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by Executive Editors May 28, 2011

written by Executive Editors

ABL adjusts benchmark lending rates

The Association of Banks in Lebanon (ABL) has recommended an adjustment of local and foreign currency benchmark lending rates to its member banks. In a circular dated April 12, ABL urged Lebanese banks to lower the Beirut Reference Rate (BRR) on lending in Lebanese lira (LL) from 7.27 percent to 7.21 percent. At the same time, it recommended raising the BRR on US dollar (USD) lending to 4.79 percent from 4.72 percent. The BRR on USD lending replaced the London Interbank Offered rate (LIBOR) as the national reference rate for lending in foreign currency in 2009, after the ABL had judged the LIBOR to no longer reflect the cost of funding and lending in Lebanon. The new benchmarks were adopted on both USD and LL lending in March and May 2009, respectively. Both BRRs constitute the basis to calculate the Beirut Prime Lending rate. ABL’s latest recommendations are part of efforts by Banque du Liban, Lebanon’s central bank, and the association to stimulate lending in local currency. The proposed adjustments will be effective as of May 2011.

El Zein group acquires controlling stake in MedGulf

Lutfi El Zein (LFZ) Holding, the investment vehicle owned by the insurance sector personality of the same name, has acquired a 51 percent stake in Mediterranean and Gulf Insurance and Reinsurance Group (MedGulf Group) in a transaction valued at $400 million. El Zein, long-time chairman and chief executive officer of MedGulf Group and previous holder of a minor shareholding in the group, purchased the stake from Saudi Oger, the conglomerate owned by the family of Lebanese caretaker Prime Minister Saad Hariri. The acquisition is the largest leveraged buy-out (LBO) in the Middle East since 2007 and the largest ever insurance LBO in the Middle East and North Africa region. A consortium of 16 banks arranged the deal, which includes a $175 million syndicated loan facility, part of a multi-tranche financing package. Lead arranger on the acquisition was Bank Audi; Deutsche Bank was the book runner. MedGulf Group, which is Lebanon based, is stakeholder in MedGulf Bahrain, which in turn owns 32 percent of MedGulf Saudi, a listed company.

Moody’s raises DP World debt to investment grade

Moody’s ratings agency raised the credit ratings of DP World, a leading global port operator and subsidiary of Dubai World, to investment grade with a stable outlook, citing the company’s rapid recovery in terms of operating performance in 2010 and into 2011. The upgrade to Ba1 from Baa3 includes DP World’s long-term foreign and domestic currency ratings, and the rating on its $1.5 billion Sukuk Islamic bond, due in 2017, with a total of $3.25 billion in debt affected. The positive rating action follows DP World’s late March announcement of 35 percent increase in 2010 net profits to $450 million, buoyed largely by strong volume growth in the second half of the year. According to Moody’s, the ratings are sustained by the company’s diversified global operations, expected growth in container traffic, as well as solid profitability and a strong liquidity profile.

Auction for Syria’s third mobile license postponed

Syria has suspended plans to auction off the country’s third mobile license due to political tensions and changes in its government. Scheduled for April 17, the license auction could not proceed due to a change in the supervisory committee overseeing the auction after Syrian President Bashar al-Assad replaced his prime minister and cabinet and promised to introduce new electoral and media laws in response to popular revolts. By the time of the auction’s suspension, the number of bidders had already shrunk from five to two companies. In March, the United Arab Emirates’ mobile giant Etisalat pulled out of the bidding, stating disappointment with the stipulated 25 percent revenue share allocation to the Syrian government. Etisalat’s bid was estimated at $122 million. Also citing Syria’s revenue terms, potential bidders France Telecom and Turkcell quickly followed suit and dropped out. By early April, Qatar Telecom Company (Qtel) and Saudi Telecom Company (STC) were the only bidders left. At the time, both companies reconfirmed their bidding commitments. Following postponement of the auction, Qtel said it was still firmly interested in pursuing the license despite the delay.

Plastic payment

on the rise in LebanonFigures released by Banque du Liban (BDL), Lebanon’s central bank, for February 2011 show that payment cards are still gaining favor with Lebanese consumers. According to BDL, the number of payment cards in the country reached 1.69 million in February 2011, up by 7.3 percent from the same time last year. Of all plastic payment methods, credit cards experienced the highest year-on-year increase in February of 15.4 percent, now totaling 395,000, or around 23 percent of all issued cards. Prepaid and charge cards were up 9 percent from the year before, amounting to 10 percent of all payment cards. Debit cards still held 66 percent of the market — with 1.12 million in all — though they recorded just a 4.5 percent increase year-on-year. Point of sale purchases in February jumped 24 percent year-on-year.

Kafalat guarantees fall

Guarantees issued under the Lebanese Kafalat loan guarantee program dropped 23.21 percent year-on-year in first quarter of 2011. However, the average value per guarantee rose to $139,200, up 17.76 percent from an average of $118,200 a year earlier. The face value of guarantees issued in the first quarter of 2011 reached $41.9 million. Allocation of loans by sector saw the industrial sector in the lead with 39.87 percent of total guarantees. Loans to the agricultural sector, comprising 37.21 percent of total guarantees, took the biggest hit as they declined 41.97 percent from a year earlier. In contrast, tourism sector guarantees increased by a yearly 38.10 percent since end-March 2010, accounting for 19.27 percent of total guarantees. Geographic distribution of loans at the end of the first quarter showed that companies in Beirut and Mount Lebanon accounted for 50.5 percent of Kafalat loans. The Kafalat scheme has been noted internationally for its quality, including praise as best performing credit guarantee scheme in the Middle East and North Africa in a March 2011 report by the World Bank.

