Society

Controversial billboards on airport road – Hizbullah’s ad campaign

by Executive Staff
written by Executive Staff

In the aftermath of its 34-day war with Israel, Hizbullah decided to launch its first-ever full-scale PR campaign: the “Divine Victory” blitz. The slogan was emblazoned on hundreds of billboards, primarily in the South, the Bekaa and the southern suburbs of Beirut, in a blissful union of militancy and marketing.

The contract was won by a team from Idea Creation, headed by Mohammad Kawtharani, the 30-year-old artistic director who coined the “Divine Victory” slogan. The campaign would have cost around $400,000, but the agency and the billboard companies offered their services for free. “So many companies refused money for their billboards. They said, ‘This is for Sayyed Hassan, this is for the muqawama—have it,’” explained an exuberant Kawtharani. Today, the slogan can be seen set against images of martyrdom and Israeli humiliation on 100 15x5m unipoles and 2,000 smaller billboards—a total of 12,000 m2 of printed area.

“We realized in the beginning that on the military and political levels, we were about to achieve victory,” Kawtharani says from the agency’s new offices in Haret Hreik, just a stone’s throw from the rubble heap that remains of its former location.

“We also saw the party unifying under the leadership of Sayyed Hassan Nasrallah. So we started linking his charisma to the victory. You know, ‘Nasrallah’ in Arabic means ‘divine victory,’” he adds.

Not just for Shia anymore

They emphasized red in the billboards to “signify the huge amount of blood” spilled during the war and highlight its civilian casualties, which Kawtharani calls the “real cost of the war.” The thin line of white line running across every image is meant to link the harsh realities on the ground with the ethereal forces of the divine. The green symbolizes the victory of resistance, which succeeded in “transforming death into life.”

Although Hizbullah was marketing the resistance long before this summer—Al-Manar TV station, local print media, and three billboards in the South and Dahieh owned by Hizbullah’s Martyr’s Institution were the crux of its public relations strategy—this is the group’s first attempt to market outside of its core constituency.

“It’s not only important that we won the war, now we have to maintain the vitality of this victory … and prove that the resistance is for all Lebanese,” Kawtharani says of the main objectives behind the campaign.

To communicate the national—as opposed to exclusively Shia—character of the “Divine Victory,” Idea Creation chose the images for each billboard according to its location and the demographics of its target audience.

“We chose different photos for billboards in the North than for the ones on the airport road,” Kawtharani says, “Like for one in Jounieh, we put a Lebanese Army soldier next to a resistance fighter, meaning the resistance is not just Muslim.”

Multi-media campaign

In addition to outdoor advertising, Idea Creation employed three other marketing tools in its campaign: printed pamphlets, banners, and personal items like flags, caps and pins. These elements of the campaign were also oriented towards specific target audiences.

The English-language banners proclaiming “Made in the USA” and “Extremely Accurate Targets” jutting from the rubble in Dahieh, for example, were designed for Western consumption.

“We tried to use the language of American media ironically there,” Kawtharani says, “So Western [news consumers] absorb a double-meaning.”

While the campaign certainly succeeded in getting attention both at home and abroad, it remains to be seen whether it will prove effective in attracting new supporters to the Hizbullah camp or in shoring up the support of disillusioned Shia. Now that domestic political tensions have once again replaced an external enemy as the biggest threat to Lebanon’s stability, the more important question may be whether the campaign was designed to help unify the Lebanese people, or as an opportunistic attempt to stir the sectarian pot.

“No one is disputing the costs of the war, but we are trying to recover now and we have billboards reminding us all along airport road,” says an executive from a mid-size advertising agency in Lebanon who preferred to remain anonymous. “If we want tourism and investor confidence to recover, we cannot show these kind of images.”

Kawtharani dismisses criticism on this count as beside the point: “Our priority is not to attract tourists back to the country—we are not trying to promote commodities, but to show the reality on the ground.”

The same executive said that the marketing campaign has also failed to consolidate increasingly fragmented public opinion within the Shia community.

“A lot of moderates in Hizbullah are thinking, ‘Why do we need to rebuild our homes every four years?’ The campaign pushed them away, and for the rest of the Shia, Nasrallah could have made a TV appearance and had the same effect because they believe everything he says anyway.”

