Finance

Reeling in the rich

by Emma Cosgrove
written by Emma Cosgrove

 

The region’s rich are staging a comeback. With the timeline for an economic rebound still unknown, personal fortunes may be the first to recover from the global financial meltdown. And as the rich get richer, the region’s banks are poised to catch as many big fish as they can.

“The global financial crisis hit the investment portfolios of the wealthy worldwide and banks, now more than ever, need a compelling wealth management offering,” said Gul Khan, HSBC’s global head of wealth management for the bank’s Islamic entity, Amanah.

HSBC and Standard Chartered, two of the region’s largest international banks, have announced efforts to expand their offerings in the premium banking market, catering to the wealthy and the super wealthy in new ways.

Tough at the top

The upper crust has seen losses the world over with the Forbes list of the world’s billionaires shrinking by 30 percent from 2008 to 2009.

Of the 752 who made it to the list for 2009, 87 percent saw losses last year. The total of the group’s wealth was nearly halved, dropping from $4.4 trillion to $2.4 trillion. Along with personal fortunes, assets in private wealth management decreased significantly from 2008 to 2009. According to wealth management advisory firm Scorpio Partnership Director Stephen Wall, the private banking industry worldwide is valued at $14.5 trillion, down 16.67 percent or $17.4 trillion from 2008.

“It’s a rather strange period in the sense that, although the overall impression is that the banking sector is shrinking and that there are less opportunities, there are still a number of opportunities arising in private banking,” said Panos Manolopoulos, vice president for the Europe, Middle East and Africa region at Stanton Chase International, an expert in the field of executive compensation.

But now that the crisis seems to have bottomed out, banks are expanding their services in premium and private banking for clients with more than $100,000 in capital and  upwards of $1 million, respectively.

HSBC has opened a premier Islamic program in Malaysia, Saudi Arabia, the United Arab Emirates, Indonesia, Qatar and Bahrain, to serve affluent clients who wish to use Sharia compliant banking services. The bank heralds the program as the first of its kind in the world. Though capital requirements vary in some countries, most of the bank’s premier programs require $100,000 in assets and investments to qualify.

HSBC Lebanon Chief Executive Officer Francois Pascal de-Maricourt told Executive in December that the premier market would be a focus of 2010.

Standard Chartered Bank is also targeting affluent clients. The bank announced in November that it will be opening private banking offices, catering mainly to millionaires, in Qatar, Bahrain and Lebanon. For premium customers not eligible for private banking, Standard Chartered will be adding 850 financial advisors to its global “Priority Banking” program by the end of 2010.

The perks

What does $100,000 get you? The programs include free transfers to accounts at any branch of the bank, anywhere in the world. Most other fees are waived as well, including ATM charges. The programs also include a high-limit credit card (at HSBC the limit is $20,000.) Customer service benefits include dedicated call centers, meeting rooms and lounges at bank branches around the world, as well as emergency services such as cash advances.

Of course, both premium and private banking also include dedicated financial advisors to help clients grow their fortunes.

And with private banking  — usually requiring $1 million in capital — the benefits and service increase with special dedicated wealth managers and offshore accounts with a promise of privacy. These services may include special loans for when a client needs cash but doesn’t want to pull out investments, and dedicated trading programs for those who want to take control of their own portfolios.

Back on track

Drops in investment returns, executive salaries and bonuses have affected smaller portfolios likely to be in the market for the $100,000 asset cut-off of most premium banking programs. But thanks to a stronger leaning toward prudence, executives in the Middle East have taken a softer hit than elsewhere in the world.

While ubiquitous in the West, the outrageous bonuses often three or four times higher than the executives’ annual salary were not conventional in the Middle East.

Stanton Chase’s Manolopoulos said he expected executive compensation to be restored to its pre-meltdown levels in the near future.

“There have been some pressures and some bonuses were given up, it’s true,” he said. “But there hasn’t been so much impact in that field.”

“By the end of 2010 we will be back to the original numbers of previous years.”

