The saga concerning the private jet terminal at the Beirut airport continues. The new terminal was supposed to open its doors last June, but until now it has not. “We are facing technical problems with the air conditioning and lighting,” said Samir Fakeh, head of the Civil Aviation Department. “The system does not function as it should.”
Fakeh was not able to indicate the exact nature of the problems, nor was the SNAM contracting company responsible for the overall finishing of the 120,000 square meter terminal, which hosts eight VIP lounges, a 300 square meter shopping area and restaurant. No retail space has been rented out yet.
The building took some two years to construct and forms the backbone of a $33 million investment to better facilitate the growing fleet of private jets flying to Beirut. So far, 13 private jet companies from Europe and the Arab world have handed in requests to rent space at the new facility. Despite the delay, none of them has canceled yet, said Fakeh. Still, he would have liked to tap into the busy summer tourist season. He was unable to give an estimation of possible losses, which may run into hundreds of thousands of dollars.
An indication of possibly the real reason for the delay came in Fakeh’s answer to when the facility might open. “Maybe in September,” he said, “but maybe we’ll have to wait for the presidential elections to be over.”
Fakeh did not want to go into further details. It’s no secret, however, that differences in opinion over the second mandate of President Emile Lahoud have paralyzed much in the country. The new VIP facility appears to have fallen into the stagnation trap due to the ambient political rivalries. And like many other sectors, the opportunity costs are swiftly mounting.
Speared by roadwork
From August 3 to 17, the main artery leading to the Murr Tower from Sanayeh and the Hamra district, Spears Street, was closed. As a consequence, many shops were forced to close down temporarily. A leading victim was the Barbar sandwich outlet, which had to close for two weeks, sending home 85 employees and reporting an estimated loss in sales of some $100,000.
“For 23 years Barbar never closed,” said Abed Serwan, the manager of Barbar’s Spears outlet. “But now we did not have a choice.” Serwan complained that for one year there has been work on Spears Street almost every month. Unlike its outlet in Hamra, the Spears outlet depends more on drive-by customers.
Other shops, mainly small groceries and souvenir shops, are estimated to have suffered losses of roughly up to 70% during the period of roadworks. Mustapha Yamout, who runs a tourist pension on Spears, also said that in the past year there have been eight major works and at least 20 minor ones. “Couldn’t that have been done in a more efficient way?” he asked.
The works on Spears are part of an overall project to refurbish some 90 streets in Beirut. “The whole infrastructure for sewage, water and electricity needed changing, after which the road needed re-asphalting,” said the engineer in charge of the operation, William Debs, who works for Elie Selwan contracting company.
According to him, “people always complain,” even though normal procedures were followed in an attempt to reduce discomfort to a minimum. “So, normally we always work on one side of the road, keeping the other side open to traffic.”
But why close Spears Street in the middle of the tourist season? “According to the traffic police,” Debs said, “there’s less traffic in summer, as schools and many offices are closed. Also, the municipality asked us to work during school holidays.” So are the works finished? “We need to put just one more layer of asphalt next month,” Debs said. “But that’s only one night of work.”
Politics and pension funds
The creation of a viable social security net in Lebanon inched a step forward as the cabinet adopted a plan for a national pension project, under which retirees would receive continuous monthly pension payments and be insured for medical services. If passed into law, the plan would gradually replace the one-time end-of-service indemnity payments scheme managed by the National Social Security Funds (NSSF).
The plan’s provisions stipulate that participants can receive pension payments after a minimum employment of 20 years, during which the retiree and his employer would contribute a total of 12.25% of the retiree’s salary: 5% deducted from the salary and 7.25% payment by the employer, up to a salary ceiling of $3,340. Employers would also be responsible to pay a contribution to their employee’s retirement health insurance, amounting to 5% of the salary without a ceiling.
Participation in the scheme would be mandatory for all new employees entering the job market (more than two-thirds of the Lebanese workforce is younger than 35) and all those currently enrolled in the NSSF who were born after 1969. Working persons born before 1969 may participate on a voluntary basis, on condition they do not withdraw their end-of-service indemnity and will have at least 20 years of insured employment at their retirement.
Pension advisors and insurance actuaries Muhanna group, who drew up the pension project for the Lebanese government, set the minimum monthly pension at $120, based on an employee earning a minimum salary of $200 [CORRECT?] over 20 years of membership in the scheme. If he or she is registered for 40 years, the minimum monthly pension would be $240. [CORRECT?] Under the model, a person starting to contribute at a salary of $600 and average annual salary increases of 3% would reach a pension of $642 after 30 work years, or 44% of his final salary.
Given the political stakes involved in the plan (and it was largely depicted in the local media as a defeat for Speaker Nabih Birri, who has considerable influence over the NSSF), debate over the plan is far from complete and adoption of the plan in parliament is anything but certain. After being passed into law, it would take at least two years to implement the scheme.
