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September 2009 /N° 135

QATAR

LEBANON

No holding back its development plans

Tourists return to the Paris of the Orient

A Saad Affair The story behind Saudi Arabia’s missing mission billions and why it is rocking Gulf business to its core

Cozying Up

p U ke

The president of France discusses his bold plan for the Middle East

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The Battle Within

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SEPTEMBER 2009 • ISSUE 135 • WWW.TRENDSMAGAZINE.NET S.C.C Arabies, 18 rue de Varize, 75016 Paris, France Tel: +(33) 1 476 64600 • Fax: +(33) 1 438 07362 E-mail: editor@trendsmagazine.net

COVER STORY

A SAD SAAD SAGA TRENDS explores the web of relationships behind a dispute set to change the way business is done in the region.

INTERVIEW

TRENDS

REZA PAHLAVI

The International Renewable Energy Agency makes Abu Dhabi its unlikely base, while Lebanon goes green.

The son of the late shah talks to TRENDS about Iran’s disputed elections and the turmoil in the Islamic Republic.

INTERVIEW

QATAR

NICOLAS SARKOZY

The president of France discusses his country’s resurgent role in the region and his efforts to build a new relationship with the US.

Qatar is still flush with cash and pushing ahead with ambitious development plans, despite the global economic downturn.

IRAN

MEDIA

THE BATTLE WITHIN

GREAT EXPECTATIONS

As chaos retreats from the streets of Iran, its neighbors and Western powers await signs of stability.

A shift in advertising spending patterns has brought dramatic changes to the region’s media industry.

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SEPTEMBER 2009 • ISSUE 135 • WWW.TRENDSMAGAZINE.NET S.C.C Arabies, 18 rue de Varize, 75016 Paris, France Tel: +(33) 1 476 64600 • Fax: +(33) 1 438 07362 E-mail: editor@trendsmagazine.net

TOURISM

BACK TO BEIRUT As world tourism struggles, Lebanon celebrates stability and what could be its best year since 1974.

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PROFILE

INTERVIEW

HERMES-AL MANA

AHMET BOZER

The partnership between Hermès and Al Mana typifies the success of family businesses across the globe.

Coca-Cola’s man in the Middle East discusses the company’s brand portfolio and regional growth strategy.

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PROFILE

INTERVIEW

PATCHI

MARKUS GIEBEL

Despite Lebanon’s recent history of civil war and political strife, this chocolatier has enjoyed sweet success.

Deyaar’s CEO talks about Dubai’s real estate market and the need for low-cost housing.

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INTERVIEW

LAST WORD

GORDON GRAYLISH

SHAI RESHEF

Intel’s head for Europe, the Middle East and Africa talks to TRENDS about R&D, digital content and the role of IT in the region.

The founder and president of University of the People tells TRENDS about the trials and tribulations of a free university.

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TRENDS

ABU DHABI

Irena’s Unlikely Base By Dana El-Baltaji Dubai

city known for its poor environmental record, Abu Dhabi was an unlikely choice for the International Renewable Energy Agency (Irena) headquarters. However, in June 2009, the UAE capital beat Bonn and Vienna in the race to host Irena’s HQ. News of Abu Dhabi’s win, however, prompted journalists worldwide to question Irena’s decision. How could the capital of the UAE host the association if the country has the highest ecological footprint in the world, according to the WWF’s “Living Planet Report 2008”? So why did Abu Dhabi win? The press noted that Abu Dhabi’s bid to host the association was worth more than double Germany’s $11 million. The capital even offered to pay for the construction of Irena’s headquarters, together with a worldwide advertising campaign. “The irony of locating the headquarters of the organization for renewable

energy in an oil-rich country can hardly go unnoticed by the rest of the world community,” explained Thom Bohlen, chief technical officer at the Middle East Centre for Sustainable Development (MECSD). “Ironically, it may be big oil money that provides the funding to develop alternative renewable sources of energy, at least in the UAE.” Like other GCC states, Abu Dhabi’s oil revenues account for most of the capital used to develop its infrastructure and fund its construction boom – including the development of Masdar City, the world’s first carbon-neutral development of its scale. The $15 billion development will house the Sustainable Cities Research Center, which will provide invaluable information to nations that wish to build similar developments. Masdar will be powered almost entirely by solar panels, housing 40,000 people when it is completed in 2016.

Furthermore, Abu Dhabi is launching a capital investment venture, the Masdar Clean Tech Fund – valued at $250 million, to provide funds for developments in green technology. “The government has already earmarked 183.2 million dirhams ($50 million) in funding for the development of renewable energy in emerging underdeveloped countries,” explains Bohlen. “Masdar City – with its aim of becoming one of the first zero-carbon cities in this part of the world – includes in its goals the incubation of industries involved in the development of alternative renewable technologies. Irena’s headquarters will be at the very heart of this city.” Bohlen adds that the UAE is wary that it will one day deplete its oil resources, and that the country is dedicated to the development of renewable energy resources. It is, however, unclear whether despite the government’s drive towards becoming a greener country, UAE residents appreciate the importance of sustainable energy. “Abu Dhabi and the rest of the UAE have a lot of work to do to bring their collective carbon footprint into alignment with their sustainability goals. Like the rest of the world, there is a lot of talk about sustainability, but there will need to be a ‘walk the talk’ effort on a national scale to become successful at reducing greenhouse gas emissions,” Bohlen says. Changing the world’s perception of Abu Dhabi’s commitment to renewable energy is hard enough, but getting its citizens to adopt environmentally friendly habits may prove even more taxing. A survey conducted by Abu Dhabi’s Environment Agency in 2008 showed that environmental awareness in the capital is low. It may take considerable time and resources before residents of Abu Dhabi and the rest of the UAE are fully aware of the importance of green issues, including sustainable energy. Perhaps Irena’s presence may nudge them in the right direction.

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TRENDS

LEBANON

Going Green By Dona Challita Beirut

t’s not uncommon to see dark clouds of smog hovering over Beirut and other Lebanese cities, so it should come as no surprise that environmental protection has become a cause that cuts across sectarian lines. In a country of strong winds and around 300 sunny days per year (and where losses at the state power company amount to almost 5 percent of GDP), one thing the fractious political spectrum seems to agree on is the need to tap renewable energy sources. The main sources of pollution include vehicle traffic and power plants in the capital, Jiyeh, and the Kesrouan region, with cement factories in Chekka to the north adding to the toxic mix. Government and aid groups alike have been putting renewed emphasis on solar power, with at least three international donors considering using a portion of reconstruction aid to finance the installation of solar technology in newly built residences in

the war-torn south. One project, for example, seeks to spend $12 million installing solar thermal water-heating units in houses that were destroyed in southern villages, replacing the previous electric heaters. Environmentalists say renewable energy not only gives the country a viable alternative to traditional fossil-fuel power, but would also, if implemented widely, reduce the country’s frequent power outages. Lebanon experiences eight hours of power cuts on average every day, while the government spends close to $1.5 billion each year to staunch losses at Electricité Du Liban (EDL), the state power company. According to the Ministry of Energy and Water, a massive transition to solar water heaters would lead to energy savings of 10 percent, thus easing some of the pressure on EDL while reducing household energy expenditure by 25 to 30 percent. The ministry is looking into mechanisms to finance such a shift.

With Lebanon’s annual energy consumption expected to spike almost 50 percent over the next decade, the ministry recently took the first step towards the goal of reducing the country’s dependence on imported oil and gas by launching an awareness campaign to promote the use of renewable energy alternatives. In addition to solar energy, wind power is seen as having strong potential to displace hydrocarbons. Lebanon boasts a number of areas in the Beqaa Valley with gusts that rise to speeds of four to six meters per second, strong enough to fuel wind turbines. These areas include Kalaa, Ras Baalbek, Hermel, Kaa, Mouraijat, Hazerta, Akkar and Marjayoun. Meanwhile, firms have begun reaching out to environmentally conscious consumers, a sign of rising awareness of energy issues. Companies preaching the corporate social responsibility (CSR) doctrine are increasingly focusing on carbon neutrality. Rasamny Younis Motor Company, the country’s dealer of Nissan cars, has hired EcoSecurities, a UK-based environmental consultancy, to help reduce its carbon footprint by purchasing carbon credits on the global emissions trading market. In 2005, HSBC became Lebanon’s first carbon-neutral bank. Bank Med, meanwhile, has launched a CSR campaign dubbed “Happy Planet.” Environmental consciousness has been on the rise for years in other markets, but the chronic power shortages give Lebanon added impetus for cutting down on energy consumption. It’s worth noting that environmental concern is nothing new, as the country passed anti-air pollution legislation as far back as 2002, prohibiting leaded gasoline and cracking down on highemission vehicles. The problem is that this law has never been fully enforced. In energy policy as elsewhere, Lebanon has tended towards words without action. Whether the Lebanese can achieve ambitious renewables targets will depend on more than a few advertising campaigns.

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Interview: Nicolas Sarkozy

Cozying Up Nicolas Sarkozy, president of France, discusses his country’s resurgent role in the Middle East and the new relationship between Paris and Washington. By C. Malar, B. Vaillot and M. Forestier Paris

here do you see France in the new Europe of the 21st century? One of Europe’s problems is that all member states have the same rights – whether they are a country of 700,000 inhabitants like Luxembourg, or have 82 million citizens like Germany. They don’t all have the same obligations. I believe strongly that during the last 20 years, powerful countries have not taken enough responsibility. When Europe reaches an impasse, we expect France, Germany, Italy, Britain, Spain or Poland (with its 42 million inhabitants) to assume their responsibilities. I have the utmost respect for Lithuania, Latvia and

Luxembourg, all founding countries of Europe – these states have all played an important role in the old world – but we don’t look to them for answers to get Europe out of the difficulty it is facing. France, the second European country in economic terms, has a leading role to play. That does not necessarily mean that it has more rights than others, but it has a leading role. Naturally, in this role, an understanding with Germany is fundamental. In fact, when the other 25 countries witness a quarrel between us French and Germans, they are concerned about how we are going to resolve it. France, a Mediterranean superpower, must lead all the countries of the region. Our country en-

joys a position of balance – this is precisely why I wanted us to return to NATO’s integrated command, so as to stay clear of false debates between supporters and opponents of the United States. You have tried to maximize Europe’s influence on international affairs. How can it optimize its influence faced with a powerful America intent on defending its own interests? Well, that’s normal! We need a powerful America that we do not fear. It’s a matter of balance. With the last years of the Bush presidency, the problem was that America wasn’t powerful enough. When the United States is disliked and has no

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Interview: Nicolas Sarkozy

‘Europe has to build a bridge between the Muslim world and the Western world’ influence it’s a big problem for Europe, the world and France. A powerful America is good news with President Obama. But at the same time, what’s important? Avoiding at all costs the clash of civilizations and the confrontation between the Muslim world and the Western world. Europe has to build a bridge between the two worlds – it is situated between the Middle East, the Near East and the United States. There’s a European social model that we should defend. Europe took the most extensive measures to safeguard the climate and we must lead the world. Europe is most aware of the necessity not to leave Africa to sink deeper – we, the Europeans,

are a mere 12 kilometers away from the African continent. Europe is the standard bearer of human rights and the values of secular society and peaceful democracy. The EU has many things to say and it must play a role. A paralyzed Europe is a great tragedy. You have made a certain number of symbolic moves towards the United States, particularly the reinstatement of France into NATO’s command. Your ambition is to transform France into a privileged partner of the United States in Europe. Do you think you have attained this? In your opinion, what are Barack Obama’s views on this issue?

Regarding the reinstatement of France into NATO’s integrated command, the truth was being concealed from the French people, which is extraordinary. There are 42 committees in NATO. We are listed among 39 of them. Was that fact made known to the French people? No. We sent thousands of French soldiers under NATO’s command, while refusing to participate in the work of the committee that defined the strategy affecting the soldiers. Is that reasonable? During the presidencies of Jacques Chirac and Lionel Jospin – who were both right – we have sent soldiers to fight in Afghanistan under NATO’s command. At the same time, we refused to participate in the work of the committee that defined the strategy affecting our soldiers. Isn’t it absurd? France has regained its rightful place. Why? Because I would

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Interview: Nicolas Sarkozy

‘There can be no doubt about our independence. Our interest lies with the success of Obama.’ specifically like NATO to be increasingly Europeanized, so it doesn’t remain an exclusively American structure. How can we say that the United States is exerting a lot of influence in NATO and at the same time not try to regain French status? It doesn’t make sense. We’re pursuing this strategy with our German allies, which will allow us to develop Europe’s

defense. Why hasn’t European defense developed over the past few years? Because some Europeans considered that the development of European defense was somehow in opposition to the United States – that they had to choose between the two. Put yourself in the place of the Polish people, or the Hungarian people or the Romanian people, and all of Eastern

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France is one of the founding signatories of the North Atlantic Treaty, agreed in Washington DC

The French military is removed from NATO’s integrated command by order of General de Gaulle

Sarkozy elected president of France, leading to France’s return to NATO command structure

Europe. These countries have lived under the yoke of the Warsaw Pact, behind the wall. They seek growth with Brussels and security with Washington; we shouldn’t ask them to choose. With France entering at full speed into NATO, all these countries can identify with us and therefore they no longer feel obliged to choose between Europe and the United States. There can be no doubt about our independence. From that point of view, I think that we made the right decision. In terms of American leadership, our interest lies with the success of President Obama. At the beginning of the year you wanted to organize a European conference about peace in the Middle East. I am convinced that time is working against us in the Middle East. Therefore, we should disrupt the calendar and take the risk of holding a peace conference. Everyone is aware of the cost of

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Interview: Nicolas Sarkozy

‘Why wait? Hasn’t there been enough death and grief? We should take the risk of peace.’ peace. Everyone knows the compromise. We know perfectly well that Israel’s colonization of territories cannot go on. We know perfectly well that Jerusalem will never be the capital of one state. We know that we need a democratic, modern and viable Palestinian state. Palestinians must make peace with one another, because their division is prejudicial to themselves. I ask the question, ‘why wait?’ Hasn’t there been enough death and grief? We should take the risk of peace instead of the status quo, which will only lead to war and suffering. I completely support the policies of President Obama when he’s putting pressure on the Israeli government. As you all know, I am a friend of the Hebrew state and France will always be at its side to ensure its security. But Is-

rael should also understand that its longterm strategic interest lies in the creation of a Palestinian state. Can France influence the region when the rules are laid down by Washington? When the Israeli army went back into Gaza, I denounced that step from day one. With President Mubarak and Egypt – which is playing an essential role – we’ve tried to build peace. Finally, the Israeli army withdrew and the West Bank wasn’t swept along by the violence, which remained localized in Gaza. Europe was the first donor for the reconstruction of a Palestinian state. Why shouldn’t Europe resume this responsibility? For this purpose, it should be equipped with its own institutions. The United States wasn’t the

only nation not fully present over the past few years in the Middle East and the Near East. Europe was also absent, which is something that I regret. In the Middle East, France has previously distanced itself from Syria, and also Iraq, which is occupied by the United States. You have received Bashar al-Assad and you went to Baghdad. Does this mean that Paris wishes to return to playing a fundamental role in the region? I’ve always thought that attempting to solve the problem of Lebanon without taking Syria into consideration means that we’re ignoring the history of the two countries. I was attacked when I started talks with Bashar al-Assad. I take full responsibility for this choice. Two years after my accession to the presidency of the Republic, how are things in Lebanon? The country has been able to break the vicious

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Interview: Nicolas Sarkozy

‘Why should we defend Lebanon? Because Lebanon is one of the last countries with true diversity.’ cycle of assassinations; they have a government and a president. They have also held elections and exchanged ambassadors with Syria, which has never happened in the history of the two countries. I believe in an independent Lebanon, which includes the independence of Syria. I would like to add that Bashar al-Assad has honored his commitments towards me. I was very pleased with the results of the elections [in Lebanon] – I said so to the President of Lebanon, Michel Suleiman. France wishes to be friends with all the Lebanese people, without exceptions. The majority won by a landslide. … We can rejoice about what’s happening in Lebanon. Why should we defend Lebanon? Because Lebanon is one of the last few countries where diversity truly exists. The Near East and the Middle East

need diversity. I’m not talking about democracy, which is an Occidental concept, but rather diversity. Lebanon is a miracle, with Christians, Druzes, Sunnis, and Shi’ites; Iraq likewise. You know, for me, going to Iraq and seeing a Kurdish president leading the country is an extraordinary thing. Who would have imagined that 10 years ago? No one, especially during the era when Saddam Hussein was trying to exterminate the Kurds. Looking at this Kurdish president, with two vice-presidents standing by his side, a Sunni and a Shi’ite, is an extraordinary thing. We need Iraq to maintain balance in the region. Dismantling Iraq would have been an enormous mistake. I’m very glad that France is once

again making its presence felt. Look at the French diplomatic presence in Lebanon, Syria, and once again in Iraq and in the Gulf. The opening of a new military base in an area that was above all Anglo-Saxon and where France’s influence is now returning. This is what I have always defended. France is a friend of Israel and it defends the security of the Hebrew state. But France also talks to Arab states, as well as all governments that seek peace. Mahmoud Ahmadinejad was declared the winner of the recent Iranian election. What’s your view of recent events? It’s not for me to judge the conditions under which he was reelected … but I will say to the Iranians: if you are seeking nuclear energy, France is willing to help you. It is not a technology reserved for the sole use of the West. However, if you violate the rules – if you wish to acquire a nuclear weapon, then you will be responsible for your country’s misfortunes.