Lebanon’s life premiums up 15 percent in 2010

Total life insurance premiums in Lebanon increased 14.8 percent to $356.7 million in 2010, according to the annual insurance sector survey by Al Bayan magazine. The report said the 2010 growth was double the 7 percent increase achieved the previous year, adding that life insurance penetration in Lebanon stood at 0.9 percent of gross domestic product for 2010, at an insurance density of $89.2 per capita. Firms reporting higher life premiums vastly outnumbered losers as 27 out of 33 life providers posted gains, led by two firms claiming triple-digit gains. Market share concentration by Lebanon’s top five life insurers dropped by about five percentage points year-on-year to 59 percent in 2010, representing an aggregate value of life premiums of $210.3 million. Metlife ALICO ranked first in life premiums volume with $70.7 million, or 19 percent market share. The other companies in the top five for 2010 were Allianz SNA, Bancassurance, Arope and LIA with life premiums of $40.8 million, $37.5 million, $36.5 million and $24.8 million, respectively. Arabia Insurance reported the biggest growth, an 829 percent leap that propelled it from 15th to 7th place in one year. MedGulf saw the sharpest decline among the country’s top 10 insurers; its life premiums dropped 14.4 percent in 2010.

UAE IPOs rising, but slowly

In signs of life for Gulf Cooperation Council primary markets, three companies in April announced plans to sell shares through Initial Public Offerings (IPOs) in 2011. Between May 1 and May 11, United Arab Emirates’ Eshraq Properties will be offering 55 percent of the company in an IPO worth $220 million, the first IPO on a UAE exchange by a real estate developer since Dubai’s Deyaar in 2007. Funds raised are expected to finance Eshraq’s developments, including the $2 billion Marina Rise on Al Reem Island. After a dry spell of no public offerings in more than two years in the UAE, the Eshraq flotation will be the Abu Dhabi Exchange’s third IPO in 2011, following two insurance-related offerings in February and April. While financial observers judge the return of primary markets positively, international firms have warned recently that political risk could deter investors. In the two other new IPO announcements, Saudi Integrated Telecommunication Company (ITC) received approval from the country’s Capital Market Authority to offer 35 percent of its shares between May 2 and 8 in a bid to raise $93 million. In Oman, electricity producer SMN Power Holding said it is planning a 35 percent offering on the Muscat Securities Market in 2011; further details on the offering’s size and timing were not available.

May 28, 2011 0 comments

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Iraq emerging

by Riad Al-Khouri May 28, 2011

written by Riad Al-Khouri

Eight years after the American-led invasion of Iraq, the country’s business climate seems to finally be showing some substantive improvements. Granted, the essential quality for the country to re-emerge as a target for investors is physical safety and stability, and on that score the numbers at first sight don’t appear encouraging; the level of violence in Iraq in March more than doubled compared with February. According to statistics from official Iraqi sources, in March, 136 civilians and 111 Iraqi police and soldiers died in attacks across the country; in Baghdad alone, 79 civilians and 31 security personnel were killed: more than twice the previous month’s total. The current level of violence is, however, still far below what Iraq saw during the sectarian warfare peak of 2006-2007; and a suggestion as to why the violence grew recently is that relaxed security forces, over-confident that the situation is calm, are making their searches less vigilant. Hopefully, neither this nonchalance nor the violence will become a trend.

Despite the security slips in Iraq of late, in recent months there have been rising numbers of international organizations and foreign businesses heading for the country’s capital to set up shop. Among the former is the United Nations Development Program for Iraq — previously based in Amman — which is due to begin relocation to Baghdad this month. And the lifting of a travel ban to Iraq on officials of the Paris-based Organization of Economic Co-operation and Development (OECD) is a further indication of a potential ‘Baghdad Spring.’ In the private sector, interest in Iraq on the part of big multinational banks is also growing: at an OECD workshop on Iraqi infrastructure development, held in Jordan in March, the Hong Kong and Shanghai Banking Corporation (HSBC) Group, Citibank and J.P. Morgan showed a keen interest in doing more business in Iraq. HSBC is already in the country through a majority holding in a local bank, and Citi has also been focusing more on Baghdad in the past few months.

Whatever political contortions and security issues may arise in Iraq, more business is certainly coming to the country. For example, the OECD event looked at vast projects to be undertaken, including an Iraqi Ministry of Agriculture plan to set up market complexes for the storage and distribution of farm produce. The recent announcement of an Islamic Development Bank grant for a feasibility study indicates that the project is under serious consideration.

Agriculture in particular could be the country’s new center of business attention (after the always-present focus on oil). Recovery in Iraq generally has not been matched by a revival of agriculture, once a mainstay of the country’s rural economy. Government wholesaling through the country’s creaky public distribution system is now increasingly recognized as problematic and technology, human capital and machinery in the sector lag behind as well. The scope for Iraq’s food production is enormous, and a focus on this kind of business would provide attractive solutions to internal migration, among other key issues plaguing the country.

Though a full recovery is not going to happen automatically or overnight, indications are now positive for the first time in decades — and certainly since the US invasion of Iraq in 2003 — that an improved business climate in the country is beginning to attract interest in non-oil investment, which in turn will help businesses to prosper and reinforce a positive cycle. Physical security is of course crucial, so before rushing to book a flight to Baghdad (where planes no longer land in a “corkscrew” pattern dictated by security concerns) one must remember that this is still no Disney Land. However, the recent economic and political momentum means that the risks of doing business in Iraq are slowly being outweighed by the potentially enormous benefits. Investment climate tipping-points are difficult to spot and to analyze but Baghdad is now heading in the right direction.

