Comment

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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Comment

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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Society

Press and proliferation

by Spencer Osberg
written by Spencer Osberg

Mikhail Sergeyevich Gorbachev, the Union of Soviet Socialist Republics’ (USSR) final head of state, changed the course of modern history. Among other things, he ended the Cold War and a nuclear arms race with the United States and implemented the policies of ‘glasnost’ (openness) and ‘perestroika’ (restructuring) in the USSR through the 1980s, leading to a dramatic increase in social and political freedom, an end to the state’s centralized economy and the eventual dissolution of the Soviet Union in 1991.

Mikhail Sergeyevich Gorbachev, the Union of Soviet Socialist Republics </p> </div> </div> <div class=

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Society

Review: What’s really wrong with the Middle East

by Executive Staff
written by Executive Staff

There are many people in the Middle East who hold an opinion on the region’s ills, but whatever their view, very few choose introspection over finger pointing. Brian Whitaker, the former Middle East editor of The Guardian, in his new book “What’s Really Wrong With The Middle East” aims to realign the trend of shifting blame.

“The problems of the Middle East are always someone else’s fault,” writes Whitaker. “While the West blames dictators and extremists, Arabs often turn the tables, blaming centuries of foreign interference. Both sides are right, up to a point, but they both also ignore a large part of the picture.”

Education, education

The picture that Whitaker offers after interviewing “intelligent, independent minded people” (meaning not government officials or religious extremists) covers four central issues: knowledge, equal rights, secularism and citizenship. 

In surveying these four topics, Whitaker leaves no doubt that there is something deeply wrong with the region, underlining his views with a damning array of statistics.

Whitaker explains that, “Arab societies have, in the past, [balanced] science and Islam very successfully. But many of Islam’s contemporary manifestations are backward looking and anti-intellectual, while the high value placed on conformity in Arab societies is suffocating change.”

A lack of freedom is the fundamental problem that cuts through all the issues discussed in the book. Unlike the neoconservatives, Whitaker does not believe that regime change is the solution: “It is not enough simply to point to the prevalence of authoritarian regimes and imagine that whoever cuts off the monster’s head will be welcomed with flowers.”

Operation family freedom

Instead, Whitaker comes to a controversial conclusion that puts the problems of the Middle East into the homes of everyone in the region. “The regimes — even the most unpopular ones — are products of the societies they govern and to grasp the nature of the problem we have to start by looking at society’s buildings blocks.”

For Whitaker the family is the essential building block of society and he views “the Arab family as a microcosm of the Arab state.”

The book outlines the Arab family to be suffocating, patriarchal and authoritarian, and a structure, much like the Arab state, which suppresses individuality and imposes conformity. Whitaker does draw striking parallels between the family and the state but does not fully and convincingly explain his logical jump from the family as a microcosm of the state.

This is further complicated when Whitaker explores the issue of citizenship. As Egyptian journalist Khaled Diab, quoted in the book, states: “Arab regimes are more akin to those of colonial rulers than a government which has genuine roots among the people.”

It is no secret that the lifestyles of the ruling elite in the Arab world bear little resemblance to those they rule over. This gap of course is often caused by external powers propping up the various regimes in the Middle East, which is why some have called Whitaker’s argument an insult to the people of the region.

But of course this is just the kind of argument that Whitaker is trying to move away from. While not ignoring the issues of foreign interference, this book is an important call to focus on issues that are more immediate and malleable. Far from insulting the people of the region, this is a book that illustrates how people in the region can be empowered. In many ways Whitaker’s book is an important call to action, and highlights the fact that true regime change not only “starts at home,” but in everyone’s homes.

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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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Economics & Policy

Star-crossed lovers

by Sami Halabi
written by Sami Halabi

When you have been in a relationship with someone for centuries, breaking up is hard to do. Sure, you may bicker over seemingly trivial problems in your marriage, but more often than not, your history with that special someone has you running back into their arms.

Take Dubai and Iran. The two were engaged in a trading love affair long before either nation even existed.

