Society

Q&A – Geoff Skingsley

by Executive Staff
written by Executive Staff

Geoff Skingsley is executive vice president of human resources for L’Oreal Global. He recently sat down with Executive to discuss hiring conditions in the Middle East, as well as the ins and outs of managing 65,000 employees.

How do you encourage local hires in countries such as the Gulf states where they are not as readily available?

The GCC [Gulf Cooperation Council] is a different place from Lebanon. I think in Lebanon we actually have a pretty good situation. We’ve had a great history of exporting Lebanese managers. But we also have a good record of allowing Lebanese people to rise up inside the company. The GCC is a different story; even there, where there is less of a tradition of having talent moving up the pipeline, it’s still our objective to nurture young talent where we can.

I spent this morning talking to a group of young people with an average age of about 24 — and I do that everywhere I go when I visit our subsidiaries. We always try to make sure we have a bedrock of young management trainees who are our future leadership pipeline. Whether you’re in Lebanon, Turkey, the Gulf, Egypt… it’s the same story.

So you don’t feel a “brain drain” in Lebanon?

If you’re talking about internal to L’Oreal, there is to a degree a ‘brain drain’ but we are encouraging it. We’re moving the Lebanese outside. It’s a retention tool. If we’re offering up these opportunities quickly enough for these young talents then they’ll stay with our company but they’ll get opportunities in markets around the world. And the Lebanese have been particularly good exports. We would rather manage the brain drain in a positive way so that we are keeping them within our company, giving them career opportunities and one day we’ll bring them back into senior management roles here, as opposed to losing them because we haven’t been dynamic enough.

Do you keep your eye on the percentage of local employees to maintain the authenticity and market knowledge of the staff?

If you would ask me what is the ideal management committee in a country, it would be made up of three thirds. The first third is local managers who haven’t moved from the country; they represent continuity, knowledge of the customer, stability and inspiration for young local managers. The second third will be ex-pats: somebody who comes from a long way away, from a completely different environment, who brings a different perspective and is a contrast to the local managers. The third would be locals who we have [sent abroad] where they experienced something [new]… then they come back into their market benefiting from that knowledge. That’s what we strive to get, the combination of those three thirds.

What do you look for in young Lebanese graduates? How can they make themselves more attractive?

At minimum we would say that people have to show an interest in our products, in our categories and in our market. You don’t apply to the cosmetics business like you apply to the petroleum business or to IBM. You have to be able to talk with some degree of enthusiasm about the products because we are a mono-industry company and we are a very passionate company. You’ve got to show a genuine interest in the product field.

After that, over and above someone’s academic qualifications, it’s a great deal about personality. Is their personality going to fit into our organization? Do they have the degree of energy and passion and drive? Do they have the communication skills?

We are still a very entrepreneurial organization. The paradox with us is even though we are very large — $25 billion and 65,000 people — we try to remain entrepreneurial; we have a series of policies that promote that entrepreneurial spirit and therefore that has to emerge from young candidates who are applying to join us. We want to spot that spirit.

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In search of Syrian solidarity

by Anant Damir
written by Anant Damir

In the initial days of protests in Daraa, on March 13 and 14, several friends and I began to discuss a strategy for how we could contribute to the cause. An organic uprising had been spawned after the secret police’s arrest weeks earlier of schoolchildren accused of scrawling a wall with anti-regime graffiti.

As a journalist, I had the resources to inform members of the press as to what was occurring on the ground. For one week, we facilitated the spread of information, providing news outlets small and large with video and first-hand accounts of both the demonstrations and the violence used to suppress them. We also created a Facebook group with information and links detailing what was happening and where.

On March 22, however, the abuses of Bashar al-Assad’s regime against which thousands were demonstrating in Daraa and elsewhere in Syria touched home. Simultaneously, a friend’s house and our office was broken into and ransacked. My friend was arrested; when he called, asking us to meet with him, we suspected correctly that it was a trap.

The experience puts into sharp relief the dangers of civic mobilization in Syria and the stunted growth of political expression in the country. Whereas in Tunisia and Egypt — though they were a far cry from free societies before the revolutions — a degree of discourse was possible, Syria is in its infancy when it comes to its citizens engaging one another in debates on national identity. Though some were already circumventing Internet censorship laws, access to social media websites such as Facebook was only granted in February [for more, see comment page 12 and story page 30]. Because of this muzzle, the only formal opposition to the Baath party line has come from the old guard of political resistance: the groups who signed the Damascus Declaration for Democratic National Change in 2005.

These are well acquainted with the heavy hand of dictatorship; combined, they have spent many lifetimes in jail. Laudably, they have devoted their lives to their cause, but now that opposition in Syria has adopted a populist dimension they must open themselves up to a dialogue that incorporates Syria’s disparate voices, be they Sunni, Alawite, young, old, pro-or anti-regime. The old guard has entered the “Arab Spring” with the mindset that they have nothing left to lose. But most of those on the streets of Daraa, Latakia, Damascus and elsewhere have everything at stake. They are not lifelong activists but people searching for a voice in their society, with lives to lead outside of politics.

President Bashar al-Assad has attempted to use the sectarian divisions within Syria in his favor. Should his clasp slip, Syria would descend into an ethnically-motivated struggle for power between the Sunni majority and Alawite, Christian and Druze minorities, or so the line goes. Political adviser to the president Bouthaina Shaaban has been playing up these fears, calling the destruction of “peaceful coexistence” the true aim of the protesters. And in Latakia we have seen the real dangers, as the shabiha, notorious Alawite gangsters close to the Assad family (who may or may not be acting on their orders) killed up to 21 people on March 26.

