Despite the usual upbeat suggestions that tourism is on the up and up in Lebanon, the Arab World Trade and Tourism Exchange (AWTTE), held at the BIEL exhibition center from 16 to 19 September, was, in the words of one hotel marketing director who participated,
Among globally active real estate funds, investment firm Colony Capital has made their mark after over 13 years of investing in real estate to the tune of almost $1 billion annually and managing equity capital on behalf of leading institutional investors. By identifying and buying real estate, real estate-dependent companies, distressed assets and non-performing loans, the firm’s funds year after year realized internal rates of return in excess of 20%.
With leisure-related projects in hospitality, resorts and gaming strong in the list of participations, the company’s pedigree of past or present investments in high-profile properties includes names such as the Las Vegas Hilton, the Savoy Hotels chain in the United Kingdom, the Fukuoka Dome baseball arena in Japan, and the Costa Smeralda resort of Agha Khan fame on Sardinia. Last month, Colony made headlines by being in negotiations over acquiring several casinos in the United States.
Earlier this year, Colony Capital set up an office in Beirut, the 13th branch in their global network. Also notable from a local perspective is that Colony’s founder and chairman, American entrepreneur, Tom Barrack, has roots in Zahle, and that one of Colony’s 12 principals is Lebanese Naji Boutros, who joined the firm last year after acquiring a strong reputation as head of Middle East and European real estate at Merrill Lynch. EXECUTIVE talked to Boutros about the regional and local financial market in real estate investments, and about what it takes to be a Lebanese success story in global finance.
Why is real estate so very important for Middle Eastern financial markets?
Middle Eastern investors have always acquired real estate and globally are today among the most important investors in this field. I think that three factors make real estate a favorite asset class for Middle Eastern investors. For Islamic investors, if it is structured properly, real estate is SHARI’A-compliant. Secondly, real estate is not volatile; it is a hard asset. The third reason is what happened during the tech crisis, where a lot of money was wiped out.
How does the Middle East figure in Colony’s investment strategy? Are there projects that you would qualify as totally off market?
We are working with top decision makers in the Middle East who are offering us a lot of incentives to be with them, because we bring brand recognition to their local market. These economies range from monarchies to pluralist secular democracies. You can imagine which one that is, Turkey.
Is the participation of Middle Eastern investors in Colony Capital evolving positively then?
A year ago, we had zero participation of Middle Eastern investors in our worldwide operations. Today, it stands at 5%. That is fantastic. They like it and want more and more and more. I anticipate this participation to quadruple within 24 months to then be in the 20% of our global operations. We would like to become the vehicle of choice for Middle Eastern investors globally investing in real estate. By aligning our interests with theirs’ and by having such a sophisticated global experience platform at their service, we are doing well.
The current economic environment seems to correlate once again high revenues for the Middle East with somewhat subdued outlooks for many developed markets. Do you see another wave of Arab investments flowing out of the region?
I think what we are seeing is a recalibration of Arab investments. You have some repatriation of money back from the US. We don’t really know the number but it is a lot of money. That money went back to the Middle East, plus you have the generation of additional capital from oil prices and other factors. Smart Arab investors are channeling this money towards productive investments in their own countries. I cite what Dubai has done, which is incredible. Chapeau bas, there is one decision maker and so much attention and focus goes towards productive investments in his own country. I am today an amazed believer and supporter of what is happening in Dubai. We are talking about medical tourism in Lebanon but Dubai goes out there and proactively attracts the Mayo Clinic and the Harvard Medical Institute.
The presence of Colony in the region is relatively recent. When did you open your office here in Beirut?
We started our institution and moved in about five months ago.
How many staff do you have?
We have six highly qualified staff, and we are hiring the best out of Lebanon and bringing back the best Lebanese from outside to Beirut. We looked in Lebanon unsuccessfully for five months before bringing people back from the outside.
Is Lebanon a great location where you as real estate funds or financial firms in general can work on a Middle Eastern scale?
It is not a great location. The one attraction is that Lebanon is closer to Middle Eastern clients and the more these clients will come to Beirut, the more financial services will locate here. The second attraction is that Lebanese like to be back here. There are top financiers around the world working with investment banks and investment companies like ourselves, who are willing to come back to Beirut. They are ready to make huge sacrifices to be in Lebanon. But if you were to approach it objectively, why would Lebanon be better than a place like Dubai or Switzerland, where you have so many incentives for firms to operate in?
How do you evaluate the local market conditions for real estate investments?
To us as global real estate investors, the most important thing is who is behind a particular project and which asset management company is doing the work. We find it extremely disturbing that you have many briefcase salesmen in Lebanon, but very few long-term driven, institutional transparency-type of asset managers and real estate brokerage houses. That is what is missing. Recently we start to see global powerhouses like Coldwell Bankers coming here and we like that.
But is there not an overemphasis on real estate in Lebanon’s investment landscape?
I think the focus should be productive real estate versus real estate that you trade, which is totally unproductive for the economy. It should be operating real estate where you employ people. The focus of investors should be channeled towards hotels, not towards residential accommodations. We’d also like to see world-class urban planners to come and help in setting the right regulations that are essential for the long-term benefit of the country. What really annoys me in this country is that people think that a plot of land has the more value the more meters you can build on it. This is absolutely wrong, because values are driven by demand and not by supply. People should ask, ‘how can I attract the most value for my land, how can my land be competitive versus somebody else’s land’?
How can one increase the competitiveness of land?
In Sardinia, for example, we went to the urban planning authorities and told that them we want to build less than what is allowed. By doing so, we created a scarcity of buildable land. When you create that rarity factor you attract the crème de la crème. The billionaires will come to you. Lebanon is not doing that. What we have to address is the competitive edge of Lebanon. To me it is very simple: We have a beautiful mountain area, which is green and attracts our tourists. We have cultural heritage, and a few unspoiled beachfront spots. What we have to do is optimize the value of these places.
