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Chary of the summer shop

by Riad Al-Khouri
written by Riad Al-Khouri

The region’s rich are certainly getting richer, to the delight of the purveyors of luxury goods. As the jewelers of Paris and the watchmakers of Geneva will testify, the influx of rich Arabs into Western Europe each year turns the summer season into boom time; and the wealthy don’t care too much about the exchange rate of the euro, sterling, or the Swiss franc.

London in particular has long been the Mecca, as it were, of Middle East shoppers. However, in the globalized 21st century, if you can’t go to Regent Street, it will come to you — the latest example of this being the launch in Amman of a branch of the up-market UK toy store, Hamleys. Choosing the Jordanian capital for a first- ever outlet outside Europe, Hamleys opened in Amman in mid- June to considerable fanfare. This would have been hard to imagine a decade ago, when the price of oil was closer to ten dollars a barrel, but with hordes of Gulf Arabs and prosperous Jordanian expats now descending on Amman every summer, the British toy retailer will be doing a brisk business over the next few months. Come winter, however, Amman goes back to being just another capital of a middle- income developing country. No matter: as summer comes around again in 2009, affluent Arab consumers will return, a pattern also replicated in Beirut and Damascus.

Some of this petro-largesse trickles down to the poor, and a considerable swathe of the local population ends up benefiting for one financial quarter, in what has become the Arab Levant’s annual summer boom. However, this should be a complement to business during the rest of the year, not a substitute for nine months of relative slump. Capital cities — and societies as a whole — cannot depend for their livelihood on such a pattern of business, which is potentially unstable in the absence of solid infrastructures and high standards. Faced with shoddy service or rickety infrastructure Gulf Arabs, and to a lesser extent Levantine expatriates, will eventually head elsewhere. There is no shortage of convenient leisure destinations; places from Malaysia to Morocco — and Turkey nearer by — have become magnets for tourists, many of them from GCC states. So the hoteliers and boutique owners of Lebanon, Syria, and Jordan, not to mention policymakers, had better get their acts together to keep their customers.

The other problem with these sub-regional summer booms is what economists call the demonstration effect. Put simply, when a Jordanian living on the equivalent of a few hundred dollars a month sees lots of richer people around him between June and September spending that amount in an hour, envy sets in. In an ideal world, the poorer Jordanian would work harder and make enough to buy the luxuries he sees around him. In fact, with an attitude left over from the bad old days of the late 20th century, he often begs, borrows, or steals to acquire these things before he has managed to be more productive, thus leading to lower savings and a pattern of buying that is wasteful.

Waste was not a big problem back in the 1970s, when newly prosperous Arab states like Jordan created a pseudo- welfare state, subsidizing such basic items as bread or sugar. From the 1990s, that changed, but a shift in the way people perceive work and productivity has not yet happened. For many in the region, the old oil boom brought with it poor attitudes to work, and conspicuous consumption; the new regional prosperity of the past half- decade threatens to do the same, except that the state is no longer there to cushion things through subsidies of basics like food or electricity. That is because Jordan and the rest of the non-oil Arab economy has had over the past decade or so to cope with changing the roles of the public and private sectors by reducing handouts.

Such a process is difficult, but the alternative is to go back to old patterns of waste and sloth. Mindsets that saw poorer Jordanians and others in the Levant sponging off the state may now be converting into similar attitudes towards the affluent. That in turn is promoted by the pressure to consume. I am not saying “Hamleys go home” since my young children would never stand for it; neither in a free market do I want to ban the sale in Beirut of Zegna ties. However, a closer look by regional policymakers at the rest of the economy would be good. Summer shopping and tourism are fine, but cannot alone spearhead sustainable growth. In fact, they could end up creating new problems.