Together with the diverse sectarian makeup of Syria is a multiplicity of desires within the populace. Some chant for the downfall of the regime, but most desire substantial reforms — an end to emergency law and to Article 8, which prohibits alternatives to the Baath Party. And some wish for no political change at all. At its present juncture, nobody has the right to speak for the movement. For the opposition, the true challenge is to respect and heed these myriad voices. One positive indication of the potential for civic engagement and dialogue lies in the example of the proposed “Personal Status Draft Law” in late-2009. A regressive, sharia-based effort to restrict citizens’ rights (particularly for women), it was eventually abandoned due to a widespread outcry against it on the radio, on blogs and from human rights organizations. Though one of the few examples of successful and diverse political participation, it could be a lesson to reformers still stuck in the absolutist terms of the past; despite differences in experience, there is common ground to be shared beyond the overthrow of the regime. 

Without a gathering of opinions, Syrians will be tinder for the sectarian firestorm that Assad is happy to stoke.  

ANANT DAMIR is the pen-name of a Syrian freelance journalist based in Damascus

 

 

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Society

Q&A – Vahe Torossian

by Executive Staff
written by Executive Staff

Vahé Torossian is the corporate vice president of the Worldwide Small and Midmarket Solutions and Partners (SMS&P) group at Microsoft. On a recent visit to the region he sat down for an exclusive one-on-one interview with Executive in Beirut where he talked about how the company is adapting to regional events, and its role supporting small and medium sized businesses in the Middle Eastand North Africa.

You’ve come to the region at an exciting time in history. How has Microsoft reacted to what’s been happening here?

The way that we are looking at the situation today is [to see] what we can do from a business and an IT leadership perspective to help mitigate the [economic] impact and, whenever the economy recovers, help the small and medium enterprises [SMEs] and public sector to recover as fast as possible.

How many staff do you have in Tunisia, Libya and Egypt?

Over all in North Africa it’s about 200 people.

What were some of the projects Microsoft was pursuing in those countries?

Most of the times in these places they are sales marketing and services organizations… there are [a] few that are doing development or engineering types of jobs.

So the customers were mostly the government and government entities?

Yes, that’s right.

A lot of Western and multinational companies have done business with regimes that are known to be human rights abusers and who suppress democratic movements and political opposition. How would Microsoft, one of the largest corporations in the world, reconcile the ethics of working witha regime like that?

I think that Microsoft is very well known in the world in terms of affixing values and of course human rights protection, but we need to be clear that the role of a company like Microsoft is to stay at a level that it should be on, which is to say not engaging in any type of political consideration.

[We] are in countries where there are international rights to do business. Once you are there, if you have an organization in the country which is not respecting intellectual property, what you want to do is to help the government understand that if they establish [anti-piracy legislation] and then enforce it they can bring wealth to the country, increasing taxes and reducing the ‘brain drain.’  Most of the countries you are talking about have had years of talent moving out, especially the younger generation because nobody wants to stay in a country where you can’t protect an invention.

So it’s a business role…

It’s a business but also a citizenship role… We ask two things [of our] general managers anywhere in the world. One thing is, of course, that you run your operation, bring in a profit, develop your people, attract talent and so on, but there’s [another] component which is what you are contributing to the society. We always say 30 percent of your time as a general manager needs to be [spent on] what you are giving back to your country.

[It could be] based on education, giving free some software to a university, for schools, or educating people, helping them be aware of some of the risks found in some countries… or helping parents to be aware of what their kids can do on the Internet and how to protect them. After disasters, for example, we have always given free time [for employees] to be in the street, helping to reconstruct.

Today, I met with the municipality of Beirut and had the chance to share some of my experience of working with municipalities around the world and helping to fix some critical problems. We were talking about, for example, the parking situation, traffic, how to file a complaint on the internet, how to print a visa. All these things are part of a contribution to society but are not necessarily related to the business perspective. It’s about how we are lucky to be educated and how we can bring these things back to the society.

Most small and medium-sized businesses use the Internet. Here in Lebanon we’ve recently been ranked last place in the world out of 185 places in download speed and 184th in upload speed; does that limit the effectiveness of products that Microsoft could bring to the Lebanese market to help SMEs?

For sure, as cloud computing and online Internet services are increasing, the capacity of broadband is going to be critical. In this case [our role] is really to go to the government to explain that there is a huge opportunity to bring back talent and that the bottleneck is going to be inevitable, and what should be done with a telecommunications operator… to accelerate [closing] that gap.

Today people are using multiple devices — it’s not only the PC. You might have phones, tablets, or different types of formats. It is difficult to use these devices to accelerate the development of more opportunities [with poor] broadband, so that’s why in a country like Lebanon the broadband is going to be the bottle neck of expansion.

There are multiple ways to use technology when you observe the behaviors of citizens, and so you fix a problem, and most of these are SME applications. For example, I was mentioning this morning an example in Estonia where you have a concept of e-parking; you use your phone when you want to park your car. You park your car and put in your [license] number and there’s an application that will help you to pay; when the police come they can just check the terminal to see if you have paid to park or not.

How are you adopting your strategy in the MENA to compensate for recent events and the fact that we don’t actually know what is going to happen next with events progressing so rapidly?

We are reinforcing in the places where we are [already], and allocating resources to accelerate the growth and to compensate in the places where we might be behind.

