Capitalist Culture

Summers of our discontent

by Michael Young
written by Michael Young

Many things can be said about the July-August 2006 war,whose first anniversary we will be commemorating later thismonth. However, for those who lived through it, a singleenduring image remains: that of sudden, irrevocable,traumatic collapse into chaos.

One minute the Lebanese were enjoying the start of whatlooked to be a prosperous summer, the country was awash withemigrants and visitors, and the football World Cup had hadcreated a sense of being hooked into the nodes of acelebrating world; the next minute, Lebanon was being bombedremorselessly, citizens had become refugees in their owncountry, tourists and visitors were taking to the sea, andthe link to the world had been brutally severed with thesudden closing of Beirut Rafik Hariri International Airport.

In what was an instant, Lebanon’s capitalist culture, aculture of openness, of the promotion of free minds and thefree pursuit of profit, had been overturned by one ofconflict and destruction. The country never recovered fromthat transformation, and to this day is paying the price forthe aftermath of that war, which profoundly divided Lebanesesociety.

The mythology of Lebanon’s summer tourism season has beenworn to the bone. The country can be heading to hell in ahand basket, but people will react most sensitively to thefact “summer” is threatened. Somehow, the symbolism of thatthree-month moment cannot be underestimated: it is themoment of Lebanon’s communion with the outside, when a yearof sluggish business can be righted, when politicians take abreak and when people can take a break from politics. Moreominously, it’s also the time when Lebanon has usually beenhit by disaster: the mass entry of Syrian troops in 1976;the 1978 Israeli invasion, followed by that of 1982; thebeginning of the killings after the Syrian withdrawal in2005; the summer war of 2006. The Lebanese psyche seemsforever buffeted by this struggle between profitablenormalcy and debilitating conflict; and most of the timethat psyche is bathed in the hues of a single season:summer.

Today we’re back to the same worries again. Things startedearly this year. In fact, the summer season was the firstcasualty of Lebanon’s proliferating crises and bomb attacks.The bombings in Ashrafieh, Verdun and Aley were all, to alarge extent, designed to suffocate the tourist season itits egg. While not devastating on a human level, at least inlight of what Lebanon endured in the past, the bombings havebeen devastating to the economy. Travel agencies now reportmass cancellations of reservations; restaurants areoperating at well below their capacity, particularly inBeirut; and by 9 p.m., most streets are empty.

Hanoi or Hong Kong?

Once again, the symbolism is stark. In denying Lebanonnormalization, those who planted the bombs went after itsAchilles heel: summer. The pendulum is again swingingbetween a culture of destruction and a culture of opennessand free-wheeling profit. This dividing line has been apersistent one in postwar Lebanon. It was the Druze leaderWalid Jumblatt who summarized it best when he distinguishedbetween “Hanoi and Hong Kong” in the early 1990s. What hemeant, or what he asked, was whether Lebanon would become anemblem of militancy and armed struggle, particularly againstIsrael, as best represented by Hezbollah? Or would thecountry opt for the path laid out by the late Rafik Hariri,who sought to transform Lebanon into a business nexus forthe region, a bastion of liberal capitalism and ecumenicalpermissiveness?

To this day, Lebanon hasn’t found an answer to thatquestion, hence its dilemma as two vastly different projectscontinue to drive apart its political class and its society.Some months ago, after the summer war, a publicity campaignplayed on this perceived difference. The “I Love Life”billboard campaign, which was directed against mainly whatwas seen as Hezbollah’s ideology of war, provoked animmediate reaction from the opposition. In response, it toobegan an “I Love Life” campaign, falling into the trap ofdeploying a discourse shaped by its adversaries. However,more significant was that the opposition was destabilized bythe accusation that it did not love life. Maybe there wassome hope there.

But hope or no hope, for the foreseeable future Lebanonseems destined to remain a front line in the clash between acapitalist culture and a culture that aims to underminethis; between Hong Kong and Hanoi; between a country thatawaits summer impatiently, but then all too often findsitself dealing with an early winter.

Michael Young

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Ties across the river

by Riad Al-Khouri
written by Riad Al-Khouri

As reform bears fruit, Jordan’s economy may finally beready to take off into sustainable growth. Recentindications of this came at the Dead Sea World EconomicForum gathering in May, which witnessed the signature ofinvestment deals for Jordan totaling $2.5 billion. (Bycomparison, all of 2006’s direct foreign investment intoJordan totaled $3 billion) Given that and other strongeconomic signs, Jordanian GDP looks set to continueexpanding at 6% or more in 2007 and over the next few years;and with population growth decelerating, that means higherper capita incomes.

However, Jordan’s path towards sustainable prosperitywould undoubtedly be smoother without major problems inPalestine, given the symbiosis between the two sides of theJordan River. Most Jordanian citizens are originallyPalestinian; but beyond family ties, many East Bankindividuals and firms have business in or with Palestine.

The most notable example of investment by Jordan in theWest Bank or Gaza (where the Jordanian dinar is widely used)is in Jordanian banks, the branches of which do the lion’sshare of Palestine’s financial business. For example,Palestinian banks hold only 30% of Palestinians’ depositswhile the rest is in the eight Jordanian banks operating inPalestine (including Amman’s flagship Arab Bank).

On that score, things could also move in the oppositedirection, with Palestinian banks branching out into Jordan.As part of its trade liberalization, Jordan’s banking sectoris opening up to outsiders, and the Bank of Palestine isseeking to branch out east of the Jordan, pending a rise incapital and Jordanian central bank approval.

Merchandise trade however, is another matter: as thingsstand today, Jordan’s export of goods to the Palestinians ismeager (and vice versa), with Palestine not even figuringamong the top ten customers or markets of Jordan. On paper,the two sides are committed to expanding commerce, and thePalestine National Authority has an agreement with Jordan tobolster and liberalize trade. In 2003, Jordan exempted allPalestinian goods from duties and fees, in line with anearlier Arab Summit decision, and canceled quotas governingthe entry of Palestinian agricultural products into Jordan.However, four years later, even with the easing of tariffand non-tariff barriers, Palestinian–Jordanian merchandise trade isstill paltry, not having moved much beyond its pre-Oslo 1993level of $60 million annually.

The reasons for this lack of commerce between Palestine andJordan are various, some of them being purely economic. Forinstance, it is sometimes the case that adjacent developingeconomies do little business with each other because theirproducts are so similar. To take two examples, Jordanians donot export many tomatoes to the West Bank because the lattergrows so much of them; nor do Palestinians buy a lot ofbuilding stones from the East Bank, when the stuff isabundant at home anyway.

However, such factors only partially explain the weak tradeflows between the two countries, and this brings us back tothe overriding issue of peace. The lesson of the past decadeor so has been that token commercial deals may help to breakthe ice between protagonists and lead to a feelgoodatmosphere; but expecting a full-blown business relationshipto thrive among all sides on both banks of the Jordanwithout genuine peace is at best naïve.

Amman’s push for Palestinian-Israeli peace is thus a logicalmove to help expand business ties across the Jordan. Thelatest effort by Amman in that direction consists of sellingthe Beirut Arab Summit peace initiative to Israel. Jordanhas always supported the 2002 plan, but five years on, Ammanhas even more to gain from reaching a fair solution to thePalestine problem. For example, political disaffection onthe East Bank — more apparent under democratization — wouldease with a Palestinian-Israeli peace that gives all sidestheir own turf to play on. As things stand now, thePalestinian majority in Jordan can neither aspire to realauthority in a quasi-democracy east of the river, norcredibly hope to project power in the West Bank/Gazaquagmire. Thus, a just peace, whatever the formula, wouldhelp solve East Bank Palestinian problems and lead to a morerelaxed situation on both sides of the Jordan.

Economically, peace would also benefit Amman through a realopening up of Palestine to Jordanian exports and vice versa,unhindered by Israel. However, with the present USadministration playing tough, Israel stalls on peace, to thedetriment of all. That includes Jordanians who, for thefirst time can glimpse sustainable development, but notachieve it without a solution to the Palestinian issue thatmakes all on both sides of the Jordan feel part of abrighter future.

Riad El Khouri is Director, MEBA Amman and a Senior Associate, BNI Inc New York City

 

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‘Korea‘ solution means what?

by Claude Salhani
written by Claude Salhani

Mark it down as yet another more miscalculation by President George W. Bush — one of a slew of political gaffes committed by his administration in conducting the war in Iraq. This time the error lies in miscalculating the length of time US soldiers and Marines would have to remain in Iraq.

