Comment

When peace is the target

by Nicholas Blanford
written by Nicholas Blanford

Two separate editorials on the same day in the Israeli press last month underlined the confusion that informs analysis on Syria’s intentions regarding the resumption of peace negotiations with Israel.

The right-wing Jerusalem Post castigated Syria for its “derisive” response to attempts by the Obama administration to engage with Damascus after the years of isolation under George W. Bush. A day after George Mitchell, the United States Middle East envoy, met with President Bashar al-Assad in Damascus to further hopes of a resumption of Israeli-Syrian accord, Russia confirmed it would honor its agreement to supply Syria with P-800 Yakhont anti-ship missiles. The Jerusalem Post surmised that the missiles would probably end up in Hezbollah’s hands, enabling it to fulfill General Secretary Hassan Nasrallah’s vow in May to target shipping along Israel’s entire coastline.

In fact, Hezbollah probably already has acquired anti-ship missiles larger than the Iranian Noor/C-802 system it used in 2006 to disable an Israeli warship off the Beirut coast. Iran produces a longer-range version of the Noor called the Raad, which could theoretically hit Israeli shipping off the coast of southern Israel from launch sites as far north of the border as Beirut.

The Jerusalem Post also noted that Assad “made it clear with whom his loyalties lie” when he met with Mahmoud Ahmadinejad as the Iranian president stopped briefly in Damascus a day after Mitchell’s visit.

“It has become abundantly clear that the Obama administration’s attempt to ‘engage’ Syria… has been a resounding failure,” the Post said. In contrast, the liberal Haaretz newspaper interpreted Ahmadinejad’s visit to Damascus as showing his “fear that Syria will weaken its strategic relationship with the Iranians.”

Haaretz blamed Israeli Prime Minister Benjamin Netanyahu for the lack of progress on the Syria-Israeli track and urged him to heed the advice of the Israeli military establishment, including Defense Minister Ehud Barak, and accept Assad’s offer to resume talks. The conflicting viewpoints of these two Israeli newspapers may have earned a smile of satisfaction in Damascus. The Syrian regime is a master at fence-straddling, turning what normally would be a tactical ploy into a permanent strategy. Playing all sides at once ensures a degree of relevance and a steady queue of regional and international envoys knocking on Assad’s door. Critics of Syria insist that the regime’s ambiguity disguises an insincerity over its commitment to a peace deal with Israel. Peace would alter the geo-strategic environment of the region and compel Syria to make some hard decisions, such as reconfiguring its relationship with Iran and, therefore, also with Hezbollah.

There may or may not be some truth in such analyses, but we will not know because successive Israeli governments in the past decade have shown almost no interest in forcing Damascus to make those hard choices by pursuing peace. The last meaningful negotiations between Syria and Israel were in early 2000. Even then, Barak, the prime minister at the time, who enjoyed a broad mandate to pursue peace and the active support of the Clinton administration, got cold feet and could not bring himself to offer what he knew Hafez al-Assad wanted — the return of the Israeli-occupied Golan Heights to Syria — fearing it would not be accepted in Israel. No successive Israeli prime minister has shown any genuine interest in resuming talks with Damascus. Why would they? The border with Syria has been quiet since 1973.

The US is incapable of compelling Israel to talk to the Syrians if the Israelis are not interested. Given Israel’s succession of frail government coalitions, no prime minister is willing to risk his job for the sake of peace with Syria. Israeli leaders already have to contend with an increasingly militaristic and violent settler movement in the West Bank, so why antagonize the settlers in the Golan Heights as well?

I was once told an anecdote that well illustrates Israel’s reluctance to change the status quo with Syria. During a meeting of the Israeli cabinet in 2004, then Foreign Minister Silvan Shalom recommended attacking Syria and changing the regime. Ariel Sharon, the then prime minister, shook his head and said that that was a very bad idea.

“If we did that one of two things would happen,” he said. “Either we get the Muslim Brotherhood running Damascus or we get a democracy, and then we would have to make peace with it.”

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

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Editorial

Real estate reality check

by Yasser Akkaoui
written by Yasser Akkaoui

The good news for the Beirut property market is that the dangerous bubble everyone said would form has not. The reasons are straightforward: the two-years between the 2006 summer war and the June 2008 Doha Agreement, a period that was punctuated by the March 8 downtown sit-in and a spate of political assassinations, saw the property market hit rock bottom. Many Lebanese sold up and left, faced with a future filled with uncertainty and plagued by security concerns.

