Business

Left Redundant

by Peter Speetjens
written by Peter Speetjens

The owners of the Lebanese Sugar Factory in Majdal Anjar claim to have lost millions of dollars due to the government decision to abolish the sugar beet subsidy system and have sued the state to obtain compensation.

Ahmed Ajami has worked as a guard at the National Sugar Factory since 1975. Today there is not much left to guard. Apart from a brief spell in 2004, the factory has been closed since 2001. A large heap of white stones, which used to be boiled to distract the calcium needed to refine sugar beet, is the only sign of what life use to be like. “During the sugar beet season, the factory employed over 250 people, mostly from Majdal Anjar, like me,” he sighed. “Of course we are all anxious about the government’s final word on sugar beet. It is our livelihood that’s at stake.”

Situated just outside the border town of Majdal Anjar, the Lebanese Sugar Factory was established in 1958. Through the years, its initial capacity of some 350 tons of sugar beet per day was gradually upgraded. The factory closed in 1985, when the government was no longer able to pay subsidies. The factory reopened in 1992 after the civil war.

”My father was one of the factory’s founding members,” said Raif Kassem. “It was the first factory in the Bekaa valley. By 1985, we were already going back and forth between the United States and Lebanon, but when the factory closed, we decided to permanently base ourselves in Los Angeles.”

Kassem started a business, enjoyed the American way of life, and had no intention of coming back. Then in 1991 he got a phone call from President Hrawi. “He asked me to come back to Lebanon to reopen the factory,” he said. “Later, the Ministers of Agriculture and Economy also contacted me and they all insisted I should come back to reopen the factory, and so I did.”

According to Kassem, the aim of reintroducing sugar beet subsidies was threefold: to replace the farming of illicit crops, to plant a crop that is good for crop rotation and to create employment. However the factory was far too small for modern needs. Kassem claims to have invested some $12 million in new equipment, everything from sorting machines to cooking pans, which he imported from Germany. The factory’s capacity was increased from some 1,700 tons in 1991 to some 2,500 tons of sugar beet per day in 2000. “The cost of processing sugar beet depends first of all on the quantity of beet involved,” he explained. “The bigger the quantity, the lower the price. Given a quantity of 180,000 tons of sugar beet with 16% sugar content per beet, the cost of producing 1 ton of white sugar is $330. Given a quantity of 300,000 tons, the cost will decrease to $275. About one third of that amount is fuel related, as it takes 62 liters of fuel oil to refine 1 ton of sugar beet.”

The government would receive the factory’s invoice and pay for the cost, plus the operator’s fee. According to Antoine Khoury, Director General of the Office of Sugar Beet and Wheat at the Ministry of Economy the government paid the factory $70 million between 1992 and 2000. “Some people accuse us of making lots of money,” Kassem continued, “but the opposite is true. Over the years, we were only able to earn back some $6 million on our investment of $12 million. As a result, we are in a terrible financial situation. In fact, because of the losses at the factory all our other businesses are suffering.”

After trying in vain to convince the government of its dire financial situation, the Kassem family has sued the government in two separate trials, one to reinstall the subsidy system, the other to obtain compensation for the $6 million loss it suffered. “The subsidy system was introduced by law,” Kassem argued, “which means that legally you cannot change that by a simple decree, as the government did in 2000. It needs a parliamentary vote. Secondly, we came back on the request of the government in the mutual understanding that we would be able to make a living. Now, if the government wants to change the system, fine, but give us a period of say 3 years, so we can adapt and earn back our money.”

This appears to be what the Seniora government had in mind when it suggested keeping subsidies in place for another three years, when it capitulated in the face the farmers’ threat to blockade Beirut last October. However, according Kassem’s son Amer, this will not be sufficient to successfully keep the factory operating.

“It is still not clear what the government intends to do,” he said. “It seems they want to take 2004 as starting point, when only a limited amount of some 50,000 tons of sugar beet were produced, and then reduce the subsidies by 30% per year. However, the factory needs a minimum of 200,000 tons to be profitable.”

As a compromise, some have suggested to cut all agricultural subsidies by 10% to 15%, instead of getting rid of just one. For political reasons however, the annual $65 million that goes to tobacco farmers in the south seems untouchable.

Meanwhile, the world market may come to the rescue of Lebanese sugar. The Lebanese government’s main argument is that producing sugar is too expensive compared to world market prices, but ever since the WTO’s decision regarding the European sugar regime (see box II), the price of sugar has been steadily rising.

“It’s not just the WTO decision,” said Kassem junior. “The price of sugar is connected with the price of oil. Every time the price of oil increases, Brazil increases its production of ethanol (alcohol made out of sugar that is used as fuel), with as a consequence that the world supply of sugar goes down and prices rise. Currently the price of sugar is about $420, which is not too far a cry from the $500 which the government charges sugar importers to buy Lebanese sugar. But then again, look at at it another way. Is $15 to $20 million a year too high a price to pay to keep the Bekaa valley alive?”

0 comments
0 FacebookTwitterPinterestEmail
Business

Sowing the seeds for disaster

by Peter Speetjens
written by Peter Speetjens

Bekaa farmers and Lebanon’s Sugar Beet Cooperation argue that Lebanese agriculture cannot survive without government support. Like most farmers around the world, they oppose today’s belief in free trade and insist that the wealth of agriculture cannot be measured in terms of price of profit alone.

“If there is no support for sugar beet while the growing of hashish remains banned, agriculture in the Bekaa valley will collapse completely,” said farmer Ayoub Kazoun, from Qab Elias, a small town south of Chtaura. “It’s already happening. There are families living here in Qab Elias, who cannot pay for heating or electricity and banks are confiscating homes left and right. The situation is disastrous.”

Kazoun used to grow sugar beet, but now plants mainly potatoes and animal feed. Unlike most Bekaa farmers, who lost tens of thousands dollars last summer due to the Syrian border closure, Kazoun escaped financial disaster, as he grows his potatoes exclusively for a French firm. Still, he hopes for a return of sugar beet subsidies.

Kazoun admits the main reason for reintroducing state subsidies on sugar beet was not, as many people claim, to offer an alternative to illicit crops, even though the production of hashish, to a limited extent, had entered the mid-Bekaa by the end of the war.

“In the early 1990s,” he said, “the state of Lebanese agriculture was in very bad shape for a number of reasons. We had just come out of the war and our farming methods were outdated. The world market was way ahead. What’s more, due to the fixed exchange rate between dollar and Lebanese pound, our crops were, and still are, too expensive to export. So, Lebanese farmers were in need of support.”

So, sugar beet was reintroduced because it is a labor intensive crop, which does not face direct competition from neighboring countries. However in reality sugar beet must deal with intense competition from the world market (see Box II).

The crop’s seasonal cycle involves preparing the land and planting in March. In early summer, the fields need weeding and by the end of August it’s time to harvest. For weeding and harvesting, seasonal Syrian workers, mainly women, are hired for some LL10,000 a day. Other costs include water – beet is a thirsty crop – and pesticides. “By 2000, it cost me some $300 to $350 per dunum to grow sugar beet, almost $200 of which was to rent the land,” said Kazoun. As one hectare produces some 5,000 to 7,000 tons of sugar beet, this was still a profitable venture. “As the subsidy depended on the total weight of sugar beet and the amount of sugar per beet, the government paid after the harvest,. So, we got paid LL120,000 ($80) per ton with a 15% sugar content. For every percentage more or less, the price would increase or decrease with LL 8,000 to LL 13,000, depending on the year.”

Although the government only paid at the end of the year, every spring the Sugar Beet Cooperation would give the farmer a certificate stating how much sugar beet he or she had planted. As the certificate guaranteed a more or less fixed income, a farmer could walk into any bank or shop to get a loan or buy a car on credit.

For many years, it was these certificates and the end-of-year-cash-handouts that made the Bekaa tick. “In the first few years we would not reach a sugar content of more than 13%,” said Kazoun. “In the beginning everyone tried to produce the biggest possible beet. Of course, they only got bigger because they were full of water. What we didn’t realize was that smaller beet, with less water, actually contained more sugar. It was only by 1996 and 1997 that we reached 15%. Last year, 10% of my beet had a sugar content of 19%.”

Corruption and bad practice

With practice, farmers got better, yet it was not long before the sector faced allegations of malpractice. It was alleged that laboratory workers were persuaded to fix sugar content results and that the weight of a truck load of sugar beet could be upped with a little cash incentive.

“It’s a myth,” said Kazoun. “Look, a farmer, and especially an Arab one, does not like to admit it was his fault when his beets have a sugar content of only 13%, so he’ll blame the lab and factory. Now, of course at times there were favors given here and there, like anywhere else in the country, but nothing out of order. Don’t forget there were employees of the Ministry of Economy present every day to check data regarding weight, quantity and sugar content.”

One of the most important problems farmers faced was the fact that the factory had a limited capacity of some 1,600 tons of beets a day in 1992 (although it was increased to 2500 tons by 2000). Farmers could only bring a limited quantity of sugar beet every day, a situation that takes on critical importance when fresh beets begin to lose both weight and sugar as soon as they are harvested (sugar ferments when exposed to the sun). Time was money for the farmers and in the rush to get to the factory many heated scenes ensued.

Kazoun believes that the whole system should be better organized with modern storage and cooling facilities. He also feels that proper irrigation should be introduced. Today, water is still mainly pumped from wells. This is costly as it uses fuel oil and badly affects ground water levels. In 2000, when over 7,000 hectares were planted with sugar beet, the pumping even led to water shortages.

“If subsidy system is better organized, I’m convinced that the government can pay 30% less in subsidies, while the farmers make the same,” says Kazoun. “The problem is, that the government only looks at price and profit. Last year, it claimed that selling sugar beet for animal fodder was better than selling it to the factory to produce sugar. What they didn’t say, is that as a consequence the price for hay decreased.”

According to Kazoun, another misconception surrounds wheat, which the government also wants to stop subsidizing. This may sense from an economic point of view, as it is cheaper to import, but the farmer will point to the fact that wheat is a winter crop and so, unlike a summer crop such as sugar beet, cannot easily be replaced by another. “If the land is not used in winter,” said Kazoun, “it will affect soil fertility, which will lead to an increase in the use of pesticides the next summer.”

Mohamed Mais, Director of the Sugar Beet Cooperation, could not agree more. “Price cannot be the only factor in determining what to grow,” he said. “There are socio-political factors involved as well. American farmers cannot grow cotton without state support. Europe cannot grow anything without aid. The same is true for the Bekaa. If price is the only factor to take into consideration, what are you going to do with all the farmers? How can they live?”

Last summer was particularly bad after the Syrian border blockade. “Summer is traditionally top season for farmers,” said Mais. “In July and August, they produce among other things some 2000 tons of potatoes a day, some 100 to 200 tons of onions, and some 500 tons of other vegetables. As Syria closed its borders, most of that just rotted away.”

