By Invitation

Global footprints of sovereign wealth

by John Defterios
written by John Defterios

The last month will likely go down in the financial record books as the one which redefined how the world looks at sovereign wealth funds (SWFs). It is also part of a bigger geo-economic shift underway, which lends itself to the East-East moniker, meaning the wealth and trade belt from the Middle East to China.

While we have been covering the power of these government funds, where they are seeking to make a mark and the new emerging players within this space, it is only now that these funds are flashing on the global radar.

It is challenging to get hard figures on the total government investment funds under management, but there are a handful of Western banks attempting to do so. Standard Chartered Bank places the value at around $2.2 trillion dollars. I personally think this is off the mark since the Abu Dhabi Investment Authority may have more than half that amount itself.
SWFs — Big & Getting Bigger 

$2-3 trillion dollars in assets

$10-15 trillion dollars by 2015

Bigger than private equity

(source: Standard Chartered, Morgan Stanley)

More eye-popping clearly is the path ahead. If oil stays in the range of $60-$80 a barrel over the next five years, the amount will surge to $10-$15 trillion. To provide some context, the current sum is already bigger than the global private equity pool, which made all the headlines in the past two years with record buyouts.

Is this a new phenomenon? Certainly not. The Kuwait Investment Authority (KIA) can trace its roots back to 1953; the Abu Dhabi Investment Authority (ADIA) to the mid-

1960s. While they traditionally deployed assets in government bonds and currencies, that trend has changed over the past five years and accelerated in the last six months.

Chris Wheeler, banking analyst at Bear Sterns, points to global wealth surveys to illustrate the point that liquidity from record oil prices has to find a home. “A lot of excess funds are being generated which the SWFs are having to invest somewhere and they are finding interesting opportunities in difficult times in the banking sector.” Wheeler, like many others, believes the often talked about recession in the US will lead them to more bargains in other sectors.

This must sound familiar. Saudi Prince Al-Waleed bin Talal bought stakes in Citigroup back in 1991 at the equivalent of $2.75 a share. Even at the mid-twenty range it is today, he is (excuse the cliché) smiling all the way to the bank. He obviously thinks this latest downturn created a similar opportunity and so did others who jumped in this week. They are not traders, but investors who hold their stakes for years, sometimes decades.

Like the financial markets, which create buyers and sellers, this market and story will continue to evolve. One of the newer players on the scene, the Qatar Investment Authority, will re-emerge after its participation in the bid for UK supermarket giant J. Sainsbury, and Mubadala of Abu Dhabi has recently put itself on the map with its stake in investment banker The Carlyle Group.

G-8 Wish List

Invest on commercial grounds

Respect national transparency rules

Compete with private sector fairly

(source: OECD, IMF)

As the old and new sovereign funds begin to compete for Western assets, G8 countries are attempting to establish investment standards for all this capital. The US Treasury Department has lobbied to have the OECD, the Paris based think tank for industrialized nations, and the International Monetary Fund in Washington put forth guidelines for best practices and greater transparency.

That effort gathered momentum a few months ago, but the calls for concrete action have faded away, as the need for capital infusions on Wall Street rose rapidly.

The World Economic Forum in Davos provides a good opportunity not only for us to talk to the Middle Eastern and Far Eastern players making waves in global financial markets, but also to those who are trying to regulate their actions.

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

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By Invitation

Cheer up – the Arabian real economy steams ahead

by Imad Ghandour
written by Imad Ghandour

As I am writing these words, stock markets around the world are witnessing one of the most dramatic free falls in their history. The subprime problem is now snowballing to become a global recession. Banks are hesitant to even lend to each other. Central bankers are panicking. The Federal Reserve dropped its benchmark discount rate by 0.75% — the largest single drop in seven years.

Despite the talk of gloom and doom, I am cheerful. 

The markets back in 2000 were hit by the burst of the technology bubble, and then in 2001, they were slammed again by the 9/11 attacks. Thereafter, economic growth slowed considerably. But for private equity, investments made after 2001 yielded excellent returns. As valuations plummeted from their 2000 highs, private equity players in US and Europe were able to close deals post-2001 at bargain prices. The graph below shows CalPers (the largest investor in private equity funds) returns on its private equity portfolio by fund closing year (also known as “Vintage Year”).

Arabia will not be insulated from the black clouds that will be downing on the world financial markets over the next months and years. The reaction from the regional stock markets on Monday, January 21, confirms that Arabia is not as decoupled from the global economy as some people like to think. Even the super-insulated Saudi stock market, Tadawul, dropped by more than 20% over the course of several days.

Yet the Arabian real economy will continue to steam ahead despite hiccups in some sectors. The financial sector will be affected by the global turmoil, but less so than other regions in the world. Real estate may also be affected as global, and even regional, financing sources dry up. Transportation and logistics growth will also slow down as growth of transit shipments and passengers from east to west will be influenced by the probable recession in the US and Europe.

The biggest question will be to what extent oil prices will drop in the wake of a global recession, and consequently, whether oil may drop below $50 a barrel. Oil prices are the biggest determinant of Arabia’s economic growth. Psychologically, they form a leading indicator of GCC economic outlook. They are the main source for financing governments, which are still the main economic drivers for the economy as a whole. Fortunately, GCC governments have accumulated huge reserves, and they will be able to easily weather any short-term drop in oil revenues.

Going back to private equity, the next few months will be difficult for all financial players. But as private equiteers come to grips with the consequences of the downturn, and as new realities settle in, the playground for private equity players in the region will be even greener. On one hand, as a result of dropping oil prices, stock markets’ downturn, and gloomy global economic prospects, valuations will be beaten down to reasonable levels. The market will shift to become more balanced, after being under the mercy of the sellers. Secondly, liquidity, although not easily accessible, will not evaporate. Whatever the severity of the global recession, the region still exports daily $700 million to $1 billion worth of oil. Furthermore, governments’ reserves will continue to trickle down to the rest of the economy — sustaining corporate profits and public investments. Last but not least, global funds will realize that growth in Arabia is more robust than in other regions, and hence, the theory of “Arabia is negatively correlated with the rest of the world” will translate into a shift towards further investment by global institutional investors in Arabia’s stock markets and funds. But this will probably happen after the recession settles in.

