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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
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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
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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
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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
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Paying for the revolution

by Paul Cochrane August 3, 2011
written by Paul Cochrane

“Freedom ain’t free” is a commonly used idiom in the United States. Somewhat jingoistic and trite it may be — certainly when used to justify a militaristic US foreign policy — there is still much truth to the expression.

The uprisings in the Arab world this year have certainly not come gratis. Many have paid the ultimate price — death — and the economic losses have been staggering. In post-revolutionary countries, economics has become a major focal point and it was arguably lop-sided economic development as much as political repression that sparked the uprisings in the first place, from Tunisia to Egypt and Bahrain, to Yemen and Syria.  One of the economic factors that contributed to the uprisings and is a cause of much inequality throughout the developing world is capital flight, and while governments may have, to varying degrees, limited ability to stop legitimate investors from pulling up stakes,an area of enforcement where regional authorities have been lax is in stymieing the illicit flow of capital out of their countries. Between 2000 and 2008, according to Global Financial Integrity (GFI) research published this year, illegal capital outflows from the Middle East and North Africa (MENA) grew 24.3 percent, far ahead of any other region on earth.

Illicit capital flight refers to funds derived from corruption, money laundering, commercial tax avoidance and trade mispricing, where deals are made for transactions to end up in offshore havens to avoid being taxed. As a result, cash that could have stayed in the country of origin ends up elsewhere, leaving less capital to finance development.  From 1970 to 2008, some $70.5 billion flowed out of Egypt, $25 billion out of Morocco and $25.7 billion out of Algeria. In Egypt, GFI estimates an average of $2.54 billion flowed out of the country each year through illicit trade mis-pricing alone. Tack on corruption and crime, and the figure is a whopping $6.36 billion a year that was not available to the Egyptian financial system and economy. Notably, as Egypt’s gross domestic product spiked and the economy grew in the late 2000s, illicit outflows increased by leaps and bounds, meaning real economic growth was essentially two steps forward, one step back. In 2006, illicit outflows reached $13 billion, $13.6 billion in 2007, and as the global financial crisis hit in 2008, $7.4 billion. Ousted President Hosni Mubarak and his family siphoned off billions from the Egyptian economy, but Egyptian financial elites also helped to hobble the country’s development through illicit outflows. 

Addressing illicit capital flight is a concern for which revolutionaries should fight if the people are to improve their economic future. The problem right now, however, is that with the instability in the MENA, legitimate investors are also pulling their capital out of the region at worrying rates. Jordanian Finance Minister Mohammad Abu Hammour recently said at a meeting of the Union of Arab Bankers that capital flight in the Arab world is estimated at some $500 million a week. Unless such outflows are curbed, the capital needed to invest in post-revolutionary countries will be wanting.

Desperate for cash, these countries will either have to be beholden to donors, or to the conditionalities imposed by global financial institutions such as the World Bank and International Monetary Fund to stay afloat. In Egypt, with the government’s hard currency reserves reportedly plunging from $36 billion in February to $25 billion in May, some analysts warned that the country could be as bankrupt as Greece by the end of the year.

How to tackle this is tricky. Capital is transferred at the click of a button. Some $1 trillion in illicit inflows enters the Western financial system every year — with an estimated 20 percent to the US — and billions go to offshore havens. Tough withdrawal measures by post-revolution countries may help, but this is both heavy-handed and against the principles offree trade. With an estimated 65 percent of illicit outflows in the form of commercial tax avoidance, ensuring greater transparency by companies and elites in paying tax is a more feasible solution.

In tallying the expense of what it has taken for the MENA region to reach this turning point in history, what must not be overlooked is that those who have a responsibility to help cover the costs should be made to do just that.  After all, democracy must be paid for.

PAUL COCHRANE is the Middle East correspondent for International News Services

August 3, 2011 0 comments
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Tempest broils across the Gulf

by Gareth Smith August 3, 2011
written by Gareth Smith

Saudi Arabia overtook Israel as Washington’s largest purchaser of arms in 2009 and their demand shows little sign of abating. Riyadh-Tehran relations are at their worst since the Saudis were funding Saddam Hussein’s legions to mow down Iranian infantry in the 1980s.