Post-Doha, Lebanon had guarantees and political consensus. It had a new president and within a year held successful elections. Almost overnight, Lebanon became a safe haven for capital fleeing the Gulf Cooperation Council in financial disarray, seeking property and land as well as investment opportunities in the tourism and retail sectors. At the same time prices on the global commodities market rose, leading to a hike in the cost of building materials and the price of oil needed to ship them. These factors, and the new found demand from returning Lebanese, gave the impression that the market was growing at an unsustainable pace. The reality was that it had come from the depths and was merely adjusting to new market forces.

The market has now peaked. With the cost of construction materials and the price of land unlikely to fall, demand for big apartments has stalled for five consecutive months and developers are reacting to the demand for smaller apartments. In short, the market is finding its new comfort zone.

Optimists predict a mild correction, and developers that entered the market early and bought land before prices exploded will enjoy a larger margin of maneuver.

The real concern is that many of the residential and commercial units that were bought as investments are unlikely to perform as well as they should. The Lebanese lira is currently offering an average of 5.7 percent on deposits, a rate of return that most new properties will be unable to achieve in the rental market. In fact, landlords will be lucky to get half that in the current climate. They will have to take what they can get unless they want inflation to eat into a non-performing asset.

Prices won’t come down dramatically, so for Lebanon’s property market to genuinely perform in line with local spending power, it is incumbent on the state to create a blueprint for general prosperity. Until Lebanese incomes rise to meet housing prices, domestic demand will never be able to keep Lebanon’s property market where it deserves to be.

The market has adjusted; now it’s Lebanon’s turn to do the same.

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Finance

Executive insight – Warring bankers line up on Basel III battle lines

by Fabio Scacciavillani
written by Fabio Scacciavillani

More than three years after the start of the financial crisis and two years after the default of Lehman Brothers, the world economy is still struggling to climb back from the depth of the latest Great Recession.

The summer of 2010 has seen probably the quickest recovery pace since late 2008, thanks to the rebound in manufacturing, the resilience of China (and other Asian economies) and the fiscal stimuli enacted in early 2009, but the forecasts for the rest of the year are less upbeat.

One of the areas of major concern is the state of the banking sector. Until recently, the measures to tackle the aftermath of the crisis have been limited to unprecedented injections of money by taxpayers and liquidity from central banks (which also comes from taxpayers, just under a different heading).

Despite this, plans to revamp prudential regulations and buttress the pillars of the world’s financial architecture had remained on the drawing board. But on September 12, the Group of Governors and Heads of Supervision — the oversight body of the Basel Committee on Banking Supervision in charge of establishing the framework of international financial regulations — achieved a major breakthrough in a long and thorny negotiation round, announcing a substantial increase in banks’ capital requirements, even above the levels preliminarily agreed to in July.

The announcement was cheered by markets as quite positive for financial stocks, especially those banks seen as well capitalized, not least because the reforms will not be introduced immediately. In fact, the implementation by member countries of the Bank of International Settlements (BIS) is due to start on January 1, 2013, although national laws and regulations must be in place before that date, and the minimum common equity and tier 1 capital requirements will be phased in gradually between January 2013 and January 2015. All in all, that is more than five years of transition, a horizon hardly in line with the bombastic rhetoric on swift and draconian actions heard from politicians and regulators after the quasi meltdown of the international financial system and the trillions of dollars spent to rescue major banks.

Buffer boost

The BIS reforms will increase the minimum common equity from 2 to 4.5 percent of the banks’ risk-weighted assets (RWA). In addition, banks will be required to hold a capital conservation buffer of 2.5 percent to withstand potential losses during periods of stress, bringing the total common equity requirements to 7 percent. Tier 1 capital (i.e. including liquid financial instruments) will be increased from 4 to 6 percent of RWA (hence to 8.5 percent if one includes the conservation buffer) while total capital will reach 8.5 percent of RWA (or 10.5 percent with the buffer).

Although compliance with these ratios is due by 2015, in January 2013 the process will start with new mandatory minimum requirement ratios: 3.5 percent common equity/RWA; 4.5 percent tier 1 capital/RWA, and 8.0 percent total capital/RWA.

