Finance

Banking reforms- Syria loosens up ?

by Executive Staff
written by Executive Staff

When attendees crowd the new Four Seasons Hotel in downtown Damascus for the opening of the Syrian Banking Conference on November 3-5, talk will undoubtedly turn to the complications that private banking still faces two years after the first such institutions opened for business.

Indeed, although five private banks now operate—and three more are on the way by year’s end—there is a palpable sense among Lebanese bankers, who have led the sector’s expansion in Syria, that additional measures must be passed, and soon, if long-term stability and growth is to be achieved.

As a recent Audi research report said, “serious hurdles are facing banking activity, [which calls] for the implementation of further reforms.”

One criticism is that the sector still suffers from a dangerous lack of transparency in regulation, oversight and operation. Underscoring the point, the latest International Monetary Fund (IMF) report on Syria asserts that the recent rapid expansion of private credit is likely to have weakened the quality of bank’s lending portfolios because there is little in the way of risk management practices—not to mention a credit bureau that might accurately assess a customer’s suitability for debt. At the same time, according to one Beirut-based banker intimately involved in his company’s expansion across the border, “The Syrian central bank…is lacking independence and is not playing its role like any other central bank in the world.”

Such criticism is avoided in public because the central bank, under its new governor Adib Mayyali, is seen as a strong force pushing for further reform, but the comment illustrates the dominant view that politics is still intervening in the sector, preventing much-needed exchange rate reforms, the restructuring of state-owned banks and, as a consequence of both, much sought-after interest rate liberalization.

Syrian Deputy Prime Minister for Economic Affairs Abdullah Dardari, freely admits as much, but insists that “there is an intensive liberalization program for the financial sector in Syria—including the reforming of the central bank, making it more independent and more liberalization in terms of the monetary policy where there will be more room for the market.”

To underscore his seriousness, he points to a recently initiated program of cooperation with the IMF, the European Union and the Arab Monetary Fund to address the core issues, but acknowledges that the effort will take up to two years to complete. And even then the question becomes to what extent the government will actually act on the recommendations by passing the relevant laws.

Although some bankers, like Jean Bassil, assistant GM at Byblos Bank Syria, are hopeful that Dardari’s timeframe will indeed come to fruition, with “the remaining restrictions and the complicated regulations disappearing,” two years may prove to be a long time to wait, especially for some of the smaller changes which bankers are increasingly clamoring for.

Indeed, at the top of that list, according to several sector leaders, are the private ownership cap of 49%; an improvement in clearing and settlement procedures; the lack of placement vehicles like T-bills which might tease more money out of Syria’s cash economy (CDs have only recently been allowed); and the convertibility of the currency which, according to one banker, “is still impossible.”

"The major enhancements we would like to see,” explained Bank Audi Syria’s Bassel Hamwi, in comments widely agreed upon, “are related to e-compensation, the automation of the central bank accounts, and the setup of a professional central risk unit.”

That matters have reached this point should come as no surprise: the Syrian economy operated as an integrated, state-run entity for decades, which means that as the “low-hanging fruit” of financial reform was picked in recent years, it has now become nearly impossible to introduce further reform without going to the heart of the issue.

And that means finally tackling the immensely difficult issue of financing state-run institutions, floating the currency and creating risk management practices that are not based, as one Lebanese banker put it, on “long coffee chats to determine bankable credits,” much less the political pedigree of a certain project.

Given all this, participants at November’s Syrian Banking Conference will indeed have much to discuss.

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Capitalist Culture

Vote to blow bush off course? US’s Iraq plan sinking

by Michael Young
written by Michael Young

Around the time this article will appear, the United States will be preparing for a congressional election that may have a decisive impact on capitalist culture in the Middle East—in other words, on the stated aim of the Bush administration to advance liberal democracy in Arab countries, so exchanges of ideas and money are free, and peoples freer.

To be sure, that project is already half a way down into the grave, and dirt is being shoveled over it. Only administration stalwarts still publicly defend the notion that Iraq is a democracy in the making. With American casualties dramatically on the rise, and supporters of the war increasingly doubtful about the conflict’s outcome, there is not only little conviction that advancing Iraqi democracy is even relevant anymore, but there is also a sincere worry among pro-Bush Republicans that Iraq may be the reason why they lose their majority in the House of Representatives.

Death by committee

Then there is the fact that the Bush administration has named a high-level commission, the Iraq Study Group, to shape a new approach to the conduct of the war. The head of the group is James Baker, the former secretary of state under President George H.W. Bush. The silky Baker, for all his expertise, was never someone much concerned with democracy and human rights. A political “realist,” but also someone close to Big Oil, his priority was usually to advance American national interests in the Middle East in collaboration with what the Washington Arabist establishment has called “our traditional allies.” That means primarily Saudi Arabia and Egypt, neither democratic paragons, along with other regimes having little concern for the tropes of capitalist culture.

The war in Iraq and also the rise of Iran have only strengthened these regimes in American and European eyes. With Tehran batting away international efforts to end its uranium enrichment and the West increasingly fearful that Iran is close to building a nuclear device, neither Washington nor the EU is keen to destabilize their Arab allies with calls for more representative and open political systems.

That would be understandable, if policy were about the here and now. But the reality is much more complex. The very reason why Iran appears so threatening to the Arab world—and the reason why Iraq seems to pose such a threat to its neighbors—is that the Arab states are not democratic. As they confront increasingly difficult challenges in the region, their regimes have the added burden of knowing they face a serious legitimacy problem at home. And where there is a problem of legitimacy, there is a problem of stability and predictability. Which Arab regime can be sure its people will defend the state if it is threatened?

