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New tracks for the peace train

by Claude Salhani
written by Claude Salhani

There has been a sudden change of pace in the Middle East peace-making process. After almost eight years of stagnation, of summit meetings that led to absolutely nothing other than photo-ops for the resident of the White House, the pace is suddenly picking up. For the moment only tidbits of information that are filtering through. Yet what seems certain is that the Obama administration has a new idea that will take the process forward.

The basis for all negotiations remains the Arab peace initiative, first introduced at the Beirut 2002 Arab League meeting. Almost every analyst inside the Washington Beltway is of the opinion that we are on the verge of witnessing something major.
Let’s back up: towards the end of April, King Abdullah II of Jordan was in Washington predicting doom and gloom, saying that unless there was a surge in the negotiations there would be violence on a large scale.
The people have had enough, the king told a select few over lunch in Washington, where he had met earlier with President Obama and major political and religious leaders. He delivered a message to the US leadership that Washington had better get involved in the peace process, and in a serious way. Only Washington’s clout, the prestige of the White House and the kind of pressure that only a US president can exert on Israel could save the day.
Jordan’s Abdullah came to the White House speaking for himself, as well as for King Abdullah of Saudi Arabia and President Hosni Mubarak of Egypt in advocating a sense of urgency for talks to resume.
The king is the first to agree that peace between Israel and the Arabs will not solve all the region’s ills. But, said the monarch, it will go a long way in appeasing anti-US sentiments and it will take away one leitmotif of terrorism in the Middle East.
But just a few days later the king is in Berlin talking about new opportunities and of a new conference involving Lebanon, Syria, Israel, Egypt, the Palestinians and many more countries and parties.
So what happened? And what is happening?
No one is talking officially, most noticeably Obama’s chief Middle East negotiator, George Mitchell. Partially, what happened is that the new White House plan realizes that all the Middle East issues tied to the question of Palestine must to be solved at the same time. And that is what makes this all the more difficult.
As the “mind map” illustration shows, all the pieces need to fall into place at the same time, otherwise they leave the door wide open for “spoilers,” those who remain opposed to the peace process.
This new idea, several specialists believe, would be based largely on the Arab peace initiative, a comprehensive plan to settle the Middle East conflict. It offers Israel recognition by all 23 members of the Arab League (22 states plus Palestine) in exchange for Israel’s withdrawal to pre-1967 borders.
Of late there has been talk of revisiting the Arab peace agreement and amending it, primarily so that Israeli Prime Minister Benyamin Netanyahu does not look, at least in the eyes of his constituents, to have given in too easily to US pressures. And although many see Netanyahu as a super conservative, it is worth remembering that it was the Likud party that returned the Sinai and yielded Gaza, and they may just finalize the peace with the Palestinians.
“Netanyahu is going to surprise us all,” Benjamin Ben-Eliezer, an Israeli Labor minister, told the Israeli daily newspaper Haaretz. “He understands that there is a new administration in the United States… and that if we don’t come up with a peace plan, someone else will call the shots for us,” Ben-Eliezer said.
Yet there remains one more hurdle to jump, one matter which makes the rest of the issues appear weak by comparison: the issue of inter-Palestinian reconciliation, bringing Fatah and Hamas together. Ironically, in the end it may turn out to be that the final stumbling block holding up the creation of a Palestinian state may well be the Palestinians themselves. Unless they can place their differences behind them, they risk prolonging the conflict for another 60 years.

Claude Salhani is editor of the Middle East Times in Washington, DC

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A poor cull in Egypt

by Riad Al-Khouri
written by Riad Al-Khouri

Egypt has seen scores of human cases of bird flu, the largest number in any country outside Asia, since the first known appearance of the H5N1 virus in humans more than four years ago. Bird flu deaths in Egypt are now at 22 and climbing, and as if that weren’t enough the threat of the swine flu virus (H1N1) is also hanging over the country.
The livelihoods of pig breeders, and of those who raise chickens in home gardens to help feed a family or generate extra income, have been threatened by government culls of swine and fowl to combat the two forms of influenza. Most bird flu victims are those who look after chickens, typically poorer people in the countryside. Though raising pigs is not a big deal in Egypt, rearing poultry at home is important for the incomes of a significant number of people in rural areas; recent government measures to stamp out bird flu have forced families to stop keeping chickens. Though losses to bird owners may be outweighed by a lowered risk of flu, the pig cull designed to prevent the H1N1 virus from taking hold is controversially not seen as useful — and evaded by some. No cases of swine flu have been reported by the Egyptian authorities, but up to 300,000 pigs are to be slaughtered.
Needless to say, all of this is hitting the poor more than the affluent. Regarding the situation of the latter — far from infected birds or dead pigs — the glitzy developments springing up in parts of Cairo and in seaside resorts such as Sharm el-Sheikh, are mainly benefiting the country’s businesspeople and better-heeled urbanites. For the rest of the country, especially the population of rural areas or slums, the standard of living is stagnant. One fifth of Egyptians survive on less than $1 per day. Poverty, food insecurity and malnutrition remain significant. For example, in Upper Egypt alone, 36 percent of the population (close to 11 million people) consume less than the recommended minimum caloric intake, presumably including some who are eating less chicken or pork than before.
The state response has been to continue subsidizing basic necessities with an even stronger social safety net. As household expenditure on food rose by almost 50 percent in the first six months of 2008 due to inflation, the government fought back with sharply higher budgetary allocations to the social safety net, extending subsidy ration cards to a further 10 million people (hence reaching around 60 million Egyptians). The subsidy system, which covers a large portion of basic living costs — food, energy, water, housing, medical expenses etc. — contributes to a sizeable budget deficit, roughly 8 percent of gross domestic product, and is ultimately non-sustainable.A large proportion of imported food is channeled into the vast subsidy scheme of the government, which covers about half of the total Egyptian consumption of sugar, flour and rice, and three-quarters of the vegetable oil, as well as much of the meat consumed in the country.
Of course all this is now cheaper thanks to lower commodity prices. For example, from March 2007 to March 2008, the price of wheat on the international market increased by 48 percent; in the 12 months since, however, it dropped by almost the same percentage. The price falls also dampened inflationary pressure: in 2008 the government’s economic policy was mainly focused on reducing inflation, reaching a year-on-year peak of 24 percent in August 2008. Yet, prices have steadily decreased in the past few months: inflation fell to less than 12 percent at the end of March and is projected to drop to 10 percent in June, although it will remain above the government’s target rate of 6 to 8 percent.
However, inflation is not yet under control. The sharp retrenchment in international commodity prices, which had begun in the second half of 2008, has not been fully reflected in domestic price levels due to lack of competition. The government still has to beware of increasing liquidity to the point where domestic demand starts to overheat. While inflation still looms, the authorities have to tread a fine line between providing liquidity to maintain sagging growth on the one hand, and over-heating the economy on the other.
Dampened inflation and a stronger social safety net have brought limited respite to Egypt’s poor (including some of those whose pigs and chickens have been killed). Few of the less affluent in the slums and countryside have benefited from the Egyptian mid-decade boom; now, with economic expansion waning, policies such as a strengthened social safety net create a feel-good factor. In the long-term, however, the task of getting Egypt out of its slump and on the path to equitable growth that will underpin social stability may be a lot more complicated. 

