Fencing Around

Commentary - Executive magazine

In an era when free trade, globalization, freedom and democracy are the mantras of the day, there is something physical going on that runs counter to these overly bandied about terms. Walls. Or fences, or ‘separation barriers’, ‘peace walls’ or ‘apartheid walls,’ depending on your political perspective as well as how rigidly you want to apply the correct terminology to a particular structure. But we can all agree such structures are meant to keep people out. That’s been the purpose of walls ever since stones or logs were piled together to ward off the neighbouring tribe.
Walls have left us with some great historical monuments, but since the Berlin Wall came down to much fanfare in 1989, walls were supposed to be confined to history. Instead more are going up, and none with the aesthetic grandeur of the Great Wall of China. Concrete, sandbags, pipes, barbwire and metal fences, along with the added extras of no-man’s land, landmines and electronic surveillance, are the materials of the times.
But just as I asked myself while perched on the edge of a vertical drop when camped out on the Great Wall - Why on earth did they build this when there is the natural deterrent of mountainous terrain? – questions in the same vein can be asked about the Middle East’s barriers.
Unlike the rationale of the Chin and Ming dynasties to build a wall that was practical but also signified dynastic might, the Middle East’s barriers are solely to keep out terrorists, migrants and other undesirables.
There is the 2,410 kilometre long sand and stone barrier built in the 1980s by the Moroccans to keep Polisario guerrillas out of the Western Sahara that Rabat claims as its own. Fences divide Kuwait and Iraq, the UAE have erected a fence with Oman, ostensibly to thwart immigration, and most famously, the “security fence” as the Israelis call it that cuts like a scar through the West Bank. There are also the blast walls of Baghdad, and the occupation forces’ construction of a five-kilometre long wall to divide the Sunnis and Shias in the capital’s Adhamiya district.
Then there are other more specific walls, such as the one around the tourist and diplomatic hobnobbing hot spot of Sharm El Sheikh, and the Egypt-Gaza fence that Hamas enjoys breaking through every now and again.
“Good walls make good neighbours” is the oft used mantra to justify such barriers, but the problem is that what are originally intended as temporary measures often end up being more long term. Such was the case in Berlin, lasting 28 years, and in Belfast, where more “peace walls” have gone up since the Good Friday agreement that ended ‘the troubles’.
Walls can keep people out, but as the defenders of a castle under siege knew very well (and as the French discovered in World War II after spending 3 billion francs on the supposedly impregnable Maginot Line), all it takes is for someone to use the back entrance and the barbarians can swarm in.
Such barriers are not only dividing people rather than bringing about mutual co-operation, but are also an environmental nightmare for wildlife and limit the movement of nomadic tribes, particularly in the case of Saudi Arabia and its neighbours.
Indeed, walls are more like taking medicine to tackle the illness rather than seeking out the root of the problem, which in the case of barriers are invariably due to economic disparity and/or occupation.
The Gulf’s fences are not so easy to pigeonhole, especially as the Gulf Common Market (GCM) that went into effect at the start of the year, which is based on the European Union model, is supposed to allow the free movement of people within the GCC. Saudi Arabia’s recently announced plan to “improve security” along its 6,500 kilometre borders include two GCM members as well as two aspirants, Yemen and Iraq.
As Ahmad Hammauda, manager of a Kuwaiti logistics firm, told me, “all this putting up of walls is not good for removing borders.”
But it is clearly good money, at least for defence contractors which have been having a field day since “the global war on terror” was announced. Saudi Arabia is to spend a whopping $10-$15 billion on its border security over the next decade, while the Israeli “security fence” costs $2 million per kilometre, with the total cost slated at $2.1 billion. That’s a boatload of money that could be sunk into alleviating the symptoms behind the supposed need for such barriers. But maybe that’s just overly utopian thinking, although if you’d said to a French engineer working on the Maginot Line over 70 years ago that decades later there would not even be a visible border between France and Germany, he would probably have thought you were a sandwich short of a picnic. Or a few bricks short of a wall.

(Photo of Israel's "security fence/wall" by Justin McIntosh - Wikimedia Commons)

Re-Connecting Lebanon

The Serail (parliament) surrounded by tents and barbwire erected following the Hizbullah-led opposition sit-in, which has gone on since Dec, 2006

By Paul Cochrane in Beirut for TRENDS magazine (Dubai)

Economically speaking, Lebanon is a basket case. The Hizbullah-led opposition has turned the center of Beirut into a ghost town, the state has no president and the government is paralyzed. All of this is leaving Lebanon's economy limping along, but the reasons lie as much in its antiquated court system, crony-laden regulatory and ministerial organization as due to sectarian strife. Indeed, the sectarian strife is, at heart, exacerbated by the lack of economic activity.
Lebanon’s political shenanigans are hindering the country’s development at a time when the rest of the region is moving ahead, implementing reforms, improving infrastructure and attracting foreign investment.
In the zero-sum game that is global capitalism, Lebanon has kept the outside world at arms length with barriers to communications and trade, and it’s paying dearly for it.

Corruption and Subsidies. Fady Abboud, president of the Association of Lebanese Industrialists, estimates some $2-$3 million is spent on bribes every day, amounting to almost a billion dollars a year. Backhanders are not only common practice for land purchases, acquiring licenses and lining the pockets of bureaucrats, but also at one of Lebanon’s life lines with the world, the port of Beirut.
“A container from my factory to aboard the vessel costs $500: $100 for the truck, $50 for port dues, $50 for forwarding and another $200-$300 worth of bribes,” says Abboud. Such unpredictable “extra charges” make shipping to Lebanon a dicey proposition.
Restrictions on foreign workers are further hindering the economy, with pricey work permits required for white-collar workers and cheap foreign labor officially disallowed. “You can import anything from the Gulf, all made by an expatriate workforce, into Lebanon without duties, but we are not allowed to import foreign workers,” says Abboud. “How can we compete?”
These barriers to trade mean Lebanon is never going to be a major industrial hub. And tourist dollars won’t make up the difference. Not when a car bomb is enough to prompt ticket cancellations by the planeload.
And, not coincidentally, the one area where Lebanon is doing well – it’s banking industry – relies on foreign markets and connections to foreign markets. They also keep afloat by relying on remittances from abroad, which accounted for 25.8 percent of the country’s GDP at $5.72 billion in 2006. The Lebanese diaspora is the one reliable link to international capital.
“The middle class has disappeared from view but not from the banks; they are working in the regional markets,” says Tarek Khalife, chairman-general manager of Credit Bank.
However, the exodus of Lebanese seeking better opportunities overseas is negatively impacting on the very sectors that Lebanon could compete in, namely the knowledge-based service and IT sectors.
Brain drain. For Lebanon, its connectivity to global labor markets goes one way: out. Indeed, emigration has become so commonplace that a recent cartoon showed Lebanese university graduates being handed their diplomas and walking straight onto an airplane, invariably destined for the booming GCC markets where an estimated 400,000 Lebanese work.
“Young people have given up on Lebanon, with probably 90 percent of American University of Beirut students leaving after graduation,” says Marcus Marktanner, assistant professor of economics at AUB.
To keep talent in country, repatriate Lebanese and attract foreign investment, the country needs to better integrate into the global economy. And for that to happen effective and transparent regulations and cheap communications is paramount.
“The legal system has to be reformed,” says Robert Jreissati, president of the Lebanese International Business Association Network. Because of low wages, judges are easily bought off. Meanwhile the lack of an independent judiciary means regulations to protect investors are nonexistent or unenforceable.
“With no independent legal system, law suits last five to 10 years,” complains Jreissati. “And you want to attract investment?”
Equally, the country’s consumer protection law has never been enforced, the small claims court has not been activated, and the privatization of the telecom sector, proposed in 2004, has yet to happen.
“One of the myths of Lebanon is that it is a free economy where the government doesn’t interfere, but there is still a trust law where you can have a monopoly,” says Khalil Gebara, co-executive director of the Lebanese Transparency Association. “And in which country does a religious leader [Maronite Patriarch Nasrallah Boutros Sfeir] speak out against an anti-trust law as it will affect the sectarianism balance? He becomes anti-globalization without even knowing it.”
Such sectarian concerns extend to Lebanon’s telecommunication sector. Hizbullah leader, Hassan Nasrallah, has spoken out against privatizing the mobile phone networks, as it would run counter to sectarian interests.

Barbwire skirts Beirut's empty downtown.

Talking taxes. These intricacies of Lebanon’s tortured confessional political system and the political-business elite allow such monopolies to flourish. One of the worst examples is Ogero, the country’s national telecom that provides – if you can call it that – lackluster Internet connectivity and overpriced telephone charges. Its chairman is – coincidentally, surely – also the telecom minister.
Such cronyism has resulted in two politicians and a judge being granted Internet service provider (ISP) licenses, but who have, as yet, done nothing with the grants.
And although a Telephone Regulatory Authority (TRA) was established following a 2004 draft law to oversee the privatization of the telecoms sector, it is being “leashed by the establishment,” says Gabriel Deek, president of the Professional Computer Association. With some 30 percent of government revenues coming from telecoms, a budget deficit of 10.4 percent of GDP, and public debt 171 percent of GDP, “every penny counts,” says Joe Faddoul, chairman of IT software development company BML Istisharat.
“There is a huge Lebanese diaspora that make incoming international calls,” he says. With voice-over-IP services officially banned (but which are widely available), “the government is dragging its feet as it could lose that revenue” if it sold off its telephone and Internet interests, he adds. As a former telecom minister joked a few years ago, the ministry should be called “the Ministry of Taxcom.”
So Lebanon is caught on the horns of a dilemma. The government is strapped for cash, so it can’t afford to let go of a lucrative revenue stream. But high communication costs are choking off economic growth, because connectivity is not a luxury. It is an economic necessity.
Under the current system, companies are paying roughly 70 percent more for communications than in the Gulf, with phone costs among the highest in the world. Such costs discourage international firms from basing themselves in Beirut, and industries that could thrive from utilizing Lebanese bi- and tri-lingual skills – such as call centers – paying more for phone bills than for salaries, eliminating profits.
“For steady Internet, an average IT company spends $1,000 a month,” says Nicolas Rouhana, director of business incubation at Berytech, a private initiative by the Université Saint Joseph. “That’s the wage of an engineer, so companies either hire an engineer or get better Internet.”
When Intel chairman Craig Barrett visited Lebanon last year to promote e-government, he said that affordable and reliable Internet connectivity was “absolutely key in developing Lebanon.”
“Our message is loud and clear,” Barrett said at the time. “If you regulate and price connectivity as a revenue source, then you inhibit the economy.”


