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US presidential race heats up

by Claude Salhani
written by Claude Salhani

For the first time since 1952—since Dwight D. Eisenhower was in the White House—neither the incumbent president nor his vice president is in the running for the top job in the country. George W. Bush will have served two terms, making him constitutionally ineligible, and Vice President Dick Cheney? Well, realistically, his chances of being elected are about as good as his hunting skills.

The result is that the floor is wide-open and there is no shortage of candidates from both sides. But who would be most beneficial for the Middle East, especially as the Arab lobby in Washington is still light-years away from being able to influence a presidential election?

On the Democrat’s side, the leading contenders are Hillary Clinton, a senator for New York; Barak Obama, a senator from Illinois; and Sens. Joe Biden of Delaware and Chris Dodd of Connecticut. Another candidate outside of Congress is John Edwards, the former one-term senator from North Carolina and vice presidential candidate in the 2004 elections.

On the Republican side there is Sen. John McCain of Arizona; Sen. Sam Brownback from Kansas; former mayor of New York, Rudy Giuliani; Massachusetts Governor Mitt Romney; and possibly even former House Speaker Newt Gingrich—to name just a few.

While it is still far too early to draw any conclusions on the Republican side, early polls place McCain and Giuliani as the leaders of the pack, although the buzz around Republican circles predict the party’s nomination is likely to go to a more conservative candidate; Romney is a possibility, but his Mormonism might not play will with evangelical voters, who tend to be suspicious of the faith.

So far, most candidates have avoided touching on the morass that is Middle East politics, other than to weigh in on the war in Iraq, viewed from a domestic perspective; should the US stay the course, as President Bush advocates, or declare victory and bring the troops home? Without getting into too much detail, overall, Democrats favor a pullout while Republicans say the US cannot afford to abandon Iraq. Although the Democrats realize that quitting Iraq cold-turkey is unrealistic, many Republicans recognize that the war will not be won through military means alone.

Regardless of who grabs their party’s nomination as a first step in the battle for the ’08 presidency, and ultimately wins the hearts and minds of the American people, Iraq will remain a major player in the US presidential campaign.

From Hillary Clinton to John McCain, Iraq, and now Iran, are the top items of concern when it comes to foreign policy. As for the crux of the Middle East issue—the Arab-Israeli dispute—most presidential contenders are happy to steer clear of the thorny subject as long as possible. That is usually until the televised debates, when the front-runners have to demonstrate their understanding of world politics and how they would handle those issues.

So where does that leave the Middle East? Pretty much in the same mess it has been in, except maybe for Lebanon.

While most, if not all presidential contenders—Democrats and Republicans alike—are likely to come out in support of Israel in any Mideast dispute, they are also more likely to continue Washington’s support of pro-democracy movements, while mistrust of Damascus should play in Beirut’s favor and continue to ensure US support for a legitimate Lebanese government.

The bad news for Lebanon, however, might be in the new American president’s support of Israel. Again, from Hillary Clinton on the Democrat’s side to Rudy Giuliani or John McCain on the Republican’s, chances are they will show greater support for Israel than for Lebanon or the Arab world. Seeing that Israel is not about to forgive or forget its most recent entanglement with Hizbullah in Lebanon last August, there are good chances that the Jewish state will opt for a re-match, once a new occupant is in the White House.

Bush continues to back Lebanon’s government. In his State of the Union last January, Bush made a point of mentioning the assassination of Industry Minister Pierre Gemayel, stressing his administration’s support of a free and democratic Lebanon. In a private discussion with a group of journalists and think tank analysts in Washington in February, Amin Gemayel defended Bush, declaring: “Say what you want about Bush, it was thanks to his support that Syrian troops finally withdrew from Lebanon.”

CLAUDE SALHANI is International Editor and a senior political analyst with United Press International in Washington. 

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Dollar not what it used to be

by Riad Al-Khouri
written by Riad Al-Khouri

The US dollar may still be king in terms of foreign-exchange reserves and denomination of international transactions, but the American currency is no longer absolute monarch of the global economy. The yawning US trade deficit and a huge overhang of debt denominated in greenback are causing concern regarding its reserve currency status. Since the middle of the 20th century, most countries have held the majority of their foreign exchange reserves in dollars. This means that the greenback is constantly in demand, whatever the underlying need for US products; now, with massive trade and budget deficits to finance, Americans are increasingly reliant on that status. The unprecedented weight of US liabilities means that a threat to the dollar’s dominance could result in a currency collapse.

Under present conditions, can dollar hegemony last? The Russians for one don’t think so, having since last spring openly questioned the greenback’s pre-eminence as the world’s reserve currency. At that time, Russia’s central bank held 60% of its reserves in dollars, 33% in euros and 7% in British pounds, but has since been busily diversifying, including an increase in Japanese yen holdings to several percentage points. The share of the yen in global foreign exchange reserves had declined to under 4% by the end of 2005 from over 6% at end-1999. However, with the Japanese currency looking undervalued, Russia, among others, may be adding more of it to their reserves and end-2006 global figures for official yen holdings should see them rising closer to late 90s levels.