While banks will be able to use the conservation buffer during downturns, as their regulatory capital ratios approach the lower threshold, their dividend payments will be increasingly restricted. An additional countercyclical buffer up to 2.5 percent of common equity or other fully loss-absorbing capital (for example convertible bonds) will be left to the discretion of national authorities.

The purpose of the countercyclical buffer is to underpin macro-prudential stability, because risk piles up during booms, but materializes during recessions — hence the need to devise a mechanism for reining in the banking sector’s excessive credit growth in good times and sustain lending to the enterprises during bad times. Finally, systemically important banks will be subject to stricter loss-absorbing capacity beyond the standards announced, but specific measures are still being debated and were undergoing a consultative process as Executive went to print.

A sense of déjà vu

The new regulatory framework is certainly a step in the right direction, although given the harsh lessons from the crisis it could have been more ambitious. One can be forgiven for suspecting that the boost to banks’ shares was not only a sign of relief for the delayed implementation of the new prudential parameters, but also an acknowledgement that the new rules are not as strict as feared by bank executives. Nevertheless, it is likely that national authorities will go beyond the BIS standards (which set merely a minimum common criterion), especially in Europe.

Rather than being the final word, the agreement reached at the Basel Committee on Banking Supervision represents merely the initial salvo in a battle that will be fought on many fronts: accounting rules for financial instruments, definition of risk weights, powers of inspection by supervisors, countercyclical buffers and so on. Unfortunately there is never a simple receipt for ensuring the stability of financial institutions.

It is a recurrent problem and it dates back to the dawn of modern finance (and arguably earlier). For example, the Austrian economist Ludwig von Mises, writing in 1928 about the monetary policy of the Bank of England during the 19th century, observed:

“It was usually considered especially important to shield the banks that expanded circulation credit from the consequences of their conduct. One of the chief tasks of the central banks of issue was to jump into this breach. It was also considered the duty of those other banks that, thanks to foresight, had succeeded in preserving their solvency, even in the general crisis, to help fellow banks in difficulty.”

Some 10 years later, Von Mises’ colleague and friend Friedrich von Hayek  commenting on the Peel Act, a law forbidding the extension of bank credit in England through banknotes (but not through deposits), observed that each time there was a financial crisis the Peel Act was suspended. From these episodes he drew a damning conclusion:

“The fundamental dilemma of all central banking policy has hardly ever been really faced: the only effective means by which a central bank can control an expansion of the generally used media of circulation is by making it clear in advance that it will not provide the cash (in the narrower sense) which will be required in consequence of such expansion, but at the same time it is recognized as the paramount duty of a central bank to provide that cash once the expansion of bank deposits has actually occurred and the public begins to demand that they should be converted into notes or gold.”

Does it sound familiar? It should, because it is exactly what happened in the aftermath of the financial tsunami in the fall of 2008 and is still happening today with quantitative easing and other creative ways of describing money printing by central banks.

Indeed, like the Peel Act, the articles of the Amsterdam Treaty forbidding the European Central Bank to monetize the public and private debts have been suspended (or thrown to the bushes). Hence, it is not surprising that the gold price is setting new records.

 

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Finance

Healthy growth or a warped market?

by Emma Cosgrove
written by Emma Cosgrove

Buildings go up and banks earn profits; it’s a simple fact of life in any reasonably functioning economy. Both the banking and the real estate industries would most probably prefer the public not see exactly how those two things go together. Some, such as Fadlo Choueiri, head of corporate finance and economic research at Credit Libanais, argue that the link is limited. “The way things differ between Lebanon and the region and the United States when we are talking about real estate development is that new real estate projects are not financed though banks,” he said.

Relative to other markets, this is partially true. Banque du Liban (BDL), Lebanon’s central bank, limits commercial bank financing available to real estate developers to a greater extent than other central banks, and property purchases are often equity financed. For incentivized Lebanese lira lending, only 60 percent of the value of the land may be loaned, according to Antoine Chamoun, general manager of Bank of Beirut Invest. Dollar lending is not capped, though Chamoun insists that 100 percent financing is never given.

However, what a developer may build on top of that land can be financed as much as the banks deem appropriate, based on cash flow analysis, which often includes a high dependence on off-plan sales.  The truth is that the real estate sector is a big part of the Lebanese economy and is therefore a driving force behind the banking sector.