Riad Al Khouri is a senior associate consultant at the William Davidson Institute of the University of Michigan

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The outdoors’ beauty and scars

by Norbert Schiller
written by Norbert Schiller

For hundreds of years, travelers have criss-crossed Lebanon’s mountains and valleys in search of ancient mysteries and hidden treasures, or just to marvel at their majestic splendor. From Alexander Kinglake and Lady Hester in the mid-19th century, to H. V. Morton and Colin Thubron a century later, the mountains of Lebanon have held an allure for many intrepid travelers.
It was Thubron’s book, The Hills of Adonis, that first led me to discover the Lebanese mountains. His four-month journey, which began just prior to the 1967 Arab-Israeli war, is no typical travel journal. Rather, he weaves an intricate story which looks at the terrain, the people, the myths and legends that once dominated this land. His ultimate mission was to discover the cult of Adonis.
The first time I read Thubron’s book I wanted to retrace his exact footsteps and see for myself the country he describes. Unfortunately, I read Adonis 30 years too late and much of the landscape he depicted had already been altered beyond recognition, a casualty of 15 years of civil war and the Israeli occupation of the south. However, that did not stop me from pursuing my quest to explore the country. Fearful of walking over an unsuspecting mine field or stumbling onto a restricted military area, I joined Libantrek, a local hiking group founded by one of Lebanon’s ecotourism pioneers, Michel Moufarrij. Moufarrij showed me a side of Lebanon I thought did not exist anymore and he introduced me to the Lebanon Mountain Trail (LMT), the first long distance trekking trail in the Arab world.
The LMT is more than just a long distance path; it is a journey through the heart and soul of Lebanon. Beginning in Al Qbaiyat in the north, the trail makes its way through the interior of the country until it reaches Marjaayoun in the south. The total length of Lebanon is only 225 kilometers, but the trail is almost twice as long, climbing its way over mountains and descending into deep valleys. The trail, conceived by a group of non-partisan Lebanese, provides a rare view of the heartland rarely visited by outsiders. This group, which includes Moufarrij, broke down sectarian barriers and called themselves environmentalists. Now, their sole purpose is to develop ecotourism in economically depressed rural areas of Lebanon. Lebanese and foreign tourists who walk the trail are encouraged to use local guides and stay in local rest houses and designated family homes, as well as buy and eat local products along the way. As the villagers view the LMT as a source of income, they are expected to look after the trail and protect the natural environment in their area.
In April, I was invited to be part of a six-person team which was to be the first to walk the entire 440 kilometer trail. On April 2, the group set out on what can best be described as a journey of a lifetime. For the entire month we traversed the length of Lebanon, eating and sleeping in local homes and guest houses. As a way to promote the trail the LMT Association, the organization behind the trail, encouraged others who wanted to enjoy part of the experience to join us during weekends and holidays. Overall, the journey was a magical experience for all those involved. We walked through parts of the country that we didn’t imagine existed in Lebanon.
There was also a downside to this experience. It was impossible for us to overlook the garbage dumps, illegal rock and sand quarries and ugly unfinished cement structures that dotted the breathtaking landscape, leaving irreversible scars. No matter how hard we tried to ignore these eyesores, it was difficult because of the extent of the damage.
Lebanon is a tiny country that has so much to offer for the outdoor enthusiast. The old cliché that Lebanon is a country where you can ski in the morning and swim in the afternoon still holds true today as it did a generation ago. However, Lebanon’s size may one day prove to be its demise. Since it is so small, the harm done to the environment has a far greater impact and thus a longer lasting effect. It is imperative now for the Lebanese government to take the lead and implement laws to protect the environment. In order to do so, authorities will need to establish and train special teams in charge of environmental protection. Of course, public awareness campaigns should be launched to educate the public. However, as long as no punitive action is taken, these campaigns will land on deaf ears.
Since independence in 1943, Lebanon, its people and the land have been through a great deal of turmoil and suffering. It is one thing to have stopped the fighting, but it is a whole other issue to repair the damage. On the human level, there are still raw scars that need healing, but there are some efforts to avoid provoking new ones. On the environmental front, however, it is as if the civil war has never stopped.

