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Lebanon’s bumper crop

by Nicholas Blanford
written by Nicholas Blanford

You will find broad smiles on the faces of farmers in the northern Bekaa this autumn after they successfully brought in the largest hashish harvest since the end of the 1975-1990 civil war.

The grinding political crisis between the government and the opposition as well as the additional security commitments of an overstretched Lebanese army encouraged the farmers to return to old ways this year to supplement their meager income from legitimate crops by growing hashish which they process into cannabis resin and sell to local dealers for a hefty profit.

The Internal Security Forces (ISF) estimates that some 6,500 hectares (16,000 acres) of drug crops — mainly hashish with a small amount of opium poppies — were planted this year in remoter stretches of the northern Bekaa. Farmers normally can sell the cannabis resin for about $1,000 a kilo although they expect the price to drop to about $600 to $700 this year due to the glut.

One farmer, Ali, said his eight dunam field of hashish plants with their distinctive spiky saw-toothed leaves will produce about 15 kilograms of cannabis for which he expects to earn $10,000. With one crop planted in March and harvested in July followed by another harvested at the end of October, Ali expects to make about $20,000 this year from hashish. That’s a considerable sum for this area and for almost no work at all.

“All I have to do is throw the seeds on the ground, add a little water and that’s it,” Ali said, sniffing the hop-like scent of a knee-high hashish plant. “I would be crazy not to grow hashish.” That is a common sentiment among the farmers living in the dusty villages flanking the northern Bekaa, most of whom anticipate growing more hashish the longer the political crisis lasts. “The worse the security situation is in Lebanon, the more we can grow,” Ali said.

The cannabis sativa plant has been planted for centuries in the Bekaa Valley, but cultivation reached its apex during the lawless 1980s when it generated a local economy worth at least $500 million a year, turning simple farmers into multi-millionaire drug barons.

With the end of the war, the government, in cooperation with the United Nations Development Program, launched an initiative to replace the hashish and poppies with legitimate crops. The UNDP estimated that some $300 million was required for its rural development program which included improving the infrastructure, building new schools and clinics, extensive irrigation projects to harness the waters of Mount Lebanon along the western edge of the valley and terracing the hillsides. Lebanon was removed from the US government’s list of major drug producing countries in 1997, but, between 1994, when the project was launched, and 2001, only $17 million of the $300 million was received. The project fizzled out a year later as the farmers began growing hashish again.

The UNDP continues to try and implement new programs to steer farmers away from hashish, but it’s slow progress. One pilot project about to be launched is a year-long assessment of the viability of growing industrial hemp, a similar product to hashish but without the narcotic properties. The fibers from industrial hemp are used to make bank notes, rope, paper, animal feed, building materials and clothes worn by eco-fashionable Europeans. Hemp oil is used to make a wide range of cosmetic products.

Still, the allure of easy cash from growing hashish is hard to beat, and farmers are prepared to turn violent to protect their crops. Each August, the ISF, accompanied by troops, raids the hashish fields, ploughing them with locally-hired tractors under the glaring eyes of aggrieved farmers.

This year was different, however. The owners of tractors were warned that if they allowed themselves to be hired by the ISF to destroy hashish crops, they would find their houses burned down. The ISF also faced its own security problem with the army unable to provide the same level of security as in past years. The army was stretched to breaking point with security commitments in the southern border zone, along the Syrian frontier, policing Beirut and not least battling Fatah al-Islam militants in the Nahr al-Bared camp throughout the summer.

When an ISF drug squad team stormed hashish fields near Boudai, supported by only 10 soldiers, they came under fire from machine guns and rocket propelled grenades from nearby woods and houses. With RPG rounds exploding in the air above them and bullets cracking by, the team leader decided discretion was the better part of valor and beat a hasty retreat. The ISF was concerned that another attempt to eradicate the crops could provoke civil unrest which inevitably would become politicized with the government and the ISF on one side and Hizbullah (which disapproves of drug cultivation but turns a blind eye) supporting the farmers on the other.

The hashish harvest was all but over by the end of October, and in November the farmers will be busy processing the dried hashish leaves into the dark brown bricks of cannabis so beloved by generations of university students. The ISF is hoping that it will be able to seize the finished product in the farmers’ workshops before it is sold to local dealers and either exported or sold on the domestic market. If the raids fail, expect to see the northern Bekaa awash with green hashish next year.

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Calling a spade a spade

by John Dagge
written by John Dagge

Australians go to the polls to elect a new Prime Minister on November 24 and — if the polls are to be believed — the country’s second longest serving Prime Minister, John Winston Howard, is a dead politician walking. His opponent, the Mandarin-speaking leader of the Labor Party, Kevin Rudd, is the country’s most popular opposition leader in the past 35 years. “Arrogant” and “untrustworthy” are words emerging from political focus groups to describe the man who won control of both houses of parliament in the last election by promising to keep interest rates low. They rose and a highly mortgaged public is now demanding its pound of flesh. The introduction of new workplace laws, effectively doing away with collective bargaining and lowering wages in the process, has also angered working class Australians. The Iraq debacle — and Howard’s unwillingness to withdraw troops — burns in the background.

