Saudi billionaire Saudi Prince Alwaleed bin Talal’s recent $98 million purchase of a 49% share in the satellite broadcasting arm of leading Lebanese television station LBC International has provided a welcome, if modest, boost to Lebanon’s satellite television sector. The industry has been struggling to compete with cash-laden Gulf channels like market leader MBC and Abu Dhabi TV – both backed financially by their respective governments – and to overcome the roughly $30 million, or 20%, loss in 2003 television advertising revenues caused, according to LBC Chairman Pierre Daher, by the war in Iraq and the bombings in Riyadh.

“The move has reinforced the position of LBC as a potential leader in the region,” stated Daher. “Walid bin Talal did not make this jump into LBC just because he felt like it. It was carefully planned. He thinks LBC has potential,” said Daher, who discounted the suggestion that bin Talal, who bought the stake in LBCSAT – valued at $200 million – from Arab Radio and Television (ART) chairman Sheikh Saleh Kamel, might wish to exert editorial pressure on the station. Meanwhile, other Lebanese stations are hoping the development signals a trend that will allow them to forge similar strategic, financially rewarding partnerships.

Not everyone, however, is optimistic. “Lebanon’s satellite television channels have serious problems,” remarked one media professional. “LBC and Future were very good satellite TV stations until the Gulf people decided to invest more in their TV stations. Now you have private stations like LBC and Future competing with MBC, which is funded by the Saudi government, with Abu Dhabi TV, backed by its government, and with al-Jazeera. They can’t compete.” He said annual satellite television budgets had in some instances, in the Gulf, quadrupled in two years, from about $25 million, to $100 million. Lebanese channels, although just as creative and aptly managed, have been left financially adrift in the wake.

The bin Talal move has at least consolidated LBC’s position at the head of the Lebanese satellite television sector. Future TV remains hot on its heels. “It’s mainly LBC and Future that are making money,” said the chairman and general manager of NBN, Nasser Safieddine. “Apart from them, I don’t think any Lebanese station is making serious income from the satellite market.”

Of bin Talal’s foray into LBC, he said: “All of us in the Lebanese media welcome this. A boost for any Lebanese station is a boost for the whole sector,” he said, before adding, “NBN is looking for a strategic partner. We are not ashamed to say this. Because competing, as we do today, with stations that have budgets that are 10, 15, 20 times as big as ours is useless.”

Bin Talal’s establishment of the 24-hour music channel, Rotana – backed by a music production company, and using the old Lebanese MTV infrastructure – has also been hailed as a smart business move that also benefits Lebanon’s satellite TV sector. “Rotana is different. It is a complete organization. It takes care of music production television programming. I think that very soon they will be the leaders of music television in the Arab world,” said one media executive. “And it’s good for Lebanon. It’s money coming in.” “People get fed up with news. They want something different,” added another. “It’s a good move,” agreed Safieddine. “It’s easier to market music and songs than educational programs.”

LBCI has been sub-contracted by the American Harris Corp, which has won a $96 million contract to refurbish Iraq’s official media to train Iraqi anchorpersons.

Still, old habits prevail. The weekly LBC political satire show Bass Mat Watan was suspended at the end of last month by the National Audiovisual Media Council (NAMC) after it played a practical joke that, according to the government body, “harmed the image and authority of the state, and shook the country’s stability”. At the end of 2003, New TV owner Tahseen Khayyat was arrested on charges of treason. All agreed the move constituted a politically motivated attack on the media. Khayyat was released 25 hours later and the charges were dropped. “On the face of it, it looks that way,” remarked Walid Azzi, publisher of ArabAd. “It’s not very reassuring,” noted another newspaper executive. “It was harassment.” Safieddine said he felt Khayyat should not have been arrested, but, interestingly, defended self-censorship as a “wonderful thing.”

Lebanon’s print media, for their part, are reeling under a double scourge: miserable circulation figures and worryingly low advertising expenditures, which observers say dropped by 25% last year. Although the market is characterized by an abundance of publications, especially magazines, most are unable to survive without continual financial top-ups. A vicious circle has, in effect, been created: no one wants to advertise in a publication that doesn’t sell. But publications need advertising revenue to expand circulation. Currently, only 16% to 17% of media-related advertising budgets are spent on the print sector, claimed one publisher. This is due, in great part, to the fact that “no magazine sells more than 3,000 copies and no newspaper reaches more than 10,000 readers,” asserted ARABAD publisher Azzi. However, publishers constantly inflate readership figures – sometimes by as much as 50% to 60%. The tendency has become more pronounced, Azzi lamented, as journalistically below-par, spit-and-stick magazines mushroom and compete. “Spitting and sticking is very easy to do, but it’s not journalism,” he said. “You need quality, in-depth journalism and innovation to get a magazine rolling and to get advertising.”