Norbert schiller is a Dubai-based photo-journalist and writer

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Society

IWC – Georges Kern (Q&A)

by Executive Staff
written by Executive Staff

Georges Kern, 37, has been chief executive officer of the International Watch Company (IWC) since January 2002. He has worked in the watch industry since 1992, when he was responsible for TAG Heuer’s global distribution network. Kern recently sat down with Executive for a one-on-one interview to offer up a CEO’s view of how IWC and the watch industry are weathering the current global recession.

E Are Swiss watch manufacturers and the IWC focusing more on the Middle East and the Levant region? What’s your strategy?
The Middle East is a strong buying region for all brands and luxury goods, specifically the Gulf region. Dubai has been booming for years, they have a slowdown now, but the fundamentals are there and the region will continue to grow. Concerning the Levant, let’s face it, it’s Lebanon. In Lebanon you have a much more developed luxury culture than any other country [in the region] and the education towards luxury goods is much more developed. What we try to do is to develop local markets. We don’t need your purchases in only Paris, London or Dubai. We want to have business at a local level because it creates a much more sustainable business model. This is why everybody is coming to Lebanon and is looking for opportunities to do a drive.
The second question is always: ‘Yes, but Lebanon is smaller than France or whatever.’ That is not the point. The point is that we are a global brand; we are not a local brand. The customer in Lebanon is the same as in Paris, New York or Tokyo. He has a certain level of income, a certain level of knowledge and he is part of a certain club. He wants to see the brand with the same quality worldwide, in Avenue Montange as well as in Solidere. That is why we have to offer the same service, the same boutiques and the same environment because otherwise it’s not a real successful global brand.

E How has the financial crisis affected IWC and the luxury watch industry as a whole?
I think we have to be realistic and pragmatic. We cannot hide. I don’t think any brand in the world can hide from this crisis. The question is: How badly are you affected? I like the quote by Warren Buffet who said ‘when the tide goes down you see who was swimming naked.’ This really depends on how resilient you are in terms of your prices and what you offer in terms of real value, because consumers today don’t want ‘show value.’ The days when bankers who made a good bonus walked into a store and bought a watch for $50,000 are over. That customer base is done. Today it’s really back to the roots and you need preparation. The easy money is gone. You need to really build on your values, your history, your roots and have the confidence of the consumer. Thank God we have [that confidence] because of everything we have done over the last 140 years.

E Have you turned your focus away from the luxury watch sector as a result of recession? Are there plans to market more mid-range products?
You might see this in the exports; that some segments and cross segments have been hit harder than others. I think that in any price segment you can be successful or you can have major problems. The point is how strong your brand is, not which price segment you are [in]. You can be successful in any segment. The question really is how good your products are, how good your image is, how solid your values are and then you are fine. I can give you examples of total flops in any price segment and I can give you examples of very good brands in any price segment. We stick to where we are. There might be some technical adaptation but nothing fundamental.

E So there is no paradigm shift in your strategy to focus less on high-end segments?
I mean this would be a drama because then it would mean that our strategy was really wrong. But we had our bathing suits on.

E Swiss watch exports dropped 26 percent this year from last year, according to the Swiss Watch Federation. Are you experiencing a similar decline in exports?
As I said, you cannot hide. You cannot seriously say that such a crisis is not affecting you. The two fundamental questions are, in such a situation, what is your business model, and number two: how strong is your brand. Your business model, in terms of your cost structure to ensure strong profitability and cash flow, how ‘verticalized’ you are in terms of production and how many boutiques you have. What is your cost basis? That is the first question. The second question is how strong is your brand? I think we have those aspects under control.

E Watches and luxury goods in the Americas have been hit hard. Is this why you are focusing on other regions like the Middle East?
Of course we are looking for opportunities. Fundamentally, I think the United States will get out of the crisis. I think it’s a very reactive region. Most probably Europe will suffer longer than the US. In such a situation you optimize everywhere and we know that we have a lot of potential in the Middle East, including Lebanon. You have the [Lebanese] elections that will see 100,000 people travelling to Lebanon to vote, all paid for by political parties. Well, thank you very much. Go to our stores and buy some watches before flying back.

E There have been signs that a global economic recovery could be approaching, especially in this region. Have these signs translated into increased activity?
I don’t have a crystal ball but indeed we should all hope and pray that the financial system will be consolidated by the end of the year. You have to consider the real economy. The real economy is coming [back] one year or two years later [than the financial economy]. We are just starting to see the real economy in the US and Europe be affected. Unemployment rates in the States in April were announced at 8.9 percent. It’s a historical high and the impact is being felt now. If everything falls back into place we can hope that the real economy will be affected [positively] by, say next year. I explained the financial crisis to my 12-year old son by saying ‘finance in a body is like a heart and the money is the blood. If the heart doesn’t beat there is no money flow and the body is dying.’ If you cut off a hand like General Motors, you will still survive but if the financial system does not work, it’s over.

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Executive Insights

The need for renewable energy in an oil-rich region

by Tarek El Sayed
written by Tarek El Sayed

Since 2000, many political and business leaders have shifted their focus from lowering energy costs to diversifying their energy supply, in part through the introduction of renewable energy. This change was triggered by concerns over security of supply, fuel cost volatility, climate change and fast-growing demand from emerging countries. Gulf Cooperation Council (GCC) countries were able to defer this discussion by several years, thanks to their domestic oil and gas resources, but have recently undertaken a number of initiatives to introduce new energy sources.

