Monday, January 31, 2011

The Middle East: On the edge of the abyss?

By Paul Cochrane, in Beirut
for International News Services

Countless times I've read analysis and the blurb on the back of books that the Middle East is ‘on the brink’, a ‘tinderbox’ ready to explode due to the nepotistic nature of governments and the dire economic conditions of much of the region. Now more than ever, these predictions look like they may be coming true - a dictatorial regime has fallen in Tunisia and another is tottering in Egypt.

Some of these analyses have predicted the imminent fall of the Middle East's regimes and monarchies for the past four decades. A Middle East ‘spring’ was just around the corner, the people would rise up and the region's overwhelmingly authoritarian regimes would no longer have their days in the sun. Democracy would prevail.

There have certainly been many coups, the overthrow of kings and dictators, and - of course - wars since the region was cookie-cut into separate countries through the fall of the Ottoman Empire, before and after World War One. But that tinder box never exploded. It didn't happen after the 1967 or 1973 wars between Arab states and Israel; it didn't happen after the 1979 Islamic revolution in Iran; it didn't happen following the 1990-91 Second Gulf war or the 2003 US-led invasion of Iraq; and it didn't happen after the July 2006 war between Israel and Lebanon's Hezbollah. The sparks that could have ignited the tinderbox were diffused, snuffed out by the internal security forces and outside meddling, and the malaise continued.

But it would seem that these analyses forecasting the Middle East's imminent explosion were premature. It has taken until now for the people to stand up en masse and say ‘kifaya’, ‘enough’ in Arabic - enough of high unemployment, corruption, cronyism, repression, phony elections, lousy education and low standards of living.

Tunisia provided that spark. Following the successful ouster of Tunisia's dictator Zine al-Abidine Ben Ali on January 17 after a month of nationwide protests, demonstrations have erupted in Algeria, Yemen and on a major level in Egypt. There have even been unprecedented protests in the Saudi coastal city of Jeddah over the government's mishandling of the recent flooding there. Protests have also happen in Jordan, while in Lebanon – although not due to the ‘Tunisia effect’ - the government fell over ongoing political wrangling about the Special Tribunal for Lebanon that is investigating the assassination of former Prime Minister Rafik Hariri in 2005.

These are tense and unpredictable times in the Middle East. The question that is on everyone's lips is whether the protests will escalate throughout the region, and whether the ongoing protests will retain steam. In Egypt it is clear that even if President Hosni Mubarak survives this onslaught against his 30 year rule, it is over for his dynasty. His son has allegedly left Egypt and there is no way Gamal Mubarak will succeed his father. All Middle Eastern governments will have to make concessions to appease their people unless they want to go the way of Ben Ali.

Indeed, oil-rich Kuwait distributed US$4 billion and free food for 14 months to its citizens to mark ‘national occasions’, although the unstated reason was clearly to shore up support for the monarchy.Meanwhile, the regional situation is causing havoc with regional stock markets and economic forecasts. Lebanon is not likely to have as successful a summer as last year, with 2.2 million visiting the country in 2010, due to the current instability. The same can be said of Egypt and Tunisia.

Tourism aside, stocks markets have plummeted in Tunisia and Egypt, as elsewhere in the region, including the Gulf. Sovereign bond risk has also heightened and international investors are understandably hesitant to enter Middle Eastern markets. British investors are holding onto the seat of their pants, with British investment in Egypt the country's largest foreign investor at some US$20 billion.

This year has certainly started out with a bang in the Middle East, and we could all be in for a very interesting 2011. How it will all play out will be up to the people and the reaction of the region's rulers, external forces like the United States included.

Monday, January 17, 2011

The Tunisian Intifada

The poster says "Servant (the Saudi king) of the two thieves (Ben Ali and his wife Leila Trabelsi)"

Commentary for Executive, 13 January (being re-written following Ben Ali's departure from Tunis)

The demonstrations in Tunisia over the past several weeks is the biggest news to have come out of the North African country in a long time. “All is well in Tunisia” is the usual officially parroted mantra. But what is happening there could be the first of many such intifadas (uprisings) in the Middle East and North Africa (MENA) unless political-economic concerns are addressed and high unemployment is tackled in a region where over 50 percent of the population is under 30 years old.

