Thursday, May 06, 2010

Eruption disruption

Iceland's volcanic disaster shows the need for real contingency planning Commentary - Executive magazine

Expect the unexpected” is a terrible cliche, but given the wars, natural disasters and financial crises of late, it could be considered standard procedure for our times. While a volcanic eruption was to be expected — at some point or another as volcanologists frequently warn — Icelandic volcano Eyjafjallaj√∂kull's burst of ashy activity on April 15 caught everyone with their pants down. Military powers had developed no secret weapons able to stop it and all the 'enhanced' airport security measures and full body X-ray scanners could do nothing to screen the threat.

As the ash cloud's creeping tendrils closed one major Northern European airport after another, it became starkly obvious how easily aviation — the predominant means of international travel — could have its wings clipped. One day of inactivity might have been tolerable, but five was catastrophic. The impact of the volcanic eruption was staggering: 29 percent of global aviation was grounded, 1.2 million passengers were affected, airlines lost some $1.7 billion in revenue and the International Air Transport Association (IATA) said it may take up to three years for airlines to recover.

The volcanic eruption also exposed supply chain vulnerabilities, such as Gulf supermarket chain Lulu saying they were running out of fresh produce, usually flown in from Europe. Personally, I was scheduled to be back in Beirut April 16, returning from Tokyo via Paris' Charles de Gaulle (CDG) airport. Instead, after the 14-hour flight from Japan, I was diverted to Lyons in Southern France, where passengers were herded onto a bus for a further seven hours on the autoroute to Paris to spend the rest of the day lining up for assistance in CDG. After that, we waited in limbo, unsure whether tomorrow the ash cloud would clear to allow for take-off.

Yet, where one pillar of the globalized world fell, another, telecommunications, stood tall to save the day. On the second day stuck in Paris, Air France became “unwilling” to provide another night's accommodation. I put out the word, via my Facebook status, that I was stuck in Paris and needed a place to crash until April 20, my re-scheduled departure; within an hour I received an SMS message on my mobile offering me a bed. One clear lesson for individual contingency planning is that access to cash and telecommunications is essential; judging by reports and personal experience, airlines overwhelmingly failed to live up to their legal obligations to comprehensively assist passengers during the “volcano crisis.”

Many passengers, left to fend for themselves with their own funds, took to more old fashioned means of transportation — by land and sea – to complete their connection. In my case I pondered how to get from Paris to Beirut the fastest way possible: 40 hours by bus to Plovdiv, Bulgaria, another seven-hour bus to Istanbul, and from there a flight to Beirut. As fate would have it though, the ash cloud cleared just enough on the morning of my rescheduled flight to permit takeoff, before closing in again later in the day to silence the runways. Had the eruption continued — as some predicted it would — adaptation would have set in, with streams of people moving up and down Europe by any means possible.

Still, this would have been far less tragic than the last big Icelandic “volcano crisis” in 1783, when the eruption lasted eight straight months, spread ash as far as Damascus, causing massive crop failure and livestock loss leading to the death of some 9,000 people.

With the spate of natural disasters to hit the world recently — from Hurricane Katrina in the United States, to the Asian tsunamis and the Haitian earthquake — one might have thought airlines and governments would have planned for a volcanic occurrence. Contingency plans, however, were not effectively in place to deal with widespread airport closures, governments dithered and insurance companies pulled the “Act of God” clause to escape claims. Few can predict when natural disasters will occur, but we know for certain that they do occur, and so it is prudent for governments, businesses and individuals to prepare.

Crises, by their nature, arrive unexpected — we should expect that.
PAUL COCHRANE is the Middle East correspondent for International News Services

Dancing the night away

Aishti/Gossip magazine

By Paul Cochrane in Beirut

The New York Times ranked Beirut as the number one destination to visit in 2009, while the travel guide Lonely Planet named the capital as one of the top 10 liveliest cities in the world. Deserving accolades for this party town, but when it comes to dancing, Beirut would not seem to be a natural contender for a ranking as one of the top 10 cities to shake your booty.

