Banking

Money Matters by BLOMINVEST Bank

by Executive Staff
written by Executive Staff

Regional stock market indices

Regional currency rates

South Koreans awarded housing development contracts in Libya

Two South Korean contractors, Sungwon Corporation and Amco, won a $1 billion contract to construct housing units in Libya.  Sungwon Co. signed a $996 million deal with Libyan Investment and Development Company to construct 5,000 residential units, while Amco, a Hyundai motor Co. subsidiary, will build 2,000 domiciles and related infrastructure in the city of Qubbah, as part of a $420 million project developed for the Organization for Development of Administrative Centres. In a related development, following its meeting in Alexandria, the Mediterranean union launched a new regional $1.3 billion infrastructure fund with the aim of developing infrastructure across the region.

Kuwait KPI and China Sinopec to build oil plant

Kuwait Petroleum International (KPI) and the Chinese state refiner, Sinopec, announced the relocation of their $9 billion mega refinery and petrochemical project to Donghai Island near Zhanjiang, in China’s Guangdong province. The plant, which is set to be completed by the end of 2013, will have a crude oil refining capacity of 300,000 barrels per day and ethylene production capacity of 1 million tons per year. The proposed project would become one of the largest Sino-foreign joint ventures in China. It is part of Kuwait’s plans to build strong links with China, regarded as a key future market for oil and gas. Furthermore, it is expected to serve as a driving force for the Gulf state to achieve its China-bound crude oil export target of 500,000 bpd by 2015. KPI will supply 100 percent of the crude to be processed at the plant.

Egypt’s 2009 growth between 3.2% and 4.3%

The International Monetary Fund, Economist Intelligence Unit (EIU) and Moody’s Rating Agency Services have published their relevant economic data on Egypt indicating a 2009/10 growth ranging between 3.2 percent and 4.3 percent. The IMF pointed out that the gross domestic product will grow by 4% in 2009/2010, while inflation will decline to below 10 percent in June 2009. Moreover, the IMF said that despite the lower economic growth rates than previous years, Egypt has weathered the impact of the global financial crisis well. The EIU has made an upward revision to their GDP growth forecast to 4.4 percent in 2008/09, and 4 percent in 2009/10 following better than expected economic data. The EIU specified that the Egyptian government has taken several steps to weather the crisis, while the Central Bank of Egypt has made four interest rate cuts so far and is expected to implement further reductions in 2009 and 2010. Moody’s Ratings estimates real GDP growth exceeded expectations in the first quarter of 2009, at 4.3%, and the expected growth for the year is estimated at 3.2 percent to 4 percent, despite the agency’s downgrade from stable to negative in June 2008.

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Banking

For your information

by Executive Staff
written by Executive Staff

UAE restricts structured products

On August 2nd, the United Arab Emirates’ central bank issued a circular instructing Emirati banks to withdraw from selling structured products.

“Should a bank wish to sell a structured product to its customers, it will have to submit to the central bank a written request with the relevant details and the rationale for asking an exemption to this rule,” stated the notice.

Evidently, the UAE Central Bank made this move in order to avoid future defaults and severe problems. Many banks in the UAE had invested in structured products up through 2008. Once the global financial crisis took hold, banks across the UAE and the GCC faced major liquidity problems. Consequently, the UAE sovereign had to bail out the financial institutions in order for the economy to stay afloat. This recent circular by the UAE Central Bank should improve regulation of local banks, while avoiding any major fallouts that could derive from structured product investments.

Lebanon resilient, but public debt looms

Earlier this year, the International Monetary Fund reported that the Lebanese economy would grow by 4 percent in 2009. Now, the IMF has revised this projection and believes the economy could grow considerably faster than previously thought — even when most emerging economies are still profoundly affected by the global credit crunch.

The IMF was worried about Lebanon’s extreme vulnerability at the start of the global financial crisis in September 2008, as the economy had one of the highest government debt-to-GDP ratios in the world, a large and heavily dollarized banking system (with substantial exposure to the public debt), and its local currency pegged to the US dollar.

With Lebanon’s ongoing deposit inflows, high liquidity levels, strong and conservative banking sector, improved internal security conditions and a small export base, the IMF says these key factors are responsible for the country’s resilience. Yet, the national debt still remains a major issue.

According to Bank Audi, by the end of June 2009 the public deficit stood at $47.3 billion — 160 percent of GDP. This is down from $47.9 billion in May 2009, $48 billion in April and $48.2 billion in March 2009. “This continuous decline has diminished the year-to-date increase to a mere 0.6 percent in the first half of 2009, as compared to 5.8 percent in the same period in 2008.”

However, the IMF warns that Lebanon could still be at risk in the future,  thus, substantial reduction of the country’s debts should be the top priority.  The IMF says this will take many years of continued fiscal regulation and will necessitate solving the problems in the electricity sector.

Emirates’ liquidity up

Liquidity in the UAE banking sector is reportedly on its way to recovery. Published in August, a report by the Dubai Chamber Economist credited the Emirates Interbank Offered Rate (EIBOR) for encouraging liquidity inflows into the banks operating in the UAE. The EIBOR rate currently stands at a low of 3 percent, significantly down from its peak of 4.6 percent in November 2008.

“The significant easing reflects the improvement in market sentiment over the past few months and strong appetite of banks to start lending to each other,” the report said. “Some observers suggest this trend is likely to continue throughout the remainder of this year.”

