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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Real estate

Lebanon – Home on a mountain

by Nada Nohra
written by Nada Nohra

In the next eight to 10 years the map of Lebanon will include a completely new village. BeitMisk, the new residential community located in the northern Metn region, is one of many newly-launched projects which affirm the country’s increasing attractiveness for real estate investment.

BeitMisk will cover 655,000 square meters and include apartment buildings, villas, penthouses, a country club, gardens, recreational areas and retail, offering its residents and visitors a home away from the cities’ pollution and traffic.

The $800 million project is unique in many aspects. The developers say the new village will use renewable energy and have environmentally friendly wastewater treatment facilities. Sustainable and green building materials will be used in construction, and some 70 percent of the development will be green space. BeitMisk will also blend historical and modern structures. Work is underway, construction has started and so have sales.

The BeitMisk project is owned by Renaissance Holding, of which the majority shareholder is Georges Zard Abou Jaoude — who is also the chairman of the Lebanese-Canadian Bank. It is 60 percent financed by Abou Jaoude himself and 40 percent by Banque Libano-Française (BLF). Emaar Lebanon, part of Emaar International Development — a subsidiary of the Dubai-based Emaar Properties — is the developer, while the Lebanese architectural company Erga Group did the architectural studies.

Building sustainability
BeitMisk is not as cutting edge as Abou Dhabi’s Masdar City, but it will include several green-building and sustainable initiatives.

“We will be very close to the LEED [Leadership in Energy and Environmental Design] standards,” says Nabil Zard Abou Jaoude, chairman of Renaissance holding and managing director of Emaar Lebanon, who spoke with Executive on behalf of Renaissance. He  explains that buildings will have double-insulated walls, excellent insulation for the roofs, and will use solar energy to decrease electricity consumption.

“It is not a marketing tool, but when you go into high specs, you are automatically very close to LEED,” says Nabil Abou Jaoude.
Anthony Sfeir, BeitMisk’s project coordinator at Erga Group, explains that the plumbing system, for example, will be separated into grey and black water, of which the grey will be recycled and used for irrigation. The project will also have a sewage treatment plant, where all the wastewater will be recycled and reused. “We will not be dumping waste effluent; we are treating everything,” he says.

Construction and sales break ground
So far, the only building constructed at BeitMisk has been the sales office, which will later be turned into a country club. In mid-July, sales began for the first phase of the project, which will see the construction of nine buildings with 72 apartments. Four of the buildings have traditional designs and five are modern, according to Nabil Abou Jaoude. He says that so far, some 32 percent of the units have been sold.

“It is better than expected,” he says, adding that he expects 80 percent of the units will be sold by year’s end. “I thought that just for the first two to three days, we will have some people interested and then only two to three clients per day… but we have a lot of potential clients.”

According to Georges Abou Jaoude, apartments start selling at $1,650 per square-meter, while townhouses start at $2,100. The prices of villas have not been determined yet since they need to be specifically designed before pricing. Apartments offered range between 177 and 330 square-meters, according to the sales office.

“These prices are launching prices; I expect them to go a little bit higher later on,” says Georges Abou Jaoude, adding that the target buyers are basically Lebanese. He expects only around 8 percent of the project will be sold to foreigners.

Construction of the first phase is expected to start at the end of the year, after all the permits have been obtained, irrespective of the units sold. Each phase is supposed to take up to two years.

“The first $100 million is already there, and the financing of the first and the second phases is already secured,” says Georges Abou Jaoude.

A sentimental value
Nabil Abou Jaoude say Renaissance is lucky to have found such beautiful land where they can develop a whole new town. The Northern Metn also holds sentimental value for the family since its roots come from that area.

Georges Abou Jaoude, formerly an architect before becoming a banker, also carries high hopes for this project.
“I want [Beit Misk to be] the most beautiful village in Lebanon, and maybe in the world.” 

Environmental concerns
But with many of Lebanon’s high mountains already spoiled by poorly planned development and half built concrete homes and apartment buildings, is the unspoiled upper Metn really a place to build a suburban neighborhood?

 
BeitMisk may be advertised as environmentally friendly, but the fact that construction will destroy a part of the forest did not render environmentalists very enthusiastic. Wael Hmaidan, executive director of IndyAct, a league of independent environmental, social and cultural activists, says that BeitMisk will destroy the natural habitat and the ecosystem of a big part of the mountain forest.

