Global Refund, the company responsible for repaying VAT to non-resident shoppers, has registered a 16% drop in overall tourist retail spending since former premier Rafik Hariri’s assassination on February 14th, with a 22% decrease in VAT refund claims.
Among the Arab tourists, who represent the biggest spenders visiting Lebanon, purchases dropped by as much as 43% for the Syrians, 30% for the Egyptians and 23% for the Saudis between February-July of 2004 and the equivalent period in 2005.
The largest drop in tourists has been among the Saudis and the Emiratis, both showing a decrease of 48% between July 2004 and July 2005. Overall, Lebanon witnessed a 26% drop in tourism from the Arab world and a 17% drop in the total number of tourists.
Considering the fact that the Saudis consistently feature among the top spenders in the country, the impact on the retail market, and especially the luxury segment of it, has made itself felt.
“It directly affects the sales of luxury products,” says Khalil Achkar, Global Refund’s country manager for Lebanon. “For a lot of retailers, 40% on average of their total sales go to tourists, of which the Saudis form the majority. A drop like the one we’ve witnessed over the course of the last few months can mean a 20% decrease in revenue.”
Most affected by the drop in tourist spending are the fashion and clothing retailers, which sell the most to Lebanon’s visitors – close to 70% of the VAT refunds requested between February and July of this year were for clothing items, with watches and jewels trailing in the back with some 12%.
However on an up note, the average amount spent purchasing by tourists claiming VAT refunds increased between 2004 and 2005 by 4%, from $749 to $775. In 2004, 50,000 visitors – some 5% of Lebanon’s tourism – claimed re-imbursement, collecting on average $50 from one of the tax-free shopping desks at the country’s main border crossings.
Appetite for investment
Syrian investors last month showed an insatiable appetite for buying into the capital of Bank Audi Syria (BAS). During a 10-day subscription period open exclusively to Syrian nationals, demand for the 25% publicly offered equity participation exceeded supply almost tenfold.
What the bank called an initial public offering to raise approximately $11.7 million (SYP 625 million) towards its start-up capital of $46.7 million (SYP 2.5 billion) was oversubscribed by more than $103 million, representing coverage of 988%.
The offering was the second tranche of inviting Syrian investors into the equity of BAS, which under the country’s law has to be to 51% in the hands of Syrian shareholders. Prior to the offering, Syrian founding investors into the new bank already held a 26% stake in BAS, which obtained a banking license from the country’s council of ministers in early June and intends to commence operations later this summer.
Non-Syrian shareholding in BAS comes to 47 % from Audi-Saradar Group member companies Bank Audi, Audi-Saradar Investment Bank (ASIB) and Lebanon Invest. The remaining 2% are held by Saudi investor Sheikh Abdallah Abdel Aziz Al Rajhi.
Executives at Audi Saradar Group commented elatedly on having achieved the hitherto largest oversubscription of any investment in Syria to date and Marwan Ghandour, chairman of ASIB, called it an “eye-opening experience” for ASIB to manage the public offering. “I hope that we will continue to provide additional investment banking products as the market potential is clearly impressive,” he said.
Finance experts in Beirut evaluated the huge interest of the Syrian private sector in the Lebanese-Syrian banking venture as proof that investors in the neighboring country sense a lack of attractive investment opportunities in their economy and have no qualms about dealing with Lebanese business and banking partners. “It shows that there is a lot of liquidity in Syria and that money has no borders, no feelings,” said Jean Riachi, chairman of Financial Funds Advisors (FFA).
Meanwhile in another development in capital formation of a new Syrian-Lebanese joint venture bank, Bank Byblos and the OPEC Fund for International Development signed an agreement under which the fund assumed a $3 million equity stake in Byblos Bank Syria (BBS).
Summertime blues
Despite upbeat reports in the local media, leading players in Lebanon’s hospitality sector admits the season – plagued as it has been by bombs and stay away Gulf Arabs – has been a disappointment with no upturn in sight.
