Wednesday, December 30, 2009

Mum's the word on Saudi wars

Smoke billows over Mecca in November 1979

Commentary, Executive

The veil of mystery that hangs over Saudi Arabia's biggest military operation since the Gulf War in Yemen does not come as a surprise. When it comes to security issues the kingdom has a particularly poor record of letting us know what is going on, while trusting in censorship and petrodollars to make sure that whatever collective recollection remains is kept hushed up.

But such lack of transparency regarding how crises are handled by Saudi Arabia – the region's most powerful country and its largest economy – belies how serious the situation is in the Arabian Peninsula and how events can get out of hand, usually with longterm ramifications.

This has widespread security and economic concerns for the Gulf, given the peninsula's geo-strategic importance as an energy provider. And the Gulf can ill afford more destabilization on the coattails of Dubai's debt debacle.

Curiously, the cusp of 2010 signals a macabre 30th anniversary of a political-religious event that has ramifications connected to the current situation in Yemen and beyond, due to Riyadh's draconian management style.

In late November, 1979, the Great Mosque of Mecca was seized by hard-line Islamist gunmen bent on overthrowing the Saudi monarchy and introducing a new redeemer – the mahdi – on the day marking 1,400 years of Islam. No word was given to the outside world about the seizure for two days, yet the siege shook Saudi Arabia's foundations for two long weeks, challenged the kingdom's position as the guardian of the two holy cities of Islam, triggered a Shiite uprising in the east of the country, and unleashed forces that led to the rise of Al Qaeda.

Then, less than a month after the Saudis' disastrous handling of the siege – amid botched attacks the use of artillery and armored vehicles wrecked the Great Mosque while several hundred were killed – the Soviet Union invaded Afghanistan on December 24. This created the spark for a Machiavellian strategy hit upon by the United States and Saudi Arabia for the kingdom to export its “bad boys” – the hard-line Islamists – to take on the Soviets. And we all know where that led.

But back in late '79 the truth was far from clear, as it is now in regard to Riyadh's involvement in attempting to crush the Houthi rebellion in Yemen.

Blame for the siege was first leveled against the fledgling Islamic Republic of Iran, then labeled an American-Zionist plot to strike at the heart of Islam. Indeed, Washington DC had to beg Riyadh to say the United States had nothing to do with it as US embassies came under attack across the Muslim world, with the embassy in Pakistan burned to the ground.

Some people today still believe the Iranians were behind the siege, as it has been so hushed up in the history books and documentation outright banned in Saudi Arabia. In fact, there is only one book on the subject, bar dissident Saudi literature - Yaroslav Trofimov's “The Siege of Mecca”. This would be comparable to a modern history of the US not mentioning the 9-11 attacks.

What is at risk now is a repeat of 1979, with no coherent story coming out of the Arabian Peninsula about what is happening given all the propaganda at play.

Iran is being mentioned as one of the backers of the Houthis. This could well be true, yet a fact that Tehran denies as vigorously as Riyadh denies it is operating in Yemeni sovereign territory or the allegations of US involvement in advisory roles to the Saudis and Yemenis. On top of this, for a deeper understanding of the current conflict the fallout from '79 needs to be understood.

The regular 'terrorist' attacks that occur within Yemen have come from splinter groups of the Islamists sponsored in the 1980s by the Sanaa government, the US and Saudi Arabia to counter the Marxist south – just as in Afghanistan in the '80s. These bankrolled Islamists, along with returnees from Afghanistan, were later used to fight the Houthis in the north, a policy that continues until today.

The Houthis, meanwhile, are fighting against this Islamist trend in the Yemeni establishment that was so successfully nourished during this period, and to oust President Ali Abdullah Saleh - who came to power in 1978 - rather than end the federal republic of Yemen per se.

Saudi Arabia's involvement is similar to Afghanistan, with the war on the Houthis another Saudi proxy war that is “not a war” - it has not officially been declared - despite reports of Saudi armed forces bombing within the borders of the kingdom and in Yemen itself, as well as the navy operating along the Yemeni coastline.

Given Saudi Arabia's track record, pressure should be exerted on the kingdom to give a clearer indication of how all of this may play out. No one wants the kind of blowback that the world has endured for the past 30 years for the sake of maintaining Riyadh's veil of mystery.

PAUL COCHRANE is the Middle East correspondent for the International News Services Photograph - AFP

Slower sales seen as Lebanon's automotive industry cools

Executive, by Paul Cochrane in Beirut

Car sales in the Gulf dipped by an estimated 27 percent this year in the wake of the financial crisis, but Lebanon, like Syria, has had a second successive year of burgeoning sales, defying the tumultuous 16 months car manufacturers and dealers have faced in most of the world.

However, while growth in 2009 met and in certain cases exceeded 2008’s record year, the sector has not been immune to the global financial crisis. Dealers have had to adjust to restructuring at mother companies, American brands have had to handle their manufacturers’ brush with near bankruptcy, and marketing budgets have been constrained.

On top of this, there has been a surge in imports of used luxury and sport utility vehicles (SUV) from impacted markets in the United States, Europe and Japan, due to excessive inventories and dealership downsizing. Currently two used cars are sold for every one new car bought in Lebanon, up 10 percent from an estimated 60/40 split in 2008.

These used high-end vehicles foster the perception that the transportation of choice for the Lebanese is in the luxury range, whereas in terms of actual volumes of new cars sold it is the less flashy mid-range cars — the Nissan Sunnys, Renault Clios, and Hyundais — that account for the lion’s share of sales in the Lebanese market.

Dominating the sector is Rasamny Younis Motor Company (Rymco), dealer for Nissan, GMC and Infiniti, with 6,182 units sold as of October, the bulk in Nissan sales at 5,638 units. This is up 8.57 percent from the 5,193 Nissan units sold in the same period of 2008.

Last year, the car sector had an “exceptional year, the best year ever,” said Cesar Aoun, manager of the Chrysler Car Group of Chrysler, Jeep and Dodge, with the sector up 45 percent from 2007, increasing from 20,082 registered new units to 35,416 new units in 2008. As of October 2009, new car sales totaled 26,664 units, down by 2.48 percent on the October 2008 count of 27,341 units, according to the Association of Car Importers in Lebanon.

Last year set a new benchmark for the sector, said Fayez Rasamny, vice chairman of Rymco, adding that while 2009 may not be as strong a year, “it is a good indicator for the auto sector that the market has increased considerably.”

That new benchmark is now between 31,000-35,000 new units a year. But back in January, few dealers expected a successive year of strong sales, thinking that consumers would be wary about purchasing in the uncertain world financial climate and ongoing political turbulence of Lebanon.

“We started 2009 pretty weak and I don’t know what happened, but June, July and August were fantastic. We are projecting 2009 sales will be up 9 percent on 2008,” said Negib Debs, brand manager of Mercedes and Smart dealership T. Gargour & Fils.

