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North Africa

Libya Dreaming green

by Executive Contributor October 2, 2007
written by Executive Contributor

What to do when you want to rehabilitate a country, attract investment, make money, preserve the environment and have the world’s media cover your plan as if you were helping save the Earth all at the same time?

The answer: announce an environmental plan and pay for roughly 200 journalists to come and cover it. That is just about what Libya did by launching the Green Mountain Project on September 13. This ambitious mission aims to create “the world’s first large-scale conservation and sustainable development project,” one that Libya promises will help the environment, save energy and make money from tourism — resorts, archaeological sites and other resources.

And there is nothing wrong with killing several birds with one stone. If there is one country that should optimize its moves and maximize strategies it is Libya, a country still largely confined to its insular ideology. But beyond the brochure distributed by Clownfish, the event’s PR handlers, one filled with buzz words like “sustainability” and “zero carbon emissions,” the project is as ambitious as it is full of good intentions. Indeed, even if a small part of the Green Mountain gets off the ground, Libya and the Libyans will probably be better off than before, but one felt that over the course of the trip, we should have read the small print.

Ripe for a fresh start

Three times larger than France, with about 2,000 km of a coastline as turquoise-transparent as the most pristine Greek islands and an archaeological heritage that is breathtaking (and still largely undiscovered), Libya is ripe for a fresh start. While mistakes in urban planning and development are often irreversible (how many developed countries today wish they could go back in time?), Libya is a country that is pledging to do it right. Thus on September 13, the well-rounded, Western-educated son of Libyan leader Colonel Muammar Gaddafi, Seif al-Islam, unveiled the Cyrene Declaration before an audience of journalists from outlets ranging from CNN to BBC, Euronews to La Nación, The Times to The Independent, all flown in for free in a well-orchestrated PR-event to polish the image of a country desperately in need of rehabilitation. And desperate it should be: In 2006, Libya was the country with the least amount of investment in the whole world.

The Green Mountain Project aims to be a holistic approach to developing an area of about 5,500 square kilometers, along some 200 kilometers of the Mediterranean coastline. In this area, reliance on oil and gas would be diminished by replacing it with wind and solar power; archaeological sites would be duly protected and surrounded with infrastructure, making them tourist-friendly and more capable of generating revenue; local communities would learn to profit from their artifacts and traditions; microbanking would finance the participation of the local population in the economy and agriculture would be expanded and sustain the communities.

The plan would “create an estimated 65,000 jobs in ecotourism alone.” And all this is very much needed. According to the Libyan government, the total produce in Libya meets only 15% of the country’s overall demand for food, and 93% of the country is desert. Libya’s unemployment in 2004, if the CIA Fact Book is anything to go by, was officially recorded as 30%, higher than Iraq in 2005.

In his speech, Seif al-Islam told journalists that “20 years ago, this region was covered with half a million hectares of forest; now, there remains only 180,000,” while “the level of the water table has fallen from 200 meters below the surface to 600 meters below the surface in just 15 years.” Among the ruins of Cyrene, al-Islam reminded the audience that “in Roman times there was enough water to fill a cistern of one million cubic meters; the cistern is still there, but the water is gone.” So yes, we were all in agreement Libya needs this project. But how much will be realized?

Libya’s choice of partners would suggest that Seif al-Islam means what he says. Top officials from UNESCO were present at the event and are said to be on the board of directors of the governmental body recently created for the project. Environmentalists, NGOs and other worthy entities were invited to the ceremony of the Cyrene Declaration — a set of guidelines that pledges to “aim for CO2 neutrality on a regional scale,” among other very laudable, albeit unspecific, goals. The some specific goals sound very ambitious — even if we weren’t entirely sure who would build or pay for them — and include “sustainable Infrastructure — including renewable power generation, waste management and recycling facilities, closed-loop water systems and sustainable transport.”

“twenty years ago, this region was covered with half million hectares of forest; now, there remains only 180,000”

Preserving the coastline

In fact, the declaration is so vague that is raises doubts as to how binding the intentions will be. And amidst all the sound-bites and pledges of good environmental and sustainable ideas, microbanking, irrigation and solar power, the only things close to materializing so far are three, admittedly environmentally friend, hotels: Cyrene Grand Hotel, Spa Resort and Canyon Resort.

An hour before Seif al-Islam’s speech, the presentation of Stephan Behling, senior partner at Foster + Partners, the highly-regarded architectural firm working alongside the Libyan government for the project, was revealing. Helped by huge posters and exquisite small scale models of the region, he presented the hotel’s blueprint to the assembled media. Talking about the Canyon Resort, Behling said the idea was to make the resort follow the “principle of camouflage.” Embedded in the mountains, it will have a magnificent view of the Mediterranean and the canyons while being practically invisible from the sea, thus leaving the natural layout unspoiled. Using the Spanish resort of Benidorm as an example of what not to do (and apologizing to the Spanish journalists), Behling said that, unlike Benidorm, the sea view will not be interrupted by developments, which instead of being on the beach, would  be built at the bottom of the nearby coastal mountains, leaving the water in clear view of those who drive by. Thus, he said, the beaches will be free of developments and, to quote the brochure, “encourage preserved coastline for all.”

In a region where public beaches are increasingly rare, this is good news. Countries like Lebanon and Bahrain, for example, despite not much coastline, have restricted access to the sea, unlike countries like Brazil, where notwithstanding the endless coast no one is allowed to own a beach. But alas, further examination shows that Behling may not apply the same sound standards elsewhere in Libya. In the same brochure produced by the organizers, a proposed resort in Libya’s Leptis Magna archaeological region boasts a “unique seafront location adjacent to Leptis Magna and a private beach,” with “dedicated access to the ancient site from the hotel as well as direct access to the beach.” So much for the “preserved coastline for all” and avoiding the legacy of Benidorm.

The major investor in the Green Mountain project is allegedly Hassan Tatanaki, the owner of Challenger, a Libyan oil drilling company. One of his relatives present at the event told Executive that the whole vision came not from Seif al-Islam, but from Tatanaki, who needed the government as a partner if the project ever hoped to see the light of day and that it was Tatanaki, not the Libyan government, who paid for the press junket. This could simply be another case of authorship jealousy and fight for recognition, but by all accounts Tatanaki and the government are close enough. According to the Washington Post, in 1992, Tatanaki hired John M. Murphy, a former House Representative who was convicted of taking bribes from FBI agents pretending to be Arab sheikhs, to promote Libya abroad. The most plausible explanation is that it is a joint venture marrying Tatanaki’s commercial edge to Gaddafi Sr.’s genuine ecological and self-sustainability concerns.

