By Invitation

A Universe Apart

by John Defterios
written by John Defterios
 
The Great Eastern Hotel near Liverpool Street train station was designed with the City of London financier in mind. Its minimalist interior, clean lines and discrete atmosphere create the right setting for business people to work on a deal or attend a mid-sized forum.

I escaped into the Great Eastern in late March for a few hours at a gathering of Egyptian ministers and business people to discuss the outlook for the region’s most populated country. The talk inside the meeting room was about robust growth of 7%, foreign direct investment hitting a record $11 billion dollars and re-positioning Egypt to capture more than its fair share of Gulf petrol dollars.

On the way over to the meeting, I read my morning paper with headlines reacting to the Federal Reserve’s orchestrated bailout of Bear Sterns and yet another drastic cut in U.S. interest rates to help cushion the blow of the slowdown. This was followed by rampant rumors in London of an imminent collapse of a leading retail bank. The rumors sparked an investigation.

Inside the foyer I took time for a few interviews to sound out my views that we are not living in one global economy right now. “It really does seem like two parallel universes,” said Marwan Elaraby of Citadel Capital the Egyptian investment bank.

“You drive around Dubai or the more frontier emerging economies of the region, you would never guess what is happening in the world economy. What is happening on Wall Street or the City of London seems like a universe away,” added Elaraby.

The dollar continues to tumble; oil continues to surge; prices everywhere for staples are skyrocketing. Despite the rosier economic outlook, protestors in Cairo demanded that President Hosni Mubarak do something about the cost of bread. History buffs know from Roman times that economic growth alone does not deliver votes, but affordable access to bread certainly does.

Finance is Confidence

Middle Eastern players are not ignoring the red-lights of concern flashing on Wall Street, quite to the contrary. They are hoping to minimize the impact. As co-founder of Beltone Financial, Aly El-Tahry noted: “Finance is confidence. As long as you don’t have a catalyst or something that diverts the present expectation from this negative mood, we’ll continue to have uncertainty.”

For Egypt that may translate into a drop of up to 1 percentage point of growth this year according to the country’s Investment Minister Mahmoud Mohieldin. While he acknowledged the challenge, the 42-year-old minister added some bigger picture thoughts on what this might eventually mean.

“I’m much more concerned about the policy formulations in the future because the kind of extreme pragmatism that we’re witnessing today could be justified in the short term by uncertainty, by requirements of having to make and to do some quick actions to fix problems,” said Mohieldin. The Worldcom fiasco led to Sarbanes-Oxley. This severe credit crunch he worries may lead a new White House occupant to move into action to limit trade or the flow of financial investments.

Let’s hope not. We, however, have heard very little from the three remaining presidential candidates on what they would do about the Doha trade round, sovereign wealth funds or the sinking dollar.

Meanwhile, back in the foyer of the Great Eastern, the talk remains on creating new opportunities. Egypt is in the midst of creating a new industrial investment hubs and expanding IT centers. For that to come off the ministers know that skills need to match the demands of companies such as Microsoft or Oracle who already have a presence there.

With this economic boom underway in the region, the players are looking to India and China for inspiration, not Wall Street or the City of London .
 

 

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Closing the doors on oil’s big boys

by Paul Cochrane
written by Paul Cochrane

The halcyon days of cheap energy, pliable governments and a public that didn’t care about pollution or global warming are over for the international oil companies (IOCs). This we all know, or are slowly coming out of a somnambulant state to realize, but recent trends in the oil industry are presenting further concerns for IOCs at the very same time as they report bumper profits on the back of high oil prices.Energy giant ExxonMobil reported a $39.6 billion profit for last year, BP $17.39 billion and Shell $27.6 billion. Such profits were deemed ‘obscene’ in the British popular press, as indeed they might be perceived to be, but what was less noted amid the hullabaloo was that BP saw profits plunge 22% in 2006 — and is now laying off employees — and that Shell is to sink $26 billion of its profits into developing new projects. Likewise, ExxonMobil spent $21 billion in capital expenditure last year, but production increased by less than 1%.

So what is behind this change in fortunes? After all, the IOCs had enjoyed year-on-year record profits for the past five years, demand is still rising and oil looks like it will continue to hover around $100 a barrel.

The problem that IOCs are facing is production and access to energy reserves. The cost of production has surged from $5 a barrel in 2000 to $14 in 2006, largely due to the rising costs of extraction as well as construction of upstream and downstream facilities.

This was evident in the amount Kuwait’s National Petroleum Company (KNPC) had to shell out to build the 615,000 bpd Al-Zour refinery, the world’s largest purpose built facility of its kind.

The original budget was $6.3 billion, but with the cost of raw materials doubling and even tripling in the Gulf, no construction firm would touch the project and the refinery was on the verge of being shelved. But so important is the refinery to the Kuwaitis that the government eventually capitulated last September, earmarking a staggering $14.29 billion to get the job done.

“We are now touching un-chartered territorial waters, the value of contracts in the billions of dollars,” said Ahmed al-Jemaz, KNPC deputy managing director of the Shuaiba refinery.

Such spiraling costs are naturally of concern to IOCs — Shell admitted a 10% annual increase in inflationary costs — but of more pressing concern is the access to energy rich countries.

One by one, doors are being closed to the IOCs as countries re-nationalize resources. Last year, Russia put the screws on BP and Shell to hand over majority stakes in gas operations to the state-run Gazprom, Bolivia nationalized gas and oil fields, Ecuador used military force to take over Occidental Petroleum’s holdings, and Hugo Chavez gave IOCs a choice: handover majority stakes to Venezuela’s national oil company or face complete nationalization of operations in the Orinoco River basin.

In the case of Venezuela, BP and Norway’s Statoil Hydro opted to stay but for ConocoPhillips, which pulled out, the loss of its Orinoco holdings saw the American company’s second quarter earnings plummet by 94%.

The loss of these countries, coupled with growing competition from national oil companies (NOC) around the world — a cursory glance at the countries in which NOCs operate is more than ample to see they are not confined to exploiting their own national resources — is what Jeroen van der Veer, Shell’s chief executive, was quoted as saying is a dangerous trend.

IOCs can be thankful, then, that the MENA region is not part of this re-nationalization phenomenon, but Arab governments are savvy enough to know they don’t have to be taken for a ride.