BMW was also caught off guard, said Nagy Heneine, general manager of Bassoul-Heneine, dealer for BMW, Mini, Alfa Romeo, Dacia and Renault.

“Nobody expected the market to be as strong as it was,” he said.

Riding market fluctuations

While sales have defied expectations, Rasamny expects cumulative sales for 2009 will be “a bit less” than 2008. Profit-wise however, 2009 will not be as good as last year.

“The margin on sales has definitely deteriorated because of promotions and inventories,” Rasamny said. “Even if Lebanon has not been affected by the recession, consumers are well aware that they can bargain for prices and purchases. All companies have campaigned to liquidate stocks. Companies are really scared to have large inventories,” he added.

Dealerships have been offering a slew of incentives to entice customers, from low interest payments to subsidized interest, trade-ins, lotteries and assorted gifts. But it is loans from banks that have been crucial to keeping sales buoyant at a time when financial institutions elsewhere have reined in lending.

“At the beginning of the year banks were a bit cautious about lending, but from June to July onwards [it was] back to aggressive competitive offerings and it helped the sector not be affected by the financial crisis,” said Aoun.

The summer boom appears to have tided the sector over given the slow start to the year, with the fall months seeing a downturn in consumer purchasing.

“We started seeing from September onwards that the market was slowing down, like the crisis had hit Lebanon with some delay,” said Heneine. “October and November have been weak and did not meet sales expectations, but we’re confident we will hit 1,000 cars this year.”

It is sales to rental companies that have been the real boon for the sector, as firms had held off purchasing new cars on a mass scale after being stung in 2006 during the July war between Israel and Hizbullah, with rental companies having significantly expanded their fleets in the expectation of a bumper summer. The following year witnessed reduced demand for rentals, rising again in 2008 and this year. Bolstering demand was the legal requirement for rental companies to buy new cars every three years.

“Every year something happened [politically in the country], so rental companies didn’t buy until they had to,” said Heneine.

But such unexpected demand has presented problems for dealerships in regard to inventory, cagey about ordering too many in case there is insufficient demand, yet given the time lag for delivery, wanting to meet consumers immediate needs.

“It’s like juggling with fire,” said Debs. “You need a lady with a crystal ball because sometimes you hold onto stock too long, then suddenly in three months you’re empty and need more. The hardest thing to do is inventory.”

“We don’t have anything to hook onto and say, this is sustainable when you have 60 percent growth in one year – who would’ve expected that? And is this a new trend? We hope so,” he added.

A dime a dozen

The biggest struggle for new car importers has been the flood of used cars into the country, with used car dealers and individuals taking advantage of the glut of cheap, secondhand cars on sale in the US from Americans selling up and downsizing. This is in addition to the thousands of dealerships affected by forced closures, with GM eliminating up to 40 percent of its US dealers and Chrysler closing 789 dealerships this year.

“Any individual has the right to import cars from the US and sell them under their house, it’s a joke, and control is starting to be a joke, despite the “mechanique” [required road safety tests at authorized mechanics],” said Debs. “We are not only competing with used car dealers, but with doctors and lawyers who have friends in the US. When the euro went up, all used car dealers rushed to the US. Some dealers have so much stock there is no space in their parking lots, so there are cars for sale even out on the streets.”

Heneine said that used car sales have risen from 60 percent of the market to 70 percent.

“I don’t want a war with the used car dealers, but they’re waging a war on us,” he said.

Damaged goods

Dealers say that the used car sector needs to be better regulated, as it is not only affecting the sales of new cars, which pay higher taxes to the government, but it also results in inefficient vehicles entering the country, cars that would not be allowed on roads in other countries. One dealer highlighted this with an anecdote about an acquaintance that bought a used car and had the vehicle checked with a key reader, which can assess mileage.

“When we checked the key reader, we found that the car should have been put out of circulation,” he said. Other dealers related accounts of cars that were flooded during hurricanes in the US being on sale in Lebanon.

“There should be a government strategy to improve the quality of vehicles on the roads of Lebanon, and a correlation in duties between new and used cars,” said Aoun. “To change this, to have safer and more ecological cars, needs a whole strategy between ministers.”

“You can still import cars from 2001, and the majority come with high mileage that are changed here, or they are damaged and then fixed here,” he added. “I don’t understand how it’s open for everyone to import and compete with a registered company that employs people, pays taxes and has proper representation.”

“The government should apply a lot of laws, and be strict on the flow of cars, such as those from the Gulf as many people bring luxury cars, don’t pay customs or VAT and profit in the long term at the expense of dealers and the government,” he said.

Car importers have lobbied the government to bolster regulations, with scarce results.

“We will always try, but we didn’t succeed in the past,” said Rasamny. “If the tax on new vehicles was dropped by 5 percent, income for the government would go up by 50 percent. When you decrease taxation you promote sales of new cars and take out all the used crap, as used cars are not as environmentally friendly. What’s happening is the recycling of a whole industry,” he added.

A mixed forecast

Dealerships are upbeat about the year ahead, although they realize that sales may not reach the same levels as this year, due to inventory expansion in the rental car sector, as well as after effects from the financial crisis. Nonetheless, with new models being launched, dealerships are banking on new inventories to keep sales buoyant.

“We expect growth again in 2010 from new models, and 2011 even more volume due to new vehicles,” said Aoun. But with a new benchmark set for the sector in 2008 and 2009, any decrease in sales will be difficult for the sector to handle, particularly when reporting back to mother companies expecting such strong growth.

“At the beginning of 2008, we thought maybe we’ll reach 500 units, but we closed near 600. Now it is difficult to go back to these [lower] figures,” said Debs.

Rasamny expects a good year ahead, albeit with a need for cautious optimism.

“I think 2010 will be similar to 2009, but we need to increase margins, be smart about inventories and focus on after sales to sustain the market,” he said. “But if in 2009 we sell 32,000 units, it doesn’t mean 2010 will be the same, we need to be careful.”

Lebanese industry slips a gear

Lebanon's factories struggle to keep assembly lines moving

Executive magazine, by Paul Cochrane in Beirut

Industry attracts little investment in Lebanon, though overall imports of industrial equipment rose this year in Lebanon

If Lebanon’s real estate, banking and tourism sectors can be called the country’s golden sons, then manufacturing is the under-appreciated, underfed and less glamorous black sheep of the family. Last year, real estate attracted 68.62 percent of Lebanon’s total foreign direct investment (FDI) of $3.19 billion, and the tourism sector 20.6 percent, according to the Investment Development Authority of Lebanon (IDAL).

