The Sannine Zenith project was unveiled at a Jeddah conference on January 17th, when the audience was told that the project would cover almost 100 million square meters (the size of Beirut) and be home to a population of 30,000. It will also accomodate a 3 million square meter man-made lake, 18 million square meters of ski slopes, an 18-hole golf course and five-star hotels, all financed by $1.4 billion worth of GDR. Although the project is currently 99% owned by the Lebanese Jean Abi Rached’s Al Salam Group, 18% ($252 million) of options have been subscribed to by Saudi Arabian investors. The Kingdom of Saudi Arabia remains the largest Arab investor in Lebanon, (even though the UAE appears to contribute the most to overall Arab investments) with total documented investments for the year 2002 (the most recent figures) reaching $350 million, following a staggering 290% growth over 2001. Saudi investment in the Sannine Zenith project, is further evidence that the kingdom is pulling away from the rest of the field in terms of investing Lebanon.

For the record, UAE Investments come a distant second to those of Saudi Arabia, peaking at $191 million in 2002, compared to just under $70 million in 2001. Kuwait is the only other major Arab presence in Lebanon, contributing around $100 million in investments in the year 2002, a figure up from around $47 million in the previous year. Saudi Arabia’s investments in Lebanon accounted for 16.5% of the Kingdom’s total foreign investments in the year 2002, a significant rise from only 4% in the previous year. This indicates a growth in the allocation of Saudi funds to investments in Lebanon and compares favorably with Kuwait and the UAE, whose investments in Lebanon accounted for only 6% of their foreign investments over the same period.

Lebanon’s close relations with Saudi Arabia are not a recent development, nor are they limited to one aspect of cooperation or level of involvement. In fact, Saudi Arabia represents Lebanon’s second largest trading partner, accounting for 9% of exports in 2002, behind Switzerland at 13%. Saudi Arabia was the single largest contributor to the Paris II donor conference held in late 2002, although Lebanon has only drawn on part of $700 million pledged, because many of the conditions underpinning the loan have not been met. Helping to push through this investment are the close ties between Prime Minister Rafik Hairi and the royal family of Saudi Arabia, which play a significant role in promoting Lebanon in the Kingdom, while the majority shareholders on most of the Prime Minister’s large corporations operating in Lebanon (including Solidere) are Saudi Arabian.

Saudi Prince Al Walid bin Talal is another major player. Born of a Lebanese mother, Bin Talal is seemingly seeking more significant involvement in Lebanon, and has even been rumored to harbor political ambitions. This is clearly illustrated by the $98 million investment undertaken by Prince Walid bin Talal for a 49% stake in Lebanese TV satellite giant LBC SAT. Bin Talal also inaugurated his $140 million Movenpick hotel in Beirut in the year 2002, and has already begun the construction of the $100 million Four Seasons Hotel in the Beirut Central District.

Hariri and bin Talal are not the sole driving force behind Saudi investments in Lebanon, which is attracting other funds by offering an attractive risk/return environment for investments. A high consumption market, and a tourism infrastructure that has attracted more than 1 million tourists in the year 2003 alone, and is set to attract an even greater number in the year 2004 – should drive returns higher. With such a structure, investments in Lebanon offer concrete economic benefits to Saudi investors, who can capitalize on the dual benefits of higher returns on investments and a significantly low cost of capital enjoyed by such investors. With a consumption-driven market, a prosperous real-estate sector, and a strong tourism industry, projects yield annual returns of anywhere between 10% and 15%. Such results emerge as attractive to Saudi investors, whose cost of capital does not exceed 5%, and thus earning them net returns of between 5% and 10%.

The risks are relatively well quantifiable, and can be mitigated, capitalizing on the country’s well-established and sophisticated financial services industry. Regional political risks, while unavoidable, are also relatively limited in Lebanon, compared to countries with a close proximity to Iraq, Iran, Israel, and other high-tension areas. Furthermore, the Lebanese economy appears to have a sizeable potential for growth in various sectors, especially tourism, real estate and financial services. In such a sense, the growth in the Lebanese economy is not oil-dependent, unlike other regional attractive markets such as the UAE and Kuwait.

