Comment

The year that brought globalization to the Arab World

by Executive Staff
written by Executive Staff

Since the current wave of global change accelerated after the end of the Cold War, mention of globalization has tended to upset Arabs. However, 2007 could be the year that the Arab World really moved closer to the rest of the globe. Politically, this was evident in the Annapolis conference, where — under watchful American eyes — for the first time high-level representatives of Saudi Arabia and Syria sat down in public with Israeli officials, a powerful symbol of the region’s engagement with the West and its stepchild Israel. In the economic sphere, vast Arab investments were welcome in Western countries, sometimes as sizeable, controlling interests in big-name global companies. Not all deals went off without a hitch, witness the Qataris backing off over the takeover of the major British retail chain Sainsbury’s. But it will soon be forgotten, as the 2005/06 failed attempt by Dubai World Ports to invest in the US was forgotten, while Arab money poured into shaky Western stock markets. Moves in the opposite direction were also evident, as global businesses headed in greater numbers to Arab countries.

Along with these developments, the message that finally started to come across in 2007 is globalization is neither necessarily good nor bad, but it is here and it is important. The term still has negative connotations in the region, but 2007 has shown that to integrate into the world does not mean that Arab countries will have to surrender their identity.

Nevertheless, the big deal for the eastern part of the Arab region remains the Israeli-Palestinian conflict. Annapolis has not of course resolved the problem, but things may be better after that meeting than they were before. In the Maghreb on the other hand, the major issue is closer relations with Europe and it is important that French president Sarkozy chose to roll out his Mediterranean Union initiative in that corner of the Arab World. Like Annapolis to the eastern Arab countries, the launch of the idea of a Mediterranean Union does not signal that all of the Maghreb’s problems are over. However, this indication of an increased European role in the region is critical. In the East too, greater EU involvement in the peace process could help. Europeans being involved more in the Arab World means more emphasis on the bright side of globalization and this seems to have gained ground in the Arab World during 2007.

Turning from the big picture to nitty-gritty issues at the center of globalization, such as logistics, is also revealing, in terms of changes taking place within the Arab World. For example, the World Bank’s first Logistics Performance Index ranked Lebanon 98th among 150 countries worldwide and 13th among 17 Arab states. The index covers ability to track and trace shipments, timely arrival, customs procedures, logistics costs, infrastructure quality, and competence of the domestic logistics industry. Globally, Lebanon tied with Zambia and ranked behind Papua New Guinea, and was below both the global average and the Arab score. Examples of Lebanon’s performance vis-à-vis Arab states in individual sub-indices were especially grim: tying Syria and behind Yemen on the customs sub-index, below Mauritania on the infrastructure measure, behind Tunisia on logistics competence, and weaker than Egypt on tracking and tracing. To mention Lebanon’s logistics in the same breath as most of these countries would have been unthinkable a generation ago. But today, while much of the region advances and globalizes, the Lebanese wallow in instability.

However, even considering Lebanon, the past year appears to have been better for the Arab World as a whole, at least in terms of macro-economic indicators. Was the same true regarding the average person living in the region? Maybe not, so how can the benefits of growth and globalization that accrue to the rich and well-connected help the average person in 2008? The answer may be larger doses of democracy and liberalization to bring the region into better harmony with the forces of globalization. Well thought out democratic practices and properly introduced liberalization are valuable in making the best of globalization. Take as an example the recent and continuing entry of Arab countries into trade agreements. The experience of various regions, including Latin America and South and East Asia, suggests that the negotiation capacity of states seeking to join trade pacts actually increases in the presence of pressure groups. By contrast, in many cases Arab negotiators themselves monopolize, and so weaken, their own countries’ negotiation position. The challenge remains to revitalize labor unions, professional syndicates, and business associations as partners in public decision-making, to make the best of globalizing. The alternative is globalization for the rich and powerful and a doubtful future for the rest of the population.

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Banking & Finance

Strong regulations benefit Turkey’s bank industry

by Executive Staff
written by Executive Staff

Foreign banks are continuing to show strong interest in Turkey’s banking sector, as demonstrated by the upcoming sale of state owned HalkBank and privately-held Oyak Bank. While the inflow of foreign blood over recent years has elevated the standards of the banking sector, Turkey’s bank regulator has forced local players into shape.

Since its establishment in 2000, some local bankers have lauded the independent Banking Regulation and Supervisory Agency (BDDK) for the discipline it has instilled in the sector. Non-performing loans (NPLs) have been whittled down and are not considered to pose a problem, while loan volumes—specifically retail loans and SME loans—have increased. The minimum capital adequacy ratio was recently increased from 8% to 12%. The sector is well regulated and the level of transparency and reporting mechanisms are extremely good, says Levent Celebioglu, the assistant general manager and head of the financial institutions group of TEB-BNP Paribas.

Regulatory scheme praised, but doubts remain

While the majority of market observers praise Turkey’s regulatory authority, others take a more qualified stance. The BDDK’s interventionist approach could be dangerous. Having broader and more sophisticated regulatory parameters—as for instance in Europe—is safer as it means that the entire sector will not suffer should the regulatory authority make a miscalculation or misjudgment, said a foreign bank executive. Control of interest rates on credit cards has also been a source of complaint for some in the sector, limiting returns and business expansion. This is not to deny that the regulatory authority’s more accommodating approach on card interest rates has offset much sector-wide disgruntlement, resulting in a broader consensus between the regulator and regulated. Restricted consumer credit though is still raised as an issue by some insiders. Limiting the total amount of credit available to each person protects those banks that already have customers. The emphasis rather should be on educating consumers on how to avoid debt, according to the observer. Providing safeguards against debt, regulatory fans retort, is the safest track.

