Trends | November 2011 by MediaquestCorp.

November 2011 /N° 159

TURKEY

UAE

Is country's zero problems policy floundering?

Region's automotive industry back on track

Growing Tension Demands for change of government in Kuwait gather pace

End of an Era

A Libyan businessman recalls life under Gadhafi's 42-year rule

Saving Grace

GCC banking system looks to adopt new practices to address future challenges A MediaquestCorp Publication Canada ........................C$ 7.50 France .......................... € 4.57 Germany ....................... € 6.14

Egypt ..............................E£ 10 Italy.............................. € 5.17 Jordan ............................. JD 4

Kuwait ...........................KD 1.2 Lebanon .................... L£ 5,000 Morocco.........................DH 22

Oman............................ OR 1.5 Qatar .............................QR 15 Saudi Arabia ...................SR 15

Switzerland ....................SFR 8 Syria............................ S£ 100 Tunisia .......................... TD 2.5

UAE .............................AED 15 UK .....................................£ 2 USA ....................................$ 5

Registered in Dubai Media City

November 2011 /N° 159

TURKEY

UAE

Is country's zero problems policy floundering?

Region's automotive industry back on trac

Growing Tension Demands for change of government in Kuwait gather pace

End of an Era

A Libyan businessman recalls life under Gadhafi's 42-year rule

Saving Grace

Egypt ..............................E£ 10 Italy.............................. € 5.17 Jordan ............................. JD 4

Kuwait ...........................KD 1.2 Lebanon .................... L£ 5,000 Morocco.........................DH 22

Oman............................ OR 1.5 Qatar .............................QR 15 Saudi Arabia ...................SR 15

Switzerland ....................SFR 8 Syria............................ S£ 100 Tunisia .......................... TD 2.5

UAE .............................AED 15 UK .....................................£ 2 USA ....................................$ 5

Registered in

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PLANET OCEAN "Standing on the Moon looking back at Earth – this lovely place you just came from – you see all the colours, and you know what they represent. Having left the water planet, with all that water brings to the Earth in terms of colour and abundant life, the absence of water and atmosphere on the desolate surface of the Moon gives rise to a stark contrast." – Buzz Aldrin, astronaut

NOVEMBER 2011 • IssuE 159 • www.TRENDsMAGAZINE.NET Dubai Media City, Zee Tower, office 206, Dubai, u.A.E. Tel: +971 4 391 07 60 • Fax: +971 4 390 87 37 E-mail: editor@trendsmagazine.net

COVER sTORY

KuwAIT DEMANDs REFORMs As protestors take to the streets calling for change, TRENDs assesses the future of the oil-rich emirate

lEADING TRENDs

FOCus

juMp AT ThE puMp

TREADING CAREFullY

will Emirates National Oil Company’s recent anouncement about its losses see prices spike? 37

Freeing lebanon from cluster bombs is no easy task, TRENDs meets the people leading the way

lEADING TRENDs

FOCus

CAuTIOus OpTIMIsM

whERE NExT?

private equity conference predicts investment opportunities in the Middle East and GCC region 46

As Afghanistan enters its second decade of NATO presence, TRENDs assesses its future path

FOCus

TRIuMphANT TuRKEY? 32

Turkey’s strident approach to foreign policy has 52 allowed it to be heard. But at what cost?

14 TRENDS | November 2011

QuEsTION TIME Q&A: Alan juppe, French Minister of state and Minister of Foreign and European Affairs

NOVEMBER 2011 • IssuE 159 • www.TRENDsMAGAZINE.NET Dubai Media City, Zee Tower, office 206, Dubai, u.A.E. Tel: +971 4 391 07 60 • Fax: +971 4 390 87 37 E-mail: editor@trendsmagazine.net

COVER sTORY

FuEl FOR GROwTh

The automotive industry is getting back on the right track, and it’s the big suVs that are leading the way

100

106

ICT

BANKING

GREATER CONNECTION

GROwING INTEREsT

socail media has revolutionized the way young people interact with the world

The region’s banks are facing fresh challenges, regulation issues being central

110

MANAGEMENT

lEIsuRE

GOlDEN OppORTuNITY

GAME OF TwO hAlVEs

Corporate miracle? we examine what enabled jewellery firm Damas’ return to form

As palestine edges toward statehood, TRENDs examines the tactical role football has played

140

Q&A

lAsT wORD

lOOKING AhEAD

IsAAC R sOuEDE

Cairo-based Citadel Capital co-founder, hisham El Khazindar, talks to TRENDs

Chairman and CEO of permal Group speaks about investment stretegies in the region

16 TRENDS | November 2011

170

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Economy

oil to Play For

Getty/Gallo Images

By Atique naqvi Dubai

etail oil prices might go spiraling in the oil-rich UAE in the near future. The Dubai-based oil firm Emirates National Oil Company’s recent announcement about its losses may be more than just a skid on an oil slick. The firm, which also acts as a retailer in Dubai, said it faced a loss of AED2.7bn ($735.1m) in 2011. This wholly-owned Dubai Government’s oil company shut its Enoc and Eppco filling stations in Sharjah due to fuel shortages earlier this year. Last month Enoc said it could not sustain the sale of fuel at heavily subsidized prices, while its costs were high on international markets. The price of petrol in the UAE is about AED1.7 per li-

18 TRENDS | November 2011

ter, which is AED1.19 less than the spot cargo prices. In a statement, Enoc said: “The current scenario, where ENOC has to bear the burden of higher international fuel prices, while at the same time distributing fuel at subsidized rates, is clearly not sustainable or viable for the company. This also has a serious impact on our ability to expand our retail network to meet the growing demand.” Appealing to the government, the firm said: “ENOC looks forward to the support of the concerned authorities in addressing the concern.” Market analysts say that this could mean the rising of fuel prices in the

UAE. Alternatively, to keep Enoc sailing through this loss-making venture, the government would have to step in and write off the losses incurred by the oil company. Last year the UAE oil firms raised fuel prices, which are currently four times higher than in Saudi Arabia, and three times higher than Qatar. In a list of countries with the cheapest petrol, compiled by the UK-based insurance firm Staveley Head, the UAE is absent, while other GCC countries figure among the top 10. Venezuela (AED0.12/liter) is the cheapest place to buy petrol in the world, followed by Saudi Arabia (AED0.46/liter), Libya (AED0.52/liter), Turkmenistan

Reuters

(AED0.70/liter), Bahrain (AED0.75/liter), Kuwait (AED0.81/liter), Qatar (AED0.87/liter), Egypt (AED1.10/liter), Oman (AED1.16/liter) and Algeria (AED1.16/liter). Analysts in the UAE say the reason local firms have to buy oil in the international market is due to the low refining capacity in the country. When the UAE distributing companies raised the prices for a second time in 2010, they said local firms were looking to increase fuel prices gradually to get them on a par with international prices. It is highly likely that Enocâ&#x20AC;&#x2122;s statement about losses is a first step in pitching for a price hike. An oil analyst, who did not wish to be named, said the burden of extra fuel costs might be borne by the expatriates living in the country as Emiratis would get a breather as in the case of water and 20 TRENDS | November 2011

electricity. The idea may sound a bit farfetched, but nothing can be ruled out at this stage. The looming fear of fuel price raise has made several residents uneasy, especially the ones who live in Sharjah, as the fate of Enoc and Eppco filling stations still hangs in the balance. Taking a GCC-wide perspective, the population of the region is forecast to reach 53.5m in 2020, a 30 percent increase over the level in 2000. Over the same period, the regionâ&#x20AC;&#x2122;s real GDP is expected to grow by 56 percent. Nominal GDP, which was $341.6bn in 2000, is forecast to soar to more $1trn in 2010 and $2trn in 2020. Although the economic forecast is positive, it carries a risk: that unmanaged growth will bring negative side-effects such as power shortages and soaring

prices, in particular for food. Some GCC states are already experiencing sporadic shortages of electricity and fuel, while water supplies are already strained and food shortages loom as risks for an import-dependent region, said a report by Economist Intelligence Unit. A key challenge for the Gulf in the next decade, therefore, will be to manage energy, water and food resources to ensure both high living standards and sustainable growth in the long term, it added. The fuel prices should not be taken into isolation as they affect key sections of an economy such as food, water and electricity. The region, which is expected to continue growing phenomenally, has to come up with solutions that would finely balance growth with the rising cost of living and transportation.

Economy

Return to Form?

Getty/Gallo Images

By Atique naqvi Dubai

nvestment firms around the world have been preparing for another bout of deadly recession, this time led by Europe rather than the United States. But there was cautious optimism among the executives of the firms who attended the SuperReturn, Middle East and North Africa’s largest private equity conference, in Dubai last month. While investment deals elsewhere have witnessed a slowdown, the Middle East, especially the GCC region, offers immense investment opportunities. MENA partner of leading legal advisory firm Gibson Dunn, Paul Harter, said private equity fundamentals in the GCC and the wider Middle East are strong.

22 TRENDS | November 2011

“All of the traditional private equity value enhancement techniques should work well in the MENA region. Sectors are highly fragmented and opening up to outside investment. A growing and young population drives consumer demand and there is much room for disciplined internal controls and governance system,” he said, adding that with increasing consolidation and sophistication, there are now fewer active MENA private equity firms than before the crisis, and those that remain often have defendable track records, solid investment plans and experienced teams that have learned lessons from the financial crisis. This results in

a leaner, wiser and more sophisticated MENA private equity industry. The global crisis has led to more realistic valuations and the GDP forecasts remain strong, said Harter, adding, “cash is plentiful” in the region. Based on the reported size of funds and deals announced, MENA funds have a significant amount of committed but undrawn capital from investors, he said. There has been a return of auction processes and the need for secondary exits. “We have seen an increase in auction processes in 2011 and some PE firms are at the point in the investment cycle where portfolio investments will be put up for sale, said Harter.

Further analyzing the current situation, Harter said capital commitments from limited partners made three to four years ago will soon expire and PE firms would face a lot of pressure to either spend it or lose it. But by Q3 in 2011, there has been no surge in the number of transactions in the region. In fact, reported transactions were fewer than in the corresponding period in an already weak 2010. However, another MENA partner of Gibson Dunn, Nicholas Tomlinson, said the Arab spring uprisings saw deal activity ground to a halt in the countries affected. Families own the majority of businesses in the MENA region and there is often a reluctance to sell so soon after high valuations, which was the norm pre-financial crisis. “The lead time from the decision to pursue a sale to closing that deal could 24 TRENDS | November 2011

last well over a year, given the frequent need to reach agreement with multiple shareholders with differing interests, necessary corporate restructurings and regulatory processes,” said Tomlinson, adding that in the West, people lose money and bounce back, but in the Middle East, many people would often prefer not to sell an asset at a loss, even where the rest of the portfolio is performing well. Furthermore, antiquated insolvency laws in the MENA region do not force difficult decisions. Summing up, Gibson Dunn executives said: “We have not seen a return to the pre-financial crisis level of activity, as many predicted. However, the fundamentals upturn in the MENA region are all in place (other than, perhaps, in those countries affected by the uprisings). The industry is also leaner, wiser and more

sophisticated. In 2012 we expect to see a number of secondary exits by PE firms and, possibly, a few IPOs; so if that trend continues and many of the buy-side PE deals that are in the pipeline start to reach fruition, we might actually see that the pace gather momentum and, just possibly, reach the elusive floodgates.” The stable economic climate in the region has grabbed attention of the investment professionals based in Europe and North America. International executive search company Curtis Murray Associates has been receiving a lot of inquiries from the Western professionals. Partner Richard More said: “We have seen an increasing amount of interest from investment professionals based in the West. “They want to know more about the business culture and life in general in the GCC region. If an investment professional does not cut a deal, he’d feel redundant, and that is what is happening in the West.” On the sidelines of the SuperReturn Middle East, Dubai-based Abraaj Capital, stakeholder in TRENDS’ parent company Mediaquest, said that it plans to sell two or three investments before the end of 2012. Senior partner Matteo Stefanel said the company has had interest from buyers including corporate and private equity firms. “Abraaj expects to make one or two acquisitions this year, each with a value of $100 million to $200 million,” he said. Abraaj is evaluating about 40 potential acquisitions in industries from oil and gas service to financial institutions and logistics, Stefanel said. There are attractive opportunities in Indonesia and Malaysia and sub-Saharan Africa, he added. Meanwhile, US-based Carlyle Group said it expected to buy a minority stake in a food-processing company in Saudi Arabia before the end of the year. Managing director for the Gulf region, Firas Nasir, declined to identify the company.

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PersPectives

A revolutionary’s Disillusionment Dubai

Reuters

By Farid ittihad

hen I first met Yassin in 2009 in a little neighbourhood café in Tripoli, he was already quietly disillusioned with the regime of Libyan leader Muammar Gadhafi. A businessman in the oil sector with seemingly inexhaustible tribal contacts across the length and breadth of Libyan’s Mediterranean coast and deep into the desert too, Yassin was the son of a man who made his fortune selling riot control gear to King Idriss, before he was deposed in the 1969 anti-royalist revolution led by a military officer called Muammar Gadhafi. But it became clear as we sat sipping endless macchiatos at the coffee shop surrounded by Yassin’s friends, most of them fairly well-off and at least one of them 28 TRENDS | November 2011

openly an intelligence agent, that Yassin’s father had soon proved himself indispensable to the new regime. The heady days of the 1970s segued into the depressed and authoritarian ‘80s. The uncovering of an assassination attempt prompted Gadhafi to undermine the regular army, surround himself with his own tribesmen and start grooming the same well-equipped military units that sought to protect his regime earlier this year. Yassin’s father’s connections ensured that he had a privileged British public school education, speaking fluent English. This was a rare advantage in a country whose increasingly erratic and dictatorial leader had banned the language from

being taught at schools or even appearing on public signs, effectively strengthening the isolation imposed by US-imposed sanctions. Despite having a long Mediterranean coast and facing Europe, Libya was so isolated that Yassin reminisced about how, at the height of the embargo, people would rush out to the streets to look at a rare airplane flying in the blue skies overhead. This January, even before messages began circulating on social networks about expected protests and as protests gathered speed and intensity in Egypt, Yassin sent me a cryptic note over Facebook advising me to get a visa for Libya. “An explosion is expected,” he wrote. Yassin clearly knew more than he was letting on about what was being organized. But much to my later regret, I failed to follow his advice. As massive protests bloomed across Eastern Libya, I could only watch them as the jerky Youtube clips that informed the world of the unrest inside a country that had enjoyed four decades of authoritarian stability. As violence swept the country and initially peaceful protests were repressed, the rebels took military bases and raided their armouries. The conflict turned into an armed struggle. The traditionally restive city of Benghazi was liberated from Gadhafi’s people, then rebel uprisings swept all the way to the border with Egypt and foreign journalists waiting on the border of revolutionary Egypt piling into what had once been the remotest country in the Middle East. Internet and phone connections were turned off in Tripoli and Yassin disappeared from the radar. By the time he resurfaced he had mysteriously been equipped with a satellite phone which he was operating at terrible risk to himself. He had also

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acquired a contact in New York who introduced himself as a freelance documentary film-maker with a humanitarian bent. Months of fighting and bombings passed without any news of Yassin. Gadhafi’s regime collapsed and the rebels entered Tripoli and partied in the same Green Square (renamed in honour of the martyrs they had given) in which Gadhafi addressed so many rallies of coerced and real supporters. But the silence from Yassin persisted. Then one day a message appeared from him confirming he was safe. “When will I see you?” he asked. Two weeks later I was standing on a Tripoli street hugging a much thinner, leaner-looking Yassin. He led me to a nearby tribal tent where a funeral wake – one of many all around the country during the final stages of its bloody civil uprising – was being held for a nephew killed by a heat-seeking missile the previous day outside Sirt, one of the remaining two cities in which Gadhafi loyalists enacted a last stand. We sipped coffee and caught up. Lat30 TRENDS | November 2011

er, over dinner at one of the few reopened restaurants, he told me about the nights he spent away from home as he moved from safe house to safe house. He had lived through a mind-boggling few months during which he played a covert role as part of a secret cell inside Tripoli that performed functions such as supplying coordinates for targets to NATO planners, dispatching divers to pick up arms shipments dropped off on the Libyan coast where revolutionaries repackaged them and sent them back into the western Libyan mountains to train rebels preparing for the final assault on Tripoli. On the night of the attack, Yassin waited for a radio signal before taking to the streets with an AK47 as rebels riding black jeeps rode unopposed into the capital city. Tripoli fell. Crowds danced and cried with joy. But two months later, little has changed. The rebels settled into the complexes, compounds and palaces they seized, coexisting in the same grubby uniforms they wore during the campaign in an un-

easy, autistic equilibrium with the politicians jostling with each other and the businessmen holding endless meetings in hotel lobbies waiting for stability to return. Families silently mourn their dead and everyone waits to see what tomorrow will bring. Most shops remain closed and celebratory gunfire or red tracer fire arcs into the sky during the hours of darkness. One Friday in October, the firing turned lethal as a proGadhafi demonstration in a loyalist neighbourhood was violently suppressed by rebels anxious to prove they dominate the city. Gadhafi’s capture and brutal execution by a frenzied mob a few days later in the streets of the city where he was born laid fears of an insurgency to rest. But his death removed the common threat binding the rebels together. Calls by the National Transitional Council to disarm were resisted as the different militias sought to transform their territorial gains into political ones. Yassin navigated the uncertainty in a cloud of nervous energy, leveraging his contacts and fluent English to help NGOs and implement the occasional demining contract. In between flitting around the city, he drank endless cups of sweet coffee with fiends in the same café where he introduced me to them in 2009 and discussed the future. He spoke on his phone to high-ranking officials hiding from the revolutionaries’ wrath in Cairo and worried about the future. On October 23, tens of thousands of Libyans celebrated liberation in the same seaside square in Benghazi from where the revolution began. Standing before a delirious crowd, NTC chairman Mustafa Abdeljalil urged national reconciliation and repealed two Qadhafi-era laws banning polygamy and safeguarding Westernstyle banking as being “incompetent with the rules of shari’a.” The international community and many Libyans were stunned. A few minutes later, Yassin forwarded me a text message from a friend of his in Misrata that summed up his own disappointment: “An Islamic state was just declared. What a waste of souls.”

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Love thy Neighbor Turkey’s much-touted foreign policy initiative of “zero problems with neighbors” appears to be floundering. TRENDS investigates. By Bill Sellars Istanbul

s shaped by its architect, Foreign Minister Ahmet Davutolu, the zero problems policy is intended to place Turkey firmly at the centre of its region, both by building closer diplomatic and trade ties with its neighbours, but also using its position as a country firmly linked to both the West and the East to serve as a bridge between continents. Under Davutoğlu’s stewardship, Turkey has also sought to carve out a role as a regional power and peace broker. In recent years, Ankara acted as mediator in indirect talks between Syria and Israel; tried to end factional fighting between rival Palestinian groups; and

32 TRENDS | November 2011

sought to bring Azerbaijan and Armenia back to the negotiation table, while also moving – after a good deal of prodding by the US – to heal its own almost century-old rift with Armenia. That most of these efforts came to naught cannot be laid at Turkey’s door. When recently discussing his Justice and Development Party (AKP) government’s achievements, Prime Minister Recep Tayyip Erdoğ ranked the advances in foreign affairs as some of the most significant since coming to office in late 2002. “Before we came to power our country’s foreign policy was conducted on the foundation of ‘a country surrounded by enemies on its four sides,” he said. “We

have converted this psychology and image to the policy of ‘zero problems with neighbours’. We have solved problems believed to be unsolvable and rebuilt friendships believed to be unachievable.” However, over the past 18 months or so, friendships have been fractured and the question asked if solving the unsolvable is unsustainable. While Turkey’s recent feuding with Israel is well documented, with the killing of nine Turkish activists on an aid ship bound for Gaza in May last year feeding an already smouldering fire, right across the region old rifts are reopening. One of the widest of these is with Syria. Threatened with war in the late

Getty/ Gallo Images

November 2011 | TRENDS 33

Grapheast/ AFP

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Turkey is pursuing the wrong policy towards Iran. If it does not change its policy, it’ll run into problems 1990s for harbouring the leader of the anti-Turkish militant group, the Kurdistan Workers’ Party (PKK), ties between Damascus and Ankara surged over the past decade, with Turkey becoming one of the leading foreign investors in Syria in recent years. However, all of that cooled as the Arab Spring turned into the Syrian summer of discontent. Having failed to pressure President Al Assad into implementing democratic reforms, Turkey then moved somewhat belatedly into the camp of those calling for regime change in Damascus, going so far as to suggest military action in early October if the gov34 TRENDS | November 2011

ernment crackdown across the border did not stop. To the north, Moscow is unhappy with Ankara granting permission for NATO to establish an advanced radar system on its soil, part of the alliance’s early warning network against missile attack. Iraq has complained over Turkish air strikes targeting PKK bases in its northwest, complaints that may intensify after the parliament in Ankara voted in early October to authorise land operations by its armed forces across the border in response to increased terrorist activity. Like Russia, Tehran is angered over Turkey hosting the NATO radar. While

Ankara insists the system does not target any country, Iran sees it differently, especially given that the radar will be arrayed close to its border with Turkey. On October 8, Yahya Safavi, the senior military advisor to Iranian supreme leader Ali Khamenei, warned Ankara that agreeing to host the NATO radar system was a strategic mistake. “Turkey is pursuing the wrong policy towards Iran. If Turkey does not change its policy, then it will run into problems in the domestic and foreign policy,” he said in what was a clear shot across the bows of the AKP’s diplomatic line. It is not just to the east that zero seems to count for little. Tensions in the Eastern Mediterranean heightened in September when the Turkish government said it was prepared to send naval escorts to ac-

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Patrimony Traditionnelle World Time

