Comment

Summer of the stifling state

by Michael Young
written by Michael Young

The possibility that several Gulf states, as well as India, might suspend BlackBerry services unless certain security conditions are implemented is the latest sign of the tension between modern technology and the impositions of the state. In July, the United Arab Emirates and Saudi Arabia sought to come to an agreement with BlackBerry’s Canadian manufacturer, Research in Motion (RIM), to impose an oversight mechanism allowing their security agencies to read the device’s encrypted messages. This would affect BlackBerry’s messenger service, which permits users to communicate in real time between themselves, as well as email services. RIM refused and the Emirati and Saudi authorities announced dates for the suspension of BlackBerry.

The governments’ calculations were that their threats would put pressure on RIM’s share value, forcing the company to comply. In early August, however, the Saudis reversed course, announcing that they would allow messenger services to continue, driving RIM’s share value up. Rumor has it that the manufacturers agreed to locate one of their servers in the kingdom, making it easier for the authorities to access data, though both RIM and the government has remained tight-lipped on the issue.  However, both the Indian and Emirati authorities continue to demand some access to BlackBerry’s internet services. The Indian security agencies argue that BlackBerries were used in the Mumbai attack of November 2008, while the group of assassins (purportedly Israeli agents) who killed Hamas operative Mahmoud al-Mabhouh in Dubai earlier this year were also thought to have used Blackberries or a similar device. However, the security argument is not particularly convincing. While there is no doubt that modern technology can facilitate terrorist attacks, preventing this might throw the baby out with the bathwater.

 Take the Mumbai episode. Those who carried out the rampage in the Indian port city also used cellular telephones. Yet no state, certainly not India, can readily tap into all cellular communications. And while BlackBerry messages are encrypted, in the confusion of a terrorist attack it is not always easier to intercept mobile phone conversations. The fact is, it is often the quality of policing and speed of reaction that defines the outcome of terrorist actions. Even in the planning stage there are infinite ways for terrorists to circumvent surveillance.

To place an entire population under the government’s eye is extremely illiberal, inconvenient and not necessarily guaranteed of success. Technology in the hands of committed groups generally remains a step ahead of sluggish countermeasures by states.

There is also the matter of image. It is part of the UAE’s brand that places like Dubai and Abu Dhabi are business-friendly. The business community has been willing to accept restrictions on certain aspects of life in exchange for an environment that is generally efficient and safe. But they may not be willing to relinquish their privacy for the sake of safety and security, particularly in their business affairs. If they feel the authorities can tap into their private communications and influence key aspects of their work, for example bids or strategies against competitors, suddenly the Emirates becomes less attractive.

Conditions imposed on RIM, particularly among the Gulf states, seems, at least publicly, to be prompted mainly by discomfort that technology is offering people more ways to avoid the state’s prying eye. What is new in the BlackBerry standoff is that the demands on RIM bring two systems into conflict: Western democracy which, for all the inroads into people’s private lives it has allowed in recent years, still defends the right to privacy in law, against systems with a more elastic view of privacy. RIM is being asked to undermine the confidentiality of its clients, thereby breaking its contract with BlackBerry owners, because certain foreign governments cannot do that themselves. This is different to blocking or scrutinizing the Internet, which numerous governments do because they control servers inside their own country. Economic power will be a major factor in determining the outcome of this tussle.

If India can get its way with RIM, it will have a significant impact on what Arab states, with less market weight, decide to do. Ironically, the free market may end up curbing freedom. There may be a point where RIM’s share price, pushed down by recalcitrant governments demanding an end to encrypted messaging, force the company to surrender. This would be bad news, because there is more at stake than just terrorism; not everything we do is the state’s to see. 

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Finance

Goodbye to great rates

by Paul Cochrane
written by Paul Cochrane

 

The high interest historically paid out by Lebanese banks on deposits in Lebanese lira (LL) made the country an attractive location for stashing cash. At its peak, near the end of the civil war in February 1988, the average rate on lira deposits was 20.55 percent, according to data from Banque du Liban (BDL), Lebanon’s central bank. Such double-digit interest was the norm when Lebanon needed as much capital as possible to reconstruct the country. Come the Paris II donor conference in November 2002, lira interest rates dropped below 10 percent, never to return to such highs, as perceived risk was lower. They’ve been more or less in a gradual decline ever since, hitting a three-decade low in June this year when the weighted average interest rate on deposits hit 5.83 percent, according to data provide by BDL.

The cost of competition

As the global financial crisis set in, Lebanon was once again an attractive depositors’ haven, with $55 billion flowing into the country from 2007 to the first half of 2010, according to Bank Audi data. Such an abundance of liquidity, combined with the lower rates offered internationally and the heightened confidence in the Lebanese financial system meant interest rates had to tumble. As a result, the Central Bank and the Ministry of Finance were in a position to demand lower returns on treasury bills (TBs) and certificates of deposit (CDs). 

But this represented a challenge for the banks in managing their spreads, particularly when the three-year and five-year TBs and CDs in lira matured, as it would no longer be advantageous to pay out high interest to clients when the banks themselves were no longer receiving such returns.

“On government paper for lira, [interest] was 11.25 percent for [the last] five years, but now it is 6.18 percent, so a huge drop in just a year and a half,” said Walid Raphael, general manager of Banque Libano-Francaise. “If you look at the three-year paper — what most banks are holding with the government — it was at 9.3 percent and is now just below 6 percent, so a 3.30 percent drop. It is the banks that are bearing this reduction in interest. If the market was really efficient the banks would not pay more than they are getting on TBs but much less, yet this is not the case.”

Earlier this year, the Association of Banks in Lebanon decided that the rates banks offered should be lowered, as paying out their current interest was no longer sustainable. But in a free market it is the prerogative of banks as to what rate they offer, even if this costs the institution to do so. “If you are getting 5.3 percent on three-year local treasury bills, why are you paying depositors 5.5 percent?” said Freddie Baz, chief financial officer at Bank Audi. “It is because of idiotic competition to attract clients. Banks are shooting themselves in the foot.”