Statistics released by the Inter-Arab Investment Guarantee Corporation have indicated that the services sector in Lebanon attracts the vast majority of Arab investments at 85% in 2002, while industry and agriculture share the remaining 15%. Such a breakdown is not surprising, given that Lebanon’s tourism and hospitality industry presents the greatest investment opportunities in the country. A rapidly growing inflow of tourists, illustrated by the massive numbers seen in the summer of 2003, is quickly overwhelming the existing facilities in terms of hotels, resorts, and other leisure and tourism services. Considering that Beirut attracts the majority of wealthy Arab tourists seeking premium services and hotels, the capital’s accommodation capabilities for such services is limited. Until three years ago, the Phoenicia Intercontinental was the sole non-boutique 5-star international hotel operating in Beirut, and benefited from a virtual monopoly on the market.

Such opportunities did not pass unnoticed. Apart from bin Talal’s spending, other developments include joint Saudi-Lebanese investments in the Summerland resort ($70 million), in addition to the on-going efforts to rebuild the Hilton Hotel ($128 million). Such a market condition prompted Arab investors to rapidly establish a presence in the country’s hotel industry, illustrated by the substantial investments undertaken by the likes of the Dubai-based Habtoor Group in the Metropolitan Palace Hotel.

Arguably Lebanon’s second biggest draw is the real estate sector, which is also attracting a large number of investors, seeking to establish in Lebanon a second home, one capable of providing them with the optimal mix of business and pleasure. Among such individuals is the personal aide to Saudi Arabia’s King Fahd, who recently acquired a multimillion-dollar penthouse apartment in the Beirut Central District. In addition, a recent report by real-estate consultants RAMCO indicates that 80 Arab investors have purchased up to 1.8 million square meters of real estate in Lebanon between 2001 and 2003.

Furthermore, Lebanon’s increasing role as the regional venue for conferences and conventions is creating a need for a more permanent residential presence for high profile Arabs. Such political events as the Arab Summit, and economic and financial conferences as the Arab Capital Markets, are attracting increasing numbers of Arab businessmen and investors. These developments are substantially increasing the need for accommodation facilities, including hotels and residential buildings. On the one hand, this creates substantial investment opportunities to Saudi investors, enabling them to capitalize on the sustained growth in the market. On the other, such developments are encouraging Lebanese investors and developers to regain faith in the country, making them more willing to undertake new projects.

The benefits of Saudi investments to Lebanon are not limited to such direct financial benefits, however, as the growth in Saudi investments has a large number of positive implications on the country’s economy and overall well-being. On the social and economic fronts, large-scale investments are providing substantial employment opportunities. Upon completion, the Four Seasons Hotel will require almost 300 employees, while the Summerland Resort currently employs more than 250 individuals. Moreover, the flow of Saudi funds to Lebanon has significant secondary effects as well, in the sense that it inspires confidence in the country’s abilities, a confidence that has been wilting away over the past five years, mainly due to the economic hardships and internal politics.

Shrewd by reputation, Saudi investors do not undertake large-scale investments unless based on certain risk and return assessments. Such investors can seemingly see sizeable potential in investments in Lebanon, as illustrated previously. This is having a significant impact on Lebanon as a whole, as it is inviting both Lebanese and other foreign investors to join the growing trend. Numerous ventures are already being undertaken by Lebanese companies and individual investors to capitalize on the trend. Three massive residential towers, worth more than $100 million each, are being developed on the sea front of the Beirut Central District. According to sources at Marina Towers – one such development – almost 80% of apartments have already been sold, with the majority to Gulf-based individuals. Moreover, the Park View high luxury residential building developed by Beirut-based investment bank, the Middle East Capital Group, has been almost entirely sold, with more than 70% of apartments purchased by Saudi individuals, at a price approaching $4,000 per square meter.

