Executive Magazine

Shadows of foreclosure

by Emma Cosgrove February 3, 2010

written by Emma Cosgrove

A Dubai court issued a precedent-setting ruling last month that may be a game changer for the emirate’s real estate market. When the housing bubble burst and Dubai’s properties lost an average of 52 percent of their value, many homeowners fled the country to escape mortgages that had become worth more than the value of their homes.

But British bank Barclays, in the court judgment on January 11, won the right to repossess these properties and auction them off in traditional foreclosure proceedings.

The ruling is the first application of Dubai’s 2008 foreclosure law, which had yet to be put to use. Until 2008, the United Arab Emirates’ legal system made foreclosure and repossession difficult if not impossible, leaving banks with the options of settling loan defaults out of court or simply waiting for the economic climate to improve so that they could begin collecting from their debtors again.

“The court’s decision in Barclays’ favor strengthens our belief that the UAE property market is evolving in line with other mature markets,” said Zeeshan Saleem, Barclays consumer banking director, in a statement. “Customers’ financial wellbeing is our key priority. We understand that the global financial situation may have impacted some of our customers and that they may face challenges in meeting their financial commitments.”

In September, the ratings agency Moody’s predicted that 12 percent of Dubai’s 27,000 mortgages would default within 12 to 18 months. According to UAE central bank statistics, bad or non-performing loans rose by 10 percent from October to November, totaling $8.7 billion.

Price protection

Under the new law, lenders must give 30 days notice before beginning foreclosure proceedings before a judge. If the claim is found to be legitimate, the property is turned over to the Dubai Land Department, which will sell foreclosed properties at auction. If the result of the sale is less than the amount owed by the debtor, the bank may collect the rest from the borrower, in accordance with the mortgage contract.

If, to the contrary, the auction price exceeds the value of the mortgage, the balance is returned to the borrower; with Dubai’s housing market still in the dumps, however, this scenario is unlikely.

According to legal experts, the whole process will take between two and four months.

Though Barclays will be foreclosing on an unnamed number of properties along with the region’s largest mortgage lender, Tamweel, which has several foreclosure proceedings in progress, industry sentiment is that this ruling will not lead to an avalanche of foreclosures before the courts.

“[I’m] not sure if [banks] will be rushing to repossess properties and then have to sell the properties into a still depressed market,” said Robert Thursfield, director of financial institutions at Fitch Ratings.

Christopher Neil, chief executive officer of real estate investment consultancy Landmark Advisory said: “Banks will go to the courts and make use of this law if there is no other way of trying to resolve the default situation, [but] they will try other means before doing so.”

“If, however, the borrower has left the country, then the bank has little choice but to go to court.”

The main worry is that flooding the market with foreclosed properties at auction will bring down prices in an already suffering market.

“The local banks in particular will not want to push prices down further and exacerbate the negative equity in their lending portfolios,” said Neil, adding that this was a common notion across the banking sector.

“Banks will adopt a number of strategies to avoid foreclosure such as extending payment terms, agreeing to accept interest payments only, deferring interest so that installments become more manageable, or persuading borrowers to downgrade thereby releasing equity for repayment.”

“Eventually when prices rise again, they will then be able to repossess the properties and sell them to cover outstanding debts.”

February 3, 2010 0 comments

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Sectarianism ends at home

by Sami Halabi February 3, 2010

written by Sami Halabi

As Mediterraneans, we Lebanese like to compare ourselves to our Italian counterparts in more ways than one: our food, our way of life, our weather; the list goes on. But one, perhaps less desirable, similarity is just starting to be addressed by our Mediterranean cousins. Last month, an Italian judge ordered a father of a 32-year-old to pay his daughter’s allowance, which came to $490 per month, as well as $16,850 in arrears or risk having his assets confiscated. The ruling was slammed by Italy’s Minister for Public Administration — who described the ruling as “a slap in the face of good sense” — calling for a new law to force Italy’s bamboccionas, roughly translated as ‘big babies’, to leave home by the age of 18.

Generally speaking, laws that dictate to the public how they should conduct their lives are antithetical to free societies; but considering that more than 59 percent of Italians under the age of 34 still live at home, the proposed law could be a welcome exception.

Looking to our own country, a similar pattern of refusing to fly the nest emerges. The lack of a census makes hard numbers impossible to come by, but the phenomena of the bambocciona in Lebanon is perhaps embodied in a well known Arabic proverb: “Those who live with their parents [can] take it easy.”

Taking it easy, however, has far-reaching economic consequences. Without incentives for progress, societies naturally become inefficient and lose economic footing. Just look at the former Soviet bloc’s economies during the Cold War or that of Cuba’s today. Conversely, societies that push their youth to “find their own path” not only encourage (or force) them to find a job, retain it, and develop their own ideas independently from their family; they also, in effect, encourage integration within society that breaks down cultural stigma and religious discrimination.

With a little help from the Allies in World War II, the Italians managed to scrap their most deplorable political construct: fascism. Even with the horrors of a 15-year civil war, the Lebanese have still not managed to do away with their primary political ailment, sectarianism, since it reared its ugly head in the mid-1800s.

The conflation between the bambocciona and the protraction of sectarianism in society is significant in the Lebanese context since children are first and foremost susceptible to their parents’ ideologies. In a seemingly endless and vicious cycle, children raised in a sectarian household pick up the bitterness of the previous generation, add their own context to it, and inevitably hand it over to their children. What’s more, young men and women typically leave the nest only when they are married, usually to someone from the same sect and political mindset, thus compounding the problem and making any break of the cycle virtually impossible.