With the world’s third largest official foreign exchange holding, which grew over 50% last year, Russia’s challenge to the dollar’s supremacy has fuelled speculation that other central banks could increasingly diversify. That in particular includes China, which is shifting away from dollars, a highly significant move as Chinese have the world’s largest reserves, about a trillion dollars at the end of 2006 and growing at a rate of $30 million an hour. Other Asian central banks have lost their appetite for holding dollars, with Japan also moving out of US debt instruments. Elsewhere in the world, Sweden in 2006 cut its dollar holdings from 37% of central bank reserves to 20%, with the euro’s share rising to 50%. Some OPEC countries are unloading US Treasuries at the fastest pace in more than three years; in particular, Iran in 2006 pledged to move its reserves away from the US dollar and into currencies such as the euro. Closer to home, Syria has just announced that it replaced the dollar with the euro for half of its foreign currency reserves. Given the tension between Washington and Damascus, such a move had been foreseen for some time, especially as the Syrian government at the start of 2006 issued an official circular instructing all ministries and state companies to adopt the euro instead of the dollar for foreign transactions. However, decisions such as these are not made just on the strength of emotional or diplomatic considerations: it is economically and financially smart for Syria to shift into euros, irrespective of the political correctness of the move. By the same token, what should be interesting to watch in 2007 will be how the central banks of other Arab countries, including Lebanon and Jordan, with local currencies pegged to the dollar and strong political ties to Washington, are able to move away from over-reliance on greenback reserves.

Arab banks cutting back on dollar reserves

However, whatever the Arabs do, the trend against the dollar is clear and possibly permanent. There are now more euros banknotes and coins in circulation worldwide than dollars, but the greenback remains the world’s most important reserve currency, though less significant than in the ’90s. The dollar’s share of global reserves dropped to under 67% at the end of 2005 from 71% in 1999, while the euro’s portion increased during the same period to over 24% from under 18%. Today, it is estimated that about 65% of foreign central bank exchange reserves are held in dollars, versus around 25% in euros, with the dollar exchange rate weakening 10% against the euro over the past year. The rise of gold is yet another sign that the dollar is not what it used to be. After central banks in various countries unloaded the yellow metal back in the ’90s, it is now making a comeback.

As the rest of the world continues to abandon the dollar as the global reserve currency, Americans will find borrowing more expensive. The US can maintain a large trade deficit only if foreigners continue to hold large numbers of dollars as their reserve currency, and that looks increasingly unlikely. Though holding a drop in the ocean of world reserves, the Syrians seem to have got it right, but how long will America’s friends in other Arab capitals continue to prop up the US consumer by holding on to dollar reserves? What the Saudis and their neighbors do with their dollars will mean a lot to America in 2007 as other countries continue to abandon the greenback.

RIAD KHOURY is an economist director of MEBA Ltd Amman and a senior associate at BNI, Inc. New York. 

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Banking & Finance

Banking on shariah finance: Islamic banks on rise

by Executive Staff
written by Executive Staff

It happened at an international conference promoting Islamic real estate financing last month in Amman. After a session detailing product trends in real estate financing that meet the requirements of shariah, an American listener working in a real estate business in Jordan stood up and said, “I am completely confused about the products you have, but it sounds all very interesting.”

The man was not alone. Panelists presenting the latest models for Islamic real estate financing at the event said apologetically at several points that their explanations would “increase the confusion” of listeners, especially when questions ventured into the ethical underpinnings of specific Islamic products. Instead of trumpeting new flashy deals between Islamic bankers and regional real estate investors, speakers overall had their hands full with building awareness in a meeting that showed how the complexity of Islamic financial concepts in the past five years has grown faster than the corresponding knowledge base in the regional investor community.

As one example, sukuk—asset-backed securities that are employed in growing numbers for securitization operations with real estate as underlying assets—have ballooned into 17 different varietals on record with the Accounting & Auditing Organization for Islamic Financial Institutions (AAIOFI). The first modern sukuk was issued as simple arrangement but five years ago by the government of Malaysia.

In the retail market, the contracts and models for Islamic real estate finance have sprouted from relatively simple mudaraba transactions (in which a bank purchases a property and resells it to its client at a fixed higher price payable in installments) to multi-layered deals that include leasing (ijara), diminishing joint ownership (diminishing musharaka), and parallel and mixed leasing agreements.

The United Kingdom has acted as center for developing these shariah-compliant products, said Tariq Hameed, a partner in British law firm Norton Rose. However, when pressed for numbers and the UK market size for the Islamic product marvels, he estimated the number of existing contracts at 5,000 home finance deals—out of 410,000 Muslim households in the country. “Many Muslim families in the UK don’t trust that the contracts really are shariah-compliant,” he offered as explanation.

Lots of room for growth

In Jordan, the size of the Islamic housing market also has a lot of room for optimists. Jordan Islamic Bank (JIB), one of two shariah-compliant banks in the Hashemite Kingdom, has records of $700 million worth of home finance agreements—but that is a lifetime achievement of the bank in the past quarter century. The numbers for 2006 are a modest $45 million for JIB out of an estimated $70 to $80 million in Islamic house finance deals by all Jordanian providers last year, an advisor to JIB told Executive.

And for sukuk, while the papers are growing impressively in issue size and total numbers, the majority of investors come from a conventional background, with interests that are not driven by the Islamic aspect of the complex structures.

Islamic finance is, by definition, a practice of business which adheres to rules that transcend the mere mechanisms of the markets. Drawing strength from its roots and the blessings of wealth in Muslim societies, Islamic finance took shape between the early 1960s and late 1980s and has gained greatly in international stature since the mid 1990s. As such, modern Islamic finance for the past decade or so has with increasing vigor addressed the formidable challenge of conducting business activity in a manner that is satisfactory through both its economic rewards and its religious purity.

A very big part of this process has been and still is to set standards that meet the requirements of two very complex and inherently demanding systems: shariah law and the latest economic science. Creating standards that fuse these two realms into a winning partnership is the chosen task of organizations such as the Islamic Financial Services Board (IFSB), which was established in 2002 in Malaysia as international body of regulators and Islamic financial institutions.

