Executive Magazine

An industry cheers

by Executive Staff October 23, 2009

written by Executive Staff

Despite a global decline in alcohol sales, the Middle East is still supporting a healthy appetite for Scotch whiskey, according to the 2009 preliminary sales results of Diageo, the global alcoholic drinks provider. Diageo, which owns and produces Smirnoff, Guinness, Johnnie Walker, Captain Morgan and Jose Cuervo, managed to turn a profit in this year of economic turmoil, according to their figures released on August 31. As Western markets continue to suffer from the effects of the downturn, the Middle East and other emerging markets are taking the lead in terms of growth in the industry.

“Johnnie Walker is the biggest Scotch whiskey in this part of the world,” said Gilbert Ghostine, Diageo’s Asia Pacific president. Ghostine also stated that the Middle East is just one of the emerging markets that Diageo will be concentrating on in the future.

“The Middle East is like other emerging markets and that is where the growth will come from in the overall global economy and also in terms of demographics,” he said in an interview with Executive.

With airline passenger numbers down globally, the Middle East is the only region maintaining its duty-free sales levels, according to Swedish independent research firm, Generation Research. Ghostine says this is the key to Diageo’s success in a region where alcohol is often restricted or banned. “The region is growing in terms of traffic through airports where you have duty-free and consumers that are not necessarily regional consumers but international consumers,” he said.

Despite the $4.3 billion in profits Diageo posted for the 2009 fiscal year, the company has been engaging in what it calls “restructuring” in recent months.

“We have a global footprint and our global presence will allow us to calibrate our approach. We are still gaining share in the United States and at the same time driving our business further in emerging economies. We can do both,” said Ghostine.

Part of this “calibration” has drawn criticism, as Diageo announced last month plans to close part of its facilities in Scotland. The company plans to pull down the shutters once and for all at a bottling plant in Kilmarnock and its distillery in Glasgow, despite a Scottish government offer to subsidize the two sites in order to save up to 900 jobs. The company rejected the government plan as “unworkable,” claiming it failed to understand “the basic economics of our business.”

“These plans — for implementation over the next two years — will be an important part of securing the long-term competitiveness of Diageo’s Scottish business and, by retaining all existing production activities in Scotland, underpin the company’s continuing commitment to Scotland,” said Diageo in a July 1 press release.

Ghostine described the cuts as a natural progression of the company in the pursuit of efficiency.

“As part of reviewing our footprint we figured out a more efficient way to run the business to make sure that the Scottish whiskey industry will stay competitive and keep growing in the future,” he said.

And despite the company’s cost-cutting moves, Ghostine also said that the Scotch whiskey industry in Scotland is safe for the future.

“These are not decisions that we take lightly. We spent almost a year reviewing our facilities and distilleries to make sure that we are comfortable with the decision that we are making. What we are doing is saying that we are still committed in Scotland.”

Diageo has also been subject to further scrutiny for its decision to close down its Captain Morgan rum distillery in Puerto Rico, cutting 300 jobs, in order to move the facilities to the US Virgin Islands after being offered huge tax incentives from the US government. The British company will receive $2.7 billion in tax incentives over 30 years, which will include the entire $165 million cost of relocating the plant to the island of Saint Croix.

The deal is still being fought by Puerto Rico’s non-voting representative to the US Congress and Congressmen with large Puerto Rican constituencies.

Remarking on these controversies, Ghostine said: “Change is a way of life in global organizations. We look at it in the context of evolution; in the way we want our companies to keep evolving. You will look for organic growth, you will look for non-organic growth, and at the same time you are looking at ways to become more efficient and effective as a company. It’s not like downsizing.”

October 23, 2009 0 comments

Consumer Society

Aging potential

by Executive Staff October 23, 2009

written by Executive Staff

A mid a global recession and a decline in wine consumption worldwide, Lebanese are raising their glasses as the country’s $25 million wine sector continues to grow at a steady pace. But experts say that despite Lebanon’s ideal climate for viticulture and a high level of expertise, the sector is still not living up to its potential.

World wine consumption dropped by 0.8 percent last year, according to the International Organization of Vine and Wine. But New World wine consumption has increased, and so has Lebanon’s, rising by 1.5 percent during the same period.

“I think people are searching for a new taste. The wine consumer is always looking for a new product, and Lebanon is benefiting,” says Lebanese restaurant consultant Nagi Morkos. “Worldwide, there is a trend toward ethnic wine and food.”

With domestic consumption still relatively low, the country has relied on exports for most of its profits. Between 2002 and 2003, Lebanese wine exports doubled, and today they continue to increase. According to figures from the Lebanese customs, official wine exports totaled $13.1 million, up from $9.8 million in 2006. The United Kingdom, the biggest importer, bought $4.6 million worth of wine in 2008, compared with $2.6 million in 2006.

Even with the ongoing global recession, some vineyards are opening up to new markets, compensating for a drop in sales to their established buyers.

“We can’t say we’re not affected by the crisis,” says Emile Majdalani, marketing director at Kefraya, one of the country’s top producers. “But our brand is well established and we’re always working on long-term business plans. We’ve never opened so many markets as we have this year — a total of six new countries.”

Kefraya is now exporting to Australia, Benin, Cyprus, Nigeria, Mexico, Poland and Togo.

“We felt the crisis in certain countries, mainly the United States, Russia and Western Europe,” says Majdalani. “But our main markets are more or less compensated. We’ll close the year with no decrease in exports.”

As for wine sales in Lebanon, which has been relatively unscathed by the global financial crisis, he says business is booming, up 15 percent from last year.

From one resilient war-torn country to another

Last year saw a major increase in exports to Iraq, after five years of decline following the US-led invasion in 2003. In 2008, Iraq imported $158,000 worth of Lebanese wine, up from $88,000 in 2006.

“The Iraqi market fluctuates,” says Ramzi Ghosn, winemaker and co-owner of Massaya winery in the Bekaa Valley. “It could be an index of stability in Iraq, according to wine sales.”

Like Kefraya, Massaya is always looking at new markets and trying not to rely too heavily on its established ones.

Lebanese wine is a $25 million industry, large by Middle East standards but small compared with major wine-producing countries such as France, Italy and the US. Since 2005, the number of vineyards in Lebanon has doubled — from 15 to 30. Still, that’s small compared to neighboring Cyprus, whose vineyards number 60, and which attracts an international crowd to its annual wine festival in August.

Observers have pointed to Lebanon’s shift over the past several years from a whisky and arak society to a wine culture, and attribute this to the country’s relative stability over the past couple of years. An example of this is the opening of the first commercial winery in South Lebanon in 2003.

At Karam Winery in Jezzine, founder Habib Karam is basking in the relatively newfound popularity of Lebanese wine.

“Today, if you are a wine importer in America or the UK, it’s your responsibility to have Lebanese wine. Otherwise your list won’t be complete,” says Karam, who exports 50 percent of the 55,000 bottles he produces annually. “We are becoming like Chile and South Africa. Lebanese wines are in demand.”

At Nabise, a boutique winery in Mount Lebanon near Aley, which opened in 1999, the husband and wife co-owners Nazih and Mai Metni proudly note that their vineyard is in an area slowly recovering from sectarian conflict. Since they started a decade ago demand has steadily increased, although this year they admit they have been affected by the recession, as 70 percent of their exports go to the US. But Mai Metni is confident wine is a sustainable export, particularly as there has been a steady increase in foreign demand for their wine ever since they opened. “I’d like to see a hundred wineries open in Lebanon. We need exports for our economy to grow. What else are we going to export? Oil?”

