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Finance

Executive Insight – Only real demand counts

by Bertrand Carlier April 3, 2011
written by Bertrand Carlier

Behind the current short-term fluctuations linked to shifting growth prospects lies a powerful uptrend in commodity prices. A deep-seated change in lifestyles in emerging countries is creating new needs in a self-sustaining process that generates ever more demand.

At its latest plenary session at the beginning of March, China’s National Assembly confirmed the direction in which markets are moving: industrial metal prices are likely to continue a rally that started a decade ago.

Nobody can or should invest in commodities unless they are convinced of the potential demand for capital goods and infrastructure needed to underpin endogenous economic growth, as opposed to export-driven expansion alone.

According to the Appliance Manufacturers and China Building Association, copper consumption already amounts to 41 kilograms per home. Looking at China’s 12th five-year plan, the proportion of the country’s population living in urban areas will expand from 47.5 percent today to 51.5 percent in 2015; this urbanization will require tens of thousands of kilometers of railways, roads and piping. It will also require new power stations to meet energy demand, and copper and copper derivatives will be needed here as well. 

Whatever the sector, requirements are staggering and the figures speak for themselves. According to the International Copper Study Group, China accounted for 7.87 million tons of the 22 million tons of copper used worldwide in 2009. By comparison, Western Europe, the planet’s second-largest consumer, accounted for “only” 3.13 million tonnes. A few figures from the production side put this trend in perspective: Escondida, the biggest copper mine in Chile, can produce a maximum 1.3 million tonnes per year, and 1.09 million tonnes were actually extracted in 2010. Chile’s total output increased 0.5 percent last year.

Urbanization & income, country comparisons

The 8 percent increase seen in world demand in 2010 should be compared with a 4 percent increase in output. “Shortfall” is a euphemism, and prices are bound to rise further even without consideration of strategic stocking. Having surged to almost $10,200 per ton, copper prices are now fluctuating just above the $9,000 mark. This level looks attractive in the long term.

The emerging-country demand argument may be a cliché, but it represents the stark reality of the situation, especially given China’s latest development plans. Identifying demand factors is the best means of evaluating changes in prices.

Cashing in on calamity

Since February 15, 2011, issues relating to world growth have weighed on all commodity prices. The Japanese disaster has followed instability in the Middle East and North Africa (MENA), clouding the prospects for activity and fuelling price volatility. Yet while instability effectively creates a tax on consumption via crowding-out effects, Japan’s predicament actually strengthens the upswing in commodity prices. After all, reconstruction efforts will require purchases of copper over and above the country’s 1.22-million-ton consumption in 2010. Short-term volatility should not mask a long-term trend bolstered by rising demand for a product of limited supply.

Copper use by region in 2009 (millions of tons)

Copper use by country 2009

In terms of the upheaval currently rocking the MENA region, the outcome is uncertain due to the social factors that are contributing to these crises. The movement of revolt, which derived its power from the ever-widening gaps within these societies, has taken a turn that could threaten stability across the region. None of the main producers has been affected for the time being. The action taken by the Gulf Cooperation Council and conciliatory gestures in the form of handouts are sure signs that the regimes in place are feeling the pressure and acknowledging the risk of social unrest.

Copper use by business sector and region in 2009

The increase in real demand masks a political dimension, too. Just imagine the social unrest if, for  want of basic materials, China fails to deliver the 38 million new homes it has promised under the current five-year plan. Access to such resources is vital and readily explains Chinese and Indian commodity-related acquisitions and equity stakes.

That said, premia for high-probability events are rising, as the case of the insurance market shows. Soaring oil prices against a backdrop of instability in the Middle East and North Africa are a salutary reminder of that fact. In an inversion of the usual relationship on the commodity markets, volatility recently rose in line with a sharp increase in crude oil prices. This insurance premium is apparently $10-$15 per barrel, a stark pointer toward geopolitical uncertainty.

The synchronization of growth cycles is reflected in a combined surge in energy demand. As with copper, the factors driving up energy prices depend above all on growth. Commodity prices are often set by marginal demand, with the disappearance of a few hundred barrels of oil per day out of a total of around 87.5 million barrels consumed per day triggering immediate price adjustments to the upside, with the size of the move depending on the quality of the oil concerned. 

The 2008 crisis probably boosted awareness among major consumers such as India and China that they have to invest if their populations are to benefit from endemic growth. In the present recovery phase, demand for commodities is now increasing among the major developed countries. This amounts to a long-term demand shock in the context of insufficient pre-crisis investment, compounded recently by geopolitical risk.

This is an explosive mixture that is likely to drive commodity prices higher still, amid heightened volatility that reflects wavering growth expectations.

 

Bertrand Carlier is the manager of Bel Air Fixed Income & Commodity Funds at Credit Agricole Suisse

April 3, 2011 0 comments
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Banking & Finance

Money matters bulletin

by Executive Editors March 28, 2011
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.      

March 28, 2011 0 comments
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Banking & Finance

Regional equity markets

by Executive Editors March 28, 2011
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.

March 28, 2011 0 comments
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AdvertisingSpecial Report

Cooperate to elevate

by Executive Editors March 28, 2011
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

March 28, 2011 0 comments
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Economics & Policy

Finance ministries must rise to the challenge

by Executive Editors March 27, 2011
written by Executive Editors

Nabih Maroun is a partner, Jihad Azour a senior executive advisor and Mazen Ramsay Najjar a principal at Booz & Company

The global financial crisis may be in the rearview mirror but it’s not yet out of sight. This is particularly true for emerging markets. The BRIC economies (Brazil, Russia, India and China) have returned to warp-speed growth, yet they remain susceptible to external shocks that could threaten their economic expansion and erode their fiscal foundations.

Russia is vulnerable to swings in the price of oil, Brazil to commodity prices and India and China to global demand. China faces additional challenges from potential changes in exchange policy, which could have ramifications for its trade position. All four countries are facing massive capital inflows and overheating, with monetary policies not effectively aligned with fiscal policies. Also, they lack standardized, consistent public statistical data, which renders their economies largely opaque to outsiders.

The emerging economies of the Arab Gulf are in a similar situation; they are strong but with key vulnerabilities. Wealth from natural resources has sheltered these countries from the worst of the financial crisis and, unlike most developed economies, they have maintained fiscal surpluses.

However, the Gulf countries have made significant overseas investments in recent years through government related entities or sovereign wealth funds, which have exposed them to contingent risks arising from the crisis, and have yet to figure out an approach for managing those assets.