Riad al Khouri is dean of the business school at the Lebanese French University in Erbil, Iraq, and a senior economist at the William Davidson Institute in the Ross School of Business of the University of Michigan, Ann Arbor

May 28, 2011 0 comments

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The tale of two Ammans

by Peter Speetjens May 28, 2011

written by Peter Speetjens

Jordan is often said to be divided, both demographically and politically, between so-called “real” Jordanians and those of Palestinian descent. Yet that is hardly the only fault line lurking below the relative peace that has reigned over the Hashemite Kingdom in recent decades.

The capital, Amman, for example, is like an apple split into two unequal halves. West Amman is rich and spacious, dotted with grand villas complete with lavish lawns and pools. Here one finds French supermarket chains, luxury hotels and foreign embassies. Here live the diplomats, aid workers and just about every Jordanian who “made it”. Here when they eat, the choice is between sushi, steak or pizza.

East Amman, on the other hand, is a giant beehive of cheap concrete in desperate need of a lick of paint. Here live most of Amman’s 2.8 million people on a variety of bread and beans. The city’s east and west meet at the Husseini Mosque in downtown which, though not even 100 years old, is one of the oldest buildings in the young capital. The mosque was also the center of recent demonstrations that have attracted a few thousand people — and nearly as many policemen. Yet so far people have not taken the streets en masse.

“I have no time for politics. I have three kids to feed,” said a taxi driver, Ahmad. To do so, he works an average of 10 hours per day, 6 days a week. Every morning, he rents his yellow cab for JD 24 ($33.8) and buys petrol for around $22. On a good day he goes home with nearly $30 in profit, on a bad one with about $10. “You know the difference between Bahrain and Jordan?” he asked. “In Bahrain people have money but no freedom. In Jordan they have freedom but no money.” Still, as if to illustrate the limit of liberty à la Jordanienne, he insisted that his full name not be used.

Based on 2008 figures, the 2010 Jordan Poverty Report determined the national poverty level as below an income of $80 a month for an individual, and below an income of $5,473 annually for an average family of 5.7 members. The average annual family income in 2008 in Jordan was just $8,706. The report concluded that the number of people living in extreme poverty in 2008 increased by 0.3 percentage points to 13.3 percent, despite the fact that gross domestic product that year increased by no less than 7.6 percent, prompting economist Yusuf Mansur to conclude that “economic growth has nothing to do with poverty reduction.”

Purchasing power in the different spheres of spending becomes clear at a market in east Amman, where one Jordanian dinar (equal to $1.4) will buy four pairs of large underwear, six pairs of socks, 10 kiwis or 10 kitchen knives “made in China”; for the same amount in west Amman one can buy half a hamburger in an American fast food joint. The rift between east and west, rich and poor, is perhaps more profound than between “real” Jordanians and “Palestinian” Jordanians, given that these groups live on either side of the city’s socio-economic divide.

However, the divide between haves and have-nots is also linked between capital and country, said Nawaf Tell, head of the Center for Strategic Studies (CSS) at the Jordan University. A recent CSS study concluded that the tribal regions of Ma’an in the south and Mafraq in the north of Jordan are by far the country’s poorest. For people living there, west Amman is like another planet, with even poor east Amman a step up the social ladder. According to Tell, the government’s development policy and constant focus on Amman is only exacerbating the divisions; the provinces have seen hardly any development and the north and south threaten to become a “chain of ghost cities” as the poor continue to migrate to the capital city.

“Amman does not have the resources to absorb such growth,” he said. In this era of regional unrest, one can only wonder how long this increasingly lopsided tale of two Ammans can remain a stable one.

PETER SPEETJENS is a Beirut-based journalist

May 28, 2011 0 comments

Economics & Policy

Rendez-vous with the rebellion

by Sam Tarling May 26, 2011

written by Sam Tarling

A Free Syrian Army fighter rests in a hill-top hideout near the Syrian city of Idlib [Photo: Executive/Sam Tarling]

The men are short of rocket propelled grenades, a key weapon in the FSA's arsenal [Photo: Executive/Sam Tarling]

FSA soldiers observe heavy fighting on a neighboring hilltop [Photo: Executive/Sam Tarling]

A member of the Free Syrian Army looks on as heavy fighting erupts on a hillside during an attack by his unit in the mountains of Idlib [Photo: Executive/Sam Tarling]

An FSA lieutenant assembles a remote trigger which will detonate the improvised explosive devices seen here [Photo: Executive/Sam Tarling]

An FSA fighter collects his weapons before heading out on an attack [Photo: Executive/Sam Tarling]

High demand and short supply has pushed prices for ammunition and weapons sky-high [Photo: Executive/Sam Tarling]

FSA soldiers go to great lengths to re-supply their base without being spotted by the Syrian Army [Photo: Executive/Sam Tarling]

An FSA fighter surveys his home in the town of Chatouriea [Photo: Executive/Sam Tarling]

An FSA soldier rests at a base near the Turkish border. Turkey, along with America, has recently pledged 'non-lethal' support for the Syrian opposition [Photo: Executive/Sam Tarling]

From the northern Syrian province of Idlib, a moment in the uprising

May 26, 2011 0 comments

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Syria’s crumbling wall of fear

by Ellen Hastings May 3, 2011

written by Ellen Hastings

After a week filled with promises — about lifting the hatedstate of emergency, granting the right for peaceful protests, abolishing kangaroo state security courts — the Syrian regime brutally shot down its own credibility along with hundreds of its citizens late last month.

As Executive went to press, the crackdown was continuing relentlessly, with the military increasingly involved alongside security forces and irregular troops loyal to the regime in closing off cities, raiding homes and shooting protesters.

