For your information

Tourists trickle back

by Executive Contributor
written by Executive Contributor

Post-war wine
challenges for Israel

Lebanon’s wine producers can breathe a sigh of relief. There was no force majeur and there may even be an increase in production as the Israeli blockade has denied Egyptian winemakers their annual shipment of around 400 tons of Lebanese grapes, creating a surplus on the local market. “Opportunist wine makers who want to exploit the situation will overproduce this year,” ventured one local producer, adding, “Negociants will be selling Cabernet Sauvignon and Cinsault for peanuts at the end of the harvest.”
Next door, Israel’s $145 million industry did not face the same restrictions of movement, nor did it suffer the same scale of destruction. That said, the Upper Galilee, home to Israel’s best vineyards, was caught in the fighting. For nearly a month, the vineyards went unattended. Last-minute preparations could not be made and the harvest was delayed by about a week to ten days.
But Israeli winemakers face a more challenging threat: the issue of the sovereignty of the Golan Heights. Any Middle East peace deal that returns the Golan to Syria would see some of Israel’s best terroir absorbed by its neighbor. According to local experts, for the leading wineries on the Golan it is not a question of if the Golan will return to Syria, but when. “Even though they have been there for two generations, they are ready to leave if that will bring peace,” said one analyst.
While many have predicted that the Golan Heights winery – one of Israel’s largest – will probably relocate, possibly to the site of the Galil Mountain Winery, it would be the smaller wineries on the Golan that would bear the brunt of the upheaval. “My guess is that Chateau Golan will find a modus vivendi on the other side of the border, but that nearly all of the small wineries will fold up their tents and vanish into the night,” said the analyst.

Tourists trickle back
Since the Rafik Hariri International Airport once again started receiving international flights, planes have been arriving filled to capacity. The arrivals, however, are mainly Lebanese returning home after being evacuated during the conflict. Unsurprisingly, tourists have been slow to return to Lebanon after seeing the depressing news footage of thousands of foreigners being evacuated and the destruction caused by Israeli bombardment – not exactly an ideal destination for your dream vacation. (Ironically, readers of the July issue of Travel and Leisure would have been heartened to read that Beirut was voted number nine on its annual list of the world’s top 10 cities this year). The predictions of 1.6 million visitors to Lebanon in 2006 rings hollow now in the aftermath of the conflict, but Lebanese tour operators remain optimistic. Incredible as it may seem, there are a few tour groups willing to honor their booking to Lebanon. “The first tour group in Lebanon since the ceasefire will arrive in Lebanon on the 7th of October,” says Danny Abi Nader, owner of TLB Destinations. The trip is being marketed under the theme: “Back to Lebanonâ€Ļbe the first.” Abi Nader expects this arrival to attract international media attention putting the country back in in the positive spotlight, giving other groups the confidence to visit. Promoting Lebanon still remains an upward struggle, however, as governments continue to advise against all but essential travel. (Amended, however, from “against all travel,” now that a ceasefire is in place.) And caution is still advised when travelling to the Bekaa and all travel south of the Litani River is discouraged.
Outward-bound journeys from Lebanon were also put to a stop, as Lebanese holidaymakers had to cancel their trips, forced by the shut down of all air traffic. Business in this sector is slowly returning to normal. Airlines are flying to and from Beirut once again, and overdue holidays abroad are being booked. In order to give business a boost, local travel company Nakhal & Co launched an online booking system and gave a 10% reduction on all hotel bookings made during September when customers purchased an air ticket. Abi Nader remains optimistic about the long-term future of the industry and has set up CIFA (Centre pour l’Insertion par la Formation et l’Activite), a non–profit organization which trains young people in the skills of tour-leading.
He is expecting other tourists to follow this first wave and come to Lebanon as they want to see the country they have heard so much about in the news. Gulf tourists will be slower to return, but they will be back eventually once they are confident of a lasting peace. According to Elie Nakhal, general manager of Nakhal & Co, a stream of Gulf citizens is already trickling back into Lebanon to check up on their homes and businesses.

Marathon effort
Only a couple of months ago, it seemed highly unlikely that the Beirut International Marathon (BMA) would even take place this year. During the recent conflict, BMA organizers were actively arranging sporting programs for children and displaced families, instead of focusing on marathon registrations. With a ceasefire in place and the blockade lifted, organization of the event is now going ahead as planned, but under a new theme. It has been relaunched by May El Khalil, BMA race founder and president, as Kermalak Ya Loubnan – For your sake, Lebanon. The main sponsor of the event is Blom Bank, who is joined by other high- profile sponsors like Nike and Tropicana. Given the strong national sentiment, all are expecting a higher attendance than last year. According to Mark Dickinson, BMA managing director, the main cost of putting on the event is just over $900,000; this includes all of the preparation, logistics, cost per runner and the administrative costs. “Registrations through our website are exceeding all expectations, which is a great incentive for us to redouble our efforts to make this year’s race an event to remember,” says Dickinson. Foreign participants have committed themselves to running the event and instead of being put off by the recent conflict, seem even more determined than ever to attend. To drum up support, the Beirut Marathon Association plans to send a delegation to the United Arab Emirates to promote this year’s event. The aim is to encourage the people of the Emirates to participate in this year’s marathon; also to receive sponsorship support from Dubai’s booming private sector. All competitors are encouraged to run for a cause, and the marathon’s charitable cause this year will be for the victims of the cluster-bombs scattered around the country, still claiming lives.
The Beirut International Marathon will take place on Sunday, November 26, 2006. The event will feature the international marathon, 10-K Fun Run, and Mini-Marathon for kids under 18. Registration for the races can be done at one of the many registration outlets around Lebanon. For online registration go to [email protected]. The deadline for registration is October 26, 2006.

Syrian car market
sees stellar growth
DAMASCUS: Following a sizeable reduction in import duties last year, Syria’s fledgling car market has grown by up to 60% in under a year.
A decade ago, Syria’s roads were full of ageing 1960s American cars; in 1995, the government allowed imports for the first time, but customs taxes were so prohibitive that only economical South Korean and Chinese cars were affordable for even affluent Syrians.
But last September, the government reduced import duties from 255% to 60% for cars above 1.6 liters, and from 145% to 40% for smaller cars. The reduction has been a serious boon for car dealers that opened shop in Syria.
“It’s been a huge percentage increase, three times more than before 2005,” said Hilmith Al Knawati, sales manager for Fiat, Lancia and Alfa Romeo.
Although there are no official statistics on the market, dealers put growth at anywhere between 40% to 60%, with every dealer interviewed claiming an increase of up to 50%. The market saw a slight blip during the war on Lebanon, but has since bounced back.
Last year, there were a reported 900,000 cars on the roads, a small number considering Syria’s 16 million people.
“Since last year maybe 200,000 to 300,000 cars were sold,” said Al Knawati.
Chevrolet dealer Jared Gerges said there has been a 45% increase in sales, but primarily for smaller vehicles. Gerges said he hopes the US sanctions that prohibit American companies dealing with Syria will be lifted as the dealership, which has a 20% market share with Chevrolet, has the license to sell Cadillacs and Hummers.
The appetite for new cars is so high across the board that demand is exceeding supply.