Be ready for a tumultuous 2008. Remember: Luck favors the prepared and the courageous.

Imad Ghandour is the chairman of the Information & Statistics Committee Gulf Venture Capital Association.

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Capitalist Culture

The American Empire – Contemplating isolation.

by Michael Young
written by Michael Young

One of the more interesting subtexts of the presidential campaign in the United States has been the debate over whether the nation should withdraw from most of its foreign entanglements. The issue has not been at the center of voters’ concerns, however it has hit a nerve among them, because the proposal comes at a time when the US is bogged down in Iraq and is uncertain about its role internationally.

The candidate who has gotten the most mileage out of this is the libertarian Republican Ron Paul. He has situated his foreign policy aims between the twin goalposts of the ideas expressed by America’s Founding Fathers and a defense of state sovereignty. As his campaign website explains: “Both [Thomas] Jefferson and [George] Washington warned us about entangling ourselves in the affairs of other nations. Today, we have troops in 130 countries. We are spread so thin that we have too few troops defending America […] We can continue to fund and fight no-win police actions around the globe, or we can refocus on securing America and bring the troops home. […] Under no circumstances should the US again go to war as the result of a resolution that comes from an unelected, foreign body, such as the United Nations.”

Paul’s “republican fundamentalism” — the partial return to the principles of the republic of the late 18th century — is hardly new. Partly that’s because the Founding Fathers sought to achieve the right balance between liberty and stability, and that discussion is ongoing in a country where state power has reached troubling levels. Foreign entanglements, the early leaders of the republic felt, would not only force the US to pursue the more authoritarian (and implicitly more corrupt) ways of “old Europe”; it would, in effect, oblige Americans to behave like a continent from which separation had been a major factor in forging the US national identity.

Much like the Europeans, the US participated in the race for empire at the end of the 1800s and into the early 1900s. With the US the strongest world power after World War II, the republic’s internationalists (after an initial period of American retreat) defended extended American participation in world affairs. That logic was used to justify the open-ended, global commitment to fighting Soviet power that developed into an international cold war.

Whatever one thinks of American “republican fundamentalists”, and they have long served a valuable role in defining the necessary limits to state power on issues of domestic civil liberties, it’s not clear how realistic their views are when applied to the world today. There is also something remarkably self-centered in their advocacy of liberty at home next to their abandonment of that principle — behind a wall of sovereignty — overseas.

The Middle East is the ideal place to test the theory of American retreat from foreign entanglements. One can make a good case, for example, that advancing democracy by force is a mistake, and that argument has been often used to condemn the Bush administration’s policies in Iraq. Yet at the same time, it is true to say that Arab authoritarianism has been one of the most significant reasons for the expansion of militant Islam — in some cases, as 9/11 showed, a militant Islam that can wreak havoc against the US. If so, doesn’t American respect for the sovereignty of its Arab partners risk provoking blowback against the American homeland?

Paul’s campaign argues: “Too often we give foreign aid and intervene on behalf of governments that are despised. Then, we become despised.” That’s true. But it’s equally true that the US is often despised for not intervening. One could paper the sky with articles written by Arab critics of the US who unfailingly urge Washington to resolve everything from the Arab-Israeli conflict to Arab economic underdevelopment. It’s a case of America being damned if it does and damned if it doesn’t, and the republican fundamentalists have few real solutions to that conundrum.

There is also the matter of stability. Could the international system absorb the shock of a significant American retreat? What would happen in the Korean peninsula if the US pulled its soldiers out? Or Afghanistan? Or Iraq? What would happen if America’s refusal to “get involved” led to actions with a negative impact on global markets and the international financial system? As historians have long recognized, throughout history empires, good or bad, have helped stabilize the international system. As the Scottish historian Niall Ferguson has argued, the US is an empire, whether Americans like it or not, and must embrace its role as defender of a stable liberal political and economic international system, much as the British Empire did during the 1800s.

Not surprisingly, Ferguson is advising John McCain, Paul’s rival for the Republican nomination. That only shows the diversity of opinion within the same political party and how the destiny of the US continues to be a source of considerable national disagreement.

Michael young

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Trousers down, arms up!

by Paul Cochrane
written by Paul Cochrane
Over the last few months work and pleasure have taken me from India via the Middle East to Europe and onto North America. That’s a lot of flying, and a lot of security checks.

Out of all the airport security I encountered, it was Western airport security — unsurprisingly — that was the most invasive. It was also the most pointless, despite the rhetoric that it supposedly makes us “feel safer” and that it is necessary to thwart the terrorist threat by having to queue for hours, then shuffle through the metal detector in your socks while holding up your belt-less trousers — after, of course, quaffing whatever drink you accidentally had in your bag.

The biggest irony is that the Middle East (bar Jordan), that hotbed of terrorism and conflict, is one of the easiest regions on earth to pass through airport security. Equally puzzling is why, after nail clippers and a can of shaving cream are removed from my hand luggage in Europe and the States, I can waltz onto the plane with a glass bottle of duty free whiskey — nay hard to smash the bottle of booze and stab someone with, if one was so inclined.

Then there is the idiocy of some of the items given onboard — metal cutlery that could be turned into what the prison community calls a “shiv,” as well a set of headphones that could easily be used as a garrotting wire.

After all, what’s the point of taking away nail clippers? Threaten the stewardess with the forcible clipping away of her finely manicured nails? “Open the cockpit or her nails geddit!”

As a friend once remarked, the most dangerous thing a passenger has is their hands and legs — the limbs of a well-trained martial artist for instance. A ballpoint pen is equally dangerous, as the mob film Casino graphically illustrated when a man is repeatedly stabbed in the neck with a writing instrument.

