GCC

Emirates of added taxation

by Executive Staff
written by Executive Staff

Recent history in the UAE has seen hundreds of thousands of expatriate workers, tourists and foreign businesses flock to cities like Dubai and Abu Dhabi, with the surging economy offering well-paying jobs and phenomenal business opportunities, while the absence of income or sales tax has made working and shopping in the Emirates exceptionally attractive.

The honeymoon of this “tax haven” is set to end soon though — as early as the beginning of 2009 — with the implementation of the government’s proposed value added tax, or VAT. Although Abu Dhabi has been conducting studies concerning this for several years, there was a recent announcement that Dubai Customs — the department responsible for instituting the VAT — is aiming to have all the necessary infrastructure in place by the end of 2008, ready for the government to implement the proposed levy of 3-5% soon after.

The stated aim of the tax is to begin the process of diversifying government revenues away from the current heavy dependence on energy resources. However, with 40% of the UAE’s GDP directly dependent on oil and gas output — some estimates put earnings-per-day at $225 million — it would seem the possible revenue gain through VAT would be relatively insignificant in comparison. This begs the question: how effective can this attempt at revenue diversification be?

“I think it [VAT,] will be very small compared to oil revenues, but nonetheless it is very important to introduce these taxes just so that you have increased revenue sources,” said Monica Malik, director of economics at EFG Hermes investment bank in Dubai.

Diversifying revenue

Mohsin Khan, director of the International Monetary Fund’s (IMF) Middle East and Central Asia Department agreed that, regardless of the amount of income government earns from VAT, simply having an alternative energy resources is essential. He remarked that, “The VAT revenue [will be] dwarfed by the oil revenue, but the important thing is to have a stream of revenue that is independent of oil and gas.”

Khan pointed out that the IMF has recommended the VAT be implemented in coordination with other governments in the Gulf Cooperation Council (GCC). “This is because the VAT should be seen in the context of establishing a single, unified market comprising all the GCC countries,” he explained. “The introduction of a tax that does not discriminate against trade in the context of removal of borders is an important element in the development of a single market.”

As it stands, however, the UAE looks to be well ahead of other GCC members in bringing in VAT, and in so doing is garnering much criticism from those who say the timing could not be more inopportune, with the Emirates having endured an average of 11% percent inflation through 2007 and as of yet no sign of relief in 2008.

Inflation paints a somewhat vexing problem for policy makers in the UAE though, as upward price pressures are being fuelled by roaring demand for housing and property, the global increase in food prices and the sinking value of the American dollar, to which the UAE’s dirham is pegged. The dollar peg

also strips monetary policy control from the UAE’s central bank and thus removes the standard option governments use to control inflation — raising interest rates. Price controls typically offer only temporary relief and can have damaging distortive effects on the economy, while fiscal restraint to curb inflation isn’t plausible given the massive infrastructure projects the UAE is undertaking. According to Khan, “The bottom line is that it may be necessary to tolerate a somewhat higher inflation rate in the short term, and focus on bringing inflation down in the medium term.”

In this context the new VAT would only be adding to these inflation woes, at least in the short term according to the IMF, which has stated that it expects VAT to cause a one-off jump in inflation of 1-2% during the first year, but that the tax would not cause permanently higher inflation.

VAT impact disputed

Dubai Customs has been quick to dismiss the IMF’s forecast however, claiming that any price increases resulting from the VAT will be offset by the planned cuts to customs duties on imported products — undertaken as part of the obligations the UAE has assumed for itself through signing on to international trade agreements, including with the US and European Union (EU).

“VAT is going to replace the current customs duties amounting to five percent,” said Abdulrahman al-Saleh, executive director of corporate support sector at Dubai Customs, in comments made in May. “Thereby it is expected to support the price level and mitigate the rise of the inflation rate.”

However Malik said it is too early to tell what the impacts might be, as it is yet to be determined which products will subjected to the new tax. “If there are a number of goods that are exempt from the customs [duties] and then would have VAT [imposed on them], then that would have a greater inflationary impact. But these all depend on which ones are going to have the VAT put on and which ones aren’t, so a lot of these questions will come out later on.”

She added that by international standards, the UAE’s proposed VAT rate is very low — internationally, for example, VAT rates are typically between 15-20%. Malik also pointed out that even though Dubai has been raising the cost of some government services — such as electricity, water and road tolls — “the fact that you don’t have income tax means you will still be very attractive for expatriates to come in and live here.”                        

141 nations currently collect some form of VAT, including almost all first world economies — bar the US — and as Mohsin Khan remarked, “The GCC is the only major region … that does not have a VAT. It is perfectly normal for an economy to have a tax based on turnover in the private sector. And it gives you a chance to get rid of elements that are negative for business, such as local fees and charges.”

Thus, while the timing of VAT implementation in the UAE could be open to criticism due to inflationary worries, if the Emirates are truly going to earn their place in the modern global economy, the government ought to have diversified revenue streams and a refined taxation system comparable to any of the world’s most advanced. Properly implementing VAT would go a long way in this regard.

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MENA

Virtual commerce

by Executive Staff
written by Executive Staff

Internet shopping has yet to take off in the Middle East, but online trading is another story, with banks and brokerages scrambling to set up platforms to tap into the surging demand for the service.

In the last few years, online trading (OT) has started to flourish in the region, with institutions in Egypt, Palestine, Saudi Arabia, the UAE, Kuwait and Lebanon getting in on the act where people can trade, at the click of a button, in stock markets, foreign currencies, securities, futures and options.

The sector is growing at such a rate that major OT players like Mubasher, which started in Saudi Arabia and expanded into Dubai and Abu Dhabi, then the rest of the Gulf, has plans to go global by entering the African, Indian, Indonesian, Iranian, US and European markets.

“We started with 300 subscribers in 1999, and went to half a million in 2008, so it’s a boom,” said Mohammad Jamal, business development manager of Mubasher. “We will maybe reach a million or more subscribers by the year end,” he added.

The attraction of OT as opposed to the traditional form of dealing directly with a broker is to cut out the middleman, save on transaction fees, and be able to immediately monitor and make transactions.

“Users save a lot, and know more about their investments. There also used to be a lot of misbehavior among brokers,” said Jamal.

Saving on Labor

The advantage for institutions is less staff and fewer brokers, as some 4,000 Merrill Lynch brokers in the USA found out recently when they were laid off due to the surging popularity of OT.

“In 1996 we had 50 financial brokers, and today just one or two brokers can do around the clock shifts,” said Walid Abou Sleiman, CEO of Aksys Capital, a Lebanon-based foreign currency brokerage.

