Society

Communication of faith

by Nohad Mouawad, Zeina Loutfi & Ramsay G. Najjar
written by Nohad Mouawad, Zeina Loutfi & Ramsay G. Najjar

What comes to mind when you hear church bells ring or the call to prayer resonate across your city? These age-old holy sounds have been echoing throughout the Arab world for centuries, and are a core part of how the region’s predominant religions connect with their followers. Most people wouldn’t think of these ancient rituals as forms of noble communication, but the way that religions reach out to their audiences is very similar to a company communicating its values.

Pious PR

This idea might seem strange at first, but if we take a closer look we might find that communication and religion do go hand-in-hand, as religions must also ensure that they are understood by the general public and that their reputation is maintained and enhanced with audiences around the world, much in the same way that companies must maintain their image and highlight what they stand for.

Yet, while we see companies pulling out all the stops to ingrain the meaning behind their brands and view their corporations positively, are religions and religious institutions doing enough to enhance or correct their image and uphold their reputation? Are they engaging people and reaching out through communication to a universal audience beyond their immediate followers?

Beginning with Islam, the true voice of Islamic values seems overshadowed. Everywhere we look, groups only pretending to be Muslim are dominating the airwaves and television screens with fundamentalist and extremist messages that have no real relation to Islam’s teachings. From the Taliban recruitment videos, to websites dedicated to promoting terrorist activities, extremists have been exploiting young Arabs by using the communication channels that target them best, preying on their impressionable nature and lack of fully-formed values and faith, by swaying them with flashy but poisoned messages. Unfortunately, the damage of this “intelligent” propaganda, much like that of the extremists’ predecessors from Goebbels to McCarthy, can only be assessed when it is too late and people, especially the youth, have already been misguided.

This propaganda has been able to thrive as the “silent majority” of Muslim faithful, from religious institutions and other walks of life, are not communicating an alternative message that reflects the true essence and practices of their religion, which is both tolerant and moderate. Until the majority invests in effective, strategic communication, the propaganda of the minority extremist groups will continue to win.

But strategic communication is not only the responsibility of religious authorities, since, if we turned on our TV sets to find a moderate Muslim cleric arguing with an extremist religious leader, we might change the channel thinking that this is only an internal schism within the religion itself. This is where the role of the entire Arab community comes in, as it is in all of society’s interest to relay the true values of Islam and ensure that extremists do not succeed in distorting the image of their faith both regionally and worldwide. By joining together the voices of non governmental and civil society organizations, academic institutions and the media, along with religious organizations and even the private sector, to face down extremism, the impact of communicating true, moderate values will be much greater.

Each of these organizations can play a role in helping achieve this through a number of initiatives, such as launching media campaigns about the core values that are at the heart of religion, holding workshops to discuss the importance of religion and religious values in everyday life, or relaying these messages through reports and media interviews.

There have been some promising attempts by community organizations to communicate religious values to the youth and general public, such as a recent campaign on Arab satellite networks, showing young people helping others and being charitable, reflecting values that are at the core of Islam, as well as another campaign stating that “Terrorism has no religion.”

These activities, although on the right track, are not enough to make a lasting impact as they remain paid advertising and are not backed up by continuous and consistent messaging using a variety of channels.

Reaching out

Religious organizations have also attempted to communicate by launching satellite TV channels dedicated to religious topics. However, the main focus of these stations is purely on prayer and discussions of religious texts, devoting the majority of their programming to roundtables with religious authorities. Limiting religion to prayer and religious study can only succeed in making it more exclusive and less accessible to a wider audience, an approach which is incompatible with the concept of mass media.

Actually, religion permeates and guides every aspect of our lives, and therefore these channels should develop more well-rounded media content that touches on all areas of life and resonates with all audiences, infusing programming such as drama series, entertainment shows, children’s shows, and even game shows with religious values.

 By communicating from this new angle, religious institutions and authorities can reach one of their most important target audiences: the youth. It can provide them with an aspirational system of values that is more in line with their lifestyle.

This new approach to communicating religious values has, in fact, proven successful in the case of a Catholic nunnery in the US that tried to change its image as obscure and completely out of touch with people’s lives. It did so by opening its doors to talk show host Oprah Winfrey’s camera crews and sending two of its 20-odd nuns to be interviewed on the show about everything from faith to romantic relationships.

