By Invitation

Private equity slow but secure through first half of 2008

by Imad Ghandour
written by Imad Ghandour

The first half of 2008 was a non-event for private equity with very little to cheer about, except for those skillful exits that everyone seems to have mustered. No great fund announcements to be heard of — the largest new fund announced was Gulf Capital Fund II at $500 million, and the largest fund closing was NBD Sana Capital, also valued at the $500 million mark.

And there were no billion dollar deals: the largest deal closed was Intaj Capital’s purchase of a majority stake at an announced $188 million transaction size. As a matter of fact, only 12 investments were made across MENA in first half of 2008, down from 33 during the same period in 2007.

But there are many happy investors reaping the fruit of their patience: 12 announced exits in the first half, including the maestro exit of Egyptian Fertilizers Company at $2.5 billion in one year and the $432 million IPO of Depa.

In a low after a long high
There need not be any worries however, private equity is not going into mass liquidation stage. It is merely a pause after a three year sprint.

Since 2005, the private equity industry was doubling in size every year. Based on the Gulf Venture Capital Association’s report, the annual growth in funds under management has been increasing by 70% annually, and investments have been increasing by 129%.

The beginning of 2008 was a pause for reflection amidst gigantic events, in the GCC and beyond. Very close to home, the political tension around the Gulf reminded everyone how exposed the GCC economies are to political risk as one missile crossing the Gulf may turn the prospects of the GCC upside down. Witness the performance of the stock markets in the first half of this year, which declined by 11%, as a barometer for investors’ sentiment.

Inflation is another worry. At a macroeconomic level it is a threat to growth, as governments are challenged to balance growth and fiscal expansion with spiraling inflation. At the micro level, mounting inflation is putting pressure on companies’ earnings as salaries, raw material, and services are rising unchecked. For example, the air transport sector was particularly hit, and budget airlines (many are backed by private equity funds) are scaling back their operations. As a consequence of an anti-inflationary policy, revaluation of GCC currencies may further negatively impact companies that earn revenue in foreign currencies like tourism, transportation, exports, and oil services.

Farther afield, but with gigantic rippling effect, the credit crunch is casting an ever growing darker shadow on global economic prospects. The crisis within the US and European banking system has now shifted slowly but surely into the real economy. Higher interest rates to leverage deals coupled with dimmer economic prospects have ground the private equity deal making machine to a halt. Mega deals, an almost a daily event in 2006 and 2007, are a rare and shy species nowadays. The attractiveness of private equity as a viable investment class (at a global level) has been put in doubt.

Foundation still standing strong
Yet the fundamentals that led to the rapid rise of private equity back in 2005 are even stronger. Economic prospects have actually improved as oil prices doubled since last year. The impact of the dramatic rise in oil revenue will be felt in the real economy in one or two years as governments start spending the additional oil windfall and national oil companies’ budgets balloon even further. (For example, Aramco is the second biggest spender in Saudi Arabia after the government with a budget exceeding $35 billion). All this will translate into liquidity ready to be employed in newly established PE funds and brisk earning growth.

Inflation is not expected to run out of control because governments have moved it to the top of their agenda given its social and political implications. However, global and local factors will keep inflation at high levels in the short term. With the economic system back to relative stability under new inflation parameters, earnings are expected to rise faster than inflation. Recent research from UBS analyzing the inflationary period after 1973 confirms this conclusion.

The recent exits reassure investors that private equity is not a one-way street, and that hefty returns await them. With most exits achieving spectacular returns exceeding 30%, private equity is earning its designation as an alternative investment class. The MSCI Arabian market index, on the other hand, has only increased by 11% over the last 18 months!
The music will go on… except if someone decides to wage another holy war.

Imad Ghandour is the Chairman of Information & Statistics Committee —Gulf Venture Capital Association

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Levant

Technology – Cedar triumph in cyberspace

by Executive Staff
written by Executive Staff

The world’s most popular internet applications, including Yahoo, Google, Facebook and YouTube, share several interesting characteristics. Nearly all were developed by students enrolled in American universities and nearly all were aided by an American venture capital injection to successfully enter the market. Lebanese-born Elie Khoury and Jad Jounan have followed more or less the same path, yet with one major difference: they developed their Woopra program in Lebanon. Against all odds, some may argue, as the Land of the Cedars can hardly be described as an IT incubator.

Both Khoury and Jounan graduated from the Lebanese American University in Byblos in 2007 with a degree in Computer Science and Computer Engineering, respectively. They spent many hours in class, but they spent many more nights working late on Woopra, a live tracking and analytics service that aims to send market leader Google Analytics into oblivion.

“When we felt the application was ready to be launched,” Khoury said, “we made the strategic decision to seek a partner who could help us with financing, marketing and the general business structure.” That partner became John Pozadzides, mainly because of his experience as director and vice president of the multinationals SAVVIS and Cable & Wireless.

It was said in Lebanon that the entrepreneurs had sold their brainchild for $5 million, yet Khoury rapidly dismissed that as a rumor. “We will not be selling Woopra at this early stage,” he said. “We are still the owners. I cannot enter into too many details at this moment, as the program has only just been launched. All I can say is that we have a very decent amount of funds, compared to other start-up projects like Facebook or YouTube.”

First splash on the web
Woopra was first presented at the 2008 Dallas WordCamp event in March. The program immediately received rave reviews and, according to Khoury, tens of thousands of bloggers and webmasters have since signed up. Now there are numerous tracking and analytics programs that, with a delay of several hours, offer data such as the number of visits to a website and the average time spent on it.

Woopra however, offers far more detail, allowing the user to see the exact path a visitor follows after entering a site. What’s more, the program does so in real time, offers a direct chat option and, perhaps most importantly, is extremely user-friendly.

Khoury built his first website in 2003 at a time when a program called Hit Counters was quite common. “I then started learning about other tracking and analytics services and discovered success measuring methods other than just ‘number of hits per day’,” Khoury explained. “By 2005, I realized that everything on the web was moving toward socializing and social networking. Everything, except my analytics services. Google Analytics still only offers numbers and statistics. That wasn’t enough for me. I wanted to know more about who is viewing what on my ‘virtual property’. Who’s stumbling on it? How did they know about it? Was it possible to get in contact with them and perhaps even guide them?”

Having the idea is one thing. Realizing the idea is something else. Developing Woopra was a painstaking process that required passion, patience, and long hours of work, while friends went out enjoying themselves.