“If we ordered a thousand cars now, they would sell quickly,” said Mazda’s representative Aksaan Khwandh.
But despite such growth, dealers want a further reduction in customs taxes. Customers still have to pay customs fees and a car tax that can add up to 30% on a car’s end cost.
As a result, demand is higher for smaller models, which have lower taxes.
“We will see another huge increase in demand when the registration fee is reduced,” said Al Knawati.
Due to the reduction, Renault said its market share increased from 8% to 14%, a 57% increase on 2005. Peugeot and Nissan also reported a 50% increase, but European and Japanese car dealerships will have to market hard to compete with the Chinese and South Koreans who control around 35% of the market.
Kia will open a car plant next year, as will Iran’s Saipa to manufacture one of its vehicle lines. Syria is Saipa’s top overseas market, accounting for around 90% of exports.

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Lebanon

Mayday, mayday Media hit bigMayday, mayday

by Executive Editors
written by Executive Editors

Lebanon’s media industry is struggling to recover from $38.7 million losses it suffered this summer as a result of Israel’s devastating 34-day war on Lebanon.
Media experts said that it will take time and resources for media outlets to regain their footing after sustaining direct and indirect damages.
Direct losses included material damages caused to the stations, while indirect losses pertain to advertisement contracts, most of which were terminated during the war as TV coverage focused on war developments.
Direct damages affected mostly audiovisual media, as Israeli air raids struck transmission stations of Lebanese television and radio stations and flattened the head office of Hizbullah-affiliated Al Manar TV in Beirut’s southern suburbs.
Indirect losses affected all media and were caused by a 40% drop in advertising income during the war, according to Walid Azzi, publisher of Beirut-based advertising industry magazine ArabAd.
The advertising losses hurt a media industry that is already struggling in a market that cannot sustain the large number of existing print and audiovisual outlets. At the same time, media are important for Lebanon’s economic freedom and democratic society.

Al Manar and LBC hardest hit
“The cost of operation of a single TV station is around $1.5 million per month, which is equal to $18 million per year,” Azzi said. He added that only one of Lebanon’s more than half-dozen commercial TV stations could exist on advertising income and stations had turned to other revenue sources, such as selling programs, seeking sponsorships and merchandising services and items linked to reality TV shows.
On the side of direct damages, Israeli attacks hit stations targeted for their political position in the Hizbullah camp and stations in other parts of the political spectrum.
Leading the sector in damages, Al Manar’s direct and indirect damages topped $16 million, reports an official for the station.
“When Al Manar was hit, broadcasting only stopped for two minutes. After that the station was up and running and continued its broadcast as usual,” he said.
The media outlet with the second-highest damages was the Lebanese Broadcasting Corporation International (LBCI), which operates terrestrial and satellite channels from a head office in Lebanon’s Christian heartland.
The station’s losses during the war amounted to $5.35 million, an LBCI official said on condition of anonymity.
“This is not exaggerated; it is 100% accurate,” he said, adding that three broadcast transmission stations were destroyed without affecting the national transmission of LBCI programming.
Future TV came third with $3.3 million of direct and indirect losses, according to Abdel Karim Sabbagh, chief radio frequency engineer at Future TV.

Advertising revenue lost
In addition to two broadcast towers hit by Israeli missiles, Sabbagh said the station’s indirect damages manifested in the cancellation of advertising contracts.
According to a list published by Lebanese newspaper an-Nahar, five other television stations suffered losses ranging from $350,000 to $2.65 million and seven radio stations were affected with damages amounting to a combined $6.2 million.
Despite these financial losses, Lebanon’s media sector maintained or even stepped up programming during the war, demonstrating its resilience in a time of crisis. Since the end of the war, stations have increased their efforts to stay up and running.
To ensure the survival of Lebanon’s radio and TV stations, the Union of Arab Broadcasters suggested Tuesday loan forgiveness for the stations, which carry an estimated cumulative debt burden of $760 million.
Azzi on his part called for stronger support of advertisers in the time of hardship. Companies wishing to promote their brands should not back off during wartime, but rather exploit such circumstances and uphold campaigns to ensure the continuity of their brand.
“You have to advertise during crisis in order to keep your brand alive,” Azzi said.

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Money Matters

International markets

by Global Economics Team
written by Global Economics Team

Global View
n Our Global Economics team recently issued a major report entitled “Global slowdown, local strength: Sources of demand in 2007” (September 13). The report examines how economies around the world are likely to fare as U.S. growth decelerates and what the investment implications of the slowdown are likely to be for equities, global fixed income and foreign-exchange markets, and commodities. We outline some of the highlights in the paragraphs below.
n The U.S. has been a key engine of global economic growth for nearly a decade. Now, the world economy can no longer rely on the U.S. consumer as a buyer of last resort, in our view. We expect a significant slowdown in U.S. growth, one that is likely to occur sooner and be more persistent than most observers currently think it will be. As we see it, U.S. GDP growth is likely to fall from 3.4% this year to 1.9% in 2007; as that occurs, non-U.S. global growth will probably moderate from 5.7% to 5.2%.
n Several countries appear to be very vulnerable to a U.S. slowdown because of their strong dependency on exports; but, in general, we expect the global economy to weather the U.S. storm well. The key sources of decoupling: independent domestic demand outside the U.S., which, in conjunction with the increase in intra-regional trade, creates pools of regional demand; and the ability of individual countries to implement supportive, offsetting macro policies. (By “decouple,” we mean that non-U.S. economies will have a smaller reaction to the U.S. slowdown than they have had historically, rather than an acceleration in growth.)
n We see several specific sources of local strength. They are Japan’s capital formation and consumer spending, China’s consumer demand, India’s consumption and business investment, Europe’s domestic demand in general and its business demand in particular, and the domestic demand of commodity- exporting countries.
n Here is a look at what we think is likely to happen in terms of regions and countries as the U.S. economy slows:
n Asia. Japan and India appear to be in a good position to decouple from the U.S. slowdown. Taiwan appears to be the most vulnerable, followed by Hong Kong and Singapore. China and Korea, although exposed, should be able to decouple if offsetting policies are implemented fast enough.
n Europe. The euro area is vulnerable, but the increasing dynamism of domestic demand suggests that it will weather the storm much better than it did in previous U.S. downturns. Emerging Europe is exposed, but it should find some cushion in the form of increased intra-Europe trade. Turkey is exposed, but Russia is well-positioned.
n The Americas. Canada is poised to be hit by the U.S. slowdown, but Brazil is set to decouple. Mexico is a mixed case, but, similar to the euro area, it stands to do better than it has in the past.

