Bank Al Baraka Lebanon has a new management and new dynamics. The bank, which has five branches here and operates according to Islamic banking principles, is part of the Dalla Al Baraka Group, whose principal shareholder is billionaire Saudi financier, Sheikh Salah Kamel. The group includes banks and asset management operations in the Middle East. Executive spoke to the chairman of Al Baraka Lebanon, Tameem Jad, about the restructuring and development of the bank in Lebanon and the region.

In the middle of last year, you became CEO of Al Baraka Bank in Lebanon. What was the focus of your activities?

Al Baraka bank has been operating here since 1992, but it was not very active. The bank needs a lot of things and for the last six months we have been restructuring. When I started here, I checked all our business: 70% of all our business was Murabaha, which is a finance product. This is not the main concern for Islamic banking. The core of the restructuring activities is focused on developing three [Islamic banking products], MUSHARAKA, MURABAHA and MUDARABA.

Did you make changes in terms of systems and internal structure?

We now have computerized everything through a new system called Midas, for which we bought the license. At the same time, we changed the bank’s people culture. We took graduates from the Lebanese American University, from where we recruited five to ten people, or almost 10% of the staff, for management positions. Of our employees, 70% are new.

Have you also increased your overall staff?

Yes, by 20% in 2003. Very soon it will be 50%, when we open two further branches here in Beirut.

How did you develop Al Baraka’s reach in the market?

One can do many things in Islamic banking. I visited some small industries involved in producing aluminum and plastics, as well as paper recycling, where we could easily do some business. They need machines. We buy the machines, either by financing it or through Musharaka [or partnership financing]. This gives people good opportunities to start very strong business with Africa. We have also designed a new product that offers people a chance to go on the Haj. We can give you this as a Murabaha and received a license from the Shari’a court to sell it. This is one product that we implemented here in Beirut and passed on to all banks in the group.

Are you targeting retail customers and what are your expectations for 2004?

We are aiming, first, at small and medium enterprises. We need to develop our network to at least 20 branches. I expect this year to be very hard. What you have seen here has been achieved in only six months. I spent 16 hours each day in the office. Sometimes I sleep there, to see my aims accomplished.

Do you have further plans?

We are going to do a lot. We are expecting investors to join our bank here and the Tafal Insurance [affiliate company established last year]. From our part of the business, Sheikh Saleh Kamel and I are going to establish a new business that will act as a consultant to all business coming through the bank.

Did you increase the capital of the bank?

Islamic banking is mainly asset management. In Islamic banking the capital is with the investors. Islamic banks need capital but not like traditional banking. The Lebanese central bank knows very well about this. We are going to increase the capital, by the way, to $50 million, and I already own a share in this bank. Would you consider going public?

We are thinking about it now. After working on each of our banks and increasing the capital where necessary, we are expecting in 2004 or the middle of 2005 that the group will start with a private placement. Later, we will move to an Initial Public Offering. We have many people who are willing to go to the IPO. Did the Al Madina scandal create any pressure on your relations with customers or investors?

I don’t know what happened at Al Madina but it did not affect our business. Since I came here, my business has increased more than 50%. Saudi shareholders are increasing their business in Lebanon because they believe the country will improve. You have liquidity in the market, and it needs investment outlets. I think what’s happening in the world now will give people better opportunities to establish friendships and relations, and encourage Lebanon and others. Hopefully, peace will come to the region.

Last month the Saudi Arabian authorities ordered the removal of ‘poor boxes’ from outside mosques in an effort to curtail the flow of money to what the Saudi government calls “terrorist organizations.” The move comes after indications that individual contributions to Islamic organizations have greatly declined after the implementation of strenuous controls to curtail the flow of money to extremist groups. However, it appears that not all sourcing has been cut-off. Just this January, US federal banking regulators are looking into the Saudi Arabian Embassy’s bank accounts in Washington, DC, examining numerous transactions, totaling tens of millions of dollars in cash that weren’t properly reported, according to a Wall Street Journal report published on January 14.

The newspaper states, “While the US investigation into the Saudi accounts was previously known, the discoveries at the Riggs National Corporation show it is far broader than previously disclosed.” The inquiry, which began in 2002, initially involved only a few thousand dollars, thought to be tied-in to the September 11, 2001 perpetrators. “Now,” the paper reports, “investigators are trying to account for millions of dollars in hard-to-trace cash.”

The paper writes that it is unusual for the US to scrutinize the finances of a close ally such as Saudi Arabia. “But since September 11, the Justice and Treasury departments have been trying to track the origins and destinations of money brought into the US to fund schools, mosques, charities and Islamic groups, some of which are considered extremist by the US” This does not mean that the embassy’s money deliberately funded these groups, but it does cause concern to US authorities that want to keep a tighter lid on transfer of funds originating from potential supporters of such extremist organizations. The embassy ‘incident’ typifies the problems facing Saudi Arabia, but it may just be the tip of the iceberg. Today, for the first time since its creation in 1902 when Abd al-Aziz bin Abd al-Rahman al-Saud captured Riyadh and set out on his 30-year campaign to unify the Arabian Peninsula, Saudi Arabia faces its most serious threat. Its once-thriving economy propelled by the 1970s oil boom is stagnating, affecting its society as never before.

