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Eruption disruption

by Paul Cochrane
written by Paul Cochrane

Expect the unexpected” is a terrible cliche, but given the wars, natural disasters and financial crises of late, it could be considered standard procedure for our times. While a volcanic eruption was to be expected — at some point or another as volcanologists frequently warn — Icelandic volcano Eyjafjallajökull’s burst of ashy activity on April 15 caught everyone with their pants down. Military powers had developed no secret weapons able to stop it and all the ’enhanced’ airport security measures and full body X-ray scanners could do nothing to screen the threat.

As the ash cloud’s creeping tendrils closed one major Northern European airport after another, it became starkly obvious how easily aviation — the predominant means of international travel — could have its wings clipped. One day of inactivity might have been tolerable, but five was catastrophic.  The impact of the volcanic eruption was staggering: 29 percent of global aviation was grounded, 1.2 million passengers were affected, airlines lost some $1.7 billion in revenue and the International Air Transport Association (IATA) said it may take up to three years for airlines to recover.

The volcanic eruption also exposed supply chain vulnerabilities, such as Gulf supermarket chain Lulu saying they were running out of fresh produce, usually flown in from Europe.  Personally, I was scheduled to be back in Beirut April 16, returning from Tokyo via Paris’ Charles de Gaulle (CDG) airport. Instead, after the 14-hour flight from Japan, I was diverted to Lyons in Southern France, where passengers were herded onto a bus for a further seven hours on the autoroute to Paris to spend the rest of the day lining up for assistance in CDG. After that, we waited in limbo, unsure whether tomorrow the ash cloud would clear to allow for take-off.

Yet, where one pillar of the globalized world fell, another, telecommunications, stood tall to save the day.  On the second day stuck in Paris, Air France became “unwilling” to provide another night’s accommodation. I put out the word, via my Facebook status, that I was stuck in Paris and needed a place to crash until April 20, my re-scheduled departure; within an hour I received an SMS message on my mobile offering me a bed. One clear lesson for individual contingency planning is that access to cash and telecommunications is essential; judging by reports and personal experience, airlines overwhelmingly failed to live up to their legal obligations to comprehensively assist passengers during the “volcano crisis.”

Many passengers, left to fend for themselves with their own funds, took to more old fashioned means of transportation — by land and sea – to complete their connection. In my case I pondered how to get from Paris to Beirut the fastest way possible: 40 hours by bus to Plovdiv, Bulgaria, another seven-hour bus to Istanbul, and from there a flight to Beirut.  As fate would have it though, the ash cloud cleared just enough on the morning of my rescheduled flight to permit takeoff, before closing in again later in the day to silence the runways.  Had the eruption continued — as some predicted it would — adaptation would have set in, with streams of people moving up and down Europe by any means possible.

Still, this would have been far less tragic than the last big Icelandic “volcano crisis” in 1783, when the eruption lasted eight straight months, spread ash as far as Damascus, causing massive crop failure and livestock loss leading to tens of thousands of deaths.

With the spate of natural disasters to hit the world recently — from Hurricane Katrina in the United States, to the Asian tsunamis and the Haitian earthquake — one might have thought airlines and governments would have planned for a volcanic occurrence. Contingency plans, however, were not effectively in place to deal with widespread airport closures, governments dithered and insurance companies pulled the “Act of God” clause to escape claims. Few can predict when natural disasters will occur, but we know for certain that they do occur, and so it is prudent for governments, businesses and individuals to prepare.

Crises, by their nature, arrive unexpected — we should expect that.

PAUL COCHRANE is the Middle East correspondent for International News Services

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An irrelevant election

by Peter Grimsditch
written by Peter Grimsditch

The brilliant classical scholar and poet A. E. Housman had a profound mistrust of opinions that are shared by a large number of people. Even, perhaps especially, when the vast majority of manuscripts contained the same version of a line of Latin poetry, the former Cambridge University professor was dogged in pursuit of what he saw as a more likely — and correct — alternative. His views on last month’s presidential elections in Northern Cyprus would doubtless have been entertaining and scathing in equal measure.

The anonymous commentators and analysts so oft quoted (or invented) by political writers have mostly been trotting out the same, simplistic line of the likely effects of the outcome, no matter who won.

The incumbent president, Mehmet Ali Talat, was credited with holding 71 meetings with his long-time fellow trade unionist, Greek Cypriot leader Demetris Christofias, which led to a series of unofficial and unenforceable agreements between the two sides of the divided Island, which was split in 1974 when Turkey invaded after a Greece-backed coup attempt. All these would be jeopardized, ran conventional wisdom, if the so-called nationalist hardliner, Turkish Cypriot Premier Dervis Eroglu, were to win the April 18 vote. The entire process of unification for an island now in its 36th year of division would be put on hold at best and vanish forever at worst.

Eroglu won an absolute majority in the first vote, eliminating the need for a run-off the following Sunday. And with that victory, the pundits continued, Turkey’s chances of joining the European Union suffered another devastating reverse. All of this somewhat misses the point.

Turkey’s ruling Justice and Development Party (AKP) calls the shots in the Turkish Republic of Northern Cyprus (TRNC) and it made very little difference who actually won last month. Turkish-Cypriots are financially dependent on Turkey. Without the $500 million annual contribution from Ankara, the TRNC would sink into bankruptcy faster than Greece. The rhetoric from both candidates during the election was mainly for domestic consumption.

Christofias said he was ready to negotiate with whomever was elected but insisted he would not resume talks from scratch. Eroglu told supporters: “Talks will continue because I want peace more than those who say that I don’t.”

Much more significant is what Recep Tayyip Erdogan, the Turkish prime minister, had to say. His clear disdain for what he sees as disruptive tactics from the European Union was illustrated by his public description of the union as a Christian club. It may well be true that a solution to the Cyprus issue is a prerequisite for Turkish EU membership. However, rapid accession is unlikely with or without a solution, and Erdogan’s desire for an answer to the divided island’s problems has other motives. Opening the northern side to direct trade would improve its economy and eventually lessen its dependence on Ankara’s money, and a reduction in the 30,000 troops stationed there would cut Turkey’s contribution to maintaining their presence.

Even additional benefits accorded to Turkish Cypriots if they become “official” members of the European Union alongside their fellow Cypriots in the south are less than they might appear. Around 40 percent — or 80,000 — Turkish Cypriots already hold EU passports. Roughly the same number cross into Greek-Cyprus daily to work jobs that pay far more than the equivalent employment in the north.

