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Ungracious guests

by Nicholas Blanford
written by Nicholas Blanford

The Palestinian gunman, his face screwed up with rage, ran towards us, raising his AK-47 and yelled, “Get your hands up! Get your hands up!”

It was June 2007 and in the north of Lebanon, the Lebanese army and Fatah Al-Islam were in the early stages of a bloody battle at the Nahr Al-Bared Palestinian refugee camp — a confrontation that would last 106 days and leave 168 soldiers, over 200 militants and dozens of civilians dead.

The fighting in the north clearly had unnerved the Palestinian gunman. He was a guard at the entrance of a small military base at Ain Al-Bayda, near Kfar Zabad village in the Bekaa Valley, manned by the Popular Front for the Liberation of Palestine-General Command (PFLP-GC), a Damascus-backed radical faction. The PFLP-GC runs five small bases in Lebanon: Ain Al-Bayda, Wadi Heshmesh just north of the Bekaa village of Qussaya, Jabal Al-Maaysara on a lofty mountain plateau east of Qussaya, Sultan Yaacoub in the western Bekaa, and another at Naameh, 15 kilometers south of Beirut.

The PFLP-GC and Fatah Intifada, another Syrian-supported Palestinian group that also operates small camps north of Rashaya in the western Bekaa, were on high alert during the fighting in Nahr Al-Bared.

My two colleagues and I were forced to sit on the ground, our hands on our heads, for five minutes until the arrival of the guard’s boss, incongruously dressed in a purple shell suit. Calm and polite, he told us: “We are guests in this country and we are here in these bases only to help liberate Palestine.”

That incident occurred more than a year after the National Dialogue, the round-table forum grouping Lebanon’s top leaders, had agreed to shut down the Palestinian bases and ban arms carried by Palestinian militants outside the 12 established refugee camps. Nearly four years after that decision was reached, it has yet to be implemented. The Palestinian bases still exist, surrounded by Lebanese troops who prevent civilians and journalists from accessing them.

The issue of the Palestinian bases may well become salient again in the coming months, given the easing of tensions between Lebanon and Syria since the formation of the new government in Beirut in November, and the visit to Damascus by Prime Minister Saad Hariri in December, 2009.

Although both countries have undertaken the historic step of exchanging formal diplomatic relations with the opening of embassies in Beirut and Damascus, the pace of rapprochement will depend greatly on how Syria reacts to Lebanese requests for assistance in some key — but solvable — areas. The first is the fate of the PFLP-GC and Fatah Intifada bases, the second is a decision to begin the long-neglected delineation and demarcation of the border between the two countries.

It is evident that following the Nahr Al-Bared experience, the army has no taste for forcibly dismantling the Palestinian bases, even though in military terms it would be a much simpler task to shut the isolated rural outposts than weeding out Fatah Al-Islam’s die-hards from the cramped interior of a Palestinian refugee camp.

Furthermore, the PFLP-GC, in particular, is an ally of Hezbollah — these days serving almost as the Lebanese party’s private militia force, which adds an awkward political component to closing the bases.

In January, Abu Musa, the leader of Fatah Intifada, declared that he rejected the disarming of Palestinians outside the refugee camps and that the fate of their weapons was a matter to be decided among Palestinians.

Abu Musa’s rare press conference appears to have been an effort to hinder attempts to close the bases before they had even begun. Importantly, however, Abu Musa would not have made such a bold declaration without the knowledge of his hosts in Damascus. Syria has said that because the bases lie on Lebanese soil, it has no jurisdiction to have them closed. In reality, if Syria instructed the PFLP-GC and Fatah Intifada to dismantle their outposts and return to the refugee camps in Damascus or Beirut, they would do so quickly and with a minimum of fuss.

Damascus bridles against international pressure and tends to dig in its heels when lectured by the West. Whether Syria will show goodwill over the Palestinian bases, remains to be seen. But if it does it would win international praise at almost no tactical cost to itself.

