Special Report

Renewable energy

by Executive Editors
written by Executive Editors

New indices help investors choose alternatives

Alternative energy is not only a priority from the perspective of securing sustainable economic development in emerging markets without wrecking the planet. It is a sector that has great investor potential, with direct opportunities in innovative manufacturing ventures and renewable energy generation plants as well as for financial investors. 

It is a clear sign for the heightened attractiveness of renewable energy investing that Standard & Poor’s launched an alternative energy index last month. Probably with an eye to sensitivities of investors regarding the diverse aspects of alternative energy, the S&P new power focus arrives as a pair of indices — a clean energy index, created in February of 2007, and a new nuclear energy index.

According to the index fact sheet, 50 companies from 13 countries with a combined market capitalization of $512.5 billion are represented. It is currently (status review from July 31) weighted with a slight bias in favor of nuclear energy. Each of its two sub-indices groups energy production companies in equal ratio to relevant technology, equipment and services providers, creating four clusters of attention. 

S&P stated it does not promote or sell any index-based investment product; its declared mission of this thematic index is to “measure investable opportunities in the complete alternative energy space.” In an indication of the earning potentials for alternative energy investments, the agency gave return figures of 3.11% for three months and 25.73% for the year-to-date on its Global Alternative Energy product, comparing these figures with returns of 0.53% and 7.50% over the same periods for the S&P Global 1200 product. At a risk of 17.18% per annum on a three-year horizon, the agency put returns for the alternative energy index at 43.91% for three years.

Another big push for investment transparency and incentives in renewable energy comes from Credit Suisse. It launched at the beginning of August a global warming index with a selection of 40 companies involved in renewable energies or efficient energy usage and reduction of greenhouse gas emissions. This new index comes on the back of another CS introduction in January, when the bank presented its Global Alternative Energy Index with the comment that this sector is on its way to “becoming a full-fledged sector in most indices in the near future.”

Development forecasts for alternative energy companies have projected annual rates of global market growth it the coming three to five years at 15% for wind power and 30% for solar energy — even before the UN released a new climate change report in February which linked global warming stronger than ever to human activity and before a wave of natural catastrophes and weather phenomena rattled the nerves and very lives of planet dwellers throughout spring and summer.

Economics, not ideology

In the unending debate over the extent of and perceived or real damages stemming from human interference in the ecosphere, elements of ideology and conflicting convictions have played a major role in the past fifty years. For profit-oriented entrepreneurs and short-term cost focused corporations, the not scientifically compelling nature of the arguments at times did not provide sufficient impact to enact shifts to costlier methods of production or emissions control.

Additionally, the sharply contrasting views held by the opposing sides of the energy debate involved positions where one interest group would support civilian use of nuclear energy as alternative energy while the concept was anathema to renewable-energy fundamentalists. Such emotion-raising aspects of the renewable/alternative energies issue appear to be shimmering through some of the index categories and sector designations by the early implementers in the new energy sector index issuance that is bound to proliferate in the coming years.

For investors, however, these are only sidebars in a bigger picture. The confluence of the positive financial perspective behind the issuance of these new indices with the latest UN-sponsored research into global development needs marks a starting point for a great new range of money making opportunities.

The United Nations Framework Convention on Climate Change (UNFCCC), at the start of another climate and energy summit in Geneva from August 27, railroaded world attention with a report predicting that curbing of greenhouse gas emissions will require annual spending of $200-210 billion and that by 2030 up to 1.7% of total global investment and financial flows will be directed in response to climate change.

Whereas the predicted share of emission-reducing investments in total global investment is not overwhelming, a working paper for the conference pointed out that private sector investments will dominate in this field and that developing countries will draw in increasing shares of the investment flows. According to the UNFCCC document, “about $148 billion out of $432 billion of projected annual investment in [the global] power sector is predicted to be shifted to renewables, carbon dioxide (CO2) capture and storage (CCS), nuclear energy and hydropower. Investment in fossil fuel supply is expected to continue to grow, but at a reduced rate.”

This is a big pot of new opportunities for energy-savvy Middle Eastern investors who are alert to the future needs of the power industry and adapt their strategies accordingly. The number of regional investment experts with credentials in renewable energy is currently not large but there are some important recent initiatives and reference projects. The most financially potent of them is the Masdar Venture and the Masdar Renewable Energy Fund that the government of Abu Dhabi created a year ago this month, in collaboration with Credit Suisse and the Consensus Business Group.

Shining Examples

The Masdar clean energy fund has been armed with $250 million by the three partners and pursues a mixed investment strategy as fund-of-funds (with $60 million) and direct financing of qualifying ventures through the remaining $190 million at its disposal. Currently in its investing phase, the fund has a worldwide reach but so far focused in practical terms on investing in US (four) and German (one) companies, whose names by a quirky coincidence start either with the letter H or with the letter S.

The total number of individual investments by the fund is expected to reach 20 to 25 transactions. The fund’s two latest projects this summer were a $15 million investment into a company that manufactures a new type of water filtration systems targeting developing markets and an investment into a manufacturer of solar modules whose technology does not require silicon. Earlier investments were with Segway, the manufacturer of personal transportation devices, and with two other solar technology specialists, one in the US and one in Germany.

