Comment

The ‘Shiitization’ of Syria

by Andrew Tabler
written by Andrew Tabler

The latest conspiracy theory to grip the Middle East is theShiite Crescent – an emerging Iranian-backed Shiite alliance stretching westward from Iran to Lebanon that threatensAmerica’s Sunni allies in the region. In the arch’s keystone, Syria, many say a Shiite takeover is in the works.Syria is majority Sunni Muslim, but it is ruled by the Assad regime, which hails from the Alawite Shiite Muslim sect. Akey part of Tehran’s alleged regional coup are rumors of“Shiitization” – the conversion of Sunnis to Shiite Islam.

Many if not most of the gaggle of growing Syria experts deny Shiitization is happening, but their contradictory statements indicate otherwise. Syrian ParliamentarianMohammed Habash, head of Damascus’ Islamic Studies Center and a major source on Islam in Syria for foreign journalists, told me following last summer’s war in Lebanon that talk of conversions was “Wahabbi propaganda” – a reference to the conservative version of Sunni Islam practiced in Saudi Arabia, Iran’s regional rival andAmerica’s chief ally. He added that Shiitization was a“phenomena,” however, “especially in the Jazeera” – the area of Eastern Syria between the Euphrates and Tigris Rivers.

Shiite converts I have interviewed in Syria over the last few months say that many Sunni Jazeerite families aren’t really converting, but rather returning to their Shiiteroots. Shiites recently celebrated Ashura, the commemoration of the slaying of the Prophet Mohammed’s grandson, Husseinbin Ali, in 680 CE by forces loyal to the Damascus-basedUmayyad Caliph Yazid bin Muawiya at Karbala in present dayIraq. A “Sunni” or traditional leader from outsideMohammed’s family, Yazid ordered Hussein’s decapitation, mounted his dome on a pike and paraded it alongside surviving members of his family throughout the UmayyadEmpire. After brief stops in Kufa and Mosul, the procession headed through the Jazeera to Aleppo, then south towards theSyrian cities of Idlib and Homs before ending the journey inDamascus.

The spectacle backfired, however, turning Hussein’s cause into a local crusade. Small Shiite communities sprouted along the procession’s route, who were later joined by Sunni tribes from southern Iraq familiar with Shiite customs. Some built “maqaam” or shrines. Other Shiite communities in Syria gathered around Ahl al-Bayt (family of the Prophet Mohammed)tombs in Syria. During the Ottoman Caliphate (1415-1918),many Shiites in these communities converted to the dominantSunni Islam to avoid harassment.

Hundreds of years later, Shiite converts say that innovations such as satellite TV and the internet are helping Jazeerites understand Shiite Islam. They also help converts keep in touch with marjaa’iyat, or Shiite “Sources of Emulation” worldwide, including Iran’s Supreme Leader AliKhamanei and Iraqi Ayatollah Ali Sistani.

Shiite religious satellite TV programming has been growing for decades, but converts say the man who moved it to primetime in the region was Hizbullah leader Hassan Nasrallah. His calm and collected televised addresses, even as Israel attempted to bomb Lebanon “back 20 years” last summer, ledSunnis to take a second look at Shiite Islam.

“Hizbullah’s victory broke the ice wall between Sunnis andShiites,” one convert told me. “Many Syrians hosted LebaneseShiite families in their homes during the war. This opened people’s eyes and humanized Shiites.”

Teachers in hauzas – Shiite religious schools – say the recent restoration of shrines and tombs in Syria and the building of more hauzas are paving the way for a Shiite revival. It is here that Iranians have entered the Shiitization fray over the last few years by financing the renovation of tombs of Sayida Sukaina near Damascus and Ammar bin Yasser, a close companion of Mohammed, in theEuphrates Valley city of Raqqa. Iranians support a Shiite school as well, the Damascus-based Hauza of the SupremeLeader.

Before a Shiite crescent moon rises in your mind, Shiite converts admonish that the alliance’s religious base is fragmented. The zealots of the Islamic Republic and Hizbullah await the return of “Al-Mahdi” – the 12th ImamMohammed ibn Hasan. The Assads are Alawites, however, a secular Shiite Muslim sect that reveres the 11th ShiiteImam, Hassan al-Askari. Protecting Syrian Shiite converts’ right to choose a new faith isn’t Shiite brotherhood, but, ironically, the Assad regime’s use of Ba’athism – secular, pan-Arab ideology that has guaranteed freedom of religion forSyrians of all faiths for over 44 years.

There are signs that a Shiite Crescent might not be in theregion’s political stars as well. Many Syrians say they are worried Iraq’s sectarian strife might spread to Syria,especially after the execution of former Iraqi President Saddam Hussein, a Sunni, at the hands of Iraq’sShiite-dominated government. Inside the Iranian-Syrianalliance, Damascus is reportedly unhappy over Iran’s recent dialogue with Sunni Saudi Arabia to end the stalemate inLebanon between Hizbullah and the Siniora government.Tehran, in turn, is rumored to be questioning Assad’s recent peace overtures with Israel. Both sides denied the rift during Assad’s visit to Tehran in February. But only days after Assad’s return, a group of Syrian intellectuals and parliamentarians lambasted Deputy Iranian Foreign Minister Manouchehr Mohammadi in a closed-door (but widely reported)dialogue session. The point of contention? Iranian support for Shiitization in Syria.