“There will be plantations rather than a forest ecosystem. You cannot compare it. The dynamics are different,” Hmaidan says. “A tree does more than give oxygen. It is a habitat, a house and an eco-system.” 

Garaved Kazanjian from Greenpeace agrees with Hmaidan. He says that the organization does not support these projects, but has no capacity to pursue every development that threatens what is left of the Lebanese natural wealth.

For the same reason, Hmaidan says that campaigning against any single development is a lost cause. What should be done is to reform planning policies in Lebanon so developments would not be allowed if they threaten the sustainability of Lebanese forests. “We can continue like this until we don’t have a single forest in Lebanon,” Hmaidan says. “Or we can create urban planning and a system to benefit all levels of society.”

Georges Abou Jaoude says the BeitMisk project will blend with the local area’s environment. “We will be planting 200,000 trees in the development and a little bit around it,” he says, adding that only some 25 percent of the project will be built-up area.
 
A small walk around
So far, only the master plan of the project has been designed. The construction will be divided into phases, each being a neighborhood, and each phase will have its own final design. Buildings, villas and townhouses will be surrounded by gardens and plantations, while biking and walking paths will also surround the whole project.

“People will be able to see many views as they are walking. At one point they are looking at Beirut, then the sea, then they will be looking at the mountain to their right as they are walking,” says Georges Abou Jaoude.

Most of the buildings will have three floors; only apartment buildings will have four floors. Villas will be provided with two to three parking spaces each, and two for every apartment building — even visitors will be provided with public parking spaces. Roads will also be designed to minimize cross-town traffic.

“The project has been designed by Erga, so there is a traffic engineer who worked on that,” says Nabil Abou Jaoude.
BeitMisk will also be divided into two parts. The upper part, which includes the villas and the townhouses, will become a closed community — although that decision is not final, says Nabil Abou Jaoude.

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Real estate

Lebanon – Sama Beirut

by Nada Nohra
written by Nada Nohra

Beirut will soon have a new tallest building. Called ‘Sama Beirut,’ developers have already broken ground on the 50-story luxury residential tower in the Sodeco area. Launched in mid-August by Sama developer Antonios Projects, it is expected to be completed by 2014. The tower will rise from a 5,000 square meter plot, of which the actual building will occupy 1,200 square meters, leaving the rest for a private garden.

Tower specifications
Sama Beirut will be 200 meters high, with six underground floors used for storage and parking for 560 cars. An underground floor will also have a gym with private access for the tower’s residences. Six shops will be divided between the ground and the first floor. Offices will be situated on the third and the eighth floors.

The tower will host 58 apartments of various sizes, ranging from 300 to 1,500 square meters, as well as duplexes and a penthouse. Apartments start at the 9th floor and have a private entrance from Elias Sarkis Avenue. Part of the land belonging to the development will also be used to enlarge the road, with the aim of decreasing traffic. It will also utilize green technology.

“We have a beautiful sun in Lebanon, and we will be using it as much as possible,” says Fady Antonios, chairman of Antonios Projects. He explains that the tower will use solar energy for water heating, thus saving a substantial amount of electricity. Antonios says the tower will be more than 250 meters above sea level, thus higher than the city smog.

“The tower will be taking the fresh air from the top and feeding the whole building,” explains Antonios.  Waste water will also be treated and reused for irrigating the large garden.

“We have other features like the insulation of the building which will be of very high standards, so it will need less heating and less cooling… We have all the electromechanical requirements of the LEED (Leadership in Energy and Environmental Design) certification.”

Antonios says that one of the reasons why he chose the Sodeco area is its strategic location.
“You are five minutes from Solidere and very close to the airport. You are close to the main access of Beirut,  [be it] towards the north, the south, or to the mountain. It is a very quiet area. It is very well located and the people love to be in Achrafieh.”

The other reason why Antonios chose the Sodeco area is rather sentimental. “I come from that area and I love it. I attended school there.”
But some weren’t so happy to see the new tower’s plans.

Beirut’s tallest tower in Ashrafieh?
The new skyscraper is exciting news to real estate investors and wealthy buyers, but it is not the case for heritage activists who think that Sama Beirut is one of the many misplaced developments that will ruin the historical cluster still present in the Sodeco area, like Monot and Abdel Wahab Al Englizi street.
 