A vivid imagination as well as Hollywood can give a wannabe killer a lot of ideas, but that is not the point. The point is that there are innumerable ways to kill someone and provoke terror, and there is not much even the tightest security can prevent — just ask a warden at a maximum-security prison about his experiences.

That said, security is of course necessary, but to what degree?

As the head of Lebanon’s Civil Aviation Authority, Hamdi Chaouk, told me, “Technology is so advanced they don’t need to do this, stripping and removing shoes. The EU has not been able to compromise on what people need and security. Who can tell me this security has done something?”

Well, unfortunately, no one can. A team at the Harvard School of Public Health recently found no evidence that X-raying carry-on luggage prevents hijackings or attacks. They also found no evidence that making passengers take off their shoes and confiscating small items prevented any incidents. In fact, of the 13 million seized items by the United State’s Transportation Security Administration last year, most of the prohibited items were nail clippers and cigarette lighters, not guns or explosives tucked inside someone’s socks.

So why all the inconvenience to get on a plane? (While not on a bus or a train?)

It strikes me that the billions of dollars now being spent on security is a great way of making money and creating jobs. Indeed, at New York’s JFK International Airport, seven people were needed to process one line, from the X-ray machine to the pat-down, to the swabbing of laptops. Furthermore, the cosmetics and water bottling sectors (as well as the nail-clipper industry) must be rubbing their hands with glee due to the increased sales that result from the need to replace everything removed from passengers.

But let’s not be flippant. Security is no laughing matter. It’s a $59 billion a year business that by 2015 is set to treble worldwide to $178 billion, according to industry tracker Homeland Security Research. And that prediction is all dependent on another grandiose 9/11 terrorist style attack not happening. If a major attack occurs in the United States, Europe or Japan the security market will increase twelve-fold by 2015 to $730 billion, with the USA accounting for 42% of that expenditure.

That’s good news for the security sector. But the saying “one man’s gain is another man’s loss” is also applicable here. Although some undoubtedly profit from the whole security rigmarole, a report has estimated that for every 624 million passengers that each spend two hours a year waiting in line, the annual loss to the economy is some $32 billion. Furthermore, additional security expenditure means costs are passed down to passengers. It’s no surprise then that people are opting to travel by car, train, boat and bus instead, which is not good news for the airline sector, already hit by rising fuel prices.

So for the benefit of everyone, it should seem a no-brainer that airport security should be taken much more seriously, not for the time consuming joke it currently is.

PAUL COCHRANE is a freelance journalist based in Beirut. For his next trip to Europe or the States he is mulling the option of going by sea.

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The strength of diversification

by Riad Al-Khouri
written by Riad Al-Khouri

Arab stock markets make progress, but still have some way to go.

Stock exchanges, in the Arab World as elsewhere, mirror the economy of a state or region. However, bourses are more than just reflections of changes in the “real” sector, especially in emerging economies. Widening share ownership is usually associated with opening up of economic systems, as business power devolves away from states or oligarchies. Bourses are also places where people or companies raise fresh capital to set up new businesses, or to expand old ones, perhaps the most important of their functions.

In these and other respects, Arab bourses are laggards no more. Developing regional share markets over the past few decades have served to make doing business easier — and help people become richer. When the first oil boom began in the mid-1970s, most Arab countries did not have bourses; today, the majority of regional capitals can boast a stock exchange of increasing size and sophistication. In the context of overall economic liberalization in the Arab World, the establishment, development, and reform of bourses has interacted positively with other change, as more transparent and professionally run share exchanges have emerged hand in hand with liberalizing economies.

Jordan is an example of how things have gone well in this respect, with the Amman Stock Exchange (ASE) proving to be an important element of positive economic change in the country. Last year confirmed this trend, as the ASE general index jumped 36% during 2007, and market capitalization surged by 39% to $41.2 billion, representing 289% of Jordan’s gross domestic product. The latter percentage is one of the highest in the world, reflecting the importance of bourse activity in Jordan’s economy. Moreover, the trend in this indicator is sharply up, with bourse capitalization having been a mere $11 billion in 2003, closer to the equivalent of the Jordanian GDP at that time.

However, the ASE remains dominated by the stock of one business, the Arab Bank, which still makes up a big chunk of market capitalization and activity. Though robust and soundly managed, if that august institution reports any bad news, the whole ASE suffers. Not that this isn’t a feature of other Arab bourses: for example on the Beirut Stock Exchange (BSE), 74% of total trading activity of the last week of 2007 (and the lion’s share of that for the whole year) was in one company, Solidere, the real estate developer, typical of that firm’s dominance of the Lebanese bourse.

Be that is it may, though the Beirut exchange wobbled nervously in 2007 due to the country’s chronic political crisis, the BSE’s landmark BLOM Stock Index still managed a 26% annual rise during the year. Although not as strong as some other Arab bourses, the achievement was quite good, considering lagging Lebanese growth. The beginning of 2008 on the other hand saw shares zooming upward on news of an Arab reconciliation initiative to bring feuding Lebanese factions together, but the next months could still mostly be ones of economic instability — mirrored by an edgy bourse. Still, the Beirut bourse and most other regional exchanges outperformed many of their big brothers in the West, though not the price of oil or gold.

Although the BSE is an extreme case, a handful of key shares tend respectively to overshadow most other Arab bourses. On the Palestine Stock Exchange, for example, the Palestine Telecommunications Company and Palestine Development & Investment Ltd. (better known as PADICO) are dominant, with about 78% of all traded shares in the market in 2007.

Though under present circumstances it is difficult to see massive expansion and diversification on the Palestinian bourse or the BSE, nevertheless, other regional stock exchanges continue to diversify. For example, the 2007 climb in the ASE general share price index was due more to the 31% rise in industrial shares than the 14% gain in the financial sector, which the Arab Bank dominates. This trend has also been evident in most of the rest of the region.