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Focus: Iran

Uncertain Ground As Iran appears to fracture from within, Western powers and Arab neighbors wait for signs of stability and ponder their next moves. By Gareth Smyth Beirut

n 2003, when Iran made a tentative approach to the United States proposing a “grand bargain” for improved relations, it met the hostility of a Bush administration that saw Iran as part of an “axis of evil.” Today, an American president committed to engagement finds an altogether different situation, with Iran now reeling from internal instability. For any meaningful dialogue with the current government in Tehran, Barack Obama knows he will ultimately have to deal with Ayatollah Ali Khamenei, the country’s supreme leader. Yet it’s hardly likely he would relish dealing with an Ira-

nian leader increasingly preoccupied with infighting. At the same time, the US president faces opposition from the American right and a pro-Israel lobby opposed to engagement. These opponents say the crackdown in Iran only proves their contention that the Iranian regime is too dangerous to deal with. That Khamenei has taken an openly partisan role in Iranian politics for the first time is one of the lasting consequences of June’s contested election results. But with no mechanism for resolving factional quarrels, it also means that persistent schisms among the political elite are likely to continue. The lack of stability has damag-

ing implications for the prospects of talks with the West. The idea of Iran as factionally divided jars with the notion, prevalent in many circles in the West, of a uniform totalitarian entity infused with evangelical Shi’a Islam and bent on regional domination. “Confusion is the only sure thing at the moment and outside meddling will make the situation murkier and more dangerous for all concerned,” says a reformist sympathizer in Tehran. “There is political incompetence of the highest order in the highest places, based in personal complexes, power fixations, megalomania and plain greed.”

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Focus: Iran

With his policy hitting stubborn realities, Obama is searching for new ideas like gasoline sanctions Yet calls persist for more sanctions, particularly those targeting Iran’s gasoline imports, which make up around 40 percent of consumption. “Ali Khamenei and his junta must now be persuaded that their pursuit of nuclear weapons will be unbearably costly,” Michael Jacobson and Mark Dubowitz, two pro-Israel analysts, wrote in The Wall Street Journal in August of this year. They argued that global energy companies can be forced to halt exports of refined petroleum to the Islamic Republic if they are subject to the right amount of US-led pressure.

“The Swiss-Dutch energy giants Vitol and Trafigura, the Dutch multinational Shell, the Indian multinational Reliance Industries, the Swiss trader Glencore and the French energy powerhouse Total, can, with the right amount of diplomatic muscle, be persuaded that it’s not in their best interests to continue their refined petroleum exports to Iran.” The model currently under discussion mimics existing US banking sanctions, which penalize non-Iranian banks dealing with Iran. A plan to restrict gasoline exports to Iran would catch Arab Gulf states in

its net, putting Dubai, for instance, in the front line of US-Iran tensions, since much of Iran’s gasoline imports are blended by companies in the emirate’s Jebel Ali port. For the UAE, this would be far from the “cost free” option promised to US congressmen by campaigners for “smart sanctions.” Stubborn realities. With its Middle East policies hitting stubborn realities such as Israeli settlement-building in east Jerusalem, the Obama administration is searching for new ideas. Gasoline sanctions would fall into that category, as would the suggestion in July by Hillary Clinton, the secretary of state, that the US provide a nuclear “defense umbrella” for regional allies if Iran develops nuclear weapons.

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Focus: Iran

Sepah increases its role in response to sanctions and would do so even more with a gasoline blockade Yet many of the reformists jailed during Iran’s recent clampdown, such as Saeed Hajjarian, one of the country’s foremost pro-democracy activists, have argued that sanctions often strengthen Iranian opponents of engagement rather than precipitating change. “There are different kinds of US pressure,” Hajjarian said in 2005. “Some make the atmosphere here

[in Iran] more militarized, and in such an atmosphere democracy is killed.” Reformists have suggested that sanctions bolster the unofficial import and export networks run by the Islamic Revolutionary Guards Corps, Sepah. If the US and its allies were to put a blockade on gasoline imports, it would raise Sepah’s profile even further.

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Incumbent Mahmoud Ahmadinejad is challenged by opposition presidential candidate Hossein Mosavi

Mosavi addresses opposition supporters in Freedom Square as protests spiral across Iran

Neda Agha Soltan is shot dead on the streets of Tehran, becoming known as “The Angel of Iran”

Some years ago, Sadegh Kharrazi, the former ambassador to Paris and reportedly the drafter of the 2003 “grand bargain” letter, compared Iran to a cornered cat, suggesting that when a cat is trapped in a room the worst thing one can do is close the window. The US says the government in Tehran must abandon its nuclear program and end its relationship with Hezbollah and Palestinian groups that the US and Israel have labeled terrorist organizations, but these demands are seen by many as unrealistic. In a recent paper for the Washington Institute for Near East Policy, Sir Richard Dalton, the former British ambassador to Iran, argues for minimal preconditions. “Constructive ambiguity may be necessary at the outset to secure an agenda for discussions, in the hope that agreements will emerge that can transcend unsatisfactory initial conditions.”

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Focus: Iran

In Lebanon, Ayatollah Mohammed Hussein Fadlallah has asked Iranians to show unity Yet there is little sign now of any such “constructive ambiguity” in Washington or Tehran that would put talks in motion. Substantive discussions with the EU on Iran’s nuclear program broke down in 2005. The following year, Javier Solana, the EU foreign policy chief, and Ali Larijani, then Iran’s top security official, searched in vain for a formula to revive the stalled nuclear negotiations. Solana floated an idea that, for talks, Iran should suspend uranium enrichment and the West suspend sanctions. Larijani in turn suggested Iran might suspend enrichment during talks if the EU indicated it would accept some level of enrichment as an outcome of the process. It is apparent that these gambits have failed.

With ideas for mutually acceptable preconditions going nowhere, the Americans are now talking about introducing even tougher sanctions if Iran doesn’t respond to these overtures. In Syria, meanwhile, those hoping for more cooperation with Washington sense a change in the diplomatic landscape. “Nobody’s saying it openly, but the judgment here is that the hardliners in Tehran are weakening,” says an analyst in Damascus. “This helps them [the Syrian leadership] to develop common interests with the US and even to open their so-called peace process with Israel.” Internal divisions. For Shi’a religious figures abroad, the sense that internal divisions are weakening Iran gives cause for concern. In Lebanon, Ayatollah Moham-

med Hussein Fadlallah has asked Iranians to be unified as events show “how eager the arrogant world is to destroy their revolution and bring down their state.” Hassan Nasrallah, the leader of Hezbollah, which looks to Ayatollah Khamenei for guidance, reiterated that wilayat al-faqih – the “rule of the jurist” on which Iran’s system is based – is “part of our religious belief.” Senior clerics in Najaf, Iraq, are reticent, with a spokesman for Grand Ayatollah Mohammad Bashir al-Najafi saying Iraqi clerics would not “interfere in the internal affairs of a dear neighbor.” External pressure often affects the factional balance inside Iran in ways that architects of such pressure do not intend. Yet left to their own devices, few indications have emerged of how the Islamic Republic’s warring factions will resolve their power struggle – or, indeed, if they will resolve it at all.

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Interview: Reza Pahlavi

Iran Awakening Turmoil has engulfed the Islamic Republic following its controversial election. Reza Pahlavi, son of the late shah, talks to TRENDS. By C. Malar, B. Vaillot and M. Forestier Paris

ow do you see the evolution of the current situation in Iran in the next year? What kind of regime do you think will emerge? Will it have a tougher or softer approach to internal affairs and external relations? The people of Iran have spoken: they want the sovereignty of the ballot box. The regime has responded with force, which has ended the massive demonstrations for the moment and started a new phase â&#x20AC;&#x201C; resistance. The goal in this phase is to defy Khameneiâ&#x20AC;&#x2122;s support for Ahmadinejad and deny him the ability to govern. This will happen through popular non-compliance and civil disobedience,

followed by increasing resistance within the government â&#x20AC;&#x201C; starting from the legislative branch, leading to a bleeding of management talent and subtle forms of insubordination until it becomes clear to all both within and outside the regime that it cannot perform the most rudimentary tasks of government. Once the paralysis starts and the government loses the initiative, the possibility of a final desperate coercive move, possibly a military coup, cannot be ruled out. But this will be the beginning of the shaping of a new order, led by democratic forces that earn the trust of significant social groups, from women and youth, to labor, ethnic groups, educators and the

business community. Initially, when the current regime tries to rally its hardcore supporters to suppress popular demands, its stance towards foreign and domestic issues will inevitably harden. As it approaches paralysis, it may start making sporadic concessions without a steady ability to make agreements stick. But as the democratic forces begin to gain the upper hand, you will find an Iran working hard for peaceful coexistence, both regionally and with the world at large. The current regime in Iran has been involved in fomenting regional instability, from Iraq to Lebanon and Palestine. In

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Interview: Reza Pahlavi

‘Disrespect to Bahrain, Saudi Arabia and the UAE has exacerbated poor relations with our neighbors’ your view, how will the internal instability the regime has faced affect its influence in the region? Will the current Iranian government try to cause more instability in the Middle East? In my response to the previous question I made the distinction between three phases: (a) the regime’s last ditch effort to rally fanatical supporters against the people, (b) loss of control, and (c) the emergence of democratic forces. In phase (a) the morale of fanatical supporters requires increased assistance to their fanatical brethren who are the source of instability in the region. In

phase (b) the assistance will continue, but Iran’s control over those regional groups will weaken. Phase (c) will begin to change Iran’s behavior – from the country meddling in other states’ affairs and pursuing ideological and extraterritorial ambitions, to it becoming a conventional state that defines its interest as peace and the welfare of the people living within its borders. The relations between Iran and the Gulf states had improved over the last few years. How has the current situation affected those relations? How do

you see the evolution of relations between the Gulf states and Iran? I question the premise of the first part of the question. Disrespect to the sovereignty of Bahrain, pejorative statements about Saudi Arabia, and lack of sincerity in resolving outstanding issues with the UAE have exacerbated poor relations with our brotherly neighbors. This will have to change and will change once a regime based on an aggressive, divisive, and self-invented interpretation of Islam loses power. Qatar had maintained strong relations with Iran, but over the last year it has shown more restraint. Do you feel that the recent events in Iran might make the Iranian regime talk tougher with

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Interview: Reza Pahlavi

Capital flight and the stock exchange nosedive show that the Iranian business community is losing confidence and trying to buy insurance outside the country. This may initially accelerate the trend of the last decade, with the moving of certain investment and trading operations from Iran to the wider region. Increased sanctions and other international economic pressures on Iran, however, will choke up some of these activities.

Reuters

Before the revolution, Iran was one of the strategic allies of the US in the region. The current US administration has tried to improve relations with Iran. How far do you see possible negotiations between the current regime and the US administration going? Would the Iranian government view the negotiations as a sign of weakness? Presently, the regime’s preoccupation is steeling the spine of its security forces, whose cohesiveness is cemented by hostility to the United States and whose posture is as the front-line defender of Islam against Israel. Thus the regime is in no position to take a meaningful step back from a position rejected by the United Nations Security Council in many resolutions. They can create false hopes, but that is all.

‘As paralysis sets in and the regime loses control, the situation may become even more volatile’ the smaller Gulf states, in particular Bahrain and Qatar? Certain parts of the regime’s oppressive apparatus have destabilization networks in the region. As domestic pressures make the regime more dependent on this apparatus, they will get more resources to pursue their regional aims. As paralysis sets in and the regime loses control over

the regional proxies of the apparatus, the situation may temporarily become even more volatile. Here I am referring more to Iraq, Lebanon, Bahrain and Qatar. How do you view the Iranian business community’s reaction to current events? How much pressure can they exert on the regime?

In case of a regime change in Iran, as America already has existing allies in the region, how would the relationship between the US and Iran be developed? It will be a relationship based on mutual interests, as well as economic and political openness. It will not be the relationship between a patron and a client, nor one that would position Iran as a defender of US interests in the region. We have our own interests. But it will not be a regime supportive of subversion or terrorism either. Regional stability is a vital mutual interest of Iran and America. What are your concrete plans for a change of regime in Iran?

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Interview: Reza Pahlavi

‘I am doing my best to confer with and converge the democratic forces, so they are prepared for action’ Although the transition from theocracy to democracy may unfold more quickly than many believe, it still has to go through several stages. It is a mistake to play or declare the end game at the beginning. For example, right now Mr. Mousavi and Mr. Karoubi are rightfully charging the regime’s security apparatus with engaging in un-

Islamic and unconstitutional practices. They should be supported even by those who do not believe in Islamic law or the constitution of the Islamic Republic. The point is to strengthen the people’s hand vis-a-vis the government until the regime is paralyzed. That will be the time for a more pluralistic democratic leadership to emerge.

THE SHAH

KHAMENEI

AHMADINEJAD

The shah was installed in 1941 by British and Soviet forces, but was overthrown in 1979

Served as president of the republic in the 1980s before being appointed supreme leader in 1989

Known for his controversial views on Israel, he was first elected president of the republic in 2005

The next stage will be the persuasion and conversion of the bases of power of the regime to accept democracy through popular pressure. That will require a different leadership for a different kind of process from what you see today. Once the collapse of the regime’s authority and ability to govern becomes clear to all, the stages may be telescoped rapidly. That means one has to be prepared. I am doing my best to confer with, consult and help converge the democratic forces, so that they are prepared when the situation calls for action. You have a lot of contacts in Europe with former opponents of your father, the late shah of Iran. Who are these people and what is the basis of agreements you have with them to overthrow the regime? A delicate process is unfolding in Iran, which requires careful use of language. I

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Interview: Reza Pahlavi

‘I hope Mr. Rafsanjani will emerge from his ambiguity and say what is wrong with the regime’ would rather talk about democratization than overthrow. That said, yes, I have many contacts with former opponents of my father. They include various shades of the democratic left, liberal democrats and Muslim democrats (as opposed to Islamists) who have a strong common stake in coalescing forces and preparing to lead the transition to democracy as the paralysis of the regime sets in. They all realize that democracy requires more than mere tolerance, but a positive will to work with those who have other convictions. My connection with them is through our common cultural and national roots rather than ideology. Often this makes communication less burdened by political polemics and more easily focused on the common cause of democracy and saving our country from

the steep regression it has suffered. But being an honest point of contact and keeping lines of communication between them open is extremely important. That is what I try to do. Is it true that you would like to leave the US and establish your political headquarters in Paris? All I can say is that the unfolding events will keep me much more mobile and closer to centers of Iranian democratic opposition than has been the case in the past. In this respect, Paris is certainly one of the most important locations. What’s your analysis of Hashemi Rafsanjani’s political strategy in comparison with that of Ayatollah Khamenei and President Ahmadinejad?