Connectivity. A glimmer of hope is in sight, however, with an Internet Exchange Point (IXP) installed at Berytech in March. The region’s second IXP after Egypt, the system allows ISPs to exchange Internet traffic between their networks, freeing up bandwidth for outside traffic.
“Whole country connectivity with the world is less than one gigabyte right now,” says Deek. “Our vision for Lebanon is very high broadband. Not just open connectivity for ADSL - of 256kb to 2MB - but we’re looking for 100 megabits per second per citizen, like in Japan.”
Deek estimates one million Lebanese are connected to the Internet, and the IT sector was valued at $570 million in 2007.
“I can’t say how much investment is needed, but future growth will be 30 percent a year, if we have stability, based on the government’s revival plan of five percent economic growth a year,” he says.
However, with Business Monitor International predicting annual trend-level real growth of just two percent between 2008 and 2012, Lebanon has a long way to go to get better connected and have an economic turnaround, especially given the current domestic and regional political situation.
“How can you talk of privatization if you feel you are on the verge of a civil war?” Gebara asks.

Photos by Paul Cochrane

Damascus Revisited

Damascus at night: the Barada River and the Four Seasons Hotel

From gas guzzlers to Dachias: A slash in import taxes on cars in 2005 has resulted in congestion on Damascus' roads

AISHTI magazine

For a city fabled as the longest continuously inhabited city in the world, change has always been a constant. But Damascus has not undergone the kind of change the first several years of this century has brought since the French Mandate ended.
Up until three or four years ago, Damascus seemed stuck in a 1970s time warp. Old American muscle cars plied the roads, haircuts and fashion styles would have suited unscripted walk on parts in “That 70s Show,” and cinemas were still advertising outdated Bruce Lee movies on hand-painted signs. Even changing greenbacks required a trip down a back alley, and the number of ATMs could be counted on one hand.
A raft of economic reforms since 2001 has brought about the gradual opening up of Syria, with the capital the natural centrepiece.
Private banks, fashion retailers, bars and restaurant chains are springing up around the city, while the old American gas guzzlers have been replaced with newer models following a slash in import tax.
Some will no doubt lament this change, but Damascus is no longer a destination frequented by Arabists, history buffs and Lebanese looking for a cut-price rug, a box of barazi, and a cheap mezze. There is much to now entice the discerning, and more demanding, visitor.

A break from shopping beside the entrance to the Umayyad Mosque

Damascus is now home to several boutique hotels, the Four Seasons, and an assortment of restaurants in renovated Ottoman-era buildings. The old city, a Unesco World Heritage site, has also seen a burst of innovation, with bars and nightclubs improving the formerly lackadaisical nightlife, and restaurants such as Naranj in Bab Sharqi a boon for the taste buds in its reworking of traditional Syrian cuisine.
On the cultural side, the fact that Damascus now has a Cultural Diary is a sign of the city’s reawakening. With Damascus the UNESCO Arab Capital of Culture of 2008, music and theatre are in the spot light, attracting talent from around the world, including Lebanese diva Fairuz’s (in)famous performance of the Rahbani brothers’ Sah al Nom at the Damascus opera house, Dar Al Assad.
For art lovers, the contemporary Syrian art scene has burst onto the international art map in the last two years, led by the Ayyam Gallery, Art House and the Atassi Gallery. The National Museum, which has been overhauled by a team of German archaeologists, also exhibits modern Syrian art.
Souk Hammidiyeh, with Roman pillars in the background

But while Damascus is gradually metamorphosing into a more consumer-orientated metropolis, the sites that have attracted visitors for so long are still there to revel in. The Umayyad Mosque, containing the shrine of St. John the Baptist, is a masterpiece of Islamic architecture, while the narrow streets of the old city hide the traditional Damascene houses that lie behind. Souk Hammidiyeh, one of the region’s largest covered bazaars, is still divided into categories, but along the main strip Bakdash is still the place to go for a pistachio nut ice cream. A Damascene tradition, the cream is pounded with large wooden mallets in front of customers by employees sporting 70s style mullet haircuts. Plus ca change, plus c’est la meme chose.

Pistachio ice cream at Bakdash

HOTELS A PLENTY

Damascus was sorely lacking in the luxury hotel segment until 2006, when the Four Seasons Hotel appeared on the city’s skyline, bumping the Meridien – which needs a facelift -and the Sham Palace – which needs to get rid of the ghastly plastic flowers – off the map.
With good restaurants, a much frequented lobby by Damascene businessmen to see and be seen, and art from the capital’s premier contemporary Syrian art gallery, Ayyam, the Four Seasons has raised the bar. Commanding great views of Damascus, particularly at night, a highlight is the Royal Suite, which is furnished with Oriental antiques and occupies the entire eighteenth floor. Attached to the hotel are several luxury boutiques, including Aishti and Aizone.
Damascus is soon to see more five-star hotels though, with the Kempinski Group to manage three hotels, and Cham Holding to build a $70 million hotel to be managed by the Marriot.

Photos by Paul Cochrane

The Road to Damascus: Lebanese Banks Expand in Syria

Executive magazine

Dark, heavy storm clouds continue to linger over the heads of many bankers worldwide, troubled by the subprime market crisis, fraud, financial havens and the plunging dollar. Lebanese banks have weathered this fiscal hurricane, although dark clouds in the otherwise clear skies of Beirut are dampening the sector’s dynamism.
But while the West wakes up to yet another financial scandal, and Beirut’s political impasse drags on, Lebanese banks in Syria have been having a field day since the sector was liberalized in 2001 and the Lebanese pin stripes moved into Damascus.
“Generally speaking all private banks have improved – improved assets, number of branches, liabilities, deposits and turnover, and all have made profit,” said Georges Sayegh, General Manager of Bank of Syria and Overseas, BLOM Bank’s Syria arm.
Indeed, private banks accounted for over a third of all private sector deposits at the end of 2007, according to the Central Bank of Syria. This has surged from 2004, when the first private banks entered, with a 4% share of deposits, and in private sector loans, from 3% in 2004 to 16% in 2007.
Lebanese banks are at the forefront of Syria’s fledgling private banking sector, with Bank Audi Syria, Banque BEMO Saudi-Fransi, Bank of Syria and Overseas (BSO), and Byblos Bank Syria already well established. They are to be joined by Fransabank, Banque Libano-Francaise and the Bank of Beirut.
“The banking sector looks nothing like it did four, or even two, years ago,” said Bassel Hamwi, Deputy Chairman and General Manager of Bank Audi Syria. “There is a lot more flexibility in the private sector, and we are just at the beginning.”
The sector has certainly come a long way since the decision to open up the sector was made amid concerns over the motivation of private banks in a socialist economy.
“I had a role in drafting the law in 2000, and discussion at the table and in society was that private banks would come and take our money. There was not a clear understanding of banks or motivations, but this has improved, and banks’ motivation is more or less clear,” said Hamwi. “The environment is very conducive to banking, and it is increasingly so and the reason for so much interest,” he added.
The initial teething problems common to all liberalizing economies were faced in the first few years of operations, between 2004 and 2006, while the Central Bank has completed 21 out of 30 steps of its financial reform plan.
“As we weren’t the first bank to have opened the key obstacles were faced by the first entrants at the start, but gradually things are smoothing out, one due to the Central Bank governor being very open and that he listens,” said Semaan Bassil, Vice Chairman and General Manager of Byblos Bank. “Sometimes they study [laws and regulations] for too long, but do make decisions, although we’d like it faster.”

Branching out

All the Lebanese banks are rapidly rolling out their presence in Syria. Bank Audi Syria has 10 branches, BEMO 20 branches, and BSO 10 branches with 19 slated by the year end, with plans to double the number in the next five years. Byblos Bank Syria has six branches with plans for 20 in the next three years, Fransabank Syria will have two to three branches by the end of the third quarter, and Banque Libano-Francaise’s Bank Al Sharq plans to have 12-13 branches by 2011.
Such rapid expansion is due to the country’s low banking penetration, with only one branch for 300,000 people, according to Hamwi. “A huge number have no access to banks, and don’t see them enough,” he said.
However, with Syria’s real estate market undergoing a boom, finding suitable locations is proving to be a problem. “It’s difficult to find adequate real estate and prices are quite unbelievable, more expensive than the seafront in Solidere in Beirut,” said Walid Raphael, Deputy General Manager of Banque Libano-Francaise.
Syria’s real estate boom is generating demand for mortgages though, with Byblos the first to offer such services last year, and other banks getting in on the act. Bank Audi Syria is to offer a housing loan within the next four months as a “show case product.”
“There is huge pent up demand for housing loans,” said Hamwi.
Introducing mortgages has not been a straightforward process however.
“The challenge is not the type of services, we are offering basic needs, but infrastructure,” said Bassil. “To get a mortgage you need to present a bill that the building was legal, but many built outside of regulations, so can’t present a clean bill. Potential borrowers also go to government agencies for paper work, and such bureaucrats have not faced such requests before, so infrastructure and mentality are going to change,” he added.
Banks didn’t venture into retail banking at first, initially focusing on commercial banking, but that is changing as the sector has developed.
“Retail takes time, otherwise we could have had retail products from the first month, but a cookie cutter approach to meet a huge number of people is not an easy process,” said Hamwi.
The banking sector has, after all, started from a low base, with strong demand for all personal loans, as well as a low base in terms of average income, which is around $150 a month.
“We would be able to sell more loans if disposable income was higher and more transparency from companies. People in Syria often have second or third job which they do not declare and thus cannot be easily taken into consideration these revenues versus the available consumer loans we are selling,” said Bassil.
Overly liquid

