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Business

Q&A: Omar Razzaz, World Bank country manager for Lebanon

by October 1, 2004
written by

In September the World Bank issued its annual report Doing BUSINESS IN 2005: REMOVING OBSTACLES TO GROWTH, co-sponsored by the International Finance Corporation, the private sector lending arm of the World Bank Group. The report examines investment climates around the world, based on the regulatory performance and reforms undertaken in 145 nations. Comparing data and showcasing examples of best practice, the report demonstrates how governments can create a better business environment, which benefits all firms, as well as society as a whole. EXECUTIVE met with Omar Razzaz, the World Bank’s country manager for Lebanon, to discuss how the country’s business environment fares by international standards, the challenges facing reformers and the advantages offered to investors.
 


The World Bank’s annual DOING BUSINESS IN 2005 report just came out, with more countries and benchmarks than ever before. Governments are coming forth and requesting to be a part of it – what is the value of this report?

This is a yearly report with very critical information, not just on laws and regulations, but on the actual experience of businesses. That’s why it is meaningful. Businesses are not just interested in the legal framework, but how things work on the ground. The report tries to address the type of indicators that really matter to a business: how easy it is to start, how easy it is to operate and how easy it is to close a business. The other side of this report is that it looks at these indicators on a yearly basis, so you can see change all the time. A country that ranks very low but has gone on a pro-active program by the government to improve its business environment will be registered by the report very quickly. That is why the DOING BUSINESS report is increasingly noticed by investors around the world. Where a country ranks is as interesting to them as the pace at which it moves.

How would you assess Lebanon’s business environment based on the findings of the report?

Lebanon has its strengths and weaknesses. Among the strengths, you have the relative ease with which one can get credit and close a business – by regional standards that is. Where Lebanon does not do well is in terms of starting a business: the procedures as of now take 46 days, and the cost of starting a business is 130% of income per capita. This is much higher than in other countries in the region, as well as elsewhere in the world: just look at Latvia, another small country, where the cost is 17%. It has to do with the number of procedures, the time it takes and the uncertainty that’s involved in the process. The solutions are there: if you reduce the steps, if you automate them, if you set up a one-stop shop where investors can come and you give them clear procedures, it would dramatically change the situation. And it can be done fairly quickly: Jordan managed to reduce the time required to set up a business by nine weeks. The one other aspect in which Lebanon doesn’t do very well is the enforcement of contracts. In this area, Lebanon really stands out. It takes 721 days on average to enforce a contract and it involves 39 procedures. This is two or three times longer than even in developing countries. It is very difficult for a business to operate in an environment where you have a contract that you can’t have enforced. And there really is no reason why this has to continue. Lebanon, in terms of its jurisprudence, in terms of its human capital, has some of the best legal institutions in the Arab world. To improve that situation is a matter of will, of putting in the systems, and of training.

Have there been any significant attempts at implementing the necessary reforms to improve the investment climate here?

There have been very important islands of reform in Lebanon. If you look at the area of property registration or the application of VAT on transactions – these are areas that can take a very long time and in Lebanon it has been streamlined. But in the last two years, there hasn’t been a concerted effort by the government to systematically upgrade laws and regulations and undertake reform. This is a major drawback, because with a debt to GDP of almost 180%, the fiscal and monetary policies can only take you so far. They can reduce debt perhaps, and bring it down to 150-160%, but that is still a high level. The only way to reduce the debt is to grow out of it and increase your GDP. So it’s critical for Lebanon to focus on the investment environment to find ways to increase that pace of growth.

But this year, Lebanon witnessed a positive turn in many of its economic indicators: there’s been a sharp increase in export, tourism, construction permits, and bank deposits for instance. The country has experienced its highest GDP growth since 1997. Is this just cyclical growth or will it have a long-term impact, notably on the level of investment?

Our assessment is that this is not short-term. Lebanon has definitely benefited from this situation – it has allowed growth to reach 5% for instance. But the DOING BUSINESS report suggests that if a country moves drastically on reforms, it could add up to 2% on its growth rate. So what the Lebanese economy has done this year is fantastic, but if the country had improved its regulatory procedures for business, it might have added 2% more, thereby growing at 7%. And for Lebanon to deal with its debt problem in a sustainable way, it needs to grow at around 6% to7% every year, and this is achievable. When you look at the composition of the investments and the growth, tourism is fantastic and does create jobs, buying real estate is great. But what you want to see is more Lebanese expatriates and Arabs starting businesses that will create value added, jobs, on a sustainable basis. And for that to happen, you really need to make operating a business a much more straight forward undertaking.

How does this country fare by regional standards? Does it have any comparative advantages to other Arab countries in the eyes of investors?

Lebanon has to think dynamically in terms of its comparative advantage. It shouldn’t necessarily try to reclaim what it had in the 1960s, but rather think in terms of today – an era of information technology, globalization – to figure out its strengths and weaknesses. The most important element that Lebanon has that foreign investors would want is an innate cultural talent for creativity and service. If you look at the industries that are blooming, they are service industries, industries that relate to creativity, advertising, marketing, TV production… I’ve heard that six out of ten commercials in the Arab world are produced in Lebanon. This says something about the human capital in this country. This a multilingual country that is very exposed to information, trends from the West, and its juxtaposition between the Arab world and the West gives it a tremendous advantage in picking up important trends that might be relevant to the area, and modifying them to local tastes. Studies now show that for countries to compete, for countries to succeed, it’s not a matter of capital or resources, it’s a matter of the know-how that exists in a country and the systems that the country has that allow it to utilize that knowledge. The Lebanese have the know-how that is very hard to acquire by formal training. What they lack are the systems. And it’s incredible, because for most countries, the systems are the easy part to acquire. This is something you can buy with money, and a little bit of decision-making and coordination. Yet you find the systems that allow investors to invest money, to register, to get information, to have day-to-day operating procedures that are clear without dealing with a huge amount of red tape, to be the missing part here.

Yet at the same time the World Bank is pushing for educational programs in Lebanon to provide better technical and vocational training?

Here we come to the issue of equal opportunities. Lebanon has a long way to go before it can be proud of offering its population equal opportunities. There is a tremendous human capital in Lebanon, but that doesn’t mean everybody has access to the same quality of education. Those who have access to quality education, to private schools, to private universities, have tremendous talent. But those who are left behind are relegated to competing with unskilled workers, which is a very difficult thing to do in Lebanon given the relatively open borders and the inflow of foreign workers and high standards of living. For the average Lebanese, this is one of the hardest places to live. You can neither do what pays, because you haven’t been equipped, nor can you compete in the unskilled or semi-skilled professions because the standards of living are too high. And that is why vocational training and education are critical.

Speaking of unequal opportunities, is the lack of progress in improving the business environment excluding marginalized groups from participating in the formal economy in Lebanon?

This is very important. The more you deregulate entry for start-up businesses, especially small and medium enterprises, which are the ones that are most employment generating here, the more you create opportunities for employment, formal employment, which gives more protection to workers and has a snowball effect. In contrast, if you have high minimal capital requirements, then many of the businesses will stay in the informal sector. They will not be able to borrow, to expand, to pay taxes, which gets you into a vicious circle of the economy not growing and public finances not improving.

Another problem which Lebanon faces is the fact that it ranks internationally among the top violators of intellectual property rights. To what extent does this act as a deterrent to investors?

To the extent that Lebanon wants to move into the information age and the high-value added economy. In India, about 5000 to 6000 workers in Bangalore are producing about a third of all of India’s foreign exchange earnings, just because of the tremendous growth of the IT industry. Lebanon is so well positioned to enter that area. If it updates and reforms intellectual property rights and puts in the IT infrastructure, it can benefit a lot from it. Many countries make money out of piracy, but that’s not what Lebanon is about. Given Lebanon’s human capital, it needs to make the leap into becoming one of the producers of intellectual property, not one of the countries that live off piracy.