There are indications that the United States will soon develop a more nuanced approach toward Lebanon, beyond the repeated calls for the implementation of Resolution 1701. The new track will focus on the border between Lebanon and Israel, probably in terms of seeking to extend the current calm along the Blue Line. But there will be other indirectly related issues the Americans will likely pursue, such as encouraging Lebanon and Syria to begin mapping and formalizing their joint border and closing down the Palestinian military bases.

How Syria responds to such calls will provide early indicators as to how the Lebanon-Syria relationship will unfold in the months ahead.

Nicholas Blanford is the Beirut-based correspondent for The Christian Science Monitor and The Times of London

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Editorial

The time for waiting is over

by Yasser Akkaoui
written by Yasser Akkaoui

Like the sands of Arabia, the movement of money has shifted, and those economies considered too slow (Saudi Arabia), too conservative (Abu Dhabi), too risky (Lebanon) or too small to be a player (Qatar) are now destinations for the region’s capital. Dubai, once the flagship of the Gulf Cooperation Council’s prosperity, is nursing a bruised ego and considering its options.

What’s the moral of the tale? That steady-Eddies are the best bet? That the tortoise eventually beats the hare? That Saudi Arabia was the perfect example of a state exercising leadership and intervention when crisis hit?

Well, it’s not quite as simple as that, and maybe the answers can still be found among the skyscrapers of Dubai, where businesses, or should we say the business community, is still struggling to adapt its strategies to the new reality. Essentially, human nature is risk averse and there is a reluctance in Dubai to seek out new markets, because businesses in Dubai are playing a risky waiting game, hoping to turn a corner that may not loom into view for a while.

It is a syndrome that the Lebanese know only too well. They sat around in the late 1970s convinced that the civil war would soon be over — in just a few months things would pick up again. Fifteen years later, they realized they were wrong and that for many of them, the best years of their lives had been wasted. The Dubai mindset must change. The private sector must seek its corporate sustenance in the fertile plains of Saudi Arabia, Abu Dhabi and Qatar, all markets that rode out the financial storm.

But it is not all gloom and doom for the glamorous emirate. Its time will come again. The hard work has been done. Not only is Dubai ‘built’, it was built at a time when the price of construction commodities was lower than it is today and a time when the dollar was in ruder health. Today, anyone wanting to emulate Dubai’s undoubted magnificence, and they will for this is the nature of the beast, will have to pay triple the price.

The hard work has been done; the table is set; the private sector just needs to get hungry enough to go find some food. 

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Comment

Obama‘s self-defeatism

by Executive Staff
written by Executive Staff

 

In his 2004 book “Colossus: The Price of America’s Empire,” the British historian Niall Ferguson offered an interesting premise for what might ultimately bring about the decline of the United States. 

Rather than being prompted by external phenomena, Ferguson wrote, decline might come from domestic financial dynamics, not least a ballooning fiscal crisis resulting from the American tendency to consume much and save little. The US, he warned, faced an impending social security crisis because Americans were living longer and the fiscal system was inadequate to pay for future generations. The self-defeating ways to deal with this reality, he continued, were to engage in massive increases in income and payroll taxes, to slash social security benefits by equally dramatic amounts, or to cut discretionary spending to zero.

Whether the massive debt incurred by the US government to absorb the repercussions of the financial shock of 2008 will accelerate this process is open to debate. But there is no doubt that the Obama administration has embraced a self-consciously skeptical worldview, with a willingness to openly admit to American limitations, financial and political. But, it’s not clear that honesty is the best policy in this case.

Take Obama’s speech last December, announcing his new Afghanistan strategy. What was to be a statement of American resolve was, in several passages, undermined. Instead of describing an America united in strength, Obama stated that “[in] the wake of an economic crisis, too many of our neighbors and friends are out of work and struggle to pay the bills. Too many Americans are worried about the future facing our children. Meanwhile, competition within the global economy has grown more fierce. So we can’t simply afford to ignore the price of these wars.”

