Back in Beirut

Dilapidation and deficit - Lebanon

2012-02-14T19:56:00.000+02:00

More effective reforms needed to ease pressure on Beirut

Commentary - Executive magazine

My fiancé and I recently decided that we’d had enough — the grinding traffic gridlocks, the high-and-rising rent, the ever present noise of construction and the near complete lack of public green space in Beirut were daily agitations we could no longer bear. Our move — to a house with a large garden and mountain views 10 kilometers above Jbeil — was possible, we reasoned, given that we are both able to work remotely, via the Internet.

That was the theory anyway. In reality the infrastructure in our area provided for no functioning Internet network, and so we had to purchase an illegal, snail-speed connection. The other shock was regarding electricity, with power cuts vastly more pervasive than in Beirut, meaning we had to shell out for a UPS system for uninterrupted power — a viable solution but with obvious annoyances. All this made us tangibly aware that while the current government has spoken a great deal about reform — and indeed some progress has been made in the telecommunications sector — Lebanon still has a long way to go. Phone costs here are still among the highest in the world, and while Internet connectivity and pricing has improved — albeit not nearly as much as was promised by the telecommunications minister in October — for much of the country Internet speeds have gone from a snail’s pace to the velocity of a snail after a few energy drinks. Cheap telecommunications and fast Internet are economic essentials in this so-called ‘global village’ we live; when dealings with the rest of the world are fast and efficient, business is invariably stimulated. Jobs are already being created in call centers and related services that tap Lebanon’s skilled and multi-lingual labor force. Better telecommunications would also relieve some of the strain on Beirut as, in principle, more people would be able to work from home or at businesses outside the capital. As it stands, my own move to the countryside will have to be part-time — today’s journalists require high-speed Internet, and for that I will be forced to keep my office in the city and become another commuter clogging Beirut’s traffic arteries.

Successive governments have pledged to promote more equitable development throughout Lebanon, which would require investment in public infrastructure such as telecommunications, electricity, roads and so forth. This investment has not materialized, with the consequence for the northern regions being unemployment by far the highest in the nation, while constituting 46 percent of the poor in the country according to the United Nations. The lack of viable growth areas outside the capital has also concentrated the country’s economic expansion in and around the capital, with 400,000-odd vehicles entering the capital everyday according to air quality researchers, gardens being paved over for car parks, and open spaces disappearing under new tower blocks, among other stressors that have reached such a pitch in recent years that the city is becoming unlivable. Aside from killing productivity and fraying nerves, the increased traffic is also destroying people’s health: recent studies have shown that Beirutis are at high risk of almost constantly inhaling hazardous particulates, mostly from cars. Further statistics highlight the rampant urbanization: some 80 percent of Lebanese live in urban areas and there are an estimated 18,000 people per square kilometer in some areas of Beirut such as Nabaa and Dahyeh— an urban density higher than that of Shanghai or Beijing.

It is apparent that our policy makers are quickly losing the luxury of inaction on public service reforms — the infrastructure that is meant to prop up the country is teetering under dilapidation and deficit, placing pressure on Beirut that has become unsustainable.

Despite the inconveniences my fiancé and I have faced since leaving the city, the move could not have been more timely. The five-story building that collapsed in Beirut’s Fassouh district last month, killing 27 people, was the building my fiancé had lived in until just two weeks prior to the tragedy. If we had not moved when we had… well, I would rather not contemplate that possibility. Preliminary investigations indicate the building’s decrepit structure gave way after sustained heavy rains — a grim reminder of how, when neglected, eroding foundations eventually crumble.

PAUL COCHRANE is the Middle East correspondent for International News Services

The Iran Dilemma

2012-01-18T17:59:00.000+02:00

International pressure on Iran is at white hot levels over its alleged nuclear weapons programme. The United States and the Europe Union have implemented tougher sanctions, and Israel is itching for conflict, not willing to lose its nuclear supremacy in the Middle East, especially to its arch nemesis. The world has been thrust into two camps, pro or anti-Iran, and it has left China in a difficult position, Paul Cochrane in Beirut reports for International Link (Hong Kong)

“No smoking gun”

Claims that Iran is just “years away” from possessing a nuclear weapon have been repeatedly stated since 1984. Indeed, in 1992, the US House Republican Research Committee claimed that there was a "98 percent certainty that Iran already had all (or virtually all) of the components required for two or three operational nuclear weapons." Rhetoric has only increased since then.

Under international law, Iran is allowed to develop nuclear power and is a signatory to the Nuclear Non-Proliferation Treaty (NPT). Tehran has stated its nuclear efforts are for peaceful purposes, but the United Nation's International Atomic Energy Agency (IAEA) has found the country in breach of agreements and is accused of a “pattern of concealment.” The latest IAEA report, on 8 November, 2011, noted the “possible existence of undeclared nuclear facilities and material in Iran,” and was swiftly picked up as “proof” by US politicians and the mainstream media that Iran is developing a nuclear weapon. It soon led to additional US sanctions on Iran's banking system and oil industry. The European Union (EU) followed suit with new sanctions at the beginning of December.

However, critics have noted that the IAEA report presented “nothing new” in its assessment of Iran's nuclear capabilities while analysts have noted that recent acts of sabotage against Iranian facilities and the killing of nuclear scientists by unknown assassins have set back Tehran's plans. “Many centrifuges were taken off line because of the virus put through Iran's nuclear research facilities, and scientists have been bumped off. It is a real problem for Iran, and made them more paranoid,” said Professor Anoush Ehteshami, Head of the School of Government and International Affairs at Durham University in England, to International Link.

China has responded warily to the IAEA report. In a commentary, the Xinhua news agency said the UN agency still “lacks a smoking gun,” adding “there are no witnesses or physical evidence to prove that Iran is making nuclear weapons.”

Doubts about Iran's nuclear aspirations have also come from unexpected quarters, notably the United Arab Emirates, which is considered a close ally of the US and has long been wary of Iran's ascendancy in the Middle East. Sheikh Mohammed bin Rashid, the leader of Dubai and Vice President of the UAE, told CNN in early December that he doesn't believe Iran is developing a bomb. “What can Iran do with a nuclear weapon? For example, will they hit Israel? How many Palestinians will die? You think if Iran hits Israel, do you think their city [sic] would be safe? They’d be gone the next day,” he said.

Such an argument does not hold with the Israelis, paranoid that their undeclared position as the only nuclear power in the region – Israel has an estimated 200 warheads - would be undermined if Tehran develops a nuke. Anti-Iranian governments in the Middle East, particularly the monarchies and the Gulf countries, are also against Tehran upsetting the current balance of power, giving rise to fears of a regional nuclear arms race. Indeed, there have been unconfirmed reports that Saudi Arabia helped bankroll Pakistan's nuclear programme in the 1990s with the understanding that if Iran gets the bomb, then Islamabad will station a warhead in the kingdom.

Iran's motivation to have nukes would be to ensure the survival of the regime by preventing a possible invasion, as occurred with its two neighbours, but not to the West's other “rogue state,” North Korea, which has a nuclear arsenal.

“Real men go to Iran”

Whether Iran has or does not have nuclear weapons capability has become essentially irrelevant to the anti-Iran camp. While the “doves” in the US are tightening the noose economically around Iran's neck, the hawks are keeping the military option open.

“No options off the table means I am considering all options,” said President Barack Obama in early December. It does not matter to Washington, London or Tel Aviv that Tehran denies it is seeking a nuclear weapon, the Emir of Dubai saying he doesn't believe it, or experts pointing out the flaws in the IAEA report. The mantra is that Iran is developing the bomb and the Western public has long been prepped for a showdown, with mainstream media having banged on about the threat Iran poses to the world since the Islamic Republic was established in 1979, and rhetoric taken up a notch in the decade since America launched its so-called “war on terror.”

The push for a conflict, whether via nuclear bunker buster bombs to destroy Iranian facilities or all out war, is spearheaded by the Israelis and neo-conservatives in the US, picking up on the line of former US diplomat to the UN, John Bolton, who said during the lead up to the war on Iraq, “everyone wants to go to Baghdad, but real men go to Iran.”

However, it is widely thought that Israel will not act, especially unilaterally, until it has expanded the deployment of its $1.4 billion anti-missile defense shield, known as Iron Dome, which would be needed to shoot down rockets fired in retaliation in the event of an attack on Iran, such as by Iranian-ally Hizbullah in Lebanon. Furthermore, there seems to be little appetite for war by the American or European publics, given the current fiscal crisis and how overstretched the US military is globally.

“I don't think war is on the horizon yet but it can't be ruled out,” said Ehteshami. “I don't believe in a 'surgical military strike', as once done in anger, it is war. And by the very nature of war, it would not be what is expected either, as it would involve the use of non-state actors, so it could go from a cold to a hot war very quickly. Everyone recognises that, except for Israel.”

Unbreakable ties?

The standoff over Iran has put China in an awkward position with the so-called “international community” and the US government. China has deep ties with Tehran, and consistently opposed US policy initiatives directed at Iran until 1997, when, after 13 years, Beijing agreed that foreign assistance to the Iranian nuclear programme should end. In 2006, when the US pushed for sanctions at the UN, China opposed but did accept symbolic sanctions. Since then, Beijing has opposed any further sanctions against Iran, and has sought a multi-lateral, diplomatic solution to the crisis that emphasizes offering Tehran a carrot, rather than threatening with a stick, to be transparent with the IAEA.

“China is aware that the US has deep issues in the region and doesn't want, or have the political will, to get too heavily involved, while it is also a supporter of non proliferation,” said Dr Kerry Brown, Head of the Asia Programme at Chatham House in London, to International Link.

But China is increasingly in the minority in carrying out what Brown said was a “a studied neutrality.” Out of the 35 nations voting at the IAEA on the Iran file, 24 voted in favour. While significant that Russia did not vote against Iran – and also opposes the new US sanctions – Moscow has a different relationship with Tehran than Beijing: it is not dependent on Iranian energy.

China accounts for 22 percent of Iran's oil exports while Iran is China's third-largest crude oil supplier, shipping 20.3 million tonnes in the first nine months of 2011, an increase of nearly a third on the same period in 2010, according to Chinese data. Bilateral trade is also booming, worth an estimated $30 billion a year, and the Iranians are hopeful this will increase to $100 billion in the future, cementing China's position as Iran's leading economic partner.

“At the core are economic interests, there is a lot of Chinese investment and it sources a lot of oil from there, so China doesn't want to jeopardize that or be isolated,” said Brown. “The Iranians always try to push China for a bigger commitment, and have some due to energy supply.”

Tehran however is wary about China's continued support following India voting against Iran at the IAEA, in 2005, 2006 and 2011. Iran accounts for nearly 13 percent of India's oil imports, and relations have been strained, made worse by India delaying payment of up to $6 billion, which has been further complicated by US banking sanctions against Iran.

“I think deep in their hearts the Iranian's don't trust the Russians or the Chinese, as they are pursuing their own interests,” said Ehteshami. “Iran was very badly stung by India's support for the first round of sanctions as they thought India was the champion of the non-aligned movement.”

China will also have to balance ties with its top oil partner, Saudi Arabia, and other Gulf countries vis a vis Iran, which Tehran is only too well aware of. “The Saudis and Emiratis are not happy about what Iran is doing, and China is a major military partner. The Chinese have to manage those tensions,” added Ehteshami.

Responding to conflict

As the expanded US sanctions take effect, oil companies and financial channels for oil payments to Iran will come under fire from Washington and could be blacklisted from operating internationally. The US is banking on this having a similar effect on China as it has with India. The sanctions will certainly present problems for China's state owned companies, which would be forced to set up complicated holding companies to circumvent the sanctions, as happened in the late 1990s during the UN oil embargo on Iraq.

How China handled Iraq is indicative of how Beijing may deal with the Iran crisis if the situation boils over into war. China opposed the invasion of Iraq in 2003, initially losing its oil investments but has since re-entered the Iraqi oil market.

“I think China would do the same as with Iraq and sit on the sidelines,” said Ehteshami. “No war with Iran will occur unless there are guarantees from other oil exporters for the loss of Iranian oil, and they will try and keep prices around $100 a barrel.”

However, any diplomatic deal ensuring alternative oil supplies would mean negotiating before an attack, placing China in a vulnerable position over the outcome of a conflict, with Iran as well as the global hegemon, the US. “Diplomatically this is possible, but leads to a deep conviction in China that America is active all around it. That is becoming a pre-occupation and Beijing is feeling very contained,” said Brown.

The escalation with Iran equally has to be put into the context of the uprisings in the Arab world over the past year, which caught China unprepared for the changing dynamics in the region, notably in Libya, which had been the country's ninth largest oil supplier.

“China has been playing catch up in the region, as most governments have. That China was the last of the P5 (at the UN Security Council) to recognize the Libyan revolutionaries, after Russia, shows how its foreign policy actors were taken aback and catching their breath,” said Brown. “The last thing China wants is a massive threat, like internal unrest, or ominous signs of an attack, led not necessarily by the US but could be Israel. In that case it wouldn't want to be caught out on a limb like in Libya, it would need to be quicker in its responses.”

The question now is how Beijing will juggle the Iran issue as the crisis mounts, ensuring oil supplies at the same time as hedging its position on the unknown outcomes of a possible war, which would certainly have major economic ramifications globally and could alter the balance of power in the Middle East in more ways than one.

Bahrain’s colonial flashback

2012-01-05T13:23:00.005+02:00

Commentary - Executive magazine

It is perhaps a cliché to say history repeats itself, yet this saying seems to have held true over the past year in the Middle East, particularly in Bahrain. Uprisings have happened before, and been successful or crushed through counter-revolutionary forces. But it is in behind-the-scenes developments that there really is a flashback to the past.

Last month, Bahrain appointed two men — a former Miami police chief and John Yates, the former assistant commissioner of London’s Metropolitan Police — to oversee the reformation of the state’s police force, which was found in an independent inquiry to have committed systematic human rights abuses and used torture to crush the 2011 pro-democracy uprising. (See the following info - http://original.antiwar.com/rannie-amiri/2011/12/28/the-bahrain-uprising-in-numbers/ and http://www.bahrainrights.org/en/node/2408)

By virtue of their nationalities and their countries’ strategic involvement with Bahrain, both former “top cops” are dubious choices. Yet Yates in particular stands out, as he was forced to resign from the Metropolitan Police in the summer over a newspaper phone-hacking scandal. Moreover, his appointment reeks of the colonial past. Britain set up Bahrain’s security force prior to independence in 1971, and the General Directorate of State Security was run from the mid-1970s until 1998 by former British policeman Ian Henderson.

Amnesty International documented widespread torture under Henderson’s leadership, and he forcefully put down protests in the 1970s and early 1990s, earning him the sobriquet “the butcher of Bahrain”. It is the second such nickname for Henderson, who was a senior policeman in British-occupied Kenya in the 1950s, playing a role in the brutal suppression of uprisings and becoming labeled “the butcher of the Mau Mau”. In 1986 he was awarded the title of ‘Commander of the Most Excellent Order of the British Empire’ for his services.

(Watch a 2002 British TV documentary, "Blind Eye to the Butcher" -http://video.google.com/videoplay?docid=8071454558391784977)

Although a Jordanian has headed Bahrain’s security force since Henderson retired, the modus operandi has remained the same, as last year’s events document. Furthermore, Henderson, who still lives in Manama, is believed to have provided advice to the authorities during the crackdown.

While Yates may not be cut from the same colonial cloth as Henderson, his mindset is not radically different. “Bahrain’s police have some big challenges ahead, not dissimilar to those the United Kingdom itself faced only a couple of decades ago,” Yates was quoted as saying in The Daily Telegraph newspaper. But what exactly is Yates referring to? When were there “pro-democracy” uprisings in Britain in the past 20 years? Or any protests suppressed by putting tanks and soldiers on the streets? Perhaps he is referring to the Brixton riots in London in 1980 and 1995, which, in any case, were widely attributed to racist policing methods and high unemployment. Yates appears to have fallen for the official Bahraini line that Iran is primarily to blame for inciting the uprising and the demonstrations had nothing to do with political repression or a minority Sunni monarchy ruling a Shia majority country.

The appointment is also curious when one considers the role of the Metropolitan Police in the riots in London and other English cities last August. A joint study by The Guardian newspaper and the London School of Economics into the causes of the riots published in December, identified “distrust and antipathy toward police as a key driving force.”(See - http://www2.lse.ac.uk/newsAndMedia/news/archives/2011/12/riots.aspx)

Such findings do not brook a great amount of confidence in appointing a senior London cop to overhaul Bahrain’s police force. Neither is there any mention of reforming the police by including more Shia, who currently account for just 2 percent of the force. But then, reforming a police force without reforming Bahrain’s political system, by giving the opposition seats in government and addressing the root causes of the uprising, will not change much either. As Saeed Shahabi, a campaigner with the Bahrain Freedom Movement, said of the appointments: “This is not the first time that foreigners have come from the West to upgrade the security services… The government cannot survive without suppressing freedom of expression; only a democracy can tolerate protest.”

The appointments are therefore just a veneer of reform, with Bahrain too strategically important to the West — especially with rising tensions over Iran’s alleged nuclear weapons program and Bahrain’s accommodation of the American Navy’s Fifth Fleet — to allow for substantive democratic change or dissent. By appointing one cop from the former colonial power and another from the current global hegemon, it seems that history really does repeat itself.

Finance for thought

2012-01-05T13:21:00.000+02:00

Executive magazine, January 2012

Reviews of four books that challenge and elucidate the most pertinent economic topics of our times

In the years since the credit crisis erupted in 2007 there has been a steady flurry of economic and financial books published claiming to tackle the root causes of what some have dubbed ‘The New Great Depression’, offer alternatives to the current financial system or provide warnings of the inherent dangers still facing the world economy. With the beginning of a new year that has dark storm clouds still crackling with lightning and thunder over the global economy, Executive has selected four of the most thought-provoking economic books printed in the past year to prime the reader for the challenges ahead.

Debunking Economics

Revised and Expanded Edition: The Naked Emperor Dethroned?

A book by Steve Keen

‘Debunking Economics’ has been a critical and commercial success since it was published in 2001, largely due to Australian economist Steve Keen’s withering critique of the neo-classical economic theories that have dominated policy since the 1970s. His claims are also given more weight by the fact that he predicted the 2008 financial crisis well in advance.

In a newly revised edition, Keen hammers the point home that mainstream economists, as well as central bankers, deserve no credit for the boom years prior to the crash but should shoulder the blame for the crisis and its aftermath. Through a pioneering explanatory statistical model, Keen argues that classical economic thought has little to contribute to what is known as Reality Economics, which is more cause-and-effect than assumption based. He argues that the near hegemonic adoption of a narrow-minded approach to economics in academia, which is then carried into professional life, is at the core of the problem, with those supposed to be implementing a cure still theoretically blinkered, evident in counterproductive solutions such as bailing out the banks and quantitative easing.

Keen’s historical and economic analysis of what went wrong are worth delving into, yet it is his alternatives that will interest the reader mulling options to get us out of the current maelstrom. He proposes radical changes, such as reducing or wiping out private debt through a widespread amnesty and, heretical though it may sound, the temporary nationalization of the American financial system.

It is doubtful whether Keen’s voice will be heard amid the hullabaloo, particularly as the United States enters an election year; as John Maynard Keynes pertinently remarked in 1935: “The difficulty lies, not in the new ideas, but in escaping from the old ones.”

The Quest

Energy, Security and the Remaking of the Modern World

A book by Daniel Yergin

Daniel Yergin is renowned for his Pulitzer Prize-winning ‘The Prize’, which charted the rise of the world’s insatiable thirst for black gold as far as the first Gulf War in 1990. ‘The Quest’ picks up where he left off and ventures into the “Great Game” for energy following the break-up of the Soviet Union, the emergence of national oil companies from emerging markets like India and China and the dirty world of oil politics in the twenty-first century. He tackles the effects of the United States’ invasions of Afghanistan and Iraq on energy security and assesses the twisted reasons for the oil price spike between 2004 and 2008. As in ‘The Prize’, ‘The Quest’ shows why understanding the geopolitics of energy is essential to comprehending the world today, and where we may be going next. He discusses how new technologies and high oil prices are making previously untappable oil reserves accessible, although at significant environmental cost. Such ramped up output in the US, Canada and Brazil — each to some 3 million barrels per day by 2020 — could well change the ‘oil world order,’ particularly the West’s problematic reliance on the Middle East, he argues. And while Yergin is no believer in the ‘peak oil’ theory — arguably a flaw in his analysis — this does not stop him discussing at length the need for alternative energy sources, and how potentially disruptive technologies could be game changers in global politics and security.

Poor Economics

A Radical Rethinking of the Way to Fight Global Poverty

A book by Abhijit Banerjee and Esther Duflo

‘Poor Economics’ focuses not on Wall Street and the problems of the financial markets — the “1 percent” as the Occupy Wall Street protesters have labeled them — but rather the poorest of the world’s poor; not the three billion people that live on less than $2.50 a day but the billion surviving on less than a buck.

The focus is on how the poor respond to aid strategies, based on empirical research in 49 countries carried out over 15 years. What is radical about their work is that Abhijit Banerjee and Esther Duflo draw their findings from actually listening to and understanding the needs and behavior of the poor. Why, for instance, do people buy a TV and go hungry, or prioritize the education of one child over the rest of their offspring?

Moreover, their research is into what has worked in development economics and what has not: micro-finance is not the cure-all it is championed to be and higher rates of literacy and schooling do not necessarily equate to economic development and prosperity. As the inequality gap widens, addressing global poverty is a pressing issue for governments, development agencies and businesses. Banerjee and Duflo tell us where our attention needs to be, and it is no wonder their book won the Financial Times and Goldman Sachs Business Book of the Year Award for “the most compelling insight… into modern business issues.”

Currency Wars

The Making of the Next Global Crisis

A book by James Rickards

We are in the early stages of Currency War III, according to veteran financier James Rickards. The first currency war (CW) was between 1921-1936, and CW II took place from 1967, beginning in the lead up to the end of the gold standard in 1970 and culminating in the 1987 stock market crash.

Rickards argues that the United States has instigated CW III through the Federal Reserve’s quantitative easing policy — printing dollars to boost base money supply to get the economy out of recession. But by doing so, “the Fed has effectively declared currency war on the world” and the result is stagflation — stagnant growth and high inflation — and the world going deeper into financial crisis.

According to estimates, the US dollar comprises 61 percent of identified official foreign currency reserves, while the euro represents 26 percent. What happens to the dollar is of prime importance and the trends are worrying. The dollar’s position has declined from 71 percent in 2000, and stands to fall further as American power is challenged, confidence in the greenback weakens and more countries change their reserve currencies, as Russia and others have threatened to do.

Rickards uses possible scenarios — as played out at a Pentagon-organized financial war game — to highlight what a currency war entails and it is eyebrow-raising reading. The end result could be the dollar joining a crowd of multiple reserve currencies (MRCs), although all major currencies have recently devalued in parallel against gold, and in fact MRCs could exacerbate rather than alleviate the currency war. The other alternative is the International Monetary Fund pushes for greater adoption of its “world money”, Special Drawing Rights. The final possibility is the dollar will be “rejuvenated by gold or descend into chaos with both redemptive and terminal possibilities.”

Rickards suggests a return to the gold standard to retain stability, of money backed by something tangible, not paper or digits on a screen. Yet, however this currency war plays out Rickards warns that it “is the most meaningful struggle in the world today — the one struggle that determines the outcome of all others.”

Saudi Arabia looks worldwide for nuclear collaborators

2011-12-28T12:56:00.004+02:00

World Nuclear News - International News Services
By Paul Cochrane, in Beirut

Saudi Arabia’s failure to secure a wide-ranging atomic energy treaty with the USA, continues to push the oil-rich country into the arms of other nuclear suiters, experts on the kingdom have argued. The Saudi's plan is to invest USD112 billion over the next 20 years to build 16 nuclear power plants (NPPs) to offset rising domestic energy demand and retain its position as a leading hydrocarbons exporter.

A memorandum of understanding on nuclear energy was signed with the US in 2008, but the two countries have yet to sign Section 123 of the US Atomic Energy Act, essentially a prerequisite for nuclear cooperation between the US and other nations.

“(The lack of a 123 Agreement) could affect their plans, but Saudi Arabia could go for a European or Asian deal. However there is scope for American technology in many of these technology solutions and I'm not sure how far (French nuclear power company) Areva could go it alone,” said Samuel Ciszuk, senior Middle East and North Africa energy analyst at IHS Energy.

According to an industry source in the US, preliminary talks between the Saudi and US governments to discuss the 123 Agreement were slated to take place, “but even those preliminary talks didn’t happen and, as best we know, nothing further is scheduled at this time.”

Meanwhile, in February, Saudi Arabia signed a bilateral cooperation treaty with France to develop nuclear energy, including electricity production and water desalinisation. This was followed in April with Riyadh announcing it would seek a nuclear cooperation agreement with China.

Meanwhile, Saudi Arabia has been courting nuclear energy operators in Europe and Asia as well as the USA, announcing a joint initiative in mid-2010 with Japan’s Toshiba and American firms the Shaw Group and Exelon to build and operate two NPPs. Last year the kingdom also hired Finnish engineering consultancy Pöyry to study its nuclear energy options. Pöyry however declined to comment to World Nuclear News.

Saudi Arabia is looking into alternative energies, from solar to nuclear power, to wean power generation off oil, with the kingdom already using 320 million barrels of crude per year. This is to triple by 2032 when power capacity is expected to reach 121,000MW, according to Saudi Arabia’s Electricity and Co-Generation Regulatory Authority (ECRA). Some USD140.3 billion is to be spent on conventional electricity projects over the next decade, according to ECRA, to provide an extra 3,000MW of electricity generation per year. A fifth of power generation is expected to come from nuclear power and renewable energy by 2020.

Two NPPs are slated to come online over the next decade, and then two more NPPs are to be operational per year until 2030, according to a statement by Abdul Ghani bin Melaibari, coordinator of scientific collaboration at the recently established King Abdullah City for Atomic and Renewable Energy (KA-CARE).

“Saudi Arabia is still at an early stage, and they are looking at different technologies to be introduced to them and are signing cooperation agreements with as many countries as possible to exchange and gain access to information,” said Ciszuk. “They don't seem to have settled on any technology yet.”

Banking on diplomacy

2011-12-08T13:10:00.002+02:00

US Secretary of State Hillary Clinton talks with Lebanese PM Najib Mikati. Lebanon playing ball with the US and EU sanctions on Syria were at the top of Clinton's agenda.

Commentary - Executive magazine

It has been a difficult year for the Lebanese banking sector. While deposits are only marginally down on 2010, Arab uprisings have affected banks’ regional operations and the Lebanese economy is feeling the ongoing global financial crisis. But by and large, these are the sorts of issues Lebanese bankers are used to handling; risk management is a hardwired Lebanese specialty. What has presented unusual concern this year is the black cloud lingering over the sector following the listing in February of Lebanese Canadian Bank (LCB) by the United States Department of the Treasury as a “financial institution of prime money laundering concern.”

The designation left LCB’s reputation in tatters and, after a limited run on the bank, shareholders opted for LCB to merge with Société Générale de Banque au Liban (SGBL) rather than to appeal the charges. For the banking sector, the LCB designation was a well-aimed kick to the nether regions. Banks are still “paranoid” 10 months later, a senior member of Banque du Liban (BDL), Lebanon’s central bank, recently told me.

The concern is that other banks could find themselves in the US Treasury’s sights — a worry compounded by the apparent political motivation of Washington’s decision, as LCB was accused of laundering money on behalf of Hezbollah, the steward of the current Lebanese government and designated as a terrorist organization by the US. The US decision looked on the surface to be a warning to the banking sector — and Lebanon generally — to play ball. Not helping the sense of paranoia is the failure to release results of the investigation into any wrong-doing on the part of LCB by either Washington or BDL.

There was an upside from a regulatory point of view, however, to the taking down of LCB. Due diligence has suddenly taken on special importance, compliance officers’ voices are better heard in the board rooms and those in need of screening software to detect suspicious transactions have quickly placed orders. Rumors of further LCB-style designations have persisted, while additional pressure has been heaped on Lebanon following multiple rounds of US and European Union sanctions on Syria in response to Damascus’ crackdown on protestors. For the sanctions to have bite, Lebanon cannot be a financial conduit for the Syrian regime; Lebanon is not required to abide by US and EU sanctions — only United Nations resolutions are binding — but it has pledged to cooperate.

With around 60 percent of Lebanese banks’ deposits in American dollars, and the lira pegged to the greenback, Lebanon, as the BDL source put it, is effectively part of the US financial system -- Beirut must respect US decisions whether it likes them or not. Indeed, Beirut’s compliance on this matter is so crucial that it was the first item on the agenda in talks between Prime Minister Najib Mikati and US Secretary of State Hillary Clinton in September. In November, Daniel Glaser, the Treasury Department’s assistant secretary, visited Beirut to push the issue further. Yet while bilateral meetings were underway in late September, another black cloud loomed on the horizon. A second bank — which shall go unnamed — was suspected of money laundering, according to sources in the financial sector and within BDL, although officially BDL would neither confirm nor deny this.

Yet what seems to have happened behind the scenes is an arrangement whereby in exchange for Lebanese cooperation on Syria there would be “no more LCB surprises,” as the BDL source put it. Beirut is in a form of “partnership” with Washington, and BDL is under pressure to deliver by making sure no money laundering or terrorist financing (by American definitions at least) is occurring within the banking sector. If another bank is in the firing line, the US may point its finger, and BDL will investigate rather than merely getting a day’s warning from Washington — as happened with LCB.

Some may call it a Faustian pact, and it goes against the grain of supposed transparency in the financial sector that is being pushed worldwide, but as a diplomatic move it suits both Washington and Beirut nicely, for the time being at least. Lebanese banks are right to be paranoid and to keep in line with US regulations in order to avoid the devastating blow to the sector’s credibility that an LCB redux would mean.

PAUL COCHRANE is the Middle East correspondent for International News Services, and a regular contributor to Money Laundering Bulletin

Mixed Fortunes: Lebanon's automotive sector

2011-12-08T13:06:00.004+02:00

Executive, year in review 2011

The industry’s players have been dealt differing hands in a year of duress

With the International Monetary Fund forecasting the Lebanese economy to grow by just 1.5 percent in 2011, it is no surprise that the automotive sector has not had a stellar year. As of October, sales were down by 5 percent, with 27,473 new cars sold, compared to 28,404 in the first 10 months of 2010, according to the Association of Car Importers in Lebanon.

The year started off badly, with consumer purchasing behavior negatively affected by political wrangling over the formation of a government and given a further hit by the Arab uprisings. The plunge in the number of tourists to the country also affected sales to rental car companies, down 49 percent to 1,646 units as of the end of September, compared to 3,238 units in the same period last year. As one car dealer remarked, it was the worst first quarter the industry had experienced in a decade.