The more recent escalation in tensions can be traced back to the election of Mahmoud Ahmadinejad in 2005, which tilted Tehran away from the pragmatic foreign policy of presidents Akbar Hashemi Rafsanjani and Mohammad Khatami. President Ahmadinejad’s notion of an assertive Iran, and his trenchant criticism of Israel and the United States, struck an unsettling chord around much of the Islamic world and his invocations of the 12th Imam projected an evangelical Shia’ism which the Saudis detested.

But even if Iran’s supreme leader, Ayatollah Ali Khamenei, continues in his efforts to restrict the president it is unlikely there will be any kind of rapprochement with Riyadh any time soon. The leader’s disquiet with Ahmadinejad derives more from his management of government and choice of advisors than from his role in foreign policy.

Saudi-Iranian tensions were further strained by the 2003 US-led invasion of Iraq, which replaced a Sunni-led regime with one whose leaders are Shia and allies of Tehran. Iraq’s drift into communal strife further enflamed Saudi’s sectarian sensibilities.

For years, pragmatic heads prevailed. Following the 2005 assassination of Rafik Hariri and even Hezbollah’s military assertion of power over Beirut in 2008, mediation efforts led by Qatar and Turkey were met with a shared sense in Riyadh and Tehran that escalating violence in Lebanon was in neither’s interests.

But a stalemate in international talks over Iran’s nuclear program fueled Saudi belligerence. By April 2008, according to US diplomatic cables released by Wikileaks, the Saudi ambassador in Washington relayed a plea from King Abdullah that America “cut off the head of the snake”, and last summer The Times newspaper in London reported the Saudis had practiced standing down their air defenses in a test-run for giving Israeli war planes a clear path to Iran’s nuclear facilities. And then came the Arab Spring, whose fires of revolt reached Bahrain, prompting Saudi intervention in February to defend a Sunni monarchy from a Shia majority.

In Syria at least the Saudis see favorable currents in the maelstrom of reform. Change in Damascus could upset relations with Tehran, severing its main logistical link to Hezbollah. Suddenly, there is the prospect of a Sunni-led Syria to counterbalance the Shia dominion in Baghdad.

Prince Turki al-Faisal, the former Saudi intelligence chief and ambassador, revealed in June a clear, if deniable, outline of the ruling family’s thinking when he said Iran was “very vulnerable in the oil sector”, while “more could be done to squeeze the current government”, as a reduction in oil revenues would cripple Tehran’s finances. He  also spoke of Saudi Arabia developing nuclear weapons should Iran do so.

To Saudi chagrin, Iraq has sided with Iran at the Organization of Petroleum Exporting Countries, resisting Riyadh’s efforts to agree to higher quotas to lower prices. Riyadh has also reportedly discussed with Washington increasing its crude supplies to China as a way to lure Beijing into reducing its investment in Iran’s energy sector. It is a high risk strategy and may enflame the situation with no tangible benefit.

Despite increased sanctions the International Monetary Fund reported economic growth in Iran at 3.5 percent in 2009/10 (up from an earlier estimate of 0.1 percent). Further, according to the British Petroleum “Statistical Review of World Energy”, Iran increased production of oil and natural gas in 2010 by 0.9 percent and 5.6 percent, respectively, despite sanctions targeting investment in Iranian energy.

Iran remains resilient and has seen some improvements in its relations with Pakistan and Afghanistan, where US influence is waning. In June Iran’s military commanders declared themselves pleased with the tests of new, medium-range missiles — and the growing Saudi weapons arsenal will no doub tincite Tehran to further reenforce its armament program.

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

August 3, 2011 0 comments
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Economics & Policy

Beirut’s luxury kitchens

by Executive Staff July 26, 2011
written by Executive Staff

For an inside view of Lebanon’s top restaurants, check out the the luxury special report in the July edition of Executive Magazine, in stores now.

July 26, 2011 0 comments
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Special Report

The coveted steps to perfection

by Executive Editors July 17, 2011
written by Executive Editors

Underground, down a dark driveway and below a nondescript building in the back streets of the Beirut neighborhood, Tabaris, is a small, unmarked door. Behind this secret portal a bounty of diamonds, sapphires, rubies, gold, platinum, pearls and other precious gems lies in wait. Here, a treasure trove of wishes is carefully and painstakingly molded, filed and polished by the finest expert craftsmen into symbols of luxury and cherished personal items that will eventually adorn fingers, ears, necklines and wrists.