Fridays in Damascus are now filled with fear. On each day of prayer, groups of armed men take up position all over the capital, near mosques, ministries, court houses, intersections and entry roads. They are literally everywhere, brandishing their often-identical clubs, ready and eager, it seems, to beat anybody who dares utter the slightest expression of dissent. The weapons are not there for show. Since the protests started in early March after a group of children were arrested for spraying anti-government graffiti in Daraa, more than 300 people have been killed. Most are gunshot victims, many others were beaten to death by clubs, and some had their skulls cracked open by the rifle butts of Syrian President Bashar al-Assad’s security forces.

But the “wall of fear,” which has been the main obstacle to this wave of unrest, now seems to be crumbling, along with Syrians’ faith in their government’s explanation for the killings. The protests have been unrelenting, and when word of the massacres of the so-called “Great Friday”protests on April 22 started to reach everyday Syrians, more and more people in Damascus were openly tuning in to Al Jazeera’s coverage of the slaughter. State television was no longer automatically switched on as customers entered the stores, though discussing the images remained sensitive.

One shopkeeper on the outskirts of Damascus waited until a ‘customer’ in a telltale leather jacket left the store before nodding towards the television set on the ceiling and angrily pulling an imaginary trigger. “They’re killing Syrians,” he said. “This is not good. I don’t agree withthis.”

The Syrian government, meanwhile, insists that they are not responsible for the killing, but by banning nearly all foreign journalists from the country and chasing after the rest, they pull the rug out from under their own credibility. Thus, while most of the horrific videos posted to the Internet from inside Syria still carry the disclaimer “unconfirmed” when broadcast on major news stations, there is little doubt, if any, regarding the veracity of what they show: the Syrian regime is murdering its citizens, and it is not about to stop.

The regime’s initially erratic response to the uprisings, alternating between still unfulfilled promises of reform and brutal violence, seemed to indicate dissent at the top on how to handle the unrest. But the killing of more than one hundred people in one day on April 22 must be seen as clear evidence that those who see any concession as a sign of weakness have won the argument.

Syria is no Egypt. Where the Egyptian president was sacrificed by his military in a last ditch attempt to hold onto power, the Syrian president — according to many observers — is firmly in power and the Egyptian solution, where a near-senile figurehead was ousted to protect the political-economic elite, is simply not feasible. This is Assad’s Syria. Moreover, the international community — notably the United States, the European Union, Russia and China — are refraining from putting real pressure on the regime to stop the violence for varying reasons. Israel itself seems to have lent tacit support to their arch enemy Assad. “You want to work with the devil you know,” seems to be the message from Jerusalem.

This leaves the demonstrators on their own, against a brutal regime that has nowhere to go and is fighting for its own survival. As it has shown in the past — when it bombed the city of Hama in 1982 and killed at least 10,000 of its own citizens to quell a revolt — the Syrian regime’s willingness to shed blood knows few limits. As one resident of Damascus recently put it: “They will kill millions to hold on to power. Millions. This is not Egypt.”

Ellen Hastings is the pseudonym of a journalist in Damascus

May 3, 2011 0 comments

Economics & Policy

Misrata under siege

by Sarah Lynch May 3, 2011

written by Sarah Lynch

Packed with humanitarian aid, food, weapons, ammunition and rebels soon to be on the front line, a small Libyan fishing vessel sailed away from the eastern port of Benghazi last month, making its way west.

“Qadhafi’s destroying buildings and shooting innocent people like women and children,” said 28-year-old Walid al-Fitouri as he sat in the captain’s wheelhouse. Like dozens of others on board, he was going to help his comrades in Misrata, Libya’s third largest city, which has been under siege by Colonel Muammar Qadhafi’s troops for two months. Caught in a crossfire and faced with heavy bombing and economic devastation, the city’s residents are facing countless struggles as rebels battle regime forces to keep hold of their western bastion; Executive was in Misrata to document the siege.

Indiscriminate targeting

For weeks, rocket propelled grenades and bullets have whizzed down the city’s central frontline of Tripoli Street, which runs from the center of town west toward the nation’s capital.

But this isn’t the only place where violence abounds; Qadhafi’s forces have surrounded the city. On a rooftop not far from Misrata’s port, a woman who asked to be referred to as “Mrs. Mustapha” rocked her six-month-old granddaughter, Aisha. Just two days earlier a rocket hit the family’s home and put a hole in the baby’s bedroom ceiling. “What’s wrong with them? These are children. Innocent children,” said Mustapha. It was 6:30 a.m. when four rockets hit the family’s home, causing part of Aisha’s bedroom ceiling to crumble. Now displaced from their home, the family lives in a makeshift apartment, where 30 people share two bedrooms and one bathroom. Aisha and her grandmother are a few ofthe lucky ones; no one was injured in the surprise attack. Like so many others, they have been pushed from their homes after weeks of heavy bombardment of civilian areas.

One local elementary school is home to at least 25 families, some with more than 30 members each. “We’re homeless,” said the elderly Hania Abdallah, who sleeps in one of the school’s classrooms, “[Qadhafi] is bombing our children and he’s taking us as prisoners.”

After two months of Qadhafi’s troops pounding Misrata, some estimates placed the city’s death toll by mid-April at more than 1,000 people. At one of Misrata’s hospitals, head doctor Fathi Mohammad said he was seeing eight to 10 deaths on average each day and had counted more than 1,500 injuries. Many of the victims are unarmed civilians.

Abdel Basat Ibrahim never thought he’d be confined to a hospital bed when he went out to buy his family groceries. On an afternoon last month he was with his neighbor when the two men were hit by a sniper. Doctors say many patients have also been wounded in their homes; too often they see injured, or dead, children.