It is almost laughable to observe Lebanon’s political class squabbling over the establishment of a committee to merely study the abolishment of political sectarianism, let alone sectarianism in general. Firstly, those spearheading the initiative — the parliamentary opposition and more specifically the parliamentary speaker — have little political interest in implementing tenants of the Taif accord, which mandated that a non-sectarian senate be formed who’s head would rival the speaker’s for political influence. Hence, it’s quite obvious that the call is little more than a political parry to the parliamentary majority’s thrust over the issue of Hezbollah’s weapons.

For their part, the Christian parties in the parliamentary majority and opposition are up in arms and clinging to the rights accorded to them by the institution of political sectarianism. Those with the most to gain from sectarianism, the country’s religious figures, predictably balked at the mere suggestion of setting up the committee. The last time civil marriage was proposed, the Sunni mufti rejected it outright, as did the Maronite patriarch out of “solidarity” with his Muslim counterpart. To top it off, the prime minister could only muster the sentiment that any agreement should be based on a “consensus,” the Lebanese code word for indefinite delay.

With all this bickering in the political sphere just to establish a committee, waiting for our “leaders” to resolve the issue is tantamount to “Waiting for Godot.”

While enacting policy in Lebanon to force youths out of their homes and into the real world may be a tad excessive — not least given the economic hardships Lebanon has faced since the end of the civil war — creating the societal structures to produce a healthier and more economically vibrant country has to start somewhere. It’s not going to start in the halls of government, so it might as well start at home. Babies have to stop crying sometime, no matter how big they become.

SAMI HALABI is the deputy editor of Executive Magazine

February 3, 2010 0 comments

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Tight-lipped Libya’s brazen bluff

by Paul Cochrane February 3, 2010

written by Paul Cochrane

When sanctions against Libya were lifted in 2004, international oil companies (IOCs) viewed the former rogue state as the El Dorado of black gold, and clamored to be the first to exploit the country’s riches after a 30-year hiatus. But five years later, IOCs are reining in their enthusiasm as doubts arise over how much oil Libya really has.

As international relations thawed, Libya’s National Oil Corporation (NOC) embarked on a global campaign to attract IOCs, offering competitive bidding rounds to explore and develop the country’s energy reserves. Part of the enticement was an oft repeated statement that 70 percent of the country was yet to be explored for oil and that Libya had 39 billion barrels in proven reserves.

These ‘facts’ are still doing the rounds, with the “BP Statistical Review of World Energy 2009” and the United States’ International Energy Agency (IEA) stating Libya has 43.7 billion barrels of proven oil reserves. At face value, this would mean Libya has the fourteenth largest reserves in the world and the largest in Africa, ahead of Nigeria’s 36.2 billion barrels.

But Libya, like the majority of oil producing countries, has been playing it thick and fast with their figures. A leading petroleum geologist familiar with Libya, who asked for anonymity so he could still work in the country, told me: “[The reserve] is nothing like that, it is a third to half of that figure.”

That would mean anywhere between 14 to 21 billion barrels, placing Libya second in reserves in Africa, ahead of Algeria’s 12.2 billion barrels. And as for 70 percent of the country being unexplored, that figure is “nonsense; it is very well explored,” said the source.

The geologist added that the amount of reserves that Libya actually has are evident at the NOC’s technical conferences, where diagrams are shown that indicate less than half of the official government figure — if you know what you are looking for. When the presenters are questioned in public, “they squirm,” the source said, but when queried in private on a technical basis they agree that Libya doesn’t have the reserves it claims.

There was further indication that Libya has been inflating the figures when the NOC last year revised their production capacity target of 3 million barrels per day by 2015 down to 2.3 million barrels per day.

The exploration licenses Libya granted to IOCs are also indicative of there being less in the ground than hoped. Out of the 90 wells drilled after the country’s most recent exploration and production sharing arrangements — the EPSA-4 acreage, launched in 2004 — only five discoveries have been made. International oil and gas exploration and production company Occidental has had a zero success rate, drilling 18 dry wells.

IOCs are now banking on the Sirt, Ghadames and Kufra fields to turn up trumps, but even if there are sizable finds they are unlikely to boost the reserve’s figure to 43 billion barrels. The NOC’s current policy is to focus on developing existing fields — there are an estimated 60 to be tapped — rather than offer IOCs expensive tenders to explore territory that may well draw a blank.

So why is Libya cooking the books? One reason is that it attracts more foreign direct investment (FDI) and interest from IOCs, similar to how countries like to boast of huge FDI inflows yet fail to mention that however-many billions of dollars is over 10 years or has been ‘pledged’ in investment — very different from actual annual inflows. Secondly, it puts Libya in a better bargaining position within the Organization of Petroleum Exporting Countries (OPEC) when it comes to oil quotas.

“It isn’t acceptable within the NOC to question [the] numbers because [they are] given for political reasons, for political advantage within OPEC,” said the source.

But why would BP and the IEA back up the Libyan figures? Well, the British oil giant is operating in Libya and presumably doesn’t want to ruffle any feathers. As for the IEA, its credibility came under fire last November when a whistleblower said the agency was deliberately underplaying an impending global shortage over “fears that panic could spread on the financial markets if the figures were brought down further.”

The game that Libya is playing is dangerous and, alas, one that it is not playing alone. Saudi Arabia, the world’s largest oil producer, has never been transparent with its reserve figures, nor are the majority of OPEC producers.

If we can’t take oil reserves at face value and trust them, then how much oil is there? If you subtract 20 odd billion barrels from Libya’s ‘proven’ reserves, and so many billion barrels from, say, Saudi, Algerian and the United Arab Emirates’ reserves, among others, then the total global oil reserves would be substantially less than claimed. It’s time Libya — and everyone else — starts telling it like it really is or the financial markets could be in for yet another turbulent ride.

