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A boost for insurance in the Middle East

by Peter Vayanos January 21, 2008
written by Peter Vayanos

The market has rich potential. Here is what is needed to get it going.

When one looks at financial services in the Arab World, there is one sector that stands out for its lack of development: Insurance.

While investments and loans are now commonplace across the region, insurance has yet to achieve the same level of penetration. On average, insurance premiums represent only about 1% of gross domestic product in the Middle East, versus as much as 4% in other emerging markets and 9% in more industrialized countries. The situation for life insurance is even worse.

The low penetration of insurance in the Middle East points to the magnitude of the opportunity, especially given the above-average economic growth of the region, its young population, and ongoing political changes. Those changes include the requirement, in many countries, that consumers carry auto and health insurance. Government privatization programs will also fuel the market, as formerly self-insured entities turn to the market for their needs.

But the fertile environment for an insurance boom in the Middle East and North Africa (MENA) doesn’t guarantee that it will happen. For the potential to be realized, business leaders, regulators, and policymakers must focus on five areas.

1. Establishing a comprehensive legal framework. At present, there is wide variability in the maturity of legal and regulatory frameworks that govern regional insurance markets. In fact, until recently, almost all MENA countries had outdated insurance laws and regulations. Although some countries have introduced new legislation, much still needs to be done.

Specifically, regulators in countries with under-developed legal frameworks need to upgrade these frameworks in line with international standards. Countries that don’t have a judicial authority dedicated to resolving insurance disputes should create one. The regulation of takaful — insurance compliant with sharia law — also needs to be addressed.

In countries at the early stages of implementing legal frameworks, the approach should be to set prescriptive rules and guidelines, and to require that all insurance products be approved prior to sale. As markets mature, regulators can issue guidelines, or principles, giving insurers the flexibility to bring products to market more quickly.

The end goal of a legal framework should be to regulate all participants, including insurance companies, brokers, and professionals. Among other benefits, a well-defined legal framework will attract international players.

2. Empowering a regulator. It’s not enough that there be insurance laws — there also needs to be regulators enforcing them.

All the countries in the region have an insurance regulator in place, although varied in form. In some places, the regulatory body that oversees a country’s banks or capital markets doubles as its insurance regulator. Other nations have, in effect, multiple regulators — creating needless bureaucracy. An example is Lebanon, where the Insurance Control Commission and the Directorate of Insurance Affairs at the Ministry of Economy appear to have overlapping responsibilities.

Ideally, the lines of authority of each country’s insurance regulator should be spelled out in the legal framework and so should the regulator’s independence.

As they step up their supervisory efforts, regulators should look to the guidelines set out by the International Association of Insurance Supervisors. New regulatory bodies should start with an audit-based model, which relies on data collection to ensure compliance with rules and requirements. In the medium term, though, they should shift to the risk-based model common in more mature markets.

3. Creating an environment that encourages competition. For now, the insurance industry in the region is dominated by a large number of small players with limited capital. While that is understandable given the size of the market, the preponderance of small players has limited the amount of actuarial and risk-management expertise.

Regulators need to raise the competitive bar by requiring higher capital levels and introducing minimum standards for governance and risk management. This will result is larger local companies that are better-equipped to serve customers.

4. Offering skills and training. The shortage of skills has a huge impact on the state of insurance in the region, limiting product innovation and introducing inconsistencies into critical functions like risk assessment and pricing.

Regulators and policymakers can foster skills development by setting accreditation requirements for insurance professionals. They can also organize specialized training programs through affiliations with international training providers or universities. Finally, regulators can encourage insurance companies to invest in training their staff by offering a reduction in annual regulatory fees as an incentive.

5. Implementing market-led initiatives. One last thing that will help the insurance industry thrive is the rise of programs and associations that articulate insurance benefits to consumers and attract young professionals to the field. Bahrain and Jordan both have such programs. Bahrain’s program uses a specially created cartoon character, Taamina, to raise awareness. But these two countries remain exceptions. Other Arab countries are doing little to promote the industry or to lure talented college graduates headed for jobs elsewhere in the financial services sector.

Peter Vayanos is a vice president at Booz Allen Hamilton.

January 21, 2008 0 comments
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Cruising the Musandam

by Norbert Schiller January 21, 2008
written by Norbert Schiller

Two months ago, I was invited by friends to go on a three-day sailing cruise aboard their boat around the fjords of Musandam at the northern tip of Oman. The Musandam Peninsula acts as the gateway to the Strait of Hormuz, which leads into the Arabian Gulf. This region of Oman used to be out of bounds to foreigners, but over the last two decades the region has slowly opened up.

The scenery in this rugged and relatively untouched part of Oman is spectacular with rock formations jetting out of the sea and forming the high mountains of the interior. Because of the rocky peaks and steep terrain the peninsula is largely impassable. Almost all of the landscape is void of flora and the only animals that can be seen roaming freely are domesticated goats foraging for food. Unfortunately, the goats have found a more accessible kind of food new to this environment, garbage. This trash is often left behind by weekend tourist who charter boats to explore the hidden shores. I witnessed a goat devour a huge piece of foam plastic that was probably used for packaging.