Diversity in the nationality of shareholders is also becoming a more important feature of Arab markets. For example, net foreign investment on the ASE was almost 49% of overall market capitalization at end-2007, compared to the 2004 figure of 41%; non-Jordanian Arabs’ contribution was close to 36% while that of others accounted for about 13%. Sectorally, non-Jordanian ownership of industry stood at 52% while that of the financial institutions was 51% and other services 36%. Though a more smoothly running stock exchange helped, these high percentages would have been unimaginable under restrictive Jordanian investment laws a decade ago, a change toward liberalization paralleled in other Arab countries; and such a trend should get stronger in the years ahead.
RIAD AL KHOURI is Visiting Scholar, Carnegie Middle East Center, Beirut; and Senior Fellow, William Davidson Institute, the University of Michigan, Ann Arbor.

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It takes more than two to tango

by Claude Salhani
written by Claude Salhani

US President George W. Bush returned from his Middle East trip confident that a settlement to the Palestinian-Israeli dispute will be found by the time he leaves office next January. The president’s optimism, however, is hardly shared by all.

While in Israel and the Palestinian territories the American president was able to see for himself just how complex the problem is, and that ultimately, it boils down to a question of land, or to be more precise, a question of lack of land. That is one of the fundamental obstacles to a lasting peace between Israelis and Palestinians. Not only is real estate in the Holy Land at a premium, but who can own a piece of it is further complicated by religion and nationality.

Of the three prime issues in contention — the final borders, the status of Jerusalem and the right of return of Palestinian refugees — it is this last point which will likely hold up the peace process. There are multiple facets to the issue of the right of return, not least in that it involves more than the two principal protagonists.

First, it touches upon the question of Israel’s identity as a Jewish state. Open the immigration doors to over a million Arab Palestinians, the overwhelming majority of which are Muslims, and the Jews in Israel will overnight find themselves turning into a minority, placing into question the whole raison d’être of the state of Israel. No Israeli government will ever allow that to happen, not least that of a weak prime minister hanging on by a thread, as is the case of Ehud Olmert.
Aside from the political implications which already represent insurmountable obstacles, there are also economic and social aspects to this issue. And while politics guides the ship of state, at the end of the day it is the economy that ultimately decides on the well-being of the nation.

With that in mind, assuming, just assuming, for a brief moment that Israel did allow Palestinians who fled in 1948 to return, where would they return to? The homes they once owned have long since disappeared. And from a purely economic perspective it would be disastrous for the Jewish state. Among the generation of refugees who fled Palestine — not their children and grandchildren born in exile — the youngest returnee would be 60 years old, assuming he or she were just a few months old when they first became refugees. Think of the financial burden injecting such a large number of retirees would have on the state. Or the manner in which the country’s health care system would be taxed by the arrival of tens of thousands of elderly people.

So if the refugees are not allowed to “return,” what is to become of them? According to UNWRA — the United Nations Relief and Works Agency for Palestinian refugees in the Near East — as of December 31, 2006, there were a total of nearly 4.5 million registered refugees spread across 58 camps in Jordan (1,858,362), Lebanon (408,438), Syria (442,363), the West Bank (722,302) and Gaza (1,016,964). If for no other reason, the question of the refugees alone demands the inclusion of other countries — namely Lebanon and Syria — in the final peace process.

Regardless of how you spin this issue, some of the refugee will have little choice but to remain in their host countries. On the other hand, the big debate will come over what to do with those 400,000-plus refugees in camps in Lebanon where, once the settlement of the Israeli dispute resolved and a new Palestinian state sees the day, technically, they cease being refugees, as they would become citizens of the new state.

Solving the issue of the right of return would require mass movement of refugees from their present locations. This is what Bush meant when he mentioned the word, “compensation.” In fact, a financial compensation package would be offered to the refugees not returning to Palestine, but who would opt to immigrate.

While in principle all 4.5 million refugees would be able to apply for — and obtain — citizenship of the future Palestinian state, not all would be authorized to reside in the new Palestinian state, or in Israel. There is a precedent for this: when in 1972 Uganda’s dictator Idi Amin expelled tens of thousands of Asian traders, many of them were in possession of “Type B” British passports.

These travel documents allowed them to travel anywhere in the world, including Great Britain, but did not give them the right of residence in the UK. The solution to the Palestinians right of return lies in finding a similar formula, which would give Palestinian refugees the following:

a) A passport, therefore giving them dignity and forever removing the status of refugee;

b) A financial compensation package that would allow them to restart their lives in a dignified manner in a country where they will be able to immigrate and integrate in that society, all while retaining their Palestinian identity and ties to the “old country.”

Bush’s optimism to see the creation of a Palestinian state within the year would necessitate the cooperation of all countries concerned. In this instance, it would certainly take more than two to tango. But when some of the parties concerned won’t even step onto the dance floor, it’s hard to share the president’s optimism.

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

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Overruling Ahmadinejad

by Gareth Smith
written by Gareth Smith

In Iran — like anywhere else — political disagreements have a tendency of going upwards to be resolved. The more serious or bad-tempered the disagreement, the higher up it can go.

But in Iran, the supreme leader, Ayatollah Ali Khamenei officially has the religious, as well as the political, last word, and is hence loath to be seen as involved in daily politics. Ayatollah Khamenei prefers to remain aloof even if his office is involved in every branch of government.

Hence Tehran’s chattering classes have become agitated when Gholam-Ali Haddad-Adel, the parliamentary speaker, revealed he had brought Ayatollah Khamenei into a dispute between the parliament and president Mahmoud Ahmadinejad over heating supplies.

Ahmadinejad had refused to implement a bill passed by parliament offering relief to villages suffering gas cuts at a time of plunging temperatures. Parliament’s move was a response to many areas being left without heating in Iran’s coldest winter for years. At least 64 people were reported dead in a country with the world’s second-largest reserves of both natural gas and oil.

