Levant

Economy under occupation

by Executive Staff
written by Executive Staff

The perpetual strife afflicting the Palestinian Territories has taken its toll on the Palestinian population, whose aspirations for a viable state have withered away over the past 60 years of conflict with Israel. The consequences of the conflict are evident to any objective observer, including the diminishing area of any future Palestinian state due to settlement expansions, an increasing number of Palestinian civilians who have been killed or injured and the damage to Palestinian social fabric punctuated by the schism of political power and the recent Israeli offensive on Gaza. 

Perhaps the most nuanced aspect of Palestinian suffering is the state of the Palestinian economy. The systemic economic hindrances imposed upon the Palestinian economy by the Israeli government are considered by most experts to be the primary impediment to allowing the Palestinian economy to reach its full potential. The World Bank (WB) identifies three principal “paralytic effects” of Israeli policies on the Palestinian economy: access to economies of scale, access to natural resources and access to an investment horizon. Moreover, the bank also cites physical impediments such as road blocks, closures, earth mounds and the ongoing construction of the separation barrier deemed illegal under international law as a “paralysis confronting the Palestinian economy.”

Further exacerbating this paralysis is the political and economic division of the West Bank and the Gaza Strip. The lack of a contiguous Palestinian land mass and the Israeli economic blockade of the Gaza Strip have resulted in the divergence of the West Bank and Gaza in terms of the effects on total GDP, which stood at an estimated $4.14 billion in 2007, according to the Palestinian Central Bureau of Statistics (PCBS). The PCBS also noted that Palestine’s total GDP for 2008 is expected to comprise 70 percent of that in 1999 (prior to the second intifada). Per capita GDP fell nearly 30 percent from its height of $1,610 in 1999 to $1,099 in 2007 and is expected to decrease by 7.4 percent in 2008, according to figures by the PCBS and the World Bank. Furthermore, the effects on real GDP of the West Bank and Gaza cannot be accurately gauged due to Israel’s continuing economic blockade and its subsequent military offensive. The IMF  and WB estimates that results from the first quarter of 2008 are slightly negative and project modest growth of 0.8 percent in 2008 “due to a continued, yet marginal drop in economic activity in Gaza, given its already-low base, matched with a modest rise in economic activity in the West Bank.”

The inevitable emergence of Gaza’s alternative economy as a result of the Israeli blockade was estimated to provide nearly 90 percent of all products entering the strip each month, equivalent to about $40 million of contraband, said Palestinian economist Omar Shaban in an interview with Bloomberg. Facilitated by a series of tunnels between Egypt and Gaza, goods that traveled through the tunnels ranged from vegetables to Viagra and served as the main lifeline of the civilian population of Gaza. The associated costs of these improvised means of transporting goods is evident in shops and markets across the strip where an Apple iPod Nano, that lists on Amazon.com at around $150, would cost $500 in Gaza, according to Bloomberg. The Israeli offensive that started on December 27, further intensified the upward pressure on essential items such as food, which has seen a 20 percent and 23 percent rise in prices in the West Bank and Gaza respectively, according to the World Food Program (WFP). The price of one kilogram of tomatoes in Gaza during the Israeli bombardment is said to have risen from about 1.5 shekels ($0.40) before the Israeli onslaught to 7 shekels ($1.75), an increase of over 400 percent, according to Reuters. To date Palestine still does not have its own currency.

Gaza’s imports/exports before Israel’s blockade, during the blockade and after ceasefire deal with Hamas

Source: Paltrade

Increase in obstacles* in the West Bank, Dec 2006 – April 2008

– ‘Baseline’ figure is the number of obstacles erected in the West Bank as of August 2005, which was 376
* Obstacles are defined as checkpoints, partial checkpoints, earth mounds, road gates, road blocks, earth walls and trenches
Source: OCHA

Israel has hobbled the means of transporting palestinian products in a competitive manner

Trade with Israel

The inherent nature of the Palestinian economy, being small and resource poor without its own airport or seaport, predicates that the majority of its economy relies on its ability to trade ­­within its territories and with its neighbors. Trade flows constitute nearly 85 percent of GDP, the vast majority of which (85-90 percent) is with Israel, according to the World Bank. This dependence on the state of Israel can be seen as a direct result of Israel’s economic policies. After Israel invaded the West Bank, it engaged in a policy of “integration” and, in theory, sought to eliminate the barriers that stood between the two economies. This resulted in a rise in Palestinian income as workers took up jobs inside Israel. Palestinian dependence on the Israeli economy at the time of the Oslo Accords in 1993 was immense. Trade with Israel represented more than 90 percent of total trade volume and the trade deficit stood at 45 percent of GDP, according to the Royal Economic Society. After the second intifada in 2000, Israel announced that it intended to end all Palestinian employment in Israel, effectively pulling the rug out from under the Palestinian economy.

Since the Israeli siege on Gaza came into effect in June 2007, essentially stopping all intra-Palestinian trade, the conventional trade of Palestine has relied solely on the internal and external trade of the West Bank. The numerous restrictions and administrative blockades imposed upon the Palestinian residents of the West Bank by the state of Israel have crippled the means of transporting Palestinian products in a competitive manner, thus creating enormous amounts of uncertainty and hobbling shippers’ abilities to compete in regional and global markets. The result has been a perpetual decrease in the amount of Palestinian trade over many years, even before the blockade and the construction of the separation barrier. According to the World Bank, between 2000 and 2006 the amount of West Bank enterprises that made a significant amount of sales outside of their home cities decreased from 60 percent to below 40 percent.

Such increased levels of uncertainty continue to add to the anguish of Palestinian enterprises that are becoming subject to increasingly high fixed costs per kilometer within the West Bank and by default the rest of the world. A recent survey conducted by the World Bank commissioned Palestinian Trade Center (PalTrade) identifies several parameters that increase costs for transporters inside the West Bank. The survey identified as much as a 40 percent increase in distance covered to reach key areas such as Jerusalem and the Allenby Bridge (connecting the West Bank and Jordan) as a result of Israeli policies that do not allow Palestinian trucks to take a direct route. The survey also points out increases of up to 70 percent in labor costs due to delays caused by road closures without announcement, flying checkpoints, unexpected variations on restrictions on cargo and movement of vehicles and people, losses due to inability to deliver on time and the waste of resources waiting and trying to predict certain outcomes.

