Levant

Aviation taking off

by Executive Staff
written by Executive Staff

Fitting in to what appears to be the private sector’s modus operandi when investing in Syria in the wake of economic reform, private airlines are only this year taking to the skies, three years after the law had been amended. In 2005, Damascus allowed private investment in air transport for the first time in 60 years, during which the national carrier, Syrian Arab Airlines (SAA), enjoyed a monopoly.

But it has only been in the past six months that the private sector has started to capitalize on the liberalization of the market, with Damascus granting licenses to three private Syrian airlines, of which Sham Wings is the first to get underway with a charter flight to Sharm el-Sheikh in early February of this year.

This seemingly cautious approach to investing in Syria reflects the banking sector’s trajectory into the market, only setting up shop years after private banks were formally allowed into this formerly socialist economy. But the recent flurry of activity in aviation is indicative of the changes the economic reforms in Syria have brought about, with the time lag between the liberalization of the sector on paper and actual developments on the ground creating the conditions for a more viable aviation industry.

Rising tourism numbers

“The main reason for us to set up was the rise in tourists and Iraqis in Syria,” said Salim al-Sawda, technical director of Sham Wings Airlines, which was established by Iraqi and Syrian private investors.

In the past three years, investment in the tourism sector has surged from $400 million in 2004 to $2 billion in 2006, while the number of tourists visiting Syria has spiked from 2.5 million in 2005 to 3.1 million in 2006, according to the Central Bureau of Statistics. And if Iraqis and Lebanese were to be included in the figures, the number of visitors would stand at 4.4 million in 2006, versus 3.4 million in 2005, a rise of 29%.

Indeed, with an estimated 1.4 million Iraqi refugees in Syria there is a ready market for air links between Damascus and Baghdad, which until February had been dominated by Iraqi Airways (IA). Now Sham Wings offers flights, directly competing with IA at $567 return (due to high insurance costs at the Iraqi end).

Sham Wings, the country’s first charter airline, has started with one aircraft, a 147-seater McDonnell Douglas MD-83 leased on an ACME basis from an Egyptian company, that way getting around the US ban on the Syrian aviation sector.

The airline plans to buy aircraft “one by one,” said Sawda, and is currently in discussions to by a European-made Folker-100 jet. “We have already increased our timetable, not only to Iraq, but also Sharm el-Sheikh and Alexandria, and we will open a new line to Istanbul, as well as to Ukraine and Belarus. Our destinations will be ones not covered by Syrian Airways.”

The airline, which plans to be profitable within the next two years, is to be joined this year by Syrian al-Nisr Airlines (The Eagle), established by Syrian private investors Al-Harith al-Assad and Mayyar Arnous, and by Pearl Airlines, which is backed by Syria’s Cham Holding. Both airlines have been granted international licenses but have made no statements on intended destinations.

Other licenses are also pending, for cargo, charter and non-charter airlines, said Flight Commander General Hazim al-Khadra, director general of the Syrian Civil Aviation Authority.

“The policy of Syria now is to open the market in the field of aviation. But there is no Open Skies Agreement, only to Bassil al-Assad Airport in Lattakia, as we cannot do it at Damascus International Airport (DIA) since we must have more than one national carrier that can compete with other airlines, let alone the capacity of the airport itself,” he said.

Airport expansion

With the number of tourists visiting Syria increasing by 20% in the past year, and foreign investment flooding in, the country’s airports are witnessing a turnaround, with a 10.5% increase in passengers to 3.485 million last year.

According to al-Khadra, “This is a result of the action plan drawn by our leader, Bashar al-Assad, towards the development and rehabilitation of modernizing Syria.”

As part of the country’s second five-year plan for the 2006-2010 period, some $3.75 billion is forecast for infrastructure developments in the transport sector. Much of this is earmarked for port and road development, but aviation is also getting a much needed boost.

In January, Malaysia’s Mahibbah Engineering won a $59 million construction contract at the DIA to rehabilitate and upgrade the passenger terminal building, roads, car parks and parking apron.

This is just the start of major projects to expand the ageing airport, said al-Khadra, with plans on the drawing board to increase DIA’s current capacity from 1.5 million to 3.5 million passengers a year. “With the next fifth action plan there will be another terminal, catering to 7-8 million passengers, maybe in the next five years.”

The number of international airports is also to be increased, from the current five — Damascus, Lattakia, Aleppo, Deir al-Zor and Qamishle — to eight, with Homs, Tadmur (Palmyra) and Al-Raqqa to get airports of their own.

Al-Khadra said bids and tenders to build and upgrade facilities would be open to international bidders, and there was potential for ground services at the airports to be privatized, pointing out that “This all depends on the development of the economic situation in Syria. Nowadays, Syria values investment from everywhere.”

The number of airlines operating out of Syria could also increase from the current 40 that fly out of Damascus, but that is all “related to the political situation in the region,” according to him. “For instance, European and American airlines are not allowed to operate out of Syria. This is a consequence of the US ban against Syria.”

The US ban on Syrian aviation is one of the biggest hurdles the sector faces, not only in terms of increasing flight destinations and enticing operators, but in particular for the national carrier. Under the 2003 Syrian Accountability and Lebanese Sovereignty Restoration Act (SALSA), Washington placed a ban on all US exports to Syria, a ban on US investment in the country, and a ban on Syrian flights to the US, among other regulations. Under such sanctions Syrian Airlines is unable to upgrade its ageing fleet of Boeing and Airbus aircraft, last added to over a decade ago when in 1996 the US granted a special waiver to the airline to purchase used Boeing aircraft from Kuwait and two Airbus A320s in 1998.

“It is a big problem because US aviation interferes with the aviation industry, the spare parts for commercial airlines in particular, which maintain the safety of passengers. And these passengers aren’t only Syrians, but also Europeans, Americans, Asians and so on,” said al-Khadra. “Even Airbus is included in this ban as they cannot sell Syria any Airbus aircraft or spare parts because the Americans are between 10-15% shareholders in these companies.”

