Economics & Policy

For your information

by Executive Editors
written by Executive Editors

Economic growth crashing to 1.3 percent

Lebanon’s real gross domestic product growth for 2011 is expected to be just 1.3 percent, according to the Economist Intelligence Unit’s (EIU) latest country report, down from an estimated 7.5 percent in 2010. The EIU attributes the slowdown to national and regional political instability. The report indicates that the country’s economy is subject to shocks in the service sector, which is heavily reliant on political stability. Private consumption is expected to decline when compared to figures from 2007 to 2010 and businesses are predicted to invest less in the growth of their companies. Political instability stunts the government’s contributions to growth, while also hindering the decision-making process with regard to the state’s budget. EIU’s report also predicts average inflation to climb 5.5 percent in both 2011 and 2012, as the prices of oil and food continues to increase.

Israel still hobbling Palestinian workforce

There was little progress related to the condition of workers in Arab territories occupied by Israel, apart from a few improvements on free movement, says the International Labor Organization’s  (ILO) annual report. It notes that settlements are the main cause of the amputation of Arab land, the limits on access and movement, territorial disintegration and the depletion of natural resources. Unemployment rates in these areas hit 23.7 percent in 2010, while youth unemployment accounted for 39 percent of that total. According to the report, the sustained blockade of Gaza forces the population to survive on humanitarian aid, while the unofficial “tunnel economy” has become the key driver of the surviving economic activity. According to the report, there are restrictions on Palestinians with residency permits in occupied East Jerusalem, while the destruction of homes and annulment of identification cards persists. Furthermore, the Israeli government extended its subsidized agricultural development in the Jordan Valley while water and land is restricted for Palestinians. Realizing the potential of the Palestinian Fund for Employment and Social Protection, according to the report, must be a priority regarding poverty alleviation, the protection of the unemployed and the securing of practical options for Palestinian workers that depend on work within the settlements. It also urges a review of the wage system and methods of resolving the grievances of Palestinian workers against Israeli employers.

Arabs vote for domestic workers’ rights

The International Labor Organization’s (ILO) convention stipulating that domestic workers have the same essential labor rights as those granted to other workers passed easily last month at the 100th annual ILO conference. The convention was adopted with 396 votes for, 16 against and 63 abstentions. Of the estimated 22 million migrant workers in the Middle East, one third are domestic workers — most of whom are women from Asian and African countries, namely Sri Lanka, the Philippines, Bangladesh, Nepal, Indonesia and Ethiopia. Saudi Arabia alone hosts 1.5 million migrant domestic workers, while Lebanon hosts 225,000 and Jordan 77,000. Workers in the these countries are excluded from national labor legislation and social security, and are attached to their patrons through what is called a restraining protection system. Patrons hold their passports and papers, and workers are often not allowed outside the home on their day off. Abstaining delegations included Britain, Malaysia, Singapore and Thailand. Member states will have to present the new labor standards to their national competent authorities for the convention to be ratified.

EMLED’s impact

Relief International’s (RI) three-year local development program Empowering Municipalities through Local Economic Development (EMLED) — or Baladiyat as it’s known locally — came to a close in June. The program operated in conjunction with Beyond Reform & Development and worked with 130 municipalities, 213 local businesses and more than 3,000 citizens. More than 400 jobs in rural Lebanon were created and RI trained approximately 600 municipal officials on local economic development, strategic planning and public private partnerships. RI also trained more than 1,000 people in business, information technology and other skills.

More Lebanese marriages in Cyprus

The Lebanese have been packing for short trips across the water more than ever lately, according to recent figures published by the Cyprus Tourism Organization (CTO). The CTO stated last month that the number of Lebanese arriving to Cyprus increased by 34 percent in 2010 compared to 2009. A total of 20,650 tourists in 2010 came across the water, compared to 15,450 in 2009. Vassilis Theocharides, director of the CTO, stated that a large part of the influx was due to an increasing number of people coming to conduct a civil marriage, which is not possible in Lebanon. “We have noticed a marked increase in incentive trips to Cyprus from the Middle East and India. We also noticed a growing popular trend for ‘marriage tourism’ from Lebanon, where conducting civil marriages in Cyprus is becoming increasingly popular,” he said. The figures also revealed that the average duration of a vacation is 4.2 days, with average spending at $771.75.

Gaza nears 50 percent unemployment

Following Israel’s land, air and sea blockade on the Gaza Strip, unemployment in the besieged area has hit 45.2 percent, according to a United Nations aid agency report released last month. The UN Relief and Works Agency for Palestine Refugees (UNRWA) uncovered that by the second half of 2010 real salaries had decreased 34.5 percent since the blockade began in June 2006. The apparent change in policy by Cairo to partially open the Rafah crossing on the Egypt-Gaza border last month has done little to alleviated the suffering of Gaza’s 1.5 million residents, given that only a pittance of the tens of thousands of Palestinians applying for a permit to enter Egypt have been granted one, and no commercial traffic has been allowed to cross the border in either direction. UNRWA also reported that Gaza’s working-age population grew by 2 percent in the second half of 2010, thus increasing the urgency for job creation. 