To his credit, Mr. Rafsanjani realizes the fact that today you must chose between Mr. Ahmadinejad and Mr. Khamenei on the one hand, and the people of Iran on the other. Mr. Khamenei eliminated any middle ground, and the blood spilled since has closed his return path. I hope Mr. Rafsanjani will go much further, emerge from his trademark ambiguity and say what is wrong with the regime he knows so well. Blaming this or that specific act of Mr. Khamenei, without pointing out that the impossibility of theocracy – of a system that appropriates the powers of state to one or a handful of men, all in the name of God – cannot be sustainable in the 21st century. What role do you see for yourself in an Iran without the ayatollahs? I am campaigning for democracy. What follows and what role my compatriots will want me to play is entirely up to them. I will cherish and respect their decision.

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BUSINESS

AVIATION Etihad, American Airlines codeshare pact approved

ABU DHABI. Air travelers in the UAE now have greater access to the American market, following regulatory approval for a new codeshare agreement between Etihad Airways and American Airlines. The agreement coming into effect coincides with the launch by Etihad of flights to Chicago on Sept. 2 and extends further the two airlines’ global networks by providing easy access between Abu Dhabi and key cities in the US including Washington, Los Angeles, San Francisco and Houston. Abu Dhabibased Etihad will place its ‘EY’ code on a number of transatlantic services operated by the US carrier between Europe and the US, as well as selected domestic services operated by American Airlines beyond New York and Chicago. In turn American Airlines will place its own ‘AA’ code on services operated by Etihad between Abu Dhabi and New York, Chicago, Paris, Dublin, Frankfurt, Manchester and Milan. The American Airlines domestic routes within the US covered by the new arrangement will initially include flights between New York and Washington, Los Angeles and San Francisco, as well as flights between

Chicago and Washington, Los Angeles, San Francisco and Houston. Etihad currently flies to two destinations in North America, New York and Toronto. MARKETS Dow Jones expands index series for GCC and MENA

DUBAI. Dow Jones Indexes, a leading global index provider, has launched an additional set of conventional and Shari’ah compliant indexes measuring the performance of stocks listed in the Gulf Cooperation Council (GCC), Middle East and North Africa. The four indexes are the Dow Jones GCC Index, Dow Jones GCC Islamic Market Index, Dow Jones GCC Titans 50 with Saudi, and Dow Jones Islamic Market MENA indexes. The Dow Jones GCC indexes that have been launched include companies from all six member states of the GCC

– Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. The Dow Jones Islamic Market MENA Index includes all GCC countries plus Egypt, Jordan, Morocco and Tunisia. “Dow Jones Indexes is the first and currently only international index provider authorized by Tadawul [the Saudi Stock Exchange] to use real-time data from the Saudi stock market. Offering these indexes is an important milestone for us and shows yet again Dow Jones Indexes’ leading position in the Middle East,” said Michael A. Petronella, president, Dow Jones Indexes. “The new indexes give market participants access for the first time to authorized regional conventional and Shari’ah compliant indexes that include the widely sought after Saudi Arabian stock market.” The four new indexes are weighted by floatadjusted market capitalization. ENERGY Gulf countries to invest $50bn in power projects

ABU DHABI. GCC countries are likely to invest 184 billion dirhams ($50 billion) in power projects between 2009 and 2015, an Economist Intelligence Unit (EIU) report says. The EIU says economies of the Middle East and North Africa region are set to consistently outperform every other region in the world over the next five years. “It is expected that the GCC countries will invest $50 billion to increase power generation capacity between now and 2015,” the EIU said. With demand growing annually at a rate of 9.5 percent, more than 55,000 MW of additional power will be required by 2015. The UAE’s current installed electricity generation capacity is about 18,000 megawatts (MW). Almost 85 percent of the power generated is from natural gas, while the other plants are oil-fired. The first phase of a joint power grid for the GCC was completed last month, with the linking of the grids of Saudi Arabia, Qatar, Bahrain and Kuwait. The UAE and Oman will link to the grid in 2011.

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BUSINESS

MANUFACTURING Qatar finalizes deal with German auto company

Thani, prime minister and minister of foreign affairs of Qatar.

DOHA. Qatar Holding has announced that it has reached a final agreement with Porsche Automobil Holding (PSE) and the family shareholders of Porsche that will see Qatar Holding acquire from PSE cash-settled options on Volkswagen shares. Following the closing of the transaction and after having received all regulatory approvals, Qatar Holding is subsequently planning to acquire 17 percent of Volkswagen ordinary shares, thus becoming the third-largest shareholder alongside PSE and Lower Saxony. Qatar Holding will also acquire a 10 percent shareholding in PSE common shares from the Porsche and Piech families and provide PSE with financing by contributing to PSE’s existing syndicated loan facility, a statement released on behalf of the company said. Qatar Holding’s overall investment commitment across all components is in excess of 7 billion euros. The two sides have agreed to explore other areas of cooperation in the fields of research and development, technical service and support in Qatar. “Porsche and Volkswagen are great additions to our investment portfolio. They will also bring additional benefits to Qatar in research and development, technology and training,” said Sheikh Hamad Bin Jassim Bin Jabr al-

AGRICULTURE Saudi leads Middle East farm sector with 8 percent growth

RIYADH. Saudi Arabia remains the Middle East’s largest market for agricultural products and technologies, with a steady 8 percent average annual growth. The kingdom imported more than 25.5 billion Saudi riyal ($7 billion) worth of agricultural products in 2008, registering an increase of 42 percent over the previous year. This year, agricultural projects are expected to account for 23 percent of the country’s expected 181 billion riyal ($48 billion) private sector investments, enhancing Saudi Arabia’s status as a major player in regional agribusiness. Set to reaffirm the kingdom’s dominance in the fast-growing agriculture sector, this year’s Saudi Agriculture 2009, the 28th International Agriculture, Water and Agri-Industry Show, will gather leading international agricultural investors and

companies, manufacturers, and key decision makers to identify new business opportunities in Saudi Arabia and showcase the latest in agricultural machinery, equipment and products. Saudi Agriculture 2009 will run from Nov. 1 to Nov. 4. “The Saudi government has been investing heavily in irrigation projects to develop its arable land, with the aim of addressing both a rapidly growing population and burgeoning demand for food and food-related products. These are thus very advantageous times for local and international firms to boost their presence and investments within Saudi Arabia’s agricultural sector,” said Khalid Daou, project manager of Saudi Agriculture at Riyadh Exhibitions Company, which is organizing the event. CORPORATE Dubai Holding realigns its organizational structure

DUBAI. Dubai Holding has announced that it is realigning its organizational structure to streamline its operations and ensure the continued delivery of projects and growth of the organization. Building on its strengths and core competencies in four major operational specializations, Dubai Holding is reorganizing its businesses into property, business parks, hospitality and investments verticals. The realignment will deliver significant efficiencies. Ahmad Bin Byat, the chief executive officer of Dubai Holding, said: “The realities of the global economic climate have made it necessary for us to look at our portfolio in a different way. In order to remain competitive in the marketplace, and be sure that we are poised for success once the markets open up, we’ve undertaken a number of changes that will reinforce and strengthen our business. Bringing together the companies into these verticals has allowed us to build on our existing strengths.” He added that because of these developments the businesses will be able to take advantage of the diverse expertise within Dubai Holding.

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CEO of Mashreq, said: “As Mashreq continues to grow and expand, John’s excellent track record in the banking industry will be instrumental in strengthening the bank’s position and operational strategy.” Iossifidis said: “Mashreq has been an intrinsic part of the regional banking industry stretching back to the 1980s. I am eager to take on my new role and spearhead Mashreq’s extensive expansion plans.” ABU DHABI ISLAMIC BANK Malik Sarwar

AIR ARABIA Jason Bitter

The Air Arabia Group, which oversees the operations of low-cost carriers (LCCs) based in the UAE and Morocco as well as a wide range of ancillary businesses in tourism and hospitality, has appointed Jason Bitter as chief executive officer of Air Arabia (Maroc), which launched operations from its hub in Casablanca on May 6, 2009. The new airline, a joint venture company and member of the Air Arabia family, focuses on travel to and from the Moroccan city of Casablanca. Air Arabia’s business model is applied to the management of the newly established LCC. Air Arabia (Maroc), which operates out of Mohammed V International Airport in Casablanca, currently serves eight destinations in Europe, including Barcelona, Spain; Brussels, Belgium; Istanbul, Turkey; London, UK; Lyon, Marseilles; Paris, France; and Milan, Italy. The new chief executive of Air Arabia (Maroc) has worked for more than 15 years in the sector in Europe and Asia. Most recently, Bitter served as chief executive officer of Central Europe’s first LCC, SkyEurope Airlines, based in Slovakia. He has also served as COO of India’s SpiceJet. “Jason brings with him enormous global experience in the low-cost sector and a great set

of professional skills, which he will apply to the management of Morocco’s newest LCC and the latest member of the Air Arabia family,” said Adel Ali, group chief executive officer, Air Arabia. MASHREQ BANK John Iossifidis

Mashreq has announced the appointment of John Iossifidis as the new executive vice president and head of international banking, making him responsible for developing the bank’s business across the Middle East and North Africa. Iossifidis has a background in corporate banking, strategy development, project management and finance. He has served as the regional head, origination and client coverage business across the Middle East and wholesale banking for Standard Chartered bank. Within this role, Issofidis was focused on developing and executing business strategy, driving performance, in addition to developing the bank’s relationship with key corporate and institutional clients around the region. Prior to joining Standard Chartered, Iossifidis had a 16-year career with ANZ Bank; his last position there was as CEO for Sri Lanka. Commenting on the appointment, Abdul Aziz al-Ghurair,

Abu Dhabi Islamic Bank (ADIB) has appointed Malik Sarwar as global wealth management executive to lead the team offering Islamic wealth management services to the bank’s high-net-worth clients. Malik has extensive experience in top-tier firms like Permal Group (2006 to 2009), Citigroup (1999 to 2006) and Merrill Lynch (1982 to 1999), working in the US, Asia and the Middle East. He has developed wealth management business strategies and successfully implemented financial planning tools, research advice and best-in-class product solutions to help clients achieve their financial goals. Malik, who spent 17 years with Merrill Lynch, had sales and business management roles at the company, primarily in global wealth management. He was the sales and marketing head in Asia Pacific, and business head of the Tokyo and later Bahrain offices. He joined Citigroup Asia as head of its investments business in 1999 and, in 2003, moved to Citibank New York to lead the US wealth management team. Malik received the bank’s Investment Business Excellence Award and was also recognized for his role in financial literacy training for microfinance institutions in Asia and for Operation Hope training in Harlem.

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MANAGERS

his new post Harding will have responsibility for operational oversight in DMO East. He will direct product marketing and sales, global services, and customer service operations for Xerox’s subsidiaries and partner organizations throughout the countries under his purview. “My main objective is two-fold,” Harding said. “First, to ensure DMO East customers of all sizes receive the full value of Xerox technology and services, and, second, to continue the development of a high-performance operating environment for Xerox in these dynamic markets.” VOLKSWAGEN Stefan Mecha

FLYDUBAI Hamad Obaidalla

Dubai’s first low-cost airline, flydubai, has appointed former Emirates Airline executive Hamad Obaidalla as chief commercial officer. Hamad Obaidalla, a UAE national, brings to his new role 20 years of experience at Emirates Airlines, where he was most recently divisional senior vice president, network operations. His key management roles within Emirates involved operations in Saudi Arabia, East Africa, Yemen and Iran. The airline has also appointed Neil Mills, a former easyJet executive, as its chief financial officer. Ghaith al-Ghaith, CEO of flydubai, described the new appointments as being invaluable to flydubai’s aspirations for growth. “Both Hamad and Neil bring a wealth of expertise to flydubai and I am delighted to be able to warmly welcome them to our growing team. We are embarking on an exciting journey as innovators in the low-cost sector and I am glad that we have such senior staff from two of the world’s most successful airlines to travel with us.” The two will work alongside former Southwest Airlines executive Ken Gile, whose appointment as chief operating officer was announced last summer. Established in March 2008 with start-up capital of 250 million dirhams

($68 million), flydubai is Dubai’s first low-cost airline and is owned by the government of Dubai. XEROX Roy Harding

Roy Harding has been named chief operating officer of Xerox developing markets operations regions east. Harding was previously vice president of the office group for Xerox’s developing markets operations. Xerox DMO is focused on growth opportunities in emerging markets and countries around the world. The DMO East division headed by Harding covers the Middle East, Africa, Central and Eastern Europe, the Eurasian countries, India and Russia. A commensurate role was announced for Latin America and the Caribbean, known collectively as DMO West. “To ensure we are delivering on our long-term strategy for Xerox in developing markets, we have instituted a new role at the head of our operations in the east,” said Jean-Noël Machon, president, Xerox developing markets operations. “During almost 25 years with Xerox, Roy has driven outstanding results. His leadership and experience make him an excellent fit for this regional role.” In

Volkswagen Middle East has appointed Stefan Mecha as the new managing director for the Middle East region with immediate effect. Mecha has over 15 years’ experience in the automotive industry, with five years at Volkswagen, and will be responsible for moving the Volkswagen business and sales forward across the region. He joined Volkswagen in 2005, his role initially being regional director for Volkswagen Commercial Vehicles for Western Europe and Middle East, based in Hanover, Germany. Mecha became regional director Western Germany for Volkswagen AG in 2007. Commenting on his new role with the car manufacturer, Stefan Mecha said: “Volkswagen is the most innovative high-volume manufacturer, offering the best quality in the respective classes of vehicles. With these challenging times I look forward to driving Volkswagen Middle East further in market share and continuing to bring our exciting new models and technologies to the region.” Prior to joining Volkswagen, Mecha worked with another automotive manufacturer in Germany, France and Switzerland as general manager of services and also head of strategic marketing and training. Mecha holds an MBA and bachelor’s degree in business management and is married with three children.

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Doha Trends 270x220:Layout 1 13/08/2009 18:01 Page 1

Doha Business Roundtable Gulf 2020: scenario planning in a post-crisis world economy September 29th 2009 The Ritz Carlton, Doha

What will the global economy look like by 2020—and what are the top GCC business risks? Can Qatar and the other Gulf states emerge as relative winners from the global recession, or will the current turmoil undermine the region’s growth potential? Economist Conferences’ Doha Business Roundtable will take a long-term view, focusing on the future growth potential for Qatar and the GCC from a local, regional and global perspective.

Why should you attend?

✓ Hear first-hand the findings of new Economist Intelligence Unit research focusing on the GCC’s prospects to 2020 ✓ Understand which risk scenarios are most likely to impact on your business growth strategy ✓ Gain valuable insight from the Gulf region’s top CEOs outlining their plans and visions for the future Prominent speakers include:

Chair: Simon Cox Economics Correspondent The Economist

Tarek Rabah President AstraZeneca Gulf

John Defterios Presenter, Market Place Middle East CNN International

For more information visit www.economistconferences.com/doha09 quoting ref: TR1 or email emeacustomerservice@economist.com

Jane Kinninmont Editor/Economist, Middle East and North Africa Economist Intelligence Unit

Chris Gibson-Smith Chairman London Stock Exchange

Founding sponsor

Official broadcast partner

Michael Moore Former Director General World Trade Organisation and Former Prime Minister New Zealand

Supporting publication

Cover Story: Saudi Arabia

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Blown Billions Banks in the Gulf and beyond are reeling from Saudi Arabia’s Saad and al-Gosaibi scandal. We look at the web of relationships behind a dispute that will change the way business is done in the region. By Ehtesham Shahid and Baher Nabulsi Dubai

Getty/Gallo Images

Saudi billionaire accused of stealing billions – yes, billions. It makes a good story, to be sure. But can a single tale of alleged fraud rock the foundations of the region’s entire financial system? It can when the warring parties are Saad Group and Ahmad Hamad al-Gosaibi & Brothers (AHAB), two of Saudi Arabia’s largest family-owned conglomerates. If proved true, the charges against Maan al-Sanea, the chairman and CEO of Saad Group, are likely to

put an end to at least one lavish lifestyle. A former Kuwaiti fighter pilot and now a Saudi citizen, Al-Sanea lived a king-sized life. According to one visitor, guests at his ranch and private beach were shown his pet lions, his dolphin enclosure, and a carpet he claimed once belonged to the shah of Iran. Also known as a philanthropist and art collector, al-Sanea, who turns 54 this year, ranked 62 in Forbes’ world billionaires list for 2009 with a net worth of $7 billion. The asset value of his Saad Group empire – named September 2009 | TRENDS 59

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Cover Story: Saudi Arabia

Maan al-Sanea is accused of fraud by the surviving heirs of Abdulaziz and Suleiman al-Gosaibi after a son who died in a car crash – reached $30 billion last year. He also owns a small stake in HSBC. The man now stands accused of using forged documents to loot AHAB, a sprawling conglomerate once led by his late father-in-law, Abdulaziz al-Gosaibi, of a staggering $10 billion. Here are a few ways to put that sum in perspective: the $11 billion fraud of Bernie Ebbers, the now jailed CEO of WorldCom, was thought the biggest corporate scam in history until the arrival of Bernie Madoff, the New York financier whose

estimated swindle, including fabricated gains, was over $50 billion. But without the fictitious money he credited to his clients’ accounts, Madoff may have “only” stolen between $10 billion and $17 billion. The Saad and al-Gosaibi affair, in other words, ranks in the big league of fraud allegations. On a more local level, a loss of $10 billion would deliver a sharp blow to liquidity in the Gulf financial system. The amount equals, for instance, the entire first tranche of the bond issue bought by the UAE central bank in February to help

Dubai’s companies state afloat. And the full scale of the crisis is still unknown. With dozens of affiliates, subsidiaries and affiliated banks with opaque debt channels, the tentacles of the Saad and al-Gosaibi groups reach into financial institutions around the globe, with as many as 100 banks exposed to related losses. Tip of the iceberg. Saudi family-owned companies are notoriously secretive, and the complex web of relationships, both personal and professional, between the Saad Group and AHAB make it difficult to make sense of even the small portion of the story revealed to the public so far. Discussions with sources close to the companies have pieced together a number of details, however.