Ironing out bureaucracy and other related issues with banking services pales when compared to the high liquidity of the banks due to the lack of a government debt market.
“Banks are flooded with deposits, but the problem is what to do with it. Some banks are even discouraging people from putting in deposits,” said Dr Nabil Sukkar, Managing Director of the Syrian Consulting Bureau for Development and Investment.
The issue has become increasingly acute over the past year as private sector deposits with the Central Bank have surged, more than doubling in the case of certain banks. Bank Audi Syria’s deposits, for instance, were SYP 2.194 billion ($42.96 million) in December 2006, and SYP 4.49 billion ($87.93 million) by September 2007.
The Central Bank has repeatedly said over the past few years that it plans to issue treasury bills, but just like the stock market was intended to launch in the first quarter this year, no one has an idea when this will happen.
Banks do know what kind of return they would like to see happen with their deposits, which is currently set at 0% at the Central Bank.
“It is treated like a checking account,” said Hamwi. “We would like a government debt market that reflects sovereign risk. My guess is a minimum of 2.5% to 5%.” Sayegh at BSO suggested 3-4%.
“We need to have treasury bills and they know that,” said Bassil, referring to the Central Bank. “All depends on the market and interest rates. I’d be more cautious about setting the ideal rate, saying depends on supply and demand at a specific time, and on the bank, whether it is more or less liquid, and this depends on the lending opportunities linked to foreign investments, economic and political prospects, as well as bureaucracy and red tape for channelling these investments.”
Banks also want the labor law to be more flexible, amendments made to leasing laws, the establishment of a central credit agency, and for foreign exchange laws to be altered for electronic cards.
“Constraints are in issuing electronic cards, as you can’t transfer funds abroad,” said Mohamed Khaled, Retail Marketing Manager at BSO. “It’s an issue for international Visa cards, only linked to transfer accounts, so you are limited to a minority of people that have funds.”
A further issue is the lack of an electronic banking regulator, with most banks using Lebanon’s Creditcard Services Company (CSC), which is on the state-run Commercial Bank of Syria’s network, which rivals the state-run Real Estate Bank network. There are currently some 250 ATMs in Syria, which could reach 500 to 600 by the year end, according to Khaled.
Lebanese banks are also facing pressing human resources issues.
“Three challenges face Lebanese banks, one the brain drain in Lebanon so fewer good people are available and we need the best to set up and manage branches; two the cost of expatriates; and three the psychological barrier for some of the highly qualified Lebanese to come and work in Syria,” said Bassil. “There is a high need for expertise, so the Gulf and Lebanon are competing, and the costs are high.”

Free Zones and Extreme Views

The scramble by Lebanese banks over the past few years to get licences has been recently compounded by the government’s decision to close banks in Syria’s six free zones, which were opened prior to liberalizing the banking sector. Some banks, such as SGBL, will have to close completely.
Others, such as Banque Libano-Francaise, which is in the final stages of receiving a licence for its Bank Al Sharq, will have to move operations, as will Fransabank, which finished its IPO in March heavily oversubscribed, offering 36% and raising $14 million.
Lebanese banks have been able to retain majority control despite Syria’s requirement that private banks are 51% Syrian owned, through Syrian investors already linked to the Lebanese mother bank. For instance 10% of Fransabank Syria is in the hands of the Saade Group, and 5% with Ahmed Shehabi from Aleppo, said Nadim Moujaes, Deputy General Manger for Strategy and Development at Fransabank.
For Bank Al Sharq, which is to offer a 20% IPO, “the signature holders are all shareholders in Banque Libano-Francaise, so we will be in control of this entity,” said Raphael.
There is a draft law on the table however to increase foreign percentage ownership to 60%, as well as raise capital requirements to $100 million. But such an approach is putting off international banks from entering Syria.
“Go ask a European bank to give a percentage and they won’t accept, but the Lebanese will,” said Sayegh.
Bassil said the expected new high capital requirement may be a penalty for banks and shareholders. “Our French shareholders in the insurance venture there for example said Syria needs more capital in the future as the economy picks up and the projects start taking place, but why today? From day one, not gradually, say in two to four years. Syria is still growing gradually, and so the challenge is not capital but the ability to deploy it in feasible projects,” he said.
Syria’s status as a ‘rogue state’ in the eyes of Washington DC is also having ramifications for Lebanese and private banks, with bankers believing there is widespread aversion in the Western banking community to deal with Syria, and a reason no big players have entered.

Syria's support for Hizbullah and other groups is warding off international players and affecting Syrian banks' dealings with Western financial institutions.

Some banks in Europe have taken an “extreme view” in not dealing with Syria, said Hamwi, citing a leading German bank, while Bassil mentioned “global political issues.”
“I cannot call them major obstacles but there are some banks overseas, whether Arab or Western, that have refused to accept deposits from Syria. Also letters of credit,” said Bassil. “Some banks overseas don’t deal with Syria at all, and don’t want to touch Syria as it becomes a reputation issue – human rights and that they may support unacceptable states or armed groups. So today the political pressure on Syria is not yet a major issue but could be a potential threat if things get increasingly difficult.”
For the time being, Lebanese banks are enjoying Syria’s clear skies while hoping regulatory issues will be sorted out and treasury bills will be offered sooner rather than later.

ALL PHOTOS BY PAUL COCHRANE

Up and Down Trade: Syria and Iraq

By Paul Cochrane in Damascus, Abu Kamal and Lattakia for Executive magazine

Look at any map of maritime shipping routes and there are two geographically ideal ports for goods Iraq bound: Umm Qasr for ships from Asia, and Lattakia and Tartous in Syria for cargo from Europe, the Americas and Africa.
Maps however do not convey the realities on the ground, with the obvious points of entry to Iraq fraught with complications. Umm Qasr’s ports are in a state of infrastructural disarray, shippers report corruption and theft, and some $13 billion is needed for the first stage of a new port, the ‘Larger Port.’ Further billions are needed for the new Al-Faw port, and the other four harbors in the Shatt Al Arab all require serious upgrades.
Kuwait, a potential contender for major trade hub status with Iraq, is currently hampered by customs, high taxation and foreign ownership issues in addition to inadequate port facilities, although the development of the $1.2 billion Bubiyan island port facility will change this in coming years.
All of this has left Iran, Turkey, Jordan and Syria to take up the slack as the main maritime and trade routes into beleaguered Iraq. Iran however is benefiting in terms of exporting Iranian goods and machinery, Turkey likewise, leaving much of the maritime trade for Iraq to come through Jordan’s Aqaba port – logistically far from Iraq, particularly the urban zones of the Jazira – and better geographically positioned Syria.

Up and down trade

Syria, despite its proximity to Iraq, has not exactly pushed the boat out to capitalize on the geographical attributes that make the country a natural trade partner with its neighbor and a major transit route from the West and Africa. Official trade figures from 2004-2006 are only indicative of one particular trend, declining imports from Iraq, from SYP 4.53 billion in 2004 to SYP 958 million in 2006.
The trend for Syria’s exports to Iraq can be best described as a reverse bell curve, from SYP 23.95 billion in 2004, down to SYP 13 billion in 2005, and then surging to SYP 32 billion in 2006. With the figures for last year yet to be released, it is not known whether Syria’s exports spiked or declined in 2007, particularly given the reasons for 2005’s plunge in exports not clear from talks with the public and private sectors.
Equally, on a visit to the North East Syrian-Iraqi border at Abu Kamal-Al Qaim, there was no traffic to speak of and locals reported minimum activity. This was not overly surprising given the state and size of roads from Deir E Zour to the border, in addition to the lack of a major highway on the Iraqi side, despite Abu Kamal’s strategic position 648 km from Lattakia, and 403 km to Baghdad, one of the shortest routes to the Iraqi capital and immediate north.
Indeed, the state of Syria’s infrastructure does beg the question of why Damascus is not doing more to improve connections to Iraq, although the Logistics Performance Index released by the World Bank last year does give an idea. Out of 150 countries reviewed Syria ranked 135, and 15 out of 16 countries in the MENA region, ranking best for domestic logistics costs and worst in ‘logistics competence.’

The Syrian-Iraqi border at Abu Kamal

Considering Abu Kamal’s logistical difficulties, the South Eastern border at Al Tanf is the more favored crossing, connecting to a major highway in Iraq’s Anbar province that also merges Jordanian traffic to Ramadi and Baghdad, clocking in at around 955 kilometres from Lattakia to Baghdad.
Syria’s northern border at Tall Kujik is also a preferred route, for both Turkish and Syrian traders.
“For security reasons a lot of people take cargo to Aleppo and then to Northern Iraq to the Kurds, as they have established some form of security,” said Samir Hamod, manager of Maersk’s trade coordination office in Lattakia.
Goods are also transported from Aleppo by train on a rather circuitous route via Qamishle in the far north to Mosul. “It’s the best way, safe and lower costs,” said a Lattakia-based logistics company that preferred to remain anonymous.
Syria is to improve this route however, currently laying a railway via Deir E Zour that will run to Mosul and on to Iran, although when the Iraqi side will be operational is far from clear (the first stage of a 284 km railway around Baghdad, slated to cost $8 billion, is expected to take six years to complete).


