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A perversion of principles

by Michael Young August 3, 2010
written by Michael Young

Recently, The Economist took an interest in Arab autocracy, titling a leader on the subject “Thank You and Goodbye.” The premise for this statement was that the leaders of Egypt and Saudi Arabia were getting old, therefore change is coming to both countries “for good or ill.” Change is indeed coming, but the rule in the Arab world has tended to be that the more things change, the more things remain the same.

The tenor of the leader was interesting, if for the wrong reasons. After listing the advantages and disadvantages of the policies of Egypt’s Hosni Mubarak and Saudi Arabia’s King Abdullah, the magazine carried its argument into a minefield of “ought to.” It advised that the regimes in both countries ought to do this and ought to do that, without really explaining why they would want to do so, given that they have spent decades avoiding the path of rule of law, democratic elections, human rights, and so on.

 

What positive developments there were during their respective rules came on relatively non-political fronts. Mubarak has managed to bring in investment, causing the Egyptian economy to grow quite rapidly of late. King Abdullah has sought to loosen the reins of the Saudi system by expanding education and opening up avenues for internal dialogue. However, as the framers of the Barcelona Euro-Mediterranean process learned years ago, against their initial hopes, Arab regimes’ economic and social liberalizations have not generated much in the way of political openness.

One reason for this is that the business community in the Arab world has tended to avoid rocking the political boat. Prominent businesses or businessmen often have established close ties with regimes (when they are not actually also regime figures), and therefore see few advantages in challenging a profitable status quo. Income disparities in the region also tend to be great, while higher education is of relatively low quality, making it even more difficult for a middle class to emerge and challenge the order in place.

That conundrum is one reason why even usually sharp observers, not least The Economist, are obliged to resort to the circular “ought” formulation – condemned to repeat, with little expectation of a response, what the Arab world needs by way of amelioration, without which reform would be impossible.

But this circular argument also leads to a paradox, one related to revolutionary change: Arab regimes are bad, but they are often better than their likely alternatives, namely militant Islamists who would impose far worse governance systems than the ones we have today. However, for these Islamist oppositions to be marginalized, Arab regimes need to open their systems up politically and economically, to reduce the popular discontent that allows the Islamists to thrive. Yet here is where things goes sour: If regimes become more tolerant, this could be exploited by the Islamists to expand their power, and many have actually done so quite successfully at the ballot box, as in Algeria, the Palestinian territories, Lebanon and even Egypt.  Where does this paradox lead?

Greater acceptance in the West for Arab regimes that abuse their societies, since this keeps Islamists at bay; and a higher likelihood of revolutionary change, because if a regime falters — as happened in Iran in 1979 — the Islamists, having no alternatives, will embrace violent and absolute transformation.

In other words, if Arab regimes untighten their fists, stability may suffer, and if they keep the fist tightened stability may eventually suffer too, in a dramatic way. So the West, particularly the United States, which provides many Arab regimes with vital financial and economic aid, is at a loss about what to do. That’s why the Western states also have a package of ‘oughts’ in hand, though few of them are ever adopted that could threaten the regimes implementing them. 

Here is an irony: standing against those lamenting Western “neo-imperialism” in the Middle East is a reality of harsh Arab sovereignty. It is a sovereignty based on instilling the fear in the hearts of the outside world, the West in particular, that tinkering with the machine of the dictators may have terrible consequences. So Arab regimes everywhere remain free because their people are kept in chains.

August 3, 2010 0 comments
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Grand Ayatollah Mohammed Hussein Fadlallah, 1935-2010

by Nicholas Blanford August 3, 2010
written by Nicholas Blanford

Sayyed Mohammed Hussein Fadlallah was a difficult man to pigeonhole, although many tried. From the early 1980s, he became, in the minds of many, synonymous with Hezbollah and was forever described as the group’s “spiritual leader” who had personally blessed the suicide bomber who blew up the United States Marines’ barracks at the Beirut airport in 1983. It was a tag that endured, even though Fadlallah eschewed a formal role within Hezbollah.

The claim that he blessed the Marines’ barracks bomber has also been put down as a rumor deliberately circulated by Lebanese military intelligence during the presidency of Amin Gemayel to discredit the cleric.

Fadlallah, despite being a leading advocate of an activist and modernist Islamism, tended toward dispensing guidance and advice and disdained the parochial obligations of running a political institution. Yet his teachings and writings served as an inspiration for Hezbollah’s founders and he continued to wield influence from afar during the party’s formative years. Among his early followers was a skinny bespectacled youth named Hassan Nasrallah, who even before reaching the age of 10 was a regular attendee at Fadlallah’s sermons in Nabaa.

Even though the official marja (religious reference for followers) for Hezbollah is Iran’s Ayatollah Ali Khameini, it is no secret that many members of the party actually followed Fadlallah. I know of one Hezbollah fighter who was utterly inconsolable on hearing of Fadlallah’s death and in his grief made unflattering comments about Khameini.

Fadlallah was a magnificent public speaker with a showman’s knack for whipping up an audience. But in the 1970s, he faced stiff competition from Imam Musa Sadr for the hearts and minds of the Shia community. Sadr was an Iranian of Lebanese ancestry who had arrived in south Lebanon in the late 1950s and soon made a name for himself as a progressive and dynamic cleric determined to better the lot of the marginalized Shia. He established the Amal Movement in 1975.

Both Sadr and Fadlallah were brilliant orators, but there the similarities ended. Sadr was slim, tall, charismatic, enlivened with boundless energy that saw him holding meetings, lectures and sermons up and down the country. Fadlallah was short and portly, a scholastic figure who centered his activities on his Nabaa neighborhood, glossing over doctrinal differences between Shia and Sunnis and emphasizing the unity of all Muslims.