From such a viewpoint, Lebanon would appear to have regained to a great extent, its historical prosperity, and may be on the verge of regaining its role as the regional hub for investments. Nevertheless, a large shadow remains cast over the whole country, suffering from large budget deficits, an ever-growing public debt, and political squabble hindering any possible advances on the privatization front. That is to say that just attracting foreign investments is by no means enough to support a nation of 4 million people, and secure jobs and income to improve living conditions. It is certainly surprising to observe how Arab investors are pouring money into investments in Lebanon, while the Lebanese government’s credibility leaves something to be desired. Such an ironic set-up raises questions as to the long-term prospects of investment flows into Lebanon. While the country may, in the short term, capitalize on regional and international conditions to attract Arab investors, significant advances in economic reforms are indispensable if Lebanon is to be able to improve, or even retain, its appeal.

Nonetheless, Lebanon’s sovereign risk, although relatively significant, benefits from a more stable socio-political environment, when compared to Saudi Arabia or Kuwait. While the Saudi economy benefits from substantial levels of liquidity, the investment environment is often plagued by internal discontent, unease, and threats of terror and retaliation. The political environment in Lebanon, while also suffering from some internal political unease, is relatively calmer and more resilient, thus better suited for longer term investments. According to comments by some large Saudi investors, they view Lebanon as a safe haven, enjoying banking secrecy and an attractive investment environment, at a relative distance from regional political tensions.

Tony Hchaime is an investment banker at the Middle-East Capital group (MECG)
 

FINANCIAL IMPACT

The attacks of September 11, 2001, which caused a flight of Arab capital away from Western markets – have seen liquidity levels in the Gulf rise to unseen levels

The wealthiest Arab countries, and those that are likely to contribute the most to inter-Arab investments, are the United Arab Emirates, Saudi Arabia, and Kuwait. Of the three, the UAE has the largest amount of funds invested outside the country, or dedicated for foreign investment. Saudi Arabia follows closely behind, ahead of Kuwait. The UAE’s investments abroad totaled $3.14 billion in 2002, compared to $2.13 billion for Saudi Arabia, and $1.64 billion for Kuwait. Moreover, the UAE’s new investments abroad reached almost $450 million in each of the years 2001 and 2002, compared to less than $50 million for Saudi Arabia.
 

Talk to local manufacturers and you won’t hear a lot of talk about demand cycles and product innovation, successful brand building and the occupation of new niches in international markets. Instead you are more likely to get an ear full about issues such as excessive location costs and energy prices, the overbearing bureaucracy, unpredictable and unstudied alterations of customs tariffs, insufficient loan facilities and expensive credit. It’s not that these complaints aren’t well founded. The obstacles and troubles are real enough. But there seems to be a danger that the concerns and worries could turn into industrialist mantras of doom and self-destructive laments. This would not help a manufacturing entity that already has its share of existential questions. The Lebanese public and the representatives of the various communities and political interests in the country should have no reason to doubt, or as occasionally has happened, even refute that this is a country with room for industrial production.

Of course, Lebanon is a country where industry is possible. Of course, its industry has its success stories, existing or potential niches and areas where it has an edge. Otherwise, the country’s 7,000 or so “real” industrial entities and its 15,000 to 20,000 additional micro and cottage enterprises would not exist.

The history of modern industry in Lebanon – and one does not want to reminisce here about the production of purple dye in the Tyre of antiquity – spans a century and carries less weight than the country’s famed story in trade. But for a country of small spaces and restricted in natural resources, Lebanon has earned considerable industrial laurels in those 100 years.

