Economics & Policy

Syria’s stable economic outlook

by Executive Staff
written by Executive Staff

The impact of the global economic downturn on the Syrian economy has been “relatively limited,” according to a report released last month by the International Monetary Fund. “Overall real gross domestic product growth is estimated to have decelerated in 2009 by 1 percentage point to about 4 percent. This reflected a slight increase in oil production and a decline in non-oil real growth by 1.5 percentage points to about 4.5 percent over the course of the year. Lower growth in manufacturing, construction and services was partially offset by a moderate recovery in agriculture,” the report stated. Unemployment was seen to have risen to 11 percent in 2009, according to the IMF, after hovering around 8 to 10 percent over the past four years. Conversely, inflation registered at just 2.5 percent in 2009, on the back of falling commodity prices, after reaching levels of around 14 percent in 2008, according to the IMF’s analysis. The fund also estimated that the fiscal deficit widened by 2.5 percent of gross domestic product to 5.5 percent, but that this “was appropriate to mitigate the impact of the global crisis,” cautioning that “fiscal consolidation is necessary going forward.”

Shoppers at the old al-Hamidiyah souk in Damascus will help Syria </p> </div> </div> <div class=

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Editorial

Oblivious to oblivion

by Yasser Akkaoui
written by Yasser Akkaoui

It doesn’t take a massive intellect — just common sense — to realize that the link between security and prosperity is inextricable. In the Middle East, one might have thought that experience would have borne this out, and yet many nations still don’t calculate the effects of the increased risk — the “value at risk” in financial jargon — on people’s livelihood.

Take Lebanon, a country famed as much for its business acumen as its knack for self-destruction. In mid-February Hezbollah Secretary General Hassan Nasrallah taunted Israel, threatening a tit-for-tat retaliation if the Zionist state launched a preemptive strike against his party’s armed wing. A week later Iranian President, Mahmoud Ahmedinejad, after a meeting with his Syrian counterpart, Bashar al-Assad, dared Israel to attack Lebanon. He also promised apocalyptic consequences.

Isn’t it telling, when a foreign leader allows himself to threaten war by proxy? Then again, who can blame him for trying? The same night after Ahmedinejad’s speech, Israeli jets flew over Lebanese airspace without as much as a whimper from the government. The event, a clear violation of international law, only made the “News in Brief” section of the local press, a reaction underlining the risks to Lebanon, its people and its economy.

The fact remains that Lebanon is a country in denial. It does not understand that unless it shakes off the mantle of conflict and instability it will be nothing more than an edgy playground, popular with Gulf tourists who are happy to vacation here, but who would be less enthusiastic at the prospect of actually living in Lebanon, or having major assets tied-up in the place. In short, our potential to woo foreign direct investment is not being realized.

Across the Gulf in Dubai, the Arab-Israeli conflict made more glamorous headlines when it was revealed that an alleged Israeli hit squad had been exposed by the United Arab Emirate authorities and accused of murdering Mahmoud al-Mabhouh, a senior Hamas official.

Whether it was the incompetence of the alleged assassins or the sleuthing skills of the local investigating authorities, the fact of the matter is that Dubai sought to protect its brand equity, investment potential, reputation — call it what you will — by not wasting any time in exposing international skullduggery within its borders. That it did so quickly and transparently has probably mitigated much potential long-term damage. One thing is for certain; any attempt to turn the Emirate into a new Beirut has failed.

But in Beirut, the denial lives on.

Considering the costs of the last war in 2006, if Ahmedinejad wants to buy the right to include Lebanon in his strategic master plan, the minimum entry into such a high stakes game should be $10 billion, held in escrow at the Banque du Liban. We may need it.

Yasser Akkaoui

Editor-in-chief

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Real Estate

Haircut and a house, Madam?

by Nada Nohra
written by Nada Nohra

 

Georges Jebran, a 57-year old hairdresser who owns a salon in Mar Mikhael, Beirut, considers haircuts for his customers his top priority. But for the last six years, he has also been working as a real estate broker. Jebran became involved in the brokerage business because real estate makes “good money.” He knows many foreigners and speaks several languages, both of which he considers to be requirements for the job.

Bassam Mitri, a full time broker for the last 20 years, said he also entered this business because he likes “fast profit.”

“People like to work as brokers, because you sell something and make money without spending a penny,” he said.

What Mitri and Jebran have in common is that they both work independently. They do not work at real estate companies and have acquired their skills from personal experience. Mitri added that because of the absence of a syndicate to regulate the market and give licenses, a broker has to earn credibility with hard work over an extended period of time.