Sadr’s purview essentially was limited to the communal betterment of Shias in Lebanon within the Lebanese system, while Fadlallah advocated the creation of a modern Islamic state and espoused a universal Islam that ignored man-made frontiers.

Sadr regarded Palestinian militant activities in south Lebanon with misgivings because of the suffering it brought upon his Shia constituents, but Fadlallah embraced the Palestinian cause, considering the eradication of the Zionist state as a moral and Islamic imperative.

Sadr vanished, mysteriously and famously, on a 1978 trip to Libya. For many Shia, dismayed at the more secular direction of the Amal Movement under the subsequent leadership of Nabih Berri, it was natural to gravitate toward the bolder views of Fadlallah.

Fadlallah originally objected to suicide bombings, but changed his stance in the mid 1980s when Lebanon was in the grip of Israeli occupation. In justifying suicide bombings, he said “there is no difference between dying with a pistol in your hand or exploding yourself.” But he pointedly added that suicide operations could not be condoned lightly and that if alternative means of attacking the enemy were available then they should be used instead.

Fadlallah supported Hezbollah’s goal of establishing an Islamic state in Lebanon, but recognized that given Lebanon’s pluralistic society, the attainment of an Islamic state was an impossibility in the short term. His perspective helped shape Hezbollah’s decision in the late 1980s to reverse its outright rejection of Lebanon’s power-sharing system of governance and to submit candidates for Lebanon’s parliamentary elections in 1992.

NICHOLAS BLANDFORD is a Beirut-based correspondent for The Christian Science Monitor and The Times of London

 

 

 

August 3, 2010 0 comments
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Shifty as a desert fox

by Paul Cochrane August 3, 2010
written by Paul Cochrane

As readers of a business magazine, I am no doubt preaching to the converted, but it really does pay to scan the financial pages to know what’s going on with the movers and shakers of this world. If you had confined yourself to reading ‘straight’ news and the op-ed pages, or watching TV news for that matter, you would have missed out on the biggest media deal in the Middle East this year. A deal that has been a long time coming and is set to have major implications for the region’s TV landscape.

In February, global media ‘emperor’ Rupert Murdoch, owner of News Corp, acquired a 9.09 percent stake for $70 million in Saudi Prince Alwaleed Bin Talal’s Rotana Group, which has six TV channels and is the world’s largest producer of Arabic music.

Murdoch has been itching to get into the booming Middle Eastern market to extend his control over the planet’s media consumption, with an empire already spanning the Americas, Australia, Europe and Asia with the Fox network, the Star TV network, Sky News and a plethora of newspapers including The Wall Street Journal   (WSJ) and The Times of London. Signs of News Corp’s entry into the region started with Rotana launching two Fox channels last year. Then came the stake in Rotana, which sparked speculation that a Fox Arabic news channel was in the pipeline.

Bin Talal denied this in February, but in July the prince announced that he is to launch, independently of Rotana, a 24-hour Arabic news channel in partnership with the Fox network. Murdoch’s move into the region then took a further twist in mid-July, with news that British pay-TV broadcaster BSkyB, 39 percent owned by News Corp, is in talks with a private Abu Dhabi investor to launch an Arabic news channel.

Such developments would have previously lit up the news wires and the blogosphere, as happened when News Corp bought Dow Jones, owner of the WSJ, in 2007. Instead, the News Corp-Rotana deal seemed as if it had never happened. Few regional newspapers ran any form of commentary, and the news was nowhere to be seen outside the business pages.

Perhaps editors assumed that Bin Talal’s news channel, whenever it may launch, will have little impact, given that there are 487 Arabic satellite channels already broadcasting in the region. But one might have thought that in the Arab world, of all places, there would have been more than a muted response to the entry of a media empire that banged the drums of war louder than any other organization for the invasions of Afghanistan and Iraq, and, moreover, is rabidly pro-Zionist.

The more likely reason for the media’s silence is more alarming.  Elsewhere, when News Corp expanded, people decried the fact that media consolidation would lead to less diversity in opinions and affect freedom of expression.

Yet in the Middle East, the major media outlets and newspapers have long been in the hands of the few. Bin Talal is the biggest shareholder in News Corp outside of the Murdoch family, at 7 percent, while he owns the majority stake in the Lebanese Broadcasting Corporation’s (LBC) satellite channel and is a stakeholder in Lebanese newspapers An Nahar and Al Diyar. Other Middle Eastern media heavyweights are owned by or linked to Gulf royalty. Clearly, no one wanted to ruffle any feathers or affect future job prospects by critiquing the deal. As Bin Talal is one of the richest men in the world, Murdoch’s buy-in is not solely about further monetary gain.

The prince said as much in February: “The [News Corp] transaction is way, way beyond finance… Rotana does not need to be financed. It has near zero debt.” Perhaps when Murdoch acquires a further stake in Rotana — which he is entitled to do in late 2011, to 18.8 percent — courageous voices in the media will speak up about what a strange tie-up this is, between a Saudi prince and a media mogul whose outlets continuously bash Arabs and Muslims while offering unflinching support for Western and Israeli military aggression in the very region where he is investing.

Or, perhaps, there will just be a short story in the business pages to let us know it is, well, business as usual.

PAUL COCHRANE is the Middle East

correspondent for International News Services

 

 

August 3, 2010 0 comments
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The rial’s slow starve of Yemen

by Alice Fordham August 3, 2010
written by Alice Fordham

Yemen’s currency woes do not top global concerns. And yet the wobbling Yemeni rial, having depreciated 13 percent against the dollar since January, could have devastating consequences for the stricken nation, the ripples of which could well wash ashore through the Arabian Gulf and beyond.