Equity implications
n As the economic growth patterns of regions and countries diverge, the premium for country and sector selection goes up. We like sectors that benefit from capital formation and consumer spending in Japan, consumer demand in China, consumption and business investment in India, domestic demand and business investment in the euro area, and domestic demand in commodity-exporting countries. We also think that the growth outlook favors Japan, China, the euro area, Brazil, and Russia rather than the U.S, Canada, Korea, Australia, Mexico, and Turkey (although we recognize that country selection decisions are not made on the basis of macro factors alone). Our equity strategists will be exploring those themes in subsequent reports.

Global fixed income and FX implications
n As the visibility of the U.S. slowdown increases, global monetary policy and capital flows are poised to change. As growth decouples, we expect more-pronounced divergences between the countries in Europe and Asia (including Japan) that will continue to normalize monetary policy and the U.S., Canada, Australia, and the U.K., which are likely to reverse course or stand pat as the slowdown proceeds. One element in our view is the world’s improved ability to withstand a U.S. slowdown. Another is that countries that have yet to normalize rates would find it difficult to reverse their monetary course in the face of higher inflation risks.

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Money Matters

Wataniya Telecom Wins Second MobileLicense in Palestine

by Executive Contributor
written by Executive Contributor

Abraaj Capital Purchases
10.7% Stake in JNB
Dubai-based Abraaj Capital purchased 11.8m shares in Jordan National Bank (JNB), the equivalent of 10.7% of total number of shares, for $56m. The deal was concluded through Abraaj Special Opportunities Fund (ASOF) II. Abraaj Capital is an asset management firm, with a primary expertise in private equity buyouts, strong strategic minority block positions in public enterprises and real estate investments. JNB, which is listed on the Amman Stock Exchange, increased its total capital by 8 million shares previous to the purchasing. JNB’s share was last traded at JOD3 ($4.2).

IMF: Outlook on the Middle East

The International Monetary Fund (IMF) issued its September 2006 World Economic Outlook report discussing trends in global economic growth. The report projects growth in the Middle East region at 5.8% in 2006 and 5.4% in 2007, up from a forecasted global growth of 5.1% in 2006 and 4.9% in 2007. The outlook for the region remains favorable in general, given that oil prices are expected to remain high. The report noted that UAE, which is expected to grow at 11.5% in 2006, will be posting the highest real GDP growth in the region that year. Bahrain and Oman come in second place with an expected real GDP growth of 7.1% each in 2006. Qatar follows with a forecasted growth of 6.7%, then Kuwait with 6.2%. Jordan, Saudi Arabia, Egypt, Iran, Libya, Yemen and Syria are expected to grow at 6%, 5.8%, 5.6%, 5.4%, 5%, 3.9% and 3.2% respectively. On the other hand, the Lebanese economy is expected to contract by 3.2% this year, as a result of political uncertainty and the recent conflict between Lebanon and Israel, after a 1% growth in 2005 and a 6% expansion in 2004. It is worth noting that consumer prices are projected to rise by 7.1% in the Middle East in 2006, compared to a 2.6% increase in the Advanced Economies, as reported by the IMF.

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Business

A regional visionary

by Mona Alami
written by Mona Alami

The July war once again demonstrated that conflict has been transformed by the media’s up-to-the- minute news reporting. With business decisions made instantly, the rise of the global economy and shifting environments, the media – in all its roles – plays an increasingly important role in our lives, and one company that is helping to shape the Middle East print media industry is the Al Iktissad Wal Aamal Group, which boasts an average issue readership of 5.6% of the total GCC population, a market share that is nearly double its nearest rival.

Established in Beirut in 1978 by Raouf Abou Zaki, a former journalist on An Nahar, the group is spearheaded by its eponymous business magazine, ably supported by Al Hasnaa, a woman’s monthly, Al Difaiya, a defense publication and Middle East Travel. “The company is the first true shareholding media company in the region not family-owned,” boasts Abou Zaki.

By 2005, Al Iktissad Wal Aamal’s average monthly circulation had reached 45,000, with a 60% subscription rate. Al Difaiya sells around 22,350 copies annually, while Al Hasnaa sales for the first half of 2006 reached nearly 60,000.

The company also has a highly profitable conference arm –the biggest in the Middle East – which holds around 15 events a year in the MENA and Euro regions, focusing mainly on tourism, IT, telecom, investment and banking. Thankfully, no conferences were scheduled this summer, and Abou Zaki is convinced that future conference business will not be harmed.

Through its conferencing activities, Al Iktissad Wal Aamal has developed strong inter-governmental ties. “Relations with governments are never static; they vary depending on the person in office and the situational context,” explains Abou Zaki. Relations, especially with successive Lebanese governments, have always been positive. “Since hosting the first conference in Lebanon after the 1989 war, Al Iktissad Wal Aamal, using its media and conference arm, has been singled out as a promoter of Lebanon’s investment opportunities,” he says.

It is a role he intends to continue to perform in the light of the July war, with the launch of a special conference program addressing Lebanese economic needs. “It will provide a vehicle for business ventures, highlighting business opportunities and putting forward grievances, establishing a dialogue between powerful market players, regulators and government agents,” he explains. “At our last Beirut conference, participants voiced criticism over the handling of the Gulf stock market crisis by Arab governments and today, future conferences will address current Lebanese concerns.”

Origins of demand

Al Iktisssad Wal Aamal was created because Abou Zaki identified demand for serious business reporting. “In the late 60s, real business news was rare as newspapers focused mostly on local politics,” he says.