The grim reality four years into the conflict — and with no end in sight — is that American troops fighting in Iraq are likely to stay there for many more years to come. In a recent speech US Secretary of Defense Robert M. Gates said that American troops would be staying in Iraq for at least another decade. Gates, in fact, foresees a “Korea” type solution for Iraq.

The American secretary of defense did not elaborate as to what he meant by a Korea-type solution, leaving reporters to speculate if he meant that Iraq would become divided into a north and south, with a heavily fortified demilitarized zone separating the two regions, while one side tries to acquire nuclear weapons. Or is the secretary of defense referring,instead, to an unfinished “police action” as the Korean War came to be known?

In either case, it does not look as though American forces are to be withdrawn from Iraq anytime in the near future, in any case not until the administration begins to make some sense of the mess they created there. In recent months the president has started losing support even among his traditional base, the military.

“Bush will go down as the worst president since Grant. His leadership has been solely based on business, not on what is right or wrong, and certainly with no concern for human life on either side,” wrote a former US Marine — we shall call him Bill — in an e-mail to me.

In fact, the president’s policy on Iraq is leaving a huge number of serving soldiers as well s veterans frustrated because people they know in the Army are now preparing for third tours of duty in Iraq. Many soldiers have tried to get out of the Army when their enlistments ended, but have been held in active duty by the “stop-loss” that has been in effect for the past three years. This is a law Bush passed to prevent soldiers from leaving the Army in time of war.

“Three combat tours is inhuman!” says Bill. “You have seen combat. You know the stress. We who have been there, know full well the toll it takes,” he told me.

“One tour is more than enough and leaves life-long scars that take years to heal. Two tours in an outrage, but three tours is beyond belief.”

This comes at a time when the Pentagon admitted that it is unable to handle the medical strain placed on its personnel by the wars in Iraq and Afghanistan.

The numbers of traumatic brain injuries and post-traumatic stress disorder issues alone are overwhelming the defense department’s medical staff’s capabilities to care for wounded veterans. Military doctors and psychiatrists are leaving the service for jobs in the private sector.

Some are starting to say that President Bush must reinstitute the draft in order to give relief to the overworked and overstretched military. But that is unlikely to pass muster with Congress. Bill, the former U.S. Marine officer, says the president must send closer to one million troops if the situation in Iraq is to be fully controlled.This is more in line with the numbers called for in pre-war estimates, but which were turned down by former Defense Secretary Donald Rumsfeld.

The alternative, according to Bill, “is to pull out of Iraq and let the Iranians and Syrians fight over what is left.”

Regardless of how one looks at it American forces are unlikely to be withdrawn from Iraq anytime soon. Even with a Democratic president in the White House.

The Democrats are making the Iraq war a major issue in the2008 presidential elections, but the reality is very different from campaign promises. National Public Radio’spolitical analyst Ted Koppel pointed out that, during a recent debate among democratic presidential candidates,Hillary Clinton was asked what she would do if the war was still on when she became president.

According to Koppel, Clinton said she would bring the troops home. She never said she would bring “all” the troops home.There is a subtle difference between bringing some troops home and bringing all the troops home.

Still, according to Koppel, Hillary Clinton is reported to have told a retiring Pentagon official that she would not be surprised if American forces were still in Iraq at the end of her second term in office, if she were re-elected. That means nine years from now. Nine long years during which time many more American servicemen and women will lose their lives as will many Iraqis.

As Bill laments, “Not one [of those running for President]from either party is capable of the kind of courage and leadership that will be required of the American president to bring this fiasco to a close with any degree of success.

Claude Salhani is international editor and a senior political analyst with United Press International in Washington, DC.

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Gaza’s not the only battlefield

by Lee Smith
written by Lee Smith

In most of Washington, the Palestinian civil war in Gaza hasbeen understood as yet another setback for the Bush WhiteHouse and yet another sign of an ascendant Iran. As if Washington policymakers vying for a job in the nextadministration didn’t already know it, Gaza is a sharpreminder that the peace process is dead. At this stage at least, it is nothing more than a jobs program for deeplycynical American officials past and present who do not givea damn that Arab and Israeli lives are being thrown away, aswell as US money and prestige, all for the privilege of beating a dead horse.

But all is not what it seems in the Middle East, where chaos in Gaza is perhaps less dramatic than it appears and the Lebanese Army’s battle in Tripoli is an unheralded achievement for Washington and its regional allies.

The Americans are all but oblivious to the fact that whathappened in Gaza is the continuation of a Palestinian civilwar that began more than 70 years ago with Hajj Aminal-Husseini’s Arab Revolt. He assassinated rivals whileestablishing the basis of Palestinian political culture —extremism is rewarded and moderation is futile if notsuicidal.

Yasser Arafat is the father of Palestinian nationalismprecisely because he was able to quell the Palestinian civilwar. In doing so, he also rescued the Palestinian file fromregional players, namely Gamal Abd el-Nasser and Hafezal-Asad. Arafat established his own power and consolidatedwarring clans and rival centers of power into one entitythrough a simple tactic — waging war against Israel, acommon enemy that all Palestinians could safely agree to fight.

When the Palestinians elected Hamas in 2005, they voted against Fatah corruption, but they did not vote for good governance — or, in President Bush’s formula, “fixing streetlights.” A vote for Hamas was a vote for the politicalinstitution most likely to prosecute a successful waragainst Israel. Except for Islamist domestic policies, Hamaschampions exactly the same causes as Fatah, just moreintransigently.

The US is allied with Mahmoud Abbas but should be under noillusions as to his political orientation or, moreimportantly, his ability to win the Palestinian civil war.Abbas’ choice for new PA Prime Minister is telling. He choseSalam Fayyad, former PA finance minister. Obviously Abbas isnot interested in winning this fight; rather he isinterested in making sure the money keeps flowing to himselfand Fatah.

The major point that the Americans need to recognize is thatGaza is not the only Palestinian battlefield in the regionright now, and so we should put it in its regional contextand look elsewhere for clues to which way the region isheading. If the fighting is Gaza is about something old,developments in Lebanon are pointing to something very newindeed.

Perhaps we will never know who fired rockets from southernLebanon into Israel, but it is useful to remember ithappened just as the Lebanese Army seemed on the verge offinishing off Fatah al-Islam in the Nahr al-Bared refugeecamp.

Lebanese readers may be surprised to know that neither theAmerican press (like Seymour Hersh), nor the US intelligencecommunity (especially the CIA) are willing to admit thatFatah al-Islam is a function of the Syrian regime, one ledby a man described in the Arab press as a Syrianintelligence asset, Shaker al-Absi. With defeat on thehorizon, it seemed Damascus was looking to open up anotherfront to attack the Lebanese government. However, the keyfactor in the equation is the Palestinians.

In 1975, Lebanon’s Christian community wanted to put down the PLO and other Palestinian factions that sought to turn Lebanon into a garrison state. However, the Christians were blocked by the Sunnis, both within Lebanon and in the region. Today the situation is reversed. The Syrians have lined up with Iran to challenge Sunni primacy throughout the Middle East, and the Sunni response has been unequivocal. Fouad Siniora has the support of the Gulf States and other Sunni powers, like Egypt and Jordan, to take on an armed Palestinian group manipulated by the Alawi regime in Damascus.

And so with Arafat gone, foreign actors are once againtrying to use the Palestinian file to their own advantage — namely, Iran, through Hamas in Gaza, and Syria, throughFatah al-Islam and others in Lebanon. This Iranian-Syrian attack against the Sunni order is also a directchallenge to Washington, for whether the Americans, stillangry at Saudi and Egypt after 9/11, like it or not, theSunnis as it turns out are allies. The Shia emancipationprogram in Iraq did not turn out as the US had hoped, butthe Middle East will continue to shift under the White Houseeven as it is tottering astride it.

And some of that movement is to Washington’s advantage —Sunni support for putting down an armed Palestinianinsurgency in Lebanon represents a significant sea change inthe regional order. Moreover, the Lebanese Army’s fight is atentative sign that the government is able to assert itssovereignty, a fact that can only make Hezbollah uneasy,while the Islamic resistance’s Syrian sponsors have suffereda very palpable setback.

Lee Smith is a Hudson Institute visiting fellow and reporter on Middle East affairs.