IOCs are having to face the reality that to access the likes of recently de-nationalized Libya, with proven oil reserves of 41.5 billion barrels and only 30% of the country explored, deals are getting tough.

This was apparent at the last round of bidding in December, where 35 companies were pre-selected to bid for 41 gas blocks, but only 13 companies put in bids and only four blocks were awarded out of 12 licenses.

The lack of interest by IOCs was attributed to ‘uninteresting’ blocks offered by Libya’s NOC, but most notably it was Tripoli hand-

picking companies that would provide the highest share of production, with Gazprom offering 90.2% of any production in finds in western Libya and Shell offering 85% to search for gas.

Such tight restrictions were not there to access Palestine’s recently discovered gas, with only 25% going to the Palestinian Authority, and Iraq’s oil law looks like it will hand over the lion’s share to IOCs, but Libya is not alone in the region with its tough stance.

The only thing that the IOCs have on their side right now is the skills and technology that NOCs don’t — as of yet — have.

All in all, it looks as if 2008 will be another roller-coaster year for the IOCs while NOCs, albeit not necessarily laughing all the way, can at least show some bravado on their way to the (central) bank.
 

PAUL COCHRANE is a freelance journalist based in Beirut. His work has appeared in Britain’s Petroleum Review.

 

 

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Did they ever get it wrong…

by Claude Salhani
written by Claude Salhani

US President George W. Bush and his Secretary of State Condoleezza Rice thought they could solve the Middle East’s core problem — the Palestinian-Israeli dispute — by organizing a peace conference in Annapolis late last year. Having succeeded in bringing together Israelis and Palestinians, as well as Syrians, Saudis and numerous other countries for a meeting that was big in aspect though short in context, the administration bathed in the euphoria of its temporary success. ‘Temporary’ here is the key word because since November of last year, and since Bush’s promise of peace before his mandate expires in January 2009, the Middle East once again finds itself caught in a deadly spiral of increasing violence.

Talk about misreading signals, misjudging reactions and misguided policies.
Since the Annapolis conference Gaza, with its 1.4 million inhabitants besieged by the Israeli military and under Hamas control, sits on the brink of all-out war. As Hamas continues firing Qassam rockets at Israeli population centers and Israel hits back, civilians are caught in the cross-fire on both sides; Jerusalem has been the target of one of the worst terrorist attacks in years when a lone gunman opened fire on yeshiva students, killing eight and wounding another 10; the Lebanese presidential crisis, now in its fourth month, has pitted Syria and its Lebanese allies against the country’s government who enjoys the support of the United States, France and Saudi Arabia. As a result the Saudis have recalled their ambassador to Damascus, while the United States has dispatched three naval gunboats — including the USS Cole — to the eastern Mediterranean in what can only be seen as a revival of gunboat diplomacy. Amidst all this one must not forget Iran, who is believed to be pursuing its nuclear ambitions

So much for peace within the year. Indeed, seen from Washington, the situation in the Middle East looks quite dim, and despite Bush’s misplaced optimism, try as one may, it is hard to see any light at the end of the proverbial tunnel, unless it’s those on Merkava tanks heading for Gaza or for southern Lebanon. Analysts and diplomats have voiced their pessimism regarding the short-term future of the region. As for the long term, no one is really daring enough to venture any thoughts. Suffice to say that events are affecting the region’s economy in a way that, if allowed to continue to deteriorate, may result in drastic — and dangerous — measures.

Many believe that President Bush waited far too long to become actively involved in the Arab-Israeli dispute, and now Washington’s efforts are too little and too late. Additionally, the Bush administration’s policy of refusing to recognize the importance of talking to four major players in the region — Syria, Iran, Hizbullah and Hamas — cannot possibly advance the peace process. Syria, much as Iran, holds great influence on the Lebanese Shiite organization, Hizbullah, and the Palestinian Hamas movement. Much as the White House hates to admit it, the road to peace in the Middle East unavoidably passes through Damascus.

Meanwhile, as one of former President Bill Clinton’s campaign slogans so adequately pointed out, “it’s the economy, stupid.” The dangers of a regional flair-up cannot be ignored as Israel begins to feel the economic crunch of its war with Gaza. Cities such as Sderot, well within Hamas’ range of Qassam rockets, have seen their economy take a turn for the worse. In fact, Israel’s policy regarding Hamas has met with about as much success as Washington’s and the siege of Gaza has backfired. The storming of Gazans across the border into Egypt demonstrated that the policy of trying to contain the Strip has failed to yield the desired results and is having a negative effect on Israel’s economy.

As a result of the continued bombardment, a number of businesses have been obliged to lay off personnel as residents of border localities limit their activities to the most basic and urgent needs. Hoping to incite the people of Gaza to move against Hamas by exerting pressure through the embargo maintained by Israel, ironically, this policy is coming back to bite Israel’s own economy. And herein lies what could be the tipping point. Israel’s Prime Minister Ehud Olmert, already suffering from lack of popularity, a position amplified by the fiasco of the Lebanon War and the ongoing undeclared war with Gaza, may feel obliged to address the situation through military action. As in the past, such short-

sighted policy will only serve to strengthen those opposed to the peace process; a process which can only advance under the guidance of the United States’ influence. But for that to succeed a change of policy is first required. This is unlikely to happen before there is a change in the White House’s Middle East policy, or a change in the White House.

Claude Salhani is editor of the Middle East Times.

 

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Are UAE consumers starting to feel the pinch?

by Alex Warren
written by Alex Warren

In many ways, the UAE is a retailer’s wet dream. The population is growing quicker than almost any other in the world at around 4.5% per annum; consumers have higher disposable incomes than pretty much anywhere else in the Middle East, apart from Kuwait; and in per capita terms, consumer spending in the UAE is miles above other markets in the region.And people here have some solid reasons to be confident when it comes to spending their hard-earned cash: there is no income or corporate tax, there is no VAT, petrol costs a fraction of what it does in most developed countries, and many goods — especially things like electronics or cars — are dirt cheap.

But it’s not that surprising to see some recent signs suggesting that the UAE’s affluent consumers might just be beginning to lose a little of their confidence. A regular survey, which was last conducted in January 2008, asked interviewees to give a score out of 100 for a number of different categories based on how confident they felt for the coming six months.

Compared to the last survey, which was conducted in July 2007, the overall index fell markedly from 88.8 points down to 78.5. The biggest slide was in the ‘regular income’ category, while ‘quality of life’ and ‘employment’ also dropped off.