The irony is that while the Arab regimes deny democratic legitimacy to their own people, the American democracy project in the Middle East, or what remains of it, might well be permanently terminated thanks to an American democratic happening. The outcome of the congressional elections remains unclear, but in late September and October what seemed like a commanding Republican advantage suddenly began to collapse. First, a National Intelligence Estimate suggested that the Iraq war, rather than damaging terrorism, had allowed it to proliferate in the country. Then, Bob Woodward’s new book, “State of Denial,” further brought home that the administration had lied about Iraq. And a scandal involving Rep. Mark Foley, a Florida Republican caught sending lewd messages to congressional pages, harmed Republican chances when it was revealed that the party’s leadership had tried to conceal his behavior.

Democracy threatens grand design

A Democratic victory in the House would probably not substantially alter the Bush’s Iraq policy in the short term. However, it would deeply change the framework of the debate. Facing a more hostile House, President Bush would have to make concessions on Iraq. This wouldn’t necessarily be bad, given that American policy today seems utterly ineffective, but it is also very unlikely that democracy would be a priority if the Democrats’ aim—and perhaps that of quite a few Republicans—is to pave the way for an exit from Iraq. One doesn’t build a capitalist culture while booking passage home.

So Bush’s grand democratic ambition for the region would sink without a trace, its death to be formally declared in two years’ time when the president leaves office. That would be a shame, and many would be right in saying that Bush was to a large extent to blame. But that doesn’t diminish the fact that if the US returns to a policy of condoning undemocratic regimes in the Middle East, American interests will be further threatened. Thugs often make for very unreliable allies.

Michael Young

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“They hate us for our freedoms”? If only they knew

by Abigail Fielding-Smith
written by Abigail Fielding-Smith

Immediately after September 11, 2001, while the ruins of the World Trade Center still smoldered, some of the more thoughtful members of the punditocracy and the population asked the obvious question of why: “Why did this happen? What had the US done that was so bad?”

For some—George W. Bush, for instance—the answer was clear. It wasn’t what the US had done, it was who we were.

“Americans are asking, why do they hate us?” he said in a joint address to Congress on Sept. 20, 2001. “They hate our freedoms—our freedom of religion, our freedom of speech, our freedom to vote and assemble and disagree with each other.”

He used “freedom” 13 times in that one speech. It would, as it turns out, become a recurring theme for the president. In his second inaugural address, Bush used “freedom” 27 times, more than twice as many times as his joint address. That’s a lot of freedom. And that’s not even counting the “freedom fries” on the menu at the Congressional cafeteria.

But under this president and the bills he’s signed into law, Americans are losing their freedoms at an alarming rate—and with them, the United States’ power to inspire people to work for real freedom from tyranny.

One shouldn’t discount the power the idea of America has for oppressed people of the world. When Syria still had its boot on Lebanon’s throat, Americans in the country were often reminded of this power by cab drivers, shopkeepers and other strangers who spoke movingly of America’s support for freedom around the world and expressed hope that it would support freedom in Lebanon, too. And then, for a brief moment during the Cedar Revolution, Bush seemed to support the country.

Back home, however, it was a different story. On October 17, Bush signed into law the Military Commission Act of 2006, which supporters say provides a framework for trying terrorism suspects while “clarifying” the Geneva Conventions. Under the law, Bush’s new powers are the very definition of tyranny. Setting aside it’s thumbs-up to interrogation techniques such as water-boarding, sleep depravation and stress positions—techniques which “normal people consider torture,” as the New York Times put it—the act allows the president of the United States or the secretary of defense to declare a US citizen, even if they had never left the States, an “unlawful enemy combatant,” throw them into a military prison and never bring charges against them. Foreign nationals or legal residents cannot appeal their imprisonment or demand a trial, a right known as habeas corpus, while Americans’ rights to a habeas hearing are strictly limited. And this can happen anywhere in the world. If the president says you’re a bad guy, it’s pretty much game over for you. Oh, and you’ll probably be tortured.

Even today, there are possibly hundreds of Lebanese detainees languishing in Stygian darkness in Damascus. Men (and some women) who were taken in the night by the Syrian forces after its October 13, 1990, invasion have been tortured, have never had a trial nor been informed of the charges against them. Just like “dirty bomber” Jose Padilla somewhere in a US military brig!

The difference between Syria and the United States is that Washington is—and I stress this—legally doing this. So what freedoms exactly is the United States fighting for? What brave fight against “Islamo-Fascism” is the US waging when its own laws sound like they were written by Josef Stalin?

That Osama bin Laden, Saddam Hussein, Abu Musab al-Zarqawi and their ilk were and are butchers, mass murders and thugs is beyond dispute. That they’re enemies of true freedom and hurtful toward the peaceful people of the world is also indisputable. But America’s judicial system isn’t about who its enemies are; it’s about who America is.

Thomas Paine wrote in 1795, “An avidity to punish is always dangerous to liberty. … He that would make his own liberty secure must guard even his enemy from oppression; for if he violates this duty he establishes a precedent that will reach to himself.”

When America looks at her enemies, she now sees herself.

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High-speed Internet access still in the slow lane in Lebanon

by Executive Staff
written by Executive Staff

For the past several months, a triumphant press release has been sitting on internet provider IDM’s homepage, gathering dust and providing, at the same time, one indication of how the government has been unable to address even small problems that seem to offer such unambiguously large rewards.

