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The Egyptian intifada

by Jonathan Wright
written by Jonathan Wright

 

If one week is a long time in politics, one month can bring a generation’s worth of change. The sudden and unexpected collapse of authoritarian rule in Tunisia has breathed new hope into opponents of Egyptian President Hosni Mubarak, who have struggled for years to muster mass support for their democratic agenda. Now hundreds of thousands of Egyptians have risen up alongside them, challenging the conventional wisdom that autocrats in the Arab world have mastered the dark arts of political survival more successfully than anywhere else around the globe. One way or the other, the Middle East will never be the same again.

Egypt and Tunisia had much in common — high youth unemployment, brutal repression by police, economic growth that never trickled down and stagnant political systems centered around crony-capitalist ruling parties.

The Tunisian opposition that helped drive Ben Ali into exile on January 14 has made great progress toward ensuring that the old guard of the ruling Constitutional Democratic Rally (RCD) party cannot salvage many of the privileges it enjoyed for the past 23 years. In Egypt, as Executive went to press, the battle for the future was still raging, and the latest developments are strong indications that the old guard of the regime will cling to power with some tenacity, possibly at the cost of much more blood of young Egyptians determined to make a clean break with the past.

For the moment, Egyptian President Hosni Mubarak, 82 years old and in power for three decades, has sacrificed his own son’s presidential ambitions and a prime minister, Ahmed Nazif, with an enviable record as an economic manager, in an attempt to fend off a challenge from the streets that by January 30 looked close to triumph. In only four days, overt opposition to Mubarak, once the preserve of a few marginal politicians, Internet activists and the cowed Islamists of the Muslim Brotherhood, has flourished into a mass movement with no clear leadership, little coordination and a simple agenda: to “overthrow the regime.” When tens of thousands of Egyptians flooded across the Nile bridges into central Cairo at sunset on Friday 28, routing one of the world’s largest police forces dedicated to suppressing protests, it looked like Mubarak was on the run. The headquarters of the ruling National Democratic Party was in flames and many jubilant Egyptians were welcoming the arrival of the army as their savior.

But Mubarak, slow and stubborn, but still wily, had more tricks up his sleeve. For the first time in his long reign he appointed a vice president in the person of security adviser and intelligence chief General Omar Suleiman, a man whose public statements have been as rare as Cairo rain. Then he named an old air force associate, former Civilian Aviation Minister Ahmed Shafik, as prime minister, jettisoning technocrat Nazif and his team of liberal economists. Suleiman’s appointment is another nail in the coffin for any plans for his deeply unpopular son Gamal to take over the reins of power.

It was a classic defensive tactic, akin to a circling of the wagons as the enemy advanced. With the army in the streets to reassure ordinary Egyptians who hated and despised the police force, Mubarak was surrounding himself with old military colleagues who would think twice about advising him that it was time to follow Ben Ali into ignominious exile. He has not yet pacified the street, and opposition politicians have dismissed the appointments as too little too late, just like the last-minute concessions with which the Tunisian president tried to save his skin.

For the moment the army is fraternizing on the streets with thousands of protesters telling Mubarak to go. The future of Egypt, and possibly the whole Middle East, now depends on the dynamics of that fragile and shallow alliance between the army and the people. It seems unlikely that the protesters will just give up without violence. When that time comes, will the army stand by the people or by Mubarak?
A successful revolution in Egypt, coupled with that in Tunisia, could be a beacon of light for the Arab world with massive implications for international geopolitics. But an army-backed repression would be a throwback to the dark days of the 1950s, the womb that gave birth to the current autocratic regimes.

JONATHAN WRIGHT is managing editor of Arab Media and Society

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Harb’s divisive idea of ’diversity’

by Sami Halabi
written by Sami Halabi

 

As the wheels slowly fell off yet another ‘national unity’ government last month, Lebanon’s political class apparently had enough time to re-hash some old ideas and present them as legislation. But of all the bad ideas that Lebanese politicians have come up with to preserve the “diversity” of the country, the most recent draft law proposed by Labor Minister Butros Harb is likely the most regressive and divisive.

Harb’s proposal to ban the sale of land between individuals from different religions for a period of 15years is nothing new and stems back as far as the 1860s, when Lebanon’s first“ civil war” erupted. But supposing that the minister has read the constitution, he would know all too well that his proposal contravenes the principles of equality among the Lebanese, the right to private property, a free economy, and the fact that “there is no segregation of the people on the basis of any type of belonging, and no fragmentation, partition, or colonization.”

Then again, government regularly makes a habit of ignoring the constitution, from its obligation to hold timely sessions of parliament to that of passing a national budget, so perhaps we should regard Harb’s proposal as par for the course. At a time when the issue of Christians in the Middle East is particularly loaded, Harb may have used the opportunity to promote himself as the torchbearer of age-old Christian paranoia over being engulfed by the wider Muslim, and in this case Shia, population.

One reason for the draft law stems from allegations that parties such as Hezbollah are behind real estate purchases in “Christian” areas. If that is the problem, however, Harb could have used his legislative ingenuity to propose measures to lift banking secrecy on the accounts of public officials and their relatives and increase the transparency of financial transactions by political parties. That, however, might not go over well with his colleagues in government, who use banking secrecy to circumvent campaign finance laws to help buy their way into office.

A more relevant move for Harb in his capacity as labor minister would be to propose a measure to stamp out sectarian discrimination in the workplace.

Unfortunately, it makes more political sense to stoke sectarian fears and claim to be defending your own than to stick your neck out and actually propose something that takes aim at the institution of Lebanese sectarianism. For starters, if the intention of any law is to protect a particular sect then it is by definition discriminatory and will only serve to increase divisions rather than do away with them. The idea that people from sects that did not traditionally reside in places like Keserwan or Batroun now want to buy property there should not be thought of as particularly grotesque, unless one truly believes that each sect should have its own ghetto and Lebanon is nothing more than a collection of Bantustans.

If Harb truly fears for his community, then he should have used his position as both a member of Parliament and a minister to dismantle the institution of sectarianism by insisting that the cabinet form the constitutionally mandated committee to abolish the practice in society, and that legal structures of a secular state are voted on by parliament. True to form, neither Harb nor any of his colleagues has yet been brave enough to seriously propose either, preferring instead to use such suggestions as a political bargaining tool, happy that they can collect their pay checks and kickbacks based, effectively, on their own sect.

