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.

0 comments
0 FacebookTwitterPinterestEmail
Feature

An army:

by Nicholas Blanford
written by Nicholas Blanford

But is it enough?

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

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


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

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

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


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


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

0 comments
0 FacebookTwitterPinterestEmail
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 Lebanon…be 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.

0 comments
0 FacebookTwitterPinterestEmail
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.

0 comments
0 FacebookTwitterPinterestEmail
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.

0 comments
0 FacebookTwitterPinterestEmail
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.

0 comments
0 FacebookTwitterPinterestEmail
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.

0 comments
0 FacebookTwitterPinterestEmail
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.”

0 comments
0 FacebookTwitterPinterestEmail
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.”

0 comments
0 FacebookTwitterPinterestEmail
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.

0 comments
0 FacebookTwitterPinterestEmail