For larger institutions, OT has allowed them to expand into other areas. Egyptian financial giant EFG-Hermes, for instance, has been able to enter the retail market by going online, as well as expand its footprint in the MENA region, initially with OT in Egypt, and now also in the Emirates.

“We’re going vertical and horizontal, trying to have an online team in every country that allows everyone to trade in different markets. We are also trying to get people in the UAE market into Egypt, and vice versa, as well as increasing percentage here,” said Mamdouh El Baz, regional director of online trading at EFG-Hermes.

Lebanon’s Arab Finance Corporation (AFC), which has developed the AFC BeirutTrader, the first OT platform that is providing for investors direct market access to the Beirut Stock Exchange (BSE), is also optimistic that their recently launched system will be a boon for Beirut.

“The AFC BeirutTrader has been designed to cater to the needs of private and institutional investors as well as fund managers and gives a powerful tool to investors wishing to trade in the BSE,” said Tarek El-Ahdab, manager of AFC. “There is a general move towards OT globally and it is only natural that investors interested in the Lebanese market be given the possibility to trade online.”

For institutions like Aksys Capital, OT has enabled the firm to rise above the country’s political and economic instability through an online platform open to anyone worldwide for financial currency trading that has liquidity provided by major global players Citi Group, Deutsche Bank, the Royal Bank of Scotland, UBS, and Bank of America.

“Before OT the FX market was restricted to the big players but today, with technology, anyone can have access,” said Abou Sleiman, adding that out of the $3 trillion in foreign currency trading worldwide, OT accounts for over $60 billion.

Competitive systems

With OT platforms not necessarily restricted to one domestic market, but rather regional and increasingly global ones, competition between platform providers is tough and getting tougher. In Dubai, over 100 brokerages have opened up in the last four years, with some 60% having electronic capability. In Egypt, EFG-Hermes is competing with nine other players, although the company, along with Al Arabia Online, dominates 90% of the Egyptian market, according to El Baz.

In Saudi Arabia, the region’s biggest economy and where OT is at its most developed, 350,000 of Mubasher’s half million subscribers are from the country, and Mubasher handles more than 50% of all OT transactions and volume. “Last year, of all IPOs in Saudi 80% took place online, either through the website, via mobile phones, or at ATMs,” said Jamal.

The challenge for OT service providers is therefore to offer the best online platform that is easy for clients to use, offers multiple trading options and client specific tools, as well as being informative. Companies are consequently teaming up with international programmers, in the case of Aksys Capital with Ireland’s Squared Financial Services, while other OT platforms were developed in conjunction with, or actually for, local bourses, which was the case for Mubasher in Riyadh and AFC in Beirut.

And aside from buying and selling online, subscribers can also trade via their mobile phone, watch line prices and ticket rates. Nonetheless, improvements need to be made said Jamal. “At Mubasher we’ve done a lot of R&D, and will introduce advanced smart ordering features like algorithmic orders and, where orders take place according to your strategy, automatic trading and profit capabilities.”

OT providers are also scrambling to offer timely and informative analysis on financial markets to offset the region’s lackluster media coverage of financial markets.

“These are not established markets and there is a total lack of financial reports, information may be skewed, and not enough information for people to make wise decisions,” said Adam Kaye, center manager of the Online Trading Academy in Dubai. Indeed, millions of Saudis were stung when the Tadawul stock market plunged in 2006 — a fall which was blamed on, among other things, excessive speculation and insufficient knowledge of the risks associated with trading.

“The way people use OT could be dangerous,” said Sami Akhras, general manager of AFC. “You can get in and out within a few minutes, and they could be a catalyst for trading more than they should. People are under the impression it is an easy way to make money.”

As a result of such associated risks, Kaye said technical analysis and real-time charting is key.

“Everyone is trying to come up with a better mousetrap, but it’s not really working. The charting is the problem, and the greatest thing people are aware of is charting capabilities for markets — it’s still not developed to the point it is in the US. Reuters has MetaStock, and they are the leaders of global availability, but Mubasher is feeding to Reuters for the region, so Mubasher has a big edge over everybody else,” he pointed out.

Such an edge, said Kaye, could lead to the possibility of an oligopoly by a few online brokers, recounting how at a conference on OT Mubasher, the last company to address the audience, said that everything other OT companies had in the pipeline Mubasher had already done.

“Mubasher have created an amazing system and can replace 80% of small brokers in the region. The future is mega-brokers,” said Kaye.

Not all agree on such a future however. “I don’t think there can be a monopoly, as the backbone behind all this is IT, so you have to develop a good system. The feed is crucial and it comes from the banks,” said Abou Sleiman.

Market hindrances

With such rapid expansion, regulations in many countries are still not up to speed. Jamal said money transfers were an issue, with countries having different rules and regulations. Equally, settlement days differ, with Saudi Arabia doing so on the day, whereas in Egypt it is three days after.

“Egypt is doing this on purpose. It is a mature bourse and an investor market, not a trader market where people speculate. They want to lessen the effects by imposing day plus three to have only serious traders,” said Jamal.

In the Emirates, commissions are levied on OT transactions, a minimum of $20 one way.

“You have to make $40 first before counting your own money, and this can only be done if you have a very considerable amount. So if it’s less than 20,000 AED ($5,450), commissions will eat you, so you need 100,000 AED ($27,200) to make it,” said Kaye.

The solution to this, he added, is for universal standards that can be applied to all bourses and financial markets across the region.

The region’s dollar-pegged currencies are also hindering the growth of foreign currency OT, but if the GCC moves towards a common currency and de-links from the greenback, Abou Sleiman thinks there would be a surge in currency speculation.

Despite such obstacles and drawbacks in the mid-term, as Jamal put it, “online trading is the future.”

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By Invitation

A stitch for Turkey’s fraying ends

by Priyan P. Khakhar
written by Priyan P. Khakhar

After the decision of Turkey’s constitutional court to close down the Islamic AKP party due to allegations of promoting certain virtues in society, analysts and policy-makers have expressed concern about increasing tension in the already politically turbulent country. Political analysts may argue that the move, initiated by certain elements within influential circles of the Turkish state, is meant to maneuver the growth of the AKP.

Ever since the establishment of the Turkish Republic, secularism has been a red line in their politics, although today the secular establishment deemed it obligatory to allow the AKP greater representation, compared to thirty to forty years ago where any attempt by Islamists to capture power was foiled and deterred.

Due to the developments which have taken place in the past few decades in Turkey and the region, the military, which is the most influential source of the secular establishment, has not been at liberty to dictate the political culture of the country according to their visions. With the growth of Islamic movements, both philanthropic and political, along with leftist currents and Kurdish insurgency, the stance of Turkey’s military was forced to be moderated.