On Afghanistan specifically, Obama stressed that Washington would not bankroll a nation-building project, because such a scheme “sets goals that are beyond what can be achieved at a reasonable cost.” How odd it was, then, that the American project as defined by Obama could only truly succeed if the administration actually does engage in nation building. In other words, the US is dangerously close to wanting to have its cake and eat it too in this period of acknowledged financial realism.

Most empires generally survive on two things: money and what we can call an ethos of domination: a sense of international entitlement and mission. In the case of the US, both have taken a beating in recent years, though American decline remains a relative concept. However, Obama, more than George W. Bush, has taken a bite out of America’s imperial ethos. From the start, as a presidential candidate, Obama highlighted American constraints, mainly to defend his idea of the country needing to seek cooperation rather than confrontation in the world. That was, perhaps, valiant, but the prospect of a weak America has great costs.

That’s because imperial powers can be instruments of stability, essential regulators of the global order. As Ferguson noted, the British Empire played an essential liberalizing role in the world economy, by being “an engine for the integration of international capital markets.” In the years “between 1865 and 1914 more than $4 billion flowed from Britain to the rest of the world, giving the country a historically unprecedented and since unequaled position as global net creditor, the ‘world’s banker’…or, to be exact, the world’s bond market.”

For the writer and academic Fouad Ajami, however, it is less the material than the psychological that preoccupies him when examining America’s, and Obama’s, newfound despondency. In a recent article in The Wall Street Journal, Ajami lamented what he called “the truth about the Obama presidency,” which he defined as “retrenchment abroad, and redistribution and the intrusive regulatory state at home.” Ajami expressed his anxiety with the administration’s essential isolationism, obscured by the “patina of cosmopolitanism” in the president.

“We’re weary, the disillusioned liberalism maintains, and we’re broke, and there are those millions of Americans aching for health care and an economic lifeline. We can’t care for both Ohio and Anbar, Peoria and Peshawar. It is either those embattled people in Iran or a rescue package for Chrysler,” Ajami wrote with barely concealed bitterness.

The desirable interplay between economic restrictions and political power is one the Obama administration has yet to properly define. In many respects power is as much about illusion as reality, even if the reality of US power still remains more compelling than the illusion. For the US to revel in its difficulties can also mean international instability. One needn’t like American power to realize that what America loses, the global political and financial system will lose too.

Michael Young

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Society

Style over substance

by Mona Alami
written by Mona Alami

 

Network companies around the globe have been reporting delays and difficulties in data transmission, due to the exponential growth of number of smartphone users. Lebanon is no stranger to the trend, in a country where outdated telecom networks have become a cause célèbre and BlackBerry users, trendsetters.

Last December, British mobile phone operator O2 apologized for service trouble as some customers were periodically unable to make and receive calls or transmit data because of pressure on the network from smartphones.

In Lebanon Ayoub Merhi, manager of the BlackBerry store in downtown Beirut, acknowledged that when BlackBerry was introduced in 2009, users had initially faced similar network problems. These problems could be partially blamed on increased use of applications by customers with smartphones, which repeatedly pull data off the Internet at short intervals.

“Network services have certainly improved since last year, as mobile phone [companies] beefed up the network by adding additional stations around Lebanon,” he said.

“MTC currently provides about 10,000 lines to BlackBerry users,” he added. “Alfa joined the market at a later stage — it had to first update its network grid to obtain the right to service BlackBerry users which, today for Alfa, amount to about 3,000 clients,” said Merhi.

However, some 2,000 to 3,000 users with prepaid cards do not have access to online applications or email services.

Imad Tarabay, chief executive officer of Mobile Broadband Wireless Internet (MOBI), said Lebanese mobile operators’ service problems were mostly the result of a deficient international network route, which has yet to be updated to accommodate the growing number of BlackBerry and other smartphone users.