Closely related to this issue is the prospective of Lebanon joining the World Trade Organization (WTO), which the government hopes will happen in 2005. Is the country ready for it?

Lebanese business are ready for it, in the sense that there is a business acumen, an entrepreneurship that allows Lebanese businesses to excel anywhere in the world. My concern is whether Lebanon can bring the cost structure of doing business down. As long as these procedures, which we have been talking about, are prohibitive, as long as the cost of power is the way it is, as long as telecom is so expensive, as long shipment and agro-processing is costly and delayed and inefficient, Lebanese businesses will be greatly disadvantaged. Again, it’s about putting in the systems that will allow businesses to compete. It’s not about the innate ability of Lebanese businesses to compete with European businesses. If anything, I think lowering the barriers will allow for greater innovation.

Lebanon of course, also suffers from its external environment – the instability of the region, which affects investments into MENA as a whole. What impact do you think recent regional developments, most notably the passing of UN Resolution 1559, will have on the country?

These recent events have thrust Lebanon onto the international scene, which means that what the country does or doesn’t do is much more noticed today than it was yesterday. This poses both a challenge and an opportunity for the country. If the next government is a decisive government that takes strong actions on consolidating the freedoms in the country, protecting them, enhancing the transparency and accountability of the government, improving the business environment, taking concrete steps on the macro-economic level to put the country on a more sustainable path towards growth and debt reduction, this is going to be noticed, and noticed very favorably. If it turns out to be a government that is unable to take any serious action towards fundamental social and economic problems, and if it is perceived as even moving back on Lebanon’s uniqueness, which is its freedom, that will be registered as well. We are hopeful and the World Bank will be very active in continuing its support and will work with any government that comes in, to assist it in enhancing Lebanon’s performance and thereby it’s image in the world.

October 1, 2004 0 comments
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Business

Q&A: Mohamed El Hout

by September 1, 2004
written by

In 1998, Mohamed El Hout, director of real estate and financial assets department at the central bank, was appointed Chairman of Middle East Airlines (MEA). At the time, Lebanon’s national carrier was overstaffed and hemorrhaging money. His appointment was surrounded in controversy. He had no aviation background and an unproven track record. Critics accused him of being the central bank’s man, while his supporters claimed that it would need an outsider to turn the company around. Six years on, MEA has a new fleet of planes, a leaner workforce and is confident it will announce net profits of over $30 million for 2004. In an exclusive interview, El Hout talks to EXECUTIVE about the past, present and future of an airline that was brought back from the brink.

How would you describe the trajectory of MEA’s performance curve in the past six years?

When the new board took over in 1998, it inherited a net loss of $87 million and an $80 million operating loss from the previous year. The challenge was to make the company profitable within three years by restructuring the network, making new purchase agreements and creating a better purchasing policy. We also wanted to develop a hub and have alliances with international carriers to serve more points in North and South America, as well as increase staff productivity to boost the competitiveness of the company, control costs and lay off excess employees. Then we wanted to achieve better utilization of our aircraft, develop a better, and by that I mean safer and more reliable, product. With all of these taken together, it was clear that we could make MEA profitable, although not a lot of people believed it at the time because of the inherent political realities in the country.

Do you mean the traditional political influence exerted on MEA?

Exactly. If you want to lay off employees, is it easy? If you want to restructure and appoint a manager in this or that post, is it easy? If you want to change someone from one job to another, is it easy?

So there was political resistance to change?

At the beginning I faced a lot of hostility but eventually the politicians realized that we were serious and recognized the problems we were facing. They got used to us and our way of doing things.

It must have been a very sensitive issue?

It was at the very beginning, especially when we laid off employees. The whole restructuring was difficult. Was it possible? Yes. So we showed that we could do it if you have a policy and you believe in this policy. Timing was another factor.

How were you able to get the MEA staff on your side given that you did not have an aviation background?

Only by results, because they were not convinced at first. However, if you are a pilot you can fly a plane from point A to point B but it doesn’t mean you can run a company. If you a manager you can run any company irrespective of your lack of specialized knowledge in that field. Managers elsewhere in the world move from industry to industry. Maybe my financial background allowed me to identify problems that were not seen before or deal with problems that old management was prohibited from dealing with. Anyway the results are there for all to see. In 2002, we made $3 million net profit, in 2003, $22 million net profit and $32 million operating profit.

I understand that MEA is about to release some encouraging figures.

This year, 2004, we expect in excess of 30 million net profit but fuel prices are escalating faster than expected.

How are fuel costs impacting the results?

During the summer we have not responded [to the increases] because we believe our prices are high enough and we feel this is unfair on our customers to impose a surcharge on the fare. We are waiting for the low season, when we will reconsider our pricing policy, as will all airlines. Unfortunately, no one is looking at this seriously. A lot of carriers are expecting fuel prices to decrease. I think that $30 to $40/barrel is a fair price. It was the same in 1980. Prices have increased since then on aircraft and salaries, etc. It is fair that fuel should increase as well. They have to adjust to this new situation and they have to build a commercial policy, factoring in this cost.

What are MEA’s options if prices go up further?

We will have to increase our fares, but as we speak there is no plan to do that.

You say timing was a factor? How has MEA’s recovery been helped by Lebanon’s revival as a tourist destination, especially after 9/11?

I wish 9/11 hadn’t happened. It was a disaster for the Arab world. It hasn’t helped us in anyway. Four months after 9/11 we had a considerable decrease in the number of passengers as we did before, during and after the war in Iraq. But yes, I suppose in another way 9/11 made a lot of Gulf Arabs and Lebanese expatriates look at Lebanon. This has helped us achieve our targets earlier.

Are MEA and BIA post 9/11 compliant?

Before 9/11, our security was seen as overbearing but now it is normal and we are very satisfied that we have one of the most secure airports in the world.

What about onboard security?

We have no plans to appoint sky marshals and our pilots are not armed. You are not allowed to fly to the US. What is the latest on this situation?

This is a political decision. When this barrier comes down we will look at our options but it depends on the timing. I cannot predict the future.

What if the barrier came down now?

Now? Yes, but with an alliance with an American company. The American company would fly to Beirut and MEA would fly to the hub of this company in the US, where they would have access to connecting flights in the same way we would offer the flights from the US connections to the Gulf. This is the only way it would work. You can’t go to these competitive long-haul markets unless you have a partner. In any case, we are serving our customers in the US and Canada through our alliance with Air France and special agreements with Delta, Virgin and Continental.

Has MEA any plans to purchase more aircraft?

We would like one more, preferably a wide-bodied plane taking our fleet to ten aircraft.

How is MEA positioning itself in the regional/global market?

We have been receiving very positive feedback. We have luxurious planes, our safety record is second to none and we are constantly upgrading our service.

Why should I fly MEA rather than any of the other regional carriers? How does MEA convince the regional passenger that it is best?

I don’t want to compare but try MEA, and then fly another and tell me what you think. We don’t ‘over-promise’ like other airlines.

Is there a recruitment strategy for cabin staff in this regard?

Yes, we are recruiting new cabin staff to match the caliber of our pilots, ground staff and engineers. Out of 320 we have 200 new staff that have joined us in the last five years, with 120 experienced staff that can share their experience. It’s good mixture. We assess them every year for two years on an annual contact basis and then and only then do they become permanent staff.

MEA management’s relationship with the pilots’ association has been quite turbulent in the past. What is it like today?

We are recruiting pilots and we have reached an agreement with the pilots concerning work conditions.

Is MEA expanding their route network elsewhere?

