Levant

Change & Reform Bloc – Opposition

by Executive Staff
written by Executive Staff

Farid el-Khazen, 49, has been a Member of Parliament since 2005 and is the author of The Breakdown of the State in Lebanon. He is also a professor of political science and former chairperson of the department of political studies and public administration at the American University of Beirut. Mr. Khazen is running with the Change and Reform bloc for the Maronite seat in the Kesrouan electoral district. 

E The United Nations estimates that 28.5 percent of Lebanon’s population lives below the poverty line and 300,000 people live in extreme poverty. What will you do to elevate the poverty situation?
Poverty in Lebanon is the result of a lack of policies to deal with this problem, and as you know the priorities of the government have been elsewhere since the end of the war in 1990. This is not an issue that was given sufficient attention. There has been attention or concern or interest by international organizations that dealt with this issue in Lebanon, but not much has been done when it comes to government and I think this has to go by sectors.
For instance, on the issue of hunger and households — I am not an expert on this issue but I assume that it has to go by age group, by gender and by region. The policy of simply giving aid, which is the classical approach, may be needed for the very poor, but beyond that I think that one should create security and jobs and provide an opportunity for these people to work. This is one effective way to elevate poverty.
Some regions are definitely poorer than others but there are also needy sectors or sectors that need development all over Lebanon, not only one region or another. This does not apply only to poverty; it applies to other areas.
In the region that I represent, Kesrouan, public schools are in very bad shape, while in other regions public schools are much better. I would not [just] go by region, I would go by where there is poverty and where there is need for infrastructure and the need for human development. Definitely there are more poor people in some regions than in others.

E EDL has been a drain on the budget for more than a decade now; what would you do to decrease expenditure and improve efficiency?
The debt that Lebanon has is partly due to this problem, the funding of EDL. This is a monumental factor; it is the worst and the most costly problem in the country and it’s been going on since the end of the war — almost 20 years now and nothing has been done.
This is not a problem that surfaced last year or a few months ago. This is due to mismanagement, corruption and a variety of factors that all converge on one thing, the policy of the so called muhasasa [a situation by which parts of a whole are split up amongst stakeholders].
Over the years, the money that has been spent to subsidize the EDL could have been used in a different way and then used to build new plants. So what is the best approach today? We are still waiting to produce electricity by gas that we don’t have and we don’t have the proper infrastructure for it. It’s a vicious circle and in my view that should be given top priority. First we need to deal with the immediate problem and find ways to produce electricity at a lower price and again I am not an expert. I am not familiar with the proposals to comment whether it is a proposal by Mr.A or Mr.B.

E In order to service Lebanon’s mountain of debt, policy has always been enacted to tax the private sector. Will this continue to be the basis of the government under your party and what will you do to spur on private sector growth?
The private sector at some point in the ‘90s had been given incentives, but with the overall policy, the political process was not at all favorable for the public sector to flourish.
You say you lower taxes or eliminate taxation or whatever, but it is still uneven and there is no long term vision. You may support the private sector through certain policies, but there is an overall political situation that is really counter to that support, and there is also this problem of corruption which does not at all go well with the private sector and how it should operate.
The private sector — especially when you are dealing with exports — it’s not simply the issue of taxation. I don’t know what the tax rate is here in comparison with other neighboring countries, say Jordan or the Gulf, but definitely it’s a package of taxes and proper administrative procedures and the overall political situation. The package in Lebanon is not competitive. You have to make it competitive so that Lebanon can really become, once again, the business center of the region that it was before the war.

E Recently the ILO reported that 22,000 students dropped out of schools in Lebanon. What will you do to curb this phenomena and to facilitate human development in Lebanon?
We have other problems in the region, mainly infrastructure and the absence of any sewage system, water pollution and waste water treatment plants. This is a major problem in the region.
When it comes to schools, I mean public schools. Public schools cost [money]. The average student in a public school would cost more than in a private school and therefore there is a huge problem; it should cost less. Plus the level of education is not as good or comparable to that of private schools. Had it been better, more parents would have been likely to send their kids to public schools.
It’s not simply schools, it’s also universities and in recent years. In the last 10 years or so, the government or the Ministry of Education have given licenses to several institutions which are not qualified to become universities and today are called universities. Students will graduate from a so-called university; they have a diploma and they think they can work with this diploma when in fact they cannot. They cannot compete with the students graduating from the established universities in the country. We have so many engineering schools, so many businesses [schools], so many medical [schools] — its total chaos.
We are a small country and already we have more than 40 so- called universities and more to come. They keep on presenting proposals for licenses and there is no policy on this. There is a lack of enforcement and this started in the ‘90s and then became chaotic, and you have political interest at stake sometimes, sometimes clientelism, sometimes nepotism, all the ills of society are there so this is an issue that needs to be addressed first.

E Telecommunications privatization has been stifled by politics and market conditions. How will you encourage competition and root out bad governance in the sector?
There is bad governance in all sectors, in all of the above. The current minister has done something that is a great achievement by lowering prices. This is a major achievement and I don’t know why this was not done before Minister Bassil came to office. The minute this service started in the mid-90s, corruption started there.
When it comes to privatization, in this sector or in any other sector, it cannot be simply privatization by the norms that apply in a number of developing countries where privatization meant private property not [real] privatization. We have seen this in a number of countries in the Middle East and elsewhere. If it is privatization by the norms that apply in Europe or developed markets where there is transparency, then yes [we agree]. Otherwise privatization becomes synonymous with private business. Under the label of privatization we can get into a very bad situation in all sectors. So we are for privatization and we support privatization, but again it should not be politicized; it should be totally transparent and it should go by the rules and the norms that are in application in other countries. We opt for privatization when we know that we can assure that we can abide by these laws. Otherwise it’s not simply the rush for privatization. Privatization, if not applied properly, is not a recipe for reform. It becomes a recipe for corruption. [I support] no politicization, transparency and the norms that are in application — the best practices.