The protests in Tunisia were triggered by unemployed university graduate Mohammed Bouazizi in the central town of Sidi Bouzid on 19 December 2010. Bouazizi had resorted to selling fruit on the street to make ends meet, but after police seized his produce he poured gas over himself in front of the town hall and set himself alight. Bouazizi's actions were literally the spark that prompted nationwide protests over unemployment, rampant corruption and the repressive leadership of President Zine Ben Ali .

Unemployment in Tunisia is officially 13 percent but presumed to be higher than 25 percent. While the country has had economic growth over the past decade, it has not been reflected across society or provided enough jobs for graduates. It is the same story throughout the MENA, which has the one of the highest unemployment rates in the world, according to an International Labor Organization report.

This year protests have taken place in Algeria, again over unemployment and dissatisfaction with government policies. Strikes were scheduled in Lebanon over high fuel prices - seemingly dropped due to the dissolution of parliament – and Egypt is on tender hooks due to the upcoming presidential elections. The region's more authoritarian regimes are no doubt keeping a close eye on Tunis to see the outcome, for if it can happen there it can happen anywhere, despite Tunisia being a police state.

In power since 1987, Ben Ali won the 2009 presidential elections with 89.62 percent of votes cast. In The Economist's 2010 Democracy Index, Tunisia ranked 144 out of 167 countries and was classified “an authoritarian regime.” In press freedoms, Tunisia ranked 164 out of 178 countries in the Reporters Without Borders Press Freedom Index 2010, lower than neighboring Libya.

Interestingly, a Wikileaks cable on Tunisia, written by United States Ambassador Robert Godec in 2009, almost predicts the current uprising: “Corruption in the inner circle is growing. Even average Tunisians are now keenly aware of it, and the chorus of complaints is rising. Tunisians intensely dislike, even hate, first lady Leila Trabelsi and her family...Meanwhile, anger is growing at Tunisia's high unemployment and regional inequities. As a consequence, the risks to the regime's long-term stability are increasing.”

Ben Ali however has gone about appeasing the protests in the typical manner of the archetype dictator. The largely peaceful protests were put down by force, over 50 have been killed as of going to press, and scores of demonstrators were arrested – most later released - on spurious charges. And rather than make the necessary sweeping economic and political changes the country needs and then gracefully stand down from office, like Ben Ali made his predecessor do - declaring President Bourguiba unfit to lead - Ben Ali has opted for the scape goat option: blaming the protests on the always convenient “outside forces” and “radical elements.” Yet considering the nationwide scale of the demonstrations and three public suicides by unemployed men, such excuses are laughable.

Ben Ali did make some concessions by firing four ministers, allocating part of the budget for job creation, and ordering the creation of a special committee to investigate corruption and the actions of some officials. But it is Ben Ali's wife and his immediate family that are, by all accounts, the biggest kleptocrats in Tunisia. It is time they went.

Even if Ben Ali survives this debacle, his support base will only be with the military apparatus and not the populace itself. Some are calling the demonstrations an intifada, and if it keeps on going, it might end up being called the Tunisian Revolution. It may even before the first of many in the MENA region in the years ahead. Indeed, Secretary of State Hillary Clinton, addressing the Forum for the Future conference in Doha in mid January, made an unusually stark warning to Arab leaders that they will face unrest, extremism and even revolt unless economic and political reforms are enacted.