Next year we will open Qatar, but let me stress again that long-haul routes are killers for an airline of MEA’s size. Low margins and a notoriously sensitive market means that long-haul route survival is very difficult. We have no long-haul plans for the moment I must stress this. What we do have is a network that is concentrated in the Middle East, North Africa and the Gulf. I think this policy has been the best one for MEA for the time being, given the current regional situation. We have partnerships with Qatar and Gulf Air to the Far East and we have now this month entered into a partnership with the Brazilian TAM.

How has MEA been able to attract the low season traffic?

For our part, our prices drop, but this is not enough. We have to market Beirut conferences and attract the European traveler. We have to create more activities in Lebanon. When Lebanon is in good health, we are in good health. The government has a role to play, as does the private sector.

How is MEA coping with demand this summer? Have there been delays like previous years?

Really, compared to other airports, we do not have long queues at our counters. Look at other airports and you will see what I mean. In the high season, yes when all the planes are leaving early, it is more busy than normal but really we are very good compared to others.

Is the staff size down to the airline’s needs in numbers and are employees up to the market challenges?

We have 2,400 staff. We had 4,200

It’s a huge achievement to downsize like this, but do you feel that by international standards, MEA is still slightly bloated?

Still over-staffed? No. The level of employment is acceptable. This is because if we compare ourselves to other airlines we are doing the handling and the engineering. These are not normally counted as airline staff. We can benefit from economies of scale. With every new plane we would only have to increase staff by half. In fact, the Arab world should look to bigger entities and not a lot of one or two plane airlines. This is in total contrast to what is happening outside. I met with the CEO of Delta, which has over 1,100 planes. He said we have to look for more consolidation and bigger volume in order to benefit from economies of scale. Then there are the mergers, such as that which happened between Air France and KLM. This is what is happening in the international market. In the Arab world we are always opening new carriers with a few planes. How can they compete?

Is MEA management not at all interested in running TMA, and why not?

At this stage no. Let me be very clear: it is not attractive to us. It does not add anything to MEA. In the future, it might depend on TMA’s situation and the cargo volume at BIA. It depends on whether or not there will be a cargo village, which cargo carriers are coming to Beirut and the level of competition. Things change. Again, like I said, timing is everything.

How is the company responding to the arrival of charter airlines?

We are not a direct competitor in terms of prices but what is worrying is that our open skies policy is not regulated. By this I mean that some subsidized carriers in the region are selling fares that do not reflect the reality of their operating costs and a fare structure that is not based on commercial considerations. This means the competition is not worried about making a loss. This can be as high as $40 to $50 million per year. It is the duty of the government to ensure fair competition, an efficient market structure and a better end product for the customer. Otherwise these carriers could force you out of the market.

Would you care to name these carriers?

I don’t have to. Everybody knows them. Yesterday you received an MSN message telling you that they are selling the seat at $150 to any point in the Gulf. We all know that cost per seat when the plane is full is more than $300 during the high season. They buy the planes and then look at the market, whereas we look at the markets and we buy the planes. But it is not only the charter carriers. Cyprus Airways have come into this market with excess capacity and have reduced their fares. The result was a disaster to the market and to them. They made a loss of $40 million last year and they have had to restructure their operations. Then you have the problem with equal access to the markets, which we at MEA do not have. For example, if you want to fly daily to Frankfurt or London we get bad time slots, making the cost per flight very high, but when they come to Beirut they have more beneficial timings. The basic rules of perfect competition, which are part of the US anti-trust laws, are not adopted in Lebanon, so we are operating in an unfair market. We need to look at reciprocity equal access and subsidized carriers. We are pro-open skies and we are pro competition but we would like to compete equally.

It has been five years since you were appointed. What have been the high and low points?

When I received the first new planes, it was really the most important period for me. I felt at the time that this was the result of everything we had worked for. We had the youngest fleet in the world we were a profitable company. A page had been turned.

And the worst time?

Like I said earlier, it was when we laid off the employees. It is hard to tell people to leave their jobs and it was very difficult for me personally. One bad year was 1999. The board was attacked and condemned without knowing why and we were impotent. It was a bad year but that was all in the past. We are looking forward.

September 1, 2004 0 comments
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Q&A: Alfa CEO Ineke Botter

by September 1, 2004
written by

In the revamping of cellular network operations in Lebanon, a joint venture under leadership of German company Detecon – itself a full subsidiary of Deutsche Telekom – was awarded a contract to manage the network formerly known as Cellis under a $201 million contract over 48 months. EXECUTIVE talked to Ineke Botter, who is the managing director of the new company, Fal Dete and, incidentally, the first top female executive of a company of its size in Lebanon.

You have stepped into the management of the former Cellis mobile phone network at the beginning of June. What are your impressions after the first three months?

When I came here, I quickly discovered that the personnel – what we have left – is very professional and skilled. That helps a lot. I also discovered that the people are very anxious to keep the business growing, which again is a big benefit to us. We are involved in several areas, beginning with the setup of Fal Dete Telecommunications as the managing company. On the other hand, we have to run the operations and we are running them on half force. About half of the staff left, but the company is undertaking the human resources project to bring staff again to acceptable levels. And we are starting new projects, like the numbering plan, studying business environment, assessing distributors and reviewing the plan of the company – so there is a whole lot to do. My first interest was to get the company up and running by September 1 with almost full staff.

How many employees do you have at present?

At September 1, our number is about 350.

Down the road, what head count do you plan for?

Approximately 400 in the autumn. But we aim to introduce new lines into the market at a very steady base. Each time you do that, you have to look at your personnel because the ratio, for example, between the contact center (to answer all the questions) and the number of subscribers is almost linear. We will grow further.

Your offer to manage the network was much lower than sums paid under previous arrangements. How could you give such an aggressive offer for managing the network?

One of the competing bidders had almost the same offer, so there are at least two people who have the same sort of opinion. I think [we could place this bid] because Detecon is in so many countries and has so much experience with how one can rationalize a company and make it more efficient. Of course, it has also to do with the fact that the sector was very cash rich in the past. In the last few years, it was not so cash rich. Detecon has experience with how to look at efficiencies in companies. We are looking at future proof systems to be put in place, which means that we will grow, but at a steady pace and in line with customer care needs and subscriber numbers.

What is in it for you? Isn’t it correct that as an operator, you do not participate in profits and if you increase profitability, you do not get a greater share?

I cannot comment on that. You have to talk to the shareholders. I am running the company and I have targets.

And these targets are to develop the company in terms of market penetration?

Yes, that is part of it. Of course, our bid was based on a business plan, and the business plan foresees growth in the market. Our company is the manager on behalf of the government. I am the chairperson and also the CEO. We have targets that are related first of all to the business plan that Fal Dete has, which was accepted by the government as an integral part of the network management agreement. Targets are that we manage it and improve the efficiency and put new systems in and make sure that especially the quality is of a high level. It also includes that we propose new services and make sure that the distribution network is in place.

This relationship is limited to managing the network over four years on behalf of the government?

The agreement is that we will manage the network for four years, with measuring activities to make sure that the quality is guaranteed. Some issues will be measured on a weekly, others on a monthly basis and the packet is to make sure that we have performance in our operation and serve the customer according to the government wishes. It doesn’t mean that we are sitting on a chair and just doing what the government says. We were also hired because we are a professional company and come up with ideas and suggestions. It is for the government to decide if they want to accept them.

Would it for instance be possible to switch in the near future from per minute billing to per second billing?

That is the government’s decision. To implement such a change in technical terms requires having information on the billing system and I actually asked this question. It is typical that older systems have more difficulties and you have to make sure that they are addressed. Are some of the network’s tech systems in need of an upgrade?