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Banking & Finance

Finance – Solidere goes global

by Executive Staff
written by Executive Staff

The secrecy in which Solidere has enshrouded its second lifeis lifting and the facts are beyond what the company had leton since last November when it first acquired shareholderapproval to venture outside of the confines of the BeirutCentral District.

It has been known since last year that Solidere waspreparing its “coming out.” Solidere International (SI) willbe registered at the Dubai International Financial Centerwith capital of just over $700 million (representing a sharevaluation of $770 million). Solidere will have a 37.2% stakewith management control and the ability to consolidate SIresults into its books.

Everyone wants a piece of SI

These were the highlights of the ultimate investment planwhich Solidere chairman and CEO Nasser Chammaa put in frontof shareholders last month, asking for and getting,authorization to pour $216 million of company cash into theSI capital through a private placement in order to gain thecontrolling stake that the Lebanese company sought.

Besides the cash contribution, Solidere also has equity inSI as its sole founding shareholder with 1 million shares.Documents show that this stake was boosted from $50,000, or5 cents per share, to $70 million, or $70 per share, invaluation since Solidere assigned to SI its portfolio ofinternational projects (both signed and under negotiations)along with 25-year rights to using the Solidere brand nameoutside of Lebanon. This added contribution settles thetotal valuation of Solidere’s interest in SI at $286.4million.

The over $485 million in remaining SI capital has beensourced from investors who signed for shares in the privateplacement, which was lead-managed by Egypt’s investmentbank, EFG Hermes. During the one-month final promotion andsubscription period for the private placement from May 18,demand was high, exceeding the capital sought. “Demand was alittle over $950 million for the $700 million,” said KarimAwad, executive director at EFG Hermes Investment Bank, toldExecutive.

Awad said the majority of appetite for the placement camefrom regional investors and funds from western countries.Besides citing unspecified “significant demand from westerninstitutions,” he named Lebanon, Saudi Arabia, Kuwait, andQatar as originating countries for subscriptions in theprivate placement.

While Awad would not divulge names or contribution sizesof SI investors, Qatar’s Salam International Group has madeno secret of its ambition for a piece of the pie. The group,which among other things has activities in real estate andconstruction, authorized an SI investment at $6 million.Presumable the biggest single shareholder apart fromSolidere is a major Saudi investor, who early on pitched in$180 million, Chammaa revealed at the shareholder assembly.

According to the information Executive could acquire aheadof the company’s big announcement of establishing SI —scheduled for June 30, after this issue went to print — thenew company is seeking to engage in three areas of activity:urban planning; development of land and real estate; andhospitality projects and hotel management.

Many specifics on the three intended fields of business orcorporate departments of SI are still confidential butSolidere already has projects in each of the three areas inits pipeline, giving a hint of its regional andinternational possibilities. What can be deduced fromofficial Solidere papers obtained for Executive is that theprojects are diverse, complex structures in operational andfinancial engineering.

The three known projects which Solidere already discussedearlier in 2007 are the Al-Zorah project in the smallest UAEemirate, Ajman, and the agreement with Egyptian firm Sodicfor two urban centers in the Greater Cairo region: Katameyaand Sheikh Zayed. When the Ajman project was first announcedin January, ambiguous information provision led to reportsof a $6.8 billion investment participation by Solidere inequal partnership with the local government.

Information currently being presented by the designatedCEO of SI, Mounib Hammoud, showed that the Al-Zorah projectis in fact an equal partnership between the emirate and theprivate sector with a 50% stake holding by SI andco-investors, of which SI’s share will be 25%. The companydeveloping Al-Zorah as Ajman’s a new seaside urban core,will be capitalized at $1.1 billion (AED 4 billion), ofwhich 53% will be an in-kind contribution of some 12 millionsquare meters of land by the government.

SI will be handed a 3% stake directly from the emirate asfree equity stake and will solicit 25% of the total capitalfrom co-investors at a premium to par, in lieu ofarrangement fees. SI’s direct capital contribution to theAjman project company will thus require supplying a 22%stake from cash, for which the company will use proceedsfrom its private placement ($212 million according to thecorporate document,) and fee revenues collected fromco-investors. Expected SI revenues from Al-Zorah will include 4% of annual profits, property managementfee income, and proceeds from sales or leases of land andreal estate — with a total internal rate of returnprojection for SI equity at 32%.

In the Egyptian partnership, Solidere has entered intoagreements with real estate developer Sodic to masterplan,develop and property manage the two Cairo projects. Sodic – 6th of October Development & Investment to give it its fullname, is a company with partial government ownership andambitious projects. As remuneration for its troubles indeveloping two of these projects for Sodic and adding theSolidere brand name to the marketing mix, SI will beeligible to claim fees of between 7% and 10% on thevalue-added in land and real estate sales and leases andhave options to acquire one plot in each project at a preset(lower) benchmark price. All in all, the package represents$64 million in projected revenues for SI.

Partnerships make up bulk of in-kindcontribution

As the Ajman and Sodic partnership agreements werenegotiated and signed by Solidere, they constitute the bulkof the company’s in-kind contribution to the capital of SI,assessed by Solidere as a $70 million value. Soliderereasoned this as an 85% discount on the valuation for therights on the two signed projects, with the company’s brandname and expertise thrown in moreover as freebies for anirresistible package.

But marketers of irresistible offers always add even more— much more, all for the same excellent value. In the SIproposition, this includes memoranda of understanding, ashort-listed project bid, and a pipeline of potentialprojects. Of the MoUs, the most important one is forconstruction of a resort in the Turkish vacation region ofBodrum, foreseeing an SI equity stake of 50% in a jointventure to own over 250,000 square meters of land anddevelop residential units and hotels, for which SI plannersearmarked an investment of $45 million from the privateplacement proceeds.

A second MoU is in the hospitality business, where SIplans are to create a unit called Solidere InternationalHotels and Resorts (SIHAR). This subsidiary would becapitalized with $25 million and it has preliminaryunderstanding with international partners for developing andmanaging hotels and resorts under the name Nikki Beach, aFlorida-born brand with a flavor of Miami Vice and a claimto jet-set luxury. One partner in this venture, aiming torun five to ten hotels in the Mediterranean and Gulfcountries, reportedly would be Jihad El Khoury,Marbella-based entrepreneur.

Then there is a bidding partnership between Solidere andFrench group Vinci Construction in a tender for landreclamation and development project in Monaco with expectedcost of around 2 billion euros. If this consortium wins theproject against four other pre-qualified bidders, it would give SI its first attention-commanding project in a European real estate hotspot, evenif the SI stake — so far undisclosed by Solidere — in theproject company would be less than 50%. To round it all off,Solidere said it has projects in Saudi Arabia in itspipeline and has been exploring opportunities in Oman,Algeria, Morocco, and Croatia.

There can be little doubt that after — and perhaps evenbefore — Solidere’s management team received shareholderapproval to amend the corporate bylaws, the company hasrapidly made overtures to high-octane partners in the urban development business and becometouchy-feely with a broad circle of important public sectorleaders, well-placed construction companies, resortdevelopers and hospitality entrepreneurs.

Take Vinci for example: the French partner in the Monacolandfilling and real estate consortium, has carried outthree significant projects in Monaco in the past and hasextensive experiences in the Middle East and theMediterranean with completed projects on the Arab peninsula,although many date back to the third quarter of the 20thcentury. Vinci’s most recent big contract in the region isparticipation in a consortium for the third line of Cairo’ssubway, signed this year.

In Awad’s view, the Solidere name has greatly helped thegenesis of these relationships. Sodic, for example, broughtSolidere into its project specifically because of itsbranding power, he said, adding that the creation of theinternational unit in Dubai also emphasized the company’scapabilities while at the same time did not scare offinvestors wary of the risks associated with the parentcompany’s home base in Lebanon. “The new company willcapitalize on the good points, the capabilities and brandname, without the political risk,” Awad cheered.

Even without the hardships of the past 12 months that havebeset Lebanon and left their mark on the Beirut CentralDistrict (BCD), Solidere’s most famous urban project todate, the company’s desire for a new life in the largerworld is a highly rational move, given that its originalmandate for reconstruction of the BCD limited its geographicreach and necessitated a shrinking scope of activities asthe area’s land bank was finite.