The publicity surrounding Ayatollah Khamenei’s intervention in overruling the president arose from tension between deputies about upcoming parliamentary elections. Elected politicians dislike volatility, and Iran has been politically energized since Ahmadinejad’s victory when he steamrolled the reformists’ agenda of social freedom by calling for a more egalitarian distribution of oil income.

Ahmadinejad elicited a wide expectation that politicians should provide a tangibly better life for ordinary folk. Iranians, well aware oil prices are at record levels, are in no mood to tighten their belts.

Bringing Ayatollah Khamenei to help freezing Iranians served a clear political purpose for Haddad-Adel, who topped the Tehran poll in the 2004 election.

With a new election looming, Haddad-Adel is not keen on being too close to Ahmadinejad’s government, especially with a wave of media criticisms of the president over rising prices. Inflation is officially at 17%, but in reality it is probably over 20%.

Haddad-Adel is relatively close ideologically to the president, but Ahmadinejad’s opponents are also firmly focused on the parliamentary elections.

The reformists in particular are looking for a parliament that will hem in the president for the final year of his first term. In the process, they hope for a shift in political advantage away from the president and his fundamentalist allies, perhaps even opening the door for a more productive relationship with the West.

With Iran’s near absence of parties, its electoral politics are hard to understand much less predict. But in the run-up to next month’s poll, there is a drift towards polarization between one camp of reformists, and some pragmatic conservatives, and another camp comprising the fundamentalists.

While it seems unlikely the reformists will agree to a single list, there will be an overlap of names on the two main lists, which some analysts suggest could be as much as 80% in common.

The reformists’ prospects will depend in the first instance on whether the Guardian Council, the constitutional vetting body, repeats the mass disqualifications — mainly of reformists — of the last parliamentary election in 2004.
Former reformist president Mohammad Khatami, former parliamentary speaker, Mehdi Karrubi, and to a lesser extent Akbar Hashemi Rafsanjani, the former president who heads the Expediency Council, have all spoken obliquely about the dangers of disqualification. Any public row could drag in Ayatollah Khamenei. While the leader allowed disqualifications in 2004, he did intervene in the 2005 presidential election to allow the two main reformist candidates to run.

Meanwhile, the United Front of Principle-ists (or fundamentalists) claims half of its election lists have been agreed. Their coalition comprises three currents, only one of which is closely identified with the president, that have established committees in all 30 provinces to organize lists.

But three important figures, Mohsen Rezaei, former commander of the Revolutionary Guards, Mohammad-Bagher Ghalibaf, Tehran’s mayor, and Ali Larijani, the former chief security official, have so far refused to join the coalition. They are keen to keep their distance from the government, despite the dangers of division in the conservative camp.

But it is far from clear the reformists are set for any electoral breakthrough. Their agenda of social freedoms and political reform has been overwhelmed recently by the conservatives’ concentration on day-to-day economic matters.

The conservatives have followed a deliberate strategy since 2002-3, based on an assessment of the aspirations of the baby-boomers born after the 1979 Revolution. Conservatives have judged, apparently correctly, that the baby-boomers would become less concerned with social freedom and more with the costs of marriage and having children.

Hence the most likely result of poll on March 14 remains a conservative majority, albeit a reduced one.

GARETH SMYTH was the former Financial Times Tehran correspondent between between 2004 and 2007

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Fairouz in Damascus

by Nicholas Blanford
written by Nicholas Blanford

For someone who has always abjured the political fray, the much beloved Lebanese diva, Fairouz, recently found herself inadvertently embroiled in the poisonous rift between Lebanon and Syria.

It is sadly inevitable that art and sport have a tendency to become the chattels of feuding politicians, and given the iconic status of Fairouz, there was little surprise that her decision to sing in Damascus would evoke condemnation, feelings of betrayal, sympathy and Schadenfreude on either side of the border in roughly equal measure.

The 73-year-old diva performed her classic 1970 musical “Sah al-Nom” in a six-day run, as part of a year-long series of events to mark UNESCO designating Damascus the 2008 Arab capital of culture.

Her decision to sing in Damascus, however, split her fan base in Lebanon between those arguing that Fairouz should not sing before the rulers of a country blamed for a string of assassinations in Lebanon over the past three years, and others who maintain that the Lebanese diva is above petty politics and should be allowed to sing wherever she wishes.

Still, the timing of her first concert in Syria since 1982 was awkward. A day after she traveled to Syria, Captain Wissam Eid, a top investigator in the intelligence bureau of the Internal Security Forces was killed along with four other people in the largest car bomb explosion since the assassination of Rafik Hariri almost three years earlier.

“Those who love Lebanon do not sing for its jailers,” said March 14 MP Akram Shehayeb. “Our ambassador to the stars, you painted for us the dream nation, so don’t scatter that dream like the dictators of Damascus scattered our dreams of a democratic free country.”

A poll conducted by the “Now Lebanon” web portal, which is sympathetic to the March 14 coalition, found that 67% of respondents were against Fairouz in Damascus.

“Simply, this is not the moment for a musical love-in,” a Now Lebanon editorial said. “Fairouz must decide. She is a Lebanese icon, and, as such she must repay the people who have backed her and who love her with a modicum of solidarity.”

Although she and the Rahbani brothers, her long-time musical collaborators, apparently were sympathetic to the ideology of the Syrian Social Nationalist Party, Fairouz has consistently kept her art detached from politics, saying her music was for the people only. Her songs were banned for six months in 1969 by the Lebanese government when she refused to give a private concert for the then Algerian President Houari Boumedienne. And apart from a single concert in 1978, she famously refused to sing in Lebanon during the 1975-1990 civil war in disgust at the warring militias, whose gunmen continued to adore her anyway.