When oil prices plummeted more than two years ago, Yemen’s single-resource economy took a pounding, as the government had overestimated its income and overspent. The result was a 2009 deficit around 10 percent of GDP: crippling for a country unable to borrow from international financial markets and whose primary means of raising funds is to borrow from its central bank and sell foreign currency reserves.

International Monetary Fund policy advice and some aid have reduced the deficit, but the finance ministry predicts it will still be 7.7 percent of GDP in 2010.  Further problems have come in the form of a national shortage of dollars. Yemen imports nearly everything it consumes, and a policy designed to make importing easier and more profitable saw low taxes on imported goods last year. Reliable statistics are hard to come by in Yemen, but Deputy International Planning Minister Hisham Sharaf said that luxury goods, including cars and electronics, came pouring into the country as never before. Exporting dollars for imported goods, traders have depleted dollar reserves, which stood at $6.2 billion in March, their lowest level in five years. This dollar demand consequently boosted its value over the rial.

Respected economists also allege that as much as $3 billion dollars has left the country in money-laundering activities. Political analyst Abdulghani al-Iryani, however, reckoned that sum to be on the high side, and said that the more common practice was for people to dump their rials for dollars and stash them in Dubai banks, exacerbating the dollar shortage and leaving the rial ever-more vulnerable.

Recently the rial has held stable on exchange markets, but only because the government has propped it up through drawing on some $1.1 billion in foreign currency reserves; this is unsustainable and would devour these reserves within two years. As long as the pressure on Yemen’s economy is maintained, oil supplies dwindle, gas exports remain negligible, investors are scared and no cash injection comes, the rial’s fall is inevitable.

How much it will fall is debatable: optimists hope for a gradual, controlled descent, while pessimists foresee a rush to change assets to dollars and a possible run on the banks. Even the current stability measures are harmful. Interest rates, for instance, are being held around 20 per cent, which businessmen say is preventing them taking out loans to expand or start businesses.  Given that almost all Yemen’s food is imported, food prices have risen and will rise more. Yemeni consumers are fairly thin already and will have to tighten their belts further, despite there being more malnourished children here than anywhere in Africa, with the World Food Program classifying a third of the population as “acutely hungry.”

High food prices in 2007 sparked riots. Yemen is critically unstable, and large parts of the non-urban areas of the country are ungoverned, with Houthi rebel groups in the north, an increasing Al Qaeda presence and secessionists in the south. The IMF and World Bank, along with the government, are attempting to improve the situation. The bloated civil service has had its pay frozen and last year’s Ramadan bonus was cancelled. Massive government fuel subsidies, which benefit the rich far more than the poor, have been cut slightly, and a general sales tax has been introduced targeting importers.

There is talk of helping Yemen move from an oil to a non-oil economy, encouraging fishing, mining and tourism. But these are slow, long-term changes difficult for a country hanging on the edge of civil war and bankruptcy, with dwindling income, growing population, chronic unemployment and rapidly-diminishing savings. It is also an open secret that those close to the top of Yemen’s opaque power structure benefit from oil subsidies and unreformed business laws.

Western powers worried about Al Qaeda, and Gulf countries worried about a failed state on their borders need to look to the nitty gritty of the Yemeni economy. They should use their leverage with the government to cut corruption, slash fuel subsidies and get Yemenis trained and internationally employed in Saudi to help rebuild Yemen, one rial at a time.

ALICE FORDHAM is a correspondent

 for The Times of London

 

August 3, 2010 0 comments
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American imports of influence

by Riad Al-Khouri August 3, 2010
written by Riad Al-Khouri

In praise of free trade, 19th century British politician Richard Cobden described it as “God’s Diplomacy,” bringing people together to prosper. Taking a page from his book, the United States has successfully applied this idea in the region, using trade to further political ends even as America’s traditional Middle East diplomacy stumbles.   

This regional success for America began with the launch of the Qualifying Industrial Zone (QIZ) model in the mid-90s, allowing joint Israeli-Jordanian output to enter the US duty-free, mandating 7 to 8 percent Israeli value-added input into a product as one condition for the trade privileges. QIZ resulted in massive Jordanian garment exports to America, reaching a peak of over a billion dollars annually. So successful was the model in promoting trade that Egypt got the same privilege — the Israeli component in the Egyptian case being 11.7 percent — and started in 2005 to sell textiles and apparel to the US, with those exports jumping to $764 million in 2009.

On the political side, QIZ has been another way for the US to both support Israel economically and effectively buy off Jordanian and Egyptian complicity with the Jewish state, thus furthering America’s political agenda in the region.

Investment in a QIZ is particularly attractive to industries such as textiles and clothing, which are subject to high US tariffs. Consequently, 80 percent of QIZ companies in Egypt and almost all of those in Jordan produce such articles, with big-name US buyers including, among others, Wal-Mart, Van Heusen and JC Penny. Around the States these past few months, I saw more of these products, labeled “QIZ made in Jordan” (or Egypt). This is a far cry from 15 years ago, when it was almost impossible to find Jordanian products on sale in the US, and very rare to see items from Egypt.

There were times when almost the only things our region exported to the rich markets of the West were crude oil and a few other minerals in raw form. By the 1980s, with the expansion of immigrant communities, some foods joined the list of regional exports, as Lebanese hummus and such became available on Western supermarket shelves.