The lack of plant and wildlife on the land is the antithesis of what lies beneath the surface of the sea. With a mask and snorkel you are privy to a whole other world as you dive below. Suddenly, there are hundreds of beautifully colored fish of all shapes and sizes surrounding you. The barren rocks we saw above the surface are transformed into a resting place for various shell fish and different types of colorful coral. It is a world in stark contrast with what can be seen above. Such is life in this pristine corner of the earth.

As Oman opens its doors to tourism, areas like Musandam are slowly being discovered and tourist development schemes are already on the drawing boards. The pace of development in the Gulf region is happening at such lightening speed that before an objection can be lodged, an entire skyline is transformed. This continues to be the case in the Emirate of Dubai and now in Qatar. Fortunately, these two emirates happen to have plenty of empty spaces to develop in areas which are not environmentally sensitive. Oman is different though. It is a country of contrasts, which enjoys an environment that changes with the terrain. Oman has 1,700 kilometers of coastline stretching along the Indian Ocean from the Yemeni border in the south to the Strait of Hormuz. In the north, the landscape is barren and mountainous. Yet in the south, which is tropical and hit by the monsoons, the land is lush green and covered with banana plantations and coconut groves. The people and their lifestyles also reflect this contrast. Like the rest of the Gulf States, Oman has its cosmopolitan modern cities with shopping complexes, high rises and five-star hotels. Alongside this developed part of the country is the traditional part where houses have kept their mud brick facades and where marketplaces are still fragrant with the smell of frankincense. Oman is still one of the few places that has been able to successfully blend modernity with tradition. But for how long can it hold out?

During our trip north, I could make out the skeletons of a few tourist projects being constructed along the coast. Fortunately, they were mainly on sandy beaches and not intrusive. The real concern is when developers go a step further and venture into the tranquil bays of the once foreboding Musandam Peninsula.

At its closest distance, the tip of Musandam Peninsula is only 38 kilometers from the Iranian coast. Between the two countries lies the volatile Strait of Hormuz, a very strategic body of water. Twenty percent of the world’s traded petroleum passes through the strait. This area is still considered militarily sensitive for Oman, but it is a far cry from the war zone it was in the 1980s and 1990s.

Two decades ago Oman’s Musandam Peninsula was largely out of bounds to all but local tribes, the military and the odd scientific explorer. In the mid-1980s, during the latter half of the Iran-Iraq war, ships that entered through the Strait of Hormuz were at risk of being attacked by Iranian gunboats. Overnight, this little stretch of water became the focus of the world’s economic superpowers. First, the Soviet Union sent warships to the region and began chartering Kuwaiti ships hoping to deter Iranian gunboats. However, this may not have been such a wise decision. Kuwait, which had one of the largest commercial maritime fleets, was a close ally of Iraq at the time and took the brunt of the Iranian attacks. Then the Americans, not to be outdone, went a step further and temporarily re-flagged all Kuwaiti-registered oil tankers with American flags. This way, the US navy was able to escort those tankers as they transited the Arabian Gulf.

By the time the Iran-Iraq war was over, Oman was well on its way to opening up the country. Musandam, though, remained closed. This was not so much the Omani government’s doing but the result of rumors, circulating among expatriates in Dubai, about mysterious tribes lurking in the mountains and waiting to attack any foreigners who dared to trespass. The source of these rumors was probably a local tale passed on from generation to generation. The government did not try to deny these stories as they served authorities when they wanted to keep out tourists from that part of the country. Unfortunately, this is no longer the case.

Norbert Schiller’s latest book Arak and Mezze: The Taste of Lebanon was published last month.

January 21, 2008 0 comments
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The Bali road to nowhere

by Peter Speetjens January 21, 2008
written by Peter Speetjens

Rejoice. The world has a second “road map”! Judging by the bad karma given off by the original Middle East version, one would have expected the world’s political elite to avoid the term at all cost, but no. Following two weeks of intense debating and tabling, participants of over 180 countries at the December UN Conference on Climate Change (UNCCC) accepted the “Bali Roadmap.”

The Kyoto Protocol, which requires its 178 member states to cut their 1990 levels of green house gas emissions by 5%, expires in 2012. The Bali mega-conference aimed to reassurance the world’s increasingly concerned citizens about the environment.

But the Bali Roadmap nearly never saw the light of day.

At the UNCCC’s dramatic grand finale, negotiations were broken off. The Europeans suggested cutting greenhouse gas emissions by 25% to 40% by 2020, which would mean an immense incentive to boost investments in cleaner, greener technology. Yet the suggestion proved too hot to handle for countries such as the US, Canada, and Japan. Washington was especially averse to putting figures in the final text

With an embarrassing deadlock looming, the Europeans thrashed out an 11th hour compromise, which, amid tremendous pressure, forced the US into a dramatic U-turn, accepting that “deep cuts in global emissions will be required to achieve the ultimate objective (to curb climate change).”