The other option for SAA is to buy Russian aircraft, but he said they lacked the American-made Airborne Collision Avoidance System (ACAS), which is essential for air safety and a requirement for commercial aircraft by the International Civil Aviation Organization.

Diversifying Syria’s air sector may therefore be the only way to get around the crippling US bans, for unless SAA gets spare parts, the airline could be permanently grounded — if planes don’t actually fall from the sky — as private Syrian airlines take to the skies.

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Egypt’s foreigners

by Norbert Schiller
written by Norbert Schiller

For foreigners and the Egyptian aristocracy, the 1952 July Revolution marked the beginning of the end of their rule. Gone were the Muhammad Ali dynasty and the influence of the British, Italians, Greeks, French, Levantines, and Turks. Now there was a disgruntled military in charge and it was led by a young and charismatic officer named Gamal Abdel Nasser. His first order of business was to change the nature and make-up of the government, most notably changing the country from a monarchy to a republic. As a way of minimizing foreign opposition, he assured those concerned that their interests would not be touched. After purging the government, he turned to land reforms breaking apart feudal farms and distributing the land among landless peasants. Then, after successfully nationalizing the Suez Canal in 1956, his government turned to the industrial, financial and commercial sectors, forcing the vast majority of foreigners, who had believed that their interests were safe, to leave the country, many penniless. With the old-guard out of the way and the foreign influence gone, Nasser finally turned to the Eastern block for military assistance and backing.

Even though Nasser’s socialist reforms have been in place for the better part of the past 50 years, present-day Egypt is more like it was under the King, though not as chaotic and elitist; a trickle-down effect has in fact created a thriving Egyptian middle class. But the economic power stills lies with the Egyptian elite, albeit a different circle, and once again foreigners are allowed to settle, own businesses, buy property, and build a future. In fact, this past year Egypt was named by the International Financial Corporation, the World Bank’s financial arm, as the world’s top reformer. It achieved this by cutting the minimum time required to start a business, lowering fees for registering property, and relaxing bureaucracy for construction permits. Last year, Egypt also emerged as the number one recipient of direct foreign investment in Africa beating South Africa.

On a recent trip to Egypt, I visited the Red Sea resort town of El Gouna, one of the most exclusive resorts in the country. While admiring the Abu Tig Marina with all its multi-million dollar yachts, I ran into an elderly gentleman who was asking for directions to a particular shop. There was nothing unusual about his request except that the man, who was obviously European, addressed me in Arabic. At first I thought that he was short sighted, because I, too, look very European, and to avoid embarrassing him I responded in Arabic. He responded with a big smile, thanked me, and walked off in the direction where I had pointed.

I didn’t think much of the encounter until a few days later when I was invited to dinner by a friend who wanted to introduce me to a few Europeans who have made El Gouna their home. The group was small and included the Italian women who owned the restaurant where we were eating, two Italian sisters, an Italian man who was the manager of the local casino, and my Lebanese friend who runs the winery in El Gouna. The conversation started out in Italian, but because neither my friend nor I could follow, the group began to split with some switching to English and the others French except for the elder of the two sisters who continued on in Italian. When she finally realized that I didn’t understand a word she said she switched to Arabic which came naturally to her. I asked her if she spoke English or French and she said, “not very well.” I then told her the story about the elderly European man who also spoke to me in Arabic. She asked about where I had seen him and if he was wearing locally made sandals. I said: “Yes, he was wearing shibshibs and I met him in the Marina.” She started laughing so hard that everyone turned around to see what was going on.

Her younger sister then jumped in and in English explained to everyone that the elderly gentleman was none other than their father who had been born and raised in Egypt to Italian parents. After finishing his studies he started his own successful textile business in Cairo. “Everything was going well for him until 1961 when Nasser began nationalizing all foreign owned businesses. My father thought that he was immune and continued on with his business as if nothing was happening until one day, in 1964, our family business was nationalized and we were forced to leave the country.” With nowhere else to go, and very little money, the family moved to Italy. The eldest daughter had also been born and raised in Egypt learning both Arabic and Italian at the Italian school. The younger sister was born after they had already left Egypt. “Italy was always my home but my sister and especially my father were really never able to assimilate back in our ancestral country and my father always wished to one day return to Egypt.”

A few years ago the elder sister visited the Red Sea and was so charmed by El Gouna that she bought a home there. The younger sister followed, also fell in love with the place, and bought a home there also. Suddenly the father, whose wife had passed away, became very lonely without his daughters and insisted that they bring him back to Egypt. Thus, when he was already well into his 90s, his daughters brought him back to Egypt and bought him a small apartment. “My father never felt at home in Italy, he always wanted to come back to Egypt even if it is just to die.”

With foreign investment at an all time high, maybe this nonagenarian may be able to pick up where he left off and start another business in the land of his birth.

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

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Editorial

Fighting words

by Yasser Akkaoui
written by Yasser Akkaoui

This month’s Private Equity report represents not only a first for Executive in terms of size, content and execution, but I believe it has propelled the way regional business is reported to a new level. In essence, Executive has set a new benchmark.

We want the regional businessman — the chairman, the CEO, the fund manager, and the business owner — to see Executive as his magazine — the name after all is not a coincidence. We want Executive to be a magazine that monitors his/her business environment; that engages him/her on a personal level; that offers an open forum for discussion and encourages transparency in an increasingly transparent world. We will not so much judge as moderate.

The nature of communication has changed and so must the way we communicate. The media might remain the same but the methods of disseminating new data and telling the new business story must embrace the new dynamism that stretches from New York to Beijing via the increasingly important Middle Eastern gateway.

In this new and exciting era, awareness is high and business is changing, especially in the Gulf, where change is effected at a phenomenal rate. Yet the region is small and intimate and one of the deliberate aims of this and future special reports is to reflect this intimacy. To bring together the key players and accurately report how they perceive doing business in their own words; the new front line dispatches if you like. We want to be the magazine of record for those who shape business.

In doing this we have had to set new standards for ourselves. We must be extra diligent if we want to connect with the business community on its level. We can not rest on our laurels nor can we allow ourselves to just “get by”, month after month, as long as annual projections are satisfied. A good business will not operate like that and a business magazine that wants to maintain a keen edge cannot either. To truly report business it must abide by the same standards, and work under the same pressure as the people it reports.