“It is on the edge of one very important cluster,” says Mona Hallak, an architect and a member of the Association for Protecting Natural Sites and Old Buildings in Lebanon (APSAD).
Hallak adds that due to a lack of  proper urban planning to prohibit building towers in historic areas, Beirut will lose its historic neighborhoods in a few years.

“Now we have [a tower] at the edge of a heritage cluster. In two years we will have it in the middle of the cluster,” Hallak says.
Fady Antonios says that he had the possibility to build six identical small buildings which would be cheaper, but instead chose to use only 20 percent of the land and leave 80 percent for gardens and greenery.

“On the contrary, the tower leaving all this space will bring all the historical buildings into relief, since they will not be hidden by just concrete blocks.”

Wael Hmaidan, executive director of IndyAct, a league of independent environmental, social and cultural activists, agrees with Hallak saying, “we are definitely against it.”
“We need to understand the value of old architecture,” Hmaidan says, explaining that Lebanon’s comparative advantage to places like Dubai is its old architecture, moderate climate and social life — not high-rise towers.

Hallak says that high rise towers need to have more open space to breath. “This… is not a place for a tower. Nobody will notice how bad it will be until it is done and there will be no sun in that area,” she says.

Both Hallak and Hmaidan say that the only solution for keeping heritage clusters from being ruined is to have a proper urban plan. Currently, to get approval to build a tower, the permit has to be reviewed by the directorate general of urban planning for the purpose of stopping random urbanization. But so far, Hallak says, all proposed towers have been approved. “If you are approving all towers, why are you reviewing them in the first place?” she adds. 

There are also no public meetings to discuss the construction with the nearby businesses and property owners before the towers are approved.

A downbeat first reaction
Others had a similarly negative reaction to Sama Beirut. Massad Fares, whose company Prime Consult is managing Sama’s marketing and sales, said Minister of Interior Ziad Baroud was not very enthusiastic when he was first asked to sponsor the launching of the tower. He even mentioned so in the launching ceremony, where he said that he was shocked at first by the news and not very supportive, but then changed his mind when he saw the green surrounding Sama Beirut.

“We sat with him and showed him what we are doing and how we took from our land to enlarge the road and the green space that we kept — it increases the value of all its surroundings,” explains Fares. “Instead of building concrete, we are going to build a high, beautiful tower and put it in a nice environment.”

Sales have started
All the construction permits have been approved and sales have begun for apartments and offices in the building.

“We have a waiting list,” says Fares. Until now, Fares says that the interest came from only Lebanese people, either residing in Lebanon or abroad.

“It doesn’t mean that there will be no Gulf people, but so far, we only have Lebanese buyers.”
Apartment prices range from $5,000 per square-meter to $15,000. Offices are priced around $4,000 per square meters, while shops go for up to $11,000. Offices and shops are not only offered for sale, but also for rent.

“The good thing about this portfolio and this client for us is that he is financially sound and not pushing to sell,” says Fares.

 

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Banking

GCC – The Saad-Algosaibi disaster

by Executive Staff
written by Executive Staff

The veil of secrecy shrouding the scandal involving two financial titans — Saad Group and Ahmad Hamad Algosaibi & Brothers Company — has regional financiers fearing untold billions of dollars in further losses.

Both conglomerates are owned and run by two families once considered among the wealthiest and most well respected, not just in Saudi Arabia, but the entire Middle East. The sole surviving son of the founder of the Algosaibi group, Sulaiman Algosaibi, was ranked number 368 by Forbes in 2008 on its list of world billionaires. The owner of Saad Group, Maan al-Sanea — of Kuwaiti origin — is married to one of Algosaibi’s daughters. Both companies could borrow hundreds of millions and even billions of dollars based on reputation alone.

Currently, the details of cross-ownership between Algosaibi and Saad are unclear. So far, the only confirmed crossover that has emerged is the role of Money Exchange, a foreign remittance handling company owned by the Algosaibi conglomerate. Apparently, Algosaibi put Sanea in charge of Money Exchange, based in the United States. Now Algosaibi is suing Sanea in New York on charges of embezzling $10 billion through Money Exchange’s operations.

Media reports say that both Saad Group and Algosaibi Group owe billions of dollars in debt to regional and international firms. Estimates from various sources range from $9 billion to $22 billion, but the actual amount is unknown. Dow Jones reported that the two firms’ total syndicated debt amounts to $7.42 billion, spread over 88 international banks. Dow Jones also said that lenders outside the region hold $4.88 billion of this debt, meaning GCC banks and holding companies’ exposure is around $2.54 billion.

