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A false choice for president

by Claude Salhani
written by Claude Salhani

The gap between Senator John McCain, the Republican Party’s candidate for the United States presidency next November and the Democratic Party’s candidate, Senator Barack Obama, may well differ on social issues in the US, but when it comes to the war in Iraq it is becoming increasingly more difficult to differentiate between the two parties’ platforms.

On the domestic front the two political parties are poles apart on such issues as the reform of the health care system. The US remains the only country in the Western hemisphere not to provide universal health care for its citizens, something the Democrats have been trying to change for decades only to meet stiff resistance from the Republicans on Capitol Hill, and in the White House whenever the resident of 1600 Pennsylvania Avenue is a Republican, as is currently the case.

The American Left and Right clash over the question of drilling for oil in the great Alaskan reserve and they disagree over abortion rights; the Democrats are for leaving the decision to the individual woman, while the Republicans are opposed to the removal of the fetus, which they see as the taking of a human life.

However, as election day approaches, the Republican and the Democratic views on the war in Iraq — once diametrically opposed — now appear to be merging to the point where it is hard to tell them apart.
What happened?

What happened is election rhetoric, for the most part, with a good portion of battlefront realities and a rapidly developing political fait accompli in Iraq.

Throughout the campaign the Republicans have been saying what Republicans always say when it comes to war. McCain, while on his campaign trail around the country remained faithful to the George W. Bush dogma of “We shall stay the course.” Only the presidential candidate phrased it differently, stating that “United States’ military forces would remain in Iraq up to 100 years, if that’s what was needed.”

And Democrats, too, play the role Democrats usually play when they emphasized that a quick pullout from Iraq is needed, and that U.S. troops should be brought home within months.

As it turns out neither of the two policies are realistic and recent changes in Iraq will force both camps, but particularly the Republicans, to rethink their strategies, taking into consideration the rapidly shifting situation on the ground.

What appears to be happening is that the Iraqi Prime Minister, Nuri al-Maliki, is taking the reins of this country at a much faster pace than first anticipated by the Bush administration. The big fear amongst Iraqi politicians — that a premature American withdrawal from their country would plunge it into greater turmoil — no longer exists. In early July al-Maliki said what was until now unthinkable: there was a need for the US to establish a withdrawal timetable, a statement hardly appreciated by the White House, which has been resisting both domestic and international requests it do so.

That aside, the reality as both presidential candidates are finding out is that the 130,000 or so US forces serving in Iraq are highly unlikely to remain in the country “for up to 100 years.” Nor are they likely to remain in Iraq for 100 months either. If McCain wins the White House in November he will have to accept the fact that, at the end of the day, the US will be forced to take into account the will of the Iraqi people to see their country rid of foreign troops.

If however, it is President Obama who becomes the next commander-in-chief of all US armed forces, he will soon enough discover (as a number of his foreign policy advisers have no doubt already explained to him) that the repatriation, or simply the redeployment of such a large force, cannot be accomplished in just a couple of months, but that it will require about 18 months from the minute the order to redeploy is issued.

That being said, a more recent development may in fact leave the candidates little choice, as they will be forced to respond to the sudden shifts of violence in nearby Afghanistan. Last month the death toll of US military personnel on the Hindu Kush — with 15 killed — surpassed the number of GIs killed in Iraq, which stood at six.

Indeed, the resurgence of violence in Afghanistan comes at a time when Iraq appears to be heading towards relative calm. For the first time since the U.S. invasion which overthrew Saddam Hussein, Baghdad is beginning to be regarded more and more as the master of its own destiny by other Arab countries.

While the sudden increase of anti-coalition activity in Afghanistan may yet force if not the second major deployment of NATO and Western forces, at least a serious shift in US policy regarding the region.

Claude Salhani is editor of the Middle East Times.

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Millions applaud Zain’s African call

by Michael Karam
written by Michael Karam

It is fair to say that most of the 50,000 concert-goers that rocked up to London’s Hyde Park in late June to wish former South African President and Nobel Prize winner, Nelson Mandela, a happy 90th birthday had never before seen the symbol of one of the concerts main sponsors. While the Mercedes star was a no brainer — even a Kazakh sheep farmer knows that one — the Zain Group’s mystical “swirl” might have proved problematic for cheery Londoners yet to experience the relentless march of what is arguably the most dynamic, daring, caring and innovative telecom company in the Middle East and Africa.

That the brand is not immediately recognized elsewhere is probably not of immediate concern to the Zain Group CEO Dr Saad Al-Barrak — known affectionately throughout the company as the “Doctor.” Formerly MTC, Zain only unveiled its new identity less than a year ago, initially to unite MTC’s five mobile phone operations in Sudan, Kuwait, Jordan, Bahrain and eventually Iraq. (In Lebanon, where 650,000 Lebanese use a Zain line in the guise of mtc touch, the brand will not be rolled out as long as the company only runs the network for the Lebanese government.)

But Al-Barrak is not known for sentimentality when it comes to effecting change, and his steely ambition is to propel Zain to the very forefront of global consciousness — it is no coincidence that the Mandela concert was broadcast live all over the world — in the presence of other blue chip names. Using his ACE — accelerate, consolidate and expand — strategy, the charismatic CEO who took over the then MTC-Vodafone in 2002, wants to take Zain into the top 10 global telecom companies by 2011 and eventually into the 100 leading global brands.

This in itself would be a mighty achievement for a Kuwait- based company that only six years ago was a one trick pony with 650,000 Kuwaiti customers. Since then, Al-Barrak has taken the operation into 22 countries on two continents, serving 50 million customers. In 2007, Zain posted revenues of $5.9 billion, and the first half of 2008 notched up a robust $3.5 billion. In terms of geographic presence, it is the fourth largest telecom company in the world.