Real estate brokerage is a profitable business that many have entered on a full or part-time basis, from bankers and lawyers to hairdressers and concierges. What differentiates the real estate market in Lebanon from the West is that the former is not subject to regulation — brokers are not required to be registered or have specific education or training, and therefore buyers sometimes trust people who claim to be credible brokers but have no market experience.

Consequently, buyers who fail to do their own due diligence before completing a sale can easily fall victim to an inexperienced, fraudulent or deceitful broker.

“Everyone in Lebanon is a broker,” said Karim Makarem, director at Ramco real estate advisory. “Even at the top end, be it in politics, banking, lawyers…they are all trying to play the game.”

Makarem warned of the dangers of taking advice from these seemingly more reputable, yet often inexperienced sources.

“If the concierge is advising you, then you are more likely to check what he is saying. But risk arises when someone from a well-established position is advising you,” said Makarem.

“The number of deals that I have done with bankers and lawyers earning commission is frightening,” he added.

The Khaleeji risk factor

Four out of five real estate cases that go to court in Lebanon involve citizens from Gulf Cooperation Council countries, said Tony Tebchrany, a lawyer who has handled many such cases.

He said Gulf residents were more susceptible to fraud for two reasons: first, they are usually wealthy and buy expensive real estate, which makes the fraud more worthwhile; second, their limited knowledge of the Lebanese market, prices and areas puts them at higher risk.

“There are a few major investors from the Arab world who I have come across that have had a very bad experience in Lebanon due to brokers who have misled them and made them overpay,” said Ramco’s Makarem.

While overcharging for land or property is underhanded, it is less malicious than cases where so-called brokers in Lebanon have swindled Gulf clients into thinking they were purchasing a certain expensive plot of land, when actually they were buying a low-value plot in another area.

As an example, Tebchrany outlines a case where a Lebanese “broker” told a Gulf Arab client of a beautiful plot of land in the Jbeil area of Mount Lebanon. The client was interested and so the broker showed him a 4,000 square meter hillside plot with a beautiful beach view and asked him for $400 per square meter.

The client liked the land and contacted his Lebanese lawyer, who had not personally seen the plot. The lawyer asked for a real estate certificate from the General Directorate of Land Registry and Cadastre, confirming that the plot mentioned in the sales contract was legally available. What the client didn’t know was that the plot in the contract was different from the one the broker showed him. After the sale was complete, the client discovered that the plot he’d actually purchased was only worth some $50 per square meter and located further up in the mountains.

A $1 million scam

Tebchrany talked about a case in which a person calling himself a broker approached a wealthy Lebanese client, telling him that there was a plot of land worth $1 million for sale. The broker told the client that a Gulf citizen wanted to purchase the plot for $2 million, and therefore suggested that the client buy the plot himself to sell on for a $1 million profit. The broker said he would have done this himself, but he didn’t have the money.

The client agreed and accompanied the broker to the Phoenicia InterContinental Hotel, where he met the wealthy Gulf buyer who confirmed his interest in the plot. After that meeting, the Lebanese client purchased the plot from the owners for $1 million. He went back to the hotel to seal the deal with the Gulf buyer, but found that no one under his name had been staying at the hotel, the broker he had been dealing with had disappeared, and the original landowners were nowhere to be found either.

“He went to check the plot he had bought and found out that it was only worth some $100,000,” said Tebchrany. The client declined Executive’s request to comment.

 The evils of inexperience

Cases involving clients purchasing land unsuitable for construction, or shoddily constructed apartments, often arise from broker inexperience and a lack of market knowledge. In these cases it is not completely the broker’s fault, as clients must assume some responsibility for failing to perform their own due diligence and blindly trusting middlemen.

“There are some very respectable and honest people who work as brokers but make mistakes because they don’t have enough experience,” said Aline Maalouf, managing partner at Luna Real Estate, a franchise of Coldwell Banker. “This has contributed to [brokers] having a bad reputation.”

With or without a contract

Although the most regulated markets in the world are still prone to fraud, the lack of laws and regulations to protect both brokers and buyers make conflicts more probable.

“There is a small [section of] Lebanese law that talks about brokerage, but it is very minor,” said Georges Sioufi, chief executive officer of the real estate agency GRE Properties. The brokerage law, number 304, ‘General law for all kind of brokerage,’ dates back to 1942 and has not been amended since.

The law says that a broker is any person who acts as a middleman between two parties for a certain fee. Tebchrany said the law does not require parties to sign a written contract, and usually a verbal agreement is enough. If conflict arises and they go to court and a written contract is not available, the broker or the customer has to provide evidence to prove the broker was actually the middleman in the transaction.