So what’s making people more worried than they were six months ago? First off, inflation doesn’t show any signs of falling. Officially, it stands at around 7%, but in reality it’s in double-digits: a recent study by Merrill Lynch argued that inflation was in danger of hitting 12% in 2008, which would be a 20-year high. That is still lower than Qatar, but is nevertheless growing at a much quicker rate than salaries

For your average UAE resident, it’s food and housing that have probably experienced the most alarming price jumps. Various local studies found that the cost of basic foods rose by around 27-30% in 2007, and could be rise again by as much as 40% in 2008. This has prompted the government to put artificial caps on the consumer cost of staples such as rice, and to consider stockpiling food supplies in advance to avoid other unwanted price rises later in the year.

Rents, meanwhile, continue to go up in double-digit figures every year. Caps on annual rent increases have been introduced across most of the seven emirates, but only apply to those residents who are renewing their leases, and not to new arrivals, who have to pay the full market value. Great news for investors and speculators, not so good for your average employee.

Moreover, the seemingly endless decline in the US dollar — to which the UAE dirham is still pegged — has made the cost of imports much higher. The UAE has relatively little domestic production capacity in most sectors, keeping it highly dependent on importing most types of goods. With the dirham losing value daily, imports are becoming more and more expensive — with the prices naturally being passed on to residents.

Murmurings about the introduction of tax are also starting to stir up concern. Plans are reportedly afoot to unleash value-added tax (VAT) sometime in the future, although this would seem to contradict other government efforts to keep consumer prices down, and in all probability will not happen for some time. There has also been talk of the (for now unlikely) possibility of income or corporate tax, while motorists are feeling nervous over the prospect of a rise in the price of petrol.

But perhaps more revealing is the decline in the quality of life. This is a more aspect of consumer happiness, but factors such as the crippling traffic in Dubai — which shows few signs of abating despite a series of new roads and bridges — hardly make for an enjoyable working life for many people. What’s more, a recent study found that air pollution in Dubai was amongst the worst in the world.

Although, in the grand scheme of things, consumer confidence is still comparatively healthy in the UAE, companies and the government must be careful to nurture residents’ confidence levels whilst balancing them with corporate profits. The UAE is already a highly transient place, with many people tending to stay a year or two before moving on elsewhere, while in terms of culture, history or entertainment, cities like Dubai or Abu Dhabi simply can’t compete yet with the likes of London, New York or Paris.

So to attract skilled, world-class talent that will allow the country to seriously compete on a world stage, it needs to make sure that expatriates keep getting a sweet financial deal compared to their home countries.
 

Alex Warren is a Dubai-based freelance consultant and writer.

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NATO looks to the region

by Riad Al-Khouri
written by Riad Al-Khouri

The North Atlantic Treaty Organization (NATO) has expanded since the end of the Cold War, both in membership and geographic scope. The alliance and its individual countries have headed south and east: their presence in the Middle East and North Africa (MENA) has deepened, as regional states joined the Atlantic alliance’s multilateral security efforts following elevation by NATO in 2004 of its Mediterranean Dialog to a working partnership. Bilaterally, various MENA states link up with the United States as Major Non-NATO Allies (MNNAs) to work with Washington. Additionally, there are bilateral steps by some individual European countries keen on consolidating strategic positions in the region: examples of this include France’s Mediterranean Union idea, which emerged last year, and the agreement in January between Paris and the United Arab Emirates to set up a French military base in that Gulf state.Parallel to these security moves, the West has since the end of the Cold War been expanding into MENA with increasing economic force. Particularly since the mid-

1990s, the Europeans and America intensified commercial diplomacy with the region through agreements to liberalize trade. In this respect, Jordan has an advanced status vis-

à-vis the West, being the only MENA state simultaneously having US Free Trade and Qualifying Industrial Zone agreements, as well as an EU Partnership accord along with membership in the parallel Agadir process. Jordan’s strategic position has also helped the kingdom obtain MNNA status, as well as develop links with NATO. As part of the process of strengthening the latter, in December 2007 NATO launched the first Mediterranean Dialog Trust Fund, to assist Jordan with elimination of explosive remnants of war. Involving contributions from NATO states Norway, Spain, Italy, and Belgium, as well as non-members Switzerland and Finland, this first ever Trust Fund project with a Mediterranean Dialog partner marks the start of a new kind of use of the Alliance’s expertise to achieve both security and economic goals, the latter including improved land use.

Just as a security dimension is important in US and EU economic partnerships with MENA countries, this step by NATO in Jordan demonstrates that the reverse is also true, with a Western military alliance willing to work on non-

security issues in the region. As NATO’s role evolves further, and with the overall situation in MENA in a state of flux, this mixture of economic and strategic elements could become more common.

Another interesting aspect of the Mediterranean Dialog project in Jordan is that the finance comes from European states, mainly EU members, but still in the framework of an alliance the spans both sides of the Atlantic. With Europe providing the funding, can it also be in charge? Finance through a trust fund means that Europe literally entrusts NATO with managing its money, which means an American element is also part of the process. However, if, as it now looks, Europe is going to be paying for more such NATO activities, the purely “European” face of NATO could become more apparent, further emphasizing schisms that already exist in the alliance.

An alternative is for European countries to project force and look for co-operation in MENA on a bilateral basis, thus discarding the excess baggage that a link with the US sometimes brings. However, that in turn might exacerbate strains inside Europe – and within the EU in particular. For example, there is already muttering from Germany about France’s Mediterranean Union idea not sufficiently involving northern European Union countries.

Members of the Atlantic partnership will continue to be involved in competition in the region: what role could NATO play in this complex process? Apart from greater geographical scope, the alliance should also continue to broaden its horizons towards development and application of non-military means to achieve security.

In the MENA powder keg in particular, NATO should try to prevent conflicts by eliminating the reasons for them through applying primarily non-military means in a proactive flexible manner. This will inevitably mean integrating NATO activities with the capabilities of different international alliances or countries. That in turn underlines the importance of improved cooperation between NATO and the EU, which of course is already a key player in MENA — but also an economic rival to the US in the region.

This brings us right back to the recent strains in the Atlantic alliance, and Western powers’ competition in MENA. In that respect, regional states’ relations will continue to evolve multilaterally with NATO and with the EU on the one hand as well as bilaterally with the US on the other. This means that Jordan and other MENA countries need to continue maneuvering diplomatically to gain the most out of Western powers’ interest in the region.

