Comment

Gold’s glorious 2010

by Paul Cochrane
written by Paul Cochrane

 

It’s been a glittering year for gold globally, with a Troy ounce (37.1 grams) rising $300 to a record $1,424.60 in November, before backing down slightly into the high $1,300s as Executive went to print. And it’s been just as bright a year for the precious metal in the Middle East. The Saudi Arabian Monetary Agency (SAMA) re-checked its accounts to find it had 180 tons more than it originally thought, Lebanon’s central bank reserves appreciated by more than $2 billion to close on $13 billion, and gold bugs in the United Arab Emirates were given the novel option to buy 24 karat bars from vending machines.

For individuals and governments alike, gold has been the go-to “alternative monetary asset,” as World Bank President Robert Zoellick put it in November.

Bullion took on a new allure as the United States dollar and the euro continued to weaken amid ongoing concerns about the financial markets, and central banks sought to hedge against inflationary pressure. Driving demand even higher was the inability of institutions and currency hawks to buy Chinese renminbi, as its exchange is restricted, leaving few options to hedge against further drops in the world’s two leading currencies. Gold’s surge has raised debate about whether the precious metal should have a monetary role four decades after the US ended the gold standard. A return to the gold standard is not likely, or indeed necessarily wanted, but any country that sold off a good chunk of its gold, like Britain did a decade ago, is today regretting not having hard assets tucked away in the vaults.

For dollar-pegged currencies, which includes Lebanon and most of the Gulf Cooperation Council (GCC) countries, holding sizeable gold reserves has been a real boon. Five Middle Eastern and North African (MENA) states are in the top 30 countries in the World Gold Council’s (WGC) World Official Gold Holdings rankings. But it is not the usual suspects of the oil-rich Gulf states taking the titles: Lebanon ranked 18th globally — just behind Britain and ahead of Spain — with 286.8 tons, equivalent to 25.2 percent of the central bank’s total reserves. Algeria, ranked 23rd, has 173.6 tons, Libya is right behind with 143.8 tons, and Turkey is in 29th place with 116.1 tons,

Out of the GCC nations, only Saudi Arabia makes it into the top ranking, leaping from 24th to 16th place in March when SAMA announced that, incredibly, due to “a difference in accounting” rather than new gold purchases, the kingdom had 322.9 tons instead of the earlier announced 143 tons. One can only wonder how much unaccounted-for gold there may be still hidden under the tiled floors of the Saudi central bank when such a staggering discrepancy is revealed. Furthermore, such holdings are only the reserves of SAMA, not the private stash of the estimated 7,000 members of the Saudi royal family, nor of Saudi citizens. Then there is the vast amount of gold ore lying under the kingdom’s sands, estimated at 20 million tons, according to Australian government statistics. The Saudi Arabian Mining Company (Ma’aden) has five operating gold mines, with proven gold ore deposits of 1.3 million ounces and current exploration suggests deposits of more than 8 million ounces elsewhere on its acreage. This year British and Australian gold mining companies obtained exploration licenses.

With gold production having peaked in 2011 at 2,645 tons, and the output of the four traditional producers — South Africa, the United States, Canada and Australia — on a downward curve, Saudi Arabia, in addition to its gushing black gold, appears to be experiencing a gold rush of the more traditional type.

The big question now is whether gold will continue to rally in 2011. Gold bugs are dreaming of an ounce hitting $2,000, while other pundits suggest the rally may be over and it is better to buy silver.

MENA central banks holding gold appear to have no desire to sell. As Riad Salameh, the governor of Lebanon’s central bank, told Reuters in October: “Lebanon will sit on its gold… In a world where you could see major crises, the payment instrument of last resort is gold — especially for a country like Lebanon that doesn’t have natural resources.” The same could be applied to individuals. Personally, as a gold bug myself, I’m hoping for another glittering year in 2011.

PAUL COCHRANE is the Middle East

correspondent for International News Services

0 comments
0 FacebookTwitterPinterestEmail
Real Estate

Towering profits

by Rayya Salem
written by Rayya Salem

 

A remarkable 2010 witnessed the wholesale destruction of records in the real estate sector. Soaring tower heights were matched by booming construction activity, high-profile conventions, more sales than ever (and of higher values) and the launching of unprecedented mega-developments. With foreign investment steadily increasing and excess liquidity at local banks, the property sector enjoyed a healthy stock of both cash and confidence.        

Lending for new homeowners has never been more varied, as banks competed this year to offer housing loans across the market with rates tailored to various requirements. Some lending facilities allow residents to borrow 80 percent of a home’s value and have raised the maximum value of loans in parallel with the climbing real estate prices seen across the country, though especially in central Beirut.

As the supply of free plots runs thin and the cost of land climbs ever higher, experts agree that prices, though they have stabilized, will remain at levels too high for most local Lebanese. Bilal Alayli, president of the Order of Engineers and Architects, said there were around 100 plots left in Beirut, covering some 400,000 square meters. He added that owners are holding on to their land, hoping prices will continue to soar.

The ubiquitous cacophony of construction that has been Beirut’s soundtrack all year is scored in the statistics: figures from the Order of Engineers and Architects of Beirut and Tripoli show that construction permits, one of the major indicators of real estate activity, covered an area of 14.4 million square meters in the first ten months of 2010, compared to 10.19 million square meters in the same period last year, a 41.4 percent increase. Cement deliveries reached 3.8 million tons in the first nine months of 2010, an increase of 5.3 percent from 3.7 million tons in the same period last year, according to the Banque du Liban (BDL), Lebanon’s central bank.

Total revenue from property sales in Lebanon reached a record-breaking $6.96 billion in the first nine months of this year, an increase of 60.6 percent compared to the same period last year, according to the General Directorate of Land Registry and Cadastre (GDLRC). The number of total transactions increased by 25.3 percent to 69,501, also the highest recorded in that category. The average value of all the property sales in the nine-month period increased 28.2 percent compared to the same period in 2009.

According to the Ministry of Finance, property registration fees in 2009 made up 1.2 percent of gross domestic product, which translates into $417 million. In the first quarter of 2010 alone, registration fees jumped 87 percent year-on-year, reaching $128 million.