Hairdresser-cum-broker Jebran, for example, said that he relies on a “word of honor” and does not sign contracts unless the deal involves a considerable sum of money. If a court case should arise, Jebran said he would rely on witnesses to testify that he was the middleman.

Mitri said he signs written contracts only in rare cases, adding that sometimes, when the market values are increasing, sellers refuse to sign as it obliges them to stick to a certain price.

Luna Real Estate’s Maalouf said her company always signs contracts with customers, but some of them refuse, as they are not used to the idea.

“When someone goes to a bank to get a loan, they make him sign on 50 pages and they [customers] do it blindly to receive a loan… but they are not convinced that they have to sign to receive a service,” she said. 

Tebchrany added that sometimes even big real estate companies do not sign written contracts in order to save paying taxes on a deal.

A new association

In an attempt to regulate the market and differentiate between credible brokers and imposters, a group of real estate companies has formed an association.

Massaad Fares, founder of the asset management company Prime Consult, has been working with several brokers for nearly seven years to create this association, which finally appointed its board of directors in February.

Fares said the association would be a strong lobbying group to advocate for a new law to license brokers based on certain qualifications. The association will devise a code of ethics that its members will have to follow, and facilitate education and training programs to raise professional standards in the industry.

“We want regulation, not because we are assuming all brokers are thieves…[but] we need something to regulate [the market] so that peopple know who to trust,” said Ramco’s Makarem.

Who can enter this association and what the requirements are have not been specified yet, said Fares. GRE Properties’ Sioufi, who is a member of the board, said that the fees would be $667 per year.

Sioufi said that there were many agencies that at first refused to join. “As with everything else in Lebanon, there always happens to be some tension,” he said. “Now we are trying to approach everybody and put things together.”

All the market players Executive spoke to were in favor of the association, saying that it represented the first step toward a more professional and regulated market.

“I would like to think that one day, everyone would look out for the logo of the association and will expect any broker they deal with to be a member of this association,” said Makarem.

However, until the association becomes a syndicate — which requires the issuance of a new law — it will not be able to oblige brokers to abide by its code of ethics, explained Tebchrany.

“The association can work for its own interest but it cannot forbid any person from working if they do not join…but a syndicate could.”

Staying safe

There are no hard rules to follow regarding  who to trust, since a concierge or hairdresser could turn out to be more trustworthy, or have more experience than a lawyer or a banker. For that reason, experts advise buyers to perform their own due diligence before buying a property, such as asking for a real estate certificate, and consulting with lawyers, architects and any party that could help precent cheating or a bad deal. 

“Some people do not consult their lawyers until they are deep in the hole,” said Tebchrany. “I advise all those who want to buy land or apartments to consult a lawyer, and an architect if necessary.”

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Finance

Raising capital

by Executive Staff
written by Executive Staff

After obtaining shareholder approval on February 19, Byblos Bank is set to proceed with a $250 million capital increase, to be completed by the end of June. The bank expects the hike to come from common and priority shareholders primarily, with some capital coming from holders of global depository receipts. The bank said the goal of the increase was to help expand its services in emerging markets and to be better able to lend to small and medium-sized projects. Also contributing to the capital hike was Byblos Invest Holdings’ sale of $47.62 million of Byblos shares to the International Finance Corp. (IFC), concluded at the final price of $100 million. After the capital increase, the IFC will own 8 percent of Byblos Bank

 

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Finance

Commission in crisis

by Emma Cosgrove
written by Emma Cosgrove

 

It is no secret that the backbone of Lebanon’s economy is the banking sector. And right now, the watchdogs of Lebanon’s banking industry are without leadership.

The Banking Control Commission (BCC) of Lebanon is the auditing body housed in the country’s central bank. The Commission is charged with the duty of supervising Lebanon’s banks, financial institutions, money dealers, brokerage firms and leasing companies, to ensure that they are operating within the circulars and regulations of the Central Bank. But, due to sectarian disputes and cabinet deadlock, it is currently without a board of directors.

The cabinet must appoint the five members of the BCC’s board of directors at the end of every five-year period, with the latest term expiring January 31 this year.

 There are no term limits for board members, and as such all five outgoing directors had already served at least a decade at the BCC through reappointments. Despite this tradition of continuity on the commission, the Council of Ministers, Lebanon’s cabinet, has not been able to agree on who will sit at the BCC for the current term.

According to several industry sources, seats on the commission’s board of directors are usually filled without delay. But as Executive went to print, the seats had been empty for almost a month, pushing both banking professionals and government officials to insist on a swift resolution.