The counterargument runs that selling these ethnic products is easy and ultimately a small niche, while exporting garments to be sold by Wal-Mart is a poor man’s game, so all this exporting hubbub is not really making people rich through higher value-added products.

Could this pattern now be changing? The answer from Egypt, Jordan, and a few other countries in the region seems to be yes. Egyptian QIZs are now kicking in with furniture, leather products, footwear, and glassware. Jordan, which has had a free trade pact with the US since 2000, goes beyond QIZ garment production and has started exporting a growing breadth of goods to America, including air conditioning equipment, branded pharmaceuticals and cosmetics, among many others.

Of course, the hummus and falafel mixes are still there, but in increasingly sophisticated form, and joined by higher-end goods such as spices, herbal tea, and burghul wheat — products that have also penetrated Europe Union with help from EU free trade deals with many Arab states. Not that this is a simple process: such hurdles as EU technical requirements and US Food and Drug Administration product guidelines have to be negotiated, but regional exporters are increasingly managing to comply with requirements of Western markets.

The image of a Middle East exporting only crude oil and crude hummus is fading as regional exporters manage to penetrate Western markets with a widening variety of higher value-added goods, thanks to free trade deals. The next big surprise on this score could even be the Syrians, whose commercial pact with the EU may be coming on stream soon, after which Syria’s industrial exporters will no doubt begin invading European markets.

Given the current state of the regional peace process, however, God’s Diplomacy may take a little longer to bridge the divide between Damascus and Washington.

RIAD AL-KHOURI is a senior economist at the William Davidson Institute at the University of Michigan in Ann Arbor, and the dean of the business school at Lebanese French University in Erbil, Iraq

August 3, 2010 0 comments
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Real Estate

Cityscape speaks – Damac Properties

by Nada Nohra August 1, 2010
written by Nada Nohra

Our message over the previous years has been growth, new projects, new demand, but this year it is very much construction and delivery,” says Niall McLoughlin, senior vice president of corporate communications at Damac Properties. With that message, Damac has been marketing every stage of its progress, assuring buyers and investors that the units they bought will be delivered on schedule. Last year, Damac announced that it had 11,313 units under construction. The company has delivered 3,029 in the last 12 months, and will deliver the rest by the end of 2010.

McLoughlin explains that Damac has been working with customers and transferring their investments from longer-term projects to the ones under construction or that are almost completed. “We have approached our customers on a case-by-case basis. It is a winning situation for them because they get the product earlier. It may also be a question of consolidating their portfolio to ease payment terms for them,” says McLoughlin. This strategy has been very successful, as it helped decrease potential payment defaults, which is the last thing either developers or customers want.

The company has also dedicated a new management team to focusing on customer queries, handling them case by case. “Losing a customer is not good for us, and also not good for the customer,” says McLoughlin.

Currently, Damac is not planning any news launches. The company is issuing enabling works contracts for its projects in the United Arab Emirates and Qatar. “By the end of the year, we anticipate awarding two to three main contractor works with a value of over AED 1billion [$272 million],” explains Mc Loughlin.

As for the long term, McLoughlin says the company will be looking to expand regionally, but not before the time is right. “Now the market is not ready for expansion, so our short-term objective is consolidating and constructing what we have launched,” he adds. 

 

August 1, 2010 0 comments
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Finance

Regional equity markets

by Executive Editors July 23, 2010
written by Executive Editors

Beirut SE  

Current year high: 1,200.49    Current year low: 991.49

>  Review period: Closed – June 22 at 1079.28 Points          Period Change: -1.5%

The MSCI Lebanon index trended lower in a not overly dramatic fashion in the June 2010 review period, leaving all the excitement for Lebanon’s army of devoted football fans. When compared with its high of 1,180.98 points for the first half of 2010, the index softened by just over 100 points. However, the banking sector could show off another victory with a 31% y-o-y rise in its Q1 2010 aggregate net profit of the top 12 lenders. Market cap leader Solidere scored a goal of $189 million net profit last year in a stable performance.

Amman SE  

Current year high: 2,744.07                Current year low: 2,320.14

> Review period: Closed – June 23 at 2,388.94 points          Period Change: -0.5%

Having just passed across a multi-year low of 2,320.14 on June 20, the best wish for the Amman Stock Exchange may be for this to have been rock-bottom for the market and for new stamina to appear after the disappointing first-half. Sadly, endurance training seemed to be of no help to the insurance sector, which dropped 15.2% at the bottom of market trends. Banking, industrial, and services sectors, by contrast, traded range bound with the ASE general index and banking even achieved a tick into positive territory, starting from June 21.

Abu Dhabi SM  

Current year high: 3,239.74                Current year low: 2,467.04

> Review period: Closed – June 23 at 2,551.39 Points                      Period Change: -2.0%

Abu Dhabi’s exchange has dropped a sizeable 7% from the start of 2010, though this decline is only half as steep as the plunge Dubai’s DFM took over the same period. The ADX exhibited some noticeable volatility in June and sector indices fluctuated in uncoordinated trends. The only sector index to end the period in positive territory, however, was the industrial index. Market cap leader Etisalat weakened 2.4% as Methaq Takaful and Gulf Livestock were beaten down 28.4% and 26.8%, respectively. The best gainer was Finance House, up 18.6%. 

Dubai FM  

Current year high: 2,373.37                Current year low: 1,487.93

> Review period: Closed – June 23 at 1551.19 Points           Period Change: -1.8%

The ‘lord of the dip’ award goes hands-down to the Dubai Financial Market for the first half 2010. With the halfway point for 2010 quickly approaching, the DFM was down 14% for the year to date at its June 23 close and danced around 1,500 – levels last seen in February 2009. No vigor, no football competition, no cultural happening seemed to energize the DFM, where a 10.7% climb of Aramex stock was the only upward outlier. The vast majority of shares tended to the red, as did the sector indices, except for transport. 