Standard Chartered Bank, however, said Saudi banks’ exposure alone is some $5 billion. The lack of transparent information has kicked the rumor mill into full swing, thus creating much uncertainty throughout the region’s financial sector.

Nassib Ghobril, head of the economic research and analysis department at Byblos Bank in Lebanon, said that because banks are not releasing enough data about how much exposure they have to these groups, lenders are taking a step back.

“Right now, this situation is creating a lot of uncertainty, making banks even more careful in terms of lending,” he said.
Mahin Dissanayake, associate director of the financial institutions group at Fitch Ratings in Dubai, said the lack of information is largely due to confidentiality agreements. Yet, the “basic information is still unclear. We do not know what the background of this dispute is.”

Clear as mud
The absence of transparency in the Middle East is a major obstacle to finding the root of the problem, especially due to the family-oriented nature of this issue. EFG-Hermes research pointed out that the “initial lack of public communication by [Saad Group and Algosaibi Group] led to a degree of panic.”

The firms’ troubles first emerged in May of this year when both companies apparently ran into severe liquidity problems amidst the global credit crunch. Unfortunately, four months later, the picture is not much clearer and is now more complicated than ever.

At the end of May, the Saudi Arabian Monetary Agency instructed banks in the kingdom to freeze all Saad Group accounts. Soon after, the central bank froze Sanea’s personal accounts. After Algosaibi filed a lawsuit against Sanea in New York’s Supreme Court for embezzlement, US authorities had his accounts in the Cayman Islands frozen, which were valued at some $9.2 billion.

“It’s still not clear even in the Gulf — that’s why there isn’t enough information,” Ghobril said. “This is creating a lot of uncertainty in the GCC, specifically in the banking sector.”

What is certain though is the impact the scandal has had on the regional banking system. Speaking on condition of anonymity due to the sensitivity of the subject, a senior banker with inside knowledge of the crisis said, “There isn’t a single bank that was not involved in lending to these guys, internally and internationally. In order for you to get a meeting with Maan al-Sanea, you basically have to lend him $60 to $100 million. If you want him to invest $1 million in something, he will ask you to lend him $9 million. And people did it, because he was making all of these banks a lot of money,” the banker said.

“The Algosaibi family was happy, because Sanea was paying them X-hundreds of millions in dividends every year,” the banker added. “They were happy with the way things were going, until whatever happened happened and now they are in trouble. There was a lot of smoke before the shit hit the fan.”

With the unfolding circumstances, transparency is taking a top spot on the region’s priority list. Due to the excessive lending based on reputation alone, accountability is under serious scrutiny. “Now,” said Ghobril, “there will be a decline in name-lending, leading to a systematic due diligence approach. These are two of the biggest groups in the Gulf, not only in Saudi Arabia. Now they’ve ended up with liquidity problems and in default. There will be more calls for transparency altogether.”

Credit rating agency Standard & Poor’s released a special survey at the end of July on the issue, highlighting the imperative need for transparency and accountability in GCC banking.
“Corporate transparency and public communication is, in general, limited,” the authors wrote. “Public communication following the discovery at the Saad and Algosaibi groups has been minimal, including from the regulators.”

The private ownership structure of the conglomerates makes it even more difficult to discover the truth.

“The family ownership of certain GCC banks and corporate groups creates, at least in theory, specific risks that may be difficult to assess, including succession risk, key man risk, related party exposure and contagion risk,” the survey said. “Overall, we believe that these family ownership structures are a negative credit factor. Corporate governance and transparency in the Gulf is, in general, relatively poor and needs to be enhanced.”

Bahrain
The trouble for Algosaibi group first materialized in Bahrain, where the company’s wholly owned bank, The International Bank Corporation (TIBC), defaulted on its loans. These loans amounted to $2.2 billion, according to EFG-Hermes. After TIBC’s defaults came to light, it was downgraded by numerous credit rating agencies, “before ratings were withdrawn altogether,” noted EFG-Hermes. At the beginning of June, it became clear that another Bahrain-based institution, Awal Bank — fully owned by Saad Group — had neglected creditors and was also in need of restructuring its obligations.

EFG-Hermes said that, “Both banks are likely to have faced erosion in the value of their assets, although Algosaibi Group has also hinted at financial irregularities at TIBC. While there is no formal relationship between the two groups, the shareholders are closely related.”
In July, Bahrain’s central bank took control of both Awal and TIBC. The central bank appointed law firms to administer operations for both financial institutions. Trowers and Hamlins will be in charge of TIBC while Charles Russell LLP will take care of Awal Bank.