In the struggling print media, An Nahar leads the pack both in terms of quality and advertising revenues, observers agreed. “It’s run by master professionals and has acquired a great deal of integrity. This is why it gets the lion’s share of advertising,” said Azzi. A one-page ad in An Naharcosts between $8,000 and $14,000.

However, even An Nahar is feeling the financial pinch, particularly as its has just bought back, for a considerable, undisclosed sum, Prime Minister Rafik Hariri’s 34.5% stake in the paper. In the shadow of An Nahar follow As Safir and L’Orient le Jour, and then the Daily Star. The latter two need to be developed, said Azzi, adding that the Daily Star in particular must not make the mistake of thinking it can rest on its laurels because it is the only English-language paper in town. Daily Star Executive Editor Rami Khouri is attempting to ensure that does not happen. The regional Daily Star is undergoing expansion-oriented change, he said. It is now being printed in Lebanon, Kuwait and Qatar and is being sold in 11 countries. “We’re becoming a truly regional paper in terms of our coverage and distribution. We’re making serious ongoing changes in content,” said Khouri, adding that the regional Daily Star aims to become the leading English-language Middle East newspaper with analysis, commentary, insight and interpretation. The Daily Star is not placing as much emphasis on straight news because it believes readers obtain this from other, local papers or from electronic media. To this end, it has developed a still-expanding network of about 150 contributors from around the world.

Meanwhile, the new newspaper Al Balad has elicited mixed reactions and prognoses. “It’s still early to judge,” remarked a cautious Azzi, although he commended the paper’s marketing efforts. Striking a more positive note, NBN General Manager Safieddine said: “I think it’s a very intelligent move. I think they moved into the market in an intelligent way.” An Nahar editor Tueni said he hoped the Al Balad would succeed because competition was good for the market but added that he did not regard the paper as a direct competitor of either An Nahar or As Safir because it’s profile was different: less political and serious. “I haven’t had any reaction,” said LBC Chairman Daher. “It’s new. But I read a paper for politics. Until now, I haven’t seen an editorial line in Al Balad. The rest is nice, but I am not sure I would by a paper for the rest.” Al Balad is currently sorting out a dispute with the Order of the Press, which has accused it of ‘dumping’ its copies at a price forbidden by applicable laws. A newspaper comprising more than 24 pages cannot be sold for less than LL2,000 – Al Balad is selling for LL1,000.

A spokesperson for Al Balad said that after meeting with Order of the Press representatives the newspaper realized it had a stark choice: raise the price or diminish the number of pages. “We will not diminish the number of pages,” the representative stated clearly, “because that would change the nature of Al Balad.”

Industry insiders have suggested that pressure was brought to bear on Al Balad over the pricing issue because of the paper’s apparent support for An Nahar editor Gebran Tueni in his dispute with Nabih Berri. Tueni had implied in an editorial that Berri was involved in the Union des Transports Africains, the company that owned the plane that crashed off Cotonou, Benin, on Christmas day. The idea was, the insiders said, that a ‘rebel’ Al Balad should be tamed – made to understand that, in the view of the Order of the Press, a new newspaper must refrain from siding with the ‘wrong’ party in disagreements involving important politicians.

Would that the industry watchdogs be always so lynx-eyed in their patrolling of the sector. Although there is widespread acknowledgement that the orders have helped defend freedom of the press in Lebanon, many media professionals argued that the two organizations’ directors have used the bodies to bolster their personal prestige rather than to remedy the sector’s ills, and that qualified journalists are being barred entry because they are not at one with the orders’ directors. “These positions are not there to give you prestige. They are supposed to enable you to see exactly what is going on in the business, so that you can correct things,” noted one publisher, who asked not to be identified. “This is not happening.” Mohamad Baalbaki, president of the Order of the Press, denied the claims. “This is not true,” he said. “Whoever says this, doesn’t know the reality of our activities in the order” Qualified journalists had not, he said, been deliberately denied entry. But, he explained, their membership must be approved in a meeting held by an eight-member committee comprising four senior members of the boards of the Journalists and Press Orders respectively. A minimum of five board members must be in attendance for a membership application to be approved. Unfortunately, for two years, no meeting has been held because no board member from the Order of Journalists is willing to show up. “If the representatives of the other order don’t attend the committee meetings the committee cannot make a decision on memberships. Our colleagues in the other order, especially its president, Melhem Karam, don’t like to come to these committee meetings. He prefers not to expand the membership in his order. We are constantly asking him to come to a meeting where membership requests can be studied. He is always busy or traveling,” said Baalbaki. The committee last met, acknowledged Baalbaki, “about two years ago.”