“We are a backward country — people don’t

understand that we are damaging the land, damaging the environment”

Environment is an old concern

In fact, while the Green Mountain project is rumored to have been envisioned less than two months before its launch, Gaddafi has been talking about the need for environmental protection for a long time. Seemingly more rational than his famous Green Book suggests, the Libyan leader is quoted by Andrew Cockburn in National Geographic seven years ago, having just returned from the Green Mountains, as saying “We are a backward country — people don’t understand that we are damaging the land, damaging the environment.” And it is not only Gaddafi’s words that hint at his preoccupation. Despite economic embargoes imposed upon his country and notwithstanding his socialist rhetoric, Gaddafi may have done more for his people than other oil-rich countries, while still being more environmentally friendly.

Infant mortality is half that of the world average and less than in Iran, Syria, Lebanon, Pakistan and Egypt. Unlike the United States, Libya is a subscriber to the Kyoto Agreement, and only 7% of the population lives below the poverty line, compared to around 13% in the US.

Still, clearly there is a long way to go. At the very place where journalists gathered to hear about the environment, light-bulbs were kept on all day and instead of using one or two buses to shuttle people to the venues, the organizers chose to use individual vans and release more carbon dioxide into the air. As for creating jobs in a revitalized tourism industry, most of the staff at the event came from Egypt or Lebanon, signalling a lack of experienced local workforce. But Libya is honest about its lack of expertise. And if Libya really means what is says, Seif al-Islam could be its best ambassador.

An architect, he is pursuing his PhD in Governance and International Relations at the London School of Economics. Speaking fluent English, and speaking off the cuff, al-Islam can be refreshing in his sincerity and, while one can see hints of his father’s well-known bluntness, al-Islam’s personally reworded his official speech to avoid blaming foreigners for such ills as global warming and archaeological looting.

One of the common — and dim-witted — criticisms levelled at Al Gore for his recent worldwide concert for a greener earth was made by the usual do-nothings, accusing the participating singers of polluting the environment by flying to the concerts. But al-Islam accepts he does not live in la-la land. One of the lines he chose to strike out of his speech was the following: “We will work hard to provide easy access and incentives for visitors to reach here by land and sea, cutting down on carbon emissions from aviation.”

Maybe Gore should help stage the inaugural concert.

October 2, 2007 0 comments
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By Invitation

Breaking into a family affair

by Imad Ghandour October 1, 2007
written by Imad Ghandour

The main advantage of private equity backed companies over normal family businesses has always been their ability to focus on increasing the value of the company quickly. Speed of execution and focus on shareholder value is the name of the game.

A recent report by Ernst & Young on the impact of PE ownership on corporate performance in Europe and the US reveals that PE increases the company value during the ownership tenure, and, even post-exiting. During PE ownership, the average value of PE owned companies increased by 26% compared to 12% for listed companies during the same period. More surprisingly, the growth of value in PE-backed companies continued after the PE fund sold its stake. Profits at the biggest US and European companies sold by private equity last year grew much faster than at their publicly listed rivals, supporting the buy-out industry’s claims of superior management skills, according to the E&Y report.

Despite the nascency of private equity in the region, private equity players have demonstrated similar ability to their international counterpart by focusing and quickly increasing shareholder value in several family businesses. Take for example Depa United Group, the leading interiors contractor who is planning to go public in 2008. TNI and other institutional investors have bought into the company since 2004, and were able to increase its revenue more than 10 folds and its value more than four folds over that period. Another example is Aramex. The once privately owned but currently listed logistics company grew its bottom line five-fold over the three years when it was in private hands, and its phenomenal growth continued post IPO.

But not all investments in family businesses have such happy endings. Unfortunately, the leap of faith that many private equity players do when they invest in a family-owned business is that business owners seek to maximize their company value in the next three to five years. In most cases, this is a wrong judgment call. In practice, the owner rarely makes maximizing his company value a top priority. Company or share value means very little to someone who is keen to keep his shares and pass them over to his children and grandchildren. Many family owners extract more value from things like revenue growth, market share and market dominance, and professional and industry prestige. The problem becomes more acute when the owner is the manager of the business, and hence, is driving the business according to his own agenda.

Without addressing this misalignment of interest, an investment in a family business is doomed to be problematic. Bulletproof agreements, good intentions, well defined strategies, and nice people will not mitigate the problem in a Middle Eastern business environment. Only when the business owner realizes a tangible financial benefit from increasing the company value will there be proper alignment and hopefully big returns from the investment.

Imad Ghandour is Head of Strategy & Research, Gulf Capital and Board Member of the Gulf Venture Capital Association.

October 1, 2007 0 comments
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Real estate

Engineering the new – Economic city

by Executive Staff October 1, 2007
written by Executive Staff

What are the three most important things for GCC real estate developers? The proper answer has to be (1) strategy, (2) strategy, and (3) strategy. This is the case for both the master planners in governments of kingdoms, emirates, provinces, or special economic cities and the entire field of private, listed, or state-backed property firms.

The magnanimity of governments and leading developers in the Arab World is reflected unequivocally in their plans to build new cities. This drive to growth is so intense that we have become used to take immediate notice of a project announcement if it carries an investment price tag in the double-digits — of billions of dollars, mind you. A cost expectation of mere millions or one or two dollar billions for a new residential district or financial center in a GCC country nowadays will hardly stir the attention of the media and other market observers.

Viability is the test for new projects

These investment dimensions represent an immense responsibility to provide returns to stakeholders, which are the current and future generations of the cities, provinces, or entire emirates whose decision makers have committed these resources of land and cash to real estate projects that will depend on being economically and commercially viable over decades and perhaps centuries.

Already in the short term, a litmus test of viability for big development concepts can be applied by looking at their productivity in economic terms, measured through the price that the market is allocating to offices and commercial properties through rent, lease, and sales contracts.

For most mixed-use mega-projects, like the six economic cities on the construction agenda of Saudi Arabia, the chances for tallying real track records for demand are still years away. The demand for office real estate in new UAE business hotspots, however, is already very measurable.

By this yardstick, the quest for creating a regional or international financial hub in Dubai, for example, has matured way beyond the vision that it was at the turn of the 21st century. The Dubai International Financial Center (DIFC) currently counts among the most sought-after office locations in the Middle East and Africa, and one can easily include numerous European capitals in the list.

Soft evidence for the demand comes from stories of companies who queued for months to get a lease on an office at DIFC, accepting basically any size and price only to establish a presence there. Hard evidence comes from price surveys that put prime properties in Dubai into the range of the ten most expensive cities worldwide for cost of occupying an office. Other market assessments say that office rents for prime space in the emirate went up 35% in New Dubai from January to September 2007, on back of an estimated 50% average increase for prime office rents in 2006.