In line with the consolidate part of the ACE acronym, on August 1 all the African operations, which had previously operated under the Celtel banner, officially became Zain. Al-Barrak’s corporate wheels are now beginning to mesh, working as one finely-oiled mechanism, linking customers — he does not like the word subscriber — from Baghdad to Kano. This mammoth transcontinental branding operation was an emotional milestone for those who had seen Celtel change — and in some cases save — the lives of millions of Africans.

Sponsoring the Hyde Park concert may have been a canny PR move, but the reality is that Mandela and Zain have much in common. It was a message that Al-Barrak could deliver with confidence. “Nelson Mandela has shaped modern Africa,” he said after presenting the beloved South African leader with a gold model of a traditional Arab Dhow. “His contribution is well known and stands as an example to those who are embroiled in fighting oppression and injustice in the same way Zain, through its subsidiary Celtel and the innovative introduction of the historic One Network system, has changed the face of this great continent forever.”

It is no exaggeration. There was a time, not so long ago when, if a young man from the Congo wanted to talk to his mother in his rural village, he had to make a two-day roundtrip on foot. Similarly, if a Nigerian businessman wanted to arrange a meeting with a colleague on the other side of Lagos, he would have to send his driver with a note suggesting a time. The driver would have to battle the notorious urban gridlock just to return with a note suggesting an alternative time. In the event, it would take at least two trips to confirm the meeting. Finally, a plumber in Dakar might have spent all day making house calls before returning to a pile of messages, which might take him three takes to reply to.

Yes, Africa was frustrating, but it was also filled with opportunity. It was a sleeping giant and, despite the nightly diet of civil war and famine on TV screens across the world, Celtel was forging ahead, establishing and operating networks in countries where there were few roads and even less land lines and where Celtel’s enterprising executives were forced to live, sometimes in zones of conflict, for several months in hotels that had no running water or windows.

But the tenacity paid off. Once word got out, African consumers would, in some cases literally, batter down doors to get their hands on a new mobile phone. On occasions, the local police had to be called to control crowds of over-enthusiastic customers. Sales targets in the thousands were recast in the tens or hundreds of thousands before being upgraded to the millions.

Celtel then went one step further by unveiling its One Network, the world’s first borderless phone system that linked countries without crippling customers with an extortionate roaming tariff system. In doing this it revolutionized the way Africans communicated on a social and economic level. Even the EU wanted to know how it could be duplicated.

Celtel was founded in Europe by Mo Ibrahim, a Sudanese, who had been a senior executive at UK mobile operator BT Cellnet before going it alone. Against all odds, he convinced skeptical international bankers to invest in his dream, and believe in his position as a man who operated “between cultures,” a status that allowed him to translate what was happening for those outside the continent.

He assembled a multinational team and insisted that Africans work in countries other than their own, while at the same time convincing them all to work for a common goal. Celtel executives were sent to the London Business School to sharpen their skills, while at shopfloor level the company became one of Africa’s major job providers. It was a prime place to work and it paid well. “When I arrived, everyone came to work on a bicycle or a motorbike,” recalled one employee. “When I left, the car park was full of cars.”
Since then, and its acquisition by Zain in April 2005, through strategic partners, most notably Ericsson, the Earth Institute and the GSM Association Development Fund, the company has revved up the CSR initiatives and intervened to make real and dramatic changes to the ways Africans live.

In March 2008, Zain and Ericsson were part of an operation that will eventually allow the 200,000 fishermen who ply their trade on Lake Victoria to use mobile phones on what is the world’s second largest inland lake, by upgrading existing infrastructure and building an additional 21 radio sites to provide mobile coverage up to 20 kilometers into the lake (covering 90% of the fishing zones) and reduce the estimated 5,000 annual deaths from accidents and piracy. In Kenya, Tanzania and Uganda, Zain, also with Ericsson but this time including the Earth Institute, has delivered mobile telephony to 400,000 people in rural villages.

Celtel will always have a place in African telecom history; under Al-Barrak and wearing a new brand, it is now part of Zain’s global campaign, one that will not only serve bottom line ambitions but also show that communication should be a right, not a privilege.

Michael Karam is Associate Editor-in-Chief of Executive

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The law unto themselves

by Peter Speetjens
written by Peter Speetjens

“All animals are equal, yet some animals are more equal than others,” George Orwell famously wrote in his political satire Animal Farm, in which pigs rule over all other animals, using dogs as their foot soldiers. The novel has not lost an inch of its value in today’s “new world order.”

On July 14, the International Criminal Court (ICC) prosecutor Luis Moreno-Ocampo accused Sudanese president Omar Bashir of genocide, crimes against humanity and war crimes in Darfur. While every sane person wishes a rapid end to the tragedy that includes mass murder, rape and some 2.5 million people displaced, international prosecution of Sudan’s sitting head of state may bring more harm than good.

Legal action may not only jeopardize the UN peacekeeping operation in Sudan, but is likely to end all hopes for a negotiated settlement of the conflict. More importantly, the prosecution of Bashir may very well bury the ICC before it was even properly born.

Established by the 1998 Rome Statute, the ICC in The Hague currently has 106 member states. With the exception of Jordan, the Middle East is not represented among the signatories — a status quo unlikely to change any time soon. In order for the ICC prosecutor to investigate crimes it has to be be asked to do so by a member state or the United Nations Security Council (UNSC). Such was the case in 2005 when the UNSC adopted Resolution 1593, which referred the Darfur dossier to the ICC prosecutor.