Both Kazoun and Mais believe that if the subsidies were to disappear, there would be no alternative for farmers than to return to growing hashish. And, if price and profit are the only factors to take into consideration, why not? Hashish is easier to grow, does not need water, and is much more lucrative.
 

0 comments
0 FacebookTwitterPinterestEmail
Business

MENA Forum

by Executive Staff
written by Executive Staff

The 5th Middle East and North Africa Development Forum will take place in Beirut from April 6-9. Led by Middle East and North Africa think tanks in partnership with the World Bank Group and the United Nations Development Program (UNDP), the event will be dedicated to making reform work in the MENA region. EXECUTIVE talked to World Bank representative for MDF Chantal Dejou, MDF head of Secretariat, Hana Salah and Oussama Safa General Director of the Lebanese Center for Policy Studies (LCPS), the MDF’s local partner, about the aims and expectations of the conference.

E Lebanon recently won the bid to host the 5th Middle East North Africa Development Forum (MDF). How intense was the competition?

CD: As this is the 5th edition of MDF, we as organizers have past experience. The LCPS, as a leading partner, has taken part in the dialogue and in the organization of the MDF. The competition was intense and fierce among the regional local partners, but Lebanon was chosen because we felt there was a sense of momentum and historical change in the country during 2005.

E Who are the main competitors?

OS: Well to be honest, the challenges were more with internal competition rather than external competition.

E What gave Lebanon its edge?

CD: 2005 was a good example of the dynamics that affected Lebanon. The demonstrations and the involvement of the youth in particular were of interest to the MENA region. In addition, Lebanon is a country that offers high quality services. It is cosmopolitan, has connections with the rest of the world and offers wide media coverage.

E The bidding team needed the support of the private sector. How difficult or easy was it to generate interest in the turbulent year that was 2005?

OS: It was a double edged sword. On the one hand, there was uncertainty and on the other, it demonstrated belief in Lebanon. The Lebanese private sector has proved a very high level of maturity in seizing the opportunity and the need to develop such an event in Lebanon, especially in the hard times we are going through today. None of the first batch of sponsors, and they include, and I have a list here, Banque de la Mediterranee, Byblos Bank, Bank Audi, Team Holding Group, MTC Lebanon, the Central Bank, Middle East Airlines, Blom Bank, Averda Servus and Fidus, agreed to lend their support to this event for commercial reasons. They simply wanted to show their commitment to the country in an event that conveyed to the world what Lebanon is all about. Others are following their lead. Lebanon has everything it takes to become a tiger economy, whether it is in terms of infrastructure or the human element. The private sector found in this forum the opportunity to show the region and the rest of the world Lebanon’s willingness embrace change.

E What are the aims and objectives of MDF5?

CD: In the MENA region, change is needed. But what is most important is how to make it happen. The way forward is through the empowerment of the agents of change, from the government and the Parliament. The MDF is the point of departure for fostering networks, community participation, and a process for building coalitions. One essential feature of this forum is that the MDF should be a dialogue led by the forces of change in the region itself. We also want to make sure that new types of participants, those perhaps who are not normally included in the debate, like mayors and municipality officials, are also included.

E Why specifically did you choose the theme The Political Economy of Reform?

CD: Within it are the crucial themes of governance in all its forms, private sector development to support of SMEs (small and medium enterprises), and trade reforms. We will also be addressing gender and the role of women in promoting development; the role of youth and the role of local governments and lastly the role played by NGO’s at a local level to promote project development.

E Key note speakers are an increasing must have in today’s conference circuit? Who is being courted for MDF5?

CD: We will have a high level of participants not only from government ministers, but also opinion makers from the civil society and key figures from the private sector. I do believe in the peer pressure actors in the region. Fuad Seniora, the prime minister of Lebanon has been invited to open the first session and a number of ministers across the region have been invited, as well as leading figures in the Middle East such as Amr Moussa from the Arab League.

E MDF5 offers many organizational challenges? Can you tell us something about the numbers involved – delegates etc – and who are your strategic partners in the execution of the conference?

CD: We are expecting between 500 and 600 people with a high level of guests and participants. Organization is heavy but we have a have the LCPS on our side as our conference planner; the secretariat of the MDF is posted for the MDF partners at the World Bank and that is why we are working as a team. We also have an associate partner here in Lebanon, which is the Lebanese Transparency Association. Now we are entering into the intensive phase of organizational process. Also MDF partners across the region are working on their selected themes for the past two years.

E What impact will the success of MDF have on the image of Lebanon?

OS: I cannot quantify it but I can qualify it. I think MDF5 is going to be the event of 2006.

E What is your nightmare scenario?

OS: We are optimistic, and we have chosen not to discuss this issue (laughs). Lebanon has a long history of enduring the knocks and bouncing back. It takes a lot to throw us off our stride and short of a full blown regional conflagration I cannot see the conference being postponed or cancelled. In fact last year the Arab Economic Forum was held in the wake of the Hariri assassination and we responded by dedicating the event to his name. We are confident of success. We have to be.

E What systems do you have in place to ensure the results of the studies and discussions at the forum are implemented?

OS: In fact, speaking as a partner, not just as an organizer, we and the other partners (UNDP and Lebanese Transparency Association) will be taking advantage of MDF to first build local and regional support for our follow up and plans for our research agendas. Second, we will use the impact of MDF as much as possible to disseminate and at the same time, solicit feedback on what we have done. I think this will be the beginning of new work. For us for example, we are going to work on declaring a regional network of professionals.

CD: There is one important thing in the guidelines which are agreed upon together by the MDF partners, it is that there should be an action plan and a proposal from what we have learned across the region for supporting reforms and how we are going to promote it in the years to come. It is also important to have donors to support and implement the action plans. In fact there are international actors (Italy, Spain and Sweden) that are very interested in supporting such action plans. Things that happen here will have a real impact on the future.
 

0 comments
0 FacebookTwitterPinterestEmail
Society

BSE snapshots

by Thomas Schellen
written by Thomas Schellen

Solidere

Listing date: September 30, 1996

Number of listed shares

Class A 100,000,000

Class B 65,000,000

Opening price

Solidere A (Ten to one stock split on 06/01/1997) $113.5

Solidere B (Ten to one stock split on 06/01/1997) $116

Market capitalization (as of 31/12/05, source BSE)

Solidere A $1.8 billion

Solidere B $1.2 billion

Solidere was incorporated in 1994 as company for the development and reconstruction of the Beirut Central District (BCD). The firm’s capital was formed land and cash. Property owners in the downtown received share allocations based on judicial appraisals, the A Shares. Investors subscribing to the Solidere Initial Public Offering received B Shares. Initial restrictions differentiating the share types were later removed and A and B shares have traded in very similar ranges in recent years. Solidere shares are listed on the Beirut Stock Exchange and, since March 2005, on the Kuwait Stock Exchange.

Work on the BCD progressed at a rapid pace between 1994 and 1998, but slowed down significantly in a period that lasted until around 2003. In 2004 and 2005, the company started to pursue a revised strategy that stretched much of the original 10 to 12-year development plan into a 20-year plan. Solidere is in many ways synonymous with the economic fortunes of Lebanon and the share set the trends and dominated the volume of trading on the Beirut Stock Exchange since its reopening in 1996. The company, and its shares, saw an early period of good demand and active trading that lasted about two years. With heightened regional security worries and a domestic recession, the shares retreated in a following period and slumped to below 50% of their $10 (after share split) issue value. In early 2004, share prices embarked on a solid recovery, aided by an ingenious incentive program for shareholder-developers of real estate in the BCD. By mid 2005, and supported by the oil-driven liquidity surge of regional investors and by strong upsides of both Lebanese shares and properties, Solidere shares were serious buy recommendations for local, regional, and international investors, and traded above $24 at time of this writing in late January of 2006.

Lebanon’s late Prime Minister Rafik Hariri was the leading force behind the establishment of Solidere and his family controls over 7% in Solidere shares, while the total number of shareholders approaches 35,000. Hariri was associated widely with the ups and downs of Solidere and when he was assassinated in February 2005, share prices dropped abruptly but recovered again quickly. In 2005, the company posted net profits of $51.06 million for the first nine months of the year, more than double its profits a year earlier. In January 2006, the company announced a property deal with an Abu Dhabi-based investment firm, which intends to develop a project with a total foot-print area of 229,871 square feet and a built-up area of almost 1.9 million square feet.

Banque Audi Saradar Group

Listing date December 29, 2004 GDR

Number of listed shares

6,198,823 (GDR)

Opening price $23.50 (GDR)

Market capitalization (as of 31/12/05, source BSE)

$371 million (GDR)

Audi Saradar was formed in June 2004, through a merger-acquisition agreement between Banque Audi and Banque Saradar. Joining in the largest banking sector consolidation event in Lebanon’s history, the group combined the retail and general market position of Banque Audi with the private banking and investment banking capacities of Banque Saradar and confirmed the group’s position as one of the top Lebanese banks with regional capacities.

The corporate envelope of Audi Saradar Group in Lebanon entails Bank Audi, Audi Saradar Private Bank (ASPB), Audi Saradar Investment Bank (ASIB), Libano-Arabe Insurance (90.75% stake via ASIB), and other entities. Internationally, the group includes three fully owned subsidiaries, Bank Audi (Suisse), Bank Audi (Jordan), and Bank Audi Saradar (France), along with a (direct and indirect) 47% stake in Bank Audi Syria, a joint venture with Syrian investors and a 2% stakeholding by Saudi investor Abdullah Abdulaziz Al Rajhi. Major shareholders in Audi Saradar Group include the Deutsche Bank Group, the Audi family, the Saradar Holding, Kuwaiti and UAE-based investors. In January of 2006, Audi Saradar announced a capital increase from $900 million to $1.5 billion. As part of the increase, Egyptian investment firm EFG-Hermes Holding acquired a 20% stake in Audi Saradar by obtaining 75% of 10 million new shares issued at $60 per share, for $450 million.

With total assets of $10.9 billion at the end of September 2005, Audi-Saradar reported a net profit of $74 million for the first nine months of 2005, compared to $48.08 million in the same period of 2004. In 2004, the bank closed another $100 million preferred share issue, in addition to a $60 million capital increase, related to the issuance of new common shares dedicated to the shareholders of Banque Saradar sal, following the merger acquisition with the bank in June 2004 Audi’s GDRs, which had traded below $25 in January of 2005, gained strongly throughout last year and surged amazingly with the start of 2006 from $59.85 at the end of 2005 to more than $90 in late January of 2006. Audi Saradar has initiated processes to acquire a bank in Egypt and open an operation in Saudi Arabia and is also reported to have plans to enter the Iraqi market.