Speak to his supports and you will be told that Howard is a man of vision and conviction, never backing away from making the tough decisions — a “man of steel” says fellow admirer George W Bush. A leader who calls a spade a spade and speaks for ‘ordinary’ Australians (whoever they are) and defends Australian values (whatever they are).

A quick glance at the record, however, shows that Howard has always been a pure political animal — one that has never known a career outside of politics. If he ever called a spade a spade, he always made sure he had plausible deniability. He introduced “core” and “non-core” election promises into the country’s political lexicon, the latter (and frequently the former) being pledges that he felt no obligation to keep. Symbolism and the mean stoking of nationalism have been used with great success throughout his career. Everything was up for negotiation — witness his conversion on climate change, finally declaring the science valid when he could no longer ignore it was hurting him in the polls.

Likewise, the 68-year-old’s recent pledge to hold a national referendum to insert a statement of reconciliation into the constitution’s preamble towards Australia’s Aboriginal community smacks of election opportunism. His moment of clarity regarding the government’s recognition of the country’s first inhabitants comes after 11 years spent ignoring their plight and trying to erase some of the most violent acts of white settlement from the history books (dropping the “black armband view of history”). So shameless is Howard’s latest initiative that even he was forced to admit “some will no doubt want to portray my remarks tonight as a form of Damascus Road conversion” during its announcement.

The most important Australian value, according to Howard, is mateship, which he defines as the “unconditional acceptance, mutual and self respect, sharing whatever is available no matter how meagre, a concept based on trust and selflessness and absolute interdependence.” Howard’s sharing of Australia’s long economic boom is evidenced by the fact that the gap between the country’s rich and poor has never been wider. Howard’s Australia is one where 20% of the richest households own 61% of the wealth ($1.7 million per household), while the poorest 20% own around 1% ($27,000 per household). After a decade of robust economic growth, low income households have gained an extra $24-a-week increase in income, while high income households have enjoyed more than five times that with a $139 increase. His latest round of industrial relations reform has lead to a $106 per week decrease in the wages of low skilled workers and a widening of the gap between men’s and women’s wages. At the same time, corporate salaries have never been higher. Over his term, Howard has worked tirelessly to introduce a two-tier health and education system. Rampant greed and materialism — qualities once scorned by the nation — are now praised as evidence of a strong entrepreneurial sprit.

Likewise, Howard’s “unconditional acceptance” was amply displayed in his treatment of asylum seekers, who he imprisoned in detention camps located in the desert or surrounding Pacific islands. The 2001 election was won by appealing to the basest elements of the Australian (or any) psyche: us against them. While framing the debate in terms of border security — postulating that al-Qaeda operatives might float over in leaking ships disguised as refugees — the ugly reality was that he was re-elected by adopting the policies of Pauline Hanson’s racist One Nation party. Howard started his career by working to halt Asian immigration and will end it by frothing at the mouth regarding the country’s Muslim community.

Howard will lose the election. His legacy is a cynical, meaner and more materialistic Australia.

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Our role in climate change

by Rana Hanna
written by Rana Hanna

The awarding of the Nobel Peace Prize this October to former US Vice President Al Gore and the Intergovernmental Panel on Climate Change (IPCC) has sent an unprecedented message to the world: the future is green.

The IPCC had caused alarm bells to ring loudly at the United Nations earlier this year when it announced that global warming was “most likely” i.e. over 90%, caused by human development and carbon dioxide emissions. Al Gore, for his part, had sent a chilling message about the consequences of climate change in his movie An Inconvenient Truth, for which he also won an Oscar.

In layman’s terms, global warming is all about carbon emissions that cause heat to remain trapped in the atmosphere, which in turn melts ice caps and glaciers causing epic flooding in some areas and intense drought in others. Taken to extremes (that is, if all the ice melts), whole coastal cities could disappear, as could many species of flora and fauna. There would also be less water and more disease. Scientists predict that within the next 100 years, average temperatures may rise anywhere between 1-6 degrees.

Scared? Here’s the good news: part of this process is, it seems, reversible and many European countries have apparently taken initiatives to combat global warming including banning certain ‘greenhouse gases’ and launching mega awareness campaigns.

The vast majority of the world’s population however, are not fully aware of the dangers of global warming and even if they were, would no doubt be unsure what to do about it. Whilst it is true that individuals in themselves contribute very little to endangering the planet (industry and airlines are the biggest polluters) a concerted, unified effort by us little people would consolidate results and make a difference.

How many Lebanese — or Arabs in general — recycle? How many use water efficiently, switching off lights that are not being used, and perhaps most importantly, are not reliant on their cars to drive 100 meters? Some people in the United States and Australia have gone as far as to disconnect their homes from the electricity grid and forego toilet paper! They are even blogging about it.

