Capitalist Culture

USA – A storied campaign

by Michael Young
written by Michael Young

By the time you read these lines, John McCain or Barack Obama will have been elected president of the United States. If it’s Obama, we can assume that the decisive turning point in the election campaign came when the American financial system began melting in September on a mountain of bad debt. For some reason, few of them convincing, the Democratic candidate was perceived as “being better on the economy.” In fact, neither McCain nor Obama by the end seemed to really know what was going on.

And who could blame them, when the greatest minds in the world financial markets were not themselves quite clear on how rotten the credit crisis was? But that mattered little. Election campaigns, like politics in general in the US, have increasingly become a question of presenting a compelling narrative — a rousing story that candidates can offer up to voters that makes it more likely they will be elected. This strategy provokes a reflex among voters not so very different than the one felt when they consume a product. With narratives so central to American politics, candidates have effectively defined their identity in the way they feel they can make headway, regardless of where the truth lies.
So, if the economy was responsible for bringing John McCain down, then that was partly because his narrative left not enough room for a public perception of his financial expertise. A war hero who endured great suffering in Vietnam, McCain’s image was nevertheless never viewed by voters as adequate for someone who could lead an economic revival. As a Republican, he was also perhaps tarred by the brush of the Bush administration’s financial errors (though the Democrats were just as responsible for the credit mess). Finally, a wealthy man, McCain must have lost ground in the eyes of those who felt he would be unable to understand what economically vulnerable Americans were going through.
And if Obama happened to lose, then that’s because the narrative he managed to create was somehow undermined by McCain in the month after the financial crisis hit. McCain had managed to score points against his rival when the discussion was about national security experience. But Obama may have nipped that in the bud with the appointment of Joseph Biden as his vice presidential candidate. And even in key battleground states, for example Michigan, McCain was showing signs of surrender in early October, as he shifted his strategy to discrediting Obama personally.
The politics of narratives are interesting, and disturbing, because the candidate who wins is not the one who necessarily has expertise in what it takes to be president; he or she wins by managing to create an impression of such expertise through the shaping of the personal narrative, then hoping to compensate by learning on the job. For example, what made Obama a more credible “economic” candidate than McCain? The Democrat had no particular qualities as an economist, nor did he play a key role in preparing Senate finance legislation. By the same token, McCain displayed great toughness as a prisoner during the Vietnam War, but the candidate never looked like he had an especially strong grasp of foreign affairs and security policy because of that experience.
Narrative politics are not new, whether in the US or other countries. The essence of politics since the era of modern media, and even at times before, has been the ability to fashion political programs to mobilize the masses. In authoritarian systems, especially those based on populist leaderships, the narrative tends to be centered around enmity and a sense of victimhood, with violence lingering never far away. In democratic systems, however, the latitude for personal choice is far more pronounced, so that candidates have a need to persuade, therefore more room to reinvent themselves. And like all products on the market, considerable imagination is allowed in the marketing.
The months ahead will allow the purchasers — sorry, the American voters — to see if they bought the right thing. It will also allow the rest of the world to determine if they backed the right candidate with respect to their own interests. But an irony stands out: as the capitalist system takes a major hit, one that has prompted states to intervene in the market from the US to Western Europe, one place where the free market remains alive and well appears to be in the realm of narrative politics. Every politician has a story to sell and the nonsense debt just keeps growing. It may all be sub-prime, but consumers are demanding more and the markets are not soon about to collapse. Where can we buy some shares?

 

Michael Young

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Measuring business‘ burden

by Riad Al-Khouri
written by Riad Al-Khouri

Economic indices have become even more popular over the past few years with, for example, the numbers churned out by the World Bank and International Finance Corporation’s annual Ease of Doing Business (EDB) survey being among the most widely anticipated and cited. The function of the EDB index, which tracks the time and cost of key aspects of doing business, is to tell a country how it is doing and so help it identify weaknesses to be addressed and strengths that could attract investment. The latter, however, were unfortunately not prominent for many of the region’s economies in the latest EDB, published in September, which, among other laggards, reported Lebanon in 99th place (down from 98 last year) among 181 countries globally and Palestine (listed as “West Bank and Gaza”) 131st, modestly up from 132.

Yet the picture is more complicated as the EDB index is actually a composite of ten sub-indices that can vary widely, as they do in the cases of Lebanon and Palestine. One of the worst components of the overall index for both is the ‘Enforcing Contracts’ sub-index, in which Lebanon was 118th worldwide, up one notch from the previous year, and Palestine 123rd, although it also improved slightly from last year’s 122. The Enforcing Contracts index is determined by following a payment dispute and tracking the time, cost, and number of procedures involved from the moment a plaintiff files the lawsuit until actual payment. A firm in Lebanon requires 37 procedures and 721 days to enforce commercial contracts, compared to an average of about 44 procedures and 689 days regionally and 31 procedures and 463 days in the more advanced countries of the Organization of Economic Co-operation and Development (OECD). Further, enforcing a contract in Lebanon costs almost 31% of the claim compared to about 24% regionally and 19% in OECD markets. To enforce a contract, Palestinian procedures are 44 in number, taking a total of 700 days and costing 21% of the claim.
On the positive side, the Lebanese and Palestinian components measuring the ease of paying taxes are among the best in the world, Palestine ranking 25th (though with a slippage from 23 last year) and Lebanon placing 45th worldwide, but down nine places from the previous year. The ‘Paying Taxes’ sub-index shows what a medium-size company must pay or withhold in a given year, as well the administrative burden in paying. These measures include the number of payments an entrepreneur must make (27 in the case of Palestine); the number of hours spent preparing, filing, and paying (154); and the share of their profits they must pay in taxes (about 16%). Generally, components of this measure are positive, though the number of payments compares badly with the region (23), let alone the OECD (13).
Somewhat like the Palestinians, the only component of the EDB index where the Lebanese seem to shine is the Paying Taxes sub-index, in which on the global level, Lebanon ranked ahead of the US but regionally placed behind Iraq. A medium-size firm in Lebanon has to make 19 tax payments annually, less than the regional average but more than the OECD. It takes a firm 180 hours to prepare, file and pay its taxes in Lebanon, significantly less than the MENA average of about 216 and the OECD’s 211. Also, companies in Lebanon pay 12% of profits in tax, less than the regional average of close to 13% and the OECD average of about 18%. However, that is not the whole picture and the bad news is that a company in Lebanon pays just over 24% of its profits in labor tax and contributions compared to around 16% for the region and about 24% in OECD economies; so overall, companies in Lebanon pay 36% of profits in tax compared to just over 33% regionally and about 45% in OECD countries.
In conclusion, though Lebanon and Palestine’s performances in the EDB are generally mediocre, when the overall index is dissected into its components, a mixture of good and bad emerges. The 10 components of the general indicator are varied and are themselves divided into different elements; so the lesson from this is that indices should be dissected and not just taken at face value. A second point is that comparisons within regions and globally are valuable: a seemingly low score by a middle-income country like Lebanon or an emerging economy such as Palestine could actually be very healthy if compared to neighboring economies. Finally, look for a temporal comparison: an index might seem bad but its improvement over the past few years could itself be a good sign — will that be the case for the Lebanese and the Palestinians in the next EDB?