The IFSB hosted a seminar on real estate financing standards back to back with the Amman conference last month and is generally very busy this year, with eight major event packages that discuss topics from legal issues to the “European challenge” for the industry.

This standard-setting and dissemination enthusiasm goes hand in hand with the growing awareness and expansion of Islamic financial services to highly developed conventional financial markets in Japan, where the central bank has shown interest in the specialty, and Europe, where the UK authorities have been taking steps to ease the facilitation of Islamic finance and where France recently has started considering a regulatory framework that will accommodate Islamic banking.

But there are signs suggesting that the course of Islamic finance is entering another phase of its development. In the past three years, more and more financial firms and general corporations in the Gulf region have been converting their operations to become shariah-compliant. However, as a survey by the IFSB showed last month, the growth rates of Islamic banks in many Muslim countries have dropped from exponential between 2003 and 2005 to more normal in 2006.

Islamic assets in the banking sectors of countries like Bahrain, Qatar, Jordan and Malaysia represent between 10% and 15% of total banking assets, with no significant increase in the percentage share in the first half of 2006. While Brunei was the only upward outlier with more than 40% of assets being Islamic, Lebanon joined Indonesia and Pakistan at the low end of the scale with no more than 2% of Islamic banking assets. According to the survey, Islamic finance is still growing in the Middle East but so is conventional banking, and the strongest growth rates are usually not on the side of Islamic banks.

For banks, specialization in Islamic real estate finance can be attractive in two ways, as facilitators of home or commercial property purchases by their customers, and as means for their own investments. While conventional banks are largely excluded from using real estate for profit-oriented own investments, the operating mandate of Islamic institutions has led regulators in several countries to allow these banks to include property in their investment portfolios.

Different jurisdictions, different regulations

However, the banks are facing different restrictions in different jurisdictions, as some regulators put limits on Islamic banks’ real estate investments and others don’t. In Europe, the practitioners also still face cost issues in home financing. These originate from tax laws that make no provisions for the special processes of Islamic finance, such as double transfer of deeds in a mudaraba structure. Only the UK has taken steps toward removing these cost barriers.

All this underpins the case made by the Islamic finance protagonists that the playing field for real estate finance by Islamic institutions should be made more level, beginning with continued standardization initiatives of central banks and regulators in Muslim countries.

Cost barriers and overly complex structures of Islamic products can be impediments for the growth of Islamic finance beyond sitting on a ledge as niche operators that address customers who will not enter the realm of conventional banking. While this target group is important, especially in developed countries, the ethics aspirations involved in the drive to expand Islamic finance extend into creating a humane economic realm, which will appeal to wide population groups—which as a larger aim underscores again the need for comprehensive standards.

And while the buzz of abundant liquidity by shariah-compliant investors and financial institutions in the Gulf certainly is no myth, the security and business convenience environment in the Levant has yet to infuse managers with more confidence. Take the example of Kuwait Finance House, a big player in channeling funds into real estate investments under observance of shariah, which has nearly $7.5 billion in property assets and funds.

KFH wants to expand in the Middle East, but for the time being, its property portfolio is invested in Europe, the Americas, and Asia. Said the manager of KFH’s international real estate department, Ali Al-Ghannam: “We have received many proposals for projects in Syria, Jordan, Lebanon, and North African countries, but so far we have no concrete projects.”

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The so-called Iranian threat

by Lee Smith
written by Lee Smith

According to a recent Zogby poll, George W. Bush jumped ahead of Ariel Sharon this year as the world leader Arabs like least. Perhaps Bush owes his remarkable surge to the fact that the former prime minister was in a coma for all but two weeks of 2006. This same poll that surveyed respondents on the popularity of an Israeli leader who for all practical purposes is dead, also reports that the majority of Middle Easterners do not fear Iran. It is the answer to what seems a very fuzzy question, indeed a much politicized one designed to challenge what has recently become the White House’s regional flow-chart: The Sunni Arab states are lined up with the US and Israel, against Tehran and its regional allies, Syria and Hizbullah.

You can’t entirely blame the Zogby pollsters for wanting all the traditional enmities to still hold water: Arabs hate Israel and Bush most of all, and they like—er, ok, they don’t fear Iran! What seems like a fundamental re-alignment of interests has come as a surprise to almost everyone, here in Washington and elsewhere. Sunni powers like Egypt and Jordan have been quite clear about their concerns over the Iranian threat, while the Saudi royal family has put up a noble front, perhaps because they have the most to lose if Iran becomes the regional hegemon. But the issue’s even more interesting within the Palestinian Authority.

Now that the Mecca Agreement has, temporarily at least, ended the discord between Hamas and Fatah, maybe the Palestinian Prime Minister can relax about his fashion choices. Ever since a Fatah crowd started chanting “Shia, Shia” against their Tehran-funded rivals, it seems Ismail Haniyeh will not be photographed without a red and white kafiyeh on his head. Maybe the color-scheme is to distinguish himself from the late Chairman Arafat—or perhaps he just wants to wrap himself in Arab garb to avoid seeming too Persian. So, then perhaps the more useful question is not whether Arabs fear Iran, but if some Arabs are very worried about seeming too Iranian.