The combo of photovoltaic technology and Germany is actually an up-and-speeding example for the recent momentum of the renewable power sector. The country’s renewable energy firms claim that Germany today is the world leader in several specialized technologies and the implementation of solar power projects, specifically photovoltaic conversion of sunlight directly into electricity. Until about six years ago, experts assessed this technology as comparatively inefficient and too expensive to make a strong contribution to electricity generation. It was most successful in outer space, where it debuted nearly 50 years ago, in 1958, as power source for satellites.

However, with the right kind of push, photovoltaic plants have a chance to take off in a big and profitable way. The first six megawatts of the world’s largest photovoltaic plant — under construction near the eastern German city of Leipzig — went online in mid-August, six months after the project received its building permit. 

The 40 MW plant is scheduled for completion in 2009 with an investment volume of 130 million euros; financing will be sourced later this year through a dedicated closed investment fund lead managed by German regional financial firm SachsenFonds GmbH.

The new plant’s developers, alternative energy company juwi Group, said they expect electricity generation from photovoltaic plants to become competitive in Germany and potentially amount for 10% of electricity generation in a state like Saxony where average sunshine per year is in the range of 1,600 to 1,700 or so hours (Saudi Arabia, at the top of the sun spectrum, records 3,500 hours per year in interior regions).

Expansion of the German solar industry was inseparable from legislation that incentivized both commercial and residential photovoltaic projects. The national photovoltaic capacity expanded from mere 2 MW in 1990 to 2,831 MW at the end of 2006 — and 65% of the new capacity was added from 2004 on when the law on support of renewable energies started offering a scheme of higher rewards, guaranteeing operators 20-year sales of their solar electricity at prices of no less than $0.45 per KW/h.

Even though juwi Group put the investment cost in its new plant per kilowatt at 20 to 40% lower than in a smaller and older photovoltaic plant, it is still very steep at 3,250 euros per installed kilowatt. The company conceded in a recent statement that without governmental incentives and programs such as the EU policy to target 20% of all electricity to come from renewable energies by 2020, large scale power production with photovoltaic technology would not be feasible for another decade.

Financial incentives also played a role for other segments of renewables, namely wind and biomass energy sources, where Germany’s capacity increases in the past ten years were also exponential, according to data from the ministry of environment. Across the spectrum of technologies, the country saw capital expenditures of 11.6 billion euros in renewable energy plant projects in 2006. Combined, investments and operational revenues in the renewable energies sector reached a total of 22.9 billion euros. 

On the basis of the German experience, it seems appropriate that Middle East-based investors look first at participating in equity of manufacturing companies and operators which can benefit from high awareness in their markets and have access to government incentives or subsidies in their renewable energy generation projects. Similarly to the Masdar clean energy fund, several investment and private equity firms with Arab partners have in recent years leveraged their networks of Gulf-based investors to source funding that they directed into innovative renewable energy companies outside the region.

But although the number of renewable energy projects under planning for the GCC does not justify any hype at this point, the train of sustainable and profitable innovation is starting to roll in the right direction. Masdar in July signed an agreement with Conergy, another large German producer of solar modules, to install 40 MW of photovoltaic capacity — enough to supply 10,000 homes with electricity — in Abu Dhabi by 2009.

The partnership and the associated knowledge transfer aims at creating a manufacturing base for advanced photovoltaic systems in the emirate which later on would be widened to expertise on other renewable energy generation methods such as wind power, solar cooling, and biomass technologies. Projects on Masdar’s implementation horizon include substantial education and research facilities and a special “energy and technology community,” a free zone in technical terms.

The zone will be thoroughly “green” in its energy design; moreover, it aims to host 1,500 companies with concentration on the area of alternative energy and supporting activities. Abu Dhabi counts on this project to result in an impressive volume of investment opportunities in renewable energies right in the middle of the world’s leading oil producing region, plus a second wave of earnings opportunities when the zone becomes a regional model for green development.

0 comments
0 FacebookTwitterPinterestEmail
Comment

Global Arab finance comes of age

by Riad Al-Khouri
written by Riad Al-Khouri

Surplus cash from Middle East energy producing countries has been running around the world for over three decades, seeking better returns in offshore havens. However, since the 1970s, investments by Arab states have had the potential to alarm destination countries. An important example of this came after the Kuwaitis acquired about 20% of British Petroleum in 1988 and the UK forced them to reduce the holding by over half, amid concerns about OPEC member influence on one of the world’s giant oil companies.

More recently, Dubai Ports World (DPW) faced the American Congress’ opposition to acquisition of US ports; the controversy started in early 2006 with some Americans arguing that no Arab government should own such strategic assets. Later that year, DPW pulled out and sold its US port operations to an American group.

The DPW controversy reinforced fears that investments in the West had become politically risky for Arabs. However, part of the problem there seems to have been the high-profile hands-on status of the investor, and the answer may be to deployment of state money in subtler ways.

Giving mounting surpluses, this issue will undoubtedly become even more important in the next few years as Sovereign Wealth Funds (SWFs) of Arab countries roam the globe looking even more assiduously for investments. Previously, most Gulf countries had put their liquid assets (mainly dollars) in bank deposits or government bonds, typically American. However, Arab state agencies have been getting fidgety over the value of greenback deposits and American federal securities; so many Gulf SWFs are increasingly moving money into global equity markets.

The largest sovereign fund may be the Abu Dhabi Investment Authority, with as much as $500 billion under management, with Saudi Arabian SWFs not far behind. The Kuwait Investment Authority, created in 1960 to invest the emirate’s oil revenues, has accumulated more than $100 billion of assets; big Arab sovereign funds also include the Qatar Investment Authority with $40 billion, and UAE SWFs outside Abu Dhabi.

