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Qatar

by Peter Speetjens
written by Peter Speetjens

Following the suspension of two FIFA executive committeemembers for accepting bribes, the world’s governing football organization onDecember 2 announced that Russia and Qatar will host the World Cup (WC) in 2018and 2022 respectively.

While Russia — with England — was a favorite from the start,Qatar came as a total surprise. Especially in the West, commentators ask: whyorganize such a major tournament in such a tiny country that is blessed withsummer temperatures soaring up to 50 degrees, has no football tradition tospeak of, and which most people are unable to locate on a world map?

While this is a legitimate question, it seems thetraditional football power-houses may have underestimated the strength of theQatar bid, as well as FIFA President Sepp Blatter’s wish for the WC to betterreflect the game’s global appeal. In the past, the organization of the world’sbiggest sporting event more or less routinely changed hands between Europe andSouth America. Yet ever since Blatter came to FIFA power in 1998, Asia hostedits first WC in 2004, the first WC in Africa followed in 2010, while the 2022version will be hailed as the first-ever in an Arab and Muslim country.

The (controversial) Blatter believes that football has thepower to bring people together and enhance mutual understanding, peace andprosperity. Critics, however, claim that Blatter’s global interests mainly aimto enhance his own chance of a political FIFA-afterlife. Western footballnations may also have overlooked the influence of Mohamed bin Hammam, theQatari Head of the Asian Football Federation and current “number three” in theFIFA hierarchy, who is a strong candidate to succeed Blatter.

Still, even in the troubled FIFA ranks that would not beenough for Qatar to beat the bids of its main competitors, Australia and theUS, both countries absolutely nuts about sports and blessed with superbfacilities. As Qatar possesses none of the above, it seems to have outsmartedits bigger rivals by emphasizing being small.

Qatar promises to organize the most compact tournament ever.It will build or expand a total of 12 stadiums located within, at most, anhour’s drive, which will allow football fans to attend more than one game perday. Try doing that between New York and LA, or Sydney and Perth. In addition,once the 2022 world champion has been crowned, the stadiums’ upper tiers willbe removed and donated to countries that lack proper sport facilities. Theoffer is a novelty on ‘Planet Football’, one that was no doubt welcomed byFIFA’s poorer Asian and African representatives.

Qatar’s main weak point is, of course, the weather, as theWC traditionally takes place in summer. Previously, the FIFA technicalcommittee had considered the weather a potential health risk, not just forplayers and fans, but also for “officials and the FIFA family,” and requiredthat precautions should be taken.

To overcome this “slight” inconvenience, Qatar introducedanother novelty: to equip its stadiums with a solar-powered outdoorair-conditioning system that is able to keep the stadiums’ temperature at aconstant and comfortable 20-something degrees. Oh, and beer-drinking fans neednot worry. Qatari officials have promised that alcohol will be allowed inhotels and special outdoor “fan zones,” and they too will be connected to the“green” cooling system.

While most Qataris are no doubt proud and thrilled to hostthe 2022 football bonanza, some may question if building 12 stadiums andorganizing a WC is the best way of investing the country’s wealth. The stadiumsalone have a price tag of some $4 billion. South Africa in 2010 spent less thanhalf that amount, yet failed to record a profit as only two thirds of theprojected 450,000 visitors attended the games.

To the Qatari authorities however, money is not an issue.They think big and have more important things on their minds. Following the2022 WC, which has billions of viewers the world over, few people will still beunable to pinpoint Qatar on a world map. And there are other sport events tocome, such as the Asian Games, the Asian Cup in 2011, and, ultimately, theOlympics. Expect Qatar to be bidding for the ultimate dream in 2024 or 2028.

 

PETER SPEETJENS is a Beirut-based journalist

 

 

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Conflict nigh as waters dry

by Nicholas Blanford
written by Nicholas Blanford

 

The storms that wracked Lebanon in mid-December were among the most severe in several years. While they helped douse the epidemic of late season brush fires and allowed nervous ski resort owners to open the pistes for the first time, the welcome rainfall could not disguise the fact that Lebanon and the region in general is experiencing a worsening drought.

While the concept of “water wars” in the Middle East has been articulated for many years, the looming crisis over the lack of water is certain to lead to greater competition for resources, fuelling not only inter-state tensions but domestic upheavals between the haves and have-nots.

Before the first rains fell in earnest in December, Lebanon’s meteorological office had registered just 51.2 milli meters (2.01inches) of rain since September. That compares to 214.8 milli meters (8.45inches) for the same period in 2009.

Years of war and government mismanagement have wasted Lebanon’s most prized natural resource, the envy of much of the region, particularly Israel to the south which has coveted Lebanese waters since the notion of a Jewish state in Palestine was first suggested more than a century ago. An Arab League project in the early 1960s to divert the Hasbani River from flowing into Israel indirectly led to the 1967 Arab-Israel war, in which Israel seized the Golan Heights from Syria and the West Bank from Jordan.