Battle in the media, not the streets

Another executive speaking on condition of anonymity, from the Lebanese branch of a multi-national advertising franchise, agrees that the campaign did not sway public opinion. Although he is optimistic about what the strategy means for the future of the Lebanese political environment, his optimism is based on a kind of tenuous logic that has proven dangerous in the past.

“Effectively, if this is fine,” he argues, “Then Hizbullah will have to accept another political party mounting a similar campaign that they might not like, and they can’t get upset about it.”

However, he also observes that a slick Hizbullah marketing campaign, though controversial, may mark a positive change in the domestic sectarian discourse:

“It is offending a lot of people, but I’d rather the debate happens this way than for it to happen on the streets with riots and demonstrations.”

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Mohammed al-Rumaithy – Help from the UAE

by Executive Staff
written by Executive Staff

Last month, the UAE Program to Support and Rebuild Lebanon handed over the keys of 168 repaired schools to the Lebanese government. Executive talked to the program’s director, Mohammed al-Rumaithy, about the logistical aspects and political overtones of reconstruction in Lebanon.

E When exactly did the program begin and what are the main projects you have been working on in Lebanon?

It started right at the beginning of the war, but at that time it was only focusing on humanitarian aspects like food and medicine. This continued until the end of the war, when the UAE decided to participate in rebuilding—and in particular, rebuilding schools—because they believed that this was a very important project. The other major aspect of our work is de-mining and bomb removal. The UAE finished its first de-mining project here two years ago, so it was natural for us to resume this kind of work—although this time the problem of bombs is greater than mines, which is a new situation for Lebanon.

E What stage are you at in terms of achieving your objectives?

On October 18 we handed over the keys for 168 schools to the Lebanese government. Another 37 will be ready by November 18 and a further 11 by December 11. These were all schools which weren’t actually hit by rockets, but which were used for other purposes during the war and needed repairs and other work. There are two schools which were destroyed by missiles, and we estimate that we will have rebuilt these completely by December 2007. We’re satisfied with the result, the government is satisfied and so are the people in the south.

E How closely are you working with the Lebanese government on these projects, and how did you organize to rebuild the schools in the first instance?

We first went specifically to the Ministry of Education, met the minister and were given all the information on the situation. But from then on it was all on us to decide how we would work and deal with contractors, and so on. The government had nothing to do with the project field-wise, although they were helping us with statistics and logistics whenever we needed them. They asked us to go away, do the project and then give them the keys to the schools.

E How is the project funded?

It is all funded by the UAE government, except for humanitarian aid which is funded by donations from the people of the UAE.

E Is there a budget?

No, there is no specific budget, but the government is always prepared to support us if we require extra funds. At the start it was extremely difficult to budget because we didn’t know how many schools had been hit, and in the chaos immediately after the war there were no reliable statistics for us to budget from. The same was true for the de-mining and bomb removal: it was difficult to know how many cluster bombs or mines needed to be dealt with.

E How much has been spent on the program so far, whether from the UAE government or from fund-raising?

It’s a significant amount.

E What are the major logistical problems you’ve encountered when working in South Lebanon?

There have been no significant problems, although of course access was difficult at the start because of the destroyed bridges. We were also very squeezed for time as we knew that the government had told parents that the kids would be going back to school on October 16, so we only had 30 days. When we heard what the Lebanese government had promised, we had to run around even more and cover as much ground as possible every day. I think what we did so far has been appreciated by the minister and the government.

E Do you use private Lebanese contractors to rebuild the schools or do you ship in any staff from the UAE?

Only the engineers are from the UAE, the rest are Lebanese. We went directly to local contractors in the South, which is easier for logistical purposes and they know the area well already.

E Did you initially want to do more reconstruction projects in Lebanon, but were limited only to the schools?

The government of the UAE is ready to help in any way, but, of course, we don’t want to take over other people’s work. When we first came, many countries and NGOs were on the ground, and to do the job properly you have to focus on one thing. You cannot come and say “I want to do everything.” So when we made it clear that the UAE would rebuild the schools, everyone knew that. I think what we’ve done so far, and are still doing, has touched the Lebanese people. If it’s rebuilding schools, then it affects kids; if it’s removing mines and bombs, then it affects farmers. In the south, these bombs are preventing everyone from moving around—farmers, children, everyone. Even moving from house to house becomes impossible. So our projects really touch the daily life of the people. There may be more on the way, as now we get requests from the ministry about other work to do. We are tackling each request at a time, and we may increase the number of projects, but it will not be by much.