PAUL COCHRANE is the Middle East correspondent for the International News Services and writes for Petroleum Review

February 3, 2010 0 comments

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Total tiptoes back to Iran

by Gareth Smith February 3, 2010

written by Gareth Smith

President Barack Obama’s Iran policy is complicating the calculations of all parties interested in the country’s vast energy reserves. But along with the resource-hungry Asian tigers, France’s largest oil company is keeping its options open.

Total has long wrestled with the United States’ policy toward Iran, which has obstructed the implementation of its 2004 deal to develop phase 11 of the 26-phase South Pars gas field. For Total, as for energy-hungry nations like China and India, South Pars is a massive prize with 13 trillion cubic meters of gas — around 8 percent of global reserves.

To date, US-led sanctions have slowed down Iran’s exploitation of the world’s second-largest reserves in both oil and natural gas. Measures aimed at US oil companies, enacted in 1996 by President Bill Clinton, have been followed by banking sanctions drawn up under president George W. Bush by Stuart Levey, an official retained by Obama as undersecretary at the Treasury.

New moves in Washington targeting companies linked to Iran’s Islamic Revolutionary Guard Corps (IRGC) are likely to bar from the lucrative US market any company worldwide that does business with companies and individuals on a US hit list, known as Specifically Designated Nationals (SDN). With the IRGC playing a growing role in Iran’s economy, “new intelligence” promised by Levey’s department could extend the SDN well into the energy sector.

Phase 11 of South Pars is slated to produce 2 billion cubic meters per day of gas for a liquefaction plant, South Pars LNG, as well as 70,000 barrels a day of condensate. At present, despite total gas reserves of around 29.6 trillion cubic meters, Iran currently plays only a small role in the global export market, consuming nearly all current domestic production of around 116 billion cubic meters.

For Iran, the production of liquefied natural gas (LNG) is essential for efficient export as it avoids the construction costs and market inflexibility of pipelines. LNG requires a high level of expertise and experience, both of which Total possesses.

Along with Statoil Hydro of Norway, Royal Dutch Shell and Spain’s Repsol, Total long delayed decisions over its involvement in South Pars, partly due to haggling with Tehran over terms but mainly because of sanction fears.

Frustrated at the Western companies’ delay, Iran looked east, agreeing on investment deals of more than $90 billion with Chinese, Indian, Malaysian and Russian companies. Last June, Iran and the Chinese state-owned company China National Petroleum Corp (CNPC), signed a contract for the upstream task of extracting gas from phase 11, apparently replacing Total.

But these investors are relatively untested in LNG, and Iran has no liquefaction plant eight years after work first began on South Pars. Unsurprisingly perhaps, reports continued in the Iranian media throughout last year that Total was working to continue its involvement, although the French company denied it was in talks with Iran.

Then in December Christophe de Margerie, Total’s chief executive, admitted to The Wall Street Journal that the company was keeping its options open over South Pars through wider cooperation with CNPC.

His interview was published shortly after Seifollah Jashnsaz, head of the state-run National Iranian Oil Company (NIOC), told Iran’s Mehr news agency that NIOC had met Total in the second week of that month.

But it seems Total has found a way around the problem. It isn’t talking to NIOC about South Pars, but it is talking to the Chinese.

De Margerie said Total was discussing with CNPC a multibillion-dollar natural gas project in northern China, as well as deals in Iran and Venezuela’s lucrative Carabobo region. Total and CNPC, with Malaysia’s state-owned Petrona, also won the rights to the small Halfaya oil field in Iraq in December. De Margerie portrayed the cooperation as being between Total’s expertise and China’s sheer volume and market presence. And he confirmed that Total was talking to CNPC about cooperation over South Pars — presumably as CNPC benefits from Total’s expertise in liquefaction, the key challenge in the Iranian field.

Exactly what form this work could take without upsetting Washington is unclear. De Margerie insisted Total would still prefer a comprehensive deal including gas extraction, its transformation into LNG and the export of LNG — something that would be incompatible with US sanctions. But short of this, Total is surely signaling it wants to keep open its interest in Iran.

For Tehran, the stakes could barely be higher as it plans to spend $200 billion to double gas production by 2014. While Iran’s oil revenue is recovering along with the recovery of oil prices to around $80 a barrel from $40 in February 2009, developing gas reserves remains a necessity if the country is to meet an ambitious growth target of 8 percent. Improving growth from the current 2.2 percent projected for 2010 by the International Monetary Fund is an urgent necessity if the authorities are to provide employment for young people and ease political unrest. Total may still play an important role in realizing these goals.

Gareth Smyth is the former Tehran correspondent for The Financial Times

February 3, 2010 0 comments

Economics & Policy

Money makers

by Sami Halabi February 1, 2010

written by Sami Halabi

Many of the headlines splashed around the economic pages since September 2008’s global financial earthquake have inspired little confidence in Middle Eastern equities. The latest aftershock, involving Dubai World’s liabilities, has put off any return to the boom days of the last decade for a while to come.

If you still have any money left that you are willing to invest, the best course of action may be to put it into an asset class that has begun to come into its own, despite the shaky financial ground in the region: the currency markets, better known as Forex (FX).

“For the FX market, it has indeed been a time of plenty,” said Mario Camara, co-managing director at the Forex company ACM Middle East and Asia based in the United Arab Emirates. “What happened [during the crisis] was a wonderful thing for the Forex market because the volatility drove people away from other markets and [made] the futures market so attractive.”