Ironically, three out of five permanent UNSC members (Russia, China and the US) have not signed the Rome Statute and thus do not recognize the ICC’s jurisdiction. Hence the rather awkward situation has emerged that three nations refer a fourth to an international court, which none of them recognize, all the while referring to an international treaty none of them have signed.

As a consequence of this legal oddity, in Resolution 1593 the UNSC recognizes that “states not party to the Rome Statute have no obligation under the Statute,” yet ordered the Sudanese government to fully cooperate with the ICC investigation. The UNSC also determined that the ICC investigation will not be paid for by the UN, but by states who are signatories to the Rome Statute. As that does not include most permanent member states the UNSC added, “and states that wish to contribute voluntarily.”

The procedure only gains in ridicule, knowing that the driving force behind Resolution 1593 is the US, although from the start Washington has tried to torpedo the ICC. The Clinton administration hesitantly signed the Rome Statute, much to the dislike of its Republican successor, which has developed a severe allergy to the faintest of international flavors. The Bush administration could have simply not ratified the Rome Statute, yet in May 2002 it in fact decided to un-sign the treaty.

The US claims to be concerned with the fate of individual American peacekeepers around the globe, as they run the risk to be prosecuted “on political grounds,” even though the ICC is only authorized to judge “big” crimes, such as genocide and war crimes. According to journalist Jim Lobe, the US went on to lobby for a UNSC resolution that would exempt all American nationals from ICC jurisdiction.

The US did so by — among other measures — threatening to veto the renewal of the UN peacekeeping operation in the Balkan. Under pressure of mainly the EU, however, the US had to settle for a compromise. The UNSC adopted Resolution 1422, which exempts UN peacekeepers from prosecution, thus creating another legal anomaly: the international community has an international court, yet its own soldiers do not fall under the court’s jurisdiction.

To be absolutely certain that no American soldier will ever be tried by the ICC, Washington then adopted the American Service-Members Protection Act, which goes as far as to authorize the US President to use military force to free any US service member held by the court. And thus the legislation is also known as the “The Hague Invasion Act”

Ever since, the US has continued its opposition to the ICC by persuading third nations to sign bilateral agreements to not surrender or transfer US nationals to the ICC. On a diplomatic level, it pushes for a greater and preferably permanent role for the UNSC, which would mean that Washington could veto any ICC prosecution that does not conform with its or its allies’ interests. China and Russia will arguably be in favor of such an agreement, as they enjoy the same veto right.

Consequently, in sharp contrast with the nature of the Rome Statute, which aims to offer a system of justice for all victims of the world’s worst crimes, the ICC threatens to become a political toy in the hands of the happy few.

 Peter Speetjens is a Beirut-based journalist.

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…before oil meant terrorism

by Norbert Schiller
written by Norbert Schiller

I recently made contact with a very old friend of mine living in Switzerland. We had not seen one another for almost 18 years. In fact, the last time I saw him was just before the 1991 US-led invasion of Iraq when, after having covered the build-up to the conflict, I was replaced to go on holidays. Upon hearing I was about to leave Iraq my Swiss friend offered both my wife and I the use of his family’s ski hut in the Swiss Alps. After our vacation we returned to the Middle East and even though I regularly returned to Switzerland I never again had contact with him until now.

This past spring I decided to take my son on a trip to Switzerland in order that I may reunite with relatives and friends that I have not seen in many years. I was hesitant, showing up after such a long spell, so as a way of breaking the ice I sent out small gifts along with my contacts and waited for responses. I was fortunate that I had a number of published books under my belt so I just wrote a nice note on the cover pages and sent them to all those with whom I wanted to be in contact again.

No sooner had my Swiss friend received the book he immediately sent me an email and from then our relationship was back on track. His missive posed the obvious question, “Where have you disappeared for so long?” Before I could respond he had sent a follow- up email with a bit more sarcasm, suggesting I had “joined the likes of Hamas, Hizbullah and al- Qaeda.” I then went on to write him a lengthy reply apologizing for my long abscence and explained to him what I had been doing and where I had been living for the last 18 years, and that I hoped that we could get together again. Just out of politeness I asked if there was anything he wanted from Dubai. He replied with the same sarcasm and said “Yes, bring as much petroleum as you can carry,” and then added, “but leave the terrorists behind!”

He was not alone with that response. When we finally arrived in Switzerland and were staying with other friends the topic of discussion, when speaking about the Middle East, always centered on terrorism and the price of oil. It was like the two subjects were inseparable.

However, this had not always been the case. I remember when I was living in Egypt in the early 1990s, during one of the most volatile times when home-grown Islamist terror groups were bent on overthrowing the government of Hosni Mubarak and replacing it with one based on sharia, many of my Swiss friends visited me with little or no concern for the political tensions that were rattling the country. Even though tourists were targets of the fundamentalist, the friends that visited were more interested in the ancient wonders that Egypt had to offer than of being shot at in the streets of Luxor. Their curiosity of the past has now been replaced with questions like, “aren’t you afraid?” or “isn’t it dangerous living there?”

What’s even funnier is when these questions are asked by my long lost Swiss friend who during his free time jumps off cliffs with paragliders for kicks looking for thermals as he flies high among the Alps.

Unfortunately, the state of the world today is a far cry from what it was 18 years ago. It seems that many of the same crises we faced back then never went away, but instead intensified. Take Iraq for example. When I covered the first US-led war in Iraq my Swiss relatives were more concerned on how the conflict was affecting the people of Iraq and how more should be done by Western nations to alleviate the suffering of ordinary Iraqis than of the long term dangers of terrorism that could arise from such conflicts. The term ‘terrorism’ was hardly ever talked about and gasoline prices, even though higher than in America, were not something that the Swiss grumbled about.