There are still some businesses that are operating [in states hit by unrest] and they [still] have to consume [Microsoft product] licenses because they are still recruiting people, they are still invoicing, and for these ones we try to make sure they are all using genuine operating systems and genuine software, because the piracy rate is quite high in emerging markets; Lebanon is around 72-74 percent, which is quite high.

The technology business was really rocked when the Egyptian government completely shut down the Internet. How do you adapt to the fact that the system on which all your products are based could one day be completely shut down?

Usually we have highly secured lines and we have redundant lines that help us to recover very quickly from this type of [event]. When the tsunami hit Southeast Asia [in 2004], all the cables which were under the sea were destroyed but it took us just 48 hour to find new paths for the employees in Southeast Asia to reconnect to the Internet. Because of that we were able to allow the citizens to find their families and lost friends and so on.

If a country decides to close the Internet and protect its borders there is not much you can do. But experience shows that it’s never a long-term situation; it’s always fixed at some point of time. Today as a country you can’t close off the internet for too long; there will be a revolution!

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Society

Book review: Middle East Patterns

by Executive Staff
written by Executive Staff

Places, People, and Politics (5th edition)

A book by Colbert Held and John Cumming

People who are not from the region are often puzzled by the Middle East. To outsiders, and to some locals as well, the perennial problems in Cyprus, Palestine, Israel, Iran or Lebanon, and the current events in places such as Bahrain, Egypt, Iraq, Libya or Yemen may seem impenetrable. This, along with the strategic, political and cultural importance of the region, is why a new edition of Middle East Patterns is especially welcome.

The book, which examines the region’s history, geography, international relations and economics, is co-authored by Colbert Held and John Cummings, Americans who are anything but strangers to the area. Held was employed for 15 years as a United States Foreign Service officer, with assignments in Iran, Lebanon and Saudi Arabia, as well as many temporary missions throughout the region; Cummings, who has taught economics at universities in Iraq and the United States, spent nearly three decades in the Middle East working with the US government and the World Bank.

Despite its many incarnations, the basic framework of Middle East Patterns has remained consistent over the last three decades; the examination of the whole region first from a topical perspective and then country-by-country is successfully preserved in the latest version. The region’s ethnographic, economic and geopolitical patterns, with a focus on natural resources, are well covered. On top of this, the book is now enriched by a new economic emphasis: in addition to looking at the “places, peoples and politics” invoked by its subtitle, the fifth edition contains fresh material on socio-economic development and political economy, which in turn complements new sections on topics such as terrorism and piracy.

Syria is the first to be considered — in a chapter tellingly entitled “Middle East Heartland,” ending with a wise summary of the country’s position today: “Despite its own ambiguities, and despite the external efforts to marginalize it, Syria persists as a key historical and geopolitical player in the region.”

While outside perceptions often fail to take into account the region’s true complexities, Middle East Patterns presents a comprehensive and unbiased picture of its nations. The chapter on Iran in particular is a healthy antidote to Western vituperation of countries in the region whose policies are uncongenial, not to mention the oversimplification by foreign media of things Middle Eastern.   

Also including a thorough bibliography, many tables, a copious index and numerous footnotes, the book is no intellectual lightweight. (The current version of Middle East Patterns is weighty in the literal sense as well, having gained more than 40 pages on the 646 pages of the 4th edition, which was published in 2006.)

So whether for a foreign student, a globetrotting manager of a multinational, or just a Western television viewer tired of hearing the region summed up in clichés, Middle East Patterns is a valuable reference. And for a serious non-regional reader who is ready to consume well-written books cover-to-cover but only has time to look at one volume on the Middle East, the work of Held and Cummings could be the best bet. But the best compliment that can be given to Middle East Patterns is that it can also be read, with great interest, by a Middle Easterner.

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Economics & Policy

Executive Insight – Carbon neutral skies in Middle East Aviation

by Alessandro Borgogna
written by Alessandro Borgogna

Like many other industries, the global aviation sector is preparing for a future in which increasing financial and political pressureswill be brought to bear on the issue of climate change.

Airline operators are putting together plans to cut emissions of carbon dioxide and other greenhouse gases, and these changes may squeeze consumers and businesses in the Middle East, through higher fares, reduced routes and fewer services.  But focusing only on these short-term pain points ignores the tremendous economic opportunities the industry’s transformation could bring to those nations that act first to reposition themselves for competition in a carbon-constrained world. Developing countries have unprecedented access to financial support to help them begin this transition and offset rising costs. The extent to which they take advantage of these funds may determine whether the region can capitalize on the new industries and jobs that will likely result.

The European ETS deadline

The carbon conversation has been slow to reach the aviation sector, due to its relatively small contribution to global emissions (some 2 percent, according to the United Nations), but a near-term deadline has captured the industry’s attention. In January 2012, aviation will be held accountable for its emissions under the European Union Emission Trading Scheme (ETS). The only global effort so far to attempt to include the aviation sector in a carbon-compliance trading system, the ETS mandates that any airline operators flying in and out of the continent — regardless of where they are based — will have to offset their related carbon emissions above a fixed allowed amount.

Air transport emission growth

If extension of the ETS goes on as planned, Middle Eastern airline operators will have to choose between passing on their higher costs to passengers, mitigating them through voluntary offsets purchased by passengers or reducing their profits for the sake of price competitiveness. The global air transport industry has filed a legal challenge to the EU’s plan — but regardless of its outcome, Middle Eastern airlines are still likely to face pressure due to growing global recognition of the sector’s rising importance in the fight against climate change.  In 2009, the International Air Transport Association (IATA) pledged to achieve carbon-neutral growth beginning in 2020; the International Civil Aviation Organization (ICAO) followed last year with a similar goal.