PAUL COCHRANE is the Middle East correspondent for International News Services

Thursday, January 06, 2011

Vanquish visas and they will come

European tourists visiting the Umayyad mosque in Damascus

Commentary - Executive magazine

Over the past decade the Middle East has shaken off its 'danger zone' reputation of being a place where only the fool hardiest of holiday makers would plan a holiday. Since 2000, the number of tourists visiting the region (excluding Turkey and Israel) has more than doubled, from 24.9 million to over 53 million. And while 2009 saw a slump in international tourist arrivals, down 5 percent, the region was only behind North-East Asia globally in the rise in tourists in 2010, up 16.1 percent, according to the United Nations World Tourism Organization.

Perceived heightened stability, investment, infrastructure development and marketing campaigns have all contributed to the rise of tourism in places other than long-term favorites Egypt, Turkey and the Holy Land.

The rise has partly been fueled by wary Westerners warming to the Middle East as an attractive vacation destination, after being swayed by the flurry of advertising campaigns and travel articles extolling old Damascus' charms, Dubai's palatial hotels and Beirut's infamous “phoenix rising from the ashes” reputation. However, inter-regional tourism has been a key driver for the sector and has corresponded with the emergence of low cost air carriers and the aggressive expansion of Middle Eastern airlines in general.

The rise in tourism has also dove tailed with a resurgent middle class with the desire and enough money to take a trip within the region, but not quite enough cash to splurge on a family holiday to Europe or America. Syria has become a regional poster child in this regard, with its tourism sector exploding since the economy was opened up at the beginning of this century, with visitor numbers surging from two million in 2004 to a record 8.5 million in 2010. What is notable is that the majority of tourists are from the Gulf, with 2.9 million Arabs visiting in 2010, compared to 1.35 million tourists from other, primarily European, countries.

It has been the increased openness of countries that has really encouraged the inter-regional tourism boom, with Damascus scrapping visas for Iranians and Turks, and Turkey last year (2010) abolishing visas for Syrians and Lebanese. Once the regulations changed, there was a 117 percent rise in Iranian visitors to Syria, while the Turkish-Syrian agreement encouraged 482,000 Syrian holiday makers to stream into Turkey, a 113 percent increase, and a 170 percent rise in Turks heading to its southern neighbor. This sensible bi-lateral move resulted in the highest rise in visitors between two countries in the world in 2010.

Meanwhile, Ankara's decision led to 73 percent more Lebanese visiting Turkey than in 2009, and easier visas and marketing campaigns led to 74 percent more tourists from the UAE, a 60 percent rise from Iran and a 47 percent increase from Saudi Arabia. What is curious is that while Arab and Iranian tourist number surged, Ankara's strained relations with Tel Aviv resulted in a 41 percent drop in Israeli tourists, to 80,000 visitors.

That's not much of a surprise though, as politics and outbreaks of violence frequently cause the region's tourism figures to yo-yo from one year to the next. But with all the development and infrastructure investment underway – from airport expansion in the Levant to the colossal aviation hubs in the UAE and Qatar, to the resorts and hotels being built – the region is on track to being a top global travel and tourism destination. Indeed, according to the World Travel and Tourism Council, the Middle East's tourist and travel economy is forecast to rise 40 percent by 2020 from the current $173 billion to $430 billion.

What should be under debate is the scale and feasibility of tourism projects and development – mass tourism versus more sustainable tourism that is not primarily seasonal, has negative social ramifications or ravages the environment. Now is the time for the public and private sectors to plan ahead.

The easing up of borders and visa formalities should expand further to bolster regional travel for Middle Eastern citizens and foreigners; as Turkey and Syria have demonstrated, scrapping visas makes visitor figures jump. After all, tourists that have to go through the whole rigmarole of applying for a visa and then coughing up $50 may be discouraged from visiting, but if you let them in for free, tourists will spend, spend, spend. In Syria's case, $2 billion more in tourism revenues in 2010 than the year before.

PAUL COCHRANE is the Middle East correspondent for International News Services

Tuesday, January 04, 2011

Hey, big spenders - The Gulf's personal care market

Paul Cochrane reports from Beirut - Soap, Perfumery and Cosmetics magazine

The multi-billion dollar cosmetics and fragrance industry in the Middle East’s six Gulf Cooperation Council (GCC) countries has had a mixed few years in the wake of the global financial crisis, made more unpredictable by demographic change and purchasing behaviour shifts.