Programming for the high- speed millionaire

The common, if somewhat cliché, image of the self-made millionaire has long been that of the newspaper boy becoming a media mogul. As we have entered the digital era, however, that has increasingly been replaced by the young whiz kid who, working from a student dorm or garage, launched the next big thing in computer or Internet technology.
No doubt the best known IT entrepreneur is Bill Gates, who set up Microsoft in 1975 as a 20-year-old. He did so with his then 22-year-old friend Paul Allen. Today both rank among the world’s richest men. Many more aspiring entrepreneurs followed in their footsteps, nearly all of them students.
Stanford University students Jerry Yang and David Filo in 1994 founded the Internet search engine Yahoo. Within a year of its launch the site had received a million visits and the founders became aware of its commercial potential. In 1995 Sequoia Capital injected two rounds of venture capital, while Yahoo in 1996 launched a public offering of shares bringing in over $33 million. In 2008, the site attracted some 1.5 billion visitors, prompting Microsoft to offer $44.6 billion to buy the company, yet the bid was kindly turned down.
Today in their thirties, Larry Page and Sergey Brin were Stanford University students when they developed the search engine Google in the mid-1990s. Having secured an initial $1 million from family, friends and some investors, they launched Google from a garage in September 1998. The first public offering of shares in 2004 brought in nearly $1.7 billion, which gave the firm a market capitalization of over $23 billion.
Facebook was developed by Harvard University student Mark Zuckerberg. While it was originally meant as an online “who’s who” at Harvard, Zuckerberg soon realized that the site’s potential reached far beyond campus life. Some $40 million worth of cash injections by venture capital firms in 2004 allowed the site to grow into the worldwide phenomenon it is today. Microsoft in 2007 bought a tiny stake in the company for $246 million. Following the acquisition of MySpace by Rupert Murdoch’s NewsCorp, the air was heavy with rumors that Facebook would be sold in 2008 for no less than $8 billion. The deal has yet to materialize.
The online-auction site eBay was founded in California in 1995 by the then 28-year-old French computer programmer Pierre Omidvar. The site received its first $5 million capital injection from Benchmark Capital in 1997 and one year later the first public offering of eBay shares took place. In March 2008, Forbes Magazine considered Omidvar to be the 120th-richest person in the world. Last but not least, as an example of how fast things can go: YouTube was established by three young students in 2005 and bought by Google a year later for $1.6 billion.

“We opened an office in Byblos in 2007,” said Khoury. “That’s basically where I lived for a year. For months we worked non-stop, often more than 15 hours per day. Sometimes, we would finish work at 5am and join our friends for breakfast when they came back from a night out in Batroun. It didn’t really bother us, but I must admit our social life was totally screwed up.”

While Lebanon takes pride in that fact that two of its sons have developed a program that managed to make heads turn in America’s high-tech-heaven, many Lebanese feel it is a shame that the program could not have been further developed and commercialized in Lebanon. The questions arise: Could the university have done more? Or could Lebanon have done more?

“I don’t think it is the task of a university to offer support for a project like Woopra,” said Khoury. “The main role of the LAU was teaching us the basics, discipline and methodology. A couple of teachers really supported us, especially my supervisor Dr. Munjid Musallem. What Lebanese universities lack is the ability to make entrepreneurs. They always prepare you to work in a company. Our universities are generally producing employees, instead of creating long term inspirational projects.”

Khoury admitted that Lebanon does not have a great IT climate, but he said Lebanon is perhaps the best country on earth to develop web-based software. “We have the worst internet connection in the Middle East, which is terrible, yet this helped us to tackle the worst case scenarios and debug our code easier,” he said. “This is not a compliment. It is a shame really, that at times we had to use a dial-up modem because all the alternatives were down for days. We had major problems rolling updates. It used to take 4 to 6 hours to roll an update, while in the US it takes less than five minutes. The government has promised the ADSL lines for 3 years, yet we are still not able to set up an ADSL account in Byblos.”

Lebanon’s internet lag
The complaints about Lebanon’s digital capacities are well known and have been around for quite some time. Although the country in 1996 was among the first Arab countries to introduce the internet, a decade later it ranked among the least developed internet nations in the world. In fact, according to a 2006 EU-funded research report, in terms of international bandwidth per capita Lebanon ranked just above countries such as Ivory Coast, Syria and Iraq, while it had lost the race with countries such as Egypt and Jordan.

Due to the country’s limited and outdated infrastructure, as well as the high cost of telecom supplies and the lack of a proper regulatory environment, Lebanon was not an attractive destination for potential investors, concluded the EU consultancy team. Apart from the introduction of a handful of ADSL lines — mainly in Beirut, and much later than initially announced — not much has changed since.

Dr. Munjid Musallem, a PhD graduate from Texas University who has taught a number of IT courses at LAU Byblos since 1994, shed further light on the activities of Khoury and Jounan. He recalled Khoury first coming into his office in 2004, when he decided to shift from computer engineering to computer science.

“Throughout his first semester, Elie told me about his ideas that would later shape up to become Woopra,” said Musallem. “Woopra was Elie’s brainchild and his primary obsession. No one could have stopped him from pursuing his Woopra. Side discussions about Woopra were regular and, naturally, it was the subject of Elie’s final graduation capstone project.”

According to Musallem, Jad Jounan joined Khoury at a latter stage, but he proved to be instrumental. While Khoury was the designer with all the innovative concepts and direction, Jounan had a deep understanding of software system architectural design. “Jad clearly stood out when he presented the tradeoffs of client-server versus multi-tier and peer-to-peer design, which is very important in the software architectures to which Woopra subscribes,” Musallem said. “In short, I consider myself the lucky teacher of two software gurus.”

Regarding the role of the university in developing Woopra, Musallem believes that the LAU played its role in terms of technical preparation. Turning a concept into a product however, is not the task of a university, but requires an entrepreneurial effort. “The same happened with Google, Yahoo, Mosaic (the predecessor of Netscape) and many other products,” he said.

He agreed that it is a pity Woopra will not be entirely developed in Lebanon. “But realistically, some critical technologies do not take off until US-based organizations give it their blessing and join in,” he continued. “There is much more technical expertise, vision, and entrepreneurial support in the USA than in any other place. The Database industry (Oracle, SQL-Server, DB2) is almost entirely located in the US, even though many innovative database ideas have been emerging in Europe for a very long time.”

It seems however, that Khoury and Jounan have not forgotten their roots and Woopra may not entirely depart from Lebanese soil. In fact, the high-tech duo aims to start part of the development operation in Byblos, which would provide much-needed jobs and offer an opportunity for other young students to gain practical experience.

“Our business plan has not been finalized,” Khoury said. “We have a couple of drafts that we are trying to merge but we cannot reveal any further details for marketing and business reasons. At this stage, Jad and I will continue development to keep Woopra ahead of the competition, while moving back and forth between Lebanon and the US.”

Even if Woopra is not developed in Lebanon, at least by developing the program Khoury and Jounan have shown that despite some 18 months of political bickering, riots, internal warfare and a lousy IT infrastructure, Lebanon is still somehow able to produce creative minds with the will to succeed.

In that sense, Woopra is not just a welcome story of success, but also one of hope.

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Banking & Finance

IPO Watch – Mining capital

by Executive Staff
written by Executive Staff

Commodities have driven the early summer buzz in international markets, from heated debates over new potential oil price highs and China’s expansion in international mining to merger games at the top of the global mining industry. The mining theme also dominated the month of July in the Middle East through the $2.47 billion initial public offering of the Saudi Arabian Mining Company, better known as Maaden.

Reaching the primary market more than two years after the Saudi government first announced its intentions to sell a 50% stake in the company, the Maaden IPO was 2.4 times covered by subscription demand. The amount sought in the offering was the same as in media reports in early 2007 and the allocation of shares was tilted heavily in favor of retail buyers, making the IPO appear as an example of wealth redistribution from Saudi authorities to the citizens and residents eligible for subscribing.

The Maaden flotation was the region’s largest mining IPO ever and the Arab world’s third-largest privatization by IPO, after the $5 billion sale of DP World in the UAE and the 2003 privatization of Saudi Telecom which netted the Saudi government $2.7 billion.