Rental rates for sub-prime offices in New and Old Dubai are also reported to have increased massively, with some less pricey areas even narrowing the gap to the top rental category where some analysts say space is offered at average annual rates of $60 (AED219) per square foot while others put the average paid in top business locations at almost $90 (AED329) per square foot. Real estate experts working in the UAE are in consensus that vacancies in office space in the main cities are practically nonexistent. Occupancy rates of “99%” apply equally to Dubai and Abu Dhabi, where according to a senior manager at developers ALDAR Properties, “any commercial, office, residential tower in Abu Dhabi is being sold like hot cakes right now.”

Looking forward, the expectation is that office rents will continue to move up for a while because demand growth is far from over and delivery of new office space is lagging behind developers’ forecasts, similar to the UAE-wide delays of residential construction. The latest assessment of the UAE office market, by EFG Hermes researchers, expects nonetheless that commercial space in Dubai will increase to 75 million square feet by end of 2010, three times its volume at end 2006.

Office space demand is difficult to identify

Factors influencing future occupancy of office space in the UAE business centers include demand from international companies and new economic initiatives created by the various emirates. A March 2007 research note by financial firm Prime said that the supply-demand dynamics for office space in Dubai is more difficult to identify than for the residential sector, adding that industry insiders expressed uncertainty over the future direction of commercial property.

Prime estimated that about 14,700 new companies would have to set up shop in Dubai from 2007 through 2010 in order to fill the forecasted supply, assuming an average office size of 3,500 square feet per company. It compared this to the number of new business licenses issued by the emirate’s Department of Economic Development in 2006. These numbered 13,170 and to 92% were licenses for commercial and professional activities, which the researchers viewed as likely clients for office space.

EFG Hermes, for its part, expects that commercial rents in Dubai will slide back gradually from 2008, reasoning that the bulk of new office space will hit the market in 2008 and 2009 and that the totals spelt out in current development plans will all be available by end 2010. The flooding with new space in 2008/9 will align office rents again with international averages, EFG Hermes wrote.

In addition to price expectations, the scenario is also changing noticeable in matters of quality. As market participants observed, supply limits of the last few years made companies accept secondary or temporary locations when space in their desired office tower or business zone wasn’t available. But with higher pricing and diversification, the market for commercial properties has entered a process of increasing sophistication. This, according to UAE real estate management companies, accentuates the differences between well-designed and managed office towers that have been constructed with clearly defined client needs in mind and towers that were put up with vague use concepts by general investors, based on having land and money to build.

The vagaries in charting long-term prospects for commercial real estate in Dubai illustrate how strategies will be paramount assets for developers and governments. Location is very valid as classic parameter of selecting a property, be it for construction of a project or as site to rent/buy for a retail outlet, corporate headquarter, or home.

What, however, if it is locations that are being created? In the big schemes of regional growth, the players — in the UAE real estate market they are the governments of the seven emirates and the development companies they have established — are aiming to produce destinations and locations where largely no discernable commercial and social value concentrations had been perceived prior to the development initiatives.

The choice of locating one’s regional business office in a commercial center in Ras al-Khaimah, in Bahrain, or in the King Abdullah Economic City in Saudi Arabia is not going to be the same as making the more profitable pick between Park Lane and Old Kent Road in a game of Monopoly or deciding between the Champs-Elysees and a street off the Porte de Clignancourt for opening a luxury boutique. All mega-projects and larger development schemes in the GCC have characteristics of what is commonly called greenfield projects and decisions by companies to move there will be influenced by a confluence of factors, among which age-old reputation of the place will be the rarest.

Perception is crucial — it’s not all the same

From an outsider’s perspective of the UAE and other portions of the Gulf coast, similarities in climate and scenery are pervasive, although it is perhaps in the same way in which the distinct Japanese, Chinese, and Korean ethnicities of East Asia are regarded to look the same to outsiders. But as long as perception is crucial, it will be quintessential for master planners of Arab nations to devise their multi-billion-dollar projects in ways that create a mix of regulations, cultural settings, social and economic emphases, natural features, and lifestyle appeal that is just right for what they want to be. A challenging task for a community design if there ever was one.

According to the prospectuses and marketing presentations of various visionary communities in the region, the usual suspects for being included in a mega project are things like huge shopping malls, golf-course and marina adorned gated residential areas, a financial center or a dedicated free zone for specific industries, top-notch commercial infrastructure, and a tourism growth target calling for multiples in visitor numbers.

Within the UAE, emirates and cities without super-ambitious growth targets seem to be fewer than emirates with such plans. The best example for this national ambitiousness is Abu Dhabi. It has an array of development plans which by their size and number should be likened more to a flower garden than to a bouquet, ranging from a new airport and heavy industry outside the city to urban renewal and transformation of the natural islands surrounding the city, itself also located on an island. The summary net worth of real estate projects in the UAE capital is projected at $270 billion (AED986 billion).

Abu Dhabi developers say that the emirate has an advantage in devising its next steps with an eye on Dubai — in order to avoid its not so perfect experiences. “Dubai created a development blueprint and has put this area on the map, doing an unbelievable job in marketing. They compromised several things, one of them was infrastructure; we were lucky and saw this happen and studied it,” said Mohammed al-Mubarak, director for establishments and infrastructure at Abu Dhabi’s ALDAR Properties, the company that is mandated with key functions in the emirate’s real estate projects together with its counterpart, Sorouh Real Estate.

The view is shared by Samia Bouazza, marketing manager of real estate firm Tamouh Investments, who told Executive, “Abu Dhabi has the learning curve working to its advantage,” when compared with its two neighbors, Qatar and Dubai. Tamouh Investments, which is a major developer with projects in several UAE emirates, has a current 60-40 projects split between residential and retail space. Tamouh is the real estate arm of an Abu Dhabi based holding called Royal Group.

In Mubarak’s opinion, Abu Dhabi struck it right with a three-pronged focus on culture, education, and medical centers which the emirate is implementing through partnerships with international entities. It is building one museum under the Guggenheim name, which is reputed as franchisor in the elite activity of museum branding. It is also building a museum linked to the Louvre, which is the first-ever instance that the French institution lends its name to a distant branch in this form, and how can you get more elite than the Louvre? A whole island, Saadiyat, will be given to host culture and leisure.

For educational and medical excellence, Abu Dhabi will also collaborate with big international names, including MIT, NYU, Tufts, the Denver School of Mining among colleges and Johns Hopkins and Cleveland Clinic in hospital operations, Mubarak said, adding that ALDAR Properties will have a great opportunity in building integrated medical facilities under the model provided by Cleveland.