The mantra of co existence between sects cannot just be a pretty phrase that we blindly recite to foreigners before rejecting citizens from “our” areas because they pray on Friday or Sunday. The fact that the country is already staunchly segregated is not something to be proud of, nor a condition to be supported through legislation. 

For all their faults, the Constitution and the Taif Accord lay out the framework that intends to eventually abolish the stain of sectarianism. The Lebanese, including Harb, should not forget that the people and their government are not bound by any other social contract. So the next time a minister or MP would like to propose legislation to protect their community from the “dominance” of other sects, they would do well to start with that in mind and leave the sectarian laws where they belong: as things of the past. 

 

 SAMI HALABI is deputy editor of EXECUTIVE Magazine

 

 

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Reluctant rise of the Resistance

by Nicholas Blanford
written by Nicholas Blanford

Once head of the opposition, Hezbollah may be the predominant force in the Lebanese government by the time you read this column. Such a government will certainly set Lebanon at odds with the international community, especially over the fate of the international tribunal investigating the assassination of former Prime Minister Rafiq Hariri. Paradoxically, while Hezbollah is the strongest political and military force in the country, it has never actively sought to take control of the state — at least not in the conventional sense of being elected into power and forming a government.

That is because Hezbollah’s focus lies elsewhere — specifically in ensuring the retention of its formidable armed wing to confront Israel. Since its founding in the early 1980s, Hezbollah has gradually moved deeper into Lebanon’s political milieu. But each step was taken only when evolving political circumstances threatened the party’s resistance priority. When Hezbollah burst upon the scene, Lebanon was mired in civil war, Israel was occupying the southern half of the country and there was little or no state control. This was the era of suicide bombings against Western targets, kidnappings of foreigners and hijacked airliners. The idealistic Islamic revolutionaries vowed to overturn the Lebanese political system with its sectarian checks and balances, nepotistic feudal leaders and corrupt patronage networks.

But the end of the civil war in 1990 and the dawn of ‘Pax Syriana’ in Lebanon necessitated a change of attitude and conduct, if not ideology and agenda. Hezbollah embraced parliamentary politics, despite its earlier public disavowal of the political system, winning seats in the 1992 election and performing credibly as an opposition to the governments of Rafiq Hariri. It had no desire to join the government, content with its parliamentary toehold where it could generally remain aloof from the sordid bargaining and compromises inherent in Lebanese politics.

Damascus rewarded Hezbollah’s pragmatism through the preservation of its resistance priority. These were Hezbollah’s “golden years,” in which it waged an increasingly successful campaign against the Israeli occupation of South Lebanon and enjoyed broad approval across Lebanese society. Syria’s political umbrella, the Israeli occupation of the Shebaa Farms and continued detention of Lebanese prisoners ensured that Hezbollah did not have to immerse itself deeper into the Lebanese political morass to protect its weapons after Israel’s withdrawal in 2000.

But in 2005, following Hariri’s assassination and Syrian disengagement from Lebanon, Hezbollah found itself hemmed in once more. It allied with one-time rival Amal, reached out to the Christian supporters of Michel Aoun and entered government for the first time, taking a previously unwanted step to better defend its resistance priority. Hezbollah’s weapons became the single most divisive issue in Lebanon, roughly splitting the country in two. Hezbollah even chose to expose its popular standing to significant risks to defend its weapons: the 18-month sit-in in downtown Beirut that began in the fall of 2006 ended with armed clashes against Sunnis and Druze in May 2008.

The emergence of the Hariri tribunal and accusations that Hezbollah had a hand in Hariri’s assassination is the latest iteration in the broad domestic, regional and international campaign to neutralize the organization. The prospect of the tribunal indicting Hezbollah members for killing a Sunni Lebanese leader threatens to severely discredit the Shia group’s image as a champion of anti-Israel resistance in the eyes of Arabs and Muslims, forcing Hezbollah into damage control.

The best it can hope for is to sever all links between the tribunal and Lebanon and besmirch the judicial process as a political ploy of the West and Israel. But the refusal of the previous Prime Minister Saad Hariri to disavow the tribunal investigating his father’s killing compelled Hezbollah to bring down the government, opening up the prospect of a new cabinet filled solely by the present opposition.

“The Resistance is not interested in obtaining seats in the government but rather its main concern is to protect [Lebanon’s] dignity and defend Lebanon against [American] conspiracies,” Hezbollah official Sheikh Nabil Qawq said prior to the parliamentary vote to nominate a new prime minister.

Attaining power in government is usually the ultimate goal of a political party, but in Hezbollah’s case it may prove something of a poisoned chalice from which the organization was reluctantly compelled to drink.

NICHOLAS BLANFORD is the Beirut-based correspondent for

The Christian Science Monitor and The Times of London

 

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Mikati’s STL mire could solve itself

by Paul Salem
written by Paul Salem

Prime minister designate Najib Mikati has been called on before to navigate difficult transitions.  In his first posting as prime minister between April and July of 2005, he presided over the transition from the Syrian-dominated era to the elections of 2005 that brought in a Western-backed anti-Syrian March 14 majority; today he is presiding over a reverse transition back to a pro-Syrian March 8majority.

Before, he presided over the aftermath of former Prime Minister Rafiq Hariri’s assassination; today he is asked to manage the repercussions of its international investigation. Earlier, he stepped in to ease explosive Lebanese-Syrian tensions; now he is being asked to defuse Sunni-Shia hostility. Indeed, the challenges facing Mikati are daunting, but in the few days since his nomination he has renewed hopes that perhaps a stable and peaceful way forward is possible.

The key variable in his success or failure is the stance of Saudi Arabia. Riyadh suffered a blow in May 2008 when Hizbullah defeated its allies in Beirut and it suffered a further blow when Syria and the Lebanese opposition refused to give it and Saad Hariri’s government any concessions in exchange for Hariri breaking with the tribunal. The final blows were the opposition’s bringing down of Hariri’s government and Walid Jumblatt’s change of allegiance to grant March 8 a majority in parliament. This new majority could remain until the next parliamentary elections in 2013, and possibly beyond. 

