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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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Executive Insights

The Lebanese banks‘ 2008 report card

by Marwan Salem
written by Marwan Salem

In July, I authored a report for FFA Private Bank titled “The Lebanese banking sector 2008,” which examined the Lebanese banks’ fundamentals, performance, financial strength and the challenges the sector faces going forward.

The report pinpoints that the Lebanese banking sector has steadily grown over the years relative to the size of the domestic economy, having amassed assets in excess of 327 percent of Lebanon’s gross domestic product amidst ongoing deposit inflows. The increase was driven by several comparative advantages, including a banking secrecy law, a skilled workforce, a relatively stable currency and high yields on local and foreign currency compared to peer countries. The strict regulatory framework and conservative policies set by the central bank that shielded Lebanese banks from exposure to toxic assets and structured products also helped considerably.

Over the past decade, the Lebanese banking landscape has changed significantly, moving from a highly competitive and fragmented environment to an asset consolidation environment. The period also witnessed the expansion of Lebanese banks on the regional scene.

Banks’ balance sheets suggest that Lebanese banks are “deposit-rich banks,” as they are funded mainly through customer deposits, which accounted for about 83 percent of total liabilities and shareholders’ equity during 2008. But the asset allocation also reflects the large exposure to sovereign debt, with more than 50 percent of the assets made up of government and central bank paper, mirroring the fact that the Lebanese banking sector is acting as the backbone of the economy, providing funding for its sovereign debt by accumulating customer deposits.

The report noted that the Lebanese banking sector has demonstrated remarkable growth over the years despite the persistent political instability and the global financial crisis that surged in 2008, proving its resilience to external turmoil. Initially, customer deposits were bolstered by the inflow of wealth following the civil war and by the ample petrodollar liquidity in the region that flowed into the sector in the aftermath of the September 11, 2001 events in the United States.

More recently, deposit growth was triggered by the Lebanese banking sector emerging as a safe haven for depositors in light of the prudent policies set by the central bank and the attractive interest rates on deposits compared to regional peers. In 2008, the sector added $10.5 billion in deposits, implying a 15.6 percent year-on-year growth rate. The dollarization rate dropped from 77.3 percent in December 2007 to 69.6 percent in December 2008, highlighting the renewed confidence in the Lebanese currency and the economy as a whole. Supported by solid economic activity and steadied by a stable political situation, loans growth recovered in the last two years and lending grew at a compound annual growth rate of 17.3 percent between fiscal year 2007 and fiscal year 2008, compared to a rate of 0.63 percent between 2000 and 2006.

The Lebanese banking sector has reported regular growth in profits across a seven-year track. In recent years, profitability was favored by an increasing contribution of regional entities to the sector’s income, a recovery in lending activity and improving cost-to-income ratio. As a result of a further diversification of the Lebanese banks’ business lines, non-interest income has witnessed significant growth in the past few years, but remains underdeveloped relative to the net interest income, which accounts for 69 percent of the sector’s total income.

Thus, the performance of Lebanese banks is closely linked to the interest spread between the cost of funding and yields on uses of funds. Prospects for sustained profitability will depend on the maintenance of growth in earnings within the context of international interest rate contraction. The banking sector will also need to attract additional deposits from operations abroad as regional economies slow.

But the FFA report also states that the Lebanese banking sector is growing without any detriment to its financial position and asset quality. Banks’ asset quality improved during the political and security difficulties of the last few years; loan portfolios also showed strong growth. The Lebanese banks also enjoy very high liquidity levels, while banks around the globe suffered from the severe liquidity crisis. But most importantly, Lebanese commercial banks are solidly capitalized, as witnessed by their capital adequacy ratio standing at 11.23 percent, significantly above the 8 percent required by the Basel II committee.

The immediate risks facing the Lebanese banking sector remain limited given its ability to counterbalance the adverse effect of the global financial crisis. The positive factors include ongoing deposit inflows, increasing oil prices and the political and security improvements following the parliamentary elections in June.

But the FFA report notes that Lebanese banks are faced with two key risks. First, their high exposure to the sovereign debt in light of the fragile political environment. The second risk is the highly uncertain political and security environment in which they operate. According to the report, the immunity of the Lebanese banking sector is correlated to the consolidation of the recent domestic achievements; they include the economic growth recovery and the decline in government debt ratios.

Marwan Salem is head of research & advisory at FFA Private Bank

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

Market matrimony

by Dima Itani & Ramsay G. Najjar
written by Dima Itani & Ramsay G. Najjar

The wedding season has arrived this summer, which means not only fireworks, flowers, beautiful designer gowns, tuxedos and people spending half their salaries on wedding lists, but also pairs of souls bound for life, for better or for worse, for richer or for poorer, in sickness and in health.