In the establishment of industrial enterprises, it was in many instances a pioneer in the Middle East, from bringing in the region’s first machine for the conversion of plastics, to being ahead of many countries in the development of its cement industry. A special chapter in the annals of Lebanese industry is the way in which many manufacturing companies survived the grueling years of conflict. And although industrial activity in numerous other Middle Eastern countries has increased tremendously in the past quarter of a century that presented manufacturers – and all businesses – here with so many difficulties, Lebanon today still ranks very high in a comparative Middle Eastern context. “Regionally, Lebanon appears to be the most versatile economy,” stated a new research survey prepared this January by a German economist and AUB professor, Marcus Marktanner. It ranks first in the ESCWA region in seven out of 14 product categories, for which the UNCTAD/WTO International Trade Centre in Geneva provides indices on Revealed Comparative Advantage (RCA). The RCA index measures how the share of a sector in national exports – e.g. chemicals or processed food – compares with the share of this sector in world exports. A high ranking indicates that a country has a specialization in the sector. However, as Marktanner observed: “Unfortunately, this does not mean that Lebanon is a top performer globally.” Only in one category, miscellaneous manufacturing, is Lebanon ranked fourth in the world for RCA, he noted. “In addition, Lebanon as a small country can barely function as a locomotive for the region.”

From this economist’s perspective, one of several big-picture obstacles to trade development in ESCWA countries is “great income inequality, translating into a vicious cycle of a small base of manufacturing industries, little job creation, and little domestic investment.”

In the case of Lebanon, this income inequality is certainly an impediment to development, further exacerbated by an overvaluation of the Lebanese lira that has throttled the competitiveness of local manufacturers. According to Marktanner, income inequality is linked to the concentration of capital in the hands of a few, and currency overvaluation tends to make a few rich and keep many poor. Also, an inability to push for the depreciation of an overvalued currency is often linked to the lack of a strong manufacturing lobby.

Would that be where the cat bites its tail or the snake gets the rabbit? There is always a way forward, says the optimist. Lebanon’s debt-laden macro-economic situation is bound to undergo a drastic change, opening the window for a new start – either the soft way or the hard way. Even if the landing of the economy would result in a feared crash somewhere far from the money pots of Paris, industrial manufacturers in Lebanon, who have survived tremendous storms, have a future. To do their share in determining the course of that future, Lebanese industrialists may want to pay heed to the axiom that economies can only flourish if wealth is distributed widely and average incomes keep growing. They may also want to rethink communication strategies where the public and employees, and even many an industrialist are starved from learning about their very own companies’ performance, profitability and productivity.

For the past few years, public declarations of industrialist concerns have either lost themselves in repetitive complaints, or wallowed in unspecific promises of imminent grandeur. Boring. People want to hear new stories. The audience just loves a good and transparent success story. They can be stories of survival, learning by error, or demonstrable success. But they have to be specific, and for real.
 

Albert Nasr heads the center for economic research at the Federation of the Chambers of Commerce in Lebanon, a key institution charged with collecting data and conducting studies of benefit to Lebanese industry. He discussed the role of the center with Executive, and issues of importance in the development of industrial exports.

On the Center of Economic Research

The Center of Economic Research at the Federation of the Chambers of Commerce is designed to supply the federation with support for its duties with regard to business and economic policies and regulations that the government is or isn’t taking. Our main aim is to be advisors to the government insofar as business legislation in general is concerned, in order to be able to protect the interests of the private sector. The bulk of our work is the preparation of position papers.

On the numbers of Lebanese industry

When we speak about Lebanese industry, we are not talking about 22,000 industrial units. The Association of Lebanese Industrialists has a constituency of about 2,000 registered industrial companies. The Federation of the Chambers of Commerce has a constituency of about 7,000 industrial companies. As for the 15,000 remaining firms that make up the number of over 22,000 industrial units reported in the surveys of the ministry of industry, the question here is over the definition of manufacturing. By one definition, a bakery is an industrial unit because they use machinery and transform raw materials into a product. But we in Lebanon are not used to considering bakeries as manufacturing entities. It is a matter of definition. Once we adopt a new definition, we will stick by it.