“Another problem worth mentioning resides in the fact that many of the hundreds of applications available on the BlackBerry website are blocked from Lebanon for unknown reasons,” he added.

With some 30,000 Blackberry users expected in Lebanon by the end of next year (according to the BlackBerry store), telecom companies should try to learn more about smartphone applications and what their increasing popularity might entail in the long run, to try to alleviate pressure from phone networks.

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Society

The ABC of corporate crisis management

by Executive Staff
written by Executive Staff

 

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. Najjar S2C

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Society

Modernizing the marque

by Executive Staff
written by Executive Staff

BMW Group’s unveiling of the Ghost, its newest addition to the Rolls Royce line-up, at the Frankfurt Motor Show last September sent a small shockwave through the blogs and forums of the automotive world. Critics responded to the new model, which is smaller and significantly cheaper than its predecessors, with a mixture of surprise, praise and confusion.

As top dog in the high-end luxury auto market, Rolls Royce’s decision to “tone down” its new model, ostensibly to produce a more affordable, driver-focused experience, seems a deviation from the company’s long-standing policy of marketing only to the best-heeled buyers. Since its earliest days, Rolls Royce has cultivated a reputation as a kingmaker — today, just owning a Rolls separates suzerains from ordinary human beings. After more than a century of production, the company has built up a reputation that goes beyond the physical properties, considerable as they may be, of the cars themselves. Now the world is wondering: could an expanded consumer base put that reputation in jeopardy?

Certainly, expanding production seems to be a major feature of BMW’s plans for the brand. When the German automaker salvaged the company in 1998 it took concerted steps to keep the personality of the brand quintessentially Rolls — in terms of know-how, feel and luxury — as well as retaining the original factory in Goodwood, England. At the same time, BMW began a gradual escalation in production levels. In 2007, Phantom sales broke the four-digit mark for the first time in the brand’s history. Today, current projections for 2010 more than double that figure, with production of 2,000 to 2,500 Ghosts anticipated.

Speed demon

Yet the Ghost is by no means a streetcar. Carrying a price tag of between $200,000 and $300,000, the car is likely to satisfy buyers that the Rolls Royce marque, in terms of quality and luxury, is as alive as ever in this newest model. The body alone shows the effort its designers made to incorporate the brand’s most fundamental design cues: the upward sweeping sill line, elevated prow and long bonnet all impress upon the viewer that this car, in every essence, is a Rolls.

At the same time, there is an air of informality — if such a thing can be said about a Rolls Royce — and dynamism present in the Ghost that clearly sets it apart from other cars in the Phantom line or before it. Chrome tailpipes, the car’s smaller size and flowing, powerful lines hint at a shift toward speed and power.

 

Indeed, the Ghost is the most powerful car made by Rolls Royce to date, due in part to its smaller size, but also to a number of mechanical modifications. The new 6.6-liter V12 engine used in the Ghost supplies 563 British horsepower — enough to propel the car from zero to 96 kilometers per hour in just 4.7 seconds. That’s not quite a supercar, but it’s getting close in terms of performance.

Breaking new ground

At the same time, the Ghost’s interior boasts all the trappings of luxury. Elegant frosted lamps, reclining lounge seating and deep-pile carpets affirm the car’s true nature. Two LCD screens, analogue watches and meters, as well as the signature flying lady icon add to the image. There is little doubt that, powerful as the Ghost may be, it is still a luxury vehicle, and still a Rolls Royce.

The real question is: can the brand foray into new territory without corrupting its core values? At the moment, the general consensus seems to be yes. The Ghost maintains an elevated standard of luxury while breaking new ground in speed and drivability. One might speculate that, spurred by a drop in sales during the global recession, the car has taken Rolls Royce to a new breed of auto enthusiasts — younger, with plenty of money to spare and an eye for both luxury and performance — without selling the brand short of the expectations of its traditional customer base.

Where does the company go from here? Is the Ghost the lowest threshold, or will BMW continue to pare down the Rolls into an ever-fainter specter of its former glory?