BLOM Bank

Listing date November 2, 2001

Number of listed shares

4,389,601 (GDR)

Opening price $20

Market capitalization (as of 31/12/05, source BSE)

$292 million (GDR)

BLOM Bank has been the leader in the Lebanese banking sector for many years in terms of assets and profits. The group’s domestic network includes the investment banking subsidiary Blominvest Bank and insurance firm Arope. Internationally, BLOM operates subsidiaries Banque Banorient in Switzerland, Banque Banoarabe in France, and Banque du Syrie et d’Outre-Mer in Syria, incorporated in 2004.

BLOM Bank holds a 39% stake in the Syrian joint venture bank, in addition to which the International Finance Corporation holds 10% and Syrian investors own 51%. After receiving approval by Egyptian regulatory authorities in late 2005, BLOM Bank acquired 96.77% of the shares in Misr Romanian Bank, a bank with a small network in Egypt and an operation in Romania.

In January of 2006, BLOM Bank announced that it had changed the name of Misr Romanian Bank to BLOM Bank Egypt and intended to buy the bank’s remaining shares circulating in the market. Major shareholders in BLOM Bank include the Bank of New York and several Lebanese and Syrian families. Trading below $30 at the start of 2005, the price of BLOM GDR appreciated to $66.50 at the end of 2005 and climbed to the high $90s in late January of 2006, under predictions that further gains are likely. The acquisition of Misr Romanian Bank, along with a planned capital increase and further expansion projects made BLOM Bank increasingly attractive to investors. Unconfirmed reports from late last year said that BLOM Bank intends to also list shares on the Dubai International Financial Exchange (DIFX).

With assets standing at $11.3 billion at the end of September 2005 and customer deposits of $9.4 billion, BLOM Bank reported a net profit of $90.2 million for the first three quarters of last year, an increase of 28.5% compared to the same period of 2004. BLOM also increased its capital fund to $811.66 million, up 12.42%, in addition to which it undertook a $100 million preferred shares issue on October 25.

Byblos Bank

Listing date

May 14, 1998 Common listed shares

September 15, 2003 preferred callable shares

December 23, 2005 Priority listed shares

Number of listed shares

Common listed shares 68,354,909

Preferred callable shares 333,400

Priority listed shares 68,688,309

Opening price

Common listed shares $3.14

Preferred callable shares $100

Priority listed shares $2.50

Market capitalization (as of 31/12/05, source BSE)

Common shares $161 million

Preferred shares $37 million

Priority listed shares $158 million

Byblos Bank Group is the third largest bank in Lebanon where the bank succeeded over the past ten years to achieve growth through a combination of acquisitions of smaller Lebanese banks and local operations of existing international banks ABN Amro and ING Barings. The bank pioneered numerous retail products and is a leader in several consumer lending products.

The group’s portfolio of domestic subsidiaries includes Byblos Invest Bank and insurance sector firms Adonis Insurance and Reinsurance Company (ADIR) and Adonis Brokerage House. In ADIR, Byblos controls 64% and collaborates with French Group, Natexis Assurances Banque Populaire, which holds a 34% stake. The international presence of the group is rooted in Belgium-based Byblos Bank Europe, a 99.95% subsidiary. Since 2003, the Byblos Group has actively pursued regional expansion, establishing new subsidiary banks in Sudan and Syria and initiating the acquisition of Al Rayan Bank in Algeria. Khartoum-based Byblos Bank Africa, in which Byblos holds 65%, is a joint venture with the OPEC Fund for International Development and the Saudi Arabian Islamic Corporation for the Development of the Private Sector, which hold 20% and 10%, respectively. The group’s stake in Byblos Bank Syria amounts to 41.5%, in addition to which the OPEC Fund holds 7.5% and Syrian investors own the remaining 51%. Byblos Bank Syria assumed full operations in December of 2005. Byblos Bank announced in late January that its net profits for 2005 increased by 28.5% over 2004 and reached $69 million on strong growth of its international business and its fee-based income. Total assets for 2005 reached $7.6 billion with an increase of 8.5% when compared to the bank’s $7 billion in assets at the end of 2004. Customer deposits grew by 2.8%, to $5.6 billion and customer loans advanced by 10.8%, to $1.5 billion. In a step to boost liquidity of its shares, Byblos Bank announced, after an extraordinary general assembly in January 2006, that it would list all its shares on the exchange by mid February. The bank also plans a capital increase in the range of $300 million to $450 million. Byblos common listed shares, which had traded below $1.50 in early 2005, closed at $2.36 at the end of December 2005. On the last Friday of January, the share closed at $3.85. In late January, Byblos preferred callable share and priority share were trading at $103 and $3.42, respectively.

Bank of Beirut

Listing date

April 11, 1997 Common shares

April 08, 2004 Preferred callable class B

December 30, 2005 Preferred shares class C

Number of listed shares

Common listed shares 13,535,945

Preferred callable shares B 3,000,000

Preferred callable shares C 2,920,000

Opening price

Common listed shares $3

Preferred callable shares B $11.56

Preferred callable shares C $11.56

Market capitalization (as of 31/12/05, source BSE)

Common shares $134 million

Preferred B $36 million

Preferred C $73 million

Bank of Beirut was one of Lebanon’s fastest growing banks in the period from 1990 until 2005. The bank pursued an active expansion strategy and was a leader in development of funds products listed on the bourse. Its network of subsidiaries includes an insurance brokerage in Lebanon, a unit in Cyprus, and a UK subsidiary. Shareholders in Bank of Beirut include UAE-based Emirates Bank International, with an 8.73% stake. The bank has a representative office in Nigeria and has plans for expansion. Bank of Beirut recorded a net profit of $16.31 million in the first nine months of 2005, an increase of 11% compared to the same period of 2004. Bank of Beirut’s investment funds in Lebanese and US dollar denominated currencies recorded impressive growth in the past two years. For the first six months of 2005, Bank of Beirut announced consolidated net income of $11.2 million, up 6.1% when compared with the same period in 2004. Net interest income increased by 2.1% to $33.3 million and net commission earnings rose by 33.1% to $10.1 million. Net profits on financial operations grew by 4.4% to $44.6 million. Total assets reached $3.95 billion, and customer deposits totaled $2.7 billion. Bank of Beirut common shares, which had traded below $8 in the first half of 2005, closed at $9.90 at the end of December 2005. On the last Friday of January, the share closed at $10.95. Preferred B and C shares traded at $12.10 and $25, respectively, in late January.

Rasamny-Younis Motor Company (RYMCO)

Listing date February 6, 1998

Number of listed shares

10,000,000

Opening price $3.75

Market capitalization (as of 31/12/05, source BSE)

$11 million

Founded in 1957, RYMCO is the first and only car dealing company listed on the BSE. The company, which is the distributor of Nissan, Infiniti and GMC vehicles in Lebanon, claims to control 17% of the Lebanese market share.

According to reports, the Kuwait-based Kharafi Group owns a stake of 12.80% in RYMCO and Lebanese investment bank Middle East Capital Group (MECG) owns 4.17%. In the first quarter of 2005, RYMCO’s showed a 70 to 60% year-on-year drop in net profits to $120,343. In spring 2005, MECG successfully closed a $20 million offering of automobile-backed receivable securities for RYMCO, the largest such transaction in Lebanon and one of the largest in the region. The shares in RYMCO traded at $1.10 on the last Friday of January.

BEMO

Listing date January 11, 1999

Number of listed shares

5,333,334

Opening price $3.25

Market capitalization (as of 31/12/05, source BSE)

$19million (Listed shares)

BEMO ( Banque Européenne pour le Moyen-Orient) is a niche bank with strong capacities in corporate and private banking.

Although its asset volume of less than $1 billion places it outside of the Lebanese banking sector’s top segment by size, BEMO is considered one the country’s more innovative banks. The bank’s profit curve has been very positive in recent years, moving from net profits of $650,000 in 2003 to over $1 million in 2004 and surging even stronger in 2005, with net profits reported at $2.1 million in the first half of the year. BEMO has an investment banking subsidiary, BESC Investment Bank.

In 2003, BEMO entered a partnership with Saudi Arabia’s Banque Saudi Fransi, which took a 10% stake in the Lebanese bank. The two banks collaborated in setting up a new private sector bank in Syria, Banque BEMO Saudi Fransi, in which BEMO holds a stake of 22% while Banque Saudi Fransi holds 25%.

Due to the small number of circulating shares, the volume of trading on BEMO stock on the BSE is relatively small. BEMO’s shares surged to the $6 trading range in late January 2006 after closing 2005 at $3.50. As in the case of other shares on the BSE, BEMO benefited from the rush on Lebanese equities and stocks from Gulf investors.

Societe Libanaise Des Ciments Blancs

Listing date January 22, 1996

Number of listed shares

Bearer shares 6,000,000

Nominal shares 3,000,000

Opening price

Bearer $6.875

Nominal $6.875

Market capitalization (as of 31/12/05, source BSE)

Bearer $7.5 million

Nominal $4.5 million

Société Libanaise des Ciments Blancs saw its business drop as a result of the recession. The company did manage to post a $2.73 million in net profits for the first-six months of 2004, up from a net loss of $1.2 million in the same period the previous year. In 2004 sales were up by 55% to $43 million, while cost of goods sold (including distribution fees) increased significantly by 76% year-on-year to $21 million. In turn, total assets stood at $316 million, growing 4% on a yearly basis. The company did not publicly disclose its revenues or profits in 2005. At the time of writing, Ciments Blancs Bearer and Nominal shares are currently traded at $1.64 and $1.50 respectively.
 

0 comments
0 FacebookTwitterPinterestEmail
Finance

Jihad Azour – Minister of Finance

by Executive Staff
written by Executive Staff

Lebanon’s finance minister assesses the impact of this year’s political turbulence on the economy and maps out his plan to balance public finances as the country gears up for another donor conference.

E How badly were the country’s public finances affected by this year’s political upheaval?

It had a negative impact on public finances, although the political upheaval had already started making itself felt on the economy before the assassination of [former premier] Rafik Hariri. His death and the ensuing events exacerbated them. The impact manifested itself in a reduction in revenues due to the reduction in economic activity. The various governments at the time did not take the necessary measures to keep the level of the budget deficit stable, i.e. they did not correct the reduction in revenues with a reduction in expenditures. What I did after I became minister of finance was to stabilize the public finances in a bid to improve the primary balance of the budget, that is to say all the government’s operations outside debt. I improved the collection of revenues and I programmed the expenditures, with an objective of improving the primary surplus. In three months, we were able to improve the primary surplus by 300 billion Lebanese pounds, which represents 1.1% of GDP. The other problem which emerged after the assassination of Hariri was a financing problem. Severe pressure was exerted on our currency and the treasury has problems financing itself, so it had to turn to the central bank. Therefore, interest rates went up and an abnormal situation was created by the fact that the treasury was financing itself through the central bank. I took the decision to pre-fund all the treasury’s needs in order to avoid an increase in interest rates. This created greater confidence in the market as the treasury was again perceived as being liquid enough. It also reduced any pressure on interest rates and the Lebanese pound.