Is Lebanon then a good market under the perspectives espoused by Colony, namely to focus on undervalued properties and apply a “cautiously contrarian” approach?
Yes and no. Yes, because we can find value investments in Lebanon. There are distressed sellers in Lebanon, be they distressed individuals or banks, who would like at attractive prices to dispose of their non-performing loans and real estate owned. What is unfortunately detracting us from here, is number one that we are having difficulties in finding sizeable deals. Number two, we are having difficulties in finding unique deals; number three, we are having difficulties in keeping the noise away – you can interpret that in any way you like.
Does that indicate that you have not executed projects here?
We are not yet comfortable with stability and transparency, which goes back to noise. And we haven’t yet seen the incentives that could be offered to a global group such as ourselves. All of this to date is pointing us to analyze a lot of things in Lebanon but not yet make any investments here. We haven’t found the right deal yet. What we are doing instead is using our base in Lebanon to analyze and make investments in other parts of the world.
So beyond nice buildings and nice scenery, what values do you find in Beirut and Lebanon that contribute to your performance?
We love being here, we love the culture of this place we love the beauty of this place, the human being. This is a place that has generated intellectual capital and achievers found around the world – be they doctors, engineers, or financiers. That is why I say that we’ve got an amazing brain center at Colony in Beirut.
[Colony Capital CEO] Tom Barrak has got an amazing love for this place. When we acquired Costa Smeralda, Tom said in his opening speech, “the Phoenicians are back.” and he was so proud of it. We love this place and I cannot describe how much it hurts us because we are operating globally and we contribute and add value to all these places globally and we want to do that in Lebanon and we want to see this place get better.
How does one take his or her heritage and advantage of being Lebanese to become a true real success in finance?
What you need to do is forget everything you learned at school and remember what your grandmother told you, which is walin haram, watch out from the bad people. Your reputation and credibility and long-term relationships, this is what matters, but stay away from bad people. Give it your best shot, work hard. This is not stuff they taught you at school but I think this is the basis of success. To be appreciative, and hard working and remember what your grandmother told you.
From your experience, would you endorse the statement that a Lebanese should go abroad to succeed?
I left Lebanon with $2,000 in my pocket and worked hard. I busted my chops, cleaning dishes and doing whatever. I had a scholarship at a university in the US, got educated at Stanford and Notre Dame and I did well at work. Now I work with Colony, and I am giving back to Lebanon. I like to give back more to Lebanon. Would I have had this opportunity if I didn’t leave? I don’t think so. My mind, the way I think would be different if I would have remained here. I encourage the young people to go wherever their opportunity is. Don’t forget Lebanon; be like what the cedar is like. You have your roots here, and when you find your roots, then you can grow high into the sky. This is a great place to be from, and we have a lot to give back to it. In order to give back to it, one has to find his opportunity wherever it is. If it is in shoe shining, in planting grapes, be the best shoe shiner and the best viticulturist around. Be the best; give it your best.
With those principles on your internal billboard, you yourself rose from starting out with $2,000 in your pocket to what net worth today?
My net worth is measured in terms of the friends and relationships I have, the family I have. That’s my net worth. What we must focus on are the essentials, the priorities in life. Start from the foundation up, fix the human infrastructure and let’s stop all this plastic surgery business. Let people focus on what it is deep inside that governs their lives. Otherwise you end up building a society with false expectations, starting with the children.
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Tripoli
Microsoft chat rooms in Lebanon have been shut down. The move comes after the world
Khalil Daoud, the new chairman and managing director of LibanPost, has set aside a small patch of land outside the company’s headquarters, next to Beirut Airport. “It’s for the employees, so they can grow cucumbers and tomatoes.” he explained. “But they don’t care.” The failed horticultural experiment illustrates how difficult it is to spawn a sense of esprit de corps among LibanPost’s 600 employees, as well as the notion that they have a stake in its success or failure. Only a year and a half ago, after the original LibanPost had folded, many thought they were going to be laid off.
In a bid to bolster consumer confidence, Daoud has started giving the country’s post offices a “rejuvenated look,” by redecorating the offices. LibanPost is now allocating $300,000 to $350,000 a year – about 2% of its roughly $16 million annual budget – to this endeavor, and has spent $300,000 on a new post office off Riad al-Solh Square, in the Beirut Central District.
In addition, the company pays Canada Post $500,000 a year for consultancy services, which include training, and has spent over $1 million this year upgrading its technical capacities. Since he took over LibanPost in February 2002, Daoud has been implementing his vision of an overhauled Lebanese postal system. No easy task, since the country’s postal service was obliterated by the civil war and it was only thanks to local and international courier companies that any post flowed at all during that time.
Daoud said he has had to coax a people grown unaccustomed to using postal services back into the fold. “The core objective was to revamp the mail culture, which was non-existent over here. You had a whole generation without any idea about what a postal administration can offer.”
To this end, LibanPost is attempting to establish itself as a conduit for government services such as passport/residency permit renewals and military service exemptions/postponements. The effort, argued Daoud, bolsters President Emile Lahoud’s anti-corruption drive because it cuts out face-to-face transactions between citizens and government employees, thus reducing the potential for “under-the-table” deals. LibanPost exacts no fees for the renewal services, which it began offering about two years ago. So far, Daoud said, between 75,000 and 80,000 people have renewed their documents through LibanPost. The decision to offer assistance with military service formalities was born, Daoud noted, of his frustration with the time wasted sorting out an exemption for his university-bound son at one of the country’s five military service centers in the Bekaa region. “We had to wake up very early in the morning and when we arrived, there were some 2,000 to 3,000 students in line. We had to wait for several hours.” Initiated at the beginning of the year, the service costs LL6,000, or $4. Every week, the number of related transactions grows by 20% to 25%. LibanPost has processed a total of about 3,000 military service-related requests. In 2004, the company expects an increase to about 25,000 to 30,000 requests.