According to Paul Ariss, President of the Union of Restaurant, Café and Nightclub Owners, between February 14 and April 9 – when Bahia Hariri, attempted amid much fanfare and price-slashing to revitalize the Central District – business in Downtown Beirut was down 100%. Between April 9 and August 19 – the day Ariss spoke to EXECUTIVE – general turnover in the Downtown area was down 30% compared to last year. Over the same period, across Beirut as a whole, business had been down 30%-40%, he went on. Outside Beirut, especially in the mountain resorts, the damage was even worse – “dramatic,” he said. Was it down more than 50%? “Oh yes,” he responded.
“We have had very few tourists in June and July,” he explained. “A few Arabs and other foreigners came in August, but nothing compared to last year.”
On the hotel occupancy front, a similarly bleak picture emerges. The period from 14 February until 15 July, was “very bad,” lamented Pierre Achkar, President of the Lebanese Hotel Association. “The first two months were very, very, very bad.” The occupancy rates of hotels outside Beirut were less than 10%. In Beirut the figures lay between 18% and 22% over the same period, compared to 71% occupancy on 14 February. When a modicum of normailty returned to Beirut and a few tourists did emerge, hotel occupancy in Beirut for April and May rose to between 32% and 35% – still uncomfortably low compared to the 70% of last year. Since the June legislative elections, occupancy rates have fluctuated between 45% and 60%. When EXECUTIVE spoke to Achkar on 19 August, he said Beirut occupancy was running at between 75%-80%. “Last year, everywhere was 105% full,” he said.
Coral beach
Bids in the auctioning off, by the Central Bank, of the Sheraton Coral Beach hotel have been flooding in, according to a government official closely involved with the process. The auction has been running for several weeks now and closes on 10 September.
The hotel was repossessed by the Central Bank as collateral when Banque al-Madina collapsed and over a billion dollars of depositors’ money disappeared. It was owned by Taha Qoleilat, a businessman who was Banque al-Madina’s biggest depositor and was implicated in the scandal. The resale is designed to provide liquidity with which Bank al-Madina depositors who have lost their money can be repaid.
One real estate consultant claimed that Starwood Hotels & Resorts, a Sheraton management branch, was considering whether or not it wanted to stay on after the sale. He estimated the hotel’s value at around $35 million. “It has a beach complex that makes two or three million dollars over two-and-a-half months a year,” he noted.
Acting Sheraton Coral Beach Manager Talal Jundi said it was up to the eventual buyers to decide if they wanted to retain Starwood Hotels & Resorts as managers of the hotel. He said he expected the hotel to fetch more than $30 million, and possibly $50 million.
“The hotel is likely to appeal to Saudis, Emirates, Kuwaitis who like hotels,” the real estate consultant said.
Asked if he thought the hotel was a good buy, The consultant answered: “I don’t see why not except that it’s a little bit limited. It’s an old design. It was refurbished about five years ago. When you do that, there are always compromises compared to when you build. It’s a seventies design so it’s not as good as say the Four Seasons. Is it a good buy if you can get it for $20 million? Yes.”
Aviation hazard or political spite
According to Parliament’s Public Works Committee, planes landing at Beirut Airport could in theory crash into the newly completed, 122-meter Metropolitan Tower in Sin al-Fil.
A member of the committee who asked not to be identified said the danger was outlined in letters signed by the General Director of the Civil Aviation Authority and the General Director of City Planning. He argued that according to civil aviation guidelines no building in a plane’s runway approach path can be higher than 150 meters – including ground elevation. Natural ground elevation at the Metropolitan Tower site is 98 meters, he said. This implies that the Metropolitan Tower shouldn’t be taller than 42 meters.
In a letter to the Lebanese media, the Habtoor Group, which owns the Metropolitan Tower, says that an extension to Lebanese Law No. 402/95 allows hotels to increase built-up-area skyward in exchange for added payment on the value of the land. The company says it was granted permission to construct more floors on 16 December 2002, under addendum 90247 of the law, by the Council of Ministers then presided over by slain former Prime Minister Rafiq Hariri, and with the accord of the Higher Council for Construction and Redevelopment and of the then tourism minister. Habtoor says it paid the municipality the additional sum of $2,200,000, in line with Law No. 402/95, to be allowed to construct more floors.
