Comment

Tempest broils across the Gulf

by Gareth Smith
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

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Israel’s eroding democracy

by Peter Speetjens
written by Peter Speetjens

One of the inherent ironies of a proper democracy is that a parliamentary majority can vote to temper or even topple the tenets upon which a country’s democratic qualities are founded. In that sense, no one can disagree that Israel is a true democracy.

On July 11, the Knesset passed a Boycott Law, which penalizes any Israeli citizen who dares call for or endorse an economic, cultural or academic boycott of the country as a whole or “areas under its control.” Approved by a 47-to-38 vote, the law allows companies and institutions targeted by such a call or endorsement to seek damages. It furthermore stipulates that an individual or company calling for a boycott will no longer be eligible to bid in government tenders. It remains to be seen if the law will stand when applied in court, as it has been protested as a violation of Israel’s constitutional right of free speech. It seems the law will face such a legal test sooner rather than later, as Aryeh Eldad of the National Union party has already filed a complaint against Dror Morag and other members of the left-leaning Meretz party, after they called for the labeling of products made in Israeli settlements.

The law has come under intense scrutiny in Israel and abroad, including in the United States. The New York Times slammed the law as “not befitting a democracy.” Even the Anti-Defamation League, one of the pillars of the Israeli Lobby, which has always proudly opposed any calls for a boycott of Israel, defined the law as “an unnecessary impingement of Israelis’ basic democratic right to freedom of speech.”

Ironically, the US itself in 1977 passed legislation in response to the Arab Boycott of Israel, which prohibits American taxpayers from taking action in support of an unsanctioned foreign boycott against a friendly state. When in recent years a potential boycott of Israel was discussed at American university campuses, pro-Israel elements keenly reminded people of the existence of the little known “Office of Anti-boycott Compliance” within the Department of Commerce.

Meanwhile, Israel’s ruling coalition of right-wing nationalist and religious parties happily ignored the wave of criticism and perceived the passing of the law as a green light to revive an older and equally controversial initiative: The launch of a parliamentary inquiry into the foreign funding of Israeli human rights organizations. Pushed by Foreign Minister Avigdor Lieberman and Likud Member of Parliament (MP) Danny Danon, it aims to tackle Israeli organizations that, according to them, work against the interests of the country.

Initiatives such as these illustrate not only Israel’s increasing schism with its own democratic principles, but also a shift away from the prospect of a negotiated peace with the Palestinians and Arab states. On the right there is the growing number of Jewish fundamentalists who, with a metaphorical Torah in one hand and an Uzi in the other, claim that the West Bank is an integral part of Israel, as God once upon a very long time ago gave Judea and Samaria to the Jews. On the left there are the secular, liberal segments of Israeli society, willing to comply with international law and cede the occupied territories in exchange for a peace deal, but they have largely been cowed into obscurity over the last decade or so as the right and far right have seized the initiative, dominated Israeli politics and set the social agenda, and this momentum shows no signs of slowing.

In an interview with Robert Fisk, the late Yeshayahu Leibowitz (1903-1994), one of Israel’s greatest 20th century thinkers, sketched a doom scenario for the country if the occupation of the West Bank were allowed to continue. “Two consequences are unavoidable,” he said. “Internally, the state of Israel will become a full-fledged fascist state with concentration camps not only for Arabs but even for Jews like me. Externally, we will have a war till the finish against the Arabs, with the sympathy of the entire world on the Arab side. This catastrophe can be avoided only by partition.”  At that time, his words were hardly taken seriously. Yet today, seeing the actions of the religious right and extremist hotheads such as Lieberman, one must wonder if we are not peering over the precipice of a very slippery slope.

PETER SPEETJENS is a Beirut-based journalist

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Finance

Funding the summer’s frivolities

by Vanessa Khalil
written by Vanessa Khalil

Eager to turn the page on money laundering scandals and rumors that hounded the industry at the beginning of 2011, Lebanese banks have gone on a summer retail advertising binge. From the refurbished and repackaged classic loans to the downright quirky new ones, Lebanon’s summer banking products are certainly putting on display the country’s on-credit conspicuous consumption.