Reuters

company any further aid ships attempting to break the Israeli blockade of Gaza. Ankara has also deployed warships to monitor gas drilling activity by a US company in Cypriot waters and to watch over a Turkish seismic research ship dispatched to search for hydrocarbon reserves in the same region. Turkey disputes the Cypriot government’s rights to exploit the offshore mineral wealth before an agreement is brokered to reunify the Turkish and Greece Cypriot communities. Turkey’s opposition to Nicosia signing deals with Lebanon and Israel to divide the mineral rights in waters between the states has also put Ankara offside with Beirut and Tel Aviv, yet again. While Erdoğmay have generated good will in Lebanon during a visit last year, trying to block the energypoor country from staking its claim to the undersea gas fields off its coast will do little to endear him, or Turkey, to the Lebanese government. To some, at least, it appears that the AKP’s zero problems foreign policy is being replaced by the modern day equivalent of the 19th-century British gun boat diplomacy. One who is concerned that the government is pushing too hard in its efforts to assert itself in the region is Faruk Logoglu, a parliamentary deputy for the opposition Republican Peoples’ Party (CHP) and its spokesman for foreign policy. Logoglu, for many years Turkey’s ambassador in Washington, including during the period of the Iraq war, believes that far from resolving problems, the AKP’s foreign policy has been widening rifts and creating new ones. “The zero problem policy with our neighbours now has brought us on the brink of a hot conflict,” he said. “Forget about resolving or mending issues we had with some neighbours. In fact, now we even have problems with Azerbaijan with whom we had no issues.” Along with Azerbaijan – which felt abandoned by Turkey during Ankara’s now stalled efforts at rapprochement with

Armenia – Logoglu says the AKP has offended or alienated nearly every country it shares a border with and more than a few further afield. While sounding good on paper, the government’s foreign policy had little basis in reality. “The fantasy of zero problems with neighbours was that it was not realistic, it was handicapped from birth and lacked strategic depth,” he claims. However, Hayrettin Karaman, a columnist with pro-Islamist daily, Yeni Safak, says the CHP and other government critics have failed to give the zero problems policy and the AKP due credit. “The opposition says the gains are ‘zero,’ but those who understand and can be unbiased know the policy being followed is right and say that Turkey has benefited by this, primarily by gaining

prestige and becoming more effective on the international stage,” he says. While Turkey may have raised its profile in the international arena, that elevation may have come at a cost, with trade as well as diplomatic relations with a number of neighbours trailing off. Opinion is divided as to why Turkey has adopted a more strident approach to foreign policy, with pro-government supporters saying Ankara is merely defending the interests of the country and region against outside forces, while opponents suggest the AKP has been beating up issues to strengthen its hand at home and gain backing abroad. Either way, the voice of Turkey is being heard and Erdoğ has become one of the most recognisable faces on Middle Eastern TV, although his ratings in some quarters have fallen to near zero. November 2011 | TRENDS 35

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Healing Hands The 2006 conflict with Israel has left scars on Lebanon that have not yet healed: cluster bombs. TRENDS investigates. By Zeinab Charafeddine Beirut

ebanese poet Chawki Bazigh was so moved by the death of a child in the 1980s, killed by a landmine while playing in a field in south Lebanon, that he wrote a poem about it. But while Lebanon was plagued by landmines during and after its civil war (1975 to 1990) and the subsequent Israeli occupation, with around 900 deaths, nothing prepared the country for the dangers of cluster bombs after the 34-day war with Israel in 2006. In the final 72 hours of fighting, after the United Nations Security Council had already called for an immediate ceasefire, Israel dropped more than four million cluster bombs on south 38 TRENDS | November 2011

Lebanon. Witnesses spoke of them “raining” down from the sky. A cluster bomb contains multiple explosive sub-munitions, which scatter over a wide area. Some explode immediately, but many are left behind. In Lebanon at least 40 percent failed to detonate on impact, according to the UN, way above the “failure” rate claimed by Israel, resulting in lethal devices being left behind in gardens, on roofs, among rubble, and buried in agricultural land or nestled on the soil. The blanket use of cluster bombs in the 2006 war appalled some Israel soldiers, who expressed surprise at the use of what they thought of as “Dooms-

day” weapons designed for all-out conflict. There were even reports of clusters fitted with eye-catching ribbons to make them attractive to children. In September, Beirut hosted the second UN meeting following the 2008 Convention on Cluster Munitions. Christine Beerli, vice-president of the Geneva-based International Committee of the Red Cross, told the meeting the venue was appropriate because the Convention “was born of the suffering these weapons caused in Lebanon”. A total of 131 governments sent representatives, including 40 to join the convention. There was also a wide crosssection of people active in the field.

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“Some people risked their lives and used their land while it was still contaminated” Hussein Ghandour, 31, works at a small center making artificial limbs in Sarafand, South Lebanon. Hussein lost a hand and leg playing in a field near his home in the village of Bourghlie. He was just seven. “It was one of the remains of the 1982 Israeli invasion,” he told TRENDS. “Lebanon didn’t then have the means to clear mines. So it was still there, unexploded, and it was my destiny to walk on it.” Today, Hussein is a member of the landmine survivors’ football team and is optimistic for the future. “This meeting represents support for survivors,” he said. “It also expresses hope that there will be no more casualties from such incidences. It is our opportunity to say to the world: ‘No to cluster bombs, yes for banning them, and yes to destroying all stocks’.” 40 TRENDS | November 2011

Before 2006, Israel had used cluster bombs in Lebanon in 1978, 1982, 1996 and December 2005. But according to the Human Rights Watch, 2006 was the most extensive use of cluster bombs anywhere in the world since the 1991 Gulf War. The total was 13 times larger than what NATO dropped on former Yugoslavia, more than 15 times what the US used in Afghanistan in 2001-02, and more than twice the number used by US-led forces in Iraq in 2003. Brigadier General Mohamed Fehmi, director of the Lebanon Mine Action Center, which co-ordinates clearance work, told TRENDS that 44 Lebanese civilians had been killed and 364 injured by cluster munitions since 2006. “Of the total, 115 were under 18 years old,” he said. “We estimate 4.2 million sub-

munitions were dropped over Southern Lebanon during the conflict of 2006, contaminating some 54.9sq km of land covering inhabited areas, houses, school yards, hospitals, and farmland.” About 70 percent of household incomes in south Lebanon come from agriculture. Farmers, therefore, have faced risking life and limb, or protecting themselves and losing their livelihood. Many civilians decided they were unable to wait for professional teams and began clearing sub-munitions themselves. “Some people risked their lives and used their land while it was still contaminated,” said Hisham Delbane, 41, a mineclearer with Norwegian People’s Aid (NPA). “Our relief comes only when we deliver the land cleared to their owners. Often they kneel and kiss the earth.” The five mine-clearance teams of NPA are just part of the efforts going into the work. The Lebanese army and soldiers from the UN Interim Force in Leb-

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“Thanks to national and international effort, two thirds of the contaminated land has been cleared” anon (UNIFIL) have also been supplemented by Denmark’s DanChurchAid (DCA), the Mines Advisory Group and the Swiss foundation for Mine Action. “I was a school teacher, but I decided to take this chance to participate in cleaning up our lands from these atrocious weapons”, said Lamis Zein, a 32-year-old mother of two, who works for NPA. “I wanted our children to play again safely in the fields, and our farmers to earn their living without being threatened with death.” “Thanks to national and international efforts, two thirds of the contaminated land has been cleared,” said Fehmi. “But further work and resources – we estimate $75m – are required to free the country from cluster bombs.” Haboubba Aoun, one of Lebanon’s representative members in the global network, the International Campaign to Ban Landmines, told TRENDS she expected 42 TRENDS | November 2011

Lebanon to be free from cluster munitions by 2016, and from land mines by 2020. A 2008 report, funded by the UNDP, estimated that clearance in southern Lebanon had already cost humanitarian donors around $120m, substantially higher than the $30m estimated cost of removing NATO cluster munitions from Kosovo between 1999 and 2005. But clearance is only the most quantified cost. A Human Rights Watch Report, also published in 2008, put the total losses of agricultural production at $154m to $233m, with 3,105 farmers losing an average $8,000 each – and this in a country where per capita GDP was $14,200 in 2010. The continuing human and financial costs of cluster bombs – paid almost entirely by non-combatants – are driving efforts to extend the 2008 UN Convention banning the weapons. During September’s meeting in Beirut, Swaziland became the 110th sig-

natory nation and Malaysia, Gabon, Kiribati, Tajikistan, and newly independent South Sudan all indicated they plan to accede. The Convention followed the 1997 UN Convention banning anti-personnel mines, known as the Ottawa Treaty, and which has been signed by 156 of 196 members of the UN. But the USA, Cuba, China, Israel and Russia are among the countries that have signed neither convention. The government-owned Israeli Military Industries, also known as Taas, is a major producer of cluster-bombs as well as a supplier to the country’s armed forces. Asked by TRENDS whether Israel would employ cluster bombs in any future conflict with Lebanon, Steve Goose, arms division director at Human Rights Watch, acknowledged it had a huge stockpile. “We are hoping we stigmatized this weapon so much Israel and other countries who have not signed the ban treaty will still feel constrained from using it,” he said. “But, of course, Israel has proved over decades that when its army has a weapon it tends to use it.”

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Afghanistan The Lost Decade As Afghanistan enters its second decade of NATO presence, the situation on the ground remains difficult. What has changed? TRENDS reports. By Farid Itihad

Kabul

uhammad Younus Nawandish didn’t become mayor of Kabul and one of Afghanistan’s most popular politicians by chance. He was the first mayor to care for a city that was transformed in the 80s by a Soviet occupation and grand construction programs, pulverized by civil war and the dilapidation of Taliban rule in the 90s, and expanded and neglected in equal measures during this past decade by the NATO occupation and the Karzai government. So, as the years passed and the promised billions sloughed by the international community into Afghanistan didn’t translate into palpable projects, Kab46 TRENDS | November 2011

ulis felt ever more deflated. Residents of secondary but cleaner Afghan cities such as Mazar-e Sharif and Herat began mocking them for the dirt and dust that swirled around them as part of their ordinary day. The beginning of this year, though, something changed – a freshly-asphalted street appeared, courtesy of the Kabul municipality. Rather than just a oneoff, the practice proliferated and this time the contractors were not corrupt and did not use poor-quality materials that disintegrated into potholes after a few months. By this year’s end, most of Kabul’s main streets will be navigable without kicking up clouds of dust. But

this is only one piece of good news in a sea of negative indicators that reveal greater violence, more civilian deaths and a resurgent Taliban that could easily overpower Afghan security structures and take over the state once US troops withdraw by 2014. With a sense of impending doom over their heads, many Afghans are thinking of escape strategies. Demands for bribes by policemen are increasing at the checkpoints that litter Kabul by officers anxious to make the maximum amount of money they can before it is too late. And more and more Taliban militants slip larger and more lethal quantities of arms and men through, most recently during

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The Afhgans and Iraqis have been historically denied the chance of joining the Arab Spring September’s brazen attack on the US Embassy. The deteriorating military situation has resulted in the stepping up of police patrols which benefit by extorting cash, produce and favours from shopkeepers. Another man exploiting his position for financial gain is a Kabul prosecutor who is in frequent and lucrative contact with foreign lawyers hired by Western companies to represent them in Afghanistan. It was in a foreign lawyer’s car in one of these same freshly-asphalted roads that he sat for the umpteenth time demanding a bribe to facilitate solving an outstanding case. “Don’t you realize that if you insist on a bribe you are hurting your own country and its hopes of ever overcoming corruption?” the foreign lawyer asked him. “Don’t you realize that we have passed the point of hopelessness for Afghani48 TRENDS | November 2011

stan and that it’s now a case of everyone for themselves?” the prosecutor replied. “I need to look after my family.” The scene was one of many being played out across Kabul, the capital of a troubled country in the grip of a fin de siècle moment. As top foreign officials increasingly repeat to their Afghan interlocutors that Afghanistan’s significance is diminishing as fresher challenges like Libya and Somalia emerge, the greater urgency by lower officials, from policemen to prosecutors, in extorting money is informed by the knowledge that the decadelong infusions of foreign cash are ending. Ordinary Afghans are increasingly aware that the global economic crisis, coupled with upheavals elsewhere, are reducing their country’s significance. Seventy three percent of their economy is sustained by foreign funds, according to United Na-

tions figures. Afghanistan has been the great loser of the Arab revolts, missing out in resources and also getting relegated in the media coverage ever since the uprisings began rippling across North Africa and the Middle East. Even before the collapse of the Gaddafi regime, international officials meeting their Afghan counterparts regularly warned them their country was undergoing a downgrading in importance, even as they assured them of a generous “transition dividend” from the Western countries, pulling their troops out. “The Afghans and Iraqis have been historically denied the chance of joining the Arab Spring by being robbed of their historical agencies by US-NATO invasions,” said Hamid Dabashi, a professor of history at Columbia University. “Their client, the military junta in Pakistan, is now trying to compete with Blackwater International in providing its military service to Arab states shaken by the Arab Spring.” But despite the billions of dollars ploughed into the Afghan economy, there

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Despite billions of dollars ploughed into the Afghan economy, some districts never saw improvement are some districts, even in the capital, that never saw improvement. Up in the jagged hills behind central Kabul is the poor Chandawal district. In the absence of pipes to deliver water to the cliff-clutching stoneand-mud houses, the poor members of the historically downtrodden Hazara minority are exiled to the peaks. These slit-eyed descendants of the Mongols are twice damned: not only still associated with bygone rape and pillage, but also adherents to Shiite Islam, a minority sect. The Taliban tried to exterminate them, the Tajiks excluded them from power-sharing in the new state, and even the Western NGOs and NATO ignored this mostly peaceful proWestern community that never joined the anti-Western insurgency, but neither profited from the aid dollars ploughed into Afghanistan by the international community. “If you’re not killing Westerners then your area won’t see much investment,” one Western aid worker said ruefully. 50 TRENDS | November 2011

Many of the hard-partying tribe of international aid-workers, diplomats and consultants are already migrating to the Mediterranean-facing hotels of Tripoli, the capital of an oil-rich country that can afford to cover its reconstruction expenses. Their departure was seemingly hastened by the assassination of former President and current head of the Peace Council, Burhannudin Rabbani. He was blown up in his home in Kabul by a turban-bomber in September, seemingly dashing hopes of negotiating a peace agreement with the Taliban. Rabbani was the most prominent surviving leader of the Tajik community. In the assassination’s aftermath, angry crowds of mourners accused the Pashtun President Hamid Karzai of carrying out a covert series of death-strikes against their leaders in a bid to terminally weaken them. A number of prominent political and military leaders, such as commander Davoud Davoud have been killed in the past year, even as poli-

ticians and security figures, such as presidential candidate Abdullah Abdullah and intelligence chief Amrullah Saleh created their own opposition force to the government. The communal split is encouraged by powerful governor of Mazar-e Sharif Mohammad Ata, who has rearmed his northern militia as a way of dealing with the spread of the insurgency to the North. Such events have reinspired an impetus leading toward the possible breakup of Afghanistan into two parts that was initially floated a few years ago by former US Ambassador to India, Robert Blackwill. According to the proposal, NATO would accept that defeating the insurgency was a lost cause and retreat behind a steel wall in a Tajik-majority remainder state. South of the new border, a new Pashtunistan would emerge, centered around Kandahar. “Blackwill’s proposal echoes the ‘realism’ of those who have been calling for a tripartite division of Iraq,” said Mark Medish, former director of Eurasian affairs at the National Security Council. “Even if the plan is not adopted as a declaratory policy, it has the virtue of reflecting facts on the ground.”

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Call for Action Alain JuppĂŠ, the French Minister of State, and Minister of Foreign and European Affairs, talks to TRENDS about France and the Arab Spring. By Christian Malar

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rance and President Sarkozy played, with Britain and America, a decisive role in the rescue of the Libyan population. However, can a non-homogenous National Transitional Council made of various tribes, a Berber, monarchist, and even islamist, build and manage Libya? We believe it is very important that the CNT forms a transitional government that will include all of these parties that will keep the unity of the revolution until the establishment of democratic institutions of the state. Libyans have demonstrated courage, maturity and dignity throughout this revolution and have our full confidence in the face off this chal52 TRENDS | November 2011

lenge. France will remain by their side to facilitate the political modernization and economic recovery. Despite France and the American administration calls for President Assad to step down, repression in Syria continues. Doesnâ&#x20AC;&#x2122;t this justify an intervention? The international community must take its responsibility and protect civilians. France is at the forefront of the international mobilization. It will continue its efforts in all institutions, including within the European Union, which already passed eight sets of sanctions to increase pressure on the Syrian regime and end the repression. In the Security Council, the Russian and Chinese vetoes and the reluctance of

India, South Africa, Brazil and Lebanon blocked us. However, we are not giving up. No veto can give a blank check to authorities that lost its legitimacy by murdering their own people. We will continue to denounce the crimes committed. We are in constant contact with the Arab League that is increasingly concerned about the syrian regimeâ&#x20AC;&#x2122;s reckless approach. We continue to work in New York for the UN to take a position on the Syrian crisis. We will continue to engage Russia and China. We are ready to strengthen further European sanctions. We talk to the Syrian democratic opposition that is structured. We bring our political and moral support to a heroic population that wants to regain its freedom.

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ical development. No one would understand that the conflict continues and that Palestinians remain people without a state. The status quo does not play in favor of Israel. The international community must help Israelis and the Palestinians to implement the two-state solution. At the UN, Sarkozy proposed to change the method, with an intermediate step towards a full admission of Palestine. This status of observer state would go with a resumption of negotiations. The creation of the Palestinian State will be Israel’s best guarantee for security for its future. The entire Middle East would have to gain in terms of stability and growth.

“The conflict in the Middle East has lasted too long. It feeds frustration and even extremism.” Do you fear an interference from Iran and Hezbollah that could lead to regional turmoil? One can always voice threats, but one cannot stop the people’s aspirations. I do not believe it is in the interest of anyone in the region to try to go against these aspirations. The Iranian people, also subject to long oppression, are demanding freedom.

thorities. The Muslim Brotherhood is one of the pieces of the new political spectrum. As in Tunisia, they must accept the political and election rules and must compose with other parties. I reject the discourse of inevitability. Faced with extremists, we support all democratic forces attached to pluralism and respect of differences.

Can this Arab Spring get worse? In Egypt and Tunisia organized Islamist movements are on the rise. In Tunisia, the election campaign is taking place in a calm situation, and I would not venture into trying to predict the results. But it is unlikely that a party receives a majority on its own. In Egypt, a political transition is under way. It is important that current authorities keep their commitments and transfer power by 2012 to the newly elected civilian au-

Former French President Chirac has repeatedly qualified the Israeli-Palestinian conflict as being the cancer of the Middle East. How can we push Israel for concessions in light of recent Palestinian moves at the UN? This conflict in the Middle East has lasted too long. It feeds frustration and even extremism. The Palestinians want their state. This is a legitimate request, and it is acknowledged by all parties. Arab countries are experiencing an unprecedented polit-

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With this turmoil Iran advances in developing its nuclear program, becoming a more important threat. What should be done? Are pre-emptive strikes, the likes of which Sarkozy hinted at, an option? The Iranian nuclear crisis continues to be a concern and stakes are high. By continuing to develop nuclear capabilities, Iran threatens the nuclear non-proliferation treaty and opens the risk of a sharp deterioration in the region. This program does not serve any identifiable civilian objective, and there are serious indications of activities related to the design and manufacturing of nuclear weapons. In 2006, Germany, Britain and France, with EU support, convinced the United States, Russia and China to have a common and strong approach in opening discussions with Iran, with international pressure that would increase strongly if it refuses to suspend these activities and negotiate. The Security Council, the European Union and many States have already passed sanctions, and the Iranian authorities see the impact. This is our strategy and we will continue with it as Tehran should not doubt our determination. We want to prevent the risk of a major crisis. Our next move will depend on the November IAEA report that will assess Iran’s situation.

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Power of Popular Revolt The CEO of Publicis Groupe, Maurice Levy, gives an outsider’s view of the Arab Spring and predicts what lies ahead for the Middle East.

hat does the Arab Spring mean to you and, in your opinion, what lies ahead for the Middle East? The lesson we have learned from the Arab Spring, if you want one short answer, is that the power of a popular revolt can be boundless. It can be stronger than the most devastating tsunami. It can topple dictatorships that have gripped onto power for decades. And that is a very

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deep and inspiring lesson for us to learn. The power of the aspiration to free decision-making and democracy is stronger than fear and compliance with tradition – just as the fall of the USSR in 1989 taught us that the idea of democracy is stronger than the idea of “equality”. Today we have a number of countries in the Middle East and North Africa that are struggling to set up much more responsive, democratic governments, for

the first time in the history of the region. Alongside them we have a few countries – specifically, Syria – that remain locked in intense conflict. And there is a spectrum of countries, from Morocco to Saudi Arabia, where the governments recognize, I think, that they badly need to make considerable steps towards greater popular freedom. There has been some progress – for example in Morocco – but in all of these countries there needs,

I think, to be a great deal more forward movement. But you’re asking me to make pronouncements from on high about a region that I feel close to, but where I do not live. I feel uneasy about this kind of exercise. The fact is I was completely taken aback by the revolutions in Tunisia and Egypt: the force of the people’s anger and the speed with which the regimes collapsed. Like many people, I had absolutely no idea of the scale of larceny that was going on in either of those countries. Obviously in a lot of undemocratic countries there is a certain amount of official corruption; one almost expects it, although it is deplorable. But it was a shock to me to see those coffers of gold and silver. I sincerely believe that no-one can really predict what the future will be. It may be bright with enlightened leaders and a democratic political system. Or it may return to dictatorship, or to obscure religious systems and control by Islamists. The key to the answer will be found in economic progress and systems for redistribution in the countries concerned. Do you think regime change will improve the image of the Arab world? Unquestionably, the shift to greater liberty and to democracy is appealing. But any change is also a time of risk. There’s a danger that an image of unpredictable chaos might take shape, if there are clashes between groups with opposing ideas. I think that in terms of the rest of the world, many countries which you could qualify as “not quite democratic” will need to learn a lesson from the Arab movements this year. In China there are many limits on free expression. In Russia there are still a number of sectors of society that are unfree. These are countries that need to listen to the roar of popular revolt and make their own, essential reforms. Do you see any similarities among the Arab Spring, French Revolution, or the Crusades? How much class struggle is responsible for this?

I’m not sure how the Crusades would work into this. But I do see your point about the French Revolution. In the 1700s France was ruled by a small élite, there was a large majority of extremely poor people, and the growing middle class was blocked in its aspirations by a society that resisted greater openness and change. How much time do you estimate it will take for the nations in this region, undergoing changes, to move from chaos to reasonable stability? The simple response is that I don’t know. Sometimes it is better to be humble than to proclaim an answer. I have a lot of respect for the creativity of the Arab peoples and my hope is that they will find a way to make freedom work. In this regard I think one very key point is the benevolent regard of the army in several countries. The reason why the revolutions in Tunisia and Egypt were relatively bloodless was that key actors in the army decided that they would no longer shoot at their own people. That was something to rejoice about, and it’s also a key reason to be hopeful.