Indeed, when dance-starved friends descend on Beirut from the Gulf, Damascus, Egypt or the more provincial cities of the West, there are the inevitable questions about where to go out and party, as well as where to dance the night away. It's easy to answer the first question, but the second requires a bit more brain power, simply because there aren't that many places to dance. And by dance I mean really dance, where your cares are lost in the beat and your body is at one with the rhythm, not shuffling between revelers, shaking your shoulder blades, or trying to dance without kicking a chair or risk falling off a table. For while the Beiruti two-step is an acquired skill to carry off gracefully, confined as it is to a half a meter square radius, it is not a carefree dance.

That all said, Beirut is not devoid of dance spots, it's just thin on the ground when it comes to dance floors. And what's more, cavorters don't seem to mind being crowded into a tight space, shaking, gyrating and swaying their bodies amid all the other dancing bodies. It's a “fuck the dance floor” mindset as any space will do.

One of Beirut's liveliest night spots, Basement used to have a good amount of dance space, but was reworked to pack in more tables. Music Hall, Buddha Bar, Element and the like in downtown and off Monot street mix up the table-and-dance concept, as White and the notorious Sky Bar do in the summer.

BO18 remains the perennial favorite as a dance hub in the early hours, pumping out electronic beats from 2am until sunrise, whether under the stars when the roof is open or coffined in the macabre interior. Acid in Sin el Fil is still a magnet for frenetic dancing, and in Gemmayzeh, Electro Mecanique, Trend and Green Door are warm up dance spots for after-hours clubs.

Those are the permanent places. With Beirut on the map as one of the world's hottest cities, there is a steady stream of international big-name DJs playing at events, usually summertime in the capital or at beach clubs. Then there are the independent, entrepreneurial dance organizers that have one-off, biannual or regular events at different locations to keep the more hardcore dancers dancing. Cotton Candy has become a regular on this circuit, building up a reputation for often outrageous parties in offbeat venues with heavy rhythms fueled by an open bar.

So while circling tables may be the standard Beiruti dance, there is plenty of full-on dancing happening on the sidelines, under the stars, and even in abandoned places reclaimed for the night. Perhaps it all just depends on your spatial needs as a dancer.

Photograph - Kate Brooks/Polaris, for The New York Times

Treasure Ships: Somali piracy and the spectre of money laundering

Money Laundering Bulletin (March, 2010)

Piracy has increased exponentially off the coast of Somalia in recent years, with ships hijacked deep into international waters despite the presence of a multi-national naval task force and pirates demanding ever higher ransoms from shipping companies. But while the spoils of piracy are evident in coastal Somali towns, tracking down where the remaining millions of dollars disappears to is hard to pin down, with allegations circulating of ransom money entering the real estate markets of Kenya to money laundering in Yemen and Dubai. Paul Cochrane in Beirut investigates.

Over the past two years, the number of vessels attacked has spiked, from 111 ships attacked in 2008, to 214 attacks and 47 hijackings in 2009, according to the International Maritime Bureau (IMB). And while the number of attacks has increased, so has the area the pirates are operating in, with the United Nations mandated naval force patrolling an area of 9-million square kilometers, almost the territorial size of the United States.

The presence of the 20-nation UN naval task force has led pirates to be increasingly audacious, using faster boats and 'mother ships' to target vessels as far as 1,200 nautical miles from the Somali and Yemeni coasts, from where pirates are based. This has heightened the ransoms demanded to fund the more sophisticated and costlier operations. “When the navies united under a task force, ransoms went up. Before it was $250,000, but now it is an average of $1.25 million per ransom,” said Simon Davis, a former detective and special investigator with Scotland Yard and a consultant on financial crime and piracy in East Africa. “That [ransom] pie graph is getting more and more cuts in it as the money is shared around,” he added.

In January (2010), the highest-ever ransom was paid out to release oil supertanker Maran Centaurus, with reports of anywhere between USD$5.5 million to USD$9 million. According to Chatham House in London, Somali pirates have been paid over USD$100 million in ransoms in the past two years, with USD$80 million accrued in 2008 alone. But where is this money going, especially given that Somalia effectively has no functional banking system?

According to a 2008 UN report using information gathered from the pirate town of Eyl in Somalia, the ransom money is divvied out, with the maritime militia – the pirates involved in the hijacking – getting 30 percent, the ground militia that secures the pirates' bases 10 percent, the local community – elders and officials – 10 percent, the financier 20 percent, and the sponsor 30 percent.