Yet, the BDDK’s strong mandate as a hands-on regulator should be placed in the context of Turkey’s turbulent economic past, when stringent regulation of the banking sector was clearly lacking. Many observers blame the 2001 financial crisis on the lax banking safeguards of the time. While 85 banks were operating in Turkey in 2000, the number decreased to 51 by 2005 following liquidations, mergers and acquisitions.

An evolving industry

The industry has evolved since the BDDK emerged as regulator but risks nonetheless remain. A recent report by international ratings agency Fitch Ratings underlined that Turkish banks needed to closely monitor asset quality, diversify earnings and improve efficiency as the sector experiences rapid growth in loans and ever increasing competition from constituent players. In November, BDDK head Tevfik Bilgin also warned that money from deposits alone was currently not sufficient to fund the banks, with foreign borrowing filling the gap.

Foreign banks shrug at such concerns. The banking asset to GDP ratio Turkey is approximately 85 to 87% in 2006, whereas for the EU 15 members it is 280%, or 110% for the EU 25 members, said Celebioglu, pointing to the scope for growth in the Turkish market. Likewise, Bilgin underlined the fact that the market was potentially worth between $700 billion and $800 billion, as opposed to the $323.03 billion registered towards the end of 2006. Turkey had previously lived in a high inflation environment with high interest rates, which forced consumers to hold back on spending. But the tide has shifted, with consumers showing greater confidence on the back of the government’s economic policies.

Meanwhile, the sector as a whole will continue to benefit from the entry of foreign players. The total foreign shareholding at Turkish banks is expected to reach 18% of total paid-in capital by the end of the year, according to the 2006 Fitch report.

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Capitalist Culture

A step back for freedom? US must choose

by Michael Young
written by Michael Young

Amid all the hoopla over how the United States should conduct its war in Iraq, very little attention has been paid to what looked like a good idea when President George W. Bush first sought to justify his invasion of Iraq: the spread of democracy to the people of the Middle East.

Indeed, in recent weeks some American pundits and former officials have taken a decidedly dim view of US ambitions in the region. For example, in a much-listened-to radio program, Richard Haass, president of the Council on Foreign Relations and a former State Department official, pointed out that democracy should not be an American priority. More generally, Haass has been peddling a pessimistic line on American power, arguing in a recent issue of Foreign Affairs magazine that the end of US dominance in the Middle East had arrived. “[B]y tying down a huge portion of the US military, the war has reduced US leverage worldwide. It is one of history’s ironies that the first war in Iraq, a war of necessity, marked the beginning of the American era in the Middle East and the second Iraq war, a war of choice, has precipitated its end.”

Haass is a political ‘realist,’ one whose approach to foreign affairs is defined by advancing American interests rather than defending values. Realism was for a long time the foundation of US policy in the Middle East, and justified Washington’s interactions with despotic regimes; that is until Bush complicated matters by placing democracy at the heart of his regional agenda, even as he continued to uphold good relations with dictators in Arab countries from the Gulf to the Atlantic.

‘Realists’ on the upswing, but they’re still on the wrong track

Haass is not the only realist to take such a jaundiced view of democratization. In summer 2004, Brent Scowcroft, national security advisor to former President George H.W. Bush, had this to say to a reporter from the New York Observer: “It’s not that I don’t believe Iraq is capable of democracy. But the notion that within every human being beats this primeval instinct for democracy has not ever been demonstrated to me.” That Scowcroft and his onetime boss had sponsored a policy in the Middle East that granted America’s despotic comrades wide latitude to suffocate any “primeval instinct for democracy” was left unmentioned.

The question today, however, is whether the US has the same option as it once did to ignore the abuses carried out by its Arab allies—in effect to ignore a capitalist culture of free minds and free markets. The Middle East is changing, and while despotism endures, the alternative to despotism is far clearer today than it was when people like Haass and Scowcroft were at the helm. Against the dictators stand angry Islamists—themselves as undemocratic, if not more so, than the men in power, and often far more destructive. In other words, reheated realism is not really an option anymore in the shadow of the 9/11 attacks, when it has become quite obvious that despotism only makes violent Islamism stronger.

That message has yet to sink in among the halls of government and Congress in Washington, where the failure of one foreign policy school tends to mechanically lead to embrace of the other. Because the neoconservatives who gave ideological sustenance to Bush’s Middle Eastern policies after 2001 are said to have failed, the pendulum has shifted back to the realists. The fact is, however, that both sides are guilty of failure in the region. The neocons wanted grand change, but all they have ceded us until now is instability; the realists pray at the altar of stability, but left behind a Middle East with an anti-Americanism that made possible the attacks against New York and Washington. Neither side has offered a convincing template for a new US approach to the region.

However, the neocons did hand us something genuinely new in their defense, hypocritical or sincere, of democracy and human rights. For the US to give up on these values or practices is not only impossible at this stage (since, for all his faults, Bush has imperceptibly welded those concepts into the edifice of Middle Eastern thinking), it is also bad politics. Human rights and democracy are powerful ideas that, when properly defended, give the US considerable leverage in the Arab world. No sensible state surrenders a good thing, even if that means it has to reshape and refine an agenda to convince the agnostics or detractors.

Not many Arabs are willing to give the US the benefit of the doubt on democracy. But no one is particularly eager to be indefinitely ruled by the tyrants who hold sway in the region either. There is room in that gap for a liberal American approach to the region, one that first advances then defends democracy where possible. The approach might be haphazard, deliberate, and contradictory, but a return to a past of benign neglect for human rights in the Middle East is neither feasible nor defensible.