The question of which side in the political arena is following the just cause is a matter of deeper political analysis. What is meant to be addressed here, however, is whether the cohesion predicted could take shape through embracing pluralism in a society where many remain disillusioned or intolerant. The positive aspect of the AKP leading the government was that the main Islamic current moved closer to a line of moderation, meaning that the compatibility of Islam and democracy could have been demonstrated.

Furthermore, the presence of two main political trends, a secular and a religiously oriented one, gave the impression to many observers and politicians in the European Union that Turkey is moving closer to viable democracy and upping its chances of entering the EU, ignoring the French opinion on the matter.

It is evident that the secular republicans have acknowledged the importance of adopting a more pragmatic policy, provided that the AKP, once in power, assures the rest of the Turkish population that they will be free of schemes to gradually transform Turkey into a Islamic Republic.

The secular Kemalists, on the other hand, might have to use more progressive methods in promoting their culture. This may be achieved first through reforms within their circles, which would work to preserve the presence and importance of the military while being less reliant upon them; second, by acknowledging humanitarian issues like the Armenian genocide and the Kurdish question, without compromising Turkey’s core values and sovereignty.

The Islamists, on their part, are being tested in this era like never before since even the president is from the AKP, which is a precedent. The AKP is in a position whereby they are responsible for the later developments, and may have to demonstrate their dedication of preserving the secular establishment, which has proven, regardless of its flaws, to be the most successful Muslim country to modernize its society and gain a strategic position in a region troubled by war and ethnic conflicts.

A cohesion would only be feasible if both sides compromised their positions on marginal issues, while guarding Turkey’s status as the only modern Muslim nation-state. It seems evident that the military, the constitutional court, and their proxy institutions are more concerned with protecting Turkey’s identity as a secular nation-state prior to potentially entering the EU, contrary to the view that they are not interested in the EU.

Moreover, the recognition of more minority rights may also enable Turkish immigrants in the West, particularly Germany, to be more accepted and vibrant in the cultural and commercial spheres. The AKP could leave a legacy behind if they succeed in entering the EU while consolidating Turkey’s various factions by endorsing national liberal reforms, ensuring the right for every party to participate rather than for each party to function in a revolutionary (AKP, Kurdish parties) and the other in a counter-revolutionary (Republican People’s Party) way and realize the crucial issues facing the country.

The core issue to be resolved at this stage is for both parties to realize the supreme interests of Turkey, both politically and economically, regardless of the difficulties the country has been facing.

The secular establishment should recognize the economic progress that the AKP-led government has been able to shape, while at the same time ensuring the rest of the Turkish population that it is concerned with preserving the secular values modern Turkey is based on. This could be achieved by proving the state institutions, including the military, to be competent in promoting a culture of liberality and tolerance where the AKP can be assimilated and brought closer to moderation, and to tone down the Jacobin rhetoric and practices upon which they have been reliant on for decades.

Having said the latter, the secular republicans could be seen as a credible force by the European Union and may eventually widen the umbrella of the Western powers (NATO, EU) over Turkey where culture and economics are interchanged freely and constructively.

By Dr. Priyan P. Khakhar is assistant Professor MME Track Olayan School of Business

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Editorial

The winds of change

by Yasser Akkaoui
written by Yasser Akkaoui

Summer is the period when the Middle East harvests the fruits of its hard labors. It is the time when families travel, head to the mountains, and hit the beach. It is a time when they might splash out on those luxury goods with which we reward ourselves: the watches, the cars, the clothes, even the holiday.

And yet even amid the conspicuous consumption of the oil rich statelets, the realities of life in the Middle East do not lie far beneath the surface of the polo clubs, the malls, the hotels, the racetracks and the beach resorts. On June 16, the MI6 branch of British intelligence picked up a coded warning of an imminent terror attack on Dubai. Yes Dubai, the third most popular holiday resort among British holidaymakers and currently coveted as the ideal location for emigration among westerners eager to escape the taxes, gloominess, mediocrity and urban crime of their own nations.

And yet on the cover — and inside — the May 26 issue of Time, the Middle East was portrayed in two distinct colors: the black of a Lebanon newly plunged into civil conflict and the white of a GCC — epitomized by Dubai’s iconic Burj al Arab —  as the affluent counterpoint to a Levant in turmoil with Beirut as the new epicenter.

But what may have been a marketable cover for Time ignores the reality. It is a reality that functions in shades rather than colour. Lebanon may be fragile: there is no government yet and the security situation as witnessed in the more remote areas of the country is uncertain. And yet in Beirut, full of post-Doha euphoria and a new president, the capital gears itself up for what it hopes will be a bumper summer.

In another corner of the spectrum, the GCC appears to go from strength to strength. Oil price margins fuel private equity funds, steel and glass rise out of the sand and the Gulf societies bask in unprecedented attention from western nations anxious to plant corporate, cultural and educational roots in countries they see as both allies and part of a strategic gateway to the eastern markets of the future. And yet we had that irritating warning from MI6.

What protects the whole Middle East is not only a commitment to economic prosperity but one that is underpinned with an equal commitment to security. In a region in which there are many players — let us not forget that the team sheet also includes the US, Israel, Syria and Iran — with many agendas, the winds of change can shift.

We must learn to trim our sails accordingly.

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Banking & Finance

Money Matters by BLOMINVEST Bank

by Executive Staff
written by Executive Staff

Regional stock market indices

Regional currency rates

Syria to collect $550 million from mobile operators in 2008

The Syrian government has forecasted $550 million in revenues from the country’s two mobile operators, MTN and Syriatel. The new figure represents a 31% increase over the 2007 collection due to the build, operate and transfer (BOT) nature of the project. This entitles the government to collect 50% of the revenues instead of 40% in 2007. The Syrian Telecommunication Establishment (STE), a state-owned monopoly fixed-line operator, collects the royalties on behalf of the government. STE, which is expected to have a $1.2 billion of revenues in 2008, is planning on investing $1.5 billion over the next five years in expanding its fixed-line network into remote parts of the country.

Citigroup inks $2.8 billion Yemeni gas project

Yemen’s $2.8 billion gas-liquefication plant, considered the country’s biggest financed project, has been finalized by Citigroup ahead of its June deadline. The project will be financed by a number of entities that include: $120 million loan from Japan Bank for International Development, $400 million loan from Export Import Bank of South Korea, an additional $1.1 billion loan from the French export credit agency Coface. The seven mandated lead mangers will also provide another $1.1 billion in loans. The lead managers are Tokyo-Mitsubishi Bank, BNP Paribas, Citigroup, ING, Royal Bank of Scotland, Société Générale and Sumitomo Mitsui Banking Corporation.