In the process, they have generated some skepticism: Why should a region that contains almost half of the world’s remaining oil and gas reserves adopt renewable energy? 
Actually, in many respects, the case for renewable energy is stronger in the GCC than in many other places in the world. Cost is one driver in developing the rationale for renewables. Some technologies, such as wind, already reaching grid parity, and others, such as solar, are projected to become cost competitive with power generation from conventional fuels in the coming years. But beyond renewables’ overall cost competitiveness, the GCC region in particular is uniquely suited to some types of renewable energy: the region has very high levels of solar irradiance, coupled with limited cloud cover; these factors place the GCC among the top regions in the world in terms of technological potential for solar power generation.
Renewables will also become increasingly necessary as a complement to fossil fuels in the region, despite some critics’ alarm over renewables’ competition with the oil and gas industry. Even under the most optimistic forecasts for renewables, fossil fuels will remain the dominant source of global energy for the foreseeable future. In addition, according to the Organization of Petroleum Exporting Countries (OPEC) World Oil Outlook 2008, OPEC’s share of world oil supply is expected to grow from 42 percent in 2006 to 52 percent by 2030. The burden of this

The Masdar Initiative
    The Abu Dhabi Future Energy Company (ADFEC) launched the Masdar Initiative in April 2006 to establish an entirely new economic sector dedicated to alternative and sustainable energy. There are five key components to this entity:
 

  • The property development unit is responsible for developing Masdar City, the first zero-emissions city in the world.
  • The utilities and asset-management unit is building a portfolio of operating assets and strategic investments in renewable energy.
  • The industries unit will invest in production assets and develop Masdar’s high-tech solar cluster.
  • The carbon management unit is developing a portfolio of clean development mechanism projects and a carbon capture and storage network in Abu Dhabi.
  • The Masdar Institute is a graduate level scientific and engineering institution focused on education and research in renewable energy and sustainable technology.

growth will be concentrated on a handful of suppliers, who will be responsible for providing significant additional capacity every year.
If the oil and gas currently used to generate electricity can be partially replaced by renewable sources, then new volumes of fossil fuels become available for export (or more profitable downstream applications, such as petrochemicals). By supplementing — rather than replacing — oil and gas, renewable energy could help maintain the GCC’s position as a major energy exporter for the world if the technology is developed early and competitively.
There are a host of other benefits to be realized if the GCC is an early adopter of renewable energy. For instance, its use would help the region manage its rapidly rising pollution levels and associated costs. Countries in the region have some of the highest per-capita carbon footprints in the world. In 2007, Qatar emitted — on a per capita basis — three times more CO2 than the US.
Renewable energy would not only improve the region’s own environment, but create opportunities for revenue. Under the Kyoto Protocol, developing countries can realize financial benefits from reducing their CO2 emissions and selling carbon credits to developed countries that need these credits to fulfill their emission reduction obligations.
Renewable energy also offers advantages that directly address the specific energy needs of the GCC. For instance, countries could use certain renewable technologies, such as solar photovoltaic and small-scale wind power, to provide energy to sparsely populated areas. Because such technologies function in distributed mode, they can replace expensive fuel-fired generators and eliminate the need for governments to make costly investments in extending grid infrastructure.
To take another example, about two-thirds of the electricity consumption in the GCC is used for cooling purposes; the use of solar energy for cooling could offer significant opportunities to address the large excess capacity required to meet electricity demand driven by cooling loads. This energy could be either converted into electricity to be used in traditional cooling systems, or used in direct thermal cooling applications, potentially offering higher conversion efficiencies and cheaper means of storage.
Finally, a local renewables sector and a substantial global presence in this industry would foster the development of a sustainable knowledge-based economy and create employment opportunities. The creation of such a sector would leverage the wealth generated by hydrocarbons and use it to diversify GCC economies and reduce their dependence on oil.
But in developing renewable energy, GCC countries will face many challenges. First, these countries will have to master a wider array of complex, cutting-edge technologies. They will have to develop their workforce to harness the capabilities required by investors. They should also create a regulatory framework that will attract investors and developers with the technological know-how, capital and project-development expertise to build the sector.
In the short term, GCC countries need to build the requisite financial systems to support the sector. Implementing technology specific feed-in tariffs is widely considered to be the most effective way to do so, especially when they are accompanied by efficient planning and registration procedures. Under the terms of these tariffs, utility companies are required to support the development of new technologies by purchasing electricity from renewable generators at a fixed price defined by public authorities. However, tariffs are not the only option; other regulatory models and incentive schemes include capital expenditure subsidies, grants for research and develoment, mandatory grid connection, tax incentives and renewable energy portfolio standards. Each country should review all of its options before selecting a model that meets its unique needs.
Competitive positions in the renewables sector are not yet set, and there is substantial opportunity for first movers to become global leaders by adopting the requisite policies and launching bold initiatives. Countries that move quickly, such as the United Arab Emirates, with its unique Masdar Initiative and its bid to host the International Renewable Energy Agency headquarters, could build a sizable and sustainable competitive advantage.

Tarek El Sayed is a senior associate and Walid Fayad a principal at Booz & Company

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Executive Insights

Private equity at the gates of public markets

by Imad Ghandour
written by Imad Ghandour

Private equity investment in a public company is always a headline-capturing affair. The epic tale Barbarians at the Gate — The Fall of RJR Nabisco, chronicles how Kohlberg Krabis and Roberts, a large American private equity house, took over RJR Nabisco for almost $26 billion in 1987. The book has memorialized the thrill and excitement surrounding such an affair.