Riad al Khouri is visiting scholar at the Carnegie Middle East Center, Beirut; and senior fellow of the William Davidson Institute, the University of Michigan

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Flying beyond reach

by Paul Cochrane
written by Paul Cochrane

Fifty years ago, airplane travel was a luxury only the wealthy could afford. Indeed, my father recalls trips to the Belfast airport when he was a lad in the late 1950s, not to meet relatives or friends flying in, but to watch the planes come and go — it was an enjoyable family day out.

For a generation such as mine, on a plane at just six months old, we want to spend as little time as possible in an airport. Watching the planes is a mere diversion between security checks and whiling away the time at the boarding gate. But with oil prices that are going anywhere but down, the age of the cheap flight could be over and flying may again be a privilege confined to the well heeled.

This is a shame as over the last 30 years hundreds of millions of people have been able to fly more affordably, see the world, and contribute to one of the world’s economic staples: tourism.

Some 230 million people worldwide rely on tourism revenues, and although the benefits of tourism can be debated, particularly on the environmental and social level, peoples’ livelihoods and billions of dollars are nonetheless at stake. Furthermore, billions of people have not been able to step on a plane yet alone experience the cultural, natural and man-made wonders of this world.

With oil prices rising 42% in six months, airlines are in trouble. Fuel now represents 40% of airlines’ expenses, with the average airline spending $299 per passenger round trip on fuel alone, compared to $70 in 2000 and $151 last year.

Of further concern to the sector is that, according to analysts, a 3% rise in the price of oil over a day is enough to write off a year’s profits. Airlines are consequently bumping up prices (27 times in the US last year), charging for baggage, and cutting schedules and destinations.

Such price spikes and associated inflationary pressures have had an immediate impact on international tourism, which was pegged at 898 million international tourist arrivals in 2007 by the UNWTO World Tourism Barometer. The latest International Air Transport Association’s (IATA) figures show that global traffic growth in March 2008 was down to below 4%.

The IATA, which represents 93% of the global airline industry, found the biggest falls in passenger traffic were for airlines in the Asia-Pacific, the Middle East and Africa. Growth in the Asia-Pacific dropped to 4.3%, the Middle East’s growth slowed from last year’s 20.4% to 15.4%, while African traffic contracted 4.3%.

The downturn could not have come at a worse time for the industry, which has just managed to claw back into the black for the first time since 9/11, with profits of $5.6 billion in 2007.

This year’s figures prompted IATA director general Giovanni Bisignani to say at a conference in Istanbul that the industry had taken “a major turn for the worse,” predicting growth for 2007 at 3.9%, down from 7.4% last year, and estimating losses for the sector at $6.1 billion if oil remained at $135 a barrel.

“Astronomical oil prices are hitting hard and the buffer of an expanding economy has disappeared,” Bisignani explained.

The surging cost of oil is indeed worrisome, and especially, one presumes, for the investors putting up the capital for the billions of dollars in tourism developments and new airports; in the GCC alone, tourism and airport developments are worth an estimated $272 billion and $43 billion respectively.

Without affordable tickets, people will fly less and those that do may have fewer tourist dollars to spare. Such prospects should force governments to take a hard look in the mirror about the long-term viability of such tourist and air transport related projects, as well as basing economic strategies around what can be an unpredictable money earner.

If oil keeps rising, what we’re likely to see instead is a return to national and regional tourism as the medium- to long-haul flight dependent tourists disappear from view. The Middle East, bolstered by Gulf money, will be able to support a large local tourist industry, and arguably be able to subsidize national carriers with cheap fuel. Indeed, Virgin Galactic announced last month they plan to open a spaceport in the UAE for flights to space. Then again, at $200,000 a ticket to do some space tourism, that really is a luxury.

But just as the lucky few in the very near future will be gazing down at the earth while everyone else has to watch space shuttles taking off, so might that majority have to resort to watching planes at the airport, reminiscing about the golden age of cheap air travel. For now, it’s an opportune time to fly as much as possible before you need a bank loan for an airfare that used to cost less than a month’s rent.