That relationship has been blossoming of late, with trade between the two increasing threefold between 2005 and 2009 to reach $12 billion, according to the Dubai Chamber of Commerce. But with the threat of new sanctions being imposed on Iran and the financial crisis stemming Dubai’s previously inflated financial ego, that could all be about to change.

No more smooth sailing

On the surface at least, recent international developments have only brought the old couple closer together, especially for Iran which, faced with economic sanctions imposed by the United Nations and the United States, has been able to use the ports of Dubai as a forwarding station to get around such impediments.

The UN has passed three sets of sanctions against Iran which encompass a wide range of materials it deems can be potentially employed in the enrichment of uranium, in addition to freezing the assets of persons it has identified as aiding Iran in its nuclear ambitions. The US has imposed its own set of more stringent sanctions and has forbidden its companies from engaging in financial and commercial transactions with the Islamic Republic.

Notwithstanding these restrictions on trade and financial activities, Iran seems to have come out relatively unscathed — so far. In April, The Wall Street Journal reported that only around $43 million in Iranian assets had been frozen in the US, which amounts to roughly a quarter of what the country makes in oil revenues in one day.

In recent years however, the US and their allies have taken a sharper aim at Iranian businesses or those that have dealings with Iran. In October 2007, Washington imposed sanctions on three large Iranian banks: Bank Melli, Bank Mellat and Bank Saderat. Since then, Iranian businesses in Dubai have been taking flak.

“The Iranian businessmen in Dubai are the ones being hammered badly by the sanctions,” says Morteza Masoumzadeh, a Dubai based-shipping agent and a vice president at the Iranian Business Council in Dubai. “The sanctions have had no effect at all on the Iranian government’s nuclear activities, as we can see, they are progressing every day.”

According to Masoumzadeh, some 400 Iranian businesses have closed since the downturn in Dubai. While he admits that some of these closures were caused by the emirate’s real estate bust, he says that “the majority of them have closed their businesses due to the restrictions on Iranian banks and the subsequent restrictions applied by the local banks.”

To make matters worse for Dubai, the past few months have seen a series of calls from Western nations — particularly America — for new and stronger UN sanctions. In March, US President Barack Obama called for sanctions to be imposed “in weeks.”

Since then, a wave of international companies have announced plans to scale back or cut ties with Iran, including international oil companies Eni, LUKOIL and Royal Dutch Shell, Indian refiner Reliance Industries, US construction and mining equipment maker Caterpillar and German carmaker Daimler, as well as KPMG, PricewaterhouseCoopers and Ernst & Young. But while these international pullouts may perhaps be a significant harbinger of things to come, it is businesses closer to home that stand to lose most.

“The [United Arab Emirates] is Iran’s most important trade partner, before Germany and China, so any sanctions would hurt both sides, especially Dubai,” says Eckart Woertz, the economics program manager at the Gulf Research Center.

The US State Department has also placed the UAE in the crosshairs, threatening in 2007 to classify the country as a “destination of diversion concern,” according to Bloomberg. The pressure seems to have worked to some degree, as last August the Emirates commandeered a boat from North Korea allegedly carrying weapons to Iran.

Arms smuggling, however, is not the concern of most traders, whose legitimate business between Dubai and Iran is threatened.

“We have tried to go through local banks here to get facilities, but we have reached the point where they prefer not to get involved with Iranian businesses,” says Masoumzadeh. His main complaint is that banks in the UAE have stopped issuing letters of credit (LC) to facilitate trade between the Emirates and their Persian neighbors.

“The UAE banks…won’t issue an LC to our overseas suppliers with the name of an Iranian port in it,” said Masoumzadeh.

The worst to come

Last month, some apparent progress was made on the international front concerning Iran’s controversial nuclear program, when the Islamic Republic inked a deal brokered by Brazil and Turkey to swap outside its borders low-grade nuclear material for enriched uranium to use in its power plants, something it had previously refused to do.