The one-time social pressure valve – religion – offered to a society where socializing among mixed sexes is banned, where cinemas are non-existent, where alcohol is forbidden, where women are still veiled and considered second-class citizens, where political parties and elections are absent and democracy is unheard of, is now coming back to bite the government. Since oil was first discovered in the 1930s, bringing unimaginable riches and practically unlimited resources to the country, the ruling House of Saud had hoped they could forever live in a quasi-utopian world, far from the problems of the West. The Saudi rulers wished to market their oil to the West, but at the same time shut it out, thereby safeguarding the country from foreign influences. They believed the mighty petro-dollar could buy anything and distance all ills, be they political, socio-economic or any of the other turbulences that modernity unavoidably brings with it.

Now Saudi Arabia is now waking up to a very different reality. For decades, many people in the Kingdom refused to admit that all was not quite right. That beneath the apparently tranquil façade of a society, where the state took it upon itself to provide free cradle-to-grave healthcare and free education, compiled with no taxation thanks to generous oil revenues, resentment, nevertheless, has long been brewing. Turmoil, rather than oil, is now emerging from those desert sands. The reason for Saudi Arabia’s new internal disorder, brought to the world’s attention by the recent wave of terrorist activity that has ripped the until-now quiet country of about 20 million, is two-fold: Islamic fundamentalism and a growing disenchantment among the young, exacerbated by a decline in the economy.

Over the years, affluent Saudis, including some members of the royal family, financed madrassas in Pakistan, Afghanistan, Malaysia, and Indonesia as well as Western Europe and North America, thinking it would appease the Wahhabi fundamentalists, who would leave them alone back in Saudi Arabia. Some contributions, such as that from the wife of the Saudi Ambassador to Washington, were made without the knowledge of where the monies would end up and it is these transactions that are now under scrutiny by the US authorities. In addition to stopping the flow of funds to possible terror groups, Saudi authorities have realized the need to curtail the preaching of fundamentalists. According to one well-informed report, more than 2,000 Saudi imams who advocate hard-line fundamentalism have been removed from the pulpit. About 1,500 are being reeducated or have been jailed. Bin Laden, originally a Saudi citizen, is one of the many disenchanted Saudis who have now taken his fight into the streets of Saudi cities. The reason behind his hate of America, as demonstrated by the horrendous September 11, 2001 attacks on New York City and Washington, DC, is due to the unfaltering support given by the United States to the Saudi royal family.

Many of these disaffected young men – like bin Laden – have turned to religion to vent their frustrations. Today, one should not brush aside the possibility that Saudi Arabia may turn radical. Conditions in the country are ripe for growing dissent to continue to rise to a perilous level, unless the situation is immediately addressed.

Yet the answer to the Saudi dilemma is not simple. The United States, who keeps pushing for greater democracy in the Middle East, ironically, might not find it entirely in its national interest if free elections were to be held in Saudi Arabia tomorrow. Many analysts believe the majority of the vote would be won by bin Laden supporters, turning the world’s largest oil supplier into an anti-American, anti-Western strict Islamic theocracy.

The perceived corruption in the royal House of Saud does nothing to help the royal family’s cause; many Saudis, particularly the fundamentalists, frown heavily upon the jet-setting life style of the royal princes and what they call their ‘decadent’ Western habits. Additionally, the growing numbers of university graduates, who are injected yearly into Saudi society, but with no prospects of decent employment, add to the growing resentment of the royal family.

Much of the disenchantment stems from the country’s youth, many of whom, despite free higher education, remain unemployed and see little, if any, prospect of a brighter future as long as the status quo remains unchanged. The under-25 year-olds now comprise a clear majority in the kingdom. Over the years, this resentment has matured and developed into an aversion to the lifestyle portrayed by the country’s 7,000 princes, who, on average, receive each a $500,000 yearly stipend. This money, critics say, is wasted on luxury items, extravagant villas strewn over Marbella, the Cote d’Azur and other chic resorts. Many Saudis begrudge the princes’ excessive lifestyles that would make even the most extravagant Hollywood star appear tame by comparison.

The Saudi royal household’s spending money for the 24,000 members, its princes, spouses and assorted offspring comprised, hovers around a $3 billion annual budget.

Meanwhile, the official line in Riyadh was that everything was golden in a country that prided itself on its low crime rate and strict Islamic codes, where shari’a – Qoranic law – was rigorously enforced. Even after September 11, some members of the Saudi ruling class continued to reject the possibility of terrorist striking at home, refusing to bring change to a failed educational system that helped produce some of these fundamentalists.

Even after the September 11, 2001 attacks, some Saudis refused to acknowledge the fact that 15 of the 19 hijackers were fellow citizens. But the recent surge of homegrown terrorism in their own streets has suddenly woken the Saudi authorities to the fact that immediate action is needed.

Recent bombings, including shoot-outs with police forces in Saudi cities – a previously unheard of phenomenon in the kingdom – have made the Saudis realize they cannot remain immune to terrorism. For years, some members of the royal family wrongly believed they could "buy protection" from fundamentalists, by paying them off through generous financial donations and in building madrassas.