On industrial production and its share of GDP

Industrial production has grown in Lebanon over the past few years but in relative terms, other sectors have grown by larger proportions. Therefore I would not consider it a problem that the industrial share in GDP has gone down slightly, to about 17%. For one thing, you have to set a question mark behind the reliability of the GDP estimates. If you do not know the size of your pie, you cannot exactly know the size of your slice, that purports to be 20%. Another problem in industry is parallel production. This does not get tallied in any survey. There is a large amount of parallel production from enterprises, producing not only for the local market, but also for exports. These are enterprises that are not officially recognized because they have not registered, mostly due to some outdated administrative requirement that prevents them from registering. It is as if they are non-existent.

On export development and statistics

The export data does show an overall increase, but we deplore the fact that data gathered at customs sometimes includes re-exports. There is a special category for re-exports in the data sheets. But a product that enters Lebanon with its customs duties paid, that is then re-exported would enter the statistics under exports. It is not sufficient to have a single criterion of whether customs duties have been paid, to distinguish between exports and re-exports. A product may have paid customs duties but still be re-exported. An example is, if I were to import a Mercedes from Germany and pay customs duties on it, this car would enter the statistics under Lebanese exports – if I sell it to someone in the region without seeking reimbursement for my earlier import duties. This is an aberration, because exports ought to reflect our capacity to produce and export – rather than our capacity to import and re-export. Importing and re-exporting is a major activity, and we excel in it. This does indicate that we still have a role to play in triangular trade and that our regional status allows us to do this. But it doesn’t say anything about our manufacturing capacity. We need exports to reflect our manufacturing capacity. The only way to solve this issue is in my opinion to have a certificate of origin accompany all exports, regardless of whether the country of destination requires the certificate or not. The way things are now, exports do not get accompanied by a certificate of origin where a destination country does not require that form.

On the Euro-Mediterranean Agreement

With regard to Europe, exporters have to complete the EUR-1 form, which can basically be described as a certificate of origin. Our export data to the EU is reliable. The EU agreement opens up new markets to industrial products, without customs duties. As you know, an earlier agreement from 1979 had nearly the same clauses. I fail to see how we would benefit just on that point. However, the Euro-Med agreement has been launched within a larger framework, and we are going to benefit from that larger framework. Previously we were on our own. Now, support programs from the EU are designed to make us benefit more from this openness of the EU markets.
 

Up-and-coming film director and the winner of seven Phénix awards for work in advertising, talks to EXECUTIVE about creative freedom and her take on the industry

Has the phone stopped ringing since the awards?

No it hasn’t, but not in the way you think. It’s not as if they are all suddenly scrambling to hire me. All the agencies know me. I’ve been doing this for years. I’m not a new talent who has burst upon the scene, although I have had offers from abroad, France, Dubai, Italy and Egypt.

Surely your fees will go up?

Maybe they should but I am not a very good businesswoman. At the moment I’m having fun. Making ads is not my life and so maybe that is why I am not so focused on the monetary side of things.

But how much do you charge?

My fee is $3,000 per day. An advertisement can take two weeks with one or two days of shooting.

What was your first break?

It was an ad for Banque Audi in 2001, for H&C Leo Burnett. The one with the teacher in the classroom. I liked it very much, it was realistic (and) popular.

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 look for realism?

We live in a society where there are so many taboos, so many things we can’t talk about. As a director, the things we cannot do – certain expressions and behavior that we can’t show on TV, limit me. In advertising you need to show a perfect world that does not exist and this is where I think advertising is fake. People are not stupid, they know when they can’t identify with an ad because it’s too good to be true, and they just don’t believe it.

What do you think of the quality of creative talent in the country?

I think being in an Arab country we’re not bold enough with our ideas, because we think that we’re going to be judged. There are too many boundaries and too many limits. The problem is not with the level of creativity that we have. I think we have a lot of talent and people who are really very creative. What we lack, I think, is courage. We think that if an idea is too bold it’s going to be rejected or it’s not going to sell. We’re afraid of how people will perceive things and consequently we’re still hiding behind easy things.

Do you find that you have to stifle your creative urges to please the client?