Investment

According to the Investment Development Authority of Lebanon (IDAL), 70 percent of total foreign direct investment in 2009 was funneled into the property sector, which translates into more than $3.3 billion. Hawlo Tleiss, executive vice president of IDAL, conceded that while some foreigners may be put off by Lebanon’s shaky national security situation, the group pointed potential investors toward the low crime and robbery rates in Beirut compared to other major cities.

A World Bank report also suggested that a growing proportion of remittances, estimated to reach up to $8.2 billion by the end of this year, are being used to buy land and housing.

Those in the sector say that the administrative red tape involved in property development — a major drawback for investors — has been more burdensome than usual in 2010, which was borne out in the “Doing Business 2011” report issued by the World Bank/International Finance Corporation in November. Lebanon was ranked 142nd globally out of 183 countries and in 16th place in the Middle East and North Africa (MENA) region for ease of obtaining construction permits. It also ranked 111th place globally and 16th regionally for time it takes to register a property.

Lending

This year, banks were more willing than ever to offer tempting mortgage deals to homebuyers, thanks to the excess liquidity on their books, courtesy of the influx of funds that flowed into Lebanon’s banking sector after the financial crisis.

Nassib Ghobril, chief economist at Byblos Bank, told the Development and Real Estate Annual Meeting (DREAM) conference in November that mortgages increased in value by nearly 50 percent in the year ending June 2010. As of that same month, mortgages accounted for 13 percent of Lebanese banks’ private sector lending, according to Executive calculations based on BDL data.

Despite easier access to credit, one of the major topics this year in real estate was the fact that most locally employed Lebanese have been priced out of the Beirut property market due to the growing disparity between prices and income. Few Lebanese can afford a home in Beirut when first floor prices in new buildings start at $6,000 per square meter. However, despite the financial crisis, wealthy Lebanese expats and Arabs living in the Gulf continued to spend on Lebanese property, sustaining the high prices.

Downsized demand

While the real estate sector in general has experienced sustained growth and momentum, the stagnation in the upper end of the market that started in 2009 extended throughout this year. Sales of ultra-luxury apartments slowed, and sky-high prices began to — if not come down to earth — at least plateau.

“It’s probably healthy that it did [slow down],” said Karim Makarem, director of Ramco real estate advisory firm. “We were seeing 25 percent growth in prices per year for five years, which is unsustainable.”

Faris Smadi, chief executive officer of SV Properties & Construction, agrees: “After the surge of real estate prices in the last three years, we did reach something of a plateau this year, mainly due to the fact that developers put prices that weren’t achieved.”

The let-up in the market seems to be focused on prices of large apartments, which have been stagnant for the last year and a half, with some prices even falling as sales slowed. According to Joe Kanaan, president of brokerage firm Sodeco Gestion, “there is a shortage of what is really in demand — small apartments.”

Faris Smadi of SV Properties and Construction, the firm behind 3Beirut

Demand has clearly shifted toward 80 to 200 square meter apartments, especially on the outskirts of downtown. High-end areas such as Sursock, where developers usually build larger apartments, are also experiencing the shift.

“The mentality has changed,” said Smadi of SV properties. “Before, the traditional buyer in downtown wanted a large apartment, particularly with large traditional living rooms, and the sea view was more important to him. Now, buyers are happy to have smaller apartments in the right location with the right infrastructure and amenities. We took that into account in our new project [3 Beirut] where approximately 50 percent of the apartments are between 200-240 square meters.”

Land going through the roof

Construction prices and the price of labor remained stable in 2010 (as opposed to a slight rise in 2009), but finding reasonably priced land in Beirut was a major headache for many developers. The Beirut Central District (BCD) does have available plots, but is too over-priced to be a feasible option for most. As such, many developers have started construction — even of high-end residences — on the outskirts of Beirut. Houssam Batal, founder and CEO of Premium Projects, said that the “market noise” created by some of these developments is confusing clients, as they are marketed as luxury residences in “prime areas.”

Construction area authorized by building permits (million square meters)

“Developers buy relatively cheap lots [in areas such as Badaro, Zkak El Blat, Tehouita, or Sioufi] and claim that the location is prime, but they are at risk because sophisticated clients will realize that these residences are not worth the higher prices and are resistant to pay for the more expensive units,” he said.

Mohamad Chamseddine of Information International, a Beirut-based research consultancy said: “This year, land prices in villages rose because more people want to build homes there, seeing that Beirut prices and rents are too high. Tens of thousands of Beiruti families have moved to suburbs like Damour, Meshref, Khalde and Aramoun. We even saw [during the 2009 elections] that politicians who want to appease the Beirut voters visit these areas heavily because those families can’t afford to live in Beirut anymore.”

The average price per property on sale in Beirut grew 22 percent year-on-year in the first nine months of 2010, while the figure stood at 28 percent for Lebanon as a whole in the same period, according to Bank Audi. As land became scarce, prices had no place to go except up, although a period of stabilization is expected in the immediate future.

To keep prices from escalating further, Alayli of the Order of Engineers and Architects suggests higher taxation on property sales, noting that the registration tax is a lowly 6 percent. Currently there is also no capital gains tax. Kanaan, of Sodeco Gestion, also suggested axing the old rental law, in gradual phases, to allow old buildings to be demolished, freeing up new lots for new developments.

FDI inflow to the real estate sector + Arab FDI inflow to the real estate sector

Higher price tags are causing property shoppers and potential clients to become savvier, focusing on the construction specifications, negotiating harder and taking longer to seal the deal.

Due to limited space, rising prices, and a more competitive market in general, developers are spending less time analyzing their bottom line to focus on staying ahead of the pack. To entice clients with a prestigious address, Premium Projects spent about two years buying out the old residents and combining properties to put together a 1,800 square meter plot for Sursock Yards in Ashrafieh, an 18-story complex that is already 65 percent sold. Premium Projects’ Batal said, “We are willing to consume time and cost to get these prime locations.”

The “non-professional” scourge

Many developers and brokers have complained that there have been a rising number of non-professionals in the business, attracted by what they perceive as opportunities to get rich quick in Lebanon’s booming real estate market. They say the negative side effects have affected the whole industry.