“For us, the year was tough January to June due to the domestic political situation, and then we were impacted by the regional situation and the global economic crisis. Nothing helped us in fact,” said Farid Homsi, general manager of IMPEX, distributor for GM, Chevrolet, Cadillac, Hummer and Isuzu. “But, as of July sales started to pick up.”

The lower sales are indicative of a financially squeezed middle class that in the past purchased vehicles in the $22,000 to $60,000 price bracket. That segment has dropped by 25 percent this year, often in favor of cars priced between $9,000 and $22,000.

“Increasingly in Lebanese society both parents are now working. It means there is need for a second car, especially in the absence of public transport, whether a new, used, big or small vehicle,” said Nabil Bazerji, managing director of GA Bazerji and Sons, dealer for Suzuki, Lancia and Maserati. “It is not fuel consumption that is the concern, as distances are short, so there is little difference between a 1.2 liter and 1.6 liter engine, but what makes the difference is the monthly installment to pay off the car.”

The primary beneficiaries of the economic slump have been Korean brands Kia and Hyundai, experiencing their third consecutive year of double-digit growth by offering affordable cars with monthly installments as low as $200. Korean brands’ market share has increased from 31.01 percent in 2010 to 42.26 percent this year.

“The surge in Korean cars is due to the fact that the Lebanese consumer is poorer and looking for a cheaper product; in both cases it means economic crisis. So it is not that the Korean brands are taking from others, just that [Lebanese] purchasing power is lower,” said Bazerji. “If Korean brands were not available with cheap cars, the market would have returned to 2007 levels when 20,000 units [were sold].”

On top of low purchasing power, foreign currency exchange rates have also played a role over the past few years, with a high yen and euro against the dollar impacting prices. Between 2010 and 2011, Japanese brands’ market share has dropped 8.5 percentage points, as the number of vehicles sold contracted from 11,148 units to 8,125.

European brands, typically the cars of choice for the middle and luxury segments, have seen their market share whittled down by 4 percentage points since 2008, from 25 percent to 21 percent in 2011.

Japanese car dealerships have also been hit by events this year in the Far East. The devastating tsunami and the disaster at the Fukushima nuclear power plant affected exports and then in October heavy flooding in Thailand, a major source of parts for the likes of Toyota and Honda, resulted in disruptions to production.

“After what happened in Japan this year we expected the yen to get weaker but instead it got stronger.” said Negib Debs, brand manager of Infiniti and Kawasaki motorbikes, part of the Rasamny Younis (Rymco) dealership. The yen has strengthened from ¥93 to the dollar at the beginning of 2010 to ¥76 in November 2011.

The downsizing trend

What has retained sales volumes in the market is the downsizing trend. “I feel the mini and compact segments are growing in size; they are the value makers today. In fact the compact, sub-compact and compact-plus are a big category all together,” said IMPEX’s Homsi. “I also think that while people have the means for a bigger car, they are moving downwards not only due to the fuel economy, but buying small due to traffic congestion. The real advantage is you can park anywhere.”

Indeed, the number of smaller vehicles on the roads is visually evident, while there are fewer of one of Beirut’s urban icons, the 1980s Mercedes “service” taxi, curb crawling in search of passengers. They are increasingly being replaced by more compact cars, with drivers trying to make the most out of a LL2,000 ($1.33) ride as fuel prices have risen, with 20 liters of 95-octane graded fuel selling for LL33,300 ($22.20).

“The fuel price, the price of the car itself, the yearly ‘mechanique’ vehicle test, plus better re-sale value, have led to a demand for smaller cars,” said Debs. “The upper luxury segment is down, and even then based on the smallest engines in the category. Sports Utility Vehicles (SUVs) are still selling but the trend is also down.”

Last year, SUVs accounted for 17 percent of the overall market at 4,898 units, dropping to 4,540 units or 16.53 percent of the market this year. The largest decrease was for American brands, dropping from 35.8 percent market share in 2010 to just 26.6 percent, while Japanese brands fell from 20.4 to 19.3 percent. However, SUV sales have picked up for certain brands, with European SUV sales up from 18.4 percent to 20.2 percent. Yet it was the Koreans again that saw the biggest boost, up 40 percent on last year. In 2010, 802 Korean SUVs were sold, 11.5 percent of the market, but that number has jumped to 1,332, or 20.5 percent market share so far this year.

With dealers’ margins tight and competitive prices ever more important, they are welcoming manufacturers’ moves toward smaller engines and models as a result of higher fuel prices and the economic crisis.

“I don’t see any strategies for boosting sales other than reducing prices and offers. I’m not a fan of doing so, but when the market is down you have to,” said Debs. “But I think Infiniti sales will catch up within two years because the creation of the Infiniti was for the American market, which is not into four-cylinder engines, whereas now the aim is to get into the European market, so Infiniti is developing four-cylinder engines.”

As for Cadillac, a compact model will be introduced late next year. “It gives us a lot of hope of competing with the BMW 3 Series and the Audi A4, which is important as the luxury market also wants compacts,” said Homsi.

For Rymco, dealership for Nissan, the second biggest brand in the country for the past two years, sales have been driven by compact models Tiida and Sunny and further bolstered by the launch of the b-segment vehicle, the Micra, last September. “We’ve had great success with the Micra, with the model quickly running out of stock due to high demand,” said Fayez Rasamny, vice chairman of Rymco. Seven new Nissan models are to be introduced next year.

Tactical maneuvers

In the face of cheaper models and Korean competition, European, American and Japanese car dealerships are keen to emphasize differentiators such as their heritage, technology and value-added options in an attempt to lure potential Kia or Hyundai buyers.

“Our strategy is to go niche. If you want value go for a Tiida or Kia, but if you want something unique go for a Mazda or BMW,” said Anthony Boukhater, deputy general manager of ANB Boukhater, dealer for Mazda and Piaggio motorbikes. “The brand value of Mazda is high, as is the image perception, and Mazda are produced in Japan while (Nissan’s) Micra is made in India, the Sunny in Korea and Tiida in Mexico.” Like other dealerships, Mazda is also banking on a new showroom and what Boukhater calls the “best service in town” to attract and retain clients.

T. Gargour & Fils, distributor of Mercedes, Smart, Chrysler, Jeep and Dodge, has restructured over the past year, building a new showroom and repositioning their sales tactics. “Our strategy for Mercedes was to reposition ourselves to be more sporty-looking while keeping the existing customer base of over-50-year-olds,” said manager Cesar Aoun. “This is mainly through price strategies, product packaging and options to target a wider segment. Our successful strategy led to market share going up, while we released four new models this year.”

The company has also revived the ‘Smart’ car to tap into the compact segment. “The Smart Fortwo is a compromise between a motorbike and a big car, as it is convenient for Beirut and you can drive 250 kilometers to 300 kilometers for 20 liters,” added Aoun.

For Chevrolet, which rose up a rank to fourth most-sold brand in 2011, the expanded model range has helped bolster sales, notably the compact Spark automatic. “With what is happening today you need to be tactical. Price talks but other segments want value and technology. People want a compact [car] but not to sacrifice on style, comfort, safety and good handling. Not too long ago, a compact was a bit boring, but not anymore,” said Homsi. “What we are focusing on is the heritage of Chevrolet, which is celebrating its 100th anniversary, so we plan to build on iconic models. With all due respect, Korean brands have not had a model winning Le Mans, like the Corvette, or the World Touring Car Championships.”

Korea’s rise

Like rival manufacturers, non-Korean dealerships are clearly rattled by the country’s global growth, with the Hyundai Kia Automotive Group ranking number four worldwide in sales volume this year. Indeed, in Europe, Kia aims to bolster sales of its three-door Picanto by 70 percent by 2013. Rival dealers are keen to suggest it is the smaller models that are selling the most, emphasizing the low price. But the Korean dealers give a different perspective.

“Many people think Korean cars are low cost. That is no longer the case for me,” said Assaad Dagher Hayek, general manager of Natco, dealer for Kia, Peugeot and Citroen. “Only one car is, (India’s $2,000) Tata Nano. A Kia Picanto is $9,000 to $12,000 — that is not low cost, you could get a Peugeot or a Citroen for the same price. And we don’t really have a single best-selling model, although number one is the Sportage (an SUV). Some think it is Picanto, but they’re wrong as they only see the old Picantos on the roads.”

The country’s best-selling brand, Kia, outpaced its closest rival, Nissan, by over 2,000 units this year, gaining a 25.8 percent market share. Hayek puts Kia’s success down to three factors. “Firstly, we’ve a full range of cars, from 1 liter to 3.8 liter engines. Second, the designer, Peter Schreyer, is ex-Audi. Third, and most importantly, we offer a five-year warranty and the quality is the best in the world. We could have sold more if I had more in stock.”

For a car manufacturer that had to be bailed out by the Korean government in 1997 and was later acquired by Hyundai, Kia has certainly made startling progress. Yet in terms of percentage growth Hyundai leaped ahead this year, although unlike Kia, sales are dominated by smaller models, with 45 to 50 percent the i10, and 20 percent the Accent.

“While the market went down by 5 percent, we managed to grow by 32 percent, the highest of any car company in Lebanon. Why? I attribute it to Hyundai launching four beautiful models in 2010 and 2011. Another factor is the brand image has really improved tremendously,” said Walid Rasamny, chairman and chief executive officer of Century Motors, dealership for Hyundai. “And why are we not number one in sales? The reason is simple; we have back orders of 2,500 units at present; all Hyundai dealers are facing a shortage of supply. Seoul is working on it but didn’t expect such success worldwide. We don’t have one Tucson or Elantra to sell.”

European and Japanese dealerships said they think that the Korean brands will lose their momentum and edge next year, although several dealers said the same thing to Executive in 2010’s end-of-year review of the automobile sector. Rasamny thinks this is not likely.

“I completely disagree [that we will lose momentum]. The Koreans are bursting with success, and it is not a fly-by-night operation anymore,” he said. “Many dealers, especially Japanese car dealers, blame the high yen. It is a small factor. Put a Hyundai next to a Japanese car and the shape is far better, the reliability and excellent re-sale value — you’ve got all the ingredients of a winner,” he added. Indeed, Hyundai have won numerous awards worldwide since 2007.

China, for its part, is forecast to manufacture 10.26 million cars this year, with this figure set to triple by 2015, with the annual output of China’s 30 major car makers expected to reach 31.2 million vehicles, according to the country’s National Development and Reform Commission. Yet the effect on Lebanon is yet to be noticeable. Chinese brands Brilliance, Chana, Chery, DFSK, Geely and JAC have cumulative sales of just 212 units so far this year (up by 4 units on 2010), compared to 1,746 American cars, 11,611 Korean, 8,125 Japanese and 5,779 European.

And while dealerships may complain of Korea’s rise, it is also having a negative effect on the used car market, which accounted for around 70 percent of cars bought in 2010.

“Used car sales are affected by us due to a new awakening of the Lebanese public that they are shooting in the dark buying a used car, and better off buying a new car from a reputable company with a warranty of a major manufacturer, as there is somebody to complain to if there is a problem,” said Century Motor’s Rasamny. Used cars sales dropped 29 percent this year, from 46,800 units as of September 2010, to 33,600. Sales also dropped due to restrictions imposed by the central bank and the US government on money transfers following the taking down of Lebanese Canadian Bank in February on accusations of money laundering, allegedly carried out in part via used car dealerships in the US.

“Another factor that brought sales down is that the government introduced new regulations in September that banned the import of cars under a person’s name,” said Aoun. “We’re happy about this, and the total imports of used Mercedes dropped by 25 percent versus 2010.”

The outlook

As the year draws to an end, dealers expect overall sales to be just under 2010’s, at around 32,000 units. As for 2012, it depends on the dealership, new models to be launched and the overall economic landscape. “I think the top three — Kia, Nissan and Hyundai — will remain the same, and market sales will be 28,000 to 32,000 units, but not down to 17,000 unless there is a war. The planned increase in value added tax (from 10) to 12 percent will have an effect,” said Natco’s Hayek.

“Next year will be similar to 2011,” said Debs of Rymco. “I don’t see the political situation improving in the region anytime soon. The whole region is practically stagnant, while currencies are all over the place.”

IMPEX’s Homsi is upbeat that next year will have similar results to 2011, but strikes a note of caution. “Unfortunately, today we have Lebanese issues, Syria, problems throughout the Middle East and the global crisis, in addition to production constraints of natural disasters like in Japan. The whole chain is affected so there are a lot of challenges; it looks like one big question mark.”

Bazerji expects a difficult year ahead. “I think 2012 will be harder than this year, as we are in a difficult neighborhood, which will affect us. For instance we haven’t profited from wealthy Syrians coming to Lebanon. But we’ll manage, as that is what we’re good at.”

I spy money – no you don’t!

2011-12-06T13:57:00.003+02:00

Money Laundering Bulletin

Intelligence agencies are, by definition, secretive. So, too, are their budgets and how they finance covert activity, especially in foreign jurisdictions and where they carry out so-called ‘black ops’. If spies use techniques to quietly transfer funds that resemble the practices of organised crime or terrorist groups, there is one major difference, writes Paul Cochrane: the sometimes tacit cooperation between government agencies and the financial sector.

Espionage accounts

Of course, nailing down proof of such collaboration is not easy. In researching this piece, MLB was not, alas, granted access to the accounting books of the world’s intelligence agencies, so it is based on informed sources and research. Interestingly, of the anti-money laundering (AML), financial crime, compliance officers and other experts contacted, the vast majority were surprised by the topic itself and not able to comment. “Exotic”, the article was called by a few, while, in conversation with others, the words ‘Hollywood’ and ‘James Bond’ cropped up. Some, intrigued, speculated as to how spies could be financed but thought that money laundering was not involved. Others did not return requests for interviews despite initial interest. One reply was revealing, stating the article was “inappropriate”…

Telling though is the finding that the topic of spies and money laundering seems not to have been given much thought from a regulatory or risk perspective by AML professionals, perhaps unsurprisingly as they are primarily focused on regulations relating to organised crime, illicit transactions and terrorist financing - espionage funding does not, for example, feature in the Financial Action Task Force’s (FATFs) 40+9 Recommendations.

Furthermore, intelligence agencies, with the exception of those linked to ‘rogue’ states, are not deemed a risk for compliance and due diligence. After all, the secret services work closely with the finance industry to thwart money laundering and terrorist financing, as well as monitor for those on sanctions lists. There is also a degree of mutual understanding, with bankers, at least at senior levels, very aware of the diplomatic and national security ramifications if the funding methods of intelligence agencies were exposed.

No information then was available on whether and if so which illicit financing techniques are utilised by the intelligence services – except by venturing into conspiracy theory territory (the CIA, MI6 involved in drug trafficking and so on). But we do know that they have used illicit financing in the past and therefore, most probably, are still doing so.

The most famous case in recent history is the Luxembourg-registered Bank of Credit and Commerce International (BCCI), which was brought down in 1991 for laundering money for such a plethora of dictators and criminal enterprises that it was jokingly referred to as the ‘Bank of Crooks and Criminals International’. One customer was the CIA, which used the bank to finance foreign operations, including what became known as the Iran-Contra scandal, as well as to fund the Afghan Mujahideen to fight the Soviets in the 1980s. The CIA’s involvement with the bank was the subject of a 1992 US Congressional report by Senator John Kerry. The then incumbent head of the CIA, and recently retired US Secretary for Defense, Robert Gates, was also questioned.

The long game

While the Cold War is long gone, internecine struggles between western and Russian intelligence agencies continue. Last year, 10 Russian spies were arrested in the US following a seven-year investigation by the FBI. An eleventh member was the suspected paymaster. The sleeper cells had jobs, owned houses and ran front companies. “Money laundering happens but we don’t find it so much with the intelligence services,” according to Mark Birdsall, editor of Eye Spy, a magazine on international intelligence. “In some respects money laundering has been overtaken by the creation of legitimate companies,” he said, “Now rather than create spy networks, the Chinese, for instance, are setting up networks to create front companies in the US, and have managed to win defence contracts, a problem as, once inside the industry, they can access all sorts of secrets. The Chinese and Russians are very patient, and will wait years to enable an operation to happen. Usually it is hiding in plain sight.” Clandestine operations by the likes of the CIA also work in the same way, added Birdsall, spending years to establish a seemingly legitimate front company. “It is very similar to what organised crime is doing,” he said.

Indeed, Russian intelligence agencies have been linked to organised crime and money laundering. In a February 2010 leaked US embassy cable, Spanish national court Prosecutor José Grinda Gonzalez alleged that Russia’s Federal Security Service (FSB), the Foreign Intelligence Service (SVR) and military intelligence (GRU) “control organised crime in Russia” and launder money through front companies across Europe: the claim was made at the US-Spain Counter-Terrorism and Organised Crime Experts Working Group meeting in Madrid in January 2010.

The Russians, on the other hand, have accused Britain and the US several times in the past few years of using non-government organisations (NGOs) to provide cover for foreign espionage, going so far as to issue a new law in 2006 to require NGOs in the country to re-register and regulate the flow of money from external sources after 20 foreign agents and 65 people linked to spies were arrested in 2005. Moscow’s fear of NGOs has resulted in a new moniker for this phenomenon, GONGOs – ‘government-organised non-governmental organisations’.

Whatever the state of the Cold War hangover, it is, of course, the Middle East that is the key focus today of many intelligence operations. But how intelligence agents and informers in the region, if caught, are financed is invariably not revealed by the investigating authorities. In Lebanon for instance, 150 people were arrested and charged with spying for Israel in 2010 - Lebanon’s government authorities refused to comment on how the Lebanese accused were funded, but local media reports have alleged that agents made trips to Europe where they were met by a handler and paid by transfers into European bank accounts or simply in cash. GONGOs have also been flagged as possible revenue conduits.

“Someone is paying them. In a small country like Lebanon there is a huge growth in NGOs. You see their budgets and salaries, but when you visit their offices something is suspicious,” said Camille Barkho, manager of Amerab Business Solutions in Beirut, which sells AML software in the MENA (Middle East and North Africa) region.

Funding can also be very straightforward, with transfers to an informer or agent wired to an account under the US$10,000 threshold in order not to arouse any suspicion, said Barkho. Last year, according to United Arab Emirates (UAE) police reports, investigations into the assassination of a member of the Palestinian group Hamas in Dubai, carried out, say local authorities, by the Mossad, Israel’s secret service, revealed that the hit squad openly used credit cards to finance the operation.

Public funding

Of course, arguably, the major western intelligence agencies do not need to launder money or engage in illicit financing due to the immense budgets at their disposal. The 16 agencies within the US intelligence community, which includes the CIA and comes under the control of the Defense department, had a budget of US$80.1 billion in 2010, it was publicly announced. According to Gordon Thomas, an investigative journalist and author of ‘100 Years of M15 and M16’, funding for the two agencies and Britain’s GCHQ (Government Communications Headquarters) is decided upon by what is called the ‘Secret Service Vote’. “It is a figure not listed anywhere in government records. It is not voted on by anybody, or by Parliament. Only the prime minister sees it, and he is not told what it is for,” said Thomas. “The figure is decided by the heads of the intelligence services; if you need a billion you get a billion, and you don’t have to explain how it is used. The current figure I have for 2010, and the same this year, is UK£4.5 billion.”

Public-private partnership

For money to go from government accounts into the banking system and not be linked back to the state, high level contacts are used. “I know that MI5 and MI6 have former City, high-ranking people who joined them to run the finance end of things. They would then call the head of a bank to arrange for an account to be opened. It is all done at the highest levels as money is critical to make the intelligence world tick,” said Thomas.

Look the other way

Compliance officers would clearly not be aware of such accounts. AML professionals, said experts, would have to look out not for intelligence agency accounts connected to the country in which the bank is operating but for foreign agents operating in their jurisdiction who would pose a regulatory risk. That said, the Association of Former Intelligence Officers (AFIO) in the US believes the readers of MLB do not need to know how intelligence agencies are funded or if they use illicit means. “We do not see where public comments or articles on this topic serve the best interests of the US or intelligence community seeking to defend itself from terrorists or spies while having to deal with those who will secretly aid, accommodate, house, protect, and hide them from discovery or capture,” the AFIO stated in an unsigned email. “Funding the people or enterprises needed to effectively run intelligence operations is a crucial trade-craft technique in our national defense arsenal, and it does not belong in discussions in the public realm merely for readers to while away reading time with interesting, inappropriate articles against the self-interest of their country and themselves, whether they realise that or not.”

http://www.moneylaunderingbulletin.com/moneylaundering/customerduediligence/i-spy-money--no-you-dont-2658.htm

The Middle East's Internet Inflection

2011-11-18T13:02:00.000+02:00

Executive magazine, Middle East edition

Expansion on the web opens alternative avenues for business and society

Information technology (IT) players refer to the major changes the industry’s had on the way people think and act as inflection points. One inflection point was in the late 1980s and early 1990s when the internet started to become more widely adopted by organizations. It took time to gain momentum, to move from the office into the home and reach the two billion internet users on the planet today. We are now in the middle of a second IT inflection point: mobility, with the internet wirelessly accessible through laptops, smart phones and tablet devices in what some are calling the “post-PC” world.

In the Middle East and North Africa (MENA), the past two years have arguably been an inflection point of a related yet somewhat different nature. According to statistics released by search engine Google, internet usage in the Middle East grew by a staggering 39 percent in 2010 to 86 million users, up from 64 million in 2009, with overall penetration reaching 29 percent. Such growth is just over double the increase in internet usage on a global basis, estimated at 14 percent by Internet World Stats in 2010.

The momentous rise in Internet penetration and adoption of mobile devices in MENA has had ramifications that no one would have imagined, including the role IT played in the uprisings this year via the use of social media and mobile technologies in coordinating protests demanding political freedoms.

Dollars online

When the wave of mobile communications spread across the region a little over 10 years ago the first big commercial surprise was the fact that mobile phone operations proved highly attractive and viable in less affluent nations and could serve as business enablers in unexpected ways. For private sector enterprise, the new big question after the eruption of the region’s social and political restructuring is if Internet and mobile networks will be the next big thing for regional business.

The trend for online media usage is increased spending on digital marketing, currently accounting for 22 percent of MENA companies annual marketing budgets, while 58 percent have increased digital budget spending this year, according to a 2011 EConsultancy study, whether on social media, mobile marketing or video advertising.

Ecommerce is equally booming, with 32 percent of MENA Internet users buying online in 2010, according to Spot On, a Dubai-based communications company, and retailers selling some $90 billion in goods and services last year, up 37 percent on 2009, according to Startup Arabia, an Arab technology startups and services website. The top purchased items are airline tickets, books, computer services, clothing and hotel reservations.

Ecommerce and online advertising, the drivers of the dotcom era, are still the top potentials for business on the web but it remains to be seen if they can fulfill the expectations for what had been called New Economy in the Internet’s early days. Barriers against the rise of these economic activities cannot be discounted.

“There are definitely social aspects to Internet adoption, with access to the super information highway meaning more freedom of information,” said Samer Taha, chief executive officer and Founder of Jordan’s Waseela, a telecom system integrator and managed services provider. “Countries are trying to balance developing IT with censorship, while others are delaying roll out due to the amount of information available (on the web). So even if the private sector is willing to invest, governments are often more reluctant.”

Although growth in IT and adoption of social media in the region is indicative of economic potentials, Internet penetration rates vary wildly from country to country, with the United Arab Emirates the highest at 65 percent, Bahrain at 50 percent, Jordan at around 30 percent, Lebanon 25 percent and Syria 18 percent in 2010, according to Internet World Stats.

“Overall the Middle East and the Gulf are not so different from the third world, there is a digital divide comparable to the first and second worlds,” said Taha. “Yet with the Gulf countries reaching first world levels by introducing 4G [fourth generation mobile telecoms], the non-Gulf countries are three to five years behind.”

As the adoption rates of social networking site Facebook and video site Youtube in Arab countries show, the MENA region is catching up with international rates of web usage but the numbers differ widely between countries. Facebook, for example, had attracted 19 million new users in the MENA this year up to June 30. The site claims a total of 56 million users in the MENA at midyear, a 51 percent increase from a year earlier.

Yet while Facebook reported 100 percent increases in users in Algeria, Egypt, Palestine and Yemen over the past year, and 317.5 percent growth in Iraq, user numbers dropped by 61.8 percent in Libya and by 200,000 in Qatar due to government censorship.

Youtube, in another way, also serves as an example for the factors that make online business an interesting but complex proposition in the region. In October, repercussions of using the service were highlighted a case where three young Saudis were arrested after uploading a clip on poverty in the kingdom on Youtube. But this appears not to have reduced the popularity of the social media tool. Saudi Arabia is considered number one worldwide for Youtube uploads per capita, according to Khaled el-Amrawi, regional director of Enterprise Solutions Middle East of Intel Corporation Egypt.

Going mobile

Internet penetration has been boosted by the rapid uptake of smart phones, which allows people to bypass the relatively high cost of purchasing a personal laptop to get wired, at the same time providing the latest “must-have” gadget that doubles as a conventional mobile phone. According to a survey released this year by Effective Measure, 45 percent of MENA Internet users surveyed use mobile phones to access the internet.

In countries with already high penetration like the UAE, the adoption of second and third devices — smart phones and tablets — is pushing penetration even further, said El Amrawi. Recent data backs this up, with an Arab Advisors Group survey revealing that smart phones constitute 43.7 percent of total cellular handsets in the UAE, 54.6 percent of total handsets in Saudi Arabia and 41.6 percent in Jordan.

The adoption of these devices among the region’s burgeoning youth is already having an impact on how people use email. “This new generation, the mobile generation, often has no specific email address as they use Facebook instead,” said Michael Bayer, president of Europe, Middle East and Africa at Avaya, a computer networking and telecommunications company.

Furthermore, portable devices are surpassing PCs and laptops as the primary business tool. “I don’t use my laptop unless I’m opening a big attachment. Around 90 percent of my work is via my smart phone; contacts, email, everything,” said Bashar Bashaireh, regional director of Fortinet, a network security company.

The regional race

The region is experiencing an inflection point in how governments and businesses are using online technology. This year, IT spending by Middle Eastern and African governments is forecast to increase by 10.7 percent from 2010, reaching $6 billion, according to research firm IDC, while total MENA IT spending is estimated to reach $45 billion, up 50 percent from 2010. The numbers are estimates, and Dubai IT exhibitor GITEX estimates total Middle East IT spending substantially lower, at $14 billion. Nonetheless, it is big business. “The Middle East is an area where an IT company can grow by 30 percent year on year,” said Bayer.

With e-commerce sales forecast to reach $1.4 trillion worldwide by 2015, the MENA is expected to enjoy a significant slice of the e-pie as e-commerce becomes more widespread. “E-commerce in the MENA is following in the footsteps of Europe and the United States, so I think there is a future and huge potential,” said Hassan Hamadani, marketing and business development manager at Brocade, a networking solutions company.

In public and private sector IT investment the UAE, Bahrain, Qatar and Saudi Arabia are leading the pack. But other countries are trying to catch up and be viable IT hubs, most notably Egypt and Jordan.

“There was a plan for Egypt and Jordan to be software and IT hubs,” said Taha. “Egypt has succeeded to a degree but the momentum did not continue, while in Jordan it didn’t take off as hoped. Dubai has high operational costs but is seen as the right hub due to infrastructure, logistics and other advantages not there in Jordan or Egypt.”

But while the UAE is what one IT manager called a “high-tech sales office”, as it lacks research and development in software, Egypt is making headway as an “attractive offshore destination for R&D,” said Yasser el-Kady, CEO of the Information Technology Industry Development Agency (ITIDA), formed by the Egyptian government in 2005. While the political unrest earlier in the year negatively affected the sector, ITIDA has worked to retain the multinationals like Intel and Microsoft in the country while investing $500,000 to promote the IT sector. El Kady said a multinational outsourcer would be creating some 20,000 jobs when it starts operations later this year.

The $1.3 billion sector currently employees 60,000 people at some 11,000 IT and telecoms companies. With a strategic focus on the MENA, Kady said revenues will reach $7 billion by 2016. “Our goal is to treble software exports every five years,” he added.

As inflection points go, IT is the next big thing for the MENA in terms of job creation, foreign companies seeking to expand global market share, governments expanding electronic services and, potentially, greater political freedoms through hyperconnectivity.

Rein in the ratings agencies

2011-11-04T13:36:00.001+02:00

Commentary - Executive magazine

Why should we take credit ratings agencies seriously anymore? It is a question that has growing currency globally, and one that would not have been asked several years ago, certainly not by those in the financial sector. Yet in these turbulent economic times I have heard corporate bankers, private traders, insurance brokers and compliance officers rant about how the credit ratings agencies (CRAs) have gotten out of control.

People are starting to question why the CRAs’ “opinions” — for that is what their ratings are — should wield such power in the global markets given their prominent role in instigating the financial collapse. Subsequent moves over the past year have further escalated the crisis, such as downgrading Greece, Portugal and Italy in the midst of the European sovereign debt debacle.

The CRAs raising ire are the three majors in the United States, Moody’s, Standard & Poor’s (S&P) and Fitch, not the 70-plus other CRAs that operate on a much smaller scale worldwide. Indeed when China’s Dagong, the only non-Western sovereign CRA, downgraded the US in 2010 to “AA” status it hardly registered, especially compared to when S&P did the same (to “AA+”) a year later.

In particular, the problem is the way the three CRAs work to assess the risk of debt-based securities and other structured financial products: CRAs are paid by clients to “objectively” rate these same clients. But there is a clear conflict of interest here. As US Senator Charles Schumer remarked to the Senate Committee on Banking, Housing and Urban Affairs in 2008, this is comparable to “allowing students to pay for their grades,” for naturally, everyone wants to receive a higher rating. CRAs bestowed “AAA” ratings — the highest possible — on the bulk of the $3.2 trillion in mortgage-backed securities issued by banks during the build up of the housing bubble, despite the risky nature of bundling together what is known as ‘collateralized debt obligations’, while watching their profits double to $6 billion between 2002 and 2007. When the bubble burst the following year and the big three CRAs were asked during US government investigations why they kept these securities rated so highly, all three stated: “it’s an opinion.”

Among the core issues here is that these opinions — the downgrade on the debt of sovereign debt or unrealistically high appraisals of toxic assets — are a type of self-fulfilling mantra: a poor asset wrapped in the gloss of a high rating will attract people to invest in it, making it worth more. This warps a market and can cause havoc, as we continue to see. Credit ratings are also used to anticipate future credit worthiness, but CRAs cannot predict the future no matter how good the data at their fingertips, and especially not if they are inherently in a conflict of interest.