In an attempt to soften the blow, on August 6, the governor of Bahrain’s central bank, Rasheed al-Maraj, insisted to Al Arabiya television that the exposure of TIBC and Awal Bank would not affect the country’s banking sector as a whole. “I want to make clear… that the damages from these two banks are very limited and there is no systemic risk to the banking sector in Bahrain,” he said.

However, EFG-Hermes reported that the “spill-over to the banking sector has been swift, setting off a wave of lenders seeking reassurance from the groups about their outstanding obligations.”

Saudi Arabia 
HSBC estimated that Saudi banks’ lending exposure to both Algosaibi and Saad Group could be anywhere between $4 billion and $7 billion. On August 26, Standard Chartered Bank said Saudi banks’ combined exposure to both groups amounts to some $5 billion. Victor Lohle, credit analyst at Standard Chartered, noted that no Saudi bank has ever failed, as the sovereign has always been there to save the day — especially since numerous government agencies have stakes in several Saudi banks.

But EFG-Hermes reported that, “None of the banks in Saudi Arabia have disclosed their exposure to the two business groups. Given that both groups were considered top quality credit in the country, we tend to believe that almost all the banks would have exposure to both or one of the two groups. However, given the lack of disclosure by the banks, it is difficult to determine which banks have the highest exposure. Emirates Business 24/7 reported that Samba Financial Group has syndicated exposure of $300 million (1.2 percent of total loans) to Saad Group. However, the bank has not verified this.”

Kuwait
Like Saudi Arabia, Kuwaiti banks and the central bank have yet to release any statements or disclosures regarding exposure to the Saudi groups. At the beginning of June, Kuwaiti press reported that the central bank requested that banks freeze all accounts of Algosaibi and Saad Group. Later on, however, Saad Group contested such reports. EFG-Hermes said that various Kuwaiti newspapers estimate that total local bank exposure to the groups ranges between $750 million and $1.14 billion.

United Arab Emirates
The UAE’s central bank governor, Sultan bin Nasser al-Suwaidi, suggested that UAE banks have rather “significant” exposure to both groups. Quoting unnamed sources, Emirates Business 24/7 reported that syndicated and bilateral exposures of UAE banks is around $3 billion. According to EFG-Hermes, “The principle exposures listed are [Abu Dhabi Commercial Bank] ($435 million), Mashreqbank ($210 million), [First Gulf Bank] ($55 million), [National Bank of Abu Dhabi] ($7 million).” The research hub is also concerned that Abu Dhabi Islamic Bank has yet to release the details of its exposure.

A Dubai-based financial analyst, who spoke on condition of anonymity due to confidentiality agreements, said that the UAE government told banks with exposure to Algosaibi or Saad Group that they “must provide up to 50 percent for Algosaibi and 75 percent for Saad Group exposure.”

In July and August, the UAE Central Bank arranged meetings with its domestic banks regarding the Algosaibi and Saad crisis. During both gatherings, banks were advised to freeze credit lines to the Saudi groups, and cover all exposure to the firms. A third meeting at the end of August drew more than 100 bankers, creditors, lawyers and accountants together in Dubai to discuss the latest developments. Unfortunately, the talks reached a stalemate.

A lawyer who attended the meeting told Reuters that the crisis “may take years to solve.”
Mashreqbank, the fourth largest bank in the UAE by current market capital, was the first to announce its exposure. In July, the bank filed a lawsuit in the New York Supreme Court against Algosaibi, claiming $225 million in defaulted loans. Algosaibi then filed a counter-claim against Mashreqbank accusing it of helping and abetting fraud executed by Saad Group. In response, Mashreqbank claims the allegations are “completely without merit.”

In an attempt to kick-start a formal solution process, Algosaibi held a meeting with lenders in the UAE at the end of August. Attended by bankers and creditors, Algosaibi reportedly proposed a unilateral scheme to resolve the crisis. The conglomerate said it would only honor debts that originated from “genuine borrowings” supported by “genuine” documentation and procedures, implying it would not take responsibility for the loans taken without the proper paperwork and solely based on the name-lending trend.