These countries also suffer from a lack of transparent economic statistics that would allow an independent evaluation of their economic and fiscal situations, particularly those related to state-owned enterprises, which represent in many cases the bulk of their economies. They also have public sectors that are top-heavy and less productive than they could be.

Good governance

Finance ministries have a key role to play in addressing the challenges emerging in the post-crisis period. Yet, as in other parts of the world, the finance ministries in these emerging markets now have a vastly expanded slate of responsibilities. They still retain their traditional role of public finance management, by controlling taxes and spending at the national level, but finance ministries now must also oversee the sizable assets that many countries had to buy in order to stabilize their economies, such as banks, securities and manufacturers. They are increasingly responsible for economic management — ensuring that the national economy is enjoying healthy growth in the face of a weak global recovery — while preserving the stability of their financial sectors.

In conjunction, they must enhance accountability and transparency measures in order to boost confidence in their countries’ economic stewardship and to strengthen their fiscal credibility. In short, finance ministries must do more, and address more complex issues, than at any time in recent economic history.

Finance ministries in emerging markets have taken some noteworthy steps to address their fiscal and economic vulnerabilities head-on.

India centralized its public debt in 2009 in a newly created debt office.  Brazil consolidated its debt and liquidity management functions, amended its fiscal law and opened its budget to public scrutiny. China updated its budget management law (though questions remain about the quality of its economic data). In the Gulf, the United Arab Emirates, Saudi Arabia and Kuwait have all taken steps to streamline their public sectors, by outsourcing certain non-core government functions, restructuring some municipal agencies and privatizing others.

The UAE has strengthened its debt management and risk-management functions and established stabilization funds and facilities. Qatar is reviewing its regulation and supervision framework for the financial sector and Kuwait recently introduced risk assessment and early-warning capabilities to safeguard the stability of its banking sector.

Although these are laudable measures, their degree of success has been marginal because they represent isolated steps taken by ministries that continue to operate within the same setup they employed before the crisis.

Instead, finance ministries need to make more sweeping, fundamental reforms in their institutional setup and operational capabilities. There is no one-size-fits-all approach to reform of this scope and magnitude. Instead, priorities will vary widely, depending on the fiscal and economic situation in each country.

In that light, the finance ministries in BRIC countries have three clear imperatives. First, they must quantify and mitigate contingent risks within their economies, such as swings in commodity prices, currency fluctuations, private demand and financial exposure, among others. Second, these countries must make their economic systems more transparent. This requires accepting independent opinions — such as those of parliament, specialized agencies, or markets — on economic targets and fiscal and expenditure projections. Third, BRIC finance ministries must better coordinate fiscal and monetary policies. Without such coordination, they will continue to experience volatile economic swings, often requiring corrective measures with high costs.

Gulf priorities

The imperatives for finance ministries in the emerging countries of the Arab Gulf are significantly different. Their greatest priority is to develop institutional capabilities in the management of modern budgets, public debt and state-owned assets — in some cases by using talent and techniques borrowed from the corporate world.

In addition, these ministries should implement more rigorous and transparent economic statistics, which will significantly improve the quality of policymaking and encourage accountability. They must also continue to improve the productivity of government operations. 

These reforms will not be easy to implement, but finance ministries have few alternatives. More important than any single policy measure, they must rethink their overall operating and institutional models and develop new capabilities that are more in line with their expanded slate of responsibilities. Only by developing the right set of instruments for fiscal, debt, and asset management, along with risk prevention tools, will they be able to navigate the post-crisis economy, signal a clear commitment to economic stability and allow their countries to truly thrive.

Finance ministries need to make more,sweeping, fundamental reforms in their institutional setup

March 27, 2011 0 comments
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AutomotiveSpecial Report

Samir Homsi

by Executive Editors March 27, 2011
written by Executive Editors

Samir Homsi, president of the Automobile Importers Association, the industry representative of car dealerships in Lebanon, recently sat down with Executive to discuss possible alternatives to conventional gas-fueled vehicles.

  • What do you think of the Ministry of Energy and Water’s proposal for compressed natural gas (CNG) vehicles?

There has been a lot of talk to make new rules, which we need badly. The subject of what to use as fuel has been discussed by the association and also in the parliament with [head of the Parliamentary Energy and Public Works Committee, Mohammad] Qabbani there was a lengthy discussion of what kind of fuel should be used. Our opinion is that while the use of [CNG] cars may be economically beneficial to the user it will be a dangerous alternative, especially in Lebanon. In France — the pioneers — they were using [CNG] fuel in cars but today we see the French getting out of that by using Euro 4 and Euro 5 standard gasoline instead. At any rate, our opinion is to use cleaner gasoline. Obviously our gasoline should be better quality and [we] should import better gasoline with less sulfur for modern vehicles with high Euro-grade standards.

  • Iran, India, Pakistan and Egypt have all adopted CNG. Why not here?

We need to check with what Europe is using. We do not need to copy Egypt or anyone else. For CNG there have to be re-filling stations, but what about being stationed in the middle of Beirut? In Europe they are outside of the cities, far from houses and living places. Can you imagine this in Ashrafieh?

  • What is your stance on the proposed law to allow for the importation of hybrid vehicles?

Hybrids are definitely the future; we expect within two years to have at least half of the members of the association importing hybrids. They are very expensive now and should be less expensive in two years because battery costs will go down slightly. This is where the Ministry of Finance had a good idea for the environment to reduce taxes on four-cylinder hybrid cars.

  • Do you think the government should financially assist consumers to trade in old pollutive vehicles for newer, more fuel-efficient cars?

Part of the plan is to do what Europe is doing but it is not in the government’s budget to pay for cars to be scrapped, as the United States has also done during a certain period. This could be done here with aid from Europe and was proposed directly by us and they were ready to participate in the program. We had a meeting a long time ago with the finance minister and together said, ‘Why don’t we do this with the European Commission?’ It also could be done by asking for aid from USAID [United States Agency for International Development].

  • Do you think the proposed law to allow for the import of environmentally friendly diesel should be expanded to include private vehicles?

I am for the import of clean diesel but not for passenger cars or taxis. The new law is conditional on the proper distribution of diesel, as otherwise, in one year, cancer rates would be up, you will have hell and not see Beirut from any point due to the smog.

  • What more can be done to rein in pollutive vehicles?