The Iranians of course are also anxious, which is why unlike their clueless ally in Damascus, they seem to want very much to avoid a sectarian civil war in Lebanon. Another Sunni-Shia conflict in the Middle East is probably not to the Islamic Republic’s advantage, especially since the US military’s “surge” in Iraq seems so far mostly to involve rolling up Iranian assets in Baghdad. And if Bashar al-Assad keeps trying to bring down the Seniora government for the sake of sidelining an investigation into the murder of a popular Sunni zai’m and empowering a Shia militia, then Tehran will lose much of the region-wide credit it earned this past summer, outside Lebanon at any rate, as benefactor and grand sorcerer of the Islamo-nationalist resistance against Israel. The fact is that the Iranians may have already reached the limits of their ability to project power in a region that is majority Sunni Arab.

Perhaps that’s why here in Washington we are watching an extraordinary publicity campaign on behalf of the Islamic Republic of Iran unfold, waged by a host of journalists and policy specialists in articles like “Courting the Saudis, and Catastrophe,” and “Why America Must Throw in its Lot with the Shia.” In short, the argument is that the US cannot abandon the Shia revival at this stage and return to the policies that allowed Sunni fanaticism to blossom and eventually bear fruit on September 11. The problem however is that the White House interprets regional transformation very differently than the Shia do: Washington means making room for democracy, or power-sharing, while the Iranians and Arab Shia from Iraq to Lebanon have largely taken it as a cue that after 1,400 years, they get to ride the pony now. Sure, the Shia reaction is a very understandable human response to more than a millennium of repressive violence, but the Americans are not going to run roughshod over all their strategic interests just so that the Shia can get their pound of flesh out of the Sunnis.

Elsewhere recently, New York Times columnist Thomas Friedman argues that Iranian civilization and the country’s well-educated and progressive populace make Iran a much more likely US ally than Riyadh. In an ideal world, Washington policymakers would very much like to have a relationship with Iran. Among other things, it would give the US some much-needed leverage over the Saudis to finally stop funding, inciting and staffing, if unwittingly, terror against Americans and American interests. Alas, it is not an ideal world, and the Iranian regime is a much bigger problem as it is openly fighting the US, its allies and interests across the Middle East, from Iraq to Lebanon.

Vali Nasr is one of the hot names in US policy circles these days, which is why just last month he was invited to testify before the Senate Committee on Foreign Relations. There, he explained that, “a policy that is focused on Iran rather than Iraq will escalate conflict in Iraq and across the Middle East, thereby deepening American involvement in the region with the potential for adversely impacting US interests.” In other words, let Iran go about its business of adversely impacting US interests.

In fact, it wasn’t until very recently that Washington recognized the significance of Iran’s campaign, an oversight that explains why the Americans were essentially conducting two Middle East policies—one to deal with Lebanon, Syria, the Gulf, etc. that saw Iran as the major strategic threat; and another for Iraq that ignored, as Nasr counseled, the extent of Iranian penetration there.

With Moqtada al-Sadr hiding himself away like another famous underground mullah, those days are gone. And now who knows what new alliances are yet in store—a Damascus isolated by Saudi Arabia and its anxious Iranian ally?

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

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Yes, Iraq was all about the oil

by Peter Speetjens
written by Peter Speetjens

We were told that the war in Iraq was waged for many reasons: Saddam Hussein had weapons of mass destruction, supported terrorism and nourished links with al Qaeda. Demonstrators holding up banners reading “No Blood for Oil” were dismissed as ignorant and naive.

All wars start way before the first bullet is fired, and the Iraqi war was no exception. A possible starting date might be January 26, 1998, when 18 members of the Project for a New American Century (PNAC), wrote to then-US President Bill Clinton, urging him to use military action to overthrow Saddam. If not, they warned, he would be jeopardizing a sizeable chunk of the world’s oil supply. PNAC’s clout was significant. Ten of its 28 founding members—including such neocon luminaries as Dick Cheney, Donald Rumsfeld, Paul Wolfowitz and Zalmay Khalizad—would go on to serve in the Bush administration

Clinton did not act. He of course did not have the oil background of his successor, George Bush, who within two weeks of his inauguration in January 2001 appointed Cheney head of the Energy Task Force. The former Halliburton CEO went on to hold regular meetings with oil industry representatives and lobbyists and later declared that, “by any estimation, Middle East oil producers will remain central to world security. The Gulf will be a primary focus of US international energy policy.”

The activities of “Team Cheney” were not isolated. As Jane Mayer revealed in The New Yorker, a secret National Security Council memo directed its staff “to cooperate fully” with Cheney’s task force and, specifically, to join “the review of operational policies towards rogue states such as Iraq and actions regarding the capture of new and existing oil and gas fields.”

The US State Department too joined the party, launching the Future of Iraq Project (FIP) 18 months before the war began, a period during which the US administration denied it had any specific war plans for Iraq. Within the FIP, however, experts from Iraq and the US produced 2,000 pages on how to deal with post-war Iraq, stating that the country should be, “opened to international oil companies as quickly as possible after the war.”

Which it was—almost overnight, the US-lead Coalition Provisional Authority turned Iraq into one of the most privatized nations on earth. State-owned enterprises were put up for sale, corporate taxes slashed and foreign firms could enter the market and repatriate profits tax-free. According to the Center for Public Integrity, 15 American companies were awarded contracts worth $50 billion—but not to oil companies.

That might have made things too obvious. It would also have been a violation of the Iraqi constitution. So a new law was needed, a work in progress ever since. To the immense frustration of the Americans, the main Iraqi power brokers have so far been unable to agree on a framework. The Kurds want regional authorities to have the main say, the Sunnis want a strong national authority, and Shi’ites want something in between.

All parties, including the Americans, agree on one thing: the Iraqi oil sector will be open to foreign investors. Fair enough. The shattered Iraqi oil industry is in dire need of a cash injection, some $25 billion over the next five years. The trouble is that any new oil law appears to be heading towards Production Sharing Agreements or PSAs.