Industry, at the other end of the stick, attracted just 0.68 percent of FDI in 2008, or $21.3 million, down from 3 percent in 2007. Exports have also declined, from $2 billion from January to August in 2008 to $1.71 billion over the same period in 2009 — a decline of 15 percent, according to the latest figures from the Ministry of Industry and Petroleum. On the other hand, Kamal Hamdan, economist and managing director of the Consultation and Research Institute, said overall imports rose 36 to 40 percent last year.

“In the last few years quite a number of industries have disappeared off the face of the planet,” said Marwan Iskander, economist and managing director of MI Associates.

Awaiting restoration

Lebanese industry has been sliding down a slippery slope since the Civil War, or in a state of “fiasco,” as Hamdan put it, and “the weak partner in the establishment, which is more commercial and financial than industrial.” He estimates industry and agriculture account for just 15 percent of gross domestic product.

Over the past few years, industry has struggled to rebound from the devastating effects of the July 2006 war with Israel, which not only saw 900 factories and commercial buildings bombed to bits, but also torpedoed exports during the 60-day siege of the country’s ports.

Such devastation in part explains the positive blip in FDI the sector received in 2007, as $104.6 million poured in to fund reconstruction and development — more than double 2006’s $46.4 million in FDI.

But while the war clearly had a negative impact, so did the ensuing political crisis that was followed by the global financial crisis, all on top of a sector struggling to compete with relatively high labor costs, high energy costs and daily power cuts, no government subsidies, import monopolies and a lack of long term vision and investment.

Yet while the outlook may seem gloomy for industry, imports of industrial equipment have risen steadily over the past three years, from $163 million at end-2007, to $188 million at end-2008. The 2009 August figure of $140 million looks well on its way to surpassing both marks. Industries are investing, and there are plenty of manufacturers that not only have a strong presence and reputation in the Middle East but on a global level as well.

“People often talk of the negatives in Lebanon, but they never talk of the positives,” said Nizar Raad, managing director of Universal Metal Products (UMP), a leading manufacturer of collapsible aluminum tubes for pharmaceutical and cosmetic companies that exports 85 percent of its products.

After the July war, with tens of millions of dollars in debt payments due, Raad said they turned to the government, “and the government has helped us, they rescheduled debts…with a 12-month grace period and this helped us a lot.”

Dearth of data

Given the lack of up-to-date and accurate data on industry in Lebanon it is hard to access the long term impact of the July war on the sector, and whether the 169 factories that closed over the last year (see chart) went bust because they were badly managed and inefficient, victims of the war, or victims of the global financial crisis.

Indeed, the latest survey on Lebanese industry carried out by the government was over a decade ago, in 1998, finding that there were “around 22,000 industrial establishments,” the bulk, at 88.6 percent, focused on eight sectors: food and beverage, metal products, non-metallic products, furniture and assimilated products, clothing and fur, wood products, leather and tanning, and textiles.

The 169 closed factories therefore account for less than 1 percent of all industries going by 1998 figures. Furthermore there is no indication of the size of the factories that ceased production, although presumably they were small scale, as according to the governmental survey the average number of workers per company is 5.2 people, with 95 percent of enterprises employing less than 10 workers, including owners, and less than 1 percent of firms having more than 100 employees.

The Lebanese Industrialists’ Association was unable to clarify the size of closed factories or the number of jobs lost, although they estimated it in the thousands. Nevertheless, even a few thousand jobs lost have an impact on a country whose population totals scarcely four million, and is indicative of industry’s current state.

“There is not much competition at the high end, but smaller scale industry that needs consolidation,” said Jad Chaaban, acting president of the Lebanese Economics Association and assistant professor of economics at the American University of Beirut.

A less-than-free market

Iskander said the whole industrial sector has suffered over the years with the exception of “implicitly protected industries,” such as cement and electrical cables, which have been protected since 1977 and 1992 respectively.

Why such sectors are protected by the government as “strategic industries” is not clear, with the March 14 political alliance blaming the March 8’s Amal Party, which ran the industry ministry for decades, while March 8 puts the blame on March 14, which has run the ministry of late. Such industries are connected to the country’s political-sectarian hierarchy however, with the Maronite Patriarchy, affiliated with March 14, a stakeholder in the country’s largest cement manufacturer, Holcim.

Lebanese imports of industrial equipment and machinery ($millions)

Lebanese industrial exports ($millions)

Changes to free up the market are not likely however, said Iskander. “Over 50 percent of the GDP is in the hands of the political system, and politicians are used to giving hand outs to supporters and don’t want to rock the boat.”

Competitive pricing is another area that has a negative impact on industries, particularly smaller companies trying to compete with import oligopolies and larger industries that practice price fixing. While a competitive pricing law was drafted in 2003, it has yet to be approved. This fact has had particular impact on food manufacturers.

“The problem with food here is oligopolies and cartels, with, for instance, labneh (yogurt cheese) going from $2 a kilo to $2.33, then to $3.66 for 250 grams because of price fixing,” said Chaaban.

While the law still has to be passed, external pressures are being imposed on Lebanon to free up the economy. Lebanon is still in membership negotiations with the World Trade Organization, but has signed a raft of free trade agreements, namely the Greater Arab Free Trade Agreement, which came into existence in early 2005, and the Euro-Med Association Agreement, which came into force in 2003.

Both agreements have been mixed blessings for industry, enabling Lebanese firms to export more easily throughout the region, but also having to compete with manufacturing giants China and India.

“China has benefited, but not the Arabs,” said Naji Mezannar, a board member of the Beirut Chamber of Commerce, Industry and Agriculture, citing the problem of dumped goods from the Far East.

He added that although such agreements have not negatively impacted on the likes of the textile sector, the Lebanese government’s decision to adopt free market policies has.

“The government decided to reduce customs protection for textiles and left 5 percent protection on cloth, which means more or less nothing,” said Mezannar.

This signaled the beginning of the end for Lebanon’s clothing sector, bar high end products and haute couture. Indeed, of the recently closed factories, 57 were textile companies.

Look for the silver lining

Economists are pessimistic about Lebanese industry, but do say the sector could aspire to greater levels of achievement if incentives are provided and regulatory issues overcome.

“A huge amount of jobs could be created in sustainable energy, public works, agro-food and water exports but Lebanon needs large scale specialization and to think of regional compatibility,” said Chaaban. He added that “everyone thinks short term and big profits, not long term and of the next generation.”

Such change requires greater focus by the government on the real economy said Hamdan, rather than focusing on public debt and a rentier economy dominated by real estate. Return migration could help in this regard.

“If there is return migration it may have some limited breakthrough in value added industries,” said Hamdan. “We have good human resources abroad, and if they came back industry could benefit.”

The new government that was finally agreed on in November after five months of political wrangling could also signal positive change for industry, particularly given that the head of the Lebanese Industrialists’ Association, Fady Abboud, has been made Tourism Minister and the Industry Minister is a technocrat, Ibrahim Dedeyan.