The 50 percent that ends up in the hands of pirates and the local community is having a direct impact on the Somali economy. Cyrus Mody, Manager of the IMB, said that living standards are going up due to “lavish spending by pirates, which is encouraging local industry to build up, and flashy new cars to be driven around because of the new money.” Other parts of the loot is earmarked for investment in the next venture, including faster boats, weaponry and more sophisticated nautical tracking devices.

The pirates run what Mody called an “extremely business orientated” operation, similar to many organized crime syndicates around the world. The three to five major pirate groups that operate from bases on the Somali coastline are either self-funded or financed by external investors.

This is where it gets interesting, and increasingly vague as to where that remaining 50 percent of the ransom money goes out of the hands of the organizers, as well as money the pirates may wish to stash somewhere.

Somalia is a cash based economy so money disappears before anyone knows where its gone,” said Mody. “And from what I've heard is that they demand bills [in US dollars] of low denominations, X amount in 100s, 50s, 20s, and 10s, specified for the drop offs.”

The Kenyan connection

For the money to enter the financial system, it will have to leave Somalia. Kenya is an obvious choice, sharing a 500-mile border with the country and home to some 200,000 Somali refugees. From there, the money could be transferred out through banks or using the informal remittance system hawala to the rest of the world. “The Somali diaspora is a lot wider than people think,” warned Davis.

Furthermore, Kenya is “developing into a major money laundering country”, according to the US State Department's International Narcotics Control Strategy Report 2009, while the Kenyan government has not passed a law that explicitly outlaws money laundering, created a financial intelligence unit or developed “an effective anti-money laundering (AML) regime”. The report further highlighted that Kenya’s financial system “may be laundering over USD$100 million each year”.

In January(2010), Nairobi opened an investigation into property owned by foreigners as real estate prices in the capital have soared in recent years and there have been allegations that Somali piracy money is being invested in the country.

We do know a lot of money gets siphoned into Kenya where a lot of real estate is being picked up at double and triple the price it really is,” said Mody. “One could speculate that the money is going into property, but we need more evidence.”

The Middle Eastern angle

Maritime consultancy company Idarat Maritime Ltd. (IML) has stated that the pirates use forward operating bases in the Seychelles and also work with Yemenis to launch attacks. According to an AML report, the pirates “are believed to have received financial support from wealthy individuals in the Middle East, seeking to make good returns in this business. There have also been suggestions from the Saudi military that Iran’s Revolutionary Guards have assisted the pirates, a move that may make sense given Iran’s covert involvement in Yemen’s civil war.”

Yemen's president Ali Abdullah Saleh also has close links to Somali leaders, which could be hindering security developments in preventing piracy, while the Yemeni government is notoriously corrupt, ranking 154 out of 180 countries in Transparency International's Corruption Perceptions Index 2009, making the country a possible money laundering haven. Yemen has AML regulations and is a member of the Middle East and North Africa Financial Action Task Force (MENA-FATF), but the country is “vulnerable to money laundering and other financial abuses,” said the State Department report.

Ransom money could be entering Iran, Yemen and maybe the United Arab Emirates,” said Davis.

In April 2009, a US Naval Institute confirmed that piracy funds are being deposited in Dubai, where they are then laundered. However, the UAE authorities said such allegations were “baseless.” Beirut was also flagged as a possible money laundering destination, but again the Lebanese authorities denied any illicit activity.

Indeed, more evidence is needed all round. “You will never find “evidence” that funds have been dealt with by any bank or city, all you will get is denials,” said one maritime analyst that wished to remain anonymous. “All you need to do is to follow the same rules that you apply to any criminal organization, there really is no difference, and terrorists are normally also gangsters as well, so the same rules apply. Remember that the IRA used to hold up banks and sell drugs, while the Rajah Sulaiman gang in the Philippines used terrorist means to get protection money from ferry companies. So you cannot say that Dubai, London, or New York are involved,” he added.

Illicit money?

While concrete evidence linking the ransoms to money laundering is lacking, a further complication of the piracy issue is whether the ransom money is actually proceeds of crime, and therefore illicit funds to be watched out for. “The money is not from an illegitimate source, there are no claims of mistreatment, the ship is freed and the owners are happy they got the ship back – insurance is collecting, so no one is complaining,” said Davis. “It is not a suspicious payment but a business transaction,” he added.