While the 1997 Kyoto Protocol exempted aviation when it affirmed the ETS as the most efficient and effective way to achieve global greenhouse emission reductions, consistent 4 percent to 5 percent annual growth in global air passenger traffic over the last decade has put the sector very much in the spotlight as countries work toward a post-Kyoto agreement.

Opportunities in low-emission

Fortunately, the international accords reached in Copenhagen in 2009 and Cancun in 2010 supported low-carbon investments in developing nations. The platforms for these initiatives are called low-emission development strategies (LEDS), which involve short-term mitigation steps (called ‘nationally appropriate mitigation actions,’ or NAMAs) and more structural mid-to-long-term changes (‘national adaptation programs of action,’ or NAPAs). The LEDS platform represents a tremendous opportunity for the Middle East, and particularly for its aviation industry. Airline operators can now implement emission-reducing projects and receive marketable carbon credits in return, or they can coordinate a larger scale transformation and apply for funding through the NAMA framework.  Thanks to these new efforts, emissions-reducing projects don’t have to break the bank. Projects can either be co-financed or fully financed through a growing pool of internationally available funds. The Copenhagen accord of 2010 established $30 billion in fast-start financing for such projects, and delegates meeting in Cancun last year committed to expanding that amount so that $100 billion in new and additional funds are made available every year by 2020.

Plan of action

Rather than wait to see if they will be forced to comply with the European ETS next year, aviation operators in the Middle East should start laying the groundwork now to get ahead of coming regulations and to investigate the possibilities of breakthrough changes in the fast-growing market for alternative fuels. This can be accomplished through three broadsteps:

Take short-term actions to “clean house”

Fleets operated by Middle East airlines are newer, and hence more efficient, than their European counterparts’, which will help to blunt the impact of the ETS if it is enforced. Still, there is ample room to improve the overall efficiency of the air-traffic system and ensure that all carbon waste is eliminated. Flight delays and aircraft congestion are principal contributors to the aviation sector’s inefficient energy use; these can be dramatically reduced by enhanced cooperation between civil and defense aviation organizations, alongside other regional efforts to optimize aircraft routing. In addition, existing aircraft lease contracts should be reviewed to eliminate the most inefficient parts of the fleet.

Enhance government-industry ties

Operators should engage their governments to ensure that they assume an active role in formalizing a LEDS for the sector that is focused on activities that qualify for NAMA or NAPA support. This will allow the industry to realize carbon credit returns on capital invested and, where applicable, access international carbon finance funds. Ideally, designing a LEDS should be a country’s first step, laying the foundation for future activities, but this may not always be possible. Developing a LEDS is a long and evolving process, and it may make more sense to weave the LEDS approach into existing carbon-reducing activities and use it as the basis for future growth.

Define the business case for bio-fuels

Barring any quantum-leap breakthroughs in aircraft design, the most promising opportunity for emissions reductions in the aviation sector is in bio-fuels, which produce up to 80 percent fewer carbon emissions than fossil fuels over their lifecycle (provided they are grown locally). At least 10 airlines outside of the region have already conducted successful flight tests with feedstocks ranging from sugarcane to jatropha (a type of shrub) to coconuts. Jatropha, in particular, holds immense promise for the region, as it is a non-food crop that can grow in desert climes and does not require much irrigation.  Middle East airline operators are right to be concerned about their profits and competitiveness as the deadline looms next year for compliance with the European ETS. But there are bigger forces in play, and focusing on this factor alone may cost them the chance to seize the opportunities that are emerging with the evolution of carbon finance markets. Middle Eastern airlines have been growing at a much faster pace than global benchmarks, if that growth is to continue then the region’s operators and regulators will need to plot a course for competing —and prevailing — in a carbon-constrained future.

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Economics & Policy

Executive Insight – OIF

by Fabio Scacciavillani
written by Fabio Scacciavillani

 

For those eager to engage in predictions as to where the events that have rocked North Africa, the Middle East and beyond will lead, it would be wise to remember that these are uncharted political waters, and the long wave of repercussions will run for decades as the old post-colonial order crumbles.

Our perceptions and expectations are somewhat distorted by history books that condense in a few pages an account of events that took years to develop and fully come to fruition. Even upheavals which some of us witnessed during our lifetimes leave memories that focus on the climax and exclude the lull. So when our internal equilibrium is shaken, we unrealistically expect a swift ending.

The collapse of the Soviet Union and the Warsaw Pact started with Gorbachev’s ascent and perestroika, then the break-up throughout Eastern Europe and finally the indelible image of Yeltsin on a tank declaring the end of the Empire. But it took several years. And the aftermath was not a smooth transition, but years of hyperinflation, mass unemployment, subsidy cuts, institution building, uprooting of state monopolies and judicial reforms.

In essence, historical processes so profound to reshape entire continents often follow a “drunkard’s walk” — two steps forward, one step back and maybe a few sideways. The vicissitudes of the “Arab Spring” will likely follow such a pattern. Hence in the months and years to come we will need a framework to evaluate the direction, the pattern and the likely outcome of this process. As economic exclusion leads to the mounting resentment that caused the turmoil, fiscal interests and redistribution will be dominant factors in shaping the course of history.