LibanPost is trying, as well, to foster a retail environment in its post offices by offering stationary products such as greeting cards, postcards, envelopes, packages, newspapers, magazines, Lebanon-themed screensavers, floppy diskettes, books about stamps, prepaid internet cards, credit cards and fuel coupons, bus tickets etc. Post offices also offer fax and photocopy services. “We’re gradually expanding the retail services so that it becomes a one-stop shop for people who are in any case visiting the post office,” said Daoud. On a less enthusiastic note, Daoud bemoaned the paucity of banking-related transactions registered by LibanPost. “So far, we haven’t been very successful with the financial institutions. The bulk of mail from banks consists basically of statements of accounts. Most banks today are not distributing statements of accounts, although [bank clients] pay a quarterly fee for them.”
Before the civil war in 1975, Lebanon’s postal services were under the direct control of the ministry of telecommunications. LibanPost, formed in 1998, is a private company under contract to the Lebanese government to operate the country’s postal services. The ministry of telecommunications and the general-directorate of the post regulate the service, but Daoud said the two institutions do not meddle in LibanPost’s affairs or impose strategy. Revenues are shared, but Daoud said that under the terms of the 15-year agreement he could not disclose the breakdown. Daoud refused to reveal the company’s revenues, but acknowledged that the company is still losing money, and probably will continue to do so until the end of 2003. “Next year, however, we hope to start generating profits. I am 100% convinced that there are ways of making a profit without simply waiting for the government to give us business. In all postal organizations around the world, the government is a major contributor to the well-being of the postal administration – this is not the case in Lebanon,” said Daoud.
LibanPost’s shareholders changed in 2001, and an amendment to the original contract spawned the agreement under which LibanPost in its current form operates. Daoud claimed he was not sure why the previous LibanPost agreement disintegrated, but likened its failure to a “wedding that breaks up – the chemistry didn’t work.” In the belly of the company’s headquarters, video cameras and supervisors monitor employees as they handle the roughly 14 million annual transactions. Mistakes are not tolerated. “We are ruthless with errors,” acknowledged Daoud, from behind the broad desk of his white, spartanly furnished office. “Our clients are like people who go to the same restaurant every day. If one day they find a hair on their plate, that’s it, finished. If we hear of any moral irregularities proved to have been committed by one of our employees, then they are fired on the same day,” said Daoud, explaining that he LibanPost operates a “clean floor” policy. Shortcomings are exposed and discussed during daily, early-morning “debriefing” sessions. “Over the last 18 to 20 months, the quality of the service has been continuously improving,” asserted Daoud.
Nonetheless, in the mail sorting room, boxes full of undelivered letters abound, the envelopes marked in some instances with unintelligible scrawl, or an unidentifiable address – after all, Lebanon has no post code system. Thus, delivering letters in the oft labyrinthine streets of Beirut and its southern suburbs, can be a frustrating, sometimes impossible, task – especially if the envelopes sport addresses such as: “Current resident, 14, Blue Cliff Drive, Lebanon,” or “Ms. ‘X’, Lebanon.” Not surprisingly, the ‘Return to Sender’ stamp is in constant use. According to Daoud, Lebanon’s chaotic or non-existent address system is one of LibanPost’s biggest challenges. “Most of the addresses are either wrong or approximate, like ‘opposite that place,’ ‘next to the mosque,’ or ‘over the petrol station.,’” he lamented. In an effort to push for a postal code, LibanPost has already spent $2 million, but the investment has yet to bear fruit because municipalities will not allow plaques bearing postal codes to be affixed to buildings. “We have sent several reminders on the subject, and nothing has been done,” noted Daoud. An alternative, he said, would be to ensure that every street in Lebanon has a name and every building a number. But because the “ownership” of this initiative lies with the municipalities – of which there are 752 – the process is potentially lengthy. The stack of official approvals that must accompany each act of renaming merely serves to complicate the process. LibanPost’s obstacles, however, do not all arise from bureaucratic red tape. Daoud acknowledged that occasionally mail does go astray, but asserted that only in rare instances is it the fault of LibanPost. Inhospitable janitors or doormen sometimes refuse postmen access to a building, saying they will deliver the letters but do not. “The absence of letterboxes can also contribute to the loss of mail. When letters are left lying in front of doors, perched on walls, or propped up against electricity meters, they are easy prey for dishonest neighbors.”
At the press conference in which he outlined the 2004 budget, minister of finance, Fouad Siniora, began by justifying why the 2003 budget was missed by such a sizeable margin. According to figures for the first nine months of 2003, the deficit stood at around 38%, compared to almost 40% for the same period last year, thus registering a modest improvement. While revenues seem to be on target for the year, and may reach the budgeted LL6.475 billion by year-end, expenditures remain high. Current expenditures (excluding debt servicing) grew almost 8% between January and September 2003, compared to the same period last year, reaching LL3.4 billion against a full year budget of LL4.2 billion. On the other hand, debt servicing, which was expected to be capped at LL4 billion for the year, has already exceeded LL3.4 billion by September, and remains the main factor behind the government’s failure to trim the deficit further. In an effort to justify this performance, Siniora stressed that failure to implement structural reforms in the public sector was to blame for the government’s inability to trim current expenditures and meet its targets, while debt servicing targets set for 2003 were primarily dependent on the proceeds from privatization of state assets, a move yet to be implemented.
In doing so, Siniora absolved his ministry from failing to meet the budget for 2003, placing the blame primarily on the political bickering that has hampered the implementation of structural reforms and the progress of privatization. That done, Siniora moved on to sketch the main highlights of the government’s draft budget for the coming year, repeating the importance of structural reforms in the public sector, and their critical role in achieving any target set for 2004.
He said that the new budget would take into consideration the current and expected burdens on the ministry and the treasury. No new taxes would be levied, nor would there be any modifications to existing taxes, including the famed Value Added Tax, expected to remain at 10%.