Although private equity investors should be able to reapthe potential rewards of SI’s growth and exposure outsideLebanon, local shareholders, many of whom have sufferedhighs and lows since the Solidere shares were issued in1996, question how much and when they will be able tobenefit financially from the creation of SI. Chammaasweetened his request that shareholders should authorizecommitting $216.4 million of capital to the creation of SI,with a dividend announcement of $1 per share for the parentcompany — an amount exceeding the $0.84 earnings per sharefrom net profits stated in the 2006 annual report. Thedividend for the very successful 2006 is the largest sincethe company’s listing on the Beirut Stock Exchange and morethan 50% higher than last year’s payout; some shareholdersstill called it a bitter pill that management had pushed thepayout date to September and did not elaborate on therewards small share owners can expect from their investment.

Furthermore, the 2006 annual report — which provides ampleurban design details, architects commissioned for individualprojects and revised downtown zoning — was less expansive onthe benefits Solidere shareholders could expect for from SI,mentioning the plan only in one paragraph of theintroduction and in the concluding words of the chairman’sletter to shareholders as promise that external projectswill offer new sources of revenue “while avoiding to investany of your cash abroad.”

SI has a great opportunity to develop business but it willhave to prove itself in a region where other companies arealso seeking to exploit their planning expertise andincrease project experience. Solidere may have demonstratedits abilities and resilience but for years has also had theluxury of being pampered as the only fish in the sea.

Transparency remains an issue

While it has earned high grades for financial engineeringin the past three years, Solidere also has chronictransparency problems both with the public and stakeholders.“The company makes all kinds of land deals withoutdisclosing them and does not at all meet our expectations ontransparency,” said a Beirut-based financial analyst.Solidere has also gained a reputation for firing blanks whendealing with the public and its media spokespersons rarelybestow reporters with answers to their relevant questions.

The new venture will encounter more stringent publicscrutiny when it expands into highly visible projects inEurope. Well-capitalized real estate companies and hotelmanagement firms in the Middle East are on the rise and thisshould give SI great performance incentives throughcompetition. But the company may also find good partners andbusiness companions in firms with similar perspectives, forexample Jordan’s public sector-held Mawared corporation which is a joint owner (with theSaudi Oger group) in Amman’s Abdali urban regenerationproject and which plans urban planning and consultingactivities similar to those of SI through a new entitycalled Mawared International.

Whatever course SI charts in its first years on theinternational stage, Awad is sure that the new company has“a great upside potential.” Investors in the SI privateplacement can also be clear about their exit options with atime horizon of two to three years for a likely initialpublic offering (unless they decide to sell on the secondarymarket) .

Awad explained the timeline of the IPO and the fact thatSI, while not entirely a startup company because of itssigned contracts, will need to mature before going public.The DIFX, the bourse associated with the DIFC where SI isincorporated, will be the “logical choice” to list “butnothing would prevent us from listing elsewhere,” he said,adding considerations are still far from a point ofdecision.

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Banking & Finance

Insurance Lebanese Inertia

by Executive Staff
written by Executive Staff

Lebanese insurance companies these days marvel that theyhave fared better than feared in the past 18 months, butknow that nearly a year of economic paralysis has not passedthem by. The woes range from corporate clients that reduceor renegotiate their policies to individuals who stop payingtheir premiums because they are leaving the country. Thisbrain drain of the best talent is also affecting insurancecompanies directly, putting strain on their human resources.

Sector results for 2006 were respectable because the firsthalf of last year was a bumper period and the optimistictime immediately after Israel’s summer war against Lebanonalso brought good business for insurers. With the recentseries of bomb attacks against commercial areas aroundBeirut, demand for war and terrorism covers has kept thephones ringing — although many companies looking for theprotection quickly drop their inquiries as soon as the firstshock from a bomb wears off and, more importantly, when thehigh costs for those special covers sink in.

Downsizing insurance covers

Jamil Harb, secretary general of the Lebanese insuranceassociation ACAL told Executive the insurance industry issuffering the same stagnation in the economy in general hasseen since the 34 days of war between Israel and Hezbollahthat began last July 12.

“In figures, there’s been zero growth for the sectorstarting in the middle or end of 2006 until now,” Harb said.“Growth is zero as it is for the whole economy. The wholesituation is blocking the economy. You have no newbusiness.”

The downsizing of insurance covers affects retail andsmall business policies such as clients switching to alesser care class in their hospitalization plan or trying tocut costs on motor insurance by going with third-partyliability insurance instead of all-risk, said FatehBekdache, general manager of Arope Insurance.

“The problem is the lack of confidence. People don’t see theend of the tunnel and have put everything on hold until theend of the summer,” he told Executive.

According to Bekdache all major trade and industrialcompanies have been shopping for terrorism and war coversbut the rates, which are dictated to at least 90% byreinsurance companies abroad, are so steep that only a verylimited number of companies sign up for policies, oftencoming with restrictions that need careful examination ontop of requirements to pay upfront for a substantial period,such as a full year.

Insurance experts said they had not heard of any majorclaims related to damages from the bomb blasts in May andJune. Five of the six blasts that have rocked Beirut and thenearby towns of Aley and Zouk Mosbeh since May 20 mainlydamaged businesses. If the cost of rebuilding after a blastis too high for already cash-strapped shop owners,businesses might be forced to close and cancel theirpolicies, said Ibrahim Muhanna, managing director ofinsurance consulting and ratings firm or Muhanna & Co.

Despite the admitted setbacks the industry will face inlight of the economic stagnation, Bekdache called it tooearly to forecast results for 2007. Much will depend on thesecond half of the year, he said, pointing to the trackrecord of insurance companies who have kept working throughthe thick and thin of last year’s war. Other insurancemanagers agreed, telling Executive that sector companieswill remain profitable and stressing the readiness of theLebanese to return to an optimistic mood on short notice.

The Lebanese insurance sector is something of an anomalyin the Arab world. The small Mediterranean nation is home to55 insurance companies, or nearly 14 for every one millionpeople. That is 10 more per million than in Jordan.

The industry in Lebanon is rife with minimally capitalizedsmall companies controlling slivers of the market, Muhannaexplained. “You have almost 30 companies (out of 55) thathave less than 10 percent of the premiums in the market,” hesaid.

According to data researched by his firm, the insurers inLebanon’s fragmented market are spending more onadministrative costs and client acquisition than otherinsurance companies in the Arab world. The expense topremium ratio for Lebanese insurance companies was 48% in2004 and 47% in 2005, compared to the 32 and 31% Arab marketaverages for the two years. Lebanese insurance companiesalso pay much higher commissions, 19% of premiums in 2004and 21% in 2005. The Arab market average was 6% in 2004 and8% in 2005.

The sector is also the least transparent in the Arabworld, Muhanna argued, pointing to insufficient disclosurerequirements. A very large share of local companies whichthe ratings firm approached with information requests overseveral years did not provide data that met the firm’srequirements for a rating, resulting in the fact that only18% of the 55 companies are rated, compared with 90% in bothJordan and the United Arab Emirates.

ACAL — which has long made it its target to improve theinsurance awareness of Lebanese consumers and lift thesector’s image to new heights — is alert to enter 2007 withnew determination to make the sector more transparent andenhance corporate governance.

In a practical measure of promoting corporate governance,ACAL in May organized a workshop where representatives ofthe Lebanese Transparency Association and the InternationalFinance Corporation discussed the Lebanese Code of CorporateGovernance and the benefits of more transparent businessleadership.

The workshop’s presentations showed that best practices arelinked to structural issues such as proper registration ofshares, board composition, and auditing practices which allcan have positive implications for sourcing funds andfinding investors. The legally driven arguments forcorporate governance were backed by practical examples. “Anycompany is lucky if it goes through the corporate governanceexercise before it is obliged to do so by the authorities,”the general manager of a regional insurance company toldindustry colleagues, adding that improvements in corporategovernance enabled the head office to expose a case ofinternal fraud at a branch office with at least $5 millionin damage to the company.

ACAL takes action

Lebanon’s insurance association has ambitious plans inmore than one direction, which it hopes will strengthen thesector and improve its internal communication andinteraction with the country’s public. Steps in the newdirection were agreed upon last year and included a revisionof ACAL bylaws to establish the position of secretarygeneral, enhance the work of technical committees, andstreamline election procedures.

To ease the collaboration of insurance stakeholders, theassociation is working on projects for arbitrationprocedures and on hammering out a voluntary code of conduct,in addition to seeking an increasingly proactive role inrepresenting insurance interests to ministries and theInsurance Control Commission. For a beefier interaction withthe public, ACAL this summer revamped its website andstarted publishing regular annual reports, flanked by anewsletter.