For sure. In the lifetime of our agreement we will have to replace equipment. For example there about 400 base stations. These do not only have an economic depreciation but also a technical depreciation time, and over the years, a lot of them will have to be replaced. We are carrying out studies now on the whole network to make sure that we understand where we have to upgrade and where the equipment is running out of lifetime.

What are your limits on numbering and the timeframe for a new numbering plan?

Between MTC and ourselves, we can have one million subscribers in the 03 numbering block. We will of course run into a limit and talks are ongoing between Fal Dete and the ministry. They have proposed new methodologies etc, and we are having a look at the technical and economic possibilities of how the proposals would work.

Where do you see the potential for mobile penetration in Lebanon?

Again, I have to refer back to the government, because the investments are done by the government. In our estimation we have predicted a 40% market penetration. But every step needs studies. It is price elasticity that drives the penetration and on the other hand the revenues. There is always equilibrium.

The Cellis services included value added systems such as the plugged portal and StarAd corporate advertising service. Are you developing them, or perhaps reducing some?

One thing is that we will at one point have a new brand name. Once we have a new brand, we will start marketing certain services. It is too early to say which ones we will market more than other ones. We are looking at all possibilities.

Have future fee structures and charges for new lines already been determined?

I cannot comment.

Does Detecon have a position in the discussion on the virtue of liberalization of telecoms markets?

From my personal experience, comparing the difference in development of the regulatory environment for instance between Eastern Europe and Lebanon, I have to admit that Eastern Europe is a lot further. But I have to also say that I had talks with the ministry about these regulatory talks and there is definitely a willingness from the ministry.

Beyond managing networks, Detecon is well known as consultants doing studies and advising governments on ICT. As far as the Middle East, is it correct that you have thus far been doing business only in Saudi Arabia?

There are Saudi partners and we are doing business development with them as we speak, for other countries in the region.

Detecon is expanding in the Middle East?

Detecon is in many countries, and yes, from a communications point of view, the Middle East is very interesting for us.

Let’s talk a bit more about brand building. What does Fal Dete stand for?

That is the manager, it is not a brand. Fal stands for a Saudi Group, and Dete for Detecon.

And you are phasing out the Cellis name?

We have phased it out in a sense that Cellis was sometimes used as the company name and there was a little bit of confusion. We are making some efforts to get the company on the map; that is why we have put the banners with Fal Dete up on this building. That is the first step. We should not confuse the customers, so we introduce the company now and next we will introduce the brand. At some point, the brand awareness for the new brand should be higher than for the company name.

How much of a budget are you allocating to the development of the new brand?

Sizeable.

Can you provide numbers on that?

No. It is again something that we need to discuss with the government.

Is the new brand name being devised by you or by the government?

It is a joint project.

Can you reveal the brand name?

No, we haven’t decided yet (laughs). It is still in production.

By what time do you anticipate the establishment of the brand to be concluded?

It will be concluded by the end of 2004. It is a big project.

How many members of the Detecon staff are working with Fal Dete?

At the moment there is a group of consultants but it is diminishing almost per week. Then there is the management, which consists of four persons. The management stays for four years and the consultants are phased out.

And the bulk of employees are Lebanese?

Yes, except for the four managers.

You said that the level of human resource quality is good?

Yes, and talking from personal experience, that is what I find. I left the Netherlands in 1988 and have worked all over the world since then. I worked in very rich countries like Sweden and Switzerland and in very poor countries, like Kosovo. And if I see how the people are so ambitious to grow and make their lives better, I am always impressed. We appreciate that a lot.

Are employment benefits and salaries comparable to what staff members could earn before, or are there differences?

Reorganization also means that we looked at salary scales, etc. I cannot comment on the level but we are, in my opinion, still on a good pay scale.
 

September 1, 2004 0 comments
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Business

FYI Q&A: Antonio Vencenti

by August 1, 2004
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In the wake of criticism from a wide array of religious and political leaders, threats of an outright ban, and the very public defacement of certain controversial images from Tyre to Tripoli, the outdoor advertising industry appears ready to engage in a bit of belated self-regulation. To understand exactly what this will mean, EXECUTIVE sat down with Antonio Vincenti, CEO of the billboard giant Pikasso, who has been at the forefront of efforts to repair the industry’s own image.


Q: Describe Pikasso’s current role in the regional advertising marketplace.

A: We are in Lebanon, Jordan and Iraq – Iraq since January. We have forty competitors, more or less, in Lebanon and forty in Jordan and we are the largest company in Lebanon. What we do is rent locations from municipalities or from landlords, we install the boarding and then we rent it by creating networks.

Q: What is at the center of the controversy over outdoor advertising in Lebanon?

A: In a country where you have 17 communities living together, I think we must, if we want to preserve civil peace, respect the beliefs of all of the 17 communities. Now, where does the border stand between what is permitted and what is not permitted? Thank God, general security has a very open minded attitude. Since the beginning of the year (when they became the official censor), we have never had any problem with general security. And I can tell you that they are very liberal in their way of guarding permits. What does this mean? It means we should be very responsible toward this open-minded attitude of the censor. If we say, yes we have had a problem with religious authorities, but we have the permit from general security, then the attitude of general security the next day is to refuse all visuals or half of them, whenever they feel as though they will have the smallest problem – which is a pity. That is why we need to have self-censorship, self regulation – a logical attitude. You know you have visuals you should not accept and you should not accept them nor you should post them.

Q: What will self-regulation entail exactly?

A: After the Association for the Defense of Moral Values in Lebanon asked the justice minister to [crack down] on certain billboards. I advised my colleagues and competitors to take care and be very cautious. We also attempted to create a dialogue among companies. We are all working in the same sector but each one has different values and ethics. So, we suggested, and we will create, groups composed of the president of a municipality, three or four billboard companies, the local association of traders, a representative from the ad agencies and a representative of the ministry for the interior. Our industry objective now is to reduce the number of billboards by 25% in crowded areas. We will start this with the municipality of Antelias. The president there said he would like to be the first one to try this.

Q: Where, from within the industry, have most of the problems with visuals come from?

A: The problem comes from a lot of small agencies – they don’t care, they [produce] vulgar creations and post it everywhere. This is what disturbed and created this problem from all the religious authorities. Now, I would defend to hell pure creativity and the body of a woman on a billboard, if it is done with class, with creativity by a big agency, for a big brand with class. I do not want to be associated with a cheap product, cheap creativity and a vulgar thing.

Q: Some tiles have been taken out of less vulgar billboard visuals though, like one example along the highway to Sidon where Haifa Wehbe’s shoulders were removed.

A: This I am not aware of. A shoulder would never be a problem. Look billboard posters have abused the usage of their billboards, putting images that hurt the feelings of certain people. But if I have a big brand like Aïshti, who wants to put a half naked woman or L’Oreal, I will do it, but I won’t put it in a sensitive area. I would put it in Jounieh for example.

Q: Pikasso has never had a problem with its 3,000 plus billboards?

A: No, thank God. I just had two unipoles for a brand of underwear. I asked them to change the visual and they refused so I stopped the contract. It is not worth it. We want to be responsible. We don’t want to be used by some product or agency in order to sell some products with those provocative visuals.

Q: Has Pikasso ever had to bend the rules in order to compete in the market?

A: We respect the law as much as we can and we only stop respecting the law when our survival is at stake in a city or town. What does this mean? That we would exclude ourselves if we tell a president of a certain municipality, look we don’t install here because it does not respect the law [regarding the spacing of billboards]? Sometimes, I have no choice, or I would exclude the company from the market. If I am in a city where I have installed some billboards and then the council decides to give a competitor space at 50 meters away from me, what should I do? Dismount the billboard and exclude Pikasso from the city?