On the revenue side, total proceeds were expected to remain stable at around LL6.4 billion, yielding an initial surplus in the budget of LL1.45 billion – until debt servicing comes into play.
Setting the debt-servicing burden aside, total expenditure by the government is expected to stretch by almost 8% to reach LL4.95 billion. Around 69%, or LL3.4 billion of such expenditures are allocated to salaries and wages for the workers of the public sector. With the national debt holding steady at current levels, total interest on the debt for the year 2004 is expected to reach at least LL4.3 billion, constituting 46% of total expenses, 67% of total revenues, and yielding a net deficit for the budget of LL2.85 billion, or 30.8% of spending.
As such, wages and salaries, in addition to debt servicing costs, amount to a staggering LL7.7 billion, or 84% of total expenditures. The remaining 16% of expenditures, or LL 1.9 billion, are allocated among various ministries as normal operating expenses for government entities. While such “discretionary” costs may be trimmed, it would conceivably be difficult to significantly improve efficiencies on that front with no radical structural reforms.
On the other hand, if privatization plans do materialize early in 2004, and if proceeds from such efforts are up to expectations, total debt servicing for the year may drop to LL3.9 billion. Such a drastic improvement would reduce the deficit to LL2.45 billion, or 27.7% of spending. The ability of the government to meet even the high end of the deficit for 2004 remains to be assessed, however, as it still marks a significant improvement over the numbers seen in the second half of 2003, where the deficit reached 38% of spending. In fact, as it has been clearly outlined by Siniora, prospects for additional cost-cutting outside debt servicing are bleak, while revenues are expected to remain flat. On the revenue side, options appear to be very limited, or so the government would want us to believe. Income taxes are already being levied on companies and individuals alike. Consumer taxes are being levied through a 10% Value Added Tax system being applied to almost every type of good or service. Custom duties are still applied to almost all import, including unfortunately raw materials and semi-finished goods for industrial use. From this perspective, it does seem that there is virtually no room for improvements. Any additional or higher taxes and the already high cost of living in Lebanon would squeeze consumption, investments, and subsequently economic growth.
Nevertheless, the case may not be as hopeless on that front as the government is painting it out to be. The government should be able to significantly improve its income not from increasing taxes and duties, but by simply improving tax collection. While no official records are kept on who pays what taxes, or at least no records are disclosed, the possibility of digging in that direction should be seriously considered because the current situation leaves no room for slacking off, especially with the World Bank and IMF breathing down the government’s neck. Improvements can be achieved through better tax collection on currently levied taxes, in addition to levying taxes on some job sectors to this day indemnified from paying taxes (medicine, law, etc…).
On the expenditure side, and apart from debt servicing, it was made clear by the government that the overwhelming majority of expenses (or 86%) is non-discretionary and cannot be significantly reduced. Furthermore, almost two thirds of all expenses are allocated to wages and salaries of public sector “servants”. The majority of members in the government and the parliament seem to believe that no cuts can be implemented on that front. Basic finance stipulates that reducing the debt servicing cost can be achieved by either trimming the amount of debt on the books, or negotiating lower interest rates on the existing loans. It appears that perhaps the easier solution is negotiating lower rates on existing loans, or replacing existing obligations with more suitable ones. However efforts in that direction are limited, with the benefits of Paris II beginning to dissipate as the country still fails to meet the requirement set during the summit last year. The government has failed to prove to potential lender/donor countries it ability to implement needed reforms and complete privatization.
As the current situation stands, on the other hand, reducing the overall debt level without privatization seems practically impossible. Severe drainage at the power company, a sizeable budget deficit, and increasing spending on social welfare are likely to force the government to continue borrowing over the near term. As such, the total public debt level is expected to breach the $33 billion level in the foreseeable future.
Therefore, we again realize that the fate of the country hinges on a matter debated so many times over the past five years: privatization of state assets. Three matters should be addressed with that regard:
– The importance of privatization and its impact on government finances
– The urgency of completing privatization plans
– The likelihood that privatization takes place in 2004.
The critical importance of privatization of state assets and its proceeds has been underlined so many times by various parties, including the World Bank, the IMF, international banks such as Citigroup, Merrill Lynch, and rating agencies such as Standards and Poor’s and Moody’s. The country’s economy is severely burdened by the level of debt, high debt servicing costs and the resulting deficits forcing the government to borrow more. Such factors have prompted a number of rating agencies to downgrade Lebanon’s sovereign rating yet again, stating the pace of reforms and privatization as the main factors behind such a move. Furthermore, the presidential elections to be held towards the end of 2004 are likely to stall any major moves on the part of the government.
Standard and Poor’s proceeded to revise Lebanon’s outlook from Positive to Stable due to fiscal consolidation delays. “The outlook revision reflects our view that the draft budget for 2004 implies a postponement in fiscal consolidation and hence delays the envisaged reduction in the government’s debt burden,” said S&P’s credit analyst Ala’a Al-Yousuf.
The only conceivable solution to reduce the level of debt is through the privatization of some state assets. The two profitable cellular operations should CONCEPTUALLY be easily sold. The power company, on the other hand, is a losing business, with accumulating debts and losses. Nevertheless, serious efforts should be undertaken to sell-off EDL, which by itself is burdening the treasury and forcing on more debts. Proceeds from privatization can range from $2 to $4 billion, and can substantially reduce the overall debt servicing cost by more than 10% in 2004 alone.
Moreover, the benefits of privatization are not limited to the use of proceeds to reduce debts, but such a move would considerably boost the government’s image on the international scene, prompting cheaper lending, more donations, and improve the overall foreign investment climate in the country.
However, as the political bickering has delayed privatization for almost 4 years, the value of the assets, to the contrary of the level of national debt, are certainly not rising. The longer the privatization is delayed, the less the proceeds of such a move will be, and the more damage the government’s already frail credibility will suffer.