Davis said other factors should be investigated, particularly given the presence of the UN task force, which is supposed to secure the Horn of Africa for shipping. “Are sea faring companies ignoring advice and gambling by plying certain routes? Have companies been approached to pay off pirates not to be hijacked? And why is there no true Maritime Law to cover all and everyone who arrests pirates?” he queried.

However, the situation on the ground in Somalia is clearly exceedingly complex, with a UN arms embargo monitoring group reporting that Egypt, Iran, Libya, Saudi Arabia, Syria, Yemen and Lebanon’s Hizbullah were all supporting warring factions, while the maritime analyst said that secret services from numerous nations are involved in gun running and criminal activities.

Nonetheless, the proceeds of Somali piracy can be considered high risk.

Given that the US has taken a strong stand on the piracy issue, that there are known designated terrorist entities inside Somalia who could be involved, and that world opinion is squarely against anything involving these pirates, you do not want to be on the wrong side of the United States on this matter; Watch yourself,” said Kenneth Rijock of World-Check, a British company that maintains a database on politically exposed persons (PEPs) and high risk individuals and entities.

The company has advised compliance officers to raise the country risk on neighbouring Eritrea, Yemen and Kenya, while being vigilant about transfers out of Dubai.

Money Laundering Bulletin - Informa UK Ltd

Liquid Gold - The Syrian Olive Oil Sector

Syria Today magazine

Syria’s burgeoning olive oil sector has expanded from small producers catering solely to the domestic market into a SYP 23bn (USD 500.5m) industry. The country is now the fourth largest producer in the world. In just over a decade, exports from the sector have reached European and regional markets and now look set to hit Asia.

The sector could get a further boost when the Association Agreement (AA) between Syria and the EU is finally inked. The deal will make it easier for Syrian producers to do business in Europe, although just how much the sector will benefit from the agreement depends on prices and economies of scale.

On average, Syria produces 150,000 tonnes of olive oil per year, with some 100,000 tonnes consumed locally, Samir Jazzar, general manager of Olive House, said. However, annual production is highly dependent on the season and tree yield – one year a tree will provide a 100 percent fruit yield, the next year a 55 percent yield and the following year a 60 percent yield.

Last year’s olive harvest was down by some 20,000 tonnes. This year, however, the sector has recovered.

“This season was a good season, a bumper season,” Hassan Zeno, director of Zeno Oil, which exports 1,000 to 2,000 tonnes of olive oil a year, said. “But due to the Mediterranean fruit fly infestation, we produced 70 percent virgin and 30 percent extra virgin oil. Normally it is the other way around.”

Indicative of this season’s good crop is the price of 1kg of olives costing SYP 136 (USD 2.95), compared to last year’s price of SYP 150 (USD 3.25).

“Syria has jumped [from being the fifth] to the fourth largest producer in the world because there was a crop failure in Tunisia,” Philippe Chite, an export promotion consultant with the Syrian Enterprise and Business Centre (SEBC) in Aleppo, said. “If the crop fails in Spain, there is a need for Syrian oil, so sales are very dependent on the season and how it is sold in the world.”

Long-term rise

There are currently 93 million olive trees in Syria, predominantly around Aleppo, the north-west and in the Dera’a region in the south. Some 65 million trees are currently bearing fruit. When the remaining planted trees mature over the next 10 years, production is expected to increase to more than 200,000 tonnes annually, according to Omar Adi, executive manager of Near East Olive Products (NEOP), the country’s leading olive oil exporter with a 40 percent market share.

“Back in 1997, Syria only had two or three serious companies,” Chite said. “Now it has developed and there are 20 serious companies in the sector, such as NEOP, Zeno, Zaitoun, Emoc, Al-Khair, Al-Mutawasit and United Olive Oil.”

Unusually for Syria, the sector has no state involvement and is totally in the hands of the private sector. The government has, however, provided assistance to farmers.

“The government has played a big role in providing trees at a competitive price, making farmers plant in areas where there is not much rainfall and introducing irrigation,” Chite said. “This has helped as production in the coastal areas has been declining.”