Speaking to Emirates Business 24/7, Sanjoy Sen, consumer bank head of Middle East at Citibank, noted the recent increased levels of liquidity into the UAE market. “Yes, we see a lot of liquidity entering the market. A lot of investment that was going into the property market is now coming into the bank as deposits.”

“In the past few months we have witnessed funds, which were earlier held abroad, being moved back to the UAE. This is a very healthy trend for this market and consumer confidence has been further boosted by the UAE government’s deposit guarantee scheme that covers all local and foreign banks.”

UAE Central Bank data illustrates the improved conditions. Figures say that banks raised $15.3 billion in cash deposits in just the first six months of 2009, while only lending $3.6 billion during the same period. The loan-to-deposit ratio gap has significantly decreased since the beginning of the year; at the end of January the gap stood at $24.5 billion, while by the end of June this figure had dropped to $12.9 billion.

“This clearly suggests that the gap is narrowing considerably in a short space of time. Overall, the banking sector’s finances are starting to look healthier,” the Dubai Chamber Economist report said.

Lebanese banks solid

August, Bank Audi published a report on the resilience of the Lebanese banking sector, entitled “A Successful Story of Resilience Unscathed by Global Turmoil.”

Based on data from 2008 and the first half of 2009, the report says “Lebanon’s banking sector has witnessed in fact over the past year one of its best performances ever, unscathed by the global financial turmoil.”

From December 2007 to December 2008, domestic banks’ assets grew by 13 percent to $13 billion. Asset growth was mostly driven by customer deposits, which made up $11 billion over those 12 months.

This trend “was extended even further over the first half of 2009, as per preliminary Central Bank statistics,” the report said. “Capital inflows towards Lebanon amounted to above $16 billion in 2008, up by 48 percent relative to the previous year, leaving a large balance of payments surplus of $3.5 billion, a record high for Lebanon.”

Despite all the good news, Bank Audi cautions that in order for domestic banks to remain resilient in the long-term, structural reforms must take place, “to ensure a soft-landing scenario for Lebanon’s public finance conditions that remain worrisome and where the main vulnerability lies.”

Results of BSE listed banks for the first six months of 2009

The results of the first half of the year for the five banks listed on the Beirut Stock Exchange (BSE) are out, proving that the Lebanese banking sector has remained resilient throughout the global crisis.

Combined net profits of Bank Audi, BLOM Bank, Byblos Bank, Banque BEMO and Bank of Beirut increased by 3 percent to $368.1 million in the first half of 2009, up from $357.3 million in the first half of 2008. The banks’ average aggregate net profit growth reached 1.54 percent in the first half of the year.

BLOM recorded the highest growth in net profits with a 5.8 percent increase in the first half of 2009, totaling $138.3 million.

In the first six months of 2009, the average net assets of these banks increased 10 percent from the end of 2008. BEMO witnessed the largest asset growth from the end of 2008 with a 15.6 percent jump.

The listed banks’ deposits rose by 10.9 percent from the end of last year and 17.8 percent from the end of June 2008, reaching $50 billion. BLOM recorded the lowest loan-to-deposit ratio at 21.7 percent for the first six months of the year, compared to 22.7 percent at the end of June 2008. Byblos Bank came in second place for lowest loan-to-deposit ratio of 30.9 percent, versus 32.9 percent it posted at the end of the first half of 2008. Next came Bank of Beirut with a ratio of 31.3 percent for the first half of 2009, versus 35 percent in June of last year.

Bank Audi, Lebanon’s largest bank by total assets, witnessed a 32.4 percent loan-to-deposit ratio in the first half of 2009, versus 35.8 percent at the end of June 2008. Banque BEMO saw the highest loan-to-deposit ratio amongst the listed banks, with a 47.8 percent ratio versus 48.5 percent at the end of June last year.

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Editorial

Time to boycott failure

by Yasser Akkaoui
written by Yasser Akkaoui

It is a measure of how far Lebanon has come in recent years that a new roof is being placed on the synagogue in the Beirut Central District. It is also a reflection of Lebanon’s unique multi-faith make-up and the country’s tolerance for all religions.

But tolerance alone does not make a strong state.

It is no secret that today Israeli companies are outsmarting the Arab boycott, a concept so archaic and so self-defeating it stopped having any real meaning decades ago. Israeli manufacturers are re-branding and re-labeling their products to compete in the new and vibrant Arab markets.

Furthermore, Israel has set itself up as a shop front for global manufacturing, attracting some of the world’s biggest brands to their industrial parks. The upshot is that, while the Arab world tears itself apart, Intel — to take just one example — churns out Israeli-made processors destined for a global market.

And yet while Arab regimes would deny us the right to buy those same processors, they are also denying us the chance to move forward and compete in the name of a strategic ideal they call the Arab boycott.

The real Arab boycott should be one that stops us from denying ourselves the right to take our place in the community of nations that make up the new globalized economy. It should involve us making an effort to produce and compete on an equal level.

Contrary to popular belief, the strategic goal of the Zionist state is to place an emphasis on economic dominance. It is as much economic as military or political leverage that drives Arab-Israeli negotiations. After all, the victor is the nation that can achieve economic sustainability.

The Arab world, and the countries of the Levant in particular, need to understand the essential connection between the state, the public sector and the welfare of the people. Without this economic angle, a state can never succeed; indeed it can never be a state.