Intra-West Bank trade routes and effect of impediments

Source: World Bank
Labor costs per kilometer*
* Labor costs computed on the basis of the combination of various vehicle types
Source: World Bank

Ultimately, trade dependency on Israel has proven to be detrimental to the Palestinian economy. In order for trade to thrive, Palestinians must have access to global markets and alternative trading routes. As Executive went to press, the Rafah border crossing between Egypt and Gaza remained closed by Israel and Egypt, as it has been since the Hamas takeover of Gaza in June 2007. Although the crossing could potentially provide an enormous amount of respite for the ailing Palestinian economy, this has yet to materialize. Even when the crossing was “operational,” it proved not to be a viable alternative to accessing the global market as the crossing operated only 16 percent of its scheduled working hours between June 2006 and March 2007, totaling a daily loss of $500,000 worth of exports according to the United Nations Office for the Coordination of Humanitarian Affairs (UNOCHA).

A viable palestinian state would need a sustainable economy free to trade and operate its businesses

Trade to the east

Trading through Jordan is also uneconomical due to the fact that all goods moving to and from Jordan must first cross the Allenby Bridge controlled by Israel. This is “a cumbersome and inefficient process that adds to the cost of shipping and discourages West Bank shippers from using the Jordan routes,” says the World Bank. Goods traded through Jordan are subject to redundant searches, parcel volume restrictions and lack of adequate storage facilities for sensitive products like vegetables and medical supplies. The only silver lining is that due to the recent increases in Israeli restrictions, coupled with some improvements in Jordanian logistics, Queen Alia Airport has become slightly more competitive for handling large volumes than its Israeli counterpart Ben Gourion, which tacks on $1,150 for “security surcharges” per metric ton, according to the World Bank. Nevertheless, the World Bank states that Palestinian traders still prefer Ben Gourion because of “better service, easier access and more frequent flights.”

Positioned at the heart of the Middle East, on the Mediterranean, Palestine has tremendous inherent potential. The promise of a thriving and prosperous Palestinian economy is as logical as it is fleeting in the face of the ongoing Israeli persecution of the Palestinian people. Undoubtedly, a viable Palestinian state would need a sustainable economy free to trade and operate its business without the current hindrances imposed upon it by the ongoing Israeli occupation.

Unless realities on the ground change, the economy of Palestine looks set to remain a burden shouldered by Palestinians, rather than a operable underpinning for a future Palestinian state.

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Turkey’s return to the east

by Claude Salhani
written by Claude Salhani

The deep involvement by Turkey’s prime minister in the recent conflict between Israel and Gaza marked Ankara’s return, after an absence of nearly a century, into the fold of Middle Eastern politics. This was something Mustapha Kemal Ataturk, the architect of the post-Ottoman Turkish Republic, wanted very much to avoid.

Indeed, much to the chagrin of many of his compatriots, Prime Minister Receb Tayyip Erdogan’s Islamist Justice and Development Party openly sympathized with Hamas in the recent war in Gaza, and that despite cordial relations between Turkey and Israel and Turkey’s neutral stance in the Arab-Israel conflict.

For many Turks, the prime minister’s change of direction in foreign policy is seen as a serious deviation from Kemalist tenet. Ataturk, the architect of the new republic, was a great visionary who wanted to take Turkey out of the Levant once and for all, and bring it into Europe, where he felt Turkey belonged.

“The larger problem that many either don’t see, or want to ignore, is the fact that Turkey’s identity is going through a speedy transformation,” says Tulin Daloglu, a Turkish journalist in Washington. Erdogan, some observers feel, is gradually eroding what Ataturk had put together and they are not comfortable with the notion.

“My first reaction is negative. Erdogan might have strong emotional attachment to Hamas,” says Daloglu.  “But Turkey should not be competing with other leading countries in the region. It should be [working] in full cooperation with them.”

Shortly after the collapse of the Ottoman Empire at the close of World War I, Ataturk shifted Turkey’s horizons from its traditional eastward leaning to align it with Europe and the West. That included strict separation of religion and politics along the lines of France’s ‘laïcité’. Ataturk and subsequent leaders of modern-day Turkey have labored hard to make this dream of Europeanizing Turkey a reality.

But Europe did not do enough to help speed up the process, as it is perhaps somewhat reluctant to admit a country of more than 70 million Muslims into the European Union. As can be expected, Europe’s failure to seize that opportunity to befriend an important and moderate Muslim country risks sending the Turks back in search of alliances in the Levant, and even beyond, into the former Soviet republics of central Asia. The European Union failed to grasp the importance of bringing in a large — albeit Muslim — nation into the EU, a step that would have solidified European-Arab relations.

Still, in spite of the nearly 100 years during which the Turks stayed away from the Middle East, the three centuries the Ottoman Empire spent incorporating much of the Arab world seems to have left some traces of affinity, at least insofar as the current prime minister is concerned.

But with the continued rebuttal by Brussels, Paris and Vienna of Turkey’s application to join the EU, the inevitable was bound to happen: Turkey’s rapprochement with Arab Islamists and its involvement in the Middle East conflict as a mediator. The latter role was certainly facilitated by the political void left when the United States under the presidency of George W. Bush showed little or no interest in trying to mediate the various problems related to the Middle East crisis. Washington’s refusal to negotiate with Damascus is a prime example of the disastrous policy followed by the Bush neoconservatives and one upon which Ankara jumped to take the relay.

That being said, it is not too late for the Europeans to save the day. In fact, Turkey’s flirtation with Hamas may come as a mixed blessing to the West. On the one hand, a rapprochement between Ankara and the Arab world — particularly with the Islamist organizations, such as Hamas — will prove useful in mediating a future settlement of the Middle East conflict. When the current war between Hamas and Israel finally runs its course, a Turkey acceptable to Palestinian Islamists will prove to be quite an asset. Turkish troops positioned in a newly created buffer zone between Hamas and Israel could be one of the few armies in the world acceptable to both sides. Turkey has the largest, toughest military in the Greater Middle East, more likely than not, on par with Israel’s. Some of their units have seen action in the mountains of Kurdistan, where Turkey has been fighting a guerrilla war against the PKK (the Turkish Workers Party) for several decades now.

The drawback is that Turkey’s reemerging friendship with the Arab world, and its continued exclusion from Europe, will further ‘Islamize’ Turkey. The end result could be that instead of Turkey acting as a buffer between Europe and the Arab/Muslim world, a role Turkey played during the Cold War as a NATO front-line for the Iron Curtain, Europe may wake-up one day to find Turkey suddenly on the other side of that border.

Claude Salhani is editor of the Middle East Times and a political editor in Washington, DC.