E How does de-mining actually work on the ground in the South? With so many NGOs and other organizations down there, are you given a specific section to clear up?

The main two players are the UN and the Lebanese Army. They are coordinating all the de-mining and bomb removal efforts and trying to solve this problem as quickly as possible. You tell them what your capacity and budget is and they will nominate a specific piece of land for you. The same goes for other countries that come to help. There are a lot of countries participating.

E How much work is there left to do in terms of de-mining and bomb removal?

Lots. We will not be finished until September 2007. I think there are more than 2,000 mines in Area Six, which is north of the Litani. And regarding the bombs, we’re talking about millions. But it’s a good opportunity to train our officers and [non-commissioned officers], as these conditions produce the best results from training.

E Since the end of the war, the issue of reconstruction has naturally taken on some political overtones. Many people think the various groups are trying to win the support of local people through rebuilding projects. Do you feel as if you are involved in this political aspect of things?

Not at all. We’re not politicians and my country has never in its history mixed politics with help. We have been working in many countries—in South America, in Africa, everywhere—and when we come to help our brothers in Lebanon it’s for help and nothing else. The program works along specific principles and applies to the whole of Lebanon. It does not leave anybody to one side because of their religion, ethnicity or beliefs. Because the people here know that, they welcome us and try to help us. The UAE has nothing to do with politics and this project is solely for the Lebanese people.

E What has been the feedback from people in the south towards the program? Has there been any antagonism?

It’s been positive. We get support and positive comments, and we know that we are giving from the heart and they are receiving from the heart. We’ve given to everybody and without having to particularly plan it, especially in the first few weeks when we went everywhere to help. We never encountered any negative reactions or rejections.

E How do you ensure that this reconstruction aid money is going to the right place in the South, and not being channeled off along the way?

Well, if I understood you correctly, I’m not a security agency to check up on the contractors I employ. I send in my engineers, they do the estimate of how much something will cost, and I go around the contractors and nominate the one who offers the best price. I don’t check up on contractors and if I did we would never ever finish this project.

E Apart from the schools and the mines, what other projects do you still have to complete?

The program is building a brand-new hospital close to Shebaa, which a consultant is working on now in cooperation with the Lebanese Ministry of Health. A tender will be open soon. We’re also repairing two existing hospitals in Marjeyoun and Bint Jbeil. The latter needs a lot of equipment but luckily it wasn’t touched during the war, so we will simply furnish it. The hospital in Marjeyoun is working but needs a few improvements.

E And what about Beirut?

As I said, the program applies to the whole of Lebanon, and in Beirut in particular we’ve been helping at Ouzai harbor, which was damaged by bombs during the war. About a month ago [in September] we distributed checks to 91 fishermen and 315 boat owners in the harbor, to help them get back on their feet. A few buildings in the harbor were destroyed too, and we’re coordinating with the local people to rebuild them. There are only four or five buildings, but they’re important for the people who work in the area. This should take no longer than two months to finish.

E Will the program keep a permanent presence here?

I think we’ll be finished by December 2007. The people working on the program won’t remain in Lebanon that long, so once we make sure that the remaining schools are contracted it will be a matter of follow-ups and payments that can be done through the embassy.

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The forgotten war

by Executive Staff
written by Executive Staff

When Americans talk of “the war” these days, they mean the one being fought in Iraq, a war that has been percolating for three and a half years. But Americans – and a broad multinational coalition — have been fighting another war, in Afghanistan, even longer than in Iraq. As of last month, NATO assumed the control of operations in Afghanistan.

For most of the American public, the Afghan conflict was almost forgotten for a while as the violence unfolding in Iraq grabbed most of the headlines, and, to be sure, the priority of the Pentagon.

But more recently, the Taliban has been making a not-so-discreet comeback (along with the resurgence of opium), waging attacks against Afghan government troops and coalition forces. The almost-forgotten conflict is once again making headlines.

