Feature

The Arab boycott of Israel

by Executive Staff
written by Executive Staff

The Arab League boycott of Israel began in 1951 with the goal of supporting the Palestinians by prohibiting trade and economic relations with the Jewish state, and to penalize countries and companies that do business with Israel.

Although the boycott was enforced for several decades, it has unraveled in recent years due in part to the normalization of relations between Israel, Jordan and Egypt, and the establishment of trade offices in Morocco and Qatar (which were closed during the Gaza conflict of January 2009). The realities of globalization and international trade, and the inability of Arab countries to produce some products like microprocessors and military equipment, have also weakened the Arabs only economic weapon against Israel. As a result, Arab markets are penetrated daily by Israeli products and investments in a variety of legal and illegal ways.

“Obviously we are suffering from the leaking of Israeli products to the Arab world,” said Haisam Bawab, head of Lebanon’s Israeli boycott office at the Ministry of Economics and Trade. “We know it happens and this is why we are trying to increase the supervision [of] such [products].”

How much is unsure

The estimated amount of direct illegal trade in products between Israel and its Arab neighbors is uncertain and varies. Forbes magazine put the figure at $500 million in 1984, equal to $1.3 billion in today’s dollars. In 2004, the Manufacturers Association of Israel estimated Israeli exports to Arab nations and entities amounted to around $192 million. A year later, Infoprod, an Israeli research firm that specializes in regional trade, estimated that the figure amounted to $400 million, around two and a half times Israel’s trade with its official Arab trading partners that year.

Speaking to an American journalist in New York, Doron Peskin, head of research at Infoprod, estimated that total Arab-Israeli trade averaged $780 million per year in 2007 and 2008, including trade with Jordan and Egypt.

Ibrahim Saif, resident scholar and specialist on the political economy of the Middle East at the Carnegie Middle East Center said direct trade “is not that significant.” He estimates this kind of trade amounts to under $100 million a year.

No matter what the amount of illicit trade, not to mention investment from Israel to the Arab world, the fact is that this type of trade does exist and is funneled to the Arab world through a variety of methods. The main passageway for Israeli products to enter Arab markets is through front companies established in countries that have bilateral relations with both Arab nations and Israel, or through Jordan and Egypt which have signed peace deals with Israel. Israeli products are shipped to third parties in these countries, who then remove any markings which would identify the products as being made in Israel and forward the products onto Arab markets.

According to Bawab, the head of the Israeli boycott office, companies set up in Jordan, Egypt, Cyprus and even China are the main culprits of this sort of practice.

“Many Israeli companies have offices abroad and use them for trade with the Arab world,” said Peskin. “I remember, from earlier this year, the big news in Yemen [was] that its Liquid Natural Gas company [Yemen LNG] used software developed by an Israeli firm based in Tel Aviv. This company used its Hong Kong office for trade with Yemen and other Gulf countries.”

Many experts have also identified Turkey as another routing point for Israeli products entering Arab markets.

In order to curb this type of activity, Arab countries rely on “certificate of origin” documents presented to customs officials at trading ports. But, like any official document, these can be fabricated. The fact that international product sourcing regulations vary from country to country makes it difficult to identify component parts of finished products.

“In agricultural produce, for instance, Israel exports to Jordan and there the documents are changed and the products transported to the Gulf markets as Jordanian produce,” said Peskin. “What is the effect of the Arab boycott in this case?”

Last year, the Arabic language newspaper Al Quds Al Arabi reported that it had discovered Israeli investors using Palestinian agents in the occupied West Bank to repackage Israeli potatoes with false certificates of origin in order to sell them as Palestinian produce to Qatar via Jordan. The paper also claimed that a Palestinian investor, who the paper did not name but identified as a minister in a previous government, was offered 25 percent of the profits to re-export Israeli products as Palestinian to the Arab world.

Even with the increased costs of using third parties, the allure of penetrating Arab markets seems natural given the types of products Israel excels at manufacturing.

“From irrigation to security systems, Israel is very well suited to working in the Arab world,” said Hady Amr, director of the Brookings Doha Center, a regional think tank that specializes in socio-economic and geopolitical issues in the Middle East.

Due to the fact that the boycott has substantially weakened over the years, the need for Israel to covertly trade with its Arab neighbors, however, becomes less salient because in many instances Israel can already sell their products in Arab markets.

The levels of boycott

The original text of the Arab League boycott stipulates that member states adhere to a primary boycott (products that originate in Israel), secondary boycott (businesses that operate and manufacture in Israel) and tertiary boycott (a boycott of businesses that have relationships with other businesses trading in Israel). The tertiary boycott has been abandoned — that’s why Pepsi, Coke, Starbucks and other international brands can operate in both Israel and the Arab world — and today only Lebanon and Syria uphold some of the principles of the secondary boycott.

“If you want to impose all the principles of the boycott you wouldn’t have one American or European company in Lebanon or in the Arab countries,” said the Lebanon Boycott Office’s Bawab. “We adhere to the spirit and the principles of the boycott.”

When the secondary boycott is applied, there are still “strategic companies” that each country has the right to exempt if they are seen as necessary to their economies. A premier example is Intel, the global microprocessor manufacturer, who has maintained design and manufacturing plants in Israel since 1974. “All the most important Intel products have a bit of Israel inside,” said Ron Friedman, vice-president and general manager of Intel’s mobile microprocessors group at a press conference in Israel last February.