Engaging communication is the only way that Muslim and Christian religious communities in the Arab world can overcome the virus of exclusivity that is plaguing them and fight misperceptions about their beliefs, helping to create more understanding and tolerant societies.

This means taking a more proactive approach in keeping the true spirit of their religion alive and upholding their core values that are universal to all humanity.

Nohad Mouawad, Zeina Loutfi and Ramsay G. Najjar S2C

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Society

Toyota’s time for reckoning

by Nathanael Massey
written by Nathanael Massey

 

What started as a crack in Toyota’s sterling reputation has widened to a gaping wound.

Billing your products as the safest cars on the road puts a lot of pressure on a company. As long as consumer reports are rosy, that pressure is not an issue. But Toyota’s recent plague of recalls have been punching holes in the Japanese giant’s public standing.

It’s true that few heads turned when, in 2005, the company recalled 75,000 of it’s eco-friendly Prius hybrid units after reports that a software issue was causing the car to stall. However, a 911 emergency call from the driver of a 2009 Lexus ES 350 with his accelerator stuck and his brakes failing sounded a much louder alarm and prompted the recall of 4.5 million units of select models in North America and Japan.

Then, in early February, it happened again — a programming glitch in the Prius, the jewel of Toyota’s crown, was found to be causing momentary braking failure. This was then followed by Toyota recalling the Corolla — the world’s best-selling car — due to possible problems with its power steering system.

It’s been a rough year for the Japanese auto-giant. The question is: can they shore up the damage and rebuild?

Preemptive mitigation

Officials from Boustany United Machineries Co. — the exclusive distributor of Toyota in Lebanon — did not respond to requests for comment about local action following the recalls in North America and Japan. However, Toyota’s distributor in the United Arab Emirates, Al-Futtaim Motors, said the two models would be recalled in the Gulf country in a service campaign similar to that which is being carried out in the US. As the situation escalates, it is possible that delayed shockwaves could reach Lebanon as well.

Rushing to mitigate further damage, Toyota has mobilized its entire organization of 172,000 North American employees and dealership personnel, as well as its full staff in Japan.

“We’re working hard to ensure that our dealers have the resources and support they need to make sure our customers get their cars fixed quickly,” Jim Lentz, president and chief operating officer for Toyota in North America, told the press last month. “Many of our dealers are working extended hours, some 24/7, and adding service technicians and other staff to complete the recall campaign as conveniently as possible.”

Stuck in park

The operations required to fix the latest batch of problems — the sticking accelerator pedal and brake failure — are relatively simple and can be completed within an hour.

Yet the damage to the company’s reputation may prove far harder to fix for two principle reasons: first, because Toyota has staked so much of its reputation on safety; and second, due to an increasingly vocal public that views the company’s responses as neither timely nor adequate.

 A report by US-based television news channel MSNBC in early February cited Toyota spokesperson Ririko Takeuchi as saying that the car maker was aware of a problem in the Prius’ braking system, and more importantly, that Toyota had begun fixing the problem in models sold since late January — indicating that the company had been aware of the problem for some time. 

“There’s a sharp contrast with previous times in terms of handling these kinds of situations,” Koji Endo, managing director of Advanced Research Japan, told reporters in February.

Part of that difference has to do with what appears to be a time lag between complaints on the part of customers and action on the part of the company. As early as last June, Toyota President Akio Toyoda promised to raise the bar on quality control, saying that the company was “facing crisis.” Yet it wasn’t until early February of this year that customers were informed of the recall, with letters from Toyota instructing buyers to bring their vehicles to dealerships for servicing going out February 5.

That gap raises a lot of questions. Did it take the company more than six months to diagnose the severity of the problem? Or worse, did they understand the problem and fail to act?

With the crisis in full swing and an angry public clamoring for explanations — The Times of London reported early in February that auto dealers were facing a barrage of customers demanding to know when the recall would begin —  top officials remained reticent for weeks. Little has come from top management by way of explanation for the Prius’ braking problem. Chief quality control overseer Shinichi Sasaki recently told the press “We don’t see [the problem] as critical because if you push on [the brake] a bit, the car will stop.”