“Since 2007, we have been seeing more people developing buildings that are really not professionals in the field. If they don’t take into account the urban planning, they are harming the area around them,” said Alayli, adding that there needs to be more regulation of urban development. 

Property forecast

Lebanon’s real estate market is predicted to grow 10 to 15 percent in the next three years, Fuad Fleifel, director general of the Ministry of Economy, said in November at the Beirut International Property Fair.

Apartment permits issued - Beirut, Lebanon

Experts agree that such growth is normal and expected for a country with so much demand, both local and foreign.

“From now until 2013 in Beirut, 90 percent of available land will be built up,” said Alayli, who adds that local demand is rising. “We have around 35,000 marriage contracts and 5,000 divorces per year; thus you can say we need at least 40,000 new apartments.”

Developers predict that even the roughly 350 projects underway in downtown will be fully absorbed, though it may take more time than usual.

Some suggest that as the Lebanese have become relatively more affluent in the past few years, more Lebanese (as opposed to Arab nationals) will be buying than before. Smadi said in earlier projects, such as Beirut Tower, 50 percent of buyers were Gulf clients and expatriates. The more recent Bay Tower is 90 percent Lebanese-occupied and most are local residents, attributing the change to the fact that the latter apartments were smaller.

Cement deliveries (First nine months of each year - in 1,000 </p> </div> </div> <div class=

0 comments
0 FacebookTwitterPinterestEmail
Comment

Turkey’s EU report card

by Peter Grimsditch
written by Peter Grimsditch

 

The 104 pages on Turkey’s European Union progress (or lack thereof) from EU Enlargement Commissioner Stefan Füle represent the kind of school report which children would rather not show their parents. Its examination of the 35 “chapters” Ankara needs to reach agreement on to join the EU was a damning indictment of its failure to meet European standards in almost every area.

The document, published in late October, detailed deficiencies in freedom of speech and religion, minority rights, constitutional reform, questionable behavior by the police and an attitude toward women’s equality that talked the talk but failed to halt the rise in honor killings and forced marriages of girls in their early teens, especially in the east and southeast.

Perhaps conscious of the need to throw in a few sentences that could be shown to mum and dad with a smile, many of the most savage sections conclude with the somewhat bizarre observation that “overall some progress is being made.”

The report’s most positive part concerned the economic environment, which Füle’s team acknowledged had vastly improved. But at a time when Greece, Ireland, Portugal and Spain (and maybe soon Italy) are in deep financial and economic trouble, the report could come to no other conclusion. Despite a proud history that includes Euclid and Archimedes, the Greeks have shown they can’t add up — estimating the size of the budget deficit is one of the country’s bigger growth industries. Dublin’s initial insistence that everything was under control now looks like a Guinness-fuelled Irish joke. The governments of Portugal and Spain are paying more to raise money than at any time since the eurozone was founded.

With an economy looking at 11 percent growth this year and a banking sector immune to the catastrophes suffered by reckless American and European banks these past two years, little wonder the Turks can afford to feel superior. Ankara feels justifiably aggrieved that countries like Romania and Bulgaria (where corruption is a national sport) have been positively dragged into the EU club. The truth, of course, is that the major reason for accelerating their entry was to prevent them from falling back into Moscow’s sphere of influence.

For Turkey, failure to resolve the Cyprus issue is blocking talks on 18 of the 35 EU accession chapters, while France has unilaterally stalled another five. There are rumblings that a hint of movement may be imminent on Cyprus. The European Commission is said to have proposed talks on the energy and justice chapters in exchange for Ankara’s opening one of its ports and airspace to Cypriot shipping and aviation by the first week of December. Turkey’s acceptance of the secret deal is allegedly conditional on allowing international flights into Northern Cyprus, as well as direct trade with the self-declared republic. Officially in Turkey, the proposal doesn’t exist. While implementation of such an agreement could be trumpeted as success, the fallout of a failure could hurt the government’s chances in next June’s elections.

What the leadership is very happy to assert, however, is that keeping Turkey out of the EU is Europe’s loss. “As long as we are not a member of the EU, the EU will not become a global actor,” was Prime Minister Recep Tayyip Erdo?an’s assessment of the EU report. To President Abdullah Gül, speaking to the Chatham House think tank in London, membership was not a matter of domestic Turkish politics. Turkey is taking a strategic view, looking 20, 30, even 50 years ahead, he said. Lower down the political food chain, Egemen Bagis, Turkey’s chief negotiator, claimed grandiosely that the EU needs Turkey more than Turkey needs the EU.

With the exception of comments on press freedom (Gül would like more of it, Erdo?an says it is not limitless and Bagis thinks it already exists), much of the reaction from Ankara to the EU report has been in similar-sounding generalizations. The report itself was packed with specific accusations in many areas, citing examples, although it too occasionally threw in unsupported generalities similar to those trotted out by the Turkish political establishment. Füle concluded that “despite overall progress in 2009, we are concerned that Turkey’s accession process is losing its momentum. The key to changing this is primarily with Turkey.” Ah, that word ‘overall’ again. Despite the sugar coating, mum and dad are unlikely to be fooled.

PETER GRIMSDITCH is Executive’s

Istanbul correspondent

0 comments
0 FacebookTwitterPinterestEmail
Society

The souk of splendor

by Emma Cosgrove
written by Emma Cosgrove

 

Consumption is keeping Lebanon alive. As a major contributor to gross domestic product, the Lebanese penchant for luxury puts the shine on the country’s numbers, financially precarious as it may be for the individual. At the close of 2010, after years of waiting and false starts, the highlife has found a true home in the revived downtown Beirut. Still, the current conditions, which have the potential to carve Beirut a place among the world’s great retail cities, are not assured. 

With Beirut Souks — Solidere’s consumerist dream — at the center of it all, downtown Beirut rivals, at least in names, the great shopping districts of Paris or New York. The 200-outlet complex began its very soft opening in October of 2009 and has now seen its first full year of operation. Persistent delays and mismanagement of initial space allotment, especially in the Gold Souks section, made for a rocky start, but on the whole, retailers have been keen to move into one of the final puzzle pieces of downtown Beirut’s rebirth.