I have recommended to [now caretaker] Interior Minister Ziad Baroud, as he took a very positive step to limit accidents and speeding with radars, to also have the same system applied to photograph polluting cars and give them fines. Implementation of force on roads is practically nil so maybe an alternative is to have cameras.

  • Catalytic converters removed from used cars before importation to Lebanon is one cause of unnecessary fuel emissions. What do you think of this legal requirement?

The law that a catalytic converter should be removed before import should end. I’m not sure how this stupid law came into effect.

March 27, 2011 0 comments
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Finance

Banking Special Report, 2011

by Executive Staff March 26, 2011
written by Executive Staff

A word with leading Lebanese banking luminaries: Bank Audi’s Chief Financial Officer Freddie Baz, Byblos Bank’s General Manager François Bassil and Saad Azhari, chairman of BLOM Bank discuss the state of the country’s banking sector amid a gloomy economic outlook

March 26, 2011 0 comments
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AutomotiveSpecial Report

Unlocking The grid

by Executive Editors March 21, 2011
written by Executive Editors

Congestion in Beirut has reached the point of crisis. Traffic levels have become intolerable, with jams and “road rage” a part of everyday life. There is little public transport and, as a result, no feasible initiatives to encourage people to give up driving. The situation is clearly unsustainable.

Oil prices are hovering around $100 per barrel these days and the cost of fuel has soared in Lebanon over the past year. Consumers are feeling the effects on their wallets, compounding the hurt on their lungs from the amount of pollution generated by the 1.6 million cars in the country, some 76 percent of which are more than 10 years old, and 50 percent more than 20 years old.

In a recent study by the American University of Beirut’s Air Quality Research Unit, “fine” air particles in the capital were found to be three to four times higher than World Health Organization standards, while the unit noted that carbon emissions from vehicles posed a “serious risk to public health” and have “proven to be carcinogenic.” Indeed, environmentalists estimate that 60 to 70 percent of air pollution in the country is generated by vehicles.

So what is to be done? The traffic is detrimental to people’s health, mentally as well as physically, while with roughly 100,000 new and used cars sold every year, more and more carbon emitting vehicles are hitting Lebanese roads. Despite the rising costs of gasoline people have not been discouraged from driving, although there has been a noticeable shift over the past few years in the car market toward more fuel efficient compacts over larger vehicles.

There are options on the table but, in typical Lebanese political fashion, no common policy toward a workable solution. The plan proposed in 2010 by the Ministry of Energy and Water to introduce compressed natural gas (CNG) vehicles has been opposed by the Parliamentary Energy and Public Works Committee, ostensibly over safety concerns.

“There are options on the table but, in typical Lebanese political fashion, no common policy toward a workable solution“

A draft law to allow four-cylinder hybrid cars to be imported tax free has yet to be passed, the previous parliament having been too occupied with the Special Tribunal for Lebanon to enact it and now, with no cabinet in place, the bill is gathering dust. In any case, the energy ministry is more pro-CNG than hybrid, citing CNG’s questionably better safety record than hybrid technology and dismissing hybrids as not suitable for Lebanon’s topography.

Meanwhile, car dealers are waiting in limbo over whether the draft laws will be passed and what this will mean for their business strategies. Dealerships, such as the industry’s representative body, the Automobile Importers Association (AIA), have serious objections to CNG and query the feasibility of introducing hybrids without financial incentives to encourage consumers away from cheaper traditional models. They also view the law as limited — it does not include, for instance, six cylinder hybrids.

On both sides there is ignorance of the way these alternative fuel technologies work, in some cases confusing CNG with Liquefied Petroleum Gas (LPG) and in others reiterating the myth that all hybrids need to be plugged into electric mains to charge up.

There is also an expectation that the free market will compel consumers to take up either CNG or hybrids despite the global precedent of government-assisted incentives to encourage citizens to switch to more environmentally friendly vehicles.

Executive takes a look at the proposed policies, the pros and cons of CNG and hybrids, the investments needed and what is being done elsewhere in the world, and offers some realistic solutions to help clear the air and roads in Lebanon and change this unsustainable status quo.

The ministry’s case

In November 2010, the Ministry of Energy’s proposal for CNG was shot down by three out of four parliamentary experts, with the head of the Parliamentary Energy and Public Works Committee Mohammad Qabbani deeming the fuel un-safe, despite the ministry’s call for a re-evaluation of the criteria used.

“Our proposal was [for] CNG cars, which has not been accepted across the board,” said Cesar Abu Khalil, advisor to Gebran Bassil, caretaker Minister of Energy and Water. “I’m not sure why Qabbani took such a hostile position; the proposal is to allow the use of CNG — it is not obliging people to. We wanted to create an alternative fuel for consumers. Fuel costs have been increasing very fast, by $4 for 20 liters in less than six months, and has become unbearable for those on minimum wage and everyone else. We’ve been urging the Council of Ministers since 2009 to reduce taxes on fuel gasoline but to no avail.”

The ministry’s proposal is based on socio-economic and environmental grounds. CNG is some 40 percent cheaper than gasoline, which would help consumers financially and reduce the amount of gasoline fuel the country would have to import. Environmentally, CNG emits carbon dioxide levels that are 10 to 30 percent lower than gasoline, while emitting 27 times less nitroxide pollutants. CNG has been discussed in Lebanon over other natural gas options such as LPG or newcomer gas-to-liquids (GTL) due to its more extensive adoption worldwide.

In terms of safety, the ministry dismisses concerns that CNG is dangerous and not suitable for Lebanon, citing the fact that there are 12.5 million natural gas vehicles (NGVs) in use today worldwide, with the biggest users in Pakistan, Iran, Argentina, India and, slightly further down the list, Egypt.

“CNG is lighter than air, which means any leakages rise in the air; there are no spillages, and if ever this gas catches fire it burns high in the air, unlike LPG,” said Abu Khalil. He added that CNG cylinders undergo rigorous testing, are capable of withstanding penetration by a 30-caliber bullet without rupturing, are designed for a specific life span and only need to be inspected every three years or 58,000 kilometers.

According to documents given to Executive by the ministry, data from the United States showed the vehicle injury rate of the 8,331 natural gas vehicles surveyed was 37 percent lower than gasoline vehicles and that there were no reported fatalities, compared with 1.28 deaths per 100 million miles for gasoline vehicles.