The letter also notes that in the years of al-Habtoor’s presence in the Sin al-Fil area, neither the company nor residents of the region have observed any aeroplanes flying over. Ominously, the letter warns that if investors who are helping Lebanon negotiate its economic woes are subjected to this kind of pressure, they may decide to pull out.
“I am not prejudiced against the Metropolitan Tower,” the Public Works Committee member said. “But the license given them to build was unlawful.”
He said the only solution was to make modifications to the airport’s Eastern runway, 3-21, something currently being examined by the International Civil Aviation Organization (ICAO).
A more cynical interpretation was offered by a Lebanese MP on condition of anonymity. “I understand that the underlying politics of this is the continuing joust between the Hariri group and the anti-Hariri group. I don’t see how this building can be a hazard to an aeroplane,” he said.
America moves to Baabda
The US embassy says it is moving from Awkar to Baabda for security reasons. Construction will cost around $111 million and once begun will take between 28 and 36 months to complete.
“It was one of the only places we could find with enough space for the construction project,” said a US embassy source. “We have this new committee back in Washington [which] made new requirements for safety standards in buildings. We needed more space in order to meet those requirements.”
One Lebanon-based real estate consultant predicted that real estate prices in the “fairly shabby bit of Baabda” to which the embassy is moving would increase as a consequence while the move away from Awkar would probably have a deflationary effect on that area.
“The Baabda area to which it is moving is awful, really very lower middle class,” he said. “The shops and petrol stations and cafes reflect it. The move can only have a positive effect on the new area mainly because the Lebanese like living near Western embassies. It makes them feel good.”
He said the cost of the new plot was probably something approaching $20 million. “They’re picking up a very large site relatively cheaply,” he said. “It has multiple access routes, entry and exit options, several different ways of getting into Beirut on the Damascus road, and is quite close to the presidential area. It’s an easy place to get to and is neither Christian nor Muslim.
Raja Makarem, managing partner of RAMCO real estate advisers was more circumspect. “Nobody really knows how prices will be affected. It’s difficult to say,” he opined. “The move will definitely add confidence to the area but it’s not necessarily really going to affect the prices.” He said prices in Baabda over the last few years had been seesawing. “Sometimes there was big demand, sometimes major stagnation.” Meanwhile prices in Beirut have risen at least 20% since the beginning of the year, he said.
Destination Armenia
Having spent nearly a century seemingly dormant under the Cold War blanket of Soviet rule, Armenia in recent years has become an increasingly popular destination for tourists and investors the world over, including many Lebanese. “Interest for Armenia has been steadily growing every year,” said Emma Bedrossian of Nakhal Tours, “but this year it has been overwhelming.”
A trend illustrated by the fact that national carrier, Armavia’s weekly direct flight between Beirut and the Armenian capital Yerevan is completely overbooked. To avoid long waiting lists, people should book about one month ahead. A second Armavia weekly flight to and from Yerevan is being added to cope with demand.
According to figures of the Armenian Embassy in Lebanon, the number of foreign visitors to Armenia increased from 31,904 in 1998 to more than 250,000 in 2004. “In the first six months of this year we saw again a 30% increase,” said Areg Hovhannissian, the Armenian ambassador to Lebanon. Most visitors stem from the EU, followed by the United States and Russia. About 10%, or some 30,000 people, originate from the Middle East, up to half of whom are Lebanese.
Some 80% of Lebanese traveling to Armenia is of Armenian descent, but according to Nakhal Tours, interest among other Lebanese is growing. Armenia is only a two-hour-flight away, offers a European culture, as well as cool mountain air, and last but not least in time of economic distress, Armenia is considerably cheaper than the Western Europe.
However, it is not only tourists traveling to Armenia. With an annual economic growth rate of 8% to 12%, Armenia is booming, and the Lebanese would not be Lebanese if they did not see some business opportunities there. “Last year,” said Hovhannissian, ”late Prime Minister Hariri visited Armenia for the 3rd time and signed a protocol calling for the establishment of free trade zones between Lebanon and Armenia.”
That plan has not been executed yet, but that has not stopped Lebanese entrepreneurs of taking their chances. Most notably, businessman Pierre Fattouche has opened a mobile phone company, while according to Hovhannissian, at least one anonymous Lebanese bank is close to opening its first branch in Yerevan.
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