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The Saudi Arabian Monetary Agency (SAMA), the country’s central bank, instructed banks to freeze all the assets of alSanea, his wife and four of his children on May 31, according to the Arabic-language press. The news spread quickly, and alSanea issued a statement attributing the trouble to the global credit crisis causing “a sudden shrinking of available facilities given by regional and global banks.” Al-Sanea claimed to be taking drastic measures in response. “We are planning the restructuring of the companies in cooperation with our partners and international consultants. We are confident that we will solve this problem,” the statement said. The freezing of al-Sanea’s assets, it turns out, had followed a number of rela-

ted developments in Bahrain, where The International Bank Corporation (TIBC), a company licensed as a bank in Bahrain and majority owned by AHAB, had defaulted on its debts earlier in May. The relationship between al-Sanea and TIBC is murky and subject to dispute, with alSanea owning a 25 percent stake in the

company. According to one source close to the companies, Maan al-Sanea had in fact been running TIBC indirectly via another Bahraini bank called Awal, a charge al-Sanea denies. The web is already dense. Maan alSanea’s wife, Sana al-Gosaibi, became one of 20 owners of AHAB following

THE AL-GOSAIBIS

MAAN AL-SANEA

SAAD GROUP

Hamad al-Gosaibi, the eldest of three brothers, led the family into commerce in the 1940s

Settled in the Saudi eastern region in the 1980s and married Sana, daughter of Abdulaziz al-Gosaibi

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Cover Story: Saudi Arabia

Abdulaziz was so impressed by al-Sanea that he put him in charge of large portions of AHAB the death of her uncle, Suleiman al-Gosaibi, on Feb. 22 this year. Suleiman alGosaibi, the last surviving of the three brothers in Ahmad Hamad al-Gosaibi & Brothers, only ran AHAB for a few years, because until his death in 2003, the master and commander of the al-Go-

saibi clan had long been Abdulaziz, the middle brother. Even in death, Abdulaziz al-Gosaibi plays an important role in this saga. It was al-Gosaibi who years earlier had noticed the business acumen and shrewd negotiating skills of one of his employees,

$10 BILLION

$30 BILLION

$9.6 BILLION

The amount the alGosaibi family says has been stolen via loans made in the company’s name

TThe total asset value of companies in Saad Group, the Saudi conglomerate of Maan al-Sanea

Total gross exposure to the two groups according to an S&P survey of 30 banks in the region

Maan al-Sanea. In Khobar, al-Sanea’s home town, speculation abounds regarding the billionaire’s past. According to a veteran of the city’s car parts industry – AHAB was the main supplier of the oil giant Aramco in the 1950s and 1960s – alSanea sought asylum in Saudi Arabia after fleeing his native Kuwait in his own plane. In any case, Abdulaziz was so impressed with the younger man that he put al-Sanea in charge of large portions of AHAB – and gave him his daughter’s hand in marriage. Abdulaziz even encouraged al-Sanea to start his own company, Saad Group. Fast forward to 2009. On May 12, Standard and Poor’s lowered the credit rating of AHAB’s majority-owned Bahraini bank, TIBC, to “default.” Since then AHAB has been fighting off creditors (which include around 100 regional and

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Cover Story: Saudi Arabia

AHAB delivered a third-party summons to al-Sanea and Awal, putting the blame squarely on al-Sanea international banks), as has Saad Group, even while the latter distances itself from the TIBC implosion. When asked for comment, AHAB refused to add to this routine, bland statement: “The al-Gosaibi family remains committed to working with all stakeholders, including creditors, regulators, and other parties to seek answers and a resolution to all issues involved in this situation.” That reticent statement stands in stark contrast to the charges contained in the lawsuits that have ensued; there are three cases as of late August. One is in New York, another in London and a third is being pursued in the Cayman Islands.

In its response to a suit filed against it on May 27 in New York by the UAE’s Mashreq, AHAB delivered a third-party summons to Maan al-Sanea and Awal, putting the blame for the missing money squarely on al-Sanea, who it names as “a senior executive of AHAB’s financial services division,” even though al-Sanea denies being involved in AHAB’s operations in any way. The New York case alleges that alSanea “organized a massive fraud” by entering into transactions in AHAB’s name with third parties. “Al-Sanea obtained loans frequently using forged or falsified documents and then diverted the funds received to his own use,” the

court document says, naming $10 billion as the amount of misappropriated funds. The specific transaction discussed in the Mashreq case – a transaction AHAB says its board and principals didn’t even know about until the case was filed – was only a recent part of a swindle going back years, claims AHAB. “Over many years, through massive forgery of documents and the provision of phony confirmations and guarantees, acting in concert with entities that he controlled, including his wholly owned bank, third-party defendant Awal Bank Ltd., as well as third-party entities, al-Sanea fraudulently obtained money as a result of unauthorized, non-commercial transactions with a variety of financial institutions in the United States, the Middle East, and elsewhere, including, apparently, Mashreq,” the document states.

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Corbis

Saad Group calls these claims a “publicity stunt based on spurious and scurrilous accusations” and says al-Sanea “will respond in court in the correct manner.” According to one source familiar with the dispute, an issue likely to be raised in court is the validity of a power of attorney given to Maan al-Sanea by his father-in-law, Abdulaziz, prior to the latter’s death. Many of the disputed transactions were said to have been signed on the basis of that document. Replying to these allegations, a spokesman for al-Sanea said: “Although Mr. al-Sanea was at one time named as a managing director of Ahmad Hamad Algosaibi & Brothers Co. (AHAB), he has not acted in such a capacity for many years, is not involved in the operations of AHAB in any way, nor is he chairman of The International Banking Corporation.”

The spokesman added: “Although Mr. al-Sanea has long had personal relations with the partners of AHAB, neither Maan al-Sanea nor any related business entity is a partner or has any ownership interest whatsoever in AHAB or in any of its related entities, nor do they have any business ties except on an arms-length commercial basis. Likewise, AHAB has no interest in Saad Group company or in any business owned or controlled by Maan al-Sanea.”

The aftermath. Not everybody sees this as a straightforward case of fraud. “He is being made into a scapegoat,” says a Dubai-based fund manager who has been following both groups for several years, in reference to Maan al-Sanea. “It is not fraud as you would normally identify a fraud. It is not a Bernie Madoff or Ponzi scheme.” The fund manager suggested the dispute is also likely to involve other influential people in Saudi Arabia.

MAY 27

MAY 31

AUGUST 24

Mashreq files suit against AHAB in New York, alleging a $150 million breach of contract

The Saudi authorities issue an order to freeze the assets of Maan al-Sanea and his family

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Cover Story: Saudi Arabia

AHAB alleges Mashreq made $12 million in profit through irregular short-term loans Indeed, the case took another twist in late August when Mashreq was drawn further into the dispute. It emerged that AHAB was preparing to file a counterclaim in New York, charging the UAE bank with, in the words of a public statement, “aiding and abetting the fraud of Mr. Sanea by being willfully blind to certain transactions on which they were making excessive profits.” The company’s lawyer alleges that Mashreq made $12 million in profit through irregular short-term loans. “Any reasonable banker would know that you don’t finance $150 million of working capital by rolling [it] over every seven days and paying 12 to 14 points above

the base rate,” AHAB’s lawyer, Eric Lewis of Baach, Robinson and Lewis, told reporters, according to the Reuters news agency. Mashreq fired back, issuing a public statement that defended itself while appearing to bolster al-Sanea’s case at the same time. The bank called the countercharges “completely without merit, outrageous in the extreme and really nothing more than an attempt by al-Gosaibi [AHAB] to divert attention away from their own responsibility in failing to perform on their obligations.” Regardless of who is to blame, the sums involved may derail a Gulf economic recovery that otherwise appears to be

picking up steam. A Standard & Poor’s survey of 30 banks across the region puts the total gross exposure to the two groups at $9.6 billion. In May, AHAB is said to have made an offer in a closed meeting in Manama with a group of creditors that highlights the amount of leverage the company was operating under. According to a member of the committee of creditors formed to renegotiate its debts during this meeting, the company showed the total volume of loans it had contracted in 2007 and 2008 was $34.8 billion, with $10.4 billion from Saudi banks, $14 billion from other Gulf banks, and $10.4 billion from foreign banks. Asked to comment on these figures, a spokesman for AHAB did not respond before this magazine went to press. The lack of public communication by the two groups led to “a degree of panic,”

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Getty/Gallo Images

and the rumor mill went into full swing when the banks themselves made only “sketchy disclosures” in response, according to a July 6 report from EFG-Hermes, a Cairo-based investment house. “As news flows on the magnitude of loans gained pace, banks across the region were initially hesitant to disclose the size and nature of their exposures [to AHAB and Saad Group]. In the absence of any formal disclosures by the banks on the size and nature of their exposures to the two business groups, we believe that speculation will continue to increase,” the report said. Today, even while the full extent of the damage is still unknown, the focus is beginning to shift towards the long-term consequences. The scandal couldn’t have come at a worse time for the region, which has already been hit

hard by the global credit crunch. Banks have now become even more wary about lending to family businesses, which account for a large portion of the private sector in the region. Back to basics. If properly addressed, the scandal’s exposure of inadequate risk assessment may eventually lead to more transparent business financing in the region. Saudi Arabia’s Jadwa Investment Company says the root of the problem –

and it’s an issue that goes beyond these two groups – is short-term borrowing to fund long-term investments. That’s something that may not be unique to the region but is certainly more prevalent here. Only 22 percent of total credit in the country has a maturity of more than three years, says Jadwa’s July report. Jadwa doesn’t see problems at family businesses posing a systemic threat to the banking sector, due to its strong fundamentals.

“SCURRILOUS”

“SKETCHY”

“OUTRAGEOUS”

A Saad Group statement says the accusations against its chairman are “a publicity stunt”

EFG-Hermes’ word for the the disclosures of banks reluctant to admit their exposure

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Getty/Gallo Images

Cover Story: Saudi Arabia

‘This episode has decimated the name-lending paradigm once prevalent in the region’s banking sector’ Non-performing loans were just 1.3 percent of total loans at the end of 2008, and provisions were sufficient to cover over 153 percent of these loans. That said, these traumatic events are certain to change the way business financing takes place in the region, especially in ultra-conservative Saudi Arabia.

“This episode has decimated the name-lending paradigm that was so prevalent in the region’s banking sector,” says Humayun Kabir, the chief financial officer of the National Bank of Oman. “The term ‘as good as gold’ used to describe such groups, but that has now been struck from the bankers’ dictionary.”

-1 PERCENT

22 PERCENT

$3.73 BILLION

Jadwa Investment’s estimate of Saudi GDP growth, down from -0.5 percent due to the scandal

Portion of total credit in Saudi Arabia with a maturity of more than three years, according to Jadwa

Saudi commercial banks’ total lending to the private sector fell this much from November to June

In Saudi Arabia, banks have built an entire business model on name lending. “When you go to a name like al-Gosaibi, it suggests that he is powerful, has been in the business for a long time and has a lot of credibility,” says one Riyadhbased banker. “So banks feel comfortable lending, going by the track record.” But the landscape is changing. Companies in the region are moving to the second and third generation of owners, where the founders are no longer around and personal relationships no longer have the pull they once did. Firms will have to open up, allowing banks to perform proper risk assessments. Family businesses will need to streamline and fine-tune, a process that is likely to include learning uncomfortable truths about whose hands are in the till. In the meantime, it’s likely we haven’t heard the last of the colorful Maan al-Sanea.

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Monday 26th October Recognising Leadership and Outstanding Achievement in a New Era for Business

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8/16/09 1:47:16 PM

Arabian Eye

Economy

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Adverse Reaction Despite the recession, Qatar has hit the gas on development plans designed to diversify its oil-rich economy. By Tanya Goudsouzian Doha

onstruction work on the Dubai Towers in Doha, at 84 storeys touted as the tallest building in Qatar, has reportedly slowed or stopped in recent months. But as neighboring Dubai struggles under the weight of its super-sized financial difficulties, Doha trudges along, undeniably affected by the ongoing global economic crisis, but far from paralyzed by it. The source of 14 percent of the world’s proven natural gas reserves and 15 billion barrels of crude oil, Qatar has, nonetheless, striven to diversify its economy, notably through construction and real-estate activity. Current large-scale investments include The Pearl ($9 bil-

lion) and Lusail ($5.5 billion). Both projects are slated for completion by 2010. Comprising plush residential units, multi-star hotels, marinas and a slew of leisure facilities, they are Doha’s answer to Dubai’s massive Jumeirah Beach Residence or The Palm, though minus the plummeting asset values. An estimated $100 billion worth of projects is fueling the construction boom in Qatar, with $8.5 billion earmarked for infrastructure development alone, including roads, railroads, airports, landscaping and power plants. With an abundance of liquidity and the security afforded by increased LNG (liquefied natural gas) exports, Qataris and foreign investors alike

are resting easy in the belief that the worst of the crisis will not wash up on these shores. According to Ahmed Ahen, director of business and trade organizations at the Ministry of Business and Trade, Qatar’s 2008-2009 state budget shows that the government is moving ahead with the implementation of its development program despite the decline in oil prices since their peak in mid-2009. “Qatar is less affected by the financial crisis than other countries, because the banks and monetary institutions enjoy a high monetary cover, good solvency and financial stability. Also, Qataris have been conservative investors,” Ahen September 2009 | TRENDS 73

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‘There is no shortage of liquidity in Qatar. It built up good cash reserves during the time of peak oil prices.’ says. “This is the fourth consecutive fiscal year in which the state budget shows a surplus, and this is primarily indicative of the continued strength and outlook for the oil, gas and petrochemical sectors.” Precautionary measures have been taken by Qatar Central Bank (QCB) to manage the financial crisis, and instructions issued over the last few years “to mitigate credit risks, with particular emphasis on the risks of financing the realestate sector and the purchase of shares,” he adds. Qatar Investment Authority (QIA) has also purchased substantial shares in Qatari banks. “The Ministry of Business and Trade continues its trade openness policy, be-

cause Qatar believes that trade will remain an engine of economic development and that protectionism and isolationism do not work in the current global financial crisis,” Ahen adds. Aly H. Abdullateef, head of study and research at the Qatar Chamber of Commerce and Industry, sums up Qatar’s rainy day strategy in three words: “good cash reserves.” “There is no shortage of liquidity in Qatar,” Abdullateef says, pointing out that the money supply rose an average of 38 percent over the last three years. “Qatar built up good cash reserves during the time of peak oil prices that will help the country weather the downturn.