Intel currently employs more than 5,000 Israelis, and exports from Israel by the company peaked at $2 billion in 2000. Last year the company exported $1.39 billion, down 10 percent from the previous year as a result of the global downturn.

“What we do is we try to convince companies to close their factories in Israel and come to us in the Arab world and we support it,” said Bawab. “But this needs oversight and frankly there is no oversight… from the government[s].”

Many Israeli companies also sell their wares through distributors in the Middle East and simply re-route their products through another office setup in a third country. Orad, an Israeli-based company that manufactures newsroom and broadcasting products, blatantly lists its distributor in Abu Dhabi, Tek Signals, on the company’s website. When Executive called to enquire about the companies products, a Tek Signal’s company representative said: “Orad’s head office is in Israel but another main office is in the United Kingdom.” The representative confirmed that even though the products might be manufactured in Israel “all the shipments come from the UK.” As a result, they said, there wouldn’t be any problem with boycott issues.

Lebanon boycott office head Bawab lamented that there are many instances like this across the region. “There are things we can discover, and when we do we stop them,” Bawab said. “There are some things we cannot discover.”

“The products of Israel’s advanced hi-tech industry are targeting the gulf markets”

In February, the US publication Defense News reported that Abu Dhabi is in talks with a company called ImageSat International, incorporated firm in the Dutch Antilles, to use the company’s EROS B satellite and its high-resolution imagery. According to the article, the emirate already receives images from the satellite’s precursor, EROS A, and both satellites were built by Israel Aerospace Industries (IAI), Israel’s largest defense firm with a controlling interest in Tel Aviv-based ImageSat.

“Of course, the products of Israel’s advanced hi-tech industry are targeting the Gulf markets,” said Peskin.

Regional mail forwarding services have also come under fire for facilitating the shipment of products through third countries. A 2006 article in the right-wing Israeli newspaper The Jerusalem Post claimed that Aramex, a regional delivery service, was facilitating this type of trade through their mail forwarding service.

 An Aramex customer service representative said that there was “logically no handicap” to mail being forwarded from a third country but said she had never come across Israeli products being shipped in this manner. Asma Zein, Aramex’s country director in Lebanon, later contacted Executive to clarify that the service did not allow for products to be shipped from third countries, citing that it is against US law to change the labeling on packages. “We don’t have time… to change any labels in New York. We don’t even check what is written on the box,” said Zein. “As Aramex we [don’t] serve Israel and [Aramex] doesn’t get [products] from Israel, definitely not.” She added that Aramex intends to get the Israeli publication to retract its statement regarding the company’s shipping practices.

Saudi arabia, which joined the World Trade Organization in 2006, said it “would treat all member states equally”

The lists

In order to track companies that are subject to the boycott, the Arab League runs a list that identifies companies as being Israeli, manufacturing in Israel or having “Zionist funds.” One popular way around this is to list an Israeli company on an international stock exchange or to take control of public companies operating in the Arab world.

“If you are talking about public companies then you don’t know who the owners are. You cannot know,” said Bawab.

“We consider that if a company has 51 percent Israeli ownership of shares or Zionist funds, it is blacklisted”

Trade agreement trouble

One of the biggest blows to the effectiveness of the boycott is the decision by many countries in the region to sign onto international trade agreements. Countries that join the World Trade Organization, for instance, are required to drop barriers to trade, as are those that sign free trade agreements with the US. Saudi Arabia, which joined the World Trade Organization in 2006, said it “would treat all member states equally.”

Even though Israel is a full member of the WTO, Saif explained that the Saudis “don’t have to implement [dropping the boycott] because they don’t have a peace treaty [with Israel].”

Asked whether Saudi Arabia still adheres to the boycott Bawab said they do not. Do they still show up to the meetings? “This question I am asking and I am not finding an answer to. It is something political and I don’t have anything to do with it.”

Saudi Arabia has also spearheaded the Arab Peace Plan in 2002 which offers to lift the Arab League boycott of Israel.

Upon signing a free trade agreement with the US, Bahrain also completely dropped the boycott and no longer attends the bi-annual meetings. Tunis and Qatar even allowed Israeli commercial interest offices to open in their countries, only to close them during second the intifada and the Gaza conflict, respectively.

Defense News reported the Israelis operated an “informal and extremely discreet interest office in Abu Dhabi for several years,” but the publication also reported the two countries “chances of developing more open relations are slim to nil.”

The Palestinian Authority ended the boyott after signing the Oslo accords. Mohamad Bbousalaa, director general of the  Central Boycott Office in Damascus, said that only “14 to 15 states” of the 22 member Arab League have attended the bi-annual meetings “for the past 4 years.”

“We consider that if a company has 51 percent Israeli ownership of shares or Zionist funds, it is blacklisted”

Who cares enough to adhere?

When it comes to figuring out how much each country adheres to the boycott, one of the only ways to ascertain the seriousness of boycott adherence is to look at the correspondence between respective countries’ boycott offices. According to Bawab, each country is supposed to identify potential Israeli companies that apply for trade certificates or patents, as well as boats or planes (which have specific rules that apply to them) that land in the respective country’s ports. Each Arab nation will then cross-check the blacklist with the CBO to see if the company, boat or plane is present on the list and relay that information to all other boycott offices.