Late last year the Saudis prevented an attack in the holy city of Mecca, but suicide bombers, believed to be members of Osama bin Laden’s al-Qaida network, blew themselves up in a residential complex close to the king’s palace, killing 17 people and injuring about 120. This attack followed the temporary closing of the US embassy and consulates in Riyadh.

Today, under the quiet desert sands a revolution of sorts is brewing. The May 2003 attacks acted as a rude reality check. It was their September 11. It made them realize that changes had to be made or else risk continuing upheaval, and even worse.

The solution to the country’s mounting problems lies in a succession of quick reforms that should be adapted at all levels of Saudi society. The most pressing is in education, where the curricula need to be transformed and updated in order to bring it in line with 21st century learning. Women need to be given greater rights, and the people need to be gradually introduced to democracy by giving them a share in the running of their country. The other burning issue, of course, is restraining militant Islamic activism. At a lecture given at the American University of Kuwait on January 13, Marwan Muasher, Jordanian Minister of Foreign Affairs, who had previously served as Ambassador of Jordan to the United States of America, stressed the need for political reform in the region. "The Arab World needs to adopt a new political order to be able to address ever-increasing changes on the global arena. Anyone who calls for political reforms and more freedoms in the Arab world is condemned and branded an ally of Washington. Not so long ago Arab experts (through the UNDP) outlined problems in Arab societies which included lack of freedom, outdated educational system, human right abuse and trampling on the rights of women". Political reform, Muasher stated, should not be limited to one country alone but implemented in the whole region and should not be delayed; otherwise economic development without corresponding political advancement would be meaningless." He added, "Political reforms are needed now because they may come later at a higher price". “The core of the reform and its success or failure will depend on the Royal Family’s unified efforts to define Islam and delegitimize its more extreme elements,” says Ambassador Edward S. Walker Jr., president of the Middle East Institute in Washington. Walker, who has served as American ambassador to the United Arab Emirates, Egypt and Israel and was assistant secretary of state for Near Eastern Affairs from 1999 to 2001, believes that “There is a quiet revolution going on in Saudi Arabia. No one knows its depth, its breadth or its ultimate impact, but the reform effort is very real and is probably unstoppable.”

One can only hope that the revolution continues to be a quiet one and revolves in the right direction.

(Claude Salhani is the foreign editor and political analyst with United Press International in Washington, DC.)

To the credit of the aviation sector, December’s deadly crash of the Union des Transports Africains plane appears not to have damaged consumer confidence in the region’s leading airlines. Established carriers and Arab niche operators all agreed that they are in a different league to a company like UTA and Flash and have nothing to fear. “From my perspective, the incident barely dented the customer confidence of Middle East travelers,” said Horm Irani, general manager of ExecuJet Middle East. “There are a number of new carriers establishing themselves in the region and doing well by all accounts. Current carriers such as Emirates, Qatar Airways and MEA continue to flourish and grow and certainly demand for our services continues to remain strong.” The disaster could have some negative bearing on commercial aviation in Lebanon, at least in the short term. Sector companies, until now, were commonly full of praise for the supportiveness of Lebanon’s government and aviation authorities. But following the back-to-back crashes, industry sources said the government is likely to be extra careful in scrutinizing applications for charter licenses. These measures, while frustrating for those companies eager to do business, can only lead to increased consumer confidence in the long-term. The UTA crash, or more likely the public accusations and rumor mongering about alleged culpability of local aviation officials, seem to have forced public servants to hunker down. “The civil aviation is becoming more restrictive,” observed Fadi Saab, chairman of Lebanon’s cargo airline, TMA. “I hope that fear of responsibility and blame will not become an obstacle for developing the role of Beirut Airport.” Of course, in every tragedy there is a lesson of human responsibility to be learnt, and fulfillment of this responsibility can never be emphasized enough. This lesson applies especially to those who do things the “Lebanese way,” meaning that congenial ability for making impromptu arrangements and circumventing obstacles, even if they are essential operating rules and safety procedures. In plain words, application of standards is a permanent need, and stakeholders in land and sea transportation here have still much to accomplish in that respect. Enforcement of vehicular safety standards in land transportation, for instance, this year in the infancy of its implementation, remains under-appreciated. Opposition to moderate requirements on technical and environmental soundness of vehicles used in public transport is a disturbing symptom of immaturity, lacking awareness and missing education. Working hour regulations for truckers and the safety and environmental inspections of their heavy vehicles, which is commonplace in developed countries, have yet to be implemented. From taxi drivers to enforcement officials and role models – including politicians, schoolteachers, driving instructors and reporters – patterns of demonstrating awareness and setting examples are rarely seen.

In the goings and comings at Beirut Port, observers also have spotted lingering disrespect of proper standards. As far as crooked inspectors closing their eyes to certain problems on safety inspection lists, “corruption still exists in the port,” said Ian Wilson, a consultant and resident expert on maritime safety. He and other insiders knew tales of unsound, leaking and creaking equipment, hushed-up incidents, problems with inexperienced pilots, and criminal attempts to alter an accident scene after a ship fire.