Nonetheless, the move seems to have been brushed off by the West; the next day US Secretary of State Hillary Clinton announced that she had agreed on “a strong draft” for UN sanctions “with the cooperation of both Russia and China.”

For the Emirates though, much will depend on what course of action Abu Dhabi decides to take when it comes to implementing a further round of sanctions, or imposing stricter controls on existing activities between Iran and Dubai.

“Abu Dhabi is less reliant on the Iranian trade and has traditionally played a leading role in the foreign policy formulation of the UAE since its unification in the 1970s. Dubai, on the other hand, has concentrated more on its economic role,” says Woertz.

Abu Dhabi has also been vocally hostile towards Iran lately over a long-standing dispute about oil-rich islands in the Persian Gulf that are currently controlled by Iran.

“Occupation of any Arab land is occupation… Israeli occupation of the Golan Heights, southern Lebanon, West Bank or Gaza is called occupation and no Arab land is dearer than another,” said Sheikh Abdullah bin Zayed al-Nahayan to the official UAE news agency, Wakalat Anba’a al-Emarat, in reference to the islands in late April.

The burgeoning capital has already put forward some $20 billion to save its little brother Dubai from defaulting on debt repayments, with estimates of Dubai’s total debt varying from a low of $80 billion to as high as $170 billion.

“The equation for Abu Dhabi and the UAE in particular is probably the toughest equation for any country in the world,” says Hady Amr, director of the Brookings Doha Center, referring to the decision to go along with tougher sanctions against Iran. “You can’t just lend your cousin money and then tell them to quit their job.”

According to the Iranian Business Council’s Masoumzadeh, 70 percent of his business has vanished due to existing restrictions on credit facilities. “If [the United Nations Security Council] comes up with a ban restricting shipping goods to Iran, for sure the other 30 percent of our business will also go.”

But, as the old adage goes, times of crisis always breed times of opportunity. The US trade ban on Iran currently does not apply to subsidiaries of US firms dealing with Iran if they do not have an operational relationship to the parent company. Even decisions by companies like Caterpillar, which ordered its subsidiaries not to sell goods to Iran, will not have a great effect on the supply of American goods to the country, given that the secondary market can hardly be controlled.

“As far as the Dubai customs are concerned, when a printer lands at the Dubai port, whether it is an HP, Samsung or Brother; its a printer, customs officials don’t care about the brand of the product as long it is not listed with the prohibited materials,” says Masoumzadeh, who added that the same applies at ports in Kuwait, Turkey, Indonesia and Malaysia. “The American administration can send out a circular to their producers saying ‘do not ship or sell American products to Iran’… but instead of buying HP products, end users in Iran buy Samsung. The Americans have, in reality, [just] eliminated their own producers from selling more goods.”

It is easy see that short-term profits are up for the taking: given that trade between Dubai and Iran has been increasing despite the sanctions, it seems increasingly likely that as international companies pack up and move out, regional companies can take advantage of the void left behind.

“You go in, you make a lot of money and then as the political pressure mounts you make a big fuss about why you are being asked to pull out,” says Brookings’ Amr. “If you are going to be asked to pay the price, you ought to be compensated. From the world that we are in, it seems that is a pretty successful way to do business.”

So, while the West may scold Dubai for its economic infidelity in its centuries old embrace of Iran, it is likely that the Persian allure will keep the emirate close — at least until a more attractive beau comes along. 

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Consumer Society

The ABC of corporate crisis management

by Dima Itani, Zeina Loutfi & Ramsay G. Najjar
written by Dima Itani, Zeina Loutfi & Ramsay G. Najjar

 “May you live in interesting times.” More than ever before, this Chinese curse painfully rings true for companies treading today’s dangerous world, prone to corporate crises and scandals on a daily basis.

With the recent global economic downturn, companies worldwide have been undertaking significant cost-cutting to stay on their feet. But cutting costs means cutting corners and slacking off on quality. Last year’s melamine scandal that surfaced in China and shook the world showed us exactly what can happen when some companies are financially squeezed, when in an attempt to cut costs, dairy farmers and distributors ended up poisoning and even killing people, including infants.