However, the solution to global warming can only come from governments who will make a unified, concerted effort to work together to reduce carbon emissions. Unfortunately, the two biggest polluters in the world, the US and China, refuse to enact legislation that combats global warming and it seems that the Lebanese state (although relatively minor in its contribution) has adopted the same line.

After the oil spill during last summer’s war with Israel, the government did very little to foster awareness of environmentalism, while a move to ban mazoot in cars and vans has all but been reversed since it came into effect a few years ago. A report from the Lebanese Ministry of the Environment on Global Warming drawn up in 1999 with the UNDP (United Nations Development Program) clearly says that the Lebanese government, although committed to combating climate change, had ‘other things’ to worry about. Meanwhile, Sukleen, the company charged with keeping Lebanon clean, does place recycling bins on major streets and is happy to provide them for corporate recycling but the main initiative has to come from the consumer.

So, should we panic? It is important to keep a cool head in a (rapidly) heating situation. There is other scientific research that acts as a counterweight to the IPCC’s research and that claims that global warming is a cyclical phenomenon that will phase itself out, and yet other researchers suggest that global warming is a natural occurrence without which we would still be living in the ice age.

But if you do decide to ignore global warming then I should put you in touch with my four-year old who is exhibiting extreme calm in the face of a melting Earth and is already making plans to move to another planet.

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ADL‘s chutzpah on genocide

by Peter Speetjens
written by Peter Speetjens

How world politics can have an impact on a local level was nicely demonstrated on October 17 in Boston, where the Somerville Human Rights Committee held a special meeting regarding the Statement on the Armenian Genocide by the Anti-Defamation League (ADL). The ADL, a Jewish advocacy group against anti-Semitism and all forms of hate speech, had declared on August 21 that the “consequences” of events in Turkey between 1915 and 1918 were “tantamount to genocide.”

The carefully worded statement avoids any indication of “intent” on Turkish side, which is a crucial element to be able to legally characterize a mass killing as genocide. The ADL furthermore labeled the recent US Congressional proposal to acknowledge the Armenian genocide as “a counterproductive diversion,” while the organization’s national director, Abe Foxman, met with Turkish Prime Minister Recep Erdogan to express his sorrow over what the proposal has caused for the leadership and people of Turkey.

Foxman called for a joint Turkish-Armenian effort to study the tragic events in Turkey during WWI. By doing so, he fully embraced the Turkish position, which argues that the Armenian genocide was the unfortunate consequence of the chaos of war, while more research is needed to determine the exact causes.

Not only Armenians, but also many Jewish Americans were shocked and outraged by the ADL’s statement. “Foxman talks about scholars who should study this,” one Holocaust survivor told the New York Times. “That, to me, rang exactly like Ahmadinejad saying ‘let’s have a committee to study the Holocaust.’ Give me a break.”

For the past 15 years, the ADL and other Jewish and/or pro-Israel groups have generally sided with Turkey against the recognition of the Armenian genocide. The main reason is that Israel is on good terms with Turkey and does not want to jeopardize its strategic relation, which allows among other activities for the training of Israeli F16s above Anatolia.

But what has the Somerville Human Rights Committee (HCR) to do with all this? Well, the HCR runs the ADL’s “No Place for Hate” program in local schools. Spearheaded by members of the American Armenian community, a growing number of citizens believes that the ADL has now disqualified itself as the right partner to run an anti-bigotry program. A handful of municipalities in and around Boston have already cut ties with the ADL.

Some 30 people attended the Somerville meeting and sat opposite the four committee members led by chairman “Barbara” who started by saying that this was her last day as chairman as she had a new job starting the next day. Seeing the many people, Barbara said, and the fact that the committee has a regular meeting at 7 p.m., Barbara suggested everyone speak for five minutes only

First came an elderly lady who read an emotional letter from a friend who had survived the genocide. Next came a fired-up Irish redhead who claimed she had often questioned the committee’s ties with the ADL, seeing the latter’s pro-Israel stand, and complained her letters were never answered. Third was a young Armenian who questioned the ADL’s moral right to teach “our children” when the ADL is apparently willing to politically compromise on even genocide. He quoted historian Israel Charny, as saying that denial is double killing: “First the physical deed, followed by the destruction of the remembrance of the deed.”

Many more people said similar things, but from the start it was clear that the committee members did not want to deal with the subject. As a master politician, committee member, Sarah, showed how to get a thorny issue off the debating table by simply formalizing it, by trading content for procedure.

Sarah started by saying that the issue was of course a very complicated one, and could not be decided upon in evening. Secondly, the HRC was not the one to decide, but the municipality. The HRC could only advise them. To do so, she suggested everyone to put their grievances on paper and send it by mail, so they could pursue the matter.

Unfortunately, this was no crowd pleaser as people failed to see what more should be written after all that was said and done. What’s more, it had seemed a clear-cut case for some six other municipalities who had cut ties. To calm things down, Barbara was forced to shed a light on the main reason why cutting ties with the ADL was so difficult.