In the years leading up to 2008’s downturn, the personal care industry in the region – Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates (UAE) – had one of the highest growth rates in the world at some 12% per annum over three years. This was driven by strong growth in the Gulf economies, high oil prices and a surge in affluent expatriates living and working in the region, particularly the UAE.

In 2009, regional sales contracted around 4%, according to global cosmetics giant Beiersdorf, as purchasing power and consumer confidence plummeted. The decline was in line with changes at a macro level with the combined nominal GDP of the GCC countries hitting an all time high of US$1.054 trillion in 2008 but dropping to US$841bn in 2009, according to a 2010 report by the Saudi American Bank Group. But following government stimuli, market consolidation and renewed consumer confidence, the sector appears to be re- bounding in 2010, with the International Monetary Fund (IMF) predicting 4.8% economic growth in the GCC this year.

“Fragrance and cosmetics sales have remained stable in the GCC, but we are seeing a recovery and this should be more significant towards the end of the year,” says Salah al Sagha, general manager of beauty retail at the UAE-based Chalhoub Group, which sells commercial, luxury and Arabic- oriented brands. According to Euromonitor, fragrance accounts for a 31% share of the C&T market in Saudi Arabia and 21% in the UAE, while premium cosmetics command shares of 38% and 26% respectively.

“In beauty, we have budgeted our sales to grow by 6% in 2010, which is an improvement from last year,” continues al Sagha. “Sales by market segments in 2010 have remained almost the same compared to 2009, with fragrance leading followed by make-up, skin care and body care. Fragrance sales have increased (up 2%) whereas cosmetics have suffered versus last year.”

The value of the cosmetics and personal care sector in the GCC was estimated at some $2.1bn in 2008 by a paper released by German trade fair organiser Epoc Messe Frankfurt. Meanwhile, while a recent report by the International Journal of Business Strategy (IJBS) estimates fragrance sales in the region at $3bn a year in 2009, approximately 20% of the global market. The luxury cosmetics and fragrance sector is estimated to be worth $1bn, according to al Sagha.

The biggest indicator of change in the market has been in consumer purchasing behaviour for the perfume sector, with consumers buying a product on average once a month before the recession compared to once every two months today. As a result, the average transaction has dropped from $136 to $81, according to the IJBS report. “The spending power decline within our core target segment has undoubtedly affected the movement and volume of sales,” says Abdulla Ajmal, deputy general manager of Ajmal Perfumes in the UAE, one of the region’s leading oriental perfume manufacturers and retailers. “Where before a customer would pick up five or six big ticket items, they now prefer to buy one or two and come back to replenish. I don’t think our core customers have lost their spending power. I think it has more to do with taking a cautious approach and evaluating every purchase decision with much more scrutiny than before.” The Chalhoub Group has noted similar trends. “All customers in the Middle East are now looking for value. It doesn’t mean they are looking for more affordable items, but items that feel durable and feel like they are offered at the right price, whether these are basic or luxury items,” says al Sagha. “People are also looking for choice rather than price so we aim to optimise what we offer in substance.”


The retail environment in the Gulf, which has matured in recent years, has also been affected by the slow-down, with less successful malls and outlets closing down while segment differentiation has become more apparent due to the recession. “The past few years saw incredible growth in retail outlets, fuelled by incredible demand and also due to the willingness of consumers to try new products,” says Ajmal. “As the demand slowed down, the more established players in the market have managed to hold their positions, resulting in consolidation, while small retailers have suffered the most. But the divide between the different segments is clearer now. Luxury retailers continue to stock luxury products and value- based propositions are now offering added value to entice consumers into making purchases.”

Companies have adapted business strategies as a result by offering a greater array of products to suit certain economic demographics, opting for strategic partnerships instead of tactical agreements and investing in service, marketing and brand promotion.