Since then, Israel has exploited both territories for their water reserves. The Mountain Aquifer in the West Bank, which produces some 600million cubic meters of water per annum, is supposed to be a shared resource for Israelis and Palestinians.  But Israel exploits about 80 percent of the aquifer for its own needs. Israelis on average consume three times as much water as Palestinians. The Coastal Aquifer in Gaza once kept the Jewish settlements watered and provided some 18 percent of Israel’s water supply. But years of over-pumping emptied the aquifer ,allowing salt water to seep in, so that by the time Israel abandoned its settlements in Gaza in 2005 there was little water left for the Palestinians to exploit.

The sensitivities between Lebanese and Israelis over water resurfaced nearly 10 years ago when several minor pumping projects in the Hasbani river to provide water for certain villages and to irrigate some farmers’ fields prompted the Israeli government to threaten war against Lebanon. A four-year drought in north eastern Syria has left an estimated 2million to 3 million people living in what the United Nations terms “extreme poverty.” Thousands of inhabitants of the Jazeera region in Syria’s north east have migrated toward Damascus, living in ad hoc settlements in the hope of finding work. With once productive arable land turning into desert, Syria has gone from a net exporter of wheat to a net importer.

Lebanon boasts some 40 major rivers and 2,000 springs, but the UN estimates that half of the annual flow of 1,150 million cubic meters is lost to the sea or neighboring countries. A World Bank study concluded that Lebanon could be experiencing chronic water shortages by 2020 due to over-consumption, over-pumping, pollution and poor management. Much of Lebanon’s water is used for agricultural irrigation, particularly in the relatively arid Bekaa. But the lack of sustainable irrigation techniques places a burden on local water resources with ever more wells drilled and a consequent lowering of the water table. A 1999 plan to harness water resources called for investments of $1.5 billion to construct dams and reservoirs. The plan was supposed to be completed this year, but it has hardly got off the ground due to the failure of successive governments to allocate funds for the project.

If action is not taken soon, water shortages could provoke social unrest, especially given the expanding divide in Lebanon between the wealthy and poor. In recent months, residents of the Bekaa and the north, the two poorest regions in the country, have had to purchase water from tankers because the state supply ran out. In 1992, the collapse of the Lebanese lira sparked riots in the streets of Beirut, which ended up toppling the then-government of Prime Minister Omar Karami. Those protests were dubbed the “bread riots.” The next could be over water.

 

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

 

 

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Elections without opposition

by Heba Morayef
written by Heba Morayef

 

Egypt is still reeling from the recent elections for the People’s Assembly, the lower and primary house of the country’s bicameral parliament. The first round, on November 28, was marred by reports of fraud, violence and widespread denial of access to accredited observers. The organized opposition was left with only four seats. The Muslim Brotherhood, which in 2005had won 88 seats with members running as independents, did not win a single seat.

In response to what they saw as widespread vote rigging, both the Brotherhood and the Wafd — another of the main opposition parties —announced their withdrawal from the second round, held on December 5. The final tally gave the organized opposition a mere 3 percent of the seats, compared with 23 percent in 2005. “An Assembly Without Opposition” read the headline of one independent newspaper after the announcement of the final results. 

Many Egyptian analysts expected that there would be fraud in the absence of independent judicial supervision, but nobody quite expected a People’s Assembly so devoid of opposition. The government had in recent years pointed to lively debates in parliament and the media as evidence of democratic life when speaking to the outside world. A government that remains as image-conscious as this one needs to have an opposition in parliament.

The overall results reflect the exclusion of the opposition that Human Rights Watch observed during the campaign and the first-round voting itself. In the weeks prior to the elections, security officers resorted to their usual pre-election crackdown on the Muslim Brotherhood, arresting at least 1,300 members between October 9 and November 28. I spoke to 24 of those who’d been arrested and held for periods ranging from 24 hours to six days, all eventually released without charge. These were young, educated men who had been putting up campaign posters or handing out flyers in support of a Brotherhood candidate. Four of them told me they’d been tortured. A fair and free election requires opportunities for candidates to campaign — in other words, to express their views freely and to bring supporters together in rallies and meetings. The authorities showed little respect for these basic rights.

On the first-round voting day, representatives of independent and opposition candidates were excluded from polling places, and even journalists and civil society monitors with permits were denied access; half the staff of one NGO with 2,600 monitors found themselves in this position. As the Human Rights Watch team went around to polling place after polling place we heard the same story: representatives of opposition candidates were denied entrance because of a regulation that had been issued overnight stating that their ‘proxies,’ or forms, already formally approved by a notary, now had to be stamped at the local police station. When Brotherhood representatives tried to meet this additional requirement, police stations refused to grant them stamps. Some who did get the stamps were still refused entry.

The systematic exclusion of independent observers was particularly critical given Egypt’s tradition of fraud.  Yet two heartening narratives come out of these elections: the role of the judiciary and the media coverage. Denial of access to polling places for independent journalists and monitors was made up for by the wealth of citizen journalism. Ordinary people documented fraud, violence, and interference by security forces with their mobile phones or small cameras and disseminated them widely through social networking or opposition websites.