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Ahoy ye high seas hypocrisy!

by Paul Cochrane
written by Paul Cochrane

Piracy off the coast of Somalia has become another ‘global crisis’. It took the hijacking of a US ship last month and the media hyped antics of the US Navy in ‘neutralizing’ the rogue elements — three shots, three dead pirates — to make it onto the crisis list.
Yet piracy has been a problem off Somalia for as long as this East African country has been in a state of crisis, since 1991. And it is not a clear-cut case of the good guys — merchant seamen — versus the baddies — Somali pirates.
The dire situation in Somalia is what triggered a surge in piracy that has, like the conflict itself, many regional and international players involved. As an essentially failed state, there are no means for patrolling Somalia’s coastline. This has been a scourge for the Somalis as well as the 33,000 ships a year that sail either side of the Horn of Africa. With no regulation, the seas were a free-for-all and the area became a rich source for unscrupulous seafarers.
In the year subsequent to the overthrow of the Union of Islamic Courts by US-backed Ethiopian troops in December 2006, there were 31 attacks on ships. As the conflict in Somalia heated up in 2008, the number of attacks spiked to 122, while in the four months of this year there have been 79 attacks. [As Executive went to print, pirates were holding 280 crewmen on 14 ships for ransom.]
But while pirates demand millions of dollars to release hijacked ships, Somalis and the UN have claimed that foreign ships, primarily European, have been dumping toxic and nuclear waste off the coast to avoid high waste disposal costs elsewhere. When some of this toxic waste washed ashore, more than 300 people died from radiation sickness, according to news reports.
Illegal fishing has also taken its toll, with an estimated $300 million worth of fish trawled every year. Stocks are running so low that coastal Somalis are struggling to survive. Vigilante justice ensued when local fishermen took to the seas to levy ‘taxes’ and seize ships suspected of dumping and illegal fishing, calling themselves the Volunteer Coastguard of Somalia.
It was a measure that has popular backing in Somalia, as has actual piracy. According to an editorial on Somali news site WardheerNews, 70 percent of those polled “strongly viewed the piracy as a form of crude, primitive, if you will, national defense of the country’s territorial waters.”
It is a bit of a stretch however to say a ship hijacked up to 900 nautical miles off the coast is national defense, particularly with the ransoms paid out funding militias in Somalia. But such piracy could be viewed like the folkloric hero Robin Hood, robbing the rich to feed (and arm) the poor. After all, whether someone is referred to as a pirate depends on how they are regarded, similar to the way ‘one man’s terrorist is another man’s freedom fighter’.
Take Captain Morgan of Jamaican rum fame, who was a privateer in the service of the British navy in the Caribbean in the late 1600s, attacking Spanish flotillas laden with booty. Morgan and his ilk — what we might now refer to as maritime mercenaries — served a foreign policy objective by pillaging from the Spanish, but crucially set the course for Britain to become an empire through its domination of the seas. Piracy had its uses, and for his efforts Morgan was made the Lieutenant Governor of Jamaica. The founder of New Orleans was also a pirate and during the American Revolution, George Washington— lacking a navy— paid pirates to patrol the coast.
Piracy could also be considered a policy common to the financial world, whether it’s offshore banking havens that launder dirty money or of the more cutthroat capitalist variety. There was even a recent posting on the Wall Street Journal’s blog on “Piracy vs. Private Equity: A Comparison.” Similarities were the seizing of assets and adopting a “all for one, one for all” partnership model. But where piracy demands a ransom to divide among the pirates, PE has a dividend recap, then sale or initial public offering.
And just as tighter regulations of the free market are being sought, amid the global financial crisis, NATO is debating whether to provide armed convoys for ships plying Somalia’s waters. But despite the 15 to 20 warships under UN auspices currently off the coast, Somalis claim navy vessels are protecting illegal trawlers that were initially scared off by its volunteer coastguard.
While some temporary measures are needed to protect shipping routes, the real solution to the crisis lies on land. With stability, Somalia would have less need to resort to piracy — defensive or offensive — and its natural resources could be better protected. If one good thing can be said of the ‘piracy crisis’, it is bringing attention to the ramifications of a failed state.

PAUL COCHRANE is a Beirut-based journalist  

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Levant

Kataeb – March 14 Coalition

by Executive Staff
written by Executive Staff

Samy Gemayel, 29, is currently the General Coordinator of the Central Committee of the Kataeb (Phalanges) Party. He is also the son of former Lebanese President and current Kataeb Party leader Amine Gemayel. Samy Gemayel is running for the Maronite seat in the Metn electoral district.

E The United Nations estimates that 28.5 percent of Lebanon’s population lives below the poverty line and 300,000 people live in extreme poverty. What will you do to elevate the poverty situation?
The whole economy should be more organized. You have to make structural changes.
First of all we think that the lack of stability is the main cause of economic problems in Lebanon. A good economy needs investment and investment need stability… Investments will create jobs. Jobs will create income and that income will help consumers to be more active. It’s the whole process of the economy that starts with investment… If you don’t have investment you don’t have any economy.
With regards to poverty, first we have to create jobs. In order to create jobs, we need an institution that helps people create jobs. That’s why we have a project to create something like NPE [“Nouvelles Politiques de L’emploie – New Politics of Employment”], like in France. It’s a public institution that consolidates all the offers and the demands on jobs in order to link people. We need to create this institution and it’s not present. If people work they will have an income and the poverty problem will be solved.
Also, the personal income tax should be progressive. This is a very important point because you cannot use the same taxes on all people. Actually, you have today taxation on luxury products; we put taxes on them but this is not sufficient. Maybe we can make more money with the cigarettes. The cost of cigarettes in Lebanon is too low. By increasing the cost of a pack of cigarettes, you can use the money to invest in medical research, hospitals and medical care and help the poverty situation.

E EDL has been a drain on the budget for over a decade. What will you do to decrease expenditure, improve efficiency and take the industry forward?
We think that some sides of EDL should be subject to privatization. The distribution should be privatized and the collection of bills should also be privatized. The problem of EDL is that today only 60 percent of the production of EDL is being billed. We don’t know where 40 percent of the production is going.
First, you have to bring someone from the outside to put their hands on EDL because corruption is the main problem. The second problem is that the 60 percent that is billed, only 60 percent of that [initial] 60 percent is being paid for. That’s why we have a problem with EDL and it is the main cause of the debt.
In order to stop that we have to understand that this is the main cause of the economic problem and we have to bring consultants and find a way to stop this wastefulness. The way to stop that is to privatize some of the sections of EDL, not all. Just the collection, distribution and the billing processes.

E In order to service Lebanon’s mountain of debt, policy has always been enacted to tax the private sector. Will this continue under your party and what will you do to spur on private sector growth?
Firstly, there are public institutions that should be privatized. Then, you need to have laws organizing the relations between the public and the private sector. Public private partnership is a very important point for us, in terms of economics, in order to make the private sector more efficient and more attractive. We think the service sector should not be the main focus of the economy because it is too influenced by the stability of the country. Agriculture and industry are less affected by economic problems related to stability and they create jobs, more jobs than the service sector. We think, especially for young people, that there should be no tax on initiatives taken by young people who create companies, new industries or inventions in order to encourage the new generation to invest in Lebanon and to encourage creativity for everyone.