In such a multi-demographic market as the UAE - catering to locals, GCC citizens, expatriates and tourists - the sector has been affected in different ways from other Gulf countries. This was reflected in the biggest change in Chalhoub’s UAE clientele being a drop in tourists from eastern Europe. “We used to have 20% of our customers coming from Russia and eastern Europe, but since 2009 they represent 3%,” says al Sagha. Emirati and GCC citizen clientele has in contrast increased by a few percentage points, rising above 20% each of overall customers, offsetting the decline in tourists. Benefiting both local and visiting shoppers, the UAE imposes no VAT and has low import tariffs on its cosmetics and fragrances so prices are around 25% cheaper than in western Europe.

A turnaround in sales to UAE bound tourists has occurred this year however in the second biggest cosmetics and fragrance market in the GCC after Saudi Arabia, indicated by duty free sales at Abu Dhabi airports, up 19% in the first half of 2010 on the previous year, and at Dubai Duty Free, up 16%. Perfumes, which account for 14% of total sales at Dubai Duty Free, had sales of $84m in the first half of 2010, representing an 18% increase over the same period last year, while cosmetics sales rose by 26%.

Despite the slow-down since 2008, the Gulf still has one of the highest per capita spending on perfume in the world at $326 annually, according to IJBS. While sales to expatriates and tourists in the UAE have dropped, it is Emirati citizens who are keeping cosmetics and fragrance sales buoyant, with disposable incomes staying high due to secure public sector jobs and government endorsed employment programmes.

It is a similar story in other Gulf countries, which were not as exposed to the international markets and have fewer affluent expatriate workers and less developed tourism sectors.

“Perfume sales in the Gulf continue to grow, albeit at a much slower rate than before,” says Ajmal. “There are a few countries within the Gulf that are primary drivers of this growth – for us it has been Saudi Arabia which was up by 27% for the first quarter compared to last year.”

In cosmetics, Saudi Arabia has also remained strong, with sales reaching $2.4bn in 2009, while analysts predict the cosmetics market will grow by 11% this year, according to figures published by the Financial Times.


A recent survey focused on affluent female customers, carried out by Chalhoub in conjunction with research firm Nielsen in the group’s key three markets of Saudi Arabia, the UAE and Kuwait, highlighted the continued high spending on cosmetics and fragrances in the Gulf.

“For beauty items, the Saudi shopper spends $650 on average every three months, but is far behind the Kuwaiti customer with an average monthly spending of $800. Across all territories, fragrance is the most important item (a minimum of 40% of the beauty budget) followed by make-up (35%) and skin care (20% to 25%, depending on the country). It is interesting to note that skin care is still mainly bought in supermarkets in the Gulf,” says al Sagha.

With fragrance so important to the sector, particularly among Gulf citizens, a wide variety of French, American and oriental perfumes are on sale in the region. This has particular impact on the oriental sector, which brings out new perfumes every year to meet consumer demand.

“We have over 100 perfumes within our stores today,” says Ajmal. “Some of these products are classics, like Dahn Al Oudh Moattaq, which have been on the shelves for more than ten years, and other products which are newer introductions. Typically we create up to ten products within a calendar year. This is a lot if you look at the industry standard, but this is primarily because of the way the local market operates. Our consumers are always in search of something new.”

The region’s burgeoning young population has also helped to retain sales and provides for a positive long-term outlook for the cosmetics and fragrance sector. “The youth market is significant in the Middle East, where over 50% of the population is younger than 30, and we constantly adapt our offer to answer these needs,” says al Sagha. “In beauty, we are very much helped in this regard by the major brands in the industry, with their strategic launches in 2010 targeting the young generation, so that helps us to reach out to these customers. For example, this June we launched exclusively at our Faces stores the latest fragrance by Lancôme, Trésor In Love. This fragrance is a ‘younger’ version of Trésor, aimed at the 15-25 year-old women, so it was very strategic for us but also very successful.”