With oil revenues gushing in, these SWFs feel that their governments hold enough dollar-denominated government bonds, and so will increasingly target Western shares. A recent example came two months ago when France, Germany, and Spain welcomed Arab SWF money into the European Aeronautic Defense and Space Company (EADS), the world’s second largest aerospace conglomerate. The group includes the aircraft manufacturer Airbus, the world’s largest helicopter supplier Eurocopter, and EADS Astrium, the European leader in space programs. EADS is also the major partner in the Eurofighter consortium, develops the A400M military transport aircraft, and holds a stake in a joint venture that is the international leader in missile systems.

The $2 billion Global Strategic Equities Fund (GSEF) founded and sponsored by Dubai International Capital (DIC), the international investment arm of the state-owned firm Dubai Holding, acquired over 3% of the outstanding share capital of EADS, allowing the SWF to become one of the largest institutional shareholders in the company. In line with GSEF’s investment strategy, neither the fund nor DIC will seek a board seat or take an active role with EADS but will “build a strategic relationship with the EADS management and shareholders.”

This transaction comes less than two months after GSEF made a substantial investment in HSBC Bank Middle East, becoming one of the leading shareholders in the company. Another major investment by DIC, GSEF’s parent, was the $1.3 billion acquisition of the Doncasters Group (UK), which produces precision engineering components. Most important, target firms and host countries mostly welcomed these and other deals.

The bad news is that growth in Arab SWFs could create new risks for the global financial system, as opaque investment policies could mean that comments or rumors would tend to increase volatility in capital markets. In addition, in autocracies like the Gulf countries, officials imperfectly accountable to those for whom they are ultimately investing run the funds.

To counter these negative factors, SWFs need to be more open and commercially minded. The Norwegian Government Pension Fund, which invests much of the country’s oil riches, and is now worth over $300 billion, is a model of good governance and accountability, listing all 3,500 investments on its website; the fund’s stakes are typically small in each company so, far from feeling threatened by its investments, firms often welcome it. This seems to be the strategy of DIC, which is also aiming for greater transparency: if the deals of Arab SWFs are not to trigger protectionism, they must become transparent.

In any case, Arab SWFs are so large that a change in their investment strategy away from bonds and toward stocks could eventually cause prices to go up in major equities. In the present troubled state of the markets, this will be a good thing: as the financial acumen of Arab SWFs increases, so will the attraction of investments cleverly presented as saviors of Western interests.

RIAD AL KHOURI is the Director of MEBA w11, Amman, and Senior Associate of BNI Ltd, New York City

0 comments
0 FacebookTwitterPinterestEmail
Comment

Iran’s upcoming election

by Gareth Smith
written by Gareth Smith

The campaign for Iran’s next parliamentary campaign will not start officially until a couple of weeks before the poll in March 2008, but rising political temperatures in Tehran suggest the battle has already begun.

Conservative websites have been running a video allegedly showing former president Mohammad Khatami, still a leading reformist, shaking hands with women. President Mahmoud Ahmadinejad, under criticism over his economic management, has removed two important ministers to give fresh direction to his government. And the judiciary has once again banned Shargh, the lively reformist daily newspaper that regularly lampooned the president and his allies.

The attacks on Mr. Khatami show Iran’s conservatives are firmly on the defensive, says Mohammad Ali Abtahi, a vice-president when Khatami led Iran through an eight-year reformist era between 1997 and 2005.

“They have realized there is a chance he could run again in the 2009 presidential elections,” says Abtahi, who backs the idea. “But that’s two years away, and first we must pass the test of the Majlis [parliament] election.”

Conservative nerves over the Majlis poll result from the united front put forward by the reformists last December in elections both for local councils and for the Khobregan, or Assembly of Experts, the clerical body that chooses and supervises Iran’s supreme leader.

Drawing up common center-left lists for the parliamentary election is being entrusted to regular meetings of Khatami, the former parliamentary speaker Mehdi Karrubi, and the influential former president Akbar Hashemi Rafsanjani, who has gravitated towards the reformist camp because of his alarm at the policies and behavior of Ahmadinejad.

But the conservatives still say they are confident of keeping a majority — albeit a reduced one — in the 290-seat parliament.

Amir Mohebian, the wily political editor of Resalat, the conservative daily newspaper, believes the reformists’ chances are also hampered by a failure to go beyond calls for social freedom, and by their concentration on big cities rather than smaller towns and villages. “Tribal and family factors remain important in much of the country and usually decide who is elected,” he says.

Mohebian, a keen reader of Nicolo Machiavelli, sees the ageing of baby-boomers born in the early years after the 1979 Islamic Revolution as a key factor in Iranian politics — and one that naturally favors the conservatives.

“When voters are 17 or 18, they care about self-esteem and freedom of speech,” he says. “When they’re 25 to 26 they want new policies about daily life — marriage, getting a home and so on. As people age, they naturally become more conservative.”

Karrubi surprised many fellow reformists by running his presidential campaign in 2005 on a simple promise to give everyone above 15 a monthly pay-out of 50,000 tomans (just over $50) from Iran’s growing oil revenue. But even though he came within 700,000 votes of beating Mr. Ahmadinejad into the second round run-off, the reformists have been slow to develop policies on day-to-day economic issues.