 

Riad al Khouri, co-founder and principal of KryosAdvisors, is senior fellow of the William Davidson Institute at the University of Michigan

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India‘s fusion with US power

by Paul Cochrane
written by Paul Cochrane

Over the last 1,000 days India has been trying to get its nuclear status green-lighted by the United States despite not being a signatory to the Non-Proliferation Treaty (NPT) or the Comprehensive Nuclear Test Ban Treaty.

The US Senate’s ratification in October of what is known in India as the ‘123 Agreement’ — in reference to Section 123 of the US Atomic Energy Act — will cause a profound shift in geo-politics for Asia, the Middle East and the West. For behind the deal is big power politics involving the two giants of Asia, China and India, the region’s basket cases, Afghanistan and Pakistan, and Washington’s perennial thorn-in-its-side, Iran. There is also the US- led ‘war on terror’ to consider.
In inking the 123 Agreement, India now has access to nuclear reactors, fuel and technologies from the US — 34 years after New Delhi first conducted a nuclear test in the Rajastani desert. The deal has also put the US top of the list to supply the nuclear technology, valued at $100 billion over the next 20 years and will enable India to develop 200 nuclear warheads as well as indigenously designed nuclear submarines. Sizeable arms deals and economic cooperation agreements have also been inked, with the US expected to get the proposed $10 billion Multi Role Combat Aircraft deal and replace Russia as India’s biggest weapons supplier.
But in the bigger picture, what the bilateral agreement has achieved for Washington is a new ally in Asia that can pressure Iran, with whom India has energy agreements yet still little desire to see Tehran become another nuclear power in the neighborhood. India can also act as a bulwark against the emerging dragon, China. Just over the border from India, in the Tibetan Autonomous Region, are an estimated 500,000 troops of the People’s Liberation Army (PLA), as well as Intercontinental Ballistic Missile (ICBM) bases. It has long been a trigger point and could be again, with numerous skirmishes occurring between the PLA and Indian troops over disputed border areas high in the Himalayas.
By bringing India — the world’s largest democracy at some 1.2 billion people and counting — onboard the US has a country that borders other states of concern whose democratic credentials are dubious at best: Pakistan, Myanmar, and Bangladesh.
The agreement may also well be the Bush administration’s last positive foreign policy achievement. It certainly put a smile on the face of American president when Indian Prime Minister Manmohan Singh told Bush that “India loved him.” But while the agreement is advantageous for Washington, it yet again sends signals of hypocrisy and double standards to the world. There are only four countries that are non-participants in the NPT: Israel, India, Pakistan and North Korea; but with the exception of Pyongyang, whose nuclear arsenal is still in an embryonic stage, the US has strong relations with the first three. Iran on the other hand, which is cooperating with the IAEA, is continuously under pressure to rein in its nuclear program.
The thawing of relations between New Delhi and Washington have, however, come at a time of heightened terrorist attacks within India by Islamists. Although homegrown, the attacks have links to Pakistan.
Islamabad was, after all, fingered as a perpetrator of the terrorist attack on the Indian embassy in Kabul in July, and there are allegations of financial support for Indian jihadists coming from Pakistan and Bangladesh. The deluge of fake Indian Rupees, which are a contributor to inflationary pressures, have also been traced to state-of- the-art printing presses in Pakistan. Furthermore, during meetings at the White House Bush and Singh reportedly discussed the prospect of Pakistan imploding and its notorious Inter-Services Intelligence (ISI) becoming “a state within a state.”
New Delhi is now mulling a beefed up anti-terrorist law and its National Security Agency has been briefed by the US Department of Homeland Security on how to set up a similar body to better integrate its intelligence services which, according to one analyst I spoke to in New Delhi, are still operating with a World War II mindset. Additionally, the Indian press has reported growing pressure on New Delhi to send troops to Afghanistan.
In the global ‘war on terror’, India clambering onboard the US train can been seen as a boon, but for the more skeptical, India has sold out in this new alliance and Washington DC has once again shown its Janus face when it comes to nuclear issues. Iran and China are the biggest losers in this, while the world has become an even more uni-polar place.

PAUL COCHRANE is a freelance journalist based in Beirut

 

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President Palin? God help us

by Claude Salhani
written by Claude Salhani

The gossip around Washington these days compares Republican vice presidential candidate Sarah Palin to a ‘post turtle’. Not familiar with the term? Don’t worry, most urban folks aren’t.