Although insurance performance in Lebanon made decentprogress in the past decade, aided by a gradual overhaul andrenewal of the relevant legislation, greater progress wasblocked by fragmented interests and extraneous factors.Insurance industry leaders say they don’t want to blamecircumstances and are aware that more can be done.

“We have a clear view on what our sector should provide toLebanon,” ACAL president Elie Nasnas told Executive. Thesector, which has pioneered so many insurance products andservices in the Middle East, wants to initiate solutions athome and, in a spirit of realistic targets, re-establishitself as insurance hub if not for the whole region then atleast for the Levant.

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Lebanon

Retail Sales and bombs don’t mix

by Executive Staff
written by Executive Staff

Since last year’s deadly July War, followed in December bythe opposition’s permanent protest movement, the recentsechaurity problems and the fighting in Nahr al-Bared,Lebanon has been the victim of a “series of unfortunateevents.” One of the many sectors to suffer from the burdenof insecurity is the Lebanese retail market, seemingly adinfinitum condemned to face challenge after challenge. Theposh Beirut Central District (BCD) and the notorious Beirutnightlife have taken a rd blow, as tenants, exclusiveinternational brands and hip eateries alike slowly witheraway, with most balance sheets and performance figures inthe red. Executive looks at the annus horribilis 2006/07from a retailer’s perspective.

By mid-July of last year the exceptional 2006 forecast of1.6 million tourists had slowly melted down as “precisionbombs” targeted Beirut’s suburbs and Lebanon’s southernregions. According to Marwan Mikhael, advisor to theminister of economy, the 6% growth figure predicted insteadmorphed into a gloomy -1% mark by the end of 2006. The levelof exports — up by 50% before the war — averaged 20% by theend of that year. Dovetailing the morose situation, yearlytourism figures fell by 6.8% in 2006, and even 17% comparedto 2004. “Imports, which are good indicators for sluggishdemand, only increased by 0.6%,” says Mikhael. Anotherlinchpin of retail economy, the CPI (consumer price index)increased by 7%.

Beirut Central District’s woes

The Beirut Central District, a Lebanese economic landmark,came timidly to life after the end of the war. Yet scores ofstores remained empty, with shoppers choosing to stick tosurroundings closer to home. “I believe however, that theBCD troubles have their roots in Solidere’s approach of along time ago. Since its inception, the BCD always had anextremely high turnover rate, with an average 70 businessesclosing down against 80 setting up shop in the area,” saysRaja Makarem of Ramco Real Estate Consultants. After thewar, the lethargic state of downtown affairs could also beattributed to its clientele demographic, as it is composedmainly of Arab tourists, who literally vanished while localsmigrated to areas such as Gemayzeh.

On the retail level, Nadim Matraji, owner of Gant stores,agrees that the situation resulting from the war is dour,confirming a 70% drop in activity, with the number of clientvisits falling to 50%. “Nonetheless, we were able to keepour loyal customers,” he adds. As for the Italian franchiseBenetton, its launch in Lebanon coincided exactly with thebeginning of the conflict. “The war and the blockade forcedus to close our stores for a month. As a result, themerchandise came in too late and the Back-to-School seasonwas simply cancelled, as the store’s middle and upper classclientele were fleeing the country,” says Walid Matta, thecompany’s GM. Dora Jurdy (Georgio Armani) relays a similaraccount: “During the course of the conflict, our stores wereclosed for a month, leading to a 70% fall in turnover, sincewe rely heavily on the Arab tourists.” At Paul & Shark salesplummeted by 70% with clients too scared to visit theoutlets, according to the company’s Grace Assaf. JamilDargham at Omega, estimates that his turnover decreased by50% after the war, the luxury brand’s Gulf clientele havingbecome an oddity. At Eden Park, owner Mazen Mussalimexplains that he was able to recover some of the 90% drop ofthe July and August sales figures, thanks to a client basemostly made up of Lebanese.

As if the July War had not been enough to curb dwindlingprofit margins, a few months later it was followed bymassive protests held in the BCD area. Paul Ariss, presidentof the Restaurants Syndicate, paints a gloomy picture ofthis period. “Up to 30 downtown eateries had closed downpermanently, 40 were waiting for better times to come, 15were opened only for lunch and another 15 for lunch anddinner.” According to Ariss, Solidere acknowledged the trendand lowered costs by 10-20%, while private real estate owners negotiated new paymentterms with tenants. As a result of downtown’s lockdown,expansion was noticeable in some areas such as Gemayzeh,Hamra, Verdun and Kaslik. “At the time, activity in Verdunprobably increased by 30 to 40% with Gemayzeh and the ABCMall in Ashrafieh having a greater share of the cake,” hesays.

The reshuffling of the business and shopping scene alsotranslated into the real estate sector with demand forretail space in downtown Beirut near its nadir. However, theoffice rental segment escaped the misfortunes befalling therest of downtown. “There is a shortage in office spaceavailable for rent, which makes meeting the demand ofinternational companies, mostly American and European aswell as NGOs, very difficult,” underlines Raja Makarem. Withsales prices remaining at $4,000 per square meter, he pointstoward the migration taking place in Beirut. Businesses moveaway from the BCD into other areas, namely Kaslik, Verdunand Hamra. “Many businesses, which had opted for await-and-see approach during the demonstrations, have nowdecided to permanently close their businesses even if thismeans loosing on investments they’d made. I guess that’s thegeneral feeling now,” says Makarem. The realtor alsobelieves that rental estimates are currently very difficultto assess in the BCD area, as demand is simply non-existent.

On the other hand, in other areas the demand for rentalspace remains surprisingly healthy. Ramco confirms at leastone weekly request for the Hamra area, mainly asked for byfranchises. “One has to keep in mind that, whatever thecountry’s general situation, Hamra remains a major businessdistrict, holding within its grounds four universities, morethan 200 businesses and many hospitals with thousands ofpeople flocking in every day,” says Ramco’s GuillaumeBoudisseau. Restaurants such as Tabkha, Noodles, and BuffaloSteak House have also decided to open soon in the area whererental prices reach as much as $650 per square meter.According to the real estate company, Verdun is also quitein demand, a trend slowed down, however, by the limitedsupply for prime outlets. “Franchises usually require groundlevel outlets, which explains why so many underground orfirst floors stores remain empty,” underlines Baudisseau.The real estate sector’s progress comes as a surprise giventhe current political and security problems. The Lebanesenewspaper L’Orient Le Jour even reported a 30% spike inproperty prices. “The trend can be attributed to the obvioustrust the Lebanese hold in their economy,” says Makarem.

Some retailers better off than others

Still, retailers’ accounts sway between desperation, hopeand fatigue. For Virgin’s marketing manager Joanne Karkour,2006 was the year of great hopes as 1.6 million touristswere expected to visit the land of the cedars. Whendemonstrators congregated in the heart of Beirut, theneighboring Opera store — the company’s flagship outletlocated in the BCD — had to close down for over two weeks.The fall in sales at that store was at least twice higherthan in other points-of-sale. “Compared to 2004, last year’ssales figures at Opera store plummeted by nearly 50%, whilein 2007 sales fell by an average of 55% compared to 2006,”says the executive. Another significant indicator, footfallfigures at the Opera store — which represent under normalcircumstances twice the ABC overall store’s — reached a mere30% in 2006. This indicator can be put in perspective whencompared to the size of the Opera store, which covers asurface of 3,500 square meters and, at normal times, has atotal sales share that is twice that of the ABC and CityMalls cumulated. “Thus, it is difficult for ABC and CityMall to cover the sale loss of the Opera store althoughtheir turnover was quite satisfactory last December,”Karkour explains.

For Matraji the recent events have translated into salestaking a 50% nose dive, as people avoid wandering away fromtheir places of residence. “The security-related events have put a hold on any future plans. We hadto postpone one big project as well as the introduction oftwo new brands,” complains the manager. According to Matta,Benetton’s Saida and Tripoli outlets have taken the hardestblow, principally in the southern city where the store islocated close to the Taamir area, which had seen unrest inrecent months. The GM acknowledges that although 50% ofcompany’s targets have not been met, two new stores arestill underway.