On the residential side, Abu Dhabi is exerting its power in Al-Raha Beach, a suburb for 120,000 people, and Al-Reem Island, where a current expanse of infrastructure works is preparing the ground for settling 200,000 in three residential districts by 2012. Not to forget green, Abu Dhabi has stated its ecological commitment and added a project for building Masdar City as the world’s first zero-carbon, car-free and waste-neutral green community for 50,000 residents. Carbon appreciators will not be ostracized either, as the circle of mega-projects is rounded off by Yas Island. This is going to be a $50 billion or so development with resorts and shopping, where construction of a Formula One circuit is one month ahead of schedule and race fans shall be able to smell rubber from 2009 on. The tourism-centric island will welcome visitors year-round at a Ferrari theme park and driving school.

The combination of development angles in Abu Dhabi — which is by no means exhausted in the aforementioned projects — is certainly daring and intriguing. It also represents a form of public-private partnership in which memories of 20th century models for central planning meet with private sector sagacity for commercial initiative under an in the best sense communal umbrella of tutelage.

Collaboration between developers

This mode of collaboration is such that the government tightly guards the overall planning and developers — which commonly have the state as controlling shareholder — wrangle in a competitive way over which projects they win. Knowing a certain type of project is underway, the government will likely not want to duplicate something too similar, “so you’ll see all the developers meeting together and discussing their projects,” said Bouazza.

By their parameters, Abu Dhabi’s governmental authorities and urban planners (a department with international expertise) will instruct the companies with plots in a mega development to avoid duplicating nearby projects, Mubarak told Executive. “The interaction is such that we see the urban planning department as our big brother. It is a give and take that puts us on the right track. Once we have approval for the master plan, we take it to the next level.”

The UAE real estate companies, with their massive capitalization and 0-to-100-in-four-seconds attitude, are young giants bursting with developmental vigor, and the money it takes to make good on their ambitions. Coming generations will have to answer if the many mega plans and master projects in the region are sustainable and put together in the right proportions to serve their stakeholders and have been blessed with that mysterious touch that turns a drawing-board urban design into a fascinating, eminently livable location. Cultural references of the literary Western past may not work in these times.

As for Mubarak, he is more than confident that Abu Dhabi will become one of the world’s great capitals and that the growth of the near future will be something to behold. “I can see [Abu Dhabi’s] population doubling or tripling in five years. We want families to come and live here. All projects in Abu Dhabi are planned for generations,” he says. And: “The next two years will be a very exciting time.”

October 1, 2007 0 comments
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Capitalist Culture

The Switzerland of the Middle East?

by Michael Young October 1, 2007
written by Michael Young

Lebanon has often been referred to as the “Switzerland of the Middle East,” a line once taken seriously until the 1975-1990 war brought on howls of laughter whenever that cliché was uttered.

Fair enough. Lebanon is no Switzerland, and even its snow-capped mountains look different. Instead of pastoral tales of “Heidi”, the country can tell you stories of Shaker al-Abssi and car bombings.

Yet there is an essential similarity between the two countries: the fact that for a considerable amount of time they have had to manage the very different interests of a diverse, often conflict-ridden, population. What became Switzerland, in 1848, was for a long time torn apart by rivalries between Catholic and Protestant French-speaking, German-speaking, Italian-speaking, and Romansh-speaking populations, all manipulated by surrounding European powers. Lebanon, though all its citizens speak the same language, has nevertheless, similarly, been a society replete with divisions that its neighbors have played upon.

For many Lebanese whenever Switzerland is mentioned, federalism comes to mind. That’s understandable, but also too narrow a reaction. Often, the difference between federalism and partition is wholly misunderstood in Lebanon. In many respects both ideas may be inapplicable to the society, perhaps even undesirable. But that doesn’t mean that a new Lebanese social contract should not be discussed — one based on the idea of devolving powers to the local and regional levels.

Any serious capitalist culture must be based on the availability of choice and liberty, as well as the opportunity to bypass the natural inefficiency and overbearing nature of the state. Switzerland is a paradox in this regard. Local and regional autonomy and diversity are inherent in the federal structure. This, in theory at least, creates choice, renders local and regional development more efficient, and limits the powers of the federal government in Berne. The system certainly creates a looser, more plural structure than the centralized Jacobin state that exists, let’s say, next door in France, where everything tends to emanate from Paris.

But that doesn’t mean that the Swiss are free from state authority. Taxes are high and must be paid at several levels. The federation’s obsession with compromise can also be suffocating for those seeking to break the consensus. Politics in Switzerland are not between a majority and an opposition. Everyone has a share in decision-making, at all levels of the state. Though ideological ambitions can be advanced, the process is slow. Individuals can be influential, but the system guards against dominant personalities.

Lebanon’s weak state authority

In Lebanon, the situation is very different. From the outset, when Greater Lebanon was created, the state was centralized, reflecting the French approach. Yet this administrative centralization was imposed on a diverse political society. Much informal authority had been exercised by the political class at the local or regional levels, which Ottoman rule had allowed for in the post-1860 mutasarrifiyya. What was the practical result of this? That the modern state became a repository of Lebanon’s contradictory social tendencies. Though centralized, state authority was never more powerful than that of the various factions in the state, who in turn represented different communal or other interests.

In Switzerland, the initially independent entities that would form cantons voluntarily agreed to join together into a single federal structure; in Lebanon, the change was imposed from the top down, from outside, and with the state mirroring the fractures in society. In Switzerland there was positive movement toward a common center of gravity; in Lebanon, the center of gravity became acceptable because it allowed autonomy.

These two different trends are not at odds — on the contrary, they were different dynamics leading to the same goal — but there was a key difference: the Swiss created governance structures that ultimately proved more powerful than the society’s individual parts; in Lebanon, the country’s individual parts (traditional confessional leaders, religious identities, and the like) remain more powerful than the state’s local, regional, or national governance structures. That is why the state is less stifling in Lebanon’s case, but also why the Lebanese cannot seem to hand power over to broader governance structures that might one day allow them to build a more solid state.

Finding the right balance between what to give to the state and what to keep for oneself in the form of liberty from that state, is an essential goal of successful capitalist culture. That’s why Lebanon and Switzerland, so fundamentally different, are so similar in trying to strike an equilibrium that allows them to manage their societies’ differences. Now all Lebanon needs to do is start that process, which the Swiss have spent over 150 years perfecting.