“In politics, you must choose your customers, and in a democracy this means the ordinary people — the reformists’ slogans about social freedoms are still for the elites,” says Mohebian.

Another problem for the reformists is that their energies are being lost in worrying over their candidates being blocked by the Guardian Council, a constitutional body that vets hopefuls. Precedents are mixed. The last parliamentary election in 2004 saw mass disqualifications, but in the presidential election of 2005, Ayatollah Ali Khamenei, the supreme leader, intervened to allow two reformists run after the council disqualified them.

“We have two problems — disqualifications and the fear of disqualifications,” says Abtahi. “We are looking for well-known people. But those who are unlikely to be disqualified are often those least keen on facing character assassination — this results from the film of Khatami [shaking hands with women].”

A competitive election could encourage a high turnout, which would be an important boost for Iran as it faces growing international pressure led by the United States over its controversial nuclear program. The last Majlis election saw around 51% of eligible voters at the polls, despite calls from some reformists for a boycott, although the turnout was only 18% in Tehran.

Turnout in the keenly fought presidential election two years ago was 63%, which Iranian analysts pointed out was comfortably higher than the 55% of eligible Americans who voted in the US presidential poll of 2004, which gave George W. Bush his second term.

But while March’s parliamentary election will be fought primarily on domestic and even local issues, the international situation remains an imponderable. Further sanctions from the UN and unilateral measures from the US might encourage voters to back the reformists, who have advocated a more cautious approach, but they might just just as easily favor the conservatives who can more easily easily wrap themselves in the flag.
GARETH SMYTH is the Financial Times Tehran correspondent

0 comments
0 FacebookTwitterPinterestEmail
Comment

The need for transparency in the Gulf oil markets

by Paul Cochrane
written by Paul Cochrane

While the Middle East makes baby steps towards implementing greater financial transparency, accountability and the rule of law, the region’s best-known commodity — oil — lacks transparency in the way tenders are allocated and, more disturbingly, in actual reserve estimates.

Information on oil, the lynchpin of the Gulf economies and the catalyst for numerous conflicts, coups and much other skulduggery in the Middle East, is being held back from not only the people of the region, but also the very markets that rely on that energy.

The most glaring examples are Iraq and Saudi Arabia.

In Iraq the issue is over the proposed oil law, which would give multinational oil companies such as Conoco, ExxonMobil and Chevron first dibs on developing the country’s oil fields under contracts of up to 30 years.

Iraqi politicians have complained that they don’t know what is going on with oil resources as the formulation of the law is being stage managed by a US consultancy firm. Furthermore, in a recent poll carried out by Custom Strategic Research in Iraq, only 4% of poll respondents felt they have been given “totally adequate” information about the oil law while a further 20% describe information provision as “somewhat adequate,” and 76% as “inadequate”. The poll also indicates that Iraqis are not happy with the sector being developed by foreign companies, with 63% replying they would prefer Iraq’s oil to be developed and produced by Iraqi public sector companies.

The need for greater transparency in allocating oil tenders and the drawing up of the new oil law — the bedrock for future development of the country — is essential for Iraqis to decide on how their oil wealth is to be used.

Of greater concern to the global markets are the oil reserves of Saudi Arabia, the world’s top oil producer and exporter. Future supply projections are largely based on the fact that Saudi Arabia will be producing as much as 20 to 25 million barrels of oil per day (bpd) within the next two to three decades. Yet current production capacity is 11.3 million bpd, around half of that estimate.

Although Saudi Arabia is carrying out several multi-billion dollar projects to raise capacity to 12.5 million bpd by 2009, such an increase is certianly not enough to prove to the world that the kingdom has the reported 261 billion barrels of proven oil reserves. That information, on how much each field contributes to total oil reserves, is treated as a state secret. The problem is compounded by Riyadh not allowing third-party verification of their ability to deliver. Additionally, there is speculation that the kingdom’s three most important fields, which have been producing at high rates for over 50 years and require a staggering 12 million barrels per day of water to be injected to create pressure for extraction, are reaching the end of their shelf life.

Saudi Arabia assures us that it can meet projected targets — which, to its credit, it has always done — but unless national oil company (NOC) Aramco provides more information on reserves, it will be hard to know how long they can effectively meet demand.

Such secrecy among NOCs is somewhat understandable, but not helpful in making future projections in a time of rapid global economic growth or holding NOCs — the dominant energy firms in the region — more accountable to their citizens.

Equally, a lack of transparency is also limiting NOCs’ access to external capital that could help raise capacity and resultantly meet surging world demand. And with the International Energy Agency (IEA) projecting that over the next 30 years some $2.2 trillion in new investments will be needed in the global oil sector to meet surging demand, much of this cash will be destined for the Middle East — but into whose pockets and for what ends?

There is an exception however to the secrecy so predominant in the Gulf: Bahrain. In 2005, Bahrain streamlined its oil operations from three authorities into one, the National Oil and Gas Authority (NOGA), with the head of NOGA, Abdul-Hussain Ali-Mirza, a technocrat, also being the minister of oil and gas affairs. Such an approach has given NOGA greater flexibility in meeting both domestic and international demand, attracting capital, and helping to remove bureaucratic obstacles that hampered growth. All tenders are now put online for companies to bid for.

“Oil and gas has been very secretive in the past but we want to change that as there is nothing to hide,” Ali-Mirza told me earlier this year. “Countries should be transparent and responsible, so we are setting the benchmark.”

