Executive Magazine

Branch managers are vital investments for sales effectiveness

by Peter Jenkins & Peter Vayanos June 1, 2008

written by Peter Jenkins & Peter Vayanos

A recent study by Booz Allen Hamilton Striving for growth: Best practices in retail banking sales and service channels revealed that the majority of banks are failing to fully meet customer needs and maximize sales channel performance. This comprehensive study, which used customer research and mystery shopping assessed 100 banks across 17 countries including 12 banks in the GCC, looked at what customers want from their banks, how banks are performing and best practices to drive profitable growth.

The study revealed that, globally, customers still prefer banking in branches despite the trend towards online — 63% choose to use a branch for purchasing current and savings account products and 54% choose their branch to purchase mortgages. The situation in the GCC is very close to that of the global average. However, despite the importance of the branch channel to customers, many banks in the region under-perform and have yet to get the basics right. GCC banks scored on average 20% less than the global average. As the competitive intensity increases in the region and banks have to deal with a more heterogeneous customer base in terms of age, wealth levels and cultural background, addressing shortfalls in sales effectiveness in the branch will become a crucial source of differentiation.

So how can sales effectiveness be improved? Our work with domestic champions that continue to win year in year out shows that success can be attributed to the mastery of the five following levers:

• Customer information and insight: Branches need to leverage customer insights more and provide tailored service to target customer segments.

• Sales management: Sales staff should be supported by a sales pipeline and have access to the right level of MIS to measure performance.

• Processes and tools: Sales processes should be simplified and staff should have access to systems that support a single customer view.

• Capacity and deployment: Staffing levels need to reflect the customer mix and sufficient time should be allowed for sales related activities. Capacity planning needs to be proactive to cope with peaks in demand.

• Roles and capability: Branch staff require clear roles and responsibilities backed up by effective HR processes and appropriate performance management systems.

In the Middle East there is still a way a go. For starters, many banks lack accurate and complete data on their customers to support the development of customer insights. Often the most fundamental data is missing. Sales management activities also tend to be more reactive in nature and driven around promotions as opposed to being approached in a systematic fashion. Furthermore, few banks have managed to deploy the systems and processes to enable a single customer view across multiple channels. Finally, many customer sales representatives viewed themselves primarily as providers of service and not responsible for sales. For example, in one of our clients, the customer sales representatives spent 41% of their time on service-related activities and only 9% of their time on sales-related activities.

On top of the above capabilities, many banks continue to overlook the performance impact of successful branch managers. That’s a big oversight because exceptional branch managers can have a disproportionate impact on a branch’s performance. In a recent Booz Allen Hamilton analysis of more than 4,000 bank branches, just 5 to 10 percent of branch managers demonstrated consistent top quartile performance over a sustained period. But those branch managers delivered three times the growth of their local competitors. On a three-year net present value basis, an exceptional branch manager is worth between $500,000 and $1 million to his or her bank.

All the signs are that the same picture holds true for for the Middle Eastern banking sector.

Why has this situation arisen? The results of our study suggests the following:

• Management often does not know or agree on who their top branch managers are.

• Sources of exceptional performance are not often adequately explained and thus rarely replicated. Training is often focused on developing basic skills, rather than competencies required to generate top performance.

• The symmetry between branch manager competencies and branch requirements is not always explicitly understood and managed.

• One size does not fit all — top performers harbor different aspirations and need to be cultivated differently

What are the traits shared by top performing branch managers? They are proud of their bank, their branch and their employees. They are creative in coming up with new ways to drive business. They are driven to succeed and motivated by their branch’s success, not just their salary and bonus packages. They are confident in their ability to meet their goals and they typically hold an integrated view of all the aspects of their business — sales, service, people and the core operations.

Just as important, however, are the differences among successful branch managers. Interviews conducted in conjunction with the Booz Allen Hamilton study found that they perceive themselves, accurately or not, to be variants around two themes: “town mayors,” who identify more strongly with their branches and their communities than with the overall organization, strive to maximize their branch’s performance and their communities’ ability to prosper and have few ambitions to move beyond their current position, or as “find the next challenge” types, competitive about their role within the bank as a whole and desirous of moving to larger branches as a way to take on positions of greater importance within the organization.

Understanding these differences in both ambition and talent offers banks the opportunity to manage the career paths of their top performing branch managers more effectively, getting the most out of those high performers and make sure they put the right manger in the right branch. Given that the attrition rate among branch mangers industry-wide is between 20 and 30 percent every year, rigorous, thoughtful career planning is essential to the retention and continued success of the best branch managers. But that must be coordinated with new approaches to every aspect of human resources processes relating to the branch manger, including recruitment, training and performance assessment. This will be a particularly tough challenge in the Middle East given the shortage of skilled resources and the relatively low standards that prevail in many human resources departments.

Taking an objective approach to managing sales managers will work in any retail sector, or any business for that matter. For banks, it will produce a significantly better return on the investment they make on their branch managers — but it will work only if high performers are given the tools, the goals, and the incentives to maintain their pace. On that note it is worth it for retail bankers to ponder the following five questions:

• What is the state of the key levers required to enable successful sales activities?

• Do you know how to find and assess your best people?

• Do you have the right people in the right branches?

• Can you successfully attract the best from your competition and retain them?

• Do you have the infrastructure to support and develop great branch managers?

Peter Vayanos is a Vice President and Partner with the Financial Services Practice of Booz Allen Hamilton, based in the Beirut office.

Peter Jenkins is a Vice President and Partner with the Financial Services Practice of Booz Allen Hamilton, based in the Dubai office.

June 1, 2008 0 comments

Lebanon

SGBL – A new horizon

by Executive Staff June 1, 2008

written by Executive Staff

Antoun Sehnaoui, who became Chairman and of leading Lebanese bank Société Générale de Banque au Liban (SGBL), in October 2007, believes in organic growth over radical change. “It is about evolution rather than revolution,” explained the youthful chairman, who succeeded his uncle Maurice Sehnaoui as head of what many regard as Lebanon’s most innovative bank.