“It is not true that developers are not leveraged,” said Nassib Ghobril, head of economic research at Byblos Bank. “Some of them are using their money; some of them are using part of their money. They do have loans from banks. It doesn’t mean that they are overleveraged, but it doesn’t mean that they are leverage free.”

Since banks’ published balance sheets are not broken down far enough to find out, Executive set out to go beyond the rhetoric and find out the real extent of real estate lending — a difficult task when the financial power players are trying their best to ride out the wave of the real estate boom for as long as possible.

“There are banks who directly have real estate affiliates who are building and directing projects. So what do you expect them to say? Everything is rosy, everything is nice… you end up living in a fantasy land,” said Ghobril.

According to a sector breakdown of aggregate bank lending provided by BDL, when all relevant cogs of the real estate machine are combined, the total comes to about 36 percent of the banks’ private sector loan portfolio. This is a significant amount and a much higher portion than many bankers have said publicly in the past. And so with a significant amount of bank lending tied up in an industry that has proven to be a ticking time bomb in other parts of the world, it is essential to understand where Lebanon’s real estate market is going and how the banks could be affected.

Market Adjustment

In a market like Lebanon’s where lending to the private sector is relatively low, credit conscientiously provided can be a positive force for economic growth. But one man’s growth is another’s exposure, and the real estate market in Lebanon is not what it was a year ago. Prices have increased 250 percent since 2005 due to what Ghobril says is a combination of positive forces that is unlikely to ever come together again. Political stability, rampant speculation between 2007 and 2008, strong expat demand and market crashes elsewhere in the region have made for seemingly insatiable demand in the last three years.  But “the pace of demand has slowed already and everybody is talking about it,” said Choueiri. Large luxury apartments have become so expensive that experts say developers will need to adjust their plans in order to stay on top of market trends.

“For developers who are looking to pursue their operations and their developments as if nothing has happened, this is a risky endeavor,” Choueiri added. After such astronomical price growth in only a few years, Lebanon is at a potentially precarious point and is less of a failsafe investment than it used to be.

“You no longer have this gap where the market here is undervalued and attractive compared to the rest of the region or the world,” said Ghobril. “In fact if you look at the actual indicators of the sector, the gross rental yield, the price to rent ratios, you see that valuation of apartments in Beirut have become higher than the rest of the region.”

According to The Economist, for a 120 square meter apartment gross rental yield has declined to reach about 4 percent, while the price to rent ratio — the number of years you need to rent an apartment to recover the cost you bought it at — for an apartment that size is currently 24 years, the highest in the region.

Further, Ghobril says that the indicators that do exist in Lebanon are insufficient and often misleading. For example, the number of construction permits issued is often used as an indicator of sector health, but the number of permits cancelled is not published.

He adds that Lebanon’s real estate market cannot be properly assessed without statistics such as the time it takes to sell an apartment, population growth and round trip costs for the person investing and divesting.

Fuel to the flames

In an effort to soak up excess local currency liquidity and spur lending, BDL lifted reserve requirements on loans for primary housing in June 2009 and has extended the incentive until June of 2011. This is where the two sectors become incontrovertibly tied. At first glance, the measure appears to be a success. Housing loans reached $3.1 billion at the end of March, increasing by $750 million since the introduction of the circular.

But there is growing disagreement as to whether the measure was a prudent one in the first place, though it has obviously achieved its objectives. The difference in opinion seems to be based on a preference for short or long-term thinking.  The circular allowed banks to drop mortgage rates to new lows, with most hovering around 5 percent and some currently available below 4 percent for the first year. At rates this low, if inflation is factored in, the interest effectively disappears.

Bank of Beirut’s Chamoun says that the popularity of these loans is evidence of growing rather than fading demand.

“The number of demands [for loans] and loans granted since 2000 has been always increasing… that means demand is still going up,” said Chamoun.

But the availability of financing is one of the many factors pushing prices up. This is not a problem as long as the facility is still available and cheap mortgages abound. But if and when the facility ends, and banks are forced to raise their rates, Lebanon will be left with expensive mortgages and expensive property. And this is where the disagreement comes in. 

Chamoun says that the good the facility has done for ordinary Lebanese citizens outweighs the future risk.  “It’s better for me to be able to buy an apartment even with a higher price than not to have the possibility to buy any apartment,” he says.  But Ghobril is more wary. As Chamoun admits, “prices are going by [the elevator] and our income is taking the stairs.” This, Ghobril says, is why after the circular expires in July 2011, it should not be extended.