Fighting words?

You bet.

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Going nuclear

by Peter Speetjens
written by Peter Speetjens

As Chernobyl’s 1986 radioactive cloud has gradually vanished from the public eye, nuclear energy is firmly back on the political agenda. Industry advocates and politicians, the world over, present the nuclear option as a kind of magic mushroom, which at once will help decrease the ever rising fuel bills and reduce greenhouse emissions. If only it were that simple …

Despite its problematic nuclear past, Britain is among the frontrunners in the world’s drive for an atomic future. The Labor government has given the green light for the construction of an additional 15 nuclear power plants. “It would be for the private sector to initiate, fund, construct and operate new nuclear plants, and cover the costs of decommissioning and their full share of long term waste management costs,” stated Britain’s chancellor of the exchequer, Alistair Darling.

Britain is by no means alone in its nuclear desires. The US, the world’s biggest producer of nuclear energy, plans to build an additional 30 plants, while Europe’s nuclear giant, France, is constructing its 59th.

Most countries in the MENA region have also expressed a wish to go nuclear. In 2006, Tunisia signed a nuclear cooperation agreement with France and aims to complete a 600 MW nuclear facility to produce electricity and desalinize water by 2020. Libya and Morocco followed suit. Algeria has had atomic ambitions since 1982 and recently signed a nuclear energy agreement with the US. Egypt aims to construct four nuclear reactors by 2020. Saudi Arabia, Jordan, Yemen and the UAE also have nuclear ambitions, while Iran seems well underway to complete its first nuclear power plant.
 

Advocates claim nuclear energy is a clean and cost effective solution, yet that remains very much to be seen. Sure, operating a nuclear power generator produces no greenhouse gas emissions and thus helps counter global warming. Yet the environmental argument comes across as rather cynical, knowing that the highly toxic nuclear waste requires to be stored in abandoned salt mines for tens of thousands of years, while the 1986 Chernobyl disaster caused radioactivity levels to rise even in Sweden.

Britain should be all too well aware of the dangers, as the world’s biggest nuclear disaster after Chernobyl took place in 1957 at its Windscale facility, today better known as Sellafield. A fire in the nuclear reactor produced radioactive fumes and waste water. The authorities immediately declared the fallout posed no public health hazard, yet within days heightened levels of iodine were found in local milk, while elevated radiation levels were reported in France.

But that is something of the past, some may counter. Not so. In 2005, Sellafield workers discovered that a pipe had leaked 83,000 liters of radioactive waste into a concrete chamber. Fortunately, the latter was especially constructed for such an incident, yet it had taken a stunning nine months for the leak to be noticed. If this can happen in Britain, what — with all due respect — is to be expected in a country like Yemen?

In addition, it is not at all guaranteed that nuclear power generation is cost effective. True, once built, a nuclear facility is much cheaper to operate than a traditional power plant. But building a 1,000-MW nuclear power plant costs a whopping $2-2.5 billion, while a modern combined-cycle gas turbine costs about one-fifth of that sum.

More importantly, the costs of nuclear waste disposal and the decommissioning of plants, once production stops, are enormous and hard to predict. In 2005, Britain’s Nuclear Decommissioning Authority (NDA), which oversees the dismantling and clean-up of closed nuclear reactors and reprocessing facilities, estimated that the operation would take up to 100 years and cost $110 billion. Today, the bill has increased to $146 billion.

Nevertheless, Industry Minister Darling is confident that private nuclear power operators are willing and able to make such investments, and still produce cost-effective electricity. The Brown government’s unfaltering belief in the blessings of the free market is all the more remarkable, in the light of Britain’s privatization of the nuclear sector, which has hardly been a success story.

In 1996, eight of Britain’s most modern nuclear power plants were consolidated into one private company, British Energy (BE). Six years later, the government was forced to step in with a taxpayers’ cash injection of $7.9 billion to save BE from bankruptcy. For both health and financial reasons, the nuclear option rather resembles a game of Russian roulette.

Instead of following Britain’s example by pouring tens of billions of dollars into private nuclear power generators, the MENA region, which is blessed with ample sunshine and remaining hydrocarbon reserves, should rather follow in the footsteps of Germany, which has vowed to shut down all nuclear plants by 2020, while investing in energy saving measures and truly sustainable energy sources, such as wind and solar power. After all, let’s not forget that the earth’s uranium reserves are as finite as its oil.

Peter Speetjens is a Beirut-based journalist.

 

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Syria moves ahead

by Riad Al-Khouri
written by Riad Al-Khouri

Syria’s current economic performance is strong, as the country benefits from growth in exports and inflows of private investment, which helped the economy to grow at a rate of 6.2% in 2007, compared to 5.1% registered in 2006. American sanctions are not a major impediment to the Syrian economy. In fact, gradual globalization helps to push numerous US products in Syria, from fried chicken franchises to a major sugar refinery. Far from helping to achieve purported US regional goals, such as isolating the Iranians, the effect of American sanctions on Syria has been counterproductive, opening the door to greater influence on Damascus by regional powers — including Iran, itself seeking stronger Middle Eastern ties to counter America.

Tehran has thus partly filled the gap created by sanctions. Taking advantage of some economic possibilities; and new Syrian-Iranian economic joint ventures in Syria include among many others: an oil refinery (to be built in partnership with Venezuela), two factories to make Iran-designed family cars, and a plant to produce 1 million tons of cement annually and help meet the demands of Syria’s building boom. This is part of the Syrian strategy of improving relations with its neighbors. Cold-shouldered by America, and to some extent by Europe (the Syrian Euro-Med agreement has been initialed but not signed), Damascus has for the past few years looked to the region for economic and business collaboration.