“Exports could increase next year, and maybe a new government...will make a difference, as it’s no longer the warlords [running the show], and this will be a better environment for industrial growth,” said Hamdan.


Cortas was founded in 1928 by current chairman and general manager Ramzi Cortas' father, who was 15 years old during the famine in Lebanon in World War One. “This was an incentive to start a food industry to support people and stop starvation in hard times, a principle that is still there,” said Cortas. The family run firm is now one of the largest food manufacturers in Lebanon, and has introduced numerous products to the market, including orange marmalade during the Second World War - with expertise provided by the British government to cater to soldiers diets - and the first company to ever can hummus tahini.

Employing 75 staff, Cortas produces millions of tins a year, and has revenues in the “teens of millions.”

“We've had a lot of attempts by the Turks and the Israelis to go after our market, especially in tahini and grilled eggplant,” said Cortas. The company is currently working on an ISO certification for tahini, and is adding new equipment due to the “digital invasion” to become more computerized. “There is a lot of competition from Israelis on short shelf-life products in mainstream supermarkets, and they are chipping into our market, but we are working on that with polypropylene packs. It is more a distribution than technical challenge,” he said.

Rival preserved food firm Alwadi dominates the shelves in Lebanon, but outside the country Cortas has the upper hand, exporting 85 percent of its products, with the highest percentage to the USA and Canada. Cortas is planning to up domestic sales through a new marketing campaign as the company been “ignoring” the Lebanese market. “In one supermarket chain in California we sell more jam than in the whole of Lebanon,” said Cortas.

Universal Metal Products

Established in 1971, UMP was the first company of its type in the Middle East to manufacture collapsible aluminum tubes. “In our business today, we are a top quality producer in the Middle East and comparable, if not better, than Europe,” said Nizar Raad, managing director.

Raad's statement is no boast, with clients major multinational and big brand firms, including for export to Europe itself. “International brand companies rely on quality and then price, not price and then quality,” he said.

An advantage for UMP over the five other major aluminum tube factories in the Levant is his native workforce, a relative anomaly in a region which uses foreign labor that typically stay for just three to four years. “We don't have a turnover as the average is 20 years in the company, which gives experience and expertise,” said Raad. “And we're relatively stable because we don't depend on the Lebanese market.”

Expertise is essential for UMP to maintain competitiveness, with 85 percent of its products exported. Raw materials are also of a high quality, with the aluminum pellets used to make the tubes imported from Europe along with specialized paints. But with such import-export dependency, the July War badly impacted UMP, losing 25 percent of its clients. It was also a close call as to whether the factory might have suffered the same fate as other bombed out industries. “A drone hovered over the factory and everyone panicked, but luckily [the Israelis] didn't drop a bomb on us,” said Raad. “And in industry, overheads are sky high and we've over 100 employees, it's not like retail, so we were affected financially by the conflict.” A governmental loan has helped UMP weather the sustained losses and the company is making headway in regaining clients.

Gulf Car Sector - Buckle up for the downturn

Executive magazine
By Paul Cochrane in Dubai
The Middle East's automotive industry adjusts itself to meet another difficult year in 2010

The auto industry is shifting gears, but in what direction?

In the wake of the global financial crisis, 2009 has been the worst year ever for the 850,000 unit Gulf automotive market. Sales plunged by 27 percent from previous levels in 2008, and the luxury car segment of the industry dropped by an estimated 30 percent, according to major manufacturers.

The story couldn’t be farther removed from the success of former years, when the $16.2 billion sector experienced prolonged double-digit growth that was among the highest in the world for automotive sales.

“The Gulf has been one of the worst effected regions [globally] as they’ve never seen anything like a financial and liquidity crisis at the same time,” said Jeff Mannering, managing director of Audi Middle East.

Whole car segments disappeared as the real estate, construction and financial bubble burst across the Gulf in the last quarter of 2008 bringing down markets and industries across the board as it caved inward.

“People were making significant financial gains in property and large amounts of money were changing hands, so there was a sense of perceived wealth that had created phenomenal consumer confidence. But that sense of easy wealth has gone, and must have an impact on luxury goods,” said Robin Colgan, managing director of Land Rover and Jaguar Middle East.

Porsche certainly noticed the initial crunch. “The Boxter and Cayman drivers, the bankers, property dealers and the up-and-coming, they disappeared for months,” said Deesch Papke, managing director of Porsche Middle East and Africa.

GCC car sales 2009 (estimates)

In the wider Middle East, the area of operations for car manufacturers, the Gulf Cooperation Council markets were the hardest hit, with the United Arab Emirates, Dubai in particular, taking the brunt of the drop in car sales, down by 47 percent, according to General Motors (GM), followed by Kuwait, Oman, Saudi Arabia, Bahrain and Qatar.

But given the dearth of data on car sales in the region it is hard to assess the true impact on the sector, particularly as a sizable percentage of vehicles are re-exported.

“It is the first place I’ve managed where I can’t get data, and it is a re-export market,” said Mike Devereux, president of GM Middle East. “We try and triangulate with other brands but it is farmers math.”

“A Toyota dealer in Oman may sell say 50,000 units, but only 7,000 stay there, with some 40,000 odd going elsewhere as exports. Over 20 percent of volume leaves the Middle East,” he added.

Ford estimates that automotive industry average sales have fallen this year between 8 and 45 percent depending on the country, and by 27 percent in the GCC as a whole.

But while there is no official registration available to substantiate accurate market share and sales data, it is clear that the financial crisis has been a double whammy for international car companies selling in the region. These companies have been hit by the plunge in demand in the Gulf and at the same time by the effects of the crisis at global headquarters.

“It is the most brutal year in my business since 1929,” said Devereux.

Regional representative offices have had to adjust to restructuring at mother companies, American brands have had to handle a brush with near bankruptcy, marketing budgets have been constrained and banks have reined in access to car loans. Companies have also realized how sensitive the market is to new products, with 2009 models being delivered just as the crisis hit the Gulf, resulting in over stocked inventories this year.

“It’s been a combination of different things, and Land Rover has had a tough year. [All our] new products arrived in the late months of 2008, and from November to January 2010 [we are expecting] a complete line of new products,” said Colgan.

Change at the HQ

Japanese and European manufacturers have had difficult years, with public funds assisting companies and financial restructuring. Manufacturing giant BMW saw global sales drop by 15.7 percent to September; Volkswagen’s third quarter profits are down 85.7 percent from 2008; and Porsche recorded an after tax loss of $8.18 billion, seeking a government injection of $2.6 billion. Last year Porsche SE made $12.6 billion in profit.

Meanwhile, Qatar, through its sovereign wealth fund, has become the third biggest stakeholder in Porsche following an abortive attempt by Porsche SE to take over the Volkswagen Group.