“IDM,” the release reads, “Is pleased to announce that on January 3rd, 2006, it has signed with the Ministry of Post & Telecommunications (MPT) a Memorandum of Understanding (MOU) that will allow IDM to offer broadband Internet access over DSL (Digital Subscriber Line). The service will be commercially available once the relevant decrees will be finalized and issued from the Council of Ministers.”

Of course, in retrospect, the first indication that complications might arise should have been the discrepancy between the headline of the press release—“Agreement … allows IDM to offer broadband Internet access over DSL soon in Lebanon” —and the lead paragraph above.

For when one reads on, the indispensable notion of “soon”—critical to those Lebanese who have been hearing about DSL’s imminent arrival for nearly three years now—disappears, apparently unworthy of further elaboration. In fact, any suggestion that “the relevant decrees” themselves might be finalized “soon” essentially boils down to this: DSL will be available once the Council of Ministers decides to act.

Unfortunately, 11 months on, DSL appears no closer to a daily reality than it did before the MOU was signed earlier this year.

This is due to several factors, which are conspiring together to prevent the introduction of what is seen, the world over, as a key driver of economic, intellectual and social progress.

First and foremost, since long-distance calling revenue produces hundreds of millions of dollars each year for the general budget, the government is loathe to introduce broadly available and affordable high-speed internet—the rationale being that people will start to use Voice over Internet technology (VoIP), which is illegal in Lebanon, to place their calls for virtually nothing.

Second, there is a capacity problem: Lebanon’s international fiber links out of the country and onto the commercial internet simply cannot handle a huge increase in domestic users. Long-awaited plans to increase capacity have likewise been subject to delay after delay.

As a result of these issues, internet tariffs in Lebanon remain the highest in the region, with IDM selling a two-megabyte per second upload and download speed package for a whopping $6,000 per month!

Even IDM’s current package, which approximates DSL’s bare minimum 256-kilobyte download speed (upload speeds are capped at a VoIP-killing 32 kilobytes per second), comes in at $150 per month. And that is after sharing bandwidth with other customers in the area and a $300 installation fee.

Although the promised DSL service in Lebanon is meant to provide upload and download speeds in excess of 256 kbps, the expected price of $50 a month still is almost double the average rate globally.

The situation is particularly exasperating since Lebanon’s human capital—its highly-educated and creative workforce—is routinely cited by Lebanese and non-Lebanese analysts alike as arguably the country’s greatest asset, along with its comparatively liberal economic structures.

Modern business, however, is driven by connectivity: without affordable access, Lebanon is increasingly forced to export its precious human capital abroad to better-connected, if less intrinsically liberal, economies. Indeed, even for lower-skilled workers, the lack of a true internet economy means exclusion from emerging opportunities seized on by other countries in the region—call centers, for example, in Tunisia and Morocco that are now serving a wide array of European Union businesses.

The situation reached the point of embarrassment last month when in succession, 1) former pariah state Libya announced a $250 million program with an American non-profit to provide inexpensive laptop computers and satellite internet for all of the nation’s 1.2 million schoolchildren; 2) An international report assessed that internet penetration in Israel reached 71% in 2005, putting the Jewish state in fifth place worldwide; and 3) (just to cap the month off) Iran announced it was making DSL available, but that it would cap upload and download speeds at 128 kbps in an apparent attempt to block usage of politically-oriented streaming video and audio sites.

Thus, the sad fact is that Lebanon is not only being outpaced in the internet economy by both its southern foe and a war-torn, former backwater state with little in the way of human capital, but its own provision of internet services essentially approaches the Iranian model (albeit without the intention to censor).

“Nigeria, Senegal, Libya and Iran announced the DSL entry to their country,” observes Zakiye Karam, commercial manager at IDM. “Who knows, maybe Iraq would do it before Lebanon.”

The suggestion is not entirely implausible. After all, South and Southeast Asian countries have seen a cumulative 57% growth in DSL users over the past year. In the Middle East and Africa, the number of DSL users increased by nearly 1.75 million between July 2005 and July 2006.

Iraq, despite its chaos, has a burgeoning mobile communications sector ideally suited for implementing so-called “leap-frogging” technologies—like wireless Internet—thus avoiding the need to build actual lines on the streets. (Such technologies are also on the rise in Lebanon, with Cedarcom leading the way through its launch of mobile wireless broadband service this month. These high-speed, lower-cost alternatives may even end up trumping the stalled DSL drive — see page 79.)

In any case, Lebanon is seeing little in the way of movement towards a resolution of the DSL issue.

In fact, nine months ago, Minister of Telecommunications Marwan Hamade responded to one reporter’s query on the subject by saying, “The ministry has been paralyzed for years while the main items discussed were conflicts with the mobile companies … Now that we are out of this mess, we can address the issue of broadband.”

Unfortunately, as with the US in Iraq, Hamade’s prognosis that things may finally be clearing up seems, 11 months later, to be worth about as much as promises issued from the suffocating confines of the Green Zone.

It is also perhaps an indication that it will take a lot more than resolving one old issue at the ministry before Lebanon is finally able to move ahead into the Internet economy.