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Terror.com

by Mohanad Hage Ali
written by Mohanad Hage Ali

Last November, senior military leaders in the United States took the unusual measure of briefing the president on “a severe and widespread electronic attack on Defense Department computers.” According to a Los Angeles Times’ report, the attack, which was believed to be originating from Russia, targeted combat zone computers and the US central command overseeing operations in Iraq and Afghanistan. Nevertheless, the security services’ primary concern was whether its non-state enemies could acquire the capability to conduct cyber attacks against Western targets.
More than two years earlier, US authorities warned there was a threat, posted on a website affiliated with Al Qaeda, to attack the stock market and banking services online. The threat was apparently issued as revenge for the detentions in Guantanamo Bay. The US Homeland Security Department called it an “aspirational threat”.
The magnitude and consequences of such attacks are best comprehended when the Internet economy’s size is taken into consideration. Internet dealings and transactions today are a vital part of Western economies. According to a University of Texas at Austin study, the Internet economy “supported an additional 650,000 jobs in 1999 as revenues soared to $523.9 billion” in the US alone. The same study, conducted just under a decade ago, noted that even then the Internet economy “directly support[ed] 2.48 million workers, more than the insurance, communications and public utilities industries and twice as many as the airline, chemical and allied products, legal, and real estate industries.” This growth has prompted the Organization for Economic Co-operation and Development (OECD) to ask in a 2008 report, “has the economy become an Internet economy?” The OECD also stated, “increasingly, the largest productivity gains for businesses come from using online networks in some form.”
The online economy is growing to the extent that hacking a single company’s website for a day costs millions of dollars. For instance, BBC news reported in 2004, “three- quarters of UK companies have been hit by security breaches in their computer systems over the past year, costing billions to industry.” It was noted in the same report that “the average computer incident costs large companies $165,000 a time.”
The US warning against Al Qaeda cyber attacks in 2006 held some credibility as the Internet played an increasingly significant role in its operations. The new threat cyberspace poses was also shown when U.K. based extremists used the Internet to recruit other members, including teenagers. Through password protected web forums and chat rooms, they indoctrinated and prepared those recruits to launch suicide operations. Even the explosives used were home prepared according to “recipes” widely distributed on Al Qaeda web forums.
The militants’ success in exploiting the Internet was most apparent in last year’s failed Exeter bombing. Nicky Reilly, a 22-year-old of Irish background, entered the Giraffe restaurant’s toilet in Exeter to assemble his bomb before detonating himself. A slight mistake in his “internet bomb recipe” prompted an early explosion inside the lavatory, which left him with facial injuries. According to the police investigation, militants situated on the Pakistan-Afghanistan border area “groomed” Reilly through online chat rooms to become a suicide bomber. Sitting on his computer for long hours everyday, he watched more than 2,000 Al Qaeda videos, researched possible targets and then downloaded a bomb recipe.
In that same year, the trial of Aabid Hussein Khan’s Bradford terrorist cell exposed the Internet’s extended or unconventional use. This cell, which was plotting to attack the Queen and members of the royal family, not only compiled detailed information about different targets from the Internet, thus lessening the need to physically survey the area, the cell members also allegedly sought recruitment and training from the World Wide Web.
This British online terror saga started right after the Afghanistan and Iraq invasions, with the case of a young Moroccan immigrant named Younis Tsouli — whose online alias was Irhabi 007 — who dazzled the Western intelligence agencies for years before his capture in a tiny West London flat. For two years, Western intelligence services chased the 22 year-old Internet hacker, trying to uncover his real identity. Irhabi 007’s Internet activities involved propaganda, distributing training manuals, instigating others to commit acts of violence, hacking websites and distributing a hacking manual online. He was dubbed “the master” of online attacks, hacking, programming, and digital media design.
According to some reports, Irhabi 007 was making “explosive new use of the Internet,” specifically through websites and password protected forums that “cater for would be Jihadists.” Tsouli disseminated training manuals and propaganda material online, and then began helping radicalized youth to perpetrate attacks.
So far, Internet staged and planned attacks have failed to achieve their goals, but will 2009 be the year cyber terrorism makes its mark?

Mohanad Hage Ali is political editor at al-Hayat newspaper

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Society

IWC – Gianfranco D‘Attis (Q&A)

by Executive Staff
written by Executive Staff

IWC brand manager, Gianfranco D’Attis and famed IWC watch designer Kurt Klaus recently made a stop at Cadrans in downtown Beirut to promote their new Vintage line in commemoration of the International Watch Co.’s 140th anniversary. The Swiss company has a long history in the Middle East. Executive Magazine sat down with D’Attis to discuss customers, sales and strategy.

E What is IWC’s best selling model in the Middle East market?
We have a number of watches in our portfolio. The basic watch range includes the Aquatimer, the Ingenieur, the Pilots and the Portofino. That is the basic entry price, from $3,000 to $10,000. Then we have the manufacture pieces, made with precious materials. These are basically the Da Vinci line, the Portuguese and some complications. The best selling line overall in the Middle East, with about 50 percent of commercial turnover, is the Portuguese. The second best selling line, with 25 percent of the market, is the Pilot. Together they make about 75 percent of the turnover, not only in the Middle East, in fact, but worldwide. These are icon products. These are products that are differentiating themselves from the competition, because they are unique.

E How long has IWC had a presence in the Middle East?
IWC has been in the Middle East for over 30 years. Cadrans has already been working with us for 30 years. Richemont bought IWC seven years ago. Then we started integrating their platforms five years ago. So for the last five years we have been aggressive, expanding in the Middle East, increasing brand awareness, investing in marketing, and investing in boutiques and sales staff. The brand has really been developing quite fast in the last three to five years and it is performing extremely well. We have a team of six people in Dubai and we are constantly expanding. Now we are trying to penetrate the Indian market, which is a very strategic market for IWC in the future. As mature markets will be under pressure over the next two years, we believe that emerging markets will be absorbing the pressure and that they will deliver profits. This will help the brand to balance turnover and performance.

E What are the strongest markets for IWC in this region?
The strongest market is obviously the UAE. We have our largest regional distribution there with two boutiques and about five points of sale. The second strongest market is Turkey, because we also manage Turkey from Dubai. Then immediately after Turkey, you have Lebanon, because the Lebanese like IWC. They like it because it is also a strong brand in Europe, because it is understated, it’s chic, it is more or less what the Lebanese are looking for in a watch.

E How many points of sale do you have in Lebanon?
Right now we have two points of sale. We are working with two partners, Cadrans and Atamian. We are also planning to open a boutique sometime in the next 12 months. When Solidere opens its new addition, we will be present there.