“If you are a wine importer in America or the U.K., it’s your responsibility to have Lebanese wine”

New grapes for an expanding palate

But as demand grows, vineyards continue to open. In April, the Saade Group, a Beirut-based family business that primarily works in real estate and tourism, unveiled their new wine, Marsyas. In November, they will introduce their new Syrian wine Bargylus in the coastal province of Latakkia. Both wineries use their own grapes and are being bottled according to international standards. This is the first time that a company opens a winery in both Lebanon and Syria, another sign of Lebanon’s increased stability.

“Wine is good for Lebanon’s reputation,” says Sandro Saade of Saade Group. “The downside is that there needs to be more regulations that ensure quality.”

For now, most of Lebanon’s commercial wineries buy the majority of their grapes from farmers instead of using those grown at their vineyards.

“Lebanon’s wineries should start investing more in their own vineyards,” says Saade. “All of the wineries have done a good job so far. But we can take the wine-making sector to the next level.”

Despite the competition between Lebanon’s various wineries, Saade hopes to see more cooperation between them.

“What is a pity is that nobody is coordinating,” he says. “In Lebanon, we have everything on our side, and we’re not exploiting it. We need a common vision for the country.”

Unfortunately, right now, he says, “There’s a lack of strategic thinking in Lebanon for everything, including wine. There’s no Lebanese flag on Lebanese wine.”

But this lack of national unity might not be entirely the fault of Lebanon’s wineries.

In the summer of 2006, a National Institute of Wine was slated for opening but has been put on hold ever since the July 2006 war. The purpose of the institute, which would be a partnership between the ministry of agriculture and the private sector’s Union Viticole du Liban (UVL) would be to study wine and enforce regulations to protect the quality of Lebanese wine.

But as the project continues to get delayed, so wanes the momentum to get it started.

The UVL, which is supposed to represent all of Lebanon’s wine producers has only managed to attract 11 wineries, at least two of which have left the union over the past two years. They cite the group’s lack of vision and unity.

Growing the fruits of success

However, despite the challenges facing Lebanon’s wine industry the ministry of agriculture sees it as a success story. “The wine industry is better than others in Lebanon. There’s competition,” says Mariam Eid, head of the agro-industry department at the ministry of agriculture. “You can’t compare it with olive oil, where they still use out-of-date technology. Wine has an important future in Lebanon. I hope the institute will open soon.”

Other people see the future of Lebanon’s wine industry in “enotourism.” Over the past year, Lebanon’s producers have stepped up their efforts to attract tourists to their vineyards, although it appears to be without coordination. The Saade Group is planning a hotel and wine museum in the Bekaa Valley, both slated to open in 2011. Kefraya says it is also opening a wine museum, which it expects to open next year. Carlos Adem, owner and founder of Chateau Faqra, a boutique winery in Kfardebian, is building a small hotel near his vineyard, which he plans to open next year.

This appears to fit well with a recent initiative by the Ministry of Tourism to promote rural Lebanon.

“Wine tourism is a part of agro-tourism in Lebanon,” says Nada Sardouk Ghandour, general director of the Ministry of Tourism. “When people see the wine label, they also see the name of the village.”

The home front first, then the world

But with all of the recent international recognition of Lebanese wine, it’s the Lebanese themselves who might be the ones preventing their local wines from receiving the domestic praise it deserves.

“In Lebanon there’s a snobbish attitude that everything imported is better,” says Ghosn of Massaya. “For them, it’s not always about pleasure. It’s about having French wine at the table so they can say, ‘I drink French wine.’”

Carlos Khachan, a Lebanese wine expert who leads tours of Lebanon’s vineyards with his group Club Grappe, agrees. He believes that if the Lebanese themselves have confidence in their own country’s products, non-Lebanese will follow suit.

“[The late industry minister] Pierre Gemayal told people to buy national products. If you love your country, you should consume its products,” Khachan says. “Why not apply that to wine?”

If Lebanon is to succeed in attracting more domestic consumption it will have to do so soon as tariffs on foreign wine have been decreasing, making the domestic market even more competitive. Several years ago, tax on foreign wine in Lebanon was 70 percent, but it is now only 40 percent.

“They keep on reducing taxation. In two years, there will be no duties [on foreign wine coming into Lebanon],” predicts Adem. “Lebanon will face more international competition. But this will make us produce more high-quality wine. With taxes getting lower on imported wine, we’ll have no choice.”

Still, to really get Lebanese wine on the map, it will take more than good quality, but also good name recognition. Michael Karam, author of the book “The Wines of Lebanon” agrees that “Lebanon will never make a genuine impact on the international wine market unless it embarks upon a proper generic campaign. By that I mean selling Lebanon — not Musar or Kefraya or Ksara or Massaya — as a wine producer.”

If Lebanon does not address this soon, he believes Lebanese wine “will remain nothing more than an ethnic curiosity, living on the reputation of Chateau Musar, which only appeals to a few devotees and does not represent the new generation of Lebanese wine. We are being left behind.”

He notes that even Brazil, which is not known as a wine-producing country, has a national wine campaign.

“We need to take on the world with our six million bottles, but if we don’t act soon we will have missed the boat,” says Karam.

October 23, 2009 0 comments

Real estate

Ghassan Youssef (Q&A)

by Executive Staff October 23, 2009

written by Executive Staff

Ghassan Youssef is the managing director of Rakeen, the real estate arm of RAKIA (Ras Al Khaimah Investment Authority) in the United Arab Emirates. Rakeen recently launched its new ultra high-end project in Beit Meri, Lebanon. ‘Beit Meri Sunset’ is comprised of 10 residential villas and nine apartments. Executive sat down with Youssef to discuss issues related to the project and the company’s investment plans in Lebanon.

E I know you started the sales of your project in Beit Meri in September. How much have you sold so far? And to whom?

We secured 20 percent already in the first two weeks. People interested are half locals, half [other] Arabs. But the target [segment] in Lebanon is always the locals and Lebanese expatriates. Then it is our cousins, the Arabs who love Lebanon and want to have a stake in the country. So they target Lebanon, whether for business or residential [purposes], to have a place to stay when they go to Lebanon because they love to go to Lebanon.

E Do you think that the fact that the government formation was delayed will affect interest in your project?

This is an important question. The answer would be no, because people are used now to the unstable country which is Lebanon. People are used to the political storms, so if Lebanon is not like this, then something is wrong, and maybe then I would worry about it. But now everybody knows that if there is a cabinet or not, Lebanon is there to stay and to prosper and people are investing and the real estate market is jumping from one month to another in positive numbers.

E So you think that even if a cabinet was formed, this wouldn’t result in you having more sales?

It doesn’t affect us. If they stay like this for a year or there is cabinet in the next two weeks, it doesn’t affect me. Now, obviously, if the cabinet is up and running in the coming few days you will have the stock market up and running. You will have a momentum created in the country. Then ok, the positiveness is there and we have a cabinet. The bottom line is that the outcome of the cabinet is not the cabinet itself. In Lebanon the private sector runs the country and not the public sector. In that perspective, the outcome of having a cabinet would only be that there is a positive atmosphere that all parties in Lebanon are fine together.

If it was 10 years go, I would tell you you’re right. But now everyone knows. During the July 2006 war, Lebanon suffered for a month, and then next month, everything was up and running. Now people who don’t know it will fear it. But your target segment is the people who know Lebanon. The Arabs know Lebanon more than the Lebanese know their own culture and they love it the way it is.