Q: Since the main advertising law stipulates that billboards should be kept 100 meters apart in all public areas, considering that 60% of the country’s 10,000 billboards are concentrated between Khaldeh and Jounieh, a stretch that only accounts for 10% of the country’s total area, won’t a 25% reduction significantly hurt revenues in these overcrowded, but profitable locations?

A: With the clutter prices are going down. Now, after the industry changes, it will be even better. It will make billboards more attractive and the sector more organized.

Q: Does Pikasso hold any of the billboards where the visual is repeated over and over again ad naseum?

A: No. I think this is not very smart, although there is a saying in Arabic: “Repetition is a good lesson for donkeys.” They believe that, but it is totally wrong.

Q: What’s to say that your 40 or so competitors will do a better job of self-regulating their visuals and, on top of this, agree to voluntarily reduce the number of billboards, especially if some are already apparently willing to push the borders of the industry.

A: Now, I think that general security will be much more rigorous on the permits they will grant and, therefore, you will see that we have less and less of those problematic visuals. I think that our competitors understand that we are all seriously under threat and that we are playing with fire.

Q: According to one published report, Jounieh recently estimated that it should be generating as much as $666,000 per year from taxes on billboards. But, last year, it only saw $26,000 (LL39 million). What accounts for this discrepancy?

A: I will tell you that the figure is wrong in Jounieh. We alone pay the amount of LL40 million annually. I have a colleague who pays LL40 million. I said to myself maybe this is for political reasons, they are attacking the old municipal council. What I have heard though is that a lot of companies have not paid their taxes elsewhere and what I think we should do is haul them in front of the courts and not let them get away with that. We at Pikasso pay rigorously all of our municipal taxes, even during the war, and this is a point of honor for me because it is an obligation.

Q: Although general security has censorship power over billboards, why have you opposed the formation of a specialized body, such as a bureau for the verification of advertising, such as has been recently proposed?

A: In Lebanon, when you create a new authority or council, you will put people together that will argue and fight with each other. We know the people now, and we know that they are good people. We think that one control from general security is more than enough. We have the law, we have to respect the law – we have to be responsible and mature. I think that maneuvering smartly among all those things will be enough.

August 1, 2004 0 comments
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Q&A: Thomas Doering

by July 1, 2004
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Owned by Lufthansa German airlines and a big German retail conglomerate, the Thomas Cook of today is a much changed company primarily extending travel and financial services to European consumers – but it has retained a strong image in the local market and even a few employees who remember working in Beirut in 1984. EXECUTIVE talked to Thomas Doering, senior vice president for corporate development, about the company’s objectives in reopening their offices.

You want to operate inbound and outbound travel and related services in Lebanon. What is the first item on your agenda?

We have a two-phased approach. The first phase is to open offices and establish our infrastructure in Lebanon. This is what we have just done. With this, we want to establish ourselves as a travel company to the local people. This is our first objective. In phase two, we like to invest to get people into Lebanon.

How important is the Middle East region in the business of Thomas Cook?

The Middle East is a region that we believe in, that we did our studies on, and that we now have decided to invest in. It is in our strategy as an expansion region, but it is quite small in terms of numbers.

What is your timeline for growing the business in Lebanon and opening new offices?

The way we do business is to have a proper business running before taking the next step. But if you ask me, I would open an office in the [Beirut International] airport tomorrow. Other places would follow as we learn which places are the best to go.

How big of an impact do you expect your operation to make vis-à-vis the established Lebanese competition of travel agencies and Beirut-based operators?

When Thomas Cook comes to a country it tries to bring all the best things from the world to that country, meaning that we can bring talent, technology, contracts, relationships, network and the power of this huge group. In corporate travel, for example, we will not be the one to take the smallest percentage as a fee. But with our technology and search technology, we might be able to offer you a ticket that might be cheaper by $500 on a $3,000 ticket, and that makes much more sense to our customers.

You obviously have done your studies

Yes we have, and we want to have a significant market share. Our aim is to be number one or two; normally we aim to be number one.

Is that in corporate travel?

Corporate and leisure go hand in hand. The same customers that go on business trips invest in their own leisure time.

How large do you assess the corporate travel market in Lebanon to be?

I do not think that anyone knows haw big that [cumulative corporate travel] budget is for all Lebanon – but it is significant because the number of airline tickets being sold here is for instance as big as in Egypt. The potential is there.

Are you seeking larger firms as your clients, or are you also approaching small and medium enterprises?

There is no minimum size. The relationship would be different with a small company, because smaller companies tend to come and buy a ticket on a case-by-case occasion. With a bigger customer, we might have a longer-term contract, and take over their whole travel budget, its administration, databases, etc. That is a very different relationship. But we are interested in both customers.

In your summer 2004 program, you do not yet offer Lebanon as destination. When can we expect to see Beirut listed in your catalogues?

As soon as possible. Our plan is to test the product in the market right after we come back. But it will need education of the people. We will need to go out and tell people what fantastic country Lebanon is. We need to tell people that it is safe to travel here and we need to tell people that this is three hours from Europe.

Will you offer Lebanon in package tours including several countries or focus on developing it as solo destination?

We always had cultural tours where you go and visit two or three of these countries. This business will be there and we will continue to do it. But I see the bigger chance for this market to position itself to the short-break passengers who just want to go on their own to a city and explore it. My vision is that we can go out and position Beirut as a product with the sophisticated traveler. We need to grab the niche between city and charter seven-to-14 day beach holidays. And if we can position ourselves there in the upper market, then we can offer culture, fantastic city, hospitality, good hotels, beach, and this fantastic [Lebanese] lifestyle around it.

How many of the 12 million annual passengers with Thomas Cook can be categorized as up market?

By far the biggest chunk of our business will be from charter package passengers, because this is where both our German and our UK business come from. But do we understand the trend of the individual traveler? Yes, we do. 50% of demand is not for charter package and this is the growing part. This is why these things become interesting for us.

Thomas Cook holds stakes in hotels and owns airplanes. Are you looking at investing into hotels here?

We go into hotels when we feel that we need to improve the product quality or secure product availability. This is something that comes up when we have very big volumes. Then we want to have some own assets. I think that is the answer to your question.

How about offering charter flights to Lebanon?

What I have just said is equally true for charters. Charter is the possibility to offer secured capacity with self-managed quality to a destination, but it only makes sense when you have big volumes.

How much are you prepared to invest into marketing a destination such as Lebanon to your customer base?

A lot at the right time. Our investment is by putting the destination into brochures, putting it into windows, putting it out to the public. Our window to the public is literally millions of publications – catalogues – and 4,000 own and many more associated travel agencies where these destinations appear in the window. I wouldn’t want to qualify that marketing power in terms of dollars but when is the right time to do it? It is coming slowly and it needs to be equal to the upturn in demand. There is no point in putting marketing dollars at a customer base that doesn’t understand the concept.
 

July 1, 2004 0 comments
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Q&A: Nasser Chamaa

by July 1, 2004
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Solidere has launched a new program thought to bring many changes to your business. What is the program’s core offering?

The program is based on settling part of the price of real estate transactions through shares at a time when we have noticed a major pickup in interest in developing downtown projects.

What motivated you to create this program?

What started us thinking about this program was the realization that the share price cannot stay where it is, because it is significantly undervalued. We have to do something to try to make people and shareholders realize that there is much more value in the company stock.

In launching the program, you mentioned that the Solidere share price is undervalued. Where do you see the fair value?

We estimate that the land bank that we own is worth $ 4.5 billion. That is excluding the properties that have been developed, which we value at $300 million. This will increase immediately when the Souks are completed, bringing the value of the buildings that the company owns to about $800 million. So I think if you do the numbers, the shares are definitely undervalued.

Seven years ago, the most optimistic estimates by international finance houses saw Solidere shares going up to $18 or $20. Now we are happy to be at $7 per share. We are not happy to be at seven.