Recognizing the potential for accurate business reporting in the wake of the 70s oil boom and the ensuing emerging economies, he founded a daily Arab business news agency, Orient Press in 1970, a move that inspired the rest of the local papers to carry their own economic and business sections. “A business reporting style evolved,” he remembers. “We started writing in a simpler, more concise manner that was easier for readers, addressing both consumer and supplier.”

With the evolution of this new brand of business reporting, Abou Zaki felt the natural move was to establish a title that carried the same spirit of reporting; enter Al Iktissad Wal Aamal in 1978. However, the war and the deteriorating Lebanese economy forced him to take on a pan-Arab identity and a wider editorial remit.

The 1982 Israeli invasion forced Abou Zaki to relocate to Paris. “From there, we directed our attention to the Gulf and North Africa, establishing relations with key global business figures,” he recalls. “We also recognized the importance of conference organizing as an effective media tool and in 1988, we hosted our first conference on Islamic banking in Tunisia.”

Building a regional group that caters to all Arab countries has defined the company’s expansion strategy. With a network of 150 employees and journalists and offices in Dubai, Cairo, Tunisia, Riyadh and Paris, Al Iktissad Wal Aamal has consolidated its regional and international presence. In 2005, Al Iktissad Wal Aamal sold 39% of its print run in Saudi Arabia, 10% in UAE and 16% in Lebanon, while KSA accounted for 32% of Al Hasnaa sales and Lebanon 36%.

“As you can see, the main focus is on the Gulf and Lebanon, however with the emergence of Jordan and Egypt, we are increasing our regional scope,” Abou Zaki explains.

Consolidation and growth

The group’s readership reflects the strategy of a diversified product base: “Most international publishing houses own magazines catering to different markets, such as the French Capital which also owns Gala, a social publication,” explains Abou Zaki. The acquisition in 1999 of Al Hasnaa, a publication dedicated to women, reflected this need. Middle East Travel, also acquired in 1999, was a natural choice. “With the tourism industry mainly dominated by foreign tour operators, to bring together Arab and foreign markets, English language was the obvious option,” he says.

Al Iktissad Wal Aamal’s readership is primarily higher-echelon business people (over 44 and earning at least $7,000 a month according to Abou Zaki), while Al Hasnaa’s figures show it outstrips its competitors Alam Hawaa, Al Jamila and Mondanité. According to Ipsos in Lebanon, Al Hasnaa is read by married women over 30. It has a 9.06% market share, ahead of Snob (7.97%), Special, Noun and Fairuz International.

“Our market strategy for Al Iktissad Wal Aamal was to establish a pan-Arab image. We publish around 36 issues annually, including special issues [to promote conferences and forums and exhibitions as well as build the Al Iktissad Wal Aamal brand] as well as local and regional publications,” Abou Zaki explains. “We have proved over the years, often in extremely difficult times, our ability to ensure full regional coverage. We have been able to earn the trust of governments and key industry figures which is reflected in our high turnover rates. If our name is associated with an event people expect a success.”

Abou Zaki attributes this success not just to the group’s level of professionalism and the trust it has achieved among readers and conference clients, but also to strategic alliances with blue chip international brands. For five years in the 1980s, it published a newsletter called Al Aamal in collaboration with the Financial Times, while today, Al Difaiya is a joint project between Al Iktissad Wal Aamal and the German Monch, the world’s biggest media group, specializing in defense news. It also interacts with its customer base. Through a system of awards, the company regularly recognizes key figures and promising companies.

As a regional brand name with a presence in most Arab countries but also a strong Lebanese identity, Al Iktissad Wal Aaamal’s role remains central in the light of recent events. “The political cloud floating over Lebanon needs to be lifted in order to restore faith in the economy and bring back investors. I think it is essential to address this effort to help kick start the economy,” says Abou Zaki, confident that Al Iktissad Wal Aamal can play a part in this initiative.

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Economics & Policy

The Beirut effect

by Michael Karam
written by Michael Karam

Those who predicted that the towering, luxury residential developments in the BCD and its immediate environs would become a sad testament to unbridled optimism and crushed potential had better think again. The war is over; long live the peace. So say the major developers, who are reporting that prices are holding. And while demand may have dipped during and after the conflict, they are also talking of sustained confidence among Gulf investors, negligible cancellations, and sales enquiries when none was expected.

Karim Bassil, chairman of the developers Brei and the man behind the successful Convivium brand, is sitting in his Gemmaizeh office with Brei’s general manager Antoine Khoury.

“I have just been traveling in the region to get a feel for the mood and found out that things have not changed as far as investor confidence is concerned,” says the man with a (comparatively modest) real estate portfolio of $80 million, who is building a boutique hotel in Gemmaizeh and whose Convivium range of projects has now reached no. 7. “I assure you, the Lebanese who wanted to buy still do want to buy. True, some retracted but in the long run nothing really changed.”

On the BCD waterfront, Abed Azhari, assistant general manager of Stow, developers of the landmark Marina Towers, is equally optimistic (and his portfolio is slightly bigger, nudging $1 billion). “The first phase was due to be completed by mid-August. Obviously that didn’t happen. Now we have a delay of three months, but can you believe it? The tenants are not worried,” he raises his hands in wonder. “It’s business as usual. The interior decorators are all back.”

What do they know that we don’t? “Who knows?

” shrugs Azhari. “Apparently they see a better phase. They are saying this is the last war in Lebanon, and when I see someone who already has a heavy investment in this country increasing that investment, it must mean he has confidence in something. I have already been contacted by 4-5 potential clients since the end of the war.”

It doesn’t mean there weren’t jitters. Antoine Khoury, Brei’s general manager, admits there was a slowdown and the company adjusted its projections to assume a year’s delayed sales. “This is the worst case scenario,” says Khoury. “However, we are already seeing a trickle of new interest since the ceasefire. Real estate has a life cycle of four years. The impact of the war will last for a year max, so we have time to overcome the impact.”

Interestingly enough, according to Bassil, despite the uncertainty, Beirut remains an interesting option for diversified portfolios. “The situation can’t get any worse, can it? My foreign investors are still in with me. We adjusted our business plan and that was good enough for them. They believe in Lebanon, so why shouldn’t I? They see it as a risky country, but the returns are high.”

Abed Azhari agrees. “Let’s face it. You get a lot for your money here, so the risk is worth it.”

Khoury believes there will always be strong demand for property, especially from the Lebanese diaspora. “Dual nationals all want a pied-a-terre and Lebanon offers very good value for money.” Bassil interjects. “Where else can you find property at this value? In the area of Paris, where the riots happened, they are selling the square meter for euro 2,000. Now is the right time to invest – the price is as low as it will get.” But Paris is Paris. Is value enough? “Of course,” says Khoury.