The convulsions have been especially acute in countries which depend on earnings from renting energy commodities (and also tourism). Rents provide the state with a cache of resources, but little incentive to build modern institutional capital, a pre-condition for social and material advancement. When governments can obtain conspicuous resources without having to resort to taxation it is hard for them to resist the temptation to eschew checks and balances; officials feel immune to scrutiny, deeming a partial distribution of these resources to powerful interest groups sufficient to retain power.

In the long run, the lack of modern public institutionsa trophies the ability of a society to progress, wastes the energies of the youth, spreads bitterness and often spurs a withdrawal toward tribal or sectarian splits. Resources are rarely eternal and in any case their size tends to shrink relative to the growing population. Unless the revenues are invested to diversify the economy into new sectors and enlarge the pie for all, eventually hand outs alone will not be enough ensure decent living standards.

Protests and riots should be interpreted not only by a call for redistribution but also for a social contract which fosters economic inclusion, upward social mobility and betterment opportunities. Unfortunately, this transformation cannot be delivered overnight and so the undercurrent of unrest will not abate instantly.

Still, it is a very positive sign that at least in the Gulf Cooperation Council the rulers have grasped what is at stake and have launched the so-called ‘Gulf Marshall Plan.’

One hopes that it will constitute the first step in a new economic strategy which desists from adding cadres to an already bloated and often utterly inefficient bureaucracy and focuses on skill creation and entrepreneurial talent. Likewise, one hopes that awareness spreads among decision makers that political survival is not only a matter of throwing a few handouts around, but devising a set of rules hinging on rights and not on privileges, on fairness and not on proximity to elites, on competence and not on favors. It will be a long road because it will clash with entrenched bad habits and long-established traditions — a good reason not to delay the journey and stick to newfound determination.

 

Fabio Scacciavillani is chief economist at the OmanInvestment Fund

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Finance

Harvesting higher prices

by Vanessa Khalil
written by Vanessa Khalil

If anything can be reliably forecast amid the growing upheaval in the Middle East and North Africa, it is the direction of global food prices. They have currently settled at record highs and are certain to increase in the future.

According to the United Nations Food and Agriculture Organization (FAO), an index of 55 food commodities rose 2.2 percent in February, the eighth consecutive month that food prices have increased and a record high since 1990. FAO’s cereal price index, which includes main food staples such as wheat, rice and maize rose 3.7 percent in the same month, the highest increase in one month since July 2008. Meanwhile, the International Monetary Fund’s statement that “the world may need to get used to higher food prices” did little to downplay concerns about further price increases. Soaring food prices were among the factors playing into the uprisings in Egypt and Tunisia,  further unrest elsewhere in the Middle East and North Africa is only helping to push these prices upward. Sifting through the wider implications of the unrest, among other factors, is crucial in understanding the current world food situation and to get a sense of what is to come.

What goes up…

Food is not the only commodity that’s getting more expensive; one side effect of the “Arab Spring” has been the recent crude oil price-jump to more than $100 per barrel, which will likely serve only to drive up food prices even higher.  

Crops were among the commodities that beat stocks, bonds and the dollar in gains for a third straight month. “Probably the most important implication of this oil shock is on financial markets,” said Abdolreza Abbassian, senior economist at FAO.

If oil supply disruption concerns persist, food prices will continue to set records. Uprisings in Libya have already led the African nation to halt its production of 1.6 million barrels per day. Saudi officials’ statements that the country would compensate for Libya’s oil shortfalls calmed markets to some extent but the price impact was limited on fears that Saudi Arabia might exhaust its spare capacity.

“The problem is that transportation costs are up, which trickles down to food prices”, said Simon Neaime, section chief of economic analysis at the Economic and Social Commission for Western Asia (ESCWA).

For grain producers, the oil shock automatically implies higher costs of production. According to a recent report by the Organization for Economic Cooperation and Development, energy accounts for over one-third of grain production cost.

On the macro-economic level, however, it is tightened supply and unforeseen demand that moves food prices upward. The first three months of 2011 saw MENA governments hoarding staple crops in bulk in anticipation of the trouble ahead. In February 2011, the Egyptian government bought 175,000 tons of wheat from the United States and Australia, while Saudi Arabia stockpiled a year’s worth of wheat.

Yet the MENA’s frantic purchases to boost stockpiles had a one-time impact on the market. “All that these countries did was stay on the safe side rather than wait a month or two when food prices would be much higher, or when they [might not] have governments,” FAO’s Abbassian said.  

Currency exchange rates are also contributing to high food prices, specifically for imports in the MENA region. “Another factor we are talking about here is the euro,” said ESCWA’s Neaime, who adds that the euro won’t be going down anytime soon. “Many North African countries trade mostly with the [Eurozone]. Whenever the euro is appreciating, they are importing inflation.”

Fickle weather also remains a long-term driving force behind high food prices. Russia’s ban on grain exports that had started in summer 2010might be extended until year-end 2011. Climate threats are also a factor for 2011; at a March conference on Near East, FAO raised concerns of drought, floods and soil degradation in the region. Meanwhile, the La Nina weather pattern is forecasted to lead to heavier rainfall in the northern United States and Canada, possibly washing out harvests and tightening supplies on corn andwheat.