For all the publicity surrounding the Talat-Christofias talks, nothing of worth was achieved in two crucial areas — a system of governance or a solution to the property problem. In the north, 30,000 villas and apartments have been built since the split, mainly on land owned by Greek Cypriots. Properties subject to claims by their former owners are being sold at discount prices to foreigners, perhaps unaware of the difficulties of ever securing full title to them. The land problem is not one-sided. The land that houses the old Larnaca Airport and part of the terra firma on which the new one stands belongs to Turkish Cypriots. Optimism stemming from the 18 months of meetings between politicians on both sides of the island is based on little, save an excess of shallow public relations, cheerfully and regularly trotted out by the foreign media.

Housman-style followers of useful information would do better to watch for results from Erdogan’s visit to Athens this month.

PETER GRIMSDITCH is Executive’s Istanbul correspondent

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United by farce

by Sami Halabi
written by Sami Halabi

Optimists have lauded the sight of Lebanon’s politicians playing a game of football together, under the banner “we are one,” as a sign of good faith to mark the 35th anniversary of the Civil War.  But for those of us less buoyant in nature, the sight was a slap in the face. We would rather see our public figures stop playing games and start getting serious about governing the country.

The players — a mixture of ministers, members of parliament and members of the Lebanese Football Association — managed to muster “unity” for a full 30 minutes, the duration of the match.

However, once the final whistle was blown — much to the relief of Lebanon’s heavier public figures — the youngest player and only goal scorer, Phalange MP Sami Gemayel, did little to contain his contempt for the opposing team’s captain, Hezbollah MP Ali Ammar.

“It seems that Ali Ammar’s defense strategy is a failure,” Gemayel was quoted as saying in the press, ostensibly alluding to the discussions over a national defense strategy currently being mulled at the National Dialogue sessions. 

Playing foul-for-foul, Ammar was quick to boot the ball back into the other end: “Our defense strategy is only directed against the Israeli enemy, and our team did not want to defeat the team of PM Hariri because he is the Prime Minister,” he retorted.

Notably absent from the game were the public, who have been banned from football matches since 2005 due to fears of sectarian violence pouring out into the streets. The irony of this, of course, is that some of the same politicians waddling haplessly across the pitch were the ones to stoke sectarian tensions in the first place.

Thus, with the stands empty, the absence of the public from the political field of play — from parliamentary committees to national dialogue sessions — was extended from the figurative to the literal.

The fact is that many of the player-politicians at last month’s “unity” match have done more to reinforce Lebanon’s sectarian divide through sports than anyone else, given that many own sporting clubs and/or interfere with appointments at the various sports federations.

And while our public figures kick out cash for personal prominence in Lebanon’s sporting arena, when it comes to supporting sports as a national institution — through the Ministry of Youth and Sports, for example — the ball gets deflated, with thread-bare funding for the ministry making it little more than a pawn in the greater struggle for power in Lebanon’s cabinet.

In front of the cameras, of course, the player-politicians told a different story. All agreed that sports needed to be encouraged in Lebanon, though as a former member of Lebanon’s national rugby league squad myself, as well as a development officer for the sport, this doublespeak looked clearly offside.

During a meeting with an adviser to a former sports minster, our team was promised only partial funding for travel expenses if Lebanon made it to the 2008 world cup finals; qualifiers would not be funded at all. When Lebanon hosted an international tournament in 2004 and the lights cut out in the middle of a game, then-President Emile Lahoud had to intervene to get them turned on again; a massive poster of Lahoud was later draped over the grandstand for the final, which Lebanon won against France.

If Lebanon’s politicians truly wanted to encourage sports in the country, they could start by giving the people access to “public” municipal sporting facilities — currently off-limits to those without the right political connections or money to pay.

It was the public who paid some $100 million to reconstruct Camille Chamoun stadium, only to be barred from its first event of the year, as the politicians played their “unity” match. Perhaps the referee should have given them all red cards at the opening whistle and consigned this self-congratulatory sham to an early shower.

SAMI HALABI is deputy editor of Executive Magazine

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Of politics and profits

by Riad Al-Khouri
written by Riad Al-Khouri

Iran and Turkey’s respective economic involvement in the Middle East continues to grow, but as is so often the case in our region, business is becoming mixed up with politics. A good example of this is Tehran’s relations with the United Arab Emirates, home to about half a million Iranians and one of Iran’s largest business partners in the region. Iranian exports to the Emirates increased 50 percent from 2005 to 2009, and at the same rate in the previous five years. Last year, trade between the two countries was worth some $15 billion.

Great, you might think — unless you are the United States, which has been pressing the Emirates to limit business dealings with Iran as Washington continues to place sanctions on the Islamic republic and browbeat others into following suit. Over the past few months, a series of high-ranking US officials have been sent to the emirates in an effort to promote an anti-Iranian line and convince the UAE to restrict profitable centuries-old trade across the Gulf, warning of the consequences of strong economic relations with Tehran.

The UAE is aware of the ‘reputational risk’ run in the US over dealings with the Iranians, and accordingly humors Washington — without taking the matter seriously at a practical level. The American position is that normal consumer goods getting into Iran do not undermine sanctions, but that high tech is another story — the Emiratis, however, continue with business as usual, and despite US pressure, trade volumes between Iran and the UAE look set to continue growing.

Esfandiar Rahim-Mashaei, the head of Iran’s Presidential Office, called for Iran-UAE trade ties to be strengthened on a recent visit to the UAE, stressing that “both countries have a lot to offer as key players in the region’s economy.”

Ultimately, Iran and the emirates have a mutual interest in increasing trade, and so will work to promote business co-operation, irrespective of Washington’s bluster.

The other big economy on the northern border of the Arab Mashreq is Turkey, officials of which have for the past few years crisscrossed the region to open doors for the country’s businesses. Thanks in part to these improved trade links, Turkey has seen a strong recovery  after the economic slump of 2009.

Turkey’s youthful profile drives much of its development: over a quarter of the population is under 15 years old, with only 6 percent aged 65 or older. Turkey is notably more youthful than the Eurozone countries, where 18 percent of the population is over 65 and only a sixth younger than 15. With such creaky demographics, Brussels should rush to have Turkey enter the geriatric European Union, yet Turkey’s prospects for admission remain slim.

As the EU snubs Ankara, the Turks have sought friends and business partners elsewhere, including in the Arab world. In the past seven years, while total annual Turkish exports tripled to $102 billion, sales to the Middle East grew twice as fast.

Jordan, for example, saw its imports of Turkish goods jump from $188 million in 2004 to some $386 million last year, a whopping rise, but still way below the rate at which other Middle Eastern states bought Turkey’s products. Another interesting case can be found in Lebanon’s imports from Turkey, which went up 150 percent from 2006 to 2008, though they retreated somewhat in 2009.