Tunisia’s post-revolutionary economic mire

Tunisia’s economic growth rate will hit 1.5 percent in 2011, according to the World Bank’s (WB) “Global Economic Prospects” report released last month. The World Bank’s report indicated that the country’s industrial production dropped by 9 percent during the first quarter of 2011. Moreover, tourist arrivals dropped 45 percent in the first quarter of 2011 compared to the previous year. Making matters worse, Tunisia’s remittance inflows may drop by 2.5 percent during 2011. The report also stated that the interim government took measures to encourage businesses with a $1 billion multi-donor package aimed at helping the economic situation of the country after the revolution. Relatively, however, 1.5 percent growth isn’t bad for a country fresh from a revolution.

Tax-free shopping edges up

Lebanon’s tax-free spending increased 3 percent compared to the same period last year, according to a report on the first five months of 2011 by tax refund service Global Blue. Tax-free spending by United Arab Emirates (UAE) nationals increased 9 percent year-on-year. However, spending by Egyptian and Jordanian visitors dropped 27 percent and 16 percent, respectively, over the covered period. Spending by Saudi Arabian tourists comprised the bulk of the total, constituting one-fifth of all tourist spending, followed by the UAE (12 percent), Kuwait (9 percent) and Syria (8 percent). Of total refunds, 70 percent were in the fashion and clothing sector, while watches accounted for 10 percent and perfume and cosmetics 5 percent. The report also stated that Beirut is still by far the leading city in the country with respect to measurable spending activities, accounting for approximately 85 percent of the total, followed by Metn (11 percent), Keserwan (2 percent) and Baabda (1 percent).

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Banking & Finance

Lebanese capital markets

by Executive Editors
written by Executive Editors

BLOM Stock Index (BSI)

Weighted effective yield of eurobonds

Exchange update

Activity on the Beirut Stock Exchange (BSE) continued its downward trend during the period between May 16 and June 17, 2011, as local and foreign investors remained cautious amid the delay in the formation of a new cabinet. This was aggravated by the adverse political developments in the region. The BLOM Stock Index (BSI), a gauge of Lebanon’s equity activity, hit its lowest level in two years at 1,357 points on June 8, before bouncing back over the next two days in the positive political climate surrounding the formation of a new government. Nevertheless, the trend was reversed on June 13, as investors were skeptical about the nature of the cabinet.

The BSI retreated on a monthly basis by 2.49 percent to reach 1,362 points by June 17, 2011, its year-to-date performance trending downwards at -7.7 percent. Cross trades of Solidere and BLOM listed stocks lifted the daily average volume per month to 306,829 shares, with a value of $3.22 million, compared to 213,320 shares worth $1.19 million during the prior period. On the regional front, the BSI outperformed the MSCI Emerging index, which declined by a monthly 3.25 percent to 1,107, while the S&P Pan Arab Composite LargeMidCap index fell by 2.26 percent to 115 points.

Banking stocks captured the bulk of trades during the aforementioned period, accounting for 54 percent of the total value traded. BLOM’s Global Depositary Receipts (GDR) and common stocks retreated from their previous close on May 13 by 5 percent and 3.4 percent, respectively, to settle at $8.93 and $8.50 on June 17. Byblos’  common stock also lost 4.37 percent, falling to $1.75. As for BEMO Bank, its common stock slid by 0.36 percent to close at $2.76, while its preferred stock 2006 dropped by 8.3 percent to close at $100.

Regarding Bank Audi, its GDR rose 2.4 percent to $7.69, while its common stock remained flat at $7. It is worth highlighting that Bank Audi converted 4,893,576 shares of “Audi Listed” to “Audi GDR” on May 19. With respect to Bank of Beirut, its common and preferred “D” stocks advanced, with the former rising 0.53 percent to $19.1 and the latter adding 4.27 percent to $26.38. Also of note, on May 23 BLC Bank listed 133,333 additional new shares on the BSE.

The performance of the real estate stock, Solidere, was strongly affected by the unstable local and regional political situation. As a result, Solidere A and B stocks lost 5.6 percent and 5 percent, respectively, from their previous close on May 13 to settle at $17.80 and $17.70.

Manufacturing stocks, on the other hand, closed on a positive note, as Holcim, Ciment Blancs “B” and Ciment Blancs “N” advanced 0.86 percent, 1.66 percent and 34.78 percent, respectively, to $17.6, $3.07 and $1.55.