The friends and family I have in Switzerland are not typically Swiss (if one can still use that phrase). They are artists, musicians, and architects who for the most part were the ones that pushed for change when Switzerland was still clinging to its World War II isolationist values. They were the ones who traveled extensively, living abroad and in some cases marrying spouses from different parts of the world. They are the open-minded Swiss, the ones interested in the world around them and now the ones with the most to loose if the country reverts back to its old ways.

There is an unspoken bond between the Arab world and Switzerland that has developed over the last few decades. Switzerland (in particular the area surrounding the Lake of Geneva) is one of the top destinations for the Gulf’s super-rich. It’s here where the Emiratis, Qataris and others send their children to be educated and where many spend their holidays.

Maybe the Swiss should try and use their influence with their wealthy guests and see if they can’t help in lowering the price of oil or stemming the rise of terror groups. Then friends like mine may look at the Arab world in a more positive light rather than the way they see it now.

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

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Levant

Healthcare – Between patient and payment

by Executive Staff
written by Executive Staff

Lebanon has long been a regional medical hub. Its doctors are famous beyond its borders and its hospitals sought after. However, in terms of medical insurance, the country is still underdeveloped, both in terms of reach — only 500,000 people are insured, most of them in the greater Beirut area — and of management.

As of 2007, one aspect of the medical sector has seen a kind of shake-up — that of Third Party Administrators (TPA). A TPA is a financial transaction administrator that handles the processing and paperwork for health insurance, acting as intermediary between insurance companies and clients. Its functions often include the management of claims processing, provider networks, and utilization review.

In Lebanon, until last year there was no independent TPA, as the existing ones — like Mednet, Medical Express and Banker Assistance – were owned by insurance companies and thus it was questionable if they would offer equitable treatment to other insurance companies that, essentially, are competitors of the TPAs parent companies. Mednet is owned by AXA and Libano-Suisse, Banker Assistance only works for Banker Assurance and Medical Express is owned by SNA-Allianz. However, many small insurance companies simply do not have the capacity to handle everything by themselves and are dependent on TPAs.

In January 2007 the first non-aligned TPA, Total Care Lebanon (TCL), was formed by a group of investors who wanted to create a TPA that, in the words of its chairman Khalil Sehnaoui, would “serve the insured while preserving the insurance company’s identity. Our own experience showed us that the way it used to be was not working, that there needed to be a change, that there was a need for a truly independent TPA.”

The launch
Having acquired two clients with 40,000 insured, TCL officially launched on June 27, 2008. Beirut is its first base of operations but plans are already underfoot to branch out, with Saudi Arabia being next.

This independent TPA is set to stir things up in the Lebanese medical care and insurance sector. As Adel Kharrat, Partner and Managing Director at TCL, pointed out, “We are at arms lengths from all parties involved, insured and insurance,” and Sehnaoui added, “If you go to one of the TPAs to ask for insurance, they will most likely refer you to one of their shareholder insurance companies, which is unfair. What we do is to put the insurance companies’ names upfront and stay in the back. We believe it’s the right way to do business and it’s mutually beneficial.”

As Kharrat further explained, “Our target is to market the insurance company’s name through our excellent services, through the excellence in servicing the insured without putting TCL’s name upfront. Our target clients are not the public but the insurance companies. This is what differentiates us from others.”

In practice, having a TPA gives insurance companies many benefits. As an example, Sehnaoui gave that of TLC’s first client, Cumberland, the 3rd-largest medical insurer in Lebanon, saying, “We had our vision, and our software. The third thing was to either create the network — nurses/hospitals — from scratch or to get it from somewhere. Cumberland had the best track record, but was doing it in-house. We offered to buy the set-up, remodel it so it could fit our vision, and then enter the market as a standalone TPA. But we had to convince them. First of all, big companies can afford in-house management, but smaller ones can’t. But for the big companies it is a fixed cost, regardless of the market fluctuations. They cannot easily adapt to changes. A TPA offers them to turn the medial portfolio management into a variable cost — through outsourcing only paying for services provided.”

The second benefit for an insurer is cost-control. A TPA, representing many clients, can negotiate medical costs – volume rebates, etc. — better than a single company. By pooling clients, a TPA can get better rates.

A third benefit is that, since a TPA has a number of clients which they can pool, it can also provide better statistics. With TLC currently managing 40,000 insured, it is providing its clients with the kind of statistics for medical studies that a small insurance company can never obtain. Also, pooling enables a TPA to achieve a stable average of insured, with the fluctuations being small, and so more easily managed.

In addition, TPAs can hire and fire easier than insurance companies, as there is no image loss involved. If an insurance company lets go of a number of people, its performance is immediately under question, which, as an insurance company lives off its image, can be dangerous. A TPA does not have that image problem.

In terms of staff, TLC is proud to have “the best- trained staff, who are specialized for this work,” according to Kharrat. All are hired locally. The highest demand is for nurses because TLC needs to have nurse delegates present in most hospitals on a full time basis. At any one point the TPA has nurse-delegates in a hospital who assist the insured, who follow up on a daily basis with the client and also control the medical procedures, aiming at cost control and cost containment.