A policy like this would prove fatal in the long run for the same reasons it might prove lucrative in the short run. It’s the name that sells the Rolls Royce, a name built up through decades of top performance. But the drivers play a role as well — every king, president, celebrity or sheikh that adds their name to the list of Rolls’ customers adds something to the brand as well. To spread that brand around, to make it more accessible to the public, puts its star power at risk — and without star power, what is a Rolls but a really, really high-end car?

Nadim Mehanna is an automotive engineer and has been a pioneer of motoring on Middle Eastern television since 1992

 

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Economics & Policy

Fiscal deficit at $2.6 billion

by Executive Staff
written by Executive Staff

 

Lebanon’s Ministry of Finance has stated that the fiscal deficit widened to $2.6 billion in the first 11 months of 2009 — 25.1 percent of the 2009 budget. Standard Chartered Bank forecasts that the total budget deficit for this year will reach 9.5 percent of the economy, the highest in the Middle East and North Africa and the second highest in emerging markets. The Economist Intelligence Unit forecasts the deficit to constitute 10.3 percent of gross domestic product in 2010. Government expenditure came in at $10.3 billion, a 15.5 percent year-on-year increase in the first 11 months of 2009. Debt servicing — the payment of interest on the public debt — also increased to $3.4 billion, making up a third of total expenditures. Revenues over the first 11 months of 2009 also rose to $7.7 billion (21.9 percent), mostly from taxes, which accounted for a total of $5.5 billion. A further $1.68 billion came from customs revenues over the same period, constituting a year-on-year rise of 72.9 percent. Some 87 percent of total customs receipts were processed through the Port of Beirut.

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Economics & Policy

New year, few IPOs

by Executive Staff
written by Executive Staff

The start of 2010 sparked discussions on better primary market conditions in the Middle East when compared with the preceding 18 months, but hard evidence for a good year in initial public offerings has yet to emerge.

The Saudi Stock Exchange (SSE) regulators had approved three IPOs back in December, of which one, by restaurant operator Herfy, took place in January. The other two, for industrial manufacturing group Al Sorayai and for travel company Al Tayyar, have been scheduled for February 1 to February 7, and February 22 to February 28, respectively.

Subscription to the $110 million Herfy IPO for 30 percent in the company closed on January 17. Details on the share allocation and distribution rate were not available at the time of going to press. The issue price of $13.60 per share included a premium of $10.93. 

The second IPO in the region was set off on January 17 by real estate developer Mazaya Qatar. With $137 million in value, the issue by an affiliate company of Kuwait’s Mazaya has faced skepticism from analysts.

Herfy’s major shareholders are Savola, the massive food conglomerate, and the Al Tayyar Travel Group, started 30 years ago as a family business. Little other information is available about either, as the companies have made scarce news in the international or regional press.

Moods in world markets were mellow with regards to IPOs at the start of 2010. Asian markets were reported as most optimistic on account of buoyant economic growth forecasts, but in the United States the year’s first public offerings had a rough time and issuers in January either reduced their price expectations, as in the case of insurance firm Symetra Financial, or cut the size of the offering.

 

Although the fourth quarter had been positive for secondary markets in the Middle East, and emerging equity markets rallied in the past three quarters, 2009 provided such slim pickings in primary markets that it seemed almost inevitable to expect more from 2010.

In 2009, even the comparatively low value of $2.1 billion in aggregate Middle Eastern IPOs — excluding issues that had been offered for subscription in 2008 but started trading in 2009 — masked the fact that more than 75 percent of this value was delivered in only two of 15 IPOs: Vodafone Qatar and National Petrochemical Company in Saudi Arabia.

Some of the 11 IPOs that were completed on the Saudi Stock Exchange (SSE) in 2009 were so small in size that one had to hunt for them with a magnifying glass. This was reflected in the fact that demand for SSE primary market issues fell back to an average of 1.16 million subscribers per IPO.