There has usually been a clear distinction between private and public equity investments. The style, objective, structure and active involvement are distinctive between these two classes of investment. But in many instances, the “barbarians” like to cross over and hunt for deals in public markets. The appeal is clear: public companies are prized targets by the way they naturally graduate to become public, and most shareholders of public companies are more or less willing sellers at the share price plus some premium.
Private equity investments in public markets come in two main flavors. The more opportunistic flavor is PIPEs, or Private Investments in Public Equities. A PIPE is basically a privately held company owned by a group of investors that purchases a substantial and influential equity stake in a public company, but keeps the target company listed.
On the other hand, the “take-private” flavor has become a well established strategy in the past few years, and is by definition the complete takeover and delisting of a target company. A private equity fund offers shareholders in the target company a price (usually above the listed price) and, if the fund’s offer is accepted by the vast majority, the fund will squeeze out (subject to the availability of such rules) the remaining dissenting shareholders and take over 100 percent of the company. Ambitious mega buyout funds have repeatedly adopted this strategy in the past three years.
Private equity financiers in the region have been inspired, and have successfully tried to hunt for deals in regional public market. Aramex is the best known example. It was taken private in 2002 from NASDAQ, and then taken public again in 2005 on the Dubai Stock Exchange, resulting in 197 percent gross capital gains for the investors. Egypt seems to be a fertile ground for such an investment strategy, as we can see from the table below, mainly because of its deep public markets, its semi-developed takeover laws and its laissez-faire regulators. The Gulf Cooperation Council, on the other hand, has not witnessed substantial take-private activity, as both the laws and the regulators deter such activities.
With valuations of regional markets rock bottom, the coffers of private equity funds full and the number of private deals limited, funds are figuring out how to take advantage of this once-in-a-lifetime opportunity. The arbitrage potential is crystal clear, and willing (or distressed) sellers are available.
There are private hints and public announcements that private equity funds are actively working on public deals. They better hurry. Markets have risen by 20 to 40 percent since they hit bottom in March, and valuations have increased by 20 to 50 percent over the past few months.

Imad Ghandour is the executive director at Gulf Capital

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Executive Insights

Tuning the public relations machine for crisis

by Nohad Mouawad & Ramsay G. Najjar
written by Nohad Mouawad & Ramsay G. Najjar

Companies around the world seem to have down-shifted their usual mass-market, flashy-ad campaigns to opt for more targeted and subtle forms of communication. This comes as no surprise, with almost every crisis in the past giving rise to two trends: companies begin squeezing their communication budgets and shifting their spending away from expensive communication campaigns to more cost efficient public relations activities. At the same time, they scramble to protect and preserve their image by calling on the “spin doctors” or public relations practitioners to reassure shareholders and consumers. Both trends ultimately lead to a greater demand for effective public relations (PR) services.

One example of turning to PR in crisis was when Australian company James Hardie Industries was accused of poisoning homeowners with its asbestos filled products. The first thing JHI did was hire spin doctors to try and divert audiences’ attention away from its unethical practices.
During the current financial crisis, US and global banks have been scrambling to preserve their image with shareholders and customers through PR activities. These range from including special messages in annual reports, to emphasizing their socially responsible activities in order to downplay the “greedy” image the crisis has tainted them with.
It is not surprising then that today’s crisis has led to a burgeoning interest in PR. The industry is abuzz with discussion about how it can be better leveraged to offer companies an image building and immunization tool with more bang for each buck spent on communication.
The Middle East is no exception, as we witness an increase in PR activities aimed at warding off the demons of the financial crisis, not only in the corporate world but even at the level of governments. The Dubai government, for example, has been regularly issuing press releases, interviews and articles to counter rumors of the Emirate’s demise.
Up until the crisis, however, the PR landscape in the region seemed to be rather limited to tactical press releases and occasional press conferences, alongside the endless flashy events and glitzy parties, which appeared to be exactly what companies and their audiences were looking for.
Today, with public relations being revived as a hot topic, regional conferences about “strategic PR” are on the rise, and PR agencies are clamoring to re-position themselves as offering “strategic public relations” services.
The growing interest in strategic PR, however, can be misleading as it may not result in the expected return on communication investment. PR can only be truly effective if it actually follows a strategic thinking exercise that culminates in developing a fully fledged communication strategy. This strategy defines the company’s aspired positioning and translates it into messages and channels that successfully engage each of its stakeholders. PR then comes as an application of the strategy, representing one of the tools in a company’s communication arsenal — and one of the most powerful and cost efficient ones when used effectively and in tandem with the other communication efforts.
PR that is in line with a company’s communication strategy and effective in times of crisis is one that can engage an organization’s stakeholders and reach them wherever their interests lie. This also means reaching out to opinion leaders or “influencers” in each target group who can spread the company’s strategic messages, and generate the needed buzz to restore credibility or remind target audiences of the value of a particular brand.
Walt Disney is a company that has proven the effectiveness of PR as part of an integrated communication strategy during crisis. Disney ensures that its president constantly communicates with shareholders and employees, highlighting the sustainability of the company and how its corporate strategy will help it ride out the crisis. The company does this through special letters, speeches that can be downloaded from its website, dedicated sections of its annual report and a regular flow of financial updates available on its website.
Looking at the strongest brands globally, there are numerous examples of how these companies practice such PR tactics, using a barrage of new media and other unconventional channels to convey their strategic messages. Starbucks launched a “My Starbucks Idea” website for its customers to propose ideas they would like to see implemented in terms of the company’s products and services, bringing them closer to a brand that is traditionally seen as a luxury during difficult financial times.
Apple’s famous blog is full of tips on how to use its products, targeting Apple technology aficionados who are looking for a new way to integrate their iPod, iPhone or i-something into their everyday lives and work.
The number of creative applications PR offers that are both attention grabbing and cost efficient are endless — from town hall meetings that rally communities, to online contests, to gathering members of the media for round-table discussions.
The universe of PR activities is certainly vast, and their strategic value should by no means be underestimated by regional companies, especially in times of crisis. However, their strategic benefits can only be reaped if they are preceded by a holistic strategy that provides companies with a road map that guides all of their communication activities, including PR.

Nohad Mouawad & Ramsay G. Najjar S2C

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Lebanon

Airlines – Delta landing

by Executive Staff
written by Executive Staff

American owned airlines have been prohibited from flying to Lebanon since 1985, when kidnappings and hijackings were more common than tourists at Beirut International Airport.

