Executive Magazine

Architecture – Lest we forget

by Executive Staff August 1, 2009

written by Executive Staff

On the corner of Beirut’s Sodeco crossing stands one of the city’s most emblematic buildings, one that epitomizes both the city’s history and the ravages of the Lebanese Civil War.

The Barakat building is one of the last standing war-torn structures around the center of Beirut, a symbol of the city’s progress and architectural heritage. The building’s construction began in 1924 under the watchful eye of Youssef Aftimos, one of Lebanon’s most famous architects, who also designed Beirut’s municipal building. The first two stories of the four-story building were built out of stone because concrete had yet to be widely used in construction. By 1932, concrete was all the rage, and two more floors were built, making the building one of the first, and last, remaining structures in the city built in this fashion.

Barakat is actually two buildings conjoined together, with much of the space between them consisting of a wide void that gives almost every room a view onto the street — including the rear rooms. This architectural peculiarity gained the building much acclaim as a piece of avante-garde architecture, blending Art Deco and Ottoman styles. But because the building commanded a strategic position on one of the major fault lines of the Lebanese Civil War, the Green Line, it became a premier fighting position in 1975. Christian militiamen built reinforced sniper positions in the rear of the house, away from the windows, and the building’s architecture gave them a near 180 degree view of Sodeco square and beyond. Sitting in their concrete and sandbagged sniper nests, militiamen had a line of fire to Basta, Ras al-Nabaa, the French Embassy on Damascus road, and nearly to the Hippodrome and the Beirut Museum of Antiquities.

Saving the past
After the civil war ended, the building’s owners, the Barakat family, decided to tear it down in order to sell the land that by then had become prime real estate. In 1997, as the building was being demolished to make room for a new real estate project, one activist decided to try to save the building.

“By a stroke of luck I saw it,” says Mona Hallak, an architect and preservation activist who spearheaded the campaign to save the Barakat building. “After five days of a heavy press campaign, it made such a fuss that the minister of culture became embarrassed and suspended [the destruction] verbally.”

The verbal suspension took a total of nine years to materialize into an official government decree to renovate the Barakat building to house the “Museum of Memory.” The building was purchased by the Beirut municipality for some $3 million from the Barakat family.
Since then the building has stood idle and may well have remained as such if it were not for Lebanon’s former colonial rulers.

“The French are agreeing with us preservation activists and pushing this project along,” says Hallak, who is also on the scientific committee that is coordinating between the various stakeholders of the project. The municipality of Paris has assigned a delegation comprised of a restorer, an architect and a museum curator to provide “technical assistance” to the Beirut municipality.

The delegation was scheduled to make its first trip to Lebanon in 2006 but had to cancel that, and several subsequent visits, because of armed conflict and political turmoil in the country. They finally made it in November 2008, helping Beirut municipality to choose an architect to devise a program for the project.

“We pushed for an architectural competition [but] we didn’t get it,” says Hallak. “[The Beirut municipality] listed an architect and it’s now in the process of being approved.”
The French embassy in Beirut was not available to comment on the issue.

So far, it’s not clear what “memories” the Museum of Memory will house. Some want the bullet-riddled building to be cleaned up and restored, like in Beirut’s central district, and the museum to focus on the capital’s ancient history. Other say the building should be left as it is, with bullet holes and blown out walls incorporated into a museum that would document the history of the civil war.

Without a solid program and vision in place, the museum’s content cannot be finalized because restoration efforts will need to take the contextual elements on display into consideration. Nonetheless, the municipality insists that things are on the right track.

Ralph Eid, head of the committee at the municipality that is overseeing the project, says an architect has not been announced due to an “administrative procedure” and the announcement should be made “in about a month.” According to Eid, the project, which he estimated to cost around $6 million, was open to public submission to which “only six people submitted proposals.”

Today the building is wrapped in a massive plastic banner that serves as advertising space to promote everything from instant coffee to the ruling March 14 coalition’s recent election victory. Eid says the decision to post ads was made in order to “save money” through a deal with an advertising firm — he declined to name the company — whereby they would erect the scaffolding in exchange for “25 to 35 percent of the space to be used for advertising.” He says the advertising will be removed soon.

When reconstruction comes
As for the actual construction of the project, Eid believes that the first cornerstone could be laid in six months and it would be “fair to say” that the project will be completed by 2012. But this may be “too optimistic,” says Hallak. Supposing the architect that has been chosen is commissioned and comes up with a program that satisfies all the stakeholders, the contracts must then be put out to tender and only when a contractor has been chosen can work begin. Moreover, the clock is ticking: any government decree that is not implemented within eight years of it being issued can be overturned, meaning the original owners can lobby to get it back, still a real possibility given the project is expected to be completed one year after the eight year grace period.

It seems that the constant delays are once again threatening the project’s implementation. Hallak says without a place to recall the horrors of the civil war, the Lebanese risk returning to the bloodletting of darker days.

“This city has not attempted on a public level to deal with the issue or do any kind of reconciliation,” says Hallak. “This building will initiate a process that, if not initiated, means my sons or your sons will fall back into war. If you don’t deal with it, it is going to come back.”

August 1, 2009 0 comments

Finance

Bank BEMO – Samih Saadeh (Q&A)

by Soraya Darghous August 1, 2009

written by Soraya Darghous

Samih Saadeh is general manager of Lebanon’s 18th largest bank, Banque BEMO, and has been with the bank since 2003. He started working in the banking industry in 1978 and has been a senior executive at American Express Bank-Beirut, Bank of Beirut and ABN AMRO Bank.
Bank BEMO has total assets of $1.05 billion, and if the bank’s Syrian affiliate is included, some $3 billion. In the first half of 2009, the bank’s total assets grew by 15.6 percent. Executive sat down with Saadeh to talk about his bank’s success and gain insight into the role smaller banks play in Lebanon today.

Samih Saadeh

E As a medium sized “beta” bank, how does your strategy differ from an alpha bank? What are the top priorities on your agenda?

This is a board decision, it’s the oversight of the bank. We compare our private banking to Bank Audi Saradar sometimes, yes, [but] on a smaller case though, because they have larger capital and client base. Certainly when you have a universal bank you have a larger client base, which allows you to make more money and to be more exposed.

What we’re trying to do on a smaller scale is have a boutique bank, instead of having a universal bank. I respect everybody’s strategy, I probably agree with other’s strategy sometimes — because it’s faster to make money and grow — and you come to BEMO and you see it’s very little and a bit slower.

If you want to be a private bank in this country, you really have to have political stability. If people want to believe in putting money with you, you don’t have to rely on the locals. I hope one day the political stability arrives, but this is one of the missing links in the chain to complete the services of Lebanon as a financial center. All of the potential that Lebanon has is not prospering because of the political instability. People want to trust this bank in 10 or 20 years, and this is what we are betting on. We want to build this; we want to complete this closed chain in Lebanon.

E Now, how to survive? Bank Audi, for example, has built a lot of things around their vision and one of them is private banking.
Corporate banking and retail banking need a lot of capital. You need to either open capital or get other investors. Private banking, in reality, doesn’t need a lot of capital. It needs a lot of know-how, conservatism and trust.

E What kind of customers do you cater to?
We as BEMO have a different strategy than Lebanese banks. We don’t want to play volume. We would like to grow, certainly, but if you want to grow you have to have large capital and to possibly go into retail banking. You also have to have a strategic vision for the bank, which allows you to be like any other bank. In Beirut, we’re very specialized. Our motto is ‘corporate and private banking.’ We don’t do retail banking — we do to an extent though.

Recently we started to buy some Lebanese government sovereign paper. If you want to collect deposits and you don’t put it in a sovereign bank, you have to lend it. You are bound by ratios as well, on how much you lend. There is a limitation to how large we can grow in volume. So we always look at how much we can grow in fee income, not how much we can grow in volume. Even if I get a large deposit today, I lose a lot of money. Either you put it in the government, outside, or with the central bank. Even if the central bank pays for you half a point — you lose a lot of money.