Bond bulletin

With respect to debt instruments, the Lebanese Eurobond market maintained its uptrend between May 16 and June 17, 2011, as investor confidence in the Lebanese fixed-income market increased following the successful rollover of $1 billion worth of bonds in May 2011. Demand was mainly observed on the medium and long-term bonds, pushing the BLOM Bond Index (BBI) up 0.38 percent to 109.84 points. Consequently, the weighted yield on holding Eurobonds fell by 30 basis points (bps) to 5.20 percent, and the spread against the United States benchmark yield widened by 20bps to 389bps. Lebanon’s five-year credit default swap was trading between 328bps and 353bps on June 17, 2011, compared to Dubai’s 325bps to 345bps and Saudi Arabia’s 103bps to 107bps.

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Banking & Finance

Tamer Rashad

by Executive Editors
written by Executive Editors

The very wealthy are generally understood to be natural stakeholders in luxury. With Capgemini and Merrill Lynch presenting their 15th World Wealth Report last month, Executive sat down with Tamer Rashad, head of Middle East at Merrill Lynch Wealth Management, to inquire about the luxury and ‘passion’ investments of high net worth individuals (HNWIs).

  • The World Wealth Report analyzes buying and investments related to luxury as a specific area covered separately from financial investments. What distinguishes the Middle East from other world regions in these investments of passion?

Let me start by defining and describing what’s included in investments of passion. We have luxury collectibles, like automobiles, boats, jets, etcetera. We have art across different categories. We have jewelry, gems and watches, as well as other collectibles, such as coins, wine, antiques, etc. Then there is sports investment, which is basically investing in sports teams, sailing, racehorses, etcetera. There are other investments which we fit under miscellaneous [passion investments].

  • As it analyzes the relative allocations of funds to these categories, what does the 2011 report say about the preferences of regional HNWIs?

If you look at how high net worth individuals around the world invest in these categories, you’ll find that luxury collectibles [account for] about 29 percent globally. In the Middle East, it’s the same (29 percent). Art at a global level is 22 percent, while Middle Eastern investors put in only 17 percent; very similar to North America, which is 18 percent, while investment in art in Latin America, with 28 percent, is significantly higher.

If you look specifically at jewelry, watches and gems, the Middle East seems to invest the most across the whole world in these assets, with 29 percent. The global average is about 22 percent. Europe has the lowest, 17 percent. And in terms of other collectibles — coins, wine, antiques and so forth — you will find that the Middle East is the lowest region, at only 8 percent; in Japan it’s 18 percent and North America 16 percent. The other key factor is when it comes to sports investment. The Middle East has the highest percentage, with 13 percent relative to the global average of 8 percent.

  • Last year’s report said that “other collectibles were favored by HNWIs in the Middle East, second only to art, because of their potential to return financial gain.” Did you observe that Middle Eastern collectors differ from other HNWIs in having a higher attention to the value-storage and resale potential of the collectibles?

Well, I think that individuals invested in investments of passion are seeking return, but they are also investing in things that they personally care about. But there is also a cultural influence in this. For example, you find with sports investment, the highest in the world is in the Middle East, while wine investment in the Middle East is the lowest in the world, for obvious reasons.

  • Do you see a level of correlation between the number of high net worth individuals and their increases in wealth and the luxury market?

Absolutely. The report is important for people who operate in wealth management but also for anyone in a sector or industry that serves high net worth individuals or ultra high net worth individuals.

  • Is advising on investment in luxury pretty much the same game as advising on financial investment?

It varies from one client to another but we look at the overall financial situation of the individual. There is wealth preservation, wealth creation, wealth transformation from generation to generation, and that’s all in consideration of investment for passion as a component of the bigger picture and the overall asset allocation.

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Banking & Finance

For your information

by Executive Editors
written by Executive Editors

Capital inflows to MENA to slump

Net capital inflows to the Middle East and North Africa (MENA) region are forecast to drop 28 percent in 2011, from $80.6 billion in 2010 to $60.3 billion, according to an Institute of International Finance (IIF) report entitled “Capital Flows to Emerging Market Economies” issued earlier last month. Meanwhile, net capital outflows from the region are expected to rise to $221.5 billion for 2011 against the backdrop of political turmoil, a 74.55 percent increase from $126.9 billion in outflows a year earlier. The report said foreign direct investment (FDI) in the MENA region would rise by $8.2 billion this year, which would compensate for portfolio investment losses and the drop in inflows from banks and private creditors. While account surpluses have more than doubled for the United Arab Emirates and Saudi Arabia, buoyed by increases in oil prices, the report highlighted that some countries have suffered from large capital outflows and account deterioration, namely Egypt. Estimates for the country’s total outflows reached $16 billion, largely due to a slump in tourism activity, an $8 billion drop in reserves and a sharp fall in FDI. For Lebanon, the IIF projected the current account deficit to widen from 15.9 percent of gross domestic product in 2010 to 17.7 percent for 2011, and net private capital inflows to decline by 49.35 percent in 2011 to $3.9 billion, compared to $7.7 billion a year earlier, due to the country’s political situation.

