Lebanon

Al Waseet pushes into region

by Executive Staff
written by Executive Staff

The market for consumer goods has never been moreprosperous, according to recent advertising businessstatistics. Classified Intelligence reported the market forclassified ads accounted for $30 billion in 2003 in theUnited States alone, a figure that also includes newspapersand online websites. During the same year, the global marketwas estimated at over $100 billion. In the Arab region, AlWaseet classifieds boasts over 4.7 million copiesdistributed weekly and a readership base of over 20 million.With its 26 operations and staff of 5,000, Al Waseet ispresent nine countries across the region.

“Al Waseet provides a medium for people to buy, sell andexchange goods, keeping them updated with the latestpromotions and products featured within eight differentcategories,” said John Fawaz, the company’s managingdirector. Al Waseet includes listings for real estate, jobs,automotive sales, electronics, technology, hobbies and otheritems, and a personal classifieds section entitled BigHeart.

Based in Dubai, Al Waseet International (AWI) is part ofAl Wataniya Group, which owns numerous publications,including Al Balad newspaper, as well as the Layalina, AlHayat and Laha magazines. Operating in Syria and Kuwait,Baladna newspaper, Top Gear, What’s On and Concord OutdoorMedia are also part of the Al Wataniya group. Founded byBashar Kiwan, Mohammed Abdulaziz Al-Otaibi, Sheikh SabahJaber Al-Sabah and Majed Suleiman—who came up with theoriginal concept—AWI’s 26 publications are featured in asmany as 23 cities.

100 Branches by 2012

“Our expansion plan targets 100 branches by 2012, withcoverage spreading beyond the Middle East and Africa,” saidFawaz. In keeping with the company’s growth, an Englishversion of Al Waseet was made available in places likeKuwait, Cairo and Dubai, where there are largeEnglish-speaking populations. To further strengthen its gripon the market, the company also chose to pursue corporateinvestment and franchising deals.

“With AWI’s experience and successful internationalexpansion, no company is more fit to establish a lucrativebusiness model that can be emulated and operated profitablyanywhere in the world. Franchising, therefore, makes a lotof sense for us and has become a crucial step in thecompany’s development. It will undoubtedly take the AlWaseet business model to the next level,” continued Fawaz.

Franchising as a sustainable business strategy dependsprimarily on AWI’s performance in the media advertisingsector. Backed by an efficient market research departmentand advanced computer software, the company is able todetail business processes from marketing protocols todistribution methodologies. In addition, franchisees can gethands-on experience by visiting the Al Waseet Showcase inDubai, a fully functioning Al Waseet branch that serves,according to the company website, as a franchise trainingcenter. The franchise agreement that was recently signedbetween Al Waseet and Nigerian Middle Advertisement Limitedunderscores the company’s approach towards securinginternational stature.

To enhance Al Waseet’s position as a major advertising andmedia player, management has relied on local marketingcampaigns to create brand awareness. Launched regionally,this year’s advertising campaign adopted a unified messagethat was expressed individually according to differentmarkets. “We have the advantage of being a media companythat has companies like Al Wataniya as media partners, whichprovides us with wider coverage. In terms of BTL [below theline strategy], we follow the same marketing approach usedin the FMCG [fast moving consumer goods] business, thusproviding fully-branded materials to various POS [points ofsale] and PODs [points of distribution],” said Fawaz.

The high market penetration and circulation rates indicatethat the company’s marketing approach has thus far been asuccess. Company figures show that 4.7 million copies aredistributed every week, with Saudi Arabia proving thelargest market with a total weekly circulation of 1,050,000copies. In Dubai, Al Waseet’s new English version is showingpromising results with 200,000 copies distributed weekly.The overall Al Waseet market share for the UAE is estimatedat 92.04%; in Kuwait, it reaches 32% and in Syria, 56%.

“With 20 million weekly readers, Al Waseet is currentlythe only regional publication offering such wide coverage,with a cumulative market penetration of 77%. Although westill face competition in many markets, we remainnonetheless leaders in our category,” Fawaz pointed out.

Fawaz added that the very nature of Al Waseet, a massproduct that can be easily positioned in any market,provides an open door to a world of unlimited opportunities.It is for this reason that the company intends to pursuecorporate expansion by identifying new potential markets,opening new branches wherever internal criteria fordevelopment are met.

Focused on small to medium clients

In terms of readership, Al Waseet focuses on small tomedium clients, including corporations and advertisingagencies. In addition to regular ads, Al Waseet alsoprovides mailing services based on geographic location,demographics, nationality, profession and income, withneeds, wants and purchasing habits varying from one marketto the other. Targeted mailing also includes VIP listingsand identifying key figures. “Al Waseet was the first freeweekly classified publication to be distributed door todoor. Today, our regional network is our main competitiveadvantage,” said Fawaz.

AWI is in the process of restructuring call centers toimprove the quality of services and customer satisfaction.It intends to add new products to ranges already offered. The Al Waseet website has also been overhauled and is nowcalled ewaseet.com. “With its new look and features, weexpect ewaseet to provides us with a separate source ofincome and generate revenue once it is launched properly,”underlines Fawaz. The website offers online brandingsolutions, which includes above the line advertising,classifieds and targeted advertising. According to thecompany website, with its 90,000 registered members and200,000 visitors, “the portal serves over 2.2 millionvisitors per month.”

This year, Al Waseet has acquired licensing rights for theGuinness World Records for the MENA and the GCC regions.This includes publishing and distribution activities as wellas management of all related PR events. “Now that we havesolidly established our SOPs [Standard OperatingProcedures], we can say that we are paving the way towardsstock market entry. The IPO is very much on top of ouragenda, but it is not an easy step to take, and requiresmuch preparation,” conceded Fawaz.
 

Al Waseet market share in Kuwait. source: Al Waseetwebsite, Ipsos stat 2006.
Al Waseet market share in the UAE. Source Al Waseetwebsite, Ipsos Stat 2006

 

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Lebanon

Cry of despair for investments: Habtoor blames Lebanon

by Executive Staff
written by Executive Staff

I came to Lebanon as an investor believing in the law,constitution and state of this country and I believedstrongly enough to invest hundreds of millions of dollars,”said Khalaf Habtoor, founding father and chairman of theEmirati Habtoor Group. “However, despite the existence of apolitical and legal framework, law and order is not beingimplemented. Investments in Lebanon have been significantlydamaged by political, economic and social instability,created by the Lebanese system.”