The year 2004 is the presidential election year. President Emile Lahoud is eager to improve his public image, while Prime Minister Rafik Hariri is equally keen on meeting his economic targets. It remains to be seen, however, if their plans to improve their public image include a certain compromise on such critical issues as privatization, and how soon, if ever, such precarious steps are to be taken.
The stock market’s upward move this year has humbled many analysts and perplexed even the most optimistic financial experts. Take the all-tech/all-emotions Nasdaq as an example: it’s up a mind-boggling 73% from its October 2002 lows, a tempting sign to many that it’s safe to invest again. But are Wall Street’s happy days here to stay, or is the stock market’s upswing operating on borrowed time?
It is crucial when looking at the market to keep an eye on the big picture, which in this case is that stocks cracked in 2000 and have embarked on a massive bear market. Any moves up within this bear market have to be analyzed in the context of the larger force in action: the bear. In fact, for the SP500 index, the bear market is in the earlier stages of its decline. The Nasdaq, although on the rise – some Nasdaq dream makers are up two, three, even five-fold – it is still down 60% from its March 2002 numbers. This latest rally has brought little real solace for the buy and hold crowd, as they are still down. The short-term punters that have played the move up, however, have cleaned up nicely. But in the meantime, the individual investor must ask the following question: “Is it for real and do I keep my money in?” The answer to both is a resounding “no”.
The move up, from a technical perspective is not so irrational – there have been three other moves up since the crash started, and all had been mistaken for a real revival. This latest surge came with a whole media blitz on how “the US economy is recovering” and in three months, the word “recovery” replaced the word “recession”. The current mainstream view is that the recovery in the US will lead to ever-higher asset prices, but there are two important cautionary factors that should be considered. The first is that the sentiment is extremely positive. This may seem counter-intuitive, but with market participants feeling so buoyant, there is ample room for disappointment. Ever forgetful of the past, the public and the media are being lured into a false sense of security. The market never bottomed at multiples beyond seven or eight and we are currently at 28 times earnings on the SP500. The second factor is that with consumption being the catalyst of any recovery, it is hard to imagine it staying robust without improvements in job creation. Job growth, especially weak in Europe, has faded significantly in the US, with the unemployment rate increasing from 4% at the height of the mania, to near 6%. Chances are, unemployment will continue to rise given the massive overcapacity in most sectors.
The technical factors abound, but the most relevant for the individual investor, is that the bear market is not over. People should be looking at their portfolios and cutting stock exposure to a bare minimum, and while the media and large financial institutions will have you believe that “cash is trash”, this advice will likely turn out ruinous. The notion that people must invest in the stock market is outdated. From 1982 to 2001, the markets were hugging a near perfect up trend (see chart). Since then, it has gone back and forth, sometimes with inebriating speeds, but the market remains below the trend line broken three years ago. What does that entail? It simply reinforces, visually, that despite the recent large move up in stocks, and the hope driven discourse about elections, recoveries, and the “new world”, the markets are still in dangerous territory. Even the sexiest alternative investment will not dodge the coming deflation in prices across the global markets, especially in US stocks and corporate bonds. It is much simpler to adopt the optimistic scenario, as it flows strongly in the ambient media. But one must be more cautious than ever before of the dream of long-term prosperity in stocks. Having been devastated by hope on multiple occasions in the past, it is an elixir that should be passed up. Stay in cash, invest where you live, and preserve hard-earned money. Cash, far from being trash, is the ammunition for investing when no one, including CNBC, will be positive on stocks. For now, stay liquid for the stormy winter.
“No serious newspaper will survive in Iraq today unless the security situation improves. Advertisers aren’t interested. Locals can’t afford to spend much on a newspaper. As a newspaper owner, you’re in trouble,” said Mark Gordon-James, 25, the former finance director of the BAGHDAD BULLETIN, the English language newspaper that has gone belly-up. Established by a team of mainly young, adventurous British expatriates straight after the war, the paper showed early promise. Little did the team predict the persistent operational hazards – power outages to street crime – that would thwart growth from the beginning. All eventually kept advertisers at bay.
“Our mistake was to assume that Iraq would be better off three to five months after the war,” said Gordon-James who estimated losses at $20,000 and who argued that if there had been a genuine effort by the coalition to inject money into Iraq and get reconstruction underway, Iraq would have seen a massive influx of foreign investment.
“Instead, just nothing has happened,” he said bleakly back in London after spending over four months in Iraq. “The place has simply stagnated and started to decompose with the social rot that sets in when you take basic services away from a people – in other words, the collapse of the state.” Ralph Hassall, 24, a young British entrepreneur and graduate from Oxford University, recruited Gordon-James to handle the business side of the paper in May. “Within a week of hearing the idea and meeting Ralph, I was on a plane to Amman,” said Gordon-James, who at 25 was the Bulletin’s oldest staff member. “I thought it an entirely appropriate and essential project for Iraq … plus I found the idea of being an entrepreneur pretty attractive. Didn’t Richard Branson start like this?”
For his part, Hassall was inspired by his mother to start the paper whilst on a trip to the UK from Beirut, where he had been studying Arabic at the American University of Beirut (AUB).
“I spoke to my Mum and she said: ‘You know what they’re going to need in Iraq after the war? They’re going to need an English language newspaper,’” he said. Searching for investors, Hassall solicited start-up funds of $14,000 from what he described as “a wealthy banking friend.”
“A rich friend from Oxford gave me the start up cash. It’s a high risk venture that he did more as a favor for me,” said Hassall, who has an MA in chemistry from Oxford.
With funds in the bag, Hassall and Gordon-James braved the dangerous desert highway from Amman to Baghdad and published the first edition of the paper on June 9. Half of the initial $14,000 was spent on flights, a car, equipment and setting up the office in Baghdad. “Later, when things were looking positive, we got $10,000 more in seed capital from the same investor,” said Gordon-James, who added that the paper also received various donations of around $1,500 per month.