“I am not seeing anything [correspondence] from Libya, Morocco, Tunis, Algeria, Iraq [or] the Gulf. I get a few from Syria,” said Bawab.

However, Bbousalaa, disagrees. He said that boycott offices are only required to correspond with the central office, and only if it is a “big issue” does the central office forward the correspondence to other offices. Bbousalaa declined requests to provide a copy of any recent correspondences.

The adherence to the boycott is not binding for the members of the Arab League and enforcement is the onus of each member state.

The effectiveness of the boycott also received a battering from the policies of Israel’s, as well as many Arab states’, allies that do not allow their companies to adhere to it. In 1977, the US Congress and President Jimmy Carter, who today calls Israel an apartheid state, made it illegal for US companies to comply with the Arab League boycott of Israel. US companies are obliged to report any requests by Arab nations to adhere to the boycott of Israel to the US Department of Commerce’s Office of Anti-boycott Compliance. The penalties for a failure to do so range from a fine of up to $50,000 per violation or five times the value of the exports in question (whichever is greater), to imprisonment of up to five years, or both.

“The law, which is exceptionally complicated, is the product of strong US-Israeli relations,” said Farhad Alavi, a senior counsel at the Washington-based law offices of RA Kerr and specialist in international trade law. “The US does not want its residents, as well as US citizens outside the US, and companies… to be used as tools to further the anti-Israeli policies of certain countries.”

What ultimately attracts Israeli companies to Arab markets does not seems to be actual trade in products with Arab nations but the investment potential of the Arab states, even despite the effects of the global downturn. “They [Israel] want to invest and they want to have presence,” said Carnegie’s Saif.

But if an Israeli company is not too ambitious, they can invest in Arab markets as long as they do not acquire a majority share. “We consider that if a company has 51 percent Israeli ownership of shares or Zionist funds, it is blacklisted,” said Bawab. He agreed that anything below was not covered by the boycott.

“The Arab Boycott’s practical outcome today is negligible,” claimed Peskin. “It is mainly effective in countries like Syria, Libya and Lebanon, while I think most of the Israeli exporters are targeting the markets of the oil-rich Gulf states.”

But even in countries where the boycott is applied, like Syria, measures have been adopted that remove some of the trade barriers that had been erected since the early 1950s. For instance in June, Syria scrapped the requirement for first-time patent applicants to submit a declaration of compliance with the boycott of Israel.

Boycott requests received by US companies in fiscal year 2007

Source: US Department of Commerce

Instrument of peace

Now that there is a new push for peace in the region, the boycott is again being highlighted by none other than the proponents of this new peace initiative, as an instrument rather than a weapon.

“What I’d like to see is indicators that they [Arab nations] are willing, if Israel makes tough commitments, to also make some hard choices that will allow for an opening of commerce [and] diplomatic exchanges between Israel and its neighbors,” said US President Barack Obama earlier this year. Last month, more than two-thirds of the US Senate signed a letter, endorsed by the American-Israeli Public Affairs Committee, the most powerful pro-Israeli lobbying group in the US, supporting “efforts to encourage Arab states to normalize relations with Israel.

Obama’s administration has also suggested that Arab states allow El Al, Israeli’s national carrier, to use Arab airspace.  Saudi Arabia, one of the US’s strongest allies in the region, has opposed such a plan until the Arab Peace Plan is adopted by Israel.

The concept of dismantling the boycott has also been proposed by Israel’s right-wing Prime Minister Benjamin Netanyahu. He supports the notion of an “economic peace” as a forbearer to political peace despite the fact that he has been reluctant to make “tough commitments,” like freezing settlements or accepting the concept of the Palestinian right of return.

It’s little wonder why Netanyahu, the former chief marketing officer of the Boston Consulting Group, wants to embrace “economic peace.” According to research conducted by the Strategic Foresight Group, a global research and policy advisory group, Israel would have almost doubled its per capita income ($23,000 to $44,000) from 1991 to 2010 and would not have lost $15 billion in tourism revenue from 2000 to 2006 if there had been a resolution to the conflict.

The onus is on Israel

For now the boycott stays in place, despite its numerous holes, and looks set to remain until there is a resolution to the Arab Israeli conflict, and more specifically, a just solution offered to the Palestinians both inside Palstine and in the region.

“If there is progress on the peace process, this is something that definitely will be dropped,” said Carnegie’s Saif. “It has not taken a front seat but if there is progress [on the peace process], you will see that this point will become very significant.”

For there to be any official changes made regarding the boycott, however, there will most likely need to be movement on the Israeli policy front, as opposed to an Arab decision.

“The easy thing for the Arab world to do will be to stay on the course that it has been on, which is to continue to relax the Arab boycott in practice while supporting it in name as long as certain countries can,” said Amr. “The question really is going to be whether Israel is willing to make the compromises it needs to make.”

0 comments
0 FacebookTwitterPinterestEmail
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.

0 comments
0 FacebookTwitterPinterestEmail
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.

0 comments
0 FacebookTwitterPinterestEmail
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.