ANDREW TABLER is Editor-in-Chief of Syria Today Magazine

0 comments
0 FacebookTwitterPinterestEmail
Comment

Selling a war

by Peter Speetjens
written by Peter Speetjens

“Even the most brilliant propaganda technique will yield no success, unless one principle is borne in mind: the message must confine itself to a few points and repeat them over and over,” said former Nazi propaganda minister, Joseph Goebbels.

Goebbels may have committed suicide on May 1, 1945, but his golden rule of “simplicity and repetition” is still the backbone of any effective mass communication campaign, regardless of whether or not the slogans are true. As Goebbels said: “A message repeated a thousand times becomes the truth.”

So too was the case with Iraq. Time and again we were told that the war was needed to protect our freedom and security.Saddam had nukes, was in contact with Al Qaeda and threatened the stability of the world. Today, we know that Saddam did not have weapons of mass destruction, was not connected to Al Qaeda and that the intelligence on which conclusions were based was, at best, jaded. When the war started in March 2003, however, one poll showed that 66% ofAmericans thought Saddam was behind 9/11, while 79% though the was close to having nukes. How did they do it?

According to Laura Miller at PR-Watch Quarterly, the techniques used to sell the Iraq war were classic PR strategies. “The message is developed to resonate with targeted audiences through the use of focus groups and other types of market research and media monitoring. The delivery of the message is tightly controlled. Relevant information flows to the media and the public through a limited number of well-trained messengers, including seemingly independent third parties (read: think tanks).”

The campaign to sell the war in Iraq started in 2002, with the establishment of the Office for Global Communication(OGC) as part of the White House. According to White HouseCommunications Director, Dan Bertlett, its aim was to create the American foreign policy message, “so no one, not evenDick Cheney, can freelance on Iraq.” The Times of London reported that the OGC had a $200 million budget to unleash“a PR-blitz against Saddam.”

The message peddled by government officials and spokesmen was one of freedom and fear. Of course, the decision to goto war was taken as early as 9/11 (even earlier think many).At that point, however, the administration had other things on its mind: Al Qaeda, Afghanistan and the question: “why do they hate us so much?” To Washington, it was clear from the start that the latter was an image problem: people misunderstood America’s freedom, and its overwhelming support for Israel had nothing to do with it.

To deal with this, shortly after 9/11, Secretary of StateColin Powell appointed Charlotte Beers as Undersecretary forPublic Diplomacy. Her task, according to Powell, was the“branding of US foreign policy.” Known as the “Queen ofMadison Avenue,” Beers made her name with campaigns for Head& Shoulders and Uncle Ben’s rice before heading two ofAmerica’s biggest ad agencies.

Having defined America as “an elegant brand,” she received an estimated $500 million as her budget and set out to produce brochures, booklets and commercials emphasizing freedom in America, which included a TV campaign “MuslimLife in America,” which (falsely) claimed nothing had changed for Muslims after 9/11, and a glossy poster campaign entitled “Mosques of America.”

Most of her budget, however, went to polls and surveys, which by December 2002 showed that her campaign had failed miserably. All over the Muslim world, the US had gone down in popularity. Beers blamed the Arab media, which she found difficult to penetrate. “We only have one choice in theMiddle East,” she said. “We have to buy the media.” She resigned shortly before the Iraq war for “health reasons.”

Donald Rumsfeld had his own PR star: Victoria Clarke. She too headed several ad agencies and wrote the book Lipstickon a Pig: Winning in the No-Spin Era by Someone Who Knows the Game.

According to John Stauber and Sheldon Rampton, authors of the book Weapons of Mass Deception, it was Clarke who emphasized that, for the American public to buy the war inIraq, it was essential to stress a link with rogue nation states as sponsors of terrorism. The shift from Al Qaeda to nation states was first made in Bush’s State of the Union speech on January 29, 2002, when he defined North Korea,Iran and Iraq as “an axis of evil, arming to threaten the peace of the world.”

In a later stage of the war, and a further attempt to control the message, Clarke masterminded the phenomenon of embedded journalism and established “Batallion Camera,” an army unit of 800 photographers and cameramen, which provided the world with (positive) imagery, but eventually causedClarke’s downfall when it staged the “heroic” rescue ofPrivate Jessica Lynch.

Finally, even the Pentagon itself worked with a PR firm, the shadowy Rendon Group, widely believed to be the brain behind the Iraqi National Congress of Ahmad Chalabi. According to the Chicago Tribune, since 2001, the Pentagon awarded the company at least $56 million in contracts.

It appears “wagging the dog” is now policy.

PETER SPEETJENS is a Dutch writer and freelance consultant

0 comments
0 FacebookTwitterPinterestEmail
Comment

Beirut on my mind

by Rana Hanna
written by Rana Hanna

Traveling is on everyone’s mind. Try listening to some of the very popular horoscope shows and you will inadvertently hear: “Fi safar?” Any travel plans? As opportunities for educated, professional people diminish in Lebanon, all eyes start to turn abroad. Most of the people looking to travel tend to be young men in search of better opportunities in other countries. But what if you are a young family? How much would it cost you to relocate?