Central Bank Governor Riad Salameh has taken over the responsibilities of the board until the members are appointed. On February 2, just days after the previous board expired, Salameh met with the Higher Banking Commission, the body responsible for the enforcement of central bank regulations, to discuss whether there was a legal framework that would allow the Higher Banking Commission to appoint the members, instead of the cabinet. But it was determined that the decision must legally stay within the responsibility of the cabinet.

Prime Minister Saad Hariri announced on February 13 that he hoped the commission would be filled by February 17 or 18, but as Executive went to print, no announcement to that effect had been made.

Who’s the boss?

Under Article 8 of Law 28, enacted in 1967, the president of the BCC must be a university professor or a specialist in banking and finance. A second board member must be recommended by the Association of Banks in Lebanon, and a third recommendation comes from the National Deposit Guarantee Institution. The other two positions have no legal specifications other than clear expertise in the banking field.

Positions on the board of the BCC are full time, thus all appointed members must leave their current positions before they accept the job. Board members are also forbidden from taking a job at any Lebanese bank for two years after they leave the commission.

As some board members come from Lebanese banks, objectivity is an issue of concern. But Marwan Kheireddine, general manger of Al Mawarid Bank, said that appointees have no problem cutting ties with their former places of employment.

“Banks in Lebanon are not tribes: banks are professional institutions, they are for-profit and they think objectively,” he said.

In addition to the board of directors, the BCC has 137 employees, including administrative staff and “examiners” — auditors who perform continuous reviews of Lebanon’s financial institutions through on and off-site examinations. Both BCC Secretary General Souheil Jaafar and banking professionals stressed that the commission is still functioning normally, despite the absent board.

“Middle management is there. It’s just the top management of this commission is now absent or vacant. But the usual work is continuing,” said Elie Achkar, director of research and statistics at the Association of Banks in Lebanon.

And though no expressed legal framework exists to allow Salameh to take over the role of the board in the interim, there have been no public objections to his doing so.

“The importance of any executive anywhere in government at any time is not looking at specifically legal wordings here and there, but filling a vacuum in a process of such imperative importance to the national security of Lebanon and its people,” said opposition Member of Parliament Ali Osseiran.

In fact, Kheireddine said that confidence in Salameh’s management of the commission may have taken pressure off the decision, causing ministers to take even more time, now that they know that the commission is being looked after.

Who’s on board?

The outgoing board members are Walid Alameddine, Farouk Mahfouz, Amine Awad, Kamal Samaha and Abdallah Attieh.

Mahfouz and Awad have been resubmitted for another term without objection, which will bring Mahfouz’s total years on the commission to 25, and Awad’s to 15.

Media reports have suggested that Osama Mikdashi — the former managing director of Citigroup Credit and Risk Management UK and a current board member at BankMed — and Ahmad Safa, the assistant general manager for operations at Lebanese Canadian Bank, are up for appointment.

A Lebanese banker who spoke only on the condition of anonymity but has been highly involved in lobbying for a new commission, said that Fouad Touma — secretary to the board of committees at Byblos Bank — and Mansour Bteich — a member of the board of directors of BLC Bank — are also being considered. This source added that Touma is the only contentious appointment, with some members of cabinet critical of his qualifications. Osseiran confirmed that the appointments are being held up by just one name, but could not disclose which.

Despite the usual speedy confirmation of board members, Kheireddine is not surprised by the delay. “This is very typical of Lebanon. These appointments are political,” said Kheireddine. “Political in the sense that a lot of people that are qualified present their CVs and, typically, there is a lot of pulling and pushing, which happens when such posts are available and politicians or political parties try to push their candidate as opposed to another party’s candidate.”

The government is currently backed up with many of the 79 ‘category one’ appointments for empty senior positions and industry players and politicians have been lobbying to bring the BCC posts to the top of the pile.

“The position of one person on this commission is minor. But having the whole commission is very important. We shouldn’t think in terms of our sects, we should think of who is the best person to have in this position,” said Osseiran.

And since no one project or audit is run by less than two bankers, the BCC’s Jaafar implied that no one board member could harm the entire group.

“This is corporate governance. We don’t have a one-man show,” said Jaafar.

Kheireddine said that the names circulating through the media were proof that the lobbying had paid off and highlighted the appointment of the BCC board members as an issue separate from the other appointments that the cabinet has yet to make.

Who’s watching?

Even with Salameh at the helm, industry outcry for a full board is still going strong due to the damage the delay may cause to Lebanon’s international financial reputation.

“People abroad do not look at political life in Lebanon as much as they look at the organization, the control and the confidence that everybody has in the Lebanese financial system,” said Osseiran.