One of the most recognizable on the Lebanese banking landscape with its familiar red white and blue logo, SGBL’s activities are organized into a three-core business: retail banking, corporate and investment banking, and private banking. It also has a presence in Jordan, where as SGBJ it operates 18 branches, Cyprus with six branches and in Syria, where it offers specialized financial services through its affiliated companies, Fidus and Sogecap.

But it is the future that has injected a new buzz – not to mention new capital – into the bank which is embarking on an ambitious expansion plan. The monies will finance local and international acquisitions, the opening of more local branches with a new look and what Sehnaoui calls “more maneuverability” to SGBL’s banking operations. This with no doubt means that SGBL will continue to plow new retail banking furrows by rolling out new products, while consolidating other core activities such as private banking and asset management, investment and corporate banking.

Furthermore, in line with meeting the standards set by its committed French partner Société Générale, SGBL will be aiming to scale new heights in terms of human resources and deliver a level of professionalism commensurate for a bank with an international profile. “It’s not that we lacked any of these previously,” says Sehnaoui, once again keen to stress that the changes are part of a process to improve SGBL’s position in a “competitive global environment.”

Reassurance has long been the bank’s watchword. SGBL ranks first in terms of loans to deposits of all the Lebanese banks, and is probably the most risk averse, an important strength in a financial world blighted by the ongoing subprime mortgage crisis. “Our shareholders insist on this,” explains Sehnaoui, who is arguably the first in what promise to be a new generation of young and dynamic chairmen in Lebanese banking. “The ambition now is to increase profits and make Lebanon a regional platform for our international activities.”

A new vision

Sehnaoui believes that by as early as 2010, the bank’s new vision will have yielded fruit “I expect us to be operating more robustly locally and internationally, across all our activities, while at the same time boosting inter-business revenue synergies, operating efficiency and ultimately operating income.” It is a vision predicated on the firm belief that the Lebanese banking sector will continue to be the pillar of the country’s economy. It currently contributes a big share of the nation’s GDP but, more importantly, it is suitably diversified so as to withstand most shocks.

The banking sector is underpinned with decades of Lebanese conservatism but it also recognizes that it must embrace global banking methods; no one is capturing the essence of this zeitgeist better than SGBL, which understands the needs of both its retail and private banking clients and further understands that both are equally important in a competitive and diverse global banking industry.

The bank itself is hardly a newcomer to the sector. Capitalizing on over 50 years of experience, SGBL’s retail banking operations will pursue a strategy of ambitious organic growth in countries where the group is already present. SGBL has always been a leader in retail banking, a reputation based on its ability to introduce new products onto the market and invest in technology.
SGBL will therefore be expanding its client base and giving wider geographic coverage. Meanwhile, the exploitation of revenue synergies between businesses will continue, with priority given, amongst others, to cooperation with the regional network of Syria, Jordan and Cyprus and cross-selling between SGBL divisions.

For its Lebanese networks, SGBL will also adopt a strategy of deliberately targeting high-net worth individuals and work at closer cooperation with corporate and investment banking arms, both of which should promote dynamic growth. The investment banking division is gearing itself up to play what it hopes will be a key role in helping rehabilitate Lebanon’s private sector much of which was mauled after years of conflict and political instability by actively getting involved in forthcoming M&As and privatization.

Sehnaoui is acutely aware of the needs, issues and concerns of the Lebanese private sector, an arena in which close understanding play a key role in oiling the finely calibrated cogs of Lebanese economic activity. “The private sector is the lifeblood of our very small but dynamic country,” he says. “The private sector is our partner in growth.”

Elsewhere, the Private Banking and Asset Management divisions, backed by the expertise of Fidus and its team of specialists, not to mention the support from Groupe Société Générale, will consolidate its position as a leading purveyor of wealth management products and services. With the demand for innovative private banking services in the region – and the demand for Lebanese private bankers – SGBL will aim to deliver innovative financial products and diversified and tailor made investment solutions to a lucrative niche in this growing sector.

“Thanks to Fidus, our brokerage and portfolio management arm, SGBL was able to develop its activities in wealth management locally and internationally, answering the growing needs of its clients around the world and the increasingly active nations of the GCC, buoyed as they are by the recent windfall from the hike in oil prices,” says Sehnaoui with pride. “The region is booming and we need to seize the day.”

Meanwhile, in the area of specialized financial services, the SGBL Group will continue its expansion in countries with strong potential (in particular the GCC) by drawing on its years of experience and standing in the Lebanese market. “Regional investors appreciate the skill sets that Lebanese bankers bring to the table. We are international in outlook but we understand their needs.”
The Group is also currently stepping up its international expansion and this will offer new opportunities to Société Générale Group’s through its wide and diversified businesses lines across the region. “Today, SGBL is evolving gradually in an unstable and uncertain environment in which we can nonetheless find solutions,” declares Sehnaoui. “In this environment only banks that can offer their clients innovative products, high quality service and the best price can follow a risk-free development strategy.”

Sehnaoui believes that SGBL can look to the future with genuine confidence. The bank has built up a huge reserve of goodwill; it has the know-how, the infrastructure, the client base, the right level of affiliated services and most importantly, an international presence of which only a few Lebanese banks can boast. “With all these, SGBL has all the tools at hand to reposition itself as an important actor on the local and regional banking market.”

June 1, 2008 0 comments

By Invitation

The economics of three digits

by John Defterios June 1, 2008

written by John Defterios

World Economic Forum meetings are, as one former Prime Minister put it over a nightcap, part private high-level talks, part networking and a fair portion of theatre. “Theatre is good, just not in large doses” he rightly declared.

That is a succinct description of what transpired in the Red Sea resort of Sharm el-Sheikh this week at the World Economic Forum meeting.

There was plenty to digest and discuss, but as usual the many of the more memorable thoughts came in the networking lounge over an espresso. I spoke to the CEO of a Gulf investment authority who, during our conversation said they really want to get it right this time, since they are blessed with the “three digits.”