Originally Lebanese banks collected deposits — they lent around 50 percent and placed with the government and the central bank up to 55 percent. We, on the contrary, have 25 percent with the central bank, and with the government we have 3 percent to 5 percent, not more. This is why growth is a limitation to us. If you compare us to the rest, we are a beta bank in volume, but our strategy forbids us from being an alpha bank, even if we wanted to.

E How has the bank’s strategy changed since the global financial crisis struck and now after?
Banque BEMO has always had the strategy to grow to be a private bank whereby we would be acting as a financial advisor for every high net worth individual throughout their life — no matter what stage they are in. If you want to act as a financial advisor, you need to build the reputation. Building this reputation takes decades actually. We’re building on the heritage the Obegi family has, for the last 50 years. Now we have another decade to work on, to earn this trust from the people. Also, we use a business model of relationships. That means every client has his own financial advisor or relationship manager.

When the financial crisis came — and this is an approach to private banking — people stopped dealing and we make a lot of money on people making deals. So part of our income was hurt… Now, it’s catching up, thank God, the trust is starting to be rebuilt. People are getting into the market.

On the corporate side, we didn’t suffer at all. We had a certain amount of money lent, and we had lent it. In percentage, we are the highest lent bank to corporates in the country. We are lending around 45 percent of our total assets to corporates. We don’t go into the government too much.

Private banking income was a little bit on a standstill. We hope that it will catch up again.
We didn’t change our strategy, it stayed the same… we just weren’t aggressive in pursuing it in the last year. But the board decided that strategically this is what they want. They want to stay as a private, corporate bank.

E Since the financial crisis, how has your advice to your clients changed? What are the most common investments you tell them to make?
Frankly it’s not easy to let them come back. Everybody lost, depending on the extent of the loss — nobody can claim they didn’t lose… If they bought their portfolios five, 10 years ago or two years ago they probably didn’t lose — the starting point is most important [factor]. We are inviting them to come back because the markets are starting to pick up, there’s a lot of opportunity. But, be prudent at least. You have the safe investments, if you go into medical and commodities. There are aggressive and risky investments like financials. Depends on your profile. We always split our client base into categories.

E Recently, the International Monetary Fund said Lebanon’s economy could grow much faster than their previous projection of 4 percent. But, the IMF emphasized that the top priority for Lebanese banks should be dealing with the public debt. What is your take on this?
This is quite a thorny issue. Who is right? Imagine if the banks didn’t give money; what would have happened? Also, imagine that we didn’t have this flagship of the economy — the banking sector — nobody would have heard of it. The economy is built on the financial sector.

Certainly, the financial sector is benefitting from lending to the government, but it’s also to the benefit of all stakeholders. We were saved from the financial crisis because our debt was local. Lebanese banks cannot stop financing the government; it’s in their interest now.
For me, the public debt is the least thing we should worry about. If we spent the same time talking about the debt on increasing productivity, the GDP of the country would soar.

Recently, Lebanon’s GDP increased to $33 billion; it could be $50 billion! This year we have a growth of 6 percent, when everyone else around the world is suffering negative growth. Imagine if there was political stability; the growth could be far higher.
Debt is not a problem as long as you generate productivity!

August 1, 2009 0 comments

Lebanon

Forestry – Firefighting reinforcements

by Executive Staff August 1, 2009

written by Executive Staff

The first week of July saw an unprecedented number of wild fires rage across the country: 185 in three days. The Lebanese authorities struggled to contain the unexpected fires; the three firefighting Sirkosky helicopters, acquired this year, still weren’t ready to be used so early in the dry summer season.

From Beirut, smoke from two fires could be seen billowing off the Chouf and Metn, leaving black scars in its wake. From Zgharta to Tebnin, the fires burnt fruit groves, olive trees, grassland and pine forest. The damage costs farmers and others millions of dollars per year — up to $10 million to replant 2,000 hectares of land. The fires are suspected of being started by farmers, charcoal collectors, trash burners or campers, despite a law that comes into effect every summer banning fires in rural areas.

It was the same in 2007, when fires destroyed 4,031 hectares of forest and agricultural land, or more than triple the annual average of 1,200 hectares. To the Lebanese government, this number symbolized far more than just the immense physical and fiscal damage that the fires caused. This time, change needed to happen.

“The fires of 2007 following the damages caused by the summer war of 2006 brought to light not only to the Lebanese citizens, but also to the government, the rapid decrease of forestry in Lebanon,” said Dr. George Mitri, research and development program coordinator at the Association for Forests, Development and Conservation (AFDC), a Lebanon-based non-governmental organization collaborating with the government to find a more effective long-term solution to Lebanon’s forest fire problem.

“In 1965, the percentage of forestry in Lebanon, and we’re talking about mostly pine trees, was at 35 percent of the country. Today, 34 years later, it’s at only 13 percent,” continued Mitri. According to an AFDC report, 5.6 percent of Lebanon is at high risk of fires and 25 percent at medium to high risk.

When forests are lost, ecosystems are destroyed. Certain species of plants, animals and different kinds of wildlife continue to be classified as endangered in Lebanon. Forests act as somewhat of a ‘filter’ for air. With less forests, the effects of pollution are more severe. Additionally, forests serve economic benefits, with the average hectare of forest in Lebanon generating gross benefits of $381 per year according to the AFDC. This figure rises when fruit trees are included. For instance, one hectare of oilve trees generates an estimated $13,300, according to the World Bank. Overall, the total gross losses of the October to November 2007 fires were estimated at $31.1 million.

So when the smoke cleared, plans were put in place to develop a new strategy to better manage and combat forest fires in Lebanon. ‘Lebanon’s National Strategy for Forest Fire Management’ was introduced this spring as the new official tool to combat forest fires in the future. The most important aspect of the strategy, according to Mitri, was that it signified the first time the Ministries of Interior, Environment and Agriculture were to collaborate jointly, alongside the Civil Defense and a number of local and international NGOs.

The working plan
Lara Samaha, head of the Department of Ecosystems at the Ministry of Environment, believes that the strategy is a positive first step and can succeed in effectively bringing down the annual damage caused by fires in the long term.

She says the strategy specifies what needs to be done to combat forest fires in Lebanon, as well as “determines for each national action, on all levels, the concerned and appropriate administration for its implementation.”

The strategy emphasizes the three important steps of forest fire management: prevention, combating the fires, and restoration and rehabilitation of the land. Within the strategy are the detailed responsibilities of each ministry, and the best method for each to execute its role.

The hurdles that the new strategy must overcome, however, remain immense. The Lebanese climate is often compared to that of California, where pine tree forest fires prove to be a consistent and difficult problem. In California, the average loss of forest has been 105,000 hectares per year over the last five years.

“When the committee was put together to come up with the new national strategy, we went to California to speak to experts in the field, knowing that we were going to need to learn more,” said Samaha.

Year after year
Thousands of fires threaten Lebanon’s forests every year, and the Civil Defense’s fire fighters — up to 4,000 of them unpaid volunteers — struggle to contain the destruction during the dry summer months, between late May through September. Among the most difficult factors in combating forest fires is their unpredictability once the flames are out of control.

“Some of the factors contributing to spreading forest fires are wind speeds and distances from the nearest Civil Defense stations,” explained Mitri. “As long as the Civil Defense can make it to the area of the fire within the first 20 minutes, they can probably contain it before it grows.”

George Abi Musa, the head of operations at the Department of Civil Defense, agreed that getting to the fire early is key to properly managing and combating it, but adds that this is often difficult.