Logistics of living under siege

As Executive went to print, mobile networks in the city had been down for about a month, and water and electricity had also been cut. Before the uprising began in mid-February, water entered Misrata via The Great Man-Made River — the network of pipes Qadhafi’s government built in the early 1980s. The flow of water has since been electronically switched off meaning that many residents were forced todraw water from coastal wells. But the wells could become contaminated by infected runoff because the city’s sewage system has been blocked.

“This is criminal,” said Nassar Sahli, a Libyan water quality consultant and professor. “Water and electricity shouldn’t be stopped for any human.”

Residents said electricity is out in areas of intense fighting, and that it was being rationed in residential areas. Roads leading to nearby farms and factories on all sides of the city were blocked, and the city’s dairy factory had been recently bombed. The only way goods could enter the city is via the port, which, too, has been continuously shelled by Qadhafi’s troops. On the same cold night that the rebel-packed Libyan fishing boat pulled into Misrata, the road leading from the sea into the city was lined with shipping containers in flames. The day before, rockets and cluster bombs hit the port.

“Nowhere is safe in Misrata — not one single place,” said the port’s radio controller Said al-Fitouri, adding that access to the sea let the city’s residents survive. “The port is like the mouth of the human. If you close the port, that means you will die.” The occasional shipment of vegetables came in by boat, but the small imports were not sufficient to meet the need. Grocery store shelves were sparsely stocked, some completely empty. The shortage of food — particularly fresh produce — had prompted the price of vegetables to increase tenfold. As an example, Shoukri Mohammad, a father of five, said that on a rare day last month when tomatoes were available he bought a one kilogram bag for 5 Libyan dinars [$4.16], up from 50 dirhams [$.41] before the siege.

“It’s difficult to live on bread and water alone,” said 50-year-old Mohammad. “But for change, we’ll go through anything.”

On sidewalks and side streets across the city, men young and old waited in bread lines for hours each day. Ahmed Rouad, 65, sat with his head in his hands; his skin is burnt from the coastal sun. “I’ve been waiting in line for bread since seven o’clock this morning,” he said. By then he’d been waiting four hours. Bread factory owner Ali Abdel Karim said there was a shortage of flour and it was difficult for his business to operate with little electricity. “We open from 10 to three o’clock everyday, but people wait in line from dawn,” hesaid.

At a nearby fuel station, the situation was not any better. On a typical day, more than 200 cars piled up. “I spend half my day waiting in line for bread, and the other half waiting for fuel,” said Abdel Hakim. With unpredictable attacks and snipers poised on roofs, many people were afraid to go to work. Countless numbers of shops and businesses had closed, and residents said only two fuel stations in the city remained open.

Strong family ties seemed to have kept Misrata functioning financially, even when every bank in the city had closed: many of those who did not have cash borrowed money from others.

“Many people in Misrata are businessmen and traders, so they keep money at home,” said Misrata resident Yahia Hamsa. “But people aren’t buying and selling a lot.”

Roads weaving through the city were secured by rebel forces at checkpoints, with roadblocks made of piled sandbags and metal pipes. Local groups had issued rebel fighters identification cards that they had to carry with them at all times. On one long road in particular, drivers tended to speed up. “There’s a sniper up there,” said Said al-Fitouri, pointing to the top of a white building.

Sailing away

Rain pelted the small fishing vessel as it pulled away from Misrata’s port. This time it carried more than 100 refugees who were lucky enough to be able to escape.

“Life in Misrata is unbearable,” said Mohammad Nour, huddled in a group to hide from the wind. “They’re striking all the time – night, dawn and morning.” And so dozens like Nour had boarded the rickety ship to make the 36-hour journey to safety. As the boat pulled close to the port in rebel-held Benghazi, the passengers cheered, “Free Libya!” and “God is great!” One man slowly stepped off the boat. His son greeted him with a hug as tears ran down his cheeks.

May 3, 2011 0 comments

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Hezbollah’s quiet discontent

by Nicholas Blanford May 3, 2011

written by Nicholas Blanford

Hezbollah’s silence on the unprecedented developments in neighboring Syria betrays a growing unease over the outcome of the uprising and the strategic ramifications of a collapse of the Assad regime.

If Syrian President Bashar al-Assad is toppled it could fundamentally reshape the strategic balance of the Middle East and present stark challenges to the Lebanese group and its Iranian patron.

At the end of April it appeared evident that Damascus was pinning its hopes on maintaining the status quo through force against the protestors rather than ushering in meaningful reforms. It has long been axiomatic among some analysts that reforming the system in Syria would weaken the regime’s grip on the country and spell the demise of the Assad family’s rule.

Syria plays a key role in the so-called ‘Jabhatal-Muqawama’, or ‘Resistance Front’, which groups countries and militant organizations opposed to Israel and the American policy in the Middle East. It is the crucial lynchpin that connects Hezbollah and Iran, serving as a conduit for the transfer of weapons into Lebanon, providing strategic depth (and in the past, political cover) for Hezbollah and granting Iran a toehold on Israel’s northern border.

A colleague recently recalled a conversation she had with a mid-level Hezbollah official during which she asked whether the party had drawn up a contingency plan for the possibility of a collapse of the Syrian regime. Hezbollah’s constant refrain is that it is “ready for all eventualities” and it is well known that the party does compile meticulous contingency plans to cover all potential developments. But the official told my friend that no plans had been made because a collapse of the Assad regime was considered something of a taboo subject amongst the leadership. I’m not sure that is strictly true.

The notion of Syria departing from the Resistance Front is not a new concept. Hezbollah long ago internalized the possibility that Syria might one day leave the alliance. It was generally assumed, however, that Syria’s departure would occur as a result of a breakthrough on the Israeli-Syrian track of the Middle East peace process rather than an internal upheaval. That moment almost occurred 11 years ago when the two countries seemed on the verge of signing a peace deal. At the time Hezbollah refused to reveal its planned course of action if peace had been reached, but it was evident that Syria, the dominant actor in Lebanon at the time, would have required the party to dismantle its military wing as a component of its settlement with Israel.