Kuwait SE  

Current year high: 8,140.20                Current year low: 6,528.60

> Review period: Closed – June 23 at 6,653.00 Points          Period Change: -0.7%

The fact that the Kuwait Stock Exchange closed less than one percent down in the review period cannot soften the harsh realities of the bourse’s massive slide in May, which didn’t stop until the index hit a 15-month low of 6,528 on June 15. It remains to be seen if this will be rock bottom for 2010, or if investor nerves have worn so thin that share price performance in Kuwait will fall further. Banking and industry were better than the general index; real estate and investment underperformed.

Saudi Arabia SE  

Current year high: 6,929.40                Current year low: 5,407.31

> Review period: Closed – June 23 at 6,343.47 Points          Period Change: 3.6%

After its immune system took a hit from various contagions in the second half of May, the Saudi Stock Exchange resurged in June, in a manner of speaking. Compared to its GCC peers, the SSE index was second best performer in the review period and for the year to date it is still the best student in the GCC securities college, with a 3.6% climb. Most SSE sub-indices moved range-bound with the TASI in the review period; a news-driven 23.1% spike in the Energy and Utilities index was the upward exception.

Muscat SM  

Current year high: 6,933.75                Current year low: 5,263.94

> Review period: Closed – June 23 at 6,173.33 Points          Period Change: -1.3%

The Muscat Securities Market had more losers than winners in the review period and the general index seemed to be finding its feet after two months of down pressures. While the industrial sub-index was the June market’s consistent best performer, banking had the most erratic ride. Brokerage Financial Services Co was the MSM’s best individual performer in June and shot up 19.6%, reversing a comparable drop it had suffered in May. National Mineral Water Co found no such mercy, dropping 21.6% from June 1 to 23.

Bahrain SE  

Current year high: 1,613.01                Current year low: 1,390.81

> Review period: Closed – June 23 at 1,413.19 Points          Period Change: -2.6%

Although the BSE’s bow beneath the 1,400 point line between June 15 and June 20 was merely a six-month low, and although the year-to-date performance of minus 3.1% is only the fourth worst in the seven GCC security markets, Bahrain’s investors will still be hoping the second half of 2010 bestows more blessings than the first.  While Esterad Investment fell 28.3% in the review period, a gain of 2.63% was made by Al Salam Bank – Bahrain, the period’s best performer.

Doha SM  

Current year high: 7,801.33                Current year low: 5,731.30

> Review period: Closed – June 23 at 7,072.08 Points          Period Change: 4.2%

Though the Gulf region has no team in the World Cup to bring home glory,  the Qatar Exchange took this month’s trophy for greatest market vigor. After its epic 1,250-point slide between April 13 and May 25, the ensuing gains of June made for a picture perfect V-shaped performance, albeit a V that is still rather short on the upside. The QE’s four sector indices all were positive, with insurance coming out on top as best performer. Was it because the country iterated another energetic bid to host a World Cup (2022)?  

Tunis SE  

Current year high: 4,772.39                Current year low: 3,337.48

> Review period: Closed – June 23 at 4,957.85 Points          Period Change: 0.4%

Minimal volatility and sideways trading at the ceiling of historic performance was the game on the Tunisian Exchange. The period close represented a tiny retreat, by not even 15 points, from a new index peak of 4971.35, which was scaled on June 21. The market reported a smashing success in the initial public offering of cement maker Carthage Cement. The $89 million share offering for 49.8% in the company’s stock was oversubscribed more than 13 times and the stock debuted on June 22 with a first-day change of 26.3% when compared with the issue price.

Casablanca SE  

Current year high: 12,457.59              Current year low: 9,997.56

> Review period: Closed – June 23 at 12,055.36 Points        Period Change: -0.1%

The June 2010 match between bulls and bears on the Casablanca Stock Exchange was a draw. As the impact of the downturn in most global markets in late May caused the MASI to correct from record highs of almost 12,500 points, the optimists dominated on the pitch in the first eight sessions of the review period, but the bears came back in the second eight sessions for a flat net balance. Market cap leader Maroc Telecom advanced 4.7%, and leading bank Attijariwafa dropped 1.8%.  

Egypt CASE  

Current year high: 7,603.04                Current year low: 5,229.40

> Review period: Closed – June 23 at 6,319.00 Points                      Period Change: -3.5%

The highest volatility in North African markets marked the flow of trade on the Egyptian Stock Exchange in the June 2010 review period. After a massive drop and sharp rebound between May 18 and 31 into the mid 6,500 range, the EGX 30 fell more than 300 points to June 10, recovered by almost exactly the same point score, and weakened again. Telecom Egypt managed a flat performance but Orascom Telecom lost 14.7% as analysts questioned its planned divestment from Algeria.

July 23, 2010 0 comments
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Feature

A species sinks

by Executive Editors July 17, 2010
written by Executive Editors

Blame it on the sushi. The rising popularity of the Japanese delicacy has brought the northern bluefin tuna to the brink of extinction, while at the same time profoundly altering the dynamics of fishing in the Mediterranean.

On June 9, the European Commission closed the Mediterranean bluefin tuna season, which had opened just three weeks earlier, because the annual quota had already been caught — predominantly by the ultra-efficient industrial fishing vessels sailed by Spain and France. At 13,500 tonnes, the 2010 quota was already set 40 percent lower than 2009 — a concession to environmental organizations, which had argued for a complete ban on bluefin fishing this year. For them, the European Union’s decision to halt bluefin fishing is too little, too late.