“When you have 15 or 20 fires which are burning at the same time, it’s nearly impossible to get to all of them in proper time,” explained Abi Musa. “In late June, did you know that there were 683 fires in a span of five days, with 45 of them coming in a two-hour span?”

Abi Musa believes that the Civil Defense has one of the largest, if not the largest role to play in managing forest fires in Lebanon, and is excited about the three new Sirkosky helicopters purchased by the Ministry of Interior to be used by the Civil Defense. The helicopters, which can carry up to 3,500 liters of water per trip, are estimated to have cost a total of $13 million, according to The Daily Star, and are the first such helicopters to be owned and used by Lebanon.

“I’ve been with the Civil Defense for 25 years now, and up until this point, owning such helicopters was just a dream,” said Abi Musa. “Now we can reach the fires which were previously nearly impossible to reach.”

Armed with the new strategy, confidence within the Lebanese government is high in regards to managing forest fires, but Mitri, Samaha, and Abi Musa all insist that none of what is to be accomplished can be done without the help of every Lebanese citizen in aiding the government to protect the forests of Lebanon.

“When you have a single fire, then that could have been started by natural causes. But when you have 50 or 60, it means that these are started by people, whether harm is intended or not,” said Abi Musa.
All three spoke of the need for citizens to contact the Civil Defense in cases where they see a fire, or anyone about to start one.

Additionally, finances are an important part of any effective fire-management system, with some $1.4 million spent firefighting in 2007. Replanting is a further cost, estimated at $6,300 per hectare. Sufficient funds are a luxury the Lebanese Civil Defense does not have. Support has trickled in more consistently since the fires of 2007, the year when the problem was recognized globally. Much of what can be accomplished with the new strategy will depend on the continued support of other countries, as well as local and international contributions.

Ultimately, time will tell whether or not Lebanon’s new national strategy will effectively counter the forest fire problem, but for once, there’s optimism in the government that they are one step closer to finally snuffing out the flames.

August 1, 2009 0 comments

Companies & Strategies

Samsung – Sunny Hwang (Q&A)

by Executive Staff August 1, 2009

written by Executive Staff

Samsung, the South Korea-based electronics manufacturing giant, announced the official launch of its regional Levant office this summer, to be based in Amman, Jordan. Executive was invited to attend the opening of the office on an all-expenses-paid trip, and had the opportunity to speak with Sunny Hwang, the President of Samsung’s new Levant Operation Office.

E Why did you decide on a regional office?
The Samsung brand in the global market is at this moment pretty much enjoying its status. So we are doing very well in the TV businesses and the cell phone businesses and all other business areas. For example, in the TV business we have been in the number one position since 2006 and our position is getting stronger. But in the Levant area, Samsung’s business compared to our global standard is very weak. Lebanon is a little bit stronger than any other Levant area. We are devoted to our weakest point and we want to attack it, and actually at this moment this is just the beginning. We put our head office here and by next month we will open an office in Damascus, and in the first quarter of next year we will also open an office in Beirut. That is our target.

E How can you evaluate the regional market given the current circumstances?
Before I came, I worked in Sweden, in the Nordic area. And it was the first region hit by the recession. So I know what the global recession is and I know what can be influenced by the global recession in our operations. But I feel that the Levant area is the least affected. If I want to divide by country, I think that Jordan is hit the most.

E What about internationally? How are you affected as Samsung?
In the last quarter last year, we made a big loss. The important thing is that we also expected the first quarter to be terrible. But when the results came, it proved that we had already recovered. It didn’t show a strong profit, but in the first quarter we turned the direction to profit. The market is recovering at a very slow pace. Nobody is expecting the market to recover within this year — it will very slowly recover until the end of next year. When the Korean-Asian financial crisis came in 1999, we restructured everything, and Samsung stood very tall at the time. So thanks to that we could make this very strong foundation. During most of this time we did restructuring and all the changes helped. So we did a lot of changes since the second half of last year. We restructured ourselves and strengthened our organization.

E Now in the region, what challenges are you facing to keep clients?
What I found in the last four months when I came here is that the only problem is that we did not communicate successfully with the consumers, so they do not know what Samsung is, and what Samsung products can give them. So the lack of knowledge about Samsung products is why there is so much of a gap between the global level and the level in the Levant.

E What is your strategy? What are the steps that you are planning to take in the near future?
We had great difficulty to communicate because we did not have our organization here. So what we could do before is to rely on our partners. But by nature, their interest is to sell and make profit. They do not [want] to put money [into] the Samsung brand [to see benefits] over the next 10 years, so it is a short-term profit. Only Samsung as an owner of the brand can work for 10 or 20 years later. That is why we have not done the right marketing communication or investment in the last 10 years. This is the first time we are marketing and public relations will be managed by Samsung ourselves. So we can carry our investment for the long term.

E What is your current share of the market in the Levant region, compared to Nokia?
When we are talking about mobiles, Nokia is about 70 percent, and Samsung is about 20 percent. And Sony-Ericsson is getting weaker and weaker.

E What about other regions?
In some countries, Samsung’s share can be less. But in most countries it is about 25 percent.

E Are you focusing on certain products here in the region?
We have many groups, and we cannot neglect any part of it. We have audio, video, flat screen TV, and the LSA TV is the most important one. And as you might know, we had a very good launching a week ago in Beirut in Skybar, so that is the new field of the flat screen TV market. We are creating the market at the moment. LCD flat panel TV is the strongest point and we should push that, and we should utilize it, air conditioning also. In cell phones we are number two in the world after Nokia, but we should be a stronger number two. Already in France, Samsung has been number one for the last four years. We beat Nokia in France. Benelux states are to lead, Russia also and many other countries, so why not here in the Levant?

E Last quarter demand decreased and you ended up in the red. Has this affected your pricing structure and what have you changed since?
We cannot change the pricing, because then we will be out of the market. I do not think we increased the price, but we did a lot in cost cutting, like all the executives of Samsung had to decrease their salaries by 30 percent — every executive. Instead of firing people, we chose to decrease the benefits. Today we can only travel by [economy] class.

E What are the products that were the most affected… TVs or mobiles?
It is not a certain product that is affected. We have to [differentiate between the] consumer section and business-to-business section. The global crisis immediately attacked the [latter] section, because every company is holding its purchases. So in our products there are a lot of business-to-business products like monitors and printers. They are also selling to consumers but we are talking about corporate. Consumer sales have not been affected that much, like TV sales.
People are cutting their traveling costs. So, because they are staying at home, they need a TV!

E How many people are you going to hire for this office?
That totally depends on the performance and the sales results. There will be no fixed amount of people. It will depend on the operation size. When I was in Sweden, our turnover was $1 billion, and I had 300 people.

E Here, what do you expect the turnover to be?
In three to four years our target is to reach $1 billion. [Today], for the Levant, it is around $200 million. Next year our target is $500 million.

E What are your expectations for the Levant market?
Well, my dream and my mission in the Levant is to be first in one year’s time from today, to reach the global average in TV sales and all sales, and also brand. Our branding in the Levant is quite low because we haven’t invested that much, but we will do our best to reposition ourselves. That means bringing brand preferences. Sales wise, next year will be about two times growth. And every year two times growth. That is a possibility in this market, because it is a virgin market.

August 1, 2009 0 comments

Lebanon

Reconstruction – Rebirth begins

by Executive Staff August 1, 2009

written by Executive Staff

The rehabilitation of downtown Beirut’s Magen Avraham synagogue will begin this summer, according to sources in the Jewish community. Once the largest synagogue in the Middle East, the Lebanese Civil War and the Israeli invasion of 1982 left the synagogue in ruins, a state it’s remained in for more than 20 years; but, funds have now been raised for its reconstruction.

The architect in charge of the Magen Avraham synagogue’s renovation confirmed to Executive that reconstruction is imminent. With work expected to begin in August, the site will be cleared of the trees and weeds that have grown in the partially destroyed structure.