Loan innovation

In 2004, Byblos Bank made the first move away from classic retail loans [housing, car and personal loans] when it introduced both wedding and travel loans. “The big wedding trend took off in 2000, and people started spending more on event planners, large venues, caterers and such. They were in need of huge budgets,” says Georgina Eid Dinar, head of group consumer loans at Byblos Bank. The bank’s $15,000 wedding loan ceiling far from covers lavish ceremonies, but Dinar says accompanying benefits, such as zero percent file and insurance fees outside the monthly installments, a three-month grace period and a slightly discounted interest rate — around 1 percent less than the regular personal loan — add value to an otherwise common personal loan.

Ronald Zirka, head of marketing and retail divisions at Banque Libano-Francaise (BLF), says the bank’s wedding package is the newest addition to an extensive retail product line, part of BLF’s somewhat recent strategy to divest from corporate banking and go into more consumer lending. “In 2009, we decided we wanted to dig into retail because we wanted to diversify the risk. We wanted equilibrium between corporate, small-to-medium enterprises and consumer loans,” he says. BLF’s wedding package offers a preferential interest rate of 9.99 percent on the wedding loan, compared to 13 percent for the usual personal loan, with the installments spread over a range of 18 to 24 months. Zirka says the package offers instant cash collateral to the bank. “We usually advise the customer to place the wedding list against the loan. That way no money will be spent nor lost. And if they do that they can go up to five years [for the reimbursement period], because we will have secured our guarantee.”

For Dinar, plush honeymoons that followed big weddings called for having a travel loan on the side. “At the time [2004], trip organizers and travel agencies started arranging for cruises and small trips. We went through the travel agencies and came up with packages for the [travel loan],” she says. There are currently seven banks that offer a travel loan in Lebanon, most of which allow for some sort of grace period and generally restrict the repayment time frame to a year. The rationale behind these terms and conditions, according to BLF’s Zirka, is that customers who take out a travel loan will usually want to settle it over a period of nine to twelvemonths, but need some breathing time first.

“It will be two to three weeks of vacation, and when they come back they will have spent a considerable sum of money. All in all, that is around a month and a half of no productivity. So we gave them a two-month grace period,” he says. Interest rates on these loans, however, are either generally the same as those on classic personal loans or cleverly embedded in extra charges. “The travel loan is at a zero percent interest rate and it is a true zero percent,” says Byblos’ Dinar, adding that customers are only charged a file fee, which adds up to 5 percent of the total loan amount.

With the exception of a one-year repayment period, Bank of Beirut’s “Safar” [travel] loan is no different from the bank’s personal loan, ranging between $500 and $15,000, and offering around a 7 percent interest rate on the total amount. 

Outside impetus

Mira Raham, head of sales and marketing units at Credit Bank, says the push for travel loans was initiated some 15 years ago by travel agencies and cruise organizers to facilitate deals with their own customers. “The travel agency cannot install to the customer because after all, it’s not a bank,” she says.

BLF’s Zirka agrees that targeted retail products have helped bring suppliers and banks closer together to service both sides’ clients, which particularly benefited home appliance and electronics retailers. It was back in1999 that Bank Audi launched the first ever personal computer (PC) loan in Lebanon. Soon after, others followed. “We implemented our consumer/PC loans about three years ago. We have the lion’s share in this market,” says George Aouad, head of the retail banking division at Bank of Beirut. While the bank’s consumer/PC loan doesn’t diverge a great deal from their personal loan in settlement terms, Aouad says the interest rate on such a loan can fluctuate depending on the risk associated with certain appliance and high-tech retailers and distributors. “When I have the personal guarantee of the retailer the rate could be lower. That’s why we apply sometimes between 5.5 and 6 percent[interest rate]. But it’s usually 7 percent,” he says.

Credit Bank’s Raham says that it is the bank’s own clients that have paved the way for loans such as those for furniture and home appliances. “Many of our clients own galleries, furniture and home appliance stores. So we capitalize on that and try to cross-sell the banks’ products with those of our client-suppliers,” she says. BLF is slated to add an appliance loan to its current retail portfolio, but had previously introduced an iPad loan for a limited time in the summer of 2010, and plans to repeat this for theiPad2 soon. “We went into the iPad loan because it was a partnership with L’Orient Le Jour. The customer got a two-year print and iPad application subscription to L’Orient Le Jour along with the tablet itself,” says Zirka.

