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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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Banking & Finance

Of royals and rotors: Choppers taking off

by Executive Staff
written by Executive Staff

In the Middle East’s market for executive travel, business jets have a well-established presence. Another segment of privileged transportation, one with underused potential, is the market for helicopters.

Demand drivers for helicopters in the region have traditionally been oil, royals and defense—three components of a flourishing helicopter market that many Arab countries have no shortage of. Additionally, the region has been engulfed by the increased security concerns in the post-9/11 world that have pushed global helicopter sales upwards.

“Helicopter sales are not only increasing in the Middle East but really worldwide, the primary reasons being increased oil prices and the need for security post 9/11,” Dan Pranke, Middle East sales director for American helicopter manufacturer Bell, told Executive.

Nonetheless, sales of helicopters between Dubai and Cairo have been less than they could be, especially in the corporate and VIP markets. Sales managers for some of the industry’s major manufacturers blame restrictive regulations and reluctance of governments to license operators.

Oil boom boosting chopper market

In Arab oil-producing countries, the rise in oil prices from $15 a barrel five years ago to levels of $60 or more has induced oil companies to enhance their exploration and exploitation efforts onshore and offshore, meaning more helicopters needed to transport crews and supplies to digging sites.

The mid-sized workhorse helicopters used in the international oil industry constitute a substantial investment, as illustrated last month by delivery of three 19-passenger Sikorsky helicopters to Brunei Shell Petroleum for its oil service operations. The choppers were said to cost $18.5 million apiece.

GCC countries naturally have a strong role in this market. Companies like Saudi Aramco, the world’s largest oil producing company, operate veritable helicopter fleets to support oil field exploration, drilling and production. In Qatar, Gulf Helicopters, a firm established in 1970 by Qatar Petroleum, has a fleet of 24 helicopters consisting mostly of Bell’s model 412.

Military and security forces worldwide and in the Middle East are prime customers for helicopter manufacturers, accounting for around half of global sales for leading producers. The other half of the market is the civilian sector, including uses in offshore, corporate transportation, medical and emergency services, sightseeing and media, which are served by manufacturers such as Eurocopter, a daughter of Airbus maker EADS, and American firm AgustaWestland, in addition to Bell and Sikorsky.

Although most helicopter sales in the Arab world are military and police-related, industry experts say that there is a rise in commercial and civil helicopter use in recent years and the market is tipped to become more lucrative.

“I see a great deal of potential in the market because unlike Europe, this market is still in its infancy. There will be a couple of drivers for it in the next five years, especially Dubai with the World Islands and Palm Islands projects,” said Pranke, adding that sales in the Europe, Middle East, and Africa region represent about a quarter of Bell’s global sales.

A worldwide demand survey by turbine manufacturer Honeywell and others projected in its latest (2005) edition that the Middle East, Oceania, Asia and Africa will account for 16% of global deliveries of new civilian helicopters between 2006 and 2010.

The United States is the world’s leading market for helicopter sales, followed by Europe. The survey said more than 2,600 civilian helicopter deliveries are expected in the five years from 2006 to 2010. Total deliveries of both civilian and military helicopters are estimated to reach in the neighborhood of 12,000 units during the period from 2006 to 2016, and analysts forecast substantial growth rates that will hike the value of the global helicopter market to $15 billion in 2011, up by about 50% when compared with 2005.

Well over 500 sold civilian units per year is not bad for an industry where a manufacturer like Sikorsky reported 2006 revenues of $3.2 billion from all its activities (they delivered 110 helicopters last year) and Bell last month peddled some 10-year old “pre-owned” units at prices of up to $5.5 million on its web site. They don’t publish retail prices for new machines.

No wonder that new trade fairs for the helicopter buyer are in the Middle East. The Dubai Helishow is a biennial industry show which debuted in 2004. It reported 30% exhibitor growth to 104 participating companies in its December 2006 show.

For Bell, the Dubai Helishow in December was good in terms of contacts and future leads, said a manager for the company while refusing to give any information on unit sales in the Gulf region.