Marked by an insider language and a particular way of life, modern shipping and transportation has long established its very own culture of connecting nations, cultures, and markets. It has a history of its own, which reaches farther back than that of most other economic activities. Today, the industry consists of a huge variety of services and business specializations, and plays a significant role in the global economy.

Compared to its past roles in facilitating international trade and exchange and also viewed against national economic ambitions, Lebanon’s place in transportation has been small – one can even go as far to say dismal. The contribution of the transportation and shipping sectors to GDP is, in typical fashion, not precisely determined. For a nation reputedly mired in mercantilism, Lebanon recently has been awfully short on transportation essentials, beginning with ships and rigs.

With less than 100 vessels (the number exceeded 300 before 1975), the merchant fleet is not only marginal in size but also overage and, critics say, to a large part technically obsolete. Trucking is an underdeveloped industry too, where no government incentives are extended to either individual owner/operators or fleet owners. Banks are said to be overly reluctant in engaging into financing of either merchant vessels or trucks.

Governmental budget allocations to transportation have shrunk in the past five years. In 2002, the expenditure was 2%, and, as throughout the reconstruction era, the vast majority of these funds were committed to boost the infrastructure.

On the side of road construction, acceptable improvements were achieved but progress has been slower than intended, and nothing at all has progressed with respect to rail. Of all infrastructure measures, the airport rehabilitation and expansion project is most complete, even though it was weighed down with expectations that could not be met in the projected time frame.

In both sea and air transportation, Lebanon’s long-term hope and aspiration is to function as a regional transportation hub. The country’s shipping and transport experts have placed their strongest bets on sea-to-sea transshipment, whereby large container “mother” vessels would call on Beirut Port to unload and load cargo to smaller vessels that provide feeder service to regional ports, to Cyprus, Turkey, Syria, Egypt and eventually the Palestinian territories.

Sea-to-land transshipment plays a lesser role in the scenarios because of the limitations on ground transportation, which protectionist practices of governments in the region have created. Local players have voiced higher hopes for succeeding in multi-modal transportation that would also integrate air shipping into a regional hub function. Beirut, with its port and airport, has momentous potential to fulfill the function. Public sector entities have made industry-wide lauded efforts to improve operations of the facilities, reduce red tape, and act upon suggestions by the shipping industry. However, other ports and airports in the region are competing for the coveted role. The port of Tartous – a strong candidate for growth in the opinion of local experts – last year was granted a 50 million euro expansion loan by the European Investment Bank. In a venture that analysts considered less promising, the Israeli government only last month commissioned a feasibility study for a proposed railroad to link its Mediterranean and Red Sea ports and, in this way, establish a niche role in transshipment. Although the discussion over creating a transshipment hub in Lebanon has been very involved, the country still needs to convince all around that it does not only talk-the-talk of transportation but is able to walk-the-walk.

The good news is that beyond verbal commotion over the Lebanese possibilities, chances prevail for real motion in the transport sector. In air travel, national carrier MEA has been resuscitated and outlooks for passenger travel in 2004 are among the economy’s most positive indicators. Aware of this potential, new companies are targeting Beirut for charter and corporate aviation business.

The hottest current optimism factor in the shipping industry is Iraq. Although freight forwarding to Lebanon’s former top Middle Eastern trade partner still presents great security concerns due to the activities of insurgents, the second half of 2003 has already shown that the ports of Tripoli and Beirut could increase cargo throughput to Iraq. Here, 2004 could become the first year of a new future for the Lebanese shipping industry and, within realistic regional possibilities, see the country enter a new phase in writing forth its contribution to the very hands-on culture of connecting nations by shipping.