October 1, 2007 0 comments
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Talking To

Carlos Ghosn – King of the road

by Executive Staff October 1, 2007
written by Executive Staff

On his recent trip to Lebanon, Carlos Ghosn, CEO of Renault and Nissan addressed a group of Executive MBA students at the American University of Beirut (AUB). Ghosn who is credited for revamping the Japanese heavy-weight car maker has been spending much of his time between Europe, the USA and Japan. Executive managed to talk to the international business figure.

From your early years at Nissan, you’ve been dubbed by many as a cost killer, how much has this particular skill been put to work at Renault?

In 1999 and after a decade of decline, Nissan, with a $20 billion debt, was on the verge of bankruptcy. It was therefore urgent to cut down costs and I had to make some difficult decisions, that no one had the courage to make before. The situation was very different from when I took over Renault. The company had a sound balance sheet and was far from being in crisis. The Renault Commitment 2009 Plan set cost reduction objectives by business function. Unlike the ones put in place by the Nissan Revival Plan, the aim was not avoiding bankruptcy but improving Renault’s cost competitiveness. I don’t believe there are immutable recipes for good management. Good management is one that is adapted to a given situation and delivers results.

How have Nissan and Renault avoided the trap of corporate cannibalism?

The spirit of the Nissan-Renault Alliance in 1999 was shaped in part by the failure of the Renault-Volvo partnership. Renault learned that when things are imposed by force, they tend to fail. If employees feel that their company is taken over by another entity or that their identity is being absorbed by a greater power, the alliance will again fail. At the beginning of the Alliance, Renault’s behavior was crucial and though Nissan was financially weak at the time, we considered that there were no winners or losers. Executives at both companies were aware of the importance of respecting the identity and self-esteem of all involved parties.

We never tried to merge Renault and Nissan, and we have always been very careful to preserve the autonomy and value the identity of each company, its brands, products and corporate culture. I am convinced that this is a key factor in the success of the Alliance.

You said in an interview with Fortune magazine published in January that the auto industry was facing a difficult environment because of shifting technologies, consumer preferences and increasing oil prices. How is this affecting your long-term strategy at Nissan and Renault?

The automotive industry is indeed facing strong headwinds: competition is fierce, mature markets are stagnant or slowing; commodity prices are increasing for the fourth year in a row… The problem is that our industry has lost its pricing power. When commodity prices rise, we have to absorb the increase, as we cannot pass it on to customers. As a result, the profits of most car manufacturers are on the decline, which bears a risk for the whole industry. An even greater danger than the one inherent to value loss lies in a reduced capacity to invest for the future. This means we must constantly increase our cost competitiveness, improve productivity and expand into new segments as well as new markets to find fresh sources of profitability. Today, a car manufacturer restricting its operations to one region or one market segment is condemned to decline.

But there are also opportunities, such as preserving the environment, which will present a great technological challenge for the coming decades. The Alliance is well positioned to take on this challenge: through cooperation, we can avoid duplicating engineering efforts and resources as well as saving time in the development of new technologies. In such a framework, each partner takes the lead on a specific technology and makes it available to the other. Nissan has already developed hybrids, fuel cells and continuously variable transmissions. Renault has greater expertise in diesel engines, flex fuel, and is also working on electric vehicles.

At an AUB conference held last month, you explained how market capitalization reflects trends in the car industry. As an example, you discussed how the US car market capitalization was divided by half over the last ten years. Given such an unfavorable business environment, why were you so keen on closing the GM deal?

In my opinion, the strategy of extending the Alliance to North America was sound and the discussions revealed an important potential for synergies. However, strategy alone is not sufficient and conditions for a good execution were not quite available. The stakeholders of Renault and Nissan — shareholders, employees and partners alike — perceived the deal more as a risk than an opportunity. I am still convinced that extending the Alliance to a North American partner is a sound approach, but it can only be adopted if we have the means to implement it and stakeholders are motivated.

With net profits slumping at Nissan in 2006, some analysts have declared that you may have overstretched yourself. How do you respond to such allegations?

When results are good, management is considered to be working efficiently. When performance starts to fall, it stirs media criticism — it’s a natural process and I accept it. At the end of the day, your stakeholders are the most important party. The question is, how do they rate your performance? Every year, I face the company’s shareholders and ask for their support. Despite some of the recent challenges, 98.9% of Nissan shareholders voted this year in favor of our management team and the direction of the company. On a day-to-day working level, if you want to have an easy life, don’t become a CEO! Keep in mind not to melt down when faced with obstacles and work with your teams to find solutions and create further value. At this stage in the evolution of the Renault Nissan Alliance, having a dual CEO is helping to accelerate the decision process, which benefits both companies. We have recently announced the building of new plants by the Alliance in Morocco and India and we are introducing advanced new technologies in areas such as diesel engines. As long as I have the support of our stakeholders and believe that my position is adding value to both companies, I will continue to lead the Alliance and both companies.

What were the main reasons behind the Renault-Nissan recent $1 billion investment on a plant in Morocco?

Renault and Nissan lack production capacity for low-cost vehicles. For example, Renault had to postpone the launch of Logan MCV on some markets because it could not produce enough vehicles to meet demand. In Morocco, we were offered a great opportunity to increase our capacities in very competitive conditions as well as obtained a good incentive package. The plant will be located in a free zone of the Mediterranean port of Tangier, near one of the biggest maritime crossroads in the world. It will be dedicated to the production of low-cost vehicles (LCV): such as the ones derived from the Renault Logan platform as well as a new generation of Nissan LCVs. We want to make this plant a benchmark in terms of competitiveness and 90% of produced vehicles will be destined for export.

What new trends do you foresee in the car industry and how does the convergence of computing and communications affect tomorrow’s cars?

There is no doubt in my mind that communication and computing equip­ment will play an increasingly more important role in cars. People want to connect to their network and make their car an extension of their personal environment, using diverse plug-in features. We foresee another trend in the development of specific urban cars dedicated to city life, which will be small, reliable and have no carbon-dioxide emissions. We must also anti-cipate trends for developing countries, where we are currently observing an increase in demand for low-cost, reliable family cars. Between 1999 and 2006, the world auto market increased by 20%, while US and Japanese market levels held steady. However, all growth was witnessed in developing countries. Given such figures, the apparent strategy is to position ourselves in such markets and predict their development.

October 1, 2007 0 comments
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The business of doing arms

by Peter Speetjens October 1, 2007
written by Peter Speetjens

Most media reported it rather matter-of-factly. Washington over the next decade will supply its regional allies Israel, Saudi Arabia, Egypt and several other Gulf States with $63 billion worth of advanced weaponry in addition to what these countries normally spend on military equipment. According to Condoleezza Rice, this extra weaponry is needed to counter the growing threat of Iran and Syria.