The other force the government couldn’t fully control is the judiciary. Although greatly weakened by governmental interference, the judiciary in Egypt still enjoys the most respect of all state institutions for its relative independence. Constitutional amendments in 2007 had drastically reduced independent judicial supervision of polling places to oversight by “general committees,” marginalizing the role of judges.

After voting day, though, some judges courageously spoke out about incidents of fraud. And before election day, administrative courts ruled again and again against decisions barring some candidates, often emanating from the Interior Ministry, ordering the authorities to reinstate candidates or cancel the elections in certain constituencies. The impact of those rulings, which the government ignored, will not go away easily; Egypt heads toward presidential elections in 2011 burdened by the enormous legitimacy deficit of this new ‘People’s Assembly’.

HEBA MORAYEF is a Middle East and North Africa researcher for Human Rights Watch based in Cairo.

 

 

 

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Society

Decision Points

by Rayya Salem
written by Rayya Salem

George Bush’s recently released memoir Decision Points is unlikely to change anyone’s opinion on one of the world’s most divisive characters, but instead confirms whatever you already thought of the former United States president. This is your last chance to go as deep as it gets, but keep in mind, he’s into action rather than intellect or introspection. The result is a summary of his actions, written in short, blunt prose that mimics a fireside chat.

Previously unseen highs of emotional intelligence are sprinkled throughout Bush’s account of his decision making, but more evident is the all-encompassing Bush factor: unwavering inner strength emanating from his familial roots and religious faith.

His intractable stance — on foreign policy at least — is defended with characteristic conviction: going to bed knowing that 400potential September 11s threaten America’s homeland every month is a weight that never burdened the shoulders of any president so heavily. The events that transpired after September 11 and the shifting sands of the Middle East are far too large, and their radius far too wide, for them to be judged so soon, Bush would have us believe.

Though Bush’s inherited thick skin allowed him to cruise above the political frenzy, it is his own introspection that brings faultfinding. Without blaming the CIA, he admits he gets a “sickening feeling to this day” that intelligence reports were wrong about Iraq’s weapons of mass destruction, but adds a familiar aside:  the world is a safer place without its former dictator. To dispel popular belief that the United States entered Iraq for oil, he devotes but half a line in the 497-page memoir: “It’s simply not true.” 

He tries to tell us that media analysis of his decisions is too sophisticated to be useful. To understand his decision-making process, look no further than his historical review of West Texas. The world really is black and white. This memoir is the white-out to smother all the “God damn” dirty politics that sullied his time in power. But the hope that lacing in a couple of jokes here and there will make him more likeable, and thus believable, actually works; his machismo and naiveté blend well. It’s sweet if you can set aside the bloodshed.

Blunt admissions of embarrassing pitfalls swarm the memoir, hitting a home-run on the field of self-cleansing. On his 40th birthday, he disappointed his parents and wife at a dinner party when he drunkenly asked an older lady what sex is like after 50. Then there’s his bitter inner battle to quit drinking in 1986 and his mother’s never-before-mentioned bouts with clinical depression.

Perhaps what would ease America’s struggle for allies is the natural extension of this typical American ideal: the country mimics the born-again nature of its people. Tomorrow is a new day, our outlook and positions change, we are born again with new convictions, and our foreign policy is not written in stone.

Instead, he convinces us that it’s written in his heart. Imagine a double-date sleepover party with Tony and Cherie Blair in Camp David, February 2001. The former president would have us believe that one of the most important alliances to come was based on bonding over the comedy “Meet the Parents.”

His mistrust of Arab leaders such as Yasser Arafat is made colorfully clear, but awkward meetings with others make us wonder why he’s flaunting the role of luck in his politics. After Saudi Arabia’s Prince Abdullah left Crawford Ranch bemused by the president, it was the prince’s stop to see Bush Senior that patched up relations with America’s most important Arab ally.

To add to his foreign policy folder, an over simplification of Lebanon’s 2005 Cedar revolution balances out an otherwise media-unfriendly Middle East news reel. At least Walid Joumblatt might be happy to be quoted in the New York Times #1 bestseller.

 

 

 

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Society

A moving picture of air pollution

by James Reddick
written by James Reddick

 

“We are running late because the CEO of RYMCO can’t find parking,” said Najat Saliba, associate professor of analytical chemistry at the American University of Beirut (AUB), explaining the absence of Abdo Sweidan, chief executive officer at Rasamny Younis Motor Company.

It was a fitting prelude to a December 9 press conference unveiling the details of a new study on street-level air pollution in Beirut and its suburbs. Saliba has been analyzing particulate matter in the Beirut area for years; she recently partnered with colleagues at AUB and the National Council for Scientific Research to publish a report on the air we breathe, finding the levels of all sizes of particles to be an average of three to four times greater than the World Health Organization’s recommended level. While that project gathered data using technology rooted in fixed locations, the new study will provide a more in-depth look into where the average Beiruti spends large portions of their time: on the road.  