“Of course the companies were thrilled when we proposed to them the mono-brand boutique concept in Lebanon, especially in Beirut Souks, which is the ideal place to be, in the heart of the city,” said Barkev Atamian, business manager for local luxury watch empire Atamian. His company now dominates an entire corner of the Gold Souks with IWC Schaffhausen, Jaeger-LeCoultre and TAG Heuer mono-brands and a multi-brand boutique containing watches from Breguet, Blancpain, Glashütte Original and Ulysse Nardin.

Despite congratulations from many foreign brands happy to have a centralized home of luxury in a desirable market, the Souks still stand as a disappointment to some.

“To be quite honest the souk is not up to our expectations yet, but we think that there is a future for it,” said Izzat Traboulsi, managing director of Hugo Boss for the Middle East.

The Souks ‘value-added’ features such as a cinema complex and many of its promised dining locations and cafes are conspicuously absent. Solidere’s General Manager and Chief Financial Officer Mounir Douaidy told Executive last September that the northern section of the souks, set to contain a 14-screen cinema and a department store, would be completed by the end of 2011 — one year to go.

“It’s still a mess because there are some missing cafes,” said Traboulsi. “The cafes [that do exist] are on the edge of the souks… we don’t have any cafes as a stop in the middle.”

In addition to the lack of patron-enticing entertainment venues among the retail spaces, the mixed price tag of retailers within the complex makes luxury retailers less willing to choose locations in the thick of it. This means that some truly top-end retailers are still looking for a presence outside of the souks on the outlying streets of Foch, Allenby and Park Avenue.

But these streets pose yet another challenge for the retailers who want to keep company with their contemporaries; each building and sometimes each space has a different owner, whose interests and ideas do not necessarily tally with the vision for the area. So, the new challenge with the growing presence of luxury retailers downtown is keeping the area on message.

“If somebody is going to be paid $1,400 per square meter they don’t care if it’s a high end place or a shwarma place,” said Traboulsi.

The cafe culture of Maarad Street is yet to be successfully replicated in Beirut Souks

Although a hefty per-square-meter price tag should keep the falafel stands from downtown for now, a lack of a central unified plan means that at any given moment these top-end retailers could find themselves with a neighbor not of the rarefied company they would usually keep.

Furthermore, rising rent prices in an area with a finite amount of attractively located, ground floor space could jeopardize the future health of Beirut’s luxury center.

“The only issue we are facing now is, since the demand is a little bit big, the prices are tending to go high also. Today [rent] is representing a very big part of the turnover, which is not normal,” said Antoine Eid, chairman and chief executive officer of Joseph Eid & Co. — which owns the Alberta Ferretti, Faconnable and Lanvin Men’s boutiques downtown — to Executive in July.

Eid said that today, rent for a boutique in the Beirut Central District (BCD) represents 7 to 10 percent of revenue. This in itself is a bit too high for comfort and, with rents increasing, Eid is worried.

“We think that this is dangerous because maybe some of the companies will not be able to sustain these rents for a long period of time and it would be a pity to see some of them closing,” he said.

And on top of the geographical and spatial dynamics of downtown, political dynamics, as ever, have their role to play.

Hotel occupancy rates in August dropped from 75 percent in 2009 to 43 percent in 2010. Likewise, rates in September dropped from 62 percent in 2009 to 53 percent in 2010, according to international consulting firm Ernst and Young.

Though Ramadan’s August arrival this year was partly to blame, Traboulsi believes that inflammatory rhetoric from various political leaders and trepidation regarding the uncertainty of reactions to the United Nations’ Special Tribunal for Lebanon (STL) scared away some prime tourist dollars. He estimates that Hugo Boss saw a 10 to 15 percent drop in sales in August and September from last year, when development and tourism trends predicted growth.

It’s not just complicated forces like politics that impact luxury sales; even simple forces like weather can, and have, hindered retail sales this year.

“We got the fall merchandise and we are still having summer. There is no appetite from the clients,” said Traboulsi.

Missing out

The seemingly constant openings and events celebrating fashion in the BCD in 2010 encourage the idea that it is the only place for luxury in Beirut. But this centralization of luxury downtown has taken focus away from other areas of the city and frustrated some established proprietors.

Grace Sehnaoui, brand manager at E and E group which runs TOD’s, Hogan and multi-brand boutique Kamishibai, said when Beirut was beginning to re-establish itself in terms of a luxury retail destination after the civil war, development was haphazard and scattered around the city. With the new centralization of luxury, many of the high-end retailers who appeared early on now find themselves somewhat isolated among the riffraff.

Clever marketing with a gigantic shop-sized travel case ensured Louis Vuitton was one of the more hotly anticipated luxury openings seen in BCD this year

“Outside of [ABC Ashrafieh] it’s quite dead now,” said Traboulsi. “Joseph Eid and Via Spiga had luxury stores [near Sassine], today they don’t function as before because all of the luxury [brands] have moved downtown where it is done in a proper way. Now whenever a premium brand wants to open a shop, the only destination they have is downtown Beirut.”

Sehnaoui’s Kamishibai sits down the block from Joseph Eid near Sassine and is surrounded by a random smattering of salons, cell phone shops and, most frustrating to her, banks.

“When it’s a shopping area it should be a shopping area,” she said. “The banks here have beautiful [locations]. They are huge and on the ground floor because they are the best paying.” 

Luxury brand managers and owners have little hope for the success of any other ground level, open air shopping districts in Beirut, as a coordinated effort to create shopping streets is unlikely. The very fact that there are far more players in the game today than there were five years ago is a testament to Lebanon’s flourishing luxury retail sector.

But the forces threatening sales still dictate success and the concerns of the industry’s leaders suggest that this is no time to sit back and relax. With the resolution of the STL pending, Traboulsi said: “In Lebanon I don’t see any growth [for 2011]; we see it as a stable market for the moment.”

0 comments
0 FacebookTwitterPinterestEmail
Comment

An Afghan errand

by Adam Pletts
written by Adam Pletts

 

As the attack was radioed in, we upped our pace to such a speed across the rugged terrain that I was thrown across the inside of our armored vehicle. Looking out of the tiny window to my side, all I could make out was a ridge of Afghan mountaintops see-sawing from side to side through a cloud of earth-colored dust. “Demon 26 this is Monkey 6,” the military radio was saying. “We’re still taking indirect, three o’clock at three hundred meters,” to which someone in our vehicle retorted on the internal channel: “Well, if you know where they are then fucking shoot them,” and to my surprise we burst into genuine but bravado-flushed laughter.