Saudi Arabia now faces a stark choice: it can acknowledge the new unfavourable status quo and work with Mikati to moderate March 8policies from within the new government; or it can stonewall the new government and exclusively support the new Hariri-led opposition. In all likelihood, it will do a bit of both.

 

Saudi Arabia is aware that the opposition’s insistence that Lebanon distance itself from the tribunal will have to be satisfied sooner rather than later. It might be more convenient to them for Mikati to grant that concession rather than his predecessor, as that will not seriously discredit the tribunal in regional and international opinion and will allow Hariri to keep waving the tribunal’s flag. 

Riyadh could work with Mikati to bolster the Sunni presence in the new government and to provide some counterbalance to Hezbollah and other March 8 forces, while continuing to support Hariri and the March 14 opposition. In that context, the Mikati government might be short-lived; once it distances the Lebanese state from the tribunal, its main function would have been served. After that, it might give way to a return to a national unity government including both March 8 and March 14. 

Once Lebanon officially breaks with the tribunal, Hezbollah itself might be interested in bringing March 14 back into government — and even into the prime minister’s office — because it is aware that a government over which it has too much obvious dominance exposes it to intense risk from Israel and the United States. Syria would also be interested in rebuilding relations with the Sunni community in Lebanon and the region after the issue of the tribunal has caused so much tension. Any new government faces serious social, economic and political challenges, and Mikati is trying to assemble a varied team to deal with them. Throughout the government’s tenure, however, the Hariri-led opposition will probably keep the pressure up, claiming that the government is unrepresentative and unconstitutional. 

Even with Mikati’s best efforts, Sunni-Shia relations will remain tense. In this context, the real risk facing the country is not the formation of the government but the impact of the indictments, if and when they are made public. At that point, the country’s fate might be decided. If the indictments point to high officials in Hezbollah and are backed up with convincing evidence, the country might descend toward serious sectarian strife; alternatively, if the indictments point to low or unconnected operatives and/or appear based on flimsy or circumstantial evidence, the country could put this chapter behind it and rebuild stability and power sharing. 

In either case, Najib Mikati has a very challenging time ahead of him.

 

PAUL SALEM is the director of the Carnegie Middle East Center in Beirut

 

 

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A dictatorship defaults

by Daniel Williams
written by Daniel Williams

 

 

Among the Middle East’s authoritarian leaders, there’s a mantra: economic development takes precedence over civil freedoms and human rights. Things such as free speech, assembly, association and competitive elections — these will only lead to instability, which will damage the people’s principal concern, namely their wallets. Human rights just get in the way.

Tunisia was a poster child for such thinking. Growth stood between 5 and 6 percent in recent years, homeownership stood at 80 percent according to government statistics, and the poverty rate was about 2.5 percent. The latest World Economic Forum Global Competitiveness report ranks Tunisia 31st, far ahead of most of its Arab neighbors. The country presented itself as a successful Western-looking nation, minus the liberties, of course. Those would come later, maybe.

The long rule of Zineel-Abidine Ben Ali supposedly proved that aforementioned mantra that stability comes not from democracy, but from prosperity. Never mind the niggling detail that this domestic tranquility was anchored in repression, the beating of dissidents, torture and fake elections.

Yet it all collapsed with startling speed, with the failure of “trickle-down economics” to produce jobs sparking the unrest. A young college graduate, underemployed as a fruit vendor, set himself on fire and ignited a national revolt. It was not just his economic frustration that led him to this fateful act: He was humiliated by the police, who unceremoniously shut down his business. To say that the riots stemmed only from a disconnect between growth and job creation would underestimate the hunger for freedoms, especially as security forces began to fire on protesters, wounding and killing many.

Ask the crowds still demonstrating in Tunis. They want rights, too. On January 13, Ben Ali tried a last-ditch appeal to calm protesters by pledging to leave office in three years and to lift censorship. Too little, far too late. He left for exile the next day.

After his exit, crowds gathered daily — met with violence from the police, tear gas and beatings — to reject the interim cabinet, which is dominated by leftovers from the previous government. Veteran human rights activist Moncef Marzouki arrived at the Tunis airport from exile in Paris and called the interim government a “masquerade.”Supporters and bystanders called for freedom.

Is there a lesson here for the region’s other Arab leaders? They too follow the same economy-first dogma. Take Egypt, for example. Last November, the finance minister, Youssef Boutros Ghali, wrote in the Washington Post that what “matters most to ordinary Egyptians is their standard of living.” He went on to boast of Egypt’s independent media and Internet freedom in what he called a “healthy political space.” A few days later, Egypt’s parliamentary elections turned farcical as opposition candidates were thrown off ballots, election monitors — even those from participating parties — were barred from polling places and police disrupted campaign rallies. As of this writing, thousands of protestors were still in the streets of Cairo, calling for an end to the regime.

Algeria, statistically booming from natural gas sales to Europe and beyond, has been beset by strikes and self-immolations, while a series of copycat immolations from Morocco and Saudi Arabia are becoming a potent symbol of hopelessness. Wikileaks is credited widely with opening Tunisian eyes to the corruption central to the people’s frustration. A 2008 cable from the US embassy in Tunis detailed the lucrative wheeling and dealing of Ben Ali’s extended “family.” But it’s not as if Tunisians weren’t already aware of corruption. I’ve had taxi tours of Tunis in which embittered drivers pointed out lands and projects controlled by relatives of Ben Ali. In Cairo and Damascus it is much the same: pals of the powers-that-be dominate the development landscape. In these countries, citizens have no conduit for their complaints, much less ways to persuade anyone to crack down. The impunity that allows rampant human rights abuses also shields despots from scrutiny of their business dealings.

Tunisia’s saga shows there is a limit to the growth-without-freedom model. Prosperity statistics don’t erase the degradation of arbitrary rule. Freedoms may not do away with the frustrations of a country’s youth, but they at least would offer a channel for influence. Getting rid of Ben Ali is not enough; full respect for speech, association and participation in political life, as well as economic rights, is what is needed.

DANIEL WILLIAMS is a senior emergencies researcher for Human Rights Watch

 

 

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Society

Beware of small states

by Dean Sharp
written by Dean Sharp

 

 

Lebanon is in crisis mode, again, and as usual it is not only a Lebanese concern. Crisis and foreign intervention go hand in hand in this small, fought-over state. This time around, it is Syria and Saudi Arabia who have added their names to the long list of failed intermediaries. Their foreign interventions, as well as those of Israel, France, the United States and Iran, have regularly ranged from ineffective to catastrophic.