The second major July offering was that of UAE-based engineering contractor Drake & Scull International. Its $332.7 million IPO was oversubscribed more than 101 times, making it the public offering with the highest demand relative to the offering size in the year to date and the second highest in the past 12 months. The company, which is specialized in mechanical, engineering and plumbing contracting, floated 55% of its capital by issuing over 1.1 billion shares. It said proceeds from the IPO will be used for expansion of its business and acquisition of companies that match its expertise.

Jordan saw two smaller primary offerings which closed in July, the $7 million IPO of Al Israa for Islamic Finance and Investment and the $4.9 million IPO of Amwaj Properties. The offerings by the two firms, whose business focuses are explained by their names, reported subscription coverage of 3.3 and 15.3 times, respectively.

Meanwhile in North Africa, International Investment Bank said that the IPO of Artes, the exclusive distributor of Renault, Nissan and Dacia in Tunisia, was 11 times oversubscribed. Although retail investors are the largest recipients in these IPOs, international investors are increasing their participation and subscriptions in IPOs as more of the GCC countries allow foreign ownership.

In a quick look back to the first half of 2008, the number of IPOs in the past six months in the MENA region has reached 23 deals with a combined value of around $9 billion, according to Zawya’s IPO Monitor. Comparing this to the BRIC countries for example, one will find that Russia has closed one IPO this year so far with a mere value of $470 million. In China around $6 billion were raised in IPOs in the first half, down a whopping 60% on the same period last year. Brazil floats raised $4.6 billion, a decline of 54%. In India, primary issues were down 11% when compared to the same period last year, raising a just $4.5 billion.

Looking forward, July saw several new IPO announcements. Most noteworthy is that of the Saudi-based Arab Supply and Trading Corporation or Astra, which will float 30% of its shares to raise around $825 million. Astra is offering 22,235,294 shares to the public from July 26 to August 4. Also in Saudi Arabia, Methanol Chemicals Co., or Chemanol, plans to sell 50% of its shares in an IPO in August. The company is seeking to raise $300 million by offering 60.3 million shares through the IPO which will run from August 11 to August 20. The Jeddah-based Knowledge Economic City said it will float 30% of its shares on Saudi Stock Exchange in late 2008 and has already appointed NCB Capital and Swicorp as Joint Financial Advisors.

Out of Tunisia came what is touted as the largest IPO in the country, that of Poulina Group Holding (PGH), which is floating 10% of its capital via a capital increase. The company is seeking to raise around $85.6 million by floating more than 16.6 million shares on the Tunis Stock Exchange. The company’s principal activities are in the poultry, agribusiness and service sectors. The IPO will be launched from July 24 until August 6.

Back in the GCC, the newly-established Oman Merchant Bank (OMB) announced that it will offer 40% of its capital to the public by year end. OMB has a capital of $130 million and it did not disclose the amount it seeks to raise. In the Levant, Amman-based International Cards Company (ICC) said it will offer 39% or 7 million shares to the public on July 27. The credit card issuer seeks to raise around $41.9 million.

The flood of IPOs of young companies does not only demonstrate the success of the region’s equity markets but it also shows the industrious nature of the region’s entrepreneurial players and their will to make their countries a more prosperous and successful place to live and work. Much of the liquidity generated from high oil prices is now being invested in the region and much less is going abroad. Local business leaders have finally seen the benefits of investing in oneself or in one’s country and this enlightenment, analysts say, will only lead to even more prosperous times and many more mega IPOs.

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By Invitation

Doha cracks open the books for a free press

by Richard J. Roth
written by Richard J. Roth

Across the years some have argued that the most important factor needed to ensure that people are free — politically, intellectually and creatively free, to be entrepreneurs, inventors and discoverers — is education. Others have said it is journalism. Those of us in journalism education have a double responsibility and a double opportunity.

Right now we at Northwestern University have that double opportunity in Doha’s Education City, to which we were invited by the Qatar Foundation for Education, Science and Community Development.

When we accepted the Qatar Foundation’s invitation to bring Northwestern University’s Medill School of Journalism to the Region, there were more than a few skeptics. They told us that an American journalism school could not practice here what it preaches there, reminding us that the media here are owned or licensed by governments, that women are often abused here and gay people persecuted, that rich men here often keep prostitutes in secret suites and that the royal family might “suggest” the grades we give family members. I was shocked by those notions, mostly because I had hoped that once I left the United States those things would be behind me; in the US radio and television is licensed by the government, there are special shelters established for all the abused women, gays have always been persecuted, even the governor of New York had high- priced prostitutes at his disposal and it is not unheard of in the US for a faculty member to hear from some poobah trying to influence grades, especially for a student athlete.

Still, I know things here will be different, even difficult. I am not naïve. I have been heartened, however, by what I have heard and seen: I heard with my own ears Qatar’s First Lady, Sheikha Mozah Bint Nazzer Al-Missned, chairperson of the Foundation, say that a free press is the best assurance of the kind of civil society that she dreams of for Qatar and all the Middle East. I heard Abdulla bin Ali Al-Thani, the Foundation’s vice president for education, say he believes bringing Northwestern and its brand of journalism here “will promote a maturing of our society into one where everyone can have a voice and everyone is accountable. A vibrant, healthy media scene will bring about greater transparency and accountability, and these are hallmarks of successful, participative societies. They are not qualities for which our region is well known internationally, but they are essential to the implementation of Her Highness’ vision of releasing and developing human potential for the common good.” Privately, Dr. Abdulla assured me that if Her Highness Sheikha Mozah did not want genuine journalism here she surely would not have invited the best US journalism school.

That’s what they say. But here’s also what they’ve done: written freedom of the press into the constitution; created the Arab Foundation for Democracy with a $10 million endowment from the emir to encourage the development of a civil society and freedom of the press; created the Doha Debates to promote free speech; launched Al Jazeera television and now they’re advertising for a staff for the Doha Centre for Media Freedom, which will have a strategic alliance with Reporters Without Borders.

That said, we have our work cut out for us. Despite what the emir and the sheikha have done in Qatar, the local press still seems like it’s from another era, with grip-and-grin pictures of the emir on the front page daily, though I must say that in just one year I have seen improvements. We are mindful, though, that with just 20 students in our first class of undergraduates, it will be a while before Northwestern has here the impact it has long had in the US. (Let me say, to plant an idea, that of the 20 or so students we hope to enroll each year, not all will be Qataris, though the Qataris who meet our admissions standards will have their tuition paid by the Qatar government. Students with other passports will need some financial support.)

But to achieve our goals outside the US we won’t wait just for those 20 youngsters we enroll each year to get into newsrooms, first as interns and then as cub reporters. In cooperation with the Qatar Foundation, we intend also to offer here the kind of executive education we are known for in the States, and maybe some “continuing education” for working journalists not yet at the executive level. Many media executives from the Middle East and North Africa already know us through our Media Management Center and the IREX (International Research and Exchange Board) programs we have on the Northwestern University campus in Evanston, Illinois. We want to bring those programs here. Also, through Northwestern’s Kellogg School of Management and the Qatar Foundation we are considering more general executive management and marketing programs for those who aren’t necessarily in the media. The details are still being worked out, but Northwestern University — and especially those of us on the University’s Doha campus — feel the responsibility to use our research and our faculty to help improve leadership capabilities, develop strategies for growth through innovation and do everything else our double responsibility and double opportunity mandate of us.