Many couples with young kids now think of moving as a means of offering their children a future filled with security and opportunity rather than political and financial uncertainty.But if, like me, you are a snob, and would only agree to move to Europe (I am not one for grass grown with desalinated water, fake snow or culture that is imported rather than produced) then the question that begets itself is: can we afford it?

Answer: Probably not.

Before we go any further, I must admit that, yes, the vast majority of Lebanese families live on a lot less than the numbers I am going to throw out, but for the purposes of our survey, I have been forced to take the young, upwardly mobile couple as the model.

Such a family in Beirut needs a minimum of $2,500 per month in living expenses. This sum includes rent (three-bedroom apartment in a good area), private school fees, one full-time, sleep-in domestic helper, bills and transportation fees, but it does not include groceries, clothes, cars, travel, etc. The modest amount affords a decent living by all standards, especially with income tax at around 10%. How much would this same family need to satisfy these same conditions abroad?

Take three examples: Athens, Milan or London, all great cities in which to live. Culture, history, beauty, green spaces, organization and respect for the rule of law abound  in these places, but as you can see from the table below, you would need to spend about $6,500 a month to live decently in Athens (albeit not in absolute luxury) and almost double that to reside London. Add to that what you have to pay in income tax (40% average) and you realize you need to be grossing quite an annual yearly income just to ‘live’. Dubai has traditionally been a popular destination for the spirited expat, but even that emirate is now proving beyond the reach of many.

Plus, there are other, immaterial, issues to consider when living abroad, such as proximity to family, distances, traffic, work permits in some cases and even the weather!Sure, in these big cities, you’re at the center of the world rather than in the margins, plus you have peace of mind when it comes to political, financial and economic security. But an increasing number of people are carefully reviewing these considerations and wondering: is it worth it?

The result is a relatively new phenomenon in Lebanon: the split family, when parents choose to live and educate the kids in Lebanon while the breadwinner makes a “Western”salary abroad, mostly either in Europe or the Gulf.Financially, its cheap, and socially, many believe a tighter clan fabric means less crime and apparently no drugs.

Ever wonder where all the money is coming from when staring at the array of Porsche Cayennes and Lexus 4x4s in parking lots? At the last estimate, 25% of GDP is in the form of foreign remittances. So although it can be hard on many couples to be separated and married women sometimes feel like they are single mothers, this arrangement is actually a happy medium between risking it all here and giving it all up there. It also makes more financial sense.

Most conversations about relocating end in the same conclusion: define your priorities. But once your priorities are defined, if you decide to relocate, check your wallet!

RANA HANNA has checked her wallet and decided to stay in Lebanon.

0 comments
0 FacebookTwitterPinterestEmail
Comment

Iraqi refugee catastrophe

by Paul Cochrane
written by Paul Cochrane

One of the world’s largest refugee crises is underway in theMiddle East. It has been going on for the last four years, but judging by the scant attention the issue receives inWashington DC, London and in the Western media, you wouldn’t think so. I’m referring to the Iraqi refugee crisis.

According to UN figures there are an estimated 1.6 millionIraqis internally displaced, 750,000 in neighboring Jordan,1.4 million plus in Syria, 80,000 in Egypt, and 30,000 inLebanon.

In all fairness to the media, the Iraqi refugee crisis inJordan has garnered token attention, but the equally pressing situation in Syria has not.

As for Jordan, the influx of Iraqis to Syria has been a double-edged sword. Initially the Iraqis that fled were middle to upper class, bringing with them life savings that were duly invested in property, setting up businesses and making a home away from home. But as the situation in Iraq has deteriorated to resemble one of Dante’s cycles of hell, the Iraqis flooding into Jordan and Syria are increasingly cash strapped.

In Syria, this has brought with it misery, desperation and a growing xenophobia towards the Iraqi refugees due to rents doubling in price and food costs rising by an estimated 10%in just two years.

As one Syrian man remarked, even Syrian prostitutes are complaining about the influx because of the number of Iraqiwomen selling themselves on the streets – for as little as150 Syrian pounds ($3).

The refugee crisis is compounding Syria’s internal problems, what with 11.4% of the population living in poverty, 20%unemployed, and a population that is projected to surge from the current 18 million to 30 million by 2025. On top of all that, the Syrian government announced in April that the refugees have cost the state an estimated $1 billion.

Compared to the coverage immigration and refugees get in theEuropean press, it wouldn’t be a stretch of the imagination to visualize the stink the media would cause if, say,Britain’s population had grown by about 8% – the equivalent number of Iraqis now in Syria – in under four years due to a massive influx of refugees. It would rightly be deemed a major international crisis.

But the countries primarily responsible for the real crisis in the Middle East, the United States and Britain, have kept passing the buck and taken in a paltry number of Iraqi refugees.

The Bush administration, recently caving in after a great deal of pressure, said the United States would accept 7,000this year – still a drop in the ocean compared with Syria and Jordan, but a step in the right direction considering less than 500 Iraqis have been admitted since the war began.

Britain is no better, approving just 12% of Iraqi asylum claims, according to Amnesty International, whereas Sweden has a 91% approval rate, admitting 60,000 Iraqis and suspending the forcible return of refugees.

The West cannot of course take in millions of Iraqi refugees, but what it can do is boost aid to humanitarian organizations and the UNHCR in Jordan and Syria until Iraqis can return home.

But just as Britain and the United States inadequately planned for the aftermath of the invasion, the White House and Downing Street have not allocated adequate funds for refugees.