The architect, who spoke on condition of anonymity, stated that the money for reconstruction has been raised by expatriate Lebanese Jews and private donations and will cost a total of $2 million to complete.

“The synagogue will eventually be restored to exactly how it was,” the architect said. “I will be reconstructing the synagogue using old techniques, hand-cutting the stone and so on. Currently all the ceiling, woodwork and iron work needs to be replaced. The original façade will remain but we will have to check if we need to re-do the structure.”

The Magen Avraham Synagogue Facebook group also posted an announcement that reconstruction of the synagogue would occur. This announcement was accompanied by a chorus of “Mazel tovs” and “Mabrouks” (congratulations). However, not all on the group were celebratory. David Avraham Daoud, a member of Facebook’s Israel network, wrote that the reconstruction issue is still delicate.

“I just hope it doesn’t become a death trap for the Jewish community in Lebanon,” he wrote.

Others were more positive about the synagogue’s re-development. “Let’s enjoy the integration and multi-ethnicities in our beautiful Middle East,” wrote Zainab Khalil, while Lebanese Boudi Saleh was “excited to hear that it will be renovated.” The plans for the synagogue include a museum documenting the history of the Lebanese Jewish community.

August 1, 2009 0 comments

Companies & Strategies

Ogilvy Group – Ralph Clementson (Q&A)

by Executive Staff August 1, 2009

written by Executive Staff

Ralph Clementson is the general manager for the advertising agency Ogilvy and Mather, in Europe, Africa, and the Middle East. He is also on the board of Memac Ogilvy, the company’s Middle Eastern partner. Clementson was in Beirut last month for the Memac Ogilvy management meeting, and he spoke with Executive about the opportunities and challenges of new technologies and why the future lies in Iraq.

E It seems like the mood at Memac Ogilvy has been pretty upbeat. I’m surprised to hear that.
It is upbeat! The environment is tough, but this is a high growth region compared to France or Germany, or even the States.

E Why is that? Because there’s so much untapped potential?
It’s because of a number of things. The first thing is there are a number of markets which are still about to open up, which as yet are untapped potential. If you think of North Africa, Algeria is opening up for marketing very fast, and Libya is going to be the next market which opens up. And then if you think about the Middle East itself, Syria is opening up fast, and the next one will be Iraq. Think of the untapped potential that will be out there. It’s huge.

E Iraq, really? Are there any ad agencies there now?
They’re starting up. There are now several ad agencies in Iraq, and they’re supporting clients who are beginning to think what they can do to market their products over there. Cigarettes are still sold over there, and beers, and so on, so there’s plenty of potential there. It’s just everybody is getting onto the map, it’s still a little bit early, but give it another three years, that’s a huge potential.

So, if you look at this region, there’s a potential for development through opening up the markets, but it’s not just that. We’ve also got reasonable levels of inflation. Inflation is running at five to eight percent in quite a bit of the region, and inflation actually means growth if you think about it. The difficulty is delivering profit, for the revenues will grow as well as the costs.

E In other words, you think longt-erm.
Right. You think long-term.
The third reason is we’ve not got great penetration in various disciplines. If you just take the technology aspect, the Gulf is hugely interested in technology. I mean the number of people with two mobile phones here is enormous.

E Is technology the answer? Is that what everybody in advertising is talking about?
Yes. Every discipline of communications is interested in the impact of the digital world on their businesses. It’s changing the medium. And so, given that you’ve got a high level of technology, particularly in the mobile environment, it represents some really exciting opportunities. And in fact, probably, this Middle East world is more sophisticated in terms of its technological understanding, and particularly the youth population, than in quite a few of our western European markets.

The real problem, though, is that it’s a new technology, and it’s safe to say that to date the commercial model supporting the mobile environment is not fully worked out. So when you’re talking about communications in this space, it’s still got to be developed in a significant way, but this’ll be one of the regions in the world where it is developed.

E What do you mean that the commercial model isn’t worked out yet?
If the kids are watching their little iPhones and they’re watching their films on the iPhones, you no longer have commercial breaks necessarily. They’re no longer watching TV.
So what you’ve got is change in viewing habits, and the quest then is how do people make their money in pushing content out into this environment?

E Not a lot of people realize that YouTube doesn’t turn a profit, for instance.
People have got to get the commercial model worked out. They still haven’t. But what’s interesting is that the Gulf is going to be at the forefront of this, and it’s going to make for an exciting environment in the next five years.

E Are you saying, though, that the advertising world hasn’t figured out what to do with the Internet at all?
No, not at all. What I’m talking about is mobile TV. In the very specific area of mobile TV, I think the commercial model is still being developed. And that’s really the only area of technology that’s not been developed. And because in the Gulf there’s a lot of mobile telephones, this is actually quite important. But the digital, the interactive world, is very well developed, and we’re leading in that.

Obviously, with iPhones and the like, as the Internet and the mobile become one and the same, we’ll be partnering all our clients as they evolve into that new space. But it is a new space and it’s going to be very important here, and exciting.

E Who are the big losers in all this?
Well if we talk about the disciplines of marketing, I think what’s quite clear is traditional advertising is on its way down, because spending is shifting. The traditional advertising and offline direct mail is losing out, and interactive activity is going up. Now it’s all part of the same discipline: instead of doing an offline direct mail to someone’s house, you’re putting things online which previously would have gone in the mail.

And also, especially in the current economic environment, it’s evident that what’s going to be seen is a move towards promotional activity, where people are making cost offers on their products. So it’s those sort of moves — slightly less on advertising and direct mail, and more online and more informational type activity.

E Sometimes I wonder, with all this talk about technologies and delivery-methods, isn’t there nothing better than a clever 30-second spot? Isn’t that still the pinnacle of advertising?
The pinnacle of advertising remains the ad that sells, rather than the one that makes you laugh. It may be that one is the other, but actually the pinnacle remains the ad that sells. Particularly with clients today. They’re more and more focused on the return they’re getting from the money they’re spending. No marketing director today can go to his board and claim loads of money unless he’s able to go back and say, “Here’s the return on what you’re investing in.”

August 1, 2009 0 comments

Lebanon

Nightlife – The party parade

by Executive Staff August 1, 2009

written by Executive Staff

The festival season is in full swing. American rapper Snoop Dogg is scheduled to play Beirut in August. Visits by Michael Bolton and Paris Hilton, despite one’s personal feelings for the crooner or the spotlight-hungry heiress, are indicators that Lebanon’s summer season is, so far, the most secure since 2004.

The country is expecting “the best tourism season we have ever seen,” says Nada Ghandour, director general at the tourism ministry. According to figures released earlier this year by the ministry, the total number of tourists in 2009 is expected to reach two million, with the majority arriving in the summer months. And Lebanon’s political stability translates not just into a party, but also into cash flowing into the coffers of the country’s quickly expanding nightlife industry.

“Given the amount of people that there are going to be [in Lebanon], everybody will benefit from the season, that’s for sure,” says Oliver Gasnier-Duparc, co-owner and manager of Behind the Green Door, a popular lounge bar in Beirut.

Bars and nightclubs began lighting up Beirut’s nightscape in the mid-1990s on one particular street on the fringes of Beirut’s central district, Monot Street. The allure of untapped market space supplemented by the unquenched thirst of a city without a vibrant nightlife was the perfect recipe for an industry boom. Monot came of age around the turn of the century, with new bars and nightspots sprouting almost weekly.

The phenomenon gave birth to a business model that has been replicated by entrepreneurs looking to make a quick buck.

“You would have a group of five to 10 friends who were ambitious and party animals, and thought ‘let’s each put in $10,000 and open our own bar, and if each one of us brings in just five people every day we will fill up and make money,’” says Ziad Kamel, co-owner of bars Gauche Caviar and Cloud 9 in Beirut’s trendy Gemmayze district. “You see a lot of these kinds of places shutting down and selling off.”