The diplomatic excesses and Machiavellian schemes of foreign states in Lebanon have left a depressing legacy in the country that has been deftly examined by veteran British journalist David Hirst in his latest book ‘Beware of Small States: Lebanon, battleground of the Middle East.’  The book takes its title from  Russian anarchist Mikhail Bakunin, who warned that while smaller states are often the victims of larger ones, they are also a source of danger for regional powers — a fitting warning here in Lebanon, the ‘Achilles’ heel’ of many of the region’s power brokers. 

Hirst gives a fascinating account of how Lebanon has twisted and turned in the regional headwinds. A principal point of discussion is the incongruous relationship between Lebanon and the nascent state of Israel. Initially, the newly arrived merchant Zionists to the Levant were welcomed with open arms in Beirut. “The [Lebanese] government even produced a tourist manual in Hebrew, whose preface proclaimed that, ‘Anyone who wants to lengthen his days, taste paradise and feel the world to come should spend some time in Lebanon.’”

Many would say that the future state of Israel took this tourist manual too literally, with its 1982 invasion and two-decade occupation of South Lebanon. Indeed, as Hirst points out, “from 1973 till this day [Lebanon] has … furnished the only militarily active front in the Arab-Israel struggle,” with the exception of occupied Palestine.  Israel itself is another example of the “small state” phenomena, as is emphasized throughout the book. However, as Hirst shows, its creation was “…a vastly more arbitrary example of late imperial arrogance, geopolitical caprice and perniciously misguided philanthropy than Lebanon’s.” Hirst articulates how the lessons have not been learnt, noting that the needs and fundamental demands of the Palestinian population are ignored in the Israeli project. Misguided philanthropy has also cost the US government countless billions each year in government aid alone. While often a diplomatic and military battleground, Lebanon has also been an ideological front for many of the seminal movements of the past century in the region. Whether it was anti-Ottoman independence, resistance to Israeli occupation, pan-Arabism, sectarianism or Islamism, Hirst asserts that Lebanon has been the unwieldy axis on which the region turns.

 When Arab nationalism began its rise, Lebanon was a key player. It was one of the founders of the Arab League and where, Hirst argues, “Nasserism reached its high-water mark.” Lebanon would also take on with equal fervor the revolutionary spirit of the 1979 Iranian revolution from which sprung the makings of today’s Hezbollah. Though a detailed and well-researched account of Lebanese and regional history, there is one glaring omission: David Hirst himself. A British journalist who has lived in Beirut for the past 50 years, Hirst likely has much to contribute about the familiar aspects of life in Lebanon. In contrast to Robert Fisk, who is often criticized for his improbable propensity to be “at the scene” at every major event that has hit Lebanon, if not the region, Hirst seems nowhere, leaving a sense of detachment from the country itself.

For better or for worse, regional and international powers have not shared this hesitancy to project themselves onto the Lebanese landscape, continually lured into the morass of Bakunin’s small-state curse. 

 

 

 

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Real Estate

A room for two

by Rayya Salem
written by Rayya Salem

 

 

The demand for medium-to-small apartments in Beirut and its suburbs is on the rise. This is particularly true in the more affordable suburbs such as Yarze, Fanar and Dbayeh on the outskirts of town and the more central neighbour hoods of Ras El Nabaa and Barbour. The process of looking for a home of realistic size and amenities confirms the Lebanese proverb: “It’s not what you know, it’s who you know and how hard can you twist their arm.”

In this report, Executive takes the hypothetical example of a young, professional couple looking for a home to start their new family. Even for the well-to-do, finding a decent place to live in Beirut’s pricey market can be arduous; we assume our couple together brings in $6,000 a month — placing them in the top five percentile of household income earners — and then look at the options they have and the challenges they face.

Re sales

Our new buyers would do well to swallow their pride and consider opting for resale rather than for an apartment in a new development. When buying an old apartment (more than 20years old) in Gemmayze or Ashrafieh you can expect to pay $1,500 to $2,500 per square meter (sqm), according to Walid Moussa, chief executive officer of PBM brokers. By comparison, prices start at $4,100 per sqm for space in Byblos Real Estate Investment’s (BREI) upcoming Convivium VI building in Gemmayze.

However, should our couple be planning to shop around on the resale market, they should be aware of extra renovation costs: Antoine Abou Rizk, manager of Lebanon Real Estate, said that although a used 140 sqm apartment in Rmeil had an attractive asking price of$260,000, renovation alone could cost up to $350,000.

 Location, location, location

New or old, location is everything when it comes to real estate prices. Go from Rmeil to Dekwani-MarRoukouz and a similar-sized unfurnished used apartment of 150 sqm drops to around $205,000, according to Plus Brokers‘ Michel Ghosn.

Badawi Group has 250 sqm apartments available in an upcoming housing project in Zouk Mikhael, five minutes from the highway to Beirut. Currently, the price stands at around$1,300 per square meter before rising 5 percent at the next construction stage, making it around $325,000 at base price. According to George Badawi, construction costs of around $525 per sqm (not including land price) are not as high as luxury developments being built in Beirut, but nonetheless owners will have amenities such as security, a garden, a swimming pool and underground parking.

 

Saving money by moving out of town has its drawbacks, of course. It means a lengthy commute for those working in Beirut and frequent wrangling with the city’s infamous gridlock. With gas costs rising, the drive to work might make a bigger dent in your savings than expected; transport should generally absorb 5 percent of your income, but in reality it’s much higher in Lebanon if you drive more than two hours each way to work, according to Mohammad Chamseddine of Information International.

Keep it small

Like Paris, London, New York and even Dubai, many couples or first-time home purchasers opt to live in studios, which are more and more prevalent in Beirut due to the increasing demand from the “eat, sleep, work” crowd who have very little time to spend at home.

If our couple fancy a pad in the city center, $350,000 will buy a 77-sqm apartment on the fifth floor of BREI ‘s Gemmayze Convivium VI.

However, if they want a bit more space to breathe, an FFA Real Estate project launching in Badaro in two months will include 80-sqm apartments with starting prices that hover around$2,900 per square meter ($232,000 for a first floor 80-sqm unit). Mireille Korab Abi Nasr, FFA Real Estate’s marketing and sales director, says the firm has received more than 120 inquiries from interested parties about these units.