Overprescription
Regarding the latter issue, Sehnaoui highlighted that, “Hospitals and doctors will aim to overcharge, overutilize, prescribe tests that aren’t needed in order to maximize their income. So our responsibility, as a TPA, is to protect the insured from unnecessary tests and procedures and the insurance company from being overcharged”

Kharrat, looking back at a long career in the medical insurance field concurred: “In Lebanon, because there is an oversupply of doctors, there is high number of procedures done that are unnecessary. Nowadays, the trend is that as long as you have a first-class insurance, if you have a tummy ache they’ll take out your appendix. Internationally, it is acceptable to have about 20% of appendix removals if it’s not inflamed. In Lebanon, with some surgeons that number is almost 80%. This is where the role of the TPA comes in. We make sure that there are tests so only necessary procedures are performed.”

Another issue, of course, is that of finances and transparency of financial transactions. In the case of TLC, Kharrat is adamant to highlight the fact that “all financial transactions are transparent, and the ones from medical institutions to the insurance companies are direct, don’t go via us at all. We even offer the option to the insurance companies that their re- insurers can look at all our files and procedures. Now insurance companies even get better deals with re-insurers if they use us as a TPA.”

One of the main approaches of TLC that distinguishes it from its competitors is that from the start it offered clients to pick and choose which aspects of TPA they wanted. Before TLC showed up “the solutions offered were all-or-nothing deals,” said Sehnaoui. “It was like as if you go to a car dealer and he tells you, ‘If you buy the car, you have to take it with all the options included or you can’t have it.’ TCL works on an a la carte approach. The insurer can pick and choose what they want us to do for them, only the services they specifically need.” This approach seems to be working, as other TPAs have now retailored their own offers to allow for pick-and-choose agreements.

But what about the National Social Security Fund (NSSF) in which all Lebanese employees are enrolled? “The NSSF doesn’t work,” said Kharrat. “If you go to a hospital and you’re covered only by the NSSF, you will have to wait, you will put at the end of the list. And you have nobody who will check what the true costs are, so you might get charged for ‘extra procedures’ that are not covered by the NSSF but you, as a patient, will never know if that is correct or not. So even if you are covered under the NSSF you will still need private insurance if you want good medical care.”

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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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By Invitation

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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LuxurySpecial Report

Nirvanic vacations

by Executive Staff
written by Executive Staff

The Middle East has long evoked images of luxury travel — be it as a locale in Western dreams of Oriental palaces straight out of One Thousand And One Nights or in the form of super-rich oil sheikhs summering on the Cote d’Azur.

Today it is Dubai — one of the metropoles of the 21st century — that most people think of when they hear “luxury in the Middle East”, with luxury cars at every corner, luxury real estate projects going up on land and the specially-created off-shore islands, and the most expensive watches complementing the most expensive apparel.

With Dubai and the other Gulf states boasting a staggering number of 5-star hotels — in the coming years to reach more than 100 — standing out this sea of luxury hotels and resorts requires that extra-special touch. Not surprisingly the world’s first 7-star hotel, the Burj Al Arab, stands in Dubai.

1000s more millionaires

With the current windfall from the rising oil price, whose benefits are most obvious in the region’s oil-producing countries but also trickle down to the non-producers, luxury travel is becoming affordable to more people. A recently released report by Merrill Lynch showed that the number of High Net Worth Individuals (HNWIs, with assets of more than $1 million), increased by over 15% last year in the middle east, now amounting to around 400,000, holding amongst themselves $1.7 trillion. And the regional tourism industry is doing its best to capture as many luxury travelers as possible.

While, in general, tourists’ tastes and requirements have developed, luxury travelers are on a whole different, elevated level. As Johnny Modawar of Lebanon’s Wild Discovery put it, “Luxury travelers have their own requirements. They want a one-to-one relationship; they don’t want to be treated as a group. When we talk about luxury tourism, we always talk about individuals. These people have time, they have money, and they want to engulf themselves in the destinations to enjoy the facilities, the service — which has to be impeccable from the start, from the relationship with the travel agent to the time they return home. The personal needs are often confidential because they want privacy.”

Luxury tourism providers, thus, have to ensure that everything is of the highest standard, from the bathroom fixtures to the service personnel. In the words of Roland Obermeier, Vice President Sales and Marketing for Area Middle East and Africa at Kempinski, “luxury is an experience you can’t get elsewhere based on a unique product, service etc. One good example used is a Fabergé Egg, limited and each one is unique.”

Global chains and local entrepreneurs are creating a host of new additions to the already existing spread of luxury hotels and resorts, some of which — in historic tourist destinations like the Levant, Egypt or Morocco — look back at a century of what these days is called ‘bespoke travel’.

Kempinski, which already operates five hotels in the MENA region — the Emirates Palace in Abu Dhabi, Hotel Mall of the Emirates in Dubai, Kempinski Hotel Ajman, Kempinski Hotel Amman and Kempinski Hotel Ishtar at the Dead Sea — plans to open more properties in Egypt, the Levant and the Gulf.

Definition of luxury hotels

For Kempinski, “Luxury is translated into space, facilities and convenience and that is why we have set rigid minimum standards of luxury, which we look for in any property before we decide to manage it.”

Another luxury brand, Ritz-Carlton, is planning to “double its portfolio [in the Middle East] within the next two years due to the strong demand,” according to Vivienne Gan, Regional Director of Public Relations, Middle East of The Ritz-Carlton Hotel Company L.L.C., which currently has hotels and resorts in Bahrain, Dubai, Doha and Sharm El Sheikh. The Ritz-Carlton, Dubai International Financial Centre is scheduled to open in mid-2009 and in 2011 The Ritz-Carlton hotels in Riyadh and Abu Dhabi will welcome their first guests. Gan continued “In the meantime, we are looking at our second hotel in Bahrain and Egypt, and we have a project in Kuwait that is under construction. Potentially, there could be a third hotel in Dubai, and we are also looking at Jeddah for a potential project close to Madinah and Mecca.”