E Does IWC keep the number of its points of sale low in order to maintain brand image?
We are actually reducing the number of points of sale and upgrading existing ones to boutiques. We really want to have a selective distribution network. For instance, five years ago we had 1,200 points of sale around the world and we are reducing that to about 800. The strategy is really to make it exclusive, selective and to upgrade the existing network to boutiques.

E Do you foresee a time when IWC watches will only be available in IWC boutiques?
That would be the ideal scenario. But obviously we need strong partners on our side in these special times. IWC is not a retail brand, IWC is a wholesale brand. That is why we need to find the right balance. Retail is for image, wholesale is to find a new customer that may not necessarily want to come down to a boutique. He likely has a special connection to our partner and we may not be able to reach him.

E What was IWC’s profit for 2008?
We do not publish profits or sales numbers. This is strictly forbidden by the group.

E Is IWC a publically traded company?
Richemont is publically traded. IWC is just one brand within this holding company Richemont. They hold brands like Cartier, Montblanc, Vacheron, IWC and Panerai.

E What percentage of totals sales does the Middle East represent for IWC?
We have aggressively developed the share of turnover in the Middle East. We started from nearly zero percent five years ago and today it is between five and 10 percent. When IWC got its start in the region 30 years ago, it had a small but important turnover. We had very personal relations in the Middle East with certain big families. In Oman, we were producing special quantities for the Sultan; in Dubai we were doing something for the sheikh. IWC was a very niche brand for special families in special quantities. So it was an important market, but the turnover was not very significant.

E What do you see as some of the biggest challenges that IWC will face in the near future in light of the ongoing global financial crisis?
Luxury in general will suffer because people are scared for the future. They don’t know when the economy will turn around. We feel that products in the price range of $7,000 to $20,000 will not be greatly affected and products below $5,000 will be much more affected. So this middle segment will be suffering, but the high-end should remain strong.

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Executive Insights

Talent recruitment for the human capital agenda

by Rabih Abouchakra, Bahjat el-Darwiche & Soon Rabb
written by Rabih Abouchakra, Bahjat el-Darwiche & Soon Rabb

In today’s economic environment it is easy to focus on a company’s financials and ignore what has for the past two decades been an increasingly challenging priority — talent acquisition. Given the number of companies reducing workforce numbers by the thousands or going out of business, it might even seem that human capital is in oversupply. While the immediate recruitment requirements of many companies may be more easily met these days, human capital issues still account for some of the greatest challenges businesses face. Recent Booz & Company research and experience with multinational clients highlight key challenges faced by human capital leaders.

  • Escalating competitive pressures. These include the demand for new skills and capabilities, ever-higher standards for productivity and a less-benign regulatory environment that increases the need for employee education.
  • Labor market changes. These include an aging workforce, a lack of qualified workers in key industries and professions, and Generation Y workers’ expectations for employment relationships.
  • The changing nature of work. These shifts include greater emphasis on knowledge work, the extinction of the apprenticeship model, a lack of linear career paths and increased demand for immediate results.
  • Competition in a “flatter” world. This is shown in globalization, industry consolidation, collaboration across organizational and geographic boundaries and the need for rapid knowledge capture, dissemination and protection.

While these challenges are common across companies, industries and even countries, knowing how to respond to them has been and will be a source of competitive advantage. These challenges are as critical as ever in Middle Eastern and North African (MENA) countries. The global financial crisis offers organizations in the region the chance to build their talent pool. In a region of unprecedented growth that is experiencing talent shortages, it is crucial to invest in recruitment, nurture leaders, and redesign workforce practices to build capability and competitive advantage. Effective recruitment starts with a forward-looking vision and long- term plan for talent acquisition. For the past decade, finding enough of the right people has been a challenge. A key lesson for human resources is to develop “employee insight” by using employee segmentation. Employee segmentation is the basis for modern human resources and customized career alternatives for a diversified workforce. In the MENA, the primary effort has been to recruit and build capacity. Now, with its variety of talent segments (e.g. skilled expatriates, local workforce, interim employees), using employee segmentation may be an opportunity for companies here to build capacity and capability. Understanding employee segmentation is one strategy. Understanding and effectively using one’s brand is a complementary strategy. Employer brands that attract talent often articulate a clear, shared purpose above the profit motive. Few MENA companies take full advantage of employer branding, but those that do will reap the benefits of attracting and retaining the best people. Forecasting talent needs is essential. Organizations must be prepared to act whenever exceptional people appear — even in economic hard times.
One German industrial company, ThyssenKrupp AG, established a special hiring fund in its technologies business. The budget is dedicated to building the talent pool in that specific business and it is separate from the traditional hiring budget. The imperative is to find the talent, hire them and then decide how to deploy them in the business. In highly competitive talent markets such as the MENA region, strategies that focus on leadership, learning and adaptability will be critical to the human capital agenda, while successful leaders obtain higher levels of employee engagement and retention. The best training and learning programs are closely integrated with the business, driving change, innovation and value. While the learning function should resemble a sophisticated, efficient and cost-effective adult education enterprise with measured outcomes and ROI, the individual also takes an active role in learning. This linkage between individual learning and organizational goals is critical, as individuals begin to ask themselves what they need to learn to have an impact on the bottom line rather than being told by managers and trainers.
Human resource’s capabilities, competencies and focus must be tightly aligned with the company’s business priorities. A business savvy HR function will realize that people are competitive assets and will design a compelling strategy to realize that asset’s value. This strategy habituates high performance in the people who work in every function, region and business unit of the company. Saudi Telecom’s human resources strategy, like its operational strategy, is designed around the needs of customers. Using a shared-services model in which human resources is a strategic partner with the business units, human resources professionals think in terms of providing services. Either they are able to develop the right training for customers inside the company or the business units are allowed to obtain the training they need from outside vendors. Human capital development remains at the forefront of MENA’s development agenda. While the region has not been immune to the financial crisis, MENA organizations may still be able to use the crisis to move from more tactical recruitment efforts to developing and implementing a human capital agenda that builds and develops much needed workforce capability.