The bars eventually closed and the Monot of today is a skeleton of the once lucrative nighttime hotspot.

“Monot boomed around 1999 to 2000 and now there are only a couple of places left which were the original ones,” says Mark Mouraccade, a long-time bar manager and co-owner of Ferdinand’s bar in Beirut’s Hamra district.

The neighbors were one reason the district ceased to be the epicenter of Beirut’s nightlife — noise complaints forced many clubs to shut down. And then there was the nightlife migration to an older, quainter neighborhood a few blocks away: Gemmayze.

Gemmayze was once a quiet residential area but now has more than 90 bars and restaurants operating in the district. Makram Zeen, president of the Gemmayze Development Committee (GDC), a collective of bars and restaurants in the district, estimates that total yearly revenues of all the bars and restaurants in the area comes to $36 million, or around $400,000 a year for each venue. Zeen, who also owns Le Gardel pub and La Estancia restaurant in Gemmayze, claims the hospitality sector in the district has created between 1,200 and 1,400 jobs and has generated $15 million to $16 million in investment.

The total revenue generated by the nightlife industry in Lebanon is currently not available. When Executive asked Paul Aris, head of the association of restaurants, bars and pastry shops for figures relating to the industry, he laughed and said, “Figures? You must be joking. Even the Ministry of Tourism waits for General Security to give it figures.”

Real estate on the rise
While the nightlife industry has become a welcome addition to Lebanon’s economy, the economics of proximity have also galvanized the real estate sector in areas like Gemmayze and Mar Mikhael. Property in the Gemmayze area is being sold at around $3,000 to $3,500 per square meter, a significant increase from a few years ago, according to research conducted by real estate consultants RAMCO.

“Real estate in the area was being sold for peanuts,” says Zeen. “Now, because of us, the real estate value has increased three-fold.”

While the rising price of property may be one reason most bar owners in Lebanon prefer to rent rather than own, there are other more technical issues to consider. “It’s very complicated to buy properties because usually a building is owned by 15 or 16 people,” says Paddy Cochrane, a bar owner whose family also owns property in Gemmayze.

Sensible or not, the inability or reluctance to buy property has left bar and restaurant owners grappling with soaring rental costs by landlords eager to capitalize on the industry boom. A source who advises bar and restaurant owners on administrative issues said that when one of his clients wanted to renew their rent in Gemmayze, the landlord increased the yearly rate from $40,000 to $120,000.

“There are no rent ceilings imposed by the government,” says Kamel, who is also the treasurer and head of marketing at the GDC. “So if you rented five years ago in Gemmayze for $200 per square meter per year — which you could have easily done — now that your five years are up, the landlord can say ‘you know what I want is $800 to $900.’ [Rent] goes up 400 to 500 percent and all of a sudden it is not feasible for you to run your business.”

The other Gemmayzes
At present the cost of renting a venue for a bar or restaurant in Gemmayze can be “over $900 per square meter [per year],” according to Zeen. As a consequence many entrepreneurs looking to open a nightspot are opting for the adjacent district of Mar Mikhael. “The place was cheap,” says Gasnier-Duparc of Behind the Green Door, who opened last December at the beginning of the Mar Mikhael district. “Most of the people opening up here are doing so because it is cheaper.”

Right now the going rate for a bar or restaurant venue in Mar Mikhael sells at around $450 per square meter per year according to various sources in the nightlife industry.
Another up-and-coming venue for new bars and nightlife is the Hamra district, which housed many bars and restaurants before and shortly after the Lebanese Civil War.

“I ran away from Gemmayze to open here,” says Ferdiand’s Mouraccade. Despite having to pay less rent than bustling Gemmayze, Mouraccade opened his bar in Hamra because he believes the area is “experiencing a revival” and offers a more sustainable business model than other locations. “Hamra is different from the rest because you don’t feel the effect of high season or low season as much,” he says.

Haytham Nasr, who owns and manages the Juniper bar in Gemmayze, believes that because of the district’s increasing costs, entrepreneurs looking to enter the market are now considering other areas. “Any bar owner should maintain their rent at a maximum of 5 to 10 percent of annual revenue and make the initial investment back in a year,” he says. “I don’t see how they are going to profit in Gemmayze.”

Nasr’s new project, called “myBar,” is set to open on the outskirts of Gemmayze around the end of this year. The project is unique in Lebanon because of its business model, operating somewhat like a private equity fund or a public company whereby investors buy “barnotes” that are valued between $2,000 and $20,000 and carry dividends of 0.2 to 2 percent. Nasr’s expected return on investment for co-owners is 274 percent. So far the project has raised more than $650,000 and intends to raise $1 million. “We are very confident that we will reach the $1 million and we are closing off funding in six to eight weeks,” Nasr says.

Saturation point
Although the nightlife industry is currently booming, not all the news coming out of the sector is good. The sheer number of venues opening up has created a substantial increase in the supply of nightspots while rising costs are forcing weaker business models out of the market space.

“Lots of people see that the market is booming, they think it’s easy, open up, and after six months they see that they are not making money and they sell it,” says Mouraccade. Chafic el-Khazen, co-owner and manager of Sky Bar, one of Beirut’s most prestigious sea-side rooftop venues, agrees.

“You know the Lebanese: It’s all about ‘copy-paste’ so there is no creativity,” he says. “The market is over-saturated because it is a lucrative business and everyone will try to get into this industry to make more [than] a little money.”

When a bottle at Sky Bar costs a patron between $200 and $3,000, more than ‘a little money’ becomes a lot of money. Still, Khazen insists that the prices are not unreasonable given the costs he has to cover, which include “over $750,000 a year on fireworks and entertainment.”

For now the alcohol and the money seems to be flowing in Lebanon. However, the industry’s growth is highly volatile and connected to the political situation in the country. “If I showed you a graph of my businesses, in terms of sales and revenues, it looks like a heartbeat,” says Kamel. “Every single time there is a dip, the reason for that dip is political instability and that is true of all the businesses here.”

If the political situation in the country remains relatively stable however, the growth of the industry will show no sign of abating. “It really doesn’t matter who is in power as long as there is stability, security and both parties are in agreement, then everyone benefits,” says Kamel. “This is what the Lebanese have to get into their heads.”

Neighborhood party
But the sector could benefit from an overhaul of regulations that have caused problems as the nightlife sector has blossomed.
“Gemmayze is a residential area” read the signposts that line the streets of Beirut’s Gemmayze district, where some bars and restaurants operate till the early hours of the night.

The loud music, gridlock and rude valet-parking attendants have pitted angry and politically connected Gemmayze residents against equally connected bar owners. The result is that no one has the connections to trump the other, and the law is weak: the regulations regarding the nightlife industry date back to the early 1970s. Thus, a multi-million dollar industry that is a major pillar of the all-important tourism sector suffers from ineffective regulation at almost every level.

“There is nothing in Lebanese law that constitutes a bar and this is where the issue lies,” says Juniper bar’s Nasr.

Now that the nightlife industry is booming and entrepreneurs are eager to enter the market, the economic growth seems to have overstepped the ability of local authorities to effectively regulate the sector within the confines of the old laws.
“You have so many places that open without any licenses and don’t abide by any regulations or law,” says Sky Bar’s Khazen.

Nobody’s law
The existing law that governs the restaurant sector classifies establishments as either restaurants or nightclubs. The law also prohibits nightclubs from opening in residential areas or within 100 meters of a religious building. As a consequence, many bars located in residential areas operate using a restaurant license without actually serving food but having to fulfill all the requirements of Lebanon’s antiquated restaurant laws. What’s more, this also places the establishments at the mercy of the evaluation of inspectors from the tourism ministry or the municipality.