Saliba, undergraduate research assistant Carl Joe Mehanna and engineers at Nissan have outfitted a van with the capacity to take in and analyze particulate matter as it drives along Beirut’s main roads. With the financial support of Bank Audi and RYMCO to the tune of $135,000, over the course of the next year Saliba’s team will be able to remotely monitor air pollution in real time as the van moves through the congested arteries of the city, from the AUB campus up to Jounieh.  

“The Highway is our Airway,” reads the slogan along the side of the van, a scary thought for the estimated 500,000 people who commute in and out of the city every day. The health risks of exposure to particulate matter in the air vary depending on their size. PM10, or particles greater than 10micrometers, “affect the throat level,” Saliba explained. “PM2.5 go into the lungs and can cause pulmonary diseases, while nano-particles can go into the blood and even the brain.” 

In a city with little industry, the volume of cars is predominantly to blame. Abdo Sweidan, CEO of RYMCO, Lebanon’s exclusive Nissan distributor, suggested a need for emissions standards for imported vehicles.“If a car is not safe to use on the road in Europe, why should it be used here?” he asked, before reminding his audience that it is the consumer that dictates the market. 

“We have two problems here: pollution of the air and pollution of the mind.”

 

 

 

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Economics & Policy

Executive insight – Endeavor Global

by Peter Kellner
written by Peter Kellner

Entrepreneurial progress is made in a nation when leaders inspire, transform and generate jobs and opportunities. That means tax incentives for new businesses. In emerging markets, it also calls for the introduction of incentives for entrepreneurs and the bold people who join them — their employees — to get the equivalent of capital gains treatment for thebenefits they acquire based on the risks they are taking.

The United States has great examples of how this ethos works (despite it being somewhat under fire as we work our way out of the financial crisis). India, China and the Middle East and North Africa (MENA) would be well served by meeting these regulatory demands, which liberate human potential.

Here we are in 2011. The MENA is ripe for growth,Brazil and India are on the rise and China is aspiring for world leadership.But none of this will happen without a strong foundation inentrepreneurship. 

Amjad Aryan, for one, is helping to build this foundation inhis native Jordan and throughout the entire MENA region. Ten years ago, he usedhis savings to open the first Pharmacy 1 store in Amman; last summer he openedhis 48th store, the single largest pharmacy in the Middle East. With a newbranch in Saudi Arabia, Pharmacy 1 is now the first regional pharmacy chain. AsAryan builds his pharmaceutical empire, he is also becoming a role model for anew generation of entrepreneurs. Pharmacy 1 has grown its revenues by 66percent over the last year and provided jobs for more than 400 employees bybasing its model around its people, superior customer service and solidbusiness acumen.

But it’s the global community of entrepreneurs — and thenetwork that supports them — that will help propel high-impact companies suchas Pharmacy 1 to the next level. Endeavor not only introduced Aryan to a topexecutive at leading British pharmacy chain Boots but also to the founder ofFarmacity, the largest retail chain in Argentina. The foundation for globalentrepreneurship is no longer only built between developed nations and emergingmarkets but also between emerging countries.

Let’s take a particularly daunting place to start abusiness: Egypt. Its fiscal laws and procedures regulating start-ups arecomplex and challenging. Filing bankruptcy is illegal and can lead toimprisonment.

However, entrepreneurs such as Omar Fathy are unfazed. In 2002,the aspiring Egyptian restaurateur sold his car in order to invest in his firstestablishment in the resort town of Sharm El Sheikh. Rather than invest inadvertising, Omar took a riskier and more creative path: he purchasedhigh-quality ingredients, sold items below cost and let word-of-mouth do therest. Omar has built his company, Divine Worx, into the first homegrown,multi-branded restaurant chain in Egypt. With its four unique brands, DivineWorx operates more than 10 restaurants in four major cities, employs more than350 staff and serves hundreds of thousands of customers every year. In acountry where nearly one-third of the capital city’s restaurants are impersonalfast food chains, Omar and Divine Worx are providing differentiated concepts targetedat and tailored to the Egyptian consumer.

Entrepreneurship is the key to a smooth landing for aglobalizing world, from economics to politics. Entrepreneurship is motivatingyoung people of the next generation globally and inspiring them to realize theirdreams for a brighter and better future. Entrepreneurs think big. They alsothink globally and need transnational relationships. Their thoughts may bemotivated by profit, but the outcome leads to new relationships, new frontiersand greater global understanding.

Global entrepreneurship is here to stay and grow. Itwas a concept before Endeavor created the globally networked construct ofglobal entrepreneurship, the only network in the world dedicated tothis. It is real and taking flight. We need to support this movementfrom Argentina to Lebanon, from Kenya to Vietnam. Young women and men aredreaming of something big — something that can transform their lives and impacttheir countries and the world. 

PETER KELLNER is co-founder of Endeavor Global, the world’s leading
organization devoted to high-impact entrepreneurship in emerging countries

 

 

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Economics & Policy

Executive insight – S2C

by Salem Osseiran
written by Salem Osseiran

 

As we take a long hard look at Lebanese society, we cannot help but grimace at the prevalent corruption. It is a painful reality that corruption is deeply entrenched in our country.