Finally, it must be asked if Turkey and Iran are competing economically with each other in the Arab world, especially in places like Iraq — which they both neighbor — or Syria, which shares a long border with Turkey but is politically allied with Tehran. The answer so far seems to be no, with Turkey exporting more manufactured goods while Iran focuses mainly on raw materials. So for the time being at least, Tehran and Ankara’s respective strong economic drives to the south continue, but without mutual competition.

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

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A liberty too far?

by Peter Speetjens
written by Peter Speetjens

If I were to be one country of all the countries in the world, I would be Israel, at least in terms of external relations. After all, what other country has the liberty to invade neighboring territories with impunity, bomb civilian targets, assassinate adversaries using forged Western passports, spy on its most fervent financial and military backer, the United States, and snub its vice president while he is on an official visit to the country.

Perhaps this is what former British Prime Minister Tony Blair had in mind when he told the annual conference of the American Israel Public Affairs Committee (AIPAC) on March 23: “The Middle East should regard Israel not as an enemy but as a model.”

A member of the British lobby group “Labour Friends of Israel,” Blair today is the largely invisible envoy of the “Quartet on the Middle East.”  He was not the only celebrity invited by AIPAC, which advocates pro-Israel policies to the US Congress and executive branch and is widely regarded as one of the most powerful lobby groups circling the White House — a core of American politicians and some 130 evangelical leaders also gave acte de presence. Among them was US Secretary of State Hillary Clinton, who said: “Our commitment to Israel’s security and Israel’s future is rock solid.”

Note that this declaration of “rock solid” love came less than two weeks after Israel’s Interior Ministry announced the construction of 1,600 new illegal settler homes while US Vice President Joe Biden was on a mission to Israel to revive peace talks.

Clinton’s remark came only days after the emergence of 21 declassified documents from the Federal Bureau of Investigation (FBI) that bring the 1984 AIPAC spying scandal back into the limelight. The documents concern an FBI probe into the theft of a confidential report, which compromised the Reagan administration’s position in the 1984 negotiations over a US-Israel Free Trade Agreement (FTA).

The US International Trade Commission (ITC) had solicited data, under strict secrecy provisions, from US industries concerned about reducing tariffs on Israeli goods. They were compiled into a report called "The Probable Economic Effect of Providing Duty-Free Treatment.”

According to the FBI, AIPAC obtained the report and handed it over to a high-ranking Israeli diplomat. In 1985, the US signed a FTA with Israel. Ever since, the cumulative US trade deficit with Israel has soared to some $70 billion. It was not the only spying scandal concerning AIPAC.

In 2004, the FBI arrested Jonathan Pollard, who had handled the Iran dossier while working as a political analyst under Douglas Feith, former under secretary of defense for policy, and Paul Wolfowitz, former deputy secretary of defense. Both are well-known neoconservatives, while Feith is one of Washington’s most hard-line hawks regarding US foreign policy in the Middle East. Pollard handed more than one million classified documents to Steve Rosen and Keith Weissman, AIPAC’s former policy director and Iran analyst, respectively.

In this context, it is worth recalling that AIPAC was established as a spin-off of the American Zionist Council (AZC) in 1962, only six weeks after the US Justice Department ordered the AZC to register as an Israeli foreign agency. Today, AIPAC is the beating heart of a myriad of pro-Israeli organizations, individuals and think tanks, which comprise “The Israel Lobby.”

Political scientists John Mearsheimer and Stephen Walt, who can be credited for igniting the first public debate over the many troubles and travails of the lobby, wrote that AIPAC has an “almost unchallenged hold on US Congress.” It is no secret that political careers get a boost once AIPAC support is secured. Hence, the popular annual conferences and the recent AIPAC letter calling for an end to public criticism of Israel, which was signed by three quarters of the US House of Representatives.

But the Zionists may recently have been caught poking thorns in the side of their most powerful patron: the US Army. American military circles are increasingly aware that their country’s unconditional support for Israel’s regional belligerence is compromising American initiatives in the Muslim world, and endangering the lives of US soldiers in Iraq, Afghanistan and elsewhere. Should this perception spread through the halls of American power, it may be hard indeed for AIPAC’s silver tongue to keep its shine.

PETER SPEETJENS is a Beirut-based journalist

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Society

The new riddle

by Ayman Haddad
written by Ayman Haddad

In the beginning there were three risks. Or at least that is how the pre-1970s corporate observers and academics saw it. Like many fields of science, the initial elegant simplicity was to prove deeper and more profound than those early pioneers of the field could first imagine.

The historical view of risk 

* Market risk observed that markets could fail without warning.

* Contingency risk revealed that risk lay in not having a robust and thorough enough strategic plan to engage in these markets regardless of their climate.

* Agency risk was, in days gone by, focused on the risk of a company’s management failing in its capability to deliver plans and steer a company to success.

That was the old model. More than 30 years later, it is time for a major rethink.

Leadership risk is now emerging as the most significant future management issue. The quality of a company’s leadership determines how well the company performs and how it is able to differentiate itself from the competition.

Yet, companies all over the world are finding it increasingly difficult to find good leadership talents. The types of challenges business leaders face have multiplied, the complexity of the issues has grown and broad global trends are adding variables to the equation.

In the next decade, three key “storms” are likely to come together to make the job of finding the right leadership talent tougher than ever before.

Storm 1: Population

The population of the planet has tripled in the last century to around 6.5 billion and is still growing. Projections suggest that it could hit 11 billion this century. Over 95 percent of this surge will, from now on, come from the developing world — particularly China and India.

It is expected that by 2050 the population of today’s ‘developed world’ will fall from 1.2 billion to less than a billion. The developing nations’ populations will double in this time, as will the global migration of temporary workers.

Today, China and India together account for a sixth of the global economy. By 2017 this will be a quarter, with India’s growth fuelled by education, languages and technology.

China’s  growth will be spurred by industry, resources and supply of labor. To meet their commercial needs for the next 10 years, they will together require more oil per year than Organization of Petroleum Exporting Countries has currently been able to produce each year-to-date. This level of growth requires vast resources, technical talent and knowledge.

But the real demand concern is executive talent.

China has said that to meet its business industrial needs for the next 10 years in the telecommunications and technology sectors, it must fill a deficit of nearly 70,000 executives, who will be drawn from abroad. Germany is declaring a 48,000 deficit in engineers and will also seek them from outside its borders.

This draw on talent is just one small influence on the next major source of concern: the aging population. In 2006 in the United States, two workers left the workforce for every one that entered. In short, the populations of the western world are becoming both smaller and older.

A recent Harvard Business review survey said that by 2011, 50 percent of the workforce of the western world will be over 50 years of age, rising to 80 percent by 2018.