For better or for worse is not always easy. Marriages that last a lifetime need an extra dose of planning, a sprinkle of good faith and a pinch of foresight. Just like human beings, corporate organizations make vows to their stakeholders and decide to engage in a long term union, expecting the beautiful and glowing life “à deux,” only to realize it takes more than love to make a marriage successful.

When people are engaged they are eager to show their finest and most admirable qualities and behavior. They are enthusiastic to confirm to their soul mate that they have all the outstanding qualities and the most favorable persona. They are both excited to discover their shared values and beliefs. In fact, they are building their image as the best future husband and wife. They are striving to capture the other person’s heart in a way that ensures they could never think of marrying someone else.

This period of courtship is similar to when a company first enters into a new venture, whether establishing itself on the market or launching new products and services. During this crucial period, the company’s main objective is to build a particular brand image that would ultimately attract its targeted stakeholders. These can include employees, customers, suppliers, investors and the general public. Employees, for example, will only join a company if they can identify themselves with its image. This brand image is the most important asset for the company as it establishes its personality and differentiates it from the competition. A meticulous branding strategy driven by the company’s aspired image should therefore be developed at the first stage of a new venture, serving as the basis of future relationships with different stakeholders.

‘Getting to know each other’ soon leads to popping the question and a marriage proposal to the woman, or more commonly today, the man of one’s dreams. Similarly, a company backed with a meticulous brand image “proposes” to its stakeholders by asking them to invest, be employed, become clients or join the company. For this “engagement” to take place, the man and woman, or in another case, the company and its stakeholders, should share the same values. This is absolutely crucial before plunging into marriage or partnership. Values are what make up the core of a person or an organization. These are the beliefs, principles and standards which they abide by in each and every aspect of life or business.

Having established a set of values and gotten engaged, it is now time to talk about marriage. A couple should at this stage discuss and plan their future together. Two independent human beings are about to take a step forward and make vows to be together for the rest of their lives. These two people in love should now project a vision of their life together. Just like that, a company plans a union with its stakeholders. At this stage, a couple should discuss the potential of raising a family together. Similarly, a company should project how it will stand in the next five years or so, clearly defining its vision and objectives, and then communicating these to its stakeholders. All actions and initiatives that follow should be aligned in order to ensure that the mission is being applied and the vision reached.

When the big day comes, two people become bound for life. After the rosy pre-wedding period and the beautiful reception, real life, with all its ups and downs, begins. No matter how strong love is, a marriage cannot survive or succeed without transparency, a vertebra in the backbone of marriage which keeps a couple together. It is essential to remain transparent about all emotional issues, financial matters and future plans, whether communicating with one’s partner or stakeholders. A company, like a husband or wife, must provide timely and accurate information to its stakeholders and communicate as frequently as possible through two-way communication mechanisms. Open communication is the key to avoiding potential negative attacks and ascertains the company’s credibility.

Another vertebra is consistency in image and substance. One day of “I Love You’s” followed by another day of the cold shoulder makes a marriage rocky. A couple should maintain a level of consistency in the way they deal with and react to each other. Following the same logic, a company committed to its stakeholders should abide by a high level of consistency and avoid any kind of schizophrenia in its image and business conduct. As such, the company should adopt a clear communication strategy which ensures alignment and consistency across all messages.

However, consistency does not necessarily suggest routine and predictable behavior. Communication between a husband and his wife can be translated into various gestures of appreciation. Some of these gestures can cost a foot, arm and a leg while others can be extremely easy on the pocket. One husband can express his love to his wife by buying expensive jewelry; another can opt for the low-cost option and leave small post-its all over the house or write cute notes on the bathroom mirror.

There are innumerable channels that can convey a person’s or a company’s message to a specific audience. These channels can range in price, but the key is to achieve cost efficiency by using the best channel for the particular message. For example, instead of launching an expensive advertising campaign, a company might only need targeted ongoing initiatives like viral videos, round-table meetings, editorials and articles. Diversification in communication helps avoid routine and preserves the impact of a communication message.

On the other hand, no matter how diversified the communication between a couple, all marriages are exposed to crises. These crises can emerge when many small issues remain unresolved and the smallest argument, regardless of its importance, becomes the straw that breaks a camel’s back. A person can avoid these crises by solving all issues before they accumulate and by knowing what irritates their spouse.