 

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Even big powers want friends

by Lee Smith
written by Lee Smith

A friend at the State Department relates a meeting he had recently with a high-level official from a one-time Soviet satellite state, one in fact where the US waged a major, and very unsuccessful, war. But with the Cold War over and the US having won it, this nation, like most others, wants a deal with Washington.

“We are looking for a Category One relationship,” the official told my friend. “But there’s no such thing as ‘Category One,’” the man from State explained. “Washington doesn’t work like that.” My friend continued: “The United States has bilateral relationships with a number of different countries and explores various ways of strengthening ties.” “Ah, OK,” the foreign official said, indicating that he fully understood. “But we want a Category One relationship—just like Israel!”

Israel is perhaps the US’s most famous—and most controversial—ally, but it is hardly the most privileged one. After all, Washington’s most enduring alliance is its “special relationship” with the United Kingdom, which partly explains why Tony Blair was one of the few European leaders to stick his neck out on behalf of the Bush administration and join the coalition of the willing.

The fact is that Washington has plenty of friends the world over—including the Middle East, though many of them think it best to play down their relationship with the Great Satan. For instance, the centerpiece of US-Middle East policy for the last 60 years has been the Kingdom of Saudi Arabia, home to the world’s largest known reserves of oil. And the US taxpayer keeps the Bahrain-based 5th Fleet afloat to make sure that Gulf Arab energy stays readily available, a boon to the US and Khaliji kings and sheikhs alike, as well as markets around the world.

The White House stands with the Seniora government not just because Lebanon is a front, among many others, to advance democracy and fight Iran’s project in the region, but because Washington believes business is good for America and Beirut believes doing business is good. Egypt is another regional ally, the second largest recipient of US aid, getting $2 billion a year, partly as a bribe to maintain its peace treaty with Israel, but also because the US thinks it wise to be on good terms with the most populous Arab state. Indeed, the US spends loads of cash on its friends in the Middle East, including non-Hamas Palestinian institutions, and has free-trade agreements with a host of nations here, like Morocco and Oman.

Washington is not friendly with the Jewish state instead of the Arabs, but in addition to them.

The fact is that the US does not see the world as a zero-sum equation. The United States is perhaps unique in history among all Great Powers insofar as its default strategy is not “divide and conquer”; nor, unlike many other actors, does Washington typically seek to destabilize other states to knock rivals and friends off kilter. Rather, the US usually seeks to keep the peace around the globe and maintain the balance of power by using local actors. And this brings us back to Israel.

It is true that the United States was the second nation in the world to recognize the State of Israel (the USSR was first), but the relationship didn’t kick into high gear until later. After the Arabs’ catastrophic 1967 defeat, Washington recognized that the Jewish state could be a useful ally against the Soviets’ Arab proxies. But it was the 1973 October War that really cemented the US-Israeli alliance.

The 1973 oil embargo keyed in on the Americans’ Achilles Heel—their dependence on Gulf energy sources. In turn, Washington took advantage of the Arabs’ glaring weakness—their fanatical hatred of Israel. By arming Israel to the teeth so that the Arabs had little real hope in driving the Jews into the sea, the US ensured that if the Arabs wanted concessions from Israel they would have to go through Washington to get them, thereby securing the Americans’ position as the region’s prime mover. In lesser hands, the “Peace Process” may seem a maudlin exercise in fruitless diplomacy, but it is a masterstroke of realpolitik—one however that has probably outlived its usefulness with a Hamas government in power and Israel coming off of two wars along pre-67 borders this past summer.

All this has thrown a number of US policymakers and other experts into a state of confusion. Pity poor James Baker and his stillborn Iraq Study Group report. And then there’s sorely confused ex-President Jimmy Carter, who owes his place in history to the Israeli-Egyptian peace deal and yet whose new book now describes Israel as an apartheid state. No one however has misunderstood the principles of American foreign policy as dramatically as the authors of “The Israel Lobby,” Stephen Walt and John Mearsheimer. In following the Aljazeera line, and recommending that dumping Israel will lessen anti-American terrorism, they have posited a superpower without a spine. Imagine if during the midst of “the Troubles,” the Irish Republican Army had targeted the US for its alliance with the UK—would any serious analyst argue that Washington drop the Brits because of it?

Great Powers, as we have seen, make all sorts of alliances for all sorts of reasons; however, they are no longer Great Powers once they begin to accept terms dictated to them by terrorist gangs.

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

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Government vague on Paris III

by Michael Karam
written by Michael Karam

If I appear vague, forgive me, but looking at the document the Lebanese government was supposed to show the assembled international donors in Paris, a group that included sovereign governments, the IMF, the World Bank and other supranational institutions, one can only have a deep feeling that it was published half-cocked. Based on this, we were lucky to get the money.

The contents are undeveloped and some important parts of the economic and social reform program appear blurred and unconvincing, leaving the reader with the nagging feeling that the government is too fearful to upset certain political parties or even entire communities.

There is also a significant lack of any data projecting anticipated future economic performance. Parameters are limited in number and, wheere they do exist, they are insufficiently substantiated. Moreover, there is no executive summary that clearly itemizes the reform program.

The reader reads on and on and never sees any clear-cut proposal on how to reform the country as a whole. Instead, the reform program seems to be: Yes, we need a capital markets authority, to reduce interest rates, etc. But we never find out what is the end game.