Habtoor Group is one of the main foreign investors inLebanon, with such assets as the Metropolitan Hotel, theHabtoor Grand Hotel and Habtoorland. Due to the summer warand ongoing political crisis, the hotels have laid off mostof their staff, while the amusement park has closed downcompletely. No wonder, Habtoor on March 20 asked someunsettling questions, as he delivered a message of anger,despair and bitter disappointment.

“Protests, affirmative action and terrorist activities takeplace in many countries. Lebanon is not alone in this,” hesaid. “The difference is that in other countries life is notbrought to a standstill. Did London close down for weeksafter the subway blast? Did Egypt, Morocco and Jordan cometo a complete standstill? No. The situation was contained bythe state, and authorities made sure that businesscontinued.”

Not so in Lebanon, where the seemingly endless politicalcrisis increasingly paralyzes the economy. Emphasizing he isnot engaged in politics on either side of the Lebanesedivide, Habtoor firmly pointed his finger not at theopposition or government, but at the shortcomings of theLebanese system.

“The state should take care of the welfare of the countryand people and should have policies and decisions firmly inplace,” he said. “Lebanon needs foreign investments as itneeds to create employment, and for that it has to ensurepeace, justice to all and security to the investor. Why isthe state unable to protect interests and security, despitehaving a full fledged army and police force?”

According to Habtoor, “a ship has only one captain andcannot navigate a rough sea if the power is diluted.”Lebanon’s lack of unity and true leadership is onlyaggravated by the fact that “local and governmental bodiesact as independent authorities. Each and every corner of thecountry has its own ruler and for every few villages anautonomous municipality functions without state sanction.”

As an example, Habtoor cited he was never told by localauthorities that there was an army firing range next toHabtoorland and, while the Habtoor Grand Hotel was ready foroperation by August 2005, the opening suffered excessivedelays, as an operating license was denied, even though thehotel was built according to prior approval.

Habtoor is not the sole investor with such grievances. Dueto the continuing unfriendly investment climate in Lebanon,a number of Arab and Lebanese investors have approachedHabtoor to join them in suing the Lebanese state at theUnited Nations Commission on International Trade Law.

Habtoor, who was decorated by Lebanon’s president in 2002,blamed the Lebanese and their frail political system for hismisery. “I think that the only fault I committed was that Iever believed in Lebanon.”

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Lebanon

The ABC Group does retail by the letter

by Executive Staff
written by Executive Staff

According to the latest figures in the retail real estatemarket, the sector is growing faster in the Gulf than in anyother region. The business website AME Info reports that by2010, nearly 50 million square meters of gross leasable area(GLA) will be available in the area, with the UAE and SaudiArabia taking up 44% and 30% of the pie, respectively. By2009, Dubai is also expected to have the highest retailspending in the GCC, beating out Saudi Arabia, despite itssmaller population. The city is gearing up for this increaseby building giant malls, such as the Dubai Mall, which isbeing hailed as the largest in the world. Hoping to cash inon this growing trend is the ABC Group—operators of the ABCdepartment stores and malls—which is scheduled to open two stores this year in Bahrainand Amman.

From the original store that was located in old Beirut onBab Idriss Street in 1936, the ABC Group has since morphedinto an expansive department store, with two shoppingcenters and a number of additional stores, including twonewly-added cosmetic and perfume outlets, under its belt.Despite the civil war that first claimed the Bab Idriss shopin 1976, followed by the 1982 destruction of the Hamra andTripoli stores, ABC has managed to become a member of theInternational Association of Department Stores (IADS),boasting retail spaces of over 60,000 m2.

Leader in Lebanon

According to figures provided by ABC, the Group enjoysone of the highest brand awareness rates in Lebanon,estimated at 97%, while 76% of consumers shop at one or moreof its locations. Within its first year of operation in2003, the ABC Mall in Ashrafieh was visited by five millionshoppers, with the number of visits to the Dbayeh mallamounting to 2.5 million per year. Branching out with ninedepartment stores into various Lebanese regions, such asBeirut, Zahleh, Kaslik and Tripoli, the company is supportedby a staff of over 600 employees.

The ABC concept as we know it today has shifted away fromits original exclusive focus on retail activities. “Thecompany started first as a regular retail business, addingat a later stage a real estate arm in charge of building,developing and leasing retail space, which resulted in ashopping center, comprising an inclusive ABC departmentstore,” said Robert Fadel, ABC’s director. This shift instrategy was marked by the construction of the Dbayehdepartment store, where for the first time, space was rentedto retail businesses. This move was subsequently followed bythe construction of the 42,000 m2 Ashrafieh mall. Otherservices, such as child daycare, information desks, weddinglists and a car wash were also added to the initial basketof products offered by the Group.

Expansion into foreign markets seemed like the naturalnext step. Prompted by booming Arab markets, Lebanese marketlimitations and a teetering political situation, variousfactors conspired to export the ABC concept to the MiddleEast. In the Jordanian and Bahraini markets, consideredstepping stones in the company’s overall expansion plan, thebusiness model adopted was either inspired from the Lebanonexperience or completely overhauled. “Occupying a 4,500 m2surface, the Amman department store will be similar to theBeirut one, although it will be developed on a smallerscale. The Bahrain 1,500 m2 concept store, however, focuseson women’s apparel, which includes accessories, shoes andlingerie,” added Fadel.

Positioned as mid- to high-end outlets, the ABC departmentstores offer various international brands, such as Carol,Tintoretto, A Priori, McGregor and Kookai, as well as luxuryitems from Chanel and various jewelry designers. The storesalso provide tableware and household items, shoes,accessories, cosmetics and perfumes, which are sold atcompetitive prices. With over 100 international, regionaland local brands holding sales stands at ABC, the group isthe largest retail developer in Lebanon, incorporating over200 tenants. Within the Middle East, the Bahrain and Jordanstores will also be positioned in the middle range of theretail spectrum, with Debenhams on the lower end and HarveyNichols on the higher end. “Besides these two contenders,basically anyone in the fashion industry is our competitor,”said Fadel.

Expansion plans

Collections on display in the Jordan and Bahrain storeswill also differ from the ones available in Lebanon, as aresult of differing store sizes as well as conflictingrepresentation and exclusivity contracts, a problemcurrently under examination by the ABC management. “TheAmman store will, however, include ‘shop-in-shops,’ such asKookaï or Chanel,” Fadel pointed out.

Despite expansion into foreign markets, ownership of thecompany will not be affected. “The company is owned up to80% by the founding family, with the remaining 20% dividedamong 100 shareholders,” explained Fadel. Owners also relyon a flexible structure based on three core activities:operation and services, leasing, and merchandising andmarketing.