Before it ends up on the velvet pillows of the Mouzannar showroom to be gawked at and drooled over, the giant aquamarine and diamond-encrusted platinum ring passes through many hands. Under the watchful eyes of more than 20 security cameras [1], the jewellers use age-old techniques, with the help of some modern technology, to perform their transformation of raw materials into glorious ostentation.

When the order for the ring comes in to the jeweller, the first step is selecting the stone. Then, using architectural software [2], the cast setting is digitally drawn in three dimensions. At this stage, the ring is moulded in wax [3], before the pure platinum is melted and poured into the setting. Emerging rough and unfinished [4,5], the ring is cleaned and weighed for value before being polished and filed; each tiny precious filing is collected on stainless steel trays for a later date. The giant piece of aquamarine, meanwhile, is weighed and examined in detail for quality, clarity and shape. The same treatment is given to the diamonds that will form the stone’s bed. Dozens of white diamonds pour from plastic zip-lock freezer bags [6] stored in rows in filing cabinets according to size and gem.

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Once the gems are selected and prepared, they are ready to be set in the cast. The diamonds are laid out in tiny magnificent rows along the diameter, the aquamarine carefully fitted in its platinum jaw. Now, close to ready, the polishing [7,8] begins again — a process the jeweller explains will file away at least 10 percent of the original weight of the metal. At cleaning stage, the ring is plunged into a bucket of warm soapy water [9] using ordinary dishwashing liquid, then blasted with steam to remove any invisible scratches.

[7]
[8]
[9]

Finally the ring is submerged in salted water and exposed to an electric current to remove any lasting grease before getting a last bath and puff of steam. Still exhibiting golden tones, the ring is lastly dipped in rhodium [10], from which the metal emerges gleaming white. Dried with a hairdryer [11], the ring is ready to leave its humble home [12]. After a process that has taken three days, the ring is taken to the showroom for pricing and exhibition [13].

[10]
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July 17, 2011 0 comments
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Real estate

For your information

by Executive Editors July 17, 2011
written by Executive Editors

Dubai’s cedar shoreline

By the fourth quarter of this year, the island of “Lebanon” will be home to the first commercially operating project within The World, the 300-island man-made archipelago off the coast of Dubai developed by Nakheel. The island is fully owned by Indian entrepreneur Wakil Admed Azmi, who has spent approximately $16.3 million [AED 60 million] on the construction of a beach club and facilities, in addition to the initial cost of the island. Reza Sinnen, operations manager at the World Island Beach Club (which is being developed on the island), told the United Arab Emirates (UAE) daily Arabian Business in a June 15 article that another $2.17 million [AED 8 million] would have to be invested to complete the commercial resort, which includes a restaurant, lounge, entertainment venue and cabanas, with facilities that allow yachts of up to 80 feet to be docked. The resort aims to sell club memberships that cost up to AED 40,000 [$10,889] per year. Sinnen said problems with the delivery of water, electricity and on-island services mounted as Nakheel’s credit burdens grew, but that the owner cut construction costs by nearly 70 percent and managed the project himself in order to complete it on time. “We are about four months away. We are tying up with partners, yacht operators, travel agents, the Road and Transport Authority, Sealink…there is a lot to do,” Sinnen said. While 70 percent of the 300 islands are sold, according to Nakheel, none of the other owners have begun construction, except Kleindienst Group, which is developing resorts on the six islands it owns, which together are known as the Heart of Europe Project.

A greener prospect

A new environmental initiative that rates the green credentials of buildings in Lebanon was launched in June. The scheme was announced on the closing day of the 16th Project Lebanon, the international trade exhibition for construction and environmental technology that saw around 500 contractors and construction companies from 26 countries set up shop at Beirut International Exhibition and Leisure Center (BIEL) for the week. The ARZ Building Rating System is the first of its kind in the Middle East to classify the environmental performance of existing commercial buildings. The system takes into account Lebanon’s water and electricity shortages, and includes renovation conditions to reduce greenhouse gases. Building owners can invest between $100,000 and $4.9 million, based on building size and condition, to save between $35,000 and $890,000 in costs per year, according to Lebanese Council for Green Buildings President Samir Traboulsi.