But let’s not get ahead of ourselves. Over 10,000 ministers, state officials, experts, weathermen, Al Gore and any self-respecting environmentalist from any corner of the earth was in Bali, to stay two weeks in a five-star air-conditioned hotel to discuss the obvious. Charles Clover of The Daily Telegraph estimated that the two-week conference produced some 100,000 tons of CO2, which is about as much as Chad omits annually. The US blasts 60,000 times as much into the atmosphere and heads the world emission rankings. 

“It’s a framework that is quite weak,” admitted France’s Deputy Ecology Minister, Nathalie Kosciusko-Morizet. “The public will understand that we brought the United States into the negotiations.”

Paula Dobriansky, head of the US delegation, proved quite delighted with the world’s second roadmap. “I think we have come a long way … the US is very committed to this effort and just wants to really ensure that we all act together.”

After years of doing it alone, refusing to sign the Kyoto Protocol, Dobriansky presented the US as a modern day musketeer with a “All for one, one for all” attitude. The US argues that developing nations have to make a bigger effort. This may be a reasonable argument regarding emerging giants like China and India. However, it is quite off the mark regarding the vast majority of the world’s countries. Bolivia is facing melting glaciers and dwindling water reserves, yet it has no industry to speak off.

George Bush did not exactly appoint Dobriansky for her green fingers. In 1997, she was among the 32 founding members of the “Project for a New American Century” (PNAC), a private club for Neocon America that calls for military-backed US hegemony over the world.  These are the same people who urged President Bill Clinton to invade Iraq in 1998.

Dobriansky is not only convinced that what is good for America is good for the world, she is also a true believer in the blessings of the free market and thus opposes any regulation. Voluntary emission cuts will do, she argues. Most environmentalists would disagree and argue that the main cause for having reached the current state of over-exploitation and pollution is a lack of rules and regulations, as well as the failure of the economic model to qualify environmental issues as cost determining factors. 

The rather unsettling truth seems to be that destruction is the inevitable flipside of the mythical coin called “progress”. The UN’s 4th Global Environmental Outlook (GEO) states that 20% of the world population produces 57% of global GDP, as well as 46% of greenhouse gas emissions. 

And as global trade and GDP grow, coral reefs are dying, fish stocks are declining, deforestation continues, and some 16,000 species are threatened with extinction. It has been nearly 40 years since the Club of Rome first warned about the limits of economic growth, yet the 2007 GEO concluded: “there are no major issues for which the foreseeable trends are favorable.” Unfortunately, the Bali Roadmap to nowhere fits the picture perfectly.

Peter Speetjens is a freelance writer and analyst based in Beirut.

January 21, 2008 0 comments
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Regional chess

by Claude Salhani January 21, 2008
written by Claude Salhani

There are two schools of thought regarding President George W. Bush’s Middle East peace extravaganza held last month on the shores of the Chesapeake Bay in Maryland, which brought together for the first time 16 Arab countries and Israel in a non-violent environment.

One group believes it was a waste of time, pure theatrics by an administration desperate to leave something more substantial for the history books than the wars in Afghanistan and Iraq. Critics of Bush’s foreign policy were quick to denounce the Annapolis antics as just a mega-photo opportunity and a publicity seeking stunt meant to take focus off the economy, a US dollar at its weakest point in decades, a hurting real estate market going south as a result of the sub-prime scandal and gas prices going through the roof.

Then there are the optimists, the president’s supporters and those who believed a miracle could be accomplish in Maryland when previous attempts have failed in the Holy Land, where miracles traditionally are given greater odds.

Bush’s intent was to jump-start the comatose peace negotiations between Palestinians and Israelis with the expectation of reaching an agreement for a two-state solution before the end of his mandate, now just a year away. For the president, it was somewhat of a shot in the dark. Palestinian and Israeli leaders walked away from the peace conference promising the US president they would “push for peace.” In political parlance that is the equivalent of saying “the check is in the mail.”

But something unexpected did come out of Annapolis. The first thing is the highly significant return of Russia to the Middle East peace negotiations. According to sources close to President Vladimir Putin, Russia was instrumental in convincing the Syrians to participate in the Annapolis meeting. Putin personally telephoned Syrian President Bashar al-Assad urging him to participate in the Annapolis conference. This was confirmed by a high-ranking European diplomat in Washington.

Syria, long shunned by the Bush administration for its policies in Iraq and Lebanon and considered by Washington to be counter-productive to peace efforts, remains a key player to any future negotiated settlement of the larger Middle East crisis.

Russia’s renewed interest in bringing about a peaceful settlement to the Arab-Israeli dispute injects a new momentum in a process that has been dragging for decades. Putin has already convened a follow-up summit in Moscow scheduled for January.