Tarnished crown

Toyota now faces a criminal investigation in the United States, after defects were linked to at least five deaths, with a further 29 fatalities being investigated. The auto giant went up before congress in mid-February for two days of hearings during which congressional representatives accused the company of mismanaging the problem and misleading the public. In the hearing’s opening statements, Representative Henry Waxman, Democrat of California, said Toyota had “failed its customers.”During the hearing Toyoda apologized to Congress and millions of his customers over the automaker’s handling of the affair, but US lawmakers said that they were planning further hearings.

However, while Toyota estimates the recall fiasco will cost $4 billion in servicing costs and lost sales, share prices have dropped only slightly. “Investors are not worried about such one-time costs. Instead they welcome Toyota’s efforts to restore confidence in its products and its relations with the US government regardless of the costs,” Kazaka Securities analyst Yoshihiko Tabei told Reuters.

A diagram released by Toyota detailing both the problem with the defective gas pedal and their solution

In the midst of Toyota’s woes, it is perhaps the story of the Prius that has struck the deepest chord. The Prius was a landmark vehicle, not just for the company but for the automotive world as a whole. The first hybrid vehicle mass-produced across world markets, it represented a bridge between our oil-dependent past and our renewable resource future. The Prius was, in many ways, a reflection of all of Toyota’s best qualities: safety, efficiency and the cutting edge of technology.

With it’s flagship model fallen from grace and the spell of confidence bent, if not broken, Toyota will likely face an uphill struggle to save face and regain its reputation.

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Society

Facing the digital future

by Spencer Osberg
written by Spencer Osberg

The who’s who of the advertising industry from across the Middle East and North Africa and beyond were brought together last month at the MENA Cristal Festival, amid the snows of Mzaar Kfardebiane. The highlight of the event, held February 1 through 5, was unquestionably the evening awards ceremonies, where the advertising agencies with the most innovative and best executed campaigns of the year earned their recognition in the spotlight.

During the days, however, among the various conference debates, round-table talks and chats in the hotel lobby, it became apparent that all is not at ease in the advertising industry. Beyond the fact that the sector, globally, lost up to 11 percent of its revenues last year as the financial downturn squeezed clients’ budgets, there is also a new reality bearing down on the industry, changing the old paradigm within which people once worked.

“Some people still feel that digital is just another channel, but its not, that’s the whole point. `It’s not an evolution, it is definitely a revolution,” said Dimitri Metaxas, regional digital executive director for Omnicom Media Group. “It is definitely something that has moved on and changed the rules of the game.”

As Richard Pinder, chief operating officer of Publicis Worldwide and president of this year’s MENA Cristal Festival, put it: “The difference between the new world and old world is two-way versus one-way.”

The near limitless availability of information online has made consumers far savvier than previous generations, said Metaxas, which, combined with any online users’ ability to reach a global audience almost as easily as a multinational corporation, and has led to a “democratization” of the process.

“We’re now in a forum, and not a pulpit,” he remarked. “This has shifted the consumer from that lower level of happily consuming what it is we tell them [to], to now having a very active role in that communication.”

Digital’s two-way street

Metaxas illustrates what this new dynamic can mean, using the example of the United Arab Emirate telecommunications provider du, which had recognized that it had an image problem with regard to its customer service. To address this, the company first opened an account on the Twitter social networking service and incentivized people to ‘follow’ it, using contests to win an iPhone, just as du was launching its iPhone service in the United Arab Emirates.

The company then transformed the Twitter account into a customer service channel.

Metaxas said in monitoring the “buzz” in online posts and chat rooms, many complained that du’s customer service was unresponsive.

“They turned their customer service into a marketing problem, and they committed to changing and solving every person’s query or customer service issue,” he explained. “What ended up happening is all these really negative statements — literally 99 percent of them — have transformed into positives.”

People who had posted comments like “customer service — nightmare,” were now posting comments like, “du, I can’t believe you’re actually listening to me, and two, you solved my problem.” The idea that digital advertising is little more than banner ads on websites – i.e. simply a “digital version” of what would be on TV or outdoor billboards — is a concept quickly becoming antiquated; it is the ability, even necessity, to include customers in campaigns that makes digital advertising a radically more expansive concept, said Mataxas.    

“If you make [consumers] part of the process, then you create advocacy out of it, and that, I think, is a far more powerful emotion than just advertising at them,” he said.

“Advertising is fantastic at building awareness, and it can engage if it’s really good…but that’s still a one-way process, and I think that is one of the fundamental shifts we’re talking about that social media has created. People have an opinion; they want to voice that opinion. If you ignore them, then you do it at your own peril.”