Algosaibi also notified the UAE bankers that other kinds of borrowing on its books with inauthentic signatures had occurred, and thus they claim they are not accountable for repayment. More precisely, the group said they are “not willing to settle” these debts. Bankers told Emirates Business 24/7 that a solution would be found only once an agreement is reached between Algosaibi and Saad. They also informed the news agency that Saudi authorities “are planning to set up a committee” that is specifically designed to resolve the issue.

The unnamed senior banker placed the blame on the chairman of Saad Group, Sanea, not Algosaibi. “In all fairness, the Algosaibi family did not do anything wrong. Their biggest mistake was giving a free hand to Maan al-Sanea to run their affairs [with Money Exchange]. He basically brought this whole thing down,” the banker said.

“Maan Al-Sanea and others know how to talk to the international market and these international banks and get them on their side. They understand the inclination and greed for profit of these European banks, and they use it — that’s how any intelligent businessman would do it,” the banker said.

Oman and Qatar
Oman and Qatar have been surprisingly transparent relative to their GCC brethren; only they have released detailed exposure to date.

Qatar Nation Bank and Qatar Islamic Bank both reported no material exposure to either Algosaibi or Saad Group. Commercial Bank of Qatar, however, has “declined to disclose any information, although this may change following [second quarter 2009] results,” said EFG-Hermes.

Oman has responded surprisingly quickly to the issue, with the central bank directing all Omani banks to report their exposures immediately. “Bank Muscat, which has the biggest exposure to the two groups among Omani banks, announced that it has direct exposure of $130 million and a $45 million [exposure] through its Bahrain-based subsidiary, Bank Muscat International. National Bank of Oman announced that it had inter-bank exposure of approximately $17 million to the Bahrain-based TIBC and Awal Bank.” EFG-Hermes also said that the rest of Omani banks reported no exposure to either group.

Speculation
The only clear thing about the Algosaibi and Saad Group mess is the uncertainty of it all. How both companies got into so much trouble together is not so black and white; they are related through family ties, but operationally Saad Group claims to have no ties to Algosaibi whatsoever. It seems the problems between the two companies may have started from an internal family dispute, but this is not confirmed.

Recently, Saad Group admitted it was going through a liquidity squeeze, while suggesting that rumors regarding the group were derived from “a private family issue,” which they said they were working towards solving. At this point it’s become an issue that is clearly not as simple as a little family spat.

Unfortunately, the road to recovery for investor sentiment in the Middle East has now taken a back seat. EFG-Hermes said that “investor sentiment for banks in the region is likely to remain weak owing to the lack of disclosures by banks relating to their exposures to the two business groups, as well as the lack of details on the possible restructuring of the loans.”

With so many banks not disclosing information of their exposure to the groups and regional governments downplaying and keeping quiet on the situation, every lead only results in a dead-end. Transparency has now become the linchpin of this problem, with bankers, analysts, lawyers and investors across the region calling for the implementation of transparency reforms.

Ghobril said the “lack of disclosure and communication about this is a major problem, because it affects investor confidence, investor sentiment, banks and their future lending.”

What’s worse is that the governments around the region are likely to remain hushed about their domestic banks’ exposures. EFG-Hermes said, “A further difficulty for estimating the impact on banks is that it is highly likely that the central banks will exercise significant discretion in determining any losses and reporting of those losses.”

The name lending practice and lack of transparency cannot remain, said the senior banker.
“It has to change,” he said. “The pain is not only being felt in the Saudi and Middle Eastern private sectors, but also the sovereign. The sovereigns have had to fork out billions of dollars in order for them to get their act together. From here onwards, the rules of the game will have to change, but it will take a lot of time.”

“It’s not going to work [on name lending] anymore. The Algosaibi family will get out of this, but they will get out owing the Saudi government a hell of a lot and being very scrutinized by the system and their peers,” the banker said.

Dissanayake said this problem will continue well into 2010, especially for banks around the region. “Our initial reaction was that the dispute would be resolved between the two parties. I think the market expected that as well. That was essentially the best-case scenario, but things have changed now. At the moment, we’re looking at a long, drawn out legal battle with more creditors likely to take legal action.”

The banking insider familiar with the Algosaibi and Saad Group turmoil believes that the “unwinding of this whole mess will take many, many, many years.”

 

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Banking

Bank of Beirut – Salim G. Sfeir (Q&A)

by Soraya Darghous
written by Soraya Darghous

Salim G. Sfeir has been chairman and general manager of Bank of Beirut since 1993. He spoke with Executive about Bank of Beirut’s plan to open 14 new branches — 13 in Lebanon and one in Germany.