So what does it say? The privatization section is limited, includes no details and is by and large superficial. Privatization is the key issue for donors like the World Bank and the IMF, who have insisted on it as a condition for the Paris I and II conferences. It’s as if the government has not yet learned that it needs to take the bull by the horns on the privatization issue and elaborate the privatization program in the future. Securitization is only briefly mentioned yet it is a crucial part of the process. The document does not say what will be privatized, how it will be privatized and how long the process will take. In short, the government appears not to want to commit itself.

And still the fluff appears. Governance and good practice measures are not comprehensive. These are major issues in Lebanon and although the will to tackle them is apparent in the document, the method is not clearly laid out. Transparency of the non-banking sector is not really mentioned, neither are the ways as to how it is going to be tackled. There is no description of the corporate sector’s physiognomy.

The banking section is supremely lightweight when it should have been a major focus for the government. Basel II should have been be mentioned, as should the plans to make Lebanese banks compliant and the problems of raising capital to achieve this compliance. All this would facilitate arguments with donors.

There is also no clear explanation as to how the government is going to push banks to become intermediaries in government paper and the central bank’s latest measures are nowhere to be seen. One wonders whether the BDL and the Ministry of Finance even liaised on this report.

There is an absolute need to create (or reactivate) a small claims tribunal. There are lots of private entrepreneurs in Lebanon who don’t get paid by their customers and the law is too slow and weak to enforce their claim expeditiously. This should be included in the governance and best practice section. Delays in claim payments are plaguing the economy and are slowing down GDP growth and private consumption. Given the entrepreneurial nature of the Lebanese and their economy, an efficient small claims tribunal can only contribute towards GDP growth.

The document does not mention in any detail how the government intends to develop new franchises and create diversity for the economy. This is a part the donors would be really interested in. Raising taxes and VAT (to 12% by 2008 and to 15% by 2010) is merely a partial solution to increase government revenues, and the government does not even attempt to propose innovative ways to increase revenues without affecting the purchasing power of the population. The document’s plan to increase and diversify government revenues and reduce the budget deficit is incomplete, scattered and, yes, once again, blurred.

Ordinarily, donors are in no mood to fill in the blanks. They want to see a more detailed analysis of the economic and social dynamic, as well as details on how these problems are going to be sorted. We can conclude therefore that the government relied more on its pals in the international community—French President Jacques Chirac and the majority of the European Union—to convince them to hand over the money and that the Paris III document appeared to have been drafted for cosmetic purposes only.

Michael Karam is the managing editor of EXEVUTIVE

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Abizaid: the Mad Arab who disagreed with the President

by Claude Salhani
written by Claude Salhani

Gen. John P. Abizaid, the most senior military officer of Arab descent to serve in the US armed forces, disagreed with President Bush over the president’s Iraq strategy—and he is out.

On Dec. 20, 2006, the Pentagon announced that Abizaid, an American of Lebanese origin, would step down from his position as Commander of CENTCOM (US Central Command) and retire in March 2007. Abizaid said he would have liked to retire later but that these decisions are never made alone, a subtle way of saying he was pushed. “At the Pentagon, the knives are inserted so slowly that they are hard to notice,” said one long-timePentagon observer.

Abizaid, who as a cadet at West Point was nick named the “Mad Arab,” is considered a no-nonsense man, someone who is not afraid to speak his mind or to take the initiative. During the 1983 invasion of Grenada, Abizaid and his unit jumped from a helicopter onto a landing strip. Under fire from Cuban troops and lacking proper armor, Abizaid ordered one of his Rangers to drive a bulldozer toward the Cubans as he advanced behind it—a scene reenacted in Clint Eastwood’s 1986 film, “Heartbreak Ridge.”

But acts of derring-do aside, he was a realist, one who dared oppose the White House over Bush’s surge of US forces in Iraq. “You have to internationalize the problem,” Abizaid said. “You have to attack it diplomatically, geo-strategically. You just can’t apply a microscope on a particular problem in downtown Baghdad and a particular problem in downtown Kabul and say that somehow or another, if you throw enough military forces at it, that you are going to solve the broader issues in the region of extremism.”

The problem is that his opinions clashed with those of the White House. Abizaid was the first officer to officially call the fighting in Iraq a guerrilla war, despite denials from the White House and the Pentagon. He was the first to raise the alarm that sectarian violence was spreading. Abizaid saw the rising civil war in Iraq as replacing terrorism as the biggest threat to Iraq’s stability. He was the first to tell Congress that Iraq faced the risk of slipping into civil war.

Abizaid opposed Bush’s troop surge on the grounds that he felt the answer to Iraq’s problems lay more in a political settlement than in escalating the conflict. Senate Armed Services Committee, Senator John McCain, Republican of Arizona, told the general during a heated debate, “I’m of course disappointed that basically you’re advocating the status quo here today, which I think the American people in the last election said is not an acceptable condition.”

Abizaid also coined the phrase “the long war” to describe the challenges in fighting radical Islamist terrorism. He believed the United States is not properly organized to face the emerging threat of Islamist terrorism head-on. “I think our structures for 21st century security challenges need to adapt to this type of an enemy,” he said. “The 21st century really requires that we figure out how to get economic, diplomatic, political and military elements of power synchronized and coordinated against specific problems wherever they exist.”

He was the first to publicly say that a solution in Iraq required talks with Iran and Syria. The dispute over the increase of troop levels brought out in the open the schism between the uniforms and the suits. Testifying before a Senate committee on Nov. 15, Abizaid said, “I do not believe that more American troops right now is the solution to the problem. I believe that the troop levels need to stay where they are.”