We were on our way to make contact with the elders of Saray village, which sits geographically at the top of a valley but temporally much further away, in the throes of something I would only recognize as medieval. Our 27-vehicle convoy was winding its way through the Lal Por District of Nangarhar Province in the far east of Afghanistan. It’s known to American forces and their allies as an insurgent infiltration route from Pakistan to Afghanistan. Once over the border the Taliban make their way north to resupply the insurgency in Kunnar Province, which sustains the heaviest fighting anywhere in Afghanistan other than Helmand and Kandahar.

Lal Por is scarcely populated, apart from along the banks of Kabul River that forms its southern boundary, and there is no tarmac road leading to the village that shares a name with the country’s capital. Until now, the Taliban have enjoyed free reign to pass through the desolate mountain ranges that cover most of the district. 

The meeting lasted about 20 minutes and did little more than establish that the villagers seemed genuinely concerned about the Taliban presence. The lieutenant in charge promised them a well, but whether they’ll take him up on this is another matter. Like so many in isolated rural locations across Afghanistan, the villagers of Saray are stuck between the wrath of the Taliban and the suspicion of coalition military forces.

As the discussion came to a close and the group broke from the cover of a small line of trees where they had been taking shade, I couldn’t help but wonder whether such risk and expense had been worth it just to offer a well which may not be needed. But then I suspect the intention was every bit as much to send a message to the Taliban that they can’t move with impunity in the region.

Lal Por was one of many districts across Afghanistan where the Taliban did their best to disrupt the parliamentary elections last September, bombarding Afghan Police and United States military patrols with mortars from the hills north of its sleepy village capital.

The bombardment that I was caught in was the furthest south that the Taliban have attacked in this district since those elections but it was hardly a surprise; as two platoons, together with a mine-clearing unit, a quick reaction force and an Afghan army unit, we hardly looked subtle making our way up a valley into “coalition virgin territory.” The going was so tough that two vehicles were lost to mechanical failure, forcing lengthy pauses in the open valley as if to advertise our presence.

Intentional or not, the advert drew Taliban attention. Although some 25 mortars were fired at the convoy, together with heavy machine gun fire, none met their target.

In contrast, there were at least two confirmed hits on the Taliban before the arrival of air support prompted an effective disappearing act. The US officer in command told me he believed there were at least two Taliban killed in action and more wounded.

That’s certainly a message, but not necessarily the one the convoy was hoping to deliver. 

ADAM PLETTS is a freelance

journalist currently embedded

with coalition forces in Afghanistan.

 

0 comments
0 FacebookTwitterPinterestEmail
Society

Boutique bouquet

by Emma Cosgrove
written by Emma Cosgrove

 

Despite many new brands entering the Beirut market for the first time this year, a large number of existing shops have chosen to use the revival of downtown Beirut and the inauguration of the Souks to open up new stores and increase their brand exposure — a potentially pricey risk in such a small market.

“The idea of mono-brand outlets is relatively new here in Beirut and I think it reflects an increased interest by big-name brands in Lebanon and in the Middle East in general,” Stefano Macaluso, vice president of luxury watchmakers Girard-Perregaux, told Executive in July. “At a time when luxury watchmakers were tallying losses in Europe and the United States, sales soared in this region.”

Top-end retail executives seem to agree that having multiple points of sale even in a small country like Lebanon gives customers the most complete experience with the brand, making a more lasting imprint and, ultimately, financial sense.

“We find that whenever we open our stores nearby a place we already have distribution, the total distribution grows because you can see what the line [offers] much more,” said Jerome Griffith, chief executive officer of Tumi.

New strategy, new players

While the influx of mono-brand stores has not led to the abandoning of the very popular multi-brand stores, such as Aishti and Boutique 1, the trend has begun a wave of new fashion relationships between brands and local partners that defy the traditional requirements of exclusivity.

Luxury watch-makers, such as Jaeger-LeCoultre (above), flooded to downtown Beirut in 2010

“[Exclusivity is] like protectionism,” Griffith said. “It’s not really good for overall business. You think it is, because at a fundamental level it makes sense that if I’m the only one that has a brand, then I’m the only one that sells it, but actually you don’t really gain a brand’s potential until that brand is seen multiple times, because a customer has to recognize [it].”

According to Izzat Traboulsi, managing director of Hugo Boss for the Middle East, the relationship between local or regional partners and the brands themselves has changed quite significantly since the mono-brand invasion.

Brands tend to maintain their own mono-brand points of sale and then work with a different local partner to open a direct franchise location, as opposed to hiring a company as an exclusive representative or independent agent of the brand, as is the case with Hugo Boss. 

“Today the regional partners are already there. The set-up is already there. Today, lots of the emerging brands do it directly,” he said.

The shrugging-off of exclusivity is not yet universal, but should pave the way for more mono-brand stores to come.

As George Kern, chief executive officer of IWC Schaffhausen said, “There is no other way to express the brand [than] in a boutique. You cannot do it with a shelf.”

0 comments
0 FacebookTwitterPinterestEmail
Comment

Iran smiles through sanctions

by Gareth Smith
written by Gareth Smith

 

As 2010 began, there was global speculation as to the future of the Islamic Republic of Iran. Mass demonstrations after the disputed 2009 presidential election raised hopes among opponents of the Ahmadinejad regime that a new revolution beckoned, and any momentum in the Obama administration for engagement over Tehran’s nuclear program was thwarted by outrage at the suppression of Iran’s opposition ‘Green Movement’. When 2011 opens, the resilience of the Iranian authorities — both in overcoming domestic unrest and in coping with a new wave of American, European, Asian and United Nations sanctions — may create a better atmosphere for engagement.

The challenge — reaching a compromise over Iran’s nuclear program — has barely changed in seven or eight years. Tehran’s bottom line is its “right” to nuclear technology, especially as a signatory of the Nuclear Non-Proliferation Treaty. But the world powers insist is that Iran accepts a limit on its uranium enrichment and allows intrusive inspections by the UN’s International Atomic Energy Agency. As is often the case, the devil is in the details, but without the will to reach an agreement, no details are discussed.