The funds that the international community has earmarked for the Iraqi crisis are primarily for use in Iraq, not for the neighboring countries grappling with the spill-over from the occupation.

“Syrians are complaining that Iraqis are raising the price of rent and oil, but if Syria doesn’t take them, who will?”questioned Dr Nabil Sukkar, managing director of the SyrianConsulting Bureau for Development and Investment.

Indeed. Clearly not the US or Britain, and neighboring SaudiArabia has kept its doors firmly shut, building a US-Mexico border style fence, at a cost of $7 billion, to keepIraqis out.

The Iraqi refugee crisis is going to be with us for the foreseeable future, and it is about time the US and Britain pulled their weight in efforts to rectify what theInternational Refugee Committee has rightly called ‘a humanitarian crisis of historic proportions.’

PAUL COCHRANE is a freelance journalist based in Beirut, regularly contributing to Singapore’s The Straits Times and The Independent on Sunday.

0 comments
0 FacebookTwitterPinterestEmail
Comment

Time for change

by Lysandra Ohrstrom
written by Lysandra Ohrstrom

On May 8, Minister of Economy and Trade Sami Haddad said he would submit a bill to the cabinet to streamline the existing business registration process in Lebanon by introducing “one of a series of reform initiatives that will help create a business friendly environment in the country.”

Talk of reform may seem particularly hollow as parliament has not been convened since November, but Haddad said the new system could be in place by the end of the year as it does not require amending existing legislation or introducing any new laws. While the reforms fall well short of the legislative overhaul required for Lebanon to enter the World Trade Organization, if adopted, they will significantly reduce the bureaucratic mess potential entrepreneurs must wade through to set up shop.

The plan will standardize the documentation necessary to register a company and will introduce a uniform payment system, which should reduce the time, cost and complexity of current procedures by 45%, said project manager GeorgesNicolas, who oversaw the program as part of an agreementLebanon signed in 2006 with the International FinanceCorporation (IFC), the private sector arm of the World Bank.

The long-term solutions recommended by the IFC – which include reducing start-up costs and initial capital requirements and abolishing the mandatory use of a notary public, sworn translator, lawyer and auditor – would further cut fees to 80% of the current costs, but may be slow to arrive. Nicolas said that his team also proposed a short-term solution that can be introduced in two or three months because it does require changing laws.

The IFC drafted the new procedures based on the results of a survey of 250 Lebanese companies to determine the regulatory obstacles that businesses have encountered.

The introduction of a single standard document, designed by the IFC, is one of the most important improvements of the proposed procedures, said Nicolas. Currently, the procedure costs $2,000 because each business must hire a lawyer to design individual registration forms. “The second most significant solution is one application, one payment, one interface,” he said.

Under the current system, a business owner must make separate visits to pay fees to the Ministries of Finance,Justice, and Economy and Trade, as well as the NationalSocial Security Fund and the Commercial Registry. The singleIFC document can be submitted to all agencies and prospective entrepreneurs can pay all fees and collect all forms at the nearest Liban Post branch.

Though the IFC says it has “encountered absolutely no resistance” from any parties involved, Nicolas acknowledged that the government anticipates resistance from some parties– like the Lebanese Bar Association (LBA) – to some of the long-term solutions. In the past, the LBA has lobbied against legislation that would reduce the need for legal counsel. But, given the limited scope of the first round of measures, any substantial opposition remains unlikely.Though the current proposal reduces the time to start a company, the costs will remain high. Any change in fees must be included in the state’s budget proposal, which needs parliamentary approval.

Aside from the few parties with a vested interest in maintaining the status-quo, few in the private sector or government are in favor of the current bureaucratic labyrinth. It takes an average of 46 days to incorporate a company in Lebanon, according to the World Bank’s annualEast of Doing Business Survey, which ranked the country 116out of 175. In 70 countries, it costs between 0% to 10% of per capita income to establish a business, while in Lebanon it costs over 100% of the $6,200 per capita income. The IFC’s mapping study, for example, showed that incorporating a joint stock company in Lebanon took between 12 to 49 days, and required 17 to 24 different trips, 21 to 25 separate forms, and cost $3,500 to $4,000 in fees to lawyers, notaries, and various state agencies.

The main regulatory obstacles to starting a business cited by the IFC study were the length of time and number of visits required; high registration fees; the inconvenience of trips and the quality of service provided by state agencies; “complexity”; and the difficulty of preparing documents for submission to the commercial registry.

For the new procedures to take hold, the government still needs to sign a Memorandum of Understanding with LibanPost, train employees in relevant agencies, and CommercialRegistry judges must accept the new application package.While the measures seem relatively uncontroversial, some remain skeptical about the government’s willingness to introduce even limited changes in a politically charged environment.

Lysandra Ohrstrom is a journalist on the Beirut Daily Star and a regular contributor to the Lebanon Examiner­

0 comments
0 FacebookTwitterPinterestEmail
Comment

On the A380

by Richard Quest
written by Richard Quest

It was the sort of invitation most people would avoid at all costs: ‘Please come and spend two hours flying on a plane that seats 550 – and end up where you started.’ But I could barely contain my glee! Of course I accepted. It was a ticket to ride on the Airbus A380 – nicknamed the Superjumbo– over the Pyrénées. I have covered the plane since its conception, but this would be my first chance to experience what flying on board the behemoth was actually like. I was not alone – 200 other international journalists were equally eager for the experience.