“It’s very hard to meet the requirements that were set in the 1970s for a restaurant,” says Gauche Caviar and Cloud 9’s Kamel. “You are in this gray area which allows the government to blackmail you to decide whether you are legal or not, which results in corruption, bribery, bad regulation and places being shut down that thought they were safe.”

One of the main causes of these ailments is the process by which restaurants obtain their licenses. Licensing proceeds in stages with the first stage constituting a “feasibility study,” says Nada Ghandour, director general of Lebanon’s tourism ministry, one of the government bodies charged with regulating the sector. Bar owners apply to the ministry in order to receive a first stage license on the condition that they will actively seek a second stage license to make them completely legal.

“The first stage [license] is pretty easy to get but almost nobody has the second stage [license] and nobody knows why,” says Ferdinand’s Mouraccade. “We apply and we wait and wait.”

The official line
Tourism ministry Director General Ghandour says that it is not the ministry’s fault that establishments do not receive their final licenses, and lays the blame on Lebanon’s building code implemented by local municipalities and the intransigence of owners.

“They take the first stage license… open and say ‘merci, au revoir ministry of tourism. We don’t need you anymore’,” she says. “The [other] major problem in Gemmayze and Beirut is the building law, because the places that are open in the old buildings are not places that were made to become restaurants.”

In order to “help” the establishments, Ghandour has in the past given out “temporary secondary licenses.” A legal expert who spoke on condition of anonymity says the practice goes against legal procedures. “The secondary license is your final permit so legally it cannot be temporary,” says the source. “The first stage is ‘temporary.’”

Local municipalities also regulate the health and safety of Lebanon’s bars and nightclubs. However, even these important issues seem to have been neglected.

“The law states that the straws at the bar must be protected but nobody does it and for fire, nobody checks,” says Gasiner-Dupar of Behind the Green Door. “They always find something, but after that you deal with them [financially].”

The lack of adequate legislation and enforcement to regulate the sector finally culminated in the ongoing dispute between Gemmayze’s local residents, bar owners and government authorities. After several protests in April 2008, one of which featured residents in pajamas blocking traffic and demanding their right to sleep peacefully, the former Tourism Minister Joe Sarkis finally acted, issuing a decree imposing a curfew on all bars and restaurants. The move required many establishments to close during some of their most profitable hours of operation, substantially hurting their businesses.

Kamel claims that the law was completely illegal because it was only applied in one area of the country and was enforced without the consent of the interior ministry and the municipalities, who are responsible for imposing closing times.

“These fanatic residents got together and lobbied against the minister,” says Kamel. “The main people who are bothered are the people on old rent and not benefiting [from the establishments]. If the real residents of Gemmayze, who are the landlords, are bothered then why are they renting the space to everyone?”

During that time, many bars and restaurants were forced to close or threatened with punitive action because they lacked second stage licenses or didn’t have any licenses to begin with. The curfew lasted for around two weeks and eventually dissipated, much to the distress of many local residents and organizations.

“We managed to calm them down for a week or so but they just come back and its worse,” complains Georges Abi Khalil, head of management and coordination at the Gemmayze Development Association (ADG), a local non-governmental organization that works on the preservation and development of the Gemmayze district.

Earlier this year, the current tourism minister, Elie Marouni, along with Interior Minister Ziad Baroud, issued a joint decree reinstating the curfew across Lebanon.
The move set off a wave of protests from local bar, restaurant and nightclub owners who blamed the lack of law enforcement in Gemmayze by local police.

No controls
“The street is the busiest street in Lebanon and we don’t even have one security officer in the street, not one traffic cop,” Kamel says of that time. “We don’t have the support of the government to stop double parking or cars going up one way streets and these are all causes of noise.”

After the curfew was reinstated, a delegation of nightlife industry owners visited the interior and tourism ministers and pleaded with them to reconsider. Reports then surfaced about the interior minister standing on the main road in the Gemmayze district asking party goers to reduce their noise levels.

“We saw him stopping cars, himself,” says Kamel. “Imagine the minister of interior peeps in your window and asks you to lower the music. People apologized to the minister and put their music down.”

Around two weeks after the reported policing by Minister Baroud, the interior ministry issued a clarification to the decree stating that the curfew did not apply to establishments that sound-proofed their bars and restaurants. The party was on again, but the problems didn’t disappear entirely.

On July 10 some residents of the Gemmayze district staged another protest in the main street demanding tougher regulation of establishments.

Problems to solve
“A decision has been taken by the Ministry of Tourism and the Ministry of Interior to let them [entrepreneurs] open as many bars as they like,” claims Fadia Kiwan, a local Gemmayze resident who took part in last month’s protests. The protest eventually turned violent when another local resident, Hadi Souaid, claims he was attacked and beaten by the entire staff of a local bar in Gemmayze. “When the police arrived they did nothing,” says Souaid.

In an attempt to pacify the situation, the Gemmayze Development Committee (which represents the bar owners) has issued a 15 point plan to address the issues facing the district. One of the most important of these is the problem of parking an estimated 1,800 cars that enter the district on any given night. To address the problem, the GDC and the tourism ministry have been lobbying to open the Charles Helou station’s three-floor parking lot and turn it into parking space for Gemmayze’s residents and visitors. Minister of Transport Ghazi Aridi has agreed to the proposal in principle but bar owners say the ministry of transport has yet to act.

“All we hear is talk and empty promises,” says GDC president and local bar owner Makram Zeen.

For now the regulation of the industry remains in disarray and, from the lengthy list of reforms Lebanon’s post-war governments still has to implement, it doesn’t seem likely the sector will receive much attention from any new government. “We are in Lebanon,” says Khazen. “Before [improving the regulation of] this industry, there are so many other things that are [so] much more essential that [Lebanese] need to do.”

August 1, 2009 0 comments

GCC

Cityscape in Jeddah

by Executive Staff July 31, 2009

written by Executive Staff

Saudi Arabia, the largest and the fastest growing real estate market in the Middle East, hosted the kingdom’s first ever “Cityscape Saudi Arabia” at the Jeddah Center for Forums and Events between the June 14 and 16. Although the event came amidst the most severe global recession in recent years, Cityscape was a success. More than 100 companies and organizations exhibited and there were an estimated 5,000 visitors.

“I didn’t expect such a big success in June,” said Ahmad Al Hatti, chairman of Cayan Investment and Development, the main developer of Jeddah’s $600 million Lamar Towers.

Exhibitors believe that the show was more a business-to-business event rather than a business-to-consumer event. The event allowed company representatives to meet with their existing contacts and establish new business partnerships. For example, Yasser Abu Ateek, general manager at Dar Al Tamleek, said one indication of the nature of the event was that there were no products for sale.

“There are no products, and when there are no products there is no retail,” he said.

Abu Ateek said he expected Cityscape to be bigger, but he still found it to be well organized and a big success considering it was the event’s first showing in the kingdom.

The Gulf’s powerhouse

The real estate market in Saudi Arabia is still growing fast, and continues to be ‘the Gulf’s Powerhouse,’ as stated in a 2008 report by global real estate services firm Jones Lang Lasalle. This growth is fueled by the increase in its population and the massive investments by government. According to a construction report released by market research firm Proleads, the number of real estate projects in the kingdom is 812 and are valued at $543 billion. A total of 460 projects valued at $289 billion are under construction, 30 projects are canceled (1 percent), 23 are on hold (3 percent), and the rest are in the design or planning process.

“In Saudi Arabia there is a slight slowdown in the real estate activity, but there are not fluctuations, at least not to the extent we are seeing in the United Arab Emirates,” said Al Hatti.

The real estate industry is expected to grow by around 6.7 percent over the next five years, according to a Saudi Chamber of Commerce 2008 report. Its share of gross domestic product is also expected to grow as the country continues to diversify its economy away from oil related activities — which account for some 35 to 40 percent of GDP.