Low quality trade

One reason for such unpredictable trade, aside from security on the Iraqi side, is the accessibility of the border crossings. “It’s hard to know about the borders, they are sometimes open, and at other times closed, so trade is good at times, bad at others,” said the logistics company.
Indeed, according to a Voices of Iraq (VOI) report in February that quoted the head of Al Qaim City Council, the border with Abu Kamal was only re-opened in November after closing for an undisclosed time after security improved on the Iraqi side.
Although trade has increased since then, local traders complained in the VOI report of second-level quality or expired goods entering from Syria. “Despite the Al-Qaim border now being open, I am still importing foodstuff items from Turkey because Turkish products are of a much higher quality and competitively priced when compared to similar Syrian products. Locally consumed products in Syria are high quality, and Syrians export low quality products to Iraq,” a trader is quoted as saying.

Truck on the Damascus to Deir E Zour highway

According to Jihad Yazigi, editor of economic and business newsletter The Syria Report, Syria’s manufacturing sector has benefited from bolstered trade with Iraq, as following the 2005 Greater Arab Free Trade Area (GAFTA) pact local production has been affected by higher quality products and packaging.
“Usually the Syrian manufacturing sector has difficulties exporting, and Iraq is an easy market. It has given breathing space to a lot of manufacturers, with Iraqis coming and paying cash,” said Yazigi.
He added that goods exported to Iraq are primarily foodstuffs and manufactured products.

Port development

Syria has much to do in developing infrastructure for trade with Iraq, but its major ports are getting much needed investment. In February, a cooperation agreement was inked between Syria and the Japan International Cooperation Agency to modernize and improve goods shipping and infrastructure at Lattakia’s port. A Chinese firm is also to install a gantry crane in the next three months.
Meanwhile, the Tartous International Container Terminal is being upgraded by a Filipino firm, ICTSI, which is also to manage the port as part of a 10-year concession.
“For Syrian decision makers the country’s position as an infrastructure route is so strategic that at the Tartous port they contracted a private company to manage it. This is new for the government, to encourage BOTs (Build Operate Transfer), and this is a significant contract,” said Yazigi.
Although Tartous is geographically better suited for trade with Iraq, the port currently handles considerably fewer containers than Lattakia, handling 38,649 containers in 2006 compared to Lattakia’s 471,970. Cargo at Tartous however is significantly higher, at 12.76 million tons as opposed to Lattakia’s 8.09 million tons.
But just as customs issues need to be ironed out at the Iraqi border, Maersk’s Homod said Lattakia’s port authorities’ need to streamline inspections.
“Lattakia can handle a lot of containers but one problem we are suffering from is customs. A lot of commodities have to be inspected - strip searches - inside the port so that causes congestion. The normal procedure at a terminal is to go to a warehouse and empty it there,” he said.

Port of Lattakia

Influx of Iraqis

Legislation and regulations are certainly not lacking for trade with Iraq to flourish, with bilateral agreements in place, gas and electricity networks in operation, and relations between Damascus and Baghdad warmer than they have been for 30 years. Turkey, Iraq and Syria have even agreed, just last month, to set up a joint water institute to share their water resources. Syria’s first private airline, Sham Wings, is also now flying to Baghdad, competing directly with Iraqi Airways.
“It’s not so much legislation [that needs to be amended] as attitude,” said Dr Nabil Sukkar, Managing Director of the Syrian Consulting Bureau for Development and Investment. “We are liberalizing trade, but it’s difficult to know what is happening on the ground. That has to be talked about rather than through legislation.”
As economists and businessmen point out, aside from official trade statistics there is minimal information about the scale of trade, what is traded, and where it is bound.
“We know the origin of containers but it’s difficult to determine where the cargo will go,” said Homod. “A lot of cargo is declared in transit, or to the free zone, and can then go to Jordan, Turkey, Iraq or Lebanon.”
Furthermore, informal trade with Iraq is presumed to be extremely high, as well as inflows and outflows of cash to the 1.36 million Iraqi refugees currently in Syria.
The number of refugees increased 19% last year, which has had negative effects on the Syrian economy since 2003, triggering inflation, higher rents and costing the treasury some $1 billion a year, but on the other hand has strengthened ties.
“There has never been as strong a relationship between the two countries as due to the refugees – intermarriage, contracts and investment in factories, and a private university. A lot will also stay on when there is stability in Iraq,” said Yazigi.

ALL PHOTOS BY PAUL COCHRANE

SYRIAN ART: The Ayyam Gallery - Damascus

Detail from Safwan Dahoul's 'Reve' series

Aishti magazine

There was never much business in the Syrian art business, and the art world knew little about the insular world of contemporary Syrian art. But this has all begun to change as Syrian art becomes a hot commodity, from Dubai to London to Hong Kong.
At the forefront of this renaissance is Khaled Samawi, whose Ayyam Gallery in Damascus has brought both business and the world to the Syrian art scene.
Samawi, a former private banker in Switzerland, had retired to Damascus with his collection of 300 mostly non-Arab paintings. “I got back, played golf, and then got interested in art. I didn’t realize the wealth of art here or the price,” says Samawi. “Artists were de-valued because people didn’t know about them.”
With an empty building, and no desire to have tenants above his own residence, Samawi decided to open a gallery in late 2006. “I was convinced of the strength of the art,” he adds.
Samawi hasn’t been proven wrong, with the price of Syrian art up 500% since the Ayyam Gallery opened.
“January was our best month, with 40% of sales to Lebanese. People come with their interior decorators and before they know it their whole house is full of Syrian art,” he says.
“And in international auctions we’ve seen that the Syrian section used to be the smallest, but now it’s the biggest along with Iran.”
Samawi has brought his business acumen to the sector, but his passion lies in promoting art and providing stability for artists.
“We are probably the first gallery in the Middle East to sign contracts with artists. Most artists go to galleries and then take their junk and leave. We work for artists as managers, to allow artists to concentrate on their art,” he says.
Ayyam currently represents some 20 artists – including Safwan Dahoul, Ammar Al Beik, Youssef Abdelke, Fadi Yazigi, Mouteea Murad, Louay Kayyali, Mouneer Al Shaarani, Asaad Arabi and Asma Fayouni - displaying work through 12 exhibits a year and at international art fairs in the Emirates, New York and Hong Kong. Samawi is also planning to open a gallery in Dubai.

Detail from Ammar Al Beik's Museum Warden

Youssef Abdelke: Untitled, charcoal on paper (2008)

Ammar Al Beik's The Strong Believers

The Ayyam Gallery started showing art from the last 20 years, but is now looking at 2006 and onwards. “We started with pioneers and the established, and now focus on established and emerging artists,” he says.
To encourage emerging young artists, Ayyam Gallery carried out a competition last year called Shabab Ayyam where 150 artists vied for $10,000 in prize money. Three winners were awarded and 10 artists picked to be promoted by Ayyam.
“It was very satisfying. Some of these kids were part-time artists, part-time taxi drivers,” says Samawi.
Indeed, galleries have become an important space to introduce Syrians to contemporary art, with the Ayyam Gallery attracting between 500 to 1000 students to each gallery opening.
But one notable trend is that Syrians are not buyers. “Syrians traditionally collected carpets, antiques and silverware. Now with Syria opening up, more are interested in buying cars, jewellery and haute couture, but when done people might start collecting modern art,” says Samawi.
But what makes Syrian art so attractive to international buyers? “If you look today at the Middle East, Syria and Iran have the best art. The art is unique and strong because they’ve been closed to contemporary art. The artist is not doing it to sell it – he hopes it sells – but doing it because he believes in it,” he says. “The best thing the Syrian government ever did for art was not to interfere, they left it alone.”
However, Syrian art did raise eyebrows at last year’s ArtParis exhibition in Abu Dhabi.
“At ArtParis people said why’s your art traditional, not contemporary or installation? But I said a woman with a veil and a vibrator, that’s not Syrian art, or what we represent. You can’t ask an artist to do derogatory art, he should do his own art.”

Detail from Safwan Dahoul's 'Reve' series

PRINTS COURTESY AYYAM GALLERY

Focus on Foreign Investment: Energy in Libya

Petroleum Review (UK Energy Institute)