The conversation continues, as I try to bluff my way through what “three digits” means. After another minute my curiosity gets the better of me and I confess my ignorance. “Three digits,” he tells me with a broad smile, “is oil — anything over $100 and we are in three digit territory,” he said, adding that: “We can do a lot with three digits.”

There is no doubt about that and I confirm that after 20 years of covering OPEC meetings and visiting production facilities from the Gulf of Mexico to the Arabian Gulf, I know it costs about $4 to $6 per barrel for the major Middle Eastern producers to get their crude to market. To put it crudely, that is a profit of about $120 a barrel at today’s prices.

Spend it wisely

While the Gulf producers are happy to watch the savings roll in, they are very aware that the world is watching to see how they plan to use it. It was, no doubt, the number one issue on the agenda at this regional meeting. Somewhat boldly some members of the Arab community, which are not blessed with the same huge natural resources, spoke up in Sharm el-Sheikh.

Egyptian Prime Minister Ahmed Nazif, the tall, silver haired reformist, noted that one cannot force money where it does not want to go, but, “I believe that real opportunities exist today in the region, whether it’s in infrastructure, whether it’s in capacity building, education and other aspects of it.” Egypt is attempting to be the back office to the Middle East — why set up in Bangalore if you can capture the diversity of language speakers and low cost in your own backyard?

A former government official from Jordan, now running a private equity group, was more direct. Reem Badran is CEO of Kuwaiti Jordanian Holding Company — a firm funded with Gulf money. She says, “There is room for the oil producing countries to give a hand to the non oil producing countries to make these types of imbalances and gaps less and everybody would flourish at the end of the day.”

There is a great deal of money from the six Gulf countries flowing into real estate development projects throughout North Africa. The key now is to expand that brief to include factories and even schools. The second most talked about issue had to be development of human capital. During the final plenary panel of the meeting which I chaired, all four leading businessmen (and woman) talked about the sense of urgency to do more. Money is being deployed into education in every market, but these business people admitted they need to be more involved to insure that the skills needed are being taught in universities and vocational schools. If not, the over reliance on expatriate workers will remain. The most pressing concern, and it was reinforced on my panel, is that 100 million more people will need jobs over the next ten years.

If that is not an incentive to use the “three digits” wisely, I am not sure what is.

John Defterios is the presenter of CNN’s Market Place Middle East.

June 1, 2008 0 comments

By Invitation

Beirut’s irrepressible optimism for property investors

by Priyan P. Khakhar June 1, 2008

written by Priyan P. Khakhar

From a distance, one observes the birth of a new skyline — sprouting towers of elegant bricks, mortar and concrete that will house an eclectic range of people who choose to live in Beirut, a city with a raw database of stories with even more plots and twists than the latest Hollywood movie. These flawlessly finished apartments, kaleidoscope designs and stainless kitchens do, however, also come with a somewhat jaw-dropping price tag for a non-utopian city. Apartments in the tower blocks facing the marina, for example, are $1 million plus, this being considered a modest figure by the many that have already sold “off-plan.” A recent report by Bank Audi on Lebanese real estate records over 35,000 property transactions in the third quarter of 2007 alone.

The political climate of the country is no secret, with the World Bank and International Monetary Fund rating the investment risk of the nation on par with states such as Chad and Sudan. In mid-May the country was on the brink of civil war when Hizbullah’s heavily armed fighting machine attacked and seized large parts of West Beirut and nearby Beirut suburbs. For six months Lebanon had remained without a president and the specter of confrontation and violence had loomed over the entire nation for the past three years. After the fighting in May, most business people in Lebanon’s hospitality and tourism sectors were convinced this would be another summer of dread, a third year with an abysmal tourism season and a degree of security risk that would scare even a speculators of George Soros’ ilk.

How then does one explain these property prices? Take for instance the prices in towns such as Marbella on the Mediterranean coast of Spain, a naturally luxurious and hedonistic playground of the rich and famous that can potentially be Beirut, once the “Paris of the Middle East.” Apartments and villas, in gated compounds, boast similar million dollar and above price tags, with a relative saving grace of EU membership, security, a stable and functioning government, absence of political bickering, lower investment risk rating and of course the Spanish siesta. From a stability point of view, comparing Marbella and Beirut can be like comparing chalk and cheese, and yet the latter demonstrates great resilience within the real estate sector.

Analysts could attempt to explain this, citing the strong Lebanese banking sector with its impressive levels of liquidity and credit availability, investment from the Middle East region in general, former Lebanese residents re-investing in their motherland and a social transformation of the younger generation irrespective of the political divisions and diversions that frustratingly prevail. The prices must therefore exist due to supply and demand side factors that have assimilated the political factor, combined with changing perceptions of the nation to both investors and home buyers. The supply-side factors may be explained two-dimensionally by the fact that key locations in the city, such as Hamra, are crowded with developments in a relatively small space; this is compounded with the needs of the local and growing student population at prestigious institutions such as the American University of Beirut delivering medium-term tenants for investors, all scrambling for limited good space locations.

Prices in Marbella, however, have long reached their peak, and the number of British residents and investors living in this southern gem of Spain is a known fact. In similar fashion, Beirut has lured investors from a variety of locations in the Middle East. The country boasted FDI stocks of $18.3 billion and inflows of $2.7 billion in 2006, this in a year Lebanon was at war with Israel. There is speculation further investments are yet to come, providing the political tensions dilute or at least don’t escalate to the previous historical levels. It is a question of risk taking, risk adverse or a laissez-faire attitude to risk in terms of investment, though it has to be noted that both Lebanese economics and politics exist in varying shades of grey. 2008 growth in 2008 is projected to be positive, with estimates from 4-8% depending on which local source is consulted. According to local research companies such as Infopro, “the prices have risen, though some are just gearing up for the boom that is to come in 2008.”