0 comments
0 FacebookTwitterPinterestEmail
Executive Insights

Those who lead and those who follow

by Rany Kassab & Ramsay G. Najjar
written by Rany Kassab & Ramsay G. Najjar

During these times of unending political squabbles, we often hear people sitting in cafes basking in Beirut’s sun arguing and vigorously calling for the emergence of a new leadership that can help replace some of the “old guard” and resurrect the country from its quasi-lethargic political quagmire.

Elsewhere in the Arab region, the “identity confusion” that has characterized certain societies, in terms of a lack of unified values and divergent aspirations, has also triggered a quest for a leadership capable of fulfilling people’s expectations.

Meanwhile, on the other side of the world, on Manhattan island, and in the midst of one of the worst financial crises seen since 1929, what used to be the “golden boys” of finance and young executives are desperately hoping for a new corporate leadership that can help shield their gloried financial institutions from bankruptcy, and bring back the good old days of mouth-watering bonuses and lavish lifestyles.

In all cases, however, certain questions come to mind: What exactly makes a leader? Is political leadership, in essence, any different from leadership in the corporate world?And possibly the more fundamental and age-old question remains, is leadership an innate or a nurtured quality?

What’s certain is that while leadership is most often associated with political figureheads and CEOs, it nonetheless is evident all around us, whether in the way a team captain leads his team to victory, a school teacher pushes her pupils to explore their full potential, or a general leads his men into battle. Leadership is also certainly not restricted to humans, as it also extends to the animal kingdom where “alfa” males try to impose their authority and dominance over the pack.

Leadership, thus, is that ability to influence others, to rally and galvanize people around an agenda. It is the capacity to communicate a certain vision in a way that allows it to get across to its intended recipients and very often change perceptions and entrench principles and convictions. Whether these convictions are considered “good” or “bad” is a matter of personal opinion.

In fact, while we might find Hitler, Mussolini, Genghis Khan, Pol Pot, or even Rupert Murdoch’s views and actions appalling, no one can argue their ability to influence people into believing them and in them, which is a quintessential leadership trait.

All such leaders have in common certain sets of skills and attributes that reinforce the perception of leadership that others have of them, most notably charisma, linguistic skills, physical aura, confidence and determination.

While some of these characteristics are arguably innate, most are acquired and developed through the years, and communication plays a central role in this. The way a person communicates, both verbally and physically, can go a long way in establishing his leadership, granted that the physical “package” is coupled with a core “product,” or message that matches, if not surpasses it.

Eye contact, facial expressions, hand gestures, tone of voice, posture and clothing are all bits and pieces of a larger puzzle that when rightfully pieced together can help accentuate and showcase a person’s leadership.

This is especially true when considering that 70 to 90 percent of communication is non-verbal, relayed through body language. Both consciously and sub-consciously, your body tells observers what is really going on with you. As the old adage goes, you can lie with your words but never with your eyes.

Likewise, although subtle, even the smallest of hand gestures can, according to some schools of thought, be associated with a specific image in people’s minds, be it positive or negative.
On the other hand, a person’s posture, stride and gestures, can either convey the image of a strong, forceful and dynamic person, or that of an unassertive and nervous individual who is lacking self confidence and assurance.

But while physical demeanor is key to nurturing one’s leadership skills, it is only one side of the equation, with the second being the content of the person’s message and his ability to engage his audience and to deliver his message in an impressive and resonating manner.

Having the right ideas is a main ingredient for leadership, but being able to convey them through the media to stakeholders in a catchy and simple way that makes them understood by the masses is equally as important, particularly at a time of increased media awareness.

Media skills, both in terms of physical language and message delivery, can nowadays make or break a leader. Case in point, Democratic hopeful Howard Dean killed his chances early in the United State’s 2004 Democratic primaries due to an emotional holler (the “Dean Scream”) during one rally that gave bloggers and late night show hosts in the US ample material for comedy that ruined his “presidential” allure.

Less than a month ago, Hilary Clinton’s inability to control her emotions at a public meeting in the Congo became an online sensation that some political pundits argued undermined her aura and revealed her Achilles heel.

It is because of such examples that established and aspiring leaders alike, both those in the political arena and in the corporate world, have recognized the importance of media training, which has become a skill sought by many across the world. Media training can provide the dos and don’ts of communication that are pivotal to would-be or seasoned leaders, as they can help to enhance the power of their rhetoric while increasing their ability to influence and impact others.

In the Middle East, many corporate heads and politicians are also starting to realize the pivotal role of communication in cementing their leadership. But much is still needed in terms of mastering such skills in a way that does not dilute their image or over-expose them. Their goal should be to ultimately reach the level of “media maturity” that allows their discourse to move from simple propaganda to a truly content-rich and engaging discourse.

In the end, a person’s aptitude to properly communicate and express himself, effectively reaching his audiences and speaking a language that strikes a chord with them, both through his physical demeanor and messages, can determine whether he truly is a leader.

Rudyard Kipling surely said it best when he said:
“If you can talk with crowds and keep your virtue,
Or walk with Kings — nor lose the common touch;
If neither foes nor loving friends can hurt you,
If all men count with you, but none too much…
Yours is the Earth and everything that’s in it,
And — which is more — you’ll be a Man [and almost certainly a leader] my son!”