Crisis management

Mouhamad Rabah, managing director of the Platinum Tower development, is used to managing political crises. “In 2005, we were delayed by an absent workforce and the demonstrations,” he remembers. “But despite a slight slump in the immediate aftermath, we experienced a boom in the summer and we were back on track.”

With the latest crisis, Rabah admits the contractor had to delay work until August 21, but he is confident lost time can be recouped to manageable levels. “We urged him to get back on track even if we have to incur more costs. Now I can say we are 90% on schedule with total delays of about 3-5 months, if one takes into consideration the rainy season and so on.”

Rabah says that over 50% of the Platinum Tower apartments have been sold, mainly the bigger ones, especially the 1,700m2 penthouses that are currently selling at around $7,500/m2 and which cost between $12 million to $13 million. The rest – around 900m2 – are selling for an average of around $6,500/m2 (if you want to slum it on the lower floors, a BCD-facing apartment can be snapped up for $4,500/m2).

Joseph Mouawad, chairman of the Mouawad Investment Group, is committed to $70 million of projects and is more sober about the war’s impact. “Time is money and we had delays…the fighting, the embargos and the uncertainty. We lost sales. People who were keen to buy are now in a wait-and-see mode.”

He admits that despite a sense of sustained confidence, he feels, for the time being at least, that the big money sales are on hold. “Sure, there are people with money for whom a million dollars is nothing. Yes, they are out there.” He perks up. “Listen, it is not a disaster, especially when you think that a few months ago we didn’t even know if we were going to live.” Did he ever fear for the BCD? “Yes of course. The Israelis talked about it and they were serious about it.”

Prices remain solid

But all agree that sales prices have held their nerve, and developers are certainly not willing to take a cut. “They have no choice,” explains Mouawad. “Land prices have risen steeply in the last year, so they can’t take their money and buy elsewhere. Also, we must remember that construction costs are now higher. There will now be more demand for labor due to the reconstruction. So you see, they can’t drop their prices.”

As the war forced many mega-projects in the design phase to be suspended, Mouawad is confident that this will push current demand into the waters of the existing supply stream, allowing those developers who are finishing projects to take advantage of the temporary freeze.

Azhari sees the trend as an endorsement of the historic resilience of Lebanese land prices. “The value of property has not dropped since the end of the civil war, except perhaps in 1997, when prices reached silly heights. Land is rare in Lebanon. It’s a small country with a small economy that stops and starts easily.”

Rabah also says that his company is not under any pressure to drop its prices. “They have remained firm. There is no rush to sell. Other developers might have to adjust because of commitments to the banks, but we have none of that. No one has pulled out and most of the enquiries have been about finishing schedules.”

But he does not see a downturn in overall development activity. While developers wait and see, they will finish the design phase and finish legal documents so that when they feel the market is moving, they can begin. “Other projects have been suspended, especially those still on the drawing board phase, but I don’t believe this will be a long- term trend.”

Marketing

So for time being, those projects in the development phase are moving full steam ahead. “We are back to work,” shrugs Azhari. “We have a new project in the pipeline that is as big as Marina Towers and we were negotiating on it even during the war. Call it a gut feeling, but I believe we are heading towards a better situation.”

So is he a happy man? “I was not a happy man, but now I am beginning to be. We have sold all but three of our apartments in Marina Towers, and we have achieved our target of getting a good mix so that the area is not a ghost town for most of the year, like what happen in Ramlet el Baida in the 90s.”

Has Platinum had to adjust its marketing strategy? “Not really,” explains Rabah. “But what we have done is taken a decision to prioritize finishing the exterior and those apartments which have been sold as a priority, and then with the unsold apartments give greater flexibility to potential buyers.”

Was this a way of saying that he expects a dip in demand? “Listen, who is going to spend $5-7 million for an apartment today? No one. Not for the next couple of months, and we are certainly not going knocking on anyone’s door, but I can tell you this – if there is peace, we will see a 20-30% increase across the board both in land and retail prices. If not, then it will take another cycle and by that I mean another year for things to pick up, but it will. Lebanon is an important real estate market.”

While Mouawad’s long-term confidence is solid, he recognizes that there are still lingering internal questions. “Don’t forget that while the South is calm, our politicians are still fighting each other…they want this, they want that, and let’s not forget we have the UN Report and Iran and Syria.”

So what is the Mouawad Investment Group doing in the immediate term? “It is very simple. We are completing those projects that are under construction. We are finishing the projects under design phase but delaying construction for the time being, and we are currently suspending looking for other projects until the political situation becomes clear.”

The Beirut factor

But real estate is ultimately all about confidence. Bassil unveils his simple formula for Lebanon. “The appetite is still there,” he explains. “The Arabs all want to come here – even now! No matter what happens politically, this is all bullshit. Arabs want to have fun, go out and drink. If the war restarts they will leave, but they will come back. Lebanon is here to stay – say what you want about the Lebanese, but they rebuild.”

What was Abed Azhari’s darkest hour? “Well I never thought ‘that’s it, it’s over.’ I mean, we have been here before, but because this time we were booming and optimistic, perhaps over optimistic, I thought that maybe it would take a while to recover, maybe up to a year. We must remember that the whole country was at war, not isolated pockets like the previous wars.

“Believe it or not, the Gulf Arabs were inspired by our resistance and our determination not to be cowed by the fighting and destruction. In the US, if there is a fire alarm, they run into the street. Here, one day after the war ended, they returned to their land.”

Azhari believes that the commitment to Lebanon as the premium destination in the Arab world remains solid. “9/11 speeded up the inevitable. Dubai started it, but you need developments if you are to attract investors and tourists. They used to go elsewhere – now they come here because of what we can offer.

“Look at Syria and Jordan. They have stable governments and they don’t have war, and look at what we were able to do in a short space of time.” He leans back in his chair. “You know, every time we think of leaving, the attraction of this place pushes us to stay.”

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Economics & Policy

After the frenzy, what next for the GCC

by Executive Staff
written by Executive Staff

We have spoken at great length, and on several occasions, in these pages about the Gulf capital markets and equities in particular. Twice, in the last quarter of 2005, we pointed to the excesses and overly euphoric market mood, especially in Saudi Arabia, where company valuations had reached astronomic and unsustainable levels.

The mania subsided dramatically, and bubbles all over the GCC burst, leaving many small investors licking their wounds. In fact, the collapse was so rapid and devastating that one heard many anecdotes of people losing it all, betting on the stock market after borrowing money to do so. Ho hum.