E Which sectors of the economy suffered the most from it and what do you think their chances are of a rapid recovery?

Expectations for tourism were very high this year and this sector was badly hit. Still, we have witnessed a recovery of the sector during the last three months. In fact, economic activity in the last three months has compensated for the first half of the year, which was very difficult for all sectors, mainly tourism, but also other sectors linked to internal consumption. For instance, the balance of payments, which was showing a deficit of $1 billion, recovered substantially during the last few months – we will be almost in a balance by the end of the year. Exports also went up in the third quarter, as did certain other activities. So we have started recovering progressively most of our lost economic opportunities and we are expecting a slight growth of less than 1% for the year. The Lebanese economy demonstrated a tremendous level of resilience this year.

E Did the events of 2005 ultimately serve as a political shock more than an economic shock to the country?

It was a severe political shock that had an economic impact. However, because of the improvements we had in 2003 and 2004, where we witnessed strong improvements in growth, in public finances and in the monetary indicators, we were able in 2005, to overcome one of the strongest earthquakes we have had on the political level in the last 15 years. Had those events not happened, we would have had an excellent 2005, in terms of growth, investments, a reduction in the budget deficit – in all the economic indicators basically.

E Looking forward to 2006, what are the three biggest challenges the ministry intends to face down?

The first one is to seize this window of opportunity that is the donor conference and to transform it into a program of reform, which will stabilize the economy by reducing the level of deficits. This will be achieved by making the economy grow faster. It is a challenge that requires that we convince the Lebanese of the necessity of undergoing a major transformation program, which will aim at meeting the objectives I just mentioned, as well as strengthening social stability in this country. The second challenge is to finalize a new vision for the ministry, which will articulate all of our reform plans, ranging from completing the modernization of the process for customs, to land registry, public finances and debt. We aim at not only completing the reforms but also improving the management practices of the ministry and to increase its level of accountability and good governance. The third challenge is to strengthen partnerships with the private sector, the NGOs and other parts of the community, most notably youth. We have created a joint commission with the private sector to go over all the problems it faces and to address them with clear targets. For instance with regards to exports, our new motto is: “Multiply by two, divide by two.” We want to multiply our exports by two over the next two years, and divide the costs and clearance time by two. We are also working with youth to develop an economic agenda for them, so as to give them the incentive to stay in Lebanon.

E To what extent is this program influenced by Prime Minister Fouad Seniora’s plan from last year, which proposed large spending cuts? Will any of this be exhumed for future use?

Of course it is influenced by it. But you can’t ask people to make additional efforts if you are not doing your homework yourself. We have to make the government more efficient and effective. We have to increase productivity. We have to reduce the waste in spending. And for that purpose, we at the ministry of finance have launched a new initiative with NGOs that are experts in fighting corruption. We are also working with the World Bank on an agenda for good governance. We have to reform the expenditure system in this country, we have to modernize the way the government functions and reduce unnecessary spending, before we can ask people for any additional contributions.

E Does this include promoting e-governance to slim down the bloated bureaucracy and make it more efficient?

Absolutely. For instance this ministry launched three months ago a new service for the taxation process, whereby you can download declarations and send in your declaration electronically. We have also automated all our payments, using modern payment techniques. With regards to customs, we are introducing a new system that will enable all clearance procedures to be done electronically. Additional services, especially e-services, will help people save time and money.

E E-governance also has the added benefit of eliminating the middleman between the citizen and the state, thereby reducing the risks of corruption. Does fighting corruption figure prominently on your agenda or do you view it as a necessary evil for now?

No, I don’t view it as a necessary evil at all. As I mentioned, we started this commission with experts on corruption to figure out how we can reduce it, how we can improve the level of accountability, as well as governance. In addition to this we are taking immediate measures at the ministry. We have issued circulars internally to remind the civil servants of their duties and to not accept any corruption. If there is any act of corruption, we will take immediate action. However one also needs to take into consideration the fact that fighting corruption requires long-term motivation. It is by changing processes, by automating transactions, by strengthening the control over your employees, by changing laws, that you will make a difference.

E At the end of the day though, the biggest drainage on public finances does not come from small-scale corruption at the level of civil servants, but from the large money swindling operations that politicians engage in, such as what we have seen with Casino du Liban. Do you believe that the passing of a new election law that would change the political map of the country and make politicians more directly accountable to their electorate, could be an efficient measure to reduce corruption at the political level?

Corruption takes place at various levels and comes in many forms. Some are related to small transactions, others are more organized. Therefore, the way to fight corruption is to focus on the types of risks you have. You need to be serious about it, which is why we set up this commission of corruption experts. In principle, any improvements of our institutions are favorable. This reform is very important, as is changing other laws as well, in order to improve the level of accountability. But changing laws is not enough, it’s also a matter of culture. It goes beyond the regulatory framework. People have to put more weight on economic issues when evaluating an MP. They also have to ask their MPs for more accountability. And thirdly, the government needs to provide them with basic services, to prevent people from going to their MPs to ask for personal favors. So it’s a comprehensive change that is required, and the government is working on it.

E We’ve talked about cutting down on public expenditures and waste, let’s look at potential revenues for the government. Will the gas price cap be done away with? And if not, how can the ministry justify letting a potentially major source of state revenue slip away due to political calculations?

Firstly, it is very important for people to know that the government is presently providing approximately $1 billion in subsidies, especially to the energy sector, to compensate for the weak management of EDL and to make up for rising oil prices. The government subsidized gas prices to maintain them at a certain level and lost a lot of revenue due to this. Taxpayers are paying for these subsidies, because at the end of the day, the government has no other resources but fees and taxes. Secondly, we should not look at any one element of these subsidies on its own – it’s all part of a package. The program the government is working on has various pillars. The first pillar is to improve the macro-economic situation by reducing the debt over GDP. For that you have to reduce interest rates and the stock of debt over the reserves and you have to improve your primary balance. There are two ways of going about this: either you reduce your expenditures or you increase your revenues. We are focusing on cutting down expenditures and on increasing revenues by improving the management of the tax system. But the bottom line is that this is a social choice. If we are not able to achieve our objectives only by reducing expenditures, we will be forced to increase taxes. And if we have to do this, our objective is to have a balanced tax burden, not to focus on one type of taxpayer or one type of services. It will broaden in order to reduce the burden on the individual citizen. The second pillar is to liberalize the economy. However, economic privatization is going to be done differently this time. We will not transfer any monopoly from the public to the private sector. It will be done in a participatory manner, giving people the opportunity to invest. And we want these sectors to create jobs. The third pillar is a growth agenda: we need to improve the business environment by modernizing the laws, streamlining the procedures and supporting fast growing sectors, such as IT and tourism where you have value-added.

E Is there no social aspect to the government’s program?

There is. The fourth pillar of our program is strengthening the social safety net. The government is spending more and more money on social services every year. On the other hand, social services are deteriorating and social indicators are going down. To correct this, we have to reform social spending, improve its efficiency and create social safety nets. This will require mapping out where we have vulnerable groups and see how we can help them. We have high levels of leakages. For instance, the government is spending a lot of money on wheat subsidies, but when studying the system more closely, you find that only 15% goes to the farmers. The problem is if you stop giving subsidies, you create social problems. That is why an improvement of social management needs to be undertaken. So to go back to the initial question about gas subsidies, it all falls under the deal that various parts of society need to make. If we agree that we want to improve the stability of our macro-economic situation, to improve growth, to seize the opportunity to get international support, then we all need to share the burden of reform.

E By postponing the donor conference, Seniora suggested that the world is not ready for another round of lending to Lebanon. The list of possible demands is long, but what absolutely must be done before any such conference can be held?

First of all, we need to [engage in] dialogue more over the vision we have in the cabinet, in order to transform it from a vision into a program. We also need to consult with the various stakeholders to develop a national agenda, so that the majority of the Lebanese and the political groups will back the political reforms. The reforms will take at least five years, so this requires commitment. On the other hand, the dialogue with the international community needs to continue. We’ve had a series of meetings with government representatives, we are coordinating regularly with international institutions such as the World Bank and the IMF, and we may have a gathering of experts in Beirut in January to prepare for the February donor conference.

E What lessons will you take from the Paris II round so as to avoid falling into the same pitfalls?

Firstly, we are taking several technical lessons on how to use all this money and conduct the operations in themselves. The second lesson is the great reaction of the market and the economy. After Paris II, even before any payment had arrived in Lebanon, we witnessed a major shift in the economic outlook: interest rates went down, capital inflows became substantial – very important changes were brought about. This is why we must view this opportunity as a turning point in Lebanese political history. It is remarkable how quickly people react to positive news in this country. Thirdly, this must not be viewed as a government program. It must be perceived as an economic agenda for the whole nation, from which everybody will benefit. That is why everybody should fight for making it happen. And last but not least, is the issue of credibility. We have to show that we are credible, as much to ourselves, as to the investors and to the international community. We must show that if we commit to something, we will deliver.

0 comments
0 FacebookTwitterPinterestEmail
Real estate

Abdul Hafiz Mansour- CEO, Horizon Management

by Executive Staff
written by Executive Staff

Executive talks to Abdul Hafiz Mansour, CEO of Horizon Management, the real estate company, established in 2003, to oversee and develop the Hariri Group’s real estate portfolio, about projects in Lebanon and abroad.

E What are the most important projects Horizon has been working on so far?

We have been working on three projects to date. First of all, there’s the project codenamed V5, which will be one of the three most important shopping destinations in Beirut. It will be built on the site of the former Karmel St. Joseph School opposite Dunes in Verdun. While the fragmentation of ownership in Lebanon and the strength of the country’s property law often make it difficult to develop such a large area, we did not face any of those problems. Secondly, there is the Raouche Hotel, which is a 270-room, high-end luxury hotel, which will be built next to the Coral Gas Station in Raouche, one of the last available plots of land on that side of the Beirut seafront. Thirdly, there is the project codenamed V2, which will be built next to the Bristol Hotel, on a 7,000m2 plot of land. This project consists of two high-end residential towers with apartments of some 540m2 each, next to a suites hotel with one, two and three-room luxury apartments. There will be a small retail component that will not exceed 10% of the overall project. We have several other projects in the pipeline, but I prefer not to talk about things prematurely.

E What are the investments worth?

Including the price of land, which is worth between $3500 and $4500 per square meter, the V5 project is a $200 million project, while the Raouche Hotel is worth some $85 million. I cannot yet give any financial details regarding the V2 project.