Saudi Arabia and other Arab states are suddenly eager to shift the peace talks into high gear. After decades of refusing so much as to even mention the name of Israel, there seems to be a new impetus, spearheaded by the Saudis, to get the ball rolling.

Why this sudden sense of urgency after years of procrastination? Because the Saudis, much like the Russians, have seen what sort of damage home-grown terrorists can cause to the economy.

Another result of Annapolis is a meeting of the minds of two leaders on opposing ends of the political spectrum: Russia’s Putin and King Abdullah of Saudi Arabia.

Just like Russian pressure on Damascus convinced Assad to send his deputy foreign minister to Annapolis, similarly, the Saudi king’s political clout brought a total of 16 Arab countries — including Syria — face-to-face with Israeli leaders at the conference.

What motivated those two politically opposed leaders to act in unison with the European Union, the United States and Israel? The fact that they all share a common enemy — Islamist terrorism.

Moscow and Riyadh, much like Washington, London, Paris, Madrid, Istanbul and other cities that have experienced firsthand attacks by Islamist terrorists, also agree on a fundamental focus point of the Middle East conflict. They say that until the Palestinians have their own state, the continued unrest in the Middle East will provide extremist Islamists a perfect recruiting poster for their cause.

The Russians, much like the Saudis, and indeed the United States, have seen the results of homegrown terrorism and it was not pretty. Ironically, the Islamists, contrary to what they were hoping for, ended up acting as a unifying force by bringing together the United States and Russia, two former Cold War warriors. At the same time, they succeeded in pushing the vast majority of the Arab World into the same camp with the Western-Russian alliance — and Israel — who now agree they have a new common enemy — the extremists within Islam.

Claude Salhani is editor of the Middle East Times.

January 21, 2008 0 comments
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The year that brought globalization to the Arab World

by Riad Al-Khouri January 21, 2008
written by Riad Al-Khouri

Since the current wave of global change accelerated after the end of the Cold War, mention of globalization has tended to upset Arabs. However, 2007 could be the year that the Arab World really moved closer to the rest of the globe. Politically, this was evident in the Annapolis conference, where — under watchful American eyes — for the first time high-level representatives of Saudi Arabia and Syria sat down in public with Israeli officials, a powerful symbol of the region’s engagement with the West and its stepchild Israel. In the economic sphere, vast Arab investments were welcome in Western countries, sometimes as sizeable, controlling interests in big-name global companies. Not all deals went off without a hitch, witness the Qataris backing off over the takeover of the major British retail chain Sainsbury’s. But it will soon be forgotten, as the 2005/06 failed attempt by Dubai World Ports to invest in the US was forgotten, while Arab money poured into shaky Western stock markets. Moves in the opposite direction were also evident, as global businesses headed in greater numbers to Arab countries.

Along with these developments, the message that finally started to come across in 2007 is globalization is neither necessarily good nor bad, but it is here and it is important. The term still has negative connotations in the region, but 2007 has shown that to integrate into the world does not mean that Arab countries will have to surrender their identity.

Nevertheless, the big deal for the eastern part of the Arab region remains the Israeli-Palestinian conflict. Annapolis has not of course resolved the problem, but things may be better after that meeting than they were before. In the Maghreb on the other hand, the major issue is closer relations with Europe and it is important that French president Sarkozy chose to roll out his Mediterranean Union initiative in that corner of the Arab World. Like Annapolis to the eastern Arab countries, the launch of the idea of a Mediterranean Union does not signal that all of the Maghreb’s problems are over. However, this indication of an increased European role in the region is critical. In the East too, greater EU involvement in the peace process could help. Europeans being involved more in the Arab World means more emphasis on the bright side of globalization and this seems to have gained ground in the Arab World during 2007.

Turning from the big picture to nitty-gritty issues at the center of globalization, such as logistics, is also revealing, in terms of changes taking place within the Arab World. For example, the World Bank’s first Logistics Performance Index ranked Lebanon 98th among 150 countries worldwide and 13th among 17 Arab states. The index covers ability to track and trace shipments, timely arrival, customs procedures, logistics costs, infrastructure quality, and competence of the domestic logistics industry. Globally, Lebanon tied with Zambia and ranked behind Papua New Guinea, and was below both the global average and the Arab score. Examples of Lebanon’s performance vis-à-vis Arab states in individual sub-indices were especially grim: tying Syria and behind Yemen on the customs sub-index, below Mauritania on the infrastructure measure, behind Tunisia on logistics competence, and weaker than Egypt on tracking and tracing. To mention Lebanon’s logistics in the same breath as most of these countries would have been unthinkable a generation ago. But today, while much of the region advances and globalizes, the Lebanese wallow in instability.