A run on the banks

Scorpio Partnership and Standard Chartered Private Bank released in September 2009, “The Future Wealth Report,” a survey, conducted in May and June of 2009, of 1,414 individuals with average net worth of $2 million each. The global survey called them “the future rich,” all of whom would be considered premium banking clients, and many would qualify for private banking services.

 

The survey noted that half the respondents had goals of quadrupling their fortunes within the next 10 years, one quarter of those in the next five.

According to the survey, “34 percent admitted that they have lost money in the crisis, but the vast majority believed that 2009 will not be a write off and 2010 might even be a good year.”

Though the respondents in the Middle East and North Africa were more willing than their European counterparts to hand the reins of their cash over to a financial advisor  — with 34 percent saying that they would use a financial planner in the future, compared to 10 percent in Eastern Europe and 17 percent in Continental Europe — large banks are still fighting the bad reputation built by the financial crisis.

“The common conception in parts of the world where confidence in the financial advisory profession is low, is that the financial industries lack professional standards and are dogged by sharp practice and short term goals,” said the report.

This sentiment is precisely what the financial services industry will be fighting in the coming year.

This distrust of financial planners does not, however, equate to an aversion to risk; 60 percent of the respondents reported being “intrigued” by investments with a high level of risk and a corresponding high level of return. HSBC’s Maricourt said this was one of the key issues in financial advising for wealthy clients.

“Quite often we are trying to get a view of what kind of risk level the client wants to take because clearly the more risk you take, the higher the potential return,” he said.

Getting their groove back

In a time where liquidity is scarce and bad loans are a fact of life, tapping into the wealthy set is a good way for banks to efficiently grow deposits.

 

“Premier banking is usually intended for a bank to grow their liabilities and to grow their deposits,” said James Gebara, senior manager of personal finance services at HSBC Lebanon.

And after the banks have collected their high profile clients, they must shepherd their portfolios toward growth, a game that has changed in recent years.

“What we have seen is that clients are now trying to really have a better understanding of what they are investing in,” said Maricourt. “We saw, for instance, that for a period of time, our clients were less interested in equity because there was a lot of uncertainty in terms of stock markets and in terms of what would be the potential loss on equity markets.”

“More recently we have seen some people reentering the equity markets, but we try to select the markets that we think are more likely to grow with a lower level of risk.”

According to the Future Wealth Report, today’s premium banking client prefers to be hands-on with his money. For financial advisors and wealth managers, the watch word for the coming year is “diversify.”

“They are trying not to invest all of their eggs in the same basket and I think that nowadays the key is to achieve the right level of diversification,” said Maricourt.

With almost a third of the Future Wealth Report’s respondents under 29-years-old and just under half were between the ages of 30 and 44, the premier and private banking sectors look set for a busy time ahead.

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Real Estate

Tripoli’s Idle arches

by Executive Staff
written by Executive Staff

 

The Rachid Karami International Fair stands tall in the heart of Tripoli, Lebanon, and should be an iconic symbol for this aspiring city. Yet very few people seem to know much about this architectural masterpiece, designed by the world famous Brazilian architect Oscar Niemeyer.

The fair was part of an ambitious plan to modernize Lebanon at large, to focus on the areas outside of Beirut in the 1960s. The master planners nearly achieved their ambition but were foiled by the Lebanese Civil War. Fifty years later, the fair stands as a poignant reminder of what could have been and how stagnant the modernization process of Lebanon remains, with its dilapidated concrete structures holding firm but desperately in need of investment.

Brazilian curves in Tripoli

Oscar Niemeyer, who turned 102 last year, is renowned for his work in his home country Brazil and its capital city, Brasilia. Niemeyer was appointed the master architect for Brasilia — a city built from scratch in the 1950s. The architecture he created was exquisite and won accolades around the world. Dubbed the “King of Curves” for his famous domes, curves and arches, Niemeyer said his distinct style was inspired by “the body of the Brazilian woman.”

President Fouad Chehab commissioned a report from the Institut de Recherche et de Formation en Vue du Developpement (IRFED) in 1961 to appraise Lebanon’s human, economic and social needs. The report highlighted the need to create an economic center away from Beirut, which was sucking up most of Lebanon’s available capital and creating large income disparities with the rest of the country.   