The ADL, she said, was one of the few organizations that donated Somerville HRC an annual grant with which it was able to operate and, as it was nearly 7 p.m.., the HRC really should be starting its regular meeting. “But do send us your letters.”

Outside Tuffts University, where the meeting was held, people gathered to voice their frustration. “Money for justice,” one man said. The Irish redhead, still angry, related how ADL members called her a neo-Nazi for criticizing Israel. At 7:15 p.m., Sarah runs out of the building. She had to cut the meeting short to go to a reception. Her husband is waiting to pick her up.

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A new world economic paradigm?

by Mazen Soueid
written by Mazen Soueid

One comes out of the IMF/World Bank annual meetings in Washington DC realizing how much the world economic landscape has changed over the last several years. The rise of emerging markets, called “third-world countries” only a couple of decades ago, has been nothing short of spectacular. Benefiting from sound macroeconomic management, a supportive external environment and high commodity prices, these countries have managed to move to the center stage of the world economy, amid the failure of the mature or big industrialized countries to face up to their challenges. These challenges have ranged from growing fiscal and trade imbalances in the US, to lagging bold and crucial structural changes in the EU that would, among other things, render its labor markets more flexible and hence, more capable of generating potential growth rates, to finally a Japan that has yet to generate domestically-driven growth and emerge from a decade long suboptimal growth.

Of course, the positive factors that have helped emerging markets’ upward move as a global economic power were not accidental but rather the combination of well taught policy lessons, policy responses in mature markets, and some luck. The policy lessons were accumulated after a series of currency and debt crises that rocked the emerging markets from Mexico (1994) to Asia (1997) to Russia (1998) to Brazil (1999) to Argentina (2001), leaving policy makers in these countries and other emerging markets with the realization that sound and prudent fiscal and monetary management of the economy are necessary conditions for sustainable high-paced growth. Meanwhile, the collapse of the dotcom bubble in 2001 prompted an unprecedented easing by the Fed, creating one of the cheapest credit cycles, which in turn led to liquidity abundance and hence higher emerging markets asset-prices be it in stocks, bonds or even real estate. The third supporting factor, i.e. the increase in oil and other commodity prices, is a combination of a bit of luck and a reflection of strong global demand.

Two developments over the last couple of years have particularly underlined this shift in economic status and the emergence of a new world economic paradigm. The first was last year, when the big four emerging markets (Brazil, Russia, India and China) contributed all together more than 50% to the global growth rate. In other words, of the 5.4% growth rate that the world achieved in 2006, more than 2.7% were generated in the four large emerging markets. The second development came in this year (2007), as China is set to be the largest single contributor to world GDP growth, beating both the US and the EU. In other words, of the 5.2% world growth rate expected for 2007, China alone is contributing 0.9% while the US and the EU are contributing each less than 0.8%. These are major shifts in the global economic conditions, underlining the facts that the engine of world growth is no longer the US, or even the EU, but rather emerging markets.

The vulnerability bias and not just economic relevance seems to have changed. The US sub-prime mortgage debacle and its consequences on the money and credit markets globally, was indeed the first global credit crisis in a long time that breaks in a mature rather than an emerging market. After a series of emerging market crises in the 90s propagated to world markets, jacking up interest rates and causing jitters in world stocks, the last episode of massive write-offs, tight credit conditions, and volatile stock markets has actually originated in the US market where easy credit conditions over the last several years have encouraged over-lenient lending and speculative investments whose reversals are just starting to materialize. Even more surprising has been the resilience of emerging markets to the global financial distress, as evidenced by their debt and stock markets which continued to rise in value as mature debt and stock markets declined.

Skeptics are very careful about declaring “the end of history” (a term coined by American historian Francis Fukuyama upon the collapse of the Soviet Union) of the world economy, and even highlight emerging market vulnerabilities that would make them unshielded from a severe meltdown of global financial markets. We do not completely disagree with such skeptics, and though we are not ready to declare the end of economic history ourselves, we are surely prepared to recognize the start of a new chapter.
 

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London, ten years later

by Gareth Smith
written by Gareth Smith

When I left England in 1996, I had no e-mail address and no cellular phone, Tony Blair was yet to become prime minister, and Manchester United had just won the English premiership with youngsters Paul Scholes, David Beckham and Gary Neville.

Eleven years on, a Japanese diplomat in Tehran warned me London had become expensive and a British diplomat assured me there was a wider variety of food in supermarkets. Both were right.

Renting a one-bedroom flat in central London can easily be $1600 a month, and my municipality tax is another $200. A pretty average curry is $100 for two, and a Lebanese breakfast in Edgware Road can top $50.

Britain is unquestionably more affluent. The average income is £1800 ($3,600) a month, with living standards rising 2.3% a year since 1996. The over-50s have accumulated more wealth, largely from rising house values, than the combined GDP of the UK, Germany and France.

But the society has changed in more ugly ways as the result of technology, the decline of the family and even the political climate of the ‘war on terror’.