Rany Kassab & Ramsay G. Najjar S2C

0 comments
0 FacebookTwitterPinterestEmail
Executive Insights

Front-office self-assessment is good for the firm

by Tommy Weir
written by Tommy Weir

Look in the mirror and take a long look to see how well you are doing as a leader. This can be very scary, as a mirror reveals reality and all of the blemishes that we try so hard to hide. It has probably been a long time since you took a real look at the quality of your leadership and you will be anxious from the results.

Guess what? You are probably not doing as effective a job as you may have thought, at least according to your followers. For this past year the average difference, globally, between how effective managers say they are and how effective the non-managers say the managers are is a startling 12 percent, according to the Kenexa Research Institute’s Employee Confidence Index. This is a significant gap that organizations must address.

It is no surprise that leaders think they are better than non-managers say they are, as they seldom take the time to look in the mirror. Isn’t it strange that in organizational life, leaders try to cover-up, hide and masquerade their leadership quality when every employee sees the real story and knows the truth?

In this region, the typical manager’s reaction is to argue about the results, blame others and make excuses for the difference. Because of pride and prestige, they find this research a very hard truth to swallow. Immediately upon learning that they are not as effective as they think they are, managers start making excuses and blaming everyone possible. Here is a list of common reactions:

They blame the organization, saying it did not give them the support needed.
They blame the human resourses deparment, saying they hired these people who are questioning the effectiveness of their leadership.
They blame the global recession.
They blame the employees saying they do not know what quality leadership is.
And, they conclude that the employees are just wrong.
They blame everyone, except for the real source of the leadership deficit, which is themselves. Instead of blaming and making excuses for their lack of effectiveness, the managers need to take responsibility, recognizing that they are not performing as well as they think. Then, and only then, will they be in a position to do something about it and to get better.

Business, political parties and governments are at great risk if they do not pay attention to what the research says. It may be revealing that the level of employee engagement is off, employees are loyal to themselves and not the organization, and the organization is not receiving top performance from the non-managers. The employees are stating a painful reality that organizations need to address in order to mitigate the risk associated.

So what should an organization do to improve reality to the level of perceived leadership effectiveness?

First, an organization needs to discover the truth through a global standard leadership effectiveness survey.

Then, leaders need to see and accept the reality of what the non-managers say about the effectiveness of their leading. No more blaming, hiding or masquerading. They need to accept the results and be accountable for them. 

Finally, organizations need to invest in developing the effectiveness of their leaders. This should happen through organizational systems, processes and approaches that provide accountability and through leadership development.

In this region, only 50 percent of organizations invest in developing their leaders. And for the majority of the ones who do invest, the development is limited to aspiring leaders — not the ones who already occupy the managerial posts. The result is less than optimum effectiveness in leadership, as most managers do not continue to improve their capability once they attain the aspired managerial position. 

If an organization wants to mitigate its risk exposure, it must get serious about its leadership reality/effectiveness and do something about it.

This 12-point difference reminds me of the monkey who climbs all the way to the top of the tree. Once he reaches the top he looks back and sees a crowd of people staring up at him. As he looks at this crowd he sees them pointing and smiling. Success! Right? But what is it that the people are seeing when they look up from the ground to the monkey in the tree? They are laughing as the monkey is exposing his backside.

Are you at the top of the tree? What do you see? What do the non-managers see of you?

Tommy Weir is managing director of leadership solutions at Kenexa

0 comments
0 FacebookTwitterPinterestEmail
Finance

Food security – Harvesting another’s crop

by Mona Alami
written by Mona Alami

Last year’s soaring food prices caused a global crisis that triggered a shopping spree on farm land around the world. Rich countries that normally import food have now bought up large tracts of land in poor food-exporting countries.

Arab countries have gotten in on the act, as a result of losing confidence in normal food supply chains. To ensure their food security, many have bought millions of hectares of farmland in Africa and Asia, creating offshore food sources in countries like Indonesia and Ethiopia.

“It seems that it has become an important concern for countries in the Arab region which want to meet the growing demands of their populations,” says Devlin Kuyek, a researcher at GRAIN, an international non-profit organization that supports small farmers.

Last year, Egypt signed a contract with Sudanese President Omar al-Bashir to produce 2 million tons of wheat per year in the north of Sudan for export to Egypt, according to GRAIN, which includes Egypt in a report on “land grabbing” countries. Egypt has also leased 840,000 hectares from the Ugandan government, which represents about 2.2 percent of Uganda’s total area.

Countries such as Saudi Arabia, Bahrain, Kuwait, Libya, Jordan, Qatar and the United Arab Emirates have also been featured in GRAIN’s land grabbers report. In September 2008, the governments of Qatar and Vietnam announced plans for a $1 billion joint investment fund, of which some $900 million was invested by Qatar’s sovereign wealth fund, the Qatar Investment Authority.

“In August 2008, Ethiopia’s prime minister told the Financial Times that he was eager to give Saudi investors access to ‘hundreds of thousands’ of hectares of farmland for investment and development,” notes GRAIN’s report.

“It is however very difficult to estimate the total value of land grabbed today as most deals remain in the negotiations phase and are, for the most [part], very obscure,” says Kuyek.

But the United Nations’ Olivier de Schutter, the UN’s special rapporteur on the right to food, quotes an estimate from International Food Policy Research Institute (IFPRI) that between 15 and 20 million hectares of farmland in developing countries have been subject to transactions or negotiations involving foreign investors since 2006.