The financial crisis has also contributed to a more hostile and cynical environment, with rampant mistrust that has the public ready to pounce and punish companies in the event of the slightest mishap. This is compounded by an increasingly connected public, making it much easier for scandals to break and spread, and where one frustrated customer on Twitter can cost a company millions of dollars.

In such merciless times a company mishandling its response to a crisis can mean its demise, the fittest are the ones that successfully deploy the right crisis management and communication strategy. This means following the ABCs of crisis communication, which can get a company through any ordeal with its reputation intact.

Act swiftly

Whenever there is a hint of a corporate scandal, the general inclination is to follow a “wait and see” approach, allowing the issue to unravel before deciding on the measures to be taken. Although this might seem like the reasonable thing to do, when many facts have yet to unfold and reactions have yet to emerge, a company that decides to test the waters to see how the public will react and then make a move will unmistakably be throwing itself into a blaze and is unlikely to emerge unharmed. Moving quickly is essential to mitigating the crisis, as stakeholders need to be reassured that the organization is committed to immediately investigating the issue at hand and ultimately taking the proper actions.

Johnson & Johnson’s handling of the poisonous Tylenol crisis is always used as a best practice example when it comes to acting swiftly; the company not only launched its investigations but immediately, and in parallel, sent out an instant alert about the dangers of the Tylenol product on the market at the time and recalled around 31 million bottles with a retail value of more than $100 million. Johnson & Johnson sent out a clear message that it puts customer safety first, before worrying about profit or reputation, by promptly responding to the crisis and assuming responsibility of the tampering of Tylenol although it was not directly responsible for the poisoning, and then proceeding with the complete investigation.

However, moving swiftly should certainly not imply acting brashly or responding before having reached a clear understanding of the issue, as Perrier learned the hard way. When traces of benzene were found in Source Perrier’s bottled water, the company issued a rushed explanation, which later turned out to be incorrect. This only served to undermine the company’s credibility and reputation.

Be transparent

There is no denying that transparency has become an essential value in the corporate world, with stakeholders considering it a fundamental right that companies provide them with all the information that might be of interest to them. Today, more than ever, the public holds companies accountable for their level of transparency and crises are no exception to the rule.

It is therefore imperative that, whenever a crisis emerges, the company openly acknowledges the problem, if in fact there is one, and accordingly assumes responsibility, regardless of the costs it may incur.

There have been many examples across history of companies withholding the real facts, trying to cover up the truth or spinning it in the hopes of escaping unscathed, and in almost every single case, this strategy backfired and ended up in severe and irreparable damage to their brand image, stock value and sales.

A recent example was when Coca-Cola launched Dasani water in Europe as a “pure, still” water. Soon after, the media broke the story that it was not natural spring or mineral water but purified water being sold for 3,000 times its price. Samples of the water were also found to contain a cancer-causing chemical, causing Coca-Cola to recall the product. Throughout the crisis, Coca-Cola responded to the accusations by using half-truths, issuing defensive statements denying the public concerns, and repeating its marketing messages. By spinning the truth, Coca-Cola only dragged out the crisis, made stakeholders even more wary of the company and left everyone wondering what the truth was about Dasani.

Choose the right spokesperson, message and channel

The time of a “one size fits all” approach has come and gone. This cannot be truer when it comes to crisis management. The nature of the issue, its extent and scale, who it has affected and its future repercussions, are only some elements that should imperatively determine the person who should be assigned to handle the crisis publicly. Whereas the company’s head of public relations can successfully ward off damage in a certain crisis, only the chief executive officer should address the issue in another, as the choice of spokesperson can speak volumes as to the seriousness and importance that the company is giving to the concerns of its stakeholders. In some cases, only the more knowledgeable person in the specifics of the issue should provide a direct and detailed response to the crisis.