While inefficient printers and the difficulty of importing paper set the printing costs in Baghdad at $2,000 to $2,500 for a print run of 10,000, operational costs in Baghdad were generally cheap, said Gordon-James. “We were the cheapest newsmagazine in the world,” he said, estimating the entire costs of running the paper at $8,000 a month. “That is ridiculous for what it was.” At the height of operations, the paper employed 20 people, paying local staff members $50 per week – a huge salary for Iraqis who were used to being paid a pittance under sanctions-ravaged Iraq.
Nonetheless, without proper funding, the BAGHDAD BULLETIN was destined for failure. While the paper had ad agencies in Saudi Arabia (Saatchi & Saatchi) UAE and Jordan (Promoseven) and Kuwait (Impact/BBDO) lined up to sell advertising, only one ad was ever sold, despite the paper’s rate of 70 cents/cm2.
“We depended on growing ad sales relatively speedily in order to cover our operational costs, but they didn’t materialize because there was and is no vibrant business in Iraq,” said Gordon-James flatly. “No international companies are really interested in advertising in a pure Iraq-circulated paper while the country remains so volatile; they have to see a return for their investment, which is impossible from a country in crisis.”
Gordon-James said that if the paper had backing beyond its shoe-string budget, it could have grown through an international circulation in Jordan, Kuwait, the UAE and Saudi Arabia, building sustainable ad sales revenues on the back of this. “But as it was, we couldn’t afford to even send our director to Kuwait just to sign the distribution agreement,” he said. By the seventh issue, just when regional interest in the magazine was apparently taking off, the money ran out.
After flying close to bankruptcy for many weeks, the paper’s staff members were forced to evacuate Baghdad in mid-September. “We still exist as a company by the way and we could re-start tomorrow if we found financial support,” said Gordon-James, who would gladly travel back to Baghdad if decent funding were secured. “In the meantime we plan to run the BAGHDAD BULLETIN website as an information forum.”
Aside from enduring financial difficulties, the chaotic situation on the ground made it extremely difficult to get the paper off to print. Without a generator, the staff’s working hours were dictated by power outages that saw electricity flow between 2am and 4am. Security was also a serious concern. In July, Richard Wild, a young British journalist who had come to work in part for the BAGHDAD BULLETIN, was shot dead hailing a taxi on a Baghdad street at point blank range. “We were supposed to meet with him the evening he was killed,” said American David Enders, the paper’s 22-year-old former editor. “The staff, which was mostly young Brits, freaked out for the most part – as it seemed to drive home how dangerous the situation was in Iraq.”
At that point, Enders hired an armed security guard. “We didn’t have a gun in the house until that point, and we agreed to getting a guard after some [staff members] started saying they wanted their own weapons,” he said. “From then on, we always kept an AK-47 on the sofa by the front door.”
Back now in his relatively serene home city of Grand Rapids, Michigan, an exhausted Enders has time to reflect on his surreal experience in Baghdad. “At one point it almost felt like we were playing some sort of bizarre prank, printing a newsmagazine in a war zone,” said Enders, who was invited to edit the paper by Hassall after they met while he was a visiting student at AUB. He recalls a fitful night before the first edition went to print where the staff had a “solid freak-out” about how the paper would be received by Iraqis.
“We had a very eclectic group of guest contributors, from Daniel Pipes to a human shield, and we weren’t sure how they would be taken by the population at large. I was especially concerned about being viewed as cultural imperialists, and also didn’t know what would be totally taboo,” he said.
The paper originally relied on overseas contributors for content, yet later employed local and foreign journalists. The foreign journalists, mainly young British university graduates were not paid, rather offered board and a chance to further their journalism careers. “They got a lot out of it, because it’s experience that counts for foreign journalists. They have to make a name for themselves, and we gave them the perfect excuse and safety net to come to a flash point and cover it,” said Gordon-James. Two of the Bulletin’s former journalists are now working in Mosul and Basra, respectively, as stringers for Reuters, another in Baghdad for the BBC and the Associated Press.
While Enders and Gordon-James convey a sense of exhaustion about their time in Baghdad, they impart a sense of thrill about their extreme, almost action-movie like experience.
“We were caught in a number of close-quarter fire-fights, were on the scene of the UN bombing before the Americans, went to all-night raves with gun-firing party goers and hired Uday’s chief engineer and drinking partner as a distribution man,” said Gordon-James. “I almost crashed my car trying to swerve a dead body in the street … the bottle store next door to our house was shot-up in a drive-by shooting; a carjacker was nailed on our street by the neighbors; we were given one of Moktada Sadr’s only ever foreign interview, and we were called by an MP in London saying she’d just given Tony Blair an issue.”
While Gordon-James said he would have never risked the venture had he known the outlook for post-war Iraq, or the improbability of financial success given the start-up funding, he still views the founding of the paper as an achievement.
“Without hindsight, what we did within a month of the end of official hostilities was create an informative, balanced, insightful, publication driven by pure ideology and it was totally unexpected to everyone, especially Iraqis.”
Hassan, a 38-year-old marketing manager, is talking about his first bout with lower back pain. “It was so bad, I could hardly step off the sidewalk,” he said. “I tried everything. I did stretching and when that didn’t work I rested. I used Deep Heat on the afflicted area. I even thought I had cancer when I diagnosed my self on the internet,” he laughed. “In the end, I went to the pharmacy and the woman gave me muscle relaxants. They worked, but they played havoc with my stomach."