Egypt’s inflation at 15.5%

The Economist Intelligence Unit (EIU) has forecasted an average 15.5% inflation this year, from 9.7% in 2007. The surge in inflation comes at a time of increasing oil prices where the Egyptian government increased fuel prices by 57%, 32% and 35% for 95 octane, 92 and 90 octane fuels respectively. Diesel prices also rose by 47%. Tax on tobacco was increased by 10%. The hikes in fuel prices and cigarettes taxes were implemented to offset increases in public sector wages and subsidies.

The EIU is also forecasting inflation to peek to 22% this year and gradually decrease to 9.1% in 2009. The Egyptian Central Bank has made inflation targeting its main policy and is likely to use monetary measures to curb inflation. The Central Bank has already raised interest rates three times this year with overnight deposit and lending rates standing at 10% and 12% respectively. Rates are likely to be raised by no more than 100 basis points in the coming 18 months in the wake of balancing economic growth and inflation control.

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Financial Indicators

Global economic data

by Executive Staff
written by Executive Staff

Educational attainment of recent immigrants

Percentage of foreign-born labor force and of the native-born labor force aged 25-34 and 25-64 with a tertiary qualification (2005)

Source: OECD

In many emigration countries, emigrants tend to be of higher educational attainment than the general population. This is because emigration involves certain costs, which are more easily borne by persons with higher education and presumably higher incomes, and because highly educated persons are more “tuned in” to opportunities abroad. Whether or not emigrants are more highly educated than the native-born populations of the countries they are moving to, however, depends in part on the history of immigration in these countries, the needs of their labor markets and the returns to different levels of education in destination countries relative to those in the countries of origin.

Recent arrivals to OECD countries who are in the labor force are in some countries more and in others less educated than the native-born labor force. Immigrants to southern Europe, Finland, the Netherlands and the United States in particular tend to show lower levels of tertiary attainment than both the native-born labor force and younger (25-34) native-born recent entrants to the labor force. In France, Belgium and Scandinavia, on the other hand, recent arrivals tend to have relatively more persons with tertiary education in the labor force than the native-born, but less than native-born persons 25-34. Finally, in Austria, Luxembourg, Switzerland, Central Europe and Ireland, the percentage of persons with tertiary education is higher among recent immigrants than among both the native-born labor force and native-born recent entrants to the labor force. Migration to these countries and in particular to Ireland, Luxembourg and Switzerland, is especially highly educated.

Producer Price Indices (PPI)

PPI: manufacturing (average annual growth in percentage)

Compared with consumer prices, producer prices have risen more slowly throughout the period 1993-2006, for OECD in total by 3%. More than half of OECD countries recorded average annual increases of under 2.5% and in two countries, Japan, and Switzerland, producer prices were actually lower at the end of the period than in 1993. All countries recorded unusually sharp rises in 1995, 2000 and 2005-2006 due to sharp movements in world commodity prices. For the Czech Republic, Hungary, Mexico, Poland and Turkey, very high growth rates in the first 3-year period have been replaced by moderate growth in 2003-2006.

Patents

Triadic patent families (number per million inhabitants, 2005)

Source: OECD

Growth during the second half of the 1990s was at a steady 7% a year on average until 2000. The beginning of the 21st century was marked by a slowdown, with patent families increasing by 2% a year on average. The United States, the European Union and Japan show a similar trend, with a stronger deceleration in Japan after 2000. About 53 000 triadic patent families were filed worldwide in 2005, a sharp increase from less than 35 000 in 1995. The United States accounts for 31% of patent families, a loss of around 3 percentage points from its level in 1995 (34.4%); the relative proportion of patent families originating from Europe has also tended to decrease, losing more than 4 percentage points between 1995 and 2005 (to 28.4% in 2005). In contrast, Japan’s share in triadic patent families gained almost 2 percentage points to reach nearly 29% in 2005. When triadic patent families are normalized using total population, Japan, Switzerland, Germany, the Netherlands and Sweden appear as the five most innovative countries in 2005. Ratios for Finland, Israel, Korea, Luxembourg and the United States are above the OECD average (44). Japan has the highest number of patent families per million population (119), followed by Switzerland (107). One of the largest increases between 1995 and 2005, from 7 to 65 patent families per million inhabitants, occurred in Korea. By size, China has less than 0.4 patent families per million population.

Contribution of key activities to aggregate productivity growth

Contributions of key activities to growth of value added per person employed (in percentage, 2000-2006 or latest available year)

Source: OECD

Over the period 2000-2006, “market services” accounted for the bulk of labor productivity growth in many OECD countries. Namely, in Greece, Luxembourg, New-Zealand, Norway, the United Kingdom and the United States, “market services” accounted for over 55% of aggregate labor productivity growth. However, the highest aggregate labor productivity growth performances can still be attributed to the manufacturing sector. This was the case in the Czech Republic, Finland, Korea, the Slovak Republic and Sweden. The contribution of “market services” to labor productivity growth has increased between 1995-2000 and 2000-2006 in Belgium, the Czech Republic, France, Luxembourg and New Zealand. This growing contribution of market services is sometimes linked to an increasing share in total value added, but in the Czech Republic, Japan and New Zealand, for example, it also reflects faster labor productivity growth in the market service sector. However, in several other countries, labor productivity growth in market services has slowed down in the most recent years.

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Financial Indicators

Regional equity markets

by Executive Staff
written by Executive Staff

Beirut SE: Shuaa  (1 month)

Current Year High: 3,423.90  Current Year Low: 1,761.53

The Beirut Stock Exchange was impacted by the latest act in the national political parody, titled approximately “how to form a cabinet.” Shares stayed resilient and Blom Bank’s BSI closed at 2031.83 points on June 26, a healthy improvement of 35.3% from the start of the year. Trading followed sideways trends for a number of stocks, Solidere closed the session above $36 per share, Blom and Audi GDRs closed at $103 and $99.30, respectively, and the common shares of banks Audi, BoB, and Byblos showed slight gains when compared with the end of May while BLC was unchanged and Blom listed shares appreciated by 13.8% between May 28 and June 26. 

Amman SE  (1 month)

Current Year High: 5,043.72  Current Year Low: 3,003.07

The Amman Stock Exchange moved up in early June as if Jordan were nowhere near Asia and immune to any contagion from Far Eastern or Western stock market tremors. The ASE market index crossed one of those famed psychological barriers by climbing beyond 5,000 points June 18 to a new year high of 5043.72 points the following day. Notably, this particular barrier is rather fresh for the Jordanian environment as it derives from the ASE’s new free float index which replaced the weighed index effective from June 8. In the last week of the review period, profit taking and selling moods ahead of the H1 results season erased 395 points from the index which closed at 4648.91 on June 26. Industry stocks led the market and climbed more than 29% between June 1 and 18. APC and JPMC were the focus of sellers after June 18, however, making the insurance sub-index the month’s best gainer, up 15.7%. For easier evaluation of the bourse’s movement in June, the index peak on June 18 was equal to 11,093.9 points in the weighed index.