“For over three months we were searching for an accident related to CNG, but all accidents were due to gasoline and hybrids,” said Minister Bassil’s advisor Michel-Ange Medlej. “We are not against hybrids but want all the alternatives available for the consumer. The Lebanese consumer should be able to choose what they want their vehicle to run on.”

Rolling out CNG

The ministry is keen to emphasize CNG as an alternative fuel choice. They feel that market fundamentals will provide the incentives for consumers to convert vehicles to CNG and that fuel distributors will make a return on investment from installing CNG pumps at stations.

“The real subsidy is the fuel, as it is cheap and a retro conversion [of a car’s engine from gasoline to CNG] is around $2,000. The return on investment would be very quick,” said Abu Khalil. The advisors cited service taxi drivers as prime target users of CNG, given an average monthly fuel bill of some $600.

“The encouragement comes when you commercialize CNG. Service taxis, light vehicles and special vehicles are the users we want to attract to CNG,” said Medlej. “Most private owners will not opt for a change to CNG but if the fuel bill increases it will give the [impetus] to switch to CNG,” he added.

In terms of infrastructure, CNG would come from the Arab-Mashreq Gas Pipeline that enters Lebanon from Syria. With the prospect of Lebanon having gas in its territorial waters, this could be a further incentive for adopting CNG. “Why did Pakistan reach 2.5 million CNG cars? [Because] it is a natural gas producer and an oil importer,” said Medlej. “If we become a gas producing country, why not use CNG?”

Lebanese natural gas will not be coming anytime soon, however, and in the meantime gas stations would have to offer imported CNG to consumers if the law is passed. “It is around $300,000 in investment per pump to install CNG at an existing fuel station. That is nothing compared to the amounts of money paid by companies to build new gas stations, and as CNG is cheaper there will be a higher profit margin,” added Medlej. Others in the private sector, however, have cited concerns over the costs, saying that they can reach up to $500,000.

While the advisors concede that demand will be related to the availability of CNG, they expect a gradual uptake of the fuel.

“It will take time. You can’t just flip a switch and change to have 500,000 CNG cars,” said Dany Samaha, advisor to minister Bassil. “CNG roll out will need quality control, procedures, employees and mechanics, but the law needs to [be passed] first and then we can address the private sector for investment. It will not take more than a year.”

With no incentives to consumers or financial assistance for fuel companies to install CNG pumps, the adoption of CNG will not impact the government’s financial budget, nor will the treasury lose out on taxes generated from CNG, confirmed Abu Khalil. While no parliament has been formed as of Executive going to print, the expected dominance of the upcoming cabinet by the former opposition March 8 coalition is considered a green light for the ministry’s plan, especially as it is in the hands of the Free Patriotic Movement (FPM). “We are optimistic [that] with the imminent change in government we will have the upper hand and not face all the hurdles faced in the last government, and that should be reflected in many other projects,” said Abu Khalil.

“When we were asked by the AIA whether we were interested in gas cars…we said it was not for us”

Opposition to CNG

CNG has been opposed not only by the parliamentary committee but also by car dealers. The AIA has opposed the move on safety grounds [see Q&A page 118] and dealerships are keener on introducing hybrid technology.

Opposition to the plan is also seen as politically motivated, with opponents even suggesting, off the record, that the energy ministry, which is in the hands of March 8’s FPM and allied to pro-Iranian Hezbollah, is pushing for CNG because of the Islamic Republic’s widespread adoption of the alternative fuel. If Lebanon hitched onto the CNG wagon, so the argument goes, this would result in preferential business deals with Iranian companies for gas conversion, infrastructure installation, rollout expertise and even importation of Iranian-made CNG vehicles. Indeed, Syria recently asked for Iran’s guidance in implementing CNG — Iran has converted 1.9 million vehicles to CNG and in the next four years aims to be a global leader in CNG stations and consumption.

On the other hand, sources close to the energy ministry say that the parliamentary committee’s decision was due in part to “ignorance” about CNG, confusing it with LPG. It is also said that the committee was influenced by car dealers and oil companies, both of which oppose CNG for commercial reasons; leading manufacturers do not produce CNG cars and the conversion would render many marketable attributes essentially obsolete, such as engine size and sound damping technology. It would also affect vehicles’ overall design, with CNG typically increasing a vehicle’s weight due to the tanks fitted in the trunk (although other options are available such as cylinders made of composite materials).

Oil companies would, of course, have less gasoline to market, even though they could sell CNG instead, but margins would be lower due to the limited options of where suppliers may obtain it. Costs are also cited as being prohibitive. On top of the cost of new pumps, CNG would also have to be far better regulated than gasoline, requiring more work by the fuel companies and regular governmental inspections.

The dealerships’ stance

Nabil Bazerji, managing director of GA Bazerji and Sons, the dealer for Suzuki, Lancia and Maserati, said, “CNG is something unrealistic for a country like Lebanon. Automotive sales will not be affected as mass production is not available at the majority of automotive brands, while adaptation of vehicles is done by specialized companies.”

Other dealers oppose CNG on similar grounds, citing market fundamentals.

“When we were asked by the AIA whether we were interested in gas cars and [which] manufacturers produced them, we said it was not for us,” said Anthony Boukhater, deputy general manager of ANB Boukhater, dealer for Mazda and Aprilla, Vespa and Piaggio motorbikes.

“Mazda will never produce special cars just for Lebanon as it is such a small market. This needs to be thought about market-wise. For India, Pakistan and Egypt these are large markets [with] over one million vehicles [sold] a year. Not the new and used 100,000 vehicles a year market like in Lebanon,” he added.

But the car dealers’ primary opposition is on safety grounds and the feasibility of investing in the necessary infrastructure.

“Countries that have adapted vehicles to natural gas do so under severe controls. This will never be the case for Lebanon. [That’s] where the danger comes from,” Bazerji said.

On concerns over safe implementation of CNG, dealers do have a point, which has been echoed by environmentalists.

“In principle I am not against CNG but we need the infrastructure and rigorous standards as it is dangerous. In Lebanon, it is a pity to say, we cannot rely on law enforcement to make sure the laws are respected,” said Hassan Jaber, vice president of the Lebanese Association for Energy Saving and for the Environment (ALMEE). “At the méchanique [annual vehicle inspection], they are supposed to have checked 1.1 million vehicles since 2009 but so far only checked 160,000. Some people are even using additives in the fuel to get their car passed. The checks should be continuous, not [every other year].”