E The debt servicing is also weighing heavily on Lebanon. How will you reallocate inflows and payments to service this debt while still maintaining public services and decrease the budget deficit?
The first thing is to stop corruption because if the money you inject into the Lebanese economy goes into corruption, there is no way that this economy will stand up even if you do Paris I, Paris II and Paris III. If this money is not well invested or reserved; there is no chance that this economy will stand up anyway. We don’t think that adding more and more debt on Lebanon will help in any way. I think that the first thing to do is to stop corruption before bringing more money in, because otherwise it’s like a pocket with a hole in it.

E What mechanism would you propose to deal with the issue of corruption?
I think that first we should privatize. The best way to stop corruption is to privatize, to organize and to create a central agency to fight corruption.

E What initiatives will you take to decrease Lebanon’s risk factor with respect to investment, encouraging competition and diffuse political elements that increase the risk factor?
You need a strong state and no weapons outside of Lebanese jurisdiction.

E Do you mean weapons entering the country?
Not only the weapons entering the country. We have to get rid of the weapons that are inside the country today, with the Palestinians and with Hizbullah. Once we have a state acting with full sovereignty in all of its territories, then it will be easier for us to impose stability and to impose a viable state that will, for sure, bring a lot of investments to Lebanon.

E Will you be talking with the Palestinians and Hizbullah about the best way to move forward?
We are talking about the Lebanese government, which will have this role or principle as a main target, to impose the sovereignty or order of the law on all the Lebanese territories in order to have stability.

E Recently the ILO reported that 22,000 students dropped out of schools in Lebanon. What will you do to keep children in school?
In all civilized and modern countries every person under 18 years old should be in school. It’s not a right; it’s an obligation. We will promote free and obligatory schooling for all people under 18. When I lived in France, I was once arrested in the street at 9 a.m. because I didn’t go to school in the morning. If you want any development you need all the people to be educated, to be in school and have a minimum [level of] education.

E The balance of payments remains in the black but is dragged down by the balance of trade. What will you do to increase trade efficiency and volume and maintain a positive balance of payments?
The balance of trade is related to the situation of the economy in general. If the economy stands up and that state makes a good plan to reactivate all the sectors of the economy, as we planned before, then I think the whole balance will be up again [sic].

E Privatization of the telecom industry has been stifled by politics and market conditions. How will you encourage competition and root out bad governance in the sector?
In all the countries in the world when they have a big problem like that, they bring in consultants. I don’t know why Lebanon doesn’t believe in consultants even if it is the most efficient way to improve [the situation]. It is not normal, in Lebanon, to have only two companies having a duopoly on the mobile telecom industry. There should be many more companies competing between each other in the interest of the people. When you compete prices go down so for sure you have to privatize [the industry].

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Financial Indicators

Regional equity markets

by Executive Staff
written by Executive Staff

Beirut SE  (one month)

Current Year High: 1,629.74  Current Year Low: 705.56

The BLOM Stock Index tracking share prices on the Beirut Stock Exchange closed the March 27 session at 1047.92 points, 20 points lower than its close on February 27. The BSI is down 11 percent from the start of 2009. In the review period, eight sessions to close with a gain were outnumbered by 12 sessions that saw the market drop. However, all trading sessions ended with index fluctuations of less than one percent, except for March 25 when the index slipped 1.44 percent, pulled down by six percent and 3.2 percent price losses in the two share classes of real estate firm Solidere when a substantial amount of shares were offered for sale at a discount to the previous close. In Beirut, analysts assumed that this sudden drop in the share price of Solidere was triggered by an individual trader’s need for cash. In fiscal news, the Lebanese Republic announced that it successfully swapped $2.1 billion in Eurobonds with maturity in 2009 for longer-term bonds, which will mature in 2012 and 2017. As the elections for the Lebanese parliament are taking more and more hold of public attention, the BSE will likely be under the spell of the elections in the second quarter.

Amman SE  (one month)

Current Year High: 5,043.72  Current Year Low: 2,550.70

The Amman Stock Exchange (ASE) rode the bandwagon of market gains to close the March 29 session four percent higher at 2,721.48 points when compared with the close at the end of February. The positive sessions in March cut the ASE Index’s contraction in the first quarter of 2009 down to 1.3 percent. For the first quarter of 2009, the insurance sector index was the best performer on the ASE with a 16.3 percent gain. Banking took the other end of the share price spectrum, weakening 17 percent from the start of 2009. Banking was also the only sector to underperform the general index in March whereas the services index, up 7.4  percent, accounted for the month’s strongest gain. Real estate sector companies attracted significant action from traders while the undisputed top share price gainer was the specialized mortgage insurance firm Darkom Finance and Investments Co. The share price of the company, which had started operations in mid 2008, rose 68 percent in March.

Abu Dhabi SM  (one month)

Current Year High: 5,148.49  Current Year Low: 2,136.64

The larger of the UAE securities markets closed at 2,545.65 points on March 29 in a second consecutive month of gains, achieving 7.1 percent from the end of February. Gains rolled nicely in almost every session starting March 18 and the momentum flattened at the end of the review period as attention shifted towards first-quarter result expectations, which are mixed. The energy and telecommunications sub-indices led the market up with gains of 19.5 percent and 18 percent, whereas the construction index lagged behind and couldn’t catch the up-train. Construction ended 26 percent lower, however, real estate gained 8.3 percent. The strongest gainer in the period was the new health insurance specialist, Green Crescent Insurance Co; whereas the insurance sector index was flat, debutant Green Crescent added 38 percent in its first two trading sessions when compared with the issue price. Building materials company Arkan was the market’s biggest loser in March. The scrip, which had dropped about 55 percent in the first half of the month, made good some of its losses in the second half but ended the review period 37.8 percent lower.

Dubai FM  (one month)

Current Year High: 5,859.57  Current Year Low: 1,433.14

The Dubai Financial Market (DFM) closed at 1,604.71 points on March 29, representing a gain of just under three percent in the month of March. The trading range fluctuated between an intra-month low of 1,490 and a high of 1,623 points. The utilities sub-index was the strongest performer on the DFM but most sectors moved in positive territory, except for banking which ended the review period 1.6 percent lower and materials which lost five percent. When compared with the end of 2008, however, materials, investments, and real estate are all still quite deep in the hole, with losses ranging from 14 percent to 40 percent. Dubai Islamic Bank and sharia-compliant insurer Salama Group were the best performers of the month, moving up 33 percent and 29.5  percent, respectively. Drake and Skull International, the construction group which started trading last month on the DFM after waiting with its entry as long as possible since its initial public offering in July 2008, was not so lucky. The new stock was the DFM’s biggest loser in March, ending the period 33 percent lower from its issue price of 1 AED per share.  