But now Delta will become the latest American owned airline to open an office in Beirut, joining United Airlines and American Airlines. Jimmy Eichelgruen, Delta’s director of sales for the Middle East and Africa, explained the new Beirut office is part of Delta’s global expansion. 
“Delta was predominately a domestic airline and it has only been in the past four years that it has grown to [have a 50-50 split between] domestic and international flights,” he said. “The expansion of Delta has been phenomenal. Only two years ago the airline did not fly to the Middle East at all.”
Delta currently flies direct to Dubai, Kuwait, Cairo, Amman, Istanbul and Tel Aviv. Delta has 37 weekly flights to the Middle East, which is more than the other American airlines combined. This has meant that Delta has been in a prime position to profit in one of the fastest growing regions for aviation.
As to whether the new Delta office might suggest that the ban on US carriers flying to Lebanon will be lifted, Eichelgruen would not say.
“At the present time, US carriers are prohibited by the US government from flying to Lebanon,” he said. 
During the Nahr al-Bared conflict, the US government did relax  flight restriction, allowing military and humanitarian flights to arrive. But the ban remains for commercial airlines, and there is no sign that the restriction on US carriers will be lifted or even eased any time soon.
The new Delta office is set to open in the Starco building, with an initial staff of three that will deal with flight reservations and sales. Eichelgruen said the demand for American airlines to set up offices in Lebanon exists.
“Lebanon has a massive number of people living in the US, as many as 750,000, and the open skies policy is a good incentive to set up an office here,” he said.
Eichelgruen said it is especially important to have a presence in the country during Lebanon’s all important summer high season.
Delta has an air-sharing agreement with Air France and KLM enabling them to expand their operations. These agreements help in places such as Lebanon where Delta is unable to fly directly.
The company’s 2007 Chapter 11 bankruptcy represented a challenging period for the airline. But far from ruining the business it allowed Delta to restructure and be better prepared to face the financial turmoil that has hurt airlines more than any other sector.
One year after Delta Airways filed for Chapter 11 it became the largest airline in the world following its purchase of Northwest Airlines for $3.6 billion. Yet up until now Delta had no presence in Beirut, despite the fact many of its American competitors have had a presence in the Lebanese capital for years.  

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Executive Insights

Keeping one’s cool riding investment‘s reflexive roller coaster

by Rehan Syed
written by Rehan Syed

Most studies of historical risk and return tell us to sell when prices rise and buy when they fall. “Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria,” goes the old adage. Sell greed and buy fear, as they say. Yet, we often end up doing the opposite. Sometimes that works for a short period, but it often ends in tears. The only way to avoid this emotional roller coaster is to stick to a disciplined investment plan.

“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights or inside information,” said veteran investor Warren Buffett. “What is needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”
The figure which follows traces our emotional range on the investment roller coaster. Financial risk peaks when we are euphoric and troughs when we are disgusted. The only antidote to emotion is a disciplined investment strategy which balances portfolio management rigor with adjustments for behavioral biases.

To reflect or reflex?
Could we be our own worst enemy by enacting such a disciplined investment plan? Data confirms that most investors fail at timing markets. “The investor’s chief problem —  and even his worst enemy — is likely to be himself,” said Benjamin Graham, Warren Buffett’s mentor. Does success depend as much on managing emotions as it does on sound financial analysis?
Behavioral science suggests the answer is yes. With due apology to my creationist friends, the science of evolution asserts we have two brains. The first is a modern “executive” brain which is reflective, analytical, rational, logical and predictable. The second is the first brain’s alter ago: a reflexive or “lizard” brain, which is the residue of our primordial ancestors. The reptilian latter is impulsive, hyperactive and prone to hasty and often erroneous decisions. In fact, studies show two different computational ‘systems’ are at work inside us: the reflexive system is made of emotional circuits, and the reflective one of analytic circuits. When there is a strong stimulus, especially a negative one, like a sudden fall in the price of one’s stock or bond, fear kicks in and the reflexive system overwhelms the reflective system.
This is not kooky pop psychology; it is the result of decades of research by scholars like Daniel Kahneman and Amos Tversky The former being awarded the Nobel Prize in 2002 for having “integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty,” according to the Nobel committee. The science was further popularized by Harvard researcher Terry Burnham, who describes our lizard brain as a “pattern-seeking, backward-looking system which allowed us to forage successfully for food, and repeat successful behaviors.”
Emotions push an investor toward pro-cyclical reflexive behavior: buying when rising prices stoke excitement and selling when falling prices prompt fear. A disciplined, value-conscious investor would reflect and do the opposite: sell risky asset classes as they rise in value and buy the undervalued ones. In the long run, I believe this counter-cyclical process results in more portfolio stability, less volatility and greater compound return on investments.

The denominator effect
The investment world is emotionally exciting because it is overloaded with kinetic energy, just as action movies, even bad ones, often outsell good but slow moving dramas. Stoked by rapidly moving price signals, our sensible reflective system is sometimes overtaken by our impulsive reflexive system. The result is smart people who make unwise investment decisions.
The prices of most instruments change almost daily, creating a push and pull of emotions and expectations. This emotional angst is best understood by distinguishing between the emotional impact of a single asset’s return versus the portfolio’s overall return. Lets say 2 percent of one’s portfolio is invested in a single stock. Even if it doubles in value, which is very emotionally rewarding, you have an uninspiring gain of ‘only’ 2 percent on your portfolio, known as the denominator effect. In other words, the largeness of the denominator subdues the rapid movements of the numerator, yet your ‘emotional equity’ is centered on the numerator. What matters in the long run is the unexciting denominator, which is the overall portfolio’s final value, better known as your early ticket to a cozy retirement. Often an investor is inappropriately focused on the numerator not just because he owns it but, also because he has perhaps bragged about this hot stock tip with his cocktail party cohorts. Given such social conditioning, if the stock is in trouble he is unwilling to sell; even if that is the correct thing to do, because his ego or emotions are too wrapped up in it.