PAUL COCHRANE is a freelance journalist based in Beirut.

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Red carpet arrival

by Claude Salhani
written by Claude Salhani

Imagine traveling in the following manner: a sleek, dark and shining luxury limousine whisks you from your hotel to the airport. The speed limit is of no concern to your driver. In any case, there is hardly a traffic cop who would dare interfere after a quick glance at the license plates identifying the car as part of the royal or presidential motor pool. The thick, tinted windows prevent onlookers seeing who is being chauffeured. In fact, policemen along the way halt traffic to ease you safely through intersections.

Instead of stopping outside of the departure terminal the car drives around to an exclusive and private section of the airport. While you sip a cup of freshly served coffee, someone is taking care of your travel documents, luggage and ticketing. All you need to do is to present yourself at the airplane door, well after the final boarding call has been made, at which point your uniformed escort hands you your briefcase and boarding pass as he bids you farewell.

Or better yet, at other times the limousine drives onto the tarmac, stopping at the foot of a private jet, where once you board, a flight attendant serves you a glass of chilled champagne as the pilot switches on the engines and readies for takeoff.

There is luxury travel and then there is a class beyond. Luxury travel is open to anyone who can afford it — from first class, available to the “common variety” business executive. Or then again, mixing in with the fancy business suits in first class is the seasonal traveler who has saved up enough air miles to splurge on an occasional upgrade, allowing the traveler to see how the other half lives. (Air miles accumulated perhaps after five cross-Atlantic trips cramped in the back of the bus.)

One step above first is luxury travel, accessible to only the rich and famous of this world, for whom cost is no concern. Those who possess their own Lear Jets, sleek cars, and travel frequently between New York, London, Paris, Rome and other locations around the globe for business or pleasure, or both.

Those are the travelers who will reserve the royal suite to the tune of several thousands of dollars a night. Dinner in the best restaurants, where the common mortal may require about three months notice to get in, and will need three months of his salary in order to pay for the dinner.

Anybody with enough money can purchase a first class airline ticket, but that does not get one passed the ever-growing security lines at airports, the repeated body searches and as is the case in most U.S. airports, the added humility of having to take off shoes, belts and vests and being herded like cattle.

Nor does it get you past the inevitable, interminable immigration line upon arriving at once destination.

That class above is reserved to a very particular elite with clout far beyond that of the traditional jet setter. Money alone will not suffice: political influence or the proper connections are a prerequisite for this kind of travel.

Not being a millionaire, unless you count my savings in pre-euro Italian lire or Belgian francs, much of my travels to the 78 countries I was fortunate enough to visit were carried out either in economy class or, during the heydays of journalism when expense accounts were never an issue, in business class. But as a foreign correspondent covering the political movers and shakers of this world, I was often able to sidestep to the luxury class and mingle with the mode of travel reserved to the chosen few, even if quite often the chosen few are self-appointed.

Arriving as a guest of the country’s ruler, emir, leader, king or president is just as pleasant and exciting. You are met right at the aircraft door, escorted along a separate corridor away from the rest of the crowd into a VIP lounge while someone is taking care of getting your passport stamped and your suitcase magically appears at your side.

Years ago I had a wristwatch that included a stopwatch function. Upon landing in one of the Gulf emirates, I decided to see how long it would take from the moment I stepped out of the airplane door, was escorted past customs and immigration and ushered into a waiting limousine: just under three minutes. The mad dash to the fancy five-star hotel hardly took a few minutes more.

This is the kind of travel money cannot buy — or if it does, it requires oodles of it.

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

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Gender (in)equalities

by Rana Hanna
written by Rana Hanna

Women, I was recently told, have no excuse not to be as successful as men. Strictly speaking, true. Girls perform better academically on average than boys, they are better readers and are even, it seems, encroaching on the boys’ traditional advantage of being better at mathematics. So why is it that the most famous names in any domain in life — except women’s tennis and women’s football — tend to be men?