With Bahrain relatively low on the global energy supply rankings, Manama has perhaps the least to lose in being transparent (we all know its supplies are running out), but Saudi Arabia and the other Gulf countries would do well to take a leaf out of Bahrain’s book to be more forthcoming in information on tenders and reserve estimates. The arkets demand it, and the people deserve it.

PAUL COCHRANE is a freelance journalist based in Beirut. His work has appeared in Britain’s Petroleum Review and The Independent on Sunday

0 comments
0 FacebookTwitterPinterestEmail
Comment

Educating Iraq‘s child refugees

by John Dagge
written by John Dagge

Waiting outside the UNHCR Iraqi registration center on the outskirts of Damascus, Khalid, a middle-age Iraqi father of four from Ramadi, points to his family and declares: “We don’t know what the future will bring.” Over the past eight months he has relocated twice between Iraq and Syria. In the moves from one county to another and the daily struggle to make ends meet, his children’s education has fallen by the wayside. “We don’t have a permanent home now, so my children haven’t been able to go to school,” he said. “Without an education, what is their future?”

For a growing Iraqi refugee population — most of whom are living off dwindling savings or remittances from family members abroad — covering the daily necessities of life is an all encompassing concern. As the conflict in their homeland drags on, however, the absence of a formal education among the numerous refugee communities scattered throughout the Middle East looms as a major obstacle to the future development of their country.

“We don’t want a whole generation to miss out on education,” UNHCR regional public information officer Sybella Wilkes said. “These children will be the future of Iraq, so it’s essential they receive an education.”

The Iraq refugee crisis now stands as the greatest mass exodus in the Middle East’s history. More than 4 million Iraqis — one in seven — have been displaced by violence and around 2.4 million have fled their homeland, the vast majority seeking shelter in Jordan and Syria. The UNHCR estimates there are about 500,000 school age children now residing in the neighboring countries of Syria, Jordan, Egypt and Lebanon. Of this group, little more than 50,000 are presently enrolled in school.

“Prior to the war, Iraq had one of the higher literacy and school enrollment rates in the region,” Wilkes said. “Now we are seeing a major gap in the education of the country’s younger generation and the impact of this down the track, as Iraq tries to rebuild cannot really be calculated.”

To combat rising illiteracy among Iraqi refugees, UNHCR recently launched a $129 million appeal with the aim of enrolling an additional 155,000 children in schools throughout the Middle East. Syria, which has absorbed an estimated 1.4 million refugees since 2003, is the main target with the UNHCR hoping to enroll 100,000 children in schools by the end of the year. To date, only 33,000 out of an estimated 300,000 school-aged children are enrolled in Syrian schools. Other targeted countries include Jordan (50,000), Jordan (2,000) and Lebanon (1,500).

The funds will cover the costs of building new schools and upgrading existing facilities, the hiring of more than 4,000 school teachers, as well as buses to transport the children. Specially designed bridging programs will be taught to bring children back up to speed with their studies, along with psychological support services to reintegrate traumatized children back into a school environment.

For many Iraqis, the lapse in a formal education started before they fled their homeland. Due to rising violence, many parents regard sending their children to school as too dangerous and as such are keeping them at home. While Syria has always held that Iraqis have free access to the country’s education system — Jordan recently announced it will open its schools to Iraqi children — a variety of reasons have resulted in a poor take up of the offer. The inherent instability associated with coming to a new country has meant that many parents simply have not had the time to arrange schooling for their children. At the same time, other families are unaware their children are able to receive an education in Syria, while in a growing number of families, children are being put to work and in some cases are a family’s primary income earners.

Red tape barriers exist as well. The drive to register Iraqis living in Syria has been met with much suspicion by Iraqis and many fear it may eventually lead to deportation. As such, unregistered parents have been unwilling to enroll their children in local schools as attendance requires the family to register their details with Syrian authorities.

With many classrooms in Damascus already numbering 50 students, there has also been resistance from Syrian authorities to enroll Iraqi students in the public education sector until additional schools have been built. Iraqi parents enquiring about sending their children to Syrian publics schools have been told that their simply is not enough room for their children. For most families, a private education is too expensive.

The bid to raise the number of school children receiving an education is also more than just about improving literacy rates. It is also about returning a sense of normality to the lives of Iraqis, both children and parents.

“Getting children into schools also helps families readjust,” Wilkes said. “It gives them some sort of routine in their life, it helps restore a sense of normality back into a family’s life, a sense that in many cases has been missing for some years and the absence of which can put great pressure on families.”

JOHN DAGGE is a freelance journalist based in Dimascus

0 comments
0 FacebookTwitterPinterestEmail
Comment

Hillary could win

by Lee Smith
written by Lee Smith

Hillary Clinton was the clear front-runner for the Democratic Party’s Presidential nomination even before Barack Obama’s series of foreign policy gaffes left voters wondering if the man who said he would bomb Pakistan was ready for the top job.

So, what does matter in a presidential campaign? It is perhaps best to break the race into two different legs: One, the nomination to represent the Democratic or Republican party, and, two, the general election against the other party’s candidate. The first requires tons of campaign money, and the second demands experience in governing.

Money gets a candidate through the ups and downs of a campaign, like a bad showing in a debate or at a primary or caucus; but more importantly it enhances the candidate’s credibility and reflects the level of faith the public has in his or her chances to win the nomination. It is therefore no paradox that even though Clinton is leading the polls, Obama has raised more cash. The fact is that Clinton is her party’s most electable candidate, but she is going to have a hard time winning the nomination from her own party. Democrats really don’t like her.