Hezbollah has grown more powerful since then, especially after Syria politically disengaged from Lebanon in 2005 following the assassination of former Lebanese Prime Minister, Rafiq Hariri. Iran entered the vacuum left by the Syrians and will probably seek to consolidate its influence in Lebanon through Hezbollah if the Assad regime falls or Syria collapses into chaos. As for the longer-term impact on Hezbollah and Iran, it depends very much on what new order emerges in Syria. For example, if a Sunni-dominated regime reaches power in Damascus, it could ally itself with Saudi Arabia at the expense of the three-decade alliance with Iran. A Saudi-friendly Sunni regime may prefer to cooperate more closely with Sunni elements in Lebanon and seek to roll back some of Hezbollah’s power.

Another possibility being aired is a continuation of the present system in Syria but under a new leadership, possibly drawn from the military or security establishment replacing the Assad clan. Such a regime may prefer to maintain the alliance with Iran and the confrontational stance against Israel.

For now, Hezbollah officials and cadres are closely watching developments in Syria, hoping that Assad will prevail and that there will be no fundamental change to the Resistance Front. But the Arab world is passing through a major upheaval where previous maxims no longer apply. The Arab-Israeli conflict paradigm has been superseded by the new reality of the people against the state. Iran, Syria and Hezbollah traditionally derive much of their legitimacy from their anti-Israel positions and it must be disheartening for them to see the struggle become relegated to the second tier of regional interests.

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

May 3, 2011 0 comments

Real Estate

Bankrolling the builders

by Rayya Salem May 3, 2011

written by Rayya Salem

Though Lebanese real estate has always carried its weight as a prime investment tool and a win-win sector for both suppliers and end-users —even during the uncertainty of the civil war years — the cracks are finally beginning to show as both internal and external factors are affecting (former) market strongholds.

Banks, the middle-men who keep the property market in swing, are now in an unfamiliar situation and may be left with little option but to rein-in loan offerings to the real estate sector; its profit harvest has diminished compared to healthier years and its expected contribution to gross domestic product has weakened. The trickle-down effects of the financial crisis on Arab wallets (residential salesto foreigners plunged 31 percent this quarter), combined with sticky top-dollar prices that stem from the high cost of (limited) land, have come into play simultaneously, with the result a whopping 21 percent fall in transaction volume in the first quarter, compared to this period last year.

According to Hani Haddad, managing director at A&H Construction and Development, although the debt-to-equity ratio “has definitely decreased due to banks being more conservative given the weak performance of the real estate sector in the past year,” tightness of lending is expected to only have an effect on the financing of new projects. However, this likely won’t hit end-users, as banks are remaining aggressive in providing home loans to households.

At the end of 2010, loans to the sector reached $13.6 billion when taking into consideration loans to contractors and developers to build projects, to businesses to rent real estate and to individuals for home loans. Thus, lending to the sector made up nearly 35 percent of total lending, but the percentage is closer to 16 percent ($6.3 billion) if one only considers loans for construction, according to data from Banque du Liban (BDL), Lebanon’s central bank.

Though the number reflects a steady, mutually beneficial relationship between banks and real estate professionals (following a period of growth whereby loans to real estate increased 59 percent from the beginning of 2008 to February 2010), it can be attributed to what many say was the culmination of a real estate high note that saw an unprecedented wave of mega-launchings such as District S, the Landmark, Beirut Terraces and Damac Tower in Beirut’s central district last year.

Freeze over funds

According to Samer Kahil, vice president of finance and administration at MENA Capital, “definitely more than three” alpha banks have already frozen funding to developers in the last three to four months. “It could [last] a year, it could be a couple of months… it depends on their risk management department, their allocation of funds to real estate and the developer’s track record and location” of their upcoming projects.

“If you are talking about lending to projects, we have less than 10 percent [relative to total] lending,” said Saad Azhari, chairman and general manager of BLOM Bank. “We have about another 8 or 9 percent for housing loans for those with domiciled salaries. So in total… it comes out to 16 or 17 percent [of total loans that go towards the real estate sector].”

But Kahil said that banks were still funding nearly 50 percent of the equity in MENA Capital’s developments, due to the company’s strong reputation in the market. The company is expecting approval on financing for an upcoming residential tower. “They are providing more than $20 million, out of $45 million of total equity for the project [because] we had a good feasibility study, prime Ashrafieh location and they have the allocation,” said Kahil, though he declined to name which alpha bank.

Indeed, Hani Haddad of A&H affirmed that, “Banks are more concerned about who to lend to rather than which project to lend to,” placing a magnifying glass over developers’ financial statements.

Of course, banks are also betting on builders outside the country. With the unprecedented public infrastructure spending in Saudi Arabia, and the slew of projects lined up to build Qatar into a world-class destination fit for hosting the FIFA 2022 World Cup, the strategy makes for a strong game plan. Walid Raphael, general manager of Banque Libano-Francaise (BLF), added that financing contractors, even outside of Lebanon, remains a large part of the business. “We have three large markets [for contracting]: Saudi Arabia, Qatar and Algeria. And then wealso have the Emirates.”

We the people

Unless you’re one of the big players, it seems the tide has receded and bank loans to developers have reached a steady drift that mirrors the current sales volume in Lebanon.

“I don’t think that we are going to see real estate lending increasing but I see that housing loans [to individuals] are still healthy… and are going to increase,” said BLOM Bank’s Azhari.