What happens when these girls and boys grow up? Why the discrepancy in achievement in adulthood? Is it that women really are inferior, are they lazy, do they suffer a lack of ambition or are they simply unable to turbo charge their careers because of social and familial constraints?

My argument has always been that as long as women bear the children they will always be left behind in the achievement game. To excel in any field, one needs not only talent. Excelling requires dedication and concentration that go beyond what effort one needs to give to the day job. It requires working asocial hours and being away from home if and when necessary. It is difficult to find women, in the most advanced societies even, who are able to detach themselves from their children for so long.

Believe me, any woman with children cherishes the time she is away from home, alone. Although one can hire drivers and nannies and cleaners and cooks and teachers to fulfill the daily grind, these people come at a price, not only financial but also emotional a.k.a. guilt.

Moreover, women tend to have children who are of a young age when they are in their thirties, which is also the time when they are at their most productive and creative and able to give the most to their chosen careers.

Still, to put my money where my mouth is, I decided to look up women who had made it in this man’s world and check out their family situation. My search started out well.

Amelia Earhart, the famous aviator, had no children. Neither did Camille Claudel, seen as one of the most influential sculptors of the 20th century. Madeline Albright, the first woman US secretary of state, was divorced.

So does the guilt that plagues the mother hen who is away from her chicks indicate that the success gap is biological?

In November 2005, the British Journal of Psychology published a study that claimed that men had physically bigger brains than women and also an IQ that is averagely higher than women’s by around 3-5%. No matter how many women have exceptionally high IQs, it claims, there will be men who will have even higher IQs, who are able to create more and, thus, win more Nobel prizes.

Good for them. We’ll have dinner warm and ready by the time they come back from Stockholm.
My search moved on to the Nobel Prize winners’ list. Of around 780 winners of the Nobel Prize, only 34 have been women. Around half of them had children. Had I lost the plot? Do women really have no excuse not to be as successful as men? Are women genetically wired to raise the kids? Or are men simply, as the controversial British study claims, more intelligent?

Apparently neither. A recent study by the Brookings Institution concludes that women may suffer from an ‘ambition gap’, at least when it comes to politics. It claims that although research shows that women perform just as well as men in office (or whilst running for it), few women actually do run for office. Professional women, according to the study, are not as eager or as ambitious as men to succeed in that field.

Women self-censor, or as put by Ruth Marcus of the Washington Post, “impose their own ‘glass ceiling’.” Women know that they can succeed as well as men but that success and excellence carry a heavy price that many are not willing to make themselves, or their families, pay. (Making the child-bearing female Nobel Prize winners truly exceptional women!)

Now back to that controversial study. The same study that claimed that men are physiologically more intelligent also claimed that when men and women are of equal intelligence, the women tend to achieve more, are more conscientious, methodical and able to sustain long periods of hard work.

Lack of ambition? Call it what you want, I call it common sense. And forget child rearing, can anyone even dare imagine what a man would be like on the first day of his period?

Rana Hanna is a mother of three who is proud of being an ‘under-achiever’.

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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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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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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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Banking & Finance

IPO Watch – Selling from home

by Executive Staff
written by Executive Staff

The United Arab Emirates has finally decided to go ahead with a new commercial law that would allow family owned firms to go public and list on the country’s two stock exchanges by floating between 30% and 50% of their shares in an IPO, rather than the current requirements of 55%. The move by the UAE has received high accolades and analysts say this will encourage more family businesses to raise capital by going public. In the past, family businesses were reluctant to use this route because most did not want to give up controlling stakes in their companies. The new law will allow them to maintain majority control while giving them access to liquidity on the stock markets.

The timing for this is very important at this juncture as the IPO market in the region continues to experience substantial upward movement and new records are expected to be set at the end of 2008. Coupled with the region’s bull markets which are being driven in part by a growing middle class seeking new investment opportunities, investors are expected to make the best of these changes by buying bargain-priced shares of undiscovered “family” companies.