For an older generation of Lebanese, Fairouz’ hauntingly beautiful voice evokes a nostalgia for Lebanon’s golden years in the 1950s and 1960s. For a younger generation, more accustomed to the scantily-clad sirens of the contemporary Arab music scene, Fairouz’ lack of stage charisma — standing ramrod erect at the microphone, unsmiling and disdaining banter with the audience — has done little to dent their adoration for the legendary singer.

Fairouz’ first post-civil war concert in Lebanon was in September 1994 when she sang in Martyrs’ Square before a crowd of thousands of Lebanese and a host of officials, including the late former president, Elias Hrawi, and then-Prime Minister Rafik Hariri, an event that for many Lebanese signaled that the war was really over.

Eleven years later, Martyrs’ Square became the final resting place for Hariri and the venue for the Beirut spring protests that led to Syria’s troop withdrawal and to the current political impasse.

A renowned recluse who has only given a handful of interviews in her five-decade career, Fairouz remained silent toward the criticism surrounding her decision to perform in Damascus. However, her former musical partner Mansour Rahbani said her decision was “a message of love and peace from Lebanon to Syria. A message of friendship not subservience.”

Elias Harfoush, writing in Al-Hayat, said “Fairouz on her way to Syria during the worst moment in the history of relations between the two states and nations is probably the best ambassador to the Syrians, bearing the message that whatever link has been broken by political and state interests should not entail a rift between [the peoples] in both countries.”

Certainly, Syrians were delighted that Fairouz was back in Damascus. “The Syrians are thrilled, especially the Damascenes,” said Sami Moubayed, a historian of Syria’s post-independence period in the 1950s. “She reminds them of the ‘good old days’,” adding that apart from “nostalgia, talent, her gigantic standing [and] heavenly voice … everybody is pleased that she is defying the anti-Syrian team in Lebanon and coming.”

Still, for most ardent fans, Fairouz is a symbol of unity rather than division and her standing will long outlast the current quarrel.

Nicholas Blanford is a aBeirut-based journalist and author of “Killing Mr Lebanon: The Assassination of Rafik Hariri and its Impact on the Middle East”, IB Tauris, 2006.

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By Invitation

Lebanon – Saade wineries

by Executive Staff
written by Executive Staff

A new winery is taking shape in the Bekaa valley. Owners of Wild Discovery travel agency, Karim and Sandro Saadé have engaged in this new venture, after launching “Domaine de Bargylus” in Syria in 2004.

“We intend to produce the first real Syrian wine: a high-end product positioned internationally, targeting the Syrian Diaspora and seducing Syrian consumers,” said Karim. He reckons that the Syrian project might prove to be a more challenging one, as it requires nurturing a nascent wine culture.

The Saadé venture is not the first of its kind. Over the years, the family’s mercantile past morphed into the Johnny R. Saadé Group, also known for its international shipping company CMA (Compagnie Maritime d’Affrêtement). The group currently includes a tourism arm and a real estate company, the winery project being the most recent addition to its core activities. The two young brothers have succeeded in carving a name for themselves in the tourism sector with Wild Discovery, the group’s first Lebanese venture that also operates in Syria and Dubai, with almost 100 employees. Founded in 1997, with its head offices in Beirut, Wild Discovery boasts a regional network of travel agencies, offering services ranging from ticket issuance to comprehensive holiday packages. The Saadé company’s second arm is Greenstones, a real estate company currently developing a project in Beirut’s picturesque Abdel Wahab Al-Inglizi Street.
 

Two new wine ventures

The third and most recent project includes two vineyards in northwestern Syria and the Bekaa Valley. Bargylus, the Syrian estate, is located in Jebel al-Ansariyeh, in antiquity known as Mount Bargylus. On the outskirts of Lattakia, the port city on the Mediterranean it comprises 20 hectares of argilo-calcareous soil. The Lebanese estate is situated in the widely-recognized wine region of the Bekaa Valley, near the villages of Kefraya and Tell-

Denoub, covering 50 hectares.

Sandro Saadé recounts the brothers’ passionate love story with wine that began in 1997. “We initially considered investing in a Bordeaux châteaux,” he recalled. Instead, the brothers decided to jump-start their own winery project in Syria, where their family originated. The Domaine de Bargylus came to life in Lattakia in 2003. “Besides the common history we share with the Lattakia region, we opted for this particular location because of its excellent soil and weather conditions, after extensive testing and analysis.” In 2004, the brothers decided to replicate the winery project in Lebanon on a grander scale.

According to Sandro, “Both projects are completely different. After all, we are discussing two types of wines born from very particular and special terroirs. The Syrian Domaine de Bargylus will be available for sale in the next few months, while our Lebanese brand, which has yet to be named, will be released in 2009. Both will boast a wine of premium quality and will be positioned on the higher end of the product spectrum.” His brother Karim insists, however, that they will share the same concern for quality control processes.

Both vineyards have planted different cépages (grape varieties) such as Cabernet Sauvignon, Merlot, Syrah, Sauvignon Blanc and Chardonnay. However, the percentages will vary from one winery to the other, allowing the brothers to adapt the vines to regional climate and soil conditions. In addition, production processes will be closely monitored with the help of a French consultant, Stephane Derenancourt.

The Johny R Saadé family, which fully owns the Syrian Domaine de Bargylus and the Saadé Lebanese winery, has invested over $25 million into the project already. The Syrian part is estimated at $4 million while the Lebanese project will eventually require as much as $25 million on its own. The Syrian Domaine de Bargylus will, on its 20 hectares of land, employ around 20 people on a permanent basis, while the Lebanese project is going to employ some 50 people for the time being. “Naturally, these figures do not account for seasonal workers who will evidently contribute to our operations. In addition to its original winery structure, the Lebanon venture will also integrate two other complementary projects, namely a wine museum and a boutique hotel with 30 to 35 rooms,” explained Karim.

