Comment

Kurds and the oil curse

by Ranj Alaaldin
written by Ranj Alaaldin

Sitting on one of the world’s biggest reserves of oil, Iraq continues to be presented with a still difficult-to-answer question — are its vast hydrocarbon reserves an asset or a curse? The country has the third largest proven oil reserves in the world, with an estimated 112 billion barrels. But while Iraq’s oil is relatively easy and cheap to extract, tapping into these reserves is being impeded by political, technological and financial constraints.

In June, eight oil fields were made available in a televised auction, the first major tender since the 2003 US-led invasion. This, however, proved to be a rather embarrassing event as some 41 oil companies that had been invited to bid backed out, including ExxonMobil and other major players. Just one contract was allocated, a 20-year contract to BP and China’s National Petroleum Corporation to develop the 17 billion barrel Rumaila field.
The principal reason for this disappointing result could be put down to the current climate of uncertainty in Iraq amid security and political problems. But in reality, international oil companies were unwilling to bid due to the terms Baghdad offered and the lack of regulatory clarity.

The federal government in Baghdad and the Kurdistan Regional Government (KRG) are still, for example, yet to pass an oil law that provides for revenue sharing, production and exploration of Iraq’s oil. The stalled law is being opposed by the KRG because it gives too much control to Baghdad, contrary to the intentions of the Iraqi constitution. Concerns stem from more than 70 years of financial dependence on Baghdad, tainted by deprivation of both people and land in the Kurdish areas.

The KRG, during the two-year impasse over the proposed law, has enacted its own oil law, developed Kurdistan’s resources (Kurdistan holds an estimated 45 billion barrels of oil reserves), and independently signed more than 20 exploration and development deals. The federal government deems these illegal and void since, it argues, all contracts must be submitted to Baghdad. But the failure to pass the hydrocarbons law has hindered foreign participation in the energy sector and therefore development of Iraq’s dilapidated oil infrastructure.

There is also a level of intricacy surrounding it all. The oil ministry offers international investors a service contract whereby companies receive a fee for the oil that is produced as opposed to a share of the oil itself. In contrast to the terms offered in other parts of the region, oil companies that invest in Iraq will have to be content with a lack of ownership over the oil they produce and an inability to benefit from fluctuations in oil prices.
Then there is uncertainty over the regulatory environment, given the lack of transparency as to whether any deals will be ratified and implemented.

The KRG, however, does provide ownership over physical barrels of oil. Baghdad rejects this model, rendering illegal any contracts concluded pursuant to this format, and blacklists any companies that do so. The tussle is also a legal and constitutional one. Looking at the constitution, Article 111 states that “oil and gas are owned by all the people of Iraq in all the regions and provinces.” Oil and gas ownership, however, is not within the exclusive powers of Baghdad. Articles 115 and 121(2) give regions like Kurdistan legal supremacy on matters outside the exclusive powers of Baghdad. In the absence of any provision explicitly suggesting otherwise, Article 111, or federal government control over oil, is therefore subject to the laws of the Kurdistan region.

In any case, economic realities may force Baghdad’s hand. For example, in May the federal government allowed the export of oil extracted from the Tawke and TaqTaq oil fields, despite oil being extracted from those fields by the KRG in accordance with the production-sharing contracts it prefers. A production of 40,000 barrels per day (bpd) from Tawke and 40,000 bpd from TaqTaq promises to provide a potential $5 million per day (at $50 per barrel).

More than 90 percent of Iraq’s development is dependent on oil revenues. Iraqi Oil Minister Hussain al-Shahristani has been lambasted by the parliament for his ministry’s failings and languishing production, currently 2.4 million bpd and lower than pre-war levels. The country has a dilapidated oil infrastructure in desperate need of rapid reconstruction; its state-owned oil companies are also in need of increased investment and trained staff. Some experts have suggested that more than $40 billion is needed to put oil infrastructure back on track. Pragmatism should therefore pave the way for increased investment.

Strategic nous dictates that international investors make it to Iraq before others, so all eyes will be on the next tender when more than 13 yet-to-invest companies will be invited to re-submit bids for the seven remaining contracts. Investors will also be closely watching the ongoing wrestling match between the KRG and Baghdad.

Ranj Alaaldin is a Ph.D. candidate at the London School of Economics focusing on post-invasion Iraq

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Lebanon

Real Estate – Demolishing heritage

by Executive Staff
written by Executive Staff

During Lebanon’s civil war, bombs and rockets wiped out a substantial portion of the country’s architectural heritage. The war ended and the shooting has stopped, but the destruction of historic buildings has not. Every day, demolition teams tear down old houses and bulldoze hundred-year-old gardens. Tall concrete towers replace the houses, overshadowing the few historical neighborhoods Beirut has left.

Heritage activists are trying their best to preserve the few old ‘Lebanese houses’ still standing in Beirut. But their efforts are largely in vain, as there is no law to protect old homes and preservation is low on the list of priorities for the country’s politicians.

“We have failed,” says Fadlallah Dagher, an architect and a member of the Association for Protecting Natural Sites and Old Buildings in Lebanon (APSAD).
 
Too few on the list
Activists have lobbied the government to enact a heritage law, but so far they have not succeeded. The only law issued dates back to 1933, when Lebanon was under the French Mandate, and protects buildings constructed before 1700. Activists say this law is better than nothing, but does not protect the majority of Beirut’s old buildings.

“This law is very old and outdated, buildings [built before 1700] are very few,” Dagher says. “We do not have any legal support, the only thing we have is the famous list of buildings that should not be demolished.”

In 1999, the government issued a directive listing 220 historic buildings protected from demolition — unless the minister of culture says otherwise. Kahtib & Alami, an architectural and engineering consulting company, created the list, which groups historical building into five categories: A,B,C, D and E. “A” refers to buildings in very good condition, and “E” is the classification for those buildings needing significant work. Buildings classified as A, B or C are protected, while D and E can be torn down freely.

In 2007, parliamentarians drafted a law to reinforce the 1999 directive. It passed through the council of ministers and then disappeared, and is now assumed to be gathering dust on parliamentary shelves.