Hassan has since pinpointed the reason for his pain. “It was stress related. I would feel it coming back if I started to feel tense or anxious. It was like a wave lapping me on the beach, getting closer and closer. I would have to lie down and really relax for the sensation to go away.” More than 80% of the world’s population will experience some sort of lower back pain at least one time in their life. It is the second most frequent disability after the common cold, afflicting people between the ages of 18 and 30, and the most prevalent ailment to affect adults under the age of 45. Of the $27 billion spent on musculoskeletal trauma worldwide, $16 billion is spent on the treatment of lower back pain, over half of which is spent on surgery. “There are a lot of economic ramifications resulting from lower back pain, like absence from work and financial compensation for those immobilized from the affliction,” said Dr. A.F. Masri, attending physician of arthritis and rheumatology at the AUH and the former president of the Lebanese Rheumatology Society. There are no statistics in Lebanon for just how many days are lost from back related illnesses but it is estimated that in the United States last year, the total cost of back pain from back disorders in the workplace, was between $50 billion to $100 billion. This figure includes the cost of medical care, absence from work, social costs, personal loss and disability payments. So, what exactly is lower back pain?
“Lower back pain can best be described as a feeling of discomfort in the lower part of the spinal column – which is basically the area from the waist to the buttocks,” said Masri. Masri explained that there are three forms of back pain: acute, chronic and sub-acute. Acute pain generally comes on suddenly, lasting – as in the case of Hassan – up to four to six weeks, and the degree of pain ranges from mild to severe. A high percentage of acute pain sufferers take days off work to recover.
Chronic back pain lasts beyond three months but the level of pain experienced is not necessarily high. Chronic pain has higher economic repercussions, however, because this is where financial compensation due to immobility comes in the picture – i.e. the sufferer is laid off because he/she is no longer able to continue working. Sub-acute pain is in between acute and chronic and lasts about six to 12 weeks. According to Masri, treatment for lower back pain depends on the type of injury, of which there are four main categories. The first, mechanical injuries, usually consist of sprained muscles as a result of lifting heavy objects. “Such injuries heal with time, and can be eased with massage therapy, medication or physical therapy,” said Masri. Osteoarthritis is another type of mechanical back injury and it is the most common cause of lower back pain in the elderly, as it comes with age. Treatment is usually medication, physical therapy and massage. Falling under the same category are fracture injuries – which are usually caused by falls and treatment is bed rest – and herniated discs – which usually heal with time and proper care, including rest, physical therapy, muscle relaxants and avoiding any heavy lifting. The second form of back injury is inflammatory, which is usually a result of chronic arthritis that affects the joints of the back. “This usually affects young people between the ages of 18 and 30-years-old,” explained Masri. Treatment for such ailments is usually anti-inflammatory analgesia drugs, like Panadol, Advil and Volteran.
Next come infections, which affect the spine and cause extreme pain in the back region. “The most common spinal infection in Lebanon is BRUCELLOSIS, and to a lesser extent, TUBERCULOSIS,” said Masri. “Signs of infection are fever, chills and weight loss, and treatment is antibiotics.”
However, Masri was quick to point out that perhaps the most severe form of back ailments is cancer, which results in a high degree of pain if affecting the spinal area. Treatment is chemotherapy or radiotherapy. “No matter what form of back pain a patient is suffering from,” said Masri, “surgery is usually a last resort,” adding that although not generally a necessary treatment, back surgery is common. For the most part, lower back pain eases with time, however, Masri advises that if the pain continues longer that one to two weeks, a consultation with a physician is necessary. “About 90% of the time, a diagnosis can be made based on the history of a patient combined with a physical exam,” said Masri, adding that x-rays are usually not needed. “Most of the time, x-rays are unnecessary and just a waste of money.”
To avoid the most common lower back pains, Masri advises to always maintain proper posture – keeping shoulders back, and when sitting, making sure both feet are on the floor and knees form a right angle – exercise regularly, avoid putting stress on your back with heavy lifting, and lose weight if you are more than 10% overweight. “It’s important to remember that lower back pain affects all people, all races, all ages, is very common, and, a diagnosis is relatively simple to determine.”
Anti-inflammatory drugs
Those, like Hassan, who were plagued by discomfort such as nausea and stomach pain, when they took anti-inflammatory drugs, can look forward to milder treatments. Enter rofecoxib, a newly developed painkiller and anti-inflammatory drug, which, in recent tests, has proved to be as efficient as traditional treatment techniques and much safer. It has also been formally endorsed by the US Food and Drug Administration (FDA).
“[There is] a growing international concern about the safety of traditional pain treatment techniques, which are based on prescribing Non-Steroid Anti-Inflammatory Drugs (NSAID),” said Dr. Tore Kvien, speaking at the 6th Pan-Arab Congress of Rheumatism and Rehabilitation, held in Beirut in September. “Those traditional medications have proven to be dangerous to the human gastrointestinal (GI) system, and the international medical community has been looking for new alternatives for over a decade.”
The symposium discussed the results of two most recent studies, which showed that rofecoxib provided fast and powerful relief from the pain of osteoarthritis (OA), rheumatoid arthritis (RA), and chronic low-back pain (CLBP). The studies, which were conducted on 1,925 patients, also proved that the new medication was more effective than traditional anti-inflammatory drugs.
Other studies revealed that rofecoxib provided superior pain relief in dental and regular surgery. Those studies showed that pre-operative use of rofecoxib is not associated with increased risk of procedure-related bleeding. Finally, treatment with rofecoxib was safe in treating both upper and lower gastro-intestinal disorders. “The emergence of certain drugs, such as rofecoxib, gave prolonged and safe duration of pain relief and analgesic effect from a single dose. The importance of these qualities in acute pain relief has only recently been appreciated and quantified,” Kvien noted.
Israel’s surprise attack on Syria shattered nearly 30 years of calm between the two countries, since the guns fell silent after a negotiated truce following the October 1973 Arab-Israeli war. Despite this, the “situation” between Syria and Israel has been one of a conflict under control.