Say you’re driving in the countryside and you see a turtle sitting on a post. First, you know it didn’t get there by itself. Second, you know it doesn’t belong up there. Third, it doesn’t know what to do while it’s up there. And fourth, you wonder what kind of dumb-ass put it up there to begin with.
The frightening reality is that this ‘post turtle’ could end up being the next vice president of the United States of America. Even more worrying is that she could also be president.
Republicans, or at least the ones who placed Palin on the post, believe she is highly qualified for the job. The reason is that she is so politically hollow inside that she can easily be molded by the neocons. Think Bush II, but far easier to influence and control. In defending Palin many Republicans have said she is qualified for the vice presidency (and therefore possibly the presidency, especially when the president is 72 years old and has a history of heart problems) because “she lives next door to Russia.”
Republican Party big shots and their supporters have gone on record with that statement, as unbelievable as it might sound; Fox News was the first to announce that Sarah Palin was knowledgeable in foreign affairs because “she is right up there in Alaska right next door to Russia.”
Frank Gaffney, a syndicated columnist, said that Palin has picked up foreign policy “by osmosis” as a result of Alaska’s geographic location.
The governor’s office in Alaska’s capital Juneau, where Palin works, is about 1,230 miles from the closest point in Russia. My office for the good part of the last 15 years was only 0.19 miles from the White House. Does that qualify me for the presidency? At least I could actually see the White House from my office.
Still, McCain’s wife, Cindy, told ABC News’ George Stephanopoulos that “Alaska is the closest part of our continent to Russia. It’s not as if she doesn’t understand what’s at stake here.” Appearing on ABC’s Charlie Gibson, being questioned about Palin’s lack of foreign policy experience, McCain was asked if in all honesty he could feel confident having on board someone who is as green in international affairs (about the only time anyone is likely to call Palin “green”) as his running mate. Until a year ago Palin had never applied for a passport or travelled outside the United States.
McCain replied that one of the key elements to America’s national security requirements are energy and that Palin “understands the energy issues better than anybody I know in Washington, D.C., and she understands Alaska is right next to Russia. She understands that.”
Hmmm.
Well, glad she got the geography part right, ‘cause she sure flunked in economics. When asked by CBS anchorwoman Katie Couric how the $700 billion economic bailout package the Bush administration and Congress negotiated would help taxpayers, this is how she replied: “What the bailout does is help those who are concerned about the health care reform that is needed, to help shore up our economy, helping… oh, it’s got to be all about job creation too, shoring up our economy and putting it back on the right track, so health care reform and reducing taxes and reining in spending has got to accompany tax reduction and tax relief for Americans and trade, we have to see trade as opportunity not as competitive, scary thing, but one in five jobs being created in the trade sector today, we’ve got to look at that as more opportunity, all those things under the umbrella of job creation, this bail out is a part of that.”
Wow! Yes, she sure is ready.
Kathleen Parker, a well-respected conservative columnist had this to say in the National Review website after watching the interview: “A candidate who is clearly out of her league,” adding that “If BS were currency, Palin could bail out Wall Street by herself.”
Just how clueless Palin is and how controlled she is by her Republican minders was made all the more obvious in the vice presidential debate where it was more than obvious that the governor of Alaska was getting immediate feedback and directives on her portable telephone via text messaging.
I wonder if the fact that Governor Palin “lives next door to Russia” will facilitate any dealing she may have with the Machiavellis of foreign politics? How would she stand up to negotiators with such as Russian Prime Minister Vladimir Putin, a former KGB officer?
The Palin saga has of course has provided late night talk shows with a gold mine of ammunition. Jon Stewart of the Daily Show cut to the chase, describing a Fox News commentator who supported the “living close to Russia” thesis as a “moron.”
Steve Benan, writing in the Washington Monthly described it as “the dumbest argument I’ve ever heard.”
“Palin and McCain are a good pair,” said the Tonight Show’s Jay Leno. “She’s pro-life and he’s clinging to life.”

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

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Dire straits for food & finance

by Peter Speetjens
written by Peter Speetjens

As world leaders have their eyes fixed on the global financial crisis, which has seen western governments spend trillions of dollars to keep banks and financial institutions afloat, British aid organization Oxfam on October 16 issued Doubled Edged Prices, an alarming report about the ongoing global food crisis.

According to Oxfam, average prices of staple foods such as rice and cereals have risen up to 300% in some countries, which have pushed an extra 200 million people to the edge of starvation, bringing the worldwide total to nearly one billion. Key drivers of the crisis are increased demand, which includes increased demand for bio- fuels and meat; reduced supply due to an increase in extreme weather conditions; the hike in energy prices and financial speculation in commodity markets.
Hardest-hit are poor urban dwellers who spend up to 80% of their daily income on food and mainly live in food- importing countries in Africa, Asia and Latin America. The Middle East has not escaped the ordeal. According to the Arab NGO Network for Development (ANND), the price of corn and rice in Egypt has risen by more than 70% between 2007 and 2008, while in Sudan the price of wheat increased by 90%. In Lebanon, the average price of imported food has increased by 145%. Experts warned that an estimated 30% of Lebanese live under the poverty line, which could increase to 40%.
Massive bread riots in Egypt earlier this year showed what the political consequences of an empty stomach can be. The Egyptian government is currently paying billions of dollars to subsidize cheap bread production. Following years of drought and bad harvests, the Syrian government may soon be forced to start importing wheat. Meanwhile, Oxfam observed, the crisis is not a setback for everyone, as large agricultural corporations and supermarket chains have recorded soaring profits.
Interestingly, a BBC survey last summer found that 60% of respondents in 26 countries said higher food and energy prices had affected them “a great deal.” Dissatisfaction with their government in terms of tackling the crisis was greatest in Egypt, where 88% of respondents said to be unhappy with their leaders, followed by the Philippines (86%) and Lebanon (85%).
At first sight, the world’s financial and food crises could not be more different. While the first has so far mainly been felt by Wall Street bankers, boardroom directors and shareholders, the second predominantly hurts the poorest of the poor, who break their backs for a few dollars a day and for whom a 30% price increase on a loaf of bread is quite literally a matter of life and death. International aid organizations have warned that the crisis is most acute in Ethiopia where six million people survive through emergency food hand-outs, up from two million last April.
However, the crises have at least one thing in common: far-reaching deregulation and market liberalization appear have aggravated the suffering. Lack of overview and transparency in the US allowed banks to build an elaborate financial pyramid on what were essentially bad mortgage loans. In terms of food and agriculture, countries that have followed the wishes and international guidelines set by donor countries and global financial watchdogs have been hit harder than countries such as India and Brazil, which have stuck to a more protective agricultural policy.
“The trend in agriculture, as in international finance, has been towards deregulation and a reduced role for the State,” said Oxfam director Barbara Stocking. “This has had devastating effects and innocent lives have been blighted by exposure to market volatility. In countries where governments have invested in agriculture and put policies in place to target vulnerable or marginalized groups, the impacts of food price inflation have been less severe. In contrast, where there has been unmanaged trade liberalization, underinvestment in agriculture and little support from government, the effects have been devastating.”
For decades, financial organizations like the World Bank and IMF have pushed for free trade, open markets and deregulation, despite the fact that the US and Europe themselves have proved unwilling to stop paying billions of dollars in agricultural subsidies to domestic farmers. It was these same subsidies that caused the latest round of Doha free trade talks to collapse.
Haiti is an often-cited example of how open markets and free trade may in fact help create poverty. In 2007, some five million Haitians lived on less than a dollar a day, while almost half the population was undernourished — a situation only aggravated by recent price hikes and bad weather. Ironically, Haiti once was a significant rice producer, yet urged on by free trade ideologists the country opened its markets to allow for cheap imports to arrive, which caused a decline in local production and job creation. Later on, global food prices increased and thus became unaffordable for the increasingly impoverished population.
One thing is certain: less than two decades after the collapse of the Soviet Union, which prompted some conservative enthusiasts to hail the end of history, the world’s food and financial crises have painfully shown the shortcomings and limitations of the free market ideology.