Copyright SPC

Egypt's clothing industry starting to bloom

By: Paul Cochrane for | 17 December 2010

Over the past five years Egypt has cemented its position as a fashion hub for European and American high street brands, with average annual garment exports earning the country US$2bn. Yet domestic labels are generally not exported and high-end clothing manufacturing is still very niche.

"Fashion manufacturing is still rather new to Egypt, as this requires high skills and a fast turnaround time, but the sector has developed a lot in garment manufacturing since 2005," explains Dr Hala Hashem, chief executive officer of Al Arafa for Investment in Garments Manufacturing.

The company, headquartered in Nasr City, Cairo, exports to Zara, JC Penny, Macy's, Banana Republic and Gap, while in men's formal wear sells to Debenhams, House of Fraser, Massimo Dutti, Ben Sherman, Racing Green and the Valentino Fashion Group.

"We are not driven as a society by fashion, unlike say Lebanon, and we don't have a heritage of strong local brands," she adds.

Egypt is the European Union's (EU) sixteenth largest supplier of clothing and is becoming a more important export market for Egyptian manufacturers due to the downturn in orders from the United States, a long-time trade partner due to preferential trade agreements.

Exports are currently split 60% towards Europe and 40% for the US market, down from a 50:50 split before the financial crisis, according to Bassem Sultan, CEO of Alexandria-based Dyetex, and treasurer of the International Textile Manufacturers Federation (ITMF). Exports are predominantly low to medium-priced garments, with few companies manufacturing high-end fashion items.

However, Sultan believes the sector has potential over the next few years to manufacture high-end garments. "Already some manufacturers have started producing high-quality fabric shirts for Italian and Swiss companies, and I think the Egyptian market for export is growing," he says.

Rising orders fuel optimism

Egypt has gained orders recently due to rising domestic demand from the Far East, which has reduced capacities for export to Europe.

Combine this with the benefit of low labour costs and geographic proximity to the European market, and optimism for growth is strong.

Another sign is the launch of a boat carrying product between Egypt and Venice. "We have not yet fully utilised its benefits, but it has reduced the logistics time, especially with Italy, and the sector is now at a similar stage to Romania six years ago," explains Dr Hashem.

Indicative of the sector's potential growth strength is the news that retailers Zara and Tesco will open sourcing offices in the country next year. "It gives Egypt positive vibes that they are coming here," says Dr Hashem.

Egypt's domestic clothing manufacturing sector, estimated to be worth US$1.6bn according to Sultan, is not however involved in the production of clothes sold by foreign retailers in the country.

"We manufacture for Nautica, Dolce & Gabbana, and Calvin Klein, but it is only for export," says Sultan, adding that Egypt does not produce a wide enough selection of items to cover a brand's full range.

Retail market opening up

Since 2005, international retailers such as Zara, Paul & Shark, Lacoste and Benetton have entered the market as malls opened in the capital Cairo, while next year Marks & Spencer will open two stores.

With Egypt having a low GDP (gross domestic product) per capita of US$5,700 a year, only around 5-7% of the population can afford higher cost clothing, explains Sultan.

Retailers are nonetheless faring fairly well though, selling to affluent Egyptians and tourists from the Gulf.

"The retailers are still testing the Egyptian market but they underestimated it," says Dr Hashem. "They are not offering the same amount of items as I see in Europe, which I think is a mistake.

"I think in due time the big retailers will understand how things work in Egypt. It also depends on the model, as the most successful has been Benetton, as the clothes are manufactured and imported from Syria, and they understand the Egyptian market," she notes.

One of the few local brands with export potential is Al Arafa's label 'Concrete', which it bought ten years ago.

In the Egyptian market for 20 years as a mid-to-high end clothing store for men, with Italian style fabrics and designs similar to American label Gant, Concrete has 45 outlets in Egypt.

Dr Hashem says her company plans to export Concrete to the Gulf, Turkey and Europe. "This is not a common practice in Egypt as it is not easy to go with your own brand to where competition is, but Concrete is one of the best known names in the country."