The opening up of Libya’s economy couldn’t have come at a better time for international oil companies, which have been beset in recent years by dwindling easily accessible oil reserves, tighter controls over exploration rights and extraction, and heightened security concerns.
Libya has proven oil reserves of 41.5 billion barrels, the ninth largest reserves worldwide, which could be trebled if modern extraction techniques were used and exploration expanded from the current 30% of Libyan territory.
Up until 1974, Libya was pumping out 3.3 million barrels of oil per day (bpd) and had all the major players involved. The plan now is get Libya’s production back to the level of pre-nationalisation days, slated for 2012.
Following the 2004 warming of relations with the United States, once Tripoli renounced its weapons programmes and shrugged off its reputation as a ‘rogue state’, a raft of licences were signed with some 40 IOCs. The big players also returned after a 30-year hiatus, Shell in 2005 with an onshore gas and LNG project, the Oasis Group, a consortium consisting of ConocoPhillips, Marathon and the Hess Corporation, in 2006, and BP and ExxonMobil in 2007.
Investment correspondingly flowed in and Libya’s output surged from 1.5 million bpd in 2004 to an anticipated 1.9 million bpd this year, and gas at 3 mill scf/day or 85 bcm.
But in the three years since Libya came in from the cold, the initial scramble by IOCs competing to extract Libya’s light sweet crude and gas has started to peter out as the country imposes increasingly tighter production rights and hand picks companies.
Such, at least, was apparent at the last round of bidding in December, where 35 companies were pre-selected to bid for 41 gas blocks offshore and onshore, but only 13 companies put in bids and only four blocks were awarded out of 12 licences. Six licenses, five of which were offshore and one in southern Libya, didn’t find any bidders.
The four successful bids were won by Shell, Russia’s state-run natural gas exporter Gazprom, Algeria’s Sonatrach with Indian Oil Corp. and Oil India Ltd., and Polskie Gornictwo Naftowe i Gazownictwo SA of Poland. Occidental Petroleum Corp. and RWE AG were the sole bidders for the other two blocks.
The lack of interest by IOCs was attributed to the blocks offered by Libya’s National Oil Corporation (NOC), and the selection of companies that would provide the highest share of production, with Gazprom offering 90.2% of any production in finds in western Libya, and Shell offering 85% to search for gas in central Libya.
Indeed, one IOC, on condition of anonymity, explained why they didn’t put in a bid as a “lack of potential in the blocks put forward combined with expected tough fiscal requirements.”
The winning bids also came at a cost of paying a minimum bonus of $10 million once contracts were signed, and the expectation of spending up to $2 billion on exploration.
“Training and education of Libyan professionals is also high on NOC’s wish list in all negotiations,” said an IOC source. BP, for instance, is to spend $50 million on education and training projects for Libyan professionals during the exploration and appraisal period, and will spend a further $50 million from commencement of production.
Like other oil countries, Tripoli has been able to demand more attractive deals due to higher energy prices, with Libya’s annual oil sales at $20 billion, and in the knowledge that IOCs are eager to add new operations to their portfolios.
BP’s $900 million agreement last May guaranteed the company a 19% stake in any field found, Libya a 78% stake and the state-owned Libya Investment Corp. (LIC) 3%, while in 2005 the Japan Petroleum Exploration Company went as low as a 6.8% stake in future production rights from its block, and ExxonMobil and China National Petroleum Corporation taking 28% respectively.
But as Wolfram Lacher, a North Africa analyst with the Control Risks Group, pointed out, the tougher terms for contracts “have been affected by more transparent and fair methods than in many other countries, which is encouraging.”
Other on the ground issues are affecting IOCs in Libya however, experiencing bureaucratic problems moving equipment into the country, acquiring visas and the shortage of qualified employees.
A further issue that certain IOCs are facing is the perception that Libya favours certain companies to cement political ties, evident in bids going to Russia, Europe, Algeria, and in particular, the US.
“The feeling remains that NOC prefers to deal with US companies,” said a leading European IOC.
Such a policy indicates the growing importance of strong relations with the West, a reversal of which seems unlikely, said Lacher.
Other political issues are of concern for the long run however, with the reforms underway likely to lead to bids for power, especially when Colonel Gaddafi steps down or passes away. And although terrorism is not currently an issue, said Lacher, with Islamist armed groups suppressed in the 1990s, “that could potentially change in coming years as it appears that the Libyans are quite a significant number of the fighters in Iraq, and if they go back, hypothetically speaking, could form a new group and form a threat to foreign interests.”

The Master Plan

Libya’s tougher stance on tenders runs counter to the NOC’s goal of boosting production to 3 million bpd by 2012. With claims that Libya’s infrastructure is at least 20 years behind, in addition to a Libyan worker quota despite a human resources supply gap, observers say that Libya will be hard pressed to meet the 2012 slated production capacity.
Libya has the technical reserves and exploration acreage to hit the target, but IOCs are calling for changes in Tripoli’s fiscal regime. “To attract foreign investments in the oil industry and to increase Libyan production up to its target of 3 million bpd, it is in our opinion necessary to improve the fiscal regime,” said a source at an IOC.
“The less interest by the IOC’s in the last bid round illustrates this point. This is particularly applicable to the entitlement production left to the IOCs, which in the last Exploration and Production Sharing Agreements (EPSA) was getting marginal,” he added.
Nonetheless, IOCs are banking on the long run, making concessions and investing billions. Indeed BP, which is hoping to seal a further deal in May, said it is “working on a 20 year timetable, so we’re only at the beginning.” Petro-Canada, Austria's OMV, Occidental and Eni have also negotiated extensions to their contracts by 25 to 30 years.
With Libya decades behind in infrastructure and only 30% of Libyan territory explored, the NOC has a ‘Exploration Master Plan’ for 2005-2015, which seeks to increase reserves to 20 billion barrels of oil equivalent by increasing exploration in offshore and frontier areas. By 2020, production is expected to be 3.5 million barrels bpd.
To achieve this the NOC is targeting a minimum of 50 wildcat wells drilled per year and the shooting of a minimum of 4000 km2 of 3D seismic and 10,000 kilometres of 2D seismic per year, according to BP. These targets are to be met through NOC and Joint Venture operations and from some $7 billion in investment by IOCs.
BP’s deal last year is part of the plan, with BP and the LIC to explore around 54,000 km2 of the onshore Ghadames and offshore frontier Sirt basins, two of Libya’s five major basins. The colossal blocks, with the North Ghadamas equivalent to the size of Kuwait and the offshore Sirt basin the size of Belgium, will require BP during the exploration and appraisal phase to carry out 5,500km of 2D seismic and 30,000km2 of 3D seismic tests, and the drilling of 17 exploration wells.
The Sirt basin, which has an estimated 22% of Africa’s 300 billion reserves, has been the most productive field to date, having produced over 20 billion barrels of oil equivalent. With up to 300 kilometres of offshore deepwater Sirt unexplored, the basin is believed to be ‘on trend’ geologically with onshore Sirt and is thought to be a buried rift with multiple play opportunities, similar to those found in the North Sea.
Libya’s plan to boost output will require an estimated $30 billion for infrastructure, from new pipelines to refineries, with current refinery output only at 380,000 bpd.
In January, UAE-based firms Star Petro Energy and the Star Consortium of TransAsia Gas International inked a joint venture agreement with NOC for a $2 billion upgrade of the 220,000 bpd Ras Lanuf export refinery. Expected to take five years, the upgrade will initially refurbish the existing plant to increase capacity and improve quality, while the second stage will expand the refinery and add the latest technology for converting fuel oil into high-value products and bring output in line with international standards.
Dow Chemical already has a separate deal with NOC to operate and expand Ras Lanuf's petrochemical facilities, which include naphtha, kerosene, light gas oil and heavy gas oil, and other units producing ethylene and polyethylene.

Gas

In addition to overhauling refineries and oil exploration, Libya is seeking to boost extraction of its proven 53,000 billion cubic feet of proven gas reserves and explore further as the global demand for gas spikes.
Italy’s Eni is the country’s major gas player in Libya, with the $5.6 billion West Libya Gas Project in the Sahara. The project includes the 482 kilometre underwater Green Stream pipeline, the first direct gas link to Europe, which runs from Mellitah to Sicily, which is expected to produce at full capacity 10 billion cubic meters of gas a year, of which 80% will be exported to energy hungry Europe.
In LNG, the major development underway is by Shell in the Sirte basin, through a May 2005 agreement. According to Shell, seismic activity at the Sirte basin acreage is nearly complete, with the first well to be spudded in the first quarter of the year using a rig capable of reaching depths of 20,000 feet.
In January, a new joint operating agreement was signed between Shell, the Sirte Oil Company (SOC) and NOC to rejuvenate and upgrade the Marsa El Brega facility and search for gas reserves that could lead to a greenfield plant.
The SOC will operate the LNG plant at Marsa El Brega during the $350 million upgrade, which is expected to return output from the current 700,000 tonnes per annum (tpa) – which is currently supplied through a contract to Spain – to 3.2 million tpa. The rejuvenation of the plant is to cost $293 million, and if more gas is discovered, a greenfield liquefaction facility is to be built at Ras Lanuf at an estimated cost of $2 billion to $3 billion. Feasibility studies indicate that trains in the range of 4 million to 5 million tpa would be the optimum amount for a greenfield facility.
Boosting gas production will also cater to a growing domestic demand, as Libya’s economy grows on the back of liberal reform. But such increases in energy output will require Tripoli to renegotiate OPEC quotas from its current 1.6 million bpd.

Closing the Doors on Oil’s Big Boys

Commentary - Executive magazine

The halcyon days of cheap energy, pliable governments and a public that didn’t give a damn about pollution or global warming are over for the international oil companies (IOCs). This we all know, or are slowing coming out of a somnambulant state to realise, but recent trends in the oil industry are presenting further concerns for IOCs at the very same time as IOCs report bumper profits on the back of high oil prices.
Energy giant ExxonMobil reported a $39.6 billion profit for last year, BP $17.39 billion and Shell $27.6 billion. Such profits were deemed ‘obscene’ in the British popular press, as indeed they might be perceived to be, but what was less noted amid the hullabaloo was that BP saw profits plunge 22% on 2006 – and is now laying off employees - and that Shell is to sink $26 billion of its profits into developing new projects. Likewise ExxonMobil spent $21 billion in capital expenditure last year, but production increased by less than 1%.
So what is behind this change in fortunes? After all, the IOCs had enjoyed year-on-year record profits for the past five years, demand is still rising and oil looks like it will continue to hover around $100 a barrel.
The problem that IOCs are facing is production and access to energy reserves. The cost of production has surged from $5 a barrel in 2000 to $14 in 2006, largely due to the rising costs of extraction as well as construction of upstream and downstream facilities.
This was evident in the amount Kuwait’s National Petroleum Company (KNPC) had to shell out to build the 615,000 bpd Al-Zour refinery, the world’s largest purpose built facility of its kind.
The original budget was $6.3 billion, but with the cost of raw materials doubling and even tripling in the Gulf, no construction firm would touch the project and the refinery was on the verge of being shelved. But so important is the refinery to the Kuwaitis that the government eventually capitulated last September, earmarking a staggering $14.29 billion to get the job done.
“We are now touching un-chartered territorial waters, the value of contracts in the billions of dollars,” said Ahmed Al-Jemaz, KNPC Deputy Managing Director of the Shuaiba refinery.
Such spiralling costs are naturally of concern to IOCs – Shell admitted a 10% annual increase in inflationary costs - but of more pressing concern is the access to energy rich countries.
One by one doors are being closed to the IOCs as countries re-nationalize resources. Last year Russia put the screws on BP and Shell to hand over majority stakes in gas operations to the state-run Gazprom, Bolivia nationalized gas and oil fields, Ecuador used military force to take over Occidental Petroleum’s holdings, and Hugo Chavez gave IOCs a choice: handover majority stakes to Venezuela’s national oil company or face complete nationalization of operations in the Orinoco River basin.
In the case of Venezuela, BP and Norway’s Statoil Hydro opted to stay but for ConocoPhillips, which pulled out, the loss of its Orinoco holdings saw the American company’s second quarter earnings plummet 94%.
The loss of these countries, coupled with growing competition from national oil companies (NOC) around the world – a cursory glance at the countries NOCs operate in is more than ample to see they are not confined to exploiting their own national resources – is what Jeroen van der Veer, Shell's chief executive, was quoted as saying is a dangerous trend.
IOCs can be thankful then that the MENA region is not part of this re-nationalization phenomenon, but Arab governments are savvy enough to know they don’t have to be taken for a ride.
IOCs are having to face the reality that to access the likes of recently de-nationalized Libya, with proven oil reserves of 41.5 billion barrels and only 30% of the country explored, deals are getting tough.
This was apparent at the last round of bidding in December, where 35 companies were pre-selected to bid for 41 gas blocks, but only 13 companies put in bids and only four blocks were awarded out of 12 licences.
The lack of interest by IOCs was attributed to ‘uninteresting’ blocks offered by Libya’s NOC, but most notably it was Tripoli hand-picking companies that would provide the highest share of production, with Gazprom offering 90.2% of any production in finds in western Libya and Shell offering 85% to search for gas.
Such tight restrictions were not there to access Palestine’s recently discovered gas, with only 25% going to the Palestinian Authority, and Iraq’s oil law looks like it will hand over the lion’s share to IOCs, but Libya is not alone in the region with its tough stance.
The only thing that the IOCs have on their side right now is the skills and technology that NOCs don’t – as of yet – have.
All in all, it looks as if 2008 will be another roller-coaster year for the IOCs while NOCs, albeit not necessarily laughing all the way, can at least show some bravado on their way to the (central) bank.
Photo courtesy of BP