So, we’re left with rising prices and an ever-growing dependence of banks on real estate market-dependent revenue. This is not to say that Lebanon is headed toward anything close to a Dubai-style bust. Only time will tell whether prices will retain their lofty position, as most believe. But this summer has shown that real estate in Lebanon, and especially Beirut, cannot keep climbing in value and sales forever. As gravity kicks in it is important to understand not only the forces at work in the real estate sector, but also how they can affect the keepers of our cash.  

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Dark days are upon us

by Paul Cochrane
written by Paul Cochrane

It’s been a long hot summer. Temperatures hit all-time highs and Ramadan demand put power grids under serious strain across the Middle East. Few countries were spared as power outages hit Kuwait, Saudi Arabia, Bahrain, Sharjah, Yemen, Iraq, Lebanon, Syria and Egypt. But in those places suffering from power cuts, people seemed largely unaware of the rest of the region’s electricity woes.

While Lebanese carried out their daily litany of complaints about blackouts, damning and blasting the government, many were surprised when I told them that Sharjah had such an electricity deficiency that residents were sleeping in air conditioned cars to avoid baking in concrete apartment blocks. It was so hot in the emirate that hospitals were inundated with cases of heat stroke and a construction worker died from heat exhaustion.

 In Damascus, residents hot under the collar due to a lack of air conditioning knew of Lebanon’s long-term electricity conundrum, but were unaware that Saudi Arabia and Kuwait — those rich Gulf countries where many Syrians seek work — were also having blackouts. With an 8 percent annual deficit, the situation was so bad in Saudi Arabia that school children were passing out while taking exams and airplanes were grounded. Kuwait’s network hit 99 percent of capacity.

Power shortages in the region’s poorer, more corrupt and war ravaged countries — Iraq, Yemen, Lebanon — are daily occurrences and are not unexpected, but why are they happening in the energy-rich Gulf?

The problem is that peak demand occurs every summer at the same time across the region. Populations growing in size and affluence means more air-conditioners — and industrial activity is increasing. All of this, coupled with exceedingly low electricity tariffs and an incredible lack of forward-planning has resulted in a major shortage of megawatts (MW). And without the modern day wonder of air conditioning, the region, particularly the Gulf, is not a place conducive to working or living as the mercury rises.

Thomas Edison, one of the inventors of the light bulb, once said: “I shall make electricity so cheap that only the rich can afford to burn candles.” In much of the Middle East, Edison’s saying has been translated as: “We shall make electricity so cheap everyone uses too much of it, and only the rich can afford to run generators.” Lebanon is a case in point, with power “provider” Electricité du Liban to generate $800 million in bills this year, while the Lebanese will spend $1.76 billion on running generators.

But there is hope that such electricity shortages will be abated, with the cuts prompting such furor among the people that governments have been forced to invest in more power production.  The Gulf countries are to spend an estimated $200 billion on power plants, Lebanon some $4.7 billion, Iraq up to $10 billion. Everywhere else there are plans for upgrades and new plants. Renewable energy and nuclear power are also in the pipeline, as is the $560 billion Desertec solar power project in North Africa. And if other solar power initiatives get underway in the rest of the Middle East and North Africa, the region will be able to produce up to 470,000 MW of sustainable electricity by 2050, according to research by the German Aerospace Center.

While such initiatives are laudable, practical solutions to the current shortages need to be implemented. It takes around three years to build a conventional power plant, and once output is increased, there is usually a corresponding rise in demand as people use more electricity. It’s a vicious cycle.

Before these projects get underway, thinking about how to lower overall consumption across the region should be part of every national power plan. Can we really call a ski slope in a mall in the desert an efficient use of electricity? Do empty office blocks have to be lit up like Christmas trees in the middle of the night? And when the whole of Lebanon lacks electricity, did the Maronite Church have to erect the world’s largest illuminated cross at Qanat Bekish in Mount Lebanon, a 240 foot high construction lit by a staggering 1,800 spotlights?

If temperatures are as high again next year and such wanton waste of electricity continues, power cuts are likely to be worse. In the meantime, higher tariffs to encourage people to use power more wisely would help to ensure more people are sleeping in their houses rather than their cars this time next year.