Sometimes it is hard to know how she is leading given that the rank and file of the party is looking for just about any excuse to not vote for her. Many dislike her because of her support for the Iraq war; and others because she has jumped sides and decided not to support the war any longer. To them, she is too much of a “political animal” who will do anything to get elected. It hardly needs to be said that this is precisely the point — the job of an American politician is to get elected in order to lead, not to stand off on the sidelines with beautiful scruples.

There are scores of well-educated middle-class professional women who condemn Hillary because she didn’t walk away from her husband after his dalliance with Monica Lewinsky was exposed — a truly bizarre rationale for Hillary-hating. Why would an ambitious politician like Clinton walk away from what she effectively made the world’s second-most important job — spinning the man who spins the globe — once she found out what she had already known anyway, that her husband was a philanderer?

And then there are tons of men from ostensibly liberal quarters of academia and the news media who also despise her, for no other reason it seems than that she reminds them of their high-achieving partners, wives and girlfriends. In sum, it is hard not to conclude that Hillary is mostly disliked simply for the fact that she is a woman. That conviction is hardly allayed by the fact that the main reason Democrats don’t like her is that she seems to them too conservative, too Republican; in other words, she is too much like her husband Bill, one of the most popular presidents in recent memory who in retirement is now enjoying the Teflon-status usually reserved for pop-stars and fashion models.

It is an interesting fact of American politics that no US Senator has been elected president since John F. Kennedy. Everyone since then has either been elected from the Vice Presidency or from the post of Governor. In part this habit speaks to the general distaste ordinary Americans have for Washington insiders, but it also indicates that voters demand a high-level of competence from their leaders. It is not enough to have a name, a pretty face and good hair — they have to have run something first, like a state.

Bill Clinton not only managed a state, he also grasped the essential lesson of American politics after the Reagan revolution — the liberal status quo is unelectable because Americans say they want centrists. What’s curious is that from a centrist position a president can get away with almost any liberal initiative imaginable. Consider George W. Bush, a Republican, whose war in Iraq to bring democracy to the Middle East is an idea derived from the concept of liberal interventionism, even if almost every American liberal is against Bush’s application of it in Baghdad.

Liberals, the Democratic party’s base, seem to have forgotten Clinton’s example. Either that or they are afraid to lead. Clinton, a woman who exercised her political instincts at a very high level while she inhabited the White House alongside her husband, is not afraid to win and she knows how to govern. She will win the nomination because at some point Democrats will have to recognize the race is not between Clinton and the ideal liberal candidate who will represent all their best hopes and dreams and undo the Bush legacy, but between the Democratic candidate and the Republican one.

Right now it looks as if Hillary’s opponent is shaping up to be former mayor Rudolph Giuliani, best known for his courage under fire during the 9/11 attacks. Never mind that both Clinton and Giuliani are New Yorkers and thus represent a Northeastern city that generates more suspicion than Washington; voters on the extreme right and left sides of the ideological spectrum will be shut out next fall. Both candidates are aggressive on national security issues, Giuliani a bit more so, and both are liberal on social issues, like abortion. If Democratic voters can recognize the new political reality in time — a consolidation of the center thanks to Reagan, Bill Clinton and 9/11 — Hillary might just become the first woman leader of the free world.

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

0 comments
0 FacebookTwitterPinterestEmail
Banking & Finance

Bank Merger – Poised for expansion

by Executive Staff
written by Executive Staff

After putting it on the market earlier this year, the Qatar Investment Authority (QIA) in early August completed the sale of BLC Bank, its Lebanese banking asset to Fransbank who won a two-round competition to buy BLC Bank with a $153 million bid, $9 million better than what others had put on the table. QIA retained ownership of BLC assets with relevance for the Gulf financial industry. In an interview with Executive, Fransabank chairman Adnan Kassar said that BLC Bank was one of the oldest in the country with a wide client base and deep roots within the Lebanese business community. 

He also hinted that tactically, “the acquisition has advanced our ranking in respect to total deposits from fifth to fourth, and further deepened the gap percentage of other indicators that distance us from other immediate competitors.”

According to BLC Bank chairman Shadi Karam, Fransabank can make the leap to becoming Lebanon’s fourth largest bank by consolidating the balance sheets of the two banks while maintaining their separate brands. Fransabank now owns around $7.33 billion in assets and $6.13 billion in deposits.

Fransabank’s purchase in line with expansion

Local economist Elie Yachoui said that Fransabank might want to restructure BLC Bank and sell it on with a profit at a later stage. He did not see a great value in having a higher spot on the pecking order. “Whether fourth or fifth, it’s all the same,” he told Executive.

When QIA bought BLC Bank in 2005 for $236 million, the bank had been restructured under central bank stewardship from an ill-managed, muddled, loss-making, even shady, bank into an ambitious, forward looking entity. QIA did not divulge its reasons for selling at an undisclosed profit (the lower transaction value reflected the fact that the sale did not include BLC Bank France and its offices in the GCC) but analysts see the move tied to Lebanon’s economic paralysis.

A prominent economist with ties to the banking sector compared the acquisition price for BLC with that for Bank Saradar. BLC Bank fetched almost as much as Bank Audi paid for Saradar a few years ago but Audi got more value for its investment (through Bank Saradar’s high-end client base and asset structure which offered greater potential), he opined on condition of anonymity.