So what is the solution to curb the powers of the CRAs? The US Dodd-Frank Act, the financial overhaul law enacted in 2010, and the Securities and Exchange Commission (SEC) have proposed policies to crack down on the CRAs, but they do not go far enough, with pressure from the well-lined pockets of the CRAs and Wall Street lobbying for significant concessions.

A more radical — and simple — solution was proposed by economist David Raboy at a Congressional Oversight Panel in 2009. Raboy suggested creating an independent clearinghouse that would receive rating applications from securities issuers and allocate each assignment to a ratings agency in a random fashion, with payment dependent on the complexity of the securities involved. Accurate ratings would ensure assignment of further cases. This model could be applied nationally or even at an international level, such as for sovereign ratings. Another solution is to scrap the CRAs all together. After all, the stock markets are devoid of ratings, with investors getting by on research from firms and banks to make decisions. If neither of these solutions is adopted — which seems likely unless the ongoing protests of the Occupy Wall Street movement pick up momentum for greater change in economic policy — then one must hope that the SEC can effectively rein in the CRAs through tougher regulation.

In a world with properly functioning markets, however, it is likely CRAs would have already rated themselves out of business, with their lost credibility leaving the services they offer akin to stirring gossip and spreading rumor.

Book review: In the Lion’s Den

2011-11-04T13:35:00.001+02:00

In the Lion’s Den, a book by Andrew Tabler - Executive magazine

Andrew Tabler’s account of his time in Syria between 2001 and 2008 is refreshing — relative to the reams of Orientalist trite other Western authors have published about the Middle East and North Africa — in that he actually spent years in the region getting to know the place, first studying Arabic and working as a journalist in Cairo and later traversing the MENA for the Oxford Business Group writing country investment reports, before eventually basing himself in Damascus. Thus his offering, “In the Lion’s Den”, is neither ‘parachute journalism’ nor the story of a doe-eyed apple-pie eater struggling to make sense of an alien Arab fantasyland — the two most common categories of expat writing on the region. Rather, Tabler — a former contributor to Executive — is candid and observant in relating the challenges of trying to comprehend the vast complexities of a country like Syria.

The author has been accused of being naïve, in asserting that after Bashar al-Assad’s succession to the presidency in 2000 the country would move from autocracy to democracy, but what Tabler says interested him more was getting an “unexpected front-row seat to a fight”, pitting the young reformist Assad against the entrenched status quo of the old guard. He later admits some of his shortcomings in framing the situation as such; while there were superficial changes, it was clear after the first few years of the new Assad’s leadership that regime survival would always be the paramount concern.

Tabler was in a unique position to assess the touted reforms in Syria after a private meeting with Assad’s wife, Asma, and then working for one of her government-organized non-governmental organizations (GONGOs), the Fund for Integrated Rural Development of Syria. This led him to start up, under the auspices of Asma Assad, the country’s first English-language magazine, Syria Today. Tabler’s account of his meeting with the “first lady” is intriguing, as are the relations between Asma and her go-betweens at the GONGOs. Equally fascinating is Tabler’s account of being the only non-Arab and the first American to accompany a Syrian president on a state trip, to Beijing in 2004.

A criticism of “Lion’s Den” is it goes into no great depth about such encounters, or the running of Syria Today. Tabler also reveals little about his life in Damascus and travels around the country. A possible explanation for this may be that the book was intended both as a memoir and a dovetail into future career aspirations — Tabler’s current employer is the neoconservative Washington Institute for Near Eastern Policy think tank.

Much of the book consequently concerns Syria’s relations with Lebanon, Iraq and Israel, and America’s resultant foreign policy with Damascus. This ranges from Western hopes of engaging Assad to bring Syria ‘in from the cold’ — primarily through solving the Arab-Israeli conflict — to problematic relations after the Bush administration labeled Syria part of the ‘Axis of Evil’ and Damascus’ apparent reluctance to prevent fighters crossing its border into Iraq following the 2003 United States invasion. Relations soured further following the assassination of former Lebanese Prime Minister Rafiq Hariri in 2005, leading the US to withdraw its ambassador to Syria and Damascus entering into a strategic alliance with Tehran. The account of the ongoing tussle between Damascus and Washington is succinct and bipartisan, providing a useful primer on bilateral relations.

Tabler chose to write the book after he was not allowed back into Syria in 2008, due to his increasingly vocal criticism of the regime. Published in September, Tabler could not have asked for a more opportune moment for the release, given the international media attention on the Syrian uprising, and he has capitalized on this in the epilogue in arguing how Assad and the regime should be handled by Washington. While Tabler may have been taken in by Assad’s veneer of reform a decade ago, “In the Lion’s Den” resounds as an impeachment of the Syrian leadership and a call for even tighter international sanctions to bring the regime to account.

Qatar - Problems Amid the Promise

2011-10-20T18:55:00.006+03:00

The undercurrents impairing Qatar's plans for a prosperous future

Special Report for Executive magazine

Read my commentary on nationalization employment policies in the GCC and Qatar:

http://backinbeirut.blogspot.com/2011/10/deference-versus-diversity-in-gulf.html

Also read my article on the financial sector and regulations in Qatar, published earlier in the year:

http://backinbeirut.blogspot.com/2011/08/peninsula-of-protectionism.html

I wrote about Qatar's foreign policy in May:

http://backinbeirut.blogspot.com/2011/05/tiny-giant-lng-fuels-qatars-massive.html

You can read about the working conditions of migrant laborers in Qatar here:

http://www.executive-magazine.com/getarticle.php?article=14727

This September, it seemed official: newspapers and wire services reported that the world had a new wealth leader in per capita gross domestic product (GDP). According to the International Monetary Fund’s World Economic Outlook database, Qatar ranked top of the global heap in per capita GDP on purchasing power parity basis, with more than $88,200 using a census figure of 1.7 million residents. The equivalent figure for Afghanistan, the first country on the alphabetical IMF roster, was $909. Moreover, with Qatar’s expansion of GDP forecast at 18 to 20 percent this year by the IMF, the country is one of the fastest growing economies in the world and the most rapidly growing in the Middle East and North Africa, by far.

To top it all, Qatar is not only both rich and growing, it has huge investment visions. Ongoing projects in the country are valued at $250 billion, with some $80 billion invested in infrastructure, followed by oil and gas at $75 billion, real estate at $55 billion, and petrochemicals, energy and water projects some $11 billion, according to financial information provider Zawya.

With this exceptional combination of wealth and opportunities, it is virtually inevitable that the desert peninsula is viewed as a veritable gold mine by a hoard of construction firms, engineering companies, architects, service providers and infrastructure developers that have struggled to stay afloat in the wake of the global financial crisis.

“The whole world is looking to get a foot into this market,” wryly observed a Jordanian official at a construction exhibition in Doha earlier this year. “Qatar needs everything, from construction and building materials to food stuffs. There is huge demand.”

Indeed, the May 2011 Project Qatar construction show — held only weeks after a 2022 World Cup Construction Conference organized by the government in Doha and benefitting visibly from the hype created by last winter’s surprise awarding of the World Cup still over a decade away — got a size boost of some 73 percent over the previous year and attracted more than 1,700 local and international companies, according to organizers International Fairs and Promotions.

The travelling circus of opportunity seekers entailed national trade bodies and companies from more than 70 countries, champing at the bit to establish a presence in Qatar and get some of the $3 billion in tenders to be issued in 2012 for the World Cup. “Qatar is developing quickly and it’s a good investment opportunity. We are hoping Qatar will be what Dubai used to be,” said Pamela McDowell, project manager at the Italian Business Council Qatar (IBCQ). Membership in IBCQ, an organization founded in 2004, doubled from 20 to 40 companies within the past year, and the organization hopes to have 50 companies involved in hydrocarbons and construction projects by 2012.

Corporations that used to make good profits in other countries of the Gulf region have been lining up to do business in Doha. “We are seeing migration of Australian companies from the United Arab Emirates to where the money and opportunities are,” said Susie Billings, Trade Consultant-Qatar at the Australian Trade Commission.

But while acknowledging the presence of investment and business potentials for international players, experts on the Qatari market also express caution that the boom mentality is dangerously crowding the field with contenders. “The World Cup is a big boost for Qatar but people think the road will be paved with gold, and they will be in for a shock. There is tight competition out there, margins will be tight, and a lot of people want a slice of the action,” said Andrew Wingfield, a partner at international law firm Simmons and Simmons in Doha. “But such competition will be good for Qatar.”

Other experts asked by Executive about the investment opportunities they see in Qatar offered surprisingly mixed perspectives, the great enthusiasm of some juxtaposed by advice to be conservative or to not even invest at this time.

The next Dubai?

Although Qatar was not overly affected when the global financial crisis hit the Gulf some three years ago, the government did have to shell out $3.96 billion to shore up state-linked banks and real estate firms in 2009. In oversupply scenarios somewhat reminiscent of Dubai’s property troubles, overpricing and scant demand for commercial real estate space in Doha has also prompted the government to rent an estimated 20 to 22 percent of all office space to give support to Qatari developers.

“That can be a problem here. Buildings are empty until the government comes to take it off developers’ hands,” [see real estate story page 66] said one analyst who was, like several others interviewed by Executive, only ready to share his insights if his name was not quoted, noting that being candid can cost one one’s job.

But while such market “corrections” may raise questions over how level — and how well-shielded against manipulations — the playing field really is in the competition for developing real estate in Qatar, the difficulties to fill some office towers with tenants have certainly not dimmed Qatar’s aspirations.

In April, the chairman of real estate developer Ezdan, Sheikh Thani bin Abdullah al-Thani, announced plans to construct the world’s tallest tower in Qatar. In another bid for a “largest of its kind” undertaking, some $7.9 billion has been pledged by the government to fund the Sidra Medical and Research Center, the largest endowment to a medical facility anywhere in the world.

The state-linked $20 billion The Pearl Qatar (TPQ) residential project and the $5 billion Lusail development rank as some of the most expensive real estate projects on the planet and in terms of hotel construction cost, the bills are said to be the most expensive per square meter in the world.

“Why? Labor is cheap (as low as $250 a month) but it is expensive because everything is imported from somewhere, and there is a monopoly on shipping and many other things,” said a real estate analyst. Inflation, which had been rampant in the country prior to the global financial crisis, is another risk that developers and construction investors have to watch out for. It is projected to reach 3.3 percent this year, according to QNB Capital, a unit of Qatar National Bank, which is the country’s leading commercial bank and one with strong state affiliation.

There are also questions, however, as to how Qatar will manage the outcomes of its current aspirations, such as hosting the 2022 World Cup, in ways that are socially and economically sustainable. “Don’t ask about 2023. There will be 90,000 hotel rooms and 15 million square meters of office space by then. Who will take up the slack?” said a real estate analyst.

On the side of probable future liabilities, Qatar is also well on course to being the largest water consumer and have the highest carbon footprint per capita in the world, currently only nudged out of the top post by the UAE [see Greenwash story page 78].

Diversification of the national economy away from reliance on hydrocarbon exports has been a mantra for every single oil-producing Arab country for decades. In Qatar, diversifying the economy is happening, with the contribution of oil and gas down from 60 percent to 51 percent of GDP last year. However, the country’s wealth is driven up primarily by hydrocarbons. “It is the fastest growing economy in the world because it is pumping gas, not because of anything else,” said one analyst. It also doesn’t help that the private sector is still a minimal economic player and dwarfed by the state’s participation in every branch of the economy. “Some 90 percent of the workforce are employed by the government or semi-government agencies,” said Wingfield.

“The private sector doesn’t drive anything, it’s the government,” said a real estate analyst. “Everyone is waiting under the government tap for some drips, as it was very much turned off over the past two years. But with projects that were slated to be finished by 2030 now having to be done by 2022 — so compressed into just 10 years — there is so much to do.”

A portrait at Doha's Souq Waqif of the Emir holding up the World Cup after Qatar's successful bid to host the event in 2022

Vision 2022 or 2030?

Being pulled in numerous directions, Qatar is now at a crossroads as to where it should go on a national level. Follow the economic model promoted by the West — of the kind Dubai fully embraced with major ramifications — or pursue a model that will preserve its identity and culture while focused on being a knowledge-based society?

The National Vision 2030 is quite explicit about the direction the country is to take. It talks of the country’s “abundant wealth” creating “previously undreamt of opportunities and formidable challenges,” and that it is “imperative for Qatar to choose the best development path that is compatible with the views of its leadership and aspirations of its people.” Its main four pillars are human, social, economic and environmental development, which “emerged from an intensive consultation across Qatari society.”

As Wingfield noted of the Vision 2030, “There is some quite frank stuff about what needs to be done; I was surprised.”

However, it has to be asked how effective the supposedly open discussion over the country’s direction can be if all the consultants, professors, analysts, real estate experts, bankers and so on that were interviewed were wary of making any negative comments, even constructively critical ones. As one professional said: “I’d like to have certain quotes off-the-record, as this is a country in which you mind your Ps and Qs.”

The question how can you truly progress if there is no re-evaluation, no taking stock of development, may be vital also for Qataris themselves, who traditionally have little say in the country’s future, with the decisions made at the top level. Political parties are banned and only the fourth municipal elections were held this year. Under such conditions it is not easy to undertake a wide societal discussion that includes constructive criticism of the direction the country is going in. Also in corporate decision making, evidence during the extensive research for this report strongly suggested that final decisions would often be imposed from the top-down, and sometimes even totally out of the blue, making management consensus a matter of acquiescence instead of effective team work.

Executive is committed not to fall into the mold of non-critical, starry-eyed views of countries so it is the mission of this Qatar investment report to support real development by reporting in a constructive manner. Potential investors and businessmen need to know, now more than ever, what is going on, particularly in times when global financial uncertainty is converging with regional unrest.

One lesson from the mistakes of Dubai was the absence of careful reality checks by gushing media punting unending promotions of limitless growth, luxurious lifestyles and presumably easy money. Doha should also not want to repeat the Dubai error of falling for the money-driven fine-weather-only consultants who put out serial reports of great promise and then vanished, along with the validity of their research, when harsher realities required actual solutions.

For those with genuine care for Doha’s long-term appeal and fulfillment of its potentials in regional and global communities, now is a time of concern even as Qatar’s own experts speak assuringly of the next few years.

“We will catch up with Dubai, but Dubai was obliged to change its economy (due to depleting hydrocarbons), and we don’t have that problem here,” said a Doha-based analyst.

Certainly Doha wants to make its mark on the world stage, but such incredible growth and change needs to be carefully managed.

“If the time to 2030 is not filled in the right way, it will be wasted,” said Ali al-Humaidi, managing director of Almaras Management Consultancy in Doha. “We are rushing into being a modern country, but upgrading so fast is short-sighted. And you can’t cheat on learning, we can’t kid ourselves and say what others have done in 20 years we can do in five.”

Questioning 'Qatarization'

2011-10-20T18:47:00.002+03:00

Self-defeating policy complicates Qatar's drive to improve its homegrown talent

Qatar is striving to be about more than just its natural resources, despite holding the third largest gas reserves on the planet and last year becoming the world’s top exporter of liquefied natural gas (LNG). By 2012, the government aims to generate 40 percent of gross domestic product (GDP) from non-energy related activity. It is still quite a way off from achieving this figure, although the GDP contribution from the mining and quarrying sector, which includes the oil and gas industry, dropped to 51 percent at the end of 2010, down from 60 percent in previous years.

Doha is using the billions of dollars derived from hydrocarbon exports to diversify the economy and improve its knowledge base. But it is a long road ahead given the slow roll out of small and medium-sized enterprises, the fact that the government is still the country’s largest employer [see commentary page 13] and the lack of economies of scale. The country’s small population creates further problems; the low numbers of university students graduating creates difficulties in implementing the pan-Gulf Cooperation Council (GCC) nationalization employment policy aimed at getting more locals into the private sector, in this case Qatarization.

The most important organization in the knowledge-based economy drive is the Qatar Foundation, a non-profit organization set up some 16 years ago by Sheikh Hamad bin Khalifa al-Thani. The Qatar Foundation, has been on a spending spree aimed at attracting private Western universities and researchers to its purpose-built Education City on the outskirts of Doha. The ventures in the complex include the Qatar Science and Technology Park (QSTP), a conference center, radio stations, the Qatar Luxury Group, a joint venture with mobile phone operator Vodafone and the soon-to-be-finished $7.9 billion Sidra medical center.

The government has further bolstered spending on public education, rising from $57 per capita in 1991 to $3,750 in 2009, according to a report by the Qatar Permanent Population Committee. Since 2006, 2.8 percent of GDP has been allocated for spending on research and development (R&D) projects — placing Qatar just behind Japan and the US in R&D spending as a percentage of the economy.

“There is a genuine emphasis on education not evident anywhere else in the Gulf, and Qatar has invested in education like no other country in the region,” said David Roberts, deputy director of Britain’s Royal United Services Institute, a think tank with a branch in Doha.

A multi-million dollar education

The move to improve education is certainly needed, particularly at the school level, which is currently being overhauled by advisors from the RAND Corporation. Indeed, in the US Department of Education’s 2007 Trends in International Mathematics and Science Study rankings, based on education levels of fourth and eighth grade school students in these subjects, Qatar was placed last in the Middle East (including Iran). In the 2009 Organization for Economic Cooperation and Development (OECD) Pisa study, which rates student performance in reading, math and science, Qatar ranked fifth from bottom behind Indonesia, Kazakhstan and Albania. Such low academic achievement is presenting problems at the university level. While Qatar Foundation, will have spent a projected $33 billion on Education City by 2016, according to KEO International Consultants, and shelled out $132 million for the campus of Carnegie-Mellon, $154 million for Georgetown University, $186 million for Northwestern University, $332 million for student housing and $250 million for the library, the admission standards of these prestigious universities remain unattainable for most Qataris.

“The problem is that these institutions have such high standards to get in that they have to draw on expatriate students as few Qataris are meeting the requirements. So it is essentially a program run for expats as they wouldn’t have a program at all if they limited it to Qataris,” said an academic who wanted to remain anonymous.

This mismatch further exacerbates the amount the government spends on education. A high percentage of expatriate students are on scholarships due to tuition fees of around $60,000 a year. “Some 88 percent of the branch campus students receive financial support. Of those, 50 percent are on scholarships,” said Tariq al-Sada, a spokesperson for Qatar Foundation. Given the small student body, the cost of educating each student at Education City is in the millions of dollars, said the academic.

This is reflected in the low numbers of students graduating from Education City’s six universities, with less than 250 finishing this year, the largest number yet. Since being established in Doha in 2003, Texas A&M University has graduated only 200 engineers, of which just 100 were Qatari. This year, there were 52 engineering graduates from 16 countries, of which 30 percent were female. As a reference, the state-run Qatar University has graduated 30,900 students since 1973, and alumni comprise 80 percent of the Qatari workforce.

However, according to Sada, Qatar’s education drive is already gathering momentum. He said, “Qatar Foundation is already providing a continuum of world class education, work experience and career opportunities to our young people, and the benefits of that are already being seen, with Qatar’s first homegrown doctors graduating in 2008.”

Complicating the knowledge-based economy drive, and the Qatarization drive, is that while an estimated two-thirds of Qatari university students are women, young men favor working for the public sector with its stable jobs, good salaries (which a government decree recently increased by a whopping 60 percent) and generous pensions that can be accessed as young as 40, according to a National Development Strategy report.

“Many Qatari students find it is easier to go and get a job with the government, so it is not easy to convince them to go into the private sector, whether to start up a business or work for one,” said the unnamed academic. Indeed, according to government data from 2007, only 5 percent of Qataris work in the private sector.

Some educational reforms are being opposed, such as the mixed-gender education of the Qatar Foundation universities, which the government had planned to implement at Qatar University. In a questionnaire carried out in 2009, 80 percent of parents opposed introducing co-education at the university instead of the current segregated class set-up.

A positive example of the successes of the education drive is found at the College of the North Atlantic-Qatar (CNA-Q), a Canadian institution originally set up as a public college in the province of Newfoundland and Labrador. Here some 80 percent of the 1,500 students that have passed through its doors are Qatari and there are over 2,500 students currently enrolled in classes in technical and post-secondary school education.

CNA-Q has been pivotal in improving the workforce and contributing to Qatarization of the workforce. “Qatar Petroleum, Qatargas, Qatalum and other government companies are the largest sponsors at CNA-Q, sending people for technical training, business studies, accounting, marketing and human resources programs, and we are helping to educate the workforce,” said Curtis Avery, an entrepreneurial mentor at CNA-Q. “When the government got serious about having 20 percent of the financial and banking sector Qatari it was good for my department, as we trained a lot of people.”

Such Qatar Foundation-linked programs have helped boost the number of Qataris at major companies, with Shell employing 204 nationals as of 2011, 10 times more than four years ago.

The Qatar Financial Center is also working to improve young Qataris’ acumen through the Qatar Finance and Business Academy (QFBA). Currently in its first year, the QFBA has eight students enrolled in a 12-month course aimed at developing the skills required of future financial leaders.

“The government is focused on the macro level [and] so often misses the micro due to unintentional oversight, and there is an enormous need to broaden the financial knowledge of 25 to 40-year-olds, which earlier education didn’t address,” said Solveig Nicklos, director of operations at the QFBA.

But the education drive will take time. “We are already seeing the fruits of the investment, but to affect the whole population will take generations, not just 10-15 years. It is a numbers game — if you train 1,000, 100 end up being successful,” said Avery.

R&D and healthcare

The knowledge-based focus is as much about creating a research and development hub as a pipeline of skilled graduates. In R&D, the Qatar Foundation universities are involved with the QSTP, set up in 2006, which currently has 31 member organizations and over 100 research partnerships. Meanwhile, the National Priorities Research Program has provided over $230 million to fund 266 research projects involving some 620 researchers, half of which are in Qatar and the rest carrying out research in 30 different countries.

“There has been a strong focus by the Qatar Foundation on technical education, and at the QSTP we are seeing quite a few successes,” said Anil Khurana, director of operational strategy and private equity at management consultants PRTM. “It will take time for there to be a return on investment, but it will… help build the value chain.”

Research has focused on Qatar’s hydrocarbon sector, downstream projects, alternative energies and mechanical products. Indicative is Shell’s unit, which filed its first patent in 2009 for a fixed-bed Fischer-Tropsch reactor that prevents catalyst activity loss, a part of the gas-to-liquids process.

“What we are really seeing now is knowledge-based investment,” Khurana added. “Investment is getting more technology intensive, particularly in industrial products, pharmaceuticals and medical devices, and the government push to develop healthcare has led to such demand.”

Souq Waqif in the 1970s

Outnumbered

In 1990, Qatar’s population was around half a million. By 2010, it was 1.67 million, with 1.27 million men and 399,421 women, according to the Qatar Statistics Authority. With foreigners around three-quarters of the population, Qataris are seriously outnumbered. This rapid change in demographics has presented problems for Qataris and foreign workers alike.

For expatriates, race and skills differentiate them from one another, with professionals paid good salaries while laborers earn as little as $250 a month. Yet all — from the managing director to the window washer — are reliant during their stay on Qatari sponsors, who have full control over residency, employment and travel in and out of the country.

The government is addressing some of the shortcomings in the treatment and status of workers. Qatar’s National Development Strategy (QNDS) notes that the current sponsorship system “hampers the development of a workforce commensurate with aspirations for a knowledge economy”. As such, it is considering granting permanent residency to expatriates who meet “pre-determined criteria”.

“The subject of sponsorship is going to raise its head soon,” said an economist, who wanted to remain anonymous. “You can see why it is important when a small local population is vastly outnumbered, but a system where nationals are able to prevent staff changing jobs or leaving the country is archaic. As Qatar moves forward to the World Cup, the eyes of the world’s press will be on the country and issues like human rights and the treatment of the under-class will come to the fore.”

While laborers are still banned from walking on the corniche or entering upscale malls on weekends, officials are keen to tout certain improvements in living conditions. State-owned real estate developer Barwa is to build housing for laborers, while stricter guidelines for “labor camps” and improved space requirements have been introduced, increasing it from 3.2 to 4.6 meter square per person. [See last word page 88 and photospread 32] Yet by comparison prisons in the US and Europe have an average of 10.5 meter square per inmate.

Qatarcentric

While Qataris have by and large embraced the socio-economic changes in the country and the subsequent clout the state now has on the world stage, progress has its price. “Some people are afraid of change but happy to be part of the international community,” said Ali al-Humaidi, managing director of Almaras Management Consultancy in Doha. “Either you are part of the change or a bystander, and more Qataris are choosing the first and embracing change. Yet there is this feeling that everything we have is borrowed from another culture.”

Consumerism is one of the most striking societal changes, evidenced in a report released in April by the QNDS that showed that three-quarters of Qatari families are in debt, with many in the red by more than 250,000 Qatari riyals (QR) [$68,650]. The report attributed such high debt levels to an insensible financial culture among Qatari families and a tendency to spend beyond their means. A 2007 study covering a sample of 1,368 Qatari households showed that loans for speculation on the stock market reached QR297,000 [$81,500], entertainment and traveling loans QR203,000 [$55,477] and the average car loan QR111,000 [$30,480]. The QNDS aims to halve the number of families in debt in the next five years.

While the consumerist lifestyle has had its pitfalls, it is the lack of integration between Qataris and expatriates, which Qatarization arguably exacerbates, that is affecting attitudes about the country and its direction towards a knowledge economy.

“Expats can live for years without having social contact with Qataris other than in the workplace. And there is the myth that all Qataris are rich, whereas that is not the case; a comfortable life maybe, but people do have concerns like everywhere else,” said Humaidi. “I want to take away any feeling of differentiation. I feel Qatarization is divisive as it puts people into two groups. Instead of people working together this disappears when you say Qatarization,” he added.

Humaidi advocates a “Qatarcentric” approach, whereby new expatriates are assigned a mentor to ease them into the country and its culture, and at the introduction of majlis gatherings in the workplace to foster communities. “We really need to introduce Qatari culture into the workplace, as for Qataris and Arabs this would make them feel the workplace is not alien and strictly geared towards expatriates.”

The Qatar Foundation’s Sada argues the answers for Qataris and expats alike is to build the knowledge economy as outlined in Qatar’s Vision 2030. He said, “Over the next 10 years, the people of Qatar will increasingly recognize themselves as part of a progressive society, where debate and discussion are an everyday part of life, where cultural life is enhanced and heritage protected… our work to address social needs will also continue, ensuring no one is left behind in this exciting journey.”

The Peninsula of Protectionism

2011-10-20T18:08:00.001+03:00

GCC and international firms face challenges investing in Qatar

Qatar’s “open market” is “committed to free trade” and “warmly welcomes foreign investors” to help diversify the economy, according to the Ministry of Business and Trade’s Investment Promotion Department’s latest report, “Rise With Qatar”. In other words, very much standard fare for investment promotion boards around the world.

Despite the rhetoric, while Qatar’s major spending spree on infrastructure and hydrocarbon projects are certainly generating much interest and opportunities, away from such sectors the options for private investors are rather restricted.

“Opportunities are limited to high level projects like roads and railways, and while local players can’t do it all there is a need to create space for private companies to develop,” said Narayanan Ramachandran, head of advisory for Bahrain and Qatar at consultancy firm KPMG. “The challenge is that the percentage of private activity needs to increase. Government and quasi-government sectors dominate so the private sector needs to grow.”

The Qatar Exchange (QE) is still off-limits to foreigners — Gulf Cooperation Council citizens are entitled to 25 percent of shares in a firm — while setting up a business has a $55,000 [AED 202,015] price tag, 100 percent foreign ownership is restricted to specific sectors, other ventures require 51 percent ownership by a Qatari national, and bankruptcy laws are vague. Even purchasing property, confined to 18 areas for foreigners, does not grant much security, with only a few ownership deeds having been issued and the residency permit that comes with a property “just an open-ended tourist visa,” as one analyst put it.

“Qatar seems first world but in reality [it is] not that open. From the outside, Qatar looks like a good and free market, but to buy anything you have to go to this or that guy with the experience and the connections. There are many monopolies to contend with,” added the analyst.

Hopes that foreign investors would have greater access to the market were dashed in early May when the Advisory Council opposed a government proposal to allow non-Qataris to invest in exclusive dealerships selling foreign goods and services. “Any move to permit non-Qatari capital in exclusive dealerships would gravely endanger Qatari businessmen,” the Advisory Council said in Qatari daily The Peninsula.

The move was criticized anonymously in the press as ensuring the existence of monopolies and curtailing competition, with the ruling pushed forward by several prominent local businessmen that are members of the council.

Sectors where foreign investors can have 100 percent ownership are restricted to “priority sectors,” namely business consulting technical services; IT; cultural, sports and leisure services; distribution services; agriculture; manufacturing; health; tourism; development; exploitation of natural resources; energy and mining.

“The government increased this year the number of sectors that can be invested in — over 49 percent — for foreigners. The authorities know the restrictions are not helpful for encouraging investment, but they need to bring the local constituency along with them over time,” said Andrew Wingfield, a partner at international law firm Simmons and Simmons in Doha.

Despite the seemingly broad swathe of investment opportunities now on offer in Qatar, barriers to new foreign businesses are still considerable.

Limited liability companies (LLCs) that want to set up in the country are required to have a paid-up capital of QR200,000 [$54,913 or AED201,695].

“That is expensive, even before you open the business’s door, but the rationale is that it stops the fly-by-nights and [ensures] the businesses that come here will be serious,” said Wingfield. “But for LLCs to borrow from local banks, the Qatar Central Bank (QCB) will not allow lending unless shareholders give a guarantee. Such a requirement is not mandatory in many other jurisdictions but it is in Qatar. It could be said to be a very prudent move to protect the banks, but it is another hurdle to investment.”

The message being put out is that companies have to be willing to pay to get in on the action. While this flies in the face of the country’s propounded open market, it reflects a protectionist approach, which is not necessarily a bad thing if well regulated and transparent. Indeed, it is a policy widely used by developing countries to build up their economies, as South Korea has done and is still doing, albeit primarily to protect the industrial and manufacturing sectors.

“There is a degree of protectionism on one side, but there is the intent by the government to open up sectors to be competitive that were not,” said Anil Khurana, director of Operational Strategy and Private Equity at management consultants PRTM. “For instance, on the automotive side, the prime minister said in the future there will be no exclusive dealerships and there will be competition.”

Yet while the economy is set to open up more, currently GCC companies are not being given preferential treatment, despite the supposed tenets of the Gulf common market that allow for the free movement of GCC companies and citizens. “There is a new law to allow GCC companies to set up branches in Qatar, but we’ve not seen the law yet. That should help business as at the moment they need a subsidiary,” said Wingfield.