E Is Horizon Management solely responsible for these projects?

For the V5 project and Raouche Hotel we work with our partner, United Real Estate Company, which is part of the Kipco Group, one of the largest investment companies listed on the Kuwait Stock Exchange. Regarding the V2 project, we are developing this property on our own.

E Can you tell us a bit more about the main characteristics of the V5 shopping mall?

The V5 will stand on a plot of land of about 18,000m2, which is one of the largest plots of land in Beirut still available for development. The V5 has a more than 140,000m2 construction area, which includes the underground parking areas. The marketable area will be about 50,000m2, which will comprise retail and entertainment areas. We are still working on the tenant mix, but our aim is to create a destination area for the whole family.

E We’ve been hearing reports about the construction of the V5 mall for quite a while now. Why has it taken so long for the project to materialize?

In December 2004, parliament passed a new building code, which needed certain interpretive and regulatory government decrees to be put into effect. Normally that would not take more than a few months, but due to the extraordinary events of this year, the cabinet only approved those decrees much later, by the end of November, and they are not yet published as I speak to you today. So, we were delayed by some seven months, as our final concept has to conform to the new code. This was not a problem just for us, but for all development projects in the country. Now we can proceed in developing our concept and apply for all the necessary building permits.

E Without becoming too technical, could you give an example of how the new code affected building plans?

It is mainly regarding basements and superstructures in relation to the exploitable and non-exploitable areas. It will also clarify how to calculate the exploitable area with respect to land where you have differences in levels around the site.

E Lebanon’s retail climate has changed considerably over the last few years. Do you really think there is room for another mall? And how will this affect the market?

According to every estimate and study made on the issue, Lebanon still falls behind most countries in terms of available shopping space per capita. So yes, I do think there is room for growth. We think V5 will form a healthy triangle with the Souqs in downtown Beirut and ABC in Ashrafieh, each with its own character and catchment area. For V5, the catchment area is not only the immediate surroundings in Verdun, which is a densely populated, high-income area, but extends to the whole area from Ras Beirut to Corniche Al Mazraa. It will be the first shopping center facing the incoming traffic from the southern axis to Beirut. We are very confident of the suitability of the location for the mall. To be successful each mall should have its own character and its own specific attractions and magnets. And we will avail such distinctions to the V5 mall.

E What about the City Mall at Dora, the Metropolitan Mall and BHV/Monoprix in southern Beirut?

We don’t consider the City Mall a direct competitor, as we believe that the City Mall shall mainly serve the Metn area. Same is true for the Metropolitan Mall, which aims at hotel guests and residents from the region. BHV/Monoprix is a department store and hypermarket and does not have all the components of a mall. In this respect, the V5 will be filling a shopping gap in the catchment area we mentioned before.

E When the V5 and, in the future, V2 projects, are completed, what will be the consequences for Verdun and Hamra as retail areas?

V5 and V2 will complement and lift Verdun as a major retail area and hopefully increase the character of Verdun as a high street shopping area running from V5 to Concorde Square. Now, Hamra has of course considerably changed over the years, from a high-end to more mid-end retail area. In that sense, Verdun and Hamra do not directly compete and they could actually very well complement each other. Don’t forget that it is only a 5-minute walk from Concorde, and the future V2, to Hamra.

E Tourism saw a significant decrease this year. Are you confident tourists will return in the near future? And to what extent is that important for the success of the V5 mall?

These days, shopping is an integral part of tourism. Look at the Gulf nationals who come here. No matter how many malls there are in Dubai and Riyadh, they still go shopping here. Shopping has become an attraction in itself, so of course it is important to us. I think the current situation is but a transition phase. Given political stability, tourists will return in increasing numbers. The signs are there. The end of last summer was already better than the beginning. Look at the funds flowing into real estate investments that have been made this year.

Now, tourism forms an increasingly important part of the Lebanese economy. The bulk of tourists are not the kind who come for a few days to see the country’s main sites, but rather frequent visitors to the country, including those who have residence here and usually stay for two or three months a year.

E Dubai has developed very fast over the last few years. Are you not afraid of Dubai’s competition?

Dubai is a fact. It is good to have a success story in the region. Lebanon has been unfortunate in the recent past as it suffered from the Arab-Israeli conflict, but we have survived and we have the resources to create new opportunities and a new position for the country. Competition is only a good thing. It makes one work harder and be more creative. So, in that sense the success of Dubai will only help Lebanon.

E So, you remain positive about the future?

We are. We will no doubt miss the guidance of His Excellency, our late prime minister Rafik Hariri, who was an illuminated leader, who in a very short period brought developments to the country that astonished the world. I am confident that his successors will capitalize on his legacy and continue forward. Lebanon still has a lot of potential and untapped opportunities. I firmly believe that the Lebanese will be able to position Lebanon in the right spot regionally and internationally.

0 comments
0 FacebookTwitterPinterestEmail
Society

Getting tourism off the ground

by Executive Staff
written by Executive Staff

Joumana Azzi

Branch manager at Wild Discovery Travel & Tourism

E How many Lebanese are taking holidays abroad on an annual basis and how has this figure evolved over the last few years? What characterizes the outbound Lebanese tourist market? Is the trend of package tours catching on?

While we do not have exact figures on the number of Lebanese taking holidays abroad on an annual basis, the market for outbound holidays as a whole has been increasing substantially over the last few years, with many people going away three to four times a year.

The statistics on airport passenger traffic clearly indicate that there has been a substantial increase in departures over the years up until the first month of 2005. The year 2005 witnessed a decrease not only in the incoming flow of passengers, but also in the outbound tourism market due to the events Lebanon went through. However, despite the unstable situation, Wild Discovery increased its business volume in 2005, compared to 2004.

The outbound tourism market in Lebanon is mainly characterized by the diversity of the destinations that are chosen by the clients. The main destinations that are most frequently requested by the Lebanese are Egypt, Turkey, France, Italy, Greece and Cyprus. But Wild Discovery is seeing an increasing number of individuals going to the Far East, South America, Spain, Vienna, Prague, as well as very exotic destinations such as the Maldives, Mauritius and others, especially newlyweds going on their honeymoon.

The trend of package holiday solutions has caught on. It is attracting mainly clients wishing to buy a fully organized product, taking advantage of the knowledge and the expertise of the operators and most of all, the price advantage when you book a package compared to when you book individual and separate services. Obviously the size of the tour operator, his knowledge and his professionalism are key to a successful holiday experience.
 

Philippe Skaff

CEO (MENA) of Grey Worldwide

E To what extent was Lebanon’s image affected by the events of 2005? How did the media contribute to this? What approach should both the public and private sector take in 2006, to improve the perception of Lebanon abroad?

Although Lebanon’s image has been hurt this year, I think the effect was disproportionate to what actually happened. Like anywhere, the media always jump on bad news, and whilst they don’t necessarily exaggerate events, they take them very much out of context so that one bomb seems to imply total chaos. The loss of [ex-premier Rafik] Hariri, who was a very charismatic and appealing figure for the West, has also harmed Lebanon’s image there and almost left us orphaned.

To improve people’s perception of Lebanon, I think we have to prioritize both tourism and protection of the environment – the two go hand in hand. I would leave aside superficial things like shopping and instead concentrate on our cultural and historic riches. Lebanon has a unique and diverse atmosphere, which you can feel as soon as you step off the plane; it’s somewhere you come back to again and again, unlike some places where you can virtually tick off like a checklist. It’s like the difference between a poem and a story – you can read a story from beginning to end, but a poem has a certain ‘feel’ to it which can be rediscovered a thousand times. Every foreigner I meet who comes here on business says that Lebanon is the best-kept secret of the Middle East, which suggests that its image abroad is worse than the reality. But it’s impossible to run a promotional campaign on CNN, or wherever, at the same time as there are bombs on the news.

Ramzi Assily

Resident manager, Movenpick Hotel and Resort, Beirut

E What contribution can tourist resorts make to the Lebanese economy? What are your expectations for 2006, and over the long term? What can be done to better define and improve nationwide quality standards for resorts and hotels?

Tourist resorts already make an important contribution to the economy, especially with the local community and Lebanese expatriates who return from abroad during the summer. Resorts are definitely an upcoming trend now. We’ve seen more opening both to the north and south of Beirut, and they’ve proved that a six-month season between May and October can be very lucrative. And once one operation makes money, others will follow – like any trend in Lebanon. I don’t know exactly what’s in the pipeline, but one or two more new resorts will probably open next year, and the existing ones will expand. Our own operation is slightly different, as we are only open to hotel guests and owners of our cabanas, but next year we should maintain the same trend evident since we started. Obviously this last summer was not as good as 2004, but if the political situation stabilizes then we’re optimistic for a strong year.

In terms of standards, quality clearly starts right from day one and the size of the initial investment. But my personal opinion is that we need a better system of classifying hotels, ideally with foreign consultants brought in to help judge star ratings. And although Lebanese staff are sought after in the whole region, our training colleges need to find a better mix of management and technical skills. At the moment, there are only the two extremes.

Pierre Achkar

President of the Lebanese Hotel Association

E How many hotel rooms will Lebanon offer by the end of 2006? Is this capacity appropriate for Lebanon’s needs? What are the requirements for healthy and sustained growth in the hotel industry in 2006? What can the public sector do to better supervise and assist hotels?

We have around 16,700 hotel rooms at the moment. Another 3,000 rooms are under construction and although I don’t know exactly how many will open in 2006, we usually expect 500 to 600 new rooms annually. Next year should be no different. Often it is old hotels being renovated, which are sometimes not included on the figures for new rooms. There is no shortage of rooms, although occupancy rates have been down this year thanks to the political situation. Since 2001, we’ve seen growth of 30% per year, and expected 2005 to be the best ever. But for the first three months, Beirut was virtually closed and all our plans were cancelled. Things picked up during the summer and in fact, given all the uncertainty, it has actually not been a bad year. For healthy growth in 2006, though, the absolute first priority is political stability. As soon as we have that, we need a major promotion to improve Lebanon’s image abroad. In terms of public sector help, although legislation does need to be updated, it is not a prerequisite for growth in the hotel industry. More important is to unify the public and private sector in promoting the country, as professionals in the private sector know better than the government what should be done, and how to do it. I also believe that the national tourism council should be reactivated and funded jointly by both private and public sectors – this kind of co-operation is important for the health of the industry.

Khalil Malaeb

CEO of K&M Health Tourism International

E Why do visitors come to Lebanon for medical treatment? How healthy are the future prospects for developing this niche? Can we expect any major developments in 2006?