In that respect, notable developments recently include a rapprochement with Jordan, as well as positively evolving links across much of the rest of Syria’s neighborhood. After a frosty period caused by the perception that Amman sided with the US and its other allies in the region against Syria, the visit to Damascus by Jordan’s King Abdullah in November has helped to improve relations between the two neighbors. The pace of co-ordination between the two countries has quickened since then. In among other spheres, movement of passengers and goods between the two countries is huge and growing. Coming south are Syrian and other goods destined for Jordanian factories and consumers (as well as to Saudi Arabia and neighboring economies) and large numbers of Syrian workers seeking employment in Jordan. Headed in the other direction are increasing numbers of Jordanian and GCC tourists. The vast majority of these people and goods cross the border by road, though a small number also travels between the two countries by air, with flights between Jordanian and Syrian cities increasing. At the same time, although the two countries had neglected their railways in recent years, over the past few months Jordan and Syria have agreed a new railway project to link the two countries.

From the east, Iraqis liked Damascus so much that up to 1.5 million of them are living there and in other Syrian cities, by far the largest number of Iraqi refugees accepted by any state in the region. Since most of these are neither poor nor uneducated, they are a source of increased business between the two countries over the longer term, though in the short run the refugees have strained Syrian production capacity in various sectors and pushed some prices up. Another factor linking the two countries is water, which along with Turkey they share through the Tigris-Euphrates system. Syria had to contend with drought recently, making even more significant the recent meeting (the first in many years) between Damascus, and Baghdad, along with Ankara, to talk about their shared river basin.

In the same vein, Syria asked the Turks in January to release more water from their dams on the Euphrates to build up supplies for irrigation. In November, Ankara also underlined its co-operation with Damascus in another sphere, when Syrian plans were unveiled, to import natural gas from Iran via a pipeline running through Turkey. Coupled with these and other infrastructural developments was the launching of numerous joint ventures between the two neighbors, as well as an increasing flow of people and goods across their borders.

Finally, regarding Lebanon, economic relations between Beirut and Damascus are far too important for the current crisis between the two neighbors to have a serious impact. The alternative for the Lebanese, to normal relations with Syria, is normalization with Israel, but the latter will not happen coercively, and on any case not before the former. Syria on the other hand cannot properly deal with the employment implications of its population growth without the safety valve of the Lebanese labor market absorbing hundreds of thousands of Syrian workers. In other words, the two countries need each other too much for rifts to continue long. Meanwhile, Syria continues to pursue a regional strategy, opening up to other countries of the Middle East.

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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A change in US Mideast policy?

by Claude Salhani
written by Claude Salhani
 
To be able to say that there is a shift in US policy regarding Syria, one has first to assume that there was indeed a coherent policy on how to deal with Damascus in the first place. Yet for the most part Washington’s policy regarding regimes that the Bush administration disagreed with has been to: A) refuse to talk to them, and B) to berate them at every chance. Washington’s stance regarding Damascus was a typical example of such policy. Could that policy be changing so late in the game? Possibly. But then again, more likely not.

In his final State of the Union address President George W. Bush was quite forthright in his accusations aimed at Iran and its leaders. Bush issued a stern warning to the leadership in Tehran, warning them that the United States would not stand idly by, in view of what he deemed was, Tehran’s aggressive policy in the region.

The president devoted a sizeable portion of his address to the Middle East, particularly focusing on the situation in Iraq and on what he likes to call “the war on terror.” Bush stressed the importance of “confronting enemies abroad and advancing liberty in troubled regions of the world.” He spoke of witnessing “stirring moments in the history of liberty.” He spoke of images of liberty that have “inspired us,” such as Iraqis voting in free elections for the first time. He also spoke of “images that sobered us.” He referred to “[passenger] trains in London and Madrid ripped apart by bombs,” a bride in a blood-stained dress at a wedding party in the Jordanian capital, and people carrying coffins in Lebanon.

There was, in effect, nothing new to what should have been a landmark speech, his last, after two terms in the White House and two wars in the Middle East. This speech will, after all, be the one that historians will remember most and will in years to come be compared it to those of other presidents.

On second thought, however, there was indeed an important new element to the president’s speech; the novelty was not so much in what was said, but more in what was left out of the presidential address. If Bush continued to view Tehran as representing a clear and present danger to the security of the United States, repeating that all options remained on the table when it came to Iran, the president was conspicuously silent when it came to Syria.

In retrospect, this silence seems rather odd when compared to previous speeches summarizing the situation in the Middle East. Until now, members of the Bush administration had no qualms about accusing Damascus of interfering in the affairs of its neighbor to the west, as well as those of its neighbor to the east.

Could it be that Washington has decided to engage Damascus in dialogue rather than continue its previous policy of shunning those that it disagrees with? Besides the Iraqi imbroglio, which Washington says Damascus has been involved in, facilitating the transit of weapons and fighters through its territory. The Bush administration has also clashed with Damascus over the political tug of war in Lebanon, more recently over the question of the Lebanese presidency.

Is this sudden silence concerning Syria an indication that Washington and Damascus are talking to one another? If so, both sides have been very discrete and successful in maintaining a complete media blackout, a near impossibility in a city such as Washington.

Hiam Nawas, a political analyst in Washington, follows Syrian affairs with a keen interest. She believes that if we are to resolve the Lebanon issue, “engaging Syria is crucial.”

True words. But other than the president’s silence there is no other indication of a thawing of relations between Syria and the United States. Rather, all indications seem to hint at Damascus having “given up” on attempting to deal with the Bush administration, instead focusing on how to do business with the next administration, now less than a year away.

Indeed, if Washington has lacked a coherent policy on how to deal with Syria, on the other hand the policy applied by Damascus when dealing with an intransigent Washington has been quite simple: Wait until a new administration moves into the White House.

Not pressured by the same four-year electoral cycle under which US presidents operate, Syria’s rulers — as well as a number of other leaders around the world — have learned to retrench and sit out the remaining time left to an administration they disagree with. This has long been the strategy practiced by President Hafez al-Assad and it continues to be the method of choice of his son and successor, Bashar.

Claude Salhani is editor of the Middle East Times.

 

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Iran’s mutually assured destruction

by Paula Schmitt
written by Paula Schmitt

Like a cheap war pamphlet prodding a very susceptible bully president, the weekly The Economist, had on its January 31 cover the question-headline “Has Iran won?