The banks have to tread carefully though, as a rapid reduction in interest rates on the lira could trigger conversions back to US dollars and threaten the currency’s stability. As Baz remarked, the Lebanese “are not mentally prepared for this,” as depositors have become used to the high rates on the lira. He does, however, advocate a drop of 1 percent on lira interest in 2011.

Decline prompts diversity

Najib Semaan, assistant general manager at the Bank of Beirut, considers the lower interest rates as a boon for the government, the economy and the banks.  “Banks are happy to see rates go lower in foreign currency and the lira. Why? Because it will give a boost to the lending on the retail and corporate side, and servicing the debt of the republic will cost less,” he said. “But while it is beneficial to the government to have lower interest rates, I insist we reach a level acceptable to the government and the banks.”

The decline in the interest rates has clearly affected bank’s strategies, placing a greater emphasis on services to attract and retain clients; before it was a case of shopping for the best interest rate on offer. That said, interest rates are still a primary tool to expand the depositor base, hence some rates on offer are on par and even above the returns banks get on TBs and CDs.

For instance, Bank of Beirut is offering an account to new clients that pays 7.20 percent over 15 months. “We want to diversify and increase our client base, and have cross selling, such as to small investors,” said Semaan. “We are not accepting deposits over LL 60 million as we want to diversify and have longer term maturities. The interest rate is a welcome gift to new clientele because otherwise, on a small amount, whatever you pay doesn’t make sense.”

Such a rate is increasingly rare, and overall interest rates are likely to drop in years to come. This could prompt a change in mindset among Lebanese that have lived off the high interest.

“We are coming to normal times, not the extraordinary times of high interest and premiums, which could not last forever,” said Baz. “This could trigger a quicker development of the domestic capital markets as people will be forced to look at other alternatives. Today it is a rentier economy; if I can still get 6 to 8 percent interest, why should I understand the stock market?”

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Finance

No change at the top

by Emma Cosgrove
written by Emma Cosgrove

2010 net profits and growth

First half 2010 financials from Lebanon’s Alpha Banks

Lebanese alpha banks continued to gain profits and assets in the first half of 2010 with Bank Audi maintaining its lead across the board. But there have been some notable shifts among the rankings.

In terms of assets, Fransabank passed BankMed in the last year. The former’s assets grew to $11.5 billion, surpassing BankMed’s $11 billion. This step up in the assets race also shows in Fransabank’s lending figures, which jumped above Banque Libano-Francaise since this time last year, moving the bank from sixth largest Lebanese lender at the end of June 2009 to currently place fifth. 

In terms of customer deposits, SGBL regained its 10th place medal from BBAC after a year outside the top 10 by a hair’s breadth, with the bank’s customer deposits growing 23.87 percent year-on-year to reach $3.6 billion, beating BBAC’s 10.5 percent growth and $3.4 billion in deposits.

At the top of the profits podium for the first half of 2010 is Bank Audi, after having lost the top spot to BLOM at the end of 2009. Audi regained its former glory by growing profits by 21.45 percent, reaching $161.4 million. Net profits growth among the entire alpha group brought out some other surprise swells, with Lebanese Canadian Bank posting 84.74 year-on-year percent growth, SGBL at 79.05 percent year-on-year growth, Bank of Beirut at 65.26 percent, Fransabank 54.69 percent and Banque Libano-Francaise at 42.86 percent.

The assets of the entire commercial banking sector grew to $122 billion by the end of June 2010, representing a year-on-year increase of 17.4 percent.

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Economics & Policy

For your information

by Executive Editors
written by Executive Editors

A curb on oil exploration

The King of Saudi Arabia has made a royal decision to halt further exploration of oil and gas in the world’s largest crude exporting nation. The announcement was reported in early July by the official Saudi Press Agency  and quoted King Abdullah bin Abdul Aziz on his way to a cabinet meeting as saying: “I told them that I have ordered a halt to all oil explorations so part of this wealth is left for our sons and successors, God willing.” A senior ministry official quoted by Zawya Dow Jones later explained that the statement was not an outright ban on further exploration, but rather was intended to express that future exploration would be carried out more “wisely.” Saudi Arabian oil reserves are the largest in the world and stood at 260.1 billion barrels at the end of 2009, according to the state-run Saudi Aramco.

IFF blasts Lebanon’s budget

The Institute of International Finance (IIF), the global association of financial institutions, has criticized the 2010 budget proposal and suggested that Lebanon has missed an opportunity to improve its public finances. “The 2010 budget does not aim for a significant primary surplus that could have been achieved under the continued strong economic growth and implementation of the long-delayed reforms. Avoiding complacency and building consensus on reforms combined with continued stable political environment could sustain rapid growth beyond 2010 and bring down government debt to more sustainable levels,” the IIF stated in a country report on Lebanon. The report cautioned that the favorable economic conditions of rapid growth, low global interest rates and abundant liquidity in the banking sector were not likely to continue in the medium term. The IIF also advocated raising the Value Added Tax (VAT) from 10 percent to 12 percent, as well as removing exemptions on precious and semiprecious stones, and on yachts and other excursion or sports sailboats that currently do not pay VAT.