First, let me state the obvious. With its twin decks, this plane is big. Very big. In fact, it is enormous. The main deck seats around 350 people, like a Boeing 747. However, upstairs there is room for another 200. That is effectively an A340 on top of a 747! The aircraft is equipped with first class, business class and economy seating. I sit behind the wing in economy. It is a good choice. We lift off – very quietly for a plane of this size – and catch the crosswind.The wings’ ailerons waggle up and down in a demented state as the computers fight to keep the plane stable. It feels like a giant ocean liner on the waves. But then the take-off excitement is over all too quickly and we settle into an amazingly smooth cruise flight. The landing is similar –from the plane’s camera we can see ourselves crabbing towards the airport at Toulouse. Again, we ride the airwaves until we touch down.

So what makes the A380 so special? Is it the two grand staircases? The 15 lavatories? The elevator that can move carts between the decks? Or the fact that it can carry 550tons (considerably more than the 747)? It is all of these things and none of them. It is the fact that a new era of air travel is upon us and no one really knows where it will lead. At the moment the A380 is a flying white whale. With only 166 sold, it is a long way from making Airbus any money.

But Airbus’ chief salesperson says the plane is a‘game-changing aircraft.’ Airbus forecasts the market for very large planes at around 1,600 over the next 20 years and this plane should get at least 800 orders. Since airports are more congested and air travel is growing, demand for more seats between major hubs such as London and Hong Kong, or Singapore and Sydney will grow. That is where the A380comes in. (For the record, Boeing believes the Airbus numbers are all wrong, that the demand will not materialize, the plane will lose money and airlines will opt instead for their revamped 747-8 Intercontinental with a comparatively modest 470 seats.)

If airlines live up to their promises to put bars and lounges on board, the A380 could well become the standard for luxury in the sky. It could change the way people want to fly. Once the aircraft is in service on major oceanic routes, frequent fliers will want to be on board. On the other hand, with so many people on one flight, such irritations as luggage delays and congestion could cause some problems.

So will the A380 be a success? I know the arguments, and I still cannot make up my mind. We do not know yet. Perhaps history is our only guide; 30 years ago, people said exactly the same things about another plane. It was too big. There were too many passengers. To step on board was to tempt fate. That plane was the 747, which went on to sell more than 1,300 for Boeing and became the standard for long-haul flight. Of the A380 experience, I can say, however, that the flight was simply wonderful. To walk up and down the twin staircases, to visit the cockpit, to discover how quiet this plane could be – it was a joy for an aviation geek like me.

Because of Airbus’ appalling delays, this first flight was rescheduled many times. But I did not mind. I have now flown on the biggest passenger plane in the world. Unfortunately,I know it will be a long time before the rest of you get to share the experience. But I have seen the future, and it is big.

Richard Quest anchors CNN’s European morning editions of ‘Business International’, his own monthly interview show, ‘Quest’, and the monthly feature program ‘CNN Business Traveller’.­

0 comments
0 FacebookTwitterPinterestEmail
Comment

Human development at last!

by Zafiris Tzannatos
written by Zafiris Tzannatos

Not many international meetings close in an optimistic mood.The phrases “failed to agree” or “agreed to meet again” are mentioned far too often at the conclusion of such events.But last month’s meeting of the World Economic Forum was a bit different.

Convened in Jordan, the Forum brought together an impressive list of international and regional leaders at a time of economic boom in the Middle East. Bolstered by oil wealth, the region is enjoying a surge of confidence that can lead to an unprecedented change.

But economic confidence alone is not enough. The Forum discussions recognized that, despite the ongoing regional conflicts, a business-led transformation is taking place, one that is hurtling the region into the globalization process. And it was in this light that investing in education and reorienting efforts towards the creation of aK (knowledge)-economy were singled out as two the big“positives” for which to strive.

This recognition of education as a key driver for the future of the Arab world received massive material support from HisHighness, Sheikh Mohammed bin Rashid Al Maktoum, vice-president and prime minister of the United ArabEmirates and ruler of Dubai. He announced, as a personal initiative, the establishment of the $10 billion “Mohammed bin Rashid Al Maktoum Foundation that will be based in theUAE and aim to build a knowledge-based society throughout the region.”

Despite recent – and commendable – advances, the education record of the region remains disappointing. This is only in part due to the neglect of female education. Another reason is that men may not be tempted to study beyond the point that is required for a public sector job. At universities in some GGC states, there is only one male student for every three female students.

Education alone will not solve the problems of unemployment nor will it necessarily accelerate the modernization of the regional economies. The 14% regional unemployment rates quoted at the Forum are not the result of lack of education or jobs – the presence of the many working expatriates attests. Quite simply education is not something that can bear fruit if there are no incentives or a vibrant economy.

Here is where the Foundation can make a difference, that is, in addition to its focus on education, to help clarify theK-economy vision for the region. In simplified terms, there are two polar approaches for the K-economy: the “enclave”approach that basically buys knowledge, technology and human skills from outside while the nationals work for government and have exclusive business licenses or hold work permits for expatriates.