“We have a lot of interests in common: the fight against terrorism and extremism; protecting the gains of peace processes of the past and in extending those gains to peace processes of the future,” stated Rice. Selling arms to bring peace is the ultimate Orwellian double-speak, which by its very nature should raise suspicions that perhaps more is at play.

Let us have a closer look at the alleged threat by comparing some figures: With a 2005 defense budget of $4.9 billion, Iran ranked 32nd among the world’s spenders on military hardware, according to the Center for Arms Control and Non-Proliferation, while Syria had a budget of some $2 billion. That same list was topped by the US with a 2005 defense budget of $450 billion — 43% of the world’s total expenditure — which in 2008 is set to increase to $643 billion. The Americans were followed at some distance by China (6%), Russia (6%), UK (5%), Japan (4%) and France (4%). Saudi Arabia ranked 9th with a budget of $20 billion (2%).

The US plus NATO represent 75% of the global budget. Add to that America’s regional allies and their arsenals and you got a lot of firepower, more than a hundred times than that Iran and Syria combined. Now, even if Iran and Syria represent a serious and potentially nuclear threat, these numbers simply do not add up. Other motives must be at play. It may just be that war with Iran is on the horizon, but it could just be business.

There are over 1,000 arms manufacturers worldwide. According to Defense News, the 2006 market leaders were Lockheed Martin with defense revenues of some $36 billion, followed by Boeing ($30.8 billion), British BAE Systems ($25 billion), Northrop Grumman ($23 billion) and Raytheon ($19 billion). Of the world’s 100 biggest producers, more than half are American.

Their influence on domestic and foreign policy has a proud legacy. In his farewell speech on January 17, 1961, US President Eisenhower warned: “We have been compelled to create a permanent armaments industry of vast proportions. We annually spend more on military security than the net income of all US corporations. We recognize the need for this development. Yet, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes.”

The market has no morals, so the world’s free market gurus claim, and America’s military industry is an industry as any other, one that seeks to promote its interests, sell its products and increase profits. Thus, to gain influence, weapons manufacturers contribute to the election campaigns of Republicans and Democrats, and individual politicians. They also hire PR and advertisement firms to promote their products and recently convinced US senators to replace the entire F15 fleet with F22 fighter jets, with a price tag of $135 million each.

Take the following fragment, which would suit any neo-con speech, yet stems from a Lockheed Martin promotional video: “Civilized society is under siege. The world is populated by renegade nations and extremist factions willing to use any method available to spread their beliefs. These potential enemies continue to modernize and upgrade their military capabilities.” Conclusion: civilized society must arm itself.

So, here you have an arms dealer mingling in political theory, while in pursue of its commercial interests, which are not necessarily in tune with the well-being of the US or other nations. According to the US Congressional Report “Conventional Arms Transfers to Developing Nations,” the US sold 36% of all conventional weapons to the world’s developing nations, while the five Security Council members plus Germany exported 75% of all arms destined for the developing world.

When the Cold War came to an end in 1989, many thought the arms race would end. Global trade declined from $1 trillion to $800 billion in the mid-1990s, yet today it is well beyond Cold War heights. Interestingly, the increase started way before 9/11 in 1998, when Bill Clinton lifted a ban on arms transfers to Latin America. Why?

“Chile doesn’t need F-16s,” Jimmy Carter explained. “But if Chile spent a large portion of its free budget funds on F-16s, it’s almost inevitable that Argentina would have to buy F-16s just for some future contingency. This would then spread to Brazil. And the first thing you know, South America will be covered with F-16s and other advanced weaponry, electronics, defense techniques to defend yourself against F-16s.” And as soon as everyone has F16s, we need F22s!

PETER SPEETJENS is a Beirut-based freelance writer. 

October 1, 2007 0 comments
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Steps in the right direction

by Riad Al-Khouri October 1, 2007
written by Riad Al-Khouri

Damascus has taken yet another step to unpeg its currency from the US dollar by delinking the Syrian pound (SYP) from the greenback and replacing it as a foreign exchange anchor with the Special Drawing Rights (SDR) of the International Monetary Fund (IMF). The shift was partly due to Washington’s 2004 sanctions on Damascus, which escalated in 2006 following a ban on the state Commercial Bank of Syria dealing in dollars over an allegation of Syrian connections to illegal activity.

Syria had also moved early this year to distance itself from the greenback by diversifying foreign currency reserves, previously all in dollars, to include euros, sterling, and Swiss francs, with the dollar now representing around half the total held. Given the tension between Washington and Damascus, such a move was on the cards as the Syrian government at the start of had 2006 issued an official circular instructing all ministries and state companies to adopt the euro instead of the dollar for foreign transactions.

However, decisions such as these are not just emotional or diplomatic: it was economically and financially smart for Syria to shift out of dollars, irrespective of the political correctness of the move. Ending the long-standing link between the currencies of the two countries is allowing Syria a more sensible exchange rate while at the same time tweaking Washington’s nose.

A basket of major currencies used in international trade — the euro, the pound sterling, the Japanese yen and the US dollar — defines SDRs. The amounts of each making up an SDR accord with the relative importance of the individual currency in international business. The IMF Executive Board determines the currencies in the SDR basket and their amounts every five years. Current weights of SDR currencies (and hence those Syria uses) are dollars 44%, euro 34%, yen 11%, and sterling 11%. (However, there is an element of flexibility here: for the half-decade to 2005, the first three had been respectively 45%, 29%, 15%, and all could change again after 2010.)

Syrian moves to adopt the SDR basket make economic sense, as weakening links with the greenback help reduce the impact of dollar exchange rate fluctuations against other currencies, which gives more stability to the SYP. With the fall in the dollar, the Syrian pound lost around 10% of its value last year, adding to the costs of imports, especially from Europe. Syria’s Central Bank estimates that decoupling the pound from the dollar would take two percentage points off the country’s inflation rate, which hit 10% in 2006, in part a reflection on the weaker local currency. The IMF website thus gives an estimate for the current year of Syrian consumer prices rising at a rate of 8%, while the forecast for 2008 is an even milder 5%. At the same time, the IMF noted that Syria’s economic performance was strong in 2006, and that the outlook for 2007 is positive. Notwithstanding an unsettled regional environment, the Syrian economic recovery that started in 2004 remains on track: GDP in 2006 benefited from growth in exports and from sizeable inflows of private investment. The IMF’s recent final report on Syria for 2007 projected a rise in real GDP of a respectable 3.3% for this year, while for 2008 the Fund’s forecast for growth is an even healthier 4.7%.

