Consumer confidence rebounds in the Gulf

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Egypt's yarn price hike causes disruption

By Paul Cochrane for just-style.com

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Cash based society

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

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

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

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

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

Dearth of data

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

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

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

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

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

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

A stagnant economy

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

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

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

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

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

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

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

Photograph by Paul Cochrane

Paying for the revolution

Commentary for Executive magazine

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

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

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

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

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

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

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

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

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

A Spanish translation is also available - http://www.libreria-mundoarabe.com/Boletines/n%BA103%20Abr.12/IslamofobiaProgresista.htm


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

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

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

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

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

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

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

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

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

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

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

The spirit of Islamophobia

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

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

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

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

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

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

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

Islamophobia reinvents itself

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

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

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

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

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

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

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

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

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

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

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

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

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

The peninsula of protectionism

GCC and international firms face challenges investing in Qatar

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Regulatory constraints

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

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

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

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

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

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

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

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

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

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

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

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

A double dip foretold

Commentary for Executive magazine

Lax accountability and regulation edges world toward new precipice

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

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

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

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

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

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

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

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

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

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

Whisky: A popular cheer in down times

Consumers in Lebanon shift away from the brash high-end

Executive magazine

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

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

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

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

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

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

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

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

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

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

Rising from the snow

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

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

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

The region’s window display

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

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

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

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

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

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

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

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

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

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

Executive magazine

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

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

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

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

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

The joys of mountain roads

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

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

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

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

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

The Trofeo Cup

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

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

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

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

Is that a no. 9?

Telling the Cubans from the copies
Executive magazine

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

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

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

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

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

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

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

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

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

The bookish type – Harland Miller

By Paul Cochrane for Aishti magazine

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

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

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

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

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

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

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

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

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

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

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

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

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

Boon time for mercenaries

Nervous and embattled Arab regimes look abroad for help

Commentary - Executive magazine

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

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

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

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

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

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

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

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

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