Maurice Levy Morocco-born Maurice Levy is the chairman and chief executive officer of French advertising giant the Publicis Groupe. He is also a member on the WEF’s foundation board. Lévy is one of the most influential men in France, and in advertising worldwide.

Will this Arab Spring improve Arabs psychologically, socially and economically? I think this goes back to the answer I gave earlier about the power of the democratic idea. There is a human desire to be the master of one’s own life. All men, and all women, want to be able to make their own choices, independently of commands from above. Now it’s true that the reality of choice can be very complex. But my feeling – and maybe this is just based on my own psychology – is that it is always better to have the right of free choice than to submit. In terms of society and the economy, I also feel that in the long term, free markets and a democratic system that is respectful of the rights of the individual are also a massive net benefit for all people, everywhere. In Egypt, Tunisia and LibNovember 2011 | TRENDS 57

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Arab leaders have a formidable opportunity to build a great future for their people ya they have already won, psychologically. Socially and economically? That will depend on the economic growth that will be generated. How do you see the future of the Arab world, which has extremely rich history, but recent turbulence? Arab leaders have a formidable opportunity to build a great future for their people. Will they take the right decisions? It is in their hands. Do you see religious extremism/fanaticism rising due to the Arab Spring? This is not for me to judge, but I hope not. Too often fanaticism and extremism are the antithesis of freedom. They in58 TRENDS | November 2011

volve a small group imposing their ideas on the majority. If democratic leaders do not cristallize freedom, and if they do not create better living standards, jobs, education, and so on, then the negative may win. Some of the Arab regimes shared cordial ties with Israel, despite negative undercurrents of the public. How will this change the face of the Middle East if governments of popular choice come to power? I don’t know, but my hope is that a rational discourse will prevail. Peace will be fantastic for this region. There has been so much blood, so many killed – people on both sides. There is room for an

“entente” and real peace. We should all help to make it happen. Political freedom helps the free flow of ideas that affect culture, arts and sciences. Is it a farfetched expectation to hope for revolutionary ideas in different fields as a result of the Arab Spring? Not at all, in fact it’s exactly what I hope and expect will happen. In every kind of cultural endeavor, from painting to the cinema – and even advertising – I think we’ll be seeing an outburst of creativity and invention. And this may well prove true for science, too. Whenever people feel empowered to act on their own ideas, we see that out of the grim, grey sea of conformity and obedience new ideas emerge. Freedom is an impetus to vigorous, bold, brave choices in every field.

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Promising Future Regime changes in the Middle East are bringing a lot of hope for the future, says Khaled Al Maeena, editor-in-chief of Jeddah-based Arab News.

hat does the Arab Spring mean to you and Saudi Arabia? The Arab Spring means hope. It means the formation of an Arab society with a new dimension and a new outlook. For our country, Saudi Arabia, the Arab Spring is an eye opener. It will ensure people and authorities make extra efforts to bridge the aspirational gap, to see to it that transparency prevails. We have to learn from the mistakes of others.

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Will the changes to regimes in the Middle East improve the image of the Arab world globally? Yes, if the changes to regimes are replaced by people who believe in justice, openness, and human rights. Curently, the image of the authoritarian regimes where there is lack of due process of law and no right of appeal is very bad. No matter how much the local newspapers try to flatter Arab governments, they canâ&#x20AC;&#x2122;t do it outside.

The new breed of young players in the Arab world wants to see the change. Hence the image will only improve if there is a change in the situation of the Arab people for the better. Are there similarities between the Arab Spring and the French Revolution? No, the French Revolution was very bloody. The Arab Spring was not very bloody â&#x20AC;&#x201C; at least from one side. During the French Revolution people were kill-

ing people, while during the Arab Spring rulers have been killing their own people. This is different as the powers-to-be have seen the deaths of their own people. How much is the class struggle responsible for the Arab revolution? It was more an ideological and aspirational struggle. People wanted to be part of the decision-making process. In Egypt and Tunisia the people were not able to participate in the process. Egypt has a long history of culture and the people are educated, but the ruling elite totally obliterated Egyptians from the social development process. Why did nobody from the West come out to support Bahrain? I think that was because of several vested interests. It is important that Bahrain should look into the aspiration of the people. I can tell you that Bahrainis are very simple, educated people. All they want is the enhancement of their economic wellbeing. They would also like to see certain issues in their society corrected. Dialogue in Bahrain is very important. Iran was blamed for fanning the flames in Bahrain. I don’t know about that. When there was a referendum in Bahrain in 1970 to become independent, the overwhelming majority of the Bahraini population from all sides supported an independent Bahrain. I cannot discount what must be happening now, but everything cannot be blamed on Iran. We cannot go on blaming everybody for the problems we have. I know there are certain problems due to external factors, but we cannot go on blaming others such as Israel, the West, or Iran. We have to look at our own shortcomings.

When will stability return to countries that have undergone a ‘revolution’? There is no time limit as such, but it will take at least one year for things to calm down. We should not forget that there has been a vacuum. One party has been ruling for years and there was no dialogue, and now suddenly people have a voice and everybody is shouting. How will this change Arabs psychologically, socially and economically? Psychologically the Arab Spring will give them a sense of elation and freedom in the sense that people will not take them away – and this is very important. Socially, they will be part of the decisionmaking process, and by this I don’t mean at the presidential or prime minister level, but at the grass-root level in their own communities and neighborhoods. They will feel their voices are being heard. From the economic point of view, the reduction in corruption would make a lot of difference. Corruption takes a big toll on the economy, especially when 40 percent of the country’s wealth is plundered and looted by elites. If leaders listen to their own countrymen, the situation would improve psychologically, socially and economically for Arabs on the streets.

Khaled Al Maeena Khaled Al Maeena is editor-in-chief of Saudi Arabia-based Arab News. He is a well-known businessman, journalist, editor, PR consultant and media personality in Saudi Arabia. Al Maeena studied in several countries, including America, Britain and Pakistan.

When popular governments come to power, what will happen to equations with Israel? I think if we go by UN resolution 38 and 242, according to which Israel had to withdraw to 1967 borders – and there are a lot of agreements such as at Camp David – any government that comes to power must agree and respect the past agreements. If the new governments won’t respect the old agreements it will cast a November 2011 | TRENDS 61

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If everybody participates in making our society better, the future of the Arab world will be promising very bad image of the Arab world. Having said that, we should not become tools and minions of Israel and the Americans. There is no need to go overboard, Israel is there and we should push for Palestinian state and we should secure borders for both sides. Do you think the return of freedom of expression will help arts and culture? Yes it will. Earlier, arts and culture was promoted only by the state institutions. Art promoted the president or the ruler and everything was under the patronage of the ruler. Now, young people will lead the change and add a new perspective to arts and culture in the region. 62 TRENDS | November 2011

The Arab Spring is being watched with concern over Sunni-Shia divisions. What is your view? Let me be very frank. I am extremely pained by this Sunni-Shia division thing. Sunni Muslim and Shia Muslim are the words coined by Western media and mischief makers to create divisions among Muslims. There is no difference between Sunni and Shia. Yes, there are different aspects over certain things, but basically the five pillars of Islam are the same. Unfortunately. among Muslims, also, there are some extremists and Salafis who, for example, on the issue of a woman covering her face or not, would decide to which group she belongs.

The younger generation doesnâ&#x20AC;&#x2122;t believe in these classifications and is tired of all of this. Things are changing for the better. Religious extremism will rise after the Arab Spring. Do you agree? Yes, it will rise if people do not stand up against it and say enough is enough. There are many Christians in the Arab world and they are part and parcel of this society. They have full rights and they are more nationalistic than some of the others. The rights of Christians in the Arab world should be protected. No one should be called a minority on the basis of religion. If everybody participates in making our society better and follows the ideology of good behavior, the future of the Arab world looks promising â&#x20AC;&#x201C; and bright.

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Unrest Hits Kuwait Once considered the Pearl of the Gulf, Kuwaitis take to the street to demonstrate against what many perceive to be a declining country, premier, and government. By Farid Ittihad Istanbul

he gloves have come off in Kuwait. One of the country’s most senior sheikhs has become a casualty of a five-year political tug of war between the government and parliament. In mid October, Kuwait’s foreign minister Sheikh Dr Mohammad Al Sabah, one of the most popular and respected members of the ruling family and a long-serving diplomat resigned his post following opposition accusations that the Foreign Ministry was used as a conduit for illicit funds from the Prime Minister’s office to pro-government MPs. Sheikh Mohammad’s resignation shocked the nation and left many

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wondering about the future of the oilrich emirate. The political turmoil has stalled out an economic revival begun after the US invasion of Iraq. It has also led to repeated dissolutions of parliament, open infighting within the ruling family and what many see as the overall decline – especially when compared with its fast-developing GCC neighbors – of the country. A structural shift The root of the problem is structural. Kuwait’s democracy is only a “half democracy” – the parliament is directly elected by the people, but political parties are banned and the Amir appoints

the prime minister, who then selects his cabinet. Members of the ruling family always hold the key positions in the cabinet including those of Energy Minister, Defense Minister and Minister of Foreign Affairs. But since the appointment of current Prime Minister, Sheikh Nasser Al Mohammad Al Sabah in early 2006, a shifting alliance of opposition groups have pushed for more say in the formation of the government and by extension, more power over all of Kuwait’s foreign and domestic policies. The infighting has led to a fiveyear saga of corruption scandals, political controversies and public quarrels –

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For years, Kuwait has been renogotiating the social contract between people and the government almost all of them centered around calls for the resignation of the premier. Only the second prime minister to serve Kuwait, Sheikh Nasser has endured three interpolations or ‘grillings’ by parliament and survived the three following no confidence votes. He has formed seven cabinets in five years – almost exclusively as a result of challenges from the opposition. The government has pushed back. Trying to enforce a ban on public gatherings, circumventing parliament to push through multimillion-dinar development projects and key oil industry projects. The premier’s survival, meanwhile, 66 TRENDS | November 2011

relies solely with the fact the Amir Sheikh Sabah Al Ahmed Al Sabah continues to reappoint him, despite deep-seated hostility from a cross section of Kuwait society and a general consensus viewing Sheikh Nasser as a weak premier. So far, challenges to the Amir’s power have stopped with the targeting of Sheikh Nasser. And the Amir continues to support his prime minister – who is also his nephew. A family divided But even within the ruling family, divisions are rife. The most recent scandal, however, hints at not only the power struggle be-

tween Kuwait’s parliament and the government over political appointments, but at a rift between the premier and his former deputy, another key royal. In late August, a local daily broke the story that deposits totaling KWD25m had been made into the bank accounts of two members of parliament. The report didn’t name the two legislators, but suggested that the deposits were pay offs by the government in exchange for support to block interpellation requests and other opposition efforts to challenge the government in the parliament. Within a month, the scandal tainted at least 14 MPs, Kuwait’s two leading banks, the Central Bank of Kuwait and, most pointedly, the embattled prime minister. Thousands of Kuwaitis have attended more than a half dozen rallies and dem-

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onstrations calling – yet again – for the resignation of the prime minister. “If the era of Sheikh Nasser does not end, corruption will grow bigger. This case has tarnished the image of the regime and the country,” opposition MP Faisal Al Muslim said at a protest rally against the prime minister in late September. By mid October, the scandal had broadened to encompass the foreign ministry. On October 19, an estimated 10,000 Kuwaiti citizens demonstrated in front of parliament, calling for the dissolution of the parliament and the resignation of the entire Cabinet. Opposition MPs Mussallem Al Barrak and Faisal Al Muslim both revealed what they claimed were evidence of illicit money transfers and bank cheques for millions of dinars from the prime minister’s office to for-

eign accounts via the foreign ministry and pro-government MPs. So far, the alleged recipients have not been named, but several MPs have pledged to open their accounts for investigation and called for a new transparency law. Meanwhile, several local banks including NBK and KFH have launched internal investigations and are cooperating with the Central Bank to trace the alleged illicit transactions. The scandal has brought to the fore what many say is an open secret in the country: Government bribes for support in parliament. Enjoying 12 years of multi-billion-dollar budget surpluses, the government has an abundance of ready cash and has demonstrated a willingness to dole it out – at least three cash gifts ranging from

KWD200 to KWD1,000 have been given to every citizen since the Amir took power in early 2006. Payback? The scandal highlights an ongoing power struggle within the ruling family itself. The Prime Minister is third in line for the position of Amir, but others, including the powerful and popular Sheikh Ahmed Al Fahad, a former deputy prime minister and member of the ruling family, aspire to be leader. In early June, Sheikh Ahmed Al Fahad, who as Minister of Planning and Development was charged with spearheading a KWD31bn, five-year development plan, faced grilling over allegations of corruption and violations of the Constitution. November 2011 | TRENDS 67

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If the era of Shiekh Nasser does not end, corruption will grow bigger. . . It was thought that the prime minister might call on government allies within parliament to block the grilling motion. When that didn’t happen and the motion passed, Sheikh Ahmed Al Fa resigned, rather than face questioning. The extent of the rift between the two remains unclear. But two months later, the prime minister is once again facing a major political scandal, this time involving the very same allies in parliament he failed to tap for Sheikh Ahmed Al Fahad’s benefit in June. No one, of course, has pointed the finger at Sheikh Ahmed Al Fahad, but the source of the leaked 68 TRENDS | November 2011

information points to someone highly placed, and the targeting of the premier’s relationship with ally MPs seems a remarkable coincidence. A country in decline Whatever the source of this most recent controversy, the implications are resounding. For years now, Kuwait has been in the process of renegotiating the social contract between the people and the government. Al Sabah rule under a primus inter pares agreement between the original merchant clans of Kuwait and the sheikhs. Legend has it that the terms of

the agreement are these: the merchants would tend to business and Al Sabah would manage government, financing the running of the country by taxing the merchants. The discovery of oil and the wealth it brought changed this calculation, giving the government – and by extension, Al Sabah – an enormous economic and political advantage over their Kuwaiti peers and more importantly access to untold wealth. When the US invasion removed the threat of another Iraqi invasion with the ouster of Saddam Hussain, Kuwait underwent an economic revival (which later stalled). Al Sabah became more involved in business. At least two sheikhs own newspapers and even the prime minister was said to back a third. Sheikhs – either directly or through proxies, are key partners in major businesses. The Amir’s own children own major holding companies including the powerful Kipco, which controls Burgan Bank, Marina mall and hotel, and in 2007 sold its share in Wataniya Telecom to Qatar’s Qtel for KWD1.1bn. The increased role of the sheikhs in business has not sat well with many among the merchant elite. At the same time, the expanding political role of Kuwait’s many tribes – often from outlying areas – has added another, complicating dimension to the power struggle. The result has been a slow deterioration of the country. The economy’s stalled out – despite the government handouts and consumer spending. The country has witnessed of late a decline in policy, education, health, and importantly regional reputation; Kuwait had once been known as the ‘Pearl of the Gulf’ because of its advances compared with its neighbors. It’s now considered by other GCC states as the laggard. As a consequence, a growing opposition movement has coalesced around hostility toward the premier and his government. But which scandal or controversy will be the government’s tipping point remains unclear.

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Voices for Change President Clinton’s foundation is working alongside Arab leaders to address economic injustice. By Jay Akasie

New York

ueen Rania of Jordan was among the first dignitaries to address the standing-roomonly audience at the Clinton Global Initiative last month. The Arab world, she said to the distinguished crowd, is calling out for political, social, and economic change. “Yet reform requires long-term commitment as well as short-term courage,” Queen Rania said. “That’s why I’m proud to stand alongside President Clinton and introduce Clinton Global Initiative members who are committed to being part of this change, dedicated to improving the lives of young men and women in the Arab world.”

The Queen of Jordan was part of a special session of Bill Clinton’s annual conference that addressed the Arab Spring uprisings earlier in the year across much of the Middle East and North Africa. The Clinton Global Forum is held each year in New York City during the opening of the United Nations General Assembly, which populates the conference with an unusually high number of world leaders. Clinton said the Arab Spring uprisings and his own conference were essentially focused on the same things: the empowerment of women, the development of sustainable societies, and creating employment opportunities. The

former American president warned the crowd, saying the West shouldn’t view the Arab Spring as simply a bunch of protests in which young people who weren’t politically organized would go back home and the old way of life in the Arab world would continue. The chief executive officer of the Jordan Career Education Foundation, Mayyada Abu-Jaber, said the Arab world needs to go back and reassess what was the most significant question being asked during the uprisings. “I asked one of the youths: What’s your aspiration? What’s your hope? And he told me that he wanted a job,” she said. “But a man nearby told me that these November 2011 | TRENDS 71

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“I think what is going on now is a very deep need for connection and to be visible to the world” are not aspirations or hopes – these are rights.” To that end, AbuJaber said that she continues to work for job creation in the Middle East. The Education for Employment Foundation, begun in her home country of Jordan, now has branches in Yemen, Egypt, Palestine, Morocco, and Tunisia. Because employment is like marriage, she said, her foundation checks up on the young people for whom they find jobs, and makes sure they are adjusting well to their new lives in the workforce. Another of Clinton’s panelists, the business development manager of the Dreamers of Tomorrow Association, Kazem Hemeida, told the crowd about a young man who came from a poor family in the Middle East. He embarked on 72 TRENDS | November 2011

a journey to find his human dignity, and then he started to teach himself things. During middle school, he tried to save money so that he could take a course in computers. He later went and he took a course in computers, despite the fact that he had no computer. Later on in life he tried to teach himself some computer programs and software by by using the Internet. Later he was able to learn some sophisticated software with graphic design and computer programming. Eventually he tried to find more opportunities to discover the world and tried to get to know more about people. He wanted to discover them and wanted to see whether or not what he was seeing in the media was right or wrong. And he got a number of opportunities to travel. One

of the countries was America, where he studied for one year. Later on, he felt empowered. He felt he could speak to some people out there who are still in search for such an opportunity to develop themselves. “That person is the person who is speaking before you now. It’s myself,” Hemeida said. Some 60 percent of the population of his native country of Egypt are young people who want to participate in politics, he said. “What people want is just the attention of people all over the world and to feel that they are there, waiting for the first chance to collaborate for world peace; to collaborate to reach out for dignity. So I think what is going on now in Egypt is a very deep need for connection and to be visible to the world. If we do that, if we identify them, if we express our intention to help them, to make them decide their future, to just provide them with the tools, they will be able to build their own future,” Hemeida said.

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“I believe in evolution. My friends believe in evolution. We’re trying our best . . . ” Then one of the Clinton Global Initiative’s newest members spoke to the audience: Princess Ameerah Al-Taweel. The princess said her generation should be looked upon by the older generations in the Arab world not as a threat but as an opportunity. “I think we’ll never go back to those ages where there’s a lack of freedom of speech; there’s economic no opportunities; there’s no political participation; and there’s no equality rights between men and women. We’ll never go back because the channels of communication are wide open. We’re connected by social media. We’re connected by just talking over the Web. There’s no level, or lack of transparency in that area. I think now, the question is how to move forward; how to build civil society; how to make those voices that gathered 74 TRENDS | November 2011

in social media; gathered in reality; how to build institutions. This is how people in this room can help my young generation,” Princess Ameerah said. President Clinton asked the Saudi princess what she thinks the primary consequences will be of people like her and her generation in the next five years in Saudi. “Well, there is revolution and there’s evolution,” Princess Ameerah said. “Saudi Arabia, I believe in evolution. My friends believe in evolution. We’re trying our best. There’s a lot of reforms and revising policies. A lot of effort by the government. But we’re trying our best as non-governmental organizations in a civil society to come together and support those reforms. From my generation, definitely there’s a high rate of unemployment. I think there needs

to be change of mindset for the younger people, that modest jobs is better than being unemployed. That’s a problem — changing the mindset. Revising policies that stand as roles for young people. So instead of opening your business, you have to go through this or that Ministry. Ask for a certain permit. Go to another Ministry, sign it. It’s just a headache. And how to revise those policies and make it easier for young people to start their own businesses. And to believe in enterprise. This is the key solution.” Princess Ameerah said she is a board member of Silatech, an organization that helps employ young people in the region, led by Sheikha Mosa, the First Lady of Qatar. Silatech has what’s called the “100,000,000 Challenge.” One hundred million jobs need to be created by 2050 for young people in the region. “Now, that’s a big challenge and that’s a big number. How do we get there? Sixty percent of these 100,000,000 jobs will be created by enterprise: micro, small and medium loans and enterprises. So if banks believe in those young people and the creativity and the passion they have, and help them with loans, they will definitely have a success story,” the princess said. Then President Clinton acknowledged his college classmate in the crowd, Prince Turki Al-Faisal of Saudi Arabia. “We’ve been friends for more than 45 years now,” he said. “So I always follow things very closely in Saudi Arabia. They had a serious modernization effort under way, before the events in Cairo. Like the King Abdullah University.” Clinton said that last year when he traveled to Riyadh, during a small business forum, one of the young entrepreneurs was a woman who started her own business in Saudi Arabia. “I knew they were going to make it because at the end of the recognition ceremony, we all stood on steps, like we were graduating from school. The men started high-fiving the woman who won the award. I thought, ‘You know, we’re going to be all right here.’ I thank you,” Clinton said.

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78 TRENDS | November 2011

Top Gear After being stuck in the slow lane for the past few years, the automotive industry is getting back on track. And larger cars are pulling way out in front. . . By Atique Naqvi Dubai

t is never about small, cute and fuelefficient models when it comes to cars in the Middle East, especially in the oil-rich Gulf states. It is always about the big, the powerful and the luxurious, mainly thanks to the availability of cheap fuel and competitive pricing of vehicles. With Dubai International Motor Show around the corner (November 10 to 14), car makers have been gearing up to further strengthen their presence in a market, which has delivered one of the strongest figures for the automotive sector. Car industry analysts see the show as a major platform for luxury car manufacturers from around the world to display their products in the best possible way.