“Banks still seem to have a big appetite for home loans,” added Haddad, as evidenced by an increase in housing loans from $2.8 billion in December 2009 to $4.5 billion in December 2010, according to the Central Bank. And since banks and developers had to get creative in order for individual households to afford homes when prices leapt in the last two years, providing home loans to residences still under construction created a new definition of risk. When a physical home cannot be secured as collateral, banks secure a simultaneous agreement with a project’s developer (or contractor) and end-user to diminish risk.

“So we know whether the funding is available to finish the house… In a way you are guaranteeing [its completion] because you are financing the building,” said Azhari. It is only to be expected that banks ask for additional security and hold the land as a mortgage, with all sales proceeds funneled to their accounts first in order to pay off the principal and interest.

“When you are financing the promoter, you’re already taking the risk of the project and you’re going to make sure that the project will be achieved and delivered, so you have less risk,” said BLF’s Raphael. However, many banks have buckled under pressure and frozen subsidized loans to individuals, according to MENA Capital’s Kahil, a move that acutely impacts developers building mid-range residential projects.

But the real risk hovering over our rooftops needs to be viewed from a regional perspective — not only does uncertainty plague the MENA region but Lebanon remains without a government and thus contributes to a wait-and-see stance from buyers.

May 3, 2011 0 comments

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Arab spring warms a Kurdish winter

by Gareth Smith May 3, 2011

written by Gareth Smith

Iran’s Supreme Leader Ayatollah Ali Khamenei was quicker towel come the ‘Arab Spring’ than United States President Barack Obama. While publicly comparing the unrest to its own “Islamic Revolution,” Tehran was weighing how the demise of two friends of the US in Egypt and Tunisia, and unrest in Yemen and Bahrain, might affect its struggle for influence with the US and its allies. The Iranian authorities meanwhile nipped in the bud February’s attempt by the opposition Green Movement to return to the streets, while the economy was buoyed by rising oil prices that passed $100 a barrel for the first time since 2008, due to the events in Libya and fears of unrest in Saudi Arabia.

Iran’s fiscal outlook suddenly looked rosier, easing apprehension over contentious plans to phase out $100-billion in annual subsidies of everyday items, such as gasoline. Then came unrest in Syria, a challenge to both Tehran and Washington. The US had tried for two years to entice Damascus into a “peace process” with Israel, and to weaken its alliance with Iran, buying into the Syrian regime’s argument that it acts as a bulwark against militant Sunnism and al-Qaeda. For Iran, Syria is far more strategic, its sole long-standing ally in the Arab world whose loss would mark a major setback. Of course Tehran would miss its most practical link to Hezbollah in Lebanon; additionally, Syrian unrest, along with protests in northern Iraq, has brought the ‘Arab spring’ dangerously close to home.

The concern here for Tehran lies in Kurdistan. Iran’s seven million Kurds have never shown love for the Islamic Republic. A military onslaught was deemed necessary after the 1979 Revolution to bring them into line, and while the main Kurdish party, the Kurdistan Democratic Party of Iran, ended its armed presence in Iran in 1997, it has been outflanked by the Party for a Free Life in Iranian Kurdistan, an active and militant group linked to the Turkey-based Kurdistan Workers Party. The 1997 presidential ballot was also the last time Kurds engaged in any meaningful way with the national electoral process, turning out in massive numbers for Mohammad Khatami.

A little more than six years ago, Nawsherwan Mustapha, who has subsequently led Goran (‘change’), the main opposition group in Kurdish northern Iraq, told me that future opposition in Iranian Kurdistan would not be armed struggle but non-violent street protests. His words may prove to be prescient. In Kurdish Syria, Bashar al-Assad’s decision to grant citizenship to tens of thousands of Syrian Kurds — originally from Turkey — has not stemmed unrest in the northeast. Many Kurds have been inspired by the autonomy carved out by the Kurds in Iraq, rousing in them the idea that, sooner or later, they will be able to assert their own rights.

In Iran’s Kurdish region, Tehran has a large security presence and military posts dot the borders with Iraq and Turkey, but even so many Iranian Kurds travel back and forth to Iraq. This is more often to smuggle goods than attend political meetings, but it still spreads contagion. Opinions differ on the fragility of the Iranian body politic. John Bolton, former United Nations ambassador for the United States and a colorful expounder of influential views in US foreign policy, recently presented an op-ed to the Wall Street Journal depicting Iran as a regional hegemon bending the region to its will. This caricature suits many political interests — including those of the Israelis, of the Saudis in denying domestic unrest in Bahrain or Saudi Arabia itself, and of certain factions in Lebanon — but it flies in the face of the military disparity in the Persian Gulf. Even excluding Israel or the formidable Bahrain-based US fifth fleet, the Gulf Cooperation Council countries spent 16 times as much on arms as Iran did between 1988 and 2007, and Saudi Arabia alone has more combat planes and tanks.

True, President Mahmoud Ahmadinejad and some cohorts, still enthused by their surprise election victory in 2005, often portray Iran as a superpower. But wise counsel within the leadership knows well that Iran is hugely outgunned, that the Shia are greatly outnumbered in the Islamic world, and that the Islamic Republic has therefore a greater interest in stability than in conflict.

Hence the Iranian leadership’s muted response to the March 14 intervention of Saudi-led troops in Bahrain to quell Shia-led protests; hence its nerves over Syrian unrest. As summer approaches, the ‘Arab Spring’ blows an increasingly uncertain wind toward Tehran.