Consumer confidence confusion

The three most trusted indices measuring consumer confidence in Lebanon show differing results for the second quarter of 2010, according to BLOM Bank. The first of the these studies, conducted by Bayt.com, reported that Lebanon’s consumer confidence index (CCI) increased by 7.6 points in quarter two of 2010, leading the region in growth. According to the same survey, consumers in the UAE, Kuwait, Saudi Arabia, Egypt and Bahrain are losing confidence in their countries’ economies and their own earning and spending futures. Qatar and Morocco showed modest growth in their indices. The other two surveys, conducted by Ara’a Research and MasterCard, both showed a drop in consumer confidence in Lebanon. Ara’a’s index saw Lebanon drop 15 basis points to hit its lowest level since October 2009. MasterCard’s study showed an even more dramatic plunge, with a 30.74 percent year-on-year drop in consumer confidence for the first half of 2009. MasterCard’s index also demonstrated pessimism in the other Middle East and North Africa countries, with the regional index dropping 7.11 percent. BLOM’s analysis of these contradictions led to the conclusion that CCI studies are highly subjective and should be observed with caution, as the size and socio-economic makeup of the sample can have a significant affect on the outcome.

Lebanon tops FDI-to-GDP table

Lebanon attained the highest ratio of Foreign Direct Investment (FDI) to GDP in the Arab world last year, according to recent figures issued by the Arab Investment and Export Guarantee Corporation, a body that provides insurance coverage and export credit. The figures show that FDI to (estimated) GDP in Lebanon in 2009 reached 14.3 percent, up from 12.2 percent in 2008. The total value of FDI in Lebanon during 2009 also increased 33 percent on 2008, coming in at $4.8 billion. The figure also constitutes the fifth highest FDI by value in the Arab world during 2009, in contrast to aggregate figures that saw FDI in the Arab world experience a 15 percent year-on-year decline. FDI inflows to Lebanon accounted for 6 percent of the total $80.7 billion dollars registered. Saudi Arabia took the lion’s share of FDI last year, making up 43 percent of the total at $35.5 billion dollars.

No national future for pipe firm

Future Pipe Industries sal, the Lebanese subsidiary of the Dubai-based Future Pipe Industries group, announced that it had closed its operations in Lebanon. The company, which produced pipes and rubber gaskets, was established in 1995 by Lebanese businessman Fouad Makhzoumi and had an annual turnover of $830 million in 2008. Future Pipe Industries was the largest private sector employer in the Akkar region with hundreds of employees. The company attributed its decision to close up shop to adverse operating conditions in Lebanon. The firm still has 10 other plants on five continents and employs some 4,500 people. It derives 76 percent of its sales from the Gulf Cooperation Council.

Lebanon and Syria’s bilateral bonanza

In another chapter of the Treaty of Brotherhood, Cooperation and Coordination signed in 1991 under then president Elias Herawi, Lebanon and Syria have embarked on a new set of agreements that come on the back of Lebanese Prime Minister Saad Hariri’s most recent visit to Damascus. The 18 agreements also took place amid the backdrop of heightened tensions over the Special Tribunal for Lebanon, which according to Hezbollah’s Secretary General will implicate members of the party and not, as was originally expected, Syria. Hariri’s Syrian counterpart Mohammed Naji Otary stated: “What links Syria and Lebanon is stronger than bets of enemies and conspirators.” Hariri was quoted by the agency as saying: “The interest of Syria and Lebanon comes before everything…. we have to prepare for the next stage through achieving economic rapprochement to strengthen our economy in the face of the global financial crisis and other future challenges.” The agreements themselves are comprised formal economic sector cooperation documents, memorandums of understanding, executive programs and protocols and cover the fields of economy, trade, education, agriculture and tourism among others, and are signed on the ministerial level, according to the Syrian state-run news agency SANA. 

The countries’ respective finance ministers inked a protocol agreement on avoiding double taxation between the two nations, which also covered ways to address tax evasion in relation to income taxes. The ministers also signed an agreement on encouraging investment and memorandum of understanding on customer protection along with their counterparts from the respective ministries of economics and trade. A total of four agreements were also signed by the agriculture ministers of the two nations, which will unify regulations for licensing and importing of veterinary medicines and agricultural pesticides, as well as covering animal and plant protection. In addition, the two education ministers signed an executive program and two agreements covering various levels of education and research. The ministers of culture and tourism also followed suit, inking a three-year executive program and a further cooperation agreement respectively. Not to be outdone, the ministers of health, transport, justice, interior and environment also approved several agreements. Minutes of the meetings of the joint ministerial and technical committees who met after the accords had been signed show that they agreed to establish mechanisms to form a joint committee for foreign and economic affairs, implement a future security and defense agreement, link the two countries by rail through a Tripoli-Homs-Riyaq-Damascus railways and establish a joint border industrial zone, in addition to demarcating borders between the two nations, and the creation of a Syrian-Lebanese Business Council. The Syrian premier also stressed that the establishment of a high-level “cooperation committee” tasked with overseeing the implementation of a free trade agreement between Lebanon, Syria, Jordan and Turkey, was of the utmost importance. “We want the Syrian-Lebanese relationship to be an example for the joint Arab market, aiming to widen this cooperation to include other Arab countries,” Hariri added.

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Real estate

Hilton on ice

by Executive Editors
written by Executive Editors

Lucas William, tapped to be the director of operations at the Hilton Beirut, is not talking about the elephant in the room. Indeed, most of the affiliated parties are keeping mum about the eight-storey, 158-room hotel in Minet a-Hosn that stands ready but is suspiciously closed. The hotel’s awkward silence in the midst of a buzzing touristic hotspot has lead many a curious mind to speculate what went wrong.

Davis Langdon Lebanon (DLL), the hotel owner’s representative during the construction phase, which ended in January of 2007, abruptly left the Hilton party when its contract was up. A spokesperson from the group declined to comment, instead referring queries to the “sole owner,” Nadhmi Auchi, chairman of General Mediterranean Holdings (GMH) — an expansive holding conglomerate made up of 120 companies in 28 countries, with more than 11,000 employees and assets worth over $4 billion. However, the Iraqi-born businessman — most well known in Lebanon for his Dbayeh landmark, Le Royal Hotel, and its Watergate theme park – also shied away from an interview with Executive after originally accepting the proposal in early July. However, Nizar Younes — the original owner of the central district land behind Beirut Souks and president and founder of Butec engineering firm, which constructed the Hilton — and the commissioned architect, Younes’ daughter, Hala Younes of Atelier d’Etudes techniques et d’Architecture Beyrouth (AETA), responded to interview requests regarding the five-star hotel’s nearly three-year delay and the tangle of legal disputes.