”The Economist has lost much of its respect and has ceased to be a sober reference (remember the cover just before the Iraqi invasion saying “Why war would be justified?”) but the magazine’s articles on Iran are important because they spill the beans on the reasons for an attack — a rationale that is as irrational as it can get. There are several fallacies in The Economist’s article, and I am using the piece precisely because it repeats the average, lowbrow arguments with which we have been swamped in the days leading to the IAEA report on Iran. Let us not belittle the importance of a biased press — while not giving us the truth, they dutifully authenticate and spell out the day’s agenda. If recent news articles are any indication, we are no more than months away from an attack on Iran. Now, I have little fondness for Islamic republics or any religious republic for that matter. And yes, I would rather live in a world without nuclear weapons. But in the current setup of weapons distribution, Iran is only doing what it politically should, and what it is legally entitled to.

The Nuclear Non-Proliferation Treaty is the most widely accepted arms control agreement in the world. According to the NPT, only five countries are entitled to own nuclear weapons: USA, China, Russia, France and the United Kingdom. It is no coincidence that these countries are the permanent members of the Security Council — they are the most capable of destroying the world, and thus keep it on a leash. What happens if one of the permanent members wants to attack another? That is prevented, or so one hopes, by the principle of MAD, Mutually Assured Destruction. Countries are deterred more efficiently, it seems, by the certainty of their destruction. This logic is laid clear by the chronology of weapons acquisition. Allegedly out of fear of Nazi Germany, America was the first country to develop a nuclear weapon, efficiently tested on the Japanese. The US was then made, ad hoc, the world’s police not based on its prudence and justice, but on its power — and willingness — to destroy. Yet fear breeds dread and four years later Russia started building its own nuclear arsenal, as a defense against a possible US attack. Three years later, fearing the proximity of Russia, the United Kingdom also chose to have nuclear weapons, then it was France and then China. It’s worth noticing that this logic is at the core of the very right to bear arms in the US: Citizens should have the means to defend themselves — even against their own government. If the monopoly of power was left in the hands of the state, citizens could be made hostage to an illegitimate ruler.

Now, if the US government can be seen as a potential threat even to its own people, it was therefore very naïve to imagine that in a multi-polar world all the rest of the non-nuclear countries would be fine with having five nuclear states dictating the rules. Hence, since the exclusive club of nuclear states was closed for membership, countries that wanted to go nuclear simply chose to not sign the treaty. To protect itself against China and Russia, India got its nukes. Pakistan felt threatened and started developing its own weapons program. Israel, which feels menaced by its neighbors, got its own nuclear warheads, also refusing to sign the NPT. Why, in this scenario, is Iran considered a rogue state, or, to borrow The Economist’s appalling words, should be made to “quake in its boots?” Here is where the whole story of nuclear proliferation gets even more sinister.

Iran is a subscriber to the NPT, and according to the IAEA, as of yet, has never failed to comply with the treaty itself. On the other hand, India, who did not sign the NPT, was rewarded by the American Congress with transfer of civilian nuclear material. The USA also mocks the NPT when it violates its first article by providing nuclear weapons to Belgium, Italy, Turkey, Germany and the Netherlands, under the official excuse that those weapons are “under constant and complete custody and control” of the United States, being there only for storage. In fact, Iran started its nuclear program precisely when it was on good terms with America, under the shah’s government. Why is Iran now considered a bigger threat than Israel? What qualifies a state as ‘rogue’? Is it its ruler? Its people? Its rhetoric and pathetic rants? Shouldn’t a country’s actions, rather than words, determine its level of threat to the rest of the planet? Haven’t we learned that governments, even in supposed democratic states like the US, do not always represent their people, and sometimes are not even actually elected? How can one think America is the same America under Bush as it was under Jefferson, or under Carter, to find a more recent comparison?

Mohammed ElBaradei is doing a decent, technical and honest job at the IAEA, despite all the external pressure. A lawyer by formation, he has refused to skip due process and is sticking to the letter of the treaty. It is not his, or America’s job, to guess the ‘motivation’ of countries. Israel believes its soil belongs to the Jewish people, and that they have been chosen by God. This type of religious premise is as horrifying, though more dangerous, than India calling its first nuclear test the “Smiling Buddha” or Ahmadinejad denying the Holocaust — something more pathetic than harmful. In politics, words mean very little. Actions, on the other hand, mean a lot. It is the IAEA, not the US, which has the means, competence and independence to decide Iran’s nuclear future. America doesn’t have the legal mandate to decide, much less the moral right.

Paula Schmidtt is a correspondent for Radio France International and Rolling Stone Brazil.

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Lebanon’s tremors

by Nicholas Blanford
written by Nicholas Blanford

The recent earth tremors felt in Lebanon served as a timely reminder of the volatility of the land mass on which Lebanon rests. The good news is that, unnerving though it is to experience an earthquake — even minor tremors such as those that shook Lebanon in February — they are a reassuring sign that the fault systems beneath are feet are moving as they should. Indeed, a prolonged absence of seismic activity in an earthquake zone is far more troubling, as it suggests that a fault is jammed. Pressure builds up and is eventually released in one convulsive and destructive shock.

Lebanon has a long history of major earthquakes, which have destroyed Beirut at least twice and helped shape Lebanon’s current coastline.

The country lies at the nexus of three continental plates: the African, the Arabian and the Eurasian. The African plate is heading south-west and the Arabian plate north-east at approximately two centimeters per year. The Dead Sea rift between the African and Arabian plates runs up the Red Sea, through the Gulf of Aqaba, along the Jordan valley and into Lebanon where it becomes known as the Yammouneh Fault following the western side of the Bekaa.

However, Lebanon’s dilemma does not center solely on this one major fault but on the dozens of others running throughout the country. As an example, Beirut has at least five recognized faults. One follows the Beirut River, another called the Town Center Fault begins at Normandy and heads through downtown, another fault is in Ras Beirut, and two faults follow the Beirut coastline and bisect just off Ras Beirut. Geologists believe that it is these last two faults that created the Beirut peninsula by forcing the sea bed above the surface of the sea.