Lebanon is a case in point. The private sector has the talent and it has the will. The state now needs to hitch this potential to its creaking wagon so that it can start competing with Israel at its own game. Lebanon needs to start empowering, competing and attracting foreign investment.

It is that simple.

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Phoenicia‘s forgotten treasures

by Nicholas Blanford
written by Nicholas Blanford

With his snow white Old Testament-style beard, floppy hat and intense, inquisitive gaze, Patrick McGovern cuts an unlikely figure for someone likened to Indiana Jones.

But rather than snatching mysterious ancient relics from Amazonian head hunters and avaricious Nazis, McGovern’s archaeological specialty is of a far more convivial nature. As scientific director of the Biomolecular Archaeology Laboratory for Cuisine, Fermented Beverages and Health at the University of Pennsylvania Museum in Philadelphia, he explores the roots of ancient alcohol production, and is recognized as the world’s leading expert in what is a relatively new field of science.

Lebanon, of course, is dripping with ancient history. We are all familiar with the Baalbek temples, the Phoenician port of Byblos, the Umayyad palace in Anjar, the Roman hippodrome in Tyre and the Crusader castles that dot the Levantine landscape. But a recent two-day tour around Lebanon with McGovern illustrated the richness of Lebanon’s archaeological past, and underlined how it often goes unnoticed, unappreciated or is squandered through neglect or indifference.

We began in Baalbek, where McGovern wanted to examine the carvings on the massive entrance to the Temple of Bacchus, the Roman god of wine, for evidence of poppies believed to have been added to ancient wines.

“There are no texts that say they added opium to wine, but the association of wine and poppies suggests that there might be something to it,” McGovern said.

Certainly, the carvings of poppies, along with sheaves of barley and vine leaves, are unmistakable on the sides of the temple’s entrance. McGovern has identified compounds from the residues of ancient wines to find the herbs and spices used as flavorings. An analysis of a consignment of 700 jars of Palestinian wine delivered to the Egyptian King Scorpion I in 3150 BC showed traces of coriander, mint and cumin.

From Baalbek, we headed to Sidon and the Phoenician temple of Eshmun. At first glance, the site is a jumble of stone blocks smothered in shrubbery and weeds. But with McGovern as my guide, details began to emerge. Carved from solid rock “in the Egyptian style” was the throne of Astarte, the Canaanite goddess of fertility. On either side were two easily missed carved sphinxes. The throne was positioned above conduits that fed the waters of a natural spring into a limpid pool lined with pungent flowers and green weeds. It was here that the Phoenicians would come for healing, buying flavored wine and herbs from the shops of apothecaries lining the narrow lane leading to the pool.

McGovern wanted to visit another well-known site in Sidon: the “Murex hill,” a man-made mound consisting of countless millions of shells from the eponymous sea snail, cultivated by the Phoenicians.

Finding the location of the hill was easy enough. Half of it is covered by a cemetery. As for the other half, a caretaker at the cemetery told us: “It’s gone.”
Gone?
“Yes, they dug it out about 10 years ago,” he said.

The seaward side of the hill had been removed to make way for a building, the foundations of which had been completed, but further work had ended sometime ago judging from the rust on the steel rebar poking out from the concrete. Behind the structure was a cliff of crumbling dirt and weeds some 50 meters high. On drawing closer, however, we suddenly realized we were looking at countless white murex shells. McGovern picked one up and explained how the Phoenicians would get pigment from the snail by extracting a gland that, on exposure to sunlight, turned intense purple. It took 10,000 murex shells to make just one gram of the coveted dye. “This is one of the largest known Phoenician garbage dumps ever discovered and it has never been excavated,” McGovern said.

We drove from Sidon to Sarafand, site of ancient Sarepta, “one of the best preserved Phoenician sites that has ever been excavated in the homeland of the Phoenicians,” said McGovern.

It had been 35 years since McGovern was last in Sarafand, working on a dig by the beach. His memory was hazy, and it took an older local who remembered the “archaeologique” to show us the former dig site. There was no evidence it had ever existed, however, smothered as it was by a thicket of bamboos and banana groves. Again, it took McGovern’s historical eye to transform what appeared to be a typical Lebanese beach into an important Phoenician harbor.
 

The flat sloped rock children fished and dived from was a Phoenician causeway. Even the flattish red pebbles that littered the beach were relics of the past — not stones, but Iron Age pottery shards.

Sarepta’s modern-day inhabitants seemed to have no knowledge of the historical importance of their surroundings, and the Lebanese authorities have shown no apparent interest in resuming the excavations that ended with the outbreak of the civil war in 1975.

“Being here gives you a sense of how fleeting time is,” McGovern reflected. “We put in a lot of effort here and it seemed so interesting and absorbing at the time. But no one seems to care anymore.”

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

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Serve but don’t swim

by sean lee
written by sean lee

There is an apocryphal story that has circulated around Beirut in various versions and goes something like this: a Filipina woman is swimming in the pool of an elegant private club. The Lebanese staff frantically tell her to get out, since domestic workers aren’t allowed in the pool. The story’s denouement comes when it is revealed that the Filipina woman is the wife of the ambassador — not a maid. 

Someone unfamiliar with regional folkways could be excused for not understanding the story. But for those living in Lebanon, or in Cairo or Dubai, certain nationalities have become code for specific professions: Slavic nations produce prostitutes, Egyptians are doormen and Syrians manual laborers — while Ethiopian, Sri Lankan and Filipina women are invariably domestic workers. So ingrained are these stereotypes that the most common word for a maid in Lebanon is “Sri Lankan.”