“While we did not sign any deals in the Dubai Helishow, there were numerous conversations and meetings with very senior people in the region that opened or furthered negotiations that will lead to conclusion of deals,” said Mike Cox, vice president of communications at Bell Helicopter.

Another helicopter conference, Heli Mideast 2007, is scheduled to be held in May to address the growing needs for helicopters for emergency and rescue services, firefighting, industrial and private ownership.

Loosening their grip on airspaces

Organizers of the event, the UK-based aviation publisher Shephard’s, say the event will also tackle the issue of governments relaxing their grip of the airspace.

That’s where the issue of the royals comes in. While persons of royal blood in the various countries of the region are excellent customers for expensive flying gear, helicopter manufacturers bemoan the fact that many countries of the region lack regulations that authorize commercial operators.

In Saudi Arabia, people other than the royal family are not allowed to own helicopters. “It’s a security issue because helicopters can land anywhere, so the Saudi government limits the ownership of helicopters to special government agencies,” Pranke said.

“It really comes down to how senior the royal person is and how much clout they have with the relevant police force,” said Andrew Drwiega, publishing director of the Shephard’s Defence Helicopter magazine.

“Rolls-Royce has a 42% share of the civil engine market in the region,” said Martin Brodie, communications director at Rolls Royce, adding that the main engines are for civil airlines like Emirates and Etihad.

Abu Dhabi Aviation, which has a paid-up capital of $110 million and is 30% owned by the emirate’s government, operates a fleet of 38 helicopters and fixed wing aircraft to the private and public sectors, signed a deal in December with AgustaWestland to become its regional spare parts and repairs center. The value of the deal remained under wraps.

AgustaWestland have also sold choppers to the Libyan Red Crescent and the Abu Dhabi police. AgustaWestland said in December its Middle East sales in 2006 increased by 15%. It said sales from the region will contribute around $260 million, or 11.8%, of its $2.2 billion global sales, according to Gulf press.

Helicopters will continue to claim a growing role in corporate transportation in the Middle East. It is entirely predictable that the rapid growth of population centers and the high-speed commercial development of office cities, industrial cities, special trade zones and super-luxury residential towers in emerging regional centers will create demand and outright need for wider VIP and executive travel options by helicopter, given the security, prestige, and time benefits accorded by these super-convenient transportation machines.

Additionally, helicopters can be expected to even start playing a new role in short aerial commutes in association with commercial air travel in an age where the drive to the airport and security check in the terminal sometimes take as long as a flight to a nearby country. Last year, a member company of Korea’s Tongil Group launched a manufacturing project to develop helicopters that will be used in the framework of mass transport.

The Middle Eastern helicopter market may still require some time to develop into a civilian market but manufacturers will not want to miss it. “I think in today’s market any potential market is important for any manufacturer, even if it’s a small number. They are all in competition for the ones out there and also if there are rulers and royals who want to have extras on their rotors,” said Drwiega.

Industry representatives and observers agree that states like Abu Dhabi and Dubai will lead the market opening for commercial operators and private ownership of helicopters in the Middle East. If you have your million-dollar abode on the Palm, the Pearl or the World islands, where will the fun be if you and your neighbors can’t drop in on each other in a stylish chopper.

 

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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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Retrospective

A chip off the old block

by Norbert Schiller
written by Norbert Schiller

Iraq’s former leader Saddam Hussein was more than just a ruthless dictator. Like most psychopaths, he could be likable—even charming—when he wanted. Saddam Hussein was a survivor. He came from peasant stock and learned early on that in order to move up, he had to make the right friends, use them and dispose of them.

However, his eldest son and “original” heir-apparent Uday inherited none his father’s manipulative charm, and all of his ruthlessness. Uday, who was born into power, used only fear to move through life.

Whereas Saddam was omniscient figure that the average Iraqi saw only in newspapers, on street murals and on television. Uday, on the other hand, was much more visible in person, with his entourage of shady characters driving expensive cars. He appeared in public mostly at night, going from one upscale nightclub to another. He was even known to crash the weddings of women he had previously been interested in.