Japan claims that by 2020, 65 percent of its financial services workers alone will be over 50. China expects that by 2050, 31 percent of workforce will be over 60 years old.

The European Union expects a work-force deficit ranging between 42 and 70 million people. The US estimates range from 32 million to 48 million. The peak will strike as the last of the baby-boomers hit 65 — the current legal retirement age in many countries.

Both regions cite solutions that include the ongoing employment of an otherwise retiring workforce, as well as significant sourcing of talent and leadership from fast developing nations. But developing nations, with their rapidly growing populations, are also in need of executive talent and will therefore have to take measures to retain domestic talent or look to the developed world to fill their requirements, thus compounding the issue.

With populations shrinking in the developed world, the work force of these nations will have to include employees above today’s accepted retirement age if there is to be sufficient support for the senior generations, which will outnumber the young.

Resetting the balance

Labor, talent and leadership will also need to come from more diverse sources. The mix of genders, ages, races, nationalities and languages is about to surge in the workplaces of developed nations.

The male-female balance is also likely to go up, and at older ages than before. A study by the International Labor Organization this year reported that 63 percent of women in the developed world are in employment today; 40 percent of them are in the global frontline workforce, while 34 percent are in management.

It also found that 25 percent of women in their 20s in Britain do not intend to have children until their 40s and 12 percent do not intend to have children at all. In Italy, a third of women in their 30s are in full-time work, but the birth-rate there fell from 2.6 in 1985 to 1.2 in 2005. Indeed, in the last 20 years, birth-rates in developed nations fell from 2.4 to 1.6, a trend that looks likely to continue.

Storm 2: Mobilization

Today, 200 million people live in countries they did not grow up in, as the laws that previously kept talent at home have become more relaxed. Fifty percent of Saudi Arabia’s 13 million citizens are under 18 and 65 percent of Iranians are under 25 — workforces in nations with declining oil reserves and, in Iran’s case, employment droughts. They will likely have to migrate.

It isn’t just international migration but intra-national as well: 120 million people have mobilized from rural to urban areas in China in the last 10 years. China is encouraging talent migration to enable learning and knowledge. In 2007, 50 percent of the planet was living in urban regions.

Storm 3: Multi-generation

So as the veterans hang on and the new generation becomes employed, we could see five generations in the workforce by 2013 of all races, genders, abilities, languages and wealth.

In October 2006, the World at Work consortium surveyed 487 organizations and over 3,000 workers around the world: 88 percent of respondents stated that the ongoing management of the multigenerational workforce was a major factor in a company’s growth and success.

A work force of diverse beliefs, cultures, skills and generations needs to be provided with the conditions in which it can succeed. We need to go back to the basics. We need to again talk to, listen to and engage with our people, like we used to.

The needs of multiple generations must be catered to, to sustain the number of employees required to service the much larger retiring population. We won’t be able to throw cash at this problem. With so few people to fill so many jobs, good wages for talent will be a given.

Thus, today’s system of cash reward will have to be bolstered by intrinsic incentives: in good times and bad, the most powerful means of attracting, engaging, developing and retaining top talent is to provide it with the conditions for it to succeed and feel successful, rewarded, valuable and influential.

It is this mindset we need to now understand again. Employee branding and employee equity is at its peak when well-led. Word of mouth spreads, and through this well-led organizations attract talent and earn loyalty.

 

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Economics & Policy

Movement for everyone

by Fares Saade
written by Fares Saade

Fueled by demographic growth, urbanization and economic development, the cities of the Gulf Cooperation Council are growing at a rapid rate that is outpacing their current transport infrastructure and services.

The United Nations forecasts that 88 percent of the GCC will be urbanized by 2025, compared to a world average of 57 percent. What’s more, an increase in income levels will cause demand for mobility to outpace even the region’s rapid population growth.

So far, this surge in demand has been largely met by private vehicles and taxis, with public transportation accounting for less than 10 percent of all motorized trips. This approach has resulted in congestion, pollution and deteriorating road safety. It threatens to slow the growth of the region’s cities and undermine the quality of life for urban residents.

To address these challenges, authorities have been making massive investments in public transportation systems; regional governments have recently announced that they will pour a combined $26 billion into metro systems, trams and monorails. However, these investments alone will not change commuters’ habits and attract them away from cars and onto public transport. Other countries’ experience shows that careful policy formulation and planning are indispensable to the success of public transportation. For the car-dependent cities of the GCC, those lessons are particularly critical.

The path to public transport

Transport authorities must be realistic about how many people will actually use public transportation. With strong car cultures and populations spread over large areas, GCC cities will have to work hard to drag drivers out of their cars.

To reach even modest success, transport authorities must consider five critical steps. Although their implementation will vary by country, each serves a common goal: enhancing the attractiveness of public transport and dissuading individuals’ use of cars.

Focus on convenience: People will not use public transportation if it is not easy to do so, and thus public transport should first aim to be accessible. The recently opened Dubai Metro is a case in point: It is still working to reach a satisfactory and sustainable level of use with plans for “park and ride” facilities and better feeds from high-frequency bus services and taxis.

The cleanliness and comfort of stations and vehicles are also important in attracting riders from all socioeconomic brackets. Finally, fare levels and structures need to balance affordability for users with transport authorities’ goal of maximizing revenues. To offset the reduced convenience of public transportation, the cost of the trip to the customer — in both money and time — must be lower than the cost of the same trip using a car.

Integration: The easier it is for commuters to ride multiple modes — for instance, bus and metro lines — the more convenient public transport becomes.

There are two main levels of integration. The first one is at the station level; major interchange stations provide commuters with access to metro, tram, bus and taxi services. Metro stations in sparsely populated GCC cities would require strong feeders, such as buses and taxis. Fares and ticketing are the second level of integration: Allowing users to pay a single fare and use a single ticket for multiple modes is another element of convenience, particularly when the combined fare is lower than the sum of the fares on the different modes.

Smart card ticketing technology has now become the standard for many metros, as it offers users the added benefit of being able to use it for parking and various small purchases, such as newspapers and drinks.

Discourage car use: Disincentives for car use are probably the best way to encourage riders to use public transportation. Recent studies have shown that urban rail systems mostly attract riders who had previously been using the bus rather than those who had been driving — unless authorities impose severe restraints on the ownership and use of personal cars.

Such measures may include limiting car ownership (via sales taxes, import duties, and annual fees) and restricting car usage (via parking charges, congestion and road tolls, and fuel taxes). For GCC cities, the challenge is substantial. Taxing car ownership and fuel is likely to be contentious in an oil-producing region accustomed to low taxes and import duties.

The dynamic management of parking space and policies that charge for it would likely prove not only easier to implement but also be better targeted to specific congested areas of city centers. A number of cities, most notably in Saudi Arabia and the United Arab Emirates, have been moving in that direction recently.

