The Peninsula of Protectionism

GCC and international firms face challenges investing in Qatar

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Regulatory constraints

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

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

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

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

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

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

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

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

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

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

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

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

Qatar's Green Wash?

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

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

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

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

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

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

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

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

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

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

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

Getting to green

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

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

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

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

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

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

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

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

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

Construction's Disruption

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




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

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

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

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

Ear plugs for the office

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

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

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

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

Buy or rent?

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

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

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

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

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

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

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

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

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

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

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

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

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

LNG Hub of the World

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

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

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

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

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

Varying the options

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

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

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

Qatar's Sovereign Wealth Fund

Power and profits won from the country's deep pockets

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

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

Politics vs profits

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

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

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

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

Strategic vision

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

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

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

Where would you invest $20 million in Qatar?

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

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

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

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

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

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

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

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

Sanctions on Syria: The Slow Crush of Attrition

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

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

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

Tightening the screws

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

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

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

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

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

Hardly foolproof

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

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

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

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

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

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

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

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

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

No investment ban

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

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

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

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

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

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

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

“We will forget that Europe is on the map”

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

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

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

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

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

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

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

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

Sound as a pound?

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

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

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

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

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

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

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

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

MAJOR TRADE PARTNERS 2010
Imports	Value	Percent overall trade
European Union	$4.85 bn	18.7
Saudi Arabia	$2.94	11.3
China	$2.8 bn	10.7
Turkey	$2.1 bn	8.1
UAE	$1.38 bn	5.5
Russia	$1.214 bn	4.7
Iran	$1.06 bn	4.1
South Korea	$1.02 bn	3.9
Lebanon	$989 mn	3.8
Egypt	$973 mn	3.7
Export	Value	Percent overall trade
Iraq	$4.6 bn	30.3
European Union	$4.43 bn	29
Lebanon	$1.5 bn	10.1
Saudi Arabia	$769 mn	5
Turkey	$632 mn	4.1
Kuwait	$504 mn	3.3
UAE	$435 mn	2.9
USA	$419 mn	2.8
Jordan	$351 mn	2.3
Libya	$328.4 mn	2.2
Top 10 Trade Partners (export and import)
European Union	$9.32 bn	22.5
Iraq	$5.49 bn	13.3
Saudi Arabia	$3.7 bn	9
China	$2.74 bn	6.9
Turkey	$2.7 bn	6.6
Lebanon	$2.52 bn	6.1
UAE	$1.88 bn	4.6
Egypt	$1.25 bn	3.1
Russia	$1.24 bn	3
South Korea	$1.11 bn	2.7
Overall Total	$41.36 bn	100
Source: IMF, EU

Deference versus diversity in the Gulf

Commentary - Executive magazine

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

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

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

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

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

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

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

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

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

Book review: Road to Fatima Gate

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

Book review - Executive magazine

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

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

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

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

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

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

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

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

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

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

Nokia's got your number

Telecom giant's amoral alliance with repressive regimes

Commentary for Executive magazine

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

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

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

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

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

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

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

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