Rabih Abouchakra is a partner and Bahjat El-Darwiche and Soon Rabb are principals at Booz & Company

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Executive Insights

Ziad Ferzly

by Ziad Ferzly
written by Ziad Ferzly

The Middle East region, especially the Gulf, has experienced a great boom over the last few years. With rising oil prices and ambitious projects, many thought this would continue ad infinitum. However, the global economy has gone into a recession and the Middle East is not immune. The financial market crashes around the world and region have been followed by economic downturns that are having a severe impact on companies everywhere. As people come to grips with this shock to the system, they must adapt to new realities. This recession is real and must be dealt with decisively. Managers need to admit that there is a problem. It is important to avoid getting sucked into collective self-deception, whereby company stakeholders put on blinders and convince themselves that they are immune to the decline and can ride out the storm without consequence. Companies need to be as proactive as possible because the longer they wait, the more difficult it will be to recover.

During the boom, most companies grew, even if they were not professionally managed. Many investors made money whether they evaluated investments properly or not. As the saying goes, a rising tide lifts all ships. Yet things have changed. The wave has crashed. The ensuing flush of the system will help ensure that the stronger, better prepared players are the true survivors. Prudent companies are the ones who take this time to properly restructure their operations. Companies should follow these restructuring guidelines:
• Stabilize the situation — A company that is experiencing significant difficulties should first stabilize the situation. In extreme cases, the goal is to survive long enough to go through the restructuring process in a proper and timely fashion. Generating cash and cutting expenses are of paramount importance. The company should identify major problems and attack them quickly. It should address the root of the problem, not the symptoms.
• Appoint a restructuring team — This is the team that should lead the company out of trouble. With a combination of key internal managers and select outside restructuring advisors, this core group will be responsible for executing the entire restructuring program that will be put in place.
• Gather data — It is important to base plans on real life data collected internally from the relevant groups. Data should be gathered on production, sales, pricing, costs, customers, etc. The company must have a full understanding of the situation. Data will ensure that decisions are grounded in reality, not conjecture.
• Change leadership — Often, there needs to be a change in the top management of the company. Some managers can stay, while others must go. Strong and effective leadership should be established. The company cannot afford to have weak or incompetent management, especially in difficult times.
• Assess capabilities — The restructuring team will assess the company’s capabilities, strengths, and weaknesses. The team will then generate ideas on the options available. There needs to be a match between the capabilities of the company and the options chosen.
• Recalibrate strategy — How does the company create value? What changes need to be implemented? Where is the company headed? The restructuring team should clarify objectives and adjust strategies in a deliberate manner to focus operations and the organization on common goals.
• Develop a realistic plan — After assessment and strategic recalibration, the team should devise a playbook or turnaround plan for the company to follow. The goals should be realistic and achievable given the current state of the company and market conditions.
• Renew organization — The new vision and strategy for the company may require a new organizational structure for better execution. People need to be empowered and, at the same time, held accountable for their actions and decisions. Their rewards should be properly aligned with the company’s long-term performance.
• Improve processes — There are core processes to the business that need to be improved. Other processes might be outsourced. Whether improvement happens in terms of time, cost, or quality, addressing the different facets of the operation will produce a better run organization. This requires a thorough analysis of various processes and matching new processes to the capabilities of the employees in the new organizational structure.
• Conduct financial restructuring — The restructuring plan will inherently have a major financial component in place. Whether this relates to creditors, investors, employees, or suppliers, the financial plan that is put in place needs to go hand in hand with the strategic plan that the team has put in place. Proper financial management is critical to the success of this effort.
• Manage stakeholders — There is a wide variety of stakeholders for companies: from shareholders and employees to suppliers and customers. As the company goes through its restructuring process, it needs to effectively communicate with various stakeholders to make sure that they are aware of what is happening and, when possible, participate in helping the process succeed.
• Measure and show progress — The way to gauge progress is by measuring the results of decisions and actions taken. Whether the parameters chosen are financial, operational, customer-oriented, or otherwise, measuring performance is essential to tracking the restructuring effort. Data should be gathered throughout the process. Showing progress will excite stakeholders and will give the restructuring team the validation it needs to continue with the current plan.
Conglomerates and investment firms should consider a restructuring — as described above — of the parent, holding, or management company first, and then of the portfolio, i.e. the individual companies or investments. The restructuring team needs to:
• Decide on an overall strategy — The team should ask itself: What businesses or industries do we want to be in? Why these industries? What makes us qualified to hold and potentially manage all these companies? What is the right mix of company holdings that serves our overall strategy and goals?
• Review current holdings — The following questions should be asked: Does the current portfolio of companies and investments make sense in light of the prevailing conditions? Do the companies fit within our overall strategy? Are we too heavily skewed in one direction and do we need to make adjustments to our portfolio? Do we want to keep all the companies as they are today or do we want to entertain the idea of corporate transactions such as mergers, acquisitions, or divestitures?
• Set a strategy for each company — For each of the companies in the portfolio that the restructuring team decides to keep, they should put together a targeted strategy depending on internal data gathering, industry statistics, and market conditions. The team should follow the restructuring guidelines highlighted above.
Studies have shown that companies that went through successful restructuring efforts had a few characteristics in common:
• They were low cost producers, and had very efficient operations.
• The management teams led by example. They did what they asked their employees to do.
• They focused on the internal operations of the company addressing issues such as quality, productivity, and differentiation.
• They had an internally consistent strategic plan.
• They had a change in top management, used outside restructuring advisors, or both.
There are many companies that should have gone through a restructuring program over the last few years, but did not realize the need given their apparent success in the market. Now is a good time to act for those companies, and also for others that are experiencing difficulties because of the economic downturn. Many will not make it through this year. Companies need to ensure that they are strong enough, focused enough, and prepared to weather the storm. Those that restructure now will be well positioned to capitalize on opportunities ahead of their competitors as the economy improves. It is time to restructure.

Ziad Ferzly is managing director at Cedarwood Advisors, which provides strategic, financial, and investment management services to companies, investment firms, institutions, and governments around the globe.