A more dynamic, and more appropriate, approach is to go for an “innovative society”, a vision that would foster and rely more on local entrepreneurs and less on the government to act as the employer of the last resort or protector of monopolies. The innovative society vision encompasses a dynamic (not license holding) entrepreneurial environment, an efficient government, ability to use and capitalize on technological advances, attractive employment opportunities and a good work environment.

The Foundation’s objectives are in line with the creation of the more promising “innovative society” vision. In addition to education, the objectives include broader knowledge development, the establishment of research centers, support for scholars and intellectuals, and leadership programs for young people in government, non-governmental organizations and the private sector.

What needs to receive equal recognition and attention is that, compared to top-down approaches, the private sector has an important role to play in facilitating the evolution of Arab culture and promoting the role of the individual as an innovator and agent in the region’s development.

Within this context, education needs to be made more responsive to the needs of the modern global workplace. It should impart entrepreneurship, create a willingness to learn from failure and tolerate failure in others, as well as instill a sense of meritocracy and “mutual responsibility” between the state and its citizens (instead of the single responsibility of the state towards the citizen).

The Foundation’s endowment has been hailed as “the biggest in the Islamic world”. It therefore presents a unique opportunity to help define a dynamic vision for the region.It can contribute to the reinvention of the whole education system around the highest international standards, not just enclave international schools or changes in the curricula compared to the more challenging change of minds. It can help build a vibrant environment for businesses, offer rewards and, in turn, benefit from the productive employment to nationals as well as attract firms and people from allover the world.

Professor Zafiris Tzannatos is advisor to the World Bank and former Chair of the Economics Department at AUB. The views expressed are his own and don’t necessarily represent those of the World Bank.

0 comments
0 FacebookTwitterPinterestEmail
GCC

Kuwait: Tapping into banking gold

by Executive Staff
written by Executive Staff

Kuwait’s banking industry has risen to new challenges and increased prominence in the past two years as the Gulf’s northernmost emirate was simultaneously tested by its ballooning revenues and by the deflation of the regional stock market bubble. With a handful of commercial and even fewer Islamic banks, the banking sector’s importance is considerably weightier than the number of players might suggest.

A clear indicator for the sector’s growing role in the national economic fabric is the position of banking in the Kuwait Stock Exchange (KSE), where the nine listed Kuwaiti banks account for close to one third of total market capitalization although they make up barely 5% of listed companies.

Banks were at the forefront of the upward trend on KSE this year, which outdid other Gulf equity markets in terms of stable improvements and overall performance. Compared with the 12% gain of the KSE’s general index from the start of the year to mid May, the banking sub-index grew twice as strong, showing an improvement of 24%.

As Safaa Zbib, head of research at Kuwait-based financial firm Bayan Investment told Executive, commercial banks ended the first quarter of 2007 with strong earnings that helped them outperform the other seven sectors on the KSE.

The eight banks that published quarterly financial reports by the end of April, indeed showed their consistent qualities in the first quarter results that (excluding BKME for which no result was available) totaled KD218.3 million – equal to $757.8 million, 28.8% better than in the first quarter of 2006.

Sector leader National Bank of Kuwait (NBK) had the lowest percentage growth with 13.4% but topped the results list in absolute numbers with KD64 million, ahead by almost KD13 million on runner-up Kuwait Finance House, the country’s top Islamic bank.

The banking sector’s share in the KSE market capitalization climbed six percentage points to 31% at the close of the first quarter of 2007, Zbib said. In mid-May, the cumulative market cap of the eight stood at nearly $54 billion, with NBK and KFH accounting for more than $32 billion between them.

Also noteworthy, KFH had considerably narrowed the valuation distance to sector leader NBK to less than $400 million from more than $3.5 billion at the end of 2006. KFH caught up with NBK’s market value through a combined bonus shares and rights issue for 40% of its capital this spring. NBK on its part executed a 5% bonus issue but also extended again a share buyback program for 10% of its stock, which went into a third six-month round in May.

Successful strategies

NBK told Executive in a written statement that it credited the fast growing economy’s hunger for loans, investment, and core banking services on both the retail and corporate levels as lead factors in its success. The bank’s successful strategy enabled it “to deepen our market penetration both in terms of customer acquisition and providing our customers with a wider scope of service offerings.”

Zbib said the banking sector’s strong development in the past few years was partly due to the opening up of the Islamic banking sector in 2004. Until then, Kuwait Finance House held a government-enforced monopoly on Kuwait’s sharia-compliant banking market. After the central bank lifted prohibitions against the creation of new Islamic banks, Boubyan Bank entered the field, raising $260.7 million in its IPO and one specialized bank, Kuwait Real Estate Bank, switched to sharia-compliance. However, numbers prove that allowing the entry of new Islamic banks did not harm the profits at KFH, to the contrary.

Oil, being the life juice of the Kuwaiti economy, also figured in the growth spurt of the banking sector. The banks’ performance both for the quarter and the past few years come on the back of loans to finance large oil and gas projects, said Mihir Marfatia, a financial analyst with Kuwait’s Global Investment House.

The banks’ total assets grew 29% to $97.6 billion in 2006 from $75.7 billion in 2005, not including Kuwait Real Estate Bank, for which 2006 figures are not available.

Commercial banks have also indirectly impacted the market through providing a means for economic growth and diversification, said Jan Randolph, an analyst with US-based Global Insights, which studies Gulf Cooperation Council (GCC) markets. Randolph told Executive that banks in Kuwait act as vehicles for development in the economy, supporting the development of other sectors.