For Ritz-Carlton, too, luxury travel comes down to impeccable service, or in Gan’s words “Our motto is: ‘we are ladies and gentlemen serving ladies and gentlemen’.”

One of the latest prominent additions to the luxury destination market is the Six Senses Hideaway Zighy Bay in Oman’s Musandam Peninsula. The sultanate is now emerging as a sought-after destination for discerning travelers. The Chedi Muscat has, of course, long been known as one of the best hotels in the region, but it is the northern tip of Oman that is developing as a boutique destination — for residents of the UAE but also luxury travelers from farther abroad.

The sultanate follows a trend that has been emerging in regional luxury tourism: positioning oneself as provider of something distinctive. Just having excellent service and state-of-the-art facilities no longer suffices. Luxury travelers want value-added to their holidays. Oman is aiming for a culture destination, showcasing its rich heritage, but in an exquisite 5-star setting, where the traveler can, after a day out, relax at the spa.

Jordan also features culture — Petra, Jerash, Madaba etc — but as the Arab shore on the Dead Sea the greatest focus is on Spa Tourism, of which the Kempinski Ishtar is currently the prime example. In Morocco, the magical Marrakesh caters for all levels, but the luxury traveler will seek out some of the region’s best boutique hotels, like the Riad el-Fenn, owned by the sister of Richard Branson, of Virgin Group fame. Syria is still a ways off on the path to a luxury destination, but the recent opening of a few boutique hotels in Damascus is an indicator of (good) things to come.

Lebanon had, in the “golden era” of the 1950s and 60s been a prime destination for the region’s luxury travelers, as well as the pan-Mediterranean jet-set. After the Civil War it regained some of its luster and now sports two of the region’s outstanding boutique hotels — the Albergo and the Vendome. But the political impasse of the last two years has deterred travelers, luxury or otherwise, and the Cedar Republic’s tourist managers have become cautious about hoping for a new upturn.

The infrastructure, however, is already present and even decades of war and political turmoil could not tarnish Lebanon’s reputation as the region’s leader in services. As Johnny Modawar pointed out, “Lebanon has a great location and a perfect summer season. Visitors love to come because we have an open-minded culture, a culture of servicing the client.” In addition, the small country packs a highly varied offering, from beaches to mountains, nightlife to archeological sites and to top things off, one of the region’s finest cuisines.

Speaking the same tongue

But the key is the personnel. One thing that attracts luxury travelers from the Middle East to vacation in their own region is that there is no language barrier. As Modawar explained, “Throughout the Middle East, people speak Arabic, and when you’re welcomed by someone who speaks your language that facilitates the relationship.”

Lebanon’s tourism companies, hotels and resorts are banking on their image, in addition to anticipating the newest trends. Currently, that trend is ‘relaxation’. Beach destinations, which for the longest time could rely on vast expanses of sand to attract clients, now upgrade to spa and long-stay. A perfect example is Eddé Sands Beach Resort and Wellness in Byblos, which now features a spa with a VIP pool and a small hotel, turning itself into a “complete experience,” in the words of Sophie Edde, Marketing Executive at Edde Sands. While not comparing her resort with large hotels, she pointed out that the key to Edde Sand’s success is its distinction from others by providing value-added and always create something new, saying “I don’t want to have a normal beach resort. I want visitors to come for a variety of reasons — for the beach, for the hotel, for the spa, even for the restaurant.”

The rise in oil prices and regional inflation do not particularly affect luxury travelers as “people who have money, who can afford expensive holidays, always stick to their plans,” according to Johnny Modawar. On the ground, however, it can be different, as Sophie Eddé pointed out that “the political crisis in Lebanon has affected everything and we have slowed down projects, but we still plan to go ahead with new projects, it’s just a question of when and how quickly.”

But overall, the skies for luxury traveling are as blue as those over the Mediterranean, the Gulf, and the Red Sea. As old destinations are re-inventing themselves and new destinations are appearing on the scene, competition is lively and luxury travelers have ever less reason to leave the region.

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LuxurySpecial Report

Prodigal pocket utilities

by Executive Staff
written by Executive Staff

In today’s world of luxury, gadgets provide the perfect form of personal expression. Pocket sized, practical gadgets are all the rage these days. Yet while most people can afford an iPhone, it is the high dollar gizmos that really define luxury.

Mobile Phones

Haute Couture has finally caught on in the mobile phone industry with designers like Armani, Dior and D&G all releasing their own mobile phones. Christian Dior’s model was designed by ModeLabs and took three years to develop. The phone is a clamshell, which comes in two versions. $5,000 will purchase the most basic model. Stepping up to the ‘luxury’ version will run $26,000. The benefits are many, however, including 2.6 touch screen, integrated media player, 640 stones of 3,251 carat Swarovski crystals and a crocodile skin case.

More pedestrian, although still luxury, is Prada’s new mobile phone. Released last year, the Italian design house worked hard to turn out the world’s first touch screen mobile (they beat out Apple’s iPhone by just a few months). The phone is just 12mm thick and has spectacularly simple design. While it has useful features like a 2 megapixel camera and MP3 functionality, the phone’s standard 256MB memory is a little small. This is upgradeable, however, and the phone comes with a fancy, Italian leather case.

If phones designed by fashion houses just don’t do it, then the next best option is to pick up a luxury phone designed by a phone designer. Vertu is an independently operated, wholly owned British subsidiary of the mobile phone giant Nokia. Entry-level models, which start at $6,500, comprise Italian leather and 18-carat gold. Top of the line models retail for just over $70,000 and are encrusted with diamonds and other precious stones. These phones are surprisingly popular, despite their high prices. Estimates suggest that Vertu sells about 200,000 handsets a year at an average price of $8,000. This represents roughly 3% of Nokia’s revenues, or $1.6 billion.