During my travels to Iraq over the past three decades, I came face to face with Uday on a few occasions. The first encounter was in 1990, four months after Iraq invaded Kuwait. In order to stall the imminent invasion, Iraqi authorities rounded up all the male westerners they could find in Kuwait and Iraq and held them against their will at strategic installations they believed would be targeted by the American-led coalition. As international pressure mounted to release the “Human Shields,” Iraq decided to host an international Music and Sports Peace Festival as a way of gaining sympathy for their country. The host of the festival was none other than Uday Hussein.

People from across the world flooded into the Iraqi capital. A Japanese senator arrived with an entourage of wrestlers, musicians, and kite flyers. A group came from the US, claiming to be an all-in-one basketball/volleyball team and singing troupe. Even former heavyweight boxing champion Mohammed Ali showed up with assorted peaceniks and businessmen.

Uday was the center of attention, dividing his time between listening to impassioned pleas from politicians and housewives to release the “Human Shields” and attending almost every festival event. He beamed when Iraq’s national basketball team demolished the American singing troupe.

When the festival ended, everyone nervously waited to see if the Iraqi parliament would vote in favor of releasing the hostages. Was the festival a success? Was Uday pleased by the turnout? The parliament met in an emergency session and within a few minutes declared that the Iraqi military was now strong enough to defend the ‘homeland,’ so there was no need to hold any foreigner against his will.

The years which followed the first American invasion of Iraq took a high toll on the country. The sanctions slapped on Iraq hardly affected the ruling party. Instead, it was the poor and middle classes that suffered. Those who could leave the country did and with them went the vibrancy of Iraqi society. From one visit to the next, I would see shops boarded up. Restaurants and cafes shut down, and Baghdad’s once throbbing night life was reduced to the disco in the Rasheed hotel, one of Uday’s favorite haunts.

One evening a group of friends and I headed to the disco, hoping to cheer ourselves up. By then, Saddam Hussein had put a ban on selling alcohol in public places but the Rasheed disco was left untouched. After too much Johnny Walker Black Label, we hit the dance floor. As the only nightspot still open, Baghdad’s high society was out in numbers. Men and women danced to the Arabic top 40, seemingly oblivious to the hardships the rest of society was facing. Suddenly, I awoke from my alcohol-induced daze and realized that I was dancing alone, with only a few other men scattered across the dance floor. I stumbled back towards my friends and in a loud and boisterous voice asked where all the women had gone.

An Iraqi friend motioned to me to come close and keep my voice down; then he pulled me even closer and said in my ear, “Don’t make it obvious when you turn around, but the party-pooper just arrived.”

NORBERT SCHILLER is a photographer/editor

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Special FeatureTelecom

Disappointing performances Oh-Gero

by Executive Staff
written by Executive Staff

Both provide telecommunications services. Both have postponed going public. Both are linked inextricably to Lebanese issues. But there is much more than one tiny ‘o’ in difference between Oger Telecom, the Gulf-based multi-market provider of mobile and landline services associated with the Hariri family empire, and Ogero, the landline phone division attached to Lebanon’s ministry of telecommunications and would-be operator of a third mobile network in the country.

Would be – if plans for evolving Ogero into a modern company called Liban Telecom – were implemented with key components of getting the government entity ready for privatization and adding a mobile operator license to its portfolio to make it more attractive to buyers.

Lagging behind

In more real terms, Ogero is the entity that brought Lebanon public pay phones early in the 21st century, rolling out some 2,700 by the end of 2004. It is also in all probability – although the hypothesis has not been verified by global research – the world’s premier telecommunications services provider to confess on its home page that a customer service project of mailing phone bills to subscribers “is suspended for the time being”.

Other operators may have discontinued putting the bill in the mail because of paperless notification and payment; countless Ogero customers still queue in the “centrals” on payment date and never experienced the luxury of a mailed invoice. When the entity one day is turned into a customer-centric corporation and finds a way to deliver invoices electronically (rather than making customers ask for the invoice info), it will probably claim that it leapfrogged over the paper age.    