Mona Hallak, an architect and a member of APSAD, says the 1999 listing is the “worst thing that ever happened” to protecting old buildings, because the study classifies many buildings as D and E, although they are still in good condition. She also says the study concentrates on individual buildings, rather than whole clusters and neighborhoods, which are more important to preserve.

Demolishing an A, B or C building requires the approval of the minister of culture, and it would appear some ministers have been happy to grant permission. Hallak says that when Mohammed Youssef Baydoun was the minister, developers tore down around 22 of the B and C buildings. Since then, Hallak says no one has removed any buildings from the list. The Directorate General of Antiquities (DGA), a division of the ministry of culture, holds the protected buildings list. The DGA declined to comment for this story, saying the issue is “hard and complicated for us.”

Political pressure plays a major role in determining whether a developer can demolish a heritage building. Whenever a historical site is torn down, whether it is on the list or not, activists begin to send letters to different government officials at the Beirut municipality and the prime minister’s office, in order for the work to stop. But they seldom reply, and the demolition normally continues regardless.

 “Without the law, it is just a bit of pressure here and there,” says Hallak.
While A, B and C buildings are somehow protected, heritage activists are trying to fight for the remaining — those listed as D and E and those which are not listed at all. Activists are also trying to safeguard the historical image of some neighborhoods like Gemmayze, which is slowly being torn down, and soon will only host contemporary towers and buildings.

“In 50 years there will be nothing but tall buildings,” says Hallak.

Gemmayze losing identity
The Gemmayze area is one of the few neighborhoods in Beirut where the architectural history of the city is still preserved en masse, and its residents, with the help of some architects, are trying to keep it that way. However, the neighborhood faces a dilemma found in much of Beirut: developers tear down heritage buildings only to replace them with high-rise towers, which activists say destroys the area’s historical image.

Among the most recently demolished historical structures is the Medawar Khan, an Ottoman era roadside inn built from stone blocks and snuggled into the hillside at the bottom of Gemmayze near Beirut’s port. The khan, the last one in Lebanon, at one time hosted merchants and traders after long days of traveling to Beirut. In July, the DGA found out about the destruction of the khan. It sent two formal requests to the Beirut municipality and to the administrative governor of Beirut — one on July 2 and the other on July 7 — asking for the demolition to be stopped immediately.

But it was too late. The structure was not on the government’s list, the DGA could not act by itself since it does not have its own heritage police staff, and the municipality did not reply in time. By mid-July the khan was gone. Lot 146 (where the khan was) is owned by a Lebanese company called Consilium for Investment and Real Estate Development, which is foreign-owned.

Other historical buildings are also being torn down. For example, Makram Zeeny, president of the Gemmayze Development Committee, says the building were he lives on Nahr Ibrahim street in Gemmayze is being evacuated. The developer who bought it will tear it down. Zeeny says the building was constructed in 1927 and might be listed as a D-building so that it can be demolished later, even if it is still in good condition. Two other buildings on the small Gemmayze street are already empty and will also be torn down. A local said that the works started on July 21.

Since these buildings are not listed, or listed as D and E, there is nothing activists can do in order to stop their demolition. Even the DGA has no power to stop their destruction. Thus with no law, heritage activists can only sit and watch large parts of Beirut’s history being turned into dust.

“There are so many beautiful D and E buildings that are being torn down,” says Hallak.
“Slowly, we are losing everything we have.”

Neighborhood growing tall
Architects say it is more important to preserve a cluster than it is to safeguard one building.

“Tearing down a building is terrible… but what is worse is what is going to be built instead of it or beside it,” says Hallak.

For that reason, the APSAD is lobbying for a law that sets construction standards for historical neighborhoods.

“We were demanding a new construction law… but no one wants to review it because it is hard and complicated, especially in Beirut,” says Dagher from APSAD.

In 2006, the Director General of Urbanization (DGU) — the government body in the Ministry of Public Works and Transportation responsible for urban planning — issued a directive to set the construction standards for Gemmayze, so new construction would blend with the neighborhood’s traditional image. To the surprise of all the activists and Gemmayze’s residents, tower permits given before the directive was issued were exempted — although that was the reason why the area was put under study in the first place. Residents submitted a petition to outgoing Prime Minister Fouad Saniora and the former Minister of Public Works and Transportation, Mohammed Safadi, requesting a reversal of the decision. But construction permits were given, and the towers were built.

In a 2006 statement, Joseph Raidy, the president of the Gemmayze Development Association (ADG) said that issuing a directive that applies only to certain segments while exempting the others only happens in a “Banana Republic.”

The government also commissioned a study of the St. Nicolas Stairs in Gemmayze in 2001. But according to Georges Abi Khalil, head of management and coordination at the ADG, no one is abiding by the directive. Many developers are building more stories than is allowed, then going to the municipality to compensate for the ‘mistake’ by paying money.
“The building beside us [on the St Nicolas Stairs] is listed, but they built two more floors, which is illegal,” he says.

Khalil also says archeological remains were found below a new building that hosts a restaurant on the stairs, but the developer ignored them.

“We filed many lawsuits… we stopped their work for six months… but nothing happened,” he says. “There was also a small road between the two buildings, which was there for 70 years, and they closed it.”
 
Paving over history
Back in the 1960s and 1970s, the Lebanese authorities planned two new roads in Ashrafiyeh; one in the Sodeco area, and the other in the Hekmeh area — both areas rich with historical buildings and beautiful gardens. The decree for the road in Hekmeh was signed again in 2008 by the caretaker Minister of Interior Ziad Baroud, outgoing Prime Minister Fouad Saniora, Lebanese President Michel Sleiman and other concerned parties.

However, according to Shafik Milan, the head of the general planning committee at the Beirut municipality, there is nothing new happening with this project. He thinks that it is very hard for this road to be built because of its very high cost, and the many buildings and gardens that would need to be destroyed.

“The road should be done before buildings come up, and not after,” he says. That is good news to the APSAD, who launched a campaign on March 20 against the road in the Sodeco area, which passes through Tabet street and would demolish seven heritage buildings.