What number would make you happy?

I will not comment, but as the value of this land bank appreciates the share price appreciates. The other element is payment of dividends. This is a key component of our program, that we will request the cancellation of the shares, which we will acquire. Then whoever is left as shareholder in the company will own a bigger portion.

How long ago did you begin preparation for this program?

It has taken us some time but I think what is important is that this program is coming at a time when there is significant interest in development in the BCD.

Are you saying timing is everything?

Timing and the circumstances. The other beautiful part of this program is that it doesn’t have a drain on our cash situation. It is basically a buy-back program. We are buying back shares but without having to shell out cash and instead giving land.

Did you develop this all in-house or did you use outside consultants?

We consulted with different individuals but in the end these ideas really came from within.

Do you have grounds outside of the new program on which to base your optimism?

Beirut is a city that definitely is in fashion. I talked to international retailers who see that point very well and are able to gauge that through their global activities. They see that Arabs are now looking inwards and Beirut is a spot where they want to be. The Lebanese diaspora is also looking to invest in Lebanon.

Two years ago, you started on an upward curve. Is it correct that the company had a good year in 2003 but showed lower results because it did not want to record sales on its books before they were fully registered?

No, we had cancellations related to shareholders in Bank Al Madina. These were the transactions that had this negative impact on our income statement. Otherwise we would have had probably as good a year as the previous year.

Is the new program and special offer valid at this moment?

Yes, from the day that we declared it and it is already being practiced. But it has yet to result in sales. That is not the case. We have several contracts in different phases of execution. Some were prior to this offer. There are stages of signature, final stages of fine-tuning the contract, but as far as I am concerned, these are sales that are behind us. We are negotiating with a major investor on a huge lot, but this story is at a stage where we cannot yet make an announcement.

Are you in effect reducing the price of land that you sell in Solidere?

To make this program work, we offer a discount of 15% from the list price. We review our prices every six months, and have been moving them up all the time, and this will continue. Pricing the land is another mechanism that has to do with many other factors. We will not change that. What we have always done when we price land is that we stick to it to make sure that people who have invested are somehow protected.

How much did prices go up since Solidere started to market properties?

We started selling initially at $950 [per square meter of built-up area/BUA] and we had a transaction for a hotel that was at slightly less than $950. But since then we have gone up to $1,550. This was the price for a superb piece of land that sits right on the edge of the Marina. I will not be surprised when we are selling some similar properties with commanding views at $1700 or $1800 in two years’ time.

But is it a fact that with the current offer, prices for the buyer have gone down for the first time since the company was established?

No. We have made deals on a cash basis where we applied discounts. While this is not a cash deal, mind you, we are getting 40% payment in shares upfront. We were always getting 25%. This is already a plus. We are getting more money upfront. And we are getting the rest of our money more quickly, three years instead of five years. So this discount is not a giveaway. It has economic bases.

Thus, the 15 % discount would be compensated by a decrease in exposure of the debt over two years and at the same time by the price of shares?

Not by the price of shares. We are acquiring a larger down payment at 40%, which could be 40% in shares or 30% in shares and 10% in cash, instead of 25%. But I tell you something that nobody has noticed yet. This program will have a positive impact on our retained earnings, up to a certain point. As long as we acquire the shares at less than [the nominal issue value of] $10 and we are canceling them at $10, there is another positive impact for the shareholder but not for the real estate investor.

How much could an investor gain in a best-case scenario if he bought shares when they stood at $4 or $5 and used them now for the offer?

This depends on several factors, at what price you bought your shares, how long you have held them, what is your borrowing cost. But if you buy shares today and your borrowing cost is very low and you wait on these shares and then execute the program, these shares will probably be at a higher price a year from now and you will even get another benefit. You get a bonus of 10% on the price of your shares and you get a 15% discount on the land. The program is also telling you as a shareholder that your shares are dearer to you now. You should hold your shares and not accept to sell them at these lower levels.

Is the offer open ended?

We have no time limit on it today but it is an offer that we will have to keep assessing as time goes by.

Is the offer giving a certain edge to large investors and large shareholders over small ones?

No, not at all. It is probably giving more edge to the small shareholders. Large shareholders have held on to their shares. The small shareholders have been panicking when their share prices have been going down. I think today they have no reason to panic. They are in a position to feel that the company is backing their shares.

Can you ensure that no information on your new program was leaked, to people who had already been negotiating with the company over buying a property?

We have our internal procedures to make sure that this is the case and I hope they work.

How would you respond to concerns that this city is a place where insider trading and conflicts of interest between ownership and management are common?

I believe our internal procedures are working as far as confidentiality and as far as transparency. We have shareholders all over the world. We have to ensure that we are not only playing by the rules in this country but by global standards.

What about allegations reported by some Beirut media about controversies in your general assembly on June 21?

We answered that. The auditors obviously never said anything [of the sort which was reported]. No shareholders, including those who stood up and screamed for other reasons, said such things in the assembly. Where did this reporter come up with those allegations? We have no idea. In fact the owner of the newspaper also doesn’t know where these allegations came from.

Can you comment on expressions of discontent at your general assembly?

You have to evaluate this discontent. If it is coming from a shareholder who is concerned about the interest of the company, I definitely take it seriously, but if it is criticism coming from troublemakers or people who have disputes with the company, this is negative for the other shareholders who have real concerns and [who risk] not having these concerns heard.

Could you give examples for real concerns?

There are many concerns that shareholders can voice and they do voice them. One of the concerns is why we aren’t paying dividends. This is a catch-22 situation; if we pay dividends we will not have enough cash to move ahead with the development process. If we pay dividends, some shareholders will be happy because it is an immediate benefit but in a way it will be taken away from future potential benefits.

In the long term, where do you see Solidere obtaining revenues?

From property management. Key to that are the Souks. Are local retailers getting twitchy over the delays and planting their flags elsewhere?

I am not concerned that this will happen. In fact, we have every indication that retailers understand the importance of this location very well. I would have liked to have completed this project by now, but we are about to start now, within the next couple of weeks. So within the next 18 months, we will have it up.

What do you say to developers who say the price of land makes it almost impossible for them to make money?

I tell them there are others who do and continue to come and buy land. This is what is happening. I am sure that also in Saifi and other non-waterfront residential areas, projects are making money.

And developers who are buying land at $1200 BUA and have to sell at roughly $3,000, can achieve that now?

Absolutely.

July 1, 2004 0 comments
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Q&A: Jerome Bon

by June 1, 2004
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Jerome Bon, professor of marketing at France’s premier Business school ESCP-EAP, has been an ESA intermittent teacher and advisor since the two institutions joined forces with the central bank of Lebanon in 1996. In an interview with EXECUTIVE, Bon talks about the new two-year masters in management program at ESA and ESCP-EAP, set to begin this fall, which he hopes will give students the opportunity live, work and study in France and Lebanon, and work against the dynamic of the brain drain.

Explain the linkage between ESA and ESCP-EAP and how the new masters in management program builds on that relationship.

Bon: ESA was originally created with the help of ESCP-EAP. Most of the courses are delivered here by faculty from ECABAB, exclusively in Lebanon. Now though, we are launching a new joint program – a two-year masters in management for students. In this program, the students will be in a position to spend one year in Lebanon and one year in France. In the final six months of the program Lebanese students at ESA will most likely also study with French students who will come here [to Lebanon] for a semester. Additionally, the students will be registered as students from both institutions and receive a duel masters in management degree from both.

What kind of students are you interested in attracting?