But that is a long ways off. Ogero is not going to push for an initial public offering in 2007. According to Lebanon’s Higher Privatization Council, the operator could be transformed into Liban Telecom in late 2007 and be ready for partial privatization toward the end of 2008. The privatization act could involve taking a stake in Liban Telecom public.  

Oger Telecom, by contrast, may very well do an IPO in 2007. The company actually stepped back from a planned $1.25 billion initial public offering on the London Stock Exchange and the Dubai International Financial Market in November, preferring an embarrassing last-minute withdrawal of the offer – which was overpriced by judgment of analysts – over the possibility that it would be a financial disappointment to its investors and greater damage to its corporate reputation.

Avoidance of disappointments has not been a priority for Ogero, or rather the decision makers who derailed the entity’s privatization with embarrassing repetitiveness since the national privatization debate started around eight years ago with plans developed by the administration led by Salim Hoss.

In 2000, for instance, Ogero was slated to be prepared for sale before 2004. World Bank (WB) documents show how the institution was committed more than five years ago to assist the government of Lebanon in readying Ogero for privatization, at the time expected to be “the next major transaction” after selling off Middle East Airlines with help of the International Finance Corporation.

According to the WB, the preparation for Ogero’s privatization was to include establishment and operation of the Telecommunications Regulatory Authority (TRA), to act as supervisor of the sector and provide support for severance payments associated with the privatization transaction. The estimated mid-point project cost of these measures was estimated at $27 million, out of a $90 million privatization support package to which the WB was willing to contribute $70 million.  

On average once or twice per year since then, the issues of telecommunications liberalization, auctioning of mobile operator licenses, and privatizing Ogero have ruled the political and public debate in one form or another. The TRA was legislated; mobile phone license auctions were announced, delayed, called off and reshaped into management outsourcing agreements; Ogero employees protested against restructuring plans; network and service improvements were presented with fanfare and postponed without them. All that and more happened with the well-known triple effect of stifling investments into new technology, eroding anyone’s confidence in governmental announcements on telecom restructuring, and dooming the country to be an overpriced underperformer in telecommunications, period. 

In June 2006, the situation had moved so far into the absurd that a – however laudable – student initiative by the Lebanese club at MIT was hailed as the solution to the country’s telecom misery. The group had a plan to draw up another road map for making Lebanon “a vibrant and sustainable technology hub in the Middle East and North Africa region”.

The good news in the current situation is that the transformation of Ogero and privatization of Liban Telecom does not play a central role in debt reduction plans associated with the hoped-for Paris 3 donor gathering.

Privatization plan sabotaged?

As the minister of economy and trade, Sami Haddad told Executive in late December that the Lebanese government’s main revenue proposition for sellable assets in connection with Paris 3 negotiations is again telecommunications. But it is the mobile sector which, according to the government’s international advisors, could fetch $5 billion.

This revenue would be used for debt reduction, Haddad said, but equally important, the privatization of the mobile sector would be the “largest inflow of foreign direct investment in Lebanon”, creating new jobs and possibly expanding the mobile phone sector from the current one million to three million subscribers within a year.     

For Sami Haddad – who also says that MEA should have been privatized “yesterday” – the ogre factor in the Lebanese telecom story is political resistance to getting telecommunications privatization off the ground. “What stands in our way is that the TRA has been sabotaged by [President] Emile Lahoud. At every cabinet meeting, he sabotaged it,” Haddad said.

“The main thing for privatization is telecommunications and we have a strong parliamentary majority for it,” the minister added. “I think we should privatize the two mobile companies to 100%.”

In Haddad’s opinion, privatization of the mobile companies should take place through IPOs and that the government should ascertain, as laid out in its ministerial declaration on the issue, that no single person or company will own more than a stake of “x” in an operator. This limit has not been decided, but Haddad indicated there is wide agreement that it should be 50%. 