Abizaid predicted that the insurgencies in the four Sunni provinces in northern and central Iraq will be there for the foreseeable future (a view that goes against President Bush’s hopes that by deploying an additional 21,500 soldiers and Marines, the insurgency may be somehow contained) and believes that the U.S.’s primary enemy in Iraq is al-Qaeda, whose plan is to keep casualties in the media until the American public becomes convinced that victory is impossible and leaves the region.

“When you take a look at the reach of the extremism as exemplified by al-Qaeda, it’s not just in Afghanistan, it’s not just in Iraq—it’s in Pakistan, it’s in Saudi Arabia, it’s in Great Britain, it’s in Spain,” he said. “It attacked the United States. It is organized in the virtual world in a way that is very unique, very modern, very dangerous.”

But then what does he know? He’s just a mad Arab, isn’t he?

CLAUDE SALHANI is an international editor and political analyst at United Press International (UPI)

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Ras Al Khaimah set to grow

by Riad Al-Khouri
written by Riad Al-Khouri

Ras Al Khaimah (or RAK as it is affectionately known by the sprinkling of expats that have lived and worked there) was the Gulf’s best kept secret—until it positioned itself as a serious investment destination. An important milestone in this respect was the May 2005 investors’ conference held in the emirate by the RAK government and the World Bank. Setting the tone of that high-profile event, HH Sheikh Saud bin Saqr al Qasimi, Crown Prince and Deputy Ruler of RAK in his opening address said, “I believe the economy of RAK is on a verge of a tipping point after which we will see exponential change and growth that will be unstoppable.”

He turned out to be right, with RAK now rapidly attracting investment. While RAK products like glass and sanitary goods already export to over 100 countries, there is vast potential for more investment in industry, which remains the emirate’s “engine room” generating income and jobs, as well as inputs for building other sectors. According to Dr. Khater Massaad, who runs RAK Ceramics and helped develop it from humble beginnings to become the world’s largest single ceramic tile manufacturer, the emirate’s investment authority (which he also heads) has “been able to attract over $1 billion of investments in various industry segments” since its inception two years ago. That includes cement, in which RAK is undergoing a massive capacity boost to become a leading producer in the Gulf, with the emirate’s 2005 capacity of 3 million tons planned to exceed the 10 million ton mark once expansion is complete.

The extra volume will be needed, as demand for cement and other building materials is set to increase in a big way in RAK with the launch of several mega-projects. RAK has just begun to develop it tourism capability, and hopes to attract investors for constructing more hotels, golf courses and many forms of water-based recreation and sport. Tourism can showcase the emirate’s economic development, attracting people to RAK and further proving to regional and international investors that it is on the map and open for business.

All of this, of course, will act to promote other sectors, including real estate development. The logic behind this emphasis is simple: much of the growth in the UAE over the coming decade will require high-value workers. One of the advantages of RAK is a location close to Dubai with potential for development of working space and lifestyle accommodation meeting requirements of high-end human resources. Explosive growth in Dubai has created considerable pressure on real estate. Land prices there have increased markedly in the last fifteen years, while people find it increasingly difficult to move about as growing road traffic has increased travel time significantly.

By contrast, RAK has considerable land that can be made available for residential, commercial, and service industry development. At the same time, strengthening of land use planning and management institutions is one of the priorities of the emirate. A comparison of land prices between RAK and other emirates indicates great potential. Besides lower-cost land, RAK is also capitalizing on its good environment and recreational facilities to attract visitors and new residents. The road trip to Dubai has been cut to about 45 minutes and RAK airport facilities are being revamped and expanded to allow better access to the emirate by plane. This enhanced connectivity makes it easier for people and businesses to locate in RAK and take advantage of the lower cost land there, further establishing the emirate as a world-class residential destination in its own right.

The main lesson to learn from RAK’s investment drive is to profit from the boom in Dubai and the rest of the region, but avoid mistakes that led elsewhere to overcrowding and other problems. The emirate is undertaking comprehensive and realistic land-use to guide future development, and RAK’s capacity to enforce well-designed standards of zoning and environmental management will be an important complement to such planning. This will keep the industrial “engine room” and the touristic “showcase” in a healthy, mutually-enforcing relationship, attracting more people and businesses alike. The strategy is nicely encapsulated by Matt Sawaqed, board member of Rakeen, one of the emirate’s flagship real estate developers, who presents his firm’s core values as “Sustainability, Responsibility, and Prosperity” – which could also apply to the emirate as a whole. As RAK’s boom gathers steam, the emirate is starting to become prosperous like its neighbors, but in a sustainable and responsible way. The challenge facing the RAK public and private sectors alike will be to keep things moving in that direction: raising incomes, profits, and living standards while caring for the environment and safeguarding core values.

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

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Sri lankans still opt for Lebanon

by Zvika Krieger
written by Zvika Krieger

Sharjah International Airport looks exactly like you would expect for an airport in the United Arab Emirates: drop boxes collect money for your favorite Islamic charities and Qur’anic societies; security checkpoints have separate rooms for women to preserve modesty during frisking; and more than half of the airport is “under construction,” an adequate description of the desert boomtown itself. There is only one thing missing: Arabs. Instead, I am surrounded by Sri Lankans.