However, even considering Lebanon, the past year appears to have been better for the Arab World as a whole, at least in terms of macro-economic indicators. Was the same true regarding the average person living in the region? Maybe not, so how can the benefits of growth and globalization that accrue to the rich and well-connected help the average person in 2008? The answer may be larger doses of democracy and liberalization to bring the region into better harmony with the forces of globalization. Well thought out democratic practices and properly introduced liberalization are valuable in making the best of globalization. Take as an example the recent and continuing entry of Arab countries into trade agreements. The experience of various regions, including Latin America and South and East Asia, suggests that the negotiation capacity of states seeking to join trade pacts actually increases in the presence of pressure groups. By contrast, in many cases Arab negotiators themselves monopolize, and so weaken, their own countries’ negotiation position. The challenge remains to revitalize labor unions, professional syndicates, and business associations as partners in public decision-making, to make the best of globalizing. The alternative is globalization for the rich and powerful and a doubtful future for the rest of the population.

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

January 21, 2008 0 comments
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More than blind hope

by Zaki Abushal & Priyan P. Khakhar January 21, 2008
written by Zaki Abushal & Priyan P. Khakhar

The sun reflects the facades of designer stores that flaunt Prada, Chanel and Armani. Women in Dior sipping iced lattes and chatting to friends could be absolutely anywhere in the developed world, affluent and totally at ease in their surroundings; Fifth Avenue in Manhattan, Kings Road in London, Champs Elysees in Paris or Gran Via in Madrid.

But this isn’t Europe or North America and for that matter it’s in no other part of the developed world. A little over a year ago Lebanon was at war. The bombardment suffered at the hands of Israel’s military wasn’t the country’s first taste of war in recent memory, but it did knock a burgeoning economy off its feet.

Leading local bank, Audi-Saradar, recently issued a report on the country’s economic conditions, summing up its plight with cold-hearted brevity when it described 2007 as a ‘lost year.’ A sentiment echoed by Prime Minister Seniora, who was just as pessimistic in a speech soon after the conflict where he said “Israel’s military offensive against Hizbullah caused billions of dollars in direct damage to Lebanon’s economy, sending the country from recovery into recession.” On the ground however, there are signs of prosperity, social transformation and a positive attitude.

Any country that’s endured such a history would be forgiven an extended mourning period. But Lebanon shook off the lugubrious shroud left by a 15 year civil war, and a subsequent boom-bust cycle stretching from 1992 to 2005, to quickly get on with the job of rebuilding the country.

Such is the Middle East’s faith in the long term prosperity of Lebanon that investors are never far from its shores. Lebanon is “a small country that has a large Diaspora strongly tied to it and regularly investing back in it, and a rich Arab community unwilling to give up on it,” according to the Bank Audi report.

Whether investors’ faith has more to do with the country’s strong bank secrecy laws is up for debate, but there’s no getting away from the fact that Lebanon’s inward foreign direct investment (FDI) has suddenly skyrocketed. In 2000 the country received close to $5 billion in FDI, up from a meager $53 million 10 years earlier. But that was just the beginning because in 2005 FDI inflows leapt to $15.5 billion. And with the wheels truly in motion, there was no stopping Lebanon’s FDI train as inflows reached $18.3 billion in 2006.

Probably to those living in the country, 2006 will resonate as the year when conflict returned to their shores. But it’s unlikely the people of Lebanon will see 2007 as lost. Even now industries within the country enjoy disproportionate growth and the outlook remains strong. “Once the political situation is cleared the real estate sector can easily witness a boom again,” said the Bank Audi report. It’s not only the real estate industry that shows promise, so too does the banking sector. In fact, they’ve drawn praise from international and supranational institutions, most notably the IMF. The organization was clearly impressed with Lebanon’s handling of the war from an economic point of view as it pointed out in its most recent consultancy paper issued in November. “Financial pressures associated with the conflict were managed effectively owing to the banking system’s strong liquidity position,” said the report. “As with FDI growth, one would expect trade to flounder, however, as we’ve seen FDI has flourished and trade hasn’t been hampered by the political confusion or Israeli attacks.” Also, “aggregate imports and exports increased by 8.6% over the first five months of 2007 relative to the same period in the previous year,” according to Bank Audi.

Down on the street amid the tanks and infantry, businesses remain positive. They are driven by more than just blind hope. Once the politicians stop their dithering and finally decide on a united government then capital and foreign investment will return to Lebanon. Even now, as political tension strains the will of the population, investment is clambering to find a home and there is a bottleneck in development and investment. The coffees in the local Starbuck’s and Costa Cafes keep flowing at prices on par with the West. So it seems neither bombs nor the complexities of choosing a president will discourage investment and growth in Lebanon in the long-run. The unrealized potential is merely observing the hurdles of politics to gain stronger momentum. The cedars of the nation are full of sap.

Zaki Abushal is the editor for the British Chamber of Commerce and Dr. Priyan P. Khakhar is a lecturer at the Suliman S. Olayan School of Business at the American University of Beirut.