Western society has long considered itself a model for the rest of the world to follow. In the 1990s Francis Fukuyama’s “The End of History” proclaimed the universality of the West after the collapse of Soviet communism. Most English people seem still to believe this. Greater overseas travel has done little to challenge the assumption that other societies are inferior or backward.

Neither has the internet — the world’s virtual rubbish bin — stymied the culture of tourism. As technology has shrunk the world, the mainstream media has slashed its foreign news. Big stories like the Iraq war are reported by journalists good at drama but lacking any real knowledge of the country.

Even the good old BBC has replaced reporters like Mark Tully in India or Charles Wheeler in the US with aspiring celebrities who change countries every other year.

This is beyond the old British Foreign Office practice of moving staff before they “went native”. Today, all change is seen as improvement and the media merely follows the business trend.

Sandwiches and mobile phones sell, and each accounts for around a quarter of the shops on an average English high street. The marketing is aggressive, and even people on low incomes change their mobile every year.

While the variety of handsets and SIM tariffs is bewildering, an old-fashioned land-line is less of a money-spinner and so a low priority for suppliers.

I tried BT, the former state-owned company, who installed the line in my home many years ago. I spent 50 minutes trying BT’s free helpline from a street phone without an answer, and by e-mail could extract only a promise to call two weeks later.

Virgin, the all-dancing brand from Richard Branson, offers cable in my area, so I chose broadband, television with Sky Sports and a land-line at a basic of about $80 a month. The land-line was still not working four weeks later, and the broadband has slowed to the pace of Beirut dial-up on a bad day.

The Virgin ‘help line,’ unlike BT’s, is not free, and when I eventually got through, the person answering had an accent that suggested he hadn’t been long in the UK and was probably working for peanuts. He admitted he had received little training and wasn’t sure what could be done.

The business model is clear. Offer tasty bait to hook the customer. Resources go into attracting customers with glossy brochures, TV advertisements and ‘cheap’, introductory offers — rather than delivering a service once the customer has paid up.

The transport system is a similar mess. The cold, damp British weather makes an immediate attraction of cheap air travel to Europe and beyond — once you get through the airport and flight delays. But the rail and bus systems have fragmented into privatized, shabby chaos.

Before you travel, get some cash, and pray you don’t face any complications. Banks have massively cut staff, offering on-line and push-button telephone banking while reducing their branches to high-security kiosks fronted by ATM machines.

At all times be vigilant. The ‘war on terror’ has brought a fear that terrorists may have moved in next door, and I’ve been asked more times about my bag in London than I was in Iraq.

My friends tell me not to worry, that I should get out more, and that I will adjust in time. I dare not tell them how much I miss Tehran.

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Consumer Society

Luxury watches – Buying a classic timepiece

by Michael Karam
written by Michael Karam

What is it about watches that drive people to distraction? Why can something whose function is purely to tell us the time be the object of such obsession and devotion? Maybe it’s because we wear it everyday. Maybe because, to some of us, a watch is more a companion than a timepiece and one of the few ways a man can express himself. Or maybe it’s simply because they are, in many cases, just so damn beautiful.

My first teenage crush was the Rolex but then my brother-in-law had to spoil it by giving me his eminently more sensible steel Rolex Oyster Perpetual Datejust. We are still together. It is over 40 years old and still keeps immaculate time, but I still hanker for a watch — or watches if the truth be told — that will send the pulse racing.

It is a good time to be on the look out for a new watch. While the rest of the $3 billion global luxury watch market has taken a bath in recent years, the GCC, especially KSA and the UAE, are still going strong. They are in the top 15 national importers of Swiss watches (Dubai imported 700,000 units last year) with demand increasing by roughly 15% annually.

36mm used to be enough

The fadmeisters tell us that today’s watch should be BIG. In a previous life, a 36mm diameter watch was more than enough for a man. Today if you’re wearing anything under 40mm, apparently you just aren’t cutting it. The trend was set by über-brand Officine Panerai (most models are 44mm and with a chunky winder protector), whose Italian navy heritage and distinctive lines have helped the brand carve out an intriguing niche in the global watch market. Still, purists believe Officine Panerai to be arriviste among the aristocrats of the luxury watch constellation.

So you have just got your annual bonus and you think, well, you’ve worked hard, the school fees are paid and the mortgage is in good shape and the wife isn’t badgering you to get the apartment painted and you have a decent car and you can afford an annual holiday and your credit card is paid off and … well, basically everything is squared away. (Because let’s face it, throwing down anywhere between $2,000 — entry level for a luxury watch — and $30,000 — in reality the sky’s the limit — on something that tells you the time and is in all likeliness less accurate than a Casio, is something you really gotta justify.)

Now as I said, if you want pinpoint accuracy get a Casio or a Swatch or any other quartz powered watch. Don’t get me wrong, some can cost thousands, but these — sports and diving watches excluded — must be considered jewelry before anything else. If you are going to buy a watch that reflects how you see yourself (and, if we are being honest, how you want other people to see you), it really should be mechanical and by that I mean either automatic (powered by wrist movement) or manually wound (yes, they still make them). A friend recently announced that his next watch must be manual, as he wanted to feel he had a connection with his watch by having to wind it every day. It is this level of deep satisfaction that for many people justifies owning an expensive watch from a historic manufacturer.