Of course Fransabank sees it differently. Referring to BLC Bank by its older name, Banque Libanaise pour le Commerce, Fransabank’s statement to Executive conveyed that the step is entwined within an expansion strategy that rotates “around two main fully synchronized axes”: an axis of international and regional expansion and a local axis.

The statement pointed to international expansion plans with focus on “selective, potential world markets,” including the existing presence in three foreign countries — France, Algeria, and Sudan — and prospective presence in Syria and Libya (rep office) this year and in Belarus, Iraq, and Turkey next year.

Fransabank said its local expansion strategy, which entailed four smaller takeovers of banks before the BLC Bank deal, was a mix of organic growth and acquisitions with strategic value for blending horizontal and vertical growth. The synergies between Fransabank and BLC Bank would extend to retail as well as to corporate (including small and medium businesses), capital markets, private and investment banking, and asset management.

While Kassar was quoted by the local media as saying that the acquisition of BLC Bank reflects Fransabank’s confidence in Lebanon’s economy and investment atmosphere, sector analysts maintain that the local market continues to offer less growth potential to Lebanese banks than cross-border expansion.

The takeover will not have a negative impact on BLC’s human resources. “There will not be a reduction of staff, but a reduction of operating expenses,” Karam was quoted by the Zawya Dow Jones newswire.

According to Kassar’s statement to Executive, Fransabank does not need to raise additional capital after the acquisition of BLC Bank. “We have financed our local and international expansion from our bank’s resources. Our capital adequacy ratio is in full compliance with the pertinent local and international requirements,” he said.

Neither does Fransabank have imminent plans for going to the Beirut bourse, where BLC Bank is listed. “We believe that listing Fransabank’s shares on the Beirut Stock Exchange is an important manner that necessitates careful consideration of market conditions and sentiments, and securing added value to shareholders’ investment,” Kassar’s statement read.

In Fransabank’s view, there is no room for considering a flotation of its stock because of Lebanon’s political crisis and its severe economical implications, including uncertainty and anxiety created by the power contest.

Kassar, a former minister of economy, had a final word to say about the quagmire: “We hope that the diverse political parties will advance the interest of the country over their own individual narrow interests and revert back to dialogue, as the only venue to reach an equitable political solution and put an end to the current seemingly endless political crisis, consequently allowing the economy to resume its development and growth.”

Inshallah.

0 comments
0 FacebookTwitterPinterestEmail
Comment

Why do people fall for scams?

by Matthias S Klein
written by Matthias S Klein

A few weeks ago, a friend, who works in finance, told me a story. A Lebanese banker had come to see him and, very excitedly, told him about a great deal he was about to close. An Indonesian banker had approached the Lebanese via e-mail seeking help with a transaction, in which the Indonesian had converted a huge amount of gold into cash through a Dutch bank and now wanted to deposit that money — hundreds of millions of dollars — in a Lebanese bank. As proof, the Indonesian sent certificates that had the kind of flowery design many associate with South-East Asia. The Lebanese banker was very excited and had already started to plan where and how he and his partners would invest all this money.

Sound familiar? Of course, it was a scam. The e-mail was written in bad English, the certificates looked spurious, the Dutch bank had never heard of the Indonesian and yet, the Lebanese banker refused to believe that he had been had. The last thing my friend heard was that the Indonesian had flown to Beirut, where he stayed for two weeks — all paid for by the Lebanese banker and his associates — and then left, never to be heard from again. In retrospect, the Lebanese got off lightly with an airline ticket and a hotel bill. Usually, the victims of these scams have to advance money to the scammers to “facilitate the process” or “pay fees.”

And while only a small percentage of recipients of scam e-mails answer them, it is enough to yield substantial incomes for their senders, most of whom live in West Africa, South-East Asia and increasingly Eastern Europe. Since scams and fraud operate on many levels and through various means — e-mail, postal mail, fax, phone, business websites, and even online dating sites — reliable statistics are hard to come by but according to a BBC report from November 2006, in the UK alone, those “advance fee” scams have cost the economy around £150 million a year.

In another incident, Lebanese businessmen were offered a lucrative transaction with the Central Bank of Nigeria. They flew to Abuja, went to the bank, and met its governor. Only after their return to Beirut did they learn that, on the day of their meeting in Nigeria, the bank’s real governor had been attending a conference in the US and that the person they met in the governor’s office had been an impostor, probably a bank employee who had taken advantage of his boss’ absence to advance his criminal activities.

Most of us are well-aware of e-mail scams and the chances are that we have received e-mails entitled “I need your assistance” or “Great opportunity”. They usually claim that a bank clerk or lawyer has found himself responsible for a large sum of money belonging to a client who has met an untimely death and he now would like to transfer the money abroad but, alas, such is the law of his country that he needs a foreign partner to do so. If the recipient of the e-mail is gullible enough to answer, soon he or she will be asked to wire money to the new “partner” in order to facilitate matters. Needless to say, that money will then disappear and the “partner” no longer answers any e-mails.

Another version of this scam — called “419” or “Nigerian” referring to the article of the Nigerian Criminal Code dealing with fraud — is that the alleged author of the e-mail is a relative of a famous person who has recently died — often an ousted or murdered African head of state. A famous version purports to come from none other than Suha Arafat, the widow of the late Yasir Arafat, whose author asks to help “her” to transfer money from a bank in the Middle East to Europe.