In exchange for investments in exploration and production, a PSA allows oil companies to keep revenues until its initial investments are covered. Fair enough … or is it? British oil watchdog Platform has warned how PSAs allow for extremely high profit margins, up to 13 times a company’s minimum target.

Currently just 12% of the world’s oil is governed by PSAs, as they are only used in countries with small or difficult to reach oilfields, or in case of high-risk exploration. In Iraq, however, most fields have been very well documented, oil lies close to the surface and is cheap to extract.

When current Iraqi Vice-President Adel Mahdi first announced the liberalization of the Iraqi oil sector in Washington in 2004, he proclaimed it “very promising to American investors and American enterprise, certainly to oil companies.”

And yet, just days before the first tanks rolled over the Iraqi border, British Prime Minister Tony Blair assured a baying British public that, “Iraqi oil revenues, which people falsely claim we want to seize, should be put in a trust fund for the Iraqi people.” Who was being ignorant and naive?
 

PETER SPEETJENS is a Dutch writer and freelance consultant

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Saudis moving to block Iranians

by Gareth Smith
written by Gareth Smith

While many analysts have in recent weeks trumpeted the role of Iran as an emerging regional power, the more astute have pointed to the remarkable role of Saudi Arabia in shaping the regional agenda across both the Persian Gulf and the Levant.

The two key developments were February’s Saudi-brokered Mecca agreement between Hamas and Fatah, and Saudi Arabia’s series of meetings with Iran’s top security official, Ali Larijani, over both Lebanon and Tehran’s nuclear program. But there was also huge significance in February’s visit to Saudi by Vladimir Putin, the first by a Russian leader to any country of the Gulf Cooperation Council.

Riyadh’s relationship with Tehran remains delicate. The persisting political vacuum in Iraq, where the Shia-led government is struggling to establish any effective authority, inevitably sucks in neighbors, with the Persian Gulf’s two leading powers having opposing visions of Iraq’s future.

“Iran would like a strong Shia state whereas the Saudis want a Sunni state,” says one insider in Tehran. “But it’s all been complicated by the naive vision of the US, Iraq’s third important player, which sought a quiet, ‘democratic’ Iraq with US military bases for at least 20 years. I don’t see the Americans being successful in reconciling these three visions, whether or not they send more troops.”

Riyadh-Tehran jousting

While both Tehran and the Saudis—officially or unofficially—pour resources into intelligence operations in Iraq, both governments are concerned at the dangers of sectarian conflict between Shia and Sunni, which can embolden extremists in Iraq and elsewhere. Pragmatists in both Saudi Arabia and Iran would like to get back to the growing realism of their relationship under former Iranian presidents Akbar Hashemi Rafsanjani and Mohammad Khatami.

“Even if Iran has more influence than the Saudis in Iraq, Saudi Arabia has more influence across the Islamic world, and this can genuinely harm Iran,” an official in Tehran says.

Ayatollah Ali Khamenei, Iran’s supreme leader, has warned publicly of differences among Muslims being fueled by “those who, for the happiness of US and Zionists, talk about an imagined … ‘Shia crescent’ and those who stir up insecurity and brother-killings in Iraq to make the Islamic and popular [Iraqi] government fail.”

Meanwhile, Saudi Arabia’s “cautious welcome” of the new US Iraq policy reflected relief at the easing of earlier fears that Washington was contemplating a pull-out, even though the strategy had been agreed upon during Vice-President Dick Cheney’s visit to Riyadh in November.

Tehran is also concerned over Saudi influence in Lebanon, growing since the Syrian withdrawal and cemented by the donation of $1 billion to the central bank during the summer’s Israeli onslaught and the Gulf kingdom’s sponsorship of reconstruction in mainly Shi’a South Lebanon. Conservatives in Tehran also charge the Saudis with encouraging Hamas, the militant Palestinian group, to keep a distance from Tehran, and fostering anti-Shi’a sentiment among Sunni clerics in Pakistan.

The Saudis are wary both of Iran’s nuclear program and of the popularity of President Mahmoud Ahmadinejad in the Arab and Islamic worlds, and are well aware of the wave of sympathy likely to be generated for Iran should it be attacked by the US or Israel.

An opinion poll released last month by Zogby International found that 61% of Arabs backed Iran’s nuclear program, even if it led to the acquisition of weapons. Nearly 80% identified the US and Israel as the main threats to regional security with only 6% naming Iran.

Hence the Saudis have opted for subtle economic pressure on Iran in the hope this will lead Tehran to compromise. Riyadh moved in January to keep oil prices at a relatively low level, vetoing a proposed emergency OPEC meeting when the price dipped below $50 a barrel. The move constrained Iran’s oil income, which generates around 60% of government revenue, at a time when US-encouraged banking sanctions are squeezing Tehran’s access to capital badly needed for oil and gas projects.

Blocking Iran

The Mecca accord, which went down badly in Washington, but has also done something to neutralize Tehran’s appeal as the “true” defender of Palestinian rights and remind the region that the 2002 “Arab peace plan,” agreed at the Beirut Arab League summit and still on the table, was essentially a Saudi proposal.

And hence the Saudis’ desire to agree a minimum framework with Tehran over Lebanon—including the acceptance of the UN enquiry into the murder of Rafik Hariri—and reduce the possibility that the persisting stand-off between the government of Fuad Seniora and the Hizbullah-led opposition could get out of hand.

The end-game of the Saudi strategy is probably both the halting of the Iranian nuclear program and the beginnings of strategic dialogue between Washington and Tehran. That neither will be easily accomplished should not detract from the real progress that has already been made.