The story about the wife of the ambassador of the Philippines reveals a mixture of racism and classism that is difficult to parse, because the two are so inextricably intertwined. The swimmer is somehow excused for being Filipina, since her husband’s rank trumps his ethnic and national origins. I’ve heard similar stories of Americans or Europeans barred from nightclubs or swimming pools, or otherwise submitted to petty humiliations, because of the color of their skin or their ethnic origins, only to have the situation rectified by flashing a western passport. But finally, they are the lucky ones; they can escape the worst of the discrimination by simply producing western papers.

Human Rights Watch has gone so far as to quantify the discrimination suffered by foreign domestic workers in Lebanon. According to a study carried out by senior researcher Nadim Houry, 17 out of 27 beach resorts polled put restrictions on African and Asian domestic workers, ranging from prohibiting them from swimming at all to restricting access to the swimming pool.

Curious to know which places didn’t allow domestic workers in the pool, I made some calls posing as a father who’d like to bring his kids and their nanny, and then posted the results on my blog.  Here is a sampling of the results.

Eddé Sands (Byblos): Entrance is free for nannies, and according to the woman I spoke to, there is no problem for them to swim in either the pool or the sea.
Cyan (Kaslik): Under no circumstances are domestic workers allowed to swim, even if they pay full admission.  

Riviera Hotel (Beirut): Admission for nannies is apparently free, but they cannot swim in either the pool or the sea. When I asked if they could swim if they pay an entrance fee, I was told that it wasn’t a problem.

Laguava Resort (Rmeileh): Even if a domestic worker pays for entry as a normal guest, she cannot swim in the pool for adults, only in the “family pool” for children and the sea.   
Bamboo Bay (Jiyeh): If a domestic worker pays, she can use the facilities like any other paying guests. 

Jiyeh Marina (Jiyeh): For admission purposes, nannies are “considered as children,” and are allowed to swim “if they have a swimsuit,” but according to the woman I spoke to, “we prefer them not to.”

The BBC recently found similar discrimination at the Sporting Club, one of Beirut’s best known beach clubs, where the club’s manager acknowledged that “from a foreigner’s point of view,” his club was practicing discrimination. He defended the practice, explaining that he would have complaints from customers and lose business if he allowed domestic workers to enjoy the facilities like everyone else. Western foreigners, on the other hand, are more than welcome at Sporting Club.

Recreational swimming has a prominent place in the history of the American civil rights movement. In 1948, Strom Thurmond ran for president on an explicitly segregationist platform: “I wanna tell you, ladies and gentlemen, that there’s not enough troops in the army to force the Southern people to break down segregation and admit the nigra race into our theaters, into our swimming pools, into our homes, and into our churches,” Thurmond said in one campaign speech. 

Given the rampant discrimination in all aspects of domestic workers’ lives, getting worked up about swimming pools may seem a bit frivolous. But in Lebanon, like the segregated American south, the pool is but a symbol of larger injustice. Migrant workers are not considered equal with Lebanese under the country’s law.  They are in some cases abused with no legal recourse. For the huge role they play in Lebanon, migrant laborors deserve better. 

 
The buses in Lebanon are not segregated, so it would be misplaced to call for action like the 1955 bus boycott led by Martin Luther King Jr. And after all, with so many domestic workers denied the right to even leave the house, it’s hard to imagine how a boycott led by migrant workers would have much of an effect. Beaches with racist entrance policies, on the other hand, might be a good place to start for the rest of us.

SEAN LEE is an instructor at the English department at the American University of Beirut

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Obama’s healthcare woes

by Claude Salhani
written by Claude Salhani

When it comes to politics, Americans, much like everyone else, are terrible ingrates. People tend to forget how bad things were under the old regime and remember only the positive, sweeping the negative aspects into the forgotten corners of their memory.

Indeed, it was just a matter of time before the honeymoon President Barack Obama enjoyed started coming to an end. If the president’s ratings in the rest of the world are still somewhat solid, his star is no longer shining as brightly in the US as it was when he entered the White House last January.

Just eight months into his presidency, the man who turned out to be one of the most popular presidents ever in the United States upon his election is now starting to see his ratings fall.

One must add that this is really through no fault of his own. When Obama entered the White House last January, replacing one of the most unpopular presidents in US history, people expected the impossible, and they expected it right away. But that’s not how politics work.

The expectations people had of this young president were astronomical, bordering on miraculous. They expected him to fix the economy, which was in a global recession and sliding faster than Bush’s popularity. Obama inherited a country with probably the worst financial crisis since the Great Depression rocked the nation following the stock market crash of 1929.

People expected Obama to end two highly unpopular wars –– one in Iraq and one in Afghanistan. Then of course there is the invisible war, the one still being fought in the shadows, the ‘War on Terror’, as President Bush liked to call it. An indication of how disinterested the American public is in the wars in Iraq and Afghanistan can be gauged through the lack of front-page articles on those two conflicts in the American press. Days can go by without either country making it onto page one.

Obama inherited the housing crunch brought about by the subprime mortgage crisis, triggered by a dramatic rise in mortgage delinquencies and foreclosures in the United States; that, in turn, had a negative impact on the world’s economy.

There was the climbing price of gas, which passed $3.70 per gallon for the American consumer before Bush left the White House (it was $1.45 when Bush took over from Clinton). But what perhaps contributed to Obama’s rapidly decreasing popularity, at least in the US, was his decision to take on the poisoned arrow of health care reform.