Home sweet home

But while travel, wedding and appliance loans could well be considered marketing ploys and gadgetized versions of the personal loan, it is summer housing loans, particularly those that target Lebanese expatriates, that largely prop up the season’s lending activity. “Housing loans are most demanded in summer because the expats come to Lebanon during that time, apply [for loans] and do their paperwork,” says Dinar, adding that Byblos Bank’s expat housing loan offers vary from the regular housing loan in services and conditions rather than in payment terms. “There is no difference in amounts, or down payments. The focus is the service [of availability] because some banks do not lend to non-residents,” she says.

But Zirka says that expatriates bring in higher incomes as well as more risk, both of which should be taken into account when lending to this particular segment. BLF’s expat housing loan requires a minimum 25 percent down payment of the house’s total value, compared to 15 percent asked of residents. “Expats make and spend much more money [than residents], especially during summer time. Every time they come to Lebanon they spend most of the money they put aside,” he says. “That’s why we finance a little bit less in terms of percentage out of the loan amount requested. The down payment is a bit greater than the one requested of residents,” says Aouad. 

What’s in a name?

When asked about the need for banking products that can be easily replaced by the classic personal loan, Byblos’ Dinar says it is the way these targeted loans are packaged as on-the-shelf products that attracts a bigger customer base. “At the end, whether the interest is 12 or 7 percent, customers are only interested in how much they have to pay at the end of each month,” she says. But Zirka says that loans such as those for home appliances and electronics are necessary to facilitate consumers’ on-the-spot big purchases. “It saves the hassle for a customer who, let’s say, wants to purchase from Khoury Home. It makes the purchase a one-stage transaction instead of two,” he explains.   

But some banks have taken niche marketing to extremes, introducing products that are borderline gimmicks. Both Bank of Beirut and the Arab Countries (BBAC) and Credit Bank offer a jewelry loan, with Credit Bank’s “Bijou” loan imposing a 20 to 62-years-old age bracket for beneficiaries who can borrow up to $10,000, and settle the amount over a maximum of two years. “It’s mainly young ladies or men who would like to offer [jewelry to] their wives; usually the young generation,” says Credit Bank’s Raham, who admits that the “Bijou” loan falls under the bank’s marketing, rather than product strategy.

“[Summer loans] all fall under the umbrella of a personal loan. You can make up an infinite list of products, but it goes to the same place [on the balance sheet]. It’s good marketing though, to address certain segments for a specific purpose,” says Bank of Beirut’s Aouad. But Zirka is cautious about bombarding clients with too many products. “First National Bank has a plastic surgery loan and a fertility loan. It’s a normal consumer loan but repackaged. It’s not wrong what they’re doing. We want to offer targeted products but still respect the banking image,” he says.

On managing credit risk that comes with tailoring loans on which people can easily default — Banque du Liban’s Centrale des Risques, the entity that assesses loan applicants’ eligibility, only requires such a process for personal loans above $5,000 — Zirka says that some of the targeted products offer relief for the banks. “What we are concerned about normally when we give out a personal loan is: Is the customer using the money for gambling? As an example. But someone who is getting married has priorities,” he says in reference to BLF’s wedding package. 

For Aouad, adding some preventive conditions and terms to these products is key. Bank of Beirut’s taxi car loan, which Aouad says is a best seller during summer time, finances either taxi cars’ red license plates, which can cost $18,000 to $20,000, or the new and used cars themselves.

“Taxi cars are most prone to accidents so we included total loss insurance. The interest rate was also put in a logical way [around 5percent on new cars and 6.5 percent on used ones, compared to 3.9 percent and 4percent for the regular car loan], because we know that the car will depreciate very quickly,” explains Aouad.

Still, banks find comfort in setting low ceilings for these targeted loans. “We could adopt a no-limit policy with loans, but this is not good neither for them [the customers] nor us,” says Byblos’ Dinar. Aouad says customers could drown in debt if they take on more than what they can handle. “But it’s only risky if the bank’s lending policy is loose,” says Credit Bank’s Raham.

 

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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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Special Report

The coveted steps to perfection

by Executive Editors
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.

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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].

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Real estate

For your information

by Executive Editors
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.

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