A clear example was when the CEO of JetBlue Airways took it upon himself to address disappointed and upset customers and apologize to them, after a severe ice storm brought operations to a standstill and subjected passengers to major inconveniences. He also created a blog on the airline’s website where he personally addressed customers’ questions and interacted with them.

When it comes to communicating the right message, none can be more effective than a message of stalwart commitment to stakeholders and of placing their well-being and interests ahead of all other considerations. This implies adopting the right tone of sincere regret, apology and dismay in the case of harm that is caused by the company in one way or another. It also entails explaining the corrective measures to be put in place and, when warranted, the punitive actions that will be taken to hold those responsible to account.

Continuing with the JetBlue example, when their terminals buzzed with hundreds of disgruntled passengers and the airline was facing a maelstrom of criticism, the CEO adopted a suitable apologetic tone whereby he expressed the company’s true remorse for disrupting passengers’ schedules. He also explained how JetBlue was going to rectify the situation and emphasized that

corrective measures were going to be taken in order to avoid such problems in the future, among which was the “JetBlue Airways Customer Bill of Rights,” the company’s commitment to its customers as to how it will handle uncontrolled operational interruptions in the future, including details of compensation.

What sets a company apart today is not whether it monitors the web and social media platforms for burgeoning crises, but whether it also successfully leverages these channels to reach, inform and reassure its stakeholders. In January 2009, the Peanut Corporation of America announced a recall of peanut butter products due to salmonella contamination.

During this crisis, a comprehensive social media campaign was rolled out, using new media channels like blogs, eCards, text messaging, podcasts, online videos, social networking sites, widgets, micro-blogs and virtual worlds such as Second Life. The crisis communication fittingly leveraged these new channels, which reached and informed consumers, successfully mitigating the crisis and eventually saving many lives.

A savvy company in today’s world is the one that not only wards off damage to its brand and reputation in the wake of a crisis but also turns it into an opportunity to strengthen bonds with stakeholders by showing deep concern and unfailing commitment to their well-being. Successfully handling a crisis takes a disciplined implementation of the basic ABC principles of crisis communication, a formula that can break the curse of our tumultuous times and turn them into fruitful ones.

Dima Itani, Zeina Loutfi& Ramsay G. NajjarS2C

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Society

City of Gold: Dubai and the Dream of Capitalism

by Executive Editors
written by Executive Editors

The first power plant was established in the Emirate of Dubai in 1961 when citizens of the small city-state still lived a life dominated by their desert environ. Half a century later, residents of Dubai consume more electricity per capita than any other person on the planet. But now, with local and global financial crises tapping the breaks on unrestrained development, it may be time to reflect: what exactly has happened to Dubai in the last 50 years?

Jim Krane, the Associated Press’ former Gulf correspondent, attempts to make sense of the phenomena that is Dubai in his new book, “City of Gold: Dubai and the Dream of Capitalism.”

“Dubai is a city of incongruities. The roads are modern but the network is incoherent. The cars are advanced but driving is anarchic. Malls are rife but there is no art museum. The airport is world class, but education is substandard,” he writes. “An optimist would say that’s the essence of an emerging market, the reason Dubai crackles with opportunity. A realist would point to a government that preferred impulsive decisions to level-headed planning.”

Krane gives fascinating accounts of how the ideas for the Burj Al Arab, the Palm and the tallest building in the world, the Burj Khalifa, came to life. The style of the book is journalistic, giving space to both sides of the story and ensuring the people he interviews do most of the talking.

The first half of City of Gold details the rapid rise of Dubai from its early history to the present day and its conception of the capitalist system; the second half of the book attempts to look at Dubai’s darker side of labor abuse, environmental degradation, prostitution and slavery. However, one can gather this book was written with the understanding that certain sections, such as Sheikh Mohammed’s profile, are due great import, while negative airings ought to be minimized. Krane is reluctant to stick his neck out in areas that may get it chopped off. Subsequently, the book does not venture much beyond what is already widely understood about Dubai.