Our medical tradition is very important – we have 140 years of experience and this helps create trust with patients. Our doctors are often foreign born or educated, and a very high percentage of them practice a specialty or a sub-specialty. Plus, the cost of care here is about 40% to 50% cheaper than in Europe, with exactly the same quality, and Lebanon is the only country in the Middle East to have 80 hospitals accredited internationally. Compared to Arab countries, the cost of care here is similar but the standards are higher, whilst the market for Arabs taking medical treatment abroad is lucrative – it’s now worth $4.5 billion. As for the future outlook, developing medical tourism is not a one-year process. We’ve clearly been set back by the death of Hariri, who took a personal interest in promoting this niche. One major goal is to access the European market, especially those countries like the UK with long waiting lists. We also want to further promote Lebanon as a plastic surgery destination. For these kind of operations, many people now travel to South Africa because costs are perhaps 50% less there than in Europe. But we can offer even better value – and of course with the same level of excellence. In addition, we’re currently in negotiations with a re-insurance company to actually offer insurance during medical operations – something, which is usually wavered. It will apply to certain hospitals and should come into force in early 2006. Given that Lebanon will be the only Arab country to offer this kind of insurance, it’s another sign of confidence in our medical care.

0 comments
0 FacebookTwitterPinterestEmail
Banking

Freddy Baz : Chief strategic advisor, Banque AUDI

by Executive Staff
written by Executive Staff

In a broad ranging interview, Banque Audi’s chief strategic advisor, Dr. Freddie Baz, discusses the economy, regional ambitions and why he is fed up with Audi being referred to as the No. 2 Lebanese bank.

E In the latest Banque Audi report, you state that Lebanon was a “no growth environment in 2005,” but that it was able to “avoid a recessionary trap.” How were we able to do this and what if any role did the banks play?

What we wanted to highlight is that we are not in a bad situation but we are witnessing a coincidental stagnation after the high growth of 2004, in which we saw 6% real growth as reported by the IMF and the central bank among others. But after the dramatic events we witnessed in February, it was normal that the real sectors would take a hit in terms of overall confidence and its impact on aggregate demand for investment and consumption. So no surprises there, but paradoxically, while there was this stagnation, the financial sector witnessed a very interesting improvement. Sure, the impact of the assassination hit all areas of the financial sector: stocks, bonds currencies, especially currencies, when we saw great pressure on the lira, but after the demonstrations and the flag waving and the demands for Syrian withdrawal and the UN resolutions, most markets adjusted, showing a high appetite for Lebanese paper. Stocks and bonds have improved significantly and banks’ stocks have increased by 100%. Solidere shares hit $5 but bounced back to $13.5; spreads on Eurobonds decreased after some initial widenings, and the FX markets recovered by May, allowing the central bank to recoup one third of the dollars it used to defend the lira. So we are witnessing a disconnection between the real sector and the financial sector of the economy in which the investors and consumers are in a wait-and-see mode; which is normal. It would have been worrying if the financial sector had been equally stagnant. We are in a two-speed economy. There is a traditional time lag of 18 months in these scenarios. We can look forward to a better 2006, and definitely a better 2007, in terms of real growth and GDP.

E The share of T-bills and Lebanese sovereign debt in the portfolios of Lebanese banks remained high in 2005. Will Lebanese banks ever break out of their lending cycle to the government and embark on a fully-fledged retail and corporate banking culture?

You ask the question as if the banks only lend to the public sector and not the private sector. Let me tell you that the consolidated lending portfolio to the private sector is almost equal to the GDP. This is the highest exposure in the emerging markets. The South East Asian Banks in the late 1990s were never exposed like us. They were at 65% to 80% of GDP. We are at 100% of GDP in terms of consolidated private sector loans. We are not under-lending. This is a misconception. Because of our funding which is three times GDP we are obliged to use it for alternative uses, we just can’t lend it all to the private sector. That would make our private sector be lending three-times the GDP, which is unacceptable by any standards. For us to increase our private sector loan exposure the economy should grow. We believe the actual size of the economy, which is measured by GDP, is not a reflection of its potential size which we believe to be higher by a minimum of 40%. If we assume the actual GDP to be around $20 billion, the potential GDP would be close to $30 billion, probably $28 billion. If the environment is there to narrow the gap between actual and potential GDP, then, while our level of exposure will remain the same, that is “1 x GDP,” there will be room for an additional $8 billion of lending to the private sector.

E But surely we have a chicken and the egg scenario. What comes first, the funding or the growth?

I see your point, but in Lebanon auto financing ratios are very high, so we have to start seeing investors putting their own money first and then we will lend. Together we will trigger GDP growth rates. So it is up to the investors to show their own commitment by putting their own funds on the table and we will support them. However, I want to stress that Banque Audi has been active in its corporate lending in 2005.

E Are there any sectors with potential that you are watching with interest?

We are not a development bank. We are a private bank. We do not look at sectors of activity with a high leverage on growth, but we lend our money where we believe there is wealth, where risk is limited in the nature of the business and more importantly where there is a contribution of the company to the generation of wealth in Lebanon and the GDP. When we lend to the private sector, we lend to medium to big enterprises which in the case of Lebanon, the top 100 companies probably generate 75% of GDP. This lending is more secured than to smaller companies and while they should not be neglected, they will not get a higher share of lending than their contribution to the generation of wealth in the country.

E Banque Audi is still ranked No. 2 in terms of assets and deposits. Is the bank satisfied with its performance this year?

You say No. 2. Yes it is true in terms of absolute figures, but what does a differential of $200 million on a basis of $11 billion [of assets]? It’s not even 2% and this is the difference between the top two banks, which is how I like to refer to us.

E Well you are ranked first in other areas.

Of course, we are first in terms of lending to the private sector. We have to highlight it and show our commitment to the domestic economy. Our job is not just to collect deposits and buy securities. We are first in terms of footings. We are first in loans. We are first in Tier One capital and this is as important as total capital. Rating agencies base their calculations on Tier One capital.

E Then what are the areas you would want to address in 2006? What are the plans for revenue diversification and regional expansion? Which areas of banking appear most promising?

I believe we have the best revenue diversification, not only among our direct peers but in the whole industry and this did not happen overnight. It is the result of a huge restructuring launched in 1995, diversifying our business lines to diversify our assets and sources of income to improve our immunity against any reversal trends. We launched retail banking and private banking capital market activities. To do so, we triggered the consolidation process in the Lebanese banking sector. We closed five acquisitions. We improved our human capital. Today 52% of our staff are university graduates, 15% are MBAs and we have 15 PhDs. We launched the first GDR in the region, the first five-year private euro bonds in the region in 1995, and 1997; a ten-year subordinated note issue, a ten-year euro CD issue and four preferred share issues. In the last four years, we have witnessed an average growth rate in our assets and earnings of 30% per year. So our restructuring allowed us to consolidate our market positioning and to ensure a higher asset and profit growth rate than our direct peers. More importantly, if you look to the breakdown of our income, over different businesses we have a much better balanced breakdown today than any of our peers whereby non-interest income is 45% of total income. This is our immunity against reversal trends and it comes from private banking, bancassurance, and capital market activities. In the last four years, our trading floor has seen a turnover of $4.5 billion. We are the most important market maker on Lebanese stocks and bonds.

E Moving onto regional expansion, how were Banque Audi’s plans for a Syrian banking operation developing in the last quarter of 2005? What is the outlook for 2006, given the uncertain political situation in that country? And what are Banque Audi’s ambitions for the Egyptian market?

Firstly, I would like to give a brief preamble because our activities are not just restricted to those two markets. Our internal restructuring, which translated into high asset growth rates, led Banque Audi to a size today of $11 billion in terms of assets. This is $880 million in equity, $15 billion of footings and we represent 55% of Lebanon’s GDP and when you reach such an important size in the local market you have to go beyond boundaries because you have become too big for your country. We wanted to continue this growth by developing new markets rather than new business lines. First, we went into Jordan where we were granted a license for ten branches. Seven are operational and in 2006, they will all be operational. It doesn’t mean we can’t open more in future. What is of interest is that after 14 months in Jordan, we could build $300 million of assets, which is higher than the size of many operating banks in Jordan who have been there years longer than us, in some cases ten years. We had a good business plan that we will duplicate for all the other markets in which we want to expand.

E Including Syria?

In Syria we launched our operation in September [2004], but there was some delay because we were the first to apply … [and] we decided within the course of the application to double our capital and it took us back to the beginning of the process. We have four branches that are almost ready and we want to build a substantial network in Syria with 30 branches within a short period. It’s too early to give you figures but all I can say is that we are very optimistic. Now, given the [political] concern you expressed, we have not felt it on the ground. It is as if the business community is disconnected from politics. It does not mean that they are not part of the country but life does not stop. Sanctions we believe will not target the Syrians as a whole. We believe there is an immunity concerning business but any unforeseen dramatic developments will have a limited impact on the overall turnover and not diminish overall opportunities. Anyway, the stories of substantial Syrian withdrawals from Lebanese banks are not very accurate and we certainly did not witness this phenomenon at Banque Audi.

E Moving to Egypt, Banque Audi is understood to be one of six potential buyers for the Cairo and Far East Bank. The Egyptian central bank has given the go-ahead for Audi to conduct due diligence on this bank. What are Audi’s ambitions for the Egyptian market?

Before [answering] that I would like to add that three months ago we have been granted a fully-fledged license for Iraq, among the eight licenses that have been granted so far and we have a plan to open in Iraq in the north.

E How soon?

Definitely in 2006. Now in Egypt it is true that so far, we have not succeeded with an acquisition, but I would like to remind you that Audi put in a bid on the Egyptian American Bank in 2003, but it didn’t materialize because there was a new law that made medium-sized banks very expensive in Egypt and consequently they have not become very interesting for us. Today we are looking for platforms to grow organically in Egypt and Cairo and Far East Bank is one that we are looking at but there are three or four others too. We will try to close what is the best deal for Audi, not necessarily Cairo and Far East Bank but that is the bank that is in the news.

E Are there other areas Audi is looking at?

We are looking at certain North African countries as well as niche roles we can play in the Gulf markets, especially in corporate finance and private banking where [Lebanese bankers] have strengths. We have limitations and this is the only area where we can compete. To try to be competitive in retail or commercial banking [within the GCC] is impossible.

E How important is trust in the sector for international confidence in Lebanon as a receiver of financial aid especially with a donor conference looming?

It is an important asset but whenever the donors meet it has nothing to do with the private companies in this country. But as long as you have strong and well-established financial institutions, it will improve the overall perception of the country. A country with a solid financial sector has more of a reason to ask for assistance but it is not directly related; we are talking about public versus private. We have a banking sector that endured two decades of war and a time when we had two governments but one central bank – the central bank was never divided.

E How important is any national reform program to the banking sector?

Anything, which will improve the overall efficiency of the economy, is welcomed by the banking sector because at the end of the day we are organically linked to the economy. Reform – economic, financial, and political – by definition improves the overall efficiency of the economy. Privatization will improve efficiency. Look at how deteriorated the service [of cellphones] is nowadays. Such a weak level of quality although [the cellphone sector] is managed by two private companies. They are not motivated.

