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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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GCC

Cityscape in Jeddah

by Executive Staff
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

Source: Proleads

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.”

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Levant

Stitching the economy

by Peter Grimsditch
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

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Levant

Water from a desert well

by Executive Staff
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

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Levant

Resurrecting the rail

by Executive Staff
written by Executive Staff

It is a quirk of history that the Middle East was better interconnected 50 years ago than it is now. Train tracks laid down during the Ottoman era made that possible, with direct lines running from Istanbul to Medina in the South, and to Baghdad in the East.

Syria is now re-starting these train lines as part of a bid to become the transport hub of the region, connecting the Mediterranean with the Arabian Gulf and the Red Sea.

On May 30, following decades of inaction, a cargo train carrying 800 tons of steel left the Syrian port of Tartous on a 36-hour trip to Baghdad, running 894 kilometers through Syria and a further 429 km in Iraq. This route has now been supplemented by passenger train services to Mosul, and cargo transited from the Syrian ports of Lattakia and Tartous to the Iraqi Gulf port of Umm Qasr, via Iraq’s rail network.

“Syria has been talking more with the Turks, the Iranians and the Iraqis to develop this network,” said Nabil Sukkar, managing director of the Syrian Consulting Bureau for Development and Investment. “Syria is trying to see itself as a hub for the region, so it is working now towards developing a road and railway network, plus there is gas passing through Syria and up to Europe,” he added.

With bilateral trade surging between Syria and Iraq — estimated at $800 million annually — and more than 1 million Iraqi refugees living in Syria, the link is expected to bolster ties between the two neighbors.

Syrian Minister of Economy and Trade, Amer Hosni Lutfi, recently said on a trip to Baghdad that he hopes that bilateral trade will triple in coming years to make Iraq as important a trading partner as China or Turkey. Each countries’ trade with Syria amounts to $2 billion annually.

The railway has a competitive cost advantage over road transportation for the same route. According to the Syrian Railway Organization (SRO), transport costs for one ton of freight from Tartous to Baghdad are $37, compared to $69-$83 by road.

The SRO has been gradually upgrading Syria’s aging fleet of Eastern European-made trains, while signing cross-border agreements with neighboring countries for passenger trains and cargo. Cargo links to Turkey, and on to Eastern Europe, have increased, with the SRO saying some five million tons of goods are to be transported annually on the route from Aleppo to the Turkish city of Gaziantep.

In 2002, the Tehran-Damascus line was restarted, and twice weekly service primarily transports Iranian and Syrian tourists (the trip takes about 50 hours). Trade between Iran and Syria was estimated at $340 million and joint economic activities at $1.5 billion in 2008, according to the Iranian Chamber of Commerce.

Regional railways

“There is more and more talk among Arab countries that trains are the best way to link countries together,” said the Syrian Consulting Bureau’s Sukkar. “This came up at the Kuwait Economic Summit in January, with one recommendation to develop the road and railroad network among Arab countries; the lack of this has been a main deterrent to an effective, unified Arab economic scheme.”

Iraq is planning billions of dollars in upgrades and to expand its domestic rail network from 1,995 km to as much as 4,988 km.

Iran is also planning to double the size of its 8,300 km rail network, making the country a transit route for cargo heading to Pakistan and Central Asian countries.

Jordan plans to launch a $6.4 billion rail network, with a 564 km line from the Red Sea port of Aqaba to the Syrian border, where it would then connect to the Syrian network and transit on to Turkey and Europe. An East-West railway is also planned, slated to run 482 kilometers from the northwestern Jordanian city of Irbid to the Iraqi border, with a potential additional line to the Saudi Arabian border.

Saudi Arabia meanwhile is investing billions of dollars to expand its network, including the $6 billion high-speed line between Mecca and Medina via Jeddah.

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