Lebanese President Joseph Aoun has been extremely active on the regional diplomatic scene in recent weeks, with visits to Saudi Arabia, the UAE, Kuwait and Qatar marking a clear break from the past strained ties between Lebanon and Gulf countries, once its main backers.
Two Lebanese sources with knowledge of the matter told The National that Mr Aoun's visits focused on easing Israeli pressure on Lebanon; bolstering the cash-strapped Lebanese Armed Forces (LAF), which has been tasked with leading the disarmament of Hezbollah; and implementing much-needed reforms to revive the economy.
The diplomatic shift comes after Hezbollah, an Iranian proxy once described as a formidable militia with significant political influence in Lebanon, lost much of its leadership and arsenal in the recent war with Israel, which ended in November.
“The aim of these diplomatic efforts is to strengthen Lebanon's standing with Arab countries, stressing that Lebanon is an Arab state,” one of the two sources said.
“The response has been positive, with no preconditions. Discussions have focused on reforms, which Lebanon has already begun in the different sectors,” the source added.
Israeli violations
Mr Aoun, who was elected in January, has pledged to restore the state's monopoly over weapons, in line with the US-brokered ceasefire agreement.
But despite the shaky ceasefire – signed after 14 months of conflict, including two months of intense Israeli bombardment – and a new government and presidency that have received international praise for their commitment to reforms, Israel has continued to bomb Lebanon, including the capital Beirut, claiming to target Hezbollah positions.
Lebanese authorities have repeatedly condemned these Israeli violations which killed dozens of civilians. The UN peacekeeping force in southern Lebanon, Unifil, has reported 2,200 Israeli air space incursions since the ceasefire took effect in November.
This is where Arab diplomacy could step in to mediate between the US, Israel and Lebanon, the sources told The National.
“Regarding the situation with Israel, Lebanon is strengthening ties with Arab countries because they can talk with the Americans and influence their position more than the Lebanese, and some can speak directly to the Israelis,” another Lebanese source said.
If Israel is applying maximum pressure, having reportedly received US guarantees that its military could continue striking Hezbollah until the group is fully disarmed, Lebanon is asking for more time.
Mr Aoun has insisted that the transfer of Hezbollah’s arms – a deeply sensitive issue in a polarised country still scarred by its 15-year civil war – should be handled through “calm” dialogue with the group, not by force.
His regional visits also aimed to secure funding for the army to help restore Lebanon's sovereignty in the south. After his visit to Doha in April, Qatar said it was renewing a $60 million grant to support army salaries and would also provide 162 military vehicles.
Economic revival
Economic issues are also at the heart of the talks with Gulf and Arab countries. “Especially because stability is directly related to prosperity in Lebanon. If the Israelis continued to strike in Beirut, for example, it will be practically impossible to continue in the reforms,” the source said.
Lebanon has struggled with a severe economic crisis for the past five years, following decades of corruption and reckless spending. The new authorities hope to attract foreign investment to revive the economy.
Gulf countries have historically been key investors in the small Mediterranean nation, but ties deteriorated over the past decade as Hezbollah's influence increased.
“If Lebanon normalises its relations with the Gulf countries and implements the necessary reforms for investment, then the Lebanese themselves are capable of kicking off our economy,” the source said.
There have been several signs of progress. The UAE last week lifted its ban on citizens visiting Lebanon, and Kuwait announced plans to do the same. Saudi Arabia is reportedly considering removing obstacles to resuming imports from Lebanon and ending its ban on Saudi nationals visiting the country.
Speaking after his visit to Kuwait this week, Mr Aoun said he had seen during his meetings with regional leaders, “their affection for the Lebanese, their recognition for their contribution to the development of these countries, as well as their commitment to respecting laws and regulations, which reflects a brilliant image of Lebanon and the Lebanese in the Gulf Co-operation Council countries”.
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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.”