Jack Tabet, the owner of the Tabet Palace, says unfortunately there is nothing he can do if the government decides to build the road. A third of his garden would be destroyed, and the foundation of his 13th century property will be damaged.

APSAD is trying to propose an alternative to this plan by shifting the road so that it includes the large parking area on the other side of the street, thus sparing historical buildings.

Dagher says that since the buildings included in this plan were frozen because the Lebanese government acquired them, Lebanese citizens should take the opportunity to safeguard the cluster and replace the road plan with an alternative. It is yet to be known whether the plans will go through.

Economic repercussions
Historic buildings not only hold sentimental value, they are also economically viable. Nada Sardouk, director general of the ministry of tourism, says the loss of Beirut’s history is having a negative effect on tourism. She also says that whole clusters should be preserved, and not only individual buildings.

“If I was the head of the Beirut municipality, I would have asked the government, the municipality and the ministry of finance to give municipalities incentives and say: ‘go ahead and buy these houses or go and be sponsored by a bank.’”

As a next step for heritage activists, they say they will wait for the new cabinet to be assigned, and will then push the parliament to pass the law to protect buildings of historic value. Even though the law took 10 years to be drafted, hopefully it will not take as long to be approved.

“If they will approve it, it will be great,” Hallak says. “If not, we will keep up the pressure.”

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Iran rifts in a dangerous time

by Gareth Smith
written by Gareth Smith

Ironically, Iran’s reformists have long feared a scenario in which a conservative government would first crush them and then reach an agreement with the United States and reap the domestic political benefits.

Could an agreement with the US, defusing tension over Tehran’s nuclear program, result from June’s presidential election awarded to Mahmoud Ahmadinejad with 63 percent of the vote? Could a deal be delivered by a single-minded, unified right wing in control of Iran’s organs of state?

In theory, yes. In practice, it is hard to see Iranian politics being so malleable, even if Ayatollah Ali Khamenei, the supreme leader, has emerged from the post-election protests still in charge.
While much of the American media has detected a military coup in the election and its aftermath, the claim is unsubstantiated. Even if Iran’s Revolutionary Guards Corps has increased its influence in recent years, overall control of the state lies with a group of clerics and non-clerics, civilian and military, who are subject to factional pressures and various vested interests. Iran is not North Korea.

But it is equally hard to believe the push and pull of factions will ease the chances for engagement with the US, even as the threat of an Israeli military attack increases.
On July 17, Ali Akbar Rafsanjani, veteran of the 1979 revolution, gave a sermon at Friday prayers in Tehran calling for unity, the release of detainees and the easing of restrictions recently imposed on the media. He echoed the argument from reformists and senior ayatollahs that complaints about the election should be addressed more thoroughly than the perfunctory official enquiry.

Rafsanjani is no liberal. Rather he has long been concerned by the international challenges facing Iran, and now believes its ability to resist them is weakened by internal strife.
Many others within the elite are just as restive. Ali Larijani, parliamentary speaker, was one of the first conservatives to question the conduct of the election. The conservative-controlled parliament can be expected to resist at least some of Ahmadinejad’s nominations for ministers after his inauguration this month for a second term.

None of this offers a propitious backdrop for talks with Washington. The shift to the right has over several years increased the influence of those most skeptical of engagement and removed those best placed to conduct it.
Many of Iran’s best diplomats — whether professionals or those more or less allied to Rafsanjani — were removed by Ahmadinejad in his first term. The team that conducted the 2003 to 2005 talks with the European Union, during which Iran suspended uranium enrichment as a “goodwill gesture,” has long been out of favor with those who are now in power.

During the presidential campaign, Ahmadinejad attacked those talks, even though they were endorsed by Ayatollah Khamenei. Conservative newspapers, including the state-owned Kayhan, have long argued against negotiations with the US, even though Ayatollah Khamenei in March accepted the possibility if Washington should “change its behavior.”
In seeking an interlocutor in Tehran, the US has long known it must talk to Ayatollah Khamenei, but President Barack Obama can hardly relish dealing with an Iranian leader facing an internal power struggle.

At the same time, the US president faces an American right and Israeli lobby energized by the well-publicized crackdown in Iran, which they say proves the Iranian regime is dangerous. Twitter-armed liberals and feminists in the Democratic party are just as outraged.
American law-makers are discussing an autumn deadline for tougher sanctions if Iran does not agree to talks, and public opinion is far more likely now to accept Israeli strikes.

None of this means successful engagement is impossible. Both Obama and Secretary of State Hillary Clinton have calmly insisted that nuclear talks between the leading UN powers and Iran should continue.
In a rare positive sign, the new head of Iran’s Atomic Energy Organization (AEO), appointed in mid-July, is Ali Akbar Salehi, an American-educated nuclear physicist. The vacancy arose after the resignation of Gholamreza Aghazadeh, reportedly disgruntled with the election.

Salehi, who holds a doctorate from the Massachusetts Institute of Technology, was the Iranian representative to the International Atomic Energy Agency (IAEA) between 1999 and 2004, including the period of the talks with Europe decried by Ahmadinejad. In 2003 Salehi signed, on Iran’s behalf, the additional protocol allowing snap IAEA inspections. His appointment to head the AEO will have been approved by Ayatollah Khamenei and seems unlikely to have been the president’s initiative.

But since Salehi left the IAEA five years ago, Iran has installed in its Natanz plant around 7,000 centrifuges, the devices used for enriching uranium, while the UN Security Council has passed four resolutions demanding Tehran halt enrichment.

The planned expansion of the program will widen the gap between Iran and the US. And the further each must go to compromise, the harder it will be to manage the process domestically. With recent events, Ayatollah Khamenei leans more than ever on those who believe Iran can and should confront the ‘Great Satan’ in Washington.

Gareth Smyth is the former Financial Times correspondent in Tehran

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Money Matters

IPO Watch – Still out to lunch

by Executive Staff
written by Executive Staff

One can hardly describe the recent pick up in initial public offerings in the Middle East and North Africa region as a recovery. As of July 22, the number of IPOs in 2009 stood at 11, down 75 percent year-on-year, while the total value of offerings fell to $1.9 billion, a fraction of the $12.5 billion raised over the same period in 2008.

