By Invitation

Harnessing broadband – promise and potential

by Hana Habayeb, Chady Smayra & Jad Hajj
written by Hana Habayeb, Chady Smayra & Jad Hajj

Over the past decade, the MENA region has come a long way in terms of telecommunications sector advancement.

Between 2000 and 2005, sector revenues grew at an impressive CAGR of 16%, compared to 8% for OECD countries, largely driven by mobile sector growth. Often achieving penetration rates of well over 100%, local mobile markets have enabled phenomenal growth for operators and their global expansion.

However, the data sector is not advancing at the same pace. Only 15% of the MENA region’s population are internet users. The vast majority of this minority are constrained by the limitations of low-speed and intermittent dial-up. Broadband adoption remains abysmally low, reaching at most 6%.

Figures for 2006 show that the region’s 1.7 million broadband subscribers represented less than 1% of the world’s total broadband subscriber base of 250 million.

Why then, have populations exhibiting such appetite for mobile adoption remained so far behind their equals in broadband penetration?

The classical arguments are low affordability, capacity and coverage constraints, low awareness and accessibility, and limited online content and applications. But uniformly applying these arguments to the MENA region is neither possible, nor practical for understanding the dynamics of broadband penetration.

Affordability

In a number of countries, market forces are at work. There are several operators to choose from, and prices are below those in highly competitive European and Asian markets. So why the low take-up rate?

The annual cost of a basic broadband connection in Egypt, Jordan, Morocco, Bahrain, Algeria and Palestine, for example, is lower than, or on par with international standards. That said, adjusting for income levels, clear divergences are observed. Barring Bahrain, the annual cost of a connection is well over 10% of GDP per capita, reaching 35% in Palestine. Market forces alone cannot address such a deep-rooted affordability problem. Instead, it should be addressed through government initiatives, PC subsidies, community broadband centers, and other such affordability-related programs. While many countries are taking these steps, it is a long, slow drive to encourage adoption.

In other MENA countries, with the annual cost of a broadband connection at well over $500, price is a problem symptomatic of other issues.

The main culprit, unsurprisingly, is a lack of competition. In many Gulf markets, retail internet provisioning remains uncompetitive, explaining the high monopoly and duopoly prices. In these and other countries, the real bottleneck is the undelivered promise of competition higher up the telecom value chain. Service providers do not, or cannot, own alternative infrastructure. They are prevented from owning their own gateways, and must get access to the internet backbone, typically through a monopoly operator.

Capacity and coverage

The problem is further exacerbated by capacity and coverage constraints. Even in countries witnessing very high investment per capita in telecoms, there is a serious broadband access investment gap. Long local loops necessitate immediate investment in less densely populated areas, if broadband is to be provided over traditional networks. Within the next five years, new applications, and increasing user sophistication will outstrip the last-mile capacity of most current networks.

Another concern is international connectivity. While mobile operators can, for the most part, operate independently of one another, this is impossible for internet service providers. International connectivity can represent more than 80% of internet connection costs for service providers. The problem is twofold: first, international liberalization is in its infancy, restricting international bandwidth and capacity; second, the lack of regional co-operation for peering and local traffic aggregation has forced ISPs to accept high connection prices. The region has only two Internet Exchange Points, and several plans to build a region-wide backbone have yet to materialize, forcing operators to pay high international transit charges, when traffic could otherwise be handled locally.

Awareness and accessibility

Aside from market and access considerations, there is the issue of awareness. Understanding how critical computer literacy and appreciation of the internet’s potential is for broadband uptake, countries such as Egypt and Jordan have launched concerted awareness building and broadband utilization programs, partnering with NGOs, schools and universities.

But exclusively top-down provisioning programs have met with limited success when unaccompanied by grassroots utilization initiatives. The objectives should not be limited to education about how to use the internet, but perhaps more importantly, about what it can offer. Unfortunately, the direct impact of such programs is difficult to assess, and educational initiatives frequently require years of concerted effort before tangible benefits are reaped.

Beyond awareness, operators in the region must recognize their responsibility in making broadband accessible to the mass market. Broadband services’ complex installation and maintenance requirements are outpacing customers’ knowledge. As broadband use expands, fewer new customers will be technologically adept. Consequently, customers can no longer be relied on to facilitate installation and troubleshoot problems on their own. If broadband use is to extend beyond tech-savvy early adopters to the mainstream public, higher levels of customer service backed by responsive customer call centers will be required.