For the Saadé brothers, the main rationale behind the wine museum is the added value it will bring to the wine industry in Lebanon, one that can be further complemented by the creation of a “Route du Vin” — a wine tour — of the Bekaa, which will help integrate further the Bekaa valley into the overall Lebanese tourist map.

As Sandro pointed out, “Both projects have been in the pipeline for quite some time. Contrary to popular belief, the wine industry does not generate quick money but is built on a long-term and well-planned approach. This particular sector offers huge potential in Lebanon.”

Targeting the high-end consumers

Both wines produced by the Saadé brothers will target high-end consumers and be marketed away from the traditional supermarket distribution network. “Our wines will be available in restaurants, hotels and specialty stores. We are not relying on the local market, but focusing more on developing a European and international one,” Sandro said. The Saadé brothers are targeting French wine aficionados as they believe France is key in opening the doors of European markets.

While both wineries will include the usual state of the art machineries and equipment as well as the use of stainless steel tanks imported from France, Sandro pointed out that, “we will focus principally on production processes and more particularly on the quality of the grapes used.”

In the end, he knows that despite Lebanon’s wine culture, marketing Lebanese wines might not be an easy task. The young entrepreneur believes that given the relatively small quantity exported by Lebanon, any mishap will affect the industry as a whole and badly reflect on it. An entity that will accredit producers and grant them an equivalent of the French AOC, which late last year the Lebanese government has decided to establish, will provide Lebanese wines with a greater credibility on international markets and facilitate the export process. “Each Lebanese wine is distinctive in its own way. We fully intend on capitalizing on our wine culture to introduce our brands to the world.”

 

 

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Financial Indicators

Regional equity markets

by Executive Staff
written by Executive Staff

Beirut SE: Blom  (1 month)

Current Year High: 1,526.31  Current Year Low: 1,168.36

The Beirut Stock Exchange (BSE) weakened on local conditions in January, as Blom Bank’s BSI closed at 1,462.74 points on Jan. 25, representing a 3.1% drop week-on-week and a 2.6% retreat since the start of 2008. With futile political talks, another presidential election postponement, an assassination, orchestrated strikes and threats of more of the same, the panic moods and recession mongering elsewhere could not be much of a dampener for the hearty investors who were active on the BSE, although the index shed a few percentage points during the bad days. Overall, the picture for the BSE is as clear as the country’s political situation. Solidere implemented the withdrawal of its shares from the Kuwait Stock Exchange at the start of the year, where the cross-listed Solidere stock had been inactive for months. Effective Jan. 25, additional 4 million shares of Bank of Beirut started trading on the Lebanese bourse.

Amman SE  (1 month)

Current Year High: 8,289.34  Current Year Low: 5,560.56

The Amman Stock Exchange’s (ASE) four month long rally stopped in its tracks on a cold January weekend. The ASE Index, which ascended from 7,519.25 points on Dec. 30 to 8,239.34 points on Jan. 17, fell back and closed at 7,671.26 points on Jan 24. The strong participation of regional investors, inflation fears following the latest US prime interest rate cut, impact of the global market pessimism, but also profit taking were named as reasons for the ASE’s drop after mid-January. Arab Bank, Jordan Electric Power, and Jordan Petroleum Refinery were the most active stocks in the week ended Jan 24. Notable losers in the scare week included Jordan Telecom as well as the Jordanian affiliate of French bank Societe Generale which created its own epicenter of financial turmoil through a record fraud and write-down announcement.

Abu Dhabi SM  (1 month)

Current Year High: 4,930.39  Current Year Low: 2,839.16

The Abu Dhabi Securities Market (ADSM) floundered under the panic attack of mid-January after a 350 point rise in the first half of the month. The fall by nearly 400 points in the three bad days was followed by a 280-point rise in the next two days as the ADSM index closed at 4,581.54 points on Jan. 24. Whereas the real estate sub-index is still the ADSM’s bar for strongest performer and the insurance index the weakest under a 12-month view, the month of January staged a counter show with the real estate sector along with energy stocks underperforming the general index and the insurance index in positive territory on Jan. 24 when compared with the beginning of the month. Although real estate stock Aldar was one of the three worst decliners during the crisis and saw uneven share price developments in the aftermath of the panic, it bears recalling that, only days earlier, analysts unsurprisingly named the real estate sector as one with potential resilience and good growth prospects in 2008.

Dubai FM  (1 month)

Current Year High: 6,291.87  Current Year Low: 3,658.13

The Dubai Financial Market Index moved from 6,000.98 points on Dec. 30 through significant gains and sharp falls. The downturn on the DFM accelerated from a drop of 3% Jan. 20 to losses of 5.3% Jan. 21 and 6.2% on Jan. 22 before a bounce back that allowed the market to close at 5,602.34 points on Jan. 24. Given that cautious analysts had been wondering out loud if the DFM would see a bit of correction after the market ran hot in the fourth quarter of 2007 and that foreign institutional investors after mid-January reportedly shifted out of positions in GCC stocks for portfolio reasons, the notion of the DFM regressing from earlier highs should not have been shocking. But there was that suddenness and scope of fluctuations. Emaar Properties bounced around like a ball of quicksilver, down one day and up 11.1% the next. DFM Co, the bourse operator whose 2007 profit exceeded company and analyst forecasts, yo-yoed limit down and almost 15% up.

Kuwait SE  (1 month)

Current Year High: 13,436.20            Current Year Low: 9,584.50

As the Kuwait Stock Exchange Index closed at 13,260.50 points on Jan. 24, brokers on the KSE could snugly opine that the KSE suffered less than regional peers in the January scare. The dip of Jan. 20 was visible but mild and compared with Dec. 30 the month saw an index gain by over 750 points. Market cap leader Zain, which increased in early January after having traded sideways in December with a close of KWD 3.820 on Dec. 31, was affected by selling pressure after mid-January and closed at KWD 4 on Jan. 24. Kuwait Finance House, the KSE’s number two by market cap gave an impressive performance rising from KWD 2.880 on Dec. 30 to KWD 3.260 on Jan. 24; KFH reported that its net profit in 2007 reached $1 billion and was 70% improved on 2006. NBK had a more mixed month as the stock from Jan. 16 to 24 gave up more than half of gains it accomplished in the first half of January. The bank reported $ 1 billion in 2007 net profit, up 14% on 2006.