Indeed, the MENA IPO market has become more talk and less do, pending clearer signs of a banking and real estate sector recovery, in addition to a turnaround in general economic activity, expected to take hold in early 2010. 

The average size of offerings has also dropped by 39 percent to $172 million, reflecting the cautiousness of companies in their efforts to raise capital. Even average oversubscription multiples have fallen off a cliff from 17.17 times in 2008 through July 22, to only 3.61 times over the same period in 2009.

Nevertheless, some signs of a recovery have emerged on the back of the three month global equity rally that started in March. Second quarter IPO activity accelerated to reach seven IPOs that raised $1.13 billion compared to just two IPOs raising $84 million in the first quarter of the year.

Following the weak upward trend, July saw the opening of two IPOs worth $676 million, up from only one worth $106.81 million in June. National Petrochemical Company’s $639.95 million share offering as well as Qatar National Bank – Syria’s $34 million IPO were the talk of the month as Saudi Arabia and Syria have recently become the bearers of the last IPO flames in the MENA region.

Both IPOs have attracted strong demand from investors, as Saudi Petrochem’s IPO was 52 percent covered on July 18, the first day it opened, while QNB – Syria’s IPO is reportedly seeing “surprisingly strong interest” in its first few days of a month-long offering. 

Saudi Steel Pipe Company’s IPO, which closed on July 3, was oversubscribed by 344 percent. The company offered 31.4 percent of its shares to the public, raising $106.81 million in just one week.

The lagging number of public offerings and the retreating equity markets have not limited some companies from planning future IPOs. Dubai-based and government-owned Aswaaq plans to offer 55 percent of its shares to the public during the first quarter of 2010. “We believe the economy will start rebounding in the fourth quarter of the year. When it does, we expect it to be at a slower pace and that is OK,” said CEO, Abdul Baset Al Janahi.

The Saudi government also said it may sell part of the $13.4 million shares of Tabadul, the Saudi state-run information exchange company, in an IPO in the future. Also in Saudi Arabia, the Shura Council recommended the sale of Saudi Arabian Airlines in an IPO instead of privatizing the company. Later reports citing Abdullah al-Ajhar, assistant general manager for public relations, said only part of the shares will be sold through an IPO.

To list is good
Listing has been a good move for investors and companies in July. Vodafone Qatar and Al Rajhi Company for Cooperative Insurance were the only two companies to list their shares on an exchange in July, and both rose 14 percent and 670 percent, respectively, on their first trading day, reflecting the positive sentiment surrounding new IPOs and listings in the region.

The Vodafone IPO in April in fact contributed to tripling the number of share issuances to three in the telecom sector, making it the only sector to experience a year-on-year increase in IPO activity. Issuances in the financial services, real estate and construction sectors in 2009 through July 22 stood at only six, down from 24 in 2008.

On a national basis, the number of MENA stock exchanges to have a share issuance has dropped from 11 to only the Saudi Stock Exchange (7), Damascus Stock Exchange (2), Qatar SE (1), and Tunis Stock Exchange (1) in 2009, through July 22. Amman Stock Exchange is the most notable absentee from the IPO market, after seeing the issuance of shares for 11 different companies during the review period. Amman’s missing IPOs appear to be for good reason: in early July, Al Tajamouat for Tourism Projects, an affiliate of Bahrain’s Unicorn Investment Bank, said its rights offering, which closed on June 21, was only 76 percent covered, raising only $21.4 million instead of the targeted $28.1 million.

The IPO market in the MENA region was hardly alone in its downturn, but is slowly losing out to foreign markets. Unlike the MENA region, global IPO activity appears to be returning with vigor following the announcement on July 22 that China State Construction Engineering Corporation received approval to raise over $7 billion in capital.

In June, China officially removed a ban enacted in September 2008 on new offerings, paving the road for massive IPOs on the Shanghai Stock Exchange. The State Construction IPO will be the world’s biggest since Visa’s $19.7 billion IPO in March 2008 and the country’s largest since PetroChina in October 2007. 

US investment firms, including Apollo and Alliance Bernstein, have recently created Real Estate Investment Trusts (REITs) that would raise almost $4 billion in capital through IPOs to invest in commercial real estate.

Going forward, despite the full-pipeline that is driving a medium-term positive outlook, IPO activity may slow further as market participants, especially in the Gulf, leave for vacation during the hot summer season and Ramadan.

Regional Press Network

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A divided Cyprus remembers

by Claude Salhani
written by Claude Salhani

Cyprus is part of the European Union but its problems are very much tied to the Middle East. July 20 marked 35 years since the Turkish invasion, the result of which was the division of Cyprus between the Greek Christian south and the Turkish controlled, and largely Muslim, north. Cyprus remains the only country in the EU to be divided and occupied by foreign forces.

The Turks call it an “intervention.” The government of then Prime Minister Bulent Ecevit felt the Turkish population of the island was threatened by a coup mounted a few days earlier by a group of Greek Cypriots favoring “Enosis,” or uniting the island with Greece.
The war that followed tore the island apart and produced staggering results.

Nearly 5,000 people were killed from a population of some 775,000. Almost 200,000 were displaced and 37 percent of the country was occupied by the Turks. If the numbers of internal refugees seems dwarfed when compared to other refugee crises, in relative terms, that would be the equivalent of 100 million Americans becoming refugees.

The conflict traces its roots to the back pages of history books. But let’s start just a few days before the war began, when the coup led by Nicos Sampson overthrew the Cypriot president, Archbishop Makarios. Sampson was a member of EOKA, the National Organization for the Cyprus Struggle, a far-right group founded in the early 1950s with the aim of uniting the island with Greece.

Sampson had been urged on by the junta of Greek colonels ruling Athens at the time to depose Makarios, thereby opening the way to Enosis, much to the concern of the island’s Turkish community. When Makarios escaped to one of the island’s British military bases, and from there to Britain, Sampson declared himself president.

Ecevit ordered the Turkish army to invade when Ankara’s demands that Sampson be dismissed fell on deaf ears. The invasion began at dawn on July 20, 1974 with a simultaneous assault by about 1,000 paratroopers on the capital Nicosia and an amphibious landing further north in Kyrenia.