Riad al Khouri is a visiting scholar at the Carnegie Middle East Center, and Senior Fellow of the William Davidson Institute, University of Michigan.

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USS Cole comes to Lebanon

by Nicholas Blanford
written by Nicholas Blanford
 
“Once, I remember, we came upon a French ‘man-of-war,’ senselessly firing cannon shots into the African jungle,” narrates Marlow in Joseph Conrad’s “Heart of Darkness,” his novel about madness and power in 19th Century Africa. “In the empty immensity of earth, sky, and water, there she was, incomprehensible, firing into a continent. Pop, would go one of the six-inch guns; a small flame would dart and vanish, a little white smoke would disappear, a tiny projectile would give a feeble screech — and nothing happened. Nothing could happen. There was a touch of insanity in the proceeding, a sense of lugubrious drollery in the sight.”

Conrad’s description of the pointlessness of Western naval power against the impassivity of a continent came to mind with Washington’s announcement in February that it was sending warships to patrol the Levantine coast in a less than subtle message to its opponents in the region.

“This is an area that is important to us, the eastern Med,” said Admiral Mike Mullen, the chairman of the US Joint Chiefs of Staff. “It does signal that we’re engaged, we’re going to be in the vicinity, and that’s a very, very important part of the world”.

The first ship to steam to the Lebanese coastline was the USS Cole — which was badly damaged in an Al-Qaeda suicide attack in Yemen in 2000. The symbolism of deploying a ship closely associated with the “war on terror” was not lost on the Lebanese, and predictably sparked intense speculation as to what it all meant.

“Arrival of destroyer USS Cole: Is it a show of force or for the use of force?” asked a headline in Al-Hayat.

The USS Cole soon departed to be replaced by the USS Philippine Sea and the USS Ross, all part of the US Navy’s Nassau battle group, consisting of six ships including amphibious troop carriers.

Of course, US warships regularly ply the waters of the eastern Mediterranean, it falls within the purview of the US Navy’s Sixth Fleet. But the difference this time was the decision by Washington to pointedly announce the deployment beforehand.

The affair was clumsily handled by the US, however. Having apparently received no prior notice of the deployment, an embarrassed Prime Minister Fouad Siniora had to fend off opposition accusations that he was an American stooge forced to rely on US military muscle to prop up his weak government. It is hardly likely that Siniora would have requested the presence of US warships and he may well have registered his objection to a public declaration if he had been previously notified.

The Hizbullah-led opposition was handed a propaganda coup. It could point to US aggressiveness in sending warships to Lebanon, as well as the impotence of the gesture. Hizbullah and Syria, the presumed recipients of the US muscle-flexing message, would not be impressed by a couple of ships sailing a few dozen kilometers of the Levantine coast. After all, the USS Cole and the other guided missile destroyers that replaced it were hardly likely to fire their armaments of Tomahawk cruise missiles into Lebanon or Syria.

Indeed, it was a strangely old fashioned gesture for the US to make. It was redolent of a bygone era when Europe’s imperial powers responded to crises in their far flung colonies by sending a battleship — giving rise to the phrase “gunboat diplomacy”.

It may also have symbolized the frustration felt by the Bush administration at the continuing impasse in Lebanon and the inability of the US or its French and Arab partners to break the deadlock. Deploying warships to the eastern Mediterranean paradoxically demonstrated the limitations of US power in influencing developments in Lebanon and Syria. Syria long ago chose to ride out the storm of Bush administration displeasure and wait for a change in the White House. Naval maneuvers in the eastern Mediterranean will not persuade Damascus to change course.

Indeed, the history of US military muscle-flexing in Lebanon is not a happy one. The last time there was such a public display of US naval might this close to Lebanon was in 1983 during America’s ill-fated intervention in Beirut. The USS New Jersey, a World War II dinosaur armed with massive 16-inch guns, arrived off Lebanon two months after the US Marine barracks in Beirut was destroyed by a suicide bomber, killing 241 US servicemen. The USS New Jersey fired on Syrian troops and allied militia positions in what was the heaviest shore bombardment since the Korean War. Many Lebanese still recall the “flying Volkswagens”, the name given to the huge shells that struck the Chouf. The sporadic barrage, which lasted nearly two months, killed the top Syrian general in Lebanon. The shelling, in which civilians also were killed, helped cement anti-American sentiment.

In early February 1984, pro-Syrian militias took over West Beirut, spurring President Ronald Reagan to order a Marines evacuation. The Marines left by the end of the month, ending what then US Defense Secretary Caspar Weinberger called a “particularly miserable assignment.”

Nicholas Blanford is a Beirut-based journalist and author of “Killing Mr. Lebanon — The Assassination of Rafik Hariri and its Impact on the Middle East.”

 

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The silent Right

by Peter Speetjens
written by Peter Speetjens

Politicians and media were quick to dismiss the recent elections in Iran as being undemocratic, and rightfully so, seeing the fact that the mullah-led regime carefully handpicked the candidates it thought suitable for the people to choose from. Not surprisingly, some 1,700 reformists were barred from taking part.

Seeing the overwhelming attention was given to the Iranian take on democracy, it is striking to see how little we heard about similar practices in other countries in the region. Take Egypt. With an eye on the upcoming municipal elections, the Mubarak regime thought it best to pre-select candidates. From a total of 10,000 political hopefuls mostly associated to the Muslim Brotherhood, only 60 were allowed to register, while some 700 were detained.

Ever since 1981, when the state of emergency was introduced, the Egyptian authorities routinely arrest political opponents, or prevent them from participating otherwise. Likewise, who has heard anything about the 2007 parliamentary elections in Jordan?

Nothing ever happens in Jordan, seems to be the credo among newsmakers, which remains a self-fulfilling prophecy, as long as journalists and editors fail to even scratch the kingdom’s seemingly tranquil surface. And yet, it’s common knowledge that it’s extremely difficult to found a political party in Jordan, while the electoral process is designed in such a way that the country’s tribal provinces keep the upper hand over the urban majority, which is predominantly of Palestinian descent.

According to global watchdog Human Rights Watch (HRW), the Jordanian elections were characterized by nothing less than “outright fraud”. HRW furthermore criticized restrictions on freedom of speech, public gatherings and the country’s NGO law. In response, the Jordanian government did not do itself any favors by stating that the reason for banning demonstrations was “to ensure the safety of participants.”