Operation and services, the first sector of activity, isunderpinned by support services—including HR, purchasing,MIS, design and in-store marketing, maintenance,warehousing, finance and legal office departments. Store andmall operations are divided by area—including Dbayeh,Tripoli, Zahleh, Hamra, Ashrafieh, Kaslik and Furn elShebbak—and overall mall management. Leasing, the secondcore activity, is dependent on the company’s real estatearm. Lastly, the marketing activity involves events andpromotions, customer relationship management (CRM), marketresearch and communications. Purchasing is in charge ofregrouping ladies’ and men’s wear, shoes, lingerie,children’s wear, home items, appliances, toys andaccessories under one roof.

While the Group’s larger projects in Lebanon requiredmajor investments—the company’s total assets are currentlyestimated at over $100 million—the Bahrain and Jordanventures will require less capital. Including the cost ofmerchandise, the new ABC stores will fall within a bracketof $5 to $10 million and will be backed by staffs of 50 to200 employees. Fadel also expects sales revenue for the twonew outlets to vary between $4,000 and $7,000 per m2, afigure that can be put in perspective when compared to the$3,000 generated by local Lebanese stores. Considered one ofthe highest non-food ratios in Lebanon, ABC’s turnoverrepresents 13% of the $1.5 billion Beirut retail market.

Like any other company with an eye on attractive businessopportunities available in the Middle East, Fadel isconsidering ABC’s expansion into Kuwait, the UAE, Syria,Egypt or the KSA. As for going public, however, he has lessambitious plans. “It will eventually happen, sooner ratherthan later,” Fadel stated, “but there is no definite timeframe yet.”

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Lebanon

Parking meters Coming to Beirut

by Executive Staff
written by Executive Staff

This month will see 50 parking meters installed in one areaof the Beirut Central District. The pilot scheme, operatedby Near East Automatic Distributors (NEAD) in an $8 million,2.5-year, World Bank funded project, will then see a further10-20 on Charles Malik and Bliss streets and 50 more in thearea currently occupied by opposition campers. Althoughtargeting commercial areas, NEAD will eventually targetspecific residential zones to offer resident parking permitsin a system similar to that operated in London and othermajor cities.

“The number will eventually rise to 750 throughout Beirut,”says Chafic Sinno, NEAD’s managing director, “We will belocating them in the business districts, where we hope thecustomer will have the social wherewithal to understand andaccept the concept as something that is beneficial.”

The concept is simple. One main meter will dispense ticketsaccording to the “pay and display” system, with LL500 buying30 minutes and allowing a maximum stay period of twohours—perfect, Sinno believes, for the short-term parker.Customers who overstay their welcome will receive multiplefines—or citations—and further non-payment can result in a“booting” or immobilizing if the car is later spotted atother meter locations.

Drivers who think they can simply throw away the citationand disappear will be disappointed. Records are kept and,now that the mécanique renewal process is also under theauspices of the private sector, “wanted” drivers who haveoutstanding fines will not be able to renew their car papersuntil all debts have been cleared.

Handing out fines will be the responsibility of fieldoperators, all of whom will be accompanied by police, whosepresence—especially on the notoriously territorial BlissStreet running the length of the American University ofBeirut—will be welcome.

Those who have had run-ins with the often-threatening andintimidating parking attendants on Bliss might be skepticalabout NEAD’s chances of success on this busy,student-drenched thoroughfare. Even if they do contribute totraffic congestion, most businesses rely on double parkingfor their customers and, until now at least, the policehave, by and large, turned a blind eye.

Sinno is confident that the system will work and isrealistic about how people will react to the newrestrictions. “Listen, on Bliss Street, we will be flexible.We will not penalize very short term drivers if theyactivate their flashers, keep their windows down and ensuresomeone stays in the car,” he explains, adding that the jobwill become easier when the sidewalk is widened, a move thatshould make the street’s double parking culture impossible.He also insists that no one has been bought off in his bidto enforce parking.

“On Bliss, we are going head on,” he explains, “It will notbe easy. They [the shop keepers and restaurant owners] haveno idea we are coming and they will just have to deal withit. The police have been told that they too must cooperate.No one has been paid off. The orders have come from the verytop and we are receiving encouragement from all the seniormunicipal officials. In any case,” he laughs, “my marginsare too tight.”

Sinno confirmed that he had initially recruited 40 fieldoperators and that this number will rise to 150. He isconfident that if an operative is doing his job correctly,he should issue around 70 citations a day. In the firstyear, the government estimates it will generate revenues of$5 million, part of which will be given to NEAD—which hasbeen operating vending machines in universities, hospitalsand big offices for 12 years now—as its operating fee, andpart of which will be used to pay off the World Bank loan.

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Banking & Finance

Private equity booming

by Rami Bazzi
written by Rami Bazzi

The United Kingdom’s National Union of General andMunicipal Workers (GMB Union) has recently accused privateequity firms of evading tax payments on billions of poundsthat have been borrowed to fund their buyouts. The Union hasblamed the tax code for encouraging investors to overloadcompanies with debt in order to claim tax relief on theinterest payments.

However, evidence indicates that the private equity housesare delivering enviable results for investors and in factthe private equity industry has become a great Britishsuccess story.

The benefits are not simply the high rates of return oninvestment. There is evidence that takeovers by privateequity firms will, in the medium term, generate jobs, ratherthan destroy them. For instance, a study by NottinghamUniversity’s Center for Management Buyout Research studiedprivate equity deals over a five-year period, (1999-2004),and concluded that there was a significant increase inemployment, up by an average of 26%, after five years. Thatstriking figure suggests that private equity injectsefficiency and generates growth.

As a result, the private equity industry is booming inmany parts of the world and is highly regarded in the MiddleEast and other emerging markets including China, Sydney andthe US. According to Thomson Financial, private equity netreturns outperformed the S&P 500 19% to 9.7% for the 12months to last September and 14% to 9.7% for the past 20years. The firm predicts that new money will keep flowinginto private equity as long as the public market fails toallocate capital efficiently.

The immense benefits of private equity to the overalleconomy make it a vital cog in any market. Private equityhouses and activist fund managers of all kinds, includinghedge funds, play a much more valuable role than anygovernment or regulator in propelling the liquidity of ourcapital markets, in reducing the cost of capital, in drivingforward a country’s growth and in equipping the industry tosurvive and compete in the more challenging global marketsof today.

