Lebanon celebrated its 70th birthday on Friday but, like a bad office party, no one was really in the mood.
Who can blame them? The country is a failed state. A constitution that demands consensus from 16 officially recognised sects was always on a hiding to nothing, but arguably our biggest crime is that we could never harness and exploit our fabled entrepreneurial instincts.
Such is the fame of our incompetence, Mongolian shepherds know that our national grid is incapable of pumping out 24 hours of electricity, even in central Beirut, and needs US$1 billion in state funding each year to deliver power for an average of 12 hours a day across the country.
Water, which in theory we have enough to sell, is wasted and there is a shortage. Our environmental readings make Pittsburgh look like Tuscany, while our roads harvest death and the speed of our internet is an obstacle to direct foreign investment.
I could mention the fallout – both military and humanitarian – from the Syrian civil war, but I think I have made my point. As for the fact that we have not had a government for six months, well, why kick a man when he is down?
We could have been a banking and trading powerhouse like Hong Kong, Singapore or Luxembourg, where finance drives politics. “Forget Paris, we really could have been the London of the Middle East if Intra Bank and Yousef Beidas had consolidated Lebanon’s financial expertise on a global scale,” said a banker friend.
Intra Bank and its chairman, Beidas, were a golden couple. In the early 1960s, Intra Bank was the biggest financial institution in the Middle East with offices in the United States, Europe, Brazil, the Bahamas and West Africa. Its assets included real estate in New York and Paris. It also owned a major French shipyard and Middle East Airlines (MEA).
Its spectacular collapse in October 1966 was the moment politics and finance collided. The Lebanese establishment lost patience with what it saw as an upstart Palestinian who had much of the country in his pocket.
The presidential palace, the office of the prime minister, as well as rival Lebanese financial institutions, leaked rumours that Intra Bank was in difficulty. Investors panicked and the central bank should have stepped in but did nothing. Intra Bank died, as did Beidas, by then a broken man, in Lucerne, Switzerland, two years later.
Najib Alamuddin, MEA’s former chairman and government minister, called the Intra Bank affair “the beginning of the disintegration of Lebanon … [by] a system so corrupt in style and morals that had plagued Lebanon since independence and finally plunged the nation into civil war.”
Forty years later, I asked the London-based publisher Naim Attallah, one of Beidas’s closest confidants, whether the Lebanese hated Beidas, who was among the most powerful people in the land, simply because he was Palestinian. “They saw the bank as a threat, and yet when they destroyed it, they also killed Lebanon’s financial credibility – one that to this day it has not recovered,” he lamented.
My banker friend agrees. “If the government hadn’t toppled Intra, our banking sector would have been international by now. As it is, we aren’t even a regional player. Local is how best to describe us. Intra Bank was a genuine investment bank with a seriously talented management team. Now the banks would rather bail out the government than lend aggressively to stimulate the economy.”
Harsh? Maybe. Fair? Definitely.
With all this in mind, the by now infamous spelling mistake on the new, and fabulously garish new 50,000 Lebanese pound (Dh121) banknote is peculiarly ironic. The note, which was released two weeks ago to celebrate the 70 years since France cut us loose, spells “independence” with an English “e” rather than the French “a”.
The central bank governor Riad Salameh blamed the British firm De La Rue for the error. “It’s [a] French word and [De La Rue] is a British company,” he told the local media.
That is another thing we do well by the way. Blame everyone else for our problems.
Michael Karam is a freelance writer based in Beirut
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”