Overall, in a region where very few people use the existing bus service, restricting car usage is inevitable if public transportation is to really take off. Measures can be gradually introduced over time as public transport becomes available and convenient.

Bring in the private sector: Private- sector involvement can offer a number of benefits to GCC cities in developing or operating modes of public transport.

u The greater efficiency that characterizes private-sector operation leads to reduced government spending on subsidies for urban transportation. Other countries’ experiences show that competition for operating franchises is the primary way to reduce subsidies.

* Public-private partnerships in infrastructure projects, such as rail transport and station development, alleviate the fiscal burden on governments and facilitate the projects’ execution. There is an increasing need for better financial management of these projects as GCC governments attempt to boost their reserves and ensure fiscal discipline, despite the oil boom of the last few years.

 

* Private operators tend to have the discipline and much-needed customer orientation to ensure high standards of service quality, reflected in service frequency, schedule suitability, maintenance, image and staff friendliness.

Create an enabling institutional and regulatory framework: Few of the above-mentioned policies and measures are possible without a solid and integrated framework for planning and regulation. Public accessibility, intermodal integration and disincentives for car use require well-integrated planning between the relevant government entities. Private-sector participation requires transparent and well-developed licensing, regulations and enforcement mechanisms. This is difficult in the current GCC institutional context, which remains largely fragmented and underdeveloped. Planning, regulation and enforcement responsibilities are often distributed among different uncoordinated entities with overlapping roles and responsibilities.

However, in the past few years, a growing number of countries have been establishing integrated transport authorities with a clear mandate for planning, regulating and enforcing all matters related to surface transport and traffic management. Not all countries may want to have a single entity; nonetheless, the allocation of responsibilities and the coordination mechanisms have to be well-established.

Public transportation may not be the sole remedy for the looming mobility challenges facing GCC cities, which demand a holistic approach that includes strategies for traffic management, non-motorized transport such as walking and cycling, and the integration of transport with land-use planning. But none of these strategies will dispense with the need to develop and promote the use of public transportation. Accordingly, following these vital steps to encourage public transport use will help public transportation reach its ultimate objectives.

FARES SAADE is a principal at Booz & Company

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Economics & Policy

Regional equity markets

by Executive Editors
written by Executive Editors

Beirut SE  (One month)

Current year high: 1,200.49    Current year low: 715.49

>  Review period: Closed: March 26 – 1,119.09        Period change: 3%

The Lebanese bourse was in the volume shadows, with average daily trade values of $2.3 million in March — significantly below the turnover figures in the first two months of 2010. The MSCI Lebanon Index closed at 1,119.09 points on March 26, reflecting a gain of 3% versus the February 28 close. For the first quarter to date, the index return was a paltry 0.3%. This contrasts unfavorably with the MSCI Arabian Markets Index, whose 11.5% increase in the period from Jan 1 to Mar 26 even exceeded the gains of the Saudi Stock Exchange’s TASI.  

Amman SE  (One month)

Current year high: 2,968.77    Current year low: 2,396.28

> Review period: Closed: March 25 – 2,446.34        Period change: -0.2% 

The Amman Stock Exchange found itself at an uncomfortable distance to the positive trends exuded by regional peer markets. The close at 2,446.34 points on March 25 gave the ASE general index a minute 0.2% drop when compared with the February 28 close, but a slide at the end of the review period also means that the ASE is the only MENA bourse to end the first quarter in the red, down 3.4% year-to-date. Sub-indices for services and insurance provided bright spots on the index charts in March but the more influential industrial and banking sub-indices underperformed.

Abu Dhabi SM  (One month)

Current year high: 3,239.74    Current year low: 2,441.28

> Review period: Closed: March 25 – 2,903.92        Period change: 7.4%

The Abu Dhabi Stock Exchange baked in a balmy light that had its origins as much in the gains of the Dubai Financial Market as, ultimately, in Abu Dhabi’s financial supportiveness for Dubai’s temporary tightness last December. The banking sector did nicely with a gain of 8.6%, but this increase paled against the recovery performance of real estate stocks, where the sector index rallied 19.95% in the course of 20 sessions. The top performing ADX stock, however, was International Fish Farming Holding Co, leaping 38.2%.

Dubai FM  (One month)

Current year high: 2,373.37    Current year low: 1,533.36

> Review period: Closed: March 25 – 1,845.21        Period change: 15.8%

As if it wanted to deliver a message on the advantages of acting contrary to the horde behavior in stock markets, the Dubai Financial Market was full of optimism  in March, after the predictable state and national affirmation of debt commitments related to the Dubai dream’s funding essence. Utilities tanked 21% as real estate rose 28.5%.  bold enough to purchase Emaar shares at the pessimistic bottom on Dec 9, 2009 and selling on Mar 25, would have seen an enjoyable gain of 59%.

Kuwait SE  (One month)

Current year high: 8,371.10    Current year low: 6,391.50

> Review period: Closed: March 25 – 7,489.80        Period change: 1.5%

Banking and food provided the growth impetus on the sector side, while insurance was a negative outlier. Amidst other insurance stocks trading in moderate ranges, First Takaful Insurance Company crashed an extraordinary 45% in only two trades of 120,000 and 30,000 shares in the past 30 days. While still 1,700 points away from its 12-month high, the KSE is now the second-best share price performer in the GCC for the year to date, trending to a first-quarter gain of 6.9%.

Saudi Arabia SE  (One month)

Current year high: 6,801.64    Current year low: 4,632.51

> Review period: Closed: March 24 – 6,756.98        Period change: 5%

Thanks to appreciating 5% in the review period, the SSE could claim the distinction of being the region’s first market that achieved a double-digit gain in 2010 and was up 10.4% for the year to date. Construction, petrochemical and industrial sectors led the rally in March. Sub-indices of sectors that moved lower since the last close in February were insurance, media and multi-investment. The market close on March 24 represented an 18-month high.

Muscat SM  (One month)

Current year high: 6,813.20    Current year low: 4,575.99

> Review period: Closed: March 25 – 6,779.20        Period change: 1.3%

The Muscat Securities Market closed at 6,779.20 points on March 25, representing a 1.3% gain from the last close in February. Banking was the best performing sector index. As the MSM in late March breached the 6,700 points level for the third time in the past 12 months, bourse metaphysicists may have been motivated to test their insights about the psychological import of the 7,000 points barrier. For market participants with an earthly orientation on share price performance, it may have been more inspiring to note that the MSM index has been inching toward the 7% gain for the year to date.