Richard J. Roth is a professor and the senior associate dean responsible for the journalism program at Northwestern University’s first international campus in Doha, Qatar

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Levant

Restaurants – Beirut’s whet appetite

by Executive Staff
written by Executive Staff

The resilience of the Lebanese has become legendary, and each war confirms that by the end of it people will sweep off the rubble and return to business as usual. Even tourists seem to believe as much. On the other hand, even though tourists keep on returning, the Lebanese themselves are leaving their homeland for more stable countries. And Lebanese entrepreneurs are not only selling their knowledge abroad, they are investing there as well.

Through the ordeal of the past 18 months, where blockaded downtown Beirut became a ghost town, some businesses stayed open, confirming the Lebanese resilience and entrepreneurial spirit. However, even for the bold ones patience may have a limit.

One would be forgiven for having felt rather schizophrenic on May 22. On that day downtown Beirut metamorphosed from what seemed like a sad refugee camp with more tents than refugees into a booming area where tourists and locals shopped, shared coffee tables and smoked narghiles — all in less than 24 hours. “When they took the tents down I went one evening there and saw the terrace full, the inside of the restaurant full, all the old customers, you know, my heart grew,” said Sami Hochar, general manager of Catertainment, the company that owns Lina’s Sandwiches.

Cooking on a roller coaster
A staple of Lebanese creativity that went as far as Paris, Lina’s had reason to celebrate the end of the 18-month occupation of downtown Beirut. Throughout those months, the downtown branch had accumulated losses of about $50,000, a sum it will take the restaurant another six months to recover. The July War with Israel is classified by Hochar as “a catastrophe — we had 300 customers a week”.

But after those thirty days of war, downtown quickly recovered and by September 2006 the number of clients had climbed back to 2,500 per week. But this was not to last. By December 2006, that number dropped to 750 customers a week.

Of course, the problems downtown had started even before the 2006 War, with the assassination of ex-Prime Minister Rafik Hariri. “If you compare recent numbers with 2004, it has never been as good again. At that time we used to get around 5,000 customers a week,” Hochar said.

When he saw the tents downtown, Hochar thought the occupation was going to last “one month, six weeks at most. I never imagined that any Lebanese party would accept such situation where the economy of the country was in danger, families were in danger, losing their jobs, their money. I thought nobody would ever accept such a thing.”

That disbelief was shared by Jean Claude Ghosn, managing partner of Ghia Holding, owner of Duo. Hope, or miscalculation, was one of the things that kept his restaurant open. “We kept Duo open because we didn’t know downtown was going to be closed for eighteen months. Everyone was saying it was going to be one month, two, maximum three months,” Ghosn averred. Known for being full for lunch on a daily basis, over the 18 months of paralysis Duo accumulated a loss of about $900,000. The holding company had already closed another restaurant in downtown, two months after the tents came. “We were losing a lot of money with Al Bakawat, as it was not on the main road and customers had to cross checkpoints to access the restaurant,” Ghosn explained. With that closure alone, 32 employees lost their jobs. In Duo, with some effort Ghosn managed to keep most of the staff, having to let go only 15 out of 45. But, he said, “the remaining got a lower salary, because they worked fewer hours.”

Success abroad was another reason that Duo could not close. With a Duo restaurant already operating in Dubai and two other opening soon in Qatar and Riyadh, Ghosn could not close the flagship of his franchise. “We cannot open there and close here, it is not fair,” he said.

La Posta, an Italian restaurant that shares the same street with Duo, was equally damaged.

“With the occupation of downtown by protesters, our turnover fell suddenly by 80% and 95% compared to 2004”, said General Manager Michel Ferneini. “In other words, in the last period of the occupation the monthly turnover was what we used to make in a single weekend in 2004.”

Empty seats
Deprived of foreigners, the restaurants were also empty of Lebanese. “Tourists? Not even ‘tourists’ from Verdun or Achrafieh used to come,” Ferneini pointed out. “In the last period our guests were mainly people working in the downtown area.” At Duo, the 400 covers a day became 25 during downtown’s occupation, “counting the staff and ourselves”, according to Ghosn.

Hochar, who refused to close his bar in Gemmayzeh during the 2006 War, knows the problem well. “We stayed open, we refused to close. We had two or three people at the bar — I was one of them.” The problem with downtown, as opposed to the war with Israel, was the length. With a deadlock that did not seem to have an end, restaurants did not even need to fire — workers started to leave on their own accord.

“We did not fire anyone. Some were relocated, and some left to other countries,” said Hochar. “In the last three years we did not fire a single employee,” Ferneini concurred. “Some of them travelled abroad, and not because they were afraid of losing their job but because they lacked confidence in the country.”

The drop in the quality of the service is noticeable. For Maya Bekhazi, a young entrepreneur who owns Tartuffo and is a partner in at least four different restaurants, including the landmark Beirut Cellar, “the biggest problem we have now is the export of our human resources.” Sharp and meticulous, Bekhazi has been hired as consultant by a big hotel chain, and she knows the importance of highly trained staff: “It’s been very tough to replace people. We always bring new personnel, we train them, and then they find offers outside.” Ferneini agrees. “Finding new collaborators is a hard task. There is a huge demand while the offer in all positions is rare, largely unprofessional and unqualified,” he said.

Bekhazi acknowledges that the salaries offered abroad are higher, often three times as much, but the Lebanese wished they could come back even for lower pay. “I always get calls from Lebanese who used to work for us wanting to come back, even for less money. The only thing they want is stability. They are young and ambitious, they want to set up families, they want to save some money, that is their concern,” she said.

Sometimes, these employees end up working for a company founded or created by a Lebanese — but located outside Lebanon. La Posta, Duo and Lina’s are all opening branches or franchises abroad, even as far as India. Inside the country, the owners make sure they keep strategies to swerve the odds. “We are trying to make sure our eggs are not all in one single basket”, explained Maroun Daou, operations director of Ghia Holding.

The basket, in Ghia Holding’s case, is the Green Line, or the imaginary border that has been dividing Beirut into East and West since the time of the Civil War. “If you think about it, all our restaurants are on the Green Line, from Abdel Wahab to Paladar to Shah to Duo, all on the separation line. I am not afraid of being in downtown, but I prefer to stay outside, like ABC, Achrafieh, in the mountains, maybe even in Dbayyeh in the future, to diversify as much as possible”, said Ghosn. Lina’s, which is diversifying its locations as well, is opening a branch in Saida, even though it will not be able to sell alcohol.

Beirut’s downtown has already shown it is probably as resilient as the Lebanese. On the first Saturday after the tent city was removed, Lina’s clients went from 100 to 700. Duo will register a profit of $40,000 in June. La Posta also expects the first year of profit-earning after three years of losses. But all entrepreneurs seem rather cautious about the situation. “Again we are surviving, we are reopening, and this is due to the Lebanese individual, not the government or the parties,” Hochar said. “But then, how long will it last? The kids are leaving, smart people are leaving, big companies are leaving. I always give the example of my children. One of them left already and the second will leave next year.”