By reaching market penetration rates of 70% or more in a short time, private sector mobile operators in Lebanon would reach goals that the old BOT operators in the 1990s, FTML and LibanCell, had seen as attainable for the year 2000.

And here, high growth stories from the private sector, like that of Oger Telecom or those of Kuwait’s MTC and Egypt’s Orascom, can today serve as examples. They show how companies with ambitious strategies could set and achieve not only good economic performance in regional markets, but expand outside of the Middle East with equal or larger success. They also illustrate how to handle setbacks that may arise en route to implementing targets – as Oger Telecom did with its IPO withdrawal, which did not discernably dampen the company’s plans for further acquisitions and growth.   

Over the past five years, developments of the regional telecommunications industry have established new leaders in markets that were only vaguely defined a few years earlier. The sector’s rapid evolution has moreover shown that even several staid, state-owned landline companies and incumbents could transform into transnational corporations with tremendous performance under gradual privatization schemes.

In this, Batelco, Etisalat, and QTel stand in the same line as Saudi Arabia’s STC and Egypt’s Telecom Egypt. Compared to the un-dynamic bureaucratic bodies that some of these companies once were, their modern incarnations are centers of functionality that are well taking advantage of the region’s present favorable climate for telecommunication expansions and privatization measures.  

The Lebanese government will see a major headache dissolve if its plans for privatizing the mobile operators finally come to fruition within 2007. For the transformation and privatization of Ogero, a question will remain if the currently strong hunger of potential telecom investors will stay strong, or if price scenarios will change by the time the company is ready for an IPO and sale to strategic partners. But, in any case, Liban Telecom will need time and will arrive on a regional communications landscape long after territories have been marked and bigger fish have built their markets.

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Real estateSpecial Report

New city in the making The Dubai effect

by Executive Staff
written by Executive Staff

Across the Arab world, Gulf-based property developers are changing the face of the region’s capital cities – and their real estate markets too.

Dubai today is a new city in the making. The seafront on the road south to Abu Dhabi is a forest of cranes, all operating ceaselessly at the hands of imported labor. Further west, just behind the skyscrapers on Sheikh Zayed road, is the prefabricated skeleton of the Burj Dubai, which when completed will be the tallest building on earth. It is reportedly going up at the rate of a floor every four days, while the overall level of construction in the Gulf Emirate is second only to the Chinese city of Shanghai.

Some within the market find Dubai’s breakneck speed of development hard to comprehend. They say the pace at which projects are announced and constructed is unreal.

But so far, there is no sign of a slowdown, and the naysayers, who have long predicted a crash or were doubtful that the Emirate’s property market had real substance to it are watching on with growing incredulity. Believers simply point to the fact that Dubai is stamping 60,000 new residential visas a month, and all of these people will need somewhere to live.

Contagious development

But, while Dubai is a master of attracting media attention, it is not the only city in the Arab world whose real estate sector is being transformed by the huge levels of capital derived from the high oil prices of the last three years.

Right across the region, from Rabat on Morocco’s Atlantic coast to Muscat in the Gulf of Oman, property developers – and mainly those based in the Gulf – are literally changing the face of most capital cities.

Over the last three years, real estate markets in the Arab world have benefited from surplus oil capital, the repatriation of investments following 9/11 and the increasing demand created by urbanization and population growth within the Arab world.

An improvement in property legislation in some countries has also been a factor contributing to a steep rise in property prices, which in some Arab cities have doubled in recent years.

The most visible effects are in the Gulf itself: drive 70 kilometers down the coast from Dubai to Abu Dhabi, where the capital of the UAE is planning around $270 billion in new construction projects over the coming years. Some $8 billion is set aside to build a new island city that will house 100,000 people, while plans are afoot to develop several other natural islands, one of which will feature a Ferrari museum and another a branch of the Guggenheim Museum – as well as, so it is rumored, an offshoot of the Louvre.

This level of construction and development will also be seen in most of GCC states in the coming years. In Bahrain developers are responding to the chronic shortage of land by “reclaiming” it from the sea, the prime example being the $3 billion Durrat Bahrain development on the south-eastern tip of the main island that planners say will accommodate 50,000 people.