I had arrived in Nicosia two days earlier to cover the coup and from my hotel room I had a front-line view of the war, literally. Pulling back the drapes in the early hours of July 20, I saw the sky filled with Turkish paratroopers. With that came the sound of gunfire as Greek Cypriot forces began fighting back. The Greek Cypriots were no match for the better trained and armed mainland Turks. The Greek Cypriots were inadequately armed and suffered from poor leadership. One thing they did have was courage and persistence.

From my perch in the Ledra Palace, a four-star hotel situated smack on the Green Line separating Greek from Turkish Nicosia, I saw Greek Cypriot soldiers, equipped with what appeared to be World War II vintage rifles, seeking shelter behind amplifiers and drums abandoned by the hotel’s band to exchange fire with the Turks around the clock.

Tales of atrocities going back more than a century, combined with those of the more recent 1963 civil war suddenly resurfaced, reviving hatred and fears that never really dissipated.
When revolts erupted all over the Greek-speaking provinces of the Ottoman Empire in 1821, the Turkish governor of Cyprus received permission to crack down on the rebels. The Greek archbishop and other prominent Greek leaders were arrested and hanged. The suppression of the revolt dissipated the Greek Cypriot’s hopes of joining the wider Greek rebellion. But it had a more nefarious, long-lasting effect; that of instilling a deep-rooted loathing of the Ottomans in the Greek Cypriot community. This is where the desire for Enosis was first born.

Britain took control of Cyprus in 1878 (with permission from the Ottomans), but with the outbreak of World War I, Britain annexed the island, turning it into a British Crown colony in 1925. Meanwhile the Turkish and Greek communities never learned to trust one another, and civil strife erupted in 1963, pitting the two communities against each other. The 1963 clashes brought United Nations troops to separate the two sides. UN troops were still deployed when Turkey invaded in 1974, and they remain there to this day.

Now, 35 years later, tourists have been flocking back to the island where Greek mythology says Aphrodite waded ashore. But if the goddess of love were to return, she would find some 43,000 Turkish troops still “intervening” on the island.

Andreas Kakuris, the Cypriot ambassador, pointed out to this reporter that if the United States had 120,000 troops in Iraq at the height of the fighting, why does Turkey need 43,000 when Cyprus does not represent a threat and there has not been a shot fired in 35 years? A good question.

Where does this leave Cyprus today? Talks between the two communities continue. The Republic of Cyprus holds a major trump card given that it is a member of the EU, and as such, has the power to veto Turkey’s accession into the EU — assuming that Turkey would eventually be allowed in.

Claude Salhani is editor of the Middle East Times and was in Cyprus when the Turkish Army invaded.

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Lebanon‘s political hypochondria

by Peter Speetjens
written by Peter Speetjens

One good thing about living in Lebanon is that it is hardly ever boring. Even if the country is not plagued by war, internal strife or election fever, the Lebanese have no difficulty in finding an issue to disagree about and, thanks to a natural-born love for high drama, happily blow it out of proportion. Indeed, living in Lebanon often resembles the very best and worst of a Mexican soap opera series.

The most recent such affair featured French comedian Gad Elmaleh. Known as France’s funniest man, this comedian of Jewish-Moroccan descent had agreed to perform his hit one-man show “Papa Est en Haut” on three consecutive nights at the Beiteddine Festival. Tickets sold fast and all seemed set for a night of French fun in the Chouf, were it not for Al Manar.

On June 25, the media outlet affiliated with Hezbollah published a photo allegedly showing Elmaleh wearing an Israeli helmet and military outfit. The accompanying text, written by a Hussein Assi, claimed Elmaleh in the 1990s had served four years in the Israeli army fighting in Gaza and Lebanon.
Assi wrote that Elmaleh was a fervent Zionist, as “he had spoken favorably about the Jewish state on several occasions.”

“He will arrive to Lebanon on July 12, on the third anniversary [of] the Israeli war against the country,” Assi wrote. He wondered how such a man could be billed at the Beiteddine Festival.

Now, if the above were true, this would be a legitimate question.But the accusations were immediately denied by Elmaleh’s manager and the festival organizers who claimed the photo had been “doctored.” Assi admitted in his text that he had simply done a Google search on Elmaleh’s name. The photo stems from an open-source website in France, and thus could have been posted and manipulated by anyone. Still, the photo and article caused such a stir that Elmaleh cancelled the sold-out shows, citing concern for his personal safety.

Contrary to what Assi claims, Elmaleh has Moroccan, French and Canadian passports, yet not an Israeli one. In any case, if one looks at Elmaleh’s biography, one wonders how he could have fought in the Middle East in the 1990s, as he was performing in a series of French plays and films. Fighting in the Gaza back streets during the week, hitting the Paris limelight over the weekend?

To illustrate Elmaleh’s alleged Zionist outlook on life, most people, including Assi, refer to a French interview Elmaleh gave following several shows in Jerusalem some two years ago. Asked what he thought of Israel, he replied that life there was about more than the images one sees on TV, and he had advised several friends to go and visit.

He said he especially liked Israel’s most secular city, Tel Aviv, where he has many friends, mainly fellow actors and comedians. He went on to praise the Israeli sense of humor which, according to him, goes 10 times further than what is regarded as acceptable in politically correct Europe.

“Israeli society, if only through the creatively acerbic outlook of its performers, is very healthy, balanced and lively,” Almaleh said in an interview with the French-Israeli magazine guide SVP-Israël. He also told his interviewer he was attached to his roots in Morocco, just as he was to Israel.

Taking into account that an A-list artist like Elmaleh has to walk a tight rope not to politically upset part of his audience, this is hardly the Zionist pep talk Assi accused him off. Now, in most countries, the people concerned would simply point out the appalling level of journalism and demand a rectification. Not so in Lebanon.

Here, 350 lousy words and a dodgy photo produce a national debate on the verge of hysteria, in which even ministers feel obliged to participate. Al Manar stood accused not of bad journalism, or even slander, but of nothing less than “intellectual terrorism.”
Antoine Courban, reportedly a journalist and professor of medicine and philosophy, circulated a petition on Facebook in support of “cultural diversity and freedom of expression.” According to the up-in-arms Courban, the case against Elmaleh violated Lebanon’s cultural and individual liberties, which constitute “a red line we will always defend,” he wrote on the website.