Kuwait SE  (one month)

Current Year High: 15,654.80            Current Year Low: 6,391.50

The Kuwait Stock Exchange (KSE) Index ended the review period at 6,739.70 points on March 29, representing a climb of more than 5.4 percent from the last session in February. March performance mitigated the unfriendly picture of the first quarter, but the year-to-date loss at 13.4 percent remains one of the steeper slides on Arab bourses in 2009. By respectively adding 20 percent, 13 percent and 12 percent, the food, banking, and investment sub-indices were on the forefront of the bourse’s uptrend in March and most other sector indices moved range bound with the general index, except for insurance, which weakened in early March and stayed at the bottom during the review period. While the KSE still saw 12 companies lose between a fifth and half of their share prices in the month of March, this was more than countered by the number of gainers where 34 companies appreciated in share price by 20 percent or more — as biggest gainer, real estate company Massaleh almost doubled its share price, whereas Gulf Insurance Company had a second month of turmoil and ended 49.4 percent lower. Political worries weighed on the KSE as discussions of an economic stimulus package were juxtaposed with resignation of cabinet and dissolution of parliament.

Saudi Arabia SE  (one month)

Current Year High: 10,291.47            Current Year Low: 4,264.52

The Saudi Stock Exchange (TASI) closed at 4,752.32 points on March 25, up 8.39 percent from the last close in February. It ended the first quarter with a loss of 1.05 percent when comparing the March 25 close with the last close in 2008 and with a loss of 5.87 percent when compared with the close on the first trading day. The difference in TASI performance between the two methods of defining the year-to-date period in 2009 is exceptionally wide which is a reminder of the volatility of the trading, making it more interesting to check other vitality stats. The TASI trading volume in the first quarter represented close to 75 percent of total GCC trading volume, a dominant proportion of regional trading activity and substantially higher than the Saudi bourse’s 44 percent share in total GCC market cap at the end of Q1, according to Zawya financial data. Led by three insurers and debutant Ethihad Atheeb, the share prices of 24 stocks rose by more than 25 percent apiece, whereas nine stocks shed a quarter of their wealth or more. Overall, gainers outnumbered losers by healthy margins in the quarter, but the ratio in March was about equal. 

Muscat SM  (one month)

Current Year High: 12,109.10            Current Year Low: 4,223.63

The only market that suffered a drop in its general index in March 2009 was Oman. Whereas it had held up better than other GCC exchanges in February, the Muscat Securities Market Index closed at 4,722.95 points on March 29, representing drops of 2.69  percent on the month and of 13.2  percent on the year. The industry sub-index made an upward escape in the March review period and closed 9.2 percent higher; banking and services did not manage to cross into positive territory. Losers outnumbered gainers four to three in the review period from February 26, but it is not to be overlooked that the majority of share price drops were contained in the bracket of less than 10 percent. Market cap leader Omantel, whose CEO resigned at the end of March, suffered a 14.4 percent contraction in share price in the review period. While the company had reported positive results for 2008, its Q4 net profit declined by two thirds due to a difficult time at its subsidiary in Pakistan. Banking heavyweight Bank Muscat showed a slight share price gain at 1.4 percent in March. 

Bahrain SE  (one month)

Current Year High: 2,902.68  Current Year Low: 1,572.19

Of the six GCC bourses that showed gains in the month of March, the Bahrain Stock Exchange (BSE) Index added the least, with a 0.85 percent index improvement to 1,590.92 points at its March 29 close when compared with the last session in February. The BSE has a negative performance for the first quarter, with a drop of 11.2  percent since the start of the year. Banking (-18.5  percent) and services (-13.5 percent) were the sectors with significant underperformance in the first three months of 2009. In March, however, the previously oversold banking index made a contrarian move and outperformed the general index by more than five percentage points, with investments (+1.1  percent) a distant second place in up-moving sectors. As the financial world is awaiting the next round of global restructuring talks, this time by the G20, the tiny Bahraini bourse is as good an example as any for the uncertainty of markets under the thumb of global influences. While a pessimistic band of dark augers, the region’s investment houses described recent upswings in developed markets as bear market rallies and not as a swing into recovery. One may be wise not to exclude any possibilities, not even positive surprises later in 2009.

Doha SM  (one month)

Current Year High: 12,627.32            Current Year Low: 4,230.19

Investors on the Doha Stock Market (DSM) apparently exhausted their capacity for pessimism and, at least for the review period from February 26 to March 29, they made the stocks shine on the DSM. The general index added net 660 points over the period to its close at 5,098.51 points on March 29, representing a GCC-leading gain of 14.9 percent even as profit taking occurred in the last session of the review period. Volatility on the DSM was significant, at 48 percent according to Zawya. Industrial and banking outperformed the general index, while the insurance index underperformed. Notably, many large caps were in demand and gainers included all five of the strongest companies by market cap: Industries Qatar (+30.9 percent), Qatar National Bank (+37.7 percent), Qatar Telecom (+16.4 percent), Qatar Islamic Bank (+8.9 percent) and Ezdan Real Estate (+39.7 percent). Other strong gainers were Ahli Bank and Qatar Commercial Bank. The banking sector received positive news at the beginning of March as the government took measures to infuse liquidity into banks through a decision to purchase investment portfolios held by banks on the DSM.

Tunis SE  (one month)

Current Year High: 3,418.13  Current Year Low: 2,685.76

Adding 29.5 points from February 26 to March 27 means that the Tunindex of the Tunisian Stock Exchange benefited only with a one percent gain from the positive developments, which pushed the Nasdaq for the first time this year into the black on March 26 and let most GCC securities markets partly recover from their losses in the first ten or eleven weeks of the year — but then the TSE was already moving up in the first two months of 2009 so that its status at the end of Q1 is 6.6 percent up year-to-date. Battery manufacturer Assad was the market’s top advancer in March with a 16 percent increase in its share price. Market cap heavyweights Poulina Holding and Banque de Tunisie recorded moderate drops in their share prices, weakening by 2.3 percent and 1.1  percent, respectively.

Casablanca SE  (one month)

Current Year High: 14,878.30            Current Year Low: 9,405.86

Buying moods from earlier in 2009 faded on the Casablanca Stock Exchange (CSA) in March and the Index retreated 5.3 percent to close at 10,628.29 points on March 27. The index slipped especially in the period between March 16 and 24 before adding about 200 points to the end of the review period. For the year to date, the weaker performance in March means that the CSE Index neared the end of the first quarter at a 3.25 percent lower reading than at the start of 2009. In news relating to listed companies, the Moroccan government announced the licensing of a new mobile operator. The third GSM license went to a company called Wana, part of the Omnium North Africa conglomerate. Maroc Telecom, the market cap leader on the CSE, saw its share price under pressure after the announcement and ended March 4.8 percent lower. Maroc Telecom formally announced its 2008 results on March 23, reporting an increase in net profits of almost 19 percent.