During the 2003 to 2006 talks between Iran and the European Union — a time I was based in Tehran — it was clear that some on the Western side recognized that Iran would have some level of domestic enrichment, and that the European Union demand for suspension was temporary.

It was just as clear that there were those on the Iranian side ready for limits on enrichment in return for recognition of Iran’s “rights.” According to what I was told by two regime insiders, a majority of the leadership accepted this, at least until late 2006. Throughout those years, Iran’s leaders were trying to understand the United States’ motivation, and this remained true when President Barack Obama was elected. Was Washington serious in wanting an agreement?

And here’s the problem — as Djavad Salehi-Isfahani, economics professor at Virginia Polytechnic Institute and State University, has pointed out, for the US “all policy making [over Iran]… is evaluated through the lens of regime change.” By this he means the assumption of policy-makers — and it’s true of “Iran experts” and journalists as well — is that the “problem” with Iran is its “regime.” Every aspect of Iran is seen this way, feeding a sense that the Islamic Republic is on the verge of collapse. This has long encouraged a view of the Iranian economy as a basket case.

But while Iran has failed, like many oil exporters, to finance enough productive investment, it has — for a developing country — been relatively successful in reducing poverty and building an infrastructure. Most Iran-watchers see the Ahmadinejad government’s plan to phase out in 2011 the subsidy of everyday items — from bread to gasoline and electricity — merely as a potential cause of more unrest that can hasten the demise of the Islamic Republic, or at least lead it to abandon the nuclear program.  The International Monetary Fund, however, backs the plan, applauding “a dual purpose” of generating more revenue and curbing waste. The fund recognizes that subsidies, at $100 billion annually, absorb resources that could go into investment. “There is something to be said for a populist president doing price reforms,” notes Salehi-Isfahani.

“Sanctions that bite,” to quote US Secretary of State Hillary Clinton, are the West’s means of choice to squeeze Iran. But the main losers are young Iranians, who are paying the cost through unemployment, as Salehi-Isfahani argues in a recent paper published jointly by the Dubai School of Government and the Kennedy School at Harvard.  Iran’s opposition argues that sanctions strengthen the government; if they are right, sanctions may make nuclear compromise more elusive. Furthermore, should the Ahmadinejad administration’s subsidy gamble be successful, it may achieve a better economic performance.

Although removing subsidies will increase prices, Iran has leeway: inflation fell from nearly 30 percent in late 2008 to 9.2 percent in the Iranian month of Mehr (23 September to 22 October). And while economic growth has been only 1.6 percent this year, the IMF projects 3 percent in 2011, only 0.2 percent behind the United Arab Emirates. Improving inflation, success over subsidies, maintaining the nuclear program and enhancing the country’s standing across the Islamic world would add up to a very happy 2011 for Iran’s leadership.

GARETH SMYTH is the former Tehran

correspondent for the Financial Times

 

 

0 comments
0 FacebookTwitterPinterestEmail
Society

Cultural capital

by Rayya Salem
written by Rayya Salem

 

Tourism Minister Fadi Abboud said in October that he expected 2010 to have been another bumper year for Lebanese tourism, predicting that revenues from the industry will hit nearly $8 billion by the end of the year, compared to $7.2 billion in 2009. After 2009’s record-setting revenues, expectations and hype were running on overdrive this year, and not without good reason: the first nine months of 2010 mark another record for Lebanon’s tourism industry, despite the slowdown during the normally booming month of August due to Ramadan.

According to the Ministry of Tourism, the number of tourists totaled some 1.694 million from January to September, compared to 1.439 million during the first nine months of 2009, a 17.8 percent increase. The World Travel and Tourism Council (WTTC) expects the real growth rate of the industry to be 11.3 percent by the end of 2010; last year, Lebanon’s tourism sector was the fastest growing of 165 countries. In terms of contribution to gross domestic product, travel and tourism’s share is expected to be 13.3 percent, compared to the 9.3 predicted in 2009. In December, the ministry said they expected a total of some 2.2 million visitors to arrive by the end of this year.

The distribution of visitors by region remained unchanged; about 42 percent came from Arab countries and nearly 25 percent came from Europe, followed by visitors from Asia and the Americas.

Since the opening of Beirut Souks and numerous high-end international boutiques this year (see retail section on page 196), retail and tourism are now, more than ever, mutually beneficial business generators. Global Blue, the organization that counts value added tax refunds, released figures showing the Beirut area attracted 82 percent of total spending by tourists in Lebanon, mostly on clothing and watches, with 23 percent of total tourist spending coming from Saudi Arabian wallets. It seems there was also an increase in visitors from Syria, as spending by Syrian tourists increased 40 percent in the first 10 months of the year.

The number of airport passengers, which includes departures and transits, increased 11.6 percent year-on-year in the first 10 months, according to figures from Rafiq Hariri International Airport.

Occupancy

Though occupancy rates averaged 68 percent in the first nine months of 2010, down 3 percent yearly, the average room rate in Beirut was $262, up six percent from last year, according to financial auditor Ernst & Young. The average revenue per available room (REVPAR) in Lebanon rose 11 percent this year to $136 by end of August 2010, according to Deloitte Middle East, the regional wing of the international accounting and consulting firm.

Tourists from Arab countries made up some 34% of all visitors to Lebanon

Minister Fadi Abboud told Executive in August that “the average stay is about nine days and the average [amount] spent is about $3,500,” adding that the country is unsuitable for “fish and chips” tourists with $500 a week or less to spend.

In addition to contributing a significant chunk to Lebanon’s GDP, tourism is a major employer, with 553,000 jobs — 38 percent of the workforce — directly or indirectly affiliated with the industry, according to the WTTC.  Meanwhile, bank loans to the sector reached $858 million by July 2010, an increase of 11.5 percent from a year ago, Marwan Barakat, head of research at Bank Audi, told The Financial Times.

Easy prey

Abboud claimed that efforts have been made to reform the industry and provide more rigid regulations to ensure that tourists are not subjected to price gouging.