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Society

Killing Mr. Lebanon – New book on target

by Michael Karam
written by Michael Karam

On that sunny February day in 2005 when they killed Rafik Hariri, Basil Fuleihan and 21 others outside the St. Georges hotel, I was due to have lunch at Le Vendôme at 1pm. However, that morning the venue was changed. Had it not, and being the punctual sort, I would have arrived in Ain Mreisseh minutes before 1pm. Quite where I would have been as Hariri’s convoy hurtled past Marina Towers seconds before its fiery denouement, I am not sure. I could have missed the blast, been caught in it or been blown flat on my back as I handed my car keys to the parking valet. As it was, I never even heard the blast. It was warm day, the a/c was on and the radio was blaring. I had taken a bad route and was stuck in traffic outside the French embassy. Lunch was cancelled. I went home, poured a large whisky before turning on the TV and watched the news unfold. My mother called from London. “Yes,” I told her. “He is dead.” Reads like a Ludlum thriller

Nearly two years on, the crime, while momentarily overshadowed by the recent summer war, is still etched on our minds. It was a defining second in Lebanese history, one of those moments that we divide into life before and life after. For those who care about such things, the events that took place in the hours before and after the explosion are thrillingly and minutely recounted in Killing Mr. Lebanon: The Assassination of Rafik Hariri and Its Impact on the Middle East by Nicholas Blanford. The opening chapter reads like a Ludlum thriller, made all the more compulsive because Blanford has skillfully knitted together the events of that Valentine’s Day morning through the eyes of no more than 15 people in whose lives that day will forever resonate.

However, there is much more to KML that makes it one of the most important and entertaining books in a long time to examine the tectonic plates that grind under Lebanon’s political surface, charting as it does the raw power struggle between Lebanon and Syria that eventually led to the presidential extension, Hariri’s resignation and the passing of the fateful UN resolution 1559. As its title hints, the book also seeks to portray Hariri—“He was a corrupter rather than corrupt”—as the prodigal son who rode into town on the back of a billion-dollar fortune and set about realizing a dream to take Lebanon and transform it into what he saw as its rightful position as the Hong Kong of the region. In the interest of disclosure, Nicholas Blanford is a friend. He is also a dogged and thorough reporter for the Times, Christian Science Monitor, Time Magazine and occasionally, the pages of Executive. He has lived in Lebanon since 1994 and has reported from Iraq, Kuwait and Saudi Arabia. He is also one of the most knowledgeable reporters in the world on Hizbullah. Tragic epilogue

KLM was written over eight months. It contains over 80 interviews conducted in three countries—Lebanon, France and Syria—lasting over 100 hours. Blanford traveled to Paris to interview Saad Hariri and Abdel Khalim Khaddam. He sat with an emotionally drained Jumblatt in Mokhtara, and quizzed Marwan Hamadeh and the late Gebran Tueni. In examining the role of Syria in Lebanon, he spoke to Fares Boueiz, who is by all accounts a great raconteur, and Qassem Qanso, whom Blanford found surprisingly likable. Even if it needs to be updated, the book will stand the test of time when others will loiter in the remainder bins. IB Tauris took a gamble by asking Blanford to write what is the defining book on the event and its impact. The investigation was, and still is, a work in progress, so at any time the book could have been overtaken by events. It is, however, bang up to date. It concludes with a powerful epilogue written on July 23, midway through this summer’s war between Israel and Hizbullah, in the form of a dispatch datelined Tyre. As Blanford notes, the war was a tragic finale to the Hariri story. “Hariri had always feared that Hizbullah’s hostility toward Israel would lead Lebanon into just this kind of slaughter and destruction. How he had bargained, negotiated and maneuvered to avoid such a catastrophe. Yet it had all come to nothing. His death and the subsequent chain of events—the polarization in Lebanon over Hizbullah’s arms, resurgent sectarianism, government weakness, Syrian meddling and international manipulation—had led to this unfolding disaster.”—MK

Killing Mr Lebanon: The Assassination of Rafik Hariri and Its Impact on the Middle East by Nicholas Blanford is published by IB Tauris, £17.99

 

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Society

Samsung’s growth in Middle East – CE giant hopes to expand its brand

by Nicholas Noe
written by Nicholas Noe

This September in Berlin, in his keynote address at IFA 2006, the world’s largest consumer electronics exhibition, Samsung President and CEO Gee Sung Choi reviewed the tremendous success enjoyed by his company over the past few years and highlighted several exciting new developments on Samsung’s horizon. With 2005 parent company sales of $56.7 billion and net income of $7.5 billion, and powered by a staff of approximately 128,000 people in 57 countries, Samsung has rapidly risen to the position of global powerhouse, leaping from 34th place in Interbrand’s 2005 ranking of global brands (based on brand equity) to 20th place in 2006. (To give some more perspective, parent company sales in 2001 were valued at $24.4 billion, and net profit at $2.2 billion—values that more than doubled and tripled, respectively, by 2005.)

Leadership matters

Mr. Choi’s leadership has played a large role in these impressive strides; in his speech, Choi recalled his comments at IFA 2003, when he coined the term “digital renaissance,” predicting the growth of the consumer electronics industry and a global transition towards digital technology that have since been realized. With this in mind, his concept for the next step in the “digital renaissance,” an era of “rich digital experiences,” carries extra weight; delivering such experiences to end consumers will play a key role in Samsung’s strategy for further consolidating its market leadership.

Although the Middle East is not Samsung’s largest market, it is one of its fastest-growing, and is poised to play an increasingly significant role in the company’s global strategy. In terms of brand power, Samsung is the #3 consumer electronics company in the Middle East and Africa region, with a high level of brand awareness and overwhelmingly positive consumer feedback.

Headquartered in Dubai, Samsung Middle East and Africa (MEA) operates through ten branches and two subsidiaries in the region, with a permanent workforce of 434 employees. Although the brand’s leadership position is more recent, Samsung has a 20-year history in the Middle East.