After several days of intense negotiations in Qatar, Lebanon’s opposing leaders elected a president and a new “united” government was expected to be formed by end of May. The Doha agreement has created hope for many Lebanese to lift the nation out of a state of violence and confrontation into peace and stability.
Within hours of the political sea of change on May 25, 2008, the Beirut city center was preparing for an abundant summer of returning visitors and countless festivities. This ability to return to form and celebrate life is what makes the place. Beirut offers that ‘something extra’ — an intangible and unquantifiable element — that is mainly driven by an unprecedented cosmopolitanism that refuses to exclude anyone or anything, an “x-factor” which other cities in the region lack.

A drive down the city center would awe the most critical of architects at the restoration of a once destroyed French style quarter. Retail spaces are plenty, with rents in the popular malls ranging from $2,000-$3,000 per square meter. One would expect the political factor to suppress prices, yet it appears that some defiance amongst buyers and sellers remains. Given that the political crisis subsides, in terms of real estate at least, the city seems set to become a Marbella of the Middle East.

Dr Priyan P. Khakhar is an assistant professor at the American University of Beirut’s Olayan School of Business.

June 1, 2008 0 comments

By Invitation

Arab sovereign wealth funds

by Sven Vehrendt June 1, 2008

written by Sven Vehrendt

The past months have witnessed an intensive debate about the relevance of SWFs in the global economic system and their role in global financial markets. Global Insight, the research firm, states that SWFs have grown a remarkable 24% annually in the past five years. Morgan Stanley, the investment bank, argued that the total size of the SWFs could increase from $3 trillion to $12 trillion by 2015.

Commentators have tried to put these stunning figures into perspective. Robert Kimmitt, Deputy Secretary of the U.S. Treasury, argues that if one wants SWFs to appear large then one would argue that hedge funds manage an estimated $1.5 trillion and that the current market capitalization of the S&P 500 is roughly $12 trillion. On the other hand $12 trillion is only a fraction of the estimated $190 trillion in total global financial assets. Assets managed by mature-market institutional investors (such as pension funds and endowments) are about $53 trillion. Pension funds manage over $15 trillion, insurance companies $16 trillion, investment companies $21 trillion. This is a small fraction of the global debt and equity securities, exceeding $100 trillion.

But an important element is missing in this assessment. First and foremost, Gulf Arab SWFs shall be of benefit to the citizens of their countries. How relevant are they then with regards to their own economies? An analysis arrives at some interesting findings.

The size of the assets managed by the Abu Dhabi Investment Authority is estimated at $875 billion. This is equivalent to 675% of the GDP of the United Arab Emirates. The Reserve Fund for Future Generations managed by the Kuwait Investment Authority is estimated to manage assets valued at over $170 billion. This represents twice the GDP of Kuwait. The Qatar Investment Authority’s assets stand at over $60 billion or 141% of Qatar’s GDP. Only Saudi Arabia’s assets managed by the Saudi Arabian Monetary Agency are somewhat smaller at just below 100% of Saudi Arabia’s GDP.

Based on these numbers one arrives at the conclusion that although large, Arab Sovereign Wealth Funds might be not that overwhelming in size if one compares them against the assets of other players in global financial markets. But our numbers show that they are extremely important in the context of their own national economies.

Here some more examples: An optimistic 8% return that ADIA might manage to realize amounts to roughly $44,300 per UAE citizen (excluding expatriates), or roughly 63% of GDP per capita. This is substantial. The same is true for Kuwait. At 8% growth, the revenues realized by the KIA amount to $17,160 per every Kuwaiti citizen or 44% of Kuwait´s GDP per capita. Again, this is not trivial and illustrates the importance of SWFs’ role in maintaining the wealth of oil exporting Gulf countries.

A fundamental question is then if the SWFs will be able to maintain or even grow this wealth for future generations. The idea of SWFs is to enable governments to diversify away from their own national economies and searching for interesting return perspectives elsewhere. But if SWFs do not identify very attractive investment opportunities outside their economies, their purpose is challenged.

The economies of the Gulf are currently growing at a rapid speed, much stronger than most of economies elsewhere. It will therefore be quite difficult to identify investment opportunities that are on par with opportunities at home. If we see GDP per capita growth rates increase in the Gulf region as rapidly as in the past years and we assume that SWFs will invest elsewhere, that is in regions which are growing at a more slower pace, then the SWFs contributions to safeguarding the welfare of the citizens of Gulf states is negative. Only in case the economies in the Gulf region would calm down and other economies grow more rapidly will SWFs be able to meet their task to secure their standard of living for future generations beyond oil.

The importance of SWFs within their national economies and their exposure to global economic trends illustrates how important a broader debate about purpose and investment strategies of Arab SWFs has become. Not only have SWFs become a contentious issue for Western policy makers, but their risk/return profile should also be of major concern for the Arab public, since the future economic well-being of Arab societies is at stake.