That said, there are some 289 Saudi Arabian companies in Qatar and later this year a trade delegation comprising more than 100 businessmen from the kingdom is slated to visit Doha to scope out the possibilities of joint ventures, bag infrastructure contracts related to the World Cup and discuss the establishment of a joint Saudi-Qatari bank. Given Qatar and Saudi Arabia’s recent political rapprochement, this could signal preferential tenders to Saudi companies, said an investment analyst off-the-record.

Regulatory constraints

On top of the high entry requirements for businesses, the QCB in April implemented stricter regulations on Qatari banks’ retail lending to help reduce leverage in the retail segment. Personal loans were capped at QR2 million [$549,000 or AED2 million] for Qataris and QR400,000 [$109,000 or AED 400,357] for expatriates, limited to 72 months and 48 months respectively, and equated monthly installments are not to exceed 75 percent of a Qatari’s monthly income or 50 percent of an expatriate. In the short-term such a move will restrict retail lending and impact on banks margins, but in the long-run it is expected to improve asset quality and prevent the level of defaults that abounded in the wake of the financial crisis.

“The limit on lending to individual customers and the capping of interest rates will clearly have an impact on the banks. These are going to impact the volume of growth the banks can procure, and obviously impact our rate of profitability,” said Commercial Bank Chief Executive Officer Andy Stevens to the Gulf Times following the QCB’s decision.

QCB’s orders came just months after a harder impact on the Qatari banks, when in February the central bank ordered 16 commercial banks to wind down their Islamic banking units by the end of the year. QCB justified the move by citing the difficulty to regulate the two financial sectors, with the conventional banks having to abide by Basel requirements while the Islamic banks are following guidelines issued by the Malaysia-based Islamic Financial Services Board.

While the move will benefit the country’s three dedicated Islamic banks, it is being viewed in a negative light by international lenders in the advent that other regional central banks follow suit. It has also sent mixed signals to the banking sector while raising concerns over QCB’s regulatory abilities as it stated it got “mixed up” in monitoring both banking sectors.

And while the ruling was to be expected, it was done overnight without consulting the banks. “It had been discussed by [QCB] for the past three years, but the timing and speed with which it happened was not expected by the banks,” said Ramachandran. “Whether the directive will be achieved by the end of 2011 is still too early to tell.”

The directive had particular sting for HSBC’s Islamic banking unit, Amanah, which was set up just seven months prior to the announcement and prompted the global bank to seek a “workable solution” with QCB.

A further issue in the financial market is that the central bank has not created a single integrated regulatory body to oversee all banking and financial services in the country, which was intended to bring in the Qatar Financial Center (QFC) under the same regulator as QCB.

QFC was established in 2005 to attract international financial institutions to Doha that were to operate separately from local banks and be independently regulated by the QFC Authority (QFCA), which is based on best practices in international financial centers such as London and New York. The intention to unify the framework was announced in July 2007, but four years on it has yet to be implemented.

“One challenge in the market is the integration of the regulatory framework of the QCB with the QFC, but we are not aware of the time-line,” said Ramachandran. “And while the QFC has certainly attracted service providers, the question now is the strategic thinking of overall regulations and the differences between the local players regulated by the QCB and the banks by QFC.

“I also think the QFC has to do wider business than just Qatar (if it wants to be a regional financial hub), as it is looking first at the local market. Qatar has to consider how to get that regulatory framework right and attract more regional players. So far, QFC’s framework is to bring in established players with a certain pedigree and not for new financial institutions.”

The financial viability of the QFCA has also been questioned, with the body not including their balance sheet in the 2010 review following reports that the QFC relied on state funding and was not breaking even.

With Qatar dragging its feet on the unified regulatory authority, some consider that Doha has missed the boat in terms of attracting more financial service providers, particularly over the past few months when Doha had the chance to poach players away from the established financial center of Manama amid the political unrest in Bahrain, and before that from Dubai in the wake of its debt crisis. As law firm Clyde and Co. noted about the benefits of the establishment of a unified regulator: “Such a move is likely to benefit international financial institutions in doing business within the region. It is also likely to give Qatari institutions a competitive advantage in the medium term as those businesses adapt to a more competitive international regulatory environment.”

Qatar's Green Wash?

2011-10-20T18:03:00.001+03:00

Reality doesn't reflect Qatar's lofty goal of becoming the "green capital" of the Gulf

Every night whole office blocks, devoid of people, are lit up in the West Bay business district. Doha’s mini Dubai, West Bay is full of cutting-edge architecture providing a permanent contradiction to Qatar’s desert environment.

The dust covers the windows. The exterior buildup of sand is visible even on the thirtieth floor. It is a Sisyphean task to keep the buildings clean, requiring permanent teams to clean the windows every two or three days.

Confronting climate change does not appear to be a priority in Qataris’ daily lives. On the roads, the most popular car sold in 2010 was the Chevrolet Tahoe, a gas-guzzling 5.3 liter V8 SUV. With a liter of gasoline costing 1 Qatari Riyal (QR) [$0.23] and a liter of mineral water an average of QR1.2 [$0.34], the penchant for large engines is not surprising. “I spend more on drinking water than the gas for my car,” said an account manager.

Yet Qatar’s constitution declares that “the state shall preserve the environment and its natural balance in order to achieve comprehensive and sustainable development for all generations.” In the Qatar National Vision 2030, released in 2008, the fourth and final pillar is environmental development, with the report declaring the need to find a “balance between development needs and protecting the environment”.

These are noble goals but the implementation appears to be closer to what environmentalists call a “green wash” — a superficial marketing ploy with no real commitment to becoming more environmentally sustainable.

According to a recent article in The Peninsula, Qatar has one of the highest per capita usages of water in the world, more than double the average for Western European countries. Qataris used 1,200 liters per person per day in 2009, while expatriates consumed 150 liters per person per day. Use of desalinated water has tripled since 1995, reaching 312 million cubic meters in 2008.

Part of the problem is that Qataris do not pay for water, it is low cost for expatriates and the government recoups less than a third of water production costs as a result. Aware of the high consumption, the government is to create a National Water Act, but only by 2016. In the meantime, consumption is expected to increase 5.4 percent a year for Qataris and 7 percent a year for expats.

With gasoline prices low, electricity free for Qataris and 95 percent of all food stuffs imported, Qatar has the second highest carbon footprint per capita in the world, according to the Global Footprint Network’s “Ecological Footprint Atlas 2010”.

According to a World Wildlife Fund report, it takes about 8.1 hectares (20 acres) of forest to absorb the annual carbon emissions of the average Qatari while the average is 5.4 hectares for North Americans and 1.2 hectares for Chinese.

Only behind the United Arab Emirates, Qatar has shot up the carbon footprint rankings as its population has surged in line with economic development. From 1961 to 2007, Qatar’s population grew by over 2,000 percent and its total ecological footprint by over 7,000 percent. Biocapacity, or the territory’s ability to provide resources and absorb waste, has declined by 95 percent per person. By comparison, over the same 46 year period, the ecological footprint of the average Asian resident increased by 39 percent.

Getting to green

Awareness of environmental issues is growing, but only timidly. In the 2010 Qatar World Values Survey (WVS), carried out by Qatar University, only 6 percent of Qatari respondents expressed a concern for the environment.

The increase of environmental initiatives is, however, evident in the corporate and state sectors, from banks going green to new, more efficient, district air cooling systems. The Qatar Sustainability Assessment System (QSAS), opened over two years ago along with the Qatar Green Building Council, has been tasked with reducing carbon emissions from buildings. They have adopted proposals from the Green Building Council’s “Leadership in Energy and Environmental Design” guidelines, as well as seeking to develop an approach applicable to the Gulf’s harsh climate. Furthermore QSAS and the Gulf Organization for Research and Development aim to turn Qatar into the Gulf’s “capital of green”.

In a country with over 300 days of often searing sunshine per year, solar power may appear to be the easiest path to environmentally compatible energy solutions but this has its pitfalls. Studies in Saudi Arabia have shown that photovoltaic solar cells exposed to the elements for six months lose 50 percent of their efficiency due to accumulated dust.

For Qatar, the omnipresence of dust and its impact on photovoltaic panels mean that maintenance of such power stations would consume a precious resource: water. According to research by Chevron Qatar, “the usual solution is to wash photovoltaic panels, but of course in Qatar water is scarce.” What’s more, photovoltaic panels are less efficient in the up-to-50-degree Celsius temperatures that scorch Qatar in the summer, according to Chevron technology advisor Ben Figgis.

“Every 25 degree Celsius rise in the temperature of a photovoltaic cell causes its efficiency to fall by around a tenth,” Figgis wrote in a 2009 analysis stressing that lab tests are not adequate for measuring the performance that solar cells would deliver under real life conditions in Qatar. “The only way to be certain of a solar panel’s performance in Qatar is to test it in Qatar,” he emphasized.

Chevron is undertaking this research into solar power technology in the company’s $20 million Center for Sustainable Energy Efficiency at the Qatar Science and Technology Park.

But while energy-related research is a natural fit for Qatar, other environmentally-tinged projects are being promoted without answering many questions about their sustainability. Currently Qatar imports some 90 percent of its food needs, yet the country plans to whittle this down to 30 percent by developing an agriculture and food industry under the 2008 Qatar National Food Security Programme (QNFSP).

According to QNFSP, Qatar aims to meet 70 percent of its food requirements by 2023, despite the high water needs implicit in large-scale agriculture. The QNSF water strategy aims to meet its targets through desalination – a method challenged by critics on environmental terms. Using the “latest agricultural technology”, the country would develop a “farm city” south of Doha, according to statements that QNFSP Chairman Mohammed al-Attiyah made last month.

“We want to have the full chain, from production to end use. We’re aiming for a complete city which will include research and development, food processing, distilleries and growers, as well as utilities and universities,” said Mohamed Ahmed al-Obaidly, head of the agricultural and environment committee at the Qatar Chamber of Commerce and Industry, to Reuters. Qatar has also invested $6 billion to ensure food security by buying up land and farms in Africa, Pakistan and Australia.

Construction's Disruption

2011-10-20T17:57:00.005+03:00

Qatar's real estate sector is awash with potential and burdened by bad management

It has been a turbulent few years for the Qatari real estate sector in the wake of the financial crisis, with both rents and prices dropping, albeit to more realistic levels. While retail and commercial space may be on the uptick, all property-related developments have major infrastructure projects to contend with as Doha scrambles to build a metro and railway link, new roads, stadiums, port facilities and a new airport in time for the World Cup in 2022.

Indeed, much of the city and its outer reaches resemble a massive construction site, with cranes dotting the skyline, roads constantly diverted due to road works and roundabouts torn up to make way for overpasses to ease congestion. When major cement-laying is in progress, at one or other of the mega-projects, trucks laden with cement stretch across the country to the Saudi Arabian border. Such rapid infrastructure development will present problems for developers trying to shift office and real estate space, and cause a lot of re-locations until major works are finished.

“In June work started on the underground system in the West Bay area, 17 holes the size of football fields. It will be interesting to see how it will affect demand for office space. I think the port area will become more attractive for a period due to the disturbance,” said Edd Brookes, director and head of valuation at real estate firm DTZ-Qatar. It is a similar conundrum for salesmen at the Lusail development north of the capital, which is due to house 250,000 residents over the next 15 years. “Even if they finish the first phase by 2012, you’ll have to live next to a construction site for over a decade,” said a real estate analyst, speaking on the condition of anonymity.

While the massive infrastructure work to get Qatar ready for the World Cup is going to cause a great deal of noise pollution and traffic jams for Doha’s inhabitants, it does have a flip side. The major real estate and infrastructure projects — from the airport to the $5.5 billion Mesaieed Port – were all under construction prior to Doha being announced as the host of the 2022 event. The successful bid has given developers a much-needed push to meet slated targets. For instance, work on the $14 billion New Doha International Airport began in 2004 and the first phase was initially to be operational in 2009 and be fully completed by 2013. Yet work has still not been finished and the scheduled completion is ostensibly 2015. “The World Cup has given a time horizon, as otherwise things drag on and on,” said one analyst. “But they are going to struggle, it will be right down to the last minute, as it was with the Asian Games [in 2006].”

Ear plugs for the office

The decision to invest in a metro and rail system, while necessary for long-term transportation needs, has arguably come too late for Doha’s central business district (CBD), West Bay, with the above earth infrastructure developed before the underground work. The timing of such infrastructure work is equally problematic, as while Doha needed a CBD and an attractive skyline of shiny towers to present a modern image of the country for its brand publicity, the new office space has not been snapped up by private investors as was expected. The large number of empty office spaces led the government to stipulate that new businesses move to West Bay, but for many it remains too expensive. Instead, financial advisory and advertising agencies have shunned a more exclusive address to opt for larger, cheaper premises away from the business district.

A further issue is the size of the offices, at an average of 20,000 square meters (sqm), whereas 47 percent of market demand was for 1,000 to 4,999 sqm offices, and 32 percent for 5,000 to 9,999 sqm, according to real estate firm DTZ-Qatar. Developers have so far resisted requests to break office spaces into smaller units more conducive to commercial needs. This has left the state sector to take up the slack. “There is not that much space available now in West Bay, as people seem to think,” said Abbas Shafiei, managing director of real estate firm Engel & Völkers. “You don’t spend money for wonderful towers and then leave them empty. It is now Qatari Riyal(QR) 170-175 [$46-48] per square meter and all [empty space has been] taken by the government.” Last year, government offices accounted for 120,000 square meters, or 25 percent, of the West Bay area.

But while government intervention has prevented whole floors or buildings from lying empty, its actions have had a knock-on effect.

“The fly in the ointment is a government committee implemented rental caps for offices at below market rates of QR170 ($46) per meter squared. This sends a message to non-government occupiers that this rate is a normal rental level. That’s had an effect on the market,” said one real estate analyst.

Buy or rent?

Qatar is hedging itself against a Dubai-style real estate bubble by restricting foreign ownership to three districts — West Bay Lagoon, The Pearl and Al Khor resort — and 18 other areas on a 99 year lease, most notably high-end projects like the $4 billion Lusail city and Musheireb.

There has been growing interest in real estate but legal complications still abound, with residency visas for foreign property buyers only being granted for the first time this March to two individuals, and based on the real estate developer being the sponsor of the residency permit. “That is not a whole lot of (residency permits) if you consider 35,000 expatriates are expected to live at The Pearl,” said an analyst. Some 70 cases of non-Qataris seeking ownership of properties are still pending with the government.

“On the residential freehold side, each plot has a title deed issued which the owner is supposed to get, but the issuing structure still needs to be sorted out. This is an important issue, especially with regards to funding from banks, as they can take over a property without a deed. Without a clear structure, this puts people off purchasing,” said another real estate analyst.

Although interest is set to spike in the run up to the World Cup, real estate developers have not sold as many units as expected. The causes for this are primarily the high costs of properties and the perception that Doha is not as attractive a market as Dubai was prior to the 2008 crash. Equally, banks have made it difficult for non-residents to access credit, with interest rates at 8 to 9 percent.

“The principle [aim] of all the developers is to sell to foreigners, but in reality not that many have sold, especially as Qatar is not looked at as a [favorable] destination. It is difficult to sell to foreigners, even Europeans and Americans. It is much easier to sell to Qataris and to Arabs,” said Engel’s Shafiei.

As a result of such market dynamics, there has been a greater propensity for people to rent rather than commit to buying, particularly expatriates working in the country.

“The trend for new developers is to lease, not sell, as it will drive up prices as the market is more restrictive than people think. Expats are less tied to buying as they have only a two to three year commitment to Qatar,” said DTZ’s Brookes. Indeed, analysts estimate around 90 percent of the real estate sector is for rent.

“If you had a QR15,000 [$4,120] a month rental allowance you have two options: rent or buy at, say, The Pearl. Logic would tell you to buy, but unfortunately people don’t see it as 100 percent safe to buy, especially now with the problems globally and in the region, in Bahrain, Syria and so on,” said Shafiei.

Real estate sales have also been affected by delays in project completion and unexpected changes in the management of government-connected firms. Barwa City, for example, a project to house 25,000 people developed by state-run Barwa, went through three chief executive officers this year, with the last CEO only staying in the job for three weeks. He was let go over his attempts to restructure the mother company as three companies were essentially overlapping, but this required firing locals. “He did what was needed and normal, but here you can’t fire 90 Qataris without repercussions,” said the real estate analyst. With the Barwa project floundering, the state-owned Qatar Airways came to the rescue in June by agreeing to rent the entire city for QR7.1 billion ($1.95 billion).

The heavily publicized real estate development The Pearl, a $20 billion self-contained residential city built on man-made islands by the United Development Company (UDC) outside of Doha, has also faced problems. Most notably its overly high prices per square meter have warded off potential buyers in the non-secondary market, but there were also problems with cash flow due to run-away construction costs. Indeed, prices at certain developments at The Pearl have gone from QR8,000 ($2,200) per sqm in 2006 to QR22,000 ($6,040) per sqm.

“UDC only gives you fantasy. It is like an ostrich with its head in the sand as it has not sold many units for two to three years because the developers have not lowered prices while the secondary market is now 30 percent cheaper,” said a real estate analyst that wanted to remain anonymous. “And UDC is stuck in the Pearl project. While the figures announced in the newspapers all look good, the reality is that they (UDC) are starved of cash and failing to finish the project. Real estate firms have even faced legal action from UDC due to less than glowing market reports.”

But while the real estate sector is facing certain issues that need to be ironed out, analysts do stress the medium to long-term potential of buying property now, and have noted an uptick in sales following a slump in 2008 and 2009.

“Qatar really is a good place to invest,” said Shafiei. “Our figures are way over my expectations for 2011, and this is not just to do with the announcement of the World Cup. Sales have picked up across the board and there’s good value to be had across Doha. This year is good and next year things are really going to take off.”

LNG Hub of the World

2011-10-20T17:54:00.000+03:00

Qatar's swelling coffers are filled by fuels but are investing in a diversified future

Bankrolling the 2022 World Cup, the $36 billion railway and metro system, the infrastructure projects and the television empire Al Jazeera is Qatar’s hydrocarbon wealth. The country’s recent rise to become the world’s largest exporter of liquefied natural gas (LNG) has dominated energy publication headlines and helped Qatar increase its influence in foreign policy.

Through rolling out an integrated LNG value chain, in conjunction with international oil companies (IOCs), from production, liquefaction and shipping to receiving and re-gasification terminals throughout the world, Qatar is guaranteeing itself steady income for decades to come. Notably this year Qatar bolstered annual gas exports by more than 60 percent to Japan, from 6 million metric tons (m/t) to 10 million m/t, in response to Tokyo’s spike in demand following the damage to the Fukushima nuclear power plant.

Enabling Qatar to meet such demand has been their surge in production capacity. With two new LNG production plants opening over the past year, and with the latest, Qatargas’ Train 7 LNG plant ramping up to optimal capacity, production will hit 77 million m/t annually this year. Qatar is also set to fully open the world’s largest gas-to-liquids (GTL) facility later this year: the estimated QR69 billion [$19 billion] Pearl Plant, a joint venture between Shell and Qatar Petroleum that will produce 140,000 barrels per day (bpd).

Receiving less focus than the LNG and GTL drive is the oil sector. Holding 25.4 billion barrels of proven reserves, according to Oil & Gas Journal, Qatar is the eleventh largest oil producer in the Organization of Petroleum Exporting Countries (OPEC) and sixteenth in the world with crude oil capacity of 850,000 bpd and 590,000 bpd of non-crude in 2010.

Varying the options

Although often thought of as a secondary hydrocarbon export market for the country, revenues from LNG in 2010 were QR76 billion [$21 billion] while Qatar earned QR138 billion [$38 billion] from oil, natural gas liquids and refined petroleum products, according to the Saudi Financial Group. This year, the group forecast earnings will spike to QR109 billion [$30 billion] for LNG exports and QR192 billion [$53 billion] for the oil sector due to rising output and high energy prices.

Qatar’s oil and gas sector is not just attractive to oil multinationals. For the would-be investor without the capital of an IOC — Shell has invested QR76.4 billion [$21 billion] and ExxonMobil QR58 billion [$16 billion] — or a major contractor in extraction or production, opportunities beckon in associated technologies and the downstream sector: petrochemicals and associated by-products. “The oil and gas sectors attract a need for technologies, especially away from downstream. Even small investment might have worthwhile returns. And if GTL takes off, this might attract other investments,” said Anil Khurana, director of operational strategy and private equity at management consultants PRTM.

Qatar is also banking on its low energy costs to develop energy-intensive industries such as aluminum. The QR20.7 billion [$5.7 billion] aluminum smelter project Qatalum, a joint venture between Qatar Petroleum and Norsk Hydro, started production in 2010 and is currently operating at 70 percent of its 585,000 tons per year capacity. Expected to boost the country’s GDP by QR5.4 billion [$1.5 billion] a year, this figure is slated to double through associated-linked projects in industry and manufacturing.

Qatar's Sovereign Wealth Fund

2011-10-20T17:53:00.001+03:00

Power and profits won from the country's deep pockets

Since its inception in 2005, the Qatar Investment Authority (QIA), the country’s sovereign wealth fund (SWF), has made its mark globally through high profile purchases and a diversified investment portfolio, funded via its estimated QR310 billion [$80 billion] purse. From stakes in Hollywood’s Miramax Films to banks, property, hotels and car manufacturers, the QIA has made some canny financial moves.

Considered one of the world’s most aggressive SWFs, this year it plans to increase last year’s QR72 billion [$20 billion] overseas investments to up to QR127 billion [$35 billion] as it ventures into the American and British real estate markets and commits QR1.5 billion [$429 million] in Spanish banks.

Politics vs profits

Yet the fund has also sustained losses as a consequence of Doha’s foreign policy moves this year. Backing the rebels in Libya has resulted in writing off a QR7 billion [$2 billion] joint venture between the QIA and the Libyan Investment Authority, along with QR29 billion [$8 billion] in other investments in the North African country, notably by the QIA’s real estate arm Qatari Diar. Meanwhile, the Al Jazeera network’s antagonistic news coverage of the uprising in Syria — reportedly at the behest of the Qatari royal family — has provoked the ire of Damascus which suspended an estimated QR21 billion [$6 billion] in Qatari investments in the country, including Qatari Diar ventures and two power generators to have been built by the Qatar Electricity and Water Company.

Doha seems willing to take such a financial hit as it becomes more active in international politics and cements its position in the Gulf Cooperation Council, following warmer ties with regional superpower Saudi Arabia. Losses elsewhere can be offset by securing financial and military backing in the West and the Far East, where Qatar has helped shore-up the financial system. Yet as one analyst noted, “they can afford to lose billions in Libya and Syria, but can you imagine if these companies were owned by shareholders?”

The QIA, however, is predominantly controlled by the ruling family, the Thanis, who account for four out of the six board members. Advising the QIA are some of the world’s top investment bankers poached from leading financial firms.

One of the fund’s most savvy financial moves was when investment arm Qatar Holdings acquired QR12 billion [$3.3 billion] in shares, and the Qatari royal family-owned Challenger Universal a QR3.5 billion [$1 billion] stake, in Britain’s Barclays Bank in 2008. In 2010, the QIA sold off 379 million of its shares to make a cool QR3.5 billion [$1 billion] in profit. Stakes in Credit Suisse have equally generated massive returns, having acquired shares in the wake of the global financial crisis, and the institution has become Doha’s investment bank of choice.

Strategic vision

While Qatar continues to acquire trophy assets like Harrod’s in London and is reportedly bidding for British toy store Hamley’s and a stake in the struggling French bank BNP Paribas, emerging markets and long-term strategic ventures are increasingly important. “They have bought trophy assets, not just as trophies but for the long-term potential,” said Andrew Wingfield, a partner at international law firm Simmons and Simmons in Doha.

Over the past year among other investments the QIA sunk QR22 billion [$6 billion] into the Agricultural Bank of China, signed a QR18 billion [$5 billion] agreement with Malaysia to invest in real estate and energy, and acquired a 5 percent stake in Banco Santander Brasil.

With Qatar slated to generate QR302 billion [$83 billion] in hydrocarbon sales alone this year, according to government statistics, it is no surprise that the QIA is being heavily courted around the world for ailing economies to get a much needed injection of foreign direct investment. However, with Qatar’s budget surplus lower than expected over the past fiscal year, at 2.9 percent of economic output, the QIA will have to be selective rather than go for political-economic strategic alliances.

Where would you invest $20 million in Qatar?

2011-10-20T17:51:00.002+03:00

“Definitely hospitals and schools, nothing else. A nation is as strong as its education and health, not how big its bank account is,” said Ali Al-Humaidi, Managing Director of Almaras Management Consultancy.

“In engineering, consulting or market research as these are services Qatar really needs, as is a scaleable business with not a lot of upfront capital required,” said Curtis Avery, Entrepreneurial Mentor at the College of the North Atlantic – Qatar.

“I wouldn't, not anymore. I've become more fiscally conservative for one, but how do you protect your investment in Qatar? Rules can change overnight, and there are new regulations all the time. Or what if you kiss a girl on the beach and get caught? You'd have to leave, and what would happen to your investment then?” said an analyst that wanted to remain anonymous.

“I'd invest in a company providing good maintenance and services, plumbing and carpentry, for residences in Qatar. It is a gap in the market. If you don't live in a compound with a maintenance team, it is hard to get someone to do it that speaks English and knows what they are doing,” said Andrew Wingfield, Partner at international law firm Simmons and Simmons

“I would probablly look to invest in mid-range hotel assets, for example Ramada Encore, decent business style hotels. Why? An area that shows the most growth in the next 10 years. The time to get out of Qatar is 2017-2018 not the day after the world cup. Who knows how much the economy would've diversified in 10 years time, and education and health care will have expanded,” said Edd Brookes, Director and Head of Valuation at real estate firm DTZ.

“I'd invest in manufacturing industry with export capability to the GCC and nearby markets like Iran, Iraq and the Indian subcontinent. I would say don't build another hotel as there are enough players in that space, whether hospitality or services. The government says that it is easy to invest in real estate but gets into population game and looking at Qatar like Dubai,” said Narayanan Ramachandran, KPMG Head of Advisory for Bahrain and Qatar

“I'm not sure I would. I would probably lean towards something with not much upfront capital cost that could be wound down pretty quickly rather than be stuck with fixed assets that may not have any fixed value at the end. Definitely there are opportunities but there is a lot of risk to start up a company here. Hopefully that will start to change. The whole sponsorship rule is not foreign investor friendly, and for 90 percent of business you need a Qatari partner. If I put in $20 million, he owns 51 percent,” said an economic analyst off-the-record.

“I'd say three or four options to mind. Advanced building materials given all the construction underway. Second, in education, as although there is significant investment it is still under-invested in terms of local needs; not universities but schools and training. Third, the oil and gas sector attracts a need for technologies, especially away from downstream. Four, even small investments might have worthwhile returns,” said Anil Khurana, director of Operational Strategy and Private Equity at management consultants PRTM.

Sanctions on Syria: The Slow Crush of Attrition

2011-10-07T15:07:00.005+03:00

A man closes the doors to his store at the Buqayaa smugglers market on Lebanon's border with Syria

Eleven years of gradual economic reform have sputtered to a halt in Syria over the past six months amid nationwide revolts against the regime of President Bashar al-Assad. Gone are the halcyon years of a booming tourism industry, the headway made by the region’s youngest stock exchange and the foreign direct investment that had spiked since 2005 to reach $2.9 billion in 2010. Meanwhile, the expatriate Syrians lured back from corporate jobs in the Gulf and the West to join the fledgling financial sector have, by and large, packed their bags and left as the crackdown on demonstrators escalates. Between 2,600 and 5,400 have been killed, according to varying estimates, as Executive went to print.

The short-lived economic renaissance of sorts steered by Assad and Abdullah Dardari, a London School of Economics graduate and now former deputy prime minister, took a further blow when the United States and the European Union slapped multiple sanctions on prominent members of the Syrian regime and close economic partners in May, and imposed further rounds of sanctions in August and September that included the oil sector.

Tightening the screws

The EU has been selective in what individuals and entities it has targeted for sanctions.

On May 9 and May 23, members of the regime were designated, including President Assad and his maternal cousin, billionaire businessman Rami Makhlouf, whose portfolio includes Cham Holding and mobile operator Syriatel, and who the EU stated was targeted because he “bankrolls the regime allowing violence.” On September 2, the EU listed prominent businessmen and businesses for providing “economic support to the regime”, such as the presidents of the Damascus and Aleppo chambers of industry — respectively, Tarif Akhras, head of the Akhras Group, and Issam Anbouba, president of Issa Anbouba Establishment for agro-industry — as well as Cham Holding and certain subsidiaries, and the state-run Real Estate Bank.

On September 23, a further 15 regime members were added (bringing the total to 43 members of the regime and associated businessmen), as well as five Syrian intelligence and military directorates. A further six entities were added to the ‘banned’ list, including Addounia TV and Syriatel, as its licensing contract “pays 50 percent of its profits to the government.”

The EU moves allow for the freezing of the European assets of the individuals targeted and prohibits their travel to Europe. The latest sanctions also prohibited the selling, buying and export, directly or indirectly, of new Syrian banknotes and coinage printed or minted in the EU, to the Central Bank of Syria, as large amounts of Syrian currency had, until then, been produced in Austria. The September sanctions also prohibited financial loans, credit or joint ventures with listed persons or entities.

The US sanctions, issued May 27 and September 1, focused on military-linked businesses, Syrian hydrocarbon companies and Cham Holding, and prevent American companies from doing business with the figures in question. Sanctions were also renewed against the state-run Commercial Bank of Syria (initially blacklisted by the US in 2004 for financing terrorism), and Syrian-issued MasterCard and Visa cards have been frozen. The US and EU-blacklisted companies and individuals contacted by Executive refused to comment.

Hardly foolproof

“Sanctions are not a silver bullet,” said Andrew Tabler, a Next Generation Fellow at the Washington Institute for Near Eastern Policy (WINEP) and author of recently published “In The Lion’s Den: An Eyewitness Account of Washington’s Battle with Syria.”

“They are more like ways you can find to ratchet up the pressure in very specific ways to try and bring about some breaks in the regime, for instance, in getting elites to move away from [it],” he said.

The economic sanctions are an obvious psychological blow to the regime and its cadres, but do not have the same impact as those on the oil sector, which accounts for an estimated 20 to 30 percent of the country’s gross domestic product.

That said, while the latest sanctions have not directly targeted international trade outside of oil, wariness on the part of international shippers to trade with Syria and a sharp drop in domestic demand has seen cargo shipments at the port of Lattakia plummet, dropping 13 percent since the beginning of the unrest in March on the year before and 36 percent year-on-year in June alone, according to statistics published by the port’s operating authority. Reuters last month quoted shipping sources as saying volumes at the ports of both Lattakia and Tartous have shrunk as much as 40 percent in the first eight months of 2011, relative to last year.