At Georgio Armani, the season that had started on thebright side was brutally brought to an end with the Nahral-Bared fighting and the bombs — the Emporio Armani storeis located on the street where the Verdun bombing occurred—, leading to a 90% loss in activity. “We had to reducemerchandising by half to adjust to the situation, as well asabandon the marketing campaign we had scheduled,” saysJurdy. Assaf indicates that Paul & Shark sales have beenplummeting by 60%. At Omega the recent events have inducedan 80% decrease in sales. Robert Sayegh, owner of the ABCMall’s Mont Blanc store, reckons a 50% decline in sales,accelerated by the recent bomb targeting a parking lotadjoining the mall.

Grace Sehnaoui, owner of international brand franchisesTod’s, Vilbrequin and Hogan, estimates turnover to havecollapsed to 25%. “People are afraid to visit the BCD whereour stores are located, although the area remains much saferthan any other thanks to heightened security measures,” shestates. The Nahr al-Bared battle and the bombings, inaddition to the effects of the war, have forced her torenegotiate quantities, a situation that might hinder thefranchise agreement on the long run.

Sehnaoui is a typical example of Lebanese resilience. “Asthe stores closed down for a month during the war, we movedour merchandise out to the storage house, and then literallyfollowed our clientele from one safe area to the other suchas Broummana, Faraya and Jounieh. That was a huge headachein terms of coordination! However, we had to mark down ourmerchandise to be able to sell it, which somewhat affectedsomewhat our image.”

On the other side of town, Eden Park sales shrank to 20%during the month of May and 50% in June. “This drop mightalso be attributed to the proximity of our store to the ABCAshrafieh Mall next to which a bomb went off,” saysMussalem. At ABC Mall, apparent target of the recent bombingspree going around Lebanon, damages were repaired rapidly,with stores going back to normal the next day. “We’ve notwitnessed any tenant migration. Quite the contrary — newstores such as Lee Wrangler, Style Express, and Starbucksare still scheduled to open,” says Tania Ezzedine. TheLebanese company, which is also expanding in Amman, iscurrently renovating its Dbayeh flagship store. “We’re notpostponing any local investment and did not loose hope inour homeland,” she concludes.

The Demonstration effect

Like in any other crisis, one man’s misery can makeanother’s fortune: during the demonstrations, shopping areasaround the country benefited from the deadlock, luring informer downtown clients who shunned away from the cloggedcity district. “Ashrafieh was the most popular destinationamong malls while the Hamra area also improved much,” saysRamco’s Raja Makarem. Real estate agent Raymond Barakatcorroborated this assessment. According to him, in Kaslikdemand for rental space picked up by 40 to 50% during thedemonstrations, as Kisrwan and Metn rode the wave with a 20%increase. Unfazed, Makarem pointed out, however, that demandin Kaslik predated the demonstrations, and was actuallybolstered by the regional presence of the Azadea Dahergroup.

In Verdun, Mazen Kharazallah, manager of 730 and 732shopping malls with over 100 stores, estimated the spike incirculation to have reached 90%, with peak activityoccurring mainly on the weekends. “At least two people wereinquiring about vacancies. As for tenants, their activityhad improved by as much as 65%.” As one might expect, agrowing demand combined with limited supply usually drivesprices up. According to Barakat, this was best illustratedin Kaslik where prices increased by 25%, as well as the Metnregion where the snowball effect reached 20%. In Beirut,Hamra also recorded rents moving up by 20%. “Prices inVerdun, already quite high, did not really increase asdemand was satisfied by empty outlets available for rent,”says Makarem.

Although shop owners seemed to be fleeing the BCD enmasse, the migration was not permanent. Makarem believesthat the trend can be reversed: many businesses formerlylocated in the BCD have spent an average $1000/square meteron renovation costs and were not really prepared to forgotheir leases. “However, since the Nahr al-Bared events, most of them are not willing to wait anylonger.”

On the larger retail and service industry scale,consequences of the downtown lockdown were experienceddifferently. The big winners were undoubtedly restaurantsand cafe chains, which could swiftly adapt to the migratingtrend. Whether in Verdun or at the ABC Mall, eateries werebustling with activity. Georges Helou, manager at Casper andGambini’s, confirmed rumors of the chain’s BCD venue closingdown, and in May announced the opening of a branch inVerdun. “We still enjoyed similar levels of visits for moststores. The City Mall venue and the whole mall sector onaverage were doing much better with turnover boosted by 25%since the last demonstrations, but I would not go as far asimplying a definite relation between the two events,”explains Helou.

Alain Maroun, manager at Pain Quotidien, witnessed asimilar growth in sales as new faces flocked to the smallVerdun café. “With a 70-80% spike in activity, we didextremely well during the week,” he says.

Lina’s, another chain famous for its ‘sandwicherie’culture, modified its strategy, following clients where theycould be found. According to Sami Hochar, Lina’s GM, salesat the BCD venue fell by 75% when demonstrations started,stabilizing later at a mere 45%. On the other hand, itsAshrafieh café boasted a 50% increase in sales, the one inHamra 28%, and the Dbayeh branch 7%. The newly-opened Verdunand Kaslik venues were also performing extremely well.“However, customer purchase behavior has been affected bythe prevailing situation with ticket prices per personloosing up to10% of their initial value,” indicates Hochar.

On the retail side, chain owners adopted a more negativestance as the sector showed contradictory results from onemarket segment and region to the other. Dany Hani, managerand owner of Maria Pino, underscored the negative impact ofwar and demonstrations causing activity to abate by anaverage of 50%. “Gulf tourists, who constitute 30 to 40% ofour client base, have avoided shopping in Lebanon. Toreverse the local trend, we have expanded of late in variousmarkets such as Riyadh, Kuwait, Jordan, Dubai, and the USA.”

Karim Saadeh, operation manager at Mario Bruni, said thatsales at its BCD outlet have dropped by 75% during thedemonstrations, while Kaslik witnessed an increase of 21%,and the Verdun store even reached 45%. In addition, thecompany beefed up its presence abroad, with stores incountries such as Jordan, KSA, Egypt, Syria, and Romania.

On the clothing retail level, the Azadea group, withinternational brands such as ZARA, Bershka, Pull & Bear,Oysho, Massimo Dutti, Mango, Promod, Pimkie, Extyn, MaxMara, Marella, Pennyblack and Columbus Café, admitted thatturnover had been affected by the permanent protests andblockade, its sales figures improving conversely in certainareas such as Verdun and Kaslik. “The number of foreignershas decreased tremendously but no major change has beenobserved in the purchase behavior of the local customers atthe time,” agreed Said Daher, the company’s general manager.

On the regional level however, the prevailing situationvaried significantly. In Kaslik, businesses seemed tooperate on the brighter side of life, as Bedik Sarsonian ofZinnia could attest to a 10% improvement in turnover. “Wehad our clientele in Verdun and the unstable situation hadnot really affected their purchase behavior, but we had topostpone opening our BCD store,” he says. CK Jeans storemanager Marwan Salameh pointed out that business improved byup 20% with customers increasingly avoiding Beirut. DarineMoradian of Legend announced a 10% raise in sales, a figuremirrored by Lina Chidiac for Virile.

At the ABC Mall in Ashrafieh, Jean Mansour of Houdoumexplained the 50% drop in sales. “Although the overall mallactivity improved significantly at the time, this did notmean that people were buying,” he said with a derisivesmile. Liberto store manager Evy Bassim agreed, estimating adecrease in turnover of 30%.

The situation in Hamra seemed even bleaker, although thebusy streets were jammed with cars until late hours. GhassanHabayla, the store manager at Saint Michel, estimated hisdecrease in sales to have reached 60%. Hussam Dana, ElDorado’s store manager, explained that he had to rescheduleopening hours and close at 9:30 p.m. instead of midnight.

In Verdun, testimonials conflicted as some stores sawtheir turnover follow a rising trend while others complainedof deteriorating profit margins. Youssef Kaaki, manager atJack & Jones, estimated increase in sales to 30%. Luxurygoods, however, seemed to take the hardest hit. Samer Rifai,manager at Amore, had to face activity dropping by up to100%. Lina Kabbara of Oilily, a children luxury brand,shares his grievances, which emphasize the harsh realitiesof a negative business environment resulting from thepolitical upheavals.