In March, the world’s biggest car maker, Toyota, reported the worst performance in its 72-year history, while Nissan reported a $2.4 billion loss in the 2008-2009 fiscal year. Both companies were forced to cut back production globally. Cost cutting and holding back expansion plans has also forced manufacturers to pull out of Formula 1 racing, with Honda quitting last December, Toyota in November, and BMW entering its final race in Abu Dhabi this year.

But it has been American manufacturers that have really felt the impact of the crisis, downscaling production while dealerships laid off thousands of workers.

“The company I worked for doesn’t exist anymore, GM doesn’t exist,” said Devereux. The US giant has gone through a massive overhaul of its administration and operations, he said.

“We had an obligation to one million retirees and that drove everything, even out here, as products came from the United States and $2,200 from every vehicle was going to benefits. It was not always what was best for the customer. [GM became] a retirement fund that happened to make cars. Our business model now is to build brands and take care of customers.”

Banking and brand equity

The economic impact on the Gulf’s banking and real estate sectors had a corresponding knock-on effect on car sales, affecting consumer buying patterns.

“At the beginning of the year, consumer confidence was at low levels while most banks applied additional restrictions to their financing activities,” said Hussein Murad, director of sales Ford Middle East.

“Buying patterns have changed, people are buying long term, not every 18 months, and are more discerning because banks have stopped funding, and the availability of cash has dried up,” said Porsche’s Papke.

In the UAE, around 80 percent of automotive sales were dependent on financing. After the summer, the UAE pumped liquidity into banks and eased lending for cars.

“Banks couldn’t stop lending altogether, but the application process is far more stringent now,” said Audi’s Mannering. “Before it was 48 hours, now it is seven to eight days. In one way it is a good thing, as now the risk is lower.”

Estimated market share (2009)

Manufacturers and dealers are teaming up with banks to offer zero percent interest on vehicle sales and are making credit more readily available to customers. The most notable change in sales strategy has been the widespread introduction of leasing, a technique dealers had formerly eschewed as vehicle prices were low and customers preferred to buy.

While enticing customers into showrooms is one concern for the manufacturers, so is keeping dealerships afloat, which in many cases have ordered vehicles months in advance that now cannot be sold or re-exported elsewhere. To offload such excess inventory, dealers have been offering discounts left, right and center.

“If you have the cash it’s a good idea to buy a car, as there are some good deals now,” said Porsche’s Papke.

But while such deals might be advantageous in the immediate term, heavily discounted cars are affecting brand equity as well as resale values with, in some cases, new vehicles selling for less than used cars.

“If you discount cars in a new environment you destroy the residual value of the car; that’s something dealers in the Middle East didn’t factor in. And it is important for used cars to retain value,” said Audi’s Mannering. “We made a conscious decision this year to not have half price cars on sale and sell the brand out, whereas others have.”

Dealers have also had to struggle with another effect of the global financial crisis: the flood of used cars from the United States by Americans selling up and downsizing, in addition to the thousands of dealerships affected by forced closures, with up to 150,000 losing jobs.

“What’s happened this year is [GM] got rid of a third of the dealership network in the US. They had big inventories, and shipped overseas to this region too. It was an epidemic this year, and all from the US. How can I compete with that?” said Devereux of GM Middle East.

As a result, manufacturers have focused on certified used car programs that provide warranties for vehicles at competitive prices.

“We only got into that business two and a half years ago, but this was the first year that customers were really looking at used cars,” said James Crichton, sales and marketing director of the BMW Group Middle East, which covers 14 partners in the market in the GCC, the Levant, Iran, Afghanistan, Pakistan and Yemen. He added that while overall sales of new premium cars are down by 30 percent, premium used BMW sales were up 27 percent this year.

A low for high-end cars

“The UAE is the single largest luxury car market in the Gulf, much bigger than Saudi Arabia,” said Colgan, of Land Rover and Jaguar. “But the same way the UAE saw incredible growth, [it] also felt the contraction more acutely than elsewhere in the world.”

Indeed, for luxury car manufacturers, until this year the Gulf was viewed as a veritable paradise, with a populace keen on cars and oil revenues providing the funds to acquire high-end vehicles.

An estimated 20 percent of Rolls Royce global sales in 2008 were to the Gulf; McLaren opened a regional office in Dubai this year and Ferrari, which witnessed triple digit growth in the years before the crisis, opened its largest showroom in the world in Dubai in October.

“During the good times [there were] 130 to 135 sales a month,” said Porsche’s Papke, “Now that it’s 105 in Dubai a month, it’s not a disaster.”

The BMW ActiveHybrid X6, the first gas-electric sports activity coupe, will be introduced during the Dubai motor show

But with luxury sales down 30 percent this year, brands have struggled to maintain sales, particularly of lower priced luxury vehicles. Japanese brands have especially felt the pinch, with one manufacturer calling Toyota’s Lexus brand “a disaster.”

BMW has seen sales drop by 8 percent in the region, “but the luxury segment is not down as much as the mainstream,” said Crichton.

Bolstering sales for the likes of BMW was the introduction this year of the 7 Series, the brand’s best selling model in the region as well as in the premium automotive segment. The company also bagged a deal with the Saudi government to supply 120 ‘750 Series’ BMWs for the Kingdom’s ambassadors worldwide.

“Saudi Arabia is a good market, up 41 percent, and our partner made big investments there. The world’s biggest service center is now in Jeddah,” said Crichton. “It is a positive message that we are still investing in tough times.”

The region’s affinity for luxury cars is likely to help the sector rebound, particularly given that in Europe, North America and Asia there has been a rise in demand for smaller vehicles.

“Around the world [the smaller] Audi A4s and A8s drive sales, but in the Middle East there is still a craving for big, luxury cars,” said Mannering. It is the same for BMW, with the 1 and 3 Series the big sellers in Europe.

“The market is an exact inverted triangle compared to Europe; in the GCC as you go down in size volume decreases,” said Crichton.

All luxury manufacturers reported that there has been heightened activity in showrooms, which signals a return in sales and more confidence in the economy: a paramount factor for car sales.

“Now we have more inventory than before but it allows for sales by speculative buyers, and here people buy on a whim,” said Papke, adding that Porsche sales are only 2 percent down on last year.

While sales in the UAE are not expected to rebound to former levels, other GCC countries pose potential growth.

“The GCC is a fundamentally fantastic place to sell motor cars,” said Colgan of Land Rover and Jaguar.

“Saudi, Kuwait and Qatar are very strong markets. For Jaguar and Land Rover, Saudi Arabia represents a big opportunity, and we will look to Saudi Arabia for positive sales as we are due to launch the Jaguar XJ next year,” he added.