While Vertu’s phones are not cheap, other mobile phone producers outstrip them by far. GoldVish, a Geneva based designer, launched its products in July 2006 and has been going strong ever since. The company says that it is aiming at the stratospheric end of the market. Prices start at $23,000 for a phone with an advanced dynamic high resolution TFT display, up to 400 hours of standby time, sapphire glass display, worldwide GSM coverage, 2 megapixel camera and MP3 player. Understandably, diamond encrusting adds significantly to the price.

GoldVish’s ‘piece unique,’ as they call it, has recently claimed the most expensive phone in the world title checking in at $1 million. The phone has all the feature of the base model, but has been covered in more than 100 carats of D/E color and VVS-1 clarity grade diamonds. The phone was designed by the creative director of GoldVish, Emmanuel Gueit. He also was involved with Audemars Piquet Royal Oak Off Shore and the Z1 and Z2 of Harry Winston Queen of Diamonds. This supreme creative guidance should ensure the phone’s aesthetics are worthy of the price tag.

Cameras

Many cameras out there deserve the title luxury. From hi-tech digital to old school medium or large format, these shooting machines often run in the tens of thousands of dollars. Yet due to their size and professional nature, the vast majority of these devices do not fit into the gadget category. One camera that is both luxurious and gadget-y, however, is Leica’s new M8 digital rangefinder. This palm-sized camera is unique in its nod to Leica’s rangefinder heritage. The M8 is unique in a world where the vast majority of digital cameras are single lens reflex.

The camera is very similar to Leica’s 35mm film based M7. The major aesthetic difference is its 10 megapixel sensor and the 6.35 centimeter display. Not surprisingly, the camera takes excellent photos for a small and simple range finder. It is recommended that the camera be set to RAW for shooting as this mode tends to provide the best quality. Photographs can later be converted to JPEG when they have been uploaded to a computer. This tiny bit of image capturing luxury retails for $6,000, which is a bit much for a camera that is likely to be outdated in two years. But after all, Leica is simply the best.

Pens

More proof that, indeed, any object in life can be luxurious is the humble pen. Founded in Hamburg, Germany in 1906, Montblanc pens have become some of the most famous and expensive writing instruments in the world. Their first fountain pen was the Meisterstück (“Masterpiece”), which helped set the pace for the company. Montblanc was acquired by Dunhill in 1977 and later became part of the Richemont group conglomerate.

Critics of the company argue that the resulting fall in quality of Montblanc has made the pen less valuable as a collectors item. The company, however, has a strong marketing wing and has signed multiple famous personalities for advertising purposes, including Johnny Depp and Nicolas Cage. These tactics seem to help the company maintain its forward momentum as it regularly produces new special editions like the Patron of the Arts, Writer’s Edition and the Annual Edition. Some of these limited editions, like the 149 model, are encrusted with diamonds and sell for over $200,000 dollars.

Less staid and controversial pen makers are prowling in the shadows, however. Conway Stewart is just as old as Montblanc, yet slightly less contentious. With a more innovative approach, their new Evolution pen includes technology that allows the pen’s weight to shift back and forth. Supposedly, this effect reduces writing fatigue and promotes more consistent writing. It also allows for either heavier or lighter strokes. While the Evolution’s stroke can be ‘lightened,’ don’t expect retailers to alter the pen’s price. For the luxury of writing with this pen be prepared to shell out $2,700.

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LuxurySpecial Report

Premium land and palatial property

by Executive Staff
written by Executive Staff

The Middle East is in the middle of a real estate frenzy as islands, golf courses, and branded skyscrapers emerge from the desert sands. Luxury real estate seems to be ever more in demand in a world where the number of super rich seeking new forms of living just keeps on growing.

While several economic, legislative and financial factors might have certainly played in real estate sector development, the main driving force behind its growth can be attributed to towering oil prices. Liquidity has fueled real estate expansion, the scenario being replicated in most countries around the region, and more particularly in oil producing ones.

Janet Warwick, regional director for the Gulf region at LuxuryRealestate.com, estimates the yearly growth in the UAE to vary between 10% and 30%. Richard Faint, Head of Business Development for the Jabbar Group and Operations Director of the Jabbar MENA (Middle East and North African) Real Estate Fund, underlined that, “the dramatic growth witnessed, for instance, in the UAE markets is certainly driven by oil riches, which have also had a spillover effect in other countries such as Morocco and Egypt where investors are lured by a stable political and economic situation.” Another factor contributing to the real estate sector’s healthy figures is the relative immunity of the region to the global credit crunch, less debt-driven than its western counterparts.

Building cities

Flush with cash, governments have been commissioning entire cities. The King Abdullah City comes with a $26 billion price tag, while Oman’s Blue City is valued at $15 billion. Dubai is currently boasting several projects, among them a $20 billion Dubailand and the World and Palm Islands developments. The Burj Dubai comes at the top of the most expensive square meter list and, at a half-mile high, is expected to be the world’s tallest building. It will include a hotel, luxury apartments and the largest mall in the world, the Dubai Mall.

Many luxury residential developments have become mixed projects, integrating into residential areas hotels that are managed by stellar industry names, such as the Jumeirah or Starwood chains. The fate of luxury residences seems to be ever more closely intertwined with chic hotels and resorts: the Saraya’s Aqaba project in Jordan includes six hotels, including two boutique hotels. While the Al Qala’a Hotel, Qasr Al Aqaba Hotel and Dar Al Masyaf Hotel are operated by Jumeirah, the Westin Aqaba Resort is to be operated by Starwood Hotels & Resorts, which is to also manage the Al-Manara Hotel.