Indeed, consistency is a major concern. When the previous government started cracking down on reckless driving and introduced speed cameras last year, road accidents dropped by 10 percent in October and November, with the death-rate down 43 percent and injuries down 12.5 percent. But once the parliament dissolved in January, the police crackdown tailed off, as it has in the past when enforcing seat belt laws, stopping drivers using mobile phones or ensuring that motorbike riders wear helmets and refrain from driving the wrong way up one-way streets. “Motorbikers are like motorized pedestrians — they drive on the sidewalks and go through red lights, right in front of the police and they do nothing,” said Bazerji.

Furthermore, there are an estimated 20,000 cars that have been converted to run on natural gas canisters — the kind found in most kitchens. “Nobody is stopping these vehicles and there are no regulations or controls. If the government cannot stop this illegal usage, who will guarantee that this parallel production will not grow and put the country into real danger?” said Bazerji.

While the ministry claims that they have scoured the world for cases of accidents related to CNG and failed, there have been several cases of CNG-related accidents and even deaths. The potential hazards are illustrated by two examples from India this year, one where 15 passengers on a CNG bus were lucky to escape unscathed when a leakage in a fuel pipe caught fire, the other in February when a New Delhi woman was killed after the CNG vehicle she was in hit a divider and burst into flames.

With that said, properly regulated CNG vehicles are, according to expert analysis cited earlier, less dangerous than combustion engines.

There are an estimated 20,000 cars that have been converted to run on natural gas canisters – the kind found in most kitchens

The diesel disaster

A further reason dealerships are wary about the proposed introduction of CNG is over the government’s prior handling of diesel fuel. In the 1990s, the government encouraged the use of diesel over gasoline, with a high percentage of cars switching to diesel due to its lower costs and the efficient mileage attained. But after a few years it became apparent that many cars were running on substandard diesel that was highly pollutive. In 2002, the government banned diesel for private vehicles, limiting usage to buses and vehicles over a certain tonnage. This volte-face by the government caused havoc in the sector as consumers had to change back to vehicles powered by gasoline.

“We had to make the diesel switch possible to drivers as there were protests outside our showroom. That government policy put us in a bad situation,” said Rachid Rasamny, marketing manager of Century Motors, a dealership for Hyundai.

As of January, a parliamentary committee approved the import of new cars and vehicles that run on “green diesel” that complies with Euro 5 standards and banned the import of regular diesel vehicles, although the law still has yet to be passed. It appeared to imply that private diesel vehicles would be allowed but this was in the end not the case, provoking confusion at dealerships.

“I don’t understand this non-diesel policy. A comprehensive car policy has not been thought through. It is more short-term fighting over current high oil prices,” Rasamny said.

“A comprehensive car policy has not been thought through. It is more short-term fighting over current high oil prices”

Hybrids

While the ministry is not against hybrids per se, it cites the same concerns the parliamentary committee voiced about CNG: safety.

“We don’t understand proposing hybrids and opposing CNG on safety, as hybrids are the real threat,” said the ministry’s Abu Khalil. “Hybrids are an alternative but [are] not as safe — a 400 volt battery alongside a gas tank… any spark would very easily ignite it, making it a car bomb.”

The car dealers dispute this claim, highlighting the awards hybrid cars have received and the billions of dollars spent on research and development that have gone into producing dual gasoline and electric powered vehicles.

“The Toyota Prius has been on sale in Japan since 1997, before even Google and Facebook were around,” said Philip Fred Boustany, managing director at BUMC, exclusive distributor of Toyota and Lexus. “As of September 2010, Toyota has sold 2 million units globally. The fact that hybrids run on electricity as well as gas is completely irrelevant when it comes to their safety. For example, Toyota designs its hybrids to withstand the same crash specifications as normal cars.”

Dealers also dismiss the ministry’s claim that hybrids are not suitable to Lebanon’s mountainous topography. “Hybrids are based on filling up the battery when running, but when climbing uphill the electric battery doesn’t work, so you have to use the regular engine, which doesn’t resolve the problem environmentally or economically,” said Abu Khalil.

Boustany counters that “the biggest misconception about hybrids is that they are not powerful cars.”

Equipped with three different modes, Boustany said, the Prius is a very efficient car regardless of topography. “When climbing uphill, the regular engine will be doing its main job of power transfer to the wheels but at the same time recharge the batteries which will be used downhill, or further recharged through regenerative braking. In addition, if you end up stuck in traffic or at a standstill, your Prius will shut off its gas engine, saving you gas and protecting the environment from harmful emissions.”

He added that it was a “myth” that all hybrids need to be plugged into a charger on a daily basis, or that the batteries require replacement every three years.

The major obstacle to introducing hybrids in Lebanon is the high costs of the vehicles themselves due to high customs and registration fees. Boustany says the gas and environmental savings justify the price and he foresees 50 percent of all models offered by BUMC in 2015 will be hybrids or fully electrical vehicles.

To Charles Tarazi, assistant general manager of Porsche, the cost of a hybrid — 7 to 8 percent more than a conventional vehicle — is a deterrent to consumers unless there are substantial tax incentives.

“Why would you buy a hybrid in Lebanon? There is no point; you are paying more just to make a statement: ‘I’m driving a hybrid.’ It won’t save the world [if] a few guys drive hybrid cars,” he said, adding: “The main issue is tax advantages, yet in Lebanon there is no plan for the six-cylinder hybrid engines.”

Tarazi cited the tax advantages introduced in other countries for the six-cylinder Porsche Panamera, which has helped bolster sales: in the US, tax benefits reach up to $2,200, in Spain a 5 percent registration tax reduction was implemented and in France there is a $2,500 one-off tax reduction on car registration. “I think Syria was clever in changing the laws to promote hybrids, offering 50 percent less tax than on normal cars,” added Tarazi.

In Lebanon, it is the opposite; taxes are actually higher for hybrids than conventional vehicles, with the registration fee of a Toyota Prius 1.8L hybrid around $2,600, whereas a non-hybrid Corolla 1.8L is some $1,800.

A further impediment to hybrid adoption is that there has not been a big uptake throughout the Middle East and North Africa, with Lebanon’s small car market particularly susceptible to regional trends.

“The trend toward hybrids in the region has not really been successful. It is something we’ve discussed with the Hyundai Motor Company in South Korea,” said Rasamny. “I’m not sure we could get hybrids even if the law passes as there is not enough demand for it, especially since the high demand markets of Saudi Arabia, Syria, Egypt and Iraq are not buying hybrids. If there’s no demand in the more populous markets, Hyundai will not send us hybrid vehicles.”