The driver of the equity rises had been primarily the macroeconomic factors supported by a high and rising oil price, which had moved from near $40 a barrel, 18 months prior, to around $77 per barrel. However, and due to the un-sophistication of most small investors in the region (and similarly to the last Nasdaq bubble in the US), too many participants entered those markets inexperienced in high-octane investing. Also, given the profits they made from stock lending, the banks were willing to lend and the party lasted longer than it should have.

Now, after nearly 50% losses in most GCC share indices, and with the price of oil having receded from the high $70s to near $60 per barrel – a 22% drop – it is time to take another look at where those markets are heading in the near term, and what the key triggers are.

Affected sectors

The sharp correction in the regional capital markets can be seen in regional corporate earnings during the first half of 2006 when many companies derived a significant part of their income from investments and activities related to the stock market. The sectors which have been hampered the most due to the declining capital markets were the investment and real estate sectors. These two sectors were the best performers during 2005 on the back of surging capital markets.

The regional corporate earnings of 410 companies listed have exhibited lackluster growth in the first half of 2006, reporting an increase of only 10.64%. However, with the exception of the industrial, investment, real estate and insurance sectors, other sectors have achieved profit growth in excess of 10% in the first half of 2006.

The banking sector achieved a profit growth of 41.80% during the first half of 2006 as regional banks’ interest income received boost on back of an increasing interest rate environment. The management fees, commission, and investment banking activities have recorded lower growth, and this was one of the primary reasons for lower profits for the regional, especially UAE banks.

Telecom sector achieved a growth of about 24.50% in 1H-2006, thanks to the increasing profits as a result of a rise in the penetration levels, especially in Saudi Arabia and Oman. This has been further complemented by the increase in average revenue per unit. In the telecom sector, Mobile Telecommunication Company (MTC) and Qatar Telecom (QTel) were the top performers with improved earnings of 54.89% and 58.12% respectively, attributed mainly to their expansion outside the region. It is likely that the telecom sector will continue to perform well with the help of expansions both in and out of the GCC region.

Hotels and tourism companies witnessed their profitability increase by 24.50%, backed by increased regional business travel and tourism and rising interest of both government and private sector in developing the nascent tourism sector.

On the other hand, the services sector recorded growth of 13.21% in profitability on the back of expansion through acquisition of related companies, which increased their revenues substantially over the last year.

The industrial sector reported a profit drop of 3.35% in the 1H-2006 as compared to the same period previous year. The industrial giant SABIC (accounting for almost 60% of the regional industrial sector profits) registered an earnings drop of 11% during the first half of 2006, which can be attributed to the price pressures in its various lines of business stemming from upward push in commodity prices with SABIC being quite sensitive to pricing in metals and the like. However, if we exclude SABIC from the industrial sector, the sector has witnessed a growth of 10.65% during the 1H-2006.

Bullish outlook

The correction witnessed in GCC capital markets has hindered the profits of the insurance sector. The insurance sector reported a decline in earnings of 49.12% in the first half of 2006, which can be attributed to the decline in investment yields as most of the insurance companies in the GCC invest about 40-50% of their total investments in equity market. On other hand, investment sector earnings are mainly triggered by the performance of regional equity markets. As a result of the declining capital markets, the investment sector reported a drop of 34.85% during the first half of 2006. Talking on the same lines, even the real estate sector reported an earnings drop of 78.32% in 1H-2006, being the biggest decliner among the sector profits.

Despite the regional markets suffering huge setbacks in the last few months, regional economic growth and improving geopolitical conditions are pointing towards the likelihood of a comeback in the final months of 2006. This is all the more reason to remain bullish towards the regional bourses, which have already started showing growth in the last month or so. We believe that this is likely to improve the profitability of sectors such as investment, insurance and real estate for the full year of 2006. But the key to this forecast is two-fold: Firstly, the lower-quality shares, which had been floated on the market in a loose environment, will probably never recover to peak levels, given that even after the big drop, their valuations and estimates are still out of sync with reality. Secondly, regional bourses will likely still suffer some short-term setbacks, because 1) the public is still too enamored with shares, and 2) stocks in the region will not only have to adjust to slower growth in oil prices, but also with lethargic and even falling global markets.

Despite the bullish outlook for corporate earnings, it is unlikely that the share market in the GCC will go back to the trance it enjoyed in 2004 and 2005. But overall for regional capital markets, the news is not all dire. As the region opens up, a transition toward global trends in the architecture of the MENA region capital markets will present spectacular opportunity.

With a fixed income market totaling only 4% of GDP in the region – versus 8% in Africa, 12% in developing Europe, and 8% in Asia – the region has ample room to grow its capital markets and deepen their structure.

This new shift will be a boon to GCC banks and financial institutions that have the strong balance sheet to support new forms of financing, helping to offset the unexciting equity outlook.

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Business

The determination of a man of steel

by Nada Bakri
written by Nada Bakri

Toufic Dalal, owner of Dalal Steel Industries, is at his desk at 06:00 everyday. Today, his desk is a four-room office in a building he owns on Makhoul Street off Hamra, but he will eventually relocate to a multi-level, modern facility outside of Beirut he has just finished building. A sign of moving forward, one might think, especially as Dalal Steel was a multi-million, family business, exporting prefabricated homes and other steel structures.

That was on July 22. The next day, three Israeli missiles levelled his 25,000m2 factory, destroying $20 million worth of industrial machinery and products and incurring losses of $4 million to $7 million in anticipated revenues. Four hundred of Dalal Steel’s 600 employees found themselves out of work. He recalls the day he heard of the strike, some 65 km east of Beirut. “I drove there immediately and I saw the 25,000m2 factory on the ground, but I did not panic.”

The next day, he flew to the US and then to Italy where he bought new machinery, arranging for it to be shipped to Lebanon once the blockade was lifted. “We have to restart production as soon as possible, because we have contracts to deliver orders,” he says.

Two weeks later, Dalal joined the long queue of industrialists who met with Prime Minister Fuad Seniora to seek compensation. The Premiere was blunt. He told the 56-year-old civil engineer that unless there were goodwill donations allocated to the industrial sector, the government could not compensate his or the other factories that were completely or partially destroyed in the war. In fact the only government reaction was to send representatives from the Ministry of Industry – “wearing nice suits,” Dalal, wryly observed – to the site of his wrecked factory to mumble words of regret.