So, banks and monetary institutions in Qatar enjoy a high monetary cover. The abundant money liquidity, which constituted a big burden to the policy makers when tackling the high rate of inflation in the country, has helped the Qatari economy a great deal, [preventing it] from being badly affected by the current global economic crisis.” He cites the inauguration of the Science and Technology Park at Education City, and the start-up of the South Hook LNG re-gasification terminal in Wales, UK, as a reflection of Qatar’s “firm intention that [even] its out of country development plans will be implemented on schedule, in spite of the current situation of economic slowdown.” Low expat morale. From the projections in April 2009, Qatar will require some 250,000 housing units by 2010, while

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supply will be around 244,000. Expatriates are expected to account for 75 percent of the required housing units. Such facts and figures sound good on paper, but the urban legend about expatriates abandoning their cars at airports before fleeing the country is already making the rounds of this Gulf state as well. Expatriate morale has been affected by the looming – or perceived – threat of job losses, even though such discouraging news does not make it into the local press. “I was recently told I have to lay off 15 people from my department,” said one project manager, who asked not to be named. “It’s not a good feeling.” According to Abdullateef, job losses in recent months are due to completed projects and not to the crisis. He points out that Qatar’s GDP grew by about 44 percent (in current prices) during 2008, but the country “is not immune to the global crisis,” even though it is among the least affected. “The world has become flat. There are no island economies anymore. Qatar does have problems from the world recessionary pressures, but they are minor when compared to other countries. Qatar is the least affected country in the Gulf, with very few private companies having to make job cuts,” Abdullateef says. “Most of the workers who are leaving the country now are those who were working on projects that have been completed. There isn’t evidence that private firms are retrenching staff due to the global economic crisis.” “Qatar has been affected by the global economic downturn, with precautionary delays in some minor construction projects. Such projects are not postponed because companies are running short of cash or are facing problems securing finance. They are just waiting and watching the situation,” he adds, responding to the rumors relating to suspended projects like the Dubai Towers. Foreign companies once keen to take a bite out of Dubai’s fast-paced development are now demonstrating greater in-

The country is one of the most stable in the Gulf region, investing oil and gas revenues to good effect terest in Qatar. As some European economies show signs of emerging from their economic quagmire, many are looking eastward for opportunities that are no longer available on the continent. Spain, which is one of the hardest hit in Europe and a relative newcomer to the Gulf market, is now a growing presence on the Qatari construction scene. Jose Manuel Olivares, area manager for Harinsa Contracting Co. Qatar, says there is an indirect effect on Qatar, however. “The global crisis was felt in Qatar only from the third quarter of 2008. It is not directly affecting the internal economy of the country, but it is having an impact indirectly.”

“Theoretically, this is because the world financial system is somehow on hold, so the banks in Qatar are being affected,” he adds. “Still, they are diverting the prosperity of oil and gas reserves very well, and this makes Qatar one of the most stable countries in the Gulf region.” Greener pastures. Olivares argues that as a result of this relative stability there has been an increase of European companies, notably from crippled Spain, seeking to have a presence in Qatar. “Since the end of 2008, the growing Spanish presence has been noticed, principally linked to the construction sectors,” he says. Olivares’ firm is contracted to work on three projects for the September 2009 | TRENDS 75

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‘Qatar is the least affected country in the Gulf, with very few private companies having to make job cuts’ government and reflects the development of a broader strategic Spanish interest, with a Spanish Business Council recently launched in the Qatari capital. Santiago Vela-Palop, financial and administration manager for a Spanish contracting company in Doha, says Qatar’s ability to finance its development through its own resources has ap-

pealed to European firms looking to embrace new opportunities abroad. Olivares and Vela-Palop say they have confidence that Qatar’s wealth of natural gas will prevent the country from ever feeling the brunt of the crisis. “Qatar’s Deputy Prime Minister, Abdullah al-Attiyah, has said that LNG production is at 31 million metric tons,

GDP

JOBS

INFLATION

Proof of the boom is that at $81,860, Qatar has the highest per capita GDP after Luxembourg

The unemployment rate of the state of Qatar was estimated at a mere 0.6 percent in 2008

Inflation in Qatar rose to 15 percent last year, but will probably drop to single digits in 2009

but is expected to rise to 77 million metric tons in 2012,” Olivares says. “Qatar considers itself primarily an LNG – rather than crude oil – producer, and as such, revenue from gas will soon exceed that of crude oil. This is a clear indicator of the future.” Most observers are unperturbed by the fate of Qatar, should global demand for oil and prices continue to fall. “Qatar’s increased exports of LNG [due to huge ongoing gas development projects] quietly compensate for any bad fluctuation in oil prices. LNG exports are based on contracts [involving] long-term, stable prices,” Abdullateef says. “LNG had a bigger share in Qatar’s GDP than oil in 2008.” In these trying times, it is perhaps revealing that there is no longer talk about Doha becoming “the next Dubai,” or even anything like its more glamorous rival. “This is Doha’s opportunity to overtake Dubai,” says Vela-Palop.

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Media

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Power Shift The downturn has jolted the region’s media industry, due to big changes in advertisers’ spending patterns and expectations. By Sam Potter Dubai

hether consumers stopped spending first, or brands started driving efficiencies early, the net outcome was the same. The amount of money flowing into and through the Middle East media industry, so certain in the boom years of 2007 and 2008, was suddenly under threat. It was a reality check for an industry that had previously known nothing but sunshine and blue skies. In the gathering storm, contracts were instantly the subject of heavy scrutiny, and marketing budgets were hastily earmarked for potential revision – downwards. “The bottom fell out of the advertising market in the fourth quarter of 2008,”

says Ian Sanders, partner at PricewaterhouseCoopers (PwC) and co-author of the “Arab Media Outlook.” “Driven by the big advertisers in the region (financial services and real estate), advertising spend fell through the floor, and that fed its way through the system. In fact, that is still feeding its way through the system.” The tightening of company budgets is no great surprise given the circumstances, but the pattern of financial behavior in the media industry is more complex than that. Advertising revenue, the key economic measure for the industry, appears to have remained consistent through the financial crisis. On the other hand, according to first and second quarter results, pan-Ar-

ab media spend across all media has actually increased in the downturn. According to Ipsos MediaCT, total ad spend in the first half of 2009 was about $2.2 billion, compared with just under $2 billion for the same period in 2008 – an increase of more than 12 percent. Similarly while the UAE and Saudi Arabia recorded a downturn in ad revenue (of 6 and 8 percent respectively), other countries made up for this with significant growth. So, how is it that a financial maelstrom can strike but revenues can grow? The agencies. “What is happening is that FMCG [fast-moving consumer goods] clients, like P&G and Unilever, September 2009 | TRENDS 79

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2009 has seen a 64 percent drop in advertising spending from the insurance and real estate sectors are constantly on TV,” says Elie Haber, regional MD for global media agency Mindshare. “They came to TV owners and found an opportunity to increase their mileage. So by investing the same dollars they are getting extra value, extra mileage.” Industry figures corroborate this dramatic shift from real estate and financial services advertising towards FMCG and telecoms. The Pan Arab Research Center says that, year on year, 2009 has so far seen a 64 percent drop in advertising spend from the insurance, real estate and property sector, and a 24 percent fall in money from financial services. Meanwhile, major increases are recorded in

categories including communications and public utilities (74 percent), food, beverages and tobacco (58 percent), and toiletries, hygiene and homecare products (37 percent). On top of this shift, advertisers are now demanding (and receiving) much more for their money. Shadi Kandil, managing director of media agency OMD, says that this lends credence to several trends he has identified in the new environment. “Clients want to seek efficiencies, either through pitching, revisiting existing contracts or renegotiation with their agencies,” he says. “And with more pressure from clients, media tends to be more

consolidated. That means from a content provider perspective, the bigger became bigger as they had more leverage to acquire content or offer products to their potential consumers – hence clients had to consolidate their investments with only key media.” He adds that accountability has become a bigger factor. “The past two years delivered the notion of buying media based on budget power and monopolizing the media space, but 2009 ushered in a culture of wanting to understand how it actually delivers on the bottom line.” According to Kandil, these trends are visible across the whole Middle East region. Agencies and clients are adapting to the fact that 2007 and 2008 were exceptional, peak years for the industry. The abundance of unjustified media budgets is unlikely to return.

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Recognizing the need to adapt, Haber of Mindshare says smart agencies have taken advantage of the downturn to find new business efficiencies, reinforce services and strengthen offerings. He considers the slowdown a “good opportunity.” “We have looked at all resources and reshuffled, addressing all our issues,” he says of Mindshare. “We have been upgrading. We have been training. If there is talent in the market, this is a good opportunity to recruit. And media suppliers are becoming more receptive and more open to ideas, to innovations.” Yves-Michel Gabay, international business and development director of communications planning firm Mediaedge CIA MENA, certainly agrees there. He is focused on two things: reinforcing the client-agency relationships and driving a better deal. “For the clients you already have you need to be more convincing, you need to explain more,” he says. “You really have to rationalize and give some good arguments about what you want to do.” What’s more, he argues, the balance of power has now shifted, and since there is more space available than advertiser demand, it leaves the advertisers and planning agencies in a position of strength for once. “We have been more aggressive on the rates, because now the conditions are with us,” he says. But where does that leave the media outlets, and what about the primacy of content? Winners and losers. “Whenever you get into a situation about content creation and the effect of any sort of downturn, whether global, local or even sector specific, it’s interesting because content is content is content,” says Tony Orsten, CEO of Abu Dhabi’s media hub Twofour54. “People keep having ideas, broadcasters still have to put shows out, and movies still get made.” Twofour54 was created to be a center of media production and content creation in the region. With an official launch in October 2008, it was opened right in the middle of the economic storm, but accord-

‘We have been upgrading and training. If there is talent in the market this is an opportunity to recruit.’ ing to Orsten, business has been brisk. This doesn’t mean producers and broadcasters haven’t felt the pinch, however. The consolidation of advertising revenue into the big content providers has made life tough for small and mediumsized media entities, says Julien Hawari, co-CEO of TRENDS’ own publisher, Mediaquest Corp. “From now on concentration will be the norm, and big players are going to become bigger,” he says. “Medium-sized companies might not survive,

but the smaller, creative independents may be OK.” Gabriel Chahine, a partner at global management consulting firm Booz & Company, agrees. He says that radio and TV are currently the media of choice for advertisers, radio thanks to its cost efficiency and TV because it’s home to the biggest media outlets. “Media assets which are strong in the market – MBC, Abu Dhabi TV, Rotana Cinema – are not affected by the crisis,”

GULF NEWS

RETAIL NEWS

BAD NEWS

This newspaper, owned by Al Nisr Publishing, axed 19 staff in June 2009 due to the recession

This magazine, owned by ITP, was closed in 2009 as a result of the global economic downturn

Dubai property prices fell 41 percent during Q1 of 2009, badly hitting media advertising revenues September 2009 | TRENDS 81

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Ipsos records a drop of more than 40 percent in UAE newspaper advertising spend in 2009 he says. “They are strategic and important assets, so advertisers allocate their budgets there.” Chahine believes it is the print and outdoor sectors that have borne the brunt of the financial storm. “The magazine sector was affected the most, especially the niche magazines,” Chahine says. “A lot of them are

going out of business. We’re seeing the big publishers consolidating their media assets and restructuring their portfolios. Outdoor was hit, too, particularly in Dubai. The prices in 2008 were irrational, so there was a massive impact.” And that pattern repeats itself with Dubai’s newspapers. Newspapers across

26 PERCENT

75 PERCENT

43 PERCENT

The amount that advertising revenues fell in the United Arab Emirates in the first half of 2009

The amount that advertising revenues from the UAE property sector fell in the first half of 2009

The amount that advertising revenues from the UAE financial sector fell in the first half of 2009

the GCC were once profitable, with record years in 2007 and 2008. With profit margins that Chahine places as high as 35 percent, they had a cushion to absorb the impact of the economic slowdown. But in the UAE, the numerous Dubai-based titles were more heavily exposed to the real estate, financial and automotive industries, and consequently suffered badly. For quarters one and two combined, Ipsos records a drop of more than 40 percent in UAE newspaper advertising spend in 2009, compared with the same period in 2008. However, it’s not all doom and gloom for the print market. When compared with markets in other parts of the globe, this sector of the media industry is underdeveloped. “In the print media market here we still see a lot of growth driven by a number of factors,” says Sanders at PwC.

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‘We’re seeing the big publishers consolidating their media assets and restructuring their portfolios’ “For example, the more general economic growth and higher literacy levels, and the fact that the economies and the media are not as mature.” This all begs the question of what the next media climate will feel like when the effects of the current crisis work themselves out. Beyond the crisis. First, says Haber of Mindshare, we need to understand that we may not be through the worst yet. “In my opinion, 2010 is going to be even tougher,” he says. “Most clients and agencies made good money in 2008, and this overlapped into the first two quarters of 2009. But now people have started feeling the pinch.”

But however long it lasts, the whole financial slowdown could turn out to be useful for the industry – a sort of Darwinian phase. “Coming out of the recession you’d expect to see a stronger industry in the sense that companies that come through it and survive, who have had the fundamentals of their businesses tested, will come out stronger and wiser than when they went in,” Sanders says. And the prospects for those surviving companies should also be good, according to Gabay. “We are in a region where almost 50 percent of the population is under 25, and where GDP per capita is one of the highest on the planet,” he says.

“The new leaders in this region are smart, and they will continue to invest in their own countries. All these economies will come back really strong.” The challenges for the future include a landmark shift in revenue models, from commission and retainer-based activity to response and results-based fees. Globally, Coca-Cola is introducing a payment model that will only compensate results, and it’s a matter of time before such arrangements become common in the region – provided measurable data is available. Then there’s the new frontier: digital. The growth of new media has been slow in the region so far, constrained by poor infrastructure. But with ongoing investment this is rapidly changing. Media companies are adjusting to a dramatic shift in expectations and power.

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Richard Quest Quest Means Business

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Becky Anderson Connect the World

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16:00

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Richard Quest Quest Means Business

Hala Gorani International Desk

Becky Anderson Connect the World

Join us for the latest news and analysis of global stories that matter to you.

16:00

Weeknights from

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cnn.com/tonight

Michael Holmes Back|Story

Arabian Eye

Tourism

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Paris of the Orient As most of the Middle East struggles through economic change in 2009, Lebanon is celebrating political stability and a boom in tourism. By Nathalie Bonthems Beirut

alf the size of Lebanon’s population – that’s how many tourists the Lebanese authorities and hospitality industry expect to greet in their country in 2009, mostly thanks to the country’s famed summer season. On June 15, caretaker tourism minister Elie Marouni was optimistic, to say the least: “Last year 1,400,000 tourists came to Lebanon, and we hope that the number this year will reach two million, if security and political stability persist,” he said during a press conference. While a study published by Deloitte & Touche notes that the rest of the region’s hospitality industry, with the exception of Abu Dhabi and Jeddah, has

suffered the backlash of the global downturn, Lebanon is thriving. The figures speak for themselves: during the first six months of the year, hotel occupancy rates have increased by 69.4 percent, while they plummeted by 10.9 percent on average in the region. Similarly, revenues per room had surged by 125.2 percent by the end of June in Lebanon, against a drop of 17.2 percent on average in the Middle East, boosting Beirut to the first rank of the region’s capitals in terms of tourismspurred growth. By the end of June, over 760,000 tourists had visited Lebanon since the start of the year, a 60.8 percent growth compared to the same period in 2008.