BDL regulates money dealers

In an effort to deter money laundering and terrorism financing, Banque du Liban (BDL), Lebanon’s central bank, issued a set of circulars to regulate the operations of money dealers in the country. The directive includes mandatory training courses on anti- money laundering and terrorism financing for all persons involved in the direct or indirect management of money dealer institutions. The circular also prohibits them from opening accounts at any bank at which their partners, owners, shareholders, managers and members of the board of directors hold personal accounts and from depositing cash directly into their clients’ accounts or accepting to represent third parties. It also requires that money dealers notify the Banking Control Commission (BCC) of any bank with which they work. The circular also stipulates that money dealers appoint a compliance officer and exchange bureaus an internal auditor to make sure their operations are aligned with the regulations of BDL, BCC, and Lebanese central bank’s Special Investigation Commission (SIC). One of the circulars sets a minimum capital of 5 billion Lebanese lira [$3,333,333] for money dealing institutions, adding that the latter’s accounting transactions must segregate shipment of cash and precious metals from those of other operations. Per the new regulations, money exchange institutions and banks that ship bank notes or precious metals between Lebanon and abroad must notify the BCC and BDL’s Directorate of the Financial Markets of the detailed number and volume of such shipments through monthly financial statements. And lastly, money dealers will be required to send monthly, quarterly, semi-annual and annual financial statements to the BCC and BDL’s Directorate of Financial Markets.

Cost of sending remittances to Lebanon drops

According to figures released by the World Bank, the cost of sending remittances to Lebanon dropped in the first quarter of 2011. A $200 transfer from the United States to Lebanon costs $25.10 in nominal terms, almost 12.6 percent of the total amount, a decline from 13.2 percent for the same period the year before. Likewise, the cost of sending $500 amounts to $27.70, 5.53 percent of the transfer and a decrease from 5.74 percent for the first quarter of 2010. The survey was conducted on 24 countries, among which 11 were in South and Central America, seven in East and Southeast Asia, three in the Caribbean and two in Africa. Lebanon ranked as the most expensive destination for $200, and sixth for $500 US transfers. Including a transaction fee and an exchange rate margin, the cost represents the average charges for transferring money through commercial banks and money transfer operators, which amounted to 17.2 percent and 6.2 percent for the first three months of 2011. On a side note, the World Bank also revised 2010 expatriates’ remittance inflows to Lebanon upwards to $8.4 billion, compared to an $8.2 billion forecast in November 2010.

Lebanon’s NACB bank freezes Libyan assets

In compliance with United Nations Security Council resolutions 1970 and 1973, Lebanon’s North African Commercial Bank (NACB) froze an undisclosed amount of assets belonging to the Libyan regime in June. Both resolutions mandate that member states freeze any economic or financial resources owned or controlled by the Libyan regime, whether directly or indirectly. A spokesman for NACB, which is 99.54 percent owned by the Tripoli-based Libyan Foreign Bank and formerly known as The Arab Libyan Tunisian Bank, dismissed news reports that the bank had ceased its commercial activities since February 2011.  Further tightening the financial sanctions on the Libyan government, the United States Department of the Treasury (DoT) released a statement on June 21 blacklisting and prohibiting U.S. transactions with nine companies controlled or owned by Muammar Qadhafi’s regime, including NACB, the Arab Turkish Bank and Tunisia-based North African International Bank. The DoT exempted other financial institutions based in foreign countries and overseen by the Libyan government from these sanctions, provided their operations do not benefit the Qadhafi regime, or any Libyan entities and individuals who have previously had their assets frozen.

And the rich get richer

The worth and number of global high net worth individuals (HNWI) have surpassed 2008 pre-crisis levels, growing by 8.3 and 9.7 percent in 2010 respectively, according to Merrill Lynch and Capgemini’s 2011 “World Wealth report”. The number of HNWIs in the Middle East reached 40,0000 in 2010, an annual increase of 10.4 percent, while the region’s wealth was estimated at $1.7 trillion, up by 12.5 percent from a year earlier. At 32 percent, fixed-income assets made up the bulk of total financial assets held by Middle Eastern HNWIs, followed by equities at 28 percent, real estate at 18 percent, cash and deposits at 16 percent and alternative investments at 6 percent.  The report also shed light on ‘passion’ investments — such as art, luxury collectibles, jewelry, jems and watches. The majority of Middle Eastern HNWIs biggest ‘passion’ appears to be luxury collectibles, which stood at 29 percent of their total investments of passion in 2010; their allocation to jewelry, gems and watches was reduced from 35 percent in 2009 to 29 percent in 2010. Meanwhile, art and sports investments took away 17 percent and 13 percent of Middle Eastern HNWI wealth dedicated to passion in 2010, respectively.