With their consistent earnings growth, Kuwaiti banking stocks became attractive investments, according to Zbib.  “The banking sector in general is a steady sector – and not risky,” she said.

Although banks are an important source for the upward share price momentum that the KSE experienced this year, they did not influence the market through big-time share buying. “You won’t see banks impact the Kuwaiti stock market directly,” said the head of research at Oman’s BankMuscat, who did not want to be named.

According to BankMuscat’s research, Kuwait’s banks have fueled the buying of shares on the KSE only through their lending activities, which were dominated by retail lending in 2004, 2005 and 2006.

Keeping close watch

A key factor in the sector’s stability has been the watchful eye of Kuwait’s Central Bank, which monitors commercial banks to ensure they follow international standards, practice transparent corporate disclosures and maintain high capital adequacy levels, said Karim Kamal, who heads the research department at NBK.

“It’s not that there are very strict rules on how to do business, but there’s very strict control and follow-up that doesn’t allow banks to do risky things,” he said. “Because of this, investors see the low-risk aspect of investing in the banking sector. So whenever they feel there are winds of change or a downturn in the stock exchange, they park their money in the relatively safe banking sector.”

In one example of its sector control, the Central Bank stepped in during 2004 by mandating banks to lower their lending ratios from 92% of deposits and follow what was called the 80:20 rule. It stipulated banks could only lend 80% of their deposits, but re-classified deposits to make the rule less restrictive.

While it was not exactly followed, the rule brought lending ratios closer to the 80% mark. The central bank has since increased the ceiling to 88% of deposits, Marfatia said.

The year 2004 was a busy one on the regulatory front as the central bank also opened Kuwait’s banking sector to foreign operators while maintaining restrictions that offered domestic banks protection of their retail business. “While the Central Bank has been granting licenses to international and regional banks in Kuwait, it has been limiting those licenses to one branch, making it impossible for those banks to compete on the retail level,” Kamal said.

The only exception to the rule is the Bank of Kuwait and the Middle East (BKME). It was privatized in 2003 by the Kuwait Investment Authority, which allowed Bahrain’s Ali Ahli United Bank to buy a controlling stake, 67.33%, in BKME (originally a foreign bank that the Kuwaiti state had bought from the British in 1971) and allowed it to keep operating its multiple branches.

But by and large, foreign banks wanting to work in the Kuwaiti market – the first operating license went to BNP Paribas in 2004 – have to focus on the corporate market and on private banking for high net-worth individuals.

After having expanded their local activities in the past few years, Kuwaiti banks are now facing the challenges of taking the leap abroad and become players outside of their borders.

“Our challenge is not on the local scene,” Randa Azar, NBK’s chief economist, told Executive. “It is more related to the regulatory barriers to our ability to execute our regional expansion strategy.”

Some analysts, like Randolph of Global Insights, cautioned that banks in Kuwait and other GCC countries ought to take care to cover themselves against over-concentration of lending to particular sectors, such as real estate, where a fall in asset qualities and investment losses could have devastating consequences for overexposed lenders.

The latest measure of the Kuwaiti authorities, the surprise announcement on May 19 that the dinar will shift from a dollar peg to be tied in the future to a currency basket, may not make regional expansion easier for Kuwaiti banks, as the move enforces doubts on the implementation of a GCC monetary union in 2010. For the moment, though, analysts agree it is too early to say what impact the re-pegging of the dinar will have on the business of Kuwait’s commercial banks.

0 comments
0 FacebookTwitterPinterestEmail
Banking & Finance

Money Matters by BLOMINVEST Bank

by Executive Staff
written by Executive Staff

Regional stock market indices

Regional currency rates

QNB launches representative office in Libya

Qatar National Bank (QNB) launched a representative office in Libya, and that in accordance with the bank’s plan of international expansion. With the Libyan office, QNB’s presence now extends to 15 countries, among which are Oman, Kuwait, Singapore, UAE, UK, France and Switzerland. QNB reported net profits of QAR652.8 million ($179.4 million) in Q1-2007, up 6.7% year-on-year. The bank’s total assets rose 22.1% for the same period to QAR70 billion ($19.2 billion), while loans rose 41.5% to QAR47.2 billion ($13 billion) and customer deposits increased to QAR52.7 billion ($14.5 billion), up 15.8%.

Abu Dhabi’s Aldar to exclusively construct Ferrari theme park

Abu Dhabi-based public joint stock company Aldar Properties signed an exclusive deal with Ferrari to construct the Ferrari Theme Park on Aldar’s Yas Island Project. The theme park will feature attractions, family rides, driving school, virtual simulations and Ferrari brand products retail store. Aldar, established in 2004 and currently employing 200 people, is behind the development of the $40 billion 25 million m2 Yas Island project. The island, which will host Ferrari’s theme park, will also include golf courses, hotels, marinas, polo clubs and apartments etc. The project will be completed by 2014, with the first phase excepted to be done by 2008.