MEA is no exception to Samsung’s global growth trend, and represents one of company’s fastest-growing markets along with South East Asia, Latin America, Europe and China. Since 2001, average annual revenue growth has been 24%, with 2005 revenues for MEA reaching $2.5 billion. According to MEA Corporate Marketing Manager Haris Munif, expected growth for 2006 is 18-20%, with expected revenues for the year as high as $2.9 billion.

“Our sales and growth rates in the MEA region are very much on track with other markets,” notes Munif. “In absolute terms, Samsung MEA contributes approximately 5% to global sales. Sales contribution is higher in some other markets as they are huge customers of Samsung B2B products like LCD screens and semiconductors.”

Samsung’s best-sellers in the MEA market reflect the diversity of the company’s offerings. According to Munif, AV (in particular, their flagship ‘Bordeaux’ LCD TV, which is a regional market leader) and home appliances have proven some of Samsung MEA’s strongest categories, along with the mobile phone sector—where Samsung, with its 20% market share, commands 3rd position in the regional market.

According to Munif, Samsung “has been the pioneer in introducing the era of digital convergence to the MEA consumer,” through its popular, innovative and intuitive products. Among its recent accomplishments, Munif cites Samsung’s key role in introducing “the dawn of smart home technology in this region, by displaying the first home networks in collaboration with Etisalat.”

Universal appeal

Although Samsung strives to achieve a universal image (at IFA 2006, a central section of Samsung’s expansive hall featured a display of “lifestyle concept” rooms, including Scandinavian, Asian and Mediterranean interior designs, to highlight the ease with which its digital products blend seamlessly in any home setting), partnerships play an increasingly significant role in the company’s corporate strategies, and Samsung has not missed the opportunity to draw on its two decades of experience in the Middle East when it comes to branding. “Samsung has a predominantly centralized approach to marketing; however, we do have an effective mix of global and local marketing campaigns,” explains Munif. “This ‘glocal’ marketing approach touches the local sentiment but does not compromise on global brand equity. A very good example is the upcoming Doha Asian Games campaign, for which Samsung has created an entirely local campaign for its global flagship ‘Bordeaux’ LCD TV.”

Samsung MEA may be part of a global brand, but according to Munif, MEA’s ultimate commitment is to its local end users:

“Our goal is make Samsung the most preferred and loved brand in the region. We aim to achieve this by focusing on our consumers’ needs, and delivering localized products and solutions to fulfill them.”

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Editorial

Statement of intent

by Yasser Akkaoui
written by Yasser Akkaoui

When it was announced that we were expanding Executive’s content to cover the MENA region “from Morocco to Iraq,” many people asked if we were “evacuating” to Dubai. It must be made clear that this was never our intention. Executive is a Lebanese magazine that will develop around journalism, not advertising – and Lebanon has always been a hub for serious journalism.

Yes, we will be building a solid network of business and economic analysts, experts and reporters throughout the region to produce what we hope will be the most authoritative and compelling business writing in the Arab world, but by rooting Executive in Lebanon, we demonstrate our commitment to our trade and to our country, in whose survival we have always believed.

Our expansion is much like that of other Lebanese industries, such as advertising, contracting, banking and finance, which outgrew Lebanon’s geographic limits and now serve broader economic centers while remaining essentially Lebanese. Our readers, in and outside Lebanon, can now access serious business journalism as we respond to the demands of the regional entrepreneur.

So it is out with the micro view of Lebanon and in with the macro take on the region. We will look at all the nations of the Arab world and chart the pace and level of change therein – be it fiscal, commercial or economic – and monitor how these nations adapt to internal and external pressures to implement key social reforms to improve quality of life and spur economic growth.

The Middle East is at the forefront of global economic and political activity, buttressed by the twin giants of the Europe and Asia. Yes, it has been marred by conflict and too often defined by religious dynamics, but it has much to contribute. This, for us, has become the story.

As we chart the successes and failures, the innovation and stagnation, the booms and the slumps, we will inspire many but no doubt aggravate a few. Some will find our style of journalism abrasive, but we wouldn’t be true to the Executive brand if we were not committed to objectivity, transparency and honesty.

This much we owe our readers.

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Lebanon

Running on Empty -Beirut‘s car market kaput

by Executive Staff
written by Executive Staff

The Lebanese car market had its worse summer in decades thanks to the war and a two-month sea blockade, with the number of new registered cars dropping 81% in August compared to the same month last year. The sector is only slowly clawing its way back, with sales down 41% for September. With the economy running on half empty, tough times lie ahead.

“The car market is in complete chaos right now, millions of dollars have been lost,” said Samir Homsi, President of the Association of Car Importers in Lebanon (ACIL) and CEO of Impex Trading, the local representative for Chevrolet and Hummer.

Car dealers had high expectations for the summer, with 1.6 million tourists expected to visit the country and the economy picking up after a sluggish 2005 that was marred by a spate of bombings following the assassination of former Prime Minister Rafik Hariri in February.

“We were expecting the best summer ever in Lebanon,” said Charbel Abi Ghanem, marketing manager for Rasamny Younis Motor Co. (Rymco), the dealer for Nissan, Inifiniti and GMC. “Our hopes in the sector were high, believing that over 20,000 units would be sold this year.”

Until mid-July, sales had increased by a solid 4% with 11,624 new vehicles registered, of which 10,898 were passenger cars and 726 commercial vehicles, according to ACIL.

But with the outbreak of war, the economy at a standstill and up to one million people displaced, many dealers were forced to close or operate with a skeleton staff. Sales consequently plunged, with the number of new cars registered in August decreasing to 302 compared to 1,550 in August 2005.

Nagy Heneine, manager for BMW at Bassoul-Heneine, said July 2005 sales had been $7.6 million and until the war started, $3.5 million for July this year. “Business was stunning,” he said.