The Bush administration decided to wage war in Afghanistan shortly after the September 11 attacks on New York and the Pentagon, in order to oust the Taliban who ruled the country and offered unlimited support to Osama bin Laden and his al-Qaeda terrorist organization. So what happened? What went wrong? Why did the United States get it so wrong in Afghanistan? Why was there such a misjudgment in the war planning? The answers to all the above questions may be found in looking at who the primary architects of the war were. Indeed, they are the very same ones who planned the Iraq campaign: Secretary of State Donald Rumsfeld, his deputy Paul Wolfowitz, Vice President Dick Cheney and a handful of carefully selected close and trusted subordinates. The president himself was not interested in the small details. Bush was more of a “show me the big picture” type of leader. As was the case in Iraq. Do we not find a similar modus operandi in the two conflicts? Go in light, go in quick, cause the maximum damage to the enemy in a Rumsfeldian blitzkrieg, but then completely fail in post combat planning. Although different in its execution, in many ways the Iraqi campaign was a mirror of the Afghani one. Granted, the terrain is very different; Afghanistan is made up of sharp mountain ridges, littered with deep caves where al-Qaeda and the Taliban could hide from heavy US aerial bombing and artillery. On the other hand Iraq is mostly flat and American tanks were able to race from the Kuwaiti border to Baghdad in record time. In studying both conflicts in Iraq and Afghanistan – as undoubtedly military historians will do in the years to come, hoping to extract lessons of what went right and what went wrong — what is already emerging is that Rumsfeld wanted quick victories to be obtained through the use of special forces, light, rapid moving units, skip the details. Full speed ahead and damn the torpedoes. In years to come, historians will scrutinize every document, every minutes of war preparation meetings, every inter-departmental memo and pre-war document as they become declassified. What they will most likely conclude is that while the initial planning for the war-– the actual battle plans for the invasion of both Afghanistan and Iraq were brilliantly executed — the post-war administration of both countries –- now under US tutelage and therefore the legal and moral responsibility of the United States, was utterly disastrous.

And the reasons? Lack of attention to what happens the first day after combat operations are over. James Fallows, a noted Atlantic Monthly national affairs correspondent, notes in his book Blind into Baghdad that the Bush administration messed up in Iraq by failing to give attention to details: “It will be years before we fully understand how intelligent people convinced themselves of this. My guess is that three factors will be important parts of the explanation.

“One is the panache of Donald Rumsfeld. He was near the zenith of his influence as the war was planned. His emphasis on the vagaries of life was all the more appealing within his circle because of his jauntiness and verve. Fallows goes on to say: “The third factor is the nature of the president himself. Leadership is always a balance making the large choices and being aware of details. George W. Bush has an obvious preference for large choices. This gave him his chance for greatness after the September 11, attacks. But his lack of all curiosity about significant details may be his fatal weakness. When the decisions made during this time are assessed and judged, the administration will be found wanting for its carelessness. Because of warnings it chose to ignore, it squandered American prestige, fortune, and lives.”

While it is important to point out that Fallows was writing about Iraq, the same can be said of Afghanistan. In both instances, the US did not go in with enough manpower to guarantee that life in Kabul as in Baghdad could return to normal once the actual fighting phase ended. In his research, Fallows found that, “According to the standard military model, warfare unfolds through four phases: ‘deterrence and engagement,’ ‘seize the initiative,’ ‘decisive operations,’ and ‘post conflict.’ War College directives clearly state that planning for Phase IV (post combat) ‘had to start as soon as possible,’ well before Phase III (‘decisive operations’).”

This means that planning for the post-combat phase should begin far ahead of the start of the war. This did not happen in Afghanistan and it did not happen in Iraq. In both cases, the signature on the architect’s blueprints are the same.
 

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Finance

Banking on reform – Egypt’s BOA sold

by Executive Staff
written by Executive Staff

In a deal considered to be the largest divestment of Egyptian state assets to date, the government in Cairo last month completed the sale of Bank of Alexandria (BOA) – Egypt’s fourth largest bank – to Italy-based Sanpaolo IMI, generating over $1.6 billion in revenues for the state. The proceeds are expected to be used to re-capitalize other state-owned banks and to reduce Egypt’s public debt. More importantly, however, the successful sale sets a new benchmark in Egypt’s privatization drive and program to reform the banking sector.

Sanpaolo won the bid to acquire 80% of Bank of Alexandria on October 18 after a long and draining process as it was competing against five large regional and international players: Jordan-based Arab Bank, Mashreq Bank of the United Arab Emirates, BNP Paribas, EFG Eurobank Ergasias of Greece and Egypt’s Commercial International Bank.