Country profile: Jordan

Jordan Investment Trust PLC (Jordinvest) issued its Jordan Economic Report 2006 explaining that despite the difficult regional environment surrounding Jordan, the country managed to experience high economic growth in 2006, as Jordan established itself “as a secure haven to conduct business.” The country’s GDP registered a growth rate of 6.4% in 2006, down from 7.2% in 2005. Unemployment rate dropped to 13.9% in 2006 accompanied by a rise in inflation rate to 6.25%, up from 3.5% in 2005. This exhibited growth was supported by the Central Bank of Jordan (CBJ) sound monetary policy that kept the dinar’s peg to the dollar. CBJ’s official reserves were at $6.1 billion in 2006. The Amman Stock Exchange witnessed a correction similar to that witnessed by other regional stock markets. Consequently, the Amman Stock Exchange Index closed at 5,518 points in 2006, down 33% year-on-year. The country’s budget deficit improved from 5.3% of GDP in 2005 to 4.4% of 2006 GDP, or some $627 million. According to Jordinvest’s report, Jordan’s external trade (exports and imports) surged by 10% in 2006, pushing the ratio of external trade to GDP (economic openness ratio) to 109%, the second year in a row in which external trade exceeds GDP in Jordan.

0 comments
0 FacebookTwitterPinterestEmail
Banking & Finance

Debt vulnerability and risks for solvency

by Executive Staff
written by Executive Staff

Lebanon’s public debt has been accumulating rapidly over the past decade and a half, making Lebanon one of  the most publicly indebted countries in the globe. Political imperatives and reconstruction needs led to large fiscal deficits and debt  build up. Higher than anticipated costs combined with elusive assumptions on growth and aid kept the overall fiscal deficit at 22% of GDP by 2000, raising  public debt to 151%  of GDP.

Realizing that debt build up could generate solvency concerns, strong fiscal discipline was initiated in 2001 involving freezing expenditure and introducing value added tax (VAT), generating primary surpluses for the first time, and stabilizing the debt rate.

Nevertheless, Public debt by end 2006 reached $40 billion, 178% of GDP. The fundamental question remains: how much solvency risk does this level of debt impose on the Lebanese economy? The peculiarities of public debt as well as that of the Lebanese economy have enabled Lebanon to avert crises even under extreme political stress and turmoil. Large private transfers, limited external market exposure, lower rollover risk, and comfortable reserves have allowed Lebanon to sustain higher public debt than one would otherwise expect.

Lebanon is a very open economy with heavy dependence on transfers from the Lebanese diaspora. Annual private transfers are one of the highest in the world, estimated at over 20% of its GDP. Accounting for these transfers brings down the debt ratio to 140% of disposable income (GDP plus transfers). A rate deemed closer to a sustainable threshold.

External debt exposure

Lebanon’s exposure to external debt, at 15% of the total ($6 billion), by end 2006, is low by emerging market standards, and much lower than that of countries that faced financial crises. Further, nearly half of it is to official creditors with long term maturity. The large central bank reserve cushion  of $13 billion (excluding gold)  can certainly absorb a sudden reverse in sentiment in external private markets.

Another peculiar feature of Lebanon’ debt structure is the successive decline in its market  debt ratio to 60% of total debt in 2006 from 82% in 2000. Market debt to GDP and as well to disposable income has declined to 110% and 88% respectively, perceived as more viable ratios.  The central bank has increased its holding of public debt to 25%; official creditors’ share as well increased to 11%. The counterpart to increased central bank financing has been a rise in commercial banks claims on the central bank, notably in the form of long-term deposit certificates.

The increased intermediation role of the central bank (with a lower default risk) has pacified financial markets at a time of increased political uncertainty. However, this operation has it own cost, weakening the financial strength of the central bank.  Shocks to the financial system, however, can still be  absorbed by its reserve base and swap operations, albeit at a higher cost, as in the case following Hariri’s assassination.

High share of debt holdings for commercial banks

Commercial banks’ share of public debt holding, however, remains high at nearly 50%  and  is closely linked to the stability of the deposit base (banks’ liabilities) and the maturity of public debt. The rollover risk is low owing to the banks’ strong incentive not to jeopardize the financial viability of their main debtor, the government. Their  inter-twined interest, limited exposure to foreign banking, and high liquidity has limited their alternatives.

Lebanese banks continue to experience high liquidity brought about by its ability to attract substantial flows from regional financial markets, making money supply to GDP   (nearly 3 times) one of the highest in the world. Banks on their own can absorb sudden shocks of rapid  deposit withdrawals; their foreign assets are twice non-resident deposits in foreign currencies.

The term structure of Lebanon’s debt maturity structure has improved in recent years. With Paris II (and looking forward to Paris III), long term debt  has risen to three-fourths of total debt by 2006, reducing government exposure to interest rate risk. Nevertheless, compared to many emerging economies, Lebanon’s debt remains burdened by short maturity, $16 billion mature in 2007-08.

Finally, the debt overhang remains serious, raising solvency concerns and the possibility of transmission of shocks between the fiscal and the financial sectors. Serious fiscal adjustment as well as financial sector reform is urgently needed to  reduce the debt burden, diversify debt holding, and reduce the sterilization burden on the central bank.  Solvency risk, however, prompted by external shocks is low with foreign assets of the banking sector standing at $33 billion, 75% of total debt and 150% of debt denominated in foreign currencies.

Dr. Mounir Rached is a senior IMF economist, and a founding member of the Lebanese Economic Association. The views in this article are those of the author and don’t represent those of the IMF

0 comments
0 FacebookTwitterPinterestEmail