The steadfastness of the Forex market stems directly from the nature of currencies depreciating or appreciating against one another and, as a result, the more chaotic the fluctuation, the more the market moves. What’s more, according to the experts Executive spoke to, daily trading in the Middle East and North Africa (MENA) region now fluctuates between $2.5 trillion and $3 trillion per day.

“This is the most liquid market in the world and it is more liquid every day,” claimed Michel Daher, managing partner and chairman of FXCM MENA, the regional arm of the global currency exchange company FXCM. “It doesn’t stop, so the sky is the limit.”

Like most asset classes, Forex trading in the MENA region is underdeveloped compared to most other global markets, leaving much room for growth in the sector. How much growth is possible is a point of contention since consolidated figures in the MENA are not readily available.

Forex is very much decentralized as a result of the fact that the industry is made up of disparate business models, ranging from physically present traders within the region to offshore online intermediary traders. Even so, the numbers that do exist reveal that the industry is booming.

According to figures from the Dubai Gold and Commodities Exchange, currency futures transactions increased by 88 percent in 2009. Deutsche Bank’s online Forex platform, dbFX.com, reported a year-on-year increase of 501 percent across the Middle East for the first quarter of 2009 alone. That gargantuan figure is even more impressive considering that globally, the platform saw just a 37 per cent increase in trading volumes over the same period.

“When all other markets were running for the hills and being chased by bears, this market flourished,” said Camara. Even though Camara could not disclose his revenues, he did affirm that since the global downturn began his company’s gains have been “significant.”

To desk or not to desk

Two different models are at loggerheads over how the industry should be run. The argument is centered on whether it is better to have a “dealing desk” or not.

Those who operate without a dealing desk make money off of pips — the smallest unit of a currency for every trade (cents in regards to US dollars, helal for Saudi riyals, etc.) Those who do operate with a dealing desk also make or lose money depending on whether their clients gain on a currency trade or not. In essence, the client has an account with the desk and the desk has an account with the liquidity provider.

If a client buys one euro, for example, at a certain price, the desk purchases that euro from the liquidity provider at the price shown. If the price of that euro falls, the client is liable to the desk for the difference in value, and vice versa. This model also necessitates that ‘dealing desk organizations’ maintain higher levels of liquidity and risk.

“We are basically making a commission off an introduction. I would have made four to five times as much money if I was a dealing desk, but I don’t want to take that risk,” said FXCM’s Daher, who’s company operates without a dealing desk.

Having a dealing desk allows clients to place orders over the phone and is also a requirement of many international regulatory bodies.

The Central Bank of Lebanon (CBL) regulates FXCM MENA. The company has 20 liquidity providers, which include JP Morgan, Deutsche Bank, Credit Suisse and Union de Banques Suisses. While the CBL is perhaps not a widely recognized regulatory body, it has been heralded by many as having policies that were able to absorb most of the brunt of the global financial meltdown. ACM is regulated by the Swiss Financial Market Supervisory Authority.

“They [dealing desk companies] know your position…so they might show you false prices,” said Henri Chaoul, member of the board at FXCM global. Camara explained that his company’s prices are not exactly those of the liquidity providers, and Daher claimed that his company displays the exact market price “99.99 percent of the time.”

February 1, 2010 0 comments

Real Estate

If you build it, will they come

by Nada Nohra February 1, 2010

written by Nada Nohra

Burj Khalifa - Dubai

Spectators at the January 4 inauguration watched fireworks turn the world’s tallest tower into an 828-meter fountain of flame. What came as a surprise is that the tower, known as Burj Dubai since its announcement in 2003, was renamed by Dubai ruler Sheikh Mohammed bin Rashid al-Maktoum as Burj Khalifa Bin Zayed, in honor of the United Arab Emirates President and ruler of Abu Dhabi Sheikh Khalifa bin Zayed al-Nahyan. Burj Khalifa was originally set to open by the end of 2008, but Emaar properties, the developer behind the tower, delayed its opening several times until January 4, 2010, the date marking Sheikh Mohammed’s fourth anniversary as ruler of Dubai.

Dubai to Khalifa

The name change came as a surprise and was decided upon at the last minute; the tower’s souvenirs and tickets purchased for the observation deck on the 124th floor still said ‘Burj Dubai’, while ‘Burj Khalifa Bin Zayed’ was only carved on the tower’s plaque.

“[It] was obviously something that was kept close under wraps until the last minute,” Michael Hughes, executive director of strategy at the Brand Union in Dubai, told Maktoob Business. Brand Union is working with Emaar on the Burj’s brand, according to Maktoob.

Although rebranding Burj Khalifa was welcomed by the media and the general public, and considered as a way to affirm the unity between Dubai and Abu Dhabi, it will come at a high price for Emaar. The developer will have to pour large amounts of money into rebranding. Some estimates say it could take up to three years and tens of millions of dollars to get the right branding message established.

Whether the whole area will be rebranded as Downtown Burj Khalifa is still unknown, since street signs remain unchanged and no announcements from the Dubai municipality have been made on the issue.

“[Downtown Burj Dubai] is currently being rebranded by Emaar, and we are still waiting for the announcement,” said Ian Albert, regional director at commercial real estate specialists Colliers International.

Burj Khalifa, built at an estimated cost of $1.5 billion, is expected to remain the highest tower in the world for at least the next few years and includes residencies, office space, a hotel, a fitness center, meeting rooms and other amenities. Although the tower is officially open, delivery of units will not take place until February or March, and Emaar is yet to announce its handover plan and the number of units available for lease and sale.

“We haven’t received confirmation [from] Emaar yet,” said Ghada Ghannam, residential leasing consultant at Better Homes.