The luxury Sports Utility Vehicle (SUV) segment is still fairly small in Saudi Arabia compared to elsewhere in the Gulf, and is projected to grow.

GM’s Devereux said that Iraq was another market that had great potential: “Iraq had a spectacular year, and will be a 100,000 to 120,000 units a year market. It was a huge surprise and made up sales for us.”

The year ahead

For manufacturers, future sales are being pinned on the introduction of 2010 models, and the Dubai and Riyadh motor shows to spark interest.

“What we’re seeing…is that there is more to life than just economic life, and that this region is driven by product cycle,” said Colgan. “People know 2010 models are coming, and advance orders are picking up dramatically. Despite the crisis, people are still buying expensive cars in this region.”

Manufacturers are not obviously as upbeat as they would have been two years ago, but are not looking into the void like they were at the beginning of 2009.

“We came for a record year with 1 million cars sold in 2008, and 925,000 sold in 2009. In 2010, first indicators in the Middle East are not to rebound to levels [there were] before — growth will be 1.5 to 2 percent, and coming back. It was unhealthy growth [before] and now [it is] normal,” said Audi’s Mannering.

“The first half of 2010 will remain challenging. This year has been hard to predict, but there’s optimism that the second half of 2010 will bring better market conditions. We are releasing a lot of new products as well,” said Crichton.

Much will depend on how well the Gulf rebounds economically and government stimulus’ work to boost consumer confidence. Higher oil prices would also help the region’s depleted coffers.

“Everyone is hoping on the oil price,” said Porsche’s Papke. “But I’ve not heard that people have been made unemployed over the last three to four months. The opportunists and speculators have gone, and you don’t have to grow 20 percent. Between 6 and 7 percent is healthy for emerging markets,” he added.

Friday, December 18, 2009

Thorns of a burst bubble

Commentary - Executive magazine

For business journalists, writing about the Gulf from 2004 to 2008 was often a repetitive process. Regardless of the sector being covered, the opening paragraph would invariably have a growth figure in the double digits, and the projection for the next year would also be a very healthy one. Every year was a record year, or so it seemed.
The global financial crisis in the autumn of 2008 dimmed the Gulf Cooperation Council’s business fortunes, flipping that opening paragraph to negative double digit growth or, for some sectors, growth in the low single digits. This change was welcomed by many business journalists, if only to spice up their writing, but of course not by the business community.
The reasons behind strong growth can be easily explained, but a downturn and a serious contraction in
revenues requires a different explanation, and it was time for journalists to start asking hard questions – at least it should have been time to play hardball.
However, just as the crisis was beginning to bite, the government of the United Arab Emirates introduced a draft media law in January to update the archaic 1980 law. Media outlets quickly understood the ramifications of the proposed rules, which include article 32, whereby journalists can be fined up to $1.3 million for “disparaging” government officials, members of the royal family or Islam, and article 33, which fines journalists up to $136,000 for harming the nation’s image and reporting “misleading” information on the economy.
Given such fines, way beyond the financial means of most journalists and media outlets, how could hacks ask hard questions? And how could journalists report on companies and firms that were in trouble but directly linked to royal families? It is a clear Catch-22 situation: journalists want to do their job, and the public and investors have the right to know about financial shenanigans, but to do so could come with a hefty price tag, and if you can’t cough it up, it’s a stint behind bars in the debtors’ jail.
The whole notion of transparency thus became a mockery, and how deep the impact of the crisis had run became a topic that was barely debated in print or on television, at least not in the UAE and the other GCC countries, which have similarly draconian media laws.
How ingrained such self-censorship is among Gulf journalists was evident in the headlines and articles in the aftermath of the bomb dropped on the global markets by state-owned Dubai World's announcement of a six-month standstill in payments of $59.3 billion in liabilities. The Gulf News gushed “Government intervention to ensure commercial success,” the Abu Dhabi-owned The National downplayed the impact, stating “A silver lining in Dubai World” and the Khaleej Times espoused optimism, “Restructuring ‘A Sensible Business Decision.’” Elsewhere, papers headlines were of “castles in the sand,” “Dubai in turmoil,” and “Bombshell decision has severely damaged Dubai's reputation.”
But while papers outside the region can tell it as it is, reporting in other parts of the Middle East on what has already been reported can be a risky business.
In one case, a UAE-based journalist wrote an article on the new media law for the American University of Cairo’s (AUC) Arab Media & Society (AMS) website. In it, she referred to a case in May where British daily The Independent ran a story about a case of fraud in which a Dubai developer showed investors photographs of buildings under construction, but they were in fact photos of another project. The investors demanded a refund, but until now they have not been reimbursed.
The developer is the Al Fajer Group run by Sheikh Maktoum bin Hasher Al Maktoum, who is none other than the nephew of Dubai’s ruler. For citing – not breaking – this story, the Maktoums threatened to sue AUC.
What this case highlights is the lengths to which the UAE will go to try and rein in negative media coverage. Furthermore, such cases ward off necessary reporting on dubious tactics by developers, which damage the reputation of the real estate sector at the very time when the sector is suffering, with real estate prices down 50 percent in Dubai from their 2008 peak, and investment bank UBS projecting in November that it could take up to 10 years for the sector to bounce back. The last thing the sector should want in such a tenuous climate is jittery investors. As an Al Fajer investor told The Independent, “This is going to define my faith in the country. If I’m dealt with correctly, great. But at the moment, it’s not going that way. We’re in the witching hour now.”
That witching hour extends to media coverage, transparency in economic data and whether firms connected to the royal family are being unfairly assisted and bailed out at the expense of ‘ordinary’
companies trying to compete in a supposedly free market. As for us business journalists, reporting on the Gulf is certainly keeping us on our toes as we cover, or indeed cover up, the Gulf’s (mis)fortunes, and avoid getting fined a lifetime’s salary in the process.

PAUL COCHRANE is the Middle East correspondent for International News Services

Thursday, November 05, 2009

The Middle East's demographic time bomb

Commentary - Executive magazine

With the end of the summer holidays, children and young people across the Middle East and North Africa (MENA) once again donned uniforms, packed satchels and headed to school, amounting to more than a quarter of the region returning to class.

In Syria, a quarter of the country's population, some 5.3 million people, are enrolled in schools, while 38 percent of Saudis, 46 percent of Yemenis, 31 percent of Jordanians and 31 percent of Egyptians are below 14 years of age. Altogether, half of the MENA's (including Iran) 300-million-plus people are under 24 years old.

While all these kids are in school, there is no pressing socio-economic problem. But over the next decade as students graduate and want to enter the workplace, finding employment for them all will be difficult. Already the Middle East and North Africa has the highest unemployment rates in the world at 9.4 percent and 10.3 percent respectively, according to an International Labor Organization report.