Crises in the corporate world can emerge in the same way as in marriage, and can also be avoided by the same crisis management logic. Just like in marriages, crises that are not resolved in the corporate world can lead to a “divorce” and can have damaging repercussions on the company’s image, reputation and financial equity. Establishing an effective crisis management mechanism, just like going through marriage guidance counseling, can address and mitigate crises through effective communication messages and initiatives. Moreover, these crises can be avoided altogether through preemptive measures that primordially consist of a solid communication strategy that can provide a company’s image with a shield of immunity against any potential negativity. Additionally, in the unforeseen and much unwanted event of a “divorce,” a good communication strategy would spare the two parties deep or irrevocable injury, whereby they decide to separate but still remain on good terms.

As psychologist Michael Cavanagh once said, communication in a love relationship is like an intravenous feeding tube that is attached to each partner. The relationship flourishes when nutrients flow through the tube; it turns toxic when poison is fed through it, and becomes anemic when little or nothing flows through it. Similarly, the amorous relationship between a corporate organization and its stakeholders requires just the right amount of “nutritious” communication in order for it to thrive happily ever after.

Dima Itani & Ramsay G. Najjar
S2C

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

How to lead the ‘King of Pop’

by Tommy Weir
written by Tommy Weir

This past month, as the world mourned Michael Jackson’s untimely death, we remembered the great times he gave us over the years and the impact he had on us. Jacko, King of Pop, MJ — no matter what name you call him by, Michael will be a part of our memories and his music will continue to brighten our days when we hear it. We will cherish our memories of trying to moonwalk; of mimicking him by wearing a single glove or white socks; or of attempting to imitate the Thriller dance. Michael helped to shape generations all around the world.

As I watched the news and relived younger days through the music videos, or short-films as Michael called them, a question popped into my mind: “What can we learn about leadership from Michael Jackson?”

We can look through the lyrics of his songs to see if any give us leadership insights, which they do. But there is a much more important lesson we can learn from the King of Pop.

The first lesson can be found by asking, “How would you have gone about managing Michael Jackson?” How well do you think you would have done? To determine this, let’s consider the facts about Michael Jackson. As you read them try to not to reminisce, rather think about what you would have done and how you would have reacted if you were leading him.

The facts

• By the 1980s he had become infinitely more popular than his brotherly group, The Jackson 5.

• Michael holds the record for the most Grammys won in one year: he won eight in 1984.

• He popularized the “moonwalk” and created a dance movement.

• He has sold hundreds of million albums worldwide.

• He dated Brooke Shields and married Lisa Marie Presley.

• He was the first solo artist to generate four top ten hits on the Billboard charts off of one album, “Off the Wall.”

• He was the first artist to generate seven top 10 hits (US) on one album, “Thriller.”

• He was the only artist in history to generate five “#1 hits” (US) from one album, “Bad.”

• “Thriller” is the best-selling album of all time: in excess of 100 million copies sold worldwide.

• “Dangerous” is Michael’s second best-selling album of all time, with more than 30 million copies sold worldwide.

• “Bad” is Michael’s third most successful album, with 30 million copies sold worldwide.

To summarize, MJ was a musical prodigy who was born to be a solo success. At a young age, his singing and dancing talents were amazingly mature and he soon became the dominant figure of an entire industry, entertaining audiences for nearly his whole life. He was one of a kind, a real superstar.

The reactions

So, what would you do if you had to manage Michael Jackson? After working with over 700 chief executive officers in the Middle East (2,000 worldwide), let me share an insight into what most leaders would do.

Most leaders would
• Try to make him normal: Leaders habitually fail when it comes to making a superstar.

• Get jealous: Leaders do not like to share the stage nor do they do well with followers who are more popular than they are.

• Try to make him a team player: Leaders focus on group performance rather than maximizing solo success, which in the case of Michael was inevitable.

• Avoid controversy: Leaders do not like controversy or bizarre behavior, which makes him a consistent target for scandal-making and criticism. Jackson frequently drew controversy.

When it comes to managing a superstar like Michael Jackson, most leaders think it would be awesome, but in reality they would try to change the superstar, get jealous, not trust him, try to make him normal and ultimately try to get rid of or destroy him.

What leaders should do?

When someone has unmatched talent like Michael, a leader needs to discover how to use it for the whole organization to win. This means they cannot fall into the trap of jealousy. The leader has to accept the eccentric behavior, as this craziness is what allows the superstar to do things that others don’t even dream of (the source of their stardom). It also means that the leader will most likely be overshadowed and, if not, will need to step out of the spotlight. But in the end, there will be success.