On a local level, the report said the key drivers of HNWI wealth in Lebanon for 2010 included a real gross domestic product growth of 7.2 percent, an increase in real private and government consumption, a continuous rise in property prices, large capital inflows, rapid de-dollarization and containment of inflation at around 4.5 percent. The main inhibitor to growth in Lebanese wealth in 2010, according to the report, was the country’s fiscal policy as its government debt, which stood at 148 percent of gross domestic product by end of 2009, was still among the highest in the world. The report showed that globally, HNWIs’ greatest concern was the impact of the economy while some 69 percent of HNWIs were concerned that future generations would not adequately manage their inheritance.

BDL foreign reserves see slight dip

In its May 2011 balance sheet, Banque du Liban (BDL), Lebanon’s central bank, recorded a 0.74 percent decline in its foreign currency reserves for the second half of the month, a depreciation of $224.15 million to $29.95 billion, down from $30.18 billion for the first two weeks of May 2011. This would be the first time BDL’s foreign reserves slip below the $30 billion mark since March 2010, a decrease mainly attributed to weakened investor sentiment in Lebanon amid political instability in the country and the neighboring region. Meanwhile, BDL’s gold reserves appreciated by a bi-weekly total of 1.61 percent to $14.18 billion for the second half of May 2011, following the surge in prices of precious metals.

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Editorial

Of puppets and cardsharks

by Yasser Akkaoui
written by Yasser Akkaoui

The indictment is here. Just 18 days after a government formed seemingly overnight, the day has come with timing that can only be described as… convenient. Not only has this government formed itself and sat for nice photos, it suddenly has a policy statement as well — the largest hurdle between it and legitimacy. Excellent timing indeed.

When it was first announced that a new government had been formed, there was a collective sigh of relief. And now more than two weeks later, only the village idiot cannot see what is happening. Do we know what this government means?

The Lebanese people are so busy with the trials of daily life, perhaps they haven’t the time to take stock of the forces gathering around us. The myriad items of basic domestic governance that the months without a government have left undone is so immense that the tonnage of requests for bare necessities and pending paperwork could match that of the Saida dump. But, by focusing on these not unimportant but secondary problems, we are ignoring the lasting meaning of this government.

There is one country designing our present circumstances and it is not Lebanon. Yet again we find ourselves a card in the hand of another player when we should be a player in our own right.

 This month Executive lays down a challenge for our new leaders and it is not grandiose or idealistic. We ask for the fundamentals. The request is so basic that to ask for it encroaches on our dignity but still, we have to ask because our politicians in recent, or not so recent, history do not deem it their job to put us on equal footing with the rest of the world.

This new government and the easterly winds which fill its sails will ensure that foreign direct investment dries up — they will send the risk of investing in Lebanon so high that anyone considering it will run, not walk, in the other direction.

So, if we are to be left in the dark as to our future, our prosperity and even our safety, the least you could do is turn on the goddamn lights.

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Comment

Rerouting Pakistan away from America

by Gareth Smith
written by Gareth Smith

In using a press conference last month to suggest that Iran had information the United States wanted to destroy Pakistan’s nuclear program, Iranian president Mahmoud Ahmadinejad stirred a pot of complex geopolitics.

Ahmadinejad enjoys playing to the public gallery, in this case Pakistan, where popular feeling that Washington has a cavalier approach to the country’s sovereignty was heightened by the US killing Osama bin Laden near Abbottabad in May. What may have been more on the Iranian president’s mind was criticism in Pakistan of its government stalling, under US pressure, over a pipeline for natural gas from Iran’s South Pars field. Pakistan badly needs the gas to end power cuts and keep its industries running.

“It sounds unbelievable that any government can afford to neglect such an important project or take it so casually,” wrote Shamim Rizvi last month in Islamabad magazine, The Voice. The ‘peace pipeline’ was first mooted in the 1990s with the original proposal including both Pakistan and India. While India froze participation, ostensibly over pricing, but more so to placate Washington’s drive to isolate Tehran, Pakistan in 2009 signed on the dotted line. Iran committed to supplying 7.7 billion cubic meters of gas annually for 25 years beginning in 2014 — a huge contribution to Pakistan’s energy needs.

Pakistan has failed to clarify when it will build its part of the pipeline. Iran has said its leg has reached just 80 kilometers from the border.

Rolling power blackouts are rife in Pakistan. In Baluchistan province, which borders Iran, electricity outages reach 10 hours per day in Quetta, the provincial capital, and up to 20 hours in rural areas often dependent on irrigation run on electricity. Coastal areas — including Gwadar, where China is building a large naval base — receive Iranian electricity, and there are discussions on expanding the supply. Last month a joint Iran-Pakistan power company announced a $100 million project for wind turbines in Pakistan’s Sindh province.