Abu Dhabi SM  (1 month)

Current Year High: 5,148.49  Current Year Low: 3,327.86

The Abu Dhabi Securities Exchange fared better than the Dubai bourse in June but the largest UAE bourse couldn’t maintain mid-June price levels and the index dropped 1.6% in the course of the month. It closed at 4,957.21 points on June 26, receding below the 5,000 points line after trading above it between late May and June 22. The banking and consumer sub-indices outperformed the general index and ended the review period 3.1% and 1.8% up. Energy was the biggest loser, giving up almost 16% by market close on June 26. Dana Gas weakened to below $0.54 the share but the bigger energy loser was Taqa, which went through a dispute over trading rights for its convertible bonds and slid from $1.09 on June 10 to $0.78 on June 26. In structural terms, the UAE stock exchanges hope for increased listing by family-owned firms as the government announced that minimum flotation requirements for IPOs will be lowered to 25-30% from previously 55%.

Dubai FM  (1 month)

Current Year High: 6,291.87  Current Year Low: 3,968.09

The DFM index line had that downcast look in June that comes from dropping more than any other GCC market in this month. The first four sessions were alright but then things went south and the DFM general index closed at 5,432.43 points on June 26, down 4.3% from its reading at the end of May. With all sectors in the red, banking and insurance did better than other sub-indices whereas consumer staples severely underperformed and ended the period 22.2% down. The UAE, among whose main drawing points for business is the stable political and security environment had a fright minute from a warning by the British Foreign Office that terrorism is now a high danger for the British — and by implication all other — expatriates living in Dubai and other parts of the country. On the day after the terrorism alert was splashed across global media the DFM went down but only by a blip of three quarters of one index point, barely noticeable in the overall drag.

Kuwait SE  (1 month)

Current Year High: 15,654.80            Current Year Low: 12,039.00

The Kuwait Stock Exchange carried its uptrend to further highs, making it six months of consecutive index gains. With a 3.7% rise in the general index from the start of June until its close at 15,562.60 points on June 26, June was even more kind to Kuwaiti investors than each of the two previous months in terms of absolute point gains. The index scaled a new historic high at 15,654.80 on June 24 before dropping a bit ahead of the summer and the results season for the first half of 2008. The banking sector paced market gains early in the month but by the second half of June, industrial and real estate values were the star gainers, respectively adding 8.6% and 7.7% on the month. First Dubai Real Estate Development Co was late June’s top gainer on the KSE, climbing 29% on the week and 9.1% on the day to close June 26 at $4.53. The stock was already on the up when the board on June 25 adopted a proposal to increase the capital by about four-and-a-half times, to $378 million. The increase, if approved by shareholders, will include a 200% bonus shares issue.

Saudi Arabia SE  (1 month)

Current Year High: 11,895.47            Current Year Low: 6,900.50

The Tadawul Index traded sideways but managed a small gain in June and closed at 9581.34 points on June 26. The Saudi Stock Exchange is still down more than 14% since the start of the year but looks much better when one takes a glance to the east where stock market indices on the other side of Asia have been ravaged in the first half of 2008, losing up to 54% in the year to date. In the second half of June, the Saudi hotels, insurance, and banking sectors booked gains while the industrial and retail sub-indices trailed below the market trend. At the end of the review period, news from foiled terror plans for attacking oil facilities at Yanbu and in the Eastern Province caused some instinctive selling that added a downward nudge to the monthly picture. 

Muscat SM  (1 month)

Current Year High: 12,109.10            Current Year Low: 6,309.94

The Muscat Securities Market had a slight net loss of 0.6% when comparing its close of 11,484.23 points on June 26 to the start of the trading month. Intra-month, the MSM index touched a new record high of 12,109.1 points on June 11 before giving up those early June gains in the second part of the month. The MSM’s downward movement in those two weeks was on account of banking stocks while the services sector traded sideways and the industrial sector added further gains between June 11 and 26. Individual stocks showed volatility and by late June there were both limit-up and limit-down movements in the same session. Banking heavyweight Bank Muscat shed 15.2% of its share price from June 5 to 26.

Bahrain SE  (1 month)

Current Year High: 2,902.68  Current Year Low: 2,409.27

The index on the Bahrain Stock Exchange corrected downward by 61 points after recording a year high of 2,902.68 points on June 16. On the month, the index weakened by 1%. The insurance sector was the BSE’s best performing sub-index in June, showing intra-month gains of almost 4% and closing still in positive territory on June 25. Hotels and tourism was the only other sector to stay out of the red while banking slipped in the second half of the period and underperformed the general BSE index. Banking heavyweight Ahli United dropped 6.3%. In the longer-term view, the BSE is moderately up from the start of 2008 and in late June reported the lowest P/E ratio of all GCC bourses at 12.27x.

Doha SM: Qatar  (1 month)

Current Year High: 12,627.32            Current Year Low: 7,340.06

The Doha Securities Market starts June with positive sessions and the index climbs to a June 11 year high of 12,627.32 points. The DSM slides back below 12,000 points and closes at 11,875.09 points on June 26, marking a net loss of 0.1% in the review period. The banking sector led the market up and down through the month, letting the insurance sub-index come out on top as June’s best performer among DSM sub-indices. Industry and services under perform the general index in June. While opposing movements of DSM and KSE in June put the two exchanges on near identical footing in year-to-date share price gains of about 24%, the DSM is still the priciest in the GCC in terms of P/E ratios. In a development which participants hope will boost Doha’s future as regional financial hub, the NYSE Euronext exchanges make a deal with Qatari authorities for buying 25% in the DSM for $250 million; the contract’s completion is expected in the fourth quarter of 2008. 

Tunis SE  (1 month)

Current Year High: 3,059.63  Current Year Low: 2,436.94

The Tunindex conquered a new record high on June 26, closing at 3035.50 points. The closing price represents gains of 2.5% on the month and 17.05% from the start of 2008. During the second half of June, banks traded range bound with the general index while the financial services and consumer goods sub-indices outperformed the market; the industrial index trundled behind. In the year-to-date view, the two financial sub-indices — financial services and financial companies — rocked, with gains of 57.3% and 23.3%. Shares of Assad, a battery manufacturer, continued to gain in June and ended the review period at twice the price they traded at at the end of April. Assad and global manufacturer of industrial batteries, Enersys, announced a manufacturing joint venture.