Lately, the safety awareness and compliance among Lebanese ship owners has been progressing, Wilson said, with the ministry of transport and port authorities making efforts to improve the enforcement of standards, by stepping up scrutiny of ship certifications and seafarer certifications. According to the expert, this positive development is further helped along by increasingly tighter international requirements for maritime safety, the latest increment being impending measures aiming to safeguard ships against use in terrorist attacks. Overall, however, in context of ambitions to assume a stronger role for Lebanon’s shipping and transportation industry, domestic safety issues and regulatory standards deserve still increasing consideration from all public and private sector participants. It would be of even greater advantage, if these standards could be implemented in conjunction with a regional regulatory framework also involving harmonization of customs procedures and transit standards. As far as these frameworks for borderless transportation within the Levant are concerned, the present situation is rife with problems. Industry members frequently don’t like to speak up about the issue but there is no mistaking the reality of protectionist and self-serving behavior of governments in the Levant that hinder competition and evolution of both trade and transportation. Lebanon is no exception to the practice but, as the realm’s smallest country, it suffers the largest disadvantages from the situation. “Syrian traders are forbidden from using Lebanese ports to import or export goods, because their government wants to make money at its ports,” lamented a shipping manager. The complaint is as common in the industry as the request to not be identified for making it. Latest developments in the area of customs harmonization promise some but not total relief. About half a year ago, Syria unified its tax and documentation requirements and reduced the levies on transit cargo. Lebanese freight forwarders uniformly lauded this development as very beneficial. Only last month, in response to increased cargo traffic caused by the growth of trade and aid shipments to Iraq, Jordan decided to temporarily suspend restrictions on transiting containers shipped through ports other than Aqaba. The Jordanian, Syrian and Lebanese ministers of transport have furthermore conferred about more permanent measures to improve the regulations for overland transit shipping involving the three countries. The negotiations would not mean that protectionism will vanish in the foreseeable future – Syrian traders will still be prohibited from using Lebanese ports for their imports and exports – but they could create a viable regulatory environment to give Lebanon’s ports, shipping agents and freight forwarders a decent share of the cargo business to Iraq. According to Abdel Hafeez Kayssi, director general for sea and land transport at the ministry of transport and public works, the work on better regulations is progressing. “We are expecting a Memorandum of Understanding to be signed by March,” he said, “in preparation for further steps.” While they are waiting for better regulations, Lebanese forwarders simply remain applying “the Lebanese way.” As Syria requires payment of a cargo tax for all goods entering the country, one explains, “truckers cross the border with two sets of invoices. He hands one to Syrian customs; the other stays in the driver’s cabin and is for the customer in Iraq.”

By under-declaring the value of the cargo, the forwarders found a way to pay minimal transit tax to Syria, presumably with some support from WASTA-appreciating control personnel. And since the freight does not remain in the country, it does not trouble the waters. The system has worked well for the past six months of Iraqi reconstruction, as customs and import taxes on the Iraqi border were suspended. The UTA crash was a veritable catastrophe. Apart from devastating hundreds of families, it led to an official investigation of the disaster and caused an avalanche of wild accusations in the media aimed at any political opponent they alleged to be linked to the plane and who violated their responsibilities by allowing it near Lebanese airspace. However, cool reflection will win out and there is unlikely to be any indictment – legal or moral – that this accident was a symptom of any flaws in Lebanese air safety practices. Lebanon is a signatory of the International Civil Aviation Organization (ICAO) rules and if the country is to be blamed for allowing the plane to land in Beirut, then similar culpability must be leveled at Dubai, where the plane frequently landed. As one aviation expert put it, “much worse planes are out there flying and if this plane had not been overloaded it would still be flying today.” Human responsibility for the catastrophe of UTA flight 141 clearly existed. All indicators, however, suggest that, morally and legally, this guilt rests with the pilot and with the airline, which sanctioned the take-off even though the plane was overloaded. Take-off crashes due to overloading of passenger jets are rare. The Aviation Safety Network, which maintains a global data-base of all reported accidents and occurrences involving loss of aircraft since 1945, lists only nine overload crashes, two of them with a higher casualty count than the UTA crash. Things are seldom as clear-cut as they appear to be in this case. When the first takeoff attempt had to be aborted, the plane’s owner had no right to interfere with the flight management. As sole authority in the cockpit, the pilot would have had the legal obligation to dismiss the owner’s crazed demand. Furthermore, any control tower worth its salt would have intervened after the first aborted take-off.

The two men with the burden of not preventing the crash both survived. Each will have to be held accountable, and each will have to bear the knowledge of their blame for causing loss of lives. To the large rest of air travelers, a lesson of this disaster suggests that individually, one should never dismiss common sense. If you see a row of folding chairs added at the back of a passenger jet, just refuse to buckle up and get off, even if it means re-bribing the authorities to allow millions of dollars of hard currency to walk out of their country.

The matter of greatest obvious concern for stakeholders in sea and overland transportation is the new container terminal at Beirut Port. Idle since its completion some three years ago, the $200 million project’s commencement of operations depends on two factors: contracting an operator and installation of essential equipment, like the so-called gantry cranes.

Three of these giant cranes, capable of lifting containers between cargo vessels and shore-side facilities, have been manufactured in China at a cost of $27 million. The contract also includes six smaller, mobile gantry cranes and other equipment. Representatives of Lebanon’s shipping industry are eagerly awaiting the arrival of the cranes. “They were scheduled to arrive here in February or March but an agreement between the Port of Beirut and the supplier has been made to postpone delivery until May,” said Elie Zakhour, president of the International Chamber of Navigation in Lebanon.