When Black isn’t beautiful
After an absence of almost 40 years, Chivas Regal has returned to the Lebanese market. But the whisky that was once the by-word for sophisticated drinking is now having to slug it out with the lesser brands in promotion wars fought in the aisles of Lebanon’s supermarkets.
Sales Manager Isabelle Dahan said Chivas intends to become a major market player within three years. What that effectively means is that it hopes to overtake Johnnie Walker Black Label as the market leader – an ambitious undertaking since Black Label currently controls 70% of the deluxe whiskey market and sells for roughly $2 less. The remaining 30% is currently split between Dewar’s Ancestor’s (15%) and a handful of other brands, such as Dimple’s.
Naji Hammoudeh, business manager for KFF Food & Beverage, which distributes Dewar’s, said he expected Chivas to gain a 20% to 30% share of the deluxe market within two to three years. “The domination of Black Label will be significantly reduced,” he predicted. Black Label distributors Diageo didn’t comment.
Chivas Advertising Director Carla Zoghby refused to reveal the amount of the brand’s advertising budget. Dahan declined to reveal sales since the product’s relaunch at the beginning of August, but she said Chivas was being sold “everywhere,” even in corner shops.
Chivas is being promoted through a widespread billboard campaign, as well as in newspapers, magazines and cinemas. Female promoters have also been positioned at various points-of-sale, armed with brochures. So far, Chivas distributors NEXTY are not offering promotional gifts. But, Dahan conceded, they may.
Zoghby dismissed the suggestion that billboard advertising might damage Chivas’ deluxe brand image. “Chivas is a legend,” she stated. At the same time, Dahan acknowledged that below-the-line promotion was never good for brand image, but said that in a market in which other players had embraced the practice, Chivas had no choice but to follow suit.
Little progress after Allawi
The recent visit to Lebanon by Iraqi Prime Minister Iyad Allawi produced little in the way of progress on three pressing economic issues: the fate of $500 million deposited by the previous Iraqi regime in Lebanese banks (now in the custody of the central bank); alleged losses incurred by Lebanese exporters who say contracts with Iraq, or Iraqi trade pledges, were not honored once the war ended; and the drastic drop in Lebanon-Iraq trade because of security concerns, which were accentuated by the harassment and kidnapping of truck drivers and businessmen, some of them Lebanese.
For example, the Port of Tripoli has registered a 50% drop in Iraq-bound trade, while road transit from Lebanon to Iraq has plummeted by 70%, denting any optimism generated by Lebanon’s $197.1 million cumulative balance of payments surplus for the first five months of 2004.
“Up until now, there has been nothing on the economic issues,” said Fadi Abboud, president of the Lebanese Industrialists Association. Although the oil, gas, transport and currency sectors were all discussed, observers said Allawi’s visit was primarily of a political nature, designed to improve diplomatic relations between Syria and Lebanon on the one hand, and Iraq on the other. “As long as the security situation in Iraq remains as it is, nothing will be done with respect to the economic matters discussed during Allawi’s visit,” Abboud added.
“I don’t think the issue of the Iraqi deposits will be resolved in the near future,” opined economist Kamal Hamdan. “It will depend on the political situation in Iraq. We may have to wait for elections there, and a legitimization of the political structure.” Hamdan predicted that Lebanese exporters would, eventually, be compensated for actual contracts not honored by Iraq. But he said that Lebanese exporters hoping to be compensated for investments they claim they undertook in response to informal import agreements could be disappointed, in part because of the difficulty in verifying such claims.
Italian furniture, made in Lebanon?
Lebanon has untapped potential to serve Italian furniture makers as a manufacturing base for medium-range lines for the Middle East market. Paying a visit to Lebanon, the president of the Italian federation of wood, cork, furniture and furnishing manufacturers, Roberto Snaidero, told Executive that he is envisioning increased collaboration between members of his association and Lebanese enterprises.
To open more opportunities for Lebanese companies for joint ventures with Italian furniture producers and manufacturers in general, Snaidero organized meetings with industry leaders here and in Italy. “As the president of our association, I now want to go deeply into this matter here in Lebanon,” he said. “This process cannot be resolved in the short term but it is important to begin. I think it is important for us and for Lebanese companies.”
Developing the skill base of engineers and staff in partner firms here would be essential, while large investments would not be a guarantee for success. “Lebanon is not a big market and some countries around it cannot buy the top class of furniture. We have to move into these countries with medium-range furniture, so we can start with investments in the range of $1.5 million to $2 million,” he said.