Bilateral trade has reached $1 billion annually, and Iran is part-funding health centers and a large halal slaughterhouse in Lahore. Aside from energy and promises to buy more Pakistani rice, meat and fruit, Iran is offering a road link to help Pakistan export to Turkey and central Asia. The five central Asian republics — Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan — are rich in natural resources, home to 62 million people and have a combined gross domestic product of more than $200 billion. Yet Pakistani exporters are trying to reach them through costly air freight or by road through the chaos of Afghanistan.

With the US winding down in Afghanistan, its regional role is waning as that of China grows. Nawaz Sharif, Pakistan’s main opposition leader, said last month that people were “fed up” with power cuts and demanded Chinese companies be rushed in to develop hydro-electric dams. Beijing has already invested heavily in Iran’s energy sector.

Iran has often tiptoed around Pakistan-India relations, but tilted to Islamabad in November when Ayatollah Ali Khamenei, the supreme leader, provoked a demarche from New Delhi after remarks calling for Hajj pilgrims to support the “struggle” in Kashmir, where Pakistan-backed militants contest Indian rule. Tehran had been riled by US President Barack Obama’s visit to India the previous month and his apparent support for India having a permanent seat on the UN security council.

But Iran has no desire to jeopardize relations with India, and the two sides are seeking a route for payments for Iranian oil after the European Union in May blocked payments through Germany, a channel devised after India’s Central Bank, again under US pressure, ruled out using the Asian Clearing Union. India in 2010 imported 17 percent of Iran’s oil exports for around $12 billion, and suspension of this trade would upset both sides. India is also building roads in Iran and Afghanistan to create a trade link from Chabahar port, in Iran’s Sistan-Baluchestan province, into Afghanistan and central Asia.

Slowly but surely these economic ties are strengthening, whether the US likes it or not. Washington’s disapproval provides fertile ground for Ahmadinejad and others to argue the Great Satan simply wants to block development of the countries it mistrusts.

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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Hollow hat trick for Erdogan

by Peter Grimsditch
written by Peter Grimsditch

With three consecutive victories at the ballot box — a first in Turkish political history — Prime Minister Recep Tayyip Erdogan ought to be laughing all the way to his mega-mentions in future history books. In reality, he is beset with problems on all sides, both political and economic. 

On the domestic front, he had hoped to win a big enough majority to push a new constitution through parliament without the need to consult the opposition. Though his Justice and Development Party (AKP) won five million more votes than it did three years ago, its number of deputies shrank slightly to 326 out of 550.

Due to this quirk of the proportional system, Erdogan finds himself bereft of the two-thirds majority in parliament and therefore needs to consult the opposition parties to reach a consensus on rewriting the constitution last ratified in 1982. Many reforms have been introduced as a result of Turkey’s application to join the European Union but key and divisive issues, such as ethnic discrimination and completing the process of subjecting the military to total political control, will probably delay the vaunted but unconfirmed AKP plan to introduce a presidential-style political system. Removing Kurdish grievances such as making Turkish the official, not the only, recognized language and further empowering local government are more pressing issues.

Fears that he intends to install a radical Islamist form of governance are absurd. Critics tend to exaggerate the significance of his opposition to tobacco, alcohol and the ban on wearing a veil in certain places. The occasional Churchillian-sized cigar and a post-prandial glass of cognac would instantly dissolve such notions (as well as much of his electoral support).

On the international stage, he needs to repair Turkey’s longstanding close relations with Israel without losing credibility in the Arab world. Despite the loud condemnation of Israel’s tyrannical behavior toward the Palestinians and its slaughter of nine Turkish members of the Gaza aid flotilla in May 2010, commercial relations between the two countries continue to flourish.

The Turkish flotilla organizers have decided to pull out of this year’s aid effort. All that is needed now is an agreement between the two countries on a form of words that Turkey can prove to be an apology from Israel, but one that Benjamin Netanyahu’s government can claim admits no legal responsibility. That should test the versatility of their advisers and lawyers, but it can reasonably be expected to happen this year

The other big issue in the region lies just across the border.  It’s not easy living next door to Syria. Ankara’s “no problems with the neighbors” foreign policy becomes untenable when the people next door are too preoccupied with killing their own citizens to listen. Erdogan’s accusation of “savagery” is sincere but Turkey, like Israel, feels stability is better served if President Bashar al-Assad survives. Despite Erdogan’s best efforts to convince Assad of the need to reform, success seems unlikely. Hence a meeting of what passes for the Syrian “opposition” was allowed on Turkish soil.

Relations with Cyprus, Armenia and Greece will also occupy Erdogan’s time, but even more important will be preventing dents in the economic “miracle” the AKP has wrought over the past nine years.