Online content and applications

The lack of local content and applications locks the final piece of the puzzle. Mobile technologies are primarily about communication with an existing network, external content is for the most part superfluous. Conversely, the internet is content and applications. With less than 3% of pages on the web in Arabic, it is no surprise that the internet has a limited value proposition for potential local users. Appeal is further curtailed by laws restricting certain applications such as VoIP, a major driver for broadband uptake.

Online content and applications are a major driver of consumer demand for broadband services, which in turn attracts necessary investment into more sophisticated infrastructure and services. Incubator and funding programs are needed to facilitate the development of attractive local content and applications, which will unlock significant economic value to developers.

Increasing broadband penetration by 2% in one year will boost telecom sector revenues in the MENA region by a minimum of 8% (at least $2 billion). This value can be captured and the success of regional mobile markets can be emulated. To this end, it is imperative that concerted policy, regulatory and market initiatives are undertaken to address the multiple roots of the MENA region’s broadband penetration deficiency, to achieve broadband’s true potential.

Issues to be addressed for more widespread broadband adoption in the MENA region:

• Affordability

• Capacity and coverage

• Awareness and accessibility

• Online content and applications

Hana Habayeb is a senior consultant,
Chady Smayra and Jad Hajj are associates
at Booz Allen Hamilton.

 

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Capitalist Culture

Liberty – and its interpretation

by Michael Young
written by Michael Young

Over the past years, Capitalist Culture has been a regular feature of Executive, so what better occasion than this 100th anniversary issue to look back at the column, and more particularly at the themes it has tried to raise in looking at Lebanon and the Middle East.

A persistent aim of Capitalist Culture has been to address those issues somehow fitting into a broader context of free markets and free minds. The assumption has been that capitalism in its cultural manifestations encourages, or should encourage, openness, the free exchange of ideas, minimal state-imposed restrictions, an embrace of globalization, and, in some absolute way, the pursuit of human liberty. The column has always considered in an implicit way that the state is, at best, a necessary evil — an often clumsy barrier to naturally free flows in the human marketplace.

Has the column been successful in getting the message across up to now? Readers will have to answer that question. However, Capitalist Culture has benefited from the gargantuan transformations in Lebanon and the Middle East in the last five years — from the Bush administration’s decision to invade Iraq as of 2003, to the 2005 Independence Intifada in Lebanon, to the summer 2006 war between Hizbullah and Israel and its aftermath. Each of these events, and the countless ones in between have, in some fashion had an impact on the issue of liberty, state power, the forcible imposition of a democracy agenda, and much more.

The war in Iraq, following on from the 9/11 attacks of 2001, unleashed one particular global debate that has yet to subside: Was imposing democracy on other peoples the optimal way to bring about open societies in the Middle East — societies that would not send young men on missions of mass murder half way across the globe?

The answer was no way as clear-cut as the question, but suddenly the matter of liberty in the region became of paramount interest. The fiasco in Iraq did not simplify matters. From a war against terrorism, the conflict became a war for democracy, before metamorphosing, today, into a war to contain Iranian power. The centrality of freedom had not lasted very long, but in many ways it very much remains at the core of the Middle East’s woes, as does the suffocating hold of states over the region’s peoples.

Capitalist Culture also addressed, as best it could, Lebanon’s effort to break away from Syrian hegemony in 2005 and afterward. The uncertain results of that endeavor were best summarized in the piece on the late Samir Kassir, whose assassination in June 2005 was the first bloody sign that “independence” would come with a heavy price tag. And Lebanon’s peculiar confessional system has been a frequent theme of articles on Lebanon — the argument being that, for all its faults, the system, by making the religious communities and their leaders more powerful than the state, has in some way also protected pluralism. Why? Because no one side or person can impose its writ on the others, and the state is in no position to control everybody, therefore each community, even faction, is able to survive amid a general balance of forces in the country.

Where Lebanon has been less impressive, however, has been in allowing its divisions to deny the full flourishing of a capitalist culture. What openness can there really be when the society is all rifts and cracks? What kind of prosperity can ensue when political groups are willing to punish the society at large merely to score points against other political groups? Why is it that liberty in the country — such an essential aspect of the Lebanese template — is so often ignored when it advantages the other side?

The guiding libertarian principle of freedom being something one must pursue as long as it does not encroach on the freedoms of others is violated daily in Lebanon. If anything, freedom is often deployed at the expense of others, creating a society far more divided than it need be.