Under the privatization arrangement, 15% of BOA will be floated in an initial pubic offering while the bank’s employees will hold the remaining 5%.

A milestone sale

“The sale of BOA is a milestone for the government and all parties involved,” Ali Shaker, the chairman of Egypt’s National Bank for Development told al-Hayat newspaper in mid-October. “The whole sector will benefit from this deal as it allowed the largest Italian bank to enter the market which will provide a better competitive environment,” he added.

BOA was the first of the quartet of big state-owned banks to be sold and provides a good outlook for the privatization of the other three, Banque Misr, National Bank of Egypt and Banque du Caire.

The deal, worth 5.5 times BOA’s book value, came nonetheless at a substantial cost to the Egyptian state. According to Finance Minister Boutros Ghali, the government has paid over $1.93 billion to make up for non-performing loans (NPLs) in state-run banks, most of which were on the books of BOA.

Welcomed by many observers and detractors alike, the sale of BOA also lends new momentum to overall banking sector reforms in Egypt. Experts say that the sale – which has been hailed by some as a “banking roadmap” – will strengthen the sector and provide a spike of efficiency, catalyzing the transition to a leaner and more competitive banking system and setting the pace for future reform and privatization.

For years, the banking sector has suffered from a lack of reforms and proper regulations; however, the Egyptian government did acknowledge some of these weaknesses over a decade ago, prompting it to introduce reforms. Despite serious delays in their implementation, these reforms are now helping to strengthen banks’ balance sheets and longer-term outlook, says rating’s agency Moody’s.

Further reforms needed

In June 2003, the government issued a new banking law which paved the way for the Central Bank of Egypt (CBE) to take over the responsibility for restructuring and reforming the banking sector early in 2004. The new regulations required banks to raise their paid-up capital to at least $87 million and their adequacy ratio to 10%. A Banking Reform Unit was created with the primary mission of divesting public sector holdings in joint venture banks, pushing for consolidation, improving supervision and dealing with the menacing problems of NPLs. Joint banks comprise 38% of Egypt’s banks.

So far, only 27 banks have complied with the new capital requirements and only 11 banks have gone through mergers. Bank consolidation was supposed to reduce the number of banks from 57 to 30 by 2006. Currently, the number of banks operating in Egypt is around 42, according to CBE, a reduction of 15 banks. Other mergers in the works include the mega-merger of Banque Misr and Banque du Caire, the country’s second and third largest banks. The deal, which is expected to be completed by the end of 2006, will create a new state-owned institution that can compete with the likes of National Bank of Egypt – the country’s largest bank – and other large foreign banks operating in the country.

Although considerable progress has been made on new regulations and reforms, there are still many challenges ahead for the government and the private sector. These problems include reforming the worrisome bureaucratic practices of some banks and their employees and improving information technology platforms and automation. Furthermore, the CBE still has to adjust and enforce banking regulations to meet Basel II standards, especially in the area of risk-based capital allocation.

If Egypt is to catch up with the recent developments and reforms seen in the banking sectors of most Arab countries, especially those in the GCC, it must move ahead full force with the complete implementation of its privatization and reform drive or risk being left behind at a great loss. Those who are familiar with the market in Egypt know its true potential and are now maneuvering to enter this market as serious players who can effectively compete. But the government must be more convincing and avoid further delays in carrying out reforms.

Egypt’s population of over 75 million is an “asset” for current and future banks. If exploited properly, this asset, especially in retail banking, could lead to satisfied shareholders across the sector. This was the case for Lebanon-based BLOM bank, which acquired Misr Romanian Bank (MRB) last year on the strength of the potential they saw for retail banking in Egypt. BLOM’s Vice Chairman Saad Azhari said that recent reforms and new regulations in the banking sector “made it possible for foreign banks to enter … and we were able to acquire 96.7% of MRB for less then $100 million.”

The sale of BOA has created a new “banking energy” and momentum in the sector. It is now up to the Egyptian government to do its part, and use this energy and the new “banking roadmap” to maintain the pace of privatization and create a more coherent and functional banking sector.

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Finance

Jordan’s financial markets ready to take off

by Executive Staff
written by Executive Staff

Jordan’s investment banking scene is changing, with lively action on the stage of initial public offerings, privatization and private equity deals, but also interesting goings-on offstage with some investment banking teams. In all that, Jordan is seeing an influx of Gulf capital into financial firms, which suggests that the country is migrating towards stronger involvement of regional investment banks but doing so as a secondary market for the Gulf, where the really big deals are going down.