What we also need to remember is that private equity hasproven its potential in enabling the institutionalization offamily businesses and in the implementation of propercorporate governance, key to the sustained growth of today’senterprises.

Critics of private equity also highlight the limitedaccountability as one of the drawbacks. What they fail tounderstand is that in reality, when a private equity firmpurchases a company, ownership and control are much moreclosely aligned on the main shareholders. On the otherhand, in public companies, mechanisms of accountability haveto be developed because of the separation of ownership andcontrol.

The concentration of ownership in private equity meansthat formal accountability mechanisms become far lessimportant and the owners are actively engaged in thesupervision and management of the business.

If the importance of private equity has been wellestablished in developed markets, its role in supporting thedevelopment of emerging markets will be even moresignificant, especially in sectors such as IT and telecoms.For instance, in China, the total investment for 2005 was anincredible $1.057 billion invested over 233 enterprises in2005. As a result, hoards of foreign private equity firmshave rushed to quickly establish a physical presence in thecountry to take advantage of its huge domestic market, largepool of low cost engineering talent, technologicalinnovation and fast growing economy.

In the Middle East, the Islamic module of private equitypractices presents the optimum solution for many of thechallenges faced by private equity. The shariah law governsthe mechanics as well as the integrity of the investingoperations. For example, the shariah law prohibits investingin industries that are considered detrimental, such asalcohol, tobacco and weapons. The money invested also needsto be from permissible industries and cannot be from a fixedincome ROI whether it’s interest-based or interest-like.Another shariah investment requirement relates to acceptableleverage ratios. The ratio of the total debt of a targetcompany to its total assets must be less than 33%.

In Malaysia, such Islamic banking practices are popularamong non-Muslims and have proved to be a mainstreambusiness in many emerging markets, especially in the MiddleEast where the Islamic funds are mushrooming at anaccelerated rate. Those funds have proved to be lucrativeand trustworthy, as they can be a good alternative to theconventional funds whose integrity is in question.

Unfortunately however, the campaign against the privateequity industry is not tenuous. The growing use of“shareholder loans” in highly leveraged structures allowsprivate equity groups to disguise the equity as debts andobtain tax deductions. On the other hand, controversialquestions are being raised over jobs and working conditions,about private equity firms who made staff redundant andintimidate workers to maximize short term profits in firmsthey buy out.

The UK private equity industry continues to be the largestand most developed in Europe, and accounts for more thanhalf of the total annual European private equity investmentin 2005. Although private equity has been criticized by thelabor unions, wisdom dictates that the issue is actuallyrelated to tax policies and not necessarily to thefundamental characteristics of the private equity industry.We need to realize that exceptions cannot become the normsin free and open economic markets if economic progress isour underlying concern.

Rami Bazzi is principal fund manager at Injazat Capital

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Banking & Finance

Private Equity: A close look at a maturing asset class

by Executive Staff
written by Executive Staff

The Middle East and North Africa region has become apowerful magnet for private equity investment, as the totalnumber of capital raised reached $4.1 billion in 2006,according to insiders in this segment of the financialindustry. The experts expect private equity investments toincrease greatly in 2007, but also warn that the challengesfor the year ahead continue to be dominated by thedeployment of private equity cash into attractive companies.

By some measures, the region is poised to become the nextbig market in private equity, analysts say. “The privateequity industry globally is benefiting from enormous growthand the Middle East is no exception,” Colin Taylor, managingdirector and head of Credit Suisse’s Alternative CapitalDivision in Europe, told Executive. “There is a high levelof liquidity, enabling private equity players to raisesubstantial funds,” he added.

The region’s private equity evolution is trailing a fewyears behind the development of this industry in G7countries and is still small when compared with the region’seconomic engine and leading source of liquidity, the oilsector. OPEC is expected to generate close to half atrillion dollars this year, and the Middle East’s shareestimates are in the range of $320 billion in oil and gasexports revenues.

Despite a lot of buzz about private equity in conferencesand press statements, and despite the formation of aregional association for the industry, the real muscle ofprivate equity funding has not yet been shown to the curiouspublic. Numbers compiled by the international EmergingMarkets Private Equity Association (EMPEA), the regionalorganization Gulf Venture Capital Association andresearchers are several billion dollars apart in the amountsthey quote as results of Middle Eastern private equityfundraising for both the past decade and the past twoyears.

Moreover, if fundraising is the bulging biceps of PEmanagers, it has to work in productive interplay withinvestment activity as the triceps for distributing theaccumulated power into the corporate world. The fewavailable confirmed numbers on PE investments suggest thatit has been a challenge to turn collected funds intoprofit-making ventures.

A review of the funds that were active in 2006 or havebeen announced by the region’s PE firms shows that 20 fundswere in their fundraising phase with a cumulative targetamount of $4.15 billion. According to Zawya Private EquityMonitor, in total, 18 funds were in their investing phase.They had $5.76 billion in their war chests but did not sayhow much of that had already been invested into concreteprojects. For future funds, eight funds had been announcedwith combined target size of almost $3 billion, in additionto which market rumors knew of another seven fund projectsthat would be worth $1.54 billion.

Apart from the impact of the oil boom, analysts attributethis rapid growth in the private equity market, in both thenumber and size of funds, to reduced restrictions on foreigninvestment, the real estate boom—both in the GCC and Levant regions—substantial investmentsin infrastructure development and privatizations, familyconglomerates who are now interested in restructuring andgrowth strategies and favorable results for private equitymanagers from the recent high number of IPOs in the GCC.

“There is a fundamental reason why interest in emergingmarkets remains so strong: returns have not only beenimproving over the last three years, they are looking fairlyrobust on both an absolute basis and on a relative basiscompared to other PE markets,” said a report by EMPEA.

Big Deals

Private equity funds started to gain prominence in theregion in the mid-1990s, and by 1998, a small number offirms had over $300 million under management. Notsurprisingly, the overall industry picture has changeddramatically over the last three years. The private equityhas matured as an asset class with record fund raisings, asharp rise in average fund size and increasing acceptance ofprivate equity by leading institutional money managers.Today there are an estimated 83 firms with over 123 funds—announced, rumored, fund-raising, invested or closed—including those with multiple funds such as Abraaj Capital,Global Investment House, Swicorp Financial Advisory Servicesand EFG Hermes.