In its 2008 World Report, HRW went on to say that in 2007 “too many governments, including Jordan, Nigeria, Russia and Thailand, acted as if simply holding a vote is enough to prove a nation is democratic,” while “the US and Europe ignored evidence of manipulated elections, particularly when the results were favorable to their administration.”

The deafening silence regarding democracy and human rights in Iran, Syria and other ‘rogue states’ is all the more remarkable among the more conservative members of the international press corps, as they were the main cheerleaders of the US-led invasion of Iraq, proudly presenting it as the beginning of a democratic blossoming in the region. Skeptics of this rather rosy picture were swept aside by labeling them as “(extreme) leftists,” who have become “anti-

American”, ever since the free market model became the world’s dominant force. So, British author Nick Cohen argued in his book “What’s Left?” that the left had lost its soul. Once it mounted the barricades in defense of human rights and secularism, yet now it sides with countries such as Cuba and Venezuela, and Islamist groups like Hizbullah and Hamas. In their urge to be anti-American, anti-Western even, the left is ready to embrace anyone, so Cohen and many others argue.

Now, this is hardly the place to deal with such thorny issues once and for all, yet a few question marks must be raised. Firstly, it is hardly fair and frankly rather ridiculous to nullify criticism of American foreign policy by making a matter of anti-Americanism. True of not, the claim that the search for weapons of mass destruction was primarily an excuse to invade Iraq, has nothing to do with some kind of metaphysical hatred of all things American, which includes everything from freedom and democracy to Elvis Presley, Hollywood blockbusters and the Rocky Mountains.

Note that Israeli conservatives do exactly the same thing, when arguing that criticism of the Zionist state is nothing but a veiled form of anti-Semitism, i.e. a deep hatred of anything Jewish. Noam Chomsky argues that this type of reasoning stems directly from the lexicon of totalitarianism. Soviet dissidents were accused of hating their country, because of their criticism of state policies, as for the totalitarian mind “the State is identified with the country, its culture, and its people.”

Secondly, the fact that the left is, hesitantly, willing to engage with groups as Hamas, Hizbullah or the Muslim Brotherhood is not so much due to an abandoning of secular values, but born of a deep awareness that one cannot have it both ways.

One cannot force elections upon Gaza and then ignore the end result when some 80% of the population votes for a party not of your liking. One cannot criticize Syria and Iran for human rights violations without ever raising a finger regarding similar practices in countries that happen to be US allies. One cannot criticize people for somehow engaging Islamists, while Saudi Arabia is among the main US allies in the region. That has nothing to do freedom or democracy. That is just a matter of plain and simple hypocrisy.

Peter Speetjens is a Beirut-based journalist.

 

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Banking & Finance

Syria – Banked by Lebanon

by Executive Staff
written by Executive Staff
 
Dark, heavy storm clouds continue to linger over the heads of many bankers worldwide, troubled by the subprime market crisis, fraud, financial havens and the plunging dollar. Lebanese banks have weathered this fiscal hurricane so far, although dark clouds in the otherwise clear skies over Beirut are dampening the sector’s dynamism.

But while the West wakes up to yet another financial scandal and Beirut’s political impasse drags on, Lebanese banks in Syria have been having a field day since the sector was liberalized in 2001 and the Lebanese pin stripes moved into Damascus.

“Generally speaking all private banks have improved — improved assets, number of branches, liabilities, deposits and turnover — and all have made profit,” said Georges Sayegh, General Manager of Bank of Syria and Overseas, BLOM Bank’s Syrian arm.

Indeed, private banks accounted for over a third of all private sector deposits at the end of 2007, according to the Central Bank of Syria. This has surged from 2004, when the first private banks entered with a 4% share of deposits, and in private sector loans, from 3% in 2004 to 16% in 2007.

Lebanese banks are at the forefront of Syria’s fledgling private banking sector, with Bank Audi Syria, Banque BEMO Saudi-Fransi, Bank of Syria and Overseas (BSO), and Byblos Bank Syria already well established. They are to be joined by Fransabank, Banque Libano-Francaise and the Bank of Beirut.

“The banking sector looks nothing like it did four or even two years ago,” said Bassil Hamwi, Deputy Chairman and General Manager of Bank Audi Syria. “There is a lot more flexibility in the private sector, and we are just at the beginning.”

The sector has certainly come a long way since the decision to open it up was made, amid concerns over the motivation of private banks in a socialist economy.

“I had a role in drafting the law in 2000, and discussion at the table and in society was that private banks would come and take our money. There was not a clear understanding of banks or motivations, but this has improved, and banks’ motivation is more or less clear,” said Hamwi. “The environment is very conducive to banking, and it is increasingly so and the reason for so much interest.”

The initial teething problems common to all liberalizing economies were faced in the first few years of operations, between 2004 and 2006, while the Central Bank has completed 21 out of 30 steps of its financial reform plan.

“As we weren’t the first bank to have opened, the key obstacles were faced by the first entrants at the start, but gradually things are smoothing out, one due to the Central Bank governor being very open and that he listens,” said Semaan Bassil, Vice Chairman and General Manager of Byblos Bank. “Sometimes they study [laws and regulations] for too long, but do make decisions, although we’d like it faster.”
 

Branching out

All the Lebanese banks are rapidly rolling out their presence in Syria. Bank Audi Syria has 10 branches, BEMO 20 branches, and BSO 10 branches with 19 slated by year’s end and plans to double the number in the next five years. Byblos Bank Syria has six branches with plans for 20 in the next three years, Fransabank Syria will have two to three branches by the end of the third quarter, and Banque Libano-Francaise’s Bank Al-Sharq plans to have 12-13 branches by 2011.

Such rapid expansion is due to the country’s low banking penetration, with only one branch for 300,000 people, according to Hamwi. “A huge number have no access to banks, and don’t see them enough,” he said.

However, with Syria’s real estate market undergoing a boom, finding suitable locations is proving to be a problem. “It’s difficult to find adequate real estate and prices are quite unbelievable, more expensive than the seafront in Solidere in Beirut,” said Walid Raphael, Deputy General Manager of Banque Libano-Francaise.

Syria’s real estate boom is generating demand for mortgages though, with Byblos the first to offer such services last year, and other banks getting in on the act. Bank Audi Syria is to offer a housing loan within the next four months as a “show-case product.”