Lending is out of control in Turkey. Loan growth has risen 40 percent in recent months and consumers have enthusiastically spent much of the newfound money on imported goods. This pushed up the trade deficit to 17 percent of gross domestic product. In short, Turkey is headed for a “correction” at best and a temporary recession at worst.

The remedies are simple if not particularly pleasant — raise taxes to curb spending, raise interest rates to make borrowing less attractive and raise bank reserve ratios to bring down the amount of money they have to lend.

These measures would not have been vote winners if enacted before the elections on June 12. Now there is little doubt some or all of them will be enacted. Erdogan has another four years for any grumbling to subside before he wipes the floor with the opposition for a fourth time.

Peter Grimsditch is EXECUTIVE’s Istanbul correspondent

 

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Society

Jewelry – More than meets the eye

by Lauren Williams
written by Lauren Williams

It may have just been a convergence of circumstances, but Tiffany’s opening of both their Beirut boutique and their regional headquarters in Dubai within the same week was a pretty forthright statement of optimism in response to anyone doubting the regional market for luxury goods.

“It had been planned for several years and all of a sudden the circumstances aligned,” said a pleased Laurent Cathala, Tiffany’s vice president of emerging markets, at the boutique’s opening in downtown Beirut last month. Although present in the region for 15 years, the first boutique brings Tiffany’s signature diamond setting — the celebrated six-prong “Tiffany Setting” — to Beirut for the first time. Cathala said the appetite and spending power exists, and added that the company is enjoying double-digit growth across the region.

Tiffany’s new collection of vintage-inspired locks are a highly successful complement to the brand’s signature key collection and have already proved a hit in Lebanon, as have the iconic “atlas designs”, based on the Atlas clock that graces the entrance of Tiffany’s flagship Fifth Avenue store in New York. Their success has been aided, said Cathala, by the company’s penchant for history, a strong narrative and personality in jewelry.

Indeed, talk to any jeweller in Lebanon and they will say the same. Set against a backdrop of recovery from a financial crisis that dealt the global luxury sector a harsh blow, and high gold and gem prices that are almost double those of last year, savvy jewellers are looking to promote the value of jewelry by nurturing its deeper meaning.

Collaborations and one-off designs, alternative materials —stones, woods or old gems with a history — heritage references or pieces conveying a story create the preciousness associated with real luxury. The value is in the art.

A stalwart in Lebanon’s jewelry trade, designer Selim Mouzannar’s ‘Beirut’ collection has been one of his most successful lines to date, both in Lebanon and with international clients in London, Paris and Dubai.

Incorporating the distinct architectural elements of the city, with a hint of both melancholy and playfulness, the collection is a personal favorite for the 46-year-old designer.

“When I chose the name Beirut it was just out of personal affection, but in retrospect I realize part of the reason it worked was because the name attracted as much attention as the jewelry. Especially internationally, Beirut has a complex history and mystery that is attractive to people,” he explained. “People like to have a story behind a piece. [They] want jewelry that is not just a symbol of wealth or power — they want something they can fuse with, that they feel comfortable in, that helps inform their identity.”

Likewise, his recent collaboration with Lebanese interior designer and architect Nada Debs, which saw the designer’s organic, minimalist philosophy applied to finely crafted “leaf” bracelets and rings, gave fans of both designers reason for excitement.

“Collaborations put many energies together,” says Mouzannar. “It makes sense when you are in a bubble to expand your horizons.”

Architect Christian Nasr recently turned his attention to jewelry, applying his carefully honed architectural principles to new materials. His first line is geometric and minimalist, in yellow gold and onyx. Using his architectural approach, he says scale is examined with a sensibility that leads to “spatial volumetric forms.” His use of onyx, he said, was built on the recognition that people are looking for “stones with a story.”

Diamond dreaming

For Pascal Mouawad, owner and artistic director of the eponymous iconic Lebanese brand (whose creations have been the choice adornment for the likes of Angelina Jolie, Heidi Klum and Jennifer Lopez), success has partly been in creating personalized, custom-made pieces that have helped shape his clients’ identities.

“We’re known for our ability to cater to specialized requests, and to oversee every aspect of the design and manufacture,” said Mouawad. “We’re fortunate to be a house that caters to a very niche clientele and many of our clients ask us to design pieces on a custom-made basis.”

The Middle East, and particularly the Gulf market, makes up the majority of Mouawad’s sales, with Lebanon representing a small but important market. The demand for gems in the region is increasing. “When the global financial crisis emerged, the luxury sector got hit hard and [the] jewelry market [was] affected the most,” said Mouawad. “In the last two years, demand has increased and now we are seeing a recovery… There is more consumer confidence, and demand for gems and jewelry is on the rise.”