In 2005, Nizar says Auchi was brought in as a partner in a holding company Nizar had started, called Sharikat Al Ikarat Wal Abniat (SIWA), which owned the Hilton property in full. As construction of the $70 million hotel project neared the halfway point, Nizar says he needed extra capital. He and his brother Issam retained a 49 percent share of SIWA (29 percent and 20 percent respectively), and sold 51 percent to Auchi, making him the majority stakeholder.

Auchi heralded his new stake in SIWA in GMH’s 2005 chairman’s statement, which read: “Through subsidiaries we own controlling interest in the Beirut Hilton, located in the center of the city, which is in the final stages of construction and is expected to be ready by the end of 2006.”

Nizar claims that Auchi has the master key and is leaving the Hilton locked up until he can purge the Hilton’s management, obtain full ownership and have his Le Royal team manage the hotel instead.

On July 12, the International Court of Arbitration in Paris, under the International Chamber of Commerce, ruled that Auchi must pay compensatory damages for delaying the hotel’s opening, “which was estimated by the court for the whole period to be… around $40 million dollars,” said Nizar.

In 2007 Nizar says he sold Auchi his 29 percent share, but has yet to be paid in full, with this dispute now the subject of a pending legal battle in Lebanon in the Jdeideh Court of Arbitration.

Issam Younes has held on to his 20 percent share, despite several takeover attempts by Auchi.  AETA’s Hala Younes says that her firm’s role in the project has dragged on for roughly 10 years, starting from the original contract signed with Hilton in 2000, to court arbitration in Lebanon with Auchi over lack of payment. AETA finally received full payment in 2009. 

Hala claims that the GMH chairman was in agreement with the original layout for interior design, but later didn’t pay in full, claiming that the result deviated too much from the original agreement. 

Refuting the rumors

Among the more persistent rumors regarding why the Hilton has remained closed is that it failed to meet Hilton’s construction standards. However, on Feb 21, 2007, Hilton International headquarters sent a letter of approval to the architect’s Verdun office, confirming that the hotel’s physical structure, surfaced in acid-etched glass to protect it from the sea climate and featuring custom-made interior design, was up to par. According to Hala Younes, Solidere signed the occupation permit in January 2008, verifying that the building meets legal standards. The hotel still doesn’t have a legal permit to operate, however, as SIWA has not signed it.

If, or when, the new Hilton Beirut does open, the Lebanese can be thankful that its delay was down to simple, old fashioned business wrangling, rather than an omen of imminent war like its ill-fated predecessor; the original Hilton was due to open one day before the start of the Lebanese Civil War in 1975.  

Nizar claims that Auchi has the master key and is leaving the Hilton locked up

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Real estate

For your information

by Executive Editors
written by Executive Editors

Soaring property lending cause concern

Due to record high property sales in Lebanon during the first quarter of 2010, some analysts are urging caution for builders, developers and banks as easy credit increases in parallel to property prices.  There was a total of $2.1 billion in sales in the first three months of the year, which is a 41 percent increase compared to the same period last year, with the number of transactions reaching 22,000, according to the latest report from the Directorate of Real Estate. It is not the amount of total residential lending, but rather the sharp rise in lending that worries International Monetary Fund mission chief for Lebanon, Andreas Bauer. Speaking at the presentation of an IMF report on Lebanon in mid-June, he said: “If credit growth accelerates further, the authorities should consider capping and gradually phasing out incentive schemes that provide exemptions to reserve requirements.”  The pricing boom, driven by demand not short supply, shows no signs of plateauing, with most of the 350 new buildings to be delivered to the market by the end of 2010 valued at a minimum of $3,500 per square meter, according to a June study by Ramco, a Lebanese real estate service company. Both the Central Bank Governor Riad Salameh and Deputy Governor Saad Andary put down fears of a housing bubble. Andary told Bloomberg in June: “Out of each $100 spent on property acquisition, not more than $16 to $18 is financed by banks. The rest is hard cash, mainly from Lebanese from abroad. We have no fear from a housing bubble.” At the end of last February, loans to the sector totaled $12.2 billion when combining loans for construction, housing and rent. Pragma Group bets on Dubai

Betting on economic recovery in Dubai, the Lebanese firm Pragma Group announced in mid-July its plan to pour a total of $100 million into a major landmark in Dubai Media City, the Palladium, which opened last year. The family-run firm has already acquired the land and the building from a group of Emirati institutional investors, but won’t reveal the exact cost for the multi-functional venue, used mainly to host musical events and large gatherings such as weddings. Joe Tabet, chairman of Pragma Group, has plans to transform the Palladium into an all-inclusive entertainment center that includes a boutique hotel and several restaurants. He told The National: “A certain category of people… are not finding what they want in Dubai. They still travel to happening cities like London, New York, Kuala Lumpur to entertain themselves.” In Dubai, the group already owns The 400 Club and the Cavalli Club, and has restaurants and properties in Saudi Arabia, Syria and Jordan, in addition to Lebanon and the UAE.  