Dalal recalls that prior to the war, Bekaa ministers and MPs would constantly pester him to hire this or that person. “And I did, not because they asked me, but because we like to hire people. But when we were hit, no one picked up the phone – not even to say they were sorry.”

Looking to the US

Dalal has since dropped the expansion plans for his Beirut office. He is currently making contingency arrangements to move his business to the US. “In four or five months, if the government does not pay us compensation, we will move to the United States and Lebanon will be nothing more than a small operation. My son is over there now making preparations,” he confirmed.

Dalal feels it is important to have the backing of the state, any state. “We planned to expand; we planned to add new products lines such as steel tanks and fibreglass products. These plans are cancelled.” He pauses. “The government is my insurance company. If they fail to pay us compensation so that we can stay, I will have to look for another insurance company. Why should I put another $25 million in a country that does not insure and protect its people? Why should we have to pay the price for the fact that they can’t work out [political] issues?”

It was not always thus. In 1986, Dalal, then a young ambitious civil engineer, returned to Lebanon from the United States, and established a 10,000m2 factory in Shoueifat to manufacture steel structures. Business grew, thanks to what Dalal claims was prompt delivery of a high-quality product.

“We concentrated on steel structures first, and later I introduced a new line of prefabricated houses. When that took off, I decided to expand the line and I went to Italy and bought some of the most sophisticated machinery,” he says.

Dalal explains that Lebanon was a good country from which to do business, not least because its favourable geographical location meant he could ship to almost anywhere in the world. “It is a very good country for the industrial sector in general, because production costs and taxes here are cheaper than anywhere else,” he says.

Working for Uncle Sam

In just few years, Dalal became the country’s biggest steel factory, shipping products to customers in Afghanistan, Austria, Nigeria, Slovakia, Kuwait and Iraq, while local clients included Coca-Cola, Pepsi Cola and Beirut International Exhibition and Leisure Center (BIEL).

But probably the biggest client was the US military, with its bases in Iraq, Kuwait and Afghanistan, for which Dalal built camps and provided pre-fabricated housing. “We were lucky to win those contracts. Their first orders were for a few thousand houses. We were automated and ready to produce and deliver on time. And we did,” Dalal says.

The company increased production and, according to Dalal, “made a fortune” during the first two years of working for the US army immediately after the 2003 American-led invasion of Iraq. “Money is not an issue for the US army,” he explains “They are more concerned about quality and prompt delivery and there was no one as automated as we were to deliver on time.”

So why was Dalal hit, if it was a supplier to Israel’s closest ally and Israel claimed to only be attacking Hizbullah’s infrastructure, bases and members? After the strike, the word on the street was that Dalal had been in direct competition with an Israeli manufacturer to win the contract with Uncle Sam. The factory was in the Bekaa, the Bekaa was perceived as a Hizbullah stronghold …you do the math.

Dalal disagrees. “Our main competitors are in Saudi Arabia. I never felt there was any competition from Israel. I don’t think that was the case. I think it was just a rumor to make people feel better. I am not an expert in politics but I think that my factory was hit because we are paying the heavy price of problems our politicians cannot solve with Israel. Imagine if we had a strong Lebanese army and I had a strong company and a strong competitor in Israel, could I really go to my government ask to bomb the Israeli factory? No. They were hitting our economy. They wanted revenge.”

Although there is now demand for Dalal’s prefabricated homes to shelter Lebanon’s nearly one million displaced people, he will only provide 1,000 units to the Lebanese army, recently deployed to the South. “I agreed to take this one contract because it is paid for by the United Arab Emirates. I don’t trust the government.”

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Business

The cruel face of economic warfare

by Nada Bakri
written by Nada Bakri

In early July 2006, Liban Lait, Lebanon’s largest dairy farm, was witnessing an unprecedented growth spurt.

“At the beginning of July, the market was booming; we had a peak in sales that wasn’t normal. There was a 40% increase – we were expecting it to be stable at that level,” says the factory’s Sales and Marketing Manager Marc Waked.

“We were the only producers of long-life milk, fruit-flavored yogurt, desserts in cups. We had a wide range of full-fat, semi-skimmed and skimmed milk. We basically controlled the market,” recalls Waked, 39.

At that time, the factory was producing more than 80 products, ranging from fresh milk to cheeses, yogurts and desserts, and had plans for expansion and new product lines. It supplied the domestic Lebanese market and the South Lebanon-based United Interim Forces in Lebanon (UNIFIL), and exported throughout the region.

“It was a continuous expansion for us, we wanted to inject new products in the market periodically,” Waked says.

A strike at dawn

But on July 19, six pre-dawn precision-guided Israeli bombs destroyed the Bekaa-based dairy’s processing plant, causing damages upwards of $20 million and putting 300 employees out of work.

“The only reason I can think of [for the strikes] is that the Israelis knew the eventual outcome of the war; I am sure they knew. I mean, they planned it, and they knew that they would be asking for 15,000 troops to be stationed in the South,” Waked says.

Liban Lait had been the supplier of the UNIFIL troops since 2001, when they outbid a northern Israeli firm for the contract.

“Before the war, the contract was nothing, it was almost $300,000 a year, a small business. But now, with 15,000 troops stationed in the South, the contracts will be different and will amount around $2 to $3 million. The only reason I can think why the Israelis hit our plant is because they knew we were the only plant [in Lebanon] that could supply 15,000 UNIFIL troops with enough products on a daily basis,” Waked says.

“Now, if the UNIFIL wants to get fresh milk and fresh yogurt, they will have to get it from north Israel,” he observes.

Liban Lait has dropped all plans for expansion, and will transform the firm into a small unit for the time being, producing just yogurt, labneh, cheese and milk, and importing some other products— like long-life milk— from France.

“We are going to do a small production unit, basically to do labneh, laban, milk and cheese. At the first step, we are not going to rebuild the main plant. We are just doing a small unit to return to the market again,” explains Waked.

“We are going to try to be present in the market as much as we can, but it will not be like before, because we are not producing in full range. Everything will be downsized, from production to distribution to staff – the whole lot.”

Waked says the firm has no plans to return to full-capacity production unless the government pays them compensation; if it ultimately fails to do so, the decision has been taken to shut down Liban Lait altogether.

Compensation concerns

“We are hoping to get compensation and we sense that there is the will, but we are not going to rebuild if we don’t get compensations for the damage. We will close the plant, we will shut down the business and go home. It is $20 million, for a war that was started and ended with no purpose whatsoever; we were hit for no reason,” he says.