GARETH SMYTH is the Financial Times Tehran correspondent.

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Lebanon

American-Lebanese Partnership – Launches new portal

by Executive Staff
written by Executive Staff

This month, the US-Lebanon Partnership Fund will launch its new e-portal, which aims to promote trade between the Unites States and Lebanon through business matching, enhancing the e-commerce capabilities of local firms and disseminating sector-specific information. The partnership—which was initiated by the White House and a group of American business leaders last September—announced its five ‘work streams’ supporting economic growth in Lebanon at the Paris III donor conference in January.

Although its goals are ambitious, the exceptional caliber of the partners involved adds credibility to the project. The partnership was founded by Craig Barrett, chairman of the Intel Corporation; John Chambers, chairman and CEO of Cisco Systems; Yousif Ghafari, chairman of GHAFARI, Inc.; and Dr. Ray Irani, chairman, president and CEO of Occidental Petroleum; Microsoft CEO Steve Ballner recently joined the partnership as well. According to the partnership website, the project is founded on the idea that, “a stable and secure Lebanon has the potential to become an anchor of stability in the Middle East. And Lebanon’s fundamental characteristics—a skilled workforce, entrepreneurial spirit and commitment to democracy—give us hope that, with support from American citizens and businesses, Lebanon can become this anchor.”

Furthermore, as Intel’s Barrett adds, “Lebanon will only be rebuilt through actions improving the educational and economic infrastructure.”

The five work streams include crisis relief and response, information communication technology (ICT) infrastructure, workforce training, private sector revival and connected government.

The first work stream, crisis relief, joins global efforts in the wake of last summer’s war with Israel. It primarily addresses the needs for housing, schooling, and adequate nutrition, working hand in hand with various NGOs such as Habitat for Humanity, UNICEF, Mercy Corps and American Near East Refugee Aid.

The second work stream promotes innovation, investment and development of ICT infrastructure by assisting the Lebanese Telecommunications Regulatory Authority. “The partnership hopes to contribute in developing the 21st century telecom sector, as studies show that countries with proper IT structures benefit the most from an economic standpoint,” explained an American embassy official. An international gateway and internet exchange point are also scheduled to launch in the month of March. The endeavor, supported by the American Chamber of Commerce, provides a networking and communication platform for American and Lebanese businesses. In addition, it may include the donation of equipment, training and consulting services. “The goal of the portal is to establish commercial dialogue, highlight opportunities in Lebanon and facilitate business partnerships in a result-driven manner. Technical assistance through online resources and seminars will also be offered,” says Aram Zamgochian, project director at the partnership. Phillip Farah, a partner at Cisco, underscores the increased visibility in the US markets offered by the portal to Lebanese companies, which will drive the demand side of the equation.

Tapping Lebanon’s human resources

The third work stream, workforce training, taps directly into the country’s rich human resource pool. 500 Lebanese interns will be placed in Lebanon and the United States over the next three years, with Cisco alone committing to host 100. “The internship aims to significantly improve skills and marketability of candidates and will be either held locally over an 11 month time period, or for 6 months in the States. Candidates will be encouraged to return to Lebanon at the end of the training,” explains Georges Akiki, Cisco’s program manager for the partnership. The company has also pledged to double the number of its networking academies in Lebanon, increasing from 21 to 43.

Private sector revival—certainly the boldest work stream—seeks to create jobs and push Lebanon into the gleaming waters of the 21st century global economy. “The secret of American productivity resides in the ease of doing business, which contributes to our high employment rates. This model needs to be urgently reproduced in Lebanon, where unemployment rates amount to 30 or 40 % in some regions,” reports the embassy official. Through the portal, global companies can reach out to Lebanese businesses by initiating joint ventures, capital injection, co-branding, R&D partnerships and licensing agreements. Six key industries have been identified as priority areas, including technology, tourism—with a focus on eco- and heritage tourism—banking and finance and agribusiness; developing essentially niche markets within sectors such as health care and manufacturing is also on the agenda, with 120 projects already under discussion. “We feel that the business-matching approach is more suitable than any other and can generate a self-perpetuating momentum. We realized that companies are more easily mobilized when they work on specific projects. They can also choose to directly invest in local funds, namely the Bader equity fund or the recent BEI and Byblos fund. Our goal is to set up an ongoing process that can deliver significant value over the years,” says Farah.

According to Mohamad Chattah, an advisor to Lebanese Prime Minister Fuad Seniora, the last work stream—dubbed “connected government”—is still in its nascent stage. “The partnership will enable intra and extra online communications with the government, facilitate access to public e-services as well as the creation of a connected community,” adds Akiki.

Finally, the partnership will be teaming up with Overseas Private Investment Corporation and the Near East Consulting Group, as well as key Lebanese organizations such as Kafalat, IDAL and the AmCham. “Through the efforts of this partnership, we can make a meaningful contribution to help position the country for leadership in the future,” emphasizes Chambers. “The time to act is now.”

For further information, visit the partnership website: www.lebanonpartnership.org
 

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Foreigners in their own country

by Rana Hanna
written by Rana Hanna

This February, the US Democratic Senator from Illinois Barack Obama announced that he was running for the American presidency in 2008. Other than being erudite and bright, the 45-year-old Mr. Obama has attracted the media’s attention because of his very un-WASPish background and the fact that he is genuinely African-American: as his “unpronounceable name” (his words) might suggest, Mr. Obama is half- Kenyan; It is his mother who is the American.