Peter Speetjens is a Beirut-based journalist

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Too much to flush

by Claude Salhani
written by Claude Salhani

For over a month now the headlines in the local press have been all about illegal sewage dumping on Dubai’s beaches and the risks to swimmers. Illegal dumping is nothing new in the Emirates and when it occurred in the desert, nobody seemed to take notice or care. But now that the beaches in the upscale neighborhood of Jumeirah are contaminated, the alarm bells are sounding. Jumeirah is not only home to luxury villas and trendy shops, but this beach front is also known for its five-star hotels, most notably the world famous Burj al-Arab.

The levels of sewage have become so high in the sea that the municipality has put up barricades and posted numerous signs warning of the dangers. Many beaches along the stretch are affected. Recently, an international sailing regatta had to be canceled at the Dubai Offshore Sailing Club, one of the hardest hit areas. Tests of the affected sea water have shown levels of human feces three times higher than normal and traces of the e-coli bacteria which can cause everything from ear infections to Typhoid fever and Hepatitis A.
Dubai’s rapid growth has not always been friendly on the environment. It seems that every few weeks we hear of another ecological disaster in the works. One week there is a campaign to get rid of plastic bags because they are killing camels in the desert; the next week the ruler issues a decree to plant more trees in order to purify the air. However, the sewage problem seems to be hitting a particularly raw nerve in a city that prides itself on its modernity and glamour.
Any visitor to the UAE can see that the country’s infrastructure is not equipped to handle the throngs of people who continued to move here seeking better opportunities. The massive traffic gridlocks are the most blatant example of this overload. Another problem, which has been brewing underground, may be less apparent but no less critical. In the past, sewage water tankers made their rounds in the city picking up waste water from septic tanks and delivered it to the sewage treatment plant. Up until around five years ago everything went relatively smooth. Then Dubai embarked on a number of mega projects, including the Burj Dubai, which is the tallest structure in the world. Overnight the demand for guest laborers rose and so did temporary accommodations and other facilities like portable toilets, showers and containers to hold liquid waste. Work camps began sprouting up as fast as building sites and before anyone could take notice, Dubai’s already fragile sewer system was on the verge of imploding.
To confront the sudden increase in waste water, sewage water tankers were rerouted to labor camps. Realizing there were not enough sewage water tankers to pick up both the city’s and the labor camp’s waste, more were added to the fleet, but this only created additional congestion and longer lines at Dubai’s only treatment center. Suddenly, the wait time jumped from one to two hours, to a day. What aggravated the drivers even more than waiting was the fact that they only got paid per load of waste they carried. The more loads they picked up, the more money they earned — simple mathematics.
As a way to avoid the long lines and increase their runs, truckers began driving out on empty roads and dumping the waste water in the desert. However, as more empty areas, in and around Dubai, were turned into to construction sites, truckers were forced to either drive further out into the desert or look for an alternative solution. Enter Dubai’s storm drains.
During the winter months Dubai sees only a little rain, but each time there is a downpour the effects are felt for weeks if not months afterwards. Water in this desert environment does not run off but rather just sits in puddles and small shallow lakes until it eventually evaporates or is pumped out by machines. Storm drains were dug at strategic places throughout the emirates to divert some of the rain water back into the sea. The storm drains may be needed only twice a year but their role is essential in keeping Dubai and the other emirates from sinking in flood water.
As a way to avoid long lines or driving way out into the desert, sewage waste tanker drivers began dumping their waste water in storm trains. In the beginning there were only a few culprits but over time other drivers caught on.
In a way to combat this illegal practice, the authorities have imposed a series of measures, which includes fines of 100,000 Dirham ($27,250), confiscation of the tankers for a period of time and suspension of the trade license of sewage waste transporting companies.
Recently, a reader submitted a photo to one of the local papers showing a group of men swimming in the sea just off Jumeirah Beach. In the background one can see a yellow barricade which stretches along the shore and a sign which reads “Sorry for Inconvenience.” This barrier, supposedly put up to prevent people from swimming, did not seem to have the desired effect. It may be that the men decided to ignore the dangers or they simply misunderstood the sign thinking instead that it was an apology for having to step over the barricade.

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

 

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Consumer Society

Cyprus – History distilled

by Executive Staff
written by Executive Staff

Olvia Haggipavlu stopped to take in the huge concrete vats at Etko, the Cypriot winery her family founded in 1844. “These tanks used to fill ships that would carry bulk wine all over the world, to Sudan to Russia and to Sierra Leone.”