“We have to be courageous and prepare ourselves psychologically for a long and tiring struggle,” Courban wrote. “If we surrender on issues concerning those fundamental rights, we will end up in a state of barbarism, where cultural production has nothing to do with freedom.”

Personally, I find Courban’s overwhelming use of military metaphors frightening. Secondly, he makes little sense. What are a country’s “cultural liberties?” If he speaks about such a fundamental right as freedom of speech, does that include allowing Assi to write as he pleases? And is poor Lebanon really so fragile that the non-arrival of a French funny man can plunge it into the Dark Ages?

To me the case is really quite simple. In their urge to land a scoop, Assi and Al Manar simply forgot that a Google search is not the equivalent of investigative journalism. They should have checked their sources. It is bad journalism which, thanks to pseudo-intellectuals and sensationalist media in search of a story, has been turned into a TV soap opera à la Libanaise.

Peter Speetjens is a Beirut-based journalist

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Street smart in Gemmayze

by Paul Cochrane
written by Paul Cochrane

Lebanon’s tourism advertising campaign presents the country as a paradise of pristine mountain landscapes, beautiful shorelines and night time cavorting. What the ads don’t show are the effects of the apparent lack of interest by Lebanon’s public institutions to regulate waste management, protect the environment or deal with the perpetual gridlock on the country’s streets. Such images would not be good for Lebanon’s brand identity.

This is quite understandable; no country would highlight such downsides. But with tourism projected to contribute directly and indirectly an estimated $7 billion to the Lebanese economy this year — equivalent to 28 percent of gross domestic product — such images should be embarrassing to the sector. Resolving Lebanon’s environmental woes requires comprehensive efforts and capital to invest in infrastructure improvements. But there are also other initiatives that can be taken on a more local level.

Take Gemmayze street (the official name is “Rue Gouraud”). To drive the one kilometer long, one way street that runs from the edge of Martyrs’ Square to the Éléctricité du Liban building, it can take anywhere from 20 minutes to an hour as people search for parking or hand over keys to a valet. For an essentially straight and flat street, near areas with ample parking, like downtown and Charles Helou Station, such a log jam would seem a major urban planning oversight.

But in Gemmayze’s case, an area of ‘traditional character’ according to the signage, the street transformed into a nightlife hub haphazardly, bar by bar, restaurant by restaurant. The nightly traffic jam is also not solely due to a lack of planning. A big contributor to the jam is the Lebanese penchant for valet car parking, which combines a propensity for showing off with a reluctance to walk.

What if Rue Gouraud were to follow the example of cities as far apart as Shanghai, Cape Town, York, Copenhagen, Montreal and Curtiba, Brazil? What all these cities have done is “pedestrianize” streets or whole blocks, whether for retail, nightlife or areas of historic interest.

But Gemmayze would not need to look abroad to see how pedestrianization was implemented; half a kilometer away is pedestrian friendly downtown Beirut. With the upcoming opening of the Beirut Souks, the pedestrian area will be extended even further, and it could spread eastwards if Gemmayze followed suit.

The municipality could install rising bollards at either end of the long street, making Gemmayze pedestrian but also accessible at specific times for delivery trucks and residents with parking permits.

Parking space could be found in Martyrs’ Square, and if Charles Helou was given a lick of paint, fumigated, and linked via a bridge, several hundred more vehicles could be parked. For those unwilling to walk, a fleet of golf carts could be added to the current half dozen that ply downtown to transport people. Pedestrianized, bars and restaurants could spill onto Rue Gouraud, and there could be live music, dancers, street artists and performers. People would mix and mingle, no-one would be aggravated from a traffic jam or altercation with a valet, and air pollution would undoubtedly be reduced.

While this sounds desirable, there are always obstacles. In other cities, when streets have been pedestrianized, gentrification has also occurred, changing demographics. Lebanon’s ‘old rent’ laws, where rents were frozen at a particular monthly rate prior to the civil war, has prevented this from happening. It has also meant elderly residents need vehicle access. Noise pollution is another potential issue, although if the demographics changed, would be less of a problem, with those moving in aware of the neighborhood’s lively night time atmosphere. The valet car parking “mafia,” which attempts to control the parking spaces that line Gouraud street and surrounding roads, could also oppose such a move to pedestrianization.

Then the party-goers themselves may very well resist such an idea, too accustomed to valet parking and reluctant to give up a perceived convenience — although it may take 40 minutes to get to the valet, as opposed to a 10 minute walk from parking lots on the eastern edge of downtown or, if it were renovated, Charles Helou.

But there are indications some nightlife patrons are willing to forgo their valet. A bar owner, not overly in favor of pedestrianization, admitted that out of the 150 cars usually valet parked every Friday, on one particular night there were only 15, as people shunned their cars to walk. While anecdotal, this does suggest that people are willing to forgo the valet to save time.

For access to Gouraud to improve — whether by improving parking or opting for pedestrianization — this would require a united front by residents and business owners to surmount the biggest obstacle, bureaucracy and vested political and economic interests.

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

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Executive Insights

The efficiency of centralized network management

by Mahmoud El Ali
written by Mahmoud El Ali

Faced with pressure to increase network capacity and performance while saving money, information technology managers have often been quite content to simply add more hardware as required.

However, this results in a disparate network that is hard to manage, imposing an extra burden on IT staff and adversely impacting business efficiency. Ad hoc network expansion may have coped in the past, but the need for end-to-end network visibility to assure compliance with global security and privacy mandates and to streamline business processes means that this approach is no longer acceptable.

The past few years have also seen an increased need for speed in deploying new enterprise-wide applications — a capability that is severely impeded when systems are disconnected from each other. It’s clear that chief information officers and their IT teams need to grab hold of their networks and manage and secure them as a unified whole.