I’m very fortunate that this has never happened to me. I often change a lot of things on the shoot and storyboard, but I do this with the client and their message in mind. At the end of the day, you are doing a commercial, you are only the director, and this is someone else’s vision. I still introduce new things; I don’t just want to execute someone else’s idea. But I try to introduce my way of thinking in a way that the client will accept.

Do we spend enough on ads? I try to adapt whatever idea I have to the limitations without really knowing what the actual budget is. Of course, if we had more money we would be able to get equipment all the time, and could do bigger things. But, I’m more interested in concepts rather than huge productions. You are self-employed. How often then do you work?

I think two or three projects a month are enough for me because I can’t do more than that, even if the money isn’t great. Otherwise, you will not be able to give each project the time it needs and it will affect the quality of your work.

You also direct music videos. How did you get involved in this?

It was a coincidence. A friend of mine was a producer and she introduced me to singer Pascale Mashaalani. At first I didn’t think I’d be interested in shooting music videos, especially since I didn’t really like the formulaic stuff at the time. You know, the singer singing and dancing with a bunch of girls dancing behind him. But then I thought, why not? Maybe I can change things.

We also hear that you are working on a film. When will it be released?

By next year I think. I really can’t talk about it yet, but this is the next step in my career. I feel the urge to move on, to tell a story, to talk about my country, my people and I think a film is the only way I’m going to be able to say these things.

Colonel Moammar Gadhafi’s recent political aboutface over his country’s weapons of mass destruction and his willingness to relinquish them has caught much of the world by surprise. It was a rare bit of good news emanating from an otherwise tumultuous part of the world. In truth, the Libyan leader’s decision to try and alter his revolutionary image as the rebel with multiple causes, is nothing but his waking up to the stark realities of 21st century, post Cold War economic realpolitik.

In this new era of American political hegemony – with the United States as the sole remaining super power – and given Washington’s resolve in combatting “terrorism” and halting the proliferation of weapons of mass destruction (WMD) Libya’s move was the right one. But it was the economic crunch from sanctions and its isolation from the world community – more so than the threat of America’s military might, that changed Gadhafi’s mind and heart. Gadhafi’s socialist-based economy depends primarily on revenue from the country’s oil industry, which according to the US government, contributes to practically all export earnings and about one-quarter of its GDP. But despite lucrative revenues derived from its petrochemical industry and a relatively small population of just 5.5 million, which until recently enjoyed one of the highest per capita GDPs in Africa, the country has felt the strain of US-imposed sanctions and could no longer afford to continue being the world’s pariah.

Little if any, of the millions of dollars from oil revenues trickled down the ladder of Libyan society. Restrictions on imports and gross mismanagement of the economy have led to shortages of basic goods at times – a real problem for the population in a country that imports up to 75% of its foodstuffs. All sectors, including education and health care suffered, not to mention human rights and individual liberties.

The rise in world oil prices over the last three years has helped Libya, as it saw an increase of revenues. This has partially improved the macroeconomic balance, but overall, has had little impact on the economy. Given the results of Gadhafi’s failed politics and policies, there is little surprise that he has decided to “come out of the cold.” The Bush administration would like to take credit for Libya’s sudden change of heart that came with its recent admission to possessing weapons of mass destruction programs; its willingness to give them up and its newfound desire to re-establish ties with the West. Coming in an election year, this sort of revelation can only help Bush, who is already trailing about five points in the polls behind Senator John Kerry, the leading Democratic Party candidate.

Bush’s supporters, particularly the neoconservatives who planned, lobbied and supported the invasion of Iraq, point to the war and Saddam’s fall as a deciding factor that led to the Libyan leader’s policy change. They advocate that if the Bush administration had not routed Saddam, Gadhafi might have still kept his WMD programs. While there may even be some truth in the fact that Saddam’s demise may have speeded up Gadhafi’s decision-making, in reality negotiations between Libya and Britain had been in the works for several months.