Bahrain SE  (One month)

Current year high: 1,681.28    Current year low: 1,413.28

> Review period: Close: March 25 – 1,528.46          Period change: 0.7%

With the island kingdom’s vigorous PR campaigns focusing on Bahrain’s pole position for doing business in eastern Saudi Arabia, and with the remaining global attention span consumed by the Ferrari F1 desert win spectacle, the Bahrain Stock Exchange was the relative underperformer in the March 2010 GCC stock price race.  Banking and insurance provided the positive highlights. Ahli United Bank was the star performer in March, climbing 10.2%. The BSE first-quarter gain margin, while a respectable 4.8%, was underperformed only by the DFM.

Doha SM  (One month)

Current year high: 7,624.45    Current year low: 4,810.00

> Review period: Closed: March 25 – 7,413.76         Period change: 7.9%

From a perspective that performance stability and equality ought to be a GCC markets good, the Qatar Exchange was very fortunate in March. That gain lifted the year-to-date performance of the QSE to 6.5% – out of the red and into a happy first-quarter performance trinity with the Omani and Kuwaiti exchanges. All QSE sector indices followed the uptrend in March, although banking and services excelled among them. The single scrip to suffer a double-digit weakening in the March review period was the Qatar Cinema and Film Distribution Co. 

Tunis SE  (One month)

Current year high: 4,743.05    Current year low: 3,080.88

> Review period: Closed: March 26 – 4,693.45        Period change: 0.4% 

The leveling of performance by the Tunisian bourse’s Tunindex continued in March and the index close of 4,693.45 points on Mar 26 represented a gain of 0.4% from the last close in February. On a quarterly basis, however, the TSE’s impressive year-to-date gain of 9.4% has been eclipsed only by the SSE. Real estate developers Simpar, which jumped 52%, Attijari Leasing Co (24.6%), and insurer STAR (17.2%), were the other top gainers in March. In April, the initial public offering of insurer Tunis Re can be expected to create a buzz and draw interest to the market.

Casablanca SE  (One month)

Current year high: 11,729.86  Current year low: 9,997.56

> Review period: Closed: March 26 – 11,228.49      Period change: 1.2% 

Real estate firm CGI was top performance dog with a gain of 18.8% in the review period; paper maker Papelera de Tetuan was the underdog with a 14% share price weakening. Against the general assumption that the future of the Moroccan exchange resides in a substantial increase in the number of listed stocks, an unconfirmed media report on March 27 said the Groupe ONA conglomerate and its largest shareholder, SNI, plan to merge into a single holding company and delist.  

Egypt CASE  (One month)

Current year high: 7,249.55    Current year low: 3,193.94

> Review period: Closed: March 28 – 6,765.26        Period change: 2% 

Volatility of 23% in the Feb 28 to Mar 25, 2010 review period and a feeble 2% gain  stained the Egyptian Stock Exchange’s first quarter performance — even as the EGX’s overall first quarter gain of 9% remains nothing to scoff at. Losers outnumbered gainers in March and of the three market cap leaders, only Orascom Construction had a good share price performance, up 11.3% in the review period. Telecoms heavies OTH and TE dropped 5.5% and 11.7%, respectively.

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Economics & Policy

For your information

by Executive Editors
written by Executive Editors

Public Debt grows though defect slows

The latest figures on Lebanon’s gross public debt as Executive went to print, showed an increase of 1.1 percent in January to $51.6 billion, according to Byblos Bank. The figure is a 9.9 percent increase compared to the same period in 2009. Domestic debt also increased some 16.6 percent this year, compared to January 2009, totaling almost $30.4 billion, with foreign debt increasing just 1.5 percent to $21.3 billion over the same period. Local currency debt accounted for 3.4 percent more of the gross public debt than it did at the end of January 2009, at 58.8 percent, signaling a continuing trend toward denominating debt in local currency, which makes it easier for the government to mitigate currency fluctuation concerns. Other promising fiscal signs emerged in January when the fiscal deficit for the month reached $17.7 million compared to the $300 million posted a year earlier. Debt servicing also decreased 26 percent year-on-year to $212.5 million in January, making up 27.6 percent of total expenditures during the month. Lebanon also scored a primary surplus of $201.2 million in January compared to a deficit of $7 million in the same month last year.

Banks propose NDIC buy-out

The Association of Banks in Lebanon have floated the idea of buying the Lebanese government’s share of the partly state-owned National Deposit Insurance Corporation (NDIC) for around half a billion dollars. The NDIC is half government owned, with the other half belonging to commercial banks. In theory, the government is supposed to inject $50 million a year into the corporation but has not paid its dues since 1996, making it liable for some $700 million dollars. The proposal would exempt the government from its dues and result in the banks paying $550 million to acquire the entity this year. The banks will pay the government a further $150 million in the coming two years, while the banks would continue to manage the operations of the NDIC along with the Banque du Liban, Lebanon’s central bank. The proposal would require the law covering the NDIC to be modified or a new law to be passed. 

Son of Lebanon tops Forbes rich list

Forbes has released its annual list of the world’s billionaires, 12 of whom were Lebanese or of Lebanese origin. Topping the list  with a fortune of $53.5 billion was Mexican Carlos Slim, whose father is Lebanese. Coming in at 64th richest person in the world, worth $10 billion, is Brazilian Joseph Safra, whose family originated from Aleppo, Syria, before moving to Beirut after World War II. The list also showed that Bahaa Hariri, the older brother of Lebanon’s Prime Minister, was $100 million richer than the previous listing with a fortune of $3 billion. Bahaa Hariri was followed by former Prime Minister Najib Mikati and his brother Taha who each had a net worth of $2.5 billion. Lebanon’s Prime Minister Saad Hariri also increased his personal fortune, with an estimated $1.9 billion fortune to his name, up from $1.4 billion in the previous rankings.

Policy quagmire to slow economic potential in 2010

Barclays Capital has indicated that Lebanon’s gross domestic product will likely grow 6 percent in 2010. The investment bank stated that real GDP growth in 2009 was more than 8 percent and attributed the slowdown to a fall in consumption. Barclays also expected a rise in both public and private investment to help spur the economy. The bank expects inflation to hit 4 percent this year on the back of higher oil prices and a possible increase in value added tax. Capital inflows are expected to remain steady while remittances are expected to climb. As such, Barclays expects that the current account deficit will be trimmed from 9.1 percent in 2009 to 8.6 percent in 2010.  The banking sector is also expected to do well but will fall relative to last year, with deposit growth projections coming in at 15 percent over the course of 2010 compared to more than 20 percent growth in 2009, according to the bank. Barclays also indicated that the toughest challenges for Lebanon’s economy would be the ability of its policy makers to enact reforms to begin to deal with fiscal problems, which it reckons will see the deficit widen to 11 percent of GDP from around 9 percent last year. It also predicted that the debt-to-GDP ratio would remain constant at 154 percent, due to the lack of reforms at the state-owned Electricité du Liban maintaining its weight on government finances. 