After a whirlwind year of international recognition for successfully weathering 2009’s financial storm, bankers are worried that this political squabbling may damage the progress that Lebanon’s banking sector has made on the international stage.

“It is critical that we do not have any glitches anywhere that could send the wrong signals both to international organizations and to potential players within the industry and potential depositors or investors,” said Kheireddine. “So it is simply not appropriate not to have a banking control commission.”

 

 

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Imagery intifada

by Michael Young
written by Michael Young

 

This March 14 will be the fifth anniversary of the massive gathering that took place one month after the assassination of former Lebanese Prime Minister Rafiq Hariri. And while the politics of the event continue to divide the Lebanese, there is a less-publicized aspect of the popular demonstrations of 2005 that merits retrospective consideration: their branding by advertisers and activists.

The visual success of the independence intifada was its most enduring feature. It highlighted an instinctive understanding by the organizers of how politics and imagery could be combined to advance a political agenda, and how this required capturing the imagination of markets in Lebanon and worldwide. Above all was the international media market – which permitted demonstrators to access foreign audiences – but also the market of association, since the imagery pushed people inside Lebanon and out to mentally associate what was happening with similar efforts that had taken place abroad – such as the color revolutions in Ukraine and Georgia.

Perhaps the surest sign of success was the fact that the Lebanese upheaval was given a catchy name, the “Cedar Revolution.” The importance of the media attractiveness of the Independence Intifada/Cedar Revolution and its association with other popular undertakings, was that it pushed the same buttons a successful advertisement campaign would; it allowed those participating in the event, or watching it, to interpret what was happening in both pluralistic and individual ways. Lebanon’s emancipation effort became whatever one wanted it to be.

In retrospect, there was no “revolution” in Lebanon in 2005, just as there were no revolutions in Ukraine and Georgia. The word itself was a remarkable jump over the far less ambitious, but more accurate, “intifada,” by which the Lebanese opposition first labeled their endeavors. Yet “revolution” had a far better echo in the marketplace; it allowed one to dream, and everyone likes a dream.

The branding of the demonstrations inside Lebanon was built around a simple sentence and specific color pattern: the phrase “Independence ’05” and the red and white of the Lebanese flag. This was the brainchild of advertiser Eli Khoury of Quantum Communications, collaborating with the late Samir Kassir. Their plan was initially to unfurl their campaign during the parliamentary elections of 2005, but Hariri’s assassination created a far more dramatic context for it.

Other advertisers entered the fray after February 14, and the activists and political figures who had begun planning the demonstrations in the first days after Hariri’s killing also addressed the matter of imagery. There was an immediate sense that the protest movement against Syrian influence in Lebanon could only survive by being given an identity – one that was both elastic and conciliatory, able to embrace the many very different identities of those descending on Martyrs’ Square.

In subsequent years the two sides in Lebanon’s political divide poured enormous sums of money into advertisement campaigns. But there was a difference between those efforts and the events of February-March 2005; the emancipation movement’s branding compensated for the fact that the state was controlled by the political foes of the demonstrators, with the weapon of ideas serving as a potent leveling mechanism.

What were these ideas? Not least that the demonstrators were behaving heroically and serving a higher purpose. The demonstrators saw themselves as fulfilling an ideal, against difficult odds, and that only increased their impetus to mobilize. They created a narrative for their actions, placing themselves at its forefront. That was a clever, inherently liberal way of dealing with their predicament. It also showed a grasp of what modern politics is about.

The branding of the 2005 movement set up a context for this narrative — or rather the infinite number of narratives brought down to Martyrs’ Square. But it also led to dissension when the narratives momentarily diverged. For a while the red and the white rapidly became the colors of those whose priority was a Syrian military withdrawal, then Hariri’s Future Movement adopted sky blue as the color of their campaign, focused on uncovering the “Truth” about who had killed their leader. This difference was papered over by the time March 14 came, but the recrimination would last for some time.

In an odd way, the friction confirmed how important the branding was.

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Old Lebanon’s final frontier

by Nicholas Blanford
written by Nicholas Blanford

 

Just shy of the ides of March, the Lebanese army is to host (snow permitting) the second Raid des Cedres, in which teams of three race through Mount Lebanon on skis and snow shoes. The teams begin in the pre-dawn dark from the entrance of the Tannourine cedars, before a long climb up Wadi Bayda to the southern crest of the mountainous amphitheater that half encircles the Cedars of Bsharre, at Al Arz.