The world’s leading luxury car manufacturers say the Middle East market for luxury cars is going to witness a growth of 20 percent this year. Therefore, famous luxury car makers from around the world are making sure to leave an impression, with innovative models ready to line-up at the Dubai show. British super luxury car maker, Bentley Motors, has experienced a global sales boost of 31 percent this year, against the sales of last year. The company is looking forward to introduce its new model, Continental GTC, and foresees an overall sales growth of approximately 40 percent. Regional Director of Bentley Middle East, Africa and India, Chris Buxton,

said, “The Dubai Motor Show grows in size and importance each year. At this year’s show Bentley will show the new Continental GTC for the first time in the region, alongside the new Continental GT. On display we will also have our flagship, the Bentley Mulsanne, the epitome of British luxury motoring, together with a very special Series 51 Continental Flying Spur.” Rolls-Royce, another player in the super luxury segment, has big plans for the motor show. Regional director of Rolls-Royce Motor Cars Middle East and Africa, James Crichton, said, “We have two very unique bespoke models that’ll be displayed at the Dubai Motor November 2011 | TRENDS 79

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We have put together a diamond-encrusted Spirit of Ecstasy to celebrate 100 years of the flying lady Show. We have put together a diamond -encrusted Spirit of Ecstasy, the bonnet figurine, to celebrate 100 years of the famous flying lady. Some 2,300 diamonds have been used.” About the ultra luxury segment in the region, he said, “It all depends on what you are defining as ultra-luxury, because for some BMW is an ultra-luxury segment. In the upwards of EUR200,000 segment, the GCC market consumes a little less than 1,000 cars every year.” The UAE is definitely the biggest market for Rolls-Royce in this region, followed by Saudi Arabia and Qatar. In 2011 the firm saw the strongest growth in Dubai, which was 75 percent until August, while Saudi Arabia has grown by about 65 percent until the same period of this year, said Crichton, adding, “Global80 TRENDS | November 2011

ly, we have seen a growth of 20 percent this year as against 2010, and in this region we were up by 30 percent, which is quite encouraging. Going back to 2009, our volumes dropped from 2008 when we sold 1,200 units worldwide. In 2009 the number of units went down to 1,002, which is a drop of 17 percent, but last year we came back strongly and experienced a growth of 171 percent in 2010 worldwide, with 2,700 units.” While the European car manufacturers have to deal with economic challenges, the Japanese were affected badly, generally due to the blot on the reputation with recalls in 2009, and the earthquake, followed by the tsunami in 2011. But the Japanese are undeterred. Infiniti, the luxury automotive brand from Japan, said in a recent press state-

ment that it was aiming to capture 16 per cent of the Middle East market share in the luxury car category by 2016. General Manager for Infiniti Middle East, Jüergen Schmitz, said in the region comprising the GCC countries, Lebanon and Jordan, the brand is on track to post a 10 per cent sales growth – from 4,800 to 5,600 in 2011. Globally, sales of approximately 150,000 Infiniti units is the target for 2011, he said. “Infiniti’s success, both globally and in the GCC, is due in no small part to the technology, innovation and excitement instilled into all of our models,” Schmitz told a Dubai-based newspaper Toyota, another Japanese car manufacturer, said that production of Toyota and Lexus vehicles, and the shipment to the Middle East has returned to normal levels. The company prioritized the Middle East market and reached full shipping levels earlier than expected, said an official.

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The GCC and Levant region is the fastest-growing, and one of the most dynamic automotive markets Automotive analyst Gautam Sharma, managing editor of Autocar Middle East â&#x20AC;&#x201C; a sister publication of TRENDS â&#x20AC;&#x201C; said that with new models, RollsRoyce and Bentley are both expected to record growth in this region. The super luxury sector has been almost immune from global economic troubles, he said, adding that the salaried class was more affected by the recession, so the sales figures of volume-selling vehicles took a steep hit. But some brands are better placed than others and will continue to expand. Infiniti, which was launched in this region some six to seven years back will continue to experience good growth, said Sharma, adding that Audi, with the new A6, A7 and Q3, and the face-lifted A5 is in a better position to increase its customer base. BMW is planning to launch 82 TRENDS | November 2011

its 3-series in 2012, while Mercedes has its new CLS sporty sedan and ML class to debut. The firm also launched its CClass Coupe in early 2011. Over at Jaguar, the XF got a facelift, and Rand Rover is launching its Evoque, Sharma added. With facelifts and launches, these manufacturers have strategized their journey to be ahead in the game. In the super luxury segment, both Bentley and Maserati are rumoured to be soon launching SUVs, with Maserati slated to launch Kubang in 2013, while Bentley is looking to launch an SUV, subject to board approval. However, the lack of reliable data in this region is one of the problems faced not only by analysts, but car manufacturers as well. Dubai-based Tetrahedron Consulting said in a recent report there

are more than 40 car brands to choose from in the GCC and Levant region. The region is the fastest-growing and one of the most dynamic automotive markets, it said, putting 2010 sales at more than 1.3 million cars. But despite this, the regionâ&#x20AC;&#x2122;s car market lacks incisive data and insights to support business decision-making. The consulting firm said in the UAE 66 percent of car buyers are aged between 18 and 29, and out of the total car owners in the UAE about 68 percent use their vehicle for just going to work and back, while the rest are on the roads just for fun. On the buying pattern, Tetrahedron said 56 percent of buyers in the UAE use Internet to research brands and dealers, and 62 percent also consult their friends and family members. Top product attributes that are considered important when choosing a vehicle are exterior styling, durability and comfortability, said the consulting firm.

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Clear Direction Managing Director of Audi Middle East, Jeff Mannering, speaks to TRENDS about the auto market and the Dubai International Motor Show.

hat is in the pipeline for the Dubai International Motor Show? We will launch a new model in Dubai. We are looking at the future of the company, globally and in the Middle East, so all of the strategic direction of the company is going with electric vehicles, with cars with light-weight construction, and with Audi Connect, the advanced wireless and navigation system. Thatâ&#x20AC;&#x2122;s what we will be talking about at the Dubai show. I think it is a great platform to be able to showcase our product line. Itâ&#x20AC;&#x2122;s probably the biggest motor show in the region. The SUVs, in your case the Q7, are

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more popular than sedans in this region, true? Yes, the Q7 is one of the most popular SUVs, but the big Audi sedans are quite popular as well. So the A8, A6, Q7 and Q5 are very important models for us. Cheap fuel is one of the reasons behind the popularity of bigger cars in the region. What kind of growth have you experienced in the Middle East? Audi started in the Middle East with some 2,000 cars, and this year we have sold a little less than 8,000 cars. The growth has been extremely positive. With regards to the flat year in 2009, of course, we were in the middle of the global financial cri-

sis. But we planned for the worst and the result is that Audi is the fastest-growing brand in the whole region. How much of the premium car market does Audi constitute in this region? Well, it depends on what you define as premium. We usually measure against the German marks, and we are probably in a strategic direction. By 2020 we will be the number one premium brand. In 2011 we are right on track to be number one. How did your business deal with 2007, 2008 and 2009? The year 2008 was the strongest year ever

for us in this region, and in 2011 we hope to beat the figures of 2008. We are expecting 2011 to be the biggest year in the Middle East for Audi. What about 2009? That year was lost due to the financial crisis, but Audi was one of only a few manufacturers to actually plan for the decline in the market. We controlled our production and didn’t end up with lot of stock in countries around the world. We did not have to resort to distress selling. Please elaborate on Audi’s plan to battle global recession? OK. At the end of 2008, after the collapse of the Lehman Brothers, the American situation was pretty obvious. It was known that the US problems would spillover. A lot of foreign investments in the GCC were pulled out, and most of the economies around the world witnessed a huge decline, almost to the point where no cash was available. The only way motor companies could deal with the situation was by controling their inventories and production. At Audi, we scaled back our production. We knew demand would slow down, so we produced less vehicles. We scaled down by almost 20 percent. How many units did you sell in this region in 2008? We sold 7,732 units, and this year our target is to sell 8,000 units. What about 2012? 2012? Where is the money? If you read newspapers and if you look at the news, I wouldn’t say the economic climate is rosy, but we are still predicting growth. How do you sum up the GCC auto industry? It is different from North America and Europe. Here we have a lot of Q7s, we have a lot of big sedan cars – the A8 and A6. If you look at the American market, the mix of models is a little bit different. In Europe and America the mix is more

tilted towards A3s A4s and A6s. In this region, it is Q7s, Q5s, A7s and A8s. Which is your biggest market in the GCC? Generally, the biggest automotive market in the GCC is Saudi Arabia, but for premium cars, the UAE is the biggest market. However, there is a huge potential in the Saudi market because of its size. What kind of growth has Audi seen in this region? I can give you the figures for the UAE. We have two dealers in Abu Dhabi and Dubai, and their growth last year was 30 percent. In Saudi Arabia, the growth was close to 30m percent. We have seen a good growth in Oman, Qatar and Bahrain as well. How much deos this region contribute to your global sales? We hope to sell 1.2 million cars globally in 2011, and we are targeting 8,000 units in this region, so it is a very small percentage, close to 0.8 percent. This number may look tiny, but if you look at the sales of bigger cars, this region is extremely important for us.

Jeff Mannering Fourty-six-year-old Australian Jeff Mannering started working in the automotive industry in 1982 and has been with Audi since 1995, first with Audi Australia and then as Head of Aftersales of Audi Middle East. He was appointed Managing Director of Audi Middle East in 2008.

Do you customize cars for individual customers? Yes. There is a huge market for individualization in this region. Audi gives the option of a typical showroom car and a customized car with special interior, leather and even diamond engravings. Where do you see the GCC auto industry in the next few years? Audi has a clear direction to be the leader of electrification in the premium markets. And I think it’s important that we find different fuels in different engines. Having said that, I think the conventional combustion engine is going to be around for some time to come. There will be conservative growth and companies that build a good loyalty base will fare much better than others. November 2011 | TRENDS 85

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Big Appetite Managing Director of BMW Group Middle East, Dr. Joerg Breuer says the Middle East still has a penchant for top-of-the-line luxury cars.

ow much market share does BMW have in the GCC luxury car market? Has it grown or dropped in the past few years? BMW Group sells more cars than any other premium manufacturer around the world. In the Middle East we are in the fortunate position to mirror our global position and be ahead of other German manufacturers. Over the past couple of years we have seen record growth in 2010 and double-digit growth in the first nine months of 2011 compared to the same period last year. We saw an 11 percent increase in sales, delivering a total of 13,777 BMW and MINI vehicles to customers across 14 Middle East markets from January to September this year. 86 TRENDS | November 2011

What were you sales figures for 2007, 2008, 2009 and 2010 in this region? What is your forecast for 2011? The year 2007 presented a record sales increase for BMW Group Middle East, while 2008 also saw growth. Sales dropped during the challenging economic times of 2009, before making a record-breaking come back in 2010 with a sales increase of 18 percent. We remain optimistic that 2011 will be another successful year for BMW Group Middle East. We are aiming to end the year selling more cars than in 2010. What are your most popular models in this region? Are they any different from the other markets, especially North America and Europe?

The Middle East is an important growth market for the BMW Group because customers are discerning, they have an appreciation and desire to buy high-end, luxury vehicles that offer the best a brand has to offer. As a result, itâ&#x20AC;&#x2122;s our top-ofthe-range models, which include the flagship BMW 7 Series, BMW X6, X5 and BMW 5 Series, that continue to be our best-selling models in the Middle East. For the United States and Europe, the BMW 3 Series, BMW X5 (USA only) and the all-new BMW 5 Series are the most popular models. Which is your biggest market in the GCC region? Which is your biggest growth market?

The UAE remains our single largest market, it accounts for more than 40 percent of our sales, followed by Saudi Arabia and Kuwait. The majority of our markets are witnessing double-digit growth so far this year (January to September) and we are content with these results considering the market is a changed place and many of the recession challenges still remain. How much does the GCC or Middle East contribute to global sales stats? Although the Middle East only contributes around one percent to global sales, it’s an important growth market for the BMW Group because customers buy the very best a brand has to offer. A large percentage of customers want to own the topof-the-range model and also want it to be fitted with all of the latest options. How has BMW coped with the global economic crisis? We took actions across our business on a global and local level. On a global level, we acted with foresight when we launched our company’s Strategy Number ONE way back in 2007. Strategy Number ONE comprises various actions to reduce costs and increase our profitability so that we can grow various areas of our business. Our significant cash reserves provide us with considerable room to manoeuvre and maintain the BMW Group’s independence. On a local level we continue to manage the business with our importers to ensure that we satisfy the expectations of our customers, invest in facilities and deepen our product and service offering. What are the current trends in the GCC automotive market? We expect sales to continue to increase in the luxury car segment, and our sales show the market still has a strong preference for larger models; our flagship 7 Series has been either our best seller or one of our top three best-selling models. We are, however, seeing that some customers are being more cautious. They are taking more time to assess the different options

in the market to make sure they are making the right purchasing decision. How do currency fluctuations affect the auto market in this region? All car manufacturers are affected by frequent currency fluctuations. Our importers are invoiced in euros so when the euro weakens, this is positive for our importers as they pay less for each vehicle and when it strengthens; it’s negative, as it means they pay relatively more. However, it wouldn’t make business sense for us to fluctuate the price of our vehicles too frequently as we need to maintain price consistency and ensure we protect the resale value of our customers’ cars. Quarterly, or half yearly, our importers will assess the effect the exchange rate has had over a few months of business and decide if and how to alter the prices of the vehicles fairly, but we always maintain a steady pricing of our vehicles to protect the resale value.

Dr. Joerg Breuer BMW Middle East appointed Dr. Joerg Breuer as its Managing Director in 2011. Breuer has more than 15 years’ experience within the BMW Group. He was previously Department Head of Strategy, Planning and Steering Corporate Communication, and then Head of Sales in Germany. He also spent three years as Managing Director of BMW Group Philippines.

Is there any interest in the ‘green’ or hybrid cars in this region? We still see the Middle East as a market for big luxury cars, and as a company we will continue to manufacture these unless the market dictates otherwise. In terms of demand for fuel-efficient vehicles, since 2007 all of our BMW and MINI models are fitted with efficient dynamics technology that encompasses many innovations to lower fuel consumption and reduce CO2 emissions. Hybrid and electric technology presents totally new drive concepts, so it will take some time for the automotive industry to enlighten the public about how these ‘green’ and hybrid technologies work, and the economic and environmental benefits of driving such vehicles. We currently sell the ActiveHybrid 7 and ActiveHybrid X6 in the Middle East. They represent the very latest in motoring innovation and technology to reduce emissions and fuel consumption, and at the same time offer increased performance and power. November 2011 | TRENDS 87

INDuSTRy SToRy

consistent good growth in the Middle East region and Brazil. How big is this region’s market for you? The Middle East is the fifth largest profit market for us. The other big markets are America, the UK, China and Russia.

Reuters

What are the reasons behind the growth of big cars in this region, such as Range Rover? The growth is not restricted to this region. But from the environment point of view, the West has been affected, not only due to clean environment components, but also due to economic factors. The cost of fuel is one big factor and then there is taxation on big cars to restrict CO2 emissions.

Smooth Running Robin Colgan, Managing Director of Jaguar Land Rover, MENA region, talks to TRENDS.

hy is it so difficult to get auto statistics in the GCC? There is no independent association of automotive manufacturers and the governments do not release the statistics of the import and export of vehicles. Simply, there is no data to analyze. I know it’s really frustrating because you are at the mercy of manufacturers’ claims. Aren’t you frustrated by this? Yes, we are. I think reliable data will be good for us and beneficial for the industry as well. The manufacturers are not wrong with numbers, but the problem arises as the region and responsibilities are not

88 TRENDS | November 2011

marked properly. Some of the car manufacturers, who have their regional offices in Dubai, look after the GCC and Levant, some GCC and North Africa, and some even manage markets such as India, Pakistan and South Africa from their offices in Dubai, so it becomes really difficult to compile numbers. Where are you experiencing growth? In Bric countries; more importantly growth in China has double for both Jaguar and Land River and the country has left the United States behind. Russia was a very significant market for us and then it dropped substantially in 2009, but it is getting back on track. We are experiencing

How big is the Middle East automotive market? I am not sure, but I can make an assumption on the total industry volume of GCC and Lebanon, which would stand at just more than one million cars per year. This is just an estimate and a vast majority of these cars are lower segment vehicles. How is this market different from the West? Personally, I feel people in this part of the world have more passion for cars and they are very specific in their choices. Customers in the region pay close attention to technical features such as horsepower and acceleration. The customer base in the Middle East is extremely knowledgeable about automotive products and a lot of them want to personalize their cars. What has Land Rover’s performance been like since 2007? It’s gone up significantly. Well, 2008 was our peak year and 2009 was very difficult, but 2010 began to come back strongly. Now, we are somewhere in between 2000 and 2008 in terms of sales performance. I think this year, if we have enough supply, we will be back to 2008 levels. We estimate we will be able to surpass 2008 levels next year.

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92 TRENDS | November 2011

Finger on the Button Organized, connected and opinionated, the youth that carried Egypt’s revolution via technology is ready for more. By Ingrid Wassmann Egypt

he effect social media had on the Egyptian youth who mobilized and united during the Arab spring to eventually bring down their president was no laughing matter. Yet one popular joke about the January Revolution had many Egyptians smiling: The recently deposed president finds himself at the Day of Judgment and meets Egypt’s past rulers. “What brought you down?” Mubarak asks Nasser. “Poison,” says the former Egyptian president who then poses the same question to Sadat. “Bullets,” answers the assassinated leader. “And what about you?” Sadat and Nasser then ask Mubarak. “Facebook,” he retorts.

The joke’s punch line may hold some truth. With a rising Internet penetration and tech-savvy Egyptian youth, only few will argue that social media generally understood as web-based tools and mobile technologies designed for interactive communication have not infiltrated the lives of Egypt’s youth, either through their growing use of Internet forums, blogs, email, text messaging, social networking sites, and podcasts. Their dexterity and adoption have already drawn much attention. “Everyone here had a better cell phone than I did – sometimes two or three times better – and they were doing things with them that I just could not do,” said Marc Lynch, a leading

authority of Arab media and an associate professor at George Washington University, during his visit to Cairo to partake in an international conference on the Egyptian revolution and democratic transition. “The general empowerment of Arab publics, and the unbelievable way information is produced, disseminated, and consumed in the Arab world, is the most important transformation in the region.” But just how influential are Facebook, Twitter and the other social media on this segment of the population? And did they really help ignite the January Revolution? Are these media communication tools seen and utilized as catalysts for political change or more simply adopted as November 2011 | TRENDS 93

Reuters

ICT

Egypt has eight million-plus Facebook users; three million coming onboard in the past six months mere cyber platforms for personal growth and social networking by the country’s young people? The answer may be a coexistence. Currently, there are more than eight million Facebook users in Egypt (equivalent to 10.63 percent of the population) – of which three million came onboard in the past six months. Additional findings from a 2010 report released by the worldwide social networking service show that the youth make up 75 percent of the users, with a gender breakdown of an average of 2:1 male to female. Soha Mohsen, a 23-year old Egyptian trainee, has been cyber active for several years and considers herself a heavy Facebook user. Like many young Egyptians her age, she uses this electronic platform largely to socialize and interact with 94 TRENDS | November 2011

others. “In the beginning it was all about making friends and connecting with people around the world,” says the Cairene. “But then I started to get bored and realized that one can use Facebook for much more important reasons.” During the January 25 uprising, house-bound like many other Egyptians, she used Facebook “to find out what was going on in the country.” But additional usage statistics help supplement the extent of Egyptians’ connectivity. According to a recent report by Egypt’s ministry of communications and information technology, the country has nearly 23 million Internet users (with an annual growth rate of nearly 10 percent) and more than 71 million mobile subscribers. “Social media allows young men and women to share their frustrations in ways they couldn’t in the past,” writes Jeffrey

Bartholet in an article after the revolution, titled Young, Angry, and Wired. “They’re not alone anymore. Now they have allies. They have power.” But who are these young men and women? The demographic profile of the average Egyptian social media user for Mark Allen Peterson, author of Connected in Cairo: Growing Up Cosmopolitan in the Modern Middle East, could fit in three words: young, middle class, and educated. But not everybody will agree with that analysis. “One of my best friends Jimmy, a revolutionary [online] activist, has been on the street since he was 16 years old, and has taught himself everything,” explains Mahmoud Salem, better known to the cyber world as Sandmonkey, the English-language “micro-celebrity” blogger and activist. “I have another friend who comes from the Delta from a family of Muslim Brotherhood,” he adds, to illustrate further the non-homogeneity of Egypt’s social media user profile. Sandmonkey belongs to Egypt’s first generation bloggers. About a year after he launched his personal blog, Rantings of a Sandmonkey, he wrote a post titled The Mubarak Drinking Game, in which he rants about the language the former Egyptian president used during an NDP meeting that triggered 22 comments from his readers. “I started my blog in 2005 to vent,” explains the busy cyber activist. “Those were the worst days of Mubarak, there was no freedom of speech, people were being conformist, everything was controlled and there was no debate, so I went online – to vent.” Today Sandmonkey also connects with his cyber network through Twitter. “I use it because it is instantaneous and it gives you live updates,” he says. Today, the 29-year-old has more than 33,000 tweets to his name, and nearly 50,000 followers on Twitter. Ahram online editor Shukrallah attributes some of the influence exerted by social media to the country’s political vacuum: “The traditional political opposition parties were basically wiped

Getty/Gallo Images

ICT

out or lost the confidence of the people who were confined to their headquarters and offices; also repression did not allow Egyptians to organize rallies.” Added to this political silencing came the rigging of the fall 2010 elections. Now social media make up partly for the dearth of political public debate platforms. “I consider myself an activist, not a civic journalist,” explains Sandmonkey, as he quickly types and sends another tweet from his BlackBerry to the world: “The election law got changed. Two thirds PR and one third DR. Independent candidates just got screwed.” His language is uncensored and direct. “I hate the idea that you would regulate the medium,” he says. “I don’t like people telling me what to do.” Yet he is also fully aware of accountability in the digital communication sphere. “Social media is a correcting media. If I go on Twitter and say something that is bullshit, somebody will come back and tell me.” 96 TRENDS | November 2011