In June alone, the growth rate reached 40.1 percent and projections were even better for the coming two months of the summer season. In early July, Nada Sardouk, general director at the Ministry of Tourism, voiced her hopes of a “recordbreaking year,” topping 1974 and its 1.42 million visitors. By mid-summer, nostalgic Lebanese expatriates, Arab vacationers, Europeans and Asians were pouring into Beirut airport in their thousands on a daily basis. “Passenger numbers traveling in July on Middle East Airlines (MEA) reached 187,000 and reservations for August increased by nearly 20 percent,” says Nizar Khoury, head of commercial at Lebanon’s September 2009 | TRENDS 89

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Tourism

Europeans account for 35 percent of visitors, while 15 percent are drawn from the US and Canada national carrier. Although exact statistics are not yet available, tourists from the Gulf have been traveling to Lebanon in massive numbers. According to Khoury, “passengers visiting Lebanon come mainly from Arab states – over 40 percent of the total. Travelers from Europe account

for 35 percent, those from the United States and Canada around 15 percent, and the remaining 10 percent are drawn from other countries.” Arab nationals are also spending freely while staying there, booking stays lasting several weeks in Lebanon’s up-

CIVIL WAR

HOSTAGES

ASSASSINATION

Lebanon became engulfed in a 15year civil war in 1975, destroying its infrastructure

British journalist John McCarthy was one of several foreign hostages taken during the conflict

Former prime minister Rafik Hariri was murdered in 2005 in a bomb attack on his motorcade in Beirut

market hotels and resorts. “Around 80 percent of our clients come from the GCC,” says Rita Massaad, head of PR and marketing for Habtoor Hotels in Lebanon. She adds that both the Metropolitan Palace and the Habtoor Grand Hotel boast a 100 percent occupancy rate for the two summer months. Stability. A relatively calm political and security atmosphere, bolstered by the uneventful June 7 elections, considered by many as make or break for the summer season, has further encouraged vacationers already attracted by the country’s buoyant nightlife, beaches and mountain ranges. Various international institutions have also been giving Lebanon their blessing: in its annual listing of “The 44 Places to go in 2009,” the New York Times named Beirut as its destination of

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choice, while the Lonely Planet guide put Beirut in second place in its ranking of the top 10 cities to visit. On July 30, CNN broadcast a report declaring Beirut to be the number one city destination in the world and the best party city. Medical tourism, particularly for plastic surgery, is also a major draw for Lebanon, where services are both cheap and competent. In June the Lebanese tourism ministry launched a campaign in the UAE to promote this niche market, offering post-operative stays in resorts and children’s summer camps to keep kids occupied while their parents are in hospital undergoing surgery. Doctors say they have hundreds of reservations this summer, mostly from people in the Gulf. However, a lot of work does need to be done to better accommodate holidaymakers. The state of the infrastructure is disastrous, with electricity and water shortages, bumper-to-bumper traffic and insufficient numbers of hotel rooms. According to Pierre Achkar, head of the country’s hotels syndicate, occupancy rates were already reaching 85 percent in Beirut by the first week of July. The Lebanese hospitality sector remains under-developed in terms of both actual and potential demand, but Achkar says a dozen hotels are either under construction or being planned, with investment totalling $2 billion dollars, providing the country with 2,000 additional rooms and creating 6,000 jobs. No wonder important players such as Four Seasons and CampbellGray, both of which are scheduled to open hotels in Beirut during the summer, are much awaited. Le Gray’s rates start at $450 per night and the hotel is expecting an occupancy rate of 65 to 70 percent in its first year. Similarly, the Four Seasons is set to become one of the capital’s leading five-stars hotels. A Grand Hyatt, another Kempinski and a Hilton are also slated over the coming years. Lebanon is also in dire need of rebranding, explains Ibrahim Lahoud, di-

CNN broadcast a report declaring Beirut the world’s number one city destination and the best party city rector of strategy and brand communication at consulting firm BrandCentral. “Concerted nationwide rebranding initiatives will help further accelerate Lebanon’s transformation into one of the world’s premier tourist and business destinations. The business sector needs to take advantage of new developments to

collaborate in creating fresher and more attractive images for ‘Brand Lebanon.’ A great number of people around the world are still unaware that Lebanon has so much more to offer than its cedar trees.” Tourism hotspot. Another good move would be to follow Marouni’s advice and not just focus on the summer. The September 2009 | TRENDS 91

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Tourism

‘Concerted nationwide rebranding initiatives will help further accelerate Lebanon’s transformation’ minister has argued in favor of “transforming Lebanon into a tourism destination 365 days a year,” removing the official 60-day limitation to the so-called “tourism season.”

Lebanon’s blossoming success story is much welcomed in a country where the economy depends heavily on tourism. According to the World Travel and Tourism Council’s forecasts for this year, hospital-

BEFORE 1975

IN 2004

BY 2019

Prior to the country’s 1975-1990 civil war, tourism accounted for some 20 percent of Lebanon’s GDP

The tourism industry reached a recent peak in the country, amounting to 9 percent of GDP

Lebanon is hoping tourism will account for over 25 percent of GDP, bringing in $14 billion annually

ity will generate up to 9.3 percent of Lebanon’s GDP and account for about 9.6 percent of total domestic employment, with $2.59 billion injected into the economy and 149,800 jobs created. Long gone are the days when the tourism industry accounted for 20 percent of Lebanon’s GDP, prior to the country’s 1975-1990 civil war. But the fact remains that 2009 could be the country’s best tourism year since 2004, when the sector peaked at 9 percent of GDP. And that’s just the start. If the Lebanese manage to maintain the peace, a report predicts that by 2019 tourism will bring $14.2 billion to the country’s economy and account for 25.7 percent of GDP. This would finally be enough, after years of strife, for Beirut to truly reclaim its status as the Paris of the Orient.

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94 TRENDS | September 2009

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Family Fortunes A look behind the partnership of two family-run enterprises, Hermès and Al Mana, provides an insight into different styles of doing business. By Ehtesham Shahid Dubai

erched on the 23rd floor of Doha’s Ritz-Carlton, the La Mer restaurant provides the perfect setting for a celebration. On Feb. 19, a small group of representatives from France’s luxury manufacturer Hermès and the local firm Al Mana Retail gathered to mark the opening of the first Hermès outlet in the city and the fourth in the Gulf. As soon as they began to soak up the panoramic views of the blue waters of the Gulf, the French restaurant overlooking the Pearl Qatar development gained a family ambience. After all, it was family business on either side, albeit from different parts of the world.

Representing Hermès was Pascale Mussard, the artistic director, a woman with French mannerisms. Wissam Al Mana, the young managing director of Al Mana Retail, played the perfect host. During the course of the evening, Mussard emphasized the 172 year-old Hermès tradition and how the firm constantly works to maintain product quality, while Al Mana spoke about the partnership’s progress in the region and the road ahead. That road eventually led to another milestone for the two sides, this time a Hermès boutique at Dubai Mall’s Fashion Avenue. Another mission accomplished. On this occasion, Bertrand Michaud, the managing director of Hermès India, Mid-

dle East and South East Asia, said the next stop is Kuwait. “It is long overdue in Abu Dhabi and in Saudi Arabia,” he added. “So it’s a nice plan for the next three to four years. And why not Lebanon and Egypt?” Clearly the race is on, despite the economic climate. Within the family. A clue to the secret behind this success story and others like it lies in a recent Barclays Wealth and Economist Intelligence Unit (EIU) report. Entitled “Family Business: In Safe Hands?”, the report says family businesses possess attributes that put them in a good position to survive an economic downturn. A close network of family members controlling the business helps September 2009 | TRENDS 95

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Business

Despite the strong relationship with Hermès, Al Mana hasn’t placed all its eggs in one basket with quick decision making, maintaining an agile approach focused on long-term strategy. “Most family businesses have a long-term focus, steady leadership, and a strong identity and vision shared by a close network of family members, leading to sustainable growth,” it says. It’s true that a mixture of stability and agility provides family businesses with the structure that allows a long-term strategic view of the market environment. But the report also adds a caveat when it says some family businesses must still overcome issues related to corporate governance and family succession. This is an area where home-grown companies stand apart from foreign firms.

The Al Mana-Hermès partnership is still unique. Hermès was founded in 1837, while the Saleh Al Mana group, the parent company of Al Mana Retail, was established about 50 years ago. Wissam Al Mana, one of the three sons of the founder, the late Saleh Al Hamad Al Mana, is at the helm of Al Mana Retail and Al Mana Luxury. His brothers, Hisham and Kamal, run the rest of the group’s diversified business portfolio, which includes automobiles, clothing, cosmetics, jewelry, engineering, construction, real estate, media and restaurants. It should not to be confused with another Almana Group in Qatar with inter-

ests in the automotive, real estate and contracting sectors. Wissam Al Mana attributes the success of the partnership to the loyal clientele of Hermès. “They appreciate quality, and Hermès creates the highest quality products, which are very personal because they are made by hand,” he says. Luxury retailers typically buy products from manufacturers and display them at their sales outlets, a formula that has worked well in this partnership too. But it is the family business part to which even outsiders attest. “Many of the best brands grew out of family-owned businesses,” says Robert Taylor-Hughes, the managing director and chief executive officer of Beiersdorf Middle East, the skin and beauty care manufacturer that came to fame with its

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Location: Hermès Boutique/Styling: May Hasbani/Photography: Michael Coronel

NIVEA brand. Beiersdorf often works with family businesses in the region. “Our Middle East affiliate encompasses 16 countries across the region. We distribute through partners in every country and have developed a close working relationship with each of them over a number of years. They are critical to our success, so we give them every possible support to grow in their respective countries,” he says. Beiersdorf, which also started as a family business 125 years ago, has found its feet in the region without relying on a single partner, and operates across diverse markets. Uncertain start. It wasn’t such a smooth beginning for the Al Mana-Hermès partnership. In 2006, the two sides looked to expand further afield. Hermès representatives visited Doha to look into possibilities. Unfortunately, they struggled to

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find the right place for the boutique. “It wasn’t easy, because there wasn’t really a location that we felt was prime or appropriate,” says Wissam, a Beirut-born Qatari national. “Luckily, we discovered the Pearl Qatar development and are very proud to be here today.” Despite the strong relationship with Hermès, Wissam Al Mana hasn’t placed all the company’s eggs in one basket. In November 2007, Al Mana Jewellery an-

nounced the launch of the first Boucheron boutique in Doha, partnering with the 150 year-old French jewelry house. However, unlike the region-wide nature of the Hermès deal, this partnership is limited to Doha because the Boucheron franchise in Dubai is held by the Al Tayer Group. In Dubai, Al Mana runs Agent Provocateur boutiques, a leading highend lingerie brand. Al Mana Interiors, another subsidiary of the Saleh Al Mana

MEDIA

SNACKFOOD

DRINKS

Rupert Murdoch’s News Corp, one of the world’s top media companies, is family-controlled

The Mars company, famous for its Mars bar, was founded by Frank C. Mars and is still family-owned

Families in the Gulf have also been successful in business: Aujan Industries’ brands include Vimto

8/31/09 4:29 PM

Business

If the partnership is a success story in adverse circumstances, it is also a case of contrasting styles Group, recently opened the BoConcept brand store in booming Doha, showcasing customized and coordinated furniture and accessories. Al Mana Interiors is also the franchisee of home accessory chain The One. In June, luxury fashion house Chloe entered the Qatar market with its flagship

boutique at The Pearl, in association with Al Mana Luxury. Since Hermès also deals with other retailers outside the region, it is safe to say there is life beyond the relationship for both sides. If the Al Mana-Hermès partnership is a success story in adverse circumstances, it is also a case of con-

1837

1930S

2009

Thierry Hermès establishes a firm in Paris making harnesses and bridles for horses

Hermès begins to make handbags and scarves, which become favorites with film stars and royalty

Hermès announces sales figures of 428.4 million euros for the first quarter of this year

trasting styles of family business management, particularly when it comes to financial disclosure. Information about Al Mana remains elusive, while after a quick surf of the Web we found out that in 2007 Hermès employed nearly 7,500 people worldwide. Soha Nashaat, the chief executive officer of Barclays Wealth, Middle East and North Africa, says family businesses and their long-term strategies need to be examined to understand their longevity and viability during difficult economic times. “Lessons learned from family businesses could prove to be very apt, and non-family owned business could gain some strategic insights from this most enduring model,” she says. The Al Mana-Hermès partnership suggests a more complex reality – whether they are an example for others to follow is surely a moot point.

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Getty/Gallo Images

Business

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True Confections What’s behind the sweet success of Patchi, one of the top Arab brands? For the Lebanese family firm, life is like a box of chocolates. By Nathalie Bontems Beirut

odiva, Leonidas, Lenôtre, Pierre Marcolini. These are the currencies chocaholics deal in around the world. But against the odds, a Lebanese company has begun to challenge the ubiquity of European brands in the chocolate world. After its foundation on home turf three and a half decades ago, the next chapter of Patchi’s remarkable success story may be a public share offering to fund its ongoing international expansion. From humble beginnings in 1974, Patchi has grown to 142 shops and 2,500 employees, spread across five continents (35 countries, including China, the US and the UK). According to Mazin Obeidi,

the executive general manager, the company registered a consolidated turnover of over $150 million in 2008, up 23 percent on the year before. There are now reports that it plans to float a 49 percent stake on the Dubai and London stock markets to fund its global expansion, a move that would mark a sharp break from its history as a close-knit family firm. A YouGov Mena survey reveals that Patchi, along with Saudi Arabia’s dairy and fruit juice company Almarai, is tipped to become one of the world’s top food and drinks brands. In 2006 Patchi ranked number 15 in a list of the top 40 Arab brands compiled by Forbes Arabia, although it fell to 32 in 2008.

The recipe for Patchi’s success lies in a simple but innovative concept: selling not only chocolates, but various sweets presented as gifts – all designed around specific themes. Though known mainly as a chocolatier, 35 percent of the company’s revenues come from non-chocolate sources. The range of products is unique to Patchi and made by Patchi alone (with no third-party manufacturers), and sold in Patchi shops, allowing the company to give customers in different markets a highly specialized treatment. Lebanon’s Choucair family, headed by founder and chairman Nizar Choucair, fully owns Patchi. Choucair and his wife are majority shareholders, while each September 2009 | TRENDS 101

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The company estimates it produces around 18,000 tons of chocolate each year of their five children are involved in the business to some extent. Mohammed is the CEO, Ossama, Hady and Hala are executive directors and members of the board, while Ghada is a shareholder and member of the board.

New alliances. Only in countries where the law forces them to have local partners did the Choucairs team up with people from outside the family – with the al-Nouri family and al-Jammaz families in Saudi Arabia, for instance, and with businessman Abdallah Mazroui in

1974

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Nizar Choucair founds the company in Beirut in a country about to become engulfed by civil war

Patchi celebrates its 25th anniversary, with expansion to Africa this year and the US a year later

The firm opens an outlet in Dubai Mall opposite a toy store, building on the 2002 launch of Patchino

the UAE. In the rest of the Middle East, Patchi branches are fully owned, while, in other parts of the world, expansion is led through a complex and demanding franchise system. “Each year starts with over 500 applications for franchises,” says Obeidi. Yet Patchi, one of the founders of the Lebanese Franchise Association, doesn’t sign up more than two or three franchisees per year. “We go into every detail, up to the point that we help select the consultants who will construct the shop. Our screening process is very tough.” Nevertheless, Patchi keeps expanding on a regular basis through these franchise deals, with Japan, Russia and Armenia next on the map. The company puts its annual production at 18,000 tons of chocolate but refuses to give the breakdown per country.