“There is huge pent-up demand for housing loans,” said Hamwi. Introducing mortgages has not been a straightforward process however.

“The challenge is not the type of services, but infrastructure,” said Bassil. “To get a mortgage you need to present a bill that the building was legal, but many build outside of regulations, so can’t present a clean bill. Potential borrowers also go to government agencies for paper work, and such bureaucrats have not faced such requests before, so infrastructure and mentality are going to change.”

Banks did not venture into retail banking at first, initially focusing on commercial banking, but that is changing as the sector has developed.

“Retail takes time, otherwise we could have had retail products from the first month, but a cookie cutter approach to meet a huge number of people is not an easy process,” said Hamwi.

The banking sector has, after all, started from a low base, with strong demand for all personal loans, as well as a low base in terms of average income, which is around $150 a month.

“We would be able to sell more loans if disposable income was higher and [there was] more transparency from companies. People in Syria often have a second or third job which they do not declare and thus cannot be easily taking into consideration these revenues versus the available consumer loans we are selling,” said Bassil.

Overly liquid

The challenges in ironing out bureaucracy and other related issues with banking services pale in comparison to the high liquidity of the banks due to the lack of a government debt market.

“Banks are flooded with deposits, but the problem is what to do with it. Some banks are even discouraging people from putting in deposits,” said Dr. Nabil Sukkar, Managing Director of the Syrian Consulting Bureau for Development and Investment.

The issue has become increasingly acute over the past year as private sector deposits with the Central Bank have surged, more than doubling in the case of certain banks. Bank Audi Syria’s deposits, for instance, were $42.96 million in December 2006, and $87.93 million by September 2007.

The Central Bank has repeatedly said over the past few years that it plans to issue treasury bills, but just like the stock market was intended to launch in the first quarter of 2008, no one has an idea when this will happen.

Banks do know what kind of return they would like to see on their deposits, with the interest rate currently set at 0% at the Central Bank.

“It is treated like a checking account,” said Hamwi. “We would like a government debt market that reflects sovereign risk. My guess is a minimum of 2.5% to 5%.” Sayegh at BSO suggested 3-4%.

“We need to have treasury bills and they know that,” said Bassil, referring to the Central Bank. “All depends on the market and interest rates. I’d be more cautious about setting the ideal rate, it depends on supply and demand at a specific time, and on the bank, whether it is more or less liquid, and this depends on the lending opportunities linked to foreign investments, economic and political prospects, as well as bureaucracy and red tape for channeling these investments.”

Banks also want the labor law to be more flexible, amendments made to leasing laws, the establishment of a central credit agency, and for foreign exchange laws to be altered for electronic cards.

“Constraints are in issuing electronic cards, as you can’t transfer funds abroad,” said Muhammed Khaled, Retail Marketing Manager at BSO. “It’s an issue for international Visa cards, only linked to transfer accounts, so you are limited to a minority of people that have funds.”

A further issue is the lack of an electronic banking regulator, with most banks using Lebanon’s Creditcard Services Company (CSC), which is on the state-run Commercial Bank of Syria’s network, the rival to the state-run Real Estate Bank network. There are currently some 250 ATMs in Syria, which could reach 500 to 600 by year’s end, according to Khaled. Lebanese banks are also facing pressing human resources issues.

“Lebanese banks face three challenges : one, the brain drain in Lebanon so fewer good people are available and we need the best to set up and manage branches; two, the cost of expatriates; and three, the psychological barrier for some of the highly qualified Lebanese to come and work in Syria,” said Bassil. “There is a high need for expertise, so the Gulf and Lebanon are competing, and the costs are high.”

Free Zones and Extreme Views

The scramble by Lebanese banks over the past few years to get licenses has been recently compounded by the government’s decision to close banks in Syria’s six free zones, which were opened prior to liberalizing the banking sector. Some other banks, such as SGBL, will have to close completely.

Others, such as Banque Libano-Francaise, which is in the final stages of receiving a license for its Bank Al-Sharq, will have to move operations, as will Fransabank, which finished its IPO in March heavily oversubscribed, offering 36% and raising $14 million.

Lebanese banks have been able to retain majority control despite Syria’s requirement that private banks are 51% Syrian owned, through Syrian investors already linked to the Lebanese mother bank. For instance, 10% of Fransabank Syria is in the hands of the Saade Group, and 5% with Ahmed Shehabi from Aleppo, said Nadim Moujaes, Deputy General Manger for Strategy and Development at Fransabank.

For Bank Al-Sharq, which is to offer a 20% IPO, “the signature holders are all shareholders in Banque Libano-Francaise, so we will be in control of this entity,” said Raphael. There is a draft law on the table, however, to increase foreign percentage ownership to 60%, as well as raise capital requirements to $100 million. But such an approach is putting off international banks from entering Syria.

“Go ask a European bank to give a percentage and they won’t accept, but the Lebanese will,” said Sayegh.

Bassil said the expected new high capital requirement may be a penalty for banks and shareholders. “Our French shareholders in the insurance venture, for example, said Syria needs more capital in the future as the economy picks up and the projects start taking place, but why today? From day one, not gradually, say in two to four years. Syria is still growing gradually, and so the challenge is not capital but the ability to deploy it in feasible projects,” he said.

Syria’s status as a ‘rogue state’ in the eyes of Washington is also having its effect on Lebanese and private banks, with bankers believing there is widespread aversion in the Western banking community to deal with Syria, and a reason no big players have entered.

Some banks in Europe have taken an “extreme view” in not dealing with Syria, said Hamwi, citing a leading German bank, while Bassil mentioned “global political issues.”

“I cannot call them major obstacles but there are some banks overseas, whether Arab or Western, that have refused to accept deposits from Syria. Also letters of credit,” said Bassil. “Some banks overseas don’t deal with Syria at all, and don’t want to touch Syria as it becomes a reputation issue — human rights and that they may support non-acceptable states or armed groups. So today the political pressure on Syria is not yet a major issue but could be a potential threat if things get increasingly difficult.”

For the time being, Lebanese banks are enjoying Syria’s clear skies while hoping regulatory issues will be sorted out and treasury bills will be offered sooner rather than later.