Up or down, take you pick of inflation statistics

According to the Consultation and Research Institute (CRI), a private consulting firm, February saw real prices in Lebanon deflate. Throughout the month, the consumer price index (CPI), the premier indicator of inflation, fell 0.26 percent relative to January. However, according to the Central Administration for Statistics (CAS), Lebanon’s official body for the collection of economic data, the CPI in February 2010 rose 0.5 percent relative to January, carried by increases in the price of transportation (14.6 percent), housing (6.1 percent) as well as water, electricity, gas and “other fuels” at 5.5 percent. Yearly inflation also differed widely between the two organizations with CRI estimating that year-on-year prices in February showed an increase of 6.08 percent with a 12-month CPI moving average of 3.17 percent, while the CAS recorded a CPI rise of only 2.9 percent. According to Byblos Bank, 70 percent of Lebanon’s inflation is caused by the increased price of imports.

Energy Ministry plans EDL reform

Figures from the finance ministry have stated that in 2009, Lebanon spent $1.5 billion on the state-owned Electricité du Liban (EDL), with 94.4 percent being spent on fuel oil and natural gas to generate electricity.  The total amount of transfers to EDL in 2009 were 7.1 percent lower than in 2008, due to a decrease in both debt servicing (-18.1 percent) and reimbursements (-6.3 percent). Most of the decrease was attributed to a fall in oil prices last year compared to all of 2008. Gas oil expenditure in 2009 increased 26 percent while fuel oil decreased by 1 percent relative to 2008, signaling the beginning of a shift toward cheaper gas-based power generation. EDL expenditures also constituted 20.4 percent of primary government expenditures in 2009, 4.8 percent lower than in 2008. Lebanon’s energy minster has also proposed a 10-point plan to reform the energy sector in Lebanon. The plan proposes providing short-term power solutions to cover for the upcoming summer season when electricity consumption peaks, rehabilitating old power plants in the medium-term, preparing a plan to allow independent producers to generate 5,000 megawatts of power by 2015, diversifying energy resources by shifting to liquid and natural gas plants and employing renewable energy, expanding the energy transport network, improving distribution and collection, installing remote counters and restructuring tariffs. A committee was also formed at the ministry to resolve outstanding issues between EDL and electricity concessionaires.

Tourism sector set for further growth in 2010

The World Travel and Tourism Council (WTTC), a global travel and tourism industry forum, has estimated that tourism in Lebanon will directly contribute 13.3 percent of gross domestic product over the course of this year. The council stated that $4.39 billion in revenue would be generated through tourism, with direct industry employment accounting for some 199,000 jobs and constituting 13.7 percent of total employment in 2010. The WTTC also indicated that indirect contributions to the Lebanese economy coming from tourism would constitute 37.6 percent of economic activity and generate some $12.39 billion. According to the WTTC, Lebanon is currently globally ranked 13th in terms of the share of travel and tourism employment in the country’s job market, but ranks 42nd in terms of expected real employment growth in the sector over the next 10 years. Last month, Lebanon’s tourism minister also stated that the sector would grow by 10 to 20 percent this year, and reassured the public that there would not be a war with Israel.

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Economics & Policy

Running out of steam

by Sami Halabi
written by Sami Halabi

Of the five pillars of Islam, making the pilgrimage to Mecca was perhaps the most testing for those who lived in the time before planes and cars. Each bodily able Muslim who sought to enter heaven would trek through the sands of the Arabian Peninsula by camel caravan, braving the scorching summer sun or the freezing winter nights; from Damascus, this pilgrimage could take two months.  Then, in 1864, at the height of the Ottoman Empire, the Arab world’s Turkish masters proposed a grand idea. A waqf, or sacred Islamic donation, would be opened to all Muslims of the world to fund the Hejaz Railway, which would extend from Damascus to Mecca and allow travelers to make the trip in four days, and for less than 10 percent of the price.  Fast-forward to today, and the thoughts of current Arab rulers are on the same track as their northern predecessors. The Gulf Cooperation Council has decided that they will build a joint railway to link their countries. While the advantages of such a scheme would be enormous, especially in the commercial sense as the project is envisioned to be a cargo route first and a passenger route second, deciding that something should be done and actually doing it are proving to be very different matters.

Hard to decide

Planning for the railway began to gain steam in 2004, when the GCC Technical Committee’s (GCCTC) transport department, the body overseeing the project at the regional level, commissioned a preliminary study carried out by the American firm Parksons Brinkerhoff and the Kuwait-based Global Investment House. The study eventually proposed two routes for the project. The first would have run from Kuwait through Saudi Arabia to Bahrain, connect to Qatar via a new bridge over the water, then reach the United Arab Emirates and Oman. The second route ran from Kuwait to Oman overland and through Saudi Arabia and the Emirates, with a connecting track to Qatar and Bahrain; the latter plan eventually won out. 

In February 2007, a consortium led by Systra of France, Khatib and Alami of Lebanon and Canrail of Canada was asked to perform a feasibility study covering topographical and statistical data, integration, financing and development options, legal models, as well as passenger and freight configurations.

The study, described as an “economic feasibility study” by a source who is part of the consortium and spoke on condition of anonymity, did not cover the potential problems that could ensue from the fact that every nation, which would be designing, funding, and implementing their own part of the project, also had the right to change specifications in its own territory.

“It was the case that the design would be done under the supervision of the GCC, but now the countries are seeking to design their own respective projects,” says Ibrahim al-Sbeiteh, director of transport at the GCCTC.

This is not the only issue that has led some to question the project’s feasibility.

“The multiple delays that we are seeing right now in the GCC rail network are probably also due to some liquidity problems that are down to the [financial] crisis,” says Philippe Dauba-Pantanacce, senior economist on the Middle East and North Africa at Standard Chartered investment bank.

The freedom to delay

Unlike the Ottomans, who had the luxury of administrative control over the entire area of the Hejaz, the authority of each country over their segment of track and the fractious nature of GCC decision making has made progress less than steady. Since the feasibility study was completed and approved by the GCC in December 2008, little headway has been made and divisions have begun to appear in other areas.

For example, the Gulf countries have still not implemented the common customs union that was agreed in 2003. Meanwhile, the prospect of a GCC monetary union that has been in the works for more than a decade was dealt a severe blow last year when the UAE decided to pull out, ostensibly angered when the council decided to host the Gulf central bank in Riyadh instead of the Emirates. Oman decided not to commit back in 2006.