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Patchi directly supplies all retail franchisees from its five chocolate producing factories in Lebanon, Saudi, Dubai, Syria and Egypt. The Lebanese unit has four sub units: silverware, flowers, printing and porcelain/fine glasses. All wrappings are produced in Lebanon “in order to have consistency and the same brand platform,” Obeidi says. The five factories each serve specific areas. The Lebanese divisions serve the local market as well as most of the franchisees, while the factory in Jeddah serves the Saudi market and Kuwait, the group’s biggest franchised market, with nine shops. The Dubai factory caters to Emirati consumers and countries where transport is easier from Dubai – or that have trade or tax agreements with the UAE (like Morocco). The Syria and Egypt factories serve their own home markets. This allows Patchi to tailor its products according to each country’s specific tastes. “Our chocolate is sweeter in Saudi Arabia than in Europe,” Obeidi says. In the kingdom, the Patchi brand name is so well established that “some locals call chocolate Patchi, just like tissues are often called Kleenex. That’s the extent to which our brand is recognized,” he adds. Needless to say, in conservative Muslim markets the chocolates are all alcohol free. As the downturn hits the UAE, which has long been Patchi’s most profitable market, Saudi Arabia is expected to become the group’s new favorite. “Our positioning is hard to define because our concept is new and kind of complicated,” Obeidi says. “We have local competitors in chocolate production and retail, and others in the gift market. But in the region, no one does it all like we do.” As for international competitors, they are at a typical disadvantage, with heavy transportation costs and overheads, and without the regional volume of sales necessary to achieve economies of scale. With local factories, Patchi has the scope to drop prices in order to drive foreign

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‘Some locals in Saudi Arabia call chocolate Patchi, just like tissues are often called Kleenex’ competitors from the market. Neither local nor international competitors seem to have the capacity to provide the same quality of service that Patchi offers. The group pays particular attention to client service, one of its trademarks, by devising a tailor-made range of offerings, from baby showers to weddings, designed by in-house professionals. The

group’s flexibility allows Patchi to cater to a massive portfolio of corporate clients, including hotels, banks and food service chains like Starbucks. Emphasizing quality. It’s a different story in Far Eastern and Western markets, where major international competitors such as Godiva and Lenôtre are already well established. In these markets Patchi

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Sweet Success

n 1974 Nizar Choucair opened a tiny chocolate and wedding souvenir shop under the name Patchi in West Beirut. Civil war broke out in 1975, but an undaunted Choucair decided to expand to Jordan, then to Saudi Arabia a year later (while also opening his first chocolate factory in war-torn Lebanon).

ry opened in Dubai in 1992 and the international expansion accelerated. In 1993 the group took a decisive turn, with Patchi Industrial structuring itself around five divisions (print, silverware, porcelain and glassware, artificial flowers, and chocolate production), each with a dedicated factory in Lebanon. In

In 1984 Patchi entered the UAE market. Kuwait followed in 1985. The same year a second factory was opened in Saudi Arabia. From 1985 to 1992 the Choucair family moved to Paris and developed the Patchi brand image and concept, leading to the first franchise deal – a first not only for the group, but for any Lebanese company. A third facto-

1995 Patchi first entered Europe, and in 1997 another factory opened in Syria. In 1999, on its 25th anniversary, the group expanded to Africa, and a year later, it entered the US market. The firm also opened its fifth chocolate factory in Egypt. In 2002 it launched the Patchino brand, targeting young consumers. Patchi’s first shop-in-shop concept was launched in Harrods in 2004.

plays up its strong points: quality and a penchant for packaging. “We invest a lot in packaging and in the design of our shops,” Obeidi says. “For example, we spend a lot on our window displays and change the whole concept regularly.” Shops can be designed as chocolate caves inspired by cigar humidors, or chocolates might be displayed in special jewelled containers in the hope of attracting the attention of gourmet consumers. Patchi also plays on this high-end image by associating itself with other prestigious names. On several occasions the Lebanese manufacturer has distributed chocolates (with small silver dishes) for Christian Dior, Roberto Cavalli and Pascal Morabito. In 2004, a joint venture with famous French chef Alain Ducasse gave birth to Beirut’s first dessert restaurant, Tamaris. The pioneer venture unfortunately ended with the July War of 2006, “but we keep thinking about going back to this line of business,” Obeidi says. Constant innovation is key to the ongoing success of the brand, not only from a product and packaging perspective, but also through the launch of new brands. In 2002 the company launched Patchino, a line of chocolates for children. In September 2008 the first Patchino shop opened in Dubai Mall, facing a major toy shop. “We advertise a lot on a branding level,” Obeidi explains, adding that this is all handled in-house from the Beirut headquarters. He notes that the company tailors its communication – as well as its products – to each individual country. The company makes Ramadan chocolates in the Gulf countries and patriotic Independence Day chocolates for the American market, aiming to offer sweets for every occasion in markets around the world. It has recently hired financial advisers for a primary listing on the stock exchange in Dubai and a secondary float in London. The success of that venture depends in large part on whether its highly localized approach, so successful in the Middle East, will work at a global level.

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Interview: Gordon Graylish

Intel Outside Gordon Graylish, head of Intel’s operations in Europe, the Middle East and Africa, talks about the role of information technology in regional development. By Ehtesham Shahid

here was a lot of talk about information and communication technology (ICT) at the World Economic Forum this year. Where does Intel fit into it all? All countries recognize that to be competitive requires having ICT literacy. We want to compete with the brains of our people – their innovation, their intelli-

gence. So our focus in the region has been on building capacity. What was really exciting about the World Economic Forum on the Middle East [held in Jordan] was that we attended three sessions: one with the Palestine Education Initiative, another with the Jordan Education Initiative, and a third with the Egypt Education Initiative.

We’re heavily involved in lifelong learning and providing the ability for young people to learn ICT skills. We announced we’re extending training to 10,000 teachers in Palestine; we’re also involved in getting people excited about technology. In fact, two Jordanian children ended up winning a grand prize at the Intel International Science and Engineering

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Fair, where a million children enter from 50 countries around the world. It’s a real testament to the education system here that we have winners who are doing pretty exciting things – getting electricity from scrap metal and exhaust fumes, which is pretty interesting stuff. What about research in the region? How can we improve research and development capacity? How can government foster interaction between businesses and higher education? Can tax credits help? At the World Economic Forum we had some very good conversations around ‘how do we tackle research?’ We think there are policy issues involved in terms of making it easier for companies to access university intellectual property and government support for research and development – such as research tax credits for companies to encourage them to research. But we also need to improve the networks and, frankly, get the region to act regionally – get universities to cooperate and pursue excellence. So it’s a very good discussion, and the level of sophistication shows that there is some very serious thinking about how we account for the fact that there are so few patents here. And we need to increase that. So, Intel’s role has been to engage at the base level of education, but also within higher education, looking at research and development, etcetera. We have also announced investments in some really exciting Jordanian companies. ShooFeeTV is really unique within the entire Middle East in terms of providing content guidance to people so that they know more about what is available on television and have insights into this. They do this in a very novel manner – engaging women, who are the viewers, to work from their homes. Providing an Arabic community is also really important. While Arab speakers comprise 5 percent of the world’s population, much less than 1 percent of

content is Arabic, and so we’ve been very focused on how we improve this. Jordan’s approach, of having a relatively unfettered Internet (and government encouragement), has meant that we are getting opportunities here that I think will go beyond Jordan to the wider Arab world in terms of delivering the right kind of content. So it’s very exciting when you meet the people, who are very young, extremely excited and very passionate. It bodes well for the future of these types of companies in Jordan. Where does the region stand in terms of digital content? How long will it take for the Middle East to get on a par with the rest of the world? The region is well behind. It is significantly behind. There are legitimate questions of safety and control in terms of whether what is on the Internet is compatible, culturally, with what people expect. If we don’t have the proper content the reality is that will be a concern. What we’re trying to encourage is proper socially and culturally appropriate content on the Internet, so there is a choice – an exciting vibrant choice that deals with what people want to do. I think that the companies are delivering that and I think that’s really exciting. So, I think the answer to the question is ‘well behind today,’ but I believe there is an opportunity to leapfrog and catch up, because one thing I do notice in the region is that people like to talk. They do like to communicate and I think that delivering a platform for the community is something that is pretty exciting.

Gordon Graylish The head of Intel’s operations in Europe, the Middle East and Africa, says companies need to reduce discretionary spending without cutting back on innovation or capacity.

It’s been a difficult period for Intel recently hasn’t it? I’m referring to the EU fine over uncompetitive practices. We strongly disagree with the European Commission. We act at all times in a highly ethical fashion and dispute any of the charges, and we’re appealing that. But that said, clearly we’re concerned that anyone would say anything that is negative about the way we behave, September 2009 | TRENDS 109

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Arabian Eye

our factories, we’re developing factories and processes that won’t be here for several years and so we look ahead. Our view is that this region is a very important region. It is growing fast and has a very young population, and it is critically important to the world that that young population has access to the right kind of employment opportunities, the right information, and belongs to the knowledge economy so it isn’t isolated. So we have a very strong focus on how we can – as a technology provider, but also as a company that knows a lot of people and can connect people – help make that better future a reality.

‘We’re confident that we’re changing people’s lives through our interaction with the region’ because we take such pride in our employees and in our ethical behavior. We’re consistently listed as one of the most ethical companies in the world and, internally, it is a point of pride from the top to the bottom of the company. So, from our point of view, emotionally, people don’t like to hear these things. At the same time, we’re confident that what we’re doing is changing people’s lives. In particular, we look at how Intel interacts with the region.

It’s about creating capacity, improving how education works and improving access to technologies, like encouraging low-cost broadband. By doing so I don’t even call these things corporate social responsibility; they’re enlightened self-interest. The payback may be 15 years from now. When children get to the point where they’re going to be buying a lot of computers in 20 years, we’ll be happy. The point is that we have always taken a very long view. When we build

How has the financial crisis affected your business strategy going forward? Presumably you have both a global plan and a regional strategy? Are you taking substantive cost-cutting measures to help the company through the economic downturn? Our strategy globally, and it applies in the region as well, is that we recognize the reality of the market. If companies can’t buy furniture and cars, they can’t buy computers – or anything for that matter. That said, we have not cut back on our research and development, we have not cut back on people, and we have not cut back on our manufacturing. So our belief is that – and this, by the way, is my recommendation to all companies – when you have these recessions, you cannot save your way through them. You stop spending on all the things that don’t matter: cut back on discretionary spending on travel, cancel conferences, do things by phone. We’re very prudent in order to save money. But at the same time, we don’t cut back on innovation or capacity. In the end, what will make us successful is coming out of this with exciting products that people are interested in, that are appropriate. We’re seeing the global market explode from the hundreds of millions of products today, to a market of billions of products as we drive costs lower.

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Interview: Ahmet Bozer

Bubbling Over Ahmet Bozer, Coca-Cola’s head for Eurasia and Africa, discusses the beverage giant’s regional growth strategy. By Ehtesham Shahid

ince the early 1990s, the carbonated soft drink market in the Middle East has been continually skewed in favor of Pepsi. How do you view that challenge and what is being done to change that equation? Well, obviously we are not the number one beverage company in this part

of the world, whereas everywhere else we are pretty much number one. There are historical reasons for that, which we all know. However, for us the number one priority is to have a sustainable business where we can have strong relationships with our consumers, customers and communities – and we are able to do that in the Middle East.

Yes, we are more used to being the number one beverage wherever we are, but that doesn’t necessarily get in the way of our long-term thinking for the region. We have a long-term perspective, we are committed to the region and we are building our business like we do in any other part of the world. We cannot say that since we are not the leading

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beverage company, let us do less or be less committed. So there is no wavering of our commitment to the region, and we are doing a good job for our consumers and stakeholders. But when you talk about the Middle East, geographically it isn’t just the Middle East is it? Your region is Eurasia, which is significantly more than just the Middle East. How big a challenge is it to bring all of that under the same umbrella? It is actually Eurasia and Africa combined. The way I would frame what is common to all of that is that this area has the highest growth potential for the longest period of time anywhere in the world. So we have India, for example, where the per capita consumption is so low, yet our business scale is achieving a good level. We probably have tens and tens of years ahead of us to have very high levels of growth. Likewise, the rest of Southwest Asia, Pakistan, the Middle East, Central Asia and Africa are all territories filled with huge potential. So that’s what is common. Where does Coca-Cola stand vis-avis organic versus acquisition growth strategies? Which of these is the favored way forward in the region? We are a lot more slanted towards organic growth, because if we don’t have brand Coca-Cola grow, if we don’t have sparkling beverages grow, then we are not going to be successful – so that means we have to activate our brand portfolio. We believe that there is growth potential in sparkling beverages for a long time. I’m talking about trademark Coke. If you love regular Coke, would like to drink more of it, and are concerned about sugar then we have Coke Zero, which is very close in taste. We also have Coke Light and other beverages. The strength of our portfolio pulls us in the direction of organic growth, but we cannot close our eyes to acquisition opportunities. In different seg-

ments of the beverage industry, in certain countries, it may be better to do an acquisition rather than to try to build something from scratch. So we are always open to opportunities, and pre-crisis and post-crisis strategies in that regard do not show a huge change. Where does branching out into the water and juice segments fit into this? It really depends on the country. We had countries where we had a juice brand which was successful. Then we could invest in that brand and let it grow – so in that case it will be organic. But there may be countries where the juice market is well developed and we have no presence; it may be more expensive to build organically – then we may look for acquisition opportunities. So it all depends on the situation.

Ahmet Bozer Coca-Cola’s regional head for Eurasia and Africa says the beverage giant is open to acquisitions in the region.

The Gulf region’s population has a very high level of obesity and a high ratio of diabetes sufferers. Does that alarm you as a company mainly into cola products? First of all, we believe it is a complex issue, which needs a much more elaborate approach. Obesity is not a regionspecific issue, it exists in all parts of the world. Coca-Cola has a number of approaches on that front. We don’t believe there is anything wrong with our products. There is no good or bad product – there are good diets and bad diets, good lifestyles and bad lifestyles. So if you have taken a lot of calories and haven’t spent them, that’s not good, you have to be balanced. If you overdo any element of your diet, be it sugar or starch or wheat, that’s not going to help your body. Balance is the key. So within that our products have a great place and we offer choice to consumers. It is then up to the consumer to decide for himself or herself on what is the right diet. We also have responsible marketing, which means we have a policy not to advertise to kids. That’s not September 2009 | TRENDS 113

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Interview: Ahmet Bozer

‘We look for a sustainable role over time. These things will pass – we see the crisis as an opportunity.’ because there’s something wrong with our products, but we believe the decision on whatever kids consume has to be made by their parents, and we respect that. Has the downturn altered your market strategy in the region during the last two quarters? How is the market responding to the change? We are very fortunate to be in the beverage business and even more fortunate to be the Coca-Cola company. That’s because when a certain industry feels a big reduction, our business doesn’t get affec-

ted that way. We look for a lot more sustainable role over time. These things will pass – we see the crisis as an opportunity not to be wasted. So if you look at what we’re doing, we are putting different emphasis on some of our strategies. For example, affordability is important now, so we have to offer packages at the right prices to the right consumer levels, which means we have to be able to segment ourselves and reach those consumers. But at the same time we have to reach those consumers who can still afford higher priced products, and

we have to continue to strengthen our brands. These are the things we normally do, but we just need to emphasize certain parts of the strategy. We have not taken really radical action. We see some people laying off and cutting down on investment. We’re still investing in plants and equipment, and we’re still doing the best things in marketing. We haven’t laid off people; we’ve actually hired them. So we are looking towards a stronger system when the crisis is over, with stronger brands, stronger relationships with the customers and all stakeholders. This is a huge opportunity to put a better team in place, better leadership who can develop themselves because we are challenged in new ways.

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What is your take on homegrown companies like Aujan and products such as Vimto in the region? Do you look at them as partners of the future or as competitors? Well, I cannot name competitors in my comments, but yes there are some very successful homegrown companies in this region. The juice category is incredibly well developed in this part of the world and many people are surprised by that. Can you give some insights into consumer behavior that is reshaping your market communications strategy? What about the seismic developments in India and China? Has the economic crisis affected the growth of the beverage market in these places?

There have been some global trends coming into the crisis and those trends continue to some extent. One, there is what we call an emerging middle class, and in most parts of the world millions of consumers are joining the emerging consumer franchise. Maybe they were drinking tap water and weren’t consuming what we call commercial beve-

rages. So they weren’t paying for it and are now joining the franchise. Of course, in some countries, such as India, that continues to be the case and the crisis hasn’t helped. In China, there might be a difference between the West and the East, so that’s one trend. We also see a lot of urbanization, and as people move to cities consumption increases.

1886

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John Stith Pemberton creates a new soda fountain drink, which goes on sale in Georgia, USA

Cans of Coca-Cola become available to US consumers in addition to the famous bottles

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Interview: Markus Giebel

Safe Houses Markus Giebel, the CEO of Deyaar, discusses his company’s strategy in the downturn and the potential for low-income housing. By Ehtesham Shahid

aking into account what happened in Dubai in the last quarter of 2008 and the first quarter of 2009, how have things been for Deyaar? For Deyaar, what has changed dramatically is the strategy. Our new strategy has four pillars. One is easy payment plans for customers who want to buy right now, and

another is a cost reduction strategy. We also have customer consolidation and project consolidation strategies. So it’s a fourpillar strategy, which is completely different from what was in place in late 2008. Is Deyaar involved now in any kind of low-cost housing projects? Do you think this is an area Deyaar may move into?