Not always a fair deal
“States would be acting in violation of the human right to food if, by leasing or selling land to investors, whether domestic or foreign, they deprived the local population from access to productive resources indispensable to their livelihoods,” he said. “They would also be violating the right to food if they negotiated agreements that might lead to a situation of food insecurity, a dependency on foreign aid or on increasingly volatile international markets.”

The land purchased by countries is usually fertile farm land with relatively easy access to water.

Some say the purchases can have adverse repercussions on indigenous people and pastoral populations who are evicted from the land they have used for generations for cultivation and irrigation.

“Land grabs are becoming institutionalized as clear strategies that are developed by governments, which also rely on the private sector and international organizations,” insists Kuyek.

For example, the Saudi Eastern Province Chamber of Commerce has sent a circular to all businessmen in the eastern region, directing them to invest in agriculture projects overseas, following a government directive that the private business sector should undertake agricultural production ventures abroad, according to the Saudi Gazette.

“The objective is to achieve long-term food security for Saudi Arabia and secure a continuous supply of food to the kingdom at low and fair prices,” Adnan al-Naeim, secretary general of the Asharqia Chamber in the Eastern Province, told the Gazette.

The buyers
Governments, often through sovereign wealth funds, are negotiating acquisition or lease of farming land.

“The Bin Laden Group signed an agreement to invest about $4.3 billion, on behalf of a consortium of 15 Saudi investors [know as] the Middle East Foodstuff Consortium, to develop 500,000 hectares of rice land in Indonesia,” the GRAIN report said.

In August 2008, three Gulf firms — Abu Dhabi Investment House (ADIH), Ithmaar Bank and Gulf Finance House — announced the creation of AgriCapital, a new $1 billion Islamic investment fund which purchases land overseas to produce food for the region, as well as fund biotechnology research.

The report also quoted Abraaj Capital, a private equity firm, saying it had acquired, together with the UAE government, about 324,000 hectares of farmland in Pakistan for rice and wheat production.

“Gulf countries are also operating through the Islamic Development Bank,” adds Kuyek.
A spokesperson at Abraaj, speaking on condition of anonymity, told Executive, “This is the first time I have heard of such a thing.” ADIH and the Binladen group did not reply to requests for comment.

Beyond food security concerns, it appears that land purchases are increasingly being perceived as a powerful investment tool for global firms. A flurry of investment companies and private funds have been acquiring farmland around the globe, banking on increasing food prices in the future and cheap fertile land. Among the companies named by the GRAIN report are Goldman Sachs, Deutsche Bank, Black Rock and the International Finance Corporation.

“In August 2008, Goldman Sachs invested $300 million to acquire full control over more than 10 poultry farms in Hunan and Fujian provinces in China,” says the report.

In spite of the power and influence these countries and international companies exert, more and more opposition groups are fighting the deals.

“In the Philippines and Madagascar, opposition groups are challenging such deals and taking them to the government,” says Kuyek.

But many countries around the world remain unaware of the possible dangers lurking in the near future. According to the Saudi Gazette, Saudi Arabia launched a major food security initiative, in cooperation with the International Fund for Agricultural Development, identifying Mauritania, Yemen, Algeria, Senegal, Sudan, Morocco, Bosnia and Lebanon as countries where land may be purchased to guarantee food security. 

0 comments
0 FacebookTwitterPinterestEmail
Finance

IPO Watch – A Saudi solo

by Executive Staff
written by Executive Staff

Optimism about a year-end pickup in initial public offerings (IPOs) cannot conceal that August was yet another bone-dry month, which continued the plunge of all IPO measures in the MENA region in 2009.

Only one company, the Saudi medical services firm Al Mouwasat, undertook a subscription in the Gulf Cooperation Council last month. Al Mouwasat offered 7.5 million shares in a bid to raise $88 million; it did not announce any over-subscription after its IPO closed on August 21.

Another company undertook an IPO on the floundering Damascus Securities Exchange (DSE): Qatar National Bank-Syria. The company said its offering of 3.4 million shares for $37 million met with substantial demand, resulting in an over-subscription of almost 2.5 times. The IPO closed on August 10.

While the lowdown in regional IPO activity in August has been attributed to a mixture of uninspiring first-half results, the summer vacation season and the beginning of Ramadan, it keeps local and global investment professionals waiting another month in limbo for the potential of Arab IPO markets to regain speed.

Slim pickings
So far this year only 12 companies have approached public markets, compared to 50 during the same period in 2008. The total amount of capital raised so far this year has dropped 85 percent from $13.12 billion to $1.98 billion, half of which came from the IPO of Qatar’s Vodafone.

Average oversubscription levels have come down considerably from 15.71x in the first 8 months of 2008 to 3.69x over the same period in 2009.

Although the drop in oversubscription levels may be reflective of the prevailing risk-averseness among investors, some see it as a positive development.

“We stand at a much healthier level of oversubscription because investors are being allotted a larger number of shares, so they do not lose interest anymore,” an associate vice president at a major Saudi investment bank told Regional Press Network on condition of anonymity because he was not authorized to speak with the media.

The executive attributed the slowdown in the number of IPOs in the kingdom to regulatory and administrative red tape, adding that “the IPO market in Saudi Arabia is not suffering, and the Capital Market Authority is in fact studying many applications.”