One of my most memorable moments of more than 15 years in Lebanon was pausing toward the top of Wadi Bayda, and seeing behind me in the darkness what looked like an army of glow worms, as the competitors slowly ascended the valley using headlamps to light their way. Then, the dawn sun gradually rose above the mountain peaks to the east, suffusing the snow with soft pinks, while the icy wind whipped up a knee-high snow drift.

Despite Lebanon’s tiny size and rampant urbanization over the past four decades, it is remarkable that there are still large tracts of lofty unspoiled wilderness to be visited and enjoyed less than two hours drive from Beirut.

The vast plateau that forms the top of the Mount Lebanon range from south of Jabal Sannine to north of Qornet es-Sawda — Lebanon’s tallest mountain at 3,088 meters — presents a desolate and awe-inspiring vista. The terrain varies from gently undulating hills and valleys to dauntingly deep sinkholes, separated by knife-edge ridges of weathered, razor-sharp limestone, beautiful to behold yet a nightmare to traverse.

No one lives up there permanently. The only inhabitants one might stumble across, and only in the summer months, are shepherds and their families living in canvas tents, who offer the rare passer-by glasses of strong sweet tea, bread and fresh goats’ cheese. Then there are roaming shepherds, as agile as their goats, following their flocks up and down rocky slopes during the day, before lighting a fire and sleeping in the open at night.

In early February, I took a day off work mid-week and headed to Warde, above Faraya, for a day’s snowshoeing to the top of Sannine. Brilliant sunshine held up a deep blue sky over well-wrapped and colorful skiers and snow-boarders who, even on a school day, were packing the slopes. But once I had trudged up, over the first crest and beyond the pistes and ski lifts, I had the mountains to myself and saw not a single person for the rest of the day.

The deep layer of sugar white snow softens and smoothes the jagged, frost-shattered landscape of the summer months, creating a misleading impression of benevolence. But the weather can change quickly above 2,000 meters. When a thick mantle of cloud is draped over the mountains, not only is visibility reduced to a couple of meters, but the absence of the sun also removes all shadows and contrast in the snow. Without carefully probing ahead with a ski pole, it is easy to mistake a sudden 10-meter drop for level terrain.

When the Sannine hills are free of snow, the detritus of the civil war can be found here: shallow fox holes ringed with rocks, rusted shrapnel, tarnished brass cartridge cases and coils of barbed wire. In some places, unseen beneath the surface of the stony soil are landmines, still uncleared and potentially deadly. No one should hike the area between Ayoun es-Simane and Jabal Sannine without knowing exactly where the mined areas are.

Yet landmines are not the only man-made threat facing the limestone grandeur of Sannine. A few years ago, the Sannine-Zenith project was launched with the promise of building the Middle East’s largest tourist resort on 66 square kilometers — yes, 66 square kilometers! — of Sannine’s northwestern slopes. Other than ski slopes, the project would include residential housing, hotels, cinemas, an 18-hole golf course and a helipad.

Sannine-Zenith received the green light from the government to proceed in 2004, but thankfully the project has yet to get off the ground. Not only would it destroy one of the most beautiful and remote areas left in Lebanon, it would set a precedent and risk opening up the rest of the unspoiled wilderness between Sannine and Qornet es-Sawda for more tourist site proposals.

May Sannine-Zenith remain nothing more than a set of blue prints gathering dust, leaving the mountains unsullied for those that appreciate and enjoy them.

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Iran is no China

by Gareth Smith
written by Gareth Smith

When United States President Barack Obama came to office promising engagement with Iran, American observers recalled Richard Nixon’s 1972 trip to Beijing which opened the way to normalized relations with China.

In practice, “engagement” has meant two meetings in October, and Washington is no nearer to diplomatic relations with Iran. There is even a hollow ring to the Obama administration’s argument that it has encouraged Moscow and Beijing to back further United Nations sanctions over Iran’s atomic program. While last autumn’s cancelation of a US missile shield scheduled for eastern Europe has eased tension with Russia, Washington’s standing with China is falling. Notably, Beijing has not sent a senior representative to the leading powers’ discussions over Iran.

American analysts argue China’s Iran policy is based on economics, especially its thirst for Iranian oil and gas. Naturally, this is a factor. Visiting Hong Kong in January, Mohammad Nahavandian, head of Iran’s chamber of commerce, reported bilateral annual trade of $25 billion, up from $7 billion in 2004. But the Iran issue is just part of wider economic and political rivalries between Washington and Beijing. Obama’s decision to meet the Dalai Lama has alarmed China, which has long accused the exiled Tibetan leader of undermining its rule in Tibet. Further, Beijing sees Obama’s recent $6.3 billion arms sales to Taiwan — a self-ruled island over which China claims sovereignty — as a breach of a 1982 US-China agreement that such sales would “not exceed, either in qualitative or in quantitative terms” those following the thaw after Nixon’s visit.