January 21, 2008 0 comments
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Media lessons not learned

by John Dagge January 21, 2008
written by John Dagge

Media feeding frenzies are never pretty. Even less so when they are passed off as serious journalism. The coverage following Israel’s September attack on Syria has again highlighted the deficiencies of the Western press in covering the region. Speculation passed off as fact, the use of unnamed sources, a lack of any real evidence, sensationalism and a steadfast refusal to engage in debates that may get in the way of a good story has typified much of the reporting. Whatever we eventually learn about what was bombed, the double standards which the mainstream media operates under when covering countries it deems as being ‘bad’ exposes fatal flaws in the world’s most free media establishments.

What we do know is that on September 6, 2007, Israel attacked a military facility in the northern province of Raqqa. News of the strike first emerged via the Syrian Arab News Agency some 12-hours after the raid. Initial reports in US and European newspapers said the attack was carried out to test Syrian radar reactions or destroy an arms cache bound for Hizbullah.

The nuclear angle did not emerge until September 12 when the New York Times wrote in paragraph six of a 12-paragraph article: “Israel had recently carried out reconnaissance flights over Syria, taking pictures of possible nuclear installations that Israeli officials believed might have been supplied with material from North Korea.”

The story soon progressed. No possibility — expect, of course, that Syria may not be building a nuclear bomb — was too far fetched. On September 22, London’s The Times splashed with: “Snatched: Israeli commandos ‘nuclear’ raid.” The article breathlessly relayed a daring operation in which “Israeli commandos from the elite Sayeret Matkal unit — almost certainly dressed in Syrian uniforms” secretly seized samples of nuclear material from the site before it was bombed. Laboratory tests, according to the paper, confirmed the material was “North Korean in origin.”

The article was written entirely from unnamed American and Israeli sources. No evidence of this North Korean supplied nuclear material has been produced. No independent analysis regarding the likelihood of such a raid, or the reasons why American and Israeli sources might leak such information to the media is ventured into. Instead, unnamed sources from governments opposed to both Syria and North Korea are given free space in a major international newspaper to air serious allegations without the provision of any evidence and, characteristically of the media’s coverage surrounding the event, seemingly without question.

By October 13, the New York Times had concluded that Syria was running a nuclear program. In an article headlined “Israel Struck Syrian Nuclear Program, Analysts say,” reporters David E. Sanger and Mark Mazzetti write that Israeli and American intelligence agencies judged the site to be “a partly constructed nuclear reactor.” The analysis answers one of the “central mysteries” surrounding the purpose of the attack. In all, unnamed “officials”, “intelligence analysts” and “senior policy makers” are mentioned 19 times.

The third paragraph compares the Israeli raid with Israel’s bombing of the Iraqi Osirak nuclear plant in 1981 — further cementing the impression Israel did indeed strike a nuclear facility. By the fifth paragraph the usual qualifiers “suspected” and “alleged” are dropped altogether and the authors write: “Many details remain unclear, most notably … whether the Syrians could make a plausible case that the reactor was intended to produce electricity.” What is no longer in doubt is that the site was a nuclear reactor. The only question now in need of answering is if the Syrians would consider using such technology for anything else other than the destruction of the Jewish state.

It takes the reader until paragraph nine to learn: “Even though it has signed the Nuclear Non-proliferation Treaty, Syria would not have been obligated to declare the existence of a reactor during the early phases of construction. It would have also had the legal right to complete construction of the reactor, as long as its purpose was to generate electricity.”

The “central mysteries” of the opening paragraphs, the reader can assume, are not why newspapers like the New York Times gave Israel the right to attack her neighbors even when, as the article admits, Syria was in no breach of international law. The media’s use of unnamed sources, particularly from an administration that has a track record of skewing intelligence, is also not open for debate. The possibility that the intelligence leaks which the article is based on are part of a disinformation campaign is also too far fetched a proposition for serious news agencies to explore. After all, only “axis of evil” governments lie.

Such coverage is even more disingenuous given the public hand-wringing that much of the media — particularly the New York Times — put on display when it became clear their coverage of Saddam’s WMD program was fiction, not fact. Earnest pledges to raise the journalistic bar were given. Little, it seems, has been learned. Until journalists and editors apply the same journalistic norms throughout all their work, regardless of whether the story is emanating from Washington or Damascus, their credibility will remain severely compromised.

John Dagge is a freelance journalist based in Damascus.

January 21, 2008 0 comments
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Editorial

Diversity within identity

by Yasser Akkaoui January 1, 2008
written by Yasser Akkaoui

January may be upon us and stretching out blue and gray. But, to generate some cheer, it is worth reflecting on the positive impact of Christmas in the Middle East. Despite the contradictory motifs of snow and cosy Victorian cheer, the Christian tradition was born in Bethlehem, Palestine. However it is also worth remembering that the region is dominated by Islam, a faith so often viewed as extraordinarily rigid in its dogma.

How refreshing therefore is it to see Dubai awash with the festive spirit last month. Cynics may point to the obvious commercial opportunities that Christmas, arguably one of the biggest global brands around, offers both the retail and tourism sectors, but to cite that would be to ignore the real story, namely the willingness of many Islamic countries to embrace diversity through this most Christian of feasts.