The government also backs a research centre in Idleb that carries out studies on developing the sector, such as gene research and agronomy, as well as tastings and tests to produce oils tailored to the palates of individual markets. To boost production and create better coordination between producers, private companies have teamed up to establish the Association of Syrian Olive Oil Exports. But further assistance from the government is needed to bolster the sector, Adi said.

“The first thing the government could do is give subsidies to exporters,” he said. “Another option is to give subsidies to farmers, not in the form of money but in infrastructure. The third thing that would help is if we could create farming cooperatives since all the land is owned by small landowners.”

Barriers to expansion

The lack of economies of scale – in field size, collective ownership and mechanisation – is a major disadvantage for the competitiveness of Syrian exports. This is further compounded by the fact that EU producers receive agricultural subsidies to produce an estimated 2m tonnes of olive oil per year.

“New laws are being studied to bring farmers together into collectives,” Adi said. “But if it stays like it is today, it is hard for companies to compete internationally, especially with all this competition from countries in South America such as Argentina, Chile and Brazil where the cost of production is low. The problem we have is that we don’t have economies of scale – production is too small and that increases costs at the end of the day.”

Adi gives the example of Syrian olive oil exports to Europe costing SYP 151 (EUR 2.40 / USD 3.28) per kilo and Tunisian exports to Italy costing SYP 126 (EUR 2 / USD 2.74) per kilo, a 20 percent difference. Extra virgin oil from Syria sells at SYP 200 (EUR 3.17 / USD 4.35) per kilo, while Spanish companies are buying oil for SYP 139 (EUR 2.21 / USD 3.02) per kilo from local Spanish producers. With logistics and transportation costs added on top of this, as well as EU customs duties, the cost of Syrian oil on EU supermarket shelves is simply too high.

It is no small problem, given that the future of the sector lies in exports.

“Looking to the future, a surplus of 60,000 to 70,000 tonnes of olive oil needs markets which will pay a reasonable price to the farmer, otherwise they will lose interest in planting,” Adi said. “Some 70 percent of business will go away if we can’t export.”

A further issue the sector is facing is the high acidity of its olive oil. As a result, most Syrian oil sold to the EU is blended.

EU deal on the way

The pending AA will abolish many duties imposed on bio-based oils – oils which break down naturally such as olive, canola and soya – in both Syria and the EU. The duty on Syrian oil, currently SYP 6,942.60 (EUR 110.20 / USD 150.93 ) per 100kg, will disappear, while the 50 percent tariff imposed by Syria on EU-produced olive oil will gradually be phased out. The agreement was initialled by both parties in 2004, but its formal approval has been held up by diplomatic complications. Jazzar, Zeno and Chite all said that the AA will be beneficial to local olive oil producers.

“It will help a lot because it will give Syria an advantage and a guaranteed amount to be exported, whether that is 8,000 or 15,000 tonnes,” Zeno said.

Adi is less optimistic about the agreement, pointing out that the deal will open up the Syrian market to imports while the EU market will not consume all of the country’s surplus stock.

“This agreement is interesting, but not a revolution,” he said. “We are not going to be able to export our entire surplus just from this agreement, but it will help the sector if Syria has a 10,000 tonne quota for bulk sales.”

However, Zeno said that Syrian brands will have to target niche markets.

“Europe is already saturated with Italian, Spanish and Greek brands and it is hard to change the mentality of consumers, even though Spanish buyers say Syrian oil is the wine of oils for its aromatics and great quality,” he said. “Consumers are too used to Spanish and Italian oils.”

The high cost of entry into EU markets also stands as another barrier to local producers, Adi said.

“I think most Syrian companies lack the finances to get into the market because there are only a few brands on [supermarket] shelves,” he said. “European retailers are trying to limit the number of brands.”

Looking east

Due to these factors, Syrian exporters are increasingly eyeing up the Gulf and Eastern markets to offset their surplus.

“Everybody is betting on the Gulf and Asia,” Adi said. “With Chinese purchasing power increasing and rising health awareness, it’s a new market that is opening up.”

Syria is also entering markets where the Mediterranean diet is being adopted, particularly in the Gulf, to cater to expatriate diets.

“The Gulf has great potential and there is the advantage of proximity to Syria, taking just three or four days to deliver goods,” Zeno said. “And they are used to our quality.”

Photograph courtesy NEOP