Although these scams are most prevalent in Europe and North America, the Middle East is also fertile ground for finding greedy and gullible. But why do seemingly bright and streetwise people fall for them?

The anti-scam group Fraudwatchers say that it is a combination of lack of expertise and willingness to believe that leads people to fall for scams. As they state on their website “when a scammer who claims to be a barrister, banker or diplomat confidently presents what appear to be genuinely legal documents and arguments, it can be very convincing.” In addition, the scenarios presented — which almost always promise a large amount of money — are the kind that people want to believe and be in on.

Once a “mark” bites, the scammer starts a course of emotional manipulation, pulling the victim in further. He will use various psychological tools to extort money: the promise of a disproportionately high reward for a relatively small outlay, the feigning of personal distress, the pretense of authoritative documents, the offer of a special deal that, if not snatched, will quickly go to someone else. All have been proven emotionally hard to back out of.

Another, often overlooked, factor is that in the West and MENA alike there is a high level of ignorance of the financial protocol in foreign and exotic lands allied to an equally high diet of news about money-laundering war lords, blood diamonds, and uncontrolled business environments. Thus, a story where the daughter of a killed dictator or the lawyer of a European expat killed in an accident is trying to transfer large amounts of money out of the respective country might sound quite plausible. You have been warned.

MATTHIAS S. KLEIN is EXECUTIVE’s Deputy Managing Editor

0 comments
0 FacebookTwitterPinterestEmail
Comment

Race for the Arctic

by Peter Speetjens
written by Peter Speetjens

The times they are changing, and they are changing fast. At the turn of the 20th century Frederick Cook and Robert Peary had to spend weeks on end in sledges and lost many a toe to frostbite in their race to become the first to reach the North Pole. It now seems likely that by the end of the 21st century one will simply be able to call a travel agency and book a cruise across the Arctic.

Research shows that the northern ice cap in summer is some 20% smaller than it was 30 years ago and, if this trend is to continue, there may be no ice at all by 2075, much to the chagrin of the Arctic’s polar bears. Having to live with longer summers and less ice, the white giants already face great difficulties in catching their beloved seals and have turned to cannibalism and infanticide to survive. In fact, life has become so bad, that Ursus Maritimus is on the brink of extinction.

With the arguable exception of planet White House, it is widely accepted that the melting of the Arctic is to a large extent due to global warming. Yet where the common man mainly sees problems, his leaders see but opportunities!

Sure, they too feel sorry for the polar bears, but within the bigger picture the melting ice is a true blessing in disguise, as the Arctic sea is extremely rich in fish and, according to a study by the US Geological Survey (USGS), could be home to an estimated 25% of the world’s untapped oil and gas reserves. Not to mention gold, diamonds, metal ore and other minerals!

Some 100 years after Cook and Peary’s dash to glory at the North Pole, the Arctic’s five neighboring countries — Russia, Canada, Norway, Denmark and the US — have entered a race to be the first to lay their hands on the riches underneath. Denmark is of course not directly linked to the Arctic, but in a previous round of the great land grabbing game, the tiny kingdom planted its flag on Greenland and declared its sovereignty over 2 million square kilometers of ice and snow, as well as a few thousands of Inuit hunting whales.

The problem with the Arctic is that, unlike the Antarctic, it is not governed by an international treaty. The Arctic is essentially open sea, which belong to all the world’s nations. However, according to the United Nations Convention on the Law of the Sea, nations can claim a 200-mile economic zone and, in addition, lay claim to part of the continental shelf. The extent to which they can do so is determined by a set of formulas dependent on the seafloor.

As a consequence, each of the five competitors has teams of scientists studying the nature of the ocean floor. Russia is currently leading the pack. It claims that the ocean floor is an extension of the Eurasian continental shelf. As soon as the United Nations established the “Commission on the Limits of the Continental Shelf” to deal with the world’s seabed grabbing game, Moscow immediately claimed about half the Arctic. Never a fan of international treaties, Washington refuses to acknowledge the international body.

What’s more, Russia last month sent the Akademik Fyodorov, the country’s research flagship, accompanied by a nuclear-powered icebreaker and eight helicopters into the Arctic sea. The ship’s scientists sent a miniature submarine to the seabed, some 2,500 meters below the ice, to deposit a titanium capsule with a Russian flag in it.

Canada, another major contender, currently ranks second. It aims to expand its territory by up to one third. Not in the possession of major icebreakers, it recently announced to acquire eight military patrol boats that are able to penetrate ice up to one meter thick. Denmark comes third and is at loggerheads with Canada over an icy rock called “Hans Island”.

Both countries have planted their flags on the isle and even sent warships to assert their claims. The United States currently rank fourth and has promised to announce its Arctic claim soon. In fifth place comes Norway, which has so far been the most silent of the lot.

Man is blessed with the faculty of reason, so we were taught at school, yet the older one gets, the more one is convinced that is the greatest myth ever invented. To start a race for fossil fuels in the Arctic, as its ice is melting due to the burning of fossil fuels, must be the ultimate illustration of man really being a greedy, short-sighted opportunist. As sea levels are rising and deserts expanding, keep in mind that Cook and Peary, despite their claims, actually never made it to the North Pole.

PETER SPEETJENS is a Dutch writer and freelance consultant

0 comments
0 FacebookTwitterPinterestEmail