Bon: We are trying to have students who are deeply concerned with the development of their country, but completely aware of the importance of international experience to help their country to develop. We want to see students who want to take advantages of internship opportunities in France or in Europe so that they can get some benchmarks of how it goes in companies in Europe. One of the problems of training is to teach how it goes in real life, being able to benchmark how it goes in different countries. What we think is that education is not only the course content. Education is also a process and the process is what you are living, what you experience during your education period. A lot of what you experience is with the other students so the composition, the mix is something that is very important in the training process.

How does the program fit in with global economic trends?

Bon: It is not that we think the headquarters of companies are more and more composed of people from different companies, companies themselves are increasingly operating in different countries with different cultures so we think we are at a very important point now to offer such programs to students – to enable them to really understand other cultures and be able to work with other cultures. Otherwise you may have a very good knowledge of techniques etc. but your ability to work with other people is very poor.

How would you describe the capacity of Lebanese students?

Bon: This comes back to the real objective of this program – to see whether there are cultural differences in the way that students work and if we can enrich the program through those differences. I would say that there is a very strong oral communication capacity for Lebanese students. They can talk very easily, they can be very convincing and tenacious when they discuss. They may lack some scientific rigor in their reasoning – i.e., not always trying to go deep into a problem to solve it. Maybe they don’t always test the hypothesis that they have in their mind. For example, if I take German students, they go very, very deep into the details. They do not always communicate very easily however. So I think that globally, when you mix people from different countries and when they work in the same group, they will see that in each way, in each culture, while there is not someone who is right or better than the other, they can absorb part of what is good in each culture. This mix is probably better, more compatible, with the ways in which organizations work right now. What we try to do is not to try to develop mimetical cultures. We want people to keep their culture, but to be able to understand and accept other ways of working.

What do you see the new programs role and responsibility, if any, in Lebanon’s on-going exodus of talented individuals?

Bon: This is a question not only for Lebanon. We are working with Morocco and India, for example. We want people to keep their link with their country and to experience a link with other countries. Our objective then is to have a network of people, national people, working in different countries and being well connected so they can develop activities. So through that, our objective is not to [encourage the] “brain drain” so people can work in France. Our objective is for people to know French people, they will know the French system, sufficiently that they will know how to work with France in their future projects. What we want to give them is a knowledge network that will help them to develop activities in Lebanon with France, with Europe, lets say. With a rather tight employment market in Europe right now, a growing number of Moroccans are coming back to Morocco, a growing number of Indians are going back to India, despite lower salaries, because they want to keep on living in their countries. We have done this program precisely to enable students to experience this abroad experience without being kept from the Lebanese environment. So to answer your question, the design of this kind of program is done precisely to keep the contact with the country and to keep them in the country.

How will you judge the success of the program?

Bon: Our final evaluation will be if we have alumnae groups with people from all over the world…. If we want that, then we have to have people stay in their own country. For our school, it is very important. We cannot limit our role to just teaching. We have a responsibility that is more than that. Our customers are not only our students, they are also the countries where we are located. Our success then will also be the success of Lebanon.

June 1, 2004 0 comments
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Q&A: Ziyad Baroud

by May 1, 2004
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Municipal finance is a cornerstone of successful decentralization in government. In light of ongoing discussions over proposed new legislation and the municipal elections this month, EXECUTIVE talked to attorney Ziyad Baroud about the state of municipal finance and municipal reform proposals. Baroud, who teaches municipal law at St. Joseph University and is a consultant with the UNDP, is also an activist for municipal reform and development.

How important is the finance issue to Lebanon’s municipalities?

The law of 1977 gave the municipalities wide jurisdiction in governing their local affairs. If the municipalities do not have the money needed to implement projects, which are their prerogatives under the law, they cannot fulfill their mandates.

What difficulties hamper the financial aspect of municipal governance?

The problems begin with size. Small municipalities do not have enough resources. Another problem is that some of the funding that is in principle due the municipalities via the central government has not been distributed equally and regularly. Going into details, municipalities have two sources of income. First, taxes from residents on properties, shops etc, are payable to the municipalities. The other source is a share of phone and electricity bills and certain customs duties. This money goes into the Independent Municipal Fund (IMF), which was created in 1977. This fund is supposed to serve all municipalities but mainly to finance small municipalities, which do not have enough income from direct taxes.

How much money are we talking about here?

The total amount collected in this fund between 1997 and 2001 was LL890 billion, or almost $600 million. This is a rather large amount. There are criteria for distributing moneys in the fund. But money was not paid out regularly, and distribution was based on political considerations. Take for instance one QADA where you have 40 municipalities and another where you have 26. In the first one, LL4.7 billion were paid in 2001; in the latter, LL19.6 billion were paid. Revenues in the IMF need to be distributed equally and regularly.

If properly distributed, would the funds make municipalities more effective?

They would be sufficient only for large municipalities. Before the 1998 elections, we had around 750 municipalities. Today, we have around 900, in a country of 10,000km2; so an average of one municipality per 11km2, which is very small. So you see a need for a redrawing of the municipal map?

Yes. We need to resize municipalities. Jordan restructured its municipalities two years ago. They have around 240 municipalities today, and Jordan is larger than Lebanon.

What activities fall under the financial authority of the municipalities?

86% of municipal expenditures go to services. Some municipalities undertake infrastructure projects because they have the financial support to do so, often from international donors. Others do not implement infrastructure projects, because they don’t have the means. It is not the nature of the project that influences decisions, but the availability of funds

Do municipalities have the resources to hire employees?

Unfortunately, municipalities have been forbidden from hiring anybody since the Council of Ministers decided in the early 1990s to impose a hiring freeze in the public administration. We have municipalities that are without civil servants and qualified employees. Instead, elected council members and municipality presidents do the jobs if they are qualified. Plus, employees are underpaid. Wages in the municipalities are worse than elsewhere in the public sector.

What is the total employee count on the municipal level?

We do not have these figures because there are no centralized data. Employee numbers vary from 2,500 in Beirut to zero in some municipalities. All municipalities need more employees.

Are municipal budgets published?

Not by virtue of the law. Some municipalities publish their figures, but as far as I know, not more than five are doing so. A new draft law should oblige municipalities to publish their budgets so that citizens can be aware of how funds are being used. Municipal funds are public funds.

Are there audit procedures for municipal budgets?

Yes, municipalities are not free to do whatever they please. We have financial controls, judicial controls, and controls by citizens. One of the positive points in the new draft law involves auditing. However, we need to rethink how the auditing of municipalities can be conducted without having the central government directly involved.

Is implementation of financial autonomy more important than elections for building good municipalities?

No. It is very important to address both political and financial issues. Municipalities are a good exercise in democracy, transparency and accountability. What makes the financial issue so important is that you cannot give municipalities a range of prerogatives but deny them the means to accomplish them.

May 1, 2004 0 comments
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Q&A: Abdul Khaleq Raouf Khalil

by May 1, 2004
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The General Arab Insurance Federation (GAIF) is the umbrella organization for the insurance industry in Arab countries. Based in Cairo, Egypt, GAIF biannually convenes the regional sector’s landmark conferences. This year, the event is taking place in Beirut from May 10 to 12, and prepared by a committee chaired by Abraham Matossian, president of the Lebanese insurance association, ACAL. The Secretary General of GAIF, Abdul Khaleq Raouf Khalil, gave EXECUTIVE an interview explaining the role and positions of the Federation.


How many companies are members in the GAIF?

A: The Federation is an international Arab body, comprising 237 insurance and reinsurance companies, associations and national insurance unions. GAIF essentially aims to support relations among Arab insurance bodies and markets in order to promote cooperation among them and coordinate their various activities, with the aims of protecting member interests and developing the insurance sector in the Arab region.

By what methods are you pursuing those aims?