Sven Vehrendt is an Associate Scholar at the Carnegie Middle East Center, Beirut

June 1, 2008 0 comments

Capitalist Culture

Diplomacy – Venice of the Gulf

by Michael Young June 1, 2008

written by Michael Young

One of the more interesting stories in the Gulf in the past decade or more has been the expanding, paradoxical role of Qatar. When the emirate hosted the Lebanese dialogue talks in May, this was only its latest demonstration of a policy of counterpoint that has either pleased or infuriated those used to more predictable behavior from Arab states.
The dialogue helped one understand Qatar’s strange ability to place itself at the nexus point of contradictory regional interests. Why, many observers wondered, had the March 14 parliamentary majority agreed to the interchange with the opposition under the auspices of a regime with close ties to Syria and Iran, which has financed reconstruction in Hizbullah-controlled areas? Simply put, there was no one else. Tension between Saudi Arabia and Egypt on one hand and Syria and Iran on the other meant that the Saudis, traditional mediators in inter-Arab affairs, were unable to play that role in Lebanon. Egypt, in turn, had its own problems with Damascus and was anyway represented more or less by the Arab League secretary general, Amr Moussa. Jordan and the North African states were too preoccupied with other matters to intervene. So Qatar filled the gap.
In many ways, Qatar is the Venice of the Middle East. Not for the picturesque waterways or singing gondoliers; but because Qatar, like the Venice of the Renaissance, is a place constantly juggling and preserving a balance between its most improbable relationships, all the while protecting itself, increasing its profits, and enhancing its regional role.
While Doha has good relations with Syria and Iran, as well as Hizbullah, it has managed to do this while hosting the largest American military base in the Middle East, maintaining contacts with Israel, preserving more ambiguous relationships with militant Sunni Islamists, protecting itself on both the Arab nationalist and Islamist sides through its Al-Jazeera satellite TV station, and, more recently, working to paper over its previous rivalry with Saudi Arabia (partly by toning down criticism of the kingdom on Al-Jazeera).
Before the Lebanese dialogue in Doha, Qatari policies in Lebanon provoked much anger from March 14. In some ways the reaction was justified: Qatar sided openly with those most opposed to the government. However, at a broader level, Qatar is interesting because it has taken the lead in shaping what can only be described as a post-ideological approach to Arab politics. Certainly, most Arab states long ago gave up on ideological consistency, and Arab nationalist or Islamist regimes have, mostly, turned their ideological pretensions into little more than instruments to buttress dictatorships. But Qatar has taken this a step further, so that the emirate can openly ignore the most fundamental of Arab benchmarks, the isolation of Israel, while providing political and financial sustenance to Israel’s bitterest foes.
Is this something positive? In one way it is. Pragmatism is an ingredient that has long been in short supply in the modern Arab world. The region is more often defined by polarization, by its stubborn divisions, than by efforts to transcend differences and deal with all sides simultaneously. Pragmatism can also be an essential element of capitalist culture, where the market, whether the market of politics, economics, or ideas, is basically allowed to develop unfettered, free of preconception.
But a capitalist culture, and the pragmatism underlining it, becomes self-defeating when it bolsters autocracy. Take the case of Iran or Hizbullah. That Qatar seeks to deal with both to its advantage is understandable; but if Iran or Hizbullah were ever to impose their will on Qatar, or on Arab states behaving like the emirate, the latitude for that pragmatism would collapse. Would a hegemonic Iran in the Gulf, for example, allow Qatar to continue to serve as a headquarters for U.S. power in the region? A Syrian return to Lebanon, while it might not disturb officials in Doha, could significantly strengthen those regional forces with an interest in obstructing Qatar’s open ways.
In other words, by basing its political actions purely on self-interest, a post-ideological state like Qatar might find itself helping unleash those forces in the Middle East that suffocate the interesting possibilities in a post-ideological state. The same would doubtless apply if pressure came from, let’s say, the United States, except that there are limits to what the U.S. can do. For example, despite its hostility to Al-Jazeera, Washington has understood that it cannot much change the station’s tone. In late 2001, the then-U.S. secretary of state, Colin Powell, tried, and was promptly condemned at home for this.
Gulf politics are so personalized that it may be difficult to reach the conclusion that Qatar represents the way of the future — or a way of the future. The possibility always remains that when leaders change, so do a state’s policies. However, the tightrope act the emirate has pursued in recent years is working for the moment. Not everyone is happy, but it may be a model that Gulf states begin adopting, perhaps to their detriment. Perhaps not.

Michael Young

June 1, 2008 0 comments

Comment

The Horn of too many bulls

by Paul Cochrane June 1, 2008

written by Paul Cochrane

One word sums up the Horn of Africa’s regional importance: geostrategic. Over the last two months, several developments have highlighted how intricately linked the Middle East is, and wants to be, with the countries on the other side of the Red Sea. There are the usual three suspects: business, politics and the “war on terror,” plus a wildcard, piracy.

The big business news is that Osama bin Laden’s brother, Tawfik, wants to build a $22 billion Africa-Arab bridge to link Djibouti with Yemen. The 28.5-kilometer project would span the narrowest point across the Red Sea, at the Bab al Mandab, “the Gate of Tears” — an appropriate name, especially given the situation in the vicinity and all the piracy off the Somali coast.

Indeed, piracy has dramatically increased since the Islamic Courts Union (ICU) was toppled by the US-backed Ethiopian invasion of Somalia in December 2006. Last year there were 31 attacks, and so far this year 23 attacks by Somali pirates on sea-going vessels, including the 47-day hijacking of a Russia bound icebreaker, the Svitzer Korsakov. A $1.6 million ransom was allegedly paid out.
Bin Laden’s Bridge, as it could be dubbed, will potentially bring more stability to the region and its sea routes — after all, an estimated 3.3 million barrels of oil are shipped through the Bab al Mandab every day. The bridge certainly intends to boost traffic between the two continents, and act as an entry point for pilgrims to Mecca. But the ongoing situation in Somalia presents concern for any parties involved in the troubled Horn, including Qatar.

This is the big international politics story: Ethiopia breaking diplomatic ties with Qatar over the emirate’s alleged funding of the al-Shebab movement in Somalia, the military wing of the ICU and a recent addition to the US State Department’s list of terrorist organizations.

Doha-based Al Jazeera’s sympathetic coverage of an anti-Ethiopian rebel group, the Ogaden National Liberation Front (ONLF), also rankled Addis Ababa, especially given Qatar’s diplomatic ties with Ethiopia’s other nemesis and ONLF supporter, Eritrea.

A week after the diplomatic spat — Doha denies any involvement with Al-Shebab — a US air strike killed the top leader of the movement, Aden Hashi Ayro.

Whether Qatar has any involvement with these groups or not, Doha is not the only Middle Eastern player in the mix, with a UN arms embargo monitoring group reporting in late 2006 that Egypt, Iran, Libya, Saudi Arabia, Syria, Yemen and Lebanon’s Hizbullah were all supporting warring factions in Somalia. The US meanwhile has a military base in Djibouti, 100 military advisors in Ethiopia, recently donated $97 million to Ethiopia in recognition of its “strategic importance,” and Special Forces are reportedly operating within Somalia. This melee thus includes countries on side with the US-led “war on terror,” seemingly on side with the “war on terror’, and those that are on the complete other side against the war on terror.

Somalia is Africa’s equivalent of Lebanon.