Yet hope is staying. “We are hopeful,” Ghosn averred. “We don’t believe much anymore, but we don’t have another choice.” Maya Bekhazi shared what seems to be, in a rather Lebanese way, a paradoxically optimistic cynicism: “I can’t afford to be very realistic, let’s put it this way — I just have to be very positive, because if I want to measure the risk I will just stop all my business in Lebanon.”

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By Invitation

Procurement practice enhancements for Arab competitiveness

by Fabrice Saporito
written by Fabrice Saporito

Not long ago, many global companies considered the GCC and broader Middle Eastern market to be somewhat un-charted territory. Despite its plentiful capital and business opportunities, the Gulf region was perceived as being a place where breaking into the inner circle of personal networks and friendships was the only way to tap into the region’s wealth.

This old reputation is changing now among foreign businesspeople who have experience with the ins and outs of the region. Most major GCC and Middle Eastern companies long ago replaced informal controls better suited for small family businesses with modern forms of corporate governance. However, the perception of the GCC and the broader Middle East as a fast-dealing market lingers in the mind of the broader global business community. Such concerns may even add more friction to many deals, by raising the level of due diligence potential foreign partners and investors demand.

One major step local companies can take to mitigate these concerns is to enhance transparency by improving procurement controls. Since most business-related malpractices stem from the awarding of contracts to private institutions, a tighter procurement system can go a long way toward reassuring suppliers, customers and investors that a company is a trusted partner.

A more transparent procurement system encourages stakeholders — customers, investors, employees and suppliers — to see the company as a modern enterprise run according to world-class, professional standards. As other companies in fast-growing emerging markets have found when they make similar improvements, strict procurement systems enhance outsiders’ perception of the company as an enterprise of integrity. This higher level of trust can serve the purpose of multiplying opportunities by reducing the potential partner’s need to conduct extensive due diligence.

Three keys to greater best procurement practices
In our experience with many private and public companies in the Gulf and Middle Eastern region, we have found that developing the higher level of transparency that international business requires of corporate procurement systems demands tightening three different practices: first, contracting processes and buying goods and services; second, supply chain governance; thirdly, improving the control and audit functions. Fortunately, other companies have dealt with these issues before, and have found that three corresponding steps can dramatically increase transparency:

1. Differentiate sourcing from procurement. Technically, sourcing is a matter of planning needs and identifying potential vendors, then negotiating an agreement for supplying the goods. Procurement, on the other hand, is mostly about concluding and fulfilling the transaction previously agreed to in the sourcing stage. A failure to plan often leads to some Gulf and Middle Eastern organizations rushing into the buying stage early and forcing buyers to make a spot purchase at precisely the moment when scrutiny of the product must be given first priority. In other words, most tenders that go out on the markets are already pre-assigned to the suppliers that have the most influence with the company.

2. Watch every purchase throughout the purchase cycle. In many Gulf and broader Middle Eastern organizations, tender boards are set up to be in charge of company purchases. However, tender boards typically engage in the purchase process only at the point of negotiations and award. This means that their role is often limited and their options narrowed by stipulations previously included in the tender. A better way to control purchasing is to create governance throughout the procurement process, beginning with demand definition and ending at the point of product or service delivery. This requires process standardization, more clearly defined authority roles throughout the process and the automation of as many steps as possible to keep the entire transaction under very tight controls.

3. Build auditing capabilities, as establishing boundaries around a process will not guarantee best procurement practices. The recent scandals at Siemens in Germany show that even in a company with world-class processes and systems, malpractice can take place. Yet while it is impossible to eliminate the potential for illicit self-dealing without shutting down a business altogether, auditing and controlling the purchasing system on a regular basis while continuously rotating teams and individuals can significantly reduce the chance of a developing malpractices.

The decision to follow such best practices can have a significant impact on an organization. The most evident, of course, is the impact on the bottom line where the organization and its shareholders have more money flowing in and staying in. Quality tends to increase as well, since suppliers’ choices are based on the vendors’ merits and abilities to support the objective of the company, not on the relationship with the owner or the vendor’s managing director. Even companies with good auditing practices can profit from improving this system: transparent practices create more confidence in the system, thus attracting more vendors and increase competition in the region. Finally, such practices allow GCC and broader Middle Eastern organizations to think strategically, reduce the level of waste and increase their overall efficiency.

Staying competitive
Economic competitiveness of a country is a function of the ability of its public and private sectors to deliver superior returns on their investments. This means that applying best practices is the only way to move forward for a country: competitiveness at the micro level (at the level of the firm) directly impacts competitiveness at the macro level (country level).

Corporations and public enterprises alike normally deliver such returns only when they have the ability to formulate very clear competitive strategies. They also must have the ability to execute such plans. In this networked era this means that strategy is not simply the province of sales and marketing or research and development, it is a broad organizational responsibility. Seamless execution requires the organization to ensure that companies can clearly articulate the role of each institutional or enterprise function.

In addition, good procurement controls can be quite helpful in building a capacity for strategy execution — and not just as a way to keep an eye on the cash register. At Zara, the trendy global clothing store, the role of procurement goes far beyond the simple purchase order. Procurement work includes an assessment of the supply base to ensure that selected suppliers have the capabilities to fulfill the overall strategic objectives of Zara.

In an endless balancing act between cost, quality, and speed, Zara’s procurement department takes the lead in ensuring that the company maximizes its long-term interests. Thanks to careful calibration by procurement, Zara is able to deliver up to 28 new collections a year, ensuring that the supply of cloth and new garments come on time and its new collections are distributed around the world in a seamlessly, while retaining the kind of transparency distribution partners and Western investors demand.

The wrap-up
Increasingly, the GCC and broader Middle East economy is becoming part of the wide world of global business. Cross-border mergers, for instance, have grown from six in 1997 to more than 250 in June 2008. 

This growth in openness to the outside world has led to many changes in how GCC and Middle Eastern companies are run. Many Gulf companies have already replaced old informal habits of corporate management — more suited for a cozier era when business was mostly an extension of long-time family relationships — with a number of practices borrowed from the West.

Improving procurement processes is another such step in the long-time quest of GCC and broader Middle Eastern companies to take their place among the world’s great enterprises. Following best practices for procurement allows public and private institutions to be more credible trading partners as they increase their M&A activities, make their home market a less risky destination for foreign capital in search for growth, and ultimately enhance the micro and macro-competitiveness of the region as a whole.

Fabrice Saporito is a Principal at Booz Allen Hamilton

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Fixing the fuse on Lebanon’s power woes

by Albert Khoury
written by Albert Khoury

For any economy that can grow despite unnerving political uncertainties, for politicians who have stood firm despite large protests and for a people who faced death, destruction and hardship while defiantly sticking to their homes and lands, for all what the Lebanese have been put through, it is quite perplexing how we have not been able to solve our electricity problem, with power cuts part of our daily routine.

A couple of months ago, even Beirut became part of the axis of darkness, joining all other areas in suffering hours of warming fridges, idle AC units and candle-lit TV rooms. Getting round-the-clock power, just like Addis Ababa, Ramallah, Rome or Paris became an illusive dream for most of us.

When a number of people died protesting the power cuts in Beirut’s southern suburb Chiah on January 27, 2008, the only official response that was given to their families, friends and neighbors was that the state-owned Electricité du Liban (EDL) will publish on a regular basis the timing of the power cuts nationally (a promise that has not been kept). Do we not deserve more than a power cuts schedule?