Upfront, the financial and corporate investment market in Amman is lively, with IPOs for two recently established financial firms announced for early November, one for First Jordan Investment Company, a financial services and real estate investment firm with significant shareholding by Kuwaiti and Qatari players, and the other for Arab Future Investment Company, a startup investment company targeting small and medium enterprises.

Other new listings on the Amman Stock Exchange (ASE) since the middle of 2006 included Al Sanabel, an Islamic investment banking and brokerage firm that started trading in October, and July IPOs by brokerage Al Bilad Securities and by First Finance Company, a Sharia-compliant consumer finance provider. Each of the latter two startups entered the market under participation of Gulf shareholders and both firms were very successful in soliciting investor interest in their IPOs, reporting oversubscription rates of between four and five times apiece.

Another new brokerage company emerged in July through a merger of two existing Jordanian financial firms in conjunction with entry of a new regional partner, Al Mal Capital of the UAE. The new firm, Al Mal Securities Jordan, claims to be a regional leader in capitalization and plans to spread its brokerage wings to Lebanon, Syria, Iraq, and Palestine, according to Al Mal Capital. The company notabene also has near-term IPO intentions on the Amman Stock Exchange.

All in all, and despite a lackluster period for the ASE Index from February, Jordan has seen a rise in stock market flotations from seven in 2005 to 13 in the first half of 2006 alone. The majority of those were for companies in the real estate investment and financial services field, according to local investment guru Henry Azzam who multi-tasks as CEO of Amwal Invest—a 18-month-old Jordanian investment bank that went public in 2005—and chairman of the Dubai International Financial Exchange. By Azzam’s calculation, the combined paid-up capital of the first-half of 2006’s newly listed firms amounted to $463.32 million, a neat sixfold increase from the $77.15 million in total capital in the 2005 IPOs.

Market becoming too crowded?

While Jordan’s financial services sector has thus been expanding in operator depth and market presence, some industry insiders say that the market is getting too crowded with so many players. Omar Masri, founder and former head of investment bank Atlas Investment Group, said that the brokerage sector has filled to a point where some 50 companies are licensed to trade securities on the ASE, making this part of the financial industry “very fragmented.”

Zaid Nassif, vice president and head of corporate finance at Amwal Invest, said that investment banking in Jordan is progressing but at the same time competition between dedicated investment banks such as Amwal and Jordinvest and investment banking departments of commercial banks has increased greatly, leaving no room for new institutions the enter the sector.

According to Nassif, recent government regulations increased the market for investment banks by requiring IPO candidates to have qualified financial firms manage their offerings. Additionally, the growing count of listed companies would generate future demand for advisory and structuring of financial vehicles such as bond issues, rights issues, or eventual mergers and acquisitions.

Other experts pointed to Jordan’s active privatization program as a reliable source for investment banking needs, meshing with the local private sector demand and interest of Arab investors in the Hashemite kingdom to create a valid financial services sector.

While opening new opportunities, such market developments are also likely to test Jordan’s financial industry which is part of an overall national banking culture with relatively shallow roots in a country where commercial banking has bloomed later than in Lebanon and where still today one bank, Arab Bank, holds an overweight position in both market share and market capitalization.

Investment sector got its wind three years ago

The investment banking sector in Jordan—which saw initial formation of investment departments at commercial banks and some banks with investment angle starting in the late 1970s, and underwent another development push in the second half of the 1990s—really picked up around three years ago when trading activities on the ASE experienced a growth spurt, Masri said.

In his opinion, investment banking units of commercial banks in Jordan have “always remained a disappointment,” but at the same time the dedicated investment banks also “have not yet made a real impression in the local financial landscape.”

Masri described Jordan’s financial services environment as well-regulated, with a platform of recognition for investment banks and a vibrant bourse that is advanced in comparison to other Levant countries. But he said the greatest weakness in the sector was a severe lack of human capital.

Investment firms have large capital bases and well-known people at the top, “but they lack the workerbees,” he said. “Investment banking has growth with good potential in private equity. Advisory on privatization, private equity, fundraising services, and brokerage services, offer opportunities—but you need the right factory.”