Sector companies are nervous about any sign of delays in delivery of the cranes, as it highlights the fact that the tender for an operator contract is overdue and is reminiscent of the derailment of the container terminal’s start in 2001. At that time, the Dubai Port Authority (DPA) bowed out of a contract to operate the terminal, and shipping insiders believe that a key factor in the cancellation was problems between the port and a group of contractors who hitherto have been entrusted with handling cargo movements.

These operators are independent firms, which the Lebanese government invited at the end of the war to provide stevedore services when the authorities needed to bring the port back to life in the fastest and least costly manner available. The contractors were rewarded for their commitment by receiving a 30% share of the cargo fees collected by the port. This, said Zakhour, “provided the equipment owners with a total revenue of $15 million over the past 13 years” – but port and operators never signed a formal contract that would regulate their status and cover questions of canceling their services. Almost unavoidably, the current matter of contention is compensations. It was over this issue that stevedore companies last month staged a one-day walkout that paralyzed cargo movements at Beirut Port. Observers contend that similar disputes between the port and the same operators – whom some industry insiders call “the Mafia” – played heavily into the fact that DPA stepped out of its contract. And they are asking whether the interests of this smaller group again could, by using their alleged ‘pipelines of influence,’ prevail over the common good. Following the DPA withdrawal, cargo handling at Beirut Port continued in a fashion that made visiting specialists gasp at how well the operation was working – but only given that the work is done by using the methods of a bygone shipping era. The problem is, the system is simply unsuited for large ships. “No shipping line is interested to come to Beirut as long as there is no container terminal,” said Zakhour. “When we have the terminal, Beirut will have a chance to become a transshipment hub.” Completion of the container terminal will boost capacity of Beirut Port to be able to handle 500,000 twenty-foot-equivalent units (TEU), a theoretical increase of about 70% over its 2003 cargo volume that was in the magnitude of 300,000 TEU. But more important than this increase in capacity would be improvements in service quality and reduction in turnaround times for big vessels. Undoubtedly, even the best imaginable boom of Lebanese domestic consumption and exports could not provide Beirut port with the volumes and turnover of a major hub. To some operators, the facts that the port generates income and operates with some degree of efficiency thus serve as arguments to justify the current situation as acceptable. In the eyes of others, repeated postponements spell another lost chance for each day that the terminal remains idle. There is but one way to test whether Beirut would be able to succeed in competing for sea-to-sea transshipment business, and that is offering the services of a functional terminal.

What adds further spice to the situation is the recent upturn in cargo movements to Iraq. “Sea to land transshipment has much improved,” Zakhour said. “When the US/UK-led coalition made war on Iraq, we were afraid that impact on shipping would be disastrous, but it is now better than before the war. Under Saddam, everything in Iraq was state controlled whereas today, private importers rule the scene.”

Although much of the increase in deliveries to Iraq last year was in shipping cars, members of the industry view growth of container forwarding in 2004 as a sure thing. The main reason for the optimism is based on the situation in other ports, mainly the Jordanian Aqaba. It is the primary gateway for shipments into Iraq and favored as an ally by the Americans, but traffic at the port has become so intense that carriers have been leveling high congestion charges for sailing to Aqaba.

From the Syrian ports, Latakia and Tartous, shipments to Iraq have similar overland transit times as from Lebanon. But in these ports congestion reportedly is also becoming an issue, thus opening new prospects for Beirut and Lebanon’s second port of call, Tripoli, which also saw cargo business pick up in the second half of 2003. (Like Tartous, Tripoli Port is undergoing extension and modernization, financed by a development loan from the European Investment Bank.)

Trucking a container from Beirut to Baghdad currently costs between $1,200 and $1,800, depending on the circumstances, said Nabil Sakr, managing director of DAS Express, a firm with experience in overland forwarding to Iraq. He estimated shipping costs via Tartous to be about 25% lower, but claimed greater speed and expertise in Beirut could make up the difference for shippers. DAS management expects an increase of Iraq-bound container shipments via Beirut by 500% to 600% for this year alone. But even after such an increase, other ports would still be far ahead in their throughput of Iraq cargo. “What we are getting is almost peanuts,” Sakr said. Based on the reasoning that Beirut can equalize its higher port fees by already offering a faster turnaround time to ships and better service than the bureaucracy-heavy Syrian ports, Lebanon’s premier port could push its advantages further by offering lower rates and achieving additional improvements on service quality and speed – tasks for which a well-run, spanking new container terminal would come in more than handy.

A third industry concern and opportunity for developing the Lebanese shipping location is as a logistics hub. The crux of such an operation lies in the ability to provide large international manufacturing companies with a regional distribution base, from where adjacent markets are supplied and serviced.

International express shipping and logistics company DHL has already taken steps that could assist Beirut in assuming a stronger role in its regional network: it has set up new overland routes and their Lebanon operation has just received approval for expanding its facilities at Beirut International Airport by 3,000 square meters. The expansion involves a capital expenditure of $2 million and the hiring of some 40 new staff over the next three years, country manager John Chedid told EXECUTIVE.