His activism has been focused, not just relating to political issues. “For six years, I, among others, have been trying to get people to understand a very basic concept: if you gather everybody and invite them to the public square you can bring down the president,” explains Sandmonkey, who positions himself both as a political and social activist. “I think the best way to create political or religious reform is through social reform, because society touches on everything.” Many other young Egyptians are using social media as an outlet to express their ideas and grievances about the country’s longstanding economic, social, and political setbacks. Reflecting on the rise of the youth during this year’s revolution, Shukrallah explains: “Here was a new generation that was extremely dissatisfied with things.” Recent International Labor Organization statistics show that 25 percent of Egypt’s youth are unemployed, in a

country where more than 60 percent of the population is under 30 years old, according to the US Census Bureau, and where more than 40 percent of the people live below the World Bank’s official poverty line. “Young people felt excluded,” points out Bartholet in his article. “They waited for liberty: the right to vote freely, to participate in politics, to change the world.” And to do just that – change the world, “armed with cell phones, social media and sometimes just sheer determination, [they] are struggling to take ownership of their future.” Online and offline, Egyptians are fighting against the corruption, oppression, and human rights violations of the former regime. Earlier this year, Egypt rated 8.2 out of 10 on the human rights international index of Fund for Peace, 10 being the most repressive. “Prior to the revolution you had thousands of people being tortured on a daily basis just as routine,” notes Shukrallah. One such case was that of 28-year-old Egyptian businessman and blogger Khaled Said from Alexandria, beaten to death by police – his story shared with the world on the Kullina Khaled Said (We Are All Khaled Said) Facebook page – stirring a massive cyber reaction, especially among young Egyptians. “All the youth that belonged to the Khaled Said Facebook planned to go out and protest on January 25,” explains Mohsen, the young trainee. “The first day of the revolution was a Facebook thing.” Also galvanized by the cause was Dalia Ziada, a well-known online activist, who for years, through her personal blog, and more recently through Facebook and Twitter, has been fighting for justice, and more specifically for greater women’s rights in Egypt. “Those people that joined the revolution did not believe so much in politics but it was the symbol of Khaled Said – a young man who looks very much like every young Egyptian man – that motivated them to come,” explains the 29-year-old Egyptian Fletcher gradu-

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Social media has revolutionized the way young people in Egypt connect and interact with the world ate student, selected by Newsweek as one of the 150 most influential women in the world, and by the Daily Beast as one of the world’s 17 bravest bloggers. She is all too aware of the power of video and is not afraid to make use of it on her blog. “YouTube is very effective and during the revolution it was very necessary to share a lot of videos because the Egyptian mainstream media tended to lie to the people about what was really happening in the street.” And, like many activists and social media users, she multitasks, using various digital platforms. “During the revolution I had Twitter open 24 /7, either from my mobile or my computer,” says the political advocate. “Even now my average is 40 to 50 tweets per day,” says Ziada, who currently has more than 13,000 followers. When asked what she hopes to achieve through her cyber exchange, she explains: “I always believe that change in this coun98 TRENDS | November 2011

try will only happen when you change the mentality, and the best way to do that is to encourage people to engage in critical thinking,” explains the 29-year-old. Ziada is one of those very strong advocates of social media. “They are the reason for all of the good things that happened to me my whole life,” she explains emphatically. “It is on the Internet that I learned about non-violence and social disobedience and about Martin Luther King.” But more than the access to inform, she cherishes the opportunity to speak on an equal footing. “With social media all the stereotypes are set aside and people just focus on what you write,” notes Ziada, who plans to run in the upcoming parliamentary elections. It is this kind of “new generation with knowledge of the world beyond [that] came into its own” that Fouad Ajami, professor at the Johns Hopkins School of Advanced International Studies describes

in his New York Times editorial How the Arabs Turned Shame Into Liberty, and that he argues “made for a combustible background.” Yet many didn’t see the revolution coming nor anticipate that social media would amplify the deep malaise felt among Egypt’s society. One such skeptic was Shukrallah, who now openly admits to a mea culpa: “At first I was beginning to feel that this was becoming an alternative to real activism, you just click a button and you are supporting a cause, and you don’t need to do much more.” But he says he then realized that beyond the cyber platform, the young people were engaging in dialogue, meeting in coffee shops, at NGOs, and leading demonstrations. “Through a virtual space they were able to create a discourse that was very much their own, something very different from the traditional political map,” explains Shukrallah. “They wanted to be proud of their country, they wanted clean streets, practical things….” Others, careful to objectively assess the potency of social media, argue that Egypt’s spring dissent was too often overhyped as a “Facebook Revolution.” “It was not technology that made the [Egyptian] revolution happen, it was people,” writes Egyptian IT consultant Atif Hussain in a recent article on technology and the revolution. Some media experts, such as former Middle East correspondent for CBS News and author of The New Arab Journalist, Lawrence Pintak, believe that satellite television played a bigger role in mobilizing public opinion. “In Egypt, social media allowed the activists to organize the Day of Anger, but what brought the masses out onto the streets is television, and that’s first and foremost Al Jazeera.” Empowering or overhyped, social media has nonetheless revolutionized the way young people connect and interact with the world, to such an extent that some people are betting that the leaders who can connect with the youth will be the ones voted into power. Are Egypt’s presidential candidates listening?

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Diamond in the Rough The turnaround of jewelry firm Damas is no less than a corporate miracle, especially when the firm bounced back during the global economic downturn. By Atique Naqvi Dubai

ither you run a company or the company runs you. For the past few years Dubai-based firm Damas was in the news for all of the wrong reasons. Not anymore. The firm has seen a turnaround thanks to the innovative and rational business strategies adopted by the company’s new leadership. The family-owned business started operations in Dubai more than 50 years ago, deciding to take the IPO, or initial public offering route, in 2008. It planned to raise capital by listing at Nasdaq Dubai, the emirate’s international exchange. The firm intended to raise $27m through its offering after becoming a leading jewelry retailer in Dubai and expanding into Asia and

Europe. The shocker came in the form of Tawhid Abdullah, the then CEO and one of the three brothers who help build the business. He was found to be conducting unauthorized transactions. The Dubai Financial Services Authority swung into action, and after thoroughly investigating the matter passed its verdict. The authority banned Abdullah brothers – Tawhid, Tawfique, and Tamjid, who were also Damas executives – from holding director positions at companies in the Dubai International Financial Centre for between five and 10 years, and fined them a combined AED11m ($2.9m). The Damas board of directors was dissolved and the auditor was dismissed.

The ugly episode obviously took its toll on the reputation and finances of the company. The inquest found the Abdullah brothers owed the company AED614m, which included AED256m worth of gold that the three brothers had withdrawn from the company. This is now history. Recently, in a statement on Nasdaq Dubai website, Damas announced a net profit of AED53.3m for the financial year ending March 31, 2011. The firm had reported a loss of AED2bn in the previous financial year. Chairman of Damas, Ibrahim Belselah, said: “Combined efforts have enabled Damas to achieve these robust results and strengthen its stature as the reNovember 2011 | TRENDS 101

Reuters

MaNagEMENT

The resilience of the underlying business model enabled Damas to bounce back gional jewelry trendsetter and market leader. The highlight of our performance was the achievement of successful financial restructuring for which I would like to thank the banks and financial institutions for their support.” Chief executive officer, Anan Fakhreddin, said: “The management’s focus of the past financial year has been on stabilizing the business, and a lot of progressive reforms were implemented to this effect.

These initiatives have enabled the company to consolidate its market share and achieve AED2.95bn in sales this period.” The resilience of the underlying business model enabled Damas to bounce back and register strong performance within a year of reporting losses owing to impairment provisions, he said, adding: “Our performance in the past financial year reflects a high benchmark that we have again set ourselves. We are proud of our achievement and success.”

AED600m

AED337m

The firm is to sell some assets of its founders within three years as part of a repayment deal

In October Damas planned to recover AED337m in outstanding payments within six months

102 TRENDS | November 2011

In May this year, the jewelry firm, which trades gold and gold jewelry, diamond jewelry, pearls, watches, silver and precious stones on a wholesale and retail basis, said it had signed a repayment agreement with the founding Abdullah brothers and creditors that cleared the way for selling certain assets of the founders. The firm aims to sell some assets within three years as part of a $163m repayment agreement, said the CEO. Damas said earlier this year that it reached a final agreement with all of its lenders and completed the restructuring of its $872m debt. Last month (October), Fakhreddin said the firm planned to recover more than $91m in outstanding payments within six months. “We have already signed several agreements and started to recover some funds owed to us,” he said. In September, Damas said it formed a task force to focus on financial recoveries. To understand the turnaround, TRENDS sat down with the Damas CEO to get the inside story. Fakhreddin, who has been associated with the firm for approximately 18 months, said: “I joined as part of the new board that was assigned to oversee the business. The company was in a huge amount of debt, which needed to be restructured and, operationally speaking, our sales were dropping. Our net losses amounted to $2bn in 2010. “The morale of the staff was obviously more or less a sinking ship, and we were losing talent every day, and then we were getting a lot of negative coverage in media. Currently, after keeping on track for about 18 months, I can say that corporate governance is no longer a big threat for us.” Adding that governance and compliance are ongoing issues. “The good thing is the mindset within the company is changing and people understand the fact that we are a listed company and we have to act and behave like one,” Fakhreddin said. When asked how the turnaround was initiated, he said: “There were three or four major initiatives to make sure we bring business back to normal. The first

Reuters

MaNagEMENT

“. . . We started doing what we are best at. Identifying consumer trends in terms of taste of jewellery” one obviously was on a corporate level, making sure the corporate governance issues are dealt with, risk management was addressed and properly looked after, which is something we failed to understand in the past. Restructuring was the most crucial item on my list, which we successfully completed in February 2010. “On the retail side, we had to restructure the operations and look closely at the gold business, which is jewelry, and that’s why we started revamping our areas of interest. We identified what our core business was and made that an integral part of our growth strategy. The new plan would focus on our core business. Many joint ventures and activities overseas, even within the UAE, that does not relate and does not add value to us being a jewelry retail operator, we lost interest, and in most of 104 TRENDS | November 2011

the cases we also exited such deals,” said Fakhreddin. Further narrating the Damas turnaround, he said: “Operationally speaking, we started doing what we are best at. Identifying consumer trends in terms of taste of jewelry, producing it to the best standard and satisfaction of Damas, and retailing it at the best price in all shops. This was actually the turning point for Damas when sales started to pick up, the mindset within the company started to change, the suppliers felt the difference, that Damas was selling again, they are paying on time.” About the debt situation, Fakhreddin said: “It’s fully restructured and although the agreement we signed with our creditors gave us six years to repay about $800m, we hope we will be able to settle it much faster, hopefully within three or four years.”

Fakhreddin said the Damas episode is a lesson for family businesses that want to go public. “I think the rules and regulations are there to protect a firm because you are listed at a stock exchange. The IPO and the listing rules are not just about paper work, the mindset of the people who are working in a newly-listed firm must change,” he said. When asked about the growth in the post-crisis phase, he said: “The UAE makes about 78 percent of our total revenues, despite our presence in 12 to 13 countries. Our sales in 2010 would constitute about 22 to 23 percent of the jewelry business in the UAE. “About 60 percent of our business in the UAE comes from certain retail format that we call the 22 carat shop, which mostly targets the Asians – Bangladeshis, Indians and Pakistanis. This segment makes two-thirds of our business, and the rest goes to Emiratis, Arabs and tourists. “The boutique [luxury] segment mainly caters to Emiratis, Arabs and high-networth expatriates, and tourists constitute eight percent of our total business,” Fakhreddin adds. But what lessons can senior executives draw from the Damas story? “Two things,” said Fakhreddin. “First the mindset of the people who run the company must be transformed, completely, even before they think of listing. Second, you must have heard this before, but I’d like to reiterate that people running a company need to understand that its resources are not stretched beyond a certain limit. I think this was one of the mistakes committed by many executives during the boom time,” he said. By nature humans are greedy, and companies reflect that greed, he said, adding that Damas was investing in international markets and there was no proper risk management in some of the cases. “We went into businesses that were not our core business. When the times were good everybody was trying to achieve quick targets overlooking the risk management component, and that is a dangerous behavior,” he said.

Reuters

Q&A

Proceed with Caution Cairo-based Citadel Capital co-founder, Hisham El Khazindar, expresses cautious optimism about the future of Egypt. By Atique Naqvi Dubai

s you are at the centre of global attention, how do you feel about the Arab Spring? First, and foremost, I’m excited – primarily as an Egyptian, but also as an Arab. The Egyptian Revolution, as well as the democracy and reform movements now unfolding across the region, presents us with what is literally a oncein-a-lifetime opportunity to chart new paths for our nations. We have the opportunity to make difficult decisions today that will allow us to tackle problems that our rulers had previously swept under the carpet or dismissed

106 TRENDS | November 2011

as intractable. Our nations are crying out for meaningful reform, not just regarding building true participatory democracies, but how those democracies will educate their young, care for their sick, protect their minorities and rehabilitate their sinners – all the while ensuring a basic level of social justice. I have no illusions that this will be a fast or easy process. Progress will come in fits and spurts and will not always be a linear, ever-forward proposition. In that sense, it is too early to say what the future holds. By the same token, though, we have the chance to re-shape our socie-

ties, our institutions of state and our economies in such a way as to genuinely be able to claim we left our children a world that was a little bit better than we found it. Will this revolution improve the image of Arabs across the world? Of course it could – if we succeed in building stable democratic nations that play constructive roles on the international stage. But I’d like to make two points in this respect: First, our image in the rest of the world matters less at this stage than does tackling tough problems at home. Secondly, I think we’re looking at a pro-

longed period during which it will be difficult to talk about a single image of an “Arab world” given stark national differences in how these democracy movements are playing out – and the wide variations in starting points for each of these countries. Still, the more we see true pluralistic participatory democracies taking hold, the more the outside world will perceive us as stable. As stability returns, we will not just become more politically integrated with the outside world, but we’ll also become more economically appealing, too. This will allow Arab nations to chart a future based on non-oil growth. It will allow us to capitalize on our unique global competitive advantages to create opportunities through a combination of domestic and export-led growth. We have large, fast-growing consumer markets that remain largely unleveraged. This same consumer base is also a large, fastgrowing workforce that is very, very receptive to training. We have a geographic advantage as a natural export hub, and we collectively hold important natural resource wealth. The key, going forward, is to put these advantages to work for ourselves while attracting foreign capital and know-how to help us do so.

How much class struggle is responsible for this? I’m quite certain that dissatisfaction with income disparities and a lack of meaningful economic opportunities for youth were very much at the root of what we saw unfold here in Egypt in late January. The pro-democracy movement had been incubating for years. Brave soul, primarily youth activists, bloggers, civil society advocates and some working against torture, kept the flame alive through much of the past decade. Joined by young people with activist sympathies who were active users of social media, these people provided the spark of change early on January 25. But when the authorities react-

ed with violence toward the end of that day – and certainly in the three days that followed – those people were joined in large numbers by youth from economically disadvantaged districts (primarily near Downtown). These people were not from among the abject poor: They tended to be educated, but from humble backgrounds. They tended to be unemployed or underemployed. They tended to be on the receiving end of negative encounters with agents of the state, from police to bureaucrats. Counter-factual arguments are a losing proposition, but still, I suspect the course of the revolution would have been very different had these people not joined. How much time would you give to the nations in this region, undergoing the changes, from chaos to reasonable stability? As I mentioned earlier, I think it is a mistake to talk about “the region” – particularly in this respect. I don’t think anyone can compare the current state of Egypt or Tunisia to Libya or Syria, for example. Egypt lacks parliament and a constitution, yet schools continue to operate, hospitals care for the sick, hotels are slowly filling up with tourists. We have a caretaker government that has announced the timetable for parliamentary elections, and no fewer than seven credible candidates are poised to run for the presidency. So, as to time, this is a very nationspecific question. Here in Egypt, I can say this much: We’re on the right path, but the journey will take a lifetime or more.

Bio of Hisham El Khazindar Hisham is managing director and co-founder of Citadel Capital. Prior to co-founding Citadel Capital in 2004, Hisham was executive director of Investment Banking at EFG-Hermes, where he advised on transactions such as the IPOs of Orascom Construction Industries, Ezz Steel and Orascom Telecom.

Will political freedom bring revolution in the fields of arts and culture? I don’t think it is far-fetched at all. Egypt has always been on the leading edge of the arts and of cultural innovation in the Arab world. More freedom will only see writers, artists, actors, directors, digital media gurus and others take what would have been pre-revolution larger risks. The sciences will take more time, but not for lack of freedom or creativity. Our November 2011 | TRENDS 107

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benefit many of our platform investments, which have dollar or dollar-linked revenues, local costs and local currency debt. Meanwhile, widening budget deficits in an environment marked by high oil prices and still-rising commodity prices will accelerate liberalization of the energy sector and the elimination of subsidies, particularly on fuel, further supporting key Citadel Capital investment themes. As governments shift towards more democratic systems, transparency will increase, economies will be run more efficiently, corruption will be eliminated and subsidies will be better directed under the scrutiny of elected parliaments. We expect returns on our existing portfolio to be negatively impacted in the short-term, with exits largely postponed for the coming 12 to 18 months. But new opportunities that are likely to arise in the same period will mitigate that exposure to a great extent.

You have invested in 15 industries spanning 15 countries, how has the revolution impacted Citadel Capital? In the short-to-medium-term, we see that Citadel Capital’s investments are on the right side of macro trends. In Egypt, potential devaluation of the currencies will

We hear that FDI in the region is flat. The fundraising environment is challenging, there’s no doubt about that. Still, Citadel Capital and our portfolio companies have managed to raise more than $319m in equity and debt since the beginning of the year.

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destination for foreign capital – will rise as long-term political risk is mitigated by greater democracy. True, popular uprisings in the MENA region will lead to increasing global energy prices, a weakening of local currencies and reduced levels of FDI in the short-term. But the simple fact is that the positive fundamentals that created the region’s compelling investment opportunities in the past remain intact and could lead to tremendous opportunities as the situation stabilizes.

What about your investments outside of Egypt? Our non-Egyptian investments continue to lead growth. We’re making some very important progress with one of our investments in Algeria’s cement industry. Al-Takamol Cement in Sudan – a greenfield plant that we built and which began producing only in the second half of 2010 – is now serving not just Sudan, but also exporting to neighboring countries. And we’ve made some very important progress at Rift Valley Railways, which holds a 25-year concession to run the national railway of Kenya and Uganda, with more than 2,352km of track linking the port of Mombasa to the interiors of Kenya and Uganda, including the Ugandan capital of Kampala.

Popular uprisings in the MENA region will lead to increasing global energy prices. . . best and brightest scientists tend to outperform when they move abroad, and when you ask them why, the answer is almost invariably the same: Better funding and the advantages of being located in a community of like-minded souls who inspire and challenge. Scientific innovation in the Arab world is entirely possible, but it will take new budget funding. What does the revolution mean for Egypt’s economy? The economic fundamentals that saw Egypt help lead global growth during the financial crisis of 2008 and 2009 will only be further enhanced in the long-term by democratic reforms. Egypt’s competitiveness in the global economy – as an export and manufacturing hub, as well as in its capacity as a 108 TRENDS | November 2011

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Interest Rising The fundamentals are strong and some of the banks in the region have outperformed the general enterprise market – but caution must be exercised. By Atique Naqvi

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n a macroeconomic level, the health of an economy depends on the strength of the banking sector. Rewind to 2008 in the United States when the ailing sector got the last nail in its coffin with the collapse of the Lehman Brothers and the following recession tsunami that hit the shores of almost all global economies. Even the banks in the GCC were affected. Particularly in Dubai, several banks that had immense exposure to the real estate sector felt the pinch. A lot has changed since the waves of recession reached the Arabian Gulf, the banks are gradually returning to lend-

ing – their main source of business. And the sector is consolidating, with Emirates NBD taking over Dubai Bank last month, being one example. However, all is not over yet as banks in the region are still grappling with liquidity woes. In the UAE, the central bank governor Sultan bin Nasser Al Suwaidi said, last month, that banks operating in member states of the Gulf Cooperation Council need to introduce new mechanisms and resolutions to ensure smooth flow of liquidity, manage credit risks and to fully conform with the Basel III requirements. “It is important for the GCC banking system to introduce new financial tools such as sukuks [Islamic bonds], securi-

ties and treasury bonds so as to address future challenges. Unlike their European counterparts, the GCC countries do not have all of these banking tools because they are new to this field,’’ said Al Suwaidi, during the 53rd meeting of the committee of governors of monetary agencies and central banks in the GCC. Al Suwaidi affirmed the GCC member states maintain ample liquidity and have the resilience to address challenges ensuing from crises. He ruled out any negative impact the GCC could face as a result of financial woes in the Euro Zone because the banks, especially in the UAE, “were sufficiently liquid”. Asked whether there is a need to boost November 2011 | TRENDS 111

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“The global financial crunch has given birth to a new reality, which requires a review of credit risks” liquidity levels at the banks, he said, “No, all of the UAE banks are liquid, because we have already gone beyond.... from being net borrower from the capital markets to net lender to the capital markets. We are in surplus.” On lending, he said: “We are comfortable with rates of growth in loans and advances.” About the UAE banking sector, the UAE central banker described capital adequacy as ‘’very good,’’ at 11 percent, above the Basel III benchmarks of eight percent for Tier I capital and two percent for Tier II capital. He added that banks operating in the UAE had posted good results over the first nine months of the year. According to him, banking loans were projected to 112 TRENDS | November 2011

rise between five and six percent, while banking deposits were expected to be more than six percent. “Banks in GCC countries possess huge funds in regards to Tier I Capital of Basel III (+11 percent in UAE), however liquidity will remain the daunting challenge before implementing the Basel III,’’ he said, adding, “Banks need to adopt a flexible policy on liquidity risk management and to introduce principles of institutional control where a sound percentage of liquidity is kept for survival during crises at all times.’’ “The global financial crunch has given birth to a new reality which requires a review of credit risks from the availa-

ble revenues of the borrowers against the size of loans they intend to take,’’ said the UAE central bank governor. On the issue of meeting the rising demand for the US dollar, in the light of the on-going market turmoil, the governor said, the GCC nations were pegged to the US dollar, “so there is absolutely no problem for us to fund, and banks will always find it normal to fund themselves, if the need arises.” The GCC central bank governors in the GCC are working on the agenda that includes implementation of Basel-III by 2018, credit risk management and systemic risk implementation in the region. About the external threats facing the region’s financial sector, Al Suwaidi warned banks to be prepared for every kind of crisis. “We have to be aware of where it might be coming from, and we should be ready to provide the instruments capable of facing them.” He said officials from the GCC were also working to address issues regarding financial and monetary supervision and control and anti-money laundering. In its latest report on Middle East and North Africa banking, the Bank of America Merrill Lynch (BofA ML) said MENA banks have outperformed the growth enterprise market (GEM), the stock exchange set up in Hong Kong, in the recent global downturn and are down -6 percent 3M vs. -18 percent for GEM banks. “Despite the outperformance valuations remain well below historical averages for our coverage universe,” it said. Saudi, in particular, stands out with banks near the bottom of their historic forward in price-to-book and price-to-earning. Last month, five major Saudi banks posted third-quarter net profits and three of them beat analysts’ forecasts, citing lower operational costs as well as increased income from banking fees and investments. Saudi Arabia’s biggest Islamic Bank, Al Rajhi Bank, posted an 18-percent rise in its third-quarter net profit to SAR1.9bn riyals ($506m) from SAR1.6bn, attributing the rise in profit