Large developers absent

Despite the steady growth in Saudi’s real estate market, the global recession could be felt at Cityscape. Although more than 100 developers exhibited, some big names in the Saudi market were absent from the scene. Dar Al Arkan did not exhibit, neither did Arriyad Development company, Jabal Omar Development nor other important developers.

John Harris, head of KSA Jones Lang Lasalle, said that this first Cityscape was a trial for the Saudi market, and the developers were testing the waters to see if they should participate next year.

“Cityscape is relatively new [in Saudi Arabia] so there is a wait-and-see approach from the big players who were absent this year. They want to see and observe what could be achieved from Cityscape to decide if they are going to be in next year or not,” Harris said.

Amro Nahas, acting chief executive officer of Al Oula International, said starting slow is normal.

“I didn’t find any big names at Cityscape, but even in Dubai, it wasn’t better when they started,” Nahas said. “Yet people showed much interest for the first time and the footfall was quite respectable.”

Top 10 Saudi civil projects under construction or in design

Cityscape Awards
On June 14, Cityscape Saudi Arabia Real Estate awards were held and five prizes awarded to the most innovative and sustainable projects.
“Across all the awards..all we wanted [was] to recognize projects that had innovative and sustainable design, functionality with efficiency and we wanted to reward designs that showed cultural as well as environmental sustainability,” said Deep Marwaha, exhibition director at Cityscape Saudi Arabia, according to the exhibitor’s press release.
Emaar the Economic City seized two of these awards, the first being “Best Future Waterfront Development” for its project Waterfront Village at Baylasun. The second award for “Best Future Residential Development” was for the Hawadi project.
“Best Built Commercial / Retail Development” was awarded to Alandalus Property Company and Mohammed Ahabib Real Estate Company for their Al-Andalus Mall project.
The fourth award was for “Best future commercial / retail development” and was won by RA-YEK Real Estate for their project Al Ajlan Tower. The fifth and last award was for “Best Urban Design and Master Planning,” given to the developer Davis Brody Bond Aedas for the project The New Jeddah Master Plan.

Affordable housing needed

The issues Saudi real estate stakeholders stressed the most at Cityscape were the need for affordable housing and the new mortgage law in the kingdom. The Saudi population is expected to increase 32 percent and reach 33 million in the next 10 years, according to the Department of Economy. With no attention given by developers to the middle income segment — which constitutes the biggest chunk of the market — the housing shortage is increasing significantly.

According to the Saudi Arabia Investment Fund (SAIF), the housing sector accounts for more than 75 percent of the real estate activity in the kingdom, and 2.5 million housing units have to be delivered by 2020 to meet the demand. In value, SAIF says that $20 billion will be needed yearly to bridge the shortage gap.

“Saudi Arabia needs to consider the right balance between the development of high-end, medium and low-end,” said from Al Oula’s Nahas. “Municipalities have to play a role in planning and providing the right information for developers. Definitely the residential mid-market needs special attention.”

Currently, real estate developers are offering properties too expensive for the middle income segment. On the other hand, the low-income market does not have that problem because it can benefit from government support through the Real Estate Development Fund, the King Abdullah Housing Program and other means.

“The government has to find a solution [for the middle income segment]” said Abu Ateek.

The awaited mortgage law

The lack of affordable housing is not the only reason Saudis cannot buy a home. The shortage is also caused by the absence of a mortgage law, which makes long-term loans very hard to obtain. Until now, buyers had to either pay cash for their homes or take personal short-term loans to be able to pay. Sky high property prices and the lack of a mortgage law helps contribute to the fact that 60 percent of Saudis still do not own a house, according to the National Society of Human Rights in Saudi Arabia.

The country expects to implement a mortgage law by the end of the year, much to the delight of developers, banks, buyers and real estate agents.

“With the regulations, banks will be more comfortable in securing and guaranteeing financing for buyers,” said Al Hatti from Cayan Investment and Development.

The mortgage law is not the only initiative that the government has undertaken to protect the kingdom from the effect of the crisis. An Escrow law was also issued in February this year which prohibits the sale of off-plan properties without approval from the Real Estate Commission.

“The Escrow 2009 plan is not applied yet but it will guarantee for all parties, customers, financiers, developers and others a lot of work and that real estate will play a bigger role in the kingdom’s GDP,” Abou Ateek said.

“The good steps will pay back…and hopefully in the next six months we will see the fruits of all efforts made,” said Nahas.

Despite the crisis spreading its effect on the regional real estate market, Cityscape remains one of the most important property shows where real estate players gather and interact. And even though Cityscape in Saudi Arabia was not as vital as it possibly could have been, it is considered a good start, given the conditions.

“Taking the crisis into consideration, it was a fair turnout and a respectable success,” said Nahas.

Al Hatti added that “It feels like the end of the crisis and it is a positive feeling.”

July 31, 2009 0 comments

Levant

Stitching the economy

by Peter Grimsditch July 31, 2009

written by Peter Grimsditch

Last month Turkish Prime Minister Recep Tayyip Erdogan announced economic stimulus measures designed to put the nation back to work and the economy on the path to recovery. Tax cuts, exemption from social security payments, relocation expenses and subsidies for intern on-the-job training were part of what Erdogan described as turning a “crisis into an opportunity.” On paper, the plan looks sound.

For investment purposes the country has been carved into four zones, from the least developed east to the most developed north-west. As an incentive for new investors to set up shop in eastern Turkey, start-up businesses will see corporate tax rates cut from 20 percent to 2 percent, social security contributions exempted for seven years, and a subsidy of 5 percentage points on the interest rate for Turkish lira loans for business start-ups, to a maximum of TL500,000 ($325,000). Smaller versions of the same formula will apply to the other three regions.

Sweetening the pie

The textile industry, a chunk of which has been exported to Egypt, is among several areas singled out for special treatment. Any company owner willing to transfer their operations, lock, stock and barrel from either of the two richer zones to either of the two poorer zones will have the corporate tax rate slashed from 20 percent to 5 percent, all relocation expenses paid and be exempted from social security payments for five years.

There are, inevitably, some conditions. The move has to be made before the end of next year and the company has to employ at least 50 people. The name of Erdogan’s game here is to spread the productive economy more evenly around the country. With the state subsidies and lower salaries paid in eastern Turkey, overhead operating costs would be cheaper for those who take the plunge. What they also face in parts of the region is a transport infrastructure in need of a vast overhaul and a local labor pool drawn from the least educated slice of the Turkish population. In any case, no one has explained how creating jobs in one area by making people redundant in another can be counted as a net gain.

Indeed, the unemployment rate has reached a worrisome 15 percent. For that reason, the prime minister included in his announcement an employment package that will pay 200,000 people $9.70 a day to join on-the-job training program, while providing jobs for another 120,000 others in school and health center maintenance, tree planting, erosion control and caring for parks.

“The government is determined to turn around the economy whatever the costs,” Erdogan said.

Perhaps mindful of continuing talks with the International Monetary Fund on a new standby agreement and differences between the two sides on tax and spending policies, he added that none of the measures would involve the “slightest concession to fiscal discipline.”

The IMF appears unconvinced. Later in June, director of the IMF’s European Department, Marek Belka, said Turkey may need to cut its spending levels to achieve financial sustainability. Speaking in Washington, Belka was quoted by the Reuters news agency, saying, “No matter if there is an IMF program or no program, the Turks themselves have to make the necessary adjustments, fiscal cuts if necessary or longer-term reforms both on the expenditure and tax side, so that we can both agree that the fiscal situation is under control in the longer term.” The last agreement expired in May 2008.

Hope makes for happy markets

Belka’s remarks came the day after IMF First Deputy Managing Director John Lipsky held talks with Turkish authorities in Ankara. The agenda was ostensibly preparations for the annual meetings of the World Bank and IMF governors to be held in Turkey in October. Although there were no substantive talks on a new loan agreement, both the Istanbul Stock Exchange and the currency improved simply on the possibility of a deal.