China’s disagreement with the US over Iran focuses on its view, shared with other developing countries such as Brazil and South Africa, that international rules should apply consistently. At the Munich security conference in February, Yang Jiechi, China’s foreign minister, called for continued diplomacy between the P5+1 (the permanent members of the UN Security Council plus Germany) and Tehran. Yang said the Nuclear Non-Proliferation treaty (NPT) gave Iran as a signatory “the right to the peaceful use of nuclear energy” — a stance at odds with US, European and Israeli officials who argue Iran should not enrich uranium.

“When we talk about equality and freedom of speech,” said Yang, “we are talking…not only on an individual basis, but also on the basis of countries and democratization of international relations. One country or a few countries definitely cannot decide the future of the world.” President Obama has evaded this argument. In his State of the Union address in January, he bracketed Iran with North Korea, which has atomic weapons and is not a signatory of the NPT.

Hillary Clinton has gone further. The secretary of state said in Doha last month that the US did not “want to be engaging while they’re building their bomb.”

Such outbursts offer no basis — in Chinese and other eyes — for Obama threatening Iran with “growing consequences” if it ignores its “obligations.” Obama is sending confusing signals to Tehran. It is not even clear if “engagement” is over or not, and it’s not only Beijing that’s perplexed. An end-of-December deadline for Iran to accept the P5+1 proposal to export most of its enriched uranium in return for nuclear fuel for medical use passed without incident. But Yukiya Amano, head of the UN’s International Atomic Energy Agency, said in January that dialogue was continuing. But the US has also announced the deployment of warships in the Persian Gulf and the installation of missiles in Kuwait, Bahrain, the United Arab Emirates and Qatar. Talk in Washington is of further sanctions. While the administration is skeptical over congressional proposals to bar from the US any companies supplying Iran with gasoline from the US, it has said it will seize assets of some affiliates of the Islamic Revolutionary Guard Corps (IRGC) and may go on to exclude  any companies trading with IRGC entities from the US.

Proponents of sanctions justify these measures as much by the IRGC’s role in policing demonstrations since last June’s disputed presidential election as by its part in the nuclear program. But targeting the IRGC, whose constitutional mission is to defend the Islamic Republic, seems a way to convince the authorities in Tehran — or those in Beijing — that the US wants regime change rather than engagement.

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Economics & Policy

Executive Insight – Cedarcom

by Imad Tarabay
written by Imad Tarabay

Imad Tarabay

Take a 10 hour flight east from Lebanon and you will findyourself in the most Internet-enabled country in the world: South Korea. Thecountry has been labeled as the most connected in the world for years now, withan average connection speed of 39 Megabits per second (with that speed, you candownload a 10 Megabyte YouTube video in less than 2 seconds). Lebanon lies atthe other end of the spectrum, ranked last among 186 countries, with an averageconnection speed of 450 kilobits per second.

In comparing the Korean success story to that of Lebanon’sown failed telecommunications network, it is easy to get an idea of why theLebanese hardly progress economically and instead reminisce over pastachievements. We have heard them all before: Arabs invented the “0” andalgebra, and the Lebanese were the first to introduce GSM — the world’s mostwidely used mobile phone network —  in the Middle East. Yet today they suffer from the lousiest, slowest andmost expensive Internet services in the world. The question is: what happenedin between?

The Koreans succeeded on three fronts: policy, demand andsupply. Pre-2007, Korea had conflicts in policy and regulation because theMinistry of Information and Communications, the Korea CommunicationsCommission, the Korea Broadcasting Commission and the Fair Trading Commissionregulated the industry. They realized that four separate regulating entitiescould not agree on common goals, so they consolidated into two entities: theKorea Broadcasting and Communications Commission, which independently regulatesthe communications industry, and oversees television, radio, telecommunicationsand Internet services, and the Fair Trading Commission, which regulatesindustry-wide competition. This created a “regulator” for telecoms and a“protector of fair competition” throughout the industry.

The results were palpable: a telecommunications policyliberalizing entry and competition was initiated, 10,400 schools were connectedto the Internet and there was a convergence of services between voice and data,enabling video phones, video conferencing, ‘Video on Demand’, voice over IP(VoIP), Mobile VoIP, fixed-to-mobile convergence and so on and so forth.

This only happened because the quality of service policieswas enforced, which introduced various broadband access technologies andubiquitous service coverage. They permitted competition at all levels, gavesecurity for investment in their infrastructure through fair competition andgave access to students to fast Internet in their schools and universities.