Today’s great models

One decent watch should be enough, so here is my selection for what it’s worth. I have chosen what I believe are watches that have proved themselves in terms of brand equity, design build and quality and performance. Many are held up as performance classics — Rolex Submariner, Omega Speedmaster, Breitling Navitimer — design icons — Audemars Piguet’s Royal Oak, Longines Lindbergh, Jeager-LeCoultre Reverso, Tag Heuer Monaco — or simply just stunningly elegant and timeless — Vacheron Constantin Patrimony Contemporaine. I have also earmarked the IWC Da Vinci and the Patek Phillipe Gondolo Calendario for future greatness.

Patek Phillipe, arguably the most prestigious name in watch making, captured the essence of owning a great watch with its “father and son” ad-campaign that suggested a watch was something one handed down the generations. Slightly more tricky to sell is the idea that you can pass along your Swatch or Seiko. Then again, I might just be a very shallow man with too much time on his hands!

Michael Karam is Managing Editor of Executive.

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Lebanon

Beirut‘s airport – Holding pattern

by Executive Staff
written by Executive Staff

Beirut’s Rafic Hariri International Airport (RHIA) is still reeling from last year’s war between Israel and Hizbullah, with passenger numbers down and some $19 million needed for a second radar and upgrade communications and security systems.

During the month-long conflict RHIA was hit by 24 air strikes to the runways and three fuel tanks, costing the airport an estimated $8 million in damages. In the year since, Lebanon has struggled to get back on its feet amid political instability and a deteriorating security situation that has seen tourist numbers plunge.

According to the Lebanese Ministry of Tourism, the number of visitors dropped from 630,804 between January and June in 2006, to 412,041 in the same period this year. Passenger traffic for September this year was higher than last at 317,142 compared to 215,185, but significantly down from September 2005’s 355,959 passengers.

The airport has resultantly seen a 20-25% drop in passengers compared to last year, with only half of the six-million-passengers-a-year facility being used, the East wing.

“We see empty aircraft sometimes,” said Hamdi Chaouk, Director General of the Civil Aviation Authority (CAA), the country’s aviation operator and regulator. “Most passengers, if not all, are Lebanese,” he added.

Chaouk also said that the airport’s shops, cafes and restaurants — many recent additions to the facility — had felt the brunt of the downturn. “They are not doing very well,” he conceded.

Political instability is not only affecting the airport’s earnings, it has impacted on the CAA’s 20-year plan to upgrade RHIA, turn the inactive Iaat airport in the Bekaa valley into a cargo and charter hub, and turn Rayak airport in the center of the country into a training and private jet facility.

Waiting for stability

“All ideas are on hold until the government is stable again, as all this requires stability, so there is no investment,” said Chaouk, adding that RHIA is to be expanded to handle 16 million passengers by 2035. “More expansion, more development as time goes by,” he said. “The airport is just waiting for more passengers, but every six months something seems to happen.”

In the immediate term however, RHIA is struggling to raise an estimated $19 million that is needed to acquire a second radar, security equipment and communications technology.

“Only one radar in Lebanon is used for approach to the Beirut airport,” said Amin Jaber, maintenance director for Radar Navigation Aids and of Technology Systems at the Director General of Civil Aviation (DGCA), a recently established autonomous civil aviation regulator that will eventually compliment the CAA, which is slated for privatization.

“This radar’s location is not giving us proper coverage of Lebanese air space, there are gaps, and there is no back-up radar in case of failure. This is very important for us to rectify. For this reason, we need a second radar in another place, at the top of a mountain at Baysour,” he added.

The current radar, manufactured by Raytheon, is over 10 years old and covers a radius of 250 miles. Jaber said this radar also needs to be upgraded, to a Mode-S Secondary Surveillance Radar.

The second radar, which has been put up for tender and is slated to cost $3.5 million, will overlap areas of the existing radar. “With two radars we can cover most of the Lebanese airspace, so we can provide this information to the [planned upgrades of the] airports at Iaat and Rayak,” said Jaber.

“We are also looking to exchange radar information with our neighbors, such as Syria and Cyprus, who we are working closely with us for this to happen soon,” he added. However, discussions with Syria are being hampered by the strained diplomatic relations between Beirut and Damascus following Syria’s withdrawal from Lebanon in 2005.

With security systems getting more advanced, Beirut needs to upgrade its current systems in line with IAA, European Union, and US regulations, said Chaouk. He added that international security organizations, “from the US to the UK, to Italy and Germany,” have toured and audited the airport following the war to check security, particularly in regard to the possibility of arms being smuggled in to supply Hizbullah.

“No airport in the world has been audited so much,” said Chaouk. “All reports show RHIA is a secure, safe airport. Since the July conflict, we have not faced any security threat and hope it doesn’t happen,” he added. However, the airport was forced to close for a day in February when opposition political parties organized a nationwide strike, shutting down main roads and the entrance to the airport.