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Baghdad’s enduring nightmare

by Alice Fordham
written by Alice Fordham

On wide, high-definition screens, images flash up for two seconds at a time: flayed skulls, charred limbs, disemboweled torsos, heads bloated and bulging around taped-up eyes. Men and women sitting in plastic seats flinch as they squint at the real-life horror show, trying to identify husbands, cousins and friends. This is the Baghdad morgue, where the grim body count of the last seven years has been a daily reality, where bodies were piled up and lay unclaimed by terrified families before being driven to vast graveyards with numbered plots.

As American-led troops battled resistance and then civil war, this building and its 50 employees dealt with the consequences. In 2006 and 2007, the morgue received 150 corpses a day. Today, although the stream of dead has slowed to a trickle, the morgue remains a nightmarish reminder of the fighting’s lingering effects as people come to hunt through the photographs of some 20,000 bodies which remain unidentified.

Abu Issam, 47, from the capital’s New Baghdad neighborhood, was looking for his cousin, a 60-year-old man who was kidnapped from his home by men in three cars in January 2006. As corpse followed corpse on the screen, he said, "I look at these pictures and say to myself, ’what is the guilt of these people?’"

Meanwhile, officially, the war is grinding to a halt. On September 1, United States combat operations in Iraq were declared over and, with some fanfare, Operation New Dawn began, a mission of advice and assistance with less than 50,000 American soldiers on the ground.

Media attention has begun to drift from Iraq; the pyrotechnics of Pakistan and Afghanistan are now more interesting than the rumbling violence in Baghdad. But in a country where people are still mourning for disappeared loved ones, divisions and grievances run deep and there is not yet a clear victor in the messy endgame to the war.

Since the end of combat, American soldiers supporting Iraqi colleagues have found themselves in lethal shoot-outs and open fighting in Baghdad, Diyala and Fallujah. Two American soldiers were shot dead on September 8 in Salaheddin by a man in an Iraqi Army uniform who was among the men they had been training.

Other troubles still plague Iraq. Hundreds of people die violently every month and, more than half a year after elections, there is no sign of a government being formed. The divisions between Sunni and Shia, which Iraqis insist were negligible before the 2003 US-led invasion, are still being deepened by violence and politics. There are frequent assassinations among the largely Sunni militias which defected during the American troop surge. The Iraqiya party, which campaigned on a platform of secularism, is likely to be overpowered in government by a coalition of religious Shia parties, alienating the Sunni voters who largely backed Iraqiya.

The infrastructural impact of the invasion lingers. Electricity production has never reached pre-war levels, which were not high, and after a scalding summer marked by riots, the electricity minister was forced to resign. Bureaucracy and bribery dog municipal functions of the state and the police are corrupt and brutal. Minorities are still targets. Christians are associated with the hated occupiers and during the scandal surrounding the planned Koran-burning in Florida, every church in Baghdad was threatened.

The best-case scenario for Iraq going forward is the rather modest one laid out by Barack Obama, in which violence is at a manageable level and there is some semblance of democratic rule. But the ingredients are all there for a deterioration, and if a government doesn’t emerge or there is a serious attack on a religious site, for example, the decline could be swift and have a wide-ranging fallout.

Some American soldiers feel frustrated at the perception in the US that the war is finished. Lieutenant-Colonel Donald Brown commands the infantry division whose two soldiers were shot. After attending the “very emotional” memorial service for the two who were killed, Lt-Col Brown said that his wife and family had felt this kind of danger was unlikely since combat operations ended.

“This sort of event was only in the back of their mind until the events of the last few days clearly codified that this is still a very dangerous place,” he said. A sharp personal reminder that on the ground, the war ain’t over yet.

 

 

 

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The art of crime

by Peter Speetjens
written by Peter Speetjens

The recent theft of a $50 million Van Gogh painting from the Mahmoud Khalil Museum in Cairo is hardly an isolated case. As art prices continue to skyrocket, the underworld is rapidly developing a taste for culture, turning art theft into a global business worth some $6 billion annually, according to the FBI. Only last May, for example, four modernist masterpieces, including a Picasso and Matisse, were stolen in Paris, while in 2008 a Cezanne and Monet were lifted from a Zurich museum. Meanwhile, thousands of Iraqi antiquities remain unaccounted for and Christian icons vanish on an almost daily rate, mainly in countries of the former Soviet Union.