The forecasts that every investor would like to have — what will the markets be like in 2010 — have been circulating in January in the vast agora of advice and opinions, but there is no sign and no reason to expect that this year’s predictions will be different in their reliability from those made in 2008 or 2009.

Among the more amusing expectations, one Gulf-based newspaper had apparently given its editors the New Year’s holiday off and came up with a late December tale that “as many as 45 Saudi-listed (sic) companies have plans to launch initial public offerings” in early 2010.

The count of companies that have at some point voiced ambitions for flotation on one of the bourses in 2010 is easily above 150.

How many of these rumored offerings will be delayed further, channeled into different equity raising deals or simply evaporate is anyone’s guess, but might not even be the main question. It still seems to be a too widely held assumption that a large number of public offerings are automatically good news for the market.

One might note, though, that post-IPO track records of primary market activity in the past few years showed some highly hyped companies falling severely short in performance and governance compliance, such as the case of jewelry company Damas, which apparently incurred a very costly mishap to investors due to not applying basic practices of corporate governance.

To return to hard numbers, the post-IPO performance data in the Middle East showed two clusters of companies coming out on top.  Last year’s debutants in Saudi insurance showed share price gains since flotation at an average 335 percent and six companies listed on the new Damascus Stock Exchange (DSE) achieved climbs of 138 percent, on average. The DSE, which will celebrate its first anniversary in March, could still radiate some of the charm of a sleeping beauty awakened when further companies will list there in the coming months.  

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Economics & Policy

Tele-me-when

by Sami Halabi
written by Sami Halabi

“If you don’t have it you are losing the game,” said  Gareth Locksley, author of a new study by the World Bank, which found that if broadband penetration had risen by just 10 percent in 2008, Lebanon’s economy would have grown by an additional 1.2 percent to 1.5 percent, with similar growth for every 10 percent increase thereafter.

According to the study, Lebanon could accrue $78 million to $98 million for every 10 percent rise in broadband penetration. The economic growth allowed over just one year by such an increase would easily cover the costs of the required infrastructure upgrades, and even turn a profit.

“In some circumstances, [the cost to benefit ratio could be] substantially less, depending on the technology used,” said the report.

Smoothing internal strife

“The impact on the Lebanese economy if [it does not] embrace broadband now would be equivalent to Lebanon having not embraced learning foreign languages a generation ago,” stated the report presented by Locksley, who spoke at a press conference last month alongside Telecom Minister Charbel Nahas and the chairman of Lebanon’s Telecom Regulatory Authority (TRA) Kamal Shehadi. At the conference, Nahas announced that he would set out his general policies for the government-owned sector over the course of 2010.

With both Nahas and the previous minister hand picked by the parliamentary opposition leader Michel Aoun, it now seems that his party, the Free Patriotic Movement, has chosen to change its telecommunications policy, which was previously highly critical of the TRA that was supported by the parliamentary majority in the run-up to last June’s elections.

“The TRA is bound to fulfill all its duties and responsibilities under the minister’s supervision, following all general rules for the regulation of telecommunications services in Lebanon, as set out by the minister,” the previous policy read. The TRA is meant to regulate Liban Telecom, the corporate entity which would inherit the different areas of Lebanon’s telecom infrastructure from the telecom ministry. However, the realization of Liban Telecom has been delayed since the telecom law was passed in 2002.

Since taking the helm, Nahas  has promised to reorganize internal policies and external relationships with regards to licenses, pricing and prerogatives between the TRA and the Telecom Ministry which were still “not clear.”

Waiting on the government

As Executive went to print, the Shura council, Lebanon’s highest court, had still to rule on several cases regarding prerogatives in the sector which arose during the conflicts between the TRA and the ministry, such as a national numbering plan that would outline how numbers are distributed to the public.

“If we don’t have a real and practical partnership we won’t get anywhere,” said Shehadi.