So here we have an African applying for the top job in the world. All very well you might say—it’s all in keeping with the wonderful opportunities afforded by the US to immigrants. However, Lebanese mothers whose children were sired by foreign fathers might not instantly applaud Mr. Obama’s ambitions; in fact they would probably be green with envy. Their children cannot even be Lebanese, let alone run for political office. Furthermore, their kids cannot apply for a passport or benefit from state services, such as free health care and education.

Against human rights and the Lebanese Constitution

This is a blatant breach of human rights and a breach of the Lebanese Constitution, according to which men and women are equal before the law. Unfortunately, this is the same law that declares a Lebanese citizen to be “a child born to a Lebanese man.”

There is no official explanation given as to why only Lebanese men can sire Lebanese citizens. Unofficial reasons include the fear of destabilizing the already delicate sectarian balance due to the many Palestinians who have been residing in Lebanon since 1948. But according to the Collective for Research and Training on Development-Action (CRTD-A), a Beirut-based NGO that contributes to the social development of local communities across the Arab world, less than 1% of registered marriages in Lebanon are to Palestinian men, a statistic that renders that argument null and void. As for the supposedly hair-trigger Lebanese sectarian system, well, that broke down decades ago and has been in constant shift ever since. In other words, there is no “delicate balance” to uphold.

The fact is that all the arguments given are merely excuses. The real issue is that women in this country are not really considered citizens. In fact, Lebanon does not even fully comply with the 1979 United Nations Convention on the Elimination of all Forms of Discrimination against Women.

That we are not alone in this quagmire offers little comfort. Most countries in the Arab world do not grant women the right to pass on their nationality to their spouse or children. However, there have been changes. Last February, Morocco granted women the right to pass their nationality on to their children. Algeria did the same last year and Egypt two years ago. For a country that brands itself as the Switzerland of the Middle East, we are far behind.

It is difficult to pinpoint the social and economic effects of such discrimination against women. Why should the children of foreign women married to Lebanese men, who probably do not even live in the country, be considered more Lebanese than children reared in Lebanon, who speak Arabic and attend Lebanese schools and are, in natural fact, Lebanese in all but name?

Many obstacles to children, society

And get this: While American sociologists and economists ponder the effects of the increasing number of women leaving the workforce, Lebanese women have to worry about their children not being able to enter it. Some progress, albeit very little, has been made (new administrative procedures allow women to give their children the right of abode in Lebanon, although this right also exists for former diplomats to Lebanon who wish to remain in the country). But these children will still have to apply, and pay for, a work permit, putting them at a major disadvantage to their Lebanese peers as employers often think twice about hiring foreigners.

Interestingly enough, if a child is born in Lebanon and declared illegitimate and no foreign link is established, then the Lebanese nationality is theirs. So mothers, don’t take it personally, it’s the father’s fault.

Isn’t it always?

RANA HANNA is the Lebanese mother of three Cypriot children

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Lebanon

One step closer

by Executive Staff
written by Executive Staff

In the past two years, Lebanon’s economic progress has been noticeably erratic, to say the least: after posting promising import and export figures in 2005 ($10 billion and $2 billion, respectively), the heavy burden caused by the recent Israeli conflict and the ongoing political deadlock has been a deadweight on Lebanon’s upward trajectory. However, a promising sign emerged in February 2007, when—in spite of the political turmoil—the Ministry of Economy and Trade and USAID signed a Memorandum of Understanding (MOU), bringing Lebanon one step closer to World Trade Organization (WTO) accession.

The MOU is not the first agreement of its kind for Lebanon. Free trade agreements have been signed by the Lebanese government with the EU, the EFTA States (Switzerland, Lichtenstein, Norway, Iceland) and the GCC; Lebanon is also a member of the GAFTA—the Greater Arab Free Trade Area. However, the country has yet to join the WTO. “The WTO accession would be a certificate of excellence,” affirms Fadi Makki, former director-manager at the Ministry of Economy.

An arduous journey

The journey towards the WTO has been arduous for Lebanon. In 1999, the country first applied for WTO accession. In 2001, it presented a Memorandum of Foreign Trade Regime (MFTR)—a snapshot of the country’s trade, institutional and legal regimes. Four Working Party meetings have since taken place in Geneva, where member states examined and discussed Lebanon’s responses to questions about the MFTR. This essential phase of the negotiation process will determine the long-term structure of Lebanese tariffs and quotas.

With the new MOU, the process’s natural extension, USAID will offer technical assistance to the government, with the support of global consulting firm Booz Allen Hamilton. “The [original] memorandum has been in place since 2000 and extended regularly ever since,” explains Lama Oueizan, project manager at the UNDP. “The memorandum ensures development of the technical capacity of Lebanon’s institutional base for negotiating and implementing the WTO agreements through training and support.”

The MOU’s main objectives are the evaluation of Lebanon’s policies, laws and institutions, problem identification and the introduction of necessary reforms to conform foreign trade regulations to WTO requirements. “In this respect, laws will be abolished and new ones will be drafted. Some will be enacted to fulfill WTO technical requirements. Such reforms are related to animal quarantine, fruit and plant safety, anti-dumping, standards and norms. Other laws will depend on the negotiation process as each country sets its own requirements according to its own trade priorities,” adds Makki. USAID will also provide Lebanon with assistance in preparing documents necessary for the negotiation process. “We will build awareness within the public and private sectors about the accession process as well as its impact on Lebanon’s economy,” says Raouf Youssef, mission director at USAID.