E With Basel II looming can we see an eventual consolidation of the banking sector?

Not at the level of big banks because we are over capitalized. But it will affect a certain number of middle sized or small banks but this is a positive trend because we need to further consolidate. As far as I am concerned, we have not yet really witnessed real consolidation in Lebanon although the number of banks has dropped by around 25 or thereabouts. Real consolidation is not lobsters eating shrimps; it is lobsters eating lobsters, more mega mergers between the big banks to be able to compete with big international banks in a post [peace] settlement era. I think within the top 10 banks there is a potential for three mega mergers.

E To be more robust regionally?

Of course! You have banks like NTB, Arab Bank or NBK from Kuwait with equity amounting to the consolidated equity of the Lebanese banking sector.

0 comments
0 FacebookTwitterPinterestEmail
Economy

Time is ripe for tough reform

by Nicolas Photiades
written by Nicolas Photiades

The assassination of former prime minister Rafik Hariri on Valentine’s Day 2005, highlighted Lebanon’s economic vulnerability to sudden political and security events, as reflected in the significant slow down in economic activity; the massive decrease in GDP growth; and the rise of the proportion of public debt to government revenues. In the last quarter of 2005, after Syria’s withdrawal of its troops, relatively successful legislative elections and the naming of a “national unity” government – the country’s economy was still characterized by an extremely high level of public debt, wide fiscal and external current account deficits, a narrow economic base, and a fragile, arguably explosive, political environment.

At the end of 2004, the international community, as well as all the Lebanese were hopeful that a steady increase in government revenues and a substantial growth in the GDP would gradually reduce the debt burden and help the country outgrow its debt problem with new- found tourism revenues and foreign investment mainly from the Gulf. However, and perhaps with a degree of hindsight, those reading the runes should have predicted the unfolding of a different scenario, one based on the fallout of UN Resolution 1559, the extension of President Emile Lahoud’s mandate and a tightening of Syrian authority in the country.

Growth figures disappoint

Real GDP growth fell from a very positive 5% in 2004, a level unseen since the early 1990s, to an expected 1% at best for 2005 as the country’s GDP of the last few years (an average of 2% to 3% for 2001, 2002 and 2003, and 5% in 2004), was almost wiped out. This yo-yoing of growth figures should constitute a message to the Lebanese government that it is now time to genuinely tackle the debt and the economy. For the moment, the debt burden is still one of the largest among rated countries, with the debt to GDP ratio being estimated to exceed 170% by the end of 2005, and interest payments consuming around 55% of fiscal revenues (in both 2004 and 2005). The country’s overall fiscal deficit has remained very high at almost 10% at the end of 2004, and 11.7% estimated at the end of 2005, despite significant efforts to improve the primary fiscal balance of the last decade.

Moreover, the country’s economic base is still narrow and government revenues undiversified. The country still lacks primary resources and its export base is limited, with economic activity concentrated in services, namely banking, trade and tourism. The activities in the service sector account for around 60% of GDP, reflecting a high level of concentration on a handful of economic activities. This concentration coupled with a high dollarization of the economy and bank deposits increase Lebanon’s vulnerability to political and regional shocks. The current account deficit (or the current account balance to GDP ratio), after a period of decline between 2001 and 2004 (especially after Paris II), moved up again to an estimated 19.7% for 2005, compared to 13.1% in 2002, 12.4% in 2003 and 15.0% in 2004, approaching 2001 levels of 20.4%, which were then considered disastrous and a first sign of a country collapse.

More pressure from politics

The political environment remains precarious, with tension with Syria growing as the days pass by. The encouraging “free” elections of June 2005 produced a government of national unity, which is still unproven as regards to urgent economic reforms, although the resilience of this government is proving solid so far, as disputes and tensions between pro and anti-Syrian political factions take place on a daily basis. The government is keen to carry out long-overdue economic and administrative reforms, including privatization, as well as start planning for a debt restructuring program, which will be based on a successful donor conference planned in Beirut towards the end of 2005. However, it is clear that the deterioration of Lebanese/Syrian relations, which have been further exacerbated by the recent UN resolutions forcing Syria to cooperate in the investigation of Hariri’s assassination, should hamper the government’s efforts to initiate such reforms for the time being.

There is also the more delicate internal problem of Hizbullah, which still refuses to give up its arsenal of weapons and integrate into the Lebanese domestic political set up, in line with both the Taif Accord and UN Resolution 1559. This multiplies Lebanon’s political problems and opens two fronts, one external with both Syria and Israel and one domestic with the Hizbollah-Amal coalition. Although it is clear that such problems emanate from decades of civil conflict and its consequences, the country is still facing significant political problems that have been affecting the economy substantially during 2005. It would therefore be worth noting that the longer these problems persist, the more likely economic recovery will become unreachable.

Tempering risk

All these risks remain more or less mitigated by a high level of external liquidity, a large and relatively sophisticated banking sector, and resilient confidence among the Lebanese, which has been reflected in a continuously strong and stable deposit base within the country’s banking sector. Another positive factor is the return of Gulf Arab tourism towards the end of the summer and the resumption of Gulf investment in the country, despite the turbulent political scene.

The high liquidity, estimated to stand at around $9 billion in terms of official foreign currency reserves and $11.4 billion in terms of commercial bank foreign assets reflected the country’s prudent approach within an unstable domestic and regional political context. The foreign currency reserves approached $15 billion prior to Hariri’s assassination, and were instrumental in restoring confidence among depositors of the banking sector and in preventing a devaluation of the Lebanese pound. The current official foreign currency reserves cover more that eight months of imports and exclude around $1.8 billion in Lebanese government eurobonds held by the central bank, which are not considered to be liquid. Although foreign currency reserves declined in the aftermath of Hariri’s death, they partially recovered due to the issuance of several government eurobonds, an easing in the dollarization rate due to regained confidence, and to a resurgence of non-resident deposits in Lebanese commercial banks.

Strong deposits

Another strong sign of liquidity is the strength and stability of commercial bank deposits, which amounted to a little less than $60 billion in October 2005. The country’s banking sector has been capable of solidly financing itself through customer deposits and has not had to rely on market funds, which are more costly. Such customer deposits have been mainly used in the past decade by the banks to subscribe to government debt securities (including Treasury Bills in Lebanese pounds) and have provided the government with a source of steady financing. These customer deposits have historically shown a high degree of resilience to external political shocks and have been supported by a committed Lebanese Diaspora. On that note, Lebanon is traditionally regarded as one of the most important countries in the world in terms of remittances, which is a mitigating factor against potential risks.

Although the economic situation appears to be at risk in the short term due to internal and external political problems, the economic upside in the long term could be significant. Indeed, were the government to succeed in sorting out the political mess and resuming an efficient economic reform program that would include serious privatization and a long-term debt restructuring program, then economic prosperity would be regarded as a real possibility. For the moment, the country’s rating is still one of the lowest in the world at B- (S&P) and B3 (Moody’s), with the government required to undertake a massive effort in reducing debt and improving government finances, as well as for the political environment to ease considerably, if this rating is to reach more acceptable levels.

0 comments
0 FacebookTwitterPinterestEmail
Looking Back

Winning ground in the middle east

by Lee Smith
written by Lee Smith

It is perhaps an index of globalization’s totalizing embrace that foreign policy communities around the world have been chuckling over the same one-liner all year long: The war in Iraq is over and Iran has won. Well, there’s no doubt that the Islamic Republic of Iran’s (IRI) long and assiduous cultivation of Shiite networks in Iraq reaped dividends once Iraq’s former president Saddam Hussein, the IRI’s most serious threat, was deposed from power. But in truth, nearly everyone with an interest in the region has a lot to be thankful for this New Year’s Eve. But given the disappointments, betrayals and miseries that have befallen the Middle East over the last century, it’s not clear that even younger Arabs are capable of seeing events except as a variation on catastrophe. Or, to put it another way, if the Israelis are still around, we must still be living in the shadow of the nakba.

The fact is that this really was one of the most momentous years in the history of the modern Middle East and most of the news for residents of the region was good, very good. The only clear losers were the Syrian and Iraqi Baath parties, the US taxpayer and the liberal interventionist wing of the Republican Party, otherwise known as the “neo-cons.” Iraq itself, which is in many ways now Ground Zero of the Middle East, is too tough to call. Obviously, ordinary Iraqi citizens are paying with their lives because, one, the US cannot provide security in regions that are not already secure; and two, some Iraqis and their jihadi cohorts take great pleasure in killing other Iraqis and will keep trying to do so come hell or high water. And yet, there are elections, there is the struggle to build democratic institutions, like a constitution, and there are the Iraqi people themselves, many of whom disagree with their neighbors that Iraq was better off under Saddam Hussein. So, it’s going to be many years before anyone knows whether Iraq was a winner or loser this year, and it’s going to be Iraqis who make the call.

As for the rest of the region’s major players, Executive braved the ever-capricious winds of Middle Eastern politics to bring you our year-end round up in the hope that things won’t change too much before we go to press.

Lebanon: a winner (triple plus)

In a region where the word “martyr” is perhaps a little worse for wear, the assassination of former prime minister Rafik Hariri set off a chain of events that effectively liberated his country, and set Lebanon back on the democratic course it was derailed from for thirty years of war and occupation. But the undisputed heroes of the revolution are the Lebanese people, all of them, including those who never took to the streets and those who some believe stood on the wrong side of the street. Pluralism is no doubt a harder ideal than national unity, but it is also sterner building material. As for all the post-March 14 disenchantment, much of it is legitimate – for instance, is there no room in Lebanese politics for the youth who led the uprising outside of the student cadres of General Michel Aoun’s Free Patriotic Movement? Still, it’s important to put this remarkable year into context.

Things are changing so quickly; most local skeptics haven’t had the time to figure out what’s going on. Last year the parliament wasted its time ruminating over Arabism and other ideological niceties; this year the country’s elected officials took up real matters, including the economy, election laws and security. It is the latter that has been on the minds of most Lebanese, especially since the wave of violence left many dead in its wake and did serious damage to the vital leisure and tourism sector. But insofar as the purpose of that terrorism was to set the nation at arms again against itself again, it failed and the Lebanese succeeded. The UN Mehlis report has delayed action on several important issues – especially national security and international investment, both of them tied to disarming the Palestinians and Hizbullah. Hizbullah had a middling year. It became part of the government – except apparently for those uncomfortable moments when Damascus insulted the government’s prime minister – and may indeed be transitioning from armed gang to political party. Premier Fouad Seniora has the attention of a concerned international community but lacks the support of a strong Maronite partner. If that sectarian power struggle sounds to many like politics as usual in Lebanon, it’s not, or at least it hasn’t been for thirty years. This is the real thing, and it was earned.