The telecom minister also laid out a plan to implement broadband Internet in the country at a cost of some $166 million, although the minister conceded that “we cannot know what the projects will [actually] cost.”

According to Nahas, the proposed cost of the overhaul has been approved by the finance ministry and is included in the proposed 2010 budget, which had yet to be ratified by the cabinet or parliament when Executive went to print. The minister would not comment on issues regarding government-controlled pricing, which sets some of the highest rates in the world.

The first tenant of the proposed plan was to begin by connecting Lebanon to the International Middle East Western Europe 3 (IMEWE3) network by May, a major requirement of broadband infrastructure in Lebanon. The expansion plan also includes laying 400 kilometers of land lines, which would accommodate 400,000 new users, in addition to laying 830 km of fiber optic cables.

The upgrade would result in the national throughput capacity increasing from 2 gigabytes to 120 gigabytes and result in a corresponding increase in Internet speeds from 256 kilobits per second to 2 megabits per second, according to Nahas. The ministry also plans to increase the number of leased lines available to the private sector from 800 to 4,000 connections.

When queried by Executive, Nahas refused to comment on the creation of Liban Telecom or the continued gross corporate governance violation within the ministry, whereby the director general of operations and maintenance, who has close ties to the parliamentary majority, heads the incumbent operator, Ogero, and the arm of the ministry that oversees its operations.

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Real Estate

Hiking up mountain prices

by Nada Nohra
written by Nada Nohra

 

Northeast of Beirut and far from the coast’s cloud of persistant pollution lays the village of Kfardebian. The village’s 40 square kilometer boundary, of which the most well known areas are Ouyoun Es-Siman and Faqra, extends from 600 meters above sea level to reach 2,800 meters in altitude, in the Kessrwan district of Mount Lebanon. 

A renowned tourist destination, Kfardebian is particularly popular in the winter season, when both locals and tourists partake in winter sports on its snow-covered hills.

The tourism activity in Kfardebian has attracted significant real estate investment over the last few years, in chalets, hotels and restaurants. While the Ouyoun Es-Siman area has become overcrowded with developments, making land less available, developers are now turning their attention to the quieter Faqra.

“If we are talking about Faqra and excluding Faqra Club, it is still empty,” said Nadi Nammar, managing partner at MR Group, architects of soon-to-be-built mountain resort Les Dunes de Fakra.

Bassam Salameh, vice president of the Kfardebian municipality, explained that the real estate activity in Faqra was formerly concentrated within Faqra Club — a gated community, which was created in 1976 — but in the last few years, new investment and developments appeared in areas adjacent to the club such as the Tilal Faqra, Oakridge, Les Dunes de Fakra, Ahlam and others.

“Activity in the [Faqra] area during last year was crazy,” said Salameh.

All of these developments are high-end mountain resorts comprising small and big chalets, with or without gardens, spas, swimming pools and different amenities.

Karim Bassil, chairman of Byblos Real Estate Investment (BREI) — developers of Edelweiss, a small aprés ski village in the heart of Faqra Club — thinks that the spike in demand for Faqra property goes back to the 2006 war.

“The war made people realize that in Lebanon, no matter what, we are in a risky environment and in case something happens, [Faqra] could be a safe second home,” he said. “All of them are Lebanese families.”

Skiing season and demand

Until mid-January, Kfardebian was still waiting for the winter storms that usually cover the area with snow much earlier in the season. Wael Hmaidan, executive director of environmental campaign group IndyAct, told Executive in December that Lebanon’s longer summer season is one of the consequences of global warming and the country is threatened by severe desertification in the future. ?But real estate experts are at odds as to whether the shortening of the winter season, already seen this year, is impeding the area’s growth.

“It has affected us a little bit because if the snow season is delayed, our selling season is delayed, since this is the time when we sell,” said David Mansour, developer of Tilal Faqra, adjacent to Faqra Club. “If [people] don’t see the snow they don’t come up to the area, and if they don’t come they don’t buy.”