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Comment

No outcry, just a whimper

by Gareth Smith
written by Gareth Smith

Protests in the Islamic world were hardly a surprise whenthe Queen of England, Elizabeth II, last month awarded aknighthood to the controversial author Salman Rushdie. BothSunni Pakistan and Shia Iran summoned the British ambassadorfor a diplomatic dressing down.

In Tehran, Fars News Agency reproduced the religiousruling of February 14, 1989, from the late Imam RuhollahKhomeini authorizing the killing of the novelist as anapostate. But the overall reaction in Iran was surprisinglymild, with nothing of the popular outcry seen in Pakistanand no repeat of the embassy attacks last year after theDanish cartoons of the prophet Muhammad.

Times have changed since 1989, when Iran was at theforefront of radical Islam just ten years after the 1979Revolution brought down the Shah, regarded by Washington asimpregnable until toppled by a mass movement headed byAyatollah Khomeini.

The big difference is the rise of Wahhabi Sunni Islam inthe 1990s, including the emergence of al-Qaeda. This has notonly driven a deep wedge between Sunnism and Shiism buttaken the edge of Shia militancy.

Iranian president Mahmoud Ahmadinejad has tried his bestsince his 2005 election victory to return to the radicalismof the Iranian Revolution’s early years. But he isstruggling to undo all the compromises, at home and abroad,made in the 1990s under presidents Akbar Hashemi Rafsanjaniand Mohammad Khatami. Iran will assert its “rights,”especially on the nuclear program, and defend its friends,including Hizbollah, but fewer and fewer Iranian politicianssee themselves as in a war of existence with the West.

Hence, despite Ahmadinejad’s call for the Zionist state ofIsrael to be removed “from the page of history” (a quotationfrom Imam Khomeini) and his vilification by the US andIsraeli PR machines, he has achieved little other thanimprove his popularity rating across the Islamic world.

Just six months after Ahmadinejad was elected president,his reformist predecessor Khatami put his finger on theproblem in an interview with IRNA news agency where hewarned of “deviating and inflexible currents” in Islam.

Khatami did not name names, but few doubted he wascriticizing his successor. The nub of his argument was thefollowing: “I advise the radicals who are upset [Osama] binLaden is so well known in the world that no matter what youdo and how radical you become, you will be at the end of thequeue that bin Laden heads.”

Iraq has brought all this home. While some in the USadministration have been spinning the media that Iran issending arms westward, the reality is that the bulk of armsflow has been the other way round since US forces failed tosecure the Iraqi army’s weapons in the 2003 invasion.

The vast expansion of al-Qaeda’s violence in Iraq since2003 has alarmed Iran as a state based on Shia Islam withmainly Sunni countries to its west and east. As Ali Allawiargues in his recent book, “The Occupation of Iraq,” thepolitical situation in Iraq has driven a sizeable proportionand perhaps a majority of Sunni Arabs towards some kind ofpolitical Wahhabism.

Wahhabis have long attacked, as a violation of monotheism,the Shias’ veneration of long-dead Imams — those the Shiabelieve to have been the legitimate successors to theProphet Muhammad. And last month’s destruction of theminarets of the al-Askari shrine in Samarra, just the latestattack on Shia holy places in Iraq, showed the visceralhatred felt by Sunni extremists for Shia religiouspractices.

Iran itself has been largely spared the atrocities carriedout by al-Qaeda groups in Iraq, but long ago 1994 a militantSunni group based in Pakistan and possibly linked toal-Qaeda was suspected of the bombing of the shrine of theseventh Shia Imam, Reza, in Mashhad, killing 26 people.

In April, Iran was alarmed by an interview on the US-government’s Voice of America with Abdul-Malek Rigi, leaderof Jundullah, a militant group based in Iran’s Baluchistanprovince that ABC News reported was being secretlyencouraged by American in its bloody attacks on Iranianofficials and civilians.

All this leaves Iran ever more wary of Sunni radicalismand hesitant about putting itself at the head of any pan-Islamic militancy through issues like the Rushdie affair.

A former Iranian official once told me Tehran’s fear ofal-Qaeda meant it had no desire to distract its attention.“Al-Qaeda is like a dangerous snake,” he said. “If you seeit attacking someone who says he is your enemy, you will notattract the snake’s attention so it attacks you. With thissnake, there are no effective half measures. Either you killit or leave it free, as wounding it will make it angry andmore dangerous.”

Gareth Smyth is the Iran correspondent for the Financial Times

 

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Financial Indicators

Global economic data

by Executive Staff
written by Executive Staff

Journalists killed on duty 1992-2007

The Committee to Protect Journalists applies strict journalistic standards when investigating a death. It considers a case “confirmed” only if it is reasonably certain that a journalist was killed in direct reprisal for his or her work; in crossfire; or while carrying out a dangerous assignment. It does not include journalists who are killed in accidents – such as car or plane crashes – unless the crash was caused by hostile action (for example, if a plane were shot down or a car crashed trying to avoid gunfire).

It includes only confirmed cases in our database and in the statistical analysis above. If the motives are unclear, but it is possible that a journalist was killed because of his or her work, the Committee to Protect Journalists classifies the case as “unconfirmed” and continues to investigate to determine the motive for the murder. 

*Adds up to more than 100 percent because more than one category applies in some cases.

**CPJ considers justice fully served when both the perpetrators and masterminds are convicted. If perpetrators are convicted, but the intellectual authors are not, CPJ classifies the case as partial justice.

Older workers

Persons aged 55-64 in employment as % of the population of same age group

OECD countries must get more people into employment if they are to boost living standards and maintain welfare services. That is the message from the OECD Jobs Strategy 2006. Some population groups merit particular policy attention. For instance, only 65% of women of working age are employed in the OECD, versus 87% of prime-age men. Meanwhile, premature retirement and barriers to getting a job affect older people that wish to work. In several countries, including Italy, less than a third of 55 to 64 year olds were in employment in 2005, compared with over 60% in the US and Japan, and nearly 85% in Iceland. The Jobs Strategy sees four pillars to effective employment policymaking:

A: Setting appropriate macroeconomic policy

B: Removing impediments to labor-market participation and job-search

C: Tackling obstacles to labor demand

D: Facilitating the development of labor-force skills and competencies

Healthcare spending

Public and private spending, per capital

Healthcare spending has grown faster than GDP in every OECD country except Finland between 1990 and 2004. It accounted for 7% of GDP on average across OECD countries in 1990, but reached 8.9% in 2004. Spending is projected to increase as a share of GDP due to costly new medical technologies and population ageing. The public share of health spending – 73% on average in 2004 – has fallen in some countries, but has risen in others. This includes the US – 40% to 45% in 1990-2004 – where, despite a dominant private sector, US public spending per capita in health remains higher than in most other OECD countries.

Some workers will inevitably be in jobs for which they are overqualified, but the rate of overqualification is higher among foreign-born populations. In Italy and Greece, immigrant overqualification is particularly high compared with native populations. Immigrant overqualification is also relatively high in Norway and Sweden, though this reflects refugees rather than economic migrants. While the native/ foreign gap in overqualification rates is narrower in the UK and US, these countries have respectively the fifth and seventh highest overqualification rates for native-born workers of the 21 countries in

Youth and traffic fatalities

OECD countries

Proportion of youth in the population: 10%

Proportion of youth in driver fatalities: 27%

Traffic crashes are the single greatest killer of 15 to 24 year-olds in OECD countries. These drivers pose a greater risk than other drivers to themselves, their passengers and other road users. The problem also imposes great social and economic costs on individuals, families and societies. In the US alone, government estimates put crashes involving 15 to 20 year-old drivers at $40.8 billion in 2002. Some 8,500 young drivers of passenger vehicles were killed in OECD countries in 2004. Death rates for 18 to 24 year-old drivers are more than double those of older drivers. Moreover, death rates for young men are consistently higher than those of young women, often by a factor of three. In other words, even where overall road safety is improving, young driver risk is not.

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Financial Indicators

Regional equity markets

by Executive Staff
written by Executive Staff

Beirut SE: Blom  (1 month)

Current Year High: 1,550.85       Current Year Low: 1,168.36

 What some analysts camouflaged as “the events in North Lebanon” in the last third of May wiped out modest gains, which the BLOM index had made in the first part of the month. But owing to its resilience and apparent long breath of many investors, the index closed at 1,223.01 points on May 24, within half a point of its close on April 30. The mid-month top mark was 1,248.81 points on May 17. Solidere accounted for the bulk of trading volume in the nervous fourth week of the month but held its ground, all things considered. Main banking stocks Audi and BLOM also fared respectably, with Audi trading above $63 and BLOM at $70 and higher throughout the month. Byblos Bank confirmed that it bought 6.6% of Jordan Ahli Bank.

