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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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GCC

GCC The dirham adventure

by Executive Contributor
written by Executive Contributor

If the newspapers are to be believed in the UAE at the moment, the Emirati Central Bank is under increasing pressure to revalue the dirham. Rhetorical headlines like “Do we need a revaluation?” are being splashed across the pages of major dailies, fuelling expectations that the UAE government will be acting on the issue. While expatriates looking to send money home may feel the pinch, there are more overriding issues behind the government’s caution in revaluing the dirham.

In line with Gulf Cooperation Council (GCC) plans for a united currency, the UAE pegged the dirham to the US dollar. However, plans for a so-called Gulf dinar appear to be falling apart. The first to break ranks was Oman at the beginning of the year, when it pulled out of the single currency and declared its willingness to follow its own monetary policy. Bahrain has also made sounds about abandoning the peg, though it was Kuwait which took action in late May to move to a mixed currency basket on which to value the dinar. Ever since, the Kuwaiti dinar has charted a slow but steady course away from the US dollar.

The UAE has maintained its belief in single currency union, despite its failure to meet with the entry conditions. It is not alone, as Qatar too is in a similar position. The primary reason in both cases is the excessive amount of inflation in their economies, occasioned somewhat by both imported inflation and the dramatic growth rates both states are facing. However, as the UAE central bank governor, Sultan Nasser bin Suwaidi, told reporters in mid-September, “Our commitment to the dollar peg is a collective decision by all GCC central banks. We are not ready to change it.”

Perception is feeding the problem

The reason for the dollar peg seems easy enough to understand. As most of the revenues coming to the GCC area are priced in dollars, and the size of the local economies is small, riding on the back of the US Federal Reserve’s decisions makes sense.

The problem facing the UAE central bank is unusual. High growth and inflation as well as low interest rates and a weakening currency are beginning to feed into each other. Imported inflation is also beginning to fuel inflation concerns in the UAE. Although officially at 9.3%, many economists suspect the CPI rate may be higher due to the unsophisticated basket used to assess the figure. Imported inflation largely comes through the increase in prices for goods and services bought outside of the US dollar area, affecting around 60% of all imports coming into the UAE.

While imported inflation is making up around a quarter of the overall inflation picture in the Emirates, the overwhelming problem remains supply and demand in the marketplace. Rent and accommodation make up around half of the inflation increase for the CPI, and in a sense this is a reflection of the strong growth rates in the country. Equally, the CPI inflation picture is beginning to feed its own expectations, with consumers now factoring in its presence.

Monetary supply has also been playing a strong role in fuelling inflation. M2 money supply grew by 23.2% in year-on-year terms in December 2006, while the provision of consumer credit has also grown considerably. Overall, this excess money supply has been affecting consumption patterns, thus feeding back into the CPI.

Monetary supply has grown at rates well above those of growth in GDP since 2000, although there are signs that they are beginning to reach a level of convergence. Still, this money supply growth indicates that excess liquidity is flowing into the economy. With few long-term savings instruments available, and most deposits kept in highly liquid forms in the banking system, the economy is swimming in excessive cash.

The difficulty for the central bank is in how to control this excessive monetary supply, cool growth and keep inflation under check. However, with few monetary policy tools to speak of, the central bank is put in a difficult situation. Despite the efforts of many large state investment vehicles, such as Abu Dhabi’s ADIA, to try and sterilize money supply by moving large amounts away from the internal Emirati economy, the effect is insufficient. Although these entities have the ability to limit money supply in terms of revenues from oil sales coming into the economy, they can do little to influence the overall market.

As a result of this thinness of monetary controls, the idea of being overly adventurous with the dirham takes on a new meaning. A simple revaluation of the currency may do more harm than good, encouraging further imports and consumer spending, thus further worsening the inflationary picture.

As the UAE economy seeks to move into being more export-oriented away from traditional sources such as oil and gas revenues, the dollar peg takes on a different meaning. The UAE could be said to be using this period of weak dollar activity to try and encourage the development of a more diverse economic base. However, the price in the short term is inflation and the complaints of residents that their dirham is not going as far as it used to.