Blurring the lines

The digital revolution is creating anxiety among the veterans of advertising because it breaks down the walls between what used to be clearly defined roles in the production chain.

“Media, creative, public relations, direct marketing, customer relationship management — they’re all blurred,” said Pinder.  Even while uncertainty grows about individual responsibilities within the new digital paradigm, it is ever more certain that the digitalization of advertising will only accelerate. Pinder said that two years ago Publicis Worldwide’s revenue from digital advertising was zero; today it is 20 percent of total revenue and his aim is push that to 30 percent by 2012.

“Where I had an office that didn’t have digital, they had a catastrophic 2009,” said Pinder. “I have seen offices — both mine and from other networks — that [lost] one quarter of their revenue in one year, by not having digital.”

“In one particular office, their ad agency was down 35 percent in 18 months but their digital was up 75 percent, and they ended up at minus 3 [percent],” he continued. “People who tell me digital isn’t that important or it’s just a sideshow of advertising — no way. This is going to be one third of my business in two years.”

Pinder says Publicis is in the process of rebranding all of its global digital assets under the banner of Publicis Modem, and is planning an aggressive digital expansion in the Middle East “very soon.”

Existing tomorrow

Hussein Freijeh, Yahoo’s director of advertising sales at Dubai Internet City, explained that Internet penetration across the region has been expanding at more than 50 percent per year for the last four years, allowed for by the expansion of telecommunications infrastructure. He pointed to Egypt as one market that was “massively growing,” and said that in Dubai — already the region’s advertising hub and arguably the most wired-in of the region’s cities — is so far at the crest of the digital wave.

Digitalization of the future being near predestined

It seems, however, that some of the biggest players in the advertising and business communities still have their heads stuck in the sand.

“[Last year] we saw some major brands double their spending online, but we saw other major brands not spend a penny online,” said Freijeh, who lamented that one of the biggest challenges he still faces is to shift people out of the “offline” mentality.

With the digitalization of the future being near predestined, this reticence is baffling. But then again, it is in the nature of revolutions, digital or otherwise, for there to be those who recognize the significance of developments as they are happening and adapt to excel in the new reality. And there are always others, too married to the comfort of the old ways to change, as the shifting tide washes them into irrelevance.

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Economics & Policy

Steps for a sustainable future

by Jurgen Ringbeck, Amira El-Adawi & Amit Gautam
written by Jurgen Ringbeck, Amira El-Adawi & Amit Gautam

The dizzying growth of the Middle East and North Africa region’s economy has created enormous opportunities for its tourism sector, with mega-resorts such as Dubai’s Palm Jumeirah capturing global attention and positioning the region as a “must-visit” destination. However, if the region is to reach its full potential, it must fuel its growth sustainably and lead global efforts to implement environmentally conscious tourism.

 

 

With concerns over climate change continuing to mount, the number of environmentally conscious tourists is on the rise. They are calling for “green” destinations, with major global travel distributors and communities like Thomas Cook and National Geographic Traveler increasingly using sustainability as a key measure in ranking and recommending destinations. A number of destinations across the globe, from the Maldives to Costa Rica, have responded by branding themselves as “green.”

In response, destinations must invest in the preservation of their natural assets. Those that squander their most precious resources by allowing tourists free rein are chiselling away at their ecological and economic foundation, trading long-term health for short-term gains.

By seriously committing to a long-term, holistic approach to environmental sustainability — one that goes beyond empty marketing promises and a series of piecemeal quick fixes — destinations can keep pace with the growing demand for sustainable tourism and stake a competitive claim in the green playing field.

In doing so, they can bolster their “double bottom lines,” preserving their natural assets while profiting economically. By implementing a transformational greening strategy, they can reap significant financial rewards. With that in mind, destinations must rigorously assess four key components of their environment to understand the true implications of environmental degradation on a destination’s economic sustainability.

Carbon emissions:  Carbon mitigation efforts are a critical aspect of green policy. The tourism industry is currently responsible for around 5 percent of global carbon emissions, largely as a result of air travel and accommodation. A recent global study from the World Economic Forum and Booz & Company estimates that these emissions will double by 2035 if left unchecked.