In the coming years in the Middle East, a great deal of trauma is likely to be felt, but the essential demands of capitalist culture will remain at the center of the region’s reality. The overbearing nature of state authority over its citizens, the lack of freedom, of intellectual liberty and artistry, of opportunity, the persistent mistrust of globalization — globalization that is increasingly leaving the Middle East far behind in its wake — are all issues that will handicap the region in ways far more fundamental than the usual and appalling problems one hears about: the Palestinian-Israeli conflict, Iran’s nuclear project, or the killings in Iraq.

The reason is simple: Everything boils down to the issue of liberty and its interpretation. One might applaud the expansion of markets when they affect economic relations; but if they don’t expand human freedom and facilitate human relations, some form of deep failure is bound to ensue.

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The Damascene dilemma

by Claude Salhani
written by Claude Salhani

Strike Damascus, bomb Tehran,” say the hawks in Washington. “No,” argue others. “Open negotiations with Damascus, bring Syria out of the cold, into the fold, and help distance Damascus from its ‘really evil’ ally, Iran.”

To strike, or not to strike? That is the question, if one may paraphrase the Bard and adapt his poetry to fit 21st century geopolitics. But what the heck is the answer? There seems nary a viable reply that may please the court, or in this case, the White House, let alone a divided American electorate in what will be a crucial election year.

There was persistent talk throughout the summer of US strikes on Syria and Iran. In fact, it’s been more than just talk. According to some people very much in the know, the question of “what to do with Iran and Syria” has, as of a few months ago entered the stage of some very serious military planning.

Cynics will counter argue that the military are always working on plans to invade some place or other. It’s part of what they do in the military. Matter of fact, the Pentagon probably has, somewhere on their top secret shelves, plans on how to invade Liechtenstein, Andorra and Monaco. They also possibly have plans on how to invade Canada and Mexico, although judging by the numbers of Mexicans in the US the Mexican invasion has already begun.

But where Iran and Syria are concerned this time, it seems to go beyond the usual planning. Military tacticians and civilian analysts have been burning the midnight oil laying out strategies of how best to tackle those two countries. Mostly, they look at Iraq and say to themselves, “We cannot have another Iraq on our hands.” To be sure, neither does anyone else. Washington wants quick, clean, short wars, much like the first Gulf War. But again, if Iraq is an example of what’s in store if a similar scenario is to unfold elsewhere, say in Iran or Syria. No country would want that and least of all, Israel.

Both Syria and Iran are accused by the United States of supporting terrorism and of trying to acquire weapons of mass destruction. Syria has been on the US radar for a while now, accused of facilitating insurgents on their way to and from Iraq to fight US and coalition forces.

Strangely enough, those in favor of a strike on Damascus are actually more royalist than royalty. They tend to fall in two schools of thought. The first are the neoconservatives; a tight-knit cabal, close to Vice President Dick Cheney. At times they tend to be more pro-Israeli than the Israelis themselves. And as this administration’s time is ticking away, they would like to see Iran and Syria brought to heel, because they believe the next administration will not have what it takes to confront either country. And a nuclear-armed Iran and/or Syria will forever change the military equation in the neighborhood.

If and when Iran gets the bomb, analysts worry that other countries — Saudi Arabia, Egypt and possibly even Turkey — would want to follow suit, therefore initiating a new arms race, this one perhaps being far more dangerous than the previous one which brought about the Cold War. With tempers being the way they are in the Middle East, there might be nothing cold about the next war.

The second group urging the US to act against Syria can be found among a certain branch of what can best be described as neo-Libano-conservative. They are closely allied to the vision shared by the vice president, and remain at the same time in close agreement with Israel. Or, perhaps one should say more in sync with the Israeli lobby? They see the only way for Lebanon to attain true political independence is through a change of regime in Damascus.

As politics makes for strange bedfellows, Bashar’s best friend, so to speak, may well be the Israelis. Because when you come right down to it, Israel remains strongly opposed to striking Damascus. OK, let me rephrase that, seeing that Israel just carried out a strike deep inside Syria. Israel remains opposed to a change of regime in Syria, especially if what follows is uncertainty. Everyone in the Middle East immediately thinks of Iraq whenever anyone says regime change. And they shudder at the very thought.

As the saying goes, it’s better to deal with the devil you know than … well, you know the rest.