A: We concentrate our activities on four areas and main objectives. These areas are a) achieving economic integration among insurance markets in Arab countries; b) developing the insurance sector in the Arab region; c) supporting and developing business opportunities and activities of Federation members; and d) enhancing cooperation between the Federation and other Arab and international organizations and bodies. For each of these areas, we have identified a set of measures that we view as instrumental in furthering our aims.

Could you give us some examples of specific activities?

A: In seeking to achieve economic integration among Arab insurance markets, our activities include examining insurance legislations and systems in Arab countries, cooperation with Federation members in establishment of joint insurance companies, as well as cooperation in matters that could promote investment policies in insurance and reinsurance. We also strive to promote the Arab insurance market as a unified entity on the international scene. For developing our region’s insurance sector and dealing with the issues pertaining to Arab insurance activities, we are, among other things, engaged in forming both permanent and temporary expert technical committees and in establishing service and GAIF-affiliated consultancy centers that offer members technical, legal, and investment consultancy.

You are also committed to the education of Human Resources in the region?

A: Yes. We regard it as important to improve the technical and educational levels of employees in Arab insurance markets by exchanging expertise and information. To this end, we support the establishment of specialized insurance centers and institutes, along with the implementation of training programs and the organization of insurance conferences and seminars.

What role does Arabicizing of insurance language play in your efforts to integrate the sector?

A: Human and general resources available in Arab insurance markets must be employed to the greatest benefit. Arabicizing the insurance language means creating a unified terminology in Arabic and setting unified templates for insurance contracts, reinsurance agreements and other documents. This would help greatly to coordinate work among insurance companies in Arab countries.

How does GAIF contribute to the creation of new business opportunities for member companies?

A: Possibilities in this area begin with the publication of magazines and books that contribute to spreading awareness and integrated scientific thought in the insurance community and range to provision of arbitration and conflict mediation services for members. Conducting studies on the sector’s problems, collection and dissemination of statistics and information and regular expert meetings also are tools in developing the environment for new business growth for Federation members.

And what do you do to further the cooperation between GAIF and other Arab and international bodies?

A: We participate in international conferences and seminars related to insurance where we also coordinate the presence of Federation members by organizing exhibition involvement and stands. We extend a standing invitation to Arab organizations and bodies that are interested in insurance to attend our Federation’s conferences.

GAIF members will hold their 25th general conference this month in Beirut. Do you expect the event to mark a turning point for Arab insurance companies?

A: Beirut is preparing to host the 25th GAIF conference under the theme of “Arab Insurance: A Future Outlook.” We hope the conference will issue resolutions and recommendations that can be applied and would positively reflect on the Arab insurance sector.

What is the GAIF position on the role of insurance in developing Arab societies?

A: The Arab insurance industry plays an important role in supporting our national economies by providing insurance protection to individuals and institutions. This industry is also a main pillar of society as it gathers capital collected from insurance premiums and invests that capital in various economic areas, which reflects positively on the socio-economic level.

 

Mr. Khalil graciously granted this interview to EXECUTIVE via electronic transmission in Arabic, from which editorial staff extracted the English translation.
 

May 1, 2004 0 comments
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Business

Q&A Samih Barbir

by April 1, 2004
written by

Lebanon’s Investment Development Authority, IDAL, figures twofold in the task of promoting the national agriculture and agro-industry sectors. Under the 2001 investment law 360, the agency offers incentives to investments into strategic sectors of the economy, including agriculture and agro-industry. For the past three years, the IDAL mandate also extended to supporting agricultural exports through the Export Plus program offering farmers transportation subsidies and quality certification for produce. In February 2004, IDAL and the nation’s agro-industrialists signed a collaboration for an Agro Market Access Program (Agromap). EXECUTIVE talked to IDAL chairman and managing director, Samih Barbir, about the agency’s achievements and plans in relation to the agro sector.

Where does IDAL set its priorities in supporting agriculture and agro-industry?

In Lebanon, we don’t have large volumes in agricultural production. Therefore, our main priority is quality. The successful experience of Export Plus of having two international firms implementing quality control has proven to be a very important factor in marketing Lebanese agricultural products abroad.

When you discuss Export Plus as a success story, where are the highlights, and what are the areas still in need for development?

The level of success is simply the fact that we witnessed an increase in our exports. In the first year, it was a big increase of 15%, in the second year, 5%, and last year, it was stabilizing. But one has to look at it in a different way. Before the launch of Export Plus, we were on a downward slope. Exports were dropping and the whole sector was suffering a lot, due to many problems. Maintaining a stable level of approximately 360,000 tons in exports per year is a success in itself. We experienced some additional difficulties, such as some bad weather hitting Lebanon over the last two years, the devaluation of the currency in Turkey and the war in Iraq, all of which affected our export markets.

In your statistics, 99% of agricultural exports went to GCC countries, plus Syria and Jordan. What can IDAL do to improve agro exports across other markets?

The GCC are the natural market. The Iraqi market is a new one that we are trying to enter right now. But our main objective is to enter European markets. We are doing a lot of contact work with all the embassies here, especially Eastern European ones. As a first target, we are trying to enter those countries that have the least obstacles.

Your 2003 report states that about 5% of agricultural products destined for exports to Arab countries were rejected in quality inspections. Would the same quality requirements apply to produce destined for Europe?

Exports to Europe would have to meet higher and different quality requirements. They have some very strict controls on pesticide residues and other issues that are not required by Arab countries. That is why we have to inform those farmers prior to starting to control their products.

On the other side of the coin, IDAL has the mission to draw in investments. How is this progressing as far as attracting agricultural investors?

We offer the same incentives to projects in all the sectors listed in the [Investment Development] law, as are tourism, ICT, agro-industry, industry in general and agriculture. The only difference is that agricultural projects have the lowest minimum investment requirements to qualify for incentives.

How have agricultural and agro-industry projects fared in terms of attracting investors?

We have two agro-industry projects that are being processed under the one-stop-shop service. The law is still relatively new and the incentives are new. It takes some time to let people know about it. We are planning to do a campaign by the middle of this year, to promote those incentives. But definitely, compared to tourism, it is still very shy.

Can you name an amount for the value of one of those two projects, to give an idea of the magnitude?

The project that has progressed further is for $4.3 million. Don’t expect to get big figures in this industry.

How much funding for agricultural export promotion do you have at your disposal?

The Export Plus program was approved for LL100 billion spread over the four years, 2001 to 2004.

How much have you dispersed to date?

A bit less than LL30 billion each year. We can handle the program until the end of this year. We might need some more [funding] but there is no problem in that. Theoretically, it should be covered.

Under the new Agromap project, you are sponsoring participation of Lebanese exhibitors in trade shows in Beirut, Paris, and New York. How does this interlace with the promotion of agricultural exports under Export Plus, where you described the strongest markets and prospects as being in the Gulf and Eastern Europe?

With Agromap, we are targeting a different sector, agro-industry, and are promoting Lebanese agro-industry products. We are doing this as a pilot project in 2004 and I wanted to reach the Arab, European and North American markets, to see what the impact would be. We will evaluate each event right afterwards and depending on those three events, we could consider going into another round with a bigger budget in 2005.

Did you allocate equally to each fair, Horeca in Beirut, the Fancy Food Show in New York, and Sial in Paris?

Between the US and France, there will be equal space. Lebanon will be bigger. Here, much more people will come because they do not have the transportation issue. Horeca also accounts for biggest amount in the budget.

How was the response from the industry?

The first results are very good. For Horeca, we have about 35 industrialists and for the Fancy Food Show about 15. We are over-subscribed but I wouldn’t call that a problem. We will have the luxury to choose the best products to represent Lebanon abroad.

What will you provide to the companies that qualify for participation?

We will have a Lebanese pavilion, and we will cover 100% of the rent and the stand decorations. Exhibitors will have to cover their transportation and other costs.
 

April 1, 2004 0 comments
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