E Did you start construction? And how long will it take to complete?

We took the license and we started now on the project. It is our first project in Lebanon, but not the last. It is the first project and it is a very small project. When we say 10 villas it might be big but if you compare it to our projects worldwide, it is a tiny project — it is around 10 percent of our projects overseas. Regardless of sales, we have a target of one and a half years to finish. So in two years, you as a client will be living in that house.

E So construction is independent of the sales?

True. If I sell, it would be better. If I don’t sell now, I will increase my prices later and keep on construction.

E What is the value of the project and how is it financed?

I don’t know if I can tell you the whole value of the project. But you can assume we are talking about $2 to $3 million for a villa, and we are talking about 10 villas. But I cannot give you the numbers to tell you this is how much it is going to cost me and that’s how much it is going to sell. It is financed by us, pure equity. We did not take any loans for it.

E I know that you have a diversification strategy since you have projects in so many other countries. Can you tell us about it?

Our chairman has a very strong appetite for emerging markets, and this is where we are. We are present in the emerging markets. Our strategy is not like other real estate companies who go into building luxury resorts. We are into mixed use outlets. We have a mall, an office tower, a residential tower, a hotel etc., that is our segment. That is how we build our projects. We have a beautiful project in Tbilisi, Georgia. It is an amazing market. We are building the biggest shopping center in Georgia — 70,000 square meters. We have the World Bank as partners with us through the International Finance Corporation in that project because they love it. With this shopping center comes an office tower and a residential tower. So that is the kind of scale of our projects.

E What about the financial crisis? Has it pushed you to diversify more or is it a setback?

We did not stop the projects, and we did not adopt a speedier construction model. We are still in business as usual. The only thing I would say about this crisis that affected us is that we are not starting new projects. We used to start three to four projects per year, now we will say it is one project per year or none. And it will be the strategy for the coming three years, to honor our commitments to the market. And that is what counts, our reputation.

E So can we say that when you have future plans in Lebanon, they will be in the next three years?

We are planning to expand in Lebanon, and that is the one project that I talked about. It is in Lebanon. I want to expand in Lebanon because it is a beautiful market. Not because I am Lebanese, not because I only believe in Lebanon; I truly believe in Lebanon and I know that Lebanon is there to stay. It is like Dubai. Now everyone talks about Dubai and the crisis and now bad it hit Dubai. But Dubai is there to stay and prosper again and again. And I give you my word on that.

I have a land bank in Lebanon. I started this project, but I have other lands in other areas. There is no specific time for this, but there are plans. And we are also in a position to acquire new land in Lebanon. We are only doing this in Lebanon, not in other countries. We believe that Lebanon and Syria are going to expand and prosper. There is a big need. Syria is underdeveloped. Lebanon is super developed, but yet if you take all the available land now, the plots available to construct in Lebanon are very rare.

You have four million Lebanese in Lebanon, and you have 16 million or even more Lebanese abroad. Let’s say you have 20 percent of these aboard who want to come back one day with their kids as well, plus the growth that you have within the Lebanese in Lebanon, plus the interest of the Arabs all over. The attraction of Lebanon is the hospitality of the Lebanese and the way they deal with people, how they welcome them, how they love life and know how to live it.

October 23, 2009 0 comments

Real estate

Small and quaint demand

by Executive Staff October 23, 2009

written by Executive Staff

Lebanon’s real estate market, especially its high-end segment, has been directly impacted by internal and external constraints. Both the financial crisis and the delayed formation of a new government have buyers thinking carefully about their next investments. Still, considering current circumstances, the market performed fairly well this season and developers are more or less content with the overall outcome.

Sales numbers have not drastically dropped, and prices did not decrease further than the 10 to 15 percent recorded in the first six months of the year. But experts agree that units priced at above $1 million are hard to sell, and demand is concentrated on the lower market segment — mostly ranging between $300,000 and $700,000.

Moreover, even though Gulf investors don’t represent a big chunk of the demand, they were particularly absent this summer.

“[The high demand] has materialized to a large degree for the Lebanese, but less for the Gulf people who have been waiting for the government to be elected or to be formed,” said Nabil Sawabini, chairman and CEO of Mena Capital. “So its late formation has delayed some of the potential sales that we were expecting.”

Hani Haddad, managing director at A&H Construction and Development, agreed with Sawabini.

“Gulf investors have been asking a lot but not buying a lot. After the elections they started buying but not as much as they used to before. They are still very hesitant compared to normal,” he said.

With Gulf investors adopting a wait-and-see approach, the demand is mostly Lebanese, either locals or expatriates. However, with budgets cut due to financial difficulties, there is a new trend sweeping the market. While maintaining luxurious standards, Lebanese buyers are currently looking for smaller apartments with smaller budgets, which are now hard to find.

‘Smaller’ is the trend

“We want them (developers) to decrease the size for the budget to decrease,” said Christian Baz, general manager of Baz Real Estate. Baz gave examples of some of his customers wanting small but luxurious apartments for around $400,000 in decent areas.

“There is no supply to meet the demand; those who were demanding apartments for more than $1 million have disappeared,” said Baz.

High-end developers concur with Baz, admitting that smaller apartments are what buyers are looking for at the moment.

Karim Bassil, chairman of Byblos Real Estate Investment (BREI), said he is struggling to sell larger apartments.

“Some people that are used to living in 400 square meter apartments are looking for 200 square meters. And some that are used to Beirut are willing to go outside the capital; there is no easy cash like there was before,” said Bassil.

Consequently, developers are aiming to target a lower market segment through their future projects, thus satisfying the true demand in the market.

“There are definitely many who are looking for different types of properties, which we don’t have today, but we will hopefully have in the future,” said Sawabini. “In terms of size, it doesn’t have to be very high-end as most of our projects are. But high-end, good quality, decent location and smaller sized apartments are definitely the demand and we will be satisfying it.”

Summer property indicators

Construction permits (in square meters)

Source: Order of Engineers and Executive Magazine

What numbers say

In the first six months of 2009, real estate sales transactions dropped 3.3 percent year-on-year, according the Bank Audi second quarter real estate report. The report added that in the same period, sales transactions to foreigners dropped to 9.6 percent, compared to 18.5 percent in the first half of 2008.

This summer, adding June and July together, foreign sales increased 8 percent year-on-year. According to Sawabini, the increase is not an indicator of the activity during the two months. A big part of sales could have been agreed upon in April or May, while contracts were left to be signed in June or July. So July numbers could be an accumulation of the former three months because many people don’t come to Lebanon until the beginning of the summer.

As for the total number of sales transactions, it registered a decrease of 7 percent over the same period. This number also is not very indicative, experts say, because even though it gives an overall assessment of the sales activity, it does not show what the demand is truly for. Baz explained that numbers don’t show if the apartments sold were small or big, thus not giving a true indicator of the market demand.

“There is also an old apartment that was sold for $800,000 and registered at $400,000,” he said, adding also that it is possible for a sale to be registered in the name of a Lebanese company owned by a foreigner.

“There are no regulations. We know [more] because we are the ones who are selling.”

Government or no government

Many factors play a role in determining the future expectations of the Lebanese real estate market. Although it has always been considered a safe haven for real estate investments, some say that the delay in forming a government, rather than the financial crisis, is the main reason for the slowdown in demand. Sawabini from Mena Capital said that without a government being formed, sales could be cut in half.

“They are investing millions of dollars — they want to have more insurance,” he said.