“Accession to the WTO will establish trust for Lebanese commodities, it will increase exports and open markets for local companies which will have to meet new quality standards,” notes Youssef. Companies will also likely focus on niche markets, such as olive oil production. Makki believes accession will help reduce prices, increasing competition and improving the quality of services rendered, and thus have a positive impact on the overall business environment. “Membership will contribute to the system’s transparency and openness, and provide access to dispute settlement mechanisms,” adds Makki. Countries operating outside the WTO may see their exports obstructed for any number of reasons by others: with WTO membership, countries are protected and have the possibility to sue other members for unlawful trade practices. Private and public monopolies are also put to an end.

Paying the price

“Like in any transaction, there is a price to pay,” Makki underscores. Tariff reduction will negatively affect sensitive sectors such as fruits and vegetables, cement, ceramics, cables and clothing, and the government will want to protect some segments. Reforms necessary for WTO accession, such as a restructure of subsidies in agriculture, especially tobacco, will be strongly resented by populations in certain areas. In addition, discretionary measures on trade policies will be removed and traditionally closed service sectors will be liberalized. Nonetheless, Youssef insists that, “If one looks at the overall picture and the country’s best interest, accession to WTO will definitely be supported by the population.”

According to Makki, one possible solution for sensitive sectors could be found by negotiating transitional tariffs, which reduce gradually over time. Trade experts also agree that awareness campaigns are essential to the accession process, in order to win over defiant stakeholders such as businesses and labor unions. “They need to understand that trade liberalization will not only mean increased competition, but also facilitate access to foreign markets,” says Makki.

In light of the recent Paris III conference, which drafted major reforms for Lebanon’s economic and institutional framework, the MOU can be seen as a natural continuation of structural amendments. “Some measures are common to both the Paris III conference and WTO accession. As an example, certain reforms envisioned by Paris III facilitate business ventures by introducing one-stop shops. Joining the WTO completes this endeavor by offering protection to investors through IPR-intellectual property rights and court litigations, hence improving business practices,” explains Youssef.

Of course, the big question still remains: How far is Lebanon from joining the WTO? “Minister Haddad wants to achieve accession in 2007,” states Youssef. Ironically, the Ministry of Economy’s website still schedules accession for … 2006.

Most experts believe, however, that the past year’s ongoing political instability has rendered efforts towards accession largely fruitless. Furthermore, as new laws require parliamentary vote, the institutional and legal standstill in Lebanon means that for the time being, accession to WTO in the near future may be little more than wishful thinking.
 

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Creativity on tap in Lebanon

by Dany Richa
written by Dany Richa

When it comes to discussing Lebanon’s role as the Middle East’s creative hub, it is not merely because of one or two reasons, but rather a series of factors that combine to create an environment conducive to providing a melting pot of ideas and proactive attitudes.

Lebanon is home to probably one of the oldest advertising cultures in the region, one that was creating competitive communication while other Middle East countries were still sloughing off colonialist “tuteledge.” This gave us a head start in honing our creative tools while at the same time being able to offer our talented graduates better job opportunities—Lebanon was the first country in the region to offer advertising at university level—and now we have dozens of universities, graduating hundreds of designers, art directors, copywriters, film producers and composers every year. No other country in the region can rival this. Simply put, we have the human capital and we know how to train it.

Our tradition for creativity also means that our professionals do not have to automatically look to the region—or the world—for work. Should they choose, they can work in Lebanon. This also makes it easier for those who use them. Highly qualifies and highly professional casting agencies, photographers and producers are based here and on tap.

Potential is there

Proof of Lebanon’s advertising potential is clear when one looks at the regional industry as a whole. Lebanon is home to many of the top CCOs and creative directors, who nonetheless provide an inspirational environment wherever they work in the region, nurturing and motivating others to cultivate a productive work ethic and fulfill their creative potential.

Lebanon’s quality of life makes it a natural environment for creatives to thrive. Its nightlife, mix of cultures, rich history, its innate ability to absorb positive cultural and social influences make it an ideal milieu in which to work.

Its liberal climate also offers creatives a wider and challenging range of areas in which to can test their talents. Areas such as tobacco, alcohol and politics are not automatically open to the advertising sector in other Arab countries, and the often risque and touchy nature of these sectors offers a fertile environment for the advertiser to plow his creative furrow and ultimately provide a deeper well of experience into which he can reach on future projects.

The Lebanese creative has the opportunity to work on local campaigns, unlike the region’s other creatives who, more often than not, have to work on Pan-Arab accounts. Working with local clients and, more importantly, targeting a local audience, gives the creative a chance to use specific local insights and cultural mores, which can lead to unique and groundbreaking results.

Think, for example, of a British creative who works on a UK campaign rather than a European one. The UK campaign will be able to tap into a more specific and richer cultural vein rather than a bland, safe, culturally unspecific and ultimately toothless campaign for the pan-

European consumer. That said, Lebanese creatives can also work on Pan-Arab advertising, which does give them access to bigger budgets and greater regional exposure for their talents. In fact, they get the best of both worlds.

Many are leaving

It is a shame therefore that many, especially in today’s climate of uncertainty and economic stagnation, are choosing to leave Lebanon in pursuit of work abroad. Undoubtedly, the Gulf offers more competitive packages and gives better exposure, attracting young creatives unburdened by family commitments, but it is also true that the Gulf, where the cost of living is increasing every year and where the daily rat race now rivals Europe and the US, is becoming increasingly expensive and stressful place to live. Ultimately, as they realize that, in the long run, Lebanon can offer just as much in terms of career and quality of life, more Lebanese expats will come home.

The Lebanese will continue to thrive in the creative world as their creative juices will continue to run, acquiring many talents, influences and skills along the way.

DANY RICHA is chief creative office (MENA)-Impact BBDO Group and president of IAA’s Lebanon Chapter

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