Still, the same complaints about inconsistencies abound. For example, if an individual tourist comes from Europe they don’t have to pay for a visa, but if a tour group comes, each has to pay. Many tourists report being ripped off by fortune-seeking drivers, especially as they make their way from the airport to their hotels.  Meter-less taxis leave the tourist with no option but to pay whatever the driver demands, in many cases.

Tax-free tourist spending by nationality, 2010 (Jan-Sept) - Beirut, Lebanon

Similar complaints are heard about restaurants, salons and other service-oriented businesses, prompting the ministry to try and clamp down on the practice, though its efforts have been stunted by limited manpower and money. Experts agree there should also be basic information desks or even maps distributed to help tourists who wander Beirut by foot.

IDAL

In August, Abboud said the country had some $4 billion invested in the tourism industry. Some of this cash was steered by the Investment Development Authority in Lebanon (IDAL), a public investment promotion agency that aims to attract and facilitate investment in tourism and other core industries. One of the incentive programs IDAL offers investors — the ‘package deal contract’ — provides exemptions and tax reductions on investments that meet certain criteria, such as being more than $15 million (if in Beirut) or employing a workforce exceeding 200 people. To encourage investment projects in more rural areas such as Baalbek, the necessary investment is only $1 million to qualify for the package deal.

In 2010, IDAL gave four Beirut hotel projects package deals. Together, they represent more than $350 million in investment, mostly from Lebanese and Saudi Arabian investors.

However, Hawlo Tleiss, executive vice president of IDAL, says some administrational issues still exist. “It [Law 360, formed in 2001] is supposed to be a one-stop shop for investors, but in Lebanon, politically, it’s difficult to get the authority of the tourism [and other ministries]” to give investors the ‘package deal’ incentive.

The biggest obstacle to tourism investment remains security. Compared to other fields like industry and technology, tourism is more sensitive to even the suggestion of security upheavals and thus is more risky for investors. But security issues can’t blanket Lebanon’s true potential, and the world is catching on.

“Only last week we were in The New York Times, The Times of London, and the American Express travel magazine,” Minister Abboud told Executive in August. “In the last six months, Lebanon was probably mentioned in every decent publication in the world.”

In addition to accolades from magazines like Britain’s Tatler, which targets upscale consumers, the Lonely Planet travel guide rated Beirut third on its 2010 list of “The 10 greatest comeback cities,” behind Berlin and Ayacucho, Peru. The guide describes the city as a “world-famous cultural center,” favored by “fashionistas and partygoers.”

By mid-2012, the Phoenicia will have a whole new look due to major refurbishment that started this year, including the Eau de Vie restaurant

However, the party spirit of 2010 may have been dampened by a dent in spending, as some believe that the waves of the financial crisis have finally washed upon Lebanon’s shores.

The usual summer round of concerts, music festivals and international DJs saw a drop in attendance, despite being heavily promoted. The Virgin ticketing office reported total sales of around 400,000 tickets for major musical events and concerts last year, but 30 to 40 percent less in 2010 even though there were more events, according to Abdo Housseiny, partner and general manager. Housseiny said shows were only promoted in Lebanese media, missing out on potential visitors that he believes would come based on the summer schedule.

Industry issues & concerns

In contrast to previous years, efforts were made in 2010 to promote a more mature tourism sector. To spread tourism over 365 days a year and not depend on summer and holiday periods, more attention was focused on niches such as health tourism, eco-tourism and religious tourism. Several exhibitions and conferences were held to attract and diversify investment, with view to spreading the seeds over the whole country and not just Beirut, where 77 percent of tourists currently stay.

But Lebanon may be losing out in a regional marketing race, as neighbors — mainly Turkey, Jordan, Syria and Egypt — are spending heavily to promote themselves as destinations and are building up their tourism sectors at a faster rate.

“Istanbul and Cairo have done tremendous promotional work… but they are targeting more the economy market versus the luxury market, so we haven’t lost anything in the luxury market,” said Georg Weinlaender, general manager of the Phoenicia hotel.

Meanwhile, tourists from Turkey tripled when visa requirements were lifted this year, according to the ministry. The Phoenicia recently witnessed this phenomenon first-hand when a visiting group representing one of the largest beverage producers in Turkey was so numerous they had to split between three other hotels.

Number of hotels in Lebanon 2010

Corporate clients are big business for the nation’s premier hotels but Weinlaender said he fears inadequate conference facilities are restricting this market from its full potential.

Although the Beirut International Exhibition and Leisure Center (BIEL) has been busy with the increase in international congresses and exhibitions Beirut saw in 2010, Weinlaender said the city needs a bigger venue if the city is to keep pace as it moves up the meetings, incentives conferences and exhibitions (MICE) ladder.

“A convention center usually has to take up to 12,000 to 15,000 people,” says Weinlaender, but BIEL’s main conference center has a capacity to seat 9,000.

Although larger “city-wide congresses” have taken place —  such as the International Medical Congress organized out of the United States, which took place at the Phoenicia, Habtoor and other hotels — to attract more MICE business, Beirut needs a bigger meeting facility.

Operators and hotels

The lack of specific guidelines regulating the sector means that anyone can set up shop as a tour operator, leaving tourists facing wildly differing prices and levels of service. Unlike other countries, tour operators are also left in the cold in regards to foreign competition. 

“Hotels do not protect the local tour operator, while in other countries they do,” said Sandro Saadé, chief executive officer of Wild Discovery. “For example, if we call a hotel in Egypt, they refuse to work directly with us. We have to come through a local tour agent, and thus they [local firms] are protected by law.”

As only 3 percent of tourism emanates from tour packages, there is room for tour operators to have a larger role in attracting the new tourists. The ministry says it is keen on bringing in increased numbers from Germany, the United Kingdom and Russia specifically.

Though the positive spin on glitz and glamour is helpful to counteract the war-torn image of the past, Beirut’s expensive reputation is a double-edged sword. While there are three-star hotels outside the capital, there are not many in the city center.

“We can’t force tourists to go out of Beirut because we have to fill the hotels,” says Saadé. “Hotels outside of Beirut have to have a value-added and change their positioning. If they want to wait for tourists to come it won’t happen.”