Although small studios maybe cramped, they can provide a great way to afford a down payment on a bigger property. Jad Zgheib of JSK brokers suggests an initial investment in small apartments(as small as 40-sqm studios) as they are always in demand and can then be sold easily, especially around university areas. “You should expect a capital gain of 10 to 15 percent yearly,” he said.

To broker or not to broker

Zgheib says brokers can make all the difference by putting together special deals that cater to the particular circumstances of buyers and sellers: “I had a couple who had$180,000 to spend on a home but didn’t have the 20 percent cash down payment. At the same time, I knew a guy who had his eye on a home under construction in Metn that needed two years to finish. He decided to sell his existing current residence in Dbayeh to this couple and rent it from them for two years until his new home [was] finished. So the $600 monthly rent payments over this period substituted as the down payment.”

A broker can also typically help to negotiate the asking price down 10 percent if he has brought more than one buyer to a certain project. Zgheib said he got one of his clients to gather friends to buy three apartments in one building in Mazraat Yachook. They got a10 percent discount off the asking price and ended up paying $300,000 each instead of $330,000 for 200-sqm apartments that are a short distance from the Bekfaya highway.

Though negotiations typically top out at 10 percent, one can certainly give an extra tug if the building is old or if there is no parking assigned.  However, the 2.5 percent brokers fee can be daunting to some. If you choose to go it alone you risk overlooking certain information that a broker may provide, but there are a handful of websites that can help you get in touch directly with the owners of property.

One such site, Aradeek.com, founded by Waleed Khoury, is updated daily and even allowed sellers to list their properties for free during the month of January. Now more than ever is the time to negotiate on housing prices, given the tumultuous political environment. But those buying small houses have less leverage, especially when buying from a developer who has not based his financing on bank loans and is not in a hurry to pay them back. Walid Moussa suggests buying off-plan, as it is often more negotiable.

Paying for it all

Information International’s Chamseddine says while 20 to 25 thousand Lebanese need home loans each year, but only 10,000 households receive them. Iskan and other publicly subsidized loans tend to offer customers better rates, though not everyone qualifies(maximum household income per month to apply is $3,333) and there is a cap on the loan amount, which was recently raised from $120,000 to $180,000.

Going the commercial route, and assuming our couple gets a loan that covers 80 percent financing and allows at least 20 years to pay back the loan and interest, they are looking at a home within the $350,000 to $400,000 range, depending on how much cash they have saved to pay the 20 percent down payment that is usually required. Most home loan interest rates start out near 3.75 percent and slowly increase, up to as high as 8 percent after the first year. That determines your monthly payment, which, as a rule of thumb, should not exceed a third of your income. Brokers say that most banks are now offering loans to purchase apartments under construction or in the planning stages by making deals with the developers to finish their projects within a certain time frame.

Antoine Chamoun, general manager of Bank of Beirut Invest, says that the bank has been involved in financing loans for off-plan homes for about a year and a half, and is working with seven developers to provide loans for those who want to purchase off-plan homes.

The $500,000 ceiling offered in Bank of Beirut’s “BDL loan” — a loan offered by commercial banks partly subsidized by the central bank — is for a primary residence that cannot be sold for seven years. Banque Libano-Francais tied up deals with Plus Properties to finance home loans for the upcoming Plus Towers in downtown and Fanar Residencein the Metn area, while CIBCO is developing 120 and 150 sqm apartments that fit our budget range of $350,000 in their upcoming Sky Tower in New Doha, Aramoun, with off-plan loans provided by Bank Audi and BLOM Bank.

Not only will our couple be paying less in total by going off-plan, the down payment is also spread over alonger period of time, instead of paid all at once.

Abou Rizk says one advantage of having a broker, especially if buying off-plan construction, is that he can make sure that when our couple pays the gradual installments every few months, the contractor has actually reached the agreed upon stages of construction, and they are not just paying to watch time pass.

 

 

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Economics & Policy

Q&A – Joseph Stiglitz

by Ahmed Moor
written by Ahmed Moor

Joseph Stiglitz is a Nobel laureate who received the prize in 2001 for his work in economics. He held the post of senior vice president and chief economist at the World Bank from 1997 until 2000, when he resigned over professional disagreements regarding the bank’s policies. He served as the chair of former United States President Bill Clinton’s Council of Economic Advisors from 1995 to 1997, and was also on the Intergovernmental Panel on Climate Change at that time. Stiglitz is currently a professor at Columbia University and is the chair of Columbia University’s Committee on Global Thought. While attending a conference in Cairo last month put on by management consultancy firm Booz & Company, Stiglitz sat down with Executive for an exclusive one-on-one about the evolving role of global financial institutions such as the World Bank and the International Monetary Fund.

The IMF and the World Bank were accessories to the global recession. Should we remain confident in their ability to promote development?

Clearly some of the policies that they had recommended in terms of regulation and liberalization were exactly the kind that led to the crisis and to its rapid spread abroad. The question is: Have they learned the lesson? Have they changed the models?

I think that the crisis has been obviously traumatic, not only for economies but for economists and [it has led to] a reexamination of a lot of beliefs. I think there have been significant changes, for instance, at the IMF at the top. One example is if you look at some of the policies that they employed in response to the crisis; they’re very different than those in 1997 and 1998.

[The leadership is] much more tolerant of deficits and stimulus policies and much more accepting of capital controls. That’s a total change from before. Philosophically, when [IMF Managing Director] Strauss Kahn says that the measure of recovery is whether employment gets back to normal… before they never talked about employment. The IMF has changed dramatically. The question on many people’s minds is: how deep into the institution is it? If they got a head from the old school, would the institution revert to the old ways? No one really knows the answer.

What do you think of the view that these institutions are implements of American foreign policy?

I think there’s ambiguity as always in political life. I know the World Bank much better [than the IMF]. Most of the people in the World Bank, people that I knew, were very much committed to promoting development. Much of what is going on is concerned with education, health and poverty.

In fact, I think the World Bank has been among the strongest institutions raising the awareness of the issue of poverty around the world. At the same time, you can look at what the IMF did in the 1997-98 crisis and say that was very much a reflection of the United States’ financial orthodoxy.