Other than the direct action of shockwaves, earthquakes can also generate other phenomena such as tsunamis and soil liquefaction.

A tsunami is a wave generated by an earthquake the epicenter of which is located beneath the sea bed. They can travel at speeds of 750 km/h at a height of 30-40m and can deliver on average 100,000 tons of water per 1.5 sqm of coastline. According to two Jesuit priests, Fathers Plassard and Kogoj, who conducted an extensive survey of Lebanon’s seismic record in the 1960s, Lebanon’s coastline has been hit by tsunamis 14 times over the last 2,500 years.

Soil liquefaction occurs in areas of loose earth, such as sand or silt, which also contains a high water content. With repeated shaking the soil develops the consistency of water completely undermining foundations with the result that buildings can topple over in one piece like felled trees.

Many seismologists believe that earthquakes are cyclical, occurring at regular intervals throughout history. Given this information, as well as a detailed knowledge of the faults themselves, some believe that earthquakes can be loosely predicted over the long term.

Lebanon is fortunate in this regard, as earthquakes have been documented over the last 2,500 years. By contrast, the notorious San Andreas Fault in California has records extending back only 250 years.

If anyone is in any doubt as to the impact earthquakes can have on Lebanon, one only needs to consult these records: 525 BC — Tyre destroyed; AD 349 — most of Beirut destroyed; July 6, 551 — total destruction of Beirut, massive damage to Tripoli and Tyre, coastline altered, part of Ras Chekka falls into the sea; 1170 — destruction of Tripoli; October 30, 1759 — destruction at Quneitra and Safad, 2,000 dead; November 25, 1759 — Beirut and Damascus destroyed, more than 40,000 dead. The above are only the major earthquakes, more have been chronicled.

An earthquake of a similar magnitude to the one of November 1759 would today be a national catastrophe. One earthquake in Lebanon could cause as much damage in a few minutes as was sustained by 16 years of war.

Although earthquakes cannot be avoided, their impact can be mitigated through prior planning, specifically the enforcement of strict seismic building codes for new construction. Unfortunately, the vast majority of Lebanon’s buildings constructed over the past 40 years lack any seismic qualifications. The near ubiquitous design of a reinforced concrete frame filled in with cinder block walls offers little protection against an earthquake.

The difference between cities that have incorporated seismic building codes and those that have not is shown by comparing recent earthquakes. The 1994 Northridge earthquake in California, with a magnitude of 6.8, killed 33 people. Yet the 2003 earthquake in Bam, Iran, with a magnitude of 6.6, killed 30,000 people. The 1995 earthquake at Kobe, Japan, had a magnitude of 7.3 and caused 4,600 casualties but the 1999 earthquake at Izmit in Turkey with a magnitude of 7.5 cost the lives of 45,000. California and Japan were prepared, Iran and Turkey were not.

When I last discussed the earthquake threat to Lebanon with an expert, I was told that Lebanon experiences a very strong quake exceeding a magnitude of seven approximately every 200 to 250 years. The last big earthquake was in 1759. Given that it is impossible to accurately predict the timing of earthquakes, the expert said that there was a 60-70% probability of a destructive earthquake occurring in Lebanon over the next 50 years. The bad news is that conversation took place 11 years ago.
 

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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Lebanon

Micro-credit – In Abundance

by Executive Staff
written by Executive Staff
 
Sporting funky glasses, a hipster beard and a ponytail, Muhammad Ali Mansour stands proudly in front of his modest convenience store in urban Beirut. He had been an employee in this store for seven years before he decided to buy and run the establishment himself. Having been approached by an AMEEN credit officer based at the local Credit Libanais Branch he decided to apply for credit. Eight months ago, Muhammad received a $1,500 loan, which he used to help finance the purchase and expansion of his supermarket. “The expansion definitely brought more customers,” he says.

Nobel Prize winner Muhammad Yunus offered his first micro-credit loan in Bangladesh 32 years ago, using $27 from his own pocket. Since then, the concept of micro-finance has spread around the world. Lebanon’s version is dominated by a lending house known as Access to Micro-finance and Enhanced Enterprise Niches (AMEEN), which got its start as a pilot program in 1999 under the international non-governmental organization CHF. In that same year, AMEEN forged a deal with Jamal Trust Bank to get lending operations underway. AMEEN would provide the advertising and out-reach while Jamal Trust would provide the technical support. Both partners equally split the capital to be lent, the profit and the risk.

The micro-finance house chose to partner up with Jamal Trust Bank because “it believed in the mission. It supported the idea and had the right network of branches,” said Ziad Halaby, general manager of AMEEN. Later on, three other banks have joined as partners: Credit Libanais in 2001, Lebanese Canadian Bank in 2004, and most recently FRANSABANK in February 2008. Phillipe al-Hajj, Fransabank responsible for the AMEEN relationship, commented on the new partnership saying, “FRANSABANK’s branch distribution in north Lebanon and the Bekaa will be a big benefit for the lending house.”

AMEEN provides the outreach for its partner banks. It has 56 credit officers going door-to-door, introducing the concept of micro-finance to possible borrowers. This type of personal outreach is extremely important to the project as potential borrowers are usually from an income bracket that has no previous contact with the banking industry. The credit officers are always from the target community because they know the local needs best.
 

Going forward

After contact has been established and an individual has applied for a loan, a joint committee of AMEEN and partner bank personnel review the application. Although collateral is rarely a requisite, cosigners are often needed for approval. If the loan is approved, the partner bank contributes 50-100% of the capital, depending on its arrangement with AMEEN. The borrower then repays the loan by monthly installments, including 14-15% interest compounded annually. This is a relatively high interest rate compared to more traditional “macro” loans. However, macro- and micro-loans have distinctly different profit margins.

Assuming the same interest rate, the profit from 100 loans worth $1,000 each is the same as the profit from one $100,000 loan. But the labor and administrative costs are almost 100 times as expensive. These excess administrative costs, in addition to the resources required for outreach and education, justify the higher interest rates.