With the law still pending, the nation’s dealers are reluctant to even come up with a marketing strategy.

“When I approached Hyundai about hybrids I had to give demand figures, but due to the draft law being unclear I couldn’t give adequate figures,” said Rasamny. “Once the law passes, we will see how it will alter our sales strategy.”

In Lebanon, registration fees are higher for hybrids than conventional vehicles

The road ahead

With the car industry backing hybrids (especially if taxes were lowered), it would seem a sensible option for the government to promote a technology being rapidly adopted around the world. To ensure its uptake, the Lebanese government should follow the lead of other countries by reducing or even scrapping taxation on the vehicles to make the cost difference between hybrids and conventional cars more attractive to consumers.

If the difference were, for instance, $5,000 between the two, hybrid consumers would get a return on investment over a few years given a much lower fuel bill, with hybrids able to cover  on average some 450 kilometers per 20 liters of fuel. The proposed law allowing hybrids should also be expanded to include six-cylinder hybrids, made by luxury car manufacturers such as Porsche  and Lexus.

As to which is cleaner for the environment — CNG or hybrids — it is a tough call. The technology is continuously being updated, as exemplified in the American Council for an Energy Efficient Economy’s “Greenest Vehicles of 2011” listing, which put the natural gas powered Honda Civic GX in first place, followed by the all-electric Nissan Leaf.

What the ministry did not discuss, nor did car dealers, is that the development of ultra-layered sulfur fuel and associated engine technology has narrowed the gap between CNG and other alternately powered vehicles in terms of meeting many countries’ national motor vehicle standards. The improvements have come so far that the mayor of London recently proposed replacing the city’s “Alternative Fuel Discount” — an exemption from fees that covered fully electric vehicles, hybrids and the cleanest gas powered cars — with a “Greener Vehicle Discount,” as some modern cars with conventional engines emit less carbon dioxide than most hybrids.

Lebanon will have to come up with a solution that is more environmentally friendly on one hand and, on the other, conducive to the particularities of the country. If only a limited number of consumers purchase hybrids, CNG or electric cars, the positive effects on the environment would naturally be minimal.

A high degree of realism is certainly needed to ascertain what is best for Lebanon, given the constraints and issues enumerated above. Hybrids, for instance, would  cut down on fuel consumption without requiring installation of CNG infrastructure throughout the country. Furthermore, with the major brands manufacturing hybrids this would keep both dealers and car enthusiasts happy, as they wouldn’t have to retrofit vehicles for CNG.

“We should have buses run on CNG as it would solve two problems in one”

The wheels on the public bus

The argument for CNG seems strongest when applied to service taxis, commercial vehicles and buses as a more limited roll out would enable better regulation to prevent CNG-related safety accidents and would limit the required number of fueling stations. Such a policy could also help revive public transport, with the number of blue and white public buses on the roads — as opposed to the private clunkers that do cover some parts of the city — dropping from 271 in 2008 to less than 15 today, according to Jaber of ALMEE.

While the cash-strapped government might oppose investing in public transport, the long-term benefits for the populace and the environment would be enormous. Alternatively, the government could enter into public-private partnerships to roll out a reliable bus network.

“We should have buses run on CNG as it would solve two problems in one: a new public transport with very low emissions and low cost of adaptation, as gas would be limited to stations owned by the transport ministry. Interfering with the daily life of the citizen and adding an alternative gas to the system is nonsense,” said Bazerji of GA Bazerji and Sons.

Improving the overall quality of fuel imported into Lebanon is a further solution to the country’s environmental woes, with imports, according to a source familiar with the issue, frequently substandard, highly pollutive and not well regulated by the government. Yet even if the green light is given to both CNG and hybrids it will do little to clean up the country’s air unless a comprehensive transport policy is developed.

“CNG will help reduce pollution and the cost of fuel, but CNG will not be the alternative,” said Yasmine Mahdi, senior transport engineer at SETS, a specialist engineering solutions firm. “Instead of technology, I’d think of alternative modes of transport for people to reduce the number of cars on the roads, the congestion and pollution. A feasible solution is to have a regulated bus transport network and get competitive companies to operate it. Other solutions are a congestion charge and increasing parking fees. There are many ideas that can be implemented by the government with no costs.”

“The media and TV talk of socio-economic problems, but transport is not discussed…We are way behind other countries”

Other alternatives

Further ideas floated by interviewees include car pool lanes to reduce the number of vehicles on the roads and the promotion of motorbikes to curb congestion, with hybrid bikes now available and, in any case, two-wheelers polluting far less than cars. “Putting in motorbike lanes would be very easy to do, and then people would want bikes and not take a car if on their own,” said Boukhater, the dealer for Mazda, Aprilla, Vespa and Piaggio. “It would also make insurance cheaper, while getting rid of all the cars parked on highways and big streets. Also, a motorbike can be bought on credit for $60 a month, whereas a car is $200 plus.”

“When I suggest this to people they say it is not in our mentality. But CNG is? It wouldn’t cost the government anything and they could do a test for a few months that limited the coast road [north from Beirut] to bikers,” he added. The idea could be taken further to restrict certain roads to vehicles with more than one person, buses and motorbikes.

Congestion in itself poses a significant environmental problem. According to the International Organization of Motor Vehicle Manufacturers, test-drives in the Stuttgart area of Germany “showed that a car’s fuel consumption can be 60 percent higher with congestion compared to driving the same route when there is free flow.”

Encouraging consumers to trade in old vehicles for more fuel efficient new models is also one option on the table, although this would require financial incentives from the government to do so, which is unlikely given the country’s poor fiscal health.

 Implementing higher taxes on large vehicles such as sports utility vehicles (SUVs) — which emit 30 percent more carbon dioxide and 75 percent more noxious gases than a normal car, depending on the fuel used — is a further option to limit environmental pollution. Such a policy would meet resistance from dealerships, but if higher taxes were levied on SUVs the revenues could be used to finance the trade-ins of old cars for new cleaner vehicles.

Financial assistance from the European Union or the United States Agency for International Development could also be sought as well, as suggested by the AIA.

All options should be reviewed and considered objectively by the government for implementation — perhaps while stuck in traffic on the way to and from their parliamentary offices.

Ultimately, the traffic problem and the associated environmental pollution is not going to abate unless consumers are encouraged to switch to more eco-friendly vehicles and a viable public transport system is made available to lower the number of cars on the roads.