“As we have seen in the GCC monetary union project, there are a lot of political hurdles within the GCC that constitute barriers to progress in these projects,” says Dauba-Pantanacce.

So, if track record is anything to go by, the planned completion time of 2017 may be little more than a chimera. The source on the consortium said the current completion date in 2017 would be pushed back. Construction was slated to start this year, but the project is still in the engineering design phase and, according to Zawya, companies are only expected to be prequalified for contracts this September, with detailed design contracts to be awarded in December during the GCC summit in Abu Dhabi. 

The devil is in the details

In order for detailed design contracts to be awarded however, each country will still have to decide on the route that the track will take through their respective territories. Except for Saudi Arabia, which has already started its own national railway development, GCC states have yet to define the parameters of their respective railway segments.

A further cause of concern is the status of the world’s longest marine causeway between Bahrain and Qatar, which is jointly funded by both nations. In June, Reuters reported that the 40-kilometer, $3 billion project had been suspended “amid escalating costs and increased political tension,” with a sizable portion of that extra cost due to the decision to fit the causeway with a railway as part of the GCC common rail project.

The report was later denied by the assistant undersecretary for financial affairs at Bahrain’s Ministry of Finance and chairman of the Qatar-Bahrain Causeway Foundation, but such complications do little to inspire confidence.

Diesel or gas: fuelling the divide

Because the railway was envisioned as more of a freight project than a passenger one, the speed and volume at which goods can be moved through countries is of utmost importance to the eventual linkage and completion of the project.

According to the consortium source, the $25 billion estimated cost was based on a diesel powered standard speed across the railway. But the newest proposals by Qatar and Oman to opt for an electric line could throw a spanner in the works and bring the project back to the drawing board.

The shift is significant because of several factors. Despite sitting on some 23 percent of the world’s know gas reserves, the GCC, with the exception of Qatar, is facing a gas shortage due to rising demand primarily associated with power generation. Qatar opting to run an electric train is precisely the kind of wildcard that could see the project’s financial and technical scope become increasingly more complex to implement, not to mention the political tensions such a move would stoke.

“They [GCC nations] will have some difficult tasks to resolve, mainly on the processes, the support, the interoperability, and potentially on investment priorities. Interoperability will be the most important thing to agree on, at the GCC level,” says Ulrich Koegler, partner and member of the leadership team for Booz & Company’s Middle East transport and infrastructure practice.

“If you don’t have interoperability, at the end of the day you have truncated networks,” adds Koegler.

That prospect would also entail some costly fixes in order to accommodate a common network that meshes with individual country needs. Ostensibly, the reason Qatar and Oman need electric trains is because they are more interested than the other countries in the high speed passenger oriented options that such trains offer.

GCC rail map

The economic feasibility study which was approved by the GCC was prepared on the basis of a speed of 200 kilometers per hour, which is around about the maximum speed possible with a diesel-powered train. Anything above that will require electric power. And the faster you go, the more you pay. 

Speed or strength

The hitch is that ‘double stacking’ — the rail industry term for having two containers stacked on top of each other as opposed to one — is not possible on electric trains. Since the project was only deemed viable because of its economic advantages relating to freight, the use of electric trains throws the entire economic feasibility of the project into question.

Possible solutions to this issue include switching trains and containers at stations, or building separate tracks to accommodate for high-speed electric trains that would be used for passenger transport; the former would add significantly to time spent passing between stations on opposite sides of a border, while the latter would entail considerably higher costs. “The most important thing for us at the GCC project is that the specifications are the same and the timing is agreed upon — that’s all,” says Sbeiteh. “The tendency now is that the GCC line will be diesel with the exception of Oman and Qatar. The Qataris are envisioning that they will need another track for diesel.” The increased expense of the double-track plan could cause total costs to mushroom and threaten the overall scheme’s completion.

“Do we want to first put more money in a common railway system instead of, for instance, diversifying our economy?” asks Standard Chartered’s Dauba-Pantanacce.

Paying for it all

Ultimately, without a concrete cost figure, governments in the region will be hard pressed to allocate large amounts of money to projects that are contingent on others doing the same, though if the regional railway is to work at all, they will have to do just that.

“Rail is a massive investment and you will find very few companies willing to fund it, even if there is a subsidy or [service] availability model over many years because the amount of uncertainly… is transferred to the private sector,” says Fares Saade, principal with Booz & Company and member of their transport, engineering, and services practice.

The liquidity situation is also not homogenous across the region. Saudi Arabia is still flush with liquidity and knows that it will have to put up the lion’s share of the cash, according to Koegler.

Foreign funds

Countries with tighter liquidity conditions, such as the UAE, may consider offers such as the one made in June by the International and Commercial Bank of China, in conjunction with Beijing’s railways ministry, to offer financing, export credit and advisory services to the UAE. It now seems likely that they may use this option, as the UAE National Transport Authority and the Chinese government signed a memorandum of understanding to develop technical and regulatory aspects of the country’s railway in May.

Qatar has also signed a joint venture with Deutsche Bahn International to form the Qatar Railways Development Company (QRDC), which boasts initial capital holdings of $25 billion and constitutes the largest offshore commercial deal for the German railway giant. The Qatari government will own 51 percent of the company through Qatari Diar.

Kuwait seems to be the only country in the region that will opt for public-private partnership (PPP) arrangements, after starting an office to begin tending for such projects, says Koegler. “A rail system will have low or negative returns if you don’t take the socioeconomic benefits into account; and of course private players cannot play on socioeconomic benefits,” he concludes.

Then there is always the option of another waqf, but unlike the Ottoman attempt to fund its rail, this one might carry interest.

“If they don’t finance it through a direct injection of money and they go through issuing bonds, I think that would be creatively the most appropriate way to do it,” says Dauba-Pantanacce. “Having longer-term bonds in line with long-term cash generation projects like a railway is the most sound, recognized and applied methodology that we have seen elsewhere.”

Getting people to use it

Even if the technical, financial and political hurdles are overcome, the challenge of getting people out of their cars and onto the train will be a formidable one. Today, the only piece of mass overland transit in the GCC, the Dubai Metro, is still eerily empty for most of the day.

“There will definitely be a cultural reluctance from the local population to heavily use public transportation to make a long distance trip [of] more than two hours, because they have not been used to that,” predicts Dauba-Pantanacce.

Without the religious allure of the Hejaz railway’s final destination (which it never reached, getting only as far as Medina), a passenger element to the GCC railway will be little more than a convenient ‘add-on’ to the cargo element. But like the Hejaz, time and money will be the defining factor of how successful the project is.

It took the Turks and the rest of the Muslim world 44 years to build their most famous railway. The question is: how long will it take the Arabs to agree to do the same?

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