Emaar and the Scramble for India

Executive magazine
By Paul Cochrane in New Delhi


As if building the world’s tallest building and investing in projects throughout the MENA region wasn’t enough, Dubai-based property giant Emaar is rolling out its presence in the world’s second most populated country.
Through a 2005 joint venture with Indian development company MGF, Emaar-MGF has been involved in multi-billion real estate projects from Delhi in the north to Hyderabad in the south, and plans to build in India the world’s largest mall and a Giorgio Armani luxury hotel.
But Emaar is not the only Gulf developer in the subcontinent seeking a slice of a burgeoning middle class with extra purchasing power. Nakheel, a subsidiary of Dubai World, is hot on Emaar’s heels, inking deals in 2007 worth $25 billion, along with Dubai-developer Damac Properties announcing they were to invest $5 billion in India over the next five years.
Other private Gulf investors are also to sink $5 billion into developments in a sector analysts forecast will surge by 700% in the next decade.
The sudden foray into India by Gulf investors is not confined to the likes of Emaar and Co. seeking to build real estate and malls. With transactions in the market expected to grow from $14 billion to $102 billion in the next 10 years, $150 billion to be spent on infrastructure, and Indian stock markets riding high- Bombay’s bourse rose above 20,000 points for the first time in late October – Gulf investors are scrambling to get in on India’s boom. Bahrain’s TAB Bank now has two funds in Indian bourses worth over $220 million and Dubai’s Abraaj Capital a $250 million fund with Mumbai’s Sabre Capital.
Other developments are also afoot, with Dubai-based developer ETA Star Properties to develop a $923 million ‘infotech’ park in Chennai, and the Gulf Finance House to back the $395 million Energy City India, cementing Delhi’s energy links with the GCC.
And at the end of the year, RAKEEN, a property arm of the Ras Al Khaimah government, formed a JV with India's Trimex mineral group to spend $5 billion on developing residential, commercial and office space.
As Mohamed Ali Alabbar, chairman of Emaar Properties, told the press, “India is only an hour away from us, it is our true China and with the size, population, the culture, the economic policies, growth that exist in India, it's a great opportunity.”

Bullish market

Property and mall developers are rising high on India’s7% annual economic growth and a middle class that is expected to surge from 50 million to 587 million by 2025, according to a McKinsey Global Institute study, propelling 5% of the population in the middle class bracket to some 40%.
But with an economic boom as well as a rising population – 1.1 billion and growing - property prices are spiking. And the rush to develop real estate in India, as for any emerging market, is also about the scramble for land.
Mumbai is now the second most expensive city globally for office space, with rent rising 55% in the last year, and New Delhi in the eighth slot, up 34.4 %. Such rising costs were reflected in a $10 billion Nakheel development last year, with land accounting for some 40% of the price tag. As a result, Emaar-MGF has embarked on a $12 billion pan-India program that will include special economic zones, hospitals, residential units, hotels and malls.
“We have a pan-India presence, and will have a presence in all 22 states through the land we have acquired and are in the process of developing that,” said Anupama Chopra, Head of Corporate Communications at Emaar MGF Land Limited.
In bulging-at-the-seams cities like Bombay with 12.6 million people and Greater Delhi with over 14 million, developers are focusing on the tried-and-tested in the Gulf ‘integrated township’ model of residential and retail space.
“This is something that is prevalent in the rest of the world but not in India,” said Chopra.
Utilising the same model as in the Gulf, most of Emaar’s architectural designs for Indian projects are the same, “trying to replicate here” what worked in Dubai, said Beedisha Chakrabarti, Corporate Communications Manager at Emaar-MGF. One of the projects, in Gurgaon, a satellite city of Delhi, is to be called Palm Springs.
To raise funds for such projects, Emaar-MGF plans to sell a 10% stake this year through an IPO, which bankers suggest might raise some $1.5 billion. When Nakheel’s JV partner DLF listed on the Bombay stock exchange in July, $2.25 billion was raised in India’s biggest IPO, and shares have since gained 30% in the past six months.

Retail dreams

Part of the land Emaar and Co. are investing in land is for the growing retail market, which is expected to grow 14 times by 2012 and retail chains to expand 25% a year, currently at only 5% of the market. Indicative of growth is the surge from 1.5 million sq. ft of retail space and 30 malls back in 2001 to 27 million sq. ft of space and 230 malls last year. But compared to China, the country has some way to go to match its neighborhood superpower rival’s retail space growth, which surged to 2.4 billion sq. feet between 1995 and 2003.
Negating the retail space difference however will be Nakheel JV partner DLF’s 3.6 million square feet Mall of India. And not to be outdone, Chakrabarti said Emaar wants to replicate the Dubai Mall in India. “We are looking at doing India’s biggest mall, as we cannot compete with our own product by having the biggest in the world,” she said.
However, at 5.8 million sq. ft the Indian version will out trump Dubai Mall’s retail space of 5.6 million sq. ft.
In India’s current boom climate – the dream of Dubai super-sized – it would therefore not seem overly farfetched to imagine Emaar building India’s tallest building some time soon. But what is more probable is the creation of development icons that have made the Gulf famous: offshore residential island projects, like the World and the Palm. “It’s on the drawing board somewhere but not right now,” said Chopra.

Top 10 cities worldwide for office space

Rank City Rent (Sq. ft/month)
1 London (West End) $27.47
2 Mumbai $15.90
3 London (City) $15.33
4 Moscow $15.33
5 Tokyo $15
6 Tokyo (Outer) $13
7 Paris $10.68
8 Delhi $10.55
10 Hong Kong $8.90
Source: CB Richard Ellis (CBRE)

Teeing off in Kashmir

Nox magazine February 2008
By Paul Cochrane in Srinagar and Gulmarg

Kashmir is known as a military hot spot, but instead of dodging bullets and hand grenades, Nox found there was a greater need to watch out for wild bears and avoid hitting golf balls at soldiers growing hashish on the seventh fairway


To tee off at any golf course in Kashmir requires a mixture of patience and a blasé conception of following the rules.
On arriving at what is considered the best golf course in India, the Royal Springs in the Kashmiri summer capital of Srinagar, there was no sign of the management and the only sign of life a handful of caddies lolling around the car park. And eager though the caddies were to lug clubs around the course, none of them knew the cost of a round.
Being a Friday afternoon, the management were “all at the mosque praying.”
“Can you come tomorrow?” suggested a caddie. “But the golf course closes for the winter tomorrow, I must play today.” - “No, the course won’t close, come tomorrow,” he replied. “But it says on the board it will close for four months.”-“Then come back in an hour, maybe someone is here then.”

The Royal Springs Golf Course in Srinagar

Later in the afternoon, manager Rafiq Azad explained that the club’s lack of dynamism was down to the lack of players, and that was not because of the exceedingly low green fees (even by Indian standards, at $7 for 18-holes), club hire ($5) or caddie service ($2).
It was “because of the situation,” he said, sounding not unlike a businessman in downtown Beirut or the Gaza Strip.
Azad was referring to Jammu and Kashmir's 60-year struggle for independence, another unresolved legacy of the British empire that has claimed tens of thousands of lives. With Kashmir a major piece in the puzzle of Great Game geopolitics, located as it is at the cross roads between Pakistan, Central Asia, and China (which controls 20% of Northern Kashmir and Aksai Chin), the area has long been at the forefront of an Asian ‘cold war.’
While India controls the bulk of Kashmir, Pakistan uses its slice, the sparsely populated Azad Kashmir, as a launch pad for a proxy war against the Indian state.
Kashmir has been the cause of so much tension between Delhi and Islamabad that the now nuke-wielding countries have been at war twice, and nearly at each others throats several times in the past 25-years.
This is all the more tragic as Kashmir was once a popular tourist destination, famed for its mountains, lakes, flowers and skiing, and called the “second Switzerland” (but not to be confused with the other equally unstable “Switzerland of the East,” Lebanon).
Although Pakistani bankrolled militancy has declined in recent years, along with popular support for such groups in urban areas, Kashmir doesn’t feature in all guidebooks to India, with potential visitors advised to avoid the area’s charms due to the fragile security situation.
Most of the tourists that do come are middle class Indians, but that too is dependent on the perceived safety of Kashmir. And so competitive is tourism within India that when a bomb exploded a few years ago the culprits, suggested one Kashmiri man, were not freedom fighters but militant hotel owners from Himachal Pradesh, a popular tourist destination in the lower eastern Himalayas, that were losing out to Kashmir’s resurgent tourism trade.
Talk of Kashmir’s current tourism woes led manager Azad to lament the lack of petrodollar-rich Gulf golf enthusiasts coming to the government-funded club. But mention of the club featuring in Arab magazines warmed Azad up, eventually leading to a discount in the green fees, from the foreigner’s $20 fee to the Indian rate.
The cashier didn’t seem so keen on the idea though, insisting on checking before returning with the a-ok. “We need to register you in the records. What’s your Indian name?”-“Um…Anish. Anish, ah, um, Singh.”-“Mr Anish Singh, you must play the round as an Indian, in case anyone asks.”