“It is not clear at the moment how many units will be handed over at each phase,” added Albert.

Selling like hot cakes

Emaar’s Chairman Mohamed alAbaar has announced that 90 percent of the tower has been sold and that 85 percent of the payments from buyers have been made. The rest will be paid upon delivery.

“From what I’ve heard in the market, I don’t believe there has been a lot of flipping, but details about sales at the Burj Khalifa have been kept heavily under wraps,” said Wendy Hulbert, residential leasing consultant at Better Homes. “The word on the street is that a Korean investor bought the entire top floor, but this is only speculation.”

Albert thinks that units at Burj Khalifa were subject to a high level of speculation and at the peak of the market reached sky high prices.

“The average rate reached [$35,000 per square meter]. However, following the market downturn prices fell to [$11,600 per square meter] at the beginning of January 2010,” he said.

It is unclear whether Emaar will sell its remaining 10 percent, but the company has revealed that it will rent out the top floors for meetings and workshops for around $2,700 per hour, according to The National.

The secondary market

The selling price at Burj Khalifa for residential units ranges between $10,200 and $12,000 per square meter, while commercial units are selling for $17,000 to $20,000 per square meter, according to Vineet Kumar, head of sales at Asteco Property Management.

Units sold to investors in the primary market are expected to be resold or leased, but all the brokers Executive spoke to said it is still unclear how many units are currently available in the secondary market.

“Most of the units that were sold in the primary market will eventually be on sale or lease, though we don’t know the exact number yet,” said Bernard Aoun, manager at the residential sales and leasing department at Better Homes.

The leasing market is equally as murky. There are still no units available for rent and it is unclear how high the rental rates for either the residential or the commercial units will be.

“The [office rental] rates are still unclear at the moment. We expect the rent to be around $1,800 per square meter or more, depending on the floor level,” Porush Jhunjhunwala, manager at the commercial leasing department at Better Homes told Emirates Business 24|7.

Filling the tower

The opening of the tower came at a time when Dubai was still suffering from an oversupply of properties, especially in the commercial market, and even though the Burj will be one of the most prestigious addresses in the world, there are concerns that the absorption rate of its units may not be as high as expected.

“Everything is a challenge at the moment,” said Better Homes’ Hulbert, while speaking about how soon the units may be filled.

“It’s hard to forecast if the tower will be filled up completely, we’ll have a better idea as we watch the property market here over the next few months,” added Aoun.

Competition may also come from the 740,000 square meters of office space that are expected to be delivered in and around Downtown Burj Dubai during the year, which will further increase the vacancy ratio in the area, according to Jhunjhunwala.

Funds from a burj

Emaar’s Abaar told The Khaleej Times that the tower was expected to yield 10 percent for the company and the revenues from sales will be included in its 2010 financial statement, after the units are delivered. He added that although the falling cost of construction material had kept prices down, the tower had still exceeded its budget by some 10 percent.

Roy Cherry, research analyst at the Dubai-based investment bank Shuaa Capital told Alaswaq.net that the revenue Emaar will receive from the Burj in 2010 will amount to $2 billion to $3 billion, some 30 percent of which will be net profit for the company.

Waiting on the numbers

While the long-awaited Burj Khalifa has finally opened, the Armani Hotel inside is still not completed, units are yet to be handed over, and room rates have yet to be set. Accordingly, it is too soon to predict how the tower will fare in terms of pricing and occupancy, and whether it will truly be the center of business attraction or the most prestigious white elephant in the world.

“Until the tower is fully completed, it is not possible to predict what the impact will be from improved, or worsening, global and regional market conditions,” said Colliers International’s Albert.

While the tower will likely add to a positive balance on Emaar’s books, economists are skeptical about whether it will boost confidence in Dubai’s troubled economy in general, or its real estate sector in particular.

February 1, 2010 0 comments

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Diversifying Kurdistan

by Riad Al-Khouri February 1, 2010

written by Riad Al-Khouri

Turkish products dominate supermarket shelves in the Iraqi Kurdistan town of Dahuk

Iraqi Kurdistan’s continued over-reliance on oil wealth helps the Kurdistan Regional Government (KRG) dominate employment in the province by creating large numbers of unproductive city-based public sector jobs. Not diversifying away from oil thus leads to many short and long-term problems, but the irony is that Kurdistan — unlike some other economies in the Middle East — has a lot more going for it, including abundant water and agricultural resources, which remain largely unexploited.

Hoping to tap these riches the KRG’s plan for agriculture was launched in 2009, and officials of the province have been receiving experts, funders and business delegations from Europe, America and elsewhere with an interest in Kurdistan’s agricultural potential. The first investment in the sector thus far has been by the United States-based private equity firm The Marshall Fund in the village of Harir, which put $6 million into the development of a tomato paste and fruit processing plant that had been defunct since 2003. Coming on stream last year, the project is doing fine, but remains a miniscule success when measured against the $10.5 billion in agricultural investment and infrastructure that the strategy calls for.

In fact, manufacturing and industrial processing in Kurdistan has recently been characterized by disinvestment. Unable to compete with imports, 170 factories (about 10 percent of the province’s total number) closed down last year, according to publicly cited figures from the KRG Ministry of Trade. In the bad old days of the 20th century, the reaction to such news would have been to impose high protective tariffs, but that time is now gone. With Iraq negotiating entry into the World Trade Organization (WTO), it will eventually lower existing trade barriers. This is basically good, as tariff protection often leads to the emergence of inefficient industries. The other problem is that the KRG, though enjoying considerable autonomy, is not sovereign and so cannot decree limits on importing foreign products into the market apart from the restrictions imposed by the central government in Baghdad.