That said, the way in which the Van Gogh still life “Vase with Flowers” was taken from the Cairo museum seemed like scene from the latest Adel Imam flick that could be called “Only in Egypt.” After all, where else can one enter a museum in broad daylight, move a couch under the desired painting, cut the canvas from its frame, and walk out without being spotted by either guards or cameras?

A museum employee admitted that the museum’s alarm system and most of the 49 security cameras had not been working for a while. “The museum officials were looking for spare parts but hadn’t managed to find them,” he told Agence France-Presse. The affair becomes all the more humiliating knowing that the same painting was stolen from the same museum in 1978 only to pop up two years later in Kuwait.

Admittedly, the theft of four paintings with a combined value of $130 million from the Paris Museum of Modern Art in May was nearly as embarrassing. Here too, the alarm system was out of order, as the museum was awaiting spare parts.

The security cameras however, did work. They recorded how a lone hooded thief broke a window around midnight, climbed in, cut the canvasses from their frames and left. Pity that the museum guards for some reason failed to look at their screens and only the next morning spotted the empty frames.

Yet even working cameras and guards that are awake can do desperately little against the threat of violence, which seems the underworld’s favorite modus operandi. In Zurich, for example, three men armed with automatic weapons stormed into the E.G. Buhrle Foundation, grabbed four paintings with a value of some $163 million and fled minutes later in a waiting car. Similar armed robberies have taken place in Rio de Janeiro, Sao Paolo, Stockholm and Boston, where two thieves disguised as policemen entered the Isabella Stewart Gardner Museum in 1990 and stole some $500 million worth of art. The stunt is still known as the biggest art heist in history.

It should be noted that the stolen Van Goghs and Picassos are only the tip of the iceberg. Most thefts do not concern classic masterpieces and hence fail to write headlines. Furthermore, while stealing a work of art is one thing, selling it is quite another. The problem is that an art work is a unique piece. There is only one “Guernica,” only one “Vase with Flowers.” Consequently, it is impossible to simply offer the works on the market, especially since both the FBI and Interpol established art crime departments that, among other things, maintain a database of stolen works. Instead, as in an ordinary kidnapping case, art thieves will often try to obtain a ransom.

According to Interpol, the theft of cultural objects affects the whole world, but the two countries most affected are France and Italy. The organization furthermore notes that the illicit trade is sustained by demand from the arts market, the opening of borders and political instability in certain countries. The latter especially refers to the situation in Iraq and Afghanistan, as looting has always been an intrinsic part of war. From the National Museum of Iraq alone some 7,000 to 10,000 artifacts remain missing, after the US army failed to protect the country’s leading cultural institution during the invasion.

In general, the future for stolen antiquities and art works looks bleak. Julian Radcliffe of The Art Loss Register estimates that only 15 percent of stolen art works are recovered within a period of 20 years. Hence, it may take a bit longer this time around before Van Gogh’s “Vase with Flowers” makes its way back to Cairo.

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Society

Musical Movements

by Emma Cosgrove
written by Emma Cosgrove

Watches. “You either love them or you don’t care,” said Ronan Keating, sitting back on an overstuffed armchair in the library of IWC Schaffhausen’s new downtown boutique.

Keating cares. In fact, he gushes, unable to tame his passion for luxury watches. An Irish pop star and a former member of the 1990s boy band Boyzone, Keating is one of IWC’s many celebrity endorsers. He and Chief Executive Officer George Kern came to Beirut to open the brand’s new boutique in Beirut Souks on August 26, where the singer explained how he and Kern travel the world opening IWC boutiques.

“I’m like a kid in a candy store. This is something I have a passion for and I love watches,” he said. His prominent presence throughout the opening event highlighted the importance brands place on selecting an appropriate celebrity endorser; the right choice can lend credibility to a brand or even make it a household name, but the wrong one can sully its reputation.

At first Keating might seem like an odd choice; while he is not a completely unrecognizable figure outside the British Isles, his fame is somewhat localized to that northwestern edge of Europe. But IWC says it has a different strategy than other brands when it comes to its celebrity “family.”

“George didn’t have to convince us and start waving money in front of us, it’s not about that with the brand,” said Keating. “It’s a passion that we all share together.” Invited to become a brand representative when Kern saw him performing on Swiss television wearing an IWC watch, Keating is just one of many big names recruited to represent the brand in recent years. Other celebrities wrapping IWC around their wrists include Australian actress Cate Blanchett, French actor Jean Reno, French footballer Zenidine Zidane, Australian model Elle Macpherson and American actor Kevin Spacey.