0 comments
0 FacebookTwitterPinterestEmail
Comment

Banking the Holocaust

by Peter Speetjens
written by Peter Speetjens

 

Victims turned into villains on November 9 when the United States Federal Bureau of Investigation (FBI) announced it had arrested 17 people accused of issuing false claims and documents to obtain pensions and hardship allowances from the Conference on Jewish Material Claims against Germany, better known as the Jewish Claims Conference (JCC).

There are strong suspicions the $42.5 million fraud case is only the tip of the iceberg. Especially in the last two decades, the JCC has come under fierce criticism for greed, mismanagement and a lack of transparency, even within Israel and the Jewish establishment. Founded in 1951, the JCC represents Jewish victims of Nazi persecution and their heirs in negotiating for compensation and restitution from the German government “to secure… a small measure of justice.”

To date, Germany has paid some $60 billion, which the JCC administered and distributed not only among victims and heirs, as was originally intended, but also among a long list of Jewish organizations that deal with Holocaust victim care, commemoration and education. Many of these organizations are represented on the JCC Board of Directors. Following the FBI statement, the JCC went into spin mode with adverts and interviews to portray itself as a victim, which was the language adopted by most media and even the US prosecutor.

Yet, six of the accused actually worked for the JCC, including Semen Domnitser, who since 1999 headed two of its funds. He was jailed, but immediately freed on $250,000 bail pending trial. The actual victim is of course the German taxpayer.  Writing in Israeli daily Haaretz, Anschel Pfeffer defined the JCC as “the richest, most powerful and least answerable old-boys’ network in the Jewish world” and feared the scandal was unlikely to be a case of “a few bad apples.”

According to a former JCC director, the organization has amassed more than $1 billion in liquid assets, while the Jewish Chronicle criticized the $437,811 salary one JCC official received in 2004. Isi Leibler, a former chairman of the World Jewish Congress, accused the JCC of incompetence and cover-ups and called for an independent review board. Likewise, the Movement for Quality Government, an Israeli anti-corruption platform, calls for the JCC to be placed under supervision. The JCC’s creative accounting methods seem to have started after the fall of the Berlin Wall, when the organization saw a whole new world of options and possibilities to seek compensation for Jewish victims and their heirs living in countries of the former Soviet Union. The $42.5 million fraud mainly deals with such cases.

One case in particular has created bad blood both within and outside the Jewish community. In 1990, when the new democratic government of East Germany introduced a law to restitute property nationalized by the former communist regime, the JCC — even before the reunification of East and West Germany — ensured that this included the restitution of Jewish-opened property sold after 1933 or confiscated by the Nazis. What’s more, the JCC became the legal successor to all Jewish property that went unclaimed by the end of 1992, whereby it had the privilege to file “broad claims” in which such minor details as the property’s actual location and the owners’ names could be filled in at a later stage. German weekly Der Spiegel reported that some 240,000 claims were filed in East Berlin alone. In some cases, there were 10 claims for one property and in nearly all cases the JCC was one of the claimants. According to the JCC, the “real estate” fund brought in some $2.3 billion. The JCC is currently negotiating with other Eastern European countries over a similar settlement. Finally, the JCC administers the $1.5 billion of the curious Swiss Banks Settlement account, which some people have called the biggest case of legal blackmail in the history of mankind.

While the $42.5 million scandal may have opened the lid for more investigations concerning the JCC, some more fundamental questions come to mind. For example, if a Jewish victim of Nazi persecution is entitled to claim property he was forced to sell before fleeing in 1938, should a gypsy or homosexual holocaust survivor not be able to do the same? And, last but not least, what does this all mean for a Palestinian farmer who lost everything in 1948?

PETER SPEETJENS

is a Beirut-based journalist

0 comments
0 FacebookTwitterPinterestEmail
Comment

A house of ineptitude

by Executive Staff
written by Executive Staff

 

As the first decade of this century draws to a close, Lebanese public policy is face down in a stagnant swamp. Of more than 60 draft laws put before parliament since it was elected more than a year and a half ago, it has passed only two.

Despite this, headlines in 2010 heralded Lebanon’s renaissance, with storied statistics glorifying the banks and real estate developers for propping up the country’s soaring gross domestic product. But if times are so good, then why has it become so common to see people digging through trash bins for recyclables to sell? Why can so few wage-earning Beirutis afford a home in the city?  

It is because Lebanon’s economic growth has produced few new jobs and wealth accumulation has been limited to the already affluent, who also frequently happen to be members of parliament, ministers and their associated entourages with major stakes in banks and real estate companies. While a handful of MPs seem genuinely concerned for the nation’s welfare, most elected officials show little initiative to operate more than a semblance of a state — one functional enough for them to protect their interests, but not so functional as to provide the Lebanese with services independent of their patronage.

Even the exclusionary growth Lebanon has been experiencing is unsustainable, however, with global organizations — such as the International Monetary Fund — and prominent Lebanese economists sounding warnings. The intensity of wealth concentration in Lebanon is starving the wider free market of capital, while government deadlock on infrastructure reforms is hobbling our productive sectors: industry lacks reliable electricity, our archaic telecommunications network stunts the service sector and entrepreneurial innovation, while agriculture needs a clean, secure water supply. The sprinting GDP growth is slowing and without new investments in infrastructure to carry it, the economy will run out of road.  

A positive note over the past year is that an understanding seems to be building in government that something needs to be done; the Council of Ministers, Lebanon’s cabinet, approved an electricity reform plan and a blueprint to overhaul the water sector is in the works, as is a new fiber-optic network. On paper at least, these plans show promise.

The problem is the different branches of government are not performing their most basic functions: parliamentarians are not passing legislation and thus cabinet’s reform plans have not been made law; reams of legislation that was passed in years gone by remain unimplemented by the ministries, and the judiciary has been impotent in holding ministers to accountable for this.

The current excuse MPs, cabinet and the courts have for not doing their job is the confrontation between the government and the opposition over the United Nations’ Special Tribunal for Lebanon (STL), which has degraded political dialogue in the country to imbecilic chest thumping. The STL, however, for everything else it is, is also a scapegoat. The intransigence of Lebanon’s political and sectarian chiefs preceded the STL and will most likely survive its passing.

It is not the STL stopping the implementation of widely beneficial, desperately needed socio-economic reforms — our so-called leaders are doing that.

 

0 comments
0 FacebookTwitterPinterestEmail