Bribery, nepotism and embezzlement are not simply the way we do business, nor only a matter of political economy; they are integrated into our social and cultural norms to the extent where we glorify the cunning Lebanese citizen who manipulates the system.

Upon asking a government employee about his income, the half-tragic, 

half-comedic response is that he usually classifies it under two categories: his salary and everything else he makes “on the side,” as if the latter is an inherent benefit that comes with the job.

In response to this national epidemic, the government, civil society and even the private sector are all playing a part in trying to find a cure. But what about our other major pillar of society? Where do the media find themselves in this process?  It isoften said that “the media is the mirror of society.” But when the reflection becomes this twisted, the media can no longer be content to simply reflect reality, to simply be a silent and passive witness to the bitter situation. In a country where the other three powers are struggling to counter corruption, it becomes the duty of the “fourth power” to institute positive change in order to enable a better society. 

Of course, one cannot deny the efforts made by some media outlets that are trying, through their investigative reporting, to act as the watchdog of democratic society. However, the strengths of the media in fighting corruption and bribery far exceed its mere reporting role. Indeed, in a society that condones rule breaking and short cuts, the media must act both as a critic and a conscience.

Obviously it should inform, but more importantly it should educate, inspire and call for collective action; corruption is omnipresent in Lebanon, but its hold on the norms of our society is not evenly matched by our awareness of the wide-ranging social, political and economic implications of this problem. Examples of these implications are numerous, from the discouragement of potential foreign investors to the exodus of qualified Lebanese professionals, who leave the country in droves because, though they have merit, they do not have waste to aid them in gaining meaningful employment. The result is a brain drain and a lack of investment that Lebanon can ill afford, either economically or socially.

The media has a role to play in helping to deter corruption by highlighting these negative outcomes and encouraging citizens to reflect on their behavior and its consequences. If it chose to do so, the media could assume its proper place as a powerful tool, not only for greater transparency, but also for increasing our understanding of the acuteness of the problem.

With the rising trend in online users, another approach for the media is to tap into this community when discussing corruption, especially considering the need to connect with the younger generation. Examples abound of anti-corruption campaigns that turn the public into active participants in reporting instances of corruption, debating the causes, and solving the problem.

Such a network, if properly mobilized and mediatized, would prompt stronger public opposition to corruption as more and more citizens join in. More importantly, this cooperative action system establishes public ownership of these anti-corruption efforts.

By rolling out similar initiatives, the media could provide the public space necessary to debate the issue of corrupt practices, while explaining to citizens how their decisions about corruption are influencing issues ranging from the amount of money in their pocket to their general safety. This effort would also entail building strategic coalitions and partnerships with civil society, government and the private sector.

The media’s presence in every household in Lebanon grants it an unrivalled ability to communicate with the public directly. But this capability entails a tacit agreement with the audience to move beyond mere sensationalism and reflect a sincere commitment to serve as a catalyst for change.

By informing and educating, the media can empower the people, ultimately creating the conditions necessary for bringing about fundamental change in our system of values. It is only then that we can have the courage to look at our reflection in the mirror once more.

 

 

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Real Estate

Q&A – Salvatore Saker

by Rayya Salem
written by Rayya Salem

Green Precast, a global precast-concrete manufacturer and contractor, offers a unique on-site automated construction procedure that builds by pouring concrete into pre-designed housing molds to make customized, one-piece frames that can be stacked. This process reduces human error and cuts construction time by over 50 percent and cost by between 5 and 30 per cent when  compared to conventional methods. The firm was founded in Australia 65 years ago and operates globally, with Lebanon being its most recent market entry. Executive spoke to Salvatore Saker, the company’s chief executive officer, about concrete and the Middle East’s construction industry.

E   Why is Green Precast investing in Lebanon now, and how much is the initial investment?

Lebanon became a strategic market for us after venturing into the Middle East [United Arab Emirates] about a year ago. We found [the Lebanese] extremely receptive to new construction methods. It helps because we spend less time explaining and more time on implementation. We have found a niche market that hardly anyone else is catering for.  When we first came to Lebanon, we didn’t realize the market size; we were working on investing between $5 million to $10 million and watching it grow organically. However, now our level of entry is going to be around a $20 million investment. We will be [building] thousands of residential units. Almost 80 percent of our [construction] products will be sold here.

E   What is the size of your upcoming project portfolio in Lebanon?

In the last two months, we have accumulated over 10 projects totaling over 2 million square meters of construction. More than 70 percent [of our portfolio] will be on the outskirts of Beirut; this is where the real demand is. At the moment, we expect 70 percent of construction to be catering to the residential market, 25 percent commercial — hotels, hospitals, universities, schools — and 5 percent industrial. In the last few years, we have been looking toward development so now we are looking to acquire our own land and develop upon it. We are looking at 31 sites in Lebanon. We have secured the land, are in the process of design, and will be delivering in six to eight months.

E    What makes your system different?