Haddad from A&H agrees, saying that he sold a lot more last summer, and when the government forms sales will surely pick up again.

Other market players disagree, arguing that the internal factors have become a usual trend and buyers are interested regardless.

“Some say that [the slowdown in demand] is due to the situation in Lebanon, but I don’t believe it that much; we had worse times,” said BREI’s Bassil.

Whether the government is formed or not, or if the financial crisis eases or not, developers have a job to do in order to satisfy current market needs and meet demand.

“It is very important going forward that whatever we develop we don’t develop haphazardly, that we begin to be more conscious and differentiate our projects in a matter that would make them more attractive,” said Sawabini.

“Those who were demanding apartments for more than $1 million have disappeared”

October 23, 2009 0 comments

Real estate

Dubai’s slide slows

by Executive Staff October 23, 2009

written by Executive Staff

One year has passed since Dubai’s real estate sector started its downhill slide. Since then, investors have fled the market, prices and rents have dropped, property disputes have risen and many projects have been canceled or put on hold. Needless to say, it’s been a bumpy ride.

But since the second quarter of this year, things have begun to stabilize. Prices and rents are more or less steady in many areas and developers have been consolidating in a bid to try to strengthen their financial positions. These are signs that confidence in the market is starting to come back. And while the worst may seemingly be over, the emirate is still expected to witness a tough year in 2010 as more units come online in a market where demand remains fairly weak.

Slowly but surely

Buyers are now “cautiously optimistic,” said Linda Mahoney, CEO of Better Homes. “We are seeing some confidence coming back, but it is going to take more than nine to 10 months” for confidence to be strong again. Current demand, although low compared to 18 months ago, is mostly coming from end-buyers — people who actually want to live in the units — or long-term investors who find current valuations attractive.

Charles Neil, CEO of Landmark Advisory, an arm of Landmark Properties, said that from April to July the company has seen an “increase in activity” in leasing and overall sales because “people took advantage of falling rents.” He added that demand for off-plan properties is still non-existent due to the unavailability of mortgage financing for such developments and buyers having doubts over whether they will ever be completed.

In terms of properties that are finished or close to completion, it seems that mortgage financing is slowly reentering the market, even though this time around banks are being very careful with how much they lend and to whom. As such, experts are predicting that the lending situation will gradually improve.

“We are anticipating that a number of banks are looking to re-enter the mortgage market towards the end of the year or early next year,” said Ian Albert, regional director of Colliers International.

Coupled with the mild improvements of Western stock markets in recent months, experts say Dubai’s real estate sector is expected to stabilize in 2010, and perhaps even start to recover by 2011.

Residential market stabilizing

According to most experts, residential property prices have fallen some 50 percent since the beginning of the crisis. In the second quarter of this year alone, housing prices in Dubai fell around 25 percent, according to the global real estate services firm Jones Lang LaSalle.

Out of 32 countries examined by the United Kingdom-based Knight Frank real estate agents, Dubai recorded the largest year-on-year drop in housing prices (at 47 percent) for the period up to July. The company also added that prices now are falling at a slower rate.

Real estate experts have also stated that the decrease in prices is mostly contingent on the attractiveness of the area. As such, buyers are currently searching for communities that already include infrastructure, restaurants, schools and leisure facilities. Some of these developments have even witnessed some appreciation in the last few months.

Residential supply and demand

“In Dubai Marina, there are shops, office space, hotels, restaurants… there is a community where people can live and work,” said Elaine Jones, CEO of Asteco Property Management. Jones also explained that sometimes prices in the same development might differ, depending on the quality and the facilities. “And now you have the metro for example,” she added, which would make the surrounding areas more attractive.

After the hefty decrease in prices, players are also waiting for the market to hit bottom. Even though prices have begun to stabilize, most experts agree that they will drop further as new supply comes online.

For example, Saud Masud, a Dubai based analyst from UBS, the global financial services firm, told Bloomberg that housing prices in Dubai will drop about 33 percent to reach $1,754 per square meter, and the market will only bottom out in the next 12 to 18 months. According to UBS, 30,000 new homes will be completed by 2011, but it also stated in June that the new supply coupled with the decrease in population will leave one in three homes vacant by 2010.

While that may be the case, when it comes to predicting the actual oversupply amount on the market for year’s end 2009, there seems to be little consensus. Jones Lang LaSalle is expecting 22,400 new units while JP Morgan expects 30,600 new units, adding that this will lead to an oversupply of some 28,500 units.

“With the new supply coming on between now and the end of the year, given the population growth has slowed, if not contracted, it will take some time for the market to absorb the new product coming on stream. It could take up to 12 to 18 months,” said Sana Kapadia, vice president of equity research at EFG-Hermes.

Ziad Chaar, general manager of Damac Properties, adds that although prices have stabilized in some areas, the reason why they are still decreasing is because of the sale of distressed properties below the market value pushing prices down. He explains that many investors who have commitments in the emirates and abroad are still willing to sell at low valuations.

As new supply comes to its handover stage, rents are expected to drop further

Rents

Rents, like prices, are also expected to decline due to the oversupply in the market. However, the degree to which rents have decreased since the beginning of the crisis varies depending on who you ask. Chaar said they have dropped 35 percent, while Mahoney from Better Homes said the figure was as much as 50 percent and Colliers’s Albert puts the figure at 18 to 40 percent, depending on the area. Albert explained that it takes longer to deflate rental prices, mainly because people are engaged in one or two-year contracts while property prices can change every day.

Landmark’s Neil, however, said there is an “artificial shortage,” whereby landlords prefer to wait until rents go up again. “Towards the end of the year, more units will come to the market for rent and prices will come down further.”

Although rent prices have dropped, the leasing market witnessed a good amount of activity this summer. With the sales market more or less on hold, people who used to buy property now choose to rent. Moreover, those who need to renew their contracts are looking for cheaper or larger apartments, as are those living in neighboring emirates who are looking to capitalize on the current valuations.

Asteco’s Jones said her company is experiencing record numbers in term of leases and is content to go back to the “fair market prices” of late 2006. As new supply comes to its handover stage, rents are expected to experience more downward pressure depending on the attractiveness of the area and the quality of the development.

“Rents have stabilized, but there is a lot of supply coming on,” said Albert. “I think it will soften again towards the end of the year.”

Office market

Sale prices from 2008 peak to Q2 2009

Rental prices from 2008 peak to Q2 2009

Of all the real estate sectors in Dubai it seems the commercial market has been hit the hardest. This comes as little surprise since the flow of new businesses into Dubai has decreased and existing businesses are either closing down or moving to smaller office spaces due to the effects of the global downturn.

“Commercial rents could certainly have dropped 50, if not 60 percent, depending on the location,” said Better Home’s Mahoney, adding that this even applies to offices on Sheikh Zayed Road — otherwise know as the E11 highway, the main traffic artery running through most of the UAE, along which most of its skyscrapers are located. According to Jones Lang LaSalle, office rents have declined at around 45 and 25 percent in the first and second quarters of this year, respectively.

Jones Lang LaSalle’s second quarter report also said that by the end of 2011, 2.3 million square meters of additional office space will enter the market, placing even more pressure on rental prices. Moreover, investors who used to buy office space and then lease it to companies have all but disappeared from the market, which has also increased office supply.

“There is a huge supply in office space. Between 2008 and 2011, office supply would have doubled,” said Neil. He added that office rents have decreased about 50 percent and maybe 30 to 40 percent on Sheikh Zayed Road.