From Damascus to Mayfair

A June 20 article in British daily The Telegraph reported that former Syrian Vice President Rifaat al-Assad bought a 10.3 million pound [$16 million] Mayfair townhouse in 2007 by signing a 110-year lease from the Grosvenor Estate, with funds paid by an offshore company based in the British Virgin Islands. Given the current unrest in Syria and the possibility of several Syrian officials facing international investigation, the properties could be confiscated in the event of a criminal investigation against Rifaat al-Assad for “crimes against humanity,” as he is blamed for ordering the massacre in the Syrian town of Hama in 1982 that killed tens of thousands. The article added that the 73-year-old uncle of current Syrian President Bashar al-Assad did not live in the residence until more than a year ago, but has been residing mostly in France and Spain. In 2008, Hafez al-Assad also bought a lease on the adjacent property, but Land Registry documents did not reveal the amount of the contract. In related news, Rami Makhlouf, the maternal cousin of the president, appeared in a rare televised appearance on state television on June 17 and pledged to relinquish all his real estate in Syria to the state and give up any business ventures that bring him personal gain, such as his stake in Syria’s monopolistic telecommunications company Syriatel.

Tourism takes the cake

Of the 35 business developments launched with the help of the Investment Development Authority of Lebanon (IDAL) between 2003 and 2010, tourism projects accounted for 79 percent ($860 million) of the $1.1 billion total mobilized investment. IDAL indicated that the bulk of tourism projects were the construction of luxury hotels and resorts, generating nearly 3,300 jobs over the same time period. The industrial sector was the second largest recipient of IDAL-supported investment between 2003 and 2010, receiving $131 million. IDAL mobilized investments accounted for some 4,760 new jobs over the seven-year period.

Solidere trumps 2010

Due to a surge in operating profits, Lebanese real estate firm Solidere was able to increase net profits by 7.8 percent in 2010 to reach $196.5 million, according to a June 15 statement by the firm. Sales of land plots and increasing revenues from rental units expanded Solidere’s operating profits to $272.2 million last year, a yearly increase of 16.5 percent. Based on its market capitalization of $3.1 billion at the end of 2010, the company was ranked 61st in Al Iktissad Wal Aamal magazine’s annual survey of the Top 100 publicly-traded Arab firms in the region, down from 45th place in the previous survey. As the largest property developer in Lebanon, its total assets are estimated to be worth around $10 billion today, while unsold property is valued at $7.5 billion.

Noor International’s dodgy dealings exposed

Beirut-based developer Noor International, founded by Mohammed Saleh, has not completed more than 5 percent of its residential projects sold off-plan, according to a June 1 article in Lebanese daily Al Akhbar.  It further claims that Saleh fled to Saudi Arabia in May after scamming investors of around $10 million. Noor International first gained notoriety (or infamy, depending on one’s perspective) in 2006 when Saleh sought to raise $1 billion from investors to build “Cedar Island”, a dredging and construction development that would have seen the creation of a 3.3-square-kilometer island off the Lebanese coast in the shape of a cedar tree. To the relief of many, this project was among the 95 percent of Noor’s development ideas never to see the light of day.

Gloom and dividends

Property transactions contracted 21.3 percent year-on-year by the end of April, while the value of the sales dipped 16 percent over the year, according to BLOM Bank. Further indicating a slow-down in construction activity this year, the major supply indicator, cement deliveries, fell 3.5 percent as of the end of April in comparison to the same time last year, according to the Order of Engineers of Beirut and Tripoli, and Byblos Bank. Holcim Liban, one of the major cement producers in Lebanon, will pay $30.25 million in dividends to shareholders starting June 27, at a dividend ratio (dividend payout as a ratio of 2010 net income) of 80.8 percent. Société Libanaise des Ciments Blancs, another major local producer, will also distribute dividends based on last year’s profits on the same day.

July 17, 2011 0 comments
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Since its first edition emerged on the newsstands in 1999, Executive Magazine has been dedicated to providing its readers with the most up-to-date local and regional business news. Executive is a monthly business magazine that offers readers in-depth analyses on the Lebanese world of commerce, covering all the major sectors – from banking, finance, and insurance to technology, tourism, hospitality, media, and retail.

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