The IMF advises Syria to ensure implementation of a managed float within a tight trading range, helping adjust to changes arising from trade liberalization and the transition to a market economy. On the other hand, it should be interesting to watch how the central banks of Arab countries with currencies pegged to the dollar and political ties to America can move away from over-reliance on the greenback. Jordan is an example, as a number of economic and political considerations keep the kingdom wedded to a fixed exchange rate that pegs the Jordanian dinar to the dollar. Yet as the greenback continues to depreciate, this point is now the subject of discussion: Marwan A. Kardoosh and Anne Mariel Peters writing recently in Amman’s Jordan Business magazine grant that the Jordanian dinar’s peg to the US currency “has been important to overall macro-economic stabilization and the development of certain sectors.” However, they quickly add, “in the face of an increasingly weak dollar as well as creeping inflation from other sources, perhaps it is time to re-evaluate Jordan’s choice of exchange rate regime.” As Jordanian prices rise and the value of reserves falls, can the kingdom learn from Damascus? On that score, I am personally not holding my breath. Meanwhile, the irony is that an American bluster has pushed Syria in the right direction: towards better monetary management.

RIAD AL KHOURI is the Director of MEBA wll, Amman; and Senior Associate of BNI Ltd, New York City.

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Mall vision

by Alex Warren October 1, 2007
written by Alex Warren

A new day, a new dawn. From the wind swept sands, a new legend rises,” read the introductory text on one website I came across last week. It was intriguing. Would this dramatic passage go on to describe a particularly heroic chapter in world history? Was it the deadpan voiceover for the trailer of a Hollywood blockbuster?

Wrong on both counts. It’s talking about a mall. Not just any mall, mind you, but “a mall of epic proportions that is named The Dubai Mall,” and an edifice which when completed will be the largest shopping center on earth. That is, if its rival — the Mall of Arabia — doesn’t get there first.

Now, shopping malls are already big in Dubai. They’re big metaphorically, in that they make piles of cash and attract millions of visitors every year, and they’re big literally. Acres of space in this ever-expanding city are devoted to helping people consume or purchase products in air-conditioned indoor areas, and plenty more acres are being prepared for this purpose as we speak.

It’s not surprising that this should be the case, nor that malls should be so popular and successful here. They’re a haven from the heat and the construction work, there’s no natural outdoor city center for shoppers to congregate in, and there are lots of consumers with hefty disposable incomes who have nothing better to do with their spare time than buy things.

But I’m afraid that doesn’t stop most of the city’s malls from somehow being extraordinarily depressing places. Please don’t get me wrong: I could think of far worse places to spend my time (prison, for instance), and once you’ve battled your way around the labyrinthine car parks, the initial sensation upon entering a mall is not unpleasant. The arctic wave of air-conditioning is a blessed relief after the outdoor heat, everything is clean and shiny, and there are lots of potentially enticing products.

Then, after about half an hour or so, something strange begins to happen. I start to tense up and become agitated. Other people bump in to me. They stand on both sides of an otherwise empty escalator that I would like to walk up. The incessant muzak being piped from every shop drills into my brain. Overdressed salespeople lurking near promotional stalls try to accost me about buying an off-plan property. The smell of nachos or fries, so appealing at first, now makes me feel sick.

Soon my nervousness turns to rage. Everyone is now my enemy and I must immediately leave. I keep my head down and stride as quickly as I can towards the exit, desperate to escape this fridge and re-enter real life, even if it is smelly and hot and dusty and doesn’t have a Dunkin’ Donuts.

Yet what amazes me is that people seem to spend hours in Dubai’s malls without incurring any of the brutal psychological side-effects that seem to afflict me. Even more amazing is that many of these people are visitors from the UK or Europe, where they can purchase exactly the same things as they can in Dubai, at almost exactly the same prices. But fly them halfway around the world on a $900 flight and they appear to temporarily lose their senses.

Lots of British tourists, for instance, are quite clearly dumfounded by the fact that Dubai has many of the same shops that you would find on the UK high-street. “Oh, great”, they say, “there’s a Marks and Spencer’s. We’ll just pop in and have a look around — I wonder if they have the same things as they do in England? And look — there’s a Boots too! Wow, this place is fantastic — let’s spend our holiday time buying the same items that we could buy at home!”

Maybe I’m being a bit cruel. I guess there’s a kind of “wow” factor to Dubai’s malls which draws in people, just in the same way that the Burj Dubai or the Burj al-Arab are tourist sights in themselves. Plus, of course, the retail developers have been clever in coupling the retail side of things with standalone attractions — like the ski slope at the Mall of the Emirates.

No one knows just how big the mall developers’ profits are, as they don’t open their books, but it’s safe to assume that they’re not losing money. And that purely commercial reason, as well as the various social ones, is why malls will always be central to life in Dubai as the city grows out into the desert and along the coast.

The trick now will be to dream up fresh unique selling points to attract all these new and hungry consumers. Dubai Mall, for instance, is set to feature an Olympic ice-skating rink and the world’s largest gold souk. Slightly more dubiously, the Mall of Arabia is partly basing its future allure on housing the world’s largest Starbucks. Call me a bore, but I can’t think of anything less likely to cure my allergic reaction to malls.

ALEX WARREN is a Dubai-based freelance consultant and writer

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Phishing for your money

by Paul Cochrane October 1, 2007
written by Paul Cochrane

When I was in London recently I tried withdrawing some cash from my British bank, but was denied access. On calling the bank I was asked if I had made several transactions — when “no, no, no and no” were my replies I was informed I’d been defrauded. Thousands of dollars had been taken from my account.

I’d get the money back, but would first have to sign a declaration form, get a new credit card and wait 10 days to be reimbursed. Whew.

Relating the story to friends it was surprising to find that all of them had either had a relative defrauded or experienced it themselves; in some cases more than once.

How it happens is by “phishing,” where hackers send in what are called Trojans — software downloaded without knowledge of the user — that take screen shots of your computer, allowing the capture of passwords and credit card details.

In Britain the problem has become so acute that the Association for Payment Clearing Services, a banking industry body, said there had been an 8,000% growth in online fraud between 2004 and 2006, estimated at losses of $90 million last year alone. Online business is big business in Britain, with 26.5 million people undertaking an estimated 372 million online transactions a year.

As technology becomes more widespread phishing could increasingly happen in the Middle East. Indeed I had been phished in Beirut, albeit by some crooks working through Italy, the destination for my looted cash. Whether Arab banks are facing this issue yet is not making any headlines, but de-frauding will no doubt come to the region as banks and goods outlets increasingly adopt the online service and hackers size up another global region to plunder.

The other financial shocker of my trip to the overcast British Isles was the extent private debt was affecting the lives of most inhabitants. The majority of people I encountered had debt, with my former student friends (American friends are another story) owing thousands of pounds, years after they had graduated from a university system partially funded by the state. Such debt is hindering that all-important purchase, a property — but that of course requires going even further into the red.