Jordan’s real estate picks up

 For the first time since the end of 2008 and the onset of the financial crisis in the region, the real estate market in Jordan has recorded a quarterly growth in the residential leasing and sales sector. Asteco, the Dubai-based property consultancy, released its ‘Jordan Report Q2 2010’ last month, showing that rents for three bedroom apartments increased 4 percent on average, while one-bedroom rents remained static in comparison to the first quarter of this year. The residential property market experienced a 1 to 3 percent rise in sales, depending on the location. The most expensive areas, Abdoun and Um-Othainah, each grew 3 percent in the second quarter, commanding up to $1,400 per square meter. Hussein Safadi, general manager of Asteco, revealed that the marginal increase was due to improved loan packages from banks. “In addition, improved and flexible mortgage facilities have gradually become available to individuals,” he said. The main reason for overall weak demand, he added, was high construction costs. Office rents have shown a quarterly decrease in rents of between 1 percent and 3 percent, depending on location.

Syrian hotel rooms set to double

By 2015, the number of hotel rooms available in Syria will almost double to 6,000, boosted by the entry of international chains such as Mövenpick, Kempinski and InterContinental in the next two years, according to a report by Colliers International.  Damascus already boasts a Sheraton, Rotana, and Four Seasons, and Syria saw its tourism sector increase by 12 percent last year, with most tourists coming from Lebanon and the wider Middle East. The report stated that more foreigners are visiting Syria due to its fairly peaceful economic and political situation, adding that it is one of the few countries in the region that skipped through the financial crisis with relative ease. The government’s go-ahead to provide accommodating infrastructure is also part of the reason for the increase. Construction projects are taking place inside and outside of the capital. In Aleppo, for example, Accor will open and run two hotels, the four-star Novotel and the three-star Ibis, in the Taj Halab mixed-use district. Taj Halab is a 200,000 square meter real estate development, operated by Bena Properties and expected to finish in 2014. In addition to the Sheraton, Aleppo also is home to the Coral Hotel & Resort. The Martini Aleppo, another hotel by Emirates-based Coral, is already being built. The report concludes that, in the short to medium term, Damascus will only have a 70 percent increase in hotel rooms, but to satisfy demand predictions, the number of hotel rooms should increase by 90 percent, which will take more than two years. The report also claims that the capital’s hotel occupancy rate was 72 percent in 2009, and predicts that religious tourism will double in 2010.

Live the eco dream in downtown

The Lebanese development group Benchmark held a groundbreaking ceremony on July 16 at the site of their new residential tower, Developers are working on plans for an eco-friendly  130-unit tower in the Minet al Hosn area of Beirut’s central district. ‘Beirut Terraces’ will be designed by architects Herzog & de Meuron, and is set to include landscaping and open spaces weaved into each uniquely-dimensioned floor. The website for Beirut Terraces claims that the tower incorporates intricate, energy-saving systems that take advantage of the city’s climate. The thick floor plates in the 25-storey building store heat during the day and release it at night, reducing the need for air conditioning. Besides the architect, the other partners in the project are Bank Med and Khatib & Alami engineers. Bassim Halaby, the chief executive officer and chairman of Benchmark, said that 20 percent of the building has already been snatched up in pre-sales and that 70 percent of the buyers were Lebanese. “We view ourselves as equally accountable toward protecting the environment and we are therefore committed to creating a sustainable development,” said Halaby, adding that space is selling for less than $10,000 per square meter. According to Zawya the total project is worth $500 million. Tower owners Benchmark, founded in 2006, own residential assets of about $1.4 billion according to World Arab, spread out between Yemen, Saudi Arabia, Morocco and Lebanon.

Abu Dhabi’s urban policy redirected

Middle income households in Abu Dhabi will be the beneficiaries of a new housing policy, which forces new residential districts exceeding 75,000 square meters to allocate one fifth of planned housing units to this group. The emirate’s Urban Planning Council (UPC) announced in July that rents for various housing structures within the targeted districts, from studios to three bedroom apartments, will be limited to 35 percent of a family’s verified middle income. To qualify as such, the income ceiling has been set at $68,608 per year. The government policy, effective immediately, does not apply to villas and town homes within these planned developments, the earliest of which will be available to the market within the next two years. There are an estimated 73,000 new homes scheduled for Abu Dhabi’s market by 2013, meaning 15,000 will be reserved for this income group, according to The National. Falah al-Ahbabi, UPCs general manager, said “We consider the provision of quality affordable housing to retain and attract skilled professional workers as an important social component in the long term strategic development of Abu Dhabi.”

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Banking & Finance

Money matters bulletin

by Executive Editors
written by Executive Editors

Regional stock market indices

Regional currency rates

Saudi Arabia to spend $100 billion on transport

Saudi Arabia is set for a $100 billion infrastructure surge, which will see 19 transport projects developed over the next 10 years. Five ports, three airports, three railways, three major highways, five logistics centers and a number of new economic cities will be developed by The Saudi Arabian General Investment Authority (Sagia). Saiga also plans to raise the capacity of Saudi ports and attract new port operators; the Jeddah Islamic Port alone has the potential to increase its capacity by around 35 percent. Meanwhile, the expansion of the Jeddah and Medina airports is underway, and the North-South mineral railway, Jeddah Metro, Mecca Monorail and the $7 billion Hamarain high-speed railway are expected to be finished by the end of 2010.

New Egyptian-Syrian bank

Banque Misr has announced that it will open a new subsidiary in Syria by the end of 2010, and will start operating in early 2011 with a capital of $220 million. Mohammad Fayed, senior vice president at the commercial bank, which is Egypt’s second-largest by assets, revealed that the new bank will be named Banque Misr Syrie. The Egyptian minister of trade and industry stated that 60 percent of the new bank will be owned by Banque Misr and 10 percent by Banque Misr Liban, with 25 percent of the shares listed on the Syrian bourse and an additional stake made available to Syrian businessmen. The Central Bank of Syria raised the minimum capital requirements for conventional private banks in January from 1.5 billion Syrian pounds ($32.9 million) to $219.8 million, and capital requirements at Islamic banks from $109.9 million to $329.7 million.