The Mediterranean’s stock of bluefin has shrunk to less than 15 percent of its original size due to overfishing.

“Bluefin tuna must be given a break,” said Sergi Tudela, head of fisheries at the World Wildlife Federation — Mediterranean. He advocates a global trade ban as the only way to ensure a sustainable tuna fishing industry in the Mediterranean. But the latest fishing ban applies only to EU countries — non-European fishermen will continue to fish the waters. Greenpeace believes that European boats will circumvent the ban by flying non-EU flags and gravitating to territorial waters off the North African coast, which are harder to regulate. 

Japan, which receives around 80 percent of the world’s tuna catch, has repeatedly moved to block an international tuna trade ban by the United Nations. Similarly, few Mediterranean countries are volunteering to give up a lucrative source of income, as tuna prices have shot up in recent years with the global popularity of sushi. A ton of the fish now sells for $1,000, up from $300 in 2005.

On the other side of the coin, declining supplies have had a deep impact on local fishing communities, especially in North Africa, where fishermen employ smaller vessels and outdated technology. In Morocco, where fishing is a pillar of the agricultural industry, tuna catches dropped 96 percent between 2006 and 2007, from 8,800 tons to 343 tons, leading to the discontinuation of local tinned tuna brand Tam. 

Some North African countries have increased measures to protect their dwindling fish resources. In April 2010, Tunisia passed a bill aimed at preventing illegal fishing in its territorial waters, where a tuna recovery program was initiated in the summer of 2009. Foreigners found fishing in these waters will be fined up to 300,000 dinars ($196,860), while Tunisian fisherman will be penalized up to 100,000 dinars ($65,620).

However, Africa remains a weak spot for the prevention of bluefin exploitation. The Gulf of Sidra off Libya, previously the largest breeding ground for Mediterranean bluefin, has been identified as the greatest site of illegal fishing in recent years, and yields approximately 40 percent of total bluefin catch.

While Libya has relatively scant fishing production itself, the country sells major European companies access to these waters. As a result, it has been one of the most vocal opponents of a bluefin fishing ban, which it believes disadvantages the developing nations that rely on the trade. 

At the Convention on International Trade in Endangered Species held in March 2010, Libya’s delegate forced a vote on the matter before any debate had taken place. The result was 68 votes against and 20 for, with 30 abstentions, clearly demonstrating that “governments are not ready to adopt trade bans as a way to protect species,” a spokesman for the UN told international press. In the minds of environmentalists, this nearsightedness has sealed the fate of the bluefin tuna. 

July 17, 2010 0 comments
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Economics & Policy

For your information

by Executive Editors July 11, 2010
written by Executive Editors

Inking free trade

Lebanon, Syria, Jordan and Turkey came to an agreement June 10 to allow the free flow of goods between the four nations. Under the deal a “Cooperation Council” will be set up to tackle long-term strategic planning and implement a free movement zone. The agreement also included the lifting of visa obligations for individuals traveling between the countries. The deal was agreed by the foreign ministers of each country on the sides of a Turkish-Arab cooperation conference in Istanbul. The statement issued also stated that Turkey and Lebanon were required to complete a bilateral agreement before the multilateral agreement could go ahead. Three days later Lebanon and Syria also inked 15 memorandums and two executive programs covering the environment, consumer protection, agriculture, tourism, culture, justice, education, higher education, economics and vocational training.

Budget steps closer to approval

After several months of delays and almost a full five months past the constitutionally mandated deadline for Parliament to ratify a national budget, the Council of Ministers approved a version of the budget that was then passed on to Parliament for deliberation. If passed, the budget will be the first the country has seen since 2005. The draft budget was first submitted in April by the finance ministry and has been heavily debated by the opposition, specifically Telecom Minister Charbel Nahas and Speaker of Parliament Nabih Berri, who raised concerns about off-budget items and budget increases, respectively.  The proposal itself contained a total deficit of $4.3 billion based on a projection of  $9.2 billion in revenues — an 8.6 percent rise on 2009 — and $13.4 billion in expenditures. A total of $4.3 billion will be spent on servicing Lebanon’s public debt, which reached $51.48 at the end of April according to the latest available figures from the Association of Banks in Lebanon, constituting a year-on-year rise of 7.7 percent. The total debt at the end of the year according to the proposed budget is estimated to reach $55.18 billion, or a debt-to-GDP ratio of 147.47 percent, based on a estimated real growth of 4.5 percent and an inflation rate of 3.7 percent. According to the Central Administration for Statistics, Lebanon’s consumer price index, the primary indicator of inflation, had risen by 4.9 percent year-on-year as of the end of May.

A new plan for power

The Council of Ministers, Lebanon’s cabinet, approved a proposal on June 21 to overhaul and reform the country’s decrepit electricity sector. The plan, originally proposed by Minister of Energy and Water Gebran Bassil in March, lays out a 10-point, four-year agenda to move Lebanon toward producing more electricity through cheaper and more environmentally friendly natural gas, as opposed to the current use of fuel oil. The plan aims to increase the country’s production capacity from the current 1,600 megawatts (MW) to 4,000 MW by 2014, and then to 5,000 MW in 2015.