How not to do it

When we take the flight back to Lebanon we understand why wehave the slowest Internet in the world. To make a long story short: In 2002there was a vision to reform telecommunications in Lebanon. Parliament passedTelecom Law 431, which transferred the regulatory role from the Ministry ofTelecom (MoT) to the “independent” Telecom Regulatory Authority (TRA). In 2007the TRA was established with the mission of licensing, regulating and ensuringfair competition in the market. The TRA granted licenses for frequencyallocations to Alfa, MTC, Ogero, the Lebanese Army, Electricité du Liban andprivate data operators. But four years later they haven’t managed to issue asingle long-term license to any operator and as a consequence have failed tobring any investments to the sector. They also remain financially dependent onthe Ministry of Telecom (MoT).

 Comparative monthly costs to provide a subscriber connection in Lebanon

 

Comparative cost of Internet provision

The power struggle is naturally tilted in the favor of thefinancier, the MoT, which slapped the TRA around last year and kept itsemployees unpaid for four consecutive months.

The MoT keeps its hands on permits of equipment imports,sells Internet capacity in partnership with the state-owned and operated Ogeroand taxes private operators 10,000 percent: the ministry, through Ogero, buys a2 Mbps line for less than $30 and sells it to Internet service providers (ISP)for $3,000. Through this and other unfair practices Ogero has gained control of80 percent of the digital subscriber line (DSL) market, and kept privateoperators paying direct and indirect taxes of up to 60 percent while they aresubject to yearly short-term licenses.

Private sector data operators and Internet providers facethe threat of closure due to unfair competition from “unlicensed” 3G servicesprovided by Alfa and MTC. Let’s not look at the legality of their operation andtheir dubious adherence to the Telecom Law, but instead focus on unfaircompetition and its drastic effects on the industry and the consumer.

Alfa and MTC already have GSM networks, and the overlay ofnew 3G networks will have limited incremental operational cost, because thecosts associated with antenna site rentals and human resources are alreadycovered for by the GSM services. In Law 431, and following international bestpractice, operators are prohibited from cross-subsidizing the cost of a servicewith the earnings from another one.

Alfa and MTC are privileged to subsidize the human resourcecost, antenna rental space and electricity cost (already they pay rental costfor the GSM sites) and to pay for bandwidth at the same cost that the Ministrybuys these lines for. In comparison with private operators, Alfa and MTC aresaved from paying the equivalent of $12 per subscription of license fees orlicense taxes, while ISPs pay 100 times the bandwidth cost and have to pay fortheir staff.

Each private Data Operator and ISP subscriber pays around$12, or 27 percent, in taxes on a $45 Internet connection every month. All dataoperators combined pay around $5.2 million in taxes annually.

It would be better for everyone were the government to levelthe taxation in line with Alfa and MTC. That tax reduction would be passedthrough to the consumer, and they would be able to get an account for $33 permonth.

The popular yet dangerous sentiment that private operatorsface the threat of closure due to unfair competition is not exactly correct;the taxation imbalance, which amounts to roughly $16 per account per month, andwhat it brings as a cost advantage to Alfa and MTC, not competition per se, iswhat is impeding the free telecom market. In other words, Alfa and MTC can sellthe same Internet account speed and quality at around $16 dollars less. Theresult of such an environment could be the closure of private operators.

If the telecom sector is “nationalized” due to unfair competition,it is the consumer who loses most, as there is nothing to prevent monopolyoperators from raising prices or offering low quality services.

A problem of policy

In 2008, the Minister of Telecoms had a clear vision ofupdating Lebanon’s  telecommunications.After consulting with more than 150 telecommunications executives for over fourmonths, in May 2009 Minister Gebran Bassil published a clear policy paper thatadvocated for fair competition and called for investments in the sector. Alloperators applauded this policy and called for its immediate implementation.Strangely, caretaker Minister of Telecommunications Charbel Nahas scrapped it,leaving the country with highly-taxed Internet services, unfair competition andmonopolistic tendencies.

Going back to the Korean example, a simple comparison showswhat a liberal telecommunications policy and solid infrastructure leads to;Koreans can buy a 100 megabit home connection for as little as $30 per month.The same connection in Lebanon, were it available, would cost at current ratesroughly $150,000.

The Lebanese have the will and the knowledge for greatprogress in the telecommunications sector. The government must provide theincentives for investment and innovation and protection from unfair competition.In South Korea, the change started with policy and in Lebanon it will have toas well.

IMAD TARABAY is the chairman and CEO of Cedarcom

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