He pointed to Snaidero Middle East, a kitchen manufacturing joint venture between the Italian Snaidero Group and local partners (Indevco) as a model for such partnerships. Snaidero Middle East, established in 1995 with an investment of $1.3 million in equipment and training, succeeded in marketing its products in 14 countries of the region and today contributes 5% to 6% to the total turnover of Snaidero Group, according to Maro [OR MAURO?] Matiussi, general manager of Snaidero Middle East. “We estimate to have around 10% market share in Lebanon, which we estimate makes us leaders in Lebanon and in the region as a whole,” he said.
Banking on religion
Islamic banking products continue to rise in market appeal, with international and regional banks working to meet demand. The latest Sharia-compliant financial tool to be made available to Lebanese and Middle Eastern investors is the HSBC Amanah Global Equity Index Fund. Launched last month as the first index tracker fund to invest in the 100 largest Sharia-compliant companies by market capitalization, the fund is a product of HSBC Amanah, the Islamic financial services division of leading global banking group HSBC.
Buyers can participate with a minimum of $5,000 in the fund, which is designed to provide them with long-term appreciation of capital through investment in a portfolio of worldwide listed equities that meet Islamic standards. These standards mandate, among other requirements, that companies under investment not be involved in activities such as gaming and alcohol, which are forbidden under the tenets of Muslim faith.
Demand for Sharia-compliant banking products among customers of HSBC Lebanon has been increasing consistently and amounts to “a lot,” confirmed a spokesperson for the bank, who declined, however, to give figures on either the number of private banking clients at the bank’s Lebanon branches or the exact demand for Sharia-compliant products among its customers.
Meanwhile in the local market, Beirut-based Al-Baraka Bank announced that it is opening four new branches. The bank, which operates under Islamic principles, had seen several years of minimal activities in Lebanon until it undertook a restructuring beginning in 2003.
Eating goes upwards
With the number of tourists entering Lebanon reaching an all-time high, business has been booming for Beirut’s retailers and restaurants this summer. Cafés and eateries in the Beirut Central District reported an average increase of some 30% compared to normal year-round sales, and a general increase of 5% to 10% compared to last year. Serge Kirbeh, however, manager of Asia rooftop restaurant, reported a 30% increase compared to the annual average, even though he added that “last year was better.”
Restaurants in other parts of town did well too. George Khoury manager of Amore in Verdun, a traditional hotspot for Arab tourists, reported an increase similar to last year of some 35% compared to spring figures. The management of the Blue Elephant in Raouche estimated July turnover to be up 25% compared to last year, and no less than 200% in August, “thanks to an intensive advertisement campaign.”
But it is not just restaurants that are doing well. “Every summer sales are up some 60%,” said Jihad el Murr, managing director of Virgin Megastore, “not just because of Arab tourists, but also because of the Lebanese who return for holidays.” Most retailers in the downtown reported a figure similar to the ones in the restaurant business.
Likewise, most shops and retailers in the Verdun area experienced a 25% to 30% increase in sales, while lingerie, souvenir and clothing shops in Hamra reported an average increase of some 25%. Though Arab tourists did visit the ABC shopping mall in Ashrafieh, it seems it has not yet become their favorite hangout, as most shops reported an increase of no more than 20%. A comparison with last year is not possible, as the mall only opened its doors six months ago.
Closing the St. Georges blinds?
“We can’t keep the blinds open” said Fadi Khoury, chairman of the once magnificent St. Georges Hotel. “They will be able to see me and I can’t risk that.” After more than a decade of fighting, often very publicly, with Solidere and the Beirut municipality, both in the courts and in the press, Khoury initially comes off as determined to press ahead with his vision of reconstructing what was once Beirut’s, and the region’s, star attraction for the rich and famous. “I will not sell out, never!” he told Executive.
While the last two scraps have kept up the image of Fadi the fighter, the culmination of so many years of battling has clearly left him fatigued even as he pulls out map after map of what has, for him, been an exhaustive exercise in the complications, contradictions and “injustices” of Beirut’s rebirth.
Khoury acknowledges that the long-running saga on rebuilding the St. Georges has also taken its toll on his personal fortune. Several years ago, the authorities ripped up the hotel’s berths that were bringing him an average of $1.5 million in annual boat docking fees. Shortly thereafter, he had to endure various municipal obstacles to fully operating his beach club – his main source of revenue. Now, he says, “My revenues have been cut to so little. I have virtually no way to make a profit.” A pathway to the oceanfront, a reduced sea wall, his old piers and permission to build are all that he wants, he says. The crusading sound bytes of public space, “just compensation” and “anti-monopolistic development” would all stop there – he is, after all, a businessman.
As he adjusts one of his many remote cameras from his desk to close in on what he calls an illegal Solidere office trailer near the St Georges, Khoury adds, softly, almost to himself, “I don’t know how long this can continue.”