The alternative wouldn’t be pretty. At least for sea transportation, failure to bring Beirut up to transshipment hub function might condemn the ancient trade center to ‘walk the plank’ and fully plunge into shipping marginality.

Beirut Cargo Center

“Freight forwarding is a profitable business in Beirut but there is room for much more,” says Joseph Harb, president of Beirut Cargo Center (BCC), “I always tell my team that we are only at 10% of what is in our reach.” One of no more than 15 forwarders with a strong presence in the market, BCC has dominant positions in providing logistics to shows and exhibitions and in the shipping of household goods. The company started operations in 1993, after Harb decided to leverage his nearly two decades of managerial experience in the Dubai shipping industry, by returning to Beirut and setting up shop. “Our expansion and acquisition of business went very fast,” he says, “each year we created new departments and added 10 to 15 persons to our staff.” Today, BCC employs 130 staff, with separate departments for sea, air, overland freight, customs clearing, warehousing, exhibitions, and packing and moving. Factors that Harb credits as decisive in his company’s success are working according to international standards and implementation of quality systems and services, aided by an emphasis on training and consistent reinvestments of profits. In the area of rate competitiveness – in any segment of shipping equally important to high service quality – Harb brought a relationship with European logistics provider, Schenker, as crucial intangible capital to BCC. A $7.7 billion company by 2003 turnover, Schenker signs worldwide annual contracts with cargo carriers in a magnitude of 1 million TEU. As their local partners, BCC share in Schenker’s global buying power, allowing it to stand strong in rate rivalries. A decade of growth means that BCC is now an established entity in the freight forwarding business here. It also means that the company could be approaching the size limits for an operator in the dimensionally disadvantaged Lebanese market. But staying true to his credo that much more growth is achievable, Harb is now accruing the adrenaline for his most ambitious jump: becoming a regional logistics provider for Schenker and some of their big manufacturing clients. A project for establishing a Beirut distribution center for a growing European consumer electronics company has already been drawn up to substantial detail. Based on a permit to operate in the free zone at Beirut Port, BCC would immediately seek to acquire a warehouse space of up to 1,000 square meters there in order to implement these projects, thus effectively doubling their existing warehouse capacity. In development steps to follow, the company would set up a trucking department of 20 trailers with scheduled daily overland runs to Levant destinations. In the mid-term, Harb expects to expand his free zone warehouse to 10,000 square meters. Internal consolidation of the Lebanese freight forwarding industry through mergers and acquisitions is unlikely, Harb says. In his view it is a more realistic scenario that his international partners, Schenker, would one day decide to establish their own offices in Beirut, as Lebanon gains in the role as a freight forwarding hub. This possibility, however, does not worry the entrepreneur. The international firm would first approach its existing partner, BCC, and this would open new roads for development. “The future is international logistics,” Harb says, “If you have the international, you will also have the local.”

Sealine

With 25 years of presence in the Lebanese market, Sealine and associated Seatrans are shipping agents and ship owners. The firm has found its niche in representing European cargo lines and as operator of a regular container freight service between Italy and the Levant. The company has a share of about 16% of tonnage volume passing through Beirut port and last year realized two thirds of its business as agents for European shipping lines, mainly German Hamburg S‏ûd and Italian Gilnavi. The remainder came from the operations of its own vessels, but this side of the business could increase in 2004 based on a strategic adjustment of operations that the firm implemented in late 2003. If successful, it will be a classic example for a move that turns an emerging problem into an opportunity. “We are directly affected by the euro exchange rate,” said shareholder Samir Noaime, “due to the strong euro, we are facing difficulties with lack of volume.” The appreciation of the European currency over the past two years has forced Lebanese traders to increasingly source their supplies from the Far East and the US, leading to a drop in shipping volumes on the traditional European supply routes. To balance the negative impact of the shifting trade patterns, the Sealine management modified their shipping service from one route – Ravenna to Beirut via Limassol – to two, by switching to Venice as Italian port for the second route and also adding the Syrian port Latakia before sailing on to Beirut. Besides offering more Levant-bound cargo opportunities, the change of strategy also opened greater potential to pick up Europe-bound freight, because Syrian export shipping volumes are far more substantial than the Lebanese. It is too early to assess the results of the new strategy after serving the Syrian port for now two to three months but the firm had encountered no obstacles, Noaime said. “We are well introduced in Syria and I am more than optimistic that Latakia and Tartous will be doing well.”