Although it’s growing fast, private equity in the MENAregion has yet to show the scale of returns and deal volumethat make PE a force in other global markets. Butnevertheless, there have been big deals in successfuloutbound investment, such as the $1.23 billion paid in 2006for UK’s Doncasters Group, an engineering firm, by DubaiInternational Capital for a majority stake, and Istithmar’sacquisition of billion-dollar stakes in Standard CharteredBank, pension insurance institutions, and properties in theUS and UK.

An example for a successful regional transaction was theDubai-based Abraaj Capital’s acquisition of a 25% stake inEFG Hermes, Egypt’s largest investment banking firm throughthe Abraaj Buyout Fund II in a deal valued at $501million.

And the big deals will continue to dominate in 2007, withDubai Islamic Bank and Dubai World’s announcement of a $5billion family of private equity funds to participate instrategic transactions on a global scale. Another rumoreddeal is from the US-based Carlyle Group MENA Fund, which isexpected to raise over $1.8 billion. Other substantial dealsinclude the $500 million Evolvence Private Equity GCC Fund,by Evolvence Capital, to invest in private companies invarious sectors in GCC.

The list also entails some international names that targetthe Middle East, with Credit Suisse and General Electriclaunching Global Infrastructure Partners, a $1 billion jointventure focused on energy, transportation and water projectsglobally. The fund is expected to take on infrastructureprojects in the GCC.

The need for regulation

The growth explosion in the industry and its economicimportance have not gone unnoticed by governments and themedia. This importance and the growing public awareness thatit brings have created a call for responsibility andaccountability to investors. Both in the United States andthe European Union, calls for increased regulation or for“tightening” the rules that govern private equity groups arenot new.

These same calls are now being echoed in the MENA region.Observers agree that the region should not fall in the sametrap as the US and EU, and should be prepared by developingmodern policies that would ensure the commercial climate isas supportive and competitive as possible, to protect bothsides on the private equity deal. “Regulatory changes willcontribute to growth by opening up investment opportunitiesfor PE, like the FDI rules for India, and by introducingplatforms like the DIFC to operate a PE business,” RodPalmer, a Dubai-based partner in international legal andmanagement firm Walkers Global told Executive.

Financial experts are suggesting a review of the industryin the region to promulgate new regulations that wouldensure market stability and create an oversight body forsupervision of registered firms. For example, the new bodywould look into the potential risk that PE activities mightpose to the broader financial system. Investigators shouldlook at the levels of debt in buyout deals and the growingprevalence of private equity backed bids for listedcompanies and the impact that this might have on the publicmarkets.

There has been another suggestion by experts in the EUthat call for moving away from a prescriptive mode ofregulation toward a more principles-based approach. Thisapproach places the burden on individual firms to spot therisks relevant to their businesses and to develop andimplement procedures to mitigate those risks. The biggestbenefit of this approach is that it provides a proportionateand flexible regulatory regime, allowing firms to have agreater hand in the way they implement policy. And finally,fund managers must provide more transparency by publishingdetails of their investments, investors, management andtrack record.

Some fund managers have suggested starting the wholeprocess by educating fund recipients and the public ingeneral in the dynamics and structures of the industry,thereby improving familiarity and clarifying the benefits ofprivate equity. “There needs to be a move towards educationon private equity, and then regulation should beconsidered,” Ashish Dave, partner and head of privateequity, Middle East and South Asia at KPMG, said. “PE willnot be hindered by appropriate regulation, but thegovernment and private equity firms should focus on adoptinga prudential approach to regulation,” he added.

What’s ahead for 2007?

Some experts argue that a historic shift from public toprivate equity is occurring and that the region has alreadywitnessed the birth of an asset class, which by all measuresseems to have a very bright future. “Clearly, private equityhas huge potential in the Middle East, and we expect stronggrowth in both the number and size of new private equityvehicles,” Rod Palmer of Walkers said.

Most fund managers agree that PE has an advantage overother alternatives (in particular, hedge funds), becauseit’s comparatively easier to launch a shariah-compliant PEfund, which will be acceptable to a wide range of investorsin the region. Other benefits include the important role ofprivate equity in financing and fostering innovative firms,and in reallocating capital to more productive sectors ofthe economy. “PE benefits from the fact that local investorsunderstand and are comfortable with the nature of PE andthat many of the PE funds in the region areshariah-compliant,” Palmer added.

Palmer said the industry will face some challenges in thenext two to three years that are unique to the region. Oneof the challenges will be managing investors’ expectationsof high returns, as more and larger PE funds are launchedthat are all chasing deals in the region.

Another challenge is the lack of solid and attractiveventures out there. “We expect that it might become a caseof too many dollars chasing too few deals, and funds whichout bid others will end up with a high cost associated totheir investment,” said Jamil Brair, vice president of PEfirm SHUAA Partners in Dubai. “Proprietary deals become keyand it is the fund with the best network that will be ableto keep its deals off the market and away from biddingprocesses,” he added.

According to Credit Suisse’s Taylor, the asset classesattractive to PE investors in the region are maturing interms of geographic and deal diversity. “In the Middle East,we see investment potential in the energy, infrastructure,financial services and real estate sectors. We also expectopportunities to emerge in healthcare, media, retail andservices,” Taylor said.

In order to take advantage of these opportunities, PEplayers will have to attract and retain qualified assetmanagement professionals, Palmer said, adding that fundsthen would also grow further outside of the region. “Iexpect that as the market continues to mature, we will seean increase in outward investment by regional managersexpanding their investment mandate. We are already seeingthat with the real estate PE market, where a number ofwell-established based investment houses with stellarperformance records in MENA real estate are now expandingthe mandate of their PE funds and operations into realestate in Europe,” Palmer said.

What does the future hold for private equity in the MENAregion? Experts predict that within three years, aconsolidation phase will have started to take shape, and2007 will be a year to write home about.

“2007 will continue to announce new records in privateequity in the region—largest fund announced or raised, newindustry-focused funds,” said Jamil Brair.

Private equity as an asset class has been so far successfulin the MENA region and is on its way to playing an evengreater role in building corporate and national wealth.Players in the industry have gained much and have addedvalue and leverage to small companies benefiting from theunexpected growth. However, it remains unclear how effectiveprivate equity funds will be at deploying capital in deals10 times larger than what’s available now. Most expertsagree that there is no question that private equity in theregion has the critical mass and the diversity to warrant alot of attention. According to Palmer, the trend ofincreasing size of the funds launched will continue,“particularly as size and experience of the asset managementteams within the PE houses grow and they can handle morecapital.”