Bringing order to chaos
As a first step to solving this problem, chief information officers and their teams have consolidated infrastructure and staffing into datacenters that provide applications, storage and expertise to remote and branch sites from centralized resource pools. However, without centralized management to automate deployment, configuration and oversight of datacenter and remote operations, consolidation inevitably falls short of its promise. The answer is efficient network management.

Instead of trying to handle environments individually, centralized tools ease the network management burden. Deploying a centralized management tool automates not only performance monitoring, but also change, configuration, policy and patch management throughout the network.

Network management tools are critical to understanding how the network operates today and how new applications or procedures will impact it in the future. It’s a way of future-proofing your IT network.

Because these tools are integrated across a heterogeneous environment, IT teams can model how the network will react to a new application and determine whether they will need to make adjustments, such as provisioning more bandwidth, changing the priority of delay-sensitive traffic on the network, or adding more processing power.

Doing more with less
More efficient network management also helps address the biggest challenge network managers face at the moment: how to do more with less. There will always be more projects and users for IT to support, but staffing and budgets will not increase to accommodate these demands. Managing basic infrastructure and integration is hard enough; then you add in privacy and security requirements, and that increases the network management burden. Some have tried to accommodate ad hoc networks by buying an overarching management platform, but that makes it very difficult to apply critical policies consistently across the enterprise and to create compliance audit trail. They also struggle because they don’t have the in-depth, in-house knowledge to manage some of the more management-intensive technologies, such as voice over Internet protocol. Also, there are so many applications fighting for the network that, if handled incorrectly, things start to break down.

Bringing everything under one umbrella gives an amazing amount of control and helps deliver quality of service for all your local and remote voice, video and data applications. You can set business appropriate thresholds to alert you to network problems before users are impacted. And you can use comprehensive metrics to do forecasting, modeling and capacity planning. All these things help save time and money and make your enterprise far more efficient.

A comprehensive network management platform gives visibility to the status of your resources, services and users. The savings that can undoubtedly be made can either be returned to the business, or used to fund more strategic value-added services from IT.

Mahmoud El-Ali, 3Com general manager, Middle East

The authors of Executive Insights have been invited by this magazine to offer their professional opinions and analysis to you, the reader. Executive Magazine does not endorse the analysis of Insight authors, nor should the Insights be interpreted as reflecting the views or opinions of Executive or its editorial staff.

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Executive Insights

IPTV could be good enough to pay for

by Hadi Raad
written by Hadi Raad

Telecom and media companies used to operate in their own silos, with clear divisions between what each offered to consumers. Media players produced or managed content; telecom companies provided telephone and broadband services. With increasing competitive pressures, as well as technology-driven industry convergence, players on each side are moving into each other’s space. Media companies have moved into content and voice delivery; for example, Comcast, a cable TV media player in the US, currently offers Internet and phone services. Likewise, telecom operators have responded to declining fixed voice revenues and saturating broadband markets by stepping into multimedia services.

One promising such move by telecom operators is their venture into Internet protocol TV (IPTV) — a digital television service delivered over a broadband connection with a dedicated IP address. IPTV’s greatest value proposition to customers is its offering of premium content, in addition to greater control over that content. IPTV allows customers to personalize their TV experience with features such as time shifting, in which viewers can record programming to watch it later or pause, rewind, or fast-forward during a movie, and rich and user-friendly electronic program guides that allow them to navigate programming more easily. Operators also offer access to tens of thousands of video-on-demand titles that can be watched at any time. Aside from television services, IPTV applications include TV gaming, music, text, commerce and user-generated content. For example, viewers could have one-touch access through their remote control to real-time local weather, traffic updates, stock market fluctuations and horoscopes on their TV screens, without interrupting the program they are watching.

Verizon’s IPTV service offers a good example of IPTV’s features. It has a library of 14,000 video titles and its TV program guide provides viewers with integrated on-screen control of several applications. Customers can find and manage a vast array of digital content, including television programming, movies, Internet video, games, music and photos. This allows a customer, for example, to watch a movie about an action hero, play a video game about the same character, and buy retail items associated with the character, all on the same home system.

All of these features have contributed to IPTV’s popularity with subscribers, whose numbers are slated to reach approximately 40 million worldwide in 2012. This represents approximately 11 percent of broadband subscribers.

IPTV’s Prospects in MENA
In the Middle East and North Africa, the existing television landscape presents both a challenge and an opportunity. It is dominated by free-to-air (FTA) satellite service and illegal distribution. On one hand, these free options could make it difficult to convince consumers to pay for TV; on the other hand, these services offer consumers no real interactivity. Video on demand and pay-per-view, especially, could be popular in the region and convince consumers that IPTV is worth the money.

Cable TV, which offers many of the same services as IPTV, has limited network reach in the region with penetration of only around 5 percent. By contrast, the number of broadband connections is expected to multiply, with household penetration forecasted to increase from 9.4 percent in 2008 to around 30 percent in 2012, driven by telecom incumbents’ asymmetric digital subscriber lines (ADSL) and fiber optic networks. A large broadband subscriber base will position the MENA region to leverage the advantages IPTV offers. A few telecom operators have recently launched basic IPTV ventures, and more are in the pipeline. Yet IPTV household penetration at the beginning of 2008 was still low in the region — just 0.2 percent, representing approximately only 2 percent of broadband connections.

However, IPTV may not be the right choice for all operators. Ventures are expensive and complex and, as noted, IPTV requires consumers to pay higher monthly bills than they are used to. Most homes receive television services from FTA satellites or through illegal distribution; these represent as much as 90 percent of TV subscribers in some MENA countries. Moreover, many FTA channels are able to transcend national boundaries, since MENA countries share a common language and culture; as such, there has been huge growth in their number, which reached around 500 channels in 2008. According to a recent survey, a majority of viewers are satisfied with FTA offerings.

Operators that decide to launch or expand IPTV ventures will face several additional challenges. First, although broadband penetration in the region is slated for growth, it is still low, except in Bahrain and the United Arab Emirates. Speeds are also slow, with insufficient bandwidth to support streaming television service.

Second, IPTV providers will need to offer premium content to attract subscribers. There’s little regional premium content production in MENA, so shows must be produced elsewhere — a considerable investment.