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. . . About the GCC, banks in the region have the potential to further outperform to higher revenue from banking fees and investment income. Al Rajhi’s operational profit rose by 7.6 percent to SAR3.2bn from SAR2.97bn a year earlier. Analysts, surveyed by Reuters, had expected the bank to post an average third-quarter net profit of SAR1.8bn. Another lender, Saudi Hollandi Bank, saw its third-quarter net profit more than triple to SAR299m from SAR85m, after it lowered its operational costs, the bank said. Analysts polled by Reuters expected the bank to post, on average, a third-quarter net profit of SAR244.5m. Saudi Hollandi, Saudi’s oldest bank, had a 5.1 percent rise in its profit from special commissions to SAR359.8m, but its operational profit dropped by 0.6 percent to SAR521m, it said. 114 TRENDS | November 2011

Meanwhile, Aljazira Bank tripled its third-quarter net profit to SAR66m, up from SAR22m during the same period one year ago, citing lower operational costs. Five analysts in a Reuters survey expected the bank to post, on average, SAR55m in net profit for the third quarter. SABB Bank posted a 50.4 percent rise in its quarterly profits, but still missed analyst forecasts. SABB made a net profit of SAR630m in the third quarter, compared with SAR419m in the same period one year earlier. The lender cited lower operation costs for its rise in profits. The fifth bank, Banque Saudi Fransi missed analyst forecasts after it posted a 22-percent-rise in its quarterly profit. It made SAR760m in the third quarter, compared with SAR621m in the same period

a year earlier. Saudi Fransi’s operational profit rose by 7.4 percent to SAR1.2bn from SAR1.1bn a year earlier and its profit from special commissions rose by 3.9 percent to SAR808m from SAR778m. About the GCC, BofA ML said banks in the region have the potential to further outperform on the back of a combination of defensive attributes, such as limited direct exposure to current fears on developed world debts, healthy balance sheets, as well as an improving outlook for growth. The top picks among the GCC banks by BofA ML were the Commercial Bank of Qatar, Bank Muscat, Doha Bank, Riyad Bank and Samba. With regards to BofA ML-ranked MENA banking systems for volume growth potential, Qatar came out best, followed by Oman and Saudi, because Qatar has the strongest GDP growth outlook. While credit penetration is not enticing, particularly from a GEM stand point, the government’s solid commitment for development and proven backing of the banking system will allow for further credit penetration relative to the standard of living. Corporate lending is also supported by high capital investment ahead of the World Cup, while the retail lending outlook has been supported by the government’s 60 percent salary hike to its national employees. Both Saudi and Oman rank strongly in all segments, said BofA ML. “Although the recent pace of loan growth is not outstanding, it remains healthy given the phase of the recovery, and there is room for further credit penetration, particularly for Saudi retail and Omani corporate lending,” it said, adding that Egypt has substantial potential for growth, noted in low credit penetration, visibility is currently limited by uncertainty on the country’s future direction. It faces near term risk of public sector crowding out of private sector lending as part of the government’s efforts to fund its deficit. The UAE and Kuwait were ex-growth in BofA ML’s opinion, given high credit penetration and relatively lower real GDP outlook.

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The impact of regulation remains the biggest challenge facing banks today The outlook of the banking sector in the GCC is much brighter than Europe, however, there are challenges of new regulations. Global banking software provider Temenos said the implications of new regulations arising from the financial crisis continue to trouble banks in the Middle East. Gauging opinion from 190 banking executives across a range of banking sectors in 71 countries, the research confirmed the impact of regulation remains the biggest challenge facing banks today, with 24 percent of respondents citing this as their primary concern. Within Middle East respondents, this figure was even higher, reaching 34 percent. Other threats have also continued to grow in importance among Middle Eastern bankers this year. About 33 percent of banks in the Middle East cited custom116 TRENDS | November 2011

er retention as their biggest challenge, as banks come to appreciate that customers are becoming less loyal, more discerning and have more alternatives than in the past. Competition is also increasingly seen as a threat, with 28 percent of Middle East respondents citing it as the biggest threat facing their industry. New entrants were mentioned by 28 percent of respondents, overseas entrants by 12 percent and peer to peer services by 11 percent. The results of the survey also illustrate how banks’ perception of their biggest challenges is influencing corporate investment priorities. Middle East banks named their top three investment areas as being: investment in new products and services (37 percent), investment in IT (25 percent) and improving risk management (20 percent). Looking at IT investment specifically, regional banks are making available

more money, with 47 percent confirming that budgets were up on the previous year. The biggest areas of focus are: core banking renewal, risk management and business intelligence. Regional Manager at Temenos Middle East, Juan Cejudo, said: “The fact banks are unsettled by new regulations is not surprising given these are likely to weigh on profitability. What is more interesting is the greater concern about competition and customer retention. “The research suggests banks are worried about losing their best customers to competitors who can serve them better and their remaining customers to competitors who can service them more cheaply. It is therefore logical that banks should be planning to spend more on core banking software, as this is the most fundamental way for them to lower IT and back-office processing costs while generating the consolidated view of the business that will allow for better risk management and higher revenues.”

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Preventative Measures TRENDS talks to Dr David B Agus, professor of medicine and engineering at Keck School of Medicine and Viterbi School of Engineering, University of Southern California.

he governments and private sector have cut down on their healthcare spending in the wake of the global crisis, what do you think the impact will be? There are two components to healthcare spending. One is prevention and one is treatment. Most of the spending historically has been on the treatment side, and cutting down on this is catastrophic for individuals. We need to shift this spending to prevention, which is much more cost-ef-

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fective, will delay disease and is the appropriate way to deal with the economic crises, rather than just cutting payments for treatment. There is a need to reach a plan where we can cut the healthcare spending, and the way to do this is to put the emphasis on the prevention of diseases. When it comes to healthcare, who should have an upper hand â&#x20AC;&#x201C; the government or the private sector? I think at this point it has to be the gov-

ernment. I think healthcare is a right. The governmentâ&#x20AC;&#x2122;s role is to ensure that rights are available for all citizens, and I think that the role of the government in healthcare, while historically based on treatment, has to be redefined again to push for prevention. Why should someone who smokes receive the same benefit as someone who doesnâ&#x20AC;&#x2122;t? Dell, for example, charged their workers that smoked two-and-a-half times more in health insurance costs than those work-

ers that didn’t smoke. In one year they lost 2.3 percent of their work force. Within three years they significantly lowered their healthcare cost, so we need to put culpability back in order to do things. Also, if you get a flu shot you obviously decrease your incidences of getting flu and passing it on to others. One episode with the flu a decade from now will increase your risk of cancer and heart diseases. So why should society pay for your cancer and heart attack when they are preventable measures you can take? Do you think people should learn from US president Barack Obama’s healthcare plan? Is it feasible? I think the healthcare plan is not healthcare reforms, it’s healthcare finance reforms. What we really need is healthcare reforms, which is not addressed. What would be your suggestion? My suggestion is very simple. We need to start to work for prevention; we need to mandate certain aspects which will lower costs. If you look at the Arab spring and what’s going on with social media and the speed at which governments are changing, why are we not using social media, for example, to boycott every store that sells tobacco? That will have more impact on public health, more impact on cost and prevention, GDP, the health in countries and anything else that we can do. We have to be creative, and aggressive, and obviously the cost of doing that is minimal, but the impact is staggering. What are the problems faced by the sector? I think we have a population that’s slowly aging. At the same time we have alarming rates of obesity. Both of those are leading to high health care costs, unless we start intervening. As far as obesity is concerned, millions of dollars are spent on battling obesity while people die of hunger in Somalia, what is your take on this?

I think, again, it’s education. I think the dominant factor is not necessarily how much we eat, but what we eat. And so it’s very hard to compare Somalia to a developed country. You have to look at them as different entities. Certainly, in Somalia, we need to figure out a better way to distribute food around the world. At the same time, we have to make sure it’s the right food. In Sub-Saharan Africa, cancer, gradually, is overtaking Malaria, HIV and tuberculosis. A good percentage of cancers, such as cervical cancer, which is preventive, you can get a vaccine for. But right now the vaccine for cervical cancer is the frozen vaccine. You can’t deliver a frozen vaccine to Africa. So I think we have to look at whatever diseases are preventable, how can we do that and how can we implement it on a global strategy going forward. In America, for example, or any developed country, by taking prevention pills such as Lipitor, which is a cholesterollowering drug – the mechanism blocks inflammation – the overall risk of cancer is down by 40 percent, delaying any fears of heart attacks. Those two facts can have a staggering effect on two of the most costly diseases – heart attacks and cancer. As can Asprin. In America you can get a 90day supply of Aspirin from Walmart for $9 without health insurance. Asprin lowers the overall incidences of cancer by about 15 percent, and lowers and delays the incidences of cardiovascular disease. We need to start to make these preventative strategies that are cost effective, mandatory.

Dr David B Agus Dr David B Agus is the professor of medicine and engineering, director of the Center for Applied Molecular Medicine, and director of Westside Cancer Center, at the University of Southern California’s Keck School of Medicine and Viterbi School of Engineering. Dr Agus is based in Beverly Hills, California, the US.

Do you think lifestyle diseases are gradually becoming a major problem? No question about it. Look at the incidences of obesity in some of the countries in Africa, they are going up astronomically. So yes, I mean lifestyle is a funny word. But certainly diseases that are affected by behavior are becoming dominant, that includes smoking, that includes eating the wrong food, lack of exercise. There was an amazing study done in 1949 in England where they looked at 1,900 employees of the British Transit Authority. Half November 2011 | TRENDS 119

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ation to think appropriately, act appropriately. Education, therefore, is going to be the key that will yield the break through.

The effective way to deal with healthcare is to prevent disease, not to throw dollars treating it were bus drivers and half were ticket takers. The heart attack rate among the ticket takers was less than half that of the bus drivers. So, all you need to do is walk to lower your incidences of cardiovascular disease dramatically. Unfortunately, we are producing a sedentary society.

current training institutions in the Middle East are limited, and only a few are world renowned as training institutions. So we need to improve the medical education system, we did not get the human capital because the infrastructure there we have to make the human capital equivalent.

What is your opinion about the healthcare industry in the GCC countries? Some aspects they are [working on] are staggering. For example, electronic medical records. Some of the institutions in the Middle East are clearly the leaders in the world. They use electronic medical records, both to manage patients and to learn from every individual experience and improve medicine. Most of the medicine now boils down to human capital. The

Not much is being done on the medical research area in this region, why is that? The problem is it is a very difficult question. For example, the death rate of cancer from 1950 â&#x20AC;&#x2DC;til today has not changed. In the United States, hundreds of millions of dollars have been spent, yet there has been no effect on the death rate of cancer. So I think the dollar needs to be not necessarily [spent on] just research, but to educate, and we need to start to train the next gener-

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What are the latest trends in the field of medicine, latest break throughs and issues in the field of medicine? There are two things that are going to be dominant over the next five years. One is the field that we call microbiome. You have 10-fold more bacteria in your body than cells in the body. Those bacteria control your metabolism, control your hormonal level and many things going on in the body. If someone from China moved to America, their chances of getting breast cancer are one-tenth of those living in America, but once that person starts living in the US, in a decade their chances of getting cancer is as much as a person who lived in America all of their life. The reason isnâ&#x20AC;&#x2122;t the diet, itâ&#x20AC;&#x2122;s the bacteria they are now inhabiting in the genome track. The ability to control that bacteria and to manipulate to prevent the disease will be one of the dominant things, going forward, as will the stem cell research. With stem cells we have the ability of both learning human organism development and the same time manipulating the cells to prevent and treat many of the common diseases that are ailing the society. Is the developed world doing enough for the rest of the world? Not at all. We need to develop a new strategy geared towards the prevention, geared towards the society and ethnic background of the individuals. The only way underdeveloped countries are going to be able to deal with the given amount of disease is to prevent them. So the effective way to deal with healthcare is to prevent disease, not to throw dollars treating it. Is our future healthy? Our future is healthy as long as we are able to link the technology we have today to actually work for prevention. I truly believe we should all be able to live in our ninth decade by preventing diseases.

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Water Worry Booz & Company’s partner Walid Fayad, principal Nadim Batri, and senior associate Johnny Ayoub, talk to TRENDS about water scarcity in the region.

hat are the main problems faced by fresh water resources in the region? Arab countries account for about five percent of the world’s population, but just one percent of its renewable fresh water. With the exception of Lebanon, Iraq, and Morocco, the Arab countries suffer from “acute water scarcity”. For instance, Gulf countries have only 160 cubic meters of renewable water resources annually per person, as opposed to the global average of 5,300 cubic meters. The region has four main problems in regard to its fresh water resources. The first, quite simply, is that countries are using their resources too quickly – more

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quickly than they can recharge. Arab farmers are now obliged to pump water from wells that are up to two kilometers deep, as shallow aquifers disappear or become unusable. Worse, water use is accelerating all of the time. This can be attributable to population growth of more than two percent annually, increasing urbanization, industrialization, and economic growth. There is a general lack of awareness about the severity of water scarcity; subsidies disguise the true cost of water, giving people and businesses little incentive to conserve. The GCC, for example, uses 850 cubic meters of water per capita each year, compared to the global average of 500 cubic meters and the UK’s average of 165 cubic meters.

The second problem stems from a lack of regulation around the use of water resources. Although Arab countries have enacted policies regulating the use, amount, and licensing of groundwater extraction, these policies are poorly enforced in most countries. For example, in Jordan, most wells are drilled legally, but abstraction permit terms are not respected and the meters that measure the amount of water being used frequently get damaged. The third problem is that the quality of surface and ground water is deteriorating due to pollution and the overexploitation of resources in all Arab countries. Inadequately treated domestic and industrial wastewater is being discharged directly

into rivers and lakes and seeping into aquifers. Meanwhile, pollution from fertilizers and pesticides drain into groundwater. Finally, the overuse of groundwater is causing salt water to leak into aquifers, particularly in Qatar, Oman, and Bahrain. The fourth problem arises around water rights: Because the region’s rivers and aquifers cross national boundaries, individual governments cannot address the problem on their own. As a result, depletion accelerates as all parties rush to grab what they believe to be their share, and relations between counties become strained in the dispute over surface and ground water. The conflicts between Israel and Lebanon over surface water, between Israel and Palestine over the ground water of the mountain aquifer, between Egypt and Ethiopia following Ethiopia’s plan to construct a $4.7bn hydropower project in its Nile basin are just a few examples. With increasing population and shrinking water supply, what is the future? There is already a serious water deficit in most Arab countries; it will become worse if the region’s excessive consumption continues. One way for countries to meet demands for water is to seek out new supplies. They can use more ground water, either from deeper aquifers or by using satellite technology to find previously untapped aquifers. Alternatively countries can follow the lead of oil-rich Gulf nations and invest in unconventional water sources, such as desalination, artificial rain harvesting, and the reuse of treated wastewater for landscaping, agriculture, and industrial use. However, these solutions are financially and environmentally costly, especially when extensive systems are needed to transport water to inland cities. Unless countries research and implement sustainable technologies, either on their own or with funding from NGOs, poor countries will face serious water crises requiring drastic solutions. Water for growth or water for poor, the

debate goes on. On which side do you see yourself and why? This is difficult to address from the perspective of either/or; countries need to ensure that their use of water meets all needs, both contributing to growth and guaranteeing their citizens’ right to fresh water. One way to do so is through a balanced and equitable use of tariffs. Tariffs have four objectives, which can be contradictory to each other: They can encourage economic efficiency, by signaling to consumers the financial and environmental costs of their decisions about water use; they can allow utilities to recover the cost of supplying water; they can make water affordable; and they can ensure equitable access to water by imposing costs that are proportionate to each consumer’s use. Often, however, countries do not weigh these objectives equally as they pursue their political priorities. We believe that countries need carefully balanced tariff structures that address all these objectives. The most important goal of tariffs is to promote universal access to potable water and ensure that even the poorest segments of the population can afford it. At the same time, however, tariff structures should maximize cost recovery and minimize adverse impacts on equity and economic efficiency. How is scarcity of water affecting agriculture? Many countries in the region are at a crossroads concerning their use of water for irrigated agriculture. Although 80 percent of the region’s available fresh water is now used for irrigation, this use is quickly decreasing as water scarcity has an impact on agricultural policies, economics, practises, and technologies. Water-scarce countries are more likely to rely on imports in the future: For instance, the Saudi government will stop buying wheat from local farmers by 2016, in an attempt to discourage its farming and conserve the kingdom’s non-renewable water resources. Countries will also make agriculture more efficient by limiting

Dr Walid Fayad Dr Walid Fayad is a partner with Booz & Company and a member of the firm’s energy, chemicals, and utilities practice.

Nadim Batri Nadim Batri is a principal with Booz & Company and a leadership member of the energy, chemicals and utilities practice.

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Within the region, desalination is clearly the method of choice for providing fresh water it to areas with renewable water sources, rather than continuing to transport water to the places where farming takes place now, and by encouraging the growth of crops that require less water. Finally, countries are likely to introduce smart irrigation systems, such as the drip irrigation used in the UAE, and reduce water leaks by keeping pipes in proper repair and regulating water pressure. What solutions can sea water provide

and how cheap and environmentally friendly would these solutions be? Oil-rich countries in the region have incorporated seawater desalination as an alternative to ground and surface water, and the region’s desalination capacity is growing at a rate of four percent per year. The average cost of desalinating seawater has dropped from US$5.50 per cubic meter in 1979 to approximately $1 today. However, this is still relatively expensive and energy intensive, and this approach has significant

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The Saudi government will stop buying wheat from local farmers by 2016

The average cost of desalinating seawater has dropped from US$5.50 to US$1

The cost of stimulating 52 days of rain, experiments by the Abu Dhabi government found

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environmental costs, since desalination plants create carbon emissions by burning fuel and discharge the salt left over from the process back into the sea, damaging marine ecosystems. Regional governments are already engaging in research to improve the desalination process in terms of cost and environmental impact – and they need to become more involved, making use of the innovative research happening worldwide. Water desalination technology is steadily evolving: The “multi-stage flash” (MSF) approach, which evaporates seawater and gathers the salt-free condensation, is the most popular technology in use in the region right now, but is also the most expensive and energy intensive (generally speaking, that is – in the cases of all technologies, costs depend on project specifics). Another evaporation-based technology, “multiple-effect distillation” (MED), which is less expensive and burns less fuel, is steadily gaining headway. Possibly the most efficient approach is reverse osmosis, which uses membranes to physically or chemically filter out salt. This approach has not been used much in the region due to the high salt content of the water, but further research could make it more feasible. In the case of all technologies, the use of thermal solar energy allows the process to work with less fossil fuel. Within the region, desalination is clearly the method of choice for providing fresh water, and its share of total water resources will continue to increase. In Jordan, too, the share of desalinated water is increasing. Even the countries of North Africa, which have announced in the past that they will rely on water transfer projects to supply areas that lack their own resources, are considering desalination as a last resort now that new advancements in technology make it more feasible. What is being done on the front of harvesting rainwater? There are two ways to harvest rainwater. Natural rain harvesting is very effective, as it is cheap and simple: Rainwater can be

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Yemen’s capital city, Sana’a, home to two million people, will be pumped dry in the next 10 years collected using channels and drains in cities, or large dams in other areas. In Saudi Arabia and Oman many dams are under construction for flood prevention and agriculture and domestic use. For instance, a new dam and other flood control barriers will be built in Jeddah by 2013. Artificial rain collection, in which chemicals are dispersed in the atmosphere to induce artificial rain, is a bit more complex. Some claim this method can resolve drought challenges on a large scale with lower costs than desalination. The Abu Dhabi government has conducted experiments with this cutting-edge technology, stimulating 52 days of rain at a cost of $11m. However, artificial rain collection has not yet gone through sufficient testing, and should very much be considered experimental. It remains uncontrollable and 126 TRENDS | November 2011

could contribute to the pollution of water sources and soils. Which countries, in your opinion, might face water crisis in the coming years? That depends on the definition of “crisis”. All of the Arab countries face scarcity; those that will likely face the worst situations are those with the fewest natural water resources, the least amount of financial resources to find innovative solutions, and the largest populations demanding more water. For instance, one of the countries facing a water crisis is Yemen. The Sana’a Basin – the primary water source for the national capital, Sana’a, which is home to two million people – will be pumped dry in the next 10 years. The government is striving to lengthen the basin’s durability, but ultimate-

ly the disaster is coming. Yemen must soon decide whether to bring water to Sana’a (possibly by pipeline from coastal desalination plants, although the Yemeni Ministry of Water and Environment does not believe this will be possible with the country’s limited resources) or to relocate the capital. Moreover, according to World Bank officials, ground water is being abstracted at such a rate that parts of the rural economy in Yemen could disappear within a generation. Currently, 19 of the country’s 21 main aquifers are no longer being replenished. Other Arab countries are not coping any better. Jordan, for example, faces substantial shortages due to population growth and a perpetual water dispute with Israel. In the next 30 years its per capita water supply will fall from the current 200 cubic meters per person to 91 cubic meters, the World Bank says. . What can oil-rich Arab countries do to meet the challenges posed by scarcity of

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Clean drinking water is not just a dream; it is a global project. . . Countries have to work together fresh water? Arab countries should address water challenges through better management of supply and demand, combined with the use of new technologies to ensure that the region has enough resources and that its use of water is environmentally and financially sustainable. Better management of supply and demand will require countries to make sure their water is being put to the best possible use â&#x20AC;&#x201C; mostly by reform in the agriculture sector, which in many countries uses the majority of water resources while contributing only a small amount to GDP. Water conservation campaigns and more accurate pricing are other effective ways to reduce demand for water. On the supply side, countries can increase their overall water supply and reduce pressure on natural water resources by promoting the use of treated water for 128 TRENDS | November 2011

agriculture, landscaping, and industrial use. Countries can also reduce water use by as much as 30 percent by repairing leaks in distribution networks. Technology will also have a critical role to play in helping the region address water scarcity. For instance, MED, reverse osmosis, and thermal solar energy desalination should be improved to constitute viable alternative to MSF plants. Moreover, implementing advanced wastewater treatment technologies will improve the quality of effluents and create opportunities for it to be reused. What are the major trends in wastewater management? Wastewater treatment, in which â&#x20AC;&#x153;treated sewage effluentâ&#x20AC;? (TSE, or reuseable water) is used to meet the demand for non-potable water and decrease the use of non-re-

newable water resources, is a strategic investment for Arab countries. According to the Sustainable Water Alliance, Saudi Arabia is expected to become the third largest water reuse market in the world, after the US and China. In addition to conserving potable water sources, TSE is a new revenue source for the water sector; the price of TSE is roughly one-third that of desalinated water. Currently, TSE in the GCC is mainly used for landscaping, which people tend to find acceptable from a sanitary perspective; for the irrigation of non-food crops; and for some industrial uses. In the future, GCC governments plan to encourage its use in other industrial settings, such as district cooling plants, once some technical issues have been worked out. The introduction of new technologies is key to producing higher-quality wastewater for different uses, improving cost effectiveness, and managing the energy consumption and carbon footprint of wastewater treatment plants. Governments are upgrading existing wastewater treatment capacity to use the most reliable technologies such as chlorination, UV, advanced tertiary filters, and biological treatment. Centralized wastewater management is still the preferred option to serve large and dense population centers in the region. Nevertheless, the use of decentralized systems is expected to rise, especially to serve smaller communities. This alternative is cost effective, as it minimizes network costs. Moreover, it is environmentally responsible as it accelerates the penetration of wastewater treatment practices across each country. Will clean drinking water ever be available for all? Clean drinking water is not just a dream; it is a global project. The water crisis is a global emergency, and countries will need to unite if they are to mitigate the problem of water scarcity. Countries have to work together to aggregate their resources, knowledge, and expertise to find and implement the best solutions.