Etko is Cyprus’ oldest winery and, along with three other producers, until 20 years ago dominated the Cypriot wine sector. The “big four,” — Etko, Geo, Sodap and Loel – as they were, and are still, known produced tens of millions of liters of wine that were sold in bulk to the world, though mainly to the former Soviet Union.
The vats are now empty and bulk wine is no longer the mainstay of the Cypriot winemakers. The collapse of the USSR, a decline in Cypriot grape growing culture, a severe drop in the annual rainfall — there was none in the 2008 season — and huge demand from thirsty tourists, mainly British and Russian holidaymakers, and the emergence of over 50 small producers making modern wines, have all contributed to a revolution in Cypriot wine in the last two decades. The result has been a dramatic increase in the quality, presentation and range of wines.
Meanwhile, Cypriot producers are recognizing that they must emphasize making wines using indigenous grapes, such as the red Maratheftiko and the white Xynisteri, if they want to succeed in what is a cutthroat international market. If all goes according to plan, Cyprus threatens to be the next boutique destination for wine lovers seeking something different from the run-of-the-mill Chardonnay and Syrah that, while hugely popular on a global scale, have created a sense of ennui among discerning tipplers. In fact, October saw Cypriot winemakers attempt to make inroads into the Lebanese market, one that has seen a noticeable rise in the popularity of wine. On October 10, Etko and the Fikardos Wineries held a seminar in Beirut for the Lebanese hospitality sector. More tastings are scheduled to be held around the country, but it remains to be seen how much of an impact, they will have on what is a market still in its infancy.
That does not mean that Cypriot wines will be alien to the regular drinker. All the recognizable ‘international’ varieties — Cabernet Sauvignon, Merlot, Syrah, Grenache, Mourvedre, Chardonnay, Muscat and Semillon and the like — are grown on the island. The trick is how to use them to their maximum commercial potential while still striving to create a Cypriot identity.

Three-pronged approach
At the moment Etko produces over 3 million bottles and carries nearly 30 wines. It may seen excessive for such a modest (by global standards) production level but it typifies the dilemma faced by the Cypriot producers “We are selling to three defined sectors,” explained Haggipavlu. “The local consumers are still in awe of the international grapes, so we have to make wines for them. Then we have the Russians and British who will drink anything if the price is right so we make wines that target this niche, and then we have our international customers who want wines made with indigenous grapes and who don’t want to hear about Chardonnay and Merlot from Cyprus.”
Wine is gaining popularity among young Cypriot drinkers too. “Wine is fashionable among the young, whereas before they preferred whisky, brandy or the local Zivinia,” said Yiannis Kyriakides, who, with his brother, owns the Vasilikon Winery in Pathos. Kyriakides is putting his money where his mouth is and investing millions in new premises that will house the winery, cellars, F&B area and company offices. Established in 1993 and now producing around 350,000 bottles per year, Vasilikon is among the bigger of the new generation producers, but unlike many who produce less than half of his output but have over a dozen labels, he only makes three wines: two reds and a white. “We know our market and we know what our customers want,” said Kyriakides as yet another car with the back seats down pulled up outside the winery. “Got any white left?” enquires the young Englishman eagerly.
In nearby Panayia, Andreas Kyriakides, owner of the Vouni Panayia winery, is also investing millions in a new state of the art winery, wine tourism and conference center. It is in essence a one-stop shop for the wine tourist. Founded 21 years ago, the winery and Kyriakides are considered pioneers in the new Cypriot industry. “We have come a long way since the mid-80s, when the emphasis was on bulk wines and there was little or no competition.”

A huge history
For the record, Cyprus has been making wines for about 6,000 years and lays claim to being among the oldest wine producers and exporters. Its most famous wine is Commandaria, a sweet white made from Mavro and Xinisteri grapes, which has been made in Cyprus since 800BC and which today can only be made in the 14 villages in the Trodos Mountain region. Even though it is essentially a liqueur, many producers see Commandaria as the wine that can take Cyprus into the modern international market. “It is the first wine of Christianity,” said one local winemaker proudly.
Today, Cyprus produces some 15 million bottles (although it is impossible to get an accurate figure) each year, 95% of which are sold on the local market that boasts consumption of 26 liters per capita per annum (compare this to 1 liter per capita per annum in Lebanon). So why the need to export? The island’s admission into the EU in 2004 saw a drop in tariffs and a quick browse of the shelves in any major Cypriot supermarket will reveal that foreign wine producers with greater volume can undercut homemade wines. If Cyprus wines are to be profitable they need to wow the foreign drinker.
The Keo winery is one of the big four that has had to adapt to this new order. The winery, the biggest Cypriot producer, used to be located in Limassol but this proved too far from the vineyards to make serious wines. The grapes that would arrive from the vineyards in the mountains in the screaming heat would have already started to ferment in the lorry.
“We moved here after we realized the days of bulk wines were over,” said George Metochis, Keo’s winemaker, speaking from its current winery set in the Trodos Mountains, where the company has invested around $5 million in making sure it is a competitive player in the new, more diverse wine sector. “We have to fight for our identity. We have to fight for the uniqueness of Commandaria and we have to make people pay for the privilege of drinking wine made from Cypriot grapes, especially the Maratheftiko.”

A grape with promise
Mara-what? The Maratheftiko stands on the cusp of international greatness, provided enough of it can be harvested and vinified. It is Cyprus’ prized red grape. It is difficult to grow and work with but with some love and care the results in the bottle are magnificent. Only 146 tons of Maratheftiko were harvested this year, less then the 184 tons picked in 2007 and the 208 tons picked in 2006. Nonetheless, Cypriot producers are convinced that this grape can take Cyprus to a wine world starved for a new grape with a new flavor and a new identity.
Others are placing their money on the more common but equally illustrious Lefkada, which is less of a headache to work with. “The Maratheftiko is a great grape but it is difficult to handle and is very temperamental. My money is on the Lefkada,” said Tim Whitrow, an Australian winemaker working at the Zambartas Winery.
And if that weren’t enough it is not the easiest of words to market. “Maratheftiko is not easy to pronounce if you are not a Greek speaker and this may be a problem for foreigners,” admitted Michael Constandinides, owner of the Ezouza Winery in the hills above Pathos.