Casablanca SE All Shares  (1 month)

Current Year High: 14,925.99            Current Year Low: 11,271.35

Perched on its hyper-valuation of 33.3 times price to earnings, the Casablanca Stock Exchange crept sideways and a bit downwards into the summer. The index closed at 14,188.96 on June 26, down by 328 points from the start of June. Market cap leaders Maroc Telecom and Attijariwafa Bank moved with the downward trend in June. While the Moroccan financial market’s relative isolationism as affecting local investors continues to distort the picture, the economy’s overall outlook of above 5% in 2008 and 5.5% in 2009 offers encouraging perspectives for the second half of this year.

Cairo SE: Hermes  (1 month)

Current Year High: 103,313.60          Current Year Low: 67,011.50

The Cairo and Alexandria Stock Exchanges in June didn’t make it out of the doldrums which the Egyptian had slipped into in May when the government announced an end to certain industrial subsidies and tax breaks. A 7,500 points fall in the EFG Hermes index in June to the close of 87,814.12 points on June 26 meant that the bourse dropped into the red on its year-to-date record and ended the review period 5.3% down when compared with the beginning of 2008. Market heavyweights Orascom Construction Holding and Orascom Telecom Holding shed 4.9% and 11.5%, respectively, between June 1 and June 26. At the end of the period, the market suffered another hit on the short-term confidence front when it was announced that the sale of Banque du Caire did not go through as planned because the government deemed the $2.025 billion valuation of BDC implied in the offer by top bidder National Bank of Greece as too low. 

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Nahr el-Bared: One Year On

by Peter Speetjens
written by Peter Speetjens

Better late, than never. That could have been the motto for the June 23 donor conference in Vienna, in which a string of western nations pledged to pay $122 million for the reconstruction of the Palestinian refugee camp of Nahr el- Bared. A similar conference will be held in Riyadh next month, where Lebanon’s Arab brethren are expected to cough up another $225 million.

That leaves the cash-strapped Lebanese state still $103 million short of the $450 million needed to rebuild the camp, according to Palestinian relief organization UNRWA. Yet, it is a start, and it is about time for a start, as more than a year after fighting erupted, the majority of internally displaced still live in utter misery.

Situated 15 km north of Tripoli, Nahr el-Bared became a theater of war on May 20, 2007, when militants of Fatah el Islam, a Sunni fundamentalist group with suspected links to Al Qaeda, attacked a Lebanese army post killing 7 soldiers. In more than three months of fighting and intense shelling, some 222 militants were killed and 200 arrested, while a total of 169 Lebanese soldiers and 47 civilians died. An estimated 35,000 civilians were forced to flee their homes, as Lebanon’s second-largest Palestinian camp was left in ruins.

A recent survey by Lebanese NGO Naba’a sheds a light on the living conditions of the people displaced by the fighting. It appears that a total of some 6,200 families fled the conflict, some 5,000 of which took shelter in the nearby Palestinian refugee camp of Beddawi, which more than doubled in size. The remaining 1,200 fled to friends and family in other parts of the country.

Today, nearly 3,000 families still live in Beddawi, while nearly 2,000 have returned to Nahr el-Bared. Of the people living in Beddawi, only 10% were able to buy a new home, while 25% rented a room and 5% lived with family. A stunning 60% of families lived in garages. Interestingly, the report distinguished within the category “garages” a sub-category called “bad garages,” which are the ones that not only suffer from intense heat, but also from “leakages, humidity and insect infestations.”

On a social level, the survey not surprisingly concluded that cramped living conditions and economic despair had lead to an increase in marital problems, divorce, school violence, (medical) drug abuse, and a significant decrease in the average marital age. It is thought that parents marry off their children at an earlier age, as several funds offer financial aid to the newly-wed.

Most of the some 1,200 families that returned to Nahr el- Bared were able to return home, while several hundreds live in prefab houses built by a variety of NGOs. However, despite all good intentions, the quality of the temporary shelters differs greatly and it does not take a genius to figure out that life is not exactly perfect for a family sharing one room under a zinc roof roasting in Lebanon’s summer sun.

One should know that Nahr el-Bared is really two camps. Established in 1948, the 1.9 square kilometer “old camp” was completely destroyed and remains sealed off by Lebanon’s armed forces. It is built on government land that was leased to UNRWA for a period of 100 years. The larger “new camp” was built on land acquired over the years by the Palestinians. It was left 60% destroyed.

According to government officials, the old camp remains off limits for its former inhabitants, as the area needs to be cleared from mines and unexploded ammunition. However, Palestinians wonder why on earth this has taken so long, while they share an outspoken fear that the government aims to only partially rebuild Nahr el-Bared to reclaim the land on which the old camp was built.

Speaking at the Vienna donor conference, Lebanon’s Prime Minister Fouad Siniora stressed that the reconstruction could not and would not be partial. According to him, the reconstruction of Nahr el-Bared not only offers some light at the end of tunnel for the thousands of displaced, but also serve as a means to re- establish the Palestinians’ confidence in the Lebanese state.

The importance of his last remark cannot be underestimated. Ever since the Civil War, there has been a great deal of mistrust between the Lebanese state and the Palestinians residing on its soil, while poverty and a sense of maltreatment form a fertile breeding ground for extremists.

It is a true disgrace that financial pledges to rebuild Nahr el-Bared took such a long time to materialize. But, as said, better late, than never. Now, to avoid another battle of Nahr el-Bared, or Ain el Hilweh for that matter, let us hope that the donating countries live up to their promises, sooner rather than later. Yet, seeing the discrepancy in promised and delivered aid for recent disasters around the world, that remains very much to be seen.

Peter Speetjens is a Beirut-based journalist.

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Levant

Energy – A pipe dream nightmare

by Executive Staff
written by Executive Staff

Across-border pipeline is among the most important geopolitical factors deciding the future nations involved. The Arab Gas Pipeline is no different. Starting in Egypt and passing through Jordan, Syria, Lebanon and Turkey, the pipeline will be crucial not only in providing these countries with energy, but in binding political agreements and even peace deals — if one country stops the pipeline, others will suffer, and thus each link of the network has to function for all to benefit. Unless, of course, the country is Lebanon.

The Arab Gas Pipeline, an operation that was to have begun several times already, was originally designed to pass through Lebanon, rather than dead-ending in the country.

The initial plan determined the pipeline would start in Egypt, go underwater to Lebanon, then overland to Syria and Turkey. That design would have practically permanently secured supply to tiny Lebanon — if gas transmission stopped here, it would also stop going to Syria and Turkey. But Lebanon, instead of being an intrinsic part of the pipeline, ended up becoming only a branch.