Since emissions result from both technological and human activity, any mitigation strategy must include comprehensive behavioral and technological change throughout the tourism sector. Destinations can dramatically reduce their carbon footprints by investing in green technologies and implementing best practices. These include renewable fuels, solar panels, geothermal heating and cooling, compact fluorescent lighting, energy-efficient appliances, building insulation, sustainably sourced materials and carbon sequestration from trees. Guests should be encouraged to choose energy-efficient transport and activities, such as hybrid vehicles, bicycles, sailboats, horses and camels.

Biodiversity conservation: In the past two decades, tourism to biodiversity hot spots has increased more than 100 percent. Although profitable in the short term, human activity can ultimately cause irreparable harm to fragile natural assets such as coral reefs, mountain trails and beaches. The preservation of these assets is therefore a critical component of sustainable tourism and a high-yielding investment in the future. Destinations should regulate access to fragile areas, protect indigenous species, develop national parks and control pests.

Water supply: A healthy water supply is crucial to a destination’s long-term environmental sustainability. What’s more, water provision and desalination typically guzzle energy and create emissions. Tourism places an even greater demand on the MENA region’s already scarce water supply, making conservative water policies more critical than ever.

Destinations should implement innovative conservation practices and technologies to optimize water use. They should also introduce technology to conserve water, such as sensor-operated taps, low-pressure showers and timed sprinklers. Finally, by cleaning and reusing wastewater, a destination can increase its potable water capacity and reduce sewage, pollution and clean-up fees.

Waste management: As a major pollutant, waste affects both water quality, land health and negatively influences a destination’s image. Effective liquid and solid waste management is therefore a “green imperative.” Destinations should follow global best practices for waste management by reducing potential waste streams, minimizing the amount of waste that ends up in landfills and incinerators, and recycling whenever possible. Cutting-edge methods such as waste-to-energy conversion can enhance a destination’s ‘green’ credentials and attract potential investors, in addition to bolstering environmental sustainability.

Finding the path to sustainability

Of course, none of these components exists in a vacuum. On the contrary, they are all interconnected and interdependent, much like the ecosystems they aim to protect. For this reason, a holistic approach to sustainability is key. To successfully address environmental sustainability, and generate significant improvement to the components discussed above, destinations must take a comprehensive and multi-faceted approach to transformation. This green transformation roadmap should include:

Regulations and governance: Successful implementation of a green strategy is largely dependent on having the right laws and regulations in place and the governance to oversee their implementation. Legislation should protect the environment, limit potentially harmful activity and encourage healthy behavior, while encouraging sustainable tourism as an opportunity to refuel demand and capture new tourism segments. A successful sustainability program should be sponsored by the highest levels of government and spearheaded by an independent local entity that facilitates its implementation.

Stakeholder participation: Any truly holistic sustainability program requires the active engagement of many different stakeholders. At the government level, national tourism ministries and local authorities should collaborate with the entities responsible for the environment, energy, transport, health and finance to steer policy and spearhead environmentally friendly efforts. For example, policymakers can establish an accreditation program that recognizes sustainable accommodation and services and provides incentives to green businesses in the tourism sector.

As the stakeholders with the most direct access to tourists, the private sector plays a key role in protecting the environment. For example, hotel owners can reduce their carbon footprints and implement policies regarding sustainable waste, energy conservation, and water usage. Tour guides can act as ambassadors for environmental awareness, influencing tourists to choose energy-efficient transportation and activities as well as rotating exposure to fragile ecological sites. In addition, non governmental organizations and universities can provide critical research and advocacy.

Funding and financing:  Investing in green programs such as energy-efficient technology often yields positive financial returns. Many initiatives that require private funds pay off quickly through savings in operating costs, which can then be recycled into other green projects. In addition, destinations can often generate green funding by better leveraging their own resources, through introducing variable demand-based fee schemes to visit protected sites.

However, although many greening strategies indeed bolster the double bottom line, not all are financially profitable. In addition, destinations are not always able to generate revenue through their own resources. In these instances, external funding can provide seed capital for long-term sustainability efforts. Such funding includes global financing schemes such as clean development mechanisms, public-private partnership financing models, biodiversity conservation funds and international tourism development funds. Other key elements to consider include educational and capacity-building campaigns, which must be introduced to train local stakeholders about best practices and encourage them to implement and promote green policy. Simultaneously, strong public relations and marketing campaigns should raise awareness about upcoming changes, encourage stakeholder participation, and attract ecologically minded tourists and potential investors.