For the month of June the IPO market continued to experience new announcements, the biggest being that a unit of Kuwait’s Global Investment House known as Global MENA Financial Assets Ltd. said it seeks to raise over $500 million by floating some of its shares on the London Stock Exchange. The company said the move is part of its strategy to “tap economic growth in the Middle East.” The sale is expected to take place around July 18 and the shares would be sold to “institutional and professional” investors in the GCC.

In the UAE, Drake & Scull International said it plans to raise $326 million in an IPO by offering 55% of its shares to the public. HSBC and Al Mal are the joint lead managers and the IPO will run from July 1 to July 10. Drake & Scull will offer 55%, or 1.198 billion shares, at AED1 ($0.27) each. Meanwhile, the Abu Dhabi-based investment and merchant banking firm, The National Investor, said it is seeking to borrow $400 million and plans an IPO of 30% of the company’s shares soon after.

In Saudi Arabia, Abdul Ghani El Ajou and Sons Holding Trading Company said it will float about 30% of its shares in early 2009. The company did not provide details about the amount it seeks to raise but analyst say the multiline Conglomerate is set to generate a lot of interest when the IPO is launched. Moving to Kuwait, the oil and gas firm, Kuwait Energy, said it plans to offer 25% of its shares to the public in early 2009. The company did not provide details as to the value of the offering but said that it plans to list on the London stock exchange by mid-2009.

In the Levant, the Amman-based Al Israa for Islamic Finance and Investment said it plans to offer 25% of its shares to the public in an effort to raise around $10 million for administrative restructuring. The IPO launched on June 26 will close on July 9.

Observers say the concept of family-owned and joint stock businesses, which have been the model of choice used by the global community for the past few hundred years, has proved itself to be an efficient and dynamic mechanism for wealth creation and capital raising, and that the global financial markets such as Saudi Stock Exchange, Dubai Financial Market and DIFX are the best ways for corporations to raise essential investment capital. According to a recent survey more than half of the family businesses in the GCC agreed that going public is essential for “their survival.” The remaining 50% will now be even more encouraged to choose going public when the adoption of the new laws take place.

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Capitalist Culture

Lebanon – Wealth or war

by Michael Young
written by Michael Young

This month Lebanon commemorates the second anniversary of the July-August 2006 war, and moreover, the dilemma it created for the country. Druze leader Walid Jumblatt defined that dilemma more than a decade ago as being a choice between Hanoi and Hong Kong; in other words, between Lebanon as a haven for open-ended resistance and militancy, or as a liberal economic system that would seek out peaceful transactions through free markets.

That dichotomy has been often repeated, to the extent that it has almost become a cliché. However, clichés often provide insight into reality, and it was noticeable that in a speech on May 26, the Hizbullah leader Hassan Nasrallah, returned to that dichotomy. He told his audience: “Some put the government and the resistance in front of two choices: Either Lebanon is Hong Kong or Lebanon is Hanoi. In other words either Lebanon is destroyed or it is the pearl of the East, yet with its land occupied, its sovereignty confiscated, its dignity trampled upon, and its security exposed to the Israelis.”

Wherever one falls in this debate, what is of particular interest is the way it has been formulated, so that capitalism, open markets, and striving for prosperity are antithetical to the idea of resistance — or rather of resistance defined mainly as the pursuit of armed struggle.

That approach is surprisingly narrow in this day and age, where power is not exclusively of the gun. The notion of “soft power,” in other words influencing others and shaping their behavior through persuasion and attraction, is now so widespread, so essential a product of globalization, that it too has become a cliché. And what kind of soft power does Lebanon have that might advance its “resistance” against Israel and liberate the Shebaa Farms?