Much the same can be said for the burgeoning Islamic banking sector, one in which Sharia compliance works beautifully with the modern global banking culture. In a time when many in the West see the more extreme elements of Islam as a threat to civilization as we know it, it is of supreme importance to highlight the efforts being made by the nations of the GCC to take their place within the global family of nations and the global economy. Islamic banking is possibly the best ambassador for this genuine initiative.

For without diversity there will never be advancement. Without diversity there will only be a cultural lockdown. Dubai and other states in the region have embraced diversity because they have the maturity and the confidence to accept that which is outside their traditional norms without feeling they have surrendered their identity.

This is a lesson for the new Middle East and one we must seek to promote in 2008.
 

January 1, 2008 0 comments
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Gone fission

by Gareth Smith January 1, 2008
written by Gareth Smith

For anyone who knows the strange relationship between the Great Satan and the Axis of Evil, the most stunning aspect of the National Intelligence Estimate (NIE) concerning Iran’s nuclear program was its notion of anyone in Tehran making rational calculations.

Where once there were “mad mullahs”, all of a sudden there was an Iranian state pursuing national self-interest. The shift was so sharp it provoked speculation the US might be heading towards an understanding with Iran that could help stabilize the wider region.

In Tehran, President Mahmud Ahmadinejad decided the NIE was a vindication, presumably because of the uncertainty it betrayed in US policies.

Oddly, Ahmadinejad was thereby expressing faith in the competence of the CIA and its cohorts, whose record in the region is abysmal. Think of its mismanagement of the Iraq operation based in Kurdistan in 1992.

Think also of the 1984 kidnapping and death in captivity of its Beirut bureau chief, William Buckley, which itself came a year after a truck-bomb destroyed the Beirut embassy, killing 17 Americans including Robert Ames, the CIA’s senior Middle East analyst.

“Why should the agency be successful in trying to penetrate Iran’s nuclear program?” asked Tabnak, a website associated with Mohsen Rezaie, anther astute former commander of the Revolutionary Guards. Tabnak scoffed at the notion the CIA had “effective knowledge of Iran’s nuclear program.”

Although the NIE was a public document, the sources for its conclusion that Iran conducted weapons research until 2003 remain confidential. Leaks — which could be red herrings — have said the information came from defectors, possibly including Ali-Reza Asgari, the former Iranian deputy defense minister who disappeared around the end of 2006.

But as ever, the real issues are political. Enriched uranium is intrinsically of ‘dual use’, and the very notion of a ‘weapons program’ misleading. The same process used to make fuel for a power station can make material for a bomb — which makes the NIE conclusions about weapons problematic.

Ali Larijani, until October, Iran’s top security official as secretary of the Supreme National Security Council, argued the NIE revealed a new “phase” in US policy, bringing Washington closer to the International Atomic Energy Agency (IAEA), which since July has been carrying out an agreed work-plan to clear up past discrepancies.

Significantly, Ali Akbar Velayati, foreign affairs advisor to supreme leader Ayatollah Ali Khamenei, also argued the NIE moved the US closer to Mohamed El-Baradei, the IAEA head, in containing both positive and negative points. Velayati’s implication was that like El-Baradei, the US wanted a negotiated settlement.

But who could the US talk to in Tehran? And through which channels? The NIE follows four years in which the West, wittingly or not, has undermined those in Tehran best prepared for dialogue.

In 2003, the year when US intelligence now concludes Iran’s nuclear weapons research ended, Tehran proposed wide-ranging negotiations in a letter to the Americans probably written by Mohammed-Javad Zarif, then the UN ambassador, and Sadegh Kharrazi, then ambassador to Paris.

Iran’s formal talks with the Europeans over the nuclear program were in progress in 2003 as Tehran suspended uranium enrichment — the most sensitive part of the nuclear program — as a gesture of “good will”.

But as Europe talked to Iran — and its foreign policy chief, Javier Solana, has kept the process just about alive even today — Washington carped from the sidelines. Officials like John Bolton have trashed the process.

By the summer of 2005, Ayatollah Khamenei — who has the last word on important matters as supreme leader — lost patience in dealing with Europeans not prepared to reach an agreement without American support.

Iran resumed its nuclear work, even before Ahmadinejad had arrived in the presidential office after his landslide election victory in June; first in August 2005 with the conversion of raw uranium into feeder gases and then in January 2006, by resuming small-scale uranium enrichment. This in turn led to the US and the EU cajoling the IAEA board in February 2006 to refer Iran to the UN security council.

Today, the political momentum in Iran is with the fundamentalists, including a president who has elevated the nuclear program from an affair of state to a national and even international crusade. The letter writers of 2003, Zarif and Kharrazi, have long been displaced by president Ahmadinejad.

And the basis for confrontation remains. Even if China and Russia are more reluctant, after the NIE, to agree to further sanctions, Iran remains defiance to existing UN Security Council resolutions demanding it end uranium enrichment. Washington has given no sign it intends to ease up over this.