He attributed much of Lebanon’s growth potential in providing logistics to improvements in the regulatory and customs environment. “When you have facilities and good customs practices, you start attracting transit material,” he said. “New procedures in customs have made everything clearer and much more transparent. If I dare make a prediction, 2004 will see further progress towards a much better regulatory environment.” One crucial improvement in operating conditions for international and domestic logistics firms is definitely in the making. Exploiting the geographical and skilled labor advantages of Beirut for providing logistics services to any of the big names in manufacturing requires a free zone environment that permits repackaging and distribution of shipments – which previously had not been possible under Lebanese regulations. However, EXECUTIVE learned the rulebooks for Lebanon’s free zones have just been rewritten. The revised rules, allowing freight forwarders to establish facilities in the free zones and implement regional distribution activities, are in the final approval phase at time of writing this article.

Joseph Harb, president of Beirut Cargo Center, told EXECUTIVE the new regulations will open tremendous opportunities for logistics providers not only for his company, but also for the economy at large. “If you want a big manufacturer like Addidas or Siemens to open an office in Lebanon, allow freight forwarders into the free zones,” he said. Additionally, the move would serve to promote Beirut Port internationally, Harb enthused. “Ports and customs authorities do not promote the free zones,” he said, “the freight forwarders are the ones to promote them.”

Is it fair to say that the port has been performing reasonably well in 2003?

Yes. Beirut Port has been performing well with regards to imports and total revenues, which increased from $71 million in 2002 to $75 million last year.

A much talked-about issue is the project of putting the port’s container terminal into business. Is the tender for finding an operator progressing?

It is ready. We have completed the tender documents, and they are now with the minister for final approval.

How long until an operator would be able to come in?

In the tender documents, we specified one-and-a-half months to receive responses from interested operators, but we think that we should extend that to perhaps two months. For the phase from awarding the contract, we have scheduled three to four months for the operator to mobilize and start operations. In total, we are talking about half a year.

For what duration will the contract be awarded?

It would be for 10 years, with a possible five-year extension.

A second big issue regarding the container terminal is necessary equipment, which you ordered from China. Are these gantry cranes ready for delivery?

Delivery of all the equipment we bought has already begun. I think the gantry cranes are on a boat and just left China. They require two-and-a-half months at sea because they have to go all the way around Africa. Then they require another two-and-a-half to three months of erection and testing, which, like the operator tender, brings us to the middle of the year.

Did you request a delay of delivery?

There was a delay by two months. Delivery was originally scheduled for end of March. However, we did not actually delay delivery. We pinpointed some issues in a punch list for modifications and we requested the manufacturer to change most of them in China.

Does this delivery provide all the equipment needed for the terminal?

Ideally, we should have four gantry cranes and not three, which means that ideally we should have eight Rubber-Tyred Gantry cranes [RTG] and not six. We opted to buy the strict minimum as an initial step and allow ourselves to buy more when need arises. In our contract, we have an option to buy one more fixed gantry crane and two more RTGs.

Steel prices have gone up. Could that alter prices under the contract option?

The option does not allow for a price hike due to steel price fluctuation. The only price hike is on the euro side. When we signed the option, 25% are to be rescheduled taking into regard euro appreciation.

Considering the total cost of $27 million for the equipment under delivery, you got a good deal?

We got an excellent deal.

As far as construction of the container terminal, is it correct that the total capital investment amounted to $200 million?

It was less than that and it was more than just the container terminal. The investment was closer to $180 million and it included rehabilitation of some of the old parts of the port.

Are the $27 million for the new cranes included in the $180 million or on top of that?

I believe, on top.

Did it incur specific costs for the terminal not to be operational for a period of several years?

Major cost would have been interest expenses, but the port self-financed this project and basically there were no interest-bearing loans involved. We have some maintenance costs, but those are peanuts.

But how would you assess the cost of lost opportunity from the delay?

I believe the cost of opportunity loss is in the extra services that we could have offered, mostly in transshipment, and in the quality of the service that we could have achieved. What the dollar figure for that is, who knows?

Do you consider attracting large carriers for transshipment to Beirut as a realistic vision?

I have been talking a lot with carriers, and the vision varies. There are those who think that it is absolutely impossible to have transshipment here, and then it ranges all the way to those who think that carriers will be lining up to transship out of Beirut. I think if we can sell that product at a good price we will have some transshipment but I don’t believe that we should aim at becoming a transshipment hub the way Dubai or some other ports are. Further expansion of Beirut Port would be very expensive and I do not believe that transshipment revenue would be able to cover such expenses.

Did the delay harm the concept of becoming a transshipment hub?

Today, we have very little, not to say no, transshipment cargo. The studies we have undertaken show that transshipment starts very slowly and tends to increase with time. So, a three year delay is costing some money, but not a lot.

Can you confirm that freight forwarders will be able to establish operations in the Port’s free zone?

Yes, we have been working very closely with customs on that issue and we just modified the rules for the free zone in order to allow logistics companies to operate inside the free zone. This is especially for re-packing, handling cargo for third parties, and to undertake stock control for major companies, in order to make Beirut a center of distribution for the entire Middle East area. This is much more interesting than transshipment alone.