 

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Growing US-Syrian trade

by John Dagge
written by John Dagge

Strolling through Syria’s fashionable shopping districts, it is increasingly difficult to notice that the country is subject to a heavy raft of US sanctions. American icons like KFC, iPod, Ford and GAP are all increasingly available to a public hungry for foreign goods. A glance at the Syrian-US trade sheet only adds to the confusion. Bilateral trade between the two countries grew by 7% last year to hit $471.9 million, with American exports — targeted by sanctions — surging a massive 61% to $361.4 million.
 

Indeed, since George W. Bush became president, US exports to Syria have more than doubled. Over the same period, US imports from Syria — not banned under any sanctions regime — have fallen from $158.7 million in 2000 to $110.5 million in 2007. Syrian-US trade is also certain to be higher than official figures show, given that Syrian traders can easily source American goods through regional countries like Lebanon and Dubai.

The United State’s trade embargo becomes all the more questionable when US-Syrian trade volume is compared with that of Damascus’ high profile ally Iran, a relationship producing ever more angst among key regional and international players. For all the hype of the Syrian-

Iranian economic relationship, trade volume between Damascus and Tehran stood at just $200 million last year, less than half the volume of US-Syrian trade. Even US-

Iranian trade eclipsed the Damascus-Tehran trade volume, weighing in at $318.8 million, with the US importing around $173.2 million of goods from the Islamic Republic, only slightly less than Syria.

All this from an administration which holds isolating Syria as a main tenant of its Middle East policy. Not that it hasn’t tried. Since taking office Bush has unleashed a constant barrage of trade sanctions aimed at putting an economic choke on Damascus. The latest (and most personal) hit came in February when the Bush administration moved to freeze the assets of Rami Makhlouf, Syria’s highest profile businessman and cousin to President Bashar al-Assad.

The charges against Syria are well known. Damascus’ support for groups Washington deems terrorist organizations but which Damascus holds as national liberation movements — Hizbullah, Hamas and Islamic Jihad — has ensured its continued appearance on the State Department’s State Sponsors of Terrorism list. Damascus’ role in the latest Lebanese political deadlock is also drawing heavy fire, while her alleged pursuit of weapons of mass destruction and efforts to destabilize Iraq are obligatory footnotes to any White House press release concerning Syria.

Whatever one’s point of view regarding the validity of such charges, it is clear that economic sanctions have failed to produce any substantial change in Syria’s foreign policy. In Iraq, Palestine and Lebanon, the Syrian playbook remains the same. Furthermore, Washington has long admitted its economic embargo is not working. At a congressional subcommittee convened to discuss the effectiveness of the Syrian Accountability and Lebanese Sovereignty Restoration Act in early 2006, four panelists — including Ted Kattouf, former advisor to the US ambassador to Syria, and David Schenker, former adviser to Defense Secretary Donald Rumsfeld — were asked to rate on a one to ten scale the effectiveness of sanctions in changing Syrian behavior. The average answer was four.

Indeed, clear cases exist where sanctions are producing the opposite of their intended goals. The SyriaPol website, designed to measure Syrian attitudes towards governance, economic and democratic reform and the Syrian-

Israeli peace process, was blocked from view in Syria in 2006 — not by the Syrian government but by the American web hosting company which sold the site its domain name because it was asked not to conduct business with any Syrian individuals. The irony of a website dedicated to promoting democratic debate in Syria being blocked because of sanctions supposedly aimed at brining about such change is not lost on many.

Washington’s insistence on economic sanctions has also come at a time of unique possibility in Syria, with the country’s economic opening yielding numerous opportunities for low level engagement with Syria via the private sector. But instead of American businessmen engaging with their Syrian counterparts and, inevitably, explaining and personalizing the United States in a country rife with misconceptions regarding America, Iranian counterparts are taking their place. The role America’s private sector could be playing in creating common ground and shared interests between the US and Syria — groundwork that would no doubt be useful in resolving many of the region’s ills — has been wasted.

The Bush administration’s latest move — freezing the assets the country’s leading businessman Rami Makhlouf — only serves to muddy the waters. Makhlouf is extremely unlikely to have any business interests in the States; the owner of Syria’s largest mobile phone company Syriatel told a Reuter’s journalist he “did not have a penny” invested in America. All of which is known by the Bush administration. The latest measure is best explained as an attempt to cement a hostile US-Syrian relationship long after Bush and his band of brothers have rolled out of the White House. Salt the fields and poison the well on the way out. Unfortunately, it may well be one of the Bush presidency’s few successful moves.
 

John Dagge is a freelance journalist based in Damascus.

 

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Lebanon

Education – Still a lot to learn

by Executive Staff
written by Executive Staff
 
Lebanon is a country that puts a great deal of value on education, where the Lebanese take exceptional pride in their trilingual skills and their ability to adapt in any environment — irrefutable proof of the quality of their education.

However, despite being the second-largest item, after defense, on the national budget (11% in 2005), 96% primary school enrollment and 90% youth literacy rates, the public education sector in Lebanon is plagued by inequalities and high dropout rates, as much as 23% at the intermediate level according to a World Bank report.

High Dropout, Low Result
Most experts agree that the quality of education in Lebanon is not commensurate with the level of investment. Primary education completion rates in Lebanon are lower than in Jordan, Egypt, Algeria and Tunisia, countries with significantly lower GNI per capita.
Dropout rates are also disturbingly high. Between 2001 and 2006 enrollment in elementary public schools dropped by 12% and enrollment in the intermediate cycle dropped by 6% during the same period. During the 2003/2004 academic year, 19% of children dropped out at the elementary level, 23% at the intermediate level and a further 11% at the secondary level.
There is no tangible study on the reasons for students dropping out of school although many reasons may be attributable to it. On the side of pure economics, Lebanese public schools are not completely free, registration and books having to be paid for. In certain areas, especially rural, it may be more viable to employ the children rather than send them to school, which points to a disillusionment with public schooling in particular and a lack of awareness about education in general.
A representative from Rearden Educational, a regional firm that specializes in education consultancy, noted that parents take their children out of schools because they see more advantages to them working than continuing their education. “No awareness is made of the importance of education,” he said. “Sure, there will be short-term economic repercussions to losing a part of your potential workforce, but what they don’t see is that the long-term effects are more beneficial.”
Other experts agree. There is a general disenchantment with the future, they say, a lack of hope in general, prompting these students to seek work rather than continue their schooling.
Lebanon’s performance on the international assessment arena gives no cause for joy either. In international comparative tests of mathematics and science achievement (TIMMS), Lebanon was outperformed in science by Morocco, Egypt, Iran, and Jordan. In mathematics, its students performed well below the international average and, “when adjusted for level of income, significantly below expectations.”