The current talk in Ankara — that an agreement could be signed by August — is reminiscent of the political gossip put out every month since last October. This alternates with suggestions that the Turkish economy is sound enough to survive without an IMF loan anyway. Certainly, the Turkish government appears in no mood to don an IMF straitjacket and abandon its current policies.

Peter Grimsditch is Executive’s correspondent in Istanbul

July 31, 2009 0 comments

Levant

Water from a desert well

by Executive Staff July 31, 2009

written by Executive Staff

Jordan is to construct a $1 billion pipeline to transport drinking water from the Disi valley in southern Jordan to thirsty Amman in the north. Most experts welcome the project, yet wonder what will happen to agriculture in Disi, which has depleted its aquifer by almost one third. And, even if agriculture is halted, will there be enough water to make the costly pipeline worthwhile?

First initiated in the late 1990s, the Disi Water Conveyance Project (DWCP) aims to supply Amman with 110 million cubic meters (MCM) of water annually. The project was long regarded as too costly, yet the Jordanian government in 2007 contracted Turkish construction firm GAMA to implement it. Construction will commence in early July 2009 and is due to be completed by 2013.

“The project costs close to $1 billion,” said DWCP manager Othman al-Kurdi at the Ministry of Water and Irrigation in Amman. “It includes drilling some 55 additional wells in the Disi area and the construction of a 325 kilometer long pipeline to Amman, as well as two pumping stations and water reservoirs near Amman.”

The project is funded by low interest loans from Europe and the United States, and some $300 million from the Jordan treasury. Upon completion of the DWCP infrastructure, GAMA is entitled to exploit the system by collecting water tax revenues for some 21 years, after which the government will take over.

“I can say with a high level of confidence that Disi will supply us with 110 MCM of water annually for some 50 years,” said Al-Kurdi. “If all circumstances work in our favor, it may even supply us with water for an additional 10 to 15 years.”

Asked what will happen to the use of Disi water for agriculture, he replied sharply: “No politics. I told you before: no politics. All I can say is that our priority is drinking water.”

Disi’s aquifer

On the main road through Disi, the significance of water in the desert valley becomes clear. While land on one side of the road is blessed with melons, grapes, olive trees and cypresses, the other side is a barren sandy plain that seems to have fallen straight off the moon.

The striking difference between the two sides of the road is due to irrigation. In the 1960s, a fresh water aquifer with a depth of up to 1,000 meters was found in Disi. The mixed layer of sand and water measures some 360 square kilometers and stretches well into Saudi Arabia. Since the 1980s, both Jordan and its bigger neighbor have increasingly used the water for agriculture.

“I’ve been growing olives, grapes and potatoes for about 30 years,” said Abu Mohamed, a wrinkled 50-something-year-old with hands the size of spades. “Our products are first sent to Amman and then to markets in Jordan and abroad, mainly Europe and Iraq.”

Not all agriculture is in the hands of local Bedouins. All along the road, signs indicate the presence of the “Rum Agricultural Company.” According to Abu Mohamed, Rum and other firms are owned by people from Amman and Aqaba. “They mainly grow fruits like apples and apricots further inside the valley,” he said.

Deeper inside the valley one also finds the hilltop palace owned by the ruler of Dubai, Sheikh Mohamed bin Rashid al Maktoum, and his wife Princess Haya of Jordan. To liven up the view from the palace, Maktoum created an artificial lake in the valley below, which every winter attracts flocks of migratory birds. The Dubai billionaire has left his mark on Disi in more than one way, as he revived the ancient tradition of camel racing. Every Friday, animals, jockeys and spectators gather on a dirt track outside Disi village.

Next to the race track, surrounded by a layer of red mud, one of the valley’s 55 wells is under repair.

“There is a lot of sand in the water, which harms the pumping installation,” one worker explained, adding that he had heard about the upcoming pipeline to Amman. “We’ve seen the pipes along the road, but so far we have not been told anything.”

*One of some 55 water pumping stations scattered around the Disi valley*

In 1946, every Jordanian had access to some 3,600 cubic meters of drinking water per year. Today that amount has dropped to 160

More people with less to drink

Water is a scarce commodity in Jordan and, consequently, a highly political one. Not only is Jordan one of the world’s poorest countries in terms of water resources, it also has one of the world’s highest population growth rates. What’s more, throughout its history, the kingdom has had to absorb wave after wave of refugees. While in 1946 every Jordanian had access to some 3,600 cubic meters of water per year, today the water per capita ratio has decreased to a meager 160 cubic meters per year.

Due to the presence of illegal wells, exact figures are hard to come by. It is estimated however, that current demand is some 1,350 MCM per year, while annual water supply amounts to but 1,000 MCM per year. An estimated half of Jordan’s supply stems from groundwater extraction, which takes place at twice the rate of what is regarded as ecologically sustainable. At least 65 percent of Jordan’s water goes to agriculture, while the remainder is used for drinking water, industry and tourism.

“Disi water is good quality water from a non-renewable source and therefore should be used as wisely as possible,” said Elias Salameh, professor of hydrogeology and hydrochemistry at the University of Jordan, who has long been a vocal critic of agricultural practices in Disi and welcomes the pipeline to Amman.

“The wisest way is to first use it as drinking water and then collect and treat the wastewater to reuse it for agriculture and industry. Of every 100 MCM some 80 MCM can be used again.”

A quarter century drained away

According to Salameh, the past 25 years have been extremely wasteful. The Disi aquifer contains an estimated 7 billion cubic meters (BCM), up to a third of which has so far been used for agriculture. The problem with growing crops in Disi, where summer temperatures may soar well above 40 degrees, is that the evaporation rate in southern Jordan is twice as high as in north Jordan. In addition, most agricultural products are exported, which means Jordan is virtually exporting water.

Currently, some 80 MCM of Disi water a year is used for agriculture, while some 16 MCM is used as drinking water in the rapidly growing city of Aqaba. The government has pledged to get rid of agriculture in Disi, yet that may be easier said than done. Certainly the local Bedouins will not want to give up their new-found agricultural wealth, for Disi does not exactly offer a wide range of alternative sources of income.

According to Salameh however, most agricultural production in Disi is in the hands of four agricultural firms owned by a group of very influential Jordanians, among them one of the richest businessmen in the kingdom and a former prime minister.

“Their agricultural licenses have a validity of 25 years and are set to expire in 2010 or 2011,” Salameh said. “Let’s see if the government will keep its promise.”

If it can keep its promise, Salameh said, the Disi project will help to temporarily fill the gap between water demand and supply, and relieve the immense pressure on Jordan’s northern aquifers, which all suffer from over-extraction. However, seeing that Jordan’s current population of some 6 million is set to double by 2025, the Disi pipeline is no long-term solution.

According to Salameh, there is only one long-term solution for Jordan: the Red Dead Canal. “A desalination plant combined with a canal from the Red to the Dead Sea is the only way to save the Dead Sea, and provide Jordan with drinking water.”

Mainly due to the overexploitation of the Jordan River by both Israel and Jordan, the Dead Sea evaporates quicker than it is replenished. As a consequence, the Dead Sea’s water line is receding by an average of one meter per year.

Although Salameh welcomes the construction of the pipeline, given that agriculture in the desert is halted, he still wonders if Jordan’s water and money could not have been spent in an even wiser way.

“I am no urban planner, but sometimes I ask myself: instead of bringing water to the people, why not bring the people to the water?” he said. “With the money spent on the pipeline, we could build a city and industrial zone near Disi and Aqaba, which would relieve the immense urban pressure on Amman.”

With Jordan’s population of 6 million set to double by 2025, the Disi pipeline is no long term solution

July 31, 2009 0 comments