According to UN projections, the MENA's population will reach 430 million by 2020, of which 280 million are expected to be urbanites — already the three mega-cities of Tehran, Cairo and Baghdad are home to 25 percent of the region's population. This rapid urbanization stresses infrastructure and exacerbates not only the employment problem, but other issues afflicting the MENA region to varying degrees, including political instability, food sufficiency, drought and energy shortfalls. Furthermore, a main pressure valve used to keep some of these woes at bay — finding work abroad — has led to remittance reliance, a revenue stream that cannot be taken as a certainty.

The Gulf was once considered an employment paradise for the rest of the MENA region, taking in millions of white and blue-collar workers alike. But given the economic contraction of the past year, the Gulf gold rush is not as robust as it once was, with workers laid off and remittances down. Moreover, the majority of expatriate workers in the Gulf are not Arabs but Asians. Some 1.5 million Egyptians, for instance, work in the Gulf, compared to 4.8 million Indians. Unless there is a pro-Arab employment policy, the Gulf cannot create enough jobs for the MENA's burgeoning youth.

The viability of migrating outside the MENA region for employment is also questionable. Europe’s rapidly aging population will increasingly be leaving the workforce, but it is far from a given that this will lead Europeans to be more accommodating to large numbers of Arab job-seekers, whether 'guest workers' or given full citizenship. While many Europeans acknowledge that there will be a need for migrants to take up the slack, there is also jingoistic concern about a 'Eurabia' developing.

The onus has to be on the MENA region’s public and private sectors to come up with viable solutions and programs. But what kind of model should they follow? Promoting more of the 1970s-style American capitalism flaunted in the Gulf and elsewhere in the region, with its rampant consumption, large cars and excess is as undesirable as it is unattainable and unsustainable. Indeed, last year the Worldwide Fund for Nature's Living Planet report ranked the UAE at the top of the list of carbon emissions, with an ecological footprint of 9.5 global hectares per person, more than triple the global average of 2.7 hectares and exceeding the USA, ranked number two, of 9.4 hectares.

Moreover, the Western economic ideological model, championed by the World Bank and the International Monetary Fund, has taken a serious battering, evidenced by the rising unemployed in the West and the billions of dollars of taxpayers’ money used to bail out the financial sector. Economic growth is all well and good, but when surging growth is then followed by a staggering collapse, it's two steps forwards, one step back.

Economic reform in the region is clearly needed, but the crux is in the implementation. For places like Syria — which has been undergoing reform for the past decade — the reforms have created jobs and opportunities, but the main beneficiaries have been the already well off — those able to invest funds into the new stock market and establish holding companies. Reforms are benefiting Syria’s elite, while the vast majority of the population has seen salaries remain stagnant as real estate prices and food costs have soared. It's a similar story throughout the MENA region, particularly in Egypt, Lebanon, Jordan, Saudi Arabia and Yemen.

One of the ways to shrink this widening disparity in income and equality is through bolstering small and medium sized enterprises (SMEs), coupled with the micro financing that enables such ventures to happen. Improving education levels — to create 'knowledge-based societies' — implementing more progressive taxation regimes and population control are other components.

It has long been debate whether a more democratic MENA would be better able to surmount its sociological and political hurdles — an equally pressing issue, however, is how to defuse the demographic ticking time bomb the whole region is sitting on.

PAUL COCHRANE is the Middle East correspondent for the International News Services

Thursday, October 22, 2009

Syria: Deeper into Drought

Water scarcity causing food shortages and rural flight

The Kabur river is barely above ankle height.

Executive magazine

By Paul Cochrane in Hasakah and Damascus

At face value the city of Hasakah in Syria's northeast doesn't suggest a four-year drought is underway. On the outskirts cotton pickers work away in fields and dozens of trucks line the roads piled high with sacks bursting at the seams with raw cotton, while in the local market water melons and vegetables are on sale, and the hotels have bath tubs.

The Kabur river that runs through the city is not dry, yet hardly a river, more a small stream with a depth just above ankle height – exactly what one might expect following a hot and rainless summer.

But the Kabur is much lower than normal for early autumn. The Hasakah area only received 100 millimeters of rain this year, way below the annual average of 200-250mm. As a result an estimated 36,000 families from the Hasakah Governorate have been driven off the land. In neighboring Deir-e-Zour, dust storms caused by desertification were so bad this summer that on certain days people couldn't see more than two meters in front of them. Business ground to a halt and roads were closed off after being covered in sand.

From farming to urban poverty

Indeed, according to a United Nations report, an estimated 1.3 million people in Eastern Syria have been affected by climate change and drought, while 803,000 people have lost their livelihoods. The displaced are finding their way to the larger cities, living in tents and makeshift shacks, and forced to work as day laborers or even scavenge from the rubbish dumps on the edges of Damascus.

Those that are really dependent, herders and small farmers, their livelihoods are being destroyed. If they are not already dependent on food aid, they will be,” said Jean-Marie Frentz, program manager of the economic cooperation section at the European Commission to Syria.

The paradox of places like Hasakah, deep in drought but yet still farming away, is that Syria has still not adapted its agricultural and farming policies in line with hydrological conditions. While crops fed by rainfall have failed, irrigation and the usage of dwindling groundwater reserves presents the illusion, a veritable mirage, of an oasis of productive farming land.

Water intensive watermelons on sale in drought ridden Hasakah.

For a country that has prided itself on agricultural self-sufficiency and its use of water resources – the back of the 500 Syrian pound note depicts the Assad Dam and fields being tilled – the drought is clearly bad news. Yet unlike the past, the Syrian government is admitting they have a problem.

For the first time the government is really speaking about the issue, and realizes it is an emergency situation. In the past, there was a tendency to deny or say it is Syrian business and no need for international assistance,” said Frentz.

The UN, along with seven NGOs and the Syrian government, have established the Syrian Drought Response Team, requesting $53.9 million from international donors. The bulk of the money - $29 million - is for food aid, while $20 million is earmarked for supporting agriculture and livelihoods.

This is significantly more than asked for in 2008 by Damascus, for some $20 million, which Syria failed to raise from donors until earlier this year.

Conceding the scale of the drought has put Damascus in a tough spot, as it was “bad public relations for Syria to have to feel like Ethiopia, of presenting an image of people starving and sick children,” said Jihad Yazigi, editor of business publication Syria Report. “And it was quite a strange situation, as the same week the appeal was made [UAE real estate developer] Majid Al Futtaim announced the launch of a $1 billion project [just outside Damascus] in Yaafour. It says something about the new Syria,” he added.

The government is even attributing the economic slowdown in the country to the drought, despite agriculture accounting for an estimated 20 percent of gross domestic product and 10 percent of total exports.