Desperately seeking patterns
The reflexive part of our brain is pattern seeking, groping for logical patterns to often illogical stock price movements. Too many investors rely too much on historical prices for predictions about the future. Buffett has a little advice to avoid this reflexive trap.
“I always like to look at investments without looking at the price, because if you see the price it automatically has some influence on you,” he said.
In other words, focus on enduring business value, not the more emotional issue of price. Also, by the time a price pattern or trend is visible, the easy money has already been made by investors who overcame their fear to buy before the positive news emerged. As George Soros said, “the big money is made when things go from God-awful to just plain awful.”
A disciplined rebalancing plan ensures that, at the bottom of the emotional roller coaster, you are methodically buying some asset classes which look awful in the rear-view mirror, and thus ignoring both illogical patterns and fears.
Current emotional state
Currently, with the MSCI World Index (a benchmark for global stock prices) at 922 and delicately poised 45 percent below the October 2007 high (about 33 percent above the March 2009 low) what should the reflective investor do? I believe we are still in the fear phase, but have passed through the desperation phase since the worst of the deflationary risk appears to be behind us. But equity investors may have become too optimistic about a V-shaped recovery, which I believe is unlikely. Only when bouts of optimism, such as the one we are currently experiencing, are repeatedly extinguished will we reach the disgust and capitulation stages which will signal the true market bottom.
For example, US and European stocks were mostly range bound, rising and falling within a specific range, during the “lost decade” between 1968 and 1979. The bottom and capitulation came in 1974, but the long lingering disgust eventually led to the infamous 1979 Business Week headline, ‘Death of Equities.’ With emotions washed out, an equity bull market began barely three years later.
With many leading banks forecasting global equities’ fair value at about 10 percent higher than current levels, is this the time to keep climbing the wall of worry? On the local front, with MSCI Arabia trading at 435, a strong 35 percent above its March lows and with oil having already recovered 70 percent from its recent low of $34 per barrel, is it wise to continue adding Middle East exposure to our global investment portfolios?
Both globally and locally, I believe a middling macro recovery will materialize late this year or early 2010, and that equity markets will bottom out about six months prior to that. Since it is extremely difficult to catch the bottom, I believe it is better to average into the market over the next six to nine months. Using this strategy, an investor will likely buy into the bottom of the market. From examinations of historical recovery pattern data, it looks like at least one additional price correction is likely to occur. Whether there will be a future round of capitulation and disgust depends on how successful the Group of 20 is with its ambitious reflationary and stimulus policies and how well those policies can keep populist protectionism at bay.

Two ways to roll unemotionally
There are two approaches to investing without emotion. First, commit to a disciplined investment process which is diversified and is based on the tried and true concepts of averaging and rebalancing. Second, one can invest in funds that use sophisticated computer models to trade many markets at once, rapidly trading price trends before emotional humans can, and arbitraging price discrepancies across markets.
In all cases, putting a wall between emotions and investment decisions is more difficult than it might seem, and is best achieved by first carefully formulating risk and return goals. Hiring a trained, unemotional and discretionary asset allocator to diversify a large portion of your portfolio, while allocating a small portion to funds run by unemotional, quantitative systems, can also help to keep one’s hot head from making unwise decisions.

Rehan syed is the head of portfolio management at the ABN AMRO Private Bank in Dubai. The opinions expressed here are personal and not necessarily those of his employer

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Lebanon

Real estate – Beirut in an eggshell

by Executive Staff
written by Executive Staff

In the heart of Beirut is the distinctive shell of what was once a complex called the “City Center,” also affectionately known as the “Egg.”

The Egg, with its nose chopped off and deep scars on its once smooth concrete exterior skin, has passed through dramatic changes in its 50 years of existence. Ever since Solidere in 2005 sold the land to Abu Dhabi Investment House (ADIH) as part of the Beirut Gate project, the Egg has been constantly threatened with demolition.
Solidere sold the land without any legal protection or financial incentive to save the Egg, meaning its destruction is almost inevitable. For now, the July 2006 war stopped its imminent demolition and the financial crisis delayed the bulldozers further. However, the end appears to be near for one of the last iconic, modernist architectural structures in the center of Beirut that also carries with it the physical manifestations of the civil war years.
The Egg was built between 1965 and 1968 as a multi-use shopping center, movie theater and office building. The developers, Samadi and Salha, had ambitious plans for this development and wanted to make it the biggest multi-use center in the Middle East. The egg-shaped cinema was designed to hold 1,000 seats and is 24 meters wide and 11 meters high. It was to be accompanied by two towers, of which only one was built and has since been destroyed. George Arbid, professor of architecture at the American University of Beirut (AUB), explained that the distinctive shape of the Egg came about through unintended consequences.
“The building code at this time was very strict about building movie theaters for structural safety,” Arbid said. “So the architect, Joseph-Philippe Karam, convinced the authorities that the law did not forbid the use of the space below the movie theater, so he created a retail space underneath. Once the movie theater was raised and visible, he was forced to give it a distinguished shape, hence the concrete egg shell.”