For young people starting out in life such debt looms over them like a Damocles sword, with the average 18 to 24-year-old owing $5,720 in unsecured borrowing, and some 108,000 in the same age bracket having credit card debts of more than $10,000.

The willingness of Brits to go into debt is only rivaled by the Americans, with the average Briton owing twice as much in unsecured borrowing — overdrafts, personal loans, credit card debt — than the typical European.

According to consultancy firm Grant Thornton, Britain owes a collective $2,690 billion in mortgage and unsecured debt. For the fist time that figure is higher than Britain’s expected gross domestic product (GDP), forecast at $2,660 billion for 2007.

This debt has trebled in the decade that Labour has been in 10 Downing Street, and is largely based on a runaway housing market, which accounts for $2.261 trillion of debt while personal loans and credit card debt stands at $428 billion.

But such disproportionate debt in relation to GDP poses a problem. Britain is essentially consuming more than it produces, in goods and services. Adam Smith, that doyen of capitalist thinking now commemorated on the back of the new £20 note, would have been horrified. Smith disapproved of speculative fever (which is now getting hedge funds and banks in deep water) and an economic emphasis on buying and selling (Britain’s “buy now, pay later” culture) rather than producing actual assets. The true healthiness of an economy that is based on such intangibles is highly questionable.

Arab financial institutions should watch, very closely, how Britain and America deal with the current financial crisis, particularly as this part of the world is striving to emulate the Anglo-American economic model.

Such out of control debt, and the ease with which banks dish out cash, even to the unemployed, has caused serious reverberations around the world as well as negatively impacting on the lives of millions of home-owning Americans and now, Brits.

The run on Britain’s fifth-biggest mortgage lender, Northern Rock, last month — with $2 billion withdrawn in a day over fears the company could go bust — shows how dicey the interlinked financial system is. Northern Rock was forced to turn to the Bank of England to bail it out as the firm’s ability to withdraw from financial institutions had been compromised by the $200 billion valueless US mortgage market, where risk has been sold on to such an extent internationally that any its anyone’s guess which bank will be hit next.

The Arab world would do well to hedge its bets on a more realistic debt market that is in line with GDP as well as trying to avoid the pitfalls that have beset online transactions.

PAUL COCHRANE is a Beirut-based freelance writer. 

October 1, 2007 0 comments
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One down for the ‘Axis of Evil’

by Lee Smith October 1, 2007
written by Lee Smith

If you are keeping score at home, September was a bad month for the “Axis of Evil,” especially for its junior member in Damascus. In the middle of the month, Iranian president Mahmoud Ahmadinejad came to New York to address the UN General Assembly and was invited to Columbia University, one of the US’s most important institutions of higher learning.

Once led by Five-Star General Dwight D. Eisenhower after he had helped the Allies win WWII as supreme commander of the Allied Expeditionary Force and before he became the thirty-fourth president of the United States, Columbia of late has acquired something of a reputation as a hotbed of campus anti-Americanism. After all, this is the tenured perch from where Edward Said had famously explained how Western imperialism was responsible for everything that had gone wrong with the Middle East. Current Columbia University president, Lee Bollinger, turned the Orientalism doctrine on its head by calling the Islamic Republic of Iran to account for its policies, foreign and domestic.

If many observers thought it rude to treat a guest with so little hospitality, the Islamic Republic of Iran has extended few Oriental courtesies this last quarter century to foreign academics, foreign journalists and, of course, foreign embassy staff. However, Ahmadinejad had no reason to fear that Ivy league undergraduates were capable of the same revolutionary violence his former student colleagues had shown to the US diplomats and embassy staffers they took hostage for 444 days back in ‘79, but the Iranian leader was certainly flummoxed when the students booed and jeered after he claimed there was no homosexuality in Iran. No doubt this will come as news to aficionados of Persian and Abbasid poetry and prose.

But the big news was the hazily, albeit avidly, reported “Operation Orchard,” the Israeli raid on Syria September 6. It is quite possible that no one will know precisely what happened for decades, especially if it was, as many suspect, an attack on a nuclear facility housing North Korean wares. Nuclear issues are notoriously sensitive subjects for all involved. And yet if the events at Deir el-Zor remain a mystery, certain other things have become clear.

First of all, among members of the international community only North Korea made any noise about the raid. The Israeli incursion, said one North Korean foreign ministry official, was “little short of wantonly violating the sovereignty of Syria and seriously harassing the regional peace and security.” This protest, amidst the silence of the Arab states and all of Europe, has buttressed the claims of some analysts that the Syrians were indeed housing North Korean goods. In other words, Bush’s speech describing the “Axis of Evil” in terms that have been routinely derided by more “sober” observers of the international scene is much more than just the cartoonish imagination of a White House speechwriter.

For Tehran, the Deir el-Zor raid means that the Americans and Israelis have a very sound solution to the IRI’s nuclear program once it becomes clear that the diplomatic option is no longer workable. France’s new Foreign Minister Bernard Kouchner made waves when he said the world must prepare for the worst with Iran, which, in the estimation of the new Paris government, means war.

Washington clearly has no taste for war with Iran as it is still trying to make Iraq workable, and yet Deir el-Zor should give Tehran pause. Insofar as the ostensible Iranian response to an attack on their nuclear program is not massive troop movements but terror operations against US interests and allies, that no longer seems to be a daunting concern for the Americans.

Moreover, if most the foreign policy advisers for the 2008 Presidential hopefuls take it for granted that that Bush will pass the Iran file on to the next administration, this is a useful reminder that finally it will depend on the predisposition of the commander-in-chief. Bush does not lead according to poll numbers and it is not obvious why the man who staked his legacy on bringing democracy to the Middle East would leave intact a nuclear program that would change the balance of the region to the benefit of an ideological and millenarian Islamist regime.

As for Damascus, while regime functionaries and flacks have been crowing about how badly the US needs Syria, it looks like it is going to be a very cold winter in the beating heart of Arabism. Since Syria shows little inclination in changing its own status quo, it perhaps does not understand that, once again, the earth has shifted under its clay feet.

LEE SMITH is a Hudson Institute visiting fellow and reporter on Middle East affairs.

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Since its first edition emerged on the newsstands in 1999, Executive Magazine has been dedicated to providing its readers with the most up-to-date local and regional business news. Executive is a monthly business magazine that offers readers in-depth analyses on the Lebanese world of commerce, covering all the major sectors – from banking, finance, and insurance to technology, tourism, hospitality, media, and retail.

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