Celebrity endorsements, the cornerstone of luxury watch advertising, can cost millions. The values of individual contracts are kept under lock and key and often vary greatly from company to company, star to star, but they rarely come cheap. Keating then, having recently been present at IWC’s openings in Kuala Lumpur and Vietnam, represents a significant strategic investment.

Building a brand is a complicated process, said Kern. “Millions of elements come together — advertizing, PR strategy, corporate social responsibility strategy, the way you decorate or the way you design stores.” When all the elements present at the boutique’s launch in Beirut Souks are scrutinized together, Keating’s presence  fits like a gear in a precisely tuned timepiece.

The opening featured the usual fare of hors d’oevres, champagne and branded miniature cakes. But after the ribbon cutting with Kern, Keating and members of the Atamian family, IWC’s Lebanese partners, Keating played a short, lighthearted acoustic set. Suddenly, the boutique’s styling, the utilitarian elegance of the watches and the music all blended with a melodic harmony.

Sure, the casual asides Keating tossed to the crowd during his set to profess his undying enchantment for IWC watches may have seemed a little over-the-top, but Keating’s limited local star power meant that he could walk through the crowd without needing security and without the usual surrounding wall of photographers. He shook hands and met actual people.

Perhaps it is an uncommon choice to use a lesser-known celebrity to keep the vibe light where a big name would shut down the show and hog all the attention. But ditching superstar power in favor of brand unity is certainly a bold move.

 

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Society

“Security and Development”

by Executive Staff
written by Executive Staff

The New York-based International Peace Institute’s recently published “Security and Development: Searching for Critical Connections” is a scholarly work of valuable insight for the Middle East.

Edited by Neclâ Tschirgi, professor at the University of San Diego and former vice-president of the Institute, along with two other experts in the field, ‘Security and Development’ goes beyond rhetoric to examine the shortcomings of conflict prevention. The book begins with the point that often, underdevelopment and insecurity correlate — with higher levels of development meaning a lower likelihood of internal violent conflict.

After World War II, developed countries were overwhelmingly spared the ravages of military violence, while in the last several decades, most poor countries have suffered warfare — especially those that are home to the poorest billion of the world’s population, living in some 58 nations whose combined gross domestic product is less than that of metropolitan Chicago. After four lucid introductory chapters, the book illustrates such points in seven country case studies on the interplay between security and development in poorer states.

Awash with both insecurity and underdevelopment, the Middle East is seen by many in the West as the origin of much international terrorism, and close to 10 years since the September 11, 2001 attacks, the region is generally less secure; concurrently much of it still does not enjoy sustainable growth. This makes Arab countries the target of both security measures and development efforts, but the results have been far from satisfactory, as illustrated in the case study: “The Security Paradox in Unified Yemen.”

Defining the “security paradox” as the process whereby a country’s “internal insecurity is exacerbated by attempts to obtain international security,” the chapter’s authors Laurent Bonnefoy and Renaud Detalle paint a bleak but convincing picture of a state that is becoming more insecure as the West wages its war on terror inside Yemen.

Yemeni society is fraught with disaffection. Currently, Yemen suffers further as local and international security forces fight alleged terrorists on its soil; some of these people are “villains” that need to be dealt with (with or without Western involvement) but the net result of such antiterrorism efforts is destabilizing.

Internal stability suffers each time innocent bystanders are hit in attacks on terrorists, or targeted due to poor intelligence. Yet another mode of destabilization is the mass flight of people from an area reckoned to be a Western target, with lives and livelihoods disrupted. At the same time, despite much aid, Yemen is not developing. Unless strictly monitored and controlled, aid money can often compound local problems by abetting corruption and fueling nepotistic power structures.

As emphasized in the pithy final chapter, whatever the solution to this paradox, rigorous skeptical analysis of the sort found in ‘Security and Development’ offers a healthy antidote to ill-considered gung-ho antiterrorism operations coupled with lavish aid, which may actually end up making both the US and the global south, including the Middle East, less secure in the long run.

Though not necessarily for the lay reader, this carefully researched book should nevertheless interest regional security experts and practitioners whose Western colleagues are throwing vast amounts of money and force at problems such as those of Yemen, and other parts of the Middle East, with dubious results.

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