Since its inception, AMEEN and its four partners have given out more than 50,000 loans worth over $67 million. The average loan size is $1,400. Roughly 80% of recipients are male and over 40% of loans have been made to residents of South Lebanon. AMEEN’s Ziad Halaby explained that these discrepancies are predominantly related to the branch locations of its early partner banks and the current aim of the lending house is a more even distribution of borrowers throughout the country. Adnan Youssef, assistant general manager of Jamal Trust Bank, said that the micro-loans his bank facilitates are “targeted at all Lebanese citizens throughout Lebanon” and all 22 branches of Jamal Trust Bank are moving towards that goal.

Currently, AMEEN has 9,300 active loan portfolios. This burgeoning success can only be a good thing for potential borrowers. Halaby suggested that more loans mean higher aggregate profits, which should in turn allow lenders to decrease their interest rates. But he also pointed out that, despite the relatively high interest rates, surprisingly few recipients default on their loans. AMEEN has recorded a less than 1% default rate since opening its doors. And it’s not as if borrowers throw off the bonds of debt with the payment of their last installment, never to look back. Many recipients of micro-loans return for more. In fact, over 18,000 loans were to repeat borrowers. Banks also seem to be happy with the system. Not only has AMEEN been able to attract four partner banks giving out loans between $300 and $5,000, rumors of expansion abound.

Results

AMEEN and its partner banks consider the facilitation of micro-finance a part of their corporate social responsibility to society. Some critics say the positive benefits of micro-finance are hard to assess. Halaby agreed, saying “The main anticipated result for this type of project is capacity and material increase. These are difficult to measure in dollar amounts.” And although AMEEN occasionally conducts client surveys, Halaby averred that the high number of repeat borrowers is the best testament to the program. He suggested that the very fact the loan recipient returns to take another loan means that jobs are being sustained. Adnan Youssef of Jamal Trust Bank added that the existence of repeat borrowers means “we are achieving our primary goal. And that is to fight poverty.”

Back at the supermarket, Muhammad Ali Mansour is contemplating expansion. He has plans to take out a $3,000 loan in the near future to grow his shop into a second floor. And if that goes well, he says, why not another loan to buy a new location entirely?

 

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Lebanon

Port of Beirut – A Trading Culture

by Executive Staff
written by Executive Staff
 
The Beirut Container Terminal, the center of Lebanese maritime trade, located in the Port of Beirut has an illustrious history to live up to. As the motto of the port reads, it is “An Ancient Port for the Future” and the figures for last year certainly live up to it. In 2007, port revenues reached $114 million, up $32 million from the previous year, and custom revenues achieved $736 million, an increase of $118 million. The economic buoyancy of the terminal has clearly not followed that of a seasick Lebanon. This is apparent in the fact that it was in 2005 that the Beirut Container Terminal began its rapid growth. Even the 2006 war could not keep the terminal at bay. Although during the war the port was closed for two months, within 24 hours of re-opening all the major shipping lines were back and queuing three to four days to get back into the port, according to Elie Zakhour, president of the International Chamber of Navigation.

It was June 2005 that the Beirut Container Terminal Consortium (BCTC) and the Port Authority (PA) announced that, for the first time in the history of the port, the container terminal would begin to handle transshipment vessels. Transshipment being the process, in which a large mother vessel comes into the container terminal, unloads its containers and then these containers are loaded on to other smaller ships for distribution to other regional ports. The Mediterranean Shipping Company (MSC) — “the second biggest shipping company in the world,” according to Muhammad Fakhreddine, vice president of MSC Lebanon — began a transshipment line that directly connected Singapore to Beirut and the Lebanese capital to Antwerp (Belgium). MSC entered into an agreement with BCTC to transship 250,000 TEUs (20-foot equivalent units: a container 20ft long and 8ft wide) per year through the terminal. Soon after MSC signed a transshipment agreement with the port things got even better, when in February 2006 CMA-CGM, also one of the biggest shipping companies in the world, began to use the port for transshipment and signed a contract with BCTC to handle 100,000 TEUs per year.

The success in attracting these two globally operative shipping companies to the container terminal has meant that the port is running at almost full capacity, thus delaying local shipment. Fouad Bawarshi, the vice president of local shipping line Gezairi, told Executive that toward the end of 2007 there was severe congestion at the port and thus the Port Authority had to open two of the old quay terminals. Joseph Farhat, the PA’s study manager, informed Executive that “currently we have 947,000 TEUs and the limit is 1.2 million using the old area. However this area is not fit for use, so we need to have a new quay with new equipment, such as gantry cranes to lift the containers.”
 

Expanding horizons

The rapid growth in the number of TEUs coming through Beirut’s port has been articulated by the fact that Quay 16, which only became operational in 2005 at the cost of $150 million, has already reached full capacity. Farhat told Executive that when the economic study for the new Quay 16 was carried out in 1997, it concluded that by 2010 the container terminal could reach 500,000 TEUs. “All the studies said that we would not get a transshipment line to the terminal, but we got it!” Due to the introduction of transshipment the target of half a million TEUs came four years early, in 2006. As a result, expansion of the Quay 16 is on the way. “We plan to extend Quay 16 to the east by 170 meters to be completed in two year’s time. This extension will give us 130 meters of extra space and allow roughly an extra 200,000 TEUs a year. The cost of this extension will be around $55 million,” Farhat explained.

Despite this, shipping line owners want more and have become frustrated by the increasing traffic at the port. Elie Zakhour, president of the International Chamber of Navigation and managing director of Uniship, told Executive that the planned 170 meter expansion is insufficient. He pointed out that two other transshipment companies, which he was not allowed to name, were interested in coming to the port but were unable to do so because of a lack of capacity. “The PA has the possibility to extend the port up to Beirut River and double the length of Quay 16, with a 600 meter extension. Unfortunately, due to other situations the government has agreed to extend this quay by only 170 meters.”