Another consideration is competition. Television over the Internet can offer non-linear services similar to IPTV’s, such as time shifting and video on demand. These competitors not only steal market share from IPTV operators, they do it using the operators’ own resources. By transmitting content using the operators’ broadband data connections, they are taking operators’ bandwidth while generating revenues for themselves.

Getting IPTV right in the MENA region
Telecom operators that decide IPTV is right for them must consider the following factors critical to successful rollout. For those that don’t have the ability to meet these criteria, IPTV is probably not a viable option.

  • Hybrid solution: Operators should position IPTV as a complement to the FTA offering rather than a substitute. A hybrid IPTV-satellite set-top box could provide the dual benefits of IPTV services with FTA programming.
  • Features: Innovative interactive services will have significant appeal and should be a key part of any IPTV offering. Digital video recorders, time shifting, video-on-demand and pay-per-view could be popular. Operators should constantly define, prioritize and introduce innovative interactivity features.
  • Content: Successful IPTV entry requires operators to secure exclusive or premium content that can differentiate them from their competition. Premium content acquisition is expensive, but the investment is justified, so long as content is carefully chosen with the audience’s needs in mind so that they will be willing to pay for it, and if the operator has sufficient scale and a large enough customer base to secure a viable return. Operators need to carefully define their role along the content delivery value chain and establish the right partnerships accordingly.
  • Operational and infrastructure readiness: IPTV imposes new requirements in customer care and field and video operations, which must be appropriately handled via in-sourcing, outsourcing, or “managed services” models. It is paramount that operators ensure they have the necessary access and core network resources in place for a high-quality customer experience.

Conclusion
IPTV presents a unique opportunity for MENA telecom operators. With little competition from cable on the supply side, careful positioning will boost IPTV significantly. On the demand side, consumers are likely to be receptive to IPTV and its benefits. To be successful, operators need to provide consumers with attractive content and significant control over it. They must make sufficient investments in premium content and infrastructure, and ensure they deliver a consistently high quality service. In a region where viewers are used to hundreds of free channels, only a compelling package will persuade consumers to start paying for IPTV.

Hadi Raad is a senior associate and Mahmoud Makki is an associate at Booz & Company

The authors of Executive Insights have been invited by this magazine to offer their professional opinions and analysis to you, the reader. Executive Magazine does not endorse the analysis of Insight authors, nor should the Insights be interpreted as reflecting the views or opinions of Executive or its editorial staff.

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Executive Insights

Beyond cost reduction

by Rami Nazer
written by Rami Nazer

An economic crisis is too good an opportunity to waste. It is an ideal time to step off the treadmill and ponder improving your business, your core offering and your cost structure. This year could very well be the year when financially sound and forward-looking organizations actually make their fortunes.

Over the past 12 months, market conditions have been eventful for some and extremely difficult for many. Firms have been taking steps — preventive and remedial — to cope with the recession and emerge stronger. Their responses have been varied, as there is no universal or one-size-fits-all solution. Nonetheless, businesses must ensure that steps taken are both appropriate for their business models and sustainable in the long run.

Most sectors of the economy are vulnerable to the effects of the downturn, but our global research indicates that risks are even greater for sectors like banking and capital markets, real estate, biotechnology, asset management, telecoms, utilities, manufacturing, consumer products, automotive and media and entertainment.

To effectively address the economic downturn, enterprises must also remain adequately responsive to the expected upturn in growth and demand after the recession ends. They need to clearly understand the macroeconomic causes and the microeconomic means to manage profitability during these times while also planning to profit during the revival.

Opportunities in adversity
Ernst & Young’s recent report on corporate priorities titled ‘Opportunities in Adversity’ revealed that insightful enterprises focus on how to effectively reduce costs by acting on decisions that must be sustainable in the long term. This means reducing costs without compromising revenue streams, and reducing operational costs without burdening the business with heavy implementation costs. However, the central message of the study is that cost reduction has become essential, with more than 85 percent of over 300 top level executives polled citing it as a key issue for their business. Overwhelmingly, they have focused on four major areas: number of employees, information technology, employee benefits and real estate.

But is cost reduction the only initiative that corporations need to undertake? Is employee reduction the most effective in reducing costs? A pool of institutional knowledge is beginning to indicate the fallibility of most cost-reduction initiatives: that these are not sustainable in the long term.

While the first response to a more difficult market is to seek to improve efficiency by reducing costs, slowing recruitment and reducing inventory, the risk of reduced effectiveness is real. Cost cutting is frequently a short term solution.  The challenge is to ensure that the organization is robust enough to face new market conditions without weakening its business mission and to take advantage of opportunities that will undoubtedly emerge later.

Amongst cost reduction initiatives, two measures stand out from all others: business process improvement was cited by 77 percent of those surveyed, and supplier cost reduction was cited by 60 percent of respondents. At 47 percent, employee reduction came in after info-tech optimization (49 percent).

Managers need to understand the psychology of cost and treat sustainability as the key focus at the very outset, ingraining cost optimization behaviors in the organization while attempting to ‘take the pain of change’ out of the process.

While businesses evolve mechanisms to withstand an economic downturn, educative examples of what is really happening in businesses are already available, for example a global investment bank reengineered its product control and identified savings initiatives of $8 million, compared to an earlier target estimate of $5 million. A pharmaceutical manufacturing company strengthened an existing cost reduction program, conducted a ‘health-check’ and identified cost savings of between $45 million to $73 million per year from a total cost basis of $410 million. A global telephone company also implemented a new global purchasing organization to reduce annual costs by 22 percent on average.

Based on research and interviews with our clients, we have developed the ‘stress pendulum’ which focuses specifically on the issue of cash. The primary driver of management action is the amount of cash that the company has and is generating. If you are burning cash during a credit crisis, your priorities are clear. If you are generating cash through operations, the opportunities are many. In any case, the need for management action is paramount.

Rami Nazer, Partner, Ernst & Young Middle East

The authors of Executive Insights have been invited by this magazine to offer their professional opinions and analysis to you, the reader. Executive Magazine does not endorse the analysis of Insight authors, nor should the Insights be interpreted as reflecting the views or opinions of Executive or its editorial staff.

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