Zak Brophy
written by Zak Brophy

Toufic Dalal had spent 20 years building his firm into one of the largest steel manufacturers in the region, specializing in pre-engineered buildings and pre-fabricated houses. He had become a rare success story in Lebanon’s heavy industry sector.

Then on 23 July, 2006, Israeli fighter jets left his factory a smoldering wreck of ash and twisted metal.     

When Dalal heard his steel works factory in the Bekaa had been bombed he rushed straight to the site. Where he had stood the day before in a 22,000 square meter (sqm) factory full of heavy industrial equipment he found nothing but ruin. 

While most people would have been enraged, panic stricken or crushed, Dalal said without a hint of false modesty, “It bothered me some.”

“On the ground in the factory we had eight holes, 30 meters in diameter by 15 meters deep,” he said, calmly recounting the first scenes he saw. “So imagine what was left:  Nothing. All of the machinery was destroyed.”

The value of the damage came to a total of around $25million. 

At the bombed-out site, groups of employees had also gathered, many in tears. Unlike Dalal, they believed their livelihoods were ruined with the factory.

Surveying the damage, Dalal said he was struck by a simple wisdom that determined his next steps: “You know in this life it doesn’t matter if you have $20 or $100, or $20 million or $100 million. You come to a point where you are just playing with numbers.” 

Emboldened by this philosophy, it was clear to him that he had to rebuild. “I said to myself I want to start a new factory now as if I didn’t have anything before. It is much easier to build it now than when I did it 20 years ago. I have the money; I don’t have debt; I know the business; I have the experience, and I have a market.”

And build he did.

The next day he was on a United States Navy ferry to Cyprus from where he flew direct to Chicago. He immediately bought the machinery he needed to get back in operation and flew it to Lebanon. And so it was that within three days of being bombed that Dalal was rebuilding the foundations of his new factory.

Free from any debt burdens, he was able to make an initial investment in the range of $3 million dollars from his own savings. Once he was back up and running, the orders began to flood in, providing the finance for the full redevelopment of the factory; within three months he was back at pre-war production capacity.   

Fruits of war

Ironically, Dalal’s biggest client would emerge from the political settlement to the very same war that had leveled his facility. When a ceasefire was finally reached under the auspices of United Nations Resolution1701, the UN Interim Force in Lebanon’s (UNIFIL) troops in the south mushroomed from some 2,000 peacekeepers to nearly 13,000. “We ended up selling to UNIFIL in the south so many prefabs and so many buildings. We were earning between $3million and $5 million per year, and that actually compensated most of our losses,” he said.         

In no small part due to Dalal’s ingenuity, boldness and creativity, the bombing actually boosted the Dalal Steel business. The rapid turnaround from demolition to production won a lot of customer loyalty and trust, not to mention prestige.

“People liked to work with us, perhaps to help us out, or perhaps they felt more secure working with us, because even though our factory was bombed we were still there so they knew we could guarantee our work whatever happens,” he said, before adding with a wry smile, “It was like marketing for us. People know who Dalal is now.”

The plan was never just to return the company to where it had been before. With business thriving and a blank canvas to work with, Dalal built a far superior factory to take Dalal Steel Industries forward.  

It was expanded from 22,000 sqm to 32,000 sqm and it will soon be expanded to 50,000 sqm. Furthermore, the machinery has been upgraded and is now fully computerized with a much more efficient production system.

The economic crisis in America has graced Dalal with a golden opportunity to recapitalize his factory at discount rates. With many fabricator firms in the US going bankrupt, Dalal Steel is snapping up at auction virtually brand new top-of-the-line equipment “for peanuts”. Reflecting on life and work, he said, “It makes you feel happy that at least you have work while other people are closing down.”

Five years on and Dalal is boasting a substantially more successful business than the one that was leveled to the ground in the war. He said his assets are at least twice what they were in 2006, and his turnover is perhaps 10 times what it was before the war. What is more, he continues to be a significant employer in the Bekaa region, with his workforce having expanded from around 220 to approximately 350. Dalal said his team was “essential” to the resuscitation of the business in 2006.

The past five years have also made Dalal a rejuvenated captain at the helm of his new and improved vessel. “When I rebuilt my factory it gave me so much power, and I’m much more dedicated to the work and I… love it so much more than before,” he said.

In the drive to expand the company he has been developing new production lines while tapping into new markets and developing existing ones. On home turf he continues to win large contracts.

“Lebanon has been good until now,” said Dalal, before rolling off a list of contracts his company recently won, including an 84,000sqm shopping center in the Bekaa, 44,000 sqm of steel construction in a shopping center in Beirut and 600 prefab houses for the Lebanese army.

The US army used to be their principal client, but the scaling back of its presence in the Middle East means there is now less business coming from that corner of the world. Nonetheless, Iraq remains an important country for the company, with three large projects in Erbil currently underway. Dalal also anticipates good business developing in southern Iraq as investment in the oil industry picks up pace. It is with an eye on this market that he will be courting new clients at a trade fair in Basra in two months time. 

African prospects

However, the real growth area for Dalal Steel Industries lies to the south.

“Our replacement market is Africa now. We sell a lot of goods to Nigeria, to Angola, to Kinshasa,” said Dalal. The continent now comprises around half of the company’s business and they are months away frombuilding a new factory in Nigeria.

With sights set on these expanding horizons, Dalal’s children have joined him to play central roles in the firm. Three of his children have followed in their father’s footsteps and are now engineers, with his daughter running the engineering department in the office, one son running the big projects and operations in Africa, while another son is in his second year of studies in the US. Another daughter is a business graduate and takes care of the firm’s accounts. But he is quick to clarify, “You know I still get involved in everything.”

With the steel business going from strength to strength, the Dalal family are diversifying into the real estate game. After all, “It’s easy,” said Dalal. They have been buying land since 2004 and intend to start building a 24-story tower in Hamra in three months. The real estate projects are within a different company but one that is still very much a family affair.   

Looking back to 1987, a young Toufic Dalal decided to leave his job of four years with Proctor and Gamble because “an employee’s life was not the one for me.” He risked his lot to buy a machine and go solo before he even had a workshop or any land to use it in. 

Twenty years later, this audacious spirit served him well; after rebuilding his pulverized factory, in 2011 his entrepreneurial thirst remains unquenched. 

“In 10 years I suspect we shall be twice as big,” he concluded confidently.  

 

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