A liberal autocracy

Dubai, as a capitalist bastion run by an autocratic regime, “enjoys broad social freedoms which substitute for its lack of political ones,” writes Krane, but he fails to make the case. Instead, Krane does the unthinkable and quotes British diplomat Anthony Harris: “People don’t want to replace tribal rule. It is my absolute conviction that they are happy with it.” Krane adds that the British government has done more than anyone to keep the Maktoum family in power.

Yet virtually every topic Krane approaches needs more fleshing out, and he seems to take the official line as Bible truth. Hard questions are not asked.

Do, or rather can, social freedoms substitute for political ones? Are they interchangeable? What do those living in Dubai think? Krane leaves unexamined the thoughts of Emiratis and long-term residents regarding their transformation from small-scale traders to the capitalist elite. We know Dubai has been an economic success but has it been a social one?  

Dodging tricky questions is what City of Gold does unfortunately well. It is packed with superficial generalizations, dubious conclusions and giant leaps of faith. When it comes to “Arabs,” Krane seems to patricianly revel in stereotypes: “Sheikh Rashid maintained a punishing work ethic in a region known for languor.”

The racist typecasting aside, the  book is redeemed by its strong individual stories and characters, while Krane’s writing style is nicely readable. Where he falls short of deciphering the hugely complex phenomena that is Dubai, he excels at conveying singular stories within it.

The knowledge deficit 

Ironically, City of Gold and Dubai are susceptible to a similar criticism: exhibiting a profound lack of originality.

“They [Dubai] haven’t produced anything useful for the human condition,” states Rami Khoury, director of the Issam Fares Institute for Public Policy at the American University of Beirut, as quoted by Krane.

This is Dubai’s crux — can the emirate create institutions that contribute something new? Can Dubai be worth more than simply money?

Krane asks Khoury if Dubai could achieve the heights of Cordoba: “It’s noble to aim that high. But does he have the courage to go all the way? Cordoba needed creative and scientific talent. People were allowed to discuss ideas, do research, and engage in debates. It’s not yet clear whether the leadership in Dubai is prepared to open the system to full use of intellectual and cultural talent.

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Finance

Regional equity markets

by Executive Editors
written by Executive Editors

 Beirut SE  (One month)

Current year high: 1,200.49    Current year low: 705.56

The Beirut Stock Exchange recorded marginal index movements and abnormally high turnover in the first trading weeks of 2010, the latter due to a spike in big-scale bank selling and buying. The MSCI Barra Lebanon index closed at 1110.97 points on January 22, a drop of less than half a percent from the start of the year. The big turnover came from the sale of 7.5 million common shares in Bank Audi Group, which were sold by Egyptian investment bank EFG-Hermes in a $913 million divestment on the Lebanese and international bourses. Big bank deals also included one between Byblos Bank and the World Bank’s International Finance Corporation. The IFC bought 8% of Byblos Bank for $100 million on January 22. Turnover on the Beirut Stock Exchange soared to a daily average of $51 million, compared to 2009’s $3.5 million daily trading average. 

Amman SE  (One month)

Current year high: 2,968.77    Current year low: 2,454.48

The Amman Stock Exchange started 2010 with no clear direction. The ASE

index climbed between Jan 6 and 14 but gave up those gains in downward momentum that commenced on Jan 19. The close of 2,525.75 points on Jan 24 put the market 1.4% lower than the start of the year. Average daily trade value in the review period was $33.56 million, marking a slow market below the 2009 average daily turnover of $51.53 million. According to statistics published by the ASE, total trade value in 2009 had been $13.7 billion, less than half of what it was in 2008. Sector indices moved disparately in the January review period; the insurance index showed the strongest fluctuations and on Jan 24 closed 2.63% lower than the start of the year. Banking and services also underperformed the general index, by 1 and by 0.56 percent, respectively. The industrial sector ended the period 0.2% up.