The architect and the egg
Joseph-Philippe Karam was one of Lebanon’s most distinguished modernist architects who trained in Lebanon and designed buildings throughout the region.
“The Beirut City Center was one of several examples of his innovative contributions to architecture,” said Joseph-Philippe Karam’s son, Sami Karam. “The surviving cinema [or Egg] has become an icon of avant-garde Lebanese modernism.”
Many of Karam’s buildings were destroyed in the civil war and the few that remain are being demolished to make way for high-rise developments, most notably the Building Gondole, in Rouche, that was demolished in 2004.
The architectural importance of the Egg is contested despite many top-notch international architects admiring the structure.
“Architecturally speaking the Egg does not have architectural value,” said architect Bernard Khoury. “There are many more important buildings in Beirut that are, architecturally speaking, more important. The attraction [to the Egg] is the curiosity of the building in terms of its role with the war and the fascination that it creates.”
Residents of Lebanon confirm this enchantment with the Egg and the history it represents in its current appearance.
Marie-Louise Ramy, who grew up during Lebanon’s civil war, explained the fascination.
“When we came down from the mountains to Beirut, the whole of Beirut used to look like the Egg does now,” she said. “So the structure acts as a reminder.”
Arbid disagreed with the idea put forth by Khoury that the Egg does not have any architectural value.
“It is one of the rare free-form structures in the city [and] it was a difficult task to execute such a form. It is also important because it is one of the rare cinema halls raised above a freed ground floor,” he said.
While the architectural importance of the building is contested, the debate over whether to demolish the structure or not has certainly stirred public interest. Dania Bdier, a student at AUB, started a Facebook group to ‘Save the Egg’ at the beginning of 2009.
“Within four days 3,000 people had joined up to the group,” she said.
The group now has more than 5,000 members and had to move to ‘Save the Egg Cause’ due to having so many members in the group. Much of the debate of the group does not center on the architectural intricacies of the building, but instead on the role the Egg plays in Lebanese identity.

The battle for identity
For many the Egg is becoming a centerpiece in the battle for the identity, not just of the downtown area, but the whole of Lebanon. Bdier was very clear about her reason for starting up the Facebook group.
“We are starting to look so much like Dubai and we are not, we are like the Egg. The Egg is very important in Lebanese history,” she said.
Many of those on the Facebook group who support preserving the Egg do so because they want to stop what they call the ‘Dubai-ification’ of Lebanon. This allegation is particularly sensitive given that the land where the Egg is located is now owned by the ADIH and the decision as to whether the Egg stays or goes rests not in Lebanon but in Abu Dhabi. This point has not been lost on those who argue for preserving the Egg. As Jack Samaha, on the Facebook group proclaimed, “Our identity and culture as Lebanese is not for sale [to] Gulf millionaires.”
Not all agree with this notion that the destruction of the Egg will make Lebanon more like the Gulf, and many posts support the demolition of the Egg.
“I saw the Beirut Gate project and I have to say it’s very nice,” wrote Patrick Saab on the Facebook group. “The Egg is a mess, and it can be replaced or rebuilt anywhere else. Put culture aside, think modern look for Lebanon… How do we expect to get more exposure if we keep our old, almost destroyed buildings standing?”
The ADIH would not speak to Executive but in an interview with Bdier, in January, an unnamed representative stated: “Solidere wishes us to keep the soul of this dome by either reshaping it or doing something similar. We took it into consideration and we are considering it, because it also has to financially make sense for us to do it. For this plot, we bought and paid [for] 39,000 meters squared of built up area, and the dome is only taking up 6,000 or 7,000 meters squared. The developer who is going to buy it is looking at it.”
French architect Christian de Portzamparc was commissioned to produce a study for the site, and according to the local architectural consultant ERGA Group, produced two designs for the site.
“One of the proposals keeps the shell of the Egg and the other demolishes it and no decision by the developers has been made as to which one will be built,” said Eli Abu Ghazaly, chief operating officer of ERGA.
With no legal obligation to keep the Egg it is highly unlikely that the developer will wish to keep the structure, as it reduces the built up area of the site and thus significantly reduces its profitability. Abu Ghazaly said that because no decision has been made as to which proposal would be accepted, no images of the proposals could be released.

The project that never was
One project proposal for the renovation of the Egg was Khoury’s 2004 commission by Solidere. In previous statements, Solidere Chairman and CEO Nasser Chamma, in The Wall Street Journal in 2004, admitted that Solidere wanted to demolish the structure straight away. But many of the star architects brought to Lebanon by Solidere, such as Philippe Stark and Jean Nouvelle, were struck by the Egg and Solidere decided to think again. It was then that they approached Khoury to propose a scheme to redevelop the Egg.
“There was deadlock over this site for a while and Solidere did not know what to do with it,” Khoury said. “Then in 2004, they called me to develop a temporary structure that would last five or six years while they figured out what to do with the land. But then with the assassination of [former Prime Minister] Rafiq Hariri everything changed. There was a huge change in Solidere with big interest in the real estate and many big transactions were made,” he said.
“It all occurred much faster than Solidere ever thought it would happen… The land where the Egg is was sold in one of the biggest deals and so my project was stopped,” Khoury added.
The role of Solidere in the Egg’s sale has also been highly controversial, primarily because of the way the company parceled up the land and sold it. When Solidere sold the land they expressed a “wish” for the dome to be kept, but they made no legal stipulations enforcing it. Abu Ghazaly defended Solidere by stating that “to make it illegal, there needs to be a government decree.”
But as Arbid explained, “the way Solidere sold the land makes it impossible to save the Egg.”
The manner in which the land was sold, with a total amount of built up area, including the area where the Egg is situated, did not leave any real possibility for saving the structure. Despite having already sold the right to make any assertion as to the future of the Egg, Solidere still maintains the structure is going to be preserved.
As another of Lebanon’s historical sites is destroyed many will be frustrated by the lack of transparency and debate over these architecturally significant sites. There is a clear lack of will to engage by Solidere or the ADIH in any sort of debate over whether these buildings are worth saving or not. Those who want to preserve Lebanon’s built environment face an uphill struggle.

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