He says the firm is lobbying on different levels.

“We sent files to everyone, all ministries— agricultural, industry, finance, economy and the Central Bank, too,” he explains.

“We don’t have another choice. We will try as hard as we can to get compensations, otherwise we are not willing to inject a $20 million in capital again into a company that is only five years old and was hardly breaking even,” he says.

“We feed 2,000 cows every day, and we have nothing to sell now. If you have a downsized plant with 2,000 cows it will be operating at losses—we’re working to feed the cows, and you can’t tell the cow, “don’t eat today” or “go on a diet.” They haven’t heard of diets,” he jokes grimly.

He says that during the 34-day-long war, milk production went down from 25 liters a day on average per cow to 15-18 liters, because the cows were “sensitive to the bombardments and because they were not fed properly.”

If the plant closes, Waked says the cows will be sold, which would severely affect the agricultural sector providing cow feed. But most importantly, closure threatens to keep 300 employees out of work ahead of a cold Bekaa winter season.

“Our employees complained to the labor ministry, but what can the ministry do? It was force majeur. They did not have a case,” he says.

For this reason, Waked says the shareholders – who include his father Michel Waked, major investors like De Freij family, Mohamad Zeidan and Audi Investment, among others – are also lobbying with the private sector to get donations or subsidized loans.

Pressure on all levels

“I don’t want to say the government is not doing anything yet, because that would not be fair. I don’t know much about politics, I don’t know if [Prime Minister Fuad] Seniora or [Industry Minister Pierre] Gemayel will decide on the compensations, but we are trying on all levels,” he says.

Waked says he is optimistic.

“We know the people and we are exerting pressure; we have 300 employees on the street, a sector is waiting for us to restart. This is a factory that has a future in Lebanon. Just to say, “we are not going to compensate – manage yourselves”… does not seem possible and besides, I am sure they have money to compensate,” he says.

He explains that a possible solution might be reached through Central Bank, which could subsidize the firm’s old loan, “or wipe it out” and replace it with a new loan, instead of paying compensation.

“They may tell us, “let’s forget about the old loan,” and give us a new loan with a long-term plan until we can stand on our feet again and start making money,” Waked speculates.

Although Liban Lait will, for the time being, be reduced to a “mini-plant” slated for completion by November, Waked says he is still busy these days because “it is like somebody wiped out the whole place and we are rebuilding it.”

The business was established in 1994, but did not start production till June 2000.

“We had no experience, so it took us some time to do the feasibility study and build the plant,” explains Waked. “Now we are doing the same thing all over again, but on a smaller scale. We have the right experience, the infrastructure—but we still need the factory.”

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Business

A tale of three cities

by Michael Young
written by Michael Young

The recent Lebanon war could be interpreted at many levels, but perhaps its most significant impact was how it came to damage Lebanon’s capitalist culture—a culture of openness, relatively unhindered exchanges, and faith in the regenerative qualities of the market.

A decade ago, Druze leader Walid Jumblatt neatly encapsulated the dilemma of postwar Lebanon, caught between two alternatives: he had wondered whether the country would lean the way of Hanoi, by which he meant, would it embrace the armed militancy of Hizbullah? Or would it go the way of Hong Kong, and yield to the buoyant capitalism of Rafik Hariri, whose vision was for Lebanon as a financial and trade entrepôt, where competition would be peaceful and victory measured in dollars?

Geographical isolation

Between 1992 and 2005, Lebanon was able to juggle that contradiction. Because of Syrian rule, the country was compelled to be both Hanoi and Hong Kong. This was largely made possible by the geographical isolation between South Lebanon, where the bulk of combat took place, and the rest of the country, particularly Beirut, where Hariri dominated. However, this uneasy equilibrium collapsed after May 2005, when the Syrian Army withdrew from Lebanon. Today, the country must resolve this dangerous ambiguity, and nothing has shown the urgency of this quite as well as the devastating recent hostilities with Israel.

Much has been made of the fact that the conflict was declared by Hizbullah to be a victory. That affirmation was, to say the least, debatable, but the real question, even if one were to accept the party’s triumph, is whether Lebanon can afford many more such victories. Any victory (and Hizbullah has not denied the accuracy of the figures) that turns 1 million people into refugees, that leads to the death of over 1,000 people, mostly civilians, that brings about direct and indirect losses estimated by UN agencies at over $10 billion, that erodes investor confidence probably for years, and that closes countless businesses down, is not one that can be easily reproduced.

And even if one were willingly accept that Hizbullah’s Hanoi choice can, on occasion, revive Arab “honor,” having to defend that honor again anytime soon will almost certainly lead Lebanon to financial ruination.

With this in mind, it seems an obvious point to argue that it’s time for Lebanon to unequivocally embrace a capitalist culture, to be rid of Hanoi in favor of Hong Kong. Except for two problems: Hanoi has its adherents, namely Hizbullah, and they will defend their preference for the foreseeable future. But also, no matter how appealing the brashly capitalist model, Lebanon is not in a healthy economic state to show that alternative at its best. With a debt of $40 billion and a GDP that may have contracted to $18 billion after the war, the country is close to a financial meltdown. Foreign aid may be forthcoming, but unless fundamental structural reform is introduced, this will merely delay the period of economic collapse.

In other words, Hanoi may have been discredited in the July-August fighting, but there are no guarantees that within a reasonable timeframe in the future, Hong Kong will not be, too. And who might be among those worst affected by the failure of the laissez-faire policies favored by the parliamentary and government majority, in particular Prime Minister Fuad Seniora? Why, the advocates of a more militant Lebanon, of Hanoi, those who paid the highest price during the Israeli onslaught, and who, particularly among the Shia community, have not historically benefited from Lebanon’s penchant for free trade and economic openness.

Hanoi on hold

That’s why the problem of pursuing Hanoi—of Lebanon fated to remain a redoubt of armed struggle—can only truly be resolved once its other destiny is shown to be a more alluring alternative. That means that Hong Kong must prove its viability to Hanoi. A capitalist culture must convince detractors of its ability to consolidate itself and benefit everyone.

Hanoi was put on indefinite hold once Lebanon began tallying the costs of the July-August war. However, the proponents of Hong Kong cannot afford to create an impression, whether true or false, that Lebanon lives at two tempos – one for a select few who benefit directly from the prevailing economic framework, and one for a majority that would suffer hardest if that edifice were to cave in. Hanoi has surely lost its justification, but that doesn’t mean Hong Kong must not convince on its own.

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