Trade with strategic partner Turkey has also plunged, with Syrian exports to Turkey in June dropping 59.3 percent, to $48 million, from the same period last year, while Turkish exports to Syria declined by 18.1 percent to $113 million, according to Turkish government figures.

Trade with the US, however, has been negligible for years, with 2010 bilateral trade estimated at $928 million, or 2.4 percent of all trade, following the Syria Accountability and Lebanese Sovereignty Restoration Act of 2003 that banned all exports except food and medicine, prohibited American businesses from operating or investing in Syria, blocked transactions on Syrian property and tightened the aviation sanctions first imposed in 1984. However, Syria was able to successfully bypass these earlier sanctions by re-exporting American goods through Jordan, Lebanon and the United Arab Emirates. Where the US has hurt Syria is by limiting the leverage of Syrian banks internationally, and it could deliver a huge blow should it succeed in its efforts to put pressure on Turkey to also impose sanctions.

A bigger blow to Syria is the impact on trade with the EU; the economic bloc is the country’s largest trade partner and aid donor, accounting for 22.5 percent of Syria’s foreign trade in 2010.

But as a trade partner, Syria ranks low down on the major import and export list for the EU, accounting for just 0.2 percent of imports and 0.3 percent of exports in 2010, and ranked 50th of the EU’s trade partners, according to International Monetary Fund (IMF) statistics. Nonetheless, the sanctions have had an effect.

“While EU trade sanctions are limited to the oil sector, non-oil trade with Europe has been affected as European companies have been limiting their trade with Syria, and the Syrian government itself is encouraging Syrians not to trade with Europe,” said Nabil Sukkar, a former World Bank economist and head of the Syrian Consulting Bureau for Development and Investment in Damascus.

No investment ban

The EU sanctions have not included an investment ban on European companies doing business in Syria, although this could be the next step. “I think an investment ban is coming. But what impact will it have? The largest investment [by the EU] is in the petroleum sector,” WINEP’s Tabler said.

Italy, whose bilateral trade with Syria was worth $2.69 billion in 2010 and which is Syria’s fourth largest import partner, has managed to delay the enforcement of EU oil sanctions until November. The European Investment Bank has stopped all loans to Syria and EU aid programs totaling $185 million have been slashed by 62 percent. The aid had gone towards funding infrastructure projects and providing expertise to the private sector.

But Sukkar believes such a move by the EU is disingenuous. “The cut in EU aid to Syria, intended originally to support economic liberalization, will strengthen the tendency of the new government to bring back controls. So sanctions will be counterproductive, they will hurt citizens’ livelihoods and will help the reversal of Syria’s liberalization policies,” he said.

For the sanctions to work beyond the oil sector, other revenue streams need to be targeted, said Tabler, hitting more prominent businesses in Damascus and Aleppo, particularly those with ties to Western firms such as the Joud Group, which manufactures and distributes Pepsi under license, and the Attar Group, which handles distribution for multinational pharmaceutical companies and electronic and software companies Sony, IBM and Lexmark, as well as being the country sales agent for Alitalia.

Other businessmen that could be targeted — listed in a report by the US Congressional Research Service but so far not sanctioned by Washington — are Majd Suleiman, head of media conglomerate United Group and son of Bahjat Suleiman, a former General Security Director officer, as well as Firas Tlass, the son of former Defense Minister Mustafa Tlass and head of the MAS Economic Group. Reducing the profit margins of major companies paying taxes to the regime would dent the Syrian treasury.

While Sukkar is against the sanctions, he suggested that such specific targeting would make a mark.

“The impact on specific companies and individuals… will deter others from establishing business relations with establishment figures,” he said. “But the imposed sanctions will not topple the regime and will not cripple the economy. Instead it will create economic and social damage, affecting both government finances and citizens’ livelihoods.”

“We will forget that Europe is on the map”

The Syrian government has, unsurprisingly, played down the impact of the sanctions. At a press conference in Damascus in June, Foreign Minister Walid al-Mu’allem responded to the first round of EU sanctions by saying: “We will forget that Europe is on the map, and we will turn to the east, to the south and all directions that extend a hand to Syria.”

The Syrians have lived up to their word to look elsewhere for alternative trade partners. Over the summer, Syrian officials went on a mission to get trade agreements with Ukraine, Kazakhstan, Belarus and Russia. Grain, for instance, has been purchased from Ukraine; a necessary import as Syria no longer produces enough food for its domestic consumption and agriculture output has not been as high as expected this year due to the ongoing drought in much of the country.

Russia has criticized the EU sanctions, and as of August continued to supply arms to Syria. In early September, Prime Minister Dmitry Medvedev said Russia was “a great friend of Syria” and “a country with which we have numerous economic and political contacts.”

Closer to home, the Arab League at the end of August called for an “end to the spilling of blood and for Syria to follow the way of reason before it is too late,” but has not gone as far as calling for an economic boycott or annulling Syria’s membership in the Greater Arab Free Trade Area. Damascus rejected the league’s statement, as did Beirut, signaling that bilateral trade with Lebanon will continue. Such support from Beirut, Moscow and its allies, albeit limited, does dampen the effectiveness of the US and EU sanctions.

“Syria will be able to mitigate the impact of sanctions through deepening economic ties with Iraq, Iran, Russia and other Asian countries. Also Lebanon will always accommodate Syrian business needs for financial transfers,” said Sukkar.

According to shipping sources in Beirut, trade with Syria has not been affected and is very much ‘business as usual’. Lebanese banks hold accounts for Syrian officials, including Rami Makhlouf, according to a banking source, although banks agreed, unofficially at a Union of Arab Banks meeting, not to carry out international transactions on behalf of Syrians, or provide alternative names or addresses. Meanwhile, Finance Minister Mohammed al-Safadi said following meetings in Washington and with the IMF in late September that it was not in the interest of Lebanon to be the financial hub of Syria, and that Lebanese banks have taken measures to align with the international sanctions. If upheld, this could also affect foreign remittances on behalf of Syrians.

If ties with Iraq cool, as Baghdad has recently hinted at, and Turkey joins in on the sanctions — Ankara has already intercepted arms shipments — the Assad regime will find itself increasingly isolated. “Syria would be surrounded. And it is not like Jordan has a lot of love for Syria,” said Tabler. Indeed, if Jordan closed its borders, this would have a major effect on Syrian trade with the Hashemite kingdom and Saudi Arabia, Syria’s third largest trade partner. The loss of Iraq as an export destination would be equally devastating, accounting for 30.3 percent of total exports, or $4.6 billion, in 2010.

If protests against President Assad continue, Syrians will have to “tighten their
belts”, according to Syrian Central bank Governor Adib Mayaleh

Sound as a pound?

Syria’s Finance Minister, Mohammad Jleilati, was trying to put on a brave face when he said on the sidelines of a meeting of Arab finance ministers in Abu Dhabi in early September that the economy will grow by 1 percent this year. A recent IMF report estimates Syria’s economy will contract by 2 percent, while the Institute of International Finance estimated the economy will contract at least 4 percent this year and the fiscal deficit will widen to more than 6 percent of GDP.

But Tabler and other sources Executive spoke with suggest the Syrian economy could shrink as much as 20 percent; tourism revenue (worth more than $8 billion last year) has almost completely vanished, the cities of Homs, Hama, Deir ez Zor and Daraa have been at a virtual economic standstill for months, banks are reporting steep declines in assets and trade is falling off. Syria has seen roughly $2 billion in capital flight this year, and the Central Bank of Syria (CBS) has had to spend at least $2 billion defending the Syria pound (SYP), according to CBS Governor Adib Mayaleh, though the official exchange rate has still slipped slightly, from SYP46 to the dollar in March to SYP48.41 in September.

CBS foreign reserves are officially at $18 billion, although sources peg that number nearer $15 billion, and Mayaleh said Syria has a $5 billion fund created several years ago for the specific purpose of supporting the currency during crises, although he did not make clear whether it was included in the total reserves. Syria also has an estimated 25.8 tons of gold reserves, according to the World Gold Council data, worth roughly $1.4 billion at average world gold prices at the end of last month.

The currency reserves will allow Syria to cover import needs for over 20 months, according to the finance ministry, but that also depends on countries staying friendly with Damascus and remaining willing to trade. Furthermore, international currency rates could cause Syria more fiscal woes than it is already facing, having lost access to the dollar on the global markets.

“Restrictions on money transfers in dollars, initiated from outside as well as by the CBS, have disrupted trade,” said Sukkar. “There will be further disruptions in trade if the EU imposes restrictions on transfers in euros. Then Syria will have to go to other convertible currencies, such as the [British] pound and the Japanese yen, both of which have been as volatile as the dollar and the euro over the past year.”

How well the central bank handles these challenges will be key to the continued funding of the Syrian regime amid increased economic isolation and the possibility of further sanctions.

A faltering economy and diving business prospects would undoubtedly erode support for the regime among middle class Syrians and the business elite — groups which, to this point, have largely backed the Assad government. But in the war of attrition that sanctions amount to, whether they have the desired effect of shaking the regime’s iron grip on power, or whether they harm everyday Syrians more than anyone else, are still open questions.

“[It] all depends on agricultural production, oil prices and how much overall economic demand has dropped,” said Tabler. “The real challenge is for the sanctions to hit the regime more than anyone else.”

MAJOR TRADE PARTNERS 2010

Imports	Value	Percent overall trade
European Union	$4.85 bn	18.7
Saudi Arabia	$2.94	11.3
China	$2.8 bn	10.7
Turkey	$2.1 bn	8.1
UAE	$1.38 bn	5.5
Russia	$1.214 bn	4.7
Iran	$1.06 bn	4.1
South Korea	$1.02 bn	3.9
Lebanon	$989 mn	3.8
Egypt	$973 mn	3.7

Export	Value	Percent overall trade
Iraq	$4.6 bn	30.3
European Union	$4.43 bn	29
Lebanon	$1.5 bn	10.1
Saudi Arabia	$769 mn	5
Turkey	$632 mn	4.1
Kuwait	$504 mn	3.3
UAE	$435 mn	2.9
USA	$419 mn	2.8
Jordan	$351 mn	2.3
Libya	$328.4 mn	2.2

Top 10 Trade Partners (export and import)
European Union	$9.32 bn	22.5
Iraq	$5.49 bn	13.3
Saudi Arabia	$3.7 bn	9
China	$2.74 bn	6.9
Turkey	$2.7 bn	6.6
Lebanon	$2.52 bn	6.1
UAE	$1.88 bn	4.6
Egypt	$1.25 bn	3.1
Russia	$1.24 bn	3
South Korea	$1.11 bn	2.7
Overall Total	$41.36 bn	100

Source: IMF, EU

Deference versus diversity in the Gulf

2011-10-07T15:05:00.001+03:00

Commentary - Executive magazine

Gulf Cooperation Council (GCC) countries have long struggled with implementing nationalization employment policies (NEPs) to bring more GCC citizens into the workplace, offset reliance on expatriate labor and diversify their oil-dependent economies. The track record has been mixed — fairly good at getting citizens into the government sector but pretty hopeless at the private sector level.

In the United Arab Emirates and Saudi Arabia, nationals account for around 80 percent of the public sector workforce, in Kuwait around 90 percent and in Qatar 94 percent, although some of these statistics are questionable. In 2009 for instance, Sheikh Mohammed bin-Rashid, vice president of the UAE, admitted that Emiratization levels “did not exceed 54 percent in ministries and 25 percent in federal authorities.”

In the private sector, Emiratis account for less than 1 percent of the workforce of the UAE, in Kuwait and Qatar around 5 percent and in Saudi Arabia 13.3 percent, according to government statistics.

While NEPs have been in place for decades, most GCC governments appear to be working hard to ensure such policies do not succeed outside the public sector. The most effective way they have done so is by raising public sector salaries to ridiculous levels. Last year, the UAE gave federal government employees a 70 percent wage increase. In September, Qatar announced it would raise government employees’ wages by 60 percent and give military officers a 120 percent salary, pension and benefits hike. What incentive does this give to young Emiratis and Qataris to become, say, entrepreneurs or scientists when a cushy job for life can be had with the government?

Instead such moves create greater dependency on the state, a useful weapon to defuse political opposition and give the impression of greater distribution of oil wealth among nationals. Yet such ruler-subject dependency is not sustainable. It is creating divisiveness between nationals and expatriates, causing social malaise and stifling the potential of the Gulf people.

Such policies also throw into question the motivation behind spending billions of dollars on educational facilities and programs if citizens’ only incentive to study is to get into the public sector. Take Qatar’s Vision 2030 and the National Development Strategy 2011-2016, which mapped out the development of both a knowledge-based and free economy. One of the lofty aims of the multi-billion dollar, state-endowed Qatar Foundation is to make these plans a reality, but this is dependent on young Qataris entering the private sector and not opting to join the military and civil service instead. (Women, on the other hand, account for 77 percent of Qatar University’s student body, which bodes well for the future.)

So how is diversification going to occur and nationalization targets be met against such seemingly great odds? Is the answer to give passports to foreign professionals and experts, as has happened with 11 players on the Qatar national football team? (When I asked one Qatari if his countrymen were proud of their team after Qatar won the bid to host the 2022 World Cup, he replied: “What team?”)

While the UAE and Qatar are scoring own goals against their private sector NEPs, Saudi Arabia is taking its Saudi-ization policy more seriously, introducing this year the Nitaqat plan to find employment for 1.12 million Saudis by 2014. But through its complex quota categories — 205 of them in all — even the labor ministry has admitted that up to 40 percent of private companies will fail to employ enough Saudis and could “cease to exist.”

There appears to be no easy way of encouraging NEPs in the private sector, either beset by onerous requirements or countered by the government placating subjects through high-paying state jobs. A balance needs to be found. The hard truth, though, is that the GCC countries need to accept that introducing viable NEPs that put the private sector ahead or on par with the public sector as an attractive employment option for nationals will eventually bring about a different relationship between the state and the people. It would mean greater governmental accountability; a step that could be viewed by the rulers as one too far. But the status quo cannot continue forever, as major socio-political problems inevitably crash the party. Leaders of certain other Arab countries have recently learnt this the hard way.

Book review: Road to Fatima Gate

2011-10-06T12:07:00.005+03:00

Road to Fatima Gate — The Beirut Spring, the Rise of Hezbollah, and the Iranian War Against Israel by Michael Totten

Book review - Executive magazine

There has been a flurry of books published over the past few years by Westerners, primarily Americans, describing in depth their brief encounters with Lebanon and the Middle East. Their insights are telling not so much for the informative content, but rather how this budding vein of adventure writers perceives the region and its people.

Of ten misplaced on bookstore shelves under ‘political journalism’, these titles — including Ted Dekker and Carl Medearis’ “Tea with Hezbollah”, Jared Cohen’s “Children of Jihad” and Lee Smith’s “The Strong Horse: Power, Politics, and the Clash of Arab Civilizations” — rightly ought to be stacked closer to the ‘adventure/fantasy’ section; crafted in the language of swaggering bravado, the narratives frame the authors as intrepid explorers in a land of peril, boldly setting out where ‘few Americans dare go’.

And relegated to the bin of banality they would be did they not also wield such a dangerous degree of influence over the shaping of United States foreign policy; speaking at Smith’s 2010 book launch in Washington, DC, were the former ambassador to Lebanon and current assistant secretary of state for Near Eastern affairs, Jeffrey Feltman, and Elliott Abrams, former deputy assistant to the president and deputy national security advisor for global democracy strategy under the Bush administration, with both statesmen heaping praise on the author’s effort.

It is in this light which one must regard Michael Totten’s “Road to Fatima Gate: The Beirut Spring, the Rise of Hezbollah, and the Iranian War Against Israel”, released earlier this year by Encounter, a publisher self-described as being a press for the “serious conservative”. Fitting, then, that the book is written from what could be called a ‘Western extremist’ perspective.

Road to Fatima Gate traverses Lebanon’s politically tumultuous time between 2005 and 2008, from former Prime Minister Rafiq Hariri’s assassination and the Syrian army’s subsequent withdrawal, through the July 2006 war and the civil conflict of May 2008. Totten is in Lebanon only part-time during this period, but does not let his frequent forays abroad pollute the aura of comprehensiveness he lends his accounts. Nor does the author let the selectiveness of his associations temper the license he allows himself to make sweeping generalizations regarding the Lebanese mindset — Totten has minimal meaningful interaction with ‘people on the street’, instead openly preferring the company of expatriates and barfly drinking buddies, with his most authoritative source on the country being Charles Chuman, an American-Lebanese from Chicago who was in Lebanon for around five years, and whom the author describes as knowing “the country better than almost anyone I ever met.”

Totten tells the tale of the 2006 war in Lebanon from Northern Israel and, being abroad when rival political factions faced off in block-to-block combat in May 2008, Totten retells the experience largely through the eyes and ears of Chuman, complete with dialogue and inner thoughts. (Perhaps tellingly, Chuman, Smith and Totten all spoke at the annual Institute for Policy and Strategy conference in Herzilya, Israel, shortly after the 2006 war.)

Totten’s blinkered narrative is most blatant regarding Beirut’s southern suburbs and South Lebanon, despite the crux of the narrative being about Hezbollah — a flaw Road to Fatima Gate shares with Thanassis Cambanis’ “A Privilege to Die: Inside Hezbollah’s Legions and Their Endless War Against Israel”. Totten describes these areas as throttled by totalitarianism, where Hezbollah suppresses self expression through violence, and ignores pesky nuances such as the plurality of political affiliations, family divisions over allegiances, independents running in elections and the large and growing body of the apolitical. To be fair, Totten does let Lebanese voices set some of the record straight, but only in chapters outside those in which he portrays “Hezbollahland”.

In his account, Lebanese police have never set foot in “Hezbollahland”, from which they are “forbidden” — news, no doubt, to the veteran law enforcement officers in Haret Hreik and Bint Jbeil. Similarly, Totten leads his readers to believe that Iran is the sole financer of post-war reconstruction in South Lebanon, completely ignoring the hundreds of millions of dollars pumped into the effort by Qatar, Kuwait and other nations, including the US.

Leveraging his thorough understanding of Lebanon, Totten then graces us with his incisive insight into the region as a whole: “Arab countries have a certain feel. They’re masculine, languid, worn around the edges and slightly shady.”

Road to Fatima Gate does a good job of listing the many important events of the years it covers in Lebanon, but is rigidly selective in the sources it taps and questions it asks, as well as lacking historical insight and glossing over inconvenient things like ‘facts’ that would run counter to the agenda Totten is pushing. But then again, what adventurer would want to dilute his drinking stories with reality?

Nokia's got your number

2011-09-08T19:19:00.001+03:00

Telecom giant's amoral alliance with repressive regimes

Commentary for Executive magazine

Nokia’s brand image is of two hands — one a child’s and one adult — reaching towards each other with the slogan: “Connecting People”; a nice image for a mobile phone manufacturer and service provider. But in a dozen countries in the Middle East and North Africa (MENA), the Finnish mobile phone giant’s joint subsidiary with the German company Siemens, Nokia Siemens Network (NSN), has been connecting people in a way that consumers were not expecting: with the mukhabarat, or secret police.

Dozens of pro-democracy activists arrested in Bahrain by mukhabarat following the uprising that began in February were presented with transcripts of text messages and phone calls that they had made. Detainees were puzzled as to how their communications had been intercepted and were being used as evidence against them. They were not aware of the monitoring systems that 12 countries in the MENA, according to a report by Bloomberg published last month, had bought software from NSN and its subsidiary, Trovicor, that enables governments to intercept phone calls, emails and text messages. Such surveillance software also allows the powers that be to create disinformation by changing the contents of written communications and to scan phone networks through voice-recognition and keyword-search software, in addition to remotely activating laptop webcams and microphones on mobile phones, according to Wired magazine.

The Bloomberg exposé of the usage of such technologies in Bahrain is a first during the MENA uprisings of this year. That websites were being monitored was well known, and people in Syria, Libya, Egypt, Yemen and elsewhere have long been wary of what they said on the phone in case of a third, unwanted listener. But the level of interception and its usage by secret police is a concern not only for activists, protesters and the like but also for the very privacy of all people.

Furthermore, it is not an issue confined to Bahrain or the MENA. This follows the phone hacking scandal in Britain in July that reached the highest echelons of the police force, the offices of the prime minister as well as dozens of print publications, and add to this the news of Google’s cozy relations with not only Washington DC but also Beijing. This all comes on top of the revelations over the last decade about the joint American-British global surveillance system Echelon.

Such phone hacking and monitoring is a growing concern reminiscent of George Orwell’s dystopian novel 1984, which depicts a society under the hyper-surveillance of “Big Brother”. The arguments given for such surveillance software in the hands of the state are acceptable when it comes to tracking terrorists, organized criminals and other deemed baddies, but, as always, it is how such technology is used, for what purpose and how you classify a “bad guy”. Inflicting human rights abuses on Bahraini activists for what they wrote and said via their mobile phone is not a shining example of what Trovicor calls in its website: “Making the world a safer place.” Safer for the Bahraini ruling elite perhaps, but not for its citizens.

Telling in the unveiling of Bahrain’s usage of Trovicor’s systems is the fact that it will most likely not cause the same outcry as when NSN was hauled over the coals in 2009 in the United States for providing the same technology to the Iranian government to snoop on protesters in the wake of the disputed presidential elections. What has become very clear this year in the region is that there are halal and haram revolutions, depending on the country’s relations with the US. Bahrain is of course in the latter category.

Conversely, Tehran’s usage of Trovicor’s systems and a “No to Nokia” international boycott for its indirect role in human rights abuses resulted in NSN selling Trovicor to Germany’s Perusa Partners Fund in 2009, although management, staff and equipment have remained largely the same. Meanwhile, NSN sales teams have been instrumental in the continued roll out of the service in the MENA.

By connecting and informing protestors and by distributing news and video updates from the streets, technology and social media have been key components in the successes of some of the uprisings throughout the region. Unfortunately, these same mediums are being used as a tool of autocracy. Just as governments should be held accountable for repressing their people, so too should corporations who facilitate such brutality.

Consumer confidence rebounds in the Gulf

2011-09-08T19:10:00.004+03:00

The Gulf market’s appetite for personal care products, both traditional and niche, continues to grow. Paul Cochrane reports from Beirut for Soap Perfumery and Cosmetics magazine

The multi-billion dollar beauty market in the Middle East’s Gulf countries is back on an upward trend, thanks to renewed economic growth as this rich region with avid consumers start spending again. Demand for cosmetics and personal care products is being driven by high disposable incomes, new sales channels and a growing lifestyle trend among both men and women in terms of plastic surgery, personal fitness and body care.

Despite the uprisings and political unrest in much of the Middle East and North Africa region (MENA) this year, cosmetics sales have remained remarkably robust, particularly in the oil-rich nations of the six member Gulf Cooperation Council (GCC): Kuwait, Bahrain, Oman, Saudi Arabia, Qatar and the United Arab Emirates (UAE).

“Looking at AC Nielsen’s latest consumer confidence report [from May], regional consumer confidence has rebounded, with the MENA region reporting the highest gain in consumer confidence levels. In the top 10 most optimistic countries, Saudi Arabia ranked number two and the UAE was at number eight,” says Salah al-Sagha, general manager of beauty retail at the UAE-based Chalhoub Group, which sells commercial, luxury and Arab-oriented brands at 91 beauty stores throughout the MENA countries.

All Sagha estimates the region’s beauty sector to be currently worth between US$1.5bn and $2bn a year - equivalent to 6% of the €179bn ($255bn) worldwide market.

Also, market research firm Euromonitor International forecasts that sales in the GCC states in terms of colour cosmetics and fragrance will exceed $1.6bn by the end of 2011, with $500m in cosmetics and USD1.3bn in fragrance sales. By 2014, the region’s personal care product sales sector could increase by 15.1% to reach annual sales of $1.88bn, with sales of $578.5m in cosmetics and $1.3bn in fragrance respectively.

Especially driving growth for retailers and brands are the buoyant economies of Kuwait and Saudi Arabia, which are forecast to have GDP growth in 2011 of 4.7% and 6.1% respectively, according to the National Bank of Kuwait and the Samba Financial Group (formerly the Saudi American Bank Group).

With Saudi Arabia boasting the GCC’s largest economy, with a population of 26 million – 50% of whom are under 25 years old, according to statistics by the Saudi government – the kingdom unsurprisingly accounts for the lion’s share of the regional market, with total sales in 2011 forecast at $1.1bn ($292.3m in cosmetics and $821m in fragrance), according to Euromonitor. Fragrance sales are also expected to rise to $939.2m by the end of 2014.

The upward trend follows a pattern set over the past decade, as GCC economies have experienced year-on-year double-digit growth as mass retailers, international brands and new regional players have begun to infiltrate these markets. There was a small blip in growth in 2010 in the wake of global financial crisis, but the region’s penchant for cosmetics, toiletries and, in particular, fragrance has not been diminished. Indeed in a 2009 study by Euromonitor on the UAE, expenditure on cosmetics and toiletries in the region actually exceeded that of France by 38% and the US by 6%.

“We are seeing a recovery, which should be even more significant towards the end of the year. Although segments are growing at a different pace, sales shares by segment have remained almost similar to 2009,” says al Sagha.

“Our fragrance and cosmetic market - including make-up, skin care and body care - for the total network has grown by 22% between May 2010 and May 2011. The growth was pulled up by fragrances, increasing 26%, which is our largest segment at 60% to 65% of all sales,” he adds. The Chalhoub Group’s make-up sales have increased 19% and skin care by 8%, with the group forecasting total sales growth of 17% this year, compared to 2010.

With the GCC having some of the highest GDP per capita incomes in the world, there is inevitably sustained demand for luxury beauty products and fragrances along with the more everyday toiletries. US-based personal care giant Estée Lauder, for example, forecasts that sales of its premium cosmetics in the GCC will rise 5% by the end of 2011.

The Chalhoub Group noted earlier this year that average sales price point stood at $30 for one purchase of personal care items (possibly a group of items). However, when consumer trends are focused solely on Gulf citizens rather than expatriates and tourists, sales were often much higher, particularly in the youth segment.

In 2010, the Chalhoub Group undertook a regional consumer survey, in conjunction with UK-based market research agency Datamonitor, to study how Arab youth approached the idea of ‘luxury’. Consisting of 1,260 face-to-face interviews of both males and females aged 15 to 29 years old in Saudi Arabia, the UAE, Kuwait and Qatar, the survey concluded that that Gulf youth are “undisputed shopping addicts”.

“The GCC young consumers admit to big purchases in the perfume and cosmetics category every quarter at an average spend of nearly $400,” says al Sagha. Gulf consumers buy, on average, one to two perfumes a month, from both international and Arabian brands, he says.

“We also discovered that young customers are very receptive to one-on-one types of communication - preferably in Arabic - and that they spend two to three hours daily on the internet; one to two hours on social networks; and one to two hours on blogs. Therefore, we built a whole social media marketing plan to meet these requirements,” says al Sagha.

Sales strategies of retailers have also been changing as a result of changing consumer behaviour, with more sales space in shops now being dedicated to beauty products, along with a higher numbers of sales assistants and advisors. Distribution has also diversified, expanding from dedicated beauty stores to cosmetics products being sold everywhere from nail bars to hair salons to plastic surgeons’ offices.

“Gulf women are still very much into perfumes and make-up, but because of plastic surgery, this has created other trends,” says Dikran Ghazal, general manager of Cosmaline, the cosmetics arm of Lebanon’s Malia Group, which manufactures and distributes its own line of products and international brands throughout the Middle East.

“If you visit a plastic surgeon’s clinic, there isn’t just a table and equipment, but also a line of beauty products. This has become a complementary side to the business. For when you have surgery on the lips, the patient has to use special lipsticks or creams so the lips don't deteriorate. This is something that is changing in the MENA. It is no longer taboo – in fact it has become a necessity to have plastic surgery. And it’s not just a fashion statement. There is a lot of peer pressure that if a woman is not following that trend they do not fit into a group,” says Ghazal.

Beauty trends also extend to men, he adds, with cosmetics manufacturers increasingly focusing on an emerging segment that had been traditionally confined to deodorants, shaving creams and hair gels.

“Hair styling for men and health spas are emerging very fast and in a very luxurious way,” says Ghazal. “It is becoming a common lifestyle [for Gulf men] to have massages, eyebrows done, chest hair lasered or waxed, along with plastic surgery. Like for women, what all this results in is more of a need for ongoing body maintenance. It is no longer just the face but the whole body and this is why we are seeing the emergence of lots of fitness clubs which has brought with it healthy eating, diet watch centres, dieticians and nutritionists. This has put pressure on us in the sector to be more advanced than the trends and build on them.” Shelf space dedicated to products for men has also expanded across the board in recent years as a result, he stresses.

A recent worldwide trend has been for multinationals to market their brand image rather than just advertise a specific product. This is being mirrored in the Gulf with a major focus on brand management and advertising. With this has come a focus on packaging, quality ingredients and emphasising dermatological testing.

“Consumers are a lot more quality and health conscious than before, when they just went for the price. In-store distribution and visibility are now as important as going on TV,” says Ghazal. “Packaging is the main purchase driver, fragrance is number two and the product itself third. Packaging is very important in order to target young adults in areas such as shampoo, for instance, where loyalty levels are very low.”

Counteracting this argument however is the emerging segment of ‘naked products’ in the Gulf – ie products without packaging or preservatives – as ecological and health awareness grows. The UK’s Body Shop, for instance, entered the Gulf market a few years ago, as did handmade, organic cosmetics company Lush, which now has three stores in the UAE, three in Kuwait, two in Saudi Arabia and one in Qatar.

While the youth market is a major segment - and part of long-term brand development - there is, however, differentiation in packaging appeal between different age groups.

“We find that all the colourful products, plentiful bubbles and an abundance of glitter appeals to our younger customers, while the natural ingredients, organic skin care and environmental messages appeal to our older customers,” says a Lush spokesperson in the UAE. Naked products account for 70% of Lush’s product range. Increased health awareness has also led to a growing trend in deodorants, for example, where roll-ons are gaining popularity over sprays, as well as a trend in customers looking for products that are alcohol and aluminium-free.

Based on growing demand for cosmetics in the region, Lush told SPC it plans to open four more stores by 2012, with the aim of having 21 stores in the MENA region by June 2012. “We expect to see strong growth for the next three years in the GCC,” adds a Lush spokesperson.

While sales of anti-ageing, cellulite and spa products are still relatively niche, a growing category is reflected in the hair care segment, which is continually expanding in terms of product offerings.

“The hair care segment is very competitive,” says Ghazal. “If you go into an average bathroom, you will see three to five shampoos, especially for women.” With so many products and brands available, manufacturers are now focusing on hair salons as an outlet for targeting consumers, offering special deals to hairdressers to stock their products.