E How will the new branches fit with your bank’s strategy?
This is a plan that we would like to accomplish within the next six months. Our objective is to get it finished as soon as possible. But I think we won’t be ready by the end of this year. We should be ready by March 2010. We are starting with seven new branches. While we’re working on the first seven branches, we’ll be working on the second round of branches. What’s difficult is not the construction of the branches themselves; what’s difficult is finding the location that fits our objective. We do not want to go into areas that are already very well served by our competition. We would like to be located in areas where we can assist those who have not yet attracted the banking system.

E In which areas will you open new branches?
Right now we’ve decided to open three branches in Beirut, three branches in the South, three branches in the Metn area and three others in the Keserwan area. Now our challenge is to find places where we could better serve the societies that are not being served by the actual banking system.

E Did you feel that there was a high demand, both inside and outside of Lebanon, for more branches?
There is a high social demand. Why should an individual travel tens of kilometers to reach the closest branch to his house? The objective is more socially oriented than anything else.

E What was the strategy of opening a new branch in Germany?
As you know, we are already present in London and it is our European hub. But we felt we need to compliment the London office by   having more [of] a presence in Europe. London will remain our hub, but London will be more efficient if it has some other locations in Europe. We started with Germany because as you know, Germany is the wealthiest European country.

E What kind of banking will the new branch in Germany focus on? What kind of clients will you be catering to?
In Europe, we are focusing mainly on trade finance. From Europe we are serving the needs of the Lebanese diaspora in the Middle East and in Africa. Usually their needs are very diversified geographically and in terms of products.

E What about the branches in Lebanon? What kind of banking services will they provide?
Our branches in Lebanon are currently focusing mainly on retail business. They are serving our corporate customers and we are focusing on serving, from the branches, our corporate customers. But in fact our market penetration and retail needs more branches than the corporates.

E How much does a new branch cost? How many people will be employed at each branch?
The cost depends on the market; the number of people within the branch depends on the market. It really depends on the population density, wherever the branch is located. For example, if you open a branch in Hamra, you need more people than if you open a branch in the mountains. The minimum that you need to open a small branch is four to five people. The maximum is the sky.

We would like the new branches to reflect the image and the objectives of the bank. As you know, our slogan at Bank of Beirut is “banking beyond borders.” By this we mean that we do our best to serve all the needs of our customers, and the borders are in fact the needs of our customers; it’s not a geographic border. The needs of our customers are so diversified that we try to equip ourselves in the best way possible to best serve the needs of these people who have entrusted Bank of Beirut.

E In your opinion, what are the top issues and concerns for Lebanese banks in 2009?
The political stability in the country. This is the top issue that concerns everybody in the financial sector. We need political stability to best serve the present needs of the country and to prepare the future for our children. I am not very versed in politics, but my concern is to see political stability in this country.
 
E Recently, the International Monetary Fund noted that the top priority for Lebanese banks should be dealing with the public debt. What is your take on this? Should it be a top priority?
I haven’t seen any Lebanese bankers who are concerned about the public debt. We are more concerned with the efficiency of the public sector. When we make the public sector more efficient, the debt issue will be solved.

E  At the start of the financial crisis, some analysts were worried that foreign remittances into commercial banks would be negatively affected, as many of the Lebanese diaspora were reportedly losing their jobs abroad. Now that we’re well into the second half of the year, to what extent is this true?
I have some concerns about the economists, because they are never realistic! They are always worried; the economists shouldn’t worry. They should be more optimistic than they are.

Lebanon has many resources, first and foremost is its  resourceful citizens both here and abroad. If you assess the wealth of our diaspora overseas per capita, I think we are [some] of the wealthiest people in this world, because the Lebanese are creative, ambitious and have the courage to achieve. The economists should look at the qualities of the Lebanese businessman and not worry about whether Lebanese in the diaspora are losing their jobs or not.

E What has your institution learned from the international financial crisis? How have you applied these lessons to your long-term operations?
We have learned that the financial sector has to always be very, very, very liquid. The problem that our neighboring countries had was  a lack of liquidity. They were overstretched. The banks were overstretched. But the Lebanese banking system has learned what to do, not from the crisis, but because we survived 15 years of civil war. Our wish is to continue to have the country not just survive but prosper, no matter what challenges are thrown its way.  I think we have shown we can do that given Lebanon’s peformance during the financial crisis.

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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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