Most experts predict that the office market has not hit bottom yet and will continue to drop next year as new units become available and remain vacant due to a lack of interest from companies.

A year of stabilization

Most informed sources agree that 2010 will be a year of consolidation and stabilization while 2011 will see the beginnings of a recovery. That said, what is keeping analysts anxious is doubts over population sustainability coupled with the new supply that may further increase the surplus of units on the market.

Even considering the difficult times predicted for next year, if a general economic recovery does occur, Dubai’s real estate market is poised to recover quickly, due to its relatively advanced infrastructure and its attractiveness to new business ventures in the region.

“I don’t think the new supply is going to take more than one year to be absorbed. But the advantage will be that the entry cost for residential or office space will still be significantly low,” said Jones Lang LaSalle’s Regional Director Fadi Moussalli. “Dubai will still have the underlying macroeconomic benefits.”

If a general economic recovery occurs, Dubai’s real estate market is poised to recover quickly

October 23, 2009 0 comments

Real estate

Cityscape Dubai 2009

by Executive Staff October 20, 2009

written by Executive Staff

At Cityscape Dubai last year, Gulf real estate firms launched some $100 billion worth of new projects on the show’s first day. But expectations for this year are markedly different. Considering the struggle that the regional real estate market has been going through since September 2008, few or no projects are expected to be launched and the number of exhibitors and visitors will likely be a fraction of last year’s.

Rohan Marwaha, the managing director of Cityscape, told CEO Middle East magazine that the exhibition is expected to be 25 to 30 percent smaller than last year, though official figures indicate the number of exhibitors will be markedly less.

“Considering the global economic turmoil, it would be unrealistic for anybody to assume that the event will be as big or attract as many visitors as last year,” Marwaha said.

At Dubai’s Novotel Trade Center, where rooms are usually booked for developers in order to close their real estate deals, seven out of the eight rooms were still free in mid-August. Novotel Staff told Arabian Business that by this time in 2008, all the rooms were booked, in addition to the aerobics room.

Linda Mahoney, CEO of Better Homes LLC, agreed with Marwaha, and gave the example of MIPIM, the property show in Cannes, France, which is considered the world’s biggest property exhibition. She said that the number of exhibitors was not very impressive.

“Many exhibitors from around the world were not there, and most of the exhibitors from the Gulf region were not there either,” said Mahoney.

Back to basics

Real estate experts think that Cityscape this year will play its primary role of bringing contractors, developers, architects and market players together, rather than being solely a retail show. Therefore it will go back to being a business-to-business (B2B) venue rather than a business to consumer (B2C) one. Ian Albert, regional director of Colliers International, said that this year’s Cityscape cannot be compared to the 2008 event, but is more comparable to Cityscape Jeddah this year, where few transactions took place.

“It is going to be a B2B show and not the retail event that it has been for the previous four years, so you can’t compare it,” said Albert.

Increasing rates

Surprisingly, the cost of exhibiting at Cityscape has increased 15 percent, according to the event’s organizers IRR Middle East. They did not comment on the issue further, but according to Arabian Business, the increase could be split into two years if the company is planning to also participate in Cityscape 2010, a 7.5 percent increase in 2009 and 7.5 percent in 2010. The magazine also said that sponsorship costs for exhibitors was cut by 25 percent and that this year’s event will feature several “not-for-profit” events such as seminars, round tables, and a CEO networking luncheon.

“Of course it bothered us — we did not like it, but we wanted to be in,” said Ziad Chaar, general manager of Damac. “We tried to negotiate, but it was not feasible.”

Most market experts seemed to agree with Chaar that raising Cityscape’s fees was a bad idea.

“I think they have made a big mistake in raising the rates; they should be reducing them. It is the last thing you do in a downturn,” said Charles Neil, CEO of Landmark Advisory, part of Landmark Properties Dubai. He added that this will result in a much smaller Cityscape then would already be the case.

Cityscape 2008 figures

Who’s participating?

Compared to 954 exhibitors in 2008, this year’s four-day Cityscape will only host 175, according to the list provided by IRR Middle East in mid-September. The sizable decrease in numbers was more or less expected, either because developers had nothing to launch, or they were cutting back on expenditure.

For example, Albert explained that Colliers International is not going to take part in Cityscape due to “budget cuts.” Property development companies Limitless and the Abu Dhabi-based Sorouh Real Estate, are also not participating.

The same was initially thought of real estate giants Emaar and Nakheel when they announced they wouldn’t participate in Cityscape.

Maktoob Business initially reported that Nakheel was not participating because it wanted to focus on the completion and handover of existing projects.

But in an apparent about-face just days after their official announcement, Emaar and Nakheel came out to say they would participate.

“The decision follows discussions with the various agencies involved in organizing the event,” Emaar said in a statement.

There has been speculation that the absence of the two government backed companies would reflect badly on the emirate’s real estate sector, particularly given the prominence Nakheel played at last year’s event when it announced the $38 billion, one kilometer-high Nakheel Harbor and Tower project. The mega-project has since been put on hold.

“If I see that Emaar and Nakheel are not there, it doesn’t show confidence in the market,” said Mahoney before the companies revised their decision.

Limitless said their decision not to attend, “is part of our overall response to the global economic situation.”

Fadi Moussalli, the Dubai-based regional director of the global real estate services firm Jones Lang LaSalle, said being on the list of non-participants is indicative of having nothing new to launch.

“Obviously the rational is: do you have anything to sell? If you do, you have to be at Cityscape. If not, why incur the expenses?”

Still, it is not expected that developers — even the ones who will participate — will be launching new projects this year. As most have been doing since the beginning of the 2009, developers will concentrate on finishing their existing projects and showing the market that project development is still underway.

“Our focus this year is the right focus, which is construction and delivery, and not developing more projects,” said Chaar from Damac.

“If someone wants to launch a project at this time, they will probably get a great deal of media coverage. It would be extremely courageous to launch anything this year,” said Elaine Jones, CEO of Asteco Property Management. Asteco will not exhibit at Cityscape this year, primarily because their clients have nothing to launch.

What to expect

Cityscape 2009 will be interesting this year. Though expectations are low in terms of the crowds and new launches, the show may offer parameters for measuring confidence in the market.

“I would be curious to see what is there, who is there, who comes… are there going to be more overseas people? Are we going to see more foreign as opposed to local developers?” said Mahoney.

October 20, 2009 0 comments

Real estate

Arab SWFs slow to return to overseas real estate

by Fadi Moussaffi October 16, 2009

written by Fadi Moussaffi

After a period of sustained activity characterized by high-profile investments and significant appetite for trophy assets, sovereign wealth funds (SWF) in the Arab world felt the repercussions of the global financial crisis, and significantly reduced their real estate investment activity. The drop in oil prices in the second half of 2008 led Arab governments to tighten petrodollar cash allocations to SWFs, as reduced fiscal surpluses had to be used in priority to complete infrastructure spending and salvage domestic economies. With almost no exceptions, SWFs from the Gulf refrained from investing in overseas real estate markets for the past 12 months.

This situation prevailed up until June 2009, when two SWFs executed two high profile transactions in their preferred destination, the London real estate market. The Oman Investment Fund acquired 75 percent of a major City of London development in a joint venture with Hammerson in a staggering $733 million transaction. Furthermore, the Libyan Arab Foreign Investment Company (LAFICO) acquired a 100 percent interest in Portman House, a high profile mixed use building on Oxford Street from Land Securities for $255 million. In addition, we have strong evidence that other Arab SWFs are reviewing investment opportunities not only in London but in other major European hubs as well.

Are Arab SWFs returning to the real estate scene?

To get a clearer understanding of the situation we need to dig a little deeper into the details. While it is true to say that the London real estate market offers an extremely compelling story, as prime yields are in excess of the 25 year high, and the recent depreciation of the British pound improves purchasing power of US dollar pegged currencies, it is worthwhile noting the Oman Investment Fund transaction was achieved through a relatively modest injection of equity and taking advantage of the existing imbedded debt structure. OIF now owns 75 percent of the joint venture of one of London’s best pieces of real estate and enjoys a minimum of 18 years secured income stream to Allen & Overy as the major tenant who occupies the majority of this asset.

London’s long-term prime yields

On the other hand, after a long period of frozen overseas investment activity due to the international sanctions imposed on Libya, LAFICO has marked its return on the international real estate investment scene, completing two deals in London in the past six months. LAFICO is undergoing a profile exercise to rehabilitate its image in the international investment community, and spending a small part of its long accumulated fiscal surpluses at a time when global real estate markets have significantly re-priced.

With the exception of the LAFICO, our assessment is that Arab SWFs, in general, are still some distance away from reinstating their traditional overseas real estate investment activity. A somewhat cautious view was still prevailing up until the beginning of the summer amongst this investor group, and whilst some of those sovereign vehicles could have a vulture-like behavior and act in the most opportunistic way, we believe the general trend for the coming 12 months will be to direct cash surpluses towards domestic priorities and honoring of past financial commitments.

The realization and accuracy of our forecast depends on several factors including the oil price level that will play a vital role in terms of determining the volume of Middle Eastern capital to be invested in overseas real estate markets, and the reversal of the wait-and-see stance, which will obviously be linked to the speed and magnitude of the recovery in Western economies.

Fadi Moussaffi is regional director at Jones Lang LaSalle

October 16, 2009 0 comments

Real estate

For your information

by Executive Staff October 16, 2009

written by Executive Staff

Damac CEO resigns

Peter Riddoch, the CEO of Damac Properties, is resigning from his position in October. No replacement for Riddoch has been appointed, nor did he name the reason for his resignation. In his last statement, Riddoch only said: “I know that the time is right to make some changes, focus a bit more on my personal interests and family, and possibly even take on new challenges.” Riddoch began has career at Damac in 2003. According to Arabian Business, Hussain Sajwani, chairman of Damac Properties, said he accepted Riddoch’s resignation unwillingly but wishes him success in his future.

Arabtec in St. Petersburg

Arabtec Construction LLC, a leading UAE-based construction company, was awarded the contract to build Europe’s tallest building in the Russian city of St. Petersburg. The project, known as Okhta Center, is owned by Gazprom Neft, a subsidiary of the state-owned natural gas giant Gazprom, and will be used as the company’s headquarters. The tower is presenting a threat to the historical image of the city, since the United Nations Educational, Scientific, and Cultural Organization (UNESCO) warned that the city’s center could be removed from the World Heritage list if the tower is built, according to the UAE daily newspaper The National. On September 2, a public hearing took place in the city where residents protested, claiming that it was wrong to change St. Petersburg’s zoning laws in order to build the project. During the meeting, six people were thrown out after disputes with security guards and the police, according to the newspaper. The contract was awarded in March last year, but faced delays due to design changes aiming to reduce costs. The original contract, valued at $2.72 billion, was cut to $817 million. Ziad Makhzoumi, the chief financial officer at Arabtec told The National that if the approval is given, work should start by the end of March 2010.

EEC teams with Binladen Group

The Saudi-based Emaar Economic City (EEC) announced September 6 that it has agreed to form a joint venture with Saudi Binladen Group (SBG) to finance, develop, and operate the port at King Abdullah’s Economic City on the Red Sea Coast. The EEC board had approved a preliminary agreement with SBG over the joint venture the day before, according to the company. Work on the first phase of the port was expected to begin as of the end of last month, and it is slated to be operational by 2012. The cost of the first phase is estimated at $1.07 billion. At the same time, according to the Saudi Stock Exchange Tadawul, the EEC canceled the $373 million contract with SBG awarded in April 2008 to build 16 residential towers. The cancelation was due to the decrease in building material costs and reconsideration of the development. The $31 million EEC already paid for the project will be retained by the contractor for works already executed on the development.

Real estate optimism at Saudi Build 2009

The Saudi Arabian real estate sector is projected to grow by 5 to 7 percent each year until 2012, and contribute 7.2 percent of gross domestic product in 2009, according to a recent study by the Kuwaiti investment company Global Investment House. The report also said Saudi real estate investments will reach $300 billion in 2009 and $400 billion by 2010. As the real estate and construction sectors continue to grow, it is expected that Saudi Build 2009, the annual construction trade exhibition, will also witness success with more than 650 regional and international companies already signed up, according to Riyadh Exhibition Company, the event’s organizers. More than 38 countries from Europe, Africa, the Middle East and Asia are already represented in the exhibition, and the number is expected to grow.

Alumco Qatar inks Doha deal

Alumco Qatar, part of the Lebanese Alumco Group, won a contract for the installation of 31,000 square meters of aluminum cladding and 48,000 square meters of stick system curtain walls, windows and doors in the Barwa Commercial Avenue mega project in Doha. About 250 people are expected to be employed due to the announced contract. Moreover, it was announced in Aswaq Aliraq in early September that the Thi-Qar Investment Commission approved the engineering design submitted by a Lebanese company for the construction of a residential compound in Nasseriya city, Iraq, which will be comprised of 1,800 buildings with eight floors each. The name of the company was undisclosed.

Dubai contracts Arabian Construction

The Lebanese construction firm Arabian Construction Company (ACC) won the contract to build a $397.5 million, 124 story skyscraper in Dubai. ACC will be building the “Pentominium” tower in Dubai Marina, which will be the tallest residential tower in the world, and Dubai’s second tallest building after Burj Dubai. The contract was awarded to ACC by the Dubai-based Trident International Holding, and the project is slated to be finished within two years. The tower will include a sky lounge, business center, sky pool and an observation deck of above 400 meters. The Pentominium tower is not the first to be built by ACC, which has 12 offices throughout the Middle East and operates in seven countries. ACC’s other projects include the 30-story Silver Tower, Sorouh’s Sky and Sun towers, all located in the UAE capital Abu Dhabi.

Property driving Lebanon’s economy

The real estate market is Lebanon’s main economic driver, accounting for 45 percent of total investment, according to a report published by American real estate brokerage firm Coldwell Banker. The report projected the size of the sector will reach $6 billion by 2010. Real estate activity soared in the months following the June parliamentary elections after a period of relatively slow growth. While Lebanon has been indirectly affected by the global financial crisis, the fact that some 90 percent of property buyers are end-users has taken the edge off speculation that has afflicted the Gulf countries. Moreover, regulations issued by the central bank have sheltered the sector from risky lending. The loan-to-value ratio allowed does not surpass 70 to 80 percent, and falls back to 50 percent if the individual wants to purchase a second apartment. The report also added that foreign investment accounts for 10 percent of the total real estate investment, and it is expected to increase to about 20 percent in the near future.

Tourist village slated for Petra

Construction of a $50 million tourist village near the ancient city of Petra in Jordan is expected to start by year’s end, according to The Jordan Times. Financed by Saudi-based Pharaon Commercial Investment Group (PCIG), the project is slated for completion in 30 months, and will be comprised of a 100-bed, five star hotel, a shopping center, a multipurpose conference hall, restaurants, a spa and a swimming pool. According to reports, the government has received guarantees on the preservation of the globally renowned archaeological site of Petra and the surrounding environment. The village is expected to create jobs for locals, while 15 percent of the project’s revenues are earmarked for community development. The head of PCIG, Sheikh Pharaon, said in a press conference that specialized companies are working on the project design, and are submitting blueprints to the concerned authorities.

Deyaar’s low-cost Beirut housing

The Dubai-based Deyaar Development company is planning to start its second project in Lebanon after launching the $100 million Saifi Village II development in June. The company is to build low-cost housing in the Beirut area in cooperation with Solidere. “Beirut is tremendously expensive,” Markus Giebel, CEO of Deeyar, told Maktoob Business. “If you build low-cost housing that’s close to the city, you could end up with solid returns over the long term and a new development model.”

If Solidere backs the project, the two developers will negotiate with the government to allocate the land and for banks to provide mortgage financing for buyers. Back in June, Giebel told Executive that Deeyar has a total of $200 million invested in various projects in Lebanon. Saifi Village II, the first development by Deyaar in the country, is part of the Beirut City Center master development.

Israel authorizes settlement expansion in occupied Palestine

Despite continuing pressure exerted on Israel to stop the construction of new settlements, the Israeli government has given the go-ahead to expand settlement construction in the occupied West Bank. Last month the Israeli Defense Minister Ehud Barak authorized the construction of 455 new residential units in the occupied Palestinian territories. A few days after the decision was taken, Israel reopened the tendering process for 486 new homes in another settlement in annexed Arab East Jerusalem, according to AFP. The Israeli government has said that “it would approve a burst in construction before considering a United States demand to halt settlement activity.” The unilateral decision has been opposed by the governments of the United States, Europe and Egypt.

Israeli settlers have also said they will resist any partial freeze on the construction of new settlements. According to the Yesha Council, the main settlers’ lobby in Israel, 2,000 young Israeli couples will require new homes to be built every year as the current and projected supply is not sufficient to meet demand.

“We have more demand than offers… the threat of a freeze would be a disaster for the development of our village,” said Tamar Castelnuovo, a real estate agent in the Tekoa settlement in Nokdim, south of Bethlehem. However, community leaders in the settlements still seem unimpressed with the number of building licenses granted to the settlers. Commenting on the first decision, Pinchas Wallerstein, the director general of the Yesha Council, said, “It is an insult to our intelligence; we are very disappointed by this announcement.”

Chief Palestinian negotiator Saeb Erakat said the move “undermines faith in the peace process, and the belief that Israel is a credible partner for peace,” according to AFP. Palestinian president Mahmoud Abbas said the plan was “unacceptable” according to the news agency.

October 16, 2009 0 comments

Feature

Playing on a shoe string

by Executive Staff October 16, 2009

written by Executive Staff

With football and basketball events followed religiously by millions of fans around the globe, modern ball games have become lucrative money making machines. In Lebanon, however, sectarian violence and political instability has kept the public away from stadiums and worsened an ongoing financial crisis faced by local sports leagues.

“The rise in political tensions in 2001, further exacerbated by the assassination of prime minister Rafiq Hariri in 2005, have significantly affected the Lebanese football scene,” says Rahif Alameh, head of the Lebanese Football Association (LFA). The LFA seems to reflect the ongoing Lebanese political struggle, with main community leaders intervening in the appointment of members.

“Sectarianism also plagues Lebanese basketball, with teams associated with the various religious communities, but we have managed to keep it out of the federation, our members being elected and not appointed, as is the case in other federations,” says Pierre Kakhia, head of the Lebanese Basketball Association (LBA) and president of the World Sports Group.

As an example, the basketball team Hekmeh is usually associated with the Christian community, the Antranik team with Armenian Lebanese and Riyadhi with Sunnis. In football, Homenetmen (an acronym for Armenian General Athletic Union) as well as Homenmen (Armenian Athletic Association) are both identified as Christian Armenian teams, while Al Ansar is perceived as a Sunni team and the Safa football club as a Druze club. Al-Ahad and Al Mabarra have mainly Shiite players and supporters.

Until 2006 and the subsequent ban on spectators, clashes erupted regularly between supporters of rivaling March 8 and March 14 political factions, who chanted respectively ”God, Nasrallah and the Dahieh,” while others shouted at the top of their lungs “God, Hariri, and Tarik Jdeideh.”

Killing the game

“The spiraling violence and the ban on the public have exerted significant pressure on Lebanese clubs, already facing financial difficulties,” Kakhia says. “This has trickled down to the management of clubs and resulted in the loss of their financial stability. As an example, big clubs such as Sagesse and Kahraba are still actively looking for a benefactor.”

Clubs’ worsening financial woes are not much of a secret in the world of sports as players’ salaries spiral out of control.

“Wages are increasing all over the region. Foreign players who used to be paid on average about $35,000 are requesting today double if not triple the amount,” says Karim Diab, president of the al-Ansar club. Alameh concurs, saying that about 65 percent of football club budgets are usually dedicated to players, coaching salaries and expenses.

Diab says maintenance, medical costs and equipment account for about 30 percent of the rest of the budget. In basketball, the breakdown seems somewhat similar as Kakhia says that while player and coaching wages together account for 80 percent of clubs budgets, the remaining 20 percent is generally spent on stadium rental. The head of the LBA emphasizes that while Lebanon spent $1.2 million on its national basketball team over the past three years, Jordan spent $7 million over the same period and Iran spends $30 million annually. According to Diab, the budget of Al Ansar — considered one of the richest clubs in Lebanon — amounts to about $1.2 million.

One reason behind the pauperization of Lebanese sports leagues is that most clubs have failed to tap into the lucrative, sports-associated businesses.

TV rights paid to the Asian Football Federation have doubled every four years, from some $20 million between the years 1996 and 2000, to around $40 million between 2000 and 2004, to $80 million between 2004 and 2008. It is estimated that Asian football TV rights will almost double again between 2008 and 2012, to $140 million. In Lebanon, however, TV revenues for football teams have been “shrinking steadily,” complains Kakhia.

Comparison of contracts awarded to TV broadcasters

Empty seats and pockets

Most clubs thus find themselves in dire straits with the collapse of hefty broadcasting contracts and matches unattended.

“Broadcasting being the main money-spinner for clubs, the public needs to be allowed again into stadiums,” says Alameh. He also explains that the LFA’s $800,000 contract with the Al Jazeera sports channel, will not be renewed this year, leaving the federation with a $150,000 contract with Future TV, one that will be increased to $200,000 by next year. This amount will be divided among the various Lebanese clubs depending on their ranking.

Football and basketball clubs have not been able to rely on steady sources of revenue usually brought in by merchandising and ticket sales, as well as sponsorships, which should ideally account for up to 30 percent of a club’s income, according to Diab. Tickets to basketball games are usually distributed free of charge to club supporters. In football the situation is different.

“We used to generate $60,000 in ticket sales every year, this has definitely changed since the ban on the public,” says Diab. “In Egypt, sponsorship and TV rights fully cover the $35 million budget of the national Al Ahli club.”

Diab says TV rights for Al Ansar account for 1 percent of the team’s budget. He says sponsorships have become difficult to secure, adding that a few years ago the Coca Cola company had to sponsor three football teams representing the Sunnite, Shiite and Christian communities to avoid being perceived as taking sides in the sectarian struggle.

“To be financially successful, clubs ought to be branded and managed like real commercial companies, unfortunately this is not the case in Lebanon,” concludes Kakhia.

October 16, 2009 0 comments

Feature

A brutal call

by Executive Staff October 16, 2009

written by Executive Staff

Last summer, demonstrators in Tehran’s central square shouted anti-Nokia slogans following news reports that the Finnish mobile giant had sold technology to the Iranian government allowing the government to monitor its citizens through Iran’s communications networks. This has since sparked a storm of protest actions against Nokia Siemens Networks (NSN) — the joint venture between Nokia and the German conglomerate Siemens — including the splashing of green paint (associated with pro-reformist presidential candidate Mir Hossein Moussavi) over Nokia billboards in Iran and calls for a boycott of NSN on social media outlets like Facebook and Twitter.

In Tehran, wholesale vendors told The Guardian newspaper that the demand for Nokia gadgets had fallen by nearly half following the news reports. Millions of Iranians currently use Nokia mobile phones.

Iran is known to be an avid practitioner of Internet filtering, but during the post-elections fall out, many suspected that the Iranian authorities were also implementing similar monitoring systems on mobile phones.

No dial tone for protest

A large portion of Iran’s network traffic is controlled by the telecommunications operator Iran Telecom. One day after the contested presidential election, on June 13, traffic on communications networks came to a near standstill according to an investigation by network security firm Arbor Networks.

When the election unrest began and communications traffic gradually increased, analysts suggested that the halt and subsequent re-start was a result of the Iranian authorities installing filtering and monitoring mechanisms.

The truth of the matter is that NSN did sell a so-called “monitoring center” to Iran Telecom through its Intelligent Solutions division. The product allows the authorities to monitor any network communications, including voice calls, short message service (SMS) traffic, instant messaging and Internet use.

Throughout the turmoil that erupted in Iran following June’s disputed presidential election, media reports suggested the Iranian authorities were practicing a so-called “deep packet inspection.” Through this, the authorities not only block communications but also monitor what kind of data is being passed back and forth between individuals using the country’s networks. Some reports have indicated that the data can also be altered and used for disinformation purposes.

The media flurry over Nokia Siemens’ Iran venture was then followed by further speculation that the company was supplying the Iranian regime with spyware, software installed on devices that collects information about users without their knowledge.

Nokia Siemens has denied the spyware allegations and stated it had supplied Iran only with “lawful intercept” capability in order to monitor local phone calls. The companies had not, they said, provided the Iranian authorities with either deep packet inspection or Internet filtering tools.

Nokian ethics

Ben Roome, head of media relations at Nokia Siemens, told Executive in a telephone interview that the wire tapping function, known as lawful interception, is a standard feature of modern telecommunications networks which was implemented under pressure from the European Union and the United States to “roll out those new networks.”

When asked about the interception capabilities provided by the server package sold to Iran by Nokia Siemens, Roome explained that law enforcement cannot scan broad and random swaths of any communications network.

“You need to know the telephone number you want to wiretap. You can’t, for example, scan a network for keywords. The request has to be made by law enforcement agencies to track the number,” he said.

Roome estimates that there are more than 55 million mobile lines in Iran. In no way does he believe it would be plausible for the Iranian authorities to tap millions of phone lines with the gear provided by the NSN monitoring center. After all, said Roome, the package sold to Iran was made up of traditional mobile phone technology due to limits imposed by trade regulations.

But members of Iran’s political opposition, along with rights activists, remain suspicious of the extent of the monitoring capabilities provided by the NSN product.

Issa Saharkhiz, a 56-year old Iranian journalist and former official at Iran’s Culture Ministry, implicated Nokia in his arrest in July by Iranian police. Saharkhiz told his family from an Iranian jail that his Nokia mobile phone helped the authorities to trace him, according to a report by Radio Free Europe. Saharkhiz had been campaigning for the reformist candidate Mehdi Karrubi and was an outspoken critic of Iran’s supreme leader Ayatollah Ali Khamenei and President Mahmoud Ahmadinejad.

NSN’s venture in Iran has also triggered some groups to undertake campaigns against the company. The American Islamic Congress (AIC) recently launched a letter-writing campaign against Nokia and has called for a boycott of the company’s products. So far, the AIC’s letter to Nokia Siemens officials has been signed by more than 10,000 people.

Nokia, said the AIC, has the “responsibility” to make sure its technology is used in an ethical manner.

“There are always business deals. The Nazis had lots of deals with big businesses. The point here is that Nokia’s technology is specifically enabling the Iranian regime to monitor and crack down on peaceful protesters,” said AIC North Africa director Dalia Ziada.

AIC has helped organize several public rallies against Nokia in US cities such as New York and Chicago. While Nokia has not responded to the AIC’s campaign efforts, Ziada said she is convinced that the image of the mobile phone conglomerate has been tarnished by its dealings with the Iranian regime. She believes thousands are currently boycotting Nokia products.

“Their strategy appears to be to try to ignore the campaign and make it go away. But people keep sending letters and the Nokia brand is definitely tainted,” said Ziada. “We have a simple request: don’t do business with the Iranian regime and disable the advanced technology. Until Nokia does that, thousands of people will be boycotting their products.”

Pass the hot potato

NSN no longer offers the monitoring service to its clients. The firm sold its Intelligent Solutions business to the German investment firm Perusa Partners Fund 1 LP in March. The product was marketed to around 150 countries while it was still under the control of NSN. However, the company maintains that it did not sell the system to China or Burma, whose governments have a reputation for keeping a close eye on citizens through various monitoring practices.

When asked why NSN decided to sell the Intelligent Solutions business, Roome responded that it simply did not fit with the firm’s “core.”

“We looked at assets and business we wanted to focus on, which is providing telecommunications networks to telecom operators. That business didn’t fit with the core we wanted in the organization,” he said.

NSN is not the first Western technology company that has been accused of aiding governments with poor human rights records through their technology.

In 2005, Yahoo came under fire after rights groups accused the company’s Hong Kong arm of providing information to the Chinese authorities that led to the arrest of a reporter for “divulging state secrets.”

Press freedom watchdog Reporters Without Borders (RSF) said Yahoo’s Hong Kong branch helped China trace reporter Shi Tao’s e-mail account and computer to a message containing an internal communiqué from the communist party.

RSF accused Yahoo of playing the role of a “police informant” in an aim to boost its business ambitions in China. Yahoo responded by saying it had to operate within the realm of each country’s laws.

Tao worked for the Contemporary Business News newspaper in Hunan province before he was arrested and sentenced in April 2005 to 10 years in prison. According to RSF, he was convicted of sending foreign-based websites the internal communist party’s message.

In 2006, the mobile phone provider Azercell in Azerbaijan provided prosecutors with information on political opposition activists who had raised concerns over the alleged rigging of the country’s presidential elections, including recordings of mobile phone conversations.

One of the largest owners of Azercell is the Swedish-Finnish telecommunications firm TeliaSonera which, through its Turkish subsidiary, Turkcell, has a majority share in Azercell.

When confronted about Azercell providing information to the intelligence services, TeliaSonera responded in a similar way to Yahoo in 2005, saying it also had to comply with Azerbaijanian regulations.

It remains to be seen whether high-tech companies will come under further pressure from ethics-conscious consumers. But if the case of NSN in Iran is anything to go by, telecom companies may have to balance their commercial interests with the realities of global human rights issues for some time to come.

October 16, 2009 0 comments