The reform of the American health care system has traditionally been the kiss of political death for anyone who dared touch it and its praetorian guard, the legions of lobbyists who protect their turf on Capitol Hill with the same zest with which Roman legions defended ancient Rome.

It was health care reform that brought the ire of the conservative movement in the US against current Secretary of State Hillary Clinton when she was the first lady, and when her husband President Bill Clinton gave her the impossible task of setting up universal health coverage for Americans, which remains the only industrialized country in the world without universal coverage for all its citizens.

As if that were not enough, there is another kiss of death for American politicians who dare to venture there: Middle East politics. Here again, there exists an uncanny expectation that Obama will wave his magic wand and the sea of animosity dividing the Middle East protagonists will suddenly allow a passage towards a peaceful solution to the six-decade conflict.

As of July, for the first time since his election, Obama’s popularity fell below the 50 percent mark, according to an ABC NEWS-Washington Post poll. The health care industry in the US is a huge business and the drug manufacturers spend millions of dollars every year lobbying Congress so that senators and congressmen and women will vote like they are supposed to vote; meaning, to maintain the complex and archaic system of healthcare currently in effect.

The trouble with the current system is that it does not make sense. The US spends more than any other nation on healthcare, yet 47 million people have no health coverage (from a population of 300 million). And all that money doesn’t buy American citizens much bang for their buck: the World Health Organization ranks the US healthcare system at 37 out of 191 countries surveyed.

America does have some of the best hospitals, doctors, and yes, healthcare in the world. Unfortunately, not everyone can see those great doctors and go to those great hospitals. And the system’s biggest problem is that healthcare is usually arranged through one’s employer, and so an employee (and his or her family) loses health care coverage if he or she loses his or her job.

But Obama could not begin solving the above-mentioned problems without the participation of all parties concerned. After all, he is President Obama, not Saint Obama. He accomplished the impossible soon after assuming the presidency: gas is down to around $2.35 a gallon and the economy has stopped sliding and is actually pick up.
Miracles however, take a little longer.

Claude Salhani is editor of the Middle East Times and a political analyst in Washington

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An embargo that shouldn’t fly

by Executive Staff
written by Executive Staff

Sanctions are one of those political issues that can make amiable dinner conversation turn unpleasant, as the battle lines are drawn down the table between those for and against.

 Sanctions have certainly had mixed success, starting with the first recorded case of a trade embargo some 2,400 years ago between Athens and neighboring Megara. The embargo failed, sparking war.

Sanctions have never worked since then, argue some. “That is too reductionist,” may come the reply, while others prefer to pick-and-mix examples from embargoes through the ages to argue their case. The more pragmatic approach would be to not ask whether sanctions “work,” but to consider when and under what circumstances.

Sanctions that are meant to oust a dictator but result in the deaths of thousands of innocent civilians — Iraq for instance — can be considered counter-productive. Sanctions preventing a particularly nasty regime from getting hold of, say, chemical weapons, on the other hand, would appear desirable and effective.

In a report on the effectiveness of sanctions by the Washington-based Institute for International Economics, out of 211 cases from World War I until the year 2000, only 38 percent were successful.

Applying sanctions on the aviation sector can fall under the questionable effectiveness category. Impeding a country’s access to military aviation parts is understandable, but for commercial aircraft it ranks as dangerous. In the Middle East, this applies to Iran and until July, Syria, when the United States ended sanctions on the export of goods to the Syrian aviation industry. Sanctions were first imposed against Syria in 1979 and tightened in 2004 under the Bush administration.

Aviation sanctions have long been considered a risk to air safety, with airlines that own American and European manufactured aircraft (Boeing and Airbus) unable to purchase spare parts and navigation equipment, or to upgrade technology in line with international safety standards. A report prepared for the United Nations’ International Civil Aviation Organization has made this clear.

The danger sanctions pose to aircraft and passengers was underscored in July when two Iranian commercial planes crashed within 10 days of each other, killing 184 people. Iran claims the sanctions were to blame, and foreign ministry spokesman Hassan Qashqavi said the Western aviation sanctions in place since 1979 “signify a violation of human rights.”

While no Western lives were lost in the two crashes, it may only be a matter of time before citizens of the primary imposer of sanctions, the US, also become collateral damage, whether onboard a doomed aircraft, or while picnicking below when a badly serviced plane drops out of the sky.

As Flight Commander General Hazim al-Khadra, director general of the Syrian Civil Aviation Authority, told me in Damascus a few years ago: “Sanctions are a big problem because US aviation interferes with the aviation industry, the spare parts for commercial airlines in particular, which maintain the safety of passengers. And these passengers aren’t only Syrians, but also Europeans, Americans and Asians.”

Perhaps there would have to be the rather ironic situation of a plane that lacked the spare parts or proper guidance systems accidentally crashing into a US embassy or military facility, for Washington to truly wake up to the hazards of unsafe aircraft.

After all, it is curious that the Air France jet that crashed en route from Rio de Janeiro to Paris and the US Airways plane that ditched into the Hudson River in New York earlier this year garnered extensive media reports about aircraft safety, yet the aviation sanctions against Syria and Iran have not. Unsafe aircraft flying around the world are not safe for anyone, whether on the ground or in the air.