Following the IRFED report, the idea arose for the Rachid Karami International Fair, to turn Tripoli into a more desirable place to live.

“The upgrading project will provide Tripoli with a trendy area filled with housing, commerce, sports, recreation and tourism,” states the profile of the project on Neimeyer’s website. “The International Fair of Lebanon is to be the central attraction in Tripoli: a center of culture, art and recreation; of major importance in its theaters, museums, local sports and entertainment.”

The project was commissioned in 1963 and work gradually commenced, but just shy of its completion in 1975, work halted with the onset of the civil war. A dilapidated structure is largely what remains today but one that still maintains a high potential for renovation.

The buildings of the International Fair are listed on the World Monument Fund Watch List. Although sections of the fair were reopened in 1995 and exhibitions are held in parts of the grounds, the vast majority of the structures have been neglected.

Since 1994 there have been various proposals to redevelop this massive site, many of which have fallen through, overcome by the fair’s expansive 1 million square meter grounds.

“There are a total of 20,000 square meters for exhibitions, of which only half are currently used,” said Antonie Abou Rida, director general of the Rachid Karami International Fair. “Further to this, there is another potential area of 40,000 square meters that could be used as exhibition space if redeveloped.”

Chinese investment

One investor interested in the International Fair is the Chinese government-owned firm Chinamex, which offers Chinese companies a platform to sell goods to retailers and suppliers.

Lebanese industrialist Jacque  Sarraf, chairman of the multifaceted Malia Group, is leading the ambitious joint project with Chinamex to redevelop the International Fair. They have already set up successful hubs around the world in Atlanta, Dubai, Amsterdam and Manchester.

“This is part of a global plan for Chinamex, they need somewhere in the Levant — everywhere else is covered,” said Abou Rida.

Both the Lebanese and the Chinese stress they are keen to protect the architectural heritage of the site. “The design has to be approved by the government and nothing will be changed,” Sarraf said. “No new construction will be added.”

 

The scale of the project is such that two phases have been laid out. “The first phase plans to bring 1,200 Chinese companies [in] and then the second phase will bring that number up to 3,000,” Sarraf told Executive. The total cost of both phases will be some $29 million. If this project goes through, Tripoli could see dramatic changes as, according to Abou Rida, the project would bring some 3,600 Chinese to Tripoli with their companies, and would provide some 3,000 jobs for locals.

However, trying to convince the Chinese government that the security conditions are good enough in Lebanon is not easy. The government has already given Chinamex an exemption on work visas and import tax. The project, planned to start in 2005, was first delayed by the 2006 war and then indefinitely after the Nahr el-Bared crisis in 2007.

“This situation was made even worse with the financial crisis. The international market is now not the same as it was in 2005,” Sarraf said. It is evident, however, that the Chinese government remains interested.

“Just last week the ambassador of China came to Tripoli to look at the site and see if the project was possible,” said Abou Rida. But Sarraf is cautious as to the prospects, “We just don’t know if it will go ahead or not.”

The IRFED legacy

The Lebanese government is keen not to give up on the project and appears to realize the continued importance of the IRFED report. Tripoli is desperately in need of major investment. There will be many skeptics regarding whether a Chinese company bringing in a significant number of its own labor is the right way to go about this investment. But the government and the Minister for Economy and Trade Mohammed Safadi, in particular, seem convinced and are actively trying to reactivate the project with the Chinese.

“The new government of (Prime Minister Saad) Hariri and (President Michel) Sleiman have a new strategy for foreign investment that should also make it easier for the Chinese to invest, and Safadi will also go to the Shanghai Fair in May,” Sarraf stated.

President Chehab left a lasting legacy that is yet to be completed, with his plans for Lebanon still relevant today. The need to develop an economic center outside Beirut is still as vital in 2010 as it was in 1961, as modernization of the country’s institutions remains as stagnant as ever.

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Finance

Shadows of foreclosure

by Emma Cosgrove
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.”