With the Indian rupee gaining 14% on the dirham since the first of the year, and the euro gaining some 17%, expatriate workers are starting to worry. Although this fall in value may put pressure on them in the short term, until the central bank is able to install more complex monetary control mechanisms, the peg to the dollar may simply have to stay put.

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GCC

GCC Acquisition

by Executive Contributor
written by Executive Contributor

On September 4, Franklin Templeton Investments, a leader in the international asset management industry, with over $621 billion in assets, announced the acquisition of 25% of Dubai-based Algebra Capital. Executive talked to Algebra’s managing director, Mehiedinne “Dino” Kronfol, to discuss the recent acquisition as well as his outlook on the regional economic context.

“It was Algebra Capital’s intention, since its founding in November 2006, to establish a strategic relationship with an organization that could provide both institutional credibility and a strong distribution capability. Franklin Templeton meets both criteria exceptionally well,” said Kronfol. “We began managing assets two months ago via discretionary mandates and sub-advisory agreements and will be launching our first fund, the Alpha long-only MENA Fund very soon,” he added.

Joining forces

According to Kronfol, the regional MENA asset management industry will triple in size over the next five years, growing from around $75 billion to over $200 billion. Reluctant to disclose any figures at present, Kronfol nonetheless declared that the company’s target was to reach $4 billion over the next five to seven years. “During our first year of operation, Algebra Capital structured a number of high level agreements and products that will be communicated to the public in the coming months, delivering on the strategic objectives of the firm both within the region as well as on a global scale,” he said.

In terms of structural changes, Franklin Templeton now has two of the Algebra Capital seven board seats while day to day management and operations remains in the hands of the original management team. “Algebra Capital’s key differentiating factor is that it remains a 75% management owned and controlled by the team,” underlined Kronfol.

Algebra Capital preferred not to speculate on how the collaboration between the two firms will further develop in light of Franklin Templeton’s option to acquire more shares in the future, only stating that the deal was structured to secure commitment on both sides to ensure a close working relationship aimed at building the regional asset management business.

Kronfol believes that the acquisition is a strong statement from a global asset player and proves the strategic importance the region carries from an international perspective. “The selection of Algebra Capital by Franklin Templeton confirms our position in the market as the international institutions’ partner of choice. In addition, this alliance will strongly position Algebra Capital as one of the leading players in the MENA asset management industry, both in the region and worldwide,” he explained.

With international players and regional institutions increasingly competing for their stakeholders in the regional markets, Algebra intends on capitalizing on innovative new product lines such as the Alpha MENA fund focusing on all 12 Arab equity markets and benchmarked against the MSCI Arabia index.

 “The shari’a compliant space is without a doubt the fastest growing segment in financial services, not only in the region, but perhaps also globally,” explained Kronfol. Algebra Capital plans to position itself as a market leader in shari’a compliant asset management by developing a number of products. “We are working closely with Franklin Templeton in this regard and are aiming to expand our distribution network and reach. Bear in mind that the Algebra Capital team has extensive experience in this specialized niche including management of shari’a funds and portfolios as well as the establishment and conversion of Islamic financial institutions,” he said.

Risk migration?

In the wake of the US subprime mortgage crisis and the weakening dollar, how are regional investment companies influenced? In Kronfol’s opinion, markets initially affected by the crisis were those with a larger concentration of foreign investors such as Egypt, the UAE and Qatar. “The crisis has actually highlighted the low correlations our markets exhibit compared to developed markets. We are closely monitoring the situation and are mindful of the possibility of risk migration to our region whether in the form of higher funding costs or available liquidity,” he said.

The declining dollar has weighed heavily on regional economies, as most Gulf countries have their currency pegged to the dollar with the exception of Kuwait. Kronfol believes that the weak dollar has slightly contributed to inflation, principally through imports in non-dollar currencies which represent roughly 30% of regional trade. He sees the policy debate triggered by the weak dollar as one that will focus market attention on available monetary policy tools, and hopefully, on new structural reforms essential to improve the management of regional economies. “We certainly encourage the development of domestic money and debt markets to provide governments with additional tools to complement fiscal policy such as open market operations.”

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