According to energy expert Chafic Abisaid, former director of studies in the Electricite du Lebanon (under the Ministry of Energy and Water), changes in the pipeline route came around 1996, when the Jordanians began lobbying Egypt to be part of the network. Indeed, it does make more economic sense that the pipeline go through Jordan, rather than through Lebanon. But with the new trajectory, almost a third of the energy supply to Lebanon will be under the whims of Syria, who will be able to close the tap without harming the other pipeline partners. Although just a possibility, its mere suggestion upsets government officials.

Empty pipelines
“We are part of this Arab Gas Pipeline, I insist on this,” said Sarkis Hlaiss, General Manager of Oil Installations in Lebanon. “Our contract will be signed between Lebanon and Egypt, not Lebanon and Syria: we will pay the Egyptians the money, we will receive their gas in the Syrian-Lebanese border.” But even without a direct agreement with Syria, Abisaid is more skeptical. “We had signed a 25-year contract with Syria but it has not been honored due to non-technical problems,” said Abisaid. There is already a pipeline connecting Homs, in Syria, to the power plant in Bedawwi, Lebanon, but as yet it has seen no gas. Completed in 2005, the pipeline was supposed to start pumping gas to Lebanon a few days after Rafik Hariri’s assassination.

“We were supposed to receive the gas on February 28th 2005, 14 days after the assassination of president Hariri, but we didn’t. I kept on contacting them and they said they didn’t have enough gas for their own power plants,” Hlaiss said. But now, as he explained, “the question is different. We are buying Egyptian gas.”

Indeed, the new agreement stipulates that Egypt sends a certain quantity to Syria with a surplus, so that Syria can in turn send its own gas to Lebanon, in an amount equivalent to the surplus it got from Egypt. “It’s an international affair,” according to Hlaiss. But even with an agreement that is regionally binding, some people remain unconvinced.

For Fadi Abboud, president of the Lebanese Industrialists Association, “anything to do with the Arab world is subject to the mood of the ruler, subject to politics.”

The electricity crisis in Lebanon has gone from dire to calamitous. In Beirut, for over a year most areas lack electricity for at least three hours per day. In the Metn area where many factories are, there have been power cuts lasting up to 20 hours a day.

And there is not much hope in the short term. When asked when the pipeline will start operating, an EDL official answered “only God knows.” Yet even with the pipeline, Lebanon’s electricity problem will not be solved.

Missing megawatts
What Lebanon lacks is not fuel, but power plants to convert the fuel into energy. The four main power plants in the country produce some 1,400 megawatts, way below the necessary 2,100 megawatts estimated as Lebanon’s total demand. Some say the deficit is even bigger than that, and it can reach 50% even when all the power stations are working at full capacity. What the pipeline would do is to allow the government to save money, to the tune of “hundreds of millions of dollars” every year, according to Hlaiss. Asked for a specific number, he echoed the usual lack of figures and says only EDL could answer that question.

EDL did not answer, but if the current price of oil is any indication, the government would save significantly by purchasing natural gas rather than oil. EDL’s losses are said to be $14 billion, and privatization seems to be the only solution to curb yet another government utility that does not escape the sectarian criterion for manning its ranks.

Privatization, then, is the dream solution for technicians, experts and the people who know how to manage a company. “I am 100% in favor of privatization,” said Fadi Abboud, “but we have tasted privatization in the past and it was the worst type of monopoly or duopoly.” Abisaid concurred. “There is a [privatization] law but it hasn’t been implemented. It is the law 462 of 2002.

The first thing that we should do, and in that law they did it right, is to have a regulatory body to control the energy sector. Five people should have been appointed but since 2002 they haven’t done it,” he said. That may help explain the surreal situation in Lebanon: on the one hand the country is plagued by power cuts, on the other it is possible to see streetlamps lit in broad daylight.

Some experts say because Lebanon is already dependent on oil and gas imports and is also a victim of government mismanagement, the country should not increase its predicament by depending on a single source — not only is it economically unsound, but it is also politically risky. “We cannot rely just on the Arab gas because they can bring us on our knees,” said Abboud.
 

Energy expert Abi said agrees, and supports energy diversification as a strategic necessity. “My first strategic choice is LNG, liquid natural gas [which comes from the sea, as liquid gas cannot be transported through pipes].” LNG is more environmentally friendly and requires less maintenance and repair. But Lebanon would have to build terminals. USAID estimates each terminal would cost some $220 million. Despite the price, this investment could be recuperated in less than two years: “When you have 30% saving from natural gas and the price of oil keeps on rising, you can recuperate it even in less time,” said Abisaid. The Homs pipeline is a last option for him. “Only one source coming from Homs means that any problem with the pipeline will result in complete interruption.”

Despite the incredulity even among EDL officials, Hlaiss believes the pipeline will start functioning in September. The project — ambitious both economically as well as politically — may eventually take Arab gas all the way to Europe through the planned Nabucco pipeline.

In fact, the Arab Gas Pipeline is just one part of the so-called Euro-Arab Mashreq Gas Market Project. At a meeting May 2008 in Brussels, the EU, Iraq, Turkey, Egypt, Jordan, Syria and Lebanon finally reached an agreement to connect those countries to the Arab Gas Pipeline and establish the Euro-Arab Mashreq Gas Co-operation Centre at the cost of $11 million, with a $9.4 million grant provided by the European Commission and $1.6 million contributed by the four Mashreq countries (Egypt, Jordan, Lebanon and Syria).

The involvement of Europe makes the project more likely to materialize, and it may revolutionize energy consumption and environmental protection in the region. Lebanon may yet be left out of the pool, but perhaps not. The first official visit of a minister in Fouad Saniora’s government to Damascus since November 2006 happened in February this year, and the official to pay the visit was Mohammed Safadi, Lebanon’s Minister of Energy and Water.

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Levant

Economy – Celebration after Doha

by Executive Staff
written by Executive Staff

A deep-felt sense of relief descended on Lebanon as soon as Lebanese politicians inked the Doha Agreement on May 21, ending nearly 18 months of political deadlock. It was remarkable to see what a simple signature can do for life on the ground. Within hours, the opposition’s makeshift camping that had paralyzed downtown Beirut was dismantled and the army removed most of the checkpoints, which had emphasized the war-like mood in the Lebanese capital.

In tune with the sudden upbeat mood, bubbly pop diva Haifa Wehbe’s concert one day later launched the rebirth of downtown Beirut, which in the following weeks gradually regained some of its former glory. If one were to stroll through the city today, seeing the bustling restaurants and terraces, one can hardly imagine that only weeks ago barbed wire separated soldiers from demonstrators.