Indeed, after being propelled to the global leadership list of public offerings in 2008, Saudi Arabia again flexed its muscles in 2009 with the number of issues reaching eight and raising almost $1 billion.

Companies were able to raise 10 times more in 13 offerings during the same period in 2008, but the lower 2009 number of Saudi IPOs contrasts positively with that of neighboring United Arab Emirates, where IPO activity has stalled. Activity in the UAE fell by eight IPOs and $1.3 billion raised over the same period last year.

Amman’s IPO activity also came to a halt in 2009 through August, after 13 offerings and a total offering size of $125 million during the same period in 2008. Similarly, no IPOs have been registered in Cairo, Casablanca, or Muscat so far in 2009, after strong showings in 2008.
“Why are the Saudis so dominant?” asked Jeff Singer, CEO of NASDAQ Dubai in a recent Ernst & Young report. “You have a lot of companies that really never went public… The stock exchange in the last few years has become a truly viable market. We’re seeing what looks like a pent-up demand for companies going public.”

Saudi IPOs have indeed become the torch bearers of the move to public ownership in the region. Most recently, shareholders of SABB Takaful, one of the Saudi’s largest insurance companies, voted to increase the company’s capital by issuing shares.

The pipeline for the kingdom also holds further promises. Three insurers — Buruj for Cooperative Insurance, Al Alamiya for Commerce and Services and Gulf General Cooperative Insurance Company are scheduled to open their IPOs in early October. These insurance companies have also received CMA approval to sell shares.

The success of IPO offerings in the kingdom is in fact surpassing the initial offering stage to reach the secondary market. Ace Arabia and AXA Cooperative Insurance, whose IPOs were 11.35x and 5.71x oversubscribed, marked their Saudi stock market debut with whopping 662 percent and 267 percent spikes on their first day of trading.

Similarly, Saudi Steel Pipe Company and National Petrochemical Company which were 3.44x and 2.11x oversubscribed, respectively, and ran up 34 percent and 30.5 percent respectively on their first day of trading in August.

NASDAQ Dubai’s Singer, in his interview with Ernst & Young, also expressed optimism that the successful Saudi trend will continue.
“We’ll continue to see more companies out of Saudi Arabia than anywhere else in the Gulf. And I don’t think it’s anywhere near the demand that would exist if the market conditions were better than are right now,” he added.

Despite the concentration of IPOs in the kingdom, Bahrain, Tunisia and Syria’s markets still saw a bit of IPO activity.

Outside the Saudi game
Bahrain’s Gulf Finance House said in August it had received central bank authorization for a capital increase and, pending shareholder approval, plans a $300 million rights issue to bolster its balance sheet and fund possible investments. In addition, Manama-based Takaful International Co, an Islamic insurer, announced a 20 percent rights issue for September that will increase its capital by $2.6 million to expand its business and underwriting capacity.

In Tunisia, cement company Les Ciments de Bizerte announced plans to raise $76.3 million to finance the expansion of the plant and increase the clinker production capacity.
In the Levant, Syria is expected to see several public offerings throughout the rest of 2009, as the DSE works to increase the number of its publicly-listed companies.

Besides Qatar National Bank-Syria, which closed its IPO with a 2.5x oversubscription, Audi Bank Syria and Banque Bemo Saudi Fransi successfully increased their capital through share issuances.
The list for the next several months includes additional financial firms, of which Albaraka Bank Syria’s IPO has been scheduled for the first week of October.

Lebanon’s only action came from privately-owned chocolatier, Patchi, which said that the group is preparing for a bourse listing on the London and Dubai stock exchanges to finance international expansion.
The region’s most disappointing market remains the UAE, where no equity capital has been raised so far in 2009. A thin ray of hope came from the deputy CEO of the Securities and Commodities Authority (SCA) Mariam Butti al-Suwaidi, who said that “markets are expected to witness one IPO from a local company,” adding that “the number of applications that the SCA received since the beginning of the current year is three.”

Nevertheless, the bittersweet reality is that the practical standstill of IPO markets in several MENA countries is a situation shared by many abroad, as a result of violent equity market fluctuations and fears of being publicly snubbed by investors.

Commenting on the global drop in share issues, Edward Law, co-head of Western Europe Equity Capital Markets at Deutsche Bank, said that “companies recognize that now is not an easy time to IPO. At the moment, they are looking for broader guidance on the direction of the economy — on when we are going to see some stability in the macro environment and also in underlying equity markets.”

NASDAQ Dubai’s Singer added that “valuations across all asset classes have declined significantly in the last 12 to 18 months, and the ability to achieve an attractive valuation is an important driver to encourage owners of potential IPO candidates to sell these assets through the public markets.”

Singer predicted that “the fourth quarter of 2009 is most likely the realistic time here for when the Middle East IPO markets will open up.”

Regional Press Network

 

0 comments
0 FacebookTwitterPinterestEmail
Real estate

UAE – Investors vs. developers

by Nada Nohra
written by Nada Nohra

Property disputes between real estate developers and investors in the United Arab Emirates have increased since the financial crisis crippled the country’s property market. Dubai’s property court has already recorded 833 dispute cases in the first six months of this year.

Analysts told Executive they believe numerous cases have not reached the courts yet, and with the continuing recession, the number is likely to increase in the coming months.