By 2014 it is envisioned that the country will enjoy 24-hour electricity. As part of the plan, the loss-making sector should be breaking-even by 2014 and generate a profit the following year. This would be achieved through cost cutting measures associated with weaning off fuel oil, and increasing the tariff structure of Électricité du Liban (EDL), Lebanon’s publicly owned electricity provider. The strategy earmarks a total of $4.87 billion to boost production and will be funded by several sources: the Lebanese government ($1.55 billion), the private sector ($2.32 billion) and donor countries ($1 billion). However, for all of the elements of the plan to be implemented, Bassil notes that several decisions will need to be approved by himself, EDL, the cabinet and the Parliament.

According to the energy ministry, the Lebanese pay around $700 million to EDL every year and $1.4 billion towards the private generation of electricity.  “If we don’t decrease the debts after reducing the cost of generation, we would go to $650 million in 2014 as direct losses to the treasury,” said Bassil. Both the finance minister and the International Monetary Fund have also stated that they support an increase in the price of electricity, although Bassil acknowledged the poor and the productive sectors will probably have to be compensated in some way. The energy minister also stated that renewable energy will make up 12 percent of the energy portfolio by 2020, a target first announced by the prime minister at the 2009 United Nations Climate Change Conference in Copenhagen. He added that the high possibility of finding gas offshore was a major factor in deciding to transition to more natural gas production in the plan. A law to regulate the exploration of gas in the country was before the Council of Ministers as Executive went to press.

Broadband: almost there…

Lebanon’s telecom sector is set to receive a boost from the government’s broadband infrastructure project, the first phase of which Minister of Telecoms Charbel Nahas announced on June 15 will cost $66 million. A spokesman for the ministry confirmed, on June 22, that a request for proposals would be issued in a matter of days . In January the Minister estimated that the much-anticipated project would total $166 million, then revised that figure down to $92.9 million in April. In March, Executive cited telecommunications experts at the International Telecommunications Union, the United Nations agency for telecommunications, as stating that the project should cost no more than $40 million. Anders Lindblad, president of Ericsson in the Middle East, confirmed that the project would constitute the “highways” or the national fiber-optic backbone, but did not include the access layer — the final crucial link between telecommunications infrastructure and the user which is still being studied by the ministry. 

“This part [highways], I assume will be public sector and I think that is a sound decision because there is a lot of money going into [it],” added Lindblad.  Nahas estimated that the project would need another 12 months to be completed and stated that in the 2011 budget “there will be a displacement of the tax burden on the telecom price structure,” adding that $800 million of the approximately $1.2 billion transferred to the treasury from the telecom sector last year was in the form of taxes; in a $160 million accounting discrepancy, the finance ministry stated that the total transfer from telecoms was $1.36 billion.

Lebanon praised and chided

The International Monetary Fund has concluded their annual consultation mission with Lebanese policy makers, including the Minister of Finance Raya el- Hassan, Central Bank Governor Riad Salameh, President of the finance commission  Ibrahim Kanaan and others.  “If the trend continues, [real] growth could reach 8 percent or even a bit more,” said Andreas Bauer, mission chief for Lebanon at a press conference alongside Hassan and Salameh.  “We have to caution that despite the progress made the vulnerabilities in Lebanon are still very high,” added Bauer. “There has been little progress on the structural side to address some of the bottlenecks and to strengthen the economic institutions in Lebanon.” The mission identified two main challenges for the country: to manage the strong economy with caution to make sure potential risks such as high inflation do not materialize, and to implement long delayed reforms to ensure the sustainability of the current economic growth. 

The IMF later issued further recommendations that advised Banque du Liban (BDL), Lebanon’s central bank, to privatize its non-financial assets, including Middle Eastern Airlines and its real estate portfolio, to improve its financial balance. Bauer also cautioned that the rise in real estate prices, the sector’s expansion and the amount of credit allocated to it should be watched “carefully.”  Using the finance ministry’s latest gross domestic product estimate (year-end 2009) and the BDL’s latest available figures on loans to the sector (February 2010), total credit extended to real estate in Lebanon is equivalent to some 33 percent of the economy. Speaking with Executive recently, Central Bank Governor Riad Salameh revised upward his previous estimate, from May, that real estate constituted 18 percent of total loans in the country.  “It might be one third, in fact, of the loan portfolio but it does not represent more than 10 percent of the total balance sheet of the banks,” he said. “Therefore, [with] the liquidity being very high in the banking sector, you do not have a situation of leveraging and the risk of bubbles.”

July 11, 2010 0 comments
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Real estate

For your information

by Executive Editors July 11, 2010
written by Executive Editors

Lebanon’s real estate sector forges ahead

Total real estate transactions in Lebanon increased 39.5 percent in the first five months of 2010 compared to the same period in 2009. In that time the average real estate sale value jumped 47.2 percent and the number of construction permits rose 53.7 percent, according to Bank Audi’s June real estate report. The greatest indicator of demand, said the report, was the doubling of total real estate sales over the five months — between 2004 and 2009, average growth for this period was 19.5 percent. Lebanese residents and expatriates made up 85 to 90 percent of total demand, while the amount of sales to non-Lebanese grew by 10.7 percent compared to last year, according to the General Directorate of Land Registry and Cadastre.  Housing loans added up to $3.1 billion, thus considerably helping Lebanese residents’ purchasing power, said the report, while noting that these loans take up only 2.5 percent of banks’ balance sheets in Lebanon.

Solidere rakes in record revenue

Solidere, Lebanon’s largest property developer, recorded record revenues for 2009, hitting $336 million last year, up 17.5 percent year-on-year, according to the latest figures released on June 21 by BLOMInvest, the investment arm of BLOM Bank. The number matched BLOMInvest’s expectation of $340 million for the year and was mainly driven by land sales, which made up 91 percent of revenues. Rental revenues increased from $22 million in 2008 to $27 million in 2009, and this year are expected to draw a greater proportion of rental income in line with the recent full opening of the Beirut Souks retail project. Gross income rose 13 percent to reach $234 million, while net income grew only 3 percent, totaling $189 million, compared to $183 million in 2008. Liquidity dropped to $114 million due to necessary dividend payments and payouts for new projects.