Morocco signs cooperative agreements with France and AMF

In July 2010, Morocco signed 11 cooperative agreements with France, worth some $188.3 million. The funds will be allocated to the development of the nuclear energy sector and the improvement of social welfare, fisheries, water and transport sectors. In addition, Morocco signed a 2 billion dirhams ($220 million) financing agreement with The Arab Monetary Fund (AMF) to expand the country’s financial and banking system. This arrangement aims to revive capital markets in the country and provide better conditions for banks to offer financial services.  The AMF was established in 1976 in Rabat with the objective of supporting the economic and financial system in the Arab states in order to encourage trade between them.

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Banking & Insurance

For your information

by Executive Editors
written by Executive Editors

BDL foreign assets jump

Foreign assets at Banque du Liban (BDL), Lebanon’s Central Bank, grew 6 percent from the start of 2010 to the middle of July to reach $30.7 billion, showing a $370 million rise in the first half of July alone. Total assets of the Central Bank  also increased by 6 percent in the same period, to reach $58.23 billion. According to BLOMINVEST, this rise in total assets can largely be attributed to the increasing value of gold, brought on by a rush of wary investors looking for safe bets in light of the European debt crisis. Gold reserves at the Central Bank grew 10 percent from the beginning of 2010 to mid-July, with 1.68 percent of the growth occurring in July alone. Lebanon’s gold reserves are currently worth approximately $11.5 billion.

AUDI set to grow

In continuing to spread its reach outside Lebanon, Bank Audi will be expanding its presence to the United Kingdom this year, with Tunisia and Algeria next on the list.

“We have plans to open hopefully by year-end a branch in the United Kingdom to mainly do private banking,” Chief Financial Officer Freddie Baz told Zawya. Furthermore, the bank said it would be finalizing its acquisition of Dresdner Bank Monaco in the coming weeks. The bank will offer private banking services in Monaco, southern France and northern Italy. “Our ultimate aim is to become a regional bank through cross-selling markets and business lines,” said Baz. Lebanon’s largest lender by assets already has 76 branches outside of Lebanon in Egypt, Syria, Jordan, Switzerland, France, Sudan, Saudi Arabia, Qatar and the UAE. In the first three months of 2010, Bank Audi’s net profits saw 31.6 percent growth, reaching $80.2 million.

Lebanon’s insurance market trumps in MENA

Lebanon is first in the region in terms of insurance premiums to GDP ratio for the fifth year running, despite its low penetration rate. According to Swiss Re’s “World Insurance in 2009” report, Lebanon’s insurance penetration as a percentage of GDP is 3.1 percent, trailed closely by Morocco with 2.8 percent, the United Arab Emirates with 2.5 percent and Jordan and Bahrain with 2.3 percent each. Lebanon ranked 48th among the 159 countries included in the report. Though Lebanon leads the region, insurance penetration relative to GDP actually decreased from 3.4 percent in 2008. The 3.1 percent penetration in 2009 represents $952 million in total premiums, showing an 8.1 percent year-on-year growth in total value. Insurance density, meaning premiums per capita, was $225.5 for 2009. The report also noted that the ratio of non-life to life premiums is increasing in a market already heavily dominated by non-life policies. For 2009, non-life policies yielded 75.6 percent of all premiums. This trend is even more exaggerated in the region as a whole, with non-life premiums representing 82.2 percent of the total. The report covers 12 countries from the Middle East and North Africa region, including Tunisia, Oman, Saudi Arabia, Qatar, Egypt Algeria and Kuwait. The region’s average insurance penetration remains quite low at 1.7 percent, compared to the global average of 7 percent.

Plastic preferred

The sound Lebanese economy and successful tourist season played out in the payment card statistics published by the Central Bank this month. The number of credit and debit cards issued by Lebanese banks grew 4 percent year-on-year as of April 2010, to reach 1.7 million cards. Of these cardholders 97.2 percent are residents. Payments by these residents reached $103.5 million for the first four months of the year, representing 31.4 percent growth year-on-year, a significant increase on the 16.3 percent growth seen last year in the same time period. Monthly purchases related to payment cards by non-residents increased 1.7 percent compared to last year, reaching $1.7 million. The number of ATMs in Lebanon has grown 7.7 percent with the average monthly withdrawal from ATMs per resident increasing 8.7 percent, to reach $383.1. Non-resident monthly withdrawals also increased by 12.7 percent for the first four months of the year totaling $5.6 million.

Costlier than Casablanca, cheaper than Chad

Beirut is the 80th most expensive city for expatriates in the world, according to a cost of living survey conducted by Mercer Human Resource Consulting. The study covered 214 cities worldwide and, according to Mercer, “is used to help multinational companies and governments determine compensation allowance for their expatriate employees.” In the Middle East and North Africa region, Beirut came in fourth place among the 12 regional cities included in the survey. According to the study, cost of living in Beirut is more expensive than Amman, Cairo and Casablanca but less expensive than Djibouti, Dubai or Abu Dhabi. The survey’s results are based on a comparative analysis of over 200 expenses in each city including housing, transportation, food, clothing, household items and entertainment. Housing is the most important indicator of these as it is the largest expense for expatriates. All prices are compared to the prices in New York and ranked compared to this baseline. New York is the 27th most expensive city in this year’s survey. The top five cities with the highest cost of living were Geneva, Switzerland; Moscow, Russia; N’Djamena, Chad; and Tokyo, Japan, with Luanda in Angola taking the top spot as the world’s most expensive city.

Lebanese Canadian Bank revised

In our July edition, Executive printed a story entitled “Who owns the banks?” in which we laid out the stakeholders and the board of directors for the largest banks in Lebanon in an effort to promote transparency in the sector. In regards to the Lebanese Canadian Bank (LCB), our breakdown of the stakeholder percentages did not accurately portray the current share each stakeholder in the bank owns. The following chart is the correct breakdown of LCB’s ownership.  