“The media and TV talk of socio-economic problems, but transport is not discussed in its own right. We should keep asking officials about transport solutions,” said Mahdi from SETS. “We are way behind other countries and need to catch up.”

March 21, 2011 0 comments
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Economics & Policy

For your information

by Executive Editors March 21, 2011
written by Executive Editors

World’s worst Internet

There is no country in the world with a slower download speed than Lebanon, according to the website Speedtest.net, which carries out global broadband speed analysis. Of 185 countries ranked (there are some 195 countries in the world), Lebanon placed 185th, with an average download speed of 0.47 megabits per second; in first place was South Korea with an average download speed of 39.26 megabits per second. That means the average South Korean Internet user can download files roughly 84 times faster than the average Lebanese user. In terms of upload speed, Lebanon clocked in at a humiliating 0.1 megabits per second, ranking 184th out of 185 countries and ahead of only the South Pacific island nation of Vanuatu; in first place again was South Korea with an average upload speed of 20.99 — almost 210 times faster than Lebanon.

Mooting devolution

The constitutionally mandated process of administrative decentralization could receive a boost following the release of a new document by the Ministry of Interior detailing the process required, obstacles faced and questions surrounding the issue. Last month, Caretaker Minister of Interior Ziad Baroud released a 231-page research paper that addresses the “fears” that some harbor about the process, plots a course by which decentralization could take place in Lebanon and includes 100 questions and answers on the subject. Many in Lebanon are opposed to such a process, believing it would lead to the federalization of the nation, adding further division in a country already split along sectarian lines. “The book provides a summary of the research,” said Baroud to the press at the unveiling. “We do not claim that it is a comprehensive approach, or that it provides comprehensive questions, but it triggers discussion.”

A little more humane

Lebanon is one step closer to becoming a nation that treats its workers equitably. A new draft law proposed last month by the country’s labor minister aims to improve the lot of the estimated 111,000 migrant domestic workers registered with the ministry. The draft legislation proposed last month by Caretaker Minister of Labor Boutros Harb addresses the lack of regulation in the relationship between business owners and their foreign staff. The new law would limit the work week to a maximum of 60 hours and would require nine continuous rest hours and a mandatory day off per week for domestic workers. The law would also require employers to pay end-of-service indemnity to their employees, which would total one full month’s salary for every year of service for the first five years of employment and 65 percent of a month’s pay for every additional year after that point. The draft law also aims to ease the application process for all foreigners seeking employment in the country and proposes a computerized system that will automatically accept or reject applications in order to “increase transparency.”

Egyptian revolution affects market

While the Egyptian revolution may have been a boon for freedom of expression and a testament to the collective will of the people, it has had negative repercussions for farmers in Lebanon’s rural areas. As a result of the revolution, the export of Lebanese apples to Egypt, the crop’s main market, was severely affected. According to the Lebanese Farmers Association, Egyptian traders bought the crop on credit but delays in processing the apples, occurring mostly at Egyptian borders, left the industry with around 8,000 tons of stocked apples and little prospect of finding an alternative market.  Electricity supply has also been affected by the uprising, given that Egypt exports power, via transmission lines through Jordan and Syria, to Lebanon. Électricité du Liban stated that there had already been a 120-megawatt decrease in power imports before Jordan, on February 20, suspended all electricity flows exiting its territory due to natural gas shortages from Egypt. Before the suspension, supply cuts had already led to an average increase in existing power blackouts across Lebanon by more than two hours.

Growth is not development

Lebanon’s recent gross domestic product growth figures tell little of how the country has been sliding backward in terms of the real development of its economy. According to global investment bank Goldman Sachs’ Growth Environment Scores index for 2010, released last month, Lebanon ranks 140th out of 179 countries assessed in terms of economic development. The result represents a rise of seven ranks on the previous year but points to the fact that, since 1997 when Lebanon was placed 87th, the country has been outpaced across the globe. Among the 21 countries looked at by the investment bank in the Middle East and North Africa, Lebanon placed a dismal 18th, narrowly beating Mauritania, Yemen, Sudan, Iraq and the occupied Palestinian Territories. In terms of upper-to-middle income countries, Lebanon ranked behind Gabon, Venezuela and Cuba. The results are based on a wide range of indicators, among them technological capabilities, political stability, education quality, debt levels and macroeconomic stability.

Yearly debt round-up

“The more things change, the more they stay the same” may well have been the sentiment of Lebanese debt market watchers  after the end-of-year results of Lebanon’s public debt were released last month. With no plan to reduce the principal, the debt rose another 2.8 percent to hit $52.59 billion in 2010, with the gross domestic product estimated by Lebanon’s central bank at some $40 billion. The level of domestically held debt — which for the most part is in the hands of local commercial banks — rose 7.3 percent year-on-year to $32.02 billion by the end of 2010. Foreign-held debt fell by 3.5 percent to $20.57 billion. Since the end of 2004, the average yearly growth rate of Lebanon’s public debt has been 5.33 percent. Financial inflows to the country over the course of 2010 also took a hit, falling 17.5 percent year-on-year to $17 billion, which is still more than the five year average (2005-2010) of $13.2 billion per year.

Bottoms down

The Lebanese have long been known for their partying habits but, according to the latest figures from the World Health Organization’s (WHO) Global Status Report on Alcohol and Health, they seem to be a little more sober these days. Lebanon ranked 149th out of 193 countries surveyed in terms of average per capita alcohol consumption and third in the Middle East and North Africa-Pakistan region, averaging 2.21 liters of pure alcohol consumption per year per adult (15 years of age and over), behind only Sudan (2.6 liters) and Bahrain (3.6 liters). Of Lebanon’s total adult population, 47.1 percent were classified as abstainers, with 43.3 percent marked as lifetime abstainers and 3.8 percent as former drinkers. Only 28.5 percent of male students and 12.3 percent of female students drank at least one drink every 30 days. Those who do drink tend to prefer spirits, wine second and beer last. Officially, Lebanon does not permit the sale of alcohol to persons under 16 and entrance to establishments serving alcohol is prohibited for those under 18, though neither law is widely enforced.   