The million

After the round – in which “Mr Singh” was challenged by the plastic flip-flop wearing caddie to 5 Rupees (10 cents) a hole and lost by two – the walk back into the city along the banks of Dal Lake resembled a security cordon for a high-ranking politician.
Soldiers were dotted along the road every couple hundred meters, a common sight along all roads, possible only through Delhi forking out some $7 million a day to station over half a million troops in Kashmir.
But despite such numbers, the communication skills of the Indian Army are far from impressive. To get to a Hindu temple overlooking Srinagar that also houses a military base, visitors have to pass through an army checkpoint at the base of the hill, where tobacco and matches are taken away, and bags searched.
Half way up a soldier indicated a short cut to the top through the undergrowth, which required a scramble up to the stairs of the temple, where more soldiers stood around. The soldiers looked bemused at someone emerging from the forest and started talking avidly to one another. An Indian tourist remarked: “They were saying how lucky you are, that there was a bear down there yesterday. Why did you come that way?” – “A bear? But the army told me to come this way.”-“Ah, well.”
It wasn’t a joking matter, with the local press reporting that villagers on the outskirts of Srinagar had been mauled just the day before in attacks by leopards and bears.
Describing the ineptitude of the soldiers to Kashmiris, they damned and blasted the army, a feeling that is largely mutual. Talking to a Military Policeman from Delhi, he pointed down at the town and said, “all terrorists.”
Such animosity has led to heavy-handed tactics. A shopkeeper, Gulzar, said that a few years ago a militant had thrown a grenade at a military vehicle in Srinagar, and the army opened fire, killing six civilians, including his sister. At the morgue the Indian army insisted his sister had been killed by shrapnel from the grenade, denying that it was a bullet that gone through her heart, and this is what would be put in the report.
“I’m tired of all this. We don’t want the army here and we are all for independence, 95% of Kashmiris are, and we certainly don’t want to be part of Pakistan,” Gulzar said.
But as with any occupied populace, internal political divisions are holding back a united front. Certain groups want semi-autonomy, others a unified, independent and secular Kashmir; while sections of the Sunni community want a Sharia-based government, which is opposed by the 20% of Indian-Kashmir’s10 million population that are Shia.
In such a climate, external actors are having a field day. Saudi Arabia's Wahhabi influence has spread to Kashmir in the form of funding for madrassas, mosques and militant groups, and among the Shiites there is widespread support for Iran as well as Hizbullah’s Hassan Nasrallah. Making Kashmir sound even more like the Middle East’s problem child, Lebanon, even the Israelis are in on the act, reportedly seeking to gain a foothold as well, according to academics at Kashmir University.

A Shia Kashmiri holds up a framed photo montage of Iranian troika Khomeini, Khameini and Khatami. Beneath is a portrait of Mir Waiz Molvi Mohammad Farooq (Srinagar)

Ski patrol

The security situation presents more problems than just a lack of golfers, an imposing military presence and young Kashmiri men harassed with security ID checks when out walking the streets.
The military presence is even visible in tourist resorts, such as Gulmarg, popular with Indians from the south that come for a taste of cold autumn weather and the chance of snow – or else make do with a mock-up photo, standing in a pair of skis in front of a truck-size block of snow in the middle of a grassy field.

Middle class Indians from warmer climes enjoy 'skiing'

The whole far side of the town, as well as immediately above it, is given over to army barracks. Even up at 4,000 meters there is an army base, looking out at the towering peak of Nanga Parbat (8125m) and the Karakoram mountain range in Pakistan.
Ironically, with Gulmarg being a ski resort, the military presence poses a threat to skiers.
“We’re not allowed to use dynamite – no T-N-T – to trigger avalanches as the army is worried it could fall into the wrong hands, so we snow cut, which is much harder and more dangerous,” said Javid Katari, the head of Gulmarg’s ski patrol.
Katari’s office had been unintentionally indicated as the place to enquire about a game at the Gulmarg Golf Club, the second oldest in India and allegedly the world’s highest course at 2800 meters. Skiing and golf might not appear to have much in common, but with the golf course being completely re-developed and no snow, the commonality was in both sports being in off-season mode.
Katari suggested going over to the only functioning part of the club, the practice greens, where caddies waited around despite the course’s slated re-launch date being 2009.
A man came up saying he had a “temporary pass,” then went off to discuss with a club employee the logistics of playing 9 holes on a course that was being completely gutted. After teeing off a further commonality between golf and skiing in Gulmarg soon became apparent– the extremes of having to risk avalanches when going off-piste, and having to play cross-country golf as there wasn’t, by any standard conception of the game of golf, a functioning course.
Two holes into the game, a young man clad in the traditional Kashmiri garb of a phern – a long, woollen jellaba – appeared. “Do you want a second caddie to look for your ball?” the first caddie asked. Looking out over the rest of the course, of muddy ditches, ankle high grass, and heavy machinery dotted around, it didn’t seem such a bad idea, but two caddies to play a game of golf? Dismissal didn’t work, so he came with us anyway, illustrating his usefulness by indicating the hole on the dusty, overgrown greens with his foot.

The hair and the hashish

The tensions between Delhi and Islamabad have led to the rise of religious extremism, evident at one mosque where graffiti had been sprayed, in English on a wall, ‘Down with secularism.’

The writing's on the wall: 'Down with secularism'

But despite contemporary Middle Eastern religious and political influences, Kashmir’s colourful religious past – a Hindu kingdom then Buddhist, then Hindu again –means Kashmir’s blend of Islam has its curiosities, namely in the relic worship that still abounds, despite being mamnou (not allowed) in Islam.
Srinagar has a temple that supposedly contains the body of Christ, the story going that as Kashmir was paradise, then Kashmir was where Jesus went after ascending to heaven. And over at the Hazratbal shrine (literally ‘Majestic Place’) there is housed a hair from the beard of the Prophet Muhammad, preserved in a silver and crystal cylinder, kept in three wooden boxes and locked away behind five doors in the heart of the mosque.
Taken to Kashmir after the cuticle had been brought to India by two Saudi merchants in the 17th century, the light-brown strand is shown to the public twice a year. Where the hair had been for nearly 1,000 years after the Prophet’s death could not explained by the guide, but its time in Srinagar has certainly been eventful, a symbol of Srinagar’s religiosity.
In 1963 the hair disappeared when a guard took a break and someone broke in. All hell broke loose in the city, with the army killing two protesters during riots demanding the hair’s return. India went on national alert, a $21,000 reward was issued and conspiracy abounded in the halls of power. Delhi started pinning the blame on Islamabad as part of a scheme to incite the Kashmiris against them, and the Pakistani press mulled over India's Prime Minister Nehru being the thief, or that it was all part of a “satanic” plot “conceived in the so-called intellectual cells in a faraway Western capital.”
But a week later the hair was found in the grounds of the mosque, and Kashmir’s most holy man was called in for verification.
To prevent such future crises, soldiers now guard the mosque. But such religious issues are still sensitive, where debating the origins of the hair, or whether Jesus is really buried in Srinagar, is a touchy subject.
The next day teeing off at the British-era Kashmir Golf Club in the heart of Srinagar, conveniently located near the former British government residence, the caddie said he didn’t believe the strand of hair was the real deal. “But if I told certain people that they would kill me,” said Sanjad Farooq.
The Friday sermon resounding over the course had another message however, of religious tolerance. And the majority Hindu Indian army also had others things on their minds.
On the seventh hole two men in fatigues were rummaging around in the foliage at the edge of the green. “What are they doing there Sanjad?”-“Soldiers, growing hashish.” – “Hash, here? On the golf course?” - “See, there!”
Lining up for a shot with a 9 iron I hoped not to clobber a soldier with a golf ball, at least in any way that would make him think it was an attack by a vengeful Kashmiri that could prompt him to let rip with his machine gun.