“There are lots of hair treatments now available, and hair salons do influence consumers. We focus on salons to build brands, and that’s why we have a professional range – masks, gels and shampoos that are not for the retail market. Some regional companies’ marketing strategy is to launch professional hair care products first, and then go for the mass market,” adds Ghazal.

Away from luxury and more towards the niche segments, sales of mass market cosmetics, shampoos and soaps have also expanded beyond the traditional supermarket outlets.

“Supermarkets are key sales points followed by convenience stores but a growing channel is pharmacies, which are moving away from just selling medicines,” says Ghazal. “When you enter pharmacies, they now seem far more like beauty shops than pharmacies, as cosmetics account for maybe 25% of the counter space. The strategy now for manufacturers and distributers is to focus on pharmacies as a sales channel. I think soon we will have pharmacists and doctors prescribing, say, certain shampoos, instead of [them being sold by] just the hairdresser.”

While multinational leader Procter & Gamble and Beiersdorf’s skin care product giant Nivea have an estimated 70% market share of the MENA region’s cosmetics market, according to Ghazal, regional manufacturers have also grown exponentially over the past few years, and are starting to chip away at the multinationals’ market dominance in cosmetics and fragrance.

In Arabian-style perfumes, for example, Gulf brands such as Ajmal and Arabian Oud currently have the edge over international brands as few global brands cater to this fragrance segment, using strong fragrances, often of oud or musk, and containing no alcohol. This Arabian advantage extends to shampoos and other cosmetics as well, with manufacturers currently developing products with a strong fragrance suited to Arab tastes, according to Ghazal.

But despite this the expansion of regional brands is generally being hindered at major retail outlets due to excessive listing fees. “This keeps small players out, but for regional brands, it eats up their margins to be on a smaller shelf when the multinational brands have more space,” says Ghazal. “It is a major hurdle for regional brands to grow.”

http://www.cosmeticsbusiness.com/technical/article_page/Middle_East__Consumer_confidence_rebounds/64164

Egypt's yarn price hike causes disruption

2011-08-26T18:28:00.003+03:00

By Paul Cochrane for just-style.com

While Egypt's garment sector appears to have weathered the political upheaval that swept through the country earlier this year, the key textile sector has been hit hard by the quadrupling in price of locally-produced yarn.

The Egyptian economy is struggling along in the wake of the revolution that ousted President Hosni Mubarak earlier this year, even though protests continue and workers demand more rights and better pay.

But while the garment sector appears to have weathered the crisis, expecting to export more than US$2bn in clothing this year, the spinning sector has been hit hard by the quadrupling in price of locally-produced yarn over the past six months, rising from EGP10 (US$1.68) to EGP42 (US$7.06) per kilogram.

Some 51% of all textile factories in the Nile delta city of Al Mahalla el-Kobra stopped operating in June due to the spike, according to The Egyptian Gazette, and an estimated 650,000 workers are in danger of losing their jobs.

The country's largest yarn producer, the state-linked Holding Company for Spinning and Weaving (HCSW) has not been helping.

Worried that it would be undercut by cheaper imports, which are approximately US$1 cheaper per kilo than locally-produced yarn, it requested the ministry of trade and industry in April to impose anti-dumping duties on yarn imports.

However, mindful of stepping into a potential row between elements of the country's important textile industry, the interim government (parliamentary elections are slated for September) has not however implemented any bans on imports or exports of raw cotton. Egypt itself produces some 130,000 tonnes of cotton a year.

"There has not been a significant move by the government to stop cheap cotton imports," said Gilbert Ammar, general manager of GilClaude and the International Textile Industry in Alexandria, which sells to hypermarkets and catalogue companies in Europe.

Instead, there have been efforts to ease the problems. Pending hoped-for government support, the HCSW and other state-linked cotton and spinning companies - which employ 60,000 people and accounts for one-fifth of Egypt's public sector workforce - have reduced the cost of yarn from EGP31.5 a kilo (US$5.29) to EGP27.5 (US$4.62) for the domestic market.

The government has also extended EGP14bn (US$2.3bn) in debt settlements to spinning and weaving companies, while banks have extended their grace period on loans.

There could be more price disruption to come. On top of the yarn price increases, the minimum wage is to be increased to EGP700 (US$117.8)-a-month - although this will only affect the public sector, with private companies generally unfazed by the planned increase.

"The government is talking about a minimum salary per month while the workers are wanting EGP1,200 [US$201). I don't think the government can pay more than EGP700 as the public sector does not have the funds to do so," said Ammar.

He added that a primary problem for the spinning sector is not just cheap cotton imports, but that the machinery used by most state-linked spinning companies are antiquated and unable to process high quality cotton.

"It will be a bad year for the spinning companies. But they have to improve their quality and connection with the manufacturing process to stay alive and be more competitive, for they are operating far from the reality of the market," said Ammar.

Meanwhile, garment producers are directly sourcing their own cotton to avoid breakdowns in the production chain, and are banking on an increase in orders this year from Europe to take advantage of the short delivery time. A vessel takes one week to go from Alexandria to La Havre in France, for example.

"I think exports will increase over US$2bn this year as more big buyers are placing orders," said Ammar.

Photo from just-style - http://www.just-style.com/analysis/egypts-yarn-price-hike-causes-disruption_id111605.aspx

Minimal capital flight but the Syrian economy is on a slippery slope downwards

2011-08-12T17:37:00.005+03:00

Workers erect a poster of President Bashar Assad in Damascus. On the poster behind it says "Minhubak" - "We love you" in reference to Assad.

An abbreviated version of this article appeared in Executive, August 2011

The Economist recently ran an article on Syria's economy claiming that $20 billion has flowed out of the country since the uprisings began in March. The figure was quickly picked up and the rumor mill went into overdrive. A respected financial paper the Economist may be, but it clearly did not do its homework in this case.

With the overall economy worth $52 billion at the end of 2010, and total deposits in private and state banks close to $30 billion, such capital outflows would have been crippling to Syria.

“There is obviously capital flight, but it is impossible $20 billion left the country,” said Jihad Yazigi, editor of economic newsletter Syria Report. With the rumors abounding about billions leaving Syria, it was not Damascus that came out to deny the inflated figure the Economist attributed to “one estimate” but the head of the Association of Banks in Lebanon in July.

“The $20 billion figure is ridiculous as the deposits of private banks are $11 billion and the deposit base of the whole banking system is $29.8 billion,” said Freddie Baz, chief financial officer at Bank Audi to EXECUTIVE. “Estimates range between 15 to 18 percent drop in the deposit base of private banks, so there has been a decline of around $2 billion.” Bank Audi should know, with the Lebanese giant's Syrian arm, Bank Audi Syria, the second largest private bank with some 18 branches.

According to research by Bank Audi's Research Department drawing on Central Bank sources and Thomson-Reuters, bank deposits in Syria in the first five months of 2011 dropped by $1.388 billion. By comparison, Egypt has been far more affected, with deposits dropping $4.957 billion as of May from a deposit base of $164 billion in December 2010, and in crisis-struck Yemen, down $605 million from a deposit base of $7.13 billion.

“So far the impact is very minimal on the banking business. Indicators are almost similar to Egypt in terms of resilience,” said Baz. “But I believe the Syrian economy is more vulnerable to the political turmoil than Egypt, where there were a lot of buffers to shield the economy.”

Cash based society

If massive capital flight out of Syria had occurred this year Lebanon would have been one of the major beneficiaries, with banks a long-term depository for Syrian clients, estimated in the several billions of dollars. Yet bankers said there had been no notable up-tick in transfers from Syria while total deposits in in Lebanon this year, as of May, were $3.267 billion.

Foreign exchange bureaus in Beirut interviewed by EXECUTIVE had also not observed any noticeable increase in business or Syrians coming with duffel bags stuffed with Syrian pounds (SYP). “I am exchanging the same amount of SYP as in the past, there is no change,” said one dealer in Bourj Hammoud. “And I would change the equivalent of several thousand dollars in SYP; I am not concerned that the pound could become a worthless currency.”

There are also no indicators of any crippling runs on the banks. Bank Audi Syria has seen its deposit base drop 18 percent, but noted that much of that was requested by the bank itself as private banks are required to hold deposits with the Central Bank of Syria (CBS) at zero percent interest. “In difficult times zero percent interest at the CBS is ridiculous, so we voluntarily let go of some corporate deposits,” said Baz. “My opinion is overall withdrawals are around $2 to $2.5 billion, and the major chunk of cash is in peoples' homes.”

Syria is after all overwhelmingly a cash-based economy and the country's 12 private banks have struggled to attract depositors since entering the market in 2005 due to long-standing fears of re-nationalization, as happened when the Baath party took power in 1963. Banking penetration is very low even by regional standards, with one branch for every 47,700 people.

“Loans to gross domestic product ratios, bank accounts per household and so on are all are very weak. What we have witnessed is increased de-bankerization because of the situation,” said Baz.

Dearth of data

Getting accurate statistics on the current state of the Syrian economy is complicated by the lack of official data being released by the Central Bureau of Statistics and the CBS, with the last monetary reports released in March and May respectively.

“When the crisis started Syria had a fairly healthy level of foreign reserves which meant they were able to sustain the nominal exchange rate at remarkably stable levels, but the extent to which the CBS was able to intervene in the foreign exchange markets we don't know as the CBS is not publishing updates on foreign reserves,” said an economist at one of the world's leading financial institutions that wanted anonymity.

“At the same time the central bank is looking at further conservative policies to keep depositors reassured, as the whole idea is to prevent a run on deposits in the banking system and stop the nominal exchange rate getting into a depreciation spiral and weaken the economy faster. The CBS has been managing effectively its short term issue. The problem is we don't know how sustainable that is as don't know what is happening with the reserves.” The Minister of Finance, Mohammad al-Jleilati, recently said that Syria has $18 billion in foreign reserves.

One of the few real time indicators of the economy is the Damascus Securities Exchange (DSE) although it cannot be considered a real reflection of the economy due to its small capitalization. The Middle East's youngest bourse, which opened in 2009, has witnessed a decline in trading of some 37 percent as of June 20 from its peak in January. The other indicator is the currency, but as the economist noted has remained remarkably strong, only depreciating from 46 SYP to the US dollar at the beginning of the year to SYP 47.5 as of July.

Yazigi noted that a spike in gold sales has helped stop a run on the pound. “Gold sales are up and it is one reason the currency has not fallen,” he said.

With the financial sector and the DSE weak indicators of the real state of the economy, all eyes will be on how the CBS handles the situation and what happens to the pound. “The most important point is what happens to the currency. It is the symbol of stability of the state, and if it weakens then it is tantamount to saying the state is weakening,” said the source.

A stagnant economy

The overall state of the Syrian economy is pretty grim. “By far the most affected sectors are tourism, industry, logistics and transportation, retail trade – people are saving not spending – manufacturing as no one is buying, and exports to the Arab world are down,” said Yazigi.

Tourism, which brought in $8.5 billion in revenues last year, has ground to a halt, reflected in Damascus' premier hotel, the 297-room Four Seasons, having just 12 guests over the course of a week last month.

“What matters about tourism is not just the size of its contribution to GDP – about 10 percent – but that it generates foreign currency earnings as the country is in dire need of currency,” said Yazigi. “Private investment is close to nil, including foreign direct investment,” which had surged from $110 million in 2001 to $2.9 billion in 2010. “The oil and gas sector is OK as output continues, but future investment is questionable as international companies are withholding investment,” he added. Indeed, it is the hydrocarbons and agriculture sectors that are essentially propping up the economy, accounting for 35 to 40 percent of total GDP.

Meanwhile the business of the country's largest conglomerate has essentially dried up. Cham Holding, which was established to much fanfare in 2007 and touted as a further indication of Syria's opening economy, had sanctions slapped on it in May by the United States due to the board of directors reading like a who's who of the Syrian elite and Assad's cousin, billionaire businessman Rami Makhlouf, a prominent board member. The whole board recently resigned and only five men were elected to the board, including two former ministers with no management experience, while there is no chairman due to the sanctions.

Curiously, real estate and construction is booming in Syria. “In a time of crisis and with the currency falling, people are investing in real estate as it is considered a safe investment,” said Yazigi. “The construction sector is trying to profit from the fact that the government is not being able to monitor the sector to check if buildings are going up without licenses. But the cost of building materials and labor has increased.”

The potential for a major economic slowdown is very real, primarily due to dwindling consumer confidence, which President Bashar Al Assad admitted to in his June 20 speech at Damascus University. But rather than suggest that the government has control of the situation, Assad further undermined confidence in the economy when he said: “The most dangerous thing we will face is the weakness or the collapse of the Syrian economy. A large part of the problem is psychological.” As Yazigi commented in an editorial in the Syria Report: “by merely pronouncing the word 'collapse' the president indeed only reinforced that psychological factor".

Analysts forecasts a contraction in the economy this year. “A decline of 20 percent is a conservative estimate but realistic,” said one source.

Photograph by Paul Cochrane

Paying for the revolution

2011-08-04T17:26:00.002+03:00

Commentary for Executive magazine

"Freedom ain't free” is a commonly used idiom in the United States. Somewhat jingoistic and trite it may be — certainly when used to justify a militaristic US foreign policy — there is still much truth to the expression.

The uprisings in the Arab world this year have certainly not come gratis. Many have paid the ultimate price — death — and the economic losses have been staggering. In post-revolutionary countries, economics has become a major focal point and it was arguably lop-sided economic development as much as political repression that sparked the uprisings in the first place, from Tunisia to Egypt and Bahrain, to Yemen and Syria. One of the economic factors that contributed to the uprisings and is a cause of much inequality throughout the developing world is capital flight, and while governments may have, to varying degrees, limited ability to stop legitimate investors from pulling up stakes, an area of enforcement where regional authorities have been lax is in stymieing the illicit flow of capital out of their countries. Between 2000 and 2008, according to Global Financial Integrity (GFI) research published this year, illegal capital outflows from the Middle East and North Africa (MENA) grew 24.3 percent, far ahead of any other region on earth.

Illicit capital flight refers to funds derived from corruption, money laundering, commercial tax avoidance and trade mispricing, where deals are made for transactions to end up in offshore havens to avoid being taxed. As a result, cash that could have stayed in the country of origin ends up elsewhere, leaving less capital to finance development. From 1970 to 2008, some $70.5 billion flowed out of Egypt, $25 billion out of Morocco and $25.7 billion out of Algeria. In Egypt, GFI estimates an average of $2.54 billion flowed out of the country each year through illicit trade mis-pricing alone. Tack on corruption and crime, and the figure is a whopping $6.36 billion a year that was not available to the Egyptian financial system and economy. Notably, as Egypt's gross domestic product spiked and the economy grew in the late 2000s, illicit outflows increased by leaps and bounds, meaning real economic growth was essentially two steps forward, one step back. In 2006, illicit outflows reached $13 billion, $13.6 billion in 2007, and as the global financial crisis hit in 2008, $7.4 billion. Ousted President Hosni Mubarak and his family siphoned off billions from the Egyptian economy, but Egyptian financial elites also helped to hobble the country's development through illicit outflows.

Addressing illicit capital flight is a concern for which revolutionaries should fight if the people are to improve their economic future. The problem right now, however, is that with the instability in the MENA, legitimate investors are also pulling their capital out of the region at worrying rates. Jordanian Finance Minister Mohammad Abu Hammour recently said at a meeting of the Union of Arab Bankers that capital flight in the Arab world is estimated at some $500 million a week. Unless such outflows are curbed, the capital needed to invest in post-revolutionary countries will be wanting.

Desperate for cash, these countries will either have to be beholden to donors, or to the conditionalities imposed by global financial institutions such as the World Bank and International Monetary Fund to stay afloat. In Egypt, with the government's hard currency reserves reportedly plunging from $36 billion in February to $25 billion in May, some analysts warned that the country could be as bankrupt as Greece by the end of the year.

How to tackle this is tricky. Capital is transferred at the click of a button. Some $1 trillion in illicit inflows enters the Western financial system every year — with an estimated 20 percent to the US — and billions go to offshore havens. Tough withdrawal measures by post-revolution countries may help, but this is both heavy-handed and against the principles of free trade. With an estimated 65 percent of illicit outflows in the form of commercial tax avoidance, ensuring greater transparency by companies and elites in paying tax is a more feasible solution.

In tallying the expense of what it has taken for the MENA region to reach this turning point in history, what must not be overlooked is that those who have a responsibility to help cover the costs should be made to do just that. After all, democracy must be paid for.

Leftists of America and the World, Wake up to Your Islamophobia!

2011-08-01T13:37:00.001+03:00

by Paul Cochrane for Dissidentvoice.org, July 30th, 2011

Stephen Sheehi wrote Islamophobia: The Ideological Campaign Against Muslims to radically change the discourse surrounding Islamophobia in the mainstream in the US. But Sheehi,¹ a scholar and veteran of the activist movement, is only too well aware that a controversial book distributed by a small social justice publisher is probably not going to make the inroads it should or be reviewed by the likes of the New York Review of Books or the Washington Post.

Rather, one of Sheehi’s primary aims was to challenge the Left, so-called “progressives” and liberals to face an uncomfortable truth, their own Islamophobia. “When people ask me at conferences, ‘What should be done?’ I tell them to stop asking questions about Islam. Just stop. It is racist to ask ‘Why are the Muslims different?’ or ‘I want to understand the Muslims so I am going to read the Qur’an’,” said Sheehi in Beirut.

Indeed, as if people read the Vedas to understand militant Hinduism, the Torah to comprehend the mindset of Jewish colonial settlers in the West Bank or the Bible to make sense of the Tea Party movement. But such seemingly well-meaning questions about Islam by leftists and liberals of all stripes just goes to reinforce the notion of Muslims as the “Other,” set apart in need of “tolerance” and “understanding.”

“Despite the genuine and scholarly research into the topic, the questions must stop being about Islam and democracy, Islam and modernity, Islam and human rights, Islam and women, and so forth,” writes Sheehi. “We must stop searching for answers, or making accusations for that matter, based on the binaries of Islam and the Whatever. We must reach beyond the Jihad vs. McWorld dichotomy.”²

Coming to terms with the widespread prevalence of Islamophobia in the US mainstream and how it has been adopted consciously and unconsciously by the populace, the unsaid fears of Anglo-Saxon America of “brown people empowering themselves”, as Sheehi put it, and the myth of US exceptionalism all plays into the lengthy history of America’s racism, from the days of slavery to the Monroe Doctrine to the current racial profiling. “The US has to look at itself and ask, why are we so racist?” said Sheehi.

He writes that “Islamophobia is the ideological foil that allows the state to control its population, Muslim and non-Muslim alike, as well as institute military and political policies abroad (if not at the US’s own southern border).”³ Sheehi goes on: “Cultural Islamophobia and legislation are two of these mechanisms. The plight of non-American Muslims and Arab defendants is a more severe version of the plight of Muslims and Arabs in America.”⁴

For behind this foil is systemic racism and symbolic violence towards the minority, such as through structural exclusion or marginalization of those that do not embrace hegemonic ideologies.

As Sheehi observes in his work, this was manifest in the number of non-Muslims beaten up, abused and profiled in the wake of 9/11 because they “looked” Arab or Muslim. “In the end, Islamophobia is not about Muslims, for next up is Latinophobia,” said Sheehi.

So-called liberals always look for a scapegoat to justify Islamophobia and cling to the notion that it isn’t “us” perpetuating this divisiveness and ideology, it is someone else, another group, the right wing, the Neo-Conservatives, the Jews, Evangelical Christians and so on. Indeed, some presumed Sheehi would put the blame for Islamophobia squarely on the shoulders of the pro-Israel lobby.

The pro-Israel lobby and Zionist political action groups are of course a factor in shaping the discourse and ideology of Islamophobia, but that gives them too much credit. Islamophobia is more insidious, more widespread than that, and blaming “the Jews” is too easy as well as being off the mark. The same goes for lumping all the blame on the right wing. Sheehi doesn’t want the liberal conscious to be soothed as they are in fact a part of the problem.

“The Neo-Cons, the Republicans and the rampant racists got a raw deal with regard to Islamophobia, because they are a comfortable container of white liberal America to cordon off their own prejudices. Liberals state that they are “not against Muslims but only terrorists,” yet at the same time supporting the renewal of the Patriot Act, supporting the war in Afghanistan and believing Iraq is no longer occupied as the number of troops was reduced,” said Sheehi.⁵

The spirit of Islamophobia

Sheehi argues that Islamophobia was around well before 9/11 and Bush Jr’s administration, but the 2001 attacks proved to be a catalyst for Islamophobia to run wild. “9/11 allowed views that were on the fringe during the 1980s and even the 1990s to be seamlessly inserted into the American mainstream,” writes Sheehi. Pseudo-scholar Daniel Pipes “demonstrates how old racist and Orientalist tropes can be re-invented and inserted into a new political atmosphere with newness and urgency. In effect, the rants of the right create the conditions by which these diatribes then become relevant and lose their air of bigotry, if not lunacy.”⁶

One reason there are 54 pages of footnotes accompanying the 227 page text is that Sheehi, like hounded academic Churchill Ward, who wrote the foreword (the preface is by Mumia Abu Jamal), is to back up research in the face of legal action over opinions on Islamophobia and Islamophobes. Such are the times American academia is living in, superbly illustrated in chapters “Teaching and Activism in the Teeth of Power,” and “Living in a State of Fear.”

It was the post-Cold war era, global financialization and 9/11 that brought Islamophobia truly into the collective consciousness. Sheehi writes, “Ideological Islamophobia arises from the global era. Not only does it arise from the US desire to control global oil resources but also from its cultural Islamophobia and the willingness of the American public to stereotype, target, and violate the rights and humanity of Muslims and Arabs. American culture has evolved from a settler culture to become an imperial culture. Arabs and Muslims are perceived as the latest cultural holdouts that are resistant to its global hegemony, which the US purveys as offering modernity, democracy and capitalist prosperity.”⁴

This is a crucial point and one that many liberals and Leftists frequently overlook. This is not to suggest – and Sheehi doesn’t – that the Left make strategic alliances with, or vocally support, Islamist political groups because they are also resisting globalization and US imperialism. That would be akin to saying that you have to be pro Hamas, Fatah or Hizbullah to support the Palestinian cause and oppose Israel.

As Sheehi observed: “Critics will say that the arguments of this book exonerate those who are involved in truly terrorist action against civilians, whether they live in North America, Europe or the Middle East. They prefer to cast such aspersions rather than understand the historical and political motivations behind desperate and violent acts such as the bombings of 9/11, the public transportation bombings in London and Madrid, or the car bombing of an apartment complex in Riyadh in 2003, which killed not US soldiers but largely expatriate Arab and Asian families and workers.”⁷

That many liberals and leftists fall for Islamophobic ideology is reflective of how many people bought into Samuel Huntington’s racist notion of the “Clash of Civilizations.” Rooted in this Islamophobia is blatant ignorance, a lack of understanding of history and an unwillingness to understand political Islam.

“A critical misunderstanding of political Islam often comes from the inability to differentiate between political Islam’s many strains that materialized as a component of modernity rather than strictly as a reactive gesture to it…The problem comes from the fact that the American commentators have no understanding of the force and meaning of modernity as it impacts the developing, colonized world. A critical understanding of political Islam as a complicated and multifaceted social, historical, economic and political phenomenon would not apologize for political violence but instead, serve to clarify its origins, logic and inspirations,” writes Sheehi.⁸

Islamophobia reinvents itself

“Al Qaeda and Osama Bin Laden became a vessel, a psychological manifestation that is part of the Islamophobic world paradigm for the US to justify its policies. The whole point of Islamophobia is that the image of Bin Laden is a manifestation of Islamophobic stereotypes that were reproduced and grafted onto every Muslim as US foreign policy needs that,” said Sheehi.

Bin Laden’s assassination in May in this sense is irrelevant to keeping the stereotypes and Islamophobia alive. But the overwhelming jubilance of the American population’s reaction to his demise, and the name of the operation itself – Geronimo – speaks volumes about how deep Islamophobia has penetrated America, how it was symbolized in the burning hatred of one man, as well as the establishment’s ongoing disregard of America’s indigenous culture and people.

The ability of the ideology of Islamophobia to adapt is similar to capitalism’s ability to re-invent itself despite systemic setbacks and how factors change on the ground. This is not surprising as the two are inter-related, Islamophobia used to justify imperialist and capitalist ventures.

The uprisings in the Arab world this year are a case in point, as the revolts discredit the vitriol of Bernard Lewis and Fareed Zakaria when they say things like there is no civil society in the Arab world (both writers come in for substantial criticism in the book).

“The “Arab Spring” discredits the Lewis style stereotypes of the “Arab Street,” of a complacent, dormant, passive mass led by emotion and reliant on the rentier state system. It shows that this is completely false. Yet you hear the other side, of ‘Oh my God, there’s a bunch of Arabs in the streets, what shall we do?’ There is this fear of instability as the dictators were always convenient for providing security. There is a fear of brown people empowering themselves,” said Sheehi.

And when it comes to other portrayals of the Arab uprisings – depending on who the official enemy is, Bahrain no, Libya, Syria etc. yes – it is easy to play into stereotypes, such as the ludicrous story about Muammar Gaddafi ordering a container load of Viagra so his soldiers could rape women. The story was picked up worldwide as a sensationalist example of Gaddafi’s despotism and even cited by the International Criminal Court to indict the Libyan leader despite there being no credible evidence. Indeed, a senior crisis response officer for Amnesty International that spent three months in Libya said last month there was no evidence at all of soldiers using Viagra — indeed, when have soldiers ever needed sexual stimulants to commit rape? “The Viagra story played into the racial stereotype of over-sexualized brown men,” said Sheehi.⁹

Essentially, Sheehi is saying that liberals, leftists etc are not willing to challenge some of their conscious or unconscious racist feelings of not just the US being undermined on the world stage, but that the white man will no longer rule the planet. That President Barrack Obama is not white is not relevant in this regard, argues Sheehi, as he is just a new face, a more acceptable front man of American imperialism than Bush Jr. was (Sheehi’s analysis of Obama’s speech to the Muslim world in Cairo in June, 2009, and the Nobel Peace Prize acceptance speech are especially biting).

“It has never been about whether, say, the Egyptians are capable of ruling themselves or not, it is about if the Egyptians can be managed under the same economic and political system as before,” said Sheehi. “The US would throw the Bahraini royal family under a bus quicker than you could sneeze if the monarchy lost their relevance to the US. If all the Sunnis and Shias suddenly get along there would be no need for the US Fifth Fleet [to be in Bahrain]. That is the point and how the US stays relevant in the Middle East.”

Just as America has actively worked with the Saudis and the region’s monarchies to perpetuate discord between the Sunni and Shia on a macro Islamic level – what some on the Hill off-handedly call the “Sushi war” – Islamophobia creates a further wedge between the left on how to effectively tackle issues like the erosion of civil liberties, women’s rights, classism, and imperialist wars.

The US’s cultural, economic and military hegemony also enables the ideology of Islamophobia to be adopted on a wider level, as witnessed in the rest of the West, India and anywhere Islamophobia can be used as a political tool, and must be challenged as much as in the US.

This was glaring apparent as news broke on July 22 of the attacks in Norway. The immediate suspect in European and American media was Al Qaeda, with journalists scrambling to make a tangible link to “Islamic terrorism” and garner quotes from pundits as to why this was likely. Islamophobes had a field day. As we know it turned out to be a right-wing Norwegian apparently operating solo, but it took time for the discourse to switch away from the bogeymen of our time, particularly in the US.¹⁰

The late Edward Said taught us about Orientalism in literature and the need to de-colonize our minds. Sheehi in his work challenges us to intellectually confront Islamophobia and wake up to its prevalence in the mainstream as well as in “alternative” movements.

Stephen Sheehi is Associate Professor of Arabic and Arab Culture and Director of the Arabic Program at the University of South Carolina. [↩]
Islamophobia: The Ideological Campaign Against Muslims, Stephen Sheehi, Clarity Press, Atlanta (2011), p 225. [↩]
P. 222. [↩]
P. 166. [↩] [↩]
Indicative of this is that in Iraq, while US troop levels have dropped since 2008, private military contractors actually increased by 39 percent, or 3,500 personnel, by the end of 2010 to reach approximately 13,000 personnel, or 18 percent of all contractors, according to a recent report by the Congressional Research Service. [↩]
P. 140. [↩]
P. 170. [↩]
P. 23. [↩]
“What’s really at stake in Libya,” Pepe Escobar, June 30, 2011. [↩]
See “Blaming Muslims – Yet Again,” D Parvaz, June 23, 2001. [↩]

The peninsula of protectionism

2011-08-01T13:34:00.001+03:00

GCC and international firms face challenges investing in Qatar

By Paul Cochrane in Doha for Executive magazine on July 20, 2011

Despite the seemingly broad swathe of investment opportunities now on offer in Qatar, barriers to new foreign businesses are still considerable.

Limited liability companies (LLCs) that want to set up in the country are required to have a paid-up capital of QR200,000 [$54,913 or AED201,695].

Regulatory constraints

A double dip foretold

2011-07-08T15:47:00.003+03:00

Commentary for Executive magazine

Lax accountability and regulation edges world toward new precipice

Are we headed for a ‘double dip’? The head of the United States Federal Reserve, Ben Bernanke, said last month that this is unlikely in the US, but a recent CNN poll shows 48 percent of Americans think the country is en route to another Great Depression in the next 12 months. The other options raging through economic debates around the world is whether the US is on track not merely for another dip, but a mega-dip, or indeed if the US economy ever actually pulled out of the first recession.

If a second financial crisis occurs it will be bad news not just for the world's largest economy, but for everyone on the planet. The problem, in short, is regulation, or the lack thereof. It was the lax regulatory oversight of such financial products as derivatives and sub-prime mortgages in the US and elsewhere that triggered the first financial meltdown in 2008.

Major banks were bailed out, consolidation occurred, but few individuals were effectively punished. Perhaps more worrying is the fact that regulators were not empowered to properly leash the insidious corporate culture of casino-style capitalism which, though briefly brought to heel in the throes of the first financial fallout, has now returned to rabid form.

Sure, the Restoring American Financial Stability Act of 2010 was enacted, but financial institutions and the Republican Party are actively trying to weaken the framework. And unfortunately the Financial Crisis Inquiry Commission report was released in January, long after the act was passed, meaning its findings were not taken into account in crafting the legislation. The commission's report makes for sober reading; “We conclude the financial crisis was avoidable… Widespread failures in financial regulation and supervision proved devastating to the stability of the nation's financial markets… Dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis… We conclude the failures of credit rating agencies were essential cogs in the wheel of financial destruction.”