Egypt CASE (one month)

Current Year High: 11,935.67            Current Year Low: 3,389.31

The Egyptian bourse, long seen as the region’s exchange with the strongest alignment to international markets, in March boomed more than any other Arab securities market. The EGX 30 Index closed the March 29 session at 4,332.56 points, signifying a 20.5 percent increase from the last session in February. However, it is a reminder of how steeply the EGX fell in the first two months of 2009 that the index is still 5.74 percent down from the start of the year. With only seven companies seeing their share prices go deeper in the red in March, the positive mood on the exchange was broad even as its capability of endurance cannot be judged as yet. Two companies in the market’s medium to small size range more than doubled their share prices in March but more significantly, the market cap heavyweights Orascom Telecom Holding and Orascom Construction Industries respectively added 43.4 percent and 27 percent and were way up there in the gainers together with a diverse spectrum of companies from real estate to manufacturing.

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Banking & Finance

Money Matters by BLOMINVEST Bank

by Executive Staff
written by Executive Staff

Regional stock market indices

Regional currency rates

Cairo to build a $2 billion power plant

Cairo will be constructing a $2 billion power plant in Ain Sokhna on the Gulf of Suez. The plant will provide 1,300 megawatts (MW) of steam power and will be the first in Egypt to use supercritical technology. A similar venture will increase the overall efficiency of the plant allowing a faster response to the change in demand while reducing emissions. The project will be financed by two loans and several funds by Arab contributors. The first loan amounting to $450 million is signed with the African Development Bank and will cover 22 percent of the cost of the project, while the second loan will be given by the World Bank and will amount to $600 million. The remaining funding for the project will come from the Egyptian Electricity Holding Company (EEHC), the Arab Fund for Economic & Social Development (AFESD), and the Kuwaiti Fund for Arab Economic Development (KFAED).

Saudi company to sign $2.5 billion power project

The Saudi Electricity Company (SEC) will sign a deal with both Korea Electric Power corporation and the local Acwa Power International for the $2.5 billion Rabigh independent power project (IPP). The SEC stated that it will announce the pre-qualified bidders for the PP11 IPP power project in Riyadh by the end of March. The SEC changed the shareholding structure of the project, giving a 51 percent stake for the winning bidder, while the remaining 49 percent will be sold in an initial public offering (IPO). The old ratio had been 40:60, giving the bulk to individual shareholders. In another economic highlight, inflation in Saudi Arabia is excepted to continue falling this year. Consumer prices retreated in February to 6.9 percent from 7.9 percent in the previous month.

UAE inflation to drop in 2009

The key drivers of inflation in 2008 — liquidity, cost of housing and cost of food — are not expected to increase this year. Therefore, inflation in the UAE is expected to ease to two to three percent in 2009. Next year is expected to be the year of recovery from the financial crisis for the Gulf, Asia and Africa, which are relatively less affected than the US, UK and the Eurozone, where the recovery is expected to take a longer period. Moreover, the UAE is putting into action the lessons learned from the recession. For example, the other side of the downturn in the UAE’s real estate sector could be positive for the economy as funds and human resources that were primarily geared for the real estate sector could now be used in other productive industries. In addition, the fiscal and monetary measures taken by the UAE authorities, in the form of direct liquidity injections, has boosted the confidence of investors locally and regionally. This confidence is being confirmed by the current satisfactory levels of credit growth that range between 10 percent to 15 percent, after reaching 49 percent last June.

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North Africa

Clashing cells

by Executive Staff
written by Executive Staff

Maroc Telecom (MT) has long held a dominant share of Morocco’s mobile market, but a new entrant will increase competition for the kingdom’s subscribers. On February 4, the National Agency for the Regulation of Telecommunications (Agence Nationale de Réglementation des Télécommunications, ANRT) announced that the third second-generation (2G) mobile license had been awarded to Wana, a subsidiary of domestic conglomerate Omnium Nord Afrique (ONA).

Wana’s new 2G GSM license, which pits it against current incumbents MT and Méditel, is only the latest addition to the company’s telecoms portfolio that also includes a third generation (3G) license awarded in 2006. Details on the exact amount of Wana’s bid have not yet been released, but both the ANRT and Wana have described it as a “significant investment.” The new 15-year nationwide license gives Wana access to a market that includes 22.82 million mobile subscribers, according to figures published by the ANRT.

Despite its late start, Wana will hope to take advantage of an under-saturated market, which has a penetration rate of 74 percent, and to entice subscribers with competitive technology and pricing.

ANRT announced the tender on October 30, 2008 as a measure to boost competition and bring down prices in the sector. Since its creation in 1998, after the amendment of the Post Office and Telecommunications Act, the ANRT has been charged with modernizing, regulating and supervising the telecoms sector, while implementing the law, which calls for increased competition to provide consumers with more choice and better products and services. MT, the formerly state-owned company, had a monopoly over the sector until liberalization began in 1999.

MT is a formidable competitor with Vivendi, Europe’s largest entertainment group, now holding a controlling 54 percent share in the company. According to the most recent figures released by the ANRT, Wana controls 1.2 percent of the market, while MT and Meditel have market shares of 65.6 percent and 33.2 percent, respectively.

Despite increased competition from the new entrant, MT has stated that it expects to build on its 2008 growth, predicting a revenue increase of more than three percent this year. On February 23, MT announced that its 2008 net profits rose 18.5 percent year-on-year to $1.16 billion, and that its consolidated earnings from operations were up 13.5 percent to $1.62 billion, with revenue growing 7.2 percent to $3.53 billion, mostly on the back of mobile customers.

As the telecommunications arm of ONA, Wana already has a strong foundation to build on. ONA is Morocco’s biggest conglomerate, with broad interests such as banking, insurance, retailing and mining. Although Wana has been active in other segments of the telecoms market, such as Internet and fixed-line telephony, the new license gives it access to one of the sector’s most lucrative areas. The first mobile phone network, introduced in Rabat in 1989, had 700 subscribers, a figure that jumped to three million by 2000. Mobile phone use has continued to rise and the current national penetration rate of 74 percent far exceeds ANRT’s growth prediction. A 2004 study forecast that it would take until 2014 to reach this level.