 

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Executive Insights

Rethinking private equity – part I

by Imad Ghandour
written by Imad Ghandour

The sharp reversal of economic fortunes in the Gulf has sent all private equity (PE) houses back to the drawing board to redesign their investment strategy. Some are optimistic the Gulf will bounce back quickly, while conservative investors predict this recession will be deep and long and are waiting for the recession tornado to vanish so they can pick up from the carnage good companies at attractive valuations. The bulk of PE houses, however, are focusing on a selected number of defensive sectors to invest in, with the consensus being that education, healthcare, and fast moving consumer goods and related industries will survive the downturn.
Starting with education, this article is the first of a three-part series — which will also run in March and April issues of Executive — covering the dynamics of investing in each of these defensive sectors:

Back to school
Education is one of the largest global industries, yet one of the most fragmented. It is estimated that the global market size for education services is $2.5 trillion and it is ranked amongst the top three industries depending on how you count. Yet, it is one of the least represented sectors amongst listed companies. The largest education company by market cap is Apollo in the US, with a market cap of only around $7-10 billion. Just a handful of companies have revenues exceeding the billion-dollar mark.
Yet education takes a significant chunk of household and government expenditures. In Saudi Arabia, the education and vocational training budget comes second after defense, with more than a quarter of the budget allocated to it. In most societies, household spending on education is only exceeded by accommodation expenses. Furthermore, governments are offering subsidies to investors, and many are privatizing their educational system. This means an even larger pie for private sector operators.
The education sector is divided into several subsectors. The largest and the most fragmented is K-12, or primary and secondary education. Adult education and vocational training come second. Other notable sub-sectors are early childhood education (pre-school) and testing (e.g. GMAT, SAT, TOEFEL, etc).

Cash is king
From an investment point of view, education has very interesting characteristics. It has stable and predictable cash flows: students pay upfront for the service, and once a student enters a school or a university, he is likely to stay there until graduation. In the GCC, population growth and rising incomes imply continued growth in demand, and most likely shortage of supply.
Parents (clients) have limited price influence on tuition and thus tuitions increases are ahead of inflation and margins remain healthy and stable. In the GCC, for example, it is very common to have net margins of 25-35 percent.
The main challenges for institutions are the upfront investment in real estate and recruiting good teachers. Schools and universities, in particular, need a significant investment in purpose-built facilities, and investors have to balance the economics of being close to the urban demand centers and the escalating cost of land as you get closer to such centers. The other challenge is recruiting quality teachers in the wake of a shrinking global population of teachers but a growing population of students. Symptoms of teacher shortage are already evident, resulting in escalating costs.
Given the attractive investment characteristics of education and limited number of investment opportunities, listed educational institutions usually trade in the 20-30 times their earnings. This creates a significant arbitrage opportunity for investors who build new schools and eventually sell them at high valuations.
PE houses are not flocking to education for one main reason: opportunities are scarce. Yet the most creative PE players were able to enter the sector early, and will probably cash out handsomely, even in turbulent times!

Imad Ghandour is head of Statistics and Information Committee, Gulf Venture Capital Association and board member, Maarif Education and Training Holding Co, Saudi Arabia

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Executive Insights

Why Arabs lose the communication war

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

How do we decide who wins a war? Do we wait for the white flag to be raised to declare a winner? Do we count the number of casualties? Do we count the number of survivors? Truth be told, in modern wars, the real winner is the side that wins the “communication war.”

Regardless of the toll a war takes on its victims, what remains in the minds of people once the fighting stops are the headlines. Who can forget the headlines about the massacres of men, women, children and elderly in Nazi concentration camps during World War II? The Jewish people have engaged over the years in massive and structured communication efforts, using powerful messages and impactful channels to portray themselves as the victims of atrocious acts and to remind the world of the horrible ordeal they experienced.
In large part thanks to this communication strategy, Israel today is a forceful and successful “brand” whose image is that of a nation pursuing stability and safety for its discriminated and persecuted people and is thus immunized against the negative publicity stemming from its military attacks. Just like the Jews’ situation during World War II, today Palestinians are facing massacres of their men, women, children and elderly. Unlike Israel and the West, however, who have always treated communication as an imperative and a top priority, the Arab world has yet to recognize the primordial importance of communication, especially in an era of globalization and the eradication of all boundaries.
To see how our region has fared in communicating its message throughout the Gaza conflict, we need to look no further than the TV screens, radios and newspaper front pages throughout the region: the messages that we see, hear and read all use the language, values and sensational rhetoric that appeal solely to the Arab audience. This “preaching to the converted” does little to reach out and change perceptions on the other side of the world. In the case of Arabs, there has been little or no effort made to understand Western audiences and identify what triggers their emotions and stirs their passions, to communicate with them and make a difference in how they see things.
This must change in order to get the message across when targeting communication to other cultures. The Arab world’s communication should use the audience’s language and idioms effectively, touch upon their values and use a discourse that resonates with them. In other words, rather than showing the same tragic images over and over again, and continuously referring to the innocent blood spilt, it would be far more powerful to draw a simple parallel between the children of Gaza and the children of the West, highlighting that while children in the US and Europe were preparing cookies and milk for Santa and waiting for their gifts, children in Gaza were trembling in fear and waiting only to see if they will live to see the next day.
Communicating effectively across cultures requires identifying a painful event in the audience’s history — one that they can relate to on a deeper level — and comparing it to the situation and difficulties faced by their counterparts in the present. Highlighting the likeness to a tragedy that the audience knows and understands goes a long way in creating a sense of responsibility for the current situation and a need to put an end to it for the sake of future generations. What is sad is that in the case of Israel’s communication, they have capitalized on past tragedies in such an influential way that it has given them a retroactive license to slay and shed the blood of innocent people and still be viewed as the victims.
However, even the most creative communication strategy that builds upon all these powerful messages cannot have an impact without the right channels to send its messages through. Although it can be said that the Arab world’s communication is leveraging new media channels along the lines of Facebook, YouTube and blogs, as citizens from around the region continue to upload photos, comments and video of their perspective on the Gaza conflict, even these channels are Western inventions that are merely being copied in the Arab world rather than being pioneered in the region. If the Arab World wants to get in on the communication game, it must work to create and innovate new channels that can grab audiences’ attention rather than trying to go through overused channels only to be drowned out by the endless numbers of other YouTube clips, Facebook groups and blog entries. Until then, the Arab world will continue to be in the backseat when it comes to communication, aggravating this region’s fears that it will never be seen from a just or human perspective.
Even if our part of the world succeeds in consolidating its messages, tailoring these to Western audiences and sending them out through the most impactful and innovative channels, we will still face another major obstacle: layers upon layers of negative prejudice accumulated over years of poor communication. But these prejudices only highlight the imperative need for effective communication strategies and immediate action in order to start tearing these misconceptions down.
Many may argue that regardless of the message, Arabs will never have the leverage or resources to carry out communication efforts that can match the impact of those carried out by the enemy. A strong narrative and story, however, spoken in the audience’s language and using themes that appeal to their deepest emotions can have just as much power as extensive, well-orchestrated, and costly campaigns.
Of course, we cannot ignore the fact that deeply ingrained perceptions seem to persist no matter how civilized or open-minded cultures get, as the side long-envisioned as the victim will always be a victim and the side seen for years as the murderer will always be the murderer. The only way to break this vicious cycle is through compelling communication that opens the door for another perspective.