Expectations dashed

Business worsened in August however, with only $390,000 in sales compared to $5.8 million for August last year.

“We expected to sell 150 BMWs in the last two months, but September sales were close to August’s,” Heneine said.

Other dealers had a similar story. Negib Debs, sales manager at T. Gargour and Fils, the sole agent for Mercedes and DaimlerChrysler, said the company expected to have sold at least 70 cars this summer—over $5 million in sales. The company sold 90 vehicles between January and August this year.

But when Israel imposed a 56-day air and sea blockade on Lebanon, ships containing cargos of new cars had to dock elsewhere, adding extra costs to dealers.

“There were 117 BMWs coming to Beirut, and had to be returned to Genoa and then to Germany. We had to pay for all the port expenses,” said Heneine.

Due to the unpredictability of the situation, Debs said Gargour cancelled orders for 100 vehicles.

Rental woes

Rental car companies, which account for between 30 to 35% of overall car sales, were also badly affected. Tony Gebran, marketing manager at City Car, said July and August usually account for 75% of annual rentals, but instead resulted in tens of millions of dollars in losses for the sector.

Until the war, City Car had experienced 30% growth in the first quarter and 40% growth in the second quarter. “If rentals had stayed like this we would have had nearly 50% growth this year,” said Gebran. He added that the company had to cancel orders for new vehicles and is now working at 50% capacity, slashing fees to buoy rentals.

Cancelled orders by rental companies also put a strain on dealers’ marketing strategies, particularly as new models were slated for launch in the fall.

“We were expecting to launch four new models this year,” said Nadine Azar Ghostine, marketing manager at Gargour. “We will introduce nothing before the New Year as we have to sell the older models.”

A biannual Beirut motor show that had been organized for November has also been cancelled.

“Lots of people wait for the motor show to buy cars. It would have been a peak sales period for us,” said Abi Ghanem.

Scrambling to recover

Dealerships are consequently scrambling to make up for lost ground. Promotional campaigns are also underway to get rid of the 2006 stock by reducing prices, lowering interest rates, offering extras, and entering into loan agreements with banks.

The price of a GMC Envoy, for instance, has been slashed from $33,500 to $29,500. “So we practically have no margins,” said Abi Ghanem. “We will forget about the brand and go for the hard sell.”

Such a strategy appears to be working, with sales picking up slightly in September. According to ACIL, the number of registered vehicles decreased by 41% compared to September last year, from 1,187 registered vehicles to 691.

But with dealers only getting 6-8% net margin on each vehicle sold, Heneine said dealers are not able to drop prices significantly. He believes the onus now lies with the government to help jumpstart the sector.

“The government should take immediate action as they are also affected by reduced revenues from customs, taxes and registration. They should remove registration fees—currently 7% of a vehicle’s cost—as it would help hesitant buyers,” Heneine said.

Although after-sales have returned to normal, in the medium- to long-term, dealers will struggle in the face of sluggish economic growth and rental companies unable to pay back loans.

“The worst thing is that even though the war has finished, people have lost confidence in the country,” said Heneine. “People with purchasing power have left—the ones that usually buy luxury brands—and are not coming back. It’s a long-term disaster.”

Bassoul-Heneine has resultantly scaled back annual sales predictions of BMWs from 740 units to between 250 and 400.

Some optimism remains

Higher oil prices, which spiked due to the sea blockade, have also affected sales of larger vehicles. Debs said that Mercedes with V8 engines had previously accounted for 60% of sales but has dropped to 25% after the war, with higher demand for V6 engines.

Despite the gloomy outlook, however, some dealers remain optimistic.

“The situation here is unstable, and people would rather put their money elsewhere than buy a car. But with Ramadan and tourists from the Gulf coming, the economy could pick up,” said Layal Karam, PR coordinator at Rymco.

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State department

With friends like these

by Executive Contributor
written by Executive Contributor

Israel’s 34-day war on Lebanon crystallized Washington’s position in the Middle East conflict. The Bush administration’s unequivocal support of Israel’s actions has further alienated US from the Arab world and even succeeding in distancing traditional allies such as Saudi Arabia.
The Saudis – like the Jordanians and the Egyptians – secretly wished for a quick war that would cut Hizbullah down to size, but as the conflict dragged, these leaders had no option but to call for a ceasefire. It was to no avail: the US only succeeded in losing more hearts and minds in the region, giving birth to a new generation of anti-US resentment.

Burning issues
Given the circumstances, Washington can hardly pretend to be an objective broker to a peaceful settlement to the Arab-Israeli dispute. That is, if the issue of peace talks ever were to surface again in the little time – less than two years now – that George W. Bush has left as the resident of 1600 Pennsylvania Avenue. The president’s remaining months in the White House will be taken up by the following burning issues:

  1. The November elections: With the Democrats attempting to retake the House and Senate from the Republican Party in preparation for the 2008 presidential elections, Bush has already begun campaigning for the Republicans. Much of his time between now and November will be spent flying around the country trying to garner support for the Republican Party.
  2. The ongoing war in Iraq: That conflict alone must be responsible for more than a few of the president’s grey hairs. Despite the White House spin, Bush’s hopes of a quick victory in Iraq sputtered and died, amid growing sectarian violence with hundreds of Iraqis dying on a daily basis. In fact, Bush will be lucky if the all-out civil war that threatens to rip Iraq apart does not break out on his watch – if it already hasn’t, that is. It would be a terrible legacy for any president to leave behind. Then there is the ever-increasing casualty rate – the body count – among both US military personnel and the civilian Iraqi population. And finally, with no visible face-saving exit strategy in sight for the administration, that US forces are expected to remain in Iraq well beyond the end of the Bush presidency.
  3. The war in Afghanistan: the resurgence of the Taliban in recent months is a clear indication that the war in Afghanistan is far from over. Armed opposition to the pro-American government of Hamid Karzai – which was limited until recently to the southern part of the country – is slowly creeping into the capital, Kabul. Car bombings, suicide bombings and targeted shootings of government officials are becoming more and more common.
  4. The war on terrorism: this is a war being fought in the shadows, and it is giving the president a tough time, even with members of his own Republican party over such issues as the rights of suspects to be tried and convicted based on evidence kept secret even from the accused.
  5. The Iranian nuclear dossier: of all the urgent dossiers piling up on the president’s desk, the Iran nuclear file must be one of the most burning issues. The Bush administration is faced with one of its toughest decisions yet: what to do with Iran’s nuclear ambitions?

Beltway gossip
This this is where Lebanon – and Hizbullah – and Syria enter the scene. There is much talk inside the Washington Beltway of a possible strike on Iran, should the Islamic Republic refuse to abide by the international community’s request that it stop its nuclear program. Iran claims its nuclear program is intended for purely civilian use, but the United States and its Western allies are not convinced. If the US and/or Israel were to attack Iran’s nuclear facilities, what are the counter-measures Iran is likely to take? A good probability is that it would have Hizbullah unleash its rockets on Israel, as it did during the 34-day conflict with the Jewish state.
Such action would push Israel to retaliate against Hizbullah – and in turn against Lebanon, as it did during the July/August war. So is it all gloom and doom for the Lebanese, barely out of one crisis, before an even greater catastrophe befalls the country?
Not necessarily so. Here is an optimist’s view from Washington, DC.
The arrival of several thousand blue-helmeted peacekeepers from Italy, Spain and France, along with several thousand Arab and Muslim soldiers can be seen as a sign that the international community very much supports a stable and independent Lebanon. But what the Western powers want is a “demilitarized” zone in south Lebanon where the 15,000 Lebanese Army troops dispatched to the area can, with the support of the 15,000 foreign soldiers backing up the Lebanese Army, act as a deterrent and keep armed militias at bay.

The western powers want a demilitarized zone where armed militias can be kept at bay

Facilitating integration
For that to happen – for South Lebanon to become demilitarized – there would be a need for Hizbullah to transform itself from what it currently is – a political party with a lot of muscle – into purely a political grouping. That in turn would facilitate its integration into Lebanese political life. It has been done before in many parts of the world. Unfortunately, those are rarely the ways of the Middle East; for one, it is far too logical. And despite two United Nations resolutions (1559 and 1701) calling for the disarmament of all militias and groups in Lebanon with the exception of the Lebanese Army, don’t expect Hizbullah to start handing in its weaponry any time soon.


The most likely scenario is the one practiced many times over the years in Lebanon whenever a particular militia found it had to give up its guns. Most of the weaponry disappears underground while a token number of old machine guns along with some faulty rocket launchers are ceremoniously handed over in front of the world’s media. All sides look good, everyone goes away happy until the next time.
But what of Syria’s role in all this? So far it has remained unmentioned. Syria is edging to get back into mainstream Lebanese politics and is betting on its supporters in Lebanon (today, Hizbullah and Gen. Michel Aoun’s Free Patriotic Movement) to open the door for them.

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Feature

An army:

by Nicholas Blanford
written by Nicholas Blanford

But is it enough?

International interest in reforming the Lebanese army was triggered by the Syrian disengagement from Lebanon last year, but the month-long war this summer between Hizbullah and Israel has given the process a renewed sense of urgency.
Within days of the ceasefire coming into effect on August 14, some 15,000 soldiers were dispatched to the area south of the Litani river to take up new positions in territory vacated by withdrawing Israeli troops – the first time Lebanese troops have been posted on the border with Israel in more than three decades.
“There is no place prohibited for it and when the army sees any weapon even in the hands of the resistance, it will confiscate it,” Prime Minister Fuad Seniora said in an interview with Orbit television in mid-September.
The Lebanese troops in the South will be coordinating closely with UNIFIL II, the name given to the newly-reinforced UN Interim Force in Lebanon which is slated to increase in size from 2,000 to 15,000 by the end of November.
Hizbullah, whose fighters have abandoned the border positions established over the past six years, has raised no objections to the deployment of Lebanese troops in the South, satisfied that the army will not attempt to disarm the group.

Border protection role
The government and international military donors believe that the future principle role of the Lebanese army is to maintain border security, tightening Lebanon’s notoriously porous frontier with Syria and preventing outbreaks of violence along the sensitive border with Israel, including repelling overflights in Lebanese airspace by Israeli aircraft.
With that in mind, foreign military specialists are recommending a more streamlined, mobile and better-coordinated military force that can respond quickly to trouble.
Following the Syrian disengagement from Lebanon last year, the government commissioned assessment studies from the UK and the US on what was required to reform and improve the capabilities of the Lebanese army. After the August 14 ceasefire came into effect, a British military team updated its assessment on the Lebanese army and recommended 16,000 troops in South Lebanon, 8,000 to patrol the border with Syria and another 1,000 to protect the maritime border.
That the Lebanese army requires a thorough overhaul is beyond question. Although the army has a comparatively large amount of equipment for a force of around 45,000 soldiers (the present strength is some 60,000 after 15,000 reservists were mobilized during the recent war with Israel), much of it is obsolete or non-functioning, and a mix of US, French and Soviet hardware. The army’s 310 tanks date from the 1950s and are only effective in an internal security context. US-made trucks and jeeps also date from the 1950s. The air force consists of 23 Vietnam era UH-1 Huey helicopters. The navy’s seven British coastal patrol craft have limited firepower and radar capabilities and are too slow for anti-infiltration and anti-smuggling operations. Of the 27 US-made small inshore patrol vessels given to the navy in 1994, only 10 to 12 are operational.
Spare parts for much of the equipment are no longer available, forcing the army to cannibalize from existing gear and come up with ingenious alternatives to keep vehicles on the road.