While other investment bankers working in Jordan also see a need for further development of the regulatory side, they agree that the shortage of qualified investment professionals is the country’s main challenge in fostering sector growth.

This issue was illustrated earlier this year by a brain-drain at Atlas Investment Group, which saw several key employees depart the company to accept positions with investment firms in Saudi Arabia, Kuwait, Dubai and London.

In part, the rumblings inside Atlas were linked to the relationship between the investment bank and Arab Bank, which had acquired Atlas over two years ago. Industry observers said that recent moves by Arab Bank, such as excluding Atlas from advising on important acquisitions and the group’s capital increase, contributed to the disillusionment of senior employees.

In the words of Masri—who left Arab Bank and Atlas this spring to develop the investment activities of the Masri family-owned EDGO Group—the lack of alignment between the visions of Arab Bank and Atlas was one of the main problems.

According to the new top executive at Atlas, Arab Bank Head of Investment Banking Jawdat Halabi, the lure for professionals to move from Jordan to the better remunerated and more vibrant Gulf markets is strong, but the Jordanian market has recently grown more attractive. “The key issue is pay, and compensations in Jordan are moving much closer to the market trend,” said Halabi, who joined Arab Bank this year from the National Commercial Bank in Saudi Arabia.

Bullish on strategies for growth

Halabi confirmed that Arab Bank is bullish on Atlas and has a strategy by which the company will refocus its activities on asset management and brokerage services, positioning Jordan as one of several markets in the Levant and North Africa. At the same time, however, Arab Bank is developing a second investment arm in the Gulf region through AB Capital, a company registered at the DIFX. Arab Bank has no doubt this firm will take a larger role in investment banking than Atlas, because of the Gulf market’s superior size in comparison to Jordan and the Levant.

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Real men negotiate with Tehran

by Executive Staff
written by Executive Staff

North Korea’s nuclear test should remind the world that what counts in politics is results rather than rhetoric. Especially since the “Axis of Evil” speech of January 2002, the Bush administration has pursued ideology-based policies that have failed in the real world.

The US has not achieved a basic level of success with any one of the members of the Axis: North Korea, Iraq and Iran. But Iran is the odd one out of the three, with a functioning state, an international strategy based on national interest, and a relative degree of internal pluralism.

And yet the opportunity for the United States and the European Union to reach an agreement with Iran over its nuclear program seems to be slipping away. Iran, unlike North Korea, is a signatory of the Nuclear Non-Proliferation Treaty (NPT), which means its atomic facilities are monitored by UN inspectors from the International Atomic Energy Agency. It also suspended enrichment for three years and allowed for more intrusive IAEA inspections under the treaty’s Additional Protocol.

But Iran’s talks with the EU, started in 2003, have foundered over a basic disagreement. The EU wants Iran to suspend enrichment indefinitely, so as to forestall Iran’s gaining technology for a bomb. Tehran, meanwhile, sees access to enrichment as a “right” guaranteed under the NPT.

The talks that sputtered to a halt in October between Javier Solana, the EU foreign policy chief, and Ali Larijani, Iran’s top security official, should not be the last chance to reach an agreement. Other ways of restricting Iran’s nuclear program—sanctions or US/Israeli military strikes—would be ineffective at best and highly dangerous at worst.

It seems clear both from what has leaked out from the Solana-Larijani talks and from Iran’s written response to the P5+1 (the permanent members of the UN security council plus Germany) that Tehran offered a compromise: Iran could continue to enrich during negotiations, but afterwards would limit domestic enrichment to the laboratory plant at Natanz. Other enrichment would be carried out in Russia while Natanz would remain under IAEA inspection.

Since the talks broke down, both sides have been digging in. The US and the EU continue to argue Iran should suspend all enrichment. Tehran defends its rights, and we must assume will go ahead with expanding the program beyond laboratory-level enrichment towards industrial-scale.

The outlines of a deal recognizing Iran’s laboratory-level enrichment have been evident for some time, and are acknowledged by many in Europe. But time is something now in short supply, and US and British insistence that Iran suspend all enrichment is becoming self-defeating.

Neither is this a static situation. Opponents of a deal in Tehran, while a minority in the collective leadership, are becoming more vocal and we assume more influential. President Ahmadinejad has used the issue, coupled with vehement criticisms of Israel, to project himself as a leadership figure throughout the Muslim and Arab worlds.