The operational environment for their activities in Lebanon is today incomparably better than in the 1980s when Sealine served the ports of Beirut, and in often forced diversions, Jounieh. It seems near miraculous how in those days, under the raging Lebanese conflict, shipping companies succeeded in supplying the country with urgently needed supplies. According to Noaime, the war had also been the reason why the company’s ships until today have not been sailing under Lebanese flag. The terse security situation and resultant excessive scrutiny of Lebanese-flagged vessels in European ports had mandated the company to register its vessels outside, in San Vincent and in Cyprus. However, as one vessel owned by the company is due for immediate replacement and the two others are also scheduled for renewal, the next generation of Seatrans ships would be flying the Lebanese colors. “We have a project to develop the fleet. We want to employ younger vessels with a little bit higher capacity” Noaime said, “and I will be proud to have the Lebanese flag.” With a capacity of 225 TEU, the new vessel is by no means a large ship and Sealine sees no difficulty in financing the renewal of their moderate fleet out of own resources, Noaime said. Under the company’s existing route setup, three vessels would suffice, but more could be added if a project for developing new routes to Turkey and Egypt were to succeed. But in the short term, Noaime’s expectations for 2004 are that a repeat performance of 2003 results would be reason enough to be happy.

Aramex

For courier enterprises, their speed and reliability have created huge opportunities in the last quarter of the 20th century. Companies specializing in express shipping of documents and goods experienced a rush in demand for international deliveries that hasn’t ceased growing since. The firm Aramex was founded as a regional response to the international courier business surge. Conceived in 1982, it developed from an auxiliary provider of narrowly defined express services to a full-fledged operator with its own international network. Today it flaunts its services as ‘total transportation solutions.’

In Lebanon, where Aramex has been operating since the late 1980s, the company saw the nature of demand evolve significantly in the past five years. “The weight per shipment has increased noticeably,” said country manager Asma Abboud, “and the content has changed.” Shipments weighing 40 to 50 kilograms are becoming more and more commonplace in the express segment and some customers use the service for sending consignments of 100 and more kilos to destinations within the region. Across the board on its services provided here, the company reached 10 percent growth in 2003. Over more traditional forwarding, Aramex express shipping has advantages in achieving door-to-door delivery in 24 hours or less to Middle Eastern countries. The company expanded into an increasing range of packing and shipping services, and in 2004, it wants to take a shot at developing its transit business here, which to date has been minimal.

In the domestic market, Aramex has embraced specialization. It does not deliver mass mailings and moved out of areas such as media distribution after LibanPost entered the scene. Shipping of bank documents, blood and laboratory samples, delivery of IT products under collection of their invoices, is where Aramex has a strong position. A Shop and Ship niche service facilitating forwarding and clearance for goods purchased abroad via the internet has some 250 subscribers who use it actively. The firm’s customer mix is 90 percent corporate and 10% individual but the individual clients are very important to the bottom line, Abboud said. She attributed a high share and loyalty of banks in the clientele to the fact that Aramex had been able to provide them with consistent service in the years of conflict. In their corporate philosophy, Aramex stress a team approach that affords staffers with opportunities to rise through the ranks. “Being a transparent company gives each of us a chance to grow and learn,” Abboud said, “each team member becomes an entrepreneur.”

On the level of Aramex’ country stations, this translates into a decentralized corporate culture where managers in every market can make decisions and add to the system. As a corporation, Aramex underwent a noteworthy evolution that took it from being a privately owned firm to go public on the Nasdaq and then, by way of delisting, return to private ownership with an investment fund based in Dubai. Each of these steps proved a useful learning experience and spurred the business on, according to Aramex chairman, Fadi Ghandour. On the whole, Amman-based Aramex saw a very successful 2003 and will “close the year with record results in revenues and net income,” Ghandour told Executive. While the Lebanon operation is doing “very well” the company is internationally looking at Africa and Southeast Asia for expansion. “There is no change in our strategy,” he said. “We are doing what we have always done, but we have become more aggressive on acquisitions.”