Mobile subscribers jumped from 700 in 1989 to three million by the year 2000

Spinning the web

Despite the impressive subscriber growth to date, the government is doing even more to expand the reach of the kingdom’s mobile phone network. In November 2006, the ANRT adopted the Program for Universal Access to Telecommunications (PACT), which aims to connect some two million people and 9,200 remote villages by 2011. The program extends to telephony and Internet services. MT recently signed a $342 million contract to connect more than 7,000 towns and villages nationwide, which represents some 80 percent of the PACT program.

Morocco’s mobile expansion is part of a larger regional trend. Cell phone sales have proved resilient in the Middle East and Africa and purchases are projected to increase 14.77 percent from 176 million units in 2008 to 202 million units in 2009, as prices for handsets fall and more 3G networks are established.

For the kingdom, mobile telephony contributes significantly to the value of the telecoms sector as a whole. Its continued liberalization is expected to increase the industry’s proportion of GDP from seven percent in 2008 to 10 percent in 2009. At a time when other sectors are facing declining demand, telecom is a bright spot in Morocco’s economy.

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North Africa

Private accounts on hold

by Executive Staff
written by Executive Staff

Algeria’s banking reform has been slow but could pick up later this year as the general election approaches. The sector appears to have avoided the worst of the global economic crisis, having had little exposure to toxic loans and low levels of overseas activity. Prime Minister Ahmed Ouyahia remarked last October that the Algerian economic and financial system was protected from the worst of the crisis as it was not as “evolved and our stock market is not fully integrated into the world financial markets.”

The downturn in the international markets has slowed the reform process. A key component of the reform platform was the privatization of some of the six state banks, with the first of these — Crédit Populaire d’Algérie (CPA) — initially slated for sale in early 2008.

Having planned to sell a 51 percent stake and received expressions of interest from a number of foreign banks, the government announced it was suspending the privatization of CPA indefinitely due to concerns over the impact of the global financial crisis. Officials said that conditions were not right for the sale, which the state hoped would raise some $1.5 billion.

It was also suggested that the overall privatization process had been put on hold due to concerns within Algeria over foreign dominance of the banking sector, as well as perceptions that overseas investors across the economy were repatriating profits without contributing to the country.

The Banque d’Algérie serves as both the country’s central bank and as the regulator for the sector. Though the Banque d’Algérie lists 16 private banks as operating in Algeria, it is the six state-owned institutions that dominate the market. According to a report issued by the Gulf Investment House in December 2008, state banks account for 95 percent of the sector’s total assets. To a large extent, this is due to a 2004 government decree that requires public sector entities to work exclusively with state banks, restricting deposit flows to the private segment.

However, Minister of Industry and Investment Promotion, Hamid Temmar, told parliament in mid-January that the government remained committed to privatization and said that the only state enterprises that would not be sold off were those in the energy sector — Sonatrach and Sonelgaz — and the national railway.

Public banks too have problems of their own. Though they do not have any difficulty in attracting deposits, they are proving less successful in keeping staff. According to a report by the Professional Assembly of Banks and Financial Institutions, more than 2,500 officers of state banks have transferred to the private sector since 2001, lured by higher wages. To try to stem the outward flow of staff, the government offered the state’s 23,000 bank employees up to 30 percent pay rises in June 2008.

With a presidential election scheduled for April 9, there is a chance that the stalled privatization process may be reignited, along with the program of banking reform.

The need for reform in the banking sector was highlighted in the latest study by the US-based Heritage Foundation on the openness of the global economy. In its 2009 Index of Economic Freedom, Algeria’s overall economy was ranked 107 out of the 183 countries assessed and 14 out of 17 countries in the Middle East and North African region, with a score of 56.6 out of 100. However, while scoring highly in some categories, such as 72.5 for business freedom, Algeria’s worst result was in financial freedom, rating just 30 points, almost 20 points below the global average.

The report said that the pace of overhauling the banking sector in Algeria had been slow and uneven and that “reform is critical if resource allocation and private sector development are to improve.”

The government wants to see greater diversity in the economy, to move away from a dependency on the energy industry and to broaden the private sector. To achieve this, it will need to push ahead with its reforms of the banking industry, especially the privatization of state lenders, a step that would result in the return of public funds into the private sector.

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Levant

Tanking up with tax

by Executive Staff
written by Executive Staff

At a time when oil prices are half of what they were a year ago, the retail price of gasoline in Lebanon has been stagnant or climbing. For example, in July 2007 when the price of Brent crude was around $78 per barrel, the government raised taxes on gasoline which pushed the price from $14.90 per 20 liters — the standard measurement for gasoline in Lebanon — to $15.64 per 20 liters. This is roughly the same price of gasoline in today’s retail market, at a time when crude sells at around $50 per barrel. Needless to say, this illogical development is confusing for the consumer.

In 1985, then Minister of Finance Camille Chamoun issued a governmental decree abolishing state subsidies on gasoline; so legally the subsidy was removed. However, the government has levied a tax on gasoline, which it increases or decreases at will. When the government decreases the tax, gasoline prices drop giving the feel of a subsidy.

Further exacerbating the situation is that most people in Lebanon rely on private transport. Lebanon’s approximately 1.4 million registered vehicles consume around five million liters of gasoline per day, according to Bahij Abou Hamzeh, president of the Association of Petroleum Importing Companies (APIC) in Lebanon.

Another factor experts in Lebanon point to is unfair competition. “There is an oligopoly controlling gasoline imports to Lebanon and this is the heart of the problem,” says Jad Chaaban, professor of economics at the American University of Beirut and acting president of the Lebanese Economic Association. “The prices are set by the Ministry of Energy in consultation with the APIC. When you have an oligopoly controlling an import sector you cannot pass on decreasing or rising prices with the same efficiency as when you have a competitive market.”

Collusion in a free market

For his part, Abou Hamzeh admits that the association does collude with the Lebanese Ministry of Energy, but insists that the market is open to anyone who has the means to set up the infrastructure.

“We regulate the market in cooperation with the ministry but we have to do it because it’s the only product in Lebanon that has a ceiling for the price,” claims Abou Hamzeh. “The government is setting the ceiling of the price on a weekly basis. This doesn’t mean we cooperate in order to monopolize the market; it’s not what we are after.”

Abou Hamzeh blames the government who earlier this year raised the level of taxes on gasoline to $6.35 per 20 liters of imported gasoline when the price of oil was at around $35 per barrel. Abou Hamzeh adds that the gasoline price ceiling, set weekly, is too low. “The government imposes a ceiling according to the international prices and a small margin to cover additional costs,” says Abou Hamzeh. “This margin does not cover our costs. We cannot continue like this; we are making a loss not a profit.”