More space to grow

Construction permits issued in the first four months of this year covered 5.1 million square meters, a 56.5 percent expansion compared to the same period a year ago, said Albert Aoun, chief executive officer of International Fairs and Promotions, at the opening of the 15th edition of the Project Lebanon exhibition last month at BIEL. Aoun, whose firm organized the event, said in his speech that the booming real estate sector in the country has not been affected by the credit crisis. Project Lebanon showcased regional and international construction, building materials, equipment and technology firms and drew some 600 exhibitors – the largest number to date by a margin of nearly 25 percent.

Noor International’s big talk in the south

Noor International Holding announced in mid June plans to build a residential project of 74 homes and 444 apartment units in the southern district of Azza, 62 kilometers south of Beirut. If construction actually begins, this will be the first project in the south of the country for the Lebanese developer, which has opened an office in Nabatiyeh. Other recently announced Nour projects include the “Cedar Island” off the coast of Lebanon and the “Arab Star Islands” off the coast of Syria, intended to offer “luxury” living communities on artificially created islands. Neither project, however, has yet to progress much beyond blueprints on a page, despite the fanfare.

Egyptian and Syrian developers join forces

Egypt’s fourth largest developer by market value, Six of October Development and Investment (SODIC), will acquire 50 percent of the Syrian developer Palmyra in a $40.5 million deal, according to a press release issued by the Egypt Stock Exchange last month. The newly formed Palmyra-SODIC, financially advised by EFG Hermes Syria, will be managed by SODIC and plans to develop several residential, retail and commercial projects in and around Cairo. “With a population of 20 million, strong economic fundamentals, an underserved real estate market and a strong and reputable partner, we are extremely optimistic about the future of this venture. We believe there’s a lot of value to be generated,” said Maher Maksoud, SODIC’s chief executive officer. Palmyra is a subsidiary of MAS Economic Group, and although it has 2.6 million square meters of land in Damascus, Aleppo, and Lattakia, its only existing project so far is a 169 villa residential compound near the periphery of Damascus, due to be completed by 2012. Real estate exchange set to open in Dubai

The first specialized real estate exchange in the world, trading asset-backed securities in the sector, plans to open branches in Dubai and London. The Irex Group, a Canadian company, announced in a press release last month that it will create and run a marketplace which will list and trade assets in real estate, functioning in a manner similar to a stock exchange. The Irex exchange branches should be open by 2012. All securities listed on the exchange will be approved and licensed by the appropriate government figures, according to the group, which is now in the process of seeking approval from the Dubai government to set up its MENA exchange branch there. Safar al-Harthi, executive chairman of the Irex Group, says that the company has been working on the real estate exchange for 10 years and is now in a position to set it up in the Gulf. “Dubai is the preferred location for the regional branch of the real estate exchange due to its infrastructure and regulatory framework,” he said, adding that the new mechanism will help developers through the credit crisis by offering financial instruments, such as real estate investment trusts, which will increase regulation and confidence among market players.

Concerns raised at real estate forum

The first edition of the Lebanon Property Investment Forum ‘Estate Lebanon 2010’ saw market experts discuss property-related issues, such as the effect of the global and regional financial crisis on the Lebanese real estate sector, property market trends in the country, regulatory framework and urban planning issues. In the first panel entitled “The Fundamentals of the Lebanese Real Estate Sector,” while most of the speakers expressed confidence in the real estate market and the health of the sector, Nassib Ghobril, head of economic research and analysis at Byblos expressed some concerns. Ghobril said he expected growth in the Lebanese property market to slow as expatriates, who used to represent a major share of the market, are finding Lebanese properties expensive and therefore may begin looking elsewhere for other opportunities. He added that there is a high level of land speculation that will hurt the market, in addition to the lack of a price index and adequate data. “No one realizes there is a bubble until it bursts,” he said.

Top award for world’s tallest tower

Less than six months after it opened, the Burj Khalifa in Dubai has won one of the Council on Tall Buildings and Urban Habitat’s awards for ‘Best Tall Building’, according to Emirates Business.  The daily also reported that service charges at the world’s tallest tower are $14.4 per square foot for residential units and $15.16 per square foot for office units. Mohanad Alwadiya, managing director of Harbor Real Estate, told the paper: “If you compare the total maintenance and service charges of Burj Khalifa to other luxurious projects in town, you’ll find that it is not the highest, which is quite impressive, as everyone was expecting the Burj Khalifa charges to break all records in terms of maintenance and service charges.”  Real estate brokers informed Emirates Business that most owners of the units, who all paid in cash, do not want to sell but would rather lease their units for now, as they expect prices to rise. Alwadiya said the current market price for residential units, capped at $1143 per square foot, is higher than the original price issued by Emaar, the Dubai developer that build the tower, which set a maximum of $980 per square foot. According to Gulf News, real estate ads are asking for $81,700 as the starting price of a two-bedroom apartment.

July 11, 2010 0 comments
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Since its first edition emerged on the newsstands in 1999, Executive Magazine has been dedicated to providing its readers with the most up-to-date local and regional business news. Executive is a monthly business magazine that offers readers in-depth analyses on the Lebanese world of commerce, covering all the major sectors – from banking, finance, and insurance to technology, tourism, hospitality, media, and retail.

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