Yet, something needs to be done, as many of Kurdistan’s factories remain vulnerable to foreign competition and are in danger of closing, threatening the jobs of the manufacturing sector’s 13,000 or so employees. The KRG has to support domestic producers, but this should not be done with subsidies, which become complicated under the WTO rules that will sooner or later apply to Iraq. One answer is to make manufacturing more efficient through reliance on local raw materials, including some of the province’s agricultural wealth. That doesn’t mean that any crop grown in Kurdistan can and should be processed through manufacturing, but it is also true to say that positive example set by the Harir project could be replicated in many areas.

Another way for Kurdish manufacturing to compete is through higher productivity brought about by better machines and management, especially those coming through Turkey — the province’s most powerful industrial neighbor, which politically is no longer hostile to things Kurdish. The ironic thing about such a scenario is that it is mainly Turkish products that are overwhelming local manufacturers in the market of Iraqi Kurdistan. But the policy of the KRG seems to be that if you can’t beat the Turks, then join them. Some Turkish exporters have figured out that they can do even better by setting up their factories in the province itself, partnering with Kurds. This would end up giving Turkish products an even greater competitive edge, while employing Kurdish workers and other local resources.

That is one of the messages brought by Turkish business delegations that are increasingly coming to Iraqi Kurdistan, including the latest arrival in the KRG capital Erbil in mid-January. With a focus on discussing investment in the Erbil area (the manufacturing center of Kurdistan) the high-level delegation included senior members of the Turkish Chamber of Industry and Commerce, as well several company owners. For their part, the province’s officials responded enthusiastically by offering support to Turkish companies willing to develop business in the region under the KRG investment law, which in some respects is more favorable than the regulations that apply in the rest of Iraq. This would also allow Turkish firms to supply central and southern Iraq in addition to Kurdistan, and even to export back into Turkey.

Whatever happens in the case of individual products in this respect, combining the strengths of Turkish industry with advantages offered by Iraqi Kurdistan seems to be a winning combination, which profits both sides and brings them closer politically, while also helping the KRG shed its dependence on oil revenue.

Riad al-Khouri is senior economist at the William Davidson Institute of the University of Michigan in Ann Arbor, and dean of the business school at the Lebanese French University in Erbil

February 1, 2010 0 comments

Real Estate

The internet looks to property

by Nada Nohra February 1, 2010

written by Nada Nohra

Laura Martorano is the chief executive officer of Leo Sterling, the brokerage firm she founded in Dubai at the beginning of 2009. Previous to this, Martorano had been the CEO of Jamal Al Habtoor Real Estate since 2003. Executive sat with Martorano to discuss the increasing importance of e-marketing in regional real estate and strategies companies are adopting online.

E What is the online strategy that you are adopting and how do you think companies should approach Internet advertising, especially since it is relatively new in the region?

Many companies are currently adopting a new marketing plan, which will include the Internet and web activity to gain more exposure and new clients.

We are currently working on improving our internal and external PMA (property management application), a database listing all properties that the company has. It is an interactive program on which you can list your property, search for a property, and get a price and an appraisal for your property. These are integrated with the website and we try to optimize the website when it comes to Google searches and other database searches.

In addition to that, the communication with the client has changed. Before, it was essential to meet the client, to show them the brochures of the property. Now, the first step of establishing the connection with the client is to send them the information by email. So this is truly number one. And let’s say five years ago people didn’t have time to read or send email. Right now our clients always ask if we can send them the brochure by email.

E Since Internet penetration rate in the region is low compared to the West, how does this affect this strategy? Do you think it limits the market?

Yes and no, because if we talk about Dubai, the United Arab Emirates or the Middle East, it is a very new region. Specifically, Dubai is a new city. In the last 10 years we had to learn how to reach the client, sell the property and manage the property. Now the whole business has grown.

The tools that were available were adopted within the business plan of each company in the industry. Right now there are more and more tools that are available in the market, like property portals, and there are other social portals, which are becoming increasingly popular in the web community.

I’m talking on behalf of many companies who are realizing just how important the Internet is and are trying to adapt their business plans to use the Internet as an essential marketing tool.

I do think there is a vast improvement going on, specifically in Dubai. We are adopting a trend happening in Europe and the United States; we have definitely increased the speed of communication and delivering the information.

Before, to get some information about a property, you would be lucky if you got anything within a week. Now you can get it in a couple hours.

E Online advertising is emerging as the leading marketing tool, but how would you fight fraud?

It is true, there have been a number of fraud [cases], but it has been happening around the world and no one is immune. It is the responsibility of the client to make sure he is receiving the right information. I am not necessarily saying that purchasing property over the phone or Internet is the proper way. It is like shopping for clothes online. You see a good picture and then you receive something else.

So yes, unfortunately it happened to very intellectual clientele from Europe and the US but again no one is immune. When you buy insurance you have to read the policy, when you get the loan you need to read the contract. So when you get the property you need to know where it is located and who the developer is.

E Is there anything else prospective clients should watch out for if they are looking online?

Just because you are happy with what you have seen on the Internet, that does not mean that is necessarily the reality. It is used for both sharing information and also [to] market a product. It is a place for both critics and sales people. So it is a huge debate. But I still think that the Internet is the best source of getting such information. I think sometimes in the news you don’t hear as [much] as you hear on the Internet.

E How much of your revenue do you think will come from online marketing and how will the percentage increase in the next few years?

Within the current market situation, online marketing always increases the chance of reaching new clients. For us it is good news. Again reaching a new client does not mean a done deal. There are three stages in real estate: identifying the clients, negotiating the terms and closing the deal, so the Internet only helps in the first step.