Last year, as EXECUTIVE reported, Syria experienced its worst wheat and barley harvest in recent history, producing just two million tons of wheat and 90 percent less barley than in 2007. The target for wheat production in 2009 was back to former levels of 4.5 million tons, but year end projections estimate only 3.4 million tons.

Cotton pickers in Hasakah.

Importing food staples

The up-tick is due to average rainfall in certain areas of the country, particularly along the coastline, and from better irrigation usage. However, in areas reliant on rainfall in the northeast and east there was almost zero production, said Dr Abdullah Droubi, director of Water Resources at the Arab League's Center for the Studies of Arid Zones and Dry Lands in Damascus.

As a result, the Syrian government has boosted its imports of wheat by 300,000 tones to 1.5 million tones this year to boost its reserves, crucial for keeping the populace placated via flour subsidies.

Such a shortfall in agricultural output is forcing the government to rethink how water is allocated, with agriculture accounting for 90 percent of water usage. “The government is looking over the next decade to reduce this figure by 30 percent through new irrigation techniques,” said Droubi, while the Agriculture Ministry is studying a plan to reduce cotton cultivation by 20 to 30 percent from the current one million tones per year.

A shift from heavy usage of groundwater reserves is also needed, said Frentz.



Severely affected

Rural Damascus

1,765, 622




















Total households


Source: Syrian Ministry of Agriculture and Agrarian Reform; UN

No master water plan

The general trend is that groundwater levels are falling considerably every year. In rural Damascus there has been a six meter per year drop, while in the Homs area the drop in groundwater levels ranges from 12-35 meters a year, so this is very worrying indeed and clearly not a sustainable model.”

But with no master water plan, and a lack of coordination between government bodies, coming up with viable solutions is problematic.

Water is a very fragmented sector with many actors. For instance, the ministries of construction, agriculture, environment and local administration all cover different aspects of water. There needs to be an integrated water management policy, not a piece meal approach,” said Frentz.

Then there is the scale of the drought and climatic changes. As Droubi pointed out droughts are often cyclical, but without scientific data it is difficult to plan ahead. And for a country of 20 million people with 2.1 percent growth per annum, such data is essential to address the needs of a rapidly growing, and rapidly urbanizing population.

We have to have a plan to combat desertification and study climate change, but there has been no research about the frequency of the drought,” said Droubi.

Photographs by George Haddad and Paul Cochrane.

Unemployed workers, unite! The ILO – Arab Employment Forum

Not much on sale: the Middle East needs to create more jobs

Executive magazine

By Paul Cochrane in Beirut

How to solve the global financial crisis is naturally a hot topic, sparking innumerable talks, conferences and forums. The Middle East is no exception. But while certain countries in the region like to boast that the crisis has largely passed them by, delegates at the International Labor Organization's (ILO) Arab Employment Forum (AEF) in Beirut last month pointed out that the Middle East had a chronic employment problem way before the financial crisis rocked markets worldwide.

Growth without jobs

The forum therefore had a degree of urgency about it, given the challenges the region faces and the highest unemployment rates in the world, set to rise from an average of 9.4 percent to as high as 11 percent this year, according to the ILO. Meanwhile, aggregate growth in the region is projected to drop two percent this year, rising to four percent in 2010.

Yet growth, as Ahmad Majdalani, the Palestinian Authority's Labor Minister, suggested, doesn't always mean jobs, citing statistics of 5.4 percent growth regionally over the past three years but only 1.5 percent growth in job opportunities. Indeed, as the director general of the ILO, Juan Somavia, said in his opening address, “the unemployment rate is only the tip of the iceberg.”

Somavia went on to blast the neo-liberal model of development as a “dysfunctional financial economy” that “privileged the short-term profit objectives of financial operators. The end result was globalization without a moral compass.”

The ILO has set itself the task of rectifying the structural weaknesses of the capitalist system by being that seemingly mislaid moral compass for the workers of the world. The forum was also a platform for the ILO to plug the policy paper that came out of the International Labor Conference in Geneva in June: “Recovering from the crisis: A Global Jobs Pact.” The paper, which calls for among other things investment in the real economy, received “recognition” at the G20 summit in Pittsburgh in September, and it looks like the outcome of the AEF will also receive such coveted “recognition” by Arab governments. For while the forum had the majority of the Arab League's labor ministries in attendance, and plenty of hand-wringing in speeches, the AEF was essentially all talk.

Ministries without clout

The comments of Jordan's Labor Minister, Ghazi Shbeikat, suggested a reason why. In discussing the financial crisis he said part of the problem stemmed from the region's labor ministries not being brought into governmental discussions about the economy, and that employment was seen solely as a labor ministry issue. “The crisis is an opportunity for a change in relations, for labor ministries to make economic policies,” he added.

Shbeikat made an important point in that not enough resources are allocated to labor ministries as opposed to the ministries of economy and finance. But if the other ministries were not letting labor ministries through the door before, would they now? Perhaps the region's economy and finance ministries should have been at the forum too, as well as high-level representatives of the private sector, the very people that have influence on economic policy.

Expatriate workers

Arab trade unions were also there in force, but they have witness a prolonged erosion of their strength, their ability to rally workers and their voice to advocate labor rights. For the constructive change that the ILO wants, strong labor ministries and trade unions are essential.

Therein lies the crux of the problem: Will governments that are heavily influenced by the financial sector remove the leash that has held back labor ministries and unions? Realpolitik would suggest not, especially given union involvement in politics and the resulting strikes and demonstrations, which invariably send shivers down the spines of the more authoritarian regimes in the Middle East and North Africa.

Indeed, some of the policies that governments have implemented in response to the crisis suggest that the needed change is not afoot. For instance, Shbeikat said the Jordanian government has adopted an initiative to help expatriate workers at the Aqaba Special Economic Zone (SEZ) and Qualifying Industrial Zone (QIZ) buy apartments. While this could boost the real estate sector, what Shbeikat did not mention was that the majority of the workers at the SEZ and QIZ are expatriates, and low paid ones at that. According to a 2009 US Defense Resources Management Institute paper, the number of jobs the QIZ created from 2001 to 2004 rose by 46 percent for local workers, while expatriate workers grew 360 percent. So instead of boosting the number of local workers, which would curb unemployment, the government is advocating real estate purchases.

Measuring the crisis

Other suggestions at the forum were not so nonsensical, particularly from Talal Abu Ghazaleh, Chair of the UN Global Alliance for ICT and Development. He said the Arab world “doesn't need intellectuals, businessmen or politicians, but experts in vocational work.” Ghazaleh added that to understand the scale of the region's economic problems an Arab Statistics Agency is needed. “We cannot measure the crisis if there are no measurements.” A lot of benefit could come out of implementing these two ideas alone. As for the outcome of the forum, this will depend on whether labor ministries can punch above their weight to get the policies the ILO is advocating in place.