Last month, the port saw disputes and compensation demands over termination of stevedore contracts with the equipment contractors that have been handling cargo at the port. Would you be able to comment on the validity of their demands?

While I understand their demands and might be sympathetic to some of them, legally speaking, I cannot resolve them from where I stand.

Could you give an estimate on the value of their equipment and what amounts these companies might have invested in the past five years?

Since we are not legally bound or allowed to provide any compensation, we didn’t look into this matter. Just as everyone, I have heard of astronomical amounts of money that are supposedly being demanded. I can only say that I think the numbers I heard are far exaggerated.

How do the Lebanese print media survive?

The word survive is very accurate. Before the war, the Lebanese media was flourished in terms of sales and advertising revenues. Unfortunately, during the war we had to spend all our reserves and now we are surviving. The print media market is depressed not just in Lebanon but worldwide has fallen by something like 25% to 30%, the broadsheet media and the dailies, that is. But because of the political and economic situation in Lebanon and the region, the advertising market has dropped – by something like 35% to 40% for television and 25% for the print media. We face a major problem with all our budgets, short-term, mid-term, and long-term. At the end of 2003, we had lost something like $1.5 million in advertising revenues. That’s a big amount in the print media.

How do you cover your losses?

Our first step, years ago, was to increase the price of the newspaper, from LL1,000 to LL2,000. Then, we increased the capital of the company that publishes An Nahar. We knocked on the door of people who were interested. We integrated them into our family. And of course, in buying the shares, they paid a different price than the normal price. We’ve been able to bring in something like $10 million, just to cover all the losses of the war, to ‘clean’ everything, and to prepare the budget for the next six years.

Has your dependence on investors interfered with the paper’s independence?

In our case, no, because in the charter of the company it is written very clearly that the policy of the paper is decided by the journalists and the Tueni family – because it’s a family business – based on the mission set out in 1948 by my grandfather, Gebran Tueni, concerning the role of An Nahar, the defense of press freedom, and the defense of the integrity of Lebanon. Anyone who buys shares in An Nahar must agree to this.

Is there an advertising monopoly?

I don’t oblige advertisers to advertise in An Nahar. And our prices are high. There is no monopoly of advertising. People can compare and choose.

Why has Prime Minister Rafik Hariri relinquished his 34.5% stake in An Nahar?

I don’t know but I’m happy. He has his own reasons. I had mine for buying back the shares. A lot of people told me I was stupid, but I said: No, no, no, when you want to pay for your freedom, it costs you a lot. I don’t think he was very happy to give them up. I was very happy, but you should know that the price was very high. I can’t tell you how high. But it was a very high price, a really high price. He did good business. But I think politically it was good for An Nahar. A long time ago, I asked him to sell me back the shares, but he didn’t want to at the time. Now I think he feels that the policy of An Nahar for the time being is very independent and maybe he thought that he cannot exert pressure to change that policy. Maybe he thought that it was too much for him to support.

Is there any truth to the suggestion that he relinquished the shares under pressure, indirect or otherwise, from Syria because An Nahar espouses an anti-Syria editorial line?

That is pure fantasy. That would mean that today, I can thank the people I attack in my newspaper for exerting pressure on someone to sell me shares, so that am now more independent. It was a very positive point for the readers also who wrote to congratulate me. Now I’m going to sell shares with the new philosophy that no one person can own more than 30% of An Nahar.

Why was it so important to you to get Hariri’s shares back?

It is very important for a journalist to feel that they are completely independent, that they are not dependent on the money of someone, that no one can say to them: I am a partner, especially when your partner is not always on the same political line.

Did Hariri ever try to exert pressure?

Frankly, yes and no. The relationship was comfortable, though. He endured much more from me than I endured from him, because he knew that he couldn’t exert pressure.

Does Antoine Choueiri have an unfair grip on media advertising?

How? Ok, he represents An Nahar, L’Orient Le Jour, As Safir, but I chose him, he didn’t choose me. Nobody obliged me to go to Choeuiri. I went to Choueiri because I think he is doing very good business. It’s a business contract between him and me. I chose him to manage my ads because I don’t want to create an advertising department in my newspaper. If someone has a newspaper or television station and cannot attract advertising, that’s not my fault. Let him improve his product, convince people that he is number one. Either we are in a free economic system, a free market, or not. This is not dumping. Before [we dealt with] Choueiri, we used to have our own in-house ad department, and it didn’t work. We had the problem then of going out into the market to collect payment. We need a cash flow.

Are the orders of the press and of journalists doing their job as they should?

They are doing the minimum and the minimum is never enough. In this business it’s never enough. With respect to major problems regarding press freedom, they are doing their job. We were able, through the Orders, to get the press law amended. Now, Lebanon’s press law – and I am against any press law – is a good press law. The government can no longer send someone to prison as they do with the audiovisual law, which is a very bad law. But none of the TV owners has presented an amendment of this stupid law, which allows the government to close down TV stations.

How did you feel about the arrest of New TV owner Tahseen Khayyat?

I’m against the arrest of any journalist, of any owner of a TV station or newspaper. I think the TV law in Lebanon is a very bad law. I can tomorrow morning say you are an Israeli agent and put you in jail for 24 hours.