Although by late June Lebanon’s politicians had still not agreed upon the make-up of the new cabinet, the sense of relief following Doha was rapidly translated into a variety of positive economic indicators. Not only did shops and restaurants in the downtown see the return of some clientele, but stock prices soared, over one million tourists are expected in summer, while the banking and real estate sectors, which suffered the least during the past three years of political turmoil, are likely to pick up pace.

Even the World Bank is upbeat. In its latest Global Development Finance Report, the financial watchdog predicted Lebanon’s GDP to grow by 3.5% in 2008. The report pointed out that Lebanon recorded a meager 1% growth in 2007, while the average growth rate in the MENA- region amounted to 5.7%. However, if Lebanon is able to maintain political stability, growth could amount to 4.5% and 5% in 2009 and 2010 respectively.

Solidere stocks swing upward
One immediate winner of the Doha Agreement was the Beirut Stock Exchange (BSE), and especially Solidere. Most recent trading at the BSE concerned Solidere shares, which should not come as a surprise, as Lebanon’s largest property firm manages part of downtown Beirut.

While the price of Solidere shares amounted to some $22 in early May, it climbed to over $31 within hours of signing the Doha Agreement. On June 20, the price of Solidere A and B shares closed at $37 and $36.7 respectively. There was more good news regarding Solidere, as the firm in June announced a net profit of $155.9 million in 2007, up 18% compared to just a year earlier.

If the Doha Agreement holds, and downtown Beirut remains open to the public, Solidere share prices are likely to climb further, certainly seeing the upcoming opening of the Beirut Souks, which is to add some 100,000 square meters of retail space to the Beirut market. In the near future, it will also embark upon sale of the reclaimed lands at the Normandy Bay.

Solidere was not the only firm to fare well on the sudden wave of optimism. Hot on the heels of the Doha Agreement, Audi shares increased by 5.4% to $96.95, Bank Audi GDR shares by 10% to $101.80, Byblos Bank shares by 10% to $2.76 and Blom Bank GDR by 7.7% to $106.20. By the end of June, Bank Audi shares still stood at $95, while Byblos Bank shares traded at $2.80.

Although the Doha Agreement and political stability will surely do it no harm, the Lebanese banking sector has proven quite resilient in recent years. In 2007, combined assets increased by some 10% to $82.3 billion, while deposits amounted to $67.3 billion. Foreign currency and gold reserves also increased. In fact, a recent report by investment bank EFG Hermes ranked Lebanese banks among the least risky and most attractive in terms of growth forecasts in the Arab world. Admittedly, EFG Hermes may not be entirely impartial, as it is in merger talks with Bank Audi, which has been the main cause of the recent price hike.

Property prices forge on
Likewise, the real estate sector has so far held its ground. According to Ramco real estate advisers, prices increased by some 30% in 2007 and 25% in the first quarter of 2008. Although no major new projects were announced, numerous residential buildings are being constructed in and around Beirut. The ongoing construction activities may be illustrated by the fact that, according to the Lebanese Central Bank, cement deliveries in 2007 went up by 8% and construction permits rose by 24% — although, putting this in context, the area under construction only increased by 4% to 9 million sq. meters.

Again, if political stability will prevail, the construction and real estate sectors are likely to expand. Situated in downtown Beirut, the Landmark Tower and Beirut Gate, two projects with a combined value of some $2 billion that were halted due to the political deadlock, are likely to restart in the coming weeks.

Illustrative of the gradual return of investor confidence was arguably the return of Khalaf Habtoor, founding father and chairman of the Emirati Habtoor Group, who invested hundreds of millions in two hotels and an amusement park. Last year, Habtoor publicly slammed Lebanese politicians and authorities for failing to provide security. This June however, he was all smiles again during an animated re-opening of one of the hotel’s restaurants.

Yet it is not just the region’s business elite that has returned, or may do so in the future. Lebanon’s Tourism Minister Joseph Sarkis announced to expect between 1.3 million and 1.6 million visitors to flock to Lebanon this year, compared to some 1 million in the previous two years combined. His positive outlook for the summer was confirmed by the Lebanese Hotel Owners Association, which claimed an increase of 30% in hotel bookings by the end of June compared to the previous year.

“As soon as the Doha Agreement was signed, the phone started ringing and the summer looks very promising,” said Rita Chbat, communications executive of Mövenpick Hotel & Resort Beirut. Chbat defined 2005 as “difficult yet healthy,” 2006 as “staggering” and 2007 as “somewhat challenging.” Chbat’s tempered optimism was shared by her counterpart at the Phoenicia InterContinental Hotel, Michelle Mallat, who confirmed that the phone had not stopped ringing and many reservations were made, though could not give any occupancy rates.

Return of the tourists
Figures collected by Lebanon’s Ministry of Tourism indicate that the number of tourists to Lebanon totaled 277,054 in the first quarter of 2008, up by 2.6% from the same period of 2007. It should be noted that 2007 recorded a 20% dip compared to the first four months of 2006 when the number of tourist arrivals had significantly picked up compared to 2005, the year Rafik Hariri was killed. The number of Arab tourists amounted to 90,394 in the first quarter of 2008.

According to Nizar Khoury, commercial manager at Lebanon’s carrier Middle East Airlines (MEA), reservations were picking up fast. Khoury said to expect a 20% increase in passengers to Lebanon from last year’s 450,000 to 500,000. As reservation numbers are picking up even day-to-day, it could even be a 30-40% increase over the summer.

The bulk of tourists coming to Lebanon not only consist of Gulf nationals but also Lebanese expatriates, who like to spend the summer on their home turf. At times, they have a second nationality and may be registered as being French or American. The majority of tourists in 2007 were in fact Lebanese. While tourism accounted for up to 20% of Lebanon’s GDP before the Civil War, it is thought the sector could contribute up to 12% of GDP, again, if the country is able to maintain calm and stability.

With an eye on the expected rise in tourist arrivals, car rental companies are have witnessed a surge in demand. Milad Hanna, marketing manager of City Car Rental, said that 90% of their some 300 rental cars had already been booked for the summer, which was a significant increase compared to last summer.

The expected wave of tourists will no doubt be welcomed by shops and restaurants in the downtown area, as they arguably suffered the most from the 18-month political blockade. While there are over 100 restaurants in downtown Beirut; some 30 to 40 have reportedly closed in the past few years. Likewise, the cultural festivals of Baalbek and Beiteddine will be delighted by the increased stability.

For two consecutive years, the famous summer festivals were cancelled, yet this year they are firmly back on the agenda. The season will be opened in downtown Beirut on July 27 by the high-pitched voice and happy tunes of Mika, an internationally acclaimed pop idol of Lebanese descent. And so the Doha message may be clear: after three failed summers, the Lebanese will be celebrating this one and, honestly, who can blame them?

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