According to various studies, in Lebanon today self generation is 38% of total demand. This capacity is generated by small units that are both polluting and very expensive or the capacity is effectively suppressed.

Private sector to the rescue
For most people, counting on the public sector to try to pull us out of this mess is no longer an option. For most politicians at least, there is now a realization that the private sector should be part of the solution.
Law 462 was a first step in getting the private sector involved. Passed on September 2, 2002, this law calls for the creation of a regulatory authority — similar to the very successful authority presently shaping the telecoms field — to set guidelines for granting licenses, permits and to try to unbundle EDL in into generation, transmission and distribution entities.

Problems in distribution
Distribution is the most politically charged problem facing the national electrical utility. According to a report published in 2006 by CRA, an international consultancy firm based in Boston, as much as 39% of the energy produced by EDL remains uncollected.

As far as we know, science has not yet proven any link between paying EDL’s invoices and religious or political affiliation. We firmly believe that the collection problem is solely due to lack of managerial capacity on the part of EDL. All three privately operating distribution utilities — Aley, Zahle and Jbeil — have diverse customer bases spanning the political and religious spectrum, and have regular collection averages of about 98%.
We believe that blaming any ethnic or political group for the woes in distribution is both misleading and highly unproductive.

Of the remaining 69% that is finally collected, the total amount is not even sufficient to cover the price of fuel used for generation in the first place, let alone pay for the operating expenses or debt repayment by EDL. According to government sources, the average kwh sold by EDL stands around 7.6 c/kwh as best case scenario. (In Aley, the average rate comes to 4.2 c/kwh.) The present cost of generation for EDL according to Kamal Hayek, chairman of the EDL, exceeds 20 c/kwh.
To generate at a cost of over 20 c/kwh and sell only 69% of quantities produced at a fraction of the price is a recipe for disaster.
Fortunately, a solution is presently being devised by EDL, the Ministry of Energy, the Higher Council of Privatization and CRA to invest in modern metering systems to help reduce the losses.

Over and above this effort, the government needs to take the courageous decision to adjust the tariff that it charges to large customers who can afford to pay higher prices. The reality of things is that the government cannot afford to charge the same price for power generated when the oil price was at $30/barrel that it charges when the price becomes $150/barrel. A change in tariff, we believe, is both necessary and inevitable.

Generation challenges
In terms of generation, we see a different type of problem. Today, Lebanon has a net capacity of 1,645 MW, according to figures compiled by our research team. On July 26, 2007, peak demand reached 2,275 MW. Generation capacity should be equal to peak demand.

Thus, we need an extra capacity of over 700 MW. According to the World Bank, by 2015 Lebanon needs an additional capacity of 1,500 MW.
The capacity available today is dangerously undiversified, with 95% of the generation based on heavy fuel oil (i.e. Jieh, Zouk) or gas oil (i.e. Beddawi, Zahrani). The cost of generation that is dependent on these types of fuels highly correlates to the price of the raw material, where the variable cost of energy is dominant in the cost structure. By contrast, nuclear energy or renewables require very high capital expenditure, but running costs are usually not volatile.

Even if we had enough money to pay for proper maintenance and operation and for the fuel for all our power plants, we would still urgently need additional capacity adapted to the available sources or fuels.

Solutions needed
We need to devise and enact plans to get gas to the Zahrani and Sour power plants, invest in renewable energy via the rehabilitation of existing hydro capacity and encouraging investments in new ones and, finally, prepare for the establishment of new capacity in Salaata, Chekka or wherever possible.

Most of these plans are not feasible for a number of years, especially if the government decides to get the extra capacity using clean coal technology, a source of energy that will help in diversifying our production capacity and lower our overall cost.

Today, the government would save large sums of money, and provide additional capacity, if it acts to make sure that we finally get Egyptian gas running to Lebanon’s Beddawi power plant thus saving us millions of dollars of unnecessary expenses every year. Also, plans to give another brown field license for a power plant next to Beddawi should be encouraged by the government, and the process should be speeded up. (Studies are presently being undertaken by the IFC, the private arm of the World Bank.)

Short-term generation projects, which are also very sustainable in the long term, should be supported by the government. That would make a very important first step in getting the private sector on board.

These projects are the results of an MOU which was signed with the government in November 2007 to add a total of 240 MW to the national grid. Of the four MOUs signed, our ISO 9001 certified company, a private distribution utility established in 1924 and based in Aley, signed the understanding to add 60 MW of additional capacity.

Electrical utility of Aley
We have finished our plans for the new power station some months ago, and it will be based on the most efficient technology to be used with heavy fuel oil, the cheapest type of petroleum product after natural gas. This technology will help save the government anywhere from $20 million per year (when compared to Jieh power plant) to $100 million (when compared to the Baalbek power plant).

Other advantages of the projects include:
• Short term delivery (by early 2010 with government support)
• Proximity to transmission grid
• Proximity to Beirut and Mount Lebanon (over half of national demand)
• Situated in an industrial area
• Could act as replacement capacity if existing power plants decommissioned as planned
• Meets World Bank and local environmental standards
• Provides base load, round the clock production with availability exceeding 95%
• 100% privately financed, without any debt carried by the government
• Privately built, operated and maintained with performance results guaranteed to the government via internationally recognized standardized contracts

We have been in negotiations with relevant ministries and are hopeful that, finally, the private sector will be allowed to share the responsibility with the government and provide the solutions for the crippled industry sooner than we’ve learned to expect. Also, we have received a lot of interest from private parties to support our efforts in the project.

Another interesting project is the one prepared by Lebanon Wind Power, a company founded by Robert Debbas, an established businessman with an outstanding reputation and Cesar Nahas, an authority in promoting wind farms throughout the world.
The company has developed plans for a 60 MW wind farm in northern Lebanon. Such a project will not only add much needed clean and sustainable capacity to the national grid, but could well be one of the most productive farms in the area.

In conclusion
The private sector can solve the problem that has crippled our country for over three decades. We can solve it faster and cheaper and are willing to bet our own money on results and not just on promises.

The government has been quite supportive, but this is not enough. Laws should be enacted quickly in order to give the private sector the assurances it needs to invest the large sums of money required. Once this is done, and the private sector takes its share of responsibility, then and only then can we see the light at the end of the tunnel.

Albert Khoury is the deputy general manager at the Electrical Utility of Aley

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A new Lebanese lira for economic renewal

by Armen V. Papazian
written by Armen V. Papazian

The recent sociopolitical developments in Lebanon have created a mood for change and a hope for renewal. This is true for the political as well as economic future of the country. Indeed, the economy is in need of fresh air. A new Lebanese lira could stimulate the economy and fulfill positive expectations as a new symbol of societal trust and value creation.

Today, the Lebanese use liras for small transactions, like buying vegetables, and use US dollars for large transactions, like buying and selling their own land. A close look at dollarization levels reveals some interesting yet very worrisome facts. Lebanon is a partially dollarized economy. The simplest dollarization measure is the ratio of deposit dollarization. Deposit dollarization is calculated as the share of total deposits in foreign currency (FC deposits/Total deposits). This ratio was 70% in early 2005. The ratio increased immediately after the assassination of former Prime Minister Rafiq Hariri, and it now stands around 74%.