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Sectarianism ends at home

by Sami Halabi
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

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Tight-lipped Libya’s brazen bluff

by Paul Cochrane
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

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Total tiptoes back to Iran

by Gareth Smith
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

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IMF still chasing Turkey’s tail

by Peter Grimsditch
written by Peter Grimsditch

It threatens to be the longest running thriller since “The Mousetrap” opened at Saint Martin’s Theater in London more than half a century ago. Negotiations between the International Monetary Fund and Turkey over a standby loan have been on and off ever since the previous $10 billion agreement expired in May of 2008.

Bankers, analysts and journalists have been speculating for most of that time that a new deal would be struck within days, weeks or months, and the reports of the amounts being discussed have varied from $6 billion as the “minimum needed to rescue the Turkish economy,” to sums as high as $50 billion.

“Excuse our cynicism,” said Timothy Ash, head of emerging markets strategy at the Royal Bank of Scotland in London, “but we have had similar promises appearing in the media of an IMF deal being cut at the IMF autumn 2008, spring and autumn 2009 meetings, the Group of 20 summit in April 2009, then successive Barack Obama-Recep Tayyip Erdogan summits.”

Prime Minister Erdogan has been orchestrating a guessing game that rivals any Agatha Christie plot. His teasing snippets from time to time have left the press indulging in its well-practiced sport of inventing what it doesn’t know. What is certain is that, with deft sleight of hand, Erdogan is heading for a double victory in what seemed until recently a titanic domestic clash between politics and economics.

The prime minister and his closest cohorts have been talking up the Turkish economy for months, saying it survived the global financial crisis unscathed and dropping broad hints that the country didn’t really need an IMF loan anyway. His optimism seemed to fly in the face of a raft of depressing numbers — a recession that saw gross domestic product fall by nearly 6 percent in 2009, a ballooning budget deficit, an unemployment fall of 16 percent at one point, and slashed industrial output.

Certainly these numbers didn’t impress the IMF, which wanted the ruling Justice and Development Party (AKP) to cut public spending and raise taxes. For Erdogan, this was akin to inviting him to commit political hara-kiri. Raising taxes before the municipal elections of March 2009 would probably have sent his party’s popularity into a tailspin. In fact, Erdogan spent heavily to court voters in the month leading up to the poll. He also announced a $2 billion increase in retirement pension spending last month. Understandably, there was less fanfare about a vast range of tax increases revealed on December 31, 2009.

Putting up tax rates voluntarily rather than as a condition of any IMF loan probably doesn’t make too much difference to the people who have to pay them. Yet at least Erdogan can argue that he is negotiating with the IMF from a position of strength not weakness.

Petrol prices went up on January 1 to $2.64 for a liter of unleaded; cigarettes were hit, with a domestic packet now costing $2.86 instead of $2.35; most alcohol is more expensive; car taxes rose; tolls across the Bosphorus bridges went up; electricity bills will increase by 1.3 percent. Natural gas was spared — for the moment. Its cost is expected to rise by 5 percent this month in what may be the first of two increases for this year.

In effect, Erdogan has fully funded the pension increases with new taxes and even made an annual “profit” of $1.35 billion on the deal.

Even some of the prime minister’s opponents, as well as impartial sources, are beginning to share his resolute belief in the innate strength of the Turkish economy. A 30-year, $2 billion bond — the longest maturity ever issued in Turkey — was more than three-and-a-half times oversubscribed. The issue followed an upgrade in the country’s sovereign ratings to BB+ (one step below investment grade) from global rating agency Fitch Ratings.

The forecast for the economy is also on the up. A report by Turkish brokerage house Is Investment put likely growth for 2010 at 4.3 percent, increasing the figure to five percent if the elusive IMF deal comes off. In any case, IMF money is not viewed as a bailout but a measure to help Ankara roll over its foreign debt and ease the flow of loans to industry. Erdogan’s few quoted comments in January ranged from finalizing an agreement within “days or weeks,” to suggesting that a deal may not happen at all. IMF spokeswoman Caroline Atkinson provided more intrigue by saying, “We have not had a mission fielded nor requested.”

And so the plot thickens. As no one in the know is giving the IMF game away, la politesse and protocol dictates that Executive will not reveal the identity of the villain in the mousetrap either. It is enough to say that things are not always as they seem.