Dima Itani & Ramsay G. Najjar, S2C

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Finance

IPO Watch – The time that bides

by Executive Staff
written by Executive Staff

As regional capital markets remain volatile, analysts say companies who are contemplating initial public offerings (IPOs) may not find enough takers for new equity in 2009. The IPO market had been a star in the bull markets for the last several years, but had lost its charm by mid-2008 and is likely to face bleak days ahead in 2009.
On the upside, there is still a large number of planned and announced IPOs for the first half of 2009. According to reports by Zawya Dow Jones, there are over 40 companies scheduled to launch their IPOs in the first half of 2009. Some market watchers are guardedly optimistic about this flotation pipeline, saying that investors’ sentiments are improving.
For the moment, however, all indications suggest that investors and capital seeking companies alike continue to remain on the sidelines waiting for capital markets to stabilize before they go after IPO opportunities in the region. A good example is that of Kuwait-based Burgan Bank, which cancelled its plans for a $697 million capital increase after the authorities decided against issuing a decree for the increase for reasons, observers say, “related to the turbulent regional and global market conditions.”
While there is no consensus as to when IPO activity will recover, however, announcement about new IPOs in January show that confidence in the IPO market is being built tick by tick. January witnessed the announcements of six new IPOs — much lower than the monthly average for most of 2008, which was around 10 IPOs.
“Companies are preparing for IPOs because the long-term strategic rationale for such transactions has not changed,” said Phil Gandier, a partner of transaction advisory services of Ernst & Young Middle East. Many companies are likely to push ahead with their plans in 2009 despite the global economic meltdown, Gandier added in a report in January.

Fresh announcements
Saudi Arabia, the region’s largest economy, which accounted for 78 percent of the cash raised through flotation in 2008, will be the host of an IPO of Etihad Atheeb Telecommunication Co. The company, one of three firms that were licensed to run a fixed-line network in Saudi Arabia, said it will offer 30 percent of its shares to the public in accordance with rules for new telecoms operators. The company scheduled its public offering to start on January 24 and to conclude on February 2, as it seeks to raise $80.08 million.
Also in line with regulatory requirements in Saudi Arabia, Al Alamiya for Commerce and Services, part of the Royal and Sun Alliance Insurance Group, is preparing to launch an IPO after it was granted a royal decree to operate as a licensed insurer in Saudi Arabia, the firm said.
While the measure is mandatory, sources close to the company say that they are optimistic that the offering will do well. Another insurance firm taking the dip after it was recently established with a capital of $53 million is the Global Company for Cooperative Insurance. The company did not provide details about the floatation but it was established by Riyad Bank who owns a 30 percent stake. The IPO is scheduled for the second half of 2009.
Moving to the most battered economy in the region from the global financial crisis, the UAE provided several announcements. The Kuwait-based Esdarat Holding Company plans to list on Nasdaq Dubai in the second half of 2009 to fund real estate development projects worth $2.8 billion. Although the company did hint at an IPO in June of 2008, instead it chose to go with a private placement first raising $110 million with Emirates NBD Capita in December.
But the amount raised in the private placement was only 37 percent of the original target of $300 million. “The management decided to raise the remaining amount though an IPO,” said Imad Awad, director and head of Equity Capital Markets at Emirates NBD Capita. Esdarat plans to launch the IPO in late 2009.
Mawarid Finance, a provider of Islamic credit and financing activities, said it will offer its shares to the public in 2009. The company will be listed on the Dubai Financial Market. Although there were no clear details as to the offering, the company’s CEO Mohammed Musabbeh Al Neaimi, told the press, “We intend to offer between 25 and 30 percent of shares to foreigners after getting approval from the general assembly.”
Meanwhile in the Levant, Syria finally launched the Damascus Stock Exchange in mid-January and is scheduled to begin experimental trading on the 29th. The launching of the exchange comes after a two year delay.
Among the first companies to be listed and the first brokerage firm to be licensed in Syria, Al Adham Foreign Exchange Company, said it will offer 70 percent of its shares to the public seeking to raise $3.69 million. It will offer 350,000 of its shares at a par value of $10.90 each. The remaining 30 percent will stay with the founders. The IPO will run from January 18 to February 6, a statement said.
Following suit, Syria’s Noor Takaful Insurance Co. also announced that it launched an IPO to sell 50 percent of its shares with an aim to raise $16.3 million. Noor has a capital of $31.5 million and is offering 1.5 million shares at $10.90 each. Noor Takaful Insurance is 20 percent owned by the Kuwait-based Noor Financial Investment Co.
Also in the Levant, Lebanon’s flagship carrier, Middle East Airlines (MEA), appears to be on and off the IPO bandwagon. Initially, MEA was scheduled to float its shares on the Beirut Stock Exchange (BSE) in 2008. But due to political instability the plans failed. And now, MEA’s Chairman Mohammed El Hout, said the company will not list its shares in 2009 due to the “unfavorable” market conditions. “We will not list part of the airline’s shares on the BSE because projections in the markets do not look very promising,” Hout said.
As far as IPO and stock market debuts, the MENA region started the year with a definite dry spell. The only noteworthy events in January were three rights issues in Kuwait and Egypt, while another rights issue on the Egyptian exchange appears to have been withdrawn. The two capital increases on the KSE accounted for almost 99 percent of the aggregate value of rights issues companies offered in January. Kuwait’s Abyaar Real Estate closed a 100 percent rights issue worth $242.5 million on January 8 and construction group MENA Holding launched its rights issue worth $316.8 million on January 13.

I see the tunnel, but where’s the light?
The IPO market in 2009 will be slow, but the few issues that come to market may provide significant returns, experts say. With many regional economies set to experience substantial growth this year it appears that 2009, or at least the second half of it, will offer fresh hope as far as new IPOs are concerned.
“With IPO volume low, many investors will be tempted to ignore the IPO market altogether as we move into 2009,” writes Renaissance Capital. “This may be a mistake. Historical precedent suggests that IPOs in periods of low issuance can generate very strong returns as companies are forced to become more realistic with their proposed valuations in order to successfully raise capital, thereby creating opportunities for investors.”
As can be surmised by the number of IPO announcements for January and the overall number for the first half of 2009, some industry players believe IPOs could pick up by the middle of the year. The MENA region is expected to possibly lead the bulk of IPOs globally in 2009.
Observers rightly point out that the region is where the faster growing companies reside. These companies need to tap the capital markets to fund expansion. As such, improved activities in the IPO market might be a clear indication that the doom and gloom of 2008 will soon be history.