Perhaps more than we know. Recent signs intone that the United States may push Israel to withdrawal from the Shebaa Farms. The US and the United Nations have an incentive to act on this front precisely because of the Hanoi-Hong Kong duality. If the Shebaa Farms can be neutralized, the reasoning goes, this may oblige Hizbullah to disarm, advancing a more attractive model for Lebanon. Their incentive is to react to, but also bolster, Lebanon’s soft power — to show why those things that make Lebanon appealing to outsiders are worth preserving. And if Lebanon offers beaches, good quality education, shopping, economic development, cosmopolitanism, and peaceful prosperity, then what better way to confirm that those attributes mean something in the world than for the UN, US or anyone else to show that it is a strategic priority for them to prevail in Lebanon?

In other words, Lebanon has soft power precisely because the influential in the world are willing to make its more liberal model triumph over the more martial alternative of perpetual resistance — aka Hanoi.

The problem with Hizbullah’s model is, simply, that it is rather grim. No one would deny that the party fought courageously until 2000, when the Israeli army was forced to withdraw from Lebanon. But after that the contradictions between Hong Kong and Hanoi sharpened. With most Lebanese expecting a de-escalation in Hizbullah’s activities, instead the opposite happened: the party accumulated more arms. From liberator of the south, it built up an arsenal suggesting it wanted to liberate Palestine itself. Here was a promise of endless Hanois.

The Hizbullah model is popular in the Arab world. After more than half a century of humiliation in confronting Israel, many see in Hizbullah a fighting force that works. But this lasts for as long as the fighting remains limited to Lebanon, where, not surprisingly, militancy is less popular, perhaps because the country is demolished every time serious shooting starts. Perhaps too because Hong Kong will always be much more appealing than Hanoi, since it offers an infinite number of possibilities and variations beyond the use of weaponry.

Hizbullah’s critics ought to define better how soft power can achieve the goals Hizbullah claims to be pursuing. They ought to show how being Hong Kong need not necessarily be a tale of land occupied, sovereignty confiscated, dignity trampled upon, and security exposed.

But on Hizbullah’s side, the party must really do better than simply dismiss the liberal capitalist model, Hong Kong, as a byword for perdition. Whatever Hizbullah does, the Lebanese, and we suspect most other Arabs, will always prefer an approach that promises more than open- ended conflict. With liberal capitalism you can be who you want, say what you want and make money if the opportunity allows. An ideology of war, in contrast, means what you build might soon be destroyed, what you want to be may be not be allowed and the opportunities you seek might disappear when the rockets fall.

Nasrallah is right. There are only two choices — and I suspect a majority of Lebanese have already chosen.

Michael Young

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Financial Indicators

Global economic data

by Executive Staff
written by Executive Staff

Interest rates on government borrowing (as a %)

Source: OECD

Interest rates are determined by three factors: the price that lenders charge for postponing consumption, the risk that the borrower may not repay the capital and the fall in the real value of the capital that the lender expects to occur because of inflation during the lifetime of the loan. The interest rates shown here refer to government borrowing and the risk factor is very low. To an important extent the interest rates in this table are driven by the expected rates of inflation. From 1993 long-term interest rates fell for a few years but edged upwards again in 1994/1995. Since then they have been falling steadily in most member countries, but have starting to rise again in 2006. For the 20 member countries in the table for which data are available for the full period from 1993 to 2006, long-term interest rates averaged 6.9% in 1993 but only 3.8% by 2006. For many countries the long-term interest rates recorded in 2005 were historically low. The most striking feature of the table is the reduction in the variance of interest rates among countries. The convergence of long-term interest rates is mostly explained by the increasing integration of financial markets — one aspect of globalization —  was particularly pronounced among members of the euro area. Japan and Switzerland are exceptions; their interest rates have remained low but are not converging to the OECD average.