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Banking & Finance

Global private equity has a long reach

by Imad Ghandour
written by Imad Ghandour

The Middle Eastern Private Equity Internationalconference, held each year in the third week of March inDubai, has become the annual hotspot for the region’s PEindustry. Heads of international PE funds, like Carlyle’sDavid Rubenstein and CD&R’s Joseph Rice, descended on Dubaito explore how to expand their sprawling reach to one of thefew remaining untapped markets. In addition, rising PE starsfrom the region lectured about their experiences and theirvisions, eyeing further international expansion, and aimingto attract the attention of global PE giants.

Carlyle’s Rubenstein, in his keynote speech, predictedthat the Middle East will be the fourth pillar in the globalPE industry after US, Europe and the Far East. The region,loosely defined from India to Morocco, has more than 2billion inhabitants, $1.5 trillion GDP, and is one of themain exporters of capital. Rubenstein is practicing what hepreached by setting up a $1.8 billion fund targeting theMiddle East and Turkey.

Sarah Alexander, President of Emerging Market PrivateEquity Association (EMPEA), noticed the remarkable evolutionbetween the first conference in 2005 and the 2007 edition. In 2005, the local presenters were inquiring if it can bedone, how it can be done, and how lucrative it will be ifdone well. Today, local PE champions are speaking withconfidence about deals closed, problems overcome, exits madeand real realized returns. Between 2005 and 2007, theprivate equity industry has quadrupled in size, and controlsnow more than $15 billion in assets under management.

Where to go from here?

Rubenstein and Rice’s appearance at the conferences onlyhighlight the increasing attractiveness of the region as atarget for global PE funds. Other PE heavyweights have beenscouting the region and assessing its potential. Secondtier global PE players, like 3i, Ripplewood, Actis, CVC,HSBC and Emerging Market Partnership, have already starteddeploying funds since 2003. By tying up the region to theglobal PE network, regional investment practices will besignificantly alleviated, and PE will rise further invisibility.

In 2007, the $2 billion fund benchmark will probably besurpassed with the closing of Abraaj’s Infrastructure fund.In 2005, PE practitioners could barely identify a dozensmall-size deals. Today, the prospects have improvedsignificantly. A multi-billion privatization program, a direneed for infrastructure investment, an active need forpre-IPO institutional investors and a relentless need forequity financing to support corporate growth are presentingfunds with a continuous stream of investment opportunities. Infrastructure funds will become larger and larger in orderto finance the privatization and infrastructure programs,but the mid-cap market targeting investments in the $25-150million range will remain very active as well.

Global private equity has been under scrutiny bygovernments and media in both US and Europe. However, localPE leaders have been from the onset more proactive,advocating the benefits of PE for the region’s economicdevelopment. PE is frequently prescribed as a remedy for the“unemployment bomb” threatening the social and politicalstability in the region and the institutionalization of theprivate sector.

Access to capital was definitely not an issue that cameacross the conference speakers’ minds. Unlike other parts ofthe emerging world, the GCC is one of the largest exportersof capital. This excess liquidity will fund PE investmentsand their IPO exits.

UAE as the fourth capital of private equity

UAE is already the regional capital for private equity:three quarters of all PE funds are managed out of UAE, andthe UAE is the largest recipient of PE investments. AbuDhabi Investment Authority (ADIA) is also rumored to be theworld’s largest investor in private equity funds.

But reaching global prominence over the next few years is,to a large extent, in the hands of the leading firms. Themacro environment is expected to remain favorable in themedium term and investment opportunities will be abundant. The biggest challenges for PE firms are to identify, train,attract and retain talented and experienced professionals,and build a competitive advantage through the development ofsystems and operations at par with international standards.

Imad Ghandour is head of strategy and research at Gulf Capital

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Iraq needs its own Ataturk

by Claude Salhani
written by Claude Salhani

Some months after the fall of Saddam Hussein, I found myselfin Kuwait sharing a taxi from the airport to my hotel withan Iraqi journalist who had just come from Baghdad to attendthe same conference. We talked about the situation in Iraq,the violence and how it should be dealt with.

One of the first questions I put to my Iraqi colleague waswhat he thought should be done to bring stability to Iraq.Without a moment’s hesitation he said, “Iraqis need a‘Saddam-lite,’ a benevolent dictator. Someone not as bad andpowerful as Saddam, but someone who can frighten the peopleinto accepting discipline.”

It was a strange but nonetheless realistic point of viewthat chaos in Iraq could only be contained by installing aleader who could rule with an iron fist, while working tobring democracy to the country—an Arab Atatürk if you will.(Mustafa Kemal, better known as Atatürk or “father of theTurks,” emerged as a military hero in the Dardanelles in1915. He led the founding of the modern Turkish republic in1923, after the collapse of the 600-year rule of the Ottoman Empire. After a three-year war ofindependence, Atatürk led Turkey into the 20th century andmodernization, and did so with a firm rule.)

Indeed, at a time when President George W. Bush had highhopes that Iraq would be the new shining light from whichdemocracy would spread throughout the Arab world, similarthoughts were being put forward by moderate Arab countries.One was King Abdullah II of Jordan.

Abdullah saw that a possible solution out of the Iraqiquagmire would be to install a strong military leader. Sucha leader, said the king, could instill law and order in thechaos that is Iraq today.

“I would say that the profile would be somebody from inside,somebody who’s very strong, has some sort of popularfeeling,” said the Hashemite monarch in the InternationalHerald Tribune, on his return from Washington where he metwith President Bush. “I would probably imagine—again this isoff the top of my head—someone with a military background who has the experience ofbeing a tough guy who could hold Iraq together for the nextyear.”

Today, four years on, Iraq is experiencing an unprecedentedcrime wave. Aside from the politically-related violence, which is claiming hundreds of lives on adaily basis, the country is being hit by organized and pettycrime and the contrast between Saddam Hussein’s 30-year rule as an absolute dictator who cracked down hard oncrime, and the sudden void of authority felt in the countryafter the dissolution of the army and the Baath Party couldnot have been greater.

I remember asking my traveling partner what he expectedwould happen when the US-led coalition handed over partialsovereignty to an Iraqi government. “I fear there will becivil war,” he replied. “Perhaps not immediately, butcertainly in due course.”

He was equally skeptical about democracy. “Forgetelections,” he said.

“They are simply not ready for it,” he said, and then,echoing King Abdullah’s sentiments, he went on, “Give them astrong army man who can pull it together. Someone who canrule with an iron fist and bring back law and order. Someonenot as bad as Saddam, but who has experience in themilitary, and in getting respect. That’s what we need.”