Abu Dhabi SM  (One month)

Current year high: 3,239.74    Current year low: 2,137.15

The emirate’s newly acquired bragging rights to the name of Dubai’s super-burj notwithstanding, Abu Dhabi investors could cheer only very quietly in the first 16 trading sessions of 2010. Losing days outnumbered winning days three to one in the review period and the ADX index ended 5.2% down on January 24, when compared with the start of the year. Average daily turnover was $45 million in the review period, low when compared with the $76 million average daily trade value in 2009. By sub-indices in January 2010, the telecoms index did better than the pack but was still down 2.7%. Banking, construction, consumer and energy indices were all range-bound with the general index; the industrial index underperformed somewhat but the real estate sector tanked. It closed 17.76% lower on January 24 when compared with the start of the year.

Dubai FM  (One month)

Current year high: 2,373.37    Current year low: 1,433.14

Despite the emirate’s newly opened super-tower, Dubai equity markets stepped right into a hole with the arrival of 2010. Down 12.95% versus the December 31 close, the DFM benchmark index closed Jan 24 at 1,570.09 points. Newly cross-listed Kuwaiti telecoms firm Hits Telecom was the exception in January performance as it gained 30.4% since its market debut at the end of December. Sector indices were universally down; real estate was tugged in on Jan 24 with a 25.8% loss since the start of the year. Aramex and Commercial Bank of Dubai were the only home players that achieved small gains in the review period. For all other stocks, the elevator traveled to the lower floors and the Dubai Financial Market scrip ended up in the basement — with a share price loss of 23.4%. Emaar Properties, not far behind, closed 23.1% down and Arabtec Holding dropped 19%.

Kuwait SE  (One month)

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

Stocks on the Kuwait Stock Exchange moved at divergent strides in January; the presence of gainers in the 30% range was opposed with stocks that dropped up to 26%. The KSE general index closed at 7024.50 points on January 24, a quarter of a percent up when compared with the last close in 2009. Food, real estate and services were on the upside of the monthly charts in the January 2010 review period, whereas banking and investment indices pushed to the downside. Volume was muted in January with average daily trading value at $202 million, meager when compared with $305 million average daily turnover in 2009 and $545 million in 2008.  Al Safat Energy Holding was the strongest gainer in the review period with a 34.9% share price gain. The National Company for Consumer Industries was at the other extreme of the scale with a drop of 25.8%.

Saudi Arabia SE  (One month)

Current year high: 6,568.47    Current year low: 4,130.01

Saudi market sentiment was friendly in January, with more upside than downside sessions; the TASI benchmark index closed at 6,301.94 points on January 24, 2.6% higher when compared with the last close in 2009. Average daily trade value in the review period was $812.4 million. As in the other Middle East and North Africa markets, average daily trade values on the Saudi Stock Exchange in January were considerably reduced when compared with average daily turnover in 2009, which on the SSE was $1.33 billion. The investment sector excelled in the review period, with a gain of 12.1%. Banking and agriculture/food added more than 4% each. The media and publishing sector was an outlier on the downside, showing a 5% drop in its sub-index. Market cap leader Sabic gained 7.6%. Climbing 50%, Kingdom Holding Company was by far the strongest gainer in January.

Muscat SM  (One month)

Current year high: 6,762.94    Current year low: 4,575.99

Tracing the path of the simple hill, a modest rise in the Muscat Stock Exchange index in the first days of January and an equivalent drop in the second half of the review period evened out to a zero-sum game where the MSM index closed at 6,367.78 points on January 24, down 2%, or one point and two tenths down from the last close in 2009. The average daily turnover was  around $16.5 million, down from an average daily turnover of $23.7 million in 2009. The industrial, services and banking sub-indices ended the review period down by 2.1%, 2.3%, and 2.4%, respectively. Unlike with some of their Gulf Cooperation Council peers, the Omani financial markets suffered no disturbing headline scandals or very untoward investment risk stories in the first weeks of 2010. 