Where Syria is concerned, so long as certain red lines are not crossed — such as Damascus trying to acquire weapons of mass destruction — Israel would rather deal with the government of President Bashar al-Assad than with an unknown entity, particularly if that entity turns out to be the Muslim Brotherhood, the only other organized Syrian group besides the Ba’th Party.

But Iran is a different ballgame altogether. Where Tehran is concerned the US and the European Union are quite adamant in preventing the Islamic Republic from reaching militarized nuclear capability. In Iran’s case, it probably will not be a matter of “to strike or not to strike,” but rather when.

 

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No menial task in Jordan

by Riad Al-Khouri
written by Riad Al-Khouri

There is little doubt that reform over the past 15 years is helping Jordan to grow. The Jordanian economy has done especially well recently: Jordan’s real gross domestic product grew by 6.4% in 2006, while foreign and internal indebtedness fell last year to 73% of GDP, from 84% in 2005, and the deficit in the government’s budget represented 4.4% of gross domestic product in 2006, from 5.3% the year before. Prospects for 2007 are also good; and, barring regional conflagration, the outlook for next year is bright as well.

Growth nevertheless hides variations in economic performance. For example, cutting unemployment is a main goal of reform. However, at 14% in 2006 and around the same level today, joblessness is still high, and has been in double-digits for the past two decades.

That was not always the case: in the mid-70s and early 80s, due to public sector expansion, strong economic growth, and demand for Jordanian workers in regional markets, Jordan saw little unemployment. Such prosperity did not last long, however, and joblessness rose in the mid-80s because of slow growth of the regional labor market and the gradual return of Jordanian expatriates from the Gulf.

Additionally, high population growth began to have an impact on joblessness. Jordan’s population rose 10-fold in the past 50 years, to close to over 5.5 million today, because of immigration and high fertility coupled with low mortality. This increases the need for employment creation: the economy has to provide over 60,000 new jobs per annum for the next five years and 70,000 annually in the decade after to absorb new entrants into the labor market and prevent further unemployment, which today stands at around 170,000.

Although Jordan has achieved higher economic growth and attracted foreign investment, this has not helped create enough jobs for Jordanians. There is some evidence that the impact of growth on job-creation has lessened due partly to computers and other mechanization, though there is scant research on this topic and firm data is unavailable.

This requires new solutions to the joblessness problem, with the government trying some innovative training and helping to nudge locals into work previously done by non-Jordanians. Of these, there are more than a few in the kingdom: according to official figures, the number of guest workers in Jordan now stands at 314,000, and there are around 100,000 foreigners working in the country illegally.

About 72% of guest workers in Jordan are Arab, mainly from Egypt. Because of the proximity of the two countries and their affinities, large numbers of Egyptians come to Jordan, many in search of employment. More than 216,000 Egyptians work in the kingdom, representing 69% of the non-Jordanian workforce, but many are also in the country in other capacities, some of them illegal.

The state now seems to be doing something about this: to regularize the status of guest workers from Egypt, Amman this April suspended entry of Egyptian workers into the country offering a grace period to those already there to rectify their status under new work permits or switch to vocations in which they are entitled to employment. During that time, Jordan issued 77,000 work permits to Egyptians, before the ban on workers from Egypt entering the country ended at the beginning of July. Egyptians then wishing to work in Jordan had to hold professional certificates under a new labor accord between Amman and Cairo.

Will such a focused interventionist policy towards Egyptian migrants into Jordan succeed? Industrialists and farm owners in the kingdom say that replacing foreign labor with Jordanians should be gradual as there already is a shortage of cleaners, porters, and farm workers, most of these jobs filled by Egyptians. It is difficult to switch labor quickly, and the country’s industrialists have urged the government to be flexible in implementing the agreement with Egypt until enough Jordanians of appropriate categories become available. Farm owners in Jordan who employ Egyptians have noted bad experiences in the past with locals who could not tolerate the work environment or commit to working hours on farms. Jordanians shun work in the agricultural sector due to tough conditions; on the other hand, thousands of agricultural work permits annually go to Egyptians working in the kingdom.

It is obviously too early to tell whether stricter control on migrants will help resolve the country’s unemployment, but the key factor, of course, will be whether Jordanians can be convinced to do the menial jobs currently held by Egyptians and others. In any case, global forces mean that Jordan’s borders must stay open to migration — into and out — and that will inevitably make the task of state intervention tougher.

 

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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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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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