But there are two problems in putting such an idea intopractice. First, it would be in-your-face evidence that theBush Doctrine of freedom for the Middle East, with Iraq as ashowpiece, was a failure—something this White House wouldsavagely oppose. And second, the mechanism needed to realizesuch a venture—mainly a strong military—is no longer present in today’s Iraq. Alas, this means Iraqmay be destined to live through more years of instabilityuntil a strong figure can emerge to lead the country out ofthe darkness.

It wasn’t exactly what President Bush had in mind,especially as it would mean accepting that the democracyexperiment in Iraq has failed, at least for the moment, butamid the mounting chaos that is gripping Iraq today, theidea of a benevolent dictator—an Iraqi Atatürk—is beingtouted as a genuine option, one that was even debated—“Thishouse believes only a new dictator can end the violence inIraq”—recently on the BBC’s Doha debate.

Identifying an Iraqi “Atatürk” might not be all that simple—just think of the ethno-religious hurdles: a Sunni would be rejected by Shi’ites and vice versa. For sadly, Saddam’s over-inflated megalomaniac ego did not leave room for any Iraqi heroes—at least not any whose hands are not stained with Iraqi blood.

CLAUDE SALHANI is international editor and a political analyst with United Press International in Washington

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Banking & Finance

Regulating the shadows – Hawalas test global financial system

by Executive Staff
written by Executive Staff

During a recent conference at the Abu Dhabi Central Bankattended by members of the financial sector and experts fromthe region, Europe and the US, a focus was on how to betterregulate the informal money transfer system of hawala, whichhas been linked to money laundering, organized crime andterrorist financing.

Hawala, which can be traced back to the 8th century, is apopular, cheap and effective way to send money that isfrequently used by the Gulf’s massive expatriate Asianpopulation.

Money is transferred through a network of hawala brokers,or hawaladars. A customer approaches a broker in one cityand provides a sum of money to be transferred to a recipientin another country. The broker who has received the moneycalls his counterpart in the recipient’s city, providinginstructions on the disposal of the funds and promising tosettle the debt at a later date.

Although much of the money transferred is legitimate, adrug bust by the Italian police late last year connectedseveral Pakistanis with a Dubai-based Indian who receivedmoney through his informal bank to channel funds to drugcartels and arms dealers.

This incident is far from unique, with the UAE and Britishauthorities busting a drug network operating between the UKand Afghanistan only last month (March) that used the UAE asa ’cash pool’ to launder an estimated $194.7 million.

The ancient versus the modern

The problem facing central banks and regulatory bodies isthat the majority of hawala transactions are completelylegal and a primary source of income for many people aroundthe world. According to the UN, in 2005 there were 175million migrants worldwide sending remittances in excess of$300 billion, of which some $167 billion went to emergingeconomies and accounted for up to two-thirds of GDP incertain countries.

That trend is likely to increase, particularly as thedemand for young workers spikes in the aging populations ofEurope and North America.

The issue is of particular importance in Somalia, where upto 15% of the population lives abroad and remits $1.5billion annually to the Horn of Africa.

“The Somali economy is more dependent on remittances thanany other country on earth,” said Muhammed Djirdeh of theSomali Money Transmitters Association. Around 40% of theSomali population is reliant on remittances from relatives,and remittances are a source of finance for up to 80% of newbusinesses.

But with the recent clamp down on the hawala system,hawaladars are feeling the heat.

“We suffer, like all others in this business, from animage problem,” said Djirdeh, citing the example of theMogadishu-based Al Barakat money transmitter that was closeddown after 9-11 by the US authorities for connections toterrorism.

“Our problems are regulations, forcing some of us to quitthe business or work without compliance. The US is veryprohibitive for us to work in and with as we are the smallboy in the neighborhood—banks close our accounts, and wecannot do without working in the system. On top of that,transaction costs are going up. We charge 5% to send$100-$150, but have to pay agencies and commissions, so theoperator gets a small income,” added Djirdeh.

By comparison, a bank in Europe or the UAE will charge upto 20% for a transaction of the same amount.

But low costs are not the only reason for using the hawalasystem. In many developing countries, the banking system isso underdeveloped that informal money transmitters are theonly means to transfer money. In addition, hawala is highlyefficient, taking a maximum of two days to get to therecipient.

“What’s amazing is in today’s electronic world it takesfive days for a check to clear in the UK,” said ProfessorHannah Scobie of the European Economics and Financial Centerin London. “If there were hawala brokers between the UK andItaly, we would use them, as banks can take up to twoweeks,” she added.

Some observers also believe that hawala has been unfairlysingled out as a system abused by criminals and terrorists.As World-Check, a British company that runs an intelligencedatabase on financial risk, has pointed out, 60% of all bankfraud is internally driven. Equally, other forms oftransmitting funds are widely used but garner less attentionby regulators, the financial system or the press.

For instance, settlements can also be made via a cashcourier, as cargo, via diamond smuggling or through multi-country settlements.

“The latter is particularly popular as it is a way to cutcosts and make money on currency exchanges,” said NikosPassas, professor of criminal justice at NortheasternUniversity.

“The money of migrants wanting to send money goes into acash pool. The dollars go to an exporter of goods, and thenrupees go to the families—that’s how you minimizecross-border transactions and score tons of money,” headded.

As another example of avoiding cross-border transactions,Passas said Taiwanese boats going to meeting points ininternational waters to trade narcotics for commercial goodsthat will then enter Hong Kong, which acts as the financialhub to effectively launder the money.

“The other ways are through goods. The value of a good mayofficially be declared at $30, but only worth $1.20, whichis fraud,” said Passas.

Finding the right balance

The struggle for regulators is to find the right balancebetween over- and under-regulating informal moneytransmitters.

“It is difficult to regulate hawala without driving itunderground,” said Jean-Francois Thony, assistant generalcounsel of the financial integrity group at the IMF.“Regulations are not the panacea to avoid misuse,” he added.

If a regulatory body is particularly zealous, it will notonly be hawaladars and low-income workers that areaffected.

“Over-regulation can lead to capital flight,” saidProfessor Scobie. “But banks and regulators have gonecompletely wild following 9-11. Every time you turn around,there is a new form to fill in. This is very disturbing forcustomers, and on looking closer, these forms are for banksto get more information to sell more products.”

So what is the solution between excessive regulation thatcould drive informal transmitters underground and bankstrying to flog extra services?

In the UAE, the central bank has started encouraginghawaladars and exchange commissions over the last threeyears to come forward to register themselves.