Many popular tourist spots in the region have a lot of catching up to do in order to become successful green destinations. Given the global trend toward green tourism, MENA destinations need to start their environmental transformation process sooner rather than later. The implementation of green strategy is no easy task, and it cannot be accomplished overnight through a series of quick fixes. Green initiatives should not be approached as a marketing campaign but rather a serious, holistic, long-term effort to become environmentally sustainable.

With its dizzying rate of growth and appeal to a growing number of travelers, the MENA region has a powerful opportunity to nurture its tourism sector’s sustainable practices. 

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Economics & Policy

Spring surge

by Executive Staff
written by Executive Staff

Growing investor confidence is being credited for February’s rise in the number of initial public offerings (IPOs) throughout the Middle East and North Africa, relative to both the previous month and the same period in 2009.

According to analysts, the rising tide in regional markets in early 2010 is gradually reviving market confidence.

Market experts say they expect the markets to move from “recovery to stability” and are encouraging companies which have already shown solid financial performance to try their luck in the capital markets.

“Overall, I see that the market is in relatively good shape, everything is fairly under control, such as inflation rates, and the financial results of publicly listed companies have been better than expected. I am optimistic about the market,” said Adnan Abu Ghazaleh, a senior financial analyst at Zawya.

Experts also say that private equity sponsors will be committed to forging ahead with a steady flow of portfolio companies, particularly with debt maturities closing in and results looking better as recessionary periods end.

In addition, investors should expect several large IPOs in the form of carve-outs or spinoffs of government assets.

The pipeline

Recent IPO announcements include Saudi perfumer Arabian Oud Company, which plans to offer a substantial portion of its shares to the public.

The company said it is now awaiting the final approval from the market authority to launch its IPO in the second quarter of 2010.

The perfumer, which operates a franchise across the Middle East and Africa, expects to open a new factory in Riyadh in March. Abdullah bin Mohammed al-Duwaish, the company’s vice chairman, said his firm had weathered the financial crisis well and was able to acquire “entire forests in Indonesia” during the downturn. Arabian Oud Company will be listed on the Saudi Stock Exchange.

Also in Saudi Arabia, City Cement Company, which was established in 2005 with initial capital of 550 million Saudi riyals ($147 million), will float 275 million shares — half of the company — in an attempt to raise around $74 million to fund its expansion strategy. The company has appointed Riyadh Capital as the financial advisor and plans to launch the IPO in the second quarter.

Tunisia will witness two IPOs in the first half of 2010, as the stabilizing capital market is encouraging companies to brave the local bourse and raise funds.

Government owned Compagnie Tunisienne de Navigation, a chartering and freight forwarding firm, will go public in early June as part of the government’s plan to privatize state assets. The company will be listed on the Tunis Stock Exchange.

Tunis-based Assurances SALIM, a provider of life and non-life insurance services, said it will float 25 percent of the company — 660,000 shares — and is seeking to raise around $7.1 million. The IPO will be launched March 1 and close March 12.

The region’s youngest bourse, the Damascus Securities Exchange, also launched its all-share index ‘DWX’ in February. The DWX will be displayed in the bourse’s daily bulletins. It is a market-value-weighted index and one of a multitude of measures the Syrian government is undertaking to develop the exchange.

Meanwhile, Aman Syria for Takaful Insurance plans to sell 51 percent of its shares in an IPO in the early part of the second quarter.

Aman Syria, which was licensed in 2008, has capital of $28.5 million, is 44 percent owned by Dubai Islamic Insurance and Reinsurance Co. and 5 percent owned by Al Salam Bank-Sudan.

Return to growth for IPOs

Analysts agree that 2009 was largely a “transition year.” Looking forward, several market developments are in place to allow a return to growth for IPOs in 2010.

The pace of IPO filings and announcements has picked up, with more than 150 IPOs planned for 2010, including a number of profitable, fast-growing regional airlines, high-profile real estate companies, and interestingly, a number of financial services firms.

The common theme experts see with the stronger deals is that investors are looking for opportunities to invest in growing companies. A quick analysis of the regional IPO pipeline as well as the broader backlog suggests that there is a significant supply of growth companies waiting to tap the markets, and the “decent” returns of 2009’s quality growth IPOs demonstrates that there is adequate demand to support it.

Even if broader equity market returns are mediocre, 2010 could nevertheless mark the beginning of a strong IPO cycle.

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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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