The irony of all this is that the activities of the US and its allies in the region have made the situation worse than before the ICU was overthrown. Ethiopia, for its own ends as well as Washington’s, has waged a brutal war on Somalia. Half the population of Mogadishu has fled, a humanitarian crisis is underway and Amnesty International last month accused Ethiopian troops of widespread atrocities against Somalis, including slitting people’s throats, gouging out eyes and gang-raping women. Somalia’s disintegration is also generating further support for Islamic movements.

Furthermore, Somalia’s regression back to warlord-run days under the Transitional Federal Government (TFG) is bad for regional business.
According to the Mombasa-based Seafarers’ Assistance Programme, most of the Somali pirates are linked to the TFG, which has little control of the country and its territorial waters. In the six months the ICU were in power, piracy on the Somali high seas was reportedly down, but from 2007 the distance vessels were advised to keep away from the coast was increased from 50 nautical miles to 200. Although that is not even enough, with a Spanish luxury yacht hijacked in international waters in early April, the second European vessel to be overrun by pirates in a fortnight.

For such an important shipping route it would be to the advantage of most players involved, and certainly for the free flow of goods and energy, to better police the area around the Gate of Tears.

One solution is to put African Union troops on the ground in Somalia instead of the 8,000 Ethiopians currently there, as called for in UN Resolution 1725, and international monitoring off the coast to ward off illegal fishing as well as piracy.
Construction of Bin Laden’s Bridge would certainly need plenty of security, and a more stable Horn would help this African theater of the “war on terror” from becoming yet another disasterous tragedy with far-reaching geostrategic implications.

PAUL COCHRANE is a Beirut-based freelance journalist. He was recently in Ethiopia.

June 1, 2008 0 comments

Comment

The ‘Axis’ taking Bush for a spin

by Claude Salhani June 1, 2008

written by Claude Salhani

By now we are well familiar with what President George W. Bush labeled the new “Axis of Evil” — communist North Korea, socialist-leaning (Baathist) Syria and Islamist Iran. Each one has expansionist ambitions of varying degrees, though some are more grandiose in aspiration than others. North Korea and Iran want to dominate the world, while Syria will settle for considerably less.

The North Koreans want to turn the world into a vast Godless worker’s paradise, similar to the Stalinist Garden of Eden that is the northern part of the Korean peninsula — only perhaps one where the comrades aren’t starving half the time and trying to escape to South Korea or even to China the other half. However, Kim Jong-il, the megalomaniacal leader of the North, would probably be satisfied if he could occupy the South, thus reuniting the two Koreas and in the process double his clout, his ego and his people’s misery.

The ruling mullahs governing the Islamic Republic of Iran have somewhat of a similar philosophy: they too would like to dominate the world. However, the main difference with the non-believers in North Korea is that the Iranians want to impose their religious diktat on the rest of the world. The other major difference between the North Koreans and the Iranians is that the latter have been slightly more successful in exporting their revolution. The North Korean expansionist desire was stopped at the 38th parallel; in contrast, Iran’s mullahs have made inroads in the Gaza Strip by supplying Hamas with all the guns and money it needs to disrupt Bush’s efforts at peace-making in the Holy Land.

And in Lebanon, Iran’s and Syria’s proxy militia, Hezbollah, has demonstrated that it can, if it so wishes, take over the country by military force, or in any case, at least great swaths of the country. Of course whether the Shiite militia can then retain the territory it occupies is a completely different story. This Hezbollah found out the hard way when it tried to go after the Druze in the Chouf.

As for the third spoke in the new “Axis of Evil”, Syria, its territorial ambitions are far more modest than those of either North Korea or Iran: Syria only wants what is rightfully hers, the Golan Heights, the strategic plateau overlooking the northern Galilee which was taken militarily by Israel in the 1967 War and remains under Israeli occupation to this day.

Oh yes, Syria wants Lebanon too.

And here’s where the story begins to get somewhat complicated (if it wasn’t already) due to the fact that a great many Lebanese are opposed to the idea of Syrian domination. The Bush administration supports the notion of a free and independent Lebanon and has invested in backing Fouad Siniora’s government and the March 14 Movement. So the defeat of pro-government forces by the Syrian and Iranian-backed Hezbollah in early May in the fiercest exchange of internal violence Lebanon has experienced since the end of the civil war in 1990 can be seen as a defeat for Bush’s democracy spreading policy in the Middle East.

Hezbollah’s attempted coup also frightened Sunni powerhouses such as Saudi Arabia and Egypt who rightfully perceived the action as an attempt by Tehran to extend its political power base and influence in the region. Hezbollah’s victory comes as a second slap across the face of the U.S. president from his Iranian and Syrian foes. The first blow came when Hamas took over Gaza.

This leaves the U.S. administration pondering what course of action it can take. Part of the conundrum facing the administration is amplified by the fact that it continues to refuse to engage either Syria or Iran in talks, while these two countries seem to be pulling all the strings in Lebanon today.

This is where President Bush’s new counter-axis-of-evil comes into play with the American president turning to his Arab allies for assistance.

Enter Saudi Arabia, Egypt and Jordan, three moderate Muslim nations who are getting nervous over Iran’s rising influence. The recent successes of the Islamic republic in the Gaza Strip and in Lebanon have revived fears particularly among the Saudis, prompting the Saudi king to assume greater responsibility in regional matters.

As one Saudi, who is well connected to the intelligence community in the desert kingdom, said to me when the fighting broke out in Beirut: “Don’t forget the critical Saudi role, which is now even more central than the role of the U.S. and France in the region!”

Saudi Arabia’s role in the Middle East will be all that more crucial as the November U.S. presidential elections approaches and American politicians become completely absorbed by domestic politics, turning a blind eye on the rest of the world.

Claude Salhani is editor of the Middle East Times

June 1, 2008 0 comments

GCC

Dubai’s global runway

by Executive Staff May 28, 2008

written by Executive Staff

In a bid to become the aviation capital of the world, Dubai is investing more than $13 billion in civil aviation and aerospace industry projects as part of a master plan that extends to 2050. Neighboring emirate Abu Dhabi is also moving to get in on the booming aviation sector, with plans to spend up to $50 billion, but with such lofty ambitions there are always additional problems, such as a serious shortage of pilots.