“We realize hawala could be used to launder money andfinance terrorism, so we want to control—not end—hawala, asit is important for people in poor countries,” said AhmedIsmet of the UAE central bank

Initially expecting around 100 applicants, 215 dealershave been officially certified and 43 applications are stillpending.

“The first stage is registration [by hawaladars]. Morestringent and restrictive regulations will come in time asit could be counterproductive if done earlier,” said IbrahimAl Hosani of the UAE Central Bank.

Countering terrorist financing and money laundering is notconfined to reining in the hawala system, as such informalmoney transmitters also use official banking channels. Sothe financial community also needs to be brought onboard.

The issue is of major significance for banks, as evenallegations of being a channel for criminal activity couldhave long-lasting effects on a bank’s reputation and brandequity. Equally, Arab banks with branches in the US have tobe proactive in countering money laundering and terroristfinancing to comply with the USA Patriot Act’s InternationalMoney Laundering Abatement and Anti-Terrorist Financing Act of 2001.

But figuring out the bad transactions from the good is noeasy task.

“If every A4 paper transaction made by LloydsTSB worldwidewas piled up over a week, it would endanger a 747 jet flyingto the US—that’s 35,000 feet of paper. To single out one badtransaction is very difficult,” said Richard Stockdale, headof LloydsTSB Global Services.

Agreements between banks and central banks for automatedclearing houses to reduce the cost of money transfers inbanks was suggested as one way to wean customers off thehawala system.

Alex Cunningham, head of the New York-based Middle Eastand Balkans Program at the Financial Services VolunteerCorps, thought that one way out of the dilemma was a morerepresentative banking system.

“Banks need to become more focused on low-income bankingand offer different products, such as lottery tickets andphone cards in low-income branches,” he said.

Greater transparency between the private and public sectorwas also highlighted as necessary to make it easier to spotsuspicious activities.

“The whole financial control framework does nothing if tradeisn’t transparent,” said Passas. “Despite all thisinfrastructure for anti-money laundering and counter-terrorist financing, take a look at the business environmentand there are huge holes—not loop holes—but black holes thatany half-decent criminal entrepreneur can take advantageof.”

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Bush understands Lebanon

by Lee Smith
written by Lee Smith

The US’s former ambassador to the UN, John Bolton, recentlyconfirmed that Washington rejected calls for a ceasefirethis past summer and let Lebanon wither under Israeli attackfor several more weeks. An early cessation of hostilitieswould have been “dangerous and misguided,” said Bolton, whowas “damned proud of what we did.” So, maybe it’s worthwhileasking, with friends like the Bush administration, who needsenemies?

And yet strange as it may seem, certainly to thoseunfamiliar with the tangled relationships that constituteMiddle Eastern politics, this White House, having sponsoredor backed a series of UN resolutions supporting Lebaneseindependence and pledging almost $1 billion in foreign aid,is probably the most pro-Lebanese US administration inhistory. And that’s no small feat, since the US has had astake in Lebanese affairs ever since it became thepre-eminent Western power in the region shortly after theend of World War II.

The key date is 1956, after the Suez crisis, leaving the USwith the primary responsibility for containing Sovietinfluence in the Middle East. Eisenhower’s sending troops toBeirut to shore up the Chamoun government suggests that forWashington, clarity in Lebanon has tended to look like twosharply polarized sides, with one clearly pro-Western, andthe other decisively not. When the internal Lebanesesituation is muddier, as it was during the fifteen-year-long civil wars, US officials have had a much harder timefiguring out where American interests lie—and hence whataction to take. Indeed, when Ronald Reagan dispatched theMarines in 1982, the only clear divide was in theadministration itself, which debated the wisdom of gettinginvolved for as long as US troops were based here.

It was partly because American blood was shed in Lebanonduring the ’80s for no apparent reason, as well as placatingHafez al-Assad, that the current president’s father showedvirtually no interest in Lebanon, a state of affairs thatcontinued through the Clinton years. And without aremarkable chain of events these last seven years, thingsprobably would’ve remained the same during the tenure ofthis administration.

It may seem paradoxical in light of last summer’s war withIsrael, but as I was reminded recently during the annualAmerican-Israeli Public Affairs Committee (AIPAC) PolicyConference, it was largely the power of the Israeli lobbythat kept Lebanon a live issue here in Washington when noone else was paying attention. In 2003, the US House ofRepresentatives passed the Syria Accountability and LebaneseSovereignty Act, largely meant to force the Executive branchto reconsider its dubious policy of constructive engagementwith Damascus.

Still, it wasn’t until the Iraq war that Washington realizedwhat it had in Lebanon—not just a staging ground to rollback a confrontational Syrian regime and a fight aregion-wide Iranian agenda, but a high-profile showcase forthe keystone of the administration’s new national securitystrategy: Middle Eastern democracy. It is hardly lost onthe White House that to date, Lebanon, for all its problems,is the most successful part of its regional portfolio.

What’s bizarre is not Washington’s support of Lebanesedemocracy, but that so much of the rest of popular USopinion seems to have turned its back on Beirut. Ever sincethe formation of James Baker’s Iraq Study Group, there hasbeen intense domestic pressure on the White House tonegotiate with Damascus. Though seriously weakened with itsfailing position in Iraq, the Bush administration does notbelieve that solving Baghdad means acquiescing to Bashar in Beirut.

And then there’s the American media. Bush, explains theclueless Seymour Hersh in a recent New Yorker article, isbacking Al-Qaeda militants through the offices of theSeniora government. Other media reports also contend that USfunds used to shore up the Internal Security Forces areessentially being used to create Sunni death squads to waragainst the Shia.

Through it all, the Bush administration has brought Lebanoneven further within the fold. To date, in addition todiplomatic support and financial aid, Washington has devotedan unprecedented amount of White House prestige to Beirut. And as for Lebanese officials making their way toWashington, the State Department, Pentagon and White Househave all thrown open their doors to leaders from every sect,including a host of younger Shia hopefuls who seek anotheroption for their community other than that articulated bythe grim Islamic resistance.

And now with Bush having only a little more than a year leftin office, the natural question is, what happens to the Washington-Beirut relationship when the most pro-Lebanese president in the shared history of the twocountries leaves the White House? As today, Washington’sinterest will be determined by circumstances, and mostimportant among them, it is the will of the Lebanese peoplethat will decide if in, say, 20 years time, we will lookback on the beginning of the 21st century as the goldenyears of the US-Lebanon alliance, or as merely the start ofa beautiful friendship.

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

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