Use what you have
“The OIV has always told to insist on being different to use what we have. In the 80s we didn’t know about the possibilities,” explained Akis Zambartas, whose Zambartas Winery, also in the Trodos Mountains is making wines that blend local and international varieties. Zambartas, who is the former boss of Keo, believes that wines with international and local grapes — such as his three reds that blend Maratheftiko with Syrah, Levkada with Syrah, Levkada with Cabernet Franc and a white that pairs Xinisteri with Semillon — offer the best formula for any export drive. “The consumer knows he is getting something different but he feels safe knowing that there is also a grape he knows.”
It is a view that is echoed by Costas Tsiakkas owner of the Tsiakkas Winery. “You can give personality to the wine but you must also listen to the market. We don’t have the resources [like the Australians] to make cheap Cabernet Sauvignon and we don’t have the experience [like the French] to make expensive Cabernet Sauvignon, so we’ve got to play to our strengths.”
Understanding the consumer tastes is also crucial. “Gone are the days when it was okay to make heavily oaked wines, big wines which need years to age,” said Nicos Nicolides, owner of Domaine Nicolides. “They want something to drink now.”

Challenges
If only getting the right blend was the only challenge. Rain and a declining rural economy also threaten to thwart any progress. “By and large, the vineyards are not owned by the wineries so the wine producer has to rely on the judgment of the local grape grower for the quality,” said Tsiakkas. “There is no sense of partnership and this affects quality. Furthermore, there is no youth left to carry on the tradition so we need to make planting vineyards a priority. There is no one left in the villages; we have a human resources problem.”
Christakis Lambouris of the Lambouri Winery gets around this problem by buying half of his grapes from members of his extended family who own vineyards. He acknowledged he is lucky and to acquire the other half he has had to take on land owned by grape growers who have basically given up. “They get subsidies from the government of between 160 and 180 euros per 1,000 square meters,” he explained. “In reality, they take the money and we take on the land.”
Then there is the water issue. “Add to this is the fact that we have no rain, so we have to ask ourselves where will the best place for these vineyards? At high altitude or low altitude? Should they face north? All this needs to be studied if we are to move forward,” explained Tsiakkas, who also sounded a note of optimism. “These changes might force our hand in the kind of direction we need to go in especially if we find out that native varieties are better suited to our soil and need less water.”
The challenges have not stopped enterprising producers like Lambouris from finding foreign customers. Not only are his wines served in Lufthansa’s business class but he even makes a kosher wine (wine made under strict rabbinical supervision during all stages of production) for the Israeli market. “They wanted at least one Cypriot wine as a tribute to their biblical tradition,” explains Lambouris.
So what of the future? Zambartas, like almost all the local producers, knows he is being squeezed by international competition and needs to play to his strengths. “I see a sector with lots of boutique wineries producing less than 100,000 each. This number is easy to control in a country like Cyprus where the structure of landowning is small. People are drinking less but they are drinking better quality. We have 60,000 British living on the island and they are very demanding.”
Back at the Etko Winery, Olvia Haggipavlu entered the vast warehouse where the huge wooden vats of Kamandaria are stored. “I am proud to be carrying on this tradition,” she said staring up at the huge casks. “It’s a shame to waste so much history.”

 

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Consumer Society

Food – Making the cheddar

by Executive Staff
written by Executive Staff

The largest food company in the United States and the second largest worldwide, Kraft Foods, has become not only a common household name, but also synonymous with success in the world of fast moving consumer goods. Although the company is best known for its cheese products, Kraft maintains a diversified portfolio with hundreds of well- known brands covering every category from ketchup to chocolate. Patrick Satamian, vice president and area director of Kraft Foods Middle East and Africa, explained how the company has managed to establish and maintain its position as a global leader in the industry. “Kraft is a company that focuses very much on quality, on integrity, on the way our products are manufactured, the way we distribute our products, the freshness of our products; there’s a combination of factors which explain why we are in the leadership position in various categories,” he said.

The cornerstone feature of fast moving consumer goods, like those that Kraft manufactures, is that they are sold quickly at a relatively low cost. With a significant increase in commodities costs, this past year was a difficult one for both producers and consumers of goods. “At a certain point this year, most commodities — like wheat, flour, sugar, cocoa, you name it — reached their historical price-point peak,” Satamian described. As a result, consumer habits have had to adapt. People are more conscious of their spending and are often avoiding unnecessary purchases. Yet, indulgences like Toblerone chocolate, one of Kraft’s luxury chocolate brands, are still selling because the company has managed to keep not only attractive products, but also attractive prices.
According to Kraft’s second quarter results for the Middle East and Africa region, the company recorded double- digit organic net revenue growth at 13%, resulting in a combined organic net revenue growth of 17% for developing markets. Satamian cited successful brand and marketing investments, as well as favorable product mix and pricing that more than offset higher input costs as primary drivers for Kraft’s impressive performance.

Taste of success, hunger for more
Kraft’s success in the region has driven its plans to continue expanding here. April of this year saw the opening of Kraft’s sixth manufacturing facility in the region, located in Bahrain. The company derives some of its core strength from having its factories and organizations on the ground, Satamian explained. “It’s a big asset and advantage. We can produce products that really meet consumer needs, we can produce products which are fresher and we are faster when reacting to consumer trade dynamics,” he outlined. He elaborated on another benefit of operating locally, as opposed to shipping all products from abroad, which is that it creates opportunities for local talent. This, in turn, gives Kraft an invaluable competitive edge because it immediately brings in new and loyal customers, and makes the company much more effective in communicating with its customer base and satisfying their needs.
Aside from several factories on the ground, Satamian pointed to Kraft’s people as one of the chief reasons for the company’s long-standing success. “Getting the right people with the right skills is most important. With this you take the business to another level,” he stated. The multinational company strives for diversity amongst its employees because bringing together different tastes and points of view fosters more creativity, more flexibility, an open-minded attitude; it allows the company to extend its reach across various nations and cultures. When Kraft recently acquired the biscuit division of Danone, it accepted the existing French business culture of the company and simultaneously introduced certain elements of its own way of doing business. “It’s always a balancing act between diversity and integration. You need to accept diversity and welcome different ways of thinking, but at the same time you need to integrate,” said Satamian.
With so many iconic products like Tang, Oreo, and various cheeses, it is obvious why Kraft maintains leading positions is all the categories in which it operates. Aside from the taste and quality of its products, Kraft has the business experience and strategy, the right people behind the brand names and as Satamian put it, “Kraft products make you dream.”