Besides partnering up with hotel chains to make their properties more visible on the rich and famous’ world map, developers have provided their projects with special perks: marinas, helipads and golf courses.

The Malkai project in Oman is one of these. The country club, which is scheduled to open at the end of 2010, consists of a boutique hotel and club properties that will be sold on freehold basis, sprawling over 85,000 square meters of land. The project’s first nine-hole golf course will be designed by South African golfer Gary Player. In Dubai, the most significant development inclusive of a golf course is the Tiger Woods Dubai, a project by Tatweer’s Dubai Holding, which is designed by international golf champion Tiger Woods.

Brand names have certainly become a common attribute to luxury real estate projects and brand endorsement as a new marketing tool has brought added value to luxury real estate developments around the region. Fashion figures are increasingly called in to design hotels and residences. Boutique Middle East property developer Abyaar and designer Christian Lacroix recently announced their joint venture for building a residential tower project located in Dubai’s Jumeirah district. The tower facade and luxury interiors will be designed by Lacroix, an iconic figure in French haute couture who is known for his eclectic and often baroque style.

 “If one takes a glance at the UAE markets, an average 1,000 square meter two bedroom apartment might sell in Dubai for about 250,000 euros ($375,000). The same apartment in the vicinity of Burj Dubai, which includes the Armani hotel, would cost as much as six or seven times this amount,” Faint pointed out. According to an AME article from early June, presales of luxury real estate at the Burj Dubai have overtaken those at the Trump International Hotel & Tower on the Dubai Palm Jumeirah, with prices fetching a record $3,540 per square foot.

Brand endorsement definitely creates value for development projects, said Faint who reckons that although relatively small in size, apartments located in the Trump Tower will certainly be sold for millions, because of the celebrity name attached to the development. The Trump International Hotel & Tower is currently being built on one of three palm-shaped islands off Dubai’s coast, where a square foot in early May topped $3,267. Prices in Burj Dubai and Trump Tower are widely considered to be the highest in the UAE.

As Faint explained, “The definition of luxury real estate certainly differs from one country to the other. What is perceived as luxurious in Morocco, is not necessarily considered as the same in the UAE, the United Kingdom or Japan.” The manager emphasized that while a villa in the Tinja real estate project developed by Emaar in Morocco might be considered as high end and sold for $750,000 to $900,000, the price for a luxury apartment in the UAE can go up to two to three millions of dollars.

Levant luxury

In Lebanon, the definition of luxury has taken a very different meaning. Karim Brahim from the Jamil Ibrahim real estate development company and Sami Andraos of Greenstones both stressed the importance of location, size of the apartment and finishing as well as the expertise of consultants brought in on the project. Beirut areas including the beachfront, Ashrafieh and Ras Beirut are much coveted by investors. Besides the location on one of Beirut’s oldest and most picturesque streets, Greenstones has chosen to incorporate its news residential project L’Armorial into a century-old building dating back to the French mandate that was carefully preserved.

Just like in other countries in the region, Lebanon’s real estate sector has attracted investors and speculators. “Real estate in Lebanon is perceived as more affordable than anywhere else in the region, which is luring investors in,” said Ibrahim. Although most luxury real estate buyers in Beirut are Lebanese, they are often comprised of expats living in the Gulf and thus benefiting from the wealth created in their countries of residency. “Beirut real estate prices are also quite ‘sticky’ due to the limited construction area still available, which means that prices never go down, even when the market stagnates” Ibrahim added.

In other areas around the Arab world funds are increasingly aware of the benefits to reap in such favorable markets. The Jabbar Fund Management announced at the end of May the launch of its $31.5 million MENA Real Estate Fund, which was developed in partnership with FSA-authorized operator Acorn Corporate Finance. The fund provides a tax efficient route for investors seeking exposure to one of the world’s most active real estate markets.

“We are currently running several funds in Dubai and Morocco and are keen to further capitalize on the MENA region’s dynamic real estate markets, which are currently outperforming the West’s as a result of high levels of liquidity, government support for tourism projects and underlying economic growth. This fund provides high net worth investors with access to real estate assets in these dynamic markets without the hassle of actual property ownership,” Faint said.

Diverse investors

Investment for individuals differs, however, from one region to the other. “Gulf companies such as Emaar and private investors are looking into countries like Morocco and Egypt, which are culturally close to them and offer the right investment environment,” Faint pointed out. However, in Morocco, besides Arab and Western investors a large number of property buyers consist of locals who built their fortunes with ‘black’ money, traded illegally. “In such markets like Egypt or Morocco, real estate investment prospects are calculated on long term basis, while in the UAE money can be made rapidly due to the market astounding progression,” highlighted Faint. The nationality of real estate investors in the UAE also differs as most buyers are Iranian, Iraqis or Russians who perceive the Emirates as a safe haven for their cash. “The growth of the luxury second home segment has been extraordinary in the last decade and many buyers of luxury property in the UAE are looking for just that, while also making a large capital gain on the long term,” Warwick said.

Investors eyeing the luxury real estate market are seeking to make big profits or buying a piece of a dream. Illustrating the latter trend, the value of some property in the Palm has risen from $1.7 million in 2001 to some $30 million today, according to Warwick. The project of the Asia island in the World in Dubai, which includes among the 100 properties “Sunset Beach villas,” and “Lagoon Homes” and “Water Homes”, is reflective of such trends. In Faint’s words, “People who acquire property [in luxury real estate] are buying more than a residence; they are acquiring a life style experience.”

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