We benefit from value engineering. It creates a building that is almost four times more sustainable and superior in speed and quality than conventional precast methods. For example, we delivered a mock up 500square meter built up area dwelling within 24 hours, whereby it took other [conventional precast systems] two weeks to deliver.

We achieve this speed by minimizing the labor traditionally used for construction and combining our technology with heavy equipment. The module that comes out of the mold is manufactured using a pre-prepared steel cage of reinforcement and has all  [electrical and plumbing] conduits positioned and cast in. The procedure allows for four walls and a roof to be made in one pour with no joints between the parts.

E   So you rely on advanced technology rather than labor?

We use a lot less labor in our system, so o one Green Precast labor unit is equal to 10 workers in other firms because we don’t require a lot of labor to actually manufacture the product through our molding technology system.

E   Are there certain projects that this kind of system favors?

Our system is designed to cater for large-scale projects. The smallest project is 50,000 square meters of built up area, up to 10 million square meters per annum per market. That requires a lot of mobilization, manpower and preparation. We eliminate the margin of human error by providing [specialized molding] equipment.

E   What kind of cost savings are we talking about?

On average, on anything from 5,000 square meters upwards, if design and value engineering is done properly, you should come up with 5 to 10percent cost savings on the building. You can have access to the building within six months instead of it taking two to three years to complete. So for a commercial building, it means you have started earning money two years ahead of a conventional program, plus you have saved at least 15 percent on your holding cost.

Your construction method provides thermal insulation – is that relevant in the Middle East?

Thermal insulation is becoming a must. It applies for cold and hot weather. The cost to apply the thermal insulation, in our system, is absorbed into the construction cost, while you still save 5 to 10 percent on construction cost. On a 100,000 square meter [project], your savings can vary10 to 30 percent on the whole building, compared to conventional methods. We have proven studies that say, if you have external thermal insulation and combine it with an outer coating of [ultraviolet and infrared] reflector paint, you can save on 50 to 70 percent of air conditioner usage in Gulf countries. In Lebanon, you would hardly ever have to use AC if this was applied.

E   Is green construction a growing trend in the Middle East?

Dubai and Abu Dhabi have LEED and Estidama certification [incentives]. [In Lebanon] it should be mandatory in order to obtain a construction permit. Why do we have Lebanese groups and consultants implementing green technology outside Lebanon but not in their home country? However, today they are starting to zone different areas of Lebanon. We are already saying you can’t cut trees or pollute in certain areas. This is much tougher than requesting certification of LEED.

E   Do you predict labor and material costs will rise in the near future?

When demand eases, prices should drop, but labor costs haven’t dropped at all and in some areas [in the region] have increased. We do try to outsource most of our labor to third parties. We expect construction materials to always increase in price, but I don’t predict a rise in 2011.Hotspots like Saudi Arabia, Pakistan and India may drive up the cost of steel for neighboring countries. It was $1,700 per ton earlier this year and now it’s back to $2,700 per ton.

E   What is the main concern for those working in Lebanon’s construction industry?

When it comes to the quality of construction and materials, it’s up to every developer but there aren’t high standards on all levels. Also, the [poor] infrastructure in Lebanon is far more challenging than in other countries in the region. No other country in the Middle East has the mountains, snow, sea and the natural resources. It’s important that the right construction methods are used to preserve this natural wealth.

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Finance

Executive insight – Gazprom

by Executive Contributor
written by Executive Contributor

It is now an accepted fact that global warming is one of the most pressing threats facing the world today. The unusual weather patterns that result not only cause natural disasters and health hazards, they also impact production, productivity and efficiency. The industries affected by weather volatility are countless, from agriculture and construction to transport, energy, travel, leisure, retail and events.

The Intergovernmental Panel of Experts on Climate Change(IPCC) is well aware of the problem and of its consequences. Indeed, taking into account various demographic, technological and geopolitical hypotheses, the IPCC states in its recent report that the average increase in temperature on earth will be between 1.5° C and 4° C by 2100; a situation which is undoubtedly alarming.

In a world of increasing weather extremes, the question no longer is whether climate change is actually happening, but rather how can businesses protect themselves from it.

Weather derivatives were, as a result, created for the purpose of reducing the volatility of turnovers created by weather risk. The first weather derivatives deal was introduced in August 1996 in the context of a purchase of electric power from Aquila by Con Edison that was dependent on the August weather situation. Following that small introduction in the market, weather derivatives started to be traded in 1997 on the over-the-counter market and on the Chicago Mercantile Exchange (CME).

Weather derivatives are financial instruments that enable the management of risk associated with adverse weather conditions. There are different types of products: options, futures, swaps and more.

The products are based on a range of weather conditions in more than 47 cities in the United States, Europe, Canada, Australia and Asia, with hurricane products geared to nine US regions. Weather derivatives don’t take into account the damages but enable companies or individuals to hedge themselves according to their own predictions.

In fact, just like all the other options, weather derivatives are a sort of bet that you make on the upcoming weather according to your own expectations, based on the underlying temperature, cloudiness or the rainfall data. They are therefore potentially subject to individual speculation.