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Banking & Finance

Private equity – Liquidity flows

by Executive Staff
written by Executive Staff

This October, emerging market equities sank to an all time low. Dominated by few firms and largely composed of infrastructure-related companies, capital markets in the Middle East and elsewhere could not provide the liquidity needed to boost stocks. While similar effects will continue across regional bourses and affect the short-term valuation of firms, the region’s private equity industry will remain shielded because of the inherent nature of the asset class and the deal types most popular in the Middle East: buyouts and growth capital.
At the fundraising stage, private equity fund managers will continue to enjoy high liquidity for another quarter, until prospected declines in oil revenues are realized and futures contracts expire. Sovereign Wealth Funds (SWF) still have capital to deploy and will continue to partner with private equity firms for attractive buyouts in the region and abroad as company valuations sink and smart investors can invest in firms with untapped value. SWFs and private equity are best positioned to do this as they enjoy longer-term outlooks — typically five to seven years — until they exit investments. These investment horizons — coupled with the fact that most funds have recently completed fund raising and are now looking to deploy capital — make private equity a source of much needed liquidity in both the Middle East, as oil prices drop, and elsewhere, as financial intermediaries are squeezing credit flows to businesses.
Owing to the large size of most family-owned firms in the Middle East and North Africa (MENA), private equity houses have structured their funds to invest in buyout deals and offer companies growth capital. According to Amr Al Dabbagh, governor of the Saudi Arabian General Investment Authority (SAGIA), private equity investment opportunities in the region are on a scale “never seen before.”

Buy and build
Private equity buyout funds follow the traditional deal and exit structure of a private equity firm. A fund manager will scout out an attractive company, buy out the firm, build its business by adding assets or cutting costs, and exit investments to strategic investors or competitors, a secondary sale to another private equity investor, or via an initial public offering (IPO) on capital markets.
Several buyout funds are targeting MENA-wide deals and three of the most notable funds recently completed investments. Abraaj Capital’s Buyout Fund II (ABOF II) along with Waha Capital acquired a 49% stake in
GMMOS group, helping Waha Capital build a regional maritime business through its Al-Waha Maritime Group. Both maritime businesses plan to use the deal to further expansion agendas. Abraaj set itself up for a strategic deal after purchasing 100% of GMMOS Group in 2007. In this deal, Abraaj Capital partnered with the strategic buyer at the investment stage and will doubtlessly exit its remainder in the deal to Waha Capital after strengthening GMMOS Group’s corporate governance.
In another series of deals, Ithmar Capital has targeted construction and infrastructure-related buyouts. The private equity player made a recent investment in the UAE- based Dewan Architects and Engineers, a mid-market architecture, engineering, and consulting firm. Ithmar Capital’s buyout investment came amidst falling equity values and, consequently, a time when undervalued firms are attractive to long-term investors like private equity houses and SWFs.
Global Investment House (Global) has also fostered a burgeoning buyout business in the Middle East. It has recently closed its Global Buyout Fund with limited partner capital commitments, as well as additional financing by Dubai Islamic Bank and Millennium Capital, to the tune of $615 million. Additionally, Global closed another tranche of its buyout business for its $500 million Islamic Buyout Fund targeting sharia-compliant investments across the Middle East, North Africa, South Asia, and Turkey (MENASAT).
Global recently made a buyout deal through its standard buyout fund, by taking a stake in Al Sawani Food and Industry Supply Company, a food and beverage franchising operation based in Saudi Arabia with locations across twelve countries.
Abraaj Capital also made a recent buyout purchase in Nas Air with the aim of expanding the firm’s fleet of five aircraft to 18 by 2010 and eventually 167 by 2012. This buyout deal would make Nas Air the fastest growing private aviation fleet in the Middle East.
Not all MENA capital will be spent in the region. Much of it will be used for global buyouts in undervalued firms in the Asia, Europe, and the US. Credit-sapped firms in the US and elsewhere looking for long-term finance can find it in Middle East private equity shops. One deal in which this dynamic was apparent is Istithmar World Capital’s buyout of US-based Gulf Stream Asset Management, a financial services provider with $3.8 billion in assets.
GrowthGate recently achieved a final close for its $100 million buyout fund focusing on buy and build deals. With the plethora of spare capital committed lying dormant in these funds, they will be an important source of liquidity for the right firms looking to sell off their businesses.

Growth capital
While buyout funds are popular in the MENA region, growth capital continues to dominate the strategies of private equity shops. Growth capital proves the more popular of the two because it is a well-received investment style for entrepreneurs, and especially family firms. The reasons for this are clear. Instead of buying a firm, restructuring it, and exiting it via a secondary sale to another private equity shop, a strategic sale to a strategic buyer or competitor, or via an IPO, growth capital investments provide liquidity to firms with an established track record, possible areas for growth to different sectors or country, and a fairly sound corporate governance structure.
Entrepreneurs looking to private equity are essentially asking for investors to partner with them over several years to help grow the business and receive a substantial rate of return for helping develop the growth. Family firms are particularly worried about the potential for private equity to erode businesses, so growth capital remains an avenue through which families can find an investor but retain the business after a period of growth.
A recent investment has illustrated the process of growth capital private equity. Ithmar Capital purchased Panceltica, a Qatar-based, regional housing firm. Although the terms of the financing were not disclosed, the private equity shop provided capital for Panceltica’s growth and expansion strategy out of Ithmar Capital’s Fund II. Ithmar Capital’s Faisal Belhoul noted at a press conference that his fund is “uniquely placed to provide Panceltica with innovative investment and business development strategies to tap into the phenomenal growth potential of the region.” With most major cities sharing a high demand for the cranes to create buildings and the workers needed to operate them — from Doha to Dubai — Ithmar Capital’s investment and expertise enables Panceltica to grow its business across the region to build onsite steel structure for housing and other projects, which is eight times as fast to construct.