Jaber said some $15 million is needed to upgrade the security systems.

“We need more security systems — new CCTV equipment, extra cameras, and recording technology — it was analog, now moving to digital. We also need to upgrade some X-ray machines and mobile systems,” he said.

The Council for Development and Reconstruction is to carry out a study through consultancy firm Dar Al Handasah to decide on what security equipment needs to be upgraded and replaced.

“If we can’t get [funding for] the equipment in one package, we will do it in phases,” he said. Funding is being impeded by the $8 million outlay that was required to fix the airport following the war last year in addition to a lack of public funds due to Lebanon’s chronic debt, estimated at over $41 billion.

Internal communications systems also need to be improved, estimated to cost some $500,000, and there is a need for baggage reconciliation systems at the airport to be improved in line with European authorities minimal standards.

Meanwhile, the US government earlier in the year overturned a ruling that banned American aircraft from flying to Beirut, which was put in place in the early 1980s following a spate of hijackings. However, no American commercial airliners have resumed services as the move was attributed to allowing US military planes to land to supply equipment to Lebanon’s armed forces during its 106-day fight against Islamist militants in the north of the country.

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Lebanon

Banking sector – Invading Algeria

by Executive Staff
written by Executive Staff

President Bouteflika’s 2005 Charter for Peace and National Reconciliation closed a chapter of Algeria’s tumultuous past and focused instead on solid economic development program and reforms. This has been dovetailed by record oil prices steering the North African nation into a period of exceptional prosperity. Given such a favorable context, it is not surprising that a growing number of financial institutions, including Lebanese banks, see opportunities in Algeria.

“By restoring security, stability, credit worthiness, economic growth, and convertibility on current accounts, Algeria elicits all the features of a business environment that is predictable, safe and attractive for the expansion of foreign direct investment (FDI),” said Joe Dakkak, general manager of Fransabank El Djazaïr.

The African nation is currently running substantial trade surpluses and building up record foreign currency reserves, close to $100 billion. According to Nassib Ghobril, head economist of Byblos Bank which is currently applying for a license in Algeria, the nation has undergone major economic changes, shifting gradually from a state to a private sector economy. “Soaring oil prices have also allowed to replace foreign debt with current account surpluses while public finances improved significantly.”

Among the larger economies in Africa, Algeria’s gross domestic product is estimated at $116 billion, with a growth rate of 4.5% for 2007, picking up from 2.7% in 2006 after a 5.3% growth rate in 2005. “The 2006 lower growth rate was principally due to a drop in total hydrocarbon output related to infrastructural problems, which were resolved since,” said Ghobril.

Privatizing the banking sector

According to the World Bank, Algeria falls into the lower-middle income country classification, with a per capita GDP of $3,400 dollars for 2006. Most growth witnessed recently has occurred in the fields of construction and services, which exhibited growth rates of 5% and 7% for 2006. In 2003, public debt constituted 44% of GDP, a figure brought down to 17% of GDP in 2007. “In 2006, Algeria has prepaid its exterior debt of $12 billion with revenues from the oil sector, while Russia agreed to erase its Soviet-era debt,” said Ghobril. At the same time, the restrictive monetary policy of the Bank of Algeria, has kept inflation under control at the respective moderate rates of 1.5% in 2005 and 2.5% in 2006. “It is expected that inflation will remain moderate and under control in the coming years,” emphasized Dakkak.

Elie Azar, marketing manager at the Lebanese Canadian Bank, which owns 60% of Trust Algeria (paid-up capital of $35 million), underlined that Algeria’s sheer size and its lack of basic products and services, fuels the appetite of Lebanese bankers, while Dakkak said that, while the country has freed itself of the centralized planned economy, public banks are not yet a driving force in economic development and the financial system. This leaves room for private sector banks to grab a share of the market.

The IMF and the World Bank have both been very vocal about the necessary measures to propel Algeria’s financial sector into the 21st century. The African country has been strongly encouraged to privatize several public banks, in order to transfer know-how to the sector, help curb restructuring costs as well as position Algerian institutions regionally. Algeria seems to be listening closely as state owned bank Crédit Populaire d’Algérie (CPA) is the country’s first financial institution to be put up for sale. “The bidding process is starting very soon, most probably in the next few months, with 51% of the company going on the bidding block,” said Ghobril.

According to the Oxford Business Group, cash transactions predominate in the African country where only 15% of the population utilize ATM cards while the number of branches for banks stands at one per 30,000 people.