How does this product work? Let’s concentrate on the most commonly used product, the weather option. The trickiness in these products lies in their underlying asset, which is absolutely random and not scientifically predictable and very risky because of the controversy surrounding the climate change/global warming debate. This underlying asset has another issue as well: it is non-tradable, and thus inapplicable to the Black Scholes valuation model used for the other options. Therefore, weather options are valued either through the Burn analysis, which is based on historical data, or Monte Carlo-based statistical computer simulations.

Weather derivatives also enable protection against production cost increases. For example, a factory that uses some water in its process of production can protect itself against un favorable rainfall levels.

To trade weather options the following parameters must be determined:

• The contract type (call or put)

• The contract period

• The underlying index

• An official weather station from which the data is obtained

• The strike level

• The tick size

• The maximum payout (if there is any)

It is very similar to an insurance product. There are two types of weather options indices: “cooling degree day” (CDD) and “heating degree day” (HDD).

The number of CDDs on a single day is the difference of the daily average temperature from 65 degrees Fahrenheit. CDDs and HDDs are never negative. If the daily average temperature is less than 65° F, then the difference between the daily average temperature and 65° F is the number of HDDs. Over the course of a month, one might accumulate both CDDs and HDDs. The CME contracts therefore are based on the total number of HDDs or CDDs in the month.

Weather derivatives, now a multi-billion dollar industry, were originally created and traded in the US. Despite their use globally, these products have still not caught on in the Middle East and North Africa (MENA)region and no major contract has been launched in the area.

Catching on

Nevertheless, since weather derivatives are increasingly attracting energy companies, it has been said that the Organization of Petroleum Exporting Countries (OPEC) countries are starting to consider them in order to manage the increase in global demand resulting from the world’s changing weather conditions.

But the fact remains that energy companies are not the only ones concerned by weather shocks. The food sector is perhaps the most affected, through the impacts on agricultural production and decreasing supply coupled with increasing demand. It will therefore be important for African nations to consider weather derivatives to manage their food crises. In 2008, the World Bank launched a $1.2 billion financing facility to help developing countries in the region to overcome food shortages. This facility was meant to grant support mainly to Djibouti, Haiti, Liberia, Togo, Yemen, Malawi and Tajikistan by investing in multiple risk management tools.

In 2009, Malawi chose to use these funds to access the international weather derivatives market with the World Bank acting as an intermediary. In this context, Malawi was protecting its cereals production from projected harsh weather conditions. The new weather derivatives product created in June 2009 for Malawi was structured as an option based on a rain fall index. If rainfall drops under a certain level, a payout occurs; if rain fall doesn’t go beyond that certain level there is no payout. The amount was set to a maximum of $4.385 million as a start in order to test the market.

As African countries and the international weather derivatives market start becoming more familiar with each other, the World Bank is expecting more individual transactions of that type to occur in the region within the framework of global risk management strategies.

Eventually, the MENA region will have to embrace weather risk management tools in order to offset their weather correlated risks, particularly in the energy and food sectors.

Neyla Merheb is an associate in investment banking at Gazprombank-Invest

 

 

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Finance

Executive insight – DIFC

by Fabio Scacciavillani
written by Fabio Scacciavillani

As we enter 2011, the mature economies of the world seem headed toward the doldrums once more. Hopes of a quick rebound are fading, especially in the United States, while in Europe the fiscal crisis in peripheral countries is threatening to spread to the core. Only Germany has performed well, thanks to the external stimulus received from emerging markets imports of its goods, while Japan remains mired in political indecisiveness after two decades of gradual decline, hastened by the global financial crisis.

Looking forward, we see the European Union’s policy rudder firmly set on fiscal consolidation and the design of the Stability Pact 2.0, sustained by a European Fund. A major political focus will be the design of a permanent framework for dealing with sovereign crises, which will be undergoing an “on the road” test with Ireland’s collapse and contagion to Portugal and Spain. So it is unlikely that much stimulus for global growth will come from the Old Continent.

But the main uncertainty hangs over the US economy. Since taking office, President Barack Obama’s administration has essentially followed the strategy conceived by his predecessor and has skirted policy actions that would tackle the fundamental causes of the crisis: lagging productivity, crumbling infrastructure, poor education, declining innovation and financial imprudence. The indecisiveness and the stalemate with Congress on fiscal and structural policies, compounded by the setbacks in Afghanistan, have generated a malaise that is deterring investments.

Following the midterm elections, in which the Republicans took the House of Representatives, the confrontation on economic policy is likely to escalate, starting with the extension of the tax cuts enacted by former President Bush. With major policy decisions and regulatory reforms on standby, the task of reviving the economy has been taken up by the US Federal Reserve. As interest rates are already near zero, the strategy conceived for the next few months hinges on a second round of ‘quantitative easing’ or, as the media dubs it, QE2.

The Fed will inject money by purchasing long-term government bonds, in the hope that the financial institutions will lend the money to corporates and savers will spend on goods and services.