And if you look at the bailouts in general, they’ve been as much a bailout of American and European banks as they were of the countries. In many of the cases the countries would have been better off [without the bailouts] because in many of the cases they were private borrowers and the IMF effectively encouraged them to take those loans onto those books. It was the citizens of the countries bailing out bad lending by American and European banks. That was not in the interest of the countries. It was in the interest of American financial institutions.

Does that discredit the institutions?

These are international institutions where the governance is complex and not always fully transparent. The IMF — where the US isn’t the only country with veto power,  the G7 have the majority of votes, and the governance resides in the central banks and finance ministries which are closely linked to the financial sectors — you’re going to see the IMF be elective of the interests of the financial institutions in the richest countries. I think that’s inevitable.

I think though, at the same time, these institutions know they have to maintain global legitimacy to be effective. So they can’t just do what would only be in the interest of the financial institutions.

Is linking aid to human rights a good decision economically?

There is an economic aspect to it, to the extent that these institutions — like the World Bank — are funded by taxpayers, who are going to say: “We don’t want to give money if we think it is going to support values that we disagree with in a very strong way. We accept a wide range of behavior but there are certain things that we feel strongly about.” In a sense you have to see this as democratic accountability.

But the second point is that, broadly, more open societies are going to grow better. If you have a good education, people are going to start questioning — and you need a good education system to grow. A good education system is going to lead people to feel sensitive about the issues of human rights, almost inevitably. And then when you see that what is going on in your country is not consistent with that; you have the risk [that talented people will leave].

From the point of view of the World Bank there’s another issue though. Even if you think that the government is not democratic, I think there’s a moral obligation to figure out how you can deliver money to the poorest people in a way that doesn’t strengthen the government. You look at people in a country where they have a corrupt and a bad government in many ways, you say, “They’re already suffering. Should I punish them and make sure they don’t have a future by not providing support for the education of their children?”

My view was that we ought to figure out ways of delivering education [and] health services to the poor people in these countries in ways that don’t strengthen the government. In many countries, the World Bank has figured out how to do that.

What do you think of the top-down model of economic development practiced by authoritarian regimes, both in the region and China specifically?

First, in the case of China, there is actually wide participation in the formulation of the development agenda, so you cannot describe China as a top-down authoritarian regime. You cannot describe it as a democratic regime,  but the fact is that there is very wide consultation in the formulation of their development strategy… Successful development strategies almost inevitably have to have a buy-in. Our societies are too complex to have anybody run the whole thing. Therefore you have to have a broad consensus about what are the right things to do.

In what ways does the democracy deficit in the region impact economic growth?

Let me get back to China for a moment. There are some people who argue that the reason that China has taken the strategy it has taken is in fact because the only legitimacy they have is growth. They don’t have legitimacy from a democratic electoral process. So they have to justify themselves by saying, “We have been successful in producing growth.” This is not a defense of not having elections. I think democratic openness is becoming increasingly important in dynamic societies where you have to be open to the world.

Does the developed world have a responsibility to take for protecting the environment? Should the developing world reign in industrialization to curb greenhouse emissions?

The 1992 Rio Convention gave the framework that I think is the right one, which is, the incremental cost associated with reducing greenhouse gasses should be borne by the advanced industrial countries as a matter of ethics. And you might say it’s not just that the advanced industrial countries have already [contributed] their fair share of the global [emissions]… it’s that to ask the poorest people to lower their standard of living so the US can maintain its profligate lifestyle seems unconscionable. I think that one of the reasons for the failure of Copenhagen was that there was less of an articulation of notions of fairness. It got down to mechanics and I think there ought to be more open discussion of “What are the ethical implications of this?”

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Economics & Policy

Oil Law: Missing the tide

by Sami Halabi
written by Sami Halabi

 

 

Oil has been interchangeably called “black gold” and the “devil’s excrement,” having both enriched the coffers of nations and pit them at war; it creates the capital for investment yet often destroys the development of other sectors in an economy.  It is perhaps fitting then, that Lebanese politicians have recently found renewed impetus to squabble with each other over how to pry open the lid of this cursed treasure under the sea floor off our shores.  

Lebanon’s slick history

The idea is not novel to those who have been following it. Oil and gas prospectors have long suspected the presence of hydrocarbons in the country, and there was a time when Lebanon had a proficient energy production industry.

Before the outbreak of the 1975-1990civil war, Lebanon used to refine oil in both Tripoli and Zahrani, suppliedeither by ship or overland via the old Trans-Arabian pipeline, which still runs from Qaisumah in Saudi Arabia to Zahrani. Supplies were then refined and even exported.

“We could regain our position as a major strategic transit country, like we used to be

before the 1970s, but we are not going to be Qatar or Saudi,” says Roudi Baroudi, independent energy consultant and Secretary General of the World Energy Council’s  (WEC) Lebanon Member Committee.

Today, however, Lebanon’s oil and gas infrastructure lies in tatters, with the country unable to coverits own energy needs, much less regain its position as a strategic oil and gas nation. What’s more, in comparison to its neighbors, Lebanon is far behind in terms of its progress in oil and gas exploration and production.

“Our real problem is that we are very slow and we are late; everybody is ahead of us,” says Mohamad Kabbani, head of the Parliamentary Committee for Public Works, Transport, Energy and Water and a member of parliament (MP) allied with the former Prime Minister Saad Hariri.

Lebanon has already drilled seven onshore exploration wells and is currently considering options to perform surveys again. It was former Prime Minister Rafiq Hariri’s government that shifted the focus to exploring the offshore area in the early 2000s. Since then, a number of seismic surveys have taken place off the coast of the country, and the results have piqued the interests of international oil companies (IOCs). The latest was conducted by the Norwegian firm PGS, which has recently concluded a full two-dimensional survey of Lebanon’s Exclusive Economic Zone (EEZ) — an area 200 miles (370.4 nautical kilo meters) from the borders of a nation in which it can legally extract natural resources as per the United Nations Convention on the Law of the Sea.