STAKE HOLDERS

Perpetual Holding – 48%
Mohammed Hamdoun – 10%
Leader Invest Holding – 11%
Nest Investment Holding – 8.5%
Shareholders with less than 5 percent – 22.5%

Georges Zard Abou Jaoude, Wadih Nasrallah, Makarem Makari, Edouard Zard Abou Jaoude,  Carlos Abou Jaoude, Raymond Diab, Ghazi Abu Nahl,  Fadi Ghazi Abu Nahl, Hamad Ghazi Abu Nahl, Kamel Ghazi Abu Nahl, Nasser bin Aly bin Saoud bin Thani al-Thani, Jamal Abdelrahman Abou Nahl, Trust International Insurance Co Cyprus ltd, Trust International Insurance and Re-insurance Co Bahrain, Investment Holding Co. for Jordanian Expatriates, Compass Insurance, Qatar Gerneral Insurance and Re-insurance, Nevian LCB, Eurynome Holding, Capital Holding

Commercial banks offer favorable rates for farmers

Lebanese farmers will now be able to obtain soft loans from commercial banks in the country. A soft loan is a general term meaning a loan with generous terms of repayment such as below market interest rates and extended time periods. In this case, farmers will be able to obtain loans ranging between approximately $2,000 and  $17,000 that can be repaid over a period of up to 36 months. Furthermore, these loans can be approved without collateral. These loans will also be exempt from the reserve requirements of the Central Bank, allowing banks to lower the interest rates below market rate.

“The Agriculture Ministry will give the guarantee that these applicants for loans are qualified. The Central Bank will also support this program through subsidizing interest rates,” said Joseph Torbey, president of the Association of Banks in Lebanon, who was present at the July 9 deal signing. “We want to make sure that farmers will make a profit from their business and we will be glad to give them all the advice and guidance,” said Agriculture Minister Hussein al-Hajj Hassan.

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Feature

Fadi Abboud

by Executive Editors
written by Executive Editors

Lebanon’s outspoken Tourism Minister Fadi Abboud tells it like it is and how it should be in the country’s tourism industry as he sits down with Executive for this exclusive interview. 

  • How much money is tourism expected to generate this summer?

Tourism will contribute $8 billion in 2010. It [generated] $7.2 billion in 2009.It is a fact that the kind of tourist coming to Lebanon is a high-spender. We are not geared and equipped to receive what I refer to as ‘fish and chips’ tourism. This country is not suitable for a $500 per week tourist.

The average stay is about nine days and the average [amount] spent is about $3,500. We get our numbers from Global Refund, the hotels and institutes. The numbers have been audited by the World Bank.

  • You say that the Ministry of Tourism needs a bigger budget to attract more visitors from specific countries such as Spain, Germany and Russia. How would you spend the extra cash?

Promoting Lebanon is not just about TV advertisements. We have got to be present at each and every tourism exhibition, and not as the ‘poor relative,’ in comparison to our neighbors. I want to be in Madrid, Berlin, Moscow, London: in each tourism exhibition in the world, and want the Lebanese stand to be a decent stand.

Only last week we were in the New York Times, The Times of London, and the American Express travel magazine. In the last 6 months, Lebanon was probably mentioned in every decent publication in the world. It is now the destination for the connoisseur. At this moment in England, Germany, Spain, and certainly the Arab world, Lebanon is the destination. It is very difficult to get bored in this country, as my daughter who lives in London told me this morning.

  • How do you plan to spread out tourism so that it’s not concentrated in the summer?

Religious tourism is very important. There is no other country in the world that has, within a radius of five kilometers, four Catholic saints. Most of these saints are 19th and 20th century saints, which is unique to Lebanon. The Vatican is only busy declaring saints from Lebanon!

We have Sunni sites and Shia sites. This is the wealth of this country. And it is the only country where you can do a new sport, which I call “skwimming;” it’s a combination of skiing and swimming [laughs].

We have one of the most sophisticated cuisines in the world. You’ve got the Lebanese people: the most cosmopolitan people on this earth. Even if you don’t speak a word of Arabic you can feel at home. We can think European — we are one of the few countries breeding international citizens.

  • Can the new Miss USA, Rima Fakih, help increase tourism?

Absolutely. I’m working very hard to have her come here in September and get a lot of coverage for this. I expect this and I understand that she is ready and willing. And of course we are very proud.

  • Do you feel that your reforms regarding nightlife and entertainment are being implemented? Are restaurants posting their menus outside their doors?

The law is very clear and we are working hard to enforce it. Menus should be [visible outside of premises]. There should not be a minimum charge. If there is a show, they are allowed to charge an entrance fee but to force people to spend $5,000 on a table of 10 people and pushing them to consume more alcohol is illegal. This is a country based on competition and free economy… I want the market forces to lower prices.

Some of these nightclubs are illegal, especially the ones on rooftops. They don’t even have a building permit. And certainly the owners are the son of this and the daughter of that, and every time we have to force them to behave. The music should not be that loud. People know by now that I don’t accept wassayit [influence], the Lebanese way. We are trying to bring back law and order to tourism.

  • You often complain about the inefficiency of the public sector. How much time do you spend sorting out bureaucratic issues that are unrelated to tourism?

At this point it takes 80 percent of my time. I have a unit of seven people and I pay their wages, [which costs] about $15,000 to $20,000 a month. This has made things a bit better.

To be totally honest with you, what takes me a week to finalize in my company, takes me months and months and months [in the ministry]. As an example, this ministry has the right to supervise [Casino du Liban] as much as the Ministry of Finance, by law. I wanted to experience this right. It’s been now five months, I write and no one answers.