America looks less and less like it is in a position to dictate terms to Iran. Russia and China do not favor sanctions. Iraq is not stable, and there has been a telling growth in Afghanistan of suicide bombings against western targets. In Lebanon, Hizbullah held up the Israelis with a few hundred fighters. No wonder the Iranians think Americans can’t manage all these conflicts and attack them.

But politicians driven by ideology often fail to see realities staring them in the face, and this is what makes the stand-off with Iran so dangerous.

The insistence on ending all enrichment on Iranian soil has not produced the desired result. Hence it is time for unconditional talks aimed at reaching an agreement with Iran that accepts its right to nuclear technology, including a limited enrichment program, while also insisting it comes back into the Additional Protocol and extends its co-operation with the IAEA.

Of course Tehran would claim that as a “victory,” but in this imperfect and volatile world that is a small price to pay for a vital and practical step towards stability.

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Society

The show must go on

by Executive Staff
written by Executive Staff

Beirut Gate, the $600 million Abu Dhabi-financed real estate development in Solidere, is going ahead as planned. How quickly and successfully it does so will be a confidence test for the local market.

Covering a total footprint of 21,448 m2 and a built-up area of 178,500 m2, the project consists of eight separate plots, on which eight separate but thematically-linked buildings are to be constructed. Residential space will anchor the development, accounting for 120,000 m2, whilst 25,000 m2 is set aside for ground-floor retail units and the rest is offices.

In terms of location, it will occupy most of the remaining empty land in the north-east of Solidere, including the open area near the Tabaris overpass, and, most controversially, the sites currently home to the ‘dome’ cinema and the nearby ruined church.

Six of the planned buildings will be designed by two architects: Christian de Portzamparc, the man behind Paris’s Cité de la Musique and New York’s LVMH building; and Arquitectronica, a US-based firm. The other two will be designed by Nabil Gholam, a Lebanese architect who has produced other downtown developments; and the Erga Group, another Beirut-based firm.

Emotional turmoil

Predictably, given its size and location, Beirut Gate looks set to stir emotions. Rumors have already circulated about the possible demolition of one of Beirut’s 1960s icons, the dome-shaped cinema, and its alleged replacement with mixed-use space. However, Abu Dhabi Investment House (ADIH), the UAE-based fund which bought the eight plots from Solidere back in March, denies that the cinema will be turned into a tower block.

“It’s a sensitive issue,” says Nicholas Fraser, Executive Director of Real Estate at ADIH. “And although we have no preservation orders, we have decided to build a new cultural center on the site. This will be given to the city, and could be used for modern art galleries or installations. As for the church, it will either be rebuilt or restored.”

In business terms, Beirut Gate might be emitting positive signals at a critical time—and Fraser hopes the Beirut municipality will accelerate the permit process to encourage other investors—but is demand sufficient to make it a financial success?

ADIH say they have already sold one 38,984 m2 plot to a developer at a price of $2,200/m2, with a second sale currently under negotiation. Fraser hopes that all eight will be sold by spring or summer of next year, probably to a combination of Lebanese and GCC-based investors. If they all buy at that price, then ADIH itself will generate a handsome return—and it claims that investors or developers can expect returns of 18%.

A litmus test?

“I’d estimate that ADIH bought the land from Solidere at around $1,200/m2, which would produce a substantial margin if they sell all the plots at $2,200/m2,” says RAMCO’s Raja Makarem. “A secondary developer who then buys the land from ADIH would need to charge about $5,000/m2 to individual tenants to be able to make a decent profit.”

At pre-war levels, $5,000/m2 is certainly within the top bracket of downtown property, though not at the very pinnacle of pricing. But whilst residential space is still a fairly solid bet, and any developer purchasing a Beirut Gate plot should have a specific clientele in mind, office space in central Beirut is already subject to quite high vacancy rates, a situation which is likely to persist.

Other more immediate concerns include that of construction access for such a large site, especially in a city that already suffers from debilitating traffic. Fraser, though, predicts that the building process will be staggered.

Beirut Gate could prove to be a litmus test for confidence in the post-war Lebanese real estate market. With the other huge downtown project—the 100,000 m2 Kuwaiti-financed Phoenicia Village—temporarily on hold, the success of this development will be an important gauge for the local market as a whole.

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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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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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