The US decision to end the sanctions against the Syrian aviation sector — which has rapidly opened up in recent years to include a handful of private airlines — is a step in the right direction. But the sanctions against Iran, and its aviation sector, continue. It even looks like the sanctions are going to be tightened further, with America proposing to ban Iranian airplanes from landing in Western airports, along with banning insurance on trade deals with Iran and the imposition of sanctions on any company that trades with the Islamic Republic.

While the heightened sanctions are meant to put further pressure on the Islamic Republic to change it ways, the policy should be scrutinized. The sanctions related to the curbing of Iran’s nuclear aspirations and funding to groups like Hamas and Hezbollah are a political minefield, with strong arguments from both sides of the political spectrum as to whether such a policy is working. Civil aviation however should be in a special category. It should be a human right for people — civilians — to be able to fly safely.

PAUL COCHRANE is the Middle East correspondent for the International News Services
 

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The Arab trading bloc

by Riad Al-Khouri
written by Riad Al-Khouri

Based on recently released figures, Arab investors have been paying more attention to business in neighboring countries, while looking less at “traditional” Western markets. The size of inter-Arab direct investment inflows grew 64 percent in 2008, with Saudi Arabia receiving the largest share of investments and the United Arab Emirates being the top investor in other Arab states, according to the Investment Climate in Arab Countries 2008 report.

The report, released by the Kuwait-based public Arab Investment and Export Credit Guarantee Corporation (better known as Dhaman), notes that the total volume of inter-Arab investments reached $34 billion in 2008, up 64 percent from 2007. This is a remarkable jump, and may have a lot to do with the sorry state of Western economies last year, which put off Arab investors and made them look to less risky business closer to home.

Saudi Arabia received the largest share with 38 percent of Arab investments in 2008, reaching $13 billion, according to Dhaman. The kingdom was followed by Algeria which attracted 17 percent of total Arab investments or $5.7 billion last year, then Sudan, accounting for 14 percent or $4.8 billion of the total. Lebanon was fourth in terms of attracting Arab inflows, receiving 8 percent or $2.7 billion worth of investments, much of them in the tourism sector, which is currently booming with the influx of Gulf visitors.

Of the dozen Arab economies covered by the survey, most saw an increase in investment inflows; only a handful of countries, including Lebanon and Jordan, received a smaller share of investments in 2008 compared to the previous year. The shortfall of money flowing into Beirut was the result of the drawn-out government crisis there that culminated in street battles during May of last year, but the trend in 2009 seems to be up. Jordan, on the other hand, is a different story: the latest figures show that foreign direct investment from all sources — Arab or otherwise — fell sharply to less than $220 million during the first quarter of this year, compared to $920 million in the same period of 2008.

The UAE was the top regional investor in Arab countries in 2008, with its direct investment outflows reaching $10.7 billion or 32 percent of the inter-Arab total. UAE investments went primarily to the Saudi market, which received $5.8 billion of the Emirates’ outflow. UAE and other inter-Arab investments were concentrated in the services sector, which made up 62 percent of total investments, including to tourism, transport, telecommunications and finance, among others.

Yet, in many other areas, investment from the UAE and other Arab states continues to flow to the West, which remains attractive for certain types of business, particularly high tech. An interesting example of this came in July, when Aabar, an Abu Dhabi investment fund, paid around $280 million to buy nearly a third of commercial space-travel startup Virgin Galactic. In exchange, the state-controlled fund will acquire exclusive regional rights to eventually launch Virgin Galactic tourism and scientific research spaceflights from the UAE capital. Aabar’s buy-in boosts Virgin’s space tourism venture at a time when many Western funding sources have dried up. (Read more about this transaction on page 112.) This also gives Abu Dhabi a chance to broaden its economy beyond oil, in line with the emirate’s plans to embed technology, research, and science in the economy. It also complements the aim of being an international tourism magnet.

Whether in outer space or back down on Earth, Aabar has emerged as an active investment fund. Among other recent deals, it bought 9 percent of Mercedes-Benz maker Daimler in March, and in August signed a vehicle production deal with the Algerian government to develop a network of vehicle and engine manufacturing plants in conjunction with five German companies (including Daimler). Up to 10,000 cars and trucks will be assembled each year with operations expected to start in 2010, following the modernization or development of plants; products identified for potential manufacturing include four-wheel drive vehicles and engines.

With automotive manufacturing taking off in neighboring Morocco and elsewhere in the region, I predict that cars and trucks will be the latest sunset industries to move out of the developed world and into Arab economies (among other developing ones), just as lower-end clothing production made an exodus from Western Europe and America in the late 20th century.

Now that the Dubai bubble has burst, and with economies slowing down in most of the region, the short-run continuation of this Arab-to-Arab investment trend might seem in doubt; but in the long-term, investments by regional players inside the region are probably going to accelerate, no matter what happens to the West’s faltering investment climate.

RIAD EL-KHOURI is senior associate consultant at the William Davidson Institute of the University of Michigan in Ann Arbor, and dean of the Business School at the Lebanese French University in Erbil

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Society

Crepaway – Claude Thoumy (Q&A)

by Nada Nohra
written by Nada Nohra

Crepaway was founded in 1984 by two brothers, Charles and Claude Thoumy, as a limited liability company and was incorporated in 2003. Today, Crepaway Corporation operates eight outlets in Lebanon with two seasonal restaurants, and four franchises in Egypt, Saudi Arabia and Qatar. Charles Thoumy has been the chairman and general manager of Crepaway since its founding as a small kiosk serving crepes. He spoke with Executive about he and his brother’s successful chain of “casual dining” restaurants.