Executive travel services ExecuJet

At the top of the transportation pyramid reside flight services for corporations and wealthy individuals. Lebanon is a candidate to become an emerging market for this lucrative segment of the transportation industry. One of several contenders for a stronger corporate aviation business in Beirut is ExecuJet Middle East, a Dubai-based company and part of the ExecuJet group with operations in four continents. The firm, which already has a limited customer base of Lebanese clients, has ambitions to grow its business here into a much larger presence. As a first step, the company announced the appointing of a new sales team for the Levant at the end of last year. With this team, the company aims at penetrating the Lebanese and neighboring markets. “The ExecuJet business model is based on providing total aviation solutions,” ExecuJet Middle East managing director, Horm Irani, told Executive. “I believe that the model is very well-suited to improve efficiencies and comprehensively service the wide range of requirements in the Levant region.” The expansion project is still it its early phase and ExecuJet Middle East would yet have to set its timing for opening an office in Beirut or establishing a base of operations here, but it assessed a doubling of business aircraft movements through Beirut over the past six months, as “very encouraging” signs for local market growth. Irani labeled Beirut International Airport a hub for the western part of the Middle East that could play the same role as Dubai has assumed for the gulf region. “It would make commercial and operational sense to base ourselves out of BIA,” he said, “we anticipate no obstacles in growing our business interests there and establishing the offices and operations base we project.” He affirmed that the Lebanese government and aviation authorities have been very “proactive and progressive” in supporting infrastructure investments and legislating the freedom and ease of movement for sector companies.

Based in Switzerland, the ExecuJet Group was founded in 1991 and has been operating in this region since 1999. Besides offering consulting, operations/management and charter services, the Middle East unit is active in sales and financing of corporate aircraft, representing manufacturers Bombardier and Pilatus. A boost in flight services for corporations and high-level individual customers would certainly add to the Lebanese market. Although several providers in the high-end segment are interested in developing their business here, ExecuJet Middle East sees this area as one whose potential has barely been tapped into. From their perspective, awareness of the benefits of corporate travel is increasing, although Beirut as market for the high-end services is still lagging in some areas. “The risk is a little higher when compared to the Gulf and international markets as the market is still far from maturing,” Irani said. “Profitability is also assessed to be lower as customers are very value-conscious and have still not accorded the full premiums on the offerings.”

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

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

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

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

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

Have you also increased your overall staff?

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

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

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

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

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

Do you have further plans?

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

Did you increase the capital of the bank?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The violence still plaguing Baghdad has done little to deter a brave band of entrepreneurs – many of whom are Lebanese – to march into the capital and snap up lucrative post-war contracts with the coalition forces. Free trade and privatization, forbidden under Saddam Hussein, has plenty of opportunists biting.

“Before the war there was no chance for foreigners to invest. It was a scary regime. Who would have dared come here and try?” said Lebanese businessman George Chahine, who has a contract to maintain three US military bases with Kellogg Brown & Root (KBR), a subsidiary of Halliburton.

With $18.6 billion pledged by the American government for post-war reconstruction next year, alongside over $13 billion in loans and donations from donor countries secured recently in Madrid, the contracts – worth anywhere between $100,000 to $30 million – have overwhelming appeal. “As long as I’m happy with the contract, I don’t mind doing business in Angola or Afghanistan,” said Michel, who comes from Beirut and has a contract with KBR to supply mobile homes to the American camp at Baghdad International Airport.

Yet he was not so blasé about the dangers involved. American military convoys are often targeted by explosive devices on the road to the airport, which also comes under regular mortar attack. “The biggest risk is getting to the camp and back on the road. Also being at the airport, if the camp is shelled who knows what’s going to happen?” he said.

Despite these risks, Michel considers the contract “worth it,” although he, like most of the other contractors in Iraq has no insurance. “What insurance?” he said incredulously.

“You can get insurance but I don’t think it’s worth much because this is war. Who’s going to cover FORCE MAJEURE?”

While one upside to this is no taxes, the lack of insurance for consignments in a war zone can be costly. Chahine is constantly losing freight on the road from Kuwait to Baghdad, where his goods, accompanied by military vehicles, are inevitably targeted by looters. When a truck comes under fire, the driver detaches his load and keeps on driving.

“If I have a valuable consignment in transit, I’m always worried about it until it reaches its location because it’s my money after all,” he said.

While the security situation across Iraq is far from ideal, Yousif Abdul-Rahman, the senior advisor to the Iraqi trade minister is naturally bullish, predicting that business opportunities will abound when the situation stabilizes.

“When security prevails we expect there will be big opportunities in business in Iraq, whether in construction or in supplying commodities. The sooner companies get here, the better,” he said.

This optimism is underpinned by a burgeoning form of economic liberalization that has taken hold under the neo-liberal policies of the Coalition Provisional Authority (CPA).