Weather aside, Japan’s triple disaster is also curbing food supply. The 8.9 magnitude earthquake and the tsunami that followed destroyed close to 20 percent of the agricultural and food industry in Northeast Japan. Meanwhile, the nuclear crisis that resulted from Japan’s Fukushima reactor meltdowns led to food restrictions on Japanese exports. The US, Australia, Singapore and Hong Kong banned food imports from some regions of the country after high levels of radioactive iodine were detected in some samples.  

…Must come down?

Among the downward price pressures on food are the expectations that spring wheat crops will boost supply. “Wheat is one crop that is easier to predict right now because plantings have just taken place this spring. We do see a strong expansion,” Abbassian said. Likewise, the US Department of Agriculture’s “Supply/Demand” March report forecasts world wheat crop to reach 668 million tons for 2011-2012, up 21 million tons on the yearearlier.

Cereal production

As supply increases, the stockpile in the MENA region could damper demand, namely in Egypt and Saudi Arabia. “That could take away some of the spring and summer purchases and correct prices,” said Abbassian.

 Meanwhile, some experts in the foodstuffs industry exporting to Gulf Cooperation Council countries expect lower demand through the rest of the spring, as a wait-and-see mood prevails among consumers and government buyers.  

Preemptive government subsidies in the MENA may also hold down prices consumers pay on the shelf. As an example, the United Arab Emirates recently agreed with the Union Cooperative Society supermarket chain to reduce prices, mainly on rice and bread, back to their 2004 figures starting this April and running until year’s end.

“Higher prices now pressure macroeconomics rather than consumers who are poor and still receiving subsidies. OPEC [Organization of Petroleum Exporting Countries] can afford to help consumers,” Abbassian said. But Neaime has his doubts about less wealthy Middle Eastern countries following the trend. “Countries like Lebanon and Egypt don’t have enough fiscal space to deal with price shocks and subsidies. They have their debts and deficits to worry about,” he said.

Growing pains

But, natural disasters and political turmoil are pieces of a much bigger mosaic. The world’s population is growing at an alarming rate, and resources are getting scarcer. “It’ll take a lot to feed nine billion people in the future,” said Neaime. The IMF asserted that record food prices would persist in line with economic growth and rising living standards.

The pain will be felt especially by the poor, particularly in Africa’s most impoverished countries. According to Neaime, despite economic progress in the developing world, the benefits have not been distributed throughout.

“Economies are growing and so is GDP [gross domestic product] but nothing is happening on a social level,” said Neaime. This means severe repercussions for those who can’t afford food at the current price levels, let alone at future ones. “If you are poor, then that 50 or 60 percent of your income will suddenly not be enough,” added Abbassian.

The repercussions of rising food rises are that they tend to foster greater general social inequity and instability, given that the poor are less able to afford their daily bread while the wealthy cash in on rising food prices through investing in commodities. This often leads to further price hikes and the perpetuation of a cycle that becomes more unpleasant and unsustainable the longer it persists; in the absence of a global calamity to stunt future growth prospects in emerging economies, food price increases seem all but foretold.

So, while the unrest sweeping the MENA region came unexpectedly to many, the unrest down the road, both here and beyond, should not.

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Banking & Finance

Money matters bulletin

by Executive Editors
written by Executive Editors

Regional stock market indices

Regional currency rates

UAE developers down at end 2010

Real estate firms in the United Arab Emirates suffered from poor earnings results in the fourth quarter of 2010. Abu Dhabi-based Aldar Properties reported a net loss of $3 billion in the quarter, accounting for its overall $3.07 billion loss for the year. Sorouh Real Estate, Abu Dhabi’s second largest developer by market value, also posted a net loss of $54.18 million compared to a net profit of $7.65 million a year earlier, as its revenues for the last quarter of 2010 fell 51 percent to $58.26 million. Moving to Dubai, Emaar Properties, UAE’s biggest developer by market value, registered a 62 percent decline in net income during the fourth quarter of 2010 to $74.6 million, down from $196.03 million a year earlier. Union Properties’ fourth quarter net loss increased as well, climbing fivefold to $211.8 million compared to a loss of $40.29 million registered in the same period last year, due to losses on property valuations.

Saudi oil production to rise 15.4 percent by 2020

Saudi Arabia’s government stated that local oil production increased significantly during December 2010 to a two–year high of 8.365 million barrels-per-day (bpd), recording a 1.3 percent increase since November. Separately, Business Monitor International (BMI) forecasted a 15.4 percent rise in Saudi oil production between 2010 and 2020, with output reaching 11.4 million bpd by 2020. BMI also expects oil consumption in the Kingdom to increase 40.1 percent during the same period, to 3.91 million bpd. In the near term, BMI believes local oil demand will climb from an estimated 2.79 million bpd in 2010 to 3.38 million per day in 2015, accounting for 38.8 percent of the Middle East’s regional oil demand.

The region’s idiosyncratic unemployment enigma

The number of unemployed in the Arab world is forecasted to reach 19 million by 2020, according to Kuwait-based think tank, Arab Planning Institute (API). The Middle East and North Africa region has been suffering from sluggish labor markets for some time, despite the fact that the workforce is generally young and shows 3.5 percent growth per year, relative to an average 3.1 percent population growth since the 1980s. This favorable employment dynamic has, however, not been used to benefit the region’s development and most MENA countries still lag behind in female employment rates, with less than 40 percent of women eligible for work employed in the labor force. North African countries, however, generally score better in this category, as up to 65 percent of the female population is in the labor force. Another factor contributing to high unemployment in the Arab world is the few job opportunities available for the educated. For instance, up to 50 percent of the unemployed in Tunisia and 44 percent in Morocco have secondary and tertiary degrees, according to API. Under these conditions, a large percentage of people eligible for work become discouraged, excluding themselves from the labor force. Unemployment rates in MENA countries are thus somewhat skewed and expected to remain in the range of 11 to 15 percent over the next decade.      