Gareth Smyth is a former correspondent for the Financial Times in Iran

May 3, 2011 0 comments

Economics & Policy

Executive Insight – The GCC expands

by Fabio Scacciavillani May 3, 2011

written by Fabio Scacciavillani

The ‘Arab Spring’ is yielding some unexpected and exotic political fruits. The proposal to accept Jordan and Morocco into the Gulf Cooperation Council is certainly among the most intriguing, and it was followed almost immediately by Palestine’s request to join.

GCC Secretary General Abdul Latif al-Zayani announced that the current six members (Saudi Arabia, Kuwait, United Arab Emirates, Qatar, Bahrain and Oman) would welcome Jordan and Morocco into the bloc, saying that meetings “to complete procedures” are to be initiated soon.

Given the swift response by an institution not known for the timeliness of its decision-making process, it is likely that there were earlier discussions on this matter at the highest level (although Kuwait, Oman and Qatar reportedly expressed reservations about the move, preferring a limited membership, like that of Iraq and Yemen, confined to cultural and sporting events).

Previously, Jordan had shown interest in joining the bloc, but its requests had been politely turned down. Yemen’s request for membership has stalled for years but the country, though currently embroiled in political unrest, hopes to join by 2016. On the other side of the region, Morocco has apparently been invited to join.

This development could mark the coming of age of an international forum with ambitions to be a sort of Arabian version of the European Union, but which has been marred by a weak institutional framework and erratic procedures. Created in 1981 as a bulwark against a perceived threat from Iran, the GCC’s original agreement was ambitious in scope and covered vital areas with the potential to reshape and modernize the economies of the Gulf, while fostering a common foreign and security policy in a region endemically at risk of destabilizing crises. These included:

Harmonizing regulations in economy, finance, trade, customs, tourism, legislation and administration
Promoting scientific and technical progress in industry, mining, agriculture, water and livestock
Establishing scientific research centers
Setting up joint ventures
Establishing a unified military presence (the Peninsula Shield Force)
Encouraging cooperation of the private sector
Strengthening ties between populations
Establishing a common currency by 2010

Within the GCC framework the six countries have undoubtedly made some progress, for example in creating a Customs Union, in freeing the movement of citizens (but not of foreign residents), in establishing a joint military force (which was deployed recently in Bahrain), in cross-border investments and capital movements and in a number of other minor fields.

However, there are two fundamental differences between the GCC and the European Union. First and foremost, the members of the EU have transferred national powers to EU institutions. The most visible, influential and famous of these is the European Central Bank, which exercises its monetary authority in full independence from any political interference, as enshrined in the Amsterdam Treaty.

In several additional key areas member states have devolvedtheir functions to the EU Commission or other supranational bodies:international trade, antitrust legislation, agriculture policy and visaregulation. The EU Commission issues directives through a common legal charter, which can span virtuallyany field, to which all national legislation must adhere.

In case of controversy or lack of compliance with adirective, the European Court of Justice can rule to force national governments to conform to EU legal provisions. Often pieces of national legislation are struck down by the EU Courts, which in some cases can even overturn the verdicts of national Tribunals.

Furthermore, one of the main achievements of the EU, the single market, allows for goods and other services to be traded freely across the EU and removes customs and passport controls between most member countries. One can travel from the Arctic to the Mediterranean without encountering a single frontier post. In essence the EU is a super-state with institutions that exercise powers even against the will of national governments, an elected Parliament and a body of laws and principles (the so called acquis communautaire), which is valid for all citizens and all the 27 countries. More recently the EU has adopted a Constitutional Treaty that establishes the fundamental principles guiding its actions and the decision-making rules.

By contrast, so far the GCC has been mostly a permanent structure of regional diplomacy, facilitating the exchange of views at the highest level. The implementation of decisions made by the GCC is the responsibility of national governments, not of common, independent institutions. The only (limited) exception is the Monetary Council, which is the precursor of the Gulf Central Bank to be established when, or if, the GCC issues a common currency. This will be the first genuinely independent supranational institution in the Arab world. But the plans for the monetary union, which was supposed to go intoeffect at the beginning of 2010, are proceeding slowly, with two countries (Oman and the UAE) out of six having declared their intention not to join.

The accession of the Jordanian and Moroccan monarchies to the GCC could help inject new life into the integration project and would mark a historic step forward, so long as it is conducive to an institutional framework modeled on the EU, with a devolution of powers at GCC level.

A major goal could be the establishment of a true single market, styled on the EU, with completely free movement of capital, goods and labor, plus an antitrust authority with pervasive powers.

At present, border controls, trade barriers and protectionist measures among GCC members are still very much in place (even to transfer a used vehicle between two countries requires a dose of patience and money which could be put to better use). This hampers the development of industries and economic activity that could create the several million jobs needed to absorb an increasing youth population, which, as recent events clearly show, is ever more restless and impatient.

On the other hand, the proposed enlargement might turn out to be just a political card played on an increasingly shaky table. It could very well be that the GCC’s newfound hospitality is intended to raise the six nations’ profile in the region and is more of an internal security pact by which member states would intervene in the case of internal unrest. If this is the case, the GCC would merely gain a front row seat to events unfolding in Algeria and Syria (as it already has in Yemen).

But for the GCC to limit itself to merely preserving the political status quo of its member states would be a missed opportunity: United States President Obama delivered a major policy speech on the Middle East last month, which foreshadows an unprecedented involvement in the region outside the security arena, and a clear indication — underlined by the explicit mention of the pre-1967 borders between Israel and Palestine as a natural negotiation platform — that the wind has dramatically changed.

The enlargement of the GCC could either constitute a myopic move for preserving the status quo (and another form of diplomatic jostling) or the means to address the roots of the economic malaise in the region by following a cooperative approach along the lines of the EU. The next few months will tell.

Fabio Scancciavillani is chief economist at the Oman Investment Fund

May 3, 2011 0 comments