Thousands of Sri Lankans (mostly women) pass through Sharjah every month, flying on the emirate’s budget airline AirArabia to fan out across the Middle East. But these women aren’t here to ride the camels or see the pyramids; they make up Sri Lanka’s legion of migrant laborers, and the Middle East is their biggest market. According to the International Organization for Migration, more than 1.5 million Sri Lankans work in the Middle East, mostly as domestic servants. What started as a trickle in the 1970s has quickly become a pillar of Sri Lanka’s economy—in 2005, annual remittances from Sri Lankan migrant workers totaled almost $2 billion, surpassing tea exports as the country’s top source of foreign income. As I wait in the Sharjah airport for my flight to Sri Lanka, I strike up a conversation with the two Sri Lankan women sitting next to me. One of them, a twenty-year old from a village three hours outside of Colombo, has been working in Lebanon for over two years. This is her first time home since arriving in the Middle East and, she admits after looking over both shoulders, one of the first times away from the watchful eye of her “madam.” But she is thankful—most domestic workers don’t get to come home at all during their time working abroad. Her friend sitting next to her has it a bit easier—her employer allows her to go to church once a week, where she has the opportunity to socialize with fellow Sri Lankans. But both are quick to emphasize how lucky they have been, considering the horror stories they have heard from friends. The Arab world has become infamous in Sri Lanka for its horrible treatment of Sri Lankan migrant laborers. Though usually happening behind closed doors, human rights organizations have begun to chart abuse to foreign house servants—including widespread physical and sexual abuse. Even those that are not assaulted in the traditional sense are often forced to work seven days a week with no holidays, their passports confiscated upon arrival in order to keep them prisoners. If they try to run away, their employers often accuse them of stealing and, when inevitably caught by the police, they are thrown in jail with scant legal representation. Some Middle Eastern countries have taken measures to protect these foreign workers. Lebanon, for example, has formed a task force comprised of representatives from the Lebanese government and security forces, United Nations, International Labor Organization, foreign embassies, and local NGOs to confront the issue. But since many of these workers are undocumented and most abuse happens in private homes, there is little governments can do in practice. Abuse has become so prevalent in countries like Lebanon that the certain governments (such as India and Bangladesh) have barred their women from traveling there to work.

Such restrictions are not an option for Sri Lanka, whose migrant laborers are yet another casualty of the country’s 20-year civil war. Jobs are scarce and salaries rarely support the average Sri Lankan family. Women are forced to turn to the dozens of foreign employment agencies and sell themselves into servitude for upwards of three years. “People move on their own two legs, so restricting labor isn’t like restricting tea,” said David Soysa, director of the Migrant Workers Centre in Sri Lanka. “People are going for better prospects, so if they want to go, there is little the government can do to stop them.”

The situation does not look to improve any time soon. Combined with years of war and the effects of the 2004 tsunami, Sri Lanka’s increasing reliance on remittance payments from migrant labor does little to bolster its development prospects. According to a new study by the Marga Institute for Development Research in Sri Lanka, over 50% of these remittances travel back to Sri Lanka through unofficial channels, causing substantial foreign exchange leakage and depriving the economy of much-needed foreign currency reserves. The report also emphasizes that the use of unofficial channels, rather than banks, encourages Sri Lankans to spend the money they receive from abroad rather than depositing it in savings accounts—thus perpetuating the cycle of poverty.

The tales of abuse that filter back to Sri Lanka have not stemmed the tide of migrant laborers to the Middle East. Both of the women I am sitting with in the Sharjah airport had heard such stories before they left Sri Lanka, but came anyway. They call over a third friend, who decided to come back to Lebanon even after being heavily abused by her first employer. “My husband is drunk all the time because he cannot find a job, so he abuses me too,” she says matter-of-factly. “What options do I have?”
ZVKA KRIEGER is currently in Lebanon writing for the Washington Monthly

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Financial Indicators

Global economic data

by Executive Staff
written by Executive Staff

OECD’s Development Aid Committee (DAC) member country responses to tsunami disaster

Millions of US dollars

The unprecedented humanitarian response to the Indian Ocean tsunami prompted governments, international organizations, private individuals, charities and companies to pledge $13.6 billion to the affected countries. Of that, $5.3 billion was from OECD member governments, and a further amount from private citizens in OECD countries.

Donor governments and the European Commission have committed $1.7 billion to emergency aid and $1.9 billion to longer-term reconstruction projects, to be spent by 2009. More than 90% of the emergency aid – nearly $1.6 billion – was spent in the nine months immediately following the disaster. For reconstruction, $473 million has been spent, leaving $1.4 billion committed and in the pipeline for spending over the coming years.

Together, Indonesia and Sri Lanka have received more than 60% of the funds committed so far.

Telephone access

Number of telecommunications access paths per 100 inhabitants in 2003

Access to communication networks continues to expand in all OECD countries. At the end of 2003, the total number of fixed and mobile telecommunications paths had increased to more than 1.4 billion. This represented a 6.7% increase over 2002 and an average increase of more than 12% in each year since 1998.

For the first time, however, growth was not occurring across all access paths. The number of cellular mobile communication subscribers continues to climb. An additional 69 million mobile subscribers were added in 2003. By way of contrast, some segments of the fixed connection market have begun to decrease. The number of fixed access lines decreased in both 2002 and 2003 and will most likely continue to do so over the coming years.

Since 1991, growth in access paths per inhabitant has been particularly high in those countries that started from a low base – Hungary, the Czech Republic and Mexico – and somewhat slower in those where the number of access paths per inhabitant were already quite high, such as Canada and the United States.

By 2003, all but four OECD countries – Mexico, the Slovak Republic, Turkey and Poland – had more than one telecommunications access path per inhabitant and eight countries reported more than one and a half per inhabitant – Denmark, Finland, Greece, Iceland, Luxemburg, Norway, Sweden and Switzerland.

Among the five non-OECD countries, growth has been spectacular in China, which had less than one access path per 100 inhabitants in 1991, but more than 40 in 2003. For four of the five non-members, access paths per inhabitant are between 40 and 50, with India as the exception. Although there has been steady growth over the period, there were still only about six access paths per 100 inhabitants of India in 2003.