It could also serve in negotiating and communicating the offers by email, but when closing a deal, people still like to come and see and feel the property. But more people means there are more potential sales, and more sales definitely means more revenue.

E How much are you investing in your online strategy?

Investment in the Internet is incredibly small. If you compare the expenditure on Internet marketing activity versus media such as newspapers or magazines or exhibitions, it is extremely tiny — it makes up 10 percent of the whole budget, and delivers the same result as any other media activity.

It is still important to have a personal touch, to meet clients directly at the exhibition or a launch of the project, but using the Internet in terms of identifying new clients is definitely a win-win situation for every company in any industry. It has become one of the most important aspects of every marketing plan.

E Are buyers who search the Internet more likely to find a home?

Yes and no. When buying a home, you can buy it for two reasons; you either want to buy a specific home that would really cater to your needs, or you are just looking for the price.

If you are looking for a price bargain, the Internet would be a good option, but finding your own ideal home can best be done by physically visiting.

E What is the future of online real estate advertising?

Online marketing in our particular industry had a lot of hiccups because Internet users have evolved and upgraded — they are so interactive now. Some time ago just having a simple website to list your mission statement and mention your address and a phone number was enough, now it is not.

Now the market demands you invest a lot in your website, and not to be just informative but to be a portal as well. Maintaining such interactive websites is a job for a few people, and often companies don’t like to invest in IT [information technology] or marketing departments by adding people to maintain databases and updates.

We had frustration from clients saying that information on the portal or the Internet was very old. It is still happening since the region is not too Internet-focused. Although lots of people may be using social networking tools such as Facebook and Twitter, it does not mean everyone is using the Internet for other purposes.

A lot of business people have recognized these weak areas and have slowly started shifting toward investing in IT employees and IT departments. Unless companies recognize that this is important [they will fall behind]. I would say that some companies that are already doing it will definitely have a superior advantage in market share.

While they are improving, people will be inventing. People who are not using it will be left behind in a few years, but Dubai is extremely competitive right now and the whole business community is recognizing the Internet is an essential tool and are now investing a lot in it.

February 1, 2010 0 comments

Feature

SuperFreakonomics

by Executive Editors January 29, 2010

written by Executive Editors

Did you know that a prostitute in Chicago is more likely to have sex with a cop than be arrested by one? Did you think that it was dangerous to drink and drive? Well, you’re not wrong, but did you ever think about the fact that walking drunk is eight times more likely to get you killed than driving drunk?

It is these interesting twists of perception and everyday occurrences that Steven Levitt, an economics professor at the University of Chicago, and Stephen Dubner, the author of several books, have packed into“SuperFreakonomics.”

Freakonomics, the name of the first book that caused a global sensation, is the simple idea of “marrying the economic approach to a rogue freakish curiosity.” According to the authors, the essential message of all the varied and, well freakish, facts and figures, is that microeconomics can reveal a fundamental truth about human beings: “people respond to initiatives.”

Take the example of seat belts for instance. Seat belts reduce the risk of death by as much as 70 percent; but even after 15 years from when seat belts were introduced in the United States, just 11 percent of people wore them. It took a range of ‘nudges’ such as advertising campaigns and annoying beeping sounds in cars — which became the real incentive for a change in behavior, as opposed to the reduction in the death rate — over a 30-year period to achieve the current day rate of 80 percent of Americans wearing seat belts.

This book is packed with fascinating insights. But the essential problem with the concept of “Freakonomics” is that it makes great assumptions on very specific points, based upon data that is often more varied. This is most obvious when the pair tackle terrorism.

Levitt and Dubner based their argument for the type of person that commits terrorism on the research of Alan Krueger, an economist at Princeton University. Krueger used a Hezbollah newsletter Al-Ahd to collect bibliographical data for 129 shahids, or martyrs. From this data Krueger concluded: “terrorists tend to be drawn from well educated, middle-class or high-income families.”

This holds true around the world from Latin American rebels to the 9/11 attackers, Krueger claims.

It is easy to see that Krueger’s data input is highly flawed. Going back to the original piece of

research, Krueger himself admits as much. “The deceased Hezbollah fighters were involved in a mix of activities, not all of which might be classified as terrorist attacks. An attack on a military post was the most common type of activity… Three died in suicide bombing attacks.”

So categorizing the attacks carried out by those listed in Al-Ahd very much depends on your definition of terrorism, which is admittedly its own minefield. Trying then to boil down all these different military tactics to a single concept of terrorism and to then discover whether “terrorists” are from ‘good’ or ‘bad’ backgrounds is evidently a lot more complicated than Levitt and Dubner, or Krueger for that matter, would like to admit.

How useful is it, even if you were able to confirm that all the 129 shahids were terrorists, to make a general assumption about the social background of terrorists in general? Hezbollah, an organization that is very well integrated into the social political fabric of its own Shiite community, has little in common, even if you agreed they are both terrorist organizations, with the highly fractured and cell-like structure of Al-Qaeda.

Making sweeping generalizations can be useful in some cases and completely misleading in others. This is a warning that Levitt and Dubner do not always heed, and appropriate caution should be used when reading their book. But in removing this caution and taking risks, Levitt and Dubner have created fascinating insights.

In effect, “SuperFreakonomics” asks more questions than it answers. Like good students, Levitt and Dubner challenge conventional wisdom throughout the book, from issues of terrorism to global warming to prostitutes. Even when they don’t get it right they do make you think again.