Dakkak believes, however, that the government and Central Bank alike have made significant efforts to modernize the banking sector and the payment system. “Today, 19 banks are accounted for in Algeria, six of them public, one semi-public, and 12 foreign private banks of which one is American, four French and seven Arab,” said Fransabank El Djazaïr’s GM. Société Générale, BNP Paribas, Arab Bank, City Bank, Natexis, Al Salam, Deutsche Bank, Calyon (a Crédit Agricole corporate and an investment banking subsidiary), have all set up shop in the capital Algiers. They will also be joined by the Export Development Bank of Iran that has announced it will open a branch in Algeria very soon, as reported by the Byblos Country Risk Weekly Bulletin. The largest three state-owned banks are Banque Extérieure d’Algérie, Banque Nationale d’Algérie and CPA. By the end of 2007, the private banking sector will account for only 6% of total deposits amounting to $56 billion and 7% of total outstanding loans, currently at $26 billion, from $23 billion in 2004. Today, 90% of the banking sector is dominated by state banks, while local private banks are mostly family-owned.

The size of banks varies significantly. While state-owned banks boast as many as 200 branches, private banks feature limited networks with branch numbers varying between one and 21 branches as in the case of Société Générale, according to Azar. “The banking sector remains quite underdeveloped, most activity residing in import-export payment operations. Percentages of customers using banking services are also very low. We are, however, slowly introducing private retail banking services,” he explained. In Ghobril’s opinion, one reason state banks remain powerful and are the heaviest of all local players is that they tend to lend to mammoth-like state-owned companies. “This situation results in a high level of non-performing loans (NPLs), which has recently forced the government to inject $150 million to state banks in a recapitalization effort.”

In 2007, banks’ assets ratio to GDP will reach 47%, a figure that is considered to be relatively low. The NPL of public owned banks for 2005 were 38.2%, which accounted for 8% of GDP while it remained at 5.8% of total loans for private institutions. “The capital adequacy ratio for private banks was 23.7% for 2005 rising from 21% in 2004. It decreased in the case of state owned banks from 14% in 2004 to 12% in 2005,” Ghobril pointed out. Public banks are also weighing down on the whole banking sector, as return on assets (ROA) and return on equity (ROE) exhibited levels at 0.4% and 8% in 2005 respectively. On the other hand, private banks showed an ROA of 2.2% and ROE of 25.4%.

Many hurdles to jump

One major drawback to any banking sector progress lies again in the lack of branch networks. The collapse of several private banks between 2002 and 2004, with the media-blitz Khalifa scandal on everyone’s mind, has greatly undermined public confidence in private sector banks and led to the closure of private banks or their merger with state-owned institutions. The slow penetration of the banking sector is also due to a governmental decision dating back to August 2004 which banned public companies from dealing with private banks. “It is, however, our belief that the ban will be removed very soon, along with the privatization of CPA; this process should accelerate market penetration of private banks,” so Dakkak.

According to Ghobril, the $60 billion infrastructure project undertaken by the Algerian government is one way the local banking sector might benefit. “However, another reason lies in the market’s reality where private sector lending to individuals and companies is growing, the economy flourishing, and the middle class expanding.” The size of the country population estimated at around 35 million is thus reason enough for attracting the attention of the Lebanese banking sector.

In Dakkak’s opinion, economic reforms implemented by Algeria in recent years have brought vigor and consistency to banks in relation with allocation of budgetary resources and management. “It has made it possible to devise incentive and supportive instruments to benefit private initiative conducive to the emergence of a new class of entrepreneurs. The pursuit of reforms will concentrate henceforth on the modernization of the financial and banking sector, enabling it to play a strong role in financing the economy,” he added.

The government has been working on improving governance and transparency within the financial sector. On this, Azar said, “Part of this endeavor aims at modernizing the banking sector, especially through telecommunication with the introduction of basic universal banking practices such as an electronic payment system and ATMs.”

One downside to the banking sector remaining under scrutiny is the tight grip the Central Bank has on the FX market which means that banks are faced with a surplus of cash and an increasing difficulty in re-using it. This state of affairs leads to a more active involvement of private sector banks in the extension of credit facilities to the fast developing private sector. “Imports are free and exports are encouraged by public authorities in a move to reduce the dependence of the Algerian economy on the hydrocarbon sector. Thus, FX transactions are allowed, although the regulations in this regard remain constraining. The development of private banks can be jeopardized by the lack of access to money markets (due to the Aug. 2004 directive) as the huge liquidity concentrated with the public bank is unproductive,” Dakkak stated. Structural problems will hence remain an obstacle to the emergence of a dynamic banking sector.

For Fransabank El Djazaïr’s GM, the over-estimation of the Algerian risk can no more be justified by political factors, safety arguments or economic and financial data. In this context, the government’s continuous efforts to diversify the economy by attracting foreign and domestic investment outside the energy sector, should have even more success in reducing high unemployment and improving living standards.

Ghobril nonetheless underlines that security will remain a growing concern along with the evolution of the political situation in light of the constitutional amendment that will allow president Bouteflika to run for a third term. “As long as oil prices run high, public finances remain sound, infrastructure projects are multiplied, leading to a rise in living standards, the outlook will be positive. Algeria needs to pursue reforms, liberalize capital accounts, improve the ease of doing business and attract FDI to the non hydrocarbon sector.”

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Regional chess

by Executive Staff
written by Executive Staff

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.

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