So Tahseen Khayyat’s arrest constituted harassment?

I think it was a form of harassment.

Is this good for Lebanon’s image?

It is very bad for Lebanon’s image, for people to see, as well, that MTV is still closed because our government, our president, was upset with MTV’s policy. The government is trying to bring us back to the Middle Ages. It affects the credibility of the government, of the president, of the prime minister, of the general assembly.

Why is this happening?

Because we don’t have politicians in Lebanon. This is not an independent state. These people have been designated to do a certain job, by the Syrians.

What is your reaction to Walid bin Talal’s purchase of a 49% stake in LBC International?

It’s good. It’s good to see that Lebanese television can attract the interest of foreign investors. If it was a bad TV station, bin Talal would not have invested in it. It’s good for the sector, of course, good for the brand name of Lebanon, good for the whole industry.

What is your evaluation of Walid bin Talal’s newly-formed 24-hour Rotana music channel?

It’s good because I think that Walid bin Talal will be able to help a lot of Arab artists, who do not have the money to produce clips. I hope that we will have real artists and not popcorn artists and video-clip artists.

In early December 2003, a Pentagon decision outraged a number of American allies. US Deputy Defense Secretary Paul Wolfowitz issued a memo stating that several countries that had opposed America’s war in Iraq, including France, Germany, Canada, Russia and Mexico, would be barred from bidding for $18.6 billion in US-financed Iraqi reconstruction contracts. By January, the Bush administration’s mood had changed. It became clear that the stated rationale for the decision, namely that it would protect “the essential security interests of the United States”, somehow implied that countries historically close to the US, somehow threatened its national security. This was a bit too much even for noteworthy Bush administration unilateralists. At the Summit of the America’s in January, President George W. Bush rescinded the ban on Canadian companies, amid signs from the Defense Department that three or four states in all might be removed from the list of proscribed nations. If that’s the case, then it’s good news, because aside from the fact that the move was no more than petty payback, it undermined one of the key things that Bush and his acolytes claim to be trying to spread in Iraq: the benefits of the free market.

Writing in the New York Times, Nancy Birdsall and Todd Moss of the Center for Global Development in Washington noted: “All the fuss must seem rather strange to the more than four billion people in the developing world. After all, restricting overseas development contracts to domestic bidders – so called ‘tied aid’ – has been standard practice in the aid world for the past 40 years.” However, the authors didn’t defend the habit; they argued it led to one of the main problems in current aid spending practice -and in the Bush administration’s decision to bar non-American competitors: restricting bidders increases costs by limiting competition.

As Birdsall and Moss observed: “Advocates of improving aid effectiveness have long argued to eliminate the practice of tied aid – which, according to one economic study, reduces its value by 15% to 30%. Untying aid would allow poor countries to purchase the most efficient and cost-effective goods and services necessary for their development projects. That makes sense because the real point of aid is to help people escape from poverty. But old habits die hard.”

That may not matter much if American companies, particularly ones financing presidential election campaigns, benefit. However, as the post-war situation in Iraq has dragged on, and as American taxpayers have been compelled to pay tens of billions of dollars for Iraqi reconstruction, the matter of financial transparency has become highly sensitive politically. Very simply, voters are not keen to fatten the accounts of American multinationals like Halliburton, which recently overcharged the Pentagon by $61 million through a competition-free contract, even if the prevailing, and fallacious, wisdom in the administration is that what is good for American companies is good for America.

As writer Matt Welch observed in Beirut’s Daily Star, conflating companies with countries is “a marriage which the trade liberalization project has long been trying to de-couple.” The problem is that “where large companies are so intertwined with the identity of their countries […] their governments won’t allow them to fail.” This means that the pathologies of private firms instead of being filtered out by market forces are enhanced by them, so that mismanaged or corrupt companies survive.

A second problem is that it makes no sense to peddle the advantages of free minds and free markets to the Iraqis, if half of that equation (or indeed all of it) is ignored. From the outset, the American-led reconstruction process in Iraq has been dipped in controversy, some of it unjustified. And in a country like Iraq, where animosity to the U.S. presence is rising and where unemployment may be as high as 50 percent, according to a UN-World Bank report (including an estimated 400,000 soldiers), even the semblance of financial impropriety can be politically disastrous.

It is to avoid this that, for example, George Soros’ Open Society Institute instituted the Iraq Revenue Watch (IRW) project, to “monitor Iraq’s oil industry to ensure that it is managed with the highest standards of transparency and that the benefits of national oil wealth flow to the people of Iraq.” As IRW remarked on its website, implicitly linking transparency and political stability: “In many parts of the world, the lack of proper stewardship over oil resources has resulted in corruption, the continued impoverishment of populations, and abuses of political power… If Iraq is to become an open, democratic society it will need to develop transparent accountable institutions for ensuring honest management of oil revenues.”

Economic policies born of pique are rarely profitable, and the Pentagon’s intervention in limiting participants in Iraqi reconstruction was surely an example. The Bush administration has backtracked, and might console itself by recognizing that there are two beneficiaries: American taxpayers, who will get more aid for their money; and Iraqi citizens, who will get more money for their aid.

Michael Young is a contributing editor at Reason magazine in the US.