Saudi Arabia and the Gulf: winners
(double plus)

One of the Bush administration’s more reasonable, and less noted goals in invading Iraq was to boost that country’s oil-production, a potential capacity, it was hoped, that would give the United States some leverage with which to pressure their long-time allies in Saudi Arabia. You see, over the last many years, the American taxpayer has dished out many billions of dollars to float the US Navy’s Fifth Fleet, which protects the free flow of Gulf oil, which in turn ensures that the Saud family stays rich, fat and happy – and in power. But in the aftermath of 9/11 it became apparent that many in the Saudi elite believed those same US citizens were infidel scum who deserved to die. So, the White House wondered how it could get their nice friends to stop saying such bad things in Saudi schools, mosques and the media. They hit upon the idea that if only they could get more oil to market maybe that would help bring the Saudis to heel. But of course, that would’ve meant that the US actually had to protect Iraqi pipelines, and in Iraq the US is mostly only capable of defending Baghdad’s Green Zone.

Thus, the Saudis’ position as keystone of the global economy went unchallenged, and the Kingdom had a bumper year as oil surged to a whopping $70 a barrel. The Bush administration effectively declared major operations against Saudi Arabia over when US Vice President Dick Cheney rolled out the red carpet for the royal family’s brand new Lebanon hand. Saad Hariri may turn out to be a very good leader of his country someday, but it was his Gulf friends who got a young businessman with no political credentials or experience an audience in Texas. This is how a superpower tells a petro-monarchy: “We are not worthy, we are not worthy … ” And now all Washington can do is hope that with King Abdullah finally and firmly in charge, he’s serious about taking on his own domestic terrorists and that he won’t do it by letting them blow off steam in Iraq or Manhattan.

Other Gulf states are investing in a future where oil is not king. Construction, leisure and tourism projects have made Qatar the fastest-growing state in the Gulf, or the new Dubai, but that’s just until Sheikh Muhammad bin Rashid al Maktoum finishes Dubailand, or Dubai’s new Dubai, an enormous theme park that once completed will double the size of the existing Emirate. Look for the Gulf to keep thriving.

France: winner (double plus)

What a bonne annee for La France, the year it became relevant again in the Middle East! Without a large economy or formidable military, Paris has had trouble projecting power in the region since it was flushed out of Algeria. Two years ago, the Chirac government made a lot of noise about the US war on Iraq, which may have won it accolades throughout the region but distanced Paris too much from the US to have any impact in it. Then came Syria and Lebanon. For a host of reasons, French President Jacques Chirac was furious with the young Syrian president he’d effectively taken under his wing, and intimated to US President George W. Bush in the summer of 2004, that he had a project they might both profit from. France led the way with UN Resolution 1559 and the US, with troops in neighboring Iraq, served as a goonish enforcer and voila! France was back in the game.

Egypt: winner

A lot of people did well this year in umm ad-dunya: The Muslim Brotherhood surprised even themselves with the large number of seats they gained in parliament, and the ordinary Egyptian voter got a sense of what real political choice might look like, both in the country’s first contested presidential race and then the parliamentary elections. And since it is a law of nature that anytime the people fare ok, the regime loses big, Egyptian President Hosni Mubarak had something of an off-year, which might be expected after 24 other untouchable seasons. Oh sure, the president managed to keep Washington off his back by sending mukhabarat chief Omar Suleiman to consult with the PA on security issues, but at home 88 people died in an attack in Sharm el-Sheikh, and the regime showed little in the way of intelligence by rounding up thousands of Bedouins in response. (Self-help hint to Hosni Bey: It only gets better if you are honest about your issues. Now, say “Al-Qaeda.”) Still, many people, probably the majority of registered voters, really did re-elect Mubarak for a fifth term and would have done so even without his aggressive TV commercials. But all those slickly produced music videos were meant for Western audiences anyway, and the campaign wasn’t really about the Pharaoh but his son Gamal, a Western-educated, reform-minded man of the future. Sound familiar?

Jordan: winner

The Hashemites have enjoyed a tremendous financial boom since the onset of the US occupation of Iraq as real estate prices alone have surged some 30% over the last year. Most of that financing has come from money that left Iraq after the fall of Saddam, a trail that will be more closely watched now after 57 people, mostly Jordanians and Palestinians, died in an attack on three hotels engineered by Iraqi colleagues of Abu Musab al-Zarqawi. King Abdullah II replaced his reform-minded prime minister with a former security chief and the diwan’s new mantra is, “political reform plus security,” which means no reform and no matter how much money you bring to town, you’re going to pay dearly if you mess with Jordanian security.

Iran: winner

Compared to the other players in the region, Iran didn’t do as well as many observers suggest. Yes, it consolidated its influence in Iraq, and like the Gulf states it profited greatly from high oil costs. Also, it has managed so far to run circles around the EU 3 (England, France and Germany) that has been “negotiating” with the IRI over its nuclear program. But those talks have taken a few strange turns over the last year, especially after the election of Iran’s tone-deaf new president. Until President Mahmoud Ahmadinejad advocated the destruction of the US and Israel, even the hawks at the Pentagon had no real military option for Iran. Presumably, that is no longer the case, since American officials started to take “death to America” sloganeering pretty seriously after 9/11. And Ahmadinejad’s re-structuring of his foreign service to better suit Iran’s apparent new policy direction has also put a number of Western officials on edge. So the Iranian issue, relegated to the backstage for the last three years, has now moved to front and center and the curtain is rising. In the next few years look for Iran well south of here on the scorecard.

Israel: Winner

It goes without saying that Israel always stands to gain when Arabs lose – but what about when Arabs lose their illusions? If you’ve missed the news from Iraq, Mr. Zarqawi has put paid to the notion of one glorious Arab nation ranged against the outsider. He’s killing Arabs, mostly from a rather largish Muslim sect known as Shiites. As it turns out then, the Middle East is made up of lots of groups, many of whom, especially the smaller communities, will make alliances with others to advance and protect their interests and their lives. In this context, the Zionist imperialist warmongers to the south look less like outsiders and more like a regional minority that’s done well for itself – like Iraq’s Shiites and Kurds. Wow, those Jews win even when Arabs do too!

Ariel Sharon: winner

The Gaza withdrawal earned him international acclaim, including thawing relations with a number of Muslim and Arab states, like Pakistan, Qatar and the UAE. Now Sharon has left Likud to start his own party, Kadima, or Forward. In the last two elections, it was Arabs who elected the prime minister, but it’s unlikely the PA, Hamas, Islamic Jihad or Hizbullah, will have a very large say this time. Sharon has provided Israelis with plenty of security and even if he wanted to withdraw from the West Bank, and he doesn’t, there is no political will in any of the country to do so.

Palestinians: winner

The Gaza Strip isn’t much, but it’s a place to start – and more to the point, it’s a place where more than half a century’s worth of previous Palestinian leadership has been managed. And now President Mahmoud Abbas is busy trying to cobble together meaningful political institutions while tackling corruption and crime, noble and daunting tasks for any democratically elected leader. He’s got a lot of help from the international community and everyone’s rooting for him – except for his political rival, Hamas. Understandably, Abu Mazen doesn’t want to touch off a civil war, especially one he might not win, but without monopolizing legitimate violence, there will never be a sovereign Palestinian state, not because the US, Israel or the EU won’t allow it, but simply because it won’t be a state. Maybe he is waiting to see how the Seniora government takes away Hizbullah’s arms and gets them fully into the political process.

Syria: loser

Insofar as the goal of any regime is to ensure its continued existence, Syria didn’t do all that bad for an international pariah state. And just when we thought we’d seen the last of Baath party comedy as former Iraqi minister of information Muhammad Said al-Sahaf ran for the hills when US tanks he said didn’t exist were closing in, the Syrians roll out their own investigation into the Hariri assassination. What’s really a gas is that Damascus’ Westernized leader evidently thinks that a German judge goes about his business like a Syrian one. “Yeah, that’s the ticket – Mehlis built his whole case on Hosam Hosam and now he’s got nothing, nothing I tell you! Ha!” It would be really funny if there weren’t so many lives at stake, not that Syria cares as it’s been throwing its insults at its neighbors for several decades now just to keep its own hindquarters dry. Everyone else in the region is furious with the regime, but few wish its demise. Cairo, Riyadh, Amman cannot bear the idea of the Bush administration feeling its oats – What, us next? So, who knows if the family in Damascus will survive, but in the future, God-willing, Syrian high-school students will be hard pressed to believe that at one time their country was run by vicious, buffoonish adolescents.

The US taxpayer: loser

It is a tribute to Middle Eastern hospitality that so many in the region are eager to distinguish between the American people and the policies of their government. Nonetheless, it is useful to remember that government by and for the people means that Americans are their government and are thus endowed with the right to hire and fire their leaders. It’s actually a really good thing, even when voters re-elect a president for a second term, as they did the current inhabitant of the White House. Of course, the many billion dollars the US has spent to give Iraqis a chance to elect their own leaders, is a much smaller percentage of what WW II took out of the US economy, and the military casualties aren’t even as high as civilian deaths on 9/11. But as domestic support for Iraq is waning, the Bush administration has yet to disclose any real new strategy except: Stay the course! Ok, but for how long and what’s the price, in lives and dollars? The real problem is that the one workable solution that doesn’t entail vacating Iraq would demand not less but more from American taxpayers, like higher tariffs, especially on fossil fuels, and most likely a draft to fill the ranks of a military that was not trained for a mission it nonetheless mostly believes in: bringing democracy to Iraq.

The neo-cons: losers

Misunderstood and largely unloved by both those who do and do not understand them, the neo-conservatives are a boutique school of American policymakers, politicians, journalists and intellectuals who have very little in common except their shared belief that US policy in the Middle East over the last 60 years was in error. Given that the attacks on the World Trade Center left thousands of civilians dead in a major US city, they have a point. Once the administration found no WMD in Iraq, the neo-cons were pressed into service – now, the US was in the Middle East to import democracy. As farfetched as that thesis may sound to some, and as mendacious as it may sound to others, without it much of what transpired in the region this year wouldn’t have happened without that idea. For instance, there is a very powerful current in US policymaking circles that still argues that the US needs Syrian help and if that means giving Bashar al-Assad a free hand in Lebanon so be it. The neo-cons won that fight and some others, too. Still, it’s sheer fantasy to imagine that a group of academics and journalists ran the government of the United States while CEO millionaires like George W. Bush, Dick Cheney and Donald Rumsfeld looked on helplessly. No, the neo-cons deserve some credit and as they are not that powerful they’ll take a lot of blame, some if it in Iraq perhaps.

0 comments
0 FacebookTwitterPinterestEmail