Peter Grimsditch is Executive’s Istanbul correspondent

 

 

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Iraq’s electoral maelstrom

by Ranj Alaaldin
written by Ranj Alaaldin

Just two months shy of Iraq’s national elections in March, an apparent bombshell of a development hit the country. The country’s Independent High Electoral Commission (IHEC), as per the requests of the Accountability and Justice Commission, decided to ban more than 500 mainly Sunni electoral candidates from contesting the elections.

Iraq’s Sunni groups have organized and galvanized themselves in an impressive manner for the elections. There are at least three formidable groups that many expect to pose a serious challenge to post-2003 Iraq’s traditional powers: the Shiites and the Kurds. The Iraqi Accord Front, the Iraqi National Movement (INM) and the Unity Alliance of Iraq comprise serious and experienced politicians that, individually at least, have already proved their worth in Iraq’s previous elections.

Out of the three, it is the INM that has hit the headlines. One of the political parties within this coalition belongs to prominent Sunni Saleh al-Mutlaq, a former Baathist the IHEC has banned for glorifying and promoting the now outlawed Baath party. Banning such a well-regarded figure has the potential for disaster. It could lead to a mirroring of the 2005 Sunni boycott of the elections, with serious repercussions for the post-election environment and, as a result, complicate the United States’ plan to withdraw troops later this year.

Despite the headlines and the hype surrounding this debacle, it is not yet the “call to return to war” that some are making it out to be. The banned candidates were given the opportunity to appeal and 59 were reinstated. Ali al-Lami, the executive director of the Accountability and Justice Commission told Asharq Al-Awsat that the reinstatement of these candidates to the electoral list “was not a result of political or marginal agreements.” Rather, it was due to a mix-up over personal details such as names and dates of birth.

More important still is the reaction from Iraq’s other major groups, which have been relatively quiet; given that prominent figures such as Sheikh Ahmed Abu Risha, former Prime Minister Ayad Allawi and his fellow INM member, the current Vice President Tariq al-Hashimi, are still expected to take part in the elections, Sunni resentment in Iraq is unlikely to be anywhere as high as it was in 2005.

Analysts have been overwhelmingly critical of the IHEC decision, calling it a disaster for Iraq and a marginalization of the Sunnis. Some have derided the fact that just as former Baathists were being brought into the democratic system they are being pushed out again, just when they, and their “Sunni” Iraqi nationalist ideology, might pose a serious political threat.

Most former Baathists have recognized the futility of violence and are largely engaging in the democratic process. However, as the famous saying goes, do not confuse kindness with weakness. There is a feeling among Iraqis that as the so-called Baathists, or former regime loyalists, are welcomed back into the political arena, once they take up their positions of power and become comfortable (and confident), then they will start to show their true colors.

Take the example of parliamentarian Zafir al-Ani who recently, in defiance of the constitution, has openly praised Saddam Hussein and his former regime and has understated its crimes. This might be no more than attention-seeking antics, but it does stoke tensions.

Even more worrying for the vast majority of Iraqis were comments made in early January by British ambassador to Iraq, John Jenkins, who told the British Iraq Inquiry that a military coup in Iraq was a real possibility. Following this, Jenkins was vehemently criticized for making a remark that, essentially, played into the hands of those still yet-to-be reconciled Baathists.

According to on-the-ground Iraqis, the response from the Sunni tribes, who would be pivotal for any successful military takeover, was that they would be ready to overthrow the government if the British were willing to support it. The reason the British might want this, they said, would be that Iran wields too strong an influence in Iraq for the West to be able to match it through other means.

Just days after Jenkins’ remark, fears of a military coup abounded as Baghdad underwent a major security lockdown. According to Arab media reports, the lockdown was enforced in response to an attempt to overthrow Iraq’s Shiite-led government. The Iraqi government was quick to allay such concerns — reassuring that they had in fact foiled an attempted mass-terrorist attack — but the reality is that Iraq is still very much a victim of its past.

RANJ ALAALDIN is a scholar on Iraq and is published regularly in The Guardian

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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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