Executive sat with Nicolas Chammas, head of the Beirut Traders Association (BTA), to discuss the performance of the trade sector this year and what can be done to support it through these tough times.
How would you describe the trade sector in the year 2013?
2013 was an extrapolation from 2012 and even more catastrophic in some ways. I even referred to September 2013 [as the United States discussed airstrikes on Syria] as Black September, a throwback to the civil war years and the Black September then. It was then that, for the first time in forty years, the employers association took the decision to strike for the day and though we were practically shooting ourselves in the foot, the situation was that drastic and it forced us to take to the streets and demand that a government be formed.
In terms of the BTA FransaBank retail index we had an across the board double digit decline of 15 percent for the third quarter of 2013 as compared to the same period in 2012.
Were some trade segments worse affected than others?
In trade, you have three segments, the first of which is the staples segment, which is the essentials that never stop because people have to eat, drink and dress. This sector was barely positive despite the fact that we had a continuous flow of refugees, all of whom consume. But the issue is that they get donations from abroad and products in kind or get goods from Syria.
The second sector is luxury goods. This was severely hit in part because Lebanese purchasing power decreased and expats were not returning home as frequently, but the biggest blow to it was that visitors from the Gulf Cooperation Council (GCC) countries continued to avoid Lebanon. GCC tourists account for 45 percent of tax refunds on duty free purchases, with Saudi Arabia making up to 25 percent of those, so their absence had a big impact on this segment and other nationalities do not at all make up for this lack.
The third segment is durable goods such as furniture, appliances and cars. This sector also reported drops except for the automotive section which saw an increase in numbers of units sold but a decrease in dollar value, as more and more consumers shifted toward smaller and cheaper cars.
As far as the traders are concerned, we got hit at the top of the line, on the turnover across all segments. We have the volume effect because we are selling fewer goods and the price effect because we are selling the products at a discounted price. We found ourselves giving discounts and sales for almost 52 weeks of the year when previously we had two sale seasons which lasted a maximum of six weeks throughout the year. This is a loss for us, but we sometimes have no choice as we need to clear our inventories due to the seasonality effect and to keep up with the trends.
What would you say is the major problem for the trade sector today?
The lack of growth. The 15 percent drop in the BTA Fransabank retail index is huge (Q3 2012 to Q3 2013) when you know that trade represents one third of the gross domestic product formation in Lebanon. So when the trade sector sneezes, the economy catches flu and my bet is that the overall growth rate of the economy will not exceed 0 percent this year.
In Lebanon, we have two economies: the financial economy, meaning the banking system (and the monetary policy) which is doing well with good indicators however you look — the strength of the Lebanese pound, the reserves of the Central Bank and the liquidity and profitability of the banking sector.
When you look at the real economy, which is composed of the productive sectors such as industry, services, and trade, this is where we are suffering. So it is basically a tale of two economies; one economy is doing well and the other is doing terrible. But, eventually, the financial economy will be infected by whatever happens in the real economy and they are already starting to feel the pain and are taking more provisions.
What can be done to salvage this situation and support the trade sector in Lebanon?
What we need is stability. We need the ban on travel for GCC nationals to be lifted and we definitely need their involvement and clear engagement in Lebanon again. We need the return of confidence from not only the Lebanese consumers but also the Lebanese and foreign investors.
What we mainly need, to say the least, is the formation of a competent cabinet which can restore the trust in the Lebanese economy. This is a necessary but not sufficient condition as we also need some restoration of security conditions as well as the sovereignty and dignity of the state. How can one invest in this country if there is no rule of law?
As for the merchants’ sector specifically, we ask to be aligned with the other sectors as far as some incentives are concerned. For instance, we have not benefitted at all from subsidized loans which went pouring into other sectors such as industry, agriculture and IT. True we are a traditional sector, but we have been bleeding money for the past year and desperately need to restructure our debt and decrease the service of this debt (the outstanding debt of this commercial sector is around $10 billion and the debt service is six or seven billion dollars without taxes).
This is why we are in a shouting mode whenever people speak of the new salary grid which will cost the economy around LL2,000 billion ($1.33 billion). It will break the neck of the treasury and the national economy as it will impose on us unbearable fiscal pressure. We understand they have been waiting for 17 years for this revalorization of their salary but is it wise to time it in the worst possible year for the economy?
What is the Beirut Traders Association doing to support the traders of Lebanon?
On the macroeconomic front, we work to try and stop such crazy initiatives as the new salary scale grid.
We work on the sectors front to give the indexes, which are based on real sales figures, giving us the ability to know exactly what is happening. We are currently in the process of producing an investment index with Bank Med, which is a forward-looking indicator of the jobs and opportunities of tomorrow. You can say we are getting our toolbox in shape to be able to present more scientific arguments.
We also worked with BLOM Bank to produce the Beirut Traders Association Shopping Card which is proving to be a success as we barely started and already we have 500 retailers on board. Our objective is to have thousands of cardholders, which will give advantage to the traders because of the number of cardholders and because they are part of a network and will get a commission on all sales that are done through these cards. The consumer will get incentives in terms of exclusive discounts and they will get the possibility of credit through BLOM Bank.
Through this card we are trying to encourage the smaller and medium-sized retailers by bringing them some extra business.
We try to be useful to our members through practical initiatives such as the credit card as well as more theoretical positions such as the indexes. I think we are doing the best out of a terrible situation.
What are your expectations for the year 2014?
The pessimistic scenario is if the same geopolitical circumstances of 2013 prevail in 2014, the decline will go on, creating a much more difficult situation as our capacity to endure is being tested every single day and financially speaking we are already using our strategic reserves, so it will become tougher.
If the situation remains as is, we will be at a stable standstill.
If, in the Geneva processes, there is some sort of breakthrough regarding Syria, then Lebanon will benefit immediately because the Lebanese economy is very fragile but at the same time it is very resilient; you push the reset button and there we go again. In that case, I will be optimistic about the future of the economy in Lebanon.