An Inefficient, Inadequate Sector
The problems cannot be attributed to a lack of personnel, however. Indeed, there are too many teachers in Lebanon. A quick glance at the expenditure outlays in the education sector shows that 82% of the budget is used for salaries. In the last 30 years, the number of teachers has increased by 111% while the number of students has only increased by 25%. The education sector employs around 9% of the total labor force, which translates into a student/teacher ratio of 17:1 at the primary level and 8:1 at the secondary level, well above international averages.
Educational establishments are also inefficiently used, with almost a quarter of all schools having less than 100 students.
This inefficient use of resources can be traced straight back to the source. The Ministry of Education and Higher Education (MEHE) itself continues to operate as three separate sub-sectors – general, vocational and higher education – despite their official unification under one ministry in 2000. According to the World Bank, these directorates do not have an integrated vision or a strategic development plan, thus creating gaps and duplications in organizational design, and are manned by a “disproportionate number of unqualified, temporary, or contract staff.”

Who’s Teaching Whom What?
The public education system in Lebanon is creating a vicious circle. Most students attending public schools tend to come from the poorer, more disadvantaged sections of the population. A survey of the total number of general education schools by region in 2005/2006 shows that most public schools are located in the most economically disadvantaged areas of the North and the Bekaa.
Teaching the most disadvantaged segments of the population is an unqualified teaching force: 43% of permanent and 36% of contractual teachers have adequate academic diplomas in subject matters they teach. Hiring and retaining highly-qualified teachers is a challenge, especially in view the low salary base teachers receive (starting at around $560 for teachers with an undergraduate degree, even less for those with vocational training). This means that pretty much any teacher, given the opportunity to move into the private sector locally or in the Gulf countries where salaries tend to be a little higher, does so.
In addition, the Lebanese curriculum, last updated in 1999, does not conform to new standards of teaching that are currently being adopted in most countries in the region. Schools are not properly equipped to provide students with a modern education.
Of the 1,399 public schools in the country, 35% do not have computers and more than 50% have less than 10 computers. More than 96% of schools do not have LCD projectors, Internet availability or a website. The result is a graduating labor force unable to compete on the national job front, let alone the international scene. A sad state of affairs for a country once touted as a potential informatics and technological hub in the region, and for a section of the population that is already at the lower end of the scale.
“Lebanon is as far as can be from innovative teaching methods and technological teaching,” says Rearden. “Even if the material is physically there, which it is not, no one is trained, or receives the training, to use it.”

What to do?
In order to address these deficiencies in the Lebanese public education system, the ministry has formulated an Education Sector Reform Strategy Action Plan for 2007-2009 with the following objectives:

  • Ensure equitable access to education services for all students
  • Ensure a universal and better quality basic education for all
  • Enhance the efficiency, effectiveness and competence level of the teaching workforce
  • Develop and align curricula with global and ICT trends, job opportunities and labor requirements

What Lebanon can learn from the Singapore model

In the mid-1960s, Singapore, a tiny nation with four ethnic groups and devoid of natural resources, embarked on an educational reform program under the banner “Thinking Schools, Learning Nation”, with the aim to produce a competitive labor force able to compete in the global market and in industries increasingly relying on Information Technology. The main pillars of the program included:
– Decentralizing of the educational system to allow schools to reply to local needs
– Creative thinking rather than rote learning as a cornerstone of the educational system
– Attract and retain qualified personnel in educational institutions
– Massive introduction of computers and technology in the classroom
– Ability-based merit system allowing students to be streamlined into university, technical or vocational education based on their ability.
Although not without their critics, the results have been impressive: school dropout rates were down to 4% in secondary sections in the late 1990s from 19% twenty years before, and in primary schools to less than half the 11% of the 1980s; per capita income grew to almost $27,000 from $530 in 1965. And to top it all off, Singapore has consistently ranked highest in international assessment tests since 1995.

This plan seeks to enforce the law on compulsory education at the intermediate level, provide at-risk students with the needed support, to implement a professional development and continuous training program for teachers, a content-enhancing curriculum, career counseling services based on the capabilities and needs of students as well as the needs of the labor market and available opportunities, implement an ICT literacy program in all public schools, and the diversification of higher education to adapt curricula to global and ICT trends.
These initiatives are all highly commendable but beg the question: how did the public education sector came into this state of being in the first place? Years of civil conflict, neglect and aborted reform programs have not offered the sector a promising future. Viewing the current state of a stumped government and continual political bickering, it is unlikely that the Strategy Action Plan for 2007-2009 will be seen through to its conclusion.
“There are no ingredients for reform, no financial incentives, no professional development,” explains Rearden. “Unfortunately, for us the position of the Minister of Education is a highly-politicized one. Ministers in general lack the experience and the ability to carry through a reform program.”
This is also unfortunate for the disadvantaged student receiving a disadvantaged education, as this attempt at a reform initiative is not the first to be stalled and most likely, will not be the last. “Not much has happened to public education in Lebanon since the 1960s,” said Rearden, “except that it has stayed firmly rooted there.”
Sources close to the ministry, however, disagree that the plan is not moving. They argue that several changes have already been implemented and that the Education Sector Strategy document was sent to the Council of Ministers in September 2007 for endorsement.

Show Me The Money
There is no shortage of assistance to the Lebanese educational sector, although exact figures are difficult to come by. Following the Summer 2006 war, aid and soft loans from the World Bank and the European Union, American-based IT companies and several Arab countries poured in to rebuild damaged schools, reform the system and create a networking system in schools.
The problem is not the money, say experts, but how it is disbursed. Aid also tends to be in the form of technical assistance, the drawing up of networking plans, teacher training sessions or, as in the case of the World Bank loan, assistance with a reform program.
“Some critics say it would be better if the money was going to, and distributed by, NGOs rather than the government, for the fact that NGOs just pay where there is a need, whereas in the government, it ends up going through this whole system and payment becomes a whole delaying issue.”
The government will have to work very hard to push through a successful educational reform program and revamp the image of the public school system as being an inadequate, free-for-all institution. In the meantime, it is the future of a whole population that hangs in the balance. For the sake of Lebanon, one should hope it succeeds.

 

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