But for Iran to suspend enrichment now would be a colossal retreat and the NIE gives Tehran yet another reason to stand firm. Hence the situation is most likely to drift inconclusively in the Bush administration’s final year.

Gareth Smyth was the former Financial Times Tehran correspondent between 2004 and 2007.

January 1, 2008 0 comments
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Lebanon

Lebanon – Trading with China

by Executive Staff January 1, 2008
written by Executive Staff

“China is taking over the world.” The statement, only a decade ago considered far-fetched, has become reality. In the last few years, Lebanon has grown more aware of China’s potential as a major trading partner, with the Asian country moving from fourth place in 2003 to second in 2007.

Lebanon’s trading story with the People’s Republic of China started in 1971 when both countries established diplomatic relations. Since then, the ties grew stronger, with visits of senior Lebanese officials like former Prime Minister Rafik Hariri and former Foreign Minister Fares Boueiz to China. On the other side, Lebanon has caught Chinese attention with deputy ministers of foreign affairs, transportation, trade and economic cooperation all visiting China.

Volume of trade up significantly

From such ties, numerous trade agreements have sprung, for example on investment protection and economic, trade and technological cooperation. According to the Chinese Embassy in Beirut, total trade volume between the two countries in 2001 stood at $238 million, almost 99% accounted for by Chinese exports. In the last few years, the volume of trade between Lebanon and China has risen significantly. Figures provided by Information International show the value of merchandise imported from China to have reached $751 million in 2006, and already $541 million in the first half of 2007, indicating a further surge.

The majority of Lebanese imports from China are electrical equipment and machinery, which account for 32% of the total import value, followed by textiles (17%), while plastic products accounted for around 5%. “Some 20% of total imported equipment in Lebanon comes from China,”said Information International’s Jawad Adra at a recent conference at Louaize Notre Dame University. He added that these figures may not accurately reflect trade relations between China and Lebanon, as real figures might further exceed values provided by Lebanese customs. “Traders are known to dress down invoice values of imported merchandise. In addition, they sometimes also resort to rerouting their merchandise to the Gulf before re-exporting it to Lebanon, in order to benefit from the Greater Arab Free Trade Area tax breaks.”

On the other hand, exports to China have been significantly lower. In July of 2007, they were estimated at merely $39 million, of which jewelry accounted for most sales. As Adra pointed out, “Today, Lebanese exports represent only 5% of total trade imports from China. This deficit can be attributed to our current poor economic situation.”

Today, China and Lebanon stand at opposite sides of the economic spectrum. China is the fourth-biggest global economy in terms of GDP — after the USA, Japan and Germany — and in 2008 it will jump to third place. Lebanon meanwhile is struggling to maintain its position as a lower middle income country.

According to Dr. Peter Bai, who attended the conference, the Chinese economy has moved away from its initial socialist organization. “In the recent period, China adopted a socialist market economy. This has translated into total trade balance of $1.76 trillion, of which exports account for $969 billion, hence leading to an export surplus of $177.5 billion.”

This shift provides Lebanon with numerous opportunities in China. The Asian country’s mere size and the world’s largest population — currently at 1.4 billion — make it into a giant-size market. It has been able to beef up its international position thanks to its resources, cheap labor, and a huge local consumer market.

FDI to promote national growth

According to Dr. Yang Hang, China has relied heavily on foreign direct investment (FDI) to promote its national growth, and is currently the fourth economy in terms of FDI. “To improve foreign investment and avoid the problem of double taxation, China has signed more than 90 agreements with many countries. Taxes applied to special economic zones are also significantly lower than in industrial cities along the shore, with tax levels varying between 3% to 15% in economic zones, against 3% to 24% in industrial cities,” he underlined. Industries where investment opportunities are ripe reside in the agricultural technology, energy, and telecommunication sectors. The country includes six special economic zones and 14 industrial cities on the shore. China has invested around $1.1 billion in the Arab region, with a focus on “light” industry and real estate. Exporters to China could expect tariffs of 12% with its accession to the World Trade Organization in 2001 the Asian country lowered its tax levels.

Fadi Aboud, President of the Association of Lebanese Industrialists, holds a skeptical view on the impact of exports to Asia on the Lebanese industrial sector. “As figures clearly show, exports to China are very minimal, and are mainly consisting of precious metal, gold and precious stones. The amounts are unsubstantial, and I do not see the future holding much hope.” He firmly believes that in the coming years China will become Lebanon’s No. 1 trading partner in terms of imports, attributing this state of affairs to Lebanon’s lax anti-dumping policy, which has badly damaged Lebanese low to medium-cost industries. “Turkey provides a good example of how to protect one’s economy,” he said, “as it has established a fixed price for goods it produces locally, which is applied on imports whatever the actual value, thus hiking up the value of imported merchandise and protecting local industries in specific sectors.” If Lebanon does not apply anti-dumping measures aligned with WTO standards, the industry’s current hemorrhage will continue.

January 1, 2008 0 comments
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