Levitt and Dubner challenge conventional wisdom, from terrorism to global warming to prostitutes

January 29, 2010 0 comments

Feature

Clash of the Turkish titans

by Executive Editors January 29, 2010

written by Executive Editors

Turkish Prime Minister Tayyip Erdogan makes no secret of how much he dislikes Aydin Dogan, chairman of the powerful Turkish media group Dogan Yayin Holding (DYH), which owns more than half of Turkey’s print and broadcast media, including CNN-Turk.

In a recent interview, Erdogan lashed out at the media baron, likening him to the infamous Italian-American gangster boss Al Capone.

For more than a year, the two have been engaged in a high-level public battle over critical news coverage aired by Dogan’s media group about the Erdogan administration. Dogan has emerged as one of the most vocal critics of Erdogan’s ruling Justice and Development Party (AKP), constantly ruffling the premier’s feathers, with his media organization publishing a watershed of reports on corruption scandals involving public figures and claims that the Erdogan administration is a threat to Turkey’s secular order.

When the Turkish Parliament voted to lift the ban on headscarves in Turkish universities in 2008, Dogan’s flagship Hurriyet newspaper splashed the headline “411 hands up for chaos” on its front page, referring to the number of parliamentarians who had voted in favor of rescinding the ban.

The flurry reached new heights in the fall of 2009 when the Turkish authorities handed Dogan a record $3.2 billion fine for an alleged tax delinquency. Some believed the media mogul and the Turkish tax authorities would sooner or later reach an agreement, but negotiations in November failed to settle the gigantic fine, resulting in Dogan ringing in the New Year with a fierce court battle ahead of him.

Dogan’s media empire already appears to be smarting from the row, with the group’s foreign investors said to be fleeing the field now that the drama has turned ugly. Most recently, German publisher Axel Springer AG, who already owns a 25 percent stake in Dogan TV, announced that plans to buy a further 29 percent stake in the Dogan group were “postponed” until the feud with the Turkish tax office was resolved — a signal that Dogan’s powerful friends abroad are not planning to rush to the rescue.

Dogan, however, seems determined to stay afloat and sell off assets. DYH announced in a company statement issued early December that it was pursuing a partial or complete sale of subsidiaries, but that a deal had yet to be finalized.

Silencing free speech?

The high stakes drama between the Turkish premier and the country’s media monolith has gripped the nation and become a top news item in print, radio and television. The case has also raised concerns about the state of press freedom in Turkey among some groups, including the European Commission, which described the fine as disproportionate and a constraint on press freedom.

Critics argue the enormous tax bill is a means for Erdogan to try and square the political vendetta by taxing his foe to death. Dogan himself appears to share this view, and has fiercely accused the authorities of singling him out for politically motivated retribution. Erdogan, meanwhile, remains defiant and dismisses allegations that the case bears any political connotations.

A wolf in publisher’s clothes

The 73-year old Dogan has not curried sympathy from all quarters as a martyr of free speech. Critics contend Dogan is a businessman who “ruthlessly destroyed his rivals” and went into the media business, not because he necessarily cared about good journalism, but because he wanted to gain influence and political ground.

Some even go as far as likening him to Italy’s eccentric Prime Minister Silvio Berlusconi, with the only difference being that Dogan has yet to seek a political mandate.

Yavuz Baydar, a columnist at the Turkish newspaper Zaman, a competitor to those of the Dogan group, warns against branding the Dogan case a straight forward attack on press freedom in Turkey, stressing that there are “no innocents” in the case.

One version of events that has made the rounds in both Turkish and international press is that the Dogan media group uncovered information linking the AKP to embezzlement in Germany, involving a Turkish-run charity there called Deniz Feneri. The media baron sat on this information for more than three months, however, to blackmail concessions from the government for his many business interests. Among the favors Dogan allegedly wanted was for the Istanbul Municipality to change zoning laws and issue building permits allowing luxury residences to be built as extensions to the Hilton Hotel in Istanbul, but the government didn’t budge.

After Dogan failed to get the concessions he wanted from the authorities, Baydar says he noticed an “overwhelming” number of Dogan’s media outlets started to report aggressively on the AKP and Erdogan’s family, distorting the news at times.

“A corrupt media cannot uncover corruption in a democracy,” he told Executive. “It has to be transparent and accountable. This rule is almost always forgotten by those who want to minimize the case to [an issue concerning] press freedom.”

The row between the pair has “[snowballed] to a point of unbearable confrontation,” said Baydar.

Whether a crooked businessman or not, the Turkish tax authorities slamming Dogan with a $3.2 billion fine is still an excessive punishment in Baydar’s view. He said the Dogan case highlights the need to rid the Turkish tax authorities of its governmental straightjacket.

“There is a serious problem with tax inspection. It’s vertically directed by the government while it should be autonomous,” said Baydar.

Reshuffling the cards

With some circles believing Dogan’s empire will come tumbling down sooner or later, there are hopes rising that this would give the Turkish media industry a much-needed facelift, allowing it to become more diversified.

“We are expecting a reshuffling of cards in the Turkish media with the dissolution of Dogan,” Sahin Alpay, a columnist and senior lecturer at the department of political science at Bahcesehir University in Istanbul, told Executive. “Some people worry about it, especially…journalists.”

Alpay believes change is needed. Dogan’s media empire, he says, is a threat to media pluralism in Turkey and polarizes Turkish journalists.

He hopes the authorities will introduce legislation that limits crossover ownership, which he believes enables people like Dogan to build “media aristocracies” by controlling broad swaths of both the print and broadcast media markets.

Baydar also believes it is time the Turkish media game was given a shake-up, however, he warned that, “If you don’t change the rules, someone else will take his place.”

“We are expecting a reshuffling of cards in the Turkish media with the dissolution of Dogan”

January 29, 2010 0 comments