Port gets more for less

Despite a decrease in activity for the port’s red and blue cranes, the Beirut Port Authority reported a 5.8 percent gain in revenues from $2.8 billion in 2009. Direct port revenues rose year-on-year by 1.4 percent to $165.8 million, customs revenues took the lion’s share at $1.7 billion (up 4.3 percent) and value added tax brought in $1.1 billion, representing 9 percent growth on 2009. The decreased activity could be seen in the number of ships entering the port, which fell 4.6 percent to 2,395 as reflected in the 1.8 percent fall of imports to 5.7 million tons. Exports, however, which make up a much lower portion of total activity, rose 22.6 percent year-on-year in 2010, mirroring the total export growth for the year. Beirut port activity also rose year-on-year during the first month of 2011 by 10.5 percent, with 561,000 tons processed and a 15.31 percent rise in the number of containers.

March 21, 2011 0 comments
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Real estate

For your information

by Executive Editors March 21, 2011
written by Executive Editors

Emaar’s mixed pie

Emaar Chairman Mohamed Alabbar said in a February 10 statement, “We see 2011 to be a signature year for Emaar with significant revenue streams from international operations kicking in.” In Syria, Emaar is developing The Eighth Gate mixed-use project, and the offices in the project’s commercial center, which will feature the Damascus Stock Exchange building, are already functional. Alabbar’s statement highlighted the firm’s expansion outside the UAE, mentioning that its residential projects in Saudi Arabia, Egypt and Turkey are progressing, while adding that The New Istanbul Project in Turkey would feature an extensive shopping mall. The firm’s growing retail and hospitality sector has paid off:  the proportion of revenues from this segment reached 24 percent, or $3.3 billion in 2010. Though Emaar posted a 31 percent increase in net profits in 2010, reaching $826 million, its fourth quarter results were gloomy in comparison to analysts’ expectations. Net profits of $74.6 million fell 62 percent compared to the fourth quarter of 2009.

From Beirut to Mumbai

Beirut-based contractor Arabian Construction Company (ACC) has signed an estimated $98.7 million contract to build India’s highest skyscraper, World One, in a joint-venture partnership with Indian contractor Simplex Infrastructures. When complete in 2015, the 117-story Mumbai tower, at 442 meters high, will be the second tallest residential tower in the world. ACC is currently building two others in Dubai Marina, The Princess Tower and the Pentominium, which will break world records for the highest residential towers. Gassan Merehbi, chairman of ACC, said in a February 6 press release, “This is our first venture in India, and we are very pleased to be working on such a prestigious project with India’s leading developer. We are proud to contribute our resources and expertise in high-rise construction that we have developed in the Gulf.”

Builders feel the pinch in Jordan

Local contractors in Jordan had a dismal year in 2010, as the value of non-residential construction, such as roads, bridges and shopping centers built by local firms has dropped 80 percent to $1.068 billion, according to Ahmad Tarawneh, president of the Jordan Construction Contractors Association. He told the Jordan Times in February that although the government’s capital expenditure budget was raised for 2011 to $1.7 billion from $1.4 billion in 2010, contractors believe this amount will not salvage the country’s construction industry. Contractors say the government has not been active in attracting foreign investment or enabling public-private partnerships in the field. “Local contractors used to benefit from foreign investments coming to the country but last year the government did not implement development projects and it failed in attracting new investments,” said Tarawneh. The newspaper noted that 130,000 people in Jordan work indirectly in this sector, which spans some 240 professions.

Construction increases in Lebanon

Construction permits given out in 2010 covered 17.6 million square meters of land, 22.7 percent greater than the amount in 2009, according to the Order of Engineers of Beirut and Tripoli. In December of 2010, however, newly issued permits fell 34 percent in comparison to December 2009. Cement deliveries were 25.2 percent higher in December of this year than they were in December 2009. Overall in 2010, cement deliveries increased by 6.7 percent year-on-year, hitting a total of 5.2 million tons, according to Byblos Bank.

CCC do good….

An intensive course offering Leadership in Energy & Environmental Design (LEED) certified specialized training will be available to engineering students at the American University of Beirut (AUB) starting in April thanks to a grant by Consolidated Contractors Company (CCC), which has employed more than 700 AUB students and contributed to the Scientific Research Building on campus. The university signed a memorandum of understanding with CCC’s Area General Manager Yusuf Kan’an, whose firm will finance the year-long Green Building Training Program, according to a university press release.

…and CCC do bad

Consolidated Contractor’s Company (CCC), the multinational construction firm founded by Said Khoury, is facing contempt of court over a failure to pay a $64.5 million liability settlement to  former partner Munib Masri. As one of the largest contractors in the Middle East, CCC made revenues of $4.2 billion in 2010, according to British daily The Guardian. A British high court judge called the construction firm “a complete disgrace,” after CCC did not align itself to the court’s orders to pay Masri for his share in a joint project involving Yemeni oil revenues. Masri was a joint venture partner of CCC in Yemen, where he was promised to receive 10 percent of the oil concession profits from an oilfield the firm had developed in the south of the country. The court had approved orders to freeze the assets of CCC in the United Kingdom, Bermuda and Switzerland, in addition to a January order to freeze its assets in Nigeria, Palestine and the Cayman Islands. Khoury and his sons could face imprisonment if they fail to deliver the liability payments.

Khartoum takes off

Sudan awarded a $1.2 billion contract to the China Harbour Engineering Company, a subsidiary of state-owned China Communications, to build its new international airport in Khartoum. The move further sweetens state-level transactions between the two nations, as Chinese firms are heavily involved in Sudan’s hefty oil production. The airport will have a runway long enough to land an Airbus 380. The project will see the construction of control towers, terminals, runways and other facilities and will replace Khartoum’s existing central airport. “Upon completion, the new airport will greatly upgrade (the) internationalization of Khartoum,” said the firm. China, which reaps a steady flow of oil from Sudan, is the largest investor in the northeastern African nation. 

Skyscraper fire sale

Following Syrian businessman Simon Halab’s fall into bankruptcy in April 2010, the last of his nine office towers has been put up for sale at $456.4 million. CB Richard Ellis listed the Aviva Tower in London on February 14 and suggested that the 23-story property may appeal to pension funds and overseas buyers, who bought 54 percent of the property deals in central London in the fourth quarter of 2010. CBRE said in its statement, “This quoting price is intended only as a guide to the level of offers that may be taken seriously in the sales process and should not be taken to represent the expected sale price for the Aviva Property, which may ultimately be higher or lower than the quoting price.” In July, the United States-based Carlyle Group paid $1.08 billion for six of Halab’s office properties, which CBRE loan servicing had displayed on the market to raise money for the creditors that Halab had defaulted on, according to the website PropertyEU.

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

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