Salameh agreed, saying: “People are not motivated to come and stay in their chalets [if] there is no snow.”

But others believe that Faqra, in particular, is more of a summer attraction, since buyers in the area are looking more at investing in gated mountain resorts than the nearby ski slopes in Ouyoun Es-siman.

“I think people prefer summer over winter because in summer, you can spend two whole months but in winter you only go up for a weekend,” said Bassil.

For the same reason, Carlos Chad, sales manager at Faqra Club said, “I think that the strength of Faqra today is in summer rather than winter.” However, he said the changing weather could affect the area.

“In my opinion, in 10 years, it will be a summer place if [the weather] continues like this,” said Chad.

With the change in weather in mind, the club is working on a grass slope to allow for summer skiing.

Prices rising

Chad explained that Faqra Club owns some 80 percent of the land available for sale; the price is currently at $1,300 per square meter, compared to $250 in 2003, and set to rise.

“I’m sure we will reach $2,000 by the start of the summer,” he said.

Several years ago, Bassil bought land in the center of Faqra Club for $400 per square meter, which is now worth around $1,500.

The remaining 20 percent not owned by Faqra Club are also expected to command sky-high prices.

“There was an offer at $1,700 [per square meter] and the owner of the land refused because he thinks it is worth more,” said Chad.

Land scarcity is inflating prices:  of the 900 plots within Faqra Club’s boundaries, only 45 are currently offered for sale. Outside the club, prices have not reached the same level, but are rising due to the increasing attractiveness of the area. “In 2006, the price per square meter of land was $100 or $150,” said Mansour. “Now it is $600 to $700.”

MR Group’s Nammar said, “Where we are building Les Dunes, it was very cheap; but not anymore. Five years ago, you could have bought land for $90 per square meter, now you cannot find [any] below $250,” he said.

Prices of built-up areas follow the same pattern, with the average price per square meter in Faqra between $3,500 and $4,000, compared to $1,500 three years ago, said Salameh. Within the club, prices may rise to $8,000 per square meter for built-up areas, depending on the developer and the design, said Chad.

Challenging construction

Another price inflator is the fact that building in Faqra costs more than in coastal areas. The cost of both labor and material is higher because of its remote location, which increases transportation fees.

“The same chalet in Faqra costs some 15 percent more [than in Beirut],” said Mansour.

Profits are further dented by the increasing prices of land, coupled with rules which forbid developers to build high-rise buildings or construct on more than 25 percent of the plot.

Chad said that the expense factor has made it unfeasible for developers to build in Faqra Club anymore.

“Edelweiss would have not happened if the land wasn’t bought four years ago,” he said.

Another challenge of building in the area is the harsh winter season, during which construction halts.

“You can barely work seven months per year,” said Mansour.

Infrastructure ails

Even though Faqra Club has its own infrastructure, developers who build outside the club have to bring their own power and water supplies, build their own sewage system and repair the roads. The fact that Kfardebian covers 40 square kilometers does not make it easy for the municipality to supply a comprehensive infrastructure for the whole area.

“If a developer wants to build in the area, he [has to] do everything by himself,” said Tilal Faqra’s Mansour.

“The road that leads to our project was only three meters wide, but there was a plan by the municipality to enlarge it to 12 meters and we helped,” said Nammar.

Municipality chief Salameh said that while Faqra’s infrastructure was costly and a significant problem for developers, the municipality has plans, backed by construction permit revenues, to collaborate with developers and enhance the area’s amenities. 

Demand outgrowing supply

Whether the winter season gets shorter or not, investing in Faqra seems to be a promising deal and developers in the area anticipate a further increase in both demand and prices over the next few years.

“I think that the demand in the next two to three years [will be] much more than all the supply combined,” said Mansour.

“According to what is happening now, I expect that the prices in the area will double or triple in the next two to three years,” said Salameh, adding that if the Kfardebian municipality can operate well, it could compete with the most important skiing destinations in the world. 

 

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