Right now we are not engaged in any low-cost housing projects. Low-cost housing might be provided as an extension of a product line by any developer, as it is right now. I think for the first time we aren’t seeing as much business in the medium end and the high end. The low end and the lowest end has actually become a business that people should look at. In

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terms of the population, 80 percent earn $10 and less. Now these people are interesting. They have enough capital to own something and enough capital to buy something. These people, or 80 percent of the population, we never addressed. They were never part of our portfolio. We only addressed 20 percent of the people. Actually, 50 percent of the people earn $2.50 or less today and probably don’t have the purchasing power right now and over the next couple of years. But between 50 percent and 80 percent of the population are never provided for, and this may be an opportunity for both us and them. So if we can find a good solution for them it will be mutually beneficial. So you might look at a business model that factors this in? That’s very true. I cannot commit to any time frames, but three things are important: the product, the price and the type of housing.

ture-driven development. Where does Deyaar fit into this changing construction environment? Infrastructure was never our main focus and isn’t our main focus right now. Our main focus is still building. But we may go from a large-scale building footprint to a smaller-scale building footprint. How are you coping with the downturn and its fallout in the Middle East? It’s different for different companies. If you are a company that has coped with the crisis, your operational cash flow is positive, and you have low debt, then I think it is a good time to look ahead – the reason being that it was never less expensive to acquire property internationally. It was never less expensive to do international expansion, so it is one of the best times we’ve had.

How is your relationship with the Dubai Islamic Bank (DIB)? What stake does DIB hold in Deyaar? DIB is one of our strongest assets and owns 42 percent of our company. DIB actually made us what we are right now and is a pillar of strength in these difficult times, which is absolutely a huge asset for us.

The property market in Dubai has been badly affected. When do you see it fighting back? I think the city has already fought back. The first thing we have to do is to get the real-estate-driven Dubai back to an economy-driven Dubai. There is also a lot of economic activity in Dubai – it’s only that people sometimes don’t see it. They look at all the real estate and don’t see the underlying strength. Honestly, if you look at the region and then Dubai specifically there are four things that spring to mind. The first thing is infrastructure. There is no city with better infrastructure than Dubai. In terms of security, there is no city better than Dubai. Can you tell me one city where it is easy to get in and out? It’s very easy to fly into Dubai and it’s very easy to get out. Finally, tell me one city where it is easy to buy property as a foreigner. Now to find these four things in one city and one country in the Middle East is very difficult. So Dubai certainly has the lead.

The focus in Dubai is bound to shift from buildings to more infrastruc-

Do you think the plan for a six-month visa for investors will be a deterrent to

Are you beginning to look at countries in the region outside the UAE? Which are the countries you are hoping to expand to? Actually, we are still at the research stage. We will certainly look outside the UAE, but it will be in the Middle East and North Africa (MENA) and Africa regions. We will not go further out, there is no reason for it. It must be an underdeveloped or developing country which is close to MENA and Africa, otherwise we are not interested.

Markus Giebel The CEO of Deyaar says that his company’s strategy changed completely in six months.

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Interview: Markus Giebel

‘We are an evolving economy. In a mature economy processes and laws are where they need to be.’ those willing to commit money to the local market? There are surely also broader points to be made about the bureaucracy here. Is there the will to move things in the right direction?

Well, our systems aren’t perfect and we are an evolving economy. Now, if you are in a mature economy all these systems, procedures, processes and laws will be right there where they need to be.

18.4 MILLION

75.4 MILLION

402 MILLION

The total amount in dirhams of Deyaar’s paid-up capital when it was set up in 2002

The total amount in dirhams of Deyaar’s net profit for the three months ending June 30, 2009

The total amount in dirhams of Deyaar’s gross revenues for the second quarter of 2009

In an evolving economy you cannot have these because you are still evolving. So there are a couple of things that may be advantageous, while other aspects of an evolving economy are less advantageous. But slowly and surely they go to the advantageous side. So do we have everything in place? No. But are many of the things orientated in the right direction? Absolutely. Would you like to comment on the case of former Deyaar CEO Zack Shahin? To be honest, I don’t know Zack Shahin. It’s in the past for me and we are a new company looking to the future. For us the matter is with the courts and there is nothing we can do. We are a 100 percent future-oriented company.

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On the Road

SAFETY FIRST The Lexus RX350 is family friendly and ideal for long distances.

ver since a certain Japanese car company decided to launch a luxury marque, it has aimed to differentiate its cars so that they stand out from the competition. The RX350, from Toyota’s Lexus division, is distinct from other SUV crossovers that offer value for money, power, reliability or even exceptional handling – but it is not necessarily the best in these areas This is by no means an uncomfortable drive. The RX350 has a spacious interior and both driver and passengers should rightly feel at ease. Driving long distances in this car doesn’t lead to crabbiness, aches or pains, but it’s not a thrilling drive in any sense of the word. That’s because this car is all about the family, and the features worked into it reflect this. Take the huge sunroof that (quite literally) lights up the interior on a sunny day – or perhaps the boot space, which can not only cope with a large shopping list but also a pram and cot to boot.

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The roominess of the front two seats is nicely complemented by the range of nooks and crannies provided for parents to dump the stuff associated with family life (as well as anything else). But the car is strictly for the smaller family, as there are no provisions for two seats to be squeezed into the rear cargo space. The maximum number of occupants is five; to transport more people than this they’d have to ride on the roof. The features thrown in are certainly welcome, such as the cooled front seats (great on a really hot day), while a DVD system fulfills its role as an often needed mute button for smaller passengers. The rear-view camera does provide a little more comfort when you’re trying to rear park in awkward spaces. For a car that looks reasonably pleasing to the eye from the outside, the plush interior does feel roomy. Taking it on a long drive is comfortable enough, and the entertainment systems certainly dis-

tract the smaller passengers from doing the same to the driver. Clearly then, this is a car for the affluent family with 2.4 children. Thankfully, Lexus has worked hard to fulfill the demands of this market. Two notable safety features spring to mind. First, the pre-collision system: when activated, it puts the brakes on should you get too close to the car in front. Second is the impressive number of airbags (10 in all), including knee airbags that prevent drivers from slipping out of the belt. If you want to protect all that is precious to you (including your knees), this crossover is well worth considering.

POWER

PERKS

The Lexus RX350 offers a V6 engine, a top speed of 212 mph, and 275 hp @ 6,200 rpm

An accident pre-collision system and numerous airbags give your family added protection

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LETTER OF THE MONTH CARE IN THE COMMUNITY our report on Somalian piracy (“Lost at Sea”) described how the spoils of raids are divided up. Although pirates themselves get the lion’s share, around 10 percent of the booty goes to “local community leaders.” It seems that the community in that devastated country is benefiting from piracy. Surely the best way to confound the brigands is to give local communities more resources as a way of stopping piracy? It has already cost shipping companies $80 million in ransom money to get their ships back from these bandits. It would take a fraction of this to go straight to the community leaders themselves. If the West took greater responsibility for poverty in Africa and gave more aid to these countries, maybe the local population in Somalia wouldn’t be so desperate that they are driven to acts of theft like this. Perhaps oil-rich states in this region could also do more in this regard. Local rulers are very important to the solution as there is no government to speak of. If they are given more by shipping firms and Western governments than their own pirates offer them, their communities would prosper and piracy would once again be consigned to the high seas of history.

Daniel Smolka, Dubai, UAE

FEELING PEAKY

HUMAN INTEREST

our cover story, “The Off-Peak Year” (June-August 2009), made good reading and gave a sense of where things stand in the industry. However, the story had far too many Dubai-specific observations for my taste; Dubai isn’t a microcosm of the region and has many peculiar eccentricities. True, Dubai has made a name for itself by going big on tourism, but it is wrong to assume that the city represents the essence of the region’s tourism and hospitality sector. Moreover, if Dubai has suffered in the downturn it is only because of oversupply and excessive flipping. Prices were blatantly ludicrous and now the chickens have come home to roost. Months ago, Dubai’s hotels were among the costliest in the world and now they are having to cut their tariffs to survive. In places such as Riyadh, Jeddah, Kuwait and Bahrain, things have largely remained stable, thereby absorbing the shock of the downturn . Peaking too quickly like Dubai has its downside too. Juma al-Qubaisi Jeddah, KSA

he Greek community school story (“Hellenizing Libya”) was indeed excellent. Gaddafi’s country – like the man himself – never ceases to amaze, and this is another example. TRENDS should do more such human interest stories. We all get tired of war and misery being beamed live into our living rooms via television channels. Human interest stories like this give us more than just temporary relief. Ahmed Nazef Damascus, Syria

Q&A SYNDROME

no idea why your magaIbhave zine is cutting down on the numer of interviews in recent months. Is that a deliberate policy? Some of the leading lights of the region may be rather boring, but there is nothing like an interview with a leading political or business personality to give true insights into what’s going on in the region. Julie Spurgeon Kuwait City, Kuwait

Letters to the editor must include the writer’s name and address, and should be sent to: The Editor, TRENDS, S.C.C Arabies 18 rue de Varize, 75016 Paris, France or faxed to: +(33) 1 4380 7362, or e-mailed to: editor@trendsmagazine.net

IT’S THE BUSINESS

ne of the reasons I almost always Oguaranteed pick up a copy of TRENDS is its coverage of the banking and finance industry. At a time when the banking sector has taken a severe hit and stories of things going haywire are all around, a publication such as yours can play an important role in giving a clear picture to both investors and general readers. I’ve come to rely upon TRENDS to convert anecdotes into corroborated stories, because this gives all of us a sense of what is really happening across regional financial markets. Your stories are always well researched, giving indepth and valuable information.

18 rue de Varize – 75016 Paris Tel: +(33) 1 47 66 46 00 – Fax: +(33) 1 43 80 73 62 www.trendsmagazine.net E-mail: editor@trendsmagazine.net FOUNDER: Yasser Hawari MANAGING EDITOR: Julien Hawari julien@mediaquestcorp.com BUSINESS EDITOR: Ehtesham Shahid ehtesham@mediaquestcorp.com COPY EDITOR: Richard Greig richard@mediaquestcorp.com FEATURES EDITOR: Ian Munroe ian@mediaquestcorp.com CREATIVE DIRECTOR: Aziz Kamel ONLINE DIRECTOR: François Louis ART DIRECTORS: Sheela Jeevan & Jean-Christophe Nys ART CONTRIBUTOR: Alvin Cha CONTRIBUTORS: Ahmed Al Attar, Nada El Sawy, Ben Lynfield, Thomas Lippman, Christian Malar, Iason Athanasiadis, Tanya Goudsouzian, Dominic Ellis, F. Brinley Bruton, Zeinab Charafeddine CORRESPONDENTS: Abu Dhabi:: Ahmed Salam – Beirut:: Ed Blanche & Nathalie Bontems – Istanbul:: Bill Sellars – Jeddah:: Alex Malouf – Jerusalem:: Ben Lynfield – Kuwait:: Jamie Etheridge – London:: Clare Dunkley – Tehran:: Guy Smith – Washington: Afshin Molavi ADVERTISING: neena@mediaquestcorp.com Europe: S.C.C Arabies, 18 rue de Varize – 75016 Paris – France Tel: +(33) 1 4766 4600 – Fax: +(33) 1 4380 7362 GCC: Dubai Media City – Al Thuraya Tower 2, Office 1901, UAE Tel: +(971) 4 391 0760 – Fax: +(971) 4 390 8737 Lebanon: Beirut – Lebanon Tel: +(961) 1 202 369 – Fax: +(961) 1 202 369 PRINTERS: France: CORLET S.A. UAE: EMIRATES PRINTING PRESS (Dubai) N˚ Commission Paritaire 1201 K80 202 – N˚ ISSN 0983-1509 PUBLISHED BY: Medialeader FZ/MediaquestCorp FZ

John Hammond Dubai, UAE

COLORFUL CONFLUENCE

Collard’s perspectives Rwasebecca piece (“Save the Last Dance”) interesting but stopped short of giving a definitive glimpse into what confluence of culture means for a country such as Egypt. In today’s globalized world it is impossible to cling on to one’s age-old identities because we are all sailing in the same boat. Places such as Egypt must bravely adapt to a new world. Shakir Khaleeque Abu Dhabi, UAE

Europe: 18 rue de Varize 75016 – Paris, France TEL: +(33) 1 4766 4600 – FAX: +(33) 1 4380 7362 GCC: Dubai Media City, Al Thuraya Tower 2, Office 1901, Dubai, UAE – Tel: +(971) 4 391 0760 – Fax: +(971) 4 390 8737 CO-CEO: Alexandre Hawari CO-CEO: Julien Hawari DEPUTY GENERAL MANAGER: Ayman Haydar FINANCE DIRECTOR: Dinesh Kumar CREATIVE DIRECTORS: Aziz Kamel & François Louis MARKETING MANAGER: Amanda Danielle Bloud amanda@mediaquestcorp.com, Tel: +(971) 4 391 0896 DISTRIBUTION & SUBSCRIPTION MANAGER: JP Nair jp@mediaquestcorp.com, Tel: +(971) 4 391 0765 MEDIAQUEST COUNTRY MANAGERS: Saudi Arabia: Tarek Abu Hamzy tarekah@mediaquestcorp.com, Tel: + 966 50 814 50 90 North Africa: Adil Abdel Wahab adel@medialeader.biz, Tel: + 213 661 562 660 www.mediaqestcorp.com

September 2009 I TRENDS

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THE LAST WORD SHAI RESHEF Though the Internet is admittedly not everywhere, its global presence is growing and it does reach parts of the world where traditional universities do not. By embracing advanced technologies, UoPeople brings collegiate-level studies to parts of the world that are not necessarily technologically advanced. All of the courses and study materials are online, text-based, and designed to be easily accessible to all, including those with only a computer and dial-up Internet connection.

hai Reshef is the founder and president of University of the People (UoPeople), the online tuition-free and non-profit university dedicated to the global advancement of higher education. Reshef tells Ehtesham Shahid about its genesis and the benefits of democratizing education.

It’s tuition free, yes, but students pay when they take exams. The processing fee costs between $10 and $100, depending on the country the person is from. So if they are from a rich country they pay $100, whereas those from poor countries pay $10. I think that is sustainable.

What is the main driving force behind University of the People? The idea is to bring education to students who have finished graduate high school but couldn’t make it to a university. That could be because they don’t have the money, or because there aren’t enough universities where they live, or for other personal reasons. The education will be free of charge as long as they have graduated from high school, know enough English and have Internet access. They come to us, go into two classes – English and Computer Science, pass them, and then continue to study at home for a choice of two degrees, Computer Science or Business Administration. We start teaching in September of this year.

How and where do you expect to raise funds? What about start-up costs? Did you finance some of it yourself? While we have received interest from a number of private and public donors, University of the People is not currently in the fundraising stage. Start-up costs total $6 million, $1 million of which I donated. This contribution will carry UoPeople through the first year or two and, in the initial stages, students may attend free of charge. As UoPeople expands – as a nonprofit organization – we plan to charge nominal application and examination fees to cover costs. These fees will be adjusted on a sliding scale based on the economic situation in the student’s country of origin. Once 15,000 students are enrolled, UoPeople will be a self-sustaining organization.

What about ‘tuition free’ being misconstrued as cheap education? How do you plan to counter that image and build credibility? Well, what we are doing is a university for people who don’t have other alternatives. 122

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Since your kind of education is dependent on the Internet, isn’t the lack of Internet penetration in some countries a significant problem?

As someone who is championing the cause of free education, what is your take on the commercialization of education across the globe? There is room for free education, and it’s not at the expense of paid education. After centuries of it being an exclusive privilege, UoPeople is simply bringing education to people who would otherwise not have the opportunity to earn a college degree, or even walk through the gates of a college campus. For millions, this form of education is an alternative to nothing – not an alternative to Harvard, Oxford or any great college. Is the voice of the academic world being heard in the melee of the financial crisis? What role can academic institutions play in aiding the recovery? The financial crisis is undoubtedly impacting all facets of life – education included. I believe that affordable universal education, however, can function as a global stimulus package, both jump-starting our world’s economy and in turn mending divides between conflict-ridden societies. What mechanism have you devised to control the quality of education? How big a challenge will it be ensuring high standards from voluntary teachers? Cost is not synonymous with quality. UoPeople will be able to effectively function on a limited budget without sacrificing quality, by using open-source technology and courseware. The students will also be supported by a community of full-time and volunteer educators, selected from a pool of active and retired professors, master-level students and other professionals.

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