Printing money to pay for government liabilities is hardly an original move. It was a widespread habit in Latin America when the continent was experiencing double, and occasionally triple, digit inflation in the 1970sand 1980s. In more recent history, from March 2001, it was adopted by the Bank of Japan to counter deflation and stagnation, with scant success. During the acute phase of the financial crisis, as interest rates moved close to zero, QE became popular in many of the advanced economies including the US, the Euro zone and United Kingdom. As a lifeline to banks it has worked, but as a stimulus it had, at best, a limited effect.

The US embarked on the second round of QE in November. The Federal Reserve’s meeting on November 3 outlined that, “economic conditions…are likely to warrant exceptionally low levels for the federal funds rate for an extended period” and “the committee intends to purchase a further $600billion of longer-term treasury securities by the end of the second quarter of2011, a pace of about $75 billion per month.”

The statement indicated that the Fed is keeping the door open for additional purchases if necessary, noting that the Federal Open Market Committee (FOMC) will “adjust the program as needed to best foster maximum employment and price stability.”

The Fed touted this measure even before the formal announcement, so long-term interest rates and the dollar exchange rate had plunged in reaction. Then the Irish crisis provoked a flight to the safety of US Treasury bills, thereby reversing the currency movements.

It is rather worrisome that for the next six months, while the Obama administration deals with the new Congress, monetary policy will be the only ingredient in the policy kitchen. The case for QE rests on the hopes that monetary policy and ultra low interest rates will induce corporations to invest.

But doubts abound. Professor of economics at New York University’s Stern School of Business and chairman of Roubini Global Economics, Nouriel Roubini, for example, pointed out that banks already have close to US$1trillion in excess reserves, yet they refuse to lend while earning only 25basis points. More liquidity will not help. He argues that there is a “continued credit crunch on the supply side, exacerbated by the comatose state of the securitization system.”

Furthermore, the private sector is still de-leveraging while corporations are holding hundreds of billions of dollars in cash and up to $2trillion according to some estimates. It is very unlikely that they will be induced to invest by even lower interest rates. In essence, it is the uncertainty over the future direction of policy, the fiscal measures to stabilize the public debt and the persisting troubles in real estate that holdback market forces.

The counterargument, espoused by the Nobel Laureate economist Paul Krugman, holds that higher inflation will induce companies that are sitting on cash to invest, while the real burden of the public debt will shrink. However, inflation is essentially a tax on money holders and those whose salaries are fixed; plus it represents transfer of wealth from creditors to debtors. It is highly uncertain where such a gamble could end, and in fact, historically, inflationary policies have been hard to reverse.

Global fallout

In today’s interlinked world, the impact of QE will not be limited to the US economy: it will also cause excessive liquidity in emerging markets, including the Middle East and North Africa (MENA) region. Freely floating currencies have already appreciated in response to capital inflows from investors seeking higher returns. Warnings of a bubble in emerging market assets were rife even before the announcement of QE2. Now the red lights are flashing in front of many senior policy makers.

South Korea’s finance ministry announced that it would consider limits to capital flows, while Brazil and Thailand already raised taxes on foreign investment in government bonds. Thailand’s Finance Minister Korn Chatikavanij acknowledged “discussions with central banks of neighboring countries, which are ready to impose measures together, if needed, to curb possible speculative money flowing into the region.”

QE2 will have an even greater impact on those economies that have a fixed peg to the dollar and allow free capital movements, such as the Gulf Cooperation Council (GCC) countries or Lebanon. In fact, the central banks would not be in a position to tighten monetary policy to cool down the economy while the dollar depreciation will spur imported inflation, especially if the weak dollar translates into higher food commodities prices.

Furthermore, speculative investments induced by cheap money expose the receiving country to a sudden outflow if global risk aversion rises. So, for the Middle East and the GCC, two kinds of scenarios could occur in2011. One is a more benign one, where anemic growth in mature economies will be offset by the push from emerging Asia and public investments. In such a case the real growth rate in the GCC would not be too far from the average growth rate in countries from the Organization for Economic Cooperation and Development (OECD) and emerging Asia, (i.e. 3 to 4 percent).

The less benign scenario will be dominated by currency instability, bouts of risk aversion and international credit market frictions. It is hard to predict which one will prevail because the second scenario would be ignited by a traumatic event, such as a sovereign default, which depends crucially on political developments rather than purely economic ones. In essence, the usual cloud of uncertainty is unusually thick because the precarious historical phase we are experiencing has no precedent that can provide guidance.

There are no easy prescriptions for these testing times, but economies that are developing an internal capacity to grow through major infrastructure upgrades and expansion of capacity are better placed to withstand shocks. In other words, medium-term policy efforts should be concentrated on decoupling from the performance of the mature economies.

In this context we should welcome the successful bid to host the FIFA World Cup in Qatar, which will offer a major boost to economic activity in the entire Middle East.

FABIO SCACCIAVILLANI is director of microeconomics and statistics, and AATHIRA PRASAD is an economist at the Dubai International Financial Center Authority

 

 

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