Deposit dollarization in Lebanon reveals the extent to which the lira, or the Lebanese Pound (LBP) as it is referred to today, is a marginal currency within the country. Theoretically and empirically, the reasons behind dollarization (partial or full) are linked to credibility issues. Indeed, high inflation rates and macroeconomic mismanagement have been considered the root cause of dollarization, which is a mechanism through which households and businesses protect their wealth from domestic instability. Lebanon’s case is not different. High inflation, currency collapse, and overall instability during the war years triggered deposit dollarization in Lebanon. However, inflation has been tamed since the mid-1990s and the exchange rate has been pegged to the dollar. And yet, dollarization rates are still very high.

Persistently high rates of dollarization to date can be explained by a number of reasons. Previous research suggests that there are high costs associated with financial adaptation. As such, de-dollarization is much harder to achieve. There are other reasons explaining the persistently high levels of dollarization in Lebanon. Some of the most important factors are: 1) the fact that the end of the war did not imply true and complete independence, 2) the gap between an open market philosophy and an unfree and co-opted post-war state; 3) high lira interest rates which made dollar loans more attractive given a fixed exchange rate, and last, but not least, 4) the design, colors, and name of the Lebanese ‘lira’.

Hope in the new lira
While exploring these factors further is crucial in understanding the current political economy of dollarization, suffice it to say here that the recent sociopolitical developments in the country give hope of a possible transformation in the near future. Indeed, Lebanon might be faced with a once in a lifetime opportunity to set things right. The issuing of a new lira could do justice to the recent changes in the political agenda. A new lira could be the result and midwife of a strengthened Lebanese consensus. It could give the state structures, the political elites, and the people the right incentives to pursue the path of healing and institutional reform.

A new lira could mobilize the necessary levels of trust if it is made, de jure and de facto, the sole legal tender within all regions and sectors of Lebanon. While the benefits of a new lira could be significant in creating the proper incentives for all involved parties, i.e. the state, the people, and the political elites, it cannot succeed as a strategy if real and serious institutional reforms are not implemented. In other words, without fundamental institutional reforms, issuing a new currency would typically be a theatrical performance with no real economic value, a simple paper change. The success and effectiveness of a new lira depends on the harmonious interaction and co-operation of elites, people, governments, institutions, and last but not least banks. Moreover, it will most certainly require rational policy making and a great leap of faith.

While institutional reforms are a necessary condition for the success of a new lira, they do not necessarily need to precede the introduction of a new lira. Indeed, a new lira could be the very incentive that would bring together the many different factions of Lebanon, in the pursuit and implementation of necessary reforms.

The new lira must be the only currency accepted inside Lebanon, and it must also be freely exchangeable with any other currency at a market price. While the exchange rate policy associated with the new lira is a subject of discussion in its own right, introducing a new currency could kick off the economic machine through a renewal of trust and give Lebanon a fresh start. The new lira must reflect Lebanon’s sense of self as it stands — a multicultural, multiethnic, multi-faith, free and creative psyche.

Trust in a currency comes from many different types of sources; some are pure economic and rational, others are emotional and irrational. As such, the physical appearance of the new lira is crucial. Its size and color must be attractive, serious, and meaningful. Finally, the new lira should be a lira and not a pound. All banknotes and coins issued by the Central Bank of Lebanon since 1964 have the title ‘lira’, and yet the Lebanese financial and economic authorities have opted for the name ‘pound’ throughout the last decade. Although a translation, there seems to have been a ‘self- denial’ in the very name of the Lebanese currency.

Making sure the new lira is not a paper tiger
With all this taken into account, if the use of the new lira is not compulsory across regions and sectors, the change would be purely a paper change and would not have any serious impact on the issues at hand. Moreover, if such a project is taken on, the value of the new lira and the denominations to be used can only be the outcome of an in-depth economic reappraisal. The possible effects of a new lira and its obligatory use across all sectors and regions of Lebanon are many. Any Lebanese asset, whether tangible or intangible, will have to be exchanged in the new lira. Enforcing such a policy across all sectors will create enough demand for the lira to allow for a freer floating rate. Although, a fixed exchange rate could still be maintained until the right policy environment is created.

A new lira enforced across the country will create the missing macroeconomic space. Moreover, a trustworthy lira with a widespread use will free local investment decisions from the much required US dollar, and reclaim the seignorage revenue that is currently directed toward the Federal Reserve. Ultimately, monetary policy will be more effective and fruitful.
Theoretically, enforcing the use of the current lira would also have the same positive effects. In reality, however, the last decade has shown that the current LBP has not been able to reclaim its due place as the sole medium of exchange in Lebanon. Moreover, mobilizing the trust of the Lebanese people in the current LBP might not be possible on the symbolic level.

Also, the recent sociopolitical transformations and the intention of giving birth to new state structures deserve to be translated into the economic realm and a new lira could do justice to the envisaged rebirth of Lebanon. Moreover, the LBP banknotes currently in circulation reflect a serious confusion. Today, one can find a 5000 LBP note in different sizes, two different types of 1000 LBP notes, different sizes of other denomination notes, and so on.
It is important to introduce trust and confidence in the paper, by standardizing it and reorganizing its physical features. Moreover, a new lira could be an opportunity to cement the recent consensus through symbolic representations that would support and promote the key values and historic contributions of different segments in Lebanon.

States and governments can distribute wealth, and they can also distribute poverty. However, they cannot manage the economic game of a nation if citizens choose not to play. While governments must assume responsibility, the Lebanese people must choose to be proactive and determined to reap the benefits of mutual trust. The road ahead is determined by implemented policies.

The choice and the future is Lebanon’s. While choosing, the Lebanese have to keep in mind that the best they could ever be to the US economy is a non-voting province, whereas a new lira can open the gates of locally created and managed prosperity.

Armen V. Papazian is a senior vice president of market development at the Dubai International Financial Exchange

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A how-to guide for good country branding

by Ramsay G. Najjar
written by Ramsay G. Najjar

Where are you taking your summer vacation this year? Chances are you’ve booked a trip to a country that passes the test of a strong “country brand.” This might sound strange given that people usually choose their destination of choice based on attractions, culture, food, shopping and other offerings, but all of these elements merely fall under the brand image that a country has created for itself and how successful it has been at capitalizing on these assets.

It also may seem as though many countries that are tourist and investment destinations sell themselves, while the image of a developing nation is too tarnished to be promoted. Country branding, however, has become a must today to rise above the media “noise” and communicate the essence of a nation and its identity. Effective country branding, in fact, not only boosts a country’s tourism industry, but also affects the way people view products from a particular region, can encourage foreign investment and propel a smaller state to international standing on the diplomatic scene.

Moreover, when a government takes the steps to brand their country, they can create a deeper sense of belonging for their citizens and rally their national pride, even adding to the nation’s culture and heritage by unifying national symbols, such as how Australia uses its kangaroo to uniformly represent it. Proactive branding, above all, is important for a country’s communication because it can prevent any outside influences from imposing their own image on the country and can even immunize the country from negative publicity.