“A new investment law will be issued to encourage foreigners to come and invest in Iraq,” said Abdul-Rahman of the new law currently being drafted and soon to be issued by the Iraqi Ruling Council.

Previously, state-owned businesses, from factories to the infamous Al-Rashid hotel in Baghdad – are also under review for privatization. “Each ministry is negotiating which projects need to be privatized and which need to be controlled by the government,” said Abdul-Rahman, touting the example of previously state-owned shopping malls. “We plan that in the future, these shopping centers will be rented to the private sector, renovated and redeveloped [to resemble] major chains, such as Safeways. The private sector can deal better than the government in certain areas.”

Nonetheless Abdul-Rahman acknowledged that privatization must happen slowly to ease the social fallout likely to occur if more Iraqi workers lose their jobs. This is nowhere more sensitive than in the manufacturing sector, where some 200 state-owned companies formed the largest employers outside central government – with more than 500,000 workers on their payrolls. “The unemployment rate exceeds 60%. If we speed up privatization this will have a negative impact,” he said.

With privatization is a key economic goal for the new Iraqi government, and the main focus of the trade ministry is free trade, said Abdul-Rahman. This is a sharp shift for a ministry whose former function was to control the rationing system of the UN oil-for-food-program.

“The outlook for the government is free trade, so there will be a very big support for the private sector to participate in the economy of Iraq,” said Abdul-Rahman, highlighting the ease of registration for foreign companies.

Free trade is nowhere more evident than in Iraq today. When the war ended, the CPA froze customs duties on goods entering Iraq, heralding an unprecedented opportunity for trade with neighboring countries. The streets of once-sanctions ravaged Baghdad are flooded with cheap electrical products from Turkey and food from Iran, distributed through Kurdistan. A fleet of used-cars has also made its way into Iraq through the Jordanian port of Aqaba.

This will change on January 1, 2004, when a reconstruction levy of 5% will be imposed on the total taxable customs value of all goods imported into Iraq, besides medicines, food, clothing and humanitarian goods.

While Jordanians have profited from trade with Iraq, Chahine sees the Kurds as the “biggest winners” of the post-war free market.

“The private sector is being controlled mainly by the Kurds, due to the fact that Northern Iraq wasn’t under any embargo and the Kurds, because of their territorial location on the Turkish and Iranian border, have experience with trading transactions and have already established their contracts with manufacturers abroad,” he said. “They were the first to flood the market with satellite dishes, a day after the liberation.” While most trade is coming through the ports of Aqaba, Tartoos and Um Qasr, some businessmen are choosing to ship their consignments through Beirut to avoid delays. “We have to depend on Beirut, because Aqaba is congested and there is a delay in delivering the consignments in Kuwait,” said Chahine who has a consignment soon to be delivered through Beirut.

While years of sanctions would suggest that Iraqis have poor purchasing power to take advantage of new products, Chahine believes otherwise. “Iraqis are buying. They were thirsty for everything,” he said of the country with a population of over 24 million.

Khalid Al-Helou, an Iraqi businessman agreed: “Under sanctions there was nothing to spend your money on. We couldn’t travel or buy new things, so we just saved it.”

Landlords are also cashing in. Since the end of the war, property prices have risen by 300%. “They are asking $2,000 per square meter for prime locations along the Tigris River,” said Chahine, obviously unimpressed at having to pay $20,000 to rent a home. “The price of land is grossly exaggerated. Why? The Iraqis believe that the price they set now is the one they will realize in the future.”

While trade and real estate present long-term opportunities in Iraq, the best money to be made right now is through American contracts, said Chahine. He said Lebanese businessmen have a clear advantage in doing business in Iraq. “The advantage the Lebanese have is that they are multi-lingual. It makes it easier for them to communicate with the locals and the internationals, and coordinate with the local market and abroad,” he said.

“I also feel at home here,” said Michel, of his experience of doing business in a war zone.

Yet despite the many business opportunities, the dangers of doing business in Iraq cannot be underestimated. Chahine drives a beat-up, dirty Toyota Corolla through the streets of Baghdad to avoid standing out, employs an armed gunman to guard his house – and admits he feels anything but secure. “But no risk, no money,” he smiled, noting the importance of gaining a foothold in Iraq now.

“To be here at this time, to become familiar with the market is very important,” he said. “This is just the beginning.”