Bahrain SE  (One month)

Current year high: 1,696.46    Current year low: 1,413.81

A step dance sideways with a positive bias was how the Bahrain Stock Exchange welcomed 2010. The BSE index closed at 1,471.44 points on January 24, representing a gain of 0.9% when compared with the last close in 2009. However, average daily trading value slumped in January at slightly over $1 million, just over half of the average daily turnover of $1.9 million in 2009, which in turn was down sharply on the $8.4 million recorded in 2008. Sector indices on the BSE during the review period showed banking coming out on top with a gain of 8.43%. Hotels and tourism, industry, services and insurance indices all underperformed the general index slightly, which left the investment sector as the main loser with a drop of 2.94% in the period. Ahli United Bank and Gulf Finance House were the best individual gainers, closing 19.5% and 17.9% higher, respectively.

Doha SM  (One month)

Current year high: 7,624.45    Current year low: 4,230.19

Qatar’s stock market slipped into 2010 and the Qatar Exchange’s benchmark index closed at four sixes — 6,666.00 points — on January 24, marking a loss of 4.21% from the start of the year. All sectors moved lower, banking suffering the least (3.1% down) and services the most (8.8% down). The real estate sector was the real culprit in driving the market lower. The announced merger of Qatar Real Estate Investment Co. into Barwa Real Estate drove QREIC shares up in the first part of January, but the overall sector trend was down. Ezdan Real Estate nosedived 43.4%, Barwa dropped 18.5%, and United Development Company (UDC) fell 5.6%. As the review period closed, UDC announced a 62% higher net profit for 2009, compared to 2008. January turnover on the QE averaged $58.4 million for each of the 17 trading sessions, compared with a $99.7 million daily average in 2009 and $189.8 million per session in 2008.

Tunis SE  (One month)

Current year high: 4,594.76    Current year low: 2,943.71

The Tunindex entered 2010 by continuing its journey on the same course as in 2009: northward. Index values leapt more than 200 points in a few sessions in early January and the market closed at 4,586.18 on January 22, a new record. The uptrend was not all-encompassing, though, and the dozen of losing stocks in the period included Tunisair, with a drop of 5.2%. Companies in telecommunications, banking and manufacturing led the Tunisian exchange higher in January. With a gain of 20.1%, BIAT Bank ended the period as the exchange’s market cap leader. On the next rungs of the market cap ladder, Poulina Group and Banque de Tunisie recorded smaller gains of 0.5% and 1%. Infusion of fresh blood into the Bourse de Tunis is expected this year through IPOs of ferry operator CTN and of insurance company Tunis Re.

Casablanca SE  (One month)

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

Completing the good readings of the North African trio, the Casablanca Stock Exchange index ascended more than 700 points between Jan 5 and Jan 20 when it closed above 11,000 points for the first time since October 20, 2009. Weakening slightly at the end of the review period, the Casa All Shares Index closed at 10,920.14 on January 22. Of market heavyweights, market cap leader Maroc Telecom advanced 8.5% while number two, Attijariwafa Bank, shed 0.9%. In the real estate sector, Group Addoha climbed 12.7% while CGN gained 2.4%. Average daily turnover in 2009 was recorded at $18.7 million, versus $43 million per average trading day in 2008.

Egypt CASE (One month)

Current year high: 7,249.55    Current year low: 3,389.31

Reaching a close of 6,657.42 points on Jan 24, the Egyptian Stock Exchange index EGX 30 achieved a 7.23% gain from the start of the month, with notable profit taking occurring at the end of the review period. The market’s $236 million average turnover in January was a step up from its average daily trade value of $200 million in 2009. The Egyptian bourse was not only a good performer in terms of index gains in 2009 versus other regional exchanges; its average daily trading value last year was less than a third lower than in 2008. Among large cap stocks, EFG-Hermes showed a period gain of over 20%. Share prices of the investment banking group rallied in the first two weeks of 2010. EFG-Hermes’ announced sale of its stake in Lebanon’s Bank Audi Group on Jan 18, realized a substantial capital gain.

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