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Banking & Finance

Regional equity markets

by Executive Editors
written by Executive Editors

Beirut SE  

Current year high: 1,180.99    Current year low: 935.56

>  Review period: Closed Feb 28 at 936.99 Points                Period Change: -5.3%

More turmoil in the region, no cabinet and a real surprise in the United States going after a (non-listed) Lebanese bank for money laundering in a manner reminiscent of a B-movie: February was a month of few positives for Lebanese stock market investors. However, the BSE’s year-to-date performance of minus 3.6% is not too depressing, given the circumstances. Of the three largest stocks, developer Solidere closed the month in the mid $18s, Bank Audi came in at $7.11 and BLOM Bank at $9.14.

Amman SE 

 Current year high: 2,648.36                Current year low: 2,223.30

> Review period: Closed Feb 28 at 2251.73 Points               Period Change: -5.1%

With Libya and Yemen attracting the caravans of revolution-watching media, Jordan in February was not in the front row of international speculations over its future. The Amman Stock Exchange did not have an easy month, however. In the February review period, all sector indices pushed lower in tandem with the ASE general index, which is down 6% for 2011 so far. According to local media, a handful of investors took their cue from the popular protest handbook and staged a sit-in demanding dismissal of the head of the Jordan Securities Commission.

Abu Dhabi Exchange  

Current year high: 2,931.67                Current year low: 2,471.70

> Review period: Closed Feb 28 at 2,588.90 Points              Period Change: 0.1%

The richer emirate in the UAE was the only market in the GCC that did not drop in February. When seen across sectors, performance on the ADX was mixed; telecommunications ended the review period 4.3% higher while banking weakened 2.9%. But the real estate index suffered badly, dropping 19.9% and construction fell 12.2%. RAK Properties, Aldar Properties and Sorouh Real Estate all suffered double-digit share price losses, as did three financial stocks and Abu Dhabi Ship Building Co. Market cap leader Etisalat gained 3.9% but showed no progress on buying Zain.  

Dubai FM  

Current year high: 1,880.62                Current year low: 1,470.70

> Review period: Closed Feb 28 at 1410.70 Points               Period Change: -8.1%

Even directly after the Dubai World debt trauma, the DFM index did not slump as low as it did at the end of February 2011. With rampant talk of contagions from regional crisis spots, all DFM sector indices tended negative, with transport dropping 12% and real estate 13.3%. Utilities was the worst underperforming sector on the DFM for the review period, down 19.6%. Banking was a brighter spot, weakening only 1.8%. Market volatility in February reached 26.7%. On the year, the DFM index had given up 13.5% by Feb 28 close.

Kuwait SE  

Current year high: 7,575.00                Current year low: 6,319.70

> Review period: Closed Feb 24 at 6,481.10 Points  Period Change: -5.5%

The KSE benchmark index turned totally south in February. The regular market’s sector indices dropped on all fronts, led down by the investment index (-7.9%) and the industrial index (-7.7%). Bahrain’s Arab Insurance Group, which is cross-listed on the KSE, was also here a top gainer, up 21.1%. Shares in Mena Holding, a real estate firm with subsidiaries and projects in Egypt, lost more than 53%. The trading month in Kuwait was truncated Feb 24 as the country celebrated its 50th Independence Day.

Saudi Arabia SE  

Current year high: 6,929.40                Current year low: 5,538.72

> Review period: Closed Feb 28 at 5,941.63 Points              Period Change: -6.5%

Until Feb 14, the SASE Index stood firm but then the TASI fell nearly 700 points to the end of the month. For the year to date, this translated into a fall of 10.3%, the second worst year-to-date Gulf market performance after Dubai. Telecommunications and banking indices showed the weakest sector performances, falling 9.9% and 9% respectively. King Abdullah’s return from hospitalization abroad and his announcement of economic measures toward the end of the month had no visible positive impact.

Muscat SM  

Current year high: 7,027.32                Current year low: 6,058.11

> Review period: Closed Feb 28 at 6,142.42 Points                  Period Change: -10.2%

The MSM fell victim to political unrest and showed the worst drop of all GCC markets in February, wiping out the modest gains from January. Notably, the bourse’s average daily turnover was slightly higher than last month but losing stocks vastly outnumbered gainers. Volatility was substantial, at 21.5%. Within the MSM’s shock-induced downturn the banking sector fared worst, closing the month 18.6% lower. While there were no surprise gainers, investors in poultry specialist A’Saffa Food showed the biggest scare as the scrip fell 28.5%.

Bahrain Bourse  

Current year high: 1,605.98                Current year low: 1,361.19

> Review period: Closed Feb 28 at 1,430.77 Points              Period Change: -1.2%

It is an irony that will not escape careful observers: while Bahrain is being viewed as the GCC member with the greatest exposure to political protests and internal dissonance in Feb 2011, the BB remains the GCC exchange to drop the least in the year to date, at -0.1%. Even in February, market losses remained modest. However, turnover for the month fell about two thirds from January. Arab Insurance Group was the period’s best gainer, up 17.1%. Inovest, a real estate investment firm, slipped 39.6%.