Dubai International Airport (DXB), the tenth busiest in the world in 2006 according to Airports Council International, is spending $4.5 billion on terminals and other facilities that will triple capacity by 2009 to 75 million, while the $33 billion Dubai World Central (DWC) will be centered around the world’s largest airport and cargo hub.

This heavy investment comes as the MENA region is set for the largest aviation growth globally between 2008-11, almost 40% higher than the world average, according to the International Air Transport Association (IATA). The region’s sector was also the fastest-growing in the world in terms of passenger movement in 2007, with a 18.6% growth rate, compared to 5% in Europe’s and the US’ 3% according to the Abu Dhabi Airport Company.

Spurring on Dubai’s decision two years ago to build the DWC, are rising passenger numbers, with 34.3 million at the DXB in 2007, up 19.3% on 2006 and the sixth consecutive year of growth above 15%.

Cargo has likewise spiked at Dubai Cargo Village, the freight facility for the DXB, handling 1.66 million tons in 2007, up 10.96% on 2006. Growth is attributed to the United Arab Emirate’s surging population, up 75% in a decade to 5.6 million, the 6.45 million tourists that visited Dubai last year — according to the Dubai Department of Civil Aviation — as well as the emirate’s growing position as a transport hub for the Gulf.

The DXB is extending Terminal 2 by 37,000 square feet to allow the terminal to handle 700 flights per week, of which 320 will be cargo. Terminal 3 is also under construction — several months behind schedule due to a shortage of raw materials — and is being laid out underground, some 20 meters below the apron and taxiways. Exclusively for Emirates Airlines, Terminal 3 will significantly ease congestion, with the DXB handling nearly a third more than its original capacity of 22 million passengers.

Fields upon fields of development

An estimated $33 billion is earmarked for infrastructure costs alone on the 140 square-kilometer DWC, a multi-phase development financed by the Dubai government, which incorporates the Al Maktoum International Airport (MIA), Dubai Logistics City, DWC Residential City, DWC Commercial City, DWC Aviation City and the DWC Golf City.

“It is geography that makes this vision possible with huge land availability in a prime location,” said Sheikh Ahmed Bin Saeed Al Maktoum, Chairman of Dubai City of Aviation Corporation-DWC. “The long-term benefits of DWC to the UAE, GCC countries and the wider region are phenomenal and will place this emirate firmly in ‘pole position’ for regional logistics, tourism and commerce.”

Neighboring Abu Dhabi, however, intends to spend $40-$50 billion for the building of new airports, according to the Centre for Asia Pacific Aviation, and turn Abu Dhabi’s second international airport, Al Ain, into a hub for aviation and cargo. The plan will also slot into Abu Dhabi’s recent announcement to build a new Capital District to consolidate the emirate’s position as the administrative capital of the UAE.

As in the case with Dubai, the decision to invest so heavily in aviation is being motivated by strong growth, with Abu Dhabi’s Etihad Airways posting a 40% increase in passengers during the first quarter this year, from 1 million to 1.4 million compared to first quarter last year, while cargo traffic was also up by 20%. The Abu Dhabi International Airport (ADIA) saw a spike in passengers as well, up 33% this year over last, with aircraft activity rising 16.9% over the same period.

To cater to rising demand, the ADIA has embarked on a $6.8 billion expansion plan. The airport is currently investing $272 million to add five million more passengers to the terminal’s capacity, bringing total capacity to 12 million, and increasing cargo capacity to 500,000 tons by the end of 2008.

Building the worlds biggest airport

At Dubai World Central, some 15,000 workers toil away in the heat of the desert sun on 18 construction projects, a number set to increase over the next three years as some 40 tenders are awarded.

“Of the 30 tenders already awarded, 20 have been specifically for the airport’s infrastructure and the rest spread over DWC’s real estate and logistics components,” explained Abdulla Al Falasi, DWC’s Marketing and Corporate Communications Director.

Some $8.1 billion is to be spent on the MIA in Jebel Ali to become the world’s largest international airport with a designed capacity for 120 to 150 million passengers per year and able to handle over 12 million tons of cargo annually.

The airport is to cover 68 square-kilometers with six parallel runways and as many concourses. Work is already completed on the first CAT-III runway, which will be able to handle the new jumbo Airbus A380.

The MIA will have two mega-terminals, the first for airlines within the Emirates Group, the second for regional and international carriers, while a third terminal is earmarked for low-cost charter airlines. The third passenger terminal building, a 75,000 square meter single level terminal, is designed to cater to seven million passengers per year, and is being built through a joint venture between the UAE’s Arabtec and Germany’s Max Bogl. The final design of the mega-terminals is to be announced at the end of 2008, said Khalifa Al Zaffin, DWC’s Executive Chairman. An Executive Jet Centre will also be built.

The MIA is to be linked to the DXB by an express rail system, and eventually linked to the Dubai Metro when it is completed. Not satisfied with having, likely, the region’s biggest car park, with some 100,000 spaces, the MIA’s $39 million air traffic control tower will be the region’s tallest freestanding control tower at 92 meters.

Aviation all in one place

A central feature of the DWC will be the $1.36 billion Aviation City — covering 6.7 square kilometers — the aim of which, said Al Zaffin, is to merge all the various aviation related business within one centralized location. Individual developers will also be allowed to develop their own hangers and facilities within a free zone on a long-term leasing basis, with air and land access to the MIA.

Al Zaffin said that the facility would host all aviation manufacturing, maintenance, repair and overhaul (MRO) services, aviation support services, design and consultancy, research and development, product and parts, light manufacturing units and high-technology industries. The MRO, said Al Zaffin, will be able to service up to 100 aircraft, a figure set to rise as the multi-phase development expands through to 2050.