While American and Asian markets are driven by a demand for classic tastes, he says local customers are looking for more ornate pieces that are bold or have an edgy, ‘fashion forward’ feel. And as if to illustrate the demand for luxury, the jeweler, who took the reigns of the family business last year, launched in February the world’s most expensive handbag. The “ridiculously extravagant” 1001 Nights Diamond Purse, handcrafted from 18 carat gold and encrusted with 4,517 diamonds, earned a place in the Guinness World Records with a price tag of  $3.8million. 

Co-owner of Tufenkjian jewelry, Gerard Tufenkjian, says his biggest markets are in the Gulf, where sales are still driven by jewelry investments and diamond sales haven’t slowed. At the high-end especially, high diamond prices have little effect on sales. “If you are going to spend $10,000 on an item, then you are probably also happy to spend $15,000,” Tufenkjiansaid. For these clients, that “something special” lies squarely in the price tag, but others say luxury is a personal experience.

Tiffany’s Cathala says his brand success lies in the fact that Tiffany’s is a “democratic luxury jeweller…We have something for any budget, for any occasion.”

 

 

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Syrians’ flight from harm

by Nadim Houry
written by Nadim Houry

 

We are on a mountain path, crossing from Turkey into northeastern Syria to meet some of the displaced camping near the border fence. The hike over the mountain is beautiful, with pine trees and a shimmering lake in the valley below, but the destination is far from serene. Around 10,000women, men and children have gathered on the Syrian side of the border within a stone’s throw of the fence, while more than 10,000 have already crossed into Turkey and are residing in well-cared-for but off-limits camps.

Syria has made it near impossible to reach people affected by the fierce crackdown, so refugees who flee to neighboring countries or areas not under the control of the Syrian security forces are the only witnesses to human rights violations we can meet with face-to-face. The residents of the makeshift camp are mostly from Jisr Al Shughur and other towns in the northern governorate of Idlib, the majority of whom have escaped since the Syrian army began military operations against their towns on June 10. Syrian officials have justified the attacks as a response to “armed gangs” and “terrorists” who have killed security forces. I am hoping the refugees can shed some light on the events.

We reach the camp shortly after President Bashar al-Assad has concluded his third public speech since protests erupted in mid-March. “Come back, the army will protect you,” he tells those who left for the border area and Turkey. But to the refugees huddled around the television, these words ring hollow. “He wants me to go back so they can kill me like they killed my brother,” a soft-spoken man in his mid-20s tells me. “I will only go back when Syria is free.”

Most of the camp residents have suffered at the hands of Syria’s security forces. Many have a brother or a cousin who was killed or detained in the past few weeks. In one tragic example, Bilal al-Masri tells me that security forces killed his father during the early 1980s and his brother three weeks ago. “Killed by the father [Hafez] and the son [Bashar],” he says. “I hope it stops here.” Others were injured and escaped for fear that the security forces would harm them if they remained in Syrian hospitals.

Syrians who were active in organizing protests or in filming them are afraid that the security forces will reserve for them the same fate two of their friends met. Anas Katrun and Bashir Abdo were detained on June 10 as they went to film the army’s entrance into the towns. They disappeared, only to appear on Syrian state television on June 19 looking haggard and confessing to being “terrorists.” Abdo’s brother, who is in the camp, can still barely talk about his brother without his voice quivering.

The testimonies we collected from those at the border confirm some of the worrying patterns we documented in other parts of Syria, particularly Daraa, near the southern border with Jordan. Here, as there, security forces have shot at and killed unarmed protesters, arbitrarily detained and tortured people — dozens are still missing — and restricted medical care to many of the wounded. One particularly bloody Friday occurred on May 20 when security forces shot at large protests in the Idlib cities of Maaret Al Numan and Mastoumi, killing at least 40 people and injuring hundreds more — a dozen of whom are in Turkey now.

But the testimonies also show that the Syrian regime’s repression is at the same time self-defeating and has the potential to lead Syria into a bloody conflict. On May 13, protesters in Jisr Al Shughur torched the town’s Baath party building and someone wrote graffiti, saying, “We burned the building because we are tired of all the lies.” The person was referring to the government claim that “armed gangs” and not security forces were responsible for many of the killings. On June 4, after security forces shot at protesters during a peaceful funeral procession in Jisr Al Shughur, young men from the town, as well as some defected soldiers, attacked the security forces, killing security personnel and sustaining heavy losses themselves.

More than 100 days into Syria’s protests, it is increasingly clear that the savage and senseless violence of Syria’s security forces is fueling the protest movement. While a vast majority of protesters remain committed to peaceful means, some of those interviewed say they are getting tired of being shot at like ducks in a pond and may start adopting more violent means of opposition. Unfortunately, the Syrian government is still not hearing the message. Two days after I left the makeshift border camp, Syrian tanks closed in on it, driving the majority of its temporary inhabitants into Turkey.

NADIM HOURY is director of the

Beirut office of Human Rights Watch

 

 

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