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Resilient Hospitality The turbulent waves of the Arab Spring and global recession have failed to slow down the GCC’s tourism sector. By Atique Naqvi Dubai

ourism industry analysts who had written off Dubai and the GCC due to the Arab Spring are scratching their heads, as the region’s tourism industry has proved to be one of the resilient sectors, defying the negative sentiments expressed by trade pundits. Whether it is a re-launch of luxury hospitality property by Al Habtoor at Palm Island in Dubai, or the opening of the three new Marriotts in Doha, the sector is not only doing well, it is expanding rapidly. The region’s hoteliers, airlines and the travel industry in general are gearing up for a busy season, as the annual Muslim pilgrimage, Haj, the Indian fes-

tival of lights, Diwali, and Christmas are expected to encourage travelers to flock to the region. In a recent report, Jones Lang LaSalle said the hotel sector continues to be the best performer of the Dubai real estate market, as increasing tourist arrivals lead to higher occupancy and RevPAR levels (revenue per available room). In its Dubai City Profile report, JLL said while the hotel sector has been the major beneficiary of the Arab Spring, the retail and residential sectors have also received a positive boost over the past nine months. The regional upheaval has reenforced Dubai’s position as a global destination, with many tourists rescheduling

their holidays to the UAE due to volatility elsewhere in the region. Dubai Airport is now the fourth busiest in the world, reporting a year-on-year growth in arrivals of 9.5 percent, equating to around 12 million visitors in the first half of 2011. Tourism was particularly strong in July, with Dubai hotels achieving an average occupancy rate of 78 percent – a significant improvement on the 60 percent recorded in July 2009. CEO of Jones Lang LaSalle Mena, Alan Robertson, said: “The Arab Spring has had a positive impact on the hotel, retail and residential sectors of the Dubai market. We believe this has helped push the hotel and retail sectors into the recovNovember 2011 | TRENDS 133

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The political and economic stability of the UAE is likely to continue to bring in benefits for Dubai ery stage, and selected sectors of the residential market are also improving. The question now is how long this impact will last before broader international issues undermine this upturn. While the Arab Spring contributed to improved sentiment and stronger performance over the first half of the year, these benefits could be limited by the fluctuating financial concerns emanating from Europe and the US over the past few months.” The ongoing political and economic stability of the UAE is likely to continue to bring in longer-term benefits for Dubai, he said. The hotel sector has been the largest beneficiary of the Arab Spring, with Dubai experiencing a continued increase in tourist arrivals during 2011. The latest Mastercard index survey suggests Du134 TRENDS | November 2011

bai will be the ninth largest global arrivals destination in 2011, with visitor numbers increasing by 17 percent over 2010. Data from the GDETA (General Directorate of Residency and Foreign Affairs), shows tourism growth was particularly strong during July, driven by a major increase in the level of GCC nationals visiting Dubai (up by 80 percent compared to July 2010). This growth can be partially attributed to the Arab Spring, with GCC visitors rescheduling trips from more volatile regional destinations to the UAE. Other factors that have resulted in higher tourist arrivals in Dubai include the timing of Ramadan (with many GCC nationals travelling ahead of the Holy month in August) and lower room rates as the market has become more compet-

itive. The combination of these factors has seen a significant growth in average occupancy levels to 78 percent YTD, an increase of six percent over the same period in 2010. Increased tourist arrivals have also benefited the retail sector, with major malls reporting increased foot traffic and sales activity. Emaar has reported that visitors to the Dubai Mall have increased significantly, with a total footfall of more than 13.5 million visitors during Q1 2011. The influx of GCC and other Mena visitors has further boosted the Dubai retail market over the past six months, as these groups tend to have higher spending levels than other visitors. This has also been a major driver of the particularly strong performance of the luxury retail sector. The benefits from the Arab Spring have, however, been largely confined to a select number of major tourist-related malls (eg: Dubai Mall, Mall of the Emirates, Dubai Festival City), with vacancies increasing and rentals falling in other malls across Dubai. Also in Dubai, the Al Habtoor Group kicked-off construction of its latest project, a luxurious, 330-room hotel on the Palm Jumeirah Island. The Al Habtoor Group was one of the first to reserve its piece of land on the iconic island when the initial “reclamation of land” started in 2001. “We were very excited when the Palm Project was first launched and we hurried to book our plot of land,” said Khalaf Al Habtoor, chairman of the Al Habtoor Group. “I was happy when we secured one of the best locations on the crescent.” Surrounded by the stunning waters of the Arabian Gulf, this luxurious establishment, overlooking the Burj Al Arab, will offer breathtaking views of Dubai, reads a press release. With the foundation laid and enabling works completed, construction of the project is now set in motion and the hotel is expected to welcome its first guest before the end of 2013. “We wanted to add something very special in this beautiful place and took our time to create

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The Al Habtoor Group’s 330-room hotel on the Palm Jumeirah Island is scheduled to open in 2013 this vision. The situation is stable and we are witnessing constant growth in Dubai and in the UAE’s economy, which makes it the perfect time to re-launch this hotel project,” added Al Habtoor. The resort will reflect both contemporary and old-world designs, creating pleasing and unique aesthetics. Not just a hotel, but also a ‘lifestyle’ experience, it will combine contemporary elegance with unsurpassed quality in every sphere. In Doha, Marriott International, Inc announced the opening of the three-hotel Doha City Center complex, including the 257-room Renaissance Doha City Center Hotel, 204-room Courtyard by Marriott Doha City Center and 123-unit Marriott Executive Apartments Doha City Center. “The opening of the three hotels is a major step forward in reinforcing Doha’s 136 TRENDS | November 2011

futuristic vision and surging tourism potential in Qatar,” said Ed Fuller, president and managing director, Marriott International. “These three new hotels give us six properties in the country, which is fast becoming a key business and leisure destination in the Middle East.” “Not only do we offer close to 600 rooms and three very distinct lodging experiences under one roof, our nine food and beverage options and health and fitness facilities create what we are marketing as the “West End” of the spectacular Doha City Center complex,” said Oliver Kahf, GM of the three-hotel complex. “Taken together, the lodging, shopping and entertainment complex is quickly becoming a tourism hub in Doha.” Although Dubai has been a major attraction among the Asians, Abu Dhabi is

taking bold steps to attract Asian travelers as well. India is the fourth largest source market in terms of guest nights. From January to July 2011, Abu Dhabi welcomed 58,724 hotel guests from India – up 25 percent from the 46,882 guests who stayed in the emirate’s hotels during the same period last year. To further increase this volume Abu Dhabi’s tourism body organized road shows in India. A senior manager of a travel company in India said that Abu Dhabi road show has come at a perfect time because Abu Dhabi has changed from an add-on destination to a stand-alone destination in its own right for outbound Indian tourists. With festivals, conferences and the upcoming shopping events, the GCC in general, and the UAE in particular, is all set to witness a further boost in the hospitality sector. If the sector continues to strengthen, the region would provide a better option to Europe as the industry is bound to suffer due to the lack of investments.

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Palestine’s Political Football As Palestine’s march to statehood gathers pace, TRENDS examines the important role football is playing. By James Corbett Ramallah

nside the cool limestone lobby of Ramallah’s Movenpick Hotel, Palestine defender Omar Jarun is describing a 20year journey that has taken him from a childhood in Kuwait, via exile – following Iraq’s 1990 invasion– in the United States, to his ancestral homeland of Palestine for the first time. It’s early-July, a day after Palestine beat Afghanistan in a World Cup 2014 preliminary qualifier. Jarun, a huge Kuwaiti-born centre-back with a blond mowhawk, is talking about sport and statehood, and how boosting Palestine’s national aspirations drew him to the land of his grandfather. “Football-wise I wanted to play for

Palestine because I know what the people here struggle with,” he says in his slightly incongruous Texan drawl. “I know they don’t have much to believe in, and they deserve to have their own country.” What passed on the pitch 24 hours earlier – a slightly underwhelming 1-1 draw that saw Palestine progress 3-1 on aggregate – was rather less significant than the occasion itself. For the first time since its admittance to FIFA in 1998, Palestine had hosted a World Cup match on home soil, after years playing in exile. Football is an important symbol of national identity and aspirations everywhere. But for a stateless nation finally edging towards formal recognition by the Unit-

ed Nations, it has added potency. Demonstrating that it can host a major sporting event without incident is another small victory on Palestine’s road to statehood. “I don’t understand how much I’ve given back, I don’t know what the implications will be,” says Jarun. “I’m just doing my part, which is playing football and getting results. And when you get results people listen, people watch, people understand more about the country.” In downtown Ramallah, an unerring sense of normalcy pervades. You can buy a beer or watch a Champions League match in a shisha bar. Movenpick have their five-star hotel. German cars seem to be the vehicles of choice. There are no November 2011 | TRENDS 141

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. . . [the football team] is not just about giving a national identity, [but] a reason for being guns on show. The West Bank is a world away from Gaza, and squalor and oppression lie just a few miles away. Indeed, the calm rests on the current, uneasy equilibrium with Israel, which could end in an instant. But there is a determination to show the rest of the world that despite everything, Palestine is normal. Football plays its part in this. Palestine FA (PFA) president Jibril Rajoub says that violence is part of the past and that the Palestinian struggle has moved on. He is a senior figure within Fatah and once served as Yasser Arafat’s National Security Adviser. Some even tip him to be a future Palestinian President. He also once served 17 years in an Israeli jail for throwing a grenade at a convoy of Israeli soldiers and makes no attempt to hide his revolutionary roots. But, 142 TRENDS | November 2011

he says, he supports a peaceful approach to statehood. “The world has changed,” he says. “What was good last century is not suitable this century.” One of Fatah’s policies in the West Bank has been to implement a bottom-up approach towards statehood, improving the quality of life and building institutions. The belief is that by creating the greatest level of normalcy possible, the case for independence becomes irresistible. “It is a rational decision for me, for the Palestinian political leadership to focus on this field and expose the Palestinian cause through sport, through football, through the ethics and values of the game,” says Rajoub of the sporting element. “I do believe that it is the right way to pave the way for statehood for our people.”

The significance of football to the Palestinian cause cannot be overstated. “You can tell why it’s been incredibly important by the calibre of people that have been involved in football,” says James Montague, author of acclaimed book, When Friday Comes. He says that when he first visited the West Bank four years ago, football was virtually non-existent, but the situation has changed completely because of Rajoub, who “saw it as a vehicle to push a form of Palestinian nationalism.” “He’s been successful in that,” says Montague. “In terms of projecting a Palestinian identity abroad there isn’t anything outside the football team that does it in a quasi-political way… It’s something they can hang their nationalism off.” Within Palestine the ascent of the national team and improving standards has been important too. The PFA believe it is not just about giving a national identity to dispossessed people but, on a day-to-day basis, a reason for being.

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Football has come a long way. . . After 13 years of playing in exile, Palestinian football has come home Palestinian football, says Jerome Champagne, who was until last year one of Sepp Blatter’s closest aides, and now works as an adviser to the Palestine FA, is “the story of a fight, of bureaucratic difficulties,” but also “the story of kids loving the game and growing and playing in camps and streets.” “Football is much, much more than just a game,” he says. “It was Bill Shankly who said that football is more than just a question of life and death. In this context, here football is fundamental for kids to have fun, to receive a form of education through the game, to have discipline, and all these things. But it is definitely much more than a game. That formula is sometimes used very often, sometimes wrongly, sometimes in exaggeration, but it is true here.” Football in Palestine has come a long way under Rajoub’s watch. The nation144 TRENDS | November 2011

al stadium was used as a makeshift Israeli tank base during the 2007 West Bank incursions. This year, completely rebuilt after donations from the French and Saudi governments and FIFA, it hosted full international matches for the first time. After 13 years of playing in exile, Palestinian football has come home. The Asian Football Confederation has said that club and international matches under its jurisdiction involving Palestinian teams will be played there in the future, which can only be of benefit to the game and the fledgling state. But there is still a long way to go. Israeli restrictions on player movements are a continual hindrance. The 50ft-high peace wall stands just yards away from the national stadium, a permanent reminder that this remains one of the most volatile places on earth. The national team performed well in World Cup and Olympic preliminary quali-

fiers, but a lack of fitness – something partly attributable to the lack of adequate training facilities in Palestine – ultimately proved costly when faced with experienced opponents. After beating Afghanistan, Palestine fall to an experienced Thailand team in the next qualifying round. The team seems permanently wedged in the bottom 50 of FIFA world rankings and money at the PFA has run out. Palestine’s French-Algerian coaching staff left when their contracts ran out in July, and haven’t been replaced. But still expectations remain high, perhaps monstrously so. Playing on home soil was, for a long time, the main goal, but now that’s been achieved a major tournament is the target. “I’m very happy with the progression of the team,” Prime Minister, Salaam Fayyad told me. “Two or three years ago it was just the sight of the flag and our guys showing up, the excitement on the part of the crowd. Being there was what mattered. “It still matters of course. But now we want to win.”

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The Inside Story Politicians, businessmen, authors, journalists and professors, it seems everybody has something to say about the Arab Spring. TRENDS lends an ear.

here have been numerous analyses and reports on the Arab Spring quoting politicians and businessmen. TRENDS gets in touch with authors and journalists working in the region to get the inside story. Professor George Corm from Beirut, Khaled Al Maeena from Jeddah, Linda S Heard from Cairo and Professor Sami Moubayed in Damascus speak on the Arab Spring and the related issues. What does the Spring mean to you? George Corm: The Arab Spring is not a very appropriate term, especially after violence erupted in different countries, namely Libya, Bahrain, Syria and Yemen. I would define the historical moments that the Arab world has been living since December 2010 as an

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exceptional mass protest movement seeking drastic changes in the way our societies have been managed by the autocrats governing them. Arab collective aspirations have emerged again as they did during the fight against European colonialism and foreign intervention into domestic affairs. These aspirations are focused on dignity, justice, employment opportunities, political liberties, and efficient economic management of resources freed from corruption or undue rents accruing to a restricted number of people close to the autocratic system. Khaled Al Maeena: The Arab Spring means hope. It means formation of an Arab society with a new dimension and a new outlook on life. For our country,

Saudi Arabia, The Arab Spring is an eye opener. It will make people and authorities make extra efforts, to bridge the aspirational gap, to see to it that transparency prevails. We have to learn from the mistakes of others in the region. Linda S. Heard: There is no argument that change is urgently needed throughout most of the Arab world. The days of the dinosaur dictators are over. The Arab youth are educated, politically savvy, aware of lifestyles elsewhere due to satellite TV and stay connected thanks to the Internet. Young Arabs are ready to take charge of their own destiny; they are no longer willing to submit to patriarchal figures such as Hosni Mubarak, Ali Abdullah Saleh or Muammar Ghaddafi; they will no longer put up

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“The million-dollar question is whether or not the Arab Spring will produce change for the better?” with nepotism, cronyism, corruption and oppression. The Arab Awakening has been simmering for decades, it’s long overdue. However, the jury’s still out on what happens the day after. The million-dollar question is whether or not the Arab Spring will produce change for the better? I believe it will in the long term, but watch out for stormy times ahead. Sami Moubayed: I think it is the most important milestone in the Middle East since the collapse of the Ottoman Empire back in 1918. Almost all other events since then have been shaped or imposed on the Arab world by outside powers. Just look at the chain of events before the Arab Spring: the colonial period in the interwar years, the Palestine War of 1948, the Palestinian 148 TRENDS | November 2011

exodus, Camp David, the peace process, etc. Almost none of them were in favor of the Arabs and, certainly, none of them were the doing of the Arab street, but rather, either carried out in the upper echelons of Arab capitals, or by the Western powers. The Arab Spring, however, is inborn, authentic, powerful, popular, and revolutionary. This time, things are different. This time it is a domino effect that was started by the Arab street, and it took the West completely by surprise. Although the conspiracy theory is strongly used by many in the Arab world, I don’t think any of the revolts had a “foreign” angle to them; certainly not the starting point in Tunisia. The Arab Spring cannot be seen as cohesive, however, because “one size does not fit all in the Arab world.”

The fact that it succeeded in Egypt does not mean that it will succeed in other countries, in similar fashion. In Tunisia, for example, as heroic as the demonstrators were, they were not the ones to topple Bin Ali. They made the fall a hard and inescapable reality, but it was the scheming of Tunisian officers and regime officials that caused Bin Ali to flee Tunis in mid-January, one month after the demonstrations began. In Egypt, the same applies. On February 10, the night before Mubarak collapsed, it was business as usual for his regime. He gave a speech and said that he was going to “die in Egypt” and the demonstrators were as angry as ever in Midan al-Tahrir. It was only after the officers decided to bring down the President (the Military Command) that the Arab Spring succeeded in Egypt. To date it has not paid off completely in Yemen, Bahrain, or Syria. And it has not fully kicked off in countries such as Algeria and Iraq. And in Libya, the Arab Spring was distorted in Libya, because it was not a 100 percent Libyan effort, due to the work of NATO since last March. I don’t blame the Libyans; they had no other choice in light of Colonel Gaddafi’s madness and brutality. To sum up, I think the Arab Spring is a brilliant uprising of Arab youth from all corners of the Arab world, who after years of neglect and oppression, have finally stood up to tell the world: “Enough. We refuse to live this way anymore. We refuse to live under oppression and in need, when our nations are thriving with oil and riches.” Even in countries where the events are still ongoing, there is no turning back to how things were before the Arab Spring started. Even if doesn’t succeed the way it did in Egypt and Tunis, it already has succeeded by the new reality it has imposed on Arab leaders; that they cannot continue to rule their people in the same manner that existed since the 1960s. And, they cannot stay in power forever. Those realities have already been achieved, meaning, the Arab Spring has already succeeded in places where it is still not over, like Bahrain, Yemen, and Syria.

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The Inside Story Politicians, businessmen, authors, journalists and professors, it seems everybody has something to say about the Arab Spring. TRENDS lends an ear.

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The Arab Spring is an uprising for pride and dignity, rather than class struggle Linda: The Arab Spring has more in common with the French Revolution than the Crusades that were wholly religious in nature. The French uprising was triggered by the extravagant excesses of the royal family, in particular Marie Antoinette, who spent fortunes on baubles while the masses starved. I guess there is a parallel here when one considers that leaders such as Mubarak and Ben Ali – and their families – owned multiple palatial homes, private airplanes and had billions of dollars in overseas bank accounts when a large percentage of their citizens were existing below the poverty line. Sami: It’s a common theme in history; nothing lasts forever. Tyrants fall, no matter how powerful they may seem. 152 TRENDS | November 2011

So do Empires and Great Powers. Benito Mussolini, for example, was unbelievably strong during his long years in power, from 1922 to 1943, but he collapsed with a dramatic twist of fate, as World War II dragged into its final hour. People rise against tyrants, be they Italian, French, Israeli, or Arab. How much class struggle is responsible for this? George: It is not classical class struggle as Karl Marx has defined. But social discontent as well as strong generalized humiliation by ordinary people were among the main factors behind the mass demonstration. Humiliation has been felt vis a vis Israel and Western hegemony in the Arab region, but also and with the same intensi-

ty in relation to such bad socio-economic performances by Arab regimes that left so many young Arabs unemployed and seeking to migrate outside their country. Khaled: It was more of an ideological and aspirational struggle. People wanted to be part of the decision-making process. In Egypt and Tunisa, the people were not able to participate in the process. Egypt has a long history of culture and the people are educated, but the ruling elite totally obliterated Egyptians from the social development process. Linda: I don’t think the Arab Spring represents “a class struggle” per se because in many instances it was triggered by intellectuals and the educated middle classes. Certainly, in Egypt, the poor were more interested in seeking their piece of bread than rising up against the government machine that was feared. The Egyptian upris-

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I think they will see real progress in Egypt once they get a Parliament and they elect a President ing, unlike the 1977 bread riots, was motivated more by unclasping the yoke of oppression and winning the right of free expression in a pluralisic political climate. In fact, many of the Tahrir Square demonstrators were judges, lawyers, doctors and teachers. That isn’t to say that many among Egypt’s super rich who have been living well off the fat of the land due to their crony connections would have preferred to maintain the status quo. Sami: In Syria, it all boils down to economic imbalance, deprivation, and need. Had there been a finer distribution of wealth, less nepotism and corruption, and more political freedoms, this would not have happened. In Tunis, it was also about economic grievances at first, rather than 154 TRENDS | November 2011

political ones. But it is not about class struggle, as you say, because all classes have contributed to the Arab Spring. In Egypt, we had the poverty driven Egyptians asking to bring down Mubarak, sideby-side with young entrepreneurs and graduates of the American University of Cairo Business School. If I were to choose one word for the Arab Spring, I would say that it is an uprising for pride and dignity, rather than class struggle. How much time would you give nations in this region, undergoing the changes, from chaos to reasonable stability? George: You can not predict what is going to happen. A “revolutionary cycle” has started and its future direction can not be predicted. Counter revolutionary forces are at work – both external and internal

– and the road to full citizenship and participation in a new political and economic way of life will certainly take time. At least, one should hope that corruption, socio-economic deprivation and the lack of liberty will decline substantially, if not eradicated. Khaled: There is no time limit as such, but it will take at least a year for things to calm down. We should not forget that there has been a vacuum. One party has been ruling for years and there was no dialogue, and now suddenly people have a voice and everybody is shouting. Linda: This is impossible to predict by anyone apart from Paul the psychic World Cup octopus and he’s unfortunately gone to octopus heaven. I would guess, though, that achieving stability is easier said than done due to competing interests in the countries concerned and will take time.