Investment Rates (in gross fixed capital formation as % of GDP)

Source: OECD

The total investment rate now averages 21% for the OECD as a whole but rates are substantially higher than this in Korea, Spain, Iceland and Australia and well below 20% in Sweden, United Kingdom, Germany and Norway. For the OECD as a whole, total investment rates are largely unchanged compared to 1993-1995. Particularly sharp falls occurred in Korea, Turkey, Japan and Germany, although in Korea and Japan, investment rates remain well above the OECD average. Total investment rates are now much higher than at the beginning of the 1990s in Ireland, Iceland, Spain and Greece. Investment in machinery and equipment accounts for more than 30% of GFCF in most OECD countries, but investment rates tend to be higher than this in countries with a significant manufacturing base, such as Japan and Switzerland. Over the period shown, the machinery investment rates have fallen in most countries, with particularly sharp falls in Luxembourg, Korea, Ireland and the Netherlands, reflecting higher growth of service activities. Rates grew most in Greece and Iceland. Investment rates in dwellings were particularly high at both the beginning and the end of the period in Norway and Portugal. Ireland, Spain and the Slovak Republic recorded substantial increases over the period, but a number of countries recorded large falls: Turkey, Luxembourg, Germany, Japan and Austria. In the short term, rates of investment in dwellings are sensitive to the business cycle, but, over the long run, investment rates in dwellings reflect population growth rates either through natural growth or immigration, and rising affluence, as is evident for Ireland and Norway.

Migration (as net migration rate per 1,000 inhabitants, annual average 2000-06 or latest available period)

Source: OECD

Since 1993 Poland is the only OECD country among the countries shown in the table that has shown negative net migration on a systematic basis. Among countries showing significant increases in population (>0.5% per year) over the 1995-1999 period as a result of international migration are Australia, Canada, Spain, Ireland and Luxembourg. Since then Iceland, Italy and Switzerland have joined the list. Former emigration countries (Ireland, Italy, Portugal and Spain) thus figure prominently among high net migration countries, a trend which is likely to continue. There are nonetheless a number of countries where net migration is currently contributing less to population increase than was the case five to ten years ago. These include Greece, Denmark, the Netherlands and Germany. Those where it is contributing more are the four former emigration countries Ireland, Italy, Portugal and Spain as well as Austria and Switzerland. Indeed, all but eight OECD countries are showing a larger contribution to population growth from net migration in recent years. With the retirement of baby-boomers in the near future, to be replaced by smaller entering labour force cohorts, labour supply needs may well increase and OECD countries see a continuing rise in net migration.

Telephone access (as number of telecommunication access paths per 100 inhabitants in 2005)

Source: OECD

Access to communications networks continues to expand in all OECD

countries. At the end of 2005, the total number of fixed and mobile telecommunications paths had increased to more than 1.5 billion. This represented a 8.8% increase over 2004 and an average increase of more than 8.5% in each year since 1997. Growth was not occurring across all access paths. The number of cellular mobile communication subscribers continues to climb. An additional 97 million mobile subscribers were added in 2005. By way of contrast, some segments of the fixed connection market have begun to decrease. The number of fixed access lines decreased in both 2003, 2004 and 2005 and will most likely continue to do so over the coming years. By 2005, all but two OECD countries — Mexico and Turkey — had more than one telecommunications access path per inhabitant and seventeen countries reported more than one and a half per inhabitant, those being Spain, Aust-ria, Australia, Portugal, New Zealand, Germany, the Netherlands, Greece, Norway, Switzerland, Finland, United Kingdom, Denmark, Italy, Sweden, Iceland and Luxembourg.

Among the five non-OECD countries shown here, growth has been spectacular in China, which had less than one access path per 100 inhabitants in 1991 but 60 in 2005. The Russian Federation has now the highest number of paths per 100 inhabitants among these countries. In spite of steady growth over the period, there were only about 13 access paths per 100 inhabitants in India in 2005. A growing trend toward liberalization, and the consequent use of prepaid cards in competitive markets, has helped drive the growth of mobile communications in both OECD and non-OECD countries. In 2004 the total number of cellular mobile users in non-member countries overtook the total for the entire OECD area.

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