Where the report was weak was in addressing systemic financial fraud, which was present in much of the sub-prime mortgage loans — a major factor behind the financial crisis. According to William Black, author of “The Best Way to Rob a Bank is to Own One,” a fraudulent loan is where a lender loans to a debtor without knowing how the debtor can repay the loan, hence a form of fraud, or what criminologists call accounting control fraud.

With regulators still lacking authority and having little chance of successfully convicting individuals on charges of financial fraud in the US, the stage is set for “Financial Crisis Part II: The Really Big One”. The irony is that while the US has banged on for years about the need for other countries to implement financing laws — regarding anti-money laundering controls, due diligence and so on — the most pertinent regulations to be enforced are in the US itself, given that a crippled American economy would have a precipitous downside worldwide.

As Black stated earlier this year, “elites can now commit white-collar crimes with near impunity. Yeah, there are exceptions, like the Galleon case [against hedge fund manager Raj Rajaratnam] and [Bernie] Madoff, but that is the teeniest, tiniest percentage of these elite frauds [which have] any risk of being prosecuted. And the result is catastrophic for our nation, and of course not just our nation: we’re seeing these epidemics of control fraud in many other nations.”

One of the more sensible decisions to come out of the US recently was by Treasury Secretary Timothy Geithner, suggesting countries should mutually enact tighter financial regulations and set standards to better control the $601 trillion over-the-counter derivatives market. This would be a sensible move and it would make sense for governments to push for this.

Simultaneously, however, rightwing US lawmakers are trying to cut funding to the Commodity Futures Trading Commission and the Securities and Exchange Commission. This is obscenely irresponsible, raising the specter of the double-dip recession by hobbling effective oversight of multi-trillion dollar markets.

Public outcry in the wake of the financial crisis was relatively muted. But if we are all plunged into hot water again due to a flimsy regulatory safety net, a hell of a lot of people will not only be burned, but also burning with rage — and will know who truly is to blame.

Whisky: A popular cheer in down times

2011-07-08T15:44:00.001+03:00

Consumers in Lebanon shift away from the brash high-end

Executive magazine

Amid the current economic recession, there has been a general downward shift from luxury spirits to medium-priced bottles, while most distributors have put the launch of new brands on hold. With competition getting tougher, brands are working on revamping their image to appeal to the high-end drinker, while distributors are still paying eye-watering sums to get exclusive rights at the capital’s premier nightspots.

“The market always strives to go upwards, but it has been a difficult year globally and in the Middle East, and it is maybe not the right time to introduce new brands,” said Wadih Riachi, cellar manager at Vintage in downtown Beirut. “Yet the drinks sector has not reached a critical mass in Lebanon, by far, in terms of new products, spirits and packaging.”

The spirits segment has developed over the past few years, evident in the rise in premium vodkas, gins, brandies, rums and tequilas on offer. Vodka sales grew by up to 4 percent over the past year, above the 120,000 cases benchmark, but Lebanon is still very much a whisky market, with more than 450,000 cases imported every year.

It is in whiskies that there has been a maturing of the segment, with tipplers increasingly opting for single malts instead of reaching for the ubiquitous Johnny Walker Black Label. “Knowledge about single malts really started last year; we’re on the right track,” said Paul Atallah, wine and bar manager at Le Gray Hotel. “I think single malts will boom, and it is a great match with cigars,” he added.

Currently, imported fine and single malt whiskies average more than 8,000 cases per year, far more than cognac, at around 1,000 cases. Of those 8,000 cases, an estimated 70 percent are the 12 and 15-year-old single malts.

To differentiate the malts from the mass whisky market, companies are working on packaging. For instance, Glenfiddich, the biggest selling single malt label in the world, realized that the packaging for its 21 and 30-year-old malts being the same as the significantly cheaper 12 and 15-year-old malts was detrimental to sales.

To make these older and super premium malts stand out, Glenfiddich got rid of the cardboard tubes in favor of wooden boxes, first for the 30-year malt and later this year for the 21-year. There has been a corresponding 15 to 20 percent rise in the price, but the brand is banking on the improved aesthetic appeal.

The bottle has also changed, along with specific numbering on the labels, which has an appeal to collectors. “Some people want special numbers, such as one customer asking for the ‘600’, for example,” said Vintage’s Riachi.

Glenfiddich’s re-packaging seems to have worked. Vintage typically sold one to two bottles of the 30-year malt a month, but after the makeover they sold two cases in three days. “They got it right,” said Riachi.

Outlets are also emphasizing the range of whiskies a distillery offers. “People like collecting whisky in the same way as wine; instead of a 2001 or 2003 vintage it is a 12, 15, 17, 21 or 30-year-old malt. You drink less but better. And that is the magic of spirits; wine is drunk immediately [after opening], but spirits keep for ages,” added Riachi.

Rising from the snow

Rare malts and varieties from specific years are also proving attractive.

“Scarcity is the best salesman of wine or spirits,” said Riachi. The Camus 1971 Armagnac, for instance, is likely to sell well this year as a lot of people will be turning 40. And in terms of a unique drinking experience, one of the most sought after this year by whisky connoisseurs is Glenfiddich’s Snow Phoenix.

The Snow Phoenix is a one-off combination of single malts that came about following heavy snowfall at Glenfiddich’s distillery in the Scottish Highlands in January 2010 that caused some warehouse roofs to collapse. With casks exposed to sub-zero conditions, the master distiller decided to bring together the whiskies from ex-bourbon and Oloroso casks that had aged for 13 to 30 years into a non-aged single malt. It is now being hailed as a cult malt; some websites selling the Snow Phoenix have already sold out, while in Lebanon only 250 bottles are to be available for sale and half have already been pre-ordered ahead of the July launch.

The region’s window display

With the summer season not expected to be as dynamic as in years past due to a dearth of tourists, and Ramadan falling in August, drinks sales are expected to be down. But Lebanon still remains a top venue for marketing spirits, from the low to the premium level.

“Lebanon has become a Club Med destination, with two seasons, and the rest of the year having to survive on the Lebanese,” said Carlo Vincenti of Vincenti & Sons, distributor of St. James, Label 5, Glen Moray and Pitu Cachaca. “Lebanon is a window display for the whole region, as a big percentage of the profits from spirits sales in the United Arab Emirates and Saudi Arabia is spent on marketing in Lebanon.” Surprising though it may seem, Saudi Arabia is unofficially the fifth largest whisky market in the world.

Marketing is evident at Beirut’s infamous Sky Bar, where distributors have been spending ever-increasing sums over the past three years to target trendsetters. This year, according to distributors, some $630,000 was spent by Diageo for exclusive rights to sell its brands and by distributor Etablissements Antoine Massoud to plug its Russian Standard vodka at the rooftop bar.

“It is ridiculous, but more outlets are asking for money in advance to exclusively sell alcohol brands, despite the downturn,” said Nagi Hmouda, business manager at Fattal, distributor of Dewar’s, Grey Goose and Patron. “We are skeptical about the season as a lot of losses will be incurred.”

Fattal will not be introducing any new brands this year. Vincenti has launched the premium cognac Bisquit, but is focusing on faster moving spirits such as cachaca — the fastest growing spirits category in the world — rum and vodka.

Yet Vincenti also expects the upward swing in vodka to tail off. “Vodka was a discovery drink and many new brands were introduced to the market, but I think people will shift back to something less neutral in terms of taste, to whisky, rum and tequila, which are taking off.”

With sales down in on-trade — at bars, restaurants and hotels — the less glamorous supermarket has become an important point of sale. Indeed, supermarkets are now charging higher listing fees and investments to display brands.

“High-end brands are on supermarket shelves, but in terms of shelf off-take it is very weak,” said Vincenti. “Such brands shouldn’t be there as the consumers are not the type of people that go to supermarkets. There is a question mark on prestige if a bottle is on a supermarket shelf for months.” The supermarket as a high-end spirit venue may constrain the launching of new products and curb rise in consumption of single malts.

“Demand for single malts has risen over the last two years but I’m not sure it can go on. If on-trade doesn’t evolve, launching luxury spirits will not succeed. You can’t launch a 16-year old whisky in a supermarket, and you can’t sell more than one case per month,” said Vincenti. “But the downturn is not necessarily a bad thing. Lebanon was living in an imaginary world, as you never saw anyone in Europe paying $400 for a bottle in a club. It wasn’t healthy.”

Lebanon: Excessive taxes put the brakes on super-car sales

2011-07-08T15:42:00.000+03:00

Executive magazine

There are around 200 super cars in Lebanon tucked away in garages, strategically parked by valets outside high-end night spots and, on occasion, swerving around suspension-wrecking potholes on Lebanon’s mountain roads. In the summer months, a further 100 Lamborghinis, Ferraris and Maseratis with Gulf license plates are to be seen zipping around town, the cars having been sent ahead by container ship for their holidaying owners.

Luxury cars are a tiny niche market and are likely to remain so due to the high level of cumulative taxation levied on imports, value-added tax (VAT) and registration, starting at 60 percent of the car’s value, and at its highest exceeding 70 percent. Given such costs, it is little surprise that owners of such vehicles are part of a very exclusive club. But that does not mean there is no demand.

“We would double or triple sales of luxury cars if taxes were reduced,” said Michel Trad, director of Saad and Trad, dealership for Lamborghini, Bentley, Jaguar and, as of this year, McLaren. Sales would also be made not just to Lebanese buyers, who are “99.9 percent of clients” in the luxury segment, added Trad.

Expatriate Lebanese and frequent visitors with cash to burn would undoubtedly boost sales, allowing dealerships such as Saad and Trad to shift more than the one Lamborghini sold over the past year, or the 17 Bentleys, nine Aston Martins and 27 Maseratis purchased by wealthy Lebanese. Indeed, at the height of the economic boom in the United Arab Emirates, Lamborghini alone sold 60 models in 2008.

As Nabil Bazerji, dealer for Maserati, noted, “sales are always to the Lebanese, as luxury cars are highly taxed, so foreigners are not happy to pay that and they bring over their cars, especially the Gulfies as taxes are much lower there on high-end cars.”

The joys of mountain roads

The fact that British super car manufacturer McLaren selected Beirut as one of its regional hubs as part of its global expansion gives some indication of its potential as a luxury car market. “There are very few McLaren dealers as the network is not finished yet,” said Trad. Indeed, while Saad and Trad joined other dealerships in Jeddah, Riyadh and Doha in having joint Lamborghini-McLaren showrooms, the McLaren MP4-12C super car has yet to be launched in Beirut, with New York, London and Dubai up first before the car will grace the roads of Lebanon.

While there is a lot of competition in the luxury car segment to get the country’s few affluent car aficionados to splash out on a new set of wheels, it is Lebanon’s position as a window display of the latest trendy products that gives the nation a special significance for luxury car brands.

“A lot of people summer here so Beirut is important for visibility, and [since] people come from the GCC. We have double the business at our repair center in the summer as our after sales department is well equipped and we have the only aluminum body repair shop in Lebanon,” said Trad.

Further reflecting Lebanon’s marketing importance, in May the country was chosen by Bentley to host a Beirut Drive day for VIP guests to test drive the Flying Spur, Supersports and Mulsanne models on the roads to Beit Misk and Broumana in the hills above the capital.

“Why pay millions to hire a circuit when you can just do it on the roads?” said Trad of the event. “Circuits are boring, and the conditions of the roads here add to the driving experience. In Dubai you go straight and then stop. The configuration of mountain roads is much better. My customer is Lebanese, not a foreigner coming here that doesn’t know about the road conditions or how to drive in Lebanon.”

The Trofeo Cup

While Bentley opted for the everyday extreme driving of Lebanon’s roads to showcase its latest models, Italy’s Maserati has gone for extreme speed to show off the new GranTurismo. For the first time outside of Europe, the brand has organized the Maserati GranTurismo MC Trofeo race in the Middle East for what Bazerji calls “gentlemen drivers and rookies.”

Running from October until April 2012, the cup allows drivers that stump up to $135,000 to rent the racing version of the GranTurismo for the season to compete with up to 16 identical versions of the car in more than seven races, from the Formula One tracks in Abu Dhabi and Bahrain, to Qatar’s Lusail Circuit and the Dubai Autodome.

“The purpose is to initiate people into safer driving, the pleasure of a luxury car and the driving experience,” said Bazerji.

The new GranTurismo MC Stradalé was launched in May, “despite what’s happening in the neighboring countries and the economic and political crisis in Lebanon,” added Bazerji. “We hope to exceed a sales mix of 20 to 24 Maseratis this year. But if the government reconsiders taxation and reduces it, the luxury segment should grow considerably.”

Is that a no. 9?

2011-07-08T15:41:00.000+03:00

Telling the Cubans from the copies
Executive magazine

Demand for cigars is so strong that the sector is inundated with counterfeits. An estimated two thirds of cigars smoked in Lebanon are “fake”, with a Honduran, Dominican or Nicaraguan stogie attempting to pass itself off as the crème de la crème of smokes, the Cuban cigar. It is not easy to notice the difference until one sparks up, as the counterfeiters are pros, switching the paper ring around the cigar for a Cuban brand and using real or counterfeit boxes.

The situation has become such a concern to the legitimate sector that leading distributor, La Casa del Habano, owned by Phoenicia Trading, spent $50,000 this year on a billboard and media awareness campaign to inform consumers about fake cigars, particularly the Cohiba brand.

“The Cohiba Behike is the most expensive and the most popular right now,” said Wael Zeidan, executive manager at Phoenicia Trading. “We classify consumers of fakes into two segments — one, a consumer that knows it is a fake Cuban but smokes it to show off and doesn’t care. The second is a beginner that is easily bluffed, so we focus on him.”

To ensure that fake Cubans are not being put in boxes as the container empties — a classic scam to bump the price of a $2 cigar up to, say, $30 — Phoenicia has undercover employees that go in to check for fakes at its 300 wholesale customers. They are also opening a new outlet to better distribute Cubans from its current five stores.

While Honduras and the Dominican Republic do produce high quality cigars, primarily for the American market due to the trade embargo with Cuba since 1962, such brands are more expensive in Lebanon than Cuban cigars. Hence the fake Cubans are lower quality and normally machine made. One to watch out for is the Cohiba Siglo no.9, as real Cohibas only go up to size six. “It’s so big, it’s crazy,” said Zeidan.

Cohiba is the number one brand around the world, and in Lebanon this is no exception. Top sellers are the Robusto size (50-54 ring gauge), which is ideal for a half hour to one-hour smoke. Cigarillos — the small, lean cigar just a centimeter longer than a cigarette — are also becoming more popular, with Phoenicia Trading bringing out its own brand, Phoenicio.

“Demand for cigarillos is starting to grow, and women are increasingly smoking cigarillos,” said Zeidan. As cigars have a somewhat “old man” reputation, every month Phoenicia holds a breakfast cigar event for women in Ashrafieh, and has introduced cigarettes into Casa del Habano “to get youngsters into the shop and to find out about cigars,” said Zeidan. Pushing sales further are the cigar lounges at some of the capital’s leading hotels. At Le Gray, cigar nights are coupled with tastings of single malt whiskeys. And awareness of cigars is rising, said Paul Atallah, wine and bar manager at Le Gray.

“Some 80 percent of people know what they’re smoking. The rest, it’s just to show off that they are cigar smokers while swallowing the smoke,” he said. “But the culture has changed, and we’re seeing more people go for [brands] Partagas and Hoyo instead of Cohiba; this shows a change in awareness.” Most of the hotel’s cigar aficionados are guests from out of town but it is increasingly attracting non-guests to come to enjoy a cigar, sip an Armagnac and relax.

The economic downturn in the country has affected sales but the 400 percent rise in people smoking cigars since 1980 has provided a loyal customer base. “People get used to smoking cigars, and they continue to buy them,” said Zeidan. Indeed, big spenders are still out there. On a recent Saturday at La Casa del Habano in downtown, a customer bought a whopping five boxes of Cohibas as well as several packs of cigarillos.

The bookish type – Harland Miller

2011-06-16T13:40:00.003+03:00

By Paul Cochrane for Aishti magazine

British artist Harland Miller is that relatively rare thing, an artist in the all encompassing definition of the word, being both an acclaimed author and a renowned painter.

Surging through the art world in the ‘80s and ‘90s, Miller published his debut novel Slow down Arthur, Stick to Thirty in 2000. Being an artist, Miller wanted to design the cover to his novel.

“In my experience in the publishing world, which is different as an artist, I worked out that publishers think the book should do the work and people should not be seduced by the cover. When it came to the cover of my book I thought, no worries, I can do it,” says Miller.

“But the publishers said what I came up with looked ‘too second hand.’ We hit on a compromise, with the artistic team giving their input. But I ended up with the worst cover in the world. I definitely think this experience influenced my paintings and going for classic covers.”

The paintings Miller developed took a page out of Andy Warhol’s and Larry Rivers’ pop art book.

He artistically played around with a modern icon, the covers of Penguin books during their heyday, when the publisher democratized the British book market in the ‘30s by bringing out quality literature in cheap paperback form.

“I like pop art in that it can be appropriated,” says Miller. “And book cover design is not really a developed art form.”

Spinning this on its head, Miller took the remarkably simple covers of Penguin books – classics of graphic design that lack any artwork by emphasizing typography – and turned them into a form of art known as text- based art.

Painted on wall-filling canvases, Miller uses subtle – and not so subtle – titles to make a statement, like “Incurable Romantic – Seeks Dirty Filthy Whore,” “International Lonely Guy – My Story,” “Blonde, But Not Forgotten,” “Too Cool to Die” and “You Can Rely on Me – I’ll Always Let You Down.”

Miller also played with the dust jackets of classic works of Ernest Hemingway, F. Scott Fitzgerald and Evelyn Waugh. An Edgar Allan Poe cover reads “Murder – We’ve All Done It.”

Miller followed this series with the Pelican book cover series, which he calls “the bad weather pictures.”

He’s currently working on a new series of paintings based on obituaries he reads in the newspapers. “The obituary paintings are always portraits in miniature of somebody. I started the series ages ago in Paris, when [British politician] Stephen Milligan died [of autoerotic asphyxiation] and I always wanted to do more. I’ve been collecting obituaries since then, choosing people I feel sorry for or ones that go un-noticed,” says Miller.

With his book cover series around for a decade, few are left for collectors to buy, but some nine were on sale during Miller’s first exhibit in Lebanon, “Have You Ever Stopped to Wonder Why You’re Not Here,” held last May in Downtown Beirut.

Boon time for mercenaries

2011-06-06T18:26:00.002+03:00

Nervous and embattled Arab regimes look abroad for help

Commentary - Executive magazine

Erik Prince holds up a photo during a hearing in the US

The wars in Afghanistan and Iraq are supposedly winding down, Osama Bin Laden is dead, and the so-called ‘Arab Spring’ is eroding the iron-fisted regimes that have for so long held sway over the Middle East and North Africa (MENA). For private military contractors (PMCs) — a polite name for professional mercenaries — such developments might be considered a harbinger of tough times. But business is better than ever in Iraq and Afghanistan, and the suppression of internal revolts throughout the MENA is presenting new opportunities for this multi-billion dollar industry.

Last month details emerged that the infamous founder of Blackwater, Erik Prince, was forming an 800-strong secret army for the United Arab Emirates, for a price tag of $529 million. Prince moved to the UAE after Blackwater, later renamed Xe Services, faced legal problems in the United States, notably in a case against four Blackwater operatives accused of killing 17 Iraqi civilians in Baghdad in 2007, which has recently been reopened.

Reflex Responses, Prince’s new venture in conjunction with a 51 percent Emirati stake, features South African and Latin American mercenaries, the latter brought into the UAE disguised as construction workers, according to the New York Times, hired to protect under-construction nuclear power plants and oil infrastructure from terrorist attacks, and to “put down internal revolts” and “unrest in crowded labor camps.”

What is curious is the UAE’s need for Prince’s firm, as the country already ranked 16th worldwide in 2010 for military expenditure, at $15.74 billion, or 7.3 percent of gross domestic product, according to the Stockholm International Peace Research Institute. If such a high cost for the conventional military cannot guarantee security, but a half billion dollar private force can, it puts into question the rationale for such a high defense budget. Furthermore, it sheds doubt on the UAE’s belief in the Gulf Cooperation Council — dominated by Saudi Arabia — to come to its aid to squash an uprising, as happened when GCC forces rolled into Bahrain this year.

The UAE is clearly worried about instability amid uprisings nearby and has taken a page out of other government manuals by resorting to guns for hire. In March, it was reported that up to 1,000 Pakistani troops had been recruited to serve in the Bahrain National Guard to put down the uprising, as local troops could not be relied upon. In Saudi Arabia, which recently signed a $60 billion arms deal with the US, Associated Press reported that a top secret project is underway with the US Central Command supervising and training a 35,000-strong Saudi force to protect oil infrastructure and, presumably, to crush any unrest. Reports also abound of Muammar al-Qadhafi using mercenaries in his ongoing war against the rebels in Libya.

Last year in Iraq, security was the second most common service provided by contractors to the US government, accounting for approximately 13,000 personnel, or 18 percent of all contractors, according to a recent report by the Congressional Research Service. But while US troop levels have dropped in Iraq since 2008, along with support service contracts as a result, PMCs actually increased by 39 percent, or 3,500 personnel, by the end of last year.

The US Department of Defense does not give a breakdown of contractor services in Afghanistan, but contracts have soared over the past five years, from $2 billion in 2005, to $11.8 billion for some 87,000 contractors in 2010. It appears as though demand for PMCs will remain high so long as governments carry out policies unpopular in the eyes of the public. After all, mercenaries are useful assets to perform tasks that might strain the loyalty of a country’s regular armed forces. Indeed, Reflex Responses will reportedly not hire Muslim mercenaries given that, in the words of Prince, “They could not be counted on to kill fellow Muslims.”

The regional spike in demand for mercenaries and private armies speaks volumes about the insecurities of the UAE and Saudi Arabia. More chillingly, it raises concerns about the destiny of the ‘Arab Spring’ when governments resort to such forces to quell revolt.

Obedient Al Jazeera

2011-05-07T16:33:00.002+03:00

Silence on Bahrain puts objectivity into question

Commentary - Executive magazine

Since Al Jazeera’s launch in 1996 its slogan has been “the opinion and the other opinion.” Its objective of telling both sides of the story has won over many audiences, while at the same time making the channel more than a few enemies — namely Saudi Arabia, which set up Al Arabiya in response to the Qatar-based network’s regional and global rise.

Banned at one point or another in nearly every Middle Eastern country, Al Jazeera has for the most part lived up to its truth-seeking pledge, but its slogan is now in danger of being undermined by its lop-sided coverage of the Arab revolts. The year began all roses for Al Jazeera, credited with being instrumental to the overthrow of the Tunisian and Egyptian regimes due to its round-the-clock coverage of demonstrations and its ability to give the uprisings widespread visibility. As a result, Al Jazeera has been praised in the Western media and by the White House, which was apparently glued to Al Jazeera English’s (AJE) coverage of Egypt. British newspaper The Daily Telegraph gushed in April: “The ‘Arab Spring’ uprisings of 2011 are being hailed in Washington as the ‘Al Jazeera moment’,” and Australia’s Sydney Morning Herald trumpeted: “Al Jazeera is changing minds and hearts.”

Missing from these glowing accounts, though, was that the uprising in Bahrain was barely covered by Al Jazeera Arabic, with only slightly better coverage on AJE. Given Al Jazeera’s integral role in the Tunisian and Egyptian revolutions, its muted coverage of the Bahraini uprising since it began in mid-February has come as a slap in the face to the countless demonstrators there. Furthermore, Al Jazeera gave the detention and alleged torture of hundreds of Bahraini demonstrators scant coverage compared to similar events in Egypt, while the channel also failed to air potentially damning footage of the demolition of the symbol of the uprising, the Pearl roundabout, and 16 Shia mosques — a silence that could only be called an abdication of Al Jazeera’s self-proclaimed duty to objectively inform regional opinion.

At the heart of the matter is Qatar’s membership in the Gulf Cooperation Council (GCC), established in 1981 as a security pact among the Gulf monarchies in the wake of the 1979 siege of Mecca. Qatar’s position in the GCC pushed Doha to deploy troops to Bahrain when martial law was declared on March 15, but a casualty of this military intervention has been Al Jazeera’s objective news coverage.

With regard to Bahrain, Al Jazeera seems quite clearly to be acting as an extension of the Qatari government’s foreign policy and leaves the channel vulnerable to accusations of “double standards,” politically acceptable uprisings in the name of democracy — in Libya, Egypt, Tunisia and Yemen for instance — are covered and supported; uprisings against the Qatari national interest — such as in Bahrain — are largely dismissed. Ironically, Al Jazeera was banned in Bahrain last year, which the channel suggested may have been because of a report it aired on the country’s poverty, but which Bloomberg suggested was related to Manama’s wanting to increase Qatar’s rent for use of the Hawar islands.

A 2009 United States diplomatic cable, released by Wikileaks, highlights the geo-political role of Al Jazeera, with US ambassador to Qatar, Joseph LeBaron, noting: “Al Jazeera’s ability to influence public opinion throughout the region is a substantial source of leverage for Qatar… Moreover, the network can also be used as a chip to improve relations. For example, Al Jazeera’s more favorable coverage of Saudi Arabia’s royal family has facilitated Qatari-Saudi reconciliation over the past year.”

Al Jazeera’s “objective coverage” should also come under greater scrutiny in regards to Libya given Qatar’s vested interests there, including Doha’s role in the NATO-led air strikes and the inking of an oil distribution agreement with the Libyan rebels the day before the strikes began. Uncritical coverage of Qatari issues has also been a hallmark of the station since its inception. Thus, while Al Jazeera has generally helped raise the bar on network news coverage and pushed television reportage to a new level, those who’ve championed the channel as some sort of media Messiah immune to the failings of major Western news outlets should take heed — there is “the opinion and the other opinion”, and then there is the opinion of the Emir of Qatar.

Book review: America's Kingdom

2011-05-07T16:27:00.004+03:00

Robert Vitalis takes a no-holds barred look at Aramco

By Paul Cochrane, Executive magazine

Saudi Aramco, valued anywhere from $2 trillion to $7 trillion and employing more than 55,000 people, is the world’s largest unlisted company. How it got there is a story that has been told before — from the first discovery of oil to the entrance of the American oil majors, to the development of the so-called “special relationship” between Saudi Arabia and the United States.

But Robert Vitalis’s newly updated book, the product of a decade of research and writing, charts the history from a different perspective, viewing Aramco as a microcosm of the colonial order. It describes an ‘oil-garchy’, the partnership that began decades ago with some of the largest oil companies in the world — Socal, later renamed Chevron, Standard Oil of New Jersey, later Exxon, and Socony-Vacuum Oil, later Mobil — and the relations between Washington DC and Riyadh until Aramco was fully nationalized in 1980, becoming known in 1988 as the Saudi Arabian Oil Company or Saudi Aramco.

It is not a telling of history financed by Aramco or seeking to enter the good books of the Saudis or the oil industry — an independence that aids its veracity. As Vitalis notes: “Companies are like authoritarian countries. They keep records hidden...They open their archives only to those they hire [and] insist on the right to approve what is written... There are no sunshine laws and no Freedom of Information Acts against corporate privilege.”

Indeed, like other tomes exposing the costs of oil development, America’s Kingdom is blacklisted in Saudi Arabia alongside works like the late Saudi novelist Abdelrahman Munif's superlative quintet Cities of Salt.

Vitalis blasts commercially successful accounts of Aramco and Saudi Arabia that conveniently gloss over the company’s less than exemplary past and uncritically repeat Aramco’s creed that it acted differently from other oil companies; the company claims to have helped Saudi Arabia modernize through what Aramco President Frank Jungers called its “farsighted policies” and a “55-year record of cooperation and mutual respect.”

Vitalis exposes the situation of Saudi and non-American workers, their decades-long struggles for better accommodation, wages and rights, how protests were squashed, and the eventual ending of a system that divided labor based on race, imported from the US and similar to the ‘Jim Crow’ laws used in America to pay white workers more than African Americans and Hispanics.

He also exposed as myths many claims that Aramco still expounds; the company’s website states that, “Since 1940, Saudi Aramco schools have provided educational services to dependents of Saudi Aramco employees.” In fact, Aramco’s management worked to prevent Saudis and their dependents from being educated, arguing “the company should not engage in a general education program,” despite a 1942 Labor Law that required Aramco to do so. It was not until 1955 that the labor movement and the Saudi government forced Aramco to “pay for a system of schools, training institutes, and, ultimately, an engineering college.”

The book debunks the notion of Saudi “exceptionalism” — the doctrine that its leadership steered the fledgling kingdom through the miasma of empire and imperialism without external influence; while Saudi Arabia became a state in 1932, what “everyone seems to forget is that (the Saudi Emir, later king) Ibn Saud signed a treaty in 1915 with Great Britain that conceded sovereignty rights for protection,” writes Vitalis. The kingdom has been keen to downplay such reliance on outsiders for its survival ever since, whether on Britain or later on Aramco and the US.

America’s Kingdom is an important contribution to the often-neglected field of oil history, and a powerful critique of the US-Saudi relationship and of Aramco, a company with monumental sway over the world’s energy markets.

Qatar's foreign policy - The Tiny Giant: LNG fuels Qatar's massive global clout

2011-05-07T16:13:00.004+03:00

By Paul Cochrane for Executive magazine

In 2004, American magazine The Weekly Standard ran an op-ed on Qatar entitled “A Country With No Politics.” A tongue in cheek title (what country has no politics?) it is nevertheless indicative of how far Qatar has come in just seven years.

Back then, Qatar’s politics were most on display in the frequently ire-raising broadcasts of its most famous asset, the state-owned Al Jazeera news network, which managed to antagonize nearly every Middle Eastern government as well as that of the United States. Since then, Qatar has molded itself into a major economic and political player.

First came the mediator role, which helped Doha to usurp the region’s traditional go-between, Saudi Arabia, by attempting to broker a peace deal in Darfur, resolve the border dispute between Eritrea and Djibouti, and the (now failed) Doha Accord in 2008 that brought together the rival Lebanese political camps. A bevy of cash — rumors abound of the millions of dollars Lebanese political leaders were paid to sit down together — and supposed neutrality enabled the Qataris to play the middleman.

If Qatar is seen as neutral — like a Switzerland or Sweden of the Middle East — it is due to the kingdom’s efforts to befriend virtually everyone. Qatar’s foreign policy has been called paradoxical as a result. It hosts a United States air force base, which Doha financed in part, which was instrumental in the US-led invasion of Iraq in 2003; yet then-President of the United States George W. Bush threatened to bomb Al Jazeera’s headquarters in 2004, and earlier this year leaked US embassy cables leaked by Wikileaks revealed that US Secretary of State Hillary Clinton criticized Qatar’s efforts to tackle terrorist financing for militant Sunni groups. On top of this, Qatar inked a defense pact with America’s nemesis, Iran, in 2010.