Whether or not competition is fair, one thing does remains clear: that the government is making a lot of money. Most estimates are that government revenues from gas tax will increase this year to around $466 million as opposed to $199 million in 2008. On March 19, the Lebanese General Confederation of Labor Unions gathered in front of the Lebanese parliament to protest the high prices and taxes on gasoline and around 150 cars blocked one of Beirut’s main commercial districts.

Tax of necessity

The government, however, seems to have little choice when it comes to removing the tax, since it is already drowning in a sea of debt and in need of more revenue. Furthermore, according to a high ranking member at the Ministry of Finance who spoke on condition of anonymity, the government must keep the higher gasoline tax in place because it has already reneged on two of its other promises made to donors at Paris III: the five to seven percent taxation on bank deposits and the increase of Value Added Tax (VAT). The cherry on top may be that many in the government are reluctant to enact policy due to the upcoming elections in early June.

“When we protest the government tells you, ‘you are right but now we have to have the election’,” says Abou Hamzeh.

Whatever the reasons may be, for the immediate future it seems that the high gasoline prices and price fixing will continue. Once again it seems it will be Lebanon’s people and industries that pay the final price.

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Levant

Carrying capacity

by Peter Grimsditch
written by Peter Grimsditch

Turkey has high hopes of becoming a major transit hub for land and sea cargo freighting, linking Central Asia and the Middle East with Europe, though it will need to invest heavily in infrastructure if its hopes are to be fulfilled. The transport grid already has around 11,000 kilometers (km) of rail lines; 430,000km of roads, including 62,000km of motorways and main roads; a network of ports along its Black Sea, Aegean and Mediterranean coasts and at least one airport in each of its 81 provinces. Even so, the results of a joint study conducted by the European Commission and Turkey’s Ministry of Transport and Communications, released in 2008, showed Turkey has a long way to go before its transport network can service the future needs of the economy.

The Transport Infrastructure Need Assessment (TINA) said priority should be given to improving transport in the North-South and East-West axes to better integrate Turkish transport with international transport networks; upgrading intermodal transport facilities and services, and improving the country’s ports and maritime connections. These improvements will be needed if the assessment’s projections are correct. The report said Turkey’s road freight demand would reach at least 305 million tons by 2020, more than 230 percent up on 2004, the base year used for the study. Train hauled cargos are predicted to more than double to 31.5 million tons, while the merchant marine is expected by 2020 to lift its base total by around 60 percent to 25.3 million tons.

Finding the cash

To meet this demand, Turkey will need to invest more than $25 billion by 2020, with $11 billion dedicated to its rail network and $10.75 billion on roads, according to TINA. The key challenge will be to raise this cash at a time when many other calls are being made on the limited national treasury — including upgrading electricity generation and distribution grids, resolving environmental issues such as waste water processing and improving the health and education services. Though some of this funding gap could be filled by assistance from the EU through its trans-European transport network (TEN-T) program, most of the money will have to come from the state or the private sector, both of which are currently finding it hard to raise funds due to the tight credit markets.

Some of these major projects are well advanced, such as the Marmaray rail project which includes a tunnel beneath the Bosphorus that will link Europe to Asia, and a new high-speed train connection between Ankara and Istanbul. However others, such as duplication of many of the country’s main rail lines, remain on the drawing board. While the government is looking to upgrade and extend infrastructure links with limited fiscal means, the transport industry may find itself in less of a position to enjoy the benefits of the improved networks, at least in the short-term. With Turkey’s economy slowing, in line with those of its major export markets, there has been a fall in demand for long haul road, rail and maritime freighting.

The outline of decline

According to figures released by the Turkish Exporters Association (TIM) in March, overseas sales dropped 35 percent year-on-year in February to $6.87 billion. Industrial output is also contracting, down by 17.6 percent in December compared to the same month in 2008, the Turkish Statistical Institute reported. Lower industrial production means fewer raw materials are being freighted to factories, fewer finished products need to be shipped out, while falling export demand sees reduced calls being made on Turkey’s cargo haulage capacity.

The number of long haul trucks being shipped across the Dardanelles Strait is down by more than 20 percent so far this year, according to local ferry officials. Additionally, according to Erol Yücel, assembly chairman of the Turkish Chamber of Shipping, the steep drop in demand for shipping capacity due to low cargo levels has seen rental prices for ships fall by as much as 98 percent. Turkish exports, and therefore production and the transport sector, may get a boost from the sharp drop in the value of the local currency, with the Turkish lira hitting an all-time-low of 1.78 against the US dollar on March 10. With the cost of Turkish goods becoming more attractive, trade could pick up, helping the transport sector onto the road to recovery.

Peter Grimsditch is Executive’s Turkey correspondent

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Levant

Thy neighbor’s trade

by Executive Staff
written by Executive Staff

The economies of Syria and Lebanon have been closely intertwined since before they achieved independence from France in the 1940s. Now, with the two countries having recently opened embassies in one another’s capitals for the first time, an increasingly open and private-sector economy in Syria and a period of relative regional stability, there is now more potential than ever to take advantage of trade opportunities. These include not just goods, but services, expertise and labor – all of which illustrate Syria and Lebanon’s interdependent relationship.

Historical economic ties

Lebanon began its trade relationship with Syria in 1926 when it became an independent republic under French control. That same year, the Port of Beirut opened and Lebanon became Syria’s gateway to the world.

When Lebanon and Syria achieved independence from France in 1943 and 1946 respectively, the two countries continued a mutually beneficial economic relationship wherein Syria took advantage of Lebanon’s services, technical expertise and modern banking system, and Lebanon was able to make use of Syria’s labor force.

This complementary relationship was reinforced further in 1958. That year, Egypt and Syria merged to form the United Arab Republic, which led to the nationalization of Syria’s economy, leading many Syrian entrepreneurs to relocate to – or at least deposit their money in – Lebanon.

Lebanon’s civil war, from 1975 to 1990, marked the end of an era for the small eastern Mediterranean country’s reputation as the “Switzerland of the Middle East,” so-called because of its renowned top-quality banks in a stable climate. Still, during this time Syrians continued to use Lebanon’s banks because of their reliable services and secrecy policies.

Following the end of the war in 1990, Lebanon’s need for help with its reconstruction created a boom in need for Syrian labor. Throughout the 1980s and 1990s there were as many as a million Syrian laborers in Lebanon in any given period. At the same time, while wealthier Syrians waited for economic reform in their country, they used Lebanon’s renowned financial services and shopped at Beirut’s high-end retail stores to purchase items not available in Syria.