“Since the Syrian army was here, there’s been very little procurement for the Lebanese army, but they have done a magnificent job with what they have,” said one Western defense attaché.
The Lebanese army also made an assessment of equipment needs, a “wish list” of state-of-the-art weapons systems which never stood a realistic chance of being fulfilled. The list, which was seen by Executive, included five dozen heavy tanks, several combat helicopters, such as Apache or Cobra attack helicopters, nearly 30 patrol boats and a number of self-propelled 155mm artillery guns, in all amounting to nearly $1 billion.
“Their list was a non-starter,” said a Western diplomat. “Even if they were to receive what they wanted, the Lebanese army is too small and lacks the logistical back-up to utilize such equipment.”
The figure has been slashed to under $100 million and most of the offensive weaponry such as heavy artillery and aircraft has been replaced on the list by more mundane, but vital, logistical items such as transport vehicles, and communications and surveillance equipment.
Minister of Defense Elias Murr also envisages a lighter-armed, more mobile military. He apparently disavowed the army’s “wish list” and is placing emphasis on twin-propellered troop transport helicopters capable of ferrying soldiers rapidly to remote areas of the border as well as anti-tank missiles and anti-aircraft weapons as a means of thwarting potential Israeli air and ground incursions. The utility of advanced anti-tank missiles was proven during the Hizbullah-Israel war where they accounted for some 50 of the Israeli army’s 119 fatalities and destroyed, disabled or damaged 46 tanks and 14 other armored vehicles.

Mixed signals
While the needs of the army are well understood, organizing the transfer of equipment has been slow, hampered by a lack of coordination chiefly among potential foreign donors, according to diplomats in Beirut.
Britain has offered to be the lead country in coordinating which donor nation allocates what equipment or service to prevent overlap.
“You don’t need four countries all offering dog training,” said one Western diplomat.
The US, which has supplied the army with much of its equipment under the “excess defense articles” program, and France, with its traditional links to Lebanon, were seen as politically unacceptable to lead the coordination effort to revamp the Lebanese army.
While foreign donors recognize the need for coordination, “international sensitivities” over who takes the lead is delaying the process, according to one European diplomat.
“We are no further forward than when the Syrians left, although the needs have been known from the start,” the diplomat said.
What equipment has already arrived for the army is often transferred on an ad hoc basis without attention paid to the military’s needs. For example, Qatar recently sent Lebanon 100 military trucks. The trucks, however, were delivered equipped with desert tires, without windscreen wipers and without any spare parts. Around 20% of the trucks had to be cannibalized to keep the rest of the fleet on the road.
“The trucks were fitted for desert conditions. No one had thought about the needs of the Lebanese army. In the end it cost a lot of money to put those trucks on the road,” said a foreign military advisor.
Instead of one-off gifts of arms and equipment, the trend among military suppliers is “cradle-to-grave procurement,” in which a fleet of vehicles is sold along with a package that includes spare parts and workshops to ensure that the vehicles are properly maintained.
Furthermore, the army is looking to standardize equipment, ensuring, for example, that the army and the Internal Security Forces use the same communications system.

Greater allocation
The US Congress has significantly stepped up its financial allocations for the Lebanese military, reflecting Washington’s belief that a strong united army will help safeguard Lebanese stability. Some $10.6 million was allocated for fiscal year 2006 to be spent on repairs and spare parts for existing equipment. Further funds are expected before the end of the current fiscal year. Another $2 million was earmarked mainly for training troops and improving counter-terrorism techniques, some of it under the International Military Education Training (IMET) program, which has resumed after a hiatus during the years of Syrian domination of Lebanon. Some 120 student officers and NCOs have attended Ranger school in the US in the past year under the IMET program. American military teams are also training NCOs in Lebanon under four- to six-week programs.
Lurking in the shadows of the international interest in reforming the Lebanese army is the dreaded “H- word.” The unspoken inference is that a re-equipped, better-trained, more mobile national army will undercut the rationale behind Hizbullah’s argument that the Islamic Resistance is a vital component of Lebanon’s strategic defense.


“We want to be careful how the debate is framed,” said one Western diplomat. “If it’s suspected that this is a US-Zionist subterfuge then Hizbullah will use its veto to turn it off.”
But there is little doubt that undermining Hizbullah remains a powerful factor in the mainly Western interest in improving the Lebanese army’s capabilities.
In September, Steven Hadley, the US National Security Advisor, held a meeting in Washington with two senior advisors to Israeli Prime Minister Ehud Olmert to brief them on Washington’s plans for the Lebanese army.


According to an account of the meeting reported by Israel’s Yedioth Ahronoth newspaper, Hadley explained to the Israelis that a strengthened Lebanese army would bolster the Lebanese government against Hizbullah and other pro-Syrian elements in Lebanon, namely armed Palestinian groups. The Israelis reportedly agreed in principle with the US plan but voiced concern that some of the military hardware to be transferred to the Lebanese army could end up in Hizbullah’s hands.

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