Amman SE  (1 month)

Current Year High: 6,920.89       Current Year Low: 5,267.27

The Amman Stock Exchange trailed its peers with a drop from 5,992.10 points on May 1 to 5,753.89 points on May 27, a 4% weakening. Although government officials and several companies used the World Economic Forum to announce investment initiatives, the ASE was listless because of the troubles in Palestine and Lebanon. Among the announced deals, Jordan Phosphate Mines teamed up with Bahrain’s Venture Capital Bank for a new $65 million chemicals complex. Kuwait Finance House-Bahrain will establish a new investment bank in Jordan with $50 million capital while Bank of Jordan got its license for Syria. According to an ASE publication, first-quarter earnings for 95 listed companies were up 50.4% from a year earlier and the banking sector reaped 65% of the total earnings.

Abu Dhabi SM  (1 month)

Current Year High: 3,833.94       Current Year Low: 2,839.16

The Abu Dhabi Securities Market shot up almost 600 points, or some 20%, between May 1 and May 27. This rally has lasted for two months and made the ADSM the top gainer among GCC bourses for the year to date. On May 27, the ADSM jumped 4.4% and closed at 3634.93 points, an eight-month high. Energy, real estate, and banking stocks had the most pizzazz with Taqa and Aabar Petroleum among the stocks in demand. The two energy stocks went up 33% and 37%, respectively, in May but were still outdone by real estate stocks Aldar and Sorouh, which climbed 45% and 53%. Fujairah National Insurance made its debut. At the end of the month, ADSM and the Bahrain Stock Exchange signed a memorandum of understanding.  

Dubai FM  (1 month)

Current Year High: 4,985.39       Current Year Low: 3,658.13

The Dubai Financial Market’s general index rose from 3,670.47 points on May 1 to 4,480.80 points on May 27. The gain of more than 20% mirrored that of the ADSM this month, but due to the DFM, ended the reporting period only 6.9% up for the year to date. Dubai saw the UAE’s second largest initial public offering for 2007, from real estate firm Deyaar. Retail investors pushed demand up to over $12 billion, or 14 times the $880 million share offering. Good performers on the DFM included Dubai Islamic Bank (up 31%), and the DFM stock (up 20%) in May. Emaar Properties  closed at AED12.35 on May 27. The UAE market regulator noted approvingly that for the first time, all listed companies met their results reporting deadlines for the first quarter.

Kuwait SE  (1 month)

Current Year High: 11,403.40     Current Year Low: 9,164.30

The Kuwait Stock Exchange ranked second among GCC bourses in 2007 index performance at the end of May, with a 13.27% increase for the year to date. Achieving its climb more steadily than the meteoric Abu Dhabi exchange, the KSE index moved from 10,776.40 points on May 1 to 11.403.40 points on May 27 – its highest stand since end of February 2006. Shares of MTC were in the limelight with rumors of strategic share buying by regional investors. The company formally denied that there was any buying or selling of strategic stakes in MTC or its African subsidiary, Celtel. Kuwait Finance House saw good demand and its shares went up 30% in May. In macro news, Kuwait stirred up the GCC by announcing its switch from a dollar peg to a basket of currencies, which was read as nay to the intended GCC currency union.  

Saudi Arabia SE  (1 month)

Current Year High: 13,509.09     Current Year Low: 6,916.85

The Saudi Stock Exchange remained volatile compared to its peers. From 7,574.48 points on May 1, the TASI moved lower in the first week and closed at 7,667.92 points on May 27. Sabic made headlines by purchasing the plastics business of US manufacturer GE for $11.6 billion. Saudi Kayan Petrochemicals, a Sabic affiliate, was the biggest IPO catch last month with a SR6.75 billion offering that was subscribed almost five times over. A bundle of five insurance firms offered between 31% and 40% of their capital and met good demand. The cement sector was the strongest gainer in the third week of May, after producers hiked their prices. Although the government mandated revocation of the price increases after a week, the companies’ outlook remains good. Agriculture was the most volatile sector in May.

Muscat SM  (1 month)

Current Year High: 5,956.46       Current Year Low: 4,657.16

The Muscat Securities Market showed further bullish sentiments in May and climbed from 5,807.53 points on May 1 to 6,092.65 points on May 27, giving the MSM a 6.7% gain since the start of 2007. BankMuscat continued to push for negotiations over an acquisition offer it made for Alliance Housing Bank (AHB), a bank with market capitalization of $205 million. The AHB board rejected the offer by BankMuscat, Oman’s largest bank with $2.95 billion market cap, citing other regional suitors. BankMuscat offered a 34% premium on the share price of AHB as of early May and the stock has since gone up by about one third. Oman United Insurance Company and privately owned Al Ahlia Insurance, however, called off a merger plan.

Bahrain SE  (1 month)

Current Year High: 2,298.67       Current Year Low: 1,996.68

The Bahrain Stock Exchange was the fourth GCC bourse with a steep ascent during the merry month of May. In a 9% gain, its index rose from 2106.70 points on April 30 to 2,298.67 points on May 27 – making good for losses in the first four months of the year and ending the month on a high note. The kingdom had its share in the month’s primary market glee through the successful initial public offering of Seef Properties, which met strong subscription demand from institutional investors. After announcing management changes and expansion plans, shares in Batelco moved up in May but the Bahraini operator denied rumors that it was talking with an international sector firm over selling it a 20% stake.

Doha SM: Qatar  (1 month)

Current Year High: 8,276.65       Current Year Low: 5,825.80

Continuing on its upward path from April, the Doha Securities Market took May in stride with an 18% gain from 6571.13 points at the start of the month to 7,749.37 points on May 27. With the concentration of gains in the second half of the month, the market’s main movers included Barwa Real Estate, Nakilat, Industries Qatar, and banking shares, including Doha, Rayyan, and International Islamic banks which all advanced by margins of more than 20%. Some investors cashed in on gains with profit taking at the end of the month.  Barwa Real Estate made news with a $1.1 billion Egyptian land purchase for a new super-sized residential project in New Cairo. Qatar Islamic Bank said it will set up a sharia-compliant subsidiary in London.

Tunis SE  (1 month)

Current Year High: 2,712.33       Current Year Low: 1,861.15

 After a third consecutive month of moving sideways, the Tunindex closed at 2,568.90 points on May 25, down 30 points from its close on April 30. This made the small Tunisian bourse the month’s most unspectacular performer among the three North African exchanges but kept it up by 9.68% when compared with the start of the year. Market cap leader SFBT saw its stock drop by 4% to TD79.98, while Banque de Tunisie lost 3% and Tunisair share prices weakened by 7% between May 1 and May 25.

Casablanca SE All Shares  (1 month)

Current Year High: 12,723.23     Current Year Low: 6,563.27

The Casablanca All Shares Index started the month with a week of gains to a pinnacle of 12,723.23 points on May 8 but then selling set in and the index shed 14% in a week’s trading that saw it briefly dip below 11,000 points on May 15. To the end of the month, the index picked up another 500 points and closed at 11,464.60 on May 25. Despite its downward fluctuation, the Moroccan bourse is still the best performer, index-wise, in North Africa for the year to date, with a gain of 19.4% from the start of 2007. Maroc Telecom dropped 10% and leading bank Attijariwafa Bank shed 18% of its market value in the middle of the month in the downtrend that showed across several sectors before the bourse’s slight recovery in the fourth week of May. Local brokers described the market’s dip as expectable profit taking. 

Cairo SE: Hermes  (1 month)

Current Year High: 68,274.93     Current Year Low: 41,965.37

The Hermes index for the Cairo & Alexandria Exchanges was 9.39% up for the year on May 27. Entering the month at 65,582.80 points, the index climbed to 68,274.93 points on May 27. Analysts were less ebullient about CASE than about the GCC markets last month but said that telecom and banking shares did reasonably well, the latter with expectations that several regional banks will compete to buy a significant stake in Al Watany Bank. Piraeus Bank Egypt launched a $53 million rights issue. Sodic, the real estate investment company that signed an urban development contract for Sodic land with Lebanon’s Solidere, had to acknowledge that merger talks with another company failed. Sodic’s stock dropped 13% in May.

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