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corruption would make a lot of difference. Corruption takes a lot of toll on the economy, and when 40 percent of the country’s wealth is plundered and looted by the elites. If leaders will listen to their own countrymen, the situation would improve psychologically, socially and economically for the Arabs on the streets.

My hope is that all Arab countries will one day come together to support one another Sami: I am an optimist at heart. I would love to say “soon” but I don’t think so. I think we will see real progress in Egypt once they get a Parliament next month and once they elect a new President. I cannot give a time frame, but it usually takes one to two years for things to start settling down and returning to normal, and approximately four to eight years for real ground-breaking progress to be made – or at least for the results to start being felt and seen. Again, one size does not fit all. In Libya, oil will certainly make the recovery stage much quicker than Egypt, for example, where there is much poverty, or Syria, where there are different sects, ethnicities, and tribes. 156 TRENDS | November 2011

Will this Arab Spring improve Arabs psychologically, socially and economically? George: Yes, provided counter-revolutionary or conservative forces will not erode what has been achieved up until now. Khaled: Psychologically the Arab Spring will give a sense of elation and freedom in the sense that no one would take them away, and this is very important. Socially, they will be part of the decision-making process, and by this I don’t mean at the presidential or prime minister level, but at the grass root level in their own communities and neighborhoods. They will feel their voices are being heard. From the economic point of view the reduction in

Linda: This will vary greatly from country to country. As someone who is based in Egypt, judging by personal observations, the Egyptian people have a spring in their step and a renewed sense of optimism. It may sound clichéd, but they are holding their heads higher and smiling a lot more. They now have a strong sense of national pride which wasn’t in evidence prior to Mubarak’s exit. As for the social impact, during the early post-revolutionary days ordinary people were criticising those who addressed others with the honoraries “Pasha” or “Bey” while the working classes railed against being treated with disrespect. However, such attempts at levelling society appear to be fading away as each day passes. On the economic front, Egypt is at a crossroads. If the government utilizes revenue from oil/gas, the Suez Canal and tourism effectively while encouraging local and foreign investment, the economy could crawl out of the mess it’s currently in; otherwise ordinary people could be worse off than they were before. It’s a different story in Libya where the population is small and oil revenues potentially enormous. Libya’s NTC may be in a position to transform their country in the way the UAE’s founding fathers transformed theirs. How do you see the future of the Arab world, which has extremely rich history but turbulent recent history? George: The Arab world has been submitted to subservience for many centuries. It was not able to reunite after the crumbling of the Ottoman Empire, in spite of strong aspirations of its elites at the time. An Arab modern identity respected in world affairs did not emerge. Identity quarrels between the Arabs emerged strongly after the Arab

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dat was an absolute leader who could do whatever he wanted, and get away with it. The same applied to how the Americans dealt with the Syrian-Israeli peace process in 1991 to 2000. That is now history. Any decision that does not win consent of the Arab street will simply not pass. That is why contrary to what many people think, I don’t believe that Camp David Accords, for example, will survive in their present form and content. Will they be changed? Why not? They are not sacred and if the Egyptian Street pushes strong enough, any incoming regime in Egypt would have to listen carefully and abide by popular demand. Otherwise, clearly from the Mubarak model, it will be toppled.

The cold peace between Israel and Egypt is now so frosty it’s on the point of cracking provinces of the Ottoman Empire became semi-independent and then independent states. This created political quarrels and rivalries and allowed foreign influence and foreign military interventions to continue. We will have to observe the evolution of the present “revolutionary” or “change” cycle. We had two radical change cycles in the past 200 hundred years that aborted: first under Mohammed Ali in the early 19th century and then under Gamal Abdel Nasser in the 20th century (in addition to the Kheireddin experience in Tunis at the end of the 19th century). We have to draw the lessons from past failures. They were from the top to the bottom. This time they are from the bottom to the top. But this does not guarantee the success by itself. Linda: When there are so many regime changes under way, it’s impossible to as158 TRENDS | November 2011

certain the Arab world’s future. My hope is that all Arab countries will one day come together to support one another and speak on the world’s stage with one voice. However, I think that it’s probably a futile hope. The Arab world has never been so divided with some states hand-in-glove with the US and others under the sway of the Iranian mullahs. Sami: Public opinion will matter in the Arab World, from now on. In the past, when Anwar Sadat was negotiating peace with the Israelis in 1977 to 1978, whenever a certain topic would be raised, the Americans would tell him that “Israeli public opinion would never allow it” for example. Or they would say that Menachem Begin needs to be “very careful” in doing so and so because “public opinion matters in Israel.” The implication, of course, was that it does not matter in Egypt because Sa-

Some of the Arab regimes shared cordial ties with Israel, despite negative undercurrents of the general public. How will this change the face of the Middle East if governments of popular choice come to power? George: Israeli aggressive and oppressive existence in the midst of the Arab World is the greatest problem we have to face. This is a non-viable entity that will disappear some day, in spite of all the support it is getting from Western powers. I believe that after the departure of Mubarak in Egypt things are changing and a new dynamic might emerge that will accelerate the crumbling of the Israeli entity. Our problem is we have to face the Western powers that blindly support Israel and that fact is making some Arabs afraid of such confrontation. But the confrontation should not take place as a religious one. This is because we would have fought any new political and military entity that would have emerged on Arab land and destructed the Arab society existing there even if this entity would have been Buddhist or a Moslem non-Arab entity. We have to avoid the trap of dealing with Western support to Zionism as being a religious quarrel between Jews and Arabs or Judeo-Christian world and Muslim world. Let the West talk this language and let us have a secular approach based on human rights.

Corbis

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Investing religion in politics has always created tensions and conflicts. . . Khaled: I think if we go by UN resolution 38 and 242, according to which Israel had to withdraw to 1967 borders, and there are a lot of agreements such as at Camp David, any government that comes to power must agree and respect the past agreements. If the new governments won’t respect the old agreements it will cast a very bad image of the Arab world. Having said that, we should not become tools and minions of Israel and Americans. There is no need to go overboard, Israel is there and we should push for Palestinian state and secure borders for both the sides. Linda: The face of the Middle East and Israel’s role within the region has already changed. The cold peace between Israel and Egypt is now so frosty it’s on the point of cracking. Most Egyptians support the Palestinians and felt humiliat160 TRENDS | November 2011

ed by Mubarak’s sycophancy towards Tel Aviv. Their anger could be seen on September 9 and 10 when protestors broke the fence outside the Israeli embassy in Cairo, scaled the walls of the building, removed the Israeli flag and entered the embassy’s waiting room before scattering documents to the air. While this took place the army stood and watched. The majority of Egyptians would like to see Camp David shredded but, until now, anti-Israeli demonstrators have been relatively small in number. If a tipping point is reached, any elected government will be forced to bow to the will of the people. If the Egyptian-Israeli treaty is broken, Jordan will likely follow suit. And given the faltering relationship between Tel Aviv and Ankara over Israel’s unwillingness to apologise over its commando attack on a Turkish vessel on the high seas, Israel will be regionally isolat-

ed. This could either result in conflict or Israelis will get the message that their security doesn’t lie with missiles and bombs but rather with a comprehensive peace encompassing all 22 Arab League member countries on the lines of the 2002 Arab Initiative first unveiled in Beirut. Political freedom helps encourage ideas. Is it a farfetched expectation to hope for revolutionary ideas in different fields due to Arab Spring? George: Well, political freedom is a great experience provided it does not conduct to a plutocracy behind the veil of free elections where money and wealth influence the outcome of the democratic practice. Unfortunately this is the trend today in many parts of the world. In addition, it should be noted that culture, arts and sciences have also prospered in history under absolute monarchies. What is important is to establish the foundations of individual liberty and dignity in the Arab world. Let us hope this cycle of change will be able to do it. But we need a very

January 2010 /N° 139

Add depth to your perspective through our uncompromising investigations and unbiased insights.

January 2010 /N° 139

Some people only see what’s on the surface.

EGYPT

IRAN

Hijab-free zones spring up in Cairo

Wealth, family ties offer no protection

Running on Empty Gulf nations scramble to build a lucrative future from today’s oil wealth

West Bank Battle

FO R IC OM EVIEW

This time the fight is over mobile networks

Lots of Hot Air

Al Gore messes with industrial giants

R LD

N PR ECSOPECIAL

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TRENDS

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Canada ........................C$ 7.50 France ..........................€ 4.57 Germany ....................... € 6.14

Egypt ..............................E£ 10 Italy.............................. € 5.17 Jordan ............................. JD 4

01-TRE-Cover Petroleum.indd 3

Kuwait ...........................KD 1.2 Lebanon .................... L£ 5,000 Morocco.........................DH 22

Oman............................ OR 1.5 Qatar .............................QR 15 Saudi Arabia ...................SR 15

Switzerland ....................SFR 8 Syria............................ S£ 100 Tunisia .......................... TD 2.5

UAE .............................AED 15 UK .....................................£ 2 USA ....................................$ 5

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In Egypt, Muslims and Christians prayed side-byside. . . That is anything but a religious movement strong new impulse in the field of economic development whereby all our human and natural resources will have to be mobilized to close the socio-economic and scientific and technological gaps between us and other emerging economies. Let me remind you that Japan, a feudal and closed society, began its modernization half a century after Mohammed Ali in Egypt, and that South Korea or Taiwan were poorer than Egypt or Syria or Iraq in the early â&#x20AC;&#x2DC;60s. Look where these three countries stand today in science and technology, and compare with our situation. Khaled: Yes it will. Earlier, arts and culture was promoted only by the state institutions. The artworks promoted the president or the ruler and everything was 162 TRENDS | November 2011

under the patronage of the ruler. Now, young people will lead the change and add the whole new perspective to arts and culture in the region. Linda: Of course, genuine political freedom can open the door to unfettered thinking and creativity in all fields. The Arab Spring is being watched with concern over Sunni-Shia divisions, what is your view? Khaled: Let me be very frank. I am extremely pained by this Sunni-Shia division thing. Sunni Muslim and Shia Muslim are the words coined by western media and the mischief makers to create divisions among Muslims. There is no difference between Sunni and Shia.

Yes, there are different aspects over certain things, but basically the five pillars of Islam are the same. Unfortunately among Muslims there are some extremists and Salafis who, for example, on the issue of a woman covering her face or not, would decide to which group she belongs. The younger generation doesnâ&#x20AC;&#x2122;t believe in these classifications and is tired of all this and things are changing for the better. Do you see religious extremism/fanaticism rising due to the Arab Spring? George: Well, let us come back to the question of our identity that I evoked previously. If we see our identity as being exclusively a religious one, then we will continue to face the threat of fanaticism and paralyzed minds. We will always have to prove that we as Arabs are better Muslims than other non-Arab societies, be it Iran or Pakistan or Malaysia or Turkey. If we see

Getty/Gallo Images

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Investing religion in politics has always created tensions and conflicts. . . ourselves as the “Guardian of the Muslim Temple”, then freedom of thought and artistic creation will continue to be highly restricted. You will always find clerics supported by autocratic states that will pretend to impose on Arab citizens the way they conduct their lives. Even between ourselves, who will decide what is the best Islam? Investing religion in politics has always created tensions and conflicts between us as Arabs since the death of the Prophet, and there are many different ways to interpret the Holy Book. Freedom will not be established as long as we will not agree that the first step is to guarantee the freedom to interpret the Holy Koran and the Sunna. Many trends in political Islam are against such an approach and want to impose their own 164 TRENDS | November 2011

interpretation on how to govern a Muslim society. This is very dangerous for the future of the new cycle of changes in our Arab societies. Khaled: Yes, it will rise if people do not stand up against it and say enough is enough. There are many Christians in the Arab world and they are part and parcel of this society, they have full rights and they are more nationalistic than some of the others. The rights of Christians in the Arab world should be protected. No one should be called a minority on the basis of religion. If everybody participates in making our society better and follow the ideology of good behavior, the future of the Arab world will be promising and bright.

Linda: Religious extremism already exists and was in part born from deprivation, discontent and a sense of injustice. I don’t believe that the Arab Spring will increase extremist beliefs, on the contrary, but ‘freedom’ will allow those with hard line ideologies to come out of the closet and disseminate them within the general population. The hope is that people savouring their first taste of freedom and increased economic opportunity will no longer be susceptible to fanatics who falsely think they can change the world with car bombs and suicide belts. However, the Arab Spring may bring-in Islamist governments, which if they are the kind of moderate Islamist governments such as Turkey’s may not be a bad thing. The worst thing that could potentially happen is what occurred following the 1979 Islamic Revolution that was ignited by disaffected youth before being hijacked by Islamist exiles who had long been waiting in the wings. Sami: I cannot rule out the Islamic element to the uprising, in some places in different Arab countries. The mosque, no doubt, has been a unifying force, and so have Friday prayers and religious leaders. But it would be wrong and very unjust to link the Arab Spring to Islamic fundamentalism. True, there are fundamentalists who are part of the protest movements, but they will not be brought to power by a popular vote, neither in Egypt, nor in Yemen, and certainly not in Syria. There are seculars in these demonstrations, sideby-side with Christians, Copts, Kurds, and very colorful ethnicities and religious backgrounds that cannot be sidelined. Fundamentalists, after all, would never allow a unveiled woman to demonstrate in their midst, nor would they work with Egyptian Communists, for example. In Egypt, despite the strong power of the Muslim Brotherhood, Muslims and Christians prayed side-by-side in Midan al-Tahrir. That is anything but a “religious movement.”

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longstanding part of the Vacheron Constantin watchmaking heritage, the World Time complication is making a comeback. The Patrimony Traditionnelle World Time model houses the new Calibre 2460WT, bearing the hallmark of Geneva. Developed and manufactured by Vacheron Constantin, this new mechanical self-winding movement is distinguished by its capacity to indicate the world’s 37 time zones – including those offset from universal coordinated time by a half or quarter hour – via an exclusive mechanism patented by Vacheron Constantin. It is also interwoven with the theme of travel, since Jean-Marc Vacheron

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166 TRENDS | November 2011

and his successors have constantly circled the globe delivering their exceptional timepieces. Despite its complex construction principles, the new mechanical World Time movement is extremely user-friendly. The wearer chooses the reference time and places it opposite the black triangle at 6 o’clock. The time in the reference location can then be read by the hour hand or the 24-hour disc, while the time in the other 36 time zones is simultaneously readable. The cities shown in black represent the full time zones, while the cities in red indicate half-hour or quarterhour zones.

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LETTERS TO THE EDiTOR LETTER OF THE MONTH Arab world’s bloom and gloom Your cover story last month about the Arab Spring raises some valid points. One of the most important challenges is rebuilding the countries and their democratic institutions. Take, for example, Egypt. The protests by Christians turned violent and presented a very dangerous scenario that might push the “new” states into the abyss of chaos. The current powers-to-be made serious efforts to hold elections, so there is some form of governance with accountability. The expectations of the common people are high and may not be met immediately and this might cause frustration, causing emotions to spill onto the streets. The first step would be to put a solid economic strategy in place that would create jobs and stabilize the financial system. There is a huge responsibility on politically stable Arab countries to instill confidence through regular visits by high-level delegations. This is the best time to show the essence of Arab brotherhood, which we have heard a lot of in the past. If the Arab League wants to regain its lost credibility, all of the players should come together and put on a united front to help bring stability to countries such as Egypt and Tunisia.

Yousef Donker (Cairo)

Stormy interview Re: Eye of the Storm. I am amazed at the interview of Bahraini Shura Council’s Samira Rajab. It is surprising that a respectable magazine such as TRENDS wasted four pages on conspiracy theorist Samira, who quite notoriously told Al Arabiya in October last year that the United States fabricated the 9/11 terrorist attacks to create a new ghost to replace that of communism. People who live in a dreamland deny the widely known facts such as the sky is blue, the sun rises in the East and the Shiites in Bahrain constitute no less than 65 percent of the total population. One can understand the loyalty of a person who is part of the government, but using blatant lies to defend a certain position is just crazy. When you start blaming all of your problems on somebody else the hopes of finding a solution are minimalistic. Simply put, if there was an active foreign hand in the Bahraini conflict then the protesters would be roaming the Manama suburbs with Iranianmade automatic rifles and rocket launchers. Have something to say? Email us your thoughts at editor@trendsmagazine.net; send a letter to: The Editor, TRENDS, GCC: DUBAI MEDIA CITY, ZEE TOWER OFFICE 206, DUBAI, U.A.E. TEL: +(971) 4 391 0760 – FAx: +(971) 4 390 8737

168 TRENDS | November 2011

Please refrain from carrying preposterous interviews such as that of Samira Rajab.

Name withheld on request (Bahrain) New cash reality Re: Private Equity, New Realities. The cash available in the GCC region is waiting to be employed, but there are no plausible ventures. The story rightly says regional private equity firms are increasingly looking beyond the region to park their cash because the small- and medium-sized enterprises are not working to their full potential. The reason could be a lack of a conducive economic environment. I work in a bank and something I have heard a lot of in this region about private equity firms is that they indulge in extreme arm-twisting exercises. There have been instances where the cash has been injected by the PE firms into small companies, and as a result the invested companies have lost their souls.

Danielle Jose (Dubai) Changing face of the IT Re: IT Coming a Calling. It’s true that the dotcom disaster has failed to halt the march of the IT sector. If the recent Gitex show in Dubai is any indication the sector is full of surprises. Your story covers the sector well without going into too many technicalities.

Salman Rushaid (Doha)

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The LasT Word WiTh PermaL GrouP Troubles in the eurozone, limbo in America’s economy, and the Arab Spring in the Middle East have contributed to investors’ decreased appetite for risk. Chairman and CEO of Permal Group, Isaac R Souede, speaks with TRENDS about the current investment strategies of global and Mena investors.

an you tell our readers about the Permal Group? Permal Group is one of the oldest and largest alternative asset management firms in the world, with $23bn of alternative assets under management and almost 40 years’ experience. With almost a quarter of its assets sourced from the Middle East and one of the first asset managers to arrive in the DIFC, the business has a big long-term commitment to the region.

Have you witnessed any changes in your assets from this region? I don’t think it has changed in the past five years. We are in a global business and institutions generally invest in pension money, which is in the United States. The US portion of our money has increased and the next is China, but there are certain restrictions related to currency control. However, there has been a lot of wealth creation in the GCC and its share in our assets is likely to increase, but not substantially.

Describe the modus operandi of Permal managers? We have three different styles. Macro managers invest in bonds and currencies, and they trade quite actively. The second type of managers take long and short stock positions, and the third is event driven, where investments are based on fundamentals of a company and not, necessarily, based on market situation.

How much of your Arab money would remain in the region? We have a fund dedicated to the Mena region. Having said that, this region’s capital would continue to search for diversification globally. We are closely watching the construction boom and increased capital spending in this region led by Saudi Arabia.

How has this changed in the current economic scenario? In this region, obviously because of political disturbances, the capital inflows have slowed, and we also have to take into account the low risk appetite of investors. If your house is on fire, you wouldn’t care what happens to you entertainment system. How has your asset value been impacted? A year ago, we were at $22bn and now after 12 months we have $23bn. Twenty percent of these assets are from the Middle East and the rest are global assets. 170 TRENDS | November 2011

How do Permal managers perceive the UAE? Managers generally see the UAE as secure markets, with few of the difficulties faced by European sovereigns and financial firms. This is a very different situation from three years ago. In general, caution has paid off and central banks are seen as prudent. The UAE has improving fundamentals and attractive valuations as geopolitical concerns fade into the background. Foreign interest is certainly returning. Liquidity is sitting on the sidelines just waiting for an entry-trigger point. Should the MSCI upgrade frontier markets and emerging markets in the next six months, UAE equities will benefit. Abu Dhabi banks currently look un-

dervalued, but before Europe comes up with a solution for the debt crisis, there will continue to be pressures on financial companies globally. Our managers’ favourite sectors are regional banks, materials, telecom and capital goods. What about the rise of alternative managers? Although there have been few new managers this year, there has been an increase in the number of talented hedge fund managers with operations in the MENA region. The UAE has attracted a number of leading fund houses, particularly Dubai. Other markets are opening, but remain a long way from catching Dubai. Where are local investors looking for global regional/asset diversification? Local investors’ portfolios are still dominated by regional equities and bonds, but they are now looking to spread risk across asset classes, seeking longer-term returns and greater downside protection. Why is the world looking to macro strategies? Global markets are more interconnected than ever. As an investor, the front pages have become more important than the business pages, and investor portfolios need to reflect this, with more tactical and global macro, seeking exposures to fixed income, currencies and credit, and less equities. Macro has proved resilient during periods of volatility and is the best approach for downside protection and consistency of performance.

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