According to Cesar AbuKhalil, advisor to the caretaker Minister of Energy and Water (MoEW) Gebran Bassil, who is part of the opposition Free Patriotic Movement, Lebanon has two-dimensional seismic data covering 23,500 square kilo meters and 3,500kilometers of three-dimensional seismic data. It also has an operational ‘data room’ where survey results can be viewed and analyzed, which is an essential condition for launching a bidding round. The information costs seismic companies tens of millions of dollars to acquire, which they then hope to turnaround and sell to oil companies, with revenue from the sale shared with the Lebanese government.

The Lebanese treasury has already benefited from its sale along with the companies that have performed the surveys. More than 10 IOCs and national oil companies (NOCs) have bought data from the ministry and they are asking for more, says Abu Khalil, who added that no single company had all the seismic data. Baroudi estimates that if the entire offshore area of the country were licensed out, each portion in which companies are licensed to operate would require an investment between $3million and $6 million to perform 3-dimensional surveys.  

However, it remains to be seen whether these data purchases indicate genuine interest or are just efforts to keep the libraries of various IOCs and NOCs up to date.

Lebanon’s offshore area is part of the Syrian Arc, a geological structure of the earth that runs from Tadmor in Syria to Egypt and contains similar geological structures throughout. Lebanon is also part of the Levantine Basin, another structure located mostly beneath the waters of Lebanon, Israel, Cyprus and Syria. The government-run United States Geological Survey estimates that the basin contains some 1.7billion barrels of recoverable oil and 3.45 trillion cubic meters of recoverable gas. That becomes more significant when considered with the fact that the offshore Nile Delta region of Egypt has had an 85 percent exploration success rate, according to Baroudi.

But the more recent findings offshore of Haifa, straddling the Lebanese and Cypriot maritime border, are the ones that have raised the greatest interest of prospectors, and the greatest concern among Lebanese.

The law

For all the promise the Lebanese offshore area holds, IOCs and NOCs have been loath in the past to seriously consider any foray into the country due to the absence of high-level regulation or legislation to protect potential investments. That changed last August when Lebanon’s parliament voted unanimously to pass legislation allowing for offshore exploration and production.  The law had been lying dormant in parliament since the early part of last decade, unable to reach the floor due to a lack of political consensus and various conflicts among Lebanon’s political factions. At the behest of the Speaker of Parliament Nabih Berri — without whom no draft laws can come to the floor — the law was pushed through in a matter of days.

The borders

The reason for such haste was not only the backlog of legislation, but concern regarding activities south of the border. In January 2009, a joint United States-Israeli exploration group led by the US firm Noble Energy struck gold when they found a large natural gas deposit, dubbed Tamar, estimated at some 142 billion cubic meters (BCM) some 90kilometers off the coast of Haifa and just south of the Lebanese border. A few months later the group made another find in the Dalit field, estimated to be about 10 percent the size of the Tamar find. Such monumental discoveries could turn Israel into an energy exporter, a prospect that whipped the usually sluggish Lebanese parliament into action.

But passing a law will hardly be sufficient to bring the country up to speed with the rest of the region, let alone make it an attractive destination for IOCs and NOCs to invest in exploration. For starters, Lebanon has not set its maritime borders with any of its neighbors. Back in 2007, Lebanon and Cyprus did agree on the delineation of their maritime borders, a necessary measure given the overlap of their EEZs. But the agreement is now stuck at the prime minister’s office, which has not sent it on to the Parliament to be ratified for fear of angering Turkey — which does not recognize the Cypriot government — according to Future Movement MPK abbani. 

Turkey is now a key mediator in efforts to resolve Lebanon’s political crisis after its cabinet collapsed last month. However, Lebanon not formalizing its borders with Cyprus means that royalties from any resources found in common fields — which the MoEW’s Abu Khalil suspects exist given the seismic data from companies that have operated in both countries — that extend to Lebanese and Cypriot waters cannot be divided between the two states as would be common practice according to the UN Law of the Sea, which both Lebanon and Cyprus have ratified. The prime minister’s office did not respond to Executive’s request for comment.

Cyprus is currently in the exploration phase after the success of its first bidding round and is expecting to contract areas that could contain common fields with Lebanon in the second half of this year, according to press reports. Cyprus has already awarded Noble Energy the rights to explore a 1,250-square-mile contract area bordering Israeli-claimed waters and formalized its borders with Israel in December of last year.

Syria — which already launched an unsuccessful exploration bidding round to attract interested companies and looks to be preparing for a second round this year — and Lebanon have not formally delineated their border, but Kabbani claims that “we can solve it with Syrians; it’s not a problem.”

But that is unlikely to assuage the fears of the IOCs and NOCs that will need to invest up to $250million per block in design and development, with between $500 million and $600million of foreign direct investment to actually build the infrastructure needed, according to the WEC’s Baroudi. Just in the exploration phase, he estimates companies will need to invest as much as $100 million, and a further$500 million individually or through joint ventures. Nonetheless, Baroudi believes that when all is said and done, Lebanon could bring in $3 billion per year in net earnings.

A regulator of sorts

Of course the revenues will have to be shared between the Lebanese government and the oil companies. According to the exploration law, each contract block will have to be bid on by a consortium of at least three companies under a production sharing agreement. Following a proposal by the energy minister, based on the opinion of “The Administrative Board for the Petroleum Sector,” the cabinet will decree the terms of the agreements for each block.

The administrative board itself will have to be appointed by the cabinet following a proposal by the minister. It will act as both regulator and consultant to the minister while also being under his purview. Kabbani explains that this structure was a focal point of the negotiation process to pass the law, whereby his party sought to water down the minister’s authority over the sector.

Having the board appointed by the Council of Ministers also implies that it will be subject to the sectarian trade-off of members, as are all administrative boards in Lebanon. That effectively means that if the sector is to be regulated according to best practices, and decisions are to be taken in a streamlined fashion, the cabinet, minister and board will all have to agree. At the time of this writing, there is no functioning cabinet, the backlog of decisions and appointments to be made numbers more than 300 and Lebanon is in the midst of a full-blown political crisis.  

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Finance

Something wrong under the hood

by Emma Cosgrove
written by Emma Cosgrove

 

 

Car accidents in Lebanon increase, on average, 12 to 15 percent every year according to KunHadi, an organization dedicated to road safety education. The group says that on New Year’s Eve 2010 alone, there were 24 car crashes in Lebanon resulting in 28injuries and two fatalities.  The numbers scream for a robust and active insurance sector but instead Lebanon’s automotive insurance system is far behind global standards.