However, Damascus does periodically pop up on Washington’s political radar screen and since the war in Iraq began last March, President Bashar Assad’s Baathist government has never truly been completely out of Washington’s line of political fire. Particularly active in the drive to keep the Syrian issue alive in Congress are Bush’s neo-conservative friends and Lebanon’s former army commander, General Michel Aoun – strange bedfellows, indeed, when you stop to think about it. But you know how the old adage goes, the enemy of my enemy … and so forth. And there is hardly a town that loves complex politics as much as Washington.
Since the invasion of Iraq began, various members of the Bush administration have at times accused Syria of assisting the Iraqi military and abetting Saddam Hussein’s regime. Among the alleged offenses are the claims that Syria is sending the Iraqis night-vision equipment, allowing Islamist jihadis to cross the porous border into Iraq to fight American troops, supporting major “terrorist” organizations (a number of which maintain offices in Damascus) and of possession and continued development of weapons of mass destruction. Some even went as far as to assert that Saddam hid his WMD in Syria shortly before the outbreak of hostilities. Syria denies the charges and claims the offices maintained in Damascus are “information bureaus” of groups it regards as resistance movements.
However, at a roundtable discussion on Syria last month on Capitol Hill, Congresswoman Ileana Ros-Lehtinen, a Republican from Florida, accused the Syrians of running “a terror center near Damascus.” Of course, no mention was made of the intelligence center that is reportedly based near Aleppo and where Syrian intelligence is rumored to be closely cooperating with the CIA in the war against terrorism. This might explain the White House’s reluctance in signing the Syria Accountability and Lebanese Sovereignty Restoration Act of 2003, calling for economic sanctions against Syria unless it deploys out of Lebanon and alters its policy towards these groups regarded as terrorists by the US State Department. But again last month, friends of Israel and enemies of Syria stepped up their efforts to pass the bill in a renewed effort to have sanctions imposed on Syria as punishment for failing to toe the US line. Marc Ginzburg, a former US ambassador to Morocco, said, “Syria continues to believe it can ignore any threat from the US.” Syrian Foreign Minister Farouk Shara, however, said earlier Syria would meet any “reasonable” US request for help following US accusations that Damascus was not doing enough to end support of “terrorist activity.”
Undersecretary of State John Bolton also announced last month that the administration had now dropped its objection to the bill and Representative Eliot Engel said, “I think it’s time to pass this important legislation.” Engel said the bill has the support of the majority of the House (266) and the Senate (73), including the majority of Democrats and Republicans. It would be worth looking at what those sanctions would in fact accomplish should President Bush, who last year opposed passing the act, now decide to sign it.
However, a number of high-ranking seasoned State Department officials, who have served many years in Damascus and other Arab countries, and together possess more than 100 years of experience in the Middle East, believe passing the anti-Syrian legislation would be counter-productive and would not profit US interests. Instead, they say it would marginalize Syria, rendering future negotiations all the more difficult, and further infuriate an already volatile Arab world. They say it would be seen as an insult by Syria, whom the US needs as it continues to fight its war on terror. Particularly at this point in time, when events are not turning out as smoothly as the Pentagon expected.
Closing offices of what the US and Israel consider terrorist organizations, the State Department diplomats argue, would force the groups underground and would simply render the task of keeping tabs on them all that much harder. Far from solving the problem at hand, it would create new ones. Its only accomplishment would be to mark political points, which would not translate into much in real practical terms. Particularly in the spotlight are Hamas, Hizbullah, Islamic Jihad and the Popular Front for the Liberation of Palestine-General Command.
Maintaining relations with Damascus allows the United States to pressure Syria to, in turn, pressure Hezbollah, the Lebanese Shiite paramilitary organization, which Syria partially funds and somewhat controls. Consigning Damascus to the proverbial corner would remove those constraints, rendering the situation along the Lebanese-Israeli border all the more precarious. This would have the opposite effect of one of the intended aims of the Syria Accountability Act — that of providing greater stability and protection for Israel from cross-border raids on northern Israeli towns and settlements. Aoun, a staunch opponent of the Syrian presence in Lebanon, accuses Syria of “playing the role of both arsonist and firefighter.” Given the influence Damascus holds in the political arena, Syria, in this instance, can indeed be the firefighter, if it chose to. Imposed sanctions on Damascus would be received as a slap in the face and could well find them playing a single game, that of arsonist, a move that would be counterproductive in any future peace effort, say Middle East analysts. Meanwhile, following his appearance on Capitol Hill, the Lebanese government censored Aoun for his remarks. While the economic sanctions that would accompany the Syria Accountability Act does somewhat worry the Syrians, its ramifications are not all that devastating, seeing the current level of trade between Syria and the US is not all that important in the first place. According to the US-Arab Chamber of Commerce and the US Census Bureau, exports to Syria from the US in 2002 amounted to a pitiful $274.1 million, while imports from Syria for the same year were only $148.1 million. And sanctions aimed at keeping technology out of Syria would simply not work. “If Syrians need a computer, they simply drive to Beirut,” said a veteran US diplomat, intricately familiar with the area. Smuggling banned items into Syria from Lebanon would be all the more simplified by the fact that Syrian troops are still present in large chunks of Lebanon, especially along the border between the two countries. In any case, those trade figures do not represent the real volume of imports, seeing there already exists much transport of goods between the two countries. And that’s not counting imports from American companies based in Europe.
Engel, one of the congressmen pushing for the bill, blames the lack of progress on the State Department, which he said “seems to be full of Arabists supporting Syria over Israel.” The State Department, which he called “one-sided,” continues to “frustrate” the issue.
Leading up to the war in Iraq, the administration – particularly the Department of Defense – chose to ignore the State Department’s advice, whose “Arabists” seemed to know the mindset of Iraq and the Arab world far better than most others in the administration, particularly the neocons closest to the president. The rest, as they say is history. Let’s hope that this history, in this instance, does not repeat itself.
(Claude Salhani is foreign editor and a political news analyst for United Press International in Washington, DC.)