Doha was involved in conflict mediation in the Horn of Africa, yet Ethiopia broke off diplomatic ties with Qatar in 2008, alleging the Qataris were funding Islamic militant groups in Somalia — including US-designated terrorist organization Al Shebab — that were attacking Ethiopian troops following Addis Ababa’s invasion of the beleaguered East African state in 2006. Qatar said it was “surprised” by Addis Ababa’s decision. And, while having links to Hamas and to Hezbollah, Doha also has diplomatic and economic ties with Israel, having hosted an Israeli consulate until Qatar broke off relations in 2009 during the war on Gaza. Doha tried twice in 2010 to restore diplomatic ties and was rebuffed by Tel Aviv, but the economic ties remain — if perhaps more symbolic than of consequence — with exports to Qatar totaling some $1 million [AED 3.67 million] and imports $1.9 million [AED 6.98 million] in 2010, according to the Manufacturers Association of Israel.

Cultural normalization with the Jewish state is equally apparent, with Israeli conductor Daniel Barenboim’s orchestra giving a private concert for the Qatari elite during the Arab Cultural Capital events in Doha last year (local press coyly referred to the orchestra as “Western musicians”).

Mehran Kamrava, director of the Center for International and Regional Studies at Georgetown University-Qatar, sees Qatari policy, even in its contradictions, as being a product of its size and location: “Qatar’s foreign policy is typical of small states in the sense that it is driven by a survival strategy. It is a small country in a very rough neighborhood; tensions between Iran and the US, and with Saudi Arabia, with whom relations have not been the most friendly, are on the doorstep .”

“I wouldn’t call [Qatar’s] foreign policy paradoxical — creative it might be, but certainly strategically informed,” he added.

Behind this policy is the al-Thani ruling family. “An elite couple of people make the policy and what they say goes,” said David Roberts, deputy director of Britain’s Royal United Services Institute, a defense think tank in Doha. “The emir can pick up the phone and make foreign policy if he wants.”

Qatar shows its colors

Over the past six months Qatar has substantially flexed clout internationally, including beating global competition to win the bid to host the 2022 World Cup, and in March made arguably its boldest foreign policy moves. On March 18, Qatar sent troops to join the Gulf Cooperation Council’s efforts to “restore law and order” in Bahrain following an uprising that started against the ruling family in mid-February. Just 10 days later, Qatar became the first Arab country to recognize the legitimacy of the Libyan rebel movement when it inked an agreement to market and distribute oil from Eastern Libya. The next day Qatar signed up to be part of the air strikes against Muammar al-Qadhafi’s regime.

As a result, Qatar threw to the wind a $2 billion [AED 7.35 billion] joint investment fund launched in 2007 between the Libyan Investment Authority and the Qatar Investment Authority (QIA), along with further investments of $8 billion in Libya announced in 2008 and 2009. “This is a leadership that is not risk averse,” said Kamrava. “They took a risk by entering an agreement with the Libyan rebels, and it remains to be seen how the events in Libya turn out. It could be a very popular thing, siding with people’s aspirations in the Middle East and North Africa (MENA) and a popular position to take.” If there is a paradox in Qatar’s foreign policy it is most evident in its response to revolts in the Middle East — helping to fight an authoritarian regime in Libya and having stoked support for other Arab uprisings through Al Jazeera on one hand, while propping up another regime in Bahrain on the other.

“Qatar hasn’t directly participated in (military) actions in Bahrain, but as a part of the GCC and done in [the Council’s] name, it undermines Qatar’s support for Libya. It is leading the international campaign while hoping no one will ask questions about tacit support for intervention against democracy in Bahrain and such contradictions,” said Kristian Coates Ulrichsen, a research fellow specializing in the GCC at the London School of Economics (LSE) global governance program. “The perception in other (Arab) countries is that Al Jazeera is controlled by the al-Thani family. Even if not true [the sentiment] is there and could come back to bite Qatar if there is any blowback.”

He added that: “Qatar has made many enemies by covering revolutions and fanning revolutionary fervor, in Libya and Egypt, and works on the premise not to cover Qatar, yet what if something happened there? Would Al Jazeera cover it? I doubt it. If something were to happen I suspect Qatar would have very few friends that would come to its defense, over the perception Al Jazeera has been playing a role in messing with the affairs [of other regimes].”

Yet, while Al Jazeera may be an asset that has made Qatar enemies, the country’s colossal gas and oil reserves play an important role in ensuring its security.

LNG masters of the universe

Despite having the world’s third largest gas reserves, Qatar came later to the hydrocarbons game than any of its regional competitors, due to the fact that the technology needed to extract gas from the depths of the North Field only became commercially viable in the 1990s.

The country has since put an estimated $137 billion [AED 503.23 billion] into developing the North Field and associated projects, increased natural gas output more than five times over since 1995, and reached a new benchmark last year of 77 million tons a year of liquefied natural gas (LNG) once a total of 14 LNG ‘mega train’ production facilities became operational. Coming later to the game has had advantages for Qatar in developing an energy policy that has been to its benefit rather than weighted in favor of international oil companies (IOCs), as was the case in the early years of oil development in Saudi Arabia, Nigeria, Iran and elsewhere.

Qatar took inspiration from Saudi Arabia’s state-owned mega oil company Aramco, which, once nationalized in 1980, developed oil terminals and established a shipping subsidiary with 27 oil tankers. Qatar has gone further than Riyadh, however, by creating an integrated LNG value chain in conjunction with IOCs, which has made it the world’s largest exporter and trans-shipper of LNG, supplying 23 countries.

It has stakes through state-owned Qatargas and Rasgas in gas production, liquefaction through the gas trains developed at Ras Laffan, transportation through its 70 LNG ships, and has jointly financed LNG receiving and re-gasification terminals in consumer countries. In 2009, the South Hook LNG terminal opened in Wales, which provides 15 percent of Britain’s gas, and soon after the Adriatic LNG terminal started providing 10 percent of Italy’s natural gas needs. In April, the Golden Pass LNG terminal opened in Texas and is slated to provide gas to 10 million American homes each year. A fourth international terminal is to be developed, with Qatar inking an agreement with Argentina this year.

The development of such terminals have tied countries into long-term agreements — ranging from three to 25 years — with Qatar for LNG, a policy it has adopted with Asia, which accounted for 57 percent of LNG exports in 2009, with South Korea the top importer, followed by India, China and Japan. Conversely, European markets, including Belgium, Britain and Spain, imported 33 percent of Qatari LNG in 2009, according to the US Energy Information Administration (EIA). Such moves ensure profitability throughout the length of the value chain while causing others to be energy dependent on Qatar. “Locking countries into long term agreements is one of cleverest things they’ve done and a good way to ensure long term security and to have strong leverage,” said Ulrichsen.

Britain, the former colonial power until 1971, is particularly tied to Doha. The relationship will only grow stronger, as by 2025 Qatar is slated to provide 50 percent of Britain’s LNG. Furthermore, the British-Dutch oil major Shell has sunk an estimated $21 billion [AED 77.14 billion] into Qatar, its biggest investment in one single country; America’s ExxonMobil has invested $16 billion [AED 58.77 billion].

“If you look at Qatar supplying Britain with 15 percent, if not more, of its gas needs, then that ties Britain to Qatar,” said Roberts. “If something catastrophic happened to Qatar, it would certainly get Britain’s attention. There are definitely geo-political considerations in addition to the investment.”

Qatar has also made a firm friend in Japan, exporting 7.63 million tons in 2010, and following the earthquake that ravaged the country earlier this year bolstered LNG exports by 4 million tons to become Japan’s fourth largest gas supplier. Although Japan does not have the military reach to protect Qatar, it would bring diplomatic clout and financial assistance in the event of conflict, as happened during the 1991 Gulf War, with Tokyo contributing $12 billion [AED 44.1 billion] to finance the war, the third largest supplier of funds after Saudi Arabia and Kuwait, in order to ensure energy supplies kept flowing from the Gulf.

“When your foreign policy is guided wholly or in part by commercial or economic relations, you cannot rule out Asia. But if there is a tilt towards East Asia it would not be at the expense of the West,” said Kamrava, noting that security interests maintain the Western outlook of the kingdom.

The balance of gas

This position is reflected in Qatar’s locking up of export destinations to ensure that it has friends in the right places. For instance, the price of LNG in the US is $4.41 [AED 16.2] per million metric British thermal unit (mmbtu), whereas in Europe it is $9.55/mmbtu and in Asia $13/mmbtu as of Executive going to print. In essence, Qatar is paying for its security by shipping lower priced LNG to Europe and the US while extracting its most profitable sales in Asian markets — a somewhat similar “deal” Saudi Arabia has with the US in exporting oil at lower transportation costs and with strategic tax breaks in the US.

“The East can never replace the West’s commitment to Qatari security,” noted Ulrichsen. Getting the export balancing act right has been critical to Qatar; when Doha agreed to ship over the next 12 months an extra 60 cargo loads of LNG to Japan, concerns were initially raised in the markets that LNG would be diverted away from Europe.

Qatar now has the extra capacity to meet demand, however, which has effectively turned the country into a swing supplier of LNG in much the way Saudi Arabia is for oil; a strong global position to hold as LNG demand grows in the coming decades. But while such energy agreements ensure Qatar’s is protected internationally, in the Gulf it is a policy that could have rather different ramifications, with a unified natural gas pipeline in the GCC still not in place despite years of planning.

“Qatar has been prioritizing long term agreements at the expense of GCC states as they all have gas shortages, and this could be a bone of contention,” said Ulrichsen.

Furthermore, Qatar’s North Field borders Iran’s South Pars field, which Tehran has not been able to profit from to the same degree as Qatar due to international sanctions on the technology needed for extraction. Iranian officials estimate that more than $200 billion [AED 734.65] is needed to bring development up-to-speed. Qatar’s aggressive development of its side of the field raises concerns for Iran of draining the reserves. To stave off a potential crisis, Qatar declared a moratorium on North Field development from 2005 until 2014 to assess the impact of increased production.

“As Qatar moves ahead and Iran doesn’t, this could generate a feeling of mistrust. Kuwait and Iran have never been able to agree on the maritime boundaries of their gas fields. Just because [Qatar and Iran have an] agreement doesn’t mean [that] it will always be the case,” said Ulrichsen.

Qatar’s bold foreign policy moves this year have ushered in a new era for the country on the world stage. How they will pay off in the medium-to-long run will depend on the success of its role in Libya, and how Doha plays its hand in the Gulf. LNG energy dependency will buy Qatar friends but Doha will also have to play an increasingly precarious balancing act keeping everyone happy — a task further complicated in a region undergoing profound political and social change.

How Qatar will steer through such choppy waters in the years to come is likely only to become more audacious, and perhaps paradoxical, as its rapidly expanding international clout powers its foreign policy strategy.

TBA

2011-04-14T13:12:00.003+03:00

TBA

Time to rethink a nuclear Middle East

2011-04-11T15:57:00.001+03:00

Commentary - Executive

Just days after the Fukushima disaster, work started on the UAE's first nuclear power plant

Three days after an earthquake measuring 9.0 on the Richter scale critically damaged Japan’s Fukushima Daiichi nuclear power plant (NPP), the president of South Korea and the crown prince of Abu Dhabi attended a ground-breaking ceremony of the Braka NPP in the United Arab Emirates; it is the first of four to be built under a $20 billion contract inked in 2009 between the Emirates Nuclear Energy Corporation and a consortium of South Korean and American companies.

The inauguration celebration could hardly have been more inopportune. In the course of a week the incident at the Fukushima NPP went from being rated four on the International Atomic Energy Agency’s (IAEA) International Nuclear and Radiological Event Scale, “an accident with local consequences,” to level five, “an accident with wider consequences.” The Fukushima disaster is the only level five rating since the Three Mile Island meltdown in the United States in 1979. There has only been one level seven, the highest rating, in Chernobyl in 1986, which, according to research by New York’s Academy of Sciences published last year, resulted in the deaths of 985,000 people from cancer and related diseases.

The global “nuclear renaissance” touted just a few years ago seems far less secure, a fact reflected in investor sentiment: uranium prices on the spot market following the Japanese calamity plunged 27 percent to $50 per pound as countries started reconsidering the construction of new NPPs.

If there were ever a time to rethink nuclear power it is now, certainly before the dozen Middle Eastern and North African countries that have signed nuclear cooperation agreements start building NPPs. And the risks need to be seriously assessed, not just in terms of security, the logistics of storing spent fuel for thousands of years and so on, but also in terms of earthquake risk.

The Middle East is chock full of tectonic plates, with the Arabian plate in the middle flanked by the Eurasian, African and Indian plates. One of the most seismically active continental regions on earth is just across the sea from the United Arab Emirates, the Zagros Thrust in Iran. Of equal concern is the fact that modern systems to measure seismic activity have only recently been introduced in Saudi Arabia and Oman, while the UAE set one up just this year.

While there is little chance of a tsunami, an earthquake of a magnitude of 5.1 shook the emirate of Fujairah in 2002, and repeated seismic activity in the locality suggests that other, more sizable earthquakes are likely in the future. “When?” is of course the question, and the world can only hope that those building NPPs will do so with the worst-case scenario in mind; the Fukushima NPP was built at a time when the thought of it having to withstand a 9.0 magnitude earthquake was considered unlikely.

Braka was chosen as the site for the UAE’s first NPP as it is “an area with a very low probability of earthquakes — what is called low seismicity,” Ambassador Hamad al-Kaabi, UAE Permanent Representative to the IAEA, told the press after the Fukushima disaster. Yet it is not just unexpected earthquakes that are a concern when it comes to nuclear power. Transparency has been a major issue in the nuclear industry globally; in a 2008 US diplomatic cable released by WikiLeaks, a Japanese politician said the country’s Ministry of Economy, Trade and Industry, the department responsible for nuclear energy, has been “covering up nuclear accidents and obscuring the true costs and problems associated with the nuclear industry.”

The UAE hardly has a sterling reputation for transparency and accountability — think back to how the Dubai debt imbroglio was handled in 2009. If the Japanese, with 54 nuclear reactors, cannot be relied upon to be transparent, can we be sure the UAE will be?

Let us hope the UAE’s decision to go ahead with nuclear power, just as news of Fukushima’s fallout was dominating headlines, will not be retold through history as the epitomic example of a warning unheeded.

PAUL COCHRANE is the Middle East correspondent for International News Services

Kashmir: A wedding under curfew

2011-04-10T20:48:00.004+03:00

Revolve magazine - www.revolve-magazine.com

It is mid week, the middle of the day and the streets of Srinagar are deserted. It’s like this four days out of every six. The “Quit Kashmir Movement” and “All Parties Hurriyat Conference” call for a hartal (strike) to demonstrate for azadi (freedom) and the Indian military responds by imposing a curfew to prevent the Kashmiris from taking to the streets. Road blocks are put in place, military vehicles move into strategic positions and troops go on patrol.

The violence has claimed over 100 Kashmiri lives since June 11, 2010 when the Indian Army shot at unarmed demonstrators. This violence has occurred most often when the Kashmiris challenge the curfew, swarming to junctions and the major arteries of Srinagar, with young men – and women – throwing projectiles, chanting slogans and, in general, resisting India’s occupation. Curiously, the slogans painted and chalked on roads, walls, shop shutters and in the grime of car windows are mostly in English: “Freedom”, “Go India Go Back”, and “Go Indian Dogs”.

The Indian Army is predominantly made up of Hindi speakers, with little Kashmiri known. Kashmiris are conversant in Hindi but lack literacy skills, so the default language of both sides – and useful for international media attention – is that of the former colonizer, Great Britain. Indeed, Britain was instrumental to Partition, promoting a separate Pakistan and after Pakistan invaded and occupied Kashmir in October 1947, Britain lobbied at the UN in favor of Kashmir becoming a Pakistani province.

Foreign Secretary Ernest Bevin told US Secretary of State George Marshall that “the main issue was who would control the main artery leading into Central Asia.” And as the then Chancellor of the Exchequer Hugh Dalton put it, Pakistan was central to Bevin’s ambition to organize “the middle of the planet.” (Read Mark Curtis, Secret Affairs: Britain’s Collusion with Radical Islam (London: Serpent’s Tail, 2010).

On the two days that are hartal and curfew free, Srinagar turns into a mad house, with people trying to pack a week’s business into 48 hours and families stock-piling food for the inevitable next shutdown. This is the Kashmiri status quo. In the midst of all this a wedding was to take place, for life must go on, but the guest list was to prove rather unpredictable and the ongoing situation generating a rather somber tone to the celebrations.

Gilani’s On Board

I had been to Kashmir before in slightly more ‘normal’ times; at least there were no curfews and daily life was able to go on, while there were some tourists but not on the scale of the boon times in the 1970s and early 1980s. Kashmiris I had met in Srinagar on my inaugural visit had family members in New Delhi that I later befriended and stayed with on return visits to India. It was this extended family, that shall go under the pseudonym of Manzar due to the fear – alas very valid – of repercussions from the Indian authorities given their opinions on the occupation, that invited me to join them for the wedding of one of their daughters.

Having endured the bum breaking 24-hour, 1,000 kilometer bus journey between Srinagar and New Delhi before, I decided on the easier option of flying to the Vale of Kashmir instead. One of my fellow travelers was none other than Sayyed Ali Shah Gilani, the Chairman of the Hurriyat Conference (HC). Gilani was warmly greeted by the Kashmiris waiting at the departure gate, going up to shake hands, the young ones to have their hair ruffled and smiles all round. Gilani was clearly admired.

Gilani and the HC call for the hartals to take place and demands hurriyat (freedom), while intractably involved in a decades-long game of cat-and-mouse with the Indian government. On arrival in Srinagar, Gilani was detained by the authorities and later placed under house arrest, contributing to some 140 days spent in the confinements of his property during 2010, along with 40 days of imprisonment under India’s Public Safety Act. One of the Manzar’s commented: “It is a part of daily life for him, like having a cup of chai (tea).”

As a foreigner, I had to register at the airport with a plain clothes member of Indian intelligence, and upon being greeted by the Manzar’s at the entrance, was accosted by a Kashmiri tourist policeman in a disheveled uniform, who took down my particulars only as “Mr. Paul from Ireland.” It was a quick drive through the empty streets of Srinagar to the Manzar’s three-story home near Lake Dal. Once installed, I related that Gilani was on the plane, but this aroused little curiosity. And for a reason indicative of the sectarianism that is as rife in Kashmir as in the rest of India.

This is not the Muslim-Hindu fitna (discord) that has flared off-and-on in Indian politics since the 1947 Partition with Pakistan – a controversial government paper has shown that Muslims are under-represented, and politically and socially disadvantaged in India. In Kashmir, one million Hindu Pandits were forced out over the years due to religious extremism and the perception that they sided with the predominantly Hindu national government rather than with Kashmir.

While this is a lingering scar, contemporary Kashmiri sectarianism is between the majority Sunni population and the Shia, the latter only having marginal political representation in the Hurriyat Conference. It is a similar story for minority Shia in other Islamic countries, such as neighbouring Pakistan, Afghanistan and Saudi Arabia, and an issue in countries where the Shia are in the ascendancy, namely Bahrain and Lebanon.

“I don’t like Gilani,” said Reza, the brother of the bride to be. “Gilani hates Shias.” This is not to insinuate that the Manzar’s dislike Sunnis – indeed, Reza is engaged to a Sunni and one of his father’s best friends is a Sunni – but that the Shia feel discriminated against by the likes of Gilani and other sectarian leaders. Division has become an obstacle for the Kashmiri resistance, as it has with every other occupied people, such as the Palestinians, when the occupying and neighboring powers successfully drive a wedge between, and pit the locals against, each other.

Internal Kashmiri rifts have been exacerbated by the Pakistan’s notorious Inter-Services Intelligence (ISI) sponsorship of militant groups, and bank-rolled by the Saudi Kingdom, ever keen to export its version of Islam, Wahhabiism, spending over $50 billion globally in the past decades. Propped up financially by the unlikely trio of China, Saudi Arabia and the United States, Pakistan has backed Kashmiri militant groups for over 30 years. Former Pakistani President, Pervez Musharraf, admitted in October 2010 in London that the ISI set up groups in the 1980s and early 1990s to attack India.

Another Bad Year

2010 was another bad year in Kashmir. In 1989, a popular rebellion – the Kashmiri intifada – against Indian misrule began, further stoked by militant Islamic groups connected to the ISI in the wake of the end of the Soviet occupation of Afghanistan, sending scores of Afghan veterans and Pakistani Kashmiris across the Line of Control (LoC) that separates Indian Jammu and Kashmir (J&K), and the Pakistani Azad (free) Kashmir (China has the remaining 20 percent called Aksai Chin, which is claimed by India). This proxy war between Pakistan and India, that remnant of the 1947 Partition, put the Kashmiri populace in the middle. Intifada after intifada has occurred since 1989 and the Indian Army has cracked down hard, notably in 2001, when over 1,000 civilians were killed. Over 45,000 Kashmiris have been killed since 1989.

One major difference over the past year from former crises, when feelings rose to a boiling point and Kashmiris took to the streets, is that this time there has been minimal militancy – apart from the stone throwing and rioting. Sympathy with the militants has waned – particularly for Pakistani-backed groups – but anger with New Delhi’s political dillydallying and iron fist policy in tackling the “Kashmir issue” has spiked. The youth are not interested in siding with New Delhi or Islamabad. The youth want independence, or, at worst, autonomy from India.

A poll released in May 2010, carried out by Chatham House on both sides of the LoC, affirms that just 2 percent of respondents in J&K want to join Pakistan, and only 28 percent want to join India. More than four in 10, or 43 percent of the total adult population, want independence, particularly in the Kashmir Valley Division (between 75 and 95 percent), and 82 percent of those polled in Srinagar (in Jammu just 1 percent, Leh 30 percent and Kargil 20 percent). Some 44 percent of Pakistani Kashmiris also want sovereignty over their own affairs. (See Robert Bradnock, Kashmir: Paths to Peace. London: Chatham House, May 2010.)

The results show an overwhelming desire of the estimated 12 million Kashmiris for independence. But this in itself poses a particular problem. The options for the Kashmiris is tied up with UN resolutions dating back to 1948-49 that call for a referendum to take place for the people to decide whether they want to join India or Pakistan. Clearly, if the survey truly reflects the opinions of the people, the Kashmiris want neither, but rather prefer total independence. But independence for Kashmir is the last thing Islamabad or New Delhi wants, despite talks between the two sides that have been off and on since 2003 and gained new momentum in 2011.

K is for Kashmir

The religious dimension of the Kashmir conflict, sandwiched between Muslim Pakistan and Hindu India, has deeply ingrained the mutual hatred over the past 65 years. Pakistan is against an independent Kashmir that unites both sides, losing its border and access to China, not to mention a major dent to its pride and the all powerful military that forms the backbone of the Pakistani nation. Azad Kashmir is so integral to Pakistan that the country’s name means “land of the pure” and is an acronym, according to the popular saying: P for Punjab, A for Afghanistan, K for Kashmir, and STAN for Baluchistan. Take out the K and Pakistan wouldn’t quite have the same ring to it. India’s Hindu populace – which has become far more radical and militant over the past 20 years – would equally be against losing a major part of the Northern provinces, especially to Muslim rule.

While international observers are calling for the LoC to become an international border, for joint institutions to be developed and for the United States to partake in ‘quiet diplomacy’ and utilize its relations with Islamabad and growing alliance – particularly militarily and on nuclear power – with New Delhi, a far more radical solution is called for. One fitting with what India champions itself as, “the world’s largest democracy” – a referendum on what the Kashmiri people want, not Delhi, its puppets or the Kashmiri dynasties that have ruled the region for generations.

Young Kashmiris think this could work – with the state having abundant land and resources and more than enough people for a viable country, plus a flourishing tourism sector if there were peace. Kashmir is land-locked and would require the good will of its neighbors – the very same from which it would secede – for trade to take off. Unified with Azad Kashmir, a free Kashmir would have access to the large markets of China and Central Asia.

But India is not ready: the diabolical Armed Forces Special Powers Act (AFSPA) goes unpunished and lets soldiers, quite literally, get away with murder. In 2010, Mian Qayoom, President of the Kashmir Bar Association, was arrested under the Public Safety Act for protesting human rights violations and sentenced to two years in jail, while peaceful protesters engaged in sit-ins are accused by the police of “offences” and “disobedience to order duly promulgated by public servants” while others were accused of spouting “anti-national slogans.”

The most sensational case was Booker Prize winning author and activist Arundhati Roy, along with Gilani and five others, being booked for “sedition” for making anti-India speeches at an event in Srinagar. In late 2010, Roy said the charge “is meant to frighten civil rights groups and young journalists into keeping quiet.” The case is to go on trial in April 2011. Read her book on what’s really happening in India: Listening to Grasshoppers, Field Notes on Democracy (London: Penguin, 2009).

“Suspect All, Respect All”

A slogan on an army road block: “Suspect All, Respect All”. This is India’s policy in Kashmir, although leaning to suspecting all, rather than respecting all. The slogan drew smirks from the young Kashmiri men I went around Srinagar with, as they saw little respect from the authorities. They related how during curfews Kashmiris were pulled from their vehicles at checkpoints and beaten by soldiers, for no apparent reason. They described how at hartals the army used live ammunition on the unarmed protesters, and how, during curfews, sticking one’s head out of your front door could also result in a beating. There was a sense of despondency about the situation and it being rectified anytime soon.

One of the failures of New Delhi in Kashmir is how little it has done to endear Kashmiris towards India. There has been no “nation building” or investing in infrastructure and improving living standards. Kashmiris view the Indians as exploiting their land – natural resources, water and the hydro-power that provides electricity to New Delhi and the populous state of Punjab while Kashmir experiences power shortages.

A major shortcoming is providing employment. Recent statistics show that 590,000 educated youth in the state are unemployed, while in the Chatham House survey in J&K, 81 percent of those polled said the most significant problem was unemployment, with government corruption and poor economic development in second and third place respectively.

The lack of work in Kashmir was reflected by the Manzar’s, their friends and extended family. A middle class family, the men had to work elsewhere in India to earn a decent wage, while some of the young men helping out at the wedding worked in Singapore, Dubai and Australia. With no opportunities in Srinagar, there was little choice but to head down to Delhi or further afield. But that didn’t mean the problems of Kashmir disappeared. The diaspora in India keep firmly attuned to what is happening through Kashmiri TV channels and newspapers, while trying to keep a low profile, particularly following terrorist attacks in the capital due to fear of anti-Muslim and anti-Kashmir bashing.

Due to the virulent anti-Muslim prejudices of the Indian media, which jumped to conclusions that Muslims were behind the majority of bombings in New Delhi in 2007 and 2008, one of the Manzar’s living in the capital refused to go out on the streets for fear of being arrested. Subsequent evidence has shown that in several cases it was right-wing Hindus behind the bombings rather than the familiar culprit of radical Islamists. Investigations have shown the deep-seated prejudices within the police and security apparatus against Indian Muslims. Indeed, a Wikileaks cable showed that prominent politician Rahul Gandhi told the U.S. Ambassador in 2009 that while “there was evidence of some support for [Islamic terrorist group Laskar-e-Taiba] among certain elements in India’s indigenous Muslim community, the bigger threat may be the growth of radicalized Hindu groups, which create religious tensions and political confrontations with the Muslim community.”

Wazwan!

Weddings in Kashmir are major social events, bringing together families, friends and neighbors. Given the current situation, weddings are one of the few positive occasions and a good way to also bring the diaspora together. Weddings are protracted events, with visits and gift-giving ceremonies between the families of the bride and groom that go on well before the wedding day and in the following weeks. The festivities take place separately for the bride and groom, who are brought together only on the final day, once the imam has formalized the marriage.

The wedding day requires days of preparation, with some 20 cooks working for two days on the menu, the famous wazwan of dozens of dishes. Some 25 sheep, 70 chickens and 100 kilos of rice are prepared for the 280 guests at the wedding, all cooked on open fires and the meat cooked in multi ways – bashed to a pulp to make huge meatballs, called gostaba, mutton cooked slowly in sweet milk, grilled chicken, stewed mutton, and skewered kebabs.

The morning of the wedding, Reza gets a phone call from a guest asking about the extent of the curfew. “Is it a whole valley curfew?” he asks the other seven young men sleeping in the room. Yes, the whole valley. One of the guests managed to get through the checkpoints by showing his wedding invitation, but he had to go through 12 checkpoints and take alternative routes when the Indian Army would not let him through at certain road blocks – 12 checkpoints to cover less than 15 kilometers.

Reza keeps getting calls throughout the day – cancellations and questions about the checkpoints. There is no text messaging as the Indian authorities have banned SMS in Kashmir. Will the groom make it tonight? “Inshallah (God Willing)…” The curfew tends to be stricter in the morning. The preparations continue, the people are resigned, yet they tell jokes and drink tea. The Kashmiris are used to waiting, sitting around chatting and passing the time – no jobs, schools closed, no business, and nowhere to go except for the immediate neighborhood.

The wedding day goes off without a hitch, with enough guests showing up that the large tent erected in an uncle’s garden is not empty, and the groom is able to arrive that evening. But the wazwan is consumed quickly, without a jubilant atmosphere due to the situation and the curfew. In the past, said the elders, the wazwan would have been eaten slower with the festivities carrying on for five days rather than just two. Reza’s uncle remarked that he was one of the last to get married the old way, just before the troubles erupted in 1989.

The end of the wedding is however affected by the curfew. Usually dozens of cars would accompany the new couple to the groom’s house, but Reza forbids too many from going due to the curfew and that the groom’s relatives will not be expecting guests. While the Indian Army says they “respect all,” they don’t allow for special circumstances during curfews, even for weddings.

Returning the Keys

In 2011, the Indian-administered Kashmiris have kept up the struggle for their rights and freedom. To have effect, the hartals will have to continue – as in Azad Kashmir – while Delhi will have to meet the Kashmiri leaders instead of continuously imprisoning them and enter into constructive dialogue with Pakistan to hammer out a solution. Until a viable solution is enacted, Kashmir will remain a bleeding wound of Partition and a paradise lost. It was a place once called the Switzerland of Asia due to its snow-capped mountains, rivers and forests, but this beauty – also under threat environmentally – merely masks the oppression and violence that torments Kashmir.

As the late Kashmiri poet Aha Shahid Ali wrote from his deathbed in the U.S. in 2001, in a poem dedicated to a Kashmiri Hindu friend:

We shall meet again, in Srinagar
By the gates of the Villa of Peace
Our hands blossoming into fists
Till the soldiers return the keys
And disappear.

Photos courtesy of Sarwar B.