On-demand flight support company Palm Aviation has plans in the works to build the project’s first fixed-base operation (FBO) ground handling facility, which is to cover 80,000 square feet and is estimated to come in at a cost of $10.8 million.

To meet the Gulf’s surging imports, worth an estimated $320 billion in 2007 according to the Dubai Logistics City (DLC), the DWC will be able to handle up to 12 million tons of cargo a year.

The 21.5 square-kilometer DLC is being developed as an integrated multi-modal logistics platform with all transportation modes, logistics and value-added services, such as product manufacturing and assembly in a single-bonded free zone environment made up of the DLC, DWC-MIA and the Jebel Ali port. Sea-to-air times for transport of goods at the DWC are expected to be three to four hours as opposed to the current one to three days.

The Aviation City will also feature a heliport zone with 17 helipads in addition to fuel, lighting and hangar facilities. An academic zone will host several aviation colleges and training centers for aerospace and academic studies.

The need for such institutions has become particularly pressing following a recent report by global management consultancy A.T. Kearney which said the GCC faced a ‘serious shortage’ of pilots to cater to surging demand, with passenger traffic up 18.1% last year. The report said that with GCC passenger traffic expected to grow 8% between 2007 and 2015 — higher than the global average of 5% — the number of pilots required by the UAE’s five airlines alone would spike by 75% by 2020.

Build it and they may come, but an adequate number of pilots will be integral to getting them all there and helping to realize the success of the Gulf’s futuristic aviation metropolises, though the tens of thousands of people already involved in turning these lofty ambitions into reality.

May 28, 2008 0 comments

Levant

Ads that don’t add

by Executive Staff May 28, 2008

written by Executive Staff

The only way is up, or so it seems, for the Jordanian advertisement sector, which recorded stunning double digit growth figures over the past decade. A recent media survey, however, produced some uneasy literature for advertisers, ad agencies and media representatives alike, as readership ratios hardly match the way advertisement budgets are spent.

According to research firm Ipsos, total advertisement expenditure based on official rack rates increased by some 30% in 2007 to amount to $280 million. Since 2000, total ad spending grew by no less than 260%, making it one of the kingdom’s fastest growing industries. Still, Jordanian advertisement represents but 3% of the regional market, whereby it should be noted that all Ipsos figures are based on

official rack rates. In reality, ad spend could be more than 30% lower.

Jordan’s big spenders are the same as elsewhere, with the 30% increase in 2007 mainly fuelled by the re-branding campaigns of the Arab Bank and telecom firms Zain and Orange. Home to four national operators, the Jordan telecom sector remained the country’s biggest advertiser with some 20% of the market, followed by banking (12%), leisure and entertainment (12%), general services (11%) and real estate (8%).

While most countries spend the lion’s share of their budget on TV commercials, nearly 80% of Jordanian advertisement spending is in the country’s newspapers. The remaining 20% is divided, more or less equally, between television, magazines, radio and outdoors. The main reason television scores so badly is the fact Jordan has but one national broadcaster, state-owned Jordan TV, which is hardly watched.

Still, seeing the overwhelming amount of ads in Jordan’s print media, the Jordan Media Survey (JMS) managed to raise some eyebrows, to say the least. Conducted by the International Research & Exchanges Board (IREX) in late 2007, the survey did over 3,000 face-to-face interviews during a period of two weeks and found that only 57.9% of respondents had “read or flipped through” a newspaper during the previous month, while less than one third of people polled had read a weekly, and just 13.5% had opened a monthly.

Read your news today?

Funded by a $5 million USAID grant, IREX’ aim is to strengthen media independence in the kingdom. The aim of the survey was to help media outlets come to a better understanding of the market. Not surprisingly, it appeared that 30% of interviewees had read Al Rai, Jordan’s leading newspaper with a daily circulation of some 100,000 copies, followed by Al Ghad (15.2%), Al Dustour (12.9%) and Al Yawm (5%). On the question if they had read a newspaper “yesterday,” only 18.5% of interviewees responded positively.

The situation was not much better for weeklies and monthlies. From the some 30% of people who had read or flipped through a weekly, 21% responded that they had opened a free classified publication. The dozens of other, relatively small weeklies, divided the remaining 9% with readership percentages never exceeding 3%.

The leading monthly magazines were Arabic-language women’s magazines. Among the English language magazines, Jordan Business and Jo scored highest with 3.5% of respondents affirming they had read or flipped through the publication during the previous month. All other publications on the list scored well below 1%.

Two positive points need to be made. First, while the readership of newspapers was significantly lower than expected, a remarkable 80% to 90% of respondents said they have read a daily on the Internet, yet so far the worldwide web in Jordan hardly attracts any advertisement. Second, a separate poll among “opinion leaders,” concluded that 92% had read a newspaper during the previous month and 58% the previous day.

Without a doubt, the survey’s big winner was radio, as no less than 57% respondents replied they had listened to a channel during the previous 7 days, while 46% tuned in during the previous day. Radio has blossomed in Jordan since 2002, when the Audiovisual Media Law largely liberalized the air waves.

While before 2002, Jordan’s citizens could only listen to Radio Jordan in either Arabic or English, today there are over 25 channels. According to the JMS, Fann FM proved the most popular with a listenership of 32.3%, followed by Quran FM (20.6%), Rotana FM (15%), Jor FM (14.4%), Jor AM (11.3%) and Mazaj FM (7.6%).

More than they’re due?

“Print media has a penetration rate of but 42.8% for dailies, and much less for weeklies and monthlies, yet it receives more than 80% of the country’s ad expenditure,” said IREX’ Samuel Compton. “Radio has a penetration rate of 56.9%, yet receives but 8% of total ad spend.”

Seeing the success of Jordanian radio, one wonders why the Jordanian government has failed to allow for a private TV channel to compete with the country’s state-owned dinosaur JTV. It would no doubt be welcomed by viewers and advertisers alike, as an advertisement campaign ideally makes use of all media outlets. While print media the world over are confronted with shrinking budgets, Jordan’s own may hope that the status quo prevails, as long as they receive the lion share of ad spend.

May 28, 2008 0 comments