Arrivals of non-resident tourists staying in hotels and similar establishments

Average annual growth in percentage, 1998-2005

Over the period as a whole, the United States recorded the largest number of arrivals in hotels and similar establishments followed by France, Italy and Spain. In general, the larger countries record the highest number of arrivals, although Austria and Greece are relatively small countries with a high number of arrivals, and Japan and Mexico are large countries but record relatively low numbers.

The 9/11 terrorist attacks resulted in sharp falls in arrivals in the United Kingdom and the United States but did not noticeably affect arrivals in most other countries. Countries in central and eastern Europe have recorded strong increases in arrivals since 1990. The above graph shows annual growth in arrivals of non-residents averaged over the period since 1998. Arrivals declined in the United Kingdom, Greece, Switzerland, Norway and the United States, but grew at 6% per year or more in Turkey, Japan, Iceland, the Slovak Republic and New Zealand. Among the five non-members, growth was particularly high in the Russian federation and China.

Tourism 2020 Vision is the World Tourism Organization’s (WTO-OMT) long-term forecast and assessment of the development of tourism up to the first 20 years of the new millennium. Although the evolution of tourism in the last few years has been irregular, the WTO-OMT maintains its long-term forecast for the moment. The underlying structural trends of the forecast are believed not to have significantly changed. Experience shows that in the short term, periods of faster growth (1995, 1996, 2000) alternate with periods of slower growth (2001 and 2002).

WTO-OMT’s Tourism 2020 Vision forecasts that international arrivals will reach over 1.56 billion by the year 2020. East Asia and the Pacific, South Asia, the Middle East and Africa are forecasted to record growth at rates of over 5% per year, compared with the world average of 4.1%. The more mature tourism regions, Europe and the Americas, are expected to show lower than average growth rates. Europe will maintain the highest share of world arrivals, although there will be a decline from 60% in 1995 to 46% in 2020.

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Financial Indicators

Regional equity markets

by Executive Staff
written by Executive Staff

Beirut SE: Blom  (1 month)

Current Year High: 1,934.21  Current Year Low: 1,187.86

The Beirut Stock Exchange in the occupied Central District of the Lebanese capital saw trade volumes melt to new lows. The BSE entered the Christmas holidays 9.68% lower than the index had been at the start of the year and at a, yes, new low for the year with 1,182.69 points. While under siege of what politically correct locals call “political disturbances”, the BSE management put on a good face and announced a number of plans for service improvements in 2007. These plans include remote trading facilitation for brokers (operating in a test phase from the last week of 2006), as well as creation of a new BSE website that will finally provide live tracking of traded securities. Not to forget that the bourse will set up auxiliary premises at a location outside the Beirut Central District – for “disaster recovery” in case of emergencies.

Amman SE  (1 month)

Current Year High: 9,015.94  Current Year Low: 5,267.27

The Amman Stock Exchange, not to be left out of the regional contraction crowd, reached its new index low for 2006 a few days after GCC peers at 5,267.27 points on December 17. The ASE index ended the third week of the month at 5,357.11 points, 328.4 points lower than its November 26 close. The ASE said it will introduce a system for electronic initial public offerings in the first quarter of 2007. Royal Jordanian Airlines said it expects to be partly privatized by end of 2007. In a curious December tale, a hitherto unknown holding company held a press conference announcing plans to operate with $4.23 billion in capital and establish 10 new companies over the next two years, including a $2.82 billion real estate company in Jordan.

Abu Dhabi SM  (1 month)

Current Year High: 5,253.99  Current Year Low: 2,936.40

Trading on the Abu Dhabi Securities Market was unexciting in terms of volume and after a 64-point dip below the 3,000 point level in the first week of December the index kept around 3,000 points through the middle of the month before sliding into another minor downtrend in the week ended December 21, which it closed at 2,968.52 points. The ADSM management announced a plan to enforce stricter rules aiming to thwart insider trading, including new disclosure requirements for listed companies to publish the names of shareholders with stakes of more than 3% and an extension of off-limits periods during which company officers may not buy or sell shares in their companies in reporting seasons. After signing a cross-listing agreement with the Muscat Securities Market in early December, the ADSM is set to also enter a cross-listing agreement with the Lahore Stock Exchange.

Dubai FM  (1 month)

Current Year High: 8,013.99  Current Year Low: 3,997.29

After establishing a new year-low of 3997.29 points on December 4, the Dubai Financial Market went on a 350-point hike upwards, but weakened again in the week ended December 21. The new Dubai Financial Market General Index, which was launched in early December, closed the week down by 2.57% at 4,153 points. There was no indication that the market has settled and could not go down any further. The DFM added Bayan Investment and Markets Complex companies, both Kuwaiti, to its traded equities. Bourse officials said that trading in the shares of the DFM, which undertook the region’s first flotation of a stock market, will commence in January. The DFM management denied that the IPO was the reason for the slump in the market’s liquidity this month.  

Kuwait SE  (1 month)

Current Year High: 12,054.70            Current Year Low: 9,164.30

Trading activity on the Kuwait Stock Exchange was more solid than that on some other GCC bourses and the index ended the third week at 9,892.90 points, but not before the KSE recorded a new year-low of 9,164.30 points earlier in the month. The KSE supervisors took measures to temporarily ban shareholders in 13 companies, among them three banks, from voting in stockholder meetings on account of disclosure violations. Government decisions to stop ongoing contracts with some companies, most prominent among them the recently renamed logistics firm Agility (previously known as Public Warehousing Company) resulted in critical reviews of government announcement practices as Agility shares suffered an exaggerated drop upon the cancellation news found in a newspaper.