This level of immunity continues to grow in importance as more and more travelers, political commentators and ordinary citizens log onto the web and voice their opinion or experiences traveling in a certain country. Blogs, photo sharing websites and travel review forums have as much power today to shape a nation’s image as media reports. As such, gaining the immunity to negative publicity necessitates a visionary but realistic brand strategy that translates what the country stands for into a unified positioning and identity. A country’s brand should capture the spirit, values and ambitions of the people of that nation, which add up to a whole that is unique, truthful, distinctive, sustainable, relevant and attractive, in order to be a powerful brand when communicated.

The country brands and communication campaigns that have struck a chord with audiences, such as “Incredible India,” Spain’s “España” and Canada’s “Keep Exploring,” communicate a picture of each country that is true to its nature, highlighting the many facets of its landscape, culture and people, while also being contemporary and relevant to audiences by focusing on their interests and what the country can offer them.

Yet, in order for any nation to communicate its brand effectively, it must first look internally to its government agencies, local companies and other parties that must buy into this vision to become ambassadors for the new country brand. In Britain, the Labour Party in 1997 decided to re-brand the country as “Cool Britannia,” but failed to get the British people’s support, because of the party’s over- emphasis on creative services rather than manufacturing and industry that make up the core of the nation. The result of this was that branding project ended up being shelved.

Once stakeholders believe in the brand, however, it can be communicated consistently throughout the country as well as externally, without becoming the political property of one particular administration or government, but rather considered a national treasure to be passed down from one guardian to the next.

When all parties are onboard, a country can then take an in-depth look at how it is perceived within its borders and by other people, as well as examining its strengths and weaknesses to form a clear strategy that will target all of its audiences, from tourists to potential investors to its own people. The key then to developing the strategy should be based on communicating the essence of the country, making certain that the image of the country is true and modern, communicating consistently, ensuring continuity in the strategy from one administration to the next and using creativity and innovation to translate the complexity of the country to the world in a simple, effective and memorable manner.

Only then can we lay out a clear action plan to communicate the brand, whether through different media campaigns, various events or activities that can promote the brand or other channels, such as a website dedicated to the brand that can cater to tourists interested in learning more about visiting the country.

Unfortunately, when probing Middle Eastern country brands, no single national brand stands out as a strong contender. Many have tried, including Egypt, Dubai and Lebanon and most recently Qatar and Bahrain, but all of these branding efforts lacked in one area or another. They were either missing the true “soul” of an effective country brand, being unable to consistently implement the brand across government agencies and enterprises, failing to differentiate the brand from other regional competitors, or mixing the country’s “soul” with the “flesh” by diluting the country’s essence with profit-driven messages.

This situation points at a lack of drive amongst regional nations to put their faith in the brand-building process and a misunderstanding of the branding exercise as one that can be done only superficially, touching-up the country’s outward image without tackling deeper- rooted internal issues.

For Middle Eastern countries to take the step towards timeless, internationally-recognized brands, they must first overcome the challenges before them. These range from defeating existing prejudices against many of the region’s countries to finding their unique inherent edge that truly entrench diversity in the region.

None of this can be done without instituting internal awareness within each nation to deepen the understanding of country branding amongst government officials and the local population, as well as the creation of a legal framework that can eradicate the current lack of conformity in national branding and symbols in the region. Finally, holistic reform is at the heart of a convincing and rooted country brand, as a strong brand needs strong leadership and a unified nation behind it to be communicated and embraced.

Until a nation has become successful in developing a powerful and mature country brand to represent itself, it is likely to always be regarded by others on the international stage as a hesitant adolescent who has yet to truly forge a personality.

RAMSAY G. NAJJAR is chairman of S2C

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Educated and out of work

by Riad Al-Khouri
written by Riad Al-Khouri

Arab economies are experiencing a historic boom, but whether or not prosperity continues will depend on their ability to generate jobs for millions of young people seeking employment. In countries throughout the region, labor forces are growing at up to 4% annually, and Arab economies will have to create a total of around 60 million jobs over the next decade to bring the rate of unemployment down to the global norm.

Due to the boom, in the last five years unemployment in the Arab world fell to around 11%, but the rate of joblessness for people aged 15-24 is more than 25% — roughly twice the world average. One complication is that in some countries, mainly the smaller Gulf sheikhdoms, most new jobs have gone to foreigners.

However, this phenomenon is not limited to the rich oil- producers: in Jordan, for example, many new jobs go to non- nationals, especially garment and domestic workers from South and East Asia, as well as construction laborers from Syria and Egypt. In fact, the prominence of foreigners in employment is higher in Jordanian private businesses — a hoped-for source of job-creation — since nationals dominate public sector jobs. This phenomenon is replicated to some extent in Lebanon, with the Lebanese penchant for youth emigration acting as a safety valve. Yet, even there many young people stay at home and aggravate the unemployment situation.

An explanation of this complication in the labor markets of poorer Arab countries is that “educated young people are in effect playing the lottery,” according to Marcus Noland and Howard Pack in their recent article “Arab Economies at a Tipping Point,” by remaining unemployed at home, waiting for either a high- paying job in an oil state or a visa that would permit emigration to the West. The unwillingness of Lebanese, Jordanians, and other Arabs to fill less attractive jobs in their own countries, even at the risk of idleness, drives unemployment up and encourages labor importation.

Egypt is a case in point regarding issues such as youth, labor markets, and emigration; but also, as the populous Arab country, demographic and employment problems there can spill over into the rest of the region and beyond. Job creation is one of the most important challenges facing Egypt today. Like most of the rest of the region, the country has a young population and large numbers of youth entering the job market each year.

However, even in periods of prosperity, the job content of growth has not been strong enough to absorb fully new entrants to the labor market. Imbalances in education, training, and skills between jobs offered and qualifications of job seekers have also hampered employment, particularly among youth. In other words, young people are still seeking higher education that is often incompatible with the less sophisticated jobs on offer, preferring to be idle for some time while waiting to “win the lottery” and migrate.

This pattern has actually been evident for about three decades: following Egypt’s adoption of more liberal economic policies in the 1970s, unemployment climbed despite robust growth and joblessness among the young and better educated rose as the government curtailed guaranteed employment, which finally ended in the late 1980s. Since then, Egypt’s jobless rate has remained stubbornly high, up to 11%, and youth unemployment began to manifest itself forcefully, with emigration seen as a way out.

However, recent prospects are brighter as growth has picked up since 2005 in reaction to economic reform that the government began mid-2004, with favorable external factors providing support. This boom was reflected in higher overall employment, as growth became broad-based and more job-rich. According to official Egyptian statistics, unemployment declined from 10.5% to 9% during 2004-7, but the problem of youth joblessness continues. Currently, an estimated 2 million Egyptians are out of work and problems of high youth unemployment and widespread underemployment continue.

Thus, despite the positive effects of boom and reform, a central economic challenge confronting Egypt and the rest of the Arab world remains how to provide employment for the large numbers of young people entering the labor force. If progress is insufficiently rapid in creating jobs, when the boom is finally over the region will be caught in a vicious circle of unemployment, impoverishment, discontent, militancy and repression, impeding reform and growth.

The risk of externalization of discontent is also obvious: a widening economic gap between the Arab world and the industrial countries, particularly neighboring Europe, would spur transborder migration, mostly illegal under current rules, and contribute to problems with and among the countries of the EU. The newly launched Union for the Mediterranean will have to address this issue urgently.

Riad al Khouri is Member of the International Council of Questscope and Senior Fellow of the William Davidson Institute at the University of Michigan

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