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Finance

Lebanon – Banked for the storm

by Executive Staff
written by Executive Staff

While some experts believe this year will not be different than the last for Lebanon’s banking sector, others are not so sure. Most agree, however, that conservative policies set by the Lebanese Central Bank allowed the banking sector to avoid any major effects from the global financial crisis. Prohibiting Lebanese banks from purchasing subprime products in the US, building up its foreign reserves to $13 billion (acting as a preventive measure to guarantee the Lebanese lira’s stability), ordering banks to have a minimum of 30 percent of their total assets in cash and setting rigid loan level ceilings for real estate projects, the central bank has played it cool by keeping assets safe and close to home. As of November 26, 2008 Central Bank Governor Riad Salameh announced that the combined assets of Lebanon’s banks totaled more than $100 billion — four times the country’s GDP. Bankers in Lebanon have agreed that the central bank takes pride in shying away from complex investments and structured products that it does not understand, and with the international circumstances that unfolded, it was definitely the right move to make for the Lebanese banking sector. Unfortunately, one thing the central bank cannot protect the sector from is political instability.

Well-known for its volatile social and political environment, Lebanon made a recent comeback after the Doha Accords were signed at the end of May 2008. Foreign remittances by expatriates were the best proof that Lebanese abroad viewed local banks as safe havens, totaling $5.5 billion by July 2008. Those remittances are expected to have surpassed the $6 billion mark by the end of the fourth quarter 2008. In just the first nine months of 2008, deposits into Lebanese banks reached an astounding $7.8 billion — up from the previous record high $6.6 billion for the entire year of 2007. The Economist Intelligence Unit (EIU) predicts that with the June parliamentary elections approaching, a rise in political uncertainty this year is expected to have a negative impact on the flow of foreign remittances into Lebanon. Nassib Ghobril, head of economic research and analysis at Byblos Bank, believes deposit inflow is “likely to slowdown this year, because a big part of the deposit inflow is from the Lebanese diaspora,” adding that, “the key question is, will these expatriates have the same purchasing power and liquidity as they did before the global financial crisis?” He concluded, “this year is definitely going to be different, economically, than last year.”

A rock, but not an island
While the Lebanese banking sector has so far been insulated from the global financial crisis, it is not isolated. Lebanese banks will begin to feel the inevitable decline in economic growth in the coming months. The EIU forecasts economic growth in Lebanon to slow to 2.7 percent in 2009 — down from its previous outlook of 3.1 percent — while finance minister Mohamad Chatah projects a three to 3.5 percent growth rate, down from a previous estimate made in 2008 of five percent. Factors affecting the country’s growth are mainly due to political uncertainty, economic contraction of Western markets and sluggish growth rates in the Gulf. These elements are likely to have an implicit impact on Lebanon’s tourism, real estate, construction and financial sectors, according to the EIU. Despite high levels of liquidity, meager exposure to real estate lending, robust deposit bases and strong support from the central bank, Lebanese banks could be adversely affected by the high political risk and sudden outbreak of conflict that has threatened the country in the past, most recently in 2005, 2006 and 2007.
Beginning the New Year on uncertain ground, banks in Lebanon are still waiting for fourth quarter results to be announced. Ghobril asserts, “It is clear from the third quarter 2008 results that [fourth quarter outcomes] won’t match past results. The fourth quarter was more challenging than the third quarter.”
This year, banks will be even more prudent than before, as the global financial crisis has taught every bank lessons that can only be learned in the crucible. Ghobril highlighted the increased competition amongst domestic banks, as lending opportunities “will be scarcer.” Moreover Ghobril says, “banks will be more careful in scrutinizing their lending opportunities,” especially since “lending opportunities abroad are likely to decline.”
More crucially, Lebanese banks will need to manage their liquidity. “Another concern is the excess liquidity in Lebanese pounds that accelerated in recent months, and where to place this liquidity,” he contends, although the top priority on banks agendas this year will definitely be about “maintain[ing] liquidity over profiting,” Ghobril adds.

Bank stocks
Like most stocks on the Beirut Stock Exchange (BSE), bank shares are vulnerable to Lebanon’s political environment. Thomas Schellen — publishing editor at Zawya Dow Jones — contends that, “Share prices of Lebanese banks have definitely been sensitive to the political risk and other developments.” This was most evident in May 2008; after the Doha Accords were signed, bank shares shot up but have since declined. Schellen notes that major banks such as BLOM, Audi, and Byblos “have been on a rather steep slide” since the middle of last year.
Yet Ghobril points out that “stock markets have not really reflected the performance of the listed banks,” and that “they are doing much better than their share prices in terms of performance.” Due to the lack of liquidity and small size of the BSE, bankers seem to turn a blind eye to share prices as the sector has been outperforming itself in the last few years.

Forecasts
Overall, 2009 will be a year of vigilance for the banking sector in Lebanon. Schellen said he would prefer to “use dice or Chinese oracles” to predict what will happen this year, “because in the current economic environment — on a global scale — it’s very unlikely that anyone’s predictions will be on target for 2009. There are so many challenges.” Without a doubt, the most difficult hurdle to prepare for in Lebanon is political uncertainty. Ghobril said he “cannot overemphasize the importance of maintaining political stability,” as it is “key to increasing confidence, which in turn encourages new projects, investments and businesses to expand and consumers to borrow.” But, with Lebanon’s political history, one can never know. “With the elections approaching,” says Ghobril, “it is likely that consumers will be apprehensive and investors will take a ‘wait and see’ approach.” Marwan Mikhael, head of research at BLOMINVEST Bank, expected that as long as the political situation is secure, “2009 will be a record year” for Lebanese banks. If the environment does worsen, on top of slower growth, Mikhael foresees “a slowdown in the capital inflows to Lebanon.”
All in all, Ghobril trusts that this “year will be conservative and cautious, [as we wait] for things to clarify domestically — regarding the political front with the elections — and regionally, economically and financially.” On the bright side, Lebanon’s resilience to political impermanence has enabled the banking sector “to adjust in an environment of political instability,” notes Ghobril. With the unpredictable global financial events and domestic uncertainties, pragmatic approaches throughout the banking sector are indispensable this year. Schellen has faith in the country’s banks and concludes that “confidence in the banking sector does not seem to have waned, as far as I hear, as compared to confidence in banking sectors elsewhere, I think the Lebanese [banks] still shine and look like gold right now.”

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