Little or no confidence 
The rise in the number of disputes stems mainly from Dubai’s property values decreasing and the sudden lack of credit and investors, which caused many projects to be put on hold or canceled. As a result, investors’ confidence in the market plunged and they started questioning if the projects would actually be delivered.

Jim Delkousis, partner and the head of mitigation and arbitration at the law firm DLA Piper, said these disputes are a catch 22: Investors claim that developments are not being built quickly enough and thus withhold further payments. On the other hand, developers say they will have to stop building due to investors’ payment defaults.

Nick Clayson, real estate partner at the international legal practice firm Norton Rose agrees, adding that there may be other parties involved who could slow the progress of construction and make the issue even more complicated.

“Some of the reasons why the properties are not being finished are because of disputes between building contractors and developers,” he said.
Investor confidence is also lower when dealing with developers who are delivering their first project, as they have no track record and are more likely to fail.

“Now that times are more difficult, a number of purchasers and investors are asking themselves if the developers are capable of completing their developments as they have little or no history to back them,” said Delkousis. Still, to know who to blame, each case has to be considered separately.

Investor groups
As investors started to worry about the completion of projects, they formed investor groups, putting themselves in a stronger position against developers. Clayson said that even though they can take no legal action as a group, they can discuss the issue and agree on taking the same steps.

One example is the 100 investors who own more than 200 apartments in the Abu Dhabi Tameer Towers that formed an investor group because they were concerned about the progress of the $1.64 billion project.

“Three CEOs in 15 months, cancelation of contracts, sacking of over half of its staff and no progress on site initiated our concern,” said one of the Tameer investors who didn’t want to be named because of the legal proceedings. 

Since the group was formed, the 100 individuals stopped making payments, explains the investor. He adds that they do not wish to discredit Tameer in any way, but have put forward a series of questions that they would like to see answered.
“We put these questions through ‘The National’ (newspaper) but they never got answered — Tameer wishes to deal individually and not with a group,” he said.

Tameer was unavailable to comment about the issue. Frederico Tauber, the company’s president, told Arabian Business in May that he would be glad to talk with concerned investors, but the company will not be able to return the money invested. He also said that some investors thought the project was canceled, which he said was a “misunderstanding.” In July, Tauber also told Arabian Business they had approached investors trying to understand their concerns, but some were reluctant to come forward. The Tameer investor said the company did not promise the group anything.

“They did say that they would work with all individuals to solve their payment issues and concerns — [a] divide and conquer strategy we feel, [as] individuals have less power compared to a collective group,” the investor said.

He also added that work on the site at the Tameer Towers has been progressing since August, but not to the extent that was promised. 
“Our way forward — well we are still evaluating this as a group — we have some good leads through some of the group’s members which we are looking into,” the investor said.

Lack of transparency
The recession is the main reason behind these disputes, but certainly not the only one. Another important factor that is negatively effecting the market is the lack of transparency between investors and developers.
“The communication is not as good as it should be, investors do not always know what is happening and they are not being kept fully informed by the developers,” said Delkousis.
The blame does not fall only on developers, since some companies might be very transparent and have offered solutions, given the current market situation. Some investors might also be “closing their minds to discussing the issue of delays, payments and things like that with developers,” said Clayson. 

Property court
The Dubai Property Court started functioning in September 2008. Delkousis draws a paralell between the courts and the issue of transparency, saying that investors are not being able to derive any guidance for their own case because most of the cases are private, confidential and run in Arabic.

It is expected that the number of property disputes will increase further, since some investors and developers are waiting to see what the next step of the other party will be. On the other hand, some cases might not even reach court. Clayson says that it would be much better for everyone to negotiate rather than go through the demanding process. Some developers might not even continue pursuing end-users who surely have no money left.

“It can be very time consuming and costly. They might be happy enough to accept that they will not get their money… [and] walk away,” said Clayson.

What about the laws?
One of the most important laws that is supposed to back investors is the escrow law, which came into effect on June 28, 2007. It applies to developers selling units off-plan and stipulates that payments by investors should be put into a special escrow account, which will be used solely for the designated project.

Delkousis said that having an escrow account is better for the purchaser, but it doesn’t make disputes easier to solve. “Investors and developers are fighting to see who is entitled to the money in the escrow [which] will depend on many things, including which party breached the contract,” he said.

Clayson said that a problem with the escrow law is that developers have been able to use the payments to pay for the land, thus leaving no money for construction and for refund if the project is canceled.

“Going forward, the escrow law now does not allow land payments to be made, that is my understanding from having spoken to the land department,” said Clayson. He added that the law should be taken one step further, and not used until the project is completed. Therefore in the case of any dispute, investors will be able to take their money back.

Going forward
The more investors hear about projects not being delivered, the more they are nervous about their  money, and the more disputes arise. So far, the market has not begun to settle down.
“I think it is safe to say that the [number of] cases is still increasing,” said Delkousis.

Clayson said investors and developers should understand that they are entering into a long-term deal, so due-diligence is necessary to ensure both parties can deliver. From the regulatory point of view, he said that the way for the market to recover is first to have a consistent legal regime. 

“Investors should be able to make their investment decisions knowing that the law is certain and will be applied fairly and consistently. That’s what the aim should be so that the market will recover,” he said.

0 comments
0 FacebookTwitterPinterestEmail
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.

0 comments
0 FacebookTwitterPinterestEmail