The person who perhaps deserves the most credit in bringing about these drastic changes in Libya, is Seif al-Islam, Gadhafi’s son, and some say political heir. The leader’s second son runs the Gadhafi Foundation, a charity which tries hard to project a new and positive image of Libya. Seif al-Islam, through his foundation, has been active in attempting to obtain the release of Western hostages in the Philippines and Afghanistan. However, when the younger Gadhafi tried to negotiate the release of a group of Western hostages detained in the Philippines by the Abu Sayyaf Group in exchange for payment, the ransom only served to encourage the kidnappers into taking more hostages.

Sources familiar with the situation in Libya say that the young business-minded Gadhafi realizes that remaining a pariah state is simply bad for business. His brother Mohammed, for example, would like to obtain the Burger King fast food franchise for Libya. The Gadhafi sons realize that such deals would never occur so long as Libya remains on the US’ black list. Now aged 61, the Libyan leader is purported to be grooming Seif al-Islam, 31, to eventually take over the reins of power. The son, one of five, is said to be very different from his father. He is always impeccably dressed, usually in designer suits, and well mannered. He was educated in Switzerland and Austria, where he studied economics and engineering. In recent years he has toured many Western capitals, laboring to give Libya a better image. He is reported to have sued a London newspaper that had accused him of distributing counterfeit money in Iran.

Some observers believe that Seif al-Islam played a fundamental role in bringing about this new rapprochement with the West, and after decades of isolation, Britain’s Prime Minister Tony Blair is now planning a visit to Tripoli.

In an election year, ever quick to profit from Gadhafi’s concessions and congratulate itself – and no doubt to profit from potential lucrative Libyan oil deals – the Bush administration has been quick to ignore his human rights record and the abuses of his own people. Yet human rights abuses are a point Bush does not miss making when justifying the invasion of Iraq and the removal of the former Iraqi president Saddam Hussein.

“It’s truly sad to see Gadhafi and his son being patted on the back, without the slightest mention of his continued abuse of his own people,” says Ali Al-Rida, a Libyan-American. Al-Rida says the “desperation of both Bush and Blair to claim any kind of ‘victory‚’ is unmistakable, even at the cost of a total loss of any credibility that may have survived their Iraq claims.” Indeed, one should not lose track of this fact and allow gross abusers of human rights to get off the hook so easily, say Libyan Americans, who, still wary of the safety of family back home, refuse to be named. Reneging on his weapons of mass destruction program, is certainly a first step in the right direction, though it remains to be seen just how advanced those programs really were. But Gadhafi needs to do much more, exiled Libyans and human rights groups say. “The lack of any convincing legal and democratic reforms in Libya for 34 years, only a few weeks after President Bush lectured the world about the strategic importance of upholding these principles…is a travesty and a disastrous blunder, par excellence,” says Al-Rida.

Amnesty International “remains deeply concerned about the detention of hundreds of political prisoners – some of whom could be prisoners of conscience – detained without charge or trial and several cases of people who have ‘disappeared.’” Amnesty goes on to say that at a time when Libya seeks to end its isolation and develop its international diplomatic, cultural and commercial ties, “it has yet to take steps to improve its human rights record.”

Among those close to Gadhafi, and singled out by exiled Libyans and Western observers as one of the worst offenders of human rights, is Musa Kusa, the head of Libya’s intelligence service. Nicknamed the “envoy of death” by his enemies, Kusa was once among the most reviled men in Britain, accused of sending hitmen around the world to kill opponents of the Gadhafi regime. Vince Cannistraro, the former CIA head of counter-terrorism has said that Kusa has “blood on his hands all round the world.”

Given the unevenness of America’s foreign policy in the Middle East, it is by no means surprising when Al-Rida and other Arab Americans ask why Arabs and Muslims: “hate the United States and think of Americans as hypocrites?”

Gadhafi’s return to the fold of the international community is an encouraging first step. Libya should now be encouraged by Washington and London to address its other issues.

Claude Salhani is a foreign editor and political analyst at 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.