- All photos by Paul Cochrane

Looks Good on Paper: The advent of the Gulf Common Market(GCM)

Executive magazine February 2008
By Paul Cochrane in Kuwait City and Beirut

There were no celebrations, media coverage was minimal, and border crossings weren’t noticeably busier than any other new year’s day. But there is a flag, there are plans for a common currency, and there is certainly much ambiguity in the air about the launch of the Gulf Cooperation Council Common Market, which, for the lack of an official abbreviation, will be referred to as the Gulf Common Market, the GCM.
The GCM came into affect on January 1, after 27 years in the pipeline, with the lofty aim of becoming the region’s equivalent of the European Union. At the present the common market resembles the European Economic Community (EEC), the forerunner of the EU, or for that matter other regional blocs, such as the Central American Common Market (CACM), the Association of South East Asian Nations (ASEAN), the Union of South American Nations (Unasul), and the North American Free Trade Agreement (NAFTA).
The GCM has a structure, a secretariat, a Supreme Council, and free trade, but like other regional blocs the goal of greater economic and political unification appears to be years away despite this year’s development.
Indeed, since the establishment in 1981 of the Cooperation Council for the Arab Gulf States, to use its official title, the regional body has to a large degree failed in its objectives, which, much like the EEC, were initially not about economic unification but rather to act as a forum for conflict prevention. After all, the body was established following a proposal by Saudi Arabia for an internal security pact among the Gulf monarchies after the armed uprising in Mecca in late 1979, and given further impetus after the Iran-Iraq war erupted in 1980.
The objectives of the council were to coordinate internal security, procurement of arms and national economies of member states, and to settle border disputes under the leadership of the Supreme Council. Yet despite the creation of a Saudi-led Rapid Deployment Force in 1984, the GCC could not broker a ceasefire between Baghdad and Tehran, and failed to present a united front in 1990 when Iraq invaded Kuwait. Even a committee to facilitate talks between Iran and the UAE over Iranian military exercises in the Straits of Hormuz in 1999 came to nothing.
However, this time the GCC’s objectives are to do with economics and the free movement of people, aims the region has been moving towards following a customs union agreement in 2003, a condition set by the EU for a FTA between the two blocs. For the GCM means that GCC citizens are now able to: live in any of the GCC countries as well as work in either the private or public sectors; buy and sell real estate; freely move capital; access preferential taxation details; own stock and form corporations in any member state; and access education, health and social services.
This is all very commendable, and the GCM certainly has a lot going for it, with a population of 35.1 million people, a combined economy of $715 billion, and an estimated 484 billion barrels of oil, more than half of the oil reserves of the Organization of Petroleum Exporting Countries (OPEC). Furthermore, with booming economies on the back of high oil prices, in addition to massive government surpluses, the GCM has real potential to succeed, at least on paper. But as analysts and businessmen point out, there is a great deal of difference between rhetoric and the facts on the ground.
“The GCM is supposed to create more business, more movement, but so many things have to be levelled and if not enough awareness is created, will not leverage the benefits of a common market,” said Dr. Fadi Makki, Senior Associate with Booz Allen Hamilton.

Time to unite

The biggest stumbling block of the GCM was evident at the very meeting that decided on the market’s launch this year. The annual GCC summit, in Doha in December, failed to provide any leadership on the challenges the Gulf is facing, namely a decline in currency values and rising inflation. For the GCC, Qatar and Dubai in particular, these dual issues are of major importance, making the region less competitive in attracting skilled foreign labor. Equally, the depreciation in the dollar has had an impact on unskilled workers, with laborers striking last year in the UAE over the greenback’s slump (two years ago the Indian Rupee was valued at 44 to the dollar, compared to the current 39 Rps).
What the summit did achieve was a controversial proposal, by Bahrain, for a six-year residency cap on unskilled expatriate workers, and a focus on rapprochement with Iran. Indeed, Iran attended the summit for the first time, a significant indicator of the current, and future, importance of solid relations between Tehran and its southern neighbors. Equally, with the Bush administration still keeping pressure on Tehran - the use of force, we are told, is still on the table - Iran’s attendance sent mixed signals from the Gulf, particularly at a time when the region is acquiring $20 billion in arms from the US.
Just as puzzling as the summit’s inability to tackle pressing financial issues were the statements about a common currency for the GCC, the ‘Gulf riyal.’ Although Gulf leaders issued a public communiqué at the summit that reaffirmed commitment to a 2010 deadline for a monetary union, a classified document leaked to UAE daily Emirates Business 24/7 showed that finance ministers had told heads of state that the GCC would not be ready by 2010. No deadline was given in the report, but if an interview given by the governor of the UAE Central Bank late last year is anything to go by, he said the GCC was unlikely to have a single currency by 2015.
This is not overly surprising, given Oman’s decision in 2006 to opt out of the common currency over concerns that spending targets would constrain economic growth, and last year’s decision by Kuwait to de-peg its currency from the greenback, citing inflationary pressure.
Therein lies the crux of the problems the GCM faces: Gulf countries are still acting independently of one another on economic and political policies.
“There is of course a large degree of liberalization, on tariffs (to zero), on services, establishing a business in another GCC country,” said Makki. “But now there is more work to be done, just as when the European market started, through stronger institutions, which have to be put in place. This will be essential to keep the momentum going, otherwise there is a tendency for capital protectionist initiatives. And a lot of things will have to be done differently, such as trade agreements being done separately, that will have to come to an end.”
Indeed, some developments currently underway in the region are at odds with the very aims of the GCM. Bahrain for instance has just proposed a dual price plan where non-nationals will be charged more for basic commodities than Bahrainis. Although aimed at expatriates, the proposal is for nationals only, not GCC citizens, flying in the face of the rights entitled to them under the GCM.
Then there is an issue that goes to the very heart of the GCM – the movement of people and goods, which was supposed to have been fast tracked when a customs union was introduced.
“They implemented GCC customs unification four years ago, and there are still hiccups,” said Ahmad Hammauda, Assistant Managing Director of Global Logistics Services and Warehousing in Kuwait. “If we go to Dubai today, as a Kuwaiti company - a GCC company - we cannot have our own trucks in Dubai, you have to have an Emirati guy with you. The same was true for Saudi Arabia but the law was changed five months ago, now allowing GCC trucks into Saudi. We are building a depot in the Dubai World Center, but that is a free zone, whereas in Dubai we can’t - how free is that?”
Furthermore, the construction of barriers in the Gulf is presenting, quite literally, a physical obstacle for the GCM, with Saudi Arabia to spend between $10-$15 billion to secure its 6,500 kilometer border, which includes three GCC countries, the UAE, Kuwait and Oman, and potential future GCM members Yemen and Iraq.
“I’m pessimistic for security reasons. Saudi Arabia is building a wall with Iraq, Kuwait with Iraq and maybe there will be one between Syria and Lebanon. All this putting up of walls is not good for removing borders,” said Hammauda. “We hope that things will be easier. It would be great if goods can move freely within the GCC, but I don’t think that will happen anytime soon. In my book the common market is similar to the EU or the US - a common market without borders,” he added.
Indeed, the postponement of the EU-GCC FTA is not only over the EU adding new conditions. Notably, the EU have pointed out a lack of coordination and uniformity among GCC countries as well as differences between governments in certain sectors such as labor laws, copyright and property rights.
As Eckart Woertz, program manager in economics at the Gulf Research Center, pointed out: “Legal codes and judicial regulations all need to be amended.”


Boom times ahead?

The need to amend GCM laws is crucial for the common market to flourish, particularly inter-regionally. Currently, trade between GCC states represents about 10% of overall foreign trade, which is expected to surge to 25% in the next two years, according to Bahrain’s chamber of commerce and industry, bolstered by the GCM.
The GCM is also expected to be a boon for neighboring countries.
“It will encourage countries to go in the same direction,” said Makki.
“The GCM is symbolic, the first of its kind in the area, moving towards ever closer coordination and countries giving up some of their sovereign powers - that is very significant.”
But before this happens along the lines of the EU – with the potential for expansion of the bloc on the cards, as the EU has done in the past decade – the GCC will need to liberalize further.
Woertz said that cross-border mergers are likely to improve if capital markets get closer together, or even establish a GCC integrated stock market.
“It would help if there were some inter-linkages, trading platforms and so on. At the moment its pretty much fragmented. If they wanted to develop and attract international investment, the GCC would need to do something there,” said Woertz.
Equally, the free movement of capital needs to be addressed by regulatory authorities, as a true common market would allow banks and financial services to set up in any GCC country.
The aim of giving GCC citizens equal rights in buying and selling property as well as shares also needs to be addressed. Currently, Dubai and Abu Dhabi allows international investors to buy combined stakes of 49% in listed companies, while certain companies are restricted to UAE citizens. Saudi Arabia however, the seat of the GCM, has allowed GCC citizens to buy and sell shares since September last year, and Qatar allows foreign investors up to 25% of a company’s shares. But only four bourses allow cross listing of shares – Bahrain, Dubai, Abu Dhabi and Kuwait.
This will all change though when institutions are created to unify the GCM, such as a central bank, courts of justice and a country chosen to represent, on a rotational basis, leadership of the GCM.
“Imagine how the GCM can negotiate with just one negotiator? They would have a lot of weight in a number of international institutions – the WTO, future trade negotiations with the EU and the US, and elsewhere,” said Makki. “Even in non-trade related institutions, the IMF, World Bank, OPEC. The GCC role in all these financial institutions is likely to grow, and grow significantly, but all depends on how coordinated their stance is vis a vis the issues that are at stake, so really the sky is the limit.”
Ultimately, the GCM has much going for it – a common language, bourgeoning economies and the ability to act as powerful bloc on the world stage. But before the GCM can progress, the political will needs to be there, along with a clear vision for GCC citizens of what the common market is all about.
“What does this common market mean? I’ve not heard much,” admitted Hammauda. “I heard one currency, and moving goods without documentation, but that is not there. We haven‘t heard anything that this might change. I don’t know what the GCM means to be frank.”


Gulf Cooperation Council – quick facts

Established: 26 May 1981
Members : Saudi Arabia, Kuwait, UAE, Oman, Bahrain and Qatar
Possible future members: Yemen, Iraq
Population: 35.1 million (GCC citizens 60%)
Total surface area: 1.04 million square miles
Combined economy: $715 billion
Combined oil reserves: 484 billion barrels (est.)
Current GCC trade: 10% of overall foreign trade
Source: AFP, Executive

GCC Common Market – What it means for GCC citizens

Citizens can move/reside without restrictions in any GCC country
Citizens have employment rights in either private or public organizations in the GCC
Citizens can engaged in all professions, economic, investment and service activities, and can buy and sell real estate in all member countries
Free movement of capital
Citizens are entitled to preferential taxation
Citizens can own stocks and form corporations in any member state
Citizens are entitled to education, health and social services in any member state