That all changed in February 2005 when Lebanon’s former Prime Minister Rafiq Hariri was assassinated.  Syria was implicated in the assassination, but denies any involvement. Violent attacks on Syrian workers caused most of them to flee Lebanon, Syrians withdrew billions of dollars from Lebanese banks and Syrian shoppers abandoned their weekend trips to Beirut during a period of nationwide anti-Syrian sentiment.

The following years saw a thaw in Syrian-Lebanese political relations. Business has returned, but not at the same rate as before. Today, there are an estimated 300,000 Syrian workers in Lebanon, less than half of the pre-2005 level. Syrians who brought their business back home in 2005 have kept it there for the most part, mainly because luxury retailers and private banks in Syria have improved their quality and services to a level comparable to that of Lebanon.

With Syria’s ongoing economic opening and Lebanon beginning to warm-up politically to its next door neighbor, it appears that the two countries are in a good position to return to their traditionally mutually beneficial economic relationship.

“Even during the most difficult of times, trade relations slowed down, but then improved. This cannot stop. After… 2005, the only way left to go is up,” says Syrian political analyst Sami Moubayed.

Syria has traditionally resorted to trade pressure whenever relations with Lebanon have been tense

Politics and geography of trade

When it comes to trade between the two countries, Syria is at a definite political and geographic advantage. With a 375 km border with Syria that constitutes the only route for overland trade — the 79 km border to the south has been closed since 1948, when Israel became a state — Lebanon is dependent on Syria for its trade with most of the world. Transit through Syria represents 60 percent of Lebanon’s trade.

“Syria has traditionally resorted to trade pressure, whenever relations were [tense] between the two countries, to affect the political flow between Syria and Lebanon,” says Moubayed. “There are no other outlets from Lebanon, except the sea, or Israel, for ground trade. When pressure of this sort is applied, it certainly affects political events, always in Syria’s favor, however.”

In 1950, for example, Prime Minister Khaled al-Azm would shut the border, to pressure Lebanon into changing political dialogue, or positions, knowing that if the borders with Syria were sealed, its trade with the outside world would suffer.

More recently, in 2005 and 2006, Syria shut its borders with Lebanon, again to put political pressure on its smaller neighbor.

Still, goods usually reach their intended recipient somehow, regardless of political pressure.

“It’s a myth that the Syrian-Lebanese border is or can be closed to goods from the other side of the border,” says Samer Abboud, assistant professor in the department of political science at Susquehanna University in Pennsylvania. “The border is quite porous and will remain so even if there is full trade liberalization and improved transportation networks.”

 Nevertheless, currently there is some hope that better political relations will open the door for joint development projects.

“While private investment continues to grow in Syria, what’s missing are bilateral projects,” says Jihad Yazigi, editor of the Damascus-based economic bulletin, the Syria Report. “It’s not enough to open the borders if you don’t have strong government commitments. At the government level, there’s little coordination. Even in the West, there’s government involvement in bilateral projects. For big projects, private business can’t do much.”

For example, Yazigi suggests, “With daily power outages in Lebanon and Syria, we need more power plants.” Or, “Maybe the two countries could find a way to share water better.” He believes, “The two countries need to debate publicly.”

“Despite the obstacles – transport, financing, long border crossings – inter-Arab trade represents almost 20 percent of total Arab trade, when oil is factored out,” noted Abboud. “This is a very high figure and speaks to the already existing trade between countries that need to be supported through infrastructural and institutional developments.”

Getting goods across the border

At any time of the day or night, cars and trucks can be seen lined up at the official Syrian-Lebanese overland border crossings and in the Bekaa Valley, flare lights signal communication between smugglers.

No matter how cumbersome the process of trade between Lebanon and Syria, the two countries continue to meet the demand for one another’s products – be it at one of the three official border crossings, using the unofficial crossings or catering to the niche markets on either side of the border.

For Lebanese consumers, that often means clothing, agriculture, oil and other products that are less expensive in Syria.

But in the past several weeks this has been changing, with oil and some agriculture prices in Syria surpassing those of Lebanon – a sign of the times for both countries.

“Some prices of goods in Syria are higher than in Lebanon. The situation is completely different after 2000. Usually, Lebanon is the free market and Syria is the closed market. Now that is changing,” says Syrian economist Samir Aita.

Syrians are buying Lebanese goods, including everything from Portland cement, Lebanon’s biggest export to Syria, to Western products that can’t be found in Syria. There is a thriving black market of American products that are illegal due to the United States’ sanctions imposed on Syria.

Most of these items tend to be electronics, such as computer parts, which can be “re-exported” from Lebanon at an extra fee. “We (the Lebanese) don’t do this for free,” says Beirut-based Hussein Zeaiter, assistant professor of business and economics at the Lebanese American University.

“Illegal trade is probably higher than official trade,” estimates Abboud. “Illegal trade patterns have always existed between the two countries. While there is a host of trade in illegal goods – drugs and weapons – most of the actual trade is in basic products that are just taken across the border on a daily basis in cars and taxis and goes unreported or under-reported by officials. Export receipts are also a huge problem on the border.”

He adds that, “there have been few attempts to regulate it because the illegal trade functions almost as its own economy with powerful networks controlling large swaths of trade, or, on the micro-level, border officials being bribed to look the other way.” 

Illegal trade functions almost as its own economy, with powerful, large-scale networks

 Swapping labor for expertise

Throughout their history, Lebanon and Syria have been able to use the other’s workforce to their mutual advantage. Lebanon has benefited from Syria’s cheap laborers, who have been willing to do jobs that most Lebanese refuse to do, which in turn eases Syria’s high unemployment rate.  At the same time, Syria has benefited from Lebanon’s well-educated entrepreneurs and bankers who have helped Syrian private investors before and during the country’s economic opening.

“Lebanon has been an important place for services to Syrians,” notes Aita. “But in the last three to four years, Syria has been working to capacity.” As for Lebanon’s traditional role as Syria’s banker, he sees Syria beginning to hold its own in that sector.

“A lot of top management bankers have been coming from Lebanon to Syria,” Aita says. “But this is diminishing. Now, there is a lot of Syrians working at Lebanese banks.” Syria’s unprecedented growth rate last year of 6.5 percent and its own construction boom, combined with Lebanon’s continued anti-Syrian sentiment and a trend toward favoring Egyptian workers, has meant a continued steady decline in Syrian laborers in Lebanon.

“Mistakes on both sides meant that Syrians are no longer going to Beirut for shopping and services the way they did in the past,” Aita says. “And now there’s less need for Syrians to go to Lebanon.”

It does indeed seem that Syria is no longer closed economically.  However slowly, the dynamic is changing. Aita concludes by saying, “Lebanon’s role as Syria’s banking hub will disappear in three to four years. Both countries will have to rethink their roles toward themselves and each other.”

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