E How is the casual dining industry performing, and what are the major problems in the industry?
The major problem is basically inconsistency. In a country like Lebanon, even if you go by strategic planning, you have to have a tactical approach in dealing with circumstantial ups and downs. Sometimes you go for a five or six year plan, and something happens, like a war or a crisis, and then you have to [halt] your plans and go for tactical little things to make your thing work. Again you are not working on a road map to achieve your goals. It is a temporary deviation.

E So you always have to have a plan B? 
And C and D sometimes.

E Other than the inconsistency, are there any problems that you are facing with government regulations?
No, but you are working in a country that is not really structured. Sometimes you have to deal with different departments, sometimes they overlap, sometimes they do their job and sometimes they don’t. There is no system that you can abide by. You do not feel that there is someone to help you. When the government structures its departments again, we will be able to deal easier with their rules and regulations. Even though we know that rules and regulations, like everything else, need to be updated.

E What corporate strategy do you use to deal with competition?
We have fierce competition. The fiercest competitor we have is ourselves. We compete with ourselves to do better every day. I think competition is a source of richness. Competitors learn from you and you learn from them; that is  basic. You do better in something, they do better in something else. Then you upgrade, they update and that is the nice game of competition. On the other hand, since we have been leading since 1984, we have had a lot of people coming and copying… well not copying, but it is a normal thing in business when people look at businesses that are working well and try to do something similar. That is another confirmation that we are doing well and where we feel we have the responsibility to do better than we did before. That is the main scope of our competition.

Talking about strategies, there are different strategies to deal with competition. First, when you talk about competitive strategy, [it] is when you see what the competitor is doing and try to do better. We are not into war with our competitors — we try to complete each other, so there is not really an approach where we look closely at what they are doing and then try to block the way for competition. It is a nice game everybody is playing, and people who win have to be complemented.

E In the last couple of months, many restaurants have increased their prices. Do you know the reason?
We also have extra running costs concerning electricity and generators… we are living that today. The increase in prices happened in the last couple of years. And again the cost of real estate has increased a lot. Which means that the rent went up a lot. At all levels, you have an increase in your costs. In the end you are in a business that requires high running cost. We haven’t increased our prices in the last two or three months. Beginning in spring, we have added sometimes 500 or 1,000 Lebanese lira because of the fluctuation of the Euro. So, we had to.

E How has the financial crisis affected Lebanon and your business?
The economic downturn of course has an adverse impact, not only on Lebanon but on the global level. It leads to a decrease in purchasing power. We have witnessed a decline in the purchasing power, especially from the people and expats who used to come from Dubai and Qatar. They were loaded with money, so they used to come and spend their money with more freedom. These were affected. But we cannot say people are refraining… but there is for sure a drop in average spending.

E Do you have an idea how severe the drop has been?
I cannot tell you really, but I can say that it doesn’t show a lot because we tried to increase the volume (the number of people) and the flow of tourists was high. But we can say that the average check that was $15 could go down to $13. But you can tell that in big restaurants that serve champagne and wine, because some people that used to spend $300 for a bottle of wine are now spending $70, for example. It is an attitude. Instead of ordering three platters and appetizers and a dish and a desert, people would share. It goes back to the average check.

E If we want to talk about tourism this summer, what do you think is the difference?
[With] the stability of the political situation we have seen a very high flow of tourism. Even in our branch in Egypt, where Arabs used to go, our management there said they were affected by the flow of tourism that hasn’t been very substantial there, and they say that all the tourists went to Lebanon. They sensed it in the Egypt branch because usually Egypt is a destination for Arabs in summer. You can also tell by the hotel reservations. I can tell that definitely there is a 35 percent increase in our sales.

E What about other branches in the Gulf. Are you sensing a negative effect?
The casual dining industry is able to face the financial crisis, even in the regional markets, because the average check is affordable. There is no doubt that they were affected because there was less tourism and these countries also rely on tourism. But the affect was not on a large scale, because it is not a luxury product. For an expat working in Saudi or Qatar, he would definitely [rather] go spend $15 or $20 for a meal than $50. But in Dubai, the yield changed drastically.

E What are your plans? Are you planning to expand in the future to other countries?
Strategically, growth is a constant objective; it is the main motivation, we cannot stop. We have one opening in Hamra [district in Beirut] probably in a month’s time, and there is a new mall in Saida — we are opening there. There is also a plan to grow into micro markets but the idea is not consolidated yet. We have plans for several locations in the KSA, Qatar, Syria, and Dubai. We are planning for all that. We were planning to open in Dubai the beginning of this summer, and we postponed that until next year.

E Do you expect to do better than last year in terms of profits?
Yes I expect it to be better because when the volume goes up, you have better opportunity to make a profit. We work on a volume basis. In our industry, we are not defined by what 50 people would [spend in one] night, with an average of $200 per person… if we have three bursts per year like we have this summer, I think our industry would be fine. We invested a lot in organization last year, so our profits were slower last year because we were in an investment mode. But this year we amortized that and we know we have around a 40 percent increase in profits.