In search of growth opportunities
Additionally, private equity firms are looking to provide growth capital to firms which complement portfolios. In several instances, private equity managers are looking to create an integrated portfolio where the common tie to the private equity house can foster relationships between firms looking for business. Ithmar Capital, having recently acquired Panceltica and looking to help grow its business, might look in another high- growth economy in the region, perhaps in Saudi Arabia, Egypt, or the UAE, where another firms are looking to expand into equally high-growth economies. Ideally, Ithmar Capital can line up a firm that complements Panceltica and build some synergy between business and package its portfolio with perhaps a steel smelter, which could provide Panceltica with the downstream supply needed or with a property developer that could offer Panceltica an upstream market to supply temporary housing and storage solutions for large-scale developing businesses. Ithmar Capital’s holding of Gulf & World Construction might provide the sort of portfolio synergy necessary to build the relationships on a vertical level.
Buyout funds, growth capital funds and private equity in general offer large-scale companies a stable source of finance over the course of several years. For instance, a fund launched in 2005 did, on average, achieve a series of closes over 2005 and 2006 before achieving a possible end- of-year close in 2006. Once the fund achieves its first close it can start investing and will usually have deals in the pipeline. The holding period can also last several years for each investment and the fund itself will invest deliberately over a three to four year period, so a fund launched in 2005 with a first close in the same year can still invest in 2009, provided they have some capital left over. If a fund makes its last investment in 2009, then it has a few more years until closing, perhaps to 2012 or 2013, giving the fund a life of eight years. For funds with recent closes like Abraaj and GrowthGate, investments can continue over the next three to five years, enough of a gap to weather the currently credit-sapped business cycle.

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Consumer Society

Al Taameer – Najeeb al Saleh (Q&A)

by Executive Staff
written by Executive Staff

Al Taameer, the Kuwaiti company boasting assets in excess of $150 million in 11 countries, is positioning itself in the lucrative hospitality and leisure markets. On a visit to Lebanon for the launch of its first Ramada hotel in Beirut, Al Taameer’s vice chairman Najeeb al-Saleh sat with Executive Magazine to discuss the company’s latest venture.

E Al Taameer has recently acquired the franchise for Ramada hotels in the Middle East. What motivated your decision to open your first hotel in Beirut?
The Ramada franchise deal, which was signed in June last year, encompasses six countries — Lebanon, Egypt, Morocco, Libya, Jordan and Iraq. We decided to pick Lebanon as our first destination because we had an excellent opportunity with this venue, which is located in downtown Beirut. Another reason is that Lebanon’s hotels can be positioned on both segments of tourism and business hospitality, contrary to other countries where either business or leisure hospitality activities are emphasized. Here at Ramada we tend to focus on both aspects. Another essential reason lies in the very nature of the Lebanese people who are generally multicultural and multilingual, which makes the Land of the Cedar a good place to headhunt and train qualified staff to supply our new Ramada chain. Not many countries offer a workforce at ease with so many languages!

E How many hotels do you plan to open and how much will your company invest in each venue?
We plan to open some 35 hotels all over the region in the next years. Earlier this year we also bought another Ramada hotel in the Moroccan city of Fez. We are also currently negotiating seven more hotels, including two in Libya and another two in Iraq. The Beirut venue comes with a price tag of $20 million; each investment will however vary depending on the size of the project and its location.

E What prompted the decision of Al Taameer to branch out from its real estate activity into the field of hospitality? What added value does the hospitality segment bring to your real estate activity?
Al Taameer is a publicly listed Kuwaiti company that is owned by Al-Masaleh real estate (also a publicly listed company), which focuses on the development of commercial and residential buildings. As a real estate development company, Al-Masaleh decided it would diversify into the hospitality industry using Al Taameer. Al-Masaleh is very clever when it comes to identifying locations, negotiating acquisitions and construction, while Al Taamer excels in the field of property management.

E Do you believe the economic crisis and the resulting credit crunch will affect your new hotel business?
The possibility of an adverse economic context motivated our decision to enter the hospitality business by acquiring a four-star hotel chain, which will be best able to weather the crisis. If worse comes to worst, people will not stop from vacationing or doing business and a four-star hotel is thus perfectly well positioned to tap into various market segments. This unfavorable environment might provide us with excellent opportunities: good locations at reasonable prices.

E What type of customers does the new Ramada chain target?
Ramada is a reputed brand; it belongs to a hotel chain that boasts some 6,500 hotels worldwide. The chain’s particular positioning on both tourism and business hospitality levels will allow its various venues to operate efficiently all year round. We offer an excellent service at the right price and our hotels are ideally located.

E What type of structure have you adopted in terms of management? Will your company run all the Ramada hotels in the Middle East?
We will not necessarily own the 35 hotels we intend to open, which will be run based on a management contract or rental agreement. We might also resort to branding existent three-to-four-stars hotel. Such agreements will certainly cut our investment costs. However, we intend to buy two or three hotels in each country.

E What type of growth do you expect Al Taameer to achieve in the next few years?
We had full occupancy during the summer and the Eid holidays, which bodes well for us. We have also witnessed encouraging results with our first Moroccan venue and expect about a 20% growth every year for the overall company.

E How long before each project breaks even?
We are targeting a five to seven year bracket, depending on the project.

E Where do you believe lie the main areas of growth in the MENA region?
Egypt and Morocco show potential when it comes to tourist destinations, while Libya and Iraq as well as Jordan are excellent markets in terms of four-star business hotels. I believe our territories are all very attractive and well diversified.

E Some of these territories, like Libya and Iraq, are considered to be risky business environments…
Recent history has proven that risk might lurk in the most unusual places as witnessed in the recent economic crisis. We believe that markets such as Iraq and Libya, although risky, offer excellent opportunities, in spite of a possibly trickier initial launch.

E Who are Ramada’s direct competitors in the Middle East?
The first one that comes to mind is Accor, the French chain, which also features Ibis and Novotel hotels. The segment Ramada is currently targeting remains, however, relatively untapped in the Middle East.

E With what type of support did local governments provide you?
We were able to obtain funding from local banks in Lebanon; a tourism fund providing subsidized loans has been also made available by the central bank. In Morocco and Egypt, governments have been also offering tax breaks for tourism projects.

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