By not managing a “Michael Jackson” type properly, a leader will lose record sales and maybe even screw up the biggest-selling album of all time, “Thriller.” Remember, people who are destined for greatness will make it with or without you.

So are you ready to manage Michael Jackson?

Tommy Weir is managing director of leadership solutions at Kenexa
 

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The bubble’s jagged edge

by Paul Cochrane
written by Paul Cochrane

Reporters have to watch where they point their cameras as the UAE cracks down on media

For business journalists, writing about the Gulf from 2004 to 2008 was often a repetitive process. Regardless of the sector being covered, the opening paragraph would invariably have a growth figure in the double digits, and the projection for the next year would also be a very healthy one. Every year was a record year, or so it seemed.

The global financial crisis in the autumn of 2008 dimmed the Gulf Cooperation Council’s business fortunes, flipping that opening paragraph to negative double digits or growth in the low single digits, depending on the sector. This change was welcomed by many business journalists, if only to spice up their writing, but of course not by the business community.

The reasons behind strong growth can be easily explained, but a downturn and a serious contraction in revenues requires a different explanation, and it was time for journalists to start asking hard questions — at least it should have been time to play hardball.

However, just as the crisis was beginning to bite, the government of the United Arab Emirates introduced a draft media law in January to update the archaic 1980 law. Media outlets quickly understood the ramifications of the proposed rules, which include article 32, whereby journalists can be fined up to $1.3 million for “disparaging” government officials, members of the royal family or Islam, and article 33, which fines journalists up to $136,000 for harming the nation’s image and reporting “misleading” information on the economy.

Given such fines, way beyond the financial means of most journalists and media outlets, how could hacks ask hard questions? And how could journalists report on companies and firms that were in trouble but directly linked to royal families? It is a clear Catch-22 situation: journalists want to do their job, and the public and investors have the right to know about financial shenanigans, but to do so could come with a hefty price tag, and if you can’t cough it up, it’s a stint behind bars in the debtors’ jail.

The whole notion of transparency became a mockery, and the depth of the financial crisis’ impact was barely debated in the media, at least not in the UAE and the other GCC countries, where media laws are similarly draconian.

How ingrained such self-censorship is among Gulf journalists was evident in the headlines and articles in the aftermath of the bomb Dubai World dropped on global markets by announcing a standstill in billions of dollars of debt repayments. The Gulf News gushed across its front page: “Government intervention to ensure commercial success,” the Abu Dhabi-owned The National downplayed the impact with the headline: “A silver lining in Dubai World,” and the Khaleej Times espoused optimism with: “Restructuring ‘A Sensible Business Decision.’” Elsewhere, papers’ headlines were of “castles in the sand,” “Dubai in turmoil,” and “Bombshell decision has severely damaged Dubai’s reputation.”

But while papers outside the region can tell it as it is, reporting on what has already been reported can even be a risky business in the rest of the Middle East.

In one case, a UAE-based journalist wrote an article on the new media law for the American University of Cairo’s (AUC) Arab Media & Society (AMS) website. In it, she referred to a case in May where British daily The Independent ran a story about a case of fraud in which a Dubai developer showed investors photographs of buildings under construction, but were in fact photos of another project. The investors demanded a refund, but until now they have not been reimbursed.

The developer is the Al Fajer Group, run by Sheikh Maktoum bin Hasher Al Maktoum, who is the nephew of Dubai’s ruler. For citing — not breaking — this story, the Maktoum’s threatened to sue AUC.

What this case highlights is the lengths to which the UAE will go to try and rein in negative media coverage. Furthermore, the case has warded off necessary reporting on dubious tactics by developers, which damage the reputation of the real estate sector at the very time when the sector is suffering, with real estate prices down 50 percent in Dubai from their 2008 peak, and investment bank Union de Banques Suisses projecting in November that it could take up to 10 years for the sector to bounce back.

The last thing the sector should want in such a tenuous climate is jittery investors. As an Al Fajer investor told The Independent, “This is going to define my faith in the country. If I’m dealt with correctly, great. But at the moment, it’s not going that way. We’re in the witching hour now.”

That witching hour extends to media coverage, transparency in economic data and whether firms connected to the royal family are being unfairly assisted and bailed out at the expense of ‘ordinary’ companies trying to compete in a supposedly free market. As for us business journalists, reporting on the Gulf is certainly keeping us on our toes as we cover, or indeed cover up, the Gulf’s (mis)fortunes, and try to avoid getting fined a lifetime’s salary in the process.

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

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