Saudi Arabia SE  (1 month)

Current Year High: 20,634.86            Current Year Low: 7,665.73

The Tadawul index rebounded early in the month from a drop to 7665.73 points, another new low for the year. But, after reaching nearly 8,250 points it did not succeed in staying above the 8,000 points level at the end of the third week in December, with the TASI down 53% in the year to date. Industrial group Al Abdullatif said its initial public offering on the SSE was oversubscribed 162% with $352 million in subscription amounts. Retailer Al Hokair debuted on the SSE after formalities were resolved which had delayed the start of trading. The Capital Market Authority found an investor guilty of fraudulent behavior, ordering him to pay a fine of $640,000 and pay back $24 million in illegal gains.

Muscat SM  (1 month)

Current Year High: 5,799.77  Current Year Low: 4,657.16

The Muscat Securities Market remained undisputed as best performing GCC bourse in 2006 in terms of index development, closing the third week of the month almost 15% higher year-to-date. The market, which had drifted slightly lower in the first half of December, climbed rather nicely to 5,659.31 points on December 21 in a 260-point rally over 10 days. A new brokerage, Al Amana Securities, received its license from the Sultanate’s Capital Market Authority. The brokerage, owned by Oman National Investment Corporation, brings to 20 the number of financial intermediary and asset management companies registered with the MSM. In a step to enhance trading activity on the bourse, which Omani regulators said has grown organically this year but could benefit from increasing volumes, the MSM entered a cross-listing agreement with the Abu Dhabi Securities Market. 

Bahrain SE  (1 month)

Current Year High: 2,347.01  Current Year Low: 1,996.68

The Bahrain Stock Exchange ends 2006 with low volumes, moving sideways from 2,152.62 points on November 27 to 2,160.95 points on December 21. Fluctuations of 35 points up and 45 points down early in the month marked the exciting points in the market that stayed true to its reputation as being disassociated from trends on larger GCC markets. Value buying, institutional buying, bargain buying were the buzzwords for the month whose third trading week was shorter than usual due to the national holiday. The BSE reported that corporate results of listed Bahraini companies improved year-on-year by 29.9% in the first nine months of 2006 and reached $1.26 billion. Ithmaar Bank stock was moved to the regular market after trading for six months on the BSE’s IPO market. 

Doha SM: Qatar  (1 month)

Current Year High: 11,279.98            Current Year Low: 5,825.80

The Doha Securities Market was in step with several GCC peers and weakened to a new year-low in early December at 5,825.80 points. In the third week of the month, however, the DSM sped ahead and climbed to 6,536.99 points on December 21 – still about 40% down year-to-date but 711 points better than its low. Doha Bank successfully completed its first subordinated bond issue, a $340 million issue under the bank’s $1 billion Euro Medium Term Note Program and the first such bond by a Qatari bank. Gulf Commercial Bank, another DSM banking mainstay stock, launched a new $275 million mutual fund with two investment classes for domestic and foreign subscribers. Gulf Commercial Bank said it will offer 120 million shares in a $275 million IPO in the first quarter of next year.

Tunis SE  (1 month)

Current Year High: 2,339.55  Current Year Low: 1,597.73

The Tunisian Stock Exchange kept on rolling in December, and although trading sideways during the month, its almost uninterrupted rise over the past five months made the TSE the region’s only bourse to approach the yearend with a new 12-month high. The Tunindex’s December 21 close of 2, 343.38 put the TSE 16.58 points up compared with November 27 and 45.09% up year-to-date. Over the past four years, the number of TSE-listed companies almost tripled. The bourse’s index committee announced the composition of the Tunindex for 2007, which includes 32 stocks that were traded during more than 60% of the TSE’s trading days in 2006. In FDI news, Dutch drinks manufacturer Heineken bought just under 50% of unlisted Tunisian beverages firm SPDB for $35.3 million and wants to build a new brewery in the country.

Casablanca SE All Shares  (1 month)

Current Year High: 9,109.55  Current Year Low: 5,337.53

The Casablanca Stock Exchange climbed to a peak above 10,000 points in December, with the Casa All Shares index reporting in at 10,132.61 points on the 13th of the month. However, the index dropped back to 9,583.96 points on December 21 in the market’s first slight weakening in a while. The Moroccan bourse went into the Christmas season still more than 500 points better than its position had been on November 28 but market watchers started to say that it may be time for an adjustment in the bourse’s path. Valuations have been driven up to a price to earnings ratio estimation of 19.5 times for 2006, placing Morocco now above PE ratios of GCC markets, although the Casablanca rally has so far not ventured into valuation territories as excessive as those scaled by the Gulf bourses last year.   

Cairo SE: Hermes  (1 month)

Current Year High: 68,994.73            Current Year Low: 41,965.37

In the lead-up to the 2006 Christmas season, the regional investor tip is go north – North Africa that is, not Santa’s HQ at the pole – and see where shares are moving north too. The Hermes index of the Cairo and Alexandria Stock Exchanges didn’t quite make it back to the 60,000 points before Christmas but nonetheless came close with 59,800.23 points, and stood 2,322 points higher than on November 29. Deutsche Bank issued a Buy recommendation on the shares of Orascom Telecom, giving the stock a 10% upside potential. The MobiNil phone operator, in which Orascom Telecom is a major stakeholder, meanwhile announced a 46.2% cash dividend to be paid before year’s end. Government officials in Cairo said Egypt Air will be going for a 20% initial public offering, presumably in 2007, to obtain cash for its expansion.

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