Qatar SE  

Current year high: 9,242.63                Current year low: 6,647.18

> Review period: Closed Feb 28 at 7932.84 Points               Period Change: -9.3%

Like Saudi Arabia, Qatar was not a scene of unrest in February but like the TASI, the QSE Index took a steep downturn in the middle of the month, save for a brief respite on Feb 24. Owing to a share-price surge in early February, Masraf Al Rayan closed the month 8.5% up but the month’s unsuspected best gainer was Qatar Oman Investment Company. The bilateral company, with stake holdings by the two governments, gained 9%. Barwa Real Estate and National Leasing Holding Co underperformed the market with respective losses of 20.8% and 25.6%.

Tunis SE  

Current year high: 5,681.39                Current year low: 4,058.53

> Review period: Closed Sept 23 at 4,058.53 Points                            Period Change: -10.86%

The price of real freedom is never too high and even if the benchmark Tunindex of the TSE closed February 28 down 22.2% since the start of 2011 and 29.6% down from its year high in October 2010, it is far too early to open a cost-benefit calculation on the changes Tunisians initiated in January. The TSE, which had been closed for half a month until Jan 31, could easily have tumbled worse in Feb and there seems to be no historic benchmark for an average post-revolutionary stock market performance.    

Casablanca SE  

Current year high: 13,397.47              Current year low: 10,938.64

> Review period: Closed Feb 28 at 12,805.81 Points                              Period Change: 1.72%

Isn’t Casablanca in revolutionary North Africa? Political prospects on the region notwithstanding, Morocco’s benchmark MASI ended the review period with an upswing that made February into a typical V-month for its investors. The index lost 500 points in the third week of the month and regained them in the fourth. No trouble on the real estate front, it seemed, where Groupe Addoha climbed 5.9%.

Egypt SE  

Current year high: 7,603.04                Current year low: 5,647.00

> Review period: Closed at 5,467.00 Points (Jan 27)                        Period Change: N/A

The only events of record in the EGX during the month of February were postponements; there were several announcements that the bourse would reopen shortly, only to be rescinded before their implementation. The market, which recorded its last session close to date on January 27, has been shuttered for more than 20 regular sessions. The central bank kept pressure on the Egyptian Pound in check throughout Feb and banks returned to serving customers, but with increased controls on transfers.

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AdvertisingSpecial Report

Cooperate to elevate

by Executive Editors
written by Executive Editors

Over the years I’ve come to the conclusion that the ad industry has endured a lot of finger-pointing but not enough autopsy; a tendency for mudslinging instead of progress through cooperation.

Our region lags behind on so many practices prevalent in more mature and sophisticated markets, the per capita ad spending remains to be among the lowest across the globe and the level of confidence among marketers that advertising relates to growth remains timid.

However, the interesting aspect of this region is in its opportunities: it sits conveniently at the cross-roads of the rising East and the experienced West, with strong economic capabilities and young dynamic populations. Furthermore, the longer term positive effects of the current political change sweeping key Arab states will bring with it better governance, healthier business environments and hopefully a fairer distribution of wealth.

This begs the question of whether the advertising industry, with all its disciplines, will be able to lead and contribute to the process of change or will this industry remain hostage to the transactional cage built by lingering practices of the 1980s and the rising power of procurement, thereby leading to another “lost decade”?

Crafting the answer is the equal responsibility of all stakeholders.

The recent developments in data mining technology, as well as the transfer of frameworks from the science of operations research, has proven beyond a doubt that advertising can and will affect growth — and not just in consumer packaged-goods industries.

Concurrently, agency networks for the past few years have been showing solid commitment to the region by increasing equity holding in the local entities that carried their trademarks. That can only be good news, because if anything it means a “system upgrade” in various ways:

• Upgrade of agency services by transferring learning and experiences from mature markets while offering multinational corporations the ability to sync local activities with global.

• Upgrade of the financial practices and corporate governance, ushering-in higher levels of accountability with the implementation of global best-practice and tools.

• Upgrade of the terms that govern a client-agency relationship, ensuring a fine balance between trading strength and ideas that deliver business solutions.

As the agency reform takes shape it is acting as a catalyst for change. In order for it to take full swing, it requires an embrace from the other side of the spectrum: the marketing community. For advertising to contribute to growth it has to be measured; the good news is that agencies have developed the know-how to do that. Now it’s up to the marketers to increase investment in measuring every aspect of their activities and develop a much greater confidence in entrusting their agencies with access to such gems.

Eventually as we move toward an environment of “advertising that works,” marketers will want to measure value and not just efficiencies. The practice of advertising will become more focused on business results and less focused on the mundane marketing and advertising key performance indicators.

More importantly, when selecting their agency partners, marketers would want to differentiate between those that only offer a transactional solution and those that are capable of contributing to growth — this is key to the success of the partnership, as agencies that understand and contribute to growth cannot survive or operate on remuneration schemes prevalent in a trading/procurement environment that is focused on driving efficiencies in paid media.

Against all odds, and despite the fact that the industry still suffers from underdevelopment on a number of fronts, this region has always been credited for being entrepreneurial. In fact we’ve seen over the years many a high-profile marketer willing to experiment in unchartered territories.

In avoiding the fate of the “lost decade,” the advertising industry, with the participation of all its stakeholders, has the golden opportunity of experimenting with a reformed relationship that focuses on growth as the basis for all conversations.

If this proves to be successful — and it will — it carries the potential of being a global best practice exported out of this region.

SHADI KANDIL is managing director of OMD UAE

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