Saudi Arabia SE  (1 month)

Current Year High: 11,895.47            Current Year Low: 6,861.80

The Saudi Stock Exchange (SSE) started the year in high gear after profit taking and portfolio adjustments had taken the Tadawul index 750 points lower in the last days of 2007. From 10,842.24 points at the start of January, the SSE moved up over 1,000 points to a peak of 11,895.47 on Jan. 12. But the global recession scare hit the SSE with a vengeance. From Jan. 20–22, the index tumbled over 2,215 points, or almost 20%. This scary Sunday, mad Monday, and terrible Tuesday made the market feel the limitations of investor confidence in unprecedented ways before calming to close at 9,360.44 points on Jan. 23. SABIC shares saw their heaviest trading in over a year on Jan. 23, the day after the carnage, but despite limit-up intra-day quotations closed at SAR 161 unchanged to Jan 22 — 26% below the stock’s year high reached only 10 days earlier.

Muscat SM  (1 month)

Current Year High: 9,854.02  Current Year Low: 5,532.64

The Muscat Securities Market entered 2008 on a windy road that started at 8,936.81 points on Dec. 30 and terminated at 9,087.43 points on Jan. 24. The index reached a 12-month high of 9,854.02 points on Jan. 6. While the market showed no panic on Jan. 20 and 21, it did drop by 8.3% on Jan. 22. Brisk buying in the weakened price environment ensued on Jan. 23, with a significant boost turnover and index gains of 2.8%. While industrial stocks did better than other sectors in the first days of January, banking took the lead in mid-month and the services sector had a slight upper hand by close on Jan. 24. Oman Holdings International, which had traded on a flat line in the first part of January, jumped 7.9% on Jan. 21.

Bahrain SE  (1 month)

Current Year High: 2,821.79  Current Year Low: 2,106.70

Indices on the smallish Bahrain Stock Exchange (BSE) largely stayed their course in January, flattening out with the start of the second trading week in 2008. The main index moved up to close at 2,794.30 on Jan. 24 from 2,733.54 points on Dec. 30. The largest listed bank by market cap, Ahli United, moved from BHD 1.4 on Dec 30 to BHD 1.35 on Jan. 24. The stock of Ithmaar Bank jumped close to 10% in the fourth January week; the bank issued new shares and bonus shares as it concluded a merger transaction by share swap with Shamil Bank which delisted as part of the process but will continue to operate as Islamic brand. In their last board meeting of 2007, BSE management extended the daily main trading session from two to three hours per day, effective Jan. 13, saying that the move aims at increasing trading activity. 

Doha SM: Qatar  (1 month)

Current Year High: 10,718.78            Current Year Low: 5,944.03

In Doha, the bourse checked a two-year high of 10,718.39 points on Jan. 16 in a climb of over 1,000 points from Dec. 30 but the market came crashing to 9,151.93 by Jan. 22 before getting a notch up to its close at 9,500.37 points on Jan. 24. The down days engulfed major players including Industries Qatar and large banks. The banking and industry sector indices closed Jan. 24 with a marginal minus and small plus, respectively, when compared with the start of January, but the services sector fared less well and the insurance sub-index underperformed, reporting in more than 25% lower on Jan. 24 than at the start of the year. Barwa Real Estate, which in recent weeks has received a license for a London subsidiary and shortly thereafter also announced a 25% rights issue, became a 20% partner in a $4 billion real estate project in London. Qatar Islamic Bank, Qatar National Bank, and QInvest each also took 20% stakes.

Tunis SE  (1 month)

Current Year High: 2,712.33  Current Year Low: 2,436.94

The Tunindex opened 2008 at 2,614.07 points and closed the reviewed period at 2,678.18 points on January 25. During the month, the financial services and financial companies sub-indices performed on the upper side of the market’s spectrum while the industrial and consumer goods sectors converged on the market’s lower performing side. Some volatility set in already around January 14 and index losses in resonance to the regional market panic were concentrated on January 22 with a 30-point drop. 

Casablanca SE All Shares  (1 month)

Current Year High: 13,892.65            Current Year Low: 10,207.24

The Casablanca All Shares Index rallied by nearly 1,200 points in the first three trading weeks of 2008, advancing from 12,694.07 points at the end of December to 13,892.65 points on Jan. 17. It dropped 515 points by the following Tuesday and recovered 340 points in the next three sessions to close at 13,715.49 points on Jan. 25. With a gain of over 8% since the start of 2008, the Casablanca Stock Exchange was the strongest gainer among the 12 MENA stock markets under coverage here. The Moroccan bourse last year has benefited from limited availability of alternatives to local investors. It also expanded its reach by the number but not the combined value of 2007 initial public offerings; its 10 IPOs followed Saudi Arabia and Jordan in terms of numbers.

Cairo SE: Hermes  (1 month)

Current Year High: 97,993.63            Current Year Low: 57,013.49

After having climbed straight up for more than a month, the Cairo and Alexandria Stock Exchanges Hermes Index retreated from a Jan. 13 record high of 97,993.63 points; it dived over 12% by Jan. 22 and closed with some renewed gains at 88,873.74 points on Jan. 24. Share price losses during the scare period were distributed widely, with telecoms companies losing close to 10% week-on-week and some leading companies in real estate, construction, finance, and manufacturing also recording sizeable share price losses. Index gains in early January were attributed to retail investor buying of small and medium caps whereas post the January crisis institutional investors were said to be bargain hunting. The Egyptian bourse already in 2007 displayed greater sensitivity than other Arab stock exchanges to international market swings.

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