Although many shipping lines have been left frustrated by the decision to only extend Quay 16 by 170 meters, the Port Authority is defending their decision, as it is they who will be left with the bill if the transshipment companies leave. Adding to this argument, Farhat explained that, “if we extended as far as the Beirut River we don’t know how much it will cost as there is loose material 40 meters down, near the river.” Ammar Kanaan, chairman of the BCTC, however, agrees with the government’s decision. “The 170 meters was needed to respond to the immediate requirements. There was a serious [business] risk of building an additional 600 meters and not having anyone coming to use it. I think that the way forward should be to expand to the 600 meters and maybe more but to do that with a commitment from the private sector to use this capacity.” However, as Kanaan admitted, in the current political environment getting commitments for the future from these private companies maybe expecting too much. There is a pronounced risk that the current success may only be short-term as Kanaan explained, “The transshipment business is very unfaithful and un-loyal. Unlike the local traffic that is always going to be here, transshipment can easily go away.”

Making it alone

So how did the container terminal achieve the feat of convincing two of the world’s biggest shipping lines to set up regional hubs for transshipment in what is perceived of as an extremely volatile area? Everyone agrees that luck was a major factor. The container terminal acts as a great hub because of its geographical location and the 15.5 meter draft of Quay 16. The draft is especially important because it means that the large mother vessels of the transshipment companies, which have a length of 335 meters and can carry 9,000 TEUs at a time, could use the port. The depth of the draft has really set Beirut’s container terminal apart from its regional competitors and made the it attractive to large shipping companies, MSC’s Muhammad Fakhreddine explained. Added to this, Fakhreddine relayed to Executive the fact that because of the weather conditions in Lebanon, the port can be open 24 hours a day, 365 days of the year, which is also very attractive. Luck also came in the form of incompetence from competitors, Kanaan explained. “When MSC first started working with us, as a transshipment hub, it was because they had problems in Greece. [They] were looking for a quick alternative and we were efficient, had infrastructure and were available.”

The government must also take credit for utilizing the inherent benefits of the port in building a modern deep water terminal and setting up a public private partnership with a US-British-Lebanese consortium to create the BCTC. The success of the BCTC has been an important element in attracting transshipment to Lebanon, specifically because of their efficient operations. Kanaan outlined the way BCTC attracted major transshipment to the Port. “A mother vessel has a charter of $80,000 per day, so when BCTC saves them half a day in terms of productivity I am saving them $40,000. And our rates are very low and among the cheapest in the world. So when you’re saving $100,000 per vessel, you will come to Beirut. Your insurance is no doubt up by $20,000 but you are saving still $80,000 [a day].” Everyone seems to agree that the low rates have been essential in attracting companies such as MSC, except MSC itself. “BCTC made an offer to MSC, we gave a counter offer and reached an agreement. It is not the real issue if the Port of Beirut is less or more than other ports,” said Fakhreddine. However, he does agree that the efficiency attained and maintained by BCTC and the PA has made the port attractive to companies such as his.

Achieving this efficiency has not been a painless process. Automation has been a major way in which the BCTC has achieved gains in efficiency and a tighter control of its income streams. But this has not been well received by some at the container terminal. Kanaan explained to Executive that automation is unpopular because it narrows down the possibility of revenue leakage and has led to strikes from those trying to resist this process. Strikes are a huge issue for the port and the low level of strikes was one of the reasons that MSC came to the Port of Beirut. The BCTC therefore has had to undertake a careful balancing act of reforming the terminal at a pace that its employees are willing to take, while attaining a level of efficiency that is not only regionally but globally competitive.

Is transshipment really that beneficial?

BCTC have not just been upsetting the truckers. “Some members of the shipping community are always complaining because priority is being given to transshipment, but the reason priority is given to transshipment is obvious,” said Bawarshi of Gezairi. Ammar Kanaan has become increasingly frustrated at the criticism leveled against Beirut becoming a transshipment hub and sees it as nothing less than a triumph. “Sure, the congestion might have affected negatively the few shipping companies that are not doing transshipment in Lebanon. But when two of the top three shipping lines in the world use Beirut as a transshipment hub, then Beirut all of a sudden is getting direct services from the Far East and northern Europe. It probably used to take 40 days to get a box from the Far East, and now it is 17 days. So the savings are enormous and the competitiveness of the Lebanese trader has increased because of this.” Elie Maamary, the export manager for Ksara, agrees with Kanaan in that it has been easier for them to export since the arrival of the big shipping liners. However, Maamary and others complained that the major problem for them currently with the port is the cost of exporting. “The price of shipping a container constitutes a major figure in our costing price. Each container costs about $700 and that’s a lot more than at other ports.”

Despite the complaints of local traders however, local traffic has been robust. In 2007, it consisted of 444,165 TEUs, up from 339,174 in 2006. According to Kanaan, the reason for this growth has been unexplainable. “You can explain total volume of the port to be high because of transshipment but why local traffic is high, while people are complaining about the economy, I don’t know,” he said. It is especially surprising since local overland transit traffic has dropped dramatically over the years, mainly due to the situation in Iraq, which “has always been the number one partner of the Port of Beirut, and secondly because neighboring countries, for example Jordan and Saudi Arabia, now have their own ports,” according to Bawarshi.

Here today, gone tomorrow?

Competition is now getting intense and for how long the benefits of transshipment will last is yet to be seen. Ports around the region in Turkey, Greece, Cyprus, Egypt and Syria are all having major infrastructure upgrades. While none of them have the depth of draft as the Port of Beirut, they are building up their competitiveness. Subsequently, Kanaan argues that the major challenge for the Port of Beirut is “building more capacity and signing up more contracts with global lines” in this increasingly competitive environment. Of course, how competitive the Beirut port remains relies on a large part on Lebanon’s political stability. Although the political situation has been largely circumvented in terms of the effect it has had on the economic vitality of the container terminal, concerns still remain. “I am not afraid of the political problem but we need security. If anything is shut in the port we will not survive,” said Elie Zakhour. As usual for Lebanon, the Port of Beirut has a chance to make or break. Or, as Kanaan told Executive, “Lebanon has a serious chance of making it into the major leagues of maritime transport. Already, in the Mediterranean we are up there. If people refrain from going mad we can do it, but clearly if the political situation continues as it is, sooner or later these shipping lines will go. I can almost guarantee it.”

 

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