Its insurance industry is still the leader in the region, even after Swiss Re’s “World Insurance Report2009” said that insurance penetration as a percentage of gross domestic product had dropped from 3.4 percent in 2008 to 3.1 percent in 2009. Estimates suggest that the industry has probably reached $1 billion in premiums.

But Fateh Beckdache, general manager of BLOM Bank’s Arope Insurance, warns that any premiums growth in 2010is due to inflation and not growth. Without a financial crisis on which to blame the slowdown, less than stellar estimates for this year’s insurance financials suggest that there is something wrong under the hood. In fact, there are many idiosyncrasies within the Lebanese insurance industry that have caused a chain reaction of corner cutting and frustration on top of tumbling profitability.

The contract

Six month to one-year policies are the bread and butter of most Western auto-insurers, wherein the onus of continuation is mostly on the driver. Centralization of accidentin formation means that your crashes follow you wherever you go, making it less likely that a driver will find a more favorable rate by switching companies after a claim. In Lebanon, however, the lack of a centralized database for driving records of the insured reverses this dynamic, causing a shift in power within the driver-insurer relationship. Policies reaching up to five years are not uncommon and premiums do not rise when claims come in.

“This is very bad for the market. I don’t know why we can’t have a Centrale de Risk,” says Joseph Nasnas, chairman and chief executive officer of AXA Middle East. Insurers know that when a client submits a claim, if their premiums go up, they can easily move to another company and obtain the former rate, if not a discounted one as a reward for switching companies. Because of this, there is no disincentive to makes mall claims.

The accident

Massive claims for every little dent and scratch have caused the industry to search for disincentives. And since an overhaul of premium structure is impossible without a centralized information system, last year the industry attempted to improve the situation using a simpler tool: a deductible.

 

The members of the Association of Insurance Companies in Lebanon (ACAL) resolved to instate a $100deductible on claims as a group, in order to dissuade small claims and keep the playing field level among the companies. Association decisions, however, have no enforcement mechanism, leaving it up to respective companies to decide whether or not to follow its recommendations. Beckdache, who has put the deductible into effect, says that it has been very effective, estimating that it has improved Arope’s profitability by 20 percent.

“Some people used to come every month to repair their car. Now they don’t do it any more,” he says.“These are small things that make a lot of differences.”

Other companies have chosen to apply the change on a graduating scale. At AXA, Nasnas has no deductible for the first accident, but a deductible is in effect for the second, which then grows with each successive accident.

Abraham Matossian,  ACAL president and chairman and CEO of Al Mashrek Insurance and Reinsurance, however, says that he has not put the deductible into action at his company, claiming that it is not necessary as his business is going smoothly.

The numbers

This all adds up to an industry struggling to improve its profitability. The deductible, though a positive step, cannot completely heal what is ailing the sector as a whole given other glaring deficiencies, like the reserve requirement structure developed by the Insurance Control Commission (ICC), the regulator for the industry.

With GDP on a steady upward course in 2010, there are systemic, and not environmental, factors that have squeezed Lebanon’s auto insurers into a profitability jam and caused them to seek outside help to persuade the ICC to change a recent ruling that they say is stifling their operations.

In 2009, the ICC raised the reserve requirement for Lebanese companies. The ICC uses a premium deficiency reserve model to determine how much cash a company must have at any given time. It uses a company’s history to determine how many claims can be expected in the following year relative to the number of policies it has on January 1, not taking into account the fact that many policies straddle the end of the fiscal year or as is often the case in Lebanon, far exceed it. For example, if a policy begins in September it will be in effect well beyond the end of the economic year.

But Jeffrey Courchene, a principal at Milliman actuary who was commissioned by the association to evaluate Lebanon’s reserve system, told Executive that this is not always the most sensitive model. “The observed profitability in recent accident years is only a proxy for the expected probability in the unearned premium. Recent improvements in price level or portfolio management will be at best only partially reflected in the results of recent accident years, although they can have a significant impact on the assessment of profitability,” he says. “The new regulatory PDR (premium deficiency reserve) formula does not allow companies to fully reflect improvements they may have made in order to improve their premium adequacy. Contracts with longer effective periods, such as five year motor policies written by banks are especially impacted by this.”

Courchene recommends a more reactive and individualized alternative; a “principles-based” approach, which takes a more nuanced, holistic approach toward quantifying risk and is growing in popularity. “There is a worldwide trend towards principles-based regulation and accounting.” But this strategy requires more elbow grease from the regulator, something seemingly in short supply at the ICC, which still hasn’t published any figures from 2008; with this in mind, implementation of a new strategy looks unlikely.

Rumblings

In the face of waning profitability, some industry players suggest that there is some precarious accounting going on as well, giving the sector a more successful outlook than it deserves. Some suggest, for example, that long-term policies, which have been “written” but not “earned,” are recorded as revenue all at once on balance sheets. This kind of fraud would certainly create a cash flow problem in the very short term but Matossian claims that if you are smart you can make a lot of money this way.

Beckdache, however, says that this kind of behavior would be impossible to sustain and thus doubts that it is in practice. “If this happens, the first year I would make a lot of money. The second year I would start bleeding. In three or four years I would go bankrupt,” he explains.

Nasnas says that without proper industry statistics there is no way to know one way or the other. “We don’t have any official figures letting us analyze the market trends. So I wouldn’t be able to know.”

But Matossian confirmed to Executive that it does occur in the local market. Further bad practices, which are not uncommon, involve “dumping,”  cheap policies at the Lebanese border — insurance is mandatory for vehicles coming into the country  —or at the Mechanique car inspections to customers who suddenly find themselves in need of the required quick-fix coverage,  which the ‘companies’ are unlikely to honor. These practices are what caused the Ministry of Economy and Trade to shut down the American Underwriters Group in 2010.

So what?           

Why should Lebanese drivers care if Lebanon’s insurance industry is a disorganized impersonation of a mature insurance market? The current system keeps premiums low and compulsory coverage even lower, making the reasons difficult to see from the perspective of one’s bank statement. But the reasons are out there on the road.

Mandatory insurance beyond third-party bodily harm and an insurance system that incentivizes good driving are the private sector’s means to improve the safety of Lebanon’s roads, a task made more urgent by last year’s accident statistics.

 

 

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