New pastures

Yet while such monumental levels of activity within the GCC will continue, investors are starting to realize that saturation is possible. In order to spread risk, new opportunities should be sought, and sought largely on home ground.

The signatures of gargantuan developers, such as Dubai Holding and Emaar, are those most often found on the resulting string of mega-projects, which are signed on a seemingly daily basis across the entire region. The latter in particular has embarked on a monumental spending spree across Asia and the Middle East, spearheading Gulf-sourced investment in real estate.

The fact that these are inherently unstable areas has so far not been a turn-off. Lebanon is probably the best example of a country whose real estate sector is able to shrug off conflict and instability and still attract investors. Abu Dhabi Investment House (ADIH), for instance, has said that it will push on with its $600 million Beirut Gate development despite current travails, supporting the maxim that Beirut real estate never loses its value – no matter what else happens in the country.

Across the border in Syria, hardly considered an easy or stable place to do business, Emaar has announced two projects worth a combined $3.4 billion. In Amman, the government’s decision to move a military base out of the centre of the city has created 2,592 hectares of prime real estate in the heart of the capital. Abdali, as the project is known, has already seen $1.5 billion of investment.

Into Africa

Further afield, North Africa is also attracting serious interest, particularly since it is often perceived as offering the familiarity of the Arab world but also a certain insulation from Levantine instabilities.

With probably the largest middle class in the Arab world, Tunisia has recently hosted a number of Gulf suitors studying retail and residential projects in the country. Emaar has lead the way – this time with an $1.88 billion marina investment – but Dubai Holding and other developers are also tentatively exploring the market.

Morocco, despite an economy still highly dependent on rainfall, has in the past year launched a series of large-scale joint ventures with Gulf-based investors on the Atlantic coastline in and around Rabat and Casablanca. Many now feel the country is on the verge of a property boom, given heightened interest not only from the Arab world but also from Europe, where developers see great potential in a tourist industry whose hotel capacity will struggle to keep up with demand.

And, while neighboring Algeria is still emerging from more than a decade of debilitating civil conflict, Emaar recently announced plans to construct a tourist development on the Mediterranean. Others will surely follow. Even in Libya, one of the most untouched markets in the region, the Dubai-based developer last month signed a deal with Muammar Gaddafi’s son to build a free zone in the north.

Is it viable?

So far, property prices in the greater Middle East show no sign of being dented by the worsening situation in Iraq, Palestine and Lebanon. If anything, these conflicts are fueling a rise in some places. Jordan, for example, is now a center for the Iraqi middle class who have fled the violence in their country and are pushing up property prices in Amman.

It appears that buyers and investors alike are indifferent to the potential risk that exists within many of the region’s property markets. Indeed, in some Arab countries real estate is one of the only segments of the economy to show any serious activity, which makes it even more difficult for governments to resist the advances of mega-projects whose less-publicized effects include raising wider property prices out of the reach of most locals, pushing up inflation and blotting out historical skylines.

Spurred on by double-digit yields and apparently undeterred by the swaths of bureaucracy and corruption evident in most of these markets, developers are likely to continue their investment drive across the region. This kind of inter-Arab economic activity should be applauded. But, whether the investment is the result of genuine financial logic or simply a bubble inflated by countries with massive amounts of capital and a pressing need to invest, is another question.

Another issue to be examined is whether these investments create communities that will guarantee the long-term social health of Arab cities. In Beirut, for one, there are fears that the luxury apartments sprouting up in the city centre will be empty for most of the year, only occupied while their owners visit during the summer holidays. Some projects are seeing the same problem in Dubai, with developers gradually realizing the importance of creating mixed-use communities as well as making good investments.

Whatever strategy is adopted, the urban landscape of the Arab world is undergoing an unprecedented period of change. Not even mentioned here are yet more giant developments in Egypt, Saudi Arabia, Oman and Qatar, all of which suggest that this could be just the start of a wider transformation. How that will change everyday life for the average citizens living in these countries remains to be seen.

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