I have to go to the Ministry of Finance and beg, which is not really my character. The Minister of Finance is a friend and I have a lot of respect for her. She is transparent and straightforward. But the people running her ministry are still doing so with the Ottoman spirit, with a bit of ‘Crème Chantilly’ on top [laughs]. To be totally honest with you, the productivity of the public sector, in my opinion, is less than 10 percent of what it should be. 

  • Are there any plans to build more casinos to attract gamblers from the Middle East and Europe? Can Lebanon realistically become a gambler’s destination?

Indeed, we need the law to pass through parliament to allow Casino du Liban to open branches, as they have a monopoly now. I am all for it — branches, Internet gambling and virtual gambling too. I am happy to open branches and not allow Lebanese to gamble [but rather foreign tourists]. You could have three or four casino branches in Lebanon, even if they are under the same management, but the idea is to let them compete with each other. 

We have a lot of Lebanese in Las Vegas and in the gambling business all over the world. We really need to bring in the professionals… to turn Lebanon into the Las Vegas of the Middle East. As a Minister of Tourism, this is a must.

At the moment, the Casino du Liban turns over $240 million. The government gets about half of that. I am sure if they will allow me to do things the way it should be done, within three or four years, we will get a billion. I will be able to increase turnover by 20 to 30 percent per annum. We can offer the nightlife, the glamour, the nice cigars… now [the gamblers] go to gamble [in Northern Cyprus] and there is no glamour.

  • Can you update us about the public-private council on tourism that you are working to create?

Still waiting. Some people in government are not convinced. We are the only touristic destination in the world without a promotion council. We had a promotional board in 1960s and I’m trying to come up with a new one for the 21st century. But I am tired of begging as if I’m begging for personal favors… if they don’t want it, so be it.

I want to bring in the spirit of the private sector but the resistance of allowing the private sector into this ministry and any other ministry is beyond me. To start with, imagine that even the first class public servants are probably earning three to four million [Lebanese] lira per annum. If we have a promotional board, we need to pay the head — if I want to attract true talent — at least $100,000 per annum. Imagine [for the public servants] someone coming and interfering and earning three times what they earn. This makes them defensive… and makes my life difficult and doesn’t allow me to have a promotional board.

  • Do you think potential investors get scared off when they see large developments or hotel projects taking much longer than scheduled? The Beirut Hilton, for example, has been ready to open since 2007 but hasn’t because of legal issues.

This can happen in any country in the world… Let’s be realistic. If we compare the time it takes to build a 300-room hotel in this country in comparison to Europe, we are taking half the time. We now have more than 1,100 five-star rooms being built, some will be ready in the next few months and some will take until the end of 2011. We have more than $4 billion invested now in tourism.

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Feature

Selling the sun

by Executive Editors
written by Executive Editors

From gas deals with Algeria to investment in Libyan oil exploration, Europe is increasingly looking across the Mediterranean to the Maghreb to fulfill its energy needs. In addition to holding vast untapped hydrocarbon reserves that will enable Europe to diversify its import mix, the region also has strong potential for electricity generation.

Bilateral energy trade continues to expand with Tunisia, Morocco and Algeria agreeing to integrate their electricity markets with that of the European Union. A deal was inked at the Arab Maghreb Union–EU Council of Energy Ministers in June for a five-year program to harmonize the regulatory frameworks for their electricity markets, as well as foster technology exchanges from the EU to the Maghreb and develop more renewable energy sources in Africa.

“Building a regional electricity market will form a base for fruitful cooperation between the two sides of the Mediterranean,” Algerian Energy Minister Yousef Yousfi said at the meeting.

By 2050, the EU wants to receive 20 percent of its electricity from North Africa, and is backing a massive solar energy scheme to achieve this target. Called Desertec, the $500 billion German project envisions covering 17,000 square kilometers of the Saharan desert with solar panels. Thus far, companies from Morocco, Tunisia, Spain, France and Italy have attached themselves to the initiative. The electricity will be carried to Europe via cables constructed under the Mediterranean Sea.

With sun and space in abundance, North Africa is a key component in the EU’s target to increase the percentage of renewables in its energy mix. According to the German Aerospace Center, solar power plants in the MENA region have the potential to produce 470,000 MegaWatts by 2050. The first pilot project for Desertec will be launched in Morocco later this year and could generate up to 1,000 MegaWatts, while the entire scheme is hoped to be up and running within five years.  “Desertec as a whole is a vision for the next 20 to 40 years with investment of hundreds of billions of euros,” European Energy Commissioner Guenther Oettinger said after the meeting of energy ministers. “To integrate a bigger percentage of renewables, solar and wind needs time.”

Electricity exports from North Africa to Europe are already occurring on a small-scale, with a 400-kilovolt power grid link now connecting Algeria to Spain by way of Morocco. In the third quarter of 2009, Sonelgaz began exporting traditional thermal-generated electricity to Europe via the link. The Algerian state energy company reportedly has a temporary surplus of 1,000 MegaWatts, which it would like to sell to Europe, but at higher prices than are currently on offer.

A second European-African interconnection is planned between Tunisia and Italy. A $2.56 billion joint venture between the Tunisian Gas and Electricity Company (Societé Tunisienne de l’Electricité et du Gaz) and Italy’s Terna will see the construction of a 1,000 MegaWatt high-voltage direct current submarine cable.

A tender for this project is expected this year, though Tunisia needs to create a profitable financial model for the concession. Slim Kchouk, the director of Siemens in Tunisia, said: “The challenge is to find a company that will negotiate in advance with Italy an advantageous price per kilowatt hour over the lifespan of the concession so that the project can be profitable.” 

Rising local demand poses a perhaps greater threat to the viability of African electricity exports prior to the completion of Desertec. According to Sonelgaz, Algerian demand is growing at 6 percent annually and projected to reach 20,000 MegaWatts by 2015, up from 11,000 MegaWatts this year. In the long term, Africa could very well wind up powering Europe, but at the moment the greater impetus will be to meet its own needs.

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