 

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Society

McLaren – Ian Gorsuch (Q&A)

by Paul Cochrane
written by Paul Cochrane

Since 1963, McLaren has been renowned for its race cars and is the only racing team to have won Formula 1, Indianapolis 500, Can-Am and Le Mans championships. McLaren Automotive was established in 1989 and eventually manufactured the iconic McLaren F1 which, when it launched in 1992, was the world’s fastest production road car with a top speed of 386 kilometers per hour. Only 100 were built. Executive spoke with Ian Gorsuch, McLaren’s regional director for the Middle East and Africa, in Beirut after his company announced McLaren Automotive’s launch as a new, high performance car company.


E You said in your presentation that a McLaren F1 sold for $4.1 million some eight months ago. That is quite remarkable in a recession, no?
People were surprised as it was at the height of the recession. But it shows there is an interest and understanding of what we did in the world [at the time], the first luxury super car that was way above $150,000 — at $1 million, but now there are many [brands] at that price. It was great to see such confidence in McLaren… [F1 driver] Lewis Hamilton has been promised one if he wins three F1 championships with McLaren.

E How is the Gulf market for super cars compared to the rest of the globe?
The US and Europe are the major markets. Here is perhaps 10 percent of demand because, although there are a lot of wealthy people, [the population is smaller], and there are more millionaires in the US than here, although here [they] may be retaining their wealth better.

 
 

 E What super cars does McLaren compete with, in the Middle East and globally?

People will benchmark us against Ferrari and Lamborghini — favorably.

E The world is going through a financial crisis. Why are you marketing now for the 2011 launch?

I think it was good planning but also good luck; develop in the recession and hopefully by 2011 — what everyone is saying — the recession will be over, and we’ll launch the McLaren P11. We have also been very conservative with our figures, not looking at the 2007-2008 market — a record year with sales up — but at 2003-2004, when sales were lower. And we’re lucky, when we sell in 2001, we will have demand and not a stock situation, but a clean sheet.

 E How has the slowdown affected McLaren?
Our competitive benchmark has suffered a slowdown in sales, but Lamborghini, Ferrari and Aston Martin are still selling, in less amounts, and that is why we have a conservative model from several years ago, not last year.

E And how have sales of McLaren been in the Gulf?

While McLaren builds the SLR, it is Mercedes-Benz that actually sells them and possesses all the information relating to sales in the region. Globally, the SLR has been the most successful supercar ever in its price bracket. What we are doing at McLaren Automotive now is to create a completely new car company — not only will we build our own cars, but we will market them through our very own distribution network.

E When was the first McLaren bought in the Gulf?
It was the McLaren F1 in the early 1990s.

E McLaren will have distributors in Kuwait, Abu Dhabi, Dubai, Doha, Manama, and three in Saudi Arabia. What’s the plan until they open?
Our current focus is on building an understanding and awareness in the region of what McLaren, and in particular McLaren Automotive, is about. Currently some people know the brand from Formula 1, some from the McLaren F1 supercar and others from the success of the Mercedes-Benz SLR McLaren. We are also in the process of appointing a retail network and building a prospect and depositor base.

E A prospect and depositor base?
This is particular to the luxury car markets, the brand and the dealer. Customers order in advance to assure early delivery.

E There will be dealerships in the Gulf, but why not in Beirut?
When the car is launched, we will build 1,000 for the world. There will be large demand and we will not be able to open everywhere. We need a dealership to be profitable as they look after customers better. We want our customers to be comfortable when in Beirut. So in the initial stages cars will only be looked after here in Beirut, at a service center.

E Have you found a center yet?
We are still looking for a service operator. I think we have identified one, and it will be the same one that deals with top end customers with super cars.

E But given the road conditions in Lebanon — driving aside — there are potholes, speed bumps and other obstacles, is Beirut the right place to drive a McLaren?
If a guy comes here for his summer holidays and brings one to two cars, he might decide to bring say a Lamborghini and a Aston Martin because there is a service center, but not bring his McLaren — even though he loves driving it — so we want him to be comfortable and have the confidence to bring it here.

E There is a Formula 1 track in Bahrain, and over the past few years there has been talk of F1 tracks opening in Qatar and Dubai. That must be good news.
The whole region is car mad, and aware of cars, and loves racing cars… often on the streets. For F1 to be in Bahrain, it is good for us to be a major player at the cutting edge of technology, and for us to be there in the region.

E McLaren is known for its gold covered engines. Excessive?
It is not actually the engine that has a gold cover, but the engine bay of the original McLaren F1 supercar. This was for purely practical reasons, as gold was found to be the best material for heat insulation. Indeed, at McLaren we have a saying that everything we do is done for a purpose.

E You mentioned many brands that McLaren has worked with in the presentation. Is this still the case?
We developed the engine of the F1 car with BMW. During the 1980s, the Formula 1 cars’ engines were from Honda. Nowadays, we have Mercedes-Benz engines in our F1 cars, and of course we have been working with Mercedes-Benz on the SLR. What working with other brands has shown is that one plus one equals three. We learned a lot from our partnership with Mercedes on the SLR. With the new car, we will be building on all this experience yet producing a car that will be totally McLaren.

E Over the next few months you are going to be doing hot weather testing in the Gulf. Why there, not say in the deserts of Nevada?
The Gulf temperatures are hot and humid, and in the deserts [there is] low humidity and high temperatures, so a good environment for testing. A major concern of our Gulf customers is whether the car will be able to handle the conditions of the Gulf.

E